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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 T H E
GOVERNORS
O F THE FEDERAL RESERVE B A N K S
ASSEMBLY
ROOM
FEDERAL R E S E R V E B O A R D
METROPOLITAN B A N K BUILDING
WASHINGTON,
NOVEMBER
1 9 , 20 & 21, 1919
RUCIUS M. HULL
¥ . 4 . PECHIN
@.¢, O16 MUKES
M
A
I
D.c.
N 4309
W A L T E R &, COX
R
O
B
E
R
T FP. ROSE
ASSOCIATED SHORTHAND REPORTERS
GUITE 16-29 APPEALS BUILDING
426 FIFTH STREET, N. W.
WASHINGTON, 0. G.
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Federal Reserve Bank of St. Louis
SECOND DAY.
Washington, D . C.,
Thursday, November 20, 1919,
The Conference o f Governors reassembled pursuant t o a d
journment at 10 o'clock A. M., Governor Benjamin Strong,
jr., o f the Federal Reserve Bank o f New York presiding,
PROCEEDINGS,
\
The Chairman, Gentlemen, I want to take up one matter
which is not on the, program, and it has t o do with the re.
lations
o f t h e Federal Reserve B a n k o f N e w York w i t h t h e
Bank o f Japan.
When Baron Megata came t o this country during the wer,
he was exceedingly anxious t o negotiate some kind o f a n
understanding between the Bank o f Japan and the Federal
Reserve B a n k o f New York.
T h a t was favored b y the Federal
Reserve Board a n d t h e State Department, a n d i t finally re-
sulted i n his submitting a proposal t o us for the appointment o f the Bank o f Japan a s o u r correspondent i n Japan
and our appointment i n New York a s t h e correspondent o f the
Bank o f Japan i n New York,
I t was a n understanding simi-
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Federal Reserve Bank of St. Louis
165
lar t o the understanding which w e have with the Bank o f
Italy.
W e h a d n o expectation t h a t immediate business
would result between t h e t w o institutions.
Since t h a t time t h e Japanese banks and, I
think,
the
Japanese Government, h a s a n d still i s accumuleting v e r y
large balances
i n this country.
H o w large those balances
are I do not know, and they have largely been invested i n
the Treasury certificates o f indebtedness.
Iam informed b y the N e w York representative o f the Bank
of Japan, Mr. Hamaoka, that the only investmentsthe Bank
of J a p a n m a k e s
i n this c o u n t r y a r e i n T r e a s u r y b i l l s w h i c h
they buy through the Federal Reserve Bank o f New York. F o r
some r e a s o n , w h i c h w a s n o t d i s c l o s e d
t o me, M r . H a m a o k a , h a s
been rather urgent the past month t o put i n force and t o
make function this relationship between t h e Federal Reserve
Bank o f New York a n d the Bank o f Japan. I
finally told h i m
to submit his proposal i n writing, which h e has done, i n
the f o r m o f this letter:
"SUPERINTINDENT
NE’, Y O R K AGENCY,
B A N K O F JAPAN
120 Broadway, N e w York
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Federal Reserve Bank of St. Louis
166
"November 7, 1919.
Mr. Benjakin Strong, Governor,
Federal Reserve Bank o f New York,
15 N a s s a u Street,
N e w York,
My dear Governor Strong:
As per our yesterday's conversation I beg t o submit
the memorandum concerning t h e arrangement o f our deposit i n
portfolio w i t h y o u r Bank.
T h e m e m o r a n d u m i s informal a n d
provisional, o p e n f o r t h e change o f each other's satisfactLon.
O n this occasion, Mr. Governor, l e t m e repeat that
it would b e a great appreciation o f our Bank a s well a s our
Japanese G o v e r n m e n t
i f y o u a n d t h e directors
o f your esteemed
institution notice t h a t w e are doing this i n view o f furthering our relations closer between t h e t w o institutions.
with p e r s o n a l r e g a r d s ,
Yours v e r y truly,
I,Hamaoka."
The m e m o r a n d u m i s a s follows:
"ARRANGEMENT REGARDING DEPOSIT,
"To make deposit of about $10,000,000 t o $20,000,000
for the present - total amount subject t o change - most o f
which i n portfolio a n d probably part o f which i n current
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Federal Reserve Bank of St. Louis
167
account, according t o the following plan.
14
A r r a n g e m e n t regarding deposit
t o b e mutual
i n
every way.
wes O n e t o have full responsibility i n the favor o f
the other i n operation o f deposit.
43, Bills and securities bought in portfolio to be
turned, w h e n t h e depositing party i s i n need, i n t o cash a t
the purchased price b y the depository o n e even before matur-
ity.
"4, A l l other minor points o f procedure t o be arranged °
from time t o time."
I have d r a f t e d t h e f o l l o w i n g l e t t e r , w h i c h I
propose
to
submit t o the “irectors o f the Bank of New York, but i n the
meantime y o u gentlemen w i l l probably want t o consider i t ,
because i t i s the character o f account i n which y o u m a y want
to participate.
"“FODERAL RESERVE BANK
OF NEN YORK
November 1 3 1 9 1 9 .
My dear Mr, Hamsoka:
Iam
closing a
i n r e c e i p t o f y o u r f a v o r o f t h e 7 t h instant,
en-
memorandum concerning a n arrangement which y o u
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Federal Reserve Bank of St. Louis
168
propose for a n account o f the Bank o f Japan with the Federal
Reserve B a n k o f N e w York.
Your proposal h a s been submitted t o the directors o f
this B a n k a n d they have authorized m e t o advise y o u that
the account will b e accepted upon t h e following basis:
1. T h e terms governing a deposit o f funds o f either
institution w i t h the other t o be mutual a n d identical.
2. N o interest t o be allowed upon the balance i n current account b y either institution.
5. T h e balance i n current account i s t o b e subject t o
withdrawal b y check a t a n y time.
4, T h e Federal Reserve B a n k will, u p o n instructions
from t h e B a n k o f Japan, p u r c h a s e
o f t h a t institution, p r i m e
éligible dollar acceptances o f the kind which the Federal
Reserve B a n k buys f o r i t s o w n account.
as a n d w h e n s o requested,
T h e Bank o f Japan,
w i l l execute similer purchases
of
bills f o r account o f the Federal Reserve B a n k o f New York.
The a m o u n t
o f s u c h purchases w i l l b e c h a r g e d t o t h e c u r r e n t
deposit account o f the institution f o r w h o m they are made,
and the bills held i n portfolio for safe-keeping . Bills
so purchased will b e a t t h e absolute disposal o f the i n stitution f o r w h o s e a c c o u n t t h e p u r c h a s e s a r e made.
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Federal Reserve Bank of St. Louis
169
5. E a c h institution will b e fully responsible t o the
other f o r t h e p a y m e n t
a t m a t u r i t y o f t h e bills
s o purchased.
6, I t i s expected that purchases o f bills b y either
institution f o r the other will b e made a t the current marmet rates,
%. Either institution will purchase from the other
at t h e r a t e o f t h e d a y a t w h i c h i t i s b u y i n g f o r i t s
o w
account bills s o purchased a n d held i n portfolio.
8. F o r the present, t h e amount o f the account t o be
limited t o 20,000,000 i n the case o f either institution,
of which n o t more t h a n four-fifths s h a l l b e invested a n d
Carrie? I ) portfolio,
9. T h e a c c o u n t s h a i l b e f r e e o f charge
o f commission
for either party s o long as i t is limited t o the operations
described h e r é i n .
10. ‘This arrangement t o b e subject t o the cancellation
by either party,
i n whole o r part, e x c e p t a s t o transactions
‘actually i n process, upon receipt o f proper notice b y letter
or cable.
ll. W i t h o u t t h e explicit consent o f both institutions,
no p u b l i c a n n o u n c e m e n t
t o b e made directly o r indirectly
regarding t h e contents o f this agreement,
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Federal Reserve Bank of St. Louis
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The a b o v e a r r a n g e m e n t h a s b e e n s u b m i t t e d
t o and approved
by the Federal Reserve Board a n a c a n b e made operative
at
once.
Permit me, i n behalf o f the directors a n d officers o f
this
Bank,
t o express t o y o u our appreciation o f the establishment
of this valuable relationship, w h i c h w e hope will
promote
a closer understanding between t h e t w o institutions
and be
mutually profitable a n d beneficial.
“ith assurances o f m y esteem,. Ibeg t o renain,
Very truly yours,
Benj. Strong,
Governor,
It, Hamaoka, Esq.,
superintendent,
N e w Y o r k Agency, B a n k o f Japan,
120 Broadway, New York, N. y."
Now you can see the object o f thet.
I t ts simply a n
agreement t o operate o n e f o r the other, a n d f o r t h e present, c e r t a i n l y s o l o n g a s c o n d i t i o n s a r e a s t h e y
are a t
the p r e s e n t t i m e ,
w e would s i m p l y receive s o m e m o n e y f r o m
the Bank o f Japan t o buy bills f o r t h e m exactly
a s w e would
for a
Federal Reserve Bank, except t h a t w e w i l d b e
respon’
sible f o r t h e p a y m e n t
o f those bills
a s w e would expect
be i n the case o f the Bank o f England,
to
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Federal Reserve Bank of St. Louis
sm#8
Governor P a s s m o r e ,
take acceptances
T h e n e w departyre
i s where t h e y
i n addition t o certificates o f indebtedness,
is i t not?
The Chairman.
T h e y a s k u s t o include securities
in
this arrangement, ard, after consideration, i t seems t o me unwise t h a t w e s h o u l d u n d e r t a k e a n y o b l i g a t i o n t o b u y securities o f indebtedness, s e l f - l i q u i d a t i n g bills,
s o t o speak,
such as we buy right along. T h a t i s one thing, b u t inasmuch
as w e d o n o t m a k e a r r a n g e m e n t s
tution o f any kind, I
Bank o f Japan.
edness,
o f t h a t s o r t w i t h a n y insti-
do not think we should a s to the
A s t o the Treasury certificates o f indebt-
w e will b u y t h e m for t h e m i f t h e y w a n t
u s to.
W e
have b e e n d o i n g t h a t r i g h t a l o n g , b u t w e w o u l d e n t e r i n t o
no obligation t o take them off o f their hands,
Governor McDougal.
Y o u are under n o obligation under
the arrangement t o simultaneously start u p business w i t h
them, a r e you?
The Chairman,
N o ,
Governor McDougal.
T h a t i s a matter that c a n b e arranged
at your convenience w h e n necessary,
The Chairman.
ances
Yes.
i n Japan now,
i s that i t ?
W e have n o occasion t o carry bal-
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Federal Reserve Bank of St. Louis
LT2
Governor McDougal.
outI thought t h e plan that was
i t was t o
banker indicated that
Lined t h e r e b y t h e J a p a n e s e
we
working both ways, t h a t
pe simply 4 reciprocal account,
b u t i t dethey would deposit here;
a
n
d
there
deposit
would
d o e s i t not, a s t o whether
pends u p o n current conditions,
or not w e want t o deposit there?
The Chairman.
E n t i r e l y 80.
Governor Fancher.
where i t seems
I f conditions change
i n Japan, i f our trade causes
advisable t o have a n account
sort, there would b e some
balances, a n d things o f that
reason for having the account.
The Chairman.
a n account i n
W e d o not care t o open
advice a s t o the status o f
Japans without V e r y careful
o f gold, f o r instance.
their embargo o n the export
W e
t h e status
yet, b u t t h e y k n o w w h a t
have n o t L o o k e d t h a t u p
is h e r e e '
Governor Fancher.
be
A t the present t i m e i t would
Bank o f New York?
an account w i t h t h e Federal
Governor McDougal.
for them
T t would simply be a n agency
t o a limited extent.
for t h e transaction o f business
The Chairman.
T h a t i s it.
a n y action b y the meetT d o not know that this requires
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Federal Reserve Bank of St. Louis
173
ing, b u t this letter i s prepared anticipating t h e approval
of our directors a n d the poard, a n d i f the arrangement i s
concluded I
would naturally submit i t t o the other Re-
serve B a n k s f o r t h e i r p a r t i c i p a t i o n
a
I f t h e y c a r e d t o par-
a r
Governor Morss. B e f o r e taking u p some o f t h e schedule
matters o n the program, I
discuss a
would like t o suggest t h a t w e
little this question o f placing certificates a t
the rates that Mr. Leffingwell indicated; h o w each Governor
feels about i t with respect t o his o w n district.
l L refer
to the four a n d one-quarter p e r cent certificates
o n the
1st o f December a n d perhaps t h e four a n d one-half certificates a month,
o r s i x weeks o r two months later.
The
quéstion i s what w e have got t o do, from the practical e n d
ofit, t o carry out Mr. Leffingvell's program.
importent c o n s i d e r a t i o n a n d I
I t is an
would l i k e t o k n o w h o w i t
appeals t o the other gentlemen.
The Chairman.
T h e program,
a s I understood i t yes-
terday, i s for the issue o f about $400,000,000 o f four and
one-quarter p e r c e n t c e r t i f i c a t e s ,
t o b e dated December 1 ,
maturing March 15, and later, some time i n December, i f
possible, b u t very shortly after t h e first o f the year i n
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Federal Reserve Bank of St. Louis
174
any event, t h e issue o f a billion a n d a half o f certificates,
=)portion o f w h i c h w o u l d b e a t f o u r a n d o n e - h a l f p e r c e n t
and a
portion a t f o u r a n d t h r e e - q u a r t e r s p e r cent, w i t h
longer maturity o f possibly eighteen months, t w o years,
something l i k e t h a t .
or
T h o s e w o u l d c e r t a i n l y b e i n part
certificates o f indebtedness a n d i n part notes, authorized
under t h e bill under which t h e sale o f Victory Notes w a s
madeé.
Governor Wellborn, h o w d o you feel about t h e sale o f
four a n d o n e - q u a r t e r p e r c e n t c e r t i f i c a t e s
Governor W e l l b o r n . I
upon that.
i n your district?
really h a v e n o d e c i d e d o p i n i o n
T I am i n a quandary about it.
W e felt some time
ago that w e would have s o m e difficulty i n placing them,
but now, since there h a s been s o much liquidation o f cotton,
we believe w e c a n place thei.
The Chairman. G o v e r n o r Passmore, w h a t i s your feeling?
Governor P a s s m o r e .
W
e would have t o sell wholly o n
the advantage t h a t accrues f r o m the deposit, a n d the suggestion was made that t h e deposit promise,
would n o t b e a
promise,
would b e more liberal,
s o t o speax~-it
b u t s a y t h e d e p o s i t expectation.
a s I understood him, t h a n i t has
been i n the past, a n d i n that event I
suppose w e could
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Federal Reserve Bank of St. Louis
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sell o u r allotment t o the larger banks. I
think there i s a
good deal o f resentment among t h e country banks, though, d u e
to existing conditions, I
do not think they would g o into
it i n a n y large w a y without a
Governor ilorss,.
great deal o f pressure,
W h e n these deposits a r e withdrawn,
would y o u not b e liable t o have those p u t i n t o you t o bor.
row with?
W e never have loaned much o n certificates.
The C h a i r m a n .
Y o u never have?
Governor Morss.,
N o sir.
The Chairman. G o v e r n o r iiiller, w h a t i s your feeling?
Governor M i l l e r ,
I a m afraid w e would h a v e g r e a t diffi-
culty, Governor Strong,
around December 1 .
i n selling o u r quota, especially
T h e crops have n o t been disposed o f and
all the banks a r e over-loaned a n d over-borrowed now.
The Chairman. G o v e r n o r McDougal, h o w d o y o u feel?
Governor McDougal.
J I think the rate i s too low. I
be-
lieve w e can sell them, but i f we d o i t will because o f
the banks ! willingness
t o respond patriotically,
tent, t o the requirements o f the Government. I
t o some e x -
think that
if t h e s e b i l l s a r e p u t o u t o n a f o u r a n d o n e - q u a r t e r p e r
cent basis i t is going t o be more difficult for us t o secure a n y further adjustment o f rates finally, because I
believe t h a t when w e sell those w e would have t o loan against
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Federal Reserve Bank of St. Louis
AbaA
S
)
them a t t h e n o w c u r r e n t r a t e .
The Chairman,
G o v e r n o r Young,
h o w d o y o u feel about t h e
sale o f t h e f o u r a n d o n e - q u a r t e r p e r c e n t c e r t i f i c a t e s
i n
your district?
Governor Young. I
district.
believe w e c a n sell o u r quota i n our
T h e depositery feature i s going t o appeal t o some
of the banks, t h e profit i n that feature.
loan some money t o carry t h e sale.
v e will have t o
W e find quite a n in-
guiry through Michigan, Wisconsin and Duluth a t the moment
for t h e p u r c h a s e
o f certificates
and
w e are selling them
in North Dakota, S o u t h Dakota a n d Montana,
there. I
t o the banks o v e r
think those banks o v e r there will purcha s e quite
freely, but through North Dakota, South Dakota and Montana
I do not think w e will sell a great number.
The Chairman.
G o v e r n o r Fancher,
Governor Fancher. I
w h a t i s your opinion?
think w e c a n probably sell o u r quota,
but the certificates w i l l have t o b e sold t o the larger d e positary banks w h i c h will s e e something attractive i n the
deposit feature a n d n o t i n the rate o f t h e certificate, I
think also t h e certificates w i l l probably b e bought more
largely b y the banks t h a t have distributing power a n d that
have a l r e a d y d i s t r i b u t e d a
g o o d m a n y o f t h e certificates;
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Federal Reserve Bank of St. Louis
put I
think i t will require a
The Chairman.
good deal o f effort.
G o v e r n o r Biggs, w h a t i s your opinion
about s e l l i n g t h e f o u r a n d o n e - q u e r t e r p e r c e n t c e r t i f i cates?
Governor Biggs. I
think w e c a n sell a reasonable amount
of them, probably o u r quota.
W e will have some little
difficulty i n getting o u r cotton banks t o take a n y just now.
They will take t h e m after t h e first o f t h e year, b u t not
in December. However, I
believe w e can sell them.
The Chairman. G o v e r n o r V a n Zandt.
Governor V a n Zandt. I
the D e c e m b e r 1
think w e c a n s e l l o u r q u o t a o f
issue, o w i n g t o t h e v e r y g r e a t l i q u i d a t i o n
that w e have h a d i n cotton quite recently.
The Chairman,
G
o
v
e
r
n
o
r Peple,
h o w about t h e
Richmond District.
Deputy Governor Peple. I
difficulty. I
think w e wlll have great
do not believe i t will b e possible f o r us
to s e l l o u r quota,
a n d i f w e h a v e v e r y m u c h t o s a y about
the conservation cof credit u t t h e same time, i t i s going
to b e still more difficult t o make sales,
banks t h a t w e r e d i s p o s e d
when there w a s a
S o m e o f the
t o b u y certificates v e r y f r e e l y
quarter o f profit i n them, o r a half
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Federal Reserve Bank of St. Louis
178
profit, h a v e since signified their entire willingness t o
have u s sell the certificates w h i c h w e now hold.
Governor Morss.
I t comes a t a bad time for us, the
month o f December, because o f other demands o n the banks
at t h a t time, a n d I
am afraid
i t w i l l g o hard, e s p e c i a l l y
four a n d one-quarter p e r cent, because I
think there will
be some f-eling o f resentment t h a t t h e price i s too l o w
under t h e c i r c u m s t a n c e s ,
A
t the same time I
we s h o u l d b e a b l e t o p l a c e o u r quota, b u t I
expect t h a t
should f e a r
that w h e n these deposits w e r e withdrawn t h a t w e might
have quite h e a v y demands o n us.
The Chairman.
D o e s this answer y o u r i n q u i r y , Govern-
or -‘orss, o r would y o u like t o g o ahead a n d have u s discuss t h e J a n u a r y i s s u e ?
Governor M o r s s ,
I t answers
i t v e r y well. I
have n o
opinion about t h e January issue myself a n d would not know
what t o say.
Governor Fancher,
M r . Chairman, m a y w e have your views
in respect t o the sale o f four a n d one-querter c-rtificates
in New York?
The Chairman. ‘Speaking f o r t h e N e w York district, I
think t h e r e s u l t w o u l d b e d e p e n d e n t f o r s u c c e s s u p o n t h e
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Federal Reserve Bank of St. Louis
LT
extent t o which w e would choose t o ask t h e banks a s a patriotic m a t t e r t o t a k e them.
O f course a
good deal d e -
pends upon our policy a s t o the rate o f discount.
The
quota o f the New York district o f a $400,000,000 issue
would b e about $140,000,000,
W e c a n always s e l l $140,000,000
of certificates even i f they are’ not generally taken, b y
going to some o f the larger banks and saying "Take them,"
and they will take them. T h e unfortunate effect o f the issue
}
is t h a t n o t o n l y i n N e w Y o r k b u t e l s e w h e r e t h e p r o f i t
is in
the deposit; i n order t o make a profit t h e 4d eposit must b e
used f o r l o a n s
o n t h e Stock Exchange,
o r some other type o f
loans that carry a profit, a n d unless the loan i s made you
have got to liquidate again.
Governor P a s s m o r e . I
question,
would l i k e t o say,
o n the price
t h a t secondary distribution h e s been rather h a r d
in o u r district,
s o that o u t o f t h e certificates n o w h e l d
from the outstanding issues, amounting t o \.201,000,000 sold
dn our district, t h e banks o n November 24th held only
y82,000,000, a n d I think the amount has been reduced since
that time,
The Chairman,
O f the September issue 6 0 per cent was
taken i n t h e N e w Y o r k district,
a n d t h a t i s o n e c f the
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Federal Reserve Bank of St. Louis
180
reasons w h y there h a s been s u c h a pressure o n New York
Lately.
A
s t h e s e d e p o s i t s a r e w i t h d r a w n t o m a k e payments,
which are scattered a l l over t h e country,
i t i s a draft u p o n
New York, a n d w e feel it.
Gentlemen,
a r e w e ready t o proceed w i t h t h e regular p r o -
gram?
Governor McDougal.
M r . Chairman,
a t the v e r y short meet-
ing w e h a d with the Governors, n e x t t o the last one, a s I
remember i t the committee o n the subject o f Leased Waves
submitted its report, the reportwas received and accepted,
and t h e committee a s k e d t o b e discharged.
Later I
was r e -
minded b y Governor H a r d ' n g t h a t t h e w o r k o f t h a t c o m m i t t e e
would not b e completed until t h e y h a d heard f r o m the Code
Committee,
W e d i d not understand clearly that o u r commit-
tes h a d been given t h e work o f working o u t a code, b u t r e
began t h e work.
T h e committee consisted o f Governor Fancher,
myself a n d some o n e else, whoever i t was, b u t a t a n y rate
we a p p o i n t e d a
sub-committee c o n s i s t i n g
o f & representative
of t h e N e w Y o r k b a n k a n d t h e C h i c a g o a n d C l e v e l a n d b a n k s
to work o u t a plan a n d make a report,
brief
and I
would l i k e
Governor Fancher,
t o submit
T h e report i s very
i t i f this
i s t h e time.
A t the close o f o u r session yester~
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day w e w e r e
i n the midst o f a
with Dr. Miller. I
discussion
o f this q u e s t i o n n a i r e
a m wondering whether thet might n o t b e
taken u p as the first thing this morning.
The Chairman.
I w a s c o m i n g t o that, Governor Fancher.
I do not want t o urge y o u gentlemen i n the direction o f doing
anything against your judgment, b u t I do believe that this
questionnare, i f i t can be handledin such a way a s t o avoid
disturbing the organization o f the Reserve Banks, will produce
some exceedingly valuable information. I
would like t o ask
the meeting i f i t will not be possible t o make such neccssary
changes
i n the f i r s t p a g e o f t h e questionnaire
be submitted after s
a
l
s o that i t c a n
aadjustments
r y
a a r e made this year,
and that t h e information b e made available t o the Reserve
Bank itself, a n d , w h e n t h e b a n k h a s a n a l y z e d i t , i t c a n
then b e sent t o the Bureau o f Research a n d Statistics,
Yhat i s y o u r w i s h a b o u t t h a t ?
Governor Miller. I
offer t h a t a s a
Governor Wellborn. I
motion.
would like t o hear Governor V a n
wandt's suggestion about that.
Governor McDougal.
H i s suggestion i s included i n Gov-
ernor Strong's recommendation, t h a t w e make a
modification
addressing i t t o the Bank instead o f the D e p a r t m e n t o f
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Federal Reserve Bank of St. Louis
Analysis.
Governor Wellborn. I
think w e can s a y t o them that i n
view o f the fact that w e really have charge o f the employes
of the banks, t h a t i t ought t o come through us.
The Chairman,
day's discussion,
I
t i s m y understanding, after yester-
i t i s t h e sense o f the meeting t h a t i t will
be desirable t o take steps t o secure t h e information sent
out i n the f o r m o f a questionnaire a s t o living costs, b u t
the meeting recommends t h a t the following procedure b e
followed:
lL. T h a t t h e questionnatres n o w distributed b e withdrawn ;
2. T h a t a new s e t o f questionnaires b e distributed t o
the clerks i n the twelve Rserve Banks after salary adjustments a r e completed a t the e n d o f this year.
3. T h a t t h e instructions t o the clerks shall provide
that t h e questionnaire b e delivered i n sealed envelopes
to the Governor o f the Bank o r t o such officer a s h e shall
designate;
4, T h a t t h e information contained i n the guestionnaires
be first made availsble t o the officers o f the Reserve
Bank a n d that t h e y shall t h e n b e delivered t o the Federal
‘ptr2o
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Federal Reserve Bank of St. Louis
183
Reserve Board f o r such analyses a n d tabulation e n d s o forth
as will b e prepared b y each Reserve Bank;
5. T h a t t h e q u e s t i o n n a i r e c o v e r t h e p e r i o d o f t h e
year ending Decenber 3 1 next;
6. T h a t t h e questionnaire b e reprinted t o conform t o
the above regulations;
7. T h a t the form o f letter o f instructions addressed t o
the employes w h i c h accompanies t h e questionnaires shall b e
uniform i n all twelye reserve banks.
Governor Fancher. I
move t h e adoption o f those recom.
mendations.
(The motion, having b e e n duly seconded, w a s carried).
The Chairman,
W
e h e d started consideration
o f topic
Nos: 2 0
10: A D M I N I S T R A T I O N PROBLEMS.
It will take a long time t o discuss that matter, a n d
as i t i s o n l y h a l f a n h o u r b e f o r e t h e B o a r d j o i n s u s , I
sug-
gest that w e skip that a moment and take u p topic No. ll.
ll: B R A N C H BANKS.
(a) P u b l i s h e d C o m p a r i s o n s
Inasmuch
o f B r a n c h O p e r a t i o n s a n d Expens:
a s statistics a f f o r d n o o p p o r t u n i t y f o r c o m p a r i s o n un.
less t h e functions a n d operations a r e cumparable should t h a
Bwel
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Federal Reserve Bank of St. Louis
188
not b e subjected t o analysis o r b e discontinued.
The manager o f the Buffalo Branch o f the Federal
Reserve
Bank o f New York informs m e that certain comparisons
that
have b e e n r e c e n t l y m a d e o f methods
o f cost o f operation a r e
not o f p a r t i c u l a r v a l u e t o h i m because t h e y
a r e baseqg u p o n
certain l a c k o f uniformity i n the preparation
o f these figures, a n d h e would like t o see t h e report
f o r basis o f w m .
parison reduced t o uniformity,
I n that connection i t i s
suggested t h a t i t would b e a good p l a n if,
f o r that a n d
other purpose, t h e exchange o f views, a n d
s o on, t h e branch
managers b e permitted t o meet together occasionally
and
discuss t h e i r p r o b l e m s
a s branch managers,
T h e tyvo t o p i c s
(a) a n d (b) really g o together here,
Governor McDougal. I
mend a
conference
indicated here,
move t h a t this conference recom-
o f t h e b r a n c h managers,
f o r t h e purposes
a t s u c h t i m e a s m a y b e a g r e e d upon,
The Chairman.
W o u l d y o u consider
i t advisable t h a t
they should have s u c h meeting without some
representatives
of t h e p a r e n t b a n k ,
or a
Governor McDougal.
committee f r o m t h e G o v e r n o r s ?
M y thought w a s that a t t h e meeting
there s h o u l d b e a n o f f i c i a l r e p r e s e n t a t i v e
o f the Reserve
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Federal Reserve Bank of St. Louis
L188:
Bank a l s o ,
The Chairman.
I t would b e unfortunate t o have t h e branch
managers meet a n d t o crystalize opinions o n matters without
some répresentative o f the head officers o f the banks present.
Governor McDougal. T h e officer who has direct charge
of the branch bank business c o u l d well b e there.
The Chairman.
H o w m a n y o f the Reserve Banks n o w have
branches?
Governor McDougal. E i g h t , I
The Chairman,
think.
I t would r e a l l y m e a n officers f r o m seven
banks a n d managers o f fifteen o r more branches, would i t
not? V i h a t are your wishes o n this matter, gentlemen?
Governor V a n Zandt. I
have a
d o not think i t would b e well t o
meeting o f the b r a n c h b a n k managers without a
ing influence, s a y without a
controll-
committee o f the Governors pres-
ent. T h e r e i s a t e n d e n c y r
o
f them t o feel that they are
independent i n s t i t u t i o n s a n d a
meeting
o f that character
would simply further t h a t belief.
Governor Biggs. T h a t feeling i s increasing i n our district, too, a n d I
think i t would b e a bad move t o have t h e
branch m a n a g e r s g e t t h e f e e l i n g t h a t t h e y e ¢ a
n go out a n d
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Federal Reserve Bank of St. Louis
act i n d e p e n d e n t l y
The Chairman.
i n a n y w a y o f the parent office.
I a m frank t o say, gentlemen, t h a t I was
a little b i t disturbed b y something that occurred while I
was abroad this Sumner. I
understand that a conference o f
transit managers o f the Reserve Banks w a s called b y the
Federal Reserve Board, a n d while I
do not mean t o i n any way
criticise t h e purpose i n having that meeting, w h i c h was, o f
course, admirable,
i t struck m e a s unfortunate t h a t a meet-
ing o f clerks o r employes o f the Bans should b e called b y
the Reserve B o a r d t o discuss a n Important matter a n d t o give
advice o r make recommendations
t o the Federal Reserve Board
which the responsible managers o f the institution might n o t
COncwa': afi«
Unfortunately t h e report o f the transit managers t o the
Reserve Board, a 8 t h e result o f that meeting, contained recommendations w h i c h I would have vigorously opposed.
instance,
o f course,
I n this
w e were notified a s officials o f the
Bank t o attend t h e meeting, w h i c h gave every bank a n opportunity t o control t h e point o f view o f its representative a t
that meeting, b u t I would hope that the Reserve Board would
ane
be willing,
i f they desired t h e views o f the transit mana-
gers o f the Reserve Banks o r the branch managers,
o r the
187
views
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Federal Reserve Bank of St. Louis
o f a n y other experts
i n t h e Banks,
t o recognize t h a t
those views should b e expressed t o the Board through the
responsible h e a d o f t h e Bank.
M
y personal v i e w i s t h a t i f
the operation o f the branches b y the Reserve Banks, w h i c h a r e
now q u i t e extensive,
g i v e r i s e t o problems
organization t h a t n e e d d i s c u s s i o n ,
o f menegement a n d
t h a t t h e Governors
of
the banks should arrange i n some v a y t o get these m e n together a n d c m f e r w i t h them a n d s e e what their difficulties
are a n d g e t t h e m s m o o t h e d o u t ; t h a t I f t h e y require c m n g e s
in the regulntions-or othervise o f the Reserve Board that
the Governors recormend t h a t those changes b e made.
Governor “lellborn,
A
s a
start
i n t h i s movement,
why
would i t not be well t o just confine these conferences t o
the branch e a c h
i n each district, a n d the problems c a n
be t a k e n u p w i t h t h e G o v e r n o r
o f t h e Bank.
I n some d i s t r i c t s
where t h e y have t w o o r more branches i t might b e well for
them t o have a conference each year, a n d then topics can
be discussed b y the manegers, a n d topics also submitted
by the Governor.
The Chairman,
A n d then taken u p withthe Governors!
Conference later?
Gavernor Wellborn,
T a k e n u p with t h e parent b a n k o f
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Federal Reserve Bank of St. Louis
188
their district,
I t might b e well t o have t h e conference a t
the parent bank, I
think that would b e better t h e n t o
let them g o ahead a n d have a conference o f their o m , b e cause I
think controversies might arise that would b e 4ift-
ficult t o settle sometimes.
Governor-Van Zandt.
G o v e r n o r “lellborn's sugeestion
is o n e that w e have followed i n our district, “ T e have
our branch manégers
i n t o confer w i t h u s four times a year,
We have o u r euditors
i n and then t h e branch managers c o m e
in a n d t a l k o v e r t h e i r p r o b l e m s w i t h us, a n d w e g i v e t h e m
our instructions.
B u t that i s a matter o f the inter-
arrangement o f one bank. I
think 1 t would b e well i f r e
were t o have a conference o f the branch managers somewhere
else t h a n i n Fashington a n d let them make a
report t o the
Governors o f the Reserve Banks, a n d t h e Governors! Conferenee c a n t a k e u p t h e i r r e p o r t a n d r e c o m m e n d a t i o n s
a t its
next meeting.
, T h e Chairman,
T h e n there i s another w a y t o get a t
it, Governor Wellborn,
T h e object o f putting t h e i t e m
on the program was t o bring o u t the fact that there a r e
inter-bank problems o f branch management a s well a s problems within each district among i t s branches, w i t r w h i c h
we have t o deal, a n d personally I
see t w o possible courses
1.89
that we might follow. O n e is to ask each branch manager t o
submit t o the Governor o f the bank, before t h e next Govern.
ors! Conference, a list o f branch problems that are inter—
district
i n character w h i c h h e w o u l d l i k e t o h a v e considered,
together w i t h h i s r e c o m m e n d a t i o n s .
ing o f the branch managers.
T h a t would avotd a
meet
T h e other course i s t o follow
Governor V a n Zandt's proposal, w h i c h i s that t h e branch mana-
gers Should have a meeting and submit the report and recom.
mendations t o the Governors t o b e considered a t the Governors!
Conference,
Governor V a n Zandt.
T h a t they have a
meeting s o m e w h e r e
else than i n Vashineton.,
Governor Vellborn. I
think i t would b e well for the mana-
gers o f the branches i n cach district t o make a report t o the
Governor o f each district.
The Chairman.
O f inter-district problems,
w h i c h could
be discussed a t o u r Conference.
Governor Passmore,
A s I understood Governor Harding
yesterday, t h e Idea h e wanted t o promulgate r a s t o bring
about closer uniformity i n the practices i n the various
branch banks.
The Chairman. I
want
t o refer
t o o n e t h i n g t h a t h a s inm-
pressed m e a s a very vital matter, w i t h respect t o which
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Federal Reserve Bank of St. Louis
190
there i s n o u n i f o r m i t y o f practice a m o n g t h e R e s e r v e B a n k s ,
although i t i s not a n inter-district mtter. I
from some things t h a t I
gathered
have been tol3 that i n esses o f
some Reserve Banks t h a t checks drawn upon branches o f Reserve
Banks a r e payable i n two places; t h e y may b e paid either a t
the branch bank o r a t the Federal Reserve Bank. N o w , g e n tlemen, I
think i n the l o n g r u n that i s going t o be found t o
be a very dangerous practice.
I t never h a s been saferuarded
against abuse i n other banking countries, a n d I
do not be-
lieve i t can b e safeguarded here i n the Federal Reserve s y s tem.
Governor McDougal.
I t has always b e e n jiscouraged b y
conservative b a n k e r s .
The Chairman.
I f unlimited right i s given t o t w o places
of payment, t h e d a y i s coming when checks will b e p»vesented
at both places,
s all there i s t o it.
t h a t i
T t m a y not
happen often, b u t i t i s a l m o s t s u r e t o h a p p e n s o m e time.
Those a r e m t t e r s u p o n which a n exchange o f views, I
believe,
would b e o f great value.
Deputy G o v e r n o r P e p l e . I
would l i k e t o say, M r e C h a i r -
Branch o f the
man, t h a t i n the esteblishment o f the Baltimore
thing i n view
Federal Rserve Bank o f Richmond w e had that
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Federal Reserve Bank of St. Louis
191
and distinctly and studiously avoided a n y such possibility.
The Chairman,
N o w w e have three proposals before t h e
meeting: o n e i s t o have n o such meeting o f the branch managers; t h e other i s t o have it; a n d t h e third i s t o have
certain questions submitted t o the Governors f o r discussion.
"ill some o n e make a motion?
Governor ‘lellborn. I
would recommend t h a t t h e sugeestion
made b y yourself, w h i c h I believe i s a solution o f iJt-for
the present,
a t any rate, b e adopted.
Governor V a n Zandt. I
The Chairman.
will second that.
T h e motion i s that before t h e next Govern-
ors! Conference the managers o f each of the branches b e asked
to submit a List o f inter-district questions affecting t h e
o f operaoperation o f the branches and matters o f uniformity
tion,
t o the Governors
o f their respective F e d e r a l Reserve
Banks, together w i t h r eammendations
o n those subjects,
to
be considered b y the Governors a t their next regular confer~ence.
Is there a n y discussion o f that?
Governor V a n Zandt. I
second that.
i t be possiDeputy Governor Peple. M r . Chairman, would
andj work out 3)
ble t o get those recommendations together
192
pwegd
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Federal Reserve Bank of St. Louis
limited n u m b e r
o f topics
t o b e discussed
i n preference
to
all o f u s coming here w i t h our recommendations: a n ? t h e n try4
ing t o boild them down aftervards?
The Chairman.
T h a t is a
matter o f m a k i n g u p t h e program,
18 1 b tote
Deputy Governor Peple.
The Chairmen.
Y e s s
L e t me suggest that these recommendations
be sent t o Governor Fancher, w h o has h a d considerable experience i n branch bank operation, a n d that h e b e instructed t o
prepare & @ program based u p o n those matters submitted.
Would that amendment t o the resolution
meet with your approval, Governor ‘Wellborn?
Governor Wellborn.
Governor Van Zondt.
Yes.
T I will accept that.
(The motion, having been duly seconded, was carried.)
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Federal Reserve Bank of St. Louis
oe
12, U . S&S. TREASURER'S ACCOUNT.
1
9
3
(a) C a n more prompt a n d dependable verifications a n d
reconcilements b e obtained?
The Chairman.
T h e next question; N o . 1 2 ,
Treasurer's account. I
a v e
S y
think that w e are also respon-
sible for that, a n d I would like t o read a memorandum
onthat subject submitted by the officers of the bank.
This i s submitted b y our h e a d auditor a n d head accountant.
"Can more prompt and dependable verifications a n d
reconcilements b e obtained?"
That is, o f the United States Treasurer's account.
Now, t h e Auditor brings o u t t h e following points;
First, a s t o promptness; " F o r m e r l y verifications o r
reconcilements w e r e f r o m four t o six weekslate,
are o n l y f r o m e i g h t
N o w they
t o t e n days iste,”
He h a s n o r e c o m m e n d a t i o n s
t o make
o n the s u b j e c t
of
promptness, w h i c h h e says i s satisfactory.
Dependability.
A
pered i n letter f o r m .
t present, reconcilements a r e preH i s recommendation
i s that a t
our bank w e would prefer a standard reconcilement form
with proved figures, instead o f having a bare statement
194
of reconcilements.
H e h a s prepared a n d submits a
sample
form for reconcilements.
Now, a s t o dependability, a l s o t h e Treasurer reinstates
figures after reconcilement. I
do not know whether y o u are
aware o f the detail e s t o the w a y this operates.
T h e au-
ditor o f each Reserve B a n k should receive advice o f such
reinstatements a n d a balanced reconcilement giving t h e
figures would show that u p better, o f course.
Now, a s t o coklections,
w e a r e not permitted t o charge
the Treasurer o f the United States o n our books e v e n t o
correct o u r
o m duplications.
T h e s e duplications o c c u r
quite frequently i n connection with expenses o f examinations o f National banks, a n d o u r people think that s u c h restriction. s h o u l d b e removed.
Now,
a s t o returned items deposited
internal revenue,
b y collectors
of
w e a r e a t present required t o h o l d these
items i n suspense until t h e collectors s e e f i t t o adjust.
_ Those w e should b e permitted t o charge back a t once.
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Federal Reserve Bank of St. Louis
Governor V a n Zandt. I
that w e charge t h e m back.
might s a y i n t h a t c o n n e c t i o n
w e charge t h e m right b a c k t o
the Treasurer's account, a n d then let them fight i t out
with t h e t n t e r n a l r e v e n u e a c c o u n t .
195
The Chairman.
A n "informality slip" now accompanies
each item which i s charged back b y the Treasurer o f the
United States; t h a t is, a s t o Treasury warrants returned
after payment.
O u r people recommend that a returned
item letter b e sent with each l o t describing each item,
and that "informality slip" b e eliminated.
I would like t o suggest o n this general topic that a
certain amount o f policy i s required i n detail o f the
account o f the United States Treasurer, a n d that i t might
be well for u s t o ask a committee o f the conference o f
certain o f t h e R e s e r v e B a n k s
o r o f t h e avditors,
s a y two,--
I do not think more t h a n t w o would b e required--to make
a study o f that a n d come over t o Washington a n d meet the
proper m e n i n the Treasury a n d s e e i f w e cannot w o r k o u t
a little improvement i n the system. I
have spoken t o Mr,
Leffingwell about it, a n d h e thought i t would b é v e r y helpful t o the Treasury,
Governor Fancher,
H o w large a
committee would y o u
Suggest?
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Federal Reserve Bank of St. Louis
The Chairman.
iir, Fancher. I
Two.
would s o move, t h a t the Chairman b e
authorized t o appoint s u d a
committee.
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Federal Reserve Bank of St. Louis
Deputy Governor Peple,
Lo
2 , second 14, ¢
(The motion was p u t b y the Chairman a n d carried unani-
mously, )
the Onelomen,
L o w i t e r e t h a liberty,
i f I may, o f
requesting Governor MeDougal t o select a man from his bank
and I will select o n e from our bank,
o n the theory that
we p r o b a b l y p a y m o r e G o v e r n m e n t c h e c k s a n d handle m o r e
Government transactions o f that sort than a n y other
Reserve Banks, a n d i f Governor McDougal will b e good enough
to report
t o m e a t N e w Y o r k t h e n a m e o f t h e ste Ses aa o o
a
make arrangemenvs f o r the meeting.
Governor Fancher.
is i t proper,
I n that connection, i r , Chairman,
o r are y o u t o consider séparately here
the q u e s t i o n o f o b t a i n i n g duplicates,
t h e procedure
which i s laid down b y the Treasury Department about
getting duplicates f o r lost checks?
The Chairman.
W o u l d y o u submit t h e t t o b e t a k e n
up?
Governor Fancher, Y e s . I
Governor McDougal.
Mr. Fancher,
program,
should like t o have that.
T h a t . i s o n t h e p r o g r a m here,
a t some place, I
thought i t was o n the
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Federal Reserve Bank of St. Louis
197
Governor Fancher. I
did n o t think i t was. I
like t o h a v e t h e t c o m m i t t e e
t o attempt
should
t o work o u t some
simple p r o c e d u r e h e r e o f a d j u s t i n g t h e m a t t e r o f r e t u r n e d
items, loss items, between t h e Federal Reserve Banks a m
the D e p a r t m e n t h e r e ,
W
e a r e i n controversy
a t t h e pres-
ent time over seven items, which were checks f o r interest o n registered bonds.
T h e owners o f the bonds g o t
their m o n e y ,
question o f t h e l o s s o f checks
and it is a
in transit between Cleveland a n d Washington, a n d I
do
not see h o w i t would b e possible f o r t h e checks t o have
been lost i n our office, b y reason o f their location
among the items which were found, i n the letter. T h e r e
were seven items reported missing, a n d the form of bond
has b e e n s e n t t o u s t o b e e x e c u t e d
b y o u r Board, w h i c h I
recommended t o our Board that t h e y d o not execute.
The
amount i s very small, b u t i t stands a s a difference i n
the account, a n d i t has stood for sone months.
The Chairman.
W e l l , Governor Fancher,
m y I
suggest
that i f a resolution w e r e offered asking t h e Federal R e serve Board t o communicate w i t h e a c h Federal Reserve
Bank, requesting that a l l questions i n dispute a n d difficulties t h a t n o w e x i s t b e t w e e n t h e R e s e r v e B a n k s a n d
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Federal Reserve Bank of St. Louis
198
the Treasurer o f the United States a s t o the handling o f
the detail o f the Treasurer's account b e submitted t o
this committee f o r discussion with t h e Treasurer, t h a t w e
would h a v e a l l o f t h e s e q u e s t i o n s c o n s i d e r e d .
Governor Fancher.
done.
T h a t i s what I
would like t o see
I n other words, Mr. Chairman, t h e r e i s a large va-
riety o f questions t o b e taken i n t o consideration a t that
time.
I t i s a matter o f Treasury Department policy.
fhe Treasury Department makes mistakes like the' rest o f us,
they h a v e a
practice o f making mistakes a n d declaring t h a t
it does n o t make a n y difference.
W e have h a d the exper-
dence, a n d I presume t h e other banks have h a d the s a m e
experience,
o f having t h e Treasury Department report papers
as lost a n d insisting that t h e y are lost, a n d afterwards,
without admitting that they had been lost, o f finding
them.
The Chairman.
T h a t happened w i t h u s with a n item o f
«10,000,000, W e l l , does the resolution cover that
point?
Governor Fancher. I
think i t does, y o u r resolution,
but I was o n l y suggesting t h a t the committee selected
should b e '.. o n e clothed w i t h authority a n d qualified
to discuss m o r e t h i n g s t h a n accounting.
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199
The Chairman. W e l l , the topic was simply the
detailed management o f the accounts, a n d we would suggest a man representing t h e b a n k i n New York,who would
be much more competent t o discuss a l l o f these m t t e r s
than I would, certainly.
Governor McDougal.
T h e Auditor o r one o f his repre-
sentatives.
Governor Calkins.
have indicated,
M
y suggestion w a s that, a s [I
t h i s c o m m i t t e e w a s n o t s i m p l y t o discuss
accounting questions.
The Chairman,
H a v e y o u a n y further suggestions
to
make, Governor Calkine?
Governor Calkins.
N o sir.
Governor M c D o u g a l , I
nave a
further suggestion
to
offer, a n d that i s that, i n view o f the fact that, f o r
instance, t h e Cleveland bank's difficulties involved
some v e r y i m p o r t a n t g u e s t i o n s ,
w h i c h have n o t yet af-
fected our bank, that, we might make that a committee o f
three,
I t i s t o b e a n important committee, a n d m y sug-
gestion i s that we include a representative from the
Cleveland bank o n that committee.
The C h a i r m a n ,
I s that motion seconded?
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Federal Reserve Bank of St. Louis
Deputy G o v e r n o r Peple,.
The Chairman,
I s e c o n d it.
I s there a n y discussion?
(The m o t i o n w a s p u t a n d u n a n i m o u s l y carried).
The Chairman.
nominate a
T h e n , Governor Fancher,
y o u will a l s o
man?
Governor Fancher.
The Chairman.
A l l right.
N o w , a s t o the suggestion I
requesting t h e F e d e r a l R e s e r v e B o a r d t o s
made about
end out a
letter
to a l l t h e R e s e r v e B a n k s , w h a t i s y o u r p l e a s u r e a b o u t
that?
D
Deputy G o v e r n o r P e p l e .
o y o u want t h a t i n the f o r m
of a motion?
The Chairman. I
think so.
Deputy Governor Peple. I
Governor McDougal. I
The C h a i r m a n .
make that motion.
second it.
T h e motion
i s that t h e Federal Reserve
letter t o t h e Governor
of
each F e d e r a l R e s e r v e B a n k a s k i n g t h a t 4 1 1 questions
of
Board b e r e q u e s t e d
t o send a
practice i n the handling o f t h e account o f the Treasurer
of the United States, which are causing difficulty, shall b e
submitofl!
t o the committee o f accountants o r auditors
now appointed f r o m the Chicago, Cleveland a n d N e w York
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Federal Reserve Bank of St. Louis
201
Federal Reserve Banks-zthese questions t o b e addressed t o
the F e d e r a l R e s e r v e B a n k o f N e w York, I
Deputy G o v e r n o r Peple.
suppose?
Yes.
13. D E S I R A B I L I T Y O F AFTERNOON SETTLEMENT THROUGH G O L D
SETTLEMENT F U N D A T WASHINGTON F O R EASTERN
FEDERAL RESERVE BANKS. (Suggested b y Federal
Reserve B o a r d , )
T o p i c No. 13, desirability o f afternoon
The Chairman,
settlement through gold settlement f u n d a t Washington f o r
Eastern Federal Reserve Banks.
T h i s w a s suggested b y the
Federal Reserve Board, a n d w e were asked t o have Mr, JacobSon present.
Suppose
w e pass t h a t until w e c a n send f o r
him.
Governor P a s s m o r e . -
M r . Emerson w a s t h e w a n w h o spoke
of i t here.
14. ABSORPTION O F EXPENSE B Y FEDERAL RESERVE BANKS.
(a)
expense
H o w f a r c a n Federal Reserve B a n k s
o f collecting checks
g o i n absorbing
o n non-member non-par remitting
banks ?
The Chairman.
N o . 14. A b s o r p t i o n o f expense b y Fed-
6éral R e s e r v e B a n k s :
(a) H o w far can Federal Reserve Banks g o i n absorbing
expense o f collecting checks o n non-member non-par remitting banks?
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Federal Reserve Bank of St. Louis
2082
Governor Wellborn. I
suggested. I
believe t h e t was m y topic, t h a t I
submitted t h a t some time ago, before w e h a d
gone a s f a r a s w e h a v e i n m a k i n g t h e s e c o l l e c t i o n s .
I t
seems t h a t w e have the approval o f the Board t o g o almost
to the limit i n making these collections.
D a l l a s i s trying
it out more extensively than a n y o f the banks,
i n our
section, a n d w e are waiting t o s e e what results t h e y obtain, a n d w e p r o p o s e
t o have a
meeting i n our b a n k e a r l y i n
December a n d also p u t i n a very vigorous campatgen, a n d w e
Will s p e n d w h a t e v e r m o n e y i s n e c e s s a r y t o o b t a i n p a r c o l -
lections,.
W e are going after t h e m hammer a n d tongs.
The Chairman.
I s your question answered by the Board's
attitude n o w ?
Governor W e l l b o r n .
v e c , 5
thimk i t i s p r a c t i c a i l y
answered.
The Chairman.
W o u l d y o u like t o have a discussion o f
it. here?
Governor Wellborn, ‘ W h y , i t i s just witn y o u gentlemen.
I think t h e y a r e a l l v e r y m u c h i n t e r e s t e d
i n the p a r plans.
That i s o n e thing that w e have g o t t o clean out.
Governor Passmore,
T h e r e i s n o limit o f expense, e x -
cept t h a t y o u m u s t n o t p a y exchange.
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Federal Reserve Bank of St. Louis
Governor Wellborn. I
205
mean the expense i n collecting
these checks, either b y employing salaried m e n o r employing men i n the localities themselves t o make these collections.
The Chairman, W o u l d . y o u like some action o n this,
Governor Wellborn?
Governor Wellborn.
V e l l , no, I
hardly think i t i s nec~
essary t o have a n y action,
The Chairman:
14. (b)
I t might c o m e u p under
I n view o f large earnings o f Federal Reserve
Banks, w o u l d i t n o t b e w e l l
t o furnish postage a n d p a y a l l
‘express a n d p o s t a g e c h a r g e s f o r m e m b e r banks, c o v e r i n g
their t r a n s a c t i o n s w i t h F e d e r a l R e s e r v e B a n k s ?
Governor Wellborn.
suggested b y me. I
T h a t w a s another topic o f mine,
suggested that topic just simply as a
help t o t h e m e m b e r b a n k s .
T h e r e a r e enormous p r o f i t s ,
es
you all know, a n d there i s n o w a y o f giving t h e m b u t the
6 per cent, a n d I
think w e o u g h t t o e x t e n d t o t h e m e v e r y
helpwe c a n i n a legitimate way.
W e d o furnish the post-
age t o non-member banks i n remitting, a n d I
we c a n n o t f u r n i s h t h e b a n k s w i t h p o s t a g e
do not s e e w h y
o n all their trans-
actions w i t h us, b o t h postage a n d express charges.
I t
seems t o m e that i t would b e a very reasonable thing t o d o
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Federal Reserve Bank of St. Louis
204
for them, a n d I know t h a t i t would b e very much appreciated
by them. I
got u p that topic, a n d i n discussing the mtter
with o u r Class A
Director, w h o lives i n Atlanta, M r . Ottley,
of the Fourth National Bank, h e thinks b y all means w e
should d o something o f that kind f o r o u r members.
Governor Morss,
W o u l d t h a t include bonds s e n t f o r reg-
istration a n d exchange, a n d a l l o f that sort o f thing?
Governor Wellborn. Y e s , e v e r y t h i n g e
h
t bank sends in,
Governor McDougal.
I t can be charred t o the Treasury
Department.
Governor Wellborn, I
of their banks.
transfers now. I
mean t h e e x p e n s e t h a t c o m e s o u t
O f course, w e give t h e m free telegraphic
think this, i f we give benefits i n a
matter l i k e this, i t would b e temporary, a n d i f w e desired
to change later,
The Chairman.
w e could c u t i t off.
I t i s pretty hard t o cut a thing like
thet -orrs
Governor Wellborn., I
would not think so, Governor.
These a r e abnormal times, a n d t h e things t h a t w e d o now
will a l l b e changed later on. I
think there will b e a
complete reorganization o f the Federal Reserve system
when w e get down t o normal times, a n d probably a good many
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Federal Reserve Bank of St. Louis
205
hope i t w o n t b e a s l o n g a s Dr. M i l l e r
branches c u t off. I
stated yesterday, fifteen years.
H e predicted a
little t o o
far ahead.
The Chairman. Governor Wellborn, i t seems desirable, i n
order t o get a n expression o f view o n this matter,
t o sub-
mit some s o r t o f a resolution t o vote on.
Governor Wellborn. I
put that topic i n the shape o f a
motion,
think i t i s undesirable t o have
Governor Calkins. I
resolutions
o n that matter,
The Chairman.
W
Governor Calkins.
o r o n the preceding one.
e have n o n e o n the preceding one.
N o , i t i s largely a m t t e r o f dis-
cretion w i t h t h e F e d e r a l HKeserve Banks,
tion i s not limited a t the present time.
a n d their discre-
I t seems t o r e
any hard and fast rule i s very undesirable.
Governor Yellborn.,
T h a t i s t h e v e r y question. I
do
not think i t i s a matter o f discretion w i t h each o f the
Federal Reserve Banks.
I f that were a fact, I
would
not bring t h e matter up,
The Chairman.
G o v e r n o r Calkins,
y o u would n o t think
it wise t o have t h e Federal Keserve B a n k o f atlanta t o
pay a l l postage, e x p r e s s a n d o t h e r c h a r g e s
o f like char-
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Federal Reserve Bank of St. Louis
206
acter f o r its members, a n d not have t h e others d o it?
Governor Calkins.
N o t cuite a s wide o p e n a s that.
The Chairman. B e c a u s e there would certainly b e a great
inequality o f service a n d benefit o f the different districts
i f that were permitted
Governor Wellborn. I
t o develop.
a m submitting this question a s a
practical question a n d o n e a s a favor t o our menber banks,
to c o n t r i b u t e
t o t h e e n o r m o u s p r o f i t s t h a t w e a r e making.
The Chairman. G o v e r n o r Wellborm has submitted a
resolution t o the effect, a s I
understand it, t h a t t h e
Reserve B a n k s s h o u l d n o w f u r n i s h p o s t a g e a n d p a y a l l
express a n d p o s t a g e c h a r g e s f o r t h e i r m e m b e r b a n k s c o v e r -
ing their transactions w i t h their Reserve Banks.
Governor Vellborn.
N o w , a s y o u know, t h e r e i s more
or less t a l k among member banks a l l the time about getting interest o n the deposits.
O f course, w e cannot d o
enatcevan T h a t w o u l d b e d e s t r u c t i v e
o f t h e Federal R e s e r v e
system, b u t w e c a n d o little things l i k e this, a n d l
think i t would b e a great help t o the member banks.
as G o v e r n o r s a r e r e p r e s e n t a t i v e s
o f t h e banks.
W e
w e are
selected b y t h e Directors, a n d I think i t i s our d u t y
to o c c a s i o n a l l y l o o k o u t f o r t h e m e m b e r b a n k s ' i n t e r -
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Federal Reserve Bank of St. Louis
ests.
2
9
Governor V a n Zandt.
M r , Chairman, I
7
would like t o
offer a substitute.
The Chairman.
W a s Governor Wellborn's motion second-
ed? G o v e r n o r wellborn, t h e mantle o f Governor Wells,
formerly o f Dallas, h a s fallen upon your shoulders.
Governor Wellborn, I
have n o t e v e n g o t a second.
The Chairman. G o v e r n o r VanZandt, w h a t i s your substitute r e s o l u t i o n ?
Governor VanZandt.
T h a t i t 1 s the sense o f this meeting
that i t i s not yet the proper time t o consider t h e furnishing o f further facilities t o the banks i n the matter
of paying charges outside o f those that have already been
instructed b y the Federal Reserve Board.
Governor McDougal. I
move, i f i t is i n order, that
no action b e taken,
The Chairman.
W e have got a motion,
Governor McDougal. I
think that this m t t e r does n o t
require a n y action,
The Chairman. w e l l , w e will have t o dispose o f Governor VanZandat ‘s motion, .
Governor VanZandt. I
will withdraw it, a s I did not
get a second.
The Chairman,
I t was not seconded, w a s i t ?
Governor VanZandt,
No.
Governor McDougal. I
move t h a t the matter b e passed with-
out a n y action.
Governor Calkins. I
The Chairman.
second t h e motion.
A n y remarks?
Governor Passmore.
L e t u s discuss that.
I s i t the
uniform practice i n all "ederal Reserve Districts t o pay
expressage O
N currency, b o t h incoming a n d outgoing?
I t is
general, isn't it?
The C h a i r m a n . .
s
e
Y
Deputy G o v e r n o r P e p l e .
W e d o n o t p a y i t t o non-member
banks, W h e r e the member bankeorders currency direct to a
non-member bank, w e charge t h e bank for it.
The Chairman.
T h e motion i s that n o formal action b e
taken o n this topic, No. 14-b,
Governor Young.
Banks
I s i t tho practice o f Federal Reserve
t o furnish member banks postage f o r remittances s e n t
to them?
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Federal Reserve Bank of St. Louis
A n y further discussion?
W e are doing it,
Governor F a n c h e r .
Governor W e l l b o r n ,
W e a r e not.
Y o u m e a n t o member b a n k s ?
Governor Young. Yes.
Governor Yellborn.,
2
0
9
I n all their correspondence w i t h
you?
Deputy Governor Peple,
Governor wellborn,
Governor Young.
h e d o not.
i e d o not.
W h y shouldn't you?
Governor Wellborn. I
Governor Young.
do not s e e a n y objection t o it.
Y o u should give a s much t o a member a s
to @ non-member bank.
Governor Fancher.
the letter f o r a
H o w c a n y o u differentiate between
remittance a n d a letter f o r a
general correspondence?
Governor Young,
loan, o r
W h e r e d o y o u draw t h e line?
I f they enclose two letters i n one
envelope, t h a t i s their business a n d not mine.
Deputy G o v e r n o r P e p l e ,
W h e n w e s e n d i t e m s t o non.
member b a n k s f o r remittance,
w e enclose a
stamped envel-
ope f o r t h e remittance check, T h a t i s a s far a s w e go.
Governor Young.
I f they send double correspondence
back i n that envelope, y o u d o not object t o it?
Deputy Governor Peple.
Governor Young.
A n d y o u ought t o d o the same f o r a member
bank, I should think.
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Federal Reserve Bank of St. Louis
N o t a t all.
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Federal Reserve Bank of St. Louis
210
Deputy Governor Peple.
B u t y o u have t h e problem o f a n
account--sometimes t h e postage o n a member bank's incoming
letter i s a dollar o t two, i t i s a varying amount.
Governor Young.
W e have a peculiar condition i n that
respect.
w
e d o not have t h a t because t h e y usually s e n d
us d r a f t s
o n t h e T w i n C i t y banks.
Deputy G o v e r n o r P e p l e .
W e have a
great d e a l o f r e c i p r o c a l
work, n o t a s much a s w e would like, b u t a great m a n y very
bulky letters, a
good many items c o m e i n for: discount, a n d
collateral i s sent b y registered mail, insured.
Governor Young. I
am not referring t o collateral f o r
the moment.
Deputy Governor Peple.
N o , b u t where Wwe would under-
take t o pay incoming postage, w e would have t o very carefully differentiate,
Governor Calkins.
H e Jjid differentiate.
H e said
postage o n incoming letters.
Deputy G o v e r n o r P e p l e .
keeping c h e c k o n t h e banks,
B u t I
mean t h e p r o b l e m o f
t o see that they d o nov
send y o u postage bills f o r a larger amount than w e have
agreed t o pay.
The Chairman, G e n t l e m e n , m a y I interrupt y o u t o
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Federal Reserve Bank of St. Louis
iSdice
say that w e have a motion, w h i c h i s that w e shall not
take a n y action o n this matter, a n a s o far a s this disi t i s simply exchanging views a s t o
cussion i s concerned,
present practices.
Deputy G o v e r n o r P e p l e .
The Chairman.
Exactly.
S h o u l d n o t w e a c t upon t h a t motion?
Governor Wellborn.
B e f o r e t h e motion i s put, I
should
like t o state that Governor Young acknowledges t h a t his
bank i s already doing that.
T o the same extent, I suppose
it will b e perfectly proper f o r o u r bank t o d o the same.
The Chairmen.
I s there further discussion.
(The motion, having been duly seconded, W a s carried).
15. F E D E R A L RESERVE BANKS A S FISCAL AGENTS:
(a) F u t u r e activities o f Federal Reserve Banks a s fiscal agents o f the Treasury Department.
The Chairman.
T o p i c No. 15, Future activities o f
Federal Reserve Banks a s fiscal agents o f the Treasury Department, s u g g e s t e d
b y Governor V a n Zandt.
Goyernor V a n Zandt,
T h a t w a s p u t o n LAere m o r e in. vie
nature o f a n inquiry t o find out what the Federal Reserve
Board h a d i n mind i n the w a y o f transferring further
functions f r o m the Treasury Department t o the Federal R e -
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Federal Reserve Bank of St. Louis
serve Banks,
e
The Chairman, I
l
e
would like t o s a y a few words about
that, i f I may,Governor V a n Zandt.
Governor V a n Zandt. I
will b e v e r y g l a d t o h a v e y o u
ao 8 0 ,
The Chairman, A
committee h a s b e e n appointed,
includes r e p r e s e n t a t i v e s
which
o f t h e Treasury Department a n d
f the Federal Reserve Board, a n d possibly others, t o make
an @€xamination o f t h e a c t i v i t i e s
o f t h e Treasury Depart-
ment that a r e conducted a t the sub-treasuries, a n d prepare a bill,
a s y o u know, f o r t h e transfer o f the sub-
Treasury functions t o the Reserve Banks.
Governor V a n Zandt. Y e s .
The Chairman.
T h e a t bill h a s b e e n prepared a n d w e
have examined i t a t the bank a t New York, a n d made quite
a number o f suggestions
i n regard t o its form, b u t behind
it all i s this question which h a s already come u p i n connection w i t h a n o t h e r t o p i c t h a t w e h a v e b e e n discussing,
and i t has
c n a
U s a bit i n New York.
As y o u know, t h e general attitude o f the United States
is that i t assumes n o liability a s a government t o anyboay e x c e p t b y A c t o f Congress;
t h a t i t cannot b e held
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Federal Reserve Bank of St. Louis
213
guilty for laches a n d torts, a n d all sorts o f damaging
acts b y i t s agents,
b u t recovery a s a
rule i s against t h e
agent o r the agent's bondsman, whether i t i s the Assist-
ant Treasurer o f the United States o r a customs official,
or any official o f the Government.
Now, w h e n the Reserve Banks assume t h e duties a n d r e sponsibilities o f fiscal agents o f the Government, t h e y
are responsible fiscal agents, because t h e y have their
o pay claims f o r damown funds a n d income o u t o f w h i c h t
ages which may arise through neglect o r other acts o f
the agent, but the fund out o f which those damages are
payable i s « fund which would otherwise g o t o the United
States.
i n t h e f o r m o f ‘a tax. T h e r e f o r e ,
a n y iiability
which m a y arise a s t o a fiscal agent becomes payable really
out o f the Government's revenues,
i f i t i s enforced,
and i t raised this question, whether t h e whole s cheme b y
which the earnings o f the Reserve Banks are dealt with i s
not i n a measure wrong, certainly proviced the Reserve
Banks become active a n d complete fiscal agents o f the
Treasury.
F o r instance, suppose this were done: i n s t e a d
of having 9 0 per cent surplus earnings g o t o the Government a n d 1 0 p e r c e n t a d d e d t o t h e surplus
o f the Reserve
bwee
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Banks, s u p p o s e a
percentage
o f 60, 7 5 o r 8 0 p e r c e n t o f
the net earnings, after payment o f the 6 per cent dividend, w e n t t o the Government a s a tax, a n d the balance,
40 o r < 0 per cent, say, o f the net earnings w a s placed
absolutely a t t h e disposal o f the Directors o f the Bank,
out o f which losses m u s t b e paid, i f a n y are incurred,
and i f none a r e incurred, o u t o f which extra dividends
might b e paid t o the stockholiers o f the bank.
is created a
T h e n there
fund which m a y b e penalized i n the event o f
bad management b y a Reserve Bank, a n d t h e effect o f the
penalty,
t h a t is, t h e reduction
i n that f u n d o f n e t earn-
ings which could otherwise b e paid i n dividends, would
be t o make enone stockholder interested i n seeing that t h e
bank w a s w e l l r u n a n d s h o u l d n o t i n c u r l o s s e s a n d penal-
ties b y neglect o r bad management o f a n y kind.
I a m not sure whether t h a t suggestion i s a wise o n e
in the case o f the Reserve Banks,
T h e object o f it, a s
you see, would b e t o place u p o n t h e management o f the
bank a responsibility t o the stockholders w h i c h does n o t
exist now, e n d w h i c h c a n n o t b e m a d e t o e x i s t e x c e p t
there i s a fund which m a y b e reduced a s the result o f unwise management, a n d will consequently subject t h e manage-
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ment t o t h e c r i t i c i s m o f t h e i r stockholders,
w h i c h i s the
case with every other corporation t h a t I know of.
Now, there i s certainly this feature,
a t least,
i n such
a proposal, t h a t t h e minute t h e stockholders o f the bank
become interested i n profits beyond t h e limited dividend
now allowed, there arises that incentive t o make money i n
the Federal Reserve Bank, which is an undesirable incent-~
ive t o inspire t h e management o f a Reserve B a n k with, b u t
as between t h e Reserve B a n k a n d the Government i t seems t o
me that i t would b e a most unfortunate situation that i n
the event o f loss b y a fiscal agent, t h e penalty o f the
loss willy-nilly will fall upon t h e Government, because i t
is p a i d o u t o f t h e f u n d w h i c h w o u l d o t h e r w i s e
g o t o the
Government a s a tax,
That i s just something t o think about i n connection
with the subject o f fiscal agent functions, Governor V a n
Zandt.
Now, t h e undoubted expectation o f the Treasury Depart-
ment and o f the Reserve Board, a s I gather from the work
of this committee, i s that, i n course o f time, there will
be turned over t o the Reserve Banks a l l t h e functions n o w
performed b y the Assistant Treasurers o f the United States,
with the exception o f the handling o f the so-called trust
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Federal Reserve Bank of St. Louis
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funds,
a n d t h a t m e a n s m a k i n g p r o v i s i o n f o r a n enlarged
staff,
a n d f o r s o m e functions n o t n o w performed
b y the Re-
serve Banks.
Governor Miller,
W h a t a r e those trust funds, Governor
Strong?
T h e y are principally t h e f u n d o f gold
The Chairman.
that i s held behind t h e gold certificates, a n d t h e fund
of silver that i s held behind t h e silver certificates,
the fund o f gold ¢153,000,000 h e l d behind t h e United States
notes, commonly known a s greenbacks, a n d the redemption
trust f u n d f o r t h e r e d e m p t i o n
fund, w h i c h i s a
o f all forms
of currency.
Governor Morss.
The Chairman,
H o w sbout t h e gold settlement fund?
T h a t i s a trust fund a s well.
Governor Calkins. T h e proposn].I believe,
those f u n c t i o n s
agents,
t o the Federal
Reserve Banks
i s t o hand
notas
fiscal
I n other words, t h e Federal Reserve Banks will
not b e p e r m i t t e d
t o charge
t o t h e T r e a s u r y Department,
as they n o w charge t o the Treasury Department, t h e cost
of operation o f those departments.
The Chairman.
That I
I s that correct?
understand t o be t h e expecta-
tion, b u t i t w o u l d b e t h e c o s t o f o p e r a t i n g t h o s e f u n c t -
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ions o f A s s i s t a n t T r e a s u r e r s w h i c h a r e n o w c o n d u c t e d
at
Sub-Treasuries, b u t not necessarily t h e functions which w e
now exercise a s fiscal agents i n connection with the public debt.
B u t w e would b e expected t o pay all o f the e x o f t h e banks,
penses a d d e d t o t h e g e n e r a l e x p e n s e
over the. business
b y taking
o f t h e A s s i s t a n t Treasurers.
Governor P a s s m o r e .
H o w m a n y Assistant Treasurers a r e
there?
The Chairman, H i g h t o r nine.
Governor V a n Zandt.
T h e r e would b e a
very odious c o m -
parison o f expense o f the operation o f the Sub-Treasury
functions
b y the Federal R e s e r v e Banks
i f they were turned
over t o the Federal Reserve Banks without giving t o the
Federal R e s e r v e B a n k s t h e f r a n k i n g p r i v i l e g e a n d t h e G o v -
and
ernment rate proposition,/permission t o ship nickels a n d
coppers a n d s o forth b y parcel post.
The Chairman,
W e l l , that i s a
watter
t o b e dealt with,
undoubtedly.
Governor V a n Zandt.
ant p a r a g r a p h s
T h a t was o n e o f the very import-
=x t h e
i n t h e C o n g r e s s i o n a l r e p o r t o n Z transfer
of t h o s e functions.
I
t said that i t annually cost s o
much, a n d could be handled very much cheaper b y the Fed-
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Federal Reserve Bank of St. Louis
eral Reserve Banks.
The Chairman.
2
2
8
e l l , Governor Van Zandt, what I have
had generally i n mind was that the time would shortly come
when this whole subject o f fiscal agency functions o f the
Federal Reserve Banks would have t o b e threshed o u t with
the officials o f the Treasury present who are familiar
with those matters, a n d I was hoping that some time i n the
next few months w e might have a further conference o f
the G o v e r n o r s f o r t h e p u r p o s e o f c o n s i d e r i n g t h o s e m a t t e r s
only, a n d have t h e Treasury people here, a n d have a
very
thorough understanding a s t o the whole gist o f the proposition a n d just what i t would involve t o the banks.
Governor Calkins.
has m e n t i o n e d
T h e matter t h a t Governor V a n Zandt
i s o f v e r y considerable importance, b e c a u s e
if i t i s held that the Federal Reserve Banks a r e t o perform t h e f u n c t i o n s
o f the Sub-Tressurfes
a s depositortes,
they cannot be given the franking privilege under the
present ruling o f the Treasury Department.
The Chairman.
T h e s e three sub-headings o f Topic 1 5
will require consideration together, a n d I have made o n e
suggestion a s t o a method o f disposing o f it. T h e question
is, w h a t d o y o u w a n t t o d o w i t h t h e t o p i c ?
W h a t i s your
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Federal Reserve Bank of St. Louis
pleasure?
Governor Wellborn. I
comes
should think when this matter
u p a n d t h e Treasurer makes recommendations a b o u t
changing t h e Sub-Treasurigs t o the Federal Banks, t h a t
their bill should b e submitted t o the Federal Reserve Board.
The Chairman.
mitteg.
T h e bill has been prepared b y a com-
o n which the Federal Reserve Board i s represented.
tfthe bill is introduced without such a discussion as is
suggested, I
fear that some o f these questions which are
Particularly brought o u t i n the management o f the Federal
Reserve Banks, rather than jin the Sub-Treasuries, would be
overlooked; a t least, w e would not have the benefit o f a
discussion, I
think.
(Governor Harding, accompanied b y Messrs. Hamlin,
Miller, Strauss, Williams a n d Moehlenpah a t this point entered t h e Conference Koom.)
The Chairman.
T h e suggestion has now been made,
Mr. Strauss, t h a t inasmuch a s a lot o f questions a r e i n
the minds o f each o f the Reserve Banks f o r eluéidation,
that the opportunity b e given a t a conference o f the
Governors o f the Reserve Banks t o take u p that whole sub.
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Federal Reserve Bank of St. Louis
220
ject with the officials o f the Treasury acquainted with
those m a t t e r s p r e s e n t ,
a n d w e could appoint a
committse
or
committees a t that time.
Mr. Strauss.
I d o not know how pressing that is.
Governor H a r d i n g . I
d o n o t t h i n k i t i s v e r y press.
ing.
The Chairman. I
suppose w e c a n take that u p after this
session.
(Governor Harding here took the chair, a n d the joint
conference proceeded a s follows:)
Governor Harding.
joint session.
N o w , gentlemen,
w e will meet i n
I s there anything y o u wish t o report,
Governor S t r o n g ?
Governor Strong. Govermor Harding, w e have been
through a considerable p a r t o f t h e program, d o w n t o Topic
15, s k i p p i n g t h o s e i t e m s w h e r e i t w a s i n d i c a t e d t h a t t h e
merbers o f the Federal Reserve Board would like t o join
in the discussion.
Shall I
Governor Harding.
Governor S t r o n g .
indicate those topics?
Yes.
T h e f i r s t i s t h e q u e s t i o n o f reserves.
The s e c o n d i s t h e q u e s t i o n o f s i l v e r certificates,
Mr. Strauss wisheqg t o discuss.
which
T h e n topic No. 5 , transit
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operations.
2el
T h e sixth topic, relations with State banks.
That w e took u p with Mr, Moehlenpah present,
seven,
discount rates. Bight, t h e credit situation. U n d e r the
tenth topic, administration problems, special compensation t o meet high living costs. D r . Miller was good
enough t o join us, and w e have s o far been able t o cover
all o f the program from 1 to 15, w i t h the exception o f
those topics a n d one o r two others o f minor importance
that were introduced.
Governor Harding.
T h e n I presume w e should discuss
those topics which y o u reserved f o r us?
Governor Strong. I
understood that a t 41 o'clock this
morning y o u w a n t e d t o t a k e u p t h e q u e s t i o n o f t h e c r e d i t
a
situation a n d fleserve Bahk, discount r a t e s .
Governor Harding, B e f o r e w e get that, h a v e y o u reach~
ed a n y conclusion a s t o the propriety o f changing reserve
requirements just now, o r d o you concur i n the Advisory
Council's recommendation that t h e m t t e r b e left i n abeyance?
Governor Strong.
W e have n o t discussed that, because
I understood t h a t y o u wanted t o g o over t h e whole ground.
Governor Harding.
T h e n w e h a d better
g o o n t o t h e dis-
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Federal Reserve Bank of St. Louis
222
count situation.
H a s that been discussed s o that t h e Govy-
ernors a r e ready t o submit their views e n bloc,
o r do
theywant t o take i t u p i n detail?
Governor Strong. W h a t s o farlas been done i s simply
this. T h e record, when i t is prepared, will show
the object o f the discussion, F i r s t ,
t o ask each o f the Govern-
ors t o answer t h e s p e c i f i c i n q u i r y a s
t o whether t h e dis-
count rate should b e changed, and, second,
t o a s k these
guestions i n the alternative, f i r s t assuming that
t h e dis-~
count rates a r e n o t changed, c a n w e rely upon what
you
have d e s c r i b e d a s t h e d i r e c t a c t i o n t o control s p e c u -
lation a n d expansion o f credit, a n d i f that method i s suce
cessful w h a t e f f e c t w i l l i t h a v e u p o n t h e r a t e s
o f interest i n t h e U n i t e d S t a t e s ?
rather briefly,
T h o s e questions a r e discussed
a g will appear
i n t h e record, w i t h t h e ex.
pression o f views o f each Governor,
Governor Harding.
I s i t the idea that those views
be brought o u t a t this particular time?
Governor Strong. I
erystalized opinion,
think there i s a fairly well
n o t unanimous,
b y a n y means,
a s to
what should b e done.
Governor Harding.
T h a t will a l l appear i n the record?
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PES
Governor Strong.
Yes.
I t is a fairly brief discussion,
simply t o l a y the foundation f o r expression o f views a t
this t i m e .
Governor Harding. W h e a t 4 s your idea about t h e method
p
of o
e
a nh gt
n t idiscussion?
Governor Strong. I
would like t o leave that t o you.
I have opened a n d closed s o many o f them now.
Governor Harding. Y e l l , I presume i t would b e well for
me t o call upon a fey o f the Governors, then, representing d i s t r i c t s
views. I
i n various p a r t s
o f t h e country,
f o r their
will a s k Governor McDougal o f the Chicago B a n k
to state his views o n the question, c a n the situation b e
met for the time being b y what i s called direct action?
Governor McDougal.
M y opinion i s that t h e discount rates
now are t o o low, a n d that,:excepting f o r t h e position o f
the Treasury Department, that w e should proceed b y increasing t h e rates,
s o t h t h e y would b e more i n harmony
with t h e c u r r e n t r a t e s f o r c o m m e r c e a n d i n d u s t r y p l a c e d
by the commercial benks, I
believe that the Chicago dis-
trict c a n take care o f itself, b u t course w e have n o means
of knowing what demands may be made upon us from the outside,
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Federal Reserve Bank of St. Louis
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Governor H a r d i n g .
W h a t effect u p o n t h e market f o r
Liberty Bonds d o y o u think the further advance i n discount rates w o u l d have?
Governor McDougal. I
think naturally i t would have a
depressing effect.
Governor Harding. W h a t effect, then, would a further
fall i n Liberty Bonds have o n the general situation?
Governor McDougal, T h a t I do not know.
Mr. Miller.
W h e n y o u say that y o u think the rates
are t o o low, j u s t what i s your standard o f determining
what rates should be, a n d what volume o f credit, assuming
that the rate influences u p o n your credit t h a t will b e
applied--what i s your standard o f determining s o much
credit, I
mean v e r y roughly, s h o u l d n o t b e used.
Governor McDougal.
H o w much should b e used o r would
be used?
Mr. Miller. E i t h e r one, o r both.
Governor McDougal. I
think that t h e demand f o r
credit n a t u r a l l y w o u l d b e r e t a r d e d
b y a n adjustment
of
rates more i n harmony with t h e going rates f o r commercial purposes,
T h e measure o f how much o r what effect
that would have, o f course, cannot b e determined.
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Federal Reserve Bank of St. Louis
225
Mr, Miller.
S u p p o s e t h a t i t would have a n effect,
do
you think i t i s desirable t o restrict t h e volume o f credit
in general?
Governor McDougal. I
strict t h e _ v o l u m e
think i t i s desirable t o re.
o f credit,
s o far.as
w e can,
t o legitimate
usés f o r commerce a n d industry.
Mr. Miller.
D o you think a n advance i n rates would
operate t o restrict t h e use o f credit t o so-called legitimate u s e s ?
Governor McDougal.
direction,
I t would have a tendency i n that
T h e less t h e spread between o u r rate a n d the
rate charged b y banks, I
Governor Harding.
think o e less would b e used,
D o you think the situation could
be controlled entirely b y a n advance i n rates,
o r would y o u
have t o exercise some little pressure o n the situation besides?
Governor McDougal. I
do not think i t could b e con-
trolled entirely.
‘Mr, Miller.
for i n s t a n c e
D o you think that cheap and easy credit,
i n y o u r district, w h i c h i s i n a somewhat
unique position, i n d u c e s t h e u s e o f credit s p e c u l a t i v e l y
in what i s o r d i n a r i l y d e s c r i b e d a s c o m m e r c i a l a n d i n -
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Federal Reserve Bank of St. Louis
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dustrial enterprise? H a v e y o u got a n y evidences, f o r i n -
stance, o f speculative buying b y merchants?
Governor McDougal.
Mr. Miller.
W e have not; no.
o r b y manufacturers?
Governor McDougal.
Mr. Miller,
S
W e have not.
o that y o u feel that t h e commercial d e -
mands a r e in--
Governor McDougal (interposing).--in a fairly good
state.
Mr, Miller (continuing)--are o f a legitimate character?
Governor McDougal. I
Mr. Miller.
do, yes.
Y o u d o not think that a n advance i n rates
would penalize commercial a n d industrial borrowing, b u t
would restrict illepitimate credit demands?
Gevernor McDougal: Y e s .
Governor Harding. I s there a possibility i n your district o f member banks making large advances f o r speculative purposes which would n o t b e reflected i n their transactions w i t h the banks?
Governor McDougal.
Governor Harding.
T h e r e i s n o question about that.
T h a t i s a situation y o u cannot con-
trol.
Governor McDougal.
T h e situation there'is this, that
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Federal Reserve Bank of St. Louis
Ze
we have n o evidence;-for instance, t h a t banks a r e borrowing directly f r o m u s f o r speculative purposes, b u t there
is not a n y doubt b u t what a t the present time a condition
exists which always h a s existed, t h a t when they c a n get
very high rates f o r their money, t h e large depositors,
estates a n d c o r p o r a t i o n s ,draw u p o n t h e i r b a l a n c e s a n d p u t
it where t h e y c a n earn more money.
Mr. Williams.
V i e will h a v e i n a
f e w days a
statement
from all the National banks i n the country, showing t h e
amount o f money which t h e y are loaning.
Governor Strong.
Mr, williams.
B y individual banks?
Y e s sir.
Governor Strong. W i l l that be available t o me?
Mr. Viilitams.
Y e s sir.
Governor McDougal.
Governor H a r d i n g ,
I n response t o our questionnaire,
w e have s o m e information h e r e indicat-
ing the liquidation perhaps i n loans, b u t i n connection
with t h i s s u b j e c t , t o o , I
think i t m i g h t b e I n t e r e s t i n g
to the members o f the Bourd t o know t h a t w e have 1 5 6 banks
at the present time t h a t a r e borrowing a n amount a t least
equal t o their capital a n d surplus.
W e have for a long
Period o f t i m e m a d e t h a t p o i n t i n t h e i r b o r r o w i n g s t h e
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Federal Reserve Bank of St. Louis
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basis f o r c o r r e s p o n d e n c e
o r a personal conference,
every case o f the kind I
have referred t o w e were advised
and i n
as t o the occasion f o r t h e borrowing. I n c l u d e d i n these
156 banks there a r e t w o banks--I think that i s all--that
are borrowing a n amount equal t o three times their capital
and surplus.
O f these 1 3 6 banks,
know that 7 8 are i n Iowa.
i t m a y interest y o u t o
T h e reasons g i v e n there f o r
their large borrowings are, first, t h e c a r shortage,
second, t h e demand f o r funds t o purchase livestock, c a t -
tle for feeding.
I n that State I think within the next
few months there should b e almost a
complete Liquidation,
naturally.
Mr, Moehlenpah.
F r o m what districts d o these borrow-
ines above capital come?
Governor McDougal.
Mr. iloehlenpah.
W h a t d o you mean?
T h e country o r city aistricts?
Governor McDougal. Principally from the country
districts.
Mr, Moehlenpah,
T h a t leads m e t o ask this,
i n view
of the prevailing price levels, having i n mind t h e b i g
corn crop w e have i n the Middle west, t h e inducement t o
the farmers t o bring more t h a n t h e ordinary amount o f
Pi
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229
cattle for finishing, end sheep, D o n ' t you think that the
Governors ought t o exercise what might be called for a
Limited period o f time a
liberal attitude towards t h e
country bankers this year, rather t h a n t h e arbitrary o n e
of limiting i t t o the capital?
Governor McDougal.
M r . Moehlenpah, y o u have received
apparently a very incorrect impression f r o m me.
at all times been very liberal i n our treatment o f the
been
country banks.
W o deserving bank hus, I think, /restricted
except with good cause.
matter
o f inquiry
d
T h e fact that we have made i t a
o
e
s n o t mean that w e have p u t the
brakes o n entirely, b u t I believe every bank i n our district has been treated l i b e r a l l y d
n
a satisfactorily, a n d
we have never h a d a n y complaints.
Governor Harding.
I s i t the tendency o f the country
bank i n the Middle Vest, t h e same a s i t is i n the South
and the Southwest,
t o b e undercapitalized?
T h e y believe
in depositors a n d t h e y believe i n borrowing a l l t h e
money t h e y can, a s 4 rule.
T h e y think i t pays t h e m t o
porrow m o n e y r a t h e r t h a n t e p a y dividends
o n high capi-
talization,
Governor McDougal. I
would not say that that i s the
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Federal Reserve Bank of St. Louis
250
tendency, b u t there a r e a great m a n y cases o f that sort,
where banks w i t h simll capital a r e laboring under t h e i m -
pression that with a Federal Keserve Bank behind them,
they ought t o be permitted t o loan all the money t o all
of the good borrowers i n their entire district that they
want t o borrow. I
do not think that i s the rule, b u t
there a r e m a n y cases o f that sort,
Governor Harding.
T h e r e i s one reason w h y there a r e
so many more State banks i n a certain section o f the coun-~
try than National banks. N a t i o n a l banks a r e restricted
under the old law, they could not borrow beyond the amount
of their capital stock, a n d State banks had n o such restriction upon them, a n d they would organize a {15,000
bank and then they would'look around t o borrow (75,000
or {,100,000,
T h e y found that cheaper t h a n paving divi-
dends o n a high capital,
Governor McDougal.
in those remarks I
Treasury Department.
M y remarks regarding discount rates--~
made reference t o the p o s i t i o n o f the
I t se-ms p e r f e c t l y p l o i n t h a t w e h a v e
not y e t reached a point where w e c a n ignore entirely that
situation.
I f w e h a v e r e a c h e d t h e point, I
think t h e r e i s n o
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question b u t w h a t d i s c o u n t r a t e s s h o u l d Z O UP.
Governor Harding.
W e all understood Mr. Leffingvell
yesterday t o say that after t h e middle o f January our rates
would b e entirely independent o f Treasury transactions,
that he would not ask anything further.
Governor Strong. I
rather gathered that f r o m Mr,
Leffingwell.
Governor Harding. M r . Leffingwell has told me o n sev.
eral Occasions t h a t i f this matter c o u l d b e held u p for
sixty days, h e would have the whole thing financed, and
the matter o f Federal Reserve B a n k rates would b e indifferent.
Governor Strong,
T h e last sale of certificates, made
September 15th, produced nearly $700,000,000, a n d 60 per
cent o f those were t a k e n i n our d i s t r i c t ,
i
n New York.
Now, I cannot i n good faith sell 6 0 per cent o f {400,000,000
of four a n d one-quarter p e r cent certificates t o banks i n
New York~-and t h e y are almost entirely bought b y the
banks--and r e c o m m e n d
a n increase o f rates
o n t o p o f that.
I would n o t d o i t as a private business m a n without feeling that I
would b e guilty o f a sharp trick, a n d I
do not
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Federal Reserve Bank of St. Louis
Bos
propose
t o d o i t now i f I
can h e l p it.
I
t i s distressing
bo feel s u c h a aifference i n view o n this matter, b u t
either w e are emancipated n o w o r else w e are not.
Governor Harding. T h a t i s a question that would be put
to you i n every case.
T h e bank would say, "Wheat i s going
to be your policy? W h a t discount rates c a n w e get?"
Governor Strong.
A f t e r giving all last evening t o a
consideration o f this matter, I
had decided t o say nothing
more o n the subject a t all. I
think I havesaid too much
already, e x c e p t
o n one point which I
Governor Harding. I
hope t o s p e a k o f .
understood M n , Leffingwell t o s a y
that a f t e r s i x t y d a y s t h e q u e s t i o n o f Federal R e s e r v e
rates w o u l d b e a matter o f indifference t o the Treasury,
but would n o t a n advance i n Federal Reserve rates b e likely
to have t h e same effect o n prices o f Liberty Bonds next
March a s i t would have now?
I f the Treasury i s concerned
with the price o f Liberty Bonds,
i t seems t o m e that I s
something t h a t i s soiling t o continue t o hang over us.
Governor Strong. W e l l , naturally the Treasury would b e
less concerned i n the price o f Liberty Bonds after i t
had sold (#1,900,000,000 o f certificates and notes.
Governor Harding.
Y e s , except a s t o their fear t h a t
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Federal Reserve Bank of St. Louis
2535
the bonds would g o t o such a
price t h a t there would b e a
demand f o r refunding operations.
Governor Strong. I
did not hear any discussion a bout
that yesterday.
Governor Harding. N o , there wes n o discussion about
that yesterday.
Mr. Strauss.
O f course, they are being absorbed all
time .
Mr, H a m l i n .
;
G o v e r n o r M c D o u g a&l ,
d o I
understand
that
Council
you concur i n the recommendation o f the Advisory
on the whole,
i n view o f the Treasury's situation?
Governor McDougal. I
or Hamlin,
d o not concur entirely, Govern-
i n thet recommendations
o f t h e A d v i s o r y Council.
state, however, that i n the light o f what w e were
we
told vesterday, a n d also i n considerxetion o f what
were told three weeks ago, that i t i s perfectly plain,
at least f r o m the standpoint o f the Treasury, t h a t the
binds
time h a s n o t come w h e n w e c a n c u t the string that
us, a n d some consideration
4 1 4 b e given t o that.
think t h a t the spread between ¢
a
n
T f
d one-half a n d a
ial
four a n a t h r e e - q u a r t e r p e r c e n t r a t e f o r c o m n e r c
inpurposes, a n d t h e rate w h i c h the Chicago banks, f o r
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Federal Reserve Bank of St. Louis
234
stance, are getting o n commercial loans--five a n d one
half, probably,
t o six--that t h a t i s t o o great.
I d o not
think i t i s justified.
W h a t h a r m does i t do?
Mr, Miller.
ee
McDougal.
I t gives t h e bank opportunity
of using credit a t a profit, w h i c h o f course stimulates
its use,
F r o m m y preceding question y o u evidently
Mrs Miller.
do s o n think that credit i s i n excessive demand f o r commercial a n d industrial purposes, f o r what w e ordinarily
regard a s legitimate uses.
W h a t harm, then, i s i t work-
inge
Governor McDougal.
T h e harm, D r . Miller,
i s reflected
in t h e r e s e r v e p o s i t i o n o f t h e banks,
I s that all? J f that is all, i t does not
Mr. Miller.
seem t o m e that there i s very much t o discus.
Governor McDougal. I
think so, because, judging f r o m
‘my understanding, t h a t reserve position lately has been
such as t o give you a great deal o f concern.
I w o u l d s a y that i t i s o f very little con-
Mr. Miller,
sequence w h e n y o u a n a l y z e w h a t i t i s t h a t i s p u l l i n g d o w n
the reserve.
l
e the view i s taken, which I think i s
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wood
pretty g e n e r a l l y t a k e n b y t h e p r e s e n t F e d e r a l R e s e r v e Board,
that there i s a very large illegitimate use being made o f
credit,
a n d that i s t h e important factor o f bringing t h e
concern o n the Federal Banks,
o r some o f t h e m ,
i n pulling
down their reserve, then i t becomes indicative o f a situation that needs correcting, a n d that i t seems t o me i s the
main thing o n which this conference ought t o clarify its
opinion, a s t o whether o r not there i s too much é¢redit i n
use generally throughout t h e country,
o r whether there i s
evidence o f the use o f credit for illegitimte purposes
that i n some way has got t o be controlled.
as t o w h e t i s t h e d i f f i c u l t y t h a t n e e d s a
I f we are agreed
cure, t h e n w e
can address ourselves t o the question a s t o what i s t o b e
corrected,
Governor Strong. D o c t o r Miller, M a y I say this: I
think the fundamental thought i n the minds o f some o f our
associates i s this: there i s a belief current t h a t the
legitimate business o f this country, including t h e busi-
ness conducted b y the Treasury Vepartment, i s entitled to
and should receive cheap money for the conduct o f the
business, a n d that thereby production will b e stimulated,
and that a t the same time b y some method a restraint c a n
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be e x e r c i s e d u p o n t h e m i s u s e
o f credit f o r speculative
or
other purposes. N o w , I believe that that i s fumdamentally
an error, a n d that every bank that w e have examined disclosed t h e fact that what w e want t o attack i s the extravagance a n d wasteful consumption o f goods, N e v e r i n the
history o f this country o r o f the world nit there b e e n a n y
such extravagance a s there i s right now. I
will warrant
that t h e Limit h a s been raised i n every poker game i n the
United -tates i n the last year, a n d the production a n d sale
of automobiles,
o f jewelry, a n d o f all sorts o f luxuries
has b e e n going o n at a rate that was unknown before, a n d
what w e want t o get a t i s t h e extravagant waste o f credit
and everything else, a n d I do not believe that w e can get
at i t b y telling banks individually o r people individually
what their “discount rate shall be.
Mr. Strauss.
D o you expect t o bring down the limit
of. the poker games by raising the discount rate?
Governor Strong.
Yes.
T h a t will b e t h e effect i n
time.
Mr. Moehlenpah.
I w a s interested i n Governor Seay's
position yesterday when h e maintained that i f the rate was
increased, p a r t i c u l a r l y n
o the Government-secured debts,
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Federal Reserve Bank of St. Louis
237
that i t would have i t s relation t o the commercial needs
and would lower the rate there, i f i t was a permanent relation.
D
o y o u think that would b e so?
Governor S t r o n g .
W h a t m e t h o d w o u l d y o u employ?
Mr, Moehlenpah.
I
n the commercial needs o f the country
You covla give thema lower rate, because o f the increased
rate o n the Government~secured obligations.
I f the whole country should b e ra-
Governor Strong.
tioned a n d controlled,
want t o s a y further,
Mr. Moehlenpah. I
i t would stop
perhaps the speculative demand and increase t h e other.
Governor Strong.
H o w would y o u d o that?
Mr. Moehlenpah. I
am asking you.
Governor Strong. B u t how would you do it? T h a t is a
hypothetical question.
“ry, Moehlenpah, Y o u recall Mr. Seay’s statement yesterday,
H e took a n opposite position, o r had a n opinion
that was contrary t o that o f some o f the other Governors,
as I
understood i t .
Governor Strong. I
e will all admit, i f we
think w
could close a l l the stock exchanges
i n the country and b e
able t o control the various uses o f credit, t h a t there
238
would b e r e l e a s e d c r e d i t f o r o t h e r p u r p o s e s ,
but I
do not
know h o w that i s t o be done.
Mr, Moehlenpah. W e l l , i n a sense, t h e rate would b e low‘ered, w o u l d i t not, t o the commercial, industrial a n d agricul-
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Federal Reserve Bank of St. Louis
tural needs, d o n ' t y o u think,
It w o u l d p r o v i d e a
i f i t was released a t once?
larger v o l u m e a t c h e a p e r rates,
i f i t was
permanent.
I a m afraid I
Governor S t r o n g .
do not quite understand
your question.
Mr. Moehlenpah.
I f I followed Mr. S e a y yesterday, h i s
contention w a s that i f they increased t h e rate, i t would
bring about permanent results, that i t would be shown i n the
demand f o r commercial needs, a n d that i s w
throw o u r money,
h
should
e :r e
ew
t o the production o f the commodities, par~-
ticularly i n the Western country.
W h a t I a m getting a t is,
if i t was found that i t would b e so, t h a t the rate would b e
lowered a l m o s t a u t o m a t i c a l l y ,
because
o f t h e volure b e i n g
taken a w a y from the speculative sectionsy
Governor Harding.
Pacific Coast.
G o v e r n o r Calkins, y o u represent t h e
W h a t a r e your views a s t o raising t h e rates
in t h e n e a r f u t u r e ?
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239
Governor Calkins. I
think I
should say, a s a prelimi-
nary t o what I am able t o say, that I believe there i s
practically n o excessive berrowing f r o m the Federal Reserve
Banksin o u r district.
T o b e sure,
w e have n o t defined v e r y
closely what excessive borrowing means, b u t I
a m quite satis-
fied that w e have practically n o cases i n which banks a r e
borrowing f o r speculative purposes. I
that w e have not a n y borrowings
do not m e a n &
all
i n individual cases,
W e
have h a d banks borrowing i n excess o f 400 per cent o f their
capital, b u t i n every instance-Mr, Williams, C a p i t a l a n d surplus both?
Governor Calkins. N o , capital.
I n every instance
inquiry has disclosed the fact that the borrowings were distinctly for seasonal purposes. I
do not consider that a s
excesSive borrowings.
As t o t h e q u e s t i o n t h a t I
understand y o u t o ask,
it
is’ necessary t o qualify i t by saying that i t is obvious t o
me that the needs o f the Government must b e considered first,
even at this time, but that with those needs out o f consid-~
eration a n d a t a point where w e need n o longer f e e l t h a t w e
are bound b y the requirements o f Government finance, t h e
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rates s h o u l d b e advanced.
Now, Dr. Miller h a s asked Governor McDougal several questions w h i c h were v e r y intesting a n d significant t o me, a n d one
of them was what injury would result f r o m a t o o liberal granting o f credit, a s I
understand it.
may b e t h e o r e t i c a l - - t h a t
inherent a
I t appears t o m--this
i n a wide m a r g i n o f profit t h e r e i s
tendency t o use credit f o r improper purposes;
that i f y o u s a y t o the member banks t h a t " Y o u m a y loan money
at 1 2 per cent and borrow a t the Federal Reserve Bank a t 4",
you have created thereby a n incentive t o undesirable u s e o f
that credit.
T h a t seems t o m e t o b e beyond question.
Mr, Miller,
T h a t i s entirely apart f r o m what i s ordi.
narily called speculation.
Governor Calkins.
I t i s entirely apart f r o m what w e h@we
been talking about as "speculation."
Mr. Miller. E x a c t l y .
induces t o o free a
use o f credit?
Governor Calkins.
Mr. Miller.
T o o loose a
T o o loose a
Governor Calkins.
said,
T h a t is, y o u think t h e l o w rate
use o f c-edit.
use o f credit?
T o summarize w h a t little I
have
m y o w n v i e w i s that w e must consider t h e Government
Situation; t h a t when w e are emancipated,
i f conditions a r e
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24)
comparable with present conditions, w e should advance rates
progressively.
O f course, I
have n o view as t o what point
they should reach, because i t depends o n circumstances a t
that time.
Mr. Strauss.
proximately,
W h a t i s the spread
i n y o u r district,
ap-
s o far a s y o u c a n estimate i t ?
Governor: Calkins.
I t varies
difficult t o approximate.
s o widely that I t i s very
I n some o f the extreme country
Sieipiete, t h s going rate i s 1 2 per cent.
ies a n d i n the better lines o f credit,
I n the larger cit-
i t i s a little o v e r
five.
Mr. Strauss,
Y o u mean 1 2 per cent f o r legitimate pur-
poses?
Governor Calkins.
F o r agricultural purposes, usually.
Governor Harding.
Y o u remember i n August, 1915, that
there w a s a conference i n Chicago, a n d Mr. Forgan a n d Mr.
Dawes expressed opposing views, o n e o f them that the Federal
Reserve Bill w a s a n inflational measure a n d t h e other t h a t
it was going t o bring about disastrous contraction. I
take i t that t h e Federal Neserve A c t was induced primarily
by the panic o f 1907. . That was the proximate cause o f the
. law being passed, a n d credit was emancipated f r o m certain
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242
control, a n d 1 thinkwe will all admit that i n principle the
bederal Reserve A c t i s not exactly o f a n inflationary character, b u t i t does permit o f expansion w h i c h could n o t have
existed under t h e former law.
question about that.
I d o n o t think there i s a n y
H e r e i s a Situation whichseems
t o be
difficult t o control, U n d e r t h e o l d National Banking Act,
every National b a n k knew that there was a
limit t o its trans-
actions, t h a t i t could n o t b e liable f o r borrowed money i n
an amount exceeding i t s capital stock.
O f course, a
good
many o f them went around a n d made private arrangements a n d
got their friends t o buy paper f a r them, b u t when i t cane
to a matter o f borrowing m o n e y o r rediscounting there was a
limit, and there was also a fear that i f this thing was overdone t h i s w i l l l e a d t o a
panic, b e c a u s e
w e a l l remember t h e
panics commencing back i n 1893 a n d some s m l l panics i n
between
u p until t h e panic
o f 1907. I
sometimes f e a r t h a t
while t h e F e d e r a l R e s e r v e s y s t e m h a s u n d o u b t e d l y b e e n o f
the greatest g o o d i n the past f i v e years,
i n tiding u s over
a situation which c o u l d not have been m e t i n any other way,
I wonder i f there h a s n o t been a n unconscious effect i n
the minds o f the member banks which t h e Federal Reserve
Banks a r e n o t r e s p o n s i b l e f o r , b e c a u s e o u r e x p e r i e n c e h a s
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Federal Reserve Bank of St. Louis
243
brought o u t that a great many member benks a r e doing things
legitimately, b u t t h e y are n o t calling directly o n the Federal Reserve Banks f o r that.
T h e y m a y make stock exchange
loans o r promote speculative enterprises; t h e y m a y not inquire o f t h e i r b o r r o v e r s
a s strictly a s t h e y might w h a t
the purpose o f t h e loan is.
are Safe.
B u t they have t o feel that t h e y
T h e y s a y that " w e have s o much good paper t h a t
we can rediscount i f we want to." T h e r e is not the restraint t h a t they h a d under t h e o l d system.
T h a t undoubted-
ly exists i n the minds o f the member banks, t h a t i f they
have eligible paper that they can borrow o n it at the Re-
serve Banks,
I t seems t o me that if you raise your rate
your m o r a l p r e s s u r e - - o f c o u r s e y o u c a n n o t e x e r t v e r y m u c h
of moral p r e s s u r e
on a
m a n t h a t d o e s n o t o w e y o u anything;
he will say "Look at your books", o r "I will give eligible
paper t o you,” o r "I have s o many bonds o r certificates
end I
am only carrying a certain amount o f them with you,
and I have m y other business t o attend t o and I
do not s e e
very much need of talking with you," and at the same time
that people generally have a n idea that i n view of the rise
in wages a n d commodity values, t h a t stockSthemselves a r e
intrinsically c h e a p a n d w a n t t o buy; t h e i d e a b e i n g t h a t
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Federal Reserve Bank of St. Louis
244
they have g o t t o reach a general level.
tion i s all the more difficult. I
T h e n your situa-
take i t that a
great deal
of t h e s p e c u l a t i o n t h a t w e h a v e h a d i n t h e l a s t s i x m o n t h s
was b a s e d o n t h e p r o p o s i t i o n t h a t s t o c k s a r e i n t r i n s i c a l l y
cheap and are bound t o go higher.
It i s going t o take a great d e a l o f hard work i n reaching the most intelligent a n d conservative o f the member banks
and pointing o u t that t h e y must look ahead t o the possible
dangers, j u s t a s they used t o before t h e y had the Federal
Reserve s y s t e m .
Wr, Miller. A p r o p o s o f what y o u are j u s t saying, Gov-
ernor Harding, I have learned of a bani o n the Pacific Coast
just lately that has never rediscounted w i t h t h e Federal
Reserve Bank. ’
Governor C a l k i n s .
H o w c a n y o u control that bank?
Governor Harding.
Y o u cannot control it.
Governor McDougal.
W h e n Ispoke o f this large number
of banks borrowing a n amount, equal t o the capital
plus, I
a m sur-
would like t o s a y i n connection w i t h that that I
think t h e loans a r e perfectly justified, a n d with 1500
member b a n k s
w e have probably a t t h e present time 5 5 per
cent o f those b a n k s w h o a r e n o t i n o u r d e b t a t all.
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Federal Reserve Bank of St. Louis
245
Mr. Billiams.
W e r e they not nearly all borrowing o n
Liberty Bonds o r certificates o f indebtedness,
a t least
within 8 0 per cent o f those loans?
Governor McDougal.
A s t o the percentage I
cannot tell
you,
Mr. Williams.
T h e bulk o f them?
Governor McDougal.
Yes.
W e have i t all here, a n d a s
a matter o f fact that i s what o u r banks a r e a l l borrowing on,
and probably will.
fr, Villiams.
A s a matter o f fact, a r e not over three-
fourths o n Government securities?
Governor McDougal.
Governor Harding,
Yes.
W h a t i s y o u r v i e w a s t o the proprie-
ty o f continuing preferential rates i n member banks o n
fifteen d a y notes?
Governor McDougal, I
am in favor o f it.
Governor Harding.
a r e you, Governor Calkins?
Governor Calkins.
‘ i t h some reservations, I
considered t h e f i f t e e n - d a y n o t e a s m o r e o r l e s s a
am. =
war m e a s -
ure, a n d was not very much impressed with i t a t the time,
There is, however, something t o be said about a n opportunity
to replenish reserves,
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Federal Reserve Bank of St. Louis
246
Governor Harding.
T h e reason I
ask is, I
see Secretary
Glass quoted i n one o f the local newspapers w e get,The F i -
nancial Information Service, that when he gets into the Senate h e i s g o i n g t o i n t r o d u c e a
bill r e p e a l i n g t h e f i f t e e n -
day loan act.
Mr. Strauss.
I t has practically been repealed now,
Governor Calkins.
I t s repeal w o u l d have t h e effect o f
working n o injury o n member banks i f they were permitted t o
rediscount for one, two, three, o r fifteen-day periods.
Governor McDougal, I
feel that the fifteen-day obliga-
tions, i f they are really fifteen-day notes, a r e more desir.
able f o r t h e banks t o have, because t h e y a r e more liquid,
and I
say I
would b e i n f a v o r o f a
because i t has been customary,
preferential r a t e there,
a n d I think i t is justified
to give preferences i n the matter o f rates t o the short-time
loans,
Governor H a r d i n g .
D o e s
i t operate
i n your district
as
a short-time loan? 3
Governor McDougal.
I t does not,
W e have been very
liberal i n granting loans o n fifteen-day obligations.
Mr. Williams.
Y o u have a differential o f a character,
haven't you, o n the fifteen-day as against the unpaid per-
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Federal Reserve Bank of St. Louis
247
Let < %
Governor McDougal.
commercial p a p e r .
Yes.
B u t that i s not used against
W i e h a v e p r a c t i c a l l y n o Loans o f t h a t
sort,
Mr. Hamlin.
D o you i n general concur i n the recommen-
dation o f the Advisory Council?
I s that a fair w a y t o
discuss y o u r statement, s p e a k i n g g e n e r a l l y , G o v e r n o r C a l -
kins?
Governor Calkins.
W i t h some reservations; I
believe
that t h e well-tried method o f controlling credit b y rate i s
correct. I
have n o reason t o set u p m y own opinion t o the
contrary. Taking into consideration the situation of Government Finance,
a s I have said before, I
can come pretty
near concurring i n the recommendation o f the Advisory
Council,
I woulda like t o answer o n e other question, w h i c h I think
is a part o f this discussion, a n d express m y view i n regard
fo tt. A
question h a s b e e n a s k e d whether
i f control c a n
be accomplished b y other means t h a n rate adjustment,
would affect interest rates generally.
bly b e a n y d o u b t a b o u t t h a t question.
it
T h e r e cannot poss iI t seems
t o m e that
the situation might b e influenced, and I am sure that the
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248
Governors W i l l a l l s a y that t h e y c a n influence t h e situation
in their districts, b u t i f anything approximating control
were exercised, t h e result would b e t o drag interest rates
up Sli elone tne: Lines
Governor H a r d i n g .
S u p p o s e y o u r discount r a t e t o b e a d -
vanced t o 7 o r 8 per cent, would n o t t h e banks pass t h e
extra rate along t o their customers.
W o u l d n o t they get t o
bidding against e a c h other f o r deposits a n d raise t h e rate
of interest they would offer for deposits? z
Governor Calkins, I
Governor H a r d i n g .
think so,
O f course y o u have y o u r u s u r y laws,
but t h e bank transactions h a v e increased s o greatly that
the banks g e t a great deal more o u t o f the small trans-~
actions t h a n t h e y formerly did.
Mr. Strauss,
W i t h the small banks charging 1 2 per
cent i n Mr. Calkins! district, i t must be unusually high.
Governor Calkins.
I n t h e State o f Utah there a r e pract-
ically n o laws referring t o banking. I
do not know what
the usury laws a r e i n all o f the States o f m y dietrict.
Governor Harding. G o v e r n o r Morss, h o w d o y o u feel about
this proposition o f raising t h e interest r a t e a n d applying
a direct c o n t r o l ?
A g t t p that, I
would l i k e t o have y o u
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249
discuss t h e f i f t e e n - d a y r
a
t
e
, too.
Governor Morss. I
think t h e Federal Reserve Banks
Should adopt a policy o f raising discount rates, a n d b e guided b y circumstances a s t h e y arise. I
think the greatest
harm i s done b y the low rate, because i t causes a constant
increase i n w e i c e e e
You t a k e o u r i n d u s t r i a l c o n c e r n s
i n Boston,
a n d they are
urged t o t a k e c o n t r a c t s a w a y ahead, c o n t i n u o u s l y f u r t h e r
ahead, for their material whim they produce.
I f a mill is
offered a contract o f that sort, w h i c h w e will s a y will
take their product, o r a large part o f their product for
six months o r a year ahead, w h i c h i s true, h e begins imme-
diately t o see how he i s going t o protect himself, a n d the
first thing h e goes about i s his raw material,
going t o take a contract for h i s product,
I f he i s
o r a part o f
his product, f o r six months o r a year, h e joes not dare t o
do i t unless
h e g e t s t h e r a w material,
a n d h e has a
fear
that with pll this demand, which there is, there will be a
constantly advancing price,
T h e question arises imme-
diately, shall h e take that contract? W e l l , what can h e
do to protect himself? M o n e y i s cheap, credit i s easy,
and h e go/shead, perhaps, a n d b u y his r a w material, a l l
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Federal Reserve Bank of St. Louis
200
he will need for -a year, and the contract is effective, and
he takes it.
H e goes into the market t o buy his material,
and h e puts t h e price u p o n himself, a n d when y o u get a l l
the c o n c e r n s o f f e r e d t h e s e c o n t r a c t s , b e c a u s e p r i c e s a r e
going t o b e h i g h e r
i n s i x months
or a
year, a n d e v e r y b o d y
pidding for that material t o protect himself, y o u get a
constantly advancing price, a n d I believe t h a t the fundamental r e a s o n f o r t h a t i s that, w h a t e v e r e l s e m a y g o up,
credit i s cheap a n d plentiful.
T h e mere fact that i t i s
cheap i s evidence t h a t i t i s plentiful, a n d I
believe t h a t
that i s what t h e effect i s principally f r o m low rates, a n d
I think that i s the greatest harm.
Of course, I
want t o d o anything w e possibly c a n t o
help o u t t h e T r e a s u r y D e p a r t m e n t ,
district c e r t i f i c a t e s
a n d w e cannot sell i n our
a t four a n d one-quarter
o r four a n d
one-half p e r cent unless w e will take those loans o n that
basis; b u t I
must s a y that t h e question w i t h m e i s whether
we a r e doing a greater h a r m t o the country b y encouraging
these increased prices t h a n w e would b e i f w e adjusted o u r
rates a n d forced t h e Govermment t o p a y higherrates.
i
&@bad q u e s t i o n
B u t
t o answer,
I t i s p r e t t y h a r d t o say.
t is
the effect o f our low rates, i t seems t o me t o be very plain.
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As f o r controlling t h e situation, y o u have stated t h e
reasons yourself, Governor Harding, w i t h i n a
few minutes
why w e cannot control t h e situation,fully a s well o r better
than I can. T h e main point that a bank looks a t when they
come t o get a loan i s "How much loan have w e got with you?
Ts it large? I s it small? "
I f we can say to them "Your
loan is large with us", that is an argument that they can
understand, b u t i f their loan happens t o be small o r very
reasonable a n d o n the best cohlateral & n the world, t h e y ask
for it, and when w e come t o ask them what they are going t o
dowith that money, they resent / very seriously. I
do not
know that a n y o f our banks--~how much o f their money i s loaned
to get these v e r y high rates o f interest;.
certain i n f o r m a t i o n ,
T f I had
v e r y intimate information, e s p e c i a l l y
of some o f our b i g banks i n B o s t o n , f
o whom they were loan-
ing for o n the call money market, which they loan mostly i n
Boston and not i n New York, s o far as I know, w h y then I
could go to those banks and say "You should not do that,"
but o f course they would not pive m e that information, mada I
would not have a n y right t o ask for it. T h a t not only applies t o member banks, b u t t o non-member banks.
Mr. Williams.
Y o u say "for whom they loan money." I
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suppose y o u mean what other b a n k s ? -
Governor Morss. Y e s , the list o f banks they are making
them for. W h e n you take the fifteen-day note, o r the ability o f the banks t o borrow o n their o w n note n o t exceeding
fifteen days, t h a t t o m y mind i s one o f the most valuable
privileges t h a t t h e y have, a n d the o n e that I
If a bank wants t o borrow money for a
like best.
few days, I
like t h e m
do not want t h e m t o load m e u p
to feel that t h e y c an. I
with d i s c o u n t e d p a p e r f o r thirty, s i x t y o r n i n e t y days,
anticipation
i n
o f a n u n c e r t a i n demand.
Governor Harding.
o give t h e m that
I s it necessaryt
facility a n d give t h e m a preferential rate for doing it?
Governor Morss.
No. I
Governor Harding.
would make i t all o n e rate.
Y o u would make i t all o n e rate, b u t
give them the privilege o f borrowing i t for as long a s they
pleased?
Governor Morss,. A
night loans.
good m a n y o f o u r banks have over-
W e give them the privilege o f rebating, o n
the theory that really the shorter t h e loans a r e with the
Federal Reserve Bank.
t h e better,and t h e quicker t h e y r e -
duce them, i f they d o not need t h e money, t h e r e i s less
temptation
t o p u t t h a t m o n e y o u t somewhere a n d g e t some-
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Federal Reserve Bank of St. Louis
253
thing for i t until those notes become due.
I f we can get i t
back Into the Federal Reserve Bank, the quicker we can get
it the better,
Mr. Hamlin.
D o y o u concur i n the recommendation o f
the Advisory Council?
Y o u balanced t h e t w o alternatives.
How would y o u answer that?
Governor Morss. I
Mr. Hamlin,
should n o t concur,
Y o u should not?
Governor HMorss. N o . I
feel myself t h a t the greatest
damage being done i n this country i s continually increasing
prices, a n d I think everything else ought t o stand aside.
Governor Harding.
I f we c a n ever bring about a n im-
pression that things are liable t o take a drop and not ‘the
other sentiment, w e can d o something.
Mr. Strauss. T h e r e i s n o difference o f opinion a s t o
thet. I
think the difference o f opinion would come i n
as t o t h e e x t e n t t o w h i c h a
slightly higher
of interest would contribute t o the result.
o r lower rate
E v e r y one
will agree that high prices and highwages a r e the things
that are bedevilling the situation.
Governor Morss,. I
would n o t s t o p a t a slightly higher
rate i f i t was necessary t o stop it. I
would adopt a
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Federal Reserve Bank of St. Louis
254
policy o f h i g h rates.
T I would l e t t h e p e o p l e u n d e r s t a n d
that that was t h e policy o f the Feaeral Rserve Banks, a n d
I should advance those rates until I
uation.
got control o f the sit-
A s i t i s today, i f i t goes o u t a n d becomes generally
know, ,aS i t will be, t h a t t h e policy i s adopted t h a t the
Federal Reserve Banks ore not going t o increase their rates,
everybody says " W e a r e Logins every day, a n d w e c a n have
all the c edit w e want,” a n d Tb. lieve you will se:
another wave,
a n accelerated wave, o f high prices imme-
aiately,
Mr, Strauss. C e r t a i n l y , i f the Federal Reserve Board,
or the banks, w o u l d n o t commit themselves t o the policy
of not raising their rate, t h e most that would happen would
be t h a t t h e r a t e r w o u l d n o t b e r a i s e d a t t h e p r e s e n t t i m e .
Governor Harding.
“ h a t vould y o u s s y t o a bank i f y o u
offered t o sell certificates t o 1 t and the bank asked y o u
what w o u l d b e y o u r p o l i c y 4 s t o rates
o f loans secured
by
those certificates?
Gonernor Morss. I
should have t o tell h i m I would take
care o f h i m a t a n y rate, a n d I would b e i n a very awkvard
situation.
Mr, tilliams.
T h e difference between y o u r point o f view
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Federal Reserve Bank of St. Louis
255
and the Advisory Council i s that the Advisory Council thinks
it i s best n o t t o raise t h e rates a t the present time, e n d
you t h i n k w e s h o u l d p r o c e e d a t o n c e t o d o s o ?
Governor Morss.
qualify what I
Y e s . I
say now a s t o
the question o f policy o f advancing rates, t o watch the
situation a n d put u p those rates whenever i t i s considered
necessary,
a n d today I
would p u t u p t h o s e rates, s a y ,
another half per cent, a n d then put them u p further. I
would
not commit myself i n three months o r one month more t o put
them up, but probably I would be guided more than anything
else b y the everage reserve rate o f the Federal Reserve
system.
Mr, Williams.
I s i t your idea that the market should b e
regulated b y raising rates, rather than b y restricting
eredit, b y refusal t o advance?
Governor l i o r s s .I
do not believe t h a t a n y policy o f
at
restricting credit would be/all effective. I
have n o faith
in that view.
Mr, Viilliams. Y o u mean, except by restricting it?
Governor Morss, Restricting i t By the rate?
Mr. Williams.
N o ,
Governor Morss.
b y refusing?
W h e n y o u refuse credit, y o u m y make a
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Federal Reserve Bank of St. Louis
256
mistake, a n d y o u mayrefuse a
fellow a t the wrong tine, a n d
that i s a judgment w h i c h I very much hesitate t o take. I f
a bank comes i n and says " I have got t o have s o much money
today", I do not dare not to give i t to him that day. T h e
do not know t h e condition, b u t w e g o
bank might fail. I
after that bank and a s k when that credit i s going t o b e reduced, o n d insist t h a t i t b e reduced, b u t when h e comes right
in and says that h e has got t o have it, I go into the case
to find out.
Mr. Williams.
Y o u d o not hesitate t o ask h i m t o make a
show down?
Governor Morss.
O h , no, b u t a t the minute h e comes i n I
do not dare take t h e responsibility o f refusing it, because
he m i g h t f a i l .
H e h a s depended u p o n t h e Federal Reserve Bank.
He m a y have gone t o the extreme limit, a n d h e has g o t t o
have i t o r s o m e t h i n g m a y h a p p e n
Governor Harding.
t o him,
I t occurs t o m e thet i n any attempt
to control credit b y direct action there i s this weakness
in it.
Y o u m a y control v e r y casiily
everd
tries t o L o Phings with you.
t h e fellow w h o
Y o u know his condition a n d y o u
know h e c a n reduce h i s line, b u t i t has been brought o u t
that a great m a n y banks a r e not calling o n the Federal R e -
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Federal Reserve Bank of St. Louis
serve B a n k s f o r anything,
OT
a n d t h e f a c t t h a t y o u have c a l l e d
Jones d o w n o r d o not let Smith have a s much a s h e wants,
does n o t have a n y effect o n Robinson.
O n the other hand,
an edvance i n rates i s notice t o non-borrowers a n d everybody
élse that i f they are going t o use your facilities, w h a t
the rates are.
A
n advance i n rates does n o t make a n y dif-~
ference t o the needy borrowers.
Governor Morss.
of a transaction,
N o t a t all.
I f © man t s i n the middle
h e has probably g o t t o carry i t through,
if h e has g o t t o pay 1 0 per cent; b u t i t i s the case o f going
into new transactions, a n d a man i s very much influenced b y
the fact o f whether credit i s plentiful a n d his m i n estimate o f whether t h a t credit i s plentiful o r not i s the rate
he c a n borrow at,
Governor Harding.
W e are coming t o the time that the
Government says w e are going t o reduce o u r floating indebted.
ness b y ;500,000,000.
W h a t I would like t o get a n idea o f
is, h o w c a n y o u call i n that slack a n d prevent i t getting
away from u s a s i t did last September?
necessary,
I s a raise i n rates
o r c a n y o u d o i t b y statements, arguments, a n d that
sort o f thing?
Mr. Morss,
I d o n o t believe y o u c a n d o i t a n y w a y except
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Federal Reserve Bank of St. Louis
258
by the rates.
Governor S t r o n g .
M a y I
a s k a q u e s t i o n r i g h t a t t h i s point:
Suppose there i s a sale o f {400,000,000 o f four and one-~
quarter p e r c e n t c e r t i f i c a t e s
o n t h e l s t o f December.
four a n d one quarter p e r cent now, I
At
think there i s n o doubt
but that the great bulk o f the certificates will b e taken b y
banks a n d b y the larger banks i n the money centers--that i s
the feeling here among the Governors, a n d that a t t he moment t h e y w i l l u s e t h o s e c e r t i f i c a t e s n e c e s s a r i l y a t t h e i r
Reserve Banks.
I n other words, t h e y will take a certificate
of the United States Government a s a n asset and a deposit o f
the United States Government a s their liability.
T h e n they
will have some money t o use, a n d a s the Government deposit
requires n o reserve, t h e y will lend that money t o make ea
profit, w h i c h will induce t h e m t o buy the four a n d o n e
guarter p e r cent certificates.
can get a profit o n the money.
T h e y will lend i t where t h e y
T h e bank which buys t h e
certificate a n d makes t h e profit b y using t h e Government
deposit, l a t e r has t o repay that deposit, a n d then i t comes
to us t o borrow t o make g o o d i t s reserve, a n d s o not o n l y
in that instance, b u t i n all other instances w h e n t h e member bank applies t o u s for a loan,
i t i s a n application f o r
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Federal Reserve Bank of St. Louis
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a loan n o t t e put o u t some m o n e y o n the Stock Exchange o r
elsewhere,
as a
rule, b u t i t i s a n a p p l i c a t i o n
t o us for a
loan t o make good a reserve w h i c h i s impaired b y the withdrawal
o f a deposit w h i c h h a s b e e n c r e a t e d b y a loan.
T h e
damage i s all done, a n d that i s exactly what takes place i n
the certificate o f indebtedness transaction.
T h a t i s why
it is attractive, that i s why i t is inflationary.
I noticedin t h e discussion yesterday that Mr. Leffingvell
disclosed a
plan w h i c h w o u l d m a k e t h a t p l a n m o r e p r o f i t a b l e
than ever t o the banks, because after selling the £ 4 0 0 , 0 0 0 , 00
certificates h e i s proposing t o sell. a
billion anda h a l f ,
and he is anticipating maturities o f certificates t o some extent, and this great fund,created even for a week o r two, o r
three, i s going t o be used. Otherwise there i s n o profit t o
the bank i n subscribing t o the certificates a t all,
I do not knov that Mr. Leffingwell would receive the sug-~
gestion with very great favor, b u t i t has occured t o me that
if h e w e r e w i l l i n g n o w ,
i f t h e T r e a s u r y Department w e r e w i l l -
ing t o squarely meet this situation, t h e y could finance t h e
Treasury b y very short borrowings, b y taking a profit out
of that Government deposit,
i f y o u please, e n d compensating
the banks t h a t take t h e deposits b y a higher rate o f inter-
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Federal Reserve Bank of St. Louis
260
est, borrow v e r y much smaller amounts f o r short periods, a n d
keep this thing rolling o n little b y little until w e g e t
over t h e difficulty; p o s t p o n e h i s w h o l e s c h e m e o f r e f u n d i n g
and take a w a y the inducement t o expansion b y the creation o f
these Government deposits t o the v e r y limit, a n d compensate
the banks b y paying a
better rate.
I think t h e effect o f that would b e t o insure a
very much
better distribution o f these certificates a m o n g t h e people
who have bank accounts a n d would draw o n their bank accounts
to buy them, rather t h a n have them a l l held b y the banks,
where t h e damage i s done.
I cannot believe t h a t a plan b y the Treasury o f paying
higher r a t e s f o r s h o r t m a t u r i n g c e r t i f i c a t e s
i s g o i n g t o have
as much effect u p o n t h e Government's bonds a s would result b y
a policy o f restrictimof credits,
b y denying credit t h a t
puts rates o n the Stock Exchange t o twelve, fifteen o r twenty
per cent a n d diverts credit t o Stock Exchange loans, a n d
generally f o r c e s a
temporizing policy,
get c o n t r o l
liquidation
o f Government bonds,
I t is a
i n order t o give u s a period where w e c a n
o f t h i s situation,
o n d t h e n l a t e r on, w h e n w e have
got t h e c o u n t r y l i c k e d i n t o shape,
more c o m p r e h e n s i v e p l a n o f finance,
w e can come o u t with a
261
Governor Harding, — Governor V a n Zandt will tell u s
“>—wWhout the situation--
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Federal Reserve Bank of St. Louis
Mr. Hamlin, Pardon me, d o I understand that you think
that consumption o f useless luxuries should b e discouraged
today b y higher rates? I
understood t h a t was Governor
Strong's position,
Governor Morss. Discourage the consumption o f luxuries,
put m y laea te.c
Mr.Hamlin. I
mean useless articles.
Governor Morss.
T h e point i n m y mind i s that a s people
get higher wages they buy higher priced end more expensive
clothes, s o m e o f them.
Y o u might s a y that clothes a r e n o t
a luxury; that a men has got t o have a pair o f shoes, but
it makes quite a difference whether h e pays *6.00 for a
Pair o f shoes o r $12.00 for a pair o f shoes.
T h e same thing
is true o f a sult o f clothes o r a shirt, o n d evervthing
that @ man wears,
A r e those luxuries?
T h e whole tend-
ency o f this thing i s t o encourage t h e m t o buy a t hircher
prices.
i f you g o into a n y o f the retail stores t h e y will
tell y o u t h a t t h e p e o p l e a r e d e m a n d i n g h i g h e r p r i c e a
goods rather t h a n t h e goods t h a t were s o l d i n the past;
that t h e y are selling those goods t o customers t h a t t h e y
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Federal Reserve Bank of St. Louis
26°
never h a d seen before, people w h o come i n there a n d b u y
these h i g h p r i c e d g o d s
For instance,
and pay m
sh m o n e y f o r them.
t h e r e i s i n Boston «
c o m p a n y ecnalled t h e
Chickering P i a n o Company, w h i c h y o u a l l know, w h i c h m a k e s
the h i g h g r a d e planos. I
was t o l d t h o t t h e people t h e r e
eannot s e l l l o w gerade planos a n y more:
t h a t t h e peovle c o m e
right i n and went t h e best plano t h a t i s medes t h e t t h e y
are n o t adkineg f o r a n y credit,
bills: o u t c o r t h e i r - p o c k e t
b u t t h e y pull o
ro17- o F
a n i t a y f o r I t , c n c tnet: is i h e
kind o f t h i n g t h e t y o u a r e e n c o u r a g i n g .
Mr. H a m i i n . “ o u l d y o u s a y then that there w a s a con-
aition i n your district demanding hieher rates for the
purpose o f repressing consumption e r production generally,
as apart f r o m what w e call luxuries?
Governor M o r s s .
I d o n o t b e l i e v e I T quite u n d e r s t o n d
your question.
Mr. Hamlin.
I s there anything i n your Jistrict,
a s to
general business conditions, w h i c h i n your judgment demands
higher retes, leaving o u t n o w t h e question o f stock speculation, gambling,
o r anything o f that kind, b u t just tok-
ing general business conditions,
anything there t h a t demands a
v
g o y o u think there i s
higher rate f o r t h e pur-
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Federal Reserve Bank of St. Louis
265
pose o f r e p r e s s i n g e i t h e r p r o d u c t i o n
Governor Morss, I
o r consumption?
do not think i t {ts peculier t o our
district.
Mr, Hamlin. N o , but I mean i n your district?
Governor Morss. I
think that this condition i s gen-
eral i n our district a n d i n every other district.
Mr. Hamlin.
Y o u think there should b e higher rates
i n
some way t o affect the amount o f commercial production an3
distribution a n d consumption?
Governor Morss.
I o thinkw e ought t o have higher rates,
and the prime object would b e t o cultivate t h e feeling
on
the part o f the people t h a t these advancing vrices have
come t o a stop.
Mr. Hamlin.
" o u l d h i g h e r r a t e s t e n d t o depress m a n u -
facture, d i s t r i b u t i o n e n d c o n s u m p t i o n ?
Governor Morss.
Mr. Hamlin.
I n m y opinion i t would.
I n your opinion, t h a t i s desirable i n
your district a n d i n all t h e districts?
Governor Morss. I
think that i s the whole thing.
Mr, Farrell o f the Steel Corporation,
i n addressing some
convention o f s t e e l m e n , s a i d t h a t c o n s u m p t i o n t o d a y i n
this country was sbnormal.
views.
N o w , h e 1s & man o f wide
P e r h a p s s o m e o n e else m y h a v e different views;
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Federal Reserve Bank of St. Louis
264
put t o m y m i n d t h i s q u e s t i o n i s this:
especially p e r s o n a l c o n s u m p t i o n ,
in. price b u t abdrorm1:
Mr. H a m l i n .
t h n t consumption,
i s n o t o n l y abnormal
i n quantity.
Y o u s a y t h e t w h o l l y a p a r t f r o m c n y specu-
lative ectivity?
Governor “ o r s s .
P n t i r e l y ap:rt f r o m e n y speculative
activity, yes.
Mr, Hamlin.
T h e rates that might depress ordinary
business w o u l d have v e r y little effect o n purely speculative activity, w o u l d they not?
Governor Morss.
feel thet t h e
A s I saia before, I
people believe t h a t this e r a o f high prices i s still up-~
ward, a n d o n e o f the fundamental reasons P o r bnat 1s. the
fact that credit i s unlimited. I
think m u c h o f i t I s
caused b y the fact t h a t rates a r e low.
T h e retes o f the
Federal Reserve B a n k a r e practically t h e o n l y things
thet have n o t advenced i n this country.
credit i s the cheapest thing there i s .
-that i g the fundamental trouble.
Therefore
Now, I
W h e n a
belteve
man considers
dehis business h e says, "Nell, o f course there i s this
mend, prices a r e going t o be higher, b u t I
can g o into
cheap."
the operetion because credit i s plentiful and
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Federal Reserve Bank of St. Louis
265
Mr. Strauss,
view o f the o
Mr. Morss,
I f credit w a s higher, w o u l d h e not, i n
e
s i m p l y a d d i t t o the cost?
No, I
do not believe h e would g o into it,
and I w i l l tell y o u why. I
was talking t o a friens o f
mine, who i s a textile mill man, and h e tol3 m e that h e
had been offered o a contract that would tale half o f the
production o f his 7 i 1 l f o r a year.
T h e question presented
itself t o h i m should h e take t h e contract.
I t was a
favorable contract and h e never h a d h a d such o
very
contract
offered h i m before i n his whole e x p e r i e n c e .
But
hesaid "If I ao, I have got to go in and bid against
myself o n the r e w material, because I
cost i s going t o be.”
70 not knor vrhet the
H e i s a pretty conservative, c a r e -
ful man and he did not dare d o it.
of people w h o take those chances.
B u t there are lots
T h e thinr that faced
him was, what were the goods going t o cost him?
Mr. Hamlin. Undoubtedly, b u t the man who would take
that chance i s not going t o be deterred b y the fact that
he has g o t t o pay 1 per cent more f o r his money-Governor Morss.
actual figures.
B u t h e watches indications m o r e t h a n
A r e things g o i n g t o be “igher,
o r are
they going t o b e lover? T h a t i s t h e thing h e ratches.
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Federal Reserve Bank of St. Louis
266
When credit i s where i t i s now, w h e n t h e Federnl Reserve
Banks d o not edvance rates,
h e says well, a s t o the credit,
that t e oll PUgnt, because eredit tse cheap. a n d prentitul,
I d o n o t h a v e t o c o n s i d e r t h a t e n d o f it.
ny P r e , (etter.
“ o u l d y o u venture o
general opin-
fon upon this question a s regards y o u r district, w h e r e
you have folloved this expansion o f bank credit, a s t o
whether w h a t ere edmittedly speculative uses i n demands f o r
money are t h e main cause o f the expansion,
o r whether
demand b y industries that are producing luxuries o r necessities, i s the main cause o f the excessive u s e o f credit?
Governor “orss. I
the word "speculative"
as I
would l i k e t o k n o w hot’ y o u d e f i n e
i n that case. I
vould d e s c r i b e i t , i s w h e n 2
fal for o year. I
feel that speculation,
man buys h i s r e w m t e r -
call that speculation.
Mx, Miller, S p e c u l a t i o n i n industry, buyine f o r t h e
raise,
B u y i n e f o r t h e raise, y e s .
Governor “orss.
Mr, Miller.
B u t I was using t h e t e r m i n the ordinary
sense o f s p e c u l a t i o n
Mr. “lTillioms.
i n securities.
o u l d h e not b e more speculative i f
he did not protect himself b y covering u p o n his raw
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Federal Reserve Bank of St. Louis
material?
2
Governor Morss.
6
7
I t would b e a rood deal less i f they
were n o t offered s u c h absurd contracts.
T h e contracts o r e
offered because t h e y believe t h e prices a r e going t o b e
higher.
Mr. Miller.
" h e t i s your general judgment,
o r your
guess, a s t o whether o r not t h e expans lon o f the benks i n
New England, specially, l e t us say, i n Boston, a s s h o m b y
the e x p e r i e n c e d u r i n g t h e l a s t t e n months,
i s due t o the
demand o f customers f o r funds w h o want t o use t h e m i n speculation
o r t o t h e demands
o f manufecturers
e n d merchants
who want t o use t h e m i n their business enterprises?
Governor “orss,
O h , t o the merchents a n d monufe ctur-
ers entirely, o r t o s very large extent.
Y o u take our
banks t h a t have h a d enormous demands o n them from their
customers, with prices twice a s high a s they used t o be,
and that i s where t h e demand is.comine from, undoubtedly.
Mr. Maller.
Y o u t h i n k t h e r e i s g o i n g o n i n industry,
what i s ordinarily called leritimate industry, a
great
amount o f bidding for end borrowing o f funds for more o r
less s p e c u l a t i v e e x p a n s i o n ?
Governor Morss. I
do, yess
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Federal Reserve Bank of St. Louis
Mr. Hamlin, S p e c u l a t i v e business?
Governor a r e a s
in, Miller,
has b e e n ’
Yes,
2
i n anticipation
6
8
o f hirher prices.
. i want t o s o y that. I think your shalyveits
m o s t intelligent a n d most informing,
D o you
think that the good that might b e done through increasing
mates, assuming that a n increase i n rates would control a
Bituation o f tris kind, i s sufficiently promising t o make
it advisable
t o g o a h e a d i m m e d i o t e l y o n d a p p l y t h e remedy;
that is, d o y o u think f r o m your point o f view, t h a t t h e
harm thet will result f r o m leaving t h e rate situation i n
its p r e s e n t s t a t u s
t o t h e e n d o f t h e year, w h e n t h e p r o g r a m
of the Treasury will b e measurable t a k e n care of, will b e
sO great that i t i s more advisable t o g o eatead,
Governor M o r s s .
I t i s pretty h a r d t o measure w h a t t h e
effect would b e i n the next t w o months.
months
i t hes c o s t t h e average reserve
Banks about 5
I n the lest s i x
o f the Federal Reserve
per cent, h a s i t not?
Me, MiLLery: v e s ,
Governor Morss.
“take f o r t h e next 5
Y o u are pretty low.
H o v long 1 t will
per cent t o g o I do not know, b u t y o u
are going t o let i t g o out pretty fast, a n d apparently a t
an a c c e l e r a t e d p a c e .
269
Mr. Miller.
Y e s , b u t y o u cannot s a y t h a t t h a t a c c e l e r .
ated pace i s due t o illegitimate commercial demndgs f o r
eredit a n y more t h a n i t i s due t o the need o f the banks f o r
that credit t o take care o f allotments o f Treasury errtificates.
There h a s been a n excess demand this y e a r for u s e o f
funds
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Federal Reserve Bank of St. Louis
i n taking c a r e o f t h e crops.
T i t s i s t h e first. t i n e
in the history o f the Federal Reserve system that t h e real
burden o f moving crops has been upon it.
assumption t h a t «
I t is a fair
large, a l t h o u g h i t m e y b e a n indetermi-
nate portion, o f released credit i s for legitimnte use.
I would like to say a word here, because I think Mr.
Forss' analysis o f the situation i s the most illuminating
thing that has been presented t o any of these Conferences
that I have attended.
I t falls tn: with m y o m views, a n d
perhaps that i s the reason why I approve i t s o highly. I
think i t i s only e s y o u concur w i t h h i m i n his diarnosis
of the situation t h a t there i s sony “arreant o t all for at-
tempting t o deal with the existing credit situation
through t h e control o f rates.
I think f o r t h e first t i m e t h a t w e have now, sharply
differentiated, t r o conditions, o n e o f abuse o f the
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Federal Reserve Bank of St. Louis
270
credit facilities o f the Federal Reserve system through
speculation o n the Stock Exchange a n d elsevhere, a n d another
through t h e e x c e s s i v e u s e o f t h e f a d lities
i n ordinary
planes o f industry, w h i c h are, mervertheless,
a s h e sug-
beta: ‘Sigeed with a good d e e l o f speculative interest a n d
impulse. I
have l o n g suspected t h a t d n ordinsry menufact-
ure a n d i n ordinary merchandising there h a s been a@ good deal
of speculation b y men who would utterly scout t h e idea that
they w e r e d o i n g a n y t h i n g o f a
speculative nature,
are buying i n anticipation o f a rise i n prices.
speculation.
but who
T h e t Is
i t i s not speculation o f the orronized kind,
but i t means there i s a bidding f o r funds i n order t o
carry i n c r e a s e d i n v e n t o r i e s ,
a n d t o b u y materials b e f o r e
somebody e l s e g e t s t h e m , a n d s o f o r t s
in m y judgment,
cheap and easy.
on for a
a n e that. presese,
i s greatly focilitated w h e n credit i s
N o w I
think that process h a s been going
very considerable time.
have h a d p r e p a r e d
F o r m y information I
b y our statistical department figures
o n
the growth i n the deposits o f all t h e banks i n the United
States,
o f the National, S t a t e banks, a n d trust companies,
and, indeed,
covering a period since w e went i n t o the war,
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Federal Reserve Bank of St. Louis
294
since t h e beginning o f the w a r i n 1914,
In J u n e 1 9 1 4 t h e t o t a l d e p o s i t s
o f nll the banks
o f the
United States amounted t o £16,000,000,000 and a quarter,
and o n October 1 , 1919, accordinse
t o estimetes
o f o u r Jivis-
ion, they had inereased 100 per cent and vere *33,160,000,000.
That i s t o say, w e hod just doubled the volume o f credit
in our country i n a period o f five years.
More interesting than that i s what happened since w e
went into the war, ‘fn March,1917, the total volume was:
tiéyty four billion a n d eight-tenths, a n d o n November 1 ,
1918, about the time o f the armistice,
i t was trenty eirht
billions ané eight tenths; that is, i t head grom about four
billions during the ective period o f the war.
I n the eleven
months t h a t have elapsed since November 1 , 1918, t h e period
of the armistice, i t has grown more than i t 214 jurine the
period o f active hostilities; t h a t is, i t hes grorm
©4,300,000,000,
s n increase i n a period o f nine months o f
14.9 per cent. N o w , that i s a monstrous increase i n the
use o f credit. I
agree tith Goveynor Morss that that i s
one o f the main things t h a t has boosted prices i n the United
States,
T h a t is a
p r o b l e m t h a t i s p e r p l e x i n g t h e neople,
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Federal Reserve Bank of St. Louis
272
now that the war is over, and I think if this thine continues w e will g o o n having still further rises i n prices a n d
more o f t h e u n r e s t t h a t t h e i n c r e a s e d c o s t o f l i v i n g p r o -
duces.
B u t strongly o s I feel that, strongly a s I feel f t
is only a s the general volume o f credit i s eventually brought
under e f f e c t i v e c o n t r o l ,
i n which rates m u s t p l * y their part,
although not a r exclusive part, will the Reserve system finally get i n t o control o f the total situation.
B u t neverthe-
less I feel that, having gone along a s far as we have, and
os long as w e have, i t woulda be very inrdvisable, f o r the
purposes o f bringing this control i n t o effect,
t o embarrass
the T r e a s u r y p r o g r a m . i n t h e n e x t t r o months, a c c o r d i n e
t o the
stateme-t o f Mr. Leffingvell, t h e r e i s eGclve t o be 2s very
considerable change i n the position o f the Treasury. I
the
question v e r y much, e v e n 4 f I felt o s optomistic about
result
effect o f rates a s Governor “orss does, whether t h e
like « 6
you would obtain a t this time, through anything
with t h e inmoderate increase i n rates, would b e comparable
s u c h apoljury that y o u mould d o t o the Treasury through
icy.
s o fer a s i t
T h e n w e set the a o d o f the country,
interests o f
48 involved i n the situation, against t h e
t o b e measured i n terms o f
the Treasury, t h a t good i s not
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Federal Reserve Bank of St. Louis
ig D
n
)
think all w e have
weeks, o f a month o r of two months. I
standpoint o f
to d o i s t o look a t the situation f r o m the
the n e x t t w o months. I
t h i n k w e e r e a l l agreed t h a t a s soon
b e naites.
as conditions are favorable that the rates should
but w e a r e r e l u c t a n t
t o d o i t a t this juncture. I
do not
feith i n the n e ~
believe a n y one i n this r o o m has a n y more
the general
cessity eventually, when we obtain control of
situation o n a National
B E
t
h
e efficacy o f rates t h a n
costly and
I have, y e t I believe i t would b e demoralizing,
to operate
Slileadvisea at this date t o go ahead and attempt
control o f the c
i t woulda
edit situation i n general, w h e n
a n d erbarrassment t o
obviously b e a t s o heavy a n expense
the Treasury.
that while you Tam inclined to think, Governor “Morss,
that, having
have given a good diagnosis of the situation,
i n the interest o f a sit-~
have,
we
a
s
long
a
s
been patient
not
we will/err i f we
uation that nohody could ¢ontrol, that
t h e Treasmonths longer a n a give
three
o
r
t
w
o
are patient
ury a
chance
woods,
t o met o u t o f the
8 0 that w e n o L o n g e r
what the
necessity o f asking
need b e under t h e constant
certi
next issue o f Treasury
the
upon
be
t
o
effect i s going
t o the
cen address ourselves
b
u
t
Bonds,
Liberty
teates o r
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Federal Reserve Bank of St. Louis
274
question o f n e t r e s u l t
o f t h e general control
o f credit a n d
the improvement o f the credit situation, f o r which free
and easy use o f the facilities o f the Federal Reserve svstem i s mainly responsible.
Governor Morss.
M a y I ask what y o u would J o if, before
the Tréasur’ program i s out o f the way, t h e reserves o f the
banks should g e t below t h e legal level?
Mr, Miller. I
but I
may be terribly obtuse o n that question ,
do not think i t amounts t o enything i n the situation
that v e are i n i n this country, w i t h reserves Seclining n o t
through loss o f gold t o a n y consigerable extent, b u t through
expansion o f credit,
T h e reserve question i s o n l y import-
ant i n connection w i t h t h e discussion o f the thing that
pulls d o w n t h e reserve.
Now, I
think i f w e h a w a
Jecline
in the reserve i n the next s i x weeks i t will b e very largely
due t o n e w o p e r a t i o n s w h i c h t h e T r e a s u r y w i l l b r i n g o u t a n d
put through, a n d that situation will, I
Natural corrective. I
think, f i n d i t s o w n
do not know t o what extent t h e dis-
bursements o f the Treasury a r e being used i n liquidation
of war contracts, b u t I
am under t h e impression that t h e y
are being used t o a very considerable degree f o r that purpose, a n d that a part o f the funds t h e t t h e Treasury pays
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Federal Reserve Bank of St. Louis
aa
out will, i n time, flow back into the banks anc correct the
loan accounts.
I n other words, I
reconcile myself t o that,
think that t h e largest part o f the
ir, Morss, because I
credit demands t h a t are being made b y the Treasury natur-
ally flow into the goneral body of the country's cirmleting c r e d i t a n d i n f l u e n c e s p r i c e s .
Governor Morss.
O f course,
i f the reserves o f the
Federal R e s e r v e B a n k s w e n t b e l o w t h e l e g a l l i m i t t h e r e
would b e c o s i d e r a b l e r e s p o n s i b i l i t y p l a c e d
o n somebody,
on the person r h o alloved t h a t thing t o happen.
T h e law
says t h a t there i s a legal limit, e n d I supposa@ i t was t h e
duty of the Federal Reserve Bank t o protect that limit,
except perhaps under some special circumstances o s © war
might bring on, but i t is only i n such 4& emergency a s
that that they have the right t o say that they should not
be protected. T h a t is the way I feel about it. O f course
if you get below t h e legal limit e v e r y financial paper i n
this c o u n t r y w i l l h a v e h e a d l i n e s
t o t h a t effect,
o s they
did with respect t o the N e w York Bank, stating t h a t t h e y were
below thelr legal limit.
Mr, Tilliems.
B u t i t was not. below it.
Governor Morss. I
know i t v a s not, b u t t h e Financial
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Federal Reserve Bank of St. Louis
276
Chronicle stated more than once that the New York Bank had
gotten i n s u c h e condition that i t was below i t s legal r e serve,
althoughw
e know t h a t i t was n o t setually belor i t s
legal r e s e r v e w h e n t h e m t t e r
w a s p r o p e r l y firured.
A t the
same time, t h a t illustrates w h a t t h e financial papers vould
do i f w e g e t t o that point.
Mr, M i l l e r .
‘ h a t d o y o u think that rould d o ? S u p p o s e
the reserve should get below the legal limit.
D o you think
the people would r u n upon t h e banks?
Governor tforss.
T o m y mind there i s a limit, t h e point
will come w h e n this inflation will b e s o grent thnt y o u
cannot c a r r y it--
Mr. Miller, A r e n ' t you going too far ahead? I s it
not a
question o f t h e next t w o months t h a t v e should dis.
cuss a t this time?
I t i s a guestion t o m y mina fhether w e will
Mr. Morss,.
get there i n the next t w o months; whether i n thet time y o u
will g e t t o a
point w h e r e y o u v i l l b e b e l o w t h e l e r a l r e -
serve.
Mr. Miller.
Y o u mean t o s a y when the reserves will g e t
below t h e legal limit?
Governor M o r s s .
Y E S .
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Federal Reserve Bank of St. Louis
‘
road |3
Mpy Hamhkin., ..'Do y o u mean the combined reserve?
Governor Morss. T h e combined reserve, yes.
Governor Strong, I
question
o r two,
First,
if I
would like t o ask Dr. Milter s
my.
y o u spore o f the liquidation w h i c h will r e s u l t
from the settlement of these war contracts going
around i n
eircle a n d g e t t i n g b a c k t o the liguidation o f
bank loans.
That i s exactly the program which was laid out ana
empha Sized,
at 4
S
e
i n N e w York,
b y “r. L e f f i n g r e l l w h e n
the September 5 t h program was discussed.
H e Explained t o
the banks t h e n that t h e Government debts would b e reduced
about 500,000,000, o n d that h e anticinated a certain ease
of money; t h a t the release o f this %500,000,000 o f credit
would result i n the payment o f loans t o the memberbanks
and
in t u r n t h e m e m b e r b a n k s woulda l i q u i d a t e t h e i r l o a n s w i t h
us. N o w , I
held that that was a fallazvy,and I
experience has shown that i t is a fallacy.
believe t h a t
A s a matter o f
fact, that $500,000,000 was absorbed i n the loan accounts
of the commercial banks o f the country and ebout $400,000,000
more.
W
e added t o the reserves, t h e gold reserves o f
the Federal Reserve s y s t e m a
t about t h e same time,
©150,000,000, T h a t has been absorbed, a n d the loan ach
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Federal Reserve Bank of St. Louis
278
countsof t h e m e m b e r b a n k s
o f the countr
h a v e increased o v e r
$1,300,000,000.
Mr. Miller.
T h a t was mainly i n the l o a n account o f the
stock b a n k s a n d w a s n o t s p e a lation-Governor S t r o n g .
N o ,
a n d t h e figures s h o w i t was not.
They show a n increase i n the l o a n acw@unt i n that period
which was trifling a s compared w i t h t h e increase i n the other
loan account t o which Governor Morss refers.
ir, Miller.
But I
those things. I
do n o t think y o u can differentiate
d o not think anybody knows except t h e banks.
" Governor Sifoug.
W e get the figures every day i n New
York, Mr. Midler.
Mr, Miller. T h o s e figures d o not s h o w t o what extent
the increased credit t h a t the banks h a v e p u t o u t i s used f o r
the o n e purpose o r for t h e other.
Goyernor Strong.
C f course, a s Mr. Strauss knows, t h e
analyses d o disclose that, because t h e y are subdivided f o r
that purpose.
Mr, Miller,
M y belief i s that t h e growth i n the last
factors,
three m o n t h s c a n b e t r a c e d t o t o p r i n e i p a l
o n e the
t h e other f o r
absorption o f f u n d s f o r s t o c k s p e a l a t i o n a n a
the movement o f crops.
B e c a u s e o f the crop moving re-
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Federal Reserve Bank of St. Louis
ad S
A
o f credit i n
quirements w e have entered i n t o a n expansion
derable.
the last three months t h a t i s very cons
that
Governor Strong. D r . Miller, t h e other question
I wanted t o ask,,if I may, i s this:
Y o u r opinion i s that i t
we have constantly
4s unwise now t o change the program which
pursued f o r t w o years, when,
i n two months o r so, t h e Treas-
will then be free
ury will have completed its program and w e
of that restraint.
Frankly, w h a t I
that i s
cannot g e t a w a y from i s this:
with dire results.
exactly what was done i n Septerber
of #1,400,000,000
Furthermore, i t involves the refunding
interest levels, a n d
of Government obligations a t present
then i f a
change
o f rates
i s necessary,
o r thought
t o be
t o say
United States i s going
wise, e v e r y bankerin t h e
party to it deliberately.
"tre were hooked,” and we are a
h e did not know that w e
Mr. Glass said yesterday that
com~
t h e Federal program vas
would increase rates after
months w e
s a y s that'in t r o
Leffingwell
Mr.
pleted. T h e n
are emancipated."
are out of the way and you
D o e s that
oblirefund Government
mean that w e are t o deliberately
we are going to raise
gations at this rate, knowing that
that, having been com=mean
i
t
does
o
r
our rates later,
280
committed t o a refunding operation a t the present level o f
rates, w e cannot i n good faith raise our rates later? I d o
not know, a m a I
want t o know, because i t will have a very
important b e a r i n g
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Federal Reserve Bank of St. Louis
o f o u r Danie.
o n t h e attitude
The general consensus o f the views o f the m e n i n this r o o m
4s that t h e next issue o f certificates a t four m d one-half
per
O S
w i l l h a v e t o b e s o l d principally t o t h e b i g banks
and thet t h e y c a n o n l y b e sold i f w e agree t o carry t h e m a t
no loss t o them.
O f course t h e y will b u y them witr t h e ¢ x-
pectation o f gradually liquidating t h e m t o the public,
if
the rate i s right a n d t h e y a r e attractive t o the public.
the case o f the long ertificates,
are i s s u e q w i t h m a t u r i t i e s
I n
i n the a s e o f those which
o n tax-paying d a t e s , e v e n a t
t o the
caper r a t e s , t h e y c a n Lliguidate t h e m b y s e l l i n g t h e m
heavy taxpayers.
Mr, M i l l e r .
T h e four a n d a
quarter w e r e f o r t h r e e a n d
one half months, maturing i n March.
Governor Strong.
ury has i n mind.
ave
I a m n o t clear e s t o what the Treas-
be
T h e first issue o f $400,000,000, t o
purposes.
December 1 , i s specifically f o r t a x
M y un-
o f a billion a n d a half
derstanding i s that t h e other issue
a n d three quarters p e r
will bear four a n d o n e half a n d four
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Federal Reserve Bank of St. Louis
231
cent, w h i c h would, i n d i c a t e t h a t t h e y a r e n o t f o r t a x p u r -
Poses, T h e ones mturing i n eighteen months would not have
any relation t o taxes.
lr. Strauss, I
understood t h a t t h e y were a l l t o b e co-
incldental w i t h t a x payments.
Governor Strong. T h e r e would not be any inducement for
taxpayers t o buy one year a n d eighteen months! maturing certificates i n anticipation o f revenue t o be received b y the
taxpayer
i n t h e n e x t s u c c e e d i n g t a x year,
Ingeneral, if the effect of the issue of certificates
at l o w rates i s productive o f the same results a s the last
Sale,
i t would meen something l i k e over a Dillion a n d a
quarter o f certificates would be taken i n the Second Digtrict. I
hear o n e t h i n g f r o m Dr. M i l l e r ,
that a s soon a s
the Treasury program i s o u t o f the w a y let u s tackle t h e
rates, a n d o n the other hand I am going t o hear from every
banker i n New York t h e statement t h a t t h e y heve b e e n d c céived, t h a t w e have m d e a
rate t o enable t h e m t o buy
the certificates and os soon as they bought them we have
raised o n the rate, m k i n g i t unprofitable and disastrous
to t h e m a f t e r t h e G o v e r n m e n t d e p o s i t
Governor Calkins.
i s withdrawn.
I t seems t o m e there i s n o difficulty
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Federal Reserve Bank of St. Louis
2&2
regarding the propoged %400,000,000 o f three and one-half
for I
months m a t u r i t y c e r t i f i c a t e s ,
cannot s e e a n y r e a s o n
a
why the Federal Reserve Banks should n o t b e committed t o
four a n d o n e q u a r t e r r a t e o n those u n t i l m t u r i t y .
T h e rate
been
on the larger amount o f longer maturities has not yet
a n d if: i t d e f i x e d a t a
tized,
different r a t e , t h e a r g u m e n t
seems t o m e t o b e more o r less shot t o pieces.
F o u r and
mentioned
one-half a n d four a n d tmee-quarters h a v e been
as t h e p r o b a b l e r a t e s .
Governor Passmore.
I f it i s Aetermined that i t is not
time, w h y need
wise t o make a n y increase i n rates a t this
future?
we moke a n y commitment a s t o the
Governor Harding. I
do not think v e ought t o come t o
any jet ermination o f that here.
Y o u have your o w n sirect-
ors t o consult i n your o w n Aistricts.
Y o u should indicate
views are nov, but i t
to the Treasury officials what your
seems
to m
w i l l srise¢
t h a t w h e n y o u get home conditions
which present a
very aifferent situation.
I f your board o f
t o establish a rate, subject
jirectors deems i t necessary
I do not s e e w h y i t should
to the approval o f the Board,
anyreasonable, regardless o f
not be done, i f the rate i s
thing t h a t i s s a i d here.
T
back
f there i s a condition
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Federal Reserve Bank of St. Louis
283
home that needs attention, recommend t o your board o f
directors what y o u think ought t o be done, t h e i r action
can t h e n b e s u b m i t t e d f o r approval,
e n d i f i t i s not ap-
proved b y t h e Board, t h e n t h e r e s p o n s i b i l i t y
i s n o t o n the
Boerd. o f Pirectors,
Governor Strong.
A s s u m m i n g that w e d o not increase
the rates w i t h the expectation t h a t other measures w i l l b e
taken t o protect the reserves o f the bank o n d that t h e
bank w i l l e x e r c i s e s o m e c o n t r o l o v e r credit, I
want t o s a y
I wasinterested i n the visit o f Mr. Strauss a n d Governor
Harding to New York, because i t gave you gentlemen a n opportunity t o s e e mhat was being done there i n the w a y o f
keeping our books, and so on, and I will be very much interested i n getting your views a s to just what impression
itmade on you. I
think it will be. interesting to the
whole meeting because i t represents t h e accounts o f banks
that are loaning over $700,000,000 o n the New York Stock
Exchange .
Governor Harding.
T h e loan accounts that we saw, with
one possible exception, I do not think could be regarded
been 4
as joessive. T h e one exception was a bank that hed
very large subscriber t o Liberty Bonds a n d t o issues o f
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Federal Reserve Bank of St. Louis
284
certificates.
M y gencral impression was that the banks there
realized t h e B r a v i t y o f t h e s i t u a t i o n a n d t h e t
t h e y were anx-
lous t o cooperate a n d d o all that t h e y could t o
restrain
this extreme speculation. I
d o not think thet they could
fairly b e chorged w i t h responsibility f o r t h e speculation
which hes existed.
7 6 were informed t h a t a
new element
had taken hold o f things, that a lot o f outside money was
coming there; t h a t while t h e Stock Exchange i n New York
was t h e visible scene o f this speculative tendency, t h a t
it originated f r o m all over t h e country a n d that one district w e s about a s responsible a s another.
Governor Strong.
T h e figures I received lest nicht from
the bank s h o w a reduction i n Stock Exchange loans b y New
York institutions loaning their own funds o f 125,000,000
and a n increase i n the amount o f funds loaned f r o m o u t o f
town o f about “57,000,000.
I w a s exceedingly anxious that
Governor Harding a n d Mr. Strauss s h o u l d g e t a view an3 f o r m
an opinion o n the measures w h i c h t h e Reserve B a n k itself w a s
taking t o keep track o f the situation a n d to impress those
views upon the member banks there.
Governor Harding.
no doubt about that.
T h e whole s y s t e m was sound, there i s
Y o u have a
daily analysis o f the
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Federal Reserve Bank of St. Louis
285
holdings
o f the banks
i n bonds a n d c e r t i f i c a t e s
a n d loans
from the Federal Reserve Bank, a n d what t h e y w e r e d o i n g generally;
y o u are i n very close t o u c h with it.
Governor Strong. Yestcrday Secretary Glass took the nosition that t h e present difficultics w e r e caused b y the neg-
lect o f the Reserve Banks i n dcaling with the situation. I
think h e i s assuming that there has been neglect because
there has been a result, b u t m y personal view is--I said too
much yesterday, a n d I
am conscious o f it--but m y personal
view is that what damage has been done the Treasury Department
itself i s d i r e c t l y d
n
a entirely responsible for; that r e
are the victims o f a situation which w e d i d not create, a n d
Iam anxious t o correct that to every extent possible, I
believe Secretary Glass has got a wrong vier of rmt happened,
a n d h e places t h e r e s p o n s i b i l i t y f o r i t u p o n t h e
management
o f t h e R e s e r v e Banks.
I would like n o r t o a s k t h e Federal Reserve Board t o
examine t h e Bank a n d s e e what i t has done,
T h e fact i s
that money, credit, h a s been pouring i n t o N e w York f r o m all
over t h e United States, a n d w e have informed ourselves a s
well as we can of the situation. O n e banker in New York
iter ,
told me that his institution was lending/ninety and one
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Federal Reserve Bank of St. Louis
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hundred m i l l i o n d o l l a r s f o r i t s e l f c o r r e s p o n d e n t s
town.
out of
A S &@ result o f one o f m y talks with h i m h e investi-
gated t h e condition o f every o n e o f those banks which were
correspondents
o f his, a n d h e f o u n d t h a t n o t o n e o f t h e m w a s
borrowing money from the Reserve Bank, A n o t h e r banker told
me he was loaning thirty to forty million dollars for his
correspondent, a n d upon investigating i t h e found that
those funds c a m e f r o m eighteen different States, including
the States o f North a n d South Carolina, Georgia, Florida,
Louisiana, Mississippi a n d Texas.
Now, I
we. Can S o i n New York t o control. that,
d o not know what
i t n e recourse i s
had t o rates a n d t h e b u r d e n i s t h r o w n u p o n N e w Y o r k e n t i r e l y
of controlling the New York Stock Exchange situation, then I
want t o know what i s going t o be done about this *700,000,000
loan a c c o u n t ?
A r e w e t o undervrite a n d p a y i t o f f ?
Goyernor Harding.
M y personel: view i s that the condi-
tion i n this country i s more serious t h a n i t wes during the
war. I
think i n September, 1918, w h e n t h e tide o f war had.
turned,
t h a t w e were
e
s p i r i t o n the part o f the people t o conserve and
o
i n better p o s i t i o n t h a n w e a r e n o w , be-~
save, A f t e r t h e armistice, a f t e r t h a t first hesitation,
there h a s been a n apparent disposition o n the part o f all
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Federal Reserve Bank of St. Louis
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Classes n o t t o concede anything.
T h e producers o f commodi-
ties trant p r i c e s m a i n t a i n e d a n d advanced ; l a b o r d o e s n o t
want t o make a n y concessions a n d want their wages m i n t a i n e d
and advance, a n d then this terrible extravagance t h a t w e
have a l l spoken o f seems t o have gripped t h e people, a n d when
you contemplate the whole thing i t looks like the Nation
is not altogether i n its right mind; i t looks like i t is
Crazy.
W h e n y o u consider t h e conditions
i n Europe .and
the conditions right here i n our o w n country, I
do not think
the people realize j u s t what serious possibilities confront
us.
T h e lives o f each o f you gentlemen i s i n your o w n
hands.
Y o u d o not know a t what moment y o u m y b e t h e victim
of some bomd outrage o r other.
“ l e have a situation here
that w e never have b e e n accustomed t o contemplating, a n d I
agree that possibly the only remedy that w e c a n put i n
force i s t o apply some check t h a t will bring sbout first
a drastic reduction i n consumption, o n d that,
will s t i m u l a t e
i n itself,
a n interest f o r production a n d g e t u s back
once more i n t o the position o f being more conservative a n d
economical i n our daily mode o f life.
Gentlemen, I
e had better take a recess a t this
thinkr
i
g
time, if we are to keep our luncheon engagerent,
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Whereupon,
a t 1 1 5 o'clock P M,.recess.wes t a k e n until
3 45 o'clock P.M. o f the same day).
AFTTR RECESS,
The Conference reassembled a t 3 45 o'clock P. M., pur-
suant t o recess, Governor Harding o f the Federal Reserve
Boar?¢ presiding.
Governor H a r d i n g .
G o v e r n o r Strone, b e f o r e v e procecd
with t h e regular order,
Governor Strong, I
d o y o u care t o make o a statement?
think the meeting vould b e interest-
the
ed i n hearing a report t h a t lr. Case just gave m e over
York
telephone i n regard t o what h a a transpired i n New
Loday. S t e r l i n g ,
Low $4.00 demand.
12 p e r cent.
a s y o u know, c a r l y today sold d o m b e -
was
T h e renewal rate for money yesterday
money was
T o d a y , f a i r l y e a r l y i n the day,
little later,
offered o n the board a t 10 per cent, and, 4
a t 8 per
not being eble t o lean i t out, 4 4 was offered
cent.
finally,
T h e stock m r k e t opened quite w e a k a n d
f o r their money,
not being able t o get 1 0 per cent
or 8
“5,000,000 a t 6
per cent f o r their money, t h e y loaned
per cent.
A t once t h e market started
t o g o up, a n d r e n t
Every
up 20 points, and sterling recovered to 44.05,
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Federal Reserve Bank of St. Louis
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t+! 3 money has broken belon t h e rate t h a t v e have b e e n struggliig t o maintain, t h e stock market h a s fone up, a n d every
time w e h a v e m a n a g e d
t o keep t h e m o n e y rates
u p the stock
market hes gone dovn. T h e r e m a y be n o connection bet™een
them; i t may b e just a coincidence.
I asked what h a d been done t o ascertain w h o vas t h e
culprit a n d i t d e v e l o p e d t h a t t h e m o n e y t h a t w a s l o a n e d
was loaned b y one institution which had peremptory orders
from a n out o f town bank t o loan i t out for whet t h e y coulda
get for i t o n the board.
T h a t w a s five million dollars f r o m
out o f tom.
Governor Harding.
T e sterted out this morning t o ask
Governor Van Zandtrhat h e thought about controlling the sit-
uation i n his district either b y means of an advance i n
rate o r b y direct a p p e a l .
Governor V a n Zandt.
t T think that a girect appeal will
have some effect, b u t i t will n o t b e effective i n that i t
will n o t b e widespread. I
believe t h a t a n increase i n
rates w o u l d control t h e situation. -
Governor Harding. Y o u r district, e s IT recall it, asked
us to establish higher rates than the Board finally approved,
G20: T h net?
Governor V a n Zandt.
Governor Harding.
Situation f a i r l y w e l l
No, I
d o not think so,
T h e n y o u feel that y o u have y o u r
i n hana?
Governor V a n Zandt.
‘ “ e pave o u r situation fairly e l l
in hand, f o r t h e reason that a s a district w e d o not d o v e r y
much speculation except i n our o m commodities, a n d a t the
prices that the commodities are bringing e a e Liquidation
is taking place just a s rapidly a s facilities c a n b e had
for moving t h e m out. T h a t applies t o both the cotton a n g
the wheat,
Governor Harding.
W h a t i s your view about t h e fifteen-
loan?
Governor V a n Zandt, I
think t h e f i f t e e n - d a y n o t e s s h o u l d
not b e done a w a y with, b u t I
do not think thet t h e y should b e
given a preferential rate,
I t offers a n inducement t o the
bank t o borrow f o r fifteen days a n d renew.
Y o u d o not know
. whether t h e b a n k i s borrowing f o r long-time credit o r just
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Federal Reserve Bank of St. Louis
for a
f e w days.
Governor Harding. G o v e r n o r Fancher, w h a t i s your opinion
of the possibility o f controlling the situation with repard
to t h e i n c r e a s e
i n the rate?
291
Governor Fancher. G o v e r n o r H a r i n g ,
f o r some f i v e o r
six months w e have been looking pretty closely to our banks
that a r e b o r r o w i n g
plus, e n d e a v o r i n g
a n amount e q u a l
t o their c a p i t a l
a m surs
t o ascertain t h e reason f o r t h e demand a n d
also t o ascertain whether i t i s f o r legitimete purposes,
Not that w e have been denying those banks because t h e y have
reached that limit, but w e have tried t o inform ourselves
either b y personal intervien o r b y correspondence a s t o the
requirements
i n a particular locality, whether they are get-
ting a n y additional loans o r when w e c e n expect liquidation,
and that sort of thing. B e i n g a n essentially manufacturing
district,
w e have been considerably affected b y both the
u s to
steel strike a n d t h e coal strike, a n d that has l e d
so
anticipating the supply and deliveries o f material and
forth, which,
i n effect,
i s speculation i n inventories L o
an extent w h i c h w a s b r o u g h t a b o u t
b y unnatural c o n d i t i o n s .
hard t o deterJust t o what extent i t has gone i t igs rather
mine. I
larger
discussed the situcetion with some o f our
banks t o determine i f the thing hed gone o n unnecesarily,
put i t has been rather a
hard situation t o guage exactly,
forty five days.
particularly i n the last thirty t o
senin f o l s
, ae O o On
2 day.
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Federal Reserve Bank of St. Louis
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I think this matter of contact “ith the banks that ars
borrowing fairly substantial amounts i s havine a
influence; b u t while that,
i n m y judzment, w o u l d probably
favorably affect t h e situation, I
control i t sntirely. I
restraining
d o not balisve i t vould
do not believe a n y of our large bor-
rowing banks have been v e r y kssn t o test o u t t h e situation,
The banks that have borrowed f r o m u s have b e a n relending t h e
monsy. I
think the borrowings have dasn for their local re-
quirements,
A n increass i n rates u p t o & certain point vould
probably bring about some restraint i n the country, d u t I
felt that s o far a s ths Fourth District w a s concernsd, c o n -
sidering ull conditions, that w e have kept the situation
pretty well i n hand.
The effect o f our recent raises i n rates has not
effect l o n g enouzh t o know just ~hethsr w e ars zoing
perience a
reduction o f our loans o r not.
U p t o ths
business last night w e h a d increased threes, f o u r o r five
million dollars, particularly i n our Government secured paper,
over November 8 .
rate
I n the matter o f fifteen-day preferential
w e only had a
fifteen-day r a t e f o r loans s e c u r e d
|
certificates o f indebtedness only.
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O u r commercial rates a r e
295
from one t o ninety days, 4 - 3 / 4 p e r cent; a n d 4-3/4 p e r cent
on loans secured b y Liberty Bonds a n d Victory notes, f r o m 1
to S O days.
Governor Harding, Y o u r rate of 4-3/4 per cent on hotes
secured b y such bonds I velisve m e t vith some opposition i n
Pittebure, d i d i t not?
Governor Fancher, Y e s , v e have h a d « protest filed,
for t h purpose o f reprasantin: t h e feeling o f the clearing
house banks, but I think i t represents the feeling o f one o r
two o f the large banks i n Pittsburg, particularly b y reason
of the fact that they are large holders o f bonds,
O n ons o r
tvo o f the issues, particularly t h s third a n d fourth issues,
the bonds d i d not gst a ‘tide distribution, a n d ths owners o f
& substantial amount o f bonds felt that a n insreass i n the
- rate of 4-3/4 per cent o n Government-secured paper ould b e
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Federal Reserve Bank of St. Louis
rathsr a
discrimination.
Governor Harding. W o u l d shat vate have a tendency t o
cause t h e m t o dispose o f theiz bonis a n d othsr sscurities,
or would i t reducs their borrowing?
Governor Fanch2r. I
d o not believe i t will force a
sale o f tha bonds; but our banks generally i n the Fourth
District - - - a n d the rates that t h e y have named t o their
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Federal Reserve Bank of St. Louis
294
customers f o r l i b e r t y l o a n s s c u r e d p a p e r h a s b 3 s n g r a d u a l l y
advanced - ~ - s a y that o n l y a
small percentage o f the paper
offered u s i n the last month o r s i x wesks s e rate under 5
cured b y victory a n d liberty bonds carry a
per
cent, T h e banks ars charging their customers, i n 30 per
of t h e totals, f r o m 5
to 5-1/3 p e r cant, a n d i n some cases 3
liquidation o n
par cent t o the small borrowsr, 3 0 that 3
the part o f ths individual b y reason o f 7
i n c r s a s s d rates
I think h a s taken place t o some extent, a n d furthsr liquidation a a y coms f r o m tha banks themselves t h a t o v n bonds.
Governor Harding. “ h a t are your member banks charging
individuals o n loans secured b y bonds?
Governor Funcher.
F i v e t o s i x per cent i n almost a l l
cas3s; b u t i n some cases 4~3/4 per cent, o u t very small a mounts comparatively.
Governor Harding,
D o y o u agres i n the racommendations
made b y the Council?
Governor Fancher, I
Herding. I
do not think I
think I appreciate,
do fully, Governor
a s other gentleman here do,
the situation that t h e Treasury i s i n a s t o i t s future sales
of certificates a n d refunding operations, I
think possibly
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Federal Reserve Bank of St. Louis
295
our rates should remain a s they are until w e have taken care
of this proposed issue o r seen t h e sffect o f this proposed
issus
t o b s offered o n Dscamber i s t ,
a s t o continuing present
rates until after t h e larger program h a s been carried through.
I would not want t o b e committed t o that, hovever,
a t this
time,
Governor Harding,
H o w much o f a factor i n placing cer-
tificates i s the temporary dsposit i n the Treasury?
Governor Fancher. T h a t , I think, i s the thing that i s
going t o s 3 1 l o u r c e r t i f i c a t e s - - - t h s b e n e f i t t h a t t h e d e -
pository banks can sse i n the deposits.
T o sell our four
hundred millions 4~1/4 per cent certificates I think will be
somewhat o f a job this time, a n d I think the step should b s
taken b y the larger banks a n d the depository banks a n d banks
that have a
distributing power.
A s a v2sult o f the yusstion-
naire w s sent out v e find v2 have outstanding *363,863,000 o f
the certificates.
O f that amount ther2 i s “135,000,000 i n ths
banke and £137,000,000 owned by the banks.
Governor Harding, I
vould like t o ask you a purely hypo-
thetical question vithout any authority on the part of the
Treasury officials t o ask such a question,
B u t 1 think i t
would b e interestinzs t o bring i t out. Certificates have alvay
296
been s o l d herstofofors b y offering this temporary deposit a s
an additional inducems
a n d I imagine t h a t t h e amount offersd
than t h e actual immediate Treasury
requirements,
deposits.
i n ordsr t o anable t h e Treasury t o maintain t h e s e
N o w , supposes t h e S g u r y should offer a
smaller
amount o f certificates f o r a shorter t i m s a t a higher rate,
and not have a n y inducement i n the w a y o f dsposits; w o u l d i t
be feasible t o sell certificates o n a rats a s a n inducement?
Governor Fanchsr. W e i l , Governor Harding, i f the rats
could b e made attractive enough I
arrangement.
think that would b s a n ideal
Y e would t h e n avoid this deposit inflation that
wa haves,
Governor Harding.
" h a t r a t e w o u l d y o u regard a s high
enough t o make them g o i n your district on, Say, a 50-day osrtificate?
Governor Fancher. " s l l , I
think the banks o u l d want a
rate that would about match u p probably with what t h e y might
earn b y buying certificates a n d paying probably 4 3 / 4 o r 5
per cant, I
have not analyzed these last eredits, t h i s last
‘payment by oredits on September 15th, to know what the earning
has been, I
presume i t i s somewhere i n the neighb
4~3/4 o r 5 per cent.
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207
Governor Harding: G o v e r n o r S e a y , y o u have h a d ons o f the
most difficult districts t o keep lined u p during t h e past
year, I
would like t o have your visv”s a s t o th? possibility
of controlling credit conditions vithout a n y further advance
in rates o r vith a further advance i n rates, 2ither way.
Governor Seay, G o v e r n o r Harding, w e raised whet w s all
consider relatively a very large amount o f money for the Govsrnmusnt,
e s d i d n o t t h i n k i t 2ither probable
o r possibl:
place that amount o f Government bonds i n our district,
to
The
conseyusnces w a s t h a t o u r b a n k s b e c a m e v e r y h e a v y b o r r o v e r s
from us,
S o that o n November 10th, w e will say, t h s banks
were borrowing from u s $84,000,000 o n Government securities,
and only $19,000,000 o n commercial paper.
that t h e y c o u l d g s t a
O f course the fact
lover r a t s o n t h e G o v e r n m a n t s s c u r i t i s s
accounted in same measure for such a relatively vide difference
in ths two.
S i n c e J u l y o u r loans hav? decreased # 5 0 000,000,
Nearly the whole amount has deen the repayment of louns on
Government p a p e r .
I cannot say to what extent our banks are lending i n New
York; I am sure they ars lending i n New York t o some extent.
Governor Strong said that the banks of North Carolina and
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South Carolina, according t o their information, a n d tabdula-
298
¥
tion i n New York, were lending i n the stock market, I
only
knot o f ons Richmond b a r e c t l y which paid off all i t s
loans t o us, I t s deposits having increased about #5,000,000
within sixty days, i t was lending :
lars o n call,
h e t time a
million dol-
I t could n o t Isnd i t a t that tims otherwise,
banks a r s n o t borrowing f r o m u s
~-~ a n d I
do not bslisve t h s y a r e a n C h e y
refraining from paying off th2ir loans t o
ars landing thsir surplus funis t o a degres
Our South Carolina director i n ths last boar
mesting s a i d t h a t a f f a i r s w e r e e x c e s d i n z l y p r o s p e r o u s d o w n
banks wers full o f monsy a n d t h e psoplse were
sngeged i n a psrfect r i o t o f expenditure, a n d i n his opinion
South Carolina should hav2 liquidated entirely a 1 1 o f its
loans t o us,
s
i
m
s t h e banks c e d u s only about
£5,000,000, a n d h e thoucht 1 } o u l d have lijuidated entirely.
I vill have t o correct those figuras, v h i c h were givan
from
2
memory, T h s y had only paid us about 5,000,000, a n d they owed
considerably more t h a n that still; a n d our S o u t h Carolina d i rector thought t h e y should have liquidated entirely.
Llam a very firm belisver t h a t t h e exercise o f moral r e straint will b e o n v e r y powerful influence i n restraining
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299
Credit. I
think a n orgunized campaign o f that kind among all
the Federal Reserve Banks would have a
influsnes,
j
vary ssrious, matarial
o not bslieve, howsver, t h a t w e c a n talk softly
unl?ss w e c a r r y t h s " b i z s t i c k " ,
and I
a m ejually f i r m i n the
belief that i t -ill take both influsncss ~ — — either a
threa
Or a n actual in:rease i n the rate, a n d the exercises o f a moral
restraint
But I
t o hold within weasureabl> c o n t r o l t h e situation,
a m a very firm believer i n the. influence o f moral r e -
straint, I
think psopls u r s v e r y serious mindad, t h e business
p20ple o f ths country, a n d I think they have a realization o f
the condition o f the world, a n d sven t h e condition o f this
country.
T h e y ar? still susceptibdls i
o f the influences
that remain over from the war, a n d I bslievs
tent t h e y will assist u s i n exercising restraint o v e r spsculative loans,
I know the difficulties o f it, and I folloved Governor
Morss's exposition with a
very great deal o f intsfest, a n d
whether o r not w e a r e able t o determines i n many cases, o r a
majority o f cas3s, t o what extant speculation 2nters
unable t o say.
There i s this imuch t o say, that trade i s founded o n
spsculation, a n d t o eliminats speculation would perhaps deal
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500
I t permeates everything i n our dis-
a death blow t o trade.
trict, a s i t doss every other aistrict;
b u t a campaign t e x
would have &
restraint against the improper us? o f credit
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Federal Reserve Bank of St. Louis
very powerful influence.
u p ths
A s I view 4+, w a should hold
threat o f i n c r e a s e d r a t e s ,
a n d i t m a y bs necessary
t o incorsass
a s ths
I would not b e willing t o g o y i t s a s far
probably b e
advisory council went i n saying that there would
no neesssity f o r a n increase i n 1!
p a t w e e n n o w a n d the
first o f the year.
conferencs b y the
We ware confronted yesterday i n our
that i t
oreface t o the statement o f the Treasury Department
t h a t t h e resolution
had fixed a n d determined u p o n i t s policy,
i t into execution withwas fixed, a n d morsover, t h e y h a d put
cas2 i t matters n o t t o
in a vary f e r days, S u c h being t h e
what e x t e n t o p i n i o n s m a y Glitter,
Governor Harding.
H o w much o f a n interest v o u l d deposits
o f -——
left b y the Government p l a y i n ths distribution
Governor Seay. I
think that i s best answared b y Mr.
Leffingwell's exposition.
H i s pledge t o place 4~1/8 per cents
o f ths
twas partly predicated u p o n t h e valus o f the dsposits
banks, w h i c h means,
o f cours:, t h a t t h e y must b s put t o use.
a
Governor Harding: S u p p o s e h e issued
smaller amount o f
501
Certificates for a shorter tims, s e y » 60-day certificats;
Governor Seay.
belisvs
placed, yes, siz, without undertaking t o fix what that rate
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Federal Reserve Bank of St. Louis
would b e ; a n d i f y o u takes p r e s e n t G o v e r n m e n t f i n a n c i n g ,
financinz
i n t h e futurs,
what had already gons 1
or
a n d i f y o u could saparata i t from
y
o
u might give a n opinion. I
would s a y i f that could d s done that t h e wisest a n d most
courageous t h i n g w o u l d b s t o p l a c e t h e G o v e r n m e n t r a t e a t
such a
figure t h a t i t w o u l d c o m m a n d t h e a o s o r p t i o n o f t h e s s
certificates; b u t I thoroughly realize that w e have t o take
into a c c o u n t t h e e f f e c t
o n t h e m a r k e t r a t e o f a n snormous
amount o f Government securities outstanding, I
»velieve w e
are f a c e d w i t h t h e p r o b l a m o f c o o p e r a t i n g w i t h t h e T r e a s u r y
Department i f its policy i s fixed a n d determined,
Governor Harding,
A s between December lst and February
lst, for fairly permanent Governing financing o n a large
scale, w h i c h date would y o u consider a s being t h e most o p p o r
tune?
Governor Seay.
T h s h i g h e r rate?
Governor Harding,
No, I
a m talking ebout a s between
Decembar l s t a n d February l s t o f next year, i n undertaking
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Federal Reserve Bank of St. Louis
302
Government financing o f paper o f a permanent character,
Governor Seay,
I t aspands o n the policy t o b e pursued,
as t o the restraint w a d e i n the meantime. I
w
i
same influences existing that have b e s n existing, I
t
h ths
understand,
York, a n d which a r e likely t o b e duplicated slsewhsre
country, I
should s a y February vould b e mors favorable,
Governor Harding.
W i t h the short time certificates t o b e
issued a t a higher rate would n o t that help t o take cars o f i t
at t h e p r e s e n t t i m s i f n o d e p o s i t v e n t v 1 th i t ?
Governor Seay,
I t might - - The present Trsasury position is, I
understand,
t o place a
certain amount o f certificates, say,
amount A , a n d a t a rate B , a n d a t a time, s a y four months.
A
Well, t h e a m o u n t o f b o n d s t h e y a r e z o i n g t o p l a c e i s
plus,
because t h e y vant t o place snough t o have some deposits t o
remain,
N o w supposes t h e tims should b e m a
the amount t o b e A and the r a t s h o u l d b e B pius.
your equation, don't y o u see?
Governor Seay. I
think that a s far a s successfully a n d
better i f
permanently placing cartificaces i t could b e done
the volume w e r e smaller a n d the rate were h i g h s
a o u t of: thst,
n
o
303
Governor Harding,
A n d you would have a better control
over t h e credit - - Governor Seay, T h a t i s t o say, t h e reserve banks would
not h a v e t o c a r r y t h e m t o t h s s a m e degree. I
almost patent,
think t h a t i s
B u t i t i s perfectly plain that t h s method o f
financing which t h e Treasury proposes n o w *ill have t o b e
Carried b y the Federal Reserve banks.
Governor Harding.. T h e Board was much pleased rith your
Circular No, 91, t h e keynote o f which seemed t o b s t h e exer-
cising of intelligence i n the making of louns and requiring
ample wargin, W h a t has been the effect o f that circular i n
your district, h o w has i t been received a s a whole?
Governor Seay, T h s r s were some complaints,
I t was re-
esived, I think, b y the Cotton Association o f the South with
very bad grace,
T h e y appealed t o Cassar. T h a t i s their
criticism a n d p r o t e s t a g a i n s t v h a t t h e y t h o u g h t w a s a
proper
interpretation o f that circular, b u t which w e aftervards convinced t h e m was e n arror o n their part.
a Testriction o f credit or, rather,
T h e y thouzht i t meant
a n arbitrary restriction
of credit without reference t o ths needs o f the cotton situation i n the south, without r e f e r e n c e t o the use o f the monsy.
Ws convinced them that i t did not, that i t was issued primarily
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Federal Reserve Bank of St. Louis
304
to let them k n o w that these loans vers zoing t o b s made u p o n
vusiness principlss a n i pursly u p o n t h s authority o f the Fed-
eral Reserva lav, that they “ers not to be made for speculative
purposes, f o r the withdrawing o f cotton f
r
oe market,
hm t
for
the purpose o f carryinz t h e pric:, a n d I think y o u sent a
tele-
“ram t o the South t o back u p the Reserve B a n k i n that position.
Morsover, w e told them that such information a s we desired t o snable u s t o determines absolutely t h e markst value o f
the security t h e y offered vould b e exacted b y the banks.
Ws have heard n o t unfavorably, sxcspt i n tvo o r three
instances, f r o m that circular, a n d I think they have come t o
the conclusion t h a t t h e circular w a s well meant a n d i t was not
intended t o restrict loans
t o a n y quarters which were entitled
to the loans, a n d I do not think * e Will haves any troubles vith
that circular a n y further.
T h s y know that w e msan business
now, a n d I think they will govern thamssives t o a very large
extent b y the persuasion which w e intendsd t o exsrcissa b y that
circular,
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Federal Reserve Bank of St. Louis
W e think i t has h a d a good influence,
Governor Harding.
D o y o u think so, Ur, Penle?
Mr. Peple, Unquestionably,
Governor Harding,
I t i s a very sound circular. G o v e r n o r
Passmore, what i s your view o f controlling e r e
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Federal Reserve Bank of St. Louis
Governor Passmore,
G o v e r n o r Hardine, s i n c e w e cams
yesterday the discussions t h a t have follow:d have made i t
very c l e a r t o m y m i n d t h a t i f w e c o u l d r i d o u r s e l v e s
o f this
feeling o f obligation t o the Treasury t o s22 i t through i t s
final financing w e would all be unanimously i n favor o f increasing rates t o sscure some batter command o f ths existing
situation; but even if we were to advance rates I do not believe i t vould b e immediately effective tithout a t least some
direct restraining influence b e s i d e s a n d i n addition,
G n @o~
Count o f cur reserve position and ovr Closs proximity t o New
York, which has made the rate for call money particularly at~
tractive t o our p20pls,
w s have f3it t h a necessity already o f
applying some direct measures, and I must say that at least o n
the Surface t h e y hav? n o t m e t with v e r y hearty cooperation.
For the last two meoks/have not made any new loans without
asking the vorrowsr i f that institution h a d monsy loaned o n
call i n New York, a n d i f i t had we declined t o make the loan — except i n two o r three cases where 2
agreed t o make t h e loan
over night t o restore t h e reserves o n the promise t h a t t h e
the
woney would b e called i n New York t h e next d a y t e p a y off
loan,
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Federal Reserve Bank of St. Louis
206
hat w i t h a l l your banks?
Governor
A
Governor P a s a
r
; institutions, practi~
cally a l l o u r
district?
e
Governor ;
ws h a v a n o t h a i t o
Governor Passmor: +
of town very much becau
frow out o f town.
B u t e v e n though,
i n tha
have controllsd t h s vorrominz o f n e w money f o r t h e purpose
lending i n Nav York,
w e are quite confident that a great
deal o f money i s going t o New York, a n d w s ars
their
influenced b y it, i n that our wé w i t h t h e r e d u c e d
loans and they ars not doing so, 3
a r s just about maintain-
ing our relative position t o what i t ‘vas ;
& month o r two
months ago. W h i l e o u r contingent liability
from some f i f t y - t w o million o r fifty~three million dollars to.
has
I think i t is, about sixteen million dolllars today, t h a t
not m a t e r i a l l y c h a n g e d
i n ths l a s t t h i r t y days; i
p to, I think, 4 m
from & minimum o f about seven m i l l i o n u
mum o f about tventy million.
Covernor Harding. F r o m the standpoint o f your district,
which would b e t h e mor2 opportune t i m e f o r important
usnt financing, Decaswber l s t o r February lst?
507
Governor Passmors.
O f course
i f i t r a n into important
Government f i n a n c i n g , G o v e r n o r H e r d i n g
m n o n s y i s always
normally s a s y w i t h u s a f t e r t h e t u r n o f t h e year,
Governor Harding.
H o w much o f a figure d o deposits
cut i n placing your certificates?
Governor Passmors. T h e y have cut a v2ry large figure,
and banks have devzloped the secondary distribution i n our
district t o a large extent i n order t o iner2a&s2 their purchases, t o take advantage o f the deposits, a n d of the
$201,000 ,000 outstanding cartificates sold in our district
the banks held on the 34th of October only $83,000,000, and
I think that has been reduced about #10,000,000 or $12,000,000
by this tima, since that date.
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Federal Reserve Bank of St. Louis
I think that i s wrong i n principle a t a time like this,
The thought that comes into m y mind i s this: W h e t h e r o r not
we have not got too far along with the other program
t o
change now.
Governor Harding. Suppose the Treasury ~~~ and this,
by the way, a s I said before, i s asked without authority from
the Treasury, I
a m asking merely f o r information —-- suppose
the Treasury should offer a smaller amount o f certificates,
giving you a smaller quota for a shorter time a t a higher
308
of a
rate, c o u l d y o u c o n c e i v e
reasonabls r a t e , a n y w h e r e
within reason, t h a t would enable y o u t o place t h s quota o f
certificates i n your district without reference t o deposits?
oma a
i e
we “ould s e a t a
O u t s i d e o f the banking institutions
d e a l o f educational work t o explain
that situation,—-- after having gone t o s o much trouble t o
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Federal Reserve Bank of St. Louis
suppose
axplain t h e edvantages o f the payment o f credit, I
the larger institutions would s e e a t once t h e reason f o r t h e
increase i n rate, and I do not kno¥ how easy it vould be to
sell the certificates, which would have t o be around a t least
should think.
a five p e r cent rate, I
Governor Harding.
D o you approve o f the recommendations
of t h e Advisory Council?
Governor Passmore.
W e l l , l i k e everybody sise I
think I
would h a v e t o q u a l i f y that.
Governor Harding.
Y o u have s o m e reservations?
Governor Passmore. I
have some reservations.
tions a r 2 t h e o r d e r o f t h e day,
Governor Harding.
Reserva-
i t sesms,
F o r instance, t a k e a
certificate going
over t o the first o f February, s a y ~ ~
Governor Passmore. I
interested
i n that,
d o n o t t h i n k a n individual w o u l d b e
509
Governor Harding, I
think i t vould b e a matter that
would i n t e r e s t t h e b a n k s a n d a t t h e s a m e t i m e t a k e u p credit.
Governor Passmore.
B u t d o y o u think t h e banks would b e
interested even i n a five per cent certificate running, say,
until t h e first o f February,
a t a time when money i s worth,
say, five p e r cent?
Governor Harding.
T h a t i s what I
Governor Passmore, I
would like t o a s k you,
don't think so, T h s y would only
take it on account of the Treasury, t o help the situation, t o
help t h e Treasury Department.
Governor Harding, G o v e r n o r Biggs, c a n y o u keep t h e credit
situation
i n control
i n your district without a
further a d v a n c e
in rats?
Governor Biggs. Y e s .
A s I stated yesterday, I
think w e
Could d o more b y persuasion t o influence our banks than b y a
rate. T h e r e i s no necessity i n our district for raising rates,
Governor Harding, “ h i c h would y o u regard a s being t h e
more opportune t i m e f o r Government financing o f a permanent
type, December l s t o r February lst?
Governor Biggs. F e b r u a r y ,
Governor Harding.
sell a
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Federal Reserve Bank of St. Louis
b y all means.
D o you think it would be possible t o
reduced q u o t a o f c e r t i f i c a t e s m a t u r i n g a b o u t F e b r u a r y
510
let a t a b y higher rate without reference t o deposits?
Governor Biggs.. Y e s , because v e have a great many non~member banks that are anxious for them, a n d we have inquiries
for them every day,
Governor Harding. T h s y would absorb a considerable a mount o f credit, then?
Governor Biggs. T h e y would absorb more than our larger
banks. I
think it would be better t o have a 4-3/4 per cent
rate,
Governor Harding.
T h e r e i s one other angle there I
think w e might bring out. S u p p o s e t h e Treasury withheld a
part o f the proceeds o f the certificates,
i f they should b e
sold, f r o m t h e Federal Reserve Banks, w o u l d n o t that have a
drastic effect o n credit?
Gevernor Strong.
That
Yes.
ZFwould bring our reserves down right away, W h y would
it not b e possible f o r t h e Trsasury t o take care o f i t s
maturities b y sales o f certificates, subscriptions f o r which
would b e paid i n a t the date o f maturity o f the o l d certificates, a n d borrow very moderately f o r t h e current disburse-ments o f the Treasury i n very short paper?
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Federal Reserve Bank of St. Louis
Now,
3
i f t h e T r e a s u ray w e r e w i l l i n g a t o i s s u s t w o t y p e s o f
fll
certificates, o n e l o n g e r certificates a t a higher fate, t o
be paid f o r a t the data o f maturity o f ths outstanding c e r ~
tificates, a n d attractive t o investors,
i t sould gradually
heeffect of placing the outstanding certificates all
in the hands o f ths investors a n d taking t h e m o u t o f the
hands o f banks; a n d then fé6z the current deficisncies o f the
Treasury let thew borrow from the banks o n & very short bill,
‘each b a n k t o be assured a hicsher rate which they vould have
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Federal Reserve Bank of St. Louis
to pey if they eliminated the deposit features. I
do not think
the effect o f the deposit a t u r e h a s really b e e n brought o u t
«#8 fully a s i t might b e i n the discussion.
We had figures made and checked b y the experience o f a
number o f the large New York City banks a s t o just what the
actual return was upon their certificate transactions with
the Government, a n d i t works out, for many o f them, b y their
experience, a t about 6-1/8 per cent, T h e First National
Bank, which has had the largest operation o f any, was 6,09
per cent. O t h e r s figurs a s high a s 6,18, B u t I think i t
would average 6-1/8 per cent.
Governor Harding. T h e Treasury requires 3 psr cent interast o n these deposits, does i t not?
Governor Strong. Y e s ,
312
Governor Harding, Consequently n o middle men can afford
to uss t h e m f o r window dressinz purposes, a n d s o i t adds t o
the c u r r s n t e x p e n s e ,
Governor Strong, Yes. T h e effort is, I think, t o
certificates i n t o t h e hands o f investors, a n d
that I think could b e done w i t h a
modsrate incrsase o f rates,
It could b e done b y having the payments made after the maturity o f the certificates i f the Treasury vers tilling t o
risk that, i f the maturities were n o t t o o heavy from time t o
time, and, giving no deposits, would reduce them from a 6-1/8
to say a 4-3/4 o r even a 5 per cent basis t o the banks, a n d
they would bs yuite willing t o turn around and send them - —
Governor Harding.
G o v e r n o r Bizgs,
d o y o u agres w i t h
the Federal Advisory Council i n its recomusndations?
Governor Biggs,
A s far a s the rates, w e d o not think
there woulé b s a n y advantage t o raise t h e rates, w s g o that
far with them,
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Federal Reserve Bank of St. Louis
Governor McDougal.
T h e Advisory Council d o e s not make
that statement, t h e Advisory Council s a y s that t h e inflation
and credit should c
of t h e system, I
controlling
c h e c k b y discotnting privilages
think t h e y refer t o the rates a s t h e best
safeguard a n d the method that should b e employed.
A m I right
on that, Governor Harding?
Governor Harding. Y e s , I belisvs y o u are,
Governor Biggs. I
was goin~ o n the theory, a t least I
thought t h e y recomuended that n o change i n ratas b e made.
Governor Harding,
T h s y s a y the calendar year,
Governor Biggs. Calendar year? Well, I would not g o
that far. I
would say at the present time. I
would not com-
mit myself o n a matter o f that kind, because w e d o not k n o w
what will later coms up, i n fifteen or twenty days; but I
would s a y a t t h e p r e s e n t t i m s w e s e s n o r e a s o n f o r a
change
of rates i n our district,
Governor McDougal. I
think the Advisory Council's reo—
ommendation was that n o change b e made a t the present time,
Governor Harding. N o , the calendar year, I am quite
clear o n that,
Governor McDougal,
I t reads this way -—-
Governor Harding. R e a d the heading.
Governor McDougal, " P o l i c y i n regard t o discount rates
the Federal Reserve Bank for the rsmainder o f the year",
Governor Harding. Yeas.
Governor McDougal,
B u t they g o o n to state that i t i s
desirable that the expansion o f credit t h r o u g h the discount
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Federal Reserve Bank of St. Louis
314
facilities o f the Federal Reserve Banks should b e held i n
check, a n d for this reason t h e Council approves t h s recent
increase.
T h s concluding paragreph is?
"Increases i n ths discount rates would,
i n the opinion
of the Council, t e n d t o correct t h e present situation, b u t
as such action m i g h t seriously affect present Government
bond values a n d the successful refunding o f t h e outstanding
certificates o f indebtedness a n d m e the Treasury officials
are firmly o f the opinion that a t a n early date t h e needs o f
the Treasury will cease t o b e a n important factor i n the
money markets, the Council recommends that n o further change
be made i n discount rates a t present."
Governor Biggs. T h a t i s the way I understood it, that
last part.
Governor Harding. G o v e r n o r Young, c a n y o u control
credit conditions i n your district without a n imuediate a d ~
vance i n rates?
Governor Young.
Y o u speak o f our own district.
‘ past w e h a v e b s e n a b l e t o c o n t r o l t h a t a n d I
ables t o d o s o i n the future.
think w e will b e
U p o n t h e raise i n rates the
other d a y w e d i d n o t r e c e i v e a
complaint f r o m a
and I think t h e T w i n City bankers approved that.
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Federal Reserve Bank of St. Louis
I n the
single b a n k ,
S15
Governor Harding.
H a s that raise promoted a n y sslling
of bonds?
Governor Young,
I t sdéld about three million o r four
million o f Treasury certificates, a n d , o n e case that I know
of, sold one million three hundred thousand dollars o f Liberty
Bonds, Those are ths only two cas3s that I knew of, W e have
had a reduction i n the last fourteen days i n loans i n our
district from “60,000,000 down to $49,000,000, that is about
#11,000 ,000, i n which I can account for about £5,000,000,
Now
the other five million may be a n actual reduction o r i t may be
certificates were sold through other sources, I cannot say,
There i s a grain shortage thers, a n d the grain i s not moving
ag quickly a s it did last year, a n d just how long we will have
to loan the banks out there I don't know. B u t you will re~
member that last year o u r rediscounts went d o w n t o about
#1,300,000 i n that district.
W e h a d about t h e same time three
million o r four million loaned o n certificates, a n d i n the
neighborhood of #318,000,000 o f certificates held in the
district.
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Federal Reserve Bank of St. Louis
W e have at the present time about $87,000,000 i n
certificates h e l d i n the Ninth District.
T h e r e i s a very
poor jistribution t o individuals, only three million held b y
individuals,
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Federal Reserve Bank of St. Louis
S16
Governor Hurding,
I s that because there i s no popular
demand f o r t h e m o r have t h e banks preferred t o retain them?
Governor Young.
T h e only demand they have for those
certificates f r o m individuals i s from the banks i n Northern
Michigan and some o f the banks o f Duluth, where they have
large mining corporations, a n d they usually purchase t h e
tax cartificates, b u t i n the agricultural districts the
farmers d o not b u y these certificates, I
do n o t think they
can b e sold t o them, T h e r e i s some l a n d speculation o u t
there, b u t a s near a s I can learn f r o m the bankers t h s y have
avoided that.
I n Southern Minnesota the price of land fas
increased o n paper -~~ that i s what i t amounts to. A
man
takes a n option on a piece of property for #20,000 and he pays
what h e calls earnest monsy, a
thousand dollars. I
think
that i s all going t o collapse a t the payment date i n March,
We have several cases o f i t now i n Southern Minnesdta, where
they agreed t o make payments around November lst, A
man
paid a thousand dollars down o n a $20,000 piece o f property.
He has another $4,000 i n cash.
of it.
H e cannot finance the balance
H e has failed o n his payments, a n d the next man, i n
like manner, has failed, s o that the whole speculation i n
there will collapse.
T h e r e have b e e n some real cash transac-
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Federal Reserve Bank of St. Louis
oel
a
tions out i n North Dakota, s o I have been informed,
Governor Harding, Which would you regurd a s « more
favoreble date for largs Government financéering, t h e first
of December o r the first o f February?
Governor Young. I
would say Decamber 15th with us.
Governor Harding. T h a t vould b e the most favorable
date i n your district?
Governor Young. A
lot o f those certificates vill mature
at that time a n d the banks will have t h e money, a n d I think
We Can induce them to take the new certificates,
Governor Harding.
H o w d o ths panks look upon deposits
in connection w i t h the purchase o f certificates?
Governor Young. I
December 1 5 t h I
think t h e y favor that, although o n
a m inclined t o think w e could explain that t o
the banks - - ~ i f the Sscretary vould p a y a higher rate a n d not
have the depository feature, that we could gst a pretty good
distribution o f those a t » higher rate, a
I think, than a t 4-1/4 per cant.
better distribution,
A g I understand it, a s
Governor M c D o u g a l h a s s t a t e d i t , i t i s t h e r e c o m m e n d a t i o n o f
the Federal Advisory Council that they recognize that the manner i n which t o stop t h e inflation o f eredit i s t o raiss t h e
318
discount rate, b u t t h e woment i s not t h e opportuns time, a n d
they are waiving i t in considaration of the requirements o f
the Secretary o f ths Treasury.
T h a t i s the resolution a s I
understand it, a n d I approve o f i t i f that i s the resolution.
Governor Harding. G o v e r n o r Miller, i n controlling credits
in your district d o y o u regard i t necessary t o continus advances
in rates i n all probability,
o r c a n y o u handle i t b y direct
action?
Governor Miller. I
Just t h e d a y before I
think the rates ought t o be raised.
left o n e o f the large banks o f our dis-
trict made 2 $300,000 loan to a manufacturing company. T h e y
did not have t o make it. T h e y were under some obligation t o
the o o n c e r n
b e c a u s e t h e concern h a d kept a n account v i t h
the bank, but I learned after the next day thet i t was dis~
cussed i n their executive committse a n d the argument w a s made ,
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Federal Reserve Bank of St. Louis
Now wa will lend this concern the $300,000 at 5-1/2 per cent
becauss
w e c a n borrow i t back f r o m t h e Federal Reserve B a n k
at 5 per cent. M o r a l suasion does n o t z o very much there,
Governor Harding. S u p p o s e that rate had been 5-1/2 per
cent, w o u l d t h e y have made t h e loan a t 6 per cent?
Governor Willer.
T h e concern would n o t haves borrowed i n
our district a t 6 per cent, i t would have borrowed east.
o19
Governor Strong, S u p p o s e t h e y h a d t o pay 6 per oenti
Governor Miller.
T h s y would probably n o t haves borrowed
at all, b e c a u s ? t h i s c o n e s r n h a d n o t s o r r o w e d f o r t w o ysars,
and they made inquiry and they made the loan at 5-1/2 per
cent simply because o u r rates ware 5 , a n d I think w e need a
higher rate, a n d i f ths Trawsury vould increase i t s rate t h e
damage would b e far I s s s than t o let t h e whole country r u n
wild a t & rate thich tends t o speculation,
Governor Harding. Which vould you regard as ths most
opportune t i m e f o r heavy Government financiering o f a fairly.
permanent character, December 1st o r February lst?
Governor Young. F e b r u a r y for us.
Governor Harding. C o u l d you place a smaller quota of
certificates a t a higher r a t e vithout t h s deposit feature?
T e could place a n issue -——
Governor Young.
Governor Harding. I
Governor Young.
mean the short time issue.
Y e s ; while a
lower Tats issue would
have t o b s placed i n there w i t h t h e banks a n d v e would have
to go and lay down o n them to take then.
Governor Harding,
H a v e y o u a n y idea a s t o the rate?
Governor Young, Yes, 5 per cent. T h e State banks and
the s m a l l e r b a n k s a l l o v e r o u r d i s t r i c t w o u l d t a k e a
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Federal Reserve Bank of St. Louis
5 per
S20
cent short time security f o r investment.
Governor Harding.
N o w , would that rats wnet their appe-
tite s o that i t w u l d make i t difficult t e float a
longer
issue o n February lst?
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Federal Reserve Bank of St. Louis
Governor Young. I
Governor Harding.
don't think so.
Y o u think i t vould have the effect o f
taking u p some o f the slack, d o you?
do, and I think it vould contract in-
Governor Young. I
stead o f expandins credit.
Governor Harding. I
balieve y o u have said that you do
not agree with the Advisory Council,
Governor Young. N o , I do not.
Governor Harding. N o w , Governor Wsllborn, i n your dis~
trict d o y o u control t h e situation b y direct action o r would
an increase o f rates b e necessary?
Governor Wellborn. I
a m inclinsd t o think that a n in-
crease o f rates i s necessary,
Governor Harding, H a v e s Government deposits h a d a n effect i n enabling y o u t o put o u t certificates?
Governor Wellborn, I
Governor Harding.
think they have,
W o u l d y o u regard February i s t o f
December lst a s being the more favorable time for Government
Der
financing o f a somethat h e a v y character?
I n our country I suppose February
Governor ¥ellborn,
would be more favorable.
Governor Harding.
C o u l d y o u place a
smallsr quota o f
Government certificates February lst a t a higher rate o f interest without refsrence t o deposits?
Governor W e l l b o r n , I
tion. Y e s , I
hev2 b e a n i n t e r e s t e d
believe w e could, 1
i n that q u e s ~
don't k n o w about. individuals,
out I think the banks would be glad t o get them. T h e y have
idle money then, a n d I think they would like t o have @ short
time certificate, B u t I am strongly of the opinion that we
ought t o increase our rates, and I do not agres, though, with
the Advisory Council,
Governor Harding,
Governor Wellborn,
Y o u have some reservations o n that?
Y e s , a n d 1 asked t h e jusstion o f Mr,
Leffingwell yesterday whether h e h a d reference t o our rates
on commercial paper, f r o m one t o ninsty days, a n d he Said no,
he only refsrred t o certificates o f indebtedness.
H e said h e
did not care anything about ineoreasing o u r rates o n other
|
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Federal Reserve Bank of St. Louis
i
t d i d not concern him. I
think i t vould b e b e t
ter for u s t o g o ahead and increase our rates o n commercial
abolished,
paper. F i f t e e n d a y paper with u s i s practically
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Federal Reserve Bank of St. Louis
gee
because
w e h a v e m a d e t h e r a t e 4 - 1 / 3 p e r cent,
a n d y o u know
ar have t o put revenues stamps o n those notes, a n d that makes
it practically 5
per cant, o r around 5
per cant.
S o very
few o f them a r e using t h s fifteen-day paper, H o w e v e r , I
find t n e tendency among somes banks t o use a
do
fiftsen-day paper.
We called their attention t o it, t h a t i t cost more, a n d they
sald well, t h e y would rather p a y i t because t h a y d i d not want
their statements
t o show that t h e y h a d their bills redis-—
counted, b u t would s h o w bills payable.
Now, a s t o cotton down thers, w e have not had any occasion t o send o u t a
circular likes t h e Richmond b a n k did, be~-
cause our margins have not bean close, I
know w e have a
margin o f 325 t o 3 0 per cent o n the aggregate o f o u r cotton
loans.
Governor Seay,
™ s hav2 had much heavier margins than
that,9-© much heavier t h a n 3 5 c r 3 0 par cent.
Governor Harding,
H e w i s i t moving i n your district?
Governor * ®
e
Can take i t out.
V
r
I t has bean sold vsry readily b y the farmers,
Governor Harding, I
forgot t o ask Governor Biggs how it
was moving i n his district.
Governor Biggs, Q u i t e freely, m u c h more s o than i t did a
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Federal Reserve Bank of St. Louis
325
year ago.
Governor Harding, G e n t l s m e n , I
believes this completes
the circuit o f the table o n this particular topic.
i s the eredit situation desired?
is n o further discussion,
Mr, Hamlin,
I f
A s I understand t h e recommendations o f t h s
Advisory Council, t h e ultimate opinion was that for the pres~
ent there should b 2 no raiss i n rates. T h a t ssems t o be their
recommendation. I
wonder whether anyone "ould cars t o change
his opinion i n view o f the fact that that recommendation w a s
not against a n increases i n ths next t o months b u t a n increase
in t h e i m m e d i a t e f u t u r e ?
Governor McDougal. I
took i t t o mean that and that
one reason that I referred t o it. I
thought there was @
understanding, a n d there was i n my own mind.
Mv. Hamlin,
I n view o f that misund2rsteniing would
ons change his opinion, i n view o f what has besn pointed out,
tht i t i s marely against a n y cheng? O f a e
i n t h e immediats
future.
Governor Fanchar, I
Governor McDougal.
coneur v i t h the advisory Council.
B u t you ars speaking for your own
District only.
Governor Fancher.
Yes.
524
Governor Passmore, I
agree a s far a s that go3s; I
just
did not want t o bind mys2lf f o r a n y distance i n t o t h s future.
Governor Seay, G o v e r n o r Hamlin, I
will s a y that I agree
to that extent, until w e determine t h e effsct o f the change
that h a s already been made. I
do not think w e c a n determine
that yet; but I was under the impression that they used the
term " b e t w e e n n o w a n d thea f i r s t o f t h e yaar",
and I
thought
even i f we adopted that policy i t vould be injudicious a t
least t o announce i t o r t o give a n y expression t o that concluBion that might g o before t h e public.
Mr, Hamlin, G o v e r n o r Morss, w o u l d y o u g o along t o that
extent?
Governor Morss,
No, I
would change i t before t h i s n e w
issus w a s p u t out.
Governor Harding.
D o the rest o f the Governors feel
that t h e rate should b e changed before t h e n e w issue i s
erought out?
Governor Van Zandt. I
Governor Strong. I
do not think
think so.
Mr, Hamlin, Governor Yellborn, h o w d o you feel?
Governor Wellborn, I
feel the same way, that they ought
to have knowledge, that i t would be only fair t o them.
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Federal Reserve Bank of St. Louis
325
Mr, Hamlin.
W h a t d o y o u think about it, Governor McDougal:
Governor McDougal. I
think i t i s a mistake t o f i x a
policy here f o r a n y period o f time. I
think t h e Council h a s
left that open purposely, s o that i n case o f a sudden change
in the reserve position o f the banks t h e remedy c a n b e applied,
I think i f this body undertakes t o s a y that there should not b e
any change between n o w a n d the first issue o f certificates that
they are going a little t o o far; I
think t h e matter should b e
left open, a n d I think each bank should give careful consideration t o the conditions prevailing i n its o w n district a n d
if, i n order t o protect i t s reserve position tomorrow o r a
week from tomorrow a n advances i n rates seems necessary i t
should be recommended.
Governor Morss. I
believe if you advance your Tates
right now it would force a higher rate o n the certificates h e
is proposing t o issue,
I t sesms t o me that i s what they ought
todo, they ought to put up the rates on the certificates,
Governor McDougal.. I
do not believe y o u asked m e what
effect t h e paying b y credit h a d o n the sale o f certificates
our district,
I t has a very important effect,
i t has a very
good effect, Governor Strong has stated the sams thing has
been done i n Chicago. I
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Federal Reserve Bank of St. Louis
cannot match u p the rate o f income
in
326
that h e has mads with references t o 6 per aent o r better; b u t
I am satisfied that the banks figure there is perhaps 5-1/2
per cent i n these 4-1/4 per cent certificates.
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Federal Reserve Bank of St. Louis
Governor Harding.
C o u l d y o u throw into issue a
very
short time certificate without regard t o deposits?
Governor McDougal. I
think ws could i f the rate was
right. ‘ O u r 5 per cent short time certificate, though, w o u l d
be less attractive t o the big banks without the depository
the priviprivilege t h a n a 4-1/4 p e r cent certificate i s with
ge.
Governor Harding,
I f this coal strike should continue
I understend that all the coal mines i n Illinois a n d West
Virginia are shut down, i f that should continus vould not
that reduce the demand for ordinary commercial crsdit and
would you not have surplus money that vould b e looking around
for investment o r temporary use?
Governor McDougul.
I t would diminish the demand for
efedit i n time, o f course; I don't know t o what extent.
Governor Miller. B u t they would have already had their
surplus o n hand,
Governor Passmore.
would i t not?
I t would also tie u p a lot of credit,
327
Governor McDougal, N o , I think the chances are there
would b s liquidation,
a n d it-would s t o p credit a n d s t o p t h e
purchase o f s u r p l u s supplies.
Governor Morss.
I f a conoern h a d obligations coming due
and the product did not go through its mill and bring the
do?
proceeds t o pay thoss obligations what would i t have t o
It would have t o have those obligations continue,
up
Governor Harding, S u p p o s e the mill managed t o work
its product, work u p its raw material --~ I imagine the railreads would b e kept going.
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Federal Reserve Bank of St. Louis
Governor Morss.
Y e s , b u t t h e transportation o f goods
might b e very much restricted.
underGovernor Strong. T h e r e i s ons thing I d o not quite
Council.
stand i n t h e r e c o m m e n d a t i o n o f t h e A d v i s o r y
They
refer t o the discount policy for the balance o f this year.
That i s the caption.
T h e n i n their veport a n d recommendation
b e curtailed a n d
they express their belief that credit should
Banks, a n d
controlled through t h e operations o f the Reserve
Phen
that increases i n discount rates i s the way t o d o 3%,
for the
they s a y that o u t o f consideration t o the Treasury
moment that method should not b e employed.
Now, I
can only
should first borrow
interpret t h a t a s m e a n i n g t h a t t h e T r e a s u r y
the monsy before w s d o increase o u r rates,
T h a t i s not m y understanding.
Mrs M i l l e r ,
M y
understanding w a s that t h e y vere left with such a n encouraging idea o f the position o f the Treasury after t h s financing
in the immediate future i s out o f the w a y that t h e banks
could t h e n takes u p the question o f determining discount rates
without v e r y much concern t o the position o f the Treasury.
Governor Strong.
H o ~ ubout t h s banks, t h e xember banks,
jid they consider t h e effect u p o n ths position o f member banks
that h u d purchased certificates.
ir, Miller, i
d o abe k n o , I doubt v e r y much 7 h
that w a s considered,
Governor Seay.
D o s s not t h e Treasury assum: t h a t i f
they issue 4-1/4 per cant certificates a n d subse yusently issue
cartificates a t wu higher rate thet t h ? reserves banks vill
charge only 4-1/4 on the 4-1/4 certificates?
Governor Harding, I
don't knot; I
can only assume so,
bescuuse t h s Treasury seems t o b e interestad that w e maintain
& tate o f 4-1/4 per cent o n the present 4-1/4 p e r cent cer-
‘tificates,
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Federal Reserve Bank of St. Louis
Governor Seay, W o u l d not t h e sams policy necessarily
have t o b 2 pursued unless w e subject ourselves t o accusations
529
t h a t i s issued?
ef b a d faith vith reference t o a n y cartificate
I think so,
do net
I f thay issue more a t 4-1/4 per cent I
rate o n those
think+
2 could place t h e m a n d later raise t h e
titheut subjecting ourselves t e intimations o f b a d faith,
T h s suggestion vas made this morning,
Gevernor Harding.
however,
o f the compatab y ons o f the Governors t h a t i n vier
tively short length of time the 4~1/4 per cent certificates
scheduk
"ould have t o r u n that i t vould n o t disarrange y o u r
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Federal Reserve Bank of St. Louis
very seriously if you continue y o u r 4-1/4 per cent rate
on those certificates,
Governor Seay.
I t i s m y understanding that the Treasury
sooperats with
axpects that much o f us, i f w s undertake t o
them,
Governor Harding. W h a t is your idea, Mr. Strauss?
4 4-1/4
Governor Strong. T h e n if the Treasury issues
per c e n t c e r t i f i c a t e
we ould
b e axpectad
t o maintain a
rate until March 15th.
Mr. Strauss. I
think so.
Governor McDougal. G o v e r n o r Strong, I do not believe
that the recommendations of the Council are intended to in~
the
dicate their views a s to just what should b e dons for
balance o f the year.
N o w this topic, "Policy i n regard t o
$50
t h e remainder
discount rates o f the Federal Reserve Banks f o r
of the year 1919", i s evidently a
to consider.
topic that w a s given t o them
T h e y d i d not suggest t h e title o r write t h e
discount
title, b u t I take i t all t h e y desired t o s a y o n the
open f o r t h e
situation w a s that t h e y d i d say, leaving i t
d i d not intend
present, a n d I certainly believe t h a t t h e y
may come, that
that i n the face o f changed conditions ~hich
year, that
while there should b e n o change during the present
still there might come about «
situation that could require
something different.
the disGovernor Strong. W h a t I vanted t o bring out i n
are incussion was this; T h a t i f the Federal Reserv2 Board
I underfluenced b y the advice o f the Advisory Council, which
stand w a s unanimous,
a n d that n o change
i n ratss s h a l l b e made
vsekK s a y a n
at the present time, a n d that o n Monday o f next
n
o change being
issue o f 4-1/4 per cant certificates i s m a d e ,
made i n o u r rates,
a n i i f the Treasury expscts
w e shall n o t
certificates,
- paise the rate above 4-1/4 for 4-1/4 per cent
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Federal Reserve Bank of St. Louis
a t least
are we entering into a situation "here that rate
must b @ maintained until March 15th?
then
Governor Harding. M r . Strauss and 1 vere present
before
Mr, Leffingwell made his statement the other afternoon
the Advisory Council, and my impression i s that Mr, Leffingwel)
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Federal Reserve Bank of St. Louis
S51
talked somewhat o f the effect o f higher rates o n Liberty Bonds
as Well a s the effect o n placing certificates,
a n d I got the
impression somewhere o r other that h e opposed a n y advance i n
rates until after January 15th,
a t which time h e said the
pressure w o u l d b e out o f thse way.
Mr, Strauss, Y e s , sir, b u t 7ithout a n y intention o f prejudging a
situation that mizht change it.
Governor Harding,
H e fixed that o n conditions a s he
saw them the other day.
Now, shall w e pass t o one o f these other topics that the
Board sould liks t o have discussed, o r shall w e continue
this? D o you want t o say anything o n the subject, Mr.Strauss?
Governor Strong. G o v e r n o r Harling, w s have a
number o f
topics marked f o r t h e consideration o f th= Board present, a n d
we havea not very many o f them left.
T h e next topic i s
"Reserves, a".
This reads:
"Reserves:
( a ) Ths Federal Reserve Board i s authorized
to reclassify existing reserve a n d central reserve citiss,
Should this power b e exercised, a n d i f s o how?
"Should Congress b e asked t o amend Section 1 9 s o as to
require 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, d i f f e r e n t i a l s
te
to b e based o n the various classss o f deposits?"
That i s something - s 7 d
t o ressrve until t h s
Board v a s present.
Governor Harding.
Y o u have n o t discussed t h a t among
yoursslvss?
Governor Strong. N o , *3s have not discussed that.
Governor Harding, S h a l l t e discuss that around t h e tabls
first, as to shether it is desirable to effect any change in
reserve requirements immediatsly a n d then, second, s h a l l v e
make these changes sithout any additional legislation; and,
third, shall v e ask for additional legislation, and, i f so,
what?
Governor Strong. I
suspsct t h a t t h e minds o f most o f
ths m e n hsre a r e pratty w21l mdde u p o n the subject a n d that
it i s possible t o zet a n exprsesion o f viaw without taking
very m u c h tine.
Governor Harding,
T h e Advisory Council made a
recommen-
dation that i n vies o f the number o f pswerlexing subjects
before u s a t the present t i m e t h e y Pememted this a n inopportune time f o r raising a n y Jusstion about reserves a n d recom-
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Federal Reserve Bank of St. Louis
that i t b e d e f e r r e d
Uovernor Morss. I
to a
mors f a v o r a b l e o c c a s i o n ,
understand that a t the meeting o f the
Xo
Ne
Reserve Agents the whole question "as brought u p t o them and
that a
committes w a s appointed t o investigats i t a n d that
they are preparing figures which perhaps vould influence a l l
of u s i n any decision o n that.
S o ths whole yuestion could
very well b e postponed,
Governor Harding.
sition,
T o save time, I 7ill state the propo~
I s it the sentiment of the Governors of the Federal
Reserve Banks that questions relating t o changes i n requirements o f member reserve banks b 2 held i n abeyance f o r t h e
present?
(The motion "as duly seconded and carried.)
Governor Harding. W h a t is the next topic?
Governor Strong.
N o . 3 . “ S h o u l d efforts b e made t o
induce hanker b a n k s t o continus t h e process o f sorting a n d
depositing gold certificates i n Federal Reserve Banks?"
And I have added t o that the vord "silver", 2
have
disposed o f the topic a s t o gold, a n d Mr, Strauss wanted t o
be here when the subject of. silver was discussed,
Mr, Strauss. I
wanted t o say ons "ord a s to silver.
Silver has been selling for the last fev days at 1.31 and
1.33.
T h e parity o f the standard silver dollar i s a shade
over 1,29.
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Federal Reserve Bank of St. Louis
S o probably a t 1.31 o r 1.33 for silver, after y o u
554
make u l l o v a n c s f o r a b r a s i o n a n d e v 2 r y t h i n g e l s e t h e r e i s a
profit i n its export.
T h a r e i s unisr contemplation t h s is-
sue o f a n order that ~ould prevent t h e exportation o f
standard silver dollars a s dollars b u t vould mak? i t perfect-
ly clear that theres is no law that prevents the melting of
Silver dollars a n d n o prohibition o f ths export o f bullion
derived from melted silver dollars, B u t i f silver dollars
ara melted a n d g o out a s bullion «es d o not want that silver
to come back t o us again a t soms time i n the future a s dol-
lars, when silver muy be selling for *1,.10 an ounce,
S o if
ws Say goodbye t o them let us say goodbye t o them a t once.
I wanted t o refer t o that order s o i f i t came u p the purpose
would b e clear a n d the s n d t o b e achieved vould b e clsar,.
Cur s u b s i d i a r y c o i n a g e
i s vorth p a r or, rather,
i t s silver
contents i s equal t o its face valus a t about 1.38 for silver,
So that i s not a n immediate question, because i f the exportation o f standard silver dollars should assume a n y dimensions
through t h e gathering i n o f silver certificates a n d their T e ~
demption,
i t would f i x around 1.30 f u r a sufficient t i m e f o r
us to: see h o w that situation would work out.
T h e o n l y incon-
venience I think that might arise from the retirsment o f sil~
ver certificates a n d the melting a n d exporting o f dollars i s
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Federal Reserve Bank of St. Louis
335
oue that.I think Governor Strong has i n mind, a n d that i s it
would reduce t h e amount o f availabls m o n s y that could b e used
for formal senders o n contracts t h e n that becomss necessary.
The silver certificates I
think i s legal tender under a
con-
tract -—--
Governor Strong. N o , no,
Mr, Strauss, Silver dollars are --Governor Strong. (Continuing:)
I t is the sam2 as a
gold c e r t i f i c a t e-—
Mr, Strauss,
G o l d a n d silver c o i n a n d legal tender
bills are all that i s available for a formal tender under a
contract, a n d the question arises a s t o “hether some provision
should n o t b e made a t the same time t o increase t h e amount o f
currency o r o f money that i s available f o r those purposes,
Of course the use of the word legal tender i s a little unfor-
tunate t o describe that particular quality because v s associate
it vith fiat money a n d the whole history o f bimetalism a n d the
other troubles w e haves had.
Governor Harding,
D o you distinzuish between legal ten-
der a n d lawful monsy?
Mr, Strauss. I
think a l l y o u have t o s a y i s that i t
be r e c e i v a b l e f o r a l l debts.
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Federal Reserve Bank of St. Louis
Y o u avoid t h e u s e o f t h e words
legal tender b u t simply provids t h a t Federal Ressrve2Sétes
sould he: Sopegeieie f o r a l l dabts public o r private, a n d i n
that w a y relisve t h a t situation.
I do not know h o w much money there i s now, dvx% money for
those purpos3s; I know some years ago I went from New York
to N e w Haven, Connscticut,
aoe
w i t h £300 7in legal tender currency
and a revolver i n order t o make a
of our customsrs,
tender o n a contract f o r one
I t was necassary t o present t h e actual
money t o demand t h e surrender o f some stock, I
do not know
to what extent that requirement exists now-in t h e different
districts,
D o y o u have m u c h o f it? ,
Governor Strong.
N o t very much.
I n the o l d days t h e
payment o f & mortgages a t maturity v a s requirad t o b e made i n
legal tender.
Mr, Strauss.
I t could nor if a man insisted o n his
rights,
Governor Strong. 1
belisve’ t h e Supreme Court h a s held
that a mortgage c a n b e legally repaid b y the tender o f a
Check o n a
solvent b a n k c e r t i f i e d
3 M r , Strauss, I
to take a check. :
I remember,
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Federal Reserve Bank of St. Louis
b y t h a t bank,
would n o t think y o u could compel a
man
know there a r e some banks i n New York,
a t least, t h a t there have b e e n banks i n New York
oor
whose c e r t i f i e d c h e c k I
Governor Strong, I
w o u l d n o t v a n t t o take,
know thers has besn a damand i n the
b u t that d e past f o r legal tender f o r payment o f mortgagss,
mand hus almost completely disappeared, a n d every transaction
in real estate now i s completely effected, sven whan i t is
effected b y t h e d e c r e e o f court,
b y the presentation o f a
csr~-
tified chack.
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Federal Reserve Bank of St. Louis
Governor Harding,
I + occurred t o me sinos this discus-
Sion developed a t lunchtims t o d a y that i t mizht b e possible
coin
if the need f o r legal tender money other t h a n actual
should develop --—- and I presws2 i t will develop - - - t o
authorize t h e Federal Reserve Banks t o issus 4
Federal Reserve
gold.
gold note which i s spscifically secured b y 100 per cent
There might b e some objections a s % o distinguishing between
ths t w o types o f notss.
Governor “ellborn,
H a v e v e not n o w t h e Treasury notes,
#353 ,000,000 o f Treasury not3s that are legal tender notes?
Mr, Strauss. T h e y ar2 being split u p t o a certain extent i n smaller denominations,
Governor “Nellborn.
W e vould have recourse t o them o r
gold coin.
Mr. Strauss.
M y only purpose i n bringing this u p is. that
358
it i s v e r y l i k s l y t h a t s o m e s t e p s v i l l h a v e t o b s t a k e n o n
this, and a brief discussion I thought might ueke it clear,
Governor Fancher,
D o e s i t not s s e m advisable f o r t h e
Federal Reserve Banks t o gather i n silver certificates ;
they can?
Ur, Strauss.
T h e r e i s a considerable amount, t h e
Treasury has about m i g sixty million silver dollars, the New
York b a n k a b o u t fifty million dollars, a n d o f course t o the
extsnt that silver dollars a r e actually exported a t 1.29 w e
ars getting o u t o f our system 4
comparatively undesirables
element o f our circulation, a n d v e are paying o u r foreign
balances t o that extent i n something w e c a n well spars,
Governor Strong. T h o s e ars legal tender notss w e have,
Mr, Strauss. I
Governor Strong.
thouzht y o u said silver.
N o .
Y o u vill ramember
v 2 were discuss— g
ing giving them u p for ons dollar bills,
Mr, Strauss.
B u t the Treasury has something like sixty
million dollars i n silvsr dollars.
T h s Treasury h a s been kesp-
ing those silver dollars a n d gradually accumulating t h e m i n
ordsr that they might b e available t o ssll t o the Director o f
the Mint t o keep h i m out o f the market,
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Federal Reserve Bank of St. Louis
There are 157,000,000, I think, o f the silver certificates
3
48
3
9
outstanding for which dollars are held, a n d then thers i s 4@
further sixty million dollars held i n the Treasury a s a part
of its general assests against which there are n o certificates
out,
A m I
Governor S t r o n g ,
not correct
i n m y memory o f the
coinage lav t o which y o u refer, that i t is impossibl? t o isgue a silver certificate against silver bullion i f they can
coin silver dollars?
Mr, Strauss. I
think that is right.
Governor Harding,
quested t o continus
T h e topic i s shall member banks b e Te-
t h e sorting a n d dspositing o f gold cer-
tificates i n Federal Reserve Banks?
Governor Strong. T h a t w e have already dealt ~ith.
Governor Harding.
N o w the question i s do you include
silver in there?
Governor Strong, T h e question was put i n about silver
to see i f we wanted t o include that i n this topic. I
do not
quite agree with Mr, Strauss a s t o the procedure about silver,
I a m sorry t o say. J u s t nov, a n d per ticularly with conditions
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Federal Reserve Bank of St. Louis
that will undoubtedly develop a s ths 2esult o f the failure o f
the treaty, I think anything i n the nature o f a decrees b y way
of prohibition against d o i n g anything i s going t o b e considsrec
340
as a reflection o f some concern i n this country, and, a s >
understand t h e o b j e c t o f t h e r e s t r i c t i o n u p o n t h e e x p o r t o f
Silver dollars,
i t i s t o prevent those silver dollars going
out t o pay debts, i f you please, a t the rate o f 1.33 o r 1.389
and coming back "ith a n actual valus o f 5 deter o F 105.
Mr, Strauss,
I t i s not intended t o prevent their going
out, i t i s intended t o prevent their coming back,
Governor Strong. Y e s . N o v , i n practice I belisve that
4¢ will b e found that there will b e a trifling amount o f
those silver dollars come back i f thsy once g o out,
I n the
first place, t h e great b u l k o f that silver will g o t o China
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Federal Reserve Bank of St. Louis
and India and i t vill not stay i n China a s American silver
dollars, t h a y have n o use f o r American silver doliers a s such,
Mr, Strauss.
O u r standard silver dollar i s almost pre-
cisely t h e same a s the Chinase dollar i n size a n d wel ght and
fineness, t h e r s i s a
very s m a l l v a r i a t i o n - ~ - I
forget w h a t
4¢ is, b u t I think only on? o r ons a n d & half p e r cant.
I t
4s u little lighter than the old trade dollar, which vas 420
grains, T h i s i s 412~-1/2 grains, I
would stand a
therefore think they
pratty g o o d chance o f circulating i n China
just a s they are a n d coming back some d a y h e n w e lsast want
them,
and I
d o n o t s s t h a t a n y possible u n s a s i n e s s c o u l d
541
arise f r o m @ prohibition, because t h s prohibition itself
would make i t clear that t h e prohibition i s not intended t o
apply t o the export o f bullion resulting f r o m t h e melting
of silver dollars.
Governor Strong, U n f o r t u n a t e l y people d o not always
read all the text o n those certificates.
Mr. Strauss. 2
would havs t o see that th? newspaper
msn "ould g e t t h e richt slant - - ~
Governor Strong. I
am thinking o f France and Germany
and the rest o f the world. I
think a
proclamation o f that
sort Would b e like shooting a 16-inch gun a t something that
is only worthy of a charge of bird shot. I
is a
do not think it
serious matter,
Mr. Strauss, I
do not think i t i s very serious, b u t 1
think i t is serious snough t o pe protected,
A s drafted the
proclamation m a d e t h e s t a t a m e n t t h a t t h i s p r o h i b i t i o n
i s not
intended to apply to the export of siiver bullion derived from
the melting o f standard silver dollars. I
do not ses how
there can be any misundsrstanding o r uneasiness about it;as
to the sorting out o f silver certificates, I
think w e will
have a clearer line o n that @ n a little vhile. I
the t i m s t o g e t a n e s t i m a t e
have not had
o f what t h e requirements
o f the
Director o f the Mint are a t the present time o r how long this
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Federal Reserve Bank of St. Louis
342
$60,000,000 standard silver dollars that are availabl=2 will
last,
Governor Strong,
T h e reports w s get from N e w York a s t o
the smaller bills, including fives and tens, are rather
serious,
Ur, Strauss, I
do not think i t i s advisable t o sort
them out a t ths present tims, b u t I thought discussion w a s
advisable,
s o that whetever i s done latar might b e clearer
for having had the discussion,
Governor Strong. I
am thoroughly convincsd that the pro-
vision that Federal Reserve notss shall n o t b e paid out b y the
different banks except those t h a t t h e y issus themselves h a s
the effect o f enlarging ths circulation rather than reducing
it, a n d that t h e effect which w e desirs o f prompt reduction i s
dependent upon, first, having a sufficient number o f p a c e m a n
offices: t h r o u g h o u t t h e United States, and, second, u p o n thse
rate o f discount o f the Ressrve a
Mr, Miller,
h e n y o u s a y enlarging t h 2 circulation y o u
mean enlarging the apparent circulation?
Governor Strong, “ 2 1 1 , t h e gress circulation,
Mr, Miller. I
think a t the present time the expense o f
putting o u t a n d redesming a
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Federal Reserve Bank of St. Louis
large volume o f notes i s to pull
543
tage a little bit. T h e r e i s a con~
Siderable b o d y o f notes that s o far a s the statenents o f
the
banks g o are outstanding,
T h e y a r e not, however,
circulation, t h e y are i n process o f redemption. I
i n actual
think o n
the whole i t is a n advantage rather than a disadvantage.
Governor Strong. I
would like t o see the silver certifi-
Cates sorted, a t any rate a s t o the larger denomination certificates,just a s actively a n d progressively, a n d possibly
for & reason that has not yet been stated, T h i s decline i n
sterling i s a very Significant thing. S t e r l i n g g o t below
#4 today. I
have no doubt that means that silver sold at 73
or 7 4 pence. I
advance
mean w e c a n @expsct t o see t h e prics o f silver
a s t h e s e e x c h a n g e s g e t i n t o g r e a t e r distress, b e c a u s e
Silver i s one o f the things that they will bid for t o settle
their balances all over the world, especially
Chins a n d India, a n d let u s watch i t a n d ces, Mr. Strauss.
Mr, Strauss. I
do not agree t i t h you at
will b e used a n d will continue t o b e used i n the Orient, b u t
will n o t b e u s e d e x c e p t f o r s u b s i d i a r y c o i n a g e a n y w h e r e e l s e ,
and the only relation o f the present r a t e o f sterling will b e
that i t will raise the London rate for silver and t o the ex~
tent 1 % does i t will afford a larger premium o n the export o f
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Federal Reserve Bank of St. Louis
344
British subsidiary silver, w h i c h I think i s exportable a t 86,
Governor Strong,
T h s margin between t h e security o f
ubsidiary c o i n a g e t o d a y i s r e a l l y v e r y n a r r o w i n point
Governor Strong, A
further advancs o f t e n cents rould
imperil that, and we have i n hand “68,000,000 i n the Treasury, a n d it o u l d not b e a flea bits, a n d ws mizht b s
driven t o the u s e o f shinplastars. I
w o u l d n o t like t o see
it i n this country,
Mr, Strauss. I
think i t i s a bad thing - - — i f silver
were t o g o t o 1.40 o r 1.41, after exporting a
substantial
quentity o f o u r s t a n d a r d s i l v e r d o l l a r s - ~ - bdacauss I
think
that i s the necessary first step --- i t vould undoubtedly
iujure o u r silver subsidiary coinage, a n d 7 3 would have t o
do something about i t or we would lose it, a s France has,
or a s she i s i n process o f doing, a n d Great Britain m a y b e
in the process o f losing hers; b u t I think a
batter w a y t o
do i s t o let o u r standard silver dollars go.
W e have over
hundred million - - Governor Strong. I
vould like t o b e o n the record a s
recommending that w e scoop i n all t h e silver w e c a n l a y our
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Federal Reserve Bank of St. Louis
345
hands o n as a precaution and get i t i n the reserve banks,
becauss, Mr, Strauss, i f the time should coms when w e either
have t o recoin o u r silver coinage o r when w e have t o issue
shinplasters, y o u are goinz t o ses a disorder i h the currency
and inconveniences i n the currency i n this country bsyond
anything we experience today, a n d I vould get ready for i t
now, I don’t think we can start too soon, a n d a difference o f
ten cents with silver today selling a t 1.33, w i l l b e swept
away i n two days.
Mr. Strauss.
M y opinion i s that t o permit the export
of standard silver dollars i s the better protection o f the
subsidiary coinage t h a n t o let t h e price o f silver g o u p a n d
togather in silver dollars.
Governor Morss.
I f y o u take i n standard silver dollars
are you going t o d o with ones and twos?
Mr, Strauss, I
that anyway; I
think you are going t o bs u p against
think w e a r e u p against t h a t q u e s t i o n o f ones
and twos now,
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Federal Reserve Bank of St. Louis
Governor McDougal. T h e r e i s a steat scarcity of them
in o u r c o u n t r y now,
Governor Strong. Before I left Paris 1 could not get
small Changs a t any restaurant i n paying a bill, B h e o n l y
7
346
kind o f change I
could g e t would b e t o accept a
postage s t a m p
or a tickst o n the Metropolitan Subway.
Governor Harding.
I s i t not possible t h a t w e will s e s a
premium pretty s o o n o n silver certificates?
ir, Strauss, I
think that i s quite possible,
Governor Strong, T h a t i s a shortages premium?
Governor Harding, N o , they vill s a y where y o u have sil~
ver certificates y o u c a n get silver f o r it,
Governor Strong.
T h e n your silver would n o t g o up.
Mr, Strauss, Y e s i t vould, T h e Governor's point i s a
man "ould b e willing t o pay & small premium t o command the
Silver f o r purposes o f export; I
think that i s quite likely,
But d o y o u not think, Governor Stronz, t h a t t o lst standard
Silver dollars b e exported a t the present time i s 4 better
precaution f o r t h e subsidiary coinage t h a n t o hoard t h e m ?
Gevernor Strong. I
would g e t i n hand every ounce of,
Silver w e c a n b y accumulating silver certificates,
Mr, Strauss, I
think i t i s vsry important t h a t there
Should not b e a n y discussion o f this i n the newspap2rs o r
anywhere else; I
think this discussion sheuld b e regarded a s
entirely confidential here, because whatever g e t s into t h e
newspapers i s liksly t o b s distorted, a n d that would b e unfor~
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Federal Reserve Bank of St. Louis
547
tunate,
Governor McDougal, B e f o r e w e leave this topic I
think
we ought t o have i t definitely understood whethsr t h e action
in regard t u sorting and depositing certificates i n Federal
Reserve Banks extends t o silver certificates,
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Federal Reserve Bank of St. Louis
Governor Harding. I
understood y o u were g o i n g t o Cone
sider that a n d report it,
Governor McDougal. ‘ e s have considered it,
I s i t the sentiment o f the Governors :
Governor Harding.
that t h e same action taken i n reference t o sorting o u t gold
certificates should be taken i n regard to sorting silver certificates?
D o you mean t o induce the member
Governor Van Zandt,
bank
t o sort o u t the silver certificates?
Governor Harding.
Governor McDougal,
Governoz Peple.
Yes.
A n d send them aie
Y o u could n o t d o that without public~-
Governor McDougal. I
think t h e plan would b e t o have
the Federal Reserve Banks d o i t quistly.
Mr. Strauss.
W o u l d y o u not g s t publicity o n that any-
how? C l e r k s have got t o be instructed,
348
Governor Strong. T h e y d o i t all the time. " s e sort all
the currency that goes throusch t h e banks,
Governor McDougal.
I t i s sorted but i t i s not l a i d
aside, t h a t i s the point, a n d the ones a n d twos particularly
are i n great demand a t the present time, i n fact w e cannot
supply t h e demand.
Governor Morass,
I t would b e vary bad if there i s not
Some provision t o furnish other ones a n d twos,
Y o u will f i n d a considerable falling
Governor Harding.
off i n the demand after Christmas.
Governor Morss,
Governor Strong,
W e are short now,
W e a are going t o get short &
great deal
faster b y letting t h e silver g o out.
Mr. Willer.
O f course i f you accumulates them you have
to substitute something i n their place. I
should suppose t h a t
you could possibly effect t h e sams purpose i f yor i s s u e d szall
Federal R e s e r v e n o t e s
Mr. Strauss.
i n small denominations,
W e cannot g e t
Governor McDougal.
W e h:
3
m notifisd t o
with them,
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Federal Reserve Bank of St. Louis
Governor Harding. I
might call attention t o the fact
that t h e Secret Services h a s called attention t o the fact that
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Federal Reserve Bank of St. Louis
349
there i s a areat deal o f ruising o f Fedsral Reserve notes,
ani has pointed o u t h o r i t i s done, which 1 s b y paring o f f
cornérs a n d redeeming t h ? notes, a n i then pastinz these corners o n notes o f smaller denominations.
S e v e r a l reserve banks
have asked that they shall d o i n cas? they get raised notes.
I sent out « circular letter quoting from the lstter recsived
frow the chisf o f ths Secret Service i n which h e says that
the proper policy t o -ursue i s t o return t h e raised note t o
the benk from which i t i s rsesived, b u t a t the same time
fy the secret service operator of the transaction,
Governor Miller,. A n d mark it ith red.
Governor Harding.
H e d i d not s a y anything about marking
it; but there was another letter sent out some time ago. Mr.
Harrison s a w the chief o f ths ssceret servic? a n d h e said o f
course thers i s n o impropristy i n markinz i t i n red,
Governor Wilier..
I f y o u d e n o t someones w i l l b e t e m p t e d
to put i t i n circulation,
Governor Peple. 3
are stamping them i n red "Raised
notes",
Governor Miller, I
thought a letter came out from the
Board o n the subject of marking them.
Governor Harding. Y e s , i t did.
350
Governor Passmore,
I n view o f the fast t h a t i t Coes
not s e e m quite clear a s t o what t h e opinion o f the Governors
is o n the silver question, h a d w e not oatter pass i t ?
lr, Strauss,
M y idea vould be thet no action should
bs taken but w e h a d better consider it.
RESOLUTION
O N C O T T O N S E E D GLb.
Governor Harding. H e r s i s a telegram from a number o f
banks i n Memphis, reading --"The undersigned urgently reyussts that y o u protest t o
Fuel Administrator Garfield beainet stopping coal t o cotton
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Federal Reserve Bank of St. Louis
feed
seed oil mills o n account o f great loss o f food and
values
i n cotton ssed which will rot i f not crushed promptly?!
Governor Biggs. I
have a pocket full o f such messag?s
nere,
t o the
Governor Harding. S h o u l d this matter b e referred
i n their
Governors o f banks who have cotton seed oil mills
t o act o n it?
districts o r i s tha whole body o f Governors ready
Governor Wellborn, I
would like t o say somsthinz o n that,
really a nationWhils i t arises i n our district I think i t i s
al question.
I t affects t h e food production o f the country
the country, e n d
and affects 2very man, Woman a n d child i n
ths
this cotton seed, i f they cannot get coal t o crush
will rot from ths heat, a s you understand, a n d we will
t o our part o
short o f lard a n d oil, which a r e agsentials
oo1
country.
Governor V a n Zandt,
T h e sesd i s going t o b s short any-
way this year.
Governor "sllborn, I
would like v e r y much, i f y o u gen-
tlemen t h i n k y o u c a n d o s o , t o p a s s a
resolution h e r e request-—
ing Mr, Garfield t o permit the oil mills t o receive coal, t o
put t h e m o n a preferential list.
Governor Harding.
I f that i s passed b y the Governors
and y o u authorize your names t o b e signed t o i t then the
Board till take pleasure i n transmitting i t t o the Fuel
Administrator.
Governor Wellborn, I
make ths motion that w e request
Mr, Garfield t o put these o i l mills o n the preferential l i s t
in receiving coal,
Governor Hurding, T h e r e have b e n a
received f r o m b a n k s
number o f protests
i n the south protesting against t h e order
s3ed
of the Fuel Administrator shutting off coal from cotton oil
mills,
M r , Wellborn h a s stated that cotton seed will n e t keep,
that i t will r o t o n account o f t h e heat, a n d that t h e supply
is short anyhow, there i s not a great supply, a n d this will
result i n a shortages of fats and oils.
I s it a question i n
which t h e G o v e r n o r s f e e l s u f f i c i e n t l y i n t e r s s t e d
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Federal Reserve Bank of St. Louis
t o adopt a
552
resolution about it, o r d o you wish t o confine i t only t o
those districts which a r e directly concerned?
I f the Gov-
ernors will s i g n the resolution w e will take pleasure i n
transmitting it.
Governcr V a n Zandt, I
think svery family i n the United
States i s interested i n this question,
H e r e a r e some tele-
grams I have received.
Governor Miller, I
Governor Harding.
think i t i s very important.
D o you regard i t as important, Governor
Biggs?
Governor Biggs. Y e s , I do,
DepeGovernor Peple. Y e s , w e have also gotten a
number o f
telegrams o n the subject.
Governor Harding,
Y o u have heard Governor Wellborn's
motion,
(The motion was seconded and carried.)
Governor Harding,
T h e motion i s carried, a n d I suggest
that y o u draw u p 4 resolution a n d authorize y o u r signatures
to b e affixed t o it, a n d then i f y o u like t h e Federal Reserve
Board will transmit it.
Governor,
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Federal Reserve Bank of St. Louis
O r y o u can transmit i t yourself,
@ s y o u may see fit.
Governor Wellborn. I
think the Board ought to.
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Federal Reserve Bank of St. Louis
353
Governor Harding.
Governor S t r o n g .
‘ h a t i s the next topic?
T h e n e x t topic, t r a n s i t operations,
includes a large number o f items which i t seems t o me i t
would b e difficult t o cover i n a discussion w i t h y o u a t
this time.
T h e next o n e that h a s n o t been covered its
Now 1 3 %
ie8 D E S I R A B I L I T Y O F AFTERNOON SETTLEMENTS THROUGH
GOLD SUTTLUVENT FUND A T TASHINGTON FOR TASTTRYN
FEDERAL RESERVE BANKS.
Governor Harding. I
presume that only the Eastern banks
are interested i n an afternoon settlement?
Governor P a s s m o r e .
T h e Eastcrn banks s r e t h e o n l y ones
in which i t i s possible.
Governor Harding. “ T h i c h particular banks does i t include?
D o e s i t extend t o Cleveland?
Governor Passmore.
Y e s , i t does.
Governor Fancher. Cleveland is ynder Eastern time.
Governor McDougal.
“ Y e ere interested i n anything that
will affect a better settlement every day if it can be worked
satisfactorily,
Governor Strong.
I a m sorry I
do not know =
about
the details of the situation, but I take it tt/in the mind
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Federal Reserve Bank of St. Louis
554
of the Bank o f Mer York that the afternoon settlement i s o n l y
possible
b y stopping w o r k a t some point a n d getting t h e P i c e
UPres.
Governor Harding. S u p p o s e w e leave that t o the Governors o f th: banks w h o are interested.
T h e y c a n communicate
with each other e n d c a n send a lettor t o the Board, m h i c h t h e
Board will a c t upon.
Governor S t r o n g . I
take a
have a
minute t o deal with. I
matter h e r e w h i c h w l l l o n l y
have ea letter f r o m Mr. C a s e
in regard t o this g o l d which w e hold apptod. - Twill n o t reed
the letter, but the situation i s about this: T h e German Government has, without v e r y good taste, directed a n inguiry
e eould
directly t o the Netherlands Bank a s t o hov p r o m p t w
asking
settle
coin,
a n d pending settlement/further advances upon the
O f course w e h a d
made s u f f i c t e n t m a r g i n
t o satisfy ourselves t h a t w e h a d
i n making advance payment p e n d i n g
we have paid
exact knomledge o f the value o f the gold, a n d
Organiza~
to the Grain Corporation and the Belgian Relief
t o pe t h e value o f the
tion 9 2 per cent o f what w e estimate
gold, b y rough methods o f estimating.
I t will take some
value o f the g o l d a n d the
months t o ascertain t h e exact
t h e m same
i f w e cannot advance
Grain C o r p o r a t i o n n o w a s k s
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Federal Reserve Bank of St. Louis
355
portion o f the 8
per cent margin, inasmuch a s the gold i s
all i n London... M r . K i n g has been over these firures w i t h
me very carefully, a n d I presume w e could make further oadvances o f possibly 4
per cent, without much risk, a n d b y
doing s o i n c r e a s e o u r g o l d r e s e r v e s
t o t h a t amount, t h a t
is, t o the amount o f seven o r eight million dollars,
T I do
not believe i t would be wise t o advance more than thet, ond
because t h e Rserve Banks a r e interested i n the account I
did
not want t o g o ahead.
Governor Harding.
D o yo& think i t vould b e safe t o ad-
vance t h a t much? S u p p o s e there should b e a loss? M o u l d
there b e r e i m b u r s e m e n t f r o m
Governor Strong. N o .
a n y source?
W e have had a n exchange o f let-
ters with the Grain Corporation, agreeing t o be responsible
for the amount o f actual c o i n represented, t h a t is, s o many
gold marks,
s o many kronin, a n d s o many gold bars o f Oo cert.
ain weight,
t o b e delivered a t the Bank o f England, a n d that
no less a n emount will be. T h e y could not o f course give
us any figure a s t o the charges, t h e abrasion, a n d s o
fertn.,
the
Mir. Strauss, D o n ' t y o u know what the charges are? / Gol
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Federal Reserve Bank of St. Louis
is all with the Bank o f England.
Governor Strong. ‘ “ e do not know yet, beccuse i t was a n
exceedingly c o m p l i c a t e d t r a n s a c t i o n a n d 1 t will t a k e s e i s
weéks o r months probably t o get the accounts m a d e up.
Mr, Strauss.
Y o u mean even a s t o the charges?
Governor Strong. E v e n as t o charges, yes.
Mr. Strauss,
T h e r e a r e threc elements énterine into it:
in the first place, t h e actual c o s t o f bringing t h a t gold t o
_the Bank of England. T h a t has been incurred, and I presume
it i s Acterminable i n some way; t h e other i s t h e estimated
cost o f bringing the gold from England t o the United States,
and t h e third i s the actual golden content.
Governor Strong.
A s a matter o f fact, I wrote a letter
to Mr. G a s e f r o m W a s h i n g t o n
t o give u s t h e items,
and as I
recall there were thirteen sets o f items,
Mr. Strauss.
B u t t h e y a l l f a l l u n d e r t h o s e t h r e e classes”
Governor Strong.
Y e s , b u t f o r instance t a k e t h e matter
of charges b y the State railway.
Y e h o d t o have a
special
arrangement f o r t h e State Railway t o move t h e gold; t h e n
b y the
there i s the charge o n the boat line that i s omned
o f Army
English Railroad; there were charges for the services
trucks, a n d o n the whole the amount o f red tape necessary
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Federal Reserve Bank of St. Louis
357
to get this acoount through i s infinite.
Governor Harding. B e f o r e v e adjourn, I
want t o refer
to a letter recently received f r o m Senator O w e n roferring
to this stock market break i n New York, and t o submit t o
you g e n t l e m e n f o r c o n s i d e r a t i o n t h e r e p l y o f t h e Board,
(The letter referred t o was submitted t o the Governors, and, a t 6 50 o'clock P. M,, a n adjournmont was taken
until tomorrow, Friday, November 21, 1919, a t 9 30 o'clock
A.M.)
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Federal Reserve Bank of St. Louis
THIRD D A Y .
Novezber 91, 1919.
The conference re—agsembled, pursuant t o adjournment,
at 9:3 0 o'olock a. m.
Present:
A s previously noted.
The Chairman. G e n t l e m e n , y o u will come t o order.
At t h e conclusion o f the méeting yesterday, a
tion was adopted,
resolu-
t o b e reduced t o exact language later,
in regard t o the Fuel Administrator discontinuing the sup—
ply o f fuel t o the cotton seed oil mills. A
resolution
has been handed t o me which reads a s follows:
"At a meeting o f the Governors o f the twelve Federal
Reserve Banks h e l d i n Washington, “ D . C., o n November 20,
1919, i t was reported f r o m many quarters that unless a
sufficient supply o f coal can be obtained t o c r u s h this
year's o r o p o f cotton s e e d great l o s s will result f r o m the
Spoiling o f the seed “ra7% b y heating, w i t h a consequent
irreparable loss t o the food supply o f the country.
"Therefore,
b e i t resolved, t h a t t h e Federal Reserve
Board b e requested t o communicate with Mr. Garfield, t h e
Fuel Administrator,
a n d endéavor t o obtain a
modification
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Federal Reserve Bank of St. Louis
O59
" of the order stopping the shipment o f coal t o the cotton
seed oil] milis."
I am going t o take the liberty o f suggesting a change i n
that, a n d t o revise i t s o that i t will read:
"At a metbting o f the Governors o f the twelve Federal Reserve a e
h e l d i n Washington, D . C., o n November 30, 1919,
it was reported from WMany quarters that unless a
sufficient
Supply o f coal can o e obtained t o crush this year's crop o f
Cotton seed great loss will result from the Spoiling o f
the
Seed by heating, with a consequent irreparable lose to the
food supply o f the country.
"Therefore,
d e it resolved, that the Federal Reserve
Board be requested t o communicate with Mr.
Garfield, t h e
Fuel Administrator, a n d endeavor t o
obtain a
modification
of the order Sttpping t h e shipment o f
coal t o the cotton
Seed oil mills, it not incompatible
with the public interest."
Governor McDougal.
I t seems t o m e that that h a s
been
Changed somewhat since yesterday,
and I hope it has, because
I think that we made a mistake
in passing it in the form
that i t was yesterday.
The Chairman. I
think you did not hear the whole of
the resolution.
S60
Governor McDougal. I
will say that I just came in,
and d i d not hear t h e whole o f the resolution,
out I
that t h e matter will b e reconsidered
-—
The Chairman,
M
hope
y suggestion i s that the resolution
B8hould add those words, "aif
not incompatible w i t h t h e
pub—
lic interest," b e c a u s e t h e
cotton s e e d mills a r e not
the
enly mills i n the Unitea States that
are going t o be affected, a n d I would hesitate
myself t o g o o n record
a s sug—
gesting that every other mill i n
the United States might b e
shut down, s o long a s the cotton
seed mills might b e kept
epen,
Governor Fancher,
T h a t i s the resclution Tequesting
the Board ~
Governor Welloorn. I
think i t was the idea of
the
- Federal Reserve Board t h a t
w e should Present it. Y o u r
suggested change, Mr.
Chairman, i s agreeable
t o ma.
t a e
V a n Zandt ,I
move that t h e resolution,
Stated b y the Chairman,
b e adopted.
(The motion was duly
seconded and was carried
b y van
ismous vote.)
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Federal Reserve Bank of St. Louis
as
The Chairman,
W
e will next take
u p Item 16,
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Federal Reserve Bank of St. Louis
o61
16: C O N T R O L O F FOREIGN EXCHANGE TRANSACTIONS
TO PREVENT DISHONEST BANKING PRACTICES.
The Chairman.
T h e next i t e m o n the program i s the
topic suggested b y the Treasury Department, Control o f
foreign exchange transactions t o prevent dishonest banking
Practices.
You heard the statement o f the reasons for this s u g
Sestion, a n d what t h e Treasury h a d i n mind, namely, t h a t
we should undertake,
b y some system o f licensing o r control,
to direct h o w t h e s e small and unlicensed foreign exchange
dealers shall deal with the public, 8 0 as to eliminate
fraud, that b a s been practiced upon t h e people
w h o send re-
mittances t o the old country,
H a s anyone any suggestion
a8 t v the method o f dealing with this?
Governor Van Zandt. I
do not see how that c a n be
very well taken u p a s a Federal Reserve Bank
function.
It seema t o me that i t would b e better
taken u p b y some
other Department o f the Government.
The Chairman.
H a s anyone a suggestion
o f a method
of disposing o f the topic?
Governor V a n Zandt. I
L e t u s get some action
o n 35;
move that i t b e referred
back
to the Treasury Department, without
action,
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Federal Reserve Bank of St. Louis
562
g there a n y discussion?
I
The Chairman.
Do y o u
wish t o make apy explanation o f the reasons for that action,
Governor V a n Zandt?
Governor V a n Zandt.
N
o further t h a n I did.
(The motion was duly seconded and Was carried b y a un~
animous vote.)
17: U N I F O R M METHOD O F HANDLING REVENUE T O B E
DERIVED F R O M S A L E O F CANCELLED POSTAGE
STAMPS O F LARGE DENOMINATIONS.
The Chairman.
T h e next topic, number 17; Uniform
method o f handling revenue t o be derived from sale o f can~
celled postage stamps o f large denominations, i s one suggested from N e w Yor:. I
terday.
referred t o i t d a y before yes-
T h e Federal Reserve Bank o f N e w York h a s realized
about
f
r
o
n
I think .
£ $360 a month.
t h e sale of cancelled postage
Stamps o f large denominations, a n d n o doubt a l l t h e Reserve
Banzs have quite a n accumulation o f those stamps, a n d find
that therr clerks a r e disposed o f them, w h i c h i s hardly s h e
proper W a y o f handling t h e matter.
A r e y o u sufficiently
interested i n this t o g o into it?
Governor Fancher.
them, M r . C h a i r m a n ?
I
n what manner d o you disposa o f
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Federal Reserve Bank of St. Louis
363
W e send notices t o the stamp dealers
The Chairman.
tliat w e have f o r sale those stamps, a n d w e ask for bids.
Governor Fancher.
The Chairman. I
W i t h - a schedule o f the denominations
do not know. I
that i s done o r not. I
do not know whether
know that tre dealers are invited
to bid for them, a n d they come there and they examine thom,
and. they submit their offers and, o f course, W e accept t h e
highest offer.
Governor McDougal. I
ing ours or not.
do not know whether w e are sell-
W e are very glad to have it called to
our attention, however. I
would suggest,
i f you give u s
the privilege o f doing so, that w e receive from your institution, i f we can, a memorandum o f the denominations o f
Stamps that a r e valuable, a n d that y o u hold a n auction o f
the s t a m p s n
o behalf o f all o f the twelve banks.
The Chairman. I
do not think i t would b e wise t o
concentrate the sale of the stamps from New York. I
think
that i n Chicago there are as many stamp dealers a s there
are i n New Yorx,
Governor MoDougal.
W e l l , anyway, I think that the
discussion o f the matter will serve t o put u s all o n guard
and, a s a consequence,
w e will b e careful t o realize what
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Federal Reserve Bank of St. Louis
364
we can from the sale o f the stamps.
The Chairman.
T h e matter h a s n o w been brought t o t h e
attention o f the other banks, a n d steps will o e taken t o
take care o f the subject. I
think that thas disposes o f
that subject.
18: FEDERAL RESERVE TELEGRABHIC CODE,
The Chairman, t h e next i t e m i s numper 18, Federal R e ~
serve Telegraphic Code.
Y o u are a committee o n that,
Governor McDougal.
Governor McDougal.
G o v e r n o r Fancher and I were a
committee o n the leased wire matters.
The Chairman.
S u p p o s e w e pass it. I
think you
had that put on, Governor Van Zandt.
Governor Van Zandt. I
had it put o n there, s o that
: the matter would not die. I
was afraid that t h e Leased
Wire Committee, w h i c h h a d the telegraphic code under i t s
jurisdiction, h a d been discharged, a n d I think i t i s o f
vital importance that w e have a
code f o r use between
Federal Reserve Banks and the Federal Reserve Board.
Governor McDougal. I
ment.
have not finished m y state—-
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Federal Reserve Bank of St. Louis
065
We were o n the Leased W i r e Committee, a n d w e found a t
one o f the conferences, a f t e r i t h a d been discharged, t h a t
this matter h a d not b e e n settled, a n d the Board took i t u p
with me, a s chairman o f that committee, a n d asked that w e
cantinue until w e had disposed o f the code question, a n d
tChave got a report here, i f I can find it, that I would
like to read, one in which Mr. Fancher, I think, joins.
The Chairman.
A n d does i t cover t h e telegraphic
code, Governor McDougal?
Governor McDougal.
it does.
Y e a , i t does; that i s just what
N o w , I will read the report o n the code ques—
tion, i f you are ready t o have me.
The Chairman.
Y e s , sir.
Governor McDougal.
G o v e r n o r Fancher and I, being a
Committee, w e r e appointed, a f t e r consideration, a
sub-con-
mittee t o give consideration t o the question o f preparing
& code, and the sub-committee has reported as follows:
"Your sub-committee appointed August 8th, 1919, has
met this day at the office o f the Federal Reserve Bank o f
Chicago t o consider t h e matter supsdtted t o i t b y the
Leased W i r e Committee i n its report o f April 39th,
1919,
as follows:
566
is *
* 4
committes appointed t o consider a n d pre-
bare a Code that w i l l b e comprehensive a g t o all matters
of
transfers o f funds, delivery o f securities, a n d
such other
matters a s they m a y deem necessary.
" In view of the importance o f the work and e € its
highly teshnical nature,
i t i s the unanimous opinion e f
this c o m m i t t e e t h a t i t s h o u l d b e u n d e r t a k e n
o n l y b y expert
and experienced code builders.
W
e believe that a n un-
abridged domestic c o d e would b e not o n l y the
most satiafactory but aleo t h e most aconomical, a n d that should
it be
desirable t o have a
foreign code, i t should b e compiled
Separately, f o r the reason o f different
spacing, w o r d a n d
other requirements,
W
e have, therefere, obtained a n
estimate f r o m t h e Business C o d e Company
o f N e w York f o r
the construction o f a domestic code,
w h i c h company,
w e are
informed, h a s already compiled considerable
material f o r
the domestic use of the Federal Reserve
Banks.
timate i s h e r e w i t h attached.
T h e es—
S h o u l d t h e offer o f this
. Company b e accepted, y o u r Sub-committee
w o u l d b e glad t o
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Federal Reserve Bank of St. Louis
follow the details through t o completion
o r not, according
to i n s t r u c t i o n s .
"In feference t e topic ' h '
mittee Report X1596:
o f the Leased Wire C o m
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Federal Reserve Bank of St. Louis
367
This committee desires t o call attention t o the fact that
the r e c o m m e n d a t i o n
o f t h e Governors t h a t a
consecutive
number b e used for identification i n messages between
Federal Reserve Banks f o r t h e payment o r trausfer o f funds,
and that t h e first w o r d b e a code w o r d indicating that n u n
ber, h a s n o t b e e n E e e d e
K e practice, w i t h the result
that t h e test w o r d does n o t afford t h e protection intended,
(For example, a t present all orders t o transfer from Chicago
to N e w York o f the same amount o n any given d a y will béar
the same test word.)
W e , therefore, suggest that until
the new code shall have been completed, t h e word indicating
such number « ~ be taken from the A. B. A. Code,'t
That recommendation w a s made, I
the suggestion of Mr. Kenzei.
think, Simply a t
W e put the code business
Over, a n d this sub-committee was composed o f Mr. J. B.
Higgins, Chairman,
o f N e w York, Mr. W . A. Dyer o f Phila—
delphia, a n d Mr. D i l l a m o f Chicago.
T h e substance o f i t
is -- t h e y have prices here, a n d i f you care
t o have m e
read them, I
will d o so:
"we have figured t h e code t o contain
1 8 4 pages o f
phrases, and 40 pages of tabular matter.
W e will c o m
pile and deliver t o you i n New York complete
bound copies
according t o the above specifications a s follows:
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Federal Reserve Bank of St. Louis
1,000 copies at $3.
5
C o o "
t
ft
p e r copy
L
i
16,000
20,000
3C,0C0
The purport o f thie i s that the committee - - a n d I
believe that t h e y were vell able t o investigate a n d well
qualified t o investigate - - t h e i r suggestion i s that a
code
be worked out b y the expert c o d e builders; a n d i f that suggestion i s adopted, t h e y a r e willing t o undertake t o g o o n
in that capacity along w i t h the code builders.
The Chairman.
the r e p o r t
G o v e r n o r McDougal,
m y impression f r o m
i s that w e s h o u l d t a k e a c t i o n a t t h i s m e e t i n g t o
invest t h e committee w i t h authority t o get a
test w o r d i n
operation f r o m the Reserve Banks, a n d that y o u will prepare a
communication t o each o f the Reserve Banks f o r t h e
money payments —
Governor McDougal.
The Chairman.
put i n t o o p e r a t i o n
F o r the payments.
A n d set a day o n which i t should b e
b y a l l banks,
a n d that a l l banks w i l l
abide b y it.
As f o r t h e code, I
d o not think that f o r use between
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Federal Reserve Bank of St. Louis
569
the banks w e c o u l d have a bound code.
I
f we should get
Up @ code arranged o n loose leaves, with ample blank words
on each leaf, f o r the use o f n e w phrases,
perfeét a
w e can gradually
code that w i l l b e very much more valuable t h a n
would be the first edition, a n d i n the course o f a year
or
two w e would have a
printed.
very valuable code, w h i c h c a n then b e
M r . Kenzel thinks* that t h e code should b e pre-
pared f o r use not o n l y b y the Reserve Banks, b u t b y the
member panks that would use t h e code f o r giving o u t i n -
structions t o make telegraphic transfers.
Governor Fancher.
ration o f two codes, a
W o u l d not that require the prepacode f o r use between t h e Federal
Reserve Banks and the member banks --The Chairman.
I
t would require one code ~ ~ I think
that that would be sufficient for both, provided w e
gave
test words t o the member banks t o use i n order t o safo-—
guard the messages.
Y o u c a n not safeguard e i g h t o r
ten thousand copies o f the code, b u t y o u c a n b y giving
a
test word known only t o the sender a n d t o the receiver.
Jt would b e a very difficult operation t o set u p a
test
word for all of the member banks.
we start a
M
y belief is that i f
little s l o w o n this code matter,
w e will get
better r e s u l t s t h a n i f w e s t a r t
t o d o i t a l l a t once.
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Federal Reserve Bank of St. Louis
570
Governor MuDougal.
Mr. Chairman.
W
B u t w e have started a
little slow.
e h a d a committee appointed t w o years ago,
and i t has been brought u p several times since.
Wire C o m m i t t e e h a s a p p o i n t e d a
sub-committee,
T h e Leased
a n d the per~
scnnel o f that committee i s made u p o f m e n i n whom w e have
the greatest confidence, a n d w h o have some knowledge o f
these matters. I
presume that Mr. Kenzel o r Mr. Higgins
has discussed this matter w i t h you, a r d w e have done the
best w e can a s a committee, a n d I think, a s a matter o f
fact, t h a t y o u will n o t make a
mistake b y permitting this
sub-committee t o g o ahead a n d work i t out.
The Chairman.
M
y notion w a s t o give this sub-com-
mittee o f Governors, consisting o f yourself a n d Mr. Fancher,
power t o g o ahead and complete the job and get u s a code.
What d o you propose, gentlemen,
i n the matter o f acting
upon this report?
Governor Calkins.
W e l l ; m y o w n wild western v i e r i s
that w e c a n never get o n e code f o r use dDetween
the member
banks a n d the Federal Reserve Banks, b u t that w e
must have
& supplemental c o d e f o r u s e b e t w e e n t h e F e d e r a l
Reserve
Banks,
I move that t h e report o f the committee
b e received
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Federal Reserve Bank of St. Louis
O71
and filed, a n d the committee b e authorized t o complete t h e
code, a
code f o r u s e b e t w e e n t h e F e d e r a l R e s e r v e Banks,
and
a&code f o r u s e h e t w e e n t h e m e m b e r banks.
(The motion was duly seconded. )
The Chairman,
I
s there a n y discussion?
Governor Van Zandt. I
think w e would b e making a
very great mistake i f w e were t o get u p a code f o r use betWeen the member banks a n d for use between t h e Federal R e ~
serve banks i n the same code book; t h a t is, t h e
cods f o r
use between t h e member banks a n d the code
f o r use between
the Federal Reserve Banks.
I
t amounts, almost, i n fact,
te making i t public p r o p e r t y , a n d the dangers
s e e m very
great t o me.
The Chairman.
T h e n y o u would suggest?
Governor Van Zandt. I
mittee perfecting a
would b e in’favor o f this com.
Gode f o r use between t h e Federal Reserve
Banka.
The Chairman,
A n d another code for —
Governor V a n Zandt (interposing).
U s e t h e A. B. A ,
on the other,
Governor Calkins.
T h e 4. B. A. code i g practically
the worst code ever compiled.
I
t i s entirely out o f date,
and can not b e used economically;
a n d I think that w e ought
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Federal Reserve Bank of St. Louis
372
to take a t least t h e first s t e p toward providing t h e menber b a n k s w i t h a
better c o d e f o r u s e i n their t r a n s a c t i o n s
with t h e Federal Reserve Banks, a n d that i s the reason I
suggest t h a t this committee take u p the matter o f the two
codes.
pile a
I
f that course i s followed, t h e y will first com-
vode f o r use between t h e Federal Reserve Banks.
They
Will first compile a code for use between the Federal Reserve Banks, a n d at some later dato, eventually, w e will
achieve a code fox general use.
The Chairman.
A
e I understand it, Governor Calkins,
yeur resolution i s t o receive, accept a n d approv3 t h e report o f this committees a n d authorize t h e m t o proseed a t
once with the preparation o f a code for uss between the
Federal Reserve Banks; and,aS 8scon as practicable, another
code for, use b e t w e e n t h e m e m b e r b a n k s a n d t h e F e d e r a l R e serve Banka.
Governor Calkins.
T h a t i 8 m y resolution, o n l y i t i s
stated m u c h better,
The Chairman.
W h a t i 8 your pleasure o n that resolu~
tion?
Governor Van Zandt.
The Chairman.
T h a t answers m y suggestion,
A r e there a n y remarks?
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Federal Reserve Bank of St. Louis
S73
( The motion w a s d u l y seconded a n d carried b y unanimous
1s: S T A N D A R D FORMS F O R A L L FEDERAL RESERVE BANKS.
The Chairman.
T h e next i s topic number 19, standard
forms for all Federsl Reserve Banks.
T h a t was suggested
by Governor Van Zandt.
Governor Van Zandt.
Wall B a e w e T t a
T h a t question, Mr. Chairman, I
a s k e d b y m y a u d i t o r t o bring that u p
before the Governors.
H
e seems t o think that b y a stand-
ardization o f forma, a s to Size, color, e t
cetera, that a n
immense Saving can b e made i n the
work o f the auditing department a n d the bookkeeping department
i n the banks, a n d
he suggested that i t might b e e l i
t o appoint a committee
of So3 three, o n e from each o f e e
b a n k s that a r e con-
veniently together, t o prepare those
forms, a s to colors,
sizes,
e t cetera,
I move that s u c h a committee b e appointed
b y the
Chairman.
The Chairman.
I
s that m o t i o n seconded?
Governor Fancher. I
second t h e motion.
Gevernor Calkins. I
would like t o ask Governor V a n
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Federal Reserve Bank of St. Louis
ol4
Zandt whether t h e idea behind this motion i s that t h e uniformity shall b e applied t o a few forms,
generally used, a l l o f the forms,
o r t o the forma
o r i f i t i s t o b e applied
only t o those forms t o b e exchanged between t h e Federal
Reserve Banks. I
think that i f it i s to b e applied only
between those, t h a t h i s argument i s good.
Governor MoDougal.
Governor Calkins.
I t could not b e for anything else.
B u t there has been a proposal t o
Standardize t h e systems i n all o f the banks.
The Chairman.
M a y I suggest that the suggestion
take such form that t h e Btenographer c a n get i t ?
Governor Van Zandt's motion i s t o standardize the forms
which are used between t h e twelve Federal Reserve Banka,
as
I understand it.
Governor Van Zandt.
The Chairman.
T h a t i s it.
A n d that a
committee shall b e eppoint—
ed, charged with the duty o f perfecting a standardization,
and that I
appoint t h e committee.
I
a that it, Governor
Van Zandt?
Governor V a n Zandt.
Y e s , Gir; representatives
o f
three banks, t a k e m e n from three banks.
The Chairman.
discussion?
W h a t i s your pleasure?
I
s there e n y
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Federal Reserve Bank of St. Louis
(The motion was duly. seconded and was
unanimous vote.)
The Chairman.
N o w , Governor Van Zandt, I think I
Shall ask you t o select the man from the Federal Reserve
Bank o f Dallas.
Governor V a n Zandt.
N o , Mr. Chairman, I
that that w o u l d b e a convenient bank.
I
do not think
t was m y intention
that you should select three men from three banks that are
Close together, s o that they could get together convenient1¥%
The Chairman.
W h o knows anything about t h e capaci-
ties o f men dealing with these matters i n the various banks?
Has anyone a suggestion t o make a s to which banke can furnish the best men?
H
o
w i s your bank, Mr. McDougal?
Governor McDougal. I
have no covuot that w e have a
very good man, but I do not know who h e is. I
&@man, b u t I
can not name h i m now. I
can find
will b e very glad
to Supply one member o f this committee, i f you can defer
the naming o f the committee f o r sometime.
The Chairman.
H a v e w e not some chap who i s a crank
on the subject o f forms?
Governor Calkins.
I
f w e have, w e G o not want h i m o n
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Federal Reserve Bank of St. Louis
the committee.
The Chairman. G o v e r n o r Morss, have you got & man whe
has t h e technical qualifications necessary?
Governor Morss. I
The Chairman.
do not know who h e is, i f w e have.
G o v e r n o r Fancher, have you got a
Governor Fancher. I
man,
think that w e have, Mr. Chai:~
W e have t w o m e n i n the organization that w o u l d b e
competent
t o s e r v e o n t h e committee.
The Chairman.
W o u l d i t b e satisfactory t o have
Chicago, Cleveland a n d N e w York t o send representatives?
If there 1 6 n o objection, I
will make that appointment,
APPOINTMENT O F A PERMANENT SECRETARY,
The Chairman. I
this point,
desire t o interrupt t h e program a t
i n order t o make a suggestion.
I
n former days
at these conferences w e h a d q secretary w h o Was chargét with
the duty o f digesting the minutes a n d the aiscussions a n d
following u p the action o f the conference t o see that such
action was put into effect.
W
e are here n o w a t the in-
vitation o f t h e F e d e r a l R e s e r v e B o a r d ;
a n d someone m u s t b e
Charged with the duty o f taking the record, going through
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Federal Reserve Bank of St. Louis
O77
it, a n d notifying those interested i n the mrocesdings, a n d
see that they get out their work.
W h a t i s your pleasure
\
as t o h o w t h a t s h a l l b e done?
Governor Calkins.
I
a there any prohibition o f the
selection b y the Chairman o f a secretary?
C a n w e not have
@ secretary i f w e want t o ?
The Chairman. I
Governor Calkins.
think so.
¥
e cextainly should have s o m e pro-
vision for following u p the proceedings.
Governor Fancher.
I t would b e quite natural, Mr.Chair-
man, f o r someone o f your organization, w h o i s
acéustored t o
act a a s e c r e t a r y o f t h e G o v e r n o r a
o r o f t h e Gonferences,
to édit the proceedings, s o to speak, a n d to boil
the thing
down, and to notify the various Covernors o f the things
that they were supposed to do, the committees they were
expected t o serve on, a n d 3 0 forth.
H a v e n ' t y o u someone
in your organization that could d o that? P e r a a p s
they
might Want t o confer w i t h you, a n d w e
ahould have someone
near you.
The Chairman,
T h e y are all pretty ousy,
How w o u l d y o u l i k e t o r e f e r t h i a
m a t t e r t o Mr. K e u z e l
to folicw up?
O
f course h e would like t o have
sSoneone
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Federal Reserve Bank of St. Louis
in the benk, 8 6 that h e could confer w i t h them ~ -
30 move. I
Governo? McDougal, I
would like to
discuss for a minute the question o f the advisability o r
necessity o f sonding t o each bank a
Personally, I
stenographic report.
would r a t h e r h a v e t h e m i n u t e s b o i l e d d o w n t o
a certain point, a n d i t might s a v e a
great deal o f labor.
I have thought o f that before.
The Chairman.
G o v e r McDougal, t h a t simply means thai
some o n e m a n must b e assigned t o digest t h e proceedings.
It i s a very large job, a n d i f we are willing t o pay the
cost o f the stenographic minutes, t o get man i n your own
bank t o make a digest,
i t will save u s a great d e a l o f =
t do it just
work, but I do not feel ve are in a poaitiono
now.
Governor McDougal.
have h a d someone make a
W
e have done that before.
Summary o r a digest. I
perhaps that w a s done b y a paid secretary,
if w e did have a
secretary —
W e
thought
i f i t was done,
w # e did have o n e once —
I
believe that w e did have the minutes boiled down.
The Chairman.
Y e s , a n d i t w a s very well dene.
Governor Molougal.
C o u l d not w e compensate y o u r
bo
f
man 8 0 that i t gould b e a r r a n g e d ?
The Chairman.
M y o w n preference w o u l d b e that w e
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Federal Reserve Bank of St. Louis
o79
Should h a v e 2
permanent s e c r e t a r y f o r t h e s e mestings.
Governor MoDougal.
The Chairman.
H e r e 300.
T h e motion i s that Mr. Kenzel shall
be made responsibls f o r starting t h e procedure
required a s
the result o f this meeting, a n d 1 will put
that motion.
(The motion was duly seconded and carried b y
unanimous
vote.)
The Chairman,
N o w , w h a t i 9 your pleasure a s t o a
permanent secretary, w h o will b e regularly
charged with
this work?
Governor Calkins,
M r . Chairman,
i t would b e useless
tO select a s such a secretary anyone who was
not familiar
with the operations o f the Federal Reserve
Banks, a n d the
Proceedings o f the conferences; a n d the dispositions
o f the
various m e m b e r s
o n t h e committees.
I
t seems t h a t i t must
be someone w h o i s i n one o f the Federal
Reserve Banks, o r
who i s connected with the Board.
I
t seems t o m e that
there wourdoe 6reat difficulty i n
obtaining the services
of anyone really competent unless
w e are prepared to offer
a sufficient compensation,
almost continuously.
I
i n order t o engage his services
n other words, i f Mr. Kenzel
can
not find a man i n your organization,
a
man w h o c a n devote
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Federal Reserve Bank of St. Louis
5380
& wonth solid t o the digesting o f the proceedings o f
this
conference - ~ -
The Chairman.
W e l l , # e will probably find i t necea—
Sary, i f w e continue t o hold the conferences e v e r y
f e w months
as I hope w e shall, t o have a
man whose chief duties, f o r a
part o f the time anyway, s h a l l b e the work
o f the Governor's
conferences,
Governor Fancher.
I
n view o f the changed situation,
or the changed form that these conferences have
taken, i s i t
& matter that w e should disouss w i t h t h e Board?
Governor Calkins.
M
y recollection i s that the Board
Said something t o this effect:
T h a t the only conferences
of the Governors were those Called
b y the Federal Reserve
Board,
a n d t h e G o v e r n o r s h a d n o otganization,
a n d therefore
could not have a Secretary.
Governor McDougal,
N o ; they Said w e could not have
an executive committee.
The Chairman. I
do not believe that the Board would
have a n y objection t o the perfecting
o f our organization t o
such a n extent a a i s necessary
t o make i t 6éffective, w h i c h
Merely means having a secretary,
Charged with Carrying out
the clerical Toutine duties
o f a Secretary, a n d i f
there i s
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Federal Reserve Bank of St. Louis
oB1
objection, l e t u s make a n inguiry.
Governor Calkins.
I
t seems t o me that the Secretary
could b e charged with t h e duty o f following up, during t h e
intervals oetween t h e conferencee t h e suggestions o f the
various Governors, a n d sven t o the extent o f determining
when a conference should b e held and the request o f the
Board t o c a l l aconference —
Governor McDougal. I
think that this secretary should
be one w h o i s convenient o f access t o the Chairman o f the
Conference, a n d I d o not believe that there wouj.d
b e any
Objection t o appointing a
permanent secretary f r o m your
Crganization,
The Chairman.
W
e must h a v e a
Governor Van Zandt.
motion o n this mat-
M r . Chairman, I move that, with
the consent o f the Federal Reserve Board, ‘io select
a
Secretary, o r that the Chairman should select
a secretary,
to be paid by the twelve banzs, t o act as Secretary during
Conferences a n d to follow such matters a s
need attention,
including the digest o f the stenographic
report o f each
Conference,
(The motion was duly seconded and was carried
by unanimous vote.)
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Federal Reserve Bank of St. Louis
582
The Chairman.
T h e program i s now i n this condition.
We have Cieposed o f everything o n the regular program except three iteus, i n the discussion o f which I think t h e
Federal Reserve Board will w i s h t o b e presen’, a n d except
the supplemental topics suggested day before yesterday.
The Federal Reserve Board letter, number X1731 --Governor Oalkins. D i d n ' t w e skip number twenty?
The Chairman.
W i t h that, t h e Board wants t o b e pre-
PENSION F U N D PLAN,
The Chairman.
T h e F e d e r a l R e s e r v e B o a r d letter,
X1731, which relates t o the pension fund plan, t h e pension~
ing o f employes, will b e next i n order, a n d w e will have a
general discussion, concerning which Mr. Kenzel w a s asked
to b e present.
G o v e r n o r McDougal, w h a t have y o u t o re-
port?
Governor McDougal. I
man o f the pension committee.
think Mr. Kenzel. is the chair-—
I
n view o f the fact that
he is more familiar with the investigation made, a n d which
led u p t o the suggestions i n our report, I
think i t would
be well t o have h i m here t o explain matters.
The Chairman.
D
T h a t i s all.
o y o u w a n t n o w t o h e a r f r o m Mr.
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Federal Reserve Bank of St. Louis
383
Kenzel?
Governor McDougal .I
think i t would oe in order to
hear the report o f the pension committee.
Gevernor Calkins I
have a
suggestion t o make,which
may b e ous o f order, b u t which appeals t o m e very atrongly.
The Board has expressed a desire t o b e present when
number
30 i s discvussed, a n d some o f the gentlemen here a r e
very
anxious t u get away todav, a n d would i t not b e desirable
to have the Boare present before lunch?
The Chairman.
A n a finish before lunch.
W e will
try to do that.
Governor Calkins.
T h e n w e could finish u p anvthing
we might h a v e after lunch.
The Chairman,
mittee,
W
W
e will hear the report o f the c o n
e will n o w hear f r o m Mr.
Kenzel.
Mr. HE. R. Kenzel.
M r . Chairman, I
will r e a d thie
Teport:
"The committees appointed at the March, 1919, conference
of Governors with Federal Reserve Board
t o study pension
fund Plans, report: that i t h a g
investigated a n d considered
the terms of many Plans i n operation b y banka, industrial
and other Organizations.
584
These plans v a r y widsly out divide quite gsnerally into
Class groups b y sithsr t h e naturs o f the benefits, t h e conditions o f their application, t h e provisions f o r maintenance
and continuation o r ths principles, methods a n d instrumentali-~
ties o f administration.
for t h e p u r p o s s
A m o n g t h e s e d i v i s i o n s y o u r committes,
o f t h i s report,
h a s considered chiefly t h e
following:
The p l a n s r e l a t i n g t o b a n k e m p l o y e s a n d officers, c l e i g y -
men, teachers, a n d office workers a s contrasted t o those
applying t o industrial ~orksrs, trades, employes, etc,
The
former appear yuite generally t o b s based o n recognition o f
higher standard o f living required o f these classes,
long y s a r s o f service, m o d e r a t e a v e r a g >
o f their
compensati,
n
o and re-
stricted opportunity f o r material advancement, imposed b y the
nature o f their amployment, a n d their consequent inability
adequately t o provide f o r o l d age a n d dependents f r o m savings,
The plans f o r such classes therefore quite generally make provision n o t o n l y for super-annuition allowancs f o r life, based
on @ percentage o f annual compensation multiplied b y the nunber o f ysars o f service a n d effective u p o n retirement, either
voluntary o r r e q u i r e d u p o n a t t a i n m e n t
o f prescribed a g e s a n d
after completion o f minimum terms o f service, b u t includes also
disability allowance for retirement after completion o f minimum
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Federal Reserve Bank of St. Louis
585
term o f service b u t before attaining pension ages, limited pro-
vision for dependents after death of pensioner, and death benefits for dependents o f employe deceased, d u r i n g term o f active
service, T h e usual retirement age i s 60 or 6 5 for men and
50 t o 5 5 y e a r s f o r w o m e n ,
T h e minimum t e r m o f service requir-
ed, with f e w exceptions, r u n s f r o m 1 0 t o 1 5 years.
The annual pensions are percentages sither o f salary a t
retirement, o f average salary over a term of years, o r of maximum salary attained, b u t d o not exceed a maximum percentage,
usually 3 5 per cent o f such salary, o r & maximum sum i n dollars thich variss from $3,000 t o $6,000 per annum,
The pensions o f dependents surviving pensioner a r e much
less uniform than other essential factors i n these plans, but
one-half o f pension t o vidow during vyidowhood o r t o minor
children o f deceased pensioner until they reach various ages,
are quite general.
S o m e plans, however, l i m i t benefits o f
surviving dependents t o varying periods shorter than life for
widow who does not remarry, o r the years t o attaining a fixed
age f o r minor children,
S o m e novel a n d ingenious conditions
based o n difference i n ages o f pensioner and wife operate t o
protect t h e fund from abuse i n these regards, a n d ths benefits
do not fall t o the widow o f a pensioner who marries after be-
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Federal Reserve Bank of St. Louis
586
coming # pensioner,
o r the children b o r n o f such union.
Disability retirement before pension a g e i s quite generally f u l l p e n s i o n p r o v i d i n g m i n i m u m t e r m o f s e r v i c e h a s b e e n
completed.
I n event o f death before completion o f minimum
term o f service, plans vary, M a n y return a l l payments contributed b y member with interest a t varying rates; others p a y
fixed s u m eyual t o salary f o r various terms, o n s year being
the usual term,
In event o f leaving service, plans v a r y from forfeiture
of a l l f u t u r e b e n e f i t s a n d c o n t r i b u t i o n s
such employe,
t o the f u n d made b y &
t o forfeiture o f benefits b u t return o f all o r
portion o f such contributions w i t h o r without interest.
Most o f the plans provids for deductions from benefits
or pensions,
forfeiture
o f emounts found t o b e dus t o employer a n d for
o f benefits
er, bankrupt,
t o pensioner w h o m a y pacome a
default-
o r i s convicted o f a crime — ~ and also t o a
pensioner w h o takes other employment without consent o f employer.
The further divisions referred t o into which t h e plans
considered fall, are:
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Federal Reserve Bank of St. Louis
Those where t h e relation o f employe a n d employer
gards pensions a r e contractual,
a s distinguished f r o m
587
which m a y b e terminated a t t h e pleasure o f ths employer;
Those where the fund i s supported b y mutual contributions o f the employer a n d employe, a s distinguished from
those where the employe do2s not contribute;
Those where the administration o f the fund i s i n the
hands o f representatives o f the employes a n d ths employers,
or their representatives,
a s distinguished f r o m those where
the employes a r e not represerted;
Thoss w h i c h o p e r a t e
a s socisties, t r u s t o r companies,
with assets a n d 1eserves, separate f r o m t h e assets o f the
employer, a s distinguished from those which are not so or~
ganized,
Your committee finds upon inquiry, that the plans pr3ferred b y both employers and employes, include contractual
relation, preferably between employe a n d a legal entity other
than the employer, a
perpetual fund supported b y contribu-
tions from both employer a n d employe i n the administration o f
which both are represented. T h a t employes, particularly ths
younger men, regard lightly t h e réevokable promises o f enployers. Y o u r committee i s informed that employers have,
i n many
cases, failed t o kesp faith with employes, a n d that others
now realize their inability t o fulfill their promises made
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Federal Reserve Bank of St. Louis
388
to employss f o r t h e reason i n some cases that n o adequate pro-
vision was made i n past years, a n d i n others, that succeeding
managers o r propristorg will n o t continue n o r assume t h e moral
obligations of present managers o r proprietors. A l s o that
numerous concerns have forgone instituting pensions only
because o f uncertainty a s t o cost a n d reluctance t o assume
liabilities t h e e x t e n t o f w h i c h o v e r a
feel t h e y cannot-estimats accurately,
period o f y e a r s t h e y
T h a t n o satisfactory
actuarial study o f the whole subject o f industrial pensions
and benefits h a s been made, a n d that i n specific instances
problems submitted t o actuarial investigation have b e e n r e ported upon s o variously that t h s y have been reluctantly abandoned,
Your committee learns that recognition o f conditions indicated a b o v e , c o u p l e d w i t h a
quits g e n e r a l g r o w i n g desires o n
the p a r t o f large employers t o a d d t o their employss' compan-
Sation, some degree o f provision against Want i n old age, a n d
yet discharge each year their entire obligation and liability,
therefore have caused the Equitable Life Assurance Socisty
to prepare a plan, which they have not yet offered publicly,
but which t h e y are prepared t o negotiata w i t h individual e m -
ployers, making modifications t o suit the particular require-
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Federal Reserve Bank of St. Louis
-”
o8B9
ments o f individual cases. B r i e f l y ,
i t i s a plan o f sell-
ing t o employers annually, p a i d u p annuities f o r employes
to provide a t some certain pension age, s u c h a s 6 0 o r 6 5
years,
a n annual yearly payment f o r life t o each annuitant,
of a certain s u m o f monsy which might b e a percentage o f
the salary such annuitant h a d sarned during t h e year in:which
the annuity w a s purchased,
I t i s described more fully in-at-
tached "Exhibit A " which contains also a
table showing cost
for first year o f the plan applicable t o the Federal Reserve
Bank o f N e w York, t o provide annuities equal t o 3 per cent
of present salaries o f all employes included i n group insurance plan based o n their present a g e s a n d beginning a t the
ages o f 60 and 65,
A s this plan i n ite present form provides
old age annuities only, your committee feels that i t is better adapted t o industrial employers a n d workers than t o what
they believe should b e the requirements o f Federal reserve
banks.
I t is, however, subject t o modifications, a n d the of-
ficers o f the Equitable Life Assurance Society have offered t o
cooperate a n d assist i n actuarial s t u d y o f a n y problem that
the Federal reserve banks m a y desire t o submit.
Your committee believes t h a t s u c h pension plan should b e
devised a n d adopted f o r Federal Reserve B a n k employes a s will
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Federal Reserve Bank of St. Louis
390
aid i n attracting a n d retaining employes o f ths highest
Class w h o will dignify t h e service a n d regard their profession a n d position above t h e possibly murs lucrative opportunities o f commercial banking o r other work, o r the hazard o f
speculation w i t h a l l t h a t t h a t involves;
t h e t s u c h employes
in justice t o them a n d t o the eervice should not, after years
of service,
b e disturbed b y apprehension o f pitiful o r de-
grading dependency i n old age o r earlier incapacity, n o r that
their families should b s s o depsndent,
The Canadian banks have recognized v e r y similar problems
which t h e y quits successfully solved vith t h e a i d o f pension
systems that have b 2 e n tested over m a n y years o f experience
in a p p l i c a t i o n
t o large numbers
o f officers a n d employes l o -
cated a t their numerous offices a t home a n d abroad, a n d sub-
ject t o the influences o f different climatic a n d social conditions,
Of all o f the plans considered, t h o s e o f t h e Canadian
banks a n d the pension fund o f t h e Protestant Episcopal Church
appear t o the committee a s offsring the best basis o f a plan
for t h e Federal reserve banks.
T h e y a i l includs,
i n addition
to o l d age pensions, d e a t h benefits which would replace t h e
present group insuranc., disability allowances after certain
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Federal Reserve Bank of St. Louis
591
terms o f service i n the event o f permanent disability
through illness o r affliction, a n d annuities t o widows and
minor children o f deceased pensioners, suitably safeguarded
&fainst abuses,
Your committee learns that i n Canadian banks the pension which vas quite gensrally continued b y the banks for
officers a n d employes during their absence i n military ser-
vice i n ths late war, was i n certain known instances a determining factor i n the return t o their bank position o f many
who h a d attracted attention a n d received offers o f larger
salariss i n other lines, and is informed that the systems
provide protection for officers and employes and their families that i t would b e utterly impossible for them t o have pur-~
chased o r t o have provided f r o m savings.
Your committee i s informed, however, a n d believes that
with ths exception o f the Episcopal Church P3nsion fund n o
plan embodying all of these benefits i s established o n an entirely self-supporting basis, from actuarily predetermined contributions t o the fund; therefore t h e cost i s uncertain b u t
in practics t h e banks annually contribute a n y deficiency i n
the fund, T h e s e contributions a r 2 increasing i n size,
I n the
Church fund the pramium charge i s 7-1/3 per cent per annum of
the salary paid, but the plan provided for a subscribed guaran
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Federal Reserve Bank of St. Louis
592
fund of not less than *5,000,000 t o enable aged clergyto participate i n the same benefits f r o m t h e outset o n
‘game terms a s younger men o n whose bshalf premiums would
b2 paid during their active years.
Your committee, t h e r e f o r , r a t h e r t h a n suggest a
plan
that i f adopted might prove unsound, recommends t h a t steps
be taken t o securs t h s services o f a committee o f expert
actuaries a n d pension specialists,
t o advise w i t h a committee
and
to b e appointed representing t h e Federal Reserve Board
the Federal reserve banks, a n d that such committees together
o f cost
shall work o u t t h e cost a n d a n equitable distribution
between the Faderal reserve banks, a n d their officers and.employes, a n d such other psrsons,
i f any, that i t m a y b s decided
beneshould b 2 permitted t o participate i n contributions o r
self-support~
fite, o f a pension and osnefit fund that will b e
a l l o f the
ing i n perpetuity a n d embody i n relative deeres
hersby recou—
benefits o f the Canadian Bank plans, w h i c h a r e
mended and provide maximum annuities of #s5,000, That such
furnish
joint committees b e requested also t o formulate a n d
fund with
complete plan o f organization and operation o f such
such legal
due regard f o r ths laws o f several states, (taking
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Federal Reserve Bank of St. Louis
f o r representaadvice a s may b e necessary) t h a t will provide
595
tion o f employes anda pensioners
i n the administration o f the
fund and establish valid contracts between the fund and the
Contributors a n d beneficiaries,
That such plan shall include provision f o r participation
by employes of the Federal Reserve Board, i f legally possibile,
and the Federal reserve agents and their staff, and employes
in ths fiscal departments o f Federal reserve banks,
That the expenses o f the committees including reason-
able compensation for expert advisors and council be prorated among a n d paid b y the Federal reserve banks,
It is also recommanded that the plans o f the Bank o f
Montreal and the Canadian Bank o f Commares recsivs careful
consideration,
a s i n the opinion o f this committee, t h e y
combined include most excellant features which should b e adopt~ed b y Federal r e s e r v e b a n k s ,
BIT t a t
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
120 BROADWAY, N E W YORK.
W
A .
D A Y .
P R E S I D E N T ,
5-54
November 7 , 1919
GROUP INSURANCE DEPARTMENT
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Federal Reserve Bank of St. Louis
Mr. E , R. Kenzel, Cemptroller o f investments,
Federal Reserve Bank,
120 Broadway,
New York City.
My dear Sir:
We take pleasure i n submitting herewith calculations
for pension annuities a s discusssd with y o u aigesting o u r
conversation,
3 s would restate t h a t t h i s i s a n advanced
form o f pansion plan which combines with t h e pension ide a
something o f the alements o f a bonus applicable t o old age
necessitiss.
year a
U n d e r t h i s plan a n employs vould recsive e a c h
some
guaranteed certificate f u l l y paid w p t o provide a t
pension age, s u c h a s 6 0 o r 65, a
certain s u m o f money 2ach
year s o long a s h e o r s h e m a y live thereafter.
By giving t h e employs s a c h yeat a
paid-up annuity cer-
p e r
tificate i n a sum which would b e a percentages — ~ say
o f pencent — ~ o f the current year's pay, t h e whole problem
sions becomes simplified b y being made fully understandable
to
to the employe, b o t h a s t o i t s definite suarantee a n d a s
its actual amount o f contamplated benefit.
This plan eliminates f o r t h e amployer t h s uncertainties
a huge
of financing t h e plan a n d the danger o f running u p
volume o f liabilities.
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Federal Reserve Bank of St. Louis
pénA plan o f t h i s k i n d h a s a d v a n t a g e s o v e r c u s t o m a r y
595
sion plans i n gripping the imagination o f ths younger element
and i n adding t o the reality o f the benefits t o all.
So long a s the plan i s continusd t h e employe receives
each year i n full an annuity contract which discharges the
employer's obligations t o date,
A n employer can, therefore,
enter into a plan o f this kind with a clear conscience a s
changes i n the plan which may be mads b y succesding managements Will not undo t h e promises o f the present management
Since these promisss o f the present management are, under
this plan, discharged i n full b y the current purchase o f
Single premium annuities.
Topurchase aunuities of 3 per cent of the salary, o r
487,631.78 o n the employes included under the group life in-~
surance policy, 3 8 3 7 i n number, t h e current year's cost f o r re-
tirement a t age 6 0 would b e $257,082.33,
I f it were desired
to wake the retirement age 6 5 instead o f 60 the current
year's cost for purchasing annuities of 8 per cent of the
salary would be #167,143.08.
Attached i s » copy o f the tabulation showing how these
figures are arrived at. F o r instance colusn (1) gives the
age ~ Column (3) shows that i n your group thers i s ons person aged fifteen,
T w o per cent o f the current year's salary
for that person i s shown i n column ( 3 ) a s being $8.33,
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Federal Reserve Bank of St. Louis
T o
396
purchass a n annuity of $8.53 dus at age 60 would cost $16.64
shown in column (4), I f the retirement age of $5 were adopted
the cost t o purchase £ 8 . 3 3 annuity f o r ons person aged fiftsen
would b e
Under this plan both mals a n d female lives could b e included i n the group with n o difference i n rate
refund contemplated i n case o f death before reaching pension
age.
I n case o f termination o f employment o r discontinuance
of pramium a
paid u p value might b e allowed,
For your confidential information w e are giving you rough
form o f document which w a have drawn o f this plan because o f our
discussions w i t h L o r d &
Taylor,
™ s would n o t b e prspared
to
issue these documents i n this exact form, n o r have L o r d & Taylor
indicated t h a t t h e y a r e r e a d y t o p r o c e e d
i n t h e matter,
document w a s zotten u p mersly that w a might have a
T h i s
chopping
block to work from and you will please regard it as such,
Incrsase i n salary c a n b e taksn care o f under this plan a s
annuities a r e purchassd seach y s a r based o n 2 per cent o f ¥
current year's wags, making t h s ponsion a
certain p e r c e n t
of each year's wage, which has the advantage o f being understandable t o the employe.
U n d e r t h i s plan t h e employer a n d en-—
ploye c a n f i g u r e o u t y e a r b y y e a r t h e a m o u n t o f o l d a g s p e n s i o n ,
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Federal Reserve Bank of St. Louis
We feel t h e more definits
more Clearly i t can b e brought home t o those w h o a r s to. t3<
oszive t h e p j
p e c i a l l y t h e younger slement, t h s better
for all concerned.
We will b e glad t o g o into this matter with you and Mr,
Haupt more i n detail and are prepared t o vork out a policy
which will suit the needs o f your group.
M a y w e have t h e
pleasure o f serving you?
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Federal Reserve Bank of St. Louis
Very truly yours,
(Signed)
W . J. Graham
Third V i c e President,
E.B.E;
EXHIBIT " 4 "
398
FEDERAL RESERVE B A N K O F N E W YORK
(4)
(2) ( 2 )
(3)
AGE “NO,
2% OF SALARY
15
16
ae
18
19
30
al
22
29
B34
35
as
2B?
ae
a9
30
31
33
33
34
35
36
37
38
39
40
8.33
206.44
1,307.52
3,331, 6
7
4,485,0
3
4,166.88
3,366,80
3,566.16
3,109.76
3,540,0
4
3,605.53
3,395.30
3,504,00
3,533.80
2,823,145
3,766.88
1,845,360
1,993. 0
6
3,473,523
1,384.56
3,176.00
1,417.50
1,554,0
4
973.78
1,443,0
6
916, 40
1,034,00
736,80
1,001.80
858, 40
646,80
883,13
733, 30
580, 40
744,40
363,40
~ 42
43
43
44
45
46
47
48
49
50
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Federal Reserve Bank of St. Louis
(5)
CURRENT YEARS C O S T C U R R E N T YEARS
COST F O R A G E
FOR_AGE S O
85.
16,64
433,53
3,876.54
7,663.05
10, 718,48
10,417.30
8,493.68
9,338.63
8,707.33
10,367.16
7,816.56
7,435,138
8,012.80
8,311.53
8,095.93
9,960.77
7,013,8
2
7,658.04
10,137,33
5,395.15
9,574,40
6,520.50
7,461..13
4,863.60
7,506,738
4,948.56
5,734.40
4,215.44
6,110.98
5,493.76
4,368,886
6,093,3
5
5,307,04
4,353.00
5,880, 6
7
2,971.68
10.83
389.03
1,830.53
4,997.64
8,697.80
6,667.01
5,553,538
8,063.47
5,597.57
8,736.76
4,950.49
4,790.40
5,258.40
5,573.18
5,088.86
§, 363,83
4,439, 4
4,909.00
6,438, 5
3,488.31
6 ,093,80
4,853,0
5
4,818,4
6
S438, 0
4,763.88
3,207.40
3,686,0
4
3,761.84
31907.02
3,519.44
3,781.34
3,885.73
3,326.73
785.93
3 933.00
a CPpee.
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Federal Reserve Bank of St. Louis
599
(4)
* (3)
2% OF SALARY
IU
O
G
N
e
&
w
P
r
e
M
3
G
256,00
369.60
548,80
130,00
83.40
157.80
58.80
131,30
20.40
50,40
60,00
31.60
,
(
5
)
C U R R E N T YEARS COST CURRENT YEARS COST
40
67,631.78
F O R AGE 60
3 , 3 0 1 . 6 0
3 , 3 2 6 . 4 0
5 , 1 3 9 . 9 3
1 , 1 7 8 . 0 0
6 4 2 . 7 2
1 , 6 9 7 . 7 6
6 4 7 , 5 2 3
1 , 4 4 3 . 3
2 5 7 , 0 4
4
2
8
5
4
0
2
0
5
4
6
O
R AGE 65
1,408.00
3,143.68
3,380.80
7 5 6 , 0 0
4 1 1 . 8 4
4
1 , 1 0 0 ,0
4 1 4 , 6 4
9 3 3 . 3 4
165.34
.
4
0
.
0
0
,
3
0
E BS 2
R
0
1
F
1
7
,
1
4
3
.
0
8
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Federal Reserve Bank of St. Louis
400
The Chairman.
W a n t i s your pleasure i n regard t o
this report?
Governor Passmore. I
would s a y that i t i s a very in-
teresting a n d exhaustive report.
The Chairman,
A n d the report contains a recommenda-
tion o f procedure.
Governor Wellborn. I
shovld think i t would be well
to have a copy o f those printed and distzibuted s o that w e
Can digest it.
Governor Mores.
T h a t report suggests thet a n actuary
be employed t o get u p a scheme, a n d that that scheme b e
presented,
I
t seems t o me as i f that was a very cafe
and sane way o f getting a t the subject.
I move that the report b e adopted, a n d that that sug—
gestion b a carried out. I
move that t h e recommendations
be adopted.
Governor Calkins.
T h a t would involve the employ—
ment o f a n expert committee, a n d the appointment
o f a com-
mittee representing the Federal Reserve Banks
———
The Chairman, I
am not sure that the resolution
goes far enough t o cover everything
that will have t o be
done, G o v e r n o r Moras,
Governor Moras.
W e l l , anything that will make
4%
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Federal Reserve Bank of St. Louis
.
e
v
The Chairman,
i
t
c
e
f
f
e
LOL
T h i s plan o f precedure a s submitted
contemplates including i n the pension p l a n the employes o f
the Federal Reserve Board, i f that c a n b e done.
M
y sug-
gestion would b e that y o u r resolution should contain a
re-
commendation that the report b e submitted t o the Federal
Reserve Board and, subject t o the approval o f the Federal
Reserve Board, that this committee b e given the power t o
G0 ahead a n d carry o u t t h e recommendations o f the commit—
tee,
Deputy Governor Peple.
The Chairman.
h
e same committee?
T h e same committee.
Deputy Governor Peple. I
The Chairman.
T
second the motion,
T h e object o f that resolution is,
first, t o take i t u p with t h e Reserve Board,
a n d t o get
their assent; second, that the appointment o r
the selection
of a n Organization t o work out t h e
plan and, w h e n worked
out, that it would be submitted to the Reserve Banka
i n detail,
Mr. Kenzel.
T h a t a committee b e appointed t o
report
to the Federal Reserve Board and + o the Banks,
The Chairman.
T h i s committee shovld certainly con.
fer w i t h t h e F e d e r a l R e s e r v e
Board.
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Federal Reserve Bank of St. Louis
402
Governor Calkins.
i
t might n e well t o suggest t h a t
if the council determines that the Federai Reserve Board
employes c a n not b e included i n the plan, t h a t i t ahould t e
pursued o n bshalf o f the Federal Reserve Banks.
Governor Monzss.
M r . Chairman; y o u know that t h e Board
Will b e agreeable t o this subject, @on't you?
_ The Chairman, I
understand that t h e y a r e sympathetic
With the idea,
Governor Calkins. I
might s a y that w e have had such
a thing under consideration f o r some time.
W
e have h a d
& study made b y a n actuary, a n d heve cutlined, v e r y roughly,
@ plan which i n many respeste approximates t h e plans o f
the Canadian Banks, particularly the Canadian Bank o f Commerce, a n d are ready t o submit i t t o our Directors,
and,
in fact, h a v e partially done so.
I
f this action i s texen,
the action o f the individual banks should
b e deferred.
The Chairman.
T h e motion i s that, subdject t o
the
assent o f the Federal Reserve Board, this
Committee shall
80 ahead a n d carry out their o w n
rovommendat ions.
What i s your pleasure?
( The motion wee duly seconded, and
carried p y a
unanimous vote.)
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Federal Reserve Bank of St. Louis
GENERAL MOTORS TRADE ACCEPTANCE COMPANY
AND OTHERS BEING FORMED,
The Chairman.
T h e next suoject i s General Motors
Trade Acceptance Company a n d others being formed.
Governor
Morss?
Governor Moras. S e v e r a l o f the banks, a t least, a r e
acquzinted w i t h the fact that t h e General Motors Acceptance
Company i s a company furnished especially f o r the purpose
of financing sales o f a u t o m o b i l e s , d
n
a it 4 s not only the
General Motors, b u t t h e idea seems t o b e accepted a s a good
one, and I hear of a new one almost every day.
N o douot
those acceptances, w h e n put i n proper f o r m are eligible;
on the other hand, there seems t o b e a great m a n y o f
them, a n d I do not k n o w h o w many, w i t h regard t o which
there i s a grave question whether they are eligible o r
not, whether they c a r r y the goods, a n d whether they are
Subject t o private and special contracts that w e know
nothing about.
All I want A e B e e i s whether anybody h ere o r
whether
any o f the banks have h a d experience i n this, a n d what
their experience is, a n d what t h e y feel about it. G o v e r
nor Fancher has hau a let o f experience o n this, I
am a d
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Federal Reserve Bank of St. Louis
vised,
4
0
G o v e z n o r Morss,
Governor Fencher.
6
w e have b e e n i n
correspondence with the General Motors Trade Acceptance
Company for, I
T h e i r plan
would say, s o m e thres months.
‘
of operation W a s put u p t o us, a n d asking a n opinion a s t o
whether w e would consider t h e peper eligible i n case i t Was
offered + o u s b y member oanks,
The plan o f the General Motors T r a d e Acceptance G o n —
pany, a s I vuderstand it, contemplates t h e giving o f paper
on the part o f the purchaser o f automobiles, n o t t o the
u
b to the Acceptance Corporation. which, i n
manufacturer, t
turn, endorses t h e paper a n d i t i s passed o n t o the banks.
The General Motors Trade Acceptance Company,
a s I under-
stand, i s organized under t h e banking laws o f the State o f
New York, a n d the questio n that haa come to our minds,
when w e have b s e n i n correspondence w i t h t h e Board,
questiom w h e t h e r
w e are not affording facilities
i s the
to a
non~
member bank i n the discounting o f this paper.
They propose t o suomit statements o f the makers o f the
paper, a s I understand, t o the various purchasing banks,
in line w i t h t h e procedure followed o y p a p e r brokers, a n d
that t h e statement w i l l s h o w sufficiently liquid t o make
the paper eligible.
O
f course t h e proceeds o f the paper
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Federal Reserve Bank of St. Louis
405
have been used, a n d i t is eligiole, s o far a s the applica
tion o f the funds.
The questions that arose i n our minds were: f i r e t ,
we
have a l l b e e n w o r k i n g v o d e v e l o p t r a d e a c c e p t a n c e s w h e r e
you s a w both parties t o the transaction a n d rather identiSiad- 26.
H e r e ,
i n this particular transaction, t h e sell-—
er of the goods i s not evidenced b y the instrument; t h e
purchaser g i v e s h i s o b l i g a t i o n t o a n o t h e r company,
which,
in effect i s organized t o do, under the banking laws,
speCial things.
Governor Calkins,
J
t i s not a trade acceptance?
Governor Fancher.
i
t i s not a trade acceptance.
These, I
understand,
The Chairman,
are notes.
G o v e r n o r Morgs, d i d y o u
desire a n y a c
tion o n this subject?
Governor Morss, N o ; I did not expect any
ection, beCause I did not SUpboOse abytning could
b e done, because the
Circumstances
varied so, a n d I really d o not want
t o take
the time o f the Conference i n discussing
it.
The Chairman.
U n l e s s w e have some action
t o take,
or recommendations t o make,
I
think w e ought t o pass this
topic in favor of sonething of greater importance.
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Federal Reserve Bank of St. Louis
406
Governor Morss.
Z . think g o too.
I n fact, t h e y
telephoned m e from Boston, a n d I thought they had gotten
very much more important information o n this point, a n d were
Giing t o write me, but I did not get it, and I do not think
it best t o spend time o n it’.
Mr. Kenzel.
I f you want t o spend time I can, I
think,
give y o u whatever information y o u need.
The Chairman. I
Mr. Kenzel.
think w e had better paces this.
T h e r e i s a variation o f the scheme i n
Tegard t o the Maxwell Motors Company.
Governor Morss,
f h e Continental Guaranteesy Company,
DOMICILING FOREIGN BILLS I N NE” YORE.
The Chairman. I
should like t o introduce i n the dis-
cussion at this point a matter raised b y Mr. Kenzel. which
Will b e of growing importance.
T h e practice has started
in a small w a y for foreign banks t o Comicile b i l l s n
i New
York, a n d those bills naturally reach t h e market.
T h e
central banks o f Europe, I think, i n normal times, almost
without exception, decline t o b u y such paper, f o r various
reasons.
T
o the extent that they may b e accepted b y
foreign banks, w h i c h have offices i n this country, a n d as—
eet
sets i n this country, a n d c a n
o e dealt w i t h a s a n American
institution, t o that extent,
t h e i r Ousiness i s really
in
the promotion o f American commerce,
there i s some justifi_
Cation i n d o i n g m i when
the bill has a sultable endorsement, a s i n the ease o f
& bank like t h e Hong Kong
and
Shanghai Corporetion, which
has a Corporation and asaets
in
this Country, w h e r e w e b u y
the bills w i t h proper
endorse—
ments; o u t i f a French bank,
w i t h n o office,
n o assets,
no
direct, tangible property that
w e could reach j n this coun—
try floats wills which they
have accepted and mads payable
in this country, t h o s e bills
Certainly w e should not
buy.
I merely make that Statement
o n behalf o f the N e w
York banks, because w e are buying
bills for the other R e
Serve Banks. T h a t will be our
policy in ouying them, and
W© Would hope the other
Reserve Banks will not
émberrass u g
in our attitude tows r a
t h e bill market, i n
permitting
‘those bills to get into
the system, so to speak,
through
the back door, a n d you
will undoubtedly find
then offered
through your districts.
I
t i s hardly a
subject f o r dis—
cussion,
Governor Morss.
W i l l you describe these
bills?
The Chairman, S u p p o s e
the Credit Lyonnaise,
Whish
has no office in this Country,
should accept a bill pay—
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
408
able e t t h e H a n o r B a n k i n New York a n d f l c a t e d i n the N e w
York market, t h a t i s not t h e tvpe o f bill that w e would buy,
even endorsed.
O o the other hand, i f the Hongkong &
Shangha:
Bank, which maintatne & lerge office i n New York, o f the
Yokahoma Bank, c r the Royal B a n k o f Gamada,; W h i c h h a s a
large esteblishment,
i f they should accept a
believe that dill represented a
country t o Canada o r Europe,
movement o f goods f r o m this
o r even a movement o f goods
between different countries i n Europe,
dorsement, a
bill, a n d w e
t h a suitable en-
good American name, o r more than o u s American
name, possibly,
o n it, w e would feel justified, ordinarily
in buying that bill.
But what i s technically known a s a domicile bIL11, wivich
is simply made payable for purposes o f draWing o n our
Credit market,
i n order t o finance foreign business, w i t h —
out having assets here behind the bill, those billo w e would
not b u y .
Governor Mores.
H o w would this oil] b e drawn b y the
6redit Lyonnaise?
The Chairman.
D r a w n b y anybody and payable a t a New
York institution,
Governor Morass,
i
n dollars?
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Federal Reserve Bank of St. Louis
I n dollars.
The Chairman.
LO: A D M I N I S T R A T I O N PROBLEMS.
TRANSIT OPERATIONS.
02 I N C R E A S E O F FEE PAID T O DIRECTORS
ATTENDING EXECUTIVE COMMITIEE MEETINGS.
The Chairman.
T h i s now brings u s t o the »point where
we have three items o f unfinished business, T o p i c 10, A d -
ministration problems; Topic 5, Transit opezations; a n d Topi
80: Increase o f fee paid t o directors attending executive
Committee mest ings.
All of these are for disvussion with the Federal Reserv
Board, a n d I should like t o suggest that w e ask the Board,
if it would be convenient for thew, or some of them, to
Come over and join us.
I
s that agrecable?
(The suggestion was agreed to.)
11: B R A N C H BANKS.
13: W U . §. TREASURER'S AOGOUNT.
Governor Calkins. I
should like to ask as to the
discussion o f Topics 1 1 and 12. I
morning.
was absent yesterday
1 1 is the branch banks. I
have something t o
Say about that, but if it has already been said, I will not
repeat.
The Chairman.
T h a t h a s been covered, sir.
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Federal Reserve Bank of St. Louis
410
Governor Calkins. W h a t i s the answer
to (b) Advisa—
Ollity o f conferenve o f Branch
Bank manegera t o study prob-
lems o f branch bank cperations?
’ The Chairman, A
resolution w a s adopted,
a s I recall,
‘to the effeut that the managers
of the branch benks be ine
structed t o submit &
program o f topics relating
t o inter-
bank o r inter¢cdissrict transactions
o f interest t o the sys—
tem, and that they submit revonmsndations
i n regard to
very
item o n the program, a n d that
b e made u p into a
Program f o r d i s c u s s i o n a t
a
Governor Calkins.
conference
o f t h e Governors.
T h a t i s quite satisfactory.
13? D E S I R A B I L I T Y O F AFTERNOON
SETTLEMENT
THROUGH GOLD SETTLEMENT F U N D
A T WASHINGTON
FOR EASTERN FEDERAL RESERVE BANKS
.
Governor Passmore.
afternoon settlements?
The Chairman.
W h a t about 13; Desirability
of
H a v e you discussed that
a t all?
T h a t w a s disposed o f
yesterday, 4
think i t was referred back
t o the Federal Reserve
B o a r d to
take u p directly with
the Eastern Banks that
a t e interested,
Governor Passmore.
M y recollection wag that
you had
not discussed i t with a n y
o f the officers o f your
bank a g
to their v i e w i n regard
t o it, a n d that Mr. Kenzel
Was
r w i t h ai t .
i
The Chairman.
l
i
m
a
f
411
W e shall have t o let that g o over, I
am
afraid.
Governor Calkins. N u m b e r 1 5 was
The Chairman, 4
e s p e c i atlaside?
el sy
committee waS appointed t c take that
matter up, o r p r o v i s i o n made f o r t h e
appointment o f a C o m
mittee,
Governor Calkins.
ent, a
I t was suggested, w h e n I was. pres—
special conference b e held o n that subject.
The Chairman.
Y e s , t h a t i s it.
Governor Calkins.
W e have not h a d anything further o n
that.
5: TRANSIT OPERATIONS.
The Chairman,
U n d e r tonic 5 , Transit cperations,
I
should like t o make a
suggestion before w e settle
down t o
& full discussion o f the matters
with the Yederal Reserve
Board.
Ttdeveloped, as a result of a meeting of
the transit
Sxperts, t h a t s o m e recommendations w e r e
made t o the Board,
Ox Suggestions, a t least, i n
connection w i t h a program o f
develapment o f the transit system,
which the officers o f
the Federal Reserve Bank of Now York did not
approve at all,
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
412
and I was going +o sugkest t o the meeting that the
attention o f the Federal Reserve Board b e called t o that
mat—
ter. T h i s topic 5: (a) was put on the program at our suggestion, because I fear embarrassment w i l l result i f meet~
ings o f subordinate o r junior officers o f the Reserve
Banks
are called except i n such a way that t h e views
which they
develop f r o m such meetings a r e reviewed b y
the officers o f
the Reserve Banks before they are submitted; a n d
I should
like t o get a n expression from this meeting
o n that s u b
ject.
Governor Calkins.
I t seems t o me s o obvious that
transit matters should not b e made a
matter o f recommendation t o the Federal Reserve Board that
discussion i s no+
required.
I f benefit i s to be derived from
meétings such
as those o f transit mauagers, i t will
derivea through their
recommendation t o the sxecutive officers
o f the Federal
‘Reserve Banks; i n other words, t o
the Governors o f the
Federal Reserve Banks.
The Chairman. W h a t is the suggestion on
this natter?
Governor Calkins.
T h e suggestion i s that
the confer
ences of subordinate o r department
managers, i f held: b e
held for the purpose o f
advising t h e Governors.
413
Governor Wellborn.
f n d through t h e m t o the Federal
Reserve Board?
Governor Calkins,
O h , yes.
10: ADMINISTRATION PROBLEMS.
The Chairman. P e n d i n g the arrival o f the Board, h o w
would you feel about taking u p number 10; Administration
Problems?
W
e discussed the question yesterday quite ful-
ly.
Governor Passmore. I
The Chairman.
approve o f that.
T h i s topic, which i s a very long one,
Was introduced i n the program a t our suggestion
i n New York
Simply to bring out at the Governors! conference a sugges—
tion o f something t o think about, a n d I
doubt the advis—
abllity o f discussing i t i n detail.
I
d o think that i t
is & matter o f such supreme importance
t o the System right
now that i t might b e advisable t o
provide for the appointment o f a
Special c o m m i t t e e ,
and a
v e r y a c t i v e committee,
to take u p all quéections o f the welfare
o f employes a n a
Salary adjustments made in bringing that about, classifiCation and s9 on.
committes, I
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Federal Reserve Bank of St. Louis
I f it is your wish to refer this to
a
suggest i t b e not a
committee o f Governore o f
414
the Banks, b u t a committee o f m a n sho heve special k n o w l
edge o f this subject, a n d i f you care t o come t o New York
at some time t o meet there; w e have got some péople i a the
bank w h o a r e specialists o n this subject, a n d I think t h e y
probably c o v l d ploduce s o m e interssting material.
Governor dalkins.
I s i t not pxobable more benefit
could b e derived b y the Federal Reserve Banks, after they
haa a n opportunity s o study their own problems individual—
ly? I
a m fully i n Sympathy with t h e p r o p o s a l that y o u
make, except that i t appears t o m e that w e are n o t yet suf-
ficiently prepared t o consider those things.
The Chairman, I
»brougnut i t u p for discussion a t this
meeting because i f the Reserve Sysiem i s going
t o take u p
this class o f administration problems thoroughly,
i n every
instance it will affect the plans f o r your
buildings.
Governor McDougal.
these matters now.
W e are giving consideration t o
all
W e have @ man who i s hard at work
at
it, a n d w e are already doing a
great d e a l f o r the employes.
Similar t o gome axtent t o what I know
you are doing.
Our
uen, Mr. Kramer, has been down t o study
the situation over
with your bank, a n d it i s very necessary,
I think, t o make
provision i n advance f o r accomodation
o f such departments
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
or undertakings a s w e expecos t o indulge in.
The Chairman.
415
W e are proposing t o have two entire
floors i n our buildinggiven over t O Work that might b e generally c l a s s e d a s w e l f a r e w o r k , w h i c h i n v l u d e s f e a d i n g t h e
entire force.
Governor Calkins. R i g h t there,’ are you g o i n g o
t be
permitted t o feed the entire force;
o r d o y o u contemplate
& Cafeteria plan? |
The Chairman.
I t i s somewhat a
vafeteria plan, b u t w e
hope to give them a good meal.
Governor Calkins. I
understood the Board lad expressed.
doubt a s t o our being permitted t o furnish lunches a t the
cost o f the Banks?
The Chairman. S u p p o s e you d o i t a t the cost o f the
Clerks, w h i c h would b e one-third what i t would cost t h e m
outside?
Governor Calkins. I
if the other chould not. I
understand that should b e done
can not see any reason why w e
Should not f e e d the clerks o n c e a
day a t the cost o f the
dank; i t i s juat oxactly a s much a part o f their compensa—
tion, just as mich a matter of business administration o f
the benk a s payment o f salaries o r a bonus o r anything elses.
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Federal Reserve Bank of St. Louis
416
W e have i n our institution a man w h o
Governor Moras.
has given more o r less study t o this thing.
H e i s a very
intclligent man,
I Z i t were left v o me to handle this mat-
The Chairman.
ter, I would wait until after the first o f the year, when
pressure o f work i s over somewhat, a n d then I would hate a
representative from every Reserve Bank ettend a conference
on this subject.
Governor Passmore.
A t a meeting o f the Governors I
introduced a resolution, w h i c h was adopted, t h a t t h e Federal
Reserve Banks, a s circumatances werranted, s h o u l d establish
free lunches f e r their employes.
T h a t went u p t o the
Board, a n d the board was not prepared t o approve such a n appropriation.
W
e have planned @ cafeteria system within
the l a s t t h r e e n o n t h s w h e r e w e s e r v e m e a l s a t e x a c t c o s t t o
all employes, a n d i t i a working admirably, except I
think
it ought t o b e free.
The Chairman.
T h e question a s t o who shall p a y t h e
bill i s insignificant, suv far a s the plan i s concerned, because e v e n i f the employss h a v e t o p a y t h e bill, andimter
we f i n d o u r p o w e r s a r e a d e q u a t e
t o have t h e bank pay the
bill, there would b e no difficulty i n making the change g o
long a s w e are n o w determined upon t h e necessary plans i n
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Federal Reserve Bank of St. Louis
417
our buildings
t o o u r buildings
Governor Passnore.
t o p r o v i d e e p a c e a n d g o on,
E x c e p t if. the bank pays t h e bills
the bank controls the employe.
I
f the employe pays the
bill, y o u must g i v e h i m t h e optioa a s t o whether h e lunches
there o r not, i n m y judgment, a n d i t i s very mich better t o
have your employes all lunch there, I think, where you are
assured they will get a wholesome juneheon, a n d can control
the hours and everything else very mich better.
Ofcourse, i t hae the other side, that they de not get
out into the fresh eir, a n * t h e y claim they d o i f they walk
to a restaurant a block o r two away.
Governor Fancher.
A e you have stated, Mr. Chairman,
this i s 2 matter which has a very important bearing o n the
Study of our new buildings.
W e are giving it some thought
and I am sure w e would like t o have the benefit o f a com
prehensive study, a n d the benefit o f what i t brought o u t
On the part o f the study being made b y other banka, t
think i t most important that w e have a meeting o f the repréesentatives from the several banks,
W
e are making a
Study of it now in connection with our plans, and wé would
like t o have the beet thought possible.
Governow Seay.
G o v e r n o r Strong, I
can s a y the matter
418
is a live one with us, and w e are i n the Process
o f build-
ing, and our vonbvact i s such that i t is flexible.
W e can
take i t u p a t any time, a n d w e have taken i t up,
although
before t h e watter became o n e o f such immediate
importance-that is, before w e realized i t was o n e
o f such pressing
importance, w e had matured our plans, but we have been able
to alter them, a s w e think,
take care o f this qisabeae:
t o i n a measure,
W
a t least,
to
e are doing all w e can to
convince t h e employes o f our sympathy a n d our desire
t o do
whatever w e can for their welfare, and, further
than that,
we are taking such steps as we can take; s o the matter is
one o f active study with us; and, further t h a n that,
we
are taking active steps toward a realization o f
that purpose.
The Chairman.
T s it not desirable that the general
Scepe of the Reserve bankers i n looking after the
physical
and moral a n d men tal welfare o f
their employes Should b e
Substantially alike i n all the Reserve banks?
Governor Moras. I
should doubt that.
Y o u m a y have
a different oless o f employes i n
one bank t h a n i n another.
They may have different ideas. I
however,say,
think i t would b e well,
i f it were possible for each bank,
t o make its
own study and brings its experience i n its
Particular case
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Federal Reserve Bank of St. Louis
419
to a general e n t i wane; ‘ i l e t h e exveriences G o u l d b e conpared, a n d gee whether i t w a s beat t o have o n e goneral p l a n
Fou the whole, o r what variations there should be. I
feel,
as between the Boston Bank and the New York Bank, the conditicns o f the people y o u get a r e somewhat different t h a n ours
are, a l d what the conditions are thas are asked for, what
the conditions are that are required, a n d what would be
agreeable t o them, w h i c h i s the
main thing t o “ind out:
but t o compare experiences w o u l d b e very valuable,
Governor Calkins.
T h e differences vetween condi-
tions are probably/as between Boston and New York and San
Francisco, than between any other t h r e e banks i n the
sya—
ten. H o w e v e r , I
do not s e e that shat h a g a n y real bear-
ing o n the suggestion o f the Chairman that there
should b e
& gemeral plan, a uniform plan. I
am thoroughly i n sympa-
thy with that.
The detailed treatment o f employes must
differ in- dif-
ferent Districts; there is no question about
that.
W e have
no such conditions i n San Francisco
a s prevail i n Boston
or N e w York, particularly i n N e w York;
a n d I do not s e e a n y
in prospect, n o t i n my time, a t least.
W
Conditions t h a t yourncan not possibly
have.
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Federal Reserve Bank of St. Louis
e still have
420
Governor Morss. I
will cite a n experience i n Boston.
The First National Bank, w h e r e this occurred some yeara
ago, established a restaurant i n their mew building t o feed
all o f h a k e employes,
n o t t o g i v e t h e n t h e luncheon,
but
tS charge i t t o them a t cost; a n d they tried i t f o r a year
or two, I believe, a n d then abandoned it.
T h e people who
went there tgot t o b e less a n d less, a n d i t got t o b e rather disliked, w a s not appreciated, a n d not required.
O n
the other hand, i t varies somewhat with the facilities
there m a y b e for lunches, whether there a r e lunch places,
and whether t h e y are terribly crowded, w h a t t h e y charge,
and all that s o r t o f thing.
T h e conditions m a y perhaps
have changed i n Boston from what they vere a t that time,
S0 i t doea n o t seem t o m e i t i s a plain question o f just
wiat y o u are going t o do.
Governor Passmore. I
er
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Federal Reserve Bank of St. Louis
foel very strongly o n this m a t —
o f free luncheons, a n d I think inzprinciple i t i s just
aa much the contributiag factor i n the welfare o f your e m
ployes a s the best o f light a n d the best o f ventilation,
and the best o f other conditions, a n d i n our city i t ingures a
control o f the mass o f employea that y o u c a n not
have i f they a r e going o u t a n d scattering a l l over town.
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Federal Reserve Bank of St. Louis
421
T h e t i s vhat t h e y object to; t h e y
Governor Moras.
Want t o get out; a n d they object t o the control a n d prefer
‘to g o out, e n d perhaps m a n y o f them have errands, because
Boston i a small enough a 0 they cem d o a lot o f errands besides getting luncheon i n she luncheon hour, g 0 your experience has been different than i n Boston.
Governor Passmore. S t i l l , w e have t o have a machine
where they mark u p their time, g o i n g o u t a n d coming in, i n
order t o control it, a n d w e have t o give them more time i n
going out, yet we would give them smple time if we had
them in there, and give them somotime for a smoke, i f the
men wanted it, o r give t h e m time f o r yeereation o n the
roof, o r something o f that kind.
Governor Morssa.
The Chairnan,
T h e y objected t o that i n Boston,
H o w many o f these boys o f yours g O out
to d o errands a t noon a n d actually g o t O @ billdard parlor
and @atua sandwich w i t h a cue i n their hand?
Governor Fancher,
A n d probably g o t o atock brokers!
offices,
Governor Moras.
T h e stock brokers, I
do not think
cut much figure with a great many of our people.
The women atates the stores are closed b y the time they
get out and are not open when they come i n in the morning
got
and, a g I gay, the retail stores i n Boston are
S O Close
by that they d o have time to do any little shopping they
may have t o do,
f
n ancther case, i n New York, the
re-
tail storea might b e a mile o r two
awey and i t might b e inPOssidble t o get there a n d back, 5 0
y o u see conditions a r s
different.
Governor Calkins,
W e have a n ectual condition, which
prevails i n every city and District i n the
United States,
and t h a t c o n d i t i o n l e a d s t o t h i s
Situation,
Federal Reserve Banka,
i f w e undsrtake
t h a t we, i n the
+ o d o SO; C a n furn—
ish our employes w i t h voetter a n d
more wholesome food; t h a t
costs 32-1/3 per cent less than they can get eat the rea.
,
s
t
n
a
r
u
a
t
Governor Moras,
T h a t h a s changed within a
few years,
The Chairman. I
believe i t will always b e QO.
Governor Morss.
W e went i n amongst o u r people and
made a sort o f investigation aga to how many o f them
would
like t o have the facilities provided for
them, a n d w e éstimated t h a t a b o u t o n e - h a l f w o u l d l i k e them,
W
e had a n
estimate made i n view o f our new building.,
The Chairman. I
think the most successful thing w e
have got i n New York i s the establishment o f
that cafeterie,
do you not, Mr. Kenzel?
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Mr. Kenzel.
Y e s .
Governor Pasamore.
O u t o f our appvroximatay 600
employes, deducting the night workero, w h o are not available, I suppose there are about 500 who could come t o the
cafeteria. i
think t h e y a r e averaging about 4 0 0 daily.
o you furnish a t cost o r free,
V
Governor Seay.
é
Governor Strong?
The Chairman.
W
e furnish food a t cost and pay the
Servants a t the present time.
Governor Passmore.
W e pay all overhead, providé the
quarters, t h e kitchen a n d outfit, a n d charge t h e actual
cost o f food.
The Chairman.
T h e plan for our new building contem-
plates putting t h e women o n one floor a n d the m e n o n the
floor above,
O u t s i d e o f the women's floor there i s a
promenade a l l around the building, w h i c h i s under cover
partly, and out of cover partly, s o they can always get
out and get fresh air, whether i t i s a wet o r dry day, a n d
for the men, they will have similar accomodations o n the
roof, t h e y being o n the floor above t h e women.
T h e r e is
@ rest room o n each floor,fbr both m e n a n d women, where t h e
men c a n h a v e a
emoke o r t h e w o m e n c a n r e a d o r s p e n d t h e i r
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Federal Reserve Bank of St. Louis
Short time resting.
Governor Morass.
4
2
4
F o r inatance, amongst t h e things t h e y
are doing, there i s one woman i n our organization, w h o i s a
sort o f physical director, a n d some o f the women, especially,
get together a n c have exercises a n d that sort o f thing, but
I would not s a y finally that w e have completed just what w e
Governor Wellborn.
W
e huve the plan i n our dank a t
Atlanta o f furnishing the coffee free, a n d have the sand~
wiches there a t cost, i f thoy wich t o b u y them, a n d employes c a n b r i n g t h e i r s a n d w i c h e s w i t h them,
o r their food,
as they choose, a n d w e just furnish t h e coffee a n d sugar.
We want t o g o into i t o n a larger acale; w e think w e ough
to furnish the whole meal for them.
Opinion, everyone i n our dank.
W
W
e are all o f that
e are adding now a n ad~
dition t o our building a n d preparing f o r that,
i n the event
the Federal Reserve Board will approve it, I
do not think
they will, but I do not see any fundamental objection t o
it.on their part. A
Corporation;
federal Reserve Bank is a private
w e certainly ought t o have the right t o furn—
ish luncheon for our employes. I
think i f we would urge
it a n d i n s i s t u p o n i t w i t h t h e B e a r d t h a t t h e y w o u l d a n p r o v e
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Federal Reserve Bank of St. Louis
425
he I
have n o doubt b u t what t h e y would,
I
f we go at
it i n o half hearted way, possioly t h e y will just shut u s
arr:
Governor Pasemore.
I s i t your suggestion that this
Proposed committee should consider all t h o s e administra—
tion problems?
The Chairman.
Y e s , except poasibly (g) BancProtec~
tion, which i s outside o f that line.
Governor Calkins. I
move that the procedure suggest~
ed b y the Chairman b e adopted; t h a t i s , a
committee b e ap-
pointed t o study these questions, subsequent t o
January l,
1930,
The Chairman,
Governor Calkins,
M y first thought was a committoe, but,
i f w e are really going t o get d o w n t o
the
subject i n a thorough<going way, every bank should b e repreSented a t such a meeting.
Governor Calkina.
W e l l , a
conference,
to call i t that, instead o f a committee. I
you suggested, w h i c h I
wnderstood v a s
i f you want
meant t h e plan
t o have a representa~
tive from each bank.
The Chairman.
be done,
Y e s , that i s what I thought ought t o
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Federal Reserve Bank of St. Louis
426
Governor Paggmore.
i i g h t n o t t h e question o f salary
also b e segregated f r o m that, too; o r e n y data that ought
to be part o f the investigation?
T h i s questionnaire i s
to taxe care o f that, j 8 i t not?
The Chairman. I
will tell you why that went in.
I +
has nothing t o do with the question o f the amount o f the
Salary peid.
I t relates particularly t o methods employed
GF a
in compensation clerks i n their salary standardization a n d
overtime, a n d whether i t i s wise n o w t o have renresentatives
of employes o f the bank deal - — not w i t h apecific salaries,
but discuss w i t h the management o f the bank what methods
are employed i n classifying t h e work o f the bank a n d the
methods o f promotion, a n d methods o f salary advancerent,
and special p r o m o t i o n s ,
f o r reasons
o f high cost o f living
aud s o on,
The time i s coming when the clerical class i n this
country i s going t o have a voice i n some o f these matters,
and w h y not take steps n o w voluntarily t o give t h e m that
voice?
Governor McDougal. I
second t h e motion that a
con-
ference v x held for the purpose o f studying these various
questions coming under Topic 10, made b y Mr. Calkins.
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Federal Reserve Bank of St. Louis
427
(The motion was ¢arricd unanimously.)
Governor Morss.
I s o that t o b e called b y the Chairman
or someones appointed b y him?
The Chairman.
e will get the new secretary t o Work
W
on that.
BONUSES.
Governor Wellborn.
A r e w e going t o take u p t h e ques-
tion o f bonuses a t this meeting?
The Chairman.
I t t a a good time t o d o so.
Governor Wellborn.
T h a t h a s * o b e acted o n a t o u r
December meeting, y o u know.
should like t o ask if it i s general-
Governor Morss. I
ly expected among the banka t o pay bonuses thia year?
Governor MoDougal.
T h e Chicago Benk paid one i n
October o f ten, fifteen a n d twenty p e r cent o n the salary
basis p e r year, but u p t o October first.
no a c t i o n w i t h r e g a r d t o t h e l a s t q u a r v e r
Governor Seay.
I
Governor McDougal.
W
e have taken
i n t h e year.
e thet a g high a s your bankspaid?
N o t a s high a s some o f the banks
paid.
s that a s high a s the average?
Governor Seay.
I
Governor Young.
T h a t i s the amount authorized.
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Federal Reserve Bank of St. Louis
428
Governor McDougal.
T Y think perhaps a s high a s the
average; b u t the bonus does not extend a g far i n our bank a s
it does i n the Chicago banxe, w h e r e i t goes straight through
from the junior clerk t o the executive head.
Governor Calkine.
T h e S a n Francisco b a n k paid a bonus
ag o f June 30th o f ten, fifteen a n d twenty p e r cent o n sal-
aries up to #5,000, and none above.
My o w n view i s that that method o f determining addition-—
a t shorter intervals t h a n o n e year i a high-
al compencgation
ly desirable.
W
e c a n tell a t t h e e n d o f s i x months m o r e
accurately what the additional compensation covering the six
months elapsed than w e c a n a t t h e e n d o f the year what i t
should b e at the end of the year. I
am not aure w e should
not c u t i t down t o a shorter period.
rather,
W
e anticipate, o r ,
w e hope t o pay a higher percentage f o r t h e s i x months
from July lst t o December 3lst.
Governor Wellborn. I
have a
suggestion here f r o m the
Secretary o f our Bank, a s follows:" That instead o f the present b o n u s plan, t h e r e suall
be adopted a
combination 'bonus-retirement' plan, a s follows:
" Instead o f a Benes being given yearly, t h a t i t b e
given a t the e n d o f each five year period,
o n a basis o f
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Federal Reserve Bank of St. Louis
429
twenty p e r c e n t o f t h e t o t a l s e l a r : e a r n e d i n f i v e years,
and that this continue t o apply every five year period fol-—
lowing until such tine i e the employe has reached the age o i
55 years, a i which time h e ahall b e retized o n thirty p e r
centum o f his year's salary, unless requested b y the Board
of Dizevctora t o remain i n the eervice o f the Bank.
" For instance, under the present bonus plan; a n en-
ploye receiving §3,00C p e r annum is in the fifteen per
cent bonus zlass, a n d would receive §390 per vear o f $1,500
for the five year period.
U n d e r the five year period
plan he would receive a total of $10,000 in salary for five
years, twenty per cent of which amount would be 63,000. 5
He has worked out 2
little achedule here, b a s e d o n
that.
The Chairman. ?
have written a letter t o our Diroct—
ors, after a good deal o f study o f the situation among
our
clerks, recommending that for the last three
months o f the
year, having paid
a n extra vomponsation a s o f the first o f
October, that w e pay the clerks a epecial compensation at
the rate o f fifty per cent o f the amount which has
been
paid those clerks receiving up to $1:500; forty per cent
of
what t h e y have drawn i m the three months
period t o those
receiving 41,500 to $3,000; and twenty five
per cent to
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Federal Reserve Bank of St. Louis
4350
those receiving $3,CCO to $6,000.
T h a t is substantially
Goubling what w e did for the three months ending October
lst.
T h e reason f o r that i s that I
believe t h e y should
have the money; that t h e y a r e not o n l y entitled t o it, b u t
they c a n not lkve without it, and, a s I said the otker
day, the impression I get from studying the conditions i n
the bank i s that these clerks have lost a
considerable part
of their Gapital, w h i c h consists i n part o f savings,
i n part
of clothing and household supplies, a n d i n part o f health,
and that many o f them have either borrowed money o r have
unpaid bills that t h e y c a n not pay.
Now, fifty per cent bonus o n an annual salary o f
¢1,5CO 16 a down payment of $187.5¢, T h a t would clean
the deck probably o f all bilis, a n d provide a
new suit o r
two and an overcoat for all of those people, in prepara~
vion f o r winter.
T h e y should have it.
W e may have a
coal shortage.
Governor Seay.
W h a t would that make the a v e r a g e
oonus f o r t h e y e a r ?
The Chairman.
T h a t would make the average bonus for
that class p e r year f i v e periods o f 3 5 per cent o f their
Balary, w h i c h would b e 3 5 per cent, p l u s 8 5 per cent o f one
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Federal Reserve Bank of St. Louis
“
Quarter.
on
Governor Seay.
t h e directors o f our bank considered
the matter a t their last meeting and, while leaving i t
with the executive committee, they passed a resolution
expressing the opinion, t o b e conveyed t o the Board, that
the bonus should b e 35, 3 0 and 1 5 per cent, t h e latter
toapply to salaries p
u to lo.incs 7,500,
The Chairman,
T
o what period?
Governor B e a y .
T h e e n t i r e year.
W
e have o n l y
been paying a bonus once a year.
The Chairman.
W
e would have p a i d t o them a t t h e
end of this year a bonus equal t o 35 per
cent, 2 0 per
cent a n d 15 per cent o n the three grades,
p l u s a n additional payment o f 3 5 per cent, y o u see,for
o n e quarter;
Toughtly, 8 5 , 30 and 12-1/2 per cent would ve the additional amount.
Governor Wellborn.
W h a t are your figures, Governor
Seay?
Governor Seay,
The Chairman.
2 5 , 2 0 and 1 5 per cent.
T h a t w o u l d not b e enough i n
N e w York
to place these people where they belong.
Governor McDougal. Governor Strong, take
for example,
the ones you paid 3 0 ber cent u p t o
the first o f October:
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Federal Reserve Bank of St. Louis
432
that Was a t the rate o f twenty per cent o n their annual
salary?
The Chairman.
Yes.
Governor McDougal.
W h a t would b e the payment t o
those e m p l o y e s t h e l a s t t h r e e m o n t h s ?
The Chairman. |
The class h a s changed.
erly $1,500 to $3,500.
I t was f o r m
M y recommendation was $1,500
to $3,000; and those people would receive, instead of
twenty p e r cent f o r thtee months, t h e y would receive f o r t y
per cent f o r three months, double,
Deputy Governor Peple.
W h a t w e r e your percentages
onthe earlier bonuses?
The Chairman.
8 5 , 8 0 and 15 per cent,
Governor Fancher,
T h a t , o f course, w a s u p t o October,
Was i t ?
The Chairman,
W h a t w e have done t o date was this:
For thé s i x months ending June 30, w e paid
them 3 5
per cent up to §1,5C0; 3 0 per cent from $1,500 to
3,500
and . 15 per cent %. from £2,500 io $5,000.
W e paid
that same bonus for the Quarter, three morths period,
end--
ing October first, leaving one quarter o f the yoar,
when
another payment h a s t o b e made,
F o r that quarter I pro-
Pose 50 per cent up to $1,5C0, 40 per cent from $1,500 to
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Federal Reserve Bank of St. Louis
433
$3,000, instead of 35 per cent, and 25 per cent from $3,000
to$6,000.
Governor Seay.
Y o u will make n o provision for those
receiving a salary as much as ¢5,0007
The Chairman.
Y e s , from $3,000 to €6,000.
Governor Seay. Y o u r maximim is $6,000?
The Chairman.
Y e s , a t this time,
Governor Fancher.
H a s that béen concurred i n b y the
Board?
The Chairman.
Directora.
I t has not yet been approved b y our
I t will b e before the Directors
probably
next week.
Governor Seay.
B u t the payments y o u
have made have
been acquies ced i n b y the Board?
The Chairman.
O h , yes,
Governor MeDougal. I
iinderatand those having
salaries
of $5,000 t o $6,000 would only
apply, then, o n the a i x
months?
The Chairman.
Y e s .
Governor MoDougal ,
first s i x months?
The Chairman.
N o .
T h e y would get nothing
for the
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Federal Reserve Bank of St. Louis
434
Governor McDougal.
A n d there i s n o increase i n that
percentage?
The Chairman.
Yes.
Governor Pasamore.
I s i t your opinion, M r . Chairman,
that this extreme range o f prices that affects living costs
Will b e sufficiently temporary t o warrant o u r continuing
this bonus arrangement rather than t o atvempt t o really ad-
just salaries along a straight besis?
The Chairman.
W
e are going t o increase salaries i n
addition t o this.
Governor Passmore.
Y o u d o not expect t o increase t h e m
sufficiently, however, t o be able t o eliminate this bonus
the next year, d o you?
The Chairman.
No;
b u t m y recommendation about sala-
ries is, roughly, about this:
bonus
I n addition t o paying t h e
t o t h a t c l a s s o f clerks t h a t r e c e i v e w i t h i n
a
range o f $60 a month regular salary, t h a t
is, $730 a
narrow
e o
increase them to #60 a month, making $960 a year as the
Salary.
T h e class of clerks that receive $1,200 & yoar,
or thereabouts, increase in the proportion of $1,800 to
$1,500; that i s an increase o f $300 a year.
there i s a
O
f couree,
vatiation a b o v e a n d b e l o w that, a n d
i n the class
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Federal Reserve Bank of St. Louis
435
of clerks that receive $2,000 a year, with allowances o f
variation above and below, t o increase them to $3,500,
making the increases €840,. 300 and $500; and that would
be the price level o f sometime next year, w h i c h might j u s —
tify a reduction i f the bonus passes.
I t i s i n prepara~
tion f o r a more scientific treatment f o r a bonus along t h e
line o f the discussion d a y before yesterday.
Governor Moras.
Y o u a r e paying this extreme bonus
then o n the theory that the regular salaries are too low?
The Chairman.
ficiency
Y e s ; a n d w e are making good a past de-
i n preparing t h e m f o r a sevére winter. I
am
frank t o say that I have not consulted m y associate offic
ers i n the bank very fully about this, b u t spent s o m e days
with people who have direot contact with the force, went
over the record cards — - w e have got the records o f conplaints and embarrassments among the clerks, b o r r o w e d
money, increased rents, a n d all o f those cases — — I
have
read a great many o f them; a n d I am satisfied, and‘I d o
not want anybody's opinion about it, I am satisfied that
the basis o f compensation i s the only thing that will meet
the situation i n our bank.
T h a t i s probably a s little
28 W e can d o t d meet this winter's situation.
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Federal Reserve Bank of St. Louis
436
Y o u woul.d continue your bonus,
Guvernor Morss.
though, n e x s year, s u b j e c t t o revision?
The Chairman.
T h a t w o u l d b e aubject t o conditions?
Y o u pay them quarterly?
Governor Morss.
The Chaiiman.
Y e s .
Mr. Kenzel. G o v e r n o r Strong's recommendations i n
these regards received t h e unanimous approval o f all o f the
officers i n the executive management i n the Reserve Bank i n
New York, a n d steps a r e n o w i n progress t o put t h e m i n
force.
Governor Morss. I
tion.
D
should like t o ask o n e more quea~
o y o u consider announcing a t the beginning o f the
year what y o u r policy f o r bonuses will b e during t h e year?
The Chairman.
Governor Morss.
period, ¢ a c h period,
The Chairman,
N o , sir.
Y o u will wait until the end of a
t o decide?
O n e o f the vicious things about a
bonus system is, particularly whnen i t i s known a n d well
settled i n advance, t h a t t h e clerks inevitably anticipate
it a n d run u p bills a n d borrow money, a n d they get i n the
habit o f getting behind, because w e are behind i n paying
them.
T h a t i s what i t amounts to, a n d I should hope
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Federal Reserve Bank of St. Louis
437
that this increase i n salary would relieve t h e m
somewhat
of the necessity o f running into debt; a n d that,
b y some
System o f education, w e can induce them t o get
ahead a
little bit, rather than constantly run behind, a s they
are n o w many o f them doing,
Governor Passmore.
B u t i f you make n o annoineonsnt
about bonus expectations n e x t
year, w i l l they not anticipate a
bonus
o n t h e s a m e ratio, w i t h o u t r e g a r d
t o t h e in-’
crease i n salary?
The Chairman,,
W e always have said something t o them
in’ connection with the payment o f the
bonus.
Mr, Kenzel, T h a t i s the way approved
by the Direct—
Ors, that, a s heretofore, w e will tall
them i t i s not a
promise fer the future, but just this onee,
Gavernor Passmore.
W
e would like t o get away
from
this bonus business; a n d i t i s
our belief this high cost
of living is not Being to be a temporary
matter,
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Federal Reserve Bank of St. Louis
438
The members o f the Reserve Board thereupoh entered
the conference room, a n d a joint conférence proceeded a s
follows:
(Governor Harding presiding)
5:TRANSIT opErattéts.
30; INCREASE OF FEE PAin té DIRECTORS
ATTENDING EXECUTIVE COMMITTEE MEETINGS.
Governor Strong, G o v é t n é r Harding, w e have completéd t h e discussion o f this program, w i t h t h e excep-
tion o f topice 5: Transit Operations, a n d topic 30:
Increase o f fee paid t o directors attending executive conmittee meetings, but there are two matters which h a v e
just been discussed that possibly I should make a report
upon,
10; A D M I N I S T R A T I O N PROBLEMS,
Governor Strong, T o p i c : number 10; Administration
problems W a s put o n the program really f o r the purpose
of bringing t o the attention o f the meeting a classified
set o f suojects bearing o n the welfare o f the employes
ofthe Reserve Banks, and a resolution has been passed
this morning to the effect that i t is the senee of this
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Federal Reserve Bank of St. Louis
439
meeting that a conference should b e held o f those representatives o f all the Reserve Banka w h o are particularly o r
peculiarly qualified t o deal with those problems, a s nearly after the firat o f January a s possible, t o exchange
views a s t o what development o f work along that line should
be undertaken i n common b y all o f the Reserve Banks, a n d
for the purpose o f exchanging experiences, a n d s o on.
It is such a large problem, and one requiring so much
Study, that i t is not feasible t o take it up at a Governor's conference; and, besides, all the banks have men
more competent t h a n the Governors a r e t o discuss i t in.
detail, a n d that i a the recommendation o f the meeting
to
the Board,
T h e reason f o r doing i t i s that a l l o f those
matters have some bearing upon the character o f the build-
ings to be erected by the different Reserve Banks, and I
think i t is the view of the Governors o f the Banks that
it 13 undesirable that a Reserve Bank should develop meth—
ods and policies inuthe treatment o f employes that would
be possibly far out o f line with the policies o f other
Reserve Banks.
If such a meeting could be held, we
would hope it
Could b e also attended b y a representative
o f the Federal
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Federal Reserve Bank of St. Louis
440
Reserve Board, s h e n the result o f this quastionnaire would
be ready for discussion, a n d that all o f the topics that
are coveted by this program, with the exception of (g),
which i 8 bank prote@tion and not a welfare matter a t all,
should b e discussed, a n d possibly gome comprehensive work,
recommendations, c o m e f r o m t h e meeting,
Governor Harding,
W h e n d o you think that meeting
should b e heid, a n d where?
Governor Strong, I
should think i t would b e inadvis—
able t o t r y t o hold i t before t h e first o f January, f o r
two reasons,
T h e latter part o f the year i s a n exceed-
ingly busy time i n all of the Reserve Banks; and if we
Wait until after t h e first o f the year w e shall h a v e t h e
result o f the analysis o f this questionnaire, w h i c h would
throw a good deal o f light o n policies i n regard t o salaries.
Governor Harding.
W o u l d i t v e wise t o have i t i n
New York?
Governor Strong.
W
e made n o suggestion about that.
It might b e desirable t o have i t a t some more central
point,
Governor Harding. C h i c a g o ?
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Federal Reserve Bank of St. Louis
Governor Strong. C h i c a g o , say.
By t h e way,
w e discovered,
b y a
441
careful a n a l y s i s
of
train schedules a t o n e time that Cleveland i s the most cen-
tral point inm.the syatem i n point o f time t o travel,
Gover Miller,
T h e r e i s n o dissent f r e m Governor
Fancher o n that.
Governor Fancher.
N o .
10: (f) PENSION PLANS,
Governor Strong. T h e other matter bearing o n this
Somewhat i s i n regard t o a scheme for a pension plan.
The Governors sometime ago appointed a committees, and
Mr, Kenzel has been acting a s Chairman o f the Committee,
that has been studying pension plans; a n d they have now
3aubmitted a recommendation, suoject t o the approval of. the
Board, t h a t t h e Committee proceed t o bring into their
council some actuaries a n d experta in: this matter, a n d to
undertake t o lay out a plan to recommend to the Reserve
Banks o r t o the Federal Reserve Board,
f o r a uniform pen-
Sion plan, i n which all employes o f the Federal Reserve
Banks and employes of the Federal Reserve Board may take
part,
APPOINTMENT O F A PERMANENT SECRETARY.
A third matter i s one o f administration i n theae meetings, E v e r y meeting o f the Governors results i n a certain
amount o f constructive suggestion; and, i n order t o get i t
under way, i t i s necessary t o have someone Charged specifiCally with t h e duty o f analyzing t h e proceedings, a n d seeing
that effect i s given t o then.
S o m e t i m e s i t i s the appoint-
ment o f committees; sometimes i t i a other matters that
need
to be brought t o the attention o f the different banks;
and
it i s the recommendation o f the conference that
a
permanent
Secretary b e appointed t o attend these meetings
a n d charged
with that duty of following u p the proceedings, and taking
Care o f the detail o f them.
A l l o f this will b e suomit-—
ted i n the record for consideration b y the Board,
Governor Harding.
I
t will b e given due consideration
and w e will advise you.
ao: I N C R E A S E O F FEE PatD T O DIRECTORS
ATTENDING E X E C U T I V E C O M M I T T E E MEETINGS.
Governor Strong. I
items ]
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Federal Reserve Bank of St. Louis
think that leaves o n l y t h e two
referred t o for discussion w i t h the Board,
Governor
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Federal Reserve Bank of St. Louis
443
Harding, i e n e ys, the transit matters a n d the fees o f dirers-.
ors,
Governor Harding,
Y o u might t a k e u g the fees o f the
directors first.
In the matter o f the fees o f the directors a n d mémbers
of the executive committee, t h o s e fees, I
take it, apply
only t o those directors w h o d o not otherwise d r a w a salary?
The Federal Reserve Avent gets n o fee for attending a meet-
ing, I suppose?
Governor Strong.
Board, I think,
T h a t i s covered b y the rules o f the
T h e bank paid the fee either to the
Federal R e s e r v e B o a r d o r t h e Governors,
Governor MaDougal.
Governor Harding.
W e did, but we paid them baok,
I g it desirable o r feasible that
the fees b e uniform i n all Districts?
Y
o
u will s e e some
of the Districts have more out o f town directors than others
and there i s allowed more traveling expenses t o those o u t
of town directors, and a per diem for the time of their at-
tendance and the time going to and from the meetings.
Governor Passmore. I
think that matter came u p
through some applications f r o m o u r bank, a n d i n comparing
the situation i n other Federal Reserve Districts, i t seems
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Federal Reserve Bank of St. Louis
444
our situation i s different f r o m that which prevails i n
most other Districts;
i n that o u r executive committee does
@ great d e a l o f detail w o r k t o relieve t h e Board o f Direct-
Ors, & great many important matters are referred t o the
Executive Committee f o r investigation a n d report b a c x t o
the board, a n d they d o not meet daily like they d o i n a
number o f other Federal Reserve Banks,
b u t they meet o n
alternate weekw with the Board o f Directors; and, inasmuch
ag every memoer o f the board serves his executive committee,
they ought all o e treated exactly alike,
Same distances t o the board meetings,
T h e y come the
3 0 there seems t o b e
hé reason why there should b e any difference i n the fee
paid for executive committee meetings a n d that for board
meetings,
Governor Harding.
T h a t same condition does not ex-
ist a t all t h e banks, d o e s i t ?
Governor Passmore.
N o ; a n d I can not f i n d a n y other
District where i t exists precisely a s i t
does i n our Dig-
trict,
F o r instance, y o u can see, without
extra mest—
ings that throughout t h e year there would b e fifty
two
Sxecutive committee meetings and twenty aix
full board
meetings,
T h a t i s the only difference, i n the
number o f
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Federal Reserve Bank of St. Louis
445
meetings.
O f course the salaried officers d o not parti-
Cipate i n any fees. T h e r e f o r e i t seems t o me i t i s difficult t o make a uniform practice, i f exact equity i s to
»
be done.
Governor Harding.
W
e might divide this question,
Is there a n y reason f o r a change i n the fees allowed
directors a t a n y o f the banks; a n d then w e can decide whe-
ther there i s any reason t o change the fees o f the exeoutive committeemen,
Governor Passmore,
T h a t i s uniform,
it, throughout the system,
a s I understand
T h a t is, I think, commensurs
ate with what is done by commercial oanks
in our séetion
of the country, and ig entirely satisfactory.
Governor Calkins.
I t appears t o me, Mr. Chairman,
that i f conditions i n other banks are comparable with
ours, the fees of the executive committee should exceed
those of the direetors, i f there is a difference,
A t
the present time w e ape paying, a a I believe
the other
banks are, $10 to executive committeemen, who devote more
time and attention t o their duties than the directore
do,
and $20 t o the directors.
W
e hold executive committee
meetings Monday o f each week; a n d
those meetings l a s t
as long a n d entail a s much aruous
labor o n the part o f
446
those w h o attend,
o r more, t h a n t h e directors! meetings.
Governor Harding.
A n o t h e r factor enters into this
thing, a s t o the frequency o f these meetings.
O
f course,
if we fixed a fee of $30 a meeting, you might find
some mem—
bers o f the executive committees i n favor o f
meeting every
Governor Strong.
Governor Harding,
O u r s do.
D
o you not think the fee
ought t o
be regulated somewhat a a t a the number
o f meetings?
P o r
instance, there i s a certain amount o f work t o
b e done i n
a week,
N o w , i f @ Committee meets a n d
goes over a
week's
Work a n d spends m o r e time, practically
a n all d a y session,
it Seems t o m e there i s more
reason f o r a larger f e e than
there i s in the case where they dilvide
that work up among
six days in the week and meet every day.
ing, f o r instance,
P a y $20 a meet-
i f you meet o n c e a 2 week; t h e n
i f the
Samé work 1a done by daily meetings,
that would be $120,
Governor Passmore.
T h e daily meetings might
get t o
be very short.
Governor Harding,
U n l e s s there w a g some
restriction
of that sort put i n there, i t
is quite likely there would
GS sconce
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Federal Reserve Bank of St. Louis
Governor Van Zandt , M i g h t
I ask i f there has been any
447
request f r o m a n y o f the bankas
t o inorease this fee?
Governor Harding. O n l y from one bank.
I understand your proposition i s based upon the fact
that the meetings are comparatively infrequent,
had daily meetings, y o u would not ask it.
I f you
I s that it?
Governor Passmore. C e r t a i n l y ,
Governor Seay.
T h e fee i s s o totally inadequate a s
& compensationf
o any kind, that the matter has never been
Suggested i n our board, except possibly b y one director,
and, a9 far as we are concerned, I do not think the matter
need b e touched upon,
I
t i s a n honorarium, a n d that i s
about all it is or can be, I should think.
I t i9 not a
compensation, a n d it i s ridiculous a s a compensation.
Governor Calkins,
I f that i s the case, the honorarium
applying t o the directors should b e reduced t o
the same
amount as Bllowed for the executive committee.
Governor Seay. W h e r e , o f course, a n y
disagimilarity
exists,
I
t does not exist with us.
Governor Passmore,
I t has not been raised by our
directors, except it has been asked two or three times why
the inequality,
Governor Harding. . Then, i n the absence of
any gen-
ral recommendation, I think the Board will feel free to act
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Federal Reserve Bank of St. Louis
upen any particular application made.
5; TRANSIT OPERATIONS.
Governor Harding.
G o v e r n o r Strong, t h e transit mat—
ter i s the next thing, i s it?
Gevernor Strong.
Governor Harding,
Y e s , sir. ¢
T h e r e i s one point I should like
t+% bring u p i n this t r a n s i t proposition, w h a t c a n w e d o i f
we got thia pretty well established t o overcome the objeotions o f the smaller national banks and some o f the member
banka that the public receives n o benefit from this, that
the national clearing house cities continue t e make these
Charges and get a n additienal profit?
449
Governor “ellborne
make a
I n Atlenta t h e y are preparing t o
uniform rates. T h e y are charging 6 per cent o n
deferred time o n the p a r points, a n d where t h e rete va-
ries they cre going t o mke o uniform rete e f 1.12 so
there will b e n o profit whatever t o the banks.
Governor Harding, F u r t h e r efforts are poing t o be made
in a l l t h e d i s t r i c t s
t o put t h e banks
Governor Fancher,
o n t h e p o r list.
S o fer ts. our dietrict i s cone
cerned, w e have some places u p i n the hills e n d mountains
of Kentucky that a r e n o t par, b u t w e hope b y the i s t o f
January t o have a l l o f them p a r i n our 4istrict,
T h a t
does n o t mean thet w e are going t o collect all points s t
per, because w e have express points, and ™ e have a couple
of agents a n d a l l that sort o f thing, b u t i t rill b e
boiled
dom
s o that o u r t r o u l c s o m e b a n k s w i l l b e l e s s
dozen, a n d w e h o p e t o e r e d u a l l y b r i n g t h e m i n .
Governor H a r d i n g .
Richmond, Atlanta a n d
hardest problems t o contend with.
GOVERMOr--Van Zandt.
™ e s expect
t o have every bank
in the district o n the par list b y the I s t o f Jonuery,
Governor Harding.
A r e any of the banks i n your
district acting o n the suggestion o f the committee w h i c h
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Federal Reserve Bank of St. Louis
met i n N e w Orleans, w h i c h w a s t o p r i n t
Governor V e n Zandt.
o n the
T w o orp three o f them did, b u t then
we are eliminating t h e m richt slong. A
bank that gave u s
the greatest trouble w a s t h e little b a n k a t Vidalia, La.,
which seemed t o b e t h e leader i n that section o f the country,
nos W e l O d y c e r e e a
t o r e m i t a t par, G a t " h o s a p r e e 4 t o j o i n
> Pederal Reserve System i f i t can b e properly cdmitte4,
Governor Seay.
H o w sre y o u going t o get t h e m o n the
list, forcibly o r b y agreement?
Governor V a n Zandt.
J u s t p u t them o n and then t h e y will
ngree afterwards.
Governor Harding, C o l l e c t o n them first ond t h e n t h e y
will eeree.
Governor Strong. U n l e s s I
member b a n k s u p o n h i c h
a m mistaken, t h e number o f
w e cannot collect e t p a r i s i n the
neighborhood o f about three thousand.
Governor Fancher.
I t i s more t h e n that. I
think i t i s
sbout four thousand.
Governor Strong.
I « m convinced t h a t a
continuance o f
the methods, w h e r e t h e y are proper, t h a t r e have employed,
o f the banks ,
is going t o result i n getting practically a l l
List.
ana ultimately e l l o f the banks o n the p a r
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Federal Reserve Bank of St. Louis
451
Governor H a r d i n g . I
think s t r o n g - a r m m e t h o d s h a v e
been adopted i n oll districts except Richmond a n 4 Atlanta,
have they not?
Governor Young.
V e Teve n o t Jere o n y nine with t + t n
our district.
Governor Calkins.
ods i n o u r district.
t e a r e n o t using a n y strong-arm methA
t t h i s t i m e w e heave f o u r o u t o f
Seven States o n the par list.
T h e more important States
of Nashington, O r e g o n a n d Arizona a r e n o t o n the p e r 5 Byss
but “e contemplate having them perfectly clean within
a
couple o f months, w i t h o u t t h e u s e o f s t r o n g a r m methods,
t o
speak of.
Governor Fancher. I
could n o t s a y t h : t o u r s h a v e b e e n
strong-arm m e t h o d s ,
Governor H a r d i n g .
I w a s f u s t using a n expression which
is contained i n a good m n y letters that I receive. T h e y
Say they receive e
c a l l from the representative o f the Fed.
€ral Reserve B a n k a n d h e says t h a t h e i s sorry, b u t h e will
have t o collect items o n them b y express.
T h e n t h e pvrop-
osition i s made t h a t t h e bank rould o f course like t o sen4
them their o m items, a n d i f they will agree t o remit a t
{
par they will not send them b y express. T h e y don t want
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Federal Reserve Bank of St. Louis
S
452
~
them sent b y express*end therefore they spree t o remit a t
par.
I w a s j u s t wondering whether t h e Richmond e n d Atlanta
districte w e r e p r e p a r e d
t o d o that i f t h e y find that milder
means d o not g e t t h e m anyrhere,
Deputy d a r e r a m Peple.
I n Maryland
of banks t h a t rere n o t o n the p o r list.
r e h a d quite a
number
T e took them u p
bank b y bank a n d our personal representatives called u p o n
them.
" h e n w e h e d reduced t h a t t o 2
certoin number w e t h e n
notified them w e were perfecting arrangements t o establish
collection agents i n those places.
“ e arranged t o have a
sufficient number o f spents eppointed f o r the c o llection
of their checks, b u t when i t came t o a general shorn d o m
only t w o a g e n t s h e d t o b e eppointed,
remained
a n d those t w o agents
f n office o n e dey.
In “est Virginia v e have n o v cighty-six b a n k s that s r e
not o n t h e p a r l i s t a n d n i n e t y - t r o t h a t e r e o n t h e p a r
List.
T e s t Virginia,
vided, 2
a s y o u know,
h a s recently been d i -
portion being under t h e Baltimore office a n d a
1s a s an M A Y
t h e Richmond office.
I
n t h o t p a r t of. t s
reduced t h e nonterritory under t h e Richmond office w e have
the
par banks t o tventy five, a n d i n the territory under
Baltimore o f f i c e t h e n u m b e r
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Federal Reserve Bank of St. Louis
o f non-par banks
i s -sirty one.
453
The campaifn o f personal application a n d personel interview has. not been finished yet.
I t i s our iden, r h e n v e
get “est Virginid dorm t o a n irreducible minimum, t o use the
agency m e t h o d o f c o l l e c t i n g
i n order t o p u t t h e State o n t h e
per list.
In North Carolina w e have thirty-two non-members
o n the
per list and four hundred anja sixtcen not o n the par list.
It was absolutely absurd t o consider t h e establishment o f
four hundred ond sixteen agencies, a n d we propose t o comb
that State later i n the same w a y that re have t h e others,
Governor H a r d i n g .
C a n y o u collect
b y express
f n thot
State?
Deputy Governor Pegple.
M o sir.
T
e
o e n e e eat
many points w h e r e t h e r e o r e n o f o c i l i t i e s f o r e x p r e s s c o l -
lection, T h e r e are a great many isolated State banks that
are i n e position t o defy u s until w e g e t comm t o a point
where l e have a sufficiently sml1l number t o make t h e e s -
teblishment of agencics practical.
“ e will pvrobablv clean
up “est Virginia before attempting any of the other States
on the s a m e plan.
Then w e will probably take u p Vireinia, i n which there
nonare ninety t w o par points a n d t v o hundred e n s e v e n
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Federal Reserve Bank of St. Louis
par p o i n t s ,
454
a
i
During this year w e have edded i n the entire district
four hundred en? forty-seven-=no,
w e have f o u r hundred e n d
forty s e v e n p a r p o i n t s a n d o n e thousand,
fourteen n o n - p a r points.
There
thet i n some eases i n Virginic,
North Caroline,
and c
o n e hundred o n d
i s n o question
i n m y min3
i n c good m e n y cases’ i n
good m a n y cases. i n S o u t h Carolina,
but w h e t t h e i n t r o d u c t i o n
out o f business o f quite a
o f the por will mesn the going
number o f the small banks,
to
the great good o f the community.
Governor S e a y .
A
s y o u knovr, y o u s t r i k e e t t h e v e r y
foundation o f the country bank, certainly i n those three
states o f “est Virginian, North and South Caroline, when you
abolish exthange, o n d i t has been o terrific problem.
Governor Her ding. I
have hed a arent Jcal of corre-
spondence f r o m Congressmén 2 1 1 over t h e South, f r o m Texas
oll the w a y u p t o “est Virginian, a n d I
have menage4d t o keep
them off b y this kind o f reasoning: T h a t section 1 3 vrovides t h a t t h e Federal Reserve Banks m a y receive f r o m
member b o n k s e : r t e i n i t e m s f o r d e p o s i t , i n c l u d i n g checks,
drafts,
a n d s o forth, p a y a b l e u p o n p r e s e n t e t i o n ,
the so-csllead H a r d w i c k a m e n d m e n t
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Federal Reserve Bank of St. Louis
m a then
t o s e c t i o n 1 3 provides
455
a
that t h e F e d e r a l R e s e r v e B o a r d m a y authorize
reasonable
total
charge, not exceeding one tenth of one per cent o f the
no
items presented o t eny one time, provided, horever, that
Bank:
such charge shall b e made against i ? Federnl Reserve
thet thet languese h e s been interpreted b y former Attorney
General Gregory t o mean that a Federal Reserve Bonk i s not
any
euthorized under t h e l a w t o pay a n y collection chrr¢e t o
bank. T h e n Tt say to these Congressmen, "You see the 3ilemma
that the Reserve Banks ere in? T h e y are obliged t o take
jtems a n d eheecks f r o m their member banks o n Aeposit, s n d o f
course are oblired to collect those cheeks, but beeruse of
to a
the amendment which says t h a t they cannot p a y any Pee.
i t becomes n e c e s s a r y t o e m p l o y s o m e o u t s i d e
collecting bank,
agency r e g a r d l e s s
o f cost.
T h a t h a s settled t h e 2iscussion
in most cases,
Deputy Governor Peple.
“ s e have h o d « pretty general
campaign a l l over the district,
representatives
i n which w e have sent o u t
non-member
t o Aiscuss t h i s a u e s t i o n w i t h t h e
concentrate o n
banks, b u t w e have decitced i t i s best t o
i n order t o get t h e n o m
one part o f the district a t a time
remitting banks down t o en irreducible minimum.
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Federal Reserve Bank of St. Louis
Governor Harding. I
efthink this map vill have some
456
fect.
Deputy Governor Peple, I
think L t will tee, T h e r e t e
mnother point, o n d thet t e w e Rave b e e n nel, perticuiarly
in the Southern part o f the district, with the statement o n
the p a r t o f «
good m a n y o f the non-member banks t h a t t h e y
would b e willing t o remit a t par, b u t that t h e y have nothing
in rhich t o remit.
T h a t t o a Large extent hes been. true.
Governor Harding...
D o y o u net p a y the express charges
and t r a n s p o r t a t i o n c h a r g e s
Deputy Governor Peple.
money.
o n currency that t h e y send you?
Y e s , b u t t h e y cannot g e t the
T h a t i s t h e key-note
t o the success
o f the a g e n c y
proposition, t h a t t h e y c o m e t g e t tne money,
Governor H a r d i n g .
C o u l d they not open u p ©
non-member
account with y o u a n d send y o u their items?
Deputy G o v e r n o r P e p l e .
T h e a t brines
u p t h e o t h e r trouble
with the small member banks, that they haven't got the
money.
L o t s o f places h a v e c o m p l s i n e d t h a t i t w a s s o ereat
har dship o n t h e m t o h a v e t o m a k e t h e i r c h e c k s g o o d w i t h
us because o f the fect a large proportion, i n some cases
ninety t o ninety-five p e r cent o f the items which t h e y
handle w e r e n o t c o l l e c t i b l e
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Federal Reserve Bank of St. Louis
a t per.
Governor Seay. D e f e r r e d credit.
457
Deputy Governor Peple. D e f e r r e d eresit, yes.
w e are
looking for 2 grest Z e n l o f relief i n thet Jirection, bythe
use o f our immediate credit symbol proposition.
been v e r y c a r e f u l l y v o r k e 4 o u t . A
T h a t hog
representrtive h e s r o n e
all over the district t o interview t h e banks t h a t vould b e
interested becsuse t h e y keep bank accounts. A r r a n g e m e n t s
have been made t o grant the privilege throuch trenty o f the
larger banks,
Suite a
number o f banks i n addition t o that
have the matter u p for consideration.
I n the memtime w e
have issued a cirmlar o n the subject informing all. the banks
inthe district hor this arrangement can be mode.
w e have
seen evidence o f a great deal o f intercst o n the p a r t o f the
banks t h a t will u s e the privilege.
In letters, w h i c h " e have eddressed t o the benks through
which the privilege will be granted, re have sugrested that
it i s intended primarily for t h e use o f benks, b u t o f course
it can be granted t o commercial customers a s well. é
Bia
have
also cautioned o11 the banks to be very careful in the granting
of the privilege and we have required every benk granting
the p r i v i l e g e
to a
customer
t o make a
direct c o n t r e d w i t h
the customer under which the benk can protect itself if it
wishes
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Federal Reserve Bank of St. Louis
t o d o so.
T e h o v e d a u t i o n e d t h e banks t h a t t h e system,
458
while i t is the most economical system b y which this thing
can b e done, nevertheless w i l l cost t h e banks something
and they are t o protect themselves b y insisting u p o n « sate
isfactory amount f r o m their customer w h e n t h e y groent the
use o f t h e i m m e d i a t e c r e d i t s y m b o l .
of t h e c o n t r a c t b e t r e e n o u r s e l v e s
T I have w i t h m e copies
a n d t h e member
bank and
the contract between t h e memberbank a n d t h e customer, o n d
the circular o f explanation, which I will b e glad t o submit
to the Governors
i f they care t o have them,
Governor Vellborm.
attempted
I n the Atlanta District r e have n o t
t o follow o u t a
campaign.
V
e D o v e g e e s e d t o watt
until w e could s e e h o w i t vorked o u t i n the Dallas o n d Richmona D i s t r i c t s c d j o i n i n g u s .
I
n attempting
t o make s o m e
‘collections we have met vith a serious obstacle, S o m e o f
the member banks themselves h a v e h a d printed o n their
checks “Payable i n New York erchange c t current rates,"
and those checks h a v e b e e n sent through our benk and i n
turn w e have tried t o collect t h e m f r o m our member banks
ond they mould not bemittbhemeat par, but deducted exchange.
Then w e r e s o r t e d
t o t h e e x p r e s s p l a n o f collecting.
Governor H a r d i n g .
Y o u c a n meet t h e t b y telling t h e m
you c a n n o t p a y e x c h a n g e a n d d e c l i n e
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Federal Reserve Bank of St. Louis
t o credit t h e m i n the
reserve acwmunt.
shore
A
G
o
v
e
r
T h e Comptroller will make a
459
national b a n k
T h ore,
n
o
r “lellborn,
Y e s , b u t t h e y w o u l d n o t r e m i t s a t all.
We tried the express plan, t h e y declined t o pay, a n d w e could
not protest the checks because o u r counsel advised-us t h a t
uch checks were not protestable because t h e ywere paying
them i n the manner i n rhich theys o i d they would p e y them,
that is, i n New York exchange a t current rates--non-nerotiable
checks,
a n d therefore
v e have returned t h e cheeks
t o the send-
ers, t e l l i n g t h e m t h a t w e c o u l d n o t c o l l e c t t h e m o n } c o u l d
not accept them.
Governor Harding, “ o u l d n o t the
m e r c h a n et h
st ,“
répips
ients o f the checks, object t o thet i n time?
Governor “ellborn. I
Governor Harding. I
think that i s one w a y t o remedy it.
believe i t rould b e possible t o g o
tothe “ a y s a n d M e a n s C o m m i t t e e
a n get o
provision f o r a
tax, & revenue stamp, s a y of 10 cents o n the hundred, o r
®
s o m e t h i n g like that, t o be paid b y the drawer o f the check
on all checks that are drawn payable otherwise than i n money
unconditionally. M r . Kitchin, when he was Chairranfo
the “ays and Means Committee, would not d o anything o f the
sort, because h e stated very frankly h e did not think i t
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Federal Reserve Bank of St. Louis
was fair t o the small countr b a n k s .
Governor V a n Zandt, I
micht s a y t h a t w h i l e t h a t w o u l d
be o n effective means o f putting 2 1 1 checks a t par i t h i n a
very Short while, w e are trying o u t the plan o f mritine t o
the drawer a n d endorser o f every check t h e t reaches u s vith
that kind o f printing o n it.
Governor Harding.
B u t that docs n o t d o a n y good i n the
Atlente District.
Governor V a n Zandt, “ T e tell t h e m i t hes been rece ived
by the Federal Reserve Bank, b u t i t cannot b e handled b y them
and i s being returned.
Governor Harding.
B u t t h e drawer i n lots o f cases h a s
a friend w h o i s a stockholder
i n the bank and w h o i s i n sym-
pathy with the practice, a n d f o r that reason t h e y have r e ceived some pretty tart letters d o w n i n Atlanta,
Governor “iellborn.
Yes. I
think t h e o n l y w a y t o d o
anything would b e t o refer i t t o the Association, l e t them
teke 1 t u p w i t h t h e h e u s e s r e c e i v i n g t h e c h e c k s .
Governor Harding.
Y o u will find t m t the houses receiv-
ing the cheeks figure out that they had better take #99 .75
on the hundred a n d g e t t h e money i n preference t o running a
chance o f getting nothing.
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Federal Reserve Bank of St. Louis
Gor
Deputy Governor Peple,.
“ e h e d s o m e evicence o f that ssr*
of thing i n our district some t i m e ago, b u t s o far a s I knor
now i t h a s p r a c t i c a l l y disappeared.
Governor H a r d i n g .
I t seems
t o m e t h a t i t vould deprive
the country banks o f one o f the strong talking points t h a t
they have now if the benks i n the lerger citles all agreed t o
take cheeks, w h i c h are collectible a t par through a
Reserve Bank,
Federal
o n a reasonable basis, b a s e d u p o n interest f o r
time allowance.
I f they did that, that would meet t o a large
extent the arguments being made against the system.
Deputy Governor P e p l e . I
Governor Harding.
agree w i t h y o u entirely, y e s .
T h e y have appointed a
committee a n d
they a r e foing t o t r y t o get Congress t o change t h e lew, T
do n o t t h i n k t h e l e w w i l l b e changed,
b u t that i s the main
argument t h e y are roing t o use i n presenting their case t o
Congress: t h a t there a r e a lot o f meritorious country benks
being deprived o f a large portion o f their revenue, t h a t the
general public i s getting n o benefit from i t at all, and
that t h e p r o f i t m e r e l y a c e r u e s
to a
bunch o f rich banks
i n
big c i t i e s .
Governor Seay.
I f you will pardon me, I
would l i k e t o
ask Governor Strong whether the resolution with regard t o
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
7)
467
the cotton-seed o 1 1 situation h a s beer transmitted t o the
Board,
Governor Strong:
Board a n d a
I t was sent t o the Secretary o f the
copy o f the resolution h a s just been handed t o
Governor Harding,
Governor Harding:
T h e Board passed a
resolution this
morning authorizing t h e transmission o f i t t o “Mr. Garfield.
Governor Seay: A
ceived since then. I
lot o f other telegrams have b e e n resaw a committee o f cotton-seed o f l
men i n the corridor o f the hotel this morning, accompanied
by Senator Bennet o f South Carolina,
ting very w a r m with them, I
s o the matter i s get-
have urged that t h e y ought t o
besiege A d m i n i s t r a t o r G a r f i e l d ,
t h a t t h e y have their Con-
gressmen a n d Senators approach him, a n d that t h e y g e t the
Governors o f their States t o wire him...
Governor Harding: G o v e r n o r Wellborn, I
would like t o say
that New Orleans has been a point that has been antagonistic
to our collection system, There a r e several large banks t h a t
have country accounts. W e d o not want t o antagonize them,
but they a r e openly hostile, s o m e o f the officers o f the
banks a r e openly. hostile t o the Federal Reserve Bank's p a r
collection system, O n e o f those bankers i s a director i n
463
the Federal Reserve Bank; m y b e t w o o f them are d i r e c t o r s n
i
the branch bank down there,
(A discussion followed which the reporter was directed
not t o take.)
Deputy Governor Peple. I
think there has been a food
deal o f silent opposition t o the p a r s y s t e m e l l through South
Carolina, a n d the larger banks, some o f them i n our Jistrict,
do not come o u t openly, b u t w e have received evidence f r o m
time t o time that they ere exceedingly lukewarm i f not i n
opposition
t o tt.
Governor Harding.
T h e r e i s a great deal o f opposition t o
it. T h e argument i s mede b y the country bank-to i t s o w n
customers t h a t t h e y buy their goods i n other sections o f the
country a n d n o t h i n g i s s a i d a b o u t e x c h a n g e ;
that they d o not
get any cheaper prices. T h e y say "You go not get goods any
cheaper b y reason o f our remitting 2
check o n ‘New York,
"
wr
e
can send your check t o Topine o r a n y little t o r n that hapnens
I f 2 % were 6
to have a bank a n d they will take i t just a s
i s ‘irectNew York check." T h e y say that the whole movement
a s against
ed b y the b i g c i t y banks ‘in their o w n interest
i s not conthe little country benk and that the customer
nened one way of the other, ~ They tel} une cus tener that
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Federal Reserve Bank of St. Louis
464
it i s t o his convenience t o have a
bank i n the town, t h a t
they need that exchange t o make money, a n d i t enables t h e m
to serve t h e c u s t o m e r better; t h a t i t g i v e s &
cheaper m o n e y
rate, t h a t t h e y con. tharge 1 0 per cent imstead o f 1 2 i f
they have t h e erchange, a n d i f t h e y do not have i t they m y
have t o advance t h e rates.
trouble 6 t - a t l
“ i t h that argument there i s n o
i n ectting t h e d e u n t r y merchants L i n e d u p
with the local banks, a n d that i s the argument t h e y use.
Governor Passmore.
I t seems t o m e we: have never h a d
support f o r o u r p a r collection system from t h e various busi-~
ness o r g a n i z a t i o n s
o f t h e c o u n t r y t h a t w e should h a v e h a d .
Governor Harding. N o , w e have not.
Governor Passmore.
A n d they cre the chief benefictar-
tes of. it,
Governor { |
T
Gove m o r ~
associations
e
y
Gre
C h e conenvers
ek
G a i n
end: s i e f
i
h a v e not given u s t h e cooperation a n ? support
they should have given us.
i n e r e w e s been here and there
a sporadic effort.
Governor Herding.
T h e y d o n o t want t o antagonize their
customers a n d w i l l n o t m a k e a
fight o n it.
T h e officers
of large banks i n large cities w i t h a great m a n y country
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Federal Reserve Bank of St. Louis
465
correspondents cannot b e expected t o be very keen about it.
Deputy Governor P e p l e .
referred when I
mde
T h o s e o r e t h e bonks
t o which < 1
m y statement.
Governor Harding. " “ e devised a plan here least Summer,
which w e t h o u g h t c o m p l i e d w i t h t h e l a v , e n l i s t i n g t h e c o Operation o f t h e m e r c a n t i l e c l e m e n t ,
b u t t h e transit mona-
€ers condemned i t as being t o o complicated e n d thought t h e y
would r a t h e r
g o o n rith t h e proposition
whole country o n o par list.
o f puttine t h e
O f course w i t h the rhole country
on the par list, the other plan is unnecessary. I
you heve seen t h e plan.
think
I t was somewhat allied t o the imme-
diate credit symbol proposition,
I t provided t m t all banks
be invited t o stamp o n their checks a symbol which the Board
had copyrighted, a circle, with the letters "F. R,'wv n d
the number o f the district, a n d the idea w a s that n o attempt
should b e made t o favor checks t h a t did n o t have t h a t symbol
on them; t h a t w e w o u l d h a v e t h e m e m b e r b a n k s s a y t o t h e i r
customers “ I f y o u w i l l m a k e u p y o u r d e p o s i t s l i p l i s t i n g a l l
of these items separately thet have t h e symbol o n them, t h e
Federal Reserve B a n k will ¢ive y o u a nominal rate, j u s t
enough t o cover t h e interest, s a y four o d o n e half p e r cent
or five p e r cent o n those particular items.
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Federal Reserve Bank of St. Louis
I f y o u d o not
466
care t o make u p ea list separately i n that way, t h e charge
will be one-tenthf
o one per cent.” ‘ l e intended t o have each
member b a n k s a y that t o their customers.
deposit
slip
m d e
u p showing about
W e nad & Cypieal
* 6 000 worth
o f checks,
on which the cherge would b e $5.00 under one plan, whereas
if the s l i p was made o u t eccording t o the symbol plan, t h e
charge would b e $1.38, I
think 1 t was, b a s e d o n the interest
for the time i n transit. O u r thought vas o
e
tobber
thought that the $3.62 was worth saving, that h e would have
his bookkeeper fill o u t the ticket.
I t a s n o t t h e idea t o
clog u p the member bank with additional routine w o r k a n d t o
keep a
lot o f depositors
i n line while t h e teller w a s ana-
lyzing these checks, but i t was with the idea o f giving
the facility t o those customers w h o desired t o use it, t h e
member bank charging one-tenth o f one per cent o n everything
o e
i n vier o f the position
else. N o t h i n g h a s been
a e
of the transit managers.
M e a n w h i l e t h e development o f the
ebetiet
p a r s y s t e m h a s g o n e a l o n g t o s u c h a n extent t h a t
t think the Board will b e content t o avait further developments.
Governor McDougal.
orily, I
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Federal Reserve Bank of St. Louis
think.
D
T h e matter h a s developed satisfact-
o y o u n o t t h i n k s o , G o v e r n o r H a r Jing?
467
Governor Harding.
I t seems s o t o us. Y o u can tell u s
whether t h e opposition seems t o be dying out,
™ e have h a d
a good m a n y letters s e n t t o u s b y various C o n g r e s s m e n f r o m
Iowa i n which they have sai3j some rather uncomplimentary
things. However, w e haven't had any of them lately.
That
was o n l y when t h e p l a n was first instituted.
Governor McDougal.
it i n our district.
M e have h a d v e r y littl: opposition t o
M e have neticed o n ebsence o f enthusiasm
on the part o f the lerge benks; w e have always noticed that.
We h a v e p u t T o w a a n d I l l i n o i s
o n t h e list,
a m d Indiana goes
on the lst o f December, a n d Michigan probably the lst o f
January.
V
e a r e werkineg o n “lecontin,
W h e n tre p u t T l i t -
nois o n the list w e hand approximately o n e hundred banks which
hod to be dealt with, those banks not having voluntarily offered t o remit a t par; b u t i n reply t o a letter which vas
sent t o those benks explaining t h e situation o d telling
them that w e were informing them that w e were collecting the
entire State, about fifty-four o f those bankscame in, I
think there were nineteen t h a t declined t o come i n .
w e
had v e r y l i t t l e o p p o s i t i o n t o i t , t h o u g h .
Governor Harding.
the p a r l i s t ?
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Federal Reserve Bank of St. Louis
I s your section o f “isconsin a l l o n
468
Governor McDougal.
L l would s e y w o have 7 5 per cent u r
70 p e r c e n t o f t h e b a n k s o n t h e
p a r list.
“ T e have 8 5 o r
more p e r cent i n Michigan a n d Indiana w h o a r e voluntary members.
Governor H e r d i n g .
h a v e y o u a n y views y o u
M r . “oehlenpah,
would like t o express o n this subject?
Mh
Nit
Mr, Moehlenps
O
n t h e p a r proposition?
Governor
Mr. Moehlenpah, I
think, Governor Harding, i n our cam-
paipn t o get the eligible non-member State banks i n that v e
had better w a i t until this carpairn i s through, s a y the Ist
of January, before w e sive t h e m battle.
I n the convention
at St.Louis there w a s quite a Little agitation amone the
representatives o f a few States like Mississippi, Louisiana,
Georgia, and, I
think, o n e o f the Carolinas, a b o u t t h e matter,
and since that meeting I
have discovered t h a t i n “isconsin
r e tryMinnesota, a n ¢ some o f the other States, t h e y 2
ing t o d r a g i n t h e p e o p l e t h e r e
i n order t o make a
combined
legal e n d o f it.
effort t o approach this t h i n g f r o m t h e
Hust h o w f e r thet has gone I
organized movement.
cessful
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Federal Reserve Bank of St. Louis
i n heading
do not knor, b u t there i s a n
I n ™ssconsin I
o f f eetion
think I
t o some extent
have been sucb y 2 t Least
£69
keeping them from having conventions a n d conferences and
joining i n this Bolsheviki game.
B u t I realize t h a t
these l i t t l e f e l l a r s h a v e n o t b e e n a p p r o a c h e d r i g h t .
Governor Harding.
D o n ' t y o u think that t h e large
country banlf€Ar ili offer as an objection for not coming into
the system the fact that h e loses the exchange? T h a t i s
one o f the biggest objections.
Mr. Moehlenpeh.
t f i t i s pointed t o h i m that h e i s
going t o lose the exchange anyhoty, will not that objection fall t o the ground?
Mr. tee. u y
T h e antagonism o f the little fellow
is aroused when the term "Strong arm” i s used.
W e have
got to let them make the first kick on that and then come
away from it and g o back t o it again.
Governor: McDougal.
B u t , Mr. Moehlenpah, t h e y have n a d
their first, s e c o d a n d third kicks.
Governor H a r d i n g .
Y e s , t h i s h a s been r o i n g o n for four
years.
Mr. Moehlenpah, I
knor, but I am talking about use o f
the e x p r e s s c o l l e c t i o n . T
trict where I
think i t w a s
i n the Dallas d i s -
heard remarks a b o u t h o w t h e agents a n d f i e l d
men were going t o these little fellows e n d handling t h e
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Federal Reserve Bank of St. Louis
470
situation.
h side o f it, but
O f - c o u r s e . w e - oe nvtheir
la y
they r e s e n t i t ; t h e y h a v e r e s e n t e d
i t a s coercion;
said i t was un-American, a n d s o forth.
t h e y have
N o w i t seems t o m e
we have never had the cooperation o f the c i t v banks o n this
proposition a s w e should have h a d it. T h a t i s number one.
Number t w o i s t h a t t h e r e n e v e r h a s b e e n t h e p r o p e r e d u c a t i o n
of the little fellow a s t o what i t meant t o h i m t o have
checks o n his bank, a s well a s checks h e received through h i s
customer i
n his bank, p u t upon t h e par list.
Governor Harding.
H e will s a y that some member bank i n
Chicago, C l e v e l a n d , C i n c i n n a t i
items anyhow a n d I
e r S t . L o u i s w i l l collect
do not g e t a n y additional facilities.
my
I f
you talk t o h i m about t h e advantage o f having t h e checks jrayms
on his bank being receivable a l l over t h e country a t par, h e
will tell you that i t is not so, because h e will say he has
to pay his cherges i n the various clearing houses.
Mr, Moehlenpah.
O f course y o u have a
jual relation there,
but w h e n t h e f i e l d m a n o r express c o m p a n y m a n ~ Oe s
i n there
with some checks and demandé cask, h e must have it, and
they d o not always have i t i n these iIselated plaees,
Deputy Governor Peple.
practice u n t i l
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Federal Reserve Bank of St. Louis
W e have never reserted t e that
w e h a d absolutely exhausted e v e r y e t e r meth-
471
od t o reduce t h e banks i n the section with w r i c h w e were dealing t o the lowest possible number.
I n Maryland,
i n one
place, where t h e y went cround w i t h talk about agencies,
they only hed t o visit fifteen s a twenty banks with that
argument--we had. gotten all the other banks with other ar.
fuments before--but 2 good m a n y o f them told u s v e r y frankly
that t h e y w o u l d p a r t h e i r c h e c k s w h e n t h e y h a d t o a n d n o t
before,
W e thought i t would b e f a t é l t
o g o into North
Carolina, for instance, where there are several times a s many
non-remitting banks a s there a r e remitting banks, a n d attempt
to deal w i t h t h e s i t u a t i o n t h e r e , e v e n w i t h i s s u g g e s t i o n
of agencies,
Governor Harding. I
think that would be literally true
in some sections, o f N o r t h C a r o l i n a a n d Kentucky;
i t might
be fatal sure enough.
Mr, Mochlenpah. I
think t h e c i t y b a n k s c o u l d h e l p u s
a good deal o n this proposition i n getting close t o the
smaller bankers.
Governor C a l k i n s ,
B u t t h e y w o n t d o i t , Mr. M o e h l e n p a h .
Deputy Governor Peple,
Governor Callins.
which I
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Federal Reserve Bank of St. Louis
T h e y absolutely will not.
T e have h e d conditions i n our district
think a r e significant a n d more o r less illustrative,
472
and I
would like t o refer t o one case, 2 s i t throws some
light o n the situation t o which Mr. M o e h l e n p a h s
a
h just refer-
red. ‘ l e have three State non-member banks i n a town where
there h a s been o clearing house.
“ w e have approached those
banks recently i n a n effort t o induce t h e m t o b e a m e members.
They are strong benks a n d cre i n a situation where t h e y would
derive great benefit f r o m membership.
T h e m a n who saw t h e m
recently c a m e b a c k a n d s a i d t h o t t h e r e w a s j u s t o n e r e s s o n
why those banks vould n o t apply for membership, a n d that
reason was that t h e y would n o t cive u p their exchange charges.
I said t o him, i n a very soft+votee, that that reason would
shortly disappear.
because I
H e said t o m e not t o d o anything drastic
might interfere w i t h h i s program. I
invited t h e
executive officers o f the banks t o dinner, a n d h e d e very
delightful evening with them, a n d when t h e y left they had
all agreed t o remit a t par,--or rether t v o o f them had, a n d
the other o n e said that h e would have t o i f the others did.
We h a v e n o w a n a p p l i c a t i o n f o r m e m b e r s h i p f r o m o n e o f t h e m
and e x p e c t
a n application f r o m t h e other t w o within a
month o r two months.
T h a t i s persuasion,
o r whatever y o u
want t o Gall it. T I want t o sey here thet banking conditions
in one section o f this country ere not s o radically siffer~
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Federal Reserve Bank of St. Louis
473
ent from banking conditions
i n another section.
O u r mana-
ger w h o covers U t a h a n d Idaho h a s been s o successful i n
interviewing small banks and explaining the situation t o
them that h e has o n the par list every bank i n Utah and
Idaho.
U t a h a n d Idaho a r e sparsely settled regions, a n d
there does not appear t o me t o be any different situation
there t h a n there i s i n other parts o f the district. I
think every one has found that i f the real situation c a n
be brought home t o the bank officer t h a t p r o g r e s s c a n b e
made with him.
500 a
I f he takes the position that h e makes
year f r o m exchange a n d will n o t five i t up, a n d that
4s accepted, t h e n y o u might just a s well n o t seen h i m a t
all. I
believe that the whole country, s o far as I kmow
anything about a t epcaamla our district includes about a third
of it--can b e put upon the p a r list a t a e
date b y close--and w h e n I
with t h e bamkers,
say close I
e
early
mean intimate--touch
b y approaching t h e m directly a n d b y us-
ing the best arguments t h a t a r e available.
O f course some
statement
times t h e best argument available w i l l b e the
that a l l t h e o t h e r b a n k s
i n the Aistrict h a v e accepted t h e
proposition, end that if they will not, then we will have
to p r o c e e d
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Federal Reserve Bank of St. Louis
w a y w e can.
t o collect t h e i r checks t h e b e s t
474
Governor Harding.
A n d that i s a n argument that increases
in force a s y o u a d d t h e b e n k s
Governor Calkins.
t o t h e p a r list.
W e have i n the State o f California
some eight hundred banks remitting a t par e n d about fifteen
refusing t o remit a t par.
O f the fifteen I think i t is fair
to say that twelve were convinced b y the arguments t h a t w e
Duy O U L «
Governor Strong.
I t seems t o me the situation a s t o par
collections i s now reduced t o this: t r o years ago, before w e
pot into the war, w e h a d mode practically n o progress i n
the matter; during t h e w a r w e were occupied w i t h other things
ana d i d not d o very much.
J u s t i n the last year, since t h e
pressure w a s t a k e n o f f o f w a r f i n o n c i a l m a t t e r s a n d t h e -Reserve
Benks have been giving close attention t o this mtter, the
result i s that t o d a y there a r e three districts, t h r e e Reserve
par, t w e n t y
Aistricts w h e r e a l l t h e b a n k s a r e r e m i t t i n g a t
o f the
two States t h a t a r e o n the par list, a n d b y éne first
year o r b y the first o f February I
gather there will b e s i x
States
Reserve d i s t r i c t s w h o l l y p a r a n d a b o u t t h i r t y
per i e t s
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Federal Reserve Bank of St. Louis
o n the
fifteen
T h e r e probably will not b e more than
the twenty-eight thoushundrea t o three thousand banks o u t o f
I
andi thet will n o t b e remitting a t par.
think w e have
475
with t h e situation
enough evidence o f the ability t o deal
o f present
by the present methods t o justify continuance
methods »
Governor Herding. I
think the clearing house association:
should r e c o g n i z e s u c h S t a t e s
a s a r e o n t h e p a r l i s t b y reduc-
States.
ing their cherges t o those particular
i n New York already.
Governor Strong. T h e y have done thot
There i s e n item o n the program
under N o . 5
which I
2° Ee
would l i k e t o t a k e u p a t t h i s G i v e .
is
6: b )
payment
presentation a n d
I n the interest o f more prompt
o f checks, shoulda n o t n e a r b y b a n k s
i n given sections
o f through Federal Reclear o n each other directly, instead
Reserve Banks promote the
serve Banks? S h o u l d the Federal
houses?
establishment o f such local clearing
this reason.
That topic i s suggested f o r
i n our district
J e r s e y City, Hoboken, a n d
we have a n area comprising Newark,
Jersey
shore, extending back f r o m
the settlements along t h e
city,
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Federal Reserve Bank of St. Louis
the Federal
a r e n o v centered i n
i n which a l l the checks
through their correspond~
Reserve Bankj. either direct or
clearing
reason w h y & scheme o f
ents, a n d there isn't a n y
panks i n thet immediate area.
could not be adopted for the
476
The f a c t i s w e h a v e n o w w o r k e d o u t a
plan whereby w e have
clearing u p t o w n f o r c i t y collections,
a n d o n e i n Brooklyn,
I think. N o w , wherever there i s a congested a r e a with a
large number o f banks within a short distance b y automobile
or b y trolley o r steam road,
i t i s possible t o bring to-
gether under o n e clearing arranegemtn quite a n area o f
country, a n d that will take t h e pressure o f f o f the Reserve
Bonk a n d afford great facilities t o the banks i n the locale
ity,
A l l they need i s a
little s t i m m i a t i o n a n d a
little i n -
struction a s t o the nec-ssary machinery t o d o it.
I t i s all
in the interest o f efficiency a n d economy.
Governor Harding, I
suppose Schenectady, Utica a n d
Syracuse h a v e r e c i p r o c a l a r r a n g e m e n t s ,
d o t h e y not, s e n d i n g
items themselves direct, n o t wanting t o lose t h e time o f
sending t h e m t o New York?
Governor Strong. Y e s - Governor Harding.
W o u l d i t not b e a good idea f o r the
Reserve B a n k t o issue a circular pointing o u t the .importance o f s a v i n g t i m e o n collections o n d s u g g e s t i n g t h a t
A
b a n k s i n the district m o k e reciprocal arrangements
with e a c h other, continuing this relation w i t h regard t o
checks, remitting b y transfer o f balance o m the books o f
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Federal Reserve Bank of St. Louis
477
the Federal “eserve Bank, o r any balance one way or the
other t h a t m a y accumulate.
Governor Strong;:
I n our district I
imagine there a r e a
half d o z e n p o i n t s t h a t c a n d o that; N e w a r k c a n b e u s e d 4 s
the center and then there i s Buffalo, Tonawanda, Lockport,
and surround tovns, where little areas o f clearing can be
developed. I
think t h e whole country should b e studtled
with r e g a r d t o t h e p o s s i b i l i t y o f d e v e l o p i n g l o c a l c l e a r i n g
houses.
Mr. Strauss.
I n other vrords, decentrelizing t r e clerical
work?
Governor Strong. Y e s .
Governor V a n Zandt.
“ T e are suggesting t o banks located
like that, where o n e bank has quite a
number o f checks o n
the
another bank, t h a t t h e y c a n send t h e Letter direct t o
bank o n whom the items are drawn, a t the same time drewing
against that bank for the exact amount o f the letter, sending that check t o Dallas f o r i t s creait.
Governor Harding.
Governor V a n Zandt.
A n d i t has worked v e r y e l l ?
Y e s . T h e r e a r e t w o o r three
i t i s working v e r y
places where t h e y have tried 4 4 out and
satisfactorily.
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Federal Reserve Bank of St. Louis
476s
Governor Seay. T h e r e a r e a large number o f banks w h o
aré i n t e r e s t e d c h i e f l y i n t h e p r o b l e m o f k e e p i n g t h e i r
checks out as long as possible.
Governor S t r o n g .
T h i s w o u l d h e l p t o c u r e that.
(Thereupon t h e members o f the Reserve nednd, w i t h the
exception o f Mr. Strauss, retired f r o m the Conference Room,
and the Conference o f Governors proceeded.)
The Chairman.
M r . Strauss, sub-topic ( a ) o f No. eS;
5 TRANSIT OPERATIONS:
(a) M e t h o d o f treatment o f transit problems t h r ough
meetings o f transit monegers.
is o n the program f o r this reason:
I t developed, after t h e
meeting o f the transit managers o f the Reserve Banks, t h a t
was held some weeks ago, that i n some instances the recommendations o f that meeting, t h e conclusions reached a t thet
meeting, d i d not meet the views o f the executive officers
of the Reserve Banks, a n d w e went t o ask the Federal Reserve Board,
i n conneetion w i t h e n y such meetings, t h a t
they b e held i n such a way that t h e juniors i n the banks
will not g o ahead a n d make r e m mmendations a n d arrive a t
conclusions until t h e executive officers o f the banks have
had a
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Federal Reserve Bank of St. Louis
chance t o r e v i e w them.
479
Mr. Strauss,
G o v e r n o r Harding,
w h o i s probably more
familiar w i t h transit matters t h a n a n y one €lse, thought that
the c o n c l u s i o n s
o f the transit m e n were
i n m a n y respects
wrong a n d t h e y were j u s t considered a s a n expression o f
views and not considered binding o n any one.
The Chcirmanzs~ . T h e transit men are liable t o look
at the thing from purely a technical standpoint without regard t o t h e b r o a d e r v i e w s
Mr. Strauss, I
o f t h e problem.
think that w a s fully recopnized, Governor
Strong.
The Chairman.
5: ( b )
T h e next i s 5
I n the interest
o f more p r o m p t presentation a n d
payment o f checks, s h o u l d n o t nearby banks i n given sections
clear o n each other directly, instead o f through Federal Re-~
serve Banks? S h o u l d t h e Federal Reserve Banks promote t h e
establishment o f such local clearing houses?
Is t h e r e a n y a c t i o n t o b e t a k e n
i n regard
t o t h e estab-
lishment o f these local clearing arrangernents?
Governor Passmore. I
think i t should b e encouraged, b u t
I do not know whet kind o f action w e should take.
The Chairman.
this t o p i c ?
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Federal Reserve Bank of St. Louis
T h e r e i s n o suggestion o f any action o n
48C
Deputy Governor Peple.
[ F f course i t i s understood t h a t
such a n arrangement c o u l d o n l y b e p o s s i b l e
b y mutual c o n -
sent o f the banks clearing?
The Chairmen.
° F course.
T h e idea i s t o get them t o
enter i n t o arrangements f o r clearing that will b e i n the
general interest o f the collection system,
of the Reserve B a n k and o f themselves,
i n the interest
i f they can b e bourhet
to see it.
Mr. Strauss. I
think y o u s h o u l d t a k e s u c h a c t i o n
on
that e s would tend t o keep i t before t h e different banks
as something t h a t i s desirable t o b e done wherever possible.
That might b e done i n the f o r m o f a resolution.
The Chairman,
w e hope t o get ea Secretary who will a t e
tend t o following u p these ratters, a n d this i s a matter
that h e would attend to, unless t h e Federal Reserve Board
prefers t o d e it.
Mr. Strauss. I
think the Secretary that y o u have t o
follow u p these things should keep i n touch with t h e Board.
Where would h e be located?
whe Chairman.
i n former d a y s w e h a d “r. C u r t i s
‘ p a n a t h e s e matters.
H e was i n the bank a t N e w York,
and i t was a great convenience, w h e n I
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Federal Reserve Bank of St. Louis
to
was acting a s chair-
man o f the meeting.
I
481
t does not make very much differenss
where h e i s a s long a s h e keeps i n touch with t h e organization o f Governors.
Governor V a n Zendt,
I t was t h e opinion o f the Governors
thet a s l o n g a s G o v e r o r S t r o n g w a s a c t i n g a s c h a i r m a n of'
the Conference, that i t would b e well t o locate the Secretary somewhere convenient t o him, i n order t h a t h e might
consult with Governor Strong o n m t t e r s t h a t h e was followime U p .
Mr. Strauss. I
had i n mind t h e convenience t h a t micht
result from his being i n touch with the Board.
H a s that
been discussed w i t h Governor Harding a t all?
The Chairman. N o , but i t will b e disclosed b y the recare.
Governor Fancher.
I n reference t o topic 5 (b), I
move
that i n those districts where t h e y have congested areas, a n d
where t h e c o l l e c t i o n o f c h e c k s c a n b e f a c i l i t a t e d
b y ex~
change amongst the 2ifferent banks, that the situation be
studied b y the Governors witr a
view t o facilitating t h e
collection of those particular items, thereby reducing
the float.
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Federal Reserve Bank of St. Louis
Governor V a n Zandt. I
would l i k e t o s e c o n d t h a t motion.
The m o t i o n , h a v i n g b e e n dulysecondes,
The Chairman.
Bt
w a s carried).
T h e next i s 5 (c):;
C o l l e c t i o n o f Drafts, Bills o f Exchange, etc.
Should t h e collection facilities o f the Federal Reserve
Banks b e e x t e n d e d
t o include c o l l é c t i o n o f c e m m e r c i a l p a p e r
maturing i n Federal Reserve cities and branch elties, a n d
credit given o n date o f m t u r i t y subject t o final payment?
would s a y y e s t o that,
Governor McDougal. I
Governor Fonch er,
I T think i t would b e a dangerous
practice.
Deputy Governor Peple. Aren't wc doine something of that
kind now?
The Chairman.
T h e sting i s i n the last line, gentle-
men.
Governor “Icllborn. I
to the member benk. I
could b e done a n d I
think i t i s quite a n a e o mmodation
haa inquiry a s t o whether o r not i t
took i t u p and found thet i t could be.
Deputy G o v e r n o r P e p l e .
T h e r e h a s been some feeling
among t h e banks i n Richmond that i n takine thesé large
Arafts w i t h bills o f lading attached drawn o n individuals
or firms o r corporations a n d collectine t h e m without a n y
ting
collection charge t h a t w e were interfering a n d eompe
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Federal Reserve Bank of St. Louis
462
with the commercial banks. I
do not know whether that same
feeling has developed i n any other reserve city, b u t I
would like t o b e informed.
Governor V a n Zandt.
Y e w e have h a d seven o r eight clear-
ing house meetings i n Dallas about it.
Governor Y e l l b o r n . I
have a
tional bankers o n this which I
letter h e r e f r o m t h e n a -
would like t o r e a d .
I t Is
as follows:
"NASHVILLE BRANCH
Federal Reserve B a n k o f Atlanta
Nashville, T e n n .
Neverber 1 5 , 1919.
"To the Board of Directors,
Federal Reserve Bank,
Atlanta, Ga,
Gentlemen:
"At the last meeting o f the Board o f Directors o f the
Nashville B r a n c h o f t h e F e d e r a l R e s e r v e B a n k , t h e M a n a g e r
reported that the banks were showing considerable concern
over the factt that the branch bank was collecting grain
and commoaity 4rafts and notes direct from firms and indi-
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Federal Reserve Bank of St. Louis
484
viduals without exchange o r collection charge. T h i s discus.
sion a t t h e meeting, resulted i n the appointment o f the undersigned a s a
Committee
t o bring t h e question
t o your a t t e n t i o n
and t o express t h e views which w e r e developed.
"We, therefore, b e g t o s a y that such collection business
is very large here a n d will require increased clerical force,
end, hence, increased office space, etc., which w e would like
to minimize.
"On broader grourids o f good policy, t h e feeling was that
the Federal System was designed t o do business with the public
only thru member banks a n d under n o conditions t o engage w i t h
them i n c o m p e t i t i v e business.
I t must n o t b e l o s t s i g h t o f
that t h e e n t i r e c a p i t a l s t o c k o f t h e P e d e r a l R e s e r v e B a n k i s
furnished
b y menber b a n k s a n d they,
have t a k e n e
h a n d i n creating a
o f course, w o u l d n o t
system t o compete w i t h them-
selves a n i under this arrangement o f collecting,
w e are benefit-
ing territories other than the Sixth District.
"Another point that was brought out was the fect that
every member b a n k i n the United States c a n m k e collections
on Nashville a t par, b u t local banks c a n o n l y make collectfons a t p a r o n F e d e r a l R e s e r v e a n d F e d e r a l R e s e r v e B r a n c h
cities.
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Federal Reserve Bank of St. Louis
I f this free service i s t o b e rendered, w h o i s t o
ene
4D
stand t h e cost o f this?
A s n o w s e t up, i t will a l d have
to fall o n the stockholders, w h o are t h e member banks, a n d
the analysis then is, that the member banks are deprived
of a part o f their best business, which i s done free b y
Branch banks a n d the member banks pay the cost thereof.
"Our attention has been called t o the fact by members
thet the Federal Reserve A c t does n o t provide f o r this serv.
ice a n d w e respectfully a s k y o u t o advise u s a s t o just what
position t h e Federal Reserve Board takes o n this matter.
Yery t r u k y yours,
(Sigmmed) JAMES E. CALDTELL
PAUL M. DAVIS
Be A.
B E
(Letter dated Nov. 13, 1919.
Postmarked "Nashville,
November 15, 1 1 PM, 1919,
Recelved November 17, 1919)
(Meeting o f Atlanta Board held Nov. 14)."
I wired them t o the effect thet they were not required
tocollect these bills where they came from outside the
district u n l e s s t h e y w e r e r e c e i v e d f r o m F e d e r a l R e s e r v e
Banks.
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Federal Reserve Bank of St. Louis
The Chairman. T h e a t letter indicates t h a t collections
were being m d e f o r other than member banks?
Governor “Yellborn. Y e s , b y our member banks, b u t not
through t h e Federal Reserve Banks. I
were n o t r e q u i r e d
wired t h e m that t h e y
t o receive t h o s e drafts u n l e s s t h e y c a m e
through Federal Reserve Banks, w h i c h I
think i s the ruling
of the Board.
The Chairman.
T h i s topic produced t h e following com-
ment f r o m Mr. Hendricks, w h i c h I
that t h e c o l l e c t i o n f a c i l i t i e s
think i s sound, t h a t is,
o f Federal R e s e r v e B a n k s
shoulda b e sufficient t o handle a n y and a l l collection items,
but that credit should not b e given o n date o f m t u r i t y
of collection items, even though subject t o payment.
A s
s no justification whatever for giving
I view it, t h e r e i
credit f o r items t h a t y o u d o not o m a n d discount until
the time arrives w h e n y o u get payment o f them i n your reserve.
I
f w e confine ourselves
t o that principle a n d o n l y
receive items f r o m our member banks i n that way, w e are
on s a f e ground.
I
f w e begin t o give credit f o r those
items a s collection items, although i n fact w e have discounted them, w e ere n o t o n l y making a present o f the
o
f the time o f collection, b u t w e are engaged i n
daiscountr
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Federal Reserve Bank of St. Louis
487
a credit operation, which w e should not engage i n except with
our eyes o p e n a n d with some knowledge o f the value o f t h e
item.
Governor “lellborn.
Y o u are referring n o w t o commercial
paper?
The Chairman.
T o commercial paper, yes.
Governor McDougal. I
do not believe that our facilities
equal t h o s e o f t h e c o m m e r c i a l b a n k s f o r h a n d l i n g t h i s p a p e r
at the present time. F o r instance, i f Chicago accepted commercial paper for collection, paper that matured i n New
York, under this plan, a s I u n d e r s t a n d ,
t
i at least, w e
would errange t o give credit t o our customer o n date o f
maturity and i t would b e your responsibility t o collect
that paper.
I f i t were n o t collected y o u o f course could
advise u s , a n d w o u l d s d v i s e u s .
T h e c u s t o m a t present
is
to send that paper down, i f i t matures i n New York, a n d
of c o u r s e t h e C h i c a g o b a n k g e t s c r e d i t
i n its N e w York a c -
count o n that date.
The Chairman.
I t gets credit i f it is paid.
Governor McDougal.
“ h y certainly, i t would not get
eredit i f it rere not paid here under this plan.
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Federal Reserve Bank of St. Louis
The Chairman.
" h y shoulda y o u get credit until w e
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Federal Reserve Bank of St. Louis
know i t i s paid?
4
Governor McDougal.
advised
8
8
Y o u know i t i s paid i f y o u are n o t
t o t h e contrary.
The Chairmen.
G i v i n g immediate credit subject t o pay-
ment i s more t h a n giving oredit w h e n i t i s paid o n advice o f
payment.
Governor McDougal.
U n d e r t h e present plan, w e are re-
quired t o a w a i t r e t u m s
o f course before
w e can give credit
for it, whereas i f i t goes t o a commercial bank they can get
credit o n date o f mturity-The Chairman.
T h e o n l y difference i s t h e c o m m e r c i a l
pank g i v e s t h e m i n t e r e s t
o n the balance a n d t h e y g e t t h e
benefit o f the 2 per cent.
Governor McDougal. I
attached t o the plan a n d I
d o not s e e that there i s a n y danger
do not agree w i t h Governor Fan-
cher o n that.
Governor Fancher.
banks,
I t i s not t h e custom o f the commercial
i n accepting items payable i n some other city, t o
give t h e sending bank, i t s corresponding bank i n the country,
when t h e i t e m matures a t some far-away point, credit o n
the date i t matures, b u t they avait t h e advice o f the pay-
ing bank.
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Federal Reserve Bank of St. Louis
The Chairman.
Surely.
Governor Fancher.
Absolutely.
Governor McDougal.
I t is the custom, horever, o f the
New York banks t o collect items f o r their correspondents a n d
to place funds where t h e y want t h e m placed o n the date o f
payment.
The Chairman,
T h e custom m a y have h i g h s
since I
was
in the business, but, according t o m y understanding o f the
custom i n N e w York,
an item, a
note, a
if a
bank i n N e w Y o r k r e c e i v e s
o n deposit
plece o f commercial paper f o r collection
for a customer, a n d i t vould send that, say,
t o Buffalo, i t
would give credit I n the accounts o f its customer i n New
York o n the date when i t got advice o f payment; but should
the customer want immediate credit a n d b e entitled t o it,
which i s a credit operation a n d n o t a collection operation,
then a hold-out e n t r y was made i n the account s o heii n o
interest would b e allowed during t h e period o f three days
allowed f o r collection.
Governor McDougal. T h a t i s true.
The Chairman.
M
e a r e c e r t a i n l y a s capable
just a s good service t o any bank that deposits a
o f pivine
piece o f
commercial paper for collection, except that when we give
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Federal Reserve Bank of St. Louis
490
immediate credit before advice o f payment t h e 2 per cent
interest does n o t befin t o accrue because v e d o not allow
any interest.
Governor Calkins.
I t seems t o m e there i s oa little con-
fusion o n this matter a n d that o n e m e n i s talking about o n e
operation a n d a n o t h e r m a n a b o u t a n o t h e r o p e r a t i o n .
not d e a l i n g w i t h t h e p u b l i c
o r t h e customers
but we ere dealing with banks. A
“
e are
o f t h e bank,
bank i n Chocago sends a
maturing commercial paper t o its N e w York correspondent a n d
the N e w Y o r k c o r r e s p o n d e n t c o l l e c t s t h a t p a p e r a n d c r e d i t s
the p r o c e e d s
o n d a t e o f maturity.
The Cheivman.,. Y e s .
Governor Calkins.
< A menber bank. gives t h e Federal R e piece o f commercial p a p e r maturing
serve B a n k i n Chicago a
in Nev York, and the Federal Reserve Bank i n Chocago proposes n o w t o s e n d t h a t p a p e r
t o the Federal P e s e r v e B a n k i n
New Y o r k a n d g i v e t h e d e p o s i t i n g b a n k c r e d i t
maturity, w h i c h i s exactly comparable,
Governor McDougal.
Governor Calkins.
o n the Jate o f
o s I see a h s
“ Y e are n o t doing that now.
N o , b u t y o u a r e p r o p o s i n g that.
(Informal jJiscussion followed).
Governor “ellborn. I
would like t o make a
motion that
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Federal Reserve Bank of St. Louis
we a d o p t t h a t t o p i c a s o u r policy.
The Chairman.
O f giving credit?
Governor “‘ellborn. G i v i n g immediate credit.
(After a little informal discussion, a motion, duly seconded, t h a t n o action b e taken o n this topic was passedj b y
the Conference.)
The Chairman.
T h e next i s 5; (da).
(d) Transfer Drafts and Exchange Drafts:
Conference h e l a i n Cleveland
T h e Transit
o n June 25, 1919, recommended
that limit o n exchange drafts b e removed.
I s i t desirable
to remove t h e limit o n exchange drafts a n d discontinue t h e
use O f transfer drafts?
Has a n y one a n y discussion t o offer o n that subject?
Governor Calkins.
T h e Board h a s disapproved t h e recommen-
dation a n d thet seems t o decide t h e cnse.
The Chairmen.
“ h a t d o you propose?
Governor Calkins. I
The Chairman.
propose t h a t n o action b e taken.
“ e a r e o p v o s e d t o it. i n N e v York.
The next i s 5 (e).
5 fe), Transit Expense:
I n view o f the fact that n o
uniform method h a s been adopted o f determining transit e x -
pense, should not this segregation b e abolished?
492
Governor Calkins. I
would like t o offer a
motion i n
just those words,
The Chairman,
T h a t t h e segregation b e abolished?
Governor C a l k i n s ;
Yes.
(The motion, having been d u l y seconded, w a s carried).
is L o d e
Ae
E M
last d a y
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Federal Reserve Bank of St. Louis
493
The Chairman, T o p i c s F and G were fully discussed
while Governor Harding was i n the chair, a n d that brings u s
to T o p i c H , w h i c h v a s s u z g e s t e d
b y the Federal Reserve B a n k
of New York, a n d I want t o explain the reason for putting i t
on the progran, |
The topic i s "Discussion b y Federal Reserve B a n k o f New
York o f desirability o f curtailment o r elimination o f practice o f direct routing o f items b y member banks t o Federal
Reserve Banks i n other districts."
The history o f the situation i s this, W h e n w e expanded
the scope o f our collection service, some o f n s banks a t once
developed t h e idea that member banks might o s given t h e privi-
lege of sending items direct from their own banks to Federal
Reserve banks i n other districts, a
tion route,
short cut o f the collec-
A t the time, w e opposed i t i n New York, because
we believed t h a t i t yould result i n a very great complication
of t h e collsction system i n the course o f time, I
find o n
inquiry, however, t h a t t h e banks i n our district h a v e i n fact
been sending their letters i n some cases direct t o the Federal
Reserve B a n k o f Chicago, a n d possibly t o other Teserve banks,
The result o f that s o far h a s been f o r member banks i n other
districts t o send their letters directly t o us.
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Federal Reserve Bank of St. Louis
F o r instance,
494
We got a n enormous bundl2 o f checks t h e other d a y from the
Corn Exchange Bank o f Chicage for collection, t o credit t o
their account i n the Federal Reserve B a n k o f Chicago through
our settlement account.
develop indefinitely,
I f that practice i s permitted t o
i t means that i n the course o f time t h e
Federal Reserve Bank of New York and other reserve banks i n
proportion m a y b e receiving every d a y from five t o eight o r
possibly t e n thousand letters for ths penefit o f the short
cut, and it 7111 entail the establishment o f a tremendous department t o handle t h a t business,
are made, t h e y come i n through a
A s i t i s nov, t h e deposits
great variety o f channels
finally t o the banks o f the reserve bank city, a n d go from the
reserve b a n k t o the other reserve bank,
s o that w e receive 4
comparatively small number o f letters, limited t o the number
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Federal Reserve Bank of St. Louis
of banks i n the district i n any instances, a n d then b y that
reserve bank they are distribtited t o the w i v e r b a n k s o f
their district a n d t o the other eleven reserve banks,
Now, suppose w e opén this direct sending wide without a n y
restriction; why,
a n y bank i n the country, theoretically,
might s e n d o u t twelve letters every day, b u t every reserve
bank i n the country, theoretically, m i g h t receive t e n thousand
or m o r e l e t t e r s e v e r y d a y , a n d t h e q u e s t i o n i s , a r e w é simpli-—
fying t h e collection service o f the country o r are w e immensely
495
complicating i t b y permitting that t o develop?
They told t o m e i n New York that i f i t developed t o its
logical conclusion,
w e will have t o have a
department o f
possibly 750 o r 1,000 clerks t o handle the incoming mail from
all over the United States,
Mr, Xenzel, T h a t would b e a vary conservative estimate,
Governor McDougal,
T h e practice, I
think, h a s been s o
far confined t o thise banks which have a large volume o f items
to send,
T h e gates have never been opened t o all the banks,
and i t has not been encounaged,
O n e o f the benefits t o the
sending banksis that they can get out their day's business,
That i s an advantage t o those banks, o f course,
The Chairman, T h e y are beating y o u out o f your banking
hours b y getting the stuff directly i n the mail, which other~
wise they would deposit with you during banking hours.
Governor McDougal, A n d at the same time they are
fying the matter by relieving us of the responsibility
handling items again, which is not necessary at all,
The Chairman, Yell, that is all right,
Mr, Strauss,
I s not there t h e corresponding relief
elsewhere f o r t h e items y o u get?
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Federal Reserve Bank of St. Louis
The Chairman,
N o ; there i s not,
Governor McDougal.
T h o s e items a r e not handled i n
496
Chicago, a n d i t nia
a i e
C h i c a z o o f a certain amount o f
work,
The Chairman,
T h e point i s that i t multiplies work, b e -
Cause o f the snormous duplication o f cash letters carrying
checks,
J u s t for the purpose o f ‘illustration, there are
280,000 banks for whom " 2 collect checks i n ths United
States, a n d i f i t happened that every one o f these 380,000
banks o n @ given d a y h a d checks payable i n svary o n e o f the
twelve Federal Reserve Districts, theoretically every Federal
Reserve Bank “ould receive, when their mail arrived, 380,000
cash letters, C e r t a i n l y that i s not a
simplification o f the
collection system, T h a t i s a tremendous duplication o f it,
with a
huge increase o f work,
Governor Fancher,
the l a r g e b a n k s only,
" e have encouraged i t o n ths part o f
I t works b o t h w a y s , I
yap sued t o
notice t h e other d a y a letter f r o m t h e Corn Exchange B a n k o f
New York,
The Chairman,
T h e y are a n offender, I
Governor Fancher. I
but i t w a s «
realize that,
do not k n o h o w many hundred items,
tremendous v o l u m e o f checks,
T h e items came
Tight direct from them, a n d it did not pass throuch you at
all, a n d i t saved y o u handling those items,
how that service levels up,
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Federal Reserve Bank of St. Louis
I t i s a question
W s have s a i d t o our larger banks
497
that have a larger volume o f business, a n d that weans i n four
or five cities, "You have the privilege of sending uirect,
Meee U p @ Q4icago letter o r a
g t p Y u i s lettern, a n u taose
items d o not pass through u s at all; w e are relieved o f the
work in-our transit dspartment,
I t enables t h e bank t o clean
up its volume o f items that duy, a n d make o n e letter, a n d i t
helps that bank i n collecting those items a n d not having t h e
items h e l d over, a n d i t relisves
u s a n d y o u are relieved
i n the
same way about sending items * Boston or Pittsburg,
The Chairman,
Y o u received such a letter from the Corn
Exchange Bank of Ne» York, T h e r e s are 137 banks i n New York
City, H o w would you like to receive such a letter from evary
one o f them?
Governor Fancher,
W s receive f r o m a great m a n y o f
the Mechanics & Metals,
Governor Seay, "ould not your bank b2 compensated t o this
extent, t h a t y o u would n o t haves t o handle t h e items sent from
New York t o Boston,
o r vice versa? Y o u r transit dspartment
would certainly b e relieved f r o m handling t h e items naturally
if the banks dispatched t h a m direct,
The Chairman,
™ s are handlinz items from 1100 banks i n
our district, a n d 11 reserve banks, I
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Federal Reserve Bank of St. Louis
think there are 1126
498
banks i n our district, a n d add the 1 1 banks a n d that makes
1137 banks,
T h a t means t h a t 7 2 have succesded, u n d e r t h e
system a s orizinally planned,
i n conesntrating t h e business
of collecting checks t o 1137 correspondents, s o - t o speak, f o r
our banks, a n d correspondingly f o r a c h o f the other reserve
banke”, I f you open the door without limit t o direct sendings,
we a r e c o m p e l l e d
t o undo concentration
o f collections w h i c h
handled economically i n a transit department, a n d w e
are reversinz the old process, w e are multiplying the nutber
of cash letters probebly f r o m what t h e y were before v e established o u r c o l l e c t i o n system,
Governor V a n Zandt.
M r , Chairman, y o u d o not handle a
single i t e m i n your transit department t h a t y o u would n o t
handls i f theses items cams jirect from the Federal Reserves
Banks, y e t a l l o f those sleven Federal Reserves Banks a r e
really relieved o f that work, a n d i n addition thereto thers
is t h e s a v i n g o f o n e d a y o n seach o n s o f t h e s e i t e m s t h a t a r e
sent direct. I
open, b u t I
do not believe i n throwing t h s doors wide
d o believes that where a
bank h a s a large volume
of items going t o a reserve o r a branch reserves city, t h a t
there i s a
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Federal Reserve Bank of St. Louis
great e c o n o m y i n d i r e c t s e n d i n g ,
The Chairman, Theres is. I
admit all o f that. B u t the
499 —
point t
wake i s this, i t i s not t h e number o f items involvad.
We c a n h a n d l e those.
“ e s a r e h a n d l i n g n o w a n averag? 2 v e r y d a y
of between 350,000 and 300,000 items i n ths transit department,
The step backward that w e are taking 1 s i n the multiplication
may
in the number o f lstters a n d advices t o handl2, w h i c h
reach into t h e many thousands,
Deputy Governor Peple, U r . Chairman, thers i s another
on, T a k e t h s
phase o f ths question that h a s not been touchsd
banks
Washington business, for instance, I f the “ashington
and
would send all o f their New York items down t o Richmond,
we mailed them back up to New York, it weans an inevitable
true that
loss o f a day o n the 7hols volume, N o w , i s i t not
a n d the
mhile t h e picture t h a t y o u have drawn i s on? axtrems,
clearing of absolutely everything through Federal Ressrve
othsr extreme,
Banks regardless o f ths loss o f time i s the
point where t h e
that there i s b e trean t h e t v o some rea3onable
advantages meet? C a n n o t w e have a
system o f direct routing,
gat ths adunder reasonable restrictions, s o that w e would
the extra work
vantags where it vas worth while, and avoid
where i t was not worth thile?
Governor Calkins,
C a n you properly under the law ex~
extend i t t o another?
tend a facility t o one bank a n d refussé t o
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Federal Reserve Bank of St. Louis
509
Deputy Governor Peple.
N o , b u t y o u can, I
the facility t o reasonabl: conditions,
bank i n o u r d i s t r i c t
think, limit
" 2 s d o not a l l o a n y
t o r o u t e djirect t o a n o t h e r F e d s r a l F e =
serve b a n k o r b r a n c h + i t h o u t c o m m u n i c a t i n g w i t h u s f i r s t a n d
finding out just exactly how i t i s to be done. Now, w e could
also muke t h e condition that letters should b e sent that w a y
“hen t h e number o f items exceeded a
the amount exceeded a
cartain number,
o r when
certain amount,
Governor Seay. P r i o r t o the establishment o f our banks,
in Baltimore, f o r instance, v o u l d i t have b e s n economical o r
wise t o have given Baltimore t h e privilege o f direct routing
to N e w York, o r compel t h e n t o sena dovn t o Richmond a n d
Richmond s a n d t o N e w York?
The Chairman,
T h a t i s a very different matter,
That
is a branch reserve bank,
Govarnor Seay, I
@ res2rve - _ — s I
say, prior t o the establishment o f
a m describing a
condition which existed
then, a n d w h i c h w i l l o f c o u r s e 2 x i s t
cities,
i n certain other largs
I f y o u d o n o t g i v e t h e m t h a t direct r o u t i n g privi-
lege t h e y will clamor f o r 4 branch bank,
The Chairman, —
t
h
a
t y o u have n o business t o
say to the Corn =xchange Bank or the First National Bank o f
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Federal Reserve Bank of St. Louis
501
Roanoke,
o r t o a n y other b a n k that, becauss t h e y c a n submit
a certain state o f facts, y o u should exclude other banks
that cannot submit a s strong a case, The-~case o f the Corn
Exchange B a n k o f N e w York i s peculiar, because t h e y have
over thirty branches, a n d they handle a tremendous number
of checks, a n d they have made a peculiarly careful study o f
this, T h a t i s a n immense privilege t h a t w e a r e ziving t o
the Corn Exchange Bank, t o send these items direct, a n d I
think i t is highly objectionable that w e should pick out
certain bank that i s peculiarly benefited b y it and not give
every other b a n k ths same privilege, C a r t a i n l y ,
i f it is to
the advantage o f the Corn Exchange Bank t o send t o Chicago
or t o Cleveland direct, y o u should extend the same privilege
to any bank of the United States,
I t may be a little bit
of a concern, b u t i t saves time a n d i n proportion gets t h e
sams benefit,
Deputy Governor Psphe.
D o y o u recognize t h e difference
pstween a n item of #35 and an item of *350,0007
The Chairman, N o , I do not.
Governor Culkins,
I f you say t o A bank that "You have
one hundred items payable i n Naw York, aggregating o n e million
dollars,and therefore y o u may send them there", y o u must also
say t o B bank " I f y o u have o n e i t e m amounting t o ten dollars
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Federal Reserve Bank of St. Louis
23se fols,
SO.
502
payable i n New York, y o u may send i t there,"
Governor McDougal, I
d o not agrees with you, I
velieve
that y o u should extend t o the N e w York banks — -
The Chairman, (Interposing:) A r e you willing to extend that privilege t o all the banks o f New York, t o send
items d i r e c t
t o you?
Governor McDougal.
N o , sir; absolutely not, because
that would destroy t h e whole thing,
The Chairman,
I t would destroy our collection system,
Governor McDougal, T h a t i s a watter which w e discussed
& year o r two ago, a n d m y recollection o f i t was that wheres
it seemed advisable and whers banks had a sufficient volumes
of items, that i n the interest o f saving the Federal Reserve
banks work, which i t does, ~~~ i t saves one handling o f those
items ~ ~ - that w e would b e permitted t o extend that privilege
to that class o f banks, I
do not see any objection t o your
according that privilege, b u t d o 1 t quietly and not g o toofar,
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Federal Reserve Bank of St. Louis
503
The Chairman, I
just want t o point out this,
that
we are operating exclusively
o n the direct handling,
and
that the operation o f the gold
settlement fund has already
had the effect o f Cutting down
transit time by nearly 50
per cent i n the United
States, a n d there i s
not any real
baste f o r Complaint o n
the part o f the member
banks that
they are not being well served,
T h e y have never been
so
Well cerved a s they are
a t the present time, a n d
these
New York banks, w h o are
getting this privilege
are eimply
handed this Privilege, and
if this i a going to spread
Over the United States,
i t vill represent a n
increased
amount o f work, a n immense
volume o f work,
Mr, Strauss, C o u l d
not you Say that
you are pernitting Certain banks
t o d o you a favor?
The Chairman,
I t all depends upon
whether you are
Governor Calkins, t h i n k
that we should look: into
the subject very Closely,
as to whether we are justified
ingiving one privilege
to 9 sertain bank and
withholding
froy another one,
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Federal Reserve Bank of St. Louis
T t complicates
the situation,
1+
504
It would create a
tremendous complication i f w e arrive a t
the conelusion that w e must permit a l l banks t o d o that.
Let u a take a concrete case.
C a n Governor MeDougal
defend the proposition o f the First National B a n k o f Chicago
being given t h e p e t w i e e e a n d withholding that privilege
from the Continental National Bank?
A g a i n , out i n our
country, l e t u s s a y that w e would allow i t t o a San
Fran-
Cisco bank, allow i t t o send direct t o New York, a n d
say
to the Oakland bank there, just across the river,
that
you can not d o it, O r , w e might move o n to
the next town,
allow i t t o Oakland a n d move o n t o the
next t o w n - -
The Chairman (interposing)
ofdemarcation,
T h e r e i s no real line
I t is a fact that they can make up and
get i n t o t h e mail f o r direct collection
through the R e
serve System items that c a m e i n too
late t o deposit w i t h
us,
I t i s only one day.
T h e y also save the inter—
mediate handling ~~~
Governor O a l k i n s .
The Chairman, |
Y o u save that much.
They save that much time. A f t e r all,
they are allowed t o dispatch mail, according
t o a carefully
worked out train schedule,
b y depositing i t certain hours
of the d a y a n d sending t h e
letters direct,
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Federal Reserve Bank of St. Louis
t h e y wiil posi
505
Sibly save another day i n some Districts; and, further, I
am perfectly confident that once these oanks perfect the
System o f direct handling they will never b e aatisfied t o
send one letter a day, b u t t h e larger banks will make u p @
letter and catch a given train, a n d will keep everything
that comes i n later i n the day and send a seoond letter,
Of course that would only apply t o the larger banks, a n d
we are willing t o take our medicine o n this thing, i f it
is the policy o f the System, b u t I
d o not want t o see the
Federal Reserve collection system develop this vast amount
of work and expense until w e are prepared for it, A
few
years hence, when w e have prepared for it, all well and good,
but we are organizing departments over night new.o in the
Reserve Bank o f New York,
T h e strain «18 too great, a n d
w6 Can Not possibly get the accomodations, and the first
thing you k n o w w
e will be attempting to perform a service
that will break down,
Mr. Strauss. W i t h o u t pretending t& understand the
details, and replying to Governor ,Calkins' point, could not
‘it b e met b y having this routing made t o auit your conven—
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Federal Reserve Bank of St. Louis
lence - —
The Chairman (interposing)
I t suits our convenience
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Federal Reserve Bank of St. Louis
506
to have every bank
s e n d their items direct t o N e w York.
It does n o t suit o u r convenience t o have every bank i n
the United States -. send them direct t o us, because, in-—
stead o f having them sent direct t o u a —
Mr. Strauas (interposing)
B u t if items were cred
ited a day later y o u could afford that privilege o n the
basis o f your convenience, a n d not o n the basis o f the
discrimination i n favor o f any particular bank. |
You
neutralize i t throughout t h e United Statea i n their favor
to base i t entirely o n your convenience,
Governor Passmore.
T h e r e i s another distinct thing,
and that i s that the sending bank j s enaoled t o get
that
check home a
day Carlier, and, after all; isn't i t
boiled
down t o the specific operation o f handling several
hundred
remittances a s againsi a
The Chairman.
few luxge remittances?
« t would be thousands o f remittances.
I will undertake t o say that within six months
there
never will b e a day i n which w e would handle
less t h a n
ten thousand cash letters i n the banks o f
N e w York, a n d
and fifteen thousand or more,
Gevernor Passmore,
the phys6ical one?
B u b . isn't the only difficulty
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Federal Reserve Bank of St. Louis
The Chairman,
Governor Calking. I
ing that I
507
Y e s .
wish t o clear m y record b y say-
believe that direct routing is sound and mist
be accomplished; b u t I am ppposed t o the idea that you can
grant that privilege t o one bank and deny i t to another,
& privilege which means an increased profit to the bank
that i s receiving it.
Governor Fancher.
W h a t I
was pringdhg w p was the
matter Of direct sendings, T h a t can be regulated, and
forms can be set up where there may not b e any complication i n the accounting
The Chairman.
T h a t can be done, but you can not
organize a department and drill it and get competent people
and get the office space and the adding machines and the
stuff o f that sort, a n d make all preparations f o r develop-
ment of thia branch sending under a very long period of
time.
T h e y oould not getting the adding machines neces-
Sary f o r that department under s i x months, a n d
probably
itwould cost us about $300,000,
Governor Calkina, I
offer a motion that the subject
be deferred until the next conference.
The Chairman.
B
y that, d o you mean the discussion
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Federal Reserve Bank of St. Louis
of it or the development o f direct sending?
Gevernor Seay. B o t h ,
Gevernor Calkins. I
mean the discussion o f it.
The Chairman, P r e b a b l y the h a a tien has the privilege o f offering resolutions also.
I s that motion sécond-
6d?
(The motion was duly seconded, and was Carried unani-
nouszLy)
.
The Chairman. t
troduce a
would like t o ask somebody t o in—
resolution t o t h e effest t h a t t h e further devel-
Opuent o f this direct sending plan b e dferred
until z e
are equipped t o handle it.
Governor Calkins,
Y o u do not mean to stop what haa
been and is being done?
The Chairman.
N o ; but the going ahead with what w e
are now doing, but not to permit i t t o go further.
Governor Fanoher, I
Governor MeDougal,
offer s u c h a
resolution.
I g there absolutely n o flexi-
bility t o that a t all?
The Chairman. I
will withdraw that motion and put i t
this way: T h a t the privilege o f direct sending from any
member
Federal Reserve
t
o another Federal Reserve district, that.
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Federal Reserve Bank of St. Louis
509
it shall b e restricted t o those cases; and shall receive
the approval o f the Federal Reserve Bank t o which direct
Bending i s to be sent.
Governor Fancher.
T h a t has been our policy i n all
ap.
The Chairman.
I t ia understood that the resolution
means that n o privilege o f direct sending shall b e given b y
the Federal Reserve Bank t o one of its member banks
a s
it gets the consent o f the Federal Reserve Bank t o ehich
the direct sending i s being sent. :
( The motion w a s duly seconded a n d Carried b y unani-
mous vote,)
Governor Calkins. I
move that n o action shall be
taken regarding topic 5, suddiviseion (4).
The Chairman.
Y o u mean that w e do not discuss it?
Governor Calkina, Y e s .
The Chairman,
I
a
s that seconded?
The question i s that w e shall not consider topic
(1),
( The motion was duly seconded and carried b y unani-
mous vote.)
Governor Van Zandt.
M
y inquiry under item 8 has
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Federal Reserve Bank of St. Louis
510
never y e t b e e n replied to.
Y o u said that y o u would reply
to it, Mr. Chairman.
My question was that the Federal Reserve Board has
ruled that we:were required t o accept f o r collection bills
of lading drafts w h e n they were sent t o u s b y our o w n menbers o r b y other Federal Reserve Banks.
that 1 ask, i s as to whether or not,
M
y question,
i f a member i n an~
other District sends direct t o a Federal Reserve Bank a
bill o f lading item, for the account o f its Federal Reserve
Bank, t h a t c a n b e considered a s deing received f r o m the
other Federal Reserve Bank,
The Chairman.
of your inquiry?
G o v e r n o r V a n Zandt, w h a t i s the p o n t
D
o you want t o know whether that would
apply -Governor Van Zandt. W h e t h e r that c a n v e considered
as meshing the o t h e r members' views.
The Chairman.
W o u l d this mean, w o u l d the interpreta-
tion o f i t mean, t h a t y o u would like t o have your memoer
danke s e n d c o t t o n d r a f t s
t o t h e Federal Reserve B a n k i n N e w
York for the credit o f the Federal Reserve Bank a t Dallas?
Governor Van Zandt, N o , it would not produce the
Same result.
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Federal Reserve Bank of St. Louis
511
If they send a cotton draft t o New York, they have already
a draft i n the mail againat i t .
T h e question arises b y
reason o f the fact that a bank i n Saint Louia sent u s drafts
en banks i n our District, stating that t h e y were f o r the
account o f the Federal Reserve Bank o f Saint Louis,
W e
collected those items for a while, but w e discontinued i t
pending the decigion of the Federal Reserve Board, of some
kind, t o the effect that they were i n Chicago receiving that
item from the Federal Reserve Banz of &t, Louis.
The Chairman. D o e a not this question really involve the question of direct routing?
Governor Van Zandt.
Mr, Strauss.
I
I
t i s a question o f law,
a not the same question involved i n
question o f direct routing?
Governor Van Zandt,
N e , y o u can receive checka from
member banks i n other districts —
The Chairman.
I t i s really a
queation a s t o the lia-
bility of the collection agent, i s it not?
Governor V a n Zandt.
N o ; i t i s a question o f the
interpretation of that part of the Federal Reserve Act
which permits a Federal Reserve Bank t o collect bills o f
lading items t o b e paid -~ i t e m s from its own member banks
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Federal Reserve Bank of St. Louis
bie
and from other Federal Reserve Banks, but not from other
banks outside o f the District.
The Chairman. I
remember the case.
T h e y may receive
from their own member banks and other Federal Reserve
Banks
drafts,
e t cetera —
Governor Van Zandt.
Mr. Strause.
I
Y e s , sir.
t i s not a question o f compulsion,
but whether you desire t o d o it.
The Chairman.
I t i s a question o f law, a n d I suggest
that i t b e referred t o the counsel.
Governor Van Zandt. I
am bringing it up and am agk-
ing this body t o request a n interpretation
from the Feéeral
Reserve Board,
The Chairman.
|
A n d under those circumstances y o u
should offer a resolution?
Governor Van Zandt. I
The Chairman,
I
Governor Fancher.
so offer the resolution.
s that motion seconded?
‘ I S6cond the motion.
The Chairman, G o v e r n o r Van Zandt's reolution,
first,
4s i n the nature o f a request
o f the Federal Reserve Board
&8 t o whether documentary
proofs May b e sent direct
from a
member, f r o m abank in one District
t o a Federal Reserve
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Federal Reserve Bank of St. Louis
Bank i n another District f o r collection.
Deputy Governor Peple.
5
1
3
T h e Board has ruled o n thai.
His question was whether they cG@ld send for the account
of the Federal Reserve Bank i n its own District, whether
it came within the law.
Governor V a n Zandt.
13.
I
T h a t i s relative t o Section
t i s i n Section 1 3 somewhere.
The Chairman. I
wish you would submit that to the
Board, Governor V a n Zandt,
Governor V a n Zandt. I
i n your o w n choice language.
did, b u t I
did not get a n y
reply,
Mr. Strauss. I
d o not think y o u need a resolution.
Governor Calkins,
T h e point i s that t h e Board's
cofnsel handed down a n opinion o n two-thirds o f
the ques~
tion, but neglected the other one-third, a n d
Governor Van
Zandt would like t o have a n opinion i n
regard t o that.
Governor Van Zandt. I
suggest that the Chairman ap-
point a committees t o obtain a ruling o f the Federal
Reserve
Board, t o obtain a ruling upon that
point.
The Chairman,
D
o you make that a motion?
Governor Van Zandt.
Y e s , sir,
( The motion was duly seconded and carried,
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Federal Reserve Bank of St. Louis
514
The Chairman. W e l l , I will appoint Governor Van
Zandt a Committee o f one.
Governor McDougal.
T h e r e w a s o n e matter which came
up yesterday that I would like t o discuss a little more.
It seems now that there are one o r two plans under
consideration for the selling o f the next issue o f certificates b y the Treasury Department, b y one o f which they
may d o away with the depository privilege and fix the rate
slightly higher —
The Chairman.
D i d you get that from the Treasury
Department? )
Governor McDougal.
The Chairman, I
W e got i t here.
did not understand i t s0. G o v e r -
nor Harding said that h e had not disoussed i t with the
Treasury Department.
Governor MoDougal.
T h a t i s the suggestion that I am
discussing now, Governor Harding's suggestion, a n d I ask
whether o r not w e could sell those certificates i f the in-
terest rate was increased a little, and mové of the Governore thought that they could.
I t seems t o me it would
be a mistake t o do away with the depository plan atthe
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Federal Reserve Bank of St. Louis
515
present time.
I
t has b e e n the beat p l a n that w e have
had in selling certificates, and I do not know whether
it waa really brought out or not. I
should be in favor
myself o f continuing the depository privilege until w e
get away w i t h the next issue, a n d probably t h e succeed—
ing one. I
want t o know i f there i a any information o n
that subject.
I think that a 4-1/4 per cent rate
, » With a depos-
it privilege w o u l d b e more advantageous t h a n a 5-1/3 per
cent interest rate without the privilege.
The Chairman.
W e diacuseed that a t great length
t h e Treasury
yesterday, a n d the only question w a s whether
would b e willing t o f i x a rate o n the short certificates
which would appeal t o the public, a o that the banks would
not have t o take them, b u t would b e the medium o f disnot b e
tributing them, where t h e deposit. accounts w o u l d
too strong.
Mr. Strauss.
T h e plan that Governor Harding referred
the
to has not been given any serious consideration b y
that i t
Treasury and I do not believe for one instant
would be adopted.
The Chairman.
N e i t h e r d o I,
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Federal Reserve Bank of St. Louis
:
Governor McDougal.
5
1
6
I f there isa no further business.
I move w e adjourned.
(The motiou was duly seconded, and the conference
adjourned at 1:55 p. m., Friday, November 31, 1919.)
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Federal Reserve Bank of St. Louis