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Federal Reserve Bank of St. Louis
A CONFERENCE O F GOVERNORS O F THE FEDERAL RESERVE BANKS
Washircten,
D . C.
November 2 , 5 , 1927,
Vester So, -bex,
Washineton,
D y Cys
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Federal Reserve Bank of St. Louis
A CONFERENCE O F GOVERNORS O F THE FEDERAL RESERVE BANKS,
Washington, D . C.,
Wednesday, November 2 , 1927.
The Conference o f Governors o f the Federal Reserve
Banks convened i n the Hearing R o o m o f the Federal R e serve B o a r d , T r e a s u r y Building, W a s h i n g t o n ,
D . C.,
on
Wednesday, November 2 , 1927, a t 1 0 o'clock a.m.
APPEARANCES:
W. P. G. Harding, Governor o f the Federal Reserve B a n k o f Boston;
Benjamin Strong (Chairman), Governor o f the
Federal R e s e r v e B a n k o f 'New York;
Geo. W. Norris, Gevernor o f the Federal R e serve B a n k o f Philadelphia;
E. R. Fancher, Governor o f the Federal Reserve
Bank o f Cleveland;
Geo. J, Seay, Governor o f the Federal Reserve
Bank o f Richmond;
M. B . Wellboarn, Governor o f the Federal Reserve
Bank o f Atlanta;
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Federal Reserve Bank of St. Louis
2
James B . McDougal, Geverner o f the Federal
Reserve B a n k o f Chicago;
David C. Biggs, Governor o f the Federal Reserve B a n k o f St.Louis;
. B . Geery, Governor o f the Federal Reserve
Benk o f Minneapolis;
W. d . Bailey, Governor c f the Federal Reserve
Bank o f Kansas C i t y ;
Lynn P. Talley, G o v e r n a
o f the Pederal Re-
serve B a n k o f Dallas:
Wm. A . Day, Senior Deputy Governor o f the
Federal R e s e r v e B a n k o f S a n Francisco;
G. L. Harrison, D e p u t y Governor a f the Federal
Reserve B a n k o f N e w York,
a g d Secretary
t o the Conference
of G o v e r n o r s .
C
The Chairman,
please. I
e
e ee
e
e
T h e meeting will come t o order,
will a s k Mr. Harrison,
a s the first order o f
business, n o t o n the program, t o read a letter which I
have just reeeived f r o m S a n Francisao.
Mrs Harrison, (reading);
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Federal Reserve Bank of St. Louis
"Wy dear Governor Strong:
"I very greatly regret that I am tucapacitated
and shall not b e i n condition t e attend t h e conference, N o v e m b e r e d .
"Te b a n k will,, therefore,
b e represented
by
Mr. Wm. A . Day, Senior Deputy Governor, a n d I trust
thet y o u will treat h i m with a greater degree o f
tenderness t h a n I
c a n e x p e c t f o r myself,
a s well as.
extend t o him a n y usual courtesies c f the conference.
"Please present m y greetings t o all those attending, a n d express m y regret t h a t ¢
shell n o t b e
able t o s e e t h e m o n this occesicn.
"Yours very truly,
"Jno. U. Calkins,
"Governor."
The Chairman yesterday, a f t e r receiving this letter,
dispatched t h e following telegram:
"Many thanks fer your letter just reecived.
W e
promise t o treat D a y tenderly o u t o f consideration
for y o u r t e n d e r f e e t a n d a l l h e a r t i l y j o i n i n r e grets a t y o u r a b s e n c e a n d w i s h e s f o r a
speedy a n d
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Federal Reserve Bank of St. Louis
complete recovery."
The Chairman.
I f there {fs n o objecticn, t h e action
of the Chairmen i s approved.
Governor Bailey. I
so move.
The Chairman. Y o u see what i s ahead o f yeu, Mr.Day.
The Open Market Committee yesterday h a d a meeting
which t o o k the entire d a y and considered certain memoranda
that were submitted a s a preliminary statement u p o n which
the c o m m i t t e e b a s e d a
report a n d r e c o m m e n d a t i o n
as to
policy a n d pregram f o r the next f e w months, a n d I
am
going t o ask the secretary t o distribute t h e memoranda
and urge that t h e members o f the Conference w h e have n o t
had opportunity t o read i t study i t i f it is pessible
just a s secon as possible.
(The Secretary distributed the memoranda referred to.)
The Chairman (continuing). I
weuld also like t o an-
nounce that t h e Federal Reserve Board h a s arranged a meete
ing o f the Open Market Committee i n this r o o m I believe,
at 1 1 o'clock,
a n d that meeting will likely last a n
hour o r a n hour a n d a half, a n d then o u r Conference
can reconvene.
T o p i c s Ne. I
A, B
and C
o n the program,
which a p e t h e u s u a l o n e s t h a t a p p e a r a t t h e t o v o f e a c h
program, a l l more o r less relate t e the discussion that
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Federal Reserve Bank of St. Louis
2
will ensue upon t h e report o f the O p e n Harket Committee,
I suggest t h a t w e defer consideration o f these three
topics until after t h e meeting o f the Open Market Com.
mittee w i t h t h e F e d e r a l R e s e r v e Beard.
objection?
T h e r e being n e objection,
I s there a n y
w e will proceed
to Topic I-D:
I. D. Advisability o f requiring member
bank o f f e r i n g f o r r e d i s c o u n t p a p e r o f
Corporations having subsidiaries t o
have i n i t s f i l e s r e c e n t C o p i e s
of
separate financial statements o f the
subsidiary corporations, w h e n there
have been filed with Federal Reserve
Banks copies o f the ecerporation's
consolidated financial statement a n d
the individual financial statements
of all subsidiary corporations.
The Chairman (continuing). This topic was suggested
by the Federal Reserve Board, but I think arose i n cornection w i t h a n inquiry made b y a Federal Reserve Banik.
Will t h e guilty party diselose w h o made that inquiry?
Governar Geery. I
a m guilty.
The Chairman, M r . G e r r y o f Minneapolis. W i l l y o u
state t h e q u e s t i o n t h a t t h e C o n f e r e n c e
Goevefnor,Geery.
i s t o ccnsider?
T h e question c a m e u p originally
on the paper o f the Washburn-Croesby Company o f MinneapoBiss
T h e y furnish a consnlidated statement a n d
have eight subsidiary cerporations, n o n e o f whieh a s k
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Federal Reserve Bank of St. Louis
6
any ercdit whatever f r o m the public aside f r o m what
little t h e y m a y n e e d i n t h e w a y o f rental, l e a s e a n d
stationery p u r c h a s e s a n d t h a t s o r t o f thing, a n d t h e y
furnish u s a n d a l l the other Federal Reserve Banks w i t h
individual statements o f all these companies, t h e individual statement o f the Washburn-Crosby Company a n d the
ecnsolidated statement, b u t t h e y cbject t o furnishing a l l
of t h e s e s t a t e m e n t s
may b u y t h e i r paper.
their brokers,
t o e v e r y Tom, D i c k a n d H a r r y t h a t
I n fact, t h e y d i d n e t g i v e i t t o
a n d w e h a v e a l w a y s t a k e n t h e paper,
and
I find that Chicago d i d a n d Cleveland did, under those
circumstances.
T h o s e were t h e only t w o benks I
and the o n l y one that I
asked,
feund c u t that d i d not was N e w
York.
n. T h e n w e are t h e other guilty party.
Our p o s i t i o n i s , briefly, t h i s , t h a t w e b e l i e v e t h a t i f
the regulation a s i t now stands i s enforced, t h a t t h e
¢oncerns w h i c h h a v e s u b s i d i e r i e s
a n d wish t o g e inte t h e
market w i t h their paper, w i l l i n fact furnish t h e statements t o their banks, t h a t is, t o the member banks w i t h
which they keep their accounts, a n d i f they a r e furnished
to these panks a n d those banks furnish t h e m t o us, t h a t
would satisfy .the situation a s t o the paper t h e y sell
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Federal Reserve Bank of St. Louis
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on t h e maricet.
O n t h e o t h e r hard, t h e y a r e unwillizeg
to furnish statements, b u t wish t o make paper, whether
it i s commercial paper that sells i m the o p e n market
or a
paper t h a t g o e s d i r e c t l y t o t h e banks,
w e feel that
we are t o some extent passing o n the credit o f that concerx for t h e benefit o f the member b a n k o r the broker,
or the beste Auge t h e paper f r o m t h e broker, a n d w e are
sharing i n e less degree, but nevertheless that i s the
position w e would b e i n o f passing e n the credit o f a
statement from makers o f paper generally i n order t o make
them eligible, even though their banks d o not receive
that s t a t e m e n t .
W
e have a
case
o f that sort t h a t
has b e e n u p repeatedly i n New York, a n d that i s McFadden
in Philadelphia. I
story very fully.
think G o v e r n o r N o r r i s k n o w s t h a t
T h e y sought t o file a
copy o f their
statement w i t h t h e F e d e r a l R e s e r v e B a n k o f N e w Y o r k i n
order that w e might take their paper, even though that
statement w a s n o t o n file w i t h the member bank.
Governor Norris.
M s y I interrupt y o u there t o s a y
that t h e y d o n o t s e l l o r i n d o r s e a n y c o m m e r c i a l paper.
The Chairman. N o , but I
a m using that a s a n extreme
illustration o f a case where t h e y could s a y t o their b a n k
"To be sure, w e did net furnish a statement o f our affairs,
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Federal Reserve Bank of St. Louis
8
but i t i s o n file i n the Federal Reserve Bank, a n d t h e
Federal R e s e r v e Banke w i l l t a k e t h i s p a p e r f r o m
you,"
and then the member bank will say, “Of course, i f the
Federal Reserve B a n k will take 1¢, thet i s all right."
To a less degree that i s true o f such a gase a s t h e
Washburn-Crosby Company;
York.
W
a t ieast,
w e feel s o i n New
e have drawn o f f a list o f the concerns o f
like
character t o the Washburn-Crosby Company which, because
of the regulation, h a v e filed t h e subsidiary statement
with t h e i r b a n k s
o r w i t h t h e vro,ers.
the s t a t e m e n t h a s c o m e t o u s f r o m a
bly h a s t h e a c c o u n t
I n every instance
bank w h i c h presuma-
o f t h e m a k e r o f t h e paper.
it when w e sit tight o n the regulation.
T h e y do
T h e question
1s whether i t i s well t o begin t o make exceptions a n d
whether w e can d o i t and nevertheless m a k e i t effective.
Governor Faneher.
D o I understand, M r , Chairman,
in your preliminary statement that paper o f a eancern
that was sold i n the market, i f this statement was furnished t o the banks w i t h whom they earried their depositary
account, t h a t that might suffiee,
o r d o you g o s o far a s
to make i t a requirement o r think i t should b e a requirement i n the regulation that t h e bank buying t h e note o f
such a concern for $5,000 o r $10,000 should i n turm have
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Federal Reserve Bank of St. Louis
all those ststements?
The Chairman.
I f a n y bank offering paper o f the
Washburn-Crosby Company should come t o u s with a state-
ment i n the form the regulation requires, that would an»swer t h e purpose f o r t h e bank, whether i t came f r o m the
bank i n which they kept their account o r a bank that
bought i t from brokers, a n d all they have t o d o 41s for
the Washburn-Crosby Company t o file a complete statement
in accordance with the regulation.
Governor Fancher. A
complete statement o f the parent
company a n d the subsidiaries?
The Chairman. Yes, a n d that clears them.
Governor Fancher.
from a broker,
S o that e a c h bank buying that note
i t would b e incumbent o n that b a n k t o say
that i t h a d the statements pefere t h e paper w a s accepted,
or 1 t would n o t b e i n a position t o discount t h e paper?
Governor Bailey.
Suppose a
country b a n k sends i n a
$5,000 note o f the Washington-Crosby Company that they
have bought from a broker, t o our bank, a n d w e have the
Washburn-Crosby reports, both the subsidiaries a n d the
original, a n d this 1 s a solvent bank that sends i t t o us,
have t h e y g o t t o send i n this report?
The Chairman.
o u r procedure i n New York would b e
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Federal Reserve Bank of St. Louis
10
this, a n d Mr. Harrison will correct m e i f I a m not right,
that t h e Washburn-Crosby Company probably have a n account
in New York?
Governor Geery.
The Chairman.
W i t h t h e Chese National Bank.
I f the regulation w a s complied with
it would b e met b y the Chase o r the N e w York Trust Conpawy filing a statement, a n d when that paper c a m e i n from
would g o before t h e committee a n d they would
We d o n o t r e q u i r e t h e s t a t e m e n t w i t h e v e r y
piece o f paper that comes in.
Governor Bailey. T h a t i s what I mean.
Governor Fancher.
Y o u a s k that t h e paper f r o m t h e
offoring bank i f they have a statement o n file?
The Chairman. YoSGevernor Fancher.
D
e y o u pursue t h a t t o the point
where that i s simply t h e consolidated statement,
o r state-
ments o f all o f the subsidtlarics?
The Chairman.
W e always d o .
Governor Fancher. I n other words, y o u ascertain what
of a statement t h e y have got?
The Chairman.
Yes.
T h e y merely certify--
Governor Fancher (interposing).
statement?
T h a t t h e y have a
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Federal Reserve Bank of St. Louis
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The Chairman. That they have a statement.
Governor Fancher.
D o y o u pursue that t o a point
where t h e y have simply got t h e consolidated statement o r
the consolidated statement a n d t h e statements o f the subsidiaries?
The Chairman.
N o .
T h e n it is a
question c f whether
we have g o t i t from some other bank.
Governor Fancher.
A n d the offering bank certifies
that t h e y h a v e t h e statement,
a n d y o u a c c e p t t h a t “ o n the
assumption that t h e y have g o t t h e statement t h a t y o u have
got?
The Chairman.
W e are n o t passing o n the credit f o r
them.
Governor Bailey.
burn-Crosby s t a t e m e n t
B u t y o u originally have t h e Washi n the N e w York Bank?
The Chairman. Y e s .
comes
T h e r e i s some o f this paper t h a t
i n e v e r y d a y almost.
Governor Bailey. I
am thinking about our situation,
where t h e Washburn-Crosby Company has n o t got a n y account
in Kansas City, a n d a member b a n k buys a
piece o f paper
from a broker a n d sends i t i n for rediscount.
W e think
it i s good, a n d have w e got t e call o n the member bani
that s e n d s
i n t h a t {$5,000 n o t e t o f u r n i s h u s i t s s t a t e m e n t
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Federal Reserve Bank of St. Louis
in every case?
The Chairman. I
do not know h o w itt i s done now, b u t
the w a y w e used t o d o it, t h e Reserve banks exchanged i n formation about paper i n their respective districts, a n d
there 1 s a resolution o n file o f the Governors! Conferencé, w h e r e p a p e r w h i c h o r i g i n a t e s
i n another district,
and i s distinctively paper o f that district a n d i s offered
in o u r district,
w e telegraph t h e other Reserve b a n k a n d
get t h e statement f r o m them. T h a t used t e b e done.
Governor McDougal.
D e e s t h e Washburn-Crosby Company
file their complete statement w i t h their depositary banks?
Governor Geery. T h e y have n o t this year.
Governor McDougal,
T h a t i s the o n l y weakness i n that
case?
Governor Geery.
3°
J u s t look a t this a n d see h o w b i g a
2 0 46.
Governor McDougal. I
know what i t is, a n d i t would
be useless i n the hands o f most banks, anyhow.
Y o u know
that.
Governor Geery. Yes, sir.
Governor iicDougal.
a suggestion,
M r . Chairman, I
i f I may. I
would like t o make
think this whole matter c a n b e
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Federal Reserve Bank of St. Louis
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dealt w i t h s a t i s f a c t o r i l y a l o n g t h e l i n e s y o u h a v e r e c ommended,
a n d here i s a
memorandum t h a t w e prepared r e -
lating t o the subject, t h a t t h e matter c a n b e satisfactorily dealt with through t h e adoption o f the recommendation made b y the Advisory Council i n September, w i t h a
slight modification, t h e Council's recommendation being
that s u c h companies should b e required t a file with their
banks o f deposit a
statement
consolidated statement a n d a detailed
o f a l l subsidtiaries. I
consideration
would s u g g e s t f o r t h e
o f the Conference t h a t w e adopt t h a t a s o u r
procedure with one slight modification, and that is, instead o f saying "banks o f deposit,” s a y "principal banks
ofdeposit," and I think that would take care of brokers!
paper a l o n g t h e l i n e s w h i c h y o u s t a t e d w o u l d b e satisfact-
ory, a n d i t would place i n the hands o f the principal d e positary b a n k s w h a t t h e y d o n o t g e t n o w f r o m s o m e c o r p o r a -
tions.
Governor Fancher.
D o y o u think that would take care
of the broker situation?
Governor MeDougal. I
the broker situation.
think t h a t w o u l d t a k e c a r e o f
I t i s quite i n accord with
Governor S t r o n g ' s n
w
o recommendation.
The Chairman.
M r . Harrison h a s t h e record
o f that
meeting a n d t h e action taken i n the Advisory Council.
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Federal Reserve Bank of St. Louis
14
Weuld y o u report that, please, M r . Harrison?
Governor Seay.
T h e danger which y o u have i n mind
is not a n imaginary one.
I
t i s a real one.
T h e
Federal reserve banks should n o t c o n s e n t ‘
t
o be placed
in t h e p o s i t i o n w h e r e t h e y w o u l d b e c o n s t r u e d
b y their
member banks t h a t t h e y passed u p o n t h e credit o f these
people.
The Chairman. T h a t i s the thought.
Mr. Harrison. L a s t September
a t the meeting o f the
Advisory Council, t h e question h a d been raised whether
something ought n o t t o b e done t o alleviate this condition, especially a s the Advisory Council s a i d that this
requirement o f the Board was resulting i n a decreasing
supply o f eligible: c o m m e r c i a l paper.
A f t e r considera-
tion b y the meeting, t h i s action was taken:
"Attention has also been called t o the Federal
Advisory C o u n c i l t h a t t h e v a r i o u s F e d e r a l r e s e r v e
banks h a v e d i f f e r e n t p r a c t i c e s a n d r e q u i r e m e n t s
to t h e f o r m a n d c h a r a c t e r
filed b y the companies.
o f the statement
as
t o be
T h e Federal Advisory Council
believes t h a t t h e r e q u i r e m e n t s
a s t o statements
should b e standardized, a n d that companies having
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Federal Reserve Bank of St. Louis
15
one o r m o r e s u b s i d i a r i e s s h o u l d b e r e q u i r e d
to
file with the banks o f deposit a consolidated
statement a n d a detailed statement o f all their
subsidiaries."
That action o f the Federal Advisory Council w a s discussed i n the record over a
period o f some t e n pages, a n d
at the conclusion, while n o definite action was taken b y
the Council, G o v e r n o r S e a y , I
think i t was, s u m m a r i z e d t h e
discussion b y saying:
"The g e n e r a l o p i n i o n i s t h a t t h e r e g u l a t i o n
of the Board should b e complied with."
That was apparently the consensus o f view o f the
Council a t that time. W h e n I reported the discussion t o
the Federal Reserve Board, I
did not indicate t h a t a n y
action h a d been taken, because a s a matter o f fact none
had expressly been taken a n d there was n o vote. E v i d e n t l y ,
in view o f the fact that t h e Conference d i d not formally
vote o n compliance w i t h the Board's regulation, t h e matter
has b e e n referred back t o us; b u t there i s n o doubt,
in
reading these t e n pages o f the stenographic record, t h a t
this case was precisely t h e same a s the o n e n o w under discussion,
a n d s o considered
b y t h e Conference,
a n d the
feeling was that the regulations o f the Board should b e
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Federal Reserve Bank of St. Louis
16
complied with a n d that i n all cases-<not j u s t i n New
York, a s has b e e n t h e practice, b u t i n all cases==the
statemesats o f the borrowers a n d i n d i v i d u a l statements
of the subsidiaries should b e o n file with t h e member
bank a n d not merely with t h e Federal Reserve Bank.
Governor McDougal. I f you take that literally, that
g e t
e e t h a t every bank offering a paper purchased
from a broker would have t o have t h e statement.
Mr. Harrison. I
think that i s a perfectly accurate
construction o f the present regulation o f the Board,
The Chairman. I
d o not t h i n k that i s what w e ag, < — f
think w e accept t h a t l e t t e r S
i n the application f o r m a g
indicating that a statement i s o n file with the offering
member bank, w h i c h i s satisfactory t o that bank, a n d then
we turn t o i t i n our credit files t o see whether t h e statement o n file with u s i s satisfactery t o us.
Governor Fancher.
A n d which has come t o y o u from a
member bank?
The Chairman. Yes; b u t I
do not think w e checked that
back.
Mr. Harrison. I
think i t i s perfectly true that w e
do not check back the meaning o r the significance o f the
letter S
i n the application, b u t i n every case where w e
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Federal Reserve Bank of St. Louis
L?
have specifically asked t h e question, w h e r e w e have a p y
information contrary,
w e expect t h e m t o have a consoli-
dated statement a n d also separate statements o f the subsidiaries,
Governor Bailey. T h a t would revolutionize t h e
buying o f commercial p a p e r b y c o u n t r y banks.
Governor Fancher.
I s i t necessary f o r t h e concern
making t h e paper t o furnish a statement o f the parent
company a n d t h e subsidiaries,
a n d i n addition t o that
furnish i t t o t h e p u r c h a s i n g b a n k i f t h e b a n k e x p e c t s
to rediscount t h a t with t h e Federal Reserve Bank?
The Chairman. T h e actual practice, I
think, i s this,
that when t h e member b a n k sends i n the application f o r m
with the letter S$ on it, i t is assumed that the statement
held b y that member b a n k i s i n conformity w i t h the Board's
regulation, whether i t is o r not, a n d the responsibility
rests u p o n t h e m e m b e r b a n k s t o h a v e t h e s t a t e m e n t
form required b y the regulations.
i n the
W e cannot check u p
every transaction t o see that t h e y have.
Governor Fancher.
The Chairman.
W e d o not attempt to.
Q u r responsibility
i s t o see that a
member bank has given us a statement which complies with
the regulation,
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Federal Reserve Bank of St. Louis
Governor Fancher.
The Chairman.
T h a t i s the point,
B u t w e d o not require statements f r o m
the member bank.
Gavernor Geery.
M y recollection i s that t h e regula-
tion o f the Board requires t h a t bankers! acceptances,
to
be eligible f o r purchase, t h e Federal Reserve B a n k pur-~
chasing most hévthe statement o f the acceptor showing
a s a t i s f a c t o r y condition,
strength o f J. P.Morgan &
a n d y e t w e b u y paper
o n the
Company having furnished y o u
with a statement.
The Chairman.
O f course, t h e y are n o t member banks.
Governor Geery.
N o , b u t i f the First National B a n k
of Minneapolis h a s some J . P. Morgan acceptances w h i c h
they wish t o indorse--
The Chairman (interposing).
history behind that.
W e l l , there i s a long
I n the early days these b i g bank-
ers never made a statement t o anybody i n the world, n o t
even t o their o w n banks.
T h e y never borrowed o n their
paper without collateral, a n d w e had a special rule o f
the Board which permitteg t h e Federal Raeserve B a n k o f
New Y o r k t o p u r c h a s e a c c e p t a n c e s
o f private bankers u p o n
the f a i t h o f a n o r a l s t a t e m e n t m a d e t o t h e C h a i r m a n
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Federal Reserve Bank of St. Louis
19
and Governor,
Now,
by &
a n d t h a t w a s t h e p r a c t i c e f o r s o m e years.
gradual p r o c e s s
o f inching
o n them,
w e have
finally g o t written statements, a n d n o bill tis purchased
by t h e F e d e r a l R e s e r v e B a n k i n N e w Y o r k t h e t i s n o t b a s e d
upon consideration o f a written statement, w h i c h i s i n a
special b o x accessible t o only two o r three officers o f
the bank, a n d t h a t w r i t t e n statement,
as a
rule, w h e n i t
is filed with us, i s handed t o the Governor o r Chairman,
or both,
b y a partner
i n t h e firm, a n d t h e n w e a s k several]
questions about t h e statement, a n d anything material i s
dealt with i n a little separate memorandum that the officer
makes,
a n d except w e could handle t h e matter
i n that w a y
we w o u l d g e t t h e statements.
Governor Fancher. Isn't i t a fect that, with the
exception o f J. P. Morgan & Company, a l l o f the private
banking concerns whose paper i s accepted, h a v e stixtements o n file with the other banks?
The Chairman. T h a t m a y be.
Governor Fancher,
Tne Chairman. I
I t i s a n o u t s t a n d i n g exception.
doe not know what t o d o about that.
Gentlemen, t h e Board i s waiting f o r me.
(Whereupon, oat 1 1 o'clock a.m., a
recess w a s taken
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Federal Reserve Bank of St. Louis
20
until 1.49 p.m., w h e n t h e following occurred) :
The Chairman. Gentlemen, suppose w e adjourn f o r
lunch n o w a n d return a t 2 olclock sherp.
isfactory? T h e r e being n o objection,
I s that sat-«
w e will adjourn
until & o'clock.
(Whereupon,
until 2
a t 12.50 p . m , a
re
otclock p.m.)
AFTER RECESS.
The C o n f e r e n c e w a s r e s u m e d a t 2
o'clock pem.,
a t the
expiration o f the recess,
The Chairman.
W e were discussing the question o f
the statements o f subsidiaries, before t h e interruption
of t h e o t h e r meeting,
and I
think Mr. G e e r y w a s f i n i s h -
ing h i s statement.
Governor Geery.
N o .
I t w a s s u g g e s t e d t h a t t o furn-
ish those statements t o the member banks a n d they furnish
them i n turn t o the Federal reserve bank, t h a t would
cover t h e whole situation.
H e does n o t want t o have t o
furnish them t o every Tom, D i c k a n d Harry.
Governor Bailey.
H o w would a
broker h a n d l e t h a t ?
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Federal Reserve Bank of St. Louis
ve
Would h e have a
lot o f them made a n d furnish o n e every
time h e sent a note t o the Federal Reserve B a n k f o r discount?
Governor Gerry.
No, I
do not think that would b e
required, provided the depositary banks did and the
Federal Reserve B a n k h a d i t from them.
The Chairman. O f course, there i s that point that i f
we check u p every bank that offers paper’. t o u s t o see
that t h e regulations a r e literally complied with i n every
particular, y o u will find some banks that have n o t statements o f the subsidiaries. I
do not think w e d o i t t o
that extent i n New York.
Governor Bailey.
I f w e had t h e reports o f the subsidiar-
jes, couldn't w e copy t h e reports a n d furnish them?
Governor McDougal.
Y o u would have a hard job i n
copying it.
The Chairman. Governor Harding, h o w does i t strike
you, t h i s q u e s t i o n ?
Y o u have that question u p i n New
England, with the mills subsidiaries.
Governor Harding.
M y idea i s that i t i s a goad deal
more important t o get paper that i s going t o be paid,
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Federal Reserve Bank of St. Louis
oe
butII c a n see from t h e standpoint o f these concerns
that have subsidiaries t h a t t h e y might have v e r y good
grounds f o r objecting t o having these statements scattered around i n the hands o f a miscellaneous l o t o f
bankers a n d brokers.
I t might p u t t h e m i n bad from a
competitive standpoint. I
also a p p r e c i a t e t h e p o i n t
that t h e F e d e r a l R e s e r v e B a n k d o e s n o t w a n t t o p u t i t -
self i n the position o f passing o n the credit o f a member
bank.
B u t i t seems t o m e that a l l o f the requirements
of the situation would b e met i f the corporation depeositell
with i t s p r i n e i p a l . d e p o s i t o r s a
then w
h
consolidated statement,
e : nybroker's
n: a
paper came i n and they wanted ‘to
check that paper up, t h e y would d o a s they d o now a n d
write t o their correspondents:
" W h a t d o y o u know about
this paper?” T h e n let the corporation deposit with the
Federal r e s e r v e b a n k o f i t s district,
w i t h t h e understand-
ing that copies will b e sent t o all other Federal reserve
banks, t h e consolidated statement a n d t h e statement o f the
subsidiary.
N i n e t y nine times o u t o f a
hundred a
bank
extending credit t o a corporation gets a l l t h e information
it wants f r o m t h e consolidated statement,
and I
i n m y judgment,
think t h a t w o u l d m e e t a l l o f t h e requireménts.
L e t
the F e d e r a l R e s e r v e B a n k h a v e t h e c o n s o l i d a t e d s t a t e m e n t
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Federal Reserve Bank of St. Louis
23
and t h e s t a t e m e n t s
o f t h e subsidiaries,
principal d e p o s i t a r y b a n k s
a n d let the
o f the corporation h a v e t h e
consolidated statement.
Governor Geery.
B u t not t h e subsidiaries?
Governor Harding. N o , sir.
Gevernor Fancher.
T h a t seems
t o be a
point w h i c h
the d e p o s i t a r y b a n k s a r e raising, t h a t t h e c o r p o r a t i o n s
furnish t h e i r s t a t e m e n t s
furnish t h e statements
t o t h e Federal teserve banks a n d
o f t h e subsidiary corporations,
simply t h e c o n s o l i d a t e d s t a t e m e n t
i n s o m e cases,
and
a n d the
bank would like t o have t h e subsidiaries! statements a n d
sometimes t h e y get i t and sometimes t h e y d o not g e t it,
and I think the depositary bank would like t o have all
that i s furnish ° ‘ the Federal reserve bank. I
think that
is a point that these b i g corporations make, t h a t t h e y
furnished t h e consolidated statement t o the Federal reserve
bank a n d the statement o f the subsidiaries, a n d have o n l y
given t h e depositary b a n k the consolidated statement.
Governor Harding.
to give a
I
f y o u require t h e corporations
detailed statement t o two o r three o f the larger
depositary banks, t h e other banks h a v e t h e same right t o
ask f o r i t , b u t y o u c o m e r i g h t b a c k t o t h e s a m e p r o p o -
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Federal Reserve Bank of St. Louis
24
sition, t h a t t h e y h a v e t o g i v e t h e i r w h o l e b u s i n e s s
to
the public.
Governor Geery. G o v e r n o r Harding's statement i s
just what t h e Washburn-Crosby Company has b e e n doing.
They furnish t h e depositary b a n k with the consolidated
statement a n d the Federal reserve bank with both.
Governor Fancher.
A n d y o u find i n some cases t h a t
the depositary b a n k would like t o have t h e subsidiary
statements?
Governor Harding.
T h e depositary b a n k c a n get what
they w a n t b y a s k i n g s o m e p o l i t e questions.
T h e y c a n say,
"We have g o t your consolidated statement a n d w e would
like t o know something i n addition.”
Governor Seay.
I t seems t o me, Mr. Chairman, t h a t
the regulation a s i t stands i s a good o n e a n the side
of s a f e t y a n d f o r t h e p r o t e c t i o n o f t h e F e d e r a l r e s e r v e
bank.
I t also seems t o m e that i f these corporations d e -
sire t o float their paper i n the country generally, t h a t
at l e a s t t h e i r d e p o s i t a r y b a n k s o u g h t t o h a v e t h e f u l l
statement, t h e consolidated statement a n d t h e statement
of the subsidiaries o f the corporation; b u t i t does n o t
seem t o m e t o b e s o necessary f o r these small interior
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Federal Reserve Bank of St. Louis
25
banks t o have this information, provideq t h e y have t h e
consolidated statement.
tary bank, I
B u t , w i t h respect t o the deposi-~-
believe t h a t u n c o n t e s t a b l y t h e y o u g h t t o
have those statements.
The Chairman.
T h e y generally have a
line o f credit
there.
Governor Seay.
I believe,
A n d w h i l e i t w o u l d n o t b e well,
t o make a n y exception i n the matter,
as
w e all
know that practices g r e w u p i n handling these things
which are summed u p i n the regulation. I
do not believe
it t o b e a n y infringement u p e n t h e p r i n c i p l e
t o take
paper f r o m these small interior banks, w h i c h have n o t
got these statements o f the subsidiary companies a n d
which w o u l d n o t k n o w e x a c t l y h o w t o protect t h e c r e d i t i f
they h a d them~-I think w e might ignore i t provided t h e y
have the consolidated statement; but I believe i t would
be g o i n g i n t h e w r o n g d i r e c t i o n
t o undertake
t o alter
the regulation.
Governor Bailey. Supposing a bank offers you a
$5,000 note, a country bank who has bought this through
a broker, a n d the broker says "This i s checked b y two
or three banks, which are depositary banks."
W e write
them and they give u s the proper credit information; t h e y
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Federal Reserve Bank of St. Louis
2¢@
discount this note, after having carried i t for sixty
days, f o r anotheY thirty days.
W h a t weuld y o u a s k them
about that? W o u l d y o u a s k them i f they have a l l o f
these statements?
Governor Seay.
M y own opinion i s that t h e y should
have t h e consolidated statement.
Governor Bailey. T h e n t h e brokers would have t o have
Governor Seay. Yes, I
be e n c o u r a g e d
think so, a n d they cught t o
t o have i t , too.
I
f they invest their
money t h e y o u g h t t o invest t h e i r m o n e y i n t e l l i g e n t l y a n d
with information a t hand a n d ought n o t t o depend u p o n t h e
Federal reserve system when t h e y send i t direct.
I f
they sell that paper t o their banking correspondents, a l l
well a n d good; b u t i f they take i t t o the Federal reserve
bank for a rediscount, t h e n I think t h e y ought t o b e
in a position o f not having t h e Federal reserve b a n k t o
pass u p o n it, b u t pass u p o n i t themselves b y reason o f
holding the statement.
Governor Fancher. W i t h o u t a n y discount a n d purchase
of the paper f r o m the small interior bank, i f t n offering that t h e y d o not s a y that t h e y have a statement,
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Federal Reserve Bank of St. Louis
aa
and w e have a statement w h i c h comes f r o m other sources,
we a d v i s e t h e b a n k t h a t i t i s i n c u m b e n t
ing p a p e r t o h a v e a
statement,
furnish a statement. I
o n t h e m i n buy-
t h a t t h e broker should
am quite i n accord with the
view expressed here b y the Federal Advisory Council
that the depositary bank should b e furnished with not
only the congolidated statement, b u t a statement f r o m
the subsidiaries, a n d w e might g o further, a n d s a y that
brokers i n all cases furnish a consolidated statement
to the bank that purchases t h e note.
The Chairman.
W
e cannot discount t h e paper unless
the member b a n k which has purchased t h e paper a n d submits
it s h o w s
i n the application that t h e y have a
Governor Fancher. A
The Chafrman,
statement.
statement.
W e d o not mean t e exemine them, b u t
we take their word for it,
Governor Fancher. Sure.
The C h a i r m a n . I
understand a
motion h a s b e e n m a d e t h a t
the policy should b e t o require these corporations t o file
a consolidated statement a n d statements
o f their subsid-
laries w i t h their depositary bank, w h i c h shall b e furnished
to the Federal Reserve Board b y the depositary bank.
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Federal Reserve Bank of St. Louis
28
Governor ticDeugal.
M y suggestion w a s t h e w o r d
“principal” b e inserted before the words "depositary
bank."
The Chairman. Yes.
Governor Seay. I
hope that Governor McDougal will
withdraw t h a t , b e c a u s e h o w c a n y o u m a k e t h e e x c e p t i o n
consistently a n d logically?
Governor sicDougal. I
can answer thet, Mr. Chairman,
by s t a t i n g t h a t s o m e o f t h e s e c o r p o r a t i o n s o p e n perhaps
innumerable a c c o u n t s f o r c o l l e c t i o n purposes,
with the
understanding t h a t t h e y will b e remitted f o r twice a week
or something l i k e that, a n d that t h e y a r e purely collectfon accounts, a n d I
do not think that these banks should
be considered i n the light o f depositary banks.
Governor Seay. G o v e r n o r McDougal,
has s t a t e d t h e matter,
a s Governor S t r o n g -
w e could n e t handle t h e paper o f
these corporations f r a m a n y one o f their depositary banks
unless t h e depositary b a n k h a d statements.
S o , A t ‘per
chance t h e y s h o u l d f i l e t h o s e s t a t e m e n t s o n l y w i t h t h e
principal b a n k a n d yet some other o f their depositary
benks sheuld b u y the paper, t h e y could n o t redepesit i t
with t h e F e d e r a l r e s e r v e b a n k u n l e s s t h e y h a d t h e s t a t e ment.
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Federal Reserve Bank of St. Louis
29
Governor ilcDougal.
T h e y would have a statement o f
the borrower,
I t might b e t h e corporation operating
subsidiarjes,
o r i t might b e one o f the subsidiaries
which wonedewned b y that corporation.
T h e y would have
a statement o f that sort, b u t t h e y could not b e expected
to have this vast amount o f data a n d other information
that a c c o m p a n i e s t h e s e c o n s o l i d a t e d s t a t e m e n t s , w h i c h r e -
quires careful examination b y your o w n expert credit m e n
in order t o analyze a n d understand t h e situation.
Governor Fancher.
W h y cannot t h e situation b e cov-
ered by "depositary banks which grant lines o f credit?"
The Chairman.
T h a t w o u l d d o itt.
Governor Seay. That i s the point I had i n mind, because a n y other bank would have t o get t h e statement,
The Chairman.
W i t h depositary banks which grant a
line. of: credit?
Governor Fancher.
T h a t covers i t , a n d I
second t h a t
motion.
(The motion was put and carried.)
The Chairman. I
will a s k Mr. Harrison t o distribute
the. report which has just been made t o the Federal Reserve Board b y the Open Market Committee. That. 1 s Topic
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Federal Reserve Bank of St. Louis
14“A o n the progratn.
l, C r e d i t Transactions a n d Policies.
A. O p e n M a r k e t Operations.
1. R e p o r t o f Vpen Market Investment
Committee.
Canc P O L E «
(The Secretary distributed t h e report referred to.)
The Chairman (continuing).
T h a t should have b e e n
marked "Confidential, " o f course,
were. I
a s t h e other papers
would like t o explain that i t was expected
that t h e meeting o f the O p e n Market Committee would b e
held t w o w e e k s
o r m o r e e a r l i e r t h a n i t w a s held,
but
the r e p o r t s t h a t w e r e d i s t r i b u t e d y e s t e r d a y o r t h i s
morning were prepared some time ago, a n d they have
brought d o w n t o d a t e s u c h report,
a n d w e anticipated,
as the d a y o f the meeting h a d been deferred, t h a t w e
would meet w i t h the Federal Reserve Board yesterday
afternoon and that the whole precedure would b e i n the
usual course o f the meeting o f the Open Market Committee
with the Board i n between the dates of the Governors!
meeting,
b u t t h e Secretary w a s detained a t t h e Capitol
yesterday,
a n d w e c o u l d n o t m e e t i n t h e afternoon,
s o
we had t o have the meeting this morning, a n d i t would have
taken s c l o n g p r o b a b l y t o h a v e c o n s i d e r e d t h e r e p o r t a t
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Federal Reserve Bank of St. Louis
Sk
this meeting that w e had t o go right ahead with the
meeting a n d leave t h e Governors! Conference, a n d these
recommendations w h i c h a r e n o w b e f e r e y o u w e r e d i s c u s s e d
a couple o f hours this morning, a n d efter w e left t h e
Board m e t a n d I now have this communication f r a m Governor
Young:
Mr. Harrison (reading):
"My dear Governor Strong;
"At the meeting o f the Federal Reserve B o a r d held
todey following t h e conference w i t h t h e members o f your
committee, during which the revert o f the committee,
deted November 1 , 1927, w e s submitted tothe Soand a n d
discussed i n detail,
i t was voted b y the Boerd that
epproval b e given t o the policy governing o p e n morket
operations a s recommended b y your committee i n its report
referred to.
Very truly yours,
(Sed )
A o .
Youre.
Mr. Penjemin Strong,
Chairmen Open Market Investment Committee.”
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Federal Reserve Bank of St. Louis
32
The Chairman.
Y o u m a y o r m a y n o t h a v e h a d oppor-
tunity t o read the memoranda submitted this morning.
This report i s the report based upon those memoranda
which has n o w been apvroved b y the Federal Reserve Board,
and i t will g o forward i n the regular course t o the
Federal reserve banks w i t h t h e usual letter f r o m the
Chairman o f the Open Market Committee f o r consideration
by the respective boards o f directors o f the Federal r e serve bank, a n d this i s the opportunity t o distussuit,
if there a r e questions w h i c h are obscure, a n d all t h e
committee a r e here t o answer questions.
Governor Talley.
M r . Chairman, I
want t o s a y the
tentative d a t e o f March l s t would b e t h e latest d a t e
that w e would like t o approve of.
The Chairman.
T h e r e was a reason f o r putting that
date in, because this report h a s a
gnod deal o f flexi-
bility, a s y o u c a n see from its terms, a n d b y tentatively,
subject t o review i f occasion reguires, spanning t h e
period t o March lst, i t takes c a r e o f all o f the unusual
operations t h a t arise around t h e e n d o f the year a n d
the beginning c f the next year, a n d w e should hope that
after M a r c h l s t w e w o u l d s a i l o f f i n t o s m o o t h w a t e r s
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Federal Reserve Bank of St. Louis
33
without m u c h t o do.
A t a n y rate, j u s t p r i o r t o M a r c h
ist, i f w e have another committee meeting, w h i c h w e
likely would possibly do before that, we will mow a
good deal more about developments t h a n w e n o w know.
February l s t w o u l d h a v e b e e n e
little t o o soon, a n d
after consideration i t seemed a s though March l s t was a
conservative date.
Governor Talley.
M a r c h l s t i s quite a n agreeable
date f o r us.
The Chairman.
I t also fixes u p the program s o that
before t h e March 1 5 Treasury financing w e c a n have an-.
other meeting a n d consider everything again.
Governor S e a y . I
natice
i n the opening paragraph
you say "Main Far bie rates for money at about present
levels."
Y o u mean, I suppese, b y the word "about,"~-
The Chairman. (interposing). Oh, yes. Y o u know the
money market i s more o r less u p a n d down. I
should hope
that there would not b e any material change i n the rates
for commercial paper, bankers! acceptances a n d the ordinary line o f time a n d commercial loans. I
d o not care
so much about t h e call rate o n the stock exchange; t h a t
goes u p and down, b u t i t takes a
little period o f higher
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Federal Reserve Bank of St. Louis
34
or lower money o n the call l o a n market f o r the other
rates t o respond t o it, a n d I
do not think the fluct-
uations within moderation i n the call l o a n rate would
be important i n the policy expressed there,
s o long a s
it did not last t o o long.
Governor Seay. T h e point that I
have particularly
in mind refers t o the reserve rate itself. I
presume
you meant a t o r about t h e present levels.
The Chairman. Yes. T h i s does n o t refer t o reserve
bank d i s c o u n t r a t e s .
T p n i s refers
t o market rates.
Governor S e a y . Y e s , b u t t h a t i s affected,
w e think,
to some extent b y the Federal reserve b a n k discount
rates.
The Chairman.
A l l right.
I f any occasion came t o
change o u r d i s c o u n t r a t e i n N e w York,
it without having a
w e would n o t d o
meeting w i t h t h e cormittee o r con-
sulting with the committee.
Governor S e a y .
T h e present discount rate,
o f course,
is below what y o u would call t h e general credit market.
The Chairman.
N o mere t h a n usual.
Governor Seay. T h e discount r a t e i s not?
The Chairman.
N o t i n N e w York.
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Federal Reserve Bank of St. Louis
35
Gevernor Seay.
I t i s below t h e commercial rate, o f
course?
The Chairman.
I t always ts.
Governor Seay.
I t i s a little b i t lower i n propor-
tion than customary?
The Chairman.
No.
T h e commercial paper rate i s 4
or a shade over- [ f t is about t h e same.
Gevernor NcDougal. A
shade under toe.
The Chairman. Yes. S o m e o f the best commercial
papers shade a little less t h e n 4 per cent.
Governor Geery. I n our district i t i s 4-3/4.
The Chairman. I
think t h e d i f f e r c n t i a l b e t w e e n o u r
rate and the going rate fot commercial leans i s Just
about t h e s a m e a s 4 t w a s s h o r t l y p e f o r e w e r e d u c e d o u r
rate,
Gevernon Seay.
I n other words, y o u mean that t h e
commercfol r a t e h a s b e e n l o w e r j u s t a b o u t
i n proportion
with the Federal reserve b a n k discount rate i n your mare
ket?
The Chairman. Yes,
Gevernor Fancher.
for s h o r t - t i m e b i l l s ?
A n d the rate i s about 3
per cent
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Federal Reserve Bank of St. Louis
56
The Chairman. T h e relationship o f the rates h a s b e e n
maintained
b y the reduction
paper which has a
i n market r a t e b y t h e g o i n g
market rate j u s t about t h e same re-
lationship t o o u r l o w e r r a t e a s i t h a d t o t h e 4
rate.
per c e n t
W h e n w e h a d a 4 per cent discount rate t h e very
best commercial paper was selling about 4 4 or a little
above.
O f course, I
a m speaking o f New York especially.
Now, i t i s selling a t 4 and sometimes t h e very best paper
a little above.
Gevernor Wellborn.
agricultural banks,
W h a t i s the theught about t h e
o r banks located i n agricultural sect-
ions, increasing their rate before t h e borrowings b e g i n
next spring o r early i n the year?
The Chairman.
W e have not discussed that a t all,
Geverner Wellborn.
Gevernor Wellborn.
W e have n o t noticed i t yet be-
cause t h e time has n o t arrived a n d t h e market h a s n o t
been affected a t the present time.
B u t I have heurd
several bankers s a y " I can g o out a n d b u y some bonds a t
4 per cent and rediscount them at 3%." S o they have
been thinking along those lines o f making some profit
out o f t h i s v e r y l o w rate.
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Federal Reserve Bank of St. Louis
37
Gevernor Fancher.
D o y o u think they are doing
Governor Wellborn.
N o , n o t t o any apvreciable
that?
extent.
U u r loans are down.
W e have had s o many
banks t o liquidate their indebtedness fin full this year
that o u r loans a r e down.
Governor Seay.
T h e y a r e investing a
considerable
p o r t i o nf
o their funds i n readily: marketable bonds i n
our district, a n d I think they have their eye o n the
Federal -reserve rediscount rate.
create a
T h e i r object i s t o
secondary reserve.
The Chairman.
B u t they are not doing that o n the
money they borrow from you?
Governor: Seay. N o .
Governor Wellborn. T h e y are doing that from their
honeuske w h e n t h e proceeds o f the crops have b e e n sold,
but a s soon as those deposits begin t e melt away and
go out into agriculture again, t h e y will want t e borrow
meney o r sell t h e bonds.
The Chairman. Haven't t h e y always done that more
or less?
Governor Wellborn. T h e tendency seems t o b e growing
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Federal Reserve Bank of St. Louis
in that respect, about buying bonds.
Gevernor Fancher.
I s n ' t that d u e t o the lack o f
desirable bills s o l d b y brokers a t the present time?
Governor Wellborn. I
causes.
loans,
think i t i s due t o several
I t i s easier t o handle bonds t h a n t o handle
o r t o g o o u t a n d s e e k loans;
may not b e considered s o good.
o r t o take loans
I t i s along t h e line
least resistance, y o u might say.
Governor Seay. T h e r e i s this eventuality, t h a t having
these excess funds i n bonds returning 4
per cent, t h e
probability i s that when the occasion comes f o r t h e m t o
borrow,
i f they c a n borrow f r o m u s a t 3 g per cent, t h e y
will borrow 3
o n the bonds.
Governor McDougal. Mr. Chairman, I
have n o t under-
stood a n d d o not understand that t h e adoption o f this
plan would necessarily bind a l l o f the banks o r commit
them t o a
3% per cent discount r a t e f o r t h e next f o u r
months, a n d I
do not think that w a s t h e intention.
The Chairman. N o .
I t i s not mentioned i n the report.
Governor McDougal.
B u t that question w a s raised b y
Mr. Seay, a n d that was m y understanding.
Governor Seay. I
do not think i t was implied i n
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Federal Reserve Bank of St. Louis
39
there that a n y Federal reserve b a n k would take t h e position o f s a y i n g t h a t i t w o u l d v o t e f o r p r e s e r v i n g i t s o w n
3g per cent rediscount rate, because w e would not b e
willing t o take that position.
The Chairman.
W e would not, either.
Governor Fancher.
T h e rate f o r money means t h e com-
mercial rate and has n o bearing o n the Federal reserve
bank rate.
The Chairman.
T h e r e fis a saving c l a u s e
i n the report
right a t the beginning that conditions m a y change which
will necessitate a
had n o thought,
review o f the matter. T h e committee
b y direct commitment o r implication,
to
bind itself o r any bank t o retain t h e present rediscount
rate. Y o u could net d o it, any way, i f you wanted to.
Are there a n y other questions?
Governor Seay. I
have n o further questions, w i t h the
understanding, Mr. Chairman, a s I understand y o u t o set
forth, that the fixing o f the first day o f March i s simply
an a r b i t r a r y fixing,
a n d that t h e whole policy o f the
committee
investments
i
/ subject t o change o n account o f changing
conditions.
The Chairman. Y e s .
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Federal Reserve Bank of St. Louis
40
Governor Seay. W h i c h I
ef course would take f o r
granted.
The Chairman.
W e had a period o f three a n d one
half months before, I
until August Ist.
think i t was, o n the last approval,
W e met o n Way Oth, a n d that i s about
three months, a n d this makes i t four months.
Governor Seay. P e r s o n a l l y I
think that part o f the
interior w i t h w h i c h w e a r e c o n c e r n e d
py the 3 4 per cent rate. I
i s :not b e n e f i t t e d
think i t i s too low a rate,
and I thought s o from the beginning, b u t that h a s n o bear~
ing upon t h e general policy o f the Investment Committee
from t h e point o f view that i s presented there. I
think
it 4 s rather harmful t h a n otherwise.
The Chairman. Y o u think i t is rather harmful?
Governor Seay. Yes, sir.
T h e interior which i s
accustomed t o lend i t s money a t rates which a r e much
higher t h a n those prevailing i n the money centers,
is
getting a false perspective.
Governor Bailey.
D o y o u mean t o s a y that t h e country
banker finds fault because this rate is lower; that his
customer
asks
h i m t o lower h i s rate
t o him
o n that a c -
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Federal Reserve Bank of St. Louis
count?
I s that i t ?
Governor Seay. N e . I think i t is giving him a
false perspective o f the condition o f money i n his o w n
locality a n d i n t h e d i s t r i c t w h i c h t h e F e d e r a l r e s e r v e
bank serves.
N o matter what h i s customer m a y desire
or ask him, h e i s going t c lend his meney t c him at the
best rate h e c a n get, a n d i s usually i n a position t e
enforce a n y r a t e h e asks.
Governor Talley.
D o you find that t h e best borrow-
ers i n y o u r d i s t r i c t h a v e a c c e s s
t o t h e competitive r a t e
for m o n e y ?
Governor Seay. A l w a y s and a t all times.
Governor Talley. I
think that money i s worth about
the same t h e world over, a s a rental charge.
Governor Seay. T h e benefit o f the lower rate reaches
the b e s t borrowers,
w h o have access
t o competitive m a r -
kets,
The Chairman.
T h a t h a s some favorable effect a t
times t o have that condition arise, d o e s i t not?
Governor Seay. Yes.
I t is hard t a define i n per-
centages, b u t i t has some kind o f effect. W h e t h e r t h e
result o f that effect i s beneficial o r otherwise usually
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Federal Reserve Bank of St. Louis
has t e b e proved
b y the future.
The Chairman. I
mean y o u r c a n n e r s d o w n t h e r e w h o
buy the food a n d vegetable crop, s o m e o f them have accounts i n New York, Philadelphia,
o r other cities, a n d
when t h e discount r a t e goes d o w n they borrow their money
a Little cheaper.
D i r e c t l y and i n a
remete w a y t h a t
benefits t h e fruit a n d vegetable growers?
Governor Seay.
The Chairman.
I t may o r may not; t h a t i s the point.
I t does n o t hurt t h e m any, d o e s i t ?
Governor Seay. E x c e p t i n the vague w a y i n which I
have endeavered t o give expression. I
deadens t h e m t o a
think i t scmewhat
truse s e n s e o f t h e p r e s e n t d e g r e e o f
expansion, w h i c h i s rather large, s a y what y o u will.
Governor Talley.
T h a t i s what i s happening i n our
district right a t the present time.
T h e exports o f cotton
ere lower t h a n they were last year.
The Chairman.
I n t h e n u m b e r o f bales?
Governor Talley. Y e s ,
i n t h e n u n b e r o f bales,
and
the cotton i s being purchased a n d i s going into merchants!
stock, a n d i n the last t w o weeks o u r loans have increased
about $9,000,000 f r o m the l o w point, a n d the applications
come f r o m banks w h o a r e carrying large stocks o f cotton
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Federal Reserve Bank of St. Louis
43
for cotton merchants, a n d they a r e buying i t because
they c a n g o into stocks o n a lower rate.
The Chairman. T h a t m a y b e a good thing f o r your
cotton g r o w e r s d o w n there,
Governor Wellborn.
growers v e r y much.
I t helps t h e dealers.
Governor Talley.
basis.
I t does n o t h e l p t h e c o t t o n
I t simply avoids the depreciation
I t helds t h e b a s i s u p .
Gevernor Seay. H e is able t o market his c o t t o n t
a
good prices, if he has any idea whatever, a s most of
them have, t h a t prices m a y increase;
a n d t h e carrying
charges a r e lower,
Governor Talley.
Y o u c a n take t h e l a t e ginnings
which come o n the market, and that does not affect the
basis m o r e t h a n f i f t e e n o r t w e n t y peints,
a n d when that
ginning report came out you had a little upturn i n the
prices right away.
Governor Seay. T h a t s h i f t s t h e r i s k f r o m
t h e buyers
or holders o f cotton.
Governor Talley.
O h , yes.
H o w m u c h better t h a t t s
from a n economic standpoint f o r t h e stocks t o g c into
the hands o f the merchants w h o are willing t e absorb
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Federal Reserve Bank of St. Louis
46
them, a n d the producer i s willing t o sell a t prevailing
prices.
M t talsssc t h e speculative elemént o u t o f it.
The Chairman. Y o u think i t i s a benefit i n your
district?
Governor Talley.
a benefit, b u t I
E
y think t h a t atbothis t i m e i t 1 s
do not think w e c a n s a y arbitrarily
that e v e r y f a l l w e s h e u l d l o w e r t h e r e d i s c o u n t r a t e a t
the Federal reserve b a n k because that depends o n the
circumstances.
C e r t a i n l y these same circumstances t h a t
we have prevailing i n our district this year d i d not
prevail l a s t year, b e c s u s e e v e r y f a c t o r t h a t p e i n t e d
a liquidation o f the indebtedness w a s ecbscure. §
to
This
year i t i s entirely patent, a n d while t h e factors a r e
operating.
Governor Wellborn. S p e a k i n g o f this year a s compared w i t h l a s t year, t h i s l o w r a t e w o u l d h a v e b e e n
more b e n e f i c i a l l a s t y e a r t h a n t h i s year.
T h e holding
of movement then was i n its inception.
Governor Seay.
Y o u see, t h e r e a r e t w o o p p e s i n g
views f r o m different districts, t h e Texas a n d t h e Atlanta
view.
Governor Talley. I
do not agree t o that.
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Federal Reserve Bank of St. Louis
45
Governor Seay.
T h a t would have been t h e time f o r
us t o have lowered it, because w e had a tremendous c r o p
on hand a n d were n o t disposed t o sell it, a n d this year
they w e r e s a t i s f i e d w i t h t h e p r i c e a n d s o l d i t v e r y
readily.
The Chairman.
W e grew 15,000,000 bales o f cotton
last year a n d exported a
little o v e r 11,000,000.
N o w
the crop this year i s about 13,000,000, with not quite
double t h e price, a n d t h e question is, w i t h 6 0 per cent
of cur cotton last year o r more t h a n 6 0 per cent ordinarily going abroad, a r e w e going t o b e able t o export
the preportion o f this year's c r o p that w e should.
If
there i s any delay i n buying i t abroad for any reason
obtaining over there--because t h e y stocked u p o n cheap
cotton last year o r because money i s dear there, o r for
any ether reason,--then i t i s just a s well t o have some
cheap m o n e y t e c a r r y t h a t c e t t o n a t t h e p r e s e n t time.
Gavernor Wellborn. A t the present time.
The Chairman. Yes.
Governor Wellborn. I
cuts a n y figure.
do not know that half a
per cent
T h e thing thet affects people i s that
when y o u raise i t a little. L o w e r i n g i t dees n o t s e e m
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Federal Reserve Bank of St. Louis
46
to affect t h e m much, b u t when y o u raise your rate i t
startles p e o p l e .
later.
W
e a r e beund t e raise o u r rates
W h e n this rate w a s reduced w e had n o idea o f
wanting a n y reduced rate a t all.
W e have been com-
pelled t c d o i t because Kansas C i t y a n d St.Louis a n d
Dallas h a d put theirs i n effect, a n d they a r e next door
to us.
The Chairman. Governor Baitey, h o w d a y o u feel
about t h i s r a t e c h a n g e ?
Governor Bailey. I
would like t o see t h e rate g o
back t o 4 per cent some time this winter.
T h e thing
that h a s h e l d i t u p i s this wonderful c r o p movement.
The Chairman. Except maybe t h e cotton m a y b e late.
It i s late t o some extent now.
T h e movement o f cotton
that h a s moved s o far this year represents m o r e money
than t h e corresponding date last year, o n account o f the
price.
Governor Talley.
A n d i t puts t h e banks
i n a n easier
position.
The Chatrmari. Yes. T h e cotton erep this year was a
problem because o f the possible hang-over f r o m last
year's v e r y large c r o p i n bulk,
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Federal Reserve Bank of St. Louis
47
Governor Talley. T h e movement o f sterling alsc has
a close r e l a t i o n t o t h e c a t t o n movement.
The Chairman. Y o u think that h a s helped t h e sale o f
cotton?
Governor Talley. Gh, yes.
The Chairman. I
about that.
have h e a r d s o m e d o u b t e x p r e s s e d
W i l l y o u elaborate that a little bit?
Governor Talley. I have a brother i n law who has
charge o f a certain firms b u s i n e s s west o f the Mississtppi River, a n d I visited w i t h h i m last Sunday i n Houston,
and he said this price o f sterling had not been a matter
of consideration a t all; h e would simply g o ahead a n d
sell his sterling a t a profitable price.
The Chairman.
I t did not worry him?
Governor Talley. I t did net worry him a bit. I said,
"That i s something t h e Federal Reserve System i s doing
for you that you d e not know about,” and that o f course
has b e e n t h e case a l l over t h e district.
I n other words,
the cotton merchant, t h e cotton exporter, h a s b e e n able
to operate this fall with more assurance t h a n h e has within the last five years.
T h a t i s t h e w a y h e gets his
reimbursement o u t o f a large part o f his exports. The
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Federal Reserve Bank of St. Louis
48
higher price h e gets for his sterling the moré points
he has got i n his transaction.
“Governor Seay. T h a t i s true o n a rising sterling
wereck:
The Chairman.
I t does h e l p t h e export o f cotton,
doesn't i t ?
Governer Talley. 1 6 8 .
The Chairman, Governor Bailey, h o w d o you feel about
the effect of the rate r e d u c t i otuno
in your district?
Governor Bailey. O u r people K a s accepted i t all
right, a n d teok i t i n the spirit tnat i t was broadcasted,
and the cattle m e n are getting their money f r o m a haif t a
one p e r oént cheapes this y e a r than last year.
O n e of
the big banks sent out a letter saying that f n view of
the fact thet t e e Federal reserve b a n k h a d reduced
its rediscount rate, i t made that. bank's rate cheaper,
I will say, i n view of that, that their rates have been.
too high always.
Governor Seay. What. are they, f o r instance--8 p e r
cont?
dovernor Bailey. N o t now.
Governor Seay- They have been?
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Federal Reserve Bank of St. Louis
49
Governor Bailey.
I t was 8
per c e n t r i g h t d u r i n g
the hard times after t h e war.
Governor Seay. A n d what i s i t now? 73?
Governor Bailey.
No.
I t i s from 6.to % .
I t 4s
the first time I ever saw a letter g o out saying, " I n
view o f the fact that t h e Federal reserve b a n k has reduced
its rate w e will have a n enlargoment o f the heart a n d
follow suite."
The Chairman,
A r e there a n y more questions about
the report o f the Open Market Committee? T h i s having
been a meeting theoretically i n between the Conference
of the Governors, i t would not ordinarily be approved b y
the meeting b u t would b e submitted i n detail t o each reserve bank, b u t i f y o u wish t o act o n the report i n any
way a motion would b e i n order.
Governor Biggs. I
move the report b e accepted and
filed.
Governor Talley. I
The Chairman.
second it.
I s there a n y debate o n the motion? A r e
you r e a d y f o r t h e q u e s t i o n ?
(The motion was put and unanimously carried.)
The Chairman.(continuing).
T h i s will really cover
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Federal Reserve Bank of St. Louis
Topics 1
and 2 under A .
N o . 3 is--~
Discussion o f method o f appértioning
bills a n d Government securities bought
by O p e n M a r k e t I n v e s t m e n t Committee.
I have asked Mr. Case t o prepare a little memorandum, a s h e does most o f this w o r k i n the bank, a n d I
do
not know but what i t would b e illuminating f o r Mr.
Harrison t o read it, i f h e will.
Mr. Harrison: Al] right:
"The method o f apportioning purchases made
by the Open Market Investment Committee o f bills
and Government securities during t h e past t w o
years h a s r e m a i n e d p r a c t i c a l l y unchanged.
During
the f i r s t h a l f o f e a c h c a l e n d a r y e a r a l l p u r c h a s e s
made a r e distributed prorata ( 1 , e., i n the proportion that t h e total o f each bank's expenses,
dividends a n d chargeoffs bears t o the system total
of the same items) based o n the actual figures for
the preceding year.
"Beginning i n July i t is the practice t o obtain
from each bank a n estimate o f its probable income
for t n e b a l a n c e
o f the year classified according
sources, a l s o a n estimate o f its expenses, divi-
to
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Federal Reserve Bank of St. Louis
$3.
dends a n d probable chargeoffs.
T h e figures thus
obtained a r e combined with t h e actual results
shown f o r t h e y e a r t o date, t h e t o t a l r e p r e s e n t i n g
the e s t i m a t e d r e s u l t s f o r t h e year.
"The estimated surplus earnings o f the system,
if any, a r e then distributeg prorata a n d added t o
the estimated expenses, dividends a n d chargeoffs
of each bank, t h e total representing t h e gross earnings t o which i t i s considered e a c h bank i s entitled.
From this total there i s deducted t h e estimated earnings t o b e r e c e i v e d f r o m G o v e r n m e n t s e c u r i t i e s a n d
from b i l l s d i s c o u n t e d a n d miscellaneous,
t h e balance
thus representing the amount t o be earned from bills
purchased.
T h e ratio o f each bank's balance t o the
system t o t a l t s t h e n u s e d a s t h e b a s i s f o r d i s t r i b u -
ting current purchases o f bills.
"During the second half o f the calendar year
similar figures a r e prepared promptly after t h e close
of each month, a n d such changes a r e made i n the
ratio f o r distribution o f purchases a s the figures
justify.
O n this basis a l l banks a r e reasonably
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Federal Reserve Bank of St. Louis
52
assured o f having e l l charges. provided for.and
also o f receiving a
fair share o f the excess earn-.
ings o f the systcom above charges,
i f any. T h e r e
is attached a statement showing the estimated results f o r t h e current y e a r { a s o f October e e 8
ie a
"In making the distribution of earning. assets
no c o n s i d e r a t i o n . h
a
s been given t o the condition
of the surplus accountsof the several banks, as.
to d o s o would conceivably affect t h e amount o f
franchise t a x t o b e p a i d b y t h e i n d i v t c u a l banks.
There i s attached a
statement showing t h e subscribed
capital a n d the surplus o f each bank a s o f December
51 f o r t h e l a s t f i v e years,
a n d also t h e ratio o f
subscribed capital t o surplus a s o f December 31,
1926.
I t will b e noted that there a r e four banks
which h a v e a
surplus e q u a l t o 1 0 0 p e r c e n t o f s u b -
scribed capital.
F i v e banks have surpluses ranging
from 9 3 t o 9 6 per cent o f subsoribed capital, while
three banks h a v e surpluses ranging f r o m 8 4 t o B86
per c e n t o f s u b s c r i b e d capital.
W i t h t h e exception
of Dailas e v e r y b a n k h a s a t s o m e t i m e h a d a
surplus
in excess o f 100 per cent o f subscribed capital.
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Federal Reserve Bank of St. Louis
53
A study o f this statement w i l l s h o w that t h e
present u n e q u a l c o n d i t i o n o f surplus a c c o u n t s
i n
comparison w i t h s u b s c r i b e d c a p i t a l r e s u l t s m o r e
largely from changes i n the subscribed capital
account t h a n from inequalities
i n earnings,, those
banks whose subscribed capital h a s shown t h e largest
increase d u r i n g t h e p a s t f i v e y e a r s n o w h a v i n g
the smallest ratio o f surplus t o capital.
"On the whole it is believea the method which
has been followed i n distributing earning assets
has been fair and equitable t o all. banks."
The Chairman. T h e r e are a few points itn connection
with this that I
would like t o refer te,, 4 7 I may.
One
is the ratio i n New York o f surplus t o capital i s very
low c o m p a r e d t o m o s t o f t h e o t h e r r e s e r v e banks,. e n -
tirely due t o the fact that w e have h a d a large addition
to our capital through increase i n capital o f member
and
banks/in the organization of new banks i n New York.
On the other hand, Minneapolis presents the anomalous
situation of having a n excess of surplus because of
the m o r t a l i t y o f m e m b e r b a n k s a n d w i t h d r a w a l
subscriptions t o capital. I
o f their
do not s e e h o w the appor-
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Federal Reserve Bank of St. Louis
54
tioning o f these earning assets, w h i c h roughly f o r m o n e
half o f the carning assets o f the System, c a n b e s o
affected a s t o c o r r e c t t h o s e inequalities.
I t would b e
a very difficult thing t o d o and probably would result
in injustice
i n other d i r e c t i o n s
o n t h e basis
o f earnings,
and Mr. Rounds, w h o has prepared these figures, h a s
talked t o m e about 1 t a number o f times, a n d h e assures
me that h e c a n devise n o plan o f cauculation that i s a n y
fairer t h a n this one, b u t that i f there a r e objections
to i t that w e are not aware of, w e would like very much
to hear them.
Governor Harding.
I f a n y bank has a reserve percent-
age down t o 5 0 per cent, t s i t a fair assumption t o make
that that bank 4 s paying its way and earning its. dividends
and expenses?
The Chairman. Yes, I
think so.
Governor Harding. T h a t being the case, i f a bank
has 4 reserve u p t o 5 0 per cent, w h a t i s the use o f giving
it a n y bills o r Government acceptances?
I f i t i s paying
its own way, w h y not eliminate from this distribution and
let i t catch u p o n its reserves?
The Chairman.
T h a t i s t h e c a s e w i t h FOU, 1 6 0 7 5 2 t ?
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Federal Reserve Bank of St. Louis
Governor Harding. Yes.
The Chairman.
T h e earnings a r e higher a n d h e
is getting n o part o f the purchases.
Governor Wellborn.
H e has been eliminated from any
participation, because w e get the benefit o f the other
part
o f t h e year,
Governor Seay.
S o there i s n o parcicular i n which
that would not b e true, but there t 3 one particular I
think that memorandum is not correct in.
A s I recall,
it has been t h e practice f o r t h e past t w o years t o
make t h e a p p o r t i c n m e n t
o n t h e status
o f earnings f o r t h e
first three months, a h d they propose t o wait until the
half year t o uake t h e apportionment.
I f y o u look
back I think y o u will find that t h e apportionment h a s
been made o n the first quarter.
The Chairman. I
think this year and last i t has
been six months, a n d prior t o that i t was three.
Governor Seay.
T h e distribution w a s small i n our
Case, a n d t t did not provide f o r the requirements,
so
that i n the last half i t had t o be raised very consid-
erably. O u r reserve was reasonably high in the first apportionment, b u t our proportion was very large i n the
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Federal Reserve Bank of St. Louis
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second half, a n d i t sent o u r reserves low, a n d w e had t o
turn extrind a n d d i s p o s e o f a
considerable p r o p o r t i o n
of our securities w h i c h w e had been allotted. I
believe
it would b e better t o base i t o n the first guarter.
to the manner o f disposition, I
The Chairman.
A s
have n o criticism.
W e c a n d o that, b u t I must tell y o u
that o n e reason f o r changing t e the s t x months arrangement w a s because o f the immense amount o f work involved
in this thing. Y o u d o not realize h o w much work i t
takes with these shifting percentages, a n d i f your situation i s such that because o f the peculiar situation
in your district,
i f you will write u s a letter explain-
ing that w e c a n work this o u t a n d not have these changes
etcurlfor n i n e m o n t h s r i g h t t h r o u g h t h e year, w h i c h i s a
very f i n e j o b .
Governor Seay.
W e will d o that, o f course, a n d w e
would n o t have a n y idea o f asking that t h e method b e
changed t o fit t h e circumstances o f a n y particular bank.
As t o t h e amecunt o f w o r k i n v o l v e d I
was n o t a s w e l l
aware o f that a s you, o f course, b u t t h e distribution,
to b e made equitably during t h e year, should b e begun o n
the second quarter; b u t I
am disposed t o withhold that
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Federal Reserve Bank of St. Louis
view.
The Chairman>
I t i s not soa much treuble w i t h
Governments, b u t when i t comes t o these bills w i t h all
the different denominations, w i t h all kinds o f names-and some o f the banks will take some names a n d some wont--
it is a Chinese puzzle, a n d those fellows have a tremendous amount o f work t o do, a n d t h e changing o f percentages adds t o the amount o f work.
flexible thing.
T h i s h a s been a very
F o r instance, Governor Young telegraphs
he i s i n a certain pcsition a n d requires a
Fisk 2 b a e
change.
W e
T h e n Governor T a l l e y will telegraph a n d
maybe Kansas City, a n d I think t h e committee feels t h a t
we are expected i n New York t o adjust particular cases,
and w e have always d o n e i t and advised everyhody, a n d
there has never been a n y objection.
W
e have g o t a
case r i g h t n o w f r o m G o v e r n o r B a i l e y w h e r e w e h a v e g o t
to make a special adjustment, take his Governments a n d
give him some bills t o fix u p his portfolio.
Governor Seay. Unless i t i s the general feeling
that t h e t a d j u s t m e n t s h o u l d b e m a d e o n a
quarterly basis,
I will withdraw any suggestion o f that kind. I merely
put t h a t f o r w a r d f o r c o n s i d e r a t i o n
o n the supposition
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Federal Reserve Bank of St. Louis
58
that i t might b e somewhat t h e general experience.
The Chairman.
Wasi fiz. 1
I f y o u will write u s about this w e
ueg,
Governor Seay. P r i o r t o this year i t has b e e n o f
no c o n s e q u e n c e
t o u s whether
w e received a n y allotment
in the distribution o r not, because usually our bank
has o p e r a t e d w e l l w i t h i n t h e r e s o u r c e s
o f i t s o w n dis-~-
trict, b u t owing t o the conditions w h i c h prevailed last
year a n d t h e i n v e l v e d c o n d i t i o n s w h i c h w e h a v e b e e n
working o u t i n the borrowing class, o u r loans went
down t o a very l o w figure, making t h e carning assets
for t h e f i r s t q u a r t e r v e r y low, a n d w e w e r e g l a d t o
see them low.
The Chairman.
J u s t write u s a n d w e will take i t
up with the committee a n d f i x y o u up. T h e r e a r e times
when o u r p r o p o r t i o n
o f earning assets
i s larger,
and
while w e have o n l y a very small proportion o f the small
bills which cannot b e apportioned v e r y well, w e will
fix u p a n arrangement b y which y o u will g e t a special
alictment o f bills.
Governor Seay. This occasion m a y not arise again,
and v r o b a b l y w i l l not.
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Federal Reserve Bank of St. Louis
59
Governor Talley.
Y o u d i d thet f o r u s last spring.
The Chairman. Yes.
Governor Talley.
W e took about s i x million Govern-
ments a n d replaced i t with small bills.
The Chairman.
Yes.
W
e have h a d every variety o f
transaction w i t h vou. G o v e r n o r G e e r y h a s b e e n i n
and out
with u s i n that way, too, haven't you, o n your portfolio?
Have y o u swapped Governments f o r bills?
Governor Geery.
The Chairman.
W e d i d once a couple o f years ago.
A r e there a n y other comments o n the
apportionment plan here and the figures submitted i n
connection with it?
Governor Talley. I
have nore except t o follow i n a
general w a y w i t h G o v e r n o r Seay.
experience last year, I
ber 2
toor not;
W
W
e h a d exactly t h e same
do not k n o w whether y o u remem-
e h a d t o crowd o u r allotment p r e t t y
heavily i n the last s i x menths o f last year, a n d a t one
time I
think w e had t o ask t o b e relieved o f about
$5,000,000.
The Chairman. Y o u would like t o start earlier?
Governor Talley.
W e would like t o start earlier a n d
spread i t out ever t h e year, i f w e could.
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Federal Reserve Bank of St. Louis
60
The Chairman.
od o f apportionment,
I f there a r e n e comments o n the meth-~
w e will p a s s that, a n d there i s n o
eccasion t o take a n y action o n i t and n o motion before
the meeting, a n d t h e question i s whether w e have discussed under A
everything that should b e discusseq under B ,
Discount rates and policies."
D o you wish any further
discussien o n that subject? T h e r e being n o call f o r discussion,
w e w i l l c o n s i d e r t h a t covered.
I. Credit Transactions and Policies.
C. Relations w i t h Foreign Banks.
Report.
Status o f agreement w i t h Bank o f
Poland.
Status o f agreement w i t h National
Bank o f Belgium.
Purchase b y Federal reserve banks
of bills payable i n foreign currenCICS 5
The Chairman. U n d e r Topic co, "Relatitons with Foreign Banks," I
will a s k Mr. Harrison t o report o n that.
(The discussion o n this matter was, b y direction
of t h e Chairman,
n o t r e p o r t e d e x c e p t a s follows):
The Chairman.
T w o boards were good enough t o
write u s a b o u t p r o p o s a l s f o r p u r c h a s i n g b i l l s ,
and I
took
the liberty o f putting these t w o topics o n the program
because i t struck m e possibly that w e might have a n
illuminating discussion o n the matter.
O n e case was
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Federal Reserve Bank of St. Louis
61
at Cleveland.
G o v e r n o r Fancher, h a v e y o u a n y discussion
of the question o f earsmarked bills?
Governor Fancher. U n e o f our member banks made inquiry o f u s a s t o w h a t w o u l d b e o u r a t t i t u d e
t f these
bills were offered, a n d I thought, before giving him a n
answer, I
would g e t a n expression f r o m your bank. H o w -
ever, there was nothing done.
The Chairman. T h a t ends i t ?
Governor Fancher. Yes.
The Chairman. T h e other was b y Governoy Wellborn
about buying documentary cotton bflls.
Governor Wellborn.
T h a t i s the letter f r o m the N e w
Orleans m a n that y o u refer t o ?
The Chairman. Yes.
Governor Wellborn. I
to discuss it.
de not know enough about that
H e has n o t sent i t t o me.
H e i s going
to sehd the man i n charge of the foreign exchange i n
to our bank t o discuss it, and I have never seen Mr.
Pool, t h e man whe wrote t h e letter,
him; t h e r e f o r e , I
do. I
t o discuss i t with
d o n o t k n o w e x a c t l y w h a t h e wants
to
a m inclined t o think that t h e proper procedure,
from what I
can r e m e b e r
o f it, w e c a n make h i m ad-
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Federal Reserve Bank of St. Louis
62
vances
i f h e w a n t s them.
Y o u wrote m e that y e u d i d
not have a n y collecting facilities, a n d I think that
4t might b e satisfactory t o h i m i f w e just made a d vances t o him.
The Chairman.
T h e r e a r e t w o types e f transactions
either o f which h e may have h a d i n mind.
o n e i s the
type that Governor Talley knows a l l about, because h e
hes millions o f them.
H e buys a
dollar draft o n New
England o r New York o n a member bank, a n d attached t o
that i s the sterling draft, not yet presented for acceptance, representing i n his case a
foreign shipment
ef cotton, a n d a l l the papers respecting t h e cotton.
All that h e does i s t o make a n advance o n the collection
item i n dollars, a n d i t i s really collecting a documentary draft i n dollars a n d nothing more, a n d i t comes u p
to the N e w York o r New England b a n k o n which i t i s drawn
and that ends it.
The o t h e r c a s e m a y b e w h e r e s o m e b o d y d o w n i n y o u r
district wants y o u t o buy uneccepted drafts representing
the value o f cotton sold abroad, w h e r e t h e draft i s payable abroad i n foreign currency.
I f w e once start going
into that, w e have g o t t e open o u r doors t o going tnto
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Federal Reserve Bank of St. Louis
83
the c o m m e r c i a l forceign e x c h a n g e business.
know h o w m u c h y o u w a n t m e t o e l a b o r a t e
remember
L d 0 ° not
o n that, b u t I
i n t h e B a n k e r s Trust. C o m p a n y i n
the ordinary
season w e bought a s much a s $200,000,000 o f those.
N o
bank runs a n open account i n any foreign currency f o r
any such volume a s that.
of the time.
H e i s selling against i t all
Y o u b u y your sterling drafts a n d sell your
demand sterling and the drafts g o forward b y the same
steamer which takes t h e bills against which y o u are
drawing, a n d i f w e once g e t t o competing w i t h o u r
member
banks doing commercial foreign business, w e would b e
in
hot water a l l the time. B e s i d e s that, w e have n o fae
cilities for handling those drafts abroad.
T h e banks
that w e correspond w i t h over there would never handle
these bills i n the world.
Governor Wellborn. Y o u mean the collection o f them?
The Chairman. Yes.
T h e y a r e owned bills a s soon a g
they a r e p r e s e n t e d a n d accepted,
a n d then w e have t o
carry t h e m o r discount them, a n d then w e are always i n
the market selling foreign exchange. Furthermore, a l l
of the valve i n those drafts expressed i n dollars i s
calculated against t h e rate o f discount i n London.
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Federal Reserve Bank of St. Louis
64
Of course, a
Federal reserve bank might b e willing t o
do business o n a 3 per cent basis a n d carry those bills
to maturity, whereas e v e r y member b a n k has g o t t o figure o n the London discount rate, e r d w e have knocked
the stuffing o u t o f all o u r member banks.
not compete w i t h us.
T h e y could
S o i t would b e a very dangerous
type o f business f o r u s t o undertake o n that account.
The second thing i s that t h e handling o f these
cotton drafts involve j u s t a s complete a
knowledge o f
the credit o f a:cotton shipper a s a n y credit transaction y o u ever had. I
well remember cutting o f f ab-
solutely a n d d e c l i n i n g
paper a b o u t a
t o purchase a n y o f M i k e Yancey's
year b e f o r e t h e y busted,
a n d they had ten
or twelve million dollars o u t that went b a d completely.
Governor Wellborn.
C o u l d y o u gather f r o m his letter
what h e wanted t o do, what h e wanted t o ebviate o r
rather c h a n g e f r o m h i s p r e s e n t p r o c e d u r e ?
C o u l d you
gather from his letter what h e really desired?
fhe Chairmen. I
could not for the life of me tell
what h e was driving at.
Governor Talley. V e r y likely i t was t h e application
of t h e L o n d o n d i s c o u n t r a t e .
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Federal Reserve Bank of St. Louis
The Chairman. I
da not know.
Gevernor Wellborn.
H e did not write t o me.
H e wrate
to the Board a n d i t was referred t o m e and I wrote t o
you, a n d t h e n I
letter,
wrote
t o him a n d sent a
copy o f your
a n d h e said h e would have h i s foréign exchange m a n
at our next meeting, a n d w e will probably meet i n New
Orleans t h e next time a n d then w e c a n get into t h e real
merits o f the case.
The Chairman. I
mind.
will tell y o u what might b e i n his
H e i s a local dealer i n cotton bills.
when h e s e l l s t h o s e b i l l s
O f course,
t o your correspondent,
is a shave o n them naturally.
there
H e may think that the
Federal Reserve B a n k o f Atlanta h a s facilities abroad b y
which h e can get a little petter rate for his bills.
Governor Wellborn. T h a t i s the question I
want t o
ask you. S u p p o s e h e was t o ask m e couldn't w e open u p a n
account there with foreign banks, with the Midland i n
London o r with the National City branch i n Paris, o r
banks
o f that kind? I
want y o u t o u n d e r s t a n d I
a m not
crazy about getting into anything like that.
Governor Talley. I
will t e l l y o u w h a t i s e v i d e n t l y
the same sort o f a n inspiration, a n d h o w w e worked i t
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Federal Reserve Bank of St. Louis
66
out i n principle, although I
do not know whether there
is a n y business being done along that line o r not.
worked i t out with o n e o f our large local banks.
W e
They
purchased t h e unaccepted sterling drafts w i t h t h e documents, a n d then they would issue their, own bill against
that, a n d then they sent t h e unaccepted sterling draft
acress t o their London correspondent a n d had i t accepted,
and then they sold demand sterling, a n d then they scld
their own bill i n the market.
The Chairman.
T h a t i s where t h e exchange transaction
is hedged,
Governor Talley.
T h a t simplifies t h e whole propo-
sition.
The Chairman.
T h e real question t o b e considered
connection w i t h h a n d l i n g c o t t o n d r a f t s
rencies
i s whether
in
i n foreign cur-
w e a r e going right o u t i n competition
with o u r o w n members.
Governor Talley.
T h a t method which I
tekes i t clear a w a y from us.
have d e s c r i b e d
W e d o not have anything
todo with it until that bf£1l bobs up in the market and
maybe comes b a c k t o us, a n d when i t comes b a c k t o u s
indorsed,
t h e n w e are a
p a r t y t o t h e transaction; o t h e r -
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Federal Reserve Bank of St. Louis
67
wise w e are not.
H e gets t h e money from the market o n
his bill with which t o purchase h i s sterling.
question t h a t w a s a s k e d e f us, o f course,
The
w a s whether
that bill was eligible f o r acceptance.
The Chairman.
A s discount?
Governor Talley. N o ; a s t o whether i t was eligible
for acceptance.
S o I tock i t u p with the Board here
and there was n o specific ruling o n i t either way, b u t
in principle i t i s exactly t h e same a s a n acceptance i s
secured b y a trade acceptance payable i n foreign curremcy.
The Chairman.
W e have concluded Topic D
and n o w pass
to Topic E .
Credit Transactions a n d Policies.
E. Advisability o f standardizing r e -
quirements f
o Federal reserve banks
as t o forms e n d c h a r a c t e r
o f credit
statements.
The Chairman. That has been u p here before, but I
think Mr. Harrison can report what the previous action
was.
Mr. Harrison.
was s o m e c e n f u s i o n
A s a matter o f fact, I
i n the records
think there
i n the Board's letter
with regard t o the action o f the Governors! Conference,
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Federal Reserve Bank of St. Louis
68
The o n l y reference that w e had t o the matter before a n d
the o n e w h i c h i s n o w o n t h e p r o g r a m r e l a t e s
t o the act-
ion which was discussed this morning a s t o the statements
with
f member banks.
S o that this specific question of
standardized forms a n d character o f credit statement
has n o t been before t h e Conference i n very recent years.
I do not know h o w long a g o i t might have been u p here.
Governor McDougal. I
think, Mr. Harrison, t h a t was
intended specifically t o treat w t t h the same subject t h a t
we have been treating i n the former subject I-D.
Mr. Harrison. T h e reading o f the Board's letter
X-4958 would s e e m t o justify t h e statement t h a t t h e y
are referring t o the same thing that w e were discussing
this morning.
Governor McDougal.
F o r t h e reason that t h e y refer
to the Advisory Council's treatment o f the subject, w h i c h
was confined entirely t o that f o r m o f statement.
Mr. Harrison® Yes.
The Chairman.
O u r position
i n New York i n the early
days w a s that w e should not attempt t o enforce a
uniform
statement u p o n borrowers i n our district t o the member
bank; that w e should not take the responsibility o f
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Federal Reserve Bank of St. Louis
69
doing so. H o w e v e r ,
w e endeavored t o help t h e member
banks t o secure uniform statements f r o m their borrowers
by furnishing t h e m with typical forms which they could
use i f they were suitable t o the borrower, a n d w e have
as a matter o f fact g o t a set o f forms a n d where t h e
member banks want t o use those they are a t liberty t o d o
it. I f they want t o use some other forms f o r their customers, t h e y m a y d o so. I
think most o f the reserve
banks d o the same thing.
Governor Batley.
The Chairman.
W e have some.
T h e n t h e American Bankers! Association
is getting u p forms.
Governor F a n c h e r .
I n Cleveland t h e clearing h o u s e
association worked o u t a form which was i n use b y the
larger member banks, a n d also such forms were worked
out a s would f i t i n the case o f the small borrowers, a n d
when a bank would write i n inquiring about forms, w e have
usually referred those communications
t o the clearing
house and have supplied themselves with those forms i f
they w a n t e d t o adopt i t , a n d i n t h a t w a y t h o s e f o r m s a r e
now used throughout o u r district.
The Chairman.
O f course w e could n o t pretend t o
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Federal Reserve Bank of St. Louis
70
furnish a
pro forma statement t o a concern w i t h a lot
of subsidiaries.
I t would b e out o f the question.
Governor Seay- The forms which have been adopted
in the Cleveland district v a r y from those adopted i n the
Richmond district.
T h e r e have b e e n t w o efforts m a d e t o
arrive a t some fairly uniform standard. T h e Federal Reserve Board made some effort here, a n d they asked t h e
credit m e n o f s o m e o f t h e b a n k s
t o come u p here a n d a i d
them, a n d they were here f o r several weeks.
B u t I
think
the general opinion i s that i t i s a n impracticable thing.
The Chairman.
W o u l d y o u b e satisfied a t this
meeting t o pass a resolution that i t is the sense o f the
meeting that i t should b e the policy o f the reserve
banks t o aid the member banks i n obtaining suitable forms
of credit statements f r o m their customers,
i f necessary
by furnishing forms, b u t that w e should n o t attempt t o
force uniformity i n credit statements, a n d our attitude
shoulda b e t o render assistant i n getting uniform statements, b u t i t should n o t b e our policy t o require it,
and 1 t w i l l b e i m p r a c t i c a l
t o d o it.
Governor S e a y . T h a t w o u l d b e m y v i e w o f it.
Governor Bajley. I
would like t o second that motion.
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Federal Reserve Bank of St. Louis
Governor Fancher. I
-sécond It.
(The motion was put and unanimously carried.)
The Chairman. A
memorandum I
have before m e o n this
same subject refers t o a suggestion which was raised I
think with the Federal Reserve Board counsel a s t o
whether t h e Pederal Reserve System should attempt t o require audited statements.
N o w , o f course t h e credit
system o f this country i s developed wholly different f r o m
that which prevails abroad.
M o r e companies a n d corpo-
rations especially a r e having public auditors audit
their books a n d certify t o them, b u t i t seems t e m e that
to require that would b e just a
thing.
perfectly impossible
T n e amount o f auditing required would probably
tax t h e audititing facilities o f the country beyond what
they are capable o f meeting.
Governor Fancher.
D o e s net that really get back
to the policy o f the bank i n extending credit affecting
paper?
I
f i t feels
i t should h a v e a n audited state-
ment i t should b e initiated b y the bank. O f course,
the f a c t s a r e t h a t m o r e a u d i t e d s t a t e m e n t s a r e b e i n g
required.
Governor Talley. W o u l d n ' t y o u s a y that more audited
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Federal Reserve Bank of St. Louis
statements a r e being made?
Governor Fancher. Yes, made, a n d I think required.
I think t h e b a n k s
i n some states
Governor Seay.
d o r e q u i r e them.
T h e practice i s undoubtedly grow-
ing, b u t i f you make i t a requirement t h e banks would
rebel.
Governor Norris.
T h e recommendation
c f the Advisory
Council was against it.
Governor Seay. I
do not recall.
Governor Norris. Yes, unqualifiedly against it,
that i t i s impractical.
The Chairman.
D o e s someone want t o offer a motion?
Governor Wellbern. I
think w e a l l a g r e e t h a t t h a t
is the best thing t o do. T h e r e i s n o doubt about it,
audited statements w e find have been very unreliable,
and when a bank fails a n d the real assets o f the debtor
are inquired into, t h e y d o not exist.
Governor Seay. W e l l , w h a t y o u refer t o i s a collateral question, M r . Chairman, w h i c h i s not embraced--
The Chairman (interposing) . I t i s not o n the program.
Governor Seay. T h e n I would n o t think that a n y
vote was needed o n thse subject.
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Federal Reserve Bank of St. Louis
73
Governor Talley.
I t was i n the program o f the
Advisory Council..
The Chairman. Yes, a n d that i s the w a y i t came up.
We c a n pass i t without a n y action, becavse fit i s not
on our program,
I. C r e d i t Transactions a n d Pelictes,.
F. Classification o f deposits i n member
banks b y building a n d loan assoctations,
mutual savings banks, ccoperative banks,
credit unions a n d Morris P l a n banks.
Governor Norris. I
would suggest that w e hear f r o m
the bank that sent that inquiry t o the Board, a s t o the
purpose o f it.
The Chairman.
W h i c h bank made inquiry c f the Board
which gave rise t o the Board's suggesting this topic o n
the program?
Governor N o r r i s .
has r e c e i v e d
T h e Board's letter s a y "The Board
f r o m one o f the Federal
reserve banks
a n
inquiry as to whether deposits o f such and such a kind
d be carried
l
as demand
u
or
o time deposits,’
h
s " and s o
forth.
Governor Geery. That is, demand o r time?
Governor Norris. Yes, and I said "and se forth,"
Governor McDougal. “ A g a i n s t which t h e amount d u e
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Federal Reserve Bank of St. Louis
74
from banks cannot b e applied i n arriving a t their re-
gerve requirements."
Governor Harding. B o s t o n pleads n e t guilty.
Governer Norris. Apparently n e bank made t h e inquiry.
Governor Geery. I
cannot see, f r o m m y point o f
view, w h a t difference i t makes. I
d o not know o f a n y
bank which takes country bank business t h a t has n o t g o t
a great deal more country b a n k balances t h a n t h e farm
bank amounts to.
Governor N o r r i s .
C e u n t r y banks, y e s .
Governor Geery. S u p p o s e y o u a d d t o this, y o u d o
not change t h e reserve ratio a t all, because y c u c a n
only deduct t h e ameunt y o u have d u e from banks, a n d t h e
rest o f i t would b e demand deposits.
the reserve proportions a t all.
I t dees n o t change
T h e o n l y place T — can
see where i t would have a n y effect would b e i n a case
in New England.
Y o u might have a national b a n k i n
Springfield that had an account with a mtual savings
bank i n Springfield that h a d n e other b a n k accounts
at all, and they would b e allowed t o deduct "due from
banks.”
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Federal Reserve Bank of St. Louis
75
Governor Harding.
W e d i d not raise this inquiry.
Governor Seay. M r . C h a i r m a n ,
t h e Board has ruled
that building a n d loan associations a n d mutual savings
banks a n d private banks d o net come within t h e meaning
of the word "bank" as used i n the Federal Reserve Act.
That being t h e ease, I
do not. see h o w balances d u e t o
those banks could b e deducted.
Governor Norris. Counsel f o r t h e Board has given a n
opinion that mutual savings banks are banks within the
meaning o f the Federal Reserve Act.
The Chairman, T h e Board has made t h e ruling that
Governor Seay mentions, a n d consequently cannot make the
deductions suggested b y this inquiry, whoever m a d e then,
and i t involves a change i n the rulings o f the Board,
The question now is whether i t would b e wise for this
Conference t o recommend a n y such change a s this. This
matter was considered a t ene bank, a n d one o f our men
expressed his views, w h i c h I think a r e scund, a n d I
wonder i f Mr. Harrison will n o t read this.
Mr. Harrison (reading):
"On the basis of existing rulings, therefore,
it seems clear that deposits o f the character under
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Federal Reserve Bank of St. Louis
76
discussion cannot b e considered a s balances ' d u e
to banks.'!
"It i s presumed that the Board wishes t o have
the matter considered, however, o n its merits and
quite regardless o f previous rulings.
"It i s understood that the paragraph quoted
above f r o m t h e A c t i s the result o f a n attempt t o
make legal a
practice which h a d existed w i t h the
appreval o f the Comptroller o f the Currency prior
to t h e e s t a b l i s h m e n t
o f the Federal Reserve S y s t e m
under which banks h a d been permitted t o offset balances ' d u e t o banks! w i t h balences ‘ d u e f r o m
banks!
i n computing reserve requirements.
This
practice p r o b a b l y w a s b a s e d e n t h e t h e o r y t h a t b a l -
ances d u e from banks represented i n censiderable part
items
i n process
o f collection,
t h a t i s uncollected
funds, a n d also t o the extent that i t did not represent uncollected items, t h a t t h e funds w e r e available
for t h e liquidation o f deposits.
I t may have been
argued that s u c h balances ' d u e f r o m banks,' while
entitled t o consideration i n the matter o f reserve
requirements, o u g h t n o t t o b e permitted a s a deduct-
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Federal Reserve Bank of St. Louis
i 4
ion from gross deposits, b u t o n l y from balances
due t o banks o n the theory that i n times o f stress
there would t o a considerable extent b e a n offsetting o f bank balances.
"In the light of present-day banking methods
the whele procedure i s unsound a n d antiquated.
There
ids no basis i n fact warranting the deduction o f
balances ' d u e from banks! f r o m anything. D e d u c t iens, i f made a t all, should represent o n l y items i n
process
o f collection
should b e r e q u i r e d
o n t h e t h e o r y t h a t n o reserve
o n deposits u n t i l t h e d e p o s i t
represents c o l l e c t e d funds,
a n d s u c h deductions,
if
permitted, s h o u l d b e from gross deposits rather
than balances t d u e t o banks.!
I t i s recognized,
however, that such a procedure would require a change
in the Act which cannet b e a t once accomplished.
Therefore, dealing with the question i n the light
of the Act a s i t n o w stands, -
"It is recommended that f t would b e inadvisable
to make a n y more liberal interpretation o f the intention o f the Act than i s necessary a n d inasmuch
as t h e p r e s e n t r u l i n g o f t h e B o a r d d o e s n o t permit
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Federal Reserve Bank of St. Louis
7S
the classificationf
o deposits cf the character
under discussion a s balances d u e t a banks,
it eed
be better t o let matters stand a s h a t bing e s
than t o further liberalize it.
"As t o whether s u c h deposits s h o u l d b e classi-
fied a s demand o r time depesits, that obviously
would have t o depend upon the ccenditiens under which
the depesit i s taken.
I f the bank holding such de-
posits h a s t h e legal right t o require thirty days!
notice o f withdrawal o r i f i n other respects t h e
depesits m e e t t h e test o f time deposits, t h e n they
should be so considered, otherwise they sheuld be
considered demand aceeeken*
Governor McDougal.
T h a t is a
very s e n s i b l e s t a t e -
ment w i t h r e g a r d t o t h e w h e l e matter. I
d o not bélieve
the Beard's rulings, though, covered Morris P l a n banks.
Governor Norris. M o r r i s P l a n banks a r e n t banks a t
all.
Governor McDougal,
I n considering t h e application
of the provisions o f the Clayton Act, I
understand thet
Morris Plan banks are considered a s banks.
Governor N o r r i s . I
t is hard t o know when a ‘bank i s
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Federal Reserve Bank of St. Louis
or i s n o t «
bank now,
Governor Wellborn.
Governor Fancher.
T h e y a r e not banks o f deposit.
O u r c o u n s e l says:
"The Supreme Court o f the Upited States had
held that banks i n a commercial sense a r e o f three
kinds: ( a ) e f deposit; ( b ) o f discount; ( c ) o f circulation. T h e y further h e l d that a
bank which exer-
cises b u t o n e o f these functions i s a bank i n the
strictest commercial sense. W h i l e this court decision i s obviously a n old one i t 1 s quoted b y the
Attorney General i n opinion published i n the Federal
Reserve Bulletin No. 27, page 268. S i n c e all o f
these organizations exercise one o r more o f the three
above-mentioned functions, f t clearly follows that
Ina technical sense they are banks, a n d f f a n institution where such balances a r e carried choases t a
qualify t h e m a s fdaue t o t , I can see n e w a y i n which
it c a n b e avoided.
"TJ have discussed this matter with Mr. Newell"-Mr. Newell i s our attorney.
"..-who has confirmed this cpinion.”
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Federal Reserve Bank of St. Louis
80
Governor Seay.
T h a t i s not t h e opinion o f our
counsel, M r . Chairman, a n d h e gives a n opinion v e r y
analagous t o that r e a d b y Mr. Harrison.
S u m m e d up in
one sentence, it-is t e the effect that mutual savings
banks, c o o p e r a t i v e b a n k s , c r e d i t u n i o n s a n d
Morris
Plan-banks
d o n e t u n d e r t a k e ‘the c o l l e c t i o n o f
checks
on a-large scale, a n d i t seems a
deposit balance d u e ‘by
& commercial b a n k t o such a n institution cannot
‘be dits-~
‘tinguished f r o m a deposit balance d u e t o a n y other
eustomer.
The Chairman. N o n e o f them urdértake t h e collection
of checks a s collecting agencies.
Governor Fancher. A n d they d o not a s a rule carry
checking accounts.
The Chairman.
M u t u a l savings b a n k s i n o u r district
are n o t r e a l l y permitted.
Governor Talley.
loan association,
W i t h reference t o the building a n d
t h e y c a r r y n o reserve themselves a n d
are not required i n our state.
are specified.
T h e form o f investments
I n view o f the fact that t h e y carry n o
reserves a n d their balances w i t h other banks a r e
merely
investments w i t h t h e banks, t h e banks should carry
full
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Federal Reserve Bank of St. Louis
reserves a g a i n s t t h o s e balances.
The Chairman.
W e are n o t lawyers a n d don't y o u
think w e are justified i n passing a resolution-that.
the Board make n o change in: the existing regulation?
Governor Talley. I
Governor Geery. I
make that motion.
second it.
(The motion was put and unanimously carried.)
I. C r e d i t Transactions a n d Policiés.
G. D e v e l o p m e n t
o f investment companies
for purchase o f bank stocks.
The Chairman.
This m a t t e r - h a sd
a
h a
v e r y a c t i v e de-,
velopment i n our district.
Governor Talley.
D o yey include investment trusts
in that?
The Chairman.
Yee
W
Their business i s analyzed.
the investors i n quite a
e have a
l i s t eof all o f them.
W e even have a list o f
n u m b e r fo them.
Governor Seay. H o w many o f them are there, Mr.
Chairman, without counting--a hundred?
The Chairman. There are sixteen.
Governor Harding. That 1 s just the New York district?
The Chairman. J y s t N e w York. I
d o not know what t o
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Federal Reserve Bank of St. Louis
B82
do a b o u t t h i s report,
i t i s s o long. P r o b a b l y t h e
best thing t o do, Mr. Harrison, w i l l b e t o ask for a n
exchange
o f views
o n this subject. I
think y o u h a v e
got t e watch it.
Governor Fancher. I
interesting
think t h a t r e p o r t w o u l d b e v e r y
t o all o f t h e Governors here.
Couldn't
we
have c o p i e s m a d e ?
The Chairman.
I t i s thirteen pages.
Governor McDougal.
D e these sixteen companies y o u
refer t o mean companies specializing i n bank stocks?
The Chairman. N o t altogether i n bank stocks, no.
I can give y o u a lot o f them.
(The Chairman here read t h e list c f companies f r o m
the report.)
The Chairman (continuing). T h i s winds u p with a
recommendation which I will have Mr. Harrison read t a
you, a n d then, i f you would like a report c n this, w e
will b e glad t o have that struck off a n d send i t around.
Mr. Harrison.
A f t e r reciting these various com-
panies t o which Mr. Strong has’ just referred, t h e memorandum c o n c l u d e s
w i t h this recommendation:
"That a t ur early date there b e held confer-
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Federal Reserve Bank of St. Louis
83
ences o f the cfficers o f the Federal reserve
banks w i t h the Comptroller o f the Currency, t h e
Chief National B a n k Examiners a n d t h e Su:erintendents
o f Banks f e r t h e p u r p o s e
o f considering
this general problem and working out plans for dealing with i t t n each Federal Reserve District.
Among t h e m e a s u r e s w h i c h s e e m d e s i r a b l e a r e t h e
following:
"1, Examinations o r investigations o f companies engaged i n purchase c f bank stocks should b e
made b y the appropriate State authorities a n d efforts
should b e m a d e t o h a v e s u c h c o m p a n i e s p u b l i s h f r o m
time t o time statements o f their financial condition
and l i s t s o f t h e s e c u r i t i e s h e l d b y them.
"9, Frequent and searching examinations o f
banks included i n chains centrolleg b y these com-
panies should b e made.
"3, T h a t i n the examinations c f all panks,
loans t o companies o f this k i n d o r loans based
upen their stock should b e set out i n the examination
report.
"4, T h a t i n case where circumstances warrant,
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Federal Reserve Bank of St. Louis
84
the attention o f Atborney General o f the state
be called t o the operations o f any particular
company which i s engaging i n illegal practices."
Governor Seay.
T h a t i s treating t h e matter quite
seriously.
Mr. Harrison.
W e think i t i s serious.
Governor Seay. G o v e r n o r McDougal, there w a s some
report
i n a t least o n e o f t h e papers
eity, I
o f parties
i n your
think, w h o signified their purpose t o organize
a national b a n k i n every Federal reserve a n d branch city
in t h e country.
Governor McDougal.
I f that i s this fellow Parker,
I think his name is, h e has n e standing and h e is not
looked upon with a n y fear o r apprehension a t all.
Governor Fancher. H a s n ' t h e transferred h i s activities f r o m Chicago t o New York?
Governor McDougal. That I do not know.
Governor S e a y .
H e i s r e p o r t e d toa have t a k e n t h e
view that t h e National B a n k Act required t h e Comptroller
to authorize t h e organization o f a national b a n k when
the required number o f persons applied tno him for that
purpose, a n d that h e had n o discretion; but, a s w e
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Federal Reserve Bank of St. Louis
85
know, t h e Comptroller j s beginning t o exercise a
very
mich c l o s e r s u r v e i l l a n c e o v e r t h e o r g a n i z a t i o n o f n e w
national banks.
Governor McDougal.
T h a t i s the attitude that h e
displays w i t h r e g a r d t o this. -
discussed a
I have h e a r d t h e m a t t e r
good deal o u t there, because o f the news-
paper publicity t h e y have given it, b u t i t seems t o m e
more talk than anything else.
Governor Fancher. I
do know that t h e Better Busi-
ness Bureau i n New York camped o n brother Parker's
trail,
a n d t h e y h a v e g o t h i s number.
H e will have a
hard time t o get very far.
Governor Norris. I
think this i s a n interesting
and important development i n American finance.
question t h a t a r i s e s
i n m y mind, h o w e v e r ,
T h e
i s whether a n y
steps that ought t o be taken i n reference t o it should
be initiated b y us o r b y state o r national banking au-
thorities o r blue-sky commissions, o r whatever they are
called,
o r b y some organization o f bankers. I
it i s a g r e e d t h a t t h i s i s n o t p a r t i c u l a r l y a
reserve p r o v i n c e ,
ment t h a t ,
suppose
Federal
a n d i s i t s u c h a n important develop-
i n the absence
o f a c t i o n b y a n y b o d y else,
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Federal Reserve Bank of St. Louis
86
there i s a moral obligation o n us t o start sone action?
Governor Talley. I
would s a y that, inasmuch a s i t
affects t h e stockholders't liability i n certain banks,
yt i s a Federal reserve matter.
Governor Norris. I
do net think i t does.
I f any
one o f t h e s e c o m p a n i e s w a s o r g a n i z e d f o r t h e p u r p o s e
of acquiring the stock o f one bank o r one chain o f banks,
then would affect t h e stockholders! liability a n d all
their eggs would b e i n one basket, a n d i n case t h e bani
er chain o f banks went wrong there would b e n e other
assets there that y e u could collecs from.
B u t most
if not a l l o f them scatter their investments a n d hold
stocks
i n various d i f f e r e n t b a n k s ,
a n d most o f them
not o n l y i n banks b u t i n insurance companies a n d other
concerns.
S o that thet being t h e case, I
d o not s e e
that t h e stockholders! liability i s affected,
Governor Talley.
Of course, w
e are pretty f a r
from the scene o f action o f such enterprises, b u t w e
feel a great deal c f concern about i t a s affecting t h e
general banking situation, a n d I have prepared a short
memorandum h e r e w h i c h I
would l i k e t o read:
"Assuming that Topic G, - Development o f
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Federal Reserve Bank of St. Louis
87
investment companies f o r purchase o f bank stocks--=
ts closely related t o the topic which i s generally
current a n d r e f e r r e d
t o a s investment trusts, t h e r e
are three points w h i c h might b e briefly made.
"First | if investment companies which are ormenized f o r t h e purchase o f bank stocks a r e operated
along t h e lines o f the socalled investment trust,
as such organizations h a v e been recently established,
then t h e p r a c t i c e
w o u l d b
e a
matter
o f some c o n e
cern a n d some sound regulation that would n o t b e
irksome t o a sound enterprise, b u t would prevent
unsound practices, s h o u l d b e established.
"Second, i f the question is. clearly established that stockholders! liability would b e
eliminated t h e object o f that provision o f l a w
would b e defeated; then certainly investment companies organized f o r t h e purpese o f owning bank stocks
are unsound i n principle,
i f not. tilegali.
"Third, t h e organization o f helding companies
for the purpose o f owning the stcecks c f small individual institutions a n d a t the same time owning
the control o f e« larger institution i n order that
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Federal Reserve Bank of St. Louis
88
such small individual institutions might b e operated for a l l practical purposes a s branches o f
the large institution, w o u l d defeat t h e objectives
and purpeses o f the Act o f February 25, 1927, k n o w n
as the McFadden Act, a n d would b e i n effect detrimentally competitive t o those larger individual i n stitutions w h i c h a r e located i n states which d o
not permit branch banking.
"The point which i s made i n the second subdivision above would b e ene e f consideration i n
connection w i t h this principle. M o r e o v e r , t h e
opportunity f o r indulging i n the unsound practices
that frequently appear i n what i s known a s chain
banking would n o t necessarily b e eliminated b y
reason o f t h i s practice.
What I
see i n t h e t e n d -
ency o f the socalled investment trust i s that t h e y
are fair weather enterprises a n d a s long a s stocks
are moving upward, everything i s lovely."
Governor Biggs.
M r . Chairman, I
would like t o
raise t h e p e i n t h e r e a s t o whether t h i s c o n d i t i o n p r e vails
i n a n y c t h e r district.
T h e s e investment companies
have been buying o u r best b a n k stock f o r sixty days.
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Federal Reserve Bank of St. Louis
89
They have raised t h e price o f four different b a n k stacks
from$35
t o $60 a
share.
O n e concern very frankly
stated that t h e y have s o many shares o f the First
National Bank, a n d t h e y c o u l d n o t g e t t h e m a n y w h e r e n e a r
the m a r k e t a n d t h e y w e r t o u t a n d p a i d a n a d v a n c e
of
$50 a share for a s much as was advertised for sale.
Since then the stock has gone u p $30 or $40 a share o n
that situation, a n d all four a r e four o f the largest
banks there, a n d o n inquiry I
these investment companies.
find that i t i s due t o
T h e r e i s nothing that
would justify that stock going a n y higher, because t h e y
are n e t m a k i n g a s m u c h m o n e y o r n o m o r e m o n e y t h a n t h e y
were making a
year ago, a n d i t i s getting beyond a divi-
dend-paying basis, and I was just wondering if thet
same thing was hciecon die i n ether districts.
Governor McDeugal.
I s this a
St.Louis enterprise
that i s doing t h e buying?
Governor Biggs. N o .
Company.
I t is called the New England
T h e y have salesmen going around a n d soliciting
peonle t o take what they call a participation, stating
they have got s e many industrials a n d then s o much o f
the good bank stock, a n d they say, "Here i s what you
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Federal Reserve Bank of St. Louis
90
are participating in; y e u know all o f these institutions a n d y o u c a n l o o k t h e m u p a n d m a k e i n q u i r y , ”
and
they a r e selling real stock there e n that business t o
& l o t o f people.
The Chairman.
Y o u speak o f that development i n
St.Louis i n terms that indicate that y e u feel some concorn.
Governor Biggs. I
The Chairman.
certainly do.
I f v o u came t o N e w York a n d learned
the h i s t o r y o f s o m e o f t h o s e t h a t w e r e d e v e l o p e d
York, y o u would g o t o a hospital w i t h concern.
i n New
What I
mean t o s a y i s t h a t o n e i n v e s t m e n t c o m p a n y b o u g h t i n -
vestments i n bank stocks,has securities cutstanding
today i n N e w Y o r k t h a t h a v e a
market v a l u e o f o v e r
9125 ,000,000.
Governor Biggs.
I n that connection,
i n making
this inquiry a n d talking t o the officers o f the bank,
I found that this fellow o u t i n California h a d been
buying b a n k stock i n five o f the biggest banks o f
St.Louis for a year, just a s fast a s he could get it.
The Chairman.
T h e r e seems
are elements o f danger i n it.
t o b e n o doubt t h a t there
O n e o f them t s the one
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Gevernor
Talley referred to, that these stocks have
double liability.
n o
M o s t o f them are incorporated
in cur state under statutes o r the statutes o f other
states w i t h o u t a n y d o u b l e l i a b i l i t y provision,
and
consequently t h e creditors o f the bank whose stock i s
held b y this i n v e s t m e n t c o r p o r a t i o n
d o not get t h e
benefit o f the double liability i n the same complete
sense that t h e y d o i n other cases+
T o b e sure, where
the company i s large and they hold a variety o f securities, t h e y would g e t protection, b u t where t h e y confine their purchases t o one o r two banks t h a t might
go d o w n i n a crash, t h e p r o t e c t i o n
is lost.
c f double liability
T h a t i s e n e denger undoubtedly, p o s s i b l y a
less o n e that some o f the others.
The second danger i s that there i s speculation i n
this s t u f f ,
i n the investment
ment companies.
o f s t o c k o f t h e invest-~
A s they g o u p i n velue t h e y c a n mar-
ket more stocks a n d b u y more b a n k stocks a t higher
prices,
a n d p e o p l e a r e l e d t o b o r r o w i n o r d e r t o specu-
late i n these investment company stocks, a n d something
might come along and prick the bubble and then the
sharp decline i n the stock o f the investment companies
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is very liable t o affect t h e credit o f some bank with
which i t i s associated.
Gevernor Seay.
I f i t controlled t h e hceldings
of that bank stock i n the market.
The Chairman. Yes.
B u t I mean mest o f these con-
cerns i n New York have b e e n crganized b y individuals
who a r e associated with some particular bank. I
went
mention a n y names, b u t y o u prebably k n o w seme o f them.
Almost e v e r y o n e h a s b e e n o r g a n i z e d a s a n a t t a c h m e n t
to
@ commercial b a n k o r e« trust company, a n d the development o f the speculation o f this stock a n d the possible
collapse
i n its value might b e construed
b y t h e public
to indicate t h a t there i s something wrong w i t h the
bank, a n d they might start a run o n the bank itself.
Wwe have t a k e n i t u p w i t h s e m e o f t h e s e f e l l o w s
and a t l e a s t m a d e i t p e r f e c t l y c l e a r t o t h e m t h a t w e
did n o t l i k e t h e w a y t h i n g s w e r e going.
T h e question
arises a s t o whether i t i s a n y o f our business a t all.
I have a feeling that where a
concern o f this sort i s
organized i n close affiliation with a member bank and
that m e m b e r b a n k m a k e s l o a n o n t h e s t o c k o f t h a t concern,
and they have a sort o f interlocking arrangement f o r
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Federal Reserve Bank of St. Louis
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transactions o f one kind a n d another i n securities,
that i t m a y b e v e r y m u c h o u r business,
b u t w e have n o t
any f o r m u l a d e v i s e d f o r d e a l i n g w i t h i t , b u t I
ginning t o have a
a m be-
feeling that i f this thing i s going
on m u c h f u r t h e r w i t h t h e s t a t e b a n k s a t least, w h e r e
we h a v e s o m e c o n t r o l
o f t h e membership,
w e m a y b e obliged
te say to them, “If you want t o continue members o f the
Federal Reserve System,
w e are going t o have t h e right
to examine that investment company.”
I t is rather
puzzling, because the superintendent o f banks has n o right
to examine them, apparently.
Governor Fancher.
T h e y are organized under t h e
general incorporation laws?
The Chairman. Yes, sir.
Mr. Fancher. With no stockholders! liability?
The Chairman.
N o . S o m e o f them a r e incorporated
under t h e laws o f other states.
Governor Seay.
If a
bank should m a k e l o a n s
o n the
stock o f a n investment company which held stock i n the
bank, i t would b e equivalent t o lending o n its o w n
stock?
The Chairman. T h e r e w a s a
concern organized i n New
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94
Jersey that bought t h e majority o f the stack o f a
bank, about 8 0 o r 9 0 per cent, I
think, t h e investe-
ment company did. T h e very first crack o u t o f the b o x
they went t o the president o f that bank a n d t h e y seid
he had t o take t e n thousend shares o f that stock.
He
said, " I wont d o it." T h e y said, " I guess w e know
whe owns this bank, " and h e went t e the court a n d said
"How about that?"
not.
H e said, "They went." A n d they did
T h a t i s net t h e present situation.
There was a big insurance company and a trust company i n New Jersey where o n e bought t h e stock o f the
other, a n d vice versa, a n d t h e courts t o r e that apart
and m a d e t h e m separate.
I d o n o t l i k e t h i s development. I
do not like
speculation i n bank stock. T h e fact i s that b a n k stocks
in New York have gone u p 50 per cent i n value, but a
part o f the advance h a s undoubtedly b e e n d u e t e the
unlicensed purchase o f stock b y these investment companies,
a n d when y o u l o o k over t h e lists
o f the se-
curities which w e have o f some o f them, they have
millions a r d millions o f dollars o f bank stock a t
constantly rising prices.
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Governor Talley. Y o u mean t h e y have gone u p i n
price a n d n o t i n value?
The Chairman: Yes, sir.
Governor Talley. I
the c p e r a t i o n s
would like t o ask Wr. Day about
o f t h i s m a n o u t i n California.
Geverneor Day. T h e Bank of Italy Corporation was organized i n June, 1919, w i t h a million dollars o f capital, a n d they have gone f r o m 1919 t o Uctober, 1927, t o
a fully paid up capital o f $130,000,000, with total surplas o f $235,000,000.
T h e last statement w e have i s
Lctober SOth, 1926, w h e n they designated t h e y h a d
$40,917,000 worth o f domesti¢ bank stock i n their invest-
ment trust and $10,751,000 worth of foreign bank stock.
They o w n stocks i n every important b a n k .
in every
important c i t y i n the world.
Governor McDougal.
W h e r e does this enormous capital
and accumulated surplus c o m e from?
Gevernor D a y . M e s t l y f r o m t h e public, I
should say.
Governor lMeDougal: D e e s i t come a t all from washing
out t h e book value?
Governor Day. I imagine i t does, but I have n o information a s t e that.
B u t t h e y a r e continuously giving
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the public opportunity t o participate a t prices slightly below t h e market a n d later o n declaring stock dividends.
The Chairman. A n d then they issue t w o classes o f
stock, o r more, a n d give t h e dear public a
limited par-
ticipation i n the appreciation a n d keep t h e unlimited
participation themselves?
Governor Bank. N e t i n the Bank o f Italy, no.
Governor McDougal.
I t would b e interesting t e see
to what extent somes o f the organizations a r e operating
in other cities.
W e d o not k n o w o f a n y corporation
of that sort i n Chicage o r i n our district.
The Chairman.
W e l l , y e u know that this California
ene m a y o p e r a t e there.
Gevernor l i c D e u g a l .
W
e m a y assume,
f r o m what
w e
have b e e n told b y New York, t h a t t h e operations o f these
sixteen c o m p a n i e s h a v e a
gocd c e a l t o d e w i t h what h a s
happened t o our bank stocks too.
Governor Fancher. I
think i t i s very significant
about t h e attitude o f the public w h e n y o u see t h e Bank
of Italy Gorporation trading o n the N e w York curb t o
the extent o f 37,000 shares i n one d a y a n d selling
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Federal Reserve Bank of St. Louis
115, 1 1 6 o r 117. S o m e b o d y owns t h e stock.
The Chairman. Why, Governor Fancher, these banks
uptown--there
is a
small people.
S o m e o f t h e smaller uptown banks
lat o f speculation u p t o w n among t h e
in
New Y o r k C i t y i n f o r m e d M r . C a s e t h a t t h e r e a s o n w h y
they come t c u s f o r credit more t h a n they usually a r e
exnected i s that their customers h a v e drawn their money
out i n order t o b u y t h e s e i n v e s t m e n t c o m p a n y s t o c k s a n d
bank stocks, a n d their balances therefore a r e reduced
to a
point w h e r e t h e y h a v e t e b o r r o w m o r e t h a n usual.
We asked them all i f they a r e lending very largely,
and s o m e o f t h e m a r e i e n d i n g t e o h u c h s
W
e d o not
run every o n e o f the banks i n our district;
do m o r e t h a n r e m o n s t r a t e
u p to a
w e cannot
certain point,
but
we are making i t a little uncomfortable t o some o f them.
Governor Biggs.
H o w do you make i t discouraging
for t h e m ? W h a t d o y o u d o ?
The Chairman. W e l l , w e intimate t o them that w e
de not like very much, a n d w e are watching how much
they borrow f r o m u s when t h e seasonal demand comes along.
That i s a pretty strong intimation t o the uptown banks,
because t h e y a r e absolutely dependent except during t h e
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Federal Reserve Bank of St. Louis
98
season when they are manufacturing i n the spring. N o w
they p a y off, b u t i t i s i n the spring that t h e y borrow
$t%
Governor Seay. They cannot object t o the withdrawal
of the money o f their depositors.
The Chairman. N a , b u t i f w e find they are lending
we have a
little t a l k with them.
M y recommendation t e
the m e e t i n g f o r a c t i o n i s t h a t w e h a v e a
little i n q u i r y
made i n each locality a n d get o u r reports a n d exchange
them between e a c h banks; l e t each bank make u p a dozen
reports a n d send t h e m t o each o f the others.
Governor Norris. Wouldn't i t b e better t o get u p
a questionaire t h a t w e c o u l d a n s w e r , b e c a u s e
w e d o not
know what points y o u have covered i n your report?
The Chairman. What. d o you say, Governor McDougal?
Governor McDeugal. I
suggest that perhaps those
who a r e here a r e i n a position t o report n o w a s t o
whether t h e s e c o m p a n i e s a r e o p e r a t i n g
The Chairman. I
i n t h e i r districts.
would like t e see a written report
that w e could assemble. P o s s i b l y t h e best w a y t o get a t
that would b e for u s t o make o u r report a n d send i t
around a n d that would b e a guide.
N e w York i s where
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Federal Reserve Bank of St. Louis
99
most o f this h a s developed lately i n nuibers, a n d w e
could h a v e t h i s r e p o r t e l a b c r a t e d q u i t e a
ulars.
T h i s report
i s rather a
b i t i n partic-
casual, o f f - h a n d s t a t e -
ment, b u t w e will p u t some o f our fellows o n the j o b
very t h o r o u g h l y a n d g e t a
real r e p o r t a n d s e n d i t around,
and i f you gentlemen c a n d e the same thing that will
be very helpful.
Governor Talley.
any district.
I t i s a thing that c a n invade
I t may have invaded curs, I
do not know
yet, a n d i t would take a n inquiry t o develop that.
Governor Seay.
I f i t can g o into 5t.Louis i t can
go into o u r district a n d d o the same thing, a n d then
you would not have t o make a n inquiry t e find c u t about
it.
Governor Wellbarn. I
da not think t h e y would have
the temerity t o come i n t o t h e Sixth District since t h e
failure
o f t h e Atlanta banksand others
i n Georgia a n d
Florida.
The Chairman.
I f you will permit me, w e will have
the ceport started a t N e w York a n d send i t around, a n d
if w e follow that general l i n e maybe t h a t will b e enough.
There i s quite a little inquiry about this i n New York.
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Federal Reserve Bank of St. Louis
100
The Attorney General o f the state i s making a n investigation.
Governor S e a y .
T h e r e i s alse a n inquiry into
these i n v e s t m e n t t r u s t s .
H a v e n ' t questionnaires
o f dif-
ferent c h a r a c t e r b e e n s e n t o u t b y y o u r s t a t e b a n k i n g d e partment?
The Chairman. Yes.
ment trusts,
T h a t w a s described a s invest-
b u t i t includes a l l o f these.
Stands a g t h e action o f the meeting,
I
f that
w e will pass t o the
next topic, H , preposed b y Dallas.
I. C r e d i t Transactions a n d Policies.
H.What effect will ruling o f Supreme Court
of Texas t h a t t r a d e a c c e p t a n c e s a r e n o n -
negotiable which bear the legend - "The
obligation o f the acceptor hereof arises
out o f the purchase o f goods f r o m the
drawer, maturity being i n conformity with
the original terms of purchase"--have
upon t h e negotiability o f bankers
acceptances containing similar language,
e. g@- T h i s acceptance arises f r o m t h e
domestic storage o f cotton a n d was
secured a t t i m e o f a c c e p t a n c e
b y docu-
ments securing a n d conveying title t o ---bales a n d will remain s o secured through-
out the life o f this acceptance."
Covernor T a l l e y . I
ginning that,
would l i k e t o s a y i n t h e b e -
i n view o f the fact that w e have h a d this
supreme court ruling d o w n i n Texas,
cern
t o u s thank t h e i n t e r e s t
i t i s o f more con-
w e have been able
t o
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Federal Reserve Bank of St. Louis
101
erouse i n the cther districts, b u t the indications o r e
thet i t i s a matter o f concern t o the other districts.
The copic "that I have p u t o n the program o f course mentions t h e supreme court ruling with reference t o the opinion
of non-negotisbility o f trade acceptances, b u t that i s
more o r l e s s incidental.
O u r counsel h a s g i v e n m e a n
epinion that h e has a right serious doubt e s t o the negotisbility o f bankers accaptances o f this character,
covering t h e domestic storage o f cotton a n d other commodities e n d secured a t the time o f acceptance b y documents
piving title t o the commodity a n d will remein s o secured
throughout t h e l i f e o f t h e acceptance.
I have sent a copy o f his copinton t o the other
banks a n d I think I have t w o opinions f r o m t w o o f the
benks which, w i t h ©11 due. respect t o their counsel, s e e m
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Federal Reserve Bank of St. Louis
a0 2
to t r y t o e v a d e t h e q u e s t i o n r a t h e r t h a n t o s o l v e i t .
Briefly, I
have a s u g g e s t i o n h e r e , i r r e s p e c t i v e
opinion o f counsel, t h a t might bring a
o f the
solution toe it,
pretty much a s w e changed t h e wording o f the trade
acceptance.
fhe OhatriianicyGovernor T a l l e y , t s n ' t t h i s r e a l l y
a legal question which has g e t t o b e referred t o counsel?
Governer Talley. I
would b e glad t e refer i t t o
the Committee o n Acceptances, ocr something o f that kind.
Governor Bailey.
I s there a movement o n font t o
have a meeting e f all o f the banks! counsel? The Chairman.
I t was understord a t one time that
that meeting would occur abcut once a year. Mr. Wyatt
spoke t o m e about i t d a y before yesterday a n d asked i f
there w a s a n y d e s i r e f o r s u c h a
meeting, h e c a u s e
thought i t would b e very helpful.
he
I f such a meeting
would b e held, t w o o r three questions o n this program
and some other matters w h i c h are pending before t h e
System could well b e referred t o that meeting.
Geverner B a i l e y .
T h i s i s o n e o f them.
The Chairman. T h i s i s ene c f them.
Governor Talley. I
t h i n f r o m time t e time w e have
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Federal Reserve Bank of St. Louis
102
accumulated some legal questions t h e t i t might n o t
be
amiss t h a t t h e y have a conference t o arrive a t
some
uniformity a s t e some o f these questions.
The Chairman. W e l l , there a r e three o r four
cases n o w t h e t I
know of. T h e r e i s t h i s e n e w h i c h y o u
raise about t h e negotiability o f the acceptance.
There i s t h e q u e s t i o n o f t h e d e c i s i o n o f t h e s u p r e m e
court o f Kansas i n Colorada &
Southern Railroad Com-
pany versus t h e receiver o f the American State Bank,
which came up. T h e r e i s still t h e Open, unsettled
case o f the state b a n k o f Huge. T h e r e i s the case
that i s n o w about t a come u p i n Atlanta o f the pract-
ice now adopted o f putting o n checks: "Payable i n New
York exchange," and having the customers o f banks draw
them o n themselves payable a t banks where t h e y carry
their account.
Governor Wellborn,
That is a
n e w departure,
that
last mentioned draft.
The Chairman. Y e s .
T h e r e are a
ions o f t h a t s o r t w h e r e I
number
o f quest~
would l i k e v e r y w e l l t o s e e a
meeting o f the counsel yeld.
Governor Bailey H a w will w e d o that, t h a t this
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Federal Reserve Bank of St. Louis
104
Conference recommends t h a t t h e Board call a
When i t i s t i m e t o d o that, I
meeting?
would l i k e t o m a k e t h i s
motion.
The Chairman. I
these questions,
do not feel competent
t o discuss
w h i c h a r e strictly questions
o f law,
and which will affect a l l the Federal reserve banks.
I would really feel more comfortable i f w e could have
another meeting with the counsel o f the reserve banks.
Governor Harding. I
Mr. Wade,
have a
letter f r o m cur counsel,
o n the subject c f this Texas decision, a n d I
would like t o hand i t i n t e the Secretary.
The Chairman.
W h a t i s y e u r pleasure, g e n t l e m e n ?
Governor Norris. I
The Chairman.
second Gevernor Bailey's motion.
I s there a n y discussion?
A r e you
ready f o r t h e q u e s t i o n ?
Governor Talley. I
would like t o add t o it, f o r a
meeting a t a n early date.
The Chairman.
T h e amendment i s accepted b y the pro-
poser.
Governor Norris.
should c o n t a i n a
A n d then I think t h e request
statement
o f s o m e o f t h o questions.
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Federal Reserve Bank of St. Louis
10D
Perhaps t h e r e a r e s o m e a d d i t i o n a l o n e s t o t h e s e t h a t
have already been mentioned this afternoon.
Governor Bailey.
W e might say, i n view o f the fact
that there a r e certain legal questions pending that a r e
of interest t a the entire System,
well t o c a l l t h e c o u n s e l
w e believe i t would b e
i n e a c h b a n k together,
a n d see
if they cannot i r o n them cut.
The Chairman,
T h e n I weuld propose that t h e resolu-
tion b e a s offered b y Governor Bailey a n d amended b y
Governor Talley, t h a t t h e Conference recommend t o t h e
Federal Reserve Board that arrangements sheuld b e made
at a reasonably early date f o r a meeting o f the counsel
and
of the Federal reserve banks/of t h e System, M r . Baker a s
special counsel, a n d that t h e Secretary b e {instructed t o
submit t o the Board a list o f these legal questions n o w
pending,
a n d i n the notice
t o t h e reserve banks
o f the
action taken that e a c h reserve b a n k b e asked t o take u p
with t h e i r r e s p e c t i v e c o u n s e l a n y q u e s t i o n s w h i c h t h e y
think should b e submitted t o that meeting.
Governor Bailey. F o r h i m t o bring o n t o this meeting?
The Chairman. F o r h i m t o bring o n t e this conference.
Governor Talley.
O f course, t h a t will include t h e
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Federal Reserve Bank of St. Louis
counsel
o f t h e Board, t o o ?
The Chairman. M r . Baker a n d Mr. “Wyatt.
Governor Talley. M r . Chairman, I
attention
t e one point
would like t o call
i n connection w i t h this question
I raised w h i c h r a t h e r e m p h a s i z e s i t s severity,
a n d that
is I would like t o recall that the regulaticns o f the
Board d o not specify t h e character o f certificate o f
eligibility, b u t i t has left i t t o a form o f certificate
that would b e satisfactory t o a Federal reserve bank,
and the Federal reserve banks, a s a matter o f uniformity,
have adopted t h e certificate n o w i n use.
The Chairman. N o t t h e o n e i n Texas.
N o t the one
complained o f i n this case.
Governor Talley. T h e one o f the bankers acceptance,
The Chairman.
W e l l , t h e f o r m o f acceptance w h i c h
was t h e subject o f the litigation i n Texas i s net t h e
form which was adopted b y the Conference.
Governor Talley. N o » I , d i d n e t mean t e s a y that.
I a m referring n o w t o t h e fact that t h e eligibility which
appears
on a
bankers a c c e p t a n c e r e g a r d i n g t h e s t o r a g e
transaction, t h e r e i s nething s a i d i n the regulations
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Federal Reserve Bank of St. Louis
about t h e form.
The Chairman.
N o .
Governor Talley.
T h e reguletions state the Gligi-
bility a s follows:
"Evidence o f eligibility and requirement o f statements.-~/ federal reserve bank shall take such
steps a s i t deems necessary t o satisfy itself a s t o
the eligibility o f the draft, bill, o r trede acceptance offered f o r discount a n d m e y require a
recent
financial statement o f one o r more perties t o the
instrument. T h e draft, bill, o r trade acceptence
offered for discount a n d may require a recent financial stetement o f one o r more parties t o the
instrument. The draft, bill, o r trade acceptance
should b e drawn s o a s t o evidence t h e character o f
the underlying transection, b u t i f i t 1s not s o drawn
evidence o f eligibility may consist o f a stamp o r certificate affixed b y the ecceptor o r drawer i n a form
satisfactory t o the Federal reserve bank.”
From the above i t will b e observed that the Federal
Reserve Board does n o t define b y regulation t h e f o r m o r
character o f a stamp o r certificate affixed b y the acceptor
107-a
or drawer f r o m which eligibility m a y b e reedily determined
but lesves a u c h form o f stemp
o r certificate t o b e s o
affixed t o one that will b e satisfactory t o 9 Federal reserve bank.
T h e present f o r m o f certificate o r stemp i n
usé o n benkers acceptances covering t h e storege o f readily
marke¥Yable s t a p l e s a n d c o v e r i n g import. and e x p o r t t r e n s -
actions,
i s one o f uniform adoption b y the twelve Federal
reserve benks a s being heretofore satisfactory t o each.
It n o w appeers i f this Conference i s impressed i n eny way
with the weight o f e n y edverse opinion o f a n y Federel R e -
serve Bank's Counsel, o r is impressed with the doubt o r
certainty f r o m a consideration o f s summery o f 311 t h e
opinions, t h e n the Conference cleerly hes t h e right t o adopt
a definite f o r m o f certificate o r t o omit t h e certificate
sltogether upon its own motion without controverting o r
violating any provision o f the Board's regulation.
For o u r o w n part, w e favor t h e elimination f r o m the
certificate o f the following language:
" x »xsand will remain
so secured throughout the life o f this acceptance.”
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Federal Reserve Bank of St. Louis
108
The Chairman. W e l l , Governor Talley,
i n the cage
of a n acceptance w h e r e t h e f o r m o f a c c e p t a n c e
i s the
legend which makes t h e acceptance non-negotiable,
no
legend added b y the bank t e assure y o u e r eligibility
would cure that bill o f its non-negotiable character.
Governor Talley. T h a t i s just t h e peint I
a m making.
The Chairman, Therefore, i n this particular case
in Texas, what i s needed i s a legend which will pass the
test o f the courts a s t o negotiability. I s n ' t that i t ?
Governor Talley. T h a t i s it.
The Chairman.
T h e n y o u have a bill o n which t h e
member b a n k will affix t h e other legend, w h i c h will satisfy y o u that i t i s e bill which i s drawn i n good faith,
and s o on,
Governor Talley.
A n d our position i s that i n view
of that ruling and o f the likelihood that the same court
will held t h e bankers acceptance w i t h this legend o n i t
nen-negotiable,
w e are having transactions a l l t h e time
in bankers acceptances t h a t float across state lines.
Some o f them originate i n my district and seme i n other
districts.
The Chairman. T h a t has got t o go before counsel,
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Federal Reserve Bank of St. Louis
109
and your counsel i s acquainted with this.
G i v e him
all the data a n d i t will result i n some discussion a n d
advice, I
hope.
Are y o u ready f o r t h e question o n the motion?
(The motion was put and unanimeusly carried.)
The Chairman.
T h i s will alse cover Topic 1 .
Governor Talley. T h e point involved there seems t o
be a
question o f t h e treation o f a
trust relationship.
Governor Bailey. Y e s } a n d we have cut i t out from
our letters that w e send out.
ion and remittance.”
W e just say "For collect-
W e do not say "In Kansas City ex-
change."
Governor Talley.
W e cover that right specifically
in cur colleetion citenlar,
Governor Bailey. I
de not k n o w h o w y o u c a n make
the collection circular override a
decision o f the court.
We are not taking a n y chance o n it, a n d that i s the
reason I
would like t o get this Conference t o pass u p e n
it, b e c a u s e t h i s i s v e r y i m p o r t a n t
t o u s o u t there,
and
we have g o t t h e m broken i n s o that t h e y d o remit i n
Kansas C i t y exchange anyhow.
T h e r e was a
case o u t there
which got through t h e courts without u s knowing anything
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Federal Reserve Bank of St. Louis
110
about it, o u r attorney never k n e w o f it, a n d all o f
these forms were not brought i n at all, a n d i t was decided t h a t way.
The Chairman.
C a n y o u take a n appeal f r o m that?
Governor Bailey.
I t i s too late.
Gevernor Norris.
I t i s through t h e supreme court.
Governor Bailey. Yes. T h a t i s the supreme court. I
de n o t k n o w w h e t h e r
w e could a s k for a
new hearing o r
not.
Governer Talley. I
think w e cught t e refer t o this
conference o f counsel a l l o f these reports w e n e getting from Mr, Baker o n the matter o f procedure, a n d i t
can advise u s i f what w e are doing o n our collections
is ali right.
The Chairman. T p a t i s just the ebject p f the
proposal f o r a report.
Y o u know when Mr. Beker w a s
present the question was raised whether inadvertently
we were not traveling close t o some other pitfalls,
and i t w a s u n d e r s t o o d t h a t w e w e r e t o p r e p a r e a
report
en all the details o f our practices i n handling collect-~ion matters,
a n d t h e n w e started t o prepare s u c h a
re-
port a n d I think i t has b e e n sent t o the other reserve
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Federal Reserve Bank of St. Louis
lil
banks,
s c that b y following o n e o r the cther f o r m w e c a n
get uniformity.
Governor Talley. I
think t h e C o m m i t t e e
o n Collect-
fons h a s m a d e t h e S a n F r a n c i s c o r e p o r t t h e model.
Governor Norris. Yes.
The Chairman.
W e sent i t t o the Committee o n Col-
lections because i t was really their jeb.
Governor Fancher.
T h e chairman o f the committee
submitted your repert a n d o n e from t h e S a n Francisco bank,
and h e rather thought t h a t t h e S a n Francisco report w a s
the o n e which might b e followed b y the other banks.
Gevernor Norris. Now, w e come t o the Strong Stabilization Bill.
The Chairman. G e n t l e m e n , I
will s u g g e s t t h a t w e
make this t h e last topic a n d excuse t h e stenographers f o r
the afterneon a n d have this i n executive session.
(Whereupon,
a t 5 . 1 0 Pem., t h e C o n f e r e n c e w e n t
into executive session, a f t e r which a n adjournment w a s t a k e n u n t i l t o m o r r o w , T h u r s d a y ,
November 3, 1927, a t 10 otclock a.m.)
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Federal Reserve Bank of St. Louis
SECOND DAY.
A CONFERENCE O F GOVERNORS O F THE FEDFRAL
RESERVE BANKS.
ereasury Bulicing,
Washington, D . C.,
Thursday, N o v e m b e r 3 , 1927.
The C o n f e r e n c e
o f Governors
o f t h e Federal Reserve
Banks convened i n the Hearing Room o f the Federal Reserve Board, Treasury Building, Washington, D . C., a t
10 o'clock a.m., Thursdey, November 3 , 1927, pursuant
te adjcurnment o f yesterday.
APPEARANCES ;
AS i n d i c a t e d ’ n
i the first day's proceedings.
The Chairman, G e n t l e m e n ,
to order. I
have h e r e a
t h e meeting will kindly come
set o f t h e reports
o f the sub-
commitvee o f the General Acceptance Committee o f the Federal Reserve Board, made following the meeting held i n
New Y o r k a n d a
conference w i t h t h e officers, v i c e - p r e s i -
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Federal Reserve Bank of St. Louis
113
dents,of a l l t h e banks t h a t accept there, w h i c h report
contains t h e substance o f recommendations w h i c h have
been preposed a
number o f times t o liberalize o n e o r
two o f the rulings o f the Federal Reserve Board a s t o
acceptance credits.
G e v e r n e r Young has just handed
this t o me, w i t h t h e suggestion that this c a n b e considered a n d then commented upon, a n d that t h e Board will
thereafter t a k e action right away.
I also have a
rough draft o f regulation K , series o f
1927, relating t o the collection c f maturing notes a n d
bills. T h i s brings u p that old bird "ncen-cash collectione<"
T h i s i s t o b e distributed alse, Mr. Harrison.
After t h e t h a s b e e n read, p e s s i b l y a t a
maybe I
can suggest a
later session,
method o f dealing w i t h it. I
will
try to, anyway.
The l a s t r e g u l a t i o n n o w u n d e r c o n s i d e r a t i o n
regulatian D . I
is
have also b e e n handed tentative draft,
which w a s a p p r o v e d
b y t h e Federal Reserve B o a r d J u n e 2l,
1927. Accompanying that is a suggested alternative substitute o f Section 2-D, prepared b y the Board's counsel,
and t h e f i n a l d r a f t
of regulation D
n a w before
t h e Federal Reserve
Board
is the last draft submitted b y their
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Federal Reserve Bank of St. Louis
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counsel.
set,
I
t takes o n e o f e a c h o f t h e s e t o m a k e a
s o that w e c a n consider t h e proposed r e v i s i o n o f
the r e g u l a t i o n a s n o w b e f o r e t h e R e s e r v e Board.
This i s the impertant regulation having t c d o with
the reserve a n d deals w i t h the question c f window dressing,
that is, t h e weekly a n d bi-weekly reports o f reserves i n
the cities where there a r e branches, a n d the Board would
like t o have t h e Conference g i v e expression c f views o n
that, a l l o f w h i c h I
think w e s h o u l d t a k e u p tomorrow,
after w e have h a d a chance t o read these matters.
In t h e a b s e n c e o f t h e c h a i r m a n o f t h e A d v i s o r y Come-
mittee o f the Conference o n Legislative matters, suppose
we t u r n t e t h e s e c o n d g r o u p o f topics,
the Standing Committee o n Collections.
A , Report o f
I s Mr. Strater
available?
Geverner Fancher. M r . Strater i s here, M r . Chairman.
The Chairman. B e f o r e t a k i n g t h a t u p , y e u w i l l b e i n -
terested t o know that Mr. Newten D . Baker i s i n New York.
I had hir o n the telephone this morning and h e will
likely b e here this afternoon, n o t with t h e idea o f attending t o any business, b u t I told h i m that w e were a l l
here a n d I theught that everybody would b e glad t o see
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Federal Reserve Bank of St. Louis
115
him i f h e was i n the building.
H e said h e would proba~
bly b e i n the building some time this afternoon.
Governor McDougal. I
understood that Mr. Baker
was t o discuss this topic 2 - B with t h e Conference.
The Chairman. I
Governor Fancher.
did not know about that.
H e d i d not s o understand it.
Coming d o w n c n the train Monday I
asked h i m i f h e expeot-
ed t o a t t e n d t h e C o n f e r e n c e a n d h a v e a
discussion o f a n y
topic w i t h u s , a n d h e s a i d t h a t h e d i d n o t s o u n d e r s t a n d
Gx
The Chairman (after discussion). W i t h o u t dissent,
it i s agreed that Topic II-B, Nos. 1 , 2 and 3 , will b e referred t o the meeting o f counsel o f the Federal reserve
banks. I
have mentioned that matter t o Governer Young
and, expressing h i s personal view, h e said h e thought i t
would b e a good plan t o have s u c h a meeting.
We w i l l n o w t a k e u p T o p i c @ £ - C .
II. C o l l e c t i o n s a n d Clearings.
C. Duties a n d liabilities o f Federal r e -
serve banks with regard t o shipments
of cancelled Government warrants a n d
checks.
Governor Talley.
M e m b e r s o f this Conference a r e
of course familiar w i t h the procedure o f paying Government
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Federal Reserve Bank of St. Louis
Li6
checks, a r r a n g e d
i n schedule form, a c c o r d i n g
t o the
requirements o f the Treasury, a n d sending t h e m
to
Washington f o r credit.
I f any o f those checks were
lost, i t would create a good deal o f inconvenience, i f
not some embarrassment.
T h e y r u n into very large amounts
and v a r y i n character,
I
t seems t o u s that s o m e sort
of accommedation ought t o b e reached with t h e Treasury
as t o just what our duty i s and what our liability might
be.
W e have made a n arrangement--I d o not know whether
it has been extended t o the other banks o r not--but would
be o n request,
n o doubt--with
insure these warrants, I
a n insurance c o m p a n y t o
think f o r 1 0 per cent o f the
face amount,
t a caver a n y expense
of interest,
o r obtaining o f duplicates, a n d s o forth.
i n connection w i t h loss
I have a memorandum from m y counsel which I would like t o
read.
"The warrants being cancelled and e f no value
other t h a n f r o m a n a c c o u n t i n g s t a n d p o i n t ,
lon a r o s e a s t o whether
t h e quest-~
o r not a n y s u m would h e re-
coverable f r o m t h e insurance company without t h e
policy expressly s o providing.
W i t h this point i n
view Mr. S w a n s u g g e s t e d t h a t t h e p o l i c y h a v e a t t a c h e d
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Federal Reserve Bank of St. Louis
127
to i t a rider reading substantially a s follows:
"'It is agreed that securities, bank checks
or commercial paper that i s not negotiable i n
form m a y b e i n s u r e d f o r n o t l e s s t h a n t e n p e r
cent o f t h e i r f a c e amount.
I n case o f l o s s o f a n y
such shipment t h e assured shall b e indemnified
for t h e total cost o f procuring t h e reissue o f
the property insured, including t h e legal a n d
advertising expenses, l o s s o f interest a n d all
charges directly resulting f r o m t h e loss e r from
the d e l a y i n replacement,
s u c h total c o s t n o t
to exceed t h e amount o f insurance.!
"We think the rider suggested i s sufficiently
broad t e cover t h e purpeses desired. H o w e v e r ,
occurs
t o us that a
it
much b r o a d e r q u e s t i o n t h a n t h a t
of insurance h a s b e e n raised a n d w e are writing y o u
with reference t o the matter i n order t o get your
views.
"We heve consistently taken the position that,
in t h e p a y m e n t
o f Government warrants a n d checks
under t h e i n s t r u c t i o n s
o f t h e T r e a s u r y Department,
we are acting mercly a s a n agent i n the performance
of ministerial duties. W i t h this peint i n mind
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Federal Reserve Bank of St. Louis
118
the Treasury Department w a s induced, s o m e time aga,
to reverse t h e pesition that i t had formerly taken
with reference t o its right t o arbitrarily charge
back G o v e r n m e n t w a r r a n t s w h i c h u p o n i n v e s t i g a t i o n
proved t o b e forgeries.
“While the Treasury's instructions a t this time
permit t h e various Federal Reserve Banks t o charge
the a m o u n t o f G o v e r n m e n t w a r r a n t s p a i d u n d e r s u c h
instructions
t o the account o f the Secretary o f the
Treasury, this charge is not fully acquiesced i n by
the Treasury Department until t h e instruments s o
paid have reache, Washington and have been inspected.
As f a r a s w e k n o w t h e r e h a s n e v e r b e e n a
transit
o f s u c h shipments,
loss i n
b u t t h e question occurs
to u s t h a t i n t h e e v e n t t h e r e s h o u l d b e a
loss o f
a substantial amcunt o f these instruments between
Dallas and Washington, what would b e the status
of the charge, under the present practices, which
the Federal Reserve Bank o f Dallas has made because
of the payment o f these warrants.
I n ot*er words,
would the Treasury Department permit the charge
to s t a n d sheculd t h e F e d e r a l r e s e r v e b a n k b e u n a b l e
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Federal Reserve Bank of St. Louis
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to p r o c u r e d u p l i c a t e i n s t r u m e n t s a n d e n d e r s e m e n t s ?
In the event o f a large shipment i t i s entirely possible that t h e payee a n d endorser o f many o f these
knstruments c o u l d n e v e r
b e lacated a n d t h e questicn
would arise a s t o what would b e t h e status o f the
charge representing these ameunts.
"We are o f the opinion that, i n view o f the fact
that Federal reserve banks a r e acting a s fiscal
agents i n the payment o f these obligations, t h e
Treasury Department should give explicit instructions
as t o h o w they wanted shipments m a d e a n d that w h e n
a Federal reserve b a n k had followed these instructions
its d u t i e s w o u l d h a v e b e e n d i s c h a r g e d a n d i n t h e
event o f loss t h e charge would b e final a s between
the Federal reserve b a n k a n d the Treasury Department.
O
f course, t h e r e i s n o o b j e c t i o n
as t h e F e d e r a l R e s e r v e B a n k o f Dallas
to d e f r a y i n g t h e c o s t o f i n s u r a n c e
Department c a r e s
i n s o far
i s eencerned
i f the Treasury
t o have t h e s a m e t a k e n o u t i n
reasonable ameunts n o r i s there a n y cbjection t o
lending every effort i n the case o f loss t o secure
the execution o f duplicates, b u t w e think that t h e
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Federal Reserve Bank of St. Louis
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Treasury Department should require ncthing further
of the Federal reserve banks.”
Governor McDougal.
F r o m what I
have heard, I
think
the Dallas b a n k locked a t thie f r o m a different angle
than the angle f r o m which w e look a t it.
sider that w e p a y the checks a t all.
W e d o net con-
W e consider t h a t
we cash them a n d they are n o t paid until t h e y get t o
Washington.
W e never cancel them.
The Chairman.
I t i s not a question o f our power t o
construe t h e proposition.
T h e l a w o f the United States,
passed i n the days o f Alexander Hamilten, provides t h a t
no payment should b e made out of the general fund o f the
United States except i n Washington. I
exactly,
b u t t h a t i s t h e substance
do not state i t
o f it.
What w e d e i n New York i s t o prepare t h e account i n
exact f o r m asiipreseribed b y the Treasury, g i v i n g a l l the
particulars c f the check, including t h e symbols.
W e
retgin copies o f the account i n New York, a n d a copy
accompanies the shipment, o r may g o separately, I
which. I
forget
think i n one instance w e Had something l i k e
a million dellars o f transit stuff taken o u t o f a mail
sack. T h e y thought they were getting good securities,
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Federal Reserve Bank of St. Louis
J21
and they were just getting vouchers.
with the Treasury.
W e had n o trouble
I t was attended to, b u t I
remember j u s t how. I
do not
think i f t h i s m a t t e r i s t a k e n u p
with t h e Treasury Department b y any bank that h a s a n y
feeling o f uncertainty about t h e right t o maintain t h e
charge against t h e Treasury account, t h a t t h e Treasury
will give t h e m assurance, a l l t h e assurance t h e y need.
Governor Fancher. T h e thing that h a s b e e n i n m y
mind, Mr. Chairman, g c i n g b a c k t o the experience o u r bank
had some years ago, w a s t h e question o f the mail burning
up. T h a t i s the thing that gives m e concern,
i f we
should have a large batch o f these Government warrants
burned, t h e time required i n getting duplicates a n d things
of t h a t sort, w o u l d c o v e r a
lot o f correspondence,
The Chairman. I
long period, w o u l d e n t a i l a
a n d s o forth, a b o u t t h e charge.
cannot t e l l y o u a n y o f t h e d e t a i l
of what happens, b u t I think with duplicates o f the accounts i n New York, I
would n o t anticipate a n y difficulty
about t h e charge. T h a t i s m y understanding.
T h e report
I have here o n i t does n o t g o into that feature o f it,
but m e r e l y d e s c r i b e s t h e method.
Governor Harding.
H a v e a n y o f y o u looked into this
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Federal Reserve Bank of St. Louis
l2e
arrangement f o r making films o f the Government warrants
s o that y o u c a n have photostatic copies
o f them
made?
The Chairman. P h o t o s t a t i c c o p i e s ?
Governor Harding. Yes. T h e r e was 8 man i n our
effice n e t long a g o w h o h e d a very attractive little d e vice.
I t did net take a s Icng a s keeping t h e reeecrd o f
the endorser, t h e drawer, a n d a l l that sort o f thing.
It is just a little bit o f a thing; they take them and
run them right threugh t h e machine, a n d they g e t this
film a s they g o i n the mechine.
by date.
Y o u file t h e films a w a y
I f you have a loss a n d want a phetostatic c o p y
of a n y o f t h o s e t h i n g s ,
y o u take t h e films o u t a n d send
them t o this m a n a n d h e w i l l e n l a r g e t h e m f o r you.
The Chairman.
W e sometimes p a y forty o r fifty
theusand Government checks i n a day i n New York.
Gevernor Harding.
T h i s m a n says h e i s prepared
te
handle a n y a m e u n t o f then.
The Chairman. Sometimes,
o n b i g days, w e p a y a s
many a s 6 fiillion a n d a half t o two million i n a day o f
coupons.
Governor Harding.
T h i s m a n has cffered t o give
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Federal Reserve Bank of St. Louis
123
a demenstration a n d I
a m going t o lock into i t when I
go back.
Governor Talley.
D e y o u recall w h a t happened
i n your
case i n reference t o reimbursement?
The Chairman. No, I do not remember. I
am very’ vague.
I know that a mail s a c k was slit o p e n a n d a million dollars
of c a n c e l l e q a n d m u t i l a t e d s t u f f w a s t a k e n cut.
Geverner Norris.
I f you had lest a
million d o l l a r s
you would have remembered it, Mr. Chairman.
The Chairman. I
think I would have remembered that.
But I think this c a n b e worked c u t with the Treasury,
if
there i s a n y d o u b t i n anybody's m i n d a b o u t i t .
Governor Bailey.
W e carry o u t their explicit i n -
structions telling u s how t e do it, i n order t e relieve
cur mind o f it.
B u t i f there was a n y w a y t o make a n
agreement, w h y net have t h e counsel f o r t h e Board o r our
counsél make a n agreement w i t h the Treasury that would
cover a l l o f the banks?
Governor Norris. O h , I
do not think i t i s a legal
matter.
Governor Talley.
M y idea i n b r i n g i n g t
i u p was that
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Federal Reserve Bank of St. Louis
124
it teuches e v e r y bank; e v e r y b a n k h a s t h e s a m e preblem.
The Chairmay. Certainly.
D o you have a bosd eov-
ering Lt?
Governor Talley.
insuring
e a
p
e
W e put this rider o m our pelicy
r c e n t o f t h e f a c e amount.
The Chairman.
B u t your loss i s liable t o b e 100
per c e n t oar hnane.
Governor Talley. T h a t i s true.
The Chairman.
A n d 1 0 per cent would n o t help very
much.
Governor Fancher. Y o u are pre,eeding o n the theory
of t a k i n g c a r e o f i n t e r e s t f r o m i n t e r e s t c h a r g e , e x p e n s e
ofgetting duplicates, amd all that sort of thing.
Governor Talley. Yes,
Gevernor licDougal. Most o f the banks are sending their
cheeks b a c k b y mail.
W e think there i s a greater element
of securing i n using express company, a n d i t i s very
much m e r e e c o n o m i c a l
Mr. Harrison.
t o s e n d t h e m b y express.
W e da, too.
Governor Norris.
W e a l s o u s e t h e express companies.
The Chairman. O u r s a r e sent b y express.
Governor Fancher.
W e u s e t h e mail,
d o w e not, M r .
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Federal Reserve Bank of St. Louis
Strater?
Mr. Strater.
W e send ours b y registered mail.
That
comes about largely because t h e Treasury insists o n getting o u r warrants t h e following d a y and w e could net g e t
them here b y express.
The Chairman.
W h a t would y o u like t o have done
about this, Governor Talley?
Governor Talley. I
would like t o get some suggesticns
and advice about it.
The Chairman.
W h i l e y o u are here, w h y don't y o u
take that u p with t h e m e n i n the Treasury that have t h e
handling o f these things, a n d report b a c k t o u s what y o u
learn f r o m them?
Governor Talley. I
The Chairman.
line o n that.
will make a n effort t o d e that.
M r . Mills will undoubtedly give y o u a
I t has just occurred
t o m e that w e have
always invited Mr. Mills t o come inte t h e meeting a t his
convenience,
t o discuss a n y T r e a s u r y m a t t e r s t h a t w e w o u l d
like t e discuss w i t h him, a n d I will appoint Mr. Talley
a cemmittee c f one t e convey thet information t o the
Under Secretary, a n d t o de i t now.
I f that will b e
satisfactory, Governor Talley i s n o w a p p c i n t e d acommittee
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of o n e b y unanimous acclaim.
The Chairman.
G o v e r n o r S e a y , h a v e a l l t h e members
of the Advisory Conmmittee o n Legislative Matters examined
and appreved t h e €hairman's report?
Governor S e a y .
Mr.Chairman,
t h e report
i s the exe
pression o f t h e v i e w s w h i c h c o m e f r o m t h e d i f f e r e n t n e m bers o f t h e A d v i s o r y C o m m i t t e e ,
w i t h t h e e x c e p t i o n o f ycur-
self.
The Chairman. I
a m for t h e report.
Governor Seay. I s the Conference r e a d y f o r m e t o
present m y report?
The Chairman. Y e s .
Report o f the Advisary Committee o n
Legislative M a t t e r s .
Governor Seay. T h e report i s a s follows:
"tDesirability of amending that part of Section
13 relating t o discount o f demand a n d sight drafts
secured b y shipping documents covering domestic shipment o f agricultural preducts s o i t will include
all staple non-perishable commodities, s u c h for
example a s flour, bran, cottonseed meal, etc., a s
well a s r e i m b u r s e m e n t d r a f t s f o r t h e p r e c e e d s
of
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Federal Reserve Bank of St. Louis
Le
other bills earrying shipping documents.*
"(See paragraph 19, page 1 1 of the Secretary's Minutes.)
Subsequeatly i n the Conference ( s e e paragraph 24, page 14),
upon motion o f Governor Harding,
i t was !
"t¥oted that the Federal Reserve Board b e asked
to reconsider i t s previous ruling t o the effect
that bran, flour, cottenseed meal, etc., are nonperishable, products within t h e meaning o f Séotkee
13, i t béing pointed out that the particular paragraph i n question does n e t coatain t h e limitation
fin the raw state! a s i n the previous paragraph
of the law.
I t was understood that this action
dees n o t revoke t h e action taken Tuesday, M a y 10,
under Yopic I.G.§
"The action o f the Conference referred te, taken
Tuesday, M a y 10, w a s a reference o f the topic t o
the Advisory Committee o n Legislative Matters.
"The Beard has previously ruled upon the construction o f the term tnonperishable, readily mare
ketable agricultural products!
o n page 2 7 6 o f the
April, 1924, Bulletin, a n d page 8 5 4 o f the December,
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Federal Reserve Bank of St. Louis
128
1926, Bulletin.
I n t h e light o f the ruling o f
the B o a r d i n April, 1 9 2 4 , a b o v e r e f e r r e d t o ,
wherein t h e Béaard stated:
"tThe Board i s o f the opinion, therefore, t h a t
Federal reserve banks should n o t refuse t o discount
sight o r demand bill o f lading drafts mezely because
the agricultural products covered thereby a r e n o
longer i n a téchnically r a w state, b u t have passed
through the initial stages o f refinement o r pro-
cessifig subsequent t o their actual harvest?;
"and i n view o f the wording o f the present law, 1 ¢
is b e l i e v e d t h a t t h e B e a r d h a s t h e p o w e r
t o make
a ruling sufficiently broad te meet the legitimate
demand f d r t h e d i s c o u n t
o f sight a r d demand drafts
secured b y shipping documents covering agricultural
products,
a s deseribeda i n t h e t o p i c r e f e r r e d
Advisory Committee for consideration.
t a the
I t is not
belfeved to be necessary o r advisable a t this time
to seck a n amendment t e Sectioh 1 3 ef the Act relating t e this subject."
Now, the Beard, i n the opinion rendered i n 1924,
stated t h a t a
Federal reserve
b a n k should n o t refuse
t o
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Federal Reserve Bank of St. Louis
Leo
Ciscount sight o r deisand oi11 c f lading drafts, b u t
they have somewhat modified their pesition, a n d i n the
opinion o f members o f the committee,
a s I gathered i t
by correspondence, t h e r e i s nothing i n the present l a w
which would prohibit t h e Beard from meking t h e ruling
sufficiently b r o a d t e c o v e r t h e n e c e s s i t i e s
o f the trade
in the matter.
The Chairman: T h e r e i s a little difficulty there.
Apparently t h a t r u l i n g o f t h e B o a r d m a d e i n December,
1926, i s based,
o r was based, o n the decisien o f the
Supreme Court o f the United States i n the case o f Getty
against C . R. Barnes Miliing Company,
i n which i t was held
thet flour w a s n o t e n agricultural preduct. I
neverthe-
less apvreve o f this report c f Gevernor Seay's, because
the e n t i r e m e t h o d o f d e a l i n g w i t h t h a t i n v e l v e s
a n act
ef Congress, a n d none c f u s want t e g e before Congress
for a n y emendment j u s t now.
Gevernor Seay.
T h e ruling c f the Board i n 1926 was
something o f a reversal o f a previous ruling o f the Board,
but t h e o p i n i o n i s t h a t t h e r e i s n e r e a s o n i n t h e l a w w h y
the Board might n e t revertte i t s former decision.
The Chairman. T p a t i s = recommendatica o f the report,
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Federal Reserve Bank of St. Louis
is i t not?
Governor Seay. T h a t i s the recommendation o f the report.
The Chairman.
I s there a n y further discussion o f this
report?
Governor Bailey. I
Governor Seay.
would like t o ask “question o f
D o you know w h y thi8 td: that under t h e
McFadden A c t a man c a n loan-25 per-cent o f his profit a n d
surplus o n paper properly s e c u r e d , t
u
b they c a n only rediscount 1 0 per cent.
Governor Seay.
T h a t i
s the l a w with us..
I t always h a s been.
Governer Bailey.
B u t i f they a r e permitted t o loan
25 per cent, ‘why should n o t t h e l a w b e corrected? I
think t h e M c F a d d e n A c t d i d n o t g c f a r e n o u g h a n d d i d
net m e e t t h a t s p e c i a l point.
W h y should t h e y not b e
permitted t o rediscount w i t h u s 2 5 per cent o n a prop-
erly secured note?
Governor Seay. I t could be, but for myself I hope
it never will be.:
Geverner Bailey. W h y ?
Gevernor Seay. W e l l , f o r o n e thing, w e d o not want
to take; a n d w e d o n e t take,
a s a. matter
o f practice,
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Federal Reserve Bank of St. Louis
151
the entire l i n e discounted b y a n y member b a n k f o r
any
particular c u s t o m e r ,
a n d w e d e n o t w a n t t e d o that.
We take a reasonable amount of it.
Gevernor Bailey.
B u t i f the note i s absolutely s e -
cured f o r 1 0 p e r c e n t a n d i s a
geod note, t h e n i t i s g o o d
for 2 5 per cent,.and i t works a
hardship o n chose fellows
out there,
The Chairman...
B u t when t h e nete i s good a n d y o u
only take 1 0 per cent o f it, eof course y o u dontt l o s e s o
much.
Governor B a i l e y . I
have y e t t o s e e t h e f i r s t
cattle feeder l o a n which f s net good.
Gevernor Seay- S i n c e y o u a s k m e the question,
Governor Batley, i t i s a question c f « fundamental policy
ef the System. I
dare say i t can be done, but person-
ally I weuld not like t o see i t dene.
The Chairman. W e l l , this i s a digression from the
report
o f G e v e r n o r Seay.
discussion o f it.
abeut this repart?
T h e r e seems
W h a t i s t h e nleasure
t o b e n o further
e f t h e Conference
T h e report contains a
recommenda-
tion and tne adoption o f the report will inciude endorsement
o f t h e recommendation.
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Federal Reserve Bank of St. Louis
132
Governor Fancher. I
move that t h e report b e
adopted.
Governor Wellborn, S e c o n d e d ,
{The motion, having been duly seconded, was unanimously carried.)
The Chairman. Now, Mr. Strater,
w e will have t h e
report o f the Standing Cammittee o n Collections.
II. C o l l e c t i o n s a n d Clearings.
A. R e p o r t o f Standing Committee o n
Collections.
Mr, Strater.
M r . Chairman a n d gentlemen, t h e
Standing Committee o n Collections b e g s t o submit herewith its report o n the following topics:
"Revision o f time schedules w i t h a view
to reducing float a n d aveiding existing
inequalities.
"At the Conference o f Governors held i n
November, 1925, i t was voted t o request the Stand-:
ing C o m m i t t e e
o n Collections
t o make a
study o f
the p r e s e n t t i m e s c h e d u l e s a n d p r e p a r e a
scientific
revision o f t h e m i f t h a t s h o u l d b e necessary.
I t
was understocd that t h e Committee should consult o r
advise with a n y o f the Federal reserve banks, when-
ever i t might b e helpful fer the Committee t o d o
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so, a n d that tentative schedules b e submitted t o
each b a n k f o r r e v i e w b e f o r e a n y f i n a l s c h e d u l e s
were submitted toa the Conference.
"In this Committee's report t o the November,
1926, Conference o f Governors,
i t expressed i t s
opinion a s t e how a scientific a n d accurate time
schedule s h e c u l d e
b constructed ‘ n order t o extend
the benefits o f the check collection system equis+
tably a n d i m p a r t i a l l y
t o all member banks a n d a t
the s a m e t i m e r e d u c e f l o a t t o t h e l o w e s t p o s s i b l e
point consistent w i t h expediency o f operation, w h i c h
epinien i t deems advisable t o repeat. T h e logical
and scientific basis f o r a n accurate intra-district
time s c h e d u l e m u s t b e t h e a v e r a g e t i m e r e q u i r e d
by
each Federal reserve b a n k t o ecllect checks payable
in each state o r part o f state within i t s o w district, a n d the logical a n d scientific basis f o r
an a c c u r a t e i n t e r - d i s t r i c t t i m e s c h e d u l e m u s t b e
the t i m e r e q u i r e d
t e reach t h e Federal reserve
bank o r b r a n c h o f t h e d i s t r i c t
i n which t h e checks
are p a y a b l e s l u s t h e d e f e r r e d t i m e g i v e n b y s u c h
Federal
reserve
bank
o r branch after
t h e checks
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Federal Reserve Bank of St. Louis
Peeen it.
"In order t o obtain accurate figures showing
the average time required b y each Federal reserve
bank a n d b r a n c h t e cecllect c h e c k s p a y a b l e
State o r p a r t o f s t a t e i n i t s territory,
i n each
t h e Com-
mittee obtained f r o m each Federal reserve b a n k a n d
branch a n analysis covering a
and, u s i n g t h i s a s a
period o f one week,
basis, p r e p a r e d a
tentative
inter-district t i m e schedule f o r each Federal r e serve b a n k and branch, copies e f which i n duplicate
were f o r w a r d e d
t o e a c h o f t h e Governors accompanied
by an interim repert explaining the manner i n which
these tentative schedules h a d been prepared, a n d requesting that t h e y b e reviewed a n d returned t o the
Committec,with s u c h corrections a s were necessary
in o r d e r t o m a k e t h e t i m e s c h e d u l e s acceptable.
When t h e c o r r e c t t i m e s c h e d u l e s w e r e r e t u r n e d
the Committee,
to
i t was f o u n d t h a t m a n y o f the minor
inequalities pointed out i n the report t o the Conference o f Governors h e l d i n March, 1926, h a d been
eliminated b y the acceptance o f the Committee's recommendations.
T h e major irregularities still exist
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Federal Reserve Bank of St. Louis
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in certain districts a n d the Committee finds i t self unable t o accomplish t h e object which i t
was directed b y the Conference t o attain.
"The Committee feels that i n the case o f
seven c f t h e F e d e r a l r e s e r v e b a n k s ,
t h e time s c h e d -
ules finally approved a r e a s accurate a s they c a n
be made, a n d t o a l l i n t e n t s a n d p u r p o s e s t h e d e f e r -
red time shown f o r checks payable i n states o r
parts o f states wholly outside o f their respective
districts,
i s the correct average t i m e required t o
collect. C e r t a i n major inequalities w h i c h existed
in the time schedules o f several o f the Federal
reserve banks w h e n t h e Committee first undertook
to m a k e a n e x h a u s t i v e s t u d y o f t i m e s c h e d u l e s s t i l l
exist, a n d believing t h a t t h e Governors w i l l b e
interested i n having t h e m peinted out, t h e y are
shown below under a
separate heading f o r e a c h o f
the five Federal reserve banks, which, f o r
reasons considered b y them t o b e expedient,
d o not
feel that they are i n a position t o accept the
Commiutee's recommendations:
"Boston.
C h e c k s d r a w n o n banks i n the
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Federal Reserve Bank of St. Louis
136
states
o f Delaware,
N e w Jersey,
N e w York,
and
Pennsylvania a r e given a deferred availability o f
two days whereas i t i s physically impessible t o
collect a n y e f these items through existing channels
in less t h a n three days a n d a substéntial volume
in less t h a n four days. C h e c k s d r a w n c n country
banks i n all o f the cther states cutside o f the First
Federal Reserve District a r e given deferred availability o f either four o r eight days a n d none o f the
resulting inconsistencies have been corrected.
"A few Lllustrations will suffice: C h e c k s payable i n the state o f Arkansas a r e given a deferred
availability o f four days whereas s i x days a r e re-
quired. C h e c k s payable i n the state o f Tennessee are
given deferred availability o f four days whereas
five o r six days are required t o collect. C h e c k s
peyeble i n the state o f Oklahoma a r e given a defer-
red availability o f eight days whereas they can
readily b e callected i n five o r six.
"New York. C h e c k s payable i n all six o f the
New Ergland states a n d Delaware, District c f Columbia,
Maryland, t h a t part o f New Jersey i n the Philadelphta
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district P e n n s y l v a n i a , a n d Virginia a r e
given a
deferred availability o f two days whereas
they can
in n e case b e collected i n less t h a n
three through
existing channels.
A l l other minor inconsistencies
which f o r m e r l y existed, h a v e b e e n corrected.
I t
should b e noted that t h e tine schedule o f
the Buffalo
Branch does n o t contain t h e inconsistencies
which
are pointed o u t i n the schedule o f the parent
bank,
except t h a t c h e c k s d r a w n o n points
i n that p a r t
of t h e s t a t e o f N e w J e r s e y w h i c h i s i n t h e
Phila-
delphia district a r e given a deferred availability
of two days whereas a t least three davs a r e re-~
quired t e collect.
"Philadelphia. C p e c k s payable i n all six
of t h e N e w E n g l a n d states,
Maryland,
a n d District
o f Columbia,
t h a t part o f N e w Jersey i n the N e w York
district, N e w York, t h a t part o f Pennsylvania
in
the Cleveland district, a n d Virginia are
given
a deferred availability o f twe days whereas
i n no
case c a n they b e collected i n less t h a n three.
All
other inconsistencies h a v e b e e n corrected.
"Chicago. C h e c k s drawn o n points i n those
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Federal Reserve Bank of St. Louis
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parts o f t h e s t a t e s
o f Illineis a n d Indiana w h i c h
are i n t h e S t . L o u i s d i s t r i c t a n d t h a t p a r t o f t h e
state o f W i s c o n s i n w h i c h i s i n t h e M i n n e a p o l i s d i s -
trict, a r e given a
deferred availability o f two
days whereas t h e actual time required f o r collection
is not less t h a n three days.
I n order that scien-
tifically c o r r e c t t i m e s c h e d u l e s m a y b e constructed,
the C o m m i t t e e b e l i e v e s t h a t i t i s n e c e s s a r y
to
consider parts o f states lying outside o f a Federal
reserve district o n the same basis a s though t h e y
were s e p a r a t e s t a t e s w h e n e v e r t h e v o l u m e
i s of
material size.
"Kansas City. Checks drawn o n points i n that
part o f the state, o f Misseuri outside o f the Tenth
Federal Reserve district, a r e given deferred availaobility o f two days whereas three days a r e required
for collection.
“Pabulations, showing the time schedules which
each bank will agree t o adopt b u t which still centain
in the case o f five banks t h e inconsistencies
inequalities described above, a r e attached t o
made a part o f this report a s follows:
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Federal Reserve Bank of St. Louis
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"(1) T i m e schedules showing deferred availability given b y each Federal reserve b a n k a n d
branch for checks payable i n cther Federal reserve
bank a n d b r a n c h cities;
and
"(2) T i m e schedule showing deferred availability given b y each Federal reserve b a n k a n d branch
for. checks payable i n states o r parts o f states
wholly cutside o f their respective districts.
"With respect t o item (1) the Committee i s of
the opinion that the deferred availability given
in e a c h i n s t a n c e
i s accurate, a n d ,
i f adopted b y
the Cenference a n d each o f the Federal reserve
banks concerned, w i l l result i n a n almost entire
elimination o f float o n this class o f items a s between Federal reserve b a n k a n d branch cities.
With respect t o item (2) a l l that h a s b e e n expressed i n this report applies, a n d the Committee
desirés t o again state that this particular schedule
4s not scientifically accurate a n d that the inaccuracies contained therein, w i l l result i n the creation o f a considerable volume o f float which must
be c a r r i e d b y t h e F e d e r a l R e s e r v e System.
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Federal Reserve Bank of St. Louis
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"Having presented to the Conference the result
of its investigations a n d efforts, a n d believing
that t h e Conmittee c a n make n o further progress i n
this connection,
b o t h schedules a r e submitted with-
out a n y specific recommendation.
"A study o f the whole question
of t h e c o l l e c t i o n o f c a s h items.
"The Conference o f Governors o f November,
1926, voted t o request t h e Standing Committee c n
Collections t e continue its study o f the collection
problem, having i n mind particularly whether a
Federal reserve b a n k m a y not shorten t h e actual
transit t i m e b y sending direct t o member banks
located
i n o t h e r d i s t r i c t s u n d e r crprangements w i t h
the Federal reserve banks o f those districts, a n d
4 £s
to consider also what, i f any, modifications
or
improvements might b e made i n order t o effect a
better a n d m o r e s c i e n t i f i c c o l l e c t i o n system.
"In the Committee's report t o the Conference
cf Gevernors c f May, 1927, a brief resume o f the
Committee's a c t i v i t i e s
i n this connection w a s pre-
ince t h a t Conference,
e a c h o f the Federal
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Federal Reserve Bank of St. Louis
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reserve b a n k s h a s b e e n r e q u e s t e d
t o furnish t h e
Committee w i t h its ideas a s t o what change would
best t e n d t o improve t h e collection machinery. M o s t
of the banks have r e p l i e d o
t the Committee's request
and t h e consensus o f opinion appears t o b e that t h e
direct routing o f checks i n t o other districts m a y
tend t o reduce t h e collection time b u t that s u c h a
practi¢ée i s not altogether desirable i n every instance.
"In the opinion o f the Committee, inequalities
and inconsistencies appearing i n the existing time
schedules o f a number o f the Federal reserve banks
are very closely connected w i t h the subject o f d i r e c t
routing b y Federal reserve banks i n t o other districts..
It i s quite ecbvious that s u c h a n arrangement c a n not
be made without t h e consent o f the paying bank inasmuch a s under t h e Federal Reserve A c t a n d Regulation J
of the Federal Reserve Beard, t h e nermal channel
of c o l l e c t i o n i s t h r o u g h t h e F e d e r a l r e s e r v e b a n k
of t h e d i s t r i c t
i n w h i c h t h e c h e c k s a r e payable.
I f
the time schedule o f the bank s o attempting t o
collect c h e c k s p a y a b l e
i n other districts
i s based
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Federal Reserve Bank of St. Louis
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upon t h e time required t o collect through t h e Federal reserve b a n k o f the district i n which t h e
paying b a n k i s located,
t h e paying b a n k may b e the
duced t o a g r e e toa s u c h a n a r r a n g e m e n t p r o v i d e d i t s
checks a r e g i v e n f r e e r c u r r e n c y b y r e d u c i n g t h e d e ferred t i m e o n t h e t i m e s c h e d u l e
c f t h e Federal r e -
serve b a n k attempting t o make s u c h a n arrangement.
"Tf the deferred availability o n checks payable
in any considerable a r e a immediately adjoining a
given F e d e r a l r e s e r v e d i s t r i c t
i s a t present equiva-
lent t o the time required toe collect b y direct routing, t h e m e m b e r
o r non-member b a n k w i t h which a
direct routing arrangement i s sought m a y be induced
to agree t o such a n arrangement i f it 1s pointed out
that unless a
majorityf
o the banks i n such ad-
joining territory agree t o a direct routing arrangement, i t will b e necessary t o increase t h e period o f
deferred a v a i l a b i l i t y toc c o r r e s p e n d w i t h t h e a c t u a l
methed c f collection.
"The Cemmittee i s o f the opinion that t h e
practice o f a Federal reserve b a n k sending direct
to member banks, a n d possibly t e non-member banks,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
143
in another district under arrangements w i t h the
Federal reserve b a n k o f that district a n d t h e
paying bank, i s worthy o f a trial a t least i n those
districts w h i c h f e e l t h a t t h e y c a n n o t c c r r e c t t h e i r
time schedules t o harmonize w i t h the actual time
now r e q u i r e d toe collect.
isting Regulation J
I t i s trve that under e x -
of the Federal Reserve Board
this practice i s not permitted, b u t inasmuch a s i t
is now being done effectively t o a very limited e x tent i n several o f the Federal reserve districts,
it i s believed that t h e practice could b e extended
within certain o f the districts a n d a t the option
ef the Federal reserve banks concerned with very good
results;
t h e Committee believes t h a t a
very material
reduction i n . float c a r r i e d b y t h e S y s t e m w o u l d b e
effected thereby.
"The Committee recommends that the Federal
reserve banks b e authorized a t their discretion,
conduct
to
a n e x p e r i m e n t a l o n g t h i s l i n e i n a n attempt
to arrange f o r t h e collection i n this manner o f checks
drawn o n the principal o r larger cities i n states
adjoining their districts.
S u c h a n experiment should
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
144
not b e undertaken without first ecbtaining a n opinion from Counsel f o r t h e Federal Reserve Board a s t a
the legality o f such a n arrangement, a n d , if. such
opinion is: favorable,
to modify Regulation J
i t would first b e necessary
to permit s u c h a procedure.
"The Committee regards a s highly dangerous a n y
attempt t o inaugurate radical changes without a
thorough a n d careful study o f the possible r e s u l t .
"Withdrawals f r o m
the p a r list.
" I n i
t
s report t o the November, 1924 Conference
of. Governors, t h e Committee recommended that t h e
following procedure b e adopted b y the Federal reserve
banks a n d branches in. order t o protect t h e sending
bank a s w e l l a s t h e r e c e i v i n g F e d e r a l r e s e r v e b a n k o r
branch against the possibility o f loss when checks
are recefived drawn o n banks which have b e e n removed
from the p a r list between issues o f the Federal
Reserve Board's semi-annual p a r list o r the monthly
supplements thereto:
"1. Any item under $50C,00 should b e charged
back a n d returned t o the direct sending member bank.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
145
with a memorandum o r notation t o the effect that
the b a n k u p e n w h i c h t h e i t e m i s d r a w n h a s b e e n
removed f r o m the p a r list and, therefore, t h e i t e m
is net collectible through t h e Federal Reserve
System.
"2, A n y item o f $500.00 o r over should b e held
by the receiving Federal reserve bank c r branch, a n d
the direct sending member b a n k fram which t h e i t e m
was received should b e notified b y wire, t h a t t h e
bank upon which t h e item i s drawn has b e e n removed
from t h e par list a n d that t h e item i s not collectible through t h e Federal Reserve System, a n d should
be requested t o forward instructions a s t o the dispesition o f the item.
"The Committee has been asked b y one o f the
Federal reserve banks t o interpret o r amplify i t s
recommendation.
T h e request i s the result o f one
Federal reserve b a n k having concluded t o give t h e
forwarding member conte the choice o f t w o alternatives
only when wiring f o r instructions a s t o the dispo-
sition o f any item o f $500.00 a n d over; namely, that
the i t e m b e returned t o the sending member b a n k
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
146
or that i t b e turned cver t o one o f the commercial
banks
or that i t b e turned over t o ane o f the c o m m e r cial banks i n the city i n which t h e Federal reserve
bank o r branch i s located, a n d declining t o act
on instructions t o forward t h e item t o the drawee
bank t e b e accounted f o r direct t o the endorsing
bank from w h i c h t h e instructions w e r e received.
"The Committee t s of the opinion and therefore recommends t h a t a n y instructions t h e forward-
ing member bank may give, should b e complied with
by the receiving Federal reserve bank o r branch
providing t h e instructions a r e net incensistent w i t h
the law.
"Respectfully submitted,
"Standing Cammittee o n Collections
Strater, Chairman
Attebery
Walden, J r .
Coe
M.Toy."
Governor Norris. Now, Mr. Chairman, I
that i f a n y o n e h a s a n y q u e s t i o n
suggest
t o a s k that w e take u p
page l , e n d then g o t o page 2 , a n d s o on.
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Time Schedule Showing Deferred Availability
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
147
The Chairman. G e n t l e m e n ,
a r e t h e r e e n y auestions
as t o page 1 ? I f not, w e will g o t o page @.
Governor licDougal. W h e r e i t speaks o f several banks
whose time schedules a r e accurate, I
think w e might give
consideration t o the schedules o f the other banks that a r e
not accurate.
Y o u h a v e e n u m e r a t e d t h e m i n t h e report,
My. Strater?
Mr. Strater. Yes.
The Chairman. Now, w i t h regard t o page 3 , which refers t o Boston a n d N e w York, a r e there a n y comments?
Governor Harding. Mr. Chairman, t h e banks i n the N e w
England district will object v e r y strenuously t o a n y
change i n cur time schedule. ;
had a careful an-
alysis made o f that, going back over 2 period o f years,
and we find that our average float, that is, the difference between t h e transit items a n d t h e deferred credit
items, amounts t c about $60,000,000 a day i n deferred
credit items; the average always is about $60,000,000,
put t h a t t h a t i s o f f s e t
o n the other side w i t h the ex-
ception o f o n e m i l l i o n d o l l a r s ,
a n d o n e millien dellars
is our averege float.
Mr. Strater.
Y o u ere speaking o f the aggregate d e -
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ferred i t e m s
o n b o t h sides.
Governor Harding. Yes.
float w e a b s o r b t s a
I n other words, t h e average
million dollars.
I t i s not excess~
ive a n d does n o t mean a burden t o us. ‘ f o change this
will c r e a t e a
considerable a m o u n t
would involve extra expense, I
o f dissatisfaction,
have checked that u p and
it would cost u s more t h a n the interest o n the million
dollars.
Governor F a n c h e r .
Y o u spoke abeut cutting your fleat
down t o s a y a million dollars a
day o n the average.
Governor Harding. Yes, i t is about $60,000,000.
Governor Fancher.
O n one h a n d y o u receive t h a t f o r
two d a y s ' d e f e r r e d , w h e r e i t takes t h r e e d a y s t o collect,
and there i s constderable float, a n d i n the other schedule y o u d e f e r f o r a
longer p e r i o d t h a n i t requires
to
cellect t h e checks,
s o one offsets t h e other a n d reduces
the total.
Gevernor Harding. Yes. A
scientific adjustment o f
that thing I have estimated would cost us in the neighborhood o f $40,000. a year.
Goverr.or Fancher. Y o u mean 4 t would cost your bank
that?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
249
Governor Harding. Yes.
Y o u gentlemen d o not under-
stand h o w hard i t i s t o change things u p i n the N e w England
states. They are set i n their ways, a n d i f you change anything i t raises a
racket.
Governor Fancher.
V e r y naturally, w h e r e a
bank c a n
get credit i n two days, w h e n i t takes three days t o collect, t h e y are going toa object t o a n y change.
Governor Harding. There i s a great deal o f offset
to it. You must admit that o n a n average volume o f
$60,000,000, y o u only have one million float, that i t is
not excessive.
Governor Fancher. There h a s always b e e n o n e feature
of this time schedule o f the Federal reserve banks about
which I have been a little fearful. T
a m afraid that
it will b e litigated some day and the time schedules will
be brought in.
T h e test o f a time schedule i s what
actual time i s required t e coliect items, a n d then when
it i s f o u n d t h a t w e d e c l a r e
a n item o n one point
i n two
days a n d collect i n three, o r defer i t s i x days a n d
collect i t i n four, I
a m a little fearful t h a t t h e
schedule i s not going t o stand up, unless i t pretty
nearly measures u p t e the actual time required i n collecting
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the checks.
Governor Seay. Mr. Chairman,
a t this juncture,
it
will prebably b e o f interest t o the Conference t o have
me state that I
have just h a d a conversation w i t h Mr.James,
whe i s a member o f the Federal Reserve Board committee
which has special supervision over o u r district.
T h e oc-
casion f o r m y c o n f e r e n c e w i t h h i m w a s t h e n e a r b y o p e n i n g
of t h e C h a r l o t t e b r a n c h a n d t h e n e c e s s i t y f o r e s t a b l i s h -
ing a time schedule. I
thought probably t h e Board m i ght
desire t o b e consulted about t h e fixing o f the time
schedule, a n d I brought i t u p with Mr. James.
that h e has b e e n making a
H e said
study o f time schedules f o r
some months; t h a t h e has recently sent Mr. Snead around
te all t h e Federal reserve banks,
of their. fleat. I
t c make a n analysis
think h e h a s b e e n t o c u r bank.
H e
said h e d i d not speak for the Board, b u t h e believes t h a t
the B o a r d would,
a t a n e a r l y date, t a k e u p t h e q u e s t i o n
of the float i n the System a s a System matter.
The Chairman.
W h a t i s the tetal ameunt o f it? Dees
anybody know?
Gevernor Seay. A b e u t $70,000,000, h e said.
H e sug-
gested thet a s far a s w e were concerned h e would n o t b e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Lol
disposed t o take u p our case a n d made t h e suggestion
that w e analyze t h e float ourselves a n d that later, w h e n
the B o a r d t o o k up, a s h e b e l i e v e d
i t would,
t h e question
of the float i n the System, t h a t w e wruld have a hearing
befcre t h e Board.
The Chairman. Y o u r problem i s a very minor one,
Governor.
Governor S e a y . Very.
The Chsirman. B e c a u s e that n e w branch will handle
very f e w cnecks compared t o the number t o b e dealt w i t h
by all e f the twelve Federal reserve banks.
Governor Seay.
I t i s a very minor preblem a n d I did
net h a v e a n y i d e a t h a t i t w o u l d a f f e c t t h e S y s t e m g e n e r -
ally.
B u t the Board likes t o be consulted with regard te
the establishment o f these things, a n d I therefore took
the matter up, with t h e result I
have stated.
The Chairman.They have t o approve the time schedule.
Governor Seay. Yes. H e intimated that h e thought the
Board would net interpese any objection, b u t h e said he
had that stuuy before h i m end that t h e whole matter o f
the System fleat would come up.
H e believes,
a s Mr.
Fancher h a s said, thet w e were acting contrary t o the l a w
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Federal Reserve Bank of St. Louis
152
in carrying a
gocd deal o f float i n the System, a n d
intimated t h a t i t w a s t h e opinion,
a t least o f many o f
the c o u n t r y banks, t h a t w e a r e c a r r y i n g a
very large pro-
portion o f that float f o r t h e benefit e f the c i t y banks.
The Chairman. I
am afraid that i s s o i n our dis-
triet. I s n ' t t h a t s o , M r . H a r r i s o n ? t h a t t h e c i t y b a n k s
get t h e benefit o f the float i n our district?
Mr. Harrison. T h e y all do, because t h e country
banks t h a t a r e sending t o u s get t h e benefit o f one
day's s a v i n g s
o n all points
Governor Talley.
i n t h e i r t w o - d a y schedules.
M r . Chairman, M r . Mills n a s s a i d
that h e would like t e come over within t h e next t e n o r
fifteen minutes.
Gevernor Harding. I
would like t o remark that a n y
extension c f c u r t i m e s c h e d u l e
o n certain points
i n
New York state, Pennsylvania a n d N e w Jersey, w o u l d result
in a very material increase i n the burden o n New York,
because a
great m a n y o f our banks would send directly t o
New York.
The Chaicman.
in some way.
W
o f course w e would hope t o change ours
e have a float now o f about $20,000,000,
ef which, accerding t e the calculations Mr. Harrison
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OO
just gave me, t h e float within t h e district o r the intra-
district float i s @ix and a quarter million and the
inter-district float i s fourteen million.
T h i s arises
frem various reascns, w h i c h a r e described here a t length.
The intra-district float o f $12,800,000,
i n the week
when t h e analysis w a s made, arose i n items s e n t t o four
peints.
Geverncr Harding.
I f this thing ever comes u p before
the Board and I am asked to discuss i t with the Board,
fam geing t o call their attention t o the fact that
there i s a peculiar relationship between t h e N e w England
territory a n d New York; t h a t b u t f o r t h e desire o f
Coneress b a c k i n 1913 t o h e l d N e w Y o r k d o w n t o t h e l o w e s t
minimum p e s s i b l e a s t o size, t h e r e w o u l d n o t h a v e b e e n
any Boston district.
T h e r e wasn!t a
in N e w E n g l a n d f o r a
reserve b a n k there,
lot e f enthusiasm
and I
think
they would have been entirely satisfied t o have been a
part o f the N e w York district, a n d then this question
would never have arisen a t all.
The Chairman. Geographically i t is a sort o f uneconomical thing.
Governor Harding. T h e banking interests o f N e w
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Federal Reserve Bank of St. Louis
154
England h a v e g n t t o k e e p c o n s t a n t l y
i n mind w h a t t h e y
are doing i n New York.
Mr. Harrison. B e f o r e t h e Federal Reserve A c t was
passed w e c o l l e c t e d t h e i t e m s
o n those points
i n t w o days
through t h e country collection denartment o f the clearing
house.
Physically,
t h e Federal] r e s e r v e b a n k s o f N e w York,
of Philadelphia o r o f Boston could col7ect t h e s e same
{tems
i n t w o days, w e r e i t n o t f o r t h i s a r b i t r a r y d i s -
trict line which was drawn, n e t s o much f o r collection
purpeses, b u t wholly regardless o f collection purpeses,
and solely f o r credit purposes.
The Chairman.
O r pelitical purposes.
My. Harrison. Y e s .
i
y en w e s u b s c r i b e w h o l l y t o t h e
no
principle that w e should/make payment for cheeks i n a
time s h o r t e r t h a n i t takes u s % n t h e a v e r a g e
t o collect
them, nevertheless w e d o feel that befcre w e change f r o m
the twe-day point t e the three-jay peint, t h e System
should consider first whether i t i s possible t o 2ell23t
a good vercentage o f those items b y direct sendings,
or
some other process, without a n amendment t o the law,
second,
i f w e cannet d o i t without amending t h e law,
whether o r not i n the interest o f expediting a
perfect
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Federal Reserve Bank of St. Louis
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collection s y s t e m w e s h e u l d n o t s e e k s o m e other, p e r -
haps drastic amendment~--not new, b u t later on--amendment t e the l a w which will permit o f a more scientifif
collection system.
I t i s a questiconc practical con-
venience a t the moment, whether w e should give u p
the
twe-day points under a l l t h e circumstances a n d subject
curselves t o very serious a n d bitter criticism e f all these
banks i n this whele area, o r whether w e should continue
tc hope that w e could eventually justify cur two-day
peint b y mcre speed} collections
i n some o n e c f the ways
that have been suggested a n d discussed.
Governor Fancher.
D i d your ccuntry clearing hcuse
in New York collect e n all this area that y o u are collecting o n now, o n two days! basis before?
Mr. H a r r i s o n .
O n two-day basis.
Gevernor Seay. T h e y got returns, but did they get
immediately available funds?
Mr. Harrison. Y e s . I t haprens that { n New York they
got returns o n New Yerk peints where t h e y h a d accounts
in New York.
Governor Seay. D i d they get them i n time for the
clearing house?
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Federal Reserve Bank of St. Louis
156
Mr. Harrison.
A s a rule, I
The Chairman. I
understand t h e y did.
think the rules o f the country
collection division o f the clearing house reoguired New
York f u n d s
i n settlement
o f items s e n t t h r o u g h t h e
country clearing house.
Governer S e a y .
H a v e y o u e v e r m a d e a n y analysis
determine whether t h e y merély received a
to
return o r
whether t h e y received return i n funds available o n the
day o f receipt?
The Chairman.
T h e y got clearing house funds. There
wasn't a n y other kind then.
Governor Seay.
A s I
say, d i d t h e r e t u r n s c o m e i n
in time t e cleer o n the d a y o f receipt?
Mr. Harrison,
W e have estimated, f e r instance,
that i f w e could s e n d directly t c about twenty different
land
citfes i n New E n g / w
e could collect between 6 5 and 70
per cent o f the total dollar value c f all items o n
these points o n o r i n New England,
i n two days.
Governor Harding, A n y lengtheningcef our time schedule w o u l d c e r t a i n l y i n c r e a s e t h e b u r d e n
Governor F a n c h e r .
o n N e w York.
U n d e r thet method
c f collection
you have given t h e Boston banks a n advantage t h e y d i d
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Federal Reserve Bank of St. Louis
157
not have under t h e N e w England e a r i n g House Assoclation, b e c a u s e t h a t w a s c o n f i n e d s i m p l y t e N e w E n g l a n d
cities.
Governor Harding.
W e did net give t h e m a n y advant-
ages that they cculd n o t g e t independent o f us.
Gevernor Fancher.
B u t t h e o l d system o f clearing
on
the two-day basis o n New England through t h e clearing
heuse association--
Governcr Harding. I wasn't there then and I do not
remember abcut that.
Gevernor Fancher.
I t did not g o outside o t N e w Ragland,
as I recall;
The C h a i r m a n .
M r . Harrison
and I
have discussed t h i s
at great length, and I think what we weuld like t o da,
agreeing, as we do, with the committee entirely i n principle, w e would like t a try t o work out a scheme t o get
mest o f thet stuff threugh i n two days.
W e might have
to get a little cooperation f r o m Governor Harding a n d
Geverner Norris.
J u s t h o w i t would b e done I
do not
know.
Governor Harding: I
think tae situation o f New York,
Philadelphia a n d Boston should b e considered separately
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Federal Reserve Bank of St. Louis
156
from t h e s i t u a t i c n
i n t h e r e s t o f t h e country. I
to s a y o n e t h i n g further.
fron Boston t o New York.
past 5
or 6
o'clock
W
want
e have a i r mail service
I t leaves Boston about half
i n t h e afterncon.
A n y bank i n
Boston could collect a l l items payable o n New England
just a s quickly b y bunching t h e whole thing o n New
York
as they could b y sending i t t o the Federal Reserve B a n k
of Beston.
The Chairman. A n d get N e w Yerk funds i n two days.
Governor Harding. Yes.
The Chairman,
A n d t h a t w o u l d s u i t t h e m perfectly.
Gevernor Harding. Absolutely.
Mr. Harrisen.
I n changing t h e schédule f r o m twe t e
three days i t will simply b e a n admission b y the Federal R e s e r v e S y s t e m t h a t t h i s i m p r o v e d c o l l e c t i o n s y s t e m
that w e have given t e the country cannot d o for t h e banks
in t h a t a r e a w h a t t h e y h a v e a l w a y s b e e n a b l e t o d o f o r
themselves
i n t h e past, a n d w h a t t h e y w o u l d d e f o r t h e m -
selves i n the future, should w e institute t h e three-day
peint.
G n the other hand, I
think there igs n o denia]
ef t h e f a c t t h e t o u r p r e s e n t s c h e d u l e
equivalent t o giving a
o f t w o days i s
$14,000,000 surplus reserve t o
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Federal Reserve Bank of St. Louis
the m e m b e r b a n k s
i n t h o s e areas.
i
t I e m e r e l y « a dife
ference o f degree o f what w o contended f o r i n the. Pas-
cagoula ease, what w a contended should net b e done under
any circumstances,
a n d that i s o r
immediate sredit f o r
aid. item,
The Chairman. I
fleat. I
a m very anxious t e get r i d o f the
think t h e difficulty i n New England i s more
deeply rooted i n a way than i t i s i n N e w York. I
do rot
believe t h a t w e w o u l d h a v e t h e g r e a t d i f f i c u l t y t h a t w e
would have had a few years ago i n the New York Clearing
House.
Governor Harding. Y o u c a r see o u r difficulty.
The Chairman. I
appreciate y o u r difficulty perfectly,
GCvernor .
,
Mr. Harrison,
B u t incidentally
i t will n o t b e a
bed
of roses f o r us.
Tho Chairman, N o , i t will not. I
offer this suggest-
ion a s t o the three districts, beeause t h e y d e interlock
eloser t h a n a n y o f the others.
M y suggestion i s that
Mr. S t r a t e r m e e t w i t h t h e m e n i n c h a r g e o f o u r t h r e e
banks a n d work c u t some scheme o f cutting c u t this float
together,
e s a local problen.
W e must boa able t o iron
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Federal Reserve Bank of St. Louis
out a
great m a n y o f these difficulties, M r . Strater.
Governor Harding. I
think t h e three districts r e -
quire special study.
Mr. Harrison.
W e might have o n e collection agency
for these three districts,
t o which practically a l l t h e
member banks could send their {ftems, j u s t a s they d o
now under t h e present s e t up, a n d they could actually
collect t h e items probably i n two days.
Mr. Strater.
W i t h t h e excepticn
o f t h e banks o f
New York, B o s t o n a n d Philadelphia.
Mr. H a r r t s o n .
Mr. Strater. I
W i t h t h e e x c e p t i o n o f t h e i r h o m e C l b i,
cannet quite s e e Governor Harding's
point o f the Boston banksusing a i r mail a n d accomplishing t h e s a m e t h i n g a s i f t h e y d e p o s i t e d t h e i r c h e c k s
i n
the Boston reserve bank, bevause i f that plate leaves a t
6 o'clock a t night i t makes t h e m unavailable f o r u s e
until t h e following morning.
T h a t i s really neo quicker
than train service t e N e w York a n d therefore there i s
bound t o b e a less cof one day.
Harding correctly,
I f I understocd Governor
h e said t h e banks o f his district
comie, collect o n N e w England cities a s quickly b y sending
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Federal Reserve Bank of St. Louis
them t o New York.
Gevernor H a r d i n g .
New England cities.
No, I
said w i t h t h e e x c e p t i o n o f
Y o u did not criticise our time
schedule i n the N e w England states-~
Mr. Strater. N o , t h e committee h a s n e t eriticised
any a 8 @
matter
o f fact.
I
t i s j u s t t r y i n g t o discharge
its duty b y pointing o u t things a s t h e y are.
The Chairman. W h e n does that aernplane g e t back t o
Boston?
Governor Harding. I
do not know, b u t a geod many o f
the larger banks i n Boston have b e e n using i t t o a limited extent.
Governor Seay. Mr. James mentioned,
i n the course
of his conversation, t h a t o n e very small banker i n
Texas was complaing that the Texas reserve bank, o r the
reserve bank o f Dallas, d i d not carry for its member
banks t h e s a m e v o l u m e o f f l o a t t h a t c e r t a i n o t h e r r e serve b a n k s c a r r i e d
f o r t h e i r member banks.
Gevernor Talley. You cannot please everybody of
course. I
was just about t o s a y that, sco far a s the
Dallas bank i s concerned, w e wouid b e willing t o recognize this special condition which y e u have i n these
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Federal Reserve Bank of St. Louis
162
three districts,
a n d subscribe
t o a n y n e w arrangement,
without a n y idea that w e ave sacrificing uniformity.
The distances i n our district a r e s c great, a n d aprlying
the r u i e t h a t t h e m e r e r e m o t e t h e p o i n t t h e l e s s t h e
volume,
o u r analysis s h o w s t h a t i t would b e cbjection-
able t o u s t e ungertake t a route direct i n t o other distriéts, b e c a u s e t h e m a t t e r i s o f s u c h s m a l l c o n s e a u e n c e
to us.
F o r that reason w e would b e very glad f o r the
three districts u p there,
o r even including t h e Richmond
district, o r any other district, t o work out a plan that
would overomme the difficulty. I
think Mr. Harriscn
said quite a n important thing when h e said that w e could
not suppert the principle o f a n tmproved collection
system, making comparison with foriel conditions a n d get
to the point where t h e present collection system i s
not a s efficient a s the other one, without these reserve
banks carrying a n encrmous amount o f float. I
even g o
so fer i n the analysis t o express t h e thevght that chose
three districts c o u l d clear these items, c h e c k against
each other i r the three districts, a n d settle t h e balances, because t h e y a r e a l l practically equi-distant
from t h e s a m e point.
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Federal Reserve Bank of St. Louis
163
Mr, Herrison.
W e would b e satisfied t o have a n
amendment c f the law, o r a ruling,
o r agreement, t h a t
would p e r m i t u s t e s e n d d i r e c t l y t o a n y p o i n t
we have over-night train service.
t o which
A n arbitrary re-
striction through district lines prohibits u s from
doing that, a n d i t defeats t h e entire pessibility
of a perfect o r improved collection system. Y o u people
in the bigger districts out West have that solved
merely because your gecgraphical, limits a r e s o great.
You e a n send direct t e a n y point which i s within overnight t r a i n
s a e
e f you, b u t w e c a n n o t
d e f t merely
because o f this a r b i t r a r y barrier.
Geverncer Talley. N o t o n l y that, b u t c u r improvement enmes through constant improvement i n the mail
services, putting o n new trains, shortening schedules,
and all that sort o f thing.
Gevernor Bailey. S p e a k i r g o f available exchange,
I used t o s h i p a
carload
o f corn d o w n t o Alabama a n d
they would send m e a cashier's check, a n d charge f o r it,
and I would send i t back a n d they would s e n d m e a draft
on New Orleans a n d charge f o r it, a u d b y the time I
get m y money finally i t was t e n days.
T h e r e i s more
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Federal Reserve Bank of St. Louis
164
difficulty i n getting i t just a s quickly a s w e
to under t h e o l d clearing house system, b u t w e
exchange better;
Governcr Talley. I
think Mr. S t r a t e r w i l l b e e r m e
o u n
t ithe statement that w e have shown a vast improvement i n cur timé schedules i n the last four c r five
years.
Mr. Strater. I
think so, .Geverner Talléy. I
think
it has b e e n constantly improving.
Governor Talley.
W h a t i s t h e difference
i n princi-
pis between t h e N e w York bank sending checks directly
inte the New England district-+
(At this point undersecretary Mills e f the Treas~
ury entered t h e Conference r e o m a n d t h e following proceedings w e r e had):~
The Chairman.
M r . Mills, a
q u e s t i o n c a m e up’ some
few minutes a g o which necessizated discussion w i t h the
Treasury D e p a r t m e n t 'd
n
a w e thought w e would tak: ad-vantagef t h a t a n d extend t o y e u o u r customary invita-
tion t o address the meeting o n any subject that you
have i n mind having t o d o with t a e Treasury Department
er r e s e r v e banks.
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Federal Reserve Bank of St. Louis
165
The q u e s t i o n t h a t a r o s e w a s this. U n d e r t h e s t a t -
ute o f the United States, w h i c h date back t o the deys
of Alexander Hamilten,
n o final payment o f a n eobliga-
tion o f the United States i s made anywhere b u t a t the
Treasury Department i n Washington.
T h a t means t h a t t h e
coupons which w e pay, a n d all t h e Treasury checks a n d
Warrants a n d s o on, a r e charged t o the Treasury's a c @
count.
T h e y are stamped, b u t n o t cancelled, a n d are
sent t o Washington for examination.
T h e n the charge
which 1 s made t o the Treasury's accaunt becomes final.
In the case o f loss o r destruction o f a package o f these
vouchers, t h e question esrese a s t o whether thet charge
against t h e Treasury's account would become final, o r
what process would b e followed i n recovering f r o m the
Treasury i n t h e a b s e n c e
o f t h e vouchers.
We have had the subject u p t n New York and worked
eut a plan,
W e send t h e m cut b y express a n d insure
them f o r a theusand dollars.
T h e r e a r e copies made
of the accounts k e p t i n the bank, sco that everything
is identifiable b y symbol, a n d s o forth, a n d w e have
never had any trovble. T h e r e may be some question ine
volved. I
think a
bend i s t a k e n t o c e v e r p o s s i b l e
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Federal Reserve Bank of St. Louis
166
loss, a n d w e p a y a
very s m a l l premium.
S o m e o f the
reserve b a n k s a r e i n doubt a s t o w h e t h e r e
w are proe
tected i n the event o f a train burning u p and a complete destruction o f all t h e evidence o f payment. I
suggested t a Governor Talley, w h o raised t h e questicn,,
that h e might t a k e i t u p with the proper cfficers
of the Treasury while h e i s here, ascertain their v i e w
about it, and make a repcrt.
Undersecretary Mills. I
think Mr. H a n d i s the best
man. The question has never arisen s o far as I know.
fhe Chairman.
W e had one case i n New York where
the cancelled papers c r mutilated papers o r whatever
it wasy amounting t o the neminal value o f a million
dollars, i n a mail. bag, was stolen.
T h e bag was slft
Open a n d dropped e u t o f the mail c a r alengside t h e
track. I
do not know h o w i t worked cut, b u t I
a m certain
that w e d i d n e t l o s e a n y m o n e y i n censegquence o f that.
Undersecretary tills.
to m y attenticn since I
T h e question h a s never come
have b e e n i n the department,
but I will reserve that t e look it up and get Mr.Hand
to talk i t o v e r w i t h Gevernor Telley before h e leaves,
if that i s satisfactory.
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Federal Reserve Bank of St. Louis
Oe
Governor Bailey. I
would like t o hear t h e report o n
that, b e c a u s e w e a r e t n t h e s a m e f i x t n Kansas C i t y .
Undersecretary Mills.
A l l right, I
will s e e that 4 t
goes t o all o f the Governors.
The Chairman.
M r . Mills,
a r e t h e r e a n y matters w i t h
relation t o the Treasury a n d the reserve banks t h a t y o u
would l i k e t o t a k e u p now?
Undersecretary Mills. I
do not k n o w o f anything.
The Cheirman. Anything i n connection w i t h t h e pending
financing?
Undersecretary. N o , I
de net k n o w o f anything that I
consider o f sufficient importance t o warrant m e i n taking
up y o u r time.
Governor Bailey. W h a t about the new currency?
Undersecretary Mills.
T h e n e w currency i s coming
along. They are meeting with any number o f mechanical
aifficulties, b u t they are gradually cvercoming them and
we hope t o begin issuing t h e n e w one dollar bills some-
time during the course cf the next fiscal year, I should
say about January 1 , 1929.
Governor Geery.
W i l l i t be pessible o r the desire
ef the Treasury t o redeem fit-for-use bills e f the o l d
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Federal Reserve Bank of St. Louis
168
promptly,
o r will t h e y b e wern o u t first?
Undersecretary Mills.
N o , w e will redeem them a s
as w e can, o n c e w e have a n adequate supply o n
of n e w ones.
The Chairman.
I n connection w i t h t h e plan o f
reducing t h e size o f the currency, I
American Bankers!
understecd t h e
Association passed a
resolution b a s e d
on the rettrement o f national b a n k notes.
I s that a
fact,Gevernor Talley?
Gevernor Talley. I
did not know about it.
The Chairman. T h e r e was a n account o f i t i n cne o f
the newspapers.
Undersecretary Mills. I
Governor T a l l e y . I
think I
s a w that.
usually a t t e n d t h e A . B . A .
sessions, l i k e everyone else,
i n the hetel lobbies, a n d
read the decisions afterwards.
The Chairman. I
think t h e question m a y come up. I
do not think i t is the general understanding that w e
are t o reduce t h e size o f national b a n k notes.
Undersecretary ijills.
Streng, I
T h a t i s e a question, G o v e r n o r
d o net t h i n k w e went t o raise a t this time,
as t o what w e are ultimately going t e de with the
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Federal Reserve Bank of St. Louis
169
naticnal b a n k notes.
1950.
I t really will n o t b e a n issue until
W e are not i n position really t o retire t h e m
until 1930, and a premature discussion might very well
put t h e whele question i n t o pelitics. I
assume a
good
many c f the national banks will g e t very busy~-they a r e
getting b u s y now.
W e d o not want t e see a political
issue m a d e o f t h e question. I
think w e c a n g o a l o n g f o r
a considerable t i m e with t h e national b a n k notes o f the
present size, e v e n i f w e have a smaller currency. I
do
not think i t would tend t o increase their popularity,
but that 4 s something for time t o develop.
Treasury i s concerned I
S o fer a s the
think w e are prepared t o g o along
and work out our small currency program and leave the
national bank currency i n a class b y itself.
while w e c a n s e c w h e t h e r S h e r e t e a
I n the mean-
solution o f t h e m e -
chanical end of {t, and we will have an opportunity
to judge public sentiment o n the question o f retirement
in the course o f the next t w o a n d a half years.
Governor Harding.
D e y o u t h i n k t h e t i m e i s aprroach-
ing when i t wiil b e advisable t o put Section 1 8 o f the
Act into operation, b y offering these banks t o take
their b o n d s ?
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Federal Reserve Bank of St. Louis
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The Chairman.
i t i s approaching.
T h e twos have
gone up.
Governer Harding.
U f course that would o n l y take
care o f 2 5 million.
The Chairman.
A n d t h e threes h a v e also gone un, I
think.
Governor Harding. I
think i f meney ever gets t o the
point w h e r e y o u c a n p u t t h a t s e c t i o n b a c k i n t o e p e r a tion t h a t y o u w i l l g e t a
good m a n y v o l u n t a r y cffers.
Undersecretary Mills. Yes, but i t will b e a very
slow process t e work i t out a t 2 5 million a year.
The Chairman.
W e are limited t o twenty years,
and that will retire 5 0 0 million.
Governor Harding.
I t would o n l y retire about 1 5 0
million now.
The Chairman. T h a t i s all.
Governor Harding. B u t still i t would b e a step i n
the right direction,
Governor Norris. Mr. Secretary, a r e y o u personally
femiliar w i t h this reserve s t o c k o f n o w one dollar silver
certificates t h a t a r e being establihed a t the reserve
banks?
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Federal Reserve Bank of St. Louis
Undersecretary wills. Yes.
Governor Norris. .
plaint
h a d a gocd deal o f com-
i n o u r o f f i c e c b o u t that.
T h e y understocd t h a t
it was t o b e really a reserve stock, b u t a s a matter o f
fact,
i n September t h e r e w e r e t w e n t y o n e withdrawals,
and i n the first twenty four days o f Ucteber there were
fifteen withdrawals, and, o w i n g t o the directions a s t e
how i t shall b e handled when n e w netes a r e received,
it
is necessary t c have a n assistant Federal reserve agent,
an a s s i s t a r t c a s h i e r ,
and
a n auditor,
a n d three extra
employees t o open the pouches a n d witness t h e receipt
cf the money.
I n addition e a c h package must b e inspected
in the case o f withdrawal i n the presence o f the same
number o f persong mentioned.
made daily,
a n d therefere
W i t h d r a w a l s a r e generally
a n certain d a y s t h a t shipments
are received, b o t h i n and c u t transactions a r e necessary.
Now, I
be p o s s i b l e
want t e ask the question whether i t would n o t
t e make t h a t a
real r e s e r v e s t o c k f r o m w h i c h
withdrawals w e r e o n l y t o b e m a d e i n c a s e e f a n emergency,
instead o f deity.
Undersecretary Mills.
T h a t w a s t h e c r i g i n a l fintene
tion, a n d that i s w h y I would l i k e t e lock inte it. Will
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Federal Reserve Bank of St. Louis
172
yeu l e t m e h a v e y o u r memorandum, G o v e r n o r N e r r i s ?
Governor Norris. I
Governor Seay.
once.
will b e very glad to.
I n Richmond w e have t h e same experi-
I t i s practically a
Mr. Harrison.
continuous p e r f o r m a n c e .
I s n ' t i t due t o the fact, o r a t
least i s not this o n e o f the reasens f c r it, that t h e
soealled r e s e r v e s t o c k w a s r e a l l y e
t build u p t h e supply
in t h e t w e l v e r e s e r v e b a n k s o f u n i s s u e d n o t e s , w h i c h
would b e issued f r o m the reserve banks a n d not become a n
outstanding liability o f the Government until fissued b y
the reserve banks, a n d thereby saving float, w h i c h would
be quite considerable i n amount between t h e banks a n d
the T r e e s u r y ?
Undersecretary Mills. That was one feature o f it.
Mr. Harrisen. I
did net think you had gat to the
point where y o u had heped t e build u p a reserve s t o c k
in reserve banks. I theught that was the prime feature o f
it a t the time.
Undersecretary. Mills.. No, t h a t was o n l y one o f
the features. because i t was alse the. question c f space
which was invelved.
such s i t u a t i o n
W e h a d not certemplated a n y
a s Governor Norris
h a s described.
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Mr. Harrison.
York.
W e have t h e same difficulty i n New
I t requires t h e services o f two o f our officers
on a n average o f four hours a
day, each, t o handle it,
but that situation i s no doubt due t e the fact that the
Treasury, i n issuing currency, hes got t o issue the
lowest number first, t h e lewest seria] number, a n d t h e
result i s that i f y e u d e have a
steck there o f a n y kind
there i s beund t e b e a turnover i n i t owing t o that difficulty i n having t o issue t h e lewest serial number first.
Undersecretary i l l s . T h a t m a y b e the answer t e it.
The Chairman.
I s there a n y further d i s c u s s i o n o f this
currency m a t t e r ?
Governor Bailey. I would like t e know what our cbligation i s t o t h e T r e a s u r y w h e n w e h a v e p a i d t h e s e v o u c h -
ers, stamped them paid, a n d put them i n the express
office a n d sent t h e m back. T h a t i s where o u r connection
with t h e thing stops.
Undersecretary Mills.
T h a t w a s t h e question Governor
Talley raised, w a s i t not?
Governor Talley. Yes.
Governor Norris.
cashed t h e m .
Y o u h a v e n e t p a i d them;
y o u have
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The Chairman. Gentlemen,
i f there i s n o further
discussion e f this matter, t h e r e f s c n e topic o n the
program that I am geing t o ask tir. Harrisen t e pring
up while Mr.Mills i s here. T h a t 4 s III, sub-topic B ,
Treasury practice i n making purchases o f geld a t mints
and assay offices.
T h a t i s especially Mr. Harrisen's
topic.
III. C o i n , Currency a n d Circulation.
B. T r e a s u r y practice i n making purchases
of gold a t Mints a n d Assay Offices.
Mr. Harrison. F o r a period c f two o r three years,
perhaps longer,
w e have been discussing tnformally with
officials o f the Treasury t h e practice o f the Treasury
‘comparison w i t h other
Department i n making purchases c f gold i n / g o l d centers,
such a s London, Berlin, Amsterdam, a n d soa forth.
A s
we all know, t h e Treasury has,in buying gold, p a i d mint
parity for the gold and made a n immediate advance o f 98
per cent o f thot mint parity when the gold i s deposited,
paying t h e final 2
per cent w h e n t h e final report o f
assay i s received. T h e result c f the difference i n practice
at these centers h a s b e e n that t h e United States
pays more f c r gold than a n y other
the world.
g
o
l
d market i n
T h i s practice w a s first started a w a y back i n
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Federal Reserve Bank of St. Louis
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1878, w h e n there was perhaps a
real reason f o r t h e
Treasury making t h e immediate advance, a n d that was t o
enceurage deposits o f gold a t the Treasury a n d not t o
discourage it.
T h e Secretary w a s given authority,
under the law,--while net a mandatory one--he was given
permissive autherfity under t h e l e w t o make advances o f
98 per cent for the full face value ef the gold tmmediately upon receipt o f the depasit.
New, a s you all know, w e have i n the United States
over h a l f o f t h e w o r l d ' s m o n e t a r y s u p p l y o f gold.
the moment w e are n o t desirous, certainly,
A t
c f creating
any artificial encecuragement o f the flew o f gold i n
this way, a n d i t has occurred t c us, therefore, t h a t
there might b e seme advantage, naticnally and internationally,
i f w e could edapt c u r practice somewhat
to
the practice o f other markets c f the world, a n d not
make immediate advances, b u t ewait final assay.
soa
that t h e result would b e equivalent t e making a
dis-
count }
rom
t h e full face value o f the gold purchased b y
the Treasury.
In Lendon,
a s y o u perheps e 1 1 know,
t h e discount
that t h e Bank c f England pays i s equivalent t o one e i g h t
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Federal Reserve Bank of St. Louis
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per cent c f the mint parity.
T h a t discount, w h i c h they
make i n their buying price, w a s designed t o cover t h e
less o f interest t h a t would b e suffered b y a depositor
if heshould take his gold t e the Reyal Mint, wait for
the gold t o b e minted, a n d get his money b a c k i n geld.
The same practice prevails i n other markets, a n d I
have the figures.
I n The Netherlands, t h e ciscount, in-
stead e f being . 1 6 , 1 8 . 3 5 per cents i n Switzerland
it is. . 4 3 ; d n Bertin, 1t¢ is . @ 1 , a n d i n the United
States t h e d i s c o u n t
i s ..013,
o r a p p r o x i m a t e l y o n e ‘tenth
ef what i t i s i n Londen, which i s the largest o f our
gold markets.
Now, under t h e law, w e feel that i t i s competent
for t h e Treasury t o issue a
defer t h e t r a d v a n c e s f o r a
regulatien whereby t h e y will
period o f f i v e t o t e n days,
or perhaps m a k e n e advance a t all o n acceunt o f gold
deposited,
a n d make final payrent w h e n t h e final a s s a y
is néceived.oniy.
T h e r e a r e a number e f disadvant:ges
te that, peliticel a n d etherwise, b u t that i s the thought
in the minds o f all o f u s whe have censidered it.
W e
have estimated that the demestic production ef gold i n
this country i s appreximetely $50,000,000 annually.
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All o f those domestic producers o f geld would ratse a
howl immediately 1 f there was a regulation o r law equivalent t o a discount e f . 1 6 per cent, o r a n y other
discount o n the gold that t h e y produced.
T h e question
came up, then, whether i t might n e t b e possible t o
give up the practice o f making immediate advances o n
enly the coin or imported menetary gold, and whether i f
that were done there would b e a n y legitimate complaint
by anybody. T h e only enes that could preperly complain
would perhaps b e the importers o f gold te this country,
but they are merely acting a s a g e n t s e
t bring the gold
in because o f the fact that i t i s profitable t o them t o
do s o at a certain given peintin the exchange rates.
If we changed that practice the result might merely be
that w e would lower the gold export peints fer those
various fereign markets. I
and I
think t h e e t h e r s
do not believe myself,
o f u s f e e l t h e s a m e way, t h a t
there would b e eny real crmplaint e n the part o f the
fereigners generally,
i f w e should change o u r practice,
because s u c h things a s w e hear n e w about o u r gold
policy are that w e are hoarding the gold o f the world
rather t h e n t h e fact that w e are repelling it, s o that
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Federal Reserve Bank of St. Louis
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a change c f p r a c t i c e
than g i v e f u e l ,
a t this t i m e might answer, r a t h e r
t e some o f t h e discussicns t h a t w e hear
abroad about o u r gold practice.
Governor Seay.
I s there a similar practice i n
Canada, M r . H a r r i s o n ?
Mr. Harrison. I
d o net know what t h e practice i n
Canada amounts toe, Geverner Seay.
W e might well l o c k
inte that.
To p u t i t a
little d i f f e r e n t l y , s t e r l i n g e x c h a n g e
has g o t t o g a down only a point a n d a half before i t
reaches the gold export point from Lendon,
The Chairman.
B e l o w mint-pearity, y o u mean?
Mr. Harrisen.
B e l o w mint-parity, y e s .
R e f c r e we
lese gold t o Lendon sterling exchange has get t o g o up
twice that amount,
o r pretty nearly three cents, a n d
while s e m e c f t h a t d i s p a r i t y i s d u e t o d i f f e r e n c e
i n
freight rates between eastern a n d western shipments,
most o f i t i s due t e the fact that w e have this practtee o f m a k i n g i m m e d i a t e a d v a n c e s
o n account
o f geld
peught.
The Chairman. T h e r e i s e n e paint also, a n d that
43 t h a t i f t h e T r e a s u r y s h e u l d d e c i d e
t o abandon t h e
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practice o f making c a s h advance o f 9 8 per cent, guarr
anteed value c f the gold, t h e Federal reserve banks
would t h e n b e i n a position t o step i n and t o make a
bank price f o r cash, p a y cash f o r that gold, w h i c h
would send all the gold t o the reserve banks, because
they weuld b e the cash market.
I t happens i n all the
ether markets t h e t t h e gold gees t o the cash custcmer,
the bank c f issue, a n d that i s now t h e statutory practice
in England.
Mr. Harrisen, A
survey o f the different mints
and a s s a y offices s h o w s t h a t i n N e w Y e r k t h e f i n a l a s s a y
is ysually received abeut t e n days after t h e deposit.
That i s a much len,er peried t h a n i s the case j n any
other mint o r assay office, a n d t h e practical effect o f
this i s that t h e discount which a depositor would have
to suffer would b e greater i n New York than anywhere
else. C o n v e r s e l y ,
t h e contro!
w h i c h t h e reserve b a n k
would have over the monetary price o f gold would b e
greater i n New Yerk, because the discount i s greater.
We d i d n o t f i n d t h a t t h i s d i f f e r e n c e
i n the vractice
different m i n t s w o u l d h a v e a n y m a t e r i a l e f f e c t u p o n
what w e are desiring t e accomplish, because i f the
at
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Federal Reserve Bank of St. Louis
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practice i s limited t o the menetary g e l d i t will b e
practically iimited t e New York,
such a
big percentage
i n any event, because
o f the imported g c l d comes i n t o
New York,
The Chairman. T h e Treasury,
some interest b y this, b u t I
amount te.
e f course, w o u l d save
do net k n e w what i t would
I f this practice h a d been established scme
years a g o with t h e geld that w a s coming in, i t would have
saved a great d e a l o f interest.
T h e r e was 2
lot o f
money invested i n geld that w a s n o t available tec the
general fund.
Mr.Harrison.
I n effect,
i n t h e past, a l l g e l d c o m i n g
inte t h e ceuntry hes b e e n put into t h e melting p o t because there was n e real market f e r i t cther t h a n t h e
assay effices a n d t h e mint.
T h a t was done neo matter what
kind o f gold i t wes, e v e n i f i t was perfectly satisfactory g o l d b a r s o f t h e b e s t a s s a y e r s a b r o a d .
T h e goid
would b e destroyed, remelted i n Up,ited States mints.
Just t o show you how sensitive the market is, twe years
ago,
when
w e went i n t o t h e market
f o r foreign bars,
possibly a l l o f t h e b a r s t h a t c a m e t e N e w Y o r k w e r e s o l d
to u s rather t h a n t o the assey office, because t h e
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final t w o per cent payment, w h i c h was deferred t e n days
in t h e a s s a y office, w a s d e f e r r e d o n l y t w e d a y s i n t h e
reserve bank, pending t h e weighing o f the bars that were
bought.
T h e differénce b e t w e e n t h e t w e days a n d t e n
days i n the final twe per cent has breught u s the gold
rather than bringing i t t o the assayers.
T h a t plus the
fact a l s e t h a t t h e member banks w e r e v e r y d a n tn cai o f
cooperating with us fn any event.
The Chairman.
I n commenting o n this proposal t h e
twe things that stand cut i n my mind sbout i t are, first,
the matter Mr.Harrison mentioned a s t o domestic protection.
There has b e e n s o much discussion e f the plight o f these
people that i t would hardly b e advisable t o adopt a regulation which would penalize them i n the price they get
for thetr gold.
T h e second i s i t means a
reduction i n
the price that w e pay fer gold i n this country o f maybe
one-eighth o f one per cent. That i s the way i t figures
eut roughly.
Mr. Harrison. Yes. I t would be .16, or about oneeighth of one per cent.
The Cheirman.
I t would naturally create comment
abroad that w e were doing something that was quite
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unusual. S o m e of the nations have deliberately reduced t h e price e f gold b y 5 per cent.
N o w Switzer-
land has p u t a n embargo o n the impertation o f geld, a n d
we are taking it.
Mr. Harrison.
T h e r e i s another important considera-
tion, a n d t h a t i s this, t h a t i f w e p u t a
handicap
on
gold bars, o r make t h e m less valuable i n the geld market,
net
there is geing te be a tendency/tc withdraw the bars ‘for
export a n d expert U . S . geld coin, a n d that i s going t o
be a
more e x p e n s i v e p r e c e s s t h a n m a k i n g bars.
T h e Bank
ef England h a s been able t o centrol that largely because
they would pay out light weight coin. W h e n I say"light
weight” I mean within the limit of telerance, but abraded
CON.
W
e could follow t h e game practice w e r e i t not
fer the fact that w e haven't a n y e l d c i r c u l a t @
® coin.
Mest o f t h e c e i n t h a t w e h a v e g o t n o w i s n e w coin.
proposition h a s b e e n p r e s e n t e d
T h e
t e u s very concretely
in
an order f r o m Brazil f o r a n expert c f some thirty s i x
millions i n cein, a n d w e have o n l y twenty millien i n
circulat®@ c o i n that w e can pay out and w e have get t o
pey cut t h e balance i n new coin, whether w e want t o
Air W A G .
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Federal Reserve Bank of St. Louis
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The Chairman. T h e circulated c c i n that w e have
had experience shows a n abrasion value o f abcut cne-
fourth o f one per cent and some three-eights. T h a t i s
abeut d o u b l e t h e m i n t r e d u c t i o n
i n the price c f gold a n d
that would overcome t h e disadvantage a n d stimulate t h e
taking o f bars rather than the gold coin.
B u t we
haven't g o t t h e a b r a d e d c o i n t o p a y out.
Gevernor Seay. Y e u furnish t h e circulated, coin a t
face value?
The Chairman. Oh, yes, a s leng a s i t is within onehalf c f ene per cent, w h i c h i s the limit o f tolerance.
Mr. Harrison. T h e Bank of England used to grade
their c i r c u l a t i e d n
i
o
c inte varieus groups within che
limit c f tolerance, depending u p e n whether t h e y wanted
to lose o r keep gold, a n d depending upen that, they
would p a y c u t l i g h t g o l d o r h e a v y g e l d accerdingly.
The Chairman.
there.
T h e y understand t h e prepdsition
T h e y h a d tons o f abraded c o i n o v e r i n those
countries where t h e y have t h e m i n circulation, s u c h a s
Germany. I imagine they have all got ample supplies.
Hereafter,
w h e n t h e y s e n d t h e sbraded e o s n o v e r here,
will k e e p i t a n d s e n d i t b a c k t e trem.
we
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Federal Reserve Bank of St. Louis
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ip. Harrison.
E v e n with i t s disadvantages, t h e r e
13 s o much t a b e said f e r this program,
i f i t i s feasible,
that w e are mest hepeful t h e t i t will b e peussinle
f o r
the Treasury t o work cut, perhaps n e t this precise ProO=
grem, b u t some program that will have seme n e t effect c f
reducing t h e price that w e are n e w paying f o r geld i n
competition w i t h all the rest o f the world. I
instance, t h a t a
know, f o r
goed part o f the gold that w e got early
last spring a n d late last winter f r o m France, w o u l d n o t
have come t c this country were i t net f e r t h e fact that
we paid more than a n y cther market, a n d there was a
shipment c f practically 130,900,000. involved,
The Chairman,
A s Mr. Herrison says, t h i s matter h a s
ween d i s c u s s e d f o r a
l o n g time, a n d t h e f e e l i n g h a s b e e n
thet t h e r e w e r e sec m a n y e l e m e n t s i n v e l v e d
i n tis that i t
might b e unwise f o r t h e Treasury t e issue a
new regula+
tien out o f a clear sky, a n d s o w e have preposed t h e
prepapingcf a
very careful article, describing t h e whele
problem hypcthetically, h a v e i t published semewhere
where i t weuld heve wide circulstion, a n d s e e what t h e
publie r e a c t i c n w a s h e r e a n d abroad,
M r . Willis h a s
suggested that t h e article sheulc appear i n the Bulletin.
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Federal Reserve Bank of St. Louis
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That struck m e a t the time a s a gard plan.
reflection, however,
O n further
w e are l e d t o belteve t n New York
that t h a t w o u l d m a k e f t a p p e a r a s t h e u g h t t w a s r e a l l y
@ propesal o f the Gevernment b e i n g p u t c u t b y the Fed4
eral reserve board, a n d w e believe w e should secure t h e
publication o f i t i n some magazine o r publication with
very wide biseudatien ameng people w h o study these things
and p r e b a b l y g e t a
to i t a t all.
better r e a c t i o n , w i t h e u t a n y k i c k b a c k
T h a t w a s t h e l a s t w o r d i n N e w York,
as I
remember it.
Mr. Herrisen, I
have f e l t t h a t w a y m y s e l f v e r y
strongly a n d I think the others f e e l that.
The Chairman. D r . Burgess feels that way. H e w d o
you feel about i t now, Mr. Mills?
Undersecretary Mills. I
have n e t felt that i t weuld
be quite a s much cemmented o n i n this ccuntrysThe Chairman.
I t will b e abread, a
great deal, a n d
it might b e eenstrued a s a possible difference between
the T r e s s u r y a n d t h e r e s e r v e S v s t e m ,
fully y e u w o r d t h e article.
n o m a t t e r h o w care-
I t will b e very difficult
get a c r e s s w h a t w e h a v e i n m i d g e t t i n g a c r e s s w i t h o u t
giving t h e i m p r e s s i o n t h a t w e a r e p t o u t s w i t h t h e
te
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Federal Reserve Bank of St. Louis
Treasury.
Undersecretary Mills.
T h e Treasury Department its
whelly symoathetic w i t h the idea, b u t w e did feel that
inasmuch a s t h e m a t t e r d i d n o t p r i m a r i l y c o n c e r n t h e
Treasury,
b u t rather c l e a r l y c a m e w i t h i n t h e jurisdict-
ien c f the Federal Reserve System, t h a t i t would b e better
if the suggestion emanated f r o m the Beard i n the form
of a suggestion, s i m p l y f e r discussion, a n d then s e e what
the public reaction weuld be. I
de not think i t i s a
matter o f great consequence whether i t appears i n the
Bulletin o r i n some cther publication that will fnsure
public discussion.
fault i n it.
W
e have n e t been able t o see a n y
I t looks t e u s a s a whelly sound proposi-
tion.
The Chairman. T h e r e has b e e n seme complaint abroad
that t h e r e i s n e gquetation f e r g o l d i n t h e U n i t e d S t a t e s
in t h e f o r e i g n markets.
W h a t i s meant
y y that i s t h e
fact that t h e whele werld lecks e t the Lenden market
where gnid i s seld publicly.
E v e r y Henday c r Tuesday
all geld which gees t o Lenden i s seld a t what i s equivalent t e a n auction a t t h e Rethchilds! C o m p a n y offices.
There t h e bidders f o r geld make cffers o f the bank's
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statutory price, w h i c a i s 8 4 Shillings 1 0 pence, f o r a
fine ounce, p l u s a n y premium that t h e y are willing t o
pay.
T h e gold which is. not sold ta be taken to India,
Germany, o r wherever i t 1s wanted, o r taken b y the manufacturer t o manufacture i n a n industrial art, goes auto-
matically te the Bank of England at its statutory price
of 84 shillings and 1 0 pence. W h e n the bank takes the
gold t e t h e mint, t h e c o i n t u r n e d b a c k i n sovereigns
te the bank a t the rate o f 8 4 shillings a n d 1 1 ha'pennies
in gold coin, a difference o f cone and a half points, which
is the equivalent o f the interest yest during the time
that t h e c o i n i s m a n u f a c t u r e d ,
and a
difference
c f that
same character, pessibly i n exactly t h e same ameunt,
which this plan would produce i n our practice, would result, a n d then i f a n y buyer e f gold wanted t o buy geld
We might i n the course e f time develop a
practice i n our
market semewhat similar t o what preveils ebroad.
Mr. Harrisen.
I n that connection I
think i t i s
worth mentioning, teo, that i t hes been @ great help
in the situation t o have the Treasury remove the bar
charge e n the gold seld b y the Treasury.
W e never h a d
eny basis eon which t e t r y t e persuade t h e foreign buyers
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of our gold t o take bars instead o f coin when w e h a a
an extra charge o n the bars; a n d while w e are n o t making
very much progress now, w e ere making some progress i n
getting t h e m t o take bars rather t h a n coin, a n d w e hope
to make a
great deal mere progress a s time gees along.
The Chairman.
I n that cennecticn, what i s the stetus
ef the supply c f geld cein, Mr. Harrisen?
Mr. Herrisen.
eoncerned
I t i s very bad, s e far a s w e are
i n N e w York;
i t i s weak.
L o o k i n g at it
nationally, t h e situaticn i s very much better t h a n i t
was t w o yeers age. T h e Treasury h a s minted, I
sheuld i m -
agine, i n that time aporoximately $200,000,000 i n gold
coin, a n d while most cfthoeir coin i s n o w used a s t h e
base for certificate issues, nevertheless the coin is
here and is available i f we have te have i t qn an emergency, either b y some method of reducing the ecin base
ageinst the certificates o r a pelicy of retiring certificates i n order t o release t h e gold coin. T h e ameunt o f
excess c e i n i n t h e country, o v e r a n d a b o v e t h e b a s e f o r
certificates,
f s not nearly a s large a s w e would like t o
see it, a n d i n the N e w Yerk bank, while w e were able t o
build eur supply o f colin up t e about $80,000,000 a
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J&9
shert while age, nevertheless withdrawals c f $31,000,000
for the Argentine and new $36,000,000 for Brazil, has
made c u r pesition very much weaker again, a n d I
do not
believe that there will b e mere t h a n about thirty-five
or ferty millions i n coin left i n New Yerk, including
what i s i n the assay office a n d the Federal reserve
benk, after this shipment i s made t o Brazil.
I have j u s t r e c e i v e d a
cable, w h i c h w a s j u s t h a n d e d
to me, that w e would b e called upon next w e e k for fifteen
millien f e r Poland. I
here ‘and expect that Peland will
take bars. O f course they have the right t c take coin,
but with these immense balances t h a t w e heve o f the
banks e f issue i n New York, seme o f which banks may want
ecin and expect u s t e ship coin, o u r position i s not a
bit tee streng and i n my epinicn i t is quite dangerously
weak,
The Chairman.
W e have these obligations sgainst
us, a n d anyone abroad c a n demand coin, a n d legally de-
mand it.
suppese, a
I f these fereign banks o f issue which have, I
billion dollars e f demands u p e n u s sheuld
suddenly decide that t h e y want t o take their geld, o r
any considerable p a r t o f it, t h e y heve a perfect right
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Federal Reserve Bank of St. Louis
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ta p r e s e n t t h e i r d e m a n d t o t h e F e d e r a l r e s e r v e b a n k
and a s k fer coin, a n d t h e coin dre3 n e t exist t o meet
that demand.
Governor Fancher.
M a y I gnquire i n what f o r m y e u
ear-mark this gold?
Mr. Harrison, T h e r e i s a small part c f gold that
we have ear-marked i n ccin, b u t t h e great b u l k o f i t i s
fin bars.
A l l t h e eeremarks
w e a r e making a t t h e pres-
ent time a r e i n bars.
The Chairman. I
de not think t h e situation would
be quite a s bad a s i t appears f r o m t h e figures, because
the mint c a n turn e u t about fifty milliens a
month, a n d
there i s a limit t o the shipping facilities employed i n
carrying t h e gold, t e any one peint, certainly.
we c o u l d k e e p u p w i t h t h e demand,
While
i t might b e v e r y i n -
cenvenient a n d pessibly embarrassing.
Mr. Harrison.
I n this connection I
think i t would
be interesting t o censider, f r o m the System print c f
view, t h e status o f our gold reserve,
W e have approxi+
mately three billion dollers i n reserve. W e speak o f a
System reserve ratio o f around 7 5 t c 8 0 per cent.
a matter
o f actual f a c t t h e p e r c e n t i g e
A s
e f payable g o l d
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Federal Reserve Bank of St. Louis
Les
reserve i s very, v e r y small, a n d o n the last figures
we have i t i s about 2 0 per cence, speaking roughly.
Governor Bailey.
T h e rest e f i t i s i n bars?
Mr. Harrison. T h e rest o f i t i s i n bars, a n d i n
ten thousand dellar gold certificates, which w e d o net
consider i n the class o f payable g o l d reserve. I
give t h e figures f o r i n d i v i d u a l b a n k s , b u t thet
worth while.
T h e a v e r a g e f o r t h e System,
i s not
t h e percentage
of payable g o l d reserve f o r t h e whele System,
last figures, w a s 19.5 p e r cent.
can
o n the
T h e compesiticn o f the
gold reserve f o r t h e System a s a whole i s this: 6 5 per
cent i s i n the gold fund, 8 per cent i s i n Frllien i n
vaults o f the reserve banks, &
per cent i s i n coin, a n d
19 per cent i s i n geld certificates.
T h e vercentage
in the gold fund t s net a s great a s i t was two years
age, I
think t h e r e h a s b e e n a
considerable i m p r e v e m e n t
in converting from the gold fund t o the vaults o f the
banks i n the past eighteen menths.
W
e ourselves have
at different times taken appreximately 150 t o 200 million
of gold bars from the ssay office and taken them t o
our vaults, and reduced eur geld fund acecrdingly.
While w e d e n a t f e e l t h a t t h e s a m e r e c e s s i t y e x i s t s
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Federal Reserve Bank of St. Louis
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fer t h e o t h e r r e s e r v e b a n k s
reserve i n t o vault reserves,
t e convert t h e i r g o l d f u n d
i t i s true nevertheless
that s o m e o f t h e m a r e v e r y l o w i n vault r e s e r v e a n d
might, j u s t a s a matter o f recerd, consider building
up their bullion c f coin reserve.
A s a matter o f fact,
the weak peint o f attack a t the moment i s the N e w York
bank a s far a s gold c o i n reserve i s concerned.
Geverner Wellbern. I
should think that t h e foreign
governments w o u l d p r e f e r b a r s t e ccin.
The Chairman. Unfortunately t h e y d o nat, because
they enticipate t h e pessibility e f having toe shift i t
back here.
Governor Fancher.
O u r Beard started ebout t w e years
ago t o increase our supply c f coin u p t e #25,00C,000,
but w e haven't b e e n a b l e t o g e t a n y c f it, s o t e speak.
‘The Chaizman.. A n c t h e r unfertunate situetion abeut
the geld settlement fund, especially, 48s the very high
percentage o f cur reserve i n that fund, w h i c h reduces
the properticn c f geld available f o r expert i n case a
heavy demand arcse, because while i t i s a part o f the
reserve w e ceculd net take i t out a s leng a s w e maintain
so m u c h o f i t i n t h e s e t t l e m e n t fur.d.
A
t times w e have
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Federal Reserve Bank of St. Louis
193
debated i n New Yerk whether i t might n o t later b e desir-
able t o have n e geld settlemens fuiad at all, but have
settlements between t h e Federal reserve banks effected
by b e c k entries, w h i c h c o u l d v e r y r e a d i l y b e dene, a n d
some regular methed devised f o r dressing t h e reserve
conditien b y shipments
o f gcld that ultimately became
necessary between t h e reserve banks, c u r shipments
ef certificates, w h i c h e f course would b e much better.
Mr. Harrison. S i n c e s l l e f the reserve banks have
their n e w buildings a n d t h e mest impreved f o r m c f vaults,
from the viewpeint c f naticnal interest w e have censidered the question c f whether i t i s necessary t c have
over three billicn dollars e f geld i n ene place, a s is
now t h e case,
W h i l e w e have n o ceubt a t all that
these vaults i n which the three billicn is new put
are the best and mest adequate kind c f vaults, nevertheless, i f it is feasible, i t might b e a wise thing t e distribute seme e f thet metallic gold ameng cther vaults,
which are at least equal ter, if net better, than the
enes i n w h i c h i t i s n o w located.
A few moments a g o I mentioned,
i n discussing t h e
pregress that has been made b y the Treasury i n building
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up their steck o f gold coin reserve, w h i c h they have
dene quite considerably i n the last year, t h a t there
has b e e n a large imprevement e v e r what t h e situaticn
was a t that time,
just received,
I n reviewing t h e statement I
have
o f November 1 , f r o m the Treasury, I
that t h e i m p r o v e m e n t
i s e v e n m u c h better t h a n I
indicated i n talking t e the Conference a
find
had
few moments
ago, a n d i n d e e d b e t t e r t h a n I
myself t h e u g h t
i t was
when I was discussing it. :
£ e c e r d i n g t e the cal-
culations here, t h e ameunt c f gold certificates cout-
standing i s $1,613,000.
T h e tetal amount c f gold coin
in the Treasury i s $692,900,000, which weuld make a n
excess o v e r t h e base required f e r certificates o f
$160,000,000. W h i l e , therefore, I pictured a very
gloomy situatien i n New York, i t - i s chiefly geographical,and
eculd b e quickly remedied b y shipments f r e m t h e mint
at PRhitadelvnia, w h e r e t h e b e t t e r p a r t e f t h i s g o l d
new .exists.
O n e o f the influences t h a t perhaps h a s
contributed t o m y f r a m e o f m i n d a b o u t i t h a s b e e n t h e
fact that t h e Treasury has h a d serious difficulty i n
getting s u f f i c i e n t a p p r o p r i a t i o n s
about,
t e move t h e g e l d
and in t r y i n g o
t suppert t h e c e n t e n t i o n t h a t
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Federal Reserve Bank of St. Louis
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it i s a Treasury expense rather t h a n a reserve b a n k
expense w e h a v e c e n s i d e r e d
perable e b s t a c l e
t e getting
i t a t t i n e s a n almost i n s u 6.
B u t bhetaute p u r e l y a n
internal preposition between u s and the Treasury.
between t h e U n i t e d S t a t e s a n d f o r e i g n b u y e r s
A s
o f geld
coin, semehew, s o m e way, e v e n i f w e have t o p a y the
ex-
penses ofrselves i n getting the coin, elther i n PhilaCelphia o r N e w York the cein i s abetlable new, t e the
amount c f $160,000,090 excess.
The Chairmen.
I s there anything further w e wish t o
take u p before Unde: secretary Mills?
I
f net, w e are
very much cbliged t e you, Mr. Ilills.
Undersecretary iiills. Thank y e u very much, gentlemen. Governor Talley,
venience
i f you will come i n a t yrur con-
w e w i l l s e e w h a t w e c a n f i n d cut. I
a m taking
Governor Nerris! memorandum with me.
(Undersecretary Mills thereupon left the Cenference
room, and the preceedings continued a s fellews):
The Chairman. N o w , Mr. Strater, w e are back t o
your repert, a n d w e were discussing this question c f
combining t h e t h r e e d i s t r i c t s
Philadelphia.
c f Boston,
N e w York a n d
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Federal Reserve Bank of St. Louis
196
Geverner Talley. M r . Chairmen, I
was i n the midst
of a n o b s e r v a t i o n w h e n M r .Mglls c a m e i n . I
any d i f f e r e n c e
cannot s e e
i n principle b e t w e e n t h e F e d e r a l r e s e r v e
bank sending direct t e a member bank f n another district
and a member b a n k i n another district sending direct t o
another Federal reserve bank. I
de net s e e where y o u
have t e have a n y amendment t o the a c t t e permit sending
between districts a s y e u might desire.
Mr. Harrison
W
e have always assumed that w e have
had legal autherity t o send t o the bank i n opPringTield,
for instance, providcec t h e Federal Reserve B a n k o f Boston
would authorize u s t e use a devble erdorsement stamp. I
knew there a r e certain objections,
double e n d o r s e m e n t s t a m p ,
i n principle,
t o this
b u t t h e y a r e i n u s e already,
and I understand s o m e o f the reserve banks authorize
their o w n member banks t c use t h e endorsement stamp, a n d
have i n the past authorized them t e use the double endersement, including t h e Federal reserve b a n k endorsement.
I f , f o r instance,
w e have authority; from the
Federal Reserve Bank o f Boston a s their agent, i f you
will, t o send items direct t e a bank i n Springfield,
Mass., a n d have remittance either t r Boston o r N e w York
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Federal Reserve Bank of St. Louis
“
funds a s t h e y Cheese, I
think t h e r e c o u l d b e neo legal
obstacle t o our verking i t that way. Indeed, i t already
has been dene i n the past a n d i s being done n e w i n some
districts, although t e « limited extent only.
Geverner Seay. That is, sending yeur cwn checks o r
checks received frem yeur o w n member banks.
T h e sericus
objecticn would come from the member bank, a s I take it,
which might b e oppesed t o direct sendings because t h e
checks w o u l d r e a c h t h e m o n e d a y sconer,
Mr. Harrisen.
T h e a n s w e r w e u l d b e this: p e r h a p s
the greatest bulk or their own items that they are sending to the reserve banks are en the same scaedulegna that
they are n o w receiving o n e d a y earlier credit,
o n the
bulk e f their o w n collections f o r which they tnemselves
are suffering a n offset, o r would b e suffering a n offset
by p a y i n g e n e d a y earlier.
Governer Norris. B u t suppose i t is not a member bank,
Mr. Harrison. I
think fhe majority c f the nenemember
banks g e t t h e benefit e f thet o n e d a y saving o n e w a y o r
another.
Governor Seay. I
de net think a s a
that t h e r e e x i s t s t h a t right.
matter
c f law
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Federal Reserve Bank of St. Louis
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Mr. Harrison. Y o u d e net think what, Gevernor Seay?
Gevernor Seay. T h a t a s a matter o f fact a Federal
reserve b a n k c f o n e d i s t r i c t c a n f o r w a r d i t s c h e c k s f o r
collection d i r e c t l y t e a
There i s r o o m f o r a
member b a n k i n another district.
difference
c f opinion.
W e d e net
think t h e right exists,
Mr. Harrison. I
er the cther, I
d e n e t t h i n k i t i s clear-cut a n e w a y
agree, b u t m y thought i s , having a c k tend
in eur o w n mind that i t i s legal f e r u s t e act a s the
agent o f the Federad Roserve B a n k o f Boston, a n d the
Springfield b a n k would cbject e n d s a y that w e have n o legal
authority, t h e n would come t h e question i n the court a s
to whether o r not Beston could autherize u s a s their
agent t e send direct.
Gevernor Seay. B u t could y o u act a s agent f o r t h e
Federal Reserve B a n k o f Boston w h e n y o u are forwarding yeur
own checks?
I
f y e u were forwarding something t h a t came
te yeu from t h e Federal Reserve R a n k o f Bosten--but h o w
could y e u f o r w a r d y o u r o w n c h e c k s a n d a c t a s t h e i r a g e n t ?
Mr. Harrisen.
B e c a u s e t h o s e checks a r e checks w h i c h
ctherwilse w e w o u l d s e n d t e t h e F e d e r a l R e s e r v e B a n k o f
Boston a n d have t h e m send them t e Springfield.
I f Boston
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Federal Reserve Bank of St. Louis
199
says i n s t e a d
Springfield,
e f sending
t h e m t e u s t o ferwerd
t a
s e n d t h e n C i r e c t f o r o u r account.
Gevernor Seay. T h a t i s true, b u t t h e y a r e y o u r o w n
checks. I
doubt v e r y m u c h i f y o u w o u l d have, u n d e r t h e
act a s i t i s werded now, authority t o ferward those direct t e that member bank. B e s t o e n has n e control o v e r
then.
Governor N e r r i s . I
believe
t h e committee
opinion t h a t i t c e u l d n e t b e dene.
O n page 6
was
o f
t h e y say:
"It is quite obvious such a n arrangement could not b e
e without the
d consent o f athe paying bank,’
m
' and s e
forth.
Mr. Harrison.
Y e u can d e a
let b y this principle
of agency, previded i t dees not vinlate seme other vested
right c f some third party. N e w a t the present t i m e w e authorize t h e Albany banks t o send direct t o Chicago items
payeble i n the Chicage district.
T h e s e items, under the
law, a r e technically suppesed t o come directly threugh
us, r a t h e r t h a n t h r o u g h t h e C h i c a g o banks,
b u t w e short-
circuit i t i n the iabavene c f expediting the collection
system.
T h e r e is a
difference
t e the third party in-
volved, a n d the third party might crject a n d bring t h e
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Federal Reserve Bank of St. Louis
matter
u p f o r t e s t i n t h e courts.
The Chairman. Gentlemen, w h e t i s yeur pleasure
with regard t e Districts 1 , 2 and 3 ?
Gevernor Seay. T h e r e i s one thing I would like t e
refer t o and that i s the fact that ouite a
bit o f embar-
Passment a r i s e s f r o m t h e facut o f c o m p e t i t i o n b e t w e e n
the
member b a n k s f e r b a n k account.
I n times p a s t w e h a v e
hed compleint f r o m the Baltimere banks that t h e Philadelphia banks w e r e willing t a take their items o n certcin places i n cur district a n d credit t h e m cne d a y sooner than they ceuld 1eceive crecit f o r that Ceposit i n
their o w n branch bank o r the i'ederal Reserve B a n k o f
Richmend.
T h e y have invited accounts o n that basis.
Where i n New York, f o r instance,
o r Philadelphia, f o r
instance, i s over night from the member banks, they
have a n advantage cover t h e member banks i n Richmond
and i n Baltimere,
a n d t h e y have solicited accounts
o n
that besis. The member banks i n Baltimore have objected.
Governor Nerris.
T h e Baltim.re banks opject t e the
competition o f Philadelphia o n a Philedelphia objects t e
the competition o f the N e w York banks.
Governor Fancher. A n d Pittsburgh objects t e
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Federal Reserve Bank of St. Louis
Philadelphia.
The Cheirman. G e n t l e m e n ,
the t h r e e g r i m i n a l s
a t o n e stroke,
teke them u p separately?
wrapped u p t e g e t h e r
s r e y e u ready t o dispatch
o r d e y e u want t o
I t is all the same preblem,
i n c n e bundle.
W h a t d o y o u suggest,
Mr. Strater?
Mr. Strater. I
weuld r a t h e r n e t m a k e a n y suggest-
ion, because t h e committee h e s gene a s f a r a s i t c a n
and t h i s i s l a r g e l y a
matter e f pelicy, s o m e t h i n g w h i c h
the Gevernors r e a l l y should decide.
The Chairman.
D c y o u think there i s anything i n m y
suggestion o f l o c k i n g f o r s e m e s h e r t c u t s w i t h t h e i d e a
af speeding u v collections i n the three districts?
Mr. Slater. Outside o f what t h e ccmmittee h a s already
suggested I
really could n e t s e e that anything m u c h c a n
be accemplished.
T h e committee o f course weuld b e very
glad, I
t e render w h a t e v e r a i d a n d a s s i s t a n c e
a m sure,
it can, b u t i t seems t o m e that t h e preblem really lies
with t h e m a n a g e m e n t
The Chairman. I
c f t h e t h r e e b a n k s cencerned.
den't suppese t h e banks i n the
other cistricts complain w h e n they get credit a
earlier o f their items, d e they?
day
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Mr. Strater. N o , b u t a s a matter o f fact dotthe
banks i n the other districts h a v e t h a t adventage?
Governor F a n c h e r .
S o m e o f them complain
i f they
have t o p a y them a day earlier.
Mr. Strater.
T h e banks i n the Cleveland district
cannot v e r y well s e n d N e w England checks tre New York.
That i s prehibited under t h e previsicons o f the act. T h e y
can get n e benefit c u t o f the time schedule a s i t applies
to edjeining districts.
The Chairman.
W e have a n inter-district fleat o f
$16,000,000, a n d al? thet means i s that w e have given
the other reserve banks credit f o r $26,009,000 a
day
earlier t h e n they c a n collect t h e checks within c u r district, d e e s i t not?
Mr. Harrison. N e .
I t means t h a t c u r member banks
get the benefit c f that.
The Chairman. P h e n w e shall n o t raise t h e question.
Mr. Harrison. I
have given cur platferm, a s I see
it, and that i s that w e shculd attempt t o ultimately-I de net know h o w socn-<adjust t h e time schecules c f
the reserve b a n k s t
o © peint where they give credit cnly
for t h e t i m e t h a t i s t a k e n t e e c l l e c t t h e c h e c k s
« n the
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average, t h a t w e should attempt t e d e that before
changing c u r two-day schedule t o a three-day schedule,
and cause t h e resulting hernets! n e s t that I
would b e raised a s a result c f that.
a m sure
I n cther words,
we ought t o de two things before w e d a it. First, s e e
whether i t i s practical t o d c what t h e committee suggests
we might t r y with the consent o f the paying banks i n other
districts, send direct t e those banks and thereby collect
the majority o f the items i n these other districts actually i n twe days; a n d i f it i s impossible t o do that,
then I
think t h e q u e s t i o n b e c e m e s a
System question,
t e
see whether we want te admit tot only to New England
and the eleven Nertheastern States, b u t t e all the
country, that w e h a v e aslow, c u m b e r s o m e d
n
a inefftcient
enllection system merely because o f these arbitrary |
district lines and see whether i n the process o f time-maybe n e t t h i s year, but. whenever
i t i s feasible--1t
wont be wise te go tc Congress with a view of changing
the .colleetion system and inaugurating o r attempting
i n a u g u rr adopting
a t i
c n seme
g
sort.of collection function
that. would work irrespective o f district lines. I de,
net think .the time is ripe yet, and there will be less
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204
objecticn e n the part e f member banks. I
feresee c b -
jection e n t h e p e r t e f s o m e o f t h e r e s e r v e b a n k s ,
very properly. b u t clearly,
and
i f Cengress h a d been devis-
ing a collection system a n d not a reserve system,
it
would n e v e r h a v e m a d e t h e s e d i s t r i c t l i n e s a s t h e y h a v e
meade them a n d limited t h e collection facilities t e are
bitrary, g e c g r a p h i c a l l i m i t s , t h a t w e r k « a hardship
cn
these districts which are the most eengested banking
areas c f t h e ceuntry.
New, a s I have said, i t works practically a l l right
eut West because t h e districts a r e s e large that t h e y
ean send direct t e all over night peints, b u t because
ef o u r e x t e n s i v e b a n k i n g r e s o u r c e s a n d t h e n e c e s s i t y f e r
congested district lines, geographically,
i n the North-
east, w e have a t the same time a n erbitrarily a n d unnecessepily limited collection line, o r lines, a n d I hate
te stir u p ell t h e trouble t h a t I
think weuld arise i n
the Nertheast i f w e gave u p t h e two-day peints, withcut first being certain--fer this cencerns t h e System
as a
whele a n d n e t m e r e l y t h e t h r e e n e r t h e a s t e r n b a n k s - -
thet there might n o t b e seme advantage i n a general r e e
erganizetion o f the eellecticon system i n a way that will
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Federal Reserve Bank of St. Louis
205
adapt t h e c o l i e c t i o n S y s t e m t c ' .
needs r a t h e r t h a n
te t h e c r e d i t needs.
Governor Seay. Mr. Chairman, p l a i n l y t h e committee
has gene just a s far a s i t c a n g o a n d has discharged i n
& most e f f e c t i v e m a n n e r i t s duties.
mé,
I t i s plain t e
a t least, t h a t w e c a n n e t c e m e tec a n y a g r e e m e n t
as to
changing tho Buetbnt conditicns witheut further deliberations. I
concur i
n what Mr. Harrison h a s said. I
am
profoundly convinced t h a t there i s nething w e c a n d o a t
the present. time t c bring abeut the desired end. There-~
fore I move that t h e repert e f the committee b e accepted,
be received a n d filed ane stucted,
a r d that this Confer-
ence extend i t s thanks t e the varicus members. ef t h e
committee f o r t h e f r e x t r e m e l y e f f e c t i v e w e r k .
Governor Harding. I will second that meticn.
The Chairman. I s there any further discussion?
(There was ne further ciscussicn, and the motion,
having b e e n d u l y secended,
The Chairman.
w a s u n a n i m e u s l y carried.)
W e have n o t finished consideratton
of the whcle repert i n detail.
W e have read it, and
are prepared t e adopt i t s recemmendations,
stand: 1%.
D
a s I under-
e y e u w i s h t e censider a n y orecedure w i t h
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Federal Reserve Bank of St. Louis
206
the F e d e r a l R e s e r v e F o a r d i n d e a l i n g w i t h t h i s n e w t i m e
schedule a n d t h e i n e q u a l i t i e s w h i c h a r e p r e s e n t e d a n d
discussed i n the report, because t h e adoption o f a new
time s c h e d u l e r e q u i r e s a c t i o n b y t h e F e d e r a l R e s e r v e
Board?
Gevernor Talley.
is making a
study o f the fleat a t the present time.
The Chairman.
the repert,
T h e Beard has indicated that i t
W e u l d i t b e proper, having adopted
t c ask the Standing Committee c n Cellections
to take i t u p with t h e Federal Reserve Board a n d t e d o
whatever i t thinks i s necessary i n connecticn with 4 t ?
Governor Harding. I
did net understand that w e had
adopted t h e report, b u t merely that i t had been accepted
and filed.
Gevernor Seay, Accepted and filed fer study, a n d
I will add t o that that a copy o f it be submitted t e the
Federal Reserve Board.
Governer Wellbern. I think it would be a goed idea
te s u b m i t t h e i d e a e x p r e s s e d
b y Mr, H a r r i s o n ,
t h a t is,
the pessibility o f going before Congress a n d getting a n
amendment t o éffecffacbcientific ceellection system. I
think w e s h e u l d c o n s i d e r t h a t .
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The Chairman,
T h e m i n u t e w e attempt t h a t n o w w e
are going t o have t h e whele p a r collection business coming
up again.
Gevernor Wellbern. I
Objection
doe net think there i s s e much
t e it.
The Chairman.
T e t h e p a r eellection system?
Gevernor Wellborn. I
never hear very much about that,
only from a certain group that prought these suits.
The Chairman. T h e r e a r e about 1200 banks d o w n i n your
country that are raising cain all the time.
Governer W e l l b o r n .
Twelve hundred
c f them?
The Chairman. A r e there 1ct?
Governor Wellbern.
N e , abeut three.
The Chairman. H o w many d i d y e u have i n that organized
assault o n the p a r cellecticn system?
Governor Wellborn.
along that line. I
T h e r e w a s n e concentrated effort
have never heard a
banker s a y a word
about it.
The Chairman. H a s that committee bee: disbanded?
Governor Wellbern. Yes. T h e y were a l l broken u p
when t h e Manley banks failed.
Manley business.
T h e y were a part o f that
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Geverner Seay. G e v e r n e r Wellbern's district i s not
new attempting a n d never has attempted t e collect c n the
bulk o f the banks i n that district,
a s i s t h e case with
all the other Federal reserve banks. I
think h e has a
limited number o f par banks i n his district.
Geverner Wellborn. A
limited number?
Governor Seay. Yes, t h e minimum number. T h a t is, I
think y o u heve fewer relatively t h a n a n y other district
in ‘the country,
Governor Wellborn.
W e have h a d a gerd many state
banks withdraw f r o m t h e System, A
very f e w o f cur nen-
member p a r remitting banks have rescinded their action.
Mr. Harrison. I
my remarks,
had heped, Geverner Wellbern,
in
t e indicate that under n e circumstancss s h e u l d
we g o t e Congress f o r a n y revision c f the l a w o n eccllectlens until after w e h a d exhausted every cther prssibility
ef impreving the System without a n amendment. I
sheuld
hepe that w e will take a sufficient time t e enable ill
the ebjecticns t e the p a r ¢cllectien system t e have
settled d o w n befere w e think o f a n y revision aleng t h e
Utopian lines that I
discussed e a few moments ago.
Governcr Wellborn. I
d o net ecnsider
i t Utcpian.
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Federal Reserve Bank of St. Louis
I think i t i s rather prectical.
Governor Harding.
A s between t h e choice o f evils
I think i t i s better t e absorb some float rather t h a n t e
advertise t h a t w e have a cuwnbersome collection machinery
which d e p r i v e s t h e b a n k s
e f getting collections
a s quick-. ©
ly as they did get them when we didn't have any callectien
system,
Gevernor Seay. E s p e c i a l l y w h e n w e have boasted about
the superiority of the system over the former method.
The Chairman.
I t i s superior. T h e r e 1 s n e question
about that.
Governor Seay. Yes.
The Chairman.
program?
A r e w e ready t e preeeed w i t h the
T h e next tepic i s 2-D, direct sendings o f
cash letters.
II. C o l l e c t i o n s a n d Clearings.
D. Direct Sendings c f Cash Letters.
It i s suggested that e a c h Federal
reserve b a n k m a k e a
survey a n d r e +
port o n the questicns ( a ) whether
it i s receiving t o c many cash letters p e r d a y from a n y one direct
sending member bank e f anether dis«
trict, a n d (b) whether a n y c f its
ewn member banks a r e making a practice o f sending daily letters o f
trifling ameunts direct t o Federal
tfeserve banks c f cther cistricts.
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210
The Chairman. T h a t topic w a s suggested b y a
statement m a c e t o m e b y Governor Young,
i n which h e said,
speaking f r o m memcry, t h e t t h e y were doncks t h 1 8 0 0
cash letters a
d a y o u t there.
I s that a
fatr s t a t e m e n t ,
Geverner G e e r y ?
Governor Geery. I
cannot tell y o u about t h e tetal,
but just for tllustration, o n uctober ist w e received
52 cash letters f r o m the Chatham a n d Phoenix a d totied
Bank o f N e w York for tmmedfate
opel
T h e t means bicke
drawh o n St.Paul a n d Minneapelis.
The Cheirman. T h i r t y two?
Gevernor Geery. T h i r t y two. H i t h e r o n e c f twe
things h a s happened.
department m a k e s a
E i t h e r every time their e e n e r s
run t h e y wrap i t -
a n d make I f a
letter a n d send i t cout, o r else c a c h one c f their branches
sehds o u t a
tronedt L E T T er.
The Chairman. T h a t t s what happens,
Governor Geery.
B u t here i s the week beginning
October 3rd. W M e n d a y we had 32 lhngidata credit l e ters,
Tuesday ll, Wednesday 22, Thursday 12, Friday 14.
Mr. Harrison.
A l l from t h e Chatham a n d Phoenix Bank?
Governor G e e r y . Y e s .
we 205-7, 1 3 , 1 1 and 9 .
et
F r o m t h e B a n k o f Manhattan
S o m e e f these letters a r e
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Federal Reserve Bank of St. Louis
ein
petty items.
U n e letter f o r immediate credit o f
$5.60 from the Chatham and Pheenix Bank. A
half a dezen
were $57, $59, a n d $67, $76, $14, and $67.
The Chairman. T h e topic w a s placed o n the program
in order t e develep this v e r y thing.
A r e there a n y
other districts t h a t have h a d experience similar t e that
of ‘inneapclis?
Geverner Seay. T h e r e i s nothing t e complain o f o n
the p a r t o f t h e R i c h m e n d bank.
Gevernor McDeugal.
O f the direct sending banks
lecated i n New Yerk City there a r e twenty eight which
appear t c b e sending c u t more c a s h letters t h a n neces-
sary.
T h e y send u s a n average o f 144 deferred letters
and 110 immediate credit letters e v e r y day.
W e seemingly
get mere letters than necessary from the New York banks.
The Chairman.
I t i s prebably explained
i n all cases
by the branches sending direct.
Governor McDeugal. That I de net know.
Geverner Geery. T h a t dees n c t apply t e the National
City Bank.
T h e y have a number c f branches.
The Chairman. A n d they send only c n e letter?
Governer G e e r y .y -T h e y s e n d f o u r
o r five.
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Federal Reserve Bank of St. Louis
212
Governor Herding.
W o u l d i t b e possible t o limit
direct sendings t e items e f certain amount?
The Cheirman. I
think i t cught t e b e dene i n some
Gevernor Geery- O n the other side o f the case, e f
our banks sending direct, h e r e i s one week's letter o f
the Nerthwestern Netional B a n k c f Minneapclis,
Federal Reserve B a n k e f Richmond.
t o the
T h e y senf direct a
letter each day itn amount a s follows: $88, $154, $631,
$1477, $183, o n d $985, T h e r e i s ne excuse for a member
bank sending a n $88 direct t e the Federal Reserve B a n k
ef Richmend,
Mr. Streter.
There is a
physical p r e b l e m i n v e l v e d
there, sir. Geery. Y o u will find that t h e banks i n New
York, like the banks i n all the lerger cities, have
their direct routing arrangements s e t u p mere cor less
automatically.
Y o u r bank i n Mihneapelis, f e r instance,
that sends s e many letters, might have e n cne d a y a n
$80,000 item o n Richmend and the next day a n £88 item.
The result eof thet i s that they cannot pessibly tell
until t h e clese o f the d e y what t h e y ere geing t o have
in a n y g i v e n F e d e r a l r e s e r v e bank.
I
f they wait until
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Federal Reserve Bank of St. Louis
“213
they have prepared a l i o f their letters a n d then cull
out t h e small ones, t h e y have g o t t e rehandle everything that they have already started a n d put through
the mill.
S e far a s cur bank i s cencerned i t deesn't
make a particle o f difference whether w e get o n e letter
or twenty.
W e consider i t quite a simpie matter t o
put twenty letters through the mail.
putting down a few more figures.
I t just means
O u r transit man teld
me the other d a y h e would lots rather g e t t e n letters
of $200 than cne o f $20,000, because i t is much casier
te verify ond fellow through 2 number c f small letters
than i t is one large one.
The Chairman.
A t the Conference i n November
1925 there was a discussion of this, resulting i r
resolution which was passec, indicating thet each Federal reserve b a n k could take u p with a n y member bank,
guilty o f sending trifling items, t a k e i t u p with thet
bank a n d c o r r e c t i t . I
hewever,
notice w i t h s e m e amusement,
t h a t Geverner Y e u n g w a s t h e o n l y c n e w h e v e t e d
against that. Hewever, I
de net believe that any bank
in New York sheuld send direct a n item o f $11.14.
seems t o m e t h a t i s e n a b u s e o f t h e p r i v i l e g e
I t
c f direct
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Federal Reserve Bank of St. Louis
sending.
Mr. Herrisen.
M r . S t r e t e r a n s yered t h a t q u e s t -
ion v e r y s a t i s f a c t o r i l y f r o m m y pceint o f
vicw when h e
said t h e t i f a
bank sheula w e i t u n t i l t h e l a s t
minute
to find c u t whether e r not i t
sheuld b e sent @irect
or s e n t
t o the Federal reserve
b a n k that
i t weule i n -
volve double handling a t the
lest minute e f all these
letters, which, a t the last minute,
t h e y found o u t
were n e t b i g eneugh t e g n direct.
W e feel i n New Yerk
best w a y t e d e w o u l d b e t e l e t
t h e matter g e
unless c h r o n i c a l l y a
bank c r b r a n c h i s s e n d -
ing t e e m a n y s m a l l letters, w h i c h
indicates t h a t a
benk hasn't get a sufficient velume
o f items e n a given
peint t o justify direct sending.
T h e y sheuld i n that
case s e n d t o the Federal reserve
bank.
it 1 s ecenstant a n a chronic,
B u t unless
w e think the best thing
to d e i s t e let them g o threugh,
e v e n i f t + dasa
respit
i n seme eases
t o which Gevernor G e e r y
has re-
ferred, where t h e items a p e
quite small.
Mr. Strater.
T h e thing will have «
tendency
to c o r r e c t i t s e l f , b e c a u s e
i t 4 s exncnsive
t e send
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Federal Reserve Bank of St. Louis
21S
a l o t o f s m a l l letters.
I t seems
t o m e t h a t i f anyene
called their attention tec the apparent abuse
o f the
Cirect sending privilege, a n d would peint cut
t e the
member bank thet i t i s costing t h e m t e e much
t e eollect
items f r e m certain points b y sending direct, e n d
that
it weuld b e more t e their advantage t e cut dewn
their
direct sendings and pick cut these points where
they dc
not have very many items, climinete these peints f r o m
Cirect sending a n d include t h e m i n the cash letter
to
us, t h a t t h e y w o n l d b e v e r y g l a d t e h a v e
t h e suggestion
made,
a n d t h a t i t w e u l d t a t e c a r e o f i t s e l f naturally.
Geverncr Seay.
I t i s evident that w e cevered t h e
matter b a c k i n 1925, a s w e understeod t h e situation
then,
as well a s i t could b e dane,
I t i s « metter c f pure
mechenies w h e n onee a direct reute h a s b e e n established,
It i s then carried o u t b y miner clerks i n the transit
department, a n d until attentien i s called b y the
reserve
bank t e the other effending reserve bank o r offending
member b a n k i n ancther district, nething c a n b e done.
I think i n t h e t r e s c l u t i e n
w e heve cone 2 8 near a
solution
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Federal Reserve Bank of St. Louis
of { t a s w e c a n get.
Governor Harding. I
submit, w h i c h I
have o n e other suggestion t e
think obviates t h e mechanical sugzesticn
which "ny, Strater reises. S u p p e s e direct sending were
limited.in this wey, t h a t there sheuld b e n o direct sending e f a n y i t e m l e s s t h a n $500.
T h e n a n y bank getting
an item ¢ f $2.40 would p u t i t i n one pigeen hole, t e g o
te the Federal reserve bank, a n d i f it gets a $500 item
it g e e s
i n another o l g e e n hele,
a n d tn: that: w a v e a l )
o f
the little items will g e t e the Feceral reserve b a n k
and there wont b e a n y harcship i n that.
Governor McDougal. O u r preeecdure conferns t e the
recommendation c f the committee o n ccllectiong, a s sume
marized i n paragraph 2 9 o f the Secretary's minutes o f
November Conference, 1925.
T h e committee expressed t h e
opinien that there should b e n o limit placed o n the
dollar amount c f cash items t h a t a
rect.
bank might s e n d di-
A n d where i t appears t h a t a direct sending member
bank sends more letters e a c h d a y than should b e necessary, o r a s a regular practice sends letters o f trifling
amounts, t h e Federal reserve b a n k c f the district i n which
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Federal Reserve Bank of St. Louis
out
said m e m b e r b a n k i s l o c a t e d s h a l l t a k e t h e m a t t e r
with thé. b a n k i n q u e s t i o n a n d e n d e a v e r
The Chairman.
t e recrncile i t .
T h a t i s the minute I
moment ago, Governor McDeugal.
up
referred t e a
N e w , there a r e three
courses that have been suggested o r inti,ated. O n e i s
the action propesed a t the former meeting o f the Conference i n November, 1925,under which t h e reserve
banks shall call each cther's attentien t e abuses; t h e
second i s toe adept some practice s u c h a s Governor
Herding suggests a n d limit t h e ameunt, splitting t h e
letters between t h e Federal reserve b a n k a n d the direct
sendings;
a n d t h e third w o u l d b e t e refer t h i s subject
to t h e c o m m i t t e e a n d a s k t h e m t e s e c u r e m o r e d a t a t h a n
we have here a n d submit «
until t h e n e x t Conference.
formula, without waiting
T t t9 a
cauesticn o t w h e n
course t o pursue.
Gevernor Seay. I
believe t h e Standing Committee
on Collections m a d e a very complete s t u d y o f this matter
in 1925.
T h e recommendation w h i c h t h e y t h e n made con«
forms t o what I
know i s the experience o f our o w n bank,
and I deubt i f any of us can g o any further than that.
I will move, $M3 r . Chairman,
t h a t w e refer t e t h e
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Federal Reserve Bank of St. Louis
218
recommendations of the Standing Committee cn Collections ,
made i n November o f 1925, a n d fallow t h e practice there
recommended.
Governor McDougal. I
The Chairman,
will second that metion.
Y e u understand t h a t t h e o n l y cemplaint
that I know o f paving been made t c us was the statement
ef Gevernor Young some time ago, which resulted i n this
topic being placed c n the pregram. T h e idea i s that these
abuses w i l l b e reported more frequently a n d mere prompily
and taken up.
I s that t h e ides?
Governor Seay. T h a t i s the idea.
Governor Talley. I
think i t w o u l d b e b e t t e r f o r t h e
complaining F e d e r a l r e s e r v e b a n k t o t a k e i t u p d i r e c t l y
with t h e Federal reserve banks e f the other districts
rather t h a n with its members.
The Chairman. T h a t i s what I mean, a
matter between
the Federal reserve banks entirely.
(The motion, having b e e n duly seconded, w a s unanimously carried.)
Governor Harding. I
should like t e b e recorded a s
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not voting.
The Chairman. Now, gentlemen, I
call your atten-
ticn t e the fact that three tepics, III-A, I I I - B a n d
III-C, h a v e a l l b e e n d e a l t w i t h w h i l e M r . M i l l s w a s
here.
T h e next i s IV, t h e Board's regulations, a n d
this must b e dealt w i t h after w e have read them.
Topic E V - B remains c n the program f r o m the former
Conference, a n d i s raised again b y the Beard's letter
X-4957. I
dressed.
a m not sure t e what bank that letter w a s a d e
T h e topic raises t h e inquiry o n reimburse-
ment o f expenses rendered Government agencics.
Governor Norris.
The Chairman.
I t was Philadelphia, M r . Chairman.
W i l l y o u discuss t h a t , p l e a s e ,
Governor Norris?
IVs. Operation a n d Administration.
B. Reimbursement o f Federal reserve
banks for expenses c f services rendered f o r Gevernmental agencies.
Geverner Norris.
A t the last Governors! Conference,
the auestion w a s raised whether t h e Federal reserve
banks s h e u l d n o t b e r e i m b u r s e d
b y Federal l a n d b a n k s
for expense involved i n paying Federal f a r m loan coupons.
Governor S e a y moved that t h e y should b e reimbursed,
and Gevernor Talley amended b y suggesting t h a t they b e
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reimbursed
serve bank.
i f a n d when requested
b y the Federal r e -
A f t e r s o m e discussion u p o n t h e volume c f
these services, a n d the cost o f rendering them,
Governor S e a y stated t h a t his principal purpose w a s t o
get t h e opinien o f the Conference a s t o whether i t
was n o t a correct principle that reserve banks sheuld,
as a
rule,
b e reimbursed f o r services w h i c h t h e y render-
ed t e other governmental agencies w h i c h were sustained
by their o w n income.
A motion was finally -ffered b y Gcevernor Calkins
that "In principle, t h e Federal reserve banks should b e
reimbursed f o r services performed f o r goverrmental agencies o t h e r t h a n t h e Treasury,
w h e n t h e expense i s suffi-
cient toa justify t h e filing o f a claim b y the individual
bank concerned."
T h i s substitute m e t i o n w a s accepted
by Governer Seay, a n d adopted.
Under date o f June 24, 1927, b y letter X-4887, t h e
Federnl Reserve Board advised t h e Governors t h a t i t
was n o t i n harmeny with this view.
After receiving that letter I
Crissinger, a c k n o w l e d g i n g r e c e i p t
wrote t e Governor
o f t h e letter,
and
inquiring whether i t would b e i n order t e ask why the
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Federal Reserve Bank of St. Louis
221,
Board was n o t i n harmony with t h e resolution adopted
by t h e Conference.
T h a t w a s n o t a n s w e r e d apparently.
I wound u p that l e t t e r b y saying " I have taken t h e
liberty o f stating these considerations a t some length
because w h i l e t h e i m m e d i a t e m a t t e r
i s o f small import ~
ance, t h e principle involved i s e f very great importance.
I t occurs t o m e that possibly a l l o f these i m -
plications w e r e n o t f u l l y c e n s i d e r e d
b y the Board pricr
to the action stated i n your letter X-4837.
I f the
conelusicn stated 1 n that letter i s the considered judg-
ment c f the Board, I tnink that the matter would b e
worth discussing a t the Joint Conference next fall."
it was i n answer apparently t o that letter that this
subject w a s put o n the program.
Governor Wellborn.
D i d y e u get a
reply t e your
letter?
Governor Norris. S i m p l y a reply i n the way o f
putting t h e subject o n the program f e r discussion.
Governor Wellborn. B u t they did not give any reasons f o r t h e i r c o n c l u s i o n ?
Gevernor N o r r i s .
The Chairman.
N o n e whatever.
W e have had about a s much o f that,
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B22
if not more, t h a n a n y other bank, possibly, w i t h the
exception o f Minneaplis.
Governor Bailey. M r . Chairman, t h e pelicy c f the
Federal l a n d banks i n calling their bends f o r redemption
before d u e date i s causing considerable confusion f n
redeeming t h e coupens clipped f r o m Federal L a n d Bank
bonds.
There f s outstanding a large number o f these bends
of the various serfes that have not been presented for
redemption,
a n d i t i s necessary f o r t h e employees hand-
ling coupons t o check each coupon against various lists
received f r o m the different Federal l e n d banks,
We are i n receipt o f a ietter f r o m the Federal
Land Bank o f St.Paul regarding coupon redemption, a n d
there i s quoted below a portion o f tneir letter:
"Due t e the fact that some o f the Federal
reserve banks have transmitted coupons t h a t should
riot have b e e n paid w e have a
request t o make a n d
that i s that the coupons b e forwarded t o us i n the
original envelopes i n which t h e y are delivered t o
the Federal Reserve B a n k o r its branches, bearing
the n a m e o f t h e d e p o s i t o r
o r correspondent
o f such
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Federal Reserve Bank of St. Louis
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‘bank o r branch,
a n d also t h e number
o r initial
of the clerk b y whom t h e ceupens a r e checked in.
If a n improper i t e m 4 s then cashed a n d forwarded
to us, i t c a n b e r e t u r n e d
i n the s a m e envelope
and the forwarding bank o r branch will i n turn
be able t o recover f r o m its correspondent a n d
sustain n o loss.
G r e a t e r c a r e i n handling t h e s e
coupons will n e deubt b e taken i f the clerk has
to affix his number o r initial t o the envelope.
We hope that a l l Federal reserve banks a r e willing
to cooperate w i t h u s i n this manner, a n d w e assure
you t h a t s u c h e c o p e r a t i c n w i l l b e g r e a t l y a p p r e -
ciated.”
The request o f the St.Paul b a n k 1 s impessible,
as
our member banks forward these coupons t o u s listed o n
a coupen schedule a s t e denominations, a n d d o not attempt
to list e a c h Federal l a n d bank coupon separately.
As t h e r e d e m p t i o n o f Federal l a n d b a n k b o n d s
and coupons i s becoming more a n d more complex, a n d the
volume will n e deubt t e n d t e increase,
i t seems o n l y
fair that t h e Federal reserve banks should cbtain
some relief either b y being reimbursed for clerk hire,
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or a change i n the method o f handling.
Governor Harding (after discussion).
M r . Chairman,
I meve t h a t i n t h e o p i n i c n o f t h i s C e n f e r e n c e t h a t i n
cases where a n y Federal reserve banks incur a n y unusual
or.substential e x p e n s e
i n rendering services
t o any
bureau or.agency o f the Treasury e f the United States,
that it- is p r e p e r f o r s u c h b a n k s
t o submit d i r e c t
to
the T r e a s u r y any. c l a i m f o r r e i m b u r s e m e n t w h i c h i t m a y
make.
The Chairman. Governor Harding,
a t the M a y meeting
of 1927, w h e n t h e question came u p a s t o the expense cof
paying F e d e r a l l a n d b a n k coupons,
out disapproval,
i t w a s voted, w i t h -
t h a t i t was t h e sense o f the Conference
that i n principle t h e F e d e r a l r e s e r v e b a n k s s h o u l d b e
reimbursed f o r s e r v i c e s p e r f o r m e d f o r g e v e r n m e n t a l
agenctes o t h e r t h a n the Treasury when t h e expense involved
is suffictent t o justify such bank asking for neimbursement.
N o w the Beard says i n their letter that t h e y
were n o t i n h a r m o n y w i t h that.
T h e Beard does n o t as-
sert a n y jurisdiction over t h e question,
Governor Harding (after discussicn). T h i s i s merely
reaffirming that, Mr. Chairman.
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Federal Reserve Bank of St. Louis
225
The Chairman.
M r . Harrison tells m e that this w a s
not s u b m i t t e d t o t h e B o a r d b u t t h e y s i m p l y r e a d i t i n
the minutes.
T h e Board h a s simpiy expressed t h e view
that i t was o u t o f sympathy, a n d I
do not believe i t
gave much consideration t o it. G o v e r n o r Harding's
motion n o w i s t o reiterate t h e a c t i o n t a k e n b y t h e C o n -
ference ttn May o f 1927.
Governor Harding. T h a t t h e Conference reaffirms a n d
reiterates t h e action e f the Conference t a k e n i n May,
1927, a n d believes
i t i s e n t i r e l y p r o p e r f o r a n y Fed-
eral reserve bank, performing a n y services f o r a n y governmental agency, t o claim reimbursement f o r such expense.
Governor Wellborn. I
will s e c o n d that.
(The motion, having b e e n duly seconded, w a s carried.)
The Chairman. Gentlemen, i t is time t o recess for
lunch.
(Whereupon,
a t 1.05 etclock p.m-, u p o n motion
duly seconded, a
recess w a s taken until
2.15 o'clock p.m. o f the same day.)
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AFTER RECESS.
The hearing w a s resumed a t 2.30 p.m.
The Chairman. T h e meeting will come t o order and
we will proceed toe Topic IV-C, suggested b y Philadelphia.
Governor Norris?
IV. O p e r a t i o n a n d Administration.
Cc, Standardization o r abandenment o f
Functional Expense Reports.
Gevernor Norris.
reports.
T h a t I s the functional expense
W h e n t h e system o f making t h e s e functional
expense reports w a s started, I
was quite strongly i n
favor o f it- I n fact, I think that Dr. Miller and I
were t w o o f the members o f the first committee o n the
subject.
T h e r e were some changes made afterwards, a n d
I stili stuck o u t f o r their value after I
think a good
many othefs h a d lost a n y opinion that t h e y ever h a d o f
their valve.
Now, i t has been going o n for h o w long--four years?
If it is net four years i t ts about four. I
think i t
started i n 1923 o p 1924, a n d I recently compared the
figures a s t o where unit costs a r e given, w h i c h presumably a r e t h e most definite, taking c o i n counting,
where the cost i n the highest cost bank i s over three
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times t h a t i n t h e lowest.
I
n city c h e c k clearings
the highest i s three times t h e lowest:and t h e lowest i s
only one half o f the average.
I n check collection,
city checks, t h e highest i s nine times t h e lowest a n d
the lowest i s two thirds o f the average.
I n Government
checks the highest i s three and one half times the lowest
and the lowest 1 s only one half o f the average.
I n
country checks outgoing, t h e highest i s more t h a n three
times t h e lowest a n d the lowest i s one half o f the average.
In non-cash collections, city, t h e highest i s five times
the lewest a n d the Lowest i s only a little over o n e third
the average, altheugh that i s n o t a fair comparison, b e cause t h e lawest there i s Minneapolis,
a t a time when
they were n o t doing that business.
Governor Harding.
D
o you think a n y o f those a r e
comparable basis?
Governor Norris.
ures that I a m giving.
Y o u can judge that from the figI n non-cash collections, country,
the highest i s nearly four times t h e lowest, a n d the
lewest i s hald t h e average.
I
n coupon collections
ether than Government, t h e highest i s three times the
lewest and the lewest i s half e f the average.
I n
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Governmert coupons, t h e hignest i s three times t h e
lowest, and the lowest a little over half of the average.
In loans, rediscounts a n d acceptances, discounts a n d
recerds, t h e highest i s nearly four times t h e lowest
and the lowest i s less than half of the average.
I n
counting currency, the dirferences run from .052 to
064.
T h e r e t h e evidence i s that t h e cost i s o n a come
parable basis.
uf course, discrepancies w e r e inevitable i n the
beginning o f the thing. a h d after a
while a
mani} w a s
gotten c u t t o instruct t h e banks h o w t o make these calculations.
S o m e a t least o f the banks a r e i n some re~-
spects paying littie o r n o attention t o that manual.
For example, t h e employees i n General Brocks' u n i t
Bestoen reports o n l y e m p l o y i n g o n e a n d c n e h a l f e m p l o y -
ees i n the last half o f 1923, a n d then t h e manual specified thet certain things, f r o m four t o eleven things,
should b e grouped under that heading, b u t t h e inclusion
or the failure t o include a l l e f those things h a s o n l y
brought Boston u p from 1.50 t o 1.95, t h e general average
being 4.18.
I de not give a n y o f these figures b y way o f re-
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flection o n any bank, o r eritigism, b u t o n l y a s evi-~
dence that t h e manual i s not being followed, t h a t t h e
results « r e not comparable:
Now, I
asked t h e a s s i s t a n t c a s h i e r
i n charge o f
our accounting t o give m e a n estimate o f the cosv t o us
of making u p these functional reports, a n d h e replies,
anong o t h e r things, t h a t i t i s n e c e s s a r y
t e keep dally
reports i n some fifteen departments o f the bank i n order
that, a t periodical times, a report may be furnished t o
our accounting departmert, where t h e actual final repert
is prepared, s h o w i n g t h e v o l u m e
or pieces.
o f work handled
i n numbers
T h e time represented i s approximately equiva-
lent t e that o f three persons f o r each working d a y i n the
year, a n d figuring this e n a n average salary basis the
cest t o us i s about $4,300 a year.
I find a s a rule our figures o n almost anything represents about o n e tenth o f the System,
s o that w e would
suppese thet i t was costing the System somewhere between
$40,000 and $50,000 a year.
It seems perfectly obvious t o m e that i t i s net worth
$40,000 o r $50,000 a year t o the System to keep up the
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making o f t h e s e r e p o r t s , w h i c h a r e n e t p r e p a r e d
made o n t h e s a m e basis,
a n d a r e t h e r e f o r e n e t comparable,
and b y w a y o f b r i n g i n g t h e t h i n g t e a
this resoluticn--I
or
head I
would o f f e r
a m net particular about t h e werding
oY it, b u t this. i s . a drafts
"Whereas, t h e making o f the functional expense
reports i s cesting t h e Federal reserve banks a
sum
which may be estimated a s between £40,000 and $50,000
a yeor; a n d
Whereas, t t has not been found practicable t e
assemble t h e figures o f these repcrts o n the same
in all t h e banks, thereby destroying their
usefulness f e r p u r p o s e s
o f comparison;
and
“Whereas, t h e ineuguration c f the budget system
in all o f the banks n o w serves t h e purpose intended
to b e s e r v e d b y t h e f u n e t i o n a l e x p e n s e reperts:
"Resclved, that the Federal Reserve Beard be requested t o discentinue t h e requiring c f the making
of these reports."
Gevernor Seay. I
would like t o ask, Mr. Chairman,
if
Mr. Nerris a n d h i s officers h a v e a n y particular critcism
ef the manual, «or i s his criticism directed t a the fact
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Federal Reserve Bank of St. Louis
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that i t scems t e elicit different methods o f reports
and a cifferent organization i n the several banks, s o as
to r e n d e r i t i m p r a c t i c a b l e
t o get their reports
o n a
comparable basis?
Gevernor Norris. I
lies, a n d therefore I
do net know where t h e fault
do not undertake t e allocate it.
Either t h e manual 4 s defective o r the banks have chosen
to ignere the manual. I
and I
de not knew which i s the fact,
de net care, b u t t h e result i s that t h e figures
are not comparable, a n d i f they are n o t ccmparable I
can~
net s e e that t h e y are o f a n y value.
Governor Fancher. I
second t h a t motion,
i f i t has
already been seconded.
Governor Welliborn., D o n ' t y o u think t h e functional
reperts a r e beneficial t e the banks i n their c w n work,
as w e l l a s i n t h e c o m p a r i s o n w i t h o t h e r b a n k s ?
D e n ' t you
think that they tend t o bring about a better perfection?
Governor Norris. Ne, I do not.
F o r a great many
years, for almest every quarter o r half year since these
have been i n existence I quote from, the items where
we a r e h i g h e r t h a n t h e a v e r a g e
o r particularly where
we are higher t h a n Boston, because t h e conditions a r e s o
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similar
i n Beston a n d Philadelphia t h a t I
feel t h a t
pretty nearly t h e same average results ought tec be
worked o u t i n these t w o banks, a n d knowing t h e able w a y
in which t h e Beston bank i s run, I
want t o keep a s
close t e them a s I can: s o wherever o u r figures a r e
abeve t h e m o r o n the average, I
have b e e n i n the habit
of taking i t u p with c u r people.
Gevernor Harding. I
is the answer I
are higher, I
have done t h e same thing, a n d
have got.
I n cases where c u r fig-
have g o t a satisfactory explanation,
the system cannot b e changed, a n d s e on.
The Chairman. I
would l i k e t e r a i s e o n e q u e s t i o n
about t h i s t o p i c w h i c h I
have n o t r a i s e d neretofore,
but
Mir. Rounds, w h e h a d much t e d o with t h e crganization o f
this thing, makes this suggestion.
H e says that t h e
reperts h a v e b e e n i n operation since 1922, a n d b y this
time t h e s e i n e q u a l i t i e s s h o a l d h a v e b e e n i r e n e d c u t
tf there was a n y methed c f bringing about uniformity
ef accounting.
I t t s obvieus t h a t t h e exiscence o f uni-
formity i s sufficient t o defeat it, o r that uniformity
ts not pessible i f w e attempt t o iron i t out, a n d I
think t h e latter i s the case; b u t h e says that t h e report
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Federal Reserve Bank of St. Louis
233
dees serve a useful purpose b y reason o f
the fact that
by @ reasonably uniform methed w e are enabled t o
de~
termine t h e System costs o f things l i k e transits,
and so
on, a n d that i f this i s abandoned s u c h uniformity a s
we
have i n comparing t h e ccst o f this service would b e
last.
We w o u l d a d v o c a t e c o n t i n u i n g
this report unless
some
methed c a n b e d e v i s e d f o r s u b s t i t u t i n g t h e u s e f u l f e a .
tures o f i t i n place o f such a n elaborate report,
My belief
1 s that i t would b e a
mistake
t o abanden
entirely a method o f dividing u p the expenses o f the
reserve banks s o that w e c a n report o r get some understanding o f what t s being done.
Governor Bailey.
W e get this through F o r m E e
The Ghairman. Yes, Schedule E ,
geocd plan, G o v e r n e r N o r r i s - - I
W a y would i t not
d o n o t w a n t t o inter-
with your metion prevailing.
Governor N o r r i s , I
said t h a t I
only offered t h a t m o -
to bring the matter u p for a concrete discussion, a n d
perfectly willing t o accept a n y amenduent that i s suggested t o that motion o r a n y change i n its phraseology.
Governor Wellborn. I
would offer a n amendment t o that,
that w e c a n eliminate s o m e o f these statements where t h e y
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are n o t comparable.
Governor Norris. T h a t would eliminate 9 0 per cent
Ot 33,
Governor Welilbern., I
think there i s n e use o f
having them unless i t is comparable.
Governor N e r r i s .
I t i s net.
Gevernor Wellbern.
Y e u take m y friend from Richmend,
his bank and mine, the Atlanta bank.
N e have got so
much expense there fer offices.
T h a t is‘en account o f
the numercus branches w e have.
Y o u could n e t ccmpare
that e x p e n s e w i t h a n o t h e r b a n k w h i c h h a s o n l y o n e b r a n c h
bank, and that is all useless work. I
would not put
such a n item a s that i n the report.
The Chairman.
Y o u take a l l t h e foreign business
of the System, you have a department which spends money
er else you would abserb the e x p e n s e n
i some department
to d e whatever acceunting o r whatever w o r k i s necessary
in that connection, and we have segregated the whele
thing, a n d n o w w e have g o t a
lot o f clerks a
a
considers
able expenses There is nec basis of comparison between
the banks i n thet department, a n d i t is rather misleading
than o t h e r w i s e .
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Federal Reserve Bank of St. Louis
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Governor Wellbcrn. I
should think w e could keep
up t h e c o s t o f t r a n s i t ‘ t e m s a n d h a n d l i n g c u r r e n e y a n d
things o f that kind.
W
e have s e n t i t t e the m e n who
have charge o f those departments, a n d i t has resulted
in our bank i n them trying t o make a
The Chairman. I
good record.
would like t o see this resalution
modified t o this extent, t h a t w e are i n favor o f abandoning the report unless t h e committee,
i n collaboration,
say with the gentlemen who work o n ite-and i t would b e
Mr. Smead a n d Mr. Rounds=«can devise o r simplify «
method which would accomplish t h e results which a r e
still o f value.
By t h e way, M r . J a m e s a s k e d m e a t l u n c h i f w e w o u l d
not get Mr. Smead i n te discuss this metter, a n d I had
everlecked i t entirely. I
think w e cught t e de that,
Mr. Norris.
Governor Norris. Yes.
we should; particularly,
I f h e asked you, certainly
i f w e are going t o pass a n y
resolution i n any way adverse t o the making o f these reports, w e ought t o give Mr. Smead a n opportunity t e b e
heard first.
The Chairman. W o u l d yeu be willing t o defer further
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Federal Reserve Bank of St. Louis
discussion until w e get Mr. Smead here?
Gevernor Norris. Certainly.
The Chairman.
I
n that case w e c a n g e ahead with
the next ften, wetch io<.
IV. O p e r a t i o n a n d Administraticn.
D.Report o f Leased Wire Committee.
The Chairman (continuing). B r o t h e r McDeugal, have
you a report t e make?
Governor McDeugal. I
have a repert which has been
submitted a n d I think passed around b y the Secretary.
The Chairman. W h a t t s your pleasure?
Gevernor Nerris. I
move that i t take t h e tsual
course, whatever that is, that i t b e accepted a n d ftled.
The Chairman.
I s that seconded?
Governor Talley.
W h a t w a s t h e inciease
i n t h e volume?
Seven a r d
The Chairman. /Seven-tenths p e r cent, due principally
to fiscal agency operations.
Gevernor Talley. I
not s o m e o p p o r t u n i t y
merely wanted t o a s k i f there was
t e restore s a m e o f t h e service
to
the leased wire which were formerly performed a n d later
taken out. N e c e s s a r i l y that question w a s based o n the
assumption that t h e volume, through t h e coding o f messages,
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Federal Reserve Bank of St. Louis
37
hed declined, b u t i f the renvort itself shows a n increase
of o v e r s e v e n p e r cen’, I
will n o t g o a n y further.
The Cheirman. T h e motion i s thet t h e report b e
accepted a n d filed.
(The motion w e s p u t a n d unanimously carried.)
The report o f the Leased ‘ire Committee i s a s follows:
"Report o f leased “ire Committee.
"To the Conference o f Governors:
"Since t h e l a s t r e p o r t r e n d e r e d
b y your commit-
tee there hseve beer n o changes i n the circuits c o m prising the Leased “lire System, excepting t h e addition
of the S a n fntonio-Dalles circuit.
"Mere was a n increase o f 7.7 per cent i n the volume handled f o r the first eight months c f 1927 compered with t h e same period o f 1926. T h i s increase
wes d u e largely t o Fiscal fgency operations.
“The system i s apparently opersting satisfectorily
and the facilities
i n use eppesr t o b e ample,
"Respectfully sabmisted,
"(Signed) J . B . McDougel,
"Gheirmen, Leased “ire Committee."
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Federal Reserve Bank of St. Louis
237-8
The Chairmen. T h e ncxt i s E, t h e report o f the
Insurance C o m m i t t e e .
IV. O p e r a t i o n a n d *fdministretion.
R e p o r t s o f Insurance Committee.
Governor Norris. I
think t h e Insurance Committee
simply r e p o r t e d t h a t n o t h i n g h a d b e e n b r o u g h t
t o their a t -
tention, a n d there w a s n o t h i n g t
o report. I s a f t that t h e
mopart?
The Chairmen.
meke.
That: i
s right. T h e r e w e s n o report t o
T h e next i s Topic F , t h e report o f the Pension
Committee, e n d that h a s b e e n distributed.
IV. O p e r a t i o n e n d fdministrsetion.
F. R e p o r t
Governor Seev.
o f t h e P e n s i o n Committee.
P h e basis o f contribution h a s n o t
yet been worked out. I s thet correct, Governor Strong?
The Chairman.
tions.
I t cannot b e b e c a u s e
o f t h e saccumula-
Y o u see, t h e accumulations n o w sre v e r y large,
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Federal Reserve Bank of St. Louis
20%
and thoy have t o b e considered over t h e ectuarial life
of the payments, a n d until w e get t h e d a y fixod a n d
calculate t h e a c c r u a l s a n d t h e n s p r e a d t h o s e o v e r t h e
contributions
b y t h o b a n k a n d o f e a c h empleyce,
y o u can-
net tell what t h e centribution will be.
Governer Seay. - Do yeu know whether i t i r contem-
puatcd t o make a large lump sum contributicn i n the case
of officers w h o have b e e n with the bank a long time, o r
to make a n annual eentribution, proerata, w e will say?
Gevernor McDougal.
The Chairman. I
T h a t has net been taken up.
think the assumption has always
been that t h e amount t o b e ecntributed will b e the amount
which should have Econ provided a t the origin o f the
servic3, plus a sum t o make u p the arrears, c o te speak,
which s u m would b e approprfated o v e r t h e actuarial l i f e
of the plan t o each individual.
Geverner Seay.
o n e e f cur officers w a s i n Now York
recently a t your benk, a n d had some conversation with
Mr. Koawzel,.
and ™
understeed h i m t o s a y t o a t i t w a s
then t n contcmplation that t h e contribution i n the case
ef s u c h efficers w o u l d b e a b o u t 1 0 p e r cent.
know whether they have got that fer o r not?
D o you
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Federal Reserve Bank of St. Louis
259
Governor Fancher. I
The Chairman. I
never h e a r d o f s u c h a
Governcr McDougal.
The Chaizman.
do not think they have.
thing.
W e have n o t gotten that far.
A s i t stoed originally 1 t was slightly
6 p e r cont.
Governor McDougal.
a million dollars a
The Chairman.
I t i s going t o b e a t the
vear o r mere now.
A n d t o make u p these accruals, I
do
net know, but i t mipht b e around 4 % or © per cent.
Governor Seay.
I s i t expected that i t would b e worked
out prior t e the presentation o f the bill i n Congress?
The Chairman. Yes.
Gevernor S e a y .
The Chairman.
Governor Scay,
S e c that y o u w i l l h a v e y o u r w h o l e p l a n ?
T h e m e n have been working o n it.
t f mean, i t will b e worked out b y the
time i t i s presented t o Congress?
The Chairman. Yes.
T h a t was t h e object o f the ap-
propriation i n the last Congress. They are taking a hypothetical date i n the future t e work te, s o that the error
in the accrual will b e a s small a s possible.
Governor Seay.
What I
meant w a s chiefly,
i s it
thought t e b e necessary t o present t h e details o f the
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Federal Reserve Bank of St. Louis
plan along with the introduction o f the bill?
The Cheirmen.
O n e o f the committeemen wented t h e
deteils incorrporsted i n the bill e n d w o endeavored o r w e
ere poling t o endeavor t o pet a w e y from incorporeting a n y
detail i n the bill b y submitting i t t o the committee e s
@ sort o f » representation o f what i t involves, a n d leave t h e
deteils entirely for the discussion o f the Federal Reserve
Board,
s o thet there w o u l d b e n o materiul departure f r o m
whet i s t o b e r e n r e s e n t e d
t o t h e committee.
fre t h e r e a n y f u r t h e r r e m a r k s ?
“ h e t i s your plessure
about t h e c o m m i t t e e ' s r e p o r t ?
Governor Figgs. I
move thet i t be accepted and filed.
The Cheirman. T h e usual course, m a d e b y Governor Biggs.
seconded?
Governor Talley. I
second t h e motion.
(The motion wes put and cerried.)
The report o f the Pension Committee i s a s follows:
"Mhe r e p o r t s u b m i t t e d
a t t h e l e s t conference r e -
vivwed i n sone detail t h e history o f the Pension
Cummittee e n d i t s work.
A t that time counsel f o r
the c o m m i t t e e w a s e n g e red i n r e v i s i n g t h e p e n s i o n
bill i n c e r t a i n resnects, b e s e d u p o n c r i t i c i s m s
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Federal Reserve Bank of St. Louis
40-a
Encountered b y the originel bill i n the House C o m mittee o n Benking a n d Currency.
discussed
i n considerable d e t c i l
will not, therefore,
T h e s e chenges w e r e disc
i n thet report a n d
b e repeated now.
"Sice the last conference copies o f the revised
bill have b e e n submitted t o each o f the governors
for his individuel sugrestions o r criticism o n d
the bill i s n o w rerdy t o submit a t the opening o f the
next session o f Congress.
"In its last report the committee recommended that
there b e approprieted e n edditionsal $10,000 f o r
expenses, 2
necesssry recelculetion o f the pension
deta including secrued liabilities being contingent
upon this eppropriation.
T h e eppropriation w a s a p -
proved b y the conference a n d Subsequently b y the
Federsl Reserve Boerd. / ' 1 1 o f the banks have n o w
submitted t h e dete required b y the actueries f o r 2
recalculation u f the secrued lisbilities e n d f o r
testing t h e soundness o f the p l o n originally pro-
posed. T h e tesk o f determining the accrued lirbility
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Federal Reserve Bank of St. Louis
2£40=-b
es o f July 1 , 1927, h e s b e e n complted within t h e
lest f e w devs e n d comperes w i t h previous calculations e s follows,
e l l f i g u r e s b e i n g i n r o u n d numbers:
"Originel calculation e a o f October 1, 1920, $1,973,000
"Estimated tabulstion s s o f October
.
“ i"
"¥oetuel
a
o
9
2 6,C82,000
S e m m o r y 1 9 2 6 , 7,400,000
u
i
y 1, Vet,
8 , 1 0 0 ,00C
"It will thus b e seen that the accrued liability
continues steadily t o mount, e n d o f course t h e longer
we a r e delayed i n making the p b h operstive,
t h e
ereeter will b e the problem o f teking care o f this
liebility.
“ h i l e t h e actusries heve n o t v e t com-
pleted t h e tabulrtions f o r a complete t e s t o f the
original p l e n t o the present conditions, t h e y advise
thet t h e actuel experience appears t o justify the
original tabuletions mede, a n d i t i s believed that
no v e r y d r a s t i c c h e n g e s
i n t h e p l a n w i l l b e necessery.
"The actuery states: 'PThe check o n experience shows
thet t h e actuel number o f separations r r o m service o n
eccount o f resignetion e n d dismissrl which occurred
during t h e p a s t s i x y e r r s w a s m o r e t h e n e x p e c t e d scecord-
ing t o the rates prepared o n the besis o f the exper-
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Federal Reserve Bank of St. Louis
240e¢
lence investisation covering t h e period prior t o
1920.
T h e experience e l s o showed thet t h e deoth
r e t e s in-use e r e conservetive.~
T h e results
o f the
check o n the expericnce s h o w thet h a d t h e fund been
estoblished a t the retes o f contribution originally
set i t w o u l d t o d a y b e i n *
v e r y f a v o r e b l e position.'!
"The actueries expect t o have the dete completed
within «
very short time t o the point o f making defin-
ite recommendations e s t o the contribution retes
necessery t o b e used t o take care o f both t h e eccrued
ond c u r r é n t l i a b l l i t i e s .
Y o u r committee expects
heve o l l o f thits w o r k f i n i s h e d
to
s o 3 s t o have c o m -
plete date aveileble w h e n the bill i s introduced i n
the f o r t h c o m i n g s e s s i o n o f Congress.
"Respectfully submitted,
2. MeDougel,
"Th. R. Kenzel, Choirmen."
The Chairmen’
T h e next i s V, *. Future public
program.
V. R e l s t i o n s w i t h M e m b e r @Bsnks a n d t h e Pubdlic.
f« F u t u r e p u b l i c i t y progzam.
The Chrirmen (continuing).
T h i s i s t o b e discussed
et the Joint Conference tomorrow, according t o m y under-
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Federal Reserve Bank of St. Louis
e241
standing, a n d the revert o f the committee will now b e
distributed, a n d you are asked t e read i t before the
Joint Conference tomorrow, a n d I weuld like t o announce
that i t is arranged that the J o i n t .Conferonce will
ob bus a t 10.30 tomorrow morning.
V. R e l a t i o n s w i t h Membcor Banks a n d
the Public.
B.A s u r v e y o f t h e B a n k R e l a t i o n s D e p a r t e
ments o f the Federal reserve banks.
The Chairman.
T o p i c V - B i s a survey c f the Bank Re-
lations Department c f the Federal reserve banks, suggested
by Philadelphia.
I n anticipation o f the meeting, reperts
have been received f r o m all reserve banks a n d were distributed this morning. G o v e r n o r Norris,
discussion o f that report?
d o y o u wisn a n y
I T have net had a chance t o
read i t .
Governor Norris. N e t unless somebody else wants t o
discuss 1t. I
would only like t e s a y oword i n explana~
tion o f my reason for putting i t o n the program.
time t h a t I
did i t I
A t the
overlooked t h e f a c t t h a t i n most
of the banks that work i s n o w under t h e charge e f the
Foderal R e s e r v e Agent. I
believe t h a t i n eight O L <The
banks i t i s under t h e Federal Reserve Agent a n d i n four
under t h e Governor o r the eperating side.
W e have a
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Federal Reserve Bank of St. Louis
242
feeling that o n e c f the duties o f the senior officers
of a
reserve b a n k i s t o populrsrize t h e S y s t e m w i t h t h e
public,
a n d that that must necessarily
b e dene t o a
very
great extent, particularly outside o f the large cities,
through t h e o f f i c e r s
o f t h e member banks; t h a t i f t h e y
are i n a frame o f mind t o speak kindly o f the System a n d
of the operation o f the reserve banks i n their district,
that t h e general public sentiment i n their respective ccmmunities i s apt t o b e friendly. T h e r e f o r e ,
w e feel that
the Bank Relations Department i s mest useful a n d valuable
part o f the work.
W e feel that w e were deing i t i n a
satisfactory way, judging f r o m the results i n our o w n
district, b u t w e were anxiovs t o ascertain t o what extent
it was being dene i n cther districts, a n d i n particular
whether there was work boing denc i n othor districts a l o n g
those l i n e s t h a t w e h e d n o t t h e u g h t o f , a n d w h i c h w e
could a d v a n t a g e o u s l y adopt,
a n d i t w a s w i t h those thoughts
in mind that I put i t o n the pregram, a n d while I have
net h a d time a s yet t e study these reports, a n d while i t
is cvident that i n some minor details t h e y a r e subject
to the same criticism that I
made a
few moments a g o about
the functional expense reports, t h a t t h e y are net absolutely
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Federal Reserve Bank of St. Louis
243
comparable, I
eral c h a r a c t e r
think c n the whole, considering t h s gene
o f the auestions,that t h e y have b e e n
made u p o n very fairly comparable basis, a n d I
a m glad
to seo that pretty much all c f the banks a r e alive t o
the necessity o f the work, e n d I hope,
i n going over t h e
reports n o r e c a r e f u l l y a n d r o a l l y s t u d y i n g t h e m , w e w i l l
bu able t o get some valuable suggestions o u t o f the replies that have been made b y the other banks.
The Chairman.
W h a t a c t i c n d e y o u desire, G o v e r n o r
Norris?
Governor Norris. N o n e a t all.
The Chairman. T h e reports h a v e b e e n distributed a n d
ne action i s desired.
(At this point wr. Smead entered t h e Conference
room, )
The Chairman. Gentlemen, w e have now got Mr. Smead
hore, and, Mr. Smead, this i s the situation:
Governor Norris had a topic o n the program suggest~E
ing e reorganization o r a discentinuance c f the Schedule
report. B e f o r e you got here h e read a n analysis o f the
showcomparable unit costs 4 s reported i n that schedule,
ing the ebvious inequalivies o f the cost d u e t o different
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Federal Reserve Bank of St. Louis
244
methods o f accounting a n d s e on, a n d h e has made a calculation that i t costs t h e reserve banks somewhere between
540,000 ard $50,000 a year t e maintain these reports i n
over bank.
Much o f the material i s collected a s t h e result o f
a daily system o f reporting certain work.
question arose a s t o whether,
continued,
T h e n the
i f i t were completely dis-
w e would b e able o n even a reasonably compar-
able basis t o get t h e total aggregate costs o f the various f u n c t i o n s , w h e t h e r s e m e c o n t r o l w o u l d n o t b e lost,
end whether i n potnt o f fact there was n o t a value i n
maintaining a t least a portion o f Schedule E system o f
reporting, e v e n though a very large part o f i t was
elimineted,
s o a s t o reduce t h e cost.
I discussed this with Mr. James a t iuncheon, a n d h e
said that h e had had a talk with you about i t and pence
we called o n yeu t e come aver here.
J ] think o n a matter
cf this sort w e are very liable t o pass s n a p judgment
in passing a
resclvtion. I
a m not ready t c vote t o
abandon t h a t report.
Governor Beiley. I
The Chairman.
a m not, either.
A r d maybe s e m e o f t h e others
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Federal Reserve Bank of St. Louis
Rnel.the s a m e way; I
Gevernor S e a y .
de not know.
W e f e e l t h e s e m e way, iim. Cheirman.
Governor Bailey.
I t i s very valuable t o us.
o f
course, w e eliminate some o f the things called for.
Every t i m e w e g e t t h a t F o r m E
the h e a d o f e v e r y d e p a r t -
ment scans it, a n d w e talk i t over a t our mcrning meetings
and a lot o f i t i s eliminated because w e cannot furnish it.
But, after all, i t seems t o b e something t h a t keeps o u r
fellows i n line f o r economy a n d efficiency.
W e would
miss i t and w e do not wane t o abandon i t s o far as w e are
concerned, a n d I should certainly vote against i t s abandenment.
The Chairman,
is now.
W e l l , I
should v c t e a g a i n s t
i t as it
I f w e cculd substitute s o m e system o r some scheme
of reporting which would eliminate those things which a r e
obviously o f no value, I would b e i n favor eof that.
Governor Norris, r e a d some o f these figures t e Mr. Smead,
Governor Norris.
bound t o b e variations
M r . Smead, o f course there a r e
i n t h e c o s t o f different functions
in t h e d i f f e r e n t banks. I
of them, b u t I
wont d e t a i n y o u b y reading a l l
have here a n anelysis o f all t h e figures
where u n i t c o s t s a r e calculated. i
have n o t s e l e c t e d
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Federal Reserve Bank of St. Louis
246
any extreme cases. I
have taken t h o m all, a n d without
specifying what t h e y are, i n the first b h e highest
bank is 3-1/3 times the lowest; i n the next the highest
bank i s three times t h e lowest, a n d t h e lowest i s only
half o f the average o f the System.
i n the third the
highest b a n k i s nine times t h e lowest, a n d the lowest
is only ywo thirds c f the average f o r the System; a n d
se i t goes through t h e t e n o r twelve sectiens t h a t a r e
itemized here.
As I say, s o m e variation i s bound alweys t o exist,
and a t t h e s t a r t o f t h e systen, w h e n t h e b a s i s u p o n w h i c h
the reports w e r e t o v e made w a s n e t fully understcod,
those v a r i a t i o n s w e r e b e u n d t o b e v e r y greet;
b u t after
four years a n d the issuance o f a manuel a n d t h e assem-
bling o f these figures i n ycur Beard here and the mailing
of t h e m
t o t h e banks,
a n d s c cn,
i t would s e e m t o m e
that e n e c f two things shovid have resulted, either
that w e should get closer together e n these things a s
we are, o r that w e sheuld have t e admit that w e are
attempting t o compare things which a r e incapable o f
being compared.
Now, that frankly i s m y feeling about it. I
would
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Federal Reserve Bank of St. Louis
247
like very much, a s w e all weuld,
t o heve your views o n
it a s t e why these extreme discrepancies still exist
after four years o f attempted correction, a n d whether
you think y o u ever will b e able t o get them down t o the
same basis e f reporting.
fir. Smead. I
would b e glad te, Governor Norris.
realize e n d have right eleng that seme wide differences i n costs e r e reported t e u s o n these
W
have g o n e i n t o t h e m a t t e r
and we
o n s e v e r a l eccasions,
e
know o f céurse that t h e very wide differences w h i c h
you reac there a r e generally d u e t o ene o f the banks
having 2 large volume and another bank a very small
volume c f work.
T h a t i s n o t a l w a y s t h e case, b u t y e u
will find a geod many times where the bonk has a small
volume c f business a n d only cne o r two employees i n the
given departnent, t h a t t h e figures w i l l b e very much
out o f line a n d must necessarily b e sc.
Governor Norris.
May I
interrupt y o u f o r j u s t a
moment ? T h e a t , f o r instance, w o a l d n e t a p p l y t o c o u n t r y
I sheuld judge, where St.Louis reports t h e case
as e 2 5 e n d C h i c a g e
Vir. Swteed.
i s .629,
That
scents
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Federal Reserve Bank of St. Louis
243
Governor Norris.
end .629 f o r Chicago.
C o s t p e r unit...
. 2 5 0 for. St.Louis
N o w , Chicage must b e including
in-that c o s t some items that t h e rest a r e not including,
or St.Louis m u s t b e omitting some items that t h e others
are including, I
Mr. Smead.
should think.
Y e s ; t h o s e differences there,
i n that
particular unit, a r e much more than could b e properly
reported i f they were doing t h e same kind o f work, a n d
it must b e that there i s something wrong i n those t w o
functions. I
off~hand cannot tell what i t 4s, but these
are country checks, y o u said?
Governor Norris. T h o s e a r e country checks outgoing.
Mr.Smead. I
couldc n o t a t t e m p t
Governor Norris.
Mr. Smead.
O f course, I
t o explain that right
ynderstand that.
I t m a y b e that i t is, e s y o u say, b e -
cause t h e y are doing some werk i n thecountry check deépartment i n Chicago that t h e y are not doing i n St.Louis,
and that will have t o b e looked into; but, s o far a s
the funetional expense reports a r e cencerned,
w e here
have thought that prebably the greatest value i n those
reports would b e derived b y the Federal Reserve Banks
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Federal Reserve Bank of St. Louis
249
themselves i n comparing their costs a s reported w i t h
the costs a s reported b y other rederal reserve banks,
and where t h e character o f work done s n a given unit
or department seems t o b e t h e same, t o find o u t exactly
what w a s t h e c a u s e f o r t h e difrerence,
a n d whether o n e
bank h a d a better system t h a n the other, a n d probably
avall t h e m s e l v e s
o f that.
H o w extensively that h a s b e e n
done o f course w e have never made a n y survey t o find out,
but w e c o know i n a number o f cases v e r y merked savings
have been rade through those very means.
Whether t h e functional expense reports h a v e very
largely outlived their usefulness i s a question about
vhich a good m a n y people will very naturally have a difference o f opinion.
W
e here i n the Boerd h a v e felt
that they have i n the past served a
very valuable u s e
in the System, a n d they have b e e n o f importance i n enabling t h e banks t o cut down their expense quite materfeliy.
Most o f the banks I imagine d o net make the same
use o f them n o w that t h e y cic some tine ago. T h a t m a y
mean that the form o f the report, a s Governor Strong
suggested, m a y need revision.
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Federal Reserve Bank of St. Louis
250
We have thought h e r e also that t h e budgets w h i c h
the Federal reserve benks h a v e p u t into u s e i n recent
periods o f ene t o five years have b e e n extremely benefietai.
Governor Norris. Y e s .
Mr. Smead. I
know thet officials i n a number o f
banks have t o l d m e that since putting t h e budget t n t o
use t h e y d i d n e t r e a l l y h a v e m u c h u s e f o r i t b e c a u s e
they feel that t h e y have a l l t h e control o v e r their e x penses t h a t t h e y could reasonably get, b u t that after
they p u t i t i n t o u s e a n d w e r e o p e r a t i n g
i t for a
while,
they found that t h e cepartment managers w e r e taking a n
entirely different attitude toward t h e costs o f their d e partment, a n d they were having very valuable results.
I persenally would hesitate v e r y much t o see t h e
banks d o away with Form E entirely. I
it i s quite likely that a
feel myself that
substantial revision might b e
made,
The Chairman,
H o w would y o u like t o have t h e Con-
ference pass a resolution requesting you and Mr. Rounds-Mr. Rounds w a s with y o u i n this matter, wasn't h e ?
Mr. S m e a c .
Yes.
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Federal Reserve Bank of St. Louis
251
The Chairman.
T o ask y e u a n d Mr.Rounds t o take
it u p w i t h t h e B o a r d t s c o m m i t t e e a n d s e e i f w e cannot
have a
pretty t h o r o u g h r e v i s i o n t h a t w o u l d n o t a t t e m p t
to change a l l t h e practices
i n the reserve hanks, b u t
eliminate the things where comparisons cannot well b e
made, a n d just take total figures f o r comparison a n d reduce t h e c o s t o f t h e w o r k i n v o l v e d
i n making
u p the
Form E? I n other words, retain what i s good and useful?
Mp. Smead. Y e s ; a n d I might make this suggestion,
Governor Strong, that you would not lay down too much o f
a straight-jacket with respect t o the matter, b u t i t
would probably b e a good idea for you t o ask the committee
to report t o the Governors! Conference a t the nextmeeting,
s o t h a t y o u w o u l d h a v e a n o p p o r t u n i t y t o pass u p o n
the work that t h e committee might do, a n d give t h e committee f u l l f r e e d o m t a m a k e s u c h s u g g e s t i o n s
a s occurred
to them, a n d I think also i n that connection i t might
be a good idea that y o u should have some resolutions t o
refer t o t h e committee.
The Chairman.
E v e r y bank n o w has a budget system
of s o m e kind, h a s n ' t i t ?
Governor Norris. Y e s , s i r , I
think so.
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252
Governor Seay.
M r . Chairman, t h e r e recently oc-
c u r r e d Ithink i n Chicago a
conference between t h e oper-
ating men o f the Federal reserve banks with tir. James,
upon t h e very subject, d i d there not?
Mr. Smead.
W h e n that conference w a s ¢alled t h e
functional expense reports were not specially o n the pro«
gram, b u t t h e y w e r e d i s c u s s e d t h e r e ,
a n d a t that confer-
ence there was some doubt a s t o the value o f the reports
as made u p 4 n their present form.
S o m e o f the members
of t h e c o m m i t t e e t h o u g h t c h a t i t w a s p r e t t y n e a r t i m e t o
discontinue them, others thought t h a t t h e y should b e
continued a s they are, a n d others t h a t t h e y could b e revisec properly; b u t t h e final result w a s that w e wrote
a report t h a t w e should n o t change t h e m just a t this
time, a n d I think that t h e members o f that committee
feel that within a reasonable time i n the future that
would h a v e t o b e t a k e n u p a n d i f p o s s i b l e a
Governor Fancher.
r e v i s i o n made.
A t that meeting h a d all o f the
banks g o t t h e budget system installed?
Mr. Smead. Yes.
Governor Fancher. I
got i t i n mind that perhaps
there were still t w o o r three banks t h a t h a d not g o t t h e
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Federal Reserve Bank of St. Louis
budget system installed.
Mir. Smead,
Well, I
think there were t w o o r three
that m i g h t n o t h a v e h a d t h e b u d g e t w o r k i n g i n a d e s t r a -
ble menner, b u t t h e y were operating under some f o r m o f
budget.
M o s t o f the banks I
think have a
very gaocd forn,
and t h e o p e r a t i n g d e p a r t m e n t s h a v e b e e n t a k i n g a
very d e -
cided interest i n it, a n d a s a result o f i t have achieved
some very desirable results.
Governor Talley. M r . Chairman,
referred to, I
a s budgets h a v e been
would like t o s a y that a s a matter o f fact
in our bank w e base o u r budget u p o n t h e results t h a t w e
obtain f r o m these reports, a n d that budget i s the l i d
to the box, instead o f the botton. I
had i n mind--there
is a motien before t h e Conference already--but I
mind offering a
substitute, b u t I
had i n
think this suggestion
which t h e C h a i r m a n h a s j u s t m a d e i s a l l right,
b u t that
we defer a n y action o n this until a t least t h e next Conference, a n d that i n the meantime w e ask the Beard t o ask
its examiners t o 3ee i f each bank i s following t h e manual
and m a k i n g u p t h e schedules. I
think t h a t i s w h e r e t h e
difficulty lies.
Governor Norris, I
was about t o ask a question along
254
thet line, Mr. Smead. I
presume t h e t y o u accept these r e -
ports e s t h e y sre made b y the banks. This happens t o b e a
cese s u c h 9 8 m y eye falls o n a t this minute, where t h e cost
per unit o n Government coupons i s .174 i n Dslles a n d .514
et ftlantea. “couldn't i t b e possible f o r y o u t o a s k Dalles
whether t h e y a r e sure that everything hes been included
in thet i t e m thet ought t o b e included, a n d elso t o a s k
ftlente w h e t h e r t h e y heave n o t i n c l u d e d s o m e t h i n g t h e t o u g h t
to h a v e g o n e t o s o m e o t h e r f u n c t i o n ? I
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Federal Reserve Bank of St. Louis
went t o rercd this:
"In connection with Generel Books now the menual stetes t h a t t h e following work, n o matter where
done £#n the benk, shell b e charged t o Genersl Books
unit: First, generol a n d subsidlery ledger; second,
officers c h e c k register e n d paying t h e officers checks;
third, preperetion o f deily stoetements; four,
daily telegrems t o Feder] Reserve Board and Treasury
Depertment; f i v e , préeparrtion o f w e e k l y p r e s s s t a t e -
ments; six, deily trenscript o f United States Treasury
account; seven, capitel s t o c k applications issued e n d
surrendered; e i g h t , m e i n t e n a n c e a c c o u n t s w i t h b r e n c h e s
and checklug o f brench trinscript;
nine,
reports e n d statistics f o r the Federel Reserve
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Federal Reserve Bank of St. Louis
Board o r for their o w n use; ten, a l l other work
incident toa the maintenance o f the general books
at the Bank."
One o f the larger banks i n the System reports t h a t
they d o that work with 1.95 employees.
O f course,
i t is
manifest t h a t t h e y are n o t charging t o that function a l l
the things t h a t t h e manual says t h e y must.
The Chairman.
W e could not pesibly d o it.
Gevernor Norris. C a n ' t y o u take that u p with that
bank, and i f you cannot, what i s the use o f having a report o n the expense o f that function , f one bank yuts
three things i n i t and another b a n k puts fifteen o r twenty?
Mr. Smead. Y e s , that could not b e done.
take u p a l l o f t h o s e m a r k e d d i f f e r e n c e s
W e could
i n t h e report,
but
it is a very difficult thing t o d o that from this end,
because i f you write t o a bank about these things i t i s
pretty h a r d t e p u t t h e i n q u i r y
i n such way that will
get a satisfactory reply, because the banks think a t
the p r e s e n t t i m e t h e y a r e f o l l o w i n g t h a t manual,
The Chairman. I
do not think w e do.
W e could n o
more make u p a n expense account uncer that heading,that
would i n v o l v e c u t t i n g o u r d e p a r t s a l l up.
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Federal Reserve Bank of St. Louis
256
Mr. S m e a d .
What I
mean b y t h a t i s t h a t t h e y a r e
following i t t o the best o f their ability, d o i n g their
work i n ten different places, a n d there i s a let o f allocating.
The Chairman.
Y e s , w u t t h e application o f the di-
vision o f e x p e n s e w o u l d b e m o r e t h a n i t i s w o r t h t o c o m pile t h a t i n f o r m a t i o n
Mr. Smead.
o n t h a t basis.
T h a t a l l goes t e show that i t may b e
advisable t o materially revise t h e report.
Governor Harding.
D o e s t h e manual s a y anything
abowt postage o n country b a n k checks?
Mr. Smead. T h e manual i s pretty clear o n that,
Governor Harding.
Governor Harding. W h a t does i t s a y about that?
Mr. Smead.
I f m y recollection i s correct,
of t h o s e u n i t s t h e p o s t a g e
item.
i s taken care o f a s a
I t is quite complicated. I
o n most
separate
know postage i s not
handledt
h
e seme w a y i n all o f the units o f the bank,
and h o w i t i s o n that proposition I
Governor Harding.
ual t o t h e l e t t e r
cannot recall.
I f w e were t o carry o u t t h e man.
i t would involve considerable expense
in putting u p all o f these different items.
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Federal Reserve Bank of St. Louis
257
Mr.Smead.
O f course,
i f y o u keep a n accurate rec-
ord, t h e cost would b e prohibitave.
The Cheirman. D u r i n g the war the regulations o f
this d e p a r t m e n t r e q u i r e d t h e t w e s e n d a
duplicate b i l l
for all telegrams
i n one continuous sheet, a n d dupligates
of all telegrams,
s c a s t o check up.
W e sent a n e
bill t o Washington which was forty-six feet lone, and
three trunks w i t h copies o f the telegrams.
T h e y took a
year a n d a half t o check i t u p and for o n e company w e
were $40 over i n the payments, a n d f o r t h e other company
we were $20 under, a n d I suppose t h e Government spent
$20,000 and got $20 back fer “t.
In these items w h i c h y o u read, t a k e t h e report, t h e
reports
i n connection
w i t h t h e business
doing f o r a l l t h e r e s e r v e b a n k s
buying bills, a n d s o on.
that
w e are now
i n foreign matters,
i n
T h e y a r e a l l made b y mani-
folding machines, a n d o f covrse t h e y g o out from the
department t h a t h a n d l e s t h e m .
partment
i s carried w i t h a
T h e expense o f the de-
certain allowence o u t o f t h e
revenue f r o m t h e a t h e r r e s e r v e b a n k s ,
able a p p o r t i o n m e n t
a n d t o make a
suite
o f t h e cost o f veporting a n d passing
it b a c k t o t h e r e s e r v e b a n k s , w o u l d b e a
very n i c e p i e c e
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Federal Reserve Bank of St. Louis
£o3
of cost accounting, a n d w e just have t o ignore these
things:
.
roo
believe,
Ib e l l @ g o m e r - i n a
f a m s ?s u m
i n t h a t dase.
’
i n your Cevartment, M r . Harrison. I
“fF
just have
a feeling that i f those things w e r e eliminated f r o m the
report a n d m a n y o f t h e i t e m s o f t h e r e p o r t a r e s t u d i e d
with a view t o getting a
calculation c f tne total costs
of some o f the departments where t h e departments a r e
thoroughly uniform, t h e n y o u could g e t a comparison o f
the number o f clerks empleyed a n d t h e number o f items
handled that would give a
rough check, without imposing
all o f this work and expense o n us,
Governor Fancher. T h e r e a r e three o r reur operating
departments
o f t h e banks t h a t y o u should m a k e v e r y favor-
able c o m p a r i s o n s o f , a n d t h a t i s i n y o u r c h e c k c o l l e c t fons a n d p a r t i c u l a r l y i t n your c u r r e n c y operations.
The Chairman.
T h e surrency works o u t mathematically,
put t a k e t h e c o u n t r y checks.
Governor Fancher. J
think there éan bé singled
out three o r four o r five o f the important functions o n
which t h e r e o u g h t t o b e a
basis
o f comparison,
and
then abandon a l l o f thise other wo:-k that i s done a n d
information w h i c h i s o f n o v a l u e a n d o n w h i c h t h e r e i s
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Federal Reserve Bank of St. Louis
259
no basis o f comparison.
A
s G o v e r n o r B a i l e y says,
he has singled o u t certain things t h a t h e i s interested
in a s a
basis o f c o m p a r i s o n w i t h s o m e o t h e r banks.
The Chairman. H e r e i s one bank handling unbroken
packages o f checks, where w e count a
package a s rcoally
containing 750 o r 1000 items, a n d another bank will
weigh that a n d s a y there a r e 2,000 items i n it.
Governor Fancher. A b s o l u t e l y .
B u t i f y o u have
no basis of compiling the information, what value t s it?
Governor Norris h a s calculated that i t 1 s costing f r a m
$40,COO to 850,000 ta prepare this information which
is hot comparable.
I f that i s true, a n d i t probably is,
how much c a n b e eliminated f r o m that which i s o f value
and that which i s o f n o value?
Mr. Smead. I
would like t o s a y i n connection with
that cost, I have pérsonally asked a number o f banks how
much this report was costing them, including your bank,
Governor Strong, a n d i t was almost always t h e answer,
"Probably very little." T y e y did it along with some
other work that they would d o a n y way, a n d i f there i s
ah additional cost i t i s s o small that i t i s pretty
hard t o i r o n i t out.
T h a t m a y depend very largely o n
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Federal Reserve Bank of St. Louis
260
how a
given bank i s doing t h e work.
S o m e bank might
do the work i n such a way a s t o cost t h e m several thousand dollars.
O t h e r banks, l i k e N e w York, f o r instance,
{it would n o t c o s t b u t v e r y little. I
have n o t t h e
slightest i d e a o f what t h e System cost is, b u t i f i t
4scosting $50,000 a year i t is an item that is well
worth while looking into t o see i f we cannot cut down the
cost.
Governor Norris.
T
o the best o f our ability w e
have been following and observing the manual.
I t ap-
pears t h a t a t least t w o banks here a s t o certain things
at least have b e e n attempting t o follow t h e manual.
course, f
i w e threw t h e manual aside,
our costs, I
w e could reduce
suppose, q u i t e materially.
cost depends a
o f
S
o that t h e
good deal o n whether y o u are observing
the manual and doing all o f this cost accounting, o r
whether y o u are just ignoring t h e manual.
Mr. Smead. A n o t h e r thing,
i t depends v e r y largely
on how closely a bank's organization corresponds w i t h t h e
set-up o f f u n c t i o n a l e x p e n s e reports. I
understand
in
Governor Fanchev's bank that i t dees, consequently the
cost i n his bank would b e very, very slight, whereas
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Federal Reserve Bank of St. Louis
261
in another b a n k i t i s quite likely that t h e cost would
be very great.
Governor Talley.
I s there anything i n this thought,
to let the banksprepare t h e facts o r material f o r this
report, v e r y largely i n accordance w i t h their o w n organization, a n d then l e t y o u compile i t here? I
you a n example o f what I
will give
mean there. F o r instance, t h e
general books items, a s described iin the manual, a r e not
anything like o u r general books, because a l l o f that work
is not done i n that department, b u t now i f we could get
up our costs based upon what o u r general bocks department
is a s i t exists, t h e n o f course, a s applying t o our bank,
that would b e general books expense. T h e n aren't w e
going a b o u t i t p e s s i b l y t h e w r o n g w a y ? c o u l d n ' t
w e give
the i n f o r m a t i o n t o y o u h e r e a n d l e t i t b e c o m p i l e d h e r e ?
Mr. Smead.
W e here a r e very well aware o f just
what you say is very, very true, and that i n itself is
one reason why w e are pretty strong for the budget. When
you have a budget i n your bank you put that o n the line
at which your bank i s organized,
over t h e p a r t i c u l a r e x p e n s e
s o you c a n have control
i n mind, b u t w h e n y o u f a k e
the function expense report and you throw costs o f oper-
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Federal Reserve Bank of St. Louis
202
ations t h a t a r e c a r r i e d
ent units,
check.
c n under f o u r o r five differ-
i t i s impossible t o get a very satisfactory
T h e banks w o r k u p their o w n orzanization, a n d
having t h e Board heve a t Washington t r y t o put i t tozéther i n such a
way that anything o f a comparable nature
between banks would b e the result, would b e I think o u t
of the question.
to atterpt a
W e think i t would b e rather unwise
thing like that, because w e certainly can-
not p u t i t together a s the banks themselves would.
The Chairman. Gentlemen, I
have guaranteed a
number
of y o u t h a t w e w o u l d c o m p l e t e t h e p r e g r a m t h i s afternoon,
and this i s a kind o f a thing that w e could discuss i n
detail a n d c o u l d n e v e r settle.
do it.
T h e question
i s h o w toa
O n e way i s t o recommend the banks doing i t and
another i s t o revise i t and then again t o suggest h o w
it should b e revised. I
Governor Norris.
do not mean t h e actails.
W e have stated t o Mr. Smead
the thoughts t h e t a r e running i n our-minds a n d t h e dif-
ficulties that have led t o the introduction o f this
topic i n t o this Conference's program, a n d i f h e has
any suggestion t o make a s t o what would h e the best
way o f getting a t a further standardizaticn,
in}
i f possible,
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Federal Reserve Bank of St. Louis
265
of these renorts,
o r the cutting o u t o f such parts a s
cannot b e standardized, I
the suggestion. I
would b e very glad t o have
imagine w e would a l l b e glad t o
adopt a n y r e s o l u t i o n
t o t h a t effect.
The Chairman. T h e proposal,
was t o pass a
a s I understand it,
resolution indicating that t h e adoption
of the budget p l a n b y every reserve b a n k h a d n o w i n a
measure accomplished t h e results t h a t were sought f o r
by Schedule E , e n d that t h e time h a d arrived t o endeavor
to effect a
revision o f the method o f reporting Schedule E
that w o u l d b e m o r e e c o n o m i c a l a n d r e q u i r e l e s s w o r k a n d
simplify it, a n d that w e would request Mr. Smead a n d
Mr. R o u n d s
t o make a
s t u d y o f it, I
suppose
i n con-
nection with t h e Board's committee t h a t has charge o f
this, s o that before t h e next Conference w e could have
a recommendacion o f e plan.
I s that about what covers
the ground?
Governor Nornis. T h a t i s perfectly satisfactory t o
me, and i f you will just put that i n the form o f a motion
i will withdraw t h e motion that I
The Chairman. I
have previously made,
will g e t Mr. MNarrisen t o d o the
putting o f the form, a n d I will p u t t h e motion.
What
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Federal Reserve Bank of St. Louis
264
is your pleasure, gentlemen?
D o e s anybody want t o
second t h e motion?
Governor Fancher. I
The Chairman.
second that motion.
I s there a n y further discussion?
(The motion was put and carried.)
VI. Supplementary Topies.
B. Proposed revision o f Regulation D
dealing with reserves o f member banks..
The Chairman.
W e have t h e revised drafts o f regu-
lations and one i s headed "Collection o f maturing notes
and bills."
cS%
*
=
The Cheirman.
awe t
i t+
*
A f t e r d i s c u s s i o n o f f t h e record,
It was agreed that t h e following motion should b e submitted t o a
vote:
"Resolved, t o recommend t o the Federal
Reserve B o a r d t h a t n o r e g u l a t i o n
b e issued cover-
ing the collection o f non-cash ftems.
"Further Resolved, that the questions of (a
e uniform circular and (b) limitations upon the *"-:
character o f the items t o b e handled,
b e referred t o
the Standirg C o m m i t t e e n
o Collections f o r study a n d
recommendation
t o t h e n e x t Conference.
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Federal Reserve Bank of St. Louis
265
"Further Resolved, that without waiting for
such repert, t h a t 7 % b e the policy o f the System
-to gradually discontinue t h e handling o f drafts
with bonds a n d stocks attached.
"Further Resolved, that i t is the sense o f
the Conference t h a t n o Federal reserve b a n k should
be e x p e c t e d t o collect n o n - c a s h i t e m s p a y a b l e
at
points where adequate a n d satisfactory facilities
do not exist.”
Governor Fancher. I
move t h e a d o p t i o n o f t h e f i r s t
separate resolution.
Governor Talley. I
The Chairman.
second it.
T h e first separate resolution
i s as
follows:
"Resolved,
t o recommend t o the Federal R e -
serve Board that n o reguiation b e issued covering
the c o l l e c t i o n
s
"
n
o f n o n - c a s h items.
v
(The motion was put and carried, Governor Seay
voving "No.")
The Chairman.
T h e second resolution i s a s follows:
"Fuither Resolved, that the questions o f (a)
a uniform circular, a n d (b) limitations u p o n the
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Federal Reserve Bank of St. Louis
266
character o f the items t o b e handled,
b e refer-
red t o the Standing Committee o n Collections f o r
study and recommendation t o the next Conference.”
Governor Geery. I
Governor Seay. I
offer that.
second it.
{The motion was put and carried.)
Tho Chairman.
A n d the third one:
"Further Resolved, that without waiting for
such report, t h a t i t b e the policy o f the System
to gradually discontinue t h e handiing o f dra?ts
with bonds and stocks attached."
Governor Wellbcrn. I
Governor Bailey. I
move t h e adoption o f that.
second it.
(The motion was put and carried.)
The Ghairman.
A n d t h e next one:
"Further Resolved,
t h a t i t i s the sense o f the
gonference t h a t n o F e d e r a l r e s e r v e b a n k s h o u l d b e
expected t o collect non-cash items payable a t
points where adequate a n d satisfactory facilities d o
not exist."
Gevernor Geery. I
Governor F a n c h e r . I
make that motion.
second it.
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Federal Reserve Bank of St. Louis
Governor Bailey. I
second it.
(The metion was put and carried.)
The Chairmen. N o w w e come t o Regulation D .
Mr. Harrison.
T h i s regulation t s i n precisely t h e
form that was submittec t o the O p e n Market Investment
Committee, when five members o f the Board and I think
five members o f the committee a n d t w o other members o f
the Governors were present, a n d i t was agreed t o i n form
by everybody present i n that meeting.
The Chairman. W h a t this proposes i s that i n those
cities where there i s a reserve b a n k o r a branch, t h e ad-
justment shall be twice a week, and otherwise I believe
it is all left unchanged, isn't it?
Vr.Harrison. Yes. T h e y decided t o eliminate a l l that
proposal t o define time deposits, feeling that 1 t was
quite difficult t o de anything that would satisfy everybody under t h e present terms o f the law.
Governor McDougal. I
think t h i s r e s o l u t i o n s h o u l d
be considered very carefully.
The Chairman.
W h e n would y o u like t o consider i t ?
Governor McDougal.
I n the tantative draft which was
approved by the Board defining "savings" there was one
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Federal Reserve Bank of St. Louis
268
provision that I
that d e p o s i t s
think was a
very wise o n e a n d that was
o f o n e b a n k i n another s h a i l n o t b e i n a n y
case considered a savings account.
protection, I
T h a t would give
think, against s o m e o f the abuses t h a t
have crept in. I
do not k n o w whether t h a t would f i t
Boston's c a s e i n some way, b u t I think that ought t o
stay in, a n d i t ought t o g o further a n d state that deposits o f banks a n d corporations shall n o t b e includeg
as savings accounts, because there i s a great tendency
on the part o f the banks t o solicit business o n the
strength o f issuing savings pass books against deposits
o r corporations,
made b y banks
w h i c h i n reality a r e paya-
ble o n demand.
fhe Chairman.
T h e r e a r e really f a u r points
i n connect-
40on with this n e w regulation, Governer McDougal, w h i c h
are possible changes o r suggestions t h a t require consideration. I
will e n u m e r a t e t h e m ,
if I
may.
O n e i s the
change t o the semi-weekly reserve report i n cities where
there a r e reserve banks o r branches.
T h e second i s the
adoption o f a scheme o f penalties f o r deficient reserves
by 4 progressive rate, w h i c h may, however,
b e waived i n
individual cases upon application to the Federal Reserve
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Board.
T h e third i s a provision f o r giving security
for t h e deposit o f trust funds, w i t h which Governor
Norris i s quite familiar.
W h e r e a bank which exercis-
es trust powers makes ceposit o f funds i n some other
bank, I
believe this regulation proposes t h a t t h e de-
positary b a n k gives t h e depositing b a n k security f o r
the deposit.
T h e fourth i s the question o f definition
of time a n d s a v i n g f
o deposits, r a i s e d b y Governor
Me Dougal.
I would like t o sey that I believe w e are all
agreed u p o n the semi-weekly arrangement o f adjusting
reserves, a n d i f you are ready t c vote o n that, w i l l
someone make t h e motion?
Governor Wellborn, I
The Chairman.
make that motion.
I s that seconded?
Governor Fancher. I
second it.
(The motion was put and carried.)
The Chairman.
T h e second point i s this progress ~
ive penalty, a n d I would like t o state I
think that i s
a very great mistake t o have any progressive penalty i n
any regulatior o f the Federal Reserve Board, a n d I believe i t will come back t o haunt t h e Board, because y o u
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Federal Reserve Bank of St. Louis
270
will f i n d t h a t e v e r y f a i l i n g m e m n e r b a n k b e f o r e i t
fails will subject itself t o a progressive penalty w h i c h
may g o u p t o 1 0 per cent, o r something l i k e that, a n d
then there will b e a howl.
Governor Harding. I
move that w e advise t h e Board
against it.
Governor Fancher. Don't t h e y cover that b y a waiver
provision a t the request o f the Federal Reserve Board?
The Chairman, T h e n w h y put in?
Governor McDougal.
T h e provision f o r a n accumulated
penalty, M r . Chairman, h a s been i n the regulation a l l
along.
Mr, Fancher. A b s o l u t e l y .
Governor McDougal.
Y o u h a v e i t now.
W e have lost 1 5 0 member banks,
and J think w e have never h a d a n y come-back that I
Governor Bailey. I
know of.
was wondering w h y that was p u t
in there.
Governor McDougal.
This i s a
re-graft
o f t h e regu-
lations.
Governor Harding. T h e y have a
the Federal Reserve Agent,
to notify t h e directcrs.
provision requiring
i n case o f a deficient reserve,
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Federal Reserve Bank of St. Louis
The Chairman.
T h a t ought t o b e enough.
Governor Seay.
D o I
understand t h a t y o u a r e o b -
jecting t o t h e p r o g r e s s i v e p e n a l t y u p t o 1 0 p e r c e n t ?
The Chairman.
the previous o n e ,
I t i s mandatory h e r e a n d optional
in
H e r e y o u have g o t t o impose i t , u n -
less y o u g o t h r o u g h t h e p r o c e d u r e
o f reporting
i t t o the
Federal Reserve Board a n d having i t waived.
Governor Norris.
W e have always treated t h e prev-
lous regulation a s mandatory, a n d have never h a d a kick.
Governor Fancher.
Governor Seay.
S o have we,
S o have we, a n d w e have never h a d a
kick,
Governor Talley.
W e have always considered i t a s
mandatory perhaps, because w e approved o f it.
W e have
assessed t h e penalties a n d collected them. I
do not
say that w e have done s o without a
Governor Wellborn.
complaint.
T h e penalty i s not s o great
after all, except that i t is i n excess o f the regular
rate. I
a m opposed t o a
The Chairman,
progressive r a t s , I
think.
W e l l , w e have discussed it, and I
think w e unders*and about it. Suppose w e vote o n it.
Governor Bailey.
D o e s that include that w e will
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Federal Reserve Bank of St. Louis
have t o come t o the Board t o get a rebate?
The Chairman.
Yes.
Governor Bailey. I
a m against it.
Governor Harding. I
offered a resolution that w e
advise t h e Board n o t t o incorporate it.
Governor F a n c h e r .
Y o u make i t permissible rather
than m a n d a t o r y ?
Governor Harding. Yes, permissive rather t h a n mandatory.
Governor Bailey. L e t i t stay just a s i t f2.
The Chairman.
A r e y o u ready f o r t h e question?
The
motion { s t o a d v i s e t h e B o a r d t h e t i t i s t h e s e n s e o f t h e
Conference that t h e penalty f o r defecient reserves
should n o t b e mandatory, b u t optional,
a s a t present.
Is that seconded?
Governor Bailey. I
second i t .
(The motion was p u t a n d carried.)
The Chairman.
T h e third question relates
t o the
giving o f security f o r t h e deposit o f trust funds. U n d e r
the p r e s e n t r e g u l a t i o n ,
a s y o u a r e aware, a
exercises trust powers--that i s , a
Governor Seay (interposing).
member b a n k
member national bank--
D o you intend b y that
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Federal Reserve Bank of St. Louis
273
resolution t o eliminate t h e waiver o f 4 penalty f r o m
this, Mr.Chairman?
The Chairman.
W
e intended
b y that resolutian
ta
put i t just back where i + i s now.
Governor Seay. T h a t would eliminate t h e waiver penalty.
The Chairman.
T h e Federal Reserve Board under this
regulation proposes t o make t h e progressive penalty mandatory o n us, t h e Board only reserving t h e right t o
waive i t .
Governor Seay. Tyat would eliminate this provision
in here, I
take 1 ?
The Chairman.
Yes.
G o v e r n o r Norris,
a r e y o u pre-
pared t o speak o n this subject o f giving security f o r
trust deposits?
Governor Norris. I
have been studying the regulae
tion o n that, a n d s o f a r a s I
out. I
can s e e that h a s b e e n thrown
understood that t h e L a w Committee o f the Board
was o f the opinior that they had n o authority t o impose
such a
regulation a s that, a n d t h e l a t e s t n e w s t h a t I
have h e a r d o n i + I
discarded. I
think w a s t h a t i t h a d p r o b a b l y b e e n
cannot f i n d i t i n here.
T h e provision
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Federal Reserve Bank of St. Louis
274
of Section TET~A, 2 s given o n page 4
o f X-4988, r e -
fers o n l y t o reserves against t h e trust funn. T h e r e
is nothing s a i d there aLout security a t all, a n d then
in Mr. Wyatt's memorandum o f August 15th, XK--4915, the
only change that h e suggests i n that is, t n order t o
make t h e language c f the section conform more nearly t o
that o f portions o f the regulations,
h e recommends
that the word “carry” be substituted for "maintain."
I would like t o b e sure that that its corrected o n the
paper b e f o r e s a y i n g t h e t vorovision f o r s e c u r i t y h e s b e e n
elimineted.
The Chairman.
W e u l d v o u care t o invite Governor
Young t o j o i n u s t e discuss t h i s r e g u l a t i o n ?
Governor Norris. I
would b e very glad to, a r I
think perhaps i f Mr. Hamlin i s here, h e i s more familiar
with it.
The Chairman- I
do not think w e can invite Gov-
ernor Hamlin without inviting Governor Young.
Gevernor Norrts.
O f course,
w e sheuld b e glad t o
have G o v e r n o r Y o u n g .
The Chairmun. i
mean t o s a y that, i f w e are going
to confer with a representative o f the Foard, w e ought
to confer with the head o f the Board, i t seems t o me.
Governor Norris.
G o v e r n o r Fencher calls m y ate
tention t o the fact that t h e security o f uninvested
trust funds i s i n regulation (F) end not i n this section, a n d that h a s n o t been referred to.
T h i s i s simply
a question o f the reserves.
The Che irman.
I f you please, w e will wait until
Governer Young comes in, t o continue the discussion o f
Regulation (D), and I
wovld .like t o take u p now the re-
port o f the Subcommittee o f the General Committee o n
Penkers Acceptances::
H a s that b e e n distributed?
Mf. Harrison. Y e s , sir.
VI. S u p p l e m e n t a r y Topics.
A. R e p o r t o f s u b - c o m m i t t e e
Pankers f a c s p t a n c e s .
The Chairmen.
T h i s i s a report,
o n
a s v o u know, which
was made b y the Special Committee o f officers o f five o f
the banks, I think, which met i n New York, and hadéas..
conference w i t h t h e vice-presidents a n d pertners o f
the nrincipal accepting banks and firms, reviewed all
of the rersulations and ‘pulinrs o f the Federel Reserve
Poard releting t o the scceptance practice, a n d after a
good déel of study have submitted a report, o f which
you h a v e @
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Federal Reserve Bank of St. Louis
copy.
The r e p o r t o f t h e G e n e r r l ‘ c c e p t a n c e C o m m i t t e e a n d t h e
Sub Committee o f the General Committee o n Benkers Scceptance
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Federal Reserve Bank of St. Louis
is a s follows:
"October 28, 1927.
"Report b c the Governors Conference o f November 2,
1927, b y the Cheirmen o f the General ‘eceptence C o m mittee s n d the Sub-Committee o f the Generel ‘cceptance
Committee.
"Since the last Gonference o f Governors the only
matter thet has b e e n referred t o either o f these committees w a s t h e juestion o f whet impediments,
i f eny,
existed thet restricted t h e free competition O o f
fmericen doller scceptence credit w i t h sterling o r
other foreign currency credits issued b y foreign
bankers i n connection with foreign trade.
T h e Fed-
erol Reserve B o e r d requested consideretion o n d reeommendetion
b y o n e o f these c o m m i t t c e s
i f possible
piior t o the presence Conference.
"*ecordingiy the matter was considered b y the
Sub-Committee o n October 21, 1927° a n d recommendation
in t h i s r e g o r d m s d e t o t h e F e d e r a l R e s e r v e B o a r d .
Copy o f the report o f the Sub-Committee t o the Federal
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Federal Reserve Bank of St. Louis
275-b
Reserve Boerd, which i s self-explenrtory,
i s at-
teched hereto a s supplementing e n d completing this
report
o f the Sub-Committee
t o this Conference.
"Respectfully submitted,
"E. R. Kenzel,
"Cheirmen."”
"Report o f the Sub-Committee o f the Generel /eceptence Committees t o the Federel Reserve B o e r d October
fig. 1927.
"The Sub-Committee o f the Genersl /eceptenc? Com-
mittee held a meeting i n New York on October 21, a t
which t h e following were present: M e s s r s . Zurlinden,
Peddock, M c K a y e n d “yett, M ur. Kenzel cheirman, e n d
Mr .O'Here, s e c r e t e r y .
"Consideretion wes given t o * proposel t o recommend
to t h e F e d e r s l R e s e r v e B o a r d c e r t a i n m o d i f i c a t i o n s
of
its existing rulings w i t h reference t o sceceptsnces
growing o u t o f the importation a n d exportstion o f
foods w h i c h w i l l m a k e i t p o s s i b l e f o r f m e r i c e n b e n k s
to recespt bills drewn u p o n t h e m f o r the purpose o f
finencing s u c h t r a n s e c t i o n s w h e r e
i t i s necessrry
for such bills t o b e drawn efter t h e goods have
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Federal Reserve Bank of St. Louis
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recched their aestinetion,
i n order t o conform t o
uguel c o m m e r c i a l a n d -credit practices.
"tfter full discussion o f the subject a n d consideration o f a stetement o f facts releted b y the Cheirman
substentially e s expressed i n the accompenying memorandum i t was unenimously voted b y the Committee t o
recommend
t o the Bosrd e s follows:
"hat t h e Board revoke its previous rulings t o the
effect thet e
bill cannot b e eligible for. acceptance
e member bank o r for rediscount o r purchese b y 4
Federal reserve b a n k 9 s s bill growing o u t o f the im-~
portetion o r exportstion o f goods i t i s i s accepted after
the goods have reeched their destinetion, e n d rule i n
lieu thereof;
"Met benkers sceceptance m a y properly b e considered
es growing o u t o f transections involving t h e importation o r e x p o r t e t i o n
o f soods w h e n g i v e n f o r t h e p u r -
pose o f f i n e n c i n g t h e s e l e e n d d i s t r i b u t i o n
o n usual
credit terms o f imported o r exported goods i n t o t h e
chennels o f trede, whether o r not t h e bills s r e secept-
ed efter the physicel importction o r exportetion has
been completed. "
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Federal Reserve Bank of St. Louis
275-d
"Menorandum o f Statement b y the Choirman o f the
Sub-Committee
o f the Genersl feceptence Committee
a meeting o f the Committee i n New York o n
October 21, 1927.
"The question o f the monner »nd extent t o which use
of ‘merican acceptance credit w a s hindered i n competition w i t h f o r e i e n c r e d i t
i n finencing foreign trade
was t h e subject o f inquiry recently mede b y the Fed.
erel Reserve B o a r d o f vour Chairman.
"On a visit t o “eshington lost week, y o u r Chairmen
exnlained t o Governor Young e n d t o the Federal Reserve
Bosrd that, sccording t o his observetions e n d from informetion gained f r o m interviews w i t h m a n y bankers *
from Englend, Hollend, Switzerland, Germeny, France
end Itely, t h e o n l y precticel obstacles l a y i n rulings
of t h e B o s r d w h i c h h e d t h e e f f e c t
o f prohibiting
bills f r o m being atcentsd s t all b y nationel banks o r
*8eligible b y other venks and benkers after the physLesl e x n o r t a t i o n
o r importation
o f goods w a s completed.
"He steted thet these foreign benkers hed told him
thet industrucy i n the industrisl counties o f the
Continent hed always had t o look t e foreign credit
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Federal Reserve Bank of St. Louis
275<e
for the pusrchese o f imported r a w materials a n d i n the
export
o f finished g o o d s ; t h a t d u e t o verious c o u s e s ,
Such c r e d i t w e s r e q u i r e d f o r l o n g e r p e r i o d s t h a n w e s
customsry i n the United States.
f m o n r the ceuses
nemed were leck of working cppitel i n the ‘mericen
sense, s l o w t r a n s p o r t a t i o n ,
c e okoatne o f river nev-
igation during the c o l d months, a n d t h e e c o n o n t i cm
i
precticobility o f industries closing down temporerily
or for longer periods,
a s i s frequently adiee i n the
United States without serious economic consequsntes.
The combined effect o f these conditions requires manufecturérs sersonelly t o corry row meterisls f o r six
months
o f o p e r s t i o n e n d they, s e c o r d i n g l y , r e q u i r e
eredit u p t o s i x months w i t h respect t o » considerable
portion o f their purcheses.
"The fact that banks o n the Continent = r e much more
closely identified with the industries t h e n i
s the
generel cese i n fmerica normally permittcdthem t o discount f r e e l y f o r t h e i r m i n u f e c t u r i n g c l i e n t s s n d e l s e
to procure f o r them from ebronad t h e additionel foreign
credit thet they required. Englend, Hollend, Switzerlend,
enil to some extent, France, were normelly the ereditor
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Federal Reserve Bank of St. Louis
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countries o n d the first three continue e t the present time t o extend t h e kinds o f credits f o r the time
required t o the Continental industries; generslly
through the medium o f Continentel benks.
"It was expleined thet, owing t o the higher price
‘evel s t t h e p r e s e n t t i m e a s c o m p a r e d w i t h pre-war,
the v o l u m e o f domestic b i l l s
industrial s e c t i o n s
i n Germeny e n d other
o f the Continent represented e a
Physicel volume o f goods considerebly less, perheps
75 per cent o f the quentity o f goods, t h e n vould heve
been represonted b y e n equal emount o f bills pre-wer,
end that, sccordingly, t h e rise i n the price level re-
quired relstively greeter reccurse t o foreign credit
then before t h e wer.
"It wes explained thet b o t h before s n d since t h e w e r
it wes t h e prectice o f London benks e n d bankers t o ex-
tend commereiel scecentence credit for the benefit o f
Continental industry a n d trede freely a n d thet t h e re-
strictions i n the ‘mericen prectice h a d d o u b t l s caused
& preet d e e l o f f i n s n e i n e
t o g o t o London t h e t otherwise
would h e y e c o m e t o N e w Y o r k o n s c c o u n t
o f the sbility
uf fmericen t o crerte credit end the lower *merican
diseount r e t e s .
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275-2
"Me cutting o f seceptance commissions b y London
benks f o r Continentsl banks t o atbroct this k i n d o f
business
t o London wes a l s o referred
t o e s consti-
tuting 9 substantial competition b u t o n e which would
not b e s o serious i f ‘merican benks could give t h e
credits t h e t t h e Continental trade requires c n terms
otherwise e q u s l w i t h London.
"Since your Cheirmen advised the Roerd i n these respécts, h e hes confefred with a considersble number
of prominent N e w York benkers w h o creste t h e large
bulx o f fmerican scceptences t o inquire o f them what i n
their experience h a d prevented t h e m f r o m giving acceptence credits sbroad s u c h e s London bankers hebituslly
great,
o n d h e was informed
b y eech o f them thet t h e
rule segeinst accepting after goods h e d srrived i n the
country o f import e n d the rule egsinst permitting customers
t o redraw ofter goods h a d errived
{ n the country
of import were t h e o n l y t w o points u p o n which t h e y felt
their d i s e b i l i t y doperded.
"They felt that they would net wish t o extend credits
in Europe. f o r pureiy domestic purposes, expleining
thet b y thet t h e y meant t h e vurchsse o f goods o f domestic
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Federal Reserve Bank of St. Louis
275-h
origin, t h e fabrication o f such goods a n d fits sale
for domestic consumption within a n y European country,
but thet t h e y did feel thet t h e y should b e permitted
to finance through ececeptance credits the sale within
Europeen c o u n t r i e s
o f goods o f o r i g i n f o r e i g n t o t h o s e
countries, and the fabrication and sale o f goods for
export.
M a n y o f them eited t h e familiar problem o f
American cotton which i s now sent g e largely t o European countries o n consignment b y fmerican shippers
snd i s sold t o Europesn spinners out o f warehouses i n
Europe. S p i n n e r s require credit o f ninety days o r more.
Under t h e p r e s e n t r u l e s , ¢émerican b a n k s c e n g i v e s u c h
credits where t h e cotton crosses a
frontier i n Euorpe,
that is, where i t is exported from one European country
to another, but they cannot give such credits i f the
cotton i s sold t o spinners located i n the same European
country i n which i t is stored pending sale. /
similer
negative position arises w i t h respect t o cotton which
is sold snd shipped from ‘merica o n terms that have become quite usuel, i.c., that a t the buyer's option h e
may p a y cash o n arrival o r give ninety days benkers
credit.
I t frequently heppens t h a t t h e cotton has a r -
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Federal Reserve Bank of St. Louis
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rived sand s o the nhysicsl export completed before t h e
buyer e l e c t s h o w h e s h a l l pey.
I f h e elects
t o give
ninety days bankers eredit t h e benker m a y not accept
the bill i f the cotton has arrived s t the foreign destination named i n the shipping documents.
\The American bankers consulted felt that the time
nes certainly arrived i n the development o f American
acceptence b u s i n e s s w h e n f m e r i g a n a c c e p t i n g b a n k e r s
should b e p e r m i t t e d t h e f r e e e x e r c i s e
o f their discre-
tion within t h e l a w a n d regulations a n d that, within
‘those limits, f u l l latitude should b e granted t h e m i n
the accommodstion o f business a s i t i s done i n foreign
countries.
T h e y stressed pertioularly t h e point t h a t
they regarded i t e s preferable t o give a
three months
credit with a renewel for a further period, i f i t were
found that a renewal were required e t the expiration o f
the original period, t h a n t o grant t h e eredit originally
fcr a period o f six months, a n d that i f the rule sgainst
eccepting « bill after t h e goods h a d arrived were
rescinded, t h e e n d sought would b e practically acgomplished without ©
bills.
specific ruling @ n fevor o f renewal
I t w a s p o i n t e d o u t t h a t f r o m t h e bankers!
point
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of view i t was prefersble t o b e able t o review
credits
a t more frequent intervals t h a n i s t h e c a s e
when credits u p t o s i x months e r e being insisted
upon b y the borrower a s a precaution against being
unable
t o redraw a t the e n d o f a
shorter p e r i o d
in
case o f need even f o r a small part o f the credit.
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Federal Reserve Bank of St. Louis
{At this point Governor Young came ‘nto the
Conference R o o m . )
The Chairman. Governor Young, w e a r e struggling
with some regulations, a n d I will tell yeu what w e have
done t o date a n d then w e struck a snag a n d thought w e
had better have y o u in.
A resolution passed I think almost i f not quite
unanimously suggesting t o the Board that n o regulation
be i s s u e d g u s t n o w o n n o n - c a s h c o l l e c t i o n items.
have g c t t e n a l o n g a f c e r a
fashion f o r t e n years,
W e
and
we thought w e might struggle along a while longer, a s
there was some question abcut t h e position that i t
might leave t h e banks i n i f such a regulatien were issued.
T h a t i s the first resolution passed b y the Board.
There were three other resolutions passed, t h e
first referring t h e matter t o the Committee o n Non-Cash
Collections; a n d , s e c o n d ,
t h e enumeration
o f items
which i t was undesirable t o handle; t h e n a resolution
was passed accepting t h é sense o f the Conserence t h a t
it should b e cur policy gradually t o discontinue t h e
handling o f these stock a n d bond security drafts.
T h e
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volume i s increasing v e r y rapidly, a n d there i s a great
responsibility a b o u t i t , a n d w e h a v e j u s t g o t t o s t o p
it i n New York, t h e r e i s n e question abetit; a n d finally
we passed a
resolution that i t was t h e sense o f the
meeting that n o reserve b a n k would b e expected t o collect items o n points where there were n o satisfactory
collection facilities, a r d i t seems t h a t that general
expression giving the committee stx months t o work o n
it and report t o the next Conference,
i n the meantime
without a n y regulation and then graduaily cut down
and eliminate the security drafts.
W e are not asking
you t o express a n y v i e w a b o u t i t , b u t w e a r e j u s t r e -
porting informally o n what w e d i d o n that o n e subject.
Now, w e took u p the question o f regulation o n re-
serves, and we have just unanimously agreed that the
provision f o r semi«weekly reserve adjustments o f the
member b a n k s
branches,
i n cities w h e r e t h e r e a r e r e s e r v e b a n k s a n d
i s satisfactory t o everybody.
W e felt that
there w e r e t h r e e o t h e r i t e m s f o r conside:ation,
I find i s not i n this regulation. I
b u t one
did not realize it.
The one that i s i n Regulation F is the one requiring security f o r deposit f o r trust funds.
T h e other t w o items
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Federal Reserve Bank of St. Louis
are
here i n this regulation are, first, t h e question o f
the definition o f time and savings deposits, e n d w e
wanted t o a s k y o u t o m a k e a n e x p l a n a t i o n
o f that, a n d
the third item i n this regulation o n reserves i s t h e
manner b y which there i s provided a
mandatory pro-
gressive penalty for deficient: reserves, with the exception that t h e Federal Reserve Board might waive t h e
penalty o n application f o r cause, a n d s o on.
We b e l i e v e t h a t t h a t i s a
mistake,
a n d that i t
would b e better t o have t h e penalty optional,
a s i t is
now, a n d not mandatory, j u s t t o avoid possibly getting
into a
jam o r a criticism a t this time, a n d that was
reported u n a n i m o u s l y a s o u r r e c o m m e n d a t i o n
t o t h e Board.
We pave come t o the subject o f the definition o f
time and savings depesits, and accepting i n principle
that the deposits o f banks could not b e construed a s
savings deposits, Governor McDougal suggested that that
should be extended td include corporations, and at that
peint I
needed a
fel that w e were getting i n t o deep water a n d
little b i t o f dtséudaion w i t h y o u a s t o how this
thing h a d developed.
Governor Young. I
cannot discuss t h a t particular
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Federal Reserve Bank of St. Louis
279
part c f the regulations.
A s I recall, t h e regula-
tion was sent out limiting every savings account t o
$5,000, and innumerable suggestions, a n d limiting corperations cther t h a n religious o r charitable organizations. a n d all such ideas a s that.
T h e comments c a m e
in from all t h e Federal reserve banks o n that, a n d i t
was t h e conclusion o f Mr. Ylyatt a n d the Board that w e
might better eliminate a l l those provisions rather t h a n
to attempt t o discriminate, a n d what they have really
done i s t> go back t o the old regulation, that i s Just
about what * t amounts to, a n d they attempted t o cover
the California situation, a n d when t h e y got a l l through
it they found o u t that t h e y could n o t cover i t very
well,
a r d found o u t that there i s only o n e w a y y o u c a n
handle this.
T h e description o f savings accounts a n d
time deposits that is in that regulation now is as good
as anybody can describe it, i n our opinion.
Governor McDougal. M r . Wyatt's idea, Governor Young,
{3 that these cases c a n b e dealt w i t h b y a ruling, a n d
it 1 s better t o h e handled that w a y than i n a regulation.
In the tentative draft that w a s approved b y the Board,
there was one very good provision, I think, contained
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Federal Reserve Bank of St. Louis
280
in that,
b y which deposits m a d e b y one bank i n another
could n o t b e under a n y conditions considered a s savings
acceunts, a n d I think that i s a very wise precautionary
measure
t o adopt,
a n d beyond t h a t I
had m a d e t h e s u g -
gestion here that deposits o f corporations cught t o b e
and could properly b e included i n this same category
as not being savings accounts from the standpoint o f
the question involved here, t h a t o f determining t h e reserve requirements, a n d I think i t would b e very much
more e f f e c t i v e a n d s a t i s f a c t o r y i f t h a t c o u l d b e c o v ered b y a
regulation, b e c a u s e t h e t e n d e n c y w h i c h w e s e e
in one o f our banks apparently 4 8 t o b e found i n other
districts too, whereby banks a r e encouraging t h e deposits
by banks a n d b y corporations a n d issuing i n this case a
special s a v i n g s b a n k check, u n d e r w h i c h t h e y m a y o r
they m a y not have t h e right t o take thirty daystnotice
or require thirty days! notice, but: with: vespect t o which
they p a y them without presentation o f the nass-book
excepting b y the bank itself, a n d making them i n fact
subject t o check, a n d they are checking accounts.
I would like t o see that safegaarded.
B y a ruling
it i s going t o b e very difficult t o handle, because y o u
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Federal Reserve Bank of St. Louis
281
will have t o take i t u p with each bank a n d y o u will
have t o ‘send y o w examining officers o r detectives i n t o
the Dunk t o see whether i t i s being done o r not; whereas
if it is i n the regulations i t witl b e right t a r e
Governor Young.
S o far a s the deposits o f one bank
with another i s concerned,
m y reaction agrees w i t h yours;
fin s o f a r a s t h e c o r p o r a t i o n s a r e concerned,
t o cotrect
the abuse o f a few corporations, y o u would penalize m a n y
institutions
t h a t h a v e bona-fide transactions.
Northern
Michigan t s just filled with corporations savings accounts that have been there for ten, fifteen o r twenty
years.
Governor Seay. N o t commercial corporations?
Governor Youwhp. Yes.
Governor McDougal. Y o u would n o t penalize t h e m a t
all, b e c a u s e y o u c o u l d t a k e t h a t c l a s s o f deposits a n d
convert t h e m into time deposits instead o f savings.
they a r e t i m e deposits, t h a t c o u l d b e s o adjusted, I
If
am
sure.
Governor Yucung.
since I
I t is almost three o r four months
went over this whole matter, a n d i t i s not fresh
in m y mind. I
read t h e r e g u l a t i o n t h i s m o r n i n g a n d r e a d
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Me. Wyatt's Peport: I
think i t might b e t o the advant-
age o f the Conference t o Have Mr. Wyatt c o m e in--I think
I coud get him t o come in--because those things are all
fresh i n his mind, a n d h e has been wrestling w i t h then,
and h e c a n give y o u a better answer t o that t h a n I can.
Gevernor McDougal. I
think his answer i s pretty
well covered i n the memorandum which h e prepared.
idea i s that,
His
b y dealing with these questions b y a
ruling rather t h a n b y a regulation, probably t h e Board
is keeping o f f dangerous ground, f o r t h e reason that t h e
danger o f l a w s u i t s a n d t h i n g s
o f t h a t sort,
h e says,
are n o t s o great when y o u are dealing w i t h a ruling a s i t
would b e i f there should b e a blanket regulation.
H e
argues a t least along those lines.
Governor Young. I
a m sorry that a t the moment I
not give y o u a n y more information t h a n I have now.
can-
I t
is out o f m y mind a n d i t has been three o r four months
since I
have considered t h e problem.
Governor Geery. G o v e r n o r M e Dougal | o n page 2 under
section I I (d), 3 appears the following;
"Deposits which are permitted t o be withdrawn
by check o r otherwise, without the .ctual presen-
283
tation o f thé check book, certificate o r other
similar
form o f receipt whenever a
withdrawal i s made, shall n o t
be considered 'savings accounts! within t h e
meaning o f
this regulation,”
D o e s n ' t t h a t cover your point?
Governor McDougall. W e l l , there i s a question about
that, G o v e r n o r , b e c a u s e
i t i s contended
O n One side that
the pass book i s presented.
The Chairman. T h e case where t h e original pass
book
is lodged i n the bank a n d remains there, a n d a duplicate
is sént ous.
Governor Geery. I t says right here, "The retention
of the pass book, certificate o r other similar f o r m o f
re-
ceipt, o r a duplicate o f same, b y the bank and the presentatior o f same b y the bank t o itself i s not a n Tactual
presentation’ within t h e meaning o f this regulation."
Governor Young. M r . Wyatt i n his memorandum cuts
thet o u t .
Governor Strong, i f I uaderstand this correctly, the
new regiiation i s practically t h e same a s the o l d regulation,
with t h e e x c e p t i o n t h a t t h e r e i s a
mandatery provision f o r
penalty?
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Federal Reserve Bank of St. Louis
The Chairman.
A n d t h e s e m i - w e e k l y plcvosition,
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Federal Reserve Bank of St. Louis
284
Governor Young. Yes. T h o s e a r e t h e things t h a t a r e
really u p t o the Board. I
do not think i t i s advisable
to actempt t o change t h e regulation. I
on t h e p e n a l t y o n reserves. I
agree with y o u
think t h a t i s e x t r e m e l y
dangerous, f r o m long experience i n the Northwest.
Y o u
get a bank that i s slipping and you think that you can
help t h e institution out, a n d frequently y o u refuse t o
lend money because y o u want t o keep t h e m short i n reserve.
That i s one o f the strongest weapons y o u have with a
weak bank.
goes down, &
T h e bank cennot weather t h e storm a n d finally
receiver comes in, a n d the steckholders,
through a n investigation a n d what-not, f i n d that under
those unusual conditions t h e Federal Reserve Board penalizes that institution 1 0 per cent.
I t i s a n argument
that you cannot justify, a n d i t will cause a lot o f
trouble.
I f a good bank slips i n its reserve y o u are
always i n a position t o deal w i t h that institution without a progressive penalty. I
had rather s e e i t left out,
and I a n g l a d t e krow that that i s a majority view.
Governor KeLDougal.
been--ontional?
have n o w .
J t i s t o b e left just a s i t has
S o m e banks have epplied i t and some
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Federal Reserve Bank of St. Louis
285
The Chairman. That answers the two matters you
submitted t o me, except t h e question o f giving security
for trust deposits.
Governor Young.
A l l . the banks a r e i n agreement
about that, with the exception o f Cleveland and Philadelphia, a n d I do not think that their Governors wanted t a
bother with that. M a y b e w e can straighten i t out.
The Chairman. Then w e will pass that.
T h a t leaves
only the regulation about liberalizing the rules o n ac~
coptances.You have j u s t read t h e report, a n d w e are just
about ready t o vote o n it. A r e y o u ready t o take some
action o n the report o f the committee?
T h e report has
been distributed.
Governor McDougal. I
Governor Fancher. I
move t h e a d o p t i o n o f t h e report.
second it.
(The motion was put and carried.)
The Chairman. Governor Young, w e passed a resolution
indicating t o the Board that w e thought t h a t a
meeting
of t h e c o u n s e l o f t h e f e s e r v e b a n k s w o u l d b e a
very desir-
able thing, a n d there i s just one topic left o n the
Governors!
program o f a
legal c h a r a c t e r w h i c h w e w o u l d
ordinarily leave t o that meeting i f i t 1 s t o b e held.
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286
Iam taking i t for granted that i t will have serious
consideration b y the Board, a n d I
a m going t o a s k this
Board t o refer Topic VI-C t o the meeting o f the counsel.
Is there a n y objection t o that?
Governor S e a y . T h a t i s t h e c o u r s e I
myself,
s o I
recommended
make t h e m o t i o n t h a t i t b e referred.
(Motion p u t a n d carried.)
The Chairman.
A t the meeting tomorrow morning,
Governor Young, w h a t would y o u like t o have u s deal with?
Governor Young.
T h e o p e n market topic here has al-~
ready b e e n d i s c u s s e d b e f o r e t h e Board.
T h e r e i s n o use
going a n y further about that.
The Ghairman.
I t has b e e n discussed w i t h this mect-
ing, a n d w e s u c g e s t e d t h a t i t w o u l d t a k e t h e u s u a l c o u r s e - -
the report was received ani discussed i n much detail,
and that i t now g o t o each bank for action b y the directors. I
mean, t h a t cannot b e finally approved here, b e -
cause a l l o f these proposajs a r e subject t o the action
of t h e b o a r d o f directors
o f e a c h bank.
Governor Young. " R e l a t i o n s w i t h foreign banks" h a s
already h e e n r e p o r t e d a n d d i s c u s s e d ?
The Chairman.
Yes.
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Federal Reserve Bank of St. Louis
£87
Governor Y o u n g .
The Chairman.
uation.
W h a t w e r e your conclusions
o n ID?
W h y , i t i s a rather interesting sit-
W h e n a member b a n k submits a n application f o r
discount,
i t will submit a n item with the letter P indi-
cating that i t i s purchasing t h e paper, a n d S indicates
and that a statement i s o n file.
that i t has been discounted/
I f that i s a corporetion,
say for instance a milling company out there, with subsidiaries, t h e question arises a t once i f that i s a complete s t a t e m e n t w h e n t h e p a r e n t c o m p a n y f i l e s i t s s t a t e -
ment.
W h a t actually happens i s that w e decide,whether
that i s logicel o r not, b y looking u p our files t o see
whether there i s a statement o n file, a n d t o see whether
it conforms
t o t h e regulation,
t h e statement having b e e n
“furnished t o us b y a member bank, a n d we will assume
that t h e m e m b e r b a n k w h i c k b u y s t h a t p a p e r
i n the market
has got ‘ @ statement o n file which conforms t o the regulations.
I t may have the consolidated statement o r
it m a y h a v e t h e c o n s o l i d a t e d s t a t e m e n t a n d t h e s t a t e m e n t
of a l l o f t h e subsidiaries,
b u t when this paper comes in,
when i t i s offered t o us, w e are not going back a n d say,
"What iebha o f a
statement h a v e y o u ?
the regulations?"
D o e s i t comply w i t h
W e have got ore which complies with
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Federal Reserve Bank of St. Louis
268
the regulations, a n d w e got i t from a member bank, a n d
it seems t o m e that that meets t h e situation.
Governor McDougal. Governor Strong,
Then then. thet.
W
w e went fur-
e went t o the point w h e r e i t was
moved that complete statements b e filed with a l l t h e
depositary b a n k s w h i c h p u r c h a s e d c r e d i t loans.
Governor Geery. H e r e i s a copy o f the resolution
as passed (handing paper t o the Chairman).
The Chairman.
I f there i s nothing further, I
declare t h a t t h e C o n f e r e n c e
(Whereupon,
adjourned.)
o f Governors
will
i s adjourned,
a t 5 . 2 0 p.m., t h e C o n f e r e n c e
o f Governors
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@FedFRASER