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PROCEEDINGS
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Federal Reserve Bank of St. Louis
OF A
CONFERENCE
O F THE FEDERAL RESERVE B O A R D
WITH
GOVERNORS
THE
O F THE FEDERAL RESERVE B A N K S
A=SEMBLY R C O M
FEDERAL. R E S E R V E B O A R D
METROPSLITAN B A N K BUILDING
WASHINGTON, D.C.
NOVEMBER
Lucius m.HULL
6.C. DISMUKES
1 9 , 2 0 & 21, 1919
H H L PECHIN W A L T E R §.COX
M A I N 4309 R O B E R T FL ROSE
ASSOCIATED S H O R T H A N D R E P O R T E R S
SUITE 18-23 APPEALS BUILDING
426 FIFTH STREET, N. W.
WASHINGTON, D. G.
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PROCEEDINGS O F A CONFERENCE O F THE FEDERAL RESTRVT BOARD
with t h e
GOVERNORS OF THF FEDERAL RESTRVE BANKS
Washington, D.C.,
Wednesday, November 19,1919,
Proceedings o f a conference o f the Federal Reserve
Board w i t h t h e G o v e r n o r s
o f the Several Federal Reserve
Banks h e l d i n the Assembly Room o f the Federal Reserve
Board, i n the Metropolitan Bank Building, Yashineton, D.C.,
On Wednesday, Thursday a n d Friday, November 1 9 , 20-and 21,
1919.
Present:
Hon. W . P . G. Harding, Governor o f the Fejeral
Reserve B o a r d ,
Hon, Albert Strauss, V i c e Governor o f the Fede
eral R e s e r v e B o a r d ,
Hon. Adolph C . Miller, Member o f the Federal
Reserve Board,
Hon. Charles S . Hamlin, Member o f the Federal
Reserve B o a r d ,
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Federal Reserve Bank of St. Louis
Hon. Henry A. Moehlerpah, Meniber o f the Pederal
Reserve Board;
Hon. John Skelton “Lilliams, Comptroller o f the Currency, ex-officio membcr o f the Federal Reserve Board; a n d
Charles A . Morss, Governor Federal Reserve Bank o f
Boston;
Ben}. Strong, jr., Governor Federal Rescrye B o n k
of New York:
E. P. Passmore, Governor Fedcral Reserve Bank o f
Philadelphia ;
=. R. Fancher, Governor Federal Reserve Bank o f
Cleveland;
George J . Seay, Governor Federal Reserve B a n k o f
Richmond;
Peple, D e p u t y Governor Federal Reserve Bank
of Richmond;
Me " e l l b o r n , Governor Federal Reserve Bank o f
Atlanta;
MeDougeal, Governor Federal Reserve Bank o Chicago;
D. B i g g s , Governor Federal Reserve Bank o f
St, L o u i s ;
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Federal Reserve Bank of St. Louis
R. A. Young, Governor Tederal Reserve Bonk o f
Minneapolis;
J. Z
Miller, jr., Governor Federal Rescrve B a n k
of Kansas City;
an Zandt, Governor Federal Reserve B a n k o f
Calkins, Governor Federel Reserve Bank o f
San Francisco;
“s Hoxton, Executive Seerctary, Pederal Reserve
Board, Yashington, D . ¢ ,
PROCE™DINGS.
Governor Harding. G e n t l e m o n , this i s a very Important
meeting a n d r e have some vital matters t o consider, s o m e o f
which, i n particular,
w e would like t o discuss with you, and
some o f w h i c h y o u r i l l p r o b a b l y p r e f e r
t o 3isceuss e m o n e y o u r -
selves.
I assume y o u have come prepares t o stay until Friday
night, e n d i f I am not correct i n that I would like t o knor,
in o r d e r t h a t w e c a n c h a n g e o u r p r o g r a m accordingly.
We would like v e r y rmch t o have o l l o f y o u take luncheon
with us tomorrow at the Metropoliten Club, at 1 15 o'clock,
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end w e hope y o u rill make y o u r arrangements accordingly,
We c e n talk business while w e a r e a t luncheon.
We have a
list o f topics here, which I
presume v o u all’
have, together with a supplementary list o f topics which
were added after t h e first list was sent out. I
will g o
over briefly those topics w h i c h t h e board desires t o dis-
cuss with you and the other matters c a n be referred t o you
at y o u r o w n meetings.
I t does n o t mean,
o f course, t h a t y o u
are not t o consider these matters that the Board will discuss with you independently, becausc the Board whuld like
to get your viers o n d recommendations
o n 411 o f these points.
In order that you may get full information e s t o the
views o f the various Departments here with which you come i n
contact, I
will read first a letter which the Board has re-
ceived, dated November Sth, from the Secretary o f the Trens-
ury, which gives the Treasury's viewpoint.
T h e letter i s
Signed b y Mr. Glass, a n d i s a s follots:
"THE SECRETARY OF TH® TREASURY
WASHINGTON
November 5 , 1919. X-1718.
Dear Governor Harding:
will not
"T nope that the Federal Reserve Boarg
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the Governors o f the Federal Reserve Banks t o rely trholly
or too heavily, f o r t h e prevention o f the sbuse o f the facilitiesf
o the Federal Reserve System, u p o n the increase
in rates n o w established w i t h the approval o f the Board, m y self included.
"The experience o f all “uropean countries (and Japan),
including those countries s h i c h have beon neutral i n the
way a n d those which have maintained o
high central bank
rate, supports the view that discount rates will not suffice i n these extraordinary times. a
"The Reserve Banks' rates shoul, o f o n s : scientifically b e above t h e commercial r a t e a n d not belor it.
T h a t
cannot happen until t h e independent resources o f the banks
suffice f o r t h e normal requirements o f their customers f o r
commercial, industrial a n d Government purposes, B a n k s
Cannot b e expected t o meet these requirements habitually
ata loss. T h e i r dependence u p o n t h e Federal R e s e r v e .
System should b e seasonal o r occasional a n d n o t habitual.
Until t h a t c o n d i t i o n c o m e s a b o u t a s a
result
o f the pro-
duction a n d s a v i n g o f w e a l t h t h e t e n d e n c y w i l l b e , a s Re-.
serve B a n k
e e
a r e increased, f o r the rates t o the Cov-
ernment a n d r a t e s
t o the commercial borrower
t o b e in-
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creased i n turn.
T h e world h a s been f o r five years consum-
ing o r destroying m o r e t h a n i t has produced.
lief h a s b e e n a n d i s t h a t w i t h t h e c u r t s i l m e n t
M y orm beo f export J e -
mand consequent u p o n t h e curtailment o f foreign credits a n d
with industrial production proceeding full steam ahead v e
should s o o n have reached a n equilibrium i n this country a t
least,
I n the meantime, hovever, t h e labor situation has
become S o acute a s gravely t o threaten production anid the
speculative mania h a s developed t o such a n extent a s ereavely
to threaten o u r credit structure.
The conditions undor which changes i n the Reserve Banks '
rates o f discount would operate effectively d o not exist
here today.
A n increase i n the discount rate will n o t re-
Sult i n t h e importation,
n o r c u r t a i l t h e exportation,
gold t o a n y material amount.
o f
I t will n o t result i n o cur-
tailment o f the importation o f goods n o r i n increasing o u r
exports m a t e r i a l l y .
I n the present position o f the inter-
national balances a n d o f the foreign exchange a n d because
of gold embargoes the Federal Reserve Bank rates cannot
function internationally, a n d will operate solely upon
the domestic situation.
I n that condition a n important
further increase i n Federal Reserve Bank rates mirht
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have the effeet of penalizing and discouraging the borrover
for commercial a n d industrial purposes, t h u s curtailing production a n d distribution a n d increasing t h e shortage o f
gods,
a n d consequently the price o f them, a n d thus,
stimulating speculation.
i n turn,
( A n increase i n rates ( p e r cent.
per annum) falls v e r y lightly upon t h e borrover f o r speculative purposes,
w h o figures a
over i n a day, a reek, a
very large profit o n the turm-
month o r some other short period.)
It might h a v e also e very grave effect u p o n the Government's
finances.
In consequence o f the war t h e Government h a s issued some
"25,000,000,000 o f interest bearing securities which are o f
prime eligibility. Before the war, when the Government's
debt was only °1,000,000,000 and thet all stored ovay i n
strong boxes, t h e possession o f eligible paper w a s v e r y
strong p r e u m p t i v e e v i d e n c e
to borrow.
o f the right o f a
menber b a n k
N o w and for the life o f this great wardebt
the possession o f eligible paper will b e n o evidence i p ageoe iae ts
Therefore, I
believe i t t o b e o f prime importance t h a t
a n d that t h e
the Federal Reserve Board should insist u p o n
Governors
o f the banks s h o u l d exercise a
firm discrimina-
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Federal Reserve Bank of St. Louis
tion i n m a k i n g l o a n s
t o prevent a b u s e o f the facilities
of
the Federal Reserve S y s t e m i n support o f the reckless spec~
ulation i n stocks, land, cotton, clothing, foocstuffs a n a
commodities generally.
“Te cannot trust t o the copybook«texts. M a k i n g credit
more expensive will not suffice. T h e r e is no precedent i n
history for the great war which w e have been through nor for
the conditions n o w existing.
T h e Reserve Bank Governor
must raise h i s mind above t h e language o f the textbooks a n d
face the situation which exists.
H e must have courage t o
to
act promptly a n d with confidence t n his o m integrity
prevent a b u s e o f t h e f a c i l i t i e s
o f t h e Federal R e s e r v e Svs-~
Banks, hovever
tem by the customers o f the Federal Reserve
poverful o r influential.
Stock Exchange
Speculation i n stocks o n the New York
o f the
is n o more vicious i n its effect upon t h e welfare
people a n d upon o u r
e e
t
h
a
n speculation i n
generally.
cotton o r i n l a n d o r i n c o m m o d i t i e s
B u t the
single organi zed
New York Stock Exchange i s the greatest
user o f credit for speculative purposes.
I t 1s the orgar-
speculation. I
ized instrument o f a countrywide
that t h e p r a c t i c e
believe
transactions
o f finencing speculative
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by loans o n call, w i t h daily settlements,
i dangerous t o the general e l f a r e ,
carry s p e c u l a t i v e t r a n s a c t i o n s
when there i s n o need.
i s un-
C a l l money
i n stocks
i s only
T h e paper i s not self-liqui-
dating and, i n the case o f a n emergency, a s , f o r example,
upon the outbreak o f the European war, a n d throurchout t h e
period
o f our participation
the mess uncollectible.
i n t h e war, s u c h l o a n s a r e i n
T h e use o f Liberty Bonds, Vict-
borory Notes a n d Treasury Certificates a s collateral f o r
Banks
rovings m a d e b y member banks f r o m the Federal Reserve
for t h e p u r p o s e
o f carrying speculative transactions
i n
o f the Feastocks makes i t the right a s tell a s the d u t y
eral Reserve authorities
t o see t o i t that t h e methods o f
a n s reformed i m financing s u c h transactions a r e reformed
mediately.
h a s been
Open a n d notorious manipulation o f stocks
say, nine months, since
taking place auring t h e period of,
Sub-committee
the removal o f the control o f the
of the Liberty Loan Committee.
o n Money
T h i s manipulation, w h i c h
first o f one stock
takes the form of putting u p the price
may be the condjiticns
and then o f another, n o matter what
o n the part o f
for the purpose o f stimulating interest
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Federal Reserve Bank of St. Louis
the uninitiated public, i s , I
imeiné, contrary t o the l a w
of the State o f New York anid the rules o f the N e w York Stock
Exchange.
I n any event,
i t needs o n l y vigorous action t o
put a n end t o it. T h e Federal Reserve Bank o f New’ York i n
its r e l a t i o n
t o the Sub-committee
o n Money o f the Liberty
Loan Committee, which Committee was a t all times i n touch
with t h e o f f i c e r s
o f t h e S t o c k Exchange, n a t u r a l l y s o u g h t
the views o f the Treasury b y reason o f the fact that its
prime d u t y concerned t h e sale o f Liberty Bonds. A
control
now p u t into effect will b e primorily f o r the conservation
of the general credit situation ond should therefore b e initiated and supervised, not b y the Treasury, but b y the
Federal Reserve Board.
I need n o t s a y that s u c h steps should b e taken n o t o n l y
firmly b u t w i t h d i s c r e t i o n a n d i n s u c h a
way a e t s
t o in-
volve greavé hardship t o individuals o r injury t o the general welfare.
T have written this letter believing that you and the
other m e m b e r s
o f t h e B o a r d a r e i n general a c c o r d w i t h t h e
be
principles a n d views expressed i n i t ana thet T i wisest
of some assistance t o you i n dealing w i t h the problem with
expression
the Governors o f the Banks t o have this written
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Federal Reserve Bank of St. Louis
of the views o f one o f the members o f the Board whose other
officiol d u t i e s p r e v e n t h i s f r e q u e n t a t t e n d a n c e
a t your
meetings.
I need scarcely a d a that this letter i s written i n n e
spirit o f criticism.
T h e Governors o f the Federal Reserve
Banks have served their country with devotion, courage a n d
wisdom during t h e trying period t h a t i s past.
difficult f o r m e t o r i v e a d e q u a t e p r a i s e
I t would b e
t o the patriotic
spirit o f s e l f - s a c r i f i c e w h i c h h a s a c t u a t e d t h e m o r adequete
appreciation t o the skill a n d sagacity with which t h e y have
performed their duties.
D u r i n g t h e war t h e y have naturally
turned f o r leadership t o the Treasury since i t s operctions
were t h e dominating factor i n the financial situation.
I t
mould, however, b e a great misfortune if, now that the
Govern~
Treasury operations a r e o n a diminishing scale, t h e
feel that
ors o f the Federal Reserve Banks a r e alloved t o
e a c h ace
the problems o f the future were f o r them t o solve
cording t o his o w n best judgment.
T h e need o f leadership
from
is n o less great, t h e needa o f examining the situation
view i s n o less
a proad national a n d international p o i n t o f
imperative. I
not
look t o see t h e Federal Reserve Board,
a n d persistently,
critically nor agrressively b u t patiently
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provide this leadership.
Very truly yours,
OART TR. GLASS,
Hon.
Saad
« . P. G. Harding,
Governor, Federal Reserve Board."
The Fedéral Reserve Board, o f course, will assume the
leadership w h i c h t h e l a w d e v o l v e s u p o n i t , p u t i n j o i n g s o
it i s going t o count u p o n t h e close cooperation o f the
Governors o f the Federal Reserve Banks.
Y o u are t h e com-
manding generals i n the financial field and i n a sense the
Boar“ here i s a general staff, and there must be a thorough
understanding o n d spirit o f concord a n d cooperation betveen
us.
T
e have h a d that spirit
ly expect i t i n the future.
i n t h e p a s t e n d w e confident-
T e will endeavor t o ald you
in any o f your local problems, a n d “hen i t comes t o general,
t o ask your
national o r international questions w e expect
the benefit
counsel a n d advice i n order t h a t w e c a n get
more particularly
of your views a s t o them a n d Jetormine
upon conditions
the effect o f the policy o f the Board
in
your o w n 4istrict.
have been adverse
As you know, the Treasury officials
all along t o a raise i n rates.
T e know furthermore t h a t
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some o f you, a n d p o s s i b l y s o m e o f t h e m e m b e r s
o f t h e Board,
may hold t h e view that direct action, pressure, m o r a l sua-
sion, o r whatever i t may be called, i n itself i s not suffielent t o c o n t r o l t h e 9 itucation.
Y o u will remember t h e t i n
September the Treasury reduced its total indebtedness b y
about $500,000,000.
T h i s i s very gratifying, a n d i t
would have been fortunete h e d t h e slack, a s 1 t m y b e
termed, b e e n t e k e n u p ; b u t u n f o r t u n a t e l y t h e c r e d i t s r e r e
immediately released f o r general Sethison, a
good deal went
into speculative operstions, a n d the conditions which have
been facing u s ever since e a r l y i n the Sprine continue t o
prevail and are becoming more and more acute.
There i s going t o be another reduction i n the floating
debt o f the Government i n December b y about “500,000,000
possibly, a n d I
think o u r first d u t y here today i s t o con-
sider means o f eiteotite a
corresponding deflation.
T h i s
poid o n
reduction i s t o be made o u t o f taxes which will b e
the 15th o f December.
T h e r e shoulda b e a resulting reduct-
fon i n b a n k deposits,
a n d t h e time i s most opportune
to
to
make for permanent contraction, b y effecting deflation
that extent.
consider this v e r y
W e would like t o have y o u
counsel a n d advice a s t o
carefully a n d give u s your frank
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Federal Reserve Bank of St. Louis
hoy e a c h one o f y o u feels t h a t this deflation c a n best b e
effected.
I n view o f our past experience,
1 t would b e not
only a very unfortunate thing, b u t v e would a l l b e most
culpable i f v e permitted this opportunity t o get away f r o m
us a n d permit 4500,000,000 t o b e turned loose i n t o the general
market t o create further expansion.
The Treasury hes been v e r y adverse, a s I said before,
to
an increase i n the bank rate, and Mr. Glass stresses the
importance o f intensely studying the conditions i n each o f
the Federal Reserve Banks and the necessity of a restraining influence t o be exerted b y the Governors o f the benks o n
heavy borrowings.
Leffingwell,
A s d i s t a n t Secretary o f the Treasury
i n remarks m o d e d a y pefore yesterday t o Federal
Advisory Council, stated that the present flooting indebtedness o f the Government, a s represented b y certificates,
was about £3,400,000,000, o f which about “2,400,000,000 was
going t o fall due i n a very short time.
H e said that i f
the
rates c o u l d b e maintained a s t h e y are n o w until about
and
middle o f January h e would h a v e perfected h i s plans
would have e e the Treasury finences o n a more permanert
Treasury
basis; t h a t t h e n for a period o f many months t h e
would b e entirely out o f the market a n d Treasury condi-~
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Federal Reserve Bank of St. Louis
tions would n o longer b e factors for the Federal Reserve
Banks t o consider, a n d t h e banks could adjust their rates
according t o commercial requirements.
The Federal Advisory Council when i t met here, I
am told,
for the first five o r s i x hours o f the session, f e l t that
44 should recommend a
not within o
drastic inerecase i n rates, possibly
day o r two, b u t certainly before t h o middle o f
December, t h e idea being that a n increase i n rates w a s t h e
most effective w a y t o check a n y further expansion a n d t o take
up t h e S l a c k a w d m o l s 3 h . M r . . L e f “ i n e v e l l m a d e a
statement
you,
more elaborate t h a n the brief outline t h a t I have eiven
and i t s e e m s t o h a v e p r o d u c c d a
the merbers o f the Council,
profound i m p r e s s i o n u p o n
s o that yesterday, w h e n they
reported t o the Board, t h e y mode t h e folloving recommendation.
the discount rate t o
Topic No. 1 . P o l i c y i n regard t o
remainder
the P e d e r a l R e s e r v e B a n k s f o r t h e
o f t h e y e a r 1919.
Recommendation:
eresit
"Tt i g desirable that the expansion o f
Féderal Reserve
through the discount fod lities o f the
Banks should b e h e l d i n check.
proves t h e r e c e n t a d v a n c e
T h e Council therefore a p -
o f rates m a d e b y the Federal
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Federal Reserve Bank of St. Louis
Reserve Banks.
T h e Federal Reserve Banks should b e in-
structed b y the Federal Reserve Board t o use all their i n fluence a n d authority t o prevent a n excessive u s e o f cred.
its b y member banks.
Increases i n the discount rates would,
i n the
opinion o f the Council, t e n d t o correct t h e present situation, b u t a s s u c h a c t i o n m i g h t s e r i o u s l y a f f e c t p r e s e n t
Government b o n d values a n d t h e successful refunding o f the
outstanding certificates o f indebtedness, e n d a s the Tress.
ury officials a r e firmly o f the opinion that a t e e e
eo
date the needs o f the Treasury will ceasc t o be a n import.
ant factor i n the money market, t h e Council recommends that
no further change be made i n discount rates a t present,”
The Federal Reserve Act i s very clear ang explicit i n
the matter o f discount ratcs.
I t provides thet t h e Direct-
ors o f a Federal Reserve B a n k m y establish discount rates
subject t o the review a n d determination o f the Federal R e serve Board. I
do not want t o be understood a s trying t o
say t o y o u w h a t y o u m u s t r e c o m m e n d
t o y o u r Directors. i
think o n the c o n t r a r y i t i s y o u r a u t y t o recommend
t o your
directors such policy as you think the situstion i n your
Aistrict, a s Cco-related t o the whole situation, requires.
If y o u r d i r e c t o r s d e c i d e
t o follom y o u r recommendations a n a
to establish discount rates i n accordance therewith, t h o y are
clearly within their rights, b u t w e want t o ask, i n case y o u
Should recommend a n y advance i n gdiscount rates, regardless
of the Treasury situation a n d o f the attitude o f the Trensury
officials, a n d despite t h e attitude o f the Federal Sdvisory
Council, t h a t y o u d o i t quietly with your o r m Boerd o f Directors, t h a t y o u avoid a s f a r o s possible a n y public discus-
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Federal Reserve Bank of St. Louis
sion, because rumors a n d general surmise o n the street aes t o
what the policy o f the Federal Reserve B a n k i s going t o be
as t o d i s c o u n t r a t e s d o e s n o t d o a n y food, a n d i f r u m o r s a r e
circulated and n o action follows, i t brings t h e system more
or less into contempt, a n d the gencral effect i s bad. a
hope, therefore, t h a t these discussions w i l l b e strictly s u b
rosa i n your o m Board meetings, a n d t h a t whatever rates
m y
be established, subject t o review a n d determination o f the
Board, w i l l b e established a s o f a date sufficiently f a r i n
the future, s a y a week o r t e n days, 2 8 t o give ample notice
to the Board o f what y o u went done a n d opportunity given
us t o discuss t h e proposed rates w i t h y o u and amone ourselves,
the
in order that there m a y b e n o hasty action taken b y
Boara o n e w a y o r t h e other.
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Federal Reserve Bank of St. Louis
The f i r s t t o p i c
i s “Reserves,
( a y
T h e Federal
Rec
serve Board i s authorized t o reclascify existing reserve
and central reserve cities. S h o u l d this porer b e exercised,
Section
and, i f so, how? S h o u l d Congress be asked t o amend
19 s o a s t o r e q u i r e u n i f o r m r e s e r v e s t h r o u g h o u t t h e country,
differentials,
t o be based o n the various classes o f de~
posits?
Of course w e all know that the terms "Reserve City”
and “Central Reserve City” i n their former sense are now
obsolete.
T h e reserve cities n o w are t h e cities w h i c h have
Federal Reserve Banks and branches o f Federal Rescrve Banks.
No balances carried b y a national bank can count ony lonrer
as reserve f o r another national bank.
T h e r e e r e undoubt-
edly some discrepancies that. should h e rectified sooner o r
later. F o r instance, complaint has been made b y cleering
house banks i n St.Louis t h e t their desimnation a s a central
reserve city should b e revoked.
T h e y claim i t is unjust
dJemnd
to require them t o carry 1 3 per cent upon their
Boston and
deposits, while the banks o f Philadelphia e n d
Smaller
Clevelena are required t o carry only 10 per cent.
have
Places, such as ‘Ylaco, Texas, a n d Tacoma, “ashington,
benefit f r o m being
claimed t h a t t h e y n o longer g e t e n y
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Federal Reserve Bank of St. Louis
reserve cities; that they are s m l l toms, o n d that their
reserves ought t o b e p u t o n the country bank basis o f 7 per
cent instead o f 1 0 per cent.
The Board has considered, b o t h with this b o d y and with
the Fedcral Advisory Council o n previous occasions, t h i s
question, and has asked for advice a s t o legisletion. “ h i l e
we have pover t o change t h e classification o f cities,
we
have n o t the power t o reclassify t h e rescrves according t o
the character o f the deposits.
T h e suggestion has been
made t h a t a s w e h a v e u n i f o r m r e q u i r e m e n t s
to time deposits,
form r e q u i r e m e n t
i n all cities a s
o f 3 per cent, t h a t w e might have a unia s t o the demand Aeposits
o f individuals,
firms, a n d corporations, a n d adopt another schedule,
thorized b y Congress,
i f au-
a s t o reserves t o b e carrted o n ace
counts d u e t o other banks.
T h e Council h a s edvised us, a n d
view expressed, t h a t
the Board i s inclined t o concur i n the
problems o f the
whatever m a y b e done i n the future, t h e
intricate
present a r e s u f f i c t e n t l y g r a v e a n d
t o require o u r
would b e inopportune t o
undivided attention a n d that i t
take a n y action a t the present time.
Y e would like v e r y
give
t h e proposition a n d
much t o h a v e t h e G o v e r n o r s c o n s i d e r
us t h e i r v i e w a s t o whether
w e shoulda a t t e m p t
t o get a n y
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Federal Reserve Bank of St. Louis
legislation a t the present time o r whether this whole retter
shoulda g o over until a more f a orebie time for its disposition.
Item (b) under Topic 1 is:
"Is there a demand for the payment o f interest o n
reserve deposits, a n d should such a policy be considgered¢"
Unless some member o f the Federal Rescrve Boara objects,
I would suggest thet this matter g o over for your private
consideration a n d report later. I
might s a y for m y col-
with
leagues o n the Board that I have not whac time t o advise
that
them i n detail a s t o these things a n d a n y suggestions
I make arc o f course subject t o their discussion.
I f eny of
them differ, they will please s a y 50The next question is,
a n y influShould t h e Federal Roserve Banks exert
o f interest
ence upon the policy o f member banks a s t o rate
allowed
o n deposits?
discussion
This q u e s t i o n m i g h t g o o v e r f o r
b y the Gov-
ernors »
The next is,
member mabks t o
Should efforts b e m d e t o induce
depositing gold certificontinue the process o f sorting end
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Federal Reserve Bank of St. Louis
cates i n Federal Reserve Banks?
I think t h a t m i g h t g o o v e r w i t h t h e o b s c r v a t i o n t h a t i t
seems just as important a s ever, i n view o f the fact that
our gold reserves a r e t h e basis o f our credit operations,
which m a y take a n entirely n e w scope a s o u r foreign trade
develops.
I t seems t o the Board t h a t i t i s just a s import-
ant as ever that the gold holdings o f the country b e concentrated w i t h the Federal Reserve Banks.
Mr. Strauss,
W i l l y o u not s a y a word about silver a s
well, while y o u are o n that subject?
Governor Hoarding.
know t h a t s i l v e r
I a m sure tho Governors o f the Banks
i s liable
a t a n y moment t o r e a c h a
point
where t h e market value will exceed i t s coinage value a n d
that i t i g liable t o be sustained there, w i t h the result
that silver dollars will disappear.
#1.38,
I f silver goes t o
i t would mean that o u r subsidiary coinage yould g o
also. I
understand that the Treasury i s considering
means o f protecting the situation.
T e have, I think,
can
about $68,000,000 o f free silver i n the Treasury which
be sold =
into
t h e Director o f the Mint f o r conversion
subsidiary coins i t i f should b e required.
Federal Reserve Banks
The next question is, should the
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Federal Reserve Bank of St. Louis
continue t o absorb the abrasion loss o n gold coins?
That i s a mtter which the Governors c a n consider among
themselves.
We n e x t c o m e t o t h e m a t t e r
o f transit operations,
T h a t
is a Question which w e m a y discuss v e r y bricfly here a n d
then refer t o you for more detailed considerntion.
I want t o s a y i n this connection t h a t complaint h a s been
made o n se¢veral occasions, b y smll national banks and b y
State banks, w h i c h have become members, t h a t t h e y ore dissatisfied w i t h the present situation i n that, t h e y scabs,
in the clearing house cities n o discrimination i s made i n
favor o f a check which c a n b e collected a t par through a
Federal Reserve Bonk.
There i s a clause i n Section 1 6 which the counsel o f
the Board h a s construed a s meaning that t h e Federel Reserve
Board shall, b y rule--it seems t o be compulsory--fix the
charges which m a y be imposed b y member banks upon checks
deposited with them which are, i n turn, collected through
the Federal Reserve Bank.
T h e Board h e s never attempted t o
fix such charges; i t has preferred t o have those things
work o u t i n e natural, o r d e r l y w a y a n d a s free f r o m Geer:
pulsion a s possible; b u t I
think t h e Board i s prepared,
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Federal Reserve Bank of St. Louis
in case o f necessity,
t o f i x the charge.
Te h a v e h o d t h e m a t t e r
u p w i t h t h e Federal Reserve B a n k
of New York and with the Clearing House Committee, and we
understand the Clearing House Committee 1 s entirely willing
to b e r e a s o n a b l e a b o u t t h e matter,
p u t t h e y hove pointed o u t
certain difficulties i n the way, certain routine difficulties.
For instance,
e s a matter o f transit operation,
o n the same state o n the
be n e c e s s a r y t o p u t a l l c h e c k s
same basis. A
i t seems t o
large bank cannot v e r y vell discriminate
betwéen a check dratm o n one t o r a n d a check drawn o n another torm i n the same State;
i t would take t o o much time.
There w a s devised lest Summer o
system o f symbols.
the transit menagers here, a n d t h e y did n o t think v e r y vell
of the system, a n d i t was suggested t h a t the matter b e left
™ e promised w e would n o t
abeyance, w h i c h w e agreed t o do.
anything about i t until February, a n d the banks agreed
the meantime t o prosecute their p a r point campaign, a n d
the p a r list.
we have n o w a great m a n y States complete o n
b y express, a n d i n
: The banks heve undertaken t o collect
b y this operation,
.some districts State Banks, affected
o t var, s o that there i s
have yielded and agreed t o remit
done b y express.
not very much collecting being
/
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Federal Reserve Bank of St. Louis
In the South a n d Southwest t h e situstion i s more compli.
cated, B a n k s charging exchange have retreated into their
Hindenburg line a n d they are meking @ very fesperate fircht.
banks have
Some o f the member banks and some o f the national
been urged b y committees t o have printed o n their checks
certain words; for instance, "This check i s pavable i n
exchange a t current rates";"this check will be pele i n
cash t o the original payee o r will b e paid i n exchange a t
current rates to anybody else"; "this check will not be
paid through the express company," ond so forth, all restricting c l a u s e s
o n t h e f a c e o f t h e Sheen:
Q n e o f the
Federal Reserve Banks i s considcrably disturbed b y it. O f
course a n y conditions
o n a check affect i t s negotiability.
We have advised this particular bank not to handle these
checks, and it says that that course plays cxactly into
the hands o f the banks u p o n which t h e checks a r e drain, a n d
that mhen the matter is teken up with the dravers of the
checks i t 1 s found that they are i n sympathy with the move-
ment; that they write some very tart’replies t o letters
written them by the bank, saying that when they want
any advice o r assistance that they will ask for it.
all been
In this whole par point campaign w e have
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Federal Reserve Bank of St. Louis
imprcssed w i t h t h i s fact, t h a t w h i l e t h e “ j o b b e r s a n d t h e
manufacturers o f the country a r e i n favor o f par collect-
ions, a n d give u s their good will, they d o not do anything
actively t o support us. I
or a j o b b e r w h o w i l l r e f u s e
do not lmom o f a manufacturer
t o accept a
check payable
i n
New York exchange a t current rates, o r who i s willing t o
discriminate a g a i n s t a
check w h i c h i s n o t c o l l e c t i b l e t h r o u g h
a Federal Reserve B a n k a t par,
H e firures t h a t h e has m d e
a profit o n his goods and h e has a chance t o collect his
money; and h e had better get “99.75 o n the “100 for his
check, rather than risk losing the eccount o r having lts
collection delayed.
T h i s may be o
natural p o i n t
o f vier,
but i t adds very much t o the difficulties o f the Federal Resérvé B a n k s
i n w o r k i n g o u t t h e p e r system.
B u t I
can
not help but feel i f this movement, which hes been inaugurated i n t h e S o u t h a n d Southwest,
t o have restrictive clauses
printed o n the checks, becomes general a n d a n y greet number
of such checks appear i n circulation, c h e c k s which a r e
“not negotiable, a n d not subject t o protest, that there
would b e some remonstrance m a d e b y the recipients o f the
checks.
I t m a y b e possible t o end t h e whole mutter o n c e
and f o r all b y going t o the a y s a n d Means Committee a n d
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Federal Reserve Bank of St. Louis
asking them t o enact a o law providing that o stamp t a x o f
10 cents o n each #100 must be affixed b y the drarer o f any
check o r other instrument which i s payable conditionally,
or Not absolutely and unconditionally i n money t o the law.
ful holder thereof. I
do not think t h e sentiment o f the
Committee i s yet ripe f o r such action, b u t i f this move-
ment should spread I believe i t may be counteracted i n this
Way.
Sub item (a) i s
"Method of Treatment of Transit Problems through
Meetings o f Transit Managers."
Tnen follows (b),
"In the interest of more prompt presentation and
payment
o f checks, s h o u l d n o t n e a r b y b a n k s
b e given instruct-
fons t o clear o n each other directly instead o f through Fed-
eral Reserve Bonks? S h o u l d the Federal Reserve Banks promote t h e establishment o f such locel clearing houses?”
{e) "Collection o f drafts, bills o f exchange
and s o forth. S h o u l d t h e collection facility o f the Federal
Reserve Banks b e extended t o include collection o f commercial paper m t u r i n g
i n Federal Reserve elties a n d branch
to
cities, a n d credit given o n date o f maturity, subject
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Federal Reserve Bank of St. Louis
final payment." ,
In one o f the districts, i n fact, I believe i n two o f
the disteictes, t h i s H a s b e e n o u r issue, a n d there i s this
Situation:
O
n ordinary collection items o n d drafts w i t h
bills o f leding attached, t h e member banks i n certoin cit-
ies have claimed that they regard this business a s a leriti-~
mate source o f revenue, w h i c h t h o y are losine o n account
of the disposition o f member banks i n other 2istricts t o
send t o the Federal Reserve Banks bills o f ladine drafts
for collection.
T h e Federal Reserve Banks h a v e t o employ
runners a n d t h e member banks h a v e t o keep u p their o r m
collection organization at‘the shmecttme}iend the Federal
Reserve B a n k s c o l l e c t t h e s e d r a f t s a n d r e m i t t h e m w i t h o u t
any compensation.
C o u n s e l h e s advised u s that 2
Federal
Reserve B a n k s h o u l d p r o p e r l y r e c e l v e c o l l e c t i o n t t e m s f r o m
its o w n m e m b e r banks;
i t c a n n o t v e r y tell avoia d o i n g so;
and i t i s also obliged t o receive collection items f r o m
other F e d e r a l R e s e r v e B a n k s ;
b u t there
i s n o i d e n t iat o n
the p a r t o f the Federal Reserve B a n k i n a eiven district t o
handle collection items f o r member banks i n any other
district.
F o r instance,
i f a flour draft drawn o n Nash-
ville o r Houston, Texas, should b o sert b y one o f the
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Federal Reserve Bank of St. Louis
member b a n k s
i n St. P a u l o r M i n n e a p o l i s d i r e c t
t o the branch
bank i n Houston, o r the branch bank i n Nashville, t h e
branch bank i s under n o obligation t o collect it.
very Properly,
I t may
f f 1 t sees fit, advise t h e sender o f the
draft that i n future i t should send t h e draft t o some member
bank, because i t i s not i
other districts.
i
s
m e m b e r banks i n
B u t i f the Minneapolis member bank
should place a flour draft with the Federal Heserve Bank
of Minneapolis, a n d that bank should send i t t o the Feder.
al Reserve Bank, o r t o a branch, then the Federal Reserve
Bank o r the branch Federel Reserve B a n k receciving t h e draft
ehovuld collect 1%, T h i s i s a matter which I think you
might discuss among yourselves, a n d i f you wish a n y action
taken y o u c a n l e t u s k n o w w h e t y o u desire.
Governor V a n Zandt.
T h e r e i s o n e point u p o n which I
would like t o make inquiry right there, Governor Harding.
if a member Denk, s a y a bank thet i s e member o f the
St.Louis district, shoulda send us an item for the account of
the Federal Reserve B a n k o f St.Louis, w o u l d that b e i n
effect the Federal Reserve Bank of St.Louis sending 1 t to
us?
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Federal Reserve Bank of St. Louis
39
Governor Harding.
point.
W e would like your views o n that
I t involves t h e question o f direct sendings.
The next sub item is: (da) Transfer drafts and exchange
drafts:
T h e Transfer Conference held i n Cleveland
o n June
85, 1919, recommended that limits o n exchanges
drafts b e
removed.
I s i t desirable t o remove t h e limita
o n exchange
drafts and discontinue the use o f transfer drafts?
Right here I wish t o call the attention o f the
Governors t o a circular issued b y the Federal Reserve
Bank o f
Richmond giving information with regard t o the
use o f im—
mediate oredit symbols o n checks drawn b y
member banks.
With the consent o f the officials o f the
Federal Reserva
Bank o f Richmond, I
will outline briefly o n e o f the prob-
lems that confronted them a n d h o w they
met it:
The banks i n Raonoke sometime ago did not
ask for a
branch bank, b u t t h e y d i d ask that
t h e y b e permitted t o
keep excess balances with the Federal
Reserve Bank o f Richmond a n d that f o r all checks drawn
upon those banks a n d
handled b y the Federal Reserve Bank
of Richmond, that immediate credit b e given t o the
sender, suoject t o final
payment, making t h e m i n effect
t h e same a s a check o n
Richmond,
I
t seems that the Roanoke
banks emphasized
the value o f this facility
t o their country bank corres—
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Federal Reserve Bank of St. Louis
30
pondents, a n d pretty s o o n they began t o get accounts a w a y
from some o f the banks o f Lynchburg, particularly two of
then.
T h e Lynchourg banks complained; they wrote t o
their fellow townsman, Secretary Glass, a n d stated that
they were not getting fair treatment; that they had lost
about $300,000 in deposite which had been transferred to
Roanoke; t h a t t h e Roanoke banks h a d pointed out t h e checks
drawn o n them were just a s desirable a s checka drawn o n
Richmond, whereas checks drawn o n Lynchburg banks were sub-
ject to two days delay.
T h e y aszed the privilege o f car-
rying extra balances w i t h Richmond a n d having their checks
put on the same basis as Reanoke..
I t seems that two or
three of the banks i n Lynchburg did not care anything
about
this p r i v i l e g e d
n
a that the Richmond Federal Reserve Bank
notified the Lynchburg banks that i f all of them
would
make t h e same arrangement, t h e request w o u l d
b e considered, .«:
but all of them were not willing.
O f course, i f there
Should b e any discrimination between checks
o n banks i n the
Same town, t h e Federal Reserve Bank would be
obliged t o have
extra h e l p t o s o r t t h e checks.
The Federal Reserve B a n k adopted a symbol,
F . R. I , Cy;
with the District number o n it, and a circle
around it, and
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Federal Reserve Bank of St. Louis
3l
it has a
very definite contract w i t h oach member b a n k desir-—
ing its checks treated for immediate credit, a n d i t avoids
all complications.
T h e officers o f the Richmond Bank are
here and they can tell you just what their experience has
been.
The Board looks with a good deal o f favor o n this
system,
I t does not request that the Federal Reserve Banks
Should inaugurate a campaign t o have banka adopt this plan;
but the arrangement does give a n additional facilitz, a n d
in some cases i t may relieve t h e pressure f o r a branch bank.
It gives a
bank i n any local center which attaches import-
ance t o i t a n d wants t o maintain a
rounding country banks,
counts.
clientele among i t s sur-
a n opportunity t o protect s u c h ac-—
T h e Richmond Bank requires that excess balances
be maintained i n such cases where immediate credit i s given.
if the reserve gets below the legal limit I presume the
penalty i s imposed; t h e banks a l l understand i t a n d the
x
Contract provides for it.
T h i e circular will b e left
here f o r your consideration.
The next item is ( e ) Transit expense: i n view
of the
fact that n o uniform method has been adopted
o f determin-—
ing transit expense, s h o u l d not this
segregation b e
abolished?
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Federal Reserve Bank of St. Louis
33
This i a a n administrative matter f o r your considera~
tion,
The next item is ( £ ) U s e of express companies b y
Federal Reserve Banks i n collecting checks.
This is an expensive method of collecting checks, and
I take it that i t has been resorted t o only aa a temporary
expedient i n the hope that the banks collected o n i n that
way will come i n line.
The next item i s ( g ) Prospect o f putting entire coun-
try on par basis.
In the Federal Reserve Bulletin, published every
month,
there i s 4 map showing,
i n white,
a l l the Statos which are
entirely par; and, shaded, t h e states which are not
entirely par.
I
n such states there i s shown o n the top line
the number o f banks Temitting a t par, a n d
o n the bottom lins
the number not Temitting at par.
T h e worst situation
exists i n North Carolina, Georgia
and Mississippi.
I
n
North Carolina the percentage
o f non-remitting banks o v e r
Temitting banks i s about three t o
one, a n d i n Georgia about
two and one half t o one.
The next topic i s 6 : Relations with
State Banks.
(a) State Bank membership:
I e any organized work
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Federal Reserve Bank of St. Louis
33
being conducted similar t o the campaign t o get p a r point 7
The Board regards i t a d important t h a t w e endeavor t o
maintain the interest o f the State Banks i n the Federal
Reserve System, a n d that w e should continue o u r efforts t o
get desirable non-member banks i n t o t h e aysten. A
many State banks a r e not eligible,
great
o n account o f their cap-
italization, a n d some a r e not desirable e v e n i f they a r e
technically eligible.
You haYe your campaigns organized i n the different
banks, a n d the Board has designated its mew member, Mr.
Moehlenpah,
a s a committee o f one t o conduct a
campaign o f
coopération w i t h the organization o f each Reseral R B ank o n
behalf o f the Board.
M r . Moehleénpah will b e glad t o dia-
cuss this with you at your convenience, a n d he will appre~
Clate a n y information y o u c a n give him; a n d w e ask your
cooperation w i t h h i m i n this matter.
The next item is (b) Fraudulent advertisement o r claiza
of membership i n Federal Reserve Sytem:
‘for preventing.
w h a t meana exist
T h i s i s a matter f o r your o w n discusgsicn,
The next i s number 7 , Discount Rates.
(a) Rev&ew of policy, i n the light of effect of re
cent changes.
tent,
T h a t w e have already discussed t o some ex-
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Federal Reserve Bank of St. Louis
34
(b) Effect of fifteen day collateral rates: should
differential i n favor o f short t i m e borrowings b e discontinued?
You will remember that the Act, a s originally passed,
contained n o provision f o r the discount o f notes made b y
memoer banks. R e d i a c o u n t s only were contemplated; t h e men-
ber banka had to rediscount eligible paper which they thenmselves had discounted.
One of the large banks i n New York, back in the daya
when w e w e r e e n x i o u s
t o d o business a n d t h e Reserve Banks
were not making expenses,
made a
Statement that i t would
be very glad t o d o some business w i t h t h e Federal Reserve
Bauk, but that its requirements for money were usually
temporary, f i v e days o r t e n daya -—- n o t longer t h a n fifteen
daya - - a n d i t very often happened that i t d i d not have
paper o f the proper maturities; that i t did not want t o
discount thirty day paper o r ninety day paper i n order to
Secure five day accomodations.
T h e matter was handled at
firet b y means o f rebates, b u t that involved additional work
and extra computations.
Meanwhile, t h e war ‘clouds began t o gather, a n d our
former member, Mr. Warburg, looking ahead t o the future
in
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Federal Reserve Bank of St. Louis
35
his characteristic way, conceived t h e idea o f asking Con-
gress t o authorize the discounting o f member banks' fifteen
day collateral notés,
t h e femal t o b e secured either b y
commercial paper itself eligible,
the United States.
o r b y bonds a n d notes o f
M r . McAdoo, w h o was then Secretary o f
the Treasury, s a w the possibilities o f this suggestion and
heendorsed it; and, as it stands now, the bulk of the
loans made b y the Federel Reserve Banks are i n the shape o f
loans made t o member banks against t h e i r o w n paper, secured
by bonds and notes o f the United States.
I d o not think i t would have been possible t o float
the great issues o f Liberty Bonds and Victory Notes and
Treasury Certificates unless this expedient h a d been adopt—
ed.
U n t i l recently a l l t h e banka w e r e ziven not o n l y
the facilities f o r short t i m e borrowing i n this way, b u t
were giving a preferential rate i n favor o f short time
borrowing, even though i n many cases the paper would b e
renewed every fifteen days.
T o e member b a n k would naj~
urally resort t o this method, first,
o n acccunt o f the
lower rate; and, second, o n account o f the Saving i n
rev—
enue stamps w h e n t h e notes w e r e secured fully
b y obliga-
atone o f the United States,
Pi
S o it has been a very im-
portant factor i n the discounting operations
o f the System.
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Federal Reserve Bank of St. Louis
36
But i s it altogether desirable?"
T h a t i s the question
that w e ask y o u t o consider a n d advise u s on:
gether desirable that a
differential
i s i t alto~-
i n rates s.ould b e
maintained i n favor o f member banks! fifteen-days collateral
notes?
T h e r e i s n o question a s t o the equity o f letting
the bank have the accomodation for a short time, i f it s0
desires;
o u t i s there a n y reason w h y a member b a n k should,
in addition, secure a
preferential r a t e o n the short t i m e
borrowing, w h e n y o u consider t h e present situation,
the
probability o f renewal, a n d the fact that, even though bank
A and bank B
do make bona fide temporary loans, banks C
and D will come right i n and put i n their paper, 6 0 thai,
as f a r a s the Federal Reserve B a n k i s concerned,
i t accun
ulates a Continuous succession o f fifteen day borrowings,
the effect o f which r e a l l y amount t o w o r ?
rate than
ite acheduled rate for thirty to sixty day maturities?
We understand that most o f the banks have abolished this
differential, b u t t w o o r three o f them still heve
os
The next item is ( 6 ) “ h e calcvlation of laterest
at
365 days p e r year: present practics i s t o
cowpute interest
On notes rediscounted o n basis o f 365, but
o n bills p u r
Chased i n the open market a t 360 Gays per year,
Should
Dvasis o f c a l c u l a t i o n
b e uniform?
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Federal Reserve Bank of St. Louis
37
There seems t o b e n o uniformity o f practice.
A l l the
Treasury computations are made o n the basia o f 365 days t o
the year. I
do not remember just what t h e practice h a g
been between Federal Reserve Banks.
Governor Calkine.
Governor Harding.
3 6 5 day bagia.
T h e next i s number 8, Credit Situa—
tion.
(a) Discuasion of the policy of the System. Governors
have been requested t o make &
report o f general price move-
ment a s t o real estate, commodities a n d securities
i n their
respective Districts.
It might b e interesting t o know to just what extent
Coumodities area being hoarded, 2
received a telegram this
morning from the National Farmers Union, in session at len
phis, asking whether a statement which was
contained i n a
latter written to Senator Smith of South
Carolina the other
day meant that the Board did not loox with
favor upon the
Tetirement from the market o f two million
balea o f cotton,
Or whether t h e Board thought t h a t t h e
present prices w e r e
high enough, o r just what w e did mean,
T h e y will be a d
vised during the day that w e
have n O opinion a s to the
price o f cotton, but that w e want
the Federal Reserve Banks
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Federal Reserve Bank of St. Louis
38
to have full information i n all their. cotton transactions,
and to have ample margin, a n d that i t i s not the policy o f
the Federal Reserve Banks t o furnish funds for the hoard~
ing of commodities for speculative purposes.
I f a man
Wants t o retire a commodity from the market a n d is able t o
do so out of his own resources, that i s hiw own business;
but you can see that it would be an entirely different
situation were the Federal Reserve Banks t o undertake t o
furn-
ish.funds for éarrying two million bales of cotton
at preaent prices, a n d then undertake t o provide funds
f o r all
legitimate business, s u c h a s the movement o f
crops a n d the
distrioution o f products.
I shall a s k y o u t e have some general discussions
among
yourselves a n d with the Board before you retire;
and we
will bring u p a little iter. your individual experiences
as t o what the results are o f exercising direct
pressure
upon individual banke inclined to borrow too
freely, to
what extent that pressure i s desirable, a n d
to what extent
it is produotive o f g00d results, a n d
the reverse.
A circular has b e e n sent o u t a s
t o the complicated
Situation presented b y the amendment t o
Section 5300 of the
Revises Statutes. I
think you all understand that.
Section 1 3 provides that i n
discounting f o r a national
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Federal Reserve Bank of St. Louis
39
bank that y o u must take n o paper which exceeds t h e t e n per
cent limit, w i t h the statutory exceptions.
In Section 9, referring t o State Banks, the Federal
Reserve Banks a r e ehjoined not t o discount f o r a n y Sta%e
Bank any paper which i s inescess o f t e n per cent o f the
State Bank's capital and surplus, with the usual exceptions.
Section 53800, a s amended, provides that National
banks may lend for a period not exceeding s i x months out
of any consecutive twelve months u p t o 2 5 per cent o f their
Capital a n d surplus o n paper secured b y warehouse receipts
ang Shipping documents, c o v e r i n g staple commodities.
But
Section 1 3 w a s not amended, s o if you have & member national bank which has discounted against warehouse receipts
up t o 3 5 per cent o f any o n e customer, y o u could discount
for that National bank two-fifths o f that line, but i f you
have a
laws,
State Bank’ which, under t h e authority o f the State
h a s discounted 3 5 per cent,
o r 3 0 per cent, o r a n y
given proportion above t e n per cent, o f its capital o r sur-
plus for one individual o r firm, y o u could not discount
any part o f that l i n e f o r the State bank. I
a m sure y o u
all understand this, a n d hope y o u have explained
t h e situation t o t h e m e m b e r b a n k e w h i c h m a y b e a f f e c t e d
This was not brought about intentionally,
b y it.
b u t was one o f
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Federal Reserve Bank of St. Louis
40
these legislative lapses which oovasionally arise i n fran
ing a n Act o f Congress.
There i s t o b e a discussion o f foreign business o f the
Reserve Banks and how it is manager. G o v e r n o r
Strong, a s
you know, has recently spent two o r three montha abroad,
and before w e separate I am sure the members o f the
Board
would like to hear from him, and I will ask him at the
Broper time t o discuss this subject.
As t o the administrative problems, those are all for
yOu! conaideration. 1 do not think it mceasary toaieCuss them i n the presence o f the members
o f the Board, although I take i t when you come t o any o f
these matters, i f
any particular members would like t o
be Present t o get
the benefit o f the information brought
out i n y o u r
discussion, that there would be no objection
to their do~
ing so,
41: B R A N C H BANKS,
(a) Published Comparisons of Branch Operations
and Expénses: I n a s m u c h a s statistics
afford
ho opportunity f o r comparison
unless t h e functiona
and operations a r e Comparable,
s h o u l d they not b e
subjected t o analysis o r b e discontinued?
We will ask you to consider the advisability
of a con
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Federal Reserve Bank of St. Louis
41
ference o f branch bank managers t o study t h e problems o f
branch bank operations.
Y o u xnow there i s a consider-
able lack o f uniformity i n the method o f operation o f
breach banks.
T h e first branch which was catablishec,
that o f New Orleans, has, f o r instance, seven directors;
the manager o f that b a n k i s not a
director himself; t h e
bank has very liberal by-laws, i t exexcises almost independent functions; i t has a distinct territory, a n d mem-
ber banks i n the territory are Tequired to deal with the
branch and not with the parent bank; i t has a n independent
set o f books;
i t keeps separate accounting o f profits a n d
Sxpenses; completes the rediscount operations with its
banks:
y e t the same Federal Reserve Bank has other branch-
68 which have not these independent powers; they have five
directors only; t h e managers i n those cases a r e not direct~
ore; t h e y d o not keep a n y reserve oalances o n their o w n
books; t h e y a r e i n effect agencies; p u t t h e y have a prow#i-
Sion for paying out Federal Reserve notes; a n d they keep
unissued Federal Reserve notes at those oranchken.
Then the Pacific Coast Branches operate under a n unique system d i f f e r e n t f r o m a n y other,
T h e y handle o n l y
notes issued b y the Federal Reserve Banks; they have n o
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Federal Reserve Bank of St. Louis
43
assistant federal reserve egents.
lend u p t o the amount, I
believe,
T h e y have power t o
o f the capital o f the
borrowing bank without consulting the directors o f the
parent bank. I
understand all transactions, o f course,
are sudject t o review o f the San Francisco office, b u t
they a r e essentially independent u p t o a certain extent.
If any member i n the branch territory wants t o discount
more than the authorized amount, a telegram i s sent t o the
San Francisco office.
Then w e have the Cleveland type o f branch, t h e Pittsburgh and Cincinnati branches, which seem t o be working
out very satisfactorily,
Detroit; a n d a
a n d w e have still anoter type i n
branch i n Baltimore which I think i s sim-
ilar t o the Cincinnati a n d Pittsburgh type.
I
n all
these banks the manager i s a director; t h e law provides
kink s i n there shall b e not less than three nor more than
seven directors o f a bank, a n d that the member Reserve
Banks shall appoint a
majority o f one, a n d the Federal Re-
serve Board t h e remainder.
T h e policy o f the Board has
been t o h a v e f i v e directors.
The Buffalo bank, I
believe,
i s very much o n the type
of the Pittsburgh bank, i s i t not, Governor Strong?
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Federal Reserve Bank of St. Louis
Governor Strong.
V e r y much so.
Governor Harding. I
think i t would b e very helpful
‘if y o u would confer among yourselves a s t o the merits o f the
respective plans.
O f course, when we consider the dif-
ference i n the territory served,
tances,
a n d the inequality o f dis-
i t m a y b e deemed necessary t o continue tHesa cary-
ing types; but I think w e will all agree that, a s far as
feasible, i t would b e advisable t o have a little more uniformity than w e have now. I
have n o doubt, a s far a a
the Pacific Coast Branches are concerned, that their plan
works out admirably.
Mr. Perin told m e when h e was here that h e regarded
these branches merely as parts of the parent bank.
T h e
manager always comes from the San Francisco office., I
think it is more of the type of the Canadian branches, i s
it not, Governor Calkins?
Governor Calkins.
A l l o f our oranches, except one.
Governor Harding.
O u r branches, I believe, have come
to stay.
I
t would arouse a
good deal o f opposition i f
we undertook t o close any branches, a n d there may b e one
or tWo more branches established. I
have about reached t h e limit. I
hope, however, w e
should dislike t o see
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Federal Reserve Bank of St. Louis
44
many more.
W
management.
T h e Dallas bank has two branches. I
e ought t o provide efficient means f o r their
think
the Hl Paso branch i a almost o n the s a m e basis a s the New
Orleans branch?
Governor Van Zandt.
Y e s .
Governor Harding. |
And the Houston branch has a large
cotton dusiness, H o w e v e r ,
i t would b e very intéresting i f
you would discusa this among yourselves, d
n
a then it would
be enlightening t o the Board i f we could b e given a sched~
ule showing the types o f branches, a n d the differences i n
the various types of branches. I
think we have it pretty
well i n m i n d now, b u t w e w a n t t o c h e c k u p
o n i t t o b e sure
we k n o w what t h e System is.
1g:
U . 8 , TREASURER'S ACCOUNT.
(a) C a n more prompt and dependable verifications and
Teconcilements b e obtained?
On the supplementary list:
Discussion b y Federal Reserve Bank o f New
York o f de~
Sirability o f curtailment o r elimination
o f practice o f
firect routing o f items b y member banks t o Federal
Reserve
Ranks
i n o t h e r Districts,
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Federal Reserve Bank of St. Louis
I think this interg‘sts t h e Fastern banks probably
moze than i t does the others.
T h e n reference i s made t o
the use o f immediate credit symbole. I
have already
called your attention t o that.
Here is a suggestion from the Board's staff as to the
desirability o f a n afternoon settlement i n the gold settlement fund for Eastern Reserve Banks.
M r . Emerson, will
you explain your views o n this suoject?
Mr. Emerson.
T h a t proposition has been considered a t
the transit conference, perhaps first for wide transferc,
and possibly t o include clearing housé exchange settlements.
The Eastern benks could have a settlement i n Washington a t
two o'dlock, settle their balances, instead of waiting
until the following morning, 4
number of Governors have
advised Mr. Dial, o f Philadelphia; that they have been,
very much intereated i n this and have taken i t up with
Governor Passmore, and it is a proposition of settling
on the same day rather than waiting until the following
day.
Governor Harding.
14: ABSORPTION O F EXPENSE B Y FEDERAL NESURVE BANKE
(a) H o w far can Federal Reserve Banks g o i n absorb-
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Federal Reserve Bank of St. Louis
ing expense o f collecting checks o n non-member non-par
remitting banks?
(o)
I n view of large earnings o f Federal Reserve
Banks, w o u l d i t not b e well t o furnish postage a n d pay all
express a n d postage charges f o r momber banks, covering
their transactions with Federal Reserve Banxs?
I presume that this was suggested i n view o f the arTangements m a d e with non-member banks which remit a t par,
but there i s this distinction:
w h e n y o u pay postage f o r
a non-member bank you facilitate the collection o f items
you receive f r o m member banks a n d have t o collect a t par.
Then there will b e a discussion o f the functions o f
Federal Reserve Banks a s fiscal agents.
T h o s e a r e rout-
ine matters, w h i c h I assume will not expecially intereat
members
o f t h e Board.
16: CONTROL OF FOREIGN EXCHANGE TRANSACTIONS
TO PREVENT DISHONEST BANKING PRACTICES.
Here i s a memorandum b y Mr. Leffingwell, sent t o Mr.
Strauss.
M r . Strauss, i t seems, sent i n a memorandum i n
regard t o robbery being perpetrated u p o n ignorant foreign
immigrants w h o desire t o make remittances t o their home
countries, with particular reference to Hungary. h e r e
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Federal Reserve Bank of St. Louis
47
is full information regarding the matter, and a circular
in Hungarian, i f anyone can read it.
T a e complaint made
is that = ~
"They circularize Hungarians, a n d it seems t o b e a rank
Swindle,
T h e y d o not get anything a t the other end at all.t
Mr. Leffingwell makes comment and says:
" I am inclined to
agree that the State control leaves the matter uncontrolled.
New York has completed some sort o f control over it,
out
Chicago still furnishes a happy home for this sort
o f robbery.
O n the whole, I desire t o state that i f a basis
of
law could be found for turning over to the Federal Reserve
Banks a system for licensing dealers i n foreign exchange,
that would be the wise thing to do."
The question arises whether t h e Federal Reserve
Ranks
feel they would like t o undertake t h e supervision
of a
licensing system a n d license these dealers
i n foreign
exchange.
Here i s a translation o f a complaint, a n d also
the c o m
plaint i n the Original Hungarian.
17; U N I F O R M METHOD O F HANDLING REVENUE T O
BE
DERIVED FROM SALE O F CANCELLED POSTAGE
STAMPS O F LARGE DENOMINATIONS.
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Federal Reserve Bank of St. Louis
48
I do not understand that topic,
D o e s anybody else
understand it.
Governor Strong.
Y e s , I understand it. I
discov—
esed that w e were getting $900 a b o u t :
° e v e r y three months
for the sale o f cancelled postage stamps a t the bank. I
do not know whether other Reserve Banks are doing that o r
not, b u t i f they are not, there i s a large revenue t o b e
had from t h e collectors t h a t b u y them a n d ship t h e m abroad.
We put them u p at auctiecn every t h r e e months.
Governor Mill.
H o w d o you get them? S o a k them
OFT
Governor Strong.
N o ; just cut them off,
Governor Harding,
18: FEDERAL RESERVE TELEGRAPHIC CODE.
Are there any suggestions Tegarding thia?
T h i s is a
matter g f routine for you t o consider.
19: STANDARD FORMS F O R ALL FEDERAL RESERVE BANKS,
We will have Mr. Jacobson present #hen w e
discuss
that.
80: I N O R E A S E O F FEE PAID T O DIRECTORS
ATTENDING
EXECUTIVE COMMITTEE MEETINGS.
In view o f the diminished purchasing
power o f money,
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Federal Reserve Bank of St. Louis
49
there i s a disposition i n one o f the Districts, I
toprovide $80 instead of €10 as compensation.
believe,
Y o u see,
that District d o e s n o t have a s many meetings a s are held i n
uther Districts, a n d the committeemen feel they ought t o
have more pay.
W
e would like the Governors t o consider
this; a n d i f they think a n y increase i s advisable,
t o sug-
gest some uniform plan.
Here i s one other matter f o r Giscussion.
I t seems
there has been a movement i n banking circies for
acme time
to adopt a uniform size for drafts and checks, particularly «.
s
drafts a n d checks u s e d b y t h e m e m b e r b a n k s
o f t h e Federal
Reserve System.
H e r e i s a letter from the Todd P r o
teotograph Company o n the subject, which
will b e referred
to the Governors f o r their consideration,
I f they con-
Sider it feasible, I Suppose they
will take it up in their
own Districts,
I have given a hasty outline o f the
various topics
to b e discussed, a n d will a s k members
o f the Federal R e ~
serve Board now to Suggest which
particular topic they
would like t o take u p first for
more detailed discussion
by the Governors.
D o y o u want t o discuss
t h e credit
Situation a n d s e e w h a t a r e
t h e views o f t h e Governors
on
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Federal Reserve Bank of St. Louis
50
discount r a t e s a n d direct a c t i o n ,
o r discuss t h e t r a n s i t
matter?
What i s the view of the Governors themselves a s t o
which topics t h e y feel a r e best t o b e discussed w i t h
us
first, because, frankly, I
do not intend t o iene with y o u
all o f the three days?
Mr, Miller. I
suggest that after the Governore
have conferred together o u these things that
w e reconvene.
Governor Harding.
B s think i t important, gentlemen,
when w e come t o discuss the matter o f
discount rates, that
members o f the Board b e present i n order
that w e can get
the benefit o f the fiews o f each one of
you.
D o you not
think s0?
Governor Strong. I
think i t i s highly important.
This action b y the Advisory Council
m a y make i t desirable
to have a little preliminary discussion t o
see what the
reaction i s o n the Governors, a n d then
t o have a
discussion o f it.
very f l i
Z I should hope w e could take that
up
pretty shortly i n the meeting.
Governor Harding.
C o u l d w e not, i n the
next hour,
just g o briefly around t h e table a n d
a s k the views o f each
Governor o n the sudject? I
should like to get those views
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Federal Reserve Bank of St. Louis
and call o n Governor Strong last.
Governor Strong. I
have talked too much about i t
already.
Mr. Miller,
I f I were a Governor, I myself would want
to discuss i t with m y conferees before discussing i t with
the Board, P e r s o n a l l y , I
a m inclined t o think I should
value the opinion o f the Governors very
much more i f they
had been given that opportunity.
Governor Harding.
M o s t o f you have already discussed
itpretty fully at the preliminary meeting we had
here two
weeks ago.
Mr. Moehlenpah, S u p p o s e w e get the expression here
as t o h o w they feel, a s t o h o w that raise
i n discount r a t e
affects the Governors, from the experience
in the mst,
and especially i n the last f e w days.
I t would b e dasir.
able i f w e coulda get t h e m t o express themselves
now,
Governor Harding.
J u s t s a y what effect their pres-—
ent raise has had on the sale of Liberty Bonds.
Mr. Moehlenpsh,
T h e effevt right i n their own Dig-
tricts, a n d a s t o the volume a n d indications
o f any violent
fluctuations,
Governor Calkins.
I t woulc b e necessary for some o f
us t o s a y w e knew nothing about it, a s w e
left h o m e about
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Federal Reserve Bank of St. Louis
52
the time t h e rate went i n t o effect a n d had n o opportunity
to get the information, I
think none o f the Governors are
sufficiently informed t o answer that question fully o r
Satisfactorily.
Mr. Hamlin. I
move the members o f the Board now at-
tend their regular meeting and leave the Governors t o come
to us a little later,
Governor Harding. B e f o r e I put that motion, I should
like t o ask whether i t will b e agreeable t o the Governors
to have members o f the Board t o drop i n informally
from
time t o time,
o r whether y o u prefer t o discuss
s o m e matters
Strictly among yourselves, a n d then t o discuas these
matters which I have indicated a s being o f general
interest
to the Board, letting u s k n o w when
those discussions a r e
coming on, s o that any members o f the
Board wanting t o
come over could attend.
Governor Strong.
three days. I
W h a t i s your v i e w about that?
O f course w e will o e here for
should say members o f the Board
should
come i n when they feel f r e e from
their regular w o r k a t a n y
time.
W e have done that before.
Mr. Strauas.
about i t .
I t i s just a question o f how
you feel
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Federal Reserve Bank of St. Louis
Governor Strong.
T h e r e are some routine matters
here which, b y the old Sledge hammer method,
I think w e
Can settle very promptly, b u t perhaps menbers
o f the Re~
serve Board would not submit t o the method
w e apply.
Governor Harding,
T h e n I underatand that a n y member
of the Board wishing t o coma-aver a n d
sit van the meeting
can do 80, and if we want to hold a formal
session with you
We can d o sc?
Governor Strong, I
understand o n these topics you
Placed o n the Supplementary.
list y o u would like t o b e
here
when they were discussed?
Governor Harding.
mentary list. I
N o t a l l t h e topics o n the
supple—
merely marked some here
that I
thought
Would b e of particular interest
t o memoers o f the Board.
One member o f the Board might
b e interested i n one thing
and another i n Something else,
you know.
Mr. Strauss. I
my time would Permit,
Governor Harding,
should like t o get over
a g often a s
P y e n a
e s
§ 0 would I, but, frankly,
m y time
Will not permit m e t o b e
here continuously.
I
f y o u wish
me t o b e present y o u c a n
send f o r m e a n d I will
come over,
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Federal Reserve Bank of St. Louis
54
but I
have a
considerable a m o u n t
o f routine business
to
transact i n m y office,
Governor Passmore,
W o u l d i t not b e a good time t o
discuss t h i s c r e d i t S y s t e m ,
s a y t o m m o r r o w morning,
o r some
particular time?
Governor Harding. I
think i t would be very well
for you to agree among yourselves a t what time
you would
feel prepared t o disouse with the Board
the credit s..
Situation and the discount matter; t h e n
w e will have a
S86ssion, s a y this afternoon o r tomorrow
-- I
morrow would b e preferable.
Governor Passmore.
Governor Harding.
men?
think t6<
W h a t d o y o u think?
I t seems t o me a good idea.
W h a t i a your view of that, gentle-
I t has been suggested b y Governor
Passmore that you
fix a time w h e n y o u wovld b e prepared
t o discuss formally
with the Board the question o f discount
policy and the
general credit situation.
Governor Strong. S u p p o s e w e
took that u p right
after lunch today, w o u l d that
b e Satisfactory t o members
of
the Board?
Mr, Strauss. ; I
have a n engagement a t 6:30
at the
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Federal Reserve Bank of St. Louis
State Department.
Mr, Hamlin. I
think tomorrow would b e better.
Governor Harding.
W o u l d i t b e agreeable t o arrange
it for eleven o'clock tomorrow morning?
Governor Strong.
A t any time.
Governor Harding.
T h e n those i n favor of having a
formal discussion with the Board o n the question o*% the
effect o f the discount policy o n the general situation a t
Sleven o'clock tomorrow morning will indicate b y saying
&ye; c o n t r a r y ; n o . “
(The motion was agreed to.)
At the expiration o f the Joint Conference w i t h the
Federal Reserve Board, t h e members o f the Board thereupon
retired f r o m t h e c o n f e r e n c e r o o m a n d t h e c o n f e r e n c e
of
Governors proceeded, Governor Beijamin Strong, jr., o f
the Federal Reserve B a n k o f N a w York being
chosen b y unanimous v o t e t o act a s Chairman.
a
e
S ee
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Federal Reserve Bank of St. Louis
56
PROCEEDINGS O F THE GOVERNOXS I N CONFERENCE,
The Chairman.
Governor S e a y .
A r e y o u gentlemen ready for business?
W r . Chairmen, I
should l i k e t o say,
in v i e w o f c i r c u m s t a n c e s w i t h w h i c h y o u a r e p r o b a b l y f a -
milier, o u r Deputy Governor i s also here, a n d I hope y o u
will grant h i m the full privilege o f the floor, a n d h e will
probably a c t a s spokesman. I
shall probably n o t b e con-
ieseuely w i t h y o u , a n d p r o m i s e n o t t o t a k e u p t h e t i m e
of the Convention.
The Chairman.
T h a t i s agreed to.
I t has been o u r
practice a t these meetings t o limit discussion b y rather
arbitrary ruling o f the chair when t h e time seems t o have
arrived t o consider a
motion s o as t o dispatch e topic.
Is there a n y objection t o apat inuing that method o f procedure?
I f not, w e will proceed under t h e rules w e have
formerly adopted f o r these meetings.
it occurs t o m e that this program was made u p o n
short notice a n d there m a y b e some other topics t h a t
members o f the Conference w o u l d like t o add.
I f so, i t
would b e desirable, I think, t o hand that t o the s e m e
rapher a n d h a v e t h e m w r i t t e n o u t a n d h a n d e d
session.
i n at a
later
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Federal Reserve Bank of St. Louis
57
What are your wishes a s t o the order o f discussion o f
topics
o n t h e program?
Governor Wellborn. I
OUST
suggest t h e y b e t a k e n u p i n t h e
p i n t a .
Governor C a l y i n s ,
topics
M i g h t i t n o t b e well t o c m s i d e r
o f minor i m p o r t a n c e b e f o r e w e g e t d o w n t o o n e o f
ma jor i m p o r t a n c e ?
The Chairman, I
thought i f we did that w e would not
then b e considering topics which some o f the members o f the
Federal Reserve Board might like t o consider with us. D o
you offer that a s a motion?
Governor Wellborn.
I n view o f what Governor Harding
stated a few minutes ago, a s t o coming tomorrow t o hear
our r e p o r t
o n d i s c o u n t rates, p r o b a b l y i t would b e b e t t e r
to take that up.
The Chairman,
A n d have a
preliminary discussion o f
that n o w ?
Governor Wellporn.
Y e s , begin right now with it, i n
order t o get together o n i t some w a y o r other, t o m t u r e
our opinion s o w e c a n express i t t o them tomorrow,
or
take i t u p a w h i l e a n d p u t i t aside a n d t a k e i t u p t h i s a f -
ternoon,.
to them.
V e should b e ready i n the morning t o give i t
I t is: fresh o n our minds n o w from his talk, a n d
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Federal Reserve Bank of St. Louis
58
I think i t the proper thing t o take i t u p right now.
Governor V a n Zandt.
M r , Chairman, t h e r e i s o n e question
f should like t o bring before the Conference before w e
start i n on anything else.
I t is that some o f the Govern-
ors have not yet received the Board's letter No, X-1721,
together w i t h t h e questionnaire i t desires furnished t o
the employes.
The Chairman. I
have t h a t b e f o r e
m e t o b r i n g u p before
we finish t h e meeting.
Goyernor V a n Zandt. I
do not think i t would take m u c h
time,
Governor M o r s s . I
should l i k e t o s u g g e s t a
these c o m p a n i e s t h a t a r e b e i n g f o r m e d e s p e c l a l l y
industrial concerns, a b o u t their ability,
The Chairman,
topic
on
t o finance
a m s o forth,
W o u l d w e n o t s a v e t i m e b y having a i l
topics handed t o the stenographer t o be brought u p 1 & er,
and I will see that they are added t o the program?
Governor Wellborn suggests w e consider first the subject o f discount rates o n the credit situation: Governor
Calkins s u g g e s t e d w e d i s p a t c h s o m e o f t h e l e s s i m p o r t a n t
subjects first. Governor Yellborn has the right o f way,
and his suggestion w a s made first.
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Federal Reserve Bank of St. Louis
7.DISCOUNT RATES 8. CREDIT SITUATION.
Governor Vellborn,
5
9
M y idea i s that w e have just heard
Governor Harding's t a l k a n d i t i s fresh i n our minds, a n d
it i s f a r the most important thing w e have here, a n d I
think t h e sooner w e start o n i t the better.
The Chairman.
W h a t a r e your wishes?
I s Governor
Vellborn's motion seconded,
(The motion was d u l y seconded).
The Chairman. G o v e r n o r Wellborn moyes t h a t w e first
consider topics 7
and 8 preliminary t o a discussion o f those
topics w i t h t h e Federal Reserve Board.
onded.
H i s motion i s sec-
I s there a n y discussion?
(The motion wasq@rried),
The Chairman.
T h e subject w a s brought u p b y Governor
Harding i n the reading o f a letter from Secretary Glass
of November 5th.
I s there a n y discussion o f that letter?
Governor Wellborn.
M r . Chairman,
i t appears t o me
that t h e increase o f rates w i l l v e r y materlally affect
the Government finances.
T h e r e i s n o doubt about that.
They w i l l h a v e t o p a y h i g h e r f o r t h e i r money,
a n d i t will
probably affect t h e s a l e o f Government bonds, too, a n d
depreciate their value.
A t the same time I
t h i n k ew h a v e
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Federal Reserve Bank of St. Louis
AO
got t o look out for the general situation, the financial
Situation a n d t h e w e l f a r e o f t h e country,
a n d those a r e t h e
two points w e have got t o consider; that a t least i s what I
am considering i n my mind, which i s best, and, without going
into a long discussion of it, I feed that we ought to in,
crease the rates. Since we incréasea the rates o n November
1Oth, I
have s e e n that i t pas /et tected t h e banks a great
deal; they have taken noti fe end are going t o be closer i n
their credits; there i s Atendency t o curb their credits,
which I
believe igs v e r y e s s e n t i a l
a t t h e present time;
have g o t t o curb them i n some w a y o r other.
only w e a p o n w e h a v e t o fight w i t h ,
we
T h a t i s the
i s t h e rates.
The Chairman, Governor Miller?
Governor Miller.
rates,as
I a m i n favor o f a n increase i n
i t has b e e n thoroughly demonstrated
trict t h a t a f t e r w e i n c r e a s e d t h e r a t e s
i n our dis-
o n November 1 0 t h
we had liquidations within a week o f about «9,000,000 o r
%#10,000,000, directly attributable t o the increase i n
rates, a n d w e want t h e m higher yet.
The Chairman. G o v e r n o r Passmore?
Governor Passmore,
T h e change o f rates h a s brought
no very material change i n our loans.
O u r loan situation
61
has r e m a i n e d a b o u t t h e same.
T h e r e w a s a n increase
o f about
7,000,000 i n loans during the first week after the raise.
After t h a t t h e y f e l l o f f r i g h t a w a y , a n d I
think w e a r e
just a little under i n our total loans where w e were w h e n
‘the raise took place, o n November 6th.
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Federal Reserve Bank of St. Louis
W e have had a good
deal o f complaint f r o m outlying country institutions about
taking some unfair advantage o f them, a n d they were forced t o
take t h e securities a t a time when t h e y were n o t able t o
secure secondary distribution, b u t w e have had very little
difficulty, I
think,
i n replying satisfactorily t o that.
if i t was n o t for t h e Treasury situation w e would certainly
prefer a
further s d v a n c e
i n rates.
The Chairman. G o v e r n o r M e Dougal.
Governor McDougal.
S i n c e t h e rate advanced o u r reserve
has b e e n going steadily down.
T h a t i s occasioned b y a n in-
crease i n demand from our own district, and, t o some extent,
a demand which w e have helped t o supply f r o m other districts.
My belief i s that current conditions justify a further adjustment o f rates upward. I
believe, however, that’ i n
view o f the fact t h a t t h e Advisory Council came here, a c cording t o our understanding, u n d e r t h e strong impression
that rates should b e increased, b u t that their views were
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Federal Reserve Bank of St. Louis
62
materially modified after hearing Mr. Leffingwell's story,
that w e should ask Leffingywell t o come i n and explain
the situation t o the Governors before w e take final action
on t h e matter,
The Chairman. Governor Calkins.
Governor Calkins. I
wish, first, t o second ir.
MeDougal's suggestion that Mr. Leffingwell b e invited t o
attend this conference. I
think t h a t none o f u s have a n y
doubt r e g a r d i n g t h e e x p e d i e n c y o f s d v a n c i n g rates, e x c e p t
that doubt which we are brought t o consider because o f the
condition o f Government finance.
{ I feel rather reluctant
that i t is necessery t o say we must still consider the
situation of Government finance. I
cannot “ay anything
in the w a y o f information regarding t h e practical result
of a d v a n c e d rates, n e i t h e r
do I
believe t h a t a n y o f t h e
Other r e c o m m e n d a t i o n s p r e s e n t e d c a n g i v e valuable, p r a c t i eal i n f o r m a t i o n w i t h r e g a r d t o t h i s advance,
being sufficient. I
the p o l i c y should,
t h e time n o t
am fully committed t o the view that
a s s o o n a s possible, l e u d , f i r s t t o t h e
entire wiping o u t o f t h e differentials between Govern.
ment securities a n d commercial paper, and, second, a n advance o f r a t e s a s i s d e t e r m i n e d
t o b e necessary after t h a t
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Federal Reserve Bank of St. Louis
point h a s b e e n reached.
The Chairman.
G o v e r n o r Young.
Governor Young.
I n our district there h a s been a re-
auction i n about fourteen days o f approximately 4,10,000,000,
«6,000,000, I
know, h a s b e e n reduced through t h e sale o f
Government obligetions.
O f course this i s the season o f
the y e a r w h e n w e a r e l o a n i n g m o n e y t o m e m b e r banks.
have received n o complaints from any bank at all.
W
e
The
Twin C i t y bankers a r e i n favor c f this increase i n rate.
Aside f r o m the situation a t t h e present time, i t would s e e m
the natural a n d o n l y w a y w e have o f reducing t h e inflation
is t o increase t h e rate, b u t apparently w e have t o consider
the request o f the Secretary o f the Treasury f o r the Govern-
ment financing, a n d I would prefer t o hear from ir. Leffingwell a
little f u r t h e r b e f o r e c o m m i t t i n g myself.
The Chairman. G o v e r n o r Fancher.
Governor Fancher.
M r . Chairman, I
think i f i t w e r e n o t
for t h e f a c t t h a t w e a l l h a d i n m i n d t h e r e q u i r e m e n t s
of
the Government i n temporary financing t h a t w e would all fever
&a:Berther increase i n rates. I
situation,
weuld say, s o far a s our
t h e F e d e r a l R e s e r v e B a n k a t Cleveland,
w e seem
to b e the o n e bank that wiped o u t t h e difverential a s between
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Federal Reserve Bank of St. Louis
64
commercial paper a n d loans secured b y Liberty Loans a n d
Victory Notes.
W e brought out rates t o the same level i n
from one t o ninety days, f o u r a n d three quarters p e r cent.
After t h e r e c o m m e n d a t i o n s
o f t h e Board, i m m b d i a t e l y a c t e d
on here, i t took some little time, t w o meetings o f the
Board finally concurred i n our rates l a s t year.
It is a little early, I think, t o detect what the effect would be, but w e have seen a n increase i n our borrowings, and, o f course, a decrease i n our reserve the last
ten days,
I t has n o t b e e n very marked o n Government s e -
cured paper.
V i e showed a n increase o f about :6,000,000,
but b y reason o f our mking a rate for the four and one
Quarter a n d four a n d one half certificates, a
fifteen-day
rate,
o f borrowing,
w e have seen a
we have s e e n quite a
change
i n the percentage
marked increase i n advances secured
by certificates a n d a decrease i n advances secured b y
Liberty Bonds, looking t o the professional rate made for
certificate borrowings.
The Chairman, I
have a
message t h a t S e c r e t a r y G l a s s
would appreciate i t i f all Governors w o u l d m e t
office a t 1 2 45 today.
will b e t h e r e ?
i n his
M a y I send a n answer that w e
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Federal Reserve Bank of St. Louis
65
(The suggestion o f the Chairman was agreed to.)
The Chairman. E x c u s e me, Governor Fancher.
Governor Fancher. I
cess o f borrowings, I
believe t h a t ,
t o correct t h i s e x -
think that the protective method
is b y a gradual increasé i n rates.
I t i s going t o b e t h e
only effective method, a s I view it.
The Chairman. G o v e r n o r Biggs.
Governor Biggs. A f t e r raising the rate in our district, immediately liquidation was quite heavy.
O u r
larger banks a r e borrowing comparatively v e r y little,
reflecting the immediate effect o n the raising o f rates
for their customers, a n d there i s where I
think the raising
of rates i s a good thing; I think the moral effect i s a
‘good deal better t h a n raising those rates now, because i t
reverts immediately t o the banks,
i f w e raise t h e m o n e
quarter t h e y g o one half; t h e y double u s a l l the time.
That h a s h a d a tendency,
i n the general trend o f talk
from the bankers t o their customers, t o the effect w e
are going gradually t o put t h e soft pedal on. I
need i n our district f o r increasing t h e rates. I
see n o
do not
think i t would help very much, except i t would b e a n additional expense t o legitimate needs.
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Federal Reserve Bank of St. Louis
66
The Chairman.
G o v e r n o r V a n Zandt.
Governor Van Zandt. I
do not believe t h a t afurther
increase o f rates i n our District would have any effedt a t
ail, unless i t was a very material increase.
T h e slight
Taise that w e made down there, actéd i n the nature o f a
warning t o b a n k s t h a t t h e y m u s t c u r t a i l t h e i r s p e c u l a t i v e
loans, a n d w e are putting o u t a
that line. I
little propaganda along
believe that a further increase i n rates
just as this time would hurt the Treasury financing and,
and, therefore I do not velieve i n it at the present time,
although I am theoretically i n favor o f a Federal Reserve
Tediscount r a t e which is. a t least a s high a s the commercial pank rate.
The Chairman. Governor Seay?
Governor Seay.
T h e loans i n the Fifth District have
decreased since July about $50,000,000, nearly all in Covernment securities.
The Chairman. H a v e decreased.
Governor Seasy.
The Chairman.
H a v e decreased.
A b o u t fifty million?
Governor Seay. A b o u t fifty million?.,
Deputy Governor Peple.
T h a t h a s been largely b y the
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Federal Reserve Bank of St. Louis
‘
sale o f certificates, though.
W
Governor Seay.
6
7
think, a n y
e c a n net attrivute, I
decrease o f loans t o the increase i n rates.
e think i s
W
is due t o the season.
The Chairman.
A n d the sale o f cotton?
Governor Seany.
Y e s , t h e sale o f cotton, a n d the
replacement o f agricultural a n d commercial paper.
There
has b e e n some disposition t o re-sell certificates o f continuance.
The Chairman.
T o : 2907
Governor Seay.
H o l d b y the banks, yes, t o us; and,
however m u c h w e might w i s h it, a n d nobody wishes i t more
Strongly t h a n I and has wished i t more strongly,
w e may
Gissociate o u r rate f r o m Government financing,we c a n not
60°23, 2
thine. I
celieve
i t would have a
material e f -
fect o n Government securities i f we were a t thia time t o
increase o u r rates further. I
celieve t h e increase i n
the rate s o far has had a very salutary effect; there i s
no question about that. I
think t h e admonition i t
gives i s much more forcible t h a n the difference i n the
rate, w h i c h i s very Slight,
i n a apéculator
i n commodi-
ties o r other things.
i think the most powerful influence w e can bring t o
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Federal Reserve Bank of St. Louis
68
bear ifs not i n an increase o f oné-half per cent i n the rate,
but i n the admonitory attitude teward t h e member banks,
and we have been exercising i t for some time.
™
e have
been scrutinizing very closely the charactor o f the loana
and the purpese for which made -- that we are making to
our member banks, a n d w e have excited the cotton community
very mich i n our District
b y the issuance o f a circular warn-
ing them against speculation i n cotton, a n d perhaps the other
Federal Reserve Banks have received that circular.
I can not g o as far a s the Advisory Council i n Saying
that i t does not appear t o me that there should not b e any
further increase between now and January firas. I
think
that i s a matter which exigencies ahould leave open. Z
would not b e i n favor o f a n y further increase a t
t h e present
time, without t h e further exercise o f admonitions t o
the mem-
ber banks.
B u t I oelieve w e w o u l d o
e able t o control i t
inthat way. T h e y have taken notice, unquestionably, and
the better bankers i n the Distx~ict undoubtedly a r e cooperat—
ing with us, and I believe exercise more influence that
way than b y increasing the rate oné-quarter
o y one~hal?f per
cent, w a i c h increase I
do not believe should o e made
with-
out v e r y close consultation w i t h t h e
Treasury Department.
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Federal Reserve Bank of St. Louis
69
The Chairman.
I f the better oanka i n your District
will observe your admonitions /*Will déliver the plunder to
the worserbanks
i n the District, w h o will profit b y it.
Governor Seay. I
think that i s undoubtedly true.
The Chairman. G o v e r n o r Mormza?
Governor Mores.
T h e borrowings of; the Boston bank
were quite moderate u p t o a month ago, a n d that induced u s
to take o n quite a large line o f deposits, o u t since the
Tate was advanced, o u r loan account has jumped very materially, t h o u g h I think i t i s entirely f o r local reasons
and has nothing t o d o with t h e rate especially.
The Chairman,
Y o u d o not think i t i s t o enable
them t o lend money i n New York?
Governor Morss.
T h e r e i s always m o r e o r less o f that
but I do not think s o to any great extent.
T h e jump came
on us from o u r b i g banks right there i n Boston that I
know
did not have very much money i n N e w York, although t h e y
always have some, b y the S h a w m t B a n k , t h e First National
and the Old Colony; a n d those had some withdrawals o f deposits. I
d o not k n o w that money d i d not g o t o N e w York,
but i t a p p e a r e d they d i d not have a n y control o f it, b u t
it was caused t o a consideraole extent b y the fact that
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Federal Reserve Bank of St. Louis
70
all these municipal a n d State notes, issued i n anticip ation
of taxes came d u e i n N e w York, and, besides that, o u r Dis-
trict is now coming to a time of year when they will need a
good deal o f money t o buy cotton and other things t o supply
their legitimate business, which I do not feel I would have
‘
any right t o check credit o n that account.
We have always exercised a
considerabie moral restraint.
what w e could, o n the banks, a s to how they should borrow,
and what t h e y should borrow i t for, a n & w e carry o n a sort
of general campaign against these country banka, and keep
in close touch with the city banks. I
do not think there
i8 mich more w e coulda do, a n d I think t h e feeling
grows
all the time that w e should not d o it. T h e r e i s
a sort
of resentment a g a i n s t i t .
The Chairman, A g a i n s t moral restraint?
Governor Morss, A g a i n s t moral restraint.
they have been morally restrainec a
T h e y say
great deal, b u t t h e war
is over, a n d i f they are not borrowing
heavily that w e
should not interfere w i t h what
t h e y c o with thoir money.
As for the policy o f rates, 1 feel
myself = . that the
policy o f the Fedsral Reserve Banks,
a n d the Boara too, o n
raves should b e guided very much
b y the average reserva
Tate e f the banks,
I
t seems t o m e i t i s the
duty o f the
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Federal Reserve Bank of St. Louis
pak
Federal Reserve Board a n d the banks t o protect their average reserve, a n d especially x h e n i t i s getting d o w n t o a s
Close a s forty per cent, o r t o the legal rate, a s i t i s today, a n d I shoulda b e guided very much b y the tendency o f
that rate, A
rapidly.
month ago that rate was declining auite
T h e advance i n the present r a t e has
h a d a tend-
ency t o kn": check up, o u t i f i t overcomes t h e
present a d vance i n rates a n d that declining tendency i s
still the-e,
I think that we ought to advance our rates again,
O f
course, w e want t o give every consideration t o
the Government financing, b u t I
think t h e Government financing could
Stand t o one side against this declining
rate whon i t i s as
low as it i s today.
Governor Passmore.
to s a y t h a t I
M a y I just supplement m y
report
believe l o a n s w o u l d v e r y
materially advance
in our District if, on account
of our reserve position we
had not u s e d restraining influencés.
E v e r since t h e
Taise o f rates w e have not
p u t o n n e w loans without
asking
the borrowers i f they h a d
money O n call i n New
York.
I n
every case where they
h a d money out i n N e w
York w e declined’
to loan. T h e r e v e r e
a few ceases where w e
put t h e loan
en just overnight, i n
order t o give t h e m
e n opportunity t o
Call t h e loan i n N e w
York t o pay t h e next
day.
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Federal Reserve Bank of St. Louis
72
The Chairman.
S u p p o s e all Reserve Banks d o that.
There is $712,00C,000 or $715,000,C00 loaned by banks located i n other Reserve piietace.
I
f you all d o that,
we
shall have t o make those loans directly, then, o f course,
in New York,
W
e are prepared t o d o it, i f necessary, but
T am wondering whether that type of direct action, in the
long run, i s going to be in the interest o f the Treasury it~
self,
Governor Passmore.
W
e felt that o u r reserve position
made it necessary for us to do it.
W e felt w e were i n a
little different position than other banks were.
The Chairman. I
should hope that w e could find the
means a t this time t o look t o the reserve system a s a sys-
tem, and not as a lot of isolated banks, and work out a
policy which will not d o what I
a m certain w i l l result f r o m
the excessive ‘ p p l i c a t i o n of this direct action
that Governor Harding refers to, which i s Simply t o
drive
the infeotion from one place t o another.
T h a t i s my fear
of the consequences o f a concerted drive,for
instance, o n
one certain line o f credit, n o t that I au Porticularly
a
partisan o f the Exchange - - I think possioly
some people
in New York think quite the reverse now.
73
Governor Seay.
W i l l you let m e add to the reference
to our o w n District, t h a t t h e admonition t o ‘our vanks h a d
reference t o speculative commodities, commercial transactions
principally, a n d I think I might almost exclude t h e specula—
tion i n securities.
I
t had reference t o cotton movement
and real estate movements, a n d other movements o f a n allied
character o f a commercial nature.
The Chairman.
Secretary, p u t I
W
e have got t o adjourn now to meet the
would z a like t o a a y this discussion spout
rates i s probably d u e t o the fact that I
have over here ra-
ther constantly, a n d i t has unfortunately
taken t h e Shave o f
more o r less a
personal difference o f view between Mr.
Lef-
fingwell a n d myself i n this matter, a n d I
think I shall take
the first Opportunity o f expressing
m y views t o this meeting
a8 fully a s I can and let i t g o at that.
I
do not want
to be constantly i n the position o f Opposing;
w e all want t o
help.
If it will b e agreeable, w e will,
have our meeting a t the
Treasury now, a n d then all g o
over t o the George Washington
to lunch,
s o w e can Set b a c k promptly.
Whereunon,
8:15 py. m.
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Federal Reserve Bank of St. Louis
a t 19:50
$ . 25 8
Tecess w a s taken until
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Federal Reserve Bank of St. Louis
AFTER RECESS,
The conference re—-assembled, pursuant t o
recess, a t 3:30
o'clock p. m., Governor Strong presiding, t h e i r
being present &
Mr. Moehlenpah of the Federal Reserve Board.
Governor Strong.
T h e meeting will come to order.
The discussion this morning completed expressions
of
Opinion f r o m all t h e Governors a s t o the advisability o r in-
advisability of Changing the rates b y the Reserve Banks.
4 would like t o go around the table i n order t o
bring out
in the record clearly, a n d a s briefly a s w e
can, certain
features i n regard t o the rate policy, a n d to ask two
ques—
tions,
i f I may:
First, Governor Yellborn, d o you deiieve that
admonishing the banks a s to the amount o f their ocorrowings
from
the Reserve Banks, o r inquiry as to the use that
i s to be
made o f the borrowings, or, i n case o f need,
aosolute withholding o f credit,
i s a feasible w a y i n waich t o control
the situation; and, second, i f that c a n
b e successfully done,
what will b e the effect upon interest rates
throughout t h e
country?
I merely want t o get o n the record a n
expression o f
Opinion
o n that v e r y vital matter, w h i c h will
b e o f service
715
Governor Wellborn.
be done. I
M r , Chairman, I
think both should
think w e should admonish them and also increase
the rates o n commercial paper.
T h e r e i s a pretty w i d e
difference i n some localities i n interest rates obtained b y
the banks over what they get from the Reserve Banks.
That
applies i n a good many o f the districts, a n d therefore I
think w e Ought t o increase t h e commercial r a t e
t o a p_oint
where there will o e n o inducement t o the oanks t o borrow
money t o e x t e n d credits.
The Chairman.
Y o u w o u l d n o t increase t h e Government
rates?
Governor Wellborn.
N o , I would not. I
favor o f increasing Government rates. I
lowing them t o stand a s they are. I
am not i n
am i n favor o f alheard this morning i t
was the idea o f the Treasury Department t h a t w e would not
increasé a n y o f the rates. I
asked Mr. Leffingwell t h e
question, a n d h e stated that t h e y were o n l y interested
in
‘the question o f Government rates.
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Federal Reserve Bank of St. Louis
W
e have already put i t
on & basis where there i s no profit t o them, that is, a t
the
Same rates that the securities bear, a n d I am i n fevor o f
letting i t stand at that.
W i t h the commercial rates, I
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Federal Reserve Bank of St. Louis
am i n favor o f increasing that t o some extent.
The Chairman.
W
e have discussed t h e rate matter,
Mr. Wellborn, a n d the question now is, @ill direct action,
as w e understand t h e meaning o f the word, b e effective,
and, i f so, what will b e the effect u p o n t h e interest rates,
Hawe you any opinion o n that?
Governor Wellborn,
Y o u said t h e action o f withholding
eredita?
The Chairman,
Y e s ,
Governor Wellborn. I
do not see how w e can d o that.
I do not think i t would b e wise t o withhold oredita.
Governor Seay.
E v e n w h e n t h e credit i s plainly d e -
Sired for improper purposes?
Governor Wellborn.
T h a t i s a different question,
We do not see much o f that.
I t has not reacked any degree
at all i n our section o f the country.
O u r commodities
are moving very rapidly, and money i s being borrowed
b y the
member banks t o market c o t t o n o n Sixty a n d ninety d a y
bills.
The products have been purchased and are awaiting shipment.
The condition is so crowded that they can not secure sufficient Shipping facilities, e i t h e r i n
the w a y o f railroads
Or Ships a t p o r t s .
The Chairman, S u p p o s e , gentlemen, that w e have
those
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Federal Reserve Bank of St. Louis
at
questions I
submitted a n s w e r e d first.
G o v e r n o r Passmore,
what i s your opinion?
Governor Passmore.
question, Mr. Chairman,
T r y i n g t o answer y o u r specific
a s I explained this morning, w e
have tried, i n a moderate way, a n admonishing program.
I t
is most too early for us t o forecast a n y definite results
from it; b u t I must s a y that f o r the most part i t was re-
ceived in good spirit, and I feel sure that all the large
institutions realize the importance o f it, a t least o n the
surface, a n d they promised cooperation.
H o w effective
it i s going t o be, I confess I can not foresee.
Governor Strong.
D e y o u think i t will have a n y effect
on interest rates?
Governor Passmore. I
do feel this about it, that i f
we decide that that i s the plan t o pursue, that i t mist b e
done throughout all twelve Districts, because w e all have
more o r less bearing o n the situation i n New York, a n d
some
of us a very direct bearing.
The Chairman.
Y o u are not sure yet whether o r not i t
will b e effective?
Governor Passmore.
N o , except that I
do feel sure
thet i t i s possible t o draw to our assistance i n
our program
83
the cooperation o f our latgest a n d best bank people; I feel
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Federal Reserve Bank of St. Louis
quite confident o f that.
The Chairman.
D
o you think i t will have any effect
upon interest rates, s u c h a s f o l l o w s i t generally?
Governor Passmdre. I
do not see why it would not like-
iy increase interest rates.
The Chairman.
G o v e r n o r Miller, w i l l y o u express y o u r
Opinion o n it?
Governor Miller. I
do not believe that w e get very
far with admonishing t h e banks.
T h e y believe they know
their business better than w e can tell i t to them.
Y o u
Could never put your finger o n any particular transaction
that they would acknowledge was a hoarding o r speculative
transaction.
T h e y would claim that i t was i n the ordinary
‘Course of their business.
O f course, i f it were general
all over t h e whole country, a n d w e were t o use a
arm, w e might d o something.
real strong
R a t e s could b e increased b y
reason of the fact that customers who applied at the banks
for accouodation
a n d could not g e t A } M O U S (bid -for 1t< i a
the open market.
The Chairman.
G o v e r n o r Calkins, w h a t i s your opinion?
Governor Calkins. I
believe that t h e situation could
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Federal Reserve Bank of St. Louis
79
be influenced b y inquiries. I
velieve that a n y action
sufficiently drastic t o control the situation, o r appraximately control it, would inevitably lexd to incroased
rates.
The Chairman.
G o v e r n o r Young?
Governor Young. i
think that they can b e controlled
to a certain extent, but when i t comes t o the final analysis, there really i s n o control.
Y o u can ask the banks
what they want t o use the money for, a n d they can camouflage
their reply more o r less and, i n making their reply, t h e y
do not have i n mind making any false statement, becausc, i n
their o w n minds, t h e y a r e making t h e right statement. 4
we have a certain control over the member banks, w e have
the State banks t o reckon with.
tion. .
Y o u force unfair compesi-
State banks can get assistance indirectly through
the other member banks. I
think i f the member tanks re-
fused t o loan money under those terms, that i t would cause
the borrowers t o g o t o the other banks a n d offer t o
pey a
higher rate f o r it, a n d I think i t would increase
t h e in-—
terest r a t e s .
The Chairman. I
Governor Fancher.
would like “ o have yur opinion,
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Federal Reserve Bank of St. Louis
80
Governor Fancher. I
think that close inquiry o f the
borrowing banks a s t o what the funds are t o b e used for i n a
way will have some effect, but i t will not right the situation that w e now face.
A n y curtailment o f credit i s bound
to oring higher rates.
The Chairman. G o v e r n o r Biggs?
Governor Biggs.
W e are probably i n a little differ-
ent situation f r o m most o f the other banks, and, frankly,
ZIdo not think i t would d o any good t o raise the rates i n
our District o n commercial pager or other sasger, because
the banks and trust companies have sufficient amount o f
Government securities t o take care o f them, a n d i t would
Simply mean that they would g o out and raise the rates o n
Commercial raper and get the differential there,
T h e y
would not c u t i n their commercial paper, o u t would use i t
in that way.
The Chairman.
r a r d o n me, b u t t h e question h a s t o
do with direct action.
W e have discussed the rate mat—
ter, a n d the question n o w i s direct action,
Governor Biggs. H a v i n g a more o r less compact Dis-~
tricot, w e can do more b y persuasion, o r as much, I f202,
ao w e c a n b y reaising rates, a n d control i t better.
W e bar
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Federal Reserve Bank of St. Louis
81
always b e e n able,
b y the pergonal contact o f our officers
with o u r b i g institutions,
with them.
t o keep i n very close touch
W e have discuased matters o f this k i n d freely
with them, a n d w e can persuade t h e m easier than w e c a n force
them b y i n c r e a s i n g t h e rate.
Governor T"ellborn.
T h a t may 0 6 true with regard t o
the banks i n your city, b u t h o w d o y o u influence those that
you d o not see?
H o w about those that send i n their busi-
nessa b y mail?
Governor Biggs.
W e have only large borrowers i n three
Cities, including Memphis a n d Little Rock; a n d they are
not borrowing t o any great extent —
Governor Wellborn.
A r e they loaning month o n the New
York Stock Exchange?
Governor Biggs.
T h e Memphis banks?
Governor Wellborn.
Governor Biggs.
Y e s ,
N o , Memphis i s not. &
few o f the
‘Bt. Louis banks have been, b u t they have c u t i t out. 1
46
not think w e have a memoder bank loaning a n y money t o amount
to anything.
S o m e o f them did, b u t they h a v e c u t i t out.
The Chairman, G e n t l e m e n , there i s a definite ques—
tion before the meeting.
M r , Biggs, what would b e the
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Federal Reserve Bank of St. Louis
82
effect o f this action o n interest rates i n your city?
T h e effect o f direct action?
Governor Biggs.
The Chairman.
Y e s , s u c h action a s might b e exerted
by influence o r otherwise t o restrain the employment o f
credits b y member banks f o r speculative purposes?
Governor Biggs.
I w would not b e especially bad.
do not think i t would help u s very much, b u t i t would not
be bad.
The Chairman.
W o u l d i t have any effect tpon interest
rates?
Governor Biggs.
Y e s ; i t would have some effect, but
it w o u l d n o t b e serious
i n a n y way.
The Chairman. G o v e r n o r McDougal?
Governor McDougal.
T h e first question is the effect
of personal persuasion - The Chairman.
i s that i t ?
Y e s , o r absolutely d e n y them credit,
if necessary.
Governor MoDougal.
W
e have exercised that means for
& period o f a year o r more, taking a s o u r guide t h e amount
of liabllity o f the banxs.
W h e n their borrowings? reach
an amount equal to the capital stock and surplus, w e carefully make inquiry a s t o the occasion f o r it; and, where
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Federal Reserve Bank of St. Louis
83
necessary,
t a k e opportunity o f reminding t h e danas o f our
obligation t o deal fairly w i t h all banks provided t h e y were
all borrowing a t t h e same time. I
think i t has h a d some
effect.
The Cheirman.
W i l l that b e effective i n the way o f
checking speculation, assuming, o f course, that w e d o not
increase the rate?
Governor McDougal. I
think i t will t o some extent,
but t h e measure o f that w a c a n not teil,
O u r strong reserve
position v a n b e attributed t o some extent t o that policy.
On the other hand,
w e have o e e n t h e creatures o f very favor-
able circumatances,
i n that w e have h a d wonaerful crops a n d
high prices.
I do not quite understand, Governor Strong, t h e second
question,
a s t o the effect that this w o u l d have o n interest
rates.
Governor Calkins.
I f it amounted t o control, what
would b e the influence o n interect ~ates?
The Chairman. C e r t a i n l y the expectatioa o f the Reserve Board and the Treasury Department i s that the Reserve
Banks shall exercise a needed influence i n checking “his
Speculative mania that i s sWeeping o v e r t h e country.
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Federal Reserve Bank of St. Louis
84
we d o not employ t h e discount rates t o d o it, other means a r e
suggested, and that is to tell the banks that they must not
borrow from u s i n order t o make speculative loans o r t o
Carry commodities for speculation and so on.
I f we use
those d i r e c t means, a n d tell t h e m that t h e y c a n not have
money f o r that purpose, w i i l i t have a n y effect u p o n t h e
interest rates?
I
t seems t o me that they have relation t o
€ach other without doubt.
Governor MoDougal. I
do -not know, Mr. Chairman.
The Chairman. G o v e r n o r Van Zandt, what i s
your opin~
ion?
Governor Van Zandt.
and a half.
W
W
e have tried i t out for a year
e have admonished t h e banss,
a n d have with-—
held credit a t times from those that o a n
not explain satis-—
factory uses o f the funds which t h e y
want t o borrow, a n d
while that has sone effect, i t i s not what
you would call
effective i n any way,
I
t has, a s Governor McDougal has
said, a n effect t o a certain extent.
W a can not control
the non-member loans and, without doubt,
the denying o f
loan faciliticss t ® certain customers
o f the dank Will make
larger customers for other banks, which
will, i n turn, bring
about increasa i n rates.
I
t i s bound t o d o it.
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Federal Reserve Bank of St. Louis
85
The Chairman.
G o v e r n o r Seay, what i s your opinion?
Governor Seay. I
feel sure that a general campaign
of that ahcaracter w o u l d have material effect u p o n t h e de-
mand for credit, a n d upon the use o f it for improper purpopes.
W
e have a pretty intelligent class o f bankers i n
the country, a n d merchants, too, a n d I think they realize t h e
dangers which confront us; t h e y realize t h e necessities o f
the vorld outside o f America a n d the imperative demand f o r
oredit and, that being so, I
can not h e l p feeling that
admonishing them w i l l have a very wiuespread effect.
R e 4
it has the effect o f lessening the demand for speculative
purposes,
i t must b e true, then, that i t will conserve b a n k
Credits; a n d the question i a will the tendency b e t o inCrease interest ratea o r otherwiae? O t h e r w i s e , I
should
gay.
The Chairman.
Governor Seay.
Y o u think i t would reduce rates?
I f it succeeds i n checking the demand
for credit f o r improper purposes, t h e tendency would b e
rather t o conserve banks! credit.
Certainly,
i t would
not have a n y effect i n increasing b a n k rates, 3 0 f a r a s I
Can see, I
think the p o i n t i s well taxen that i f they
can not obtain i t from t h e usual sources t h e y will g o into
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Federal Reserve Bank of St. Louis
86
the open market a n d bid; but where i s the open market going
to get it? A r e n ' t - e i n touch vith the open market?
every—
D o
we not advance t h e same argument t o people/where that w e
advance t o our oanks?
But I can not aslp but toink tat a campaign of taat
sort would -ave « material effect. I
am sure i t sags wad
a material effect wit. us, a n d I teink i t i s continuing.
T..e Ccairman.
Governor Seay.
I
Y
o
u t x i n k it. v o u l d p u t t r e r a t e s d o w n ?
f i t conserved banks' credit,
i f it is
successful i n doing tat, i t will keep tae rates
down,
We all know wrat o u r ailment i s , a n d t a t i s w e
are loaded
up wit. Governorment securities a t a
are not paying o f f t..sir loans.
low rate.
T e r e
T a e people
i s a riot o f extrav-
agance, a n d i f a spirit o f economy c a n
b e made t o prevail
Over tie country,
i t i s bound t o save a
conservative i n -
fluence and lessen the demand for bank
credits for ali pur-
poses, and if that i s done it will keep
the rates down,
The Chairman.
G o v e r n o r Mores, w h a t i s
your Opinion?
Governor Morsa. I
do not feel that i n our District
we can d o very much i n the way of controlling
that sort o f
thing b y talking t o the banks. I
d o not feel that t h e y
have got very far away from borrowing
money that they really
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Federal Reserve Bank of St. Louis
87
need, although there i s some o f it, o f course.
T h a t does
not seem to me to be an effoctive way of doing what we want
to d o at all. T a k i n g your question, i f it was effective,
and that means effective all over the country, a n d i t prevented t h e use o f money f o r speculative purposes t o a n y degree, i t would mean that t h e y could not g e t t h e money any~
where else, t h e n t h e proper u s e o f money would not necessa-
rily b e increased that I can see. I
do not see why it
should not have the effect o f keeping down the rates, beCause i f i t i s effective y o u really take s o much
demand f o r
money right out o f the market.
Governor Van Zandt.
M
y statement, a n d I think the
Statement o f most o f the Governors w h o
have spozen, w a s
based upon a
question o f whether i t would b e effective.
Of course w e understand that i f it i s effective,
a n d if
there i s n o demand f o r Bpeculative money,
t h e interest r a t e
fax O n money f o r legitimate purposes w o u l d
b e cheaper.
The Chairman.
M
y question was designed t o avoid
that very point, a n d i t i s this:
c a n that b e relied upon
a8 a n effective method o f controlling
speculation, a n d i f
it c a n b e relied upon, w h a t will
b e the effect o f the appliCation o f that method upon
interest rates?
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Federal Reserve Bank of St. Louis
88
Governor Morss.
T h a t i s if it can b e relied upon.
Governor Calkins.
I
s it not necessary t o confine
the inquiry t o banks o v e r which w e are assuming t o have control?
I
f w e have control o v e r those oanks. a n d prevent “ ’
their furnishing money for speculative pupposes, a n d there
was a sufficient d e m a n d f o r money f o r speculative purposes,
it would o@ furnished from other sources, and that movement
would drag interest rates u p all along t h e line.
The Chairman, I
do not know whether there i s any
other feature o f the general discussion t o be developed
at
the meeting, unless someone has a suggestion t o make.
This
Was Simply a
preliminary discussion, preliminary t o taking
this subject u p with the Federal Réserve Board. I
Stood y o u wanted t o exchange views
o n it.
under-
H a s anyone here
any further point t o bring out o r suggestions
t o make?
Governor Morss.
D o you want a n expression o f opinion,
Mr. C h a i r m a n ?
The Chairman.
I
t i s just a s y o u feel about
that, Gov-
ernor?
Governor Moras. I
think myself that t h e proper
course t o have been pursued was t o
have raised the rates
months ago,
I
t was not done because o f
the needs o f the
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Federal Reserve Bank of St. Louis
89
Treasury Department,
I
t has resulted, t o my mind, i n a
lowering o f rates and a great increase i n the use o f credit,
end I think that i s against the interest o f the Treasury Department a n d o f everybody else, I
think a
continuation o f
that policy will continue the results t o a greater degree.
The question i s whether w e can hold t h e amount o f credit
that will b e taken long enough t o satisfy the Treasury
Department,
o r whether b y that t i m e t h e average r a t e o f
the Federal Reserve System will g o down below the legas
rate.
T h a t i s a question that I do not know who can
answer, I
tinuing a
can not answer it, a t any rate, but w e are conpolicy which leads d i r e c t l y t o that i f w e fol-
low the Treasury Department's program.
Now, i f we are t o follow that program, personally I
Should like t o see the responsibility f o r the result placed
where i t belongs.
A
s far a s I
a m concerned,
a s a Federal
end.
Reserve Bank, I think it should be put up to the Board,/the
Federal Reserve Board can make its own decision.
I
t may
be that you could hold o n long enough t o meet the needs o f
the Treasury without your rates going below the legal percentage,
Governor M c D o u g a l .
Y o u mean your: reserve getting
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Federal Reserve Bank of St. Louis
90
below the legal percentage?
Governor Moras.
Y e s ,
I t seems t o m e i t i s our
business t o protect that percentage, a n d i f w e are t o get
below that percentage, I
think t h e responsioility ought t o
be placed where i t belongs.
The Chriaman.
I
f there i s nothing else, w e will
take up the consideration o f the program i n order of topics,
skipping those topics
d u r i n g
t
h
e discussion o f
which t h e Federal Reserve B o a r d has expressed a desirs t o
be present.
The first topic i s
1. RESERVES,
(a) The Federal Reserve Board ig authorized to
reclassify existing reserve a n d central reserve cities.
Shoulé this power b e exeruvised and, i f 80, how?
Should Congress b e asked t o amend Sec. 1 9 co as to
require uniform reserves throughout t h e country, d i f e
feremtials t o b e based o n the various classes o f deposit:
Governor Morss.
T h a t question wa3 submitted t o a meet—
ing o f the Federal Reserve Agents, a
committee was appointed,
of which Mr. Ourtiss was chairman, t o repost o n that ques—
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Federal Reserve Bank of St. Louis
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The Chairman.
T h e n w e will defer consideration o f
this until t h e Reserve Board i s present.
The next i s --
1: ( b ) I s there a demand for the payment o f
interest o n reserve deposits, a n d should such
& policy b e considered?
Did anyone here propose that subject?
A r e there a n y
remarks o n it?
Governor McDougal. I
think I proposed o r suggested
that because o f the fact that i n the conventions thes. were
held i n two States i n our District
W
a
s abundant
evidence t o indicate that there was a growing desire o n the
part o f a t least t h e smaller banks that i n t e r e s t b e p aid
on their reserve accounts.
M y own belief i s that n o encou-
agement s h o u l d b e given them; t h a t t h e minute steps a r e
taken i n that direction i t w o u l d Strike a t the
very founda~
tion o f the system a n d would mark perhaps disintegration
or a step backwards toward t h e o l d oxder o f
things,
T h e
inquiry was made t o determine whether o r not there i s
a
desire shown o n the part o f banks i n other Districts
to
ask f o r interest o n their deposits.
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Federal Reserve Bank of St. Louis
92
The Chairman.
I
n our District i t i s almost entirely
confined t o those State banks that a r e not members, w h o
think that t h e y should get interest o n t h e i r balances i f
they become members.
T h e members o f the system d o not
care much about it, I. think.
Are there a n y further remarks w i t h r e f e r e n c e t o item
(bo)?
Governor McDougal.
T h e r e i s one feature i n connec-
tion with this, a n d that i s I a m satisfied this demand f o r
interest comes largely because o f the publicity that i s
given t o the earnings o f the Pogaithl Reserve Banke.
a e
less could b e said about that o r if, when the reports are
made, w h i c h i s necessary under t h e law, I
presume, some~
thing could b e done t o educate those banks t o the knowlsdge
of the fact that the earnings are sbnormal now, a n d that
they must not expect them t o continue, o r that they must
not accept the presert earnings a d sny ociterion, that aight
do somé good.
Governor Calkins. I
will move i t is the sonse o f
the conference that n o considexation b e given t o the ques—
tion of paying interest o n reserve deposits.
Governor .Fancher. I
will second that motion.
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Federal Reserve Bank of St. Louis
£3
The motion, having been duly seconded, w a s carried.
The Chairman.
T h e nemy is Topic number two.
3: S H O U L D FEDERAL RESERVE BANKS EXERT ANY
INFLUENCE UPON THE POLICY O F MEMBER BANKS I N
THE AMOUNT O F INTEREST ALLOWED O N DEPOSITS ?
Did anyone here propose that subject?
O n second
thought, I think Mr. Jay may have suggested this,
I
t
arises o u t o f a situation i n N e w York where t h e rate al-
lowed o n bank deposits b y the New York City banks, n o w
fixed at two and @ quarter per cent, increases a certain
amount a s o u r ninety d a y discount r a t e f o r commercial
paper
increases, a n d goes down, i n a fixed Proportion, a s
our
rate i s reduced.
Governor Seay.
I
t i s a delicate subject, M r . Chair—
man. I t - m a y b e that o n Socesdon: a t some places,
good
advice m a y b e given o n that subject, o u t
I
do not think w e
Can g O a n y further t h a n that.
The Chairman.
places a
I
t i s undoubtedly a fact that i n
some
most unsound practico h a s developed i n
e&llowing t o o
high rates o n deposit balances.
Governor Seay.
D o e s n o t that c o m e within t h e sphere
of the Comptroller?
94
Governor McDougal. I
think i t i s a matter for the
Comptroller a n d the State Bank departments
t o handle.
T h e y
have men at work who are Supposed t o point
out the dangers
of such Practices, a n d w h o are correcting
t h e same.
The Chairman.
D
o you offer a motion t o that effect?
Governor McDougal.
Governor Passmore.
Z
I will, yes.
T h e Federal Reserve Board hag
held in the past that i t was a proper function
for the Federal Reserve Banks t o exercise influeuce
i n order t o prevent
excessive interest payments i n the
vactious Districts.
The Chairman, i
know they made a determined effort
to stop i t i n Pittsburgh, Philadelphia,
N e w York, Rochester,
and i n other points.
Governor Passmore.
upon i t a t one time.
4
A n d they were guite insistent
3 long a s i t i 8 a vicious
practice,
why should we not attempt t o
exert such proper influence
as
we can,
I
t can nut b e atything
more than moral influenge,
as I see it.
Tho Chairman. G o v e r n o r MoDougal
has moved that this
topic o e referred t o the Couptroller
o f the Currenuy.
Governor McDougal, I
30 & Second.
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think the motion i g entitled
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Federal Reserve Bank of St. Louis
Governor Seay.
A
95
s I expressed the same opinion, I
will second t h e motion.
I will simply say that I think i t i s primarily, a t the
present time, a function o f the Comptroller's officer.
r t
do believe, however, t h a t t h e advice o f the Federal Reserve
Banks u n d e r s u c h c i r c u m s t a n c e s s h o u l d b e extended,
a n d that
caution b e extended when called for.
Governor McDougal. T h e question i s whether o r not we
are t o exert a
as I
general influence, m a k e a
business o f doing
think that individual cases where w e can give a
word o f advice t o our member banks, that w e should
give it.
Governor Calkins.
T h e topio i s worded "exert a n y
influence upon the policy."
T h e word "policy" i s a very
Olastic term.
Governor Seay. I
will offer a n amendment t o Gover-
nor MeDougal's motion; that the discussion o f such
matters
beleft within the disoretion of thé Reserve Banks.
The Chairman.
Seay.
T h a t i s harcly a n amendment, Governor
Y o u c a n not refer i t t o the Comptrolle~,
a n d then
leave i t w i t h i n t h e d i s c r e t i o n
Governor Seay.
o f t h e R e s e r v e Banks.
Y o u can if the suggestion I made i s
accepted, t h a t while i t i s m y belief that
primarily i t i s
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Federal Reserve Bank of St. Louis
36
the function o f the Comptroller's office a t this time, never-
theless the Federal Reserve Banks can be a guide to the
banks, a n d it may be left t o the discretion o f the Federal
Reserve Banks when t o give advice.
Governo r Miller.
T h e Comptroller h a s endeavored t o
Go something along this line, a s well a s the Federal Reserve
Soard; but you may not know this, but the Interior Depart—
ment and Indian Agencies advertise down i n Oklahoma
and
Kansas that t h e y will n o t accept anything less
t h a n fivs per
cent.
The Chairman.
H a v e y o u brought t h a t fact t o the at-—
tention o f the Reserve Board?
Governor Miller.
N o , I
have not; o u t i t i s a fast.
The very banks that w e are lambasting f o r
giving high rates
of interest a r e the bidders, a n d i t i s
necessary for them
to bid not less than four and a half or
five per cent t o
get t h e money f r o m the Interior Department.
The Chairman.
I s there eny disposition t o dispose
of
this topic along the line o f Governor McDougal's
motion,
as amended b y Governor Seay? D o e s the amendment
meet with
your approval, Governor McDougal?
Governor McDougal .Yes; I will accept
the amendment.
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Federal Reserve Bank of St. Louis
97
Governor Passmore. B e f o r e the question i s acted upoaz,
I would like t o ask whether o r not this would not meet the
/
Bituation:
While i
n our judgment this is a proper function of the
Comptroller o f the Currency and the State Banking Commis~
Sioneras, w e believe t h e Federal Reserve Banks should exer~—
Oise such remedial influences a s i n their judgment occasion
Warrants.
Governor Seay. I
will acéept the substitute.
Governor McDougal.
I t i s satisfactory t o me.
The Chairman.
W h a t happened was this: very sharp
Competition developed a s soon a s the interest rates began
Climbing i n N e w York, w i t h regard t o getting b a n k deposits
by the trust companies, which, after they became memvers o f
the system a n d after t h e requirement a s t o re-deposited re-
serves w a s eliminated from the act, w e r e just a s able t o
hold out o f town accounts a s was a national bank, s o far a s
any reserve l a w was concerned,
s o the trust companies g o t
busy soliciting t h e national banks a l l over t h e country
for
balances; a n d some o f the national banks replied b y
marking
their rate up.
animus
T h e banks that d i d that inourred t h e
o f some o f the other national b a n k s
w h o thought
it
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Federal Reserve Bank of St. Louis
98
was unwise, a n d the discussion was taken into the clearing
house, A
bank would send out a
circular stating that
they would pay a certain rate o f interest o n bank balances, ,
measured b y one of our rates.
I n the meantime, competi-
tion had gotten s o serious, t h e y were bidding s u c h rates,
some o f the banks, f o r out o f town balances, t h a t w e were
a little concerned lest i t lead t o somé pretty unsound
banking.
A f t e r numerous a n d unsuccessful efforts t o bring
about a n understanding o n the subject, Governor Harding
went over t o N e w York from Washington; a n d addressed t h e
clearing house; t h a t is, addressed t h e members o f the
clearing house a t the clearing house, a n d pointed out t o
them the unwisdom o f a lack o f understanding about inter-
est rates o n bank balances; and it resvited i n this rule
being adopted, a s a n amendment t o the constitution o f the
Clearing heuse, a n d that r u l e i s n o w i n effect.
Governor McDougal.
The Chaizman. I
I
t i a i n effect i n Chicago algo.
think i t ida a bad rule t o have the
rates g o u p automatically w i t h out rates, because w h e n
you
measure the rate of interest allowed o n balances i n banka
by the reserve bank rate; y o u not o n l y exert a n influence
upon i n t e r e s t r a t e s
i n t h e community,
b u t y o u exert
a n in-
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Federal Reserve Bank of St. Louis
99
fluence conversely upon the f i x i n g o f the rate o f the Reserve Bank, which i s bad, because that ought t o be free o f
any such influences.
W
e are seeking t o secure «
change
in the constitution o f the clearing house eliminating the
provision, a n d have t h e practice conform t o tihe London prac-
".¢@, where, o n the B a n k of England's rate advances the
London Clearing House Committee meets and fixes the rates
which will b e allowed o n bank balances b y the London joint
stock banks, w h i c h rate m a y o r may not b e higher t h a n i t
had been formerly, according t o their judgment.
Governor Seay.
I t frequently happens that there i o
tivalry between cities, a n d there i s © uniform action o n
the part o f the banks t o raise rates f o r the purpose o f at-
tracting funds t o the city. I
think Pittsburgh, f o r many
years, h a s been i n the habit o f paying a
Governor Fancher.
The Chairman. I
very high rate.
A n d that practice continues.
will ask Governor Passmore t o state
his resolution again.
Governor Passmore,
i
t i s -- wbils,in our judgment
this i s the proper function o f the Comptroller o f the Cur—
rency and the State Banking Commissioners, w e believe Federel
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Federal Reserve Bank of St. Louis
100
Reserve Banks should exercise s u c h remedial influences a s i n
their judgment occasion warrants.
Governor Seay.
T h a t i s satisfactory t o me, sir,
(The motion, being duly seconded, was carried.)
The Chairman.
T h e next topic i s number three.
3; SHOULD EFFORTS B E MADE T O INDUCE MEMBER BANKS
TO CONTINUE THE PROCESS
O F SORTING AND DEPOSIT-
ING GOLD CERTIFICATES I N FEDERAL RESERVE BANKS?
I think I might make a little statement i n regard t o
the situation about ourrenoy, about which I happen t o get
some information over here i n Washington.
There a r e three o r four important things before t h e
country now o n the matter o f currency.
O n e i s the situa-
tion with regard to. s#ilver, which soldyesterday at §1.335
anounce, and 70 pence 4n London.
f t $1.325 an ounce or
thereabouts i t is possible t o m e l t our silver dollars and
Ship t h e m t o the Orient.
W h a l e t h e melting o f silver
dellars alone may not be a calamity, i t means the withdrawal of one end two dollar silver certificates for that
purpose, a n d consequently the creation o f a great vacuum
in the circulation o f one a n d two dollar bills.
T h e yeu
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Federal Reserve Bank of St. Louis
102.
ond difficulty arising from that i s the fact that the amoun
of one a n d two dollar bills which m a y b e issued under t h e
Pittman Act are now pretty well exhausted; w e have issued
them all. I
do not believe that w e have a n y margin t o
speak of, and our supply would b e less i f the silver i s
withdrawn and melted.
The first p o r t i s that the greenbacks, which may b e
now issued i n one and two dollavy denominaticns, a r e very
iargely held b y the Reserve Banks for legal tender purposes,
where a
member b a n k wante legal tender f o r a n y reason.
Therefore t h e three sources o f supply o f one a n d two
dollar bills are very much impaired b y the present situation
and that would b e increased i f the silver should b e melted.
There i s another important consideration,
a n d that i s
while i t m a y b e unréasonable just y e t t o expect that silver
would sell a t a premium over the bullion value o f our sub-—
Sidiary coinage, which i g about $1.38-plus, yet i f silver
should get u p t o $ 1 . 4 0 : r
o $1.45 5 - a n d e)most anything
'ge€ems possible t o happen a s a result o f the war,
t h e n our
Silver 3 5 and 10 cent pieces would have t u be melted u p and
sold as bullion. F i g u r i n g o n the possibilities o f tnat,
+
ysmight b e the cautious t h i n g f o r t h e Treasury Dopaertment
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Federal Reserve Bank of St. Louis
102
to s a y t o the Federal Reserve Banks t 6 gether i n all the
Silver certificates they oan and hold them i n reserve for
our p r o t e s t i o n
i n case w e need the s i l v e r t o recoin t h e
Bubsidiary coins of the country; because the #68, 000,000,
which is the amount now held in the Treasury of silver dolJara free would not g o very far i n cash i t became necessary
“< reooim them on the bagis of 800 fine, o r some other pers
centage o f fineness.
Therefore, t h e faot is, a s to our circulation generally o f various forms o f small denominations o f money, t h a t
this sort o f process i s important not s o much with gold as
with silver. I
personally believe that a definite and
strengthening policy should be adopted by all the Reserve
Banks, W i t h the approval o f the Federal Reserve Board, o f
Sorting and hoarding, i f you please, the reserves o f the
Reserve Banks i n certain kinds o f money i n Circulation; a n d
the question is what you would recoumend.
Governor V a n Zandt.
O
n that points jis i t not a
matter
of almost necessary that w e either have 4 recoinage o f the
Silver a t a lower silver valuation o f each coin, o r that w e
put a n embargy o n the exportation o f silver i n oO _xder t o
Gave o u r s i l v e r s o i n s ?
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Federal Reserve Bank of St. Louis
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The Chaizman,
T
o t e l l t h e truth, I
1
9
3
d o n o t bsalieve
much i n the embargo plan,
Governor V a n Zandt. I
The Chairman. I
d o not, either, Mr, Chairman.
think w h e n y o u g o into t h e question
you will f i n d there i s not much i n it.
Governor Miller.
I
s i t not against the law to melt
the coins o f the United States?
The Chairman,
N o .
Governor Miller.
W h y would i t b e necessary t o hold
the silver certificates a t the Federal Reserve Banks? W h y
not send them o n to Washington?
The Chaixvman.
B e v a u s é i t would just cause a n a c c u m u
lation o f a dead balance i n the Treasury which t h e y could
not use, which i s just n o w undesirable.
T h e Government
does not want t o b e borrowing money o n certificates o f in-
debtedness a t 4-1/3 per cent, i n order to lock up the
Silver c e r t i f i c a t e s ,
i
n the Treasury, a n d that i s what t h e y
would be doing... T h e y cau soumt 26 neservefor the barks,
and they may as well b e gathered u p and locked u p and
Feceral Reserve notes iesued f o r then,
Governor Miller.
W o u l d a Jaw have t o b e passed i n
Order t o i s s u e c o i n s o f l o w e r f i n e n e s s ?
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Federal Reserve Bank of St. Louis
104
The Chairman.
Y e s . H o w e v e r , gentlemen, I
d o not
think i t i s desirable that w e should g o into a discussion
of the silver situation just now.
M r . Strauss has said
shied h e would like t o be here when w e discuss this question.
Governor Van Zandt. I
move i t i s the sense o f the
conference that the present practice b e continued; that this
is not the time t o discontinue the practice.
The Chairman. W o u l d you accept the amendment that
the Reserve Board b e requested t o send a letter t o the Re-~
serve Banks t o that effect?
Governor V a n Zandt.
Y e s .
(The motion, having b e e n duly seconded, w a s Carried.)
The Chairman.
T h e next i s topic 4.
4; SHOULD THE FEDERAL RESERVE BANKS CONTINUE
TO ABSORB THE ABRASION LOSS O N GOLD COIN?
That w a s suggested o y N e w York.
I t i s a very small
question with us, out w e believe i t should b e continued
until w e have exhausted all the gold coin i n our District.
Governor McDougal. I
tinued.
move that t h e practice b e con-
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Federal Reserve Bank of St. Louis
195
Governor Calkins.
us more o r less.
T h a t i s a question which concerns
F r o m the beginning w e have been trying
*o gather i n all w e could o f the gold coin i n the District.
We tovk certain steps, which seened t o b e effective a t the
time, t o eliminate f r o m circulation, a n d when I Say élimin-
ate from circulation I mean from all sources, t h e five and
*“.. dollar pieces, a n d w e succeeded t o a considerable e x -
tent. I
believe the Treasury Department a t that time
instructed the Director o f the Mint a n d the Assistant
Treasurers not t o put five o r ten dollar pieces into
cir~
culation.
T h o s e soina, o f course, get very much more
abraded t h a n t h e twenties,
W
e have absorbed t h e loss o n
all the fives a n d tens that w e gathered in.
Assistant T r e a s u r e r
a t S a n Francisco
N o w , the
i s éuppi7"Si ve a n d
ten dollar pieces, a n d inaiets that h e
has n o instructions
with regard to paying them out.
H e says he may continue
the practice f o r a considerable length
o f time unless t h e
Treasury Department will take some Stéps
t o prevent their
Circulation.
The Chairman,
t
s not this a matter t o
b e dealt with
by resolution, Calling i t t o the
attention o f the Reserve
Board?
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Federal Reserve Bank of St. Louis
1C6
Governor Calkins. I
by resolution,
think i t should b e dealt w i t h
a n d that r e c o m m e n d a t i o n s h o u l d b e made t o
the Treasury Department t o withhold from circulation any
five a n d ten dollar coins i n the Treasury. I
believe they
are fully i n sympathy with the situation.
The Chairman.
T h e n t h e motion i s that t h e policy o f
= Orbing abrasion o f gold coin should b e continued, with
eoseial reference t o Governor Calkins’ report o n the
attitude o f the Sub Treasurer i n San Francisco, a n d that
the
Reserve Board b e asked t o secure t h e cooperation
o f the
Treasury Department i n seeing that five and ten dollar
gold
pieces a r e not paid out b y the s u b treasuries.
(The motion, having been duly seconded, was carried,)
TO
LIMITATION O F GOLD COIN IssuE F O R HOLIDAY
singartow.
The Chairman,
T h a t motion having b e e n
carried,
in
this connection there i s a matter that bears
o n that subject; that is, whether w e should d o
anything t o check t h e
use o f gold coin f o r Christmas oitculation,
Governor Passmore. I
wanted t o ask that question.
After a conference o f the Governors with
the Federal Reserve
Board wés.sent out our gold conservation circular
again just
recently,
d u e t o this inquiry f o r g o l d
supply;
w e sent i t
to all banking institutions i n the District.
The Chairman.
I
s there any suggestion for a
recon-
mendation t o the Reserve Bodrd o n this
suoject o f Christmas
gold?
N
o one seems t o have a Suggestion,
therefore w e
will pase it,
Governor Calkins.
4 8 all know, g o l d has b e e n more
Benerally ¢irculated, a n d the most Successful
thing done t o
prevent a
contintiance o f that w a s t h a t n o
five o t tén dol-
lar pieces should b e made available
f o r circulation.
W h e n
demands w e r e made o n the banks
f o r gold they replied they
were able t o supply twenty dollar
piecds a n d unable t o sup-~
ply five o r ten dollar pieces; a n d the
effect has been very
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much more general t h a n would b e d4ntivipated.
TRANSIT OPERATIONS.
The Chairman.
T o p i c number 5, Transit Operations,
Governor Harding would like t o have the Board present when
that i s discussed.
RELATIONS " I T H STATE BAnks.
the Chairman.
Banks.
T o p i c number 6 , Relations w i t h State
T h a t general sudject has .peen referred b y the
Federal Reserve Board t o Mr. Woehlenpah a s a committee,
and possibly this i s a n opportunity f o get Ur. Moehlenpah's
opinion o n it.
Mr. Moehlenpsh.
morning, I
M r . Chairmen, a s I told you this
wanted t o sit o n the side lines a n d get
inetouch
with the inside workings o f the pvanks, get ‘ n touch
with
you men personally.
T h i s campaign n o w is i n charge o f
the Federal Reserve Agents, a n i they have worsed
out many
plans.
W
e are trying t o ussemole them and get i t toge-
ther a n d get Mr. Hoxton t o make some u e w Dlans
f o r a n in-
tensive plan, with your cooperation, a n d the Federal
Reserve
Agents.
I
f you will give m e all you heve, a n d help m e
all y o u can, # i t h t h e Federal Reserve Agents,
I
a m sure I
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Federal Reserve Bank of St. Louis
109
Will appreciate it, a s a new member o f the Board, o r with
this w o r k o f the Committee. I
expect t o get around t o
the different banks a n d meet you, a s time goes on, b u t i f
you c a n give m e anything, personally o r b y mail, i t will b e
appreciated v e r y much.
W
e have some plans, pout they are
not f u l l y c o n c e n t r a t e d now.
STATE B A N K MEMBERSHIP.
The Chairman.
T h i s topic, euddivision (a), contains
this question:
:
"Ie any organized work being conducted similar t o the
Campaign t o get p a r points?"
I should like, i f I may, t o explain what was done i n
New York, a s having some direct bearing o n the question o f
organized work.
Mr. J a y h a s been handling it, w i t h t h e assistance o f
Some o f the other officers o f the Bank, a n d w e have divided
the District u p into sub-divisions.
O
f course w e have
a list o f every eligible non-member State vank end trust
company, a n d s o m e knowledge a s to whether they are desaizrable f o r membership o r not, w h i c h recuces t h e number o f
Candidates f o r treatment t o a moderate miuber, a n d those
e
are approached b y indirect a n d direct methods both.
I
n
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Federal Reserve Bank of St. Louis
116
northern N e w Jersey t h e y have a
cormittee; t h e y have State
bank o f f i c e r s w h o s e i n s t i t u t i o n s a r e m e m b e r s
o f the Reserve
system, w h o a r e undertaking themselves t o waip t h e whole
State into membership, a n d the sub-—divisions o f the State
Sahhorsi Association, w h e r e t h e y have eight groups i n New
York State, a r e likewise undertaking s o m e p o airie the re-
st
o f Mr. Jay's experience i n taking i t u p i n detail i n
this way, i t has been eminently succéssful, a n d we have the
great b u l k o f them n o w i n the system, a n d h e has written a
letter t o Mr. Strauss i n which h e makes these suggestions:
(1) Prepare a summary of all State laws relating to
membership o f State institutions a n d substitution o f Federal Reserve for State Reserve requirements.in States where
these essential provisions a r e lacking a s k the Federal
Reserve Agents t o endeavor t o have t h e m enacted.
(3) A s k each Federal Keserve Bank to prepare a list
of eligible State banks, b y Staten, a n d showing:
(a) Capital and surplus.
(0) Deposits.
Alao indicating which e r e moubers and which are not
members o f the Federal Reserve systen.
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For your purposes, (that is; the Reserve Board), i t might
be well t o have the list arranged i n each Stete i n order o f
the size o f each bank.
(3) A s k the Federal Reserve Agents to report in respect t o each State what i s the attitude o f the State Bank
Commissioner regarding membership o f the S t a t e Banks .
(4) A l s o , ask each Federal Reserve Agent for a report
a6 vu. what the conditions are i n each State which would make
a vigorous campaign easy o r difficult."
Now, i n our District I have said that w e had a mich less
complicated situation than i n other Districts, b u t Mr: Jay's
experience,or mine, 9 0 far a g I had contact with it, convinced
me that t h e only w a y t o get t h e m i n i s b y attacking t h e m i n
detail; h a v e a
list a n d sick your organizction a t those
banks, o n e after anothez; a n d get t h e a t t e b a n k members
who are convinced o f the value o f the system, a n d get after
them, a n d w e will gst them i n time.
Governor Fancher,
Cleveland.
W
T h i s haz been our procedure i n
e have sometime ago listed all o f our eli-
G@ible State Banks, then, b y a Process o f
elimination,
w u have .
@liminated scme o f those that a r e @ligiole b u t perhaps
would
*
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not b e desirable; t h e n w e have grouped those danke, a n d
we have invited the representatives i n ; h a d about t w o
meetings a month, oringing eight o r ten representatives
at the expense o f the bank.
" e have had those.
The Chairman.
Governor Fancher.
Y e discussed t h e situation w i t h
them; h a d a lunch a n d sent t h e m home; a n d then, m o r e recent-
is, we found that effective, w e have the opportunity t o get
Close t o them a n d discuss things around the table and
oring out their ideas, and if they have got some opojections,
to overcome them, a n d try t o s e t u p the desiranle features o f membership, then, t h e first o f last July,we put
On our staff a
very competent advertising m a n t o write
about once a month,
t o put o u t some g o o d circular, a n d
then w e followed that u p v y a letter about once a month,
and by that consistent effort w e have awakened a good
deal o f interest,
regularly.
W
a n d w e are bringing i n banks p r e t t y
e are convinced you have got t o approach
@ach individual bank and put i t u p t o i t i n some praoctical way.
Governor Wellborn.
A s our District has s o many
State Banks, a n d we have a large numoer, there must v e
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about eleven hundred that a r e not in, perhaps i t might b e
well for me to make a statement.
Last spring w e decided t o make a
Campaign, a n d w e se—
lected o u r Cashier, w h o has a pleasing personality a n d under-
stands the syste thoroughly, a n d w e sent him out among the
banks, a n d he visited Alabama, Georgia, Florida, Louisiana,
and part o f Mississippi, a n d he made a personal call o n the
baucors,
I
n a good many cases h e got t h e Board o f Direct-
ors together and talked t o them.
very disappointing t o us.
T h e result o f i t was
T h e banks h e picked out for
that personal solicitation I think were very good ones, but
he was unable t o move them.
I
t i s true w e got a
good
many applications since that time, b u t t h e y happen t o b e
from none o f the banks h e called upon. A p p l i c a t i o n s came
from banks that wanted t o borrow immediately,
s o they came
in just t o get accomodations a n d rediscount privileges.
The Chairman.
O
f those 1,100 oanks probably not
more than a couple o f hundred -—~
Governor WYellborn.
Y e s , adout eight hundred.
Near-
ly all the solid, good State banks i n our section simply d o
not sntertain t h e idea o f coming in.
T h e y s a y they s e e
114
no necessity f o r it.
T h e y have good, steady ousiness a n d
Can get what accomodations t h e y want v e r y easily f r o m their
correspondents, a n d they figure t h e y lose money b y keeping
their reserve with us without any interest, and you can
not
budge them from that position.
A
s I have said, t h e only
banks that come i n are those that want t o borrow, a n d borrow “ery heavily.
~he Chairman.
A r e there any other remarks o r sugges-
tions?
Governor Calkins,
I
n our District, w e have brought
about t h e amendnent o f the laws, o f all o f the seven States,
so they are practically uniform, s o far as conditions o f
membership a r e concerned.
W e have h a d for some months
past o n e o f our Directors engaged, first,
i n this movement
te amend the law; second, i n the preparation o f a hand book;
and, third, i n visiting and discussing the matter with
the
banks.
We have specifically instructed t h e managers o f our
four branches t o make i t their buSiness t o secure p a r
points
and membership o f eligible and acceptable banks a s fast a s
they can get around and visit them; a n d w e have found one
thing, I think, without question, and that i s the best method
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of approaching
2 9 member
4 bank a n d inducing i t t o become
to send to that bank a n
of the Federal Reserve Bank i s
who i s fully qualified
officer o f the Federal Reserve Benk
that bank, examine its
to eit down with the officers o f
situation, i t s condition,
bank
and show the officers o f the
the Federal Reserve
how they can benefit b y membersiip i n
We have been extremely guocessiful
oe
in following
i n all these States,
T h e State member banks,
successfully solicited
except i n Arizona, have been quite
th:.. uethod.
at this time.
applications.
W e h a v e agood many
The Chairman.
statements?
A r e there any ogher
Deputy Governor Peple. T
ean say from the Fifth Dis-
subordinate the campaign for
trict w e have felt i t wise t o
par ppoints.
membership t o the campaign f o r
One o f the
general argument,
principal arguments, a n d the most
of
the loss o f exchange.
State banke ageinst memoarship was
Nevertheless
f r o m time t o time
w e have d o n e w h a t w e c o u l d
neglected a single opporto arouse interest; w e Rave never
the svoten was manifested o n
tunity, where eny interest i n
w e have found that t h e most
the part o f the officers, a n d
conpetent m a n to she
effective way i s to send a thoroughly
+0
officers o f the bank, but
the
t
o
only
not
bank t o talk,
116
the directors,
W
e have made a
special point, w h e n a man
Visited a bank -. generally one of our Assistant Federal
Reserve Agents - - t h a t h e try t o get a meeting o f the
directors, a n d discuss matters with them.
We have had, from time t o time, interest manifested i n
membership i n the system b y banks that, a s Governor
Wellborn
has “aid, wanted t o join because they had borrowed everything
the, ..uld borrow outside and wanted to tap the inside source
es.
T h o s e , o f course,
w e have discouraged.
We have made direct efforts o n a selected f e w
o f good
non-member banks, whom w e thought ought t o b e members
o f the
Federal Reserve System, directly ourselves, and
indirectly
through t h e officers o f member banks.
Q u i t e a
number o f
the member banks have been very kind i n seconding
o u r efforts
ih that respect.
W
e feel v e r y well satisfied, however,
tFeheaath
t no systematic campaign for membership can be succesa~
fully conducted unt!1 w e clean up the par collection
system
very much better than i t has b e e n heretofore,
o r i s likely
to b e i n t h e n e a r future,
The Chairman,
A n y other remarks?
Governor P a s s m o r e ,
i
n o u r ¢&se,
w e h a v e inviteda
the bank officers in, a n d have shown
t h e m all over t h e bank
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and have explained t h e exact situation t o thom, a n d that
has been most effective. I
Gucting a
think w e are right n o w con-
far more intensive campaign i n our District b y
yersonal visits o f some officers o f the bank, because w e
find that i s wery well received.
I
n the State o f Dela-
ware there are State banking acsociations taking the matter
Ul a n d they a r e appointing committees, t r y i n g t o get every
tution into the system.
I
t is, o f course, only a
Small State.
The Chairman.,
A r e there a n y other statements?
Mr. Moehienpah.
M r . Chairman and gentlemen, I have
been very mich interested i n what y o u m e n have s a i d a n d i n
the efforts y o u have put forth.
X
Y a m quite convinced o f
this, coming s o newly t o the Board a n d coming f r o m t h e
active benking end of it, a n d the State hanking end of it,
that m u c h will depend unon your individual versonal approaca
to these men, t h e non-member eligibles,
a s t o h o w y o u handle
them, a n d the question that i s i n their minds, t h e main
question, is: w i l l you taxe just a s good care o f them as
their correanondenits?
And n o w I know, a S y o u m e n know, t h a t m a n y o f the sity
corresponding banks are, w e will say they are selfish, a u d
118
t have run across State banks who have talked with m e personally,
and I
have d i s c o v e r e d t h a t t h e y h a v e n o t h a d t h e
punch -- w e have not had the punch, t h e cooperation, from
the big city corresponding banks that w e think
w e are entitled to.
N o w , i f you men, o n this one thing, a s
these
men come t o you, could convince them that you
can and will
Care for them i n thelr seasenatié, reasonable
needs; they
are s i n k i n g about t h e prestige that membership
i n the sys-
tem will give them, as State banks, i n competing
with national banks i n their communities, b u t t h e y a r e fearful
that maybe they m a y not b e cared fee;
That leads me to suggest this, that perhaps you
men.
Can bring t o your assistance the concrete personal
view of
the State bankers that a r e n o w i n t o assist
u s i n this can~
paign.
I
f they a r e satisfied customers,
membership t o then quickly a n d easily.
I
w e c a n sell t h e
a m sure y o u get
what I am setting at,
Now, w e have got t o make u p our minds
t o this, that i t
met D é a sane, clean-cut, vonerety
appeal that w e must make
to them, M a y I ask o f you men,
i n stending b y the agents
in your Districts, and the things
you have already done,that
we shall t r y t o work n o w from t h e
inside out, that y o u will
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be, 1 f you c a n be, more persuasive, a n d , i f I may ask, m o r e
diligent,
t o show these m e n what t h e y c a n expect o f the
system.
I have appreciated this, t h a t t h e par program has h a d
the right o f way; before that the war program.
upon line, precept u p o n precept, I
We
N o w , Line
a m quite pptimistic that
l l persuade these m e n that a r e desirable t o come in.
Iw...
t o assure y o u again that what y o u men have s a i d has
had its appeal t o me; and i f you will get continuous action
and make i t more personal a n d more direct, perhaps y o u c e n
get resulta. I
a m sure w e will.
The Chairman.
T h e other division o f this topic is:
(b) F r a u d u l e n t advertisement o r claim of member—
Ship i n Federal Reserve System.
W h a t
means exist for preventing?
Has anyone any report o f caces o f that ahasater
in
their D i s t r i c t s ?
Governor Calkins, I
question.
I
do not know who suggested that
t may possioly have come f r o m S a n
Francisco,
although I am nct conscious o f it.
We had a n interesting case i n our District which
brought
up that question, a n d the answer t o the
question asked here
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is apparently, t h e r e i s n o means o f preventing it. A
bank
in the northwestern part o f the District, which had pveen i n
notoriously b a d condition for many years, a n d never has peen
even a n applicant f o r membership,
sent out a
very l a r g e nunm-
ber o f circular letters, i n which the statement w a s made
"This bank i s a member o f the Federal Reserve System a n d i s
thowefore under both Federal and State supervision."
t..
W e
it up with them, a n d I suppose w e indulged i n intimida-
tion, o r something o f that sort, for they disclaimed responSBibility and said the c i r c u l a r s
a
w sent out without the
knowledge o f eny officer o f the bank - ~ - rather a n unusual
condition -—- and undertook t o correct it.
B u t the quea-
tion was asked i n that connection: w h a t means i s there o f
preventing s u c h statements?
The Chairman.
H a s any one else had a similar expe-
rience?
Governor Passmore.
N
o experience o f that sort i n our
District.
Governor Bigegar’+. I
have had one in the Eighth Dis-
trict, a t Edwardsville, Illinois, they got out o f the system,
but t h e y continued t o advertise b y bill boards, newspapers,
and e v e r y o t h e r w a y t h e y w e r e s t i l l m e m b e r s
o f t h e systen,
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and we got after them with a pretty Sharp stick, a n d
w e got
to the point where w e told them that w e would
use t h e press
in that l o c a l i t y , ~
. if they d i d not discontinue, b u t w e had
to repeat i t two o r three times before they
stopped.
The Chairman,
Z
I do not think this topic, i n view o f
the fact that there a r e only t w o cases o f
that sort i n the
whe. sountry, w o u l d justify a n y actio n
now b y the confer-
ence.
Governor Seay. I
think it does not need any attention,
It i s bound t o b e sporadic.
Governor Wellborn.
I f a motion is necessary, each
Federal Reserve District s h o u l d handle that
question.
Governor Biggs.
I t might b e of interest.
W e took
this up, a n d I have part o f a letter o f
Governor Harding o n
this a n d i t m a y v e o f interest t o
y o u gentlemen t o know.
The Chairman,
Governor Biggs.
I
s i t long?
N o , v e r y short.
"Any misrepresentation:
H
e says:
o f a material fact ought
t o be
& violation o f some Statutory law.
I
t seems t o me that
the Federal Reserve Bank will
b e justified i n a case o f the
kind desoribed i n your letter,
w h e r e i t i s not o n l y a fraud
upon the public, but infringing
the right o f your member
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Federal Reserve Bank of St. Louis
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banks, t o make a
very sharp a n d positive demand that t h e mis-
leading statement b e «ithdrawn.
cessful,
I
f this method b e not suc—
i t should b e published, correcting t h e statement o v e
the name o f the Federal Reserve system, a n d I think i t would
Prevent a n y further abuses o f this kind,"
That i s what w e had already done.
T h i s i a from a
ic’ “er of Governor Harding i n June.
The Chairman.
M r . Welloorn h a s o f f e r e d a
resolution
to the effect that i t i s the sense o f the meeting that e a c h
bank should adopt s u c h methods a s are thought proper
t o sup -
press such practices,
I
s that seconded?
(The motion was duly seconded and carried unanimously.)
The Chairman,
T h e next topic i s D i s c o u n t Rates.
" D I S C O U N T RATES.
Governor Harding would lixe t o have the discussion
when
the Board is present, except a s to aubdivision (c).
(c) C a l c u l a t i o n
@ f Intereat a t 365 days p e r year:
Present practice i a t o compute interest o n notea
resdiscounted o n basia o f 365 days a n d o n bille
purchased i n the open market a t 360 days per year.
Should basia o f calculation b e uniform?
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Federal Reserve Bank of St. Louis
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Who suggested this topic for the conference? S o m e o n e
mist have suggested it.
think t h e r e c o m m e n d a t i o n w a s m a d e
Governor Passmore. I
by u s t o the Board that t h e Board a n d the various Federal
Reserve Banks, that w e all g o o n the 365 day basis i n our
discounts, 9 0 the only thing that i s not o n that basis i s
the hills purchased i n the open market a t the present time.
The Chairman.
Y e s ; I think that i s simply conform-
ing t o the market custom.
Governor McDougal.
The Chairman.
a
t is.
W e have two kinds o f uniformity, then,
instead o f complete uniformity.
Has anyone a
suggestion whether t h e 365 d a y s applying
to purchases should b e changed?
Governor McDougal.
T h e Government u s e s 3 6 5 days, d o e s
it not?
The Chairman. I
believe so.
Governor Morss. I
move that i t should not b e Changed.
Governor V a n Zandt.
W h y should i t not b e uniform?
Governor Morss.
B e c a u s e i t i s the trade custom o f
figuring those bills a t 360 days.
I
f we should figure
them o n a different baais i t makes s o much change i n our pur-
Chase rate, and it would cause 80 much discussion and
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Federal Reserve Bank of St. Louis
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opposition that i t does not seem t o me it is worth while.
Governor Van Zandt. T
moved that n o vhange should b e
made i n the method o f computing discounts.
Governor McDougal.
B e f o r e you put the question, I
should like t o inquire whether all the oanks are operating
on the 3 6 5 day basis a s t o discounts a n d the 360 d a y basis
o
O
: o o n market.
‘he bie a c l
T
a a n y bank here t o report a n y differ-
ent method?
The motion offered b y two Governors i s that there shall
be no change i n the present practice.
I
a that seconded?
x
(The motion was duly seconded and carried.)
8+ G R E D I T S I T U A T I O N .
The Chairman,
T o p i c 8 , Oredit Situation,
i s another
topic f o r consideration w i t h mombers o f the Reserve Board
present here, except a a to suocivision (cv).
(c) Disoussion of the vouplicated situatson presented. by the amendment t o Section 5300 U. 8. R. S.
That i s a topic that w a s s u g g e s t e d , b
y the Federal R e ~
serve Bank o f N e w York, inspired somewhat b y the reveipt c f
Circular X 1705-A o f the Federal Reserve Board, which
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Federal Reserve Bank of St. Louis
125
situation a s t o Wuat m a y o r may
Presents s o com-licated a
not be’ l o a n e d t h a t I
i f a n y banker c a n really tho-
doubt
roughly understand i t without employing a
tainly e
lawyer - — cer-
country bank could not b e expected t o understand
it, and I am not sure that I understand it, even with this
very explicit circular before me.
A r e o r are w e not
‘ified i n asking t h e Reserve Board, 4f, any legislation
iu .equired i n connection w i t h the Federal Reserve Acs t o
endeavor t o have a
study made i n connection w i t h Section
5300 and get i t simplified, b o t h a s t o the Reserve Act and
Section 5300 o f the Revised Statutes, a s to discounts for
the paper that c a n come from State b a n k meubers o f the
system? C e r t a i n l y this present Situation i s altogether
too complicated.
Goveraor Wellborn.
The Chairman. I
I
s not that plain t o you?
will read a memorandum, which need
not appear i n the record.
(Following reading b y the Chairman: )
Governor Wellborn.
D o you not think the Federal Re-
serve Board ought t o a s k Congress t o amend the Federal R e ~
serve Act, Section S$, a n d put t h e m o n the sane basis a 3 a
National B a n k ?
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Federal Reserve Bank of St. Louis
126
The Chairman. I
should t h i n k s o .
Governor Wellborn. I
think t h e Chairman m a y very well
Call attention t o that a n d ask them t o d o that.
Governor Van Zandt.
I n connection with this Section
5300, w e are having a lot o f complaint about the wording o f
the amendment down i n our section, I
stances where banks,
Une.
know o f several in-
i n attempting t o l e n d their cattlemen
3 » raat discounting o f notes, s e c u r e d a s the provision
shows, and fully covered by insurance.
T h o s e fellows
down there g o t o work a n d take o u t tornado insurance o n their
Cattle,
The Chairman,
T h a t i s a n interesting sidelight.
Governor Van Zandt.
T h a t seems t o b e the cheapest
kind of insurance they can get.
I t says “fully covered
by insurance",
The Chairman.
C a n they give the cattle documents?
Governor Biggs, A c c i d e n t insurance.
The Chairman.
W h a t d o you»recommend about that, Gov-
ernor V a n Zandt?
Governor V a n Zandt. I
at all.
I
d o not o f f e r a n y recommendation
t looks t o me like a very crude amendment.
Governor Calkins. I
think the conference ought t o
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recommend the ironing out o f the kinks i n those three sections.
T h e y a r e inconsistent, confusing, ambiguous, d i f -
ficult o f interpretation, a n d altogether bad.
The Chairman.
Y o u seem t o b e competent t o offer t h e
necessary resolution, Governor Calkins.
Governor Calkins. I
will offer the resolution that
thie conference recommend that Section 9 of the Federal Resexy. c t a n d Sections 5200 and 5203 o f the Revised Statutes
be amended b y the elimination o f inconsistencies.
Deputy Governor Peple.
W o u l d y o u not include Section
Governor Calkins.
Y e s , sections 9 and 13...
The Chairman.
s that motion seconded?
I
Governor Wellborn.
moment ago. I
T h a t emoraces m y resolution made a
second it.
I would like t o add t o that, i n order t o put the State
Banks o n the same basis a s the National Banks.
Governor Morss.
The Chairman, I
P u t all the banks o n the same basis.
will make the statement f o r the record
that t h e objeot o f this recommendation i s t o put State
oanks,
which a r e m e m b e r s
o f the Reserve System,
a n d N a t i o n a l Banks,
which are memoers o f the Reserve System, upon the same
basis
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128
a8 t o limitation o f liabilities,
u n d e r o o t h t h e Reserve A c t
and the Revised Statutes, a n d t o put Federal oanka i n a position w h e r e t h e l i m i t a t i o n a s t o e n d o r s e m e n t
o f bills s o l d
Shall apply t h e same, b o t h w h e n the bills a r e payable abroad
and when they are payable i n the domestic market.
Is there a further discussion?
( The motion was sevonded and carried unanmmously. )
9: D I S C U S S I O N O F FOREIGN BUSINESS O F RESERVE SYSTEM
AND HOW IT IS MANAGED.
The Chairman.
T o p i c 9: Discussion o f foreign ousiness
of R e s e r v e S y s t e m a n d
h o w i t i s manager.
I understand that i s being reserved for luncheon to-
morrow.
10: ADMINISTRATION PROBLEMS.
The Ohairman,.
tion problems.
D
T h i s leaxastopic number 10, -Administra~
r
. Miller wanted t o b e present w h e n w e
diacuased the question of special compensaticn to mbet high
living costs.
Governor Wellborn.
The Chairman.
Y o u mean bonus t o employsa?
Y e s , apecial compensation.
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fhe Chairman.
H e r e ave extra topics that have beén
suggested, which I will pass along.
Governor Pagamore.
A r e there any other sections we
might discuss while w e are waiting f o r Dr. Miller?
The Chairman.
Y e s .
I want t o make a little explanation o f this topic num—
wer o o
I t was suggested b y the New York bank for this
Tease:
W
e have employed some new men at the bank, a n d
very good men, with the object
o f dealing with mastera o f
personnel and efficiency and of organization, a n d they are
developing a good many new ideas i n connection with how
these matters should be treated.
A t tne same time there
has started i n New York city @ very determined effort o n the
part o f the American Federation o f Labor t o organize clerks
of all kinds i n banks, insurance companies, offices generally
throughout t h e city, such concerns a s the Borden Jondensed
Milk Company,
a n d big uanufacturing a n d industrial con-
cerns that a r e not n u w organized, a u d get t h e whole popula-
tion o f wage earners i n the organization o f the American
Federation o f Labor.
T h e y are holding a series o f meet
ings; t h e y a r e undertaking t h e movement b y some methods
Which I
think a r e decidedly wrong a n d under—handed, b u t t h e y
130
are making some little progress.
t h e y have succeeded in
organizing t h e clerks i n the Borden Gondensed Milk Company,
and within twenty four hours t h e y h a d a strike.
T h e y have
got t h e clerks i n one o f the banks i n Brooklyn organized.
I might s a y that the bank clerks i n the City o f Paris
are organized under a
labor union a n d they h a d a strike some-
tim: 2¢0, a n d a very considerable inconvenience resulted,
They . e @ at present engaged i n efforts t o organize all bank
clerks in London in the same way, and I toowaa told by the
officers o f the Bank of England that the work of organiza—
‘ tion was proceeding i n the Bank o f England a t that time.
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These efforts a r e d u e t o conditions; t h e y a r e not simply t h e
design o f one man o r one group o f men, but I believe are
the result o f conditions which have developed i n the coun-
try and which, i n some instances w e may have beenlax i n
anticipating a n d dealing with, a n d I
a m perfectly well con-
vinced that w e have got t o get a t i t and insure proper attention t o the moral and mental and physical welfare o f
tue people that w o r k i n the banks, a n d just h o w t o t o
that i s & question.
The men who are working o n this subdjeot thought they
would like t o put i t o n the program.
I
f i t too much o f
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131
a chew, why, y o u gentlemen s a y so, a n d w e will g o i t alone i n
New York,
W
e have got a
very e x t e n s i v e program under w a y
with the problem o f the clerks.
Governor Wellborn, I
have had some expéexience along
that l i n e .
Governor Passmore.
Covernor Miller.
I
t is a very live question i n our
H a v e y o u reduced that t o writing, a n d
will you send i t out t o the other oanka?
The Chairman.
I f I attempted to send all the material
that has been written o n that subject, y o u gentlemen would
be swamped.
Governor Miller.
J u s t the sudstance of it.
The Chairman. I
have h a d some data prepared b y various
of the m e n i n the oank, w h i c h i s very interesting.
would care t o have m e take i t u p b y topics, I
I
f you
would b e glad
to d o so.
3 Governor Miller. I
think thet i s a very important ques-—
tion.
Governor Passmore. I
iy. Miller. I
think D r . Miller ought t o hear
was very glad t o see that i t e m o n your
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Federal Reserve Bank of St. Louis
152
program, a n d to know that the Reserve Banks were giving some
attention to conditions o f employment, especially for the
lower grades in the salary scale cf the employes, and 1
wanted t o speak a word o n vehalf o f a n inquiry that t h e Board
ietrying to make for its own information, with the hope
that t h e information m a y also b e o f some value t o the banks
in this connection.
“le object o f the Board's investigation i s ~::.:. purely
to asvertain what effect t h e increase i n the cost o f living
for clerks i n the different salary grades has been, due t o
the rising prices i n the past f e w years.
T h e Board i s
not trving t o set u p a definition o f what standard o f living
a Clerk should live in; w e are txying simply t o got some
method o f approximating the extent t o which high prices
have borne d o w n upon t h e standazd o f living that w e s common
to clerks i n a given ulass,
w e will s a y three years ago,
before the great rise i n prices began.
Propositions h a v e come f r o m the oanks f o r bonuses, s a y
“of twenty p e r cent o n salaries o f clerks receiving less
than $1,590 a year, <: perhaps fifteen per cent for clerks
receiving $1,500 +o 43,500 or $3,000; end a bonus of ten
per cent upon the higher classes.
T h a t seemed t o me a good,
133
enough w a y a couple o f years ago, b u t i t seems t o m e the
time
has come when w e ought t o be able t o proceed i n making salary
adjustments u p o n a better knowledge o f what t h e
condition i s o f
which w e are t r y i n g t o make a n adjustment.
I feel this, from a point o f view of a member o f
the
Board, a n d I d o not feel I
would b e discharging m y duty i f I
apprevod results arrived a t o y & rough a n d ready
a n d don't~Care . .-cess like that.
S o m e t h i n g better c a n b e done.
Something v e r y much better i s being done b y
a great m a n y priv-
ate institutions, among them some banks, and, let
m e say that
some o f the largest private banks i n some cities
i n the country -- there i s a very striking case i n New York —~ are
going t o cooperate v e r y thoroughly w i t h this plan
o f the Board
in their o w n interests,
Banks are apparently.
W h i l e I
hear s o m e o f the Reserve
i f 7 am rightly informed, holding back
through o n e sort o f fear o r another,
Now, m y belief i s that t h e Reserve
System h a s got a
Chance here t o show that i t knows
h o w t o conceive a
problem
of this kind, w h i c h gets particular
poiagnancy o u t o f a re-
_Cital o f such facts a s Governor Strong has
just given us,end
they appear t o count u p o n theconfidence
o f the great mass o f
its employes i n the good spirit
a n d good intention o f the
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Federal Reserve Bank of St. Louis
1354
management t o be able t o secure their full cooperation i n
attempting t o get the data that you must have if you are
going t o proceed t o make salary adjustments upon anything ©
than a rough hit upon this principle;
i
f you are going
to make adjustments that will oorrect such cases a s these
that a r e never reached b y the fifteen o r the twenty p e r cent
hor’. “ontal bonus.
‘a brief, what w e are trying t o d o i s t o get certain
data which will d o for u s precisely what t h e chart that t h e
nurse keeps a t the bedside o f the patient,
o r that t h e phy-
Sical director i n the gymnasium does, i n order that h e may
know What the physical condition o r the economic status o f
the people who are under your employment are; a n d for whom
you must feel a
certain degree o f responsibility.
This questionnaire,
b y the way; I
you have all seen i t o r not.
do not know whether
T h i s i s the first copy I
have h a d i n m y hand.
The Chairman.
Dr. Miller.
prepared.
L
e
W
e have them right here.
L e t m e s a y that h a s b e e n most carefully
t m e s a y this, although I
a m speaking for-
it, I did not prepare it; i n fact, this i s the first time I
have h a d i t i n m y hand. I
had the original c o p y i n m y
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Federal Reserve Bank of St. Louis
135
hand a few moments, but w e were anxious t o get this under
Way, a n d sent i t t o the printer a t once.
B u t I
did have
/
the selection o f the m e n w h o passed o n it, a n d notaing bet-
ter than this has been prepared; and nothing better than
this. c a n b e prepared, I
a m prepared t o s a y authoritatively.
It has been passed through t h e crucible o f a thoroughgoing
test b y men w h o know what t h e y a r e about.
pa.
I
t h a s been
U a r l y edited, with reference t o keeping out o f it
anyt.. a g calculated t o excite offense,
o r any intrusion
into one's private affairs; i t i s a plain, matter o f fact,
series of questions; and I think any clerk who has the requisite confidence i n his employer will b e glad t c furnish
the data called for, if he can furnish it; and for the
most part I
think those w h o are being most h a r d hit b y pre-
Sent high prices c a n give you this information with a great
degree o f accuracy,
s o that y o u will k n o w about h o w much
: man who i e i n the salary grade o f $3,000 o r $3,500, i n
New York, Philacelphia,
o r Atlanta,
o r anywhere e l s e - — —
how mich h e spends for fuel and light a n d heat; h o w much
he spends for clothing, Supposing h e i s the head o f
a
family embracing a wife and two o r three children
under
fifteen years o f age, a n d 8 0 on.
S e , i f you set your-
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Federal Reserve Bank of St. Louis
136
Selves againet this, i t strikes m e you are virtually saying
"We d o not want t o attack this problem seriously; w e do not
want t o d5 it methodically; w e prefer t o handle i t
in a
Tough a n d e a s y w a y o f s a y i n g
“ W e will g i v e these fellows
down i n the lower grade twenty p e r cent."
Now, I
have n o hesitation i n saying, a s regards my-
self, A f I could have m y own way, I should
want te go very
muct. t t h e r . I
have n o hesitation i n saying that t h e fel-—
low at the lower end makes great claims upon
m y considera—
tion and my interest, a n d I think, individually
and personal~—
ly, I would refuse t o be at the head o f an institution
where
there a r e many cases where I
felt there Was real need, r e a l
suffering a n d real impairment o f
health, efficiency, g o o d
Spirit a n d things that make for a happy atmosphere
i n a working institution, i f they happened i n any
considerable number
and were anything more than Sporadic accidents
there.
But that i s not involved i n this.
attempt t o get information,
t o know,
T h i s i s merely the
i n other words, t o what
extent w e are resyonsiole f o r employing
several thousand o f
mén i n the Reserve Banks a l l through
t h e country without
ever having taken the pains to ascertain to what
extent the
burden o f the Tising cost o f living
i s weighing u p o n then,
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Federal Reserve Bank of St. Louis
137
and i s not being properly adjusted through lack, either o f
concern,
o r through lack o f a n intelligent comprehension
of what fair dealing with the problem really imolies.
The first thing w e need for that i s information, a n d
I see n o objection t o asking for this information; i t i s
purely voluntary; t h e r e i g nothing obligatory about it,
eit: r upon t h e part o f the oank i n cooperating w i t h the
Boar. oi: this work, o r upon the part o f the employe i n co-
operating with his bank; but I see no odjection whatever to
any banker undertaking this a n d undertaking t o present i t
to his employes i n a way that will really onlist their c o operation; t h a t will neither e x c i t e their suspicion that
Some unfair advantage i s going t o b e taken o f the knowledge
which will b e gained, o r that i t i s the fore-runner o f a
great increase i n salary.
that
More than/,7 think i f we put this thing through and
Show that w e know how to use the results thus gotten a t w e
‘Will b e doing something n o t o n l y t c improve t h e employment
Situation within o u r banks v e r y much, b u t w e will also b e
Setting a n example that I
think the country needs v e r y bad-
ly a s regards t h e great mass o f the salaricd employes o f
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Federal Reserve Bank of St. Louis
the nation.
i
My own observation is, through dipping here a n d there
into some of the larger cities of the country, that the
thing w e call bolshevism thrives more i n the home o f the
underpaid employe,
manual wage worker.
b y far, t h a n i n the home o t the ordinary
J u s t a 3 I found that bolshevism
th-"~s3 t n our universities -—- I
believe i t thrives i n Har-
varc. .iversity, right i n the faculty a t this day —~- largely
because o f the meager salaries that t h e instructing
body i s
getting, a n d the rather indifférent attitude o r postpone—
ment o f consideration o f the question c f adjusting
salaries
to living costs until this past year.
So that i f w e d o anything here that i s well done i n
sup-
plying a part of the basis for making a n intelligent salary
adjustment i n our Reserve Banks;
W e will b e doing something
that I feel confident large institutions that have a
considerable salary roll f o r clerks a l l over t h e country
will i n
time, a n d I am inclined t o think rather speedilv, take ad-
vantage of,
T h e only reason I should see for hesitating
on this, i s whether w e know where w e are coming out, a n d a s
to whether o r not this method o f a t t a c k i n g t h e problem i e
a3 good as you can get.
T h e r e i s where I want t o repeat
139
what I
have already said: t h i s thing h a s b e e n through t h e
crucible; i t has been tested thoroughly b y men who know
this
thing, and this ie about as well calculated to get the minimum a m o u n t
o f information
as little intrusive,
w e n e e d t o h a v e b y methods t h a t a r e
b y methods that a r e a s impersonal a s I
think y o u c a n find anywhere.
This morning I was told the Bankers Trust
was going
use it. . t
think they were one o f the pio neers i n
New
York $20 o n a n a g O. T h e y are eager; they
nave seen this;
their experience h e s been utilized b y
those investigating
this problem f o r the Board,
s o that w e should feel reason~
ably assured, w h e n w e send o u t @questionnaire
designed t o
get information, t h a t that questionaaire
w o u l d b e a s well
Planned a s a thing o f that kind van b e
made.
Now, I repeat that I am interested i n this,
because I
feel dissatisfied,
a s a member O f the Board that passes
upon
your propositions f o r expenditures
a n d increases o f expendi-
tures here and there, t o dismiss what
I feel i s 4 very consid-~
erable responsibility upon that sort
o f treatment.
I f I were
@ clerical employe J
Should feel that a
bonus, arrived a t
in that rough way, with s o little
knowledge o f my vondition
and m y needs, w a s about t h e
least a
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Federal Reserve Bank of St. Louis
callous employer could
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Federal Reserve Bank of St. Louis
140
do. A n y o n e who felt any real concern, a n y really enlightened selfish concern, f o r his employes,
I should feel would not take other methods o f finding out
precisely what the adjustment should be.
I can not help but feel that a fellow who i s getting
$1,200 a year and a bonus of twenty per cent, must have
every mean, every bilZious animosity i n hia body aroused when
a fellow who gets $5,000 a year and gets a ten per cent
bonus, one-third, o r almost one-third, o f the entire salary
of the fellow a t the other e n d o f the scale, e v e n after h e
has got h i s bomia.
I think this is a responsibility that we ought to accept, a n d all that I want t o say i s that I hope that before
anyone of you concludes that h e doemot want to cooperate
with the Board in getting this information, you consider
pretty carefuily what t h e alternative is, whether this thing
has 80 many otjections that it has got to de thrown out as
inferior to the sough and xeady guess of the employuent
manager, with approving vote o f the directors a s t o just
what ought t o b e done b y way o f bonus t o adjust salaries t o
living costs.
I<am particularly eager about this because i t i s my
141
belief, a n d upon that belief I Should b e
willing t o stake
my whole reputation, t h a t living costs
a r e going t o get
worse a n d worse.
T h e o n e thing that I
think o n e i s reas-—
Onably justified i n Prophesying a t
t h e present t i m e i s that
prices a r e going t o rise a n d not
fall.
The Chairman,
W h a t makes you think that, Dr.Miller?
De. Miller, B e c a u s e w e are going
t o feed out more and
more creiit, m o r e a n d more Currency,
a n d whether w e need i t
Or not, w e are going t o d o a n enormous
amount o f financing
for Europe, a n d that i s going t o
b e done i n this country
through a n enormous expansion
o f credit.
The Chairman.
D
o you not think w e can control
it by
direct methods?
Or. Miller.
I d o not think w e will.
W e ought to,
but I think w a will conclude six
months from now that infla—
tion i s inevitable, just a s w e
have been concluding i t the
last year a n d a half.
The Chairman.
I
t i6 @
matter
o f control
t o t h e extent
that somebody h a s t h e cecision?
Dr. Milier.
TPO” 34.
Yes. I
w e will n o t con—
W h e n I say control, I mean
I do not think w e will
effectively control it.
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Federal Reserve Bank of St. Louis
think, however,
142
D o you mean w e will not want t o
control
The Chairman.
it, o r will b e unsble
t o take measures, e v e n i f they a r e
available?
Dr. Miller. I
mean there will b e no methods available
that w e will not feel e r e more disastrous
a n d more costly than
an inflation o f credit. I
think,
i n other words, without
knowing it, w e will accept t h e condition that our
methods
have tAu3ed i n the past.
Lae Chairnan.,
Dr. Miller,
Y o u méen stopped a t this a m p e d
Chairman.
» Miller.
Yes,
N
Chairman,
Dr. Miller.
D o you think i t could b e stopped?
o
, I
D
do not.
o you think i t could b e
checked?
Y e s ; I think i t could
b e Checked; I
think
we could d o a great deal
t o mitigate it.
The Chairman,
T h e n why d o w e not d o it?
Dr. Miller, W e l l , I do not
want t o get o n that ques—
That jie a
The Chairman,
different m a t t e r .
Z
I am through now.
T a m not going t o
Bay another word,
Governor Van Zandt.
O
n this questionnaire,
d i d the
Board say what the full effect
might b e o n the employes, ‘ f
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Federal Reserve Bank of St. Louis
143
they knew they were sending this data t o the Federal Reserve
Board unknown t o the officers o f the oank o r ever t o their
own board o f directors?
Dr. Miller.
O h , n o t a t all.
Governor Van Zandt.
T h i s goes through you.
Y o u are mistaken.
T h i s says:
"Anawer the questionnaire, fill i t in, place i t i n a n envelc.
s e a l it, a n d address i t t o t h e Division o f Research,
Federal Reserve Board,
o r hand
i t t o the Federal Resorve
Agent."
The Chairman.
clerks a
T h a t must have been intended t o give t h e
certain sense o f privacy about their affairs.
Governor V a n Zandt.
O
n the other hand, « i l l i t not b e
very much misunderstood b y the clerks?
H a v e y o u one o f
the printed copies before you?
Dr. Milier.
The Chairman.
Y e s ; I have.
D r . Miller, o f course, a different con~
dition exists i n different banke.
are m o r e r e m o t e f r o m t h e s e c e n t e r s
S o m e o f the banks that
o f disturbance,
i f you
Please, l i k e N e w York, a n d where t h e y have not t h e largs
force a n d such compotitive conditions, I
feel t h e difficulties
Dr, Miller.
d o not believe S h e y
i n the same degree.
T h e y d o not f e e l i t a s acutely.
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Federal Reserve Bank of St. Louis
144
Governor Calkins. I
think I
oan say, without a n y qual-
ifications, t h e r e a r e n o such cases a s those t h e Chairman
has described t o us i n our bank.
The Chairman.
T h e situation i n New York i s a n exceed-
ingly difficult o n e ‘ust now.
T h e congestion o f population
has really added a great d e a l t o the cost o f living, beyond
what the people ordinarily suffer.
that 5
might n o t have h a d a
I
f it had not been for
condition i n the bank just n o w
Which uas got t o be dealt with.
I have read this over, Dr. Miller, w i t h very great care,
and my impression was i t was the most admirable and fine
Piece o f work o f the kind I have ever seen, a n d I
have seen
& great m a n y efforts o f thir sort b é i n g made i n N e w York
by the other bankers.
W h a t I should like to do in the Re—
serve Bank i n New York i s this:
W e will speak o f three
thousand clerks, i n round figures. I
want t o deal with
them as datelligently a s we can, which I %
will admit 4 s not
as intelligently as I would like to, b y the
middle of Decembe>.
Y
o have assombled data from the cost
o f living i n
the bank, i n our District;
w e know about what i t is; w a know
the conditions o f the clerks; a n d while i t
was not done with
the scientific accuracy that will result from
this question~
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Federal Reserve Bank of St. Louis
145
naire, I
can essure y o u w e will k n o w within a reasonable d a -
gzee o f accuracy enough t o know whet w e ought t o d o and d o
intelligently, a n d what I should Jike t o d o with this questionnaire i s this: I
want t o make those clerks a little
happier about living costs, a n d take this woight a n d anxiety
off o f their minds; then I should like t o send this questionhaire t o them, a n d tell t h e m that i t i s the belief o f the office
w f the bank that i t would b e preferable that t h e y turn
these Ucestionnaires o v e r t o the officers o f the bank, s o that
the information may be Gireotly available to us for use, and
those that will d o so, turn them i n confidentially i n a certain way, those w h o prefe~ t o have t h o m g o directly t o Wash—
ington,
t o send them through t h e Reserve Agent, a n d those w h o
do not want t o answar them teed not d o so.
would find they would all come t o the bank.
B u t I think you
W
e would have
them for analysis b y capaclbes mon who have been making a
life work o f thie sort o f thing, a n d the information would
be made t h e basis o f our next step, which, Dr. Miller, I
should
like t o describe a s the result o f the Organization o f the
bank's f o r c e , a
g expressed i n the chart a e recently got out,
by which w o can grade everybody i n the bank rovghly
acco7ding t o these levels, beginning with the lorest
level.
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Federal Reserve Bank of St. Louis
146
We would have, first, t h e apprentice clerk, then the
Clerk, then the senior clerk; then w e would have
the assist—
ant supervisor o f the department a n d the supervisor;
then w e
would have t h e assistant manager o f the division
a n d the man—
ager; t h e n w e would have t h e assistant teller
a n d the keller,
the deputy governor a n d the Governor.
T h a t i s the grade
Classification o f all t h e employes o f the
F o d e r a l Reserve
Ban’
~l & Clase like clerks, not apprentice clerks and
not
Senior clerks, but just clerks, there might
b e three levels
Of Salary, a n d once those salary levels
ere e s t a d l i s h e d , m
o
r
f
she bottom t o the top, then a system o f promotion,
grading,
will gradually b e evolved that will enable
u e t o c o what every
well manageé bani, I
believe, s h o v l d do, have a regularly
Salaried organization, 2 a they do in
the big English banks,
and every week they have a meeting,
a n d they review the
Work o f every clerk w h o s e employmens
anniversary falls i n
that period, and every week one fifty-secone
of the clerks,
in the bank, roughly, w i l l b e reviewed
f o r regarding salary,
Or increaso, rromot“on; then this
chevk~off once a year,
having a l l t h e force
and change,
e t t h e pank subjected t o comparison
o r n o change,
a s the case m a y be, will all
be
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Federal Reserve Bank of St. Louis
Swept a w a y .
147
This questionnaire will b e of great value t o us, i f we
Can have t h e information a n d analyze i t right there o n
the
spot. I
am afraid i f it comes t o Washington i t will b e
regarded a s o f a confidential nature a n d w e can not g e t
it,
or i f w e should get it, without t h e clerks! knowing
it, t h e y
wil? r e g a r d i t a s a violation o f confidence,
J what I should like t o d o would be, first, t o treat
them a s I have Suggested this year; t h e n send this
ques—
tionnaire t o them, with a little urging that they
fill i t
out and deliver i t t o the properly designated
officer o f
the bank; i f they prefer t o send
i t direct t o Washington;
if they d o not w i s h t o answer,
d o not answer it. I
think
—
they would all answer it, that t h e y would
all turn i t over
to the officers o f the bank; furthermore,
t h e y will just
have felt t h e relief o f that Salary
readjustment a n d special
Compensation which w e recommend, a n d
they will b e very much
freer t o answer i t than they would
b e under t h e pressure
of existing conditions.
Governor Seay.
H a v i n g i n mind t h e conorete
instances
Which Governor Strong has presented,
a n d what h e has said,
and what y o u have s a i d t o u s ,
i s i t i n the back o f your
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Federal Reserve Bank of St. Louis
148
mind, ultimately,
t o devise some system o r method b y which
you will compensate t h e employe according t o the measure o f
his necessity, o r provide a special compensation t o provide
for a special necessity?
Dr, Miller. I
think I can say this with a greet
deal of positiveness, that the Board has nothing in mind
beye-". getting this information. i
myself have been more
int... s t e d i n this t h a n a n y other member o f the Board,
and
about a l l I can s a y i n answer
t o your question i s that I
Should like to postpone judgment o n that vntil I see what
this thing reveals, w h a t i t discloses.
I
t i s a good deal
like asking a physician t o prescribe before
h e has had a
Chance t o make a diagnosis, I
want t o see what w e get
by way of data that discloses a very serious encroachment
ofhigh prices on the living conditions of any considerable
part o f your employe staff.
I am inclined to think that the Board will never
do
anything with it beyond, perhaps, digesting the
information,
Classifying it, making it more easily available for
the
twelve Federal Reserve Banke, a n d any
other institutions
that might care to profit b y it, if we should conclude
that
the material i s such that c a n b e
made public i n its results,
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Federal Reserve Bank of St. Louis
t a n y rate.
a
The Chairman,
+
AG
M a y I take t h e liberty o f making t h e
only two criticisms that ocour t o me i n connection with the
questionnaire?
Dr. Miller, C e r t a i n l y .
The Chairman. I
do not believe that a n y o f the Reserve
Ba: h a v e yet been successful i n working out 4 systematic
Clas ‘ A c a t i o n o f positions, grades,
i n the bank, o r a Szid--
tematic treatnent o f the salaries i n
t h o s e various grades.
My fear i s that unicsea sach questionnaire i s
declt
with b y the m e n i n the bank w h o have
charge o f thasc mat-—
ters, with regard t o some gradation o f work,
that the whole
point o f i t will b e lost.
W
e must g e t a t the cause.
One
of the chief results o f a questionnaire l i k e
that i s t o
disclose m e n w h o are attempting t o
support families i n a n
eccupation where their naturel aptitude
i s such t h e y c a n
not d o it.
out.
N o w ; i n justice t o them, t h e y should
b e sent
F o r instance,
w e may have «
man there Going clerical
Work who should h e i n a brick yard o r
driving a grocery
Wagen.
D>, Miller,
fbhe
Chairman,
Y e s ; n o doubt.
A n d i t i s up t o us t o discover
that,
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Federal Reserve Bank of St. Louis
150
and you c a n not discover i t from questionnaires unless y o u
have i t alongside the information i n the bank.
Dr. Miller.
L e t m e say this questionnaire i s not a
policy o r a substitute for a policy a t all.
I t t e no
more, a s I used the simile, than the record shart that a
good nurse keeps f o r the use o f the physician.
not intended for treating the patient.
T h a t is
T h a t i s a record
of temoerature, h o u r s o f sleep, nourishment taken, a n d a
gresu uany other things that the physician has got t o know
when h e comes t o treat t h e patient intelligently.
T h i s
issimply one kind of information,thati we have got to have
in a process o f framing u p f o r the individual banks a
sim-
ple salary policy, t h e point b e i n g that w i t h o u t this I
feel that y o u will never g e t better; y o u are just guess—
ing,
Guess,
I
t m a y b e y o u c a n not d o anything better t h a n a
T h e s e difficulties y o u point o u t a r e unquestion-
ably genuine, e n d I think a r e already going o n i n the Reserve Bank i n New York. I
series o f cards, w i t h a
understand y o u have kept a
good deal o f data, a n d our division
is Working o n those aow.
The Chairman.
that i s this.
B u t , Dr. Miller, another defect i n
Y o u k n o w time i s passing ~ ~ ~
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Federal Reserve Bank of St. Louis
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Dr. Miller.
T h a t i s not a
defect i n the question—-
naire, because i t has nothing t o do with it.
The Chairman.
Q u i t e another o n e i s this. I
hope y o u
do n o t mind m y stating it.
Dr. Miller.
The Chairman.
N o t a t ail.
Because I
think this i s important.
believe i t i s going t o create the impression i n the minds
of r e a t many o f the clerks i n the Reserve Banks that
there i s a court o f appeals i n the Reserve Board.
Dr. Miller.
T h e n you have got t o explain i t t o them,
I want t o tell y o u exactly t h e position y o u are going t o
be i n i n the Reserve Banks.
O t h e r banks a r e going t o use
this.
Governor McDougal.
T h e y are not going t o use i t
through t h e medium o f a third party.
Dr. Miller.
T h e y a r e going t o use i t themselves,
because t h e y want precisely this sort o f thing, a n d they
get the expert p a r t done a s well a s i t van b e done with~
out a n y expense t o themselves.
The Chairman. I
will undertake t o get that i n f o r m
ation, b u t w e will get i t better a n d i t b e
more useful,
everything that i s there will b e available
t o the Board,
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Federal Reserve Bank of St. Louis
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and, i n addition, i t will give us a line o n the one thing
we n e e d t o know, a n d t h a t i s t h e a d a p t a o i l i t y
of a
system
of gradation o f work a n d salaries a n d living costs, s o that
we are not encouraging people t o endeavor t o try and fight
@ losing fight w i t h the cost o f living i n a job they should
not occupy,
W
e have g o t a
lot o f people i n the bank i n
tha 2osition, a n d this will disclose i t i f put alongside
the ~ >»loyment record,
Dr. Miller.
Y o u have got t o have @ very complete and
@ very unusual employment record i n order t o do that.
The Chairman.
ful one, I
W e have.
think, D r . Miller,
Dr. Miller.
W e have got a very wondero n the whole.
T h i s i s not a matter o f the next six
months o r the next year o r the next t w o o r three years.
I t
probably w o u l d n o t b e w o r t h w h i l e f o r e i t h e r t h e p a n k s o r
ourselves o r the clerks a b o u t i t , unless there w a s a dis~
tinct outlook that w e will have i t f o r a great m a n y years
be
tocome. I
think we shali/very lucky if we get out of it
in fifteen years ~ ~
Situation.
w e will have a
very disturbed price
M y own b e l i e f i
s that prices a r e going t o rise
for some considerable t i m e t o come; t h a t w e are going t o
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Federal Reserve Bank of St. Louis
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have a
slow dawnward movement, b u t i t i s going t o 0 6 a very
much checkered movement, and the question will be a live
question all the time.
I s the clerk who is getting $1,500
& year a t a n y o n e time getting t h e equivalent o f i t to-dey~-
A n d
if prices have gone higher o r if they have gone lower?
if you get your salary scale very much higher, a s prices
rise, y o u have got t o have some method o y which y o u c a n fin-
ally ges them adjusted when the inevitable decline comes.
Governor Seay.
I
f the Chairman please, I
shall have
to ask to be excused.
Dr. Miller.
W h a t I would ask o f you i s to consider
this, g i v e u s your judgment a s t o its value f o r your purposes, whether y o u c a n o r whether y o u c a n not u s e it.
you c a n not u s e i t i n its present form,
would suggest it? I
I f
i n what f o r m y o u
should like t o b e i n a position, when
tie show down even tually comes; a t least with the condition
today,
a s t a r a s t h e b o a r d i s concerned,---— o u r banks, w i t h
their tremendous earnings, t h e i r tremendous growth, a n d
With their public prominence,
i n m y opinion, a r e going t o
be i n a very b a d case, unless t h e y c a n show they have tried
to do something that i a a little better than guess work i n
the matter o f developing a salary policy, and, above all,
the matter o f adjusting salaries t o changing conditions.
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Federal Reserve Bank of St. Louis
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If thie i s not t h e method t o get a t it, l e t u s
have some—
thing better.
Governor Passmore.
Pe. Bator,
I t i s your hope t o get this i n time?
I t i s m y hope.
T h i s was started a year
ago, but I had no idea how slow the experts
would b e i n finally getting this i n shape where they felt
i t was absolute—
ly estisfactory. I
basi.
am afraid you can not use it as a
s r any adjustments i n this coming year,
b u t next July;
and, I repeat again, this ia not an automatic
device; this
ismerely a first step.
I f this goes through I suppose
the next step will b e that each one of the
Federal Réserve
Banks will b e helped, a
way will b e devised b y which you can
get a n index o f the cost o f living.
and the most difficult thing.
T h a t i s the important
T h i e i s simply a n attempt
to ascertain h o w a man distributes,
h o w h e spends, h i s i n
come; h o w mich, w e will Say, the man who
has got a n income
of $3,000 a
year spends o n food, h o w much o n fuel,
h o w much
on clothing, how much o n recreation, and
health ana SO on,
80 that, Supposing h e spends forty p e r
cent o n food, a n d
you find i n the next s i x months that
f o o d prices h a v e risen
five o r ten per cent, y o u know how much
increase should b e
made i n salary t o cover t h e cost
o f food.
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Federal Reserve Bank of St. Louis
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The Chairman:
regard t o that.
Y o u d o what w e are contemplating i n
A
s soon a s w e establish t h e base salaries
of the banks a n d get o u r costs that y o u refer to, s o w e can
figure o u t t h e fluctuations,
envelopes, t h a t I
w e were thinking o f using those
believe Professor Fisher w a s working on,
for special computation t o cover t h e c o s t s , a n d this e n -
velope, which will b e a fairly large one, will b e handed t o
ea sonmployé, w i t h a n amount o f money i n the envelope, which
Wilu. 0 8 expressed b y a calculation made o n the outside o f
the dnvelope showing just h o w it i s arrived a t from the base
aalary, o r fluctuations o f costs o f various items that enter
into these items here, t o a n adjustment o f it i n pay; then
every clerk knows when he gets his envelope how it i s arrived at.
Dr. Miller.
Y e s , the possibility, i f you carry it,out.
your clerks are the best people t o get u p your cost o f living; that goes beyond anything.
The Chairman.
I have got a
s h a t i s what w e are going t o d o also,
great string o f topics here, a s y o u will see,
I do not know whether i t i s worth while discussing them.
I put them down merely a s suggestive.
B u t I want t o fly
at this thing before w e have a break down.
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Federal Reserve Bank of St. Louis
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Dr. Miller.
B e f o r e i t flies a v e y with u s ?
The Chairman.
Y e s .
should like t o say just one
Deputy Governor Peple. I
word.
O u r bank, a f t e r consultation w i t h the officers a n d
the heads o f departments, h a s written alétter t o the Federal
Reserve Board with reference t o this questionnaire.
A
s we
understood it, the questionnaire was intended t o b e distrib-~
uted immediately.
T h i s i s our time f o r the consideration
of all salaries i n the bank.
W
e have, since the organizatic
of the bank treated t h e whole salary question very much
more systematically a n d very much more sympathetically t h a n
I would suppose y o u thought w e had done from your statement
as to the difference between a flat bonus and this kind of
an investigation.
W e felt that the distribution o f this
questionnaire just at this time, while this salary matter
Was t o b e vonsidered, w o u l d b e aosolutely disastrous.
Dr. Miller.
Y o u are the best judges o f that, o f
course,
Deputy Governor Peple.
I t had not occurred to us, a s
it occurred to Mr, Strong ,that w e might b e able to use the
Questionnaire i n some modified form, o r i n some modified
Way, after t h e first o f January, a n d after this crisis h a s
been passed Over; b u t i n our opinion, a n d our opinion
was
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Federal Reserve Bank of St. Louis
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unanimous o n the subject,
w e felt that t h e distribution
just n o w Would make half, i f uot more, o f the clerks think
that the answers t o those questions were t o be the basis o f
whether o r not increases were t o be given and the measure
of the increase that was t o be given.
Dr. Miller.
L e t m e s a y I have n o t paid very much at-
tention t o the details o f presenting this, a n d have not s e e n
the letter that went out, b u t i f I a m rightly informed, t h e
banks “iiiuhnx w e r e requested t o do this -- not instruct~
6d -- a n d I think i t was assumed that such banks a s would
heed the request would d o it, not simply t o cooperate with
the Board i n a formal o r perfunctory way, b u t t o
cooperate
in making a
plan o f attacking t h e salary question effective—
ly; a n d that i n doing s o i t would present t h e
thing t o its
Clerks i n a way that would disarm them o n any
Suspicion,
and make t h e m feel that i t was a n attempt
really t o under-—
stand their condition with a view o f treating
their needs
more intelligently.
Deputy Governor Peple. I
think that c a n b e far more
effectively done, a s Governor Strong
Suggests, a f t e r t h e
first o f the year, a n d after the increases
g o into effect.
The Chairman.
W
e h o p e t o make o u r whole salary
revi-
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Federal Reserve Bank of St. Louis
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sion and special compensation and everything complete b y
the 15th of December,
W
e telieve the effect o f that
Will b e of great value.
Deputy Governor Peple.
The Chairman.
diately afterward,
W e are trying t o do that, too.
T h e n w e would send these out immet o get t h e most favorable opportunity o f
getting t h e m filled out.
Governor Wellborn.
I t seems t o m e n o w i s the proper
time t o get these questions answered,
Salaries o n the answers.
s o w e c a n base o u r
C a n y o u get that i n time, d o
you think, Doctor?
Dr. Miller. I
should say that a n y o f the banka that
act promptly o n this ought t o get the returns
i n within
ten days.
T h o s e w h o e a n d o this a n d w h o
are g0ing t o d o
it, Can d o it i n a couple o f hours i n one
evening.
Governor Wellborn. I
remember the morning I left
Atlanta I told m y secretary t o have i t attended
to. a
thought w e would get that information,
a n d upon i t base
our conclusions,
Governor V a n Zandt.
Governor Wellborn.
later on.
I
Y o u d o not g e t that information.
W e receive that from headquarters
f there i s any objection
t o that, a n d we
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Federal Reserve Bank of St. Louis
want. t o change it, I
should like + o wire them.
Governor Vim Zandt. I
should like t o say, covering
this change, t h e questionnaire i s fine, a n c will b e of untold value t o every Reserve Pank Governor i n the working
out o f details o s his organization i n getting that data,
but I really think that employes should b e requested; i f
they s o desire,
t o fill i t out a n d put i t i n a sealed en-
velope, addressed t o the Governor o f the Bank.
The Chairman, I
doubt i f that information c a n be
prepared i n time f o r this raise.
Governor Van Zandt. I
The Chairman.
do not think i t can be done.
Y o u will find moet o f the clerks will
Bay " I shall have t o keep a careful track o f my expenses."
Governor Van Zandt. I
think i t ought t o be changed
to D e c e m b e r 3 1 , 1 9 1 9 .
Dr. Miller,
T h e people w h o a r e m y advisers about
this thing, w h o know, t e l l m e there will b e n o difficulty
at all, that most o f them heve got the information where
they can fill this out i n a couple o f hours; that most o f .
these psople,
a s a matter o f fact, k e e p budgete, a n d they
Can show y o u a t ths e n d o f the month pretty closely just
what the month's income has gone for.
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Federal Reserve Bank of St. Louis
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Governor V a n Zandt.
W o u l d i t not b e well, then, t o
change this date, a n d make i t cover the full year 1919?
Governor Pasamore. I
think the clerk that would have
all that information would b e the exception, a n d most o f
them would have t o d o some figuring o n i t t o even approxi-
mate the proper division.
T h e y do not keep records o f
what they spend for lunches and movies and that sort o f
thing; they may know it b y a process o f elimination, b y
knowing what their coal bill is and 80 forth.
Governor Moras. I
think those that have families
might have the information, out a great many people emPloyed inethe b a n k have n o families a n d no responsibil—
ities but themselves, a n d perhaps hardly that;
that i s t o
Say, they are young people living at home.
On t h e t e p o r t w h i c h w a s t o b e m a d e o n that w a s r a i s e d
last meeting: o f your 3,800 members o f your force, i t was
shown that about 700 were 18, 19 and 80 yeare
old.
The Chairman.
T h o s e were young girls?
Governor Morss,
Y e s ; the probabilities are they
have n o responsibilities t o speak of, a n d
probably spend
their money Pretty freely, a n d they would not have any of
‘these r e c o r d s whatever.
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Federal Reserve Bank of St. Louis
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Dr. Miller.
T h e information w e did not g e t f r o m them
would be of the least value o f all.
thing,
o f course,
T h e more important
i s those w h o have family budgets.
There i s n o doubt that a n investigation o f this k i n d
is far lesa satisfactory i n the c o n c l u s i o n s t
i yields than
an investigation among wage earners, w h e r e y o u have f a r
greater uniformity o f condition; where the matter o f promotion, change o f status, a n d s o forth, d o not constantly
interfere.
A n d it may b e -- I
about this f o r myself - -
am not unduly optimistic
i t m a y b e that i f w e get pretty
Comprehensive returns i n response t o this questionnaire,
that w e may conclude that i t does n o t reveal information
of a kind that you can use methodically i n forming a salary
adjustment policy. I
The Chairman.
hope and I believe i t will.
W h a t w e should like t o do, Dr. Miller,
~~ W e happen t o have a very competent m a n i n the bank o n
these matters. | I should like to uae him, with some
Special paper during the entire business day, t o give inStructions t o clerks a s t o h o w ths questions should
b e anSwered; and, where they Have not t h e data, s h o w
them h o w
to get it.
T h a t means there w o u l d have t o b e a thousand
or more clerks interviewed; a n d a f t e r ,
8 a y , a month,
when
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Federal Reserve Bank of St. Louis
162
they are really keeping a record and investigating their
affairs, w e would get a record o f value; but i t would necéssitate a little education. I
would like t o take time
to d o i t right.
Dr. Miller.
I f you find that i s the case, o f course,
that i
s a reason for not doing i t at all now, when a little
time would give better results.
Governor McDougal. I
am inclined t o agree with Gov-
ernor V a n Zandt that t h e problem w o u l d b e Simplied a n d the
results more satisfactory i f w e could eliminate this last
paragraph o n page 1
and have t h e returns c o m e t o the Ranks
for their use; a n d then f o r passage o n t o the Division
of
Research f o r analysis.
Dr. Miller,
I t may be a very good change,
Governor McDougal.
I
f w e could settle that point,
I
think, a n d have the date changed
--—
Dr. Miller,
W e l l , I suggest that you
consider this
among yourselves, a n d m y deaire
w o u l d b e that y o u give i t
Such consideration a s you can and
make a recommendation
upon it; t h a t i s , t r e a t i t
as a
matter o f p o l i c y a m o n g t h e
banks, a n d i f you d o that a n d
your recommendation i s a f f i r m
ative upon t h e general p l a n o f
trying t o assemble d a t a o f
this kind, then m a k e any specific
recommendations for a
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Federal Reserve Bank of St. Louis
163
Ghange o f date and s o o n that you think advisable t o be
included.
The Chairman,
T h e people wko made that were i n the
bank a n d studied it?
Dr. Miller.
O h , yes, i t has b e e n taken u p with t w o
or three o f the experts o f the Government's W a g e commission
here, s o that i t has b e e n pretty thoroughly overhauled.
Governor Welloorn.
T h e s e questionnaires have not
yet b e e n sent o u t i n Washington, L a v e they?
Dr. Miller. I
out.
think so. I
think they have gone
B u t i f that change i s made, y o u c a n just btamp
that o u t w i t h a
ruobér B t a m p ,
o r paste something e l s e on,
or cover i t b y general instructions.
Governor Biggs.
i f these reach the various officers
they will b e turned loose right away.
( Whereupon, a t six o'clock Pp. m., the conference
adjourned until tomorrow, Thursday, November 20th,
i919,
at 9:30 o'clock a. m.)
se
e K OR O k k K Ok k m
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Federal Reserve Bank of St. Louis
@FedFRASER