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Federal Reserve Bank of St. Louis
VOLUME 1
PROCEEDINGS
FEDERAL
AND
OF A
RESERVE
CHAIRMEN
AGENTS
CONFERENCE
BOARD
A N D
O F GOVERNORS
F E D E R A L
O F THE FEDERAL
WITH T H E
RESERVE
RESERVE BANKS
TREASURY BUILDING
W A S H I N G T O N , D-C.
N O V E M B E R 12-16. 1923
WALTER S . COX
SHORTHAND REPORTER
COLUMBIAN BUILDING
WASHINGTON, D . C .
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Federal Reserve Bank of St. Louis
WITH T H E FEDERAL
T
COVRNORS
R
E
E
N A N D PHDERAL RESERVE
S
AGENTS
R
U
i vt
T
t e
S a
ave i e e e
O F T H E FEDERAL RESIRVS
Washington,
Londey, November 12, 1925.
The C o n f e r s n e e
Weceral
o f >
Boar
Reserve
with the
Reserve A g e n t s
t o order
kg w e s c a l l e d
i n the Federa
Bosrd Board Room, Treesury Builcing, VWeshington,
» 2 t 1 0 ofclock s , m .
o n ionday, November 2 . f o e s .
PREOENT:
Hon,
G
o
v
e
r
n
o
m
™
e f un
. Cunningham, MHe m b e r Federal E Reserve Board,
James, Member Federal Reserve Board.
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Federal Reserve Bank of St. Louis
min Strong, Governor, Fec tera]
New Y o r k ,
Governor,
He
fcncher, Governor, Fecersl R
Cleveland,
George J , Seay, Governor, Federal
Richmond,
P. Wellborn, Governor,
Atlanta,
B. McDougal, Governor,
Ss, O v e r s ,
Young, Governor,
J. Bailey, Governor, Fecaerse
sas City.
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Federal Reserve Bank of St. Louis
Governor, Federel Resorve B a n k o f
3an Frencisco,
Perrin, Cheirman
&
Hederal
Reserve B a n k o e
Cheirnen 2 n d e d e
Federal Reserve Bonk o f Now
Iwe
A u s t i n ,
Federsl
Agent,
Cnairmen a n d F e dcral Reserve
R Reserve
ese
Bank o f Philecelphia,
W. Hoxton, Cheirmen
es&
-srve B a n k o f Atlante,
eer ten G e
Federal Reserve
St, Louis,
Pederal Reserve Agent,
Federe 1 Reserve Bank o f Clevelend,
L. P e Talley, C h a i r m a n a n e
Federal Reserve B a n k o f D e lles,
Me Le MeGluro, Chairman and Federal Reserve Agent,
Federal Rogcrve B a n k o f Kansas Citye
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Federal Reserve Bank of St. Louis
Harrison, v e p u t y G o v e r n o r ,
New York,
Governors,
4g,
wit
P
S .
Ua
Z a n
c t Gy oi
Sine
Gentlemen,
re t o congratulate t h e Governors
secomplishments
retulete you,
ever congrstulsates
ecoreal Reserve System, 3 n d I w m t t o take this
to. very thet rule.
sccom
usht a b o u t
cooperation
fast mich o f t h e critiis
sl R e s e r v e
Bosrd
snd
st t h e beginning o f
forgotten, elthough t h e y heve n o t b e e n i n meny i n s
generous snough t o commend e s yet, b u t I believe t h e
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Federal Reserve Bank of St. Louis
cour
bry
iL
ha t h e e y
S, ir na e e s
hue h i s t o r y o f
bes a
n
t h oe t
i
n
i
b
CRS
@
pYenco
e r oacl
c
t
T om A
y ths
ast, e r e s u c h s s t o
anys
OLIN
J
reTRS
i n freming 6
s ta n e g A y
yrom n o w o n
g
n
year.
i
m
: Lo] h
o/caeen7
See r oa e t
a
v
e soms
solves between n o w e n d next July, s n c I hop:
of this system will g o
purpose 3 s
I do not want to make 3 spec ch t o you g entlemen,
I simply vant t o cell your
cooperstion
tis
fect t n a t
of
plece here b y ir. Snyder, o f
New York,
m d I
want t o t e l l y o u h o w ir, S n y d e r c o m e
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Federal Reserve Bank of St. Louis
im N e w
Snyder's r o o m
cure
from =P. suyas
T
t was veryinteresting t o
I
s |
sting along lines o f this
cortsinly ought t o b s intoresting t o y o u Governors
to come over here t h i s morning e n d ¢scive
these charts,
e n d t h e purposes f o r vinic h
Hr, s n y c e r ?
Governor Crissinger, s n d gentlemen, I
sure y o u t h a t w e s r e v e r y a e e p l y o b l i g e d
us, t o c o m e o v e r :
the bast thing I
t o you for
s h o w y o u o u r n e w baby.
r
E
can G o will b e t o tell y o u very
t ond then, i f there a r e s n
interest, I
will b e gied t o answer then
t h e t wey t h a n
probably c o n c l u d e t h s metter m o r s q u i c k l y
|
u
v
£
in a n y o t h e r way.
a
r
e
s
f s m i l i e r with the
way i n which, f o r exanple,
al Reserve Boar
t gfo_ t h e wholesale commodities,
n
o
w
staples 1
tion o f over f o u r hundred conmodities,
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Federal Reserve Bank of St. Louis
7
ton, wheat, copper, c o r n end s o forth t o jack knives a n d
T e k i n g a
o
u cen think of.
thimbles, e v e r y t h i n : y
like t h a t is,
i n itself, @
very
very g o o d means
but the c a s e v e r y w e l l t h a t y o u s h o u l d
weight t o ths price o f ‘ s u c h things’
example,
corn, cotton s n c other
t o the great s t a p l e 2
of v a l u e
things Arunning into the billions o f dollars.
S09 the modern indices o f price, f o r example,
: m
|
thet i s , w e jghted e c c o r d i n g t o
reletive value o f t h e totel product.
F o r exsmple, c o r n
msy r u n u p t o two s n d 2 helf billion i n value,
\.a
product m s y b e only t w o e n d e nealf million,
m i snother
s o you would
t those according t o their reletive value.
to say, y o u w o u l d simply tale
ply thet o u t b y the welght chosen.
whet w e had i n mind
was t o d o this;
w e hed verious indices o f t r a c e pr duce
tion slong various lines, b u t i n the ettempt t o cover
the whols ‘fall we h a d heretofore found i t simost impossible, o w i n g t o t h e l e c k o f m a t e r i a l
f a w h e t y o u mignt
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Federal Reserve Bank of St. Louis
8
thet is, t h e vast volume
iL
r wWaieh, u p t o
eccurate figures
whstever.
S i n e s thet work w e s insugureted b y the
search bureau o f this Boarc,
we
ssriets f o r reteil o s well a s wholesale
mumber o f other things
A l o n g with thet
.g covelopment hes c o m s sbout. T h e r e
ry outburst o f intsrest i n
result
thst
w e neve
curious things liks, f o r exemple, l i f e inane electric power t h e t w e can put
tnet w e have.
l,wes t o try
s e m p l i n g trom
industry i n the country.
O f seur
astronomical knowledge,
it w o u l d m
s é6xchanged.
“ ©
the
ave a very goor.
ot n e w Y o r k
bank ‘oledrings outside fin provious Jeys, but of course
u p snd dow,
the moment your price levels begin t o swing
idea o f
j
years, a1li/ rele tive
ss they have i n the lest s i x o r sicnt
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Federal Reserve Bank of St. Louis
9
me o f quentitys. cdisaypsars
I
f your pritss level
values e r e going t o double e n d your
wikl couble, w i t h n o particuler
cusntity o f goods o n d services ¢exproblem was h o w totake t h e cotual
Goller volves i n which many o f these items sre expressed,
end c o m p a r e t h o s e w i t h t h s p u r e l y q u a n t i t a t i v e f i g u r e s
thet w e heve i n other l i m s .
finc a good index that would :
a t e
in the cost end price levels anc 4
by t h e t index, e n d e
a
a
}
wnet ¥
Very roughly s n d briefly,
p
was t o t r y t o
i
t h e change
1 9 the sctuel figures
perfect e x e m p l e o f s u c h a n i n d s x i s
%
buildins p e r m i t s , f o r b u i l d i n g c o n s truction,.
R A L
slues, e n d vith thege
from @ll over t h e country
very good figures e s t o veges e n c building material prices,
a Gombining those i n the roportions e t which they go,
on t h e sverage, i n t o t h e sverage builcing, a b o u t 5 5 t o 45,
we have s very good i n g e x of builcing costs. A n d w e
can t a k e t h e dollar v a l u : s
reported e a c h m o n t h f o r
srest cities e n d get out o f thet what y o u
might cell 2 volumetric o r guantitative incex;
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Federal Reserve Bank of St. Louis
LO
something t h a t would relate t o the
so forth.
the next problem w a s t o take e l l this hetsrothet w e had s n d weignt i t
exactly a s
t h e price. i n a i c
_Jhere w e had t o haves recourss,
a r s weicshted up,
i n t h e seme wey, t o
the dollar vslues, s a d while there w a s some little dirri-
culty i n thet, nevertheless
w e seem t o have satisfied
number o f those w h o h a g o n e over i t pretty carefully,
thet t h e weishtings t h a t w e have used e r e feirly logical,
me r e s t o f
e S B ! 1
n
large
st s/nunber o f items l i k e :
5
thet. w a e r s y o u
velg g
becomes
less important.
wholesale A n d i c s s
or T a s
o f t h e Bureau
cimpls a r i t h m e t i c a l z v e r a g e o f t h e f o u r h u n d r e d
very m i c h f r o m t h e w e l ”
cancel o u t 3 1 1 o f t h e little eccentricitiss.
same w a y h e r e ( i n c i c a t i n g ) , e l t h o u g h
w e have
weicated index according
arithmetic sverseg n i g : s w i n g l i t t l e more widely,
but w e woulc have t h e sans
g e
0 } jie
1 6 wouldn't m a k e
aan /
e e :
e e
b
e |
mueh difference. /
R
P
i
o
a
Novertheless,
n
, j
~
~
w e have spent weeks cond
4
weeks, literally, o v e r t h e p r o b l e m f
o how t o weight these
up, P l a c i n g t h e m o n o a g a i n s t a n o t h e r
and compared.
t o s e e h o w t h e y tallied
F o r cxauample, t a k e merchandise carloudings,
for which w e have, o f coursc, t h e numbers o f cars.
T h a t
compares p r o t t y w e l l w i t h t h e l i n o o f W h o l e s a l e t r a d e .
O
f
course there m a y b e differences, b u t i n the long r a n they
run pretty well together (indicating).
A n d s o we have
gone over it, i t e m b y item, checking e v e r y one t o got a
eonsistont a n d sesmingly logical line, a t Least.
W e have
tricd v e r y roughly t o group u p all these different series,
in f i v e g e n e r a l d i v i s i o n s .
First o f all, w e have t h e general productive group,
which includes, r a t h e r a r b i t r a r i l y , t u i l d i n g permits,
and
motor G a r s , a n d h a v e c h e c k e d t h a t b y a n i n d e x o f e m p l o y m e n t
in factories (indicating);
w é have given primary distribu-
tion figures, i m p o r t s a n d exports, w h o l c s a l e t r a d e a n d s o on,
and then distribution t o the conswmer, w h i c h i s very largely
retail trade (indicating o n chart ).
I n that we have
included t h e very small weights o f life insurance, amounts
spent o n amusements,
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
12
esiven t h a t s n i n c e x (incdicsting)
e n d then w e
index o f general business ectivity,
which
are n o t s o valusble e s a source o f informetion
various other small items, l i k e postal r e s
we finally insexec the
power, s n d so forth, i
representing a c t i v i t y
iss;
i n speculation, °
ing
so forth,
T h i s group/is very rough s n d i s not int ended
to b e anything more t h a n thet.
B u t you ¥ i
ibs Meo
lines r u n alweys almost/strictly c o m s rs
anc combining all of these i s 3
black line of
cell t h e volume o f trade, w h i c h
i s an imex o f b u
activity,
Precisely
proposition.
l s t u s take t h e physician w h o
he puts his hend upon his petient's
her t o e r e
i s fever t h e r e
gree o f
thermometer, which will securately register
ture, a n d that elone will tell h i m 1she ther
soing u p o r g o i n g down,
ow
s n d w h e n i t reaches
end i t will also t e l l him, i n cases l i k e typhoi-,
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Federal Reserve Bank of St. Louis
hermomets
every f o r m o r
n
are trying t o get
o
m
e
Now, f o r purposes o f compsrison,
t
e
r o f businsss.
w e heave p u t o n this
chart t w o other lire s, ons represe:ting t h e group o f
b any
totel procuctive sctivity, 20¢, test ° there s h o u l c e
line
contusion, that/involves various things, consumers!
sers' goods, motor cers, building permits---
oe,
of factory procauction,
index o f e l l kinds o f productive sctivitys, B u t
a)
compare with the green line,
the line does h o t
which i s mainly reteil r
Cistribution <irect t o
the consumer;
shoulé n o t b e compsred
comperison.
I f w e wish t o
with
the green line, w e shoulda
consumers! goods, that i s to
into consumption.
T
o cut i t short, t n e only other
y o u will
line w e heve shown there i s t h e yellow line thet
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Federal Reserve Bank of St. Louis
ry fsintly running i n e n d out o f t h e white.
mnough those h e d b e s
i n e D U G Eogetner.
|
in'sx o f b a n k < e b i t s
end s o on, e n d w e heve ensl
Leo
ems oypen pues ee
ifty p e r c e n t higher,
o n the
2 IniGln- by.bhe
yellow line,
ourselves
t o s¢eé
our bleck l i z , v o l u m e o f business.
we could have corrected s little
cating) w e should heve hac s n
and w e c o u l d h a v e leicd i t
we c o u l d o n l y csuess &
take t h e t c l o s e n e s s
t h e , weights.
e a r e goings t o
o f fit e n d c a r r y b a c k t h e l i n e f o r
forty years i n bank cleariigs,
S o a s t o get a n inuex snd.
messure o f business, s a y from 1
that swing, . : I
W
can tell y o u
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Federal Reserve Bank of St. Louis
extreorcinery t h i n s
t
1 s
h
e bank
73 know, i : just about t i
limit ebove s n d below t h e normsl line.
Now, i f I could just s a y one thing sbout thet ssered
wore. “normvsl", - It means nothing more then whet is
ususlly mesnt b y t h e expression.
gaman who, y o u think,
F o r exsmpls, y o u s s e
i s about f o r t y yeers old?
Because the sverege msn of forty looks about that ose,
You take s horse a n d open his mouth s n d
look e t his teeth and say he i s sbout s o old,
4s about t h e normal thing, t h e t a t zbout
his teeth would l o o k about t h e t way.
thet toes. o f foe we boy. 2
n g everything,
curious little example o f 1
Y o u
o n d here
of
e
foilures f o r s number o f years t o the number o f
in businsss---
Do you mesn bank failures?
lim. SHyoer: :
Mis i s s h o w n f o r a
S o r e s R i g s } T i s n k you, u r . Jay.
psriod
o f 8s :
H
e
r
e is.one
cent
per Y o r seach year t h r o u g h o u t t h i s p e r t o d o f s i x t y years.
£
Now, 3y o u w o u l d t h i n k t h e t t h e t w o s f i t t e d t o r t h a t s i o n s
Fd
e s ons
ge; b u t w e have t s k e n t h a t
thet t h e t w e s t h e sverage;
16
hundred, a n d while actually i t i s nothing o f t h e sort,
we s i m p l y t o o k o n e p e r c e n t a n d c o m p l e t e d t h e t h i n g u p
and down, b e c a u s e t h e l i n e r u n g f r o m o n e p e r c e n t d o w n t o
about o n e h a l f p e r cent, a n d t h a t i s a n actual r e c o r d o f
the percentage o f firms failing
i n business f r o m year t o
year throughout half a century o r more.
i t l a a very
interesting little b i t o f psychology, b u t that i s a normal
facte- T h a t i s something where y o u simply swing about
an average p e r c e n t a g e .
Now, w h e n w e come t o such things a s production, a n d
so forth,
w e are u p against ahother thing, a n d that i s
the i t e m o f growthe
example,
T h a t i s perfectly illustrated, f o r
i n coal production.
T h e country's population
has g r o w n a b o u t t w o p e r c e n t a
year, f o r say, t h e l a s t
twenty years, a n d the growth o f coal production h a d gone
on i n t h e s a m e w a y a s t h e i n c r e a s e o f population.
S o we
f population a n d t h e line
simply t a k e t h a t l i n e o f g r o w t h o
of growth o f production a n d strike a n average through them,
ropresented b y that smooth line a n d s a y that that i s a
normal rate o f growth.
I t means nothing m r e ;
i t is
just t h e a b s o l u t e f a c t , t h a t t h e p o p u l a t i o n h a s g r o w n
for t h i r t y o r f o r t y y e a r s a t a b o u t t w o p e r c e n t p e r annum,
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
LY
more i n the beginning o n d 9 little less i n leter
you g e t 3 slowly curving line, 2
cimin-
w h e n you
nhed rate o f srowth. ( I n c i c a t i n g o n chart)
the cosl production, t h a t hss grown much more rapidly
here also
i
t rote
cherecter:sc
get/s
you
the populetion, o n d
srowth,
#
t o tasks l o n g
2 R a v e f o n e i s simply
cevisations,
in other words,
i
t hé
s9
slow curves.
‘~Tast we do when w e heve g o t s good fit, i s simply t o take
the ccviations from thst line # t eny siven point end w e
cell thet 6 hundred (iniicating
s n a -: t a k e t h e percent-
a0 .Of teen e e c n e t
In other words, supsose y o u h e d a cosl production o f
, tour hundred million tons 9 s t h e exnected thing f o
s o thet w e would
fown t o three hundred million,
procuction f o r the yesr w e s seventy-five p e r
nected normsl rate o f srowth.
o:
items h a s h a d i t s c h a r e c t e r i s t i c r e t e
eg closely s s w e c a n get it.
F o r esch year
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Federal Reserve Bank of St. Louis
18
month t h e e x p e c t e a n o r m e l h e s b e e n t e k e n s t 9
hundred e n d
fect compsred vith thet, wnethser i t i s
seve
a
g
o
r a
hundreé o n d fifty o r s o m e o t h e r percesnt-
of these things h a v e given u s 8 grest czal
trouble.
Dr. Stewart knows v e r y vell h o w difficult.it would
bs, f o r exemple, t o get s t the cherscteris
“rowta far motor cers.
r e t e of
v e have fisures o n motor c a r
»rocuctiona r u n n i n g b a c k t w e n t y ysars,
e n d i f w e take a
ion
rate
charscteristic/up t o last year, w e would f i n d thet Product/
been growing e t 2 certain rate, s n d when w e teke that
8g normal w e fine thet this year i t hes been running
forty o r fifty p e r c e n t above a n y possible normsl a s comperea with a n y p w evious ysoar.
o f course, t n e t must b e
wrong, e n d i t i s very troublesome.
So w e have combined 2 l l o f thess Jifrerent things
into this sversge weigited line.
N o w , a s you sse (indi-
cating) t h e curious t h i n g w e s t h a t thse pcsk o f business
as w e heve meassurea i t
prices reachec their top,
4: the lest half o f 1919.
messurec
i t correctly,
b u s i - es Was going
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Federal Reserve Bank of St. Louis
so ing u p s t e n elmost unprscs snted rate
Another thing thet i s very striking i s thst this
spove a n d below j u s t sbout t h e
mentioned
navy, c n a t h a t s e m s
sné Sownness runs through bank clssarings back
-5 69n troece them: T h e r e f o r e ,
w e think thet this
roolly répresents somewhsore nesr thet normel l i n e
growth sbout which things fluctuete,.
Now, s s you will see, i f you Will compsre t h e red
vith t h e bleck line o r t h e green line, procuctive
.:
e
l
s
e
, ;
ectivity, includins building s n a overything# ves running
very, v o r y high,
N o w , i f w e hed taken t h s cnart, e s
=
cid slong i n here, e n d hed ssen n o v it wes going w e
fsel, 3 s though there must b e
something wrong with it, T h e t i s t o sey, i t went “fluey”™
when i t g o t u p there;
b u t i t nes c o m e
s c k In. culte- e n
sinezing wey, a s y o u s e e .
month o f August; S e p t e m b e r w i l l crop just uncer t h e line
October I
think vill b e sbout t n e
November.
In other words, business seems t o b e running n o w
very close t o normal; b u i l c i c e i s SELLE. very neevy,;
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Federal Reserve Bank of St. Louis
thet Line ap;
y neetybeck t o t h e line, s s you
ceting). I
heve tried t o b
there a r e a n y questions t h e t snyone vishes t o ask,”
be very glea t o snswer them.
any:
U e G I O N a, 2 T
a
Will hesr or. S t e w
Austin:
v
e anythine
t o ask,
C H L S .
H e v e y o u mace a n y c o m p a r i s o n w i t h t h e
n connection w i t h t h e s e f l u c t u a t i o n s ?
ip, Snycer: I
will l e t Governor Crissinger 3 1
Governor Crissinger;
N o , don't put i t on me.
Un, Snyaers G o v e r n o r Crissinger e n d ir. C a s
2 discussion o v e r t h e t b l a c k l i n e
m d Governor
see why w e couldn't make that
messure
o f credit.
with s o m e astonish-
ment
is &
e r s j
distribution
t o t h e consumer,
consicsring what wwwe know o f t h e actual volume o f distribution 2 9 messured b y such things e s car loadinss.
E e
understood y o u , t h e g r e e n l i n e i s mace i n c o m p e r i s o n w i t h
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Federal Reserve Bank of St. Louis
what y o u w o u l d h s v s e x p e c t e d
t o b e distributed;
variations f r o m
snyder: E x e c t l y , / t n e normsl rate o f growth i n
Svexry o n e o f t h o s e items,
es, chain s
a
one o f t h o s e t h e r e i s s
F o r example,
n
w e have cepart-
d those things,
charecteristic r a t e o f srowth,
Ie took t h e expsetsncy f o r each o n e t o get t h e incex
fi mires,
Governor Seay:
S o thet t h e actusl distribution t o
the consumer, notwithstanding i t hss reached the maximum
not t h e correct thing
g a r d , b u t w e should
Cistribution i n compsrison with »
egerad
on)
w e think ought
Is thet t h e
ig a normal rate o f growth o f
department s t o r e seles,
gececording t o t h e figures t h a t have
.
right, t h e n ;
s n d i f w e can get that curve
peen running f o r t h e lest s i x o r sight ysars o r more,
at, w h e t -
afi poscible w e get, /
the Cigtribution o f cepsrtment
store seles ought t o b e for this year, w h i c h would b e s o
much; n o w ,
v
e compsre that figure of"ought t o be”
with w h a t a c t u s l l y h e s heppened.
x
W
e simply t e e
the
normal expectancy s n d compare thet with the reality,
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Federal Reserve Bank of St. Louis
enificance o f the yellow
21 being s o far above t h ? produe-
Sor exemple,
(indiesting) y o u will remember, w e s
“OWN.
T h e l i n e o f p r o ucer:' g o o d s ( i n j i c e t i n g )
production o f fsctoriss,
little higher.
Wevy
Wo Y
o r sctual
mines e n d s o forth runs quite 4
T h i s line c
ent forms, ¢ n d y o u ought t o consice
b u i l d i n g per-
sna all o f that, i n thet connections s n c combining
ell, i t forms s
tir, W i l l s :
very small pert o f bank
t T s u ' t it. o e s e d s e 4 { t u s t i o n when.
*
pi Say
S e
the red
45 under t h e yellow line, instead o f t h e yollow
line?
I never thought o f thet, b u t I should
9 Cowbinetion o f s l l o f
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Federal Reserve Bank of St. Louis
ways r u n elons hend i n hend;
tie o b n e
ery n o t i c e a b l e t h e t
F
production gencrelly
OF swings v e r y wide )
trede n o t quite s o wide, s n d your retail
In other words, t n e consumer i s buying
goods slong pretty stesdily y e a r i n e n c yesr out, without
very fiuch' change,
ir, Snyder:
w
o
u
l
d like t o ssy t h e l l w e
these b i g wics swings,
s o to
argely t h e c i t y treds, outside o f seersetores s n d t h e mail ord-r stores s n d ' the. l i k e
the country trade w e csnnot g e t 2 good messure o f
except t h r o u g h t h e Atlentic &
things o f thet kind.
Pacific s t o r s s a n d s o m e
4.
“ h e t I mean is, here i s this enor-
mous p e r t o f t h e populstion, professional, “omesti
G o v e
ernment service, s n d other classes i. t h e small industries o f every kind t h e t 2
“ o i n g “ w i t h very much
less varistion, s o that i f I " .
put
L t t o ssy how much
the volume o f trade o f the country varied, I
wouldn't
think t h e t i t v e r i e d o v e r t e n p s r c e n t s b o v e n o r m a l
to
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
24
ten per cent below, e n d taking
g y i .
f a r m populstion e n d
S e y thirty; c o r e y o P F i t t y p e r c e n t - o f
the
popule tion, e n d I would s ¢ j o u l a n ' t b e more t h a n five
per cent ebove, c n c maybs
below.
kr. J a y s
Y o u think
then s n ectuel line?
iY, snyecers 2
s h e outside limita o
verietion.
De segs
T h e conclusion I
had srrived
the cistribution o f goods glready menufecturec, s n d
consumption o f gooas w e s s t L i t t l e ’ ere:
the present productive ectivity.
t
h
e
n
I s thet conclusion t o
be d r e w n f r o m y o u r r e n e r k s ?
ITshoulc s a y sppzerently i t w e s j u s t
the reverse, beceuse i t i s very remerksble thst while thet
line i n c l u c e s b u i l d i n g ectivitiess,
s n d whet w e call pure
chaser goods 3 n d ordinery consumption o f goods,
line f o r purchase o f good i n c l u d i n g p i g i r o
meinly-—
thet sort o f stuff t h e t soes into menufseturing
both of those (indicating) mede s
period there, b u t came d o m v e r y rapidly ( i
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Federal Reserve Bank of St. Louis
chart).
Governor sesy: N o t w i t n s t e n d i c
thet i s <
fallacious c o n c l u s i o n ?
I did not get you rigzat t h e first
time, then,
the
tir, Snydasr:
Governor 5esy:
T o e chart came down, b u t 2 %
T h i e t i s t h e point I
e m trying
o l s o maas 8
©
Bank clesrings
very Con-
cistribution c o m e 2 o m ?
w h b h would s e e m
‘erable C r o p there, y o u s e s (inJicating),
to b e a r o u t t h e t i c e a .
Governor Norris: I
would l i k e t o s k t h i s q u e s t i o n :
1
w a e n t thine Ther all o s
poe B o |
Do IT undirstand y o u correctly
q u e n t i t a t i v e u p s and.
the u p s a n c d o w n s r e p r e s e n t n o t
Gowns, b u t variations f r o m the expectsncy?
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Federal Reserve Bank of St. Louis
ie. “nyaer: E x a c t l y , percentages.
Governor Norris:
N o w , take the
tribution t o the consumer, c n d thet repressWNW
the inscription o n t h e left, 2 5 per c e n t o f t h e volume o f
trade;
t s k i n g t n s eg
2 s n d - 2 0
n
o f the 26 A s nec
Governor Norris:
D
é
e slone, w i t h
L j
f F the f o u r i t e m s
i n the
o those f o u r items make u p
Mr. cnyder:
Governor Norris:
N o w , that bein t h e fact, hesn't
there b e e n i n t h e l e s t fives y s a r s a
very considerable
growth i n the business o f t h e depsrtment e n d chain stores
and mail order hours e t the expense o f t h e neighborhood
store, s o that isn't i t possible that distribution t o
the consumer i s really shown there highsr t h e n
to b e becsuse there h a s been 8 growth i n those
to which y o u give eighty p e r c e n t value, s n d s
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Federal Reserve Bank of St. Louis
o d t o .¢91 with hjust thet prob-
LLbo
storas
d o g r o w v e r y fsst,.
compute :
the srowth thers,
to +
we took the devistions from that normel rate of ~rowth.--
I do not know how good 8 sampling thst is of ell the
stores
i n t h e countrve--
that factor of which you Spe:
b u t w e have elimin-
i d e a that the
“enertment stores hsve b e e n growing more rapidly t h e n
retell trede, s n d sll w e have dons i s t o take th: swings
up s n d com, s b o v e s n d below t h a t n o m e l r e t e o f growth,
go t h a t w e h e v e s l l o w s d f o r t h a t s r o w t h o f w h i c h y o u
speak.
Governor Crissinger:
H o w d o you ac@unt for the up-
shoot now i n the consumers! lines?
Lire Snyder:
msil o r c e r houses,
I T think o n s o f t h e things w a s t h e
t h e f a r m e r s buying, 3m5 e k i n g t h e c o m e - u
?
quite remarkeble (indicating);
b u t for the re
ups enc downs, Governor, t h e y run very evenly.,
just o n e m o r e p o i n t i n t h e t u a estion o f srowth,
e r e
I
n our
chain stores w e have something l i k e 15,000 small stores
represented, which i s a pretty good sampling, s n d
Ts
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Federal Reserve Bank of St. Louis
right through t h e
.oLlborm:
was goins a
co y o u a c c o u n t f o r
my o w n m i n d w o u l d w o r k i n t a i s
t
direction, t h e t w e w e
i
e e phsnothenal
m
in b e n k ersdits, s o m e t h i n g q u i t e u n p r e c e d e n t e d
in
d:eline i n ths sctusl volume o f
not d o snythins else but shoot up.
i t 2 fage thet t h e beutk
tsn't
Jed more i n t h e early part o f 1920 t h a n t h e y
Tae yellow
it is benk debits,
e
Goce
t h e benk clcarings tact
;
e PUREE :
t
e f l e e
net chow benk crecltcy
*
h e v e n t that o n the chart.
You n a v e t a k e n t a e
Txactly.
gs
Heve
y o u shown
eredit o n t h e c h a r t ?
ie
Saye:
N o .
c
o
n
t
e
n
t t o try
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Federal Reserve Bank of St. Louis
29
“nen
w e feel that
w e a r e g oO
ete
nd, w i t h P r o f e s s o r S t e w e r t ' s e p p r o v e l ,
end m a k e d e d u c t i o n s .
Y o u compere
T meonh i n t h e pest.
ou tsia”
serve bank, how compsres with the red line, f o r instance,
st t h e u s e
o f credi
T O R .
unless y o u c o u l d t h i n k o 3
Wi toelit 2. <ulip i n t a e t o tel
ampls, B u t y o u know t h s t w e
dous jump i n ceposits o f between,four snd five bilVery.
a c a .
o t
BOT i
=
e x p e n s which sss
to
thee t s offset.
curtiss:
I n other
right slong,
y o u think?
e
O d ,
i } as i e
lL n o w h e a r f r o m ir.
Stewart.
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Federal Reserve Bank of St. Louis
2
5
number o f skepticisms
vnich c o not, nows
p r e v e n t m e f r o m admiring t h e
i n the
copsble p i e c e o f w o r k S o n e b y m y c o l l e a g u e s
York Benk, e n d the ingenuity t h e y heve shown i n mesting
2 end statistical problems t h e y a r e confron tal
technic 1
I would like,
moment 2 2 0
g
e m y answer t o the cuestion
v
s
t
i
o
n between t h e lines
Fi
@oing UD.
tecennicsl
B a
corrections
t o b
correction for seasonel fluctuations, o O
ieice o u t o f
for t h e volume o
final ins:
purpose o f e l l o f that
the physicel
w
h
i
c
h “o&$s
the price i n f l u e n c e
Tf you heve 9° per
w h i c h your prices
pric
roeoidly » and you meke 4 correction f o r
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Federal Reserve Bank of St. Louis
ea
you t u r n y o u r othsér c u r v e s
O n e reason t h e
c o wnwerd.
peak c o m s s e t t h e t t i v e i s t h e t p r i c e aw
commwerd
e
r
e
edvencing
c u r v e s
t tas tine
correction,
I
fea Sayer:
f w e could g e t s t t h e sverage sales,
thet w o u l d e n s w e r y o u r
Y e s . T
lir, Stewart:
sdOUs: LC.
do not care t o g o into detail
T h e correction h e s b e e n mads for retail
stores, ® correction b y the cost o f living--- t h e cost
of living, o f courss, includes rents e n d the cost o f
rood,
D e p a r t m e n t s t o r e ssles
toed.
W h i l e ~
aveilesble, I
G o m o b tociude: r e n t o r
think t h e t i s t h e e r y b e s t c o r r e c t i o n
do not think i t i s ¢ satisfectory correction ,
m u c h more
becsuseé y o u r H e k a 4 t d o s t o f l i v i n g i s s d v a n c i n g
repidly t h e n t h e price o f soods t h e t dspsrbtment storss
are selling,
t
Wwarc CUrh: Sb. t e t
h
CLO Wh=
e conse quence i s thst y o u get >
cine,
Governor Crissingsr
Y o u s a y Department stores d o
not include a n y f o o d ?
Lit. Sthwart:
T t includes food, but i t doesn't i n
elude a s m u c h f o o d 3 s t h e c o s t o f
for,
i a d
o s e i
c
wo
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Federal Reserve Bank of St. Louis
Koya
I hesitate t o g o into t h e other t w o corrsctions,
for instence, t h e correction f o r price, w h i c h I think
Will b e necessary f o r t h e purpose,
but I
hsven
cient statistical data i n proper shape t o make
rection.
esitete v e r y much t o scespt s s a basis e
computed
volume rather t h e n sore yeer o f actual performence,
u e
computed volume, y o u e r e un-sr
you take a g 29 b s a
necessity o f t e l l i n g t h e business c o m m u n i t y w h s t t h e e x -
you a r e compsring t h e present position
to b e expected.
course,
n e t i s very m u c h t o b e
b y the business community, b u t w e
stetisticel information t o d o it.
motter o f policy, v h e t h e r
k d
b =
it woulde
uise
thing f o r t h e Fecsral reserve system t o put iteself i n
@ position w i t h t h e business conmunity o f telling
i n © fsvorable w a y o r mot;
ther i t was proceedings
simply haven't sot the information t o c o thet.
There
are one
o r t w o comueants
o n
in deportment store seles, weignt
the N e w York District i n this chort.
s
f
o
r nine districts, e n d I
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Federal Reserve Bank of St. Louis
would be. b s
the F e d - r a l r e s e r v e « districts.
with regard t o wholssale t r
WN a c y
NSOw
Y o r k
heevil
cistric
gccition t o New York
5bate,
es o f I l l i n o
L e b o r msterisal f o r
Linassschusstts,
the U n i t e d S t e t e s B u i
end t h s e i n f o r m e t i o n
i n t h s Third.
oserve District collected f o r t h e chart gives a
result w o t e r E
thenk 1 s
rotnosr i n t e r e s
ing
i n comparison
te cause i t covers
result thet s i r e
down.
the
snd
a cifferpoint i r o m his
k (incdicating)
a e p
46. simply t h e number
in comparing
thet
w e heve included
these
jn o u r e m p l o y m s
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Federal Reserve Bank of St. Louis
34
santed i n o u r s o - c s l l e d
4
eck u p o n thet.
with t h e employment index, w i t h t h e
treae
information w e need, without attempting, i
which tekes o n t h e charscter o f 8
Will heve ell thet w e need without the
The difficulty sbout putting i t
thet o n e hes t o dstermine this b y seasons,
metter o f
sch of those i s 3/reletive importence.
metter o f jucgment,
w e know t h a t
in judgment,
statisticelly 3 n d combining
them; w W e e
s i v e a single
you give i t publicity, you p s
x
, a n d certe
L S business
y tth ait n
u m
are
you
smount o f relative importsncs undvr e l l circumstonces.
The t w o points,
i n k ,
o f greatest interest i n
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Federal Reserve Bank of St. Louis
35
this curve a r e this point e n d this o n e (indicating},
and t h e question asked e s t o t h e relation o f the green
curve t o the black, i s probably answered b y ir. Snyder i n
ssying that t h e t w o a r e n o t strictly comparable,
I think that would not b e sufficient answer t o the
laymen w h o followed o u r deductions; I
think h e would
feel all curing this period that the chart indicated
thet production was not procseding a t a rate which led
to eny accumulation o f stocks, becouse i t suggests that
consumption i s moving a t a pace more rapid than production; b u t we know from subsequent experience that stocks
iid sccunulate.
H e r e just t h e reverse i s incicated,
that consumption i s not proceeding e s rspidly e s production. I
think there i g 2 considerable amount o f doubt
on t h e p o i n t ¢ s t o thether
o r not consumption h a s n o t
rate e s repic e s production.
3s inelugzed i n this curve (incicatthis ons, a n d t h e t r e q u i r e s e x p l a n a -
From the stendpoint o f public policy o f t h e
benks
w e have c e n t e r e d o u r attention o n this question o f
stock scecumuletion. “ u y h e s i t e n c y runs back finally
ss t o thet ir. inyder h a s said, m o r e t h e n anything else,
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Federal Reserve Bank of St. Louis
56
to this metter o f the computed normal.
I t puts t h e
Federal Resarve System
anc. I think w e ere n o t i n 9 position where w e c a n teke
5 position o f furnishing officiel forecasts.
Governor Strong:
cesting whet w e c o
meke s change o f rats
I think, s c @ metter o f judgment e n a
3
naviteble, b u t I
6 2 metter o f pub-
Governor strong:
is regarded always a s
In our publications w e fsel
strongly t h a t w e ought n o t t o make forscasts 9 s
of c o m m e n
B e a t e g e S T t
we f u r n i s h s
forscast
wi \
e b y t h e methocs
m
ommenting
Governor strong :
not follow y o u o n tn!
u
t whe
w e employ
o n it.
f r a y f r o m this c e r t
ena e s regsrds w h a t §
him, Stswart:
l i r e Snyder sugsests t h a t h e
e n d thet h e
roe
when this line (indicating) w a s high,
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Federal Reserve Bank of St. Louis
oT
tion when this came back,
it t o come beck,
ever 1 t sot a 6
thee
he e x p e 1
it would return,
ena w h e n i t c o t b e l o w t h e l i n e h e w o u l d
It is m o r e difficult t o make a
periog o f f i v e y e a r s t h a n o v e r 8
years,
period
s o t h e t consumers! g o o d s , t h a t i s , t h s
tion of consumers! goodg+-- you havs a n attsmpt t o
8 nomncl over = perticulsrly sbnormsl period,
Vowulen!t t h e efficiency o f lebor have
some bearing o n the chenges
Lire Stewart:
im,
G uS
i n the curve o f employment?
Y o s , i t would.
T a t would flatten i t out?
Xen
“hy w e s i t thst y o u put i n your figures
sunt stores the wholesale trade?
Simply t h e t we w o u l d e
b aealingae) more
right there, t h s t w e mign
country,
w e thought w e would keep 3 little nearer t o home,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
58
reviearkeable h o w t h e r i c u r e s
York State, smployment s n d
sre a v a i l a b l e f o r t h e
employment h e s
e heave c o m p s r e d
W
the s a m e w o y s l l t h e w e y through.
s, o n d while i b m e y b s thet seles f o r the country,
retail,
would b
e s o surpr n g l y differen
ere t h i s :
n
chsin store.
e
d that.
i
do not think t h e y
I
«“ifi r
b ¢ e
w o u l de
y reasons f o r that
u
w e have
o f tais
i s the
T h a t includes 8,000 Atlantic a n d Peciric
stores which ere, s s you know, located i n sll the little
villsges
i n t h e country.
purpose, t h e i r o m v e i g 1
hod 9
semling
T h e y h e v e c i v e n us, f o r t h i s
incex
i
o f their ectusl
r 9 3 a l sales,
sal
s
price f r o m week t o week e n d month t o month,
n svere
s o we
felt s s though t h e t index wes t h e b e s t incex t h e t w e h a w
go% of the retail
e s , s n d the interesting thing i s
thet that incex fluctuates more widely t h e n cither o f
the other two, “cpartment
In other words, w é heve 5
rlé
l i n e f o r the retail
distribution i n department stores e n e
s i n stores t h a n
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Federal Reserve Bank of St. Louis
39
do n o t K n o w p o s i t i v e l y t h e t t h a t
certsin emount o f conpretty sooc.
the country’s
a
I s m quite i n sympethy w i t h Professor Stewert's
criticism i n general, o n the question o f allowm ces for
4
price changes,
culty;
e n d t h a t i s p r e t t y n e a r l y t h e whole diffi-
t h e rest could hev
very eesily.
W
s e n done very guickly a n d
e heve l i t e r e l l y s p e n t m o n t h s c n d months
over j u s t t h o s e things, g o i n g o v e r t h e m i t e m b y item,
ond while thisis offered simply e s @
C
to’ b e
h
m
c
h
s n e w informetion
d o u t pretty well a s
e
comes i t
first spproxts
we g o through it.
As t o t h e line o f computed nomsel,
e s compared with
a single year, there i s m
such thing 9 s normol prices,
or n o r m e l s r o w t h o f prices;
3
sometimes
w e must t e k e s
certsin basis;
w e t a k e a n a v e r a g e o f t e n years, s o m e t i m e s
we
take, 28 the Buresu of Lebor does, the year 1925, which
was the yeer just before t h e v s
w h i c h was 2 normal
year i n 29 grest meny ways, end thet wes 6 very god
basis.
B u t now t h e extent t o which cosl wes produced
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Federal Reserve Bank of St. Louis
40
2 snd 1923, t e n years sfterwards, gives,r i e pee
itself, v e r y little clue, s n d whether t h e cosl production
cent above o r below what
of t h e country,
i t sives n o i d e a wistever,
normel
you u t i l i z e t h e t b a s i s o f c o m p u t i n g 3
rote o f srowth, y o u haven't the remotest idea.
Pro-
way with ¢verything e l s e i n the w a y o f production.
duction i s 3 stesdily growing thing.
Now, 3 S 8 Mm:
have those i t ems
yea
w
e ha >
t
e
w h i l e i t i s true
compsrable
r e thet s m 7
3 a
Pigieas f o r 2 wery tere?
twenty back
of those r u n n i n g e l l t h e w a y f r o m f i f t e e n o r
Coal production w e heve only
ter o f fact,
a
n g e t thet
the same w i t h p i g iron.
sid you g o beck i n t h e dist- { b u t i o n
in
t o consumera?
o n yOer:
T h o s e a r e precisely t h e t
from t h e Fed 1
reserve benks»s
racent deta, o n d thet i s where
from year t o year t o see
thing thet would b e a :
h a t you
Y l e heve o n l y
t r r e c t i o n must b e
L
1 1t
f
i
y notion i s the
t h o s e figures---
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Federal Reserve Bank of St. Louis
for instance,
h e r e t h e pric
they go cown violently; t h e n
gle--- end to utilize thet w r
s way that you could g e t 3
very small curve, seems t o me t o b e
that curve i s sporoxinetely correct.
L f
you gst
give y o u n c e , s m o o t h curve, j u s t like
r populetion,
o
the crop procuction,
an w e woulé think there w a s
net would b e m y enswer o n thet point.
Governor scay: a
Stewart called ettention to, o f
the velues o f these seperate
in t h e neture o f = composite
reg ntiy, &
dooumcns
from:
3
sceononmrc
: o n s o f t h e most prominent
bureaus i n the country, i n © !
in t h e nature o f a n spology
p r e s e u t e d somethirg
c o n c l u s i o n s which
they hsc reeched
not sventuats,
slso t h i n k t h a t n e i s
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Federal Reserve Bank of St. Louis
thet i t i s 6 metter o f j u
@éstermine
t h e reletive
woulc n o t mske
o t h e line,
in t h e s l o p e f
Governor Seay:
I t i s = notorious f e e t thet tiat
bureau, w h i c h I say i s one o f t h e most prominent i n the
country,
i n attempting t o put thoss things together a n d
s forecast, m a d ? @
slip-up.
That kind o f things w e r e they?
Governor Seay: S o m e r h a t o f t h e same character, I
should say.
tits. Snyder:
that.
I T would like t o take exception t o
T h a t w e are trying t o ée91l with a r e facts.
is n o guesswork a b o u t it, n o r
bitsimply a
statisticel fect.
a certein rate.
I
t was greate n
1900 t h a n i t hes b e e n since,
weignt ar o r
Y o u r populs tion
s ba
so W
the psriod beck o f
t h e r e 8 constent
steadily diminishing rate.
This
metter i s not a matter o f judgment a n d forecasting.
is s i m p l y a
I t
statistical a v e r e g e , o b t a i n e d mathnemetiscally,
sfx
and the only judgment used about i t is simply i n tssting
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Federal Reserve Bank of St. Louis
43
out t h e verious i t e m s a s t o h o w t h e y compare,
they s r e consistent u n i t s : o t h e r .
C h e t
v
t o sse i f
e
S
axsrcised t i e r e t h a n
S
Governor Crissinger:
tha; c o n c l u d e s
o
a n y t h i n g further‘
t h e ciscussi W
i r s certsain-
ition t o kr. S n y d
his t a l k o n t h e s e charts.
T
t hes b e e n
and LT hope i t will
rmen, 9 t least,
t o get an e n e s
by which
of their problems.
Now, I
think t h i s c o n f s r e n c s h e s b e é n p r o p e r l y
two bodies, t h e Governors a n d
Chairmen, h a v e their respective programs t o take up, a n d
we Will n o w leave t h e m t
o cormence t h e solution o f their
=
indivicusl problems.
T
h
e Chairmen
office, rignt across the h a
room h s
-35 o'clock
ference sajourmed f o r t h e purpose
Conference
o f Governors
end
a n c s
Governors
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Federal Reserve Bank of St. Louis
SECOND DAY.
2G,
YIsshington,
Tuescsy, November 23,
10 C166Gk o a Te
Joint G o n f s r e n c e
Governor,
o r
a n d the Chei
reconvenecn
i t
the B o a r d b e i n g present:
Covernor Crissinger, V i c e Governor
at
A
n
Plett, lr. Hemlin, iff. James s n a ft.
Cunninghem,
Pederal
Governor Crissingsr:
morming
discussion a t the joint session this
Credit Policy.
Live
minutss.
Curtiss h a s t h e f l o o r f o r f i v e
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Federal Reserve Bank of St. Louis
£5
Mir. Curtiss:
y subject i s Relation o f Rediscounts
l
and Open Market Operations t o Credit Policy.
(A) H o w has this policy been carried ou
district with respect t o both reciscounts
operations.
4
The p o l i c y a d o p t e d b y
F e d e r a l Reserve B a n k o f
Boston, while i t coincided l k rgely w i t h that sdcdopted
o f t h e Fecdcrel i
conference
and G o v e r n o r s l a s t October,
acter w h i c h p e r t a i n e d
=
Q
w
h a s been o f a
i
t
h
cher
t o o u r n a t u r a l c o u r s e o f business
rather than t o a n y definite program.
e should a t least p e y expenses
in o r d e r
t o d o s o i t hss b e e n
should have earning assets o f spproximetely 360,000,000
to 365,000,000 s t current ciscount retes
1, 539,700,000 o f short term
ernment securities,
w h i c h h e v e b e e n esracuelly r e c u c e d
preeither throush reczmption o r meturity until-at t h e
sent t i m e t h e s m o u n t o f
4,000,000, o f which 3500,000 i s
agreement.
i
s
m
i
e period our loan t o
panks has s h o w e monthly fluctuation o f from _42,000,000
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Federal Reserve Bank of St. Louis
to365,000,000.
ecrningss s n o w s
ments t o r thse 6
esndine
Letsmbs
of 3615,451 s s compared w i t h 3732,
ing twelve months sending Jecembe
in
st 339,715,000,
"10,000,000 of
until their maturity o n lereh 15,
Tarouchout 1923, t a e benk!
ities n e a
n e d . Uti
8 ) pHE
t h e y srount
than °4,000,000,
somewhe t
thse borrow-
ing curing t h s past y e b e e
requirements
snd to
2 more permanen
t
o
) n e d - o n c tmenceney
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Federal Reserve Bank of St. Louis
months there
six member b e n k e
e
c R e s e r v e s District No.
which heve stssdily a n d consist y
double their b:
L
I
i
bovroved more t h a n
n eddition t o these s i x ,
fifteen other member benks which s t ons
tuelvs months endin~ October lL,
1923, h s v e borrowed more t h a n double their besic lins,
n
a totel i n 911 of only twenty-one bonks
e borrowings
trontye-one benks h e s p e r e p a t e d from .906,000
last August t o 32,056,000 jiuring the letter pert of lsst
month.
a
borrowing 3 »
r vords, totsl bo»
Ehean B u b l e t h e i r 6:
i
n
c hes e m o u n t e d
,000,000 t o 32,000,000 out of t o t a l
momber banks rouging from 330,000,000
: n e e
B O R EMLU
BEE
ers, thererore, a r e
proportion o f t h e whole.
T u s s i x benks consti
over-extended i n this respsct, 5 8 saown b y Exnibit 5,
were,
Caribou Netional Benk, Caribou, isins.
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Federal Reserve Bank of St. Louis
islé Netionel Benk,
Soos County Netionel Benk, Groveton, N e w Hsipsaire
Leconti
Conclord Netional Benk,
In this connection, i t is illumine
yroportion o f
those f r o m s i l o t h e r c o r r
Somptroller's Cclls,
Nov, 11,1918
Dec.31,1918
ier, 4,1919
Juneso, 1919
ov. 17,1919
Dee, 51,2
Y 4E, 3 L920
M
June3O, 1920
Nov.15,1920 1 :
1
3
4
,
1
3
9
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Federal Reserve Bank of St. Louis
52,267
59, 394
63,753
7 1 , 2 0 6 89.5.
The s b o v e t a b l e i s g i v e n i n thousands
of
dollers.)
actual l o a n t o member bsenks
for seasonel
thet d u r i n g t h e « r i o d October, 1922,
to April, 1923, New England member banks were borrowing
more than their ssasona e q u i r e m e n t s b u t that beginning
last spring i n Ley t h e y nave cousisténtly borrowed less
than their seasonel requires!
5 end 6 show that whereas t h e
were b o r r o w i n g r e l a t i v e l y s
higher p r o p o r t i o n o f t h e i r
in
reserve deposits t h a n were a l l membsr bsenks
Federal Reserve System, during t h e period October, 1 9 x
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Federal Reserve Bank of St. Louis
ember
the
b e
curves c o r r e s p o n d i n g v e r y closely.
Rxhibit 8
shows 2
comperison o f t h e ifmencs f o r
benk credit, corrected for s
England, b u t slso f o r
ag a
Y o r k City e n d f o r t h e
whole.
Exhibit 9
New Y o r k ' s
easonel variation, n o t o n l y
contracts t h e
i n d e x f o r t h e volume
o f
thet t h e
& libsrally b u t n o t t o C a
Ciscount
rate
Governor C r i s s i
nor Strong,
Governor Strong:
M y r e p o r t i s brief, a n d I have
in
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Federal Reserve Bank of St. Louis
aa
the liberty o f writing i t o u t s o that Mire Horrison
with y o u r permission,
The policy scoptsdad b y t h s Joint
controlled
It
must, norever,
be
end. mionsy market abtill pr
streteh
d ée
t
the sleck f o r mich o f thse 1
h
e country,
the couneonnot b e considered e s 2 separate entity f r o m
try a s 6
whole,
On October
4 ,
s
n
d o n November 7 , 1925, t h e
Discounts e n d l o a n s
Governoment s e c u r i t i e s o w n e d
ences
264
snd b i l l s h e l d o n
November 7, Lv: é
of resele.
T h e
n e e h e l z a r e held under contract
nvestiments h a s n o t s v e n
discounts.
been wholly ofiset b y incrsacs j n
’
seaapgened i n New York, usuel f o r this
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Federal Reserve Bank of St. Louis
52
sposers from the figures submitted with the report
ofa]t h e Conmittee o n Open Market Investments.
Between
Mereh e n d November out-of-town benks have recucea their
belsnces end stock exchange loans b y some 3 4 5 millions,
while t h e New York banks have reduced their o w s t o c k
exchenge loans b y some $312, millions which, with liquidetion o f o t h e r i n v e s t m e n t s
meet the 4
t
h e s ensblec
t h e N e w York market
h
e Reserve Bank,
liquidgiion i n stocks which hes chars
During 311 of the sunmer enc.
Kno midile o f October, cormerciel loans stesdily
It might ssem desirable, i f money mates d o
not e2se t o make moderate purchsses o f securities.
Setiereactory evidonce t h a t t n e fecilitiss o f t n e
f o r prdBenk a r e n o t bein: abused f o r borrowings solely
i n the fact that there 4|re only 1 4 o f our
anosars
i
members w h o h a v e b e e n continuous b o r r o w e r s (
e
last
conference, - March, 1923, - their total b
averaging only sbout 32,000,000.
n
e
s
e
purchases
three a r e i n o u r d s b t l a r g e l y b e c e u s e o f h e a v y
of government securities during t h e war period.
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Federal Reserve Bank of St. Louis
53
t h e N e w Y o r k p o s i t i o n e s t o mem-
Further s v i c e n c e
i s exhibited b y the fact t h a t
ber banks! borrowings
i Noveriber 1
e e
hes
been 2 logs o f over “100,000,000 o f gold through the golc
settlement fund, t h i s indicating t h a l m o s t continuous
tide o f h e n g e sgsinst N e w York i n
of t h e country.
Governor Crissinger
L r . Austin?
ngenswer t o the question “How
has the plen for the susgested crecit policy been carried
ect t o both reciscounts
and o p e n m e r k e t operations’ ,
with
thet w e felt that our policy h e d been i n hermony
l y d i d not feel csll-,gooé banking principles, cons*qusn
ec. upon
to
m a k e s n y material change i n i t i n order
Y
t ths ,
conformo
e alway a v e belisaved
were
ed t o e a r operating expenses s n c dividends,
in doing this we were n o t doing anything t o
so-cslled inflstion o f eredit.
I n mainteining such a n
ess
amount o f sarning assets t h e kinds o f
from t i m e t o time.
I
n conformity w i t h
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Federal Reserve Bank of St. Louis
in G o v e r n m e n t s e c u r i t i e s
saversl sales o f portions o f our holdings o f such
our practre h a s been t o recuce siso o u r
enkers! b i l l s s s borrowings f r o m member
on October 30, 1925,
October
e (96,000,000, 8 s compsr ed vith 393,000,000 o n
ment securities,
o vern-
G
o f b enkers
we then held 352,000,000
Fe2
3
d
5 4 1 , 0 0 0 , 0 0 0 o f bills discounted,
wé
Government
now h s v s
EES
o
discountec,
of t h e c u e s t i o n " T o w h a t
’
he borrowing
hes b e e n f o r s e s s o n a l s n a s m e r g s n e y
an i n v e s t i g a t i o n
o f t h e c i s counting
>
ee SaVane ee
at
ww
gre, t O L O W eo.
t
h
a
r
e
s
n borrowings
1D
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Federal Reserve Bank of St. Louis
tion o f business.
F o r the y e
1922, t h e gensrsl.
tencency, f o l l o w i n g
oo
4
drop, w a s downward; tnerethe tenaency w a s gsnerelly upFrom then until October i t wes downwerc;
n o w
upward.
Ve know t h e t i n the sgricultural cistricts
sonal borrowing, t h e borroy
and summer, a n d licuiéetion takes plece i n the fell. T h o s e
rs well esteblisned, t h e i r benks a r e guite
end they gensrelly hevs the funds
fluctustions resulting f r o m s
io not h a v e t o
m
u
c
h rscourse
t o the
District, however, i s
fluctuations
the S
i n business
being,
y s t ee minto
ma c
is yet little evidence
o f séasonsl borrowing,
veristions
thet occur s s e m t o b e i n response 6
h e Gisnges i n the
ectivity o f business.
Answering t h e lstter part o f cuestion (b)
t o have been o f
extent “ o e s t h e b o r r o w i n g sppeer
Bs
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
:
26
#
of t h e Gis count operstions o f our memoer
benks sare more o r
heve n o t been o u t o f c e t t o u s t o r @
periodf
o thirty
96% twelve months.
these banks s r e carrying more losns e n d i s counts
ne prester eccommodations
resources
Conditions
t o their customers t h a n
s s e m to w a r r a n t .
i n t h i s cistrict h a v e e n g e e d consicer-
ably f r o m those e
tins t h e r e w e s 2
which f u n d s t h s b a n k s w e r e c o n s t o n t l y
much o f them wes used i n buying commerticl psper.
buginess c o n c e r n s
consid
o f t h e ¢ & trict v e r e t o ¢
such f u n d s a n d c 1 é n o t h e v s
2
their banks
Ln Shore.
Ler m
ment obligations.
Concerns
t h e t were f i n s r e s e d b t }
g
h
c o n m e r =
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Federal Reserve Bank of St. Louis
sr morket n o w heve t o cspsnd v e r y
This h e s t h r o w n u s o n
thougut i t best
some
t o neve more
or l e s s c o n s t a n t
few institutions t h s
we a r e c C o i n g o u r b e s t
a
e
v
y over-trecding, t h i
t o control without csusing undue
rassment.
Governor C r i s s i n s e r :
G o v e r n o r Fancher?
Mir. Cnsirmsn, r e p o r t i n g b r i e f l y
Fourth District, I would say itis
District, industriel sna menufesecturi
of o u r w e m b e r b o r r o w
our m e m b e r
our totel borrowings frou.
of$20,000,000.
inereass u n t i l o u r m e m b s
h e ncontinued to
w o r e borrowing
i n d u l y o r l s tAeu
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Federal Reserve Bank of St. Louis
June 376,000,000. I
think there
sion,ond s t the present time loans
65,000,000 totel borrowings from the benks.
The number o f borrowing benks ©
year a g o
220, e n c i t has n o w increesed
proportion o f c i t y banks
y s a g o 5 3 country benks,
compsred t o country banks, 3
e
ond tae. 1 0 2 e l tie 1
e
e t t h e close
hoe 4 G00, 000,
w
O
close o f October 5
sources
d
s
u
r
e borrowing 2 t tans
r invested
s i n November
g o f $55,000,000
a
354,000,000 i n seceptence
e
o n d 326,000,000 i n Government
securities.
sau those various items d i p i n lete
520,000,000 member
$26,000,000 Governmén
sub ivision ( o y ,
the borrowing
end emergency requircinents
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Federal Reserve Bank of St. Louis
59
popear t o hevs b e e n o f 2
more p e r m a n e n t n e t u r e
for t h e p r o f i t involved,
w e still have =
faw
heve borrowed continuously
few o f t h e m e r e hang-overs f r o m
not besn
not Borrowins
for: p y r i ,
i s rsthe n d i c e s t e d b y t h e statement mecde a t
i n c i c e t i n g t h e t w e had eight banks
the close o f é
borrowing e x c e s s o f their capitel s n c surplus, only
bank borrowing o n s 3 n d a half
surplus, w h i c h rather incicates t h e t \
ond
Se b s H e t
borrowing,
s n d t h e t t h e benks
will n o w h e a r f r o m o u r
your r e s u e s t f o r snswers
Topic No, 1 , Joint Conference
November 1 2 , 1923, “ R e l e t i o n o i Rec
Perteb O p e r e vione
How hes this policy
th recdiscounts e n d open m1
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Federal Reserve Bank of St. Louis
60
District
o u r o p e n - m e r k s t osSsrations
limited
exclusively
ginsting
t o t h e purchase
i n sxtent s n d
o f scceptances o r i -
i n this D i s t r i c t ( a n d h a v i n g s e t i s f a c t o r y e n -
not
WN r e
dorsements) w h i c h w e
for t h e s o l e p au2r p o+s e
o f§
i i l y sbsorbed
n e p r-o p e r s u s v o r t
1
eptsaces o n l y s t the S
b y t h e market,
t o t h e mar-
t f o r unendorssd a c -
in other
bank o r broker
ances t o US.
O u r policy hss b e s n t o m
ent o n d legitimate needs, whether o r not t h e y
rowing b e y o n a t h e i r b a s i c
or sdmonition.
O n t h s other hend,
i n those cases i n
Which rediscounting hes been consistent o r borrowing h s s
suently i n excess o f bosic lines,
to d e t e r m i n e w h e t h e r n e w o f f e r i n g s
exrozrits
of
n e purposes, w i t h
ms restreint o r control,
district, h e s t h e borand emer=
apx er t o
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Federal Reserve Bank of St. Louis
permanent néturs,
the p r o f i t i n v o l v e d ?
answer t h i s “ u e s t i o n
the borrowing
closely observed, s n a - i t
thet t h e greater p a r t o f t h e borrowing h e s b e e n
nal purposes a n d
i f eny of conse
ft
orofiteering exceptions,
cused, h e v e t e e n few.
Anvended hereto i s 2 tabulzted statement showing
o n the lsst dey
totel a m o u n t o f loens e n d r e d i s c o u n t s
sach month from October 31, 1922, t o Sept
inclusive.
T h i s statement incluces rediscounts
oariculturel paper, losns o n Govern-~
secutities, a n d bills purche
circumeteoness a b o v e
Giviled i n t o t h r e e g r o u p s .
which o n t h e
basi
“roup shows :
nike
borrowing amounts equal
b
a
e
s
s
s then their
nird =roup shows t h s number o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
62
ated.
waich rere not borrowing o n the cates indic
the borrovi i
2
first group h a v
bent ¢
fact thet they
te, &
a }
WALCO
-
~
a
D
7
provec
ding o f s u c h b a n k s d u r i n g t h e c u r r e n t s o a s o n W a s
lergely f o r seasonal requirements e n d constited t o a
considersble extent o f additionsl loans
compelled t o make t o their
c u m e i
tete ultimate Liguication.
T
there w e s 2
a s r t o facili-~
t will b e observed t h a t
reduetion o f borrowings
o f banks
i n this
croup o f 150 bani:s r o m 22,000,000 o n October $1, 1922,
to 316,000,000 bozrowed b y ninety banks o f t h s number
curing
reliscountig
volume becsme necesssery.
Tas borrowing o
assumed
at.
t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
=65
(which, however,
detline i n <sposits
iz
conspicuous smonsg t o s
throughout t h e entire district.
T n i s borrowing l a c r e s a
ed from 320,000,000 o n Janusry Sl, 1 9 t o . 342,000, 000
on October 31, 1925,
borrowin; nearly t y
amouiy 7s A e : s n d i c g
O
f courses,
into account t h e t t h e benks i n
50
In the S t a t e of South Cerolinse the
on October 31, 1922, t o 32,158,000 o n October
of North Carolina loens in1922, = oo
36,769,000
s t the close
J o n u e r y , 1923, e n d from that
274,000 o n October Sl, 1925,
son, N o r t h C s r o l i n s m e m b e r s w e r e b o r S t e l bs On
liguidation b y
thet t h e y w e r e b o r r o w i n g
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Sxpeoce
around
rai
the €
perticulerly crops
effect
eur ecnoly SAssor
borrowing <Suriceg
which erose f r o m e
gus
I
bee)
LS
t sppcsrs
W e t
ag cor Wie a6
To ted
Losns
Oct.21/22
oop venuer
sl e n d
to
essec b u s i n e s s
Borrow-
ings.
besic
lines
322, 284
,
May 31/23
minimumo
f 238,000,000
to379,000,000 on
on Jsnusry 3i,
0.
o i this bicuicaae
QD
9We 1 KS
activities.
Bor ro%
cg i n g s .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
June 3 0 7 0 , 1 2 6
July 31/23 6 7 , 1 8 7
AUS.
7 2 , 5 9 4
3ept.e30/23 79,286
Nova 7/23 63,300
(NOTE: -Amounts i n the above table are stated i n
thousends o f dollers.)
G o v e r n o r Vellhorn, w e will
Governor Crissinger:
near f r o m you,
Governor Wellborn:
O u r loans a t the first o f this
month were 395,000,000, eni have been sdvencing pretty
¢nstesdily cince t h e first o f June, w h i c h i s d u e almost
tirely t o s e a s o n e l cemancs.
O u r liqguication n a s n o t
mills
teken place e s early this year e s usual, because t h e
sr2 buying cotton n o w a n d stocking up, e n a e g fsst a s
they are
the l o g n s a r e p a i d o f f e t t h e c o u n t r y b s n k s
absorbed b y the city venks t o assist t h e mills.
S o m e of
ity b e n k s i n f o r m m e the. h s l f o f t h e i r borrowings
e r e givdo t h e f e c t o f t h s e c c o n m o d a t i o n s t h e t t h e y
the non-member banks.
A
t the present time there a r e
our loens, s n d w e ars
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Crissinger:
Chicsgo District.
end prectice o f t h e c e r a l
“uring t h e yesr hes b e s n strictly
in accordance w i t h t h e understsnding o f t h e intent o f
T a s posi-
the resolution passed i n October o f lest year.
thet
tion o f the bank hes b e e n uniformly etrong, t h s fact
et different times a l l o f our reserve citiss hsve b e e n
practically o u t o f o u r Cebt, e n d that n o continusnce b o r
i s proof,
rowing has b e e n i n evicence f r o m that-soures,
that t h e s p i r i t o f t u s r e s o l u t i o n h a s
besn complied with.
Tt i s o
fact that e t 8
m e c u r i n g t h e year
af
of <irectors o f t h e Federal Reserve B a n k
2
yf C
ME y
=
~
~
suc e s t e d
Bi0..g8t some
member benks, t h e t theve vere in‘ications
their customers o f oversxpension,
2n-1a=
the s i t u a t i o n » i t h o u t s n y r e c o u r s s to.
o n o u r pert.
creases i n rates s n d w i t h o u t s n y a c t i o n
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ts heve besn o f the same natu
Jith regard t o the secona pert o f t h s question,
ss
6 Borr
emergency requirements,
w o u
Reserve Bonk o f Chicago hes probably “ifteen t o twenty-five
millions o f : a l l i e d “ f s n ’ rediscounts.
T h o s e sre
a cerry-over;
not s o much o f “restic Jefletion towards sgriculturs, b u t
excessive
eer.svrks of/gpeculetion i n real estate
most o f which heve n o t been reflected
fn Diguicetion,
end
r
e
m
T o r s y e s s o r tr0
“ t h u s
to. 26n6, Hut. E L L oot: r e m
Apart f r o m this,
ings with u s have mostly f o r
poses.
Governor Crissing
from you.
Governor Bis: cs 3 l r . Gheirnen,
2 1s
been lite
tle o r n o evicencs o f credit inflation i n the ~ighty Dis-
trict. during the last year. G r e c d i t has been
freely b y this b e n k t o its members f o r
he m o v e m e n t
o f t h e cotton c r o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
is © n aGnmwal.. problem,
in our bills < i s e o u n t e d for menbers, w h i c h incressea
from sbout 345 0 0 0 , o n J 3 0 t h , t o smut 372,000,000
of. the policy o f this
the m o v e m e n t
o f crops.
Normally, bills Giscountec for members i n this disme time i n August t o 5
end
of
discounted b i l l s t o t h e s x t e n t o f
5nd i t is now ebout 70,000,000.
‘33,000,000 i n Government securities
Govarnor sé¢
WEB TLOG
T O
cCurine. t a s
+
hove n o
tm O U T G L a e t r i c s
nvolved, although o u r ciss half p e r cent i s from one half
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
vad
to o n s e n d o n a - h s l f p e r c e n t l o w e r t h a n t h e a v e r a g s r a t e
a]
of banks i n ths larger c i t i e s o f t h e district, a n d
cent l o w e r t h a n t h e
the lest year, e n d t e i r r o w i n g s @ t this
elrost entirely f o r sessonal require-
Mir, R i c h i s n o t a t t h e Confsrence.
I G
for h i m t o come, b u t h e sent his comments
who will reec them.
lixr, tiertin:
concitions,
snd I
i p , s
notes w e r e n o t o n t h e g e n e r a l
b u t o n t h e o t h e r t o p i c o f dis count rates,
heve n o p e p e r c o v e r i n g t h e t o p i c h s r e Wehaieet
Mee
Governor
Young,
© y o u cars
enything a b o u t t h i s m e t t e r ?
Governor Young:
i y , Cheirmen, k r , R i c h contemplated
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
District, i n 1920, wes losning t o the
Northwest $113,000,000.
h e t smount
owed
ed until Merch o f this yser, w h e n o u r member banks
Us #p2roximately ~15,000,000.
S i n c e larch o f this year
s o g e d until October o f this year, w h e n
ecveneces have
about 552,000,000.
A t the present time, they
are about 320,000,000.
I think I
can snswer without hésitency t h e t t h e
Reserve Benk o f liinneapolis h e s followed v e r y closel
the policy e d o p t e d last October,
In cnswer t o sub-topic (a), I
think a l l
t o 1920,
tion i n the district w a s ersated previous
during 1 9
e n d sines t h e t tire, I
hes b e e n o n y inflation a t ell. I
do not think there
do not believe t h e
in t h e district ere’ borrowing solely f o r profit.
mite t r u e t h e t
t h o t r : borrowings -
hk
p
e
e
profit, b u t I em quite sure i f they could collect <nc. pe
out o f
t h e y would b e only t o o sled t o get
debt.
The i n c r e a s e
thi
I woule s a y i s due t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
75
& surprise
small é n
is thet t h e y c o t along with §
The “15,000,000 thet w e heve hac
carry-over, ¢ lerge pert of i t o s n e d because o f smscrgen
in our district,
in
lost conficsi
withérswinge their money
they m u s t b o r r o w m o n s y t o t e k e
thet t w o ysars @
the Comotroller's Jepartmect,
institutuons, n e w
let
2 h ouwr- c i s
best concitiom , imstitut.ons t h e
ery closély.
With regard t o open msrket
1 of them;
w e heve n o t perticip?ted
in
is necessary
market s t 911, e n d I 4o not think i t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
74
to g o into t h e open market unless w e s r e requisted t o d o
so b y the Central Committee.
hore i g o n e s i t v a t i o n
i n North Dakote t h a t i s very
ad, ond that has to ® with the so-colled “chloroformed
I think y o u ere a l l fsmilier w i t h those institusnd thet condition has worked quite a nerdshio o n
our o w n member bonks i n tist state.
The people o f North Dakota know that e “chloroform'
mitted t o invest money t h a t i s deposited
end they feel that i t i s safer there t h a n i t i s
member benks, w i t h the result thet t h e y e r e ce-
in the “chloroform” banksend withérewins from
the member banks.
T h a t i s ceusing s good deal o f difrfi-
culty i n North Dakota, a n d just how f e r i t Will g o I co
mot know.
n
institution, I
e ban
think,-- I
s
h Dekote hed a
solvent
co n o t t h i n k t h e r e i s a n y 7 u c e
tion sbout ite-- but h e ceme d o w t o Minneapolis 2 n d t o k
and w e n t e d
t o
borrow s o m e more monsy.
but
h e went bsck out there snc ¢
closed t h e institution;
d m n o t u s e t h e money; i
h e coatempleted putting t h s pro-
position right u p t o his depositors,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
75
give him more time,
H e wantec t o treat ell of his ce-
positors slike, a n d I think h e reopened. I
think w e have
more banks i n North Dekote which perhaps will have t o d o
thet.
“ h e t h e r t h a t will spreed into t h e other states
em not prepared t o say;
f thet situation d i d not exist, I
I
situs
b u t i t i s not 8 good
think I
coulc s a y with ssfety t h a t our total advances t o our
meme
5 1 5 , 0 0 0 , 0 0 0 b y Jenuary 1,
ber banks
Gown t o “10,000,000 b y March 1, c n d thet ten million
lers would represe:t largely borrowings o f institutions
ere i n sections t h e t h e v e e x p e r i e n c e d d r o u g h t f o r
bad
or f i v e years,
Governor Crissinger: G o v e r n o r Bailey?
Governor Bailey:
A
t t h e first o f t h e yeer w e had
287,000,000 i n Government securities e n d ‘$17,000,000 i n
the present t i m e w e heve a LittLe:. over
"6,000,000 i n government securities a n d 368,000,000 i n
raciscounts. -
3V7,000,000,
O u r lowest point o f recdiscount was
T I would say thet holf o f thet
ed b y “rozen loans t h e t were mece i n Oklahome, v e s tern
sas, Western Nebraska, a n c part of Colorado, i n 1920
1921, t h a t coatinued drought, misfortunes, floods,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
we
thet our cle trict is. in’ good
epe, t h a t
i s increase f r o m 17,000,000 t o preeticelly
60,000,000 from the fi f
home, incin2
S i s meeee
Jenuery u p t o
i s s o f thet conmunity,
on G o v e r n m e n t
borroters
i n our home banks
ities r e t h e r
a8 m
personslly concerned, I
the Government bonts, I
than
woulc just 4 s
believe t h e t t h s i n
borrowings i s cbsolutely ssesonsl.
z n d thet
2°Mrse iicClure will supsort m e t t y i n g thet there i s
no borrowing ‘ o r profit,
we: p r e t t y
borrowing t o o fsst, “ 6 send f o r them, o r
a
- fears
m e n t o t e d k t o tnenm- e n e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
77
beli-ve t h a t , w i t h a
f e w e x c e p t i o n s w h e r e d r o u g n t s hseve
come a n d heavy floods, l i k e t h e y heve h a d i n Oklahoma,
4
that h u r t t h e c o t t o n crop, t h s t w e e r e g o i n g t o h a v e
big Liquidation a n d find ourselves i n rather comforteble
position.
Governor Crissinger:
W e will now hear from ir.
ley.
ue Talley: I
want t o say for the benefit o t
tores¢
record,.end the reporter, thet I a m not going
I say, but heve just a few rough notes.
Tae conclusions w i t h reference t o this topic were
go clear t o m e that I cid n o
the e x p r e s i o n o f w a s t I
havs
T crave the conference's indulgence
e
l
b to
The q u e s t i o n i s , i t e i t desirable a n d p r e c t i c s
es a
wake more u s e o f Federal Reservs benk examinations
-reculating
means o f securing informstion t o b e used t n
o f placing
member benks! borrowings m o r e directly ingtsed
clusive e n d mgin relie
u p o n enonges o r discount
ress
s not only hignly desireble b u t distinctly
e ond practicable t o places great relicnes
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
78
eminations e s s méens o f securing informetion
banks' borrowings.
teke thrse factors w h i c h w e consicered pare ount into
consideration,
t h e condition o f t h e esplicsnt bank,
the
charscter a n d ability o f its meassement, including t h e
relationship o f its directorate,
c a d its physicol conci-
de territory, p o s t , p r e s e n t e n d prospesctivs.
In Giscussing @ 3 c h o f these turee fsctors
we undertake,
b y msens o f reporting
as w e m a y t h e e x a c t c o n i t i o n
o f ths
its solvency.
the examination showed lergs impsirment o f e s p
more o r l e s s o f a
l a x mensgement, senda w e h a v e g o n e
as t o d e n y c r e d i t
t o t h e t i n s t i t u t i o n sbsolutely.
7
¢s shorn b y reports o x sxominetions,
i s elso e n
impotant congicsration i n reference t o increasing 6
of c i g c o u n t s w h i c h t h e member b a n k i s
2t o u r hends.
iamanbarget Oras
Vhen thse volume o r rceciscounts
sos
tendency t o expand retner liberelly w e witsnole
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
agtion o n = pendingLi) application e n d requ:st
with t h e acting
%
sccounting orficess o f thst
usuelly request e n d sometimes insist t h e t
egers o f the benk b e sccompsniéed t o the confsrence b y
several o f their directas.
I
n these cescs w e have
d i r e c t o r s o f concitions w i t h which
fre wently i n t e
ey vere not very familisr s n d by that meens © lons w e
heve cuccseded in reculating the member bsnks' borrowings
a
may sey also. m o t only satisfac-
very satisfactorily. I
u
b “hen tne c o n c i t i o n s o r t h e
borily t o o u r s e l v e s t
‘bank e n d its
s
l o a n s t o o liberally
e 7
without due regard t o the hazard o f growing credits o r
other means
factory
o f lituigation i t proved,
i n the mein,
s k, without e n y perticular
t o the m e m b e r n
cism o r cisagreement
o e
o u r executive committee.
Discussing the second feetor brisfly, w e sre sole
“make comperisons--~ a n d I
e m sure this will SOply. b e ell
betwsen t h s c o n a i t i o n s
Gifferent b a n k s
i n t h e seme t r e d s t e r r i t o r y 6 8 2
charseter o f t h e manccement.
Vv
loral Reserve Bank which i s not seeking
result
I n
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
vences o f ths Federel Reserve Benk snc
any p r o b l e m i n rerersnce
t o undue expensio
or its undue expension o f its reciscoount lins w i
Bank, w h i l e s t
Federal R e s ¢
B y :
i m e presumebly
snother institution i n the same trace territory, opersterefers
ing exactly under t h e sams physicel conditious i n
ence t o the territory which i t
large line o f ré-
tendency t o losn freely e n c s
mors o r less
-@iscounts w i t h Federel Reserve Bsnks s n d o n 6
permesnent basis, t a k i n g s d v e n t e g e
o f every opportunity
to
4 0 soe ‘ h i s
ecpand tiat line vrhenever i t i s possible t o
meens o f iniiceting, through 2
touch vith t h e benk
end throuch recourse t o
in the cnarscter o f men,
the a b i l i t y o f t h e men,
c a d the a i i f s r e i
M
e
2 . 5 6 . aAee
a
of t h e m a n s g e m e n t t o w s t c t h s r e c i s c o u n t
Federsl Reserve Benks, o n d tict their
In reference
t o t h e fector o f physicsl con-itions
thst p o r
4n the trace territory w e must concicer “aether
ticuler territo:
s1tuetion
O b Wi
iam h e A b lpoyor
wpale
i s {tise
e s
P
B ry
s b n o r m a Ll
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
:feal sonditions
of a
reason
i n the tracs territory t o t h e
more continued lins
a e 9
o r neeses
ai scounts
to borrow more f r o m t h e Federal Reserve B e t e than misht
terribe comporec w i t h o t h e r i n g t i t u t i o n s w h o s e t r a d e
tories a r e i n m o r s norimel
e e
tenks located i m communities thet hsv:
crop f s i l u r e s
or
ence to, G r o p returns.
e
t h eiw) banks 3 s 2 unit rather ther
W
consiger
confitions which might. spply i n = br
all benks, s n d even though the s«tual psper which i s
‘to-us m a y b e eligible and s p .ear t o b e solvent e n e
able, i t does n o t necesserily follow t h e t w e would psrmit
the line o f the bank t o expond simply becsuse i t i s i
position t o offer e l i ible p a p e
“ t e must take
conc ijeration that proportion o f non-eligible
_it h e s i n i t s l o e n s s s v e e g . t h e p s p e r w h i c
able t O USe
F S S h t
m
e thet w e must endeavor
forecast orobables
vard t o ths meens o f 1 i uidation,
jnersased d s p o s i t s
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Federal Reserve Bank of St. Louis
B82
or b y c s a s o n a l r e i u c t i o n o f i t s loans;
a n d i n thst con-
nection i t ssens t o m e thet that i s one o f t h e most inportant things t o take into considerstion i n refcrence t o
itself,
s s well as a n y tendency t o borrow
sbnormslly o r i n e n exeggerated fashion f r o m t h e Fed-rel
reserve bank,
W e have h a d i n the past o n d probsbl: w i l l
heve i n the future t o o high a regard for t h e l e g e loblieations resting o n Fed*rel reserve
for member benks.
I
t ssems t o m e
snoul: b e considered only i n the light thet the member
bank m s y bring i t s need o r whet i t considers t o b e its
need t o the Fecsrel reserve b a n k for rediscount focilities,
then upon e n enalysis o f all t h e factors,
Federel r e s e r v e b a n k t o s o y w h e t h e r
i t i s for
i t shall s l l o w
credit o r sllow s n y reciscount l i n e o r vnetner i t
should m s p thet line i n r e
the e c o n o m i c
benk itself.
by a member bank t o m
incivicual.
I t seems t o m e that
*xperethe member b o n k must have iniiceatec t h r o u g p a s t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
mat t h e b e n k
which sre not capitel loens, s n a thet sven though tusy
may have some sppsarences o t being sligible loans, i t s
own n o t e c a s e m u s t b e m e d
f l u c t u a t s
i n accoriance w i t h
the charscter o f t h e psper w h i c h i t nas.
When w e base t h e lines o f credit t o t h e bank u p o n
factors w h i c h I
hsv2 e n u m e r a t e d a n d u n d r t e k e t o p r e v e n t
undue “ x p a n s i o n
i n reference
t o t a s indivgicuel r e d i s s o u n t
‘with Federal reserve banks, I
see n o resson why the
ederal reserve bank should fsel cell u p o n t o continue
t h e bank i s
to r e d i s c o u n t r o r a bank s i m 2
position t o offer :lig
p a p e @
point that ep-
to h e v e r y i m p o r t e n t i
s line o f c r e d i t e x t e n d e d
b y the m e m b e r bank,
and which “oes n o t follow t h e
liquidation
reserve bank msy sssily b e
loans beyond t h e ebility e n a resou: 5 - 0 7 8 meiner
snd t o . t h a t e x t e n t w e s h o u l d w a t e h i t v e r y c d r e r u l
in r e f e r e n c e
t o the continued
tena f
@
member
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
84
to c a r r y =
line o f rediscount w i t h t n e Federal reserve
s s i t gives, p e r t i c u l e r l y
benk o r t o e x p a n d them,
sericulturs] district,
in on
e n ineentive t o sxp3nd crecits i n
enticipation o f production s n d tends t o mnenufecture crsait
rether t h e n heve credit perform i t s trues function, e n d , o f
course, w i l l eventually l e a d t o easy ersdit f o r speculation.
rate.
Now, e
egch o f u s
n
i 5
-
T h e r e is, v i t h which
¢chool o f t h o u g h t w h i c h b e l i e v e s
e higher t h e n t h e open
thet t h e rediscount r a t e s h o u l d b
market rate. I
belong t o that school, b u t thet probsbly
should b e s t a t e d w i t h s o m e ~uelification,.
M
s scadenic
Giscussion 9 s t o whetner rediscount rates shoulda b e himier
any vulor lower t h a n t h e o p e n mserket rate leaves i o w i f
nersble points, b u t t h e test comes i n maining epplication
of t h e theory.
I t sesms t o m e thet w e shoul” “sfine t h e
term "open msrket rate" a s i t may b e spplied t o the price
of m o n s y o r t o c r e d i t e c c o : v o d a t i o n s
“ve must find a sort o f common demominetor. 5
tiesl matter, I
prac-
do not believe i n reality t h e o p t n merkst
should saccoiilrete i s t h e rate s t thich incividusl banks
tuene 12° 2
modete their customers, t h o u s h i n sech &ietrict
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Federal Reserve Bank of St. Louis
85
tandsney f o r s u c h r a t e s
t o ap. roach 2
N
l x
o
r co
at the sverage o f such rates constitutes t h e
opsn m e r k e t r a t e o r t h a t i t i s c o r r e c t
t e say there i s
sn o p e n m e r k e t r a t e i n «cach d i s t r i c t c i s t i n e t f r o m
n merket
thet rate s t which benking institutions, investors
Heir surplus i n temporarily
solvency e n d
who e r e c o n -
stantly wanting
sssuch, thersfore, i t may reccl
‘are-sppliceble t o the country & S @
fluctuations s r e csused b y t h e ebb
. funds f r o m o n e s e c t i o n o f t h e country
t o s n o t h e r ened i n
o f gold o r
perfect reletion t o t h e i m o r t s e n d exports
capital s n d thse
to t h e requirements o f profuetion e n c
S
seasonsl cips a n d pesks i n ctiverent sections o f t h e
country.
count r a t e i n 21ll cistricts.
h
e rats should spprosch
bh
rather thei
uniformity b y meens o f sconoinic ediustinmsents
by o n arbitrary scale. I
mern t o sey b y
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Federal Reserve Bank of St. Louis
86
of recdiscount e r e u n i f o r m n
i a l l <istricts, b u t s s ths
demand f a f u n d s f n one dis trict i s comswhat
then t h e demand for funds i n ¢nother cistrict, t h e n the
ict a r e placed more i n consonence witha
reserves condition, e n d the u s x
ersdit uituin
its o w n district, e n d t h e tencsncy torerd » hisher rate
in one particuler Cistrict w o u l a prevail t h e a t o some
extent funds e o u k a b s extrected f r o m a cistrict where
the lover rate prevailec a n d t h e whole process m i g i t
tend to uniférmity in-rediscount rates, snd we should
fepend upon t h e e b b e n d flow o f funds through t h e country
ss e whole f o r uniformity rather t h e n t o undertake t o
peg uniformity.
4nother thing thet shoul? b e taken into consicere+
tion with reference t o © n y dependency whieh should b e
| upon t h e rate t o control borrowing o f menver bonks
wide civersenc :
tee cir?
nC
L
tus
t h e legel rate o f
v e e t a t e s e n d the furtnsr feot. that
e
a r e m o o t a c d o f ports
In the Sleventh District
e
s
o f s t a t 7s.
l r a t e s n d t h s contrect
rate r u n f r o m s i x t o t w e l v e p e r c l e a t T h e r e w i l l b e ,
therefore,
n o possibility o f controlling,
i n 8 situation
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Federal Reserve Bank of St. Louis
87
of thet kind, t h e volume o f borrowiig o r the ®2xpension af
anadit b y recdiscount rates,
° The reciscount
wuether high o r low, sctually have e n influence o n
borrowing, b u t such influence i n 2 n agriculturel “istrict
is too invisible. P r a c t i c e l l y t h e only rmticeeble e f fect i s i n the volume o f rsdiscounts contributed b y
larger b e n k s
i n t h e lerger c e n t e r s ,
pare t h e r e d i s c o u n t r e t e s
i n one district w i t h those o f
centers.
should conrorm bo.
Feceral récerve
recicount rate i s herdly more
snd
e
r
e f t
n o t
o n S s e o n o m i c s y t o m o a tie: v e l y e
thet Will cut off the f l o r o f the vist.
in e n y g i v e n p o i n t
r e a m O F curve ney!
7
i n which =
to s e t in, b u t rociscount operations e r e nothing b u t
-lending o f money.
must,
prospscts,
W e must tr:
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Federal Reserve Bank of St. Louis
Governor C r i s s i n g e r : © W e will now hser f r o m Governor Calkins.
Governor Celkins:
A s t o the cuestion, “How hss this
policy been csrried o u t i n escen dis trict with respect t o
both rediscounts and open market operations," i n following the policy esdopted a t the joint confsrence o f October,
1922, w e heve been guided b y t h e doctrines t h e t credit
extension b y t h e Federal Reserve Benks o n l y promotes i n flation w h e
1. P r o c e e d s a r e u s e d f o r o t h e r t h a n p r o d u c t i v e
purposes,
or
Zs P r o c s e d s a r e used f o r productive purposss b u t
he production financed results i n losses w h i c h cannot
be m a
m
e
d w i t h o u t d t ect o r indirect r e -
course t o the fodowes Reserv: Banks,
Application o f this h e s b e s h msde i n
manner:
On: Papexe
‘ted b y evicenc 5
setivity; ( b d ) i
operations;
( c )
a
) Srise
o
f productive
c a i d e t meturity o u t o f curront
n e t s o l v e n c y o f t h e meker c o o s n o t
depend s o l e l y u p o n t h e p r o f i t o r l o s s o f thse perticuler
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Federal Reserve Bank of St. Louis
trenssction.
As t o the Bank's u s e o f proceeds,
b y J i r e c t i n c u i r y o r otherwise,
bs informed,
the p u r p o s e
w e endeavor t o
o f a bank's b o r r o w i n g
a s t o whether
i s t o meet sessonal
requirements, sbnormal deposit withdrawals, o r other
neir purpose a n d use i s constantly being
checked b y spscial reports during t h e rediscounting perjiod showing l o s n s n d deposit movements, c e l l e d reports,
examination reports, a n d personal inquiries when felt
edvisable,
Discounting w i t h t h e Fedsral Reserve B a n k f o r t h e
purpose o f using funds f o r capital o r speculative
is not knowingly permitted.
recetermination o f logs is, o f course, n e x t t o impossible.
P r a c t i c a l effort strives t o sap,roximate i t
considerstion s n d weighing o f t h e known factors
bearing upon t h e particular venture.
I n t i m a t e knowledge
of the personal equation and local conditions a r e essengiel factors;
t h e
r e l Reserve Bank i s almost entirely
dependent o n the judgment o f local bankers for the first
end slightly less f o r t h e second, a n d for this reason
as
every ressonable effort i s mece t o acquaint ourselves
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Federal Reserve Bank of St. Louis
is)
closely a s possible w i t h the capacity o f t h e member benk's
enzceme ate T h i s , s u p p l e m e n t e d
évicenc
or
b y t h e statistical
o f t h e borrower 3 n d our o w n study o f re-
sconomic conditions forms t h e besis o f our judgwent 9 s t o the ecceptability o f t h e paps o f f e r
of necessity for and lesitimacy o f the bank's
im operations w i t h us.
As t o question (b), “To what extent, i n each district,
the borrowing, during the past year, been
smercency requirements;
Senn. 3
e n d t o what extent does i t
oo: 3
MBiLen
m
e
r
e
l
y
for the profit involved, generelly t h e
ieuber banks i n this district neve b e e n
Borrowings o f many e g r
“ber b a n k s
i n g o u t h e r n Iceho e n d i n s e s t t e r e c i n s t a n c e s
in Esster ‘“leshington e n d Uregon h e v e b e e n continuous
‘throughout t h e year, d u s l e s s t o s *
s
l requirements
A
the n e c e s s i t y o f s u p s o r t i n g s e long c o n t i n u e d
emergency srowing o u t o f servers. y o s r s o f economic ais. $ress.
T h e c e r r y o v e r r e p r e s e a t e d r e n e w a l s Of. t h e
then a s yet unrecovere= e n d unrefunded l o s
from crop failures o r opereting.
I
n volucse,
bor-
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Federal Reserve Bank of St. Louis
91
have showm s stsacy reduction
me give promise o f sven greater
nprovement f o r t h n i n g y e a A m o u n t o f Cerry-over
of- t h t s
lers).
i t h t h e foregoing exceptions, country bank
P
borrowing has é
l
9 61
y seesonal cheracter,
elliquidation is the gonerel ex :ectetion.
4
n rether s t e s d y b o r -
rowers throughout t h s f
c i s c o u n t e d has
8
been eccompenied b y proper svicence o f its
dating sharsetsr.
tue
B
e
c "
necdiscounting h a v e b e e n undertaken,
is perhaps netural thet t h e more libsral o r sympsthetic
hi e n d i n g operations m o r e
grantor should i
his deposits
ciency c a n b e r e e d i
r e a s e
i f such dsposit
m e t out o f i s c o u n t i n g with
Such operations m a y b e based
solely o n procuctive c r e d i t ,
infletion, b u t they a r e a
s n d i n n o w a y contributs
r from t h e former
deperte
generally sccepted coctrine t h a t normally a
benk's
to
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Federal Reserve Bank of St. Louis
5
operations should b e limited b y its deposi
only sxtraordinary o r emergency conditions c o u l d justify
using i t s o w n c r e d i t t o r e p l e c e c e p o s i t deficiency,
The Joctrine,
n o doubt, g r e w o u t o f the haz-rds involved
in such operations;
s n d t h e hazards b e i n g measurably r e -
moved b y t h e i n s u g u r a t i o n o f t h e F e d e r a l R e s e r v e S y s t e m ,
to i t epperently s e e m s less necessery a n d less
in contrsst t o t h e opportunity offer
growth e n d profit.
T h i s subject will b e discussed fur-
ther i n the program under Topic 1-H, “Methods o f Dealing
with henmber B e n k s w h i c h s r e C o n s t a n t e n d E x c e s s i v e B o r -
rowers,"
i. C h s i m n a n ,
i t i s proper
the ssasonel operations
t o say, w i t h r e g a r d
to
i n t h e Twelfth District, t h a t
the ssasons exist t r o m t h e first o f Jenuary t o the -end
of December.
B
y t h e time t h e season i s over o n t h e b o r -
the bordsr o f ilexico.
Governor Gri: sing
@
e will n o w have t h e report
of t h e Governors O p e n Market Committee,
b y Governor
Strong.
Governor “Strong:
asireedy read t o the sepsrate confernce o f Governors o f
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Federal Reserve Bank of St. Louis
93
and I
s m n o t s u r e w h e t h e r t h e Gheir-
men, w h o have not seen it, would like t o have i t read. I t
will take a little more then five minutes t o read it.
Governor Crissinger: P e r h a p s i t would b e sdvisable
not t o read it.
A t a meeting between members o f
Governor Strong:
the Federal Reserve Board and members o f the committee
this morning, this report was considered and discussed,
The B o ord held thet i t involved a
w e s t i o n o f system
poltcy which would require some consideration.
I t is
expected that a later meeting will b e held b y the Board
with the committee, when further data will b e submitted
ond the whole subject of policy suggested by the réport
will b e considered a t that time. I
presume, ir. Chair-
men, that as the report has m t been read separate
copies should be d s tributec, n o w or later, t o those who
have n o t received them, :
hi. V e r r a n
I
s i t proposed t o arrive a t some cone
clusion which will b e presented s t the sscond session o f
the Joint Conference, a s a result o f a mseting o f the co m ~
mittee w i t h t h e m e m b e r s
Goverror Streng: I
o f t h e Board?
think t h e point was, lir. Perrin,
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Federal Reserve Bank of St. Louis
thet probably a t t h e end o f t w o weeks,
o r soms period,
the Cormittee would west w i t h t h e Bosrd i r
consider
s u g g e s t i o n conteines
report, together w i t h further “ate t o b e submitted,
en
then communicate w i t h t h e reserve banks i f ony changs
of policy w a s
i e d u p o n o r sny decision
Governor Crissinger:
T h e next topic i s whet does
ence o f t h e past year show t o b s t h e influence
rket operations s n d reciscount trensections,
situation, o n d thst i s t h e
function o f e s c h
i n3
well-concesiv
Je w i l l h e a r f r o m Gaernor H e r d i n g
Governor Harding:
i r . Chairmen,
been
ths past year, a n d some o f t h s reports w h i c h hsve
read here this m o m i n g ,
s s e m t o show thet ordinarily t h e e
certein C s m e n d f o r
credit o n d thet a s t h e ¢ r e s e r v e b s
heir investments they are teken u p b y other
which results i n a lerger e e c t t e r
more a n c . m o r e
o f the
o n s of
$t i g 9 fact t h e t e very important function,
Reserve Banks
most important functions o f t h e F e deral
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a s @ system, l i c s
Reserve Board,
cious, quiet, n o t exactly control of, b u t inrlusnce
the discount 2nd investment merkets through the
open m a r k e t o p e r a t i o n s .
W a < k n o w thet
a t times
count r a t e is. not effective.
into t h e country,
v y discount rate, a n d th:
banks h a d a :
practically
n
e
s
s
I
t 2id not make
whether t h e
xtreme stringency,
we
the F e d e r s l R e s e r v e A c t
iesigned t o give t h e
influence o f control over
net h e d n o t besn
e x i s e y
days o f second Unite: States
eny institution since t h e
b e
of the Tressury,
System was established, following
Second B a r k o f t h e United States,
f
t is8
control which
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
9
was m o r e o r l e s
Seos~
s
clumsy
a: D L O
ieag
esury gold,
times,
you mey
ths Tressury vould buy bonds, o r
on bonds, o r would put
speciol Japosits i n certain benks.
That policy h e s con,
o
Og
LL
evas
aeposits.
system m u s t
to operate i n both
rections;
eble i n
x s u f f i c i e n t l y Liguic Ch form s o 3 s t o b e
LL,
cency t o g o into t h e merket o n d b u y not only
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
“i
10
bills but short tine Treesury certificates; snd, o n the
contrary,
t o have,
i n m y opinion,
t o have a reesonables
emount invested i n short time Tressury obligations,
so
that whenever i t i s éeetneuls t o check inflationary
tencenciss,
o r a disposition o n the part o f t h e money mar-
ket t o run ewey and g o into ell kinds o f speculetive
ventures, t o have something t o put o n the market t o absorb sone o f this surplus cash.
I believe that i f the open market powers o f the sys-
tem are permitted t o g o into desuitude ond the reliance
is t o be solely upon the discount rates thet the Federal
serve S y s t e m w i l l n e v e r b e a b l e t o f u n c t i o n a s easily,
ss s m o o t h l y a n d a s e f f e c t i v e l y
a s i t would through a
judicious, w e l l co-ordinated u s e o f its o p e n merket powerse I
o out o n its
do not believe ¢ a c h bank s h o u l d g
indép end-nt program end, b y competing with other
bull i n the china shop, but there
System policy, coordinated through
e Boerd, t h r o u g h w h i c h t h e s e p o l i c i e s
cen b e carried into effect.
Governor Crissinger:
lir. Heath:
‘ i e will now hear hr* Heath,
T h e guestion i s “Whet Coes the experisnce
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Federal Reserve Bank of St. Louis
ll
9
&
:
of t h e last yesr show t o b e the influence o f open market
opsrations a n d rediscount trenssctions, re:pectively,
situation,
s n d aie’
on
i s t h e proper function o f
each i n 5 well-com eived credit policy?
I confess t o some difficulty i n endeavoring t o sup=
oly a
definite s n s w e r
this sub-topic.
t o t h e cuestion w h i c h constitutes
I t s tine limit covers t h e last year,
snd that period hes witnessed e uniformly h i g h reserve,
fluctuating between narrow limits;
i t has s e e n ¢ redis-
count rate unchanged, s n d a n gpén s i e eh rats also con-=
e¢ o n t h i r t y d s
Perheps t h e most noteworthy happening c u r
ing t h e year h a s been t h e retirement o f several o f the
benks from the Tressury Certificate sna note markets,
net reduction o f 147 millions i n certificate
since t h e constituting o f t h e cowmittse o n Investments.
I t is e a curious t h i n g t h s t curing t h e same
recis counts
S
i t m i g h t b e construed a s 9
I e m cisposed
direct i n s t e n c e
to
g5nd a n y o t h e r c o n t e n t i o n
csrtificates
were
i n considerable
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
99
12
volume s b s o r b e c G i r e c t l y
b y t h e Treesury-=-
s n opération
into which reciscounting© “ i d not snter.
At n o time duringiD t h s
e r h e v e t h e volume o f redis-
counts o r the supply of bills been speciolly notwworthy,
>
end p r o b a b l y f i f t y p e
Girrec ely
any c h e n g e
go m u c h o n
end u n d u e e x p a n s i o n o r speculetion.
meesurebly corrected those tencti
S s without
discount r a t e
been b e l o w t h e m e r k e t r a t
rate cor customers!
situetion w h i c h s e e m s enomelous, 3 f f o z d i n g o p p o r t u n i t y
for rsciscounting f o r profi |
little o r n o u s e m a d s o f
ing the fect that membe
So f a r a s I
a m eble
A p 287% v y , t h e r e has b e e n
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Federal Reserve Bank of St. Louis
100
13
f open market opsretions e n a rediscounting during
deratione-- h e s b e e n i n t h e rignt
1aageLae,
b u t after a l l passive,
2 s i t should b e uncer
such gsneral conditions e s have b e e n current.
A well-conceived credit policy, 29s I view it, hes
for i t s prime object t h e supporting o f business u p o n 3
“stable bssis, t h e maintaining o f reasonable rates
money,
s n d the avoidance o f extreme either
tion of inflation o r deflation,
i n t h e cirec-
F o r the eccomplishment
of such pirpoge the Federal Reserve Banks have two principai means;
nd ver
i
n a m e l y , verisnee
i n r e c d i s c o u n t rate,
n open market policy,
Nomelly,
the
first nemed i s the first t o be i n evidence, s n d its
veriation slight, incrésesing a d u e l l y a s the reserve g o s
down i n consicersble degree, e n d more rapidly i f with t h e
decressing reserve t h e r e e r e unduly merked advances
general wholesale prices o f commodities o r evidence o f
speculation i n s
k s s e c u r i ties C o n v e r s e =
reductions s h o u l d o c c u r w h e n o p p o s i t e t e n d e n c i e s a r e
manifest. A
deney, 9
gradual increase i s public notice o f 6 t e n
marked increase i s & public warning.
B o t h the
no tice a n d t h e warning a r e heed¢d i n re:erve cities a n d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
14
L
O
1
lerge money centers, a n d neither.are-greetly effective
in smaller a n d more cis tant communities where t h e greattr
number o f banks a r e located.
When t h e r e d i s c o u n t r a t e g l o n e f a i l s
t o sccomplish
results, resayt t o open market i n other t h e n t h e ordinery
or incidentsl way f s
most powerful factor e t
the command o f the Federsl Reserve benks, s n d undsr such
through purchase o f bills
ul securities, o r f e e d i n g t h e merket from
their o w n holdings;
e n d I fancy thet n o snormous smount
in dollers will b e need-c either way t o restore the desired equilibrium.
T o sdopt t h e expression o f o n e o f
rediscount r a t e might
If the sdmonitions o f soft speaking s r e une
b i g stick m a y prove e f ectial,
o tf the
h
LL
impact
Governor Crissinger:
I think t h e members
T h i s i s a subiect upon which
o f t h e B o s r a youlLd like t o h e a r s o r e
of t h e other Governors, a n d w e will b e glad
anyone.
f
r
o
m
M r . Wills, have you something t o
V7
T think G o v e r n o r F e n c h s r h a s c o v e r e d o u
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
know,
A
t the same time, w e must k s e p i n mind e s t o
sssier t o b o r r o w m o n e y s t a n y p r i c e
than n o t b e
member benks' borrowings more
instead o f placing t h e exclus
main relisnce u p o n changes
rates.
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Federal Reserve Bank of St. Louis
Ve will hear from Governor Fancher,
Governor Fancher:
l i r e Chairman,
rate influences end controls b o r r o w i n g s of member
banks o n l y i n 2 general way,
diminution
s s m e 9 s s n y other indte
or é
o
curteilment i n extension o f
e a l
r necsssity f o r
I
t i s velueless a g
2 a terpent o r control o f the borrowing b a n k i n specific
casos.
meny bonks w h i c h d o n o t fully understand
under which t h e borrowing facilities o f
in the interests
Which operates uncer
unsound policies e n d prectices.
T h e discount rate would
not control o r influence banks o f
=gsirable s n d practicable t o
the: E x a m i n a t i o n Depsrvmer
: §8
2s borrowers
gnd policy i n edministration.
The Exeminetion Departi.ent o f t h e
means o f
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Federal Reserve Bank of St. Louis
104
eland hss been used very freely a n d with
n esdsting t o correct unsound policies
snd prectices prevailing w i t h some o f our member banks.
ended condition
ant inclined t o borrow i n excess o f its
i
c line, o u r
mine tion Department i s called upon t o mske o n investi-
56 B ameRe o s
T h e neture
its crecit policy.
Tae general character o f loans a n c clasifica-
ion e s t o various d u s t r i e s .
Cc)
‘Whether t h e officers s n d directors individuslly
through their sffilistions are using the
the bank beyond prudent limits.
whether the proper iavestigot
applicstions f o r losns, b o t h i n determining
Oe. a c iveney o f t h e snpplicant s n d the use for
which ine thegeeds are
“Ihe ther loens a r e mede o n t h e generally k n o m
sedestnn o t G a s a p p l i c a n t
i n t h e community
but with t h e purpose o f incressed revenue t o
the b a n k ,
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Federal Reserve Bank of St. Louis
“has ther. t h e b a n k n e s
vho se requiremsnits
Denki=bO: - D L r O v ee
a
ts o w n customs:
community o r t o m e k e o u t s i d e l o o n s o r
ments f o r t h e sole purpose o f maki.g
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Federal Reserve Bank of St. Louis
of exaninetion slong
migstion which i s furnishes,
onbisveltaen 13
y t O s u c h class
uncovered b y
‘
PCO U E S
efullyend endeavor t o
to c o r r e c t t h o s e s i t u e t i o n s .
A
t times o u r
found i t necesssry t o stqueint members o f
members
o f t h e board o f t h e bank with
to b e r a t h e r c o n f i n e d
t o the
known gencrally b y t h e Board,
SxemMLNers ,
fornstion
t o the
thet frees
fres u s e o f t h e i n f o r m a t i o n t h e t c o m e s
examinations, t h a t w e
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Federal Reserve Bank of St. Louis
107
13
With banks.
either b o r r o w f r o m u s
thet
that t h s m e m b e r s
excessively, o r
their r i e h t s
policy o r
Fm a
rss
r
Soo G b e e
osnch
rer
e:v
F
Caves
hevs a
Us
Cp
o
t o the
miners
yy
G .o
fo not find, Governor Bailey,
b a s c o rmation i n all cases.
Governor Bailey:y
on that.
tue invormea tion
Governor F a n c i e r s
Which comes throush examin stLonsg
but we oiten i
go beyond t h a t
by national bank
thet i t becomes necessary
move complete picture o f the
' byy t h e exeminstion mece b y
the i n a x
Govsrnor F e n c n e r :
have very close coops)
ye
We
netional b e n ak
k e x e miner.
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Federal Reserve Bank of St. Louis
108
very close
a
Governor Crissinger:
C
h
e
i
m
m
1 B
T h y
has
very c l o g e l y
re
Our c o n c l u s i o n s f r o m t h s t o p i c e r s s o e l e a r t h e t
ence, u p o n t h e
exeningstions a n d
ofitige
e n d cirectors w i t h
member b s n k b o r r o w entirely f e e s i b l e
to
ur o w n examina-
Depertmant,
ider &
t
err O42 0 1 4 0 I N S
i] r e p o r t s
Nee
h
o : examina
scount l o a n s
benks
hres f a c t o r s
e inrorme-
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Federal Reserve Bank of St. Louis
109
factors are, first, t h e condition o f
the character e n d ebility o f
management, i n c l u c i n g
directors
of the member benk, a n d the familia 6
with its sifsirs,
end
n
s physical conditions i n the
Ye naturally must base
benks which show 6
expand their loans s n d which have t h e
dvantege o f lerge rediscount loens a t the ies sdersa
It occurs
t o m e thet w e must n o t loss
stnen te lL fact, w h i c h a.nlies t o all member banks,
solvency
at
equontly
the
vicinity w h i c h a r e d o i t
seme c l s s o f business cirectly under t h e same c m nditions.
Ye find one bank i n =
commnity t h e t i s rather
“26 t o ons cause o r snother, a n d snother bonk
running s l o m i n = very comfor table position,
uncerteke t h a n s l y z e t h e difference i n the environing c o n d i t i o n s
o f business f o r t h o s e t w o
Sometimes w e find that o n e benk i s not props rly
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Federal Reserve Bank of St. Louis
110
sufficient a m o u n t o f c r e d i t t o i t s c o m m u n i t y
to unloaG o n the other instituttons, b u t
we wast bear i n mind the fect that regardless o f that
fact t h e other institution i s not necessarily compelled
to feel called upon t o carry 2 1 1 t h e burdens o f the cormunity.
From the reports o f examinations, 9 n d the additional
information slong t h e seme lines,
i t seems t o m e that w e
nonshould sive d u s considsration t o 6 proportion o f
e s thet
eligible peper i n the bank note case, 4 s well
which i s eligible f o r rediscount.
i
n
a >
s
d
bank
thet thecause of large lines i n tho Federel reserve
carry paper which
is morely t o provide funds t o finence o r
character,
43 more o r less o f a n undesirable o r non-liguid
refore, t h a t simply s n d solely b y
to
of t h e fact that s member b a n k m a y b e able
that we
submit t o us eligible e n d acecptable paper,
reason.
should extend its lins aelery f o r that
t o o high a regard
There has probably b e e n i n t h e past
reserve banks t o
for t h e legal obligation o f t h e Federal
rediscount f o r m e m b e r banks.
Y
e a r e rather inclined
to
u n i t a n d t h e reserve b a n k
consider t h e member b a n k a s t h e
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Federal Reserve Bank of St. Louis
LLL
of credit, e n d that only a fsir proporreasonable proportion o f i t s loans s h o u l d e
b re-
flected i n our own note case. P e r s o n a l l y I cen see n o
warrant f o r any cifference i n the quality o f credit which
may b e extended t o e member b y the Federsl reserve bank
than e n individual, f i r m or corporation b y the member bak,
I think
d i f f e r e n c e i n i t fundamentelly.
Line o f credit paper a s ordinarily referred t o is
2 frequent source o f expansion o f léams and naturally the
expansion o f the rediscount lines.
T h a t i s a factor
that can be easily, o r more o r less readily determined
from the reports o f examinstions,
b y comparison between
two series o f reports o f examinations.
Due regard m s t slways b e had for the bank's ability, a 8 measured b y capital end surplus, towards Liquide
tion a n d recuperation.
be e x t e n d e d
I
n one community t h e loans c a n
i n greatsr v o l u m e b y r e a s o n o f t h e recupsra-
tive powers o f that particular community.
W e must b e
careful, too, i n not encouraging the holding o f goods a t
high prices,
t o conduct 8
sound sconomge policy o f fre-
ayuent turn-over a n d small margin,
rgetting i n t o a
t o prevent very easily
situation o f speculation,
I
n discussing
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Federal Reserve Bank of St. Louis
Lie
20
the influence o f t h e rate a s 2 measure o f credit,
thought which believes t h a t t h e r e i
8f
rate should h i s h e r t h a n t h e open msrket rate.
inclined t o agree with thet, with some gualifi
an academic discussion o f that rule leaves f e w
vulnerable points, b u t the test comes i n a n 5
precticeal
application o f t h e rule.
i
d
4
t r t e r m “open market rate" e s i t
l
u
o
h
sdefine
{
perhaps
may b e a o p l i e d t o t h e p r i c e o f m o n e y o r c r e d i t sccoimmo da~
tion i n the United States, s n d w e find a sort o f coimon
denominator,
A
s 9 practical matter I
co n o t believe t h e
open market rete i s t h e rate a t wnich t h e individual berks
accormmodet: their customers, t h o u g h i n cach district t h e e
t o s p p r o a c h 4 a level.
N o r
is a
tendency f o r s u c h r a t e s
do I
believs t h a t t h e s v e r a g e o f s u c h r a t e s c o n s t i t u t e
the o p e n m a r k e t r a t e ,
o r t h a t i t i s correct t o s a y t h a t
there i s a n o p e n m a r k e t
i n each district distinct f r o m
such rates i n other districts, b u t thet t h e open m e
rate i s the r e t e st w h i c h banking institutions,
and o t n e r s
idle funds against psper o f unquestioned solvency a n d
and o n which borrowers a n d dealers, w h o a r s
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Federal Reserve Bank of St. Louis
24,
constent borrowers o f funds,
snd therefore i t may reé
are apoliceable t o t h e c o u n t r y a s
fluctuations a r e csuged b y the e b b end f l o w o f those furs
from one section t o another i n perfect relation t o t h e
and
importsyand exports o f golé snd t h e seasonal cips
different sections.
Iem n o t i n fevor o f a n orbitrery uniform rate o f
rether belisve uniformity
ai scount a . e l l cisirtetss I
s h o u l d coms f r o m the
and f l o w o f f u n d s f r o m o n e C i s t r i c t
B
t o snother.
Esteroubirg
such h i
m
rates obteinins,
p
o s
c
p
e
te T h e
rediscount rate t o control t h e volume o f credi
have
rediscount rates, whether high @ low, undoubtedly
in the
an influence o n borrowing, b u t such influence i s
egricultursl dist
a
n
c 6
vis p r a c t i c a l l y only
rediscounts
noticeable effect, i s o n v o l u m e o f
centers,
py t h e larger b a n k s s t t h e f i n a n c i e l
ena
ine t h e Le o n
such b e n k s c o m p a r e t h e r e d i s c o u n t r a v e
aistriet w i t h t h o s e s v a i l a b l e
i n o t h e r centers.
conform
While t h e r a t e i n e s c h d i s t r i c t s h o u l d
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Federal Reserve Bank of St. Louis
pats
the supply o f credit svoileble a t
yank, m y opinion i s thet t h s reciscount v e
more t h a n s
and c a m o t b e considsred
volume o f credit e t any given
point f r o m which recession m a y b e expseted t o set in.
In conclusion, I
might s e y thet i t i s our theory a t
Dalles B a n k thet w e must treat
that w e must treat t h e petient
book.
Governor Crissinger:
T h e third topic f o r “is cussion
Rediscount rates.
dow f o r general cis cussion, u n d e r Topic A ,
and Governor Harcuing.
shall
read, Governor Young?
Governor Young:
GO S O .
Mr. Martin:
u c h o f t h e past discussion o f
subject, w l r e s t i n g o n d of v a l u e i n prepsring our
sobtled
minds f o r a time which m a y possibly c o m e when 4
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Federal Reserve Bank of St. Louis
26
discount policy i s possible, hse
ficient i n present practical value.
ged from the w a r period, a n c i n 4 i
s u c h 3s
T represent, w h e r e there a r e more t h a n 6 0 million
of deposits p
i n a large number o f insoldigcount rete policy
vent rural banks, t h e u e s =
4g s n intensely practical business problem.
After careful considsrstion, t h e Advisory Council,
factors governing t h e sstablishment o f discount rates:
Federal Reserve System
as a whole.
The reserve position o f the Federal Reserve
Bank, whose rate i t i s contemplated t o changs,.
The condition o f 2 1 1 t h e benks o f t h e country
as 8 whole, a n d o f t h e seversl Federal reserve
districts.
he economic
nationel standpoint.
World conditions, b o t h economic anc political.
The e v e n t u a l e s t a b l i s h m e n t
of 3
reciscount r a e
higher t h a n t h e prevailing commercial rate,
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Federal Reserve Bank of St. Louis
Uniformity o f rates, w h i c h according t o its
fudgment might b e prectical a n d acsirable a t
times b u t s h o u l d n o t b e a d o p t e d a s e @ fixed
poilcy.
In certain o f the reserves districts there i s sharp
devistion from the general sverage of t h e condition o f
banks for the nation 9 s a whole.
which nscessa +
T h i s iss
fvects t h e m materially i n their cis-
count rate policies. E e o n o m i c a n d financial conditions
deviate quite 9 s sharply i n certein districts from c o n d i
tions i n the country a t lerge.
T h e s e two situations
add emphesis t o t h e Advisory Committse's l a s t clause refer
ring t o the inadvisability o f uniform rates a s 2 f
policy.
h e r e a r e very s h e r p differences b e t w e e n t h e
current m a r k e t r a t e i n t h e e a s t e r n a n d w e s t e r n hselves o f
the Ninth District, a n d 9 still more pronounced
the New
as b e t w e e n t h e w e s t e r n h a l f o f t h e d i s t r i c t a n d
York ares, e n d between other sections o f t h e country.
It has always seemed t o m e that uniformity i e Sg
Seferred until 3
time w h e n there i s uniformit
conditions i n t h e United States.
that t h e existing &c o n d i t i o n s
i : think £ 6 16
i n e a c h Federal r e s e r v e
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Federal Reserve Bank of St. Louis
lla
at least,
rate changes t h a n
factor. I
make t h e s e s t a t e m e n t s w i t h
the fact t h a t with t w o
et t h e p r e s e n t t i m e o n :
the entire
s s s e s o f paper throughout
e r a l Reserve System. I
should say, a t
the s a m e time, t h a t I think this i s the result o f unusual
conGcitions. I
low a
should herdly b e inelined t o fevor s s
rate 3 s f o w e n d o n e - h e l f p e r c e n t i n t h e N i n t h
ageinst current rates o f five
end s i x per cent, i f there were n o t the most
urgent business r
Sistsnce
t o member
nocessitics
b s|
of 0 :
tion, h e v e influcnced
»
sdvantageous
more t h a n a n y o t h e r c o n s i d e r e -
t h e establishment o f t h e present
rate f r o m one t o one o n d a helf per cent below t h e manke
at the centers, a n d substentially below the svcrage r é
in the rural dis tricts.
Meny o f o u r m e m b e r s a r e i n t h e u t m o s t d i f f
Their outldok i s thoroughly ciscoursging, a n c there
Little preser.t hope o f any buidding u p o f desposits
any v e r y s u b s t a n t i a l r e d u c t i o n o f l o a n s e n d discounts.
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Federal Reserve Bank of St. Louis
29
1
1
These b a n k s m u s t w e a t h e r t h r o u g h b y s o m e p r o c e s s
s
t o mors
favorable times, e n d i t seems t u me there i s not only a
legal, b u t s
moral o b l i g a t i o n
o n t h e part o f o u r bank t o
extend t o them all the help w e can upon terms that are
ecvantagsous
Les 6
t o them,
reactions followings t h e war h a c spent t u s h
sariculture, benking e n d
had becoms resdiusted t o »
positions t h e y will occup
in the future, I should feel thet our rate should b e brai ght
level more nearly apsrosching t h s average o f rates
by banks
t o t h e i r r e g u l a r customers.
8 very a b l e paper printed i n loee, m y colleeguse
Giscussion eslled strention t o t h e following f a c
tors sumgested b y the Boerd, w h i c h should b e considered
in erriving a t what i s the current rate f o r money:
1. Retes cherged b y banks t o their regular custom-
Rates f o r one-neme poper bought through n o te
brokers,
Open market rates o n benkers' acceptances.
Retes o n Treasury certificates.
I think t h e t these e r e fsctors which i t i s necessary
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
into cons id-re t i o n , .
c
n
a
iscount l e v e l
s h o u l de
b brous:
to r e t e s t h u s
we wuncouk t e d
reserve
fluctuations o f the |
s
ere very Little
the rurel conmminities,
majority o f t h e member benks.
losn rste changes b u t very
dis count r a t e
3oe-csllea current
to t h e centers,
w o t h n e r 1t
Sl@ u i i e e o w e :
OO t a p e o e a
PSS, U n e
reserve
the r e t e
rr
t
y ba reserves
by the n o n - i m e n b e r s f r o m t h e country,
t h a t t h e sverage &rate charged o n country
mossible
is
&
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
IANT
% L V
r
eservs
a
e
p
o
a
t
rediscouns
e
a
r a
t
1 ss t h e c u r r a n t r e t e o n t h e
serve tions
Miya.
to% be
Bre eos:
shoulda n o t
netursl rssources ac:
2
to t h e n e
t t h e same time, t h e cdigcount rate
level should not b e l o w enough t o encoursge reciscounting
by t h e m f t h e profit involved
In a western cistrict s u c h 8 s ours,
volume o f cresit sné regerves ought t o be
:
LACES
L
e “ a r r i v i n gOo 2 c
gnd discounts o f &
benks
t h e &
s a t e s o f Minnesota,
North Dekots, South »okots e n d sonvent, w h i c h s r e much
in t h e p u b l i c
o n e
n e p r e s e n t t i m e o n account
tress i n egriculture, 2
d
to 543,910,000.
o f dis
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Federal Reserve Bank of St. Louis
esmounted t o 31,291,°00,000.
per cent i n the volume o f credit
customers, p e r t o f whihh wes netural
inflation,
to. come.
T h e
8g this s h o u
discount level s s 9 warning
pronpt,
net only b y prompt s n d vigorous ection c a n the rate b e
an e f f e c t i v e werning.
fsetors t h e t o b s t r u c t =
free p l a y o f t h e w a r n i n g
Count r e v e = ¢ A
copepake.
om m a s t b e c o n s
fect t h a t t h e r e i s s o m e u e s t i o n
a s t o whether
e
m
influence w i t h a9 n o n - b o r r o w i n g n
2g i t s i n f l u e n c e w i t h a
rily m a i n t s i n s
There c a n b e n o q u e
count r a t e edvances a s wernings t
g e n e r a l public,
which seems t o plane a n undue importonce u p o n them, o r of
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Federal Reserve Bank of St. Louis
L22
influence u p o n t h e c y r r e n t r a t e s t t h e centers.
reful discrimination, n o t
process b u t u p o n t h e stspping-
experience would indicate that i t ds desirable t o
slter discount rates e s infrequently a s possible. ‘ W h i l e
they heve 2 limited effect upon rates charged b y rural
benks t o their customers, t h e y msaterislly sfrect public
I also hola t h e view that when i t bécones
necessary t o alter t h e rate levek, t h e changes
conveyed t o the public with 9 cle‘r snd precise statomon
as t o the ressons thersfor.
As s
generel consid:ration,
i t sopears
t o m e that
experience i n my own district at lesst has proven that
59discount r a t e policy i s somethin”
Gaa
itaie &OLB age2S,
~
formulate snd determine i n sdvance.
O u r credit policy
the
has been very lergely indicated t o us by some o f
factors I
have mentione<,
a s they have éeveloped fron
time t o time, e n d i t i s ciffi
1 t t o sse h o w a sound
vhich i s
rate policy coulda depart v e r y much f r o m that
formileted o r # t l e a s t s t r o n g l ; i n d i c a t e d b y c o n d i t i o n s
within t h e r e s e r v e district.
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Federal Reserve Bank of St. Louis
The r a
an importsnt fector, a n c
gstricts t h a t s r e wholly o r
Character, t h e t i
r
a
b
e t h a t discount r e t e levels
l
meintdined s t epproximetely t h e seme point, since i t
clésr thst s lover rete i n = contiguous district
apolications
drive c r e d i t
i n large volume
f r o m home.
At the present time, i n
been progressing steedily for some months,
ming industry 1 s soing t o come bec:
i n tins,
it mey reauire f r o m two t o five years
fore m e n y o f o u r m e m b e r s c2:. Ssceass
ent esrrying
U n i c r these conditions,
it eppsers more t h e n ever
a
Dolicy s h o u l d b e eppliea,
=
inBSa spi
~
£ friendly coo;
In t h e vorkinr ia|o u t o f @ Giscount policy
Ed
that t h e control exercised b y t h e discount o r
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Federal Reserve Bank of St. Louis
124
of. psper oftenticss
syie@ purposs 4
rete a
e b i l i t y t o 9ca9}
perticular cose. W h i l e the rate
must epply t o ell banks irrespective o f t h e rstes t h e y
cherge, Giscretion i n s h e seceptance o r rejection o f
much t h e s e m e purpose.
As t o the effect o f tho rete, whether high o r low,
upon t h e volume o f borrowings,
i t cpoysars t o b e clear t o
me thet the rate hes preeticslly n o influence and that
in times such e s those since lete 1920, n o rate within
reason v o u l d s e e m t o o h i g h o r o p e r s t e 9 s a
e
c
vine m e m b e r
t no ea nu appl
l
f
n vdisates,
The c o n t r o l
use o f jucgment 3
d s terr<
i n necesssitous cizrcun-
i n s u c h cases m u s t r e s t u p o n t h e
G i s e r e t i o n b y t h e discount o r execu-
Give C O l m A c t e s .
the moristy,
oreparatory s t e p m i g n
rate level t o the level o f t u s merket o t
This would imso0se n o hencicap upon the lerge
since in losning to the country on colloterel sé
hey C o n o t l o e n ¢
a c e t
rate b u t a t 9
rete t h e t i s
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Federal Reserve Bank of St. Louis
125
36
I t would somewnat r e d u c e t h e spresd
gonewast higher.
r u r a l rate t o ber-
between t h e rediscount r a t e a n d
Governor Crissiager: G o v e r n o r Harding, y o u gre down
for 9 Giscussion o f this subjcct.
Governor Harding:
l i r e Cheirmen, I E think there i s
ne theory, w h i c h w e s spoken o f @
e
early days o f the System, t h a t a
«
e ciscount vr
n
ploded, s n d
X
e or could h e m a c
Reserve S y s t e m s h o u l d b
current going rate for money.
T a s t theory i s sound
we
enough i n principle, e n d i t ssems t o b e correct i f
understend correctly w h a t t h e going rate f o r monsy is.
t
the current open m e r s
a
e
n I concede
isrve discount
rate above 6
e n mi
S
E
s
n o t only possible,
the
but I think i t desirable t o have i t somewhet sbove
open m a r k s t r a t e ;
b u t o n looking t h e country o v e r 3 n d
rates
on seeing t h e number o f cities w h i c h have contrect
see i t i s ab9s h i g h s s t e n e n d t w e l v e p e r cent, y o u c a n
>
that
solutely impossible t o have ® varying discount rate
will absolutely s h u t o u t r e c s
n
g e t s profit.
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Federal Reserve Bank of St. Louis
"st many banks o f e n y
facilitiss
o f the Federal Reserve
wiscomn
o t h e subzsct
thon thsy had.
B u t I think w e
s c c u s t o m ourselves
4
reduction
Ln
b e s t customsrs.
CO.+-bheo
Boston, m o s t o f the
their b e s t c u s t o m e r s
s t four s n d s
half
g a s Be
to four 2 n d 9 nalf p e r cont, e n c las
Februsry, l a s t ntensously t h s current rate t o best bor~owers i n the Boston benksrss werked u p t o
ib esems t o be generally expsetec thet
in t h e B o s t o n b e n k s
per cent s
6
t h e reciscount
Now, t h e open merket rate h e s a mich broscer
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Federal Reserve Bank of St. Louis
proteset t n e o p e n m s
merket trensactions t h o t
behnks a r e limitec t o purcheses
or “ere s livose 1 a
instrument;
W
e
s une
I think i t
pee d
W
he Psderal Reserve Act.
those sections o f t h e Federel R e s e r v e A c t
rolete t o benltsrs ecesptences w i l l snow very
mov esment
sna t h e t
is ons phese o f
because m y
efforts
benefit
of
sesinst
oO
t h e reciscount rats,
For instance, ¢ shipper o f cotton will ‘rew o n
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Federal Reserve Bank of St. Louis
: 1 2 8
39
Treasurer o f a New England mill a t sight, with,docuiments
sttached. T h e t i s usually preferred paper.
N o w , t h s crawer
of the draft is sometimes requested i:, te b e the crewer
elso o f a stbety d s y draft, w h i c h i s atteched t o t h e sight
craft e n d the ninety day draft secured b y documents.
o do that.
some cases he declines t
heve n o thing t o d o with that;
I n
H e says, “No, I
t h a t i s your business. I
will ‘raw a sight draft, a n d i f you want somebody t o draw
a hinety day draft get somebody else t o do it; I will
not d e it; h e r e s r e t h e documents, insurance policics
everything"; s o the mill treasurer, srrengements Rave
been made with seme bank t o accept, w i l l g o snead
himself end ‘raw a ninety day draft, with bill o f lading
for t h e cotton attached.
T h e n that draft goes into t h e
bank, vhich immediately puts t h e bank o n inquiry 4 s t o
the nature of the transection and ss to whether or not
goods.
ninety d a y s i s r e q u i r e d f o r t h e moment o f t h o s e
thst i n
The Board has ruled o n two o r three occassions
t o the
domestic acceptances t h e r e must 0 S sore relation
time required f o r t h e completion o f shipment.
er
W
e had
t h e other dsy where a cotton broker i n Norfolk,
Virginie, d r e w e
sight dreft o n “a: Boston mill treasurer,
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Federal Reserve Bank of St. Louis
1
40
with cocuments ettecl
2
9
e n d the cocuments contained a
by the mill treasurer o n
with 2 bill o f l s ing f o r t h e cotton
Ceyse
T h e cotton w a s t o go z i
t
o Boston b y steemer,
which “sgt take probsbly three days. F r o m Boston i t
vas going o u t t o nearby points i n New Hompshire, w h i c h
roulc not require more then sbeut a week, a n d the mill
treasurer,
o n being interrogated, s a i d “ h y , sometimes
we get i t i n two ncsks, a n d then it i s sonceivable thet
it might teke ninety cays."
5 strike o r 2
o f course, only 3 longshore
strike o n t h e
ninety dsys, o n d we turned thet beck,
think
thet is 3
o e
proper u s e o f t h e s c c e p t e n c e nerket,
T will t o u c h m o r e b r i e f l y
co
‘ Y e do not
o n esnother m a t t e r
i s the metter of uniformity of rates 91
sl retes.
uniformity
there w e e =
T !
e
w i s explicit i n its
i n ell districts
veriencs
i s n o t required.
i n t h e rates,
A G . A A D Ss
b u t t h e recent t e n d e m y
he various c i s tricts.
not ,iseuss t h e t , bseceuse i t i s o u t o f n y p r o v i n c e;6
he mitter o f preferentiel rates w e s experimented w i t h
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Federal Reserve Bank of St. Louis
130
al
by t h e Boerd,
snd 1
want t o l e y d o w n t h i s thought:
Based o n experience, b o t h e n snd off t h e board, w i t h re-
: e n t i e l rates within the cistricts o n vaerlesses o f paper.
B o t h the banks and the Board 9re
sllowed t o esteblish verious rates o n various classes
of paper. I
d o n o t b e l i e v e t h e p r e f e r e n t i a l r e t e shoulda
fferences i n mater’ then. T h e t
gsems t o me t e b e 9 logicsl snd scientific besis. i
preferential rates e r e d-sired,
4
i t may b e that short tire
peper, meturing i n thirty days, i s entitled t o a better
yete then ninety cay paper, provided you sre sure the
‘thirty G s y psper i s going t o b e paid;
b u t the giving o f
e preferential rate o n cif erent classes o f securities,
I think i s bsd practice.
I shall content myself b y saying thet I
read t h e
letter which Seeretery Gilbert scdaressed t o t h e Bosrd
lest August with e greet ceal o f interest, a n d some disT confess myself utterly unable t o follow h i m
his erguments, e n d I think i t i s a n unsound theory
sdvwoceting. I
believe i t is inconsistent with
h policf t h e t he himself,
o n behalf o f the Treesury,
has announced, t h a t they desire t o sell Treasury certi-
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Federal Reserve Bank of St. Louis
Treasury c e r t i f i c s t e s c o e s
impetus t o t h e merket, o n d i t meens
lowes
going t o use that because t h e y want t o g e t t h e
rate possible,
Governor Crissingesr: G e n t l e m s n ,
w e will teks a
recess a t this time until 2:30 o'clock this sfternoon.
(Thereupon,
a t 1 : 5 5 o ' c l o c k p . m%., & @ recess W a s
token until 2:30 o'clock p . m
The Joint Confere
h
o f t h e same Gay.)
e Federal Rese
with t h e Governors e n d
t o the
Fedcral Reserve Banks reconvened, pursuant
ng of recess, 4
: 4 5 o'clock p. m..
Governor Crissinger:
W
e will n o w t a k e u p topic
III-B.
Under Secretery Gilbert's letter o f
August 3 , 1925, regarding differential
commercisl
between r e d i s c o u n t r e t e f o r
benkers
paper s n d o p e n m o r k e t r a t e f o r
scceptsncese
hear
1
3
2
We w i l l f i r s t f r o m G o v e r n o r S e a y .
Governor Seay:
M r . Chairman, I
listened t h i s morn-
ing t o t h e expression o f views, w h i c h a r e s o identical
with m y o w n t h a t I
was r e m i n d e d
o f t h e fuct that w e have
always found there that there were g o many o f u s who
thinks alike o n many of these subjects, that i t is difficult t o tell our thoughts f r o m others,
able t o s p e a k w i t h a
my o w n views, I
s o i n order t o b e
measurable d e g r e e o f i n d e p e n d e n c e
will merely mention that I sketched t h e m
out l a s t nighte-
I have read Secretary Gilbert's letter two o r three
times a n d I
do not think t h e subject o n the prsgram ex-
actly O x p r e s s e s t h e Proposition,
The purpose of Secretary Gilbert's letter as I
Lnverpret i t i a t o e e
i s k e i t h e r n o w o r later 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
ernment certificates o f indebtondness.
posal m o r e p l a u s i b l e
b y Gov-
I t makes t h e pro-
t o bulk together bankers acceptances
and certificates o f indebtedness, a s he dows.
In t h e d i s c u s s i o n
from time t o time a
o f rediscount
rates
a n d polisy
very proper distinction h a s b
between t h e c o n s i d e r a t i o n s
whichshowlé t
e given t h e rate-
On commercial o r line o f credit paper a n d those which
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
133
the rete o n that liquid class o f paper repre!
sccesptences
'
s
rw h i ceh a rke purchssed
n
e
in
b the
t
except
ve B a n k
o
Reser
Ne
n o w r e d i s c o u n t s d k b y any
n
Dn
ay
ie = aint
ficetes o f “ e p t e d
yarks
o
n
o
t b e purcnasead i n the open
but m u s t b e r e ddiscounted.
yresents t h e subject i n a
per sseurse b y certi-
M r Gilbert's letter &
very c o n f u s e d menner.
If Federsl Reserve Banks wsre left entirely f r e e t o
y s and
u
obligations,such
b
e s cert
d sell Treasury
of i n é s b t s d n e s s
e n d other s h o r t t i m e Government obligation
the m a t t e r c o u l d b e G a l t w i t h i n a
t diffiqlties.
u
o
h
t
and
y
icates
tfor iestablishing
s
s
e
c
d b y certificates
e
r
i
satisfactory m a n n e r
ew is,r in mey judgment,
h
T
no
9 e prngfe rential rate o n paper
o uf ince!c
s
s
vwnoen t h
ran r e d i s c o u n t i n g
distinction between p
sbhility c n d resources e n d
or between t h e mals
and
o f psper o f nstional
p s p e r o f poor fermers,
The only cistinction thst wes mad- wes betwee
t m a t ur
r i t y con c
long
h meturity.
s
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Federal Reserve Bank of St. Louis
£5
pepsr, b u t i t proved unsatisfactory.
The conside stions which govern t h e establishment
= reciscount r a t e o n commorcl: =
s r e munerous
snd of s eomplex nature, end the opinion
if not b y ¢1l suthoritiss t h a t a uniform
na
osrts o f t h e wountry i s neitnsr proctical
It is not logical nor justifisble.
The present r a t e i s uniform, b u t i t wes n o t b y
concerted sction o r cosign, b u t ssems t o heve * s e n t h e
ecnerol recognition t h a t u n c : rall t h e circumbusiness
esrate a s was economiczlly justifioble, a n d i t
the sep are te action o f Reserve B a n k Boerdas t h a t
“nd e helf per cent rate wes arrived at.
I t is
course known t o sll that t h e ratc i s below t h e market
comercial paper,
s n a has b e e n
Tt i s t o b e G o u b t e d v h e t h e r f o r a
time
t o tome t h e reserve
above the merket;
t
long
bank
e
s vary too widely, e n d i t
is not improbsble t h e t t h e merket rate would keep i n
73
advence o f t h e r e s e r v e b e n k r a t e f o r c r e d i t
market i s meant t h e price which business &
willing t o p y
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Federal Reserve Bank of St. Louis
NREIS
credit w h e n
i t neeos i t .
coursé,
are accustomed
t h a n benks
b e made higher
oe
n a r e s results custoriers.
I t 2
rate d o s s n o t s x e r c i s e 2
great influence u p o n t h s rats
to their customers, except i n the
reserve besnk rediscount rate
menersilly b e fixed f o r t h e a c o .modetion o f business s n d
the protection o f reserves.
It has f r guently b e e n stated t h a t i t i s cesire
ip ths open merket rate, puether f o r bankers
snces o r Treasury certificetes f r e
fluences, e n d b y 68 P i e c e ) A n t is
mesnt t h e i n i e c t i o n o f
2
tion w i t h o u t e c o n o m i c w a r r a n t .
Thers can bs n o economic warrant for fixing & ‘pteq
of
ferentisl b a n k rate o n peper secured b y certificates
indebtedness or, |
vestment markst,
a p s , anythins else.
I t i s t h e in-
o r t h e abundance o r lsck o f free capital
should
in the merket f o r short time investments w h i c h
is, o f courss understood t h a t t h e
ca
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Federal Reserve Bank of St. Louis
i”
1
3
6
essrve b e n k purchsss o r open market r a t e should gensrabove ¢
r a t e i n order
t o prseve:t u n l o s d i n g o n
Reserve b a n k s s n d f o r t h e p x s e r v a t i o n o f t h e o p e n
agMr°® Gilbert states,
tascens
been i n s t r u m s n t s
o f inf
a
n
d Stilt
peic for b y
smount o u t s t e n d
thet t h e y w e s c r e a t e d
snd i t i e balievecé that public finencing
sndhas b e e n c o n c u c t e d
7
with g r e a t still. #
t h e smount outstending w e r e a s
ly was, t h e avilts-waith m i s t f o l l o w
referential r a t e w o u l d b e j u s t a s m s n i f e s t
e s wes
ferential r a t e o n other government obli-
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Federal Reserve Bank of St. Louis
a8
tions w h i c h c s m e
sbween n o v
and t h e n e
thc merketing o f t h e
be peic f o r
muintmmn inject much greater ortificiality.
I
t hes
e t h e chief purcnsses,
srgued t h e t city benks w o u l d b
purchesed f o r investment et t h e beginning, t h e y
in s h o r t e m s r g e n c i s s
snd the contention might b e reised t h e t t h e city benks
slone w e r e i n position t o get chssp monsy.
thet t h e e n é w h i c h h r , G i l b e r t
banks sltogether i r e s
open merket.
T e i464 nett B F
to successful operation f o r
to e x e r c i s e s o m e c o n t r o l o v e r c u r r e n t o r
Gilbert states t h a t he sees n o
fof e n sfvance i n the discount rate, h e conten
possibility o f such s n savencs w h e n h e wrote
There now s o w a r s rather t h e possibility t h e t
may b e c o m e m o r e abundant,
s n d t h e present s e e m s 2
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Federal Reserve Bank of St. Louis
49
1
opportunity
3
t o establish a
ing certificates,
8
f o l d u p o n t h e market b y acquir-
i n orcer that t h e means
ofa]absorbing excess imarket funds b y selling
if s n é w h e n f u n d s b e c o m e recuncant.
sent r o o m between the r e c i s c o u r t r a t e sna@ the open merkst
rats t o ellow i
r e f e r e n t i a l rediscount r a t e o n
To p u t u p t h e r e d i s @ m u n t
on commercis) p a p e r f o r t h a t purpose w o u l d e
b folly;
on
the other hand, i t might not b e wise t o lower orbitrarily
the open merket rate. G e n e r a l l y
bsnks should follow t h e market.
The m e c h s n i s m i s n o w i n w o r k i n g o r c e r
reserve b a n k s t o a c t 9 8 a
unit i n opén merk
end such operations should b e left t o their composite
T h e r e sre other important considerations.
jucgmen
Open m e r k e t r o t e s c a n b e c h a n g e d f r o m w e e k t o week,
at 4
H
G
m
e emergencies, a n d the public w u l d
Tt w o u l d e t t r a c t
n o sttsntion.
recdiscount r a t e e v e r
snould n o t
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Federal Reserve Bank of St. Louis
139
sblish o preferential r a t e o n certiricates
would take o u t o f the h a n d
o f t h e reserve banks t h e t
control over t h e scquisition which i g hishl- desirable.
To purchsse t h e m i n the open market i s s yoluntary «ct.
n
u b y preference i n rate
are attracted f a r e d i s @ m t
they will be acquired a t the will o f tho W o k e ,
o r the
offering banks.
Governor Crissinger:
T
e will now. hser f r o m Gover-
nor Strong.
tir. Harrison: G o v e r n o r Strong hes ssked m e to: read
certein extretts frome letter which hewrote to
of t h e B o e r d w i t h r e g e r d t o t h e subject,
Seebaveay i n g r e a t rdetail t o t h e Conferencs
Ors.
Ur, Gilbert h a s writte.
difficult metter, ! 3
a t length upon
c o e s n o t quite meke clear t o
one excetly waat i s i n his o w n mina e s t o our money market,
London
how n s uncarsts ics i t compares w i t h London e n d the
boenk rete n o r how h e recommends t h e t w e opsrate.
sp.ears t o b e this:
Y
O u r
e reacn t h e merket
through t w o svenues:
Pirst:
U n d e r Section 13, b y @iscounting o n y sort o f
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Federal Reserve Bank of St. Louis
140
SL
eligible paper f o r our members a t t h e present t i m e a t
uniform r s t e o f f o u r 3 n d o n e - h a l f p e r cent.
cherged b y our member t o its custoier,
peper, h a s n o r e l a t i o n
T h e rate
o r borne b y t h e
t o o u r t r e n s a c t i o n w h e t ver.
ling t o a member -
o n t h e member's obligation- e n d
its credit must actually i n our practice (although n o t
x
so thsoretically)
b e a s g o o c e s t h a t o f a n y o t h e r member.
;
ae ‘
Tt i s n o t t h e v a l u e o f t h e mer
eustomer's c r e d i t o r promise
t o p a y w h i c h s h o u l d be meas-
ured b y our rate; i t i s the goneral condition o f crecit
t
t h t moment, wa h i c h shoulc
a
*
Ls
atermins
t h e uniform rate
to cherge t o sll members, irrespsetive o f
Lecure
the
ond irrespective o f t h e size o r goodness o r location
e
e
r
o
f t h e b o r r o w i n g member.
B u t thse prin-
ciple o f s uniform rate f o r 211 losns t o memb>rs o f t h e
same m e tur ity i s sound, u n d s r o u r System,
a n d unescsp-
The only justification for dirfere:
discount r e t e s t o members i s a
fferent maturities.
This
you know I have always conten
Second.
T h e other evenu
we buy peper e t the market rate.
u n d e r section 14, where
T o b é sure, w e sre a t
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Federal Reserve Bank of St. Louis
141
syce buyers ( o r sellers) e s t o influences
But w e n o w a l w a y s b u y a t t h e
reso. c t i v e f u n c t i o n s
w
Under 5 s n
o f t h e t w o operetions
e o r e r e d i t t o all e p oli-
mbers) s % our uniform Giscount rete, within
if they collsctively
too m u c h o u r p r o t e c t i o n
i s t o sdvences o u r rate.
ve mey consicer o u r involuntary loans t o t h e
2 con-rol.
only b u y o r sell 2 s w e ears moved
to < o s o b y t h e various considerations affecting o u r
>
policy.
T h o s e a r e t h e voluntary loans
h
e merket,
controlled b y o u r policy.
Mr e
which/Gilbert shoul: refor but
should b e those between t h s uniform <iscount rets, o n
(Section 1 3 ) s n d t h s vsrious v o l u n t a r y b u y i n g
rstes,
o n the other hsnd (Section 14).
The corresponcencs between t i e London market ( t}
es
Smclena) e n d
eesury obligations.
T h e y borrow
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Federal Reserve Bank of St. Louis
142
somewuet
3 s t h e bill houses b o r r o w f r o m t h e Bank
voluims i s unimportsnt e n d beyond t h e t
ends, 3
¢snnot rely f o r our control
contect w i t h t h e
this e f f o r d s
2 n d from now o n must
i n
our voluntery genersl operstions, u n d e r Section 14,
hope t o show convincingly later i a this letter.
unebioned,
ses w h e r s i
s a n t ’ troubls
wider d i f f e r e n t i s
n e n o u r press:
a half per cent) e i o u r buying
4 (sey Zour t o four s n d e helf p e r cent) i t
just b e e r s a t e d b y o n e o f tyvo coursss-- e d v e n c e t h e d i s -
o the level o f the line o f
count rete more n e s r l y t
wholly unsoune
14 b y buying below t n e
roposals I
present.
T
o sdvence o u r discount r a t e u p o n
sceins t o m e unnecessary a n d CSeiedn..bo
any cless o f paper
<
esuse eslarm s n c trouble -
t o d u c e o u r buying
would b s un: n d s n d infletionary.
This s a m c w i l l - o - t h e - w i s p
o f reducing buying rates
and o f p r e f e r e n t i a l d i s c o u n t r a t e s w a s p u r s u e d v i g o r o u s l y
and w i t h disastrous results during 1919 b y the Treasury
and y o u have their written recommendations of, that time
in y o u r files,
as I
have i n mine, u r g i n g t h a t w e r e d u c e
rates o n bills a n d Treasury certificates,
a s a n alterna-
tive t o o u r o w n r e c o m m e n d a t i o n s t h a t b o t h o u r d i s c o u n t
rates a n d t h e T r e a s u r y b o r r o w i n g r a t e s s h o u l d b e advanced.
There are, however, s o m e points regarding o u r open
market operations w h i c n I
a m hoping that y o u a n d your
colleagues w i l l c o n s i d e r v e r y seriously.
L e t m e just sketch
out t h e points.
lst.
T h e r e i s a n cainost demand that o u r policy
should b e a d d r e s s e d
t o p r i c e regulation.
M
y views h a v e
not changed, e v e n after m a c h reflection, t h a t s u c h a n
openly p u b l i s h e d a n d a c c e p t e d p o l i c y w o u l d c o u r t d i s a s tere
F o w people
c a n grasp that dirierence between
"eenoral price level” a n d "prices",
commodity prices.
th s
the
individual
H a d w e been the “price fixers" h o w
earnestly would w e have teen importuned this year t o “put
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
waeat",
avery atteck not o n l y
mocity, b u t s s t o
woulc b e e s much
Let u s stick t o credit reguletion, anda use p r i s t u c i e s
a
one o f our guidss until g o l comes into
amit t h a t prices m i s t responce t o Salat eae ANe Rea 82%
n
d
1 S Y l u -
ences which alweys h e v e
but endeavor
on important n o r <.isturbing c u
ent.
Y o u w i l l nseturslly
mein, b u t qpera+
write something o f why t h e y n e e d careful thought.
In olr operstions, su.90se w e Should
s-hunérsd m i l l i o n s
o f our
es
eroup,
2 t first
the r e d u c t i o n
from Us.
i n thsir
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Federal Reserve Bank of St. Louis
1our p e r cent o u t o f t h e Treasury t a x
revenues, becomes a
four o n d 9 helf p e r cent loan o r dis-
snd t n e borrowing banks p s y Cirectly t h e interest
Ciscount costs.
s e s k i n g s s they will t o escaoe this
tax o n thelr profits, t h e borrowing benks here s n d there
ask t h e i r c u s t o m e r s
t o repay msturing loens,
the
sriount o f losns t o b e repeid i s s lerger amount,
tiv. t i n é s a s larg? a s t h e amount o f securitiss
the smount i j i n fact, equal t o o r greetsr
r pyramid o f credit m y h a v e besn erected oriinally u p o n }
purchased.
POE c r e c i t e d when t h e investments
T h i s t s a very uncertain simount, because
pert, possibly t h e major part, o f t h s
the market b y our original purchess, w a s used
2t t i m e b y b o r r o w i n g b e n k s
to
from us, # S was t h e case i n the esrly p a r t o f 1922,
the f u n i e m s t e l f 3
tnoat w h e n w e b u
our investment holdings
s o much o f the
ooplied b y member banks t o repaying l o s
9 erecit p y r a m i d
four
o r five
ratio.
t o one.
P e r s o n s
i n s o m s rstio,
ssy
claims sbout double that
A n d , contra, w h e n w e sell,
i t a t once incresses
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Federal Reserve Bank of St. Louis
146
57 .
borrowings f r o m u s e n d sets u p 8s series o f efforts t o
liguidete o r reduce loans b y meny banks, spresding t o all
sections, f o r a n emount i n totel equel t o whot w e heve
sold o n the msrket, multiplied b y the pyremid f 2 c t o r r
o
coefricient.
S
o ve can, i f we ere i g n o r a n tr
o coreless,
pull down t h e credit structure a t 4 repid 9 n d dsngerous
rats, b y 8 sale o f investments, which shortly
pressure t o liquidate =
much greater volume o f bank loons.
Tast process i s a t its maximum 3st some indsfinite period
“following our sale, a n d w e may feil t o detect t h e couse
on account of the leg I mention.
T h i s form of liquidetion
under Section 14 is the equivalent of 2
ot
under Section
13, but i s more gently erfective,
operetion, s n d not nearly a s Cengerous a s t o public sentiment.
A r g u m e n t i n Supp r t o f this dogma i s hardly
Srd. I n t i m e t e l y besring upon t h e foregoing i s t h e
sola movement:
I n 3 word, o u r p o l i c y s s t o t h e v o l u m s o f
pease m a y b é msecde t o m i t i g a t e t h e influences
o f g o l d im-
y i g n o r i n g t h e m , m e y e f e c c a r e t e t h e harm.
This
onsistently urged b u t n o t with t h e enthusiestic
‘support t h a t I had hoped for}
T h e operations o f the New
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Federal Reserve Bank of St. Louis
147
Oportion, have, nowgolc influShell show,
longer s s a l l o f our Ssction 1 4 investments h s v e n o w
been ‘solic,
T h e ficures a r e c s follows:
Dacember 30,1921 Systen
August 1 , 192s
pate
Recuction o f Berniag As:¢
Totsl Gross G o l d Imports
December 30,1921 t o Ausus
Total Gold Experts, s a m e period
Net G o l d Incresse.
Without e n y fisures avsilsble
thet c o m e s t i c g o l d p r o c u c t i o n
potion b y i
i n this p e r i o d o f 1 9 months
f s r e , b y s a y fifty
millions, w h i c h i s probsbly t o o high.
t
,
I g n o r i n g!
fore, s u c h other f s W w e l o c i t y " , 46tc,, a n d
sidering y
monetary c o l d end volume o f credit,
during 1922 s n d 1923 somcwhet more than offset the malign
inf iuenc a e s «0 ame
440 millions
P
e
r o o . ituidgation o f s o m
o f discounts a n d investments.
D eriod 3240,006,00°
o f gold has been a x
D u r
148
ans s u c h o x e e s s o f i m p o r t s a n d p r o d u c t i o n o v e r t h i s
a s reached us, h a s b e e n p u t into circulation.
amount,
B u t
paying o u t g o l d m e r e l y e f f e c t s o u r r o s e r v e p e r c e n t a g e a n d
does n o t a l t e r t h e r e s u l t s
4the
a s t o v o l u m e o f credit.
T h e next factor i n importanco, b u t without
direct bearing,
i s the conversion o f demand i n t o t i m e
deposits, e n a b l i n g t h e s a m e a m o u n t o f r e s e r v e
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Federal Reserve Bank of St. Louis
a greater t o t a l o f l o a n s a u d deposits,
t o support
which has been
going o n a t a merry pace t h e last f e w years.
5th.
F r o m the above, y o u will gather that I am
asking y o u t o c o n s i d e r a
(not a
suggestion a s t o o u r p o l i c y
n e w one) w h i c h i s a r r i v e d
a t along a
wholly differ~-
ent line o f argument t h a n that employed b y Mr. Gilbert; b u t
which s h o u l d m e e t t h e s i t u a t i o n
s o l o n g a s h e does n o t
gain s u p p o r t f o r p r o p o s a l e s ( a ) t o i n c r e a s e d i s c o u n t r a t e s
or ( b ) t o b u y b i l l s o r t r e a s u r y c e r t i f i c a t e s
a t a n artificale:
3
1
aifferontial, o r (c) t o establish special discount ( S e c t i o n , )
rates for tills o r certificates, lower that those for commer~
Gial p a p e r e
6the
I n all consideration o f special discount rates
under Section 1 3 for special collateral, l i k e Treasury
certificates a n d bills,
i t must always b e borne i n mind
that s u c h a rate simply induces o u r members t o use t h e
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Federal Reserve Bank of St. Louis
149
1 charged.
paperfor which t h e l o w e s t - r a t e s
Line o f c r e d i t p a p e r w o u l d c i s s p p e a r t r o m o u r portfolios
in favor o f Treesury obligations i f the rete f o r t h e let-
cheaper, s n d the reverse would happen i f the rate
1 sper. N o t h i n g whetever beyond t h a t w u l d b e accomd, excepting possibly t o put some small premium i n
velue u p o n t h e pepsr t o which w e extended t h e preferential rate.
O u r effective rats, t h a t is, t h e one which
the members would use, w o u l d alweys b e the lowest one.
Durine t h e war- o r later,
a t ons t i m e over sighty p e r cent
of our ssrning assets w a s w a r paper, s o l e l y becsuse o f
the rate preference,
W h e n t h s t preferences wa: ended,
the other kinds o f psper reeched us, becsuse o f the convenlence a n d s e l l e r r i s k s n d e x p e n s e o f h a n d l i n g
b y msil,
otc.
Specific ©
mment o n certein points i n
letter, w h i c h I heve merked, m i g n t well b e
ex}
M o s t o f this i s anawsred sbove.
sousthing sacred i n a uniform rate, howsve b s c s u s e i t
sources a t the command
o f all o f o u r members,
game rete t o sach, vuether t h e member offers 6
vessury obligetion, o r s banker's bill, o r 4 merchant's
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Federal Reserve Bank of St. Louis
150
it should b e under Section 13, where
member
h
e membsr'’s obligation e n d credit.
(2) l i m e G L I b S R E Te. 5
market,
D i t e o m t u s e d 5 6° to “tae: Loncon
T h e Benk of 4ngland
the “market", (i.e. ¢
uniform m i n i n u m p u !
uniform
r s
i n d
s h e a d i s c o u n t rete.
3
O u r rete i s a
, b u t n o t s - m i n i n m rete,
T n e
hand, losns privates customers
then t h e m i n i m u m c i s count
Roe, and-to others
g h e r rates.
T h e collateral
securities (lomberd losns), comaod
ste.
O u r Ssaction 1 4 carrying
sponds t o Bonk rate, 2 n d the Bsnk o f inglend
yer which comperes w i t h our Section 1 3
dis c o u n t r a t e .
While
l
1 e r e sa t h e t s e r n ien c s s h o u l c sn o t b e t h e
ideration o r even c n importent ones, i n our
t policy,
4
in other words,
w
h
i
c
h rtsulte
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Federal Reserve Bank of St. Louis
151
pe f o r expenses
Iz t h e t i m e c o m e s w h e n w e d o n o t
it will mean that something, possibly o u r o w n
nisteken policy, h a s forced a n unnecesssry licuiation,
such s s would p e y off msny hundreds o f millione o f o u r
‘earming assets.
(4) T h o s e times i n the past when w e
ing bills und:r a normal merkst rate, h a v e
vrnen i t hes b e e n forced u p o n u s becsuse o f inebility
unwillingness
t o advance o u r seaeoent rate su'ficisently
to correspond w i t h t h e normal market
(5) T h i s sug estion i s wholly imprecticel
the following reasons:
a. N e w veer a S a
psres. with London. O t h e r
y
“market” w h i c h 9st ell conS e b e n k s c o u l c n o t operate,
b. I t sssumes t h e t o u r members w i l l come t o ceal
with u s under Section 1 4 a s bill houses d e s l with t h e
Bonk o f Englend i n Loncon,.
in New York, b u t t h e plsn propose? would n o t suit
other part o f our district, n o r s n y other Feceral
cistrict.
Gy A
feu N e w York
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Federal Reserve Bank of St. Louis
63
1
5
2
Vall Street, would shortly have s Whélly different type
of réletionship w i t h t h e Federal reserve bank t h e n
would b e the case anywhere else, a n d they
would appear
to snjoy epecial fecilities a t spscially favorable
rates,
6 ) A l l of the procedures inddoatca would simply
eénter
i n New York more even t h a n they now dow
O u r ef
fort i s t o distribute these transactions.
(7) I
think the member bank should pay the same
rate, when borrowing from us, whether the collateral b e
Governsagn t bonds o r customers! notes,
rates’for these special
« =
T h e lowor market
s e c u r i t i e s w i l l b e those
at which w e deel with t h e d e s
u n d e r Section 14.
“(8) T r u e enough, and on the surface it would 2 :pear
that the trouble i s not’with our rates for bills e n d cerbificstes,
b u t t h e t our discount retss a r e t o o m u c h
below
gensral money msrket,
T a e t mey sppear loter t o be
but I sm opposed t o eny increase just now.
veeson will sppear i n my reply t o yours o f the 18th,
(9)
r
e eppo are the reel point.
T i bogie S o m
to 2 Ssussestion t o sdvance discount retss o n l y o n busi-
ness paper, e n d let preset,
o r lower rates espply t o
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Federal Reserve Bank of St. Louis
64
1
5
Tressury certificates a n d bills.
such e course f o r o n e moment.
3
W e should not consider
W h a t e v e r t h e ergument
may now be, the result i s the same, 1919 all over sagsin,
the Reserve Bsnks carrying a l l t h e Treasury certificates
etprofitable rates for member banks,
son once a n d I
a m amazed thet t h e proposal shoulda b e
sériously edvanced sgaing
ek
W e had our les-
W e would lift the whole conn -
cakes market g certain amount, p u t a premium o n the
(resaury certificates, e n d have another scramble for
Government deposits. “ i e s eat
(10)
W e know from past experience thot once these
preferential rates e r e established, t h e large City
. (especially N e w York City)benks, a r e t h e only ones which
can promptly a d d fully evail themselves o f them.
T h e
country b e n k i s neither a holder n o r dealer i n those l u x
-urtes
a e
p s y only four p e r cent, o r even less.
ipae F i n a l l y :
O u r safe course will b e t o observe
- the resl intent s n d spirit o f t h e ect, a n d furnish credit
to sll our a e o n s
a t the same rate i n our respective
listricts, n o mstter whet the colleteral, n o r the size,
strength o r location o f t h e bank, s o l o n g 2 s the- member
simply borrows f o r a fixedterm under Section 13.
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Federal Reserve Bank of St. Louis
154
Now, l e t m e here enswer yours o f the 18th regarding
the f u n c t i o n o f o u r rate. I
not o n l y s t i l l b e l i e v e
is t h e e f f e c t i v e c o n t r o l ( 2 s t o v o l u m e o f members!
it
dis-
counts) b u t that i f enything, i t is just now too effective.
It sometimes seems t o m e t h a t i n such periods a s 1919-1920,
lseree carly this year, w e are unsble t o
soply the brake (by rate cdvence) gently enough t o slow
Gown t h e machine;
red
s h a r p rate osdvsnces o f s a y o n e per
cent e r e t o o lieble t o helt t h e mechineoy. start.it movgn6i
beckwerds,
I f this is true (and the basis of my
-Stetemsnt i s empirical,
yours )
t o borrow s
favorite w o r d o f
t h e n i t means t h a t t h e c o - c r f i c i e n t
i s t o o strong
: fector favoring liauication, justas Howtrey once pointec out,
m d t h a t t h e multiple effect o f rete increase,
-plus t h e genersl m o r a l s n d psychologicel effec
together t o o strong.
m i s i s o n e important regson w h y
I have been opposed t o a i u r t i
i
¢
@ s o f e r this
year.
the way o u r policy outlines t o
me
should s i m t o m s i n t a i n =
stable volumes o f
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Federal Reserve Bank of St. Louis
{b) S n n u s l o r longer p e r i o d x
n e i n correspondence w i t h incrsas¢s
ereagses i n c r e d i t v
in population 2 n d prosuction o n d consumption.
(c) S e a s o n s l veristions.
pecial w o r l c r e c o n s t r u c t i o n c o n s i c e r
es a netionsl policy.
J e should control t h e volume o f member bsnk
Second.-
reesonably
a t t h e needs o f t h e
country's seasonal reivirements, b u t preventing excesses
of b o r r o w i n g s
by a
u n i f o r m r a t e f o r e r e c i t extsi
under Section 13, w h i c h does n o t encourage o u r borrowing.
Mind importance,
C e should enlerge i n volume a n d setivity o n d
o u r merket operstions u n d e r
Se
that t h e i o n s o f promptly s u p p l y i n g 2 :
withdrawing c u r p l u s e s
o f orecity o v e r
done under Section 1 3
Fourth - We should consicaer
sag temporar}ian nd tentstive,
tion w h e r e s l l t h e w o r l d b u t o u r s e l v e s
hes
oayment, s n d intending t o recast o u r point o f view wnienever t h e approach o f resumption o f specie pryment b y in-
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Federal Reserve Bank of St. Louis
end
effective msans
o f “. termining h o w mich e n d when t o buy
Section
1 4 t h r o u g h t h e Conmittes.
Fed:ral Reserve Board e n d the Governors o f
Benks w i l l consider t h i s policy solely a s
‘esiened t o menege o r control the totel volume o f
redit, o n d brush esice overy locel,
or “istrict,
o r special consiverstion,
2 s o f secondary
the solution o f sone
of o u r p u z z l e s e n d cdifficu
ith n o opportunity t o consult m y collcaguesin N e w
T amuneble t o ssy wiether they will ercree with ell
of the aipve, s o pleas
own views only,”
Governor Strong: I
Go not know whether i t has been
explained t h s t thet i s © persoi $
a member o f the f
m
e
a
m e ago, a n d
tI
i
wrote t o
t i s sim-
ply s convenient way of expressing this mstter.
Governor Crissinger:
Governor Strong: I
I s there anything further
have nothing further, Governor
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Federal Reserve Bank of St. Louis
68
Gvissinger,
1
5
7
Governor C r i s s ing D e t i v i n k t h t s 1 s v e r y taporcge
snt, c n d t h e Boerd would
morbers
o t o near
o f t h e Confsrencs
one
that
csntion o f
g commercial
n i t n psper",
u sp
oer",c tsh ait is,
c
counting facilities,
# 2 4 t o give 5 netionsl market f o r
paper t h e t heretofore d i c m o t have ¢ nations] market.
nt w i t h w h e t h e e b é s n s s i d .
, w i t h regsrcd
y
t o t hre
thot we. w a n t
t i s néeces-
rediscounting
e
fscilitics
g
to
t o neve
meriet.
Governor Cricsinger:
ie 2ays
I
i . Vwten
views contsainec i n b o t h
Governor Crissing
to t h e B o e r c t h a t t h e b a n k s
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Federal Reserve Bank of St. Louis
158
7,
a
) %
rmether t h e r s
not besn 6 x -
notion sbout
nifferent
one h e s 2
t h i n k t h e vicws
Governor iicDougal: {
oO
ose w h o hsve spoken o n t h e
é
s h o un l d e
b
eiyen f a v o r e bls consideretion.
oO
helieve also that ons point touched upon b y Governor
ond I think indirectly b y Govermor Sesy, should be
perheps empissized, 3s n d thet is thet benks,
follow
gsiell, i n borrowing,
c
o
u
r
s
e o f lsast resistance,
shoul:
try b a n k s
be
a c e r
besed o n experience, t h a t
the c o u n t r y b a n k s
t o t h e ci:
t
h
tions e r e a b l e t o b o r r o v a t rates w h i c h
to them, the country benks, ©
reeL. 3
e c i t y institun
o
t aveilable
t h e t peint
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Federal Reserve Bank of St. Louis
cerefully.
one other point I would
Boston &
tsncen
by member banks,
secured b y )
e
c
s
p
o
u
t half s
per cent
l o v e rand:.
dike t o hear f r o m yous
Vice Governor Platt: I
heven't heard
has been going o n t o say much sbout it.
Covernor Crissinger:
T a s second cues tion
ery Gilbert's letter o f August 2, 1923,1%
heard e n y “aiscussion o n it.
i
t seems
t o me
reference t o preferential
MOITGY, D A E i f T o Res
nmopen m e r k e t r a t e s f o r t h e p u r c h a s e o f
certificates and bills, thst it i s not necesserily bad
policy, because i t is 6 condition thet preveils now, a n d
“ifference between t h e t w o might easily b e 5 little
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Federal Reserve Bank of St. Louis
a
a y+
whether
raciscount r a t e o n T r s i s u r y
purcaass
P s
i
f h e means
n e
to go
very
a6 Mir. C u r t i s s
Bes
ITlmnow
borrowed o n Government securities e t
I coulé borrow o n other collztersal, e n d
tem s h o u l d m a k e
were bougit i n the
jal o n thsm?
buy Government notes.
a e
Proseury o e r tis a
we l o a n t o t h e member
Governor Strong:
‘ J e buy those things that w e deal -
i n the
in i n the open market a t t h s ravss which prevail
open market.
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Federal Reserve Bank of St. Louis
161
Governor Crissinger:
h a t i s w h a t I think, t h e t
there ought n o t t o b e a cifferential,
Curtiss:
L l would Jiike t o sucsest this.
what Governor Strons has
if w
losning elmost ontirely o n Governme
is whet I mesnt t o point outs
thet Governor Norris i s o n
this, e n é I think m i g a t
to t h o s e
o f us #ho
G
o
v
e
r
n
o
r
b e enlichtens
!
reete
wakosig
Governor N o r r i s :
men yesterday efternoon,
saytning.
subject,
B
u h e v e m y vicws o n
i f y e u w a n t t o inculse m e f o r «
f e y minutes,
end I will present t h e m v s
yoryoratr
by lir. e r b u r g i n his
Council l s s t winter, w h e n g a t e ! A N S c o u n t r y “octor,
forcec
t o l e a v e o n e single p e r s c r i p t i o n
t o serve f o r
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
162
to com® e s ths sole remedy f o r a n entire fomily,
the grondfather down t o the baby, weulc not be feced
CLPficulsy t a s k t h e n t h e t w h i c h c o n f r o n t s t h e
Federal
97 igcount
e opplisd t o a
ons wunared nf
A
concern i n New York City, a n d t o b t enty-five thousenc
ll country towns.
am at variance vith e l l thse other
gontlemen i n this r o o m o n this subiset, unless i t
my impenstrable isnorence,
o r pot sSiblg beceus:
get through experience t n e t which most o f t h e m
I esn o t
thet taney
their views b y
exporiences they rent throuch i n those
TIwant t o csll your ettontion t o the fact that ur.
Gilbert's propostion, 9 s a e ¢
thst I woulé support, .o¢s
a
n
y proposition
n e l u l e e prefsrential dis-
but
count rete o n either Liberty bonds o r Tressury notes,
it epplies only to bankers! ecceptsnees ond short time
Tressury certificates.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7Ssrninent
O
3
ys
secondly,
101 fs
Cae eee
corpors
basa
Jiv ide al inyecstors,
temporarily
a
ywanuracturing
them
e lt h
i eo wbs
them
tet
ot
DLLS
n
Bec
41S
Pe: 4
Chas y
Vv
AED
cOi
know,
plyige i n s
COUN try
nu
i3
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ts fece,
logical thing.
logical
s e i s >
t o say t o a
bank---
perfectly netural s n d
n o t t o one bank o r t o 2
favor-
ed group o f benks--- “ I f y o u vant t o borrow f r o m u s o n
stuff which, i n the open morkete--~ m t
any thing that you have done, o r as the result of mything
that w e have done, b u t as tis 7s: f
e r a l merket
and financial cocditions--~ sells o n a four per cent besis
or a four a n d one-eighth p e r cent besis,
on that e t four per cent.
sells i n the —
w e will loen y m
I f you bring u s sturf that
m e r k e t a t four z n d five-sishths w e will
losn you o n that e t four snd e helf;
i f you bring us
stuff which i s of such s charscter that i t will only g o
jn the market a t six per cent o r higher, w e will losn you
‘on that e t five p
I
f we say thet t o
it seems t o m e that w e sre doing &
lutely equite ble and just ond universal i n its
snd w h i c h recognizes t h e existence o f conditions
not that w e heve msde, b u t whieh the merket
made.
T h e public, t h e merket--- I do not care
it i s the investment market o r t h e Federal
heve s a i d t h e t e
certain securitx,
o w i n g t o its liquidity
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
165
sntitled
t o sell
to f o u r e n d f i v e -
should w e s s y t h a t w e w i l l n o t r e t h o t
W e would
e n unknown eross-rosds
merchant
on t h e s e m e b e s
Giscount
the 3
f
tire c o u n bry?
no logical c o f
tage
Moreover,
mium o n
ars s a y i n g t o
in bankers’ a c e
cannot b o r r o w f r
at o r
want t o b o r r o w o n t h e notes
you c a n b o r r o w f r o m u s a t e@ x : h e t . w i l l s h o w v o u
show t h e
: h eA
Wwe M a n e
rem
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Federal Reserve Bank of St. Louis
166
4
vould haves nothing b u t that pspsr,
borrow f r o m u s o n thet poeosr.
moll banks v o u l d not, o f course, b u y bankers’ b i l l s
sna I do n o t think they c s n very
holé@ings
tificates i s s1l t h e time going cvown
competing
think t h a t t h e t v
esn.
h
o u l id
5n inerease i n the holdings o f Treasury carti
nks w o u l é n o t t a a t bs, t o s u c h e n
might p o s s i b l y o c c u r , r a t h e r @
wholesome t h i n g ?
it not result i n » great many benks holding 8
oi those 8 s 8 secondary
w
n
e
e now, i n t n e case
r
of the smell banks, they sre tempgpec t o g o out into t h e
merket a n d b u y s i x o r
second o r
déiriiculties
ofa t h e country benks
I mignt s a y more o n thet, b u t I this
in
academic, e n d T heven't e n y hope o f convincing m y b o d y
a
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
167
78
he room.
F o r tha; r e a s o n I
do not need t o detain y o u
by 3 perfectly profitless Ciscussion,.
B u t F
do feel
4
taat sooner o r later w e will have t o come t o diiferent
i a :
I
do n o t s a y that today o r next w e e k o r next
month i s the time t o d o it, b u t I believe i t is the logical
h i n g to do a n d that sooner o r leter w e will come t o it.
Governor Harding: M i r . Chairman, I
would like t o
remind y o u that Governor Norris f o r somes years w a s engsged i n the business o f selling t a x sxempt f e r m losn bonds,
sna i t i s only natursl t h a t h e should retein s o n e o f the
nest h e h e l d then,
I a m living n o w i n a section where t h e bankers a r e
very f a r t
'
The a
e e
N
banker c a n
g
v e r aw England
réad t h e inscription o n = dollar =
mile off. %
e v e
hed some experience w i t h having Govermment securities s l l
held i n the Federal reserve b e n s .
vred t o that i n his letter;
G o v e r n o r strons re-~
w e went through w i t h thet
dismeyed w h e n I
consider
ssibility o f hsving t o g o through i t
remember t h e desiderstum seemed t o b e t o get t h e Governa o n necurities cistr
cistribution,.
t
h
a
t wes t h e grest
T a k e N e w Englana, f o r instence.
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Federal Reserve Bank of St. Louis
168
there f o r banks t o p a y interest o n deposits,
t w o o6r c e n t interest
E v e n
o n checking s c c o u n t s .
on m y o w n l i t t l e a c c o u n t t h e y p s y m e t w o p e r c e n t
Everybody peys interest.
N o w , i f t h e New Snslencd banker,
r the banker snywhere e l s e i n the country,
with G o v e r m e n t Tressury certirl
four t o four 5nd a helf per cent, s n c
the m o n e y h s c a n put t h a n u p a g s i n s t a
fifteen d a y note s a d borrow f r o m
let u s s e y from one per c e n t
less t h a n t h e reesuler rate,
g to discourage t h e i r l e r g e
ic
corporations f r o m investing i n Government
going t o happen i s that where t h e y
they will b e o f
en
I
n other yord t h e y will
keep y o u r money
Will bring about
posits, s n d they will b e investing m o r
t
h
e
n they
have been, 2 n d will stop t h e distribution o f Government
certit
t e s
M a t e v e r t h e y have occesion
t o borrow
they will borrow i n increasing Smounts f e o m t h
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Federal Reserve Bank of St. Louis
I take it, i s going t o take: place # 1 1 over
country.
T h e t will b e i n the
erally i n t h e c o u n t r y b m k s ,
g
e banks s n d not gon-
b e c a u s e t h e c o u n t r y banks,
as a ruls, c a n employ their funcs a t from s i x t o eight
per cent, o n d they have n o money t o b u y four a n d 6 helf
per cent certificates, e v e n i f they c a n borrow o n t h e m s t
3
That i s going t o hsve 2 number o f b a d effects, o n e
of which hes b e e n pointed o u t b y Governor NeYougsl, w h i c h
is going t o increass t h e dissatisfection o n t h e part o f
the country benker, b u t t o m y mind the principsl objection t o i t i s thet i t 1 s going t o stop t h e distribution
of Government certificates, w h i c h w e felt h s d been s o
cesireble, e n d tend
s k e t h e benk
est retes, s n d demorelize things
to meking t h a t sdditional profit
Governor Colkins: I
ris o n e tuestion:
O
would
n what coes ;
S
s t o ssk Governor Norbes c o n c l u s i o n
thet t h e c o u n t r y b a n k s
short t i m e certif S
o f « a forego s i x o r seven
cent e n d invest i n something t h a t w u l d bring t h e m
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Federal Reserve Bank of St. Louis
Whet h e s e e m e d t o say.
did not s a y they w o u l d do 1 t t b
iL83735" a 2
the ereument. thet
;
s r e i s anything i n
we will b e swamped w i t h that k i n d o f
rt a l e
l t haen l o a nesh f r o
p m uts
would4
Government e s r b i f i c s
ecquiring
ecquirs them, then, a s .
y much bett
r
e
a ac
v c d u l r e now.
But t o s n e w e
Governor Harding h e s just
strict t h e b e n k s w o u l d
customers
ha
t o forego t h i
Their c u s tomers
d when
Ss
i s t i n g upon getting
those
n certificates
a
pay t h
ond a helf per cent o r
better
cent wouldn't have e n y effect
o n them
to b o r r o w m o n e y o n ?
Goverior N o r r i s
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Federal Reserve Bank of St. Louis
ETL
Py
s3id h e w a s t h e only
the question.
e rightcous shee
h
+
ous goats, t h s s t a
T h e t
from t h e unright-
n é v e n e n d t h e goats going
to hell, e n d h e said, " % w i l l b e the goat, who will b e
"T will be the goat;
> the goat and g o t o hell than not go snywhere."
I would rather b e o n that side o f it, i f f o r nothing else
then t o have e n argument vith Governor Strong.
T think this mstter i s just a little clouced.
ir.
together the benkers' sccentences,
esire ble colleteral
for short tims losns
think D e t S s w e c e s a a t y
very ¢
sirous o f e x t e n c
ing the distribution o f b
e unrilling t o lena
#2 w o u l d b
bills s t ¢ less rete t h a n w e would upon o n sdvence b y
“25,000 bank, made s t eight per cent, which would indi-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
L72
ri
:
and yet thet i s that w e
cle
wah y
you l o o x f a r
box-o.t 8. C O R E L ,
y
tempo rery per-
Reserve Benks,
System may Look
aay a
c y
o
s
and w e m i g n t s e y
ity
century i s
thet 2s
. eN On W i, b if
cown t h e
LSMpo vary: c e
cless them, within
time boing
Lopes
t n g to
u o hb te
AWS
S n o t
Woo 0
Vor
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Federal Reserve Bank of St. Louis
173
involved i n mening advances
z} R
is t h
e fundamentel thing,
ten S i e 2
CBee
the thing which should determine 6 t h e d t c i s i o n
ve m a k e
i n such 5
i: 7
s
n
d i t sesms
t o m e that t h e
rediscount b y t h e Federal reserve benks which,
9 s i t exists today, w o u l d b e
if
w e mske those
e
n
d
overdrsfts,
t
o
their
ate applicable
ch
proctice,
English
abls odvenece over t h e rete t h e t w e
first f e w weeks o f the
r rediscount.
ng:
T h e y vould n o t b e s s high, wut.
English Joint Stock Benk overdrsft,
m
what t h e y c a l l
a
t
t
e
or
r o f cus-
tom, i s s o much above t h e ben: r e s u l a r l y .
Lin, S o r e s
t times i t coss d o w n t o t h e bank rate
A
aven below t h e bonk rate--yernor Strong:
operators.
ey P e r r i n :
Governor Strong:
3 5
London banks,
n o t only
PJ
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Federal Reserve Bank of St. Louis
174
85
their bréenches, f i x o a regular contrast f o r t h e sdvence
eccount o f their customers c t some percentage usually a
the
Mr. P e r r i n :
market a t which people c s n borrow money, a n d our growing
imarket i n this country e t which people c a n borrow money
is usually s t 8 level consiccreably above t h e Fsderel re-
Ciseount rate. i n . 3
F r a n c i s c o w e occa-
sionslly get down, when possibly o n exceptionel loan is
under conlitions o f e n gbnormsl supply o f monsy,
to
and a half, b u t I suppose f i v e p e r cent might b e
thet w e charge.
w o u l d that b e a
» Governor G e lkins?
Governor Cslkin I
think four e n d 9half p e r cent
hes been t h e occasional rate.
Tt n e v e r n a s b e c o m >
customary r a t e
it w o u l d b e i n N e w
rete o v e r
een very cloge t o t h e New York rate.
Bilge d a lVve~ S A G B - £
tm
o n t h e Pecific
C o s s t now-=--
Governor Strong?
T h a t i s our rate.
i
s t a s mini-
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Federal Reserve Bank of St. Louis
1%5
to t h e member bsenks
be n o l o s s
i n reciscount
so t h a t t h e y c e n m a k e
tO
aegl
c a n b e said
i n
4
than
desireble s i t u a t i o n
they e r e making =
profit which,
w e heve where
e s Governor Norris
gq
runs
they m s y enlishten
t h e
vould b e a n interssting mettor--- b u t t h e repre
heaving luncheon
ther bought o r “id
b
u
B i t e
n London,
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Federal Reserve Bank of St. Louis
176
S PRLS C i d Ret b u y
2.8 s h o r t
term
T h e y do
Governor Strong:
iswhat they call floaters.
That i s esxectly t h e position
Governor
tnhsse resale contracts.
business i n New York i s exa y
equivalent t o t h s
=
a
n
rave o n bills:
ie. P o r r i n :
T
t
something s s 8
erve- to. carry.in x
r o ,
bsnkers' bills o r may borrow
rable rate-== forgetting
upon t h e m a t
a
n
d they might b u y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ut
Strong
think
aajust o u r precticss h e r e t o
Ren OF ay Pepi ©
e
n a r i h zds een
monsy
&sa t
in t h e m e r k e t a s
ing sbout t w o wholly
I convess
a 5
correct
a
Le T S P
thet
t o
other
Li.
ils
5
sLe
Pe e e
nse
hg
Wetnes
che o u t e r o w t h o f
without s t e t u t o r y
¥ P i
an c.
al development,
interference, t h a t w e fool oursslves
the besis o f our fooling ourselves today
That i n London, t h e Bank o f ingland c m
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Federal Reserve Bank of St. Louis
:
great b o c y o f c r e c i t which,
the English Joint Stock Banks,
i s know
accounts, becsuse there
of n e g o t i a b l e paper,
het
cneracter
conmercisl psver wn!
operstions t h e rese
t puts t h e i x
n
i
o
.
“ene b a n a
want t o e r e a t e s s l a r g e
can c o n v i n c e thse buy-
prafsrentisal rate i n bor-
Governor Strong:
rate f o r borrowing o n
e heve 9 preferential
Why s h o u l d h
(aaiowe o k t s
l
itself?
wishe
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Federal Reserve Bank of St. Louis
4
the Fedsrel r e s e r v e
that c o n t e m p l a t e t h a t
would b e
fe < P eye rere
Governor
C e
ey
Ho v o u l a c n o t s n a o r s s
and Giscount them, b u t h e would
same rete.
Governor Calkins:
I
f y o u msks
lowsr t h e n t h e merket rate o n bills y o u would get t h e m
iil,
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Federal Reserve Bank of St. Louis
Not i f y o u m a d e i t o n
that w e have
ity t o continue s permenent erbitrage f o r t h e
customers, a r é w s not under t h e seme responsibility t o
set u p a n erbitrege o f bills that should b e sold i n the
open merket? S o m e t h i n g was said b y Governor Norris a s
to the 2ifferencs between the discount rate and the rat
obtsined o n t h e note b y the bank f r o m t h e customer,
is 8 permenent profit t o ths benk. A s s u m i n g that w e are
in thst position, s h o u l d w e not b e under t h e responsibility, o r should w e consider setting u p another place f o r
a profit o n a
narket,
class o f p a p e r t h a t c a n b e s o
i
n t h e open
o n which they c a n realize money i n another way?
Governor Calkins: I
wish t o s e y I
agreement w i t h Mr. Perrin t o this extent,
a m entirely i n
5
S prefrer-
ntial rate o n rediscounting o f paper secured b y bankers!
eptances ¢
+
a
s w e call them, i s perheps d e ntigl rate o n certific a t e secured
bills i s not.
T h e r e are precticel difficulties, w v
I think heve b e e n pointed out, b y some random shots
srouna t h e table here.
Governor Norris:
T 1 1 1 1 you explain w h y one i s
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Federal Reserve Bank of St. Louis
L181
snd t h e o t h e r n o t ?
Governor Celkins: I
will explain t h e t b y s m t h e r
nhyour r e m a r k s t h e t somes o f u s
srhaps unconsciously prejuciced b y o u r experience.
thet
w e a r e v e r y consciously prejudiced
perience, e n d slways till be.
recover f r o m them.
h
b y our ex-
N o n e o f u g will sver
e precticsel #ifficulty which I tried
to point o u t i s that i f « s make » preferential r a t e applied o n bills sscured b y bankers' eccsptances i t will
or below t h e market;
merket i t will b e
i f i t i s above t h e
e f f e c t u a l , i t will h a v é n o
consequence whatever a n d will n o t change t h e situstion
in t h e s l i g h t e s t d:gree; s a n d i f i t i s b e l o w t h e market i t
jill result i n the Federal
e r v e banks getting a l l the
bills i n the merket,
hire P e r r i n :
T
e
w
Federal reserve banks would b e called
s
d
a
v
a
n
to their member benks only. sgsinst
obligations s s b snkers!
of paper which w e handle now.
Governor MeDougal:
has b e e n i n t r o d u c e d
a i r m a n , Governor Norris
6
yocate o f Mr. Gilbert's
a n e
e
es
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Federal Reserve Bank of St. Louis
182
susgestion,
a n d that
w
i
t
I
of the Governors! Confers
euslifiesetions,
you heve celled upon i i E
t seems t o me, how-
m very g l a d t h a t
o
from ]
before * e finish t h e d i
h r e s p e c t t o t h e mem-
t , a n d I sarnestly hops that
L o i
W i l l permit u s t o
have t h e benefit o f the expressions o f yourself s n d your
sssociates
o n t h e Board w i t h respect
t o t h e subject,
to t h e other subjects t h a t sppear i n the first
this program, w h i c h relate t o very important
erhaps, g o n s a little t o o
which h s v e b e e n s u g g e s t e d
the Board
e
n
d LI think i t would b e very helpful
to that subicsct,
ouler- m e bters.
Governor
o f o u r b a n k i s n o t pre-
to c a y f o r t h s record thet t h e
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Federal Reserve Bank of St. Louis
alles
in Undsr Sseretery. Giins
e t t e r , 2nd
to give a more elaborate expression t o m y viows,
thet they would follow, generally,
expressed b y Governor Sesy.
Governor Crissinrser:
I s there anyone else?
W w e
adlike t o heor from you, Governor Platt.
Vice Governor
W
O
. e f r e s h i n g m y memory a
It seems
me thet .the ;
e
mol 8
s
d somewhet.
e
coes n o t
might b e
merket purchase rate f o r open market peper, s n d
rate f o r p e p e r b e s e d o n customers! n o t e s .
exactly w h a t w e ere doing now.
T h e
T h e onmiy:
ite f a r enough,
bert!s ressoning i s pretty sound.
out a
H s proposss t o give
b e bought o r
rate a t w h i c h w i d n a v k e t p a p e r i s t o
i f you want t o rediscount--~ I céon't think
rediscounted,
ve
mokes a
greet deal o r diife >
or not, because 3 s long e s you b u y
the same thing a s rediscounting.
yhother y o u d o that
a n d s
i
t it mems
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
184
How a r e y e u going t o puy i n the
s
e ri c o
t ll
i
o
<A
D o y o u mean notes secured b y
Governor Platt:
Government o b l i g s t i o h ?
s
Government obligetion--- h o w are
you going t o d o 1%?
a m not sure f r o m his letter
¥ice Governor Platt: I
whether h e i s referring. t o peper sscured b y Government
obligations,
o r whether h e
really means buying end sell-
e s e c u r i t i e s t h e mh
selves.
If h e tmsens buying e n a
f course
ling notes based o n Government
you would heve t o have a rate, b u t when i r
Ttwere discussing t h e thing 9 little while
him why he did not sell the bill instead o f the cert ifiid h e c o u l d
just like bankers!
not d o t h a t w i t h o u t
e n Act of
but i f Congress
that c o u l d
there
for n o t p u t t i n g t h o m
sré sold on the open market i n very much the
not?
way whether t h e y have 2 rate o f interest o n t h e m o r
Goverror Seay: T
a m quite sure t h a t Mr, Gilbert's
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
It wes t o mé, a n d sfter
think t h e c o n c l u s i o
is
not been willins t o leave
c e é i t ics
tO y
~
rete under which they would be 1
t
a
n the
a recdiscou
q
yet 1 6 w a n t s t h e m t o ¢ s
i
k
e any
volume o f Tressury certificates o f f
i s there snyone e l s e t o b e
Governor Crissinger:
heerd o n this. I
d o not think enybody h e s succesced
in
convincinz Governor Norris yet.
tir. Tsay: T h e point that G o v e r m r McDougal m a c e
e pertiecularly noticeable w i t h u s i n New York
would b
e inclined t o teke
banks w o u l d b
The -
and t h e y w o u l d b e t h e o n l y ones. w h o
of t h e l o w e r r e t e .
discount rates, e n a .
ea of b y
w
e
@ e b i g ¢ i s n k s , becesuse t h e smeller banks
vould n o t b u y certificates;
their
a d bs
r ons W
V a t e r nae!
i r a e %
t h e y w o u l d still: s t i c k t o
a
a e i x o r Seven
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Federal Reserve Bank of St. Louis
186
spare money they wouldn't
would n o t b s able t o
and t h e y d o n o t b o r r o w b e c s u s e
vant
t o lend
the m o n c y
Thet L e n d
a
k
c u
e
2
=
p r o f i t
the money,
o r snything o f
and.
w
h
e
n they find
end
t h e m good.
who w o u l d h a v e t h e s e
sn sdvantege over t h e
have 3 n u n f o r t u n a t e
rate
on
which only ths large c i t y banks c o u l d borrow s n d
hemselves
o f it.
Governor Crissinger:
Have y o u s n y t h i n g
Lt,
F o n t
pLLOLrS
any thing
anybody?
Governor Strong:
Governor
would like t o hsar from you,
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Federal Reserve Bank of St. Louis
187
Well,
t h e Govermr
i s opposed
Shik
Hovever, Governor
sideration,. w h i c h aopsar
the other i s No. 2 , uncer Examinations.
from somebody w h o prepsred those ques
“
W
L
l
l you
give t h e m y o u r v i s w s e b o u t
Vice Governor Platt: I
think lr. Dawes prepared
ivmat Coes the experience o f the pa t year show t o
the i n f l u e n c e
o f o p e n m e r k e t o p e r a t i o n s e n d r e discount
rensections, r e s p e c t i v e l y ,
o n t h e credit
is t h e proper f u n c t i o f
gech i n 3 well-conestion w e s
reports f r o m those
hac
is whet t h e y went y o u t o talk about.
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Federal Reserve Bank of St. Louis
188
Vice G o v e r n o r Platt:
q
+ more b y Dr-+ Miller t h e
u
e
s
t
i
o
e l s e s . I
n was
think
the ik.3a wes t o get s report e s t o what t h e
if
opsn merket transactions h a s been, i
peper wos sold, recdiscounts made L t up, o r whether, e s
money f r o m t h e merket, t h e benks came back
to réediscount.
S o m e reports h a v e p
not t r u e i n some dis tricts, b u t true
Su O cas rey
y s p ela k i n gl,
b u y s Go p e n
w hee n & er w ees tée r n bne n k e
peper , thst pubs money into New York rather than
ing money into i t s o w n district, a n c conversely,
wha
it ss&ls such paper i t jossn't t a k e the monsy out of its
own Gistrict, b u t reth
o take t h e money o u t o f
t
Now York; o r out: o f
think t h e t w h a t
e o fr. j u su t h o
tw
c
4% works
i
po i l
One q u e s t i o n o c c u r r e d
ested b y something
s
thst w a s t h e t i t w a s / r i g h t
e
i
d this mor i
t o s a y that you were
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Federal Reserve Bank of St. Louis
teking m o n e y o u t ofr t h e m e r k e t w
it U p e
it has bought open m
Government s e c u r
39
aYik
securities
by t
Pe+
benk h e
1
o
~
vurchsse
iL
Vice G o v e r n o r
Governor S t r o n g :
be borrowing f r o m Peter ta-pay Paul.
it
t
I t voulc put
o come o n t e x
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Federal Reserve Bank of St. Louis
Oy
t emo ther s o u r c e
eroun
Vice G o v e r n o r
wnosn
it buys
bine
Oi D L S
the m o n
Platt
ply
put i n t h e merket.
the
out b y t h e verious
02
a
who h a v e
>-0u
itis
bpenks
sppraciate t h e
the R e s s r v e
feirly unverying
leres m o v e m e n t
quantity,
oh O U P i m s 7O56
s es c r o eu nm t
$i Gees
8mou
o f
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Federal Reserve Bank of St. Louis
102
rurniched b y t h e r e s e r v e b e n k s t o t h e m a r k e t i
5100,000,000 t o 3150,000,000.
W h e n our inv éstn
£0 u p our discounts g o down,
chanss
i n volume t s k s s
we have w i t h t h e Treasury,
directly t h r o u g h t
the q u e n t i t
y of cred m a i n s p r e c t i c a l l y
Vics Governor Platt:
I
t simply shows t h a t t h e
country cpzerently h e d demand for t h e large creci
Dr. Miller u s e d t o s a y i t was
séll t h e securitiss t o f i n d out whether t h e m
wantine t h e credit, because i f i t was
on t h e m e r k e t
b y t h e holders
o f Tressury certificates
without t h e b a n k s h e v i n g e s k e d f o r it--- w h e n y o u s e l l t h e
”
and they 3 1 1 come back sgein,
told i n s d v a n
this Guesta.on
ecier
0,000 o f Government securities.
i t shows t h a t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
192
This question w a e proposed b y
he hes i n m i n d to cevelop i n
one s f f e c t o f t a k i n g o u t t h s s e C o v e r n n e n t
securit iss
Pie S E eS Oe
throughout t h e country.
Governor Platt? I
suppose w h e t sactuslly h a p -
shen the .600,000,000 of securit ies was sold vas to
2 e e Ge
cent pressure
h
e merket, e n d they h e d t o come back
borrow t h e money s t three-signths o f one per cent
Less--Governor S t r o n g :
to five sighths
o n acceztences s n d line o f
pSas
to
New York/from four sna 8 quarter t o five
is what took place.
Vice G o v e r m o r Platt:
T
t w e s more t h e n o n e helf o f
one per cent?
Governor Strong:
Vice Governor Platt:
to p s y 2
T t simply caused
little m o r e f o r i t s m o n e y ?
Governor “trong:
A n d t o borrow.
m a r k e t
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Federal Reserve Bank of St. Louis
193
Anc t o b o r r o w o n i t s o w n
T o s t wes t h e point thet Dr.
Governor Crissinger:
to bring out, t h a t when
to g o b a c k i n t o
tendency
that w o u l d h a v e =
Governor Strong:
I
t o check e n y
t would.
er
Governor.Grissin/Hs wanted t o develop v e r y clearly i f that
had vorked out properly--- isn't that about whet
I never d i s c u s s e d t h e t with him,
Governor Crissing
T
h
e second question,
inetions, was p r e n a r e d b y Dr* Miller.
o n exam-
T h s
tion is, "Is.it desirable o r precticable t o meke more use
of Federal reserve b e n k examinations é s 3 me:
jag information t o } 5
r e g u r
o f secur-
e r banks'
borrowings more 4
pnd main relience u p o n chaenses o f
Vice Governor Platt:
T h e idea w a s t o bring o u t
this
something a l o n g t h e line brought o u t b y lr. Talley
whether
morning, whether t h e y could tell b y examinations,
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Federal Reserve Bank of St. Louis
gst s
n
o
u
g m ohrtfh e
sble t h e m t o ¢ xercise
oo
F
o
been
cn
so w ne r! ea dr o r e t”h e r
5
i n tne
enc s o m e o t n e r s
Dr. litller
liever j
m e toes
o r sas
n e e i n t h e wes
rmining
y
the solvency o f
o
u heve t h e
proper c r e d i t i n f o r m a t i o n t h a t y o u WEIl- b s sblLe t 6 C o n t r o l
he credit thet the bank ought
Vice Governor Platt:
to me, t h e examinetion
o n ot
cause o f that y o u find out thet has
after it-hes heppened.
Governor Crissinger:
borrow f r o m t h e
y
“ h e n t h e bank starts o u t to
o
u e a n send o u t a n
the working together
inars,
w e are l i t t l e better sdvised s s t o credit policies
of t h e s t a t e oi] m e m b e r b a n k s
than W S are
4 6 t o t h e national
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
108
2 Sm
netionsl
gy
h t t l i wa
tt
bank
iacividual
securities
t o 8
ere cLrected, verhaps,
Siderabls
to
the s o l v e n c y o f e
orimeary tr
the
f
exarins tions
sctual p i c
member
o
bes
y n olt s lo m ua
xeni~
c h sen er
ered it policies a r e
es o f paper t h a t t h e b a n k o
~
s uE
S
)a
con-
of t h e e n d o r s e m e n t s
s they
=!
should
I think i t would
b e mede
that
to that particular
whols m a t t e r
advon
i f we
obtsining t h e credit policies
ame o p p o r t u n i t y
the netional b e n k s
have
9s
o f t h e stete banks.
Governor Crissinger:
5
od.
discus
Ws h a v e
o
ed i t w i t h o u r sxaminer,
very corcisl recept
Governor Grissinger:
some places, because I know
examiners v e n t in.
It certeinly i s bsing
when I
was Comptroller
D o n ! t they d o i t i n t h e N e w Y o r k
dL abyioe?
Governor Young:
3B
e its a a
good sncorssment
r
i
or
the bank offers us, whether
snc w h e t h e r l o a n s
fA 2
Bl
They d o i n t h e Ninth District.
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Federal Reserve Bank of St. Louis
196
Governor Crissinger: I
think t h e y c o i n t h e Fifth
District, e n d i f there i s e n y leck o f corcislity w e
ousht t o finde o u t . =
thought that was t h e policy.
it ssems t o m e this whole
uvon w h e t
must sey thst, s o far e s i
e
d
i
t information.
r i 8
is concerned, w e
heve sbsolute e n d thorouch coopsrstion, e n d I would also
that the nationsl b e n k exsminers’ reports, without
yellow shsets, s n d without t h e close c o o p s r s t i o n o f
chief examiner o f t h e Comptroller's Depertment, t h a t
we have elways had, might b e @ very empty thing.
I t tékes
sll o f those things t o put u s i n @ position t o decide o n
o a benk, a n d
the interest rate, t o talk i n t e l l i g e n t l y t
to put the curb on effectively.
Now, with our sta'te reports, t h e credit infornetion
shoule b e sufficient t o enzble u s t o core t o e conclusion
ss t o whether w e should s i s
w s benk out.
thet while t h e interest rate
1 s
flog of verming, i t coes not thoroughly protect, thet
something else i
seeded, s n ¢ .
@ matter o f rather
more t h e n ordinary importencs,
Federel R e s e r v e A c t h a s b e e n a m e n d e d s o t h a t w e
in banks n o w o f many sizes, t h a t
27
eur
thoss banks 3 ° credit information should b e o f a type
which enables u s t o give counmel. W h a t I am trying t o
get a t i s this:
T h a t i t i s not a question o f selvency
of t h e bank particularly:
w e d o n o t have t o g o into that,
but y o u h a v e g o t t o h a v e s o m e i n f o r m a t i o n o t h o r t h a n a n
index o f t h e notes, something more i s necessary, a n d i P
the gentlemen sitting around t h e table,
give t h e p r o p e r c o n s i d e r a t i o n
for rediscount,
i n m y judgment,
t o t h e h a n k t h a t i s applying
i t seoms t o m e i t i s very important t h a t
that t y p s o f i m f o r m a t i o n b e s h o w n i n t h e reports.
Governor Crissinger:
I t seems t o m e that t h e credit
information o u g h t t o c o v o r t h e o f f i c e r s a n d d i r e c t o r s
of
a bank, n o t only a s regards their o w n bank, b u t a s re-~
gards allied banks.
M y expcrienes i n the Comptroller's
office w a s that two-thirds o f t h e difficulties o f national
banks G r e w o u t o f i m p r o p e r b a n k i n g p r a c t i c e s
b y officers
ond d i r e c t o r s o f . a b a n k W i t h allied. institutions.
seoms
L
t
t o m o that t h e best information t h a t could b e
secured w o u l d
b e a
pretty close check-up
o n the men who
aro running thase banks, w h e t those m e n are Going, a n d
have
when y o u h a v e g o t t h a t y o u / a p r e t t y g o o d l i n e
that wank,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
o n
I f they a r e running pretty true y o u c a n
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Federal Reserve Bank of St. Louis
New
A x<regcind a
SASTMIALNS
That 28: b i s
its b e e n
Bpiroves t u s
e heave n e v e r o b i c e t e d
j
Governor Crissinver:
Governor
on o n e
invest
or t w c e s s i f
s
o
A ea e S
, p r e a l l y o n exemination o f
on two occasions
i n the interim between the ordinary regu-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
199
.noitanimatn
xe
small n o t
smount,
ready, 2 n d
d y
brought
out
that i s
the
=
directors.
cin o tah e r s
e
b
a
n
ned o w e d
k
smell smount, o n l y sbout
In the spplicstion
public funcs, :lthough
any
: o
f
+
t
r e x aom i n apt i o ne s h orw e d
e
found t h e t
“340,000.
i t nea
e so s ,y
n
n
3aG .
city c o r r e s p o n d e n t
e n overdraft
T h s situe
it t o h s v e s a m @ r o x i r net
3
.
bank w a s s u c h t h e t
the epplication,
whether
Sny - O k
M e m b e r s fo t h e
Board,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
200
Governor Crissinger:
has just come in.
T h e Comptroller o f the Currency
M r e Comptroller,
w e sre telking about
he second topic o n page 2, examinations s n d their relation t o credit policy. I
has hes2.ened w h e n I
have been telling them whet
wes Comptroller,
s n d you c a n n o w tell
hopp n i n g now.
lip. Dewes: I
would like t o listen a littl> while
end f i n d o u t v h e t y o u a r e t a l k i n g about.
Vice Governor Crissinger:
i r e James, I think the
Conference woulc like t o hear from you. |
Lr, James: I
think the examination feature i s the
most importent feature o f all,
i
n all districts out-
w eastern cistricts, perhaps,
i t is esrl
essential t o heve t h e t reletionship i n e cistrict
sgriculture a n d i n d u s t r y i s c e r r i e d
o n i n s more
then perhaps i t i s i n New York. I
can cone
ceive t h e t the situation s s regards evedit information
ia New York would b e entirely ciffere.t f r o m whet i t would
pe i n Dellas o r Kansas C i t y o r Minneapolis, a n d that control i n t h o s e d i s t r i c t s w o u l c b e t h r o u g h exemination.
You w o u l d h o l d t h e b a n k s
i n line through examinstions
which would Gevelop whether t h e y were tending towerds
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Federal Reserve Bank of St. Louis
benking prectice.
Governor Seay: I
woulc. like t o express t o
our feeling o f regret s n a cisappointment t h a t t h e Bosrd
felt c o m p e l l e d
t o take t h e sttituce w h i c h i t did t a k e
with respect t o charging for s t a t e bank examinations,
Our state benks regard o u r examinetions v e r y hishly, f a r
*
more h i g h l y t h e n t h e y r e g a r d t h e ¢ x a m i n e t i o n s
b y their
own state commissions, a n d w e bslieve t h a t t h e t was o n e
of t h e means o f proving o u r velue t o the stats benks a
of binding t h e m t o us.
eamineations
f o r credit
done i t with the national banks,
tn conjunction with the Comptroller's exeminers,
our o w n secord, e n d o n our o w n sccount, w h e n t h e
gion ssemed t o call f o r it. I
could n o t let t h e oppor-
tunity g o b y o f ssyince t h e t i f t h e B o a r d c o u l d h e v e 3 1 atitude t h a n i s e l l o w e d b y
to u s f s r m o r e closely.
*
lives Hemlins
I T cdo not understand t h e t t h e
pleced a n y obstacle i n t h e w a y o f sxemining t h e
-t
benks
i n eny w a y y o u may csre to, proviced y o u p u t t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Seay:
T h e t i s t h e pointe
they a r e very desirous i n c e e d o f obtsining i n ‘tion, b u t t h e smount which w e vould b e compsllea t o
ft
t o b e s n L t e m of ic o n s e q u e n c e .
m seens
i
t 18
:
}»
they are compelisd t o submit
s double exemination, beceuse
to e x a m i n s t i o n
b y t h e S t e t e examiners,
s n d t o pey Lox
it.
Governor Crissinger:
Governor Seay:
examinetion
m
e i t isn't worth anything?
w i t e o f t e n t h e inadequacy o f t h e
i s f e l t n o t o n l y b y ourselves,
b u t b y the
benks.
r
ir, Hamlin:
2
T h e t i s t h e r e a l cifficulty.
the statute v e ere compelled t o essess t h e
spesinst t h e b e n k s .
thet y o u
s yery considerable obstecle.
ir, Hamlin:
T f y o u g o i n s n d make 9 complet: sxem-
tor
s;netion t h e l e w i s imperative t h a t y o u shoulda charge
it.
Governor Seay:
T t was dons f o r quite 4
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Federal Reserve Bank of St. Louis
203
felt compelled t o make this ruling. I
believe t h e t i f t h e l a w c a n b e cmendesd s o a s t o l e a v e
diseretion o f t h e r e s e r v e b e n k s e n d t h e
het i t w o u l d be s v e r y e x c e l l e n t thing.
You r s v o r
s m e n d m e n t o f the lew t o
Sit 6G?
Governor D e n y =
h
e Gj o
a
3
iners purely f o r the purpose o f credit
Go n o t sttempt t o find out t h e solvency o f
s gener-l checking up, b u t simply invessnd f o r t h e t I heve mace
4
because I
3
t h a t under t h e ruling o f t h e
to G o thet, beceuse w e wanted that
ation, e n d w e could n o t g e t thst credit ine
fozmetion f r o m t h e state exeminsrs!' reports;
w e cannot
h
e pepser s l o w ,
fine o u t f r o m those reports w h e t h e r t
end w e g o i n end mske those invest
thet
w e s h o u l c hevse t h e i n r o r m a t i o n
+ h a t comes
from a
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2 04
t exemins tion.
W e heve n o t sssessed t h a t charge
soinst t h e banks,
h
t w e were permittsd t o c o
a
thet under t h e rovised ruling o f t h e Boerd.
I
t it om
wrong I would like t o b e set right shout it.
Governor Crissinger:
M i r e Austin, w i l l y o u tell u s
how you hondle the situation i n Phileelphis ?
Mr. Austin:
‘ h e n w e instructed o u t examiners t o
stert i n exemining bonks, w e found that our state
ment wes very much disorganized, a n d thet they hac s o
few exenliners, w h o h e d s o mich t o G o thet t h e y could n o t
thoroush exsmination o f t h e institutions, s n d our
sorvice w a s
t h a t 9 good meny o f t h e i n sti-
s o satisfactory
tations. J 6 i e c > t e system, w o have been told, becsuse
they w e n t e a t o g e t t h e e
SOy 0 .
R O S S
o f t h o s e sxsminations.
e
| H eed.
am n o
charge for
vhen t h e smouncement w e s mace t h e t w e would have t o
member b s n k s v e r y
charge: f o r thet vork,
much.
T h e y s s i d t h e t t h e r e w a s o n e f r s e servic:
w i t h é r e w n f r o m t h e system, a n d they were
wes g o l
going t o get out of it. i
up 3
that
t
p e u t thet time
w e h e d w&o r k e d
e
m i n a t i o n o f banks, which were
for s the aWES
of forms
fant:
quite comprsnensive and, i f garry ed out, w o u l d meke t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
stete d e p e r t m e n t s w i t h
noturs l l y v o u l d
inersasgs
shoroughly
n+ exanine tions, t h e i r bili- voudc
them F O r 1h.
S a l Bin O l e
“ork t h a t w e d o i n
DiBey O S
ar
Wie Gi sone
businsss e n c
suggestions w h i c h w i l l b e o f
vay v c h a v e d e v e l o p e d
con
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
206
Lig
and é@loss
relations w i t h t h e m w h i c h t h e y d o n o t w a n t t o
they e r e willing t o p a y u s f o r w h a t w e d o f o r
qa? H a i n s
“
e
r
r
i
g t o your exeminetion:
n
is n o t t h e s t e t e e x s m i n a t i o n ?
Austin:
W e s t i l l c o o p e r a t e w i t h t h e state,
nominelly
e
x
o
minetion,
genc. t h e m i n t o t h e
n Pennsylvenis?
New Jersey end v~elewere
in Delswere.
Ts t h e r e
this s u e s t i o n ?
65
thas t
aiffileulty, t h e t
We- a r s
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Federal Reserve Bank of St. Louis
207
Bozrd t o e x e m i n e t h e s t a t e b a n k m e m b e r s
yeer, 3 n c €ven though w e g o i n with t h e state e x e
eminer a n d m a k e t h e exaemins
w
e e r e l i k e l y t o examine
s bank thst i s not borrowing f r o m us,
could n o t place i t upon
stion f o r c r e d i t invsstigation.
As Governor 3 : e a y h a s b r o u g h t out, o u r p r o t e s t c o m e s
whsn w e make m
sxaminetion
ing 3
i f
m
a
of 2
k
e
bank t h s t i s n o t borrow-
L
o
r 2 % *1. Taose
protests f r o m thé t a t e b e n k s havs come i n sin-lg a s
examinations weBse maae s n d c h a r s
ave t h r e a t e n e d
System o n t h a t sccount.
e r e mace,
e n c sorie t w o
to
Q u r Letts
protests s e e m t o h a v e p l s c a t e d
pecsuse t h e y h e v e n o w a c t u a l l y
babys AUSSLMs
T h e action o f t h e
been entirely voluntary.
“ e have i n s i s t e d u p o n it.
told them there woul’
b e no h a r d 6 :
g o r criti-
went o u r cooperstion a n d
wanted t o depenc. o 1 e l y u p o i e x e o m i n a t i o n s ,
they h e v e sgreed t o have u s continue o u r relations
them.
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Federal Reserve Bank of St. Louis
208
Can you state what items y o u include:
in y o u r expenses,
a n d d o t h e banks p a y y o u o r t h e state
department?
ir, Austin:
T h e b a n k s p a y us.
W
e deajwith t h e
banks end w e charge the banks wibh the expense,
Mr, Perrin: I n c l u d i n g whet?
Mr, Austin:
R e i l w a y sfares,
hotel obills, a n d a
3
per diem sslery for the men for the cays they spend
examining t h e banks.
I
t i s distinctly understood w i t h
the Bosrd thst w e would not have t o make a n y charge f o r
overisad t o t h e banks,
o r f o r esny w o r k o f e x a m i n e t i o n
in our o m office, b u t only charge for ths time
sctuslly sp=nt i n t h e bank b y the m e n e n d t h e other
HSEecessery ‘ e x p s n s e s .
hin. LicClue:
D i s * r i c t , while we hevena't
got v e r y m a n y s t a t e banks, W
h
trouble i n the district situstion,
e 5
a
g o o d deal o f
W e w o r k i n cooptra-
tion w i t h t h e s t a t s b a n k sxemincrs, l
of t h e Bosrd came o u t w e nhac c exsrniine
when t h e ruling
s e t i n touch
with t h e m snd g o a n d cell o n then, H e r e t o r o r e
been making our examinations a t t h e same time,
T h e
Sormissioner w o u l d notify u s 2 n d w e would send our exem~
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
209
examination
braska,
Te W e e
s
y
a e a y Very 5
s
i
S si
w i t h tke State
t
e
m
,
f t e r o u r exsminer
calisd o n him, stating t h e t h e would n o t o n l y g e t out o f
the system himself, b u t thet n e would recom
the s t a t e
Heeth:
I n the Chicago district w e ere follow-
the method o f credit examination purely,
We eré charging f o r i t and
number o f cosss o n our books right n o w
Cirect charges a g e i n s t t h e b a n k s f o r
In the beginning w e found that three o f o u r
exeminations, c i d not report a n y
ntsinsecd o n t h e t w o s h e s t s
o f
many o f our own examina-
the method i n most
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
HS G O R
up f o r t h e m s e l v e s .
a
e =
a t lssst
waen
our
there, the state bank examiners w i l l do that.
benk cormigsioners
i nthree instances have lergsly a x
Fy
with us thoroughly, thsy
our o w n e X s m i n
waieh t r e Federal n ePsa ce r v e
have.
no
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
211
it meet t h e spproval o f t h e eboaerd?
that b e c a u s e t h e quese
orresponemce w i t h me.
H e has stated i t i n one way,
Governor Criss inger:
think w o u l d n o t m e e t w i t h t h e a p p r o v e
which I
your
with t h e m i n making t h e examinetion,
member
I , personally,
w o u l d feel thet thet would
o f}
no Gantet w i t h
Governor
r
b e n e f i t o f i e licClure,
r E
and possibly e s a correction o f 4
i n t t h e k r . Austin
to le* Perrin,
not charge t h e banks f o r s o mich o f our examination a s
crecit exemination,.
Thet i s w h a t I
Governor Norris:
T h e s t a t e exsminer accepts that,
end, b y resson o f the f:
our exeminsrs e s <
wanted t o b r i n g out.
s
s M r * Austin steted, t h e t
l e sre b e t t e r “ r a i n e d m e n a n d work
Long: r
in this investigation
yrobsbly c o s t y o u
cost ogsinst you will be about 3400, but the state's
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
212
125
bill will be cut down t o sbout e thoussnd, s o that the
totsl cost t o you o f the two exami..ations will certainly
not be any more, snd probably be less than the state's
n
s thet
bill would be if we made enother e x a m i n a t i o n , ’ a
hss b e e n very effective.
Mee -Popeine I
hed i n mind.
would like t o bring s e t h e point I
O f course, w e are 911 very desirous o f
e-teablishing the most cordial cooperation between the
State B a n k i n g D e p a r t m e n t s
a n d o u r banks.
I
t appears
to me that when they give u s the reports, a s they d o i n
oN,
our district, {-state reports without charge, that any
little assistance w e might b e able t o render t h e n b y nave
ing c r e d i t i n v e s t i g a t i o n s m a d e b y t w o o r t h r e e e x e m i n e r s
concurrently w i t h theirs---
i n many cases i n smell banks
by s i m p l y o n e s c m n i n e t a > < t h e
i t i s highly d e s i r s b l e t h a t
we shnoule g e t t h e b e n e f i t o f s u c h i n v e s t i g a t i o n
a s they
may b e concurrently making, b e c e u s e o u r credit inv-stigetion will b e mare effective s n d will give u s better i n formation, becsuse w e will g e t t h e benefit o f anything
i s
the state exeminers t u r n u p 9 s well e s thet whith
velaped b y our o w examiners.
aminers a n y longer;
I
t goesn't t a k e our ex-
i t takes l e s s time, snd--it, o s Nas
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
213
sugsestea,
t h e state examiners profit b y t h e contact
Oo
skillec exeminers, s u r e l y t h a t i s a l o n g
establishing ¢ better standard o f benking, a n d
Soesn't have definite objection t o our following
thet greactices, w e would Liks t o coutinuc i t ,
Mr. Austin:
workeo, t o p e t h e r
I
n our examinations t h s y have a l l
s s one Y o
pes w e t CoO
iy. Austin:
ie
e
I
e
o s o m e ‘toric
c
h meke u p a report
t i s the ectual cost t o us.
D e e r IT
Ly A B S Gia
u
meen t h e stats charge?
b
e
s
e
d o n t h e time t h e
Giem salary o f the met
spent e
1 y
l
b i l l se
i
end
t
5
n
t h e benk, e n d
o
} ?.
g i@
X D h2 n 8 s s 8 .
which c o llects
.
tir. A u s t i n m e aan t
t h e state
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
serve b a n k ,
mak es
which c o m e s
i n
under statute, t h e
o-92 Ga)
e n SuUrpIUss
m i g sio: snd they don't tate ell that
there i
9 state
T o m o
. b O . B i e m in this
t s
orgenizetion
ar t h e y h e v s tiseured o n w h e t 6
those circumstonces y o u could n o t g o t o them w
argument t h e t t h e feo i s sbout t h s sams, becauss
benk h e s
D
3
h e stete f e s , b e s e d o n cepitel e n d
you meke. I
morely call
aifficulties.
im m e n y
surplus
Mertin:
I
n meny stetes t h e t hes slways b e e n
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Federal Reserve Bank of St. Louis
128
the b e s i s o f
ire MeClure:
a
o
r
s
t
e
m
c you
to s s y thet the Federal Reservs
pert
o f the exerine tion
Governor N o r r i
(oye)sri
4.06 Lures
on tnet,
t h e r e a n y psreent3age t h e t y o u fol-
o r h o w <o¢s 4
ix, Austin:
W e keen e
cio ms out?
record o f
Snd t h e
any iastitu-
by hours taen.
that
i t was
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
exeminoetion i t < v e r h a d
p
l
e
i
n
w e e r s hav-
outlying districts,
especially G o w n i n the lower e n d o f -siné H e r e T e i s e
matter o f t w o d a y s t o g e t d o w t h e r s , a n e I
s u p p o s e =the
cherges msde to those benks sre felt
Governor Calkins:
tremely interssting e n d hes
-yestion, thet we ere sll of us msk
tions, e n d thet w e
of the Fedsrel reserve banks without
vestig ations. I
belisv:
w e ghould continue t o moke this
cherecter o f credit investigetion i f w e c o n meks i t w i t s
nd that can be dong b y the Pecersl
jnvestigetion", 9 n ¢ &strictly 2 5 possible
occurs i n the l a w “exeminstion’.
we be. do. b A O s Ss
jn concucting t h e business,
cleared.
Governor Crissinger:
I t a-velops thet t h r e ere
now 2 b o u t f o r t y - f i v e s t a t e s t h a t h a v e d i f f e r e n t
r u
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
217
130
about it, end 1 co n o t know vhether a n y further CefiniLON. -O-4- A G e i l e J O S a y . 6 0 0 e O r not.
iin. Jay:
S o m e thing has b e 2 n said about o n e o f
t h e nationel benks,
i nes
funcsmental ices g
2 fact thet i n most o f thm etetes essessments e r e mads b y t h e State Bcnking Cspertments n o t only
on t h e b a s i s o f t h e s m o u n t o f t i m e s p e n t b y t h e s
examiners i n the bank, b u t o n the besis o f ecspitel
surplus, m o r e o r l e s s 6 s o u r n o t i o n s l b e n k a s s e s s m e n t s
to b e made, because t h e state lews s r e copied e f t
53
a w , s n d thererore,
wito a
or t w o hundred co llers.
Governor Cslkins:
T h e y have t o p a y r o r
ation b y t h e s t a t e cGepartmer w h e t e v e r t h e b a s i s f o r t h s
charge m e y b e
to them.
I t seems t o i s i t is
on the benk, when i t hes e n axaminetion o f sorts, enyhow,
for which i t hss t o poy,
f o r u s t o coms along e n d charge
shother couple
Governor Sesy:
a
vency i s pretty closely releted
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor 3eey:
r
e
. 62cm s
distinction
sxemination f o r s o l v e n c y a n d f o r purposss
the e x t e n t
of
t o w h i c h t i s reserve b a n k s h o u l d
extenc crecit,
Hatten F S i des
exeaminstion s h o u l t b e
Governor Seay: T
think itu would b e better t e
abrogste t h e charge altogether.
tir. Hamlin:
T h e troubles w i t h t h e t i s t h a t w e h a v e
tas lew.
i
Governor S e s ;
you mace it. i
would
o
b e a n adimirs
w owes n o t r e t r o a c t i v e w h e n
§ t h a t i n our tudgment i t
t h i n g
t o h e v e Ene. f
Peis
chergerfor exeminstions e t least
the Fedzrel Reserve Board, b y
lir. James: W Y o u l é n ' : thet b e 2 m t n e r
the state sank o v e r t h e nationsl benk,
i f they “ i d n o t
heve t o p s y f o r
Governor =eesy;
c
ae that,
o not ses
national b e n k h a s t o p a y for one anyhow.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
219
L132
t|
peys f o r one through t h e ¢
i m
a
n
d has t o
pay for two.
lin. Curtiss:
Governor 3é6a3
think, I
N o t slwseys.
Y o u r cose i s the o n l y excezption, I
hseve
Governor
bank { o s s n o t
Hemlin:
there s c e m s
e h e d settled this, b u t
v
risti
t o b e tui 8
i
n t h e practices
the states.
Governor Bsiley:
O
u
i
n the
trict grows o u t o f t h e fect t h q e have cons
tried t o follow t h e resulstions o f the Board,
August 21.
ectly, e n d
n a k e a charges where t h e c h a
did not make t h e cherte w a
purely o f t h e credit type.
out this matter before u s e n c they
cherge sgeins
h e stsets bonks
not essesseé e n y acci tional cherge, although t h e
in
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
135
benks m i s t p s y t h e c h a r g e s s s e s s e d b y t h e s t a t e b a n k i n g
commissioners i n their respective
states, a n d also pay
“
the Ghargs escosgse
t
h
e Federal reserve
is e x s e t l y t h e source o f o u r trouble.
n
e
i s t h e ceuse
our lesion w i t h our state member banks, t h e fact that
But y o u d o n o t think a n y o f the state
withdraw o n sccount o f that?
It seems
m
e iteac
i
e U n e ee
state banks
1%.ieoun =
in m a n y cesses,
Governor Young:
T h e method of essessing state
banks f o r examinations h a s c a u s e d s o m e d i f f i c u l t y
district.
in
O u r exominer reports this, e n d o f course
extreme c a s e t o illustrate h i s point.
Sup-
9 state bank s t “hite River, South Dskotea,
apitel o f 325,000, a n d total liabilities
n “150,000, t h e examiner must travel from
to Sioux City, spend one whole night over
Iowa, a n d go fromtuere
Norfolk, Nebraske,
t o Norfolk,
t o Winter, South Dakota,
being constently o n t h e train until 8:30 i n the scvening;
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
SL b y sutomobile,
eaasee-- b y st:
but consumes m o r e time--- arriving o t
Sf) 9romamately n o o n o f t h e s e c o n d d a y s i t e r i s a
kiinnespolis.
H e c e n n o tpossib
snc cénnot comfollowins e y ,
inisapolis o n
“nestion
ana
asutonobile a n d
reversl o t h e r c a g e s s n d t h e n t o s s i n t
t h o o m soap d o t
assessing b y the national benk exsminsrs,
wnsre t h e t b e n k w o u l d o n l y p a y 3 bout
soneble
a r s
o
r :uch &
smell bank.
T h a t bon
c e -noet
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
135
stand a 3150,00
thet t h e m e t h o d o f s s s e s s i n g f o r e x a m i n e t i o n s
o f state
that u s e d
They obgeet
fornia.
iuBw> Peprias G o v e r n o r Crissinger
i n Cslifornia
cituation
which
i s that each
epertment m e k e s s n y e s e
bank must p o y i t s ennual assessment.
bank examination i s accepted b y t h e stets dex
ment, i n lieu o f its own, then w e assess the
a n c
L
A
A
STC. .LiLsS
Jéeoartment
ermouns.to
then
authority
t o d o that.
particulsr p o i n t w i t h thnemn.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ths l a v s a y s t h a t t h e state
Feceral reserve bank's
The s
c e p e r t m e n t would n o t zamit
O
ts insbility t o make
W s m i n s t i o n s , o f course.
ITunderstend thet, b u t they will sci n l i e u o f thse o x e m i n s t i o n
cept y o u r e x s m i n a t i o n
of
sasther t h e y h a v e suthorate o u t o f t h e i r i
s m o u n t necss-
k
gary t o psy u s for our charge o r note
think w h e t u r ® J a m e s refers
: t o v e r n o r Calkins: I
is this, t h a t t h s t a t e cepartment m e y scespt o u r
tion i f w e p r e s e n t
Mr* Perrin: I
i t t o t h e m w i t h o u t chargs.
b the
presume substitution w o u l s e
proper expression.
Governor ‘@ridsinger; Your stete only makes one
ok
exemination?
Governor Calkins:
T W O .
Governor Crissinger: 7
provides f o r one?
Governor Calkins:
Governor Crissinger: © And you g o i n ond mseks
cond o n e s n d have n o t been charging f o r that?
to
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ve h a v e
Governor Crissinger:
not
i s
e
n irresuler sxemlue-
tion.
ire Perrin:
have not been meking annusl exeminetious
Governor heDougal:
quiry--- the subje i s y “ I s i t d-sirsble e n d preeticel
to m a k e
more
use i
scers i
i
b a n k
ax
inations
DW fea cmdis
the e x c l u s
we h a v e
boards
i t on
a n d t h e Gover
tovernor
heDougal:
fannot
anaswe
Governor Crissinger:
question,
out
t h e t t h e c h s i r m e n shoulda g s t
a n snswer
t o it.
Governor McDougal:
Y o u will b e imposing
e s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
s ve oO nGs
ie
e DOU B E
regera
l i a t r u w}
i
eluonD
he
a)
l
f
r
ba
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,
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tr a o B nh
ar
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3
s e s e l i vl oPCC,
ceS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
stey settled, ix.
COWN
Governor C a l k i n s :
to.-bne<laet p h a t t i e m e t t e
solves i t s e l f i n t o t w o
ee e e e
make
e
More
e‘
uss
-
p
7
a
:
s
»
o
e }
a
e
S
S
e m a s r a r eae t
O n e
C E O P TO L
riage |
practics b
prectical
t o impos¢
at
qweLon,--by @ Pahing of. the
question w o u l d e
b
on
of
Governor Crissinger:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
SS
“) c e s t i o n
ques tion i n v o l v e d
roeticeble"
the i n f o r m a t i o n
c iable
t c tao ru s
pe
s
L onr p uo r p o is s
Governor
42
eta
men
t
ts
the
irabi-lity o r
of controll
er:
Cris
h a t
in m
i g n o guestion
tne era
1 Loss
practicability
o with
d
It hasn'
T should h a v e i n c l u d e d
iim, Galdkins:
ment
s
St
oa t h s
using s u c h i n f o r m a t i o n
in
constantly doing.
Governor
d
Governor Calkins:
be)
member
a $l
control
n
set i n c o n l u c t i n g
bank borrowings b y t h s
Inquiris Se S
Governor Crissinger:
Largely without cepencing o n
the r a t e ?
Governor Calkins:
Ve-y lergely.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
cs £ 4 ’
i g $
N
e
y e o +
Crissinger
Governor
J a
T W na sn tt i
s
general result
giitferent districts,
you a r s d s s l i n g w i t h t h e m o r e
EPOL L S b y t o s rate,
the terge eities, t h e less
other v o r d s , y o u c s nmno
rule which
‘Then y o u control i t b y t h e
rate i n thes lerge
e s , i t i s reflected beck i n the
pnet E r u e s
Governor Young: m e a t s
belt6
. SES
Y o u mean that
Governor
iin. Jey:
Governor
Grissinger:
s
s
e bhi .
n y P-O S G e O fL FFLing
A S
O mIb La aaS e“DUP
+4 cage
District a n d y o u r a i s e t n e
in New York, t h e b a n k s o u t there
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
229
I know soms casss w h e r e i t was actually
the i s s t t i m e t h e y r a i s e d i t a helf o f o n e p e r c e n t
in New York,
iir, JBY~s T h a t m a y possibly have b e e n done.
Governor Crissinger: I
a m just saying t h a t i t re-
vlects back, t h a t i s all.
Vp, Jays
I t may o r i t mey not, b u t i f you attempt
to stop the expension o f credit b y
sreat credit center, y o u will f i n
beck country cennot g e t i t s t a n y v
Cov. Criss ingen:
T h e t i s what w e é
at
{
t r y i n g t o heve dis-
and this question h s s r u n atiay f r o m us.
u d
et's
the. conference?
Governor sSsay: I
think t h e subtect has b e s n ex-
haus ted.
Governor Crissingsr:
I f there i s nothing further,
ll g o t o t h e n e x t s n e s t i o t
ve
o n t h e progrem, N o . 4 .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
hg movements
oar
#@ w i l l h e a r
ie C u r t ies:
clot L g n t
I would like t o ec: y o u r 6
monetary.
t o c a y some cherks
a
P
h
e ct Les
here s h o w s t h e —
e dotted lines u p
h
top line i s the world
present yeer sre the estimates; t h e lest line, 1925,
is a l s o e n e s t i m a t e
o j
will find i n the case o f |
t
h
e same thing y o u
States sold, w h i c h
is the Tressury statement, e n d which sgain
weates a t the end s s t o October 21, 1925 o f
besnk s o l d end t h e federal reserve @ l d ; 3
Poceral reserve zold starting i n i n 1914 (indiceting)
fhe netionsl m d
i n a t i o n a l 9sp:
t
h
e gold
movement curing the pest year are best summorized b y the
following tebuletion:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1922
Tyelve s o n t h s s n a
4
p>
Osa. =
T
:
y
O n e
"
4
2
1
, 170,000
t n e
cpegibeci rate) a0
256,365,000 2 1 9 , 1 3 7 , 0 0 0
39,661,000 350,977,000
239,026,000 ~143,802
280,322,000
~ 14,914,000
Tacresse
notes i n
4,315,000
festurss
~207,240,000
of t h e 192"
(1)
country c u r i n g
jncreass
lvs m o n t h s
c i n g
!4 “261,000,000,
e
nae t gold
°236,000,000.
t o over
ee s l t h o u g h n e t sola imports smountsd
‘236,000,000, g o l d holdings i n the
tneressed slightly less than 340,000,000.
250,000,000 increase i n gole certi
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
232
after subtracting the 415,000,000 ceeold eoin i n ¢irowlation, p r a c t i c a l l y
ell o f t h e cold imports o f t h e yser vent i n t o ectual
Giveu lation,
O
f t h e “ t e r e Ll Sa nerSetsS
o F ore
i e
e i
lation, smounti-g t o 3329,000,000, t h e
6 Over... tives
Tae rscent thorough exemiastion o f t h e netionsl trade
balence by the Depertment of Co. msreé shows that lest
the
year's n e t -old imports w e r e n o t @ # cirect result o f
surplus o f merchondise exports o v e r imports.
yesr 1 9 2 2 n e t g o l d i m p o r t s
amounted t o 3238,000,000 ss sgeinst .1754,000,000 surplus
merchandise exports, over imports
M m e cejertinent oai~
mach
secur-
to. A r e r i é s n i n v e s t o r s ,
a
0
Amokican
Money s e n t
BYLO.
foreign m o n e y i n v e s t e c
holdings o f foreign
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
smounted t o slightly over ::1,007,000,000 o r some
3320,000,000 more then the credit o n account o f
cigs e x p o r t s u r p l u s
S o n e light i s thrown o n
ent e n o m e l y o f t h i s
might b e celled t h e flosting incebteansss o f
world
t o American bankers
e n d mercnents.
uncuestionsably
1919 s n d 1920, v h e n our surplus exports
heights a s 34,000,000,000 end 33,000,000,000, resp’
F o r t h e most pert i t mist have been carrisd
ly.
this country s m o n g accounts receivable, o n c neturelly)
would b e the wish o f foreign merchants s n c banke
reduce this kind o f incs!
pay i t off.
I
t hss b e s
m e t e d o n good authority
thet i n July, 1921, o p e n sccounts o f this charocter c u e
to Amsri c e n business n o u s s s
37'75,000,000, o f which $375,000 O
ing i n July, 1922.
MeN
ayi
a
n
e
r
was still outstand-
e i s g o o d rssson t o essume t h a t
e Ey
the process o r repsyrent h a s continued :
t h a t current
£
As
gold imports, t h e n e t balance o f which during t h e past
twelve months amounted t o 3236,000,000 conteined a goodly
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
254
147
proportion o f gold srising o u t o f repayment o f these
875,000,000 o f open accounts.
The movement between districts i s rather difficult
to vork out curing this sane period,from October lst,
1922, t o October 1 , 1925.
The Boston bank gained i n gold 46,000,000 a s shown
a
b
y t h e reduction
to 336,000,000;
i n its*opsn morket securities
t h e New York bank lost 357,000,000;
1 537,000,000; Cleveland gained
°54,000,000; Richmond lost 24,000,000, Atlanta lost
385,000,000; C h i c a g o gained 2,000,000;
S t » Llonis lost
29,000,000; i i n n e s p o l i s gsinea eporoximetzly t w o
willion, Kansas City lost seven million, Dellas lost one
million, s n d Sen Francisco gained thirty million.
T heve t r i e d to, traos o u t ,
n the
i
t o soms
Boston bank, w h y w e either gsined o r lost t o
other Gistricts.
T
t esems t h a t t h e B o s t o n b e n k i n v a r district;
the Richmond district;
e heve
w
gsined f r o m t h e Phile-
g
e
i
n
w e
e
d r r o m the
ct; w e have gained f r o m t h e Chicago cistrict.
generslly l o s é heavily t o t h e Minneapolis district.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
is c o m i n g from,
1922
Wis 5
n e e
Zaglsnad,
from Germany.
thet w e c e n trace directly t o
is n o c o u b t
want t o Ceanece e n d c a m e through i n that wey.
I should b e glad c n g s w e r a n y cuestions,
Jo n o t t h i g k I
neve
overnor
I
purmelled enough, h e cesses resistsncs
ell t i r e d s n o u g h s o t a s t y o u H e b e n o t e e i s s
to meke, o r will agree,
argument
hope y o u a r e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
256
rscomize thres methocs o f
(1) T h r o u g h o p e n m e r k e t
o f diseretion
2) T h r o u g h e x e r c i s s
i n mek-
T h r o u g h t h e fixing o f
to mambser banikts; :
reciscount r a t e s .
fourth method,
pears, h o w e v e r ,
b
fuller infornetion
pert o f t h e m e tno a
e reslly o
o f 2 mombe p y n i k ' s condition e n d
f o r re-~
etions, v o u l d undoubtecly + s y e e l sound reasons
~ b e n s disposed t o expend
unéculy.
f thess thres
to meke open market
Oops srat
5Lons
tO
strain
S
s o f sme
{
n
e
s
s
c o u l d nos
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
237
course, s u c a
ine luce Governinent securities,
e of ciscretion
i n g r e n t i n g scavences i s
action e n d i s o b v i o u s l y erfective.
r granted o r refused.
T h e method hes t k
banks w h o s e l o a n s
t o custoniers
remotely a f f e c t s c b y o p e n
market opctretions s d
i n the finencisl centers, t h e r e s p
pears to, b e n o o t h e r
aavences t h e n b y t h e
becn b e l o w t h e r a t e b o r n e b y
the pgper w h i c h they have reciscounted for their member
banks. O b v i o u s l y , u n d : r s u c h conditions there c e n b e n o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
258
sdvances s u c h ¢ s w o u l d
vere h i c h e r t h e n t h s t b o r n e
T h s sxtent t o which resula-
reciscountec.
tion o f the volume o f credit
i s feasible through tis
influence o f t h e discount rats,
a r e s
i
s cJetermined
chiefly b y t h e extent o f t h e sentimentel effect o f
¢hanges i n the rete, rather t h e n b y t h e element o f profit
This sentimental importsnce attaching t o a n
Federsl reserve rediscount rate i s doubtless
fact t h a t c u c h e n e d v a n c e i s i n e f f e c t 6
wern-
Ecelaration b y Federsl r e serve suthorities that
ding t o o repidly s n d should,
fety, s l o w cown i t s pace.
Gecisration w u l d surely b s regare
S u c h 2
s s too important
most d e l i b e r e t s e c o n s i d e r -
s
chengses
and.
G t S P V o as
impracely c h e n g i n g : e r e s s e r v e d i s c o u n t r a t e i s t h u s
ticsble -+--- $
Fedora
e s e r v e r a t e i s therefore n o t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ous t o the Benk o f Sngland rate, which reflects
sensitively a
surplus o r lack o f funds in. the London
i n the past, chenged
bill markst, o n d hes sccordingly,
conssquently changes
the c i s count r a t
then o t h e r r e c u l e t o r y
the extent that t h i s v i e w i s correct,
must sccordingly sttach t o t h e u s e
e r s Li C p a
three m e t h o d s m e n t i o n e d
exercise
o r
n
e ciscount
ll snother m e a n s
tion
tion
war, w e could not s e e t h e
=
book c r e d i t
o r f o r note
we could i n orcer t o create g r e a t e s t possible power
eredi ts W i t h t h e Armistice, November l l ,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i
ESS
1918,
w e snded the w e
to combined lLisbi y
h
e spstem's ratio o f
st t h e t time wes (November 15,
With t h e c o m p l e t i o n o f t h e
19, this
borrowings f o r var, purposese
then (liey 16, 1919) 51,1 per cent.
serve Boerd hed hsd s pre-war becksround o f
occesions spplications v o r Feceral reserve notes, i t
not improbebls t h e t sfter t h e Victory L o s n t h e Board
2gpre-war practice, although
$6 w o u l d b e n a t u r e l
t o refrain f r o m t h e n initiating s u c h
It i s e n i n t e r <
a g speculation 3 s t o what
would heve besn t h e resulting sifect enon, 2 6 credit
situstion curing ths following period i f the Federal reserve Bosrd hed compelicd the paying out of golc o r
gold c e r t i f i c e t e s
b y rejecting spolicetions
f o r Fe-
3
yeserve n o t e s f r o m a n y Meacresl r e s e r v e b a n k h a v i n g
ree
gerveratio i n excess of, say, 4 5 per cent. ( T h i s power
is conferred upon the Boerd by Section 16 of the Act,
see page seven.)
“Qbviously, 2
Federel reserve b a n k being called upon
for currency e n d heving h e d its application f o r Feceral
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
241
vould h a v e b e e n a c l i c e d
to ¢xXpension.
p
i
e
l diego! Oe
efter t h e Victory l o s n bscsuse
morsl oblisgstion t o thos¢ w i h a i vledged their
credit t o buy Victory b o n d
thet t h e redcdiscount r a t #
New Y o r k f o r n i n e t y < :
s
- $ypiceb-ei- this
the Fedsral reserve
w e s meintained
O o i
bank
of
s t four
“yersers p e r c e n t from April 6 , 1918, until
9 means
o f resulsting t h e volume
ssem thet, nevertheless,
a n inpor
leit hove b i e n ecfisetes
through exercise o f the B o crd's right t o
tions f o r notes, t h u s c o m e l l i c s Federal reserve benks
to pay o u t gold o r gold certificetes 9 a.
lencing power,
I f such regulation
enough o r metcrieally lescen o r pre
sion i n the fsll o f 1919 sncsp
h
e g r e a t expsne
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
most importent result.
might h a v e b e e n i n t h e
met s b n o r m s 1period,
ghia
62
Ons - 2 0 r n o t e s
from
bank heaving 2 reserve sbove say 350
Bosrd should impose e n
using
a
e
e
f
, except
26d. for them is great.
impotence
cones $nto congideraNovenber,
serve
VE E E S
f
ESAS
G R o Ac,
26 b e s e w o u l c a b e
me i m v i e w o f
eviber, 3L 9 2 0 , 2
t h e n e t imports o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
156
2
4
3
W e a r e warned
gold have b e e n 1164 million dollars.
that this excess g o l d should n o t b e mede t h e basis f o r
new credits becsuse,
a s their credit balences ensble
them t o commend it, i t must b e re-exported t o other countries s o t h a t t h e y m s y r e - e s t a b l i s h t h e i r c u r r e n c i e s
upons gold basis.
It hss been sug’ ested that w e meitteally car-merk
he
regard i t # 5 hi
4 billion dollars o f gold d
sort o f trusteeship.
T h e retention o f this excess
a g a part o f Fecerel reserve b a n k reserve:
hovever,
weekly publication o f t h e fact that our reserve retio
abnormally high, constitutes 3
continuous
I t seems 31lso t o b e 3 constant
erecit infletion.
éisturbing f l s u n t o f o p u l e n c e s f o r s e d i s t r e s s e d
countries.
mot good.
fo
e psycho
h
I n eadition, i t inspires many
reserves.
ed. these S
we shall b e callec upon t o
portent
pa
tioned whe
t
h
t
cessful t o hold
eearemerked e s 46
i
h
s gold, o n e i t m s y b e
e interval,
e x c e s s re é
r
en
u
s
e tentatively
o s h o u l d f a i l t o maine
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
244
tain t h e self-~cenyings ¢
contraction w o u l d b
c
ior
f F poscsssion w i t h o u t use,
e b l e wv
t h e tine e s m e f o r
exporting t h e gold.
It seems t h e simplest 2 n d ssfest method f o r
reserve banks sctuslly t o cispossess themselves o f this
excess gold.
e no bettsr w a y than t o l e t
There couldb
it become s part o f our circulsting medium.
I
n sucn
tbywould not go out of the country, i t would not
®m®uld e
7
depleted b y exports, s n d meanwhile, w o u l d not
unneturally d i s t o r t o u r n o r m a l c r e d i t b a s e p L polce
All forms o f currency i n circulstion e r e constently
flowing i n © slov stream through ¥Yedtral reserve benks.
This vL1ll continue
money i n Fecrrsa
t o b e trvus “ n e t h e r t h e f o r m o f paper
e a r v s notes o r gola certific:tes.
are n o w psying
2,000 m i l l i o n ¢collers o f Fecderel r e s
be physicelly possible t o place 1,000
millions
o f gold certificates
i n circuletion i n «
months.
The sadventages growing o u t o f t h e scoption o f s u c h
succestions w o u l c b e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
245
subs tartlelly lower reserve ratio,
it
would b
e realized t h e t t h e reserves
credit a r e n o t s o large
In & period o f sxpandins business e n d rising ;
demand f o r loans b y business m e n would b e less
to b e excessive s n d “snisal o f loens b y bankers
would b e easier.
ii, ceppite a l l efforts t o prevent it, o r d i t infila«
tion should come, i t would b e literally impossible
for i t t o g o ®
f e r with a gold base o f two billion
dollars e s with a base o f three billion collars.
If the billion dollars o f excess g o l d were once
placed i n circuletion, i t could not b e used t o support edditionel rediscounts f o r member benks, s n d
could not b e brought b a c k into t h e System whenever
incoming g o l d certificates s n d
Fecerel r e s e r v e notes,
meking i t p@ssible
t o mest a
thus
cemand f o r g o l c f o r
export without diminishing t h e reserve retio a n d
thus disturbing t h e stability o f domestic business.
lerel reserve banks dispossessed o f this bil-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
246
axcess g o l d a n d t h e reserve
st 2 mors reesonabls level, t h e
favorable f o r t h e sdopbion
saditional t o others,
ng the volume
the c d v e n t a g e
o f |
of
c r e d t e T h i s method would
i
m
p
S
e
l a n d s u t e n e tic
el thet t h e maint=inence o f
hichest point p o ssible
It mey b e that
. tafluencec
8
h
s great necessity
accumulstins g o l d which hes sopeared i n times past.
s
the sarly day £
war w e very wisely sougnt t o
posinto t h e Federal Reserve S y s t e m e l l the g i d
we coulé not t e l l t h e extent t o which crscits
might b e
i
, b u t this emergency h s s passed on: t h e
& girebility o f meintginin: j
well b e reviewed i
'
e
af
a s s e c gold
the present. © 2
for this country
industry.
the m e s s i n g o f o n l y s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
stion t h s
tos c i x r c u l e t i o n
of
contemp Ls
the following provisions
through
no tes
be
notes i s s u e d
e
n
d
on o n l y t h e t e m o u n t o f
total s m o u n t
o f its out-
ding Federal reserve notes less t h e enount o f
gold o r gold certificstes h e l d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
248
nt 8 s c o l l a t e r a l s e c u r i t y . ”
It w i l l f o u b t l e s s
b e conzse..-d t h a t n o o n e i n d i v i d u a l
knew better t h e originel i n t e n t o f each provision o f t h e
Act t h e n t h e Honorsble Carter
As Chairman o f the Bonking and Currency Coimittee o
House, having the Federel Reserve bill i n chargs, h e
8 report upon it,
I quote the following (psg
maging t h e g e n e r s l c u e s t i o n “ h e t h e r
the public reaquiremer f
elasticity ( i n the volume
of Fed-rsl reszrvs noted) h a s b e e n met a n d proviced
Elesticity m u s t b e considered f r o m t w o standpoints ~
that o f expsnsion e n d that o f contraction,
the reculstory mecnanisim i s the.
which i s - i v s n t h e p o w e r
to
spolications
f o r notes.”
pars
From this i t s o .cars clear t h e t Cheirmen Gless h e d
shot the Federel Reserve Bosrd would freely sxer3S, wien,
tions
of permitting the volume o f Fedrrel
notes t o expsnd,
i n other o r c s ,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ts right t o resulste t h e expension.
Resorvs System h a d béen i n ove retion
yeers b e f o r e
ths w a r ,
i t seems
not
i m
sdersl Reserve. Board might nave s d o p
the p r a c t i c e o
f vstoing,
reserve notes.
a t times, epplications f o r Federal —
T h i s w a s ¢ . 3rently anticipsatsa b y
Chairmen W a c e
In the powsr coorerrea b y the act, t h e Bosrd has
suthnority t o r e q u i r e F e . : r e l R e s e r v e B e n k s
t o reculate
credit expansion through regulation o f t h e g o l reserves
but. i t i s a l s o o b v i o u s t h a t ,
b y cooperetion,
t h e Federal
Reserve banks could voluntarily establish s u c h réculstion o f the volume o f gold reserves a n d consequent regulstion o f eredit cxpension.
ring Bomeras
H e d d a 4 G not sceomplish vnat y o u went
just a s much i f you took © billion: colljers i n gold end
tupnec i t over t o t h e * s e n t s f o r t h e r e d u c t i o n o f l i s b i l
ity cgainst outstercing not 3s? T h i e n w e woul: j u s t
charge o f f e billios Gollsrs i n our reports.
O f courss
they would b e outstanding, b u t ons huncure” cents
would
b e behind tnem.
lars Perrin:
t
t c o m ers “to: m e thet, psycholosic-ll,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
250
thoussnd million i s @ n 2cecuate
i
b a
t i s une
to heve e n y sbnoriel smount held, tantetively
ve b e l b e v e
i s for 5
témporary
Ey
gh t h e t e m p o r e r y p e r i o d m a y b e o n e y e s r o x
ebls, *ithout iisturbing our commerce we © O Heve t o give 1 t u p 822
ig w o r t h y o f t h e g v e a t e s t consiceration.,
lieve thtre i s ony way thet w e could cerry thet so
to L e t L t b e uncsrs 4
€:36 9
billion G o l l a r s w o u l e
you have t h e g o l d 2
--nats w i t h w a n k ht o p a y n o e s t h e t
they come in, z n d i n t h e othsr
eege y o u vould p e y tust ¢
2
out into circuletion s n d
put i t i n the sockets of. the people.
N o v , might there
5.5% goli b o k
go ore going t o hola o n t
*
into t h e Trcssury,
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Federal Reserve Bank of St. Louis
251
thet n o t snother doller o f g o l d could w e
need f o r i t b e i n g
to b u y b i l l s o u r meturities
r of public nobtics,
sy merkét.
tust i s n o t known publicly.
Assuming t h a t w h a t y o u s e y i s 5
proper w a y , t h e q u e s t i o n i s w o u l s
if w e turned over 3
vise
_ t h e s a m e result
billion dollars o f gold
Ge not think so, bseceuse w h e n y o u
lites Perrin: I
have c o n e t h e t y o u w o u l d l e e v e o n l y t w o b i l l i o n t o c o v s r
=
tne n o t e s outstsndins,
e v e r y o n e o f then being c o v e r s
”
by s o l i ,
Se.
end
i t i s m o r e t h a n tiste.--
B R L
n
e
s 2 s s e r y then,
w e woul.
go
your plsn e n d restrict further i s s s a c e o f not?s
nec “SSEry.
psycho l o g y
of i t would b e vestly greater i f ws c i d not show i t i n
our p o s s e s s i o n ,
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Federal Reserve Bank of St. Louis
252
lay Semi in:
V e¥
we w u l c shor :
in’ t
show £ 6 i n our reports,
P i i a ‘ o l l s r s l e s s o f Fecersl] reserves
notes outstanding,
But y o u would heve t o show.the gold.
Lr. Hamlin:
O f course osople would know where the
golé was, but our liabilitie ;
tollars,
i n which cese w e put
notes into t h e pockets o f t h e }
LP. Perrin:
W e has 5
very interesting statcmsnt
yest=rddéy from Mr, Stewart with regerd t o the proposal
now unéer ©
serves,
nsideration b y t h e Bocrd o f reststing t h e re-
i n which t h e banks
n k
c l s s s i f i e d e s one
hundred p e r cent, o r m hundred p e r c m t against their notes,
seventy per cent snd rifty per cent.
Governor Seay:
“ s s i t contemplated t o put thet
plen i n operation, t h e plen y o u epeak o f ?
lee S e e r :
A g s I
geathsrec f r o m ix.
is likely t o b e put into operation v e r y shortly.
iy, Hamlin:
Y o u mean the policy of having on
Db
hundred p e r cent sgsinst Federsl reserve notes,
policy o f the Bosra?
it, Perrin:
T h a t wes m y uncerstanding.
as
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Federal Reserve Bank of St. Louis
2535
Governor Harding:
between t h e
T h e t would meen discrimination
the verious banks o n tne pert o f
t e f
ths public.
Governor 5eay: i
ie f
Z i s c u s s e d a t all?
the G o v e r n o r s heave o p p o r t u n i t y
I
late: B B P :
t o h e a r s b o u t that?
v t h e Gov-rnors W i l l a s k ire Stewart,
vith Governor Crissinger's ocrmission,
5 m sure h e will b e gled
ment atout that, I
‘statement
t o meke « state-
t o youe
Governor Crissinger: I
co not think
this efternoon, b u t I will be glad t o heve
meks = statement tomorrows
Governor Seay:
o e s l i s e v e r y Governor
woule like t o be tsken into the
its f a s h m e
Gov ernor
cussion.
issue o f Pedereal R e s e r v e notes t h a t v e should
compelled
re :
e
e
I
r
s i n g erscit t o our member benks?
o t a l “ M o k e © bank vith 75 per
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Federal Reserve Bank of St. Louis
Suppose i t cidn't heave sevent
The Bosrd would not deny your
sabege w a s n o t hign enough--It would b e within t h e discretion o f the
cersl reserve notes, e n d
o
e
,
a
if they <id e n y i t we should have t o deny crecit t o our
I Go not-think so, necessarily.
I n other vords, w e could only protect
ix, Homlins
golc r e s e r v e s .
ye Perrin:
B y peying ovt reserve paper s t torty
per cent~--ip, Bemis:
“ e - r o u l d n o b only neve t
protect o u r g o l « reserves
b y p s y i a g o u t FPecere
notes, b u t w e voulk: b e i n axectly~ the postition o f t h e
they hsvo pull c o m t h e i r reserves
U
“
h
e
n they pey out n o e s
cants o n t h e collereeGovernor Strong:
T h e n they would c o m e u p 2 n d b o r w w
from t h e Fecctral Reserve Benk o f New York.
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Federal Reserve Bank of St. Louis
255
But isn't thers e n casier wey t o J o it,
it i
thon b y lisvine theses spots p u t o n i t Here s n d there?
possi bility o f i t beizg
voluntarily couse b y
through coopsretion.
it. a
f a c e
m
o s n k s themselves,
e
T n e Borrad h e s t h e p o w e r t o
the lestststsment only four o f the benks
less then :ifty-two per tent.
G o v e r n o r H a r c i n g :oO
T h i s metter
w e s brousn
<
2’ t
u p at
the lest conference i n iierch, w h e n t h e Governors w e r e
end succestions were s e d e t h e t something must b e
gold that. the Federel
spout this vest simoui f
reserve benks h e d h i s n d ,
o n€
ground thet i f something
wasn't dons sbout i t i t would heve infletion, a n c thet
things woulc hseopen,
T h o s é things which
" hevs n o t nco>snec,
veserve system s o weak 3 s t o b e compsred
who
hesn't got strength o f chorscter snough
whiskey i n ths house c n d b e sober s t the seme bias?
Hove y e u e n y information 9 s t o t h e smount o f Unitsa states
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Federal Reserve Bank of St. Louis
256
69
currency e n d Feceral reserve notes t h e t a r s i n foreign
countries? I
d o n o t t h i n k ‘snyone has. I
know f r o m
eptember, 1917, t o July, 1919, w e had t o get permits t o
ship currency out o f the country, e n d we know thet
,170,000,000 went out curing thet
ixw® Jay F e d e r a l reserve notes?
Governor Harding:
O t h e r t h e n gold, o f which fifty-
two million went t o France t o p2y soldiers a n d supplies
aga Bo forth, J
countries.
W
er
T h e vest of i t went to other
e d o n o t know where, b u t w e d o know t h a t
51,700,000 went t o Russia.
S i n e s the restrictions have
peen removed, e n d i n view o f t h e egitation sbroad, i t i s
s well known feet that iuptéent paper money i s worth more
ebroad than gold;
ers sfreid the cold is going t o bs confiscated.
I t
e tasking $ 5 r e e t risk t o disseens t o mé it w o u l d b
sipete t h e g o l d r e s e r v s s i m p l y t o r f e e r b e c a u s e y o u h e v e
got the gol’ you sre going t o d o something foolish with
it.
T h s A c t o f June, 1917, m e d e t h e original chengs
tn the cherecter o f the Federel reserve notes.
T - hed
corresponcencs v i t h n o Gless, w h o was bitterly
at f i r s t t o m s k i n g t h a t change,
9 n d consented t o
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Federal Reserve Bank of St. Louis
pera
Wat a e e r y .
epee t
pressur :
a
W
MS2asuree
ments s n d letters t o m e a r e B o a r d ' s
I heve c o p i e s o f them.
l i p . G l a t o o k -exeep tion t e
whet w a s d o n e b y t h e N e w Y o r k b a n k c n a t h e o t h e r b a n k s
their note iasuss b y t h e use o f psper e n c
to Meet redemptions.
I T hed some corre poncence w i t h
him before this l e w was pesssc
T h i s l e w o f 1917 w a s
war messure distinctly.
eg ¢
I
t heve
abies t h e t were made u p et t h s t time shovi.g h o w
ssential thet s e t wes t o the granting o f credit
o finsnce t h e Government e n d busines
“country curing t h e ver.perio. s n d immedistely
T must confess that I could never see any possi
in s l l t h i s . t h e o r e t i c e k b u s i n e s s a
22
out t h e gold, slter t h e figures, c n d :
e
¥
i
n
e to
h o e - SOR] o F
a2
t h ii n s tT o d oA i f y o u h a v e t h e g o l c
i s to take
it ond don't c o enythine foolish with it. b e ’
you s a y thet New York onc. the Philat¢elpnts bunks
9 huncared p e r c e n t s n a t h e t s o m e o p her ban's
end fifty, h o w sre y o u going t o avoid Ciscriminstion
egeinst t h e notes o f thoss benks b y t h e public?
Mey I euswer y o u b y pointing t o this
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
208
Let u s eseme t h a t w e retein t h e gold w s n o w
heve 3200,000,000,
s n d that the time comes when w e must
begin t o r e - e x p o r t t h i s s o l a ?
Y o u m s t oncicer viretae
you would prefer 9 stable re: f
32,000,000,000, let
With some s u c h increes
ste, o r whether you woul’
tinuous amount, giving u p e n Ssverege ce
reserve, 9
fe reserve,
comfortsble, s
So
industry would not b e cisturbsd, o r rather heve "3,200,000, 0°
with exports sterting o u t s o that y o u vould he:e
36, 200,000,000, 3:3,009,000,000, 2,900,000,000,
e n d so
forth, a n d immeciately t h e question woulda srise i n every~
body! mind, épprehension w o u l d srise e s t o how far i s
this going? -
S
e
e
It w o u l d g o t o t w e n t y e i g h t h u n d r e d million,
h u n d r e d , twenty-six
this would tske somé months.
Governor Hordin:
B
u
t some
money i n
a d e n
tite P o r r o .
I
f w e have
constituting t h e c i r c u l a t i n g m s c i u m o f t h e country,
ig g o i n g t o f l o w i n t o t h e banks
i n such supply that w e
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Federal Reserve Bank of St. Louis
perfectly stsble r e s
3xreentags, n o t t o o l o w n d n o t t o o high,
a
+ fund in publishing = bank's sta
if y o u h a v e a
loss y o u c h a r g e
i t assinst t h e conti
5
Pune - S w a e E V o s s n o u shor... 7
S21 i
recuction
upon
your surplus o f uncivia
this great reserve o f = billion dollers i n circulstion,
a
Governor Harci I
wish y o u woul r e a d t h e cor-
respondtnce between ur’ Gless e n d myself i n 1917,
resluctsntily c o n s 3
t h a t Act
committees
realized t h e t t h e character
a
must !
o r t h b e t o t e l l y chsngec;
t h s t i t n o longsr
hed t h e elestic chsreetsr i t rormerly
commodity, b u t
matter o f 5
the Fedsrel r e s 3
which e r e cesenti:
Don't y o u
8 r i s k thet
banks heve #ederal r e s e r v e notes
g o l d ¢
a )
e
s outstconcing.
i n k before w e C o snythirg that involves
w e hed better
f i r c out h o w much
is cbroed thet w e ere going t o b e celled o n
IT d o n o t b e l i s v e
thet is
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Federal Reserve Bank of St. Louis
L735
-able fact s n d I d o not belisve i t i s essential i n - c o n s i r ing the plan I suscest.
Governor G s lkins:
W h a t c o y o u think sbout t h e
psychological effect t h a t y e u r e f e r r e d t
o between e diminishec reserve o f thrse billion t o twenty-nine thousend
million, e n d the psychological effect o f the r e e r
shipment of one huncred millions o f gold t o Europe each
month o r esch week? “ o u l é n ' t t h e psychologicel effect
of the loss o f the gold i n one case b e just exsctiy t h e
sane 8 s i t would b e i n t h e other?
lir’ Perrin:
I n t h e one case i t would b e r s the papers
in New York, a n d i t would be, i n effect, a
port.
commodity. ex-
T h e p u b l i c statcsment o f t h e ratio o f t h e F e d e r a l
eserve benks! reserve i s 8 thing which would be serutin- —
ized carefully, much more csrefully then the gold movement out of New York--it. Joye
T h e paying o u t o f t h e c o l d w ule presumeb ly
be accomplished
s t s time w h e n thsre i s n o sola going
+
out o f the country, c n c there wouldn't b e ony scied exe
citement
t o it.
lia, Perrin: I
beg your p2rcon,
we peid out t h e gold i t woulk b e done
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Federal Reserve Bank of St. Louis
261
quiet time, when there wouldn't b e the addec
excitement o f sripments o f s o l d sbroed.
ly, Perrin:
t w o u l d be well t o c o i t n o w
I
s¢ t h e t i m e v h e n i r o w i n g “ o w n
i reise
s p prehension,
i . susstion
wnother i t i s humsnly possible f o r us t o hold = billion
mors o f g o l d r e s e r v e e n d n o t u s e i t .
uss it, s s Governor Herding
Y o u <-.6) nob meve- t o
o r o p e r l yes
4t not t h e huvien thing f o r every o e n k e r
ressoneble limit?
V i e mey s o sheec
tle, n o t much, s n d then “rop b e k; w e m a y g o u p s littis
higher t h e next time, a a c s o on,
of years before w e got into it;
s the besis f o r 2: f o n 3 s l credit, vive huncrec million d o l l a r s
out
for u s t o impose upon ourselves 9
restraint volunterily
by adjusting o u r gola besis t o 8 besis which i s sa°quats
s s neer,
for our present volume o f erecit, w a s n w e ere
‘perhaps, o n e hundred percent procuctivity s s
other words, t h e credits n o w outstencing
we r e q u i r e
auction 3
7
f
t o keep o u r pro-
oW n e r e s s é o u r crsait
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Federal Reserve Bank of St. Louis
without ineressing o u r production,
w e all know t h e t thet
step towercs infletion.
Governor
Y
u s s y t h e t t h i s s o l d hes n o t been
o
for credit.
Ilem q u i t e
s u r e thayt t u a t
thet they e r s borrowing n o w f r o m t h e
system
t o t h e extent
o f about three “uer-
4
sed their o w n crecit?
nd t h e banking system o f
upon s system o f recstrvss.
reserves w e r e lowered.
I
v
e know t o wi
t i s perieetiy true, a 4
mor Herding said, s t one t i m e t h e reserves o f
could n o t
of the country/heve becn meinteined i n their is
unless t h e reserves o f the Federsl reserve
nunéred p e r cent.
of
this country n o w i s w o l s t i v e l y v e r y l i t t l e i n excess
country i n 1914, i f you
Governor H a r c i n s
I
f y o u s o back t o t h e o l d reservs
on
requirements, a n d m a l e Every b a n k cover t h e m
that they h a c to carry t h e m i n 1913, h o w mich
aeve y o u g o t ?
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Federal Reserve Bank of St. Louis
careful investigation o f
t
y
t
n about
u
o
ir s just
8c
20
a
cur]
per cent o f t h e lisbilitics,
ens
énc i n 1915, i t was just etout 6
r
t
r Gentlemen,
eT T
v
o
n
Crso singer:
g
t o y so u t h s et y o u hseve
-
w o uol
t iG
k e
t o
s cdinner engegement s t 7 o
Cistr will cntertsin ¢
motion t o edjourn until
tomorrow morning, t h e n v e will heer Governor Bizgs e n d
heve f u r t h e r
pee H o m l i n :
I m o v e
(Tae motion heving b e s
o'clock o. m. the Joint Cont: rence sdjournes until tomorNovember 14th, 1923, s t ten o'clock 2.m,)
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Federal Reserve Bank of St. Louis