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Federal Reserve Bank of St. Louis
VOLUME 1
PROCEEDINGS
CONFERENCE
O F GOVERNORS
OF T H E
FEDERAL R E S E R V E B A N K S
TREASURY B U I L D I N G
WASHINGTON,
D.C.
N O V E M B E R 3 , 4, 5, 6, 1925
W A L T E R S . COX
SHORTHAND
REPORTER
COLUMBIAN BUILDING
WASHINGTON,
D . Cc.
PROGEZDINGS
OF A
GONFERENCE
O F GOVERNORS
of t h e
FEDERAL RESERVE BANKS.
Treasury Building,
Washington,
D . O.,;
Monday, N o v e m b e r 3 , 1925.
A Sonference o f Governors o f the Federal Reserve Banks
convened
i n t h e Federal R e s e r v e B o a r d Conference Room, T r e a s u r y
Building, Washington, D . 3., o n Monday, November 5, 1925, a t
LO CG chook a v me
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Federal Reserve Bank of St. Louis
Present:
Benjamin Strong, Governor, Federal Reserve B a n k
New York, N e w York, N . ¥. (Chairman).
G. Harding, Governor, Federal Reserve Bank
Boston, Boston, Mass.
Geo. W . Norris, Governor, Federal Reserve B a n k
Philadelphia, Philadelphia, P a .
Fancher, Governor, Federal Reservo B a n k
Gél o v o l a n d ,
Cleveland, Fi
Ohio,
George J . Seay, Governor, Federal Reserve B a n k
of Richmond, Richmond, V a .
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Federal Reserve Bank of St. Louis
M. B . Wellborn, Governor, Federal Reserve B a n k
ef Atlanta, Atlanta, G a .
J. B. MeDnugal, Governor, Federal Reserve B a n k
of Ghicago, Chicago, Ill.
D. G . Biges, Governor, Federal Reserve Baak«
of St. Louis, S t . Louis, M o .
Young, Governor, Federal Reserve B a n k
of Minneapolis, Minneapolis, Minn.
W. J . Bailey, Governor, Federal Reserve B a n k
of Kansas City, Kansas City, M o .
Lynn P. Talley, Governor, Federal Reserve B a n k
of Dallas, Dallas, Texas.
J. U . Galkins, G o v e r n o r , F e d e r a l R e s e r v e B a n k
of S a n Francisco, S a n Francisco, Cal.
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Federal Reserve Bank of St. Louis
The Chairman.
T
order.
T h e meeting w i l l kindly come t o
e f i r s t business p o s s i b l y i s t o consider h o w
this meoting may be conducted advantageously with roference t o the Joint Conference.
W i t h regard t o having a
meeting off the Open Market Committee, I
would like, i f
possible, before a n y o f the topics a r e discussed o n the
program,
t o get t h e open Market Committee togetner t o con-
sider t h e report which has been distributed,
the G o n f e r e n c e c o n s i d e r s
s o that when
i t i t will h a v e b e e n acted u p o n
by t h e O p e n M a r k e t Committee.
A
s usual
i t was prepared
before i t was possible t o have a meeting o f the Committee.
Would i t s u i t y o u r c o n v e n i e n c e
t o p r o c e e d witna t h e p r o g r a m
this morning, a n d immediately after lunch have a meeting
of the Open Market Committee?
W i t h o u t objection w e will
pursue that course.
That will defer consideration o f Topic 1 - A and Topic
1=B, which brings u s t o 1-C, discussion o f credit functions.
Ge G r e d i t functions o f the Federal Reserve banks.
The Governors! discussion o f this topic t o be
based o n the report o f the sub-committee o f
Deputy Governors designated t o make a study
of the bank examination a n d credit functions
at the FederalReserve Banks.
4,
The report o f that sub-committes h a s been distributed
and each bank h a s been asked t o gubmit its views t o the
Federal Reserve Board.
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Federal Reserve Bank of St. Louis
In o r d e r
t o start t h e discussion I
want t o s a y t h a t
the attitude o f the officers o f the Federal Reserve B a n k
of New York, w h o are familiar w i t h t h e report, i s gcnorally
that t h e Credit Dopartment o f the Federal Reserve B a n k i s
substantially s u c h a s i s required b y large banks i n a City
Like Net: Y o r k t o e n a b l e u s t o p a s s
o n the credits t h a t come
to t h e bank a n d t o onable u s t o d o the work which i s required
for t h e o t h e r R e s e r v e b a n k s f r o m w h o m w e b u y paper.
result o f t h e e x a m i n a t i o n
o f o u r department
b y this Com-
mittee h a s n o t been s u c h a s t o convince u s that a n y mater-
ial change is desirable a t tho timee T h e r e is one small
modification o f o u r p r o c e d u r e s u g g e s t e d
as a
result o f
he Gommittee's report, a n d that i s not worth discussing
here.
We d i s s e n t
from some
o f t h e recommendations
o f the
Gommittee, a m o n g others t h e recommendation o f abandoning
furnishing o f forms o f credit statements f o r t h o member
banks t o usa w i t h their customers.
W e believe t h a t t h e
uniformity o f forms which i s n o w i n use i n our district,
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Federal Reserve Bank of St. Louis
and w h i c h a r e v e r y w i d e l y u s e d b y t h e m e m b e r banks,
os-
pecially t h e country banks, a n d which cost u s only about
i
$300 a year t o furnish, rosults i n the preparation o f statements t h a t really disclose t h e condition o f borrowers better
than i f they prepared their o w n statement o n their o w n form.
When i t comes t o analyzing these statoments the uniformity
with which t h e figures a r e presented saves u s a great deal
of money, m o r e t h a n i t costs u s t o furnish t h e forms. I
think those are all the points brought out b y MrRouunds.
Governor Young.
I t is m y understanding o f the re-
port that t h e Committee arrived a t t h e conclusion t h a t the
conditions a r e s o different i n the different districts
that something t h a t w a s applicable i n one district w a s n o t
in another;
t h a t certain economies could b e affected
through t h e operations o f these departments, a n d I therefore move that t h e report b e approved w i t h t n e exception
of furnishing statements.
W o feel that w e should continue
to furnish t h e statements gratuitously. I
offer that a s a
motion.
The Chairman.
T h a t t h e report b e approved w i t h t h o
exception o f the recommendation w i t h regard t o t h e furnishing o f uniform forms.
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Federal Reserve Bank of St. Louis
Governor .cCalkins.
I
t seems t o m e that this i g &
topic which might well b e Clbebbs sitet a t the Joint Coni f there i s t o b e one, a s t h e Federal Reserve
ference,
am i n
Agents s e e m t o b e very much interested i n it. I
full s y m p a t h y w i t h t h e m o t i o n t h a t G o v e r n o r Y o u n g h a s o f f e r &
od. I
think there i s something t o b e said f o r t h e dis-
continuance o f the forms, b u t i t i s a small matter, a n d I
am not entirely convinced t h a t discontinuing t h e m will
not cost more t h a n continuing t h e use o f them.
really,
T h e r e is
i n the answers o f the Governors o f the various
banks w h o reviewed t h e r e p o r t o f this Committee,
serious disagreements
geems
T n e r e is, hovever, a
t o m e g h o u l d b e c l e a r e d u p somewhat,
no
matter which
and a
matter
in regard t o which the Federal Reserve Banks and t h e
Wederal Reserve Board should have a n understanding,
a policy.
T h a t question i s contained
py the St. Louis Bank, I
believe.
i f not
i n the comment made
I t seems t o m e that i n
any discussion o f this subject o f examinations
i t i s funda-
mental t o decide j u s t exactly t h e responsibility o f the
Federal R e s e r v e S y s t e m w i t h r e g a r d t o t h e s u p e r v i s i o n o f
member banks.
I t i s a question o f whether i t i s t h e
duty o f t h e F e d e r a l R e s e r v e B a n k s t o e x a m i n e m e m b e r b a n k s
¥
for c r e c i t p u r p o s e s o n l y ,
o r f o r t h e purpose o f assuring t h o
public a s t o their solvency a n c proper management,
words t o e s t a b l i s h m o r e e f f e c t i v e s u p e r v i s i o n
the U n i t e d States.
I
i n other
o f banking
in
s i t t h e d u t y o f t h e Federal R e s e r v e
Banks t o oxerciso a more effective supervision o f banking
in the United States, o r is it the duty of the Federal
Reserve B a n k s
t o conduct examinations f o r t h o purpose o f
thoir credit department which means,
their o w protection? I
i n other words, f o r
think that i s a very vital ques-
tion, a n d o n e w h i c h s h o u l d b e i n s o m e w a y determined.
The Chairman. I
serve B o a r d h a s s u b m i t t e d
understand that t h e Federal R e t o t h c Federal Roserve Agents
as one O f the topics f o r their program, a
proposal t h a t
the bank cxamination dcpartmont o f the Resorve Banks should
extend t h e work o f examining t h e banks within t h e i r districts
beyond what i s now being done, conduct more examinations
and a s s u m e g r e a t e r r e s p o n s i b i l i t y a n d s u p e r v i s i o n o v e r t h e
members.
T h a t work i n almost a l l t h e Reserve Banks: i s
done under t n e direction
stand.
D
t h e Reserve Agents, I
o y o u want t o add that a s a
undor-
subject f o r recommenda-
tion a t this meeting?
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Federal Reserve Bank of St. Louis
Governor Calkins.
I t seems t o m e i t i s a subject
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Federal Reserve Bank of St. Louis
8
that should b e discussed a t this meeting preliminary t o a
discussion a t the Joint Conference.
have a suggestion f r o m t h e Execu-
The Chairman. I
tive Gommittee o f the Reserve Agents Conference recommending the following topics f o r t h e Joint program:
Discussion o f t h e r e p o r t o f t h e C o m m i t t e e
o n Reserves.
Report o f B a n k a n d P u b l i c R e l a t i o n s Committee.
Discount policy.
Open M a r k e t Policy.
Policy o f paying o u t gold.
Also t h e suggestion t h a t t h e report o f the Advisory
Committee,
o f which Governor S e a y i s the Chairman, a l s o b e
made a tupic f o r the Joint Conference.
I f w e wish further
additions t o the program o f the Joint Conference w e should
include them now i n a recommendation t o Governor Crissinger.
My recollection is, b u t I
do not find a n y confirmation o f
it, that t h e Board requested a discussion o f this report
by t h e G o v e r n o r s C o n f e r e n c e .
tha t
Governor Norris.
T h e statement
i s thetBoard hopes
the Governors a t their forthcoming conference will b e pre-
pared t o submit a statement t o the Board outlining the
views o f the Conference w i t h reference t o t h e B o p e e t f
p the
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Federal Reserve Bank of St. Louis
Committee
o n C r e d i t Functions.
The Chaixman,
O n e i s credit department w o r k and t h o
other i g b a n k o x a m i n a t i o n s .
Govermmor Calkins.
T r e y a r e b o t h contained
i n the
same report which w e are n o w considering.
The Chairman.
T h e status
Governor Y o u n g h a g m a d e a
o f t h e discussion
motion expressing approval
i s that
o f the
report w i t h t h e exception o f that part with regard t o furnishing forms which i s now under discussion.
W h a t i s your
recommendation, G o v e r n o r C a l k i n s ?
Governor Calkins. I
think m y recommondation i s a
query a s t o w h e t h e r t h i s C o n f e r e n c e f i n d s i t s e l f
i n pogition
to discuss t h e report before t h e mecting o f t h e Joint Conference, where I
assume i t will b e discussed.
M y recol-
lection i s the, Board suggested i t should b e discussed b y
the Governors.
Governor Harding.
B e f o r e t h e Committee orders a
policy o f m o r e o x t o n d e d o x a m i n a t i o n s t h a n h a v e b e e n c o n d u c t e d
heretofore, one thing should bo considered by the banks wishing t o put themselves i n the attitude o f assuming responsibility f o r the authority.
T h e Legislative history o f
the Federal Reserve A c t shows t h a t there a r e 4 good many
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Federal Reserve Bank of St. Louis
LO
changes made i n the s tructuro o f t h e Act while i t was o n
its passage. I
do not think there i s anything i n the Act
that c a r r i o s o u d v e r y f u l l y t h a t c l a u g e
i n the short title
to t h o Act t o which Govornor Calkins rofcrs.
A s y o u know,
ho N a t i o n a l b a n k s a r e u n d e r t h e s u p e r v i s i o n d i r e c t l y o f
he Gomptroller o f the Currency, w h o i s charged with t h e
direct responsibility.
H i s authority,
s o f a r a s stats
n Section 9 , w h i c h i s
banks a r e concerned, igs c o v e r e d i
yory oxplicit i n saying that t h o y shall not b e subject t o
the d i r e c t i o n o f t h e C o m p t r o l l e r
o f t h e Currency,
b u t shall
retain their charter rights a n d b e subject t o examination
by t h o state guporintendentsin t h e various statese
The
examinations which have been conducted f o r credit purposes
protect t h e Federal Reserve Bank, b u t d o not carry with
them a direct responsibility t o the public.
Federal R e s e r v e B a n k s ,
N o w , i f the
i n viow o f t h e authority vested
in the Comptroller o f the Curroncy i n the matter o f intimate supervision o f t h e banks, s h o u l d undertake t o assume
that r e s p o n s i b i l i t y w i t h o u t a u t h o r i t y , I
awkward s i t u a t i o n
think a
very
i s l i k e l y t o arise.
Governor Calkins. Governor Harding's remarks are
of the character which I intended t o bring out. I
am i n
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Federal Reserve Bank of St. Louis
id
agreement w i t h nim. H o w e v e r , I
think t n e one comment i n
the comment submitted b y the Foderal Reserve Agents, which
calls f o r discussion,
i g the comment i n regard t o the ques-
tion raised b y Mr. Martin.
T h o r e a r o various indications
in the Act, Govermor Harding, t h a t i t was t h e intention t o
have t h e F e d o r a l R e s e r v e B a n k s e x e r c i s e s o m e supervision.
The short title i s one, a n d there a r e other references,
The Chairman.
D o e s : n o t that possibly refer speci-
fically t o t h e c o n t r o l w h i c h t h e F e d e r a l R o s e r v e s o a r d e x e r -
cises over bank examinations, t h a t reforence i n the short
title?
Governor Calkins.
M i z owm opinion i s that the
Federal Resorve Banks should condict a l l t h e examinations
which they consider necessary f o r credit purposes a n d f o r
their o w n protection, b u t that they should not assumo r e sponsibility f o r suporvision o r supervisory examination.
Governor Harding.
T h e only control t h e Federal
Reserve B o a r d h a s o v e r N a t i o n a l b a n k c x a m i n e r s
approve their salaries.
is to
G o v e r n o r Strong will n o doubt
remember s o m e o f t h e d i s c u s s i o n s h e r e i n February, 1 9 2 1 ,
when some charges w e r e mado that t h e Federal Reserve B a n k
of New York h a d been v e r y negligent i n keeping i t s eyes
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Federal Reserve Bank of St. Louis
as t o t h o c o n d i t i o n
Citye
W
o f certain banks
i n New
e took t h e position t h a t t h e member b a n k men-
tioned w a s u n d e r t h e s u p e r v i s i o n o f t h e C o m p t r o l l e r
the Currency,
a n d w e relied
o n t h e reports
of
o f the
pmaniners, a n c that w e hac nothing f r o m t h e examiners t o
indicate a n y d a n g e r o u s situation.
The Chairman. F u r t h e r m o r e t h a t t h e Comptroller
had violated t h e l a w i n not making a n examination o f the
bank, a n d a lot o f other things.
M y position i s absoiute-
ly unchanged o n that, Governor Harding.
W e feel i n Now
York that w h e n w e undertake t h o povers o f supervision,
distinguished f r o m credit conaminations,
as
w o cannot attompt
to exercise those powers b y examining a few banks, b u t w e
will have t o oxamine a l l o f them.
Governor Harding.
The Chairmane
Y O Se
I f w e undertake t o oxamine a l l o f
them w e a t o n c e v o l u n t a r i l y a s s u m e t h e a d d i t h o n a l r e -
Spongibility.
Governor Harding,
Y o u assume t h e responsibility
but have not got the final authority.
The Chairman.
O u r position
i n m y mind i s that
if the responsibility rests upon t h e Comptroller a n d upon
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Federal Reserve Bank of St. Louis
Lee
the State Departments,
w e should n o t relieve t h e m o n e iota
of that responsibility, b u t should cooperate w i t h t h e m t o
the Limit.
Governor Calkins. I
agree t o that.
Governor Young. I
will a d d this t o m y resolution,
that t h e examinations b e confined t o credit investigations
only.
Governor Calkins.
T h e r e i s a different situation
in somo districts from that existing i n New York.
suppose
[ I
i n ths Westerm States generally t h a t t h e state
examination i s not satisfactory» I
agroe t h a t t h e re-
sponsibility i s with t h e Comptroller a n d also w i t h t h e
state superintendent, b u t i n some states i t i s impossible
to a c c e p t t h e examination,
Governor Harding.
I n the Boston District, R h o d e
Island i s not satisfactory.
T h e Federal Reserve Agent
makes oxamination f o r t h e Rhode Island Membor Banks w i t h
their h o a r t y c o o p e r a t i o n a n d t h e y p a y t h e e x p e n s e s f hav-
ing the examination concucted.
F o r instance o n e bank paid
us $2500 for an examination and was anxious t o have that
examination m a d e .
Governor McDougal.
I
t appears t o m e w e are drifting
LS
away from t h e topic.
W e are aSked t o consider t h e Com-
mittee'g report, t h a t part o f its relating t o credit functions.
The Chairman.
T h e topic w a s suggested b y t h e
Agents f o r t h e J o i n t Conferenco.
I
t i s o n l y incidentally
On our program a S appearing i n the topic a s a part o f the
eredit functions o f the Reserve bank, a n d not a s a recommendation f o r e x t e n d i n g supervision.
W h y would i t not b e well
to consider Governor'Young's motion i n t w o parts.
W i t h re-
gard t o t h e other matter Governor Calkins asked that i t b e
taken u p i n order that w e might have a discussion o f i t and
have o u r position settled before t h e Joint Conference i n
case i t is discussed there. ,
Is that satisfactory t o you,
Governor Young?
Governor Young. Y e s . I
Governor N o r r i s e
will make the first motion.
P o W w i d t S e c o n d “it.
(The motion having been d u l y seconded w a s unanimously
carried.)
The Chairman.
thait t h e € x a m i n a t i o n
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Federal Reserve Bank of St. Louis
N o w t n e second m o t i o n i s t o t h e effect
o f m e m b e r b a n k s c o n d u c t e d b y Federal
Reserve B a n k s s h a l l b e c o n f i n e d
statute a s c r e d i t e x a m i n a t i o n e
t o those described
i n tne
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Federal Reserve Bank of St. Louis
14
Governor Norris.
intended
I f that motion i s adopted i s i t
t o c u t o u t t h o k i n d o f examination that Governor
Ha cding has j u s t spoken o f which i s made i n Rhode Island?
Govermor Harding.
N O s
Govornor Norris.
I t wuld d o so.
Too Chairman.
Y o u might s a y oxcept i n cases there
thotstate b a n k e x a m i n a t i o n i s n o t satisfactory.
will mako a motion that the o z
Governor Young. I
amination b e confined t o credit investigation excopt i n
eases w h o r e s t a t o e x a m i n a t i o n s a r e unsatisfactory.
would like t o sugsest a modi-
Governor MeDougal. I
fication o f that motion:
T h a t i t b e confined t o credit
investigation except where t h e pending circumstances s e e m
to m a k e i t n o v e s s a r y
o r advisable t h a t a c o m p l e t e a n d
thorough investigation b e made.
Governor Harding.
T h a t covers certain National
banks a s well a s state banks?
Governor McDougal.
Governor Young. I
Y o s e
will submit t h e motion i n the
form suggestod b y Governor McDougal, a n d will withdraw
the other motion.
Governor Norris. I
will s e c o n d t h a t .
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Federal Reserve Bank of St. Louis
L5
m o t i o n h a v i n g b e e n d u l y s e c o n d o d w a s carried.,
‘The
\©
Governor W e l l b o r .
D i d y o u pass t h e matter o f the
discussion o f d i s c o u n t r a t e s ?
The Chairman.
‘ J e passed t h a t untill a f t e r t h e m e o t -
ing o f t h e o p e n Liarket Committee, G o v e r n o r Vellborn.
T h e
next t o p i c i s 1 D .
D, T i e recommendations contained i n the report o f
the C o m m i t t e s
o n Member B a n k Reserves.
I
Are y o u ready t o discuss this topic?
Y
suggested b y t h e Federal Reserve £
o
t was
u all have
copies o f the report o f the Committee. G o v e r n o r Seay,
this i s a
matter y o u have b e e n interested i n .
Governor S e a y e
M r . Chairman,
t n e Committes, s o m e -
times called t h e Committee o n Legislative Proposals a n d
gometimes t h e A d v i s o r y Committee,
w a s askec t o prepare a
o the Conference o f Governors
report f o r c o n s i d e r a t i o n f
and t h e C o n f e r e n c e
at a
o f Agents.
T r e report w a s considered
meeting o f t h e spscial committee
o n yesterday a n d c e r «
tain conelusions w e r e arrivec a t with reference t o the major
proposals
i n t h e report.
of t h o s e c o n c l u -
sionse
T i e major proposal o f the Agents’ Committee i s t o
pormit deduction f r o m demand deposits o f exchanges f o r
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Federal Reserve Bank of St. Louis
clearing houses, checks o n other banks i n the same place,
and checks i n
o s s o f collection, whether w i t h Foderal
Resorve Banks o r correspondent banks, according t o tae
Federal Resorve Schecule o f time required f o r the colLection o f checks.
With respect t o that proposal thore w a s a ciffe
o f t h e Committee.
ence o f o p i n i o n a m o n g t h e m e m b e r s
Committee consistec o f six mon.
T h e
T h r e o momaers o f the
Gommittce wero opposed t o pormitting the deduction o f
checks i n process o f collection.
T h r e e members o f the
Committee favored t h e provigion.
T i o r e f o r e there w a s a n
even G i v i d i o n
i n t h e C o m m i t t o e w i t h r e s p e c t t o t h a t pro-~
posal,
With regard t o the second proposal, t o retain
provision o f t h e l a w w i t h r e g a r d t o balancos d u e t o a n d
due from, t h a t provision w a s n o t discussed i n detail, b u t
there w a s general concurrence i n that provisions waich
prevails a t the prosent time.
The third proposal o f the Agents’ Committee i s t o
provide t h a t t h e r e s e r v e r e q u i r e d
t o b e h e l d against a n y
balances due from banks b e 10 per cent.
hag n o t completed i t s session.
T h e Committee
I t hac o n e session
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Federal Reserve Bank of St. Louis
hf
yesterday morning.
T h e Committee h a d before i t a number
of proposals w i t h references t o t h e first McFadden B i l t
They w e r e s o numerous t h a t i t w a s i m p o s s i b l e
t o conclude
the deliberations o f the Committee within o n e session.
It was determined t h a t t h e Committes would h a v e another
meeting which,
i f i t could not take place i n the lattor
part o f the day, might t a k e place a t night. I
might s a y
in that connection t h a t i f i t i s possible f o r this b o d y
to conclude i t s deliberations t o d a y s a y b y 5 o'clock that
would leave time f o r the Committee t o get together a n c
conclude i t s deliberations, w h i c h perhaps would n o t occupy
more t h a n a n houre
With respect t o t h e provision about requiring a
19
per cent reserve against pankers' balances except those i n
New York City a n d Chicago, t h e r e was tentative approval,
as I understand it -- isn't that your understanding,
Governor Strong? T e n t a t i v e approval - - i t was n o t voted
upon, b u t there w a s a
posal.
firm disposition towards t h a t pro-
T h e Committee h a d expressed itself a s concurring
in the general purposes o f the proposals o f the Committee
of Agents, a n d I think concurred i n the idea that there i s
a special h a z a r d
i n carrying balances
o f bankers a n d t h e r e -
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Federal Reserve Bank of St. Louis
18
fore a special reserve against bankers’ balances i s a logidal a n d reasonable provision.
T h e £ourth provision w a s
to provide t h a t r e s e r v e s s h o u l d b e c a r r i e d a g a i n s t G o v e r n -
ment deposits a t t h e same rate a s against current deposits.
The c o n c l u s i o n o f t h e C o m m i t t e e w a s t h a t i t w a s i n e x p e d i e n t
to p r o p o s e a n y a m e n d m e n t
t o t h e present l a w w i t h respect
to
reserves against Government deposits.
The Chairman. I
think t h a t a p p l i e s
t o t h e provision
of 1 0 per cent, a n d a s i t would require legislation t h e conclusion o f the Committee w a s generally t h a t such changes
as should n o w b e attempted i n the reserve provision should
be those that were capable o f being made b y regulation,and
that nolegimlation should b e sought.
t s n ' t that your under-
standing o f it, Mr. Harrison?
Mr, Harrison. I
was not present a t the Committee
discussions.
The Chairman.
T h a t h a s been t h e attitude o f the
Committee a n d i s also t h e attitude o f the Federal Reserve
Agents w h o made these proposals.
Governor Seay.
T h e formal conclusions
o f t h e Com-
mittee h a v e n o t been arrived a t o r drawn up, b u t i n the deLiberations o f the Committee t h e opinion was expressed t h a t
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Federal Reserve Bank of St. Louis
L9
it was perhaps inadvisablo t o put into effect a n y provision
which might require Oongressional action involving a n
amendment
t o t h e Federal Reserve Acte T h e a t i n a
carried t h e 1 0 por cont provision,
way
b u t I understood t h a t
was t h o feeling towards t h a t provision i n and o f itself.
With r e s p e c t
t o t h e fourth provision
i t w a s d e f i n i t e l y v o ted
by t h e C o m m i t t e e t h a t i t w o u l d b e i n e x p e d i e n t
a t t h e present
time t o propose a n y amendment t o the existing l a w c o v e r i n g
the reserves against Government deposits.
T h a t i s about a s
far a s t h o Committee w e n t i n connection w i t h t h e report
of the Committee o f tho Federal Reserve Agents.
other m a t t e r s w h i c h a r e n o t g e r m a n e
T h e r e are
t o the subject immed-
iatoly under discussion, w h i c h t h e Committee considered,
and w h i c h w i l l c o m e u p a t t h e p r o p e r time.
Governor Fanchers W a s it the feeling of the Committee that the recommendations enumorated i n paragraphs
L and 2 could b e carried o u t b y a ruling o f the Federal
Reserve Board.
Governor Seaye
T h e opinion o f counsel o f the
Board was that deductions could not be legally made b y
a ruling of the Board.
Governor Calkins.
I
n other words t h a t t h e present
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Federal Reserve Bank of St. Louis
reserve requirements cannot b e changed without legislat
Governor Seay.
P r a c t i c a l l y tnat.
O
n all o f these
things with t h e exception o f deduction o f exchanges f o r
clearing houses a n d checks o n othor banks i n the same place,
which a r e n o w m a d e u n d e r a
r u l i n g b y t h e Comptroller, I
be-
lieve, t h e other proposals would require legislative action
and the general feeling was,that i t was inexpedient t o ask
for legislative action a t the present time.
h e r e w e r e reasons f o r t h e attitude
The Chairman.
taken b y the Committee o n all o f these different things.
They did, a s I wmderstand Govermor Seay, t a k e a vote o n
two other matterse
O n e was i n general opposition t o tak-
ing currency shipments i n t o account i n computing reserves,
as i s now done i n some banks, w h i c h w e voted disapproval
of, a s I recall.
currency depots,
T a e other w a s t h e establishment o f
o f which t h e Committee disapproved e
Governor Seay.
T i a t i s correct, Govermor Strong.
There i s another memorandum o n this program whi
to involve a
report o f the Committee, a n d
that f o r furtner comment.
h a d reserved
T i e report o f the Agents w a s
coupled w i t h several provisos, o n e o f which w a s t o the
effect that 12.these provisions were acopted then the
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Federal Reserve Bank of St. Louis
present practics among some roserve banks o f making allowances
i n calculating penalties
for shipments o f currency,
p o n deficient reserves
b e abandoned.
A n o t h e r w a s that
if t h e r e p o r t o f t h e C o m m i t t e e w a s adopted,
a n d i f the
establishment o f currency depots w a s recognized, t h e n
banks cin. c i t i e s w h e r e c u r r e n c y d e p o t s w e r e e s t a b l i s h e d
ghould b e required t o keep 1 O per cent reserve.
The Chairman.
A
s t o t h i s f i r s t i t e m m y regollect-
jon o f the development o f the scheme o f deducting d u e
from b a n s
f r o m t h e i t e m d u e t o banks a r o s e f r o m t h e fact
the general scheme o f the National B a n k A c t provided
for t h e r e d e p o s i t
o f r e s e r v e s betiveen N a t i o n a l B a n k s t h e m -
selves a n d t h e r e w e r e m a n y o f f s e t t i n g accounts.
O n e
account was permitted t o offset t h e otner i n calculating
reservese
Then a ruling was made m a n y years a g o b y t h e Comtroller o f t h e C u r r e n c y w h i c h p e r m i t t e d a
bank t o consider
as a p a r t o f the deduction c a s h items i n process o f collection.
banks
A s @ result o f that ruling checks o n other
were considered
t o b e a n i t e m d u e f r o m banks
and
Fond
that o p e r a t e d a l w a y s
t o t h e a d v a n t a g eoO o f t h e c i t y p a n k s
because t h e y h a d a n i t e m d u e t o b a n k s f r o m w h i c h t h i s d e -
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Federal Reserve Bank of St. Louis
22
duetion w a s c a p a b l e
o f b e i n g made,
I
t operatos
t o the diss
advantage o f the country banks because t h e country banks
have n o bank accounts o n their books f r o m which t h o Ceduction could b o mado. C o n s e q u e n t l y t h e y h a c n o means
i
of deducting checks i n process f r o n gross d e p o s i t s n
making calculations.
N o w they come forward a n d say
Give u s this advantage which t h e city banks enjoy".
Mr, Gurtiss,as Ghaiirman o f the Committee, h a s calculated
that t o give t h e m that priviloge o f making deductions f r o m
gross deposits o f itcms payable i n process o f collection
would offect a reduction of $42,000,000 i n the rescrves.
I took t h e position with Governor Seay, a n d one other
menber o f t h e Committee, w h o m I think w e s Governor Harding,
that i t was inadvisablo a t the present time t o recommond
any change which would affect a reduction i n the reserves
of the country a t a time when they were possibly rodundant,
and when t h e possibilities o f credit oxpansion were always
in front o f us, F u r t h e r m o r e I
took t h e position that t h e
original ruling which permitted the roduction o f a check
from gross deposits o n the theory t h a t i t was a n item
duo from banks, w a s incorroct, t h a t t h e ruling w a s n o t
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Federal Reserve Bank of St. Louis
20
justified, a n d t o extend t h a t ruling t o the country banks
was t h e e x t e n s i o n o f a n u n w i s e a n d p o s s i b l y a n w n j u s t i f i e d
interpretation o f t h e lav.
Govcormmor Harding. I
think i t was Governor Talley
who took that position.
he Ghairman.
I a m n o t preparec
t o t a k e a n y posi-
tion as t o a legal intorpretation o f what the itom "due
from banks" should consist of.
B u t i n general I am opposed
to anything which affects a n y considerable reduction i n the
reserve requirements a t tho prosent time.
Another argument advanced b y other pooplo a t the
meeting w a s that this was n o t a very large matter, t h a t i t
would b e doing something f o r the country banks f o r which
they w e r e clamoring,
t h a t i t appeared
t o correct a n existing
inequality i n the calculation o f reserves which operatos t o
the disadvantage o f tho country banks. P u r t h e r m o r e t h a t
the city banks gained a
great advantage w h e n t h e reserve
requirements were reduced because t h e y d i d not have t o
carry a n y t i l l m o n e y t o s p e a k o f ;
t h a t they have t h e
Federal Reserve B a n k around t h e corner, a n d that t h e city
panks
i n fact a r e carrying n o t over 1
per c e n t t i l l money,
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Federal Reserve Bank of St. Louis
24.
whereas t h e country banks a r o ¢ é y i n g pretty close t o 5
per c e n t i n t i l l money.
Those were the various arguments prosented, wore
they not, Governor Seay?
Governor Seaye L O S .
M
y foeling w a s t h o y dic n o t
Like t o gee t h e reserve requirements reduced just now, a n d
that particular part o f t h o recommendation failed because
it w a s a
t l e vote.
I
s i t the desire o f the Conference
to
vote o n these recommendations a s t h e y appear i n the report,
because i f s o when a motion i s made w e c a n dispatch this
subject.
Governor McDougal. I
fact t h a t t h e d i s c u s s i o n
would move that i n view o f the
o n this subject h a s n o t disclosed
any sound reasons warranting t h o reduction i n reservos,
and i n view o f there being n o urgent demand for the same,
that nothing b e done a t this time t o bring about a modifica-
tion o f the reserve requirements through legislation.
The Ghairman. B u t I think there is a demand for it.
I omitted t o mention o n e matorial f a c t i n this connection,
which I
understand i s a fact, Mr. Harrison, a n c that i s
that Mr. Wyatt has rendered a n opinion t o the Board that
the Board has n o power b y regulation, w n d e r t h e law, t o
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Federal Reserve Bank of St. Louis
25
permit this decuction f r o m gross aeposits b y country banks.
Y o s , I think that i s correct and
Mr. Harrigon.
Govrermor S e a y r e p o r t e d that.
W e d i d not have a formal report, b u t
Governor Seaye
we had the statoment that counsel f o r t h e Board h a d given
that opinion t o the Board.
e
Chairmen.
h
T h o n t h eT m o t i o n b yuv G o v e r n o r M c D o u g a
gl
ig t h a t t h e d i s c u s s i o n h a s d e v o l o p e d
n o material r e a s o n s
to gustify « reduction i n the roserve requirements a t t h o
present time, a n d h e moves t h a t tiis rocommendation b e dis-
approved.
Governor Norris.
I
s that intended
that o n e particular rocommondation,
Tho Chairman.
t o disposo o f
o r the whols subject?
J u s t that one, t h e one permitting
deduction o f checksé
Governor MeDougal.
M y motion w a s intended t o
cover t h e w h o l e situation, M r . C h a i r m a n ,
t h a t n o modifi-~
cation o f the prosent resorve requirements b e considered
at this time which would require legislation.
The Chairman.
what I
T h a t i s a little different f r o m
u n d e r s t o o d y o u t o say.
G o v e m o r Calkins. I
understand f r o m G o v e r n o r
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Federal Reserve Bank of St. Louis
26
McDougal t h a t h e withdraws f r o m his motion t h e statement
that t h e r e igs n o demand.
did n o t s a y there h a d been
Governor NoDougal. I
no demand. I
gaid t h a t t h i s discussion f a i l e d t o disclose
any urgent demand f o r it.
I s that resolutim, G o v e m o r McDougal,
Governor Seay.
as y o u h a v e e l a b o r a t e d i t , t h e o n e t h a t y o u n o w propose?
Governor McDougal.
Ye@se
will s e c o n d t h e motion.
Governor ‘Jellborn. I
A s I understanc t h e motion i t i s
Mr, Harrison.
that there h a s been n o sound reason disclosed t o reduce
the p r e s e n t r e q u i r e m e n t s a n d t h a t n o c h a n g e s
i n reserve
requirement should b e made which require a n amendment t o
the Law.
f that resolution i s carried
I
Governor Pancher.
in the form offered i t i g taking rather a hard crack a t
the C o m m i t t e e .
7:
-
The Chairman.
"
i
.
W h y don t
we act o n the one thing w e
Fad
are discussing a t the moment, t h e reduction o f checks i n
process o f collection.
I
t occurs t o m e that i n view o f
the fact that i t i s going t o require legislation t o put
any o f t h e r e c o m m e n d a t i o n s
into offect
that
w e should
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Federal Reserve Bank of St. Louis
mt
dispose o f t h e r e p o r t i n t h a t w a y a n d n o t g o i n t o a
discussion.
detailed
I f w e a r o i n agreoment t h a t i t i s not advi-~
sable t o attempt a n y changes i n the rosorve requirement
egislation, w h y cannot t h e whole matter stand
r
Governor S e a y e
l
f
f the m a j o r p r o p o -
Salgs o f the Committec would require legisiative action.
Governor Fancher.
I g i t advigablo t o make any
recommendation t h a t w o u l d r e q u i r e l e g i s l a t i v e p r o w e d u r e ?
The Chairmane
T h e only one that would n o t rogquire
it i g the second proposition, "Retain t h e present provigion o f t h e l a w t h a t t h e n o t d i f f e r e n c e
o f amounts d u o t o
and due from other banitg" shall b o takon a s a basis o f ascertaining t h e n e t amount o f balances d u e t o banks.
Govermor H e r d i n Se
A r e n ' t there two questions in-
volved? F i r s t , a r e t h e r e a n y changes degirable b y legislation, a n d then i f v e find legislation i s necessary i t
ghould b e r e f o r r e d
t o t h e Dogrd,
a n d i t i s u p t o t h e Board
to determine whether o r not they want t o t r y t o get t h e
legislation.
Governor hicDougal .I
Mir. Chairmane
will withdraw m y motion,
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Federal Reserve Bank of St. Louis
Governor Harding. I
should think that w e
yote o n the proposition o n its mcrits, b u t I have n o resolu-~
tion t o offer.
The Ghairman.
I t seems t o m e that i n view o f the
fact that thore h a s been a Committee o f Federal Reserve
Agents which h a s worked o n this matter a
we sshould consider i t carefully.
long time, t h a t
T h o y have made cergain
specific recommendations after a great deal o f correspondence a n c c a r e f u l study.
after a
f e w minutes
T r o n for-us
o f deliberation
t o c o m e here, a n d ,
t u m t h e proposition
down, i t seems t o m e t o indicate t h a t w e are n o t giving
it much consideration. I
do not think w e ought t o turn
it down merely because i t will require logislation t o
put i t into effect.
tion.
W e are not the onos t o get legisla-
I f i t goems t o b o a good recommendation w o should
voto f o r i t and i f i t i s a bad recommendation w e should
yote against it. T h e question of legislation i s after
all u p t o t h e F e d e r a l R e s e r v e Board.
Governor Wellbomrm.
W
e h a v e s e e n t h i s report.
S o
far a s w e &recconcemed w e d o not think there ought t o
be a n y c h a n g e
i n t h e reserve requirement a n d w e would n o t
Like t o s e e any.
Therefore I
a m prepared
t o vote against
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Federal Reserve Bank of St. Louis
do not
any change whatevor i n the reserve requiroment. I
think there i s much agitation among t h o mombor banks,
cei
tainly n o t i n our digtrict, bocausa t h e y have a l l gotton
accustomed
t o t h e present methods
Govermor Norrise
y
o f k e e p i n g reserves.
I f I have understood Governor
correctly, ta h e Committee e o f Governors,S o f which
Chairman,
h a s n o t concluded i t s consideration
:
ne
o f this
matter?
Govermmor S e a y e
T h o y h a v e conclucoed t h e i r d e l i b e r a ~
tiong u p o n t h i s p a r t i c u l a r subject.
Governor Norris.
T h a t i s this particular
po
the whole subject?
Govermor S c a y e
T h i s p a r t i c u l a r point.
T h e matters
concerning which t h e y have n o t concludec their consideration r e l a t e
involved
t o amendment c h i e f l y t o t h e National B a n k A c t
i n the McFadden B i l l a n d d o n o t involve reserves.
The Committce continued i t s p e r a t i o n s a n d came t o a
conclusion u p o n t h e q u e s t i o n . o f r e s e r v e s , w h i c h c o n c l u s i o n
I have e n d e a v o r e d
t o express.
T h e Committee h a s n o t
yet finished discussing t h e other
Governor Harding. A
conclusion w a s reached o n
one point resulting i n a tie vote, w h i c h was with respect
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Federal Reserve Bank of St. Louis
30
to doduction o f checks i n process o f collection w i t h Federal
Reserve B a n k s a n d w i t h t h e i r m e m b e r banks.
I
Governor Norris.
s what y o u havo just given u s
this morning a report o f the Committee,
o r i s i t a n informal
statemont o f the conclusions t h a t t h o Committee h a s reached
up t o dato?
stenographic roport o f the opinions
Govermor Seay. A
held b y t h e C o m m i t t c e w i l l b e m a d o t o t h e R e s e r v e Board.
Tho Chairman. G o v e r n o r Seay's roport from tho Advisory Committce i g o n the program t o De considered later
and w i l l c o v e r o t h o r m a t t o r s t h a n r o s e r v e s e
h i s particu-
lar topic rolates t o the report o f the Agents' Committee
on reservos, w h i c h t h e L e g i s l a t i v e C o m m i t t e o W a s a l s o c o n -
sidering.
W o are asked t o consider this b y the Federal
Roserve Board a 8 separate f r o m t h e rcoport o f the Legisla~
tive C o m m i t t e
Governor Norris.
A n d then there i s the report o f
the A d v i s o r y Committec.
The Chairman.
I t is the same thing.
I t is the
Legislative Committee, sometimes so-called, a n d a t other
times t h e Advisory Committee.
I
t i s all one committee.
I might also state that t h e Committee d i d n o t consider
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Federal Reserve Bank of St. Louis
Sak
this subject until i t arrived i n Washington, when i t then
loarmmod that t h o matter h a d becn reforred t o i t b y tne Re-
gorve Boards
I think t h i s d i s c u s s i o n c a n b e c l a r i f i e d b y w h a t
Governor Harding said about the treatment o f the report o f
the Agents! Committos.
I n the first placo tho proposal
to deduct checks i n process o f collection has, i n a measure,
been disposec o f by this fact, that the Agents’ Committee
unanimously voted t o recommenc n o changes i n t h e reserve
requiroments which involved changes i n tho law; t h a t t h e
counsel f o r t h e F e d e r a l R e s e r v e B o a r d h a s a d v i s e d t h a t a
change i n rospect t o d oducting checks i n process o f collection could n o t b e made without changing t h e law. T h e r e foro w e a r e considering a roport o n which w e are uniformly
advised. that the question o f amendments t o the l a w have
been disposed o f b y t h e Agents’ Conference, w h i c h does
not r e c o m m e n d a n y changes.
Zand 4
T h a t takes c a r o o f items 1 ,
o f their recommendations because t h o y would re-
quircme amendments t o the law.
I t e r No. 2 is simply a
recommendation t h a t t h e status q u o b e p r e s e r v e d without
any change being made.
Governor Ilarding.
T h e n why can't w e havea resolu-
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Federal Reserve Bank of St. Louis
tion that w e agree w i t h t h e Agents t h a t n o changes i n regerve r e q u i r e m e n t s
b e attempted w h i c h w o u l d involve a n y
change i n the lave
Gevernog McDougal.
mind, G o v e r n o r Harding.
T h a t is oxactly what I have i n
h
e Agents r e c o m m e n d e d t h i s a n d
then said that they d i d not want t o put i t into effect i f
it requires a n y change i n existing law, a n d w e would b e
perfectly consistent i n following t h e same course.
Governor Young.
I f that i s offered a s a motion I
will second it.
(The motion having been duly seconded, w a s carried.)
he Chairman.
N o w , d o you wish t o consider certain-
topics t o u c h e d u p o n i n t h e b o d y o f t h e report, w h i c h a r e
not recommendations requiring legislation,
f o r instance,
Nadjusted crodit a n d debts t o membor banks f o r currency
shipments"; “currency depots"; "classification of outlying districts o f reserve o r central resorve cities";
"segregation o f savings deposits"; "reserve against time
and saving deposits"; a n d s o on.
M o s t o f these have
already been dealt with b y previous conferences.
acted o n them and expressed o u r views, I
without exception.
W e have
think almost
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Federal Reserve Bank of St. Louis
53
suggest i f any member o f this
Governor Norrise I
Gonference wishes a n y o f these subjects brought u p that h e
mention t h e one h e wishés t o have discussede
T h e Board seems t o a s k that t h e r e -
Governor S e a y e
commondations contained i n the report o f the Agents’ C o m mittec
b o considered
b y t h i s body,
a n d i t would appear
that t h e Board desires a n expression o f our views u p o n
hese recommencations.
I
t i s true that upoh most o f thom
this body has heretofore oxoressod i t s position, b u t they
have n e v e r b e f o r e a p p e a r e d b e f o r e u s i n s u c h c o n c r e t e
item b y itom,
a s they appear
i n this r e p o r t e
As stated, t h e Agents uake f o u r major proposals
have been enumorated,
a n d further o n i n their report
you will f i n d t h e heading “adjusted credits a n d debits t o
membor banks for currency shipment".
W i t h regard t o that
the Committee recommends t h a t i f and when t h e proposed
deduction f r o m d e m a n d d e p o s i t s
o f checks
i n process
o f col-
Lection becomes effective, t h e process o f adjusting eredits
and debits t o member banks f o r currency shipments b e distontinued.
That i g a recommendetion o f the Committee u p o n which
we may vote o r not vote, a s m a y s e e m desirable.
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Federal Reserve Bank of St. Louis
T h e i r recommendation h a s a
Governor Norris.
con-~
dition precedent t h a t has n o t como into existences
T h e Committee, h o w o v e r ,
Governor Seay.
Line w h i c h r e v i o w s t h a t subject, s t a t o s :
i n t h e first
" T e Committee
does n o t favor t h e practice o f the Federal Reserve Banks de-~
ferring charges i n member banks! reserve accounts f o r shipments
t member banks until sufficient t i m e has
o f c u r r e n c yo
olapsed f o r such shipments t o arrive, n o r o f allowing credit
for shipments f r o m t h e bank a s o f the date o n which t h e
shipments were made,"
think w e t o o k a
Governor N o r r i s e I
vote o n t h a t
once and it was six to six.
Governor Seay.
T h e n w i t h respect
t o c u r r e n c y depots,
he Committee says, "The Committee doubts the expediency o f
establishing currency depots, a n d recommends t h a t whore
guch d epots a r e o r may b e established t h e reserve requirements
o f t h e member b a n k s
i n the curroncy depot s i t y b e
incroased t o t h e equivalent o f the roquiroments f o r member
banks a n d Federal Resorve B a n k o r branch cities (other t h a n
New York City and Chicago)."
Governor Norris.
Governor Harding.
T h a t would require legislation.
N o , because the Board could make
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Federal Reserve Bank of St. Louis
55
them reserve cities i f i t s o desires.
I t w o u l d first
havo t o make them reserve cities,
The Chairman.
N o w gentlemen, Governor S e a y has dis-
cussed this, a n d h e i s required, u n d e r t h e m i e s o f procedure o f this body,
t o submit a resolution. I
think t h e
history o f t h i s p a r t i c u l a r t o p i c i s t h a t w e d e f e a t e d i t b y
@ six t o s i x vote, t h a t i s w i t h regard t o t h e proposal f o r
currency depots,
a n d w e now find that there are seven
reserve banks that have ostablished currency depots a n d
five t h a t h a v e not.
Mr. H a r r i s o n .
S e v e n who.ihave p e r m i t t e d c u r r e n c y i n
transit t o c o u n t a s reserve.
late}
e h T YW
Chairman.
T h a t is what 1 mean, that sevon are
n
i i n transit
w
o
currency
g
A n d that beingo
Govermor Scaye
i n principle,
approval,
l
a
G
a sl calculating
reserves.
go i n the face o f &25a
b y t h e Chicf Executive o f one o f the
banks, t h e one with which I am connected.
Tne Chairman.
T h i s topic w i l l b e passed unless f u r -
ther action i s Suggested.
G o v e m o r Norris.
would L i k e
tLone
I
W i t h regard
t o b e informed
t looks
t o c u r r e n c y depots, I
a s t o t h e l o g ai c
t o tie like a
o f that recommenda-
mere p r o p o s a l
t o arbitrarily
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Federal Reserve Bank of St. Louis
36
penalizo a
place f o r having secured a
cortain convenience.
Why the fact that banks i n a cortain city can get money
quicker t h a n they othervise c o u l d get i t are required t o
keep a
larger reserve,
Tre Chairman.
this way:
i s something I
d o rot sea.
in
P o s s i b i y t h a t c a n b e explained
T h a t where n o currency d e p o t i s ostablished
the banks thore,
i n order t o meet t h e local demand f o r
currency, h a v e t o carry a cortain amount o f till money a n d
if you have t o ship currency that will a t once reduce t h e
amount o f the till money, a n d the proposition i s t o have
these c u r r e n c y d e p o t s t h a t a f f o c t a n actual r e d u c t i o n
in
reserves = ~ not legal reserves, b u t practically i n the
reserve position.
n a t i s m y understanding
o f it.
W h a t
is y o u r resolution, G o v e r n o r N o r v i s ?
Governor Wellborn. I
agree w i t h G o v e r n o r Norris.
I do not see any necessity f o r increasing reserve require~
ment w h e r e t h e y h a v e a
m o n e y depot.
T h e r e i s n o necossity
for i t because t h e y have their money thcore o n hand t o tako
care O f a n omergency.
The Chairman.
W h a t i g your resolution, Governor
Wellborn?
Governor Seay.
T h e argument w a s something along this
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Federal Reserve Bank of St. Louis
37
Line, a g I understand it.
T h a t t h e opening o f curroncy
may
depots gives t o banks i n the placo i n whien o n o
Located
a n advantage o v o r o t h o r places
no c u r r e n c y depots,
a n d yould h a v e t h e effect o f lowering
their working reserves,
it m i g h t l e a d t o 2
i n w h i c h tnhero a r e
i f not their legal reserves;
that
spread o f demand f o r currency depots
position
which would place t h e Federal Reservo 3anks i n a
of not being ablo t o defond thomselves against t h e criticism
of d i s c r i m i n a t i o n
did
i f they opened o n e i n o n e place a n c
not open o n e i n another. F u r t h e r m o r e i t takes t h e custody
of c u r r e n c y t o s o m e e x t e n t o u t o f t h e h a n d s o f t h e r e s e r v e
banks
T
t h o count leaves t h e m s p r e a d h e r e a n d t h e r a o v e r
legal
try, s o m e part o f which currancy m a y b e i n the form o f
reserve;
its
i t would permit t h e momber bank t o adjust
reserves through the medium of the depot.
The Chairman.
M z objoction t o the currency depot
idea i g that i t is a n attempt t o cure ingqualitios caused
by
by distance a n d time that a r o incapable o f being cured
that method.
T h e r e w o u l d be.no l i m i t t o t h e extension o f
thig t h e o r y o f c u r r e n c y d e p o t s t h r o u g h o u t t h e countrys,
44 i g p r o p e r t o p u t o n e i n S c r a n t o n
L f
i t i s just a s proper t o
put o n e i n S y racusc, a n d s o o n indefinitely.
I f that shou:
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Federal Reserve Bank of St. Louis
38
money a n d
be done w e would have funas gcattered, resorve
reserve notes,
n ° . possibly hundreds
o f towns a n d cities
protection that
in tho country incapable o f the kind o f
a t ence t o
igs really required, a n d the result would b e
this unprecipitate w i t h t h e reserve banks deposit o f
t i e reserves
necessary till money a n d very greatly increase
the membor banks , .
of the System, reducing t h e vorking c a s h o f
their supplies u p o n
and a t t h e s a m e t i m o h a v e t h e m r e l y f o r
vaults i n their
the unissued Federal reserve notes i n the
neighborhood. I
do not think i t isa sound procedure.
It does n o t c u r e t h e difficulty.
I
t possibly makes
it
concerned. I
worse s o far a S t h o question o f equality i s
have always been opposed t o it.
W e have n o t done i t i n
bank w h o think
eur district, although there a r e those i n the
we ghould d o it.
Governor Calkins.
I
f you undertake t o establish
which t h e line c a n b e
currency d e p o t s t h e r e i s n o p l a c e a t
dra wme
h
whether o n e shall
e o n l y means o f determining
o f some
be established o r not i s the arbitrary ruling
t h e Chairman h a s
individual Federal Reserve B a n k and, a s
b e that w e
pointed out, t h e logical development would
throughout t h e
would have hundreds o f c u r r e n c y stations
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Federal Reserve Bank of St. Louis
United States.
The Ghairman.
tive o f this matter.
grea t extent a
F o r sometime Germany h a s been t o a
c u r r e n c y u s i n g country.
out o f businoss
accounts
T h e situation i n Germany i s illustra-
i n Germany n o w because
S h e c k s a r e almost
o f t n e sottlement
of
a r e effected through the Giro Syston, w h i c h does
not i n v o l v e t h e u s e o f checks.
A c c o u n t s a r e settled b y
the u s o o f bank notes a n d that being t h e case t h e Reichsbank
into cvery
has found i t necessary t o oxtend i t s organization
part o f Germanye
A
s a
matter o f f a c t t h e y h a v e 4 5 0 b r a n c h
es i n t h a t s m a l l country.
T i e t h e o r y o n which t h e Reichs-
bank e x t e n d s t h e s e f a c i l i t i e s
t o t h e public
i s t h a t i t must
have all t h o facilities o f the Reichsbank, a n d they should
all
establish offices waere t h e y are capable o f performing
the f u n c t i o n s r e q u i r e d b y t h e p u b l i c
i n Gormanye
M
e ee he!
complete extension o f the branch system i n Germany e v e n
to t h e s m a l l e s t t o w n e
try
W
e could n o t d o that i n this coun-
T h e r e a r e g o m e districts
i n t h e Reserve S y s t e m where
the development o f that theory would require t h e establishment o f a s many branches o f that reserve B a n k a s t h e Reishi:
bank h a s f o r a l l o f Germany.
es i n this country.
W
e might h a v e 10,000 branch-
O n e e this thing begins t o creep upon
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Federal Reserve Bank of St. Louis
48
us w o would not m o w where i t was going t o stope
M y belief
ig that t h e present systom i s absolutely sound, t h a t o f
establishing branches whore w e perform all o f our functions
and reduce t h e areas o f inconvenience a s much a s i t i s safo
to d o ite C r a d u a l l y ,
a s more branches a r e established,
areas o f inconvenience will again b e reduced a n d the
will b e serving a l l t h e contiguous territory.
That i s t h e only w a y i n which t h e functions o f ths Reserve
Bani should b o extended throughout t h e country.
These
currency dopots a r o unsound, unwise a n d represent a d e v e l o p
ment i n b r a n c h b a n k i n g f o r w h i c h w e a r o n o t r o a d y o
I
Governor Norris.
T believe
i t was i n o u r district
that a currency depot w a s first established. I
might s a y
that w e did not a g r e e . to the establishment o f i t without
realizing that t h e plan a 8 o p e n t o all t h e objoctions t h a t
you have just stated.
W e not only realized i t ourselves,
but w e callod i t t o the attention o f the Federal Reserve
oard a n d w e submitted t h e proposition t o the Federal Resorve
Board f o r t h e i r a p p r o v a l
o r disapproval.
T h e agreement,
of course, gives u s authority t o cancel t h e arrangement o n
an hour'g notice,
o r its oqvivalent, a n d w e have regarded
it a s experimental, a n d d o still.
S i n c e w e established
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Federal Reserve Bank of St. Louis
this first o n e several years a g o i n Scranton w e have o n l y h a d
one application f o r a n y other depots, one, w h i c h w e estab-=
lished a t J o h n s t o w n
i n t h e w o s t e r n p a r t o f t h e State.
W e
have t h e same limit o n that one, i n that w e require t h e
bank t h a t n a s c u s t o d y o f t h e m o n e y t o a s s u m e t h e w h o l e e x pense o f o p o r a t i n g
i t a n d t o deposit w i t h u s collateral
in excoss o f the value o f the currency that w e deposit w i t h
them a n d have i n their custody.
T h o s e t w o things would de-
ter any bank i n any small place whore thero wasn't a real
demand f o r a depot f r o m asking f o r it.
A s & matter o f
fact, a s I say, w e have nover h a d but o n e other application, a n d that w e anticipated a t the start.
I t was a
logical place f o r the creation o f such a depot, a n d the
application came.
W e have never h a d a request f o r another.
It saves u s i n shipments o f all kinds o f currency a con=
giderable a m o u n t o f m o n e y o a c h year.
hat. w e d i d s i m p l y f o r t h e c o n v e n i e n c e
or o f t h e c o m m u n i t y
I
t i s not a
thing
o f the member banks
i n w h i c h t h e m e m b e r b a n k w a s Located.
We would n o t have done.it i f w e had not felt that i t
curried w i t h i t a n advantace quite a s great f o r u s as t h o
advantage t o them.
S o f a r w e have been getting that ad-
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Federal Reserve Bank of St. Louis
42
van tage
W
e have t w o o f them a n d I cannot s e e that a n y
a m p e r f e c t l y f r e e t c a d m i t that,
harm h a s b o e n done. I
as time goes on, h a r m m a y develop a n d there might develop
guch ea cry for them that they might become i n Some w a y ob=
jectionable s o that w e will w a n t t o stop t h e m anc t o cancel
the agreoment w e alroady havoe
B u t s o far I cannot s e e that
any h a r m h a s b e e n done, b u t o n ‘the o t h e r h a n d a
very g r e a t
convenience and saving has been offected.
The Chairman.
T h e r e a r e o t h e r objections
which w e h a v e n e v e r d e v e l o p e d e x t o n s i v e l y
t o this
i n New York be-
cause w e d o n o t i n t e n d t o e s t a b l i s h t h e s e d e p o t s o u r s e l v e s e
We d o not want t o interfere vith the other districts i n doing
what they ploase about it, b u t v e vant y o u t o consider this:
In the first placo w h e n y o u deposit currency i n a depot
and take security f o r i t you relieve t h e banks o f that neighborhood o f the necessity o f carrying c a s h which they otherwise would carry i n their tills a n d y o u are making a
tial l o a n t c t h o banks.
poten-
W h e n y o u d o that y o u are redusing
the demand f o r currency i n the country, a n d when y o u reduce
tne d e m a n d f o r c u r r e n c y
i n the country
y o u eliminate
the greatest checks t o inflevion that w e have.
one of
t h a t is to
gay i n the latter stages o f inflation the one thing that
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Federal Reserve Bank of St. Louis
43
checks i t u p i s a n increased demand f o r currency a n d when
you reduce, b y that method, t h o neod f o r currency, y o u are
in effect making loans without interest t o ycur members
in order t o save them t h e need o f having thet currency f o r
which o t h e r w i s e t h e y w o u l d h a v e t o b o r r o w 1 0 0 p e r c e n t o f
their needs,
a n d i f that process w a s extonded b y every r e -
servo b a n k t h r o u g h o u t t h e c o u n t r y t h e y w o u l d r e d u c e t h e
currency requirement f o r the country a n d increase t h e potentiality a n d posgibadlity o f e x p a n s i o n b y a n o n o r m o u s amount.
It has n o t gone f a r enough,
o f course, f o r a n y such thing
to develop, b u t nevertheless t h e r e i s that possibility i n
ite
T h a t i s one reason w h y w e were rather uneasy about
the d e v e l o p m e n t
i n N e w York, l e s t i t s p r e a d t o o rapidly.
Governor Calkins. I
would l i k e t o a s k Govermor
Norris what argument h a s doen,
o r c a n be, advanced i n
support o f a demand f o r a currency depot, t h a t does n o t
gpply a n d w o u l d n o t a p p l y t o a
Governor Young. I
Governor Calkins. I
demand f o r a
branch b a n k ?
would like t o answer that.
would l i k e t o h a v e G o v e r n o r
Norris' answer first, because h e igs the o n e w h o started it.
Governor Norris. I
will b e glad t o yield the floor
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Federal Reserve Bank of St. Louis
to G o v e r n o r Y o u n g e
do not think there i s a n y occasion
Governor Youngs. I
for a n y b a n k t h a t i s w i t h i n 1 2 o r 1 6 hours o f t h e
office.
T h e Situation i n Montana - -
Governor Calkins.
is t h e r e a s o n I
P a r c o n m e i f I intorrups; b u t that
wanted t o h e a r f r o m G o v e r n o r Norris, b e c a u s o
your situations a r e n o t comparable.
The Chairman.
T h e Chair,. b y a time-honored resolu-
tion has h a d the right t o terminate a
discussion i n the
W e have discussed t h i s matter a t
interest o f progress.
groat length, a n d the quwstion i s what action d o w e desire
to take o n this recommendation i n this report.
Govermor Seay. I
will m o v e t h a t i t i s t h e s e n s e
of this conference t h a t i t i s i n agreement w i t h t h e opin-
jon exprossed by the Federal Rescrve Agents in their report, t h a t t h e establishment o f currency depots i s a t
Least a
doubtful oxpedienty.
Governor Talley. I
will second that.
(The motion having been duly seconded w a s unanimous-
Ly carried.)
The Chairman.
T h e next s u b j e c t i s c l a s s i f i c a t i o n
of outlying districts o f reserve o r oentral reserve cities.
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Federal Reserve Bank of St. Louis
4.
Governor Norrise
T h a t seems t o m e t o b e locking
the stable d o o r after the h o r s e h a s been stolen.
chkhertbaisnan,
T h e Committee believes that the pre-
e against granting reduction o f reserves
sunption s h o u l d b
to outlying sections within municipal limits o f sentrai
reserve o r reserve citiese
T h a t i s because t h e y appear t o
be g e n e r a l l y o f t h e c h a r a c t e r
than o f t h e m e t r o p o l i t a n b a n k .
o f the country bank rather
t h e r e a r e cases where s u c h
reduction i s justifiable, a n d such cases should b e dotermined upon a n investigation o f the character o f the individual
bank o r banks making application f o r reduced resorves.
Governor S e a y e I
in t h e v i e w e x p r e s s e d
move t h a t t n i s C o n f e r e n c e c o n c u r
by
Governor Younsge
(The m o t i o n h a v i n g b e e n d u l y seconded,
The Chairman.
Savings deposits.
solution,
w a s carried.)
n e next subject i s segregation o f
T h a t i s disposed o f by the former re-
a s that would require legislation.
The next i s reserve against time a n d savings deposits,
ard t h e conclusion o f the Committee i s that t h e present r e -
quirement
i s adequate and
should not b e chang eSQe
a
N
f
r
Governor W e l l b o r n .
i
b e|
n that connection 1
- would L i k e
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Federal Reserve Bank of St. Louis
45
to e a l l a t t e n t i o n
t o the l e t t e r t o Mr. J a y f r o m G o v e r n o r
Crissinger.
(Tre letter referred t o i s as foilovws: )
NPEDERAL RESERVE BOARD
Washington
OOUeoer £0, L950.
Dear Mr. J a y :
dis-
At the meeting o f the Board a day o r two ago, a
cussion arose a s t o the desirability o f having a n alternative
or optional resorve requirement f o r deposits i n the savings
departments o f member banks which might like t o segrogato
the assets o f the gavings departments and invest such assets
in securities o f certain kinds.
T h e thought was expressed
that Congress might bo,asked t o amond t h e Federal Reserve
Act b y providing alternativo o r optional reserve requirements
for savings departments:
roguired
( L ) T h a t member banks shall b e
t o carry w i t h their Federal reserve banks 3
per
ecentum o f their time deposits including savings deposits,
which i g the present requirement, o r (2) that all member
banks which segregate t h e deposits o f their savings
departments a n d invest s u c h deposits i n certain kinds o f
investments under specifications a n d regulations t o b e
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Federal Reserve Bank of St. Louis
47
permitted
promulgated b y the Federal Reserve Board, s h a l l b o
in l i e u o f t h e p r e s e n t r e q u i r e m e n t
por c e n t o n l y say,
t o carry a
reserve
Of 2
o r possibly a n even lower percentagoe
segreMomber banks would not, o f coursu, b e compelled t o
certain way,
gate savings deposits a n d invest t h e m i n a
although i t might b e desirable t o have savings deposits
segregated i n all classes o f panks.
entirely optional.
T h e matter could b e mado
I f e momber bank did not elect t o segre-
gate savings deposits a n d invest i n certain approved securities,
i t would have t o comply w i t h t h e present roserve
requirements but i f the member bank should elect t o segregate a n d matte a p p r o v e d i n v e s t m o n t s ,
t h e n t h e lower reserve
requiroment f o r savings deposits would apply.
The Board would like t o have t h e mattor discussed
by the separato Agents a n d Governors Conferences,
followed b y a discussion a t the Joint Sessione
t o be
Y o u are r e n
quosted t o place the topic o n the Agents' program and also
have Mr. Harrison place i t o n the Governors’ program a n d
gee that i t i s given a place o n the program f o r the Joint
Conference.
Very truly yours,
(Sed) D R . Crissinger,
Governor."
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Federal Reserve Bank of St. Louis
The Chairman.
Y o u have heard t h e Bourd's letter
suggesting a n albernative.
Govormor Wellborn.
T h i s would require legislation.
I s therc a n y demand f o r i t that
you k n o w o f ?
think thore i s n o demand among t h e
The Chairman. I
banks. t
in
think there might b e a demand from depositors
he banks w h o have not tho segregation i f they realize the
t o thoso
digadvantage under which i t places them. compared
that have demand deposits i n those panks.
Governor Seay.
T h e final sontence
tion o f t h e r e p o r t o f t h e C o m m i t t e e
follows:
o f the recommenda-
o n this subject
4 g as
“ c h o Committee suggests that this subject be
referred t o the Committee o n Legislative matters for its
consideration", and I have already stated that that report
ig not y e t prepared.
Mr. J a y
The Chairman. G o v e r n o r Crissinger's letter t o
sccthat w e discuss t h i s proposal separately a t the t i o
Gonferences and then have it on the Joint program.
Governor Seaye i
was j u s t coming t o this point,
in making this explanatory statement, t h a t Professor
in
Sprague, w h o has besn associated w i s h the Committee
49
its consideration o f legislative matters, h a s been traveling
+
over t h e country,
h a s visited several
o f the Federal R e -
a n d one subject which was very dear 4 O Aas
serve districts,
heart a p p a r e n t l y w a s t h i s q u e s t i o n o f t h e s e g r e g a t i o n o f
savings deposits.
H
e has advised m e t h a t a s much a s h e
is disposed towards segregation h e believes that i t will
be w h o l l y i m p r a c t i c a b l e
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Federal Reserve Bank of St. Louis
t o bring i t about a t t h e present
time owing t o the varying laws i n the different states, a n d
he does n o t beliove t h a t t h e propcsal t o segregate savings
deposits o r t o segregate assets o f the banking corporations
to g e c u r e s a v i n g s d e p o s i t s c o u l d b e m a d e v e r y c o m p l e t e
at the present time.
Governor Wellborn.
I t would b e optional w i t h t h e
bank anyway, whether t h e y wanted t o d o thate
Governor Seay.
T h i s i s just w i t h reference
whole subject o f the proposal,
t o the
b y logislation o r otherwise,
and the letter from Governor CrisSinger presents t h e matter
in a new light.
he Chairman.
to segregate,
reserves,
I n a s m u c h a s legislation i s required
a s proposed i n the report o f the Committee o n
w e are n o t really callec u p o n t o act upon that
recommendation
i n t h e report.
W e a r e a s k e d t o discuss t h e
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Federal Reserve Bank of St. Louis
5S
altornative proposal i n Govommor Orissingor'’s lotter, w h i c h
nevertholess d o e s involve legislation, a n d which i s that t h e
Acs b e amended t o provide t h a t when a bank volunterily sets
up a Segrogation o f assets t o secure savings deposits i t may
then b e p e r m i t t e d
t o carry only a
@
per c e n t r o s e r v e i n s t e a d
of the 3 per cent reserve against those deposits.
Governor Seay.
I f tho a i m b e t o give greater s e c u r
ity t o the vast majority o f the depositing public, t h a t i s
depogitors
i n country member banks, I
would g e t u s anywhere.
cannot s e e h o w thig
T h e country member banks p a y very
high interest o n a largo proportion o f their deposits, a b o u t
half, a n d therefore i t would requiro a n investment i n securities, o t h o r than standard securities, I
duce a n income t o offset what they pay. I
believe,
t o pros
do not believe.
that many country banks would avail themsolves o f that o r
could a v a i l t h e m s e l v e s
o f it.
I
t would b e availed o f b y
our city banks only and would not get us anywhere.
The Chairman. I
think t h e p r o p o s a l u n d e r c o n s i d e r a -
tion, G o v e r m o r Seay, w a s n o t t o i m p o s e r e s t r i c t i o n s u p o n
the a m o u n t o f i n v e s t m e n t s n e c e s s a r y m a d e o y t h e s e s a v i n g s
funds b y the bank but rathor t o require t h e bank b y l a w t o
set agide o u t o f their assets those loans which they generally
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Federal Reserve Bank of St. Louis
5k
elass a s secured loans which would include mortgage loans o f
course, giving t h e savings depositor t h e benefit o f a class
of loans where they have t h e real percentage behind tnem,as
distinguishec f r o m t h e ordinary note which t h e farmer o r merchant gives t o t h e country bank o n borrowing.
Governor Harding.
U n d e r t h e laws o f t h e New England
States, m o s t o f them, a n d i n Massachusetts, t h e State L a w
requires
qi
t r u s t companies
t hra t h a v ee s a v i n g ss d e p a r t m e n t s
t o
segregate the savings deposits and t o invest them only i n
certain specific ways.
S o m e years a g o there was consider-
able wild-cat banking i n Boston, a n d a number o f trust companies sprung u p a n d failed.
T n e history o f those concerns
has been almost uniformly that t h e savings depositors w e r e
paid i n full a n d that such losses a s occurred Were taken
by t h e o r d i n a r y depositors.
J
e have a
number o f e l i g i b l e
trust companies w h i c h have been considering coming into t h e
System a n d t h e y a r e d e t e r r e d f o r t h e r e a s o n t h a t t h e y w o u l d
have t o carry 3 per cent reserve against their savings deposits, w h i c h t h e y could invest o n l y i n certain ways, a n d
we also have one o r tyvo considering withdrawing for the
reason t n a t t h e c o s t i s sxcessive.
W
e h a d o n e withdrawal
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Federal Reserve Bank of St. Louis
52
in N e w H a v e n l a s t y e a r f o r t h a t reasons
I
f that l a w w h o u l d
be changed s o a s t o provide t h a t a n y national b a n k o r any
state bank which shall desire, under regulations issued
by t h e Federal Reserve Board,
t o segregate ' gavings d e -
positsand invest t h e m only i n certain ways, could secure
the benefit o f a 2 per cent reservs = ~ O r going a Little
further,
a n d providing a l s o t h a t a n y member b a n k which
was required b y l a w t o segrogate i t s savings deposits a n d
of
invest t h e m o n l y i n c e r t a i n w a y s c o u l d g e t t h e b e n e f i t
2 per cent reserve, t h e effect o n the Federal Reserve
bene~
Bank i n t h e N e w E n g l a n d D i s t r i c t y o u l d b e d i s t i n c t l y
ficial.
O
f course I
realize t h a t conditions i n New ingland
of
are n o t comparable a t all t o conditions i n other sections
The Chairman.
the country. / Has any one any action t o propose with regard
to the letter o f October 15th, 1925, suggesting this alter-
native plan?
Governor Soay. M r . Chairman, that seems to have the
effect o f reducing quite materially the reserve deposits.
The Chairman.
Governor Seay.
Yes.
I
t would b e a
inflation a l s o a n d w o u l d h a v e
step toward further
t o b e considered
from that
point o f view. E v e r y t h i n g that h a s been proposed,
s o far
55
as I
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Federal Reserve Bank of St. Louis
c a n recall, s i n c e t h e F e d e r a l R e s e r v e S y s t e m h a s b e e n
established,
i n that connection, h a s been somothing which
tends t o reduce reserve requirements - ~ whittliny, vhitiling,
whittling s
W e know that t h e country banks classify a
largo
proportion o f their deposits a s time deposits f o r t h e purpose
of getting a
low reserve.
W e should consider t h a t point
also i n considering this proposal.
The Chairman.
I
s there a
resolution?
I
f not w e
will pass t h e mattere
Govermor Seay.
I t seems t o me perhaps w e are side-
stopping some o f these things which are referred t o u s f o r
recommendation,
subject I
a n d i f y o u will permit m e t o roturm t o that
would move that i t i s t h e sense o f this conference
that s u c h a
move i s i n a d v i s a b l e
Governor McDougal. I
a t t h e p r e s e n t time.
will second that motion.
Governor Fancher. W o u l d Governor Seay object t o
embodying i n hig motion the statement that w e believe i n
anything looking t o the greater protection o f saving depositors i n commercial banks would b e advisable, t h a t i s that
while w e agree that i t i s desirable t o protect t h e savings
depositors o f the country w e feel that n o step which would
Lower t h e present required reserve would b e desirable.
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Federal Reserve Bank of St. Louis
54
Governor McDougal oI
will second that motion.
(The motion having been duly seconded w a s carried.)
Governor Harding. I
would like t o b e recorded a s n o t
voting eno
Governor Calkins.
T would L i k e
t o follow Governor
Harding's lead and be recorded a s not voting.
The Ghairman.
M r . Harrison h a s a
report t o make i n
regard t o the action o f the Federal Reserve Agents i n this
matter of reserves.e
Mr. Harrison.
I n a s m u c h a s t h e preliminary o r first
part o f the action taken i n this comference o n the Reserve
that
Committee's r e p o r t w a s p r e d i c a t e d u p o n t h e a s s u m p t i o n
the A g e n t s h a a v o t e d n o t t o a s k f o r a n y c h a n g e s
i n resgezve
reguirements which would require legislation, I
have just
nad a discussion w i t h Mp. Martin w h o tolls m e that t h e
status i n the Agents' Conference a t the present time i s
this:
T h a t they haveconsiidered the above report foe your
- approved... o f all the purposes t o be accomplished;
that they would like t o s e e t h e recommendations adopted,
but that they d o not favor request f o r legislation a t
thig time, i f there i s a n y likelihood o f the re=<chartor
question being raiged i n Congress.
B u t i f there i s n o
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Federal Reserve Bank of St. Louis
Likelihood o f that question coming u p a t this time
think t h a t n o w i s a s g o o d a
time a s a n y t o advance
recommendations o f the Agonts' Committee.
Furthermore t h e y h a v e a n o n t i r e l y i n d e p e n d e n t resolu-.
tion which, entirely regardless o f the question o f law, t h e y
would like t o urge upon t h e Federal Reserve Board, a n d that
ig t h e a d v i s a b i l i t y o f a d o p t i n g r e c o m m e n d a t i o n N o . Ll, t o d e -
duet checks i n process o f collection,
Board,
the
b y a ruling o f the
o n the theory that they d o not believe i t i s against
law.
The Ghairman. M r . Harrison brings out the fact that
the action o f the Agents! Conference w a s really a conditional action, disapproving a n effort t o get legislation i f the
question o f rechartering should come up, p u t approving i t
if i t d i d not.
Mr, Harrison.
O n the first question, deduction o f
checks i n process o f collection, t h e Agents a r e o f t h e
opinion that legislation i s not necessary a n d that t h e Board
might p r o p e r l y b e a s k e d t o a d o p t t h a t r e c o m m e n d a t i o n
by a
ruling rather than by legislation.
The Chairman.
I n view o f the fact that t h e re-
chartering i s a n open question now, a n d nobody knows
56
whether i t will come u p -~ my guess i s that i t is n o t going
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Federal Reserve Bank of St. Louis
to c o m e U p N O W e
Mr, Harrison.
T h e voto on Legislation is in the
nature o f a concurrence with the vote taken b y the Agents’
Conference, b u t I wanted t o b e sure that t h e t w o are n o t
tacked together, because a s a matter o f fact they have n o t
taken t h a t a c t i o n definitely.
Tre Chairman.
whether
I t simply raises t h e question h e r e
w e w a n t t o discuss t h e s e f o u r p o i n t s
Governor Wellborn.
a committee.
H o w would i t d o t o refer this t o
T n e Agents have made a report.
port i s r e f e r r e d
to a
o n t h e i r merits.
similar committee
I f this re~
o f t h e Governors
we would t h e n b e giving t h e report d u s consideration?
Te Chairman.
R e f e r i t t o the Legislative Committee?
O
Governor Wellborn.
Govermor S e a y e
mittee,
I
r s o m e S i m i l a r committee.
t has b e e n referred
t o t h e Com-
b u t i t has also b e e n referred definitely
t o this
t o all
Conference and t o the Agents' Conference, i n fact
three bodies.
The Chairman.
H a v e y o u a resolution t o offer Govern=
or Wellborn?
Governor
Wellbor.
I
do not care
t o offer a
resolu-
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Federal Reserve Bank of St. Louis
57
tion because I
do not want t o s e o t h e reserve requirement
changed a t all.
The Chairman.
D e y o u desire t o discuss these points
on the merits?
believe t h e y should b e discussed
Governor Wellborn. I
on tne merits.
The Chairmane
L e t u s take t h e m u p after wwe have fin-
th the other topics here.
O n page Le:
ENABLING ACTS
Governor W e l l b o m e
H a v e y o u overlooked t h e o n e a t
the bottom o f page 11, which refers t o segrogation, b u t i s
treated separately?
The Ghairman.e.
W e passed t h a t because n o resolution
was offered.
Govercnor Seaye
T h e statement b y t h e Committee i s
"the reservo against time deposits should not be lower than
3 per cent."
The Chairman.
F o l l o v i n g t h e discussion w e took t h e
position t h a t that would require legislation t o change it,
and t h e only thing t o consider w a s a letter o f the Board
dated October 15th, 1925, addressed t o Mir. Jaye W h e n w e
discussed that letter I asked for a resolution, a n d no
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Federal Reserve Bank of St. Louis
58
resolution w a s forthcoming, a n d w e passed it.
T h a t i s the
record a s i t nov stands.
Mr. Harrisoune
T h e vesolution with regard t o Gov-
ermor‘Crissinger's l e t t e r t o Mr. J a y w a s adopted,
with two
Governors recorded a s n o t voting.
The Chairvan.e ‘ h a t is correct.
to the next subject, Enabling Acts i n States,
one offer a resolution?
move t h a t the recommendation o f
Govemor Younge I
4
tae C o m m i t t e e
b e approved.
Governor S e a y «Seconded.
(The motion having been d u l y seconded, w a s carried.)
The Chairman.
T h e next subject i s "Restrictions
concerning loans and dividends when reserve i s deficient".
T will report that the Legislative Committee disapproved
o f the recommendations
o f Professor
that
Sprague
this S e c t i o n o f t h e N a t i o n a l B a n k A c t b e repealed.
W
e
were unanimous i n that, w e r e w e not, Governor Seay?
Governor Soaye Y e s , w e were unanimous.
The Chairman.
T
t was P h i t t h a t i t was a
provision a n d w o u l d a c t a s a
and s o forth.
restraint
wholesome
o n unauthorized loans
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Federal Reserve Bank of St. Louis
59
T
Governor Norris.
y
l u d i n g sentence
o f the
that
report. o n that subject i s " n n o Committee believes
make this prothe Federal Resevve A c t should b e amended t o
subject b e referred
vision less onerous a n d suggests t h a t t h e
to the Committee o n Legislative Metters."
T h e Committee o n Legislative Matters
o
The Chairmane
Committee,
considered t h a t a n d i t w a s f e l t b y t h e
and it so
recommended t h a t t h e statuto should remain unchanged.
Y o u refer t o o u r Legislative Com-
Governor Norris.
mittee?
Y e s e
The Shairman.
sO
G o v e m o r Fancher.
t
j
i
A n d t h a t Comnittes w i l l / r e p o r t i n
their report t o the Gonference?
The Chairman.
Yos.
Governor Norris. I
the c o n c l u s i o n s
move that w e heartily concur i n
o f t h e Logislative Commitsee
Govermor Biggs. I
o n t h a t matter.
will second that motion.
carried.)
(The m o t i o n h a v i n g b e e n d u l y s e c o n d e d w a s
The Chairman.
Nope L y S y e p B R S
Noe 1
W eW
w
o go back a n d take u p
a n d discuss t h e m o n thoir merits.
i g permit t h e deduction f r o m étmand deposits
o n other
of (a) exchanges for clearing houses, (b) checks
60
banks
i n t h e s a m o place,
a n d (¢) checks
i n process
of col
lection (whether with Federal Reserve banks o r correspondont
banks) according t o Federal Reserve schedule o f time required
for e c l l e c t i o n o f checks.
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Federal Reserve Bank of St. Louis
Governor Norris. I
move i t i s t h e s e n s e o f t h e C o n -
ference t h a t t h i s r e c o m m e n d a t i o n
i s inconsistent w i t h t h e
that
principles f o r which t h e system h a s been contending,
not a
a check i s a n i t e m f o r c o l l e c t i o n a n d i g
balance d u e
this profrom a bank a n d that w e accordingly recommend t h a t
posal b o not adopted.
Governor Calkins. I
will s e c o n d that.
(The motion having been duly seconded was carried.)
The Chairman.
visions
I t e m 2 is "retain the present pro-
o f the l a w that ‘ t h e n e t difference
o f amounts d u e
the basis o f
to and f r o m other banks! shall b e taken a s
ascertaining the net amount of balances due to banks."
move that w e concur i n that re-
Governor Fancher. I
commenda tion»
Governor Norris. T
gecond that motion.
(The motion having been d u l y seconded, w a s carried.)
He Chairman.
I t e m 3
is "Provide t h a t t h e reserve
banks b e 1 0
required t o b e held against n e t balances d u e t o
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Federal Reserve Bank of St. Louis
61
i n New Y o r k City
per centfor a l l member banks except those
and Chicagoe
( h i s involves a n increase o f the present
panks.
requirements o f 7 percent f o r country
move that this Conference agress
Governor Seaye I
with t h e p r i n c i p l e
o f t h i s proposal,
will require legislation,
b u t inasmuch a s it.
i t qould not b e advisable t o seek
an amendment a t the present time.
Governor McDougal. I
Tne Chairman.
h
will second that.
e 4 t h proposal i s "Provide t h a t
deposits a t the
reserve ghall b e carried against Government
game rate as against demand deposits."
The q u e s t i o n a p p e a r s
t e b e this:
S o m e h o l d that not-
a r e secured deposits
withstanding t h a t Government deposits
week I believe i t
they nevertheless a r e withdrawn twice a
for exempting
ig now, a n d tnat there i s no more reason
deposit.
them from having reserves t h a n a n y other
T h e
h a s established a
other p o i n t o f v i e w i s t h a t t h e T r e a s u r y
w h i c h results i n deposit:
practice o f selling their securities
which have a certain value;
t h a t t h e amount o f deposits
member banks h a s n o w
carried b y t h e R e s e r v e b a n k s a n d t h e i r
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Federal Reserve Bank of St. Louis
62
been reduced t o a minimum, w i t h r e s e r v e requirements o f
the c o u n t r y a s a
whole adjustec,
t h a t i t would i n v o l v e s o m e
inzonvenience a n d possible l o s s t o the Treasury t o make this
chango and it is not justified a t a time when the bank balanM r . Winston h a s stated I
ces o f the Treasury r u n down.
believe, although not t o me, that h e believes i n the principle o f strengthening t h e resorve positions o f the country,
including matters which m a y effect t h e Government adversely,
are
but that thie particular matter h e does n o t think t e
justified n o w i n effecting a
change, t h a t t h e importance o f
the subject h a s declained t o a point where i t i s not really
required.
T h i g would require legislation
Governor Harding.
anyhow.
The Chairman.
t would require legislation.
I
Governor McDougal.
A r e Government deposits exempt
under t h e l a w a t present f r o m roserve requirements?
Governor Young.
Governor Norris.
Y O S e
M y understanding i s that w e have
taken these questions u p n o w f o r the purpose o f expressing
Reserve
our feeling with regard t o thom leaving i t t o the
Board o r t o s o m e o t h e r a u t h o r i t y
t o decide whether a n y
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Federal Reserve Bank of St. Louis
63
effort shall b e madc t o get legislation i n oases where
legislation i s roquired, o r whethor n o efforts shall b e
made.
I
f I
u n d e r s t a n d i t c e r r e c t l y t h e p u r p o s e f o r whict
we have takon them u p i s t o express o u r opinion, a n d [ I
move t h a t
w e approve
o f the recommendation
t h a t Government
deposits b e required t o have reserves.
Governor Seay. I
will s e c o n d t h a t .
(The motion having been duly seconded was carried.)
The Chairmane T h a t disposes o f the roport o f the
Federal Reserve Agents' Committee o n Member Bank Reserves.
The next topic i s 1~L.
Advisability o f a n arrangement whereby
the Reservo banks would report chronic
cases o f reserve deficioncy t o the
Suporintendents o f banks i n t h e various
gtatos a n d t o t h e C o m p t r o l l e r
o f tho
CGurrency, O t C e
Govermor McDougal.
report t h a t i n Chicago
O
n that subject I
would l i k e t o
w e have f o r some t i m e past been
working i n conjunction with the State Department with a
view t o securing their assistance
i n the maintenance.of
reserves o n the part o f chronic offenders;
t h a t w e have
recently t a k e n i t u p a g a i n a n d w e h a v e t h e c o m m i t m e n t
of
each banking department represented i n our district, a n d we
find that quite helpful i n our efforts t o control t h e situatio
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Federal Reserve Bank of St. Louis
64
Goveror W e l l b o m .
I
t i s o u r practico
t o report
chronic cases o f reserve deficiency t o the C o m p t r o l l e rfo
he G u r r e n c y a n d t h e S u p e r i n t e n d e n t
gtates.e
I
o f Banks o f t h e v a r i o u s
n addition w e report s u c h cases
National B a n k Examiner.
t o t h e Chief
W o have a n understanding w i t h t h o
Chisf E x a m i n e r a n d S u p e r i n t e n d e n t
o f Banks t h a t t h e y will
warn t h e directors o f such banks o f their failure t o maintain
the r e q u i r e d r e s e r v e s a n d that t h e y a r e d o i n g s o i n v i o l a t i o n
of the law.
The Chairmane T h i s i s suggested b y the Reserve Board.
Is there a n y motion favorable o r unfavorable t o the suggestion o f the Board? Governor Seaye I
would suggest that y o u ask around
the table i f there i s not already i n existence s u c h a n arrange
mente T h e r e i s at our bank.
Governor Norris.
t T have n o doubt b u t that there i s
in every district, m o r e o r les
time, I
offer this resolution: I
move that t h e Conference
believes that a n arrangement o f the kind suggested b y the
Federal Reserve Board i s highly advantageous a n d request
the F e d e r a l R e s e r v e B o a r d t o c o n f e r w i t h t h e G o m p t r o l l e r
of
the Currency w i t h a view t o having t h e various bank examiners
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Federal Reserve Bank of St. Louis
carry o u t t h e part o f the program i t s i s suggested t h e y should
be responsible for.
Governor S o a y e I
The Chairman.
will s e c o n d t h a t motion.
T h e r e i s just o n e point about that,
Governor Norris, t h a t might cause m e t o hesitate t o vote f o r
the motion i n that form.
I f ve h a v e a n automatic arrange-
ment f o r reporting deficiencies i n reserves t h a t arise i t
will result i n a n automatic notico o f some kind going t o t h e
directors o f the momber banks.
A s a matter o f fact i n our
district thore a r o m a n y doficiencies, I
think t h e majority
of them, w h i c h arise through causes t h a t a r e ptterly beyond
the c o n t r o l
o f t h e m e m b e r banks.
F o r instance,
t h e y send
us paper f o r rediscount, calculating a certain amount o f
time.
>
M a i l s a r e delayed, t e l e g r a p h p o l e s a r e d o w n o r some-
thing o f that kind, through n o fault o f their own,a deficiency
arises a n d t h e n a u t o m a t i c a l l y t h e d i r e c t o r s
o f the bank would
got that notification.
Governor Talloy.
T h a t would not b e a chronic case,
Mre Chairman.
Govermor N o r r i s e
Tie C h a i r m a n e
T h i s d e a l s w i t h c h r o n i c cases.
W h e r e there a r e chronic enses
m y belief
4g that every reserve bank taacs t h e m u piswith t h e Chief
Hxaminer.
Governor Talloy.
Y e s , b u t w e d o not get very much
action.
have found i n m y district, w i t h
Governor Younge I
regard t o people w h o were short i n their reserves, t h a t i t
wouldn't make a n y difference h o w many letters y o u wrote o r
how much y o u took i t u p with t h e directors.
Y o u couldn't
do m u c h w i t h t h e m anyway.
Governor Talley.
W e have made a n analysis o f i t and
the fact i s that t h e banks t h a t a r e deficient i n roserve a r e
in a strained condition, j u s t grabbing a t straws, a n d they
pay t h e 1 0 p e r c e n t r e s e r v e
t o ease t h e m over a
We d o g o t h e l p f r o m o u r C h i e f Examiners,
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Federal Reserve Bank of St. Louis
right idea.
fev; days.
b u t y o u have t h e
I f the bank i s overstrained, t h e y have got t o
be left alone until t h e y g e t inshape t c keep t h e m up.
Governor Wellborn. I
have observed some banks which
are chronic cases t h a t are n o t borrowing a t all from t h e
Federal Reserve Bank.
T h e y merely g o along that way, a n d
keep f r o m borrowing until t h e y replenish their treasury, a n d
would rather p a y the p e n a l t y t h a n t o borrow.
T n e only remedy
ITgee i n regard t o this would b e f o r the Comptroller t o threaten t o take their charter away f r o m theme
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Federal Reserve Bank of St. Louis
D o e s n o t t h e motion b y Governor
Governor S e a y e
i n that y o u refer t o ?
Norris t a k e t h e m a t t e r
Governor Norris.
would i t k e t o u s e t h e
Y e s e I
vord “persistent” rather t h a n chroni:z, because t h e word
chronic a p p l i e s
to a
condition t h a t i s d u e t o causes b e y o n d
your control.
( T e motion having been d u l y seconded w a s unanimously
carried.)
Te Chairman. ‘ T h e nex
Fo R a t i o o f Bank Capital t o Depesits.
Governor Hardinge
The Chairman.
D o e s t h a t require legislation?
b
No.
because o f our oxperience w i t h t h e
k
g i n our district,
which are different o f course f r o m those i n Bovernor Talley's
and Governor Young's district, w h e r e t h e l o a n s accumulate
and the management o f the bank i s lax i n going after them.
One o f the first things i s t o g o after t h e m a n d t o increase
their c a p i t a l p r o p o r t i o n e v e n t h o u g h t h e r e i s n o impairment.
Te c a p i t a l p r o p o r t i o n s e e m s t o b e l o w v e r y o f t e n i n b a n k s
that have that condition.
I t i s a fact that the ratio o f
capital t o deposit liabilities
i n this country h a s been
constantly declining o v e r a considorable period o f years,
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Federal Reserve Bank of St. Louis
68
partly d u e t o t h e f a c t t h a t b a n k d e p o s i t s w e r e e n o r m o u s l y
increased during t h e period o f inflation caused b y the war,
and o u r bolief i g that i f the Fedoral Resexvye Barks,
i n deal-
ing with t h e larger membors, w h e r e a n application comes in,
for instances, f o r the right t o oxercise fiduciary powers,
or gome o f the special privileges t h a t a r e granted under t h e
Act, s h o u l d consider capital requirements a s a very important
olement i n considering t h e application,
situation,
and I
i t would Detter t h e
think t h e w h o l e p o l i c y o f t h e s y s t e m g e n e r a l l
should be t o encourage and urge the banks, where their ratio
of capital t o deposits i s low, t o increase their capital.
Goveraor Talley.
The Chairman.
W h a t rate d o you think ought t o
1 0 per cent.
Governor Talley.
W e have a state l a w i n our state
to that effect.
Governor Harding.
I n a majority o f cases i n the New
England banks w e have a capital ratio o f L O per cent, capital
to deposit.
O n e bank with a
has $50,000 capital.
million d o l l a r s d e p o s i t o n l y
O w i n g t o adverse conditions i n the
potato i n d u s t r y t h e y h a v e b e e n t h e h e a v y borrowers.
I
L start:
after them a year ago t o get them t o increase their capital.
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Federal Reserve Bank of St. Louis
69
they are
They c o u l d n o t d o i t v e r y w e l l a t t h a t timc, b u t
going t o d o i t now.
T h e y h a v e c o m e around;
t h e y have t h e
money. Potatoes are now solling at $4025 a bushel and they
capital
are cleaning up. T h e y a r e going t o increase their
toperhaps $150,000.
The Ghairman.
O u r recommendation i s o f this character:
That i t should b e the policy o f the Reserve panks,
with t h e i r mombers, w h e r e o p p o r t u n i t y a r i s e s
i n dealing
t o d o so,
to
capital where
induce t h e m t o i n c r e a s e t h e a m o u n t o f t h e i r
lower
the ratio o f capital t o surplus a n d liabilities i s
than 1 0 per cent.
Governor McDougal.
Y o u a r e dealing w i t h this from
the standpoint o f capital a n d surplus?
The Chairman.
T h e i r own investment i n the bank,
capital a n d surplus.
?
Governor Seaye
W i t h respect t o banks a t large t h e
case does not seem to be bad, but it is with individual panks,
The Chairman.
T h e tendency t o get below t h e 1 0
per cent ratio i s increasing.
Governor Wellborn.
I
n connection w i t h this question
the
we are confronted with a situation i n Florida, where
deposits h a v e increasec onormously, a l l o u t o f proportion
to capital.
W e have been somewhat alarmed about that. I
70
they a r e n o t
have h a d some figures made here t h a t s h o w that
lending thoir deposits;
t h e Flouda banks a r e n o t loriding
call i n Now
their deposits, b u t are putting that money o n
York o r buying commorcial paper and Govermment bonds.
not as serious a s w e thought i t was a t one time.
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Federal Reserve Bank of St. Louis
I t is
< A groat
o f their
many o f tho banks i n Florida a r e n o t lending half
i n a rather safe
deposits, a n d i t soems t o m e that puts t h e m
position.
f r o m some
[ T would like t o hear some expressions
of y o u o t h o r g o n t l e m e n
o n the gubject because
w e expect w h e n
there will b e quite a
thig b o o m i s o v e r i n F l o r i d a t h a t
re-
hard t o collect loans i n
cession i n deposits and i t might b e
Some i n s t a n t e s e
will second t h e resolution pre-
Governor Norris. I
sented.
Governor Calkins.
ment o f policy,
T h i s i s only intended a s a state-
i s i t not?
The Chairman.
r a t i s all, j u s t a general statement
of p o l i c y i n t h a t direction.
carried.)
(Tho motion having been duly seconded was
The Chairman.
T h e next topic i s 1-Gs
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Federal Reserve Bank of St. Louis
In the oxtendion o f credit o r handling
transit items i s i t the duty o f Federal
Reserve Ranks t o asstme t h o responsibility
of determining t h e solvency o r insolvency
I
of m e m b e r banks?
s not this entirely
within t h e pravince a n d a duty o f the
Gomptrollor o f the Curroncy?
Governor Railoy. I
to o u r cash letter. A
put t h i s q u e s t i o n
o n with regard
man started a suit against us.
The
amount i s not very serious, b u t i n t h o suit i t i s charged
that w e had knowledgo t h a t this was a failing bank a n d
therefore w e had n o business i n sending h i s check there
to c o l l e c t i t .
I
t w a s n o t paid.
H
e claims
w e ougnt
to have g e n t i t t o another bank i n that town. I
took t h e
position t h a t t h a t w a s t a e C o m p t r o l l e r ' s d u t y a n d t h a t a s
long a s t h e bank i s going w e are justified i n sending t h e
O f course w e are protected under o u r regulations.
Letter.
It doesn't a m o u n t
make a
t o anything,
b u t i f we had t o gtop a n d
separate investigation e v e r y d a y o f these banks
in
sending letters o u t w e would certainly h a v e a big j o b o n our
handse
T
I do not know whether
here, b u t I
t h e matter
c a n b e determined
wanted t o g e t a n e x p r e s s i o n a s t o w h a t t h e o t h o r
banks were doing.
I f a bank has been remitting all the
time a n d t h e C o m p t r o l l e r ' s O f f i c e a l l o w s t h o m t o r e m a i n open,
ig not that justification f o r u s i n sending c a s h lettors t o
them?
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Federal Reserve Bank of St. Louis
72
Governor Wollborn.
W
e have been confronted w i t h t h e same
gituation, a n d w e take t h e position that i f w e d i c not send
the F e d e r a l R e s e r v e B a n k t h o s e c h e c k s a n d s e n t t h e m t o s o m o
other bank, t h a t i t would breax t h e bank.
Governor Youngs I
think t h e regulations o f the
Board free y o u from everything oxcopt negligence, a n d w hat
“negligence’ i s , will b e dotermined b y a jury, a n d b y n o
One
h a t i s what I
Governor Baiioy.
a m trying t o bring
out, whother w e aro nogligent i n not taking notice?
T h a t igs a risk t h a t Minneapolis
Governor Young,
has taken f o r fivo years a n d i s still taking.
Y o u cannot
evade ites
W o . don't lose any great amount.
Governor Bailoy.
We charge i t back t o the ondorsers a n d i t all comes b a c k
in t h e wash, a n d w h e n w e t a k e a
check w e a r e s a f o r t h a n
when w e d o not.
W e don't got i t back.
Governor Young.
W e have
quite a considerable amount i n Montana which I wish someone e l s e had.
T h e r o i g o n l y o n e w a y t o p r o t e c t yourself,
and t h a t i s t o s e n d a
m a n o u t t h e r e a n d p r e s e n t t h e check.
Governor Bailey.
I n s t e a d o f going 5 0 0 miles,
in
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Federal Reserve Bank of St. Louis
cases,
i n order t o d o that w e had better tako t h e
chance o n the banks.
D o y o u wish action o n this topic?
The Chairman.
N o , I
Govermmor Bailey.
just wanted t o call i t u p
and get a n expression f r o m t h e Governors a s t o h o w t h e y
nandled it.
The Chairman.
gire a n y a c t i o n
G o v e r n o r Bailey says
@ a 9 e s not de-
o n this.
Goverror Calkins.
I t i s one o f those cases i n
which w e aro reasonably protected i f w e exercise d u e diligence a n d are n o t protected i f w e are negligont.
Governor Soaye
T o e l a w i s mandatory a s t o o u r re-
ceiving checks o n member banks, but i n the last analysis
the courts will always have t o determine w h a t t h e responsibility is.
The Chairman, I
d o not belisve anything c a n b e done
here t o settle t h e question.
W e are taking a risk a n d w e
have got t o take it. W i t h Governor Bailey's permission w e
will pass Topic G without action and take u p Topic H, which
is:
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Federal Reserve Bank of St. Louis
74,
Would i t b e a d v i g a b l e f o r Federal R e s e r v e
Banks t o m a k e l o a n s t o m e m b e r b a n k s o n
a promisory n o t e f o r a longer p e r i o d
than 1 5 d a y s w h i c h i s n o w t h e l a w ?
That also i s suggested b y Kansas City.
Governoe Bailey.
T h a t i s another matter with regard
read t h e
to which w e have never come t o any conclusion. I
they put o u t a questionnaire
report o f the Trust Company Committee,/and I was surprised
at t h e n u m b e r o f o b j e c t i o n s
than 1 5 days.
t o n o t taking t h e m f o r longer
S o f a r a s w e are concerned, I
is long enough. I
think 1 5 days
do not know whether you gentlemen read
the report o f that Committee, b u t t h e Chairman stated that
here w a s a large number t h a t objected t o the fact that t h e y
would n o t t a k e m e m b e r b a n k n o t e s f o r m o r e t h a n 1 5 days.
matter has been digcugsed before, b u t never concluded.
This
C a n
any one tell m e the reason w h y they should n o t take t h e note
of a member bank f o r 3 0 days?
B e c a u s e t h e l a w does not permit i t
Governor McDougal.
Governor Wellborn.
W e find i t good practice t o have
them t a k e u p t h e d i s c o u n t s a n d g i v e u s a
because
n o t e i n place o f i t
i n c a s e o f i n s o l v e n c y w e c a n p u t i n o u r w h o l e claim.
Governor Young.
I n Minneapolis i t would b e very
much t o the advantage o f the Federal Reserve Banks a n d t o
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Federal Reserve Bank of St. Louis
the country banks t o extend i t t o 9 0 days.
Governor Wellborn.
T h a t would require n e w legisla-
tion, w o u l d i t not?
Governor Young.
Y e s s
M
y experience
i n t h e agri-~
cultural section h a s besn this, t h a t y o u c a n get paper t h a t
is good and that i g going to be paid, but there isn't anybody
in the world c a n tell o n what date, because i t depends o n the
element, transportation a n d s o forth.
W e have a great deal
of agricultural a n d livestock paper o n rediscount which h a s
gone past d u e because there h a s boen a lot o f bad weather
out there a n d they could n o t move t h e crops.
that y
I f you called
n i c k e v e r get the money, b u t i f you let t h e banks
hold i t as past d u e paper y o u will g e t the money. I
think
there a r e opportunities i n this o f avoiding a great number
of the c#iticisms t h a t are leveled against t h e Federal R e ~
Serve S y s t e m e
Govermor Bailey.
was t h e n u m b e r
W h a t called m y attention
o f objecticngs
to it
t o having o n l y 1 5 d a y paper
in the questionaire w h i c h I referred to,
The Chairman.
I s not this probably t h e explanation
for t h e difficulty, t h a t t h e Federal Reserve A c t was prepared b y a group o f men who were n o t bankers, a n d d i d not
have intimate connection w i t h banking, d i d not know what t h e
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Federal Reserve Bank of St. Louis
76
practices were}
w e did not have a n y bank o f issue i n this
country s o they attempted t o adapt t o the banking system
of this country certain practices t h a t prevailed i n Burope
in central banking which were absoluvely i n applicable.
reason I concluded t h a t that was t h e cause,
T h e
O r one reason, W a s
that when these b a n k s were organized the first regulation
put o u t b y v h e Federal Reserve Board was regulation No. 1 3 - you w i l l r e m e m b e r G o v e r n o r H a r d i n g t h a t i t b o r e a
number t h a t
was unfortunate f r o m t h e start - - a n d that regulation w a s
predicated,
a s I recall it, u p o n t h e theory that Dr. Willis
and some others h a d that w e h a d real self-Liquidating paper
in t h i s country.
about i t .
I
Y o u will remember t h e discussions
t developed t h a t t h e r e w a s a
w e had
theory a p p a r e n t l y
in the minds o f the Committee o f Congress, t h a t that paper
W e
would automatically spring into existence over night.
came over here o n regulation 15. G o v e r n o r Harding took a
Look a t i t a n d c o n v i n c e d s o m e o f t h e t h e o r e t i c a l p e c p l e t h a t
there wasn't a n y such thing a s golf-Liquidating paper s u c h a s
existed, gay, i n the London Market, a n d some provision had
to b e made t o deal with commercial paper especially.
Regu-
lation 1 3 c o n t e m p l a t e d r e a l l y t w o ~ n a m e p a p e r , t h a t i s t h e
paper o f a merchant given i n settlement o f an accounte
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Federal Reserve Bank of St. Louis
i d
As a matter o f fact banks o f issue m a y have t w n types
of leans that they make, a n d they have t w o rates a s a usual
thing.
T h e y have the type o f loan which they call their
Lombard Loan,
i n the case o f the Bank o f England, a n d t h e
rate o n that l o a n i s different f r o m their discount rate.
It i g the common practice i n all banks abroad t o lend money
upon s e c u r i t y u p t o 9 0 d a y s a n d e v e n l o n g e r
Lombard loans,
a n d t h e discount r a t e applies
o n what t h e y call
t o those self-
liquidating bills which are hoavily dealt i n i n the money
market ~ ~ a n article o f commerce almost - ~ and are t h e type
of c r e d i t o f t h e b a n k o f i g s u e w h i c h i s r e l a t e d d i r e c t l y
to the money market rather than t o the commerce a n d industry
of the country. I
harm; I
personally d o not think i t woulu d o any
do not think i t would impair the Liquidity o f the
resorve banks i f this provision about 15-day collateral
loans w a s extended somewhat.
want to go too far.
However I
do not think w e
I t igs a priviloge that won't be used
by the b i g city banks a t all.
Governor Harding.
I t would b e a convenience t o the
country venks because s o m e o f the bankers u p i n Maine complain t h a t b y t h e time they send t h e paper down t o m y office
it i g almost time t o remew i t again.
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Federal Reserve Bank of St. Louis
78
Governor Seay.
count p a p e r
A s a matter o f practice w e d e dis-
i n bulk f o r a s p e c i f i e d time.
theory w h e n t h e l a w w a s a m e n d e d
days.
W
e invaded t h a t
t o permit discount
u p t o 15
held a t
T h a t w a s a n invasion o f t h e theory which w a s
the beginning.
F o r the life o f me I cannot see what harm i t
would do, considering t h e practices i n this country,
t o go a
step further a n d invade t h e theory just a little further
with a longor period.
The Chairman. I
arise,
will tell y o u where t h e harm would
i f i t did arise a t all.
A s w e all know there i s a
that still mainlarge number o f banks i n the country today
because
tain their relationg with their city correspondents,
their
of this v e r y thing, whereby t h e y c a n g o t loang o n
portfolio,
than
o n their commercial p a p e r a t higher rates
the r e s e r v e d i s c o u n t rates,
a n d they prefer
t o aaintain
where t h e y c a n
an account with their c i t y correspondents
months o r
borrow money o n their commercial paper f o r three
New York Clty
MOLre s T h e r e a r e three o r four b i g banks i n
that d o a
very large business w i t h t h e members
tricts o f just such character.
i n otnerdadoe
T h e advantage o f having
them d o s o n o w i s t h a t i f t h a t b u s i n e s s w a s d i v e r t e d
t o us
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Federal Reserve Bank of St. Louis
79
14 would involve a
very considerable oxpansion o f credit b y
the Reserve Banks a n d some inflation o f credit.
N o w they
borrow direct from t h e members a n d these membors a r o taking
caro o f that volume o f eredit without calling u p o n t h e Reserve R a n k f o r a S m u c h a c c o m m o d a t i o n
a s they would call f o r
if the whole bulk o f that borrowing w a s turned right over t o
US
W h a t a r e t h e banks charging o n a n
Governor McDougal.
account o f that character’
think that t h e S o u t h e m a n d Western
The Chairman. I
Banks a r e charging 5
per cont, a n d moro i n many casese
Governor McDougal.
D
o y o u tnoink t h a t t h e c o n v e n i e n c e
of borrowing that w a y would offset i n many cases,
i n the
minds o f the borrower, t h e additional r a t e involved?
The Chairman.
I t does.
Governor Seay. T h e r e i s one difference a n d would b e
ono difference between t h e action o f the reserve banks a n d
of t h e c o r r e s p o n d e n t banks.
I
n t h e c a s o o f t h e reserve
panks those loans would b e made o n l y against oligiblo paper
and collateral, a n d the convenience o f the borrowing country
bank i s t h a t i t m a y l u m p a l l t h i s s t u f f
along t o the city correspondent.
i n bulk a n d g e n d i t
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Federal Reserve Bank of St. Louis
BO
Governor Calkinds.
T h e n a much greater considera~
tion i s the difference i n time.
personally doubt,
The Chairman. I
i f the time were
Lengthened i n the Reserve Act, whether i t would result i n any
considerable attrition t o our loans.
Governor McDougal.
D o you membor banks make 4 prac-
tice o f using t h e 15-day notes secured b y eligible paper?
The Chairman.
Y e s , w e have quite a good deal o f it.
Governor McDougal.
Tho Chairman.
W e oncourage it.
Governor McDougal.
oO &
Governor Bailey. I
for d i s c u s s i o n
D o you encourage i t o r discourage
W
e discourage i t .
put this topic o n the program
i n order t o f i n d o u t what t h e opinion was.
t the e n d o f a settlement period
Some o f our large b a n k s a
Wilk D e r r O w L O M & day.
T h e y p u t i t i n f o r 1 5 days, b u t
thoy take i t u p the d a y after tomorrowe I
have n o object-
ion t o that, b u t I put i t o n the program because o f the
large number o f objections which came from t n e country banks
that t h e y ought t o b e allowed t o borrow f o r longer t h a n 1 5
days.
W e have adopted t h e policy, w h e n a bank gets over-
extended, o f taking a 15=day not rather than have them
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Federal Reserve Bank of St. Louis
61.
discount, bocause w e c a n get action o n that quicker.
W e
lump t h e whole thing i n and make t h e m renew i t every 1 5
days
n a case like that w e would rather have t h e 15-day
I
note t h a n t h e 5 0 - d a y note.
Governor Seay.
reason quite a
T h a t i s availed o f a s a n ostensible
number o f country banks remain o u t o f the
believe t h a t i s one reason, a m o n g others, w h i c h
System. L
they give.
Governob Harding.
T h e l a w could b e amended s o that
they could b e taken f o r a period n o longer than 3 0 days, a n d
then t h e y c o u l d b e m a d e f o r 1 0 d a y s i f y o u w a n t e d t h e m L O »
Govermor Seay. I
believe
i f the period were made 6 0
that n o harm would rosult.
Governor Young.
W i t h rogard t o the country banks,
some o f thoge banks fagure t h e intorest a n d add i t t o t h e
note a n d others d o not.
the i n t e r o s t
individual
i s added,
W h e n i t comes t o us, o f course
a n d that requires
i t e m a n d i t rakes
a n endless
a n entry f o r each
amount
o f work. A
man may want $10,000 worth o f credit and sends i n {10,000 o f
what h e considers:cligible notes.
O n e o f our boys i n the
office finds that a date has been altered o r something o f
that k i n d a n d h e s e n d s t h a t n o t e back.
T h a t irritates t h e m
82
T h e y have t o send i n another noto,
and they don't like it.
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Federal Reserve Bank of St. Louis
It weuld be better t o go back t o the old method which has
been found successful i n the agricultural a n d livestock
secticns before, and that is that the bank sends i n $15, 000
worth o f notes a n d s a y that they want $10,000 worth o f
credit,
U n d e r those conditions
i t would b e e a s y f o r u s t o
get $10,000 worth o f oLigible papor t o cover that note.
do n o t h a v e t o b o t h e r t h e m a n a b o u t
entry o f t h e intorest.
I t i s oasier
i t a n d h o makes o n l y o n e
t o do. I
is a whole l o t o f merit t o the suggestion, a n d I
it will d o any harm atall. I
W e
think t h e r e
do not think
do believe i t will g e t r i d o f
a l o t o f complaints.
The Chairman.
A r e there a n y other oxpressions o f
views?
Governor Pancher.
A t the Gonference i n April,1924,
our bank recommended that t h e l a w b e amended s o that w e might
take 9 0 ~ d a y n o t e s w i t h G o v e r m m e n t b o n d s a s gecurity.
Wea
have h a d a good many objections f r o m banks about t h e trouble
of renewing t h e 15-day note a n d carrying t h e Government s e c u r
ities along. I
was impressed w i t h t h e statement o f Governor
Bailey and with the report of the Committee t o which h e rem
ferred,
o f the number o f banks objecting t o the Federal
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Federal Reserve Bank of St. Louis
B83
Reserve Banks n o t taking a bank‘s note beyond 1 5 days. I
was very much impressed w i t h t h e objection a n d I cannot see,
if gome limitation w a s placed a s t o taking a note n o t t o
oxceed 6 0 days, w h e r e v e r y m u c h h a r m w o u l d ensue.
Governor Harding. I
and i t would have a
think i t would b e boneficial,
good effect o n the country banks.
I t would d o a s much t o swoeten
Governor Fancher.
gome o f o u r c o u n t r y b a n k s a s a n y t h i n g I
are a n n o y e d b y t h e s e i n e q u a l i t i c s ,
can think of.
They
a n d b y t h e things t h a t
Governor Young h a s brought out, where t h e y send i n paper
which, bocauso o f somo irregularity has g o t t o b e sent back,
t
i
and where mure o r less irritation i s caused b y c o r r e s p o n d e s
ever s o m e v e r y s m a l l t e c h n i c a l thing.
Governor Galkins. I
would n o t b e o p p o s e d t o t h e e x -
tension o f the time t o $ 0 days when t h e note i s secured b y
eligible paper,
but I
d o not believe
on G o v e r n m e n t s e c u r e d p a p e r e I
i t should b s extended
also t h i n k ,
i n order t o
be scientific, t h a t w e should follow t h e practice o f t h e
older banks i n making a different r a t e botween what y o u call
self-Liquidating paper,
o f which y o u s a y there isn't a n y = ~
The Chairman. (Interposing)
O h yes there is now.
The acceptance h a s come into oxistence.
B4
Governor Calkins.
W e ought t o discriminate v e r y
cLloscly between t h e t w o characters o f transaction, a n d
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Federal Reserve Bank of St. Louis
without those amendments I
would b e opposed t o the extension
to 9 0 dayse
ne Chairman. I
want t o call your attention t o some-
thing about the Reserve bank rate structure. D i s c o u n t i n g
commercial papor a s w e n o w He: i s equivalent, u n d e r t h e
English system a n d the Continental system,
account.
t o a n advance
W h e r e n o note i s signed that i s a n overdraft.
If instead o f doing that w e loaned t o our member Lanks o n
securities
o r anything e l s e eligible f o r a
Lombard loan, t h e n
we would get t o a position where w e have a bank rate, w h i c h
4s really t h e rate f o r Lembard loans, a n d a real discount
rate, o r the rate for buying bills, a s i n the case o f the
Bank o f England.
come slowly.
S u c h a condition o f course h a s g o t t o
T h e real contact w i t h t h e money market i s
going t o b e through t h e bill rate, t h e credit w e extend t o
our customers, t h e member banks, a s distinguished from the
street,
g o t o speak:
t h e credit w e extend f o r the benefit
of commerce a n d industry i s the credit that w e will grant
on the go-called Lombard loans, whether i t i s discounting a
vommercial note o r a collateral note, a n d that i s one thing
that h a s r e m o v o d t h e l a s t o b j e c t i o n t h a t I
had i n m y m i n d
to oxtending t h e time o n collatoral loans t o our member
banks e T h a t condition i s gradually approaching, a n d o f
in the course o f time
money m a r k e t s
w o will have c n o o r two o r threo
i n the country where t h e influence u p o n rates
and t h e a c t i v e c o n t a c t o f t h e b a n k w i t h t h e m o n o y m a r k e t
will b e through t h e bill market a n d t h e Government secured
market,
o r Government securities.
I
n that w a y the exten-
gion o f credit generally throughout t h e country will b e b y
Lombard loans a t a Lombard rate, w h i c h will b e just above
the b i l l r a t e i n t h e m o n e y centers.
development. I
am not opposed
good thing t o do. I
I
t o it.
t is a
wholesome
S B O E B O ia tome arialige es)
would like t o see a restriction im-
posed u p o n l o a n s s e c u r e d b y G o v e r n m e n t b o n d s
i n order t h a t
they m a y b e k e p t short, d o w n t o 1 5 days.
Governor Bailey.
of policy?
c o u l d not that b e done b y a
matter
I f you have your maturity longer than 1 5 days
you are i n a position t o discuss w i t h your borrowing member
yanking seeking credit the question o f how long you are willing t o l e t h i m h a v e t h e m o n e y f o r .
Mr. Chairman, I
make t h e m o t i o n t h a t t h e C o n f e r e n c e
of G o v e r n o r s L o o k s w i t h f a v o r u p o n a n a m e n d m e n t
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Federal Reserve Bank of St. Louis
o f the law
B86
extending t h e t i m e o n 1 5 - d a y p a p o r
t o 6 0 days, w h e n s u c h
note i s secured b y paper w h i c h will b e eligibie f o r rediscount.
second that.
Govermor Norris. I
e
mot
h t o r T h a v( i n
e been duly seconded was carried.)
©
Governor McDougal. I
desire t o be recorded as having
voted n o .
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Federal Reserve Bank of St. Louis
(Whereupon a t 1.15 o'clock p. me, the Conference
recessed until 3 o'clock p. me of the same day.)
AFTER R E C E S S
Conference reassembled pursuant t o recess a t 3 o'clock p.m.
The Chairmane
T h e meeting will please c o m e t o order,
The Oyen Market Committees ‘has drafted a
been c o n s i d e r e d
report, w h i c h has
i n advance a n d i s i n y o u r hands.
{ P e peitas,
your pleasure t o postpone consideration o f that report until
you h a v e h a d t i m e t o r e a d i t ?
W i t h o u t objection
i t will
be passed for the time being.
I suggest that a s Mr. Strater i s t o b e here this morn-
ing, that w o postpone Sections 2 and 5 and take u p Section 4,
operation a n d administration.
87
reports o f examination
«>fof, C o s t o f gecuring
of National Banks.
t o 8 Committee c o n s i s t i n g
That m a t t o r w a s r e f e r r e d
a n d myself.
of Messrse H a r d i n g , N o r r i s
absence I
was u n a b l e
O
n account
o f m7
discust o conclude t h e preliminary
t o proo f the form o f letter
gion with the Comptroller
increases i n the cost.
tect u s against unwarranted
now, o r
charge h a s gone d o w m
Governor Harding. T r e
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Federal Reserve Bank of St. Louis
is to go dow t o $5506
W e have prepared a
The Chairman.
form o f letter
the
w h i c h w e hope will moet
which Mr. Harrison drafted,
yours.
Comptroller's v i e w a n d
I
cm~
t has n o t y e t b e e n
o r postut w e c a n take i t u p now
pone i t until t h e Committe:
Governor Norris.
A
n a s discussed it.
s a
I
member o f t h e C o m m i t t e e
satisfactory
Mr. Harrison.
pear Mr. Gomptrolier:
In o u r d i s c u s s i o n
payments m a d e
o f the question o f
I
o f national banks,
examination
o
f
reports
for
understand t h a t I
of 4
was s p e a k i n g a s C h a i r m a n
thins y o u
gmail
&8
Committee consisting o f Governors Harding, Norris a n d myself.
It w a s a p p o i n t e d a
year a g o b y t h e Governors
Reserve B e n k s w i t h i n s t r u c t i o n s
o f t n e Federal
t o discuss t h i g subject w i t h
you.
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Federal Reserve Bank of St. Louis
i n
Our t a l k c e r t a i n l y m a d e c l e a r t h e f a c t that] t i e
crease i n the charge t o $10 p e r report was largely t o enable
you t o meet a serious omergency which h a d arisen i n connoctoution with bank oxamination a n d bank supervision a s a n
pringrowth o f t h e m a n y b a n k f a i l u r e s w h i c h h a d d e v e l o p e d
Cipally i n the middle west, a n d that i t was n o t your expectare-
tion t o continue t h e charge n o w made (which has not e n
duced from $10 t o $5.50) but that at the earliest opportunity y o u h o p e t o e f f e c t a
further r e d u c t i o n t o , s a y ,
$5
per report.
t n e
o i o F the Governors o f the Federal Reserve
Banks a r e a g r e e d a s t o t h e v a l u e o f t h e reports,
a n d especial~
ly a s t o the value o f the cooperation which w e have been
of
go fortunate i n establishing with you and with the members
your organization.
T h e y desire that this shouid continue
and they wish t o p a y what w e may agree u p o n b o b e a Fair
reimbursement
t o t h e Bureau f o r t h e cost o f the preparation
of these reports.
T h e y are, a S I have explained t o you,
the f e e
most anxious t h a t t h e principle b e established t h a t
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Federal Reserve Bank of St. Louis
89
to b o p a i d f o r t h e r e p o r t s s h a l l b e r e a s o n a b l e r e i m b u r s e m e n t
for the cost o f making t h e copies, t h a t cost t o b e strictly construed,
s o a s t o cxclude a n y possibility o f a cnarge
upon t h e Federal Reserve B a n s f o r paying a n y part o f
the expenses o f tre examination o f national banks, b u t
possibly t o take into consideration certain eloments o f
cost i m p o s e d u p o n t h e B u r e a u b e y o n d t h e s i m p l e m e c h a n i c a l
of t h e c o p l e s e
inclined t o believe t h a t t h e establishment o f
this principle and the fixing o f a price o f $5 per report,
with t h e assurance t h a t that will give that increase i n
the c o s t w i l l n o t b e h e r e a f t e r requested,
w i l l satisfy t h e
officers o f the Federal Reserve Banks, a n d i f y o u are agreeable t o thig proposal, I
4% t o t h e m e m b e r s
shall t a k e pleasure i n submitting
o f t h e Comuittee w i t h t h e recommendation
reported a t the next Conference o f Governors
as a concluded arrangement subject o n l y t o ratification
by t h e Conference.
Hoping that this w i l l e n t i r e (
y o u r views a n
agsuring y o u o f m y
this matter, I
beg t o remain,
"Very truly yours,
STRONG.
irman o f the Conmittee.”"
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Federal Reserve Bank of St. Louis
move that that b e adopted a s the
Governor Seay. I
wish o f t h e G o n f e r e n c e a n d t h a t i t b e a p p r o v e d f o r discussion w i t h t h e Comptroller.
will second that.
Governor Young. I
D o y o u understand h e has voluntar-
Governor Calkins.
ily reduced the cost t o $5-.500
Mu, Harrison. Y e s , effective December 1.
The Chairman.
T i a t letter
stricting h i m t o o much,
i s intended, w i t h o u t r e -
t o prevent unwarranted increases i n
the cost o f these reports i n case t h e y r u n short o f money.
Would that satisfy you. Governor Bailey?
Governor Bailey.
Y e s , Mr. Chairman.
Governor McDougal.
A n d i t also places this organiza-
tion o n record.
(The m o t i o n h a v i n g b e e n d u l y seconded,
The Chairman.
w a s carried. )
T h e next topic i s
4sBe E f f e c t i v e n e s s o f budget control o f the
expense o f o p e r a t i n g a
Banke
Federal R e s e r v e
This w a s suggested b y the Fodsral Reserve Board, a n d
the comment is:
A t the present time t h e Federal Reserve
Banks o f N e w York, P h i l a d e l p h i a , C l e v e l a n d , R i c h m o n d ,
Chicago, Minneapolis a n d S a n Francisco a r e operating under
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Federal Reserve Bank of St. Louis
budgets prepared a
Budget Committee, (Messrs. Runds, Fleming and Smead). a
is expected that t h e discussion o f this subject a t t h e
Conference w i l l b e l e d b y t h e G o v e r n o r s
o f those banks f o r
the benefit o f the Governors o f the other banks which have
not y e t a d o p t e d a
budget system.
New York w a S t h e first bank t o introduce t h e budget.
You have heard m e digcourse about t h e budget before.
T h e
last
realtest o f the value o f a budget h a s come within t h e
year a n d a
it.
half, a f t e r n o a r l y s i x years
o f operation u n d e r
L l am more convinced t h a n over t h a t w h e n i t i s properly
operated a n d i s employed n o t a s a method o f simpl: apportionis
ing o f expense b u t o f controlling expenditure, t h a t i t
T h e r e s u l t s s p e a k f o r themselves.
very offective.
W e were
of course faced with t h e problem o f absorbing t h e cost o f
°
maintaining a very largo building, t h e largest o f any reserve
pank, a n d t h e most expensive.
Vora }
a
T h e business o f the N e w
r w e e s t i m a t e d p r o b a b l y 1 0 o r 1 2 per c e n t
more i n volume t h a n i t was t w o years ago.
T h e
running t h e bank this year, t a k i n g into account taxes - - and
the building i s assessed a t sixteen a n d a half million dollars
cost o f operating t h e building a n d quarters, a n a everything
having t o d o with t h e operation o f the puilding, notwithstand-
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Federal Reserve Bank of St. Louis
ce
ineea) the increase i n business activity,
>
less
1 31 $500,000
??
this year than it was two years ago, and $150,000 less than
last year.
W e attribute t h a t t o t h o budget control.
is a l l i n t h e w a y y o u o p e r a t e i t .
{ t
T h e miles governing t h e
call
expense account which apply t o this pudget arrangement
over
for a committee o f officers twice a weex t o meet a n d g o
every expenditure o f the bank.
T h o s e expenditures must
close
be j u s t i f i e d a n d i t t a k e s h a l f a n r n o u r a n d s o m e t i m e s
to a n h o u r o f t h e t i m e o f t h r e o o f f i c e r s t w i c e a
Mr. Harrison.
woek.
A s a matter o f fact, Mr. Cnairman,
they m e e t e v e r y day.
Toe Uhairman.
it h a s b e e n r e d u c e d
I t does n o t take v e r y long because
t o a routine.
cation o f o u r departments,
they are doing.
I
t has meant t h e odu-
w h i c h have g o t t o justify what
E v e r y year, w i t h o n e exception, t h e cost
of operating t h e bank h a s been v e r y considerably lessened,
and s o far a 8 w e are concerned I
think t h e budget system
has w o r k e d oxcellently.
Governor Fancher.
W e have h a d the budget systom i n
eperation since July o f 1924, about 1 8 months, a n d o u r
experience h a s been I think a
very satisfactory one.
think w e have much better control o f our expenditures.
W e
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Federal Reserve Bank of St. Louis
93
We do what the New York Bank does i n the matter o f reviewing
expenses. A
vouchers
committee o f officers
g o over s h o expense
g o that t h e heads o f departments a n d j u n i o r offi-
cers know that all expenditures a r e being v e r y carefully v e
W i t h regard t o the operation o f
viewed a n d checked up.
our building,
w e have g o t o u r operating c o s t down very lowe
minds o f all o f
We t h i n k w e h a v e t h e m a t t e r v e r y m u c h i n t h e
our executives,
a n d w e t h i n k i t i s p r o v i n g v e r y effective.
Tae Chairman.
A l l but three o f the Reserve banks
either have a budget system o r something that approaches i t e
Governor Norris.
S e v e n banks a r e mentioned h e r e a s
operating under it.
Governor Biggs.
W
e a r e o n e o f t h e banks t h a t h a s n e v e
gone into the budget system.
W e have what is known as the
local sprogedure. committee that always g i v e s careful
conjideration
t o expressions
peen a b l e t o g e e w h e r e
o f expense.
W e h v e not yet
w e would b e benefitted
the s o - c a l l e d b u d g e t system.
b y adopbins
T h e matter h a s been discussed
with officers c f other reserve banks where t h e system h a g
peen i n effect, a n d w e are reasonably.well convined that
cur efforts i n the interest o f economy a n d officiency h a v o
been s o su&tessful thatithey should n o t b e interfered w i t h
or complicated by the adoption of a budget system.
I t is u
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Federal Reserve Bank of St. Louis
94
system
quite o b v i o u s t h a t i t i g m u c h e a s i e r t o o p e r a t e t h e
I
we have i n a smaller bank t h a n i n a larger bank and
am
the
gatisfied that with Cleveland, B o s t o n a n d some o £
other banks t h a t i t might b e highly desirable.
S t i l l we
do not think i t would holp u s very much.
W
Governor Norris.
we
e w e r e r a t h e r skeptical w h e n
lookwent into it, a n d t h o Board's Budget Committee, a f t e r
must n o t expect a n y
ing over o u r situation, g a i d that w e
startling g r e s u l t s f r o m i t e H o w e v e r
it.
w e decided w e would t r y
m v e taken
W e have found that the heads o f departments
e s t i m t e s intdalligonte great interest i n making their budget
ly; I
think t h e y have a
stronger feeling o f responsibility
believe that the
behind them than they had before, a n d w e
System a s a
whole h a s b e e n d i s t i n c t l y h e l p f u l
t O US.
January,
course w e o n l y p u t i t i n t o e f f e c t l a s t
have n o t h a d a
O
f
8 0 that w e
results
f u l l y e a r o f i t yet, b u t o n l y h a v e
for nine monthse
egtima tes
F o r those nine months t h e budget
for t h e y e a r s h o w e d a
reduction f r o m t h e actual exponses
of
experience t h a t N e w
1924, a n d while w e have h a d t h e same
volume o f busiYork h a s h a d with regard t o the increased
e n d o f the nine
ness, e v e r y o n e o f our departments a t the
for that time.
months period i s under its budget estimate
95
It applies i n every department where t h e expenses a r e con~
trollable.
Governor Seaye
L i k e t h e St. Louis Bank, w e were
fairly w e l l s a t i s f i e d w i t h o u r s y s t e m o f e x p e n s e c o n t r o l
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Federal Reserve Bank of St. Louis
before w e adopted t h e budget, b u t w e became rather convinced that t h e budget would help us.
opinion t h a t i f w e w e r s c o m p e l l e d
ether,
W h i l e w e are o f
t o adopt o n e with out
t h a t o u r s y s t e m o f e x p e n s e c o n t r o l w o u l d b e prefer-
able, hevertheless w e were unab+e t o see h o w the establishment o f the budget system would interfere w i t h us.
W e rather
shought that t h e budget would b e a n aid t o u s i n carrying
eut t h e purpose o f scrutinizing o u r expenses.
supposed t h a t each bank recoives a
the B u d g e t Committee,
i t is
copy o f this report o f
a n d w e have fairly well s e t down u n
5+ our reayons f o r believing that t h e budget w a s helpful.
those
We receive monthly roports f r o m o u r Comptroller, a n d
reports a r e carried around t o every department represented;
budget
each department sees t h e n whether i t has exceeded i t s
or come under i t s budget,
ly alive.
s o that t h e matter i s kept ent*.re-
W e believe that i t is exercising a very whole-
fail t o
some influence a n d I cannot s e e h o w t h e budget c a n
be helpful i n every bank t o some extente
96
Governor McDougal. C h i c a g o established the budget
Hien a n L024,
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Federal Reserve Bank of St. Louis
i n t h e c a r l y p a r t o f t h e year,
a t Wi
the hoads o f the departments a n d officers were charged w i t h
giving full oxplanation o f the objects o f it. T h e y were
furnished w i t h a statoment i n detail, concerning t h e expenses i n their department during t h e preceding y e a r and
were asked t o prepare a
budget f o r the forth coming year.
The budgets were thon submitted t o what w e call our procedure committec, t h e y were oither approved, disapproved,
or
modified, a n d t h e ensuing results have been highly satisfactOLrye
W e think t h e establishment o f a budget systom h a s
been quite a n important factor i n our having succoeded
in materially reducing o u r operating force a n d our geneval
oxpense account.
Governor Young.
a year and a half ago. I
W e put t h e budget system i n about
felt a good deal like t h e
Governor o f the St. Louis Bank. I
thought w e had a n ideal
for
gystem u p there, b u t after this h a d beon i n operation
a year anda half I thought i t was the pest thing that w e
ever p u t i n t o o u r i n s t i t u t i o n
i n m o r e w a y s t h a n one.
There
to
ave certain departments where i t i s utterly impossible
put t h e budget in, f o r instance, t h e closed bank department,
OT
becauso
n o man
to cost;
i n the world
c a n t e l a wheal
vol
L S pode &
a t the same time the man who i s i n charge o f
the department i s trying t o keep i t just a s l o w a s h e can,
and i f w e did not have t h e budget h e would not d o it. f
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Federal Reserve Bank of St. Louis
think I
can s a y i t is t h e best thing that h a s gone into o u r
bank i n the last four o r five years.
Governor Calkins.
I a m unable t o say exactly when
we began t h e operation o f the budget system, b u t I believe i t
was e a r l y i n 1924.
W
e havo very carefully worked o u t a
cost accounting system which w e found h a s been v e r y useful,
but w e have concluded t h a t t h e budget system,
ticular,
i n one par-
i g more offective t h a n a n y other system that
any one has devised, a n d that particular i s that i t brings
in the consultation, before t h e exponses a r e incurred,
those m e n w h o are directly responsible f o r the expenditures, a n d gives t h e m a n Apportunity t o assume a responsibility w h i c h t h e y d i d n o t a s s u m e b e f o r e w e h a d t h e
pudget.
T h e y were presumed t o be conducting their de-
partments
a s e c o n o m i c a l l y a s t h e y p o s s i b l y could, b u t w h e n
a man i s called i n and told t o assist i n making a n estimate o f the cost o f running his department f o r « year h e
is p u t o n h i s m e t a l f i r s t t o m a k e a
proper e s t i m a t e
ora
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Federal Reserve Bank of St. Louis
proper budget, and second, t o live up to it.
Approximately t w o - t h i r d s
representod
b y salaries.
o f t h o exponditures a r e
O n e i t e m that h a s lately result-
ed i n a great saving has been that involved i n calling for
assistance.
F o r m o r l y t h e head o f a
department,
having t o
cal]. for more men, w a s actually inclined t o select t h e
most competent m e n and the most efficient m e n that h e could
get.
N o w h e stops a n d considers whether t h e most efficient
man i g not too high priced for the particular purpose h e
wants t o use h i m for.
siderable saving.
T h e result o f that h a s been a con-
B e t w e e n October 1 , 1924, a n d October Il,
1925, t h e staff i n our head office a n d five branches w a s r e duced f r o m 1095 t o 906 with an annual s a l a r y saving o f a
Little bess thanGs00,006. ~~ That i g not all due-to t h e budeet,
but undoubtedly some o f i t is. I
zs fully justifiec,
believe t h a t t h e budget
w e oxpect t o continue t o operate i t and
to i m p r o v e u p o n i t a s o p p o r t u n i t y offers.
Governor Harding. B o s t o n i s not included i n the list
of banks there a s having a budget, b u t w e have the budgot
system.
For s e v e r a l y e a r s t h e s e n i o r o f f i c e r s
o f this b a n k
have h a d p r e p a r e d c o m p a r a t i v e f i g u r e s c o v e r i n g i n c o m e a n d
eo
conexpenses b y annval departmental totals a n d details f o r
with a
sideration p e r i o d i c a l l y w i t h o r g a n i z a t i o n h e a d s
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Federal Reserve Bank of St. Louis
to k e e p i n g e x p e n s e s
a s l o w a s possible a n d developing econom-
16S
In Januavy, 1925, following corre spondence
Fedsral Reserve Board, a
budget f o r t h e year 1925
parec b y departmental a n d detailed heads
comparative e x p e n s e r e p o r t e
o f the
T h e s e totals r o r the year were
been used a s
divided b y 12, a n d t h e figures obtained h a v e
o u r expenses.
a monthly budget basis f o r the consideration o f
has a
Rach o f f i c e r o f t h e b a n k a n d d e p a r t m e n t h e a d
copy o f
this budget statoment, a n d the figures are discussec after
they a r e c o m p i l e d a n d a d d r e d t o t h e c o m p a r a t i v e s t a t e m e n t s
oach month.
No attempt w a s made t o establish t h e monthly figures
on a seasonal basis, bocause t h e fluctuations
i n amount
enough
under "General Overhead - non~controllable" are large
at t i m e s
t o upset a n y c l o s e Forocaste
O u r idea has been
a minimui
to get a maximum o f the benefits o f & budget a t
expense i n setting u p and maintaining the plan.
t e n months
Our departmental expenses during t h e first
this y e a r h a v e b e e n r e d u c e d s o m e w h a t
b y items under
v
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Federal Reserve Bank of St. Louis
LOO
"General Overhoad-Non-controllable", s u c h a s cost o f
eurrency a n d s h i p m e n t s
o f currency havo b e e n groater t h a n
tho figures u s e d i n our ostimato s o that t h e total expense
tor the year will b e very close t o the total amount estima ted
last January.
Calling i t a budget probably does have some little
moral effect u p o n t h e various department heads.
A t the
game time i t i s almost impossible i n our district t o make
any intelligent estimate i n advance o f what expenses for any
one fuction o f the bank are going t o be.
wag a
r u n i n March
at our expense a
unused.
again,
on a
F o r instanc there
bank i n Holyoko a n d w e s h i p p e d t h e m
million a n d a half currency, w h i c h was
L a t e r o n they sent i t back t o u s a t our expense
b y t h e dis-
a n d although w e were f u l l y reimbursed
counts received from them o n loans w e had made, that did
not come u p i n the expense item, a n d o u r budget f o r transportation
o f currency
w s a l l o u t o f line.
I
n addition
there i s n o w a y o f telling i n advance what o u r t a x rate i s
going t o bee
W e have t h e town system i n Massachusetts,
each t o w fixing its o m rate, a n d the tax rate i n Boston
was increased this year. T h e r e was $12,000 i n taxes that
we did not know anything about until last month. W h i l e
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Federal Reserve Bank of St. Louis
LOL
the system w e have n o w i s called a budget b y the directors
and s o acknowledged b y t h e Reserve Board,
i t does n o t differ
several
m a e r i a l l y f r o m t h e p l a n t h a t h a s b e e n i n offect f o r
years past.
I t probably i s given some additional weight b y
being called a budget.
Governor Wellborn.
O u r bank i s omitted f r o m t h e list
of those that have adopted t h e budget system. I
why i t was left out.
do not know
W e have h a d t h e budget system i n force
gince t h e lst o f January, a n d i t gcemed t o b e working v e r y
woll.
The Chairman.
T h i s igs j u s t a
topic reported
t o us by
the Federal Reserve Board a n d w e d o not k n o w about that.
I n t h e lettes from Mr. Rounds o f
Govermor Seay,
the N e w York Bank h e puts t h e Atlanta B a n k d o w n a s having
a budgete
The Chairmane
When I
said t h e r e w e r e o n l y t h r e e b a n k s
nat bave not the budget I got that from Mr. Rounds’ report,
and n o t f r o m t h e t o p i c s u b m i t t e d b y t h e Board.
Governor Harding.
H o w does h e place Boston i n his
report?
The C h a i r m a n .
H e includes
Goverma Norris.
Boston
a n d Atlanta »
S e v e n a r e given here, Boston a n d
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Federal Reserve Bank of St. Louis
Atlanta would m a k e nine, a n d that leaves three.
quoted the Federal Reserve Board's
Mr. Harrison. I
letter precisely i n putting t h e topic o n the program.
Governor McDougal.
T h e Board m s g i v e n u s & copy
of Atlanta's letver i n reply t o their inquiry with regard
to the budget, a n d that shows that Atlanta m s a budget.
The Chairman.
T h e only three banks which have n o t
the b u d g e t a p p a r e n t l y a r e K a n s a s C i t y , D a l l a s a n d St. L o u i s .
Governor Talley.
I T have a table here that indicates
that t h e budget does n o t seem t o b e much o f a factor.
St.
Louis, w h i c h does n o t operate under t h e budget plan, shows
that t h e pereentage o f reduction i n expenso betweon 1924 a n d
1925 i g t h e highest o f any reserve bank, a n d t h e Dallas B a n k
is third higheste T
think t h a t the difficulty that t h e
panks h a v e h a d that have n o t adopted t h e budget i s that they
have
o comply w i t h t h e &gchnical d e f i n i t i o n o f a
t r i e d t
pudget.
O f course a
budget i s a condition where y o u h a ve
a certain amount o f income a n d a definite amount that y o u
are supposed t o apportion o v e r expense o f operation. T h a t
certainly w o u l d not b e true i n the case o f a reserve banke
The Chairman.
W e agreed, when this was discussed
pefore, t h a t i t was a misnomor, b u t that i t was a good in-
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Federal Reserve Bank of St. Louis
fluence t o uso the word "budget".
Governor Talley. I
think t h e Dalles Bank, t h e St.
Louis Bank and the Kansas City Bank have been employing the
same methods a n d have boen giving t h e same scrutiny t o their
expendituros a s havo t h e other banks.
W e thought w e had
done p r e t t y w e l l a t t h e e n d o f 1 9 2 4 i n t h e w a y o f reduction,
further reduction o f expense o f j u s t
but i n 1 9 2 5 w e s h o w a
an even $100,000.
W h e n w e begin t o analyze that w e find i t
etically every item o f expense g o i t soems t o show a
right broad scope i n attacking t h e expense problem.
The Chairman. I
d o n o t understand t h a t a n y action
is c a l l e d f o r b y t h e B o a r d o n t h i s topic,
to t h e n e x t t o p i c e
4m,
n
s o w e will pass
e n e x t t o p i c 1 8 426,
Wlinination o r consolidation of current
reports b y Federal Reserve Banks t o the
Federal R e s e r v e B o a r d e
It i s suggested that e a c h bank prepare a n estimate o f
the c o s t i n v o l v e d
i n proparing reports n o w forwarded
them t o t h e Federal Reserve Board, together with a
by
separate
list o f a n y r e p o r t s w h i c h t h e r e s e r v e b a n k f e e l s t h a t t h e
Reserve Board m a y properly b e requested t o eliminate o r
wodifye
This topic h a s been discussed before.
W e find i n
Lo4
New York that w e make 5 1 diffewvont classes o f reports t o the
Federal Reserve Board a t varying intervals.
W e estimate
the total cost of those reports t o be $12,000 a year. T h e
one that costs t h e most i s the o n e that contains t h e schedule
of member banks! collateral notes and bills discounted b y
member banks, which cost $2300 t o $2500 a year.
A t a recent
conference t h i s matter w a s discussed a n d a resolution w a s
passed recommending t h a t a joint committee o f enployees o f
the B o a r d a n d o f t h e r e s e r v e b a n k s b e a p p o i n t e d
to c o n s i d e r w h e t h e r t h e n u m b e r a n d c h a r a c t e r
b y the Board
o f reports
could not be changed i n order t o reduce the work and expense
involved.
T h a t was taken u p b y the Federal Reserve Board,
as I understand it, a n d laid o n the tablo.
taken o n it. A
N o action w a s
matter came u p recently with u s because o f
:
a-request w h i c h y o u a l s o r e c e i v e d ,
O
for a
L
report c o n t i n u o u s
borrowers a n d certain details i n connection w i t h that report.
I felt right away that i t was f o r t h e purpose o f informing
the B o a r d o f matters
were made.
o f that s o r t that a
lot o f t h e s e r e p o r t s
O u r idea w a s t h a t i f w e vere expected
t o pre-
pare t h e material f r o m o u r books, w h i c h otherwise could b e
prepared i n Washington from these reports, that i t was a n
~.unnecessary duplication.
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Federal Reserve Bank of St. Louis
H i t h e r t h e omployees o f the Board
LOS
should g e t t h e information f r o m t h e reports o r w e should
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Federal Reserve Bank of St. Louis
take i t o u t a n d d i s c o n t i n u e a n y o f t h e reporvus.
I t seems
some o f the information cannot be had from the Board's reare
ports, b u t I nevertheless f e e l that t h e reports which w e
gubmitting t o the Board are t o o voluminous a n d t o o expensive.
Governor Calkins.
T i s actual making o f the report i s
a minor item, b u t t h e m a i n t a i n o f r e c o r d s n e c e s s a r y
t o make
the report i g extremely expensive.
W h a t does i t amount t o with you,
The Chairman.
+
Governor Harding, j u s t roughly speaking?
Governor Harding. A b o u t $10,000.
I t is about (10,000 with us.
Governor Young.
H a v e y o u estimated t h e cost f o r these
The Chairman.
reports,
G o v e m o r Seay?
Governor Seay.
Y e s , b u t w e d o not cnarge t h e s e r e -
for
ourts with the cost of such reports a s w o would keep
F e d e r a l Re-our o w n u s e i f w e d i d n o t f u r n i s h t h e m + o t h e
serve Board.
W e make allowance therefore f o r
h e preparation
w e would keep
of such reports a s w e make f o r the Board,which
t o the Board,
for ourselves i f w e d i d n o t have t o send them
and that cost i s about $3700.
The Chairman.
it a m o u n t
to?
W i t h o u t making that allowance, w h a t does
LOC
have n o t t h a t s e p a r a t e l y b e c a u s e
Governor S e a y e I
we did not make i t u p with that idea i n view.
W e feel that
o m use
we w o u l d d e s i r o t o h a v e c e r t a i n r e p o r t s f o r o u r
whether o r not they were submitted t c the Board, a n d w e d o
Federal
not include in-this a n y o f the reportsrondered b y h e
Reserve Agent.
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Federal Reserve Bank of St. Louis
Y o u d o not?
The Chairmane
Govermor Seaye
N o e
W o understood that was some~
thing upon which the Fedoral Roverve Agents’ office would
render a reporte
Governor Calkins. T
have a n estimate
o f cost which
I do not like t o quote because i t i s misleading,
the others have been.
report, $5,848. I
a s most o .
I t i s t h e actual preparation o f the
have also copies of forms of reports
with the reasong f o r their continuance o r discontinuance
indicated.
T h e r e are a
number o f t h e s e r e p o r t s w h i c h s e r v e
whether w e are
no u s e f u l p u r p o s e a n d s h o u l d b e discontinued,
permitted t o consolidate t h e other reports o r not.
M y
prepare a n
suggestion i s that) each Federal Reserve B a n k
now
estimate o f the cost involved i n preparing t h e report
forwarded b y them t o the Federal Reserve Board, together
with a
separate l i s t o f a n y reports w h i c h t h e Federal
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Federal Reserve Bank of St. Louis
Reverve banks feel that the Federal Reserve Board might
T h a t will n o t
perly b e reqested t o oliminate o r modify.
e because o f the fact that i t
bo a s uniform a S i t s h o u l d b
is practically impossible t o show what t h e cost o f preparing many o f these reports is, b u t l think gome such action
as that should b o taken.
%
mWe v
Governor Seay.
and w e h a v e a t t a c h e d
that w e rendere
e gotten i t u p o n that basis,
4
,
t o o u r letter a
copy o f every report
W e h a v e suggested t o tho Federal Reserve
Board t h e reports w e thinx might b e oliminated uniess t h e y
aro o f guch service t o them a s t o b e needed,
s o that i f each
bank w o u l d d o a s G o v e r n o r C a l k i n s says, f o r w a r d
t o the
Federal R e s e r v e B o a r d i t s o p i n i o n o f c e r t a i n r e p a r t s
it
would b e a guide f o r t h e Board itself.
Governor McDougal. I
to understand fully,
thins the Conference ought
i f they d o not, w h a t h i s transpirod
since o u r l a s t a c t i o n . I
wrote
t o Mr.
Har~ison
his a t t e n t i o n
t o the fact that t h e Conference
mended t h a t a
committee
b e appointed,
recom-
a n d that s o f a r a s w e
knew a committoe w a s appointed, because I
our m e n o n i t e
m d
a n d called
named o n o o f
M r . Harrison t h e n took t h e matter u p with
the Board, called their attention t o their having failed
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Federal Reserve Bank of St. Louis
to act, a n d i n a lotter Gated September ieth, Mi. Hddy advyiged Mr. H a r r i s o n t h a t t h e m e m b e r s
o f t h e Board's S t a f f
forth
had r e p o r t e d t h a t t h e f o r m s o f statements e n d s o
required,
w i t h t h o o x c e p t i o n o f o n e o r two, w o r e n e c e s s a r y
to the conduct o f the various departments o f the Board's
work, a n d t h e Board h a d voted t h a t n o action b e taken o n
the r e c c m m e n d a t i o n
o f t h e Conferences
T h a t i s where t h e
matter r e s t S noOWe
The Chairman.
H a v e y o u estimated t h e cost o f p r e
the report?
Governor McDougal.
Governor Bailey.
N o .
I t is about $10,000 with us.
have n o t a complete ostimte,
Govermor Norris. I
put a partial one, which shows about $8600.
Governor Talley.
tisti#al report.
O u r cstimate covers o n l y t h o sta-
T h e cost igs very small for that, t h e
memoraadun here showing about $1050. I
might say in that
connection that w e run a good many o f these reports continuously e v e r y d a y i n t h e departments,
where t h e y are kept
UP.
Govermor Fancher.
W
e have made a n estimate
e x
elusive o f the cost o f keeping our own records, a n d our
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Federal Reserve Bank of St. Louis
1,
total estimated c o s t for the report i s $4157,
The Chairman. G o v e r n o r Biggs, have you an estimate?
Governor Biggs. I
have a n ostimato.
haven't the figures, b u t w e did
I t was nominal.
where around $127.
I t wasn't v e r y much, some-
B u t I think quite a
f e w o f these reports
could b
e eliminated because there i s duplication.
Governor Calkins. I
would like t o call attention t o
one report which could n o t have been included i n Governor
Talley's figures, a n d that i s t h e report t o the Federal
Reserve B o a r d o f receipts
o f p a p e r currency.
T h a t i s an
extremely expensive report, a n d i t i s doubtful whether i t
serves a n y purpose.
I t was Originally called f o r t o assist
the Treasury and the Federal Reserve Board i n determining
their c u r r e n c y policy.
Governor S e a y e
I
t costs u s a b o u t
T h a t i s o n e o f t h e reports t h a t w e
have Suggested t o the Board i s o f n o use t o us, a n d s o f a r
aS w e a r e c o n c e r n e d m i g n t b e elirinated.
I
t costs u s about
800 «
Governor Norris.
Governor
A n d it costs $1050.
Yellbom.
bank t o b e $1800,
e estimate.
the cost
a t our
O u r people a r e i n favor o f continuing
the report f o r the presente
gelvese
W
W e need t h e information our-
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Federal Reserve Bank of St. Louis
LLO
Tho Chairman.
I
t i s perfectly obvious t h a t t h e method
of arriving a t the costs are altogether different i n the
dirferent banks.
I f the same method were pursued t h e
evidence would g o t o show that the cost runs from somewhere
around $8000 t o $10,000.
I n our case $12,000 is the
direct cost, apparently.
Governor Young.
A f t o r going over t h e various forms
now furnished the Federal Reserve Board, w e do not reel
qualiried t o recommend elimination because w e d o not know
all t h e reasons f o r t h e Board requiring these reports.
W e
do however, f e e l that b y making consolidations a n d other
changes i n methods that this information m a y be compaitacd ~
more s y s t e m a t i c a l l y ,
w i t h less expense a n d more reliably
than a t present.
With this thought i n view w e make t h e following suggest-
.
T h a t i n s t e a d o f vario1s s m a l l e r r e p o r t s n o w
beiag p r e p a r e d
b y e a c h Federal Reserve B a n k covering
classification c f money, currency a n d c o i n operations,
Federal reserve note issues, etc., that one form could be des
signed which would cover ali tnese various classifications,
volume, etc.e, t h u s oliminating a l l o f the single reports
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Federal Reserve Bank of St. Louis
now being forwarded.
24
h a t t h e Board's o w n analysis division b e
broadened t o the oxtent that much information n o w furnishod b y the individual banks i n various reports could b e
compiled a t Washingtone
T o bring this about w e would
recommend that t h e Federal Resorve Board prepare a
proper
of
form designating t h e various kinds a n d classifications
each
statistical i n f o r m a t i o n t h a t i t desires a n d f u r n i s h
Fedoril R e s e r v e B a n k w i t h s u c h f o r m e
T h e detail
o f each
bank's operations w o u l d b e compiled i n the statistical
division o f oach bank a n d postec o n the form provided
by t h e Board.
T h i s information c o u l d t h e n b e forwarded
the B o a r d d a i l y o r a s f r e q u e n t l y a s roquired.
F r o m such
daily report there could b e assembled a t any time b y t h e
Federal R e s e r v e B o a r d ' s d i v i s i o n ,
all o f t h e banks.
t h e same information f r o m
T h i s plan would eliminate t h e necessity
ren~
of m a n y d e t a i l e d reports, s p e c i a l r e p o r t s , e t c e , n o w
quested b y t h e Board.
As regards o u r o w n offico,
w e would further suggest
that t h e vario.s tickets a n d records f r o m which w e compile
information f o r the Federal Reserve B o a r d and ourselves,
daily
be placed i n t h e hands o f a competent analysis clerk
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Federal Reserve Bank of St. Louis
wae
and all desired information b e furnishol under competont
supervision.
B y s o doing t h e chances
o f inaccuracy would
be largely removed a n d a closer check maintained o n the
various operations.
Tam listing bolow t h e forms fiilod o u t for t r e
ederal R e s e r v e B o a r d b y t h e C a n k f x a m i n a t i o n D e p a r t m e n t ,
together with t h e estimated c o s t p e r yoare
sus—
iy A d v i s e o f member a n d non-membor state a e
pensions o r reopenings.
Be T e l e c r a m s daily o r as suspeasions o r
reopenings occur
re C o n f i r m a t i o n
o f membor
a n d non-~monmber
pank suspensions o r reopenings =
O eo
O
Form X - 4 4 0 1 a n d 27-4402
Monthly report b y mail o f ail suspensions
250
and reopenings 6
(Typewritten list)
Analysis
o f Examination a n d Greait Investi-
gation Reports ( F o r m 1188)
tion o f m o m b e r b a n k s
7
0
2
0
0
t o cxerciso
1 2 . 0 0
iary powers (Form 6la and 61c)
4, I n t e r l o c k i n g directors applications under
Clayton Act (Form 94b)
1
0
.
0
0
5. A p p l i c a t i o n f o r membership i n Federal R e -
gerve System ( F o r m X-1212)
Tre Chasrman.e
1
5
.
0
0
M y thought was that w e should indi-
total
cate t o the Board that, roughly estimated, t h e direct
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Federal Reserve Bank of St. Louis
5innie? 4
Fee e e |
expense o f reporting t o the Federal Reserve Boazd, s o m e
a
part o f which would have t o b e incurred anyway i n preparing the data required b y t h e banks themselves, amounts t o
5,
”
comething i n excess o f %100,000 a yerr, a n d that w e menew
our reccmmendation t h a t t h e whole subject o f the report
to t h e F e d e r a l R e s e r v e B o a r d b e s p e n t i n s o m e w a y s o a s t o
pring about a reduction i n this cost and i n the amount o f
work involved
Governor Calkins.
L l will offer that a s a motion,
Mr. Chairman.
Governor Norris. S e c o n d e d .
(The motion having been duly seccnded was carried)
The Chairman.
T h e next topic i s 4=D.
4mde P r o p e r F e d e r a l R e s e r v e B a n k Protection.
he > topic, is:
T h e Board feels t h a t each Governor
should come t o the Conference prepared t o discuss t h e or-
ganization and scope o f the work o f the protective staff
in h i s b a n k a n d t h a t t h e C o n f e r e n c e s h o u l d t a k e s t e p s t o
formulate s o m e general p l a n b y which e a c h bank c a n b e guided
in t h e matter.
This topic w a s undoubtedly inspired b y t h e feeling
which has developed f r o m t h e effurts t h a t a r e being made t o
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Federal Reserve Bank of St. Louis
114
rub t h e banks a n d t o hold u p bank messengers i n the country
and that i t might b e a good thing t o have a general review
of t h e s u b j e c t o f protection. I
understand
i t has been
arranged that a t the Joint Conference Mr. Moran, head o f the
Secretasgrvicco, will make a little talk t o the meeting deseriptive o f the point o f view o f the Treasury a n d t h e
Secret Service which haa charge o f the protection o f the
Treasury e
Governor Harding. I
suggest that t h e Chairman report
to t h e Board that t h e Conference h a s considered Topic 4-=D,
proposed b y t h e F e d e r a l R e s e r v e B o a r d ;
t h a t there w a s a
general exchange o f information a s t o the protective measures
omployed
a t e a c h bank;
t h a t i n the opinion o f each Governor
the protection n o w afforded i s adequate, although thero m a y
at times b o occasion t o increase t h e force o f guards a t
some o f the banks.
T h a t t h e detailed reports a r e n o t
filed for the reason that the protective measures t o be
most efficient should b e kept confidential.
sentatives
T h a t t h o repre-
o f t h e United States S e c r e t Service m a k e period-
ical visits t o the Federal Reserve banks a n d are kept fully
informed a s t o the methods employed.
T h a t t h e responsibil-
ity for the management o f the Federal Reserve sanks i s
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Federal Reserve Bank of St. Louis
ee
yested b y l a w i n t h e respectivo b o a r d s
o f irec*ors and
the reports s h o w that i n every instance t h e Cirectors a r e
fully alive t o the duty o f affording adequate protection
e bank.
h
for the funds a n d securities ontrusted
That
in view o f the different circumstances
different b a n k s
i t seems impossible
t o formulate a n y uniform
plan a s s o much depends u p o n t h e arrangement o f the bank
pbuilding a n d the immediate surroundings
o f the banks.
That t h e above statement i s the result o f the discusgion, w h i c h was n o t taken down i n detail,
i n which statement
&Lll G o v e r n o r s p r o s e n t concur.
The Chairman.
handled
W i t h o u t objectior t h e matter w i l l b e
i n t h a t way.
The next topic i s 4-He
Iie B l i g i b i l i t y o f a n officer o f a n insurance
Company f o r election a s Class " B ®
direétor
comment
of a
Federal R e s e r v e Bank.
o n that i s that t h e Roard desires a
critical discussion o f its m i n g
o n this subject contained
tin its letter o f July 2 , 1925, 2-45756
ITwould l i k e t o c a l l y o u r a t t e n t i o n
t o t h e fact that
this i g a question o f l a w a n d f o r rulings bYFy t h e Federal
Reserve Board. I
would be glad i f Mr, Harrison
to y o u the opinion o f o u r counsel o n this matter.
Mr. H a r r i s o n .
T h o o p i n i o n i s a s follows:
"The lettor of the Foderal Reserve Board, No.x+4373,
of July 2, 1925, rules that persons whose sole occupation
is that o f officers o f life insurance companies a r e
ineligible f o r election a s Class B
Reserve B a n k s .
of Section 4
directors o f Federal
T h i s r u l i n g i s based u p o n a n intespretation
of the Federal Reserve Act, w h i c h gection pro-
vides, among other things, that directors o f Federal Rescrvse
Banks shall b e nine i n number a n d shall consist o f Classes
A, B , a n c C 3 t h a t Class B
shall consist o f three members
‘who, a t the time o f their election, s h a l l b e actively
engaged i n thoir district i n commerce, agriculture o r some
other industrial pursuit. « %
*
No director of Class B
shall b e a n officer, director o r employee o f any bank.
"I think for the purpose of this discussion w e may
accept t h e c o n c l u s i o n o f t h e F e d e r a l R e s e r v e B o a r d t h a t
for s o m e p u r p o s e s
a t least, I n s u r a n c e h a s b e e n h e l d b y
the courts not t o oe ‘commerco'; further, that if an
officer o f an insurance company can qualify a s a Class B
director i t must b e because t h e insurance business comes
under the general term 'some other industrial pursuit. '
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
LAY
It is also a fact, a s stated b y the Board's lettor i n ques»
tion, that the terms ‘industry’ a n d tindustrial! have a
broad meaning including substantially all forms of business
more restricted m c a n i n g w h i c h applies o n l y
onterprise a n d a
to manufacturo, m i n i n g a n d similar onterprises having f o r
their object t h e production o f material o r tangible values.
It i s agreed, also, a s stated b y t h o Board, t h a t t h e insurance business i s included within t h e term ‘other industrial
pursuit', i n the broadest sense o f the term ‘industrial'.
definite a u t h o r i t y f o r t h e r u l o o f l a w
"Thore i s a
of s t a t u t o r y construction, r e f e r r e c
t o b y t h e Board, t h a t
where t h e language o f a statute i s susceptible o f more t h a n
one interpretation,
t h e intended meaning m u s t b e sought b y
the a i d o f all pertinent a n d admissible considerations.
\the letter i n question, after reciting the provio f t h e Act, a b o v e r e f e r r e d t o , says:
gions o f S e c t i o n 4
‘Tt i s clear, therefore, t h a t Congress intended that Class
B directors
should
b e business
m e n a n d shculd n o t
b e bankers
or closely identified with the banking business,’ substituting this language f o r the languago o f tho Act that ‘no
director
o f Glass B
of a n y bank.'
I
shall b e a n officer, d i r e c t o r
o r employe
t i s o n this premise t h a t t h e conclusion
reached b y the Board i s rested.
T h e whole argument that
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Federal Reserve Bank of St. Louis
LL8
insurances companios a r e lenders rather t h a n borrowers a n d
that Congress contemplated that directors o f Class B
should b e borrowers rather t h a n londors,
i s based o n t h e
proposition just referred to, 1.96, the substitution o f the
Language o f the Board f o r the wording o f the law, a n d all
doubt about t h e meaning o f the l a w arises f r o m this sub-
gtitution.
B e a r i n mind that the plain provision o f the
law i s that n o Glass B director ‘shall b e a n officer,
director o r employee o f any bank.!
T h i s i s a specific lim-
itation o f the disqualification t o certain classes o f per~
gons w h o a r e described w i t h minute particularity.
h
o
disqualification sought t o be read into the law by the
Board is, o n the other hand, a
general one, t h u s both the
a n d a n implied
m e a n i n g ?o f t h e l a w a r e changed,
wording e) a
6 nd
SGongressional intent s e t u p i n place o f the express purpose
of the legislaturo.
“as w e have seen before, t h e law provides that Class
B directors ‘shall b e activoly ongaged i n commerce, agriculture,
o r some other industrial pursuit’.
T h e ruling
of the Board seeks t o give t o the words ‘some other industrial pursuit! t h o i r more narrow meaning.
B u t w e must give
to them the broader meaning, because o f the specific words
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Federal Reserve Bank of St. Louis
119
of Congress p r e s c r i b i n g p r e c i s e l y
n o t h e r words.
I
ing s h a l l b e n a r r o w e d down.
t o what extent t h e mean=
t h e oxpression
by C o n g r e s s
o f the specific i n t e n t t o except f r o m eligibility
for Class B
directorship o n l y t h o s e industrialists
also directors, o f f i c e r s
o r e m p l o y e e s s o f a n y bank,
exclude a l l other exceptions.
alterius.
i s to
E x p r e s s i o unius, exclusio
O n o whose s o l d occupation
of a life insurance company,
w e are
i s t h a t o f officer
w h o i g not also a n officer,
director o r employee o f a bank,
i s ongagead i n a n industrial
pursuit within a definition o f the word lindustrial!? w h i c h
is ordinarily accepted, a n d does n o t come within t h e
disqualification f o r directors o f Class B
which arises sole-
ly i n the caso o f one engaged i n a n industrial pursuit w h o i s
also a n officer, director o r omployee o f a
Governor Seay.
The Chairman.
H a s t h e Board a
copy o f that opinion?
h a t opinion h a s been s e n t informally
to Mr. Wyatt, b u t i t has not boen s e n t t o t h e Board.
Governor Harding.
W h y n o t endorse t h e opinion t h a t
we h a v e j u s t h e a m d read?
Governor Seay.
O n o o f our most useful, experienced
and l e v e l n e a d e d d i r e c t o r s
company e
i s t h e President
o f a n Insurance
H e has connection w i t h o n e o r more cotton mills
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Federal Reserve Bank of St. Louis
120
T h a t man h a g h a d a lifetime o f
and also conducts a farm.
experience
i n commercial a n d insurteial p u r s u i t s .
The Ghairman.
H e would n o t c o m e within t h e Board's
ruling o r letter, because they say "his sole occupation i s
that a s a n officer o f a life insurance company" .
have a n informal édpinion b y the
Governor Calkins. I
counsel f o r o u r bank, w h i c h i s i n offect that i f the individua:
in question i s engagec solely i n the business o f life insurO f course i f h e i s engaged i n farn-
ance h e i s ineligible.
ing o r i n the cotton business o r anything o f that s o r t t h e
question does n o t apply.
Governor Harding.
W h y n o t s a y i t igs a p u r e l y l o g a l
question, t h a t t h e Governors present have a l l read t h e views
of the Board's counsel, a n d shat w e respectfully submit the
opinion o f the counsel f o r the N e w York Bank a s a n alternative
views
Governor Oalkins. I
will offer t h a t a s a motion,
Governor Fancher. S e v o n d e d .
(The motion having been duly seconded, w a s carried. )
The Chairman.
T h e next tople i s 4-F:
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Federal Reserve Bank of St. Louis
BBs 3
Uniformity
i n t h e operation o f t h e
cafetorias o f the Fodoral Reserve Banks.
The last three lines i n tho Board's letter o f September
Sth indicates w h a t t h e question is.
I t is requested t h a t
careful consideration b o given t o this subject i n advance
in o r d e r t h a t i f practicable s o m e a g r e e m e n t m a y b e r e a c h e d
as t o w h a t e x p e n s e
i f a n y i s now being charged against
tho c a f e t e r i a s h o u l d b e a b s r o b e d
b y t h e Federal Reserve
Banks e
Governor Hardinge T h e Board's letter of September
9th, 1 9 2 5 (X-4413) referred t o the wide variation i n the
handling o f cafetorla expenso b y the various Foderal reserve
banks a n d requested t h a t careful consideration b e given t o
the m a t t o r
i n advance
i n o r d e r that,
i f practicable,
some
agreement might b e reachod a t the Governor's Conference
as t o w h a t expense,
i f any, n o w b e i n g c h a r g e d t o c a f o t o r i a
in t h e f u n c t i o n a l oexponse r e p o r t s h o u l d b e a b s o r b e d
by
the Federal resorve banks.
It would appear f r o m t h e figures given below t h a t
the Federal Reserve B a n k o f Boston i s now absorbing a larger
amount a f c a f e t e r i a e x p e n s e t h a n m a n y o f t h e o t h e r b a n k s
the System.
in
tafoberia Hxpenses a n d Receipts
Year 1924 a n d First Three Quarters o f 1925
1
Federal R e s e r v e B a n k o f B o s t o n
9
2
1
4
9
2
5
Monthly T o t a l f o r M o n t h l y Total i s t
average
Year
A v e r a g e 3
Quarter:
EXPENSE o f operations charged
against Cafeteria i n this
bank a s reported i n the
functional expense report $2,642.04 $31,704046 $2094.14 $10,047.22
RECEIPTS
2
.
5
NET C H A R G E O R C R E D I T
5
6
0
to s a f e t e r i a
4 30,455665 2150627 19,352.43
1
5 0 5 . 2 1
5 6 . 1 5
1,270.81
1 0 5 . 9 0
The following items o f expense a r e listed i n the Board's
Letter o f Septomber 9 , 1925 (X-4413) a s those charged b y some
of the Federal Resorve Banks against their cafeterias, a n d w e
also s h o w below h o w theso expenses a r e handlod i n the Federal
&
R e s e r v e B a n k o f Boston:
F e d e r a l Reserve Bank o f Boston
Expense items a s listed i n
A m o u n t charged against amount absorbed
o u r bank
eatotorian 9 .
Board's letter (X-4418)
Year 1924
Cost of food
3
2
0
Salaries
Cooks, waiters, etc.
4
Assigned staff
All others
T
,
5
1
0
, 545610
g dete
i
9
2
.
.
8
9
7
2
Service s u p p l i e s 0
Office and other supplies
5
5
Gas-fuel
Uniforms
Miscellansous
Allocated t o salaries a b s o r b e d
by b a n k
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Federal Reserve Bank of St. Louis
.
L
Printing a n d stationery
China, glass and furnishings
5
6
8
2
7
9
1 14
6
6
5
6
0
0
826.84
7 ee
31, 704046
2
0 200
$ 2 , 5 6 5 . 1 3
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Federal Reserve Bank of St. Louis
1235
The t o t a l e x p e n s e i t e m s a b s o r b e d
including light, heat,
b y this b a n k n o t
o r power f o r t h e year 1924 w a s
42,563.13 - an average monthly total of $213.59 ~ and for
the first three quarters o f 1925 $1,668.67 ~
an average
monthly total of $1085.41.
The Board i n its letter o f September 9 , referred
to above, s t a t e d that expenses t h e y onumerated d i d not
include anything f o r rent, light, heat, a n d power, refrigeration, repairs a n d alterations, anda furnituro a n d equipment.
While f o r t h e purpose o f comparison w e have n o t included
such expenses, i t may b e of interest t o note that during
1924 o u r bank absorbed f o r electricity f o r cooking purpcses
in its cafeteria $2,325.20 = a monthly avornge o f 9193.05 =
‘and i n the first three quarters o f 1925 $1,595.10 = a
monthly average o f
Mr. Harrison, D e p u t y Governor o f the Federal Reserv»
Rank o f N o w York,
i n a lettor o f October 6 , 1 9 2 5 t o Governor
*4?
Harding stated that t h e y h a d been giving consideration t o
.:
tie advisability o f providing a
luncheon t o all employees
without c o s t t o t h e m and n o t permitting t h e m t o leave t h e
pbuilding a t luncheon.
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Federal Reserve Bank of St. Louis
124.
We have gone into this matter t o some lergth a n d find
that none o f the Boston banzs a r e furnishing luncheons
to their omployees without COSte S e v e r a l years a g o t h e
largest local bank tried out this plan and gave i t up as
being unsatisfactory.
I t is faks that while there would
be a gaving o f probably $100 a
year t o each omployee a n d
the bank would have a bettor control o f the employees a n d
the people w h o have occasion t o visit t h e building o n busi-
ness, these advantages are more than outweighed b y the
additional cost t o the bank, estimated a t around $110,000
& yoar, t h e possibility o f dissatisfaction w i t h t h e meals
served, a n d the natural feeling o f restraint which would
result from not permitting the employees t o leave the building at luncheon time.
I t is thought that the conditions
in Boston with reference t o obtaining luncheons differ
greatly from those i n New York.
T h e r e a r e many s a t i s -
factory places near t h e bank here where luncheon m a y b e
obtained, a n d many o f the employees a r e accustomed
to
using these outside establishments a n d availing themselves
of a n opportunity f o r shopping while a w a y from the bank
in the middle o f the day. T h e s e advantages d o not exist
to such a great extent i n New Yorke
I n fact, i t i s
quite difficult t o get a satisfactory luncheon a t a
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Federal Reserve Bank of St. Louis
i n the
reasonable p r i c e w i t h o u t c o n s i d e r a b l e d i s c o m f o r t
“Tt
financial section o f New York i n the middle o f the day.
We f e e l t h a t i t w o u l d b e m o r e s a t i s f a c t o r y t o c o n t i n u e
our p r e s e n t a r r a n g e m e n t f o r t h e p r e s e n t
have a proposal.
The Chairman. I
a t least.
t o make a b o
Half o f the banks a r e absorbing practically n o expense
moan t h e direct oxpensoa;
except t h e overhead, Z
covered within a
L t is-eai2
few hundred dollars b y receiptse ‘ T h e
other half o f the banks absorb t h e following percentages
of direct cost, a n d this i s very rough, Chicago 1 5 per
cent, Cleveland,
2 0 per cent, Richmond a n d Minneapolis
35 per cent, Dallas a n c S a n Francisco 5 0 per cente
Governor Fancher.
A n d w h a t i s the figure f o r your
bank, Mr. Chairman?
The Ghairman.
I t i g o n l y f o r t h e o n e quarter,
put
wo show a credit o f $444 above expense.
My belief i g that t h e approach t o this matter should
be from this angle:
T h a t t h e services o f t h e clerks i n
the r e s e r v e b a n k s w i l l b o i m p r o v e d
i f they a r e encouraged
by w h i c h t h e y c a n have,
a good meal a t noone
i f means a r e f u r n i s h e d
A
t o have,
t some o f the reserve banks a n d
branches t h i s m a y n o t b e o s p e c i a l l y a t b r a c t i v e b e c a u s e
of
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Federal Reserve Bank of St. Louis
L26
their ability t o get home f o r lunch, b u t that i s not t h e
case i n a Gity Like N e w York, Chicago, a n d some o f the other
cities w h e r e t h e y a r o t o o f a r a w a y f r o m t h e r e s i d e n t i a l
T h e plan i n most o f the roserve banks
sections.
ja s e r v i c e a t a
food.
v e r y l o w cost, w h e r e t h e y h a v e a
t i g n o t compulsory
I
should o a t i n t h e c a f e t e r i a
case i n a
number
i s cafeterchoice o f
i n a n y o f t h e banks t h a t t h e y
as I
understand i t .
T h a t i s the
o f New York C i t y banks where they are r e -
guired t o e a t there, a n d when they d o that t h e y always give
them their Lunch free.
T h a t geoms t o m e t o b e t h e only
basis u p o n w h i c h c o m p u l s o r y c a t i n g s h o u l d b e adoptec.
We have been considering this recontly because w e have
been talking about t h e question o f salaries, a n d i f w e make
any c h a n g e i t w i l l h a v e a
boaring
o n o u r salary
p o t e
ress
think t h e concensus o f opinion i n the bank i s that w e
snould
s e r v e a good, standard,hot meal a t a very
Low cogt a n d absorb part o f it, s o that they a r e atracted
by getting a better lunch i n the bank t h a n they c a n get
outside,
s o that they c a n have a l l they w a n t t o e a t with-
out any restriction,
o r elses w e should reduce t n e price o f
those things t h a t w e are spevially desirable f o r them t o
have, a n d instead o f running above o n the expense o f the
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Federal Reserve Bank of St. Louis
7
t h a t w e s h o u l d a c t u a l l y a b s o r b t h e expense.
cafeteria,
What
I have i n mind is that if .t cost us 3300,000 a year gross
standard meal f o r 2000 people --: i t probably
to sorve a
we
won't cost a g much a s that - - but assuming that i t does,
should absorb s a y $100,000 o f the cost and give them sucha
good meal that they cannot afford t o g o outside.
If y o u s e v v e a
cult t o h i v e a
standard m e a l i e i g e o s t i l e o i r t i e
cafetoria service, b e c a u s e y o u h a v e t o h a v e
maids, waitressos,
a n d all that, b u t i f you havo a
cafeteria
gervice y o u c a n let t h e m pick a n d choose, a n d i t i s easier
to handle.
T h a t i s boing considered b y o u r directors. I
do not think t h e y have made a report yet, o r i f they hare,
it was made after I left.
Governor Harding.
I f w e f e d ali o f our p2ople a t
w would sorve about 680 meals.
the C a f e t e r i a e
ie’ a b o u t
S00.
O
n bad
days
i n winter,
a n d
O u r average
o n very
hot
days
in s u m m e r w e s e r v e m o r e t h a n a t a n y o t h e r time. O r d i n a r i l y
we s e r v e a n y w h e r e f r o m 2 0 0 t o 400, 5 0 0 b e i n g a b o u t t h e
AVELA ZO s
I n Boston there a r e a number o f places nearby
where t h e y c a n walk a n d reach them i n five minutes a n d
where t h e r c a n g e t a
meal w i t h a
little v a r i e t y b y g o i n g
from o n e place t o another o n different days, a n d about half
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Federal Reserve Bank of St. Louis
of our people avail themselves o f that opportunity.
Governor McDougal.
H o w much time d o your emplsyess
Governor Hardinge T h e y have a n hour, T h e First
Wational B a n k o f B o g t o n s o m e t i m e a g o p u t i n a
plan o f serving
a free lunch i n tho middle o f the d @ y and requiving t h e m t o
stay there a n d o a t their lunch.
I t d i d not work a t all,
T h o y have n o cafetoria a t all now,
and thsy abandoned it.
except f o r officers, a n d the employees g o outside.
Governor Fancher.
T h e location o f the bank with re-
gard t o the rotail shopping section h a s a great bearing u p o n
the operation o f the cafetoria.
W e are Located o n l y t w o
or t h r e e b l o c k s f r o m E u c l i d Avenuo,
t h e s h o p p i n g center,
and many o f our employees p l a n their shopping t o b e done
during their lunchoon hour, a n d they will g o out and get
lunch gome place outside, spending t h e rest o f their time
in shoppinge
W h e n t h e weather
i g b a d t h e a u m b e r o f patrons
in the cafeteria increases, a n d also i n t h e hot weather.
I think t h e average i s something less t h a n 600 daily.
The Chairman.
W e have about 1100.
Governor Bailey.
lunch. I
I n Kansas C i t y w e g i v e t h e m t h e i r
brought along just a few o f the menu cards.
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Federal Reserve Bank of St. Louis
124
It changes e v e r y day. I
would Like t o h a v e y o u l o o k a t some
of these (exhibiting menu cards).
When w e h i r e a n employeo,
w e will s a y a
$1200 a
year
clerk, the clerk understands that w e will take $100 a year
out o f h i s salary,
a n d t h a t h e i s t o t a k e t h a t o u t i n food.
When h e understands t h a t h e will d o it.
W e changed o u r
Lunch hour from a n hour t o 4 5 minutes a n d 5 0 per cent o f our
omployees, especially i n the currency “departmont, b u t also
in other departments, d u r i n g t h e rush hour,
50 minutes. I
d o not take over
do not bolieve w e have p u t anything i n the
bank t h a t has brought about more efficiency a n d greater contentment a n d greator appreciation.
f
t 1 £ @ great deal
better than turning t w o o r three hundred people o u t i n the
middilo o f t h e d a y t o g e t i m p r o p e r f o o d a t m o s t a n y place,
to returm w i t h their minds diverted f r o m business.
and
Under
this systom o f ours, they rest i n the rest rooms and g o bac'
to w o r k i n a h a p p y f r a m e o f mind.
W e estimate t h a t w e have
saved 1 5 minutes o n the average i x the currency department.
Govermor Norris.
f a m n o t sure t h a t I correctly
understood G o v e r n o r Bailey,
whother o r n o t h e makes
and I
would L i k e t o a s k h i m
u p t h s m e a l f o r them,
select w h a t t h e y w a n t t o e a t ?
o r i f they
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Federal Reserve Bank of St. Louis
1.30
Governor Bailey.
W e m a k e i t u p f o r them, a n d i t
is as good a meal that i g laid o n the table i n many hotels.
Governor Norris.
their salary f o r meals,
Y o u take out 9100 a year from
i f I understand you?
Governor Bailey.
Y o s , i t i s taken off each
Governor Norris.
< A hundred dollars a year?
Governor Bailey.
Y e s , sir.
I
Governor N o r r i s e
T h e y e r e paid twice a
f they d o not want t o e a t that
Sood t h e y h a v e t o p a y f o r i t j u s t t h e s a m e ?
Governor Bailey. Y e s , but they agree t o i t when
they a r e e m p l o y e d
Governor McDougad.
D o you consider you should give
them a meal under those circumstances?
Governor Bailey.
Yes.
T h a t i s t h e basis a n d under-
standing o n which t h e y are hired, a n d they accept i t i n
that way. M r . Harrison will recall that I wrote him asking
and
whether i t would create dissatisfaction a n d criticism,
after I went there a n d became Governor o f the bank I
did
find some criticism, a n d I took i t up with them and explained t o then t h e reason w e did it, a n d I am j u s t a s s u r e a s
I a m living that with hundreds o f those young people i t i s
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Federal Reserve Bank of St. Louis
LSL
t h e day« I
the b e s t m c a l t h e y g o t d u r i n g
just t o l d t h e m
that their resignation
that i f they were dissatisfied
would
a criticism from that day
be accepted, a n d I bavon't heard
to this.
t h e Harvey dining r o o m
O f course w e could move
of
a n d w e would have some
from t h e Union Station u p there
them criticises
do
In y o u r expenses a c c o u n t y o u
Governor Wellborn.
not s h o w a n y c o s t o f c a f o t e r i a
Governor Bailey.
above this.
Yes,
W e p u t t h e meals
a t all.
and
w e s h o w & 2000 e x p e n s e o v e r
o n a t 3 4 c e n t s apiece.
a r e they
H o w about your officers,
Governor Wellborm.
in t h e s a m e f i x ?
Governor Bailey.
the o t h e r f e l l o w s
that
T h e y g e r t h e game treatment
do «
Governor Wellborn.
B u t w i t h n o deduction?
Governor Bailey. C e r t a i n l y not.
W e have encerta ined
o u t there, a n d Mr. Miller.
the Board a n d Mr. Wyatt came
Governor Calkins.
W
careful:
e considered t h e matter
reached t h e conclusion that w e
and t h e B o a r d o f d i r e c t o r s
employees a t the cost o f
ghould serve meals a t lunch t o o u r
o f t h e service.
the f o o d p l u s t h e a c t u a l c o s t
T h e result
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Federal Reserve Bank of St. Louis
L32
I have
igs that t h e meals served i n the head office, a n d
the figures o f the branches a l s o ~ - the average amount
t o the
of each meal check i s 23 cents, t u e average cost
bank does
bank i g 1 1 cents, a n d I venture t o s a y that t h e
not spend 1 1 cents i n aay other
w y w i t h such good results a s
we g e t f r o m s e r v i n g t h e s e m e a l g t o o u r employees.
Governor Bailey.
T h e c o s t o f t h e f o o d i n Kansas OGity
is 1 5 cents, salary cost 15, overhead a n d miscellaneous,
“5,
ora t o t a l o f 54.6
Govermor Calkins.
vilege t h a t t n e o m p l o y e e s
h e r e i s n o Service n o r n o prio f t h e b a n k e n j o y w h i c h i s appre-
ciated more t h a n this.
Governor Bailey. I
d o n o t want t o disturb t h a t r e -
lation o u t there, because i t has built u p a feeling o f
efficiency a n d contentment more t h a n anything w e have done.
Governor Wellborn.
W e have what w e call a combina-
tion meal, served t h e same t o employees a n d officers.
charge employees 5
a month, a n d the officers $ 6 a month.
We have a waiter w h o waits o n the officers.
21 cents,
W e
T h a t meal costs
a n d t h e n e t loss last year was G O S «
W e are
anc §
overcoming that loss t h i s year b y having t h e member banks
their employees come in, a n d they are doing it, a n d that i s
paying t h e o x p e n s e s
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Federal Reserve Bank of St. Louis
Governor Norris.
P o s s i b l y w e have b e e n i n this cafe-
teria business longer than most o f the other banks.
W e have
I n that year 7 9 per cent o f
statistics, including 1919.
our employees t o o k their meals i n the bank.
T h a t percentage
ran down t o about 6 4 i n 1922. S i n c e t h o n i t has been 6 7
in 1923, 7 0 in 1924, and 68 for the nino menths of 1925.
You w i l l n o t i c e t h e l a s t t h r e e y e a r s
i t has been rather
it
congtant, b u t t h e percentage i s considerably below w h a t
was i n 1921.
I n the meantime t h e number o f employees
nas been c u t down, f r o m 9 1 3 i n 1921 t o 756 a t the present
time « T h e result i g that while w e broke o v e n i n 1919 a n d
jin 1921 w e are n o w losing money, a n d f o r the nine months
J
of this year w o arc $5200 behind.
T h e average receipts
for lunch has gone down f r o m 5 2 cents i n 1919 t o 2 4 cents
in t h e l a s t t w o years,
a n d t h e cost has o n l y gone down
from 3 3 cents t o 2 9 cents,
s o that w e are n o w losing about
5 vents o n each meal served.
M y judpment i s that i t i s
expedient t o serve a complete table athote meal;
w e
want o u r employees t o e a t food that i s wholasome a n d t o
eat a s much a s necessary t o sustain them, b u t w e d o not
want them t o make i t their principal meal a t middaybecause
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Federal Reserve Bank of St. Louis
134
all medical and general experience tends t o show that a per
son i s never a s alert a n d quick f o r a f e w hours after oating
a heavy meal.
O u r feeling i s that w e want t o continue t o
serve meals i n the cafeteria, p a r t l y t o prevent t h e employees
from g o i n g o u t o f t h e b u i l d i n g a n d p a r t l y t o s u p p l y t h e m
with wholesome food; b u t w e want that meal t o b e one where
they will have t o pay f o r o&ch thing that they c a t separately
go t h a t t h e y w i l l n o t b e t e m p t e d
t o o a t more t h a n they requiro
just simply because they have paid for it.
W e feel that
we o u g h t t o m a k e i t c o m e a s n e a r a s w e c a n t o p a y i n g f o r i t -
self, although under present conditions i t is not possible t o
do that, a n d w e think the best way t o handle i t is t o charge
to the cafeteria evorything that ought t o be charged t o it,
and then a t t h e o n d o f the year frankly absorb t h e loss o n
jt a s t h e cost o f the improved service t h a t w e get from
the employees b y reason o f having r u n i t i n that w y .
Governor Fancher.
T h e Committee which h a s studied
our s i t u a t i o n h a s c o m e t o t h e c o n c l u s i o n t h a t w e s h o u l d
oither m a i n t a i n t h e c a f e t e r i a a s a t p r e s e n t c o n d u c t e d a n d
charge the loss off, which i n our cage i s about cight o r
nine thousand dollars,
t o cxpense,
o r discontinue t h e
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Federal Reserve Bank of St. Louis
cafeteria a l l togethere
The Chairman.
W h a t d i d our Committee recommend, M r .
Harrison?
Mr. Harrison.
O u r director feol.as Governor Bailey
feels, t h a t i t i s very important t o give t h e employees i n
the middle o f the day what will probably be, ‘ifm many, cases,,
the best meal t h e y will g e t during t h e course o f the day.
They are rather opposed t o the compulsory theory because n o
matter h o w g o o d y o u m a k e i t , i f y o u f o r c e u e :
b O 76au 64, &
they will object a n d d o not g e t the best benefit f r o m it.
They would prefer some such plan as San Francisco has, that
is t o give t h e m a n excellent meal a t a price that i s considerably b e l o w t h e m a r k e t a n d w h i c h w i l l i n v o l v e t h e r e -
serve bank i n absorbing a good part o f the overhead. T h e y
figure o n absolutely the same basis a s San Francisco, that
is t h a t w e s h o u l d c h a r g e t h e e m p l o y e e s a b o u t t w o - t h i r d s
the cost and absorb a third of it ourselves.
of
A t the
present time Governor Bailey i s furnishing meals a t 3 4 cents,
and he charges them $100 a year, s o that the employee pays
100 per cent o f the cost.
T a e S a n Francisco meals c o s t t h e
game price, 3 4 cents, o f which the employee pays 6 6 per cent,
L356
and t h e bank 33, s o that really i n San Francisco t h e y a r e
better o f f t h a n t h e y a r e i n Kansas C i t y , b e c a u s e t h e b a n k
is absorbing more o f the cost.
C u r directcrs would prefor,
and wanted m e t o ask y o u t o rscommond, t h a t w e d e someon
thing almost precisely t h e same basis a s S a n Francisco.
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Federal Reserve Bank of St. Louis
Governor Calkins.
obvious.
T h e reasons f o r doing that are
F i r s t t o see that t h e omployee g e t s a wholesome
meal, that means make i t sufficiently attractive and suffielently cheap t o prevent h i m going outside a n d getting a
comparatively improper meal. I
believe absorbing t h e cost
by the 2ank i s merely a matter o f economy.
charity i n i t whatever.
I t pas<ne
B y assuring t h e n opportunity t o
get i n the bank, u n d e r attractive conditions a
botter meal
than they could get for anything like the same price outside,
we promote efficiency a n d contentment a m o n g o u r employees,
und that contentment i s worth a s much a s anything w e havo
t o a
F O r oe.
Govermor Pailey.
T h a t i s exactly w h a t w e think a b o u t
our system o u t i n Kansas City.
The Ghairman.
Governor Seaye
T h a t i s t h e w a y w e feel about it.
W e are agreed among o u r officers a s
to the degirability a n d a s t o t h e beneficial effect o f serving
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Federal Reserve Bank of St. Louis
L37
a meal, bubreven a t that w e have never been able t o prevail
upon more t h a n 3 5 per cent o f them t o take their meals i n
W e are i n close proximity t o t a e shopping sec-
the bank.
tion. M a n y of them bring their lunchs i n "snacks" a s they
call i t from homo; s o m o prefer t o g o out; s o m e think they
cannot e v e n a f f o r d i t , a n d t h e y b r i n g sandwiches.
O u r
policy, however, i s t o absorb all expense except the cost o f
tae foom and the cost o f serving, which amounts t o about 3 5
per c e n t o f t h e t o t a l o x p e n d i t u r e .
I would suggest i t i s t h e concensus o f opinion that t h e
experience o f the banks shows t h a t a t least they might well
absorb a l l expense oxceot t h e cost o f the food a n d t h e cost
of preparing it, a n d that would generally b e found t o b e
about one-third o f the total c o s t o f conducting a
Governor Wellborn.
cafeteria.
W h a t would i t cost i n your
bank o n that basis?
Governor Seay.
Governor Biggs.
months.
I t costs u s about $6000.
W e have o n l y been i n operation three
T h e first month w e had a small loss, slightly less
than $200.
I n September there was a profit.
W e feed about
58 per cent o f o u r employees, a n d the average meal i s 2 8 s ceni.
ae
aiualllld
Govermor Bailey.
D o y o u operate a
cafeteria?
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Federal Reserve Bank of St. Louis
138
Governor Biggs. Yes.
W e just opened i t up ayout
three months a g o a n d t h e employees h a v e takon v o r y kindly
tO Ut.
W
o have asked t h e m t o compare priccs p a i d elsewhero
with t h e prices p a i d i n the cafeteria, a n d t o compare t h e
food.
T h e y claim a saving o f 350 per cent i n cost and a n
improvemont o f 1 0 per cent i n the fool a s against other places
Governor Harding.
T h e Boston Bank h a s never sustained
a loss of over $2000 a year for the cafeteria, and at the
present time i t is camming a profit o f 35006
ne Ghairman. T h o r e seems t o bo basis for the statemen
made b y Governor S e a y that there i s ground f o r recommending
to the Board that t h o general policy ghuuld b e t o serve a
good
substantial meal, n o t make i t compulsory, k e e p t h e cost a s
low a s possiblo f o r a.gcod substantial meal, a n d have t h e
bank absorb a l l the cost oxcept t h o cost o f the f o o d and
pussibly t h e cost o f i t s preparation, w h i c h works o u t i n
a numbor o f cases a s follows:
O n e - t h i r d o f tha cost t o b e
boime b y t h e b a n k a n d t w o = t h i r d s
o f t h e c o g t t o b e borne
by t h e omployees.
Governor Younge
W e only have a small number o f
people i n the Minneapolis Bank, a n d w e closed t h e cafeteria
Up « [ I f I add t h e cost o f labor a n d the price o f food
139
it brings i t up t o 356 or 357 cents, a n d they won't pay ite
They will g o outside a n d get a moal for 2 5 cents.
G o v e r o r Harding.
W h y n o t couple this u p with t h e
suggestion that i t i s a matter f o r the Board o f Directors
of coach bani t o establish f o r themselves?
Governor McDougal. I
would like
t o know i f oach
bank i g not absorbing a t loast that amount?
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Federal Reserve Bank of St. Louis
T h e banks together absorbed 997,000
Governor Seay.
last year, ea ccording t o the Board's figures.
Govermor Young.
cafeteria a t first.
growing a l l t h e timo.
O u r directors d i d not approve o f the
I t started m t h e r innocently, o n d i g
W e simply provided s p a c e a t first
for those omployees w h o brought their o w n lunches;
then
wo furnished t h e m coffee a n d milk, a n d finally some o f the
omployees w a n t e d t o know i f w e could n o t give t h e m sandwiches
at cost, a n d t h e thing developed i n tuat way.
The Ghairmane
T h e resolution might h a v e added t o i t
tho p r o v i s o t h a t c i r c u m s t a n c e s v a r y c s o m e w h a t
reserve b a n k s ,
i n the different
a n d that whilo t h e plan proposed would con-
templato normally t h e paying o f one-third o f the cost b y
the bank a n d two-thirds b y t h e employees, t h a t i n discussing
it with the directors o f the banks i t might b e necessary t o
somewhat m o d i f y t h i s t o m e e t c i r c u m s t a n c e s s u c h a s
described
in Kansas C i t y a n d Minneapolis.
Govermmor McDougal.
T h e one-third a n d two-thirds t o
apply t o the cost o f t h e food a n d t h e service; t w o - t h i r d s
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Federal Reserve Bank of St. Louis
b y t h e bank,
to b e a b s o r b e d b y t h e e m p l o y o e s a n d o n e - t h i r d
o r anything
no c o n s i d e r a t i o n b e i n g g i v e n t o a n y o v e r h e a d
of
that k i n d ?
The Ghairman.
No.
I t i s just o u t o f pocket OxXponso.
will second that.
Governor Young. I
(The motion having been duly seconded was carried.)
The Chairman.
W e w i l l n o w t a k e u p t o p i c Anite
4nQe Poermanont employment b y t h e Board a t a
fixed retainer o f spocial counsel o f
outstanding ability t o assist i n litigaVA
e
e
The comment iss: T h i g topic h a s a s i t s basis a
suggestion o f the Federal Reserve B a n k o f Dallas, a
n d the
o f the
guestion w a s considered i n the Gonforence o f Counsel
July:
Federal R e s e r v e R a n k s h e l d i n W a s h i n g t o n l a s t
T h a t
employConfercnco passed a resolution t o the offect that t h e
ment o f guch special counsol v i s not cssential t o the proper
administration o f the Federal Reserve banks, a n d recommended
that t h e banks continue,
a s heretofore,
t o employ special
counsel t o assist i n litigation o f System wide interest,
concern=
when i n the judgment o f counsel f o r a n y reserve bank
other
ed, t h e o c c a s i o n r e q u i r e s s u c h e m p l o y m e n t a n d t h e
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Federal Reserve Bank of St. Louis
L4i
banks a r e agresable.
would l i k e t o s a y i n t h a t c o n n e c t -
Governor Seay: I
fon that Professor Spraguo communicated t o the Comptroller
the substance o f our deliberations
Gomptroller expressed a
o n yesterday a n d t h e
desire t o b e p r e s e n t a t the n e x
moeting o f tho Committes.
(Whereupon, u p o n motion duly seconded, t h e Conferonce
5rd,
adjourned a t 5 o'clock p e Me, until TueSdgy, November
1925, a t 11.50 o'clock ae me)
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Federal Reserve Bank of St. Louis
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