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Federal Reserve Bank of St. Louis
VOLUME 3
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 THE
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
W A L T E R S. COX
SHORTHAND REPORTER
COLUMBIAN BUILDING
WASHINGTON, D . C ,
FOURTH DAY.
Washington, D . G.,
Thursday, lovember iO,5 LOSS.
2:30 o'clock p. m.
nee o f t h e Board o f Governors o f
Federal Reserve Banks w i t h t h e Governors a n d
Chairman
and Federal Resorve Agents o f Federal Reserve
Banks r e sonvened i n the hearing r o o m o f t h e Board, Treasury
Building, Washington, D . G e y @G°RSS0 p a t e
Present:
M e m b o r s o f t h e Board, Governors a n d
Chair-
men o f Pederal Reserve Ranks, a s previously
noted:
Govornor C r i s s i n g e r :
T h e first thing o n the program
in “ General poliey i n regard t o check collections."
That
is t h e f i r s t s u b j e c t
joint conference,
o n t h e second days! p r o g r a m f o r t h e
H o g < ey G e n e r a l p o l i c y i n regard
to
check collections.
A m o n g other matters discuss clearing
house charges, speeding u p check collections,
Governor Mechinney: w a s t o h a v e b e e n
t h e spoaker.
Gover-—
nor M c K i n n e y n o t b e i n g h e r e , w e r e y o u
going t o take his
place, M r . T a l l e y ?
Mr. Talley:
N o , Governor.
G o v e r n o r McKinney d i d
not prepare anything o n that.
Governor Crissinger:
V e r y well,
on Mr. J a y t o o p e n t h e discussion,
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Federal Reserve Bank of St. Louis
T h e n w e will call
579
Mr. J a y s
L a s t summer,
i n discussions w i t h m e m b e r s
of
the Board regarding Regulation "J", i t was clearly brought
out t h a t t h e f u n d a m e n t a l p u r p o s e o f t h e c h e c k c o l l e c t i o n
provision o f t h e a c t w a s n o t m e r e l y t o c o l l e c t c h e c k s
wider a c c e p t a b i l i t y
par p u t t o g i v e a
as m i g h t b e p r a c t i c a b l e
instrument,
at
t o checls, a
i n view o f t h e limited nature o f t h e
t o make t h e m circulate
a t t h e i r f u l l f a c e value.
From this, t h e thought developed t h a t t h e Federal Reserve
System m i g h t n o w p r o f i t a b l y d e v o t e i t s e n e r g y t o i n c r e a s i n g
o f d e v o t i n g i t s energy,
‘the a c c o p t a b i l i t y o f c h e c k s i n s t e a d
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Federal Reserve Bank of St. Louis
W
eg i n the pasbh, largely t o increasing t h e par liste
e
had b e e n so. successfuly i n this latter objective t h a t over
ninety p e r c e n t o f t h e ban'ts w e r e o n o u r p a r l i s t a n d t h e s e
banks r e p r e s e n t e d p r o b a b l y o v e r $ 8 p e r c e n t o f t h e t o t a l c h e c k s
drawne B u s i n e s s
satified w i t h o
i n most p a
a c c o m p l i s h m e n t a n d w e c o u l d well a f f o r d
wait a n d s e e w h e t h e r n a t u r a l d e v e l o p m e n t s
course o f t i m e b r i n g a r o u n i v e r s a l
this w a s t h e s p i r i t
we l i k e d i t o r n o t e
ee:
p a r clearance.
w h ther
e had g o n e a s f a r a g w e c o u l d b y
ageressive m e a s u r e s a n d h a r e a t e d 3
thereby.
d i d n o t i n the
o f t n e Supreme C o u r t decisions,
w
to
i t t l e bitter f e e l i n g
a
i
e
T h e prospect o f turing o u r
against
aggressivo attitude/the banks w h i c h would n o t remit
to a n a g g r e s s i v e a t t i t u d e
i n favor
o f t h e banks
which did
remit, seemed t o offer a n outlet f o r o u r energies,
ag v e r y i n t e r e s t i n g p o s s i b i l i t i e s
if w i d e r a c c e p t a b i l i t y
a s well
o f accomplishment.
f n d
f o r t h e p a r check were yeally secured
the banks n o t n o w r e m i t t i n g m i g h t g r a d u a l l y f i n d i t t o t h e i r
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Federal Reserve Bank of St. Louis
advallitage t o d o s o ,
Ths thre-. groups through which the wider acceptability
of t h t p a r c h o c k m i g h t
b e r
cognized
a n d increased seemed
ZO: De?
business
banks »
Fedrral R e s e r v e Banks.,.
RELATION O F B U S I E B S S M E N T O W I D E R A C C E P T A B I L I T Y
OF P A R CHECKS.
Tho r e l a t i o n o f business
t o the wider accoptability
of p a r checks s e e m e d t o b e a l o n g t h e l i n e o f r e c o g n i t i o n
that t h s p a r c h e c k i s c o l l s c t s d m o r e c h e a p l y a n d q m i c k l y
than otintr checks a n d that,
willing t o accapt i t s e t t l e m e n t o f accounts more readily
than other checks,
fhe ldea tnat
to the p a r check was ‘
s e d t o t h : National A s s o c i a t i o n
of Credit Men, which has always b e * n most interssted a n d
active i n the support a n d furtherance o f th: p a r system.
dation a t o n e s 2*xpressad g r e a t int+¢ rest i n t h e
th: attitude t h a t a s Federal R e s e r v : B a n k s
wert n o longer presenting checks ov:
msans
o f maintaining t h e p a r list a n d a s >
c o a l a w a s
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Federal Reserve Bank of St. Louis
582
more activs t h a n over, i t was ths duty o f business,
own interest,
i n its
t o sxpress a p p r e c i a t i o n o f t h s a c t i o n o f t h e
27,000 b a n k s w h o a r e r e m i t t i n g a t p a r a n d t o g i v e a p p r o p r i a t s
recognition t o the p a r check.
t h i s would n o t o n l y cncourat
age these banks, b u t might make i t actually t o the/advantage,
to continue t o remit a t par.
best contributs: t o w a r d
I n this w a y could business
t h p r e s e r v a t i o n o f p a r payments.
dhethor s u c h a n attitud: toward thse par check would l e a d
sventually t o universal p a r cloarancs would b e a
of gradual dev-lopment
tion,
i n the future.
question
T h e immsdiate ques-
t h e ecrecgit m o n s a w it, was the preservation o f what
had already b o c n accomplished.
In order offeetively t o give wider recognition t o par
chicks the credit msn, b y umanimous vot: o f thoir directors,
have: priparsd a
comprehensive progran which will b e i n motion
py“ths ond of this north.
to
a mumber
I t has already bo-n submittsa
o f lsading b u s ness housss
i n sev-ral s e c t i o n s
and with one o r ‘two enoc ptions has b e e n enthusiastically
r-ocived. &
B r i e pamphist h a s b e e n pre pare 6d deseribing
the f o r m e r S l o w a n d S x p o n s i v eh .
cl:
c
coll-ction mothods
as
contrast. d with t h c h e a p e r , a u i c k t r s y s t i m t h e R é s e r v e B a n k s
have a s t a b l i s h o d ; e x p l a i n i n g t h s p r e s e n t s i t u e t i o n f o l l o w i n g
the Suprema Court decisions; a n d asking >covery ons o f the
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Federal Reserve Bank of St. Louis
583
50,000 m a m b e r s
o f the Association t o five recognition t o the
advantages o f th: p a r check a s a means o f settling accounts.
Those m o m b e r s w h o a r e s t i l l i n s i s t i n g
o n settleamants
in
New York, Chicago, S t . Louis, S a n F r a n c i s c o o r other specific funds are asked t o express a
willingness t o receive
settlemont b y any check payable a t par through the Federal
Reserv: System.
T h o s e w h o are n o w accepting i n settlement
any check, w h e t h e r p a r o r n o n par, a r e a s k e d t o express a
preference f o r scttlemant b y a par check,
i f not inconven-
ient t o thsir customors.
The Association intends shortly t o write a
letter t o
all o f its members asking t h e m t o adopt theses principles
in dealing with the settlement o f their accounts, a n d t o
placs p e r m a n s n t l y
i n their s a l e s c o n t r a c t a n d o n thsair i n -
one
voices a n d statements o f account o f th: following legends:
(Mr. J a y h e r e e x h i b i t e d a
numbor o f w a l l charts.)
This legend was t o b e used b y concerns w h i c h n o w a s k for
payment i n specifie funds, l i k e N e w York, C h i c a g o , S t . Louis
or other funds,
This o n s was t o b e used b y s n e e e n e whieh n o w take a n y
check, whether a t p a r o r not,
i n sottlsment o f their accounts.
You will note that this does n o t i n any way require t h e m o r
ask them t o send back a bheck that i s not a
par check, b u t
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Federal Reserve Bank of St. Louis
merely expresses a prefzrence t o a par
vonient
t o t h s i r customers.
to facilitats t h i s expression t h e Association i s prepared t o furnish t o its members, without charge, t h e necessary rubber stamps a n d slectrotypes, together w i t h a
small s t i c k o r t o b e a t t a c h s d
t o th: i n v o i c e s
o r statements
during t h s f i r s t t v o o r t h r e m o n t h s t h a y b e a r t h e s t a n d a r d
logend.
t h e s e sticktrs sxplain t h e reasons f o r ths u s e
of thse legend a n d express appreciation o f thse action o f
thoss banks w h i c h remit a t par.
I n devcloping this p l a n
the A s s o c i a t i o n h a s b e e n c a r e f u l
t o omit a n y word which
could r e a s o n a b l y b = o b j e c t e d t o b y n o n - r e m i t t i n g b a n k s
as
a raeflaction o n t h e m o r a n y a c t d i r e c t e d t o w a r d i n t c r f e r -
ing with the relations o f those banks a n d thsir depositors.
The entire emphasis o f the p l a n i s appreciation o f the
banks w h i c h r e m i t a t p a r a n d r e c o g n i t i o n
o f the cheaper a n d
quicker collsctibility o f the checks their depositors
draw.
T h e p l a n i s devised dircetly f o r ths preservation
of the present p a r list,
S h o u l d t h e p l a n indirectly
have t h e offeect o f i n c r e a s i n g t h e p a r l i s t i n t h s future,
it will b e dus n o t t o a n y attack o r pressure u p o n nonremitting banks t o remit, b u t because s u c h banks m a y find
it t o their advantage t o d o so.
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Federal Reserve Bank of St. Louis
585
The attitude o f the Credit Men's
e i s caski ou i s
traditionally defensive, n o t offensive.
S h o u l d t h e non-
remitting banks attack t h e p a r system i n Congress, t h e
Association will again, a s in 1916, b e found defending it.
For purposes
o f dsfcnse t h e A s s o c i a t i o n f e c l s t h a t i f a
Ta)
large proportion o f i t s members a r c repeating s a c h month,
in their r e l a t i o n s w i t h t h e i r customers, r e q u e s t s f o r settle-
ment b y par checks, t h e demands o f business u p o n Congress f o r
the proservation o f the p a r systom, should i t b e attacked,
would b e not o n l y wide-spread b u t extromely insistent.
he assistant sccretary o f the Association explained
this p l a n t o a
number o f o f f i c e r s
o f Federal Reserve
Banks a t tho A. B e Ae Convention i n S p t e m b e r a n d i t is
pelicved that b y this time most o f the Reserve Banks a r e
familiar with it.
I t i s the hope o f the credit m e n that
it will recoive t h e sympathetic approval o f all F e d e r a l
Reserve Benks, a n d i t would b e desirable t o have some discussion o f i t i n order t h a t i t m a y b e f u l l y u n d e r s t o o d a n d
that i f possibl«
g n a g r e s m o n t m a y b 2 reached a s t o
the appropriate attitude o f the Foderal Reserve Banks
toward i t .
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Federal Reserve Bank of St. Louis
ngae R E L A T I O N O F BANKS T O WIDER ACCEPTABILITY O F
PAR CHECKS.
After ths business m a n has accepted a
par check i n
Settilenent o f a n account h e dsaposits i t a t once i n his
ank.
i n e question therefore arises,-- what c a n banks
do t o facilitate th: widsr acceptability o f par checks?
mI
they m a y d o several things, cither positive o r negativa.
Thay m a y maka n o charge f o r collecting a
may make a
par chock.
small charge, represonting interest o n the
monsy a d v a n c e d w h i l e t h e c h e c k i s b e i n g collected.
may make a
on a
T h e y
They
smaller colisction charge o n a@ par check than
non-par check.
chack while making a
T h e y m a y make n o chargs f o r a
charge o n a non-par check.
par
T h e y may
take non-par checks f o r collection only,
An e x a m i n a t i o n o f th: r u l o s o f t h s 2 9 9 c l e a r i n g h o u s s s
of tha country mads last summor-indicatss t h a t e a c h o f
these d i f f e r e n t a t t i t u d e s m a y b e f o u n d
ing housss.
i n one o r more c l e a r
B u t porhaps a s interesting a n d surprising
as a n y o t h a r r e s u l t
o f this s t u d y w a s t h e discovery t h a t
only about 2 5 clearing houses h a d a n y charges a t all, i n e n t ot
dicating a
considerable changes i n this r e s p e c t s i n c e t h e
Foderal Reserve Collection S y s t e m was inaugurated.
o
w
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Federal Reserve Bank of St. Louis
387
dots o n the accompanying m a p indicates t h e places wheres
there a r t clearing houses, a n d those dots which have a
circle a r o u n d t h e m i n d i c a t e t h e c l e a r i n g h o u s e s w h i c h h a v s
charg2®s o f o n e k i n d o r another.
té w i l l b e n o t e d t h a t o f t h o s e c l e a r i n g h o u s e s w h i c h
havo charges, sleven are i n northern cities and fourteen
in s o u t h s r n cities,
o f w h i c h l a t t e r s e v e n a r s i n the S t a t e
of Georgia,
Briefly summarized, i t may be said that i n the northern
Clearing houses t h e charges a r s based quite generally u p o n
intercst a t from four a n d one-half p e r cent t o s i x p e r cent
funds advanced during t h e time o f collection indicated
in tho Federal Roserv- B a n k schedules.
cloaring h o u s e s t h e r e
I
i s a services charg:
n most o f these
o f from three t o
five caénts per item which, i n the case o f small checks,
runs t h e p e r a n n u m i n t e r e s t c h a r g s
u p t o quits h i g h f i g u r e s e
In the s o u t h s r n C l o a r i n g h o u s e s t h e c h a r g e i s sometimes a
commission o f f r o m o n e - t e n t h
cont, a n d sometimes a
t o thres-eighths
of
fixed number o f esnts p e r .iten,
according t o the size o f tho item; b u t i n nearly a l l cases
the charge i s the same, whether the item takes one day o r
eight days t o collect,
T h e consequence o f this i s that
Chargos o n small items o n nearby points a r e a t enorm u s
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Federal Reserve Bank of St. Louis
588
rates.
F o r example:
A u g u s t a chargss 2 1 6 p e r c2znt p e r
—
annum o n a $25. c h e c k o n a o n e - d a y point.
of s o u t h s r m a n d o t h e r c l e a r i n g h o u s e s
—
T h e charges
o n small items
on
points a r e illustrated i n the accompanying diagrams.
the charges o n a $25 check o n a one-day
is New York, C h i c a g o , S t . Louis, Memphis,
Minneapolis, Atlanta, Augusta, Brunswick, Columbus, Macon,
Savannah, Valdosta, N a w Orleans, Meridian, Nashville,
Jacksonville, K n o x v i l l e , C h a t t a n o o g a .
On a ©50 check o n a one-day point charges coms down
somewhat.
O n a &100 check o n a one-day. point t h e y coms d o w n
a littls further.
I n the case o f Savannah t h e y are 9 0
t
t
per cent. p e r annum.
Most o f t h e c l e a r i n g houses, w h e t h e r n o r t h s r n
southern, m a k e n o d i s c r i m i n a t i o n
par cheeks a n d none-par checks. A
or
i n their charges b e t w e e n
few, however,
d o so,
notably St. Louis, N e w Orleans a n d Nashvills,
clearing houses, Boston, Richmond a n d Montgomery, t h e
chargss relate only t o non-par checks,
A rational p r o g r a m f o r us,
i n o r d e r t o promots t h e
wider acceptability o f the p a r check, would s e e t o b e
to endeavor t o persuade these clearing housss w h i c h have
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Federal Reserve Bank of St. Louis
589
charges a t a rate higher t h a n t h e legal rate o f interest
in their respective states t o reduce s u c h charges, f o r par
checks, say, t o the legal interest rate,
T h i s would
apply also t o service charges i n clearing houses where
such charges n o w carry t h e interest r a t e above t h e legal
rate.
S u c h a n endeavor
t o reduces t h e c h a r g e s s h o u l d b e
confined o n l y t o par checks, leaving t h e o l d schedule o f
charges standing o n non-par checks, I n a s m u c h a s i t actually costs banks more t o collect non=par checks,
i t might b e
feasible i n some clearing houses, following t h e example o f
St. L o u i s a n d N e w Orleans,
t o h a v e a n additional o n e - t e n t h
added t o prescnt c l e a r i n g h o u s e c h a r g e s
i n the case o f non=_
par checks, t h i s c h a r g e r e p r e s e n t i n g t h e e x c h a n g e d e d u c t e d
on such checks a t the' place o f payment.
But, however justifiabls m a y b e t h e collection charge
of the city bank, based u p o n interest f o r the time taken t o
collect t h e check, should n o t t h e ultimate g o a l b e the
abolition o f all compulsory cloaring house charges o n par
checks, a d o p t s d n o w i n about n i n e t y p e r c e n t o f t h e c l e a r i n g
houses, lsaving t h e amount t o b e charged,
i f any, t o b e
based u p o n t h e value o f the customer's account?
I n the
larger gities s u c h a development w i l l probably b e slow i n
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Federal Reserve Bank of St. Louis
590
coming,
but as a
s tep towards
i t perhaps t h s s x a m p l e
the N e w Y o r k C l s a r i n g H o u s e m a y b e o f interest.
of
T h e r e they
have established a discretionary zonz embracing all of the
e
states
s
o n which w e collect c h e c k s
i n t w o days.
T h i s means
that l l states, r e p r e s e n t i n g p r o b a b l y o v e r h a l f t h e v o l u m o
of checks reesived b y Now Y o r k banks a r e collected without a n y charges whatever.
P o s s i b l y t h e establishment
of
such discretionary zones b y other clearing houses n o w having
charges would produce similar satisfactory results i n thsir
respsctivse territories.
The Board has already discussed s o m e o f thass
with officers o f Federal Reserve Banks, but they are mentioned h e r e s o t h a t t h r y m a y h a v z t h e i r p r o p : r p l a c e
this o u t l i n e
of a
i n
a.
general p l a n f o r p r o m o t i n g t h - w i d e r
acceptability o f par checks.
ddd E L A T I O N O F FEDERAL RESERVE BANKS
ACCEPTABILIVY
O F P A R CHECKS.
As m o s t b a n k s r e l y f o r ths c o l l e c t i o n o f t h s i r c u s -
tomerd chocks u p o n the Federal Roservs Banks, i t follows that
ths main responsibility f o r widening t h e acceptability o f
par checks through quicker collections rests u p o n the
Reserve B a n k s .
A l r e a d y t h e y have m a d s a n extraordinary
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Federal Reserve Bank of St. Louis
391
reduction
i n t h e t i m e o f c o l l e c t i n g ehscks,
b u t i t sc-ms
probabls that s o m t h i n g further c a n b e done i n this direction,
T h e following suggestions, e a c h taken from the ex-
perisnes o f one o r more Fedcoral Reserve Banks, s o o m worthy
of ths consideration o f all F e d e r a l Reserve B a n k s s
gaa
W e shonid seak t
e a l most quickly with ths most
important dollar volums o f checks.
T h e 3 5 Federal Reserve
Banks a n d branches a r c n o w members o f ths clearing houses i n
their respective citiss a n d collect immsdiately a l l ehocks
on those c i t i e s ,
I
f they could become members
o f thse c l e a r s
ing houses i n 200-250 other cities and collect o n them
immediately b y h a v i n g t h o s e c l e a r i n g h o u s e s s s t t l e w i t h t h e
Federal reserve bank b y tclegraph, they would be able t o
collect checks o n those citics i n one d a y instead o f i n two,
this i s being done i n ons o r mors districts now, i n sporadic
CASES
G h e panks i n these 200-250 citios would naturally
object t o o u r collecting o n thom one d a y earlier, b u t i f we
took t h i s u p i n a
countrywide w e y ,
plan t o :ffeet quicksr collsctions,
a s part o f a
comprehensive
w 2 should havo a real
offset t o offer then, a n d might induce them to consent,
This would save one day's timo o n a n immense dollar volume
of items,
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Federal Reserve Bank of St. Louis
392
2. A n o t h o r possibility f o r saving a
day o n large
items i s t o pick them out a n d send them b y midday fast
trains i n s t c a d o f b y e v e n i n g t r a i n s ,
T h i s i s being dons
in m a n y d i s t r i c t s a n d t h e c r e d i t k e p t f o r
resorve b a n k t o average against t h e ;
o
f float assumed.
if we wore t o announces t o the local banks i n each F e d e r a l
Reserves B a n k a n d branch c i t y that large checks deposited
before a
certain hour would g s t o n e d a y preference, a
considerable additional volums would probably thus b e
deposited,
*
:
As a
c o r o l l a r y t o this, c l e a r i n g h o u s t s m i g h t b > i n -
duced t o have a
supplementary clearing f o r large items,
somowhat l a t e r t h a n t h e r e g u l a r clearing,
i n cities w h e r e
train s c h e d u l e s m a d e t h i s necessary.
A further possibility along this s a m s line would b e
for theFed@eral R e s e r v e B a n k s w h e r e p r a c t i c a b l e
t o lengthen
the h o u r s w i t h i n w h i c h t h e y a c c e p t c h e e k s f o r collection.
5s
I
n suburbs
o r outlying portions
o f large csnters
local clearing territories might b = developed, snabling
the c o l l e c t i o n
o f checks
i n such
on s a m e b a s i s a s c o l l e c t i o n
he
directly,
i n the center itself.
T o facilitates t h e u s s o f t h o c o l l e c t i o n s y s t c m
s m a l l country banks might b e permitted
t o s.nd
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Federal Reserve Bank of St. Louis
598
tin their i t e m s unsorted,
on what a p p e a r s
t o bs a
a n d t o -bo g i v e n c r e d i t for: t h e n
fair a v e r a g e b a s i s , s a y , t w o d a y s
or thrss days o r four days, a s the case might bo, instead
of insisting o n their listing t h e n under one, two, three,
four, five, six, s c v e n a n d eight d a y zones, a n d o u r splitting u p their credits accordingly.
T h i s plan, w e r e
adopted, has becn much appreciated b y the small country
bank a n d makes h i m fezl that the r o d tape i s removed a n d
that h e c a n really u s e the collection system directly.
The same suggestion,
i f applisd t o direct sendings t o re-
serve banks o f othor districts, w o u l d induce more country
banks t o scnd diroct a n d thus reduce handlings b y reserve
banks.
De T h e r e i s also the possibility o f direct sending
by @
sont,
Fodtral R e s e r v e
B a n k t o m e m b e r banks, w i t h t h e i r c o n -
i n nearby cities i n contiguous:districts.
I n casas
where this i s dons, ths settlement i s made b y the member
bank with its o w n Federal R e s e r v e B a n k i n the usual way,
just a s i f its own Fsderal Reserve Bank had sent the items.
6. S e v e r a l methods have also been effectively triad
to q i c k e n c h e c k c o l l é c t i o n s o u t s i d e
o f thse system, s u c h
as the reserve c i t y clearing p l a n i n Taxas a n d the county
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Federal Reserve Bank of St. Louis
594
Clearing arrangsments
i n New York a n d other districts.
In all o f these t h e actual settling, however,
the Federal h e s o r v e Bank.
i s through
T h e s e arrangements c u t o n e
of two days f r o m th: collection time a n d have t h e advantags
of k e c p i n g t h e h a n d l i n g o f t h e c h e c k s . o u t
o f ths Federal
Reserve Banks,
4* T h e last suggestion i s ons o f principle rath=r
than specification.
T h e c o l l e c t i o n o f c h c k s i s i n essence
a national, rather than a
purely district problem.
“ h a t
is done i n each district o r branch territory regarding check
collsction i s o f i n t e r e s t t o e v e r y o t h e r district,
way i n which n o other service is.
i n a
T h e diffsrent districts
may have diffcrsnt policios o r practices o r Standards o f
handling sscuritiss, k e e p i n g accounts, f u r n i s h i n g c u r r e n c y ,
making discounts, e t c . , b u t t h e c o l l e c t i o n
cheeks a
day réquires a
great n a t i o n a l machine.
lines a r e arbitrary a t best.
do n o harm.
o f two million
D i s t r i c t
I n other services t h e y m a y
B u t i n the collection system thsy logically
have b u t littls place.
I n viewing t h e country f r o m ths
standpoint o f collections, t h e country should b e viewed
as a
whole.
T h s strategic collection eent-rs a r c those
which have t h e most. comprehensive overnight t r a i n service
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Federal Reserve Bank of St. Louis
radiating f r o m thom,
T
f o u r collection s y s t i m were
grouped a r o u n d s u c h centers,
i t might b e possible f o r u s
to d o avay with some o f our present collection points,
to reduces ths time schedules f o r considsrabls areas, t o
simplify direct sendings, a n d possibly,
Scope a n d oxpsnsss o f some o f our branchss.
IV. RECOMMENDATION.
If thes: thoughts a s t o what might b e done b y businoss m e n ,
b y banks,
a n d b y Federal nueserve Banks,
t o bring
about t h e wider acceptability o f the p a r check s é e m worth
considsring b y t h e R o
may I mak:
S
S :
R e s e r v e Banks,
f u r t h o r observation, arising o u t o f the
discussion o f the last suggestion, t h a t a
nation wide sur-
vey o f ths manner i n which some o r all o f these suggestions
might b a earrisd into “fPeot,
i n some o r all o f the dis-
tricts, could best b e accomplished through a small auxiliary committse composed o f principal officers o f Roserve
Banks, w o r k i n g i n c o o p e r a t i o n w i t h thre R e s e r v e B o a r d ' s
Committe:
o n check collections, a n d somewhat l i k e t h e
auxilliary o f t h e B o a r d ' s c o m m i t t e s
o n economy a n d effi-
cisncye
Governor Crissingor,
M r . McDougél, y o u have a
place
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Federal Reserve Bank of St. Louis
on this subject.
Governor McDougal.
regard
M r . Chairman,
t o this m a t t e r will
b e directed
m y few words i n
t o the topic
a s pro-
sentod--- goneral policy.
It s s e m s
t o m e that o n e o f t h e most fortunate develop-
in connection with the check collecting system came
the d e c i s i o n
o f thea S u p r e m e C o u r t .
f
a now have be-
us the provisions o f the a c t clarified t o some exby that decision, a n d the course h a s been made clear,
and i t seems t o m e that t h e opportunitiss f o r developing
this system n o w are greater t h a n a t a n y time i n the past.
good h a s c o m e a s t h e r e s u l t
in t h e a t t i t u d s
o f that decision i s reLlected
o f the R e s e r v e Banks o f t h e United States
respect t o par collection business.
Mr, willis, i a s e r v e c i t y banks, y o u mean?
Govarnor McDougal. I
a m Speaking o f reserve c i t y banks.
Never before t h a t decision was rendered h a d w e had a n
expression from that class o f banks.
T h o s e banks have,
fairly well represented b y individuals w h o met i n Chicago
a short time ago, doclared themselves firmly i n favor o f the
check collection systcm, a n d that, I
thing t o us.
think,
i s worth some-
A s svidence o f the fact that t h e system mests
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Federal Reserve Bank of St. Louis
597
with the approval o f banks gensrally, I
would submit t h o
fact that excespting possibly one o r more o f tha southern
districts w e have n o w evidence that t h e check collsction
systom's advantages a r s recognized b y the banks, largs a n d
small,
i n the country.
One factor i n that ecvidence i s this, that t h e country
knows now without a n y question that this syst-m i s o n a
voluntary basis,
T h s banks have been informed t h
they desire t o get off the par list all they have t o
to s o express t h o m s c l v e s ,
a n d t h e results, e x c e p t i n g w i t h
respect t o possibly some o f the southern districts, have
very gratifying.
I
n our o w n district w s have something
5,500 mombor banks. I
mean banks o f all kinds.
The
district, o f courss, was 100 per cont par until this decision w a s r e n d o r e d ,
S i n e s
thon
70 banks c u t off o f the list.
w e have h a d approximately
T h o s e a r c t h e results, n o t -
withstanding organized effortsin t h o ons, and,
I think, t w o
of our stats,
o n the part o f certain bankers, t o stimulate
interest o n the part o f member banks i n withdrawing and
efforts,rsally,
t o destroy t h e
i feer, furthormore, t h a t w e €
receiving n o w t o a
greater o x t e n t t h a n o v e r b e f o r o t e s t i m o n y i n d i c a t i n g t h a t t h e
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Federal Reserve Bank of St. Louis
598
industrial a n d commercial interests o f the country recognize
this system, a n d I believe,
theses c o n f e r e n c e s ,
a s I have stated before i n one o f
t h a t t h i s s y s t e m c a n b e considered a s t h e
most comprehensive, t h e most economical a n d the most satisfactory system that h a s bsen devised o r could b 2 devised, a n d
under a l l circumstances I
think o u r effort should n o w b e
devoted a n d o u r energy directad t o developing t h e system o n
a purely voluntary basis, a n d m y o w n impressions are--- t h e y
arc n o t e n d o r s e d
b y a l l o f the Governors---
m y o w n impress-
that
ions a r e t h a t i f w o l e t t h i s t h i n g s a i l along,
t h e banks a r e
off off our list will s o o n find i t t o their advantage t o come
on, a n d I would apply this, G o v e r n o r Seay, t o your district
as w o l l
a s others,
I don't know that you want m e o r expect m e t o g o into the
matter o f cloaring house charges.
vory fully. I
l i r e J a y has covered that
think, though, t h a t a l l ths m e n i n this r o o m
should b o a r i n m i n d t h a t w i t h t h e c l e a r i n g h o u s e s
i n some o f
the cities, a t least, t h e charge taehSse y make i s a charge i n the
way o f i n t e r e s t f o r t h e l o a n r e s u l t i n g f r o m g i v i n g c r e d i t
advance
o f c o l l e c t i o n f o r t h e i t e m s t h e y recsive.
I
i n
n our
own city t h e clearing house rules provide f o r a minimum charge
of five cents per item o n items o f $50 o r less.
O n items
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Federal Reserve Bank of St. Louis
599
larger than that they provide
b
e
m chargs o f threa
eents plus a n interest chargs o f 12-1/2 cents p e r d a y for the
tins involved, w h i c h I
believe f i g u r e s a b o u t i e d p e r csnt.
Governor Crissinger.
on this s u b j e c t ?
i
s there a n y gsncral discussion
D o s s a n y b o d y w a n t t o s a y anything?
Governor Seay.
T h i s i t e m o n the p r o g r a m spacifically
montions t h s subject o f cloaring house charg?s.
banks w t hev> a n agresmont concluded, w h i c h I
i
n our
understand
Mr. J a y h a s a r r i v e d a t , t h a t p r o b a b l y s o m - m o v e o u g h t t o b s
made t o inducs t h o s clearing housss which still hav: charges
to a b a n d o n thom,
V i e think, s i r , t h a t p r o b a b l y
t h tima has
coms f o r the Fodaral Ressarve Board itsslf t o tak> a
that subject,
i n compliance w i t h t h a t p r o v i s i o n w h i c h s a y s
that " T h e Fedoral B a s e s
While I
stand o n
S e a t shall" otc.
was a t t h e c o n v e n t i o n
up a lstter covering a
o f bankers,
o u r bank sont
specific i t e m thet h a d reacontly been
sont d o w n t o t h e F s d e r a l R e s e r v e B o a r d a t R i c h m o n d f r o m N a w
York, a n d i t was o n a brokerag: f i r m i n our city, a n d when
thoy recsoived a n account f r o m t h o m t h e y h a d t o p a y t w o chargss,
ing
each o n e amount /- © about ono-t:nth o f one p a r cent, a n d a
claaring house charg:
o f oneet-nth o f one p s r cent, a n d thon
an intorast charge o f s i x days a t s i x p o r cent, making a
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Federal Reserve Bank of St. Louis
chargs
o f 5 1 p e r c e n t o n t h e item,
h
a
t
t
h
s
e face o f
ths l e t i c r t h a t w a s s e n t t o me.
it a p p e a r s t h a t t h e b a n k m a d o
may not b s exactly that way.
B u t - o n t h e Paco of. that
sent t o m e i t appeared t o b e that way.
Mr. Curtiss.
W a s that a
Governor Seay.
cash i t e m o r time collection?
I t was a cash item,
I t was sent t o u s
dirsctly b y the bank i n New Y o r k e - - n o t through a Fadoral
Resarve Bank, b u t directly through a bank i n New York, t o
the ersdit o f thn Federal Reserve B a n k o f N o w York.
Governor James.
farring n o w t o a
e
I t was a draft o f 614,000.
securities w e r c a t t a c h e d
Governny James.
Governor Seay.
o r not, I
don't k n o w .
t h a t i s a difforsent thing, a s I see
T h a t
naturs o f ths charge,
illustrate. t h e
A r e y o u ro-
non-cash i t e m ?
Governor Seay.
making a groat j
t m > understand you,
S
, but apparsntly, f r o m
i t does n o t s e e m t o b > 80.
o f that. I
i n t which I
t T am
morely p u t i t down t o
wished t o make.
Some clearing housas, w o have bsen told, f i x thei:
a
charg2s a t points h i g h enough t o cover t h s cost t o them
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Federal Reserve Bank of St. Louis
401
clearing both par checks a n d n o n par chocks,
s o that t h e
par checks ars made t o bear the cost t o them o f clearing
the n o n - p a r chocks.
We haves r e a c h e d t h e c o n c l u s i o n t h a t w h a t i s r e a l l y noead-
ed is something that will insure g2tting a bank on tho par
list o f the Federal Reserve System.
in a
lettcr a d d r e s s e d
t o the Chairman
5
o f the Board o f
this Bank undtr date o f August 1 , 1923, Mr. Henry A. Pago,
Jr., S e c r e t a r y a n d T r e a s u r c r
o f ths B a n k e r s P r o t e c t i v e
Association o f North Carolina, made the following statement:
"Batwe en Novenber e n d February ( w h e n the Pags Trust Company
was o n t h e F s d s r a l r e s e r v e p a r l i s t ) I
personally s e n t a
check for $800.00 to a man in Boston. B o s t o n charged
his account $2.00 a n d cleared t h e item through your bank,’
course o f his argument o f the North Carolina
par collection suit before. t h e Supreme Court o f the United
States Colon:1 Smith, couns-1 for the plaintiff banks, mads
a statement
t o th: f o l l o w i n g effect:
P r i o r : - t o t h e inau-
guration o f the p a r clearance system b y the Federal reserve
banks i t was customary f o r the banks i n the clearing-houss
citiss
t o impose a
collection charge
er c e n t o n N o r t h C a r o l i n a i t e m s .
o f one-fourth o f ons
O f t h i s charges o n a - h a l f &
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Federal Reserve Bank of St. Louis
402
or o n s - v i g a t h o f o n t p e r cent,
ing b a n k a n d t h r
we
L a i n e d by t h t c o l l e c t -
r e m a i n d e r s
a
w allowrd
t o thr paying bank.
Sing” th: inauguration o f the Godl¢ etion system o f ihe
Fedtral res-rve banks t h e same chargs i s imposed b y
collinting -hanke, b u t Inst<cad o f aividing i t a s before 4 4
is all retained b y th: collecting banks.
It i s probably needicss f o r m: t o multiply ¢xemplrs
(though t h i s c o u l d b - 7 a s i l y done),
a n d i t i s extremely
probable t h e t Colonsi Smith overstated tn- casr *and that
the Skxampl2 cited b y slr.
p
o vas n o t a n indication o f
univeseel p r a c t i c e s R e v e rthcloss i t i s true t h e t i n mary
cases cxce ssivy c o l l e c t i o n c h a r g e s a r e m a d c b y m e m b e r b a n k s
when fiven immediate credit f o r items collected without c o s t
through the Faderal Reserve Systen.
tn o u r efforts
t o 2nereas=
t h n u n b t r’of banks
o n tar
Ree
par L a e tend ther a r e svlit «.consid-« rable number o f nonpar b a n k s
i n tnis d i s t r i c t }
w e a r e asking t h e non-par b a n k
to make eam domediate secrificoge= that jis, t o r mit. a t par
in satisfactory funds instcad o f charging x c h a n g e
checks remitted for.
o n all
t h e n w e ars
will acerus t o the non-memb°r b a n k f o r making this sacrifics
wr o f c o u r s e
t r y t o show that
i t i s a n advantage
LOC V O r y
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Federal Reserve Bank of St. Louis
403
bank t o have i t s names o n t h e p a r l i s t o f t h t F e d o r a l
Roserve S y s t e m a n d thereby insurc f o r its chocks t h e
possibility o f prompt collection a t face valur,
V e are
frequently m e t b y statenonts similar . o those above quoted,
and whils w e a r « s u r e t h a t t h o s e o c c u r r e n c e s c o n s t i t u t e e x ceptions r a t h s r t h a n t h e r u l t t h e y a r e s u f f i c i r n t l y n u n s r e u s
to b e a n excesdingly embarrassing,
i f not a n impossible,
T h e individual non-nember banker
arguncnt f o r u s to-mect,.
is not a t all interested i n knowing that the large majority
of checks a r c collected a t par, n o r i s i t much consolation
to h i m t o k n o w t h a t t h - c h e e k s
greatcr currency than before.
Whother,
checks
o f many banks h a v e gained
W h e a t h e i s interested i n i s
i f h c agrees t o remit a t par i n aeceptable funds
o n his b a n k a r e g o i n g t o derivs t h e pencfit.
existing circumstances I
Under
am sorry t o s a y that w e a r e n o t i n
a position t o f i v e h i m p o s i t i v e a s s u r a m n ® t h a t h e w i l l re-+
ecive t h e thing which h s has b c c n asked t o pay for,
It has eons t o our lmowl-dg: from tims t o tim- that
nany benks i n the exchangs csntecrs i n this district are i n
the habit o f oxacting a
compensation f o r th- collcction o f
chocks u p o n b a n k s whos: nazics a p p e a r u p o n th. p a r l i s t i n
excoss o f what would b e a
fair int¢crest charg.
f o r the
404
transit t i m o .
T h i s compensation i s sometimes
a direct c h a r g e b u t m o r e f r e q u o n t l y
ance o f realized funds.
i n the f o r m o f a
I n en-> instance a
frank e n o u g h t o t e l l u s t h a t a
i n the form o f
free b a l -
clearing housc w a s
prefit w a s d a l i b e r a t e l y c h a r g e d
on par items t o offset t h e uncollectibl- l o s s o n non-par items.
fie s u g g e s t i o n h a s b s e n m a d e t h a t t h e s i t u a t i o n c a n k e
t o a d o p t u n i f o r m charges.
met b y i n d u c i n g t h e c l o a r i n g h o u s c s
A recent canvass o f all o f the clearing houses i n this district
discloses t h e fact that e n l y t w o o f them have adopted chargss
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Federal Reserve Bank of St. Louis
pinding t p o n a l l o f their members.
Carelina clearing house h a s a
T h e Wilmington, N o r t h
rather elarorats a n d complicated
system o f charges, a n d the Richmond clearing house has recently r e a c h e d
a n agreement w i t h rospsct
T h e same situation cxists t o a
drawn u p o n non-par banks.
largs e x t e n t
t o charg-s u p o n c h e c k s
i n o t h e r districts,
e n d t h e p l a n o f inducing
clearing houses t o adopt uniform charges would,
roquire a
a 3
i n m y opinion,
trenendous effort a n d would consume s o mauci time
its effects
in its realization tuat i t i s doubtful i f a n y o f
+
(assuming that i t would have beneficial eff«-cts w i t h respect
i n time
to tho problen o f par collections) c o u l d t e realized
to benofit t h e situation.
On the o t h e r hand, t h e r e
i S grave q u e s t i o n a s t o whsther
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Federal Reserve Bank of St. Louis
405
the universal adoption o f uniform clearing-house agrcomonts
and the observance o f the terms o f those agrecnmertts, n o t
only b y clearing house banks b u t b y banks i n plaees where
tiore a r e n o clearing houses, w o u l d solve t h e probiem o r
insure t o the country bank a n advantage t o choeks drawn upon
it commensurats w i t h the sacrifice involved i n abandoning
tho oxehang: charg>.
‘ t h a t i s the nature o f a.clearing-hous¢e
agreemont w i t h raspeet t o cxchange charges? ,
It i s a n .agree-
mont hinding upon the nombers of ths clearing house that
charges will b x made upon out-of-town c
h
with
ki s
e ncaccordance
v
a pre-determincd schedule a n d that i n n o case will a n .itemne
accepted
at a
lower r a t e t h a n t h e r a t e i n d i c a t e d
i n the sche-
dule. I n - o t h e r words, i t is a n agresnent between a set o f
assooiated banks =
their mitual proteetinn against the
effect o f competition between t h o m s "cvlSy
I n no cass that
has e v e r cone t o m y attention i s a olcaring~hous¢ agreentnt o f
this character desigacd o r oxo eted t o afferd a n y protection
to the bankor located outsids o f th: c i t y o r other torritory
covered
b y th” agreement
inet i s really necded i s something which will insure t o
ev-ry bank on the par list of the Feéeral Reserve System
fair trcatmont o f checks d r a w n upon it, a n d this c a n b e accom~
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Federal Reserve Bank of St. Louis
406
plished e n l y b y the fixing o f maximun charges a n d not b y
agreemonts w i t h refrr-nec t o mininun charges.
Ths Federal i«scorve System has established t h > p a r
collection syst-m, w h i c h i s operated f o r the bonsfit o f
mnombor banks without charges o f a n y kind o n tho part o f the
Federal reserve bank.
I
t would seem, therefor:, eminently
just that menber banks should n o t b s allowed t o profiteer
on the collection systcn but that the benefits o f the par
collection syst-m should b - insured t o the gcnceral public,
which i s composcé very larg: ly of depositors i n banks all
over the country, b y rules and regulationsrvhich would prevent profitesring o n the part o f a momber wank,
I t would
sec that Congress h a d this v r r y situation i n mind when i t ene
actod Section 16 of the Fed: ral Reserve Act, which reads i n
part a s follows:
fix t h e c h a r g e s
" h s Federal Reserve Board shall, b y rule,
t o b s collected
b y t h s momber banks f r o m its
patrons whose:.chceks a r e cleared through t h e Federal reserve
bank,"
Yhere h a s boen a suggestion that t h e Fedcral Reserve
Board shatld pass a regulation t o the effect that n o charges
should b o made b y meriber banks u p o n itens collected through
the collection system o f the F e d e r a l Reserve Banks, I
think
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Federal Reserve Bank of St. Louis
407
entire y
l
Rae, is/clear t h a t t h i s woutid b e g o i n g t o o far, a n d i n th- c a s e
of a n itcm deposited with a member bank and requiring several
days f o r colloction,
i n accordance w i t h t h r t i m e scheduls>
of
the Federal reserve bank, would b e cquivalent t o requiring t h e
momber b a n k t o m a k e a
loan o f t h a t a m o u n t f o r t h a t t i m e t o t h e
dopositor w i t h o u t i n t o r e s t .
I
t seems t o m o that t h e situation
could be not and justice could b o done t o 411 partics concerns
od b y regulations t o the following eff2ct:
First;
\ I n e n any momber p a n k o r nonemerber elearing
pank shall reczive f r o m on> o f its depositors f o r imnediate
credit a n d a v a i l a b i l i t y a
chock ( o r cheeks) c o l l e c t i b l e
at
par through th: Fadrral R e s e r v e S y s t e m a n d which i t collscts
or intcnds t o collect through th: system,
right t o impose a
i t shall have t h o
collection charg: n o t ereater t h a n interest
at the rate such bank i s authorized b y law t o impose for tho
lending o f money f o r the transit t i m e nocessary f o r the collset
ion o f s u c h c h e c k ( o r c h e e k s ) a c c o r d i n g
t o t h published
times Scheduls: f
o the Fedztral Koscrve Syst*m, plus one day
(the t i m e i n w h i c h t o t r a n s m i t t h e itcnm o r items t o t h e F o d -
c bank), w i t h a minimum charges o f t-n cents o n all
chocks depositsd a t a n y ont time b y any dcpositor,
Second:
Y h e n a mctmb¢r bank o r nonemombcr clearing Lank
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Federal Reserve Bank of St. Louis
408
shall r e c e i v e f r o m o n e o f i t s d e p o s i t o r s f o r d e f e r r e d c r e d i t
sehseor availability i n accordance w i t h the published time
dule o f th: F e d e r a l R e s c r v e System, a
cheek ( o r checks)
collectible a t par through t h e Federal R e s c r v e Systen a n d
which i t collects o r intends t o collect through the System,
4t shall credit the face value o f such cheek (er chocks)
to the account o f the depositor a t the agreed tine without
T h a t would aboleh
to
arbitrary charge: a n d oneble t h e clearing houco charge f o r
th: deduction o f a collection charge.
the time f o r which they advance t h e nmoncy.
Thirds;
V h i s regulation shall
i n n o carr a p p l y t o c h e c k s
not collectible a t par through the Federal Reserve System,
Jo believe t h a t i n the «ctilement o f par collection itcm”
o r not t h e
it would b e well f o r the Board t o concider whethcr
tine h a s n o t a r r i v e d
t o governtho:e c l e a r i n g h o u s e chargts,
i n Ere Jay's
and that i c the conclusion, apparently, rcached
Le pLe ite
T
o that cxtent w e a r c v r y thoroughly
i n agreement
with t h e conclusion: s t a t r d thercin,.
Mr. J a y .
said that I
I
f Governor
o s h a s understood f r o m what I
wa: i n favor o f ©
B o a r d taking c u c h action,
mean t o
I want t o disagrce with him nov p e e a u s c I did not
give that imprescion.
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Federal Reserve Bank of St. Louis
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Governor Seay. i
did not understand y o u were i n favor
of the Board taking any action.
prission I
a n t o b e corrected.
i f I< conveyed that imB u t y o u h a d arrived a t the
conclucion that perhaps i t was time for the clearing houses
thorisclves t o abandon the charge.
lir, Jay.
l i y thougit w a s that t h e goal w e might ulti-
mately work toward years hence i s n o eharges b y clearing
houses; b u t i n t h e m e a n t i n o
a n effort s h o u l d b e n a d e i n each |
distriet to get thom to reduce the present minimum chargos,:
which IT think most banks abids fairly well by, without g s t
ting into the question o f the Board fixing a
maximum charge
which, i n the ninds o f many who have h u m concidered that
progran,
i f tho making o f a charge w a s s o officially recoge
nized b y the Board, would lead nany clearing houses which
do n o t n o w n a k e a n y c h a r g e
Governor jJeliborn:
t o put s u c h a
charge o n .
M r , J a y has mentionod
i n his
article there a n d called attcntion t o hin chart containing
house
soms Clearing/charges i n our district. P e r h a p s i t might —
be w e l l f o r m s t o m a k e a
Somes o f t h e
e
Statentnt a b o u t t h a t ,
s a r e p r e t t y high, a n d o u r b a n k h a s
taken no part i n bringing about any change.
very good reason f o r that,
‘ 9 have a
T h s mattcr w a s u p i n informal
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Federal Reserve Bank of St. Louis
470
confcrence with the Governors, a n d they all apreed with me
that i t was best n o t t o take a n y action with thr banks t o
reduce e n e t y CHEPEOCS u n t i d t h e s e
Now v e r y r e c e n t l y t r , J a m c
C O S Wore Gettiod I
made a
court.
visit t o o u r d i s t r i c t a n d
sued with u c also i n Hew Orleans, rcogarding thes: mattearn.
taken i t u p with th: clearing hous:
e t Atlanta a n ¢ also
with the N e w Orlsans bankors, a n d thoy are immodiatcly going t e
cnang> their sehodule o f priecs a n d make a
sogregation o f theiz
itens similar t o what t h o y are doing i n other parts o f our
district, l i k o Nashville and, I
han,
think, Hontgomcry a n d B i r m i n g -
T h s y a r e making n o charges a t all, T h e y take every
cheek o v r tha counter a t pare
B u t we arc going t o bring
out a propor a d j u s t m e n t o f all thoss matters i n a very short
while,
Mir. Chairman, I
about clearing houss chargese &
would like t o s a y a werd
l a c s been one o f the
factors t h a t h a s b e e n m y s t i f y i n g t
o th- c o u n t r y banker,
why charges a r e mado i n som> centers a n d not i n others,
a s to
I t
sounds very plausible t o us that those charges only constitute
interest charges for ths time the tioney i s suproced t o be advanced b y the c i t y bank.
4 8 a matter o f facet i t i s very stl-
dom a n y moncty i s advanced o n these checks.
V e r y frecucntly
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Federal Reserve Bank of St. Louis
411
in some o f the clearing hous:3 collection i s also made over
the interest amount, w h i c h i s tantamount t o double collect-
ion. I
an thoroughly i n agreement with iy. Jay's recommen-
dation that w e ought t o look t o the tim- wh:n all these
chargos s h a l l b o abolished.
Ther:
i s discrimination,
and
just as long as they rcmain we are going to have diffficulty
in oxplaining t o the small banks w h o have agreed t o remit
atpar, and I think it can be brougat about initially
through thc. scehom> Mr. Jay has outlined here, that when a
man commits himsslf t o accept chocks payable a t par from the
Federal R e s s o r v e System,
w h e n h e gets enough o f them h e i s
going t o b r i n g p r o s s u r s u p o n h i s b a n k t o t a l e t h e m . I
know
how Governor lieDougal feels about this w h e n h e says that
charg. was just, but when tho Rood Manufacturing Company sent
a cheek t o the International Harvester Company a t Erie, a n d
tra ho gots word back that h e has t o s end a Chicago o r New
York cheek for a
eort-in amount, f o r instance,
understand about that,
another.
I
h s does n o t
T t has <ither g o t t o g o one w a y o r
t i s just a s just w h o n t h e R o s d Manufacturing
Conpany e a r r i e s t h e c o m p e n s a t i n g a e c o u n t
Harvester Company evidently docs.
a s the Tntornational
I t would b o just a s fair
for tho Reod Manufacturing Company, when *=at!.company sold
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Federal Reserve Bank of St. Louis
418
$25,000 worth o f goods t e the International Harvester Company,
say ‘Pleas reriit b y check o n tho Lrie,"”
T t has eithor t e
the o t h e r
t o b e just.
go one w a y o r another,
L i t h e r - 0 9 clearing
houses a r e g o i n g t o g e t o n t h e c h a r g e b a s i s ,
o r the others
will have t o abandon it.
Mr. Jaye
T h o more w e speed u p collection o f checks t h e
oss w i l l b e the inclination a n d desire o f cloaring houses t o
continue thoss chargos.
Governor MeDugal.
not fully informed.
M r . Chairman, I think Mr. willis i s
H e i s speaking n o w with rospect t o the
rules of the Chicago Clearing Hoise.
T h e charges apply only
to checks received f r o m Chicago c i t y customers,
T h e charges
do not apply t o items that come from abroad. l i r .
rignt, o n the other hand, i n stating that the matter needs a¢r
justnent »
t T have n o deferce t o offer o f any clearing house
which charges a n exorbitant collection charge; b u t a s a matter.
of fact i t 4 s right a n d i t i s good business t h a t t h e y should
charge f o r advances m a d o against float, a n d i t c a n b e very
easily reconciled satisfactorily i f ths banks i n the country,
th> small o r lerge banks, w a n t t o adopt t h e same method a n d
chergs their customors @
vances
mads
reasonable r a t e o f interest f e r ad-
t o those customers
o n thie k i n d
e f business.
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Federal Reserve Bank of St. Louis
413
I should l i k s t h a t t o b e understooe,
a n d i f i t i s not under-
stooé a n é I can make i t a n y more plain, I
will b e —
glad
to d e it.
Mee. W i l l s .
B u t this i s tho point I
want t o bring out.
I should not pick out Chicago clearing house, botcauss
stand t h e i r r a l e i s s o m o v h a t d i f f e r e n t f r o m hinneapeiis.,
but
when they give credit t h o y don't deduct i t from the intorest
accoant .
I f a Kansas C i t y customor deposits a
check o n
Joilst, jilinois, t h e clearing house will take that chock
through Boston or Philadelphia o r New York, and when we tell
the country bank customer that timc i s the only clement that
enters i n t o that,
y o u n u l l i f y o r neutralize t h a t B y y o u r
clearing house rules,
iir, James,
atall.
I d o n o t s e e t h e justification o f that
a e anderstood you, the Chicago dcpositor o n Kansas
city depositor mast abido b y those rules and pay the charges
assessed b y the clearing housc, but the charges d o not run
against t h custoror o f tho bank who resides elsewhere.
i do basiness w i t h ths Chicago bank, a n d the reason I
is because t h o y p a r m y checks,
cation?
do i t
N o w where i s tho jaustifi-e
J t is morely a matter o f competition, i s i t not?
Governor licDougal.
H r , Jamcs, I think you have overe
414
Looked o n s part o f m y statenont, a n d that i s that I
to j
u
s
t ei charges,
hf ty
Governor Janos. I
understand that.
Governor licDougal,
deposited
a m not here
T h e c h a r g e s m a d e go o n l y a g a i n s t i t e m s
b y C h i c a g o c i t y customers, and.-I a m n o t e n d e a v o r i n g t c
defend that p l a n cxcopting a s a matter o f principle, a n d I
think tho principle o f charging against fleat i s a s@und a n d
proper one, a n d I think that sam: privilege i s accorded t o ths
country banks,
a n d t h e r e a s o n t h e y d o n o t d o i t i s bseause
it
has n o t been th: custom, a n d becauso t h e y have n o t t h e nerve
to start it.
Governor Janos,
l o w y o u have s a i d something.
lack o f nerve, that i s all.
i t is
A n d thoy ere all after business,
and they want t h e public t o p a y t n o bill.
‘ I c have t h e same
thing i n lenphis, a n d i t costs t h o momber's b a n k a good deal
of business,
N i n e t y p e r cent o f ths deposits
o f tho William
R. Moors D r u g Company i s outsido o f the City o f Memphis.
Way? B e c a u s e t h e Jillian R . HMoorc Drug Company happens t o
be o f t h a t c h a r a e t c o r t h a t
c a n have i t s aecount somewhere olse.
That does n o t justify t h > charge m a d o against t h e little
fellow, a n d i t i s a discrimination, a n d i s wrong i n principle,
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Federal Reserve Bank of St. Louis
wuiless i t i s mads o n the basis that y o u suggest, a
charges f o r
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Federal Reserve Bank of St. Louis
415
the f l o a t a n d m a d e universal.
eon “justity..i1t,.
T h a t i s tho only way you
i n riy- m i m .
Mr. Perrin.
A t the proper time I
should b e very glad
te report thesn resolutions adopted i n this connection b y tho
conforence o f tho chairmen,
I f i4t i s agreesablo t o you I will
preaent t h e m nov.
Governor Crissinger.
lire. Perrin,
V o r y well,
t V o t e d that t h e Conforence o f Chairmen r o e
spoctfully r o q u e s t t h s F e d e r a l R e s e r v e B o a r d t o s t r i k e o u t
paragraph D from Rogulation J."
that was b y unaninous vote.
"Voted that the Conforence o f Chairmen respectfully ree
quest that the Federal Reserve Board give consideration t o the
advisability o f striking o u t paragrapa € from R e g u l a t i o n.J
Tho matter o f colleeting cheeks a t the counter, waich arose
through a n administrative a c t a n d which has b e e n cerrected b y
an a d m i n i s t r a t i v e a c t o f t h s F e d e r a l R e s e r v e B o a r d a n d
appropriate publicity having bron given thereto,
seoms unnecessary t o deny b y regulation a
i t therefore
right which has bcon
confirmsd b y tho Supreme Court o f the United Statcs,"
That w a s b y unanimous v o t e ,
Governor Crissingor,
Y o u will file those resolutions?
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Federal Reserve Bank of St. Louis
irs Perrin.
Governor licDougal.
l i r e Chairnan, I
might rtport o n be=
half o f t h e Governors! C o n f e r e n c e t h a t t h e y w i r e o p p o s e d t a
Regulation J
including a n y t h i n g w h i c h w o u l d r e q u i r s a
charge
to b e made o n non-par chock cellections, a n d I think t a that
extent o r i n that respsct t h > chairmen hav- v o t e d lik:wise.
Am. wignt, Nr. P o r m :
Mr. Perrin.
YOs.
Governor MeDougal, I
just want t o report that we
togother o n that point,
Y o s 3 that i s correct.
ir. Porrin.
Governor S e a y ,
L i e s - -Chaienon-—<
Governor MeDougal.
T m i g n t h a v e ctated that t h r vots
was Olevon t o ono.
Governor Crissingsr.
Governor McDougal.
W e are not concerned about the vote
T h a t will com: out, sir, i n what
Mr. Seay has to sayGovornor S e a I
Mr. C h a i r m a n ,
will prcfacc what I
b y saying t o y o u what I
was going t o say,
said t o the conforcnes,
that i t i s always painful f o r m o t o b e i n the minority, p a r -
ticularly w h e n I T a m a
that I
minority o f o n .
have n o t w o b b l e d c i n e e I
B u t I. wish t o s a y
was o n e o f a
conmittes
o f twa,
417
Governor Harding boing ths other one, which framcd substantialily this provision o f Rogulation J
which this conforenece i s
now p r o p o s i n g t o t h r o w i n t s t h o discard, I
wish t e c a l l
attention t o t h e f a c t t h a t a t t h a t t i m - t h e r e w a s
o r o .
good doal o f unaninity o f attitude toward this report.
Governor C r i s s i n g : r .
Y e s .
I - r e n o m b e r y o u a l l agreo ;
and they all went b a c k o n you.
Governor Soay. i
would just like t o Say, sir, that
we have not wobbled i n that, a n d we believo i t t o be the
gaily method b y which the check collections*problem i s event=
ually going to bo solved. T i m e will, of courst, demonstrate
that, I
would like t o say, however, i f the Board were in-
clined t o enforce thoso regulations thtre are somo vorhal
‘corrections w o would like t o see made, b u t t h e y arc o f n o
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Federal Reserve Bank of St. Louis
consequences .
Governor Crissingsr. I
suggest y o u p u t i n w r i t i n g a n d
put with tho majority report t o be handed into the Reard,
ths r e g u l a t i o n s c o n t a i n i n g t h o s s changes.
Governor Ssavy,
Yose I
Governor C r i s s i n g s r ,
Governor Scay. T
of one, b u t I
will d o that.
P u t i n writing y o u r idea.
hate t o g o o n récord a s a ninority
will comply: with ths suggestion.
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Federal Reserve Bank of St. Louis
418%
(Governor S e a y h a v i n g v o t e d n o t a t h - r o s o l u t i o n a d o p t -
ed b y tho Conference o f Governors, stating that h o continutd
ta b e i n favor o f tho regulations a s promulgatcdé: oxcept f o r
ecortajn verbal changes that h > would suggest, a n d bcing requssoted b y ths Chairman t o put those changes i n writing, s u h mitted t o the reporter f o r inclusion i n the report t h - followe
ing, showing t h o chang7s b y olimination o r intcrlincation,
to 4 i
x d - r a l Rescrv-> Bank shall rceciv> o n deposit
or for collection a n y check drawn o n any nonen-nb-r bank
which v e f u s e s - t e ( w i l l n o t ) r e m i t a t p a r i n acceptable f u n d s .
D>
Jnznover a
FPoderal Rescrv:
posit o r for collaction a
B a n k roeeives
o n dee
eheck dreem-belondorsed by)or
emanating f r o n o n y non-nonber bank which pefauses-te (will not }
remit a t par i n aeceptable funds,
i t shall charg- f o r the
sorvice o f collseting s u c h chock o f ono-tenth o f onc p e r eent,
tho mininum charges t o b o 1 0 eonts
"In any regulation covering this
inportant t o us- the wads Taeceptablc
Myr, Curtiss, I
would-lik>
whother that interest charg:
was drawn against
fi W e d s
t o a s k Governor licDougal
i s imposed,
w h thor the eheck
o r not?
\ h e t h e r t h e m a n u s e d t h > funds
o r not,
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Federal Reserve Bank of St. Louis
419
Governor leDougal.
3
T h o charge i s imposed.
Governor Crissingor. I
Governor McDougal.
don't know what tho aqucstion
T h e chargt i s imposed rogardless
of the u s e to which th: funds ars t o b> put, r-gardicss
whether thry arc t o be used immediately o r not.
D e s that
answer y o u r q u e s t i o n ?
Mr. C u r t i s s ,
Yos.
Governor Criss inger.
I s there anything further?
i s
not, w e w l l l p r o c e s d t o t h e s e c o n d topic.
Governor McDougal.
l i r . Chairman,
may 1
offer t h e
suggestion that discussion o f topic t w o b e postponed until
our n e x t j o i n t s e s s i o n ?
r i y S Governors’
Conf-rence h a s not
yet gono into Governor Fanchor ‘'s report.
Governor Crissinger.
I f thore i s n o objection that
will b e p a s s e d f o r th: t i m o being.
Tho third topie i s ‘General policy i n rogard t o securing
new members", G o v e r n o r Yellborn socms t o have tho floor,
Governor Wellbaern.
Governor C r i s s i n g e r .
Y o u mean state b a n k nembers?
H o w y o u are g o i n g t o g s t t h e m in,
I presumos
Governor Wellborn. w e l l , w e have gotten i n a good
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Federal Reserve Bank of St. Louis
420
many. b u t w e have n o t suececded i n getting t h e good oncs.
I will qualify that.
W
e hevs gotten t h e good ones i n the
larger cities, l a r g e stat: banks, b u t i t scrms t e b e very
difficult t o get >
important t o w n banks.
Governor Crissingctr,
W h y d o y o u happon t o get
othar kind that y o u @ o got in?
Governor Wellborn.
tic.
Weil, I
suppose w e arc v e r y sympathsw e have t o maks
T h e y a r e the o n l y onzs w e c a n g t ,
sori. kind o f a showing.
T h e r e a r e som: o f those that a r s
W o h a v e had soveral state banks come i n which d o
very good.
not borrow a
eont f r o m us, cmall banks which have a n ontirsly
laudable purposo i n boing members o f the Foderal Reserve
ja h a v e a l w a y s w o r k 2 d a n d t r i e d t o g 7 t s t a t e b a n k s
A
W
e have made a
not
vory a c t i v e c a n v a s s
t o get t h o m in, a n d
we have suecoeded i n getting i n more than 15.
I do not think state banks will come i n i n large nunbers
nf tho better class until publie opinion influcness thom t o
@o s o through the customers o f ihe banks. I
think w e have
got t o r u n o u r Federal Reserv: Banks c o that t h e peoples o f
tho communitics a l l over th: country will know a n d understand
thing
what o n «xcsllent t h o Foderal Roo-rve Systcm is, w h e n the
customers
o f t h o b a n k w i l l tak: n o t i c e a n d w i l l w a n t t o d o
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Federal Reserve Bank of St. Louis
421
businoss w i t h banks thut a r e members o f the F e d e r a l Roserve
Systen.
T h a t i s o n e reason w h y w e have shown a
v e r y sympatho-
tic interest i n trying t o tako cars o f a good many banks that
have b e e n i n troublo caused b y the eataclysm o f ayeu, a n d {
think fron tus result thus obtained i t will have sone affect
in ths communitios i n our district showing that w e have reale
ly holped out tho banks, a n d carricd thom along.
Goverior C r i s s i n g o r .
H o w m a n y banks h a v e y o u h a d fail
in tne Syston?
Governor ‘Jollborn.
4 2 have n o t h a d more t h a n threes
banks, b u t thore w e r e t w o state banks fallicd, a n d tu-re was’ one
national.
lip, ‘Jills, W a y I ask Governor Yellborn a question,
whether h e i s getting a n y state menbor banks now?
Governor Wellborn.
Six months,
i c have not done s o much i n the last
b u t i n tho last twolve nonths w e have g o t t e n i n
On an averags about a bank a month, a n d thr stats banks that
have j o i n s d a n d a r e d o i n g busincsss w i t h u s arr,
happy over their momborshipe
years w o will have a
I f we keep o n for 1 5 or 20
considerabl> number,
Governor Crissingor.
lip. A u s t i n ,
o f cours,
M r . Austin,
y o u a r c next.
I n determining t h e policy f o r securing
very
422
non-member banks, w o have felt that rogard should b e h a d
to the purposes o f the F e d o r a l Rossorvs Act.
T h e purpose
nontioned i n the preamble t o the Act, w h i c h scems t o have a
direct bearing o n this matter, i s " T o establish more offect-
ive supervision o f banking i n the United States."
We h a v e f o u n d t h a t t h o o n l y p r a c t i c a l w a y o f s u p e r v i s i n g
state banks i s t o have t h e m i n thse Syst=m,
a s memborse
r e
Stats member b a n k docs n o t like e u r supervisien, however,
wre 1 s nothing t o provent i t from withdrawing f r o m the
System.
S
o i t h a s b e e n o u r practice
t o begin t h e supervision
when the bank applies for admission, and not to admit i t unjess i t i s i n ’ a s a t i s f a c t o r y c o n d i t i o n ,
I
n tho beginning
we were anxious t o get i n tha large state institutions, a n d -
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Federal Reserve Bank of St. Louis
most o f thom did become membors,
m e r e e r e still sone f e w
that w e w o u l d l i k e t o h a v e w i t h us, b u t ,
a s yet,
w e have n o t
been able t o convince t h e m that i t i s t o thoir advantage t o
join us,
The p u r p o s e
o f t h e a c t q u o t e d a b o v e c a n n o t , howevaer,
be
considered «ntirely b y itself. C o n s i d o r a t i o n must b e given
to the othsr purposss, o n e o f which i s "“{o furnish a n elastic
curroney a n d t o affard means o f rediscounting commorcial paper’.
The F e d e r a l R e s e r v e Banks,
i n order always t e d o that, must
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Federal Reserve Bank of St. Louis
423
eo kept i n tho most liquid condition, a n d i t i s casy Been how
that condition could b e eircunscribed i f all the small state
banks warc admitted, a n d tho System have t o rediscount con~
tinuously f o r very many o f thom, a s w e fool would b e probable,
ence w e have n o t thought that i t would strengthen t h e Systom
to take i n the smaller stats banks.
W h i l e t h e door always
has bccn kopt open t o them, a n d we have considered soriously
any application recsived,
paign t o g o t thon.
w o have n o t made a n y intensive ¢am-
B u t w e have n o t nogleetod a n y opportwmity
to acquaint officers o f nonenember banks, a n d othors interest}
ed i n such banks, w i t h the functions, powers a n d advantages
of the Federal Rossrve System, a n d th: possible help i t might
bs t o t h e i r i n s t i t u t i o n s ,
A d m i t t i n g state banks reduces
i e
deposits o f mornber banks, a n d seldom adds anything t o the
roserve s t r e n g t h o f t h s r e s e r v e p a n k s
I
t tnereasss t h e i s
doposits a n d possibly their loans, b u t thcir reserve, while
not increased, have t o support a lergcr amount o f liabilitics,
Wo, therefore, fool that the policy of the System datuld be
to admit any bank applying, providing i t i s i n a sound condition, b u t n o t t o c a m p a i g n v i g o r o u s l y f o r n e w membors.e
Governor Crissingor,.
subjoct?
I s there anything further o n tho
I f not, w e will proeced t o ths noxt gonoral topic,
424
which i s Hoe kh, ‘General policy i n rogard t o relations w i t h
and tho publie .". T h o first thing is the report o f
the Chairnan, lire. Jay.
Mr. Jaye D u r i n g the year ended August 31, 1923, the
following shows, f o r cach o f the districts t h e number o f
visits made t o membor a n d nonemenbsr banks a n d the total
cost o f the bank a n d public rclations function a s reported
to tho Board's comnittzs o n officiecncy a n d economy.
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Federal Reserve Bank of St. Louis
,This
is a summary o f activities o f bank relations w o r k o f the
twolve federal rsserve banks f o r the year onding August 31,
1923, which the Clevoland bank has kindly bo-n tabulating
throughout t h e ysar, f r o m reports mads b y e a c h chairman,
A
p
p
a
r
o
T
o
t
a
l No
Total No.
C
o
s
t
o
V
i
s
i
t
s
nonmombors
to
Mer-bers V i s i t s
n
t
t per
Juno 30,1923. M e m b e r s J u n o 30,1923 Nonmembers VYosts. Visit.
Boston
y
Now York
o
B
5
y
2
7
4
3
0
,
2
6
6 15.72
4
1
,
2
6
4 58.28
5
§
,
5
0
5
3
8
1
,
5
0
4 2
4,236
Chicago
Vallas
,
San Francisco
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Federal Reserve Bank of St. Louis
Total
6
,
3
1
,
2 . n
1 , 8 6 2 1,034
3
Kansas City i
7
6
6
2
2
5
0
Richmond
Minneapolis
3
9
0
5
2
,
4
2
S
St. Louis
9
5 48.59.
3
2
8
5
3
2
5
Cleveland
Atlanta
6
2 3 0
3
1 , 2 3 6
7 2 0
Philadelphia
5
7
,
0
,
8
3 20.27
9
~ ~
6
5
,
6
2
2 23.39
29,322 31.22
1
2 ;
4
5
8
,
3
9
5 75.38
4
1
,
6
6
3 19,61
1
0
6
8
2
5
,
2
0
2 24.30
2,681
3 2 3 8
257,761 2 3 . 5 4
(Average Cost.)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I will j u s t suwmarig>s that briefly.
Th) W e w York bank made 1,236 visits t o its C 2 7 nen-
bors e T h o St- Louis bank made 938 visits t o 62h members.
Tho Boston bank mado 55), visits t o its 2 7 mombcrs.
Rictviond benk nado 7 7 visits t o 635 mombors.
T h e
T h e Dallas
bank made 761 visits te 66% monbers.
San Francisco mado 621 visits t o 81) members,
I t
som> h o w seoms t o have accomplished that o n a cost yf
of only $4, against a n average cost o f $23.
Move Porpin.
i l a y I say that t h e reason f o r that i s that
our visits a r e mad- b y officers a n d branch managors.
Mr, Jaye
A
t a cost o f £ 3 a visit?
In. Porprins Y o s s
Governor Janos.
T h e y use automobiles o u t there, y o u
know, end don't charge for thon.
Mr. Jaye P h i l a d e l p n i a made 200 visits t o 72C members.
Minneapolis mado 116 visits t o 1,006 members. K a n s a s
City made 95 visits t o 1,154 mombors,
Atlanta apparently n o visits, a n d spent ¢ 2 im. going it,
(Laughtor, )
The total cmount expended b y all o f tht Reserve banks
was $257,761.
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Federal Reserve Bank of St. Louis
427
It will b e n o t e d t h a t i n s o m o o f t h o r e s e r v e b a n k s
thors i s littl: o r no organized visiting o f sither membors
or nonenmorbors, a n d little o r not expenditurs for this work.
Ths expsrionce o f mombers o f the comuittes w i t h the visitr
ing monbors a n d n o n s m o n b o r s a n d t h e t e s t i m o n y f
o othor banks
which h a v e u n d e r t a k o n t h e w o r k i n a n o r g a n i z e d w a y i s s o over,
wntlmingly i n favor o f the conduct o f this w o r k i n a woll-
organized way as a woll rseignizzd part o f th> businsss o f a
Fedrral r e s c o r v e b a n k t h a t t h e c o n n i t t e r d o s i r o e s
nat i s b e c o m a
t o recommond
part o f t h s w o r k o f e v e r y F o d e r a l R e s t r v s
Bank with a conpotent man a t its haad and with wollepaid
and welletrainsd m o n t o d o thse visiting, a n d that i t i s dosirable that e a c h mombor b a n k should b: s o visited twice z a c h
yeare
Tho b a n k relations m o n c h o u l d b c f r i e n d l y visitors.
They S h o u l d n o v e r b e u s c d t o c a r r y c r i t i c i s m o r d i s c i p l i n o
to a
bank o r a s mombers
tion o f t h e b a n k r e l a t i
o f th: cxartining forco.
S
1
0
T h e funce
" S e e that t n o mamber
banks understand th: operations a n d facilitios o f the Federal
Roserve Bank,
t o asecrtain whothor t h c member b a n k i s having
any difficulty i n its transactions w i t h t h o Federal Reserve
Bank, o r t o Straighton o u t a n y little difficulties
i n these
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Federal Reserve Bank of St. Louis
428
operations w h i c h have b e : n noted a t the Federal Reccrve
In a ioss practical b u t ¢ v c n mor: important w e y
fuaction i s t o nainteain friendly personal r-lations betwscn
ta2 Monber Dank a n d the Federal a c s e r v e Bank, ‘ J i t h o u t s u c h
relations t h e Fedcral Reserve B a n k i s greatly handicapprd.
Through t h e v i s i t s
o f bank relations m e n the atiitud:
of m e m b e r b a n k s h a s i n hundreds
Se
c i e s
changed.
of
i f not thousands
of
- V h e following i s thoroughly
at t h e f i r s t visit: th: b a n k »,eletionsa mon: i s - r e c c i v e d
coldly i f n o t g r u f f l y a n d i s i c e
grill. .
At t h e s e c o n d v i s i t
[
G
o -eore i n s i d e t h e
i n v i t e d t o come i n and
sit d o w n a n d a m o r e f r i e n d l y
third o r fourth visit h o i s invited t o the
to take the noon or evening meal. - ‘what .
change i n
personal relations means f o r the Federal icserve B a n k i t i s
inorcase
which also. gener
»
e s u l t e
i n businoss relations
i s of cquel importance a n d s e r e -a
vice t o counzeract t!} p r o p a g a n d a
o f many o f the c i t y banks
to the -ffect that country meombir banks c a n d o their
satisfactorily t h r o u g a c i t y b a n k s t h a n w i t h t h e
Rosorve B a n k . a
o m e districts t h > traveling
tatives a r c f u r t h e r a s k e d t c b r i n g b a c k r e p o r t s
o f business
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Federal Reserve Bank of St. Louis
conditions
i n the territory visited,
visits
t o t h e country banks a t th-ir offices f a l l
short o f their purpose i f i t i s not also a
organized p a r t o f t h e b u s i n e s s
recognized a n d
a
o f ths h e a d office a n d branch
officss o f each Foderal Reserve B a r k t o provid: f o r tho
reccipt a n d encouragenent o f return visits b y the country
bankors w h e n they coms t o toyng f o r showing t h - m over the
bank o r explaining itsoporations; a n d for extending thon
such reasonabl: c o u r t e s i e s a n d hospitalities
Lations
a s human ree
require,
With respect t o visits t o nonencmber banks; whorever
thes> h a v e b e e n w i d e r t a k e n
practice h a s b e e n t o . m a k o «
banks
i n a n organisod w a y the general
short c a l l o n a l l t h > n o n e m e n b e r
i n any town where there 1 8 a
nember T a n k , b u t e x c e p t
under special circumstances, n o i t o m a k ovisits t o towns
whore tasre i s n o norber bank.
I n visiting non-nomber
DOnks G4h>-tPaveling man: dots n o t dleciiss t h o cutestion o f
nombership unless i t i s brought u p b y ths bank itself.
Tho
coll i s morely a friendly perconal call without speeial
object a n d requiring n o t much outlay o f eith:r tims o r nonsy
but unquestionably establishing friendly personal rsélations
which cannot b u t contribut:
i n ths long r u z t o a
J53
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Federal Reserve Bank of St. Louis
430
undorstanding o f and feeling f o r the Fedoral Roserve System.
During th: yoar thers have b e e n t w o dvelopmants
i n ‘bank
relations w o r k which should b s mentionzd,.
Le S t . Louis h a s h a d a numbor o f photographs n a d e o f
its actual opsrations departmants, vault, n e w bullding, cto,
Lach traveling m a n carries a
set o f these protographs a n d
whousver a feyorabls opportunity offers shows t h = m t o the
bankers h s visits, thereby enabling t h e m t o visualize t o a
certain extint t h e different operations o f ths bank a n d theip
Tiaguituds,.
a. B o s t o n h a s m a d e a
prelininary o r g a n i z a t i o n o f i t s
stocknolders a n d i s intending early i n Deconber t o effect a
permanent organization o f its stockholdors a t a moeting t o
which each bank will b e invited t o send o n o representative.
tho mieting will b e held i n Boston and opportunity will b o
given t o ths visiting members t o m s t t h s offieers a n d
directors,
t o soo ths bank i n question, a n d t o discuss gcner=
ally matters o f intcrest t o mombors,
tha organization will have a
I t i s expected. that
repressntative b u t fairly small
executive cornmittes which will visit t h e b a n k a n d its officers
from time t o tims, discuss mattcrs o f mutual interest w i t h
tnoma, nak> reports t o th: members, a n d whenever logislative
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Federal Reserve Bank of St. Louis
431
proposals affecting t h e Fedsral R e s e r v e B a n k are mad>2 i n
Congress o r elsowhsre t h e exccutive committee w i l l represent
th> Boston district a t tho hoarings o n such proposals.
Tho cormittse considers this a n interesting move, the
devslopnont o f which should b e carefully followed a n d studied
before being recormended f o r consideration i n othor districts,
During the past year Philadclpnia has made a n admirable
exnibit a t th: Atlantic C i t y convention o f tho A m o r i c a n
Bankers A s s o s i a t i o n a n d i n c o n n e c t i o n w i t h i t p u b l i s h e d a
R I S
w y sduciie the charts thore exhibited,
T h o twelve
Reserve banks have thus f a r ordered between l O and 5 0 thous»
and of those pamphlets for distribution t e officers a n d
directors o f thoir monber banks.
During t h s s u m m o r t s A t n a l t a a n d N e w Y o r k b a n k s t o -
getnor, m a d e a n exnibit o f charts a n d othsr data. showing
Federal reserve operations a n d general business conditions
at t h e a n n u a l c o n v e n t i o n o f t n o Ilational A s s o c i a t i o n e f
Credit m o n i n Atlanta,
PUBLIC H G L A T I O N S .
During the year th> reserve banks have maintainod cone
tact with ths public principally through making addre
business bodies a n d through their monthly reviews,
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Federal Reserve Bank of St. Louis
432
ths 1 2 months ending August 3 1 addressts wore n a d o bofore
502 business o r othsr organizations a n d C ? bankors moetings,
divided a s follows:
PUBLIC
Boston
New York
Philadelphia
Cloveland
Richmond
Atlanta
Chicago
Ste. Louis
liinneapolis
Kansas C i t y
San F r a n c i s c o
5
3
542
Th.
cormittes
belioves
that
i n addition
t o the addresses
thus reported there have b e e n m a n y more talks o f a les
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Federal Reserve Bank of St. Louis
naturo which have n o t been recorded.
The comiittec believes that t h e noesssity f o r discussing a n d oxplaining t h e purpose a n d operations
still remains.
o f the system
T h o general attitude o f the publie towards
friendly t h a n i t was a year ago, b u > knowledge o f its functions a n d operations h a s n o t much increascd.
T h s cormittes
believes that wherever opportunity arises f o r addressing
any group th2 opprrtunity should b e seizcd.
Vithout
question more invitations o f this noaturo will b e reesived
if effective speakers are dovelop<d and i t i s gensrally
known that thoy a r e available.
Several o f the banks have sucecossfully made u s e o f the
opening o f thoir n o w buildings t o develop wide contzets
with ths public i n e e
respective districts, n o t only
people i n thcir o w n city but bankers a n d business m o n from
othor ¢citics.
T h e conmittes believes that this i s a most
effective w a y o f visualizing t h s Federal Reserve Systen
to tho general public a n d rocognize t h a t i n the case o f
banks still t o b e opensd s u c h work b e undertakson i n a welleorgonized manncr,.
The F e d e r a l r e s e r v e n o v i n g p i c t u r e w h i c h w a s e x h i b i t e d
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Federal Reserve Bank of St. Louis
434,
at t h e l a s t j o i n t conferences
2 5 b o o n uscd w i t h fair success
by tho Boston, N e w Y o r k , Philadclphia, Atlanta a n d Chicago
banks.
T h o
e w Y o r k bank which was requestod a n d author-
last joint conference t o have a
now twoercal
moving p i c t u r e p r e p a r e d h a s g i v e n m u c h t h o u g h t
t o the sube
joct during tho past year, has spont about {600 i n endeavor~
ing t o g2t a satisfactory sesnario, a n d has reported w i t h re-
gret tnat i t has been unsucesssful.
I t has considerable
doubt wnisthor t h o Fedsral R e s o r v o thoms a
ive e x p r e s s i o n
in a
motion picture.
I
t
by the expenditure o f a large amount o f monsy a s well a s o f
tims o n tho part o f importent officcrs o f Federal reserve
panks a
satisfactory picture could b e produced, b u t short
of this t h e N a w Y o r k bank bolicves that nothing really
satisfactory c a n b o produced, a n d recommends thet waloss
those conditions c a n b e c o mplied w i t h further oxptrimonting b e abandonod.
T h e commiztce concurs i n this view a n d
recormmonids that t h o N e w York.bank b e roquassed t o p r o rate
tho amount oxpended o n ths f i l m t o date; namely about $l,708
among those banks which last year oxpressod a
share t h s :
T
h
willingnoss t o
e proscont f i l m i s still available
for b a n k s w h i c h w i s h t o u s e i t a n d h a s b e e n f o u n d t o m a k e a
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Federal Reserve Bank of St. Louis
435
reasonably satisfactory accompaninsnt t o a short t a l k before intelligont audicnces.
MONTHLY R G V I G W S A N D S T A T I S T I C A L WORK.
Monthly reviows during the past yoar have shown steady
inprovorent.-
i
th> interchange:
n part t h i s i m p r o v e m e n t m a y b e t r a é e d t o
o f matrrial a n d m e t h o d s b e t w e e n t h e b a n k s
and i n part t o bettcr organization o f ths methods o f gathering d a t a a n d p r e p a r i n g
i t f o r publication.
T h e outstand~
ing dovelopusat hae 9 e n the preparation b y the Federal
Reserve Board a n d ths comaittes o f tho Fedoral r e s e r v e
agents “ National S u m m a r y o f Businoss Conditions" with
accompanying diagrams which i s tclegraphod t o 2ach o f ths
reserve b a n k s a b o u t t h o 2 5 t h o f t h t m o n t h i n time f o r i n -
sertion i n Copy o f the coview t h o n about t o c o t o press,
who first o f thosc Monthly Suwmaries appsared i n thc January
1923 Roviows,
Soma o f t h s R a v i e w s h a v e r e g u l a r l y o r o c c a s i o n a l l y p u b -
lished brisf articl-s dsseribing various functions, opcrations
or problems
o f the Roscrvs banks.
I
n the districts whore
it has becn undertaken this plan has reesived such favorable
comisnt a s t o justify t h e committes i n recomicnding that i t
be undertakon mors generally during t h e coming yoar, t h e
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Federal Reserve Bank of St. Louis
436
apticlos perhaps proparod b y the sans organization which
now preparcs tha tlonthly Summary.
C O M M t e s 7 a.
f e Review
i s 1 5 felt by. S26
dn edeis f
e
:
to t s businoss world through thc businiss d a t a i t presents,
night a l s o t h u s b o m a d o a
modiun f o r c o n v z y i n g i n f o r m a t i o n
as to tho oporations and functions o f the Fodtral Ressorve
Syston.
L a s t Spring t h > comuittco>. prepared a n d wired t o
cach Roscorve B a n k o n e page articles which wors i n substanco
synopsis o f thio loading articles i n tho Fidcral Reserve
Bulictin o f the current month.
purslishsd those.
A b o u t half o f tho banks
I t i s the unaninous v i o w o f tho cormittere
that t h o M o n t h l y R o v i e w s s h o u l d b e con%Sinuzd f o r t h : b e n o f i t
of buinoss men, mouber banks and non-member banks i n tho
respoetive districts a n d a s a means o f contact w i t h them o n
the part o f tho Fodoral Roserve Banks a n d that w i t h tho exception o f s u c n u i i f o r m a r t i c l e s
a s m a y s e e m advisable a n d
desirable, t h e Reviews should continue t o contain such matter
as will be o f especial intsrest t o tho respective districts.
Governor NVellborn.
i p . Chairmen, l i x o t h e S e n Francisco
bank, w e have n o monmber bank relations departmont, a n d w e have
not felt f o r years that w e noedod a n y such dopartnent.
is a tremondous oxpons2, I
understand,
I t
o n the other reserve
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Federal Reserve Bank of St. Louis
437
banks,
a n d morely t o oducate t h o nonbor banks a s t o t h s funce
tion o f t h s F o d o r a l R e s e r v o Systen,.
tic systcia I
A
t tho beginning o f
can vory easily undorstand w h y t h o y should have
had a monbor bank r-latioans departmont, b u t t o acquaint t h e m
with tha working o f ths system. I
am satisficd all our
nonbsr banks k n o w about t h e vorking o f ths Systen.~ I
too
ses how 1 5 night b s woll t o have a public rslations connitsso,
i n ths Board itsolf h o r e
tno public itsslf. I
But I
i n Washington,
t o sducate
don't think ths monber banks need it.
think i t would b s a very good idsa f o r tho success a n d
welfare o f tho systom,. probably,. t o have a publio relations
committse t o s i t hore i n tlashington a n d t o g o ous among t h o
public a n d get o u t such literatuyvo a s i s nocessary t o educate
tho public mind,
I want t o add t o that, 2
have i n our bank four branches
two agencios, a n d i n those branch banks ths managers have
little t o do, s o wo have tnon g o out among ti> member
banks w h o n s v e r
i t i s necessar;
T h e r e f o r c , Whils w e d o not
havo a momber, bank rolations sonmittso o r eéopartmont, still
our brane’
managers a n d offieers f r o m o u r b a n k maks v e r y f r o e
quont visits t o th: bazuks that requirs special attentim..
Ite. licCord.
T a n informed, Governor ‘Jellborn, t h a t i n
458
Maren t h e Board toak a vote a n d establishod a
momber b a n k
relations departmant, a n d i t i s s o recorded i n our mi:nutes,
and tho minutes a r e filod i n this office,
O u r dopartmont
has not functioucd yet, excopt i n ths caso o f
ths n a n t o whon
lr. Wollborn says w e p a y too much I A C «
havc nos boen able t o get another,
S i n c o that tino w e
A t our last moeting the
master w a s brousht u p t o find w i y the m-mber hmgh
b a n k s relations dopartnont w a s not functioning,
Governor Callrins,
W h i l s t h o Fodepal R o s o r v e B a n k o f
San T r a n c i s c o maintains n o mornber bank relations departnont
it “ o u l d n o t b e assumed that i t has n o rclations w i t h
banks,
Its relations a r c conducted through tis managers o f branechos
aud respousibls officers o f tho hrad offices, a n d
o u r oxp-riencs
has lead u s t o the conelusion that relations carricd o n
by
rosponsibls officors, w h o spoalk with authority a n d
understand
tHpmougaly tho operation o f th: Foéoral Resorve Bank and ite
relation with other banks,
i s nore satisfactory t h a n that
carried o n b y traveling mon,
In regard t o t h o reception received b y o u r representatives
whon thoy g o t o nenboar banks, M r . J a y has expressed
exactly
our experience.
T h o y are not a t first favorably received,
but that favorable rocoption Gradually increases w i t h
the
increase o f visits. I
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Federal Reserve Bank of St. Louis
say without hesitation that t h e branch
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Federal Reserve Bank of St. Louis
459
nanageprs a n d posponsible officors o f our bank are not o n l y
porsonally, b u t that thoy are invited t o review,
and s o fam a s thoy a r e able, t e correct a l l o f tht physical
situa’s Lons » T h e y are n o t only takon inside t h s counter
but tarsy arc takon insido t h > h : +
directors o f th>
bank, a n d thoy a r o frequontly a s k e d t o moet with the board
in ordor t o discuss B 4 0 affairs o f thse bank i n its conduct
with t h o m o n b s r b a n k which,
i n m y opinion, c a n n o t
b e dons b y
Bnayoas w o i s not fully familier with the policios and
practicos and dotailod orcrations o f th> bank, acon e a
account w e have, with that belicf, felS that tho establishment o f a menber bank relations doparsmont,
o r work which was
to b s carried o n b y mon who wers comparatively inoxperienceé,
would not b e as satisfactory a s to havo those reletions
carried o n by tha respousible officors o f th- bank.
Govornor Crissinger.
U r , Nartin,
Mr. Martin, G e n t l o n e n , I
y o u h a v e t h e floor,
take i t thore i s n o botter way
to Giscuss t h s genoral policy i n regard t o banks a n d tho
public than t o toll you what i s i n effect a s a gensral policy
in tho elgatn distriet, a n d has b s e n fron the boginning, a n d
BGili i s i a o f f e c y
“Ye havo 3269 banks in the cighth district, which com-
440
of savon states.
a.
O T are national banks.
226
aro monber benks 1,816.are oligiblo morber banks, a thousand
of which were mado eligible b y the rocent ancndmont allowing
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Federal Reserve Bank of St. Louis
60 por cont o f capital.
6 3 0 c a n nevor b e eligiblo o n account
of l a c k o f capital.
I give y o u t h a t s u r v e y s o y o u m a y g e t b e f o r e y o u s o n d =
thing upon which t o base t h e gandrel policy.
Fron ths very beginning wehavo appreciated that t h o
criticism against t h o System was going t o originate chiefly
in lack o f knowlodgs, a n d i t has bocn our effort from tho
very bogimiing t o gat a
knowledge o f ths Systom t o all o f tho
banks and ths public, knowing that whon thoy understood i t
tho systen would g e t full support.
In ordor t o carry this out, i n tho boginning t h > offi cors
riad> Ssposenos a n d trips.
S o m > o f u s have b e s n i n every cope
nor o f tho soven states o f ths district a n d know wnat i t i s
to dacp i n a picce o f a rodDm bshind a
Wo have #0t. t o -a- pols, Bowey-y,
stove i n a country hotel,
i f th: office-ise e x
pocted t o still live, ths relationsips with our member banks
muss b e mintainod,
a n d w c have vWaat i s n o w callsd a bank
relations dopartmeut, composed o f four o r five men, n o t u n e
trainod m o n i n amy sense o f tio word,
W e have never allowed
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Federal Reserve Bank of St. Louis
441
a main t o g o out t o com> i n contact w i t h o u r nmeubcr banks w o
did not k n o w transits, w h o d i d not lnow credits,
w i d i d not
know Sonothing about the discount, who could not sit i n the
nomb3or bank a n d talk intclligontly a n d uadirstandingly about
eligibl> paper, paper that night be made oligible, and paper
that was not eligibls, giving a cloar and instructive state}
mows t ) ths mombor bank.
W h o n thoss m e n one trained jn. that
way tirough th: departrionts o f ths bank we thon have allowed
tion t o g o o u t w i t h a
trainod m a n f o r a b o u t t h r e . n o n t h s ,
and
thon ho i s fitted t o go out b y himself and t o bo amicus CUPAL »
fnis mon i n thors t o trace lest itoms, t o find trouble.
H e
is nover allowed t o function i n the oxamining dspartnmont.
Ms 1 8 a friend o f tho bank,
a n cducatod friend o f the bank,
and h e goss there a n d talks w i t h the banker, a n d ‘the first
time h o goes thsre tho repors indicates that his reception
may be quite cautious, but about tho third visit ths bank has
takon h i n in, a n d those m o n have actually p u t into country
banks liability ledgers and suggested forns o f ercdit
deposits, giving great a i d t o th: b a n k all ths w a y through.
We very reconsly, i n order t o bring thom i n closer convact w i t h t h o banks, triosd o u t a n experimont,
it fairly cffective.
W
a n d woe f o u n d
o went over tho bank and took pictures
442
of tis bank i n operation, w h i c h I havo g o t hore i n m y pockot.
Thoy s i t right i n ths bank relations departriont, a n d a s i t
cemss u p i n conversation those things are drawn out, and ths
mongor bank i s taken through tho departmonts o f our bank
fre-
quontly with ths corriont, “yi I
much business dono thoro."
didn't.
did not lmow there was that
T h o y should have kiown it, but
W e visualize t h o thing with picturos o f this kind.
lor i n this connoction thoy d o not Stop just with member
Banks, b u s t h o y visit every nonemonbor bank i n tho town, n o t
for ths purposo o f gotting t h o m t o coms into the Syston
primarily, b u t f i x i t s o that i f that m a n wants t o a s k a quostion
about t h s Fedoral Roscrve S y s t e m thcy are there t o answer it,
Ths result o f this has been that th> reports com> t o tho
Governor's dosk and mina, and I think that we are fully inforned a s t o credit conditions, business conditions, a l l the little
irritating points that cots u p i n th> operation o f a bank, and
ths whole thing i s straighsonsd ous, a n d that i n itself i s
th>
ensw>rp t o a n y criticism made before t h r Congressional:.cennittee
that those banks a r e n o t i n personal touch with their
mnbers,
In District No. 8 wo are, and througa this nothod,
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Federal Reserve Bank of St. Louis
Governor Crissingor.
G o r e r n o r Ssay,
Governor Sday, i r . lartin, I would liko to ask you a
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Federal Reserve Bank of St. Louis
443
gusstion.
C o u l d y o u give u s the cost o f your membor bank
relations cormittes ladt year, approximatcly?
lir. Hortin.
l i r e . J a y h a s those figures,
US. Jay. $ 2 9 , 0 0 0 .
Governor Crissinger.
enormous o x p e n s e »
A
s I
G o v e r n o r Wellborn spoks o f the
understand t h a t e x p e n s e , l a s t y e a r
we spent about $233,000 for mortber bank relations work, which
is loess than ons p e r cent.
Me. Jay. $ 2 5 7 , 0 0 0 are ths figures I have.
Governor Crissinger,
T h a t i s less t h a n ons p e r cent o f
tho total expense o f tho system.
Governor Seay.
l l r , Chairnan, t h i s topic reads "Genoral
Policy i n regard t o rolations w i t h banks a n d tho p t e e . t
That means ‘ o u r momber banks a n d banks goenorally, a n d with the
publie-" I
have not eaything even t o suggost a s to the
mothod o f d e a l i n g w i t h ¢ i t h s r o u r m o m b e r b a n k s
o r cther bank-
ing institutions o » tho public, and in response t o Governor
Calkins, I would Ss ay that tho man in charge af our relations
dopartmont i s a n officer o f th> bank, o n d h e has b e o n talon
very i n t i m a t e l y i n t o t h o c o w n s s l s
o f tho. officors
o f t h o bank,
Wp have b o o n doaling f o r a long time with ono bank i n o u r
distries which was i n a vory extendcod condition. Rocently i t
444
has bsen able t o discharge all of fts indoptcdnacs t o the
Pedoral R o s o r v e Bank, I
wish ths Board could s e e tho let-
ter o f thanks and appreciation o f the counsel and assistance
Given b y t s officer i n cnarge o f that drxpartnent.
T h s
bank was i n dosperats condition, a n d could not have been saved
oxcops b y courteous a n d synpathotic treatmont.
I have n o d o u b t t h a t t h o s e w a r n s w h i c h h a v e n o o r g a n i z e d
puslic relations depaztmont nevorthsicss perform the samo
' function that w o have porformod i n our organized dopartmotts
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Federal Reserve Bank of St. Louis
We are doing ons o r two things, perhaps,
i n our bank whith
may n o t b e dono i n tho sano w a y i n other institutiens.
W
e
ars endoavoring a n a way t o edueato t h o coming goneration.
As ths Board knows, a n d as ths other Federal Roserve Banks
know, w e have b e o n issuing f o r somo tins a series o f letters
doseribing t h o functions a n d tho Operations o f tho F e d e r a l
Reserve Banks w h i c h were prepared a t tho cxponse of: ono of:
our directors f o r use i n college classes o n ccononmics,
Thoso letters arc being used in 6], colleges, and we are constantly receiving requests f o r thom fron individuals f r e n
liatas t o foxas,
Governor Crissinger,
hore i n Washington?
H a v e y o u cormonced o n tho colleges
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Federal Reserve Bank of St. Louis
Governor Seay: Y e s , sire
Governor Crissinger.e
Governor Soay.
W h i e d ona?
O n s o f our officors has been u p hare
+0 d o l i v e r l e c t u r e s b o f o r o t h s N a v a l Acadonty students.
Governor Crissingor.
W i l l y o u dcliver a lecture
for us some day? ( L a u g u t e r s )
Govornor Seay. S u r e , I.will, or the officer who
that eapocially i n chargo.
delivered h o r e ,
B u t lectures have already boon
A l s o w o have, a n d h a v o h a d f o r a
l o n g time,
a booklist which relatos t o this oporations a n d functions o f
Federal Resorve Banks. M r s Cumninghan, since I have been
up hore, has expressed tho desire t o hav? u s cooperate with
hin i n a wider distribution o f that book, a n d witha tho
assistance o f the Boa rd wo will b> very happy to do it.
I would state that reconsly w e reccivod & request f o r the
Isctures o r arsicles and book from Thomas J » Hofflin, o f
Alabema, (Laughtor.)
With respect, Mr. Chairman, t o our relations t o the
public, I
think they c a n b o carriod o n a s thoy are n o w boing
carried o n by talks from officers hore end thore, a n d elso
by tia moans o f booklets which fror time t o time have besn
issusd by ths joint coopsration of all ths Federal Reserve
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Federal Reserve Bank of St. Louis
446
Danks « O n e o f ther was not montioncd hore, but I
have n o
doubt Mr. J a y has i t i n mind,
I l s was t h e conpiler o f the
booklet o r pampnlet o n Federal banicing that performod a
very
useful mission and, I think, has scorved a n admirable purpose,
and tho booklet w h i c h i
s now being printed b y the Philadslphia Bank, I
think that contains admirable data, a n d ths
more widely w e c a n disseminate i t the better i t will be. fer
WS » |
On> othor point w i t h roference t o o u r relations with.our
member benks, a n d with Governor Wellborn's remarks.
developed
a t
B Y
t h o Amorican Bankors' Association Convention,
i think, t h a t w o h a d nore friends coring t o th> front
than
at a n y tims within m r knowledge o f tho syaton.
ws could do, thorefors,
Whatever
t o develop Cordial, sympathotic a n d
enuthuslastie fricnds amongst o u r mombers will b e well dirscte
ea effort,
Governor Crissinger,
A r c thore a n y general remarks o n
sud ject?
Mie W i l l s .
l i r e Chairnan, I
would just like t o say a
word i n r e p l y t o G o v e r n o r Calkins! prenarks,
T h e r e w a s nothing
in that report that would reflect u p o n t h o work o f ths S a n
Francisco Bank,
T h e r e weze quits a
number o f visi
447
Mr. Jay. 6 2 1 .
Mr. Wills.
B u t I don't think tho figures will show
the actual cost, because i f thoy h a d a momber b a n k relations
departnens t h o y would have t o carry thoir overhzad f o r con}
ducting this businasse
I f thoy were not, somebody clss would
have t o do it, and sonsbody else would b e doing their work
while t h e y were doing it.
I want t o s a y there i s another elenent i n that that has
becn overlooked.
I t is highly important that a man pe
sent
out wh) knows tho Federal Roserve Banking system, a n d o f
course i t i s important that w e should send somebody o u t who
knows t h s country bankers.
F o u r m e a o n our group o f momber ©
banking mon have all been officsrs i n banks, and so has tho
rlanager I
find that w h e n ths superior officers o f the bank,
tho scnior officers, g o out, thoaro i s a lot o f lost tine, im’
upestate
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Federal Reserve Bank of St. Louis
t a l k , a n d a lot o f stuff like that, a n d w e find
that thoss m o n get down t o the grass roots a
lir, Jay.
tes) o
e
t h s s e figures
reading t h e visits Chicago mado.
little better,
o f visits I
omitted
C h i c a g o made 1,884 visits
to1,l.0 mombers, and also 930 visits made to tho 1,236 nonmomber bankse
Ip, Porrins G o v e r n o r Calkins h a s vory admirably stated
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Federal Reserve Bank of St. Louis
449
Thus
he p r a c t i c e
i n ths F e d e r a l R o s c r v e B a n k a t S a n Francisco,
Th> m a t t e r o f relations
o f o u r b a n k w i t h i t s members h a s
ecu o n s o f v e r y Ccarnost a n d W a r y c o n s t a n t c o n s i d s r a t i o n
botwoon mysslf and the other officors o f ths bank, a n d I was
wondering whothor thors was a bettir w a y t o carry forward
ths work that w e do, t i o importanes o f which w o recognizs,
than th? w a y w o are doing it.
fron establishing a
ead I
W o have shrunk a good d3sal
separate organization, a n d w e d o not---
a n S u p e M r . -Caeliene a e r t e s w i t h 1 m a e thise--
we do
not moan t o cast a n y reofloction whatever u p o n that which i s
ecallsd organizod sffort i n othsr banks.
W e d o hav:
i n our
five Drancacs noetssarily « 4 cousiderabl> fore> o f what Mr.
Calkins h a s properly called recsponsibls offiestrs, a n d w e have
organised t h o s e m a n a g e r s a n d m a n a g e r s
o f t h s h e a d offics i n t o
a dual organization, t h a t o f caring f o r tho routine w o r k a n d
these b a n k rolations.
W o have f e l t that t h > Fedoral Roserve
Board h a s been reluctant t o inereass t h s special cxpense, a n d
wo a v e fewiians P e s a
L a r e s eolorrsd D y the fooling that
the Board i s not sympathctic w i t h ths ildsa o f inercasing t h e
expensos o f thoir Fedsral Roserve Banks.
W
e have h a d the sube
ject up, b u t haves not discussed i t t o a concolusione
supposs i f wo had insisted upon discussing i t to a conclusion
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Federal Reserve Bank of St. Louis
4149
thd Board might have yielded t o our original representation
for somowhat widoning t h e activitios--« psrhaps n o t v e r y much
wider, b u t possibly more oxpensive activitios. I
think that
WS perhaps a r s n o t finally s c t i n our viows that th- methods
we h a v e b e o n followings a r e t n o s e w h i c h w e w o u l d w i s h t o a b i d e
by for all time, and- we would liko t o have t h > approval o f tho
Board expressod f o r o u r going a littlo further i f w e thought
it advisablo,
B u t I
wish t o second very hoartily t h e a d -
nirable s t a t e n o n s t h a t G o v o m o r C a l k i n s h a s m a d s o f t h e s p i r i t
in which wo have approached this natter o f tho nethod o f condueting o u r n o m b e r b a n k r e l a t i o n s w o r k i n a n o r g a n i z e d way,
aid we are offering n o objection whatever, noither Mr. Calkins
hor uyself, with regard to that work.
Governaar Crissingore
I f thore i s nothing furthor o n
that, w e will tak> u p the next topic, which i s Noe 5, "Can
a better systom o f taxing Fedoral Raserve Banks b e devised?”
cd that a
tax o n uncoversd notes would
have advantage over present plan,"
Governor Morris.
w a s t o submit t h e report o f the
Governors’ Committee,
(Governor Norris prosonted thes report,
a f follows;)
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Federal Reserve Bank of St. Louis
HaPort,
O F COUMIGTES
TO C O U S I D E R A D V A E T A G : S
O F T A Z O N CTR-
CULATION O V L R GOVERZHUIM PARTICIPATION Ii! PROFITS.
the 16th Seetion of the Federal Roserve Act, dcaling
with ths subject o f note issucs, provides t h a t w h e n th>
application
of a
Federel R e s c r v - B a n k f o r F e d e r a l R e s - r v e
notcs h a s b e e n grantcd a n d the notes supplied, s u c h bank
Shall b e charged w i t h the amount o f notes issued t o it,
‘and shall pay such rate o f interest a s may br 2
by t h o F e d e r a l R e s e r v e B o a r d o n o n l y t h a t emoun.
o f such
notes wnich equals t h e total amount o f its outstarding
Federal Reserve not«s, l o s s the anount o f gold o r gold
certificates h o l d b y the Federal Reserv- Agent
lateral security."
sho opening sentcnee o f this Soetion reeds: "Fed-rral
Reserve notes, t o be issucd a t the diseretion o f th- Fede
“Serve Board, f o r the purpos-
o f makinre advarecs t o
Fedsral R e s e r v e B a n k s throujh t h e Federal fiieserv- A g e n t s
as heretofore s c t forth, a n d for n o other purpose arc hercby authorizc-d,"
I t i s popularly b: lieved thot t h o provi-
in regard t o note issucs, a n d particularly t h - proviSion t h a t F e d e r a l H e s e r v e n o t e s , i n s t c a d
o f bring i s s u e d
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Federal Reserve Bank of St. Louis
451
dircetly b y the Ferd: ral Reserve Banks,should b>? issued b y
and bear th; namo o f th: Unitod States, were concesssion
in form rathsr than i n substancs t o that school o f political thought which halids th: v i e w that t h e nots-issuing
power i s primerily a
function o f government.
suggested t h a t t h e f r a m e r s
I t has bsen
o f the Act wore conesrned
with
fixing proper limitations o n the issuance o f undue anounts
of credit b y th: Faderal Recerve Banks, a n d that this provision i n regard t o the interest charg:
o n o r thc taxation
Of th= not> issuzs i s a part o f that g=norcl disposition
to place restrictions upon th- marufeeturo o f credit.
It is altogcothcr probable that this was thr thought undere
lying t.> provision.
T h e s a m thougay was
of the nombers o f th: Federal Reserve Boarc
when t h e y a d v i s e d t h e b a n k s t h a t t h o y w o r e g i v i n g S c r i o u s
cousidsretion t o the advisability o f imposing this interest
chargc, w i t h a viow t o preventing t h e t h e n continuing inin thc Volum:
o f Fideral Kosepve notes: i n circulation,
unless t h e r e w a s a c t u a l a n d u n c s c a p a b l e n t c d f o r m o r e c u r r c n e
Cie
t h e y a l s o called attcntion t o tne criticisms w h i c h
were b e i n g m a d e o f t h - l a r g e sarnings
o f t h e Fed-ral Reserve
Banks, a n d t o th: fact that i t was “generally ov-rlooked that
th> large ¢arnings o f th: banks a r e d u s t o a great cxtrnt t o
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Federal Reserve Bank of St. Louis
thoir use o f Federal Ressrve notes,”
Federal Reserve notes a r r fully covercd b y
gold, t h r y a r e practically g 0 1 d certificates, b u t i t i e mani-«
fest t h a t a n i n t e r e s t c h a r g e , a c c r u i n g
t o the g o v e r n m e n t ,
i s
a logical a n d natural charge f o r ths right t o issus notes n o t
covered b y gold, which arr t h e obligations o f the Government
of ths United States, a n d from the us> o f which the Fed-ral
2u8€rve Banks dorive a
profit.
d h e n Governor Harding dis-
ed this subject before t h s House C o m m i t t c >
o n Banking
and Currency i n 1921, h s pointsd o u t that t h e imposition o f
sucn a n interest c h a r g s w o u l d b e a b s o l u t - l y s u r e t o y a e Le
a weld r é t u r n t o th: g o v o r n m u n t , b e c a u s e w h e n t v r r t h e e a r n
ings o f the Fed-ral Reserve B a n k s were abnornally larger,
thsy would have outstanding a n abnormally larg: uncovered
note issun, o n d the t a x o r interest charges would b e corrcs=
pondingly largo.
H e was obliged t o admit, however, t h a t
the Federal Reascrve Board was divided i n opinion o n the sub-
ject, and n o action was talcon o n the mattcr.
the subject m a y be discuss:
s e v e r a l peints o f view.
For the present purposs, t h : most important point is---How
would t h e substitution o f a 2 por e n t intorest charg:
on
uncovored currency outstanding, f o r t h o present govern«cnt
453
participation i n profits, affect t h e inconc dorived b y the
Government f r o n th-oporations o f th> Federal Reserve Benks?
One o f the banks reports:
t i c paid t o the Government a s a
franchis> tax for tho yoar 1922 (exclusive of adjustments
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Federal Reserve Bank of St. Louis
applicabls t o previous years )&055,363.90.
< A 2 per cent
tax o r intorost chargs o n wacov~red curre hey outstanding
would have amounted t o $1,128,000, snowing that tho propasod
change would have amountod last yoar t o e n increased paymont
of $272,636.10.
T h i s was dus, however, t o ths fact that,
having no induce-az15 t o koep down our wicovered curreney, v e
large amount o f gold available f o r deposit w i t h
resainsd a
thc Fedtral Resorve Agente
H a d ve. doposited with the Agent
all the available sold, o u r uncovered curroncy would have
been s o far redueod that a n intcrest charge o f 2 por cent
thereon would have amounted t o only §501,200, which would
have beon a saving o f $35),,16%3 from the franehiso tax aetually paid.
I
f the intorest c h a r g e h a d b e e n 2 - 1 / h p e r c o n t e
half o f the discount ratc prevailing during t h > yeare-- i t
woulda have anourted to (563,850, o r s saving of $291,513 fron
tho amount actually paiée."
It i s o n l y f a i r t o assum> t h a t i f t h > t a x o r i n t e r e s t
charge wore t o b o substituted, t h e banks would deposit a n d
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Federal Reserve Bank of St. Louis
mointein a s c o l l a t c r a l w v t h e P - d 1
R e s e py-
thsir entire reserves,
yeare,
on this assumption, a r s shown i n the following table:
COMPUTATION O F NOTES SUBJECT T O TAX
ALL FEDERAL RESERVE BANKS
(Under prosont wording of Foderal Raservo Act)
(Figures in Thousands)
1918, 1 9 1 9 1 9 2 0 1 9 2 1 1 9 2 2
Avorage Not Deposits $1,560,212 $1,735,179 $1,721,815 $1,713,589 1 , 864,eh1
Average Total Resorvos 1,978,000 2,190,000 2,120,009 2,652,000 3,145,000
35% of Itom1. 5 4 6 , 0 7 4 607,313 + 602,635 = 599,750 852, has
Rogerves available
against Notes (2-3) 1 , 4 5 2 1 , 5 8 2 , 6 8 7 1,517,365 2,052,024 2,492,516
Avorase Notes i n
2,606,000 3,143.000 2,691,000 2,219,000
Circulation )
Excess of 5 ovor 4
S
e
e
s 1
023,313
Tax commutod at 44
Tax computod a t o t
u
t paid
Franchisex
-
- e
1
FC
O
Carricd to Surplus 4 g , 3 3 4 ( b ) 70,952 Z
6
2
,
7
0 ,251 (a)
4
0
{a) Includes %3,400 deduded from surplus account and paid to U.S.Government a s franchise
tax for 1921 and 1940. {1921-~83,130; 1920--$270. )
(o) Includes $26,728 reserved for Governmont franchise tax which was transforred t o surplus f u n d i n accordance w i t h March 3,1919, amendment t o Federal Reservo Act.
(c) Includes $1,000 deducted from supersurplus account and credited t o general reserve
acccunt c f the Foderal Reserve Bank of New York after closing books Decomber131,1920.
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Federal Reserve Bank of St. Louis
Computed from combined weekly condition rerorts o f all Federal Reserve Bankge
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Federal Reserve Bank of St. Louis
456
NMaterially diff:rcent results would b e obtainsd b y
computing th: t a x f o r gach bank scparatcly.
F o r oxariple,
it appsars b y the statemont f o r S-ptembor 12, 1923 (the last
availablo a t this writing), t h a t whil: t h e ratio o f gold re~
sorves t o Federal R e s e r v . n o t c s i n actual circulation,
after sotting asids 3 5 per ecnt against deposits, w a s 119.9
on that date f o r th> System a s a whole, t h a t result w a s d u e
largely t o the fact that this ratio was over 1 5 0 i n the N e w
York bank.
A s amettcr o f fact, th: patio was less than
100 i n seven o f the twelve banks.
It should b e borne i n mind, i n the first places, that
it i s m o r e l o g i c a l a n d m o r e cquitabl:
t h a t t h s governn-nt
should g c t a direct roturn o n not-s o n which i t puts i t s
namo, issued b y i t t o 4 eorporstion which uses those notes
for profit, a n d that this rzturn should b > proportioned t e
hs amount o f tho notss, t h o n that i t should forego a n y such
direct return, o n d then absorb a l l th. curplus profits o f
such corporations, w h a n i n point o f fact (taking figures f o r
th> year 1922) t h e fuwads used i n making thes: profits con-
sisted of over 300,000,000 capital and surplus, $1,86),000,00p
average n o t deposits, a n d 42,219,000,000 notes, against
taoy hold an avdrago availeblo roserve o f 42,):92,000,000,
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Federal Reserve Bank of St. Louis
457
Such a chango would also b o i n lins with the practice
follow cd bry ths govermnonts o f othsr great nations a s t o
Mi W e e t o n o f ehitveial bans.
to tho Govariaacat a
T h s Bank o f Ungland pays
lump s u m o f 160,000 pounds annually,
ia lieu o f a stanp t a x upon circulation.
Franc? p a y s v o th: governm-nt a
T h e Bank o f
stamp t a x upon productive
circulation a t the rate o f .50 franes pcr 1,000 francs;
upor unproductive circulation e t th. rat- o f .20 frances
1,000 francs, P r i o r to 191) th- notowissuing banks o f
Germany wore roquired t o pay a tax of 5 pir cont por annum
upon notes t a t a n d i n g e x a c d s “ o r ths: *eonts p o n e t i m e
preseribed for cach bank, tho "contingent" circulation bring
that circulation i n 2xcoss o f cash holdings.
Statutes
U n d o r tho
o f 2700, t h s N a t i o n a l Bacilc o f B e l g i u m paid. to: the
Gove rament /
o f 1
per c o n t e a c h h a l f y e a r o n th- c x e s a e
oF
averages circulation o f notcs above 275,000,000 frances,
The I t e l i a n b a n k s
upen notes issuad
s
5
€ j o r e e eee O r 1 / 1 0 o f J
08 cag r o r
e e
“supplomontary normal limit’ granted i n 19h,
por g a s
n t a
U p o n circus
lation i n 2xe7ss o f th-se amounts a sreaduatrda t a x 4 s
equal t o i/h, 1/2, o n 3/l, o r the whol>,
rate.
o f the discount
T h o Bank o f Japan i s privilcsgsd t o issu~ note eurrene
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Federal Reserve Bank of St. Louis
458
ey up to its amount o f gold and silver specic resorvs w i t h
out taxation.
I t may issue a n additional 120,000,000 y e n
goverment bonds o r other approved Security, subject
to a tax o f Le1/h per cont p o r annum o n tho r e n i n average
thus outstanding,
narkst,
W a o n required b y the exigencies o f tho
i t m a y m a k e a n excess i s s u r s u b j o c t t o t h e a p p r o v a l
tho Minister o f State f o r Finance, t a x e d a t not loss t h a n
5 per cont p e r annun, t h e actual rate t o b 2 fix3d o n cach
oecasion,
It i s also t o b o observed that, i f sueh a change were
mado, s o n o r e d u c t i o n
i n ths aggrogatc a m o u n t payable
to th
Govermnsnt o v e r e period o f ysars would b e a n ontircly reasonon, inasmuch a s tio government vould n o t o n l y ¢ t
a reasonably cortain return i n place o f a wholly uncertain
return, but would i n adcition g*t its share carly in.th>
division, i n s t s a d o f last.
L
e t a e p e p e n s taric,~ t h e
earnings o f « Fedorel nos: r v e Bank ap: cpplied first t o
operating exponses, socond t o dividends, t h i r d t o acerstions
to surplus, a n d fourth t o the payment o f tis governncat fraz
GhHiso Tax,
U n d o r th: ¢hange: suggested,
t h e f i r e t charges o n
gross c a r n i n g s w o u l d b e t h o o p r r a t i n g COxpemace,
g a wateo
ti
intercst charge o r return t o thc govcornment would b > included
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Federal Reserve Bank of St. Louis
459
socoidly dividonds, a n d third acer tions t o surplus,
PSFS
l e m a r e . o f those requiremonts h a d been mot, thirs
would s t 2
a supplus o f carmmings; unloss t h e Untorcs
ClarG: worse made unduly high, which brings u s t o tho importequostion o f w h a t d i s p o s i t i o n s h o u l d b e m a d e o f t h i s s u r e
th> F e d e r a l R e s o r v o A c t a s o r i g i n a l l y d r a f t - d b y
Scnator ( t h - n R a p r o s s u t a s i v e ) Glass a n d p a s s e d
CF R o p r o s e n t a t i v e s ,
i n th- H o u s s
provided that t h e Surplus carnings
Federal Reserve Banks,
ane
o f
t h s payncnt o f 6 2 dividends,
should g o 60% to th: governn-nt atta LOS to ths menb-r banks,
pSake wleks Senate,
i t w a s sucge- ot: t h a t . this: iwepitie b e w e r d t o
build u p a guaranties f u n d t o p r o t c e t d e p o s i t o r s f r o n l o s s
in t h event. o f g h f a i l u r e
o f banks t h a t wors nonbers
‘This p r o p o s e d cluange w a s n o t a c e c p t a b l e
Or
t o thr.
Hous: conferots,.and th: result w a s that th: B i l l finally
took i t s o
e
forn,
T h s capital
a n d surplus e n d t h - P P e a t
bulk o f th: d=posits o f F o d e r a l Riserve B a n k s hav: b a r n con-
tributed b y the nonbor banks,
U p o n th-ir contributions
to capital stock th-y reeosive 6 , dividends, b u t wpon th-ir
reservs dcposits, w h i c h snount t o <ignborn tin-e- t h o n pitad
stock, t h o y rcecive nothing,
T h i s fact i s unquistionebly
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Federal Reserve Bank of St. Louis
46)
& most potcutial influonee i n doterring <
B o s e
o
e
banks f r e n
c o g n i z i n g t h s v e r y limited dircet r o e
turn whieh c a n b e ride t o menber banks,
i t has b e e n tho
policy o f the Fedcral Raserv- Banks t o b e liberal i n
ths
rendering o f "sopviecs"
t o m-nbcr banks=- paying charg-s o n
both incoming a n d out o i n g suiprisnts o f curr-ney, eustody
of
seouritics, collection o f choeks a n d non-cash itcms, a n d
various othor things.» N o s w i t h s t e n d i n g a
very consid>rabl:
liborality i n those Sorviess, mombcorship has proved attract~
vory Small proportion o f the stat:
many national banks chafo a t what t h . y regard a s
t h o injustico o f th: present division o f COPNANES » T h e . Foed-rad.
.- Row
Borvc B o a r d h a s p e c o n t l y g i v e n u n o f f i c i a l i n t i n a t i o n s
disposition t o curtail those s 3
y c i l o p L
i s adopted,
S
u
c
3 : ay
h a chang:
in
t h seenesion o f state b a n k hombors would
almost omtirvly csas-, a n d a consid-rabl> n u r b e n o f th:
wre
sont state b a n k monb-crs will Witadraw, waile t h - roscntment
or lock o f intercst o n th: part o f na* 1
bank momb=rs wil]
b> datensifica,.
Say 2 0 0 -oF* D y e s s
a e eodd, banking systcn,
i n which
thc groat b u l k o f ths banks o f the councry will participates,
Will t h o r e f o r e
have
t o b a abandonsd
unlcss
s o m conp:nsatin 9
&
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Federal Reserve Bank of St. Louis
585
4
3
Given.
2
t h s payment o f intersst u p o n ro-
Servs balances i s unsound a n d impossible.
T h e o n i y altor-
native, thorcfors, would.sezsm t o be t o allow nembor banks
Sons participation i n ths profits t o which ticy h a v s o
largcly contributed.
Th3ss6 p r r t i n o n t facts. s u s t l d b r k o p t i n mind:
that t h o o n l y c o n t r i b u t i o n s m a d e b y this governmnnt
to
earnings o f F-deral Roscerve Banks h a v e been (a) t h e assump-
tien of liability o n thoir notcs, and (b) depos
have averaged about 2
these banks,
capital,
per ecne o f tht t o t a l dtposits o f
N o povemmnent funds wore invested i n their
T h e comparatively smell d: posit accowits main-
tained h a v s n o t b 3 . n :spcoeially attractive,
a s t h e y hav-
not o n l y been very active accounts, b u t have a l s o involv-:d
heavy o v e r d r a f t s
a t p o r i o d i c a l int«rveals, u p o n w h i c h a
very inadsquate r a t e o f i n t e r e s t h a s b e e n allowed.
assumption
H i pare:
o f l i a b i l i t y o n th: n o t e s h e s n o t i n v o l v e d a n c
sopious. p i e l t o th: Govermi:b,
n o r h a s it-besn o f material
bonofdt' o
t the banks, except possibly i n tho carly days o f
th: Systen.
t h n roturn, ths. g o v e r a n c a t h a s a l r c a d y r c o c i v e d
approximatcly $145,000,000 o f .hs profits o f th> banks, a n d
fe eatitied,.in-th: sov-nt o f “dissolution,
t o t h cntive
462
accumulated surplus, alrcady anounting t o noarly
(3220, 000,000.
w h e rcmbor banks o n the othor hend, h a v e
conspibutsd all o f th> eapital and 98 per cent o f tho de-.
posits, a n d tacts: contributions h a v e earned t h e surplus.
Tacir return has been limited to 6 por eont upon thoir
capital stock, o r 6/19 of 1 por eent upon th-ir total cone
tribution, while they have n o right o r title t o t h accunu~
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Federal Reserve Bank of St. Louis
latcd a n d constantly growing surplus.
i h o insquity a c d
disproportion betwoon t h s contributions e n d m t u r n s
two p a r t i e s
i s t o o obvious
t o requirc e l a b o r a t i o n ,
o f the
T h e
dissatisfaction o f mombor a n d possibl: m o m b e r banks i s net
ths only b a d result.
i h e largs rocurns accruing t e the
Governniont hav: furnisasd a protext t o Congressional d-mae
gogucs f o r constant intcrferoncse w i t h th- operations o f tho
Syst-m, a n d th: fact that t h s Govirma-nt i s -ntitlcd t o roe
esive t h e accumulated surplus,
i f tho r e n w a l
o f tho
egartors o f thc banks should b o rofuscd i n 193, constitutes
temptation f o r ths refusal o f such ren-vwal.
inc subpool t s temiandings ths attcntton o f
£FSoriss
writers a n d finaneial p-riodicals « 1 1 over ih> couctry.
the K e w u n g l a n d Bankers’ Association h a s recommcndrd t o
th: Joint Congressional Committcs: t h a t Fedsral R-scrve
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Federal Reserve Bank of St. Louis
463
Banks Should poy a uniform tax o f 2 por cent t o tho
GOverusit,
t o by a
Fipat c h a r g e Taicins p r e e e d c n e o o f cumu-=
4atLV> dividonds, a n d t o be Jevicd upsa that portion o f
ths Fodoral Roscrve not: i s s u ouvstanding which is. not
especially covercd b y gold roscrves,
i r , Miller, monber
of tho Foderal Advisory Coumeil from tho Fifth District,
statement before t h a Committes, favored “ a widor
eLsvribution o f profits,
i f therccwore. any, aftcr t i s pays
Mont o f a tax o n th: uncovered portion o f Federal R i s - r v e
notes, among nombers o n ths basis o f avirags: balaness maintainsd b y t h o banks,’
v ?
l i r . F r e d e r i c k A . D=leano, f o r m e r
nembor o f th> Fedoral Reserve 1
CHOPS t e Sontthinege «1 @
a
4
{ do thioe
i n favor o f giving m-nbor
an intersst i n tho profits o f Fegsral krservo Banks
abovo t h e bare 6
por cons which thoy n o w get, M o m b o r s h i p
in the Syston vould b o n o r e attractive i f you could s e z
your w a y cloar t o allowing thc banks t o gct a share o f the
profits which n o w g o t o th: Governncnt i n thn f o r m o f a
franchiss tax, I
havo thought o f dividing th- surplus
earnings oqually botweon th: banks and t h e Govermacnte
t think
w i l l b e f o u n d that i n normal C a n 3bine Pedepas
opvs Banks will barefy p a y th- 6
PoP cont.
B u t in
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Federal Reserve Bank of St. Louis
JES
464
Abnsvnal tinss: t h o y w i l l m a k > m o r e m o n e y , "
of t h e C u r r s a c y i
s quoted o s suggesting,
T h e comptroller
as a
moons o f bring}
ing i n state banks, t h a t nomber b a n k s k
e given a share i n
tio Fed
o r v e Banks' profits i n addition to 6 por cont
on t a e i n stock,
Thore ar: t w o ways o f handling th- matier.
T h e Fed
eral Roserve Board already h a s authority, u n d s r existing law,
to require t h o Fed¢ral Roserve Banks t o p a y intercst o n tho
amount of: notes outstanding, l o s s tho anount o f gold o r gold
cortificates hold b y th> Federal R e s t r v e
gAnt as collateral security, U n d e r this aitnorization, i t would b e possible
for ths B o a r d t o makc noarly o r quite a l l o f th~ paynctnt t o
tho Governnont i n ths forn of an interest return on une
covered notes, instead o f ths presont paymont o f surplus
profits, . - T h i s , however, w o u l d b e a n insufficiont rome dys
Tt would ‘involve thro necesssity f o r constant. changes i n tis
rate o f intersst, a n d would n o t acconplisn t h e further
and v o r y desirabl:
attractive,
purpose
o f making memkrrehip moro
I t vould b o a n improverint
i n th: f o r m , rath:r
thon i n substance,
The r e a l r e m o d y v o u l d s o c m t o b e a n amendment
of
Section 16 of ths Fedoral Roserv® Act, provising that tho
JEG
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Federal Reserve Bank of St. Louis
4
6
5
Federal H o s e r v s B o a r d s h a l l f i x a n interest r a t e
covercd c i r c u l a t i o n o f n o t l e s s t h a n o n s - h a l f
o n un~
o f the avere
ags discount r a t o o n c o m m e r c i a l p a p o r f o r t h e y e a r s a n d
that 8 S ection 7
o f the A c t b e amond-d t o provide that
after stockholdors shall have received a dividend o f 6 per
cent, a n d the authorizod aceretion t o surplus f u n d shall
have bezn nade, the remaining earnings shall b: divided boetween t h e U n i t e d S t a t e s T r e a s u r y a n d t h o n n e n b e r b a n k s
in
cithor o fifty-fifty o r a sixty-forty proportion, ths diviSion a m o n g t h : m e m b e r b a n k s b e i n g m a d s
AVEPaABe P o s o r v e b a l a n c e s m i i n t a i n o d s
tho intcrest charg:
i n proportion t o tho
a n d finaliy, that. b o t h
o n circulation a n d th> peremntage o f
final n o t carnings p a i d t o tho Unit-d Stat-cs shall b e us-d
is n o w p r o v i d e d t h a t th:, f r a n c h i s s
t a x shall
b e used,
the p r o v i s i o n t h a t t h o i n t e r e s t P a t s To. H o S i x e s o y ties
Board should we “not loss than" one-half o f th> average discaunt r a t o w o u l d o n a b l e t h - B o a r d t o inereas> t h e i n t e r : t
s
rate f r o m t i m o t o t i m e t o s u c h a n oxtent
equitics o f tho situation.
a s w o u l d n e s 5- the
T h e provision that t h e divisa
Sion a m o n g m o n b e r b a n k s s h o u l d b e i n p r o p o r t i o n
t o t » ayer.
ago poscrvs balenecs maintained vould create t h e impression
among member banks that s u c h balances w e r e n o t raquirad t o
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Federal Reserve Bank of St. Louis
466
naintained waolly without compensation, a n d would t-nd
nak. t h e m a
little m o r a l i b c r a l
tconding t o a
i n their b a l a n c c s~~ t h o r c -
sounder b a n k i n g p o s i t i o n a n d t o 2
reduction
the vesatious p-naltios n o w s o often imposed f o r deficicnt
rosorves,
e Cnangos would not o n l y b s advantag:ous t o thc » trcoasury o f tho United S t a t s , b u t would also
malo t h o n n t i r s s t r u c t u r s
o f t h e A c t n o r - logical a n d equi-~
tablo3 substitute c o o d fsoling a n d coO-Optreation b y thoss
netional banks whose mumbership i s a t pros-nt r o luesont 3
Stinulat:
t h o a c c e s s i o n o f stats n o m b e r banks;
a n d tend
to enock ths tandency f o r national banks t o shift t o state
chart :rs, which i s more ond morc i m ovid-nec cach
threatens t o assun>s alazsming proportions,
Wo ventury t o hope that t h e Treasury Department snarcs
thot th: proposed chang:s will str-nethen theorve S y s t < m b y r e l i c v i n g i t f r o n o a considzrable p o r t i o n
of the morc o r loss political prsssure i n Congrzss t o which
it i s n o w subjeet,
A
S long a 8 t h o United States G o v e r n -
7
mont P o m a i n s t h o r e s i d u a r y logatsc:
tho F e d e r c l itcsorv: B a n k s ,
o f A l l t h - C B PRANES
OL
u c C o r n e r : s wilt n a t u r a l l y b :
disposed n o t o n l y t o criticiss,
put
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Federal Reserve Bank of St. Louis
467
if i t were possible t o fix a n "Interest charg."
which would approximate
tax",
i n amount t o tho prescnt "franchis;
w o would favor t h e absoluts elimination o f the govern-
mont a S a participant i n profits.
oortain f a c t o r s
possible,
O w i n g t o tho many u n
i n t h calculation, t h a t
n o r d o w s supposc t h a t t h e r e w o u l d b e a n y reason=
able p o s s i b i l i t y o f th: e n a c t m e n t
73 W o u l d hops, h o w e v e r ,
o f s u c h o n amondmont,
t h a t t h e i n t o r c s t c h a r g - s u g g e ste
od, With the inclusion o f th: mombtr banks i n th- distribution o f t h s f i n a l p r o f i t s , w o u l d s o r e d u e c t h c g o v e r n m e n t ' s
participation
i n those p r o f i t s t h a t a s a
the C o n g r e s s w o u l d l o s e i n t e r e s t
practical m a t t e r
i n the lattore
Resp:ctfully submittea,
GEO. Ww. NORRIS,
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Federal Reserve Bank of St. Louis
458
Governor Norris. I
would like t o s a y o n behalf o f Mr,
Caso that preparation o f this rcport w a s a
th> end, a n d that h e would maks t u
Little hurried a t
g a t v a r i a t i o n s i n it.
S$is i n favor o f the ahsoluts exclusion
Governnent f r o m participation i n profits a n
i n the
place, h e thinks that thse da4vision o f ultinats profits
arliong momber banks should b ? not simply o n thcrir reserve
balances b u t o n t h o i r t o t a l c o n t r i b u t i o n ‘ 4 5 thea roseurces
of
ths reserve bank; that is, o n tn:ir stock holdings
thoir reserve balance.
As t o the second suggestion, I
As t o the fornor ono, I
a m i n absolute
think i t would b e a
gens t o me thore i s no carthly uss t o attompt anything o f tho sort, that thore never would b o tho possibility
of getting anything o f thet kind through Congress.
This report grew out o f the fact that I made this sugges
ion at tho last Confsorenes o f Governors last spring, which
was favorably received, a n d il. Cacc a n d myself were appoint=
0G a comittss n o t actually t o mukc a
report t o this conmfer«
enes, b u t t o aseortain whothsr th: treasury Departront would
insorpose a n y objections t o such a i
d
lottsr which I recsived f r o m under-Sseretary
I have hore a
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Federal Reserve Bank of St. Louis
I will read i f you wish.
Go ahcad.
(Governor Norris then read the letter, a s follows:)
THE UNDGRSSCORGTARY O F THE TREASURY.
Washington
November 10, 1923.
My d e a r Governor:
lr. Case handed me last week a copy of your joint
report o n ths subject o f a possible n o w plan for the dis»
tribution o f Federal Rosorve B a n k earnings, involving t h o
substitusion o f a tax o n uncovered Fedoral Roserve notes
in placs o f t h > f r a n c h i s e t a x p r o v i d e d f o r u n d e r t h s e x i s t »
ing law. I
a m glad t o have h a d t h e spportunity t o g o over
this report boforc its presentation, a n d a m returning i t t o
you herewith, I
ck
c a m a
t o osomine2t gn.25
lignt of tho practical situation confroting tho
Roserve System, a s wsll a s from the point o f vicw
ougnt t o bs don. a s a matter o f principls, b u t after full
cousidoration I
a m o f the opinion that i t would b z a mise
time a n y c h a n g s
i n tho cxisting lar
i think thors would be little t o gain in any event b y such
a changs, a n d that t h s present i s a particularly inopportuno
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Federal Reserve Bank of St. Louis
470
tims t o suggcst it.
Your repors makos t w o main points i n favor o f the
suzzosted change; first, that t h o ciange would give Congress
a smaller interest i n the F o d o r a l Reserve Banks and, therefore, roducso t h e danger o f political controls; a n d second,
that t h o change would give mombsr banks a
larger interest
and encourage nonenombors t o join tho systonm.
of these points, i t soems to me, i s w l l taken.
I t i s true
that under ths present lew all o f the net nearings, aftor
doducsing t h e amount s e t aside a s surplus, a r e taken b y
ths Federal Governmint a s a franehiso tax, b u t under t h o
law any sum s o received would have t o be applied b y tho
Governmsat either t o ths retiremont o f debt o r t o increas~
ng tho gold roservs behind United States notes, e i t h s r
of those purposes i s particularly attractive f r o m tho point
of view o f the Congross, a n d there i s n o t anything liks the
danger, thoroforc, o f politieal intervention o n this account
that t h e r e w o u l d b e i f t h e m o n z y s r o c e i v e d f r o m F o d e r a l R e e
serve |
j
i>
avallable f o r genoral Governront expendi-
burosSe Furtliormore,
and w i l l m a i n t a i n a
as
o
e tho picturc, C o n g r e s s h a s
direct i n t c r = s t
i n ths F e d e r a l Reserve
System, whatover happens t o thoir net carnings.
471
Fedsral R o s e r v e B a n k s a r s F e d e r a l c o r p o r a t i o n s ,
under the
Supervision o f a Fedoral B o a rd, a n d subject t o regulation
by Congress,
T h e r e i s also a thoory, particularly among
the farrnors a n d o t h e r s p o c i a l i n t o r e s t s ,
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Federal Reserve Bank of St. Louis
that Congress
Should intorfers every now and thon t o scure cheaver o r
easier money and more anple credit facilities.
T h i s i s all
entirely a p a r t f r o m t h e q u 2 s t i o n o f w h a t h a p p e n s
t o Fedoral
Roserve Bank earnings, a n d thore have cortainly bcen enough
exanplos
o f i t d u r i n g t h a p a s s t w o yoors, o v o n t h o u g n
Federal Rosorve B a n k earnings wore a t a rathor l o w e b b a n d
m59nt relativoly littlo t o tho Federal T r e a s u r y .
G13 p o l i t i e a l s t a n d p o i n t , t h o r o f o r e , I
F r o n
do not s e e that thoro
is anything t o be gaincod b y tho change, a n d under present
eonditions i t might e v e n b e harmful.
Act h a s b e o n t o o m u c h a m e n d o d a l r e a d y ,
T h e Federal Reserve
a n d i t will taks a l l
the bost offorts o f those interested i n tho future o f th>
Systcm 5 0 protect i t from furthor amondnonts during t h o
noxs sossions o f Congrosse
A n y amondmonts w h i c h the friends
of ths Systen proposs will tend t o open u p the Act t o other
gnondmeonts, a n d thore i s much more likelihood o f the adoption
of the vicious amsndmonts t h a n thors i s o f the passags o f
any constructiv> program.
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Federal Reserve Bank of St. Louis
4le
Somothing might b e said for making some recomucndations
on the subject o f sarnings i f that were nocessary i n comoction with th- report
o
S comnittes which i s n o w invosti-
gating tho attitudes o f tho nonemornbcr banks towards monbergsaip i n tho Federal R e s e r v e System, b u t m y information i s
that this C o m i t t s o
i s not thinking i n terms o f rocomnonding
any different distribution o f sarnings, a n d thet there would
probably b e n o occasion f o r suggesting amonduonts o n this
usject t o tho Comittee.
T h e Banking a n d Currency Cene-
nmittos o f th> Houso o f kopresentatives a t the last
had under consideration o n s suggested amondriont t o
nmotnod o f distribution o f Federal Rosorve B a n k carnings b u t
this was droppod fron tho Agricultural Credits Act, largoly
on tHo basis o f tho Istter f r o m ths Troasury dated February
15, 1 9 2 3 ,
o f which a
copy i s s n c l o s s d f o r y o u r inforriation.
Fron tho point o f view o f monmborship i n th: Pedoral
Reserve Systom, i t scans t o me vory doubtful whcthsr ths
suggested provisions for ineroased distributions t o momber
banks would b e particularly attractive t o monber banks o r
offer a n y effoetive inducement t o nonenomber banks t o join
the Systen.
U n d e r th> most favorablo p l a n that mignt b e a d e
opsod the extra distribution t o mombor benks would b e s o small,
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Federal Reserve Bank of St. Louis
473
at least i n relation t o thsir combined eonsribution o f capital o n d ressrve balencs,
menbershipe:
a s t o form almost n o induconmont t o
F o r t h a small banks t h s anowis would b e almoct
insignificant, a n d i t i s ths small country bank that should
bo reachsd i f possible.
cerncd, I
S o far as t h c i t y banks are con»
find i t hazd t o believe that a
few dollars nor?
r less i n dividends o r othsar distributions would alter
thsir attituds towards t h e Fsedoral R-scrve Systom.
T
h
RISePVe requirononss uader t h e Federal Resarve S y s t i m aro
fair a n d reasonable a n d have admittedly frood large sums
that previously h a d t o b e kopt b y tho c i t y banks i n the forn
of rescrve b a l a n c e s a n d t i l l monoy.
T h o s e b a n k s have. b a n ~
fitted s o m u c h b y t h e r e d u c t i o n o f r e s e r v e r e q u i r e n c n t s
by th> general senso of sscurity that
Systen givos them that tho quostion o f a n oxtra dividend
from t h s Federal R o s e r v o B a n k s h o u l d b e o f n o material
and I believe i t would b e "
o f weake
noss for tho Fedoval R ssrve System t o propose it,
Wnatever
i t m a y b e called, m o r c o v e r ,
t h e extra distrie
bution b y t h e Fedoral Rescorve Bauks w o u l d look lik: a n
oxtra dividend o r a paymont o f intarcst o n res-evs deposits,
or a
c o m m i n a t i o n o f both,
a n d o n a n y basis
i t ssoms t o m e
474
bad, f o r the reason that i t would give member banks a n
interest i n running u p the earning assots o f Federal Réserve
Banks f o r the saks o f gotting oxtra distributions; F e d e r a l
Resorve Banks were n o t dasigiczd t o b e money-making institu-
tions and i t is a mistake t o put thom o n that basis.
On the morits o f thr question I
think there i s something
to b e said for imposing a n interest charge o n uncovered Feder~
Al Reserve not-s b u t that this s h o u l d e
b dono, wads> propsr
regulation o f the Federal R e s e r v e Board, u n d e r tha authority
already given b y Ssction 1 6 of ths Fodoral Reserve Act a s
& moans o f controlling issues o f F e d e r a l Rossrve notes rather
than a s a means o f affecting t h e distribution o f Federal
Reserve B a n k carnings.
T h i s would h a v e o n incidental a d -
vantage, f r o m tho point o f view o f the distribution o f carn=
ings, i n that i t would reduce t h e n s t carnings t o b e dise
tributed b y taking u p first t h e interest charge payabl> t o the
Governnont o n uncovercd notes,
I t would also tond t o cm»
paasizo th> differences betwoon the Issuo Department and the
Banking Department o f tho Foderal Recsorve Banks a n d encourage
th> Federal Reserve Banks t o place a l l o f their gold brhind
ths F e d o r a l R e s e r v e n o t e s , a f t e r s e t t i n g a s i d e t h e 3 5
p e r cent
that h a s t o b e ksopt a g
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Federal Reserve Bank of St. Louis
t
b ds
A
s a moans o f affect~
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Federal Reserve Bank of St. Louis
475
ing the distribution o f earnings, however, I
do not belicvo
that t h e interest charge o n uncovered notes would b e practicabl>.
T h o r e i s n o n3ees
r e l a t i o n between uncovored
Federal R e s o r v e N o t e s a n d surplus e a r n i n g s ,
and a
stuffy
of th; records o f the past fow ycars
movenents are not parallel.
I t would b e particularly
difficuls +o apply t h o intorest charge o n uncovered notes to-~
tho twelve banks taksn soparately,
a s you will s o e from the
enclosed tables comparing t h o results o f tho franchise
and t h e o r e t i c a l t a x o n nots circuihation f o r t h e y e a r s
1921 and 1922, A m o n g othor things, importod gold tends to
accumulate
i n th: B a s t e r n b a n k s e s a
businoss which thay handle.
situation,
result
o f the forsign
T h i s creates a n artificial
a n d thrre w i l l f r e u q n i l y b e c a s e s w h e r e b a n k s °
with n o wicovered Federal Ressrve notcs would,
i n fact, have
a Higher dogrce o f credit expansion a n d b e making more mone7
than banks i n othsr soetsions showing a
substantial amouwit o f
uncovcored n o t
Altogethor I
am not improssod w i t h the practicability
of tho p l a n propossd, a n d bclicv> t h a t i t would b o better t o
let ths matter r e
S
H
0
7
a
t¢
T h e Fodsral
Reacrve Banks a r e already giving what anounts t o extra
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Federal Reserve Bank of St. Louis
476
dividends
t o their m e m b e r b a n k s
i n the f o r m o f s s r v i c o s p o r =
fornsd f o r thoir menbors.
T h e s e sorvices g o far beyond
what i s l e g a l l y required,
a n d i t i s s v e n quostionabls:
whethor some o f thaa should b e continusd,.
Reserve Banks i n this way, howevcor, a r e already offering
extra inducemsnts t o mombership, a n d i n
tion o f nombership i n the System m a y bs. approached f r o m this
is, I
balieve that t h e banks a r s already doing a l l that
could b o expectcd.
Very truly yours,
(Sadi) G S . P y Gigport, dr.,
Under Sseretary,
We Norris, Esqe,
Governor, Federal Reserve Bank,
Philadelphia, Pernsylvania.
l.one losures.
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Federal Reserve Bank of St. Louis
ATT
Gowornor Crissingsr.
W e have calculated that throes p o r
cant t a x o n ths uncovered loans a n d i t would amount t o giving
tha> Governms=nt o n a six p e r cent reserva fund,
i h would
amount t o four tenths o f on> p e r cent o n tho average reservo
@or 1922, s o i t would not be very much anyway.
lire leClure.
lie. lieCluroe:
I . Chairman, i n the light o f the very
cornplote report made b y ths cornmittse a n d i n the light o f
the roviow publishod i n ths bulletin a n d n o w followed b y this
last lotter, thore i s vory littlo left for m o to say.
evsr, I
How
did maks a few notations t h a t i t will not take m e over
vith the comelusions o f th> report
charge o n all
uncovéred notes o f not less t h a n onz-half o f th> average dis-
cout rates o n covercd paper for t h ysar, a n d provides after
paying s i x por cent t o ths stovkaoldozs a n d earrying t o n pere
cent t o the
a c e o u n t a
division botive-n the United
Statos Treasury a n d t h o menber banks f i f t y fifty o r forty
sixty i n proportion t o tho average roserve balanco maintained,
plus ths stocknoldings,
Without t h o power o f issuing currcney, t h s Federal
s
Jit
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Federal Reserve Bank of St. Louis
4
7
8
Resorvo Banks will b e o f little importanco o r o f little valu-,
especially i n a n energency, a n d this i s ths function f r e n
which the system derives i t s importance.
T h e morber banks
furnish the capital, t h e reserve balances; t h e Governmrnt
ths currency issuing powors.
O n e depends u p o n tho other.
Thos> w h o furnish t h > gapital investments receive a
of six por cent a n d many othor benefits.
dividend
M e m b e r banks re-=
seivs compensation i n othor ways with which you are familiar.
t i s but justies a n d cquity that t h e Governmont
be paid for its vsry important part i n this partnership.
An interest chargo s u c h a s that proposed b y the conmmittea
report o n the uncovered currency issued t o the Foderal
as
eserve banks i s not really a tax much a s i t i s compensation
\
for a very important service rendered, a n d I
a m i n favor o f
it, w i t h that i n mind, rathor t h a n calling i t a tax.
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Federal Reserve Bank of St. Louis
It Follows this interest charge rould b e paid 4
the operating expenses, a n d I
sugeest instead o f folloving
the comsittee's report a s t o ths disposition o f the pro=
fits, that s i x per cent dividends b s paid the stocxholders, t e n per cent b e carried a s surplus, o n d the
pbelance b e paid t o the Treasury o f th> United a t e s a s
the real franchise tax.
T h o acvantages o f this a m a n d m m t
are, first, t n a t i t will n s e d n o amendment t o the act$
second, there vill b s less profit t o attract attention;
third, t h e r e w i l l b e f u r n i s n e d o n l y o n e p r e t e x t
b y dema-
romues constantly interfering v i t h ths opevations o f the
system w h i l e u n d e r t h o c o m n i t t e e r e p o r t t h e r e w i l l b e tro.
The clamor b y some f e r member banks f o r part o f the carnings
as c o m p e n s a t i o n f o r m a i n t a i n i n g r e s e r v e b a l a n c e s w i l l b e
quited b y the shoving o f little profits a n d the knowledge
on
that t o pay them anything i n the way o f compensation
to
their balances would require t h o Federal Reserve Banks
inves tment.
earn t h e money b y competing w i t h taem f o r the
As t o paying anything a s compensation o n reserve
palances t o induce State b a n s
t o join the system, I
think
principles i n v o l v e d
we s h o u l d n o t d e g r a d e t h e s y s t e m a n d t h e
the country, a n d
in attempting t o unify t h e panking systom o f
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Federal Reserve Bank of St. Louis
“hile i t i s desirable t o have a l l food State banks j o i n
the system,
i t vill b e n o grsat calamity i f they d o not
the soundness o f the acs o r t h services
rendezed a n d come in. “ h e n Congress v a s considering t h s
act, i t was estimated t h e reserve balanezes vould amount t o
four hundred t o five hundrei million dollars. ©
3 now have
a billion, ei¢eht hundred million dollars, a n d the system
has successfully cone through t h e greatest t e s t probably
e called upon t o undezga.
thet i t may e v e r y b
A r s u e tuen
not strong enough i n our position t e refrain f r o m sacrificing sound business principl3ss t h a t ' s all valus s o
hichly fer the sake o f obtainiag a f e more members t o
this system, thereby adding,
bilities? I
in
feel that n o better system o f tixation f o r
Federal Reserve banks c e ? b o d s v
the c h a n c e o f f o r m a s s u g r e s t o i e
Governor Crissinger. G o v e r n o y Callcins.
@overnor Calkins.
that I
M c . Chaimnaa, t n e f e v remarks
have t o m k e a r e i n t h natars o f criticism o f the
report, and inasmuch a s tas report has not bsen fully
read t h a y m a y have v e r y little point.
I find myself i n agreement ~
i n the imain - Wita t a e
481
conclusions o f tre Committse t o consider advantages
o f tax
on Circulation o v e r Government participation i n
profits,
but perhaps t o a less extent w i t h th: arguments
advanced t o
Ssuppovt t h s i r conclusions.
It appears t o m e that less emonasis s1011d
b e put upon
politics a n d more u p o n equity.
It is doubtless true taat vhen earnincs o f Federal
Roserve Ban's a r e a s spectacular a s during t h e
var and
post-war periods thoy will attract attention and invite
attack, b a t i t i s probable that a
L o n period o f time 4 1 }
elapse b e f o r s t h o i r c a r n i n e s a g a i n a p p r o x i m a t e
s u c h amounts
and there i s a t least groind f o r hope that
before that time
the truth that Federal Rsserve Banks a r e
n o t profit making
institutions, b a t thet a l l o f thsir earnings i n
exe3ss o f a
moderate d i v i d s n d
t o those b a n k s u p o n v h o s 2 f u n d s t a c y a r e
mainly operated g o t o the Sovernment f o r
tie benefit o f
"All o f the people", m a y s t last prevail and
that t
tunity t o "capitalize" ¢
C
p u r
oppor=
t h > prevailing
ignozance m a y then disap-ear,
The argument that t r e proposed cnanze vould induce
General accession o f state banks and seneral satisfection
anong t h e n o v reluctant national b a n s
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Federal Reserve Bank of St. Louis
=
}
loes n o t a p n e a r
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Federal Reserve Bank of St. Louis
482
be convincing.
T h o s e state banks w h i c h refrain f r o n
application a r e deterred b y other a n d 1l3ss simply considsrations a n d t h e r e d o 3 s n o t a p p e a r
t o bs a
impertant g r o u p o f "reluctant" national banks.
large o r
S u c h as
have shifsed t o stats charters o r are about t o have other
reasons t h a n dissatisfaction w i t h dividenis.
A t least
in ths Tvelfth District, w h s r e thsre have b e e n several
conversions,
t h a t r e a s o n h a s n o t appeared.
As t o equity, t h e r e i s more t o b > said.
It i s not equitable t o p a y all o f ths carnings a c esuing fron the u s e o f the member banks! coatribations
capital a n d deposits, a b o v e
6 % o n capital,
ment a s c o n p e n s a t i o n f o r i t s g u a r a n t e e
of
t o ths Govern-
o f that p a r t o f t h e
Federal Reserve notes i n circulation n o t covered b y gold.
It i s equitable to, s o far a s possible tithout i n fringement u p o n sound practise, r e t u s n t o mombsr banks
some c o m p s n s a t i o n f o r t h e u s s o f t h e i r f u n d s u p o n w h i c n
the system i s mainly operated.
If, howover, t h s Governuent i s not equitably ‘entitled
to compsnsation beyond a
tax o n uncovered notes, W a y should
it receive i n addition "as a franchise tax” 60% or 50% of
any possible residuun o f earnings re:naining after t h e t a x
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Federal Reserve Bank of St. Louis
483
on notss and a b g dividend has been paid?
amcainst payment beyond a
I f the arpument
tax o n wncovered notes i s a good
argument, i t is all good, n o t half good, a n d the Government shoald receive t h e t a x o n uncovered notes a n d n o more.
Governor Crisstnger.
T h s na=t subject under considera-
tion i s "Should t h e Federal Reserve Banks s e e k reimbursement f o r all fiscal agency expenses?"
Mr. Hoxton, y o u have t h e floov.
Mo, Hoxton. I
find f r o m reference t o tho records t h a t
the directors o f F e d a r a l Reserve Bank o f Hicumond agreed
toabsorb fiscal agency expenses for tho year 1921, “until
Conrress m a k e s p r o v i s i o n thorefor",
T a s directors r e c o r d é d
their opinion that fiscal agency ex»ensss should b e borne b y
a
the T r e a s u r y D e p a r t n e n t t h r o u g h r e g u l a r a p p r o p r i a t i o n a n d n o t
absorbed b y the Federal Reserve Banks a s a chazge t o be
covered ultimately b y a doduction i n like amount fron funds
accruing
t o the Government
o n account
o f franchise t a x s
The directors also went o n record a s reserving the right t o
apply f o r reimbursement o f such expenses i f and when Congress
should i k e provision f o r such reimbursoment,
present I
K a d I
beer
should have conourred i n the action takon, I
believe that the Treasury Department should b e asked t o
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Federal Reserve Bank of St. Louis
484
reimburse t h e Federal Reserve Banks f o r a l l fiscal agency
expenses.
M y reason i s broader t h a n t h e effect which t h e
absorption o f such expenses h a s o n the Fedsral Reserve
Bank o f R i c h m o n d , r
o
, even upon t h a Federal Reserve system.
It reacnes t o the fundamental principlss o f our form o 1
goverment.
“ h i l e i t i s trus that t n s expenditures m e r e l y
result i n a n equal dimimation i n revenus,
expected revemis, I
o r a t least
belisve t h a t t h e framers ofebist3iscal
system o f our government, vorking o n the ilmiltonian basis
of checks a n d balances, intendsd that t 1 3 Treasury
Department should expend s u c h funds o n l y a s have b s e n
specifically a p p r o p r i a t e d
b y Congress f o r t u s p u r p o s e s
“hile n o t treasury administration w i t h which I have coms
in contact has even remotely dons such a thing, i t is
entirely c o n c e i v a b l e t u a t s o m e furvare a d m i n i s t r a t i o n
of
the department, relying upon t u e indirect appropriation
available throach absorption o f expeuses b y Federal
Reserve Banks, might b e lsd t o soften pressure upon
Congress
t o a p p r o p r i a t e f o r e s s e n t i a l purrpuses
i n order
to b e i n a more favorable position to. secure t h e passare
of bills devised b y the Departmsnt.
of Gonrress, I
bolieve I
I f I ver: a membsr
would regard t h e absorption o f
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Federal Reserve Bank of St. Louis
485
expenses b y tne Fedsral Reserve Banks a s a n
nfrincement o f m y right t o prescribe a s vell a s t o supervise a l l expenditures
o f ths Treasury Department.
lieve t h a t application for reimbursement o f fiscal
expen wes Should b e made i f for n o other purpose t h a n t o
give the Congress a n opportunity t u indicate definitely
whether o r not i t waives i t s
just v h a t e x p e n d i t u r e s
n o n o r e d right t o prescribe
t h e Treasury Department m a y make a n d
to appropriate f o r that purpose s u c h funds f r o m the money o f
the t a x payers a s the Coneress m a y deem desirable a n d sufficient.
I t m y b e that t h e sugcestion I
made i s n o t i n the
p u b l i c Interest a t t h i s time.
Governor Orissinger. G o v e r n o r Young,
Governor Young. I
have asked our counsel t o prepare
an o p i n i o n o n this subject. I
would l i k e t o r e a d that,
if I
MAaYe
"Section 1 5 of the Federal Reserve : p r o v i d e s that
Federal reserve banizs ‘when required b y the Secretary o f
asury, shall a c t a s
States'.
c i l agents o f the United
T h e question i s whether they are required t o so
act with o r without compens tion, o r vith o r vitnout reimbursement f o r
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Federal Reserve Bank of St. Louis
"In m y opinion the inten
should n o t b e compensated f o r ths service, a n d thereby
make t h e a g e n c y a
source o f profit,
fo s a r n m o n e y under. t h e f r a n c h i s e
T h e oppoztunities
n t e d makes a
gratuitous service o f that s o r t perfectly reasonable.
Batt d o not t h i n k 30 e e =
e n t i o n S h a t ths banks
should b e a r o r a b s o r b -the expense.
“hon a
statuts
or
contract establishing a relation o f principal a n d arent
calls f o r interpretatio.r I
don't t h i n k a
duty o n the
part o f the agenty t o v a y the expense o f
businsss c a n b e implied, b a t c a n b e found t o
if expressly stated.
T h e implication i n the
point i s t h e o t h e r w a y , S e c t i c n 2
compels n a t i o r a l b a n k s
to furnish t h e capital; Ssction 1 5 says t h a t ‘After a l l
necessa~y e x p e n s e s
of a
Federal r e s e r v e b a n k h a v e b e e n
paid, o r provided for, -tno stockholders shill b e entitled
to receive a n annual dividend o f six p s r cent p e r annam
on the paid-in capital'.
H e r e t h e implication i s very
strong that t h e v o r d s ‘all necessary expenses
reserve b a n k !
a r e n o t used vith a
o t a, Federal
vier o f including t h e
cost o f running t h e Department o f the Treasury, sither
direct or through some agency. iMoreov:r, if it was inten
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Federal Reserve Bank of St. Louis
487
that a Federal reserve b a n k was t o pay a n y o f the cost
incident t o ths performance o f its duties a s fiscal
agent,
i t m u s t h a v e b e e n i n t e n d e d t i s h o u l d p a y all,
matter h o w mach. T h e r e i s n o middie ground.
no
B u t that
could n o t have b e e n the intention o f Coneress. f o r
there i s practically n o limit t o the volume a n d cost
of t h e b u s i n e s s w h i c h t h e S e c r e t a r y c a n c a s t o n a
Federal reserve b a n k under Section 15. T h e evpenso
might b e s o larre a s never t o leave anythire f o r a divi-
dend t o the stockholders. T h a t Consress has not s o
understood t h e Act i s s*:ormn b y the a p p
made t o p a y t h i s expense.
"Tt i s slso shown b y the *¢% o f Mey 20, 1920,
abolishing nine sub-treasuries o n d Suthorizine
Secretary'to utilize a n y o f the Federal
acting a s * * * fiscal avents o f the United Stat
the purpose o f performing a n y and all such dutie
withstanding t h e limitati: n s
provisi-ng
It c q l d n o t
t o n e Federal r e s e r v e b a n k micht n o w
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Federal Reserve Bank of St. Louis
=
over t h e vork o f the abolished nine sub-«
treasuries w i t h o u t c o m p e n s a t i o n ,
b a t 2 t i t s o w a expense.
Such a n unreasonable intention o n the part o f Conereéess
cannot b e implied, a n d yet I don't see vhy a duty t o
pay expense m i r h t n o t b e imputed
t o the arency under
the A s t o f M a y 2 0 as well a s t o the agency under
Section 1 5 o f the Federal Reserve Act.
"Now whether t h e Federal Reserve B a n k o f Minneapolis
is n o t r e i m b u c s e d f o r i t s e x p e n s e s
a s f i s c a l afrsnt
is o f course o f n o practical importancs a s long a s tis
expense d o e s n o t impair i t s ability t o p a y the regula>
annual s i x p e r c e n t d i v i d e n d s
t o i t s stockholders.
H o r
the question i s t o b e dealt v i t h a s a matter o f business
policy y o u are t h e better judcs.
C n this subject I
addressed a letter t o the Ghaoivman o f tre Board o f Directors
October 20, 1921, t o wiieth I ber t o refer."
I think i t i s all i n the last paragrapn, M r .
In 1921 the Covernovs, after conference with Lr.
decided t o request t h e Secretary o f the Troasuvy f o r reimbuarsement, a n d i n the correspondence t h i t occurred betvseen the
Governors t h e r e a f t e r w a r d s ,
t h e y thoucht t h a t s o far a s t h e
Federal Reserve Banks were earning sufficient,
i t was n o t
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Federal Reserve Bank of St. Louis
489
feasible t o request Prinbursemsnt.
mendation that I
T h o t i s the recom-
would make t o the Governors a t this
time, n o t t o request reimbursemont s o long a s w e are
making sufficient earnings.
Governor Crissinger. I
want t o say that w e called
the attention o f the committee t o the fact that there h a d
been n o appropriation made, 123 the onerations o f the banirs
vere taken —
o f , and that the committee that was’ present
was unanimous t h a t t h e principle w a s vrong, a n d that i f
tneir attention “ a s called t o i t they would s e e that t h e
appropriations w e r s made
I think t h e Congressional committee i s i n entire
sympathy w i t h t h e f u n d a m e n t a l s o u n d n e s s
o f the principle
that the Government should pay for these opevations. I
thourht that might b e o f interest t o you,
Governor Platt.
O f course t h e question i s primarily
that t h e reimbursement does n o t even include overhead.
Governor Crissincer, S e n a t o r Glass was very strong
in his position about it, a s vell a s others, a n d they
tendered their services t o see that i t was p u t throush
the next time i f their attention v a s called t o it.
Is t h e r e a n y t h i n g f u r t h e r
Re
o n this subdiect?
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Federal Reserve Bank of St. Louis
490
I have a
request
t o put nunber 8
ahead
o f nucnber 7
for t h e time being, w h i c h i s report regarding Boardts
efficiency a n d economy program.
Mr. “ibls, y o u have t h e floor.
Mr, Sills.
M r . Chairman, I
did not know that t h e
subject w a s t o b e advanced i n this manner.
Governor Crissinger.
f e want t o cet i t disposed o f
right n o v .
Mr, “ills. A
set o f recomnendations h a s b e e n sent t o
the Governors! conference a n d also t o the Federal Reserve
Agents! coaference.
(Mr. ¥ills presented the following report: )
RiPORT O F
COMMITTEE O N ECONOMZ A N D EFFICIENCY
TO THz
FEOBRAL RESARVE BOARD
his C o m m i t t e e w a s a p p o i n t e d
b y the Federal Reserve
Board o n September 20th, 1921, for the purpose o f initiating
a program f o r greater e c o n o m y 2 n d efficiency
i n t h e opera-
tion 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 ,
During t h e t w o y e a r s
o f its existence m u c h information
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Federal Reserve Bank of St. Louis
en gathered a n d a number o f definit
accomplished.
In this, ths first formal report o f the Committse,
there i s p r e s e n t e d a
history
o f t h e v o r k u p t o this
time, together w i t h a number o f conclusions t u a t have
been reached, a n d a statement o f the problem a s i t now
exists.
Respectfully submitted.
A.CO. MIRDG2:
Chairman.
November o e 1923.
PERSONNIL O F COMMTTS2:
The oviginal Comnittse a s appointed b y the Board
consisted
of:
Taere w a s subsequently appointed o n November 8 , 1921,
an A u v i l i a r y C o m m i t t e e r e p r e s e n t i n g t n o banks,
a s follovs:
ie B R O e C a n i r y i n , P e d e r v a l Rsssrve
Norris, Governor, Federal Reserve
of Philadelphia.
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Federal Reserve Bank of St. Louis
492
Federal R e s e r v e
Still later a n 4dvisory Committee w a s named consisting
of the following:
Me. J . F e Herson, Chief, Federal Reserve
Examiner.
Paddosx, D e p u t y Governor, Federal
Reserv> B a n k o f Boston.
L.Smead, Chief, Division o f Bank
Operations, Fedsral Reserve Board.
CHANGZS I N FaRrSONNEL C 2 COMMITTEES 3
Me. J . R . Mitchell resicned a s a member o f the Federal
Reserve B o a r d i n May, 1924,
H e was succeeded b y Mr. G . R.
James who was avpointed t o this Committee i n June, 1923.
Mr. J . U. Calkins resirened a s a member o f the Auxiliary
Committee s a r l y i n 1922 a s h e f e .
tag not practicable
a
him t o attend meetincs o f tie Committee f r o m s o great
distance.
H e was succesded
b y Mr. S . B . Cramer, D e p u t y
Governor, Federal Reserve Bani: o f Chicago, w n o was suvns6quently elected Secretary o f ths Board's Committees a n d
served i n this capacity until Moreh 1 , 1923, “ h e n
as Deputy Governor o f the Chicaco Bank.
fe
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Federal Reserve Bank of St. Louis
Mr. A. H. Vogt, Controller o f Accounting,
Reserve B a n k o f Chicago succeedsd lr, Cramer o n the
Auxillary Committss a n d also a s Secretary o n March 1 ,
1923, resicving o n > month later.
in January, 1924, Mr. L . RR. Rotinds, Controller o f
Accounts, Federal Reserve Bank o f Nev York, was added
to the Advisory Committee, a n d i n April, 1923, h e was
of the Board's Committee a n d a member
of the Auxiliary Committee.
PRESENT PSRSONNS OF COMMITT=.3S:
The Committees
a t this t i r e sonsist o f the follow
Board's C o m m i t t s s :
ir, A . C . Miller, Chairman
Mr ®
G e : ie
J a MES.
Auxiliary Committee;
Mr. De. C. Vills, Chairman, Federal Reserve Bank
Cleveland.
“e Mowris, Covernor, Fedsral Reserve Bank
Philadolpnia.
Mir. I. R, Rounds, Acting General Auditor,
Federal R e s e r v e
Bank
o f N e w York,
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Federal Reserve Bank of St. Louis
Advisory Committee:
Mr. J . F. Herson, Chief Federal Reserve -xaminer.
Mr. “ - ". Paddock, D e p u t y Gove-nor, F e d r a l
Reserve B a n k o f B o s t o n .
L,Smead, Chief, Division o f Operations,
Federal R e s e r v e B o a r d ,
THE EXPINSES O F THE FPSDERAL R2SSRVE SYST=M:
Tne o p e r a t i n e e x p e n s e s
o f the trelve banks f o r e a c h
full y e a r s i n c e t h e i r o r g a n i z a t i o n h a v e b e e n a s RoOLtors *
1915 $ 1 , 9 6 1 , 7 8 2 .
1916 2 , 4 5 9 , 1 3 9 .
1917 5 , 4 6 5 , 6 5 6 .
1918 1 2 , 1 7 7 , 9 3 8 .
1919 2 6 _ 3 4 1 , 7 9 8 ,
1929 2 9 , 3 8 9 , 4 9 7 .
36,066, 065.
1922 3 0 , 3 4 7 , 587.
The e x p e n s s s i n c r e a s e d r a p i d l y f r o m 1 9 1 5 t o a n d i n -
cluding 1921, w h e n t h e Sxpenses o f thse trelve banks h a d
reached a total o f more than $46,000,000. per annum, the
providine o f “hich, tocrether i t h t h e amount reauired
for Jividends a n d other necessary cniress, compelled t h e
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Federal Reserve Bank of St. Louis
495
constant investment o f more than $1,900,00C,900, reeardless o f credit conditions o r other consid¢trations, t h i s
amount b e i r e avrnrotimately O r o - t h i r d
o f the creatsst
amount o f credit t h e Fed«ra
been eclled upon t o provide
Once a p p a r e n t t h s t a . fissed c h a r c e
o f so
uum miche easily b e a serious handicap t o the
real: f o n c t i a : s
o f a. Preserve banikiac
& Committee h o s considered
r
h Shspesd v i t h s
responsibility, n o t o n l y *ith res“ect t o the econonical
and e f f i c i e n t o p e r a t i o n
o f t h e Svstem,
veterm t o d e t e r m i n e
from t n e a c t u a l é n e n s anc -1nelaice a. pro. 7 3 ta
b u t also t o study
t o
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Federal Reserve Bank of St. Louis
vee
ANNJAL
Bxpenses o f Functions e s
to t h e o p 2 a t i o n o f the
4
0
9
$ 1 7 , 7 5 7 ,.
under the Federal ieserve &
(This total includes c o s t o f
the f o l l o v i n g functions:
Loans, Xediscounts a n d
Investments
Currency a n d C o i n
Cheek T o l l e c t i o n
Federal R e s e r v e A r e n t
and t h e expenses o f the
Fed:ral Reserve Board, }
Expenses incurred a s Fiscal
Arent of the U.S. Government.
8 , 0 1 8 , 676
Expenses ineurred a s a Dew
pository of the U. 5.
Government.
6
2
,
2
7
6
(This represents t n e cost o f
handling Covernment checks
ane couponse}
Expenses incurred a s
Policy i n Convection i t
Rend-red t o Member Banks,
‘ v i c e s
2
6
,
4
6
(Tais represents t h e cost o f
the P o l l o r i n e s e r v i c e s ?
Securitics f o r s a f e - k s e p i n s
Non-oash Collections.
Transfers o f Pands.
Currency and Goin Shipments.
Shippine Charess o n Securities.
Purchase & Sale o f Securities, etc.)
8
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Federal Reserve Bank of St. Louis
497
RiGINT P E R CaNT
ANNUAL
O P
BUPUNSE T O T A L
—_——
Exponses
o f Activities C a r r i e d
on a s aMatter o f Policy.
2 , 1 9 2 , 688
7
. 48
(Tris includes the cost o f the
folloting:
Bank Relatiors,
Bank Examinations.
Statistical & Analytical.
Publicationse
“mployees Group Life Insurance. }
GRAND TOTAL
Tas: a b o v e 4
r
w e 520,012. 1 0 0 . 0 "
e “ 4 i c h v e r e n o t aveilabls
being o f special interest.
gOD O F FROCE U R :
Follovine its appointment, the Conmittec gave serious
corsid2ration
t o the choice
the a c c o m p l i s h n e n t
of a
o f i t s task.
method
o f procedure f o r
h i l s s3veral-methods
vere considered, t h e final choice rested botveen t h e t r o
folloving:
ibly w i t h a s s i s t a n c e
of a etandard end uniform
lLbanks w i t h r e s p e c t
t o each and every
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Federal Reserve Bank of St. Louis
498
operation, t h u s permittin=e o f a n arbitrary dstsrWinntien-
o f costs m o r e o r - l e s e
i n lire v i n
commercial prectice.
)o(i
T h e assienment
e a c h bank o f ths
comparisons o f costs o f one benk with another
and i n
i
r as practiecsble securine t h e adoption
of t h o s e m e t h o d s w h i c h h a d p r o v e n
rit a n d i n erencrally coordiratine t h e effort
of a l l t h e b a n k s
same d e r r e e
t o as
o f cfficicsn
p
o
G
s
s
U
i
b
E r
l
e the
a t 87G 4
after c a r e f u l
ran-ine f r o m about 4 5 0
to nearly 3,000 clerks, wekin-e i t u m i s e : t 0 a°opt
uniform metrnocs
rmocecure
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Federal Reserve Bank of St. Louis
Operations, although such procedure i n the
different banks micht v a r y creatly.
(e)} T h o fact that nothine sould b 3 accom
plished
b y insisting u p o n a
cnanre f o r t h e S 2 3
of uniformity i n cases where different banks,
although folloving quite different methods v i t a
respect t o a given operation, were accomplishing
the task vith equal efficiency.
It v o s t h e r e f o r e d e c i d e d
for
t o folloz t h e second p l a n
he f o l l o v i n e r e a s o n s :
(a} T h e velief o f tis Comnittee that the real
‘ibility f o r t h e e f f i c i e n t a n d e c o n o m i c a l
operation o f each bank must,
rest u p o n t h e D i r o e t o r s
i n the final analysis,
o f the several b a n s .
(pb: T h e opinion o f the Comnithse t h a
best a c c o m p l i s h i t s o b j e c t i v e
b y acting a s a
i t could
cloaring
house o f information, b o t h o f methods and costs, o f
Similar o p s r a t i m s
i n the several banks,
s o that
every b a n k r o u l d h a v e a n o p p o r t a n i t y o
methods a n d c o s t s v i t h t h o s e o f t h e o t h e r bacrss.
ec} T h e belief o f the Committee t h a t ther
probably s o u l d b e f o u n d a l r e a d y
i n operation
in
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Federal Reserve Bank of St. Louis
00
one o r m o r e o f t h e banits t h e p r o c e d u r e w h i c h
prove most efficient i n a majority o f the banks
vith respect t o most, i f not all, o f the functions
erformed, a n d that t h e securing o f compcrative
cost ficures vould automatically compel thea adoption o f t h e m o s t e f f i c i e n t m e t h o d s
i n a n y case
“here less efficient methods v e r e i n use,
(d) T h e securine o f the competitive effort
and cooperation o f ths officers and dspart-nent
in all b a n s a n d t h e utilization o f ths
experience a n d ability whicl: the Comnittee b o lieved e x i s t e d w i t h i n t h e o r c a n i g z t i o n s
o f ths
several banks,
HISTORY O F TH? COMMITTIS'S T O R :
Very shortly after i t s orranization t h e Committee
requested t h e Governor o f each bank t o desiciuate a
committees f o r t h e p u r p o s e
department
o f making a
lozal
survey o f e a c
o f the r e s p e c t i v e b a n k s w i t h a
vier t o
inereasins t h e e t f i c i e n c y a n d reduszine t h e e x p e n s e
of
operations
It “ a s r é a v e s t e d t h e t t n e C h a i r m e n
mittees r e p o r t
o f these C o m -
t o t is C o m m i t t e e f r o m t i m e t o t i m e w i t h
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Federal Reserve Bank of St. Louis
501
respect t o the prorress o f the vork a n d t h e results
accomplished.
REPORTS.
The Commitvee r e s faced s t the berinnine v i t h a
problem i n securing what i t has considered f r o m the first
a comparative statement o f the e-penses
of all teserve Banks and Branches. “ i t h o u t such fisures
it o u l d b e impossible t o drat conclusions a s t o the
comparative efficicney o f t h e operation o f ths several
banizs,
Prior t o t h e a p p o i n t m e n t
o f this C o m m i t t e e ,
the
Reserve Board h a d received inonthly reports i n detail
the current expenses o f each bank arranced according
the object o f expenditure, (Fovm 96),
of comparisons between b a n s o n l y i n tho most pconeral ‘ay,
as there was n o relation o f th> expenditures
t o the vork o f
the bank, a n d n o attempt h a d bern mads t o secure f r o m th;
banks reports o f e-penses a l o n y @ithor orranization o r
functional lines.
It wes apparent that a n y fieures obtained t o b e o f
value vould have t o reflect t h e cost i n seach bank and
branch o f s e c h o f t h 3 m e j o r o p e r a t i - n s
o r functions,
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Federal Reserve Bank of St. Louis
502
The f i r e t a t t e m p t
t o secuts a r y s u c h fissures W a s
made i n December, 1921, rhsn all banks yore roquested t o
report
o n forms p r o v i d e d f o r t h s purpose,
t h s expenses
for t h e year 1921 classified according t o certain
preseribed operations a n d departments.
Prior t o this t i m e a
fev o f the b a n s h a d prepared
for t h e i r o w n u s e d e p a r t m e n t a l c l a s s i f i c a t i o n s
o f expenses,
but i n m o s t o f t h e b a n k s t h i s h a d n o t b e s n attempted.
A studyf
o the reports received f o r ths year 1921
indicated s u c h a p p a r e n t l y v i d s v a r i a t i o n s
i n the e x p e n s e s
of t h e s e v e r a l b a n k s a s t o m a k e t h s r e p o r t s
value.
o f very little
U p o n investication t h e s e variations v e r e found t o
be due v e r y larcely t o differences
i n tn? oreanisations
of
the banks, t h e allocation o f the work a n d also vids
differsnees
i n the interpretation o f ths vork intanided
to b e covered unde: t h e several hsadings orm ds3partments.
There was then appointed i n March, 1922 a SubCommittee consisting o f isssrs, “ills ani Cranor, with
Messrs. P a d d o c k and Hersen acting i n a n advisory capacity,
to p r e p o r e a
u n i f o r m f o r m o f report f o r t h o u s e
banks a n d also t o prepare a
manual definins t h e expenses
to b e i n c l u d s d u n d e r e a c h h e a d .
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Federal Reserve Bank of St. Louis
Sou e a s
tes —
In the prepsration o f the nev report, known a s
Schedule Hy, i t “as decided t o disrecard entirely t h e
departmental orcanizations o f the ban’:s a n d t o secure,
if possible, accurate c o s t ficures f o r e a c h complete
operation o f t h e system, r e c a r d l e s s
o f whether
performed i n corresponding departments
A meeting o f the representatives
o r not
i n all banks,
o f all banis r a s
called f o r the purpose o f discussing t h e propossd report
and manual, This meeting vas held in Chicaro, April 24
and 2 5 , 1 9 2 2 , a n d v a s a t t e n d e d
b y Messrs. M i l l e r a n d
Mitchell o f the Board's Committee, Misssrs., “ills a n d
Cramer
o f t h e A u x i l i a r y Committee, M e s s r s , H e r s o n a n d
Padcock o f the Advisory Committee and also b y one repre+
sentative f r o m e a c h Rocaeers B a n k e
A t this meetine t h e
proposed form o f report and manual vas thorouchly discussed and finally adopted, ~ith the understandine that
the f i r s t r e v o r t v o u l d b e p r e p a r e d
b y all banks f o r t h e
month o f July, 1922,
heports v e r e subsequently received o n tiis f o r m from
all b a n s
inclusive.
f o r e a c h m o n t h f r o m J u l y t o December, 1 9 2 2 ,
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Federal Reserve Bank of St. Louis
504
In December, 1 9 2 2 a second conference o f the repre~
sentatives o f the banks r i t h the Board's Committee w a s
held a t which a revissd f o r m o f report a n d manual vas
approved v h i c h h a s h e e n i n u s e sinecs January, 1 9 2 4 -
COMPARISON O F M3THODS I N PRINCIPAL FUNCTIONS:
At t h e December, 1922, conference w i t h the representatives o f the banks thsre w a s a l s o discussed a n d
approved a
proposed p l a n f o r a study a n d comparison o f
methods a n d e x p e n s e s
i n t u e f o u r principal f u n c t i o n s
of
the banks, namely:
Currency a n d J o i n
Ch3ck a n d CGollsctions
Loans, Rediscounts a n d Investinents
Accounting
his p l a n p r o v i d e d f o r a
s t u d y o f e a c n function:
separetely throach representatives
t o b e desipnated b y
each bank for each o f the four functions,
of s a c h f u n c t i o n i t v a s p r o p e s e d
three g r o u p s ,
F o r thse study
t o divide t h s banks i n t o
e a c n group t o inslude t h s barks d o i n g
most n e a r l y t h e s a m é v o l u m e
o f biasingss a n d undcor m o s t
similer c o n d i t i o n s .
Sach bank throuch i t s reprosentative w a s raquosted
to prepare a
statoment i n detail o f its psocsdare,
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Federal Reserve Bank of St. Louis
505
torethsr v i t h a set o f the forms u s e d a n d a flor
chart o f t h e vork.
One r e p r e s e n t a t i v e
i n each proup vas desienated
as chairmen o f the proup f o r the purpose o f collecting
the d a t a a n d r e p o r t i n g t h e p r o g r e s s
A conference
o f t h e rvork,
o f th= G r o u p Chairmen ith. t h e Con-
mittee vas held i n Yashington, January 2 9 2nd 3G, 1926,
at waich a definite ptopram f o r t h e vork was approved.
Follovine t h e preparation o f the data b y each
bank, there vere held bctveen April 5
twelve g r o i p m e e t i n g s
o a B y 1088,
a t v h i c h t n e repressontatives
each o f ths four banks i n each proup m e t f o r a
of
study and
comparison o f detailed methods a n d expenses. ‘ T h e chiirman o f each group vas requested t o prepare a
Das
a r
meeting,
report o f
t o include s u c h recommendations
as
he group misht have arreed u p o n a n d t o prepare himself
generally f o r a meeting o f the group eaairmen w i t h
the B o a r d ' s Committees f o r o
diseussion
o f the w o r k o f
each function separately.
During the veeks o f May 7 and 1 4 tne Bosrd's ComBa
mittee h e l d a series o f confersnees v i t h ths three Beg =
chairmen f o r each o f the four furetions,
a t vhich time
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Federal Reserve Bank of St. Louis
506
reports o f the chairmen were sone o v e r i n detail,
problems w e r e d i s c u s s e d a n d a
number
o f recommenda-
been t r a n s m i t t e d
t o the
banks f o r t h e i r i n f o r m a t i o n a n d attention.
CONTACT “'ITH T A BANKS:
The C o m m i t t e e h a s c n d e a v o r e d
t o maintain a
close
contact r i t h t h e b a n k s throurch t h e o f f i c e r d e s i s n a t e d
by e a c h b a n k a s C h a i r m a n
economy o r Procedure.
o f its local Committee
on
S e v e r a l communications h a v e a l s o
een addressed t o the hairmen a n d Governors informing
them o f the progress o f the vork. Copies o f tne Comparative i x h i b i t
o f the Functional Sxpenses h a v e b e e n
furnished rerularly f o r t h e information o f all banks.
All t h e b a n k s h a v e m a n i f e s t e d i n t e r e s t
work o f t h e C o m m i t t e e a n d t a s p r o m o t i o n
i n the
o f economy with-
in their o v n orcsanization, a u d i t i s apparent t h a t b y
brincine t o z e t h e r
i n confsrences t h e r e p r e s e n t a t i v e s
o f
the banks, a n d also b y makine available t h e comparative
exhibits
o f the expense firures
dsal h a s b e e n a c c o m p l i s h e d
o f a l l banks, a
great
i n t h e w a y o f economy.
is b e l i e v e d a l s o t h a t t h e r e h a s b e e n a
I t
considerable
improvement i n methods a n d i n the efficiency o f certaia
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Federal Reserve Bank of St. Louis
507
op‘rations entirely apart f r o m the economies t h a t have
been effected.
R=USULTS:
It i s difficult t o state i n ficures w i t h a n y degree
of accuracy just what results h a v e been obtained f r o m
the Commnittse's work.
Shige S
r y , 1 9 2 4 when the Committee initiated
the s t u d y a n d c o m p a r i s o n
o f t h e v o r k o f t h e f o u r princi-~
pal functions already referred to, i t s influence o n the
expenses
o f the banks h a d b e e n almost entirely s u c h a s
resulted f r o m t h e d i s t r i b u t i o n
o f the comparative exhihit
in ersating amons t h e officcrs o f the several
banks a spirit o f competition.
As @ result o f the study a n d comperison o f the four
principal functions o f the banks, a
changes
number o f important
i n procedure h a v e t a k e n p l a c e v h i c h v i l l r e s u l t
in considerable economy.
I t was found that several banlkks
ver c a r r y i n g o n expensive o p e “ations w h i c h other binks
een a b l e t o eliminatee
from v o l u n t e r y c h a n z e s
T h e economics r e s l t i n g
i n procedure d u r i n g t h e c o u r s e
of
this s t u d y and later vill amount t o a considerable sum.
Thers i s attached a statement (Exhibit A) shoving i n
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Federal Reserve Bank of St. Louis
comparative f o r m t h e e x p e n s e s
o f all banks
the year 1921 and. 1922, f r o m “hich i t
that t h e t o t a l c u r r e n t e x p e n s e s
o f t h s banks w e r e
reduced from %3€,066,065 i n 1921 to %40,347,587 i n 1922
st f i g u r e i n c l u d i n e t h e i t e m o f furniture a n d
equipment i n order thet i t may b 3 comparable w i t h 1921),
a decrease of $5,718,178, which is equivalent to 15.862.
on
S s Lt e r this saving appears i n the items
representing t h e cost o f currency, b u t a very substantial
amount, $2,210,674, appears i n those items o f expense
over which t h e system has direct tontrol.
There i s attached another statcment (Txhibit B )
in which tine tented expenses o f @ach bank are shorn f o r
the year 1922 i n comparison w i t h tne year 1 ° T h i s
statement s h o w s t h e t e v e r y o n s >
succeeded
trelve b a n k s
i n r e d u c i n g i t s 32xpensss v e r y materially.
This decrease i n expenses h a s n o doiabt i n part
resulted f r o m t h e more steady volume o f vork being per=
formed. ,
i s @lso i n n o small mensure d u e t o the
effort vhich has been made i n all o f the banks t o bring
about greater economy i n operation,
This r e s u l t v a s a c c o m p l i s h e d
i n t h e f a c e o f a’ vdon=
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Federal Reserve Bank of St. Louis
509
stantly increasing volume o f business, f o r while t h e
total volume o f o n e a t the banks h a s n o t increased i n
last t v o years, a t anywhers nearly s o rapid a
rate
the increase t h i c h occurred u p t o about t r o years
thers h a s n e v e r t h e l e s s b e e n , a n d ther-~ s t i l l c o n -
times
t o b e a steady increase i n the total vork o f the
‘epresented
b y volume
o f currency,
collection a n d other items handled.
c a s h and
T h e decrease i n
work i n t h e L o a n a n d F i s c a l A g e n c y d e p a r t m e n t s
i s 3on-
siderably more t h a n offset b y the inersase i n other depertments.
During t h e yoar begiunine w i t h J u l y 1922 the Committee
classified a l o n g f u n c t i o n a l l i n e s a s a l r e a d y described.
This m e t h o d o f c l a s s i f i c a t i o n w a s a n experiment, a n d ,
while
i t i s still f a r f r o m satisfactory a s giving a
picture o f expenses,
time
i t has nevertheless v e r y larcvely
accomplished t h e r e s u l t s f o r w h i c h i t t a s designed,
Lares v a r i a t i o n s
i n expense a n d n u m e r o u s a p p a r e n t i n c o n -
sneies continue t o appear f o r t h e follovine reasons:
(a) Merked differences i n the dsparvmeéntal
orcanization
o f the banks
due
t o t h e difference
i n
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Federal Reserve Bank of St. Louis
ze, a n d resultine differences
allocating o f onerations.
(bo) . T h e difficulty o f secuzing a comparable
unit o f measurement a s t o ths voiume o f actual
“ork performed.
There a r e marked differentes
i n the departmental
organization o f the sevsral banks a n d a s a result o f
this,
i n the allocation o f tork t o the departments.
These differenses a r e n o greater t h a n might b e reasonably expsoeted i n organizations w h i c h v a r y i n s i z e f r o m
a staff o f 350 t o a start o f nearly 4,000, t o r i t i s
at o n c e o b v i o u s t h a t m e t h o d s
o f doing v o r k i n t h e smaller
orrcanization w i l l n o t p z o v e t o b e e f f i c i e n t
in the larger orranization,
o r economical
o r vicé versa,
with r e a s o n a b l e
accuracy a considerable pzoportion o f the vork i n any
reserve b a n k ,
fev. instances,
i t i s n o t possible, e r c e p t
t o secure a
comparable i n all banks.
measur:
in a
very
w h i c h will b s exactly
T o illustrate i t micht b e
ssumed thet the cost o f handlong 10,0CO chs2ks should
be substantially t h e same i n a l l banks, b a t i t i s found
that t h e r e a r e a
mumbcr o f factors a f f e c t i n g t h e
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Federal Reserve Bank of St. Louis
such as:
deposited
(a) T h e number o f banks that have
the items.
(b) T h e timo the items are received o n
a matter o f local
deposit (vhich i n many cases i s
custom).
the local
(c) T h e time items are cleared a t
clearing house.
local clearing
(a4) T h e number o f banks i n the
The e x t e n t
o f the sort required f o r
branches, etc.
checks, t h e cost i s very
and i n ths ease o f counbry
greatly a f f e c t e d
by -
vhich items are
(fe) T h e number o f banks t o
routed.
t o banks i n
(e) T h e proportion o f items sent
the s a m e d i s t r i c t
items s e n t
i n comparison v i t h t h e
t h e items sent t o other
to the other reserve banks,
y
reserve b a r e q u i r i n g considerabl
more labor
sent t o hanks i n the same
in the listing t h a n those
districte
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Federal Reserve Bank of St. Louis
512
conditions affecting practically a l l
of the banks, a n d i t i s differences
which a c c o u n t f o r m a n y o f t h e a p p a r e n t
inconsistencies
i n ths reported cost figures,
It i s necessary t o remember, therefore, t h a t the
bit o f t h e e x p e n s e s
o f all banks a s compiled i s n o t
an e n t i r e l y t r u e c o m p a r i s o n
o f the relative efficiency
of t h e s e v e r a l b a n k s .
ANALYSIS O F EXPENSES:
By the use o f the funestional expense reports,
to
which reference h a s already been made, i t i s n o w possible
time t o s e c u r e r e a s o n a b l y a c c u r a t e c o s t s
everal o p e r a t i o n s c a r r i e d
o n b y t h e banks,
Thore
is attached a statement (Sxhibit C) showing the functional
expenses f o r a l l tyvelve banks f o r t h e three months ending
March 41, 1924. Assuming thet the fisures for the
of the year 1924 vill b e approximately i n ths same
portion, there have been extended o n this statement tre
annual e-penses a s estimated for the year 1923 fer each
function a n d o p e r a t i o n o f the-banks.
The expenses o f the several functions o f the benks
have b e e n grouped undsr five heads, after t h e distribution
on a pro rava basis o f the "Administrative and Goieral
Expenses",
a s shown i n the folloving summary:
SUMMARY
Direct Expenses Before Dig- A f t e r distribution o f
tribution o f Administrative A d m i n i s t r a t i v e a n d
and Genere) F s n e n s e s
G a n a r a l Exnensos
Por Cont
P
o
r Cant
Anmmal Ieronas o f total A n n u a l Exrensa of Total
Administrative & Ganeral
Including Exrenses incident t o Provision o f
Srace, Porsonnel, Ssar-
vice and Ovorhead,
S
i
l ,952,78¢
Esronses o f Puuctions
essential t o the onora-
ticn o f tho Federal Regerve Svstem unier t h o
Federal Rogorve Act
Mxneanaas Incurred a
1 1 , 6 4 0 46g
$
1
7
,
7
5
7
,
9
0
4
Fiscal
Agann of tho United States
626, oho
Gov: r o r 2 n t 4
8
,
0
1
8
,
5
Exnansac. T r curred a s a D e x
nository - f the United
States Gov -rnment
Exeonses Incrrred
of P o l i c y
3
6
h ,900
7
5
:
6
2
4
,
2
7
6
a s aA m a t a
i n conictior
with
Sarvicssa rondered t o Member
Bankes
4 , 1 7 3 , 8 1 6 09.53 4
426 468
Feransas o f Activities carried
onasamatter of Policy ___1,501.800 0 4 . 5 2 2 , 4 9 2 , 6 8 8
GRAND
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Federal Reserve Bank of St. Louis
L O T A L
$33,320,012 1 0 0 .
$
3
3 320,012
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Federal Reserve Bank of St. Louis
514
From the above i t rill be noted thst 53% of the
present e x p s n s e s
those f u n e t i o n s
o f t h e System represents t h e c o s t o f
o r duties i m p o s e d u p o n t h e b a n k s
law. A p p r o x i m a t e l y 2 6 % represents t h e e x p e n s e
by
o f the
work performed f o r t h e Unitede States Government either
as fiscal agent o r as depository.
the expenses,
n e a r l y 21%,
T h e remainder o f
i s controlled almost entirely
by policy representing t h e cost o f those services f o r
member banks thich have b e e n voluntarily assumed, a n d
the c o s t o f various a c t i v i t i e s w h i c h h a v e b e e n a s s u m e d
as a
matter
o f policy.
The expenses proaped tovether a s remresenting t h e
cost o f services performed f o r membcr banks amount t o a
little more than 13% of the total and i t is a n item which
is steadily increasing.
I t has b e e n observed that
certain o f these f r e e s e r v i c s s h a v e b e e n m a d e a v a i l a b l e
to t h e m e m b e r ban'ts i n s o m e d i s t r i c t s
extent t h a n i n o t h e r s .
t o a
much greater
T h i s applies perticularly
to
“securities for safekeeping," the handling of "non-cash
collections", t h e furnishing o f "wrapped coin” and the
“purchase and sale o f securities".
T h e use o f the
transfer privilese a n d t h e absorption o f the cost o f
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Federal Reserve Bank of St. Louis
515
currency a n d c o i n s h i p m e n t s a p p s a r
uniform throuchout t h e System,
should a l l o f t h e b a n k s
t o b s reasonably
I t i s apparent, however,
i n the System perform a l l o f
these services t o the extent that t h e y are n o v performed
ina f e v o f the districts, t h i s expense vould b e very
materially increased,
Perticular a t t e n t i o n
i g called
comprising Exhibit C
t o the detailed
showing a n analysis o f
these expenses; a l s o t o Exhibit D
showing t h e expenses
of e a c h b a n k f o r e a c h o f t h e f r e e s e r v i c e s r e n d e r e d
to
momber b a n k s a n d f o r e a c h o f t h o a c t i v i t i e s c a r r i e d o n
as a matter o f policy.
The cormittee n a s referred t o tha Governors a n d Agents
several matters w h i c h i
n its fadement require their consideration a s follorts:
1. Roecommendation f o r a n operating committee t o
standardize s u p p l i e s u s e d a n d t o a r r a n c e f o r j o i n t p a r -
chasing Where economies c a n b e effected b y s o doing.
2. Recommendations conesrning Employees G r o u p Life
Insurance a n d Automobile Insurance,
3. Recommendation for a n investication o f the cost
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Federal Reserve Bank of St. Louis
O26 *
of securing Credit Information,
le R e c o m v e n d a t i o n c o n c e r n i n g c o s t o f f r e e s e r v i c e s
anc o t h e r a c t i v i t i e s c a r r i e d
o n as a
matter
o f policy.
5+ Recommendation f o r a survey b y the local
Committees o n Economy and #fficiency o f the Agents
Departments a t each B a n k , The Committee h a s secured data conserning t h e cost
of expréss s h i p m e n t s
o f c u r r e n c y a n d c o i n a n d i s peti-
tioning t h e Interstate Commezce C o m i s s i o n f o r a redaction
in the rates being c h a r g e d , The express charges o n money shipments were inereased
throuchout the country a year ago by 50% and the System
is now paying the «xpress Companies approximately
$300,090. -
have a
p e r annum.
T h e Comnittse believes t h s banks
good case a n d hope tnat a very substantial reduc-
tion m a y b e obtained,
Committee h a s n o t a s y e t m a d o a n y s u r v e y v i t h respoct
to c o s t o f p r o v i d i n g -
Space, s o n s a a n a n :
o r Gencral Service
believing consideration o f these functions should b s deferred until t h e banks havs moved i n t o their n e w buildings
after which conditions should b e reasonably comparable.
The functions w h i c h the Committee i s proposing t o next
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
consider are:
Fiscal Agency
Agents Dep2ortments
Auditing
Custody o f Securities
he last mentioned t h e Comnittee considers o f
especial i m p o r t a n c e
of t h e b a n k s
a s i t i s apparent t h a t t h e activities
i n this r e s p e c t a r e l i k e l y t o i n c r e a s e
greatly a s they move i n t o n e quarters v i t h ample vault
facilities,
It i s important t h a t this’ work b e done n o t o n l y
economically but efficiently and “ith safety t o the banks.
BRANCH BANKS,
The question o f the operation o f branch banks i s a n
important one and has,a very material effect upon the
expenses
o f t h e System.
T h e r e a r e n o v being opexated 2 %
branches a n d o n e agency a i a cost o f approximately
$6,000,000.
p e r year, w h i c h i s about 1 8 % o f the total
cost o f operating t h e System,
The primary object i n the opening o f branches has
been t o e x t e n d t h e s e r v i c e
o f the Federal Reserve S y s t e m
and thers c a n b e n o question b u t that t h e o p e ation o f
the b r a n c h e s b r i n e s t h i s s e r v i c e m u c h c l o s e r t o a
number
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Federal Reserve Bank of St. Louis
518
of member b a n k s , u n d o u b t e d l y r e s u l t i n e
i n advantace
to
Theres i s a considerable variation
performed b y the differert branches, s o m e branches
performirg p r a c t i c a l l y e v e r y f u n c t i o n t h a t i s p s r f o r m e d
by t h e p a r e n t b a n k , w h i l e
i n others t h e o p é v a t i o n s a r e
restricted t o the nandling o f currency, a n d cheeks a n d
in some cases t h e making o f loans.
tain t h e a c c o u n t s
o f the members
tricts W h i l e o t h s r s
S o m e branchss rmain-~
i n thsir immediate
dis-
d o note
It i s apparent t h a t i n cases where t h e branch
territory i s within approximately 1 5 hours! m a i l time
from the parent bank, t h e bonsfits o f the bransh bank
are practically restricted t o those b a n s located i n the
same c i t y with it, f o r i f the country banks c a n reach
the parent b a n k vith overnirht m z i l service t h e y c a n d o
no b e t t e r v i t h t h e branch.
“ h e r e t h e branch territory
is more t h a n 1 5 hours! m a i l service f r o m the parent
bank there a r e also some additional beaefits t o those
member banks located outside t h e branch city.
The b e n e f i t s d e r i v e d
the e s t a b l i s h m e n t
b y the member banks through
o f branches
m a y b e stated briefly a s
ha f o l l o w s :
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Federal Reserve Bank of St. Louis
u
a
e
fa) T h e banks i n tho same c i t y vith t h e branch
can very materially reduce t h s amount o f their vault
cash and i n cases wnere t h o bransa territory i s more
than overnisht m i l service from th: porent bank, t h e
outside banks c a n also bencfit t o a lesser extent
in the samo way.
(b) T h e banks located i n the sam> c i t y vith ths
branch will save a day's time i n the handling o f
transit i t e m s
o n all country points w i t h i n t h o s a m s
reserve d i s t r i c t s
T h i s a d v a n t a r e v o a l d a l s o b e shai>
by the country banks i n the branch tsrritory proviisd
they are more t h a n overnight mail sarvice f r o m t h o
perent b a n k .
{c)
t o n teneseke
a s will result
cee
c l o s e r
contact t h a t t h e m e m b e r b a n k c a n h a v e v i t h t u s b r a n c h
bank, a n d i n the case o f those branches operating a
loan department, s o m a saving i n time i n the making o f
loans.
In the operation o f branches there i s a certain amount
of duplication o f expense "vith ths parent bank.
instances p r o b a b l y t h e e n t i r e o v e r h e a d e x p e n s e s
I n many
o f the
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Federal Reserve Bank of St. Louis
520
branch including t h e provision o f space a n d general
represent a n additional cost. A
study o f the
of the branches would s e e m t o indic:te t h a t i f
now beinc done a t ths branches w a s performed a t
the main b a n s ,
i t vould b e done a t a cost n o t exceeding
the cost o f operatine t h e branches
a n possibly
ras l i t t l e a s o n e - h a l f t h e p r e s e n t b r a n c h expense.
The geographic extent o f a number o f the districts
makes t h e o p e r a t i o n o f branches a
practical necessity,
There c a n b e n o question, hovever, b u t that the total cost
of operatine t h e System i s very materially affsoted b y
the number o f branch3s opsrated, a n d that ssrious c o n s
Sideration should b e given t o this problem before additional
brancnes a r e authorized.
h i s comnittee intends t o make a
study o f the cost o f branch bank opsrations a n d vill later
submit additional data o n this subject.
FUTUR: COURS:
O F &YPENSHS.
nile t h e Committee believes thers a r e further subStantial economies t h a t c a n b e effected,
Aoubted i f the total e<pense s e c c G t s
i t i s vory much
o f the banks will
acain shor a decrease from a preceding yeer i f ths banks
continue t o perform t h e same functions, f o r ths follioving
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Federal Reserve Bank of St. Louis
see
reasons:
5
2
1
1. T h e edononies alfeady effectsd have removed t h e
opportunity for further largé savinetse
The “ork o f the bartrs 1 6 cortinuine t 6 inérease
departiients y tthich inarease will b e sufficient t o
whatever e d o n o m i e s c a n b e e f f e c t e d
i n ops-ation.
titoin anothor vear peectically all cf tas banks
Odcubying their own buildines a n d i t is rrobable
BVELrY
t
h
e actual expenss
o f operation w i l l
beinereased therzby: tne items o f taxes, building upkecp a n d overation bsing considerably i n excsss o f
yent previously paid.
Tt i s o f i n t e r e s t
t o note
i n this c o n n e c t i o n
tiat
tvo bans shoving the smallest percentage of reduction
in expenses i n 1922, a s comparod vita 1921 (Exnibdit 8),
are the tro (Boston and Chicaso) waleh moved into new
puildines d u r i n e 1922.
In s o n e into these n e v buildings t n 3 banks will
secure m a n y advantages w h i c h cannot b e moasured i n dolla +s,
=
the principal one o f which i s greatly insreased safety
ofope~ation and there will probably be obvaiuad sone
economy i n departmental operations, but the total
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Federal Reserve Bank of St. Louis
522
expenses o f the banks will b e considerably increased.
Thers will probably b e a gradual decrease f o r sore
time i n the expenses incurred a s Fiscal Agent which n o w
amount t o about 2 % o f the total. T n e s e is slight
possibility o f a decrease i n any other item, b a t o n the
is bound t o b e a substantial increase
under t h e p r e s e n t p o l i c y i n t h e e r p e n s e s r e p r e s e n t i n g
services t o member banks, w h i c h n o v amount t o about
14% of the total,
ECOMMINDATIONS :
nscs includsd under t n e t w o heads:
Experses Incurred a s a Matter o f Policy i n
Connection w i t h S e r v i c s s R o n d s r e d
t o Msnber
Banks.
Expenses o f Activitiss Carried o n a s a Matter o f
Policy amounting t n tho agcregate t o nearly 21%
of t h e t o t a l e x p e n s e s
expenses s u s c e p t i b l e
The p o l i c i e s
o f t h e System,
are the only
o f a n y c o n s i d e r a b l e reduction.
o f t h e s e v e r s l bantss d i f f e r g r e a t l y v i t h
respect t o the expenses coming under both 6 f these heads.
It i s therefore RECOMMENDED that consideration b e
given t o the several items o f expense included under these
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Federal Reserve Bank of St. Louis
523
forralatinz a
rith r e s p e c t
dsfinite policy for all benks
t o thos>
formed. fres o f charges f o r mamber banca,
(ob) determining the valus o f tno activities
included u n c e r t h s s e c o n d h e a d i n relation
cost a n d estabdl
t o their
i n g d e f i n i t e . policy.for. a i t
barn’-s with respoct thereto.
COMPARATIVE EXHIBIT OF CURRENT EXPENSES
TWELVE FEDERAL RESERVE BANKS COMBINED
1921 AND 1922
Salaries
Bank Officers
Clerical s t a f f
Snecial officers and watchmon
All other
Governors! Confsronces
Fod. Ros. Agents! Conf-rences
1921
1922
$2. 323,994
$2,461 323
15,201 ,393
14, 222,021
818,772
789,879
1,102,934
T5151
1,310,524
5,535
4 029
Incraasa
Deacreasa
$77,329
$979,372
28 ,S93
2 0 7540.
2,236
4 Uh
10,522
168, 65
367,96 2
9,063
1 4 6osh|
22°73
293236,
64,726
741 ,436
4g,156
722,545
63 ,322
18,391
532,307
433,273
99,034
Taxes
Fire lrsvrance
178.178
20,073
Licthy, heat and nowor
10,835
119,408
Rerairs and alterations
All Othor
163, 655
70,231
270,915
9,238
175 ,Q0¢
80,638
74,017°
Foderal Advisory Council
Directors! Meetings
Traveling Expenses
Assessment for F.R. Board Exrenses
Logal Feag
oie
1.459
Insurenco (Life, fidelity, casualty,
workmen's comronsation and goneral
liabil‘ty)
Banking House
Fornituro and Equinnens
1,508,923
Rent
1 312,799
Fire, Ing. - "urn. & Equip.
Office and Other Sumnlies
Frinting and Stationery
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Federal Reserve Bank of St. Louis
17, 492.
593,742
1,022,540
33,122
788, 2u4
1,040,949
11,099
YYZ 193
739,725
47,109
720,679
271,850
6393
150,549
282, 225
Telerhone
Telegrarh
Postage (Other than on money and
security shipments)
Exnressage (Other than on money and
security shipments)
Security Shipments
Currency a n d Coin Shipments
All Othor Exrenses
TOTAL
201,997 203,023
610,763 5 7 3858,
1,085,206 1,118,151
46ok 4 9 , 0 8 4
020
32,945
3,060
20,800
928,387 1,078,518
150,131
892 22 7 7 6 . S
0
1
117.025
$30,241,229 $28,030,555
$2,210, 674
Federal Reserve Currency?
Original cost, including shipping
charsos
4,208,211 1,578,592
Cout of redemmtion, including
s-ipring chargss
Tax o n "edoral Reserve Bank Note
Circulation
S2tj2s6 h k , 1/9
692,339 3 0 4 , 261
5,524,836 2.317,042
GRANLY TOTAL -— CURRENT EXPENSES
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Federal Reserve Bank of St. Louis
$36 066 065 $30,347,587
3,507,804
526
Exnibit + B.
COMPARATIVE EXHIBIT
CURRTIT FYON'SES O F TVELVE FEDERAL RUSPRVE RANKS
1921 AND 1922.
Pe e Ceat
1823
1922
Dacrra.6
pend Decr2as2
$2,259,007
#2135, 56
$23,501
20373
Maw York
8,197,780
6,#2€ 702
1,341,074
1642
Philadelrhia
2,766 uh3
2,095,250
665,593
Clevaland
2,056,202
2,504, 045
UR2, 757
Richnond
2,127,174
1,696,066
431,108
Atlanta
1,580,585
1,310,440
270,15
Chicago
4 252,258
4 318,920
533,278
St. Louis
1,961,250
1,667,977
293 273
Minnesrolis
1,325,267
1,109,522
Kansas City
2,411,079
2,070,948
340,131
Dallas
1,260,256
1,548 ,2O1
312, (55
San Francisco
3,216,964
3,042,390
774,574
Boston
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
$55,066.065 $50,347,274, 728,478.
Exhibit - C
FYHIBIT O F CURRENT EXPENSES classifiod according to functions TVETVE UEDERAL RESERVE BANKS
.
AcDtual Figures
E
Nfor Quarter
I
B Ending
M March
O 31,C1923. (From Schodulo E). Anmal
Figures Estimated i n Proportions
Direct Exponses Beforo Dig-
Afier Distribution o f
tribution o f Administrative
and General E-monses
Administrative a n d
Ganeral Frrenses
Per Cent
Anmal Exnonse
Aof Toval
n m
Por Cant
u
a
i
_ Exrense
Adm. & Ger,”]_ Exnenses
Inc. Exmanses incident t o
Provision of Snace, Por
sonnel, Service & Ovarh'd
$11,952,788
Favenses of Functions
essential t o the or>-ration o f the F.R. S y s t e m
under t h o F-R. A c t
Exp.
$ 1 7 , 7 5 7 , 9 0 4
I n c u sr Fiscal
r e
a dAgt.
of the U.S, Government
Exn.
11,640 ,46¢
6
2h , 8
6
,
4
1 8,018,676
“
I n c u sr Depogitarv
r a
e d
of the U.S. Government
364,900 “ 6 2 4 , 2 7 6
Exp: Incurred as a matter o f
Policy in comection with
Services rendered t o Membor
F wenuses of Activitics carried
on as a matter o f Policy
S i a r
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Federal Reserve Bank of St. Louis
Yo6 ube
3,173,816 y
Barks
F o r 2
y
___1,501,800
. $33,320,012
2
,
4
9
2 688
3 3 , 3 2 0 , 0 1 2
of Total
Exhibit C-1,.
ADMINISTRATITS AND GENERAL EXPINSZS
Including Expens2s Incident t o Provision of
Srase, Psrsoml, Service & Ovorhoad.
Actual Exronses
First Qrartor
P
o
r Cent of
107% A n m i a l Basis T o t a l Exrons3s
G
e
n
e
r
a
l
Overhead $ 4 5 0 , 8 1 3 .
$ 2 ) 759,252
Administration 4 3 5 , 1 4
Governors’ & F.R.Agts.
Crofarences
4
o
7
Federal Adviscry Conferences 4,172
Provision of Syne.
7
Administration
5
1
Banking House
Rented Provorty
6
5239,
, a
L
S
5 903
2 2 2 , 8 4 8
131, 632
Administration
1
6 ,o42
Hiring Enp. & Ion. Records 43,299
Education and Training 2 3 , 5 3 3
“elfaro ani Medical 3 2 , 0 1 9
Cafetoria
1
9
,
5
Goncral Servic? \
1
695,921
2 , 7 3 3 , 6 8 4
Administration
1 8 , 3 0 1
7 3 , 6 3 4
Purchasing
Stock Roon
4
2
2
Telophons
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Federal Reserve Bank of St. Louis
9
Telograph
Coding
2
Mail
,
+
5
B
1
3
7
5
,
E
1 9 9 3 , 8 4 9
, 974 9 9 , 8 9 2
, O04
6
1
, 40 3 3 0 , 1 3 4
Rezistered Mail & Expross 40,003
Filing & Old Rocords 7 5 , 9 0 3
Duplicating
2 4 , 2 1 5 0
PArtoction
2 2 5 , 3 5 4
Office boys and pags
Antomo>ile
1
0
Equipment and Ropairs
S
2 2 0 , 0 2 2
, 6y5 1 4 2 , 7 8 0
4 7 9 2 , 5 8 5
h 415
,
8
4
4 o , 1 8 9
1 9 5 . 0 1 2
y
O
6
0
O
2
2
4
4
4
F 212
9 609
. 356
7
9
4 3 3 9 8
1 6 0 , 7 4 4
. 0 5 2 8
529
Postage
“7514 738
2 2 8 , 6 9 7
Insurance *
P
Accounting
0025
= BSG
~ ~e
_
EAH SIS G e d
Pag? Ze:
0275
+ oper
_ 419,305
10,399
Administration
Gontral Boolrs
283 ,490 _
R02 ,89
UMember Bank Accounts
(Including Reserve
Deficirncies)
Federal Reserve Bank
Acconnts
Exranditureg
Planning
344,664
197,404
62,790
127,612"
Lezal
499,824 -
ins
¥59 492
Administration
All Other
740,392
GRAND
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Federal Reserve Bank of St. Louis
9
5
2
,
7
3
8
.
O92 ©
Exhitit C-2
EYPENSPS O F FUNCTIONS ESSENTIAL T O TRE OPERATION
OF TSR FEDERAL RESERV? SVOTRM TINDER THR FEDFRAL RESERVE ACT.
Actual Exrenses
First Quarter
1923
Loans, Rediscounts & Inv.
3
5
P
e
r Cent o f
A n n u a l Basis T o t a l Expenses
3 501
$
1 424,004
.
o
4
e
k
Administration
Maintaining Cr. Information
2
1
5 (.0090)
Recording Loans & Rediscounts
Rocording Investments (Proportion Crstody of Disc. Collateral
(Including pro'tion of Admn)
Failed Banks
y
a
Administration
3
3
3
" A l l Other
5
1
1
,
8
4
,
4
3
6
8
732,100
5 1,437,930
0 ,820
7
, 244
2 1 3 5 , 9 2 8
0
2
,
7
e s
9
9
5
8
e
,
Currency-Rec. & Sorting
7
2
o
Currency & Coin
Coin
1
7
U
s
?210,
5 287,100
Cost of Currancy (Incl. all Transnortation ches. except t o a n d from
mombsr and non-momber banka. ) 5 9 5 , 9 5 3
Crack Collection
1
,
1
0
2
,
4
5
2 , 3 8 7 , 8 1 2
6 4
4o9 ,82h
Administration (Pronoration) 3 6 , 7 4 6
1 4 6 984
Receiving & Proving Checks 3 2 8 , 1 1 0 +
1,312, 4L0
City Chocks (Clrarings)
9 2 , 6 5 3
3 7 0 ,612
" ( O t h e than Clearincs) 3 2 , 4 2 7 1 2 9 , 7 0 8
Country Chaéclrs
5
3
1
,
7
3 2,127,144
Return Itoms
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2
0
,
7
3
4
3 2 2 , 9 3 6
( . 0 7 1 7 )
+ 1 3 2 4
b e e
146 og
Federal Reserve Agont
106 ,332
39,752
Administration
Fodoral Reserve Note Issuos
6 5 1088,
Assosemont f o r FR. Board Exmonses
TOTAL DIRECT EXPENSES
Add a prorortion c f Adm. a n d
General Freronses
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
S r i
D.
N F
O
AG
2
2,910,117
11,640,468
1,529,359
6,117,436
$y430,476 $17,757,904
ea
ra
os
PE
y
e
t
e
yL
e
TaL
O
g
532
Exnibit C-3
EPESES WICTRRED A S A MATINR O F PCLICY
Ti? COMJACTION VITH SERVICN5 ASNDLREzD T O MEMBER BAIS.
Actual Exnons2s
First Quarter
197%3 A - r m a l Basis Total Exron
Securities for Safetxe ming
(Inclu, proportion of Adm) 2
e e
G y
0
Yon-Cash Collocticn ?
2
Administration (roportion)
Non-Casa City Collaction
7”M
e
a e
Cornea Colisctions (ixcont Govt)
Transfers ef Funis
1
9
5
,
8
2
1
(Inzluling nor'tion of Aann. )
+‘
fos
Cost _cf Currancy €Coin Shomieés. 7 0 9 , 0 2 1 1 , 2 2 4 , 24)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(to a n d f r o m Momhor a n d
Norenemnr Baxi-s- )
‘
Cost e f “rarring Coin
2
F
an
Siipting chzs. o n Securities
% 60 0
2
g o d ;1 6 2 , 4 2 4
:
a
0
Gold Atragion
Surplies furnis2d t o Member Parcs
Purchase & Saisv of Securities
and Com-2rciat Panor
o
a
TOTAL DIRECT EXPHSIS
Adi a pro'pn of Adm, and
Gonoral Exronses
$1,209 ,017 4
m
n
n
o
4
e —
20072
9
6
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
533
Exuibit C-).
EXCENSTS O F ACTIVITIZS CARRIZD O N A S A MATTER O F POLICY
Actval Expenses
P
First Guertor
$
Bants Rolations
Advinistration
6
7
,
1
.
0
Road M o n & Travaling Exrensss
Bank Examinations
1
3
2
All Othor
1
,
1
0
Statistical and Analytical
e
2
2
Prdlicaticns
i
1
5
5
, ‘580
5 3 0 , 0 4 0
) 398
6
5 5 2 , 3 2 4
3 ,022
B
e ,088
i 422 3 2 5 , 6 8 5
2
3
3 ,956
3 455,172
t
S
Monbaly Lettor
0
4
1
Statistical
Library
5
8
2 3 , 4 8 3
3 457
4
Administration
e
3 8 , 9 2 0
,
,
,
n
6
1
4
9
°
, 452
2 9 4 , 0 9 "
s eee
ek
Emplovees Group Lifo Insurange ___ 27,139 ___ 198.73)
TOTAL DIRECT Ex MISTS 3 7 5 , 4 5 0 1,571,890
Add a proportion o f Adminis- .
trative General Bxnensos <
GRAND B o :
r Cent o f
1 $268,124 . 0 0 7 9
3
e
1
Administration
1
0
2 ° ) , 9 8 9
Offico Exponss |
e
A n n u a l Basis Totai Expenses
192
Tee.
9 9 0 , 8 3 3
6 0 3 , 1 7 2 $2,koc,6ag
534
Exiibit 0-5
EXPE'g23 INCURRED A S FISCAL A G E ? O F THE UITID STATES GOVIMUMGIT.
Actual Expeas3s
P
e
r Cont o f
First Quarter
_ A n r i a i Bagis Total 2xnronses
ns S I
$
Administration
Governnont Issuzs
Accounting
5
3
0
3
5
,
.
4
6
Yar Finance Corporation
Cistedy of Securities
3 197 $ 1 7 2 , 7 8 8
4
2
1
0
4 1,340,859
5
2 9 1 ,629
3 278 2 5 3 , 1 1 2
2 8 , 1 4 0 112,560
Treasury Savings Socuritios 5 8 7 , 3 4 2 2 , 3 4 9 , 3 9 8
Govarmvant Saizs Orzamization 6 3 , 9 3 4 2 5 5 , 9 3 6
MOTAT, DIRECT EYPHI'SES © «£1,171, 590 $4,685,240
Aai a vroportion of Adninis- *
trative ani General Exrons?s 4 3 3 , 1 0 9 3 , 3 3 2 , 4 3 9
CRED
T O T LE
$
9 ony, 659.
$ e og, 679
EXPEYSES INCURRED A S A DEPOSITORY O F T H UNITED STATES
GOVFRNVEIT.
Govermnont Choeks
(Including rrorortion o f
Administrative)
Government Coupons
(Including proportion o f Ad.
ministrative
TOTAL DIRECT EXPENS35
Add a propcrtion of Administrative and Gonoral Fxponsis
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Federal Reserve Bank of St. Louis
Aves
wo?.
535
EXPENSSS IDICURRED A S A MATTAR O F
RESDERZD T O MEXISIR BANTS =
TOTAL
FOR
P E I L A D I L
S Y S T B O S T O N N a YORK _ PHA
Sgcurities for Safekesping
(Including proportion of Adm) $ 5 0 , 3 7 7 $2,64e 29,365 9 , 2 7 6
N
o
n
-
C
a
g
h
Collection
2
4
Administration (Proportion)
Non-Casa City Collection
" "Contry 1
1
6 64.3 $
30,942
4 2 , 9 5 9
D
- 99955
5 8 , 9 5 5
O
y eat
3
3,Q34 4 3 , 6 0 0
Coupon Collection (Excort Govt) 42,655
9 2 4 23,040
Transfers of Funds
(Incluting prerortion of Adm) 1 0 3 , 821
C
o
s
t
o f Currency & Coin S-ints,
(to and from Pan's. )
Cost_cf “rarring Coin
3 0 5 , 0 5 1 41,334
5
,
Saipoing Cags. o n Securitics
9
9
L
Gold Abrasion ;
9 1,185
0
W
9
F
4
9
&
Surrlies Firnisheoi t o Members
Purchase & Sale Transactions
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Federal Reserve Bank of St. Louis
TOTAL DIRECT EXPENSES
$
7
5
3 454 73,454 210,137
S
536
Exridit D
POLICY IN CONIECTION TITa SzRVICES
FIRST TEREZ MONTES OF 1923 OLYda
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4
A
T
" MINVERICECFI7AGO
LOUIS
MoD ATLANTA
APULIS
3,839 0 8 3 1,359
30,950 7 , 6 0 5
1,595
eae
13,o49
4,153
5 ! 339
2
,
5
9 3 4
4 4,257
4
5
12,259
37,408
10,341
_ ug _ 150
807 102,314 37,176 £0,653 34,619
SAN FRAN
crsco.
2,207
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Federal Reserve Bank of St. Louis
537
EX°EISSS O F ACTIVITIES CARRIZD O T
FIRS? TYREE MONTES O F
TOTAL
FOR
P
H
I
T
A
D
E
L
— CLAVE.
T
A D .
P
H
A
YORC
T
E
N
SYSraul
B
O
S
T
O
N
e
e
n een
P
e
n
o
e
s
e
t
—
e
————
B
a
Rolations
6 7 , 0 3 1 °
Ad-nini stration
2 9 , 9 8 5
z
:
Office Expenses
7 , 1 2 2
Road Mon & Traveling 3 8 , 9 2 )
Banc Examinations 1 3 2 , 5 1 9
Administration
Ail Other
$ 1 5 ,
#
e
R
a
y
s
1 ,365
e
b
e
?
o
1
5
o
4
5 17,759
1 9 , 4 6 7
1 2 4 , 0 4 8
& Analytical 149,591
S
t
a
t
i
s
t
i
c
a
l
Administration
Statistical
D i g h - g See
S
i ,422
Monthly Letter
Library
Publication
2
2 613
2
8
,
3 52+
1
3
5
Erployeos Group Life Ins._27,139
TOTAL DIRECT EXPENSES 375,450 2 7 8 , 7 9 5 33,517 76,409
* Crodit.
AS A MATTER OF POLICY
1923 ONLY
e
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Federal Reserve Bank of St. Louis
S A I N T MINSE. iAISAS S A T FRAN
RISE
MCD ATLANTA CFICAGO LOUIS APOLIS CITY DALLAS CISCO,
y
$9,458 $ 1 6 , 7 5 5 7,213 3
3,013
933
5,512
8,739
908
7,831
1187”
Led
60,865 17,622 13,099
6 3 9
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Federal Reserve Bank of St. Louis
539
Governor Crissinger. G o v e r n o r Norris, have you
anything t o s a y about this?
*<
Governor Norris.. N o t a t the present time, no, sir.
Governor Crissinger.
D r . Miller, I
think y o u h a d
better make t h e statement n o w that y o u made t o m e a moment
GLO.
Governor Miller,
i t h your permission, Mr. Chairman,
I vould say that this report i s i n the nature o f a progress
report, what the committee has done t o date, and what
Progress i t has made i n its work, w i t h some statement o f
the results t h a t v e believe have b e e n obtainsd a n d some
important c o n c l u s i o n s
v e have developed
t n the w o r k o f
the committee, a n d something i n the naturs o f the problems
before t h e committee.
For the first tims, as the result o f schedule "E",
t is now possible t o pet a cowuparativs picture o f the
expenses
o f functions e s s 2 n t i a l
Federal Reserve Banks, I
t o the operation o f
think i t vill interest y o u t o
knov t h a t e v e r y b a n k s n o w s a
reduction
i n ius opevating
cost i n 1922 a s compared with 1921, and, more important
still, t h e banks a s a whole s'’ioW a veduction o f about
between five and six millions for the year 1923. T h a t
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Federal Reserve Bank of St. Louis
540
includes,
o f course, certain estimates, f o r the year 1922.
If w e taks o u t o f that t h e cost o f printing reserve notes
it probably means a
net saving f o r t h e trelve banks o f
approximately t u o a n d a quarter million dollars.
S o that
something has b e e n changed, a n d i t i s worth noting.
That
saving i n the actual operating expenses o f ths bank has
maintained w i t h n o dimunition o f ths growth i n tho total
folmns o f their transactions.
N o w I think that has largely
resylted because o f the most extensive s t u d y o f operating
methods, comparison o f problems, interchange o f experisnce,
and t h s standardization t i t h respect t o cortain o f those
mere routine functions o f the bans.
So far t h e study c f the committee h a s conzerned itself
with t h e four prinzipa2 functions o f ths bank: c h s c k collections, a c c o u n t i n g , l o a n s , d i s c o u n t s a n d investments, c u r r e n c y
and coin.
It m a y interest y o u t o have a picture o f the results,
briefly, brought o u t b y tris survoy.
About 5 4 per cent o f the exponses o f the banks i s
incurred f o r functions t h a t a r e practically prescribed b y
statute,
o v e r w h i c h r e h a v e n o c o n t r o l whatever.
About
2 h p e r c e n t w e r e f o r f i s c a l a g e n c y operations.
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Federal Reserve Bank of St. Louis
541
About 1 4 p e r c e n t f o r e x p s n s s s i n c u r r e d
b y tné
facts i n tne performance o f voluntary services, s u c h a s
iavest:cratineg security.
About 8
a n d t u e like.
per cent were activities carried o n merely
as a matter o f policy, mostly, i f not exclusively,
in
the Fsderai Reserve A g e n t s department.
Over the fiscal agency operations there i s n o control,
but there i s a n “iudication that the tendency d f these
expenses w i l l b e t o decline.
So that a n y considerable reduction i n the operating
cost o f the Federal Reserve Bank3 will have t o v e effected
to a r e d u c t i o n
o f those s e r v i c e s f o r a c t i v i t i e s c a r r i e d
on
either vholly o r partly a s a matter either o f operating
policy o r o f general public policy.
I t i s the opinion
of the committee t h a t t h e expenses o f operating ture
Federal Reserve Banks will never again b e a s l o w a s thoy
are this year -- in 1923, whon they ran to a total o r
say 53 or 5), million dollars -- pcssibly a little more.
Se think that t h e expenditures a r e Jikely t o grow
considerably u n l e s s t h e r e i s s o m e s o l u t i o n
o f the question
of what w e are going t o d o vith respec* t o p e s so-called
voluntary services and activittes.
A s a
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Federal Reserve Bank of St. Louis
542
these voluntary serviczs
Per Lorms adfor m a m b u r b a n k s n o v
total operating
the eroltest variety o f
s v
practice among tic b a n k s
b a n s
thah i t ala o f
did
rr e A Se on tho velieve
T
as m u c h
l
e
y be.
l doubled.
i s a
% ould
in- t h i s m a t t e r
a s those
a
d
e It
is groving very rapidly as it
So thet i n she matter
are,’ o f course, c o n r r onted
,
o n which
y
c
i
l
o
of our orgsnization o u r banks
vith the thole question o f
7
no recommendation,
pG S
eyes vide open,
but whatever t h s y d o
and v i t h a full knovledgs.
nave’ I n mind, a r e the
so-called voluntary services, such
as investizating securiti es, handline o f non-cash items,
purchase a n d s a l e o f securities,
ereat v a r i e t y o f other
service
a n d t h s porformance
of a
f o r their members.
~t
Governor Crissinger.
Governor M i l ?
The committees n e x
study o f the activities
dspartment,
LZ. D o t Gent.
MOposeSs.
F O t a k e U p . 4 n Ssiyensive
D a n reo
One o t
t h e Federal Reserve a r e
7 department,
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Federal Reserve Bank of St. Louis
auditins department. a n d t h e custocy o f securities.
ye" tae comrittce h a s n
m i t e a l y survey vith respect
to cost o f space, personal o r céensral services.
T h e main
reason f o r that i s that -the banks, w i t h the exteption o f
tvo, a r e n o t y e t i n their o w n buildings, a n d
tirely a matter o f conjecture,
to estimate what their generel expenses, a n d
for space, w i l l U3.
portant,
f
n
I t i s important t o note, v e r y imi
s connection,
t o note that t h e
tvo b a n k s w h i c h s h o w t h e s m a l l e s t p e r c e n t a g e
of expenses i n ths yea.
o f reduction
1 9 2 2 as. compared w i t h the year
1921 are the tvo banks i n Boston and Chicago “hich have
moved i n t o t h o i r n e y buildings.
T h e r e i s every indica
total e x p e n s s , : e
h
t total cost o f operating
soinge t o b o c o n s i d e r a b l y i n c r e a s e d w h e n i t s t o p s
SEs
6tc il,
reflections
Governor Strong,
little vnfa
a
I f think n o deabt that. migat b e a
n organization Wiere they a v e vorking
in over-crovdsad a n d unsanitary quarters,
Governor. Miller, Y e s .
T h e facets arc,
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Federal Reserve Bank of St. Louis
544
hat w e n e v e r e x p e c t t o s e e t h e e x p e n d i t u r e s
o f the
year.
Fedeval R o s e r v e B a n k s a s t h e y w i l l b e duvsing t h i s
They w i l l inorease.
A n d i n a s m u c h a s i n c r e a s e d expenses
means i n c r e a s e d investment,
i t i s t h e opinion o f the
to a
committee t a a t i n t n ? n e a r f u t u r e v e “ t i l c o m e
& @ pretty
point w h e r e o u r o p e r a t i n g c o s t w i l l a c t u a l l y b e
importants e n d m a y b e c o m a
controlling factor i n o w
and
investment p o l i c y , w h i c h m a k e s t h e m a t t e r o f e c o n o m y
efficiency distinctly a n d directly 4 question which i s
hook2d u p vith ths question o f policy..
Now t h o n the committss requests o r asks a n instruction
really, Governor, f r o m ths Board o r from the conference,
whichever w a y y o u choose t o put it, that a definite policy
be formulated b 7 and for all o f tho Federal Hoserve Banks
with respect t o these items o f service which are now being
t member banks, a n d also trat a
performed free o f c a a r g e o
policy b e formalated w i t h respect t o activities oarried
on not. for member banks d i r e c t l y b u t a s a matter o f
policy b o t
b y the Governors a n d t h e Federal Reserve
b e the only
Acents' department, inasmuch a s those s e e m t o
tro expendituves t h a t offe> a n y field f o r reduction,
vould c e r t a i n l y o f f e r a
I t
v e r y p r o m i s i n g f i e l d f o r readod
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Federal Reserve Bank of St. Louis
groutan i f they are allowed t o go unchecked,
You will find a large amount o f very, v e r y intevesting
detail i n this report.
T h i s docwnent a s cntailed a n
immense amount o f study,
Governoy Crissinger. " h a t i s ths pleasure o f the
emference about going o n with No. 7 tonight?
Governor IicDougal. T h a t is another one of the subjectg
with respoct t o which ths Governors h a v e n o t given a n y
consideration.
Governor Crissinger.
V e r y well.
T h a t will g o over
to the next session.
L might sey, reverting t o that last topic, t h a t i t i s
peculiar that ths 1 4 per cent i s just about what
vould g e t o n t h e reserve,
o n t h e earnings
o f ths
year, i f we had had a two per c e n t tax. T h a t i s
about w h a t i t vould h o .
lin. J a y s
May I ask Dr, Miller what reason t h e committee h a s t o
indicate t h e r e i s n o o p p o r t u n i t y f o r f u r t h e r r e t r e n c h m e n t
on the 7 5 per ec ent o r ther-abouts o f itnes representing
statutory r e q u i r e m e n t s
Governor Miller,
a n d f i s c a l a g e n c y onesrations?
5 % per cent.
Mr. Jaye 5 3 plus 2h, was i t not?
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Federal Reserve Bank of St. Louis
Governor Millez.
Yes.
Mr. Jay. A b o u t 7 5 per cent, then?
Governor Miller, Bsocause “ e think the grovth i n
volume
o f o p e r a t i o n p r o b a b l y w o u l d bereits a n y t h i n g
i n the
vay o f reduction i n the fiscal agency oxpenses, a n d judging
from t h e e x p o r i e n c e
o f C h i c a g o a n d Boston,
v e ars satisfied
that the increased cost t o the banksin getting into their
new buildings w i l l more t h a n svallow u p ape reiitece: effective
in the way o f reduced cost o f operating the fiscal agency
department a n d t h e r e g u l a r d e p a r t m e n t
o f the bank.
Mr. Jay. T h a t may be a general deduction, b u t i t vould
not prevent u s from making stronuous efforts t o reduce
those expenses.
Governor Miller.
N o , b u t i t shows that w i t h the
strenuous effort t o reduce those expenses l a s t year, t h e
total reductions w e r e almost,
i f not entirely SO, svalloved
up b y increased cost o f e c h i d n a
Mir. Wills. I
i s e new buildings.
think Mr. J a y has gotten a wrong idea
of what Dr. Miller h a s said. T h e r e i s nothing i n the
committee's r e p o r t t h a t v o u l d inijicate t h a t w e w a n t e d
abandon a n y o f this service.
that w e believe,
to
I t was merely a statement
a s Dr. Miller said, t h a t certain activities
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Federal Reserve Bank of St. Louis
547
are greatly magnifisd i n some o f the banks, a n d n o t i n
others,
a n d i f t h e y were a l l brought
u p t o ths
level, w h i c h h s says, t h e cost vould b e more than doubled.
Governor Miller.
question o f e x p e n s e
I t means more t h e n that.
i s dependent u p o n t h e matter
Ths
o f policy,
and i f we are concerned v i t h t h e matter o f policy, te.
are also concerned w i t h t h e matter o f expense a n d economy;
and i t comes t o a question o f vhether w e are going t o be
under som3 control i n making those expenditures.
many o f these t h i n g s a r e s u s c e p t i b l e
“ A great
o f very rapid
development, and the point that the committee wants t o get
before you is that if ve drift i n this matter we will have
a very rapid svelling o f expenditures, a n d w e want, therefore, t o consider t h e question.
Governor MeDougal.
M a y I
inquire, M r . C h a i r m a n ,
2t
this time, whether i t would b e convenient a n d agreeable t o
the Board and all those interested t o have our final
conference v i t h t h e Board tomorroy afternoon?
Governor Crissinger,. I
Governor McDougal,
Governor Crissinger,
Mr. P e r r i n e
think soc.
A t 2.30?
A t 2.30.
T h e Federal Reserve Arents a r e desirous
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Federal Reserve Bank of St. Louis
548
of h a v i n g a
possible,
joint conference t o m o r r o w morning,
cb
s o thst t h e y might perhaps geet away tomorrow
noone
Governor MeDoural.
tion, Mr. Chairman,
M y roason u n d e r l y i n g t h e sugres-
i s that t h e Governors h a v e n o t com-
pleted t h e i r program,
a n d there a r e matters requiring t h e i r
attention before t h e y leave.
Governor Crissinger. 6
w i l l adjourn,
i f there i s n o
objection, till 2.40 tomorrow afternoon.
(Thereupon, a t 5.05 o'clock peme, the joint conference
adjourned t o 2.34 ofclock pom. Friday, November 16, 1923.)
PoC
Pees
Washington, D . C.,
Friday, Movember 16, 19°23,
2:50 ¢'cleck p . m
The Joint Confsrence o f t h e Board o f Governors o f
Federal Reserve Banks w i t h t h e Governors a n d Chairman
and Federal Reserve A g e n t o f Federal Reserve Banks r e q
convened i n the hearing r o o m o f t h e Board, Treasury Build~
ing, Washington, D . C., a t 2:39 o'clock p. m.
Present: M e m b e r s o f the Board, Gevernors a n d Chair~
mon O f Feder&l Reserve Banks,
Gavernor Crissinger: I
a s previously noted:
think there a r e t w o topics
that w e r e l e f t o v e r f r o m y e s t e r d a y ' s p r o g r a m .
A t , tac
top o f page 5, lo. 2 , "General Policy i n Regard t o
Services t o Membor Banks, Board of Governors! Committee,
Governor Franeher,"
Governor Francher:
M r . Chairman, t h a t report i s a
report o f progress made b y the Board's committee i n studying the particular topie o f nonecash collections.
T h e report
is ihsthe same form as has been submitted, I think, t o each
member o f t h e J o i n t Conference.
T h e report w a s submitted
at the Governors' Conference this morning,
had t h e effeot o f i t thoroughly discussed.
plained t o the conference i t was a
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Federal Reserve Bank of St. Louis
a4 n d they have
I t was e x -
report o f t h e sub-
950
e
committee
o f t h e committee,
a n d i t rather indicated t h e
study o f t h e topic u p t o t h e present time, a n d would
mean that t h e matter would b e studied further before t h e
report would t e finally m a d e t o t h e Federal Reserve Hoerd,
Mr. Perrin:
D
o y o u w i s h t o hear f r o m t h e chairman
If t h e y a r e r e a d y
t o V O p O T Gs
"The C h a i r m a n h a v e r e a d G o v e r n o r
Francher's r e p o r t a n d f o r t h e r e a s o n s t h e r é i n s e t f o r t h
favor t h e handling o f non-cash items without charge."
Mr. M c C o r d i s d o w n o n t h e j o i n t p r o g r a m t o d i s c u s s
this,
b u t since Mr. McCord takes
the majority o f the chairman,
discuss t h e subject,
o n Opvosite
view from
h e was disinclined t o
u n d therefore Mr. Valley will
speak for t h e Agents.
Governor Crissinger:
for t h e o p e n i n g s t a t e m e n t ,
G o v e r n o r Bailey,
y o u arc down
G o v e r n o r Francher h a s just
reported t h e a c t i o n o f t h e Governors! c o n f e r e n c e .
Governor Bailey:
S o m e w e r e opposed
t o i t and t h e
rest o f them were i n favar o f it, t h a t is, t h e continuation collection o f non-cash items.
As far a s the lansas C i t y Hanks i g concerned,
I
do
not t e l i e v e i t : s a n y p a r t a n d s h o u l d n o t
b e o part o f
the F e d e r a l R e s e r v e s y s t e m .
I t i s expensive a n d tales
from t h e m e m b e r b a n k s a privilege t h a t t h e y
have. O n l y
on hundred
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Federal Reserve Bank of St. Louis
members o f t h e twelve hundred i n our district
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Federal Reserve Bank of St. Louis
551
have ever availed themselves o f the benefits o f cash
collection.
I t costs u s practically 2 0 cents a n item
to collect them, a s arainst one-half o f one cent t o
collect t h e cash items.
expensive,
I t i s becoming more a n d more
a n d w e believe f r o m o u r standpoint
i t vas
néver contemplated t o b e a part o f the d u t y o f the
Federal Reserve s y s t e m « < e feel i t should n o t b e continued.
i will g o further a n d s a y that I
believe that a l l the
rest o f the activities v e are doing free should b e done.
as a matter o f fact, Mr.
neserve system needs friends a
great deal m o r t h a n i t
needs members right now, and I believe that all the
trings that can be done, like the shippine o f currency
and other activities enumerated i n the economy report,
met v i t h t h e hearty approval o f our district, b u t a s t o
the collection o f non-cash items, “es are n o t i n Favor o f
het.
Governor C r n e g e r e M r . McCord.
Mr. McCord.
M r . Chairman,
this continuance a n d a s I
m y bank i s opposed t o
a m not i n sympathy with the
action taken b y the Arents I
told them t o seleet someone
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Federal Reserve Bank of St. Louis
else t o deal vith it, a n d they selected
The c h a i r m e n s p l i t i n
this matter o f free services, particularly that
the free services included i n the handline o f non-cash
collections.
quite a p p a r e n t t h a t t h e A c e n t s w n o h a v e s t u d i e d
have l e f t o r t o f c m s i d e r a t i o n t h e a t t i t u d e
the m e m b e r b a n k s
cities.
of
i n reserve c i t i e s a n d b r a n c h r e s e r v e
I t may b e that that w a s t h e beginning o f the
aritation.
However,
t h e attitude
o f those p a r t i c u l a r
banks reflects s i m p l y a local condition, a n d arises f r o m
criticism o f those banks that the Federal Reserve Banks
and b r a n c h e s a r e c o m p e t i n g v i t h m e m b e r ban'rs f o r t h a t c l a s s
of business.
T h e y take t h e position t h e t t h e Federal
Reserve B a n k s p r e s e n t i n g t h e s e i t e m s reeularly, c o l l e c t -
ine them f o r member banks a n d t h e Federal
is free o f 6ny charge, whereas i f the items
free t o ~ a k e t h e i r o m n outlet,
a n d n o t handled
b y the
Federal Res-rve Banks, t h e y vould b e sent t o the local
member b a n k s
i n Pederal R e s e r v e c i t i e s a n d F e d e r a l
Reserve branch cities, e n d t h e y vould c s t t h e exchange.
a.
To bring u p the comparison, t h i s Federal Reserve B a n k
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Federal Reserve Bank of St. Louis
555
handles n o n - c a s h c o l l e c t i o n s f o r o t h e r F e d e r a l R e s e r v e
B anks a n d member banks, a n d sends t h e m t o banks i n
other places, a n d t h e y p e r m i t a
Fowever, I
charse t o b e made.
may s a y that m a y b e left entirely o u t o f
consideratim. I
don't think that a n y Federal Reserve
Apent favors t h e c o n t i n a n c e
o f handling non-cash col-
lecticns f r e e o f charge w i t h the member banks because
hey particularly want t o handle that kind o f business.
It i s a class o f items t h a t sets u p quite a
arnoyine circumstances f r o m time t o time.
cood deal o f
“ e are c o m
pelled t o ask for certified checks i n payment o f those
items.
A s far as I am personally concerned, a s a matter
of choLée, I
mould prefer n o t t o handle them.
O n the
cther hand, theyecan b e very strong and consistent arpument s e t u p a s t o w h y F e d e r a l R e s e r v e B a n s s h o u l d
Conbinues
t o Handie t h e s e ttems. - L t - i s o f particular
advantaré t o the v e r y small banks.
I n many cases - - ~
this j e particularly true i n referenee t o the very
iS = = they must resort i n a measure t o sendire
the non-cash items t o the Federal Reserve Bank; t h e y
form a
port o f t h e i r r a m i t t a n c e s a c a i n s t i t e m s s e n t them,
and a l s o f o r t h e m a i n t e n a n c e
o f reserves,
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Federal Reserve Bank of St. Louis
It m a y b e t r u e - - a n d i t i s n e t m y ywopose
t o make
a disparcpiing statement w i t h recard t o the services o f
any r e s e r v e c i t y b a r k i n h a n d l i n g t h e s e i t e m s , n e v e r t h e -
less i t i s very clearly demorstrated t h a t t h e items a r e
handled more safely f o r these small ban’s b y the Federal
Reserve Banks t h a n t h e y are throush other channels.
It seems t o u s i t i s not s o much a question o f
whether t h e F e d e r a l R e s e r v e B a n k s s h o u l d h a n d l e t h e s e
items a s i t i s a
consideration
in discontinuing it.
o f the difficulty created
H o w are y o u going t o discontinue
to handle them? T h e y have b e e n built u p i n large volume.
Member b a n k s h a v e l e a r n e d t o d e p e n d u p o n t h a t s e r v i c e ,
and t h e f a c t t h a t t h e y c o n s i d e r
i t o f advantare
to
handle t h e items throush t h e Federal Reserve Banks i s
clearly d e m o n s t r a t e d
instance,
i n t h e erorvth o f t h a t volume.
For.
i f v e should consider a t this time, particu-
larly, d i s c o n t i n u i n g t h e s e r v i c e s w i t h r e g a r d t o noncash i t e m s s i m p l y b e c a u s e
i t is a
matter
which t h e F e d e r a l R e s e r v e B a n k r e c e i v e s
o f expense f o r
n o compensation,
then w h y should v e not s a y that v e will c i s c o n t i m e
shipping c u r r e n c y f r e e a n d d i s e o n t i m e o t h e r f r e e s e r v i c e s ?
The report, or, rather, t h e vote o f the chairmen's
conferance,
i f i t i s examined a n d looked into, v i l l show
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Federal Reserve Bank of St. Louis
hat t h e c h a i r m e n t s
confer
ne h a n d l i n e
nee has
o f non-cash items should
b e con-
Jaye G o v e r n o r B a i l e y i n s p e a k i n g f o r t h e
Governors’ Confer-nce s a i d t h r t i n his opinion t h e
collection o f non-cash items h a d n o place i n the Federal
system,
Toe,
f h e3
H a s
h e given consideration,
m a y I
t h a t Coaeress amended t h e a c t i n
1917?
Governor Bailey. S u r e .
Me, Jay.
T h e authority o f the Federal Res:
Bank i s G r a c t l y t h e s a m e a s t h e a u t h o r i t y
o n rhich t h e y
collect f r o m member banks outside o f their o w n district.
Governor Bailey.
D o y o u think that these non-cash
items a r e v e r y -ood thines u p o n vhich t o build u p re-
serves?
. ¢ build u p reserves o n them. T h e y are not
reduced t o cash until threes, four, five, s i x days, about
a veek, a n d they send t h e m back, maybe,
or revised,
Y o u
a
Governor ‘ellborns.
t o b e reviewed
n open ledrer seve months o l d «=.
O u r b a n k i s n o t i n favor o f
continuance o f handling non-cash codtectionstbecause,
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Federal Reserve Bank of St. Louis
556
first, w e believe that i t takes away from the member
bank a
leritimate p a r t o f t h e i r f u n c t i o n --the collection
of non-cash items... I
think i t i s very different f r o m a
check, f o r instance, entirely different, because i n that
case i t i s r o t p r o p e r t o charse f o r r e m i t t i n g a
check,
because thet i s really a charce arainst a customer o f
the bank.
B u t this i s entirely different,.and i s a part
of the leritimate function, I
think,
o f a comvercial
bank, a n d f o r that reason o u r board, almost unanimously - I think except o n e member - - i s i n favor o f discontinuance
of the handling o f t h i t e m s .
the Board p u t this i n t o effect,
A s I
understand i t , w h e n
i t was f o r t h e main purpose,
as expressed i n the Board's letter, f o r t h e benefit o f
country banks.- A l l o u r country banks a r e i n favor o f
discontinuing i t . T h e y eet n o benefit f r o m i t a t all, a n d
it only deprives member banks o f their leritimate charge.
Another reason “ h y I think «ses should discontinue i t
is t h a t t h e e x p e n s e
a m i l l i o n dollars,
i s enormous,
I t i s fisured around
a n d i t i s e s t i m a t e d t h r t i f i t continues
it will ultimately reach somethine around t e n million o r
trelve million dollars - - the expense o f handling it. I
think t h a t i s a n e x p e n s e t h a t t h e F e d e r e l R e s e r v e s y s t e m
should not g o to for the purpose named..
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Federal Reserve Bank of St. Louis
557
Governor McDougal.
M r . Chairman, vould i t be i n
order f o r m 3 t o report t h e action o f ths Governors! C o n ference v i t h respect t o this matter?
Governor Crissinger, Y e s .
Governor McDougal.
sidered
T h e report a s submitted w a s con-
i n t h e liesht o f a progress r e p o r t i n d i c a t i n g t h e
basis o f the information secured, a n d was a very comprehensive s t u c y o f the situation, t h e advantares a n d disadvantares.
with
it a
T h e report,
a s I remember, d i d not carry
definite r e c o m m e n c a t i o n
discontinuance o f the function.
consideration
f o r t h e continuance
o r
O u r body gave very careful
t o the matter a n d concluded thst t h e report
should b e approved, a n d i t "as approved, w i t h the under-
stending, hovever, that the Federal Heserve Board “ould b e
requested
to betes
t h i s committees,
i t beinr a
Board
committee, a n d t o charge that committee with the responsibily
ity o f making a very careful s t u d y -ith respect t o the
probable ¢evelopment, t h e probable expense that micht b e
involved, a n d vent further a n d recommended that t h e same
committees b e charred vith the responsibility o f making a
similar study rith respect t o the cost involved, a t least
in connection v i t h o t h e r free services rendered, ingluding
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Federal Reserve Bank of St. Louis
55®
the n o n - c a s h t i e m s ,
t a c c u r r e n c y shipment,
s a f e kceping,
vire transfers and, I think, possibly one other function
that w a s mentionsd i n the report r e a d before this b o d y
yesterday.
Mr, Harrison, I
should like t o inquire whether that
report covers fairly t h e action o f our body. I
Governor Harrison.
believe
T h a t dosas c o v e r i t substantially.
It specificd o n e o r tyo other itsms.
Governor MeDoi1ral. I
have s o stated.
D o y o u iknow
they V e r e ?
Governor Farrison.
I t vas sonething like t i s :
Hov' valuable i s the service o f collectines noncash items t o the members o f ths Federal Reserve System,
dividine these banrs betveen b a n s l o c a t e d i n Federal
Reserve b a n k and branch bank cities, a n d those n o t located
in those cities.
is the probable grovth o f the volume o f
this basiness a n d whet vill i t likely cost.
%, m a t
i s the p o n eiwility o f imposins a charre
upoa t h e c o l l e c t i o n
least r e i m b u r s e
o f non-cash items r h i c h a
t h e cost
e e
o f c o n d u c t i n g sate >t h e b u s i n e s s ,
t s
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Federal Reserve Bank of St. Louis
559
report u p o n hot t o consider t h e practicability o f charg+
ing o n a l l i t e m s
o r o f c h a r g i n g o n l y o n those i t e m s , v h i c h
do a s s t r e e t a d d r e s s i t e m s .
4. T h e t t h e c o m m i t t e e
b e requested
t o conduct
identically the same type o f investication a s t o all other
service w h i c h r e are n o w performins vithout charge f o r
our members,
Governor Citssinger. Yhoen v a s t h i s c o m m i t t e e a p p o i n t e d ?
Governor Harrison.
This i s a
committee t h a t w a s
appointed b y the Fedsral Reserve Board,
Governor Crissinger.
“ h e n was i t appointed?
Goy.rnor Harrison. I
possibly a
think i t was last Merch, o r
vear a~o6, L a s t M a r e n , I
Governor Crissingeer.
the e o m m i t t e e
belicve, s i r .
H o w mach more tims d o you think
rill vant?
Governor MeDoveal.
“ 6 cannot ansver that.
I t is the
Bosrd's Committee,
Governor Strons, G o v e r n o r Crissinrer, I
ly a
think practical-
larre p a r t o f t h e v o r k o f c o l l e c t i n g i n f o r m a t i o n f o r
the committee has already been done, and the recommendation
was t h e t t h i s c o m m i t t e e
b e reaussted
t o continme t h e i r v e s t i -
gation a n d report promptly a s t o nonecash items, a n d t h e n the
report a s t o the other four items could come alonz later,
after investication and study. I
should think thet s o much
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Federal Reserve Bank of St. Louis
560
of t h e v o r k h a s b e e n a l r e a d y c o n c l u d e d
six veeks, possibly,
i t vould o n l y take
t o finish u p the report, “ s i c h vould
thror v e r y mich light t h a n r e nor havs u p o n the attitude
of the member banks towards t h i s business.
Governor James. I l i . Ghatrman, michnt I surrest t h a t
there a r e t r o p o i n t s t h a t J o ~ o t s e e m t o h a v e b e e n t o : c h e d
€ primary idea behind t h e inqviry i s the belief
thet t h e Federal Reserve system i s not t o make money f o r
the banks, b u t t o serve acriculture, i n d u s t r y and commerce.
I snould l i k e f o r the committse t o develop a n expression
from t h e customers a s t o these non-cash collection items,
as t o nov they feel about it. I
should l i k e f o r t h e m t o
develop a recomrendation a s t o whet should b s accepted b y
the messenrers w h o are sent o v t b y the Federal Res=rve
Bank
t o collect these items. I
very m c a
understand t h s t t o r s
is
i n some sections.
Reference w a s m a d e t o certified. c h e c k s .
thet i n some places t h e certified c h e e k i s not acceptable,
and there i s a very sreat aifference o f opinion, I
find,
as t o vrhat i s a c c e p t a b l e a n d v h a t i s not.
Then I should l i k e t o find o u t where t h e authority
comes f o r t h e Federal Reserve system t o dsel directly v i t h
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Federal Reserve Bank of St. Louis
561
the public.
I t seens t o me that properly the Federal
Reserve system should deal rith the public through member
banks o r b y our remitting banks, I
mittee,
i f von please,
should like t h e con-
t o rather separate i n its final
report t h e n o n - c a s h c o l l e c t i o n i t e m s drarvn t h a t a r e pay-~
able a t member o r r e m i t t i n g banks, a n d those items
mnich a r e d r a w n o n i n d i v i d u a l s
o r firms a n d a r e collectible
throuch c o n t a c t b e t v e e n t h e F e d e r a l S e s e r v e B a n k o r l a n d
bank and the public either one. I
points m a d e v e r y c l e a r
Governor Bailey.
vould like t o have t ose
t o me,
T o make myself clear, the reason
I made t h e s t a t e m e n t w a s b e c a u s e t h e r e s o l u t i m
did n o t r e s i s t e r t h e s e n t i m e n t
o f s o m e o f t h e banks,
three t h a t v o t e d a r a i n s t
Governor C r i s s i n z e r .
a s passed
it.
H a s anybocy else a n
Is i t your idea, Governor Strong, t h a t
there should b e a vote taken here?
Governor Strons.
I said t h i s morning, I
M r . Chairman, I
think I
share,
can only repeat what
i n s o m e respects,
the
apprehension thst has been expressed o f the responsibilities
of the enormous amount o f vork i t entails, s n d the fact that
it will svamp u s vith machinery a n d experses, b u t I
a m aot
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Federal Reserve Bank of St. Louis
562
yet convinced t h a t w e krowW enouch about that policy t o
determine a t this tims t o bardon Joins this business.
It ourht t o b e investigated.
At our mesting i t developed that there vere quite
a difference i n view a s t o the class o f banks t h a t t o o k
advantase o f the service a n d g o t benefit f r o m it, a n d
whether i t was a bensfit, that is, a distinetive benefit.
It seems t o m e that i s a matter t o b s investisated.
I f
Governor Bailey's statement i s true that v e want friends
rather t h a n members,
v e vant t o b e careful that i n cutting
off this service v o don't make enemies instead o f members.
At l e a s t v e s h o u l d r o t d o i t t o o hastily, “ i t h o u t k r o w i n g
just ‘iat r e are doing.
Governor Crissingen,
I s t e r e anything further o n
subject?
Mr. Jay. S i n c e Dr. Miller h a s spoken o f the
efficiency and economy committee, m a y I be allored t o
make a
rerark before e
p a s s this. p o i n t ?
In listenine t o Dr. Miller's report yestcrday f t felt
that t a e a c c o m p l i s h m e n t
o f t h e p a s t y e a r i n reducing
expenses v a s o n e t o b e q u i t e p r o u d o f ,
disheartened b y his forecast which I
m t I
vas v e r y m i c h
have since read i n a n
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Federal Reserve Bank of St. Louis
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amplified f o r m i n the report thet about 7 5 per cent o f
our expenses v e r s susceptible o f vractically n o reduction,
those e ~ p e n s e s i n c l i d i n e t h e f i s c a l a s e n c y functions,
ecolléction o f H o n - c a s h i t e m s a n d @
handline
the
o f raserve
cotes and other currency, s o that for any incors thst
micht c o m e a b o u t h e l o o k e d r a t h s r
t o t h e services a n d t
the Federal agency functions, those being roverned
opsretion b y policy rethar t h a n b y recuirsement o f lav.
I t
seems t o m e that that vas a rather dispiritine ortlook. a
going t o consider t h 2 volume o f cash being handled,
which ~ e hentle today, a s static, n o t susce»tible o f any
ehanre except i n the line o f increasing,
outlook r o a l d b e e n t i r e l y correct;
o f course t h e
o r i f “ e r e r e t o consider
the voluine o f checks t h a t * 3 vere handling a s either static
or increasing a n d -ot t o b e reduced, t h e deduction vould
also b e correct, bat I vould like t o ask Dr, hiller i f his
L
committee w o u l d n o t - c i v e s o m e s t u d y a s t o v h e t h s r t h e
volume
o f c u r r e n c y t h a t t h e F e d e r a l “2s-erve Ban'rs h a n d l e
and t h e volume o f checks thot t h e y nandle c a n ot b e very
materially reduced,
renandling.
I n both eases t h e r e i s a
creat d e a l o f
I n the ease o f the checks 4 & grest m a n y o f them
are handled b y two Federal Reserve b a n s .
e é oucht possibly
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Federal Reserve Bank of St. Louis
564
to reduce t h a t t o one Federal .eserve Bank, I
satisfied,
am
b y arran-ements t h a t a r e n e v i n effect
district o r another, a
i n one
sveat m a n y checks m a y b e cleared
and s e t t l e d t h r o u c h t h e s y s t e m v i t h o u t e v e r c o m i n g i a t o
the system a t all. I
a m quite satisfied v e nandle t h e
same five o r ten dollar note five o r t e n times over, very
likely b y thse same bank, a n d there i s a tremendouslamount
of duplication i n 4*positine a n d checking: o u t vhich b y
some means o r other I
a m sttisfied ~ e will b e able. t o
reduce o r overcome b y reducing t h e volume o f those thincts
to b e h a n d l e d a n d r e d u c i n g o u r e x p e n s e ~ i t h i n t h e 7 5 p s r
cent. I
think ~ e s h o u l d l o o k t o s e e i f t e c a m o t r e d u c e
or expenses somerhat along thet line rather than looking
solely t o cutting o f f these various thires “ h i e
member b a n k s e n o r m o u s l y a p p r e c i a t e a n d v o u l d c r e a t l y
resent having taken avay fron them.
That d o you s s y about t h e volume o f
Mr. J a y ?
Mr. Jay.
< A erect m a n y checks a r e sent there o y the
country bank t o our Federal Nes~-ve B a n k a t Nex York a n d
cleared
i n the Minneapolis district,
a n d the l e v York
Bank sends t h e m t o Minneapolis i n the Minreapolis district,
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Federal Reserve Bank of St. Louis
565
They are handlod twice.
simplification
I f ve could arrive a t some
i n o u r method, a
a i d ,
s o that ~ e could
get that country bank t o send direct t o the district bank,
ag the c i t y banks n o v do, a n d wake o n l y one handling,
ve
could save erpense there. F u r t h e r m o r e , under t h e Reserve
city plan thet they have i n Texas, checks are sent
directly between some 3 0 or 40 banks i n Texas, arid never
come i n t o t h e F e d é r a l R e s e r v e B a n k a t all.
T h e y are settled
throurh t h e Federal Reserve B a n k and? the Federal Reserve
Bank never sees the checks. T h e y keep them out o f the
Federal Reserve Ran':, and they “on'tt cost us anything.
Can your committee r o t maks some studies along that
lins, Dr. Miller, a n d endeavor t o reduce the volume o f
hendling these thines instead o f continually putting
pressure
o n cutting o u t these services w h i c h I
is a n y t h i n g b u t e n c o u r a g i n g
country.
t o t h e member b a n s
G o v e r n o r C r i s s i n c e r remembers
country b a n k e r s
there.
o v t i n the
t h e meeting
i n W e r Y o r k s o r e t i m e a706. I
their attitude o n the subject. I
assure y o u
o f our
think h e r o t
wes cled t o have him
I t dots keep them i n a turmoil all the time, and
I agree w i t h G o v e r n o r C r i s s i n c e r t h a t
to a f i n a l d e c i s i o n
- e ought t o ~ e t d o v n
i n this w a t t e r s o r e t i m e
i n the n e a r
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Federal Reserve Bank of St. Louis
566
future, a n d stand pat and s o ahead and get rid o f this
constant turmoil o f msmber banks.
Governor Ssay.
I t ssems t o me, Mr. Chairman, i n
the d i s c u s s i o n o f t h s m a t t e r t h a z e h a s d e v e l o p e d
o r else
there h a s b e e n viven t h s impression that there i s a
fecling o f u n c e r t a i n t y a s t o w h e t h e r t h i s f u n c t i o n o u g h t
to b e abandoned o r aot. I
did n o t cather that that w a s
the sentiment among t h s Governors.
upon continuance orabandonment,
erssion,
I f the question v a s
a s I understood t h e dis-
i t ronld b e decidedly f o r continuance,
T h e r
wes, novever, coupléd vith. the resolution passed b y the
Governors, a
request a n d a desire f o r some further specific
information vith respect t o the subject.
The subject o f cost o f handling this business h a s b e e n
alladed to.
I t should r o t b e overlooked that there i s n o
control i n the Federal Reserve Board o r the Federal Reserve
B a n sover sucno matters a t sll. I
become burdensome, I
mean i f i t should
do not k r a r h a t there i s fin the v a y
of imposing a char~e f o r handling it.
I t may b e ten o r
tventy million could b e ssi8a. b u t lone before i t reaches
thet, i f i t readhes that, i f i t become t o o burdensome t h e
porsr lies within t h e authority o f the Board t o impose t h e
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Federal Reserve Bank of St. Louis
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charge. I
before
don't sse why “o should areas thet question
i t confronts
u s i n more i n p o r t a n t p r o p o r t i o n s t h a n
it does a t the pressnt tims.
One cuestion broucit u p i n the discussion r a s t h e
power o f the Federal Reserve Board i n doalince +tith the
public.
I t seems
t o m e there i s t a t specific porer
all sections, n o t specifically i n thirtsen,
in
T h e Federal
Reserve Banks shall have pover t o receive checks a n d
drafts p a y a b l e Uben:- presents ions.
I
t novwhsre s p e c i f i e s
thet those ciecks a n d drafts shall b e presented b y a
banking institution.
I n section 1 4 i t says t h a t t h e
Fedsral R e s e r v e B a n k s h a l l h a v e p o v e r t o acauire b i l l s
exchanse,
8 n d s o forth,
stitutions,
appears
of
I t nowhere speetfies b a n k i n g i n -
I f it does involve dealing with the public, i t
t o m e t h a t v e c l e a r l y h a v e t h e porer,
Another point raised b y Mr. James v a s t h e different
practices o f Federal Reserve Banks i n presenting these
accounts a n d receivine certified checks a n d other forms o f
payment.
“ e @ brousht into-confer-nce o u r meinber banks
on that subject and inquired o f them vhat their practice
wag,
T h e r e was s o m e
but t h e perticular
T
h
e
y vere q u i t e uniforms
“ h i c h I thourht h a d n o t b e e n
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Federal Reserve Bank of St. Louis
568
emphasized, b u t which,
o n tho contrary, seems rather t o b e
an uncertainty, “ a s that thse opinion o f the Governors a s I
understood it, w a s that i f the question w a s a
continuation
or abandonmsnt o f this, i t vould b e overvhelningly i n favor
of continuetion a t the present tims.
I did n o t wish t o add anything t o the resolution passed,
but i t d i d s e e m t o m e t h e t s o m e e - p l a n a t i o n
o f tnat o n e
point w a s needed.
Governor Strong.
D i d rot tho committee also vote
unanimously i n favor o f vetting more information before
deciding vwhethr t o abandon i t ?
Governor Seay. Y e s ; but I think i f it came t o a vote
at the present t i m e o f abandoning o r continuing it, t h e
vote would b e overrhelminely f o r continuing it.
Governor Miller. I
think tris h o l e discussion a n d
similar discussions always raises t h e question a s t o thether
the Federal RKesorve system i s just eroving,
or whether i t i s coins t o b e developed,
a s Topsy rcrev,
M y orn opinion i s
thet i f w e just l e t it. rrow, v h e n « > rake u p t o a realizastion w h e t h a s h a p p e n e d
i t sill b e t o o l a t e t o adopt a
that v e might a n t t o adopt.
“het I
course
fear i n the Federal
Reserve system a t the present tims i s this, t h a t t h e o p e n
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Federal Reserve Bank of St. Louis
569
market a r m o f the systen i s r o i n g t
o becometbourht
i n the
future, a n d certainly i n ths n o t distant future, s a y within
tas next five years, a n d t h s larger t h e overhead operating
expenses a n d dividenis t h a t y o u saddle u p o n t h e system t h e
more you are going t o force open msrket ops“ations.. T h i s i s
the partieul-r t h i n g thet I
of t h e r e s e r v e b a n k s ,
would liks t o say t o the eleven
T 2 3 m o r e important o p s n market opera-
tions become ths more important vill come the reserve bank
of Nev York.
I t i s one thing w e come u p acainst, N e w York
ie the reserve ban'= o f ths system, a n d o f certainty, vithout
any c n o i c e o r a n y i n t e n t i o n
o r planains
o n t h e i r part, t h o y
appear i n ths role o f leadership. Development o f the open
market o p e r a t i o r s m u s t f o l l o w i f w e a d d t o t h e o v e r h e a d
expenses o f the system, T h e day i s not a t all distant - it i s pretty near.-- “ h a n t o operate this system a s a dividend
paying system will take 50,000,000 a year, T h a t i s a
Sremencous overhead o n a system that i s designed t o furnish
currency a n d t o stabilize credit conditions, w h i c h i s likely
to b e t h e a p p r o x i m a t e r u l i n g r a t e f o r s o m e y e = r s
t o cove
on the total investment o f not less t h a n a billion e n d a
quarter dollars,
Governor Strong, T h a t i s about what r e have got.
570
Governor Millsr.
‘ “ e have g o t a little less now.
any rate, I think that i s a miniman figure.
A t
I f it soes
higher i t i s more ssrious still, a n d espocially i f i t soes
higher, because v e have f o t t o make mousy i n order t o cet
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Federal Reserve Bank of St. Louis
out.
So that t o m e the question o f expense sets i t mains
importance f r o m ths fact that w e hav> g o t t o force t h e
development o f the premature development o f policies, and,
above all, t o force t h s concentration o f the actual control
and leadership of this system i n New York. I
am just
talking about t i i s i n a perfectly impartial sense.
Y o u
are concern3d here v i t h a problem which underlies t h i s
system for tne future, a n d I don't think tnat w e ought t o
lose s i g h t o f that. a n d f e e l u n d u l y c o n c e r n e d a s t o whether
this o r that country bank will b e indignant a t not getting
all i n the w a y o f free service t h a t i t vants. A
wants f r e e service will nover geet what h e vants,
the m a n y o u c a n afford t o ignore.
iman who
H e is
B a t y o u canrot afford t o
fenore, a s I see it, the development o f the situation that
CELE i n e a p a c i t a t e t h i s s y s t e m a s a
s y s t e m o f trelve r e g i o n a l
reserve banks f o r exsrcising t h e irfluence o v e r banking that
it vas s e t u p t o exercise,
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Federal Reserve Bank of St. Louis
571
would like t o ask Dr. Miller a
Governor Calkins. I
question, whether h e votld favor tn> continuance o f this
particular service w i t h charges sufficient t o mset t h s
cost?
have n o o p i n i o n t o express
Governor Miller. I
thet, Mr. Calkins. I
do t h a t t h a n I
o n
think Mr. Strong i s more able t o
am.
Governor Strong.
T h e o n l y reason I was anxious t o
see this committes pursue t h i s investigation a
little
er is because, frankly, I have a great dcal o f
Goubt a b o u t t h e c o s t o f h o n d l i n g t h i s business.
T h s
record o f ths Federal Reserve B a n k o f New York shows a n
{nerease i n round figures i n tvo years o f soma %600,000 -nesrly a million dollars.
T h e expensss this year vill b e
possibly as low as %170,00®.
I n other words, v e are
@oing twice a s ruch business a t betveen possibly “40, @00
or10,000 less cost, and that expense rill flatten out
after avhile throuch volume increasing and throuch
greater efficiency, I
~ould lize t o see those firuves.
Governor Miller, T h e y are available.
Y o u can see
them.
Governor Crissincer.
T h e r e i s anothsr part o f tuis
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Federal Reserve Bank of St. Louis
572
topic vhich has n o t b e e n touched upon, a n d that i s the
"Among other matters th? Board desires discuss
Philadelphia p l a n regarding tims o f charging a n d ersditing
currency shnipnent.”
Has anything b e e n dons about that?
Governor, Canninghamn
h i n k M r . Curtisg,of Boston,
fad. V e 6 n 0 n y 64-3 a A te
Mr. C u r t i s s .
T h a t m a t t e r vias d i s c u s s e d
of F e d e r a l R e s e r v e Arcents a n c a
report made.
b y the conference
M r . Perrin c a n
give y o u the report,
Mr. Perrin,
I t was voted b y the conference o f chairmen
that i n vier o f the adoption o f the report o f the committee
on reserves,
n o penalty should b e assessed f o r deficiency
occasioned b y impsirment o f reserve betveen time o f shipment
of currency a n d its receipt,
T h a t i s not t h e exact lansuars.
I took i t i n pencil ratnsr t r a n t o cet the stenorraphic
however, unanimous. - Ssven voted yes,
three voted no (Mr. Curtiss voting n o and desiring his vote
so recorded), a n d one not voting.
It was thse thourht thet i t vas Jesirable, i n view o f
the r s c o m m e n d a t i o n s
o f t h e comrittse
o n reserves,
“nich w e
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Federal Reserve Bank of St. Louis
573
voted i n f a v o r o f , a n c t h a t i t v a s proper n o t k o t a k e u p
snipment f o r decision a t one time, b u t t o
take t h e m u p separately, a n d s e e h o w they vorked, a n d b e
euided i n the hendling o f the incoming shipment
evperience
b y the
“ e c a i n e d w i t h recvard t o t h e out-foing.
vas n o e x p r e s s i o n a d v o r s e
t o applyins
There
i t t o in-coming
shipments e x c e p t t h a t v e s h o u l d b e s u i d e d b y experience.
I presented, ii. James, t h e thought that y o u expressed
to me, that attention should b e given t o the desirability
of counting i t as the prop>rty o f ths Federal Resorve
Bank f r o m t h e d a t e o f transportation,
a n d dutine i t s ship-
ment t o the Federal Reserve Bank, i t remains t h e property
of tne Federal Reserve Bank,
Goverror Crissincer. G o v e r n o r Worris, h a v e y o u anyPane:
t e s a y o n that?
Governor Norris.
I t i s a subjsct, Mr. Chairman, that
"eé are naturally vsry rach irterested in, Thro: shout the
discussions h e r e o n t h e v a r i o u s t o p i c s t h e r e h a s b e e n
allusion t o the relative advantages o r disadvantages o f
membership, c i t y and country.
~ e ¢ have felt i n Philadelphia
that thers rere certain disadvantaces t o a country member
thet vere inevitable, t h a t could r o t b e changed, t h a t t h e y
r,
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Federal Reserve Bank of St. Louis
574
suffer, b u t w e fesl a n d I
think everyons o f us i n
room will admit that there a r s certain disadvantar:s,
J ~hether v e adnit i t o r rot, v e mast admit t h e fact
feeling i s v - r y veneral,
a n d t h a t i t i s leregely
prevented t h e securing o f additional members a n d has
operated v e r y lurvely t o limit t h e number o f friends v e
had o f the system a n d that, therefore ,
whatever c a n
properly a n d ssfely a n d justly b e dons t o mitireate t h e
disadvantases o f the country member ourht t o be “ons,
-@ felt thet t h s situation v e s psrticularly patent a s t o
deposits o f monsy w i t h a reserve bank,
half-past t v o o r f i v e m i n u t e s
o f tnree,
T h e c i t y bank,
c a n come i n
4
and deposit i t s meney a n d ret eredit t h e same day. ‘ T h e
country b a n k s h i p s
i t and i t i s a
they c a n get credit f o r it. I
day o r t v o days before
think that whatever m a y
have b e e n ths reasons t h e t actuated i e eencaniasa o f
enairmen i n reaching t h e decision that t h e y did, “hsther
it vas a desire t o experiment o r anythine else, their
eonclusion
is a
very fair a n d proper one. I
“ould n o t b e
prepared t o defend i n logic t h e statoment that t h e monsy
we ship vas ours until i t was received, b u t that t h e money
that t h e y shipped t o us was ours f r o m t h e moment t h a t t h o y
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Federal Reserve Bank of St. Louis
575
parted v i t h i t ; b u t I
think i t i s j u s t a s i n c o n s i s t e n t
say t h e t t h e m o n e y i n transit
to
i s t h e property o f the country
member b a n k b o t h w a y s a s i t i s t o s a y t h a t i t i s o u r p r o p e r t y
both vays.
I t ought t o b e th> property o f ths reserve b a n k
one W a y a n d o f t n e c o u n t r y b a n k t h s o t h e r way, a n d i t is,
of course, a small matter, a n d i t is ono which w e took u p
ani put into operation a n d maintained until v 3 were obliv-ed
to discontime
i t last J u l y not a s a question o f affecting
the reserves, b o c a u s e t h e e f f e c t
o n reserves
i s negligible.
Our céleulation i s that i t amounted t o about o n e a n d a
ousrter p e r cent o f the reserves o n a n average.
B u t i t vas
dene a s a purely administrative thing, a n d there i s n o one
thine ve ever did, larce o r small, that has such a good
effect upon the country bans a s that one particular thing,
and,
@ S y o u know, w h e n w e v e r e o b l i c e d t o d i s c o n t i n u e i t ,
hey annealed t o us, a n d then after v e advised then that w e
were porerless, they appealed t o ths Board o n the Subject,
and i t is a very sore thing vith them still.
Governor James. I
t‘o1ld like t o ssy, Mr, Chairman,
right o n that point about whose property t h e money 28,
counsel has informed u s that i t was the property o f the
Federal R e s e r v e B a n k ,
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Federal Reserve Bank of St. Louis
576
Governor Norris.
B o t h ways?
Governor James. Y e s , sir, since y o u are paying
ex‘enses h o t h ways, a n d having t h e m insured i n favor
of the Fedsral “eserve Bank, they are the property of the
Federal R e s e r v e B a n k .
Governor Norris. I
think that i s n o doubt perfectly
true a s a legal matter, b u t - Governor James.
T h a t i s whet h o said.
Governor Norris, Bait in equity and justice, I don't
think i t ought t o b e s o resarded,
Governor Seay. T h e r e are some things, Mr. James,
proper
i n l a v b u t n o t i n fact, a r e t h e r e n o t ?
Governor James. Y e s .
B i t when y o u are arainst
you are f o r t h e legal e n d o f it, a n d when v o u are f o r
you vant t o inquire beyond t h s leral e n d o f it. J u s t
sense tells y o u i t belongs t o the Federal Roserve Bank,
irrespective
o f lav,
Mr. Curtiss, I
vould just like t o siy thstvord, because
I asked t o b e rerarded a s voting no, a n d I asksd t h t because
I did not believe i n the vote a s passed b y the chairmen. I
would l i k s t o s e s a
plan simply accepted a s o n 3 which t h e
Federal Reserve Bankscould adopt i f they s a w fit, a n d n o t
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Federal Reserve Bank of St. Louis
make a general policy o f the system.
I s there anybody o n the other
Governor Crissinger.
side of this question that wants t o say anything?
Mr. MeCord. T h e Federal Reserve Bank in Atlanta had
a practice o f dealing w i t h penalties
which p r o v e d 2
very satisfactory
o n such shipment
t o us, e s p s c i a l l y
t o the
remote country bans, until the Governors! confer nee here
voted arainst it.
“ e kopt u p that prectice until i t was
voted acainst, t o ths very great benefit o f those who were
loceted a v a y f r o m t h e F e d e r a l R e s e r v e B a n k city.
I n other
words, i t put the Fedoreal Reserve #yssem back a t the door
of every member b a n k i n the handling o f such item.
2 0 2
am 1n-feaver o F 3s.
Governor Seay.
M r . Choirman, I
vould like t o ask our
cnairman and also our secretary i f the opinion o f the
Governors o n this matter v a s n o t included i n the action o f
the Governors!
o n the matter o f reserves?
Governor Strons. I
think so.
Governor Harrison. I
Governor Seay. I
Governor McDougal.
think i t was.
thousht s O T h e r e w a s n o discussion i n our
conferenes relating expressly t o this particular feature,
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Federal Reserve Bank of St. Louis
"G B 7 9
bank i n the country p u t checks i n t o a n envelope a n d mailed
them t o t h e c i t y correspondent,
reserve
t h e y vere counted a s
a t once?
Governor James.
Mr. J a y e I
C a s h too.
am not sure about cash.
Governor James. Y e s , cash, t006>
Governor Crissinrer,
h a t
d o the Governors s a y
desirable t o d o i t for the g o o d o f the
Governor “ellborn. I
agree v i t h m y colleague, I
believe i t vould b e a good thing.
Governor Crissinger. B s c a u s e i t has been a n old
custom ourht n o t t o b e a n y reason f o r u s not i n a
practical setting around t h e o l d custom f o r the g o o d o f
the system.
Governor Calkins, I
think t h e opinion has b e e n vsory
clearly brought o1t, although i t does n o t seem t o b e very
Clear i n t h e record,
items.
i n connection v i t h t h e different
T h e n e t opinion vas that while i t might b e de-
sirable t o readjust t h e reserves o f member banks o n some
more scientific basis t h a n t h e y ars n o w adjusted,
should n o t b e done b y indirection.
it
I f the reserves a r e
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Federal Reserve Bank of St. Louis
580
not right,
i f the advantace given t o the eountry bank b y
fixing i t s resorve a t 7 per cent a s compared with 1 0 and
153 vould n o t b e sufficient, t h e r e should b e a revision o f
those reserves.
T o permit a
more o r less irregular a n d
unsystematic reduction o f reservos, depending upon a sreat
many different types o f transactions, w e u l d b e unscientific
atleast.
I f this practice is correct as to thoory, there
is n o reason,
a s the chairman h a s said, w h y v e should hesi-
tate t o put i t i n effect simply because i t has been the
custom t o t r e a t i t othervise.
I f such adjustments w e r e
made b y the Federal Reserve b a n k i t i s bound never t o
reflect t h e t r u e c o n d i t i o n
apainst deposits.
I
o f t h e reserve a c t u a l l y carried
t i s chan*ing t h e reserves without
any Scientific p l a n o f changing them.
Governor Crissinger,
I f you had a n agent out i n a
bank, a n d he put $10,000 i n a trust company, whose money
would i t b e ?
Governor Calkins. I
Mr. James. I
have n o d o v b t that.
vas going t o ask Governor Calkins i f
there w a s a n y doubt i n his mind a s t o the noney belonging
to t h e s y s t e m ?
Governor Calkins.’ I
have n o d o u b t a b o u t that,
5AL
Governor James.
T h e n h o w would y o u discriminate
in your bookkeeping against money i n the hands o f the
cavrier,
t h e property o f tho Federal Roserve Dink,
i f you
are s e t t i n g u p y o u r r e s e r v e s f o r t h e b a n i ? W h e r e i s
the
distinetion between that and ths gold i n the gold settlement fund? Suppose y o u were down t o where you had t e
arav o n t h e g o l d i n t h e g o i d
out over your counter.
statemont?
o n
e e e
f u n d t o p a y money
H o r would y o u sst i t u p in‘your
A s ‘ deficiency i n reserves?
Governor Calkins. l i r , Jamds, being a lavyer, I quite
agree w i t h y o u r p o i n t t h a t t h e m o n e y i s t h e p r o p e r t 7
o f the
Federal Reserve Bank and i t might b e legally s o counted.
Governor James.
I t would b e then a n advantare t o the
member banks w h o are unduly pemalized because o f their
geographic location, a n d vould i t not b e well for the
Federal Reserve Board t o lean t o ths legal side o f it?
Governor Calkins.
M y point, which I tried t o make,
was that i f these b a n s w e r e penalized b y the present
provisions o f the law, t h s proper remedy was t o change
the
provisions o f the l a w a n d not t o y So: meet t h e situation
by s o m e operation which i s a very uncertain
factor.
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Federal Reserve Bank of St. Louis
Governor Janos. I
maintain this, i f you please, t @ t h
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Federal Reserve Bank of St. Louis
582
Mr. Curtiss, that t o meet all o f these varying conditions bocause o f tire schedules,
i n order t o ret a n
exact a n d scientific basis o f reserves, y o u would have t o
take i n t o c o n s i d e r a t i o n t h s d i s t a n c e
o f e v e r y s i n g l e point,
and y o u vould n o t have a 13, 1 0 and 7 set o f cities, b i t
you v o u l d h a v e a
different r a t i o o f reserves f o r a l l cittes,
AS a n operation proposition this money i s absolutely without question t h e property o f the Federal Roserve system,
and therefore why not count i t just the same as you count
the money i n the gold settlarent fund, a s part o f tho
assets o f the Federal Reserve B a n k and, a s somsbody stated
a little while ago, carrying th> Federal Reserve system and
these. facilities, i n so far as cash transactions are concerned,
t o the member b a n k vharever i t may b 2 located,
Has
that thought occurred t o y o u about trying t o b e just a n d
fair t o all the members i n ths matter o f ths setting r p o f
reserves? Somevhere you have got t o have a dividing point,
unless y o u vant t o have a n unlimited number o f reserves s e t
up T h e n , above a l l else, t h e proposition that i s before
us n o t c a n b e c a r r i e d o u t t o t h e a d v a n t a g e
banirs without recourse t o Congross. A
necessitates l e s i s l a t i o n ;
o f the member
chance i n resenves
a n d i n m y judement i t i s advisable
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Federal Reserve Bank of St. Louis
to ask a s little a s possible a l o n g that line.
Governor Norris.
would like t o add. I
reference
M r . Chairman, o n e point more I
think Governor Calkins i n his
t o t h e f a c t t h a t i f this p l a n w a s f o l l o v e d
it
vould n o t reflect t h e true reserve position o f the
reserve banks d i d not understand j u s t vhat th> practice
is. ‘ h e n r e had this system i n effect,
i n every case
of currency shipment made b y us t o member banks t h e
amounts w e r e alvays chareced arainst their reserve
balance o n the 4 a y o f shipment.
of course,
w a s credited
T h e incoming currency,
o n t h e d a t e o f receipt,
a n d then
after those entries h a d gone through t h e bookkeeping
department - - and t h e y never vere altered,
they vent t o the analysis department vhich,
o f course,
==
i n making
up the calculation o f penaltics f o r deficient reserves,
made a n adjustment
o f those items;
s o that t h e m o n e y w a s
only treated a s the money o f the Federal Reserve Banks
not f o r t h e p u r p o s e s
o f o u r statement b u t solely i n the
caluclations o f penalty f o r deficient reserves.
Governor Calkins. I
Governor N o r r i s
arree, Mr. Cheirman, w i t h
t o this extent:
H i s operation v a s f o r
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Federal Reserve Bank of St. Louis
684
the purposes o f avoiding t h e imposition o f psnealtiss f o r
deficient reserves, a n d i f there i s any proper means b y
which y e c a n avoid t h e imposition o f that penalty I think
Governor James.
‘ e l l , h e r s i s one, p e r f e c t l y p r o p e r
and perfectly plain.
Governor Seay, M r . Chairman,
if theres
i a n y one
principle f o r which w e fouzht, b l e d a n d died, i t i s that
the r e s e r v e s
o f the member banks s h o u l c consist s o l e l y
of realized b a l a n c e s
i n the hands
o f t h e r e s e r v e banks.
That i s the fundamental principle u p o n “hich v e are operating o u r system noy.
I t i s distinguished f r o m t h e o l d
practice o f banking i n that the old practice r e c o r n i z e de
h
t
reserves consisting not only of cash but o f items i n the
mail a n d i n transit f r o m t h e t i m s t h e y l e f t t h e bank.
There is thet fundamental difference. F o r arreumentative
purposes there a r e t v o vays t o equalize t h e difference
betveon c i t y banks andmember banks.
O n e attempt h a s
already been made t o equalize t h e difference, altiough I
do not believe that i s fully appreciated.
T h a t Governor
Calkins calls attention to. T h a t i s b y differentiating
perecentacss b e t v e e n r e s e r v e s r e a u i r e d ,
i
f v e want t o
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Federal Reserve Bank of St. Louis
585
equalize
t h e differences betveen membor banks a n d non-
member b a n s
v e know perfectly vell that o n e body cannot
be i n t v o p l a c e s
a t t h e s a m e time;
a n d reserve banks
cannot b e i n the cities where t h e y are located a n d i n the
country e t the same time.
B u t w h y not raise t h e reserves
of c i t y banks?
If v e vant t o ecualize them, i f the purpose o f this i s
to equalize,
a s I understand t h e purpose,
in that ray.
B u t i n doing this thing I
i t can b e done
honestly a n d
firmly believe t h a t y o u a r e doing some things v h i c h are
danrerous a n d which d o attack t h e integrity o f the realized
balances w h i c h are i n the Federal Reserve Banks,
Governor. James. B u t , Governor Seay, t h a t i s just t h e
point.
I t i s the property o f the Federal Reserve Bank, a n d
it i s a floating gold settiemsnt fund,
in any other way, legaily o r othervise.
existence,
Y o u cannot tre%t i t
T h e money i s i n
- ¢ 2re n o t talking about checks.
“ * e are
talking about honest-to-God money, a n d i t i s here, i t i s
in existence, and it belonszs t o somebody.
I t is the
property o f ths Federal Raserve Banks lecally.
Governor Hamlin. T h e r e i s n o question o f float.
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Federal Reserve Bank of St. Louis
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Governor James. T h e r e i s n o question o f float
whatsoever.
I t i s a question o f gold settlement funds;
just exactly that, and nothing else; a n d i t cannot b e
considered, l e g a l l y o r morally, a n y other thing t h a n
property o f the Federal Reserve Bank.
Governor Seay.
“ i t h respect t o that I
t h i n that
only b y fiction o f lat: i s i t trus that funds deppstchsd
from t h e m e m b e r b a n k d o v n i n T h r e e C c r n o r s
i s the property
of the Federal Reserve B a n k until i t gets there,
Governo> James.
“ e have g o t pretty good legal authority
for It,
Governor Ssay.
Y o u m a y have t h e l a w o n your side, b a t
wehave the facts on our side. I
don't think there is the
remotest parallel, except one o f technicality.
Governor James.
M y dsar man, could you collect a n
insurance o n something you did not own? I
Governor Seay.
don't think so.
I n point o f lav y o u migm.
Governor James, T h a t i s what w e are talking about.
Governor Seay.
I n point o f lav, I
right now, although I
legally.
matters.
a m not disputing
a m not prepared t o say y o u are right
“ “ e are puided b y advice o f counsel i n these
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Federal Reserve Bank of St. Louis
Governor James.
T h a t i s what {
am.
Governor Seay...
» 6 have counsel, too, a n d counsel,
as we havo learned, don't always agree.
Governor James.
T h a t i s t h e r s a s o n t h e y a r e counsel.
Governor Cvissinger,
W n a t voald y o u d o i f you h a d
an Agent a t Scranton, Pennsylvania with a sack full o f
money that belonged t o the Federal Reserva Bank?
H o w vould
itappear? I f you knay he had $100,000 how vould it appear
in your accounts i f it did not belong t o you? W h a t warid
be your s e t up?
Governor Seay. I
have hsard o f that arrangement, sir,
and I think i t displays vonjerful ingenzity .
Governor Cri:
B
a
t h o w vould i t affect you?
Governo: Seay. ‘Wonderful in-smaity, a n d I vould not
be surprised that while i t i s a most desirable arrancement,
by reason o f its actual saving and economy, i t might b e
justified.
Genesee Crissinzer, ‘ / o u l d i t not b e your money?
Governor Seay. I
have n o doubt y o u would have t o
twist t h e facts t o set i t out o f me.
Governor Crissinger. I
it v o u l d b e y o u r m o n e y e
a m trying t o find o u t whether
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Federal Reserve Bank of St. Louis
588
Governor Seay.
L s t m e a s k vhothor i t i s s o much
our money that w e c a n l a y ovr hands o n i t a t all times.
That particuler monzy, a s I understand, i s secured b y
deposit o f gold coin. T h o r e i s th? answer,
Governor James.
No.
Y o u are dsad wrong. Supposing
you had a bank that was running into a jam at Three
Corners a n d y o u sent a
clerk o u t o f the bank a t Rictrnord
down there t o ret your monsy,
i f possible, a n d h e gets t h s
real honest-to-God money, W h o s e money i s i t while h e i s
riding o n ths train?
I s i t yours, o 2 does i t belong t o
the fellow y o u got i t from?
Governor Platt.
Y o u vould n o t turn i t loose.
J u s t b y way o f putting & word i n
on the other side, reducing the thing t o a reductio absurdun,
perhaps,
sud >
@ Federal R s s e r v e B a n k w a s d o w n t o t h e
limit o f its o w n reserves a n d h a d o n l y 3 5 pa> cent against
its deposits and ho per cant against its notes, and it ran
short during the day a million dollars, a n d a million
dollars v a s coming i n from a n outlying b a n k somevwhsre,
Suppose t h e train i s robbed betveen that place a i m his
city.
W h a t i s t h e B o a r d t o d o w i t h rersard t o p e n a l i z i n g
the F e d e r a l R e s e r v e B a n k f o r d e c r e a s i n g i t s r e s e r v e ?
money i s i t ?
Whose
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Federal Reserve Bank of St. Louis
589
Governor Crissinger.
T h e insarance company owns i t
then.
Governor Platt.
T h e insuranze company cannot g e t i t
from you.
Governor Strong.
counts
O n s trouble about that i s while i t
a s r e s e r v e f o r t h e c o u n t r y b a n k i t does n o t c o u n t
as reserve f o r t h e Federal Resorv> Bank, because i t does
not appear o n their books, a n d thoy don't k i s anything
about it.
Governor Crissinger,
I f tasy n o ?
i t i s snhivoed t h a y
knov' something about it, don't
Governc> Strong. I
roally thints, Governor that t h e
question o f legal title does n o t deternins vhathor i t i s
reserve a
note
Governor liiller,. I
ovm a horse, b a t h o i s not here
and y o u c a n ' t r i d e him, C o n s e q u e r t l y h s i s n o t m y horse.
Governor Strong.
There is a
it i s y o u r c a s h a n d v h s t h s r
Governor James,
adifferencs b o t v s e n w h o s h e r
i t i s ressrve.
H o w a r e you going t o count your gold
settlement f u n d behind y o u r reserves?
possession.
I t i s not i n your
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Federal Reserve Bank of St. Louis
590
Governor Strong.
that m a k e s
Taere i s & provision o f the l a w
i t so.
Governor J a m e s ,
Tnere i s a
provision t h a t makes
this Yours.
I don't think there i s a provision
Governor S t r o n g .
of l a w w h i c h mattos t h o c a s h w h i c h h a s b e o n d e l i v e r e d
t o us
by this particular motuod f r o m 411 ov3r ths country a
we
ka
, rhon
e
v don't
r
ew
delivered
sWoon. e
O fihos
r 1%
s going t o be
t o us.
is
Governor James.
I t your casi.
Governor Strong. Y e s .
But, Governor Crissinger, I
tuink tnere i s a point i n
connection with this particalar matter wnich i s being overlooksd a n d i s a@ very important on3,.
In Jans o f 1917, t h e question o f rolative reserves o f
the d i f f e r e n t c l a s s e s
o f banks vias c o n s i d e r e d a n d t r ? relai-
e reserves ovn different iclasses o f deposits
t
cwa
osn s i d e r s d
by t h e F e d e r a l R 3 s e r v e B o a r d a f t e r a
l o u g study, a n d t h a y
submitted t o Congress ani secured ths passare o f ths bili
fixing these reserves a t seven, t e n and thirtsen p e r cent,
those percentages having bsen arrived a t after a consideration o f a l l o f these d i f f e r e n c e s b e t w e e n t h s b a n k t h a t w a s
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Federal Reserve Bank of St. Louis
591
located i n a c i t y t i a t h a d a
Fsdaral R e s e r v e B a n k a n d o n e
Was located i n ths counsry.
A l l o f thos: things
taken into considsration, a n d m y memovy o f that i s
that t h e reserve percentacs f i x e d f o r country baats w a
fixed upon the thsory that t h e y would still carry i n fact
ten p e r cent reserve because,
o n the average, tiusy were
required t o keep about tivo per cent i n th3ir till.
Governor Hamlin.
F i v e p e r cent, w a s i t not?
Governor Strong.
F i v e t o the country banks, ysS,
That is-Pignt.
Th p r o p o s 2 l
t o make a n y change
i n tus reserve
requirement n o v b y this methot which Governor Calkins h a s
described a s indirect i s simply a n additional concession
to the country bank, a n d additional redaction i n their
reserves f r o m w i a t w a s recommnsndsd a t t h a t t i m . 5ani E y
vant t o call attention t o the fact that t h e calculation
of t h e a m o u n t
o f reserves t h a t v o u l d b e c a z r i s c a s c a s i i n
the vaults which would n o t count a s reserves b u t would
serve some purpose i n givine t h e b a n x a n opportunity o f
meeting payments o f cash for t h e country a s a whole
ran a t a b o u t t v o p e r c e n t i n s t e a d
had b e e n calculated.
o f threes p e r c e n t w a i c h
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Federal Reserve Bank of St. Louis
Governor S2a7ye F i v e p e r cont,
Governor Strong. N o .
I t was five per cent for
country banks,
‘yr. J a y e T h e y r e d u c e d t h e r e s e r v e por,eentare f i v e
per cent o n each grads.
am speaking o f the amount o f
Governor Strong. I
cash w h i c h i t v a s a s s u m s d t h e y w o u l d b e r e q u i r e d
t o carry
in their tills, although i t did not count as reserve.
a matter o f fact, i t i s very much less.
A s
M y venture about
has
further changes i n the resezve requirements i s that i t
mone a s far a s i t can.
Governor James.
thie s e v e n p e r c e n t a
M a y I ask you this?
take i t t h a t b e c a u s e
I n setting u p
o f the vast
preponderance o f volxm> being i n the joint city,
i n tare
thirteen a n d ton, t h i t when t h s y got d o w t o ths fixing
of seven p e r cent i t may have b e e n laterin t u s avening
and some fellow wanted t o t a e t h e train home o r something,
and they overlook what thoy wors doing t o the man who was
one d a y f r o m t h i s s y s t e m ,
t v o days, t h r e e d a y s , a n d f o u r
days a w a y from it, i n providing facilities; a n i I an
satisfied that i t was t h e intention o f Congress t e b e
fair t o the country banks a n d t o equalize t h > country banks
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Federal Reserve Bank of St. Louis
593
as m i g n t b e possible,
a n d vhile s e v e n p e r c o n t m a y
bs perfectly fair f o r the country bank that i s o n e d a y away,
I think y o u vill agree w i t h m e that i t i s penalizines t h e
fellow w h o unfortunately has m t political strength enough
to hav: h a d a branch ban': established rearer him,
Mr, Martin,
tion?
A s I
M r . Chairman,
i s there n o t this distinc-
understood G o v e r n o r N o r r i s
i n his explanation
of the actual workings o f ths plan, t h e book entries f o
through just exactly the v a y they alvre h a v e , s o that o n
the books o f the b a n k tic reserve f t o i n g t o b e the same,
Now this thing, while i t may d o i t very indirectly, o n l y
affects t h e penalty cnarge. I
may not b e
or m a y not e c t all e f the slements i n ths
seems t o m e that i t does n o t chance t h e reserves
changes w h a t t h e bank W i l l p a y i n the w a y o f pansalty.
Governor Stronree
D o you think they will carry a
in excess o f the amount that i s required i n order
to eseape t h e penalty? P r a c t i c a l l y i t i s a
the r e s e r v e r e q u i r e m e n t s .
Governor Ssay.
count
I t i s c o t there, b u t they are roing t o
i t there,
Governor Crissinrer.
* “ e have o n e more subj
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Federal Reserve Bank of St. Louis
thers 1 6 nothirr farthsr..e “ a l l e o o m t e ths m e x
gum ject, Nov 7. A r e o r e a n y amendments t o the law
desirabis?
T h s follovine amendment h a s b s e n sursested
fa) t h a t member b a n e b e permittod t o deduct
Cash o n h a n d a n d c h s c k s
i n ecirse
c f c o l l e c t i o n irony g o s s
d“posits,
tir, Curitss apparently h a s b 3 e n assiened t o discuss
that, unisss v o . sentlonon have mace s o r e diffsrent
area nsements.
(ir. Curtiss t h e n presented t h e r e p o r
f - the Chaivmsn's
Committee m Reserves, as follovs:)
REPORT O F C O M M I T T "s.0N RUGiRVGS
)
F P RADL ROSVaAvVe:
VASHINGTON -
AG e e C
O
N
NOVEMNSAGR, 1 9 2 3 .
Most o f the proposed chanres i n mamber banks! reserves
rould n o t o n l y materially reduce present resevve requirements,
but s o r e o f t h e m v o u l d a l s o r e a u i r e
eral Reserve Act,
a n amentmnt
t o t h s ired-
T h e proposals m a y b e sinmarized a s
follo*s?:
so-called N e v Sn-land plan, under
r
b a n : se l o c a tb e d o u tm s i d e
oe f F e d mr a l
Len
kse s e r v e
A Nary
bank a n d branch bank cities ttoald b e permitted t o keen
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Federal Reserve Bank of St. Louis
595
one-tnird
o f tneir required ressrve
i n tus form o f
cash i n vault, t o consist o f ths Federal Heserve
notes
o f t h e F e d e r a l R s s e r v e B a r k o f i t s Gistrirest.
Ii.
T h e proposal t h a t c a s h i n vault s h o u l d
be a l l o v e d a s a
deduction f r o m rross deposits
i n
ealculatine reserve.
III.
T h e proposal thet i n aedition t o allove-
ine t h e s m o u n t d u s f r o m bari-s t o b e d e d u c t 3 d f r o m
the a m o u r t d u e t o banks a l l m e m b e r b a r i s b e allore-
ed t o deduct f r o m gross demand lisbilities cheeks
in the nrocess o f collection i n a Fed-ral Neserve
Aanir; a l s o = m e h a n c e s f o r C l e a r i r s F o u s e a n d c h e c k s
on o t h e r ba~“zs i n s a m s place.
“4th rerard t o I, - called t h e N e w Uneland plen, other s i m i l e r p r o p o s a l s ,
t o allow a l l c a s h i n vault
the Committee fesls t a s t t h s
position o f members i n t i s respect r a s adsountely talen
care o f then,
i n 1917, Convress adorted
eserves
o f member b a r k s ; n a m e l y ,
that all reserves sn~ild b e kept o n deposit i n the
ss
Bederal, R e s e r v e Rartt.
A t the tive this chanrs " s s made
the reauired reserves w e r e 16%, 1 5 % and 1 2 % respectively
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Federal Reserve Bank of St. Louis
596
for cantral reserve c i t y bans, reserve c i t y bans, a n d
country banxs.
I n o r d e r tnrat t h e p r o p o r t i o n
o f cash for-
merly kopt i n the vault mieht still b e kspt i n vault without
penalty u n d e r t h e n e p l a n , Cornrress r e d u c e d e a c h o f t h e s e
percentares
b y 5
for t h e v e r y p a r p o s e
o f p e r m i t t i n s banks,
t o carry 5 % o f their demand deposits i n
if necessary,
cash i n vaulte
h e theory vas that a
bank vould t h e n
earry only such mininmwm vault c a s h a s the nature o f its
business r e o v i r c d ,
Banks
larce a n d * e t i v e d e p o s i t s ,
i n industrial centres w i t h
a n d t h e r e f o r e w i t h substan-
tial o p p o r t u n i t i e s f o r profits, “ o u l d h a v e t o e a r r y J a r c e r
propoztions
o f cash t h a n banks
i n rural communities v i t h
velatively smell e n d inective deposits a n c lesser opportunities f o r profit.
I t i s trus that >ar’s i n Federal
Ngaserve c i t i e s a n d b r a n c h ecitiss 2 r p a r t i c u l a r l y
favored i n this respect orins t o their proximity t o Ghd
Federel Neserve Bark o r branch, but, i n order t o offset
this, t h e Board h a s ruled that n o branch o f a Federal
Heserve B a n k m a y b e established unless t h e c i t y i n
weich i t i s establiehed i s willing t o b e classified a s a
reserve c i t y .
stances
T h i s n a s oceurred
s o tnzt t h e banks
i n a4 number
i n Federal
o f in-
Reserve cities
are
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Federal Reserve Bank of St. Louis
597
alrecdy penalized,
a s conpared v i t h country b a n s ,
to
the ertent o f either 3 % or 6% of trcir gross demand
liabilities
i n the arwunts
o f unproductive r e s e r v e
they m u s t c a r r y v i t h t h e f e d e r a l iteserve Bank,
One o f the objects underlyinr t h e 1917 chanre i n
the r e s e r v e recvuirerents v a s c c o n o n y i n t h e u s e o f
currency,
I f member b a n s w e r e a l l o s d t o carry o n l y
was felt that t h e y vould,
i n their o v n interest,
economical
i n t h e u s e o f cash.
a s practicable
bs
ifsny
banks, e v e n i n payroll cities, w h i c h used t o carry l o r e
amounts o f cash have b y ons means o r another b e e n enabled
to reduce their c a s h t o reasonable proportions,
A n z
return t o t h e o l d p l a n o f p e r m i t t i n g v a u l t c a s h t o
count a s reserve vould tend t o lack o f ecovomy i n the
use
o f GCurrSsncy.
The Committee, therefore,
RECOMMENDS t h a t the Board arprove n o amendment “ h i c h
will i n whole o r i n part reverse t h e principle underlying
1917 amendment.
“ith r e v e r d
t o the second surrestion, ~
in v a u l t s h o u l d b e a l l o v e d a s a
that c a s h
deduction f r o m sross
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Federal Reserve Bank of St. Louis
598
demand Tisbilities,
r
e
v
e
r
t
s t o its
report c f last y e a r i n which i t 6étatas i t s belief
that, ideally,
n o dsductions whatever f r o m cross
liabilitiss should b e permitted.
T h i s , tovever,
the Committee found t o b e impracticable o f accomplishment e
The Cormittee believes that the logic o f pormitting
checks
t o b e deducted f r o m deposits
i n ficuring reserve
is thet reserve i s bsing carried acainst t h e amounts r e presented
dravn.
b y *hose c h e c k s
i n bans
I f all checks w e r e received
o n yvhich t h e y a r e
b y banks a s d e f e r r e d
credits, instead o f a s immediate credits, t h e y = could not
be deposits a n d the question vould v o t ari
accepted a s deposits subject t o collection v i t h the knor-
iedee that before they are collected checks dravn by the
banks! c u s t o m e r s w i l l b e p r e s e n t e c f o r c h a r g e a c a i n s t
their accounts i n amounts substantially eaval t o the
amount o f checks i n collection, t a k i n e each bank a s a
whole.
I t i s a t i o m a t i c t h a t d e y i n a n d d e y out,
averarsée, t h e c h e c k s d r a v n o n a
o n the
bank approximately equal
the checks deposited i n a bank. O t h e r v i s e t h e dsposits
of a bank would either constantly increase o r constantly
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Federal Reserve Bank of St. Louis
599
decrease.
This s a m s r e a s o n i n g d o e s n o t a p p l y t o t h e deduc-
tion o f cash i n vault f n o m deposits.
C a s h i n vault
bears n o relation t o debits a n d eredits i n the deposit
liabilities.
I t i s reserve itself.
I t i s a n asset.
The amendment o f 1917 ezpscted banks t o carry a reserve o f
Cash i n vault.
I t merely d i d n o t spocify h o w much cash
was t o b e carri3d i n crder t o permit banks t o econumize
in carrying c a s h e s mach a s micht b e practicable under
their local conditions.
The Conmmittec, ther:zfore,
RACOMMINDS that i n caleulatine reserve c a s h i n
vault b e n o t a l l o v e d a s a
Jeduection f r o n c r o s s d e m a n d
liabilities.
True p r e s e n t p r o v i s i o r s
o f tie A c t permitting ciecks
in course o f collection, a n d tharefore d u s f r o m banks,
to be deducted only from the liability item due t o banks,
is a relic o f the n o w obsolete collection systsm water
which banks kept a netrork o f reciprocal arra
for c o l l e c t i o n p i r p o s e s v i t h o t h e r banks.
O n tre
grounds discussed i n the pararcraph dealing v i t h tne
second s u r g e s t i o n ( t h a t c a s h i n vault s h o u l d b e 2 l l o v e d
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600
as a deduction from gross demand liabilities) there i s
sound l o g i c a l g r o u n d f o r ths d e d u c t i o n
o f uncollected
ch3acks f r o m t h e deposit accounts o f those v h o deposit
is, from cross demand liebilities.
-iship t o country banks t a s t t h e
vorcing o f ths l a v which o n l y permits uncollected checks
to b e deducted f r o m amounts d u s t o othcr banks enarles
the b a r s
i n large cities, w h i c h have oxt-of-torn
correspondents,
t o avesil t h e m s e l v e s
o f this d e d u c t i o n ,
vhereas the countzy banks, r o t having such accounts,
cannot avail themselves.
I f , a s has been above sug-
banks reesived chscks o n l y for deferred credit,
it “ill b e seen that t h e deduction,
a s acainst present
conditions u n d ° r w h i c h b a n k s r e c e i v e c h e c k s f o r i m mediate c r e d i t , s h o u l d
rno denesited t h e
3 e
r o against t h e a c c o u n t s
o f tnose
T e o s e a r s t h e lorical a c -
counts f r o m vsich t o make t h e deduction, n o t f r o m acbark m a y happen t o have f r o m other ban’-s
vhich m a y h a v e n o r e l a t i o n t o t h e c h e c k s
i n question,
The Committee, thersfore,
RENZ-S I T S RECOMMENDATION o f last year, t h a t checks
in process o f collsction v i t h Federal Reserve Banks,
oxehanges o n Clearing House, a n d checks o n banks i n same
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Federal Reserve Bank of St. Louis
601
place should b e allowed a s a deduction f r o m gross demand
liabilities.
The Committee urges t h e Board t o endeavor t o obtain
a ruling thet this m a y b e permitted rithout amendment.
But, i f i t i s unable t o secure s u c h a ruling, t h e
Committee
RSCOMMENDS that Congress b e asked t o amend t h e l a w
accordingly.
Such a ruling o r amendment vould permit country banks
to avail themselves o f this deduction.
I t would have t h e
further effect o f inducing other country banks,
to take advantace o f the proposal,
i n order
t o send checks f o r
collection directly t o the Federal Reserve B a n k instead
of through city correspondents a s i s the case n o v with
so many country banks.
T h e Committee believes t h a t this
would b e a most desirable development, t h u s bringing every
member b a n k i n t o d a i l y c o n t a c t w i t h i t s F e d e r a l R e s e r v e
Bank.
Respectfully submitted,
PIERRE J A Y
WILLIAM MeC. M A R T I N
FREDERIC H. CURTISS,
Noveminer Ey, TIES»
CHAIRMAN.
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Federal Reserve Bank of St. Louis
602
Mr. Gartiss. I
might s a y that the committee has
endeavored t o make sone investigation a s t o the amount
that this would decrease t h e total reserves.
possible, without v e r y careful study,
accurately.
I t is i m
t o get that amount
i t would n o t
A s near a s v e could estimate,
be i n excess o f t w e n t y - f i v e million dollars.
One point that has been rsised i s vhether this will
inerease the amount o f checks which the Federal Hecerve
Banks will b e called u p o n t o collect. I
can o n l y s a y that
in the case o f the first district v e are today getting
practically a l l o f the checks that a r e deposited b y the
country banks, e i t h e r d i r e c t l y o r t h r o u r h t h e c i t y banks,
On the othsr hand, those checks o f country b a n s a r e n o v
deducted b y the city bans from their groséhdue t o banks.
That vould decrease, therefore, t h e amount o f reserves
which t h e three banks would carry.
Governor Crissingeer.
M y attention i s called t o the
fact t h a t t o d a y i s t h e n i n t h a n i v e r s a r y
of business
o f tne comnencement
o f the Federal Reserve System,
Governor McDougal. M r . Chairman, might I report for
the Governors t h a t i n considering this question i t Was
decided that i t would b e inadvisable t o mike a n y changes
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Federal Reserve Bank of St. Louis
603
vhatever i n tho formule a s n o v established f o r calculating
reserves a s i t bears u p o n this subject.
Governor Crissinger. ( b ) That every member bank be
prohibited f r o m making a n y charge whatsoever f o r t h e collection o f checks handled through Federal Reserve Banks.
Do y o u h a v e s o m e s u g r e s t i o n s
o n that? N o b o d y s e e m s
t o have
been assigned t o that topic.
lr, Perrin. M r . Chairman, that ras discussed i n the
Federal Rese v e Acents' Conference, a n d v e voted o n thate 9
On the ratter o f amendment m a y I report for the Agents,
that o n topic 2
of thse Federal Arents' program, looking t o
amendment o f the Clayton Act, t h e conference o f Chairmen
voted t h e t 1 t was the s e n s e o f the conference t h a t t h e
Board's proposed t o the Kern amendment o f ths Clayton A c t
be pressed f o r action.
T h e r e vias o n e dissenting vote.
Governor Crissinger,
this subject?
I s ther a n y t h i n g further o n
I f not, thet completes the program.
The
mesting i s open for a n y othcr discussion.
Governor Seay. M i g h t I ask i f you are passing subtopic B , general topic 7 , entirely?
Governor C r i s s i n c e r . I
have a s k e d f o r d i s c u s s i o n b u t
nobody seems t o want t o discuss it. D i d y o u have
something
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Federal Reserve Bank of St. Louis
604
to. say on. it?
Governor Seay. I
vould mercly have asked i f i n the
rord "charge". i s meant a fixed charge, that i t
plated t h e t n o momber b a n k c o u l d m a k e a n y i n t e r
to his devositor i f the b a n k was requested t o 7
ac6- credit f o r It.
Governor Crissinger.
t h e t w h a t t h a t means?
I f it i s x c t e n d e d t o mean that,
Governor Ssay.
so inclusive that i t mecns that.
I f i t means thet,
I think i t obviously contains i t s o v n negative.
Governor Crissineer.
Mere J a y e
W h o prepared t h i s question?
T h a t vas handed
e
Platt f o r t h e
t o the committee
b y Mr.
r R e s e r v e B o a r d a s a subject which
Board wished discussed,
Mr. “ills. I
think that refers, d o é s i t not, t o the
Governor Platt.
T h a t i s exactly wnat
er it, i t v a s b r o u g h t
ed t o submit
u p t o the Board a n d the
i t t o this conference
o n the
theory thet w e could possibly recomvend o r adopt something
that “ o v l d h a v e s o m e i n f l u e n c e
i n s e t t i n g s o m e o f theses
clearing houses t o reduce their cherges.
T h e Board urdoubted:
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Federal Reserve Bank of St. Louis
605
ly has t h e right t o taks action i n relation t o clearing
house chereés.
T h e énly reason i t has wot- i e that 4 %
occurred t o ths Board that t h e clearing houses which n o w
make n o charges would m a k them, a n d this w a s p u t o n the
program f o r t h e purpose o f getting some expression o f
Opinia@ i t n recard t o w h e t h e r
i t could b e done a n d whether
it i s advisable t o t r y £4.
Mr. Jay.
I t was discussed somevhat yesterday along
with the question o f clearing house charges,
Governor Scay.
D i d I understand v o u t o say, Mr. Platt,
that y o u vere o f the opinion that i f the clearing house
cherges were regulated a s a maximum i t vould invite e v e r y
clesring house t o f i x the maximum?
Governor Platt. I
understand there a r e 299 clearing
houses o f which o n l y about 1 2 5 require a n y charrce.
I t
occurred t o u s thet a n y attempt b y the Board t o resulate
clearing house charses micht cause t h e ersat m i o r i t y o f
clearing h o u s e s t h a t m a k e n o c h a r e s a t a l l t o consider
the advisability o f making one.
Governor O r i s s i n g e r .
I t probably would b r i n g about
a uniform charcee b y all o f them.
Governor Platt.
i t probably “ould bring about a
uniform
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Federal Reserve Bank of St. Louis
606
by a l l o f them, t h e r e a s n o v t h e r e i s n o t a n y
charec made b y most o f them. T h a t
nas b e e n t a k e n s o far.
i s the reason n o action
O f course t h e Board might recom-
mend t o the clearing houses
t h t do make charges t h a t t h e y
reduce their charges.
Governor Seay.
O f course t h a t m a y b e a matter o f
jucement, expsrience o r opinion, b u t those c i t y banks
vnich discussed t h e effect o f the recent regulation J
which imposed,
8 s y o u ‘snow, a
charge u p o n c h e c k s e n d o r s e d
by a n y o n e o f t h e m e m b e r b a n s p a s s i n g t h r o u c h t h e h a n d s
of member ban:s, I
think have sicnified their purpose o f
Or
absorbing s u c h gharrcse J
6 6 n o w y o u c a n possibly
ile thet attitude v i t h t h e statement hare that i f you
vers t o repulate those c h a r g e s e v e r y clearing house i n the
country *ould immediatsly p u t o n 4 charce.
Governor Platt.
to this c o n f e r e n c e
Governor Seay.
T h e t i s the reason i t vas submitted
- - t o s e t y o u r opinion,
I t seems t o me thet t o arsue that t o
charges vould invite a l l cle-ring
nouses t o make a charce i s a reductio a d absuxdun,
of examinations
Mr. P e r v i n .
T h e matter
has becn unécr consids
by the conference o f Chairmen a n d this
e v was unanimously
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Federal Reserve Bank of St. Louis
adopted:
"we believe i t t o b e essential that t h e closest
coope sation e x i s t b e t v e e n e x a m i n a t i o n d e p a r t m e n t s
o f
Federal Reservs Banks a n d t h e State Banking Commissioners.
“\@ a l s o b e l i e v e t h a t a s a
matter
o f vood faith with o u r
member ban:s a n d i n order t o b3o0prefired
intellircntly, t h a t credit investications
banks b e remularly conducted.
1
c eredit
o f Stete member
“ e believe, too, that the
eredit investisation w h e n e v e r possible should b e made a t
the same time t h e State examiner i s examinine t h e bank:
first, because o f the desirability o f cooperation; second,
because m o r e i n f o r m a t i o n c a n b s o b t a i n e d a t l e s s c o s t ;
tnoird, because t h e Benk*should
n o t needlessly b e subjected
to additional visits o f examinors.
‘ e believe a l s o that
vhers special examinations, o t h e r t h a n credit investications
are made o f membsr State bani-s the charrze f o r s u c h evami
tion m a d e b y t h e Pedersal
H e
i
n
k shovld n o t
fee thet vould b e charred b y the Comptroller o f the Currency
institution w a s a national. bank.
Then u p o n ‘the «
c
h
e
w
w a s
o o d dsal discussed
separate
That vas n o t p u t upon a n y o f the programs,
of
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Federal Reserve Bank of St. Louis
608
y and comprehensively discussed here, a n d
34 i t i n addition.
T h i s resolutin w a s adopted:
"Tt is the sense o f this conference that w e anprove
the principle o f a separate reserve f o r notes a n d a
separate reserve f o r deposits, a n d i n ths event that
this p l a n a s d i s c u s s e d
i n t h e j o i n t conference t h i s
morning (Sednesday, November ll) is put into effect
by the Board i t i s urgently recom-ended that a test o f
one year b e made without change i n the present f o r m
of published statement during said period.”
In order t o give t h e Board a fuller idea o f ths
views held b y the respective Cuairmen, w e had submitted
and v o t e d u p o n s i x questions,
cdevaid
and I
will g i v e y o u t h e
o f -thée v o t e .
“e recognize t h e fundamental importance
yes; o n e no.
ready t o approve ite. T r o yes; cight no.
for f u r t h e r o p p o r t u n i t y
to
i i y i t when i t
has b e e n d e f i n i t e l y f o r m u l a t e d
b y t h e Board's s u b - c o m m i t t e e
and b e f o r e t h e B o a r d r e a c h e s a
decision u p o n i t .
three n o e
ye n o w a r e r e a d y t o a p p r o v e t h e p r i n c i p l e
of
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Federal Reserve Bank of St. Louis
609
publishing separate reserve ratios without comvitting
ourselves
t o whother a n y a r b i t r a r y m e t h o d s h o u l d b e u s e d
in arriving a t these r a t i o s . |
One y e s ; n i n e n o .
Ȏ@ a r e o p n o s e d t o t h e p r i n c i p l e
reserves,
o f publishing separate
T v o yes; seven n o
-@ f e e l t h a t i n v i e w o f t h e i m p o r t a n c e
o f the p l a n
final decision u p o n i t should n o t b e wade n o r should i t
be used i n our published statement until after i t has b e e n
privately operated i n all the details f o r a period o f one
year,
,
T
e
n yes; o n e no.
Mr. Jay.
W i l l y o u state S h e vote o n the resolution
vhen i t was first read? S t a t e whether i t was. the unanimous
action o f the conference o r not?
Mr. Perrin. I
have n o t the text o f that. I
do not
have t h e exact text o f the resolution, b u t this w a s a g I
wrote d o w n the substance o f i t a t the time.
Mr. Jay.
T h e number o f votes f o r i t and against it,
Mr. Perrin.
Me. Jay.
state it.
T h e first resolution?
I f you haven't t h e information there I
I t was seven i n favor a n d three against.
can
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Federal Reserve Bank of St. Louis
610
Mr. Martin.
T h a t i s right:
Mr. Perrin. I
s e v e n t o three.
have n o t t h e verbatim text o f the
resolution, b u t I think that i s fairly stated:
"Tt i s the s ense o f this conference that w e approve
the principle o f a separate reserve f y notes a n d a
separates reserve for d=posits, a n d i n the event that
this p l a n a s discussed i n the joint conference this
morning ( ednesday, November 1.) is put into effect
by the Board i t i s urgently recommended t h a t a test o f
one year b e wade without chanre i n the present f o r m
of published ststement during said period."
Martin.
T h a t i s exactly the resolution a s
at y o u h a v e p u t i n thers
November
Mr, Jay. “ h a t was t h e vote o n that?
Mr. Martin.
S e v e n f o r a n d three acainst.
Governor Crissinrer.
h o r e anything further t o
before this conference?
Governor MeDousal.
Y o u sugrested that i t was desirable
that w e give some consideration t o that matter, and I vould
be very glad t o report i n regard t o the Board's proposal
for t h e a l l o c s t i o n
o f separate p e r c e n t a c e s
o f reserves
to
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Federal Reserve Bank of St. Louis
611
notes a n d deposits.
In t h s Governors!
conferenes
i t was v o t e d t o b e t h e
sense o f t h e c o n f e r e n c e t h a t i t w a s b o t h u n n e c e s s a r y a n d
inadvisable t o make a n y change i n the present methods o f
calculatins t h e published Federal Reserve B a n k reserve
percentares c i t h e r a s a
whole f o r t h e s y s t e m o r s e p a r a t e l y
for individual Reserve Banks,
i t being t h e belief o f the
conference t h a t t n e p r e s e n t m e t h o d h a s a f f o r d e d
i n the
past a n d s t i l l d o e s a f f o r d t h e X e s e r v e B a n k s a n d t h e
public adequate dat a f o r t h s proper determination o f the
true reserve position o f the system a n d each reserve
bank; f u r t h e r m o r e
i t was t h e sense o f the conference t h a t
to chance the reserve ealculations and publish them i n
the m a n n e r s u g r e s t e d
i n t h e proposed p l a n contains
considerable r i s k o f a r o u s i n g p u b l i c alarm.
Governor Crissingsr.
Governor McDoveal.
“ a s that a
unanimous r e p o r t ?
T h a t v a s a unanimous report.
Governor Ckrssinger.
I s ther a n y t h i n g further?
If rot, r h a t i s t h e p l e a s u r e f
o the conference?
Governor Hamlin, I
move “ e adjourn.
Motion seconded a n d adopted,
(At 1.30 o'clock p.m, the conference adjourned
die.)
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Federal Reserve Bank of St. Louis