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Federal Reserve Bank of St. Louis
VOLUME 2
PROCEEDINGS
CONFERENCE
O F GOVERNORS
OF T H E
FEDERAL
RESERVE
BANKS
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.C.
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Federal Reserve Bank of St. Louis
Bae
Tuosday, Novembor dSrd,1925.
The C o n f e r o n c e m a t p u r s u a n t
t o adjournment
o f yesterday
at 11.30 o'clock a . me:
APPEARANGHS:
The same a s noted oni yesterday.
NG&s
The Chairman.
W e adjourned last evening without
our completing t h e discussion o f Topic A m 9
T h i s was put
on the program b y the Federal Reservo Board a n d i s epen f o r
discussion,
Governor Young.
T h i s apparently originates w i t h t h e
Tallas Bank.
Governor Seaye
M r . Ghairman, I
move that w e concur
in t h e opinion o f the various counsol o f the Reserve banks a s
expressed i n this topic.
Governor McDougal. I
will second that.
(The motion having been duly seconded was carried.)
Governor Talley. I
desire t o b e recorded a s voting
Governor Younge W i t h regard t o that topic Governor
Talley voted n o a n d a s a matter o f information I
would like
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Federal Reserve Bank of St. Louis
voted i n that way?
to know why »
Governor Talley.
Because I
believe i n t
principle
of the employment o f special counsel a s suggested i n this
topic. I
a m now i n fayor o f all t h o banks being callec on,
when a particular bank h a s some litigation,
t o participate
in ite T h e Federal Reserve B a n k o f Dallas h a s h a c litigation from time t o time and h a s never suggested that a n y
other Federal Resorve B a n k j o i n i t i n the employment o f
soecial c o u n s e l
o r s h a r e i n t h e expense.
Y e t I
venture
to
say t h a t i n a l m o s t o v e r y q u e s t i o n t h a t h a s b o o n l i t i g a t e d
there a r e p r i n c i p l e s i n v o l v i n g t h e w h o l e system.
Tre Cheirmane W o will now consider Topic No. 5.
Relations w i t h member banus a n d t h e public.
BeAe A G V i s a b i l i t y o f discontinuing t h o practice o f d i s p l a y i n g s o - c a l l e d F e d o r a l
Reserve e x h i b i t s a t t h e a n n u a l c o n vontions o f t h o A m e r i c a n Bankers’
Association.
Governor Norris. I
know quite a
fow o f the Governors
are i n favor o f continuing these exhibits.
I f
any w h o f e e l t h a t p e r h a p s t h e y m i g n t a s w e l l d i s c o n t i n u e d
tTthink i t would b e useful t o hear from t h e m
The Chairman.e
A r o there a n y here w h o favor discon-
tinuing these exhibits?
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Federal Reserve Bank of St. Louis
144:
T h e total c o s t o f t h e Atlantic
Governor Norris.
1
B-hibit w a s $3800.
»
Governor Talloy.
have b e e n v e r y m u c h
Porsonatiy I
impressed w i t h t h e oxhibits, t n d I think i t i s monoy well
heard a good deal o f favorable comment o n the
spont. T
xhibits.
Governor Seay. S u c h exhibits as have been made, Mre
t o m y mind have o e e n highly creditablo a n d in-
Chairman,
formative.
T r e question arises whether they a r e worth
the cost o r not.
T h a t i s a mattor o f judgment o f cOursO.
Governor Biggse I
comments.
heard a great m a n y favorable
T h o matter w a s discussed
b y o u r Board o f
Directors, a n d one o f the directors s a i d that h e would
give ten times what i t cost t o have that mucha dvertising f c r a commercial bank.
T h o s e w h o s a w i t commented
favorably o n ite [ T t was displayed o n one o f the piers
at Atlantic Gity, a n d there was a good crowd all the
time.
The Chairman. I
did not get down t o see it. W a s
it a good exhibit?
Governor Bailey.
Y e s i t was.
front o f one o f the b i g piers.
L
t was orected i n
W h e t h e r o r not i t i s justi-
fied i s o f course a matter o f judgment, b u t I could n o t
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Federal Reserve Bank of St. Louis
asked
holp b u t think that when t h e m e n becamo interested a n d
questions about it, t h a t i t would help popularizo t h e system.
Govormor Fancher.
T h a t i s m y position.
T h e Exhibit
was well set,up, t h e location was unusually favorable. lvery-
body going t o and from the Gonvention passed the exhibit
and many o f them showed intorest i n it.
T h e y would s t o p
and look a t the different charts . a n d things o f that sort,
and i t seemed t o m e that i t was well worth while.
Governor Norris.
labor cost;
I t has cost 33800, n o t including
t h a t c o s t i s a p p o r t i o n e d b e t w e e n t h e 1 2 banks
on the basis o f capital a n d surplus, a n d i t cost
New Y o r k a b o u t a
thousand dollars.
Governor Wellborn. I
City o n t h e l s t o f October.
saw t h e Exhibit
i n Atlantic
O n e o f t n e officers
o f the
Philadelphia B a n k wrote m e a n d asked m e what m y impression
WAS o I
think i t was a very attractive exhibit, b u t I do
not s e e a n y S p e c i a l u s e f o r i t o r a n y s p e c i a l b e n e f i t
be derived f r o m it. I
thought w e rather cheapened t h e
system b y advertising i t i n that way.
I t attracted
attontion because there were a lot o f pictures, charts
and g O OM.
Governor Norris.
to
I t was principally charts.
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Federal Reserve Bank of St. Louis
146
There was only thing that I recall outside o f the charts;
there w a s a thing like a chart which, instead o f having
merely l i n e s
o n it, i l l u s t r a t e d t h e s e r v i c o r e n d e r o d b y
the r e s e r v e b a n k t o o n e m e m b e r b a n k i n o n e month.
are a
number o f pouches p i n n e d
There
t o it, i t s h o w e d c u r r e n c y
shipments a n d a package o f notes s e n t i n for discount a n d
sO One T h e n there w a s a large c a g e that w a s filled w i t h
dummy chocks representing 200,000 checks handled o n a n
average e a c h d a y b y each reserve bank.
T h o s e were t h e
two things t h a t were n o t just charts.
Governor Biggs.
I t attracted the attention o f a
great m a n y n o n - m e m b e r banks.
o f t h e people
T w o thirds
there, I imagine, were not mombers o f tho System. T h e y
got a little pamphlet.
W e ordered a hundred of them
and sont t h e m around a n d t h e n ordered t w o o r three hundred
MOLTO»
apiege,
I t does not cost anything much, loss than a cent
a n d t h e y a r e v o r y interesting.
Governor Norris.
T h e charts which were reproduced
in reducod size o n the leaflet, w h i c h was distributed,
and
which w a s t a k o n a w a y B y s o m e p e o p l e w h o d i d n o t c a r e t o
spend t h e time looking a t t h o oxhibit, I
think will b e very
valuable, m o r e s o than the exhibit itself.
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Federal Reserve Bank of St. Louis
LAT
Governor Fancher. I
thought i t 4 splendid thing i f
peoplo would take little booklets, s h o w -ng the reduced
charts, a n d take i t t o their office o r home a n d study ite
Of course w e all know that a t conventions o f that kind
thore are great quantities o f literature distributed
of various sorts, s o m e o f value, and’ some o f not much
value;
W e know that that i s gathered u p b y people b u t i s
often left a t the hotels a n d not taken with them.
B u t if
people w h o are really intorestod t a k e that little booklet
home a n c spend a little time reading i t I think i t i s a
splendid advertisoment f o r the Systom a n d well worth any
expenditure
i t m a y cost.
Govermmor Scaye
T n e nezessity o f informing a n d
educating t h o p u b l i c a n d a
large p r o p o r t i o n
o f t h e banksrs
ig just a s real today a s i t has beon a n y timo i n t h e history
of the Systome
W e know that a Committee o f the Federal
Reserve Agents h a s h a d that matter constantly under study.
I do not know o f auy bettor-way t h a n b y theso object lessons
or exhibits,
serve a
t o keep t h e matter alive, a n d I believe t h e y
g e n u i n e l y u s e f u l purpose.
The Chairman.
‘ n a general way I have felt that
this subject o f education a n d enlightenment o f the public
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Federal Reserve Bank of St. Louis
L48
ig
standing, a l s o special talent. I
it: I
a m a terriblo reactionary
anyways
cdo not know much about
o n anything
o f that s o r t
W e have a n organization i n the S y s t e m charged w i t h
the r e s p o n s i b i l i t y f o r t h i s work, t h e y h a v o a s k e d w h a t o u r
views a r e with regard t o somo part o f their work, a n d w e
ought t o give them a n oxprossion o f views. I
have not
folt really preparod t o have a view about this particular
thing, a n d I would like t o s e e h o w i t fits into t h e entire
PU CtuUres
Tho only one o f these exhibits t h a t I have seen i s the
one that they had at tho New York Convention some years
ago, which combined charts with a moving picture show.
moving p i c t u r e s h o w u n d o d o t e d l y a t t r a c t e d a
That
good deal o f
attention a n d most o f the comment was quite favorable.
Some o f the comment w a s n o t quite s o favorable. I
think
ail w e are required t o d o here, i n a general way, i s t o
give o u r expressions o f opinion, j u s t a s though:ive wero
outsiders, l o o k i n g a t t h e exhibit, something which another
branch o f o u r organization h a s s e t u p f o r u s t o look at.
New i f t h o i m p r e s s i o n w a s f a v o r a b l e
w o c a n s a y that,. a n d
then w e have g o t t o judge whether i t 1 s o f value o r not,
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Federal Reserve Bank of St. Louis
149
and whether i t justifios continuing expense t o keep i t UDP.
They m a y want t o spend t h e money f o r a groat m a n y other
thingsthat t h e y m a y c o n s i d e r m o r e i m p o r t a n t t h a n this.
I gathor t h a t t h e g o n e r a l i m p r e s s i o n w a s q u i t e f a v o r a b l e ?
Governor Tilley.
S i n c e t h e gonerel oxprossion h a s
been fayorablo a g t o the continuance, I
might suggest t m t
it would b e a good idea perhaps t o show this omhibit a t
the v a r i o u s s t a t e c o n v e n t i o n s .
A
t t o c last American
Bankers! Association I think the maximum registration
on a n y o n e d a y w a s a b o u t 3800.
N o w i n view o f tne fact
that there were o n l y about thirty reprosentatives f r o m
Texas a n d p r o b a b l y f i f t y d e l e g a t e s f r o m t h e d e e
D e S e e Ui
thousand o f those booklets a n c s o n t t h e m
wo o r d e r e d a
to every member bank a n d every eligible non-member bank.
It s t r u c k m e t h a t i t m i g h t b e a
consideration
conveutions
proposition w o r t h y o f
t o show t h e exhibit
s o that a
a t t h o various state
larger n u m b e r o f bankers c o u l d
seo i t .
I also w a n t e d t o n o t e a s a
matter o f i n t e r e s t t h a t
the average total number o f checks handied b y t h e Kansas
City Bank w a s t h e average f o r the System oxactly, 204,000
checks.
T h a t was a n interesting thing t o me.
150
Governor Norris.
M
e axnibit
o f course i s t h e
property o f t h e t w e l v e b a n k s a n d i s a v a i l a b l e
t o a n y bank
at a n y t i m e t h a t t h e y w a n t t o u s e t h e o x h i b i t
i n their
A l l t h e charts that were exhibited i n 1924,
district.
™% remember,
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Federal Reserve Bank of St. Louis
w e r e o u t i n Chicago f o r s o m e months u s i n g
them i n the varicus states i n their district. I
hree o r f o u r t i m e s t h a t w h e n I
charts I
wanted
recall
t o use these
found t h a t they woro always o u t i n Chicago.
Governor McDougal.
uged this exhibit.
t
n 1924 t h e Chicago B a n k
W e kept a rocord a n d found t h a t
there w e r o a p p r o x i m a t e l y 2 0 0 0 people,
m o s t o f whom came
into o u r bank t o see t h o exhibit. A f t e r w a r d s t h e oxhibit was reduced i n sizc a n d givon wide circulation
throughout t h e district a t the request o f banks, universities, h i g h schools, a n d various civic organizations.
The exhibit i s still circulating, a n d w e are adding t o
it certain items f r o m t h e 1925 exhibit a t Atlantic
City. T h e r e i g still a demand for i t by the various
civic organizations a n d others.
The Chairman. A
Gommittee o f the Federal Reserve
Agents i n chargo o f member banks relations a n d public
relations have made a report t o submit t o t h e Joint
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Federal Reserve Bank of St. Louis
Conforence,
and I
suppose a n y a c t i o n o n t h e s u b j e c t o f
publicity w i l l b e h a d a f t e r t h a t r e p o r t
Governor Seaye M r . Chairman, I
i g submitted.
move t h a t i t add
the Conference roport t o t h e Joint Conference t h a t a discussion o f t h i s m a t t e r
i n this Conference disclosed t h e
fact t h a t t h e G o v e r n o s g e n e r a l l y w e r e i n P a y o r O f C o n t i n
uing these exhibits.
Governor Biggs. I
will second that motion.
(The motion having been duly seconded, w a s carried.
(Whereupon, a t 1.10 o'clock p e M e a recess was taken
until 2.30 olelock p. me, o f the same tak.)eew/
o'clock peme
The Chairman.
W e will take u p Section 2 on the
program, w h i c h i s collections a n d clearings.
W e will
take u p the report o f the Standing Committee o n Gollections,
of which Mr, Strater i s Chairman.
ho Report o f t h e Standfing Committee o n Collections
to t h e C o n f e r e n c e
o f Governors
i s a s follows:
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Federal Reserve Bank of St. Louis
o f Governors
To t h e C o n f e r e n c e
At t h e C o n f e r e n c e
o f Governors h e l d A p r i l
topics a p p e a r i n g
o n t h e Conference program,
as several related questions w h i c h t h e Conference discussed,
o n Collections.
were r e f e r r e d t o t h e S t a n d i n g C o m m i t t e e
B a e
v e r y carefully a n d i s
Committee h a s considerec these m a i
x
to submit the following r e
r e a t i n g t h e sub-
order i n which they appear i n the Secretary's
une Conference.
Direct S e n d i
eter considerable discussion o f the question o f placing
a minimum
o n the dollar amount
|
r
e
byv a
o f c a s h items
t ! n a y b e sent
member ban's i n o n e d i s t r
reserve b a n k i n anotk a
c e e
the S t a n d i n g m u i t t e e
e
l
s
b
o 8
t h e Conference v o t e
o n Collections.
Follow
some d i s c u s
and r i s k s i n v o l v e d
member banks, a s a
result
o f which t h e Standing Committee o n
to
Collections w a s recuested t o study t h e whole subject a n d
rt t o t h e n e x t Governors!
The C o m m i t t e e h a s g i v e n t h o u g h t
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Federal Reserve Bank of St. Louis
recognizes a n d aopreciates t h e
the practice, i t i s t h o Cormitteets
principle
essential -
i s very important
i n the progress a n d development
Federal Reserve System; t h a t i t s
the s t a n d p o i n t
o f m e m b e r banics a n d
anks, greatiy outweigh i t s s e e r s ; a n d t h a
6 encouraged essecially among the larger and
member banks whenever there i s n o reason t o
stered p r o p e r l y a n d
prudently.
The p r i n c i p a l d a i
honest banker w h o
an a d d i t i o n a l
means
t o defraud
by
direct t o anothor Federal reserve bani: for credit o r b y
sending his: o w n Federal reserve b a n k fictitious advices
of direct scndings.
I t should b e romem>ered, however, t h a t
~
deral reserve banis has t h e right t o decide whether
+
routing p r i v i l e g e ‘shail b e sranted t o a n y one
nks a n d l i k e w
Cyn
the p r i v i l e g e f r o m a n y m e m b e r
The b a n k e r
w h o turns dishonest
h
a
s
a t anv
has other
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Federal Reserve Bank of St. Louis
15h.
Bt\
is very improvable t h a t this method
he h a d e x h a u s t e d msther m e a n s
and become rather hope.
i n v o l v e d , d u r i n g which
time h e w o u l d m o r e
l
y b e apprehended
o r cause
suspicion t o b e aroused.
As t o the risks involved, t h e Federal resorve banks
assume none a n d incur none s o long a s the direct sonding
i s sound.
momber
E v e n u n d e r o t h e r conditions,
i t seems
to the Committee that t h e r e i s little risk since t h e reserve b a n k o f the dircct sending member h a s entire conto i t s m e m b e r a n d m a y w i t h o l d i t s
ufficiont reason, a n d the
the items a r e sent actually }
r e r e b a n k t o whi
tles t h e
o n
n d h a s the
opportunity t o detect a n y t h a t a p p e a r suspicious.
The a d v a n t a g e s
o f direct s e n d i n g a r e o D i m a n d a p -
pear t o the Committee t o b e o f great importance.
Member
obtain
panks a r e enabled i n the majority o f instances t o
cases t w o d a y s e a r l i e r a n d
where a
nearer
t o a
reser
b a n k
member b a n k i s l o c a t e d m u c h
o r branch
o f another distr
9 its o w n reserve bank, three o r more days earlier
Fedhey w o u l d i f t h e i t e m s w e r e s e n t t o t h e i r o w n
Trou t h e s t a n d p o i n t
o f t h e Federal
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Federal Reserve Bank of St. Louis
Reserve Systcm there i s a great saving t o b e gained,
duplication
because a
of
%
s
s
e
r
v
e banks
>
in e v e r y c a s e i n w h i c h
Pepcers f r e o n d i r e c u
receive
a n d handle a
—
o
would b e t h e c a s e i f
own mombers,
n
i t must b e r e m e m b <
l
t
h
y
a @
: trom tne.
i t e m s mist
handled b y the reserve bani
items a r e payable, a n c i f
member b a n k s w e r e n o t p o i m i t t e d
t o route items pa
bh y a b l e
4.
othor Fedoral reserve districts direct t o the Federal
a
serve banks o f such
o -Gistricts, t h e collection o f
such items through t h e System w o n e c e s s i t a t e receiving
and h a n d l i n g b r t w o r e s e r v e b a n k s , w h i c h w o u l d r e s u l t
an enormous d u p l i c a t i o n
in
o f work a n d consequent increase
in the ¢oet- o f coltect ion 1 6 the Syatenu.
With reference t o the question o f p.the m i n i m i m d o l l a r a m o u n t o f c a s h i t e m s t h a t a
bank m a y s e n d i n a
cash letter direct t o a n o t h e r
reserve bank, i t j e
establish s u c h a
opinion o f the Committes t h a t
minimim v o u l d w o r k a n u n d u e h a r d s h i p u p o n
the m e m b e r banits i n t h e o p e r a t i o n o f t h e i r T r a n s i t D e p a r t —
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Federal Reserve Bank of St. Louis
would therefore discourage t h e direct
A member b a n k m u s t n e c e s s a r i l y
will
be
and once having
arrange t o send
reserve bank,
may c o m e
t o i t during
t h e course
day o r a t certain intervals o f the day.
a momber b a n k
particular Pedera.
g o i n g
served
o
i e
T h e dollar amount
r e c e i v e
on a
f course, c a n n o t
pe d e t o r m i n e d
practicable f o r m e m b o r bank t o uadortake direct send~
ing t o o t h e r c e s o r v e banks a n d b r a n c h e s
as
w e n there was
at t h e c l o s e o f a
dollar a m o u n t o f c a s h i t e m s
days w o r k t h a t
i n any cash
sent dircct, w a s n o t sufficient
the Federal Reserve banks.
It a p p e s o
4ncident
the Committec t h a t t h e amount o f work
t o direct sendings
of the direct sending member
bank
o v branch which receives
has
t h e i t c m s direct.
t o b e credited
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Federal Reserve Bank of St. Louis
to its direct sending membcr a n d debited t o the other
Federal reserve bank, while i n the case o f the Federal
vesorve b a n k r o c e i v i n g t h e i t e m s t h e l e t t e r s a r e l i s t e d
on advices according t o deferred availability dates a n d
these a d v i c e s a r e c r e d i t e d
i n total t o t h e Federal reserve
bank o f tho direct sending member.
I t would seem, there-
o f w o r k i n v o l v e d t h e ques-—
fore, t h a c f r o m t h e s t a n d p o i n t
tion i s o f m o r e c o n c e r n t o t h e f o r m e r r e s e r v e b a n k t h a n
dee n t s eclecue ere
nS L e w O n e s f o r e g o i n g i t i s t h e C o m m i t t e e ' s o p i n i o n
that t h e dollar amount o f cash items that m a y b e sent b y
a member b a n k i n a
single
c e8
a g a
t
o another F e d ~
eral reserve b a n k should n o t b e limited, b u t
cases w h e r e i t apoears t h a t a
ing more numerous letters e a c h d a y than should b e necessary,
or a s a regular practice daily letters o f trifling amounts,
the Federal reserve b a n x o f the district i n which s u c h menbor i s lozated should take t h e matter u p with its member
in a n eddeavor t o correct t h e practice.
Instructions
i n Gash Letters o f Member Banks Sending
IG
This subject w a s brought u p a n d discussed a t the Con-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ference b e c a u s e
t h e instructions
member banirs transmd'
Y
i n cast l e t t e r s
o f
r gash items d i r e c t t o o t h e r F e d -
eral r e s e r v e baniss a r c d i f f e r e n t
great m a n y c a s e s
i n a
from t h e u n i f o r m i n s t r u c t i o n s u n d e r w h i c h F e d e r a l r e -
ing U o m m i t t e e
oceive a n d h a n d l e c a s h items;
a n d t h e Stand-
o n Collections w a s r e q u e s t e d
t e prepere a
circular letter t o be sent wniformly b y each Federal reserve p a n i t o e a c h o f i t s d i r e c t s e n d i n g m e m b e r s a d v i s i n g
thom o f t h e u n i f o r m i n s t r u c t i o n s
a n d requiring that t h e y
be u s e d i n direct r o u t e d c a s h letters.
An examination b y tho Committee o f the cash e t é
ters r e c e i v e d d i r e c t f r o m m e m b e r b a n k s
o f other districts
iscloses t h a t i n many cases there a r e special instrucSions
o r instructions w i t h r o f e r e n c e
t o protest, w i r i n g n o n -
payment, e t c . , w h i c h d i f f e r f r o m t h e u n i f o r m i n s t r u c t i o n s
of F e d o r a l r e s e r v e b a n k s a n d w h i c h f o r o b v i o u s r e a s o n s
Fedcral r e s e r v e b a n k s
enormous v o l u m e
i n the routine handling
o f checks c o u l d n o t u n d e r t a k e
o f such a n
t o follow.
It appears, h o w e v e r t h a t i n many cases member banks u s e
Letters
t o transmit items
t o their
o w n Fed-
eral reserve banks a s they d o i n sending items direct
othor r e s e r v e b a n k s ,
a n d consequently,
de
oo
t h e instructions a r e
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Federal Reserve Bank of St. Louis
159
It would s e e m t o the Committee,
disin w h i c h a n y momber
the r e s e r v e
bank
i n another
to u s e t h e u n i f o r m i n s t r u c t i o n s
CO
direct
i
r o w n Fodoral reserve banks
i n se
a s ‘veli a s
t o o t h c r F e d e r a l r e s o r v e banks.
In i t s r e p o r t
t o t h o Octeber, 1 9 2 2 , C o n f e r e n c e
ef
t h e Committee s u g g e s t e d t h a t t h e c h e c k collecae
Governors,
tion c i r c u l a r s
o f all Federal
reserve banks should con-
tain i n s t r u c t i o n s c o n c e r n i n g p r o t e s t a n d wire a d v i c e
of
Sj - L
oms w h i c h s h o u l d b e u n i f o r m i n cerelements,
b u t d i d n o t suggest a
4
paragraph t o b e embodied i n the circular o f eaci
bank.
T h e report o f the Committee
all the Federal reserve banks a t prescnt a r e operating
under t h e s a m e instructions,
t h e paragraphs
i n their c h e c k
collection c i r c u l a r s r é
lefining t h e conditions
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Federal Reserve B a n k of.
reserve b a n k direct f o r o u r account,
understood t o have agreed t o
of the Federal Reserve
this circular e n d o f Regulation J
cach PedBoard." S e a t i o n VII o f Regulation J states that
eral r e s e r v e b a n k s
o
m
.
r u l e s a n d regulations
a n d coilecgoverning t h e details o f its checis clearing
tion operations, w h i c h rules a n a regu.
forth b y t h e F e d e r a l r e s e r v e p a n k s
3
; shall b e set
i n their l e t t e r s
o f in-
b e binding u p o n a n y
structionsto t h e i r m e m b o r s a n d s h e l l
its Federal reserve
member bank which sends a n y check t o
reserve b a n k
bank f o r collection o r t o a n y other Feceral
for the account o f its Federal reserve bank.
i n a s m i c h a s memIt i s t h e C o m m i t t e e ' s o p i n i o n t h a t
various forms
ber banks throughout t h e country have adopted
which (it
of cash letters containing sundry instructions,
mist b e assumed)
a r e suitable
i n their Sndividual cases,
44 would b e extremely difficult,
i f not impracticable,
to
with the iastruchave t h e m change their letters t o conform
Conmittco i s taking
tions o f the reserve banks, a n d the
undertaking t o d o
the Liberty t o suggest that, instead o f
go, t h e reserve banks
a c o 2
‘ f o r m s o c t i o n t o appear
instructions
their check collection circulars embodying
in
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
under w h i c h c a s h i t c m s
Tt i s b e l v o v e d
b
h
e conditions
o f this
tn v i e w o f t h e p r e s e n t u n i f o r m l i a b i l i t y s e c t i o n i n t h e
chock t o l l e c t i o n c i r c u l a r s
tion V
o f a l l reserve banks a n d Sec-
of Begaiation J-of a h s
upon a l l member banks a n d w
serve b a n k s
o f any
Ob) Cacia t at a r e n e
s ¢g
for their o w n members o r for Girect
other d i s t r i c t s
members o f
i n strict a c c o r d a n c e w i t h i n s t r u c t i o n s .
is s t r e n g t h e n e d b e c a u s e
o f t z Pact t h a t the
court o f t h e U n i t e d S t a t e s tias r u i c d t h a t m e m -
by the conditions o f
dealing with
tion. carecuiar
members) states
another F e d e r a l
be u n d e r s t o o d
t o have agreed
of the circular,
eral r e s e r v e
i f , therefore,
b a n k contains a
uniform s e c t i c
of identical wording w i t h t 1 f
ia t h e C o m m i t 8
v
aal
m
n T A s trueusons
each other reserve bank,
a g e9
reserve
bani would
assuming n o risk i n handling itoms either f o r its
be
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
members
tractions
o f other district
i n t h e c a s h letters,
ee
e e aes S aU E
o Se
UGMMLLUCES.
fey
©
ne checl: c o l l e c t i o n c i r c u l a r
rosy
o f
bank under t h e h e a d i n g , '
erve Bantiz
forward checi:s
under
t h e conditicns
re
o f this
qnly t o t h e f o l l o w i n g u n i f o r m
their L a c e v n e
the F e d e r a l
reserve baniz o r o f a
preceding b a n k endcrser.
of non-payment o f all items
4.*
o e
rve b a n l c s
these u n i t
4 n s t r u c t i ss
ons
noted
o n cash
letters o r attached t o checks will b e cisregarded,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
member banit s h o u l d d e s i r e
t o have a n y
handled b y the Federal Reserve B a n k o f
ge
e
e e
e
e
e e e other Federal reserve
bank, under a n y instructions contrary t o the uniform instructions g i v e n above,
i t will b e nec-
che&ks
cessary f o r s u c h m e m b e r b a n k t o f o r w a r d s u c h
as individual non-cash items w i t h the instructions
noted i n the letter o f transmittal, f o r collection
and credit w h e n p.id,
i n accordance w i t h the terms
of our circular No. ( o r appropriate reference
to the rules governing t h e handling o f non-cash
collection items)."
Drafts.
Instructions f o r H e n d l i n g B i l l o f L a d i n g
some Federaz
Tt was pointed o u t a t the Conference t h a t
sight drafts w i t h
reserve banks i n handling f o r collection
strictly i n ail
pills o f lading attached d o aot follow
collection letters
cases t h e i n s t r u c t i o n s g i v e n i n t h e
4
of t h e b a n k s s e n d i n g t h e t o m s
t o t h e r e s e r v e banks.
T h e
o n Collections
donference voted that the Standing TSormittee
o f handling bill o f
be requested t o consider t h e question
lading drafts contrary t o instructions ¢oi
lettors
o f transmittal.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Tt s e e m s
tos)
cf a
t o b e t h e practice
concerns w h e n m a k i n g a
°
great m a n y b u s i n e s s
o f goods t e d r a w o n t h e
shipment
attach~
consignee using a sight draft w i t h bill c f lading
ed without giving a n y instructions 4 s b o
i n case t h e consignee
of the dvaft a n d bill o f lading,
arrivshould refuse t o p a y the draft o n demand a n d before
al o f the goods.
I n the great majority o f cases, w h e n
refused
payment a t sight before arrival o f the gocds i s
draft b e
by the consignee, t h e shipper desires t n a t t h e
2
inadvertentheld f o r arrival, b u t either 4{ntcntionally o r
o r t e authorly fails t o a t t a c h insti ~ucetions t o t h e d r a f t
izo his commercial b a n k t o give instructions
or transmittal t o that offect.
i n its lotter
T h i s practice increased
t a x o n time i n considerably d u r i n g ‘the p e r i o d t h e s t a m p
T
struments w a s i n
sight d r a f t s
t was advantageous
i n making
a l shipments
t o shippers
i n order t o
tax, a n d i t was more o r less generally underof l a d i n g d r a f t s
i n t h e m a j o r i t y o f cases
b e held f o r
wore drawn a t sight f o r that reason a n d might
of goods i f payment a t sight were refused.
view o f t h e s e c i r c u m s t a n c e s
i t has become t h e prac-
most Federal reserve banks, a s well a s commercial
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i
larger cities,
g sight drafts
n
the i t e m s w h e n pay-
lading attached i
o
a
ment i s r e f u s e d u p o n first p r e s :
d immediately
i
notify t h e t e n d o r s e r s a s k i n g f o r ixstrvretions.
[tems
subject t o protest are, o f course, protested b u t
held
time i n s t r u m e n t s
Ota
t a m p ta. ey B B s
Notn fanding th
in the same manner.
has
ason f o r d r a w i n g b i l l
o f
et t h e p r a c t i c e
scem
shippers h a s n e v e ertheless c o n t i n u c d a z d i t
Committoe
that
i t would
b e futile
reserve
f o r Federal
a small p e r c e n t a g e
o f s u c h collections,
following
to undertake t o correct o r change t h e practice b y
a
.f
instructions,
lite
instructions
t o the letter
Sf Tot. pes
the resorve banks
a n c return such
e n t a t i o n ,
draft w o u l d n e c e s s a r i l y heve
t
o.
1 0 u 1 d follow
a n item im-
t h e drawer o f t r e
reforward
item t o
tne
4
place f o r collection, inasmucn a s the shipment
5
would a l r e a d y b e i n transit a n c t h e d r a t
have t o b e c o l l e c t e d
meantime
would n e c e s s a r i l y
a t t h e p o i n t o f destination.
i t is
in t h e a b s e n c e
5 ee
o f the Diil
leased b y the railroad, w h i c h mighs
ae
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Federal Reserve Bank of St. Louis
demurrage a n d p o s s
the goods happened
guostion has b e e n the subject e f correspondea)
w i t h which
ence b e t w e e n c e r t a i n F e d e r a l r e s e r v e varks,
view o f t h e
the Gommittec i s quite familiar, a n d i n
peculiar c i r c u m s t a n c e s t h e C o m m i t t e e
i s inclined T o
appear t o b e ilbelieve that, notwitrstanding i t might
more e x p e d i e n t
t o give prompt notice
of
further instructions.
dishonor i n such cases a n d a s k for
Federal reserve banks,
i n the absence o f specific i n -
items under t h e general
structions, f o r w a r d a l l w o n - c a s h
printed 4 n s t r u c t i o n s
are
t o t h e effect t h a t collectious
f o r the convenience o f
not t o b o held after maturity n o r
payer, b u t , noverthneless,
i t d o e s n o t secia O b i e
t o the reserve
mittee that a n y liability would accrue
banks
instructions w h e n
i f they should deviate f r o m thoge
attached a r e not paid
sight drafts w i t h bills o f lading
The Committee realizes, howover,
t o make
technically improper a n d hesitates
countenancLoan which might s e t a precedent a s
a member
bank
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Federal Reserve Bank of St. Louis
Which t h e r c
would
seem
to
be n o d e f e n s e e x c e p t
Pes)
4. t h e
is t h e o j
Committee, however, t h a t
on &
the F e d e r a l H e s e r v e
On
i n this
a a
o Y s S tS
s h o u l d
not be
operated contrary t o the practices o f com mercial b
except
i n cases w h e r e
a principle
i s involved,
b u t should
go a s f a r i n c o n f o r m i n g t o t h e p r a c t ices o f c o m m e r c i a l
banks i n dealing
with t h e i r
customers
a s safety a n d
prudence w i l l nermib.
e s egraphic Advice o f Non-payment
a
The C o n f e rence v o t e d
mittee
o n Colloctions
Over $500
o f Checks
refer t o the Standing
t o
tho q u e s t i o n o f whethor ‘ o r not 41t
might b e desirable t o collect f r o m depositing member banirs,
the cost o f l e g r a m s
betweeén t h e d r a w e e o r c o l l e c t i n g
bank a n d the Federal reserve bank,
reserve
bank and
are now
being
t h e Federal
bank, giving tele-
the d e p o s i t i n g m e m b o r
graphic a d v i c e o f n o n - p a y m e n t
These c h a r g e s
and b e t w e e n
of G500 and over.
o f checls
abeorbed b y the Federal reserve
panics.
This q u e s t i c n w a s r a i s o d
Bes)
of effecting further
economies
because o f the possibility
in t h e
h
a
n
d
l
i
check collections b y pass
depositing member baniks s h o u l d i t become imperative
n
g
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
further. roduce the «
o f the check collection Pune-
tion,
Th considering
i s matter t h e Committee thought
Je ( 1 ) t o o b t a i n a n estimate
o f the annual
cost t o the Federal reserve s y s t e m o f this service, a n d
(2) t o obtain information a s t o the practice i n effect
with c o m m e r c i a l b a n k s
i n t h e various Federal reserve b a n k
and branch cities, w i t h respect t o similar charges i n curred o n checks c o l l e c t e d t h r e u g h c h a n n e l s o t h e r t h a n
the Federal reserve banks,
It w a s f o u n d t h a t t h e a n n u a l c o s t t o t h e s y s t e m i s
4
approximately ¥ ¥ 55,000 a n d that t h e general practice w i t h
commercial
banks
i n all
o f the Federal reserve
bank and
branch cities, excopt Boston, w i t h respect t o charges
incurred i n giving telegraphic advice o f non-payment o f
cheois.oF $500 a n d over, handled through other channels
to collect t h e cost o f these messages f r o m their
depositors. T h e r e are, o f course, i n all o f these cities
exceptions
t o thi é
. a s o s whero the commercial
panks d o not collect telegraph charges because o f the
valuable character o f a particular account,
o r where f o r
other reasons i t i s not desirable t o recover f r o m the
depositors.
I t appears
t o b e t h e general practice
in
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Federal Reserve Bank of St. Louis
168
Boston f o r cormercial banks t o absorb a l l telegraphic
this c o n n e c t i o n ,
whole
The C o m m i t t c e g a v e t o r y c a r e f u l s t u d y t o t h e
potential
question a n d reached t h e eonclusion that t h e
saving o f approximately $55,000 per annum i s well worth
considering,
in
s y e n t i t should b e dcemed desirable
or b e c e m e i m p o r a t i v e
t o effoct further cconomies
i n the
o f the
check sollestion function, particvlarly i n view
fall upon
fact thet t h e burden o f these charges will w o t
now
the member banks b u t upon their depositors, w h o a r e
abserbing similar charges i n a lesser degree.
bank will
The objection m a y b e raised that somo member
that teleobject t o paying these charges f o r t h o reason
b y them.
graphic advice o f non-payment i s not rcquested
tf, however,
t h e uniform instructions w h i c h a r e recommend-
in
ed elsewhere i n this report, are. adopted a n d included
the she2zk c o l l e c t i o n c i r c u l a r s
o f t h e several Federal
b e upon notice that
reserve banks, a l l member banks will
a t their expense
this service will b e uniformly provided
and i f I m o w i n g this, t h o y a v a i l t h e m s e l v e s
o f the c h e c k
reserve banks,
collection s e r v i c e o f f e r e d b y t h e F e d e r a l
il have n o justification f o r complaint.
t h e reserve banks
The a r g u m e n t m a y b e a d v a n c e d t h a t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
169
themselves, f r e q u e n t l y f i n d i t d e s i r a b l e a n d useful
to
have prompt notice o f non-payment, particularly i n those
cases where t h e depositing member bank i s o f doubtful
inancial standing, a n d for that reason should b e willing
to a b s o r b t h e s e charges,
Collection o f Actual Charges Incurred i n Handling o f Negotiable Securities Forwarded b y Insured Registered Mail o r
EXPPress.
The C o m m i t t e e u n d e r s t a n d s t h a t t h e p r a c t i c e
among Federal reserve b a n
t
h
i n effect
e collection o f actual
exponses incurred i n forwaraing b r insured registered mail
or express, bonds, coupons, a n d negotiable securities, r e ceived f o r collection f r o m other reserve banks o r their
direct sending members , i s that these charges a r e collected
by t h e F e d e r a l r e s e r v e b a n k s f r o m e a c h o t h e r o n l y w h e n t h e
charge
i n a n y individual instance amounts
t o 5 0 ¢ G Y more,
When this practice w a s p u t into effect t h e volume
of negotiable securities. forwarded, f o r collection, direct
by member banks i n one district t o reserve banks a n d
pranches
i n other districts, w a s comparatively small, D u r -
ing the past year o p two, however, direct sendings have
assumed m i c h larger proportions w i t h t h e result t h a t m a n y
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Federal Reserve Bank of St. Louis
170
of the reserve banks a r e absurbing shipping charges f o r
Federal reserve banks a n d member banks o f ether districts,
mich more freely than they absorb shipping charges
own m e m b e r banks.
allection items w a s
is a t present, collections o f
this c h a r a c t e r w e r e f o r w a r d e d
bank t o anott
incurred
i n bulk b y o n e Tederal reserve
a i s e n e r a l r u l e t h e shioping charges
i n a n y o n e d a y b y t h e receiving reserve bank,
i n
forwarding t h e securities f o r coliection,
substantial enough t o b e collected.
I n other words,
was r a t h e r t h e o x c e p t i o n t h a n t h e r u l e f o r o n e F e d e r a l r e -
serve bank t o handle f o r another a
volume o f security
collections w h o r e t h e a g g r e g a t e a m o u n t o f s h i p p i n g c h a r g e s
vould not excecd the 50¢ minimun.
i n c e the Ted-
reserve b a n k s h a v e e n c o u r a g e d t h e i r m e m b e r b a n k s
and more, t o route collection items direct, t h e s e
shipments which were formerly received
i n l k a r e now c o m
ing t n the individual reserve banks a s scparate items w i t h
the r e s u l t t h e t i n f o r w a r d i n g t h e m f o r collection,
carrying c h a r g e s
o n a
the
much l a r g e r p r o p o r t i o n a r e b e l o w
the fifty cont minimum a n d are consequently being absorbed
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Reserve Bank.
In many instances t h e reserve banks are collecting
from their o w n member banks, shipping costs o n security
collections received f r o m them, payable i n their o w n
districts e v e n though the amount o f these costs m a y b e
less than t h e amount f o r which n o reimbursement w o u l d b e
requested i f the security collection h a d heen received
from Federal reserve banks o r member banks o f other districts,
and a
condition i s c r e a t e d w h e r e m e m b e r b a n k s
are able t o collect frec o f shipping charges, m a n y sec~
urity c o l l e c t i o n s p a y a b l e
i n other districts whereas,
they m u s t p a y t h e s h i p p i n g c h a r g e s
tions p a y a b l e
o n similar collec-
i n t h e i r o w n district.
The C o m m i t t e e h a s g i v e n t h i s m a t t e r v e r y e e r e r u t
thought a n d believes t h a t i s i s unwise t o adhere t o a n y
practice which will create t h e impression i n the ninds
of member banks that other Federal Keserve banks a r e more
liberal i n their services t h a n their o w n Federal reserve
bank o r branch.
h e Committee, therefore, recommeds t h a t
all o f the reserve banks obtain reimbursement f o r shipping
charges oOfetwenty-five cents o r over o n all security
collections
whether received
f r o m other Federal
reserve
banks, f r o m diroct sending members o f other gistricvs,
oF
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
members,
S h i p p i n g charges amounting
less t h e n t w e n t y f i v e c e n t s
to
o n a l l s u c h collections s h o u l d
be absorbed b y the collecting Federal Resorve Bank.
Preparation o f Coupons Forwarded f o r Collection
by Federal R e s e r v e B a n k s a n d t h e i r D i r c e t S o n d -
ing Members t o other Fedoral Reserve Banks
at
At the Last Conference, t h e governors dJiscussed
some length t h e present practice o f the Federal Reserve
rogarding
Bank o f Wow York inaugurated i n January, 1925,
the preparation a n d handli
o f coupons received f o r collec-
their direct sendtion f r o m other Federal reserve banks a n d
ing members.
The p r a c t i c e n o w i n effoct
a t t h e N e w York reserve
bank m a y b e sumnarized. oriefly a s follows:
tain forwarding banks having a large
volume
o f coupons a r e r e q u e s t e d
t o consolidate
into o n e envelope, a l l ceupons o f certain large
issues.
(2) T h e N e w York reserve b a n k furnishes e a c h
precedof these banks, a b o u t t h e middle o f the
ing month, w i t h a list o f the issues maturing
from
early i n the following month, t h e coupons
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Federal Reserve Bank of St. Louis
they a r e t o b e s o consolidated.
(3) T h e f o r w a r d i n g b a n k s a r e r e q u e s t e d
t o hold
coupons w h i c h a r e t o b e c o n s o l i d a t e d a n d f o r w a r d
them a t one time o n a datc specified monthly b y
the N e w York reserve bank.
(.) Forwarding banks are requested t o place a
distinguishing m e r k upon a l l consolidated coupons
so that t h e forwarding bank c a n be reacily identified i n case t h e coupons a r e roturned, unpaid.
i
Conference approved this procedure a l t h o u g h t
had already been i n effect a
number o f months a n d request-
ed the Standing Committee o n Collections t o study the natter a n d m a k e a
report t o t h e n e x t C o n f c r e n c e , s u g g e s t i n g
if p o s s i b l e s o m e p r a c t i c a l m e t h o d w h i c h m i g h t b e a p p l i e d
to give relicf t o the reserve banks i n general.
The Coumittec recognizes that the volume o f coupons
m a t u r i n g & &i n t h e l a r g e r
: financial centers
i s enormous
and
that b y iar the larger percentage a r e payable i n New York
where t h e practice o f paying agents requires t h a t t h e
collecting b a n k consolidate a l l coupons o f a given issue
and m a t u r i t y G a t o i n o n c envelope,
a n d that o n l y o n e pre-
gentation b e made daily oxcept i n those unusual cases
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Federal Reserve Bank of St. Louis
17h
where a
suificient volume i s accumuiated lator, a f t e r
the f i r s t p r e s e n t a t i o n ,
The C o m m i t t e e u n d e r s t a n d s t h a t t h e p r a c t i c e n o w i n
effect a t the Federal Reserve B a n k o f N e w York requiring
certain other Federal reserve banks a n d certain o f the
larger reduction i n the cost o f that function t o tne
Federal reserve bank, b u t iargely becauso direct sending
member banks o f other districts prefer t o send the
coupons t o their N e w York correspondent i n the o l d manner
with which they are familiar, rather t h a n t o comply with
the r c q u i r e m e n t s
o f t h e F e d e r a l R e s e r v e B a n k o f N e w York,
Certain other Fedcoral reserve banks having b e e n requested
by the N e w York reserve b a n k t o prepare their coupons i n
the manner outlined above B n d having n o other channel
through which t o collect them, h a v e been glad t o cooperate
with t h e N e w York rescrve b a n k i n order t o assist i n affecting a reduction i n the expense o f handling a t the point o f
collection,
The v o l u m e
o f coupons p a y a b l e
i n e a c h Federal rcserve
district v a r i e s w i d e l y a n d i n s o m e d i s t r i c t s
i s s o small
in volume a s t o present n o difficulty whatever.
I n other
districts t h e v o l u m e i s q u i t e h e a v y a t c e r t a i n pofkhods a n d
presents the usual difficulties attending a fluctuating
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Federal Reserve Bank of St. Louis
volume,
he Committee, w h i l e i t feels that t h e practice o f
the N e w York reserve b a n k a s n o w i n effect i s probably
helpful t o them, i s very dcubtful whether t h e same system applied i n other Federal reserve districts would
bring about comparable results. K e g a r d l e s s o f whether
coupons a r e réceived a t one time consolideted i n one
envelope o n l y once o r twice during t h e paying period,
it
is q u i t e o b v i o u s t h a t e a c h F e d e r a l r e s e r v e b a n k m u s t
still receive numerous envelepes coming f r o m various
Federal reserve banks a n d their branches a n d direct sending members a n d that a l l o f these envelopes m u s t b e
opened, t h e coupons verified a n d inspected,
t o determine
whethcr t h e y a r e o f t h e c o r r e c t i s s u e a n d c o r r e c t m a t u r i t y
date a n d also have stampod upon t h e m a
a e r o t b y which
they c a n b e identified a s coming f r o m a particular bank.
All o f t n i s w o r k i s n e c e s s a r y v h e t h e r
agonts require a
coupons p r e s e n t e d
o r not t h e paying
further consolidation o f all the
a t o n e t i m e i n o n e envelope,
The Committee feels, therefore, that i f the New
York practice w a s adopted generally b y all o f the
reserve banks,
i t would place a
heavy burden upon a l l
of the other Federal reserve banks a n d all direct sending
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Federal Reserve Bank of St. Louis
nout accomplishing a n y material recuction
of handling the coupons.
N o doubt
be a
oreactice w e r e p u t i n t o e f f e c t t h e r e w o u l d
noticeable d e c r e a s e
i n the number
o f coupons h a n d i e d
t o handle
prefer
since d i r e c t s e n d i n g m e m e r banks w o u l d
t o avoid
many o f their coupons through other channels
preparing t h e
the cxtra labor a n d expense involved i n
o f the Fedcoupons i n ascordance w i t h the requirements
eral r e s o r v e b a n k s .
Comnittec, however,
reserve b a n i c o n t i n u i n g i t s f
esont practice,
aront that some o f the labor a n d expense
banic t o some o f the
is merely shifted f r o m the N e w York
reserve
b a n s i n other districts
sending mem: ;
ar
B T
h
e
i
r direct
and i t i s further apparent t h u t m a n y
t h e S y s t e m b y direct
coupons Lformeriy c o l l e c t e d t h r o u g )
collected througa other
routing m e n b e r s a r e n o w p o i n e
gave t h e Labor a n d expense 0 :
4%
ols
N e w
Yori reserve bank.
Standing Coumi
Collection
AB4
4
The Chairman.
N o w , t h e question before t h e meeting
thought I
is o n this report. I
he w o u l d d i s c u s s a n y matters
like f u r t h e r light.
would a s k Mr. Strater i f
o n whicn t h e Conference w o u l d
f w e c a n dispatch t h e report a s
I
a whéle, w e will try t o do that, but i f not w e will take
M r . Strater, t h e meeting i s i n
u> each part separately.
your hands.
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Federal Reserve Bank of St. Louis
Mr. Strater. I
have preparod a little digest o f -the
report which will periaps h e l p u s i n discussing it.
The first item is direct sending.
h
e Committee
studied t h o principles a n d risk involved i n the direct
sending o f cash items b y member banks, a n d t h e question
of placing aminimum o n the dollar amount o f cash items
that m a y b e s e n t b y a
member b a n k t o o t h e r F o d e r a l R e -
gerve banks a n d branches.
The Committee's opinion i s that the principle o f
direct sending i s important - - almost cssential - - i n the
progress and development o f banking under the Federal
Reserve Systom.
I t s advantages both from the standpoint
of member banks a n d tne Federal Reserve Banks greatly
outweigh i t s dangers a n c that i t should b e enosuna ged
especially among t h e larger a n d well managed member banks
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Federal Reserve Bank of St. Louis
tm)
&
£76
whenever thore igs no reason t o believe t h a t i t will n o t b e
prudently a n d p r o p e r l y administered.
As t o dangers ’.and risks, t n e principal danger lies
in the opportunity which a dishonest banker has for sending
fictitious items direct t o another Federal Reserve bank,
fictitiougly r e p o r t i n g
o r by
t c his Federal Reserve B e n k t h a t h e
has gent items direct t o ancther Federal Reserve Bank, a n d
then using t h e entire amount o f reserve funds, itcluding t h e
fictitious e n t r i c s .
Mere
O b v i o u s l y this would b o a
i s very little likelihood t h a t a
last resort.
member b a n k w o u l d
become suddenly insolvent, a n d i t i s almost inevitable t h a t
the Federal Reserve B a n k would have 1 9 0 Knowledge o f the
membor b a n k ' s c o n d i t i o n a n d b e i n a
self b e f o r e s u c h a
position
t o protect i t -
desperate a t t e m p t w e r e mado.
Federal R e s e r v e B a n k s a s s u m e n o r i s k a n d i n c u r n o
liabilities
gounde
a s long a s a
direct s e n d i n g m e m b e r b a n k i s
E v e n i f the member b a n k i s net sound there i s very
little r i s k because t h e reserve bank h a s entire control
of passing credits and ray withheld its use for sufficient
reason,
Ly.
o r may withdraw t h e direct sending privilege entire-
T h e reserve b a n k t o which items a r e s e n t actually
handles t h e m a n d has t h e opportunity t o detect a n y that m a y
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Federal Reserve Bank of St. Louis
3
appear suspicious.
u p the
With regard t o advantages, d i r e c t sendings s p e e d
a t least
collection o f checks a n d provide available funds
and a
a day earlier, a n d i n many cases t w o Gays earlier,
but
great saving i s offected not only for the member bank
for the Resorve System bocauso a
duplicacion o f handling b y
reserve banks i s avoided bj
banks
Resorve banks receiving c a s h iettors f r o m member
items a s t h e
of o t h e r d i s t r i c t s w i l l n o t r e c o i v e a n y m o r o
a n increase i n
rosult o f direct sondings, b u t there will b e
restricting
the number o f cash letters received. T h e r e f o r e ,
duplication
the direct gandings i n any w e y will rosuLt i n a
i n performof handling a n d corisequently increass t h e expense
ing the check collection functions.
inum
To attemot t o ostablisn a n y amount a s the m i n
either f o r individual items o r for t h e tctal o f cash letters
send~
sont direct would work a great hardship o n tue direct
ing member bank bocause i t could not determine i n advance
the number o r amount o f checks payable i n other districts
which i t will receive during the cay.
T h e mechanics f o r
handling cash iteus makes i t necessary that
bank: determine a t the beginning o f the day whether o r not
that
it w i l l s e n d d i r e c t t o a n o t h e r F e d e r a l R e s e r v e B a n k s o
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Federal Reserve Bank of St. Louis
4
1
8
0
the items passing through t h e machinory o f tne transit
department c a n b e properly routed.
Onee having decided t o prepare a
letter f o r a par-
ticular Federal Reserve Bank i t would n o t b e practical
to reroute t h e items contained thereln a t the close o f
the day's work i f it would be found that the total o f the
Letter w a s n o t sufficient t o permit direct routing.
The r e c o m m e n d a t i o n
o f your C o m m i t t e o
i s that t h e dollar
amount o f c a s h i t e m s w h i c h m a y b e s e n t b y a
member b a n k
in a single c a s h lettor direct t o another Reserve b a n k
should n o t b e limited, b u t i n cases where i t appears a
direct sending member i s sending numerous letters each
day o r a g a regular practise d a i l y letters o f trifling
amounts, t h e reserve bank o f such direct sending member
should endeavor t o correct t h e practice b y taking i t u p
with its membor bank.
The Chairman.
T h a t relates back t o t h e report o f
the Committee a t t h e last Jonference, particularly t o a
question raised b y Governor Young, a n d t h e result o f the
Committee's i n v e s t i g a t i o n
fore you.
i s contained
i n t h e report be-
i t bas been summarized b y Mp. Strater, h e has
gone o v e r each item which h a s been reported u p o n b y the
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Federal Reserve Bank of St. Louis
Races
5
Committee,
a n d i t m a y b o p r o p e r f o r u s t o t a k e action,
ag t o approval o r disapproval,
a s h e goes along,
What
the pleasure o f the Conference a s t o t h e report o f the
Committee o n the subject of Diroct soundings?
Movernor McDougal. I
Governor Biggs.
move i t s approval.
S e c o n d t h e motion.
1
g
w a(s carried )
b e e n duly seconded,
(The motion having ioed
)
Govermmor Young. I
liv, Stratere
desire t o be recorded a s voting
T h e next item is:
INSTRICTIONS I N CASH LETTERS O F Mah
SENDING ITEMS DIRECT
The C o m m i t t e s b o l i e v e s t h a t t h e r e s e r v e b a n k s c a n
solve t h e problem o f varying instructions accompanying c a s h
Lettors received f r o m momber banks,
b y adopting uniform
instructions o f identie¢al wording a n d making t h e m a
part o f their check ccollection circulars
T h e Committee
ig o f the opinion that under t h e terms o f regulation J
the uniform instructions recommended g i t h e reserve
banks c v e r y n e c d e d p r o t e c t i o n a n d d o a w a y w i t n t h e a n n o y -
ance and risk involved i n attempting t o handle cash items
under varying instructions.
182
These instructions a r e quite bricf. T
will r e a d t h e m
as they appoar i n the report o n page a s
the Committoe suggests, therefore, that the following
i n the check
uniform section b e embodied i n identical language
the
sollection circular o f cach Federal Resorve B a n k under
neading, 'Unifoim instructions’.
“the Federal Reser Bank of
C
I Ney
under t h e
‘will receivo a n d forward checks a s cash itoms
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Federal Reserve Bank of St. Louis
fnllowo f t h i g circular, g u b j e c t o n l y t o t h e
conditions
ing untform instructions:
"(1) [0 NOT PROTEST items of $10.00 or less.
t(2) PROTEST dishonored items of $10.C1L or over,
oxceat t h o s e b e a r i n g
o n their face t h e A e B A R
no protest symbol o f the Federal Reserve b a n k
or o f a preceding bank ondorsere
"(3) W I R E ADVICE o f non=payment o f all items o f
&500 or overs
tall Fedoral reserve banks (and branches) will receive a n d handle checks a s cash items o n l y i n accordance
o r special
with these uniform instructions, a n d a n y contrary
instructiong noted o n cash lotters o r attached t o checks
will b e disregarded.
I f any member bank. should desire
Bank
to h a v e a n y c h e c k s h a n d l e d b y t h e F e d e r a l R e s e r v e
of
o
r b y a n y o t h e r F e d e r a l r e s e r v e pank, u n d e r
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Federal Reserve Bank of St. Louis
any i n s t r u c t i o n s c o n t r a r y
given above,
t o t h e uniform instructions
i t will b e necessary f o r such member bank t o
foruard s u c h checks a s individual non-cash items w i t h the
snstructions noted i n the letter o f transmittal, f o r collectjon and credit when paid,
eur clpoilar t o .
i n accordance w i t h t h e terms o f
l o r appropriate reference t o the rules
soverning the handling o f non~cash collection itoms)."
The Committees v e n t very carefully into that question.
The point was raised, I think, b y counsel for the St. Louis
that anything that went into ths oc! c o l l e c t i o n
circular would n o t have full fores a n d effect unless similar
alterations w e r e mado i n regulation J
Boards
o f tho FPoderal Reserve
O u r counsel a n d w h e counsel f o r the Richmond Bank,
I think, i s o f the opinion that this covers t h e ground o n -
Ghairmane I
do not recall t h a t y o u recommended
in this report that Roguiation J be changed?
Mr. Strater.
W e d o not.
W o recommond that this
go into the uniform check collection circular. I
had gome
corrogpondence w i t h Mp, M,Comxkio, a n d h e finally agreed t h a t
it would b e all right t o l e t this g o into t h e circular,
although h e still felt that t h e real w a y t o cover i t was
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Federal Reserve Bank of St. Louis
3}
tc change Regulation J,
Tre Chaizman.
passed
T h a t i g 9 matter that has got t o bs
o n b y t h e counsol f o r t h e Reserve E o a r d i f there i s
any material dcubt about it.
o us who
Mr. iarrisou. I.think there are a n u n b o r f
have always f e l t that i t would b e better t o m y e a l l o f
our p r o t e c t i o n
i n o u r c w n circulars y a t h e r t h a n i n Regula-
tion J, but I agree with Mp. Strator that it 1s entirely satis
facvory t o l e a v e i t w h e r e t h e C o m m i t t e e p r o p o s e s
t o leave i t .
I poreonally would not like t o ses
any recommendation mace t o change Regulation J , bocause o n e
change would suggest another, e n d we will b e right back whére
ve w e r e w h e n t h e p r e s e n t r o gQou l a t i o n w a s f o u Qw a r d o d
The Chaiiman.
t o Congress.
o
W h a t i s your pleasure, gentlemen?
Governcr Calkins. I
have only one suggestion.
“Wire advico o f non-payment o f all items of $500 o r over"
and give the name o f the ondorsement immediately preceding
that of the bank.
Mr. Stratei'e
T h a t i s a question which t h e Committees
discussed a n d w e came t o tats conclusion:
T h e r e is ne
Reserve B a n k asking
for that information o n their cash letter, b u t w e believe
.
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Federal Reserve Bank of St. Louis
1
0
5
it would b e a mistake t o put i t into t h o circular letter
for t h i s reason:
I
f t h e banks a p p r o v e t h a t r e q u e s t f o r
information the member banks would b e justified i n asking
for the same thing, a n d under the present method o f handling
tra n s i t i t e m s i t w o u l d b e n o t o n l y a n i m p o s s i b i l i t y
to
give t h e prior ondorser, because w e have n o t a iecord o f it-I am referring n o w particularly t o out o f town checks, a n d
the large bulk o f o u r advice i s a s t o non=paymont t o come
from our member banks covering checks o u t i n the country = =
if w e attempted t o p u t that into o u r circular, y o u c a n see
that o u r membor b a n k s w o u l d v e r y q u i c k l y f e e l t h a t i f they;
were raquired t o d o this w o snould also b e asked t o d o i t
and would p u t i t i n their genoral instructions a n d then w o
would probably b e u p against it. T h e r e will be 2 groat
deal o f difficulty i n doing it, a n d i n fact i t would b e
impossiblo t o give them the prior endorser.
Governor Calkins. I
can seo that a s an objoction,
but I a m inclined t o think that that i s not sufficient t o
outweigh t h e advantages t o the Foderal Reserve banks.
lir, Strator. Well, the Federal Reserve Bank, Govern~
or Calkins, c a n very easily add that t o the uniform instructions, a n d that I think i s the place t o put it.
I f you
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Federal Reserve Bank of St. Louis
L186
4
2.0
put i t i n the circular you are just suggesting something t o
the m e m b o r b a n k w h i c h i s j u s t a s d e s i r a b l e
t o them from
their point o f view a s i t i s t o use
Governor Galkinse J u s t a s desirable, b u t n o t a s important.
H o w e v e r , Mr. Chairman, I
move t h e approval o f
this.
Governor F a n c h e r . I
second it.
(The motion having been d u l y seconded, w a s carried)
Governor Young. I
Mr. Strater.
desiro t o b e recorded a s voting n o e
T h e next topic i s instructions f o r
handling bill o f lading drafts.
Sight drafts with bills o f lading attached a r e usually
forwarded with instructions t o roturm a t once i f not paid
on presentation.
F r e q u e n t l y t h e drawee refuses
cause t h e g o o d s c o v o r e d h a v e n o t arrived,
t o p a y be-
a n d frequently
this i g i n accordance w i t h t h e contract oxisting between
the buyer a n d t h e sellere T h e collecting bank, however,
4g confronted w i t h a difficulty because i t i s not speciflcally authorized t o hold t h e draft f o r arrival o f goods.
If the draft i s returmed t h e goods m a y arrive a n d result i n
a charge f o r demurrage o r i f they are o f a perishable n a turo
Wide r e s u l t i n e L o s s «
187
It appears t o be the general practico of commercial
concems
t o draw sight drafts t o cover bills o f lading
rather than drafts payable o n arrival o f goods, because
under t h e R e v e n u e A c t r e c e n t l y r e p e a l e d
on arrival o f car required a
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Federal Reserve Bank of St. Louis
o r amended, d r a f t s
revenue stamp.
Commercial
banks generally recognize that sight drafts with bills o f
lading attached are really payable upon arrival o f goods
particularly i f protest h a s been waived a n d therefore omits
specific instructions t o hold f o r arrival w h e n these drafts
are deposited f o r collection w i t h t h e Federal Reserve Bank.
The general custom among commercial banks i s t o hold
no=protest sight drafts for t h e arrival o f goods.
T h e great
majority o f these transactions pass through commercial
banks and only a small percontage o f them are collected
through t h e Federal Reserve banks.
It would, therefore,
b e inadvisable t o recommend a
change i n the procedure, a n d rather than disturb existing
commercial b a n k practice b y insisting that Specific i n s t r u c t
ions t o hold for arrival o f goods accompany these collection
items, t h e Committee's opinion i s the r e s e r v e b a n k should
accommodate themselves t o the common practice a n d hold f o r
arrival w h e n s p e c i f i c a l l y r e q u e s t e d
t o d o s o b y the drawee
168
Le
holding t o the Federal R e roperting t n e f a c t t h a t t h e y a r e
member bank and asking
servo Bank o r to the direct sending
them.
for instructions defore roturning
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Federal Reserve Bank of St. Louis
this practice
No rish o r liability would result f r o m
i s technically improper
elthough i t i s recognized t h a t i t
to follow this procodure.
T t is the Committeo's opinion,
should n o t operate
however, t h a t t h e collection system
banks except i n
contrary t o the practice o f commercial
cases where a
as far i n
principle i s involved b u t should g o
banks a s safetz
conforming t o t h e practices o f commercial
and prudence w i l l permit.
a n d Governor
Tt i s technically improper t o hold,
last Gonference, s t a t i n g
Soay brought u p t h e guestion a t the
Bank h a s always b e e n
that t h e practice o f the Richmond
banks t h a t t h e
to specifically indicate t o t h e collecting
convenience o f the payor,
drafts a r e n o t t o be held f o r the
i f n o t p a i d o n presentation.
but a r e t o b e r e t u r n e d a t o n c e
these instructions t h e
Opviously i f y o u s t r i c t l y e n f o r c e
o f lading
coliecting bank will have t o return the bill
draft although i t covers perishable goods,
o r demurrage
will result.
Governor Calkins.
A n d the bank will b e held rem
13
sponsible f o r ite
Mr. Strator.
T h a t i s a question. I
think probably t h e
membor bank would b o made t o assume t h e responsibility, b u t
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Federal Reserve Bank of St. Louis
since i t i s the commercial practice o u r Committee arrived
at t h e conclusion that t h e thing t o d o was t o adapt o u r
enforce
selves t o oxisting practice rather than t o attempt t o
a new practice o n all t h o panks.
move t h e approval o f the recom-
Govermor Calkins. I
mendation.
Govemor Seaye {
think @11. o f u s H a v e t h e v e r y
Committee,
greatest deference f o r the opinion o f the Standing
t o this
which igs composed o f practical men, b u t w i t h regard
particular i t e m I
wish t o o f f e r a n objectione
other
L
i
e
T h e s e letters
n e e 3
instructions.
eome t o u s f r o m t . c r e s e r v e b a n k s w i t h p o g i t i v e
in the lotter t o return a n d n o t hold f o r t n e convenience
of the payor.
N o t all o f the sight drafts a r e payable
within the city of the reserve bank, a n d they transmit
to thoir country correspondents sometimes. I n taoat
that
posicase t h e letter o f tne Federal Resorve B a n k contains
tive i n s t r u c t i o n s
d o n o t hold.
N o w a r e w e t o oxpect t h e
those
correspondent bank t o which w e send i t t o disregard
ingtructions, o r has any Federal Reserve Bank the right t o
190
L4
expect t h a t t h e y s h o u l d d i s r o g a r d t h o s e i n s t r u c t i o n s ?
The Chairnans
I
f I
may interrupt j u s t a
moment,
Governor Grissinger h a s advised m e that h e would like t c
have a n a rrangement made t o have this Conference h e a r Mire
Sidney Anderson o n o f his associates o n a mattée:
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Federal Reserve Bank of St. Louis
reserve banks a r e interestec,
i n which
i n connection with t h i s
o f which Mr, Anderson i s the head.
Millers! Association,
Mre Anderson, y o u will romember, w a s Chairman o f the Joint
has
Agricultural Commission o f 1921 a n d Governor Crissinger
agked that w e give h i m a little time Wednesday moming a t
to
10.50, a n d i f there i s n o objection w e will invite h i m
appear a t 10.50 tomorrow morninge
Gove rmor
a
c
e
n e r e g o r v e banks i n
the position o f giving positive instruction w i t h reference
to certain o f these drafts t h e n expecting t h e member bank
who r e c e i v e s t h e m t o d i s r e g a r d t h e i n s t r u c t i o n s
i n rogard
“>Ban!
to thoss particular drafts.
oxpocets t h e mombor banks t o obey lnstructions w i t h rospcoct
to e v o r y o t n e r K i n d
o f “drerft.
now?
H U o w ars they
“tu handlod
Tio Chairman.
Govermor Soay.
when thoy recoive a
I n diffuront ways.
S o m c o f ths banks.
draft o f that charactor wita positive
Lon
Lo
they s o n d a
instructions t o return it, roturn i t e S o m c t i m o s
from tho
tologram, stating i n the f a c o o f the iustructions
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Federal Reserve Bank of St. Louis
is
resorve bank which transmits it, saying that t h e draft
not paid.
Tho p r a c t i c o u n d o r d i s c u s s i o n
is a
bad, a n d e v o n a
banks
vicious ons, a n d placcs t h o reservo banks a n d othor
defended i n
in a n inconsistont position, w h i c h cannot b e
commonsense a n d Logic.
I p i t woro a difficult matter t o
i n making
corroct, t h e n some hesitancy might b e cxporionced
tho offort.
B u t i t is not bolioved t o bo a t all difficult.
momber banks
Tic vodoral Resorve Banks shovld notify thoir
drafts
that o n and afver a certain d a t o bill o f lading
their
would b e hancled according t o instructions given i n
timo t o
Lottors and uot othcrwise, a n d if they wore given
thon n o
communicate t h i s position t o thoir o w n depositors,
a
troudlLe s h o u l d b e o x p e r i e n c o d i n b r i n g a b o u t
propor practico.
any other
Thero might b e cases i n which a resorve b a n k o r
i n its
bank, notwithstanding positives instructions, w o u l d
discretion act contrary t o thom, but that would, and should,
be the excoption.
T h e r e ought not t o be a n understanding
e
that i n handling bill o f lading drafts the rule w o u l d t
to disregard instructions, w h i c h i s practically t o e present
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Federal Reserve Bank of St. Louis
6
1
situation.
9
%
d a s o s , h o w o v o r ariso i n which o n e reserva
would give instructions contrary t o those whic
ceived f r o m another reserve bank.
i t had
A l l along t h e line
matter i s fvll o f inconsistencies, a n d embarrassment i s
Likely t o a r i s e a t « a l l t i m e s a n d i n d i f f e r e n t w a y s . N e b o d y
can @efsnd t h e practice o r fail t o admit t h e inconsistency;
attempt
to
some may o m tend that it is not worth while to/eorrect the
practice. I
d o n o t h o l d t h a t opinion.
T u e matter should
be corrected a t its source, a n d t h e deposition should b e
givon t o understand that i f this and i n all other dealings
with this bank h e should give directions f o r his agents t a
follow.
Governor Calkins. I
undorstand t h e practice i s
that banks handling these matters handlo them according t o
their d i s c r e t i o n a n d r e g a r d l e s s
o f instructions.
T a e hans
that i s substantially true i n commercial practice, a n d
nothing w e c a n d o will change t h a t practice o r should
change it.
Mr. Strator.
T h a t i s the point o f view from which
the Committee approached t h e problem.
only a
W o feel this, t h a t
small p o r t i o n o f t h e s e d r a f t s c o m e t h r o u
Federal R e s e r v e System,
a n d c o n s e q u e n t l y w eo w o u l d h a v e t o
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Federal Reserve Bank of St. Louis
1L9E
disturb a n established practice i n commercial banks genorally i f the change wore attempted,
Governor Seay. B
i s i t not true that that i s a
practice w h i c h h a s g r o w n u p i n c o m p a r a t i v e l y r e c e n t times,
and w h i c h h a s s pJir e a d r a t h e r rapidly.
I
t may b e a
case
3
ag i t sometimes is, o f a dosire t o embarrass t h e consignee,
and h e does n o t want h i m t o know that h e i s sending t h e
draft t o b e held f o r arrival o f goocs, b u t wants t o draw
T h e r e f o r e t h e r e 1 s responsinility u p o n
Lt o n sight.
the bank which handles t h e draft a s t o whether i t will
undertake t o ach according t o instructions,
o r whether i t
will violate those instructions a n d hold i t for the arrival
of the goods.
I t would lead, i t seems t o me, t o a dis~
regard o f authority i n other directions.
Governor Harding.
practical e x p e r i e n c e
F i f t e e n years a g o I
i n t h e s e matters.
O
had some
n rare occasions
‘gg would have bill o f lading drafts with instructions
to protest,
a n d w e would f o l l o w t h o s e instructions
to
protest, b u t i n other cases t h e y sent t h e m i n with i n structions d o not hold but return immediately i f not pa-d,
and if, o n presentation,the diawee would s a y that h e would
pay t h e draft when t h e goods arrived, b u t they hadn't come
194
yet, w e had some printed slips which w e would send t o the
senders o f t h e drafv, saying t h a t regardless o f ins tructfon n o t t o h o l d
f o r convenience
o f t h o payee, t h a t w e
wero holding t h e draft subject t o his further instructions
for t h e reagon that t h o goods covered b y the bill o f lading
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Federal Reserve Bank of St. Louis
had not arrived;
t h a t i t might cause some embarrassmont
and loss i f w e should return t h e draft, a n d i n the meantime
the goods ghould come in.
I f , howaver, y o u wish t h e draft
returned p l e a s e a d v i s e u s a t o n c e a n d w e w i l l c o m p l y w i t h
that instruction.
I
n harcly a
case d i d w e get a call down,
but that practice soemod t o meet with t h e a p proval o f the
senders o f the draft.
Governor Seay. I
think that would b e a n e x t r e m e l y ?
reasonable attitude i f the -dwafts
o e forwarded without
any instructions - - then I believe t h e collecting bank might
very well oxercise some discretion;
b u t i f i n the face o f
positive instructions n o t t o hold, t h e draft i s held u t i l
the a r r i v a l
o f goods, t h e n I
believe
i t is a
pernicious
practice, a n d would lead t o a disregard o f instructions
by the bank with regard t o other itoms. I
cannot help
thinking that t h e matters could b e corrected a t the
source
i f i t were explained a n d t h e reserve b a n k would
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Federal Reserve Bank of St. Louis
195
follow t h e i n s t r u c t i o n s w i t h r e s p e c t
have b e e n t r a n s m i t t e d
t o i t f o r collection,
t seems w e are divided
I
The Chairman.
t o the items w h i c h
groups, o n e group desiring t o follow t h e letter o f the l a w
and the other desiring t o follow the custom.
I
Govemor Calkins.
t is a
little m o r e t h a n a
I would l i k e t o a s k G o v e r n o r S e a y w h e t h e r
custom.
h e believes t h a t i f
in a l l c a s e s m e m b e r b a n k s t h a t m a k e c o l l e s t i o n s w e r e t o
i t would b e impossible t o imp
follow o u r instructions,
instructions u p o n t h e m w h i c h t h e y w o u l d d e v i a t e f r o m i f
occasion a r o s e ?
F o r instance t h o First National B a n k o f
somewhere receives a
draft upon o n e o f its good customers
and the customer asks u g t o disregard instructions the
chances a r e 1 0 0 t o 1
that w e w o u l d d o i t . I
d o n o t be-
Lieve t h a t a n y absolute instructions c a n change a
well established,
custom
o r that i t should d o it.
Governor Seay.
M
y opinion
ig that there woula b e exceptions
o n tnat, s i n c e
i t i s asked,
t o the proposition, b u t
that t h e m e m b e r b a n k w o u l d f o l l o w i n s t r u c t i o n s
in
W o e
majority o f cases;
t h a t there m i g h t b e cases =
it w o u l d u n d e r t a k e
t o exercise i t s discretion a n d a s k f o r
further a d v i c e .
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Federal Reserve Bank of St. Louis
196
Tho Chairman.
S u p p o s e s o m e o f those farmers
dow
in your part o f the country should ship G00 cars o f
~atermelcns t o N e w York, w i t h bill o f lading a n c craft
attached, w i t h instructions
t o vollect o r return, a n d
shose watermelons s o u l d n o t b e delivered f r o m t h e cars,
me t h a t t h e r u l e o f r e a s o n w o u l d a p p l
court might say: " h o o k here, you have a little p
form there, b u t great sectt, h e r e w a s 6 0 0 cary o f
melons, a n d b y a plain, s t u p i d adherence % 0 o
you h a v e c o s t t h e s e p e o p l e t h e e n t i r e v a l u e o f t h o s e
watermelons,
t h e f r e i g h t a n d everything;
yourare a
+ gtupid lot, a n d I guess w e will stick y o u f o r it.
Tiere i s a l o t t o b e s a i d o n b o t h s i d e s w i t h r e g a r c t o t h i s
perishable stuff.
Governor Seay.
B u t l e t u s look a t t h e other side o f
is a banz receiving f r o m the farmer t h i s draft
of lading attached f o r a car loan o f melons, a n d
the i n s t r u c t i o n s
o f the farmer a r e t h a t this draft must n o t
Meld f o r the ccnvenience o f the consignee.
be g o o d b u s i n e s s
T h e n i t would
o f t h e receiving b a n k t o call attention
to
the fact, a n d suppose t h e consignee d o s s n o t p a y it?
The Chairman,
I t is not being held for the convenienc
of t h e consignee, b u t t h e goods have n o t arrived, a n d i t i s
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Federal Reserve Bank of St. Louis
being held f o r t h e conveniences o f the shipper.
Governor Seay.
Tne Chairman.
T h a t m a y be.
Y o u could n o t expect h i m t o p a y f o r
goods t h a t are not there.
Governor Seay.
T h e n t h e y should n o t b e drawn payable
Governor Calkins.
T h e Chairman's illustration a b o u t
the watermelons seems t o b e a little f a r fetched.
The Chairman.
I t is
Governor Calkins.
W i t h regard t o carloads o f wine
grapes s h i p p e d f r o m C a l i f o r n i a
are shipped o n instructions,
t o N e w Y o r k - - some o f them
a n d i f those instructions a r e
violated, w h i c h t h e y will n o t b e in a n y case, n o matter w h a t
they do, t h e value o f them would
b o destroyed, a n d somebody
will b e r s s p o n S i b l e f o r v o y ;
n o t . think L t Levers
possible o r desirable t o t r y t o takes a w a y from a n y one,
whether they a r e i n business o r i n a bank, t h e discretion
that they ordinarily use, and try t o compel them t o follow
the letter c f the law.
Govemor Seay.
O u r proposition is, Mr. Chairman,
that when t h e reserva banks a r e i n a position t o exercise
that discretion,
t h e y m a y w e l l d o so, b u t w h e n s o m e b o d y
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Federal Reserve Bank of St. Louis
193
a @raft and sends i t to ths bank with positive instructions, t h e n I think w e showld b e expected t o oxerciso
discretion.
The Chairman.
O u r position
i n all o f o u r circulars
is that w o will n o t accept that discretion, b u t that w e have
to have d e f i n i t e instructions.
Governor Seay.
Precisel;.
The Chairman.
O
Governor Seay.
Y o s , b u t w e would n o t wire f o r in-
r e o w i r e f o r them.
structions w h e a t h e y h a d b e e n e x p l i c i t l y t r a n s m i t t e d
Linge
Governor f
banks i n a town.
GOS.
L e t u s t a k e t h e position o f t w o
O n e bank gets a bill o f lading draft
on which t h e goods h a v e n o v come, a n c i t fires i t bank
The o t h e r b a n k h a g a
°
bill o f l a d i n g d r a f t a n d i t h o l d s
it
until the goods come, a n d there i s going t o be a strong
feeling o f antagonism against t h e fellow w h o fires i t back
on t h e dot, a n d a
strong f e e l i n g o f f r i e n d s h i p f o r t h e
collecting bank that holds it. T h e r e f o r e I believe that
few collecting banks would p u t themselves i n the attitude
cof the first bank.
Governor S 9 a y e I
to c o r r e c t
think t h e w a y t o correct t h i
i t a t the source
a n d not forward a
Weavdaca W a oe
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Federal Reserve Bank of St. Louis
199
trose instructions.
I f the rosorve bani i s not t o blame
if i t has positive instructions
t o d o s o a n d s o and then
follows thos: instructions.
ho Chairman.
N o n e o f u s have sufferod a n y loss
from t n i s y e t , h a v e w e ?
believe
Govermor Calkins. I
w e have s u f f e r e d l o s s
by following instructions
The Chairman.
O f course there i s quite a
i n N e w York.
this b u s i n e s s
little o f
T h e r e i s a n enormous a m o u n t
of
stuff that comes i n t o F o w Tonk overy d a y with drafts attached
to bills o f lading that are not paid until the stuff arrives,
and t h e transfer, lighterage, a n d everything o f that kind
in N e w Y o r k h
i
a k e n é
}
imagine there a r e just a s many draf
promptly. 7
mean a Situation t !
i
n g o m e way. I
l there a s are paid
w h e n t h e r e i g e snow
o
n
)
storm, f o r instance, w h e n t h5.e unloaded
c a r s would oxtend
re
back a s f a r a s Trenton, N e w Jersey, a n d / i n eases o f that
i
kind where t h e stuff hadn't b e e n delivered t h e drafts were
gent back I
don't know what would happen.
fact t h e y j u s t d o n ' t g o back.
A s a matter o f
N o w w h e n y o u consider t h a t
ig dairy producs, eggs, chickens, a n d things o f that sort
to feed t h e City o f New York - - gturf f o r export also ~ ~
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Federal Reserve Bank of St. Louis
and that i t happens a l l t h e time, I
have a sort o f feeling
that people h a v e accommodated taemselves t o t h e situation
with nobody's being injurad. I
put that i s m y feeling.
haven't imvestigated it,
T a k e all o f that section o f New
York City like between Church Street a n d t h e North River
from say Liberty Street north t o Chambers Stroet, a n d there
ig a n area there where practically t h e entire business i s the
digtributionnof t h a t sort o f stuff, including fruits; 11+
comes i n t h e r e b y t h e t r a i n l o a d s o v e r y d a y a n d g o e s r i g h t
through, a n d notwithstanding t h e difficulties o f delivery,
whereverything h a g t o b e lighteréed across t h e river,
it
marches right on.
Governor Selye
I t igs not t o e custom that I am. seek-
to reform, b u t what I
am seeking t o reform i s the prac-
tice o f the member banks i n sending these drafts w i t h
tain i n s t r u c t i o n s w h i c h t h e y o x p e c t u s t o disregard.
they would leave o f f all instructions w e would b e perfectly willing t o use o u r discretion. I
am the last o n e
nat desires t o be free f r o m t h e exercise o f discretion,
but t h e practice o f the member banks t o issue positive i n structions, w h i c h they expect u s t o disregard,
Some»
i s not wholes
T h a t i s t h e practice t h a t I would like t o reform a n d
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Federal Reserve Bank of St. Louis
not t h e practide o f the bank w i t h its customers.
Mr. H a r r i s o n .
I
n a n y c a s e w h o r e w e h a v e n o t diteral-
Ly followed instructions b u t havo exercised o u r judgment,
we have wired for advice, a n d w e have performed a service
jn our failure t o follow instructions, a n d if we hadn't
failed t o d o g o i t w o u l d h a v e b e e n d i s a s t r o u s ,
I appreciate
i t i s almest impossible
Seay's a r g u m e n t technically, b e c a v s e
O
f course
t o answer Governor
h e i s right;
bubtas a
matter o f procedure a n d practice o f things a s they a r e i s
the only thing that w o c a n do.
The Chairman.
T h e r e i s a motion before u s t o
approve t n i s s e c t i o n o f t h e report.
Governor Biggs.
A n d I have seconded the motion.
{The motion having been duly seconded
Governor Seay. I
like t o a s k p e r m i s s i o n
must r e l u c t a n t l y v o t e n o a n d
t o file this memorandum
o n the
ject, w h i c h i s a s follows:
"MEMORANDUM B Y GOVERNOR S H A Y REGARDING R&PORT
OF THE STANDING COMMITTaA O N COLLECTIONS -
Handling Bill o f Lading Drafts.
I do n o t agres w i t h t h e conclusion reached i n this
memorandum e
I t appears t h a t every o n e i s disposed t o admit
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Federal Reserve Bank of St. Louis
202
that t h e practice ought n o t t o exist, a n d that t h e respon-~
Sibility f o r giving directions a s t o t h e handling o f a draft
lies w i t h the drawer o r depositor, b u t i s going upon t h e
theory that since t h e practice h a s gradually grown up,
and since t h e risk taken b y Reserve banks i s negligible,
it i s not worth while t o undertake t o correct t h e picétice,
cuid- furthermore,
i f the Reserve Banks undertake t o correct
it, t h e y might b e accused o f arbitrariness and, perhaps,
red tape, a n d thereforo t h e matter h a d better b o permitted
to stand a s i t is.
"The matter i s believed t o be more serious than
this, however.
I f n o instructions were given a s t o the
handling o f such drafts, t h e n theuio o f discretion might
with groater logic b e exercised;
b u t certainly thero c a n be
no logic i n giving instructions o f a positive nature while
at the same timc expecting that action contrary t o the instructions will b o taken within t h e discretion o f any
reserve bank.
V E O L a G L O n - O £ a n y rule brings
i t into disre-
pute; v i o l a t i o n o f one rule leads t o disregard o f another.
Nobody i s botter advised t h a n t h e shipper o f goods ( w h o draws
the drafts against them) o f the contingencies
shipment i g s loahlo.
H
e m a y desire
t o which t i e
t o embarrass t h e consignee
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Federal Reserve Bank of St. Louis
ers
by failure t o give instructions a s t o tho handling o f tne
draft secured b y bill o f lading f o r the goods, leaving h i m
in doubt a s t o wiether the draft will b e held for arrival
or not, a n d thus, perchance, i n d u c e h i m t o pay i t whether
the goods have arrived o r not; b u t h e has n o rignt whatover t o embarrass t h e collection agency which handles
such a Graft, a n d certainly n o right t o expect that t h e
or
collection agency will g o contrary t o t h e instructions,
oven t o exerciso i t s discretion a s t o whether i t wili g o contrary t o them.
A l l drafts w i t h bills
o f lading attached
sent t o Federal Reserve Banks a r e n o t payable within t h e
city o f the Federal Reserve Bank, a n d when drafts o f t h e
nature a r e s e n t o u t b y t h e Federal R o s e r v e B a n k f o r c o l -
lection,
i n what position does i t place t h e Federal R e -
gerve Rank with its member bank when the Federal Reserve
Rank's letter says t h e draft must n o t b e held for convenience o f the payer, andyct i t expects t h e collecting
pank i n certain cases t o go contrary t o instructions?
H o w
about other instructions given b y Federal Reserve Banks,
and i f member banks c a n g o contrary t o instructions i n the
one case a n d are even expected t o d o so, because o f a n
alleged general practice, then w h y not i n their discretion
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Federal Reserve Bank of St. Louis
204
may they n o t g o contrary t o instructions
i n other cases?
"The practice under discussion i s a bad anc oven
in a n inconsistent position, w h i c h cannot b e defenced i
I f i t were a difficult matter t o
common sense a n d logic.
correct,
t h e n some h e s i t a n c y m i g h t b e e x p e r i e n c e c
the offort.
i n making
B u t i t i s not believed t o b e a t all difficult.
If Federal R e s o r v e B a n k s s h o u l d n o t i f y t h e i r m o m b e r b a n k s
that o n and after a certain date bill o f lading drafts would
be handled according t o instructions givon i n their letters
and n o t othorwise, a n d i f they were given time t o communicate t h i g position t o their o w n depositors, t h e n n o troublo
should b e experienced i n bringing about a proper practice.
“There might b e cases i n wnicn a Reserve Bank o r any ©
othor bank, notwithstanding positive instructions, w o u l d
in its diseretion a c t contrary t o them, b u t that would, a n d
should, b e t h e exception.
T h e r e susht n o t t o be a n under«
standing t h a t i n h a n d l i n g b i l l o f l a d i n g d r a f t s t h e r u l e
would b e t o disregard instructions, w h i c n i s practically
the p r e s e n t situation.
C a s e s , however, a r i s e i n which
one Reserve B a n k would g i v e instructions contrary t o
those w h i c h
i t had received
f r o m another Reserve Bank.
A l l
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Federal Reserve Bank of St. Louis
Ub
along t h e line, t h e matter i s full o f inconsistencios,
anc o m b a r r a s s m e n t
i s likoly t o arise a t a l i times a n d
in difforent wayss N o b o d y c a n dofend t h e practico o r
fail t o admit t h e inconsistencies;
s o m e m a y contend that
it i s not worth while t o attempt t o correct t h e practice.
I d o n o t h o l d t h a t opinion.
T h e matter should b e correct-
x4 at its sourco, a n d the depositor should b e given t o
understand t h a t i n this a n d i n all other dealings w i t h his
bank h e should give instructions f o r
Mr. Sirater.
T h e next topic
COST O F TELEGRAPHIC ADVICE O27 NON-PAYMENT O F
CHECKS OVER $500.
The cost o f telegrams advising non-payment o f checks
over 3500 f r o m t h e collecting bank t o the Federal Reserve
bank a n d from t h e Federal Reserve B a n k t o the depositing
bank,
i s n o w absorbed b y the Federal Reserve Banks.
A n
investigation discloses that this practice costs tne
Federal Reserve System approximately “55,000 annually.
The Committec algo learmed t h a t i n the vast majority o f
eases c o m m e r c i a l
banks
i n Federal Resorve
Bank and branch
cities charge t h e cost o f similar telegrams i n reference
to checks collected through channels other than the Federa
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Federal Reserve Bank of St. Louis
Roservo System t o the depositor.
T h e Committee i s
opinion that the potential saving resulting f r o m a
to the depositing member bank f o r telograms o f this charactor
ig well worth considering i n the event i t should p e deemed
desirable
o r become i m p e r a t i v e
t o offect further eccnomigs
in the cheek cullection function.
Governor lMicDougal .A s s u m i n g that i t i s desirable
gsthe Committee
has m a d e n o r e c o m m e n d a t i o n r e s p e c t i n g t h e topic:
T h e
Committee h a s made n o recommendation w i t h respect t o t h e
topic c o s t o f telegraphic advice o f non~payme
over 5500 o n page 1 0 o f the ~eport.
I t i s o u r recommenia-
tion t h a t t h e c o s t o f s u c h telegrams b e t w e e n t h e d r a w e e
of collosting bank a n d t h e Federal Reserve B a n k b e collected
from t h e depositimg member bank, a n d that such telegrams
between t h e Federal Reserve b a n k a n d the depositing member
bank
b e g e n t collect.
Mr, Staater.
a mattor o f policy,
T h e Sommittee fecls that is largoly
a n d a s i t igs a m a t t e r o f p o l i c y i t
igs something that t h e Governors should decide rather t h a n
the Committees
Govermor MeDougal.
T h e Committee points o u t that
there i s a possible saving o f ‘355,000.
I f this recommenda-~
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Federal Reserve Bank of St. Louis
adopted, w e suggest that the Standing Committee o n
Callections b o nequested t o prepare a
uniform paragraph
covering the new policy for use i n the eneck coliection
eirculars o f the Federal Reserve Banks, a n c that a
definite
effective date b e got.
I offer that a s a motion, M p . Chairman.
Govermor Seay.
Seconded.
(Tae m o t i o n h a v i n g b e e n d u l y seconded,
Mr. Strater.
w a s carried. }
T h e next sub-topic is;
SOLLECTION O F ACTUAL CHARGES INCURRED I N HANDLING
NEGOTIABLS SECURITIES FORWARDED B Y INSURED R E G I S
TERED MAIL O R EXPR&SS.
Upto the present time the general practice with respent t o these charges &ssbetween Federal resorve banks
is t o c h a r g e t h e c o s t o n l y w h e n i t e x c e e d s
individual item.
5 0 cents
o n any
T h e practice i n effect a t tue various
Federal Reserve banks a s t o the collection o f the charges
from their own member banks covering the shipment of securities w i t h i n t h e i r o w n d i s t r i c t v a r i e s c o n s i d e r a b l y .
T h e
effect being that i n some ceases a t least, Federal reserve
banks a r e c h a r g i n g t h e i r
o m m e m b e r banks f o r t h e c o s t o f
shipping securities payable within their o w m district while
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Federal Reserve Bank of St. Louis
208
tho member banks c a n collect similar itoms through another
Federal resgervo bank without boing called u p o n t o pay t h e
shipping charges. T h i s , t h e Committee thinks unwise a n d
will c r e a t e t h e i m p r e s s i o n w i t h m o m b e r b a n k s t h a t o t h e r
Tederal Rosorve banks a r e more liberal i n their servicos
than their o w n Federal resorve bank o r branch.
The G o m m i t t e c r e c o m m e n d s t h a t a l l t h e r e s e r v e b a n k s
obtain r e i m b u r s e m e n t
o f shipping charges
o f 2 5 cents o r
over o n a l l s e c u r i t y c o l l e c t i o n s w h e t h e r r e c e i v e d f r o m
other Federal reserve banks, d i r e c t sending members o f
other districts, o r from their own members.
move that the recommendation
Governor Young. 1
f
t h e Committee
o
b e a p Nrovede
+
Govemor Fancher,
S e c o n d t h e motion,
The Chairman. I
would l i k e t o a m e n d t h a t m o t i o n b y
tho addition o f two words, "and observe".
L would L i k e
A o -oiter S s r e s o l u t i o n
T h a t i s t o say
t h a t the recommendation
be approved and observed, because w e cdo not always observe
these uniform rules.
Governor Younge I
Governor Norris. I
will accept that amendment.
will second it.
(The motion having been duly seconded, w a s carried.)
Mr. Stratene
T h e next subject is:
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Federal Reserve Bank of St. Louis
209
PREPARATION O F COUPONS FORWARDED FOR COLLECTIC:
BY FEDERAL RESERVE BANKS AND DIRECT SENDING
MEMBERS T O OTHER FEDERAL RESZRVE BANKS.
The Gommittee gave careful consgideravion t o the practice n o w i n offect w i t h t h e Federal Reserve B a n k o f New
York which requires t h a t certain Pederal resorve banks a n d
dircet sending members accumulate coupons o f cortain issues
maturing i n New Yors City and consolidate them i n one envel~Ope.
M
e accumulated and consolidated coupons t o be for-
wardsd a t a
date specified
b y t h e N o w Y o r k bank.
At ths last Conference this method was discussed and
the Standing Committee o n Colloctions was askod t o study the
matter c a r e f u l l y a n d i f p e s s i b b e
t o recommend a
method o f
handling these coupons which could b e uniformly adopted
by t h e r e s e r v e banks. .
Tre p r o b l e m o f h a n d l i n g a n y v o l -
ume o f coupons confronts o n l y a few o f the reserve banks
and the Committee cannot maxe a n y recommendation which would
be acceptiblo t o all o f the reserve banks.
A s t o tho New
York method, t h e Committee feels that i t has resulted i n
reducing t h e n u m b e r
particularly
o f coupons handled
b y tie System a n d
b y t h e N e w York bank because rather t h a n meet
the requiroments o f the N e w York bank, m a n y member banks
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Federal Reserve Bank of St. Louis
ofvpther districts are sonding their coupoins for collection
to t h e i r N e w Y o r k correspondent.
ne Committee b e l i e v e s
i f a similar m e t h o d w e r e adopt-
ed b y all o f the reserve banks i t would force a large pera"
sentage o f coupon collections o u t o f the System and thereby reduce t h e number handled.
T n e Committee c a n see n o
roason w h y t h e N e w Y o r k r e s e r v e b a n k s h o u l d n o t c o n t i n u e
resent l i n e s b u t d o e s n o t r e s o m m e n d t h a t a
similar p r a c t i c o b e a d o p t e d
Mre H a r v i s o n e I
b y t h e o t h e r r e s e r v e banks.
think t h e r e c o m m e n d a t i o n
o f the
Committee i g entirely right, although there m a y b e other
instances w h e r e i t w i l l b o a d v i s a b l e f o r o t h e r r e s e r v e
banks t o d o what w e are doing. I
think t h e
arisen i n Cleveland.
Mr, Strator.
N o t t o t h e s a m e e x t e n t Mr. H a r r i s o n ,
becauso t h e y d i c not have t h e volume o r the variety.
immediate p r o b l e m i s o n l y 4
Te Chairman. i
Our
semi-annual one.
move t h e a p p r o v a l
o f this recomuenca=
tion.
Governor Fanchere S e c o n d e d ,
motion having been duly seconded was carried.)
The Chairman.
T h i s concludes t h e approval o f this
entire report, a s w e have approved i t section b y section.
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Federal Reserve Bank of St. Louis
eS
going to:ask Mr, Strater t n remain through t h e discusof this part o f the program. I
did want t o s a y that
all very
Committee i s a perfect corker, a n d thaw w e
muen appreciate t h e work that t h o y have done. I
offer a
resolution
o f hearty thanis
want t o
t o t n e Committes.
(This motion, r e c e i v i n g several seconds, w a s unanimous-
ly carried.)
Tre Chairman.
T h e n e x t t o p i c i s 2-Be
Federal
o~Be C o l l e c t i o n o f unpmec’sh i t e m s b y
reserve banis.s
his calls f o r t h e veport o f the Committeo o n Volun=
tary S e r v i c e s
the
t o t h e Federal heserve B o a r d i n reply t o
Barton brief.
This w a s p u t o n by’ Cleveland. 1
think Gove mor
Fancher has a suggestion, resulting from a discussion and
correspondence,
a
t h a t boams t o m e t o b e important a s
rosult
Barton
of filing t h o last Committes report answering t h e
make some recomBrief, a n d i t seems t o m e important that w e
submendation t o t h e Board whien will finally dispatch t h e
ject a n d e n d it.
years NOW.
T t has been hanging fire f o r over t w o
G o v e r n o r Fancher, y o u aro t h e Chairman o f the
Committee o n Voluntary Services, a n d w e ar
hear your report.
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Federal Reserve Bank of St. Louis
eb
Governor Fancher. I
what w a s done.
T
think t h e G o v e r n o r s a r e f a m i l ~
e L a s t roguest o f t h e Board w a s t n a t
briof p u t i n s h a p e s o t h a t i t c o u l d b ebo] f u r m i s h e d
to
Barton a n d t o t h e members o f ais m r t d €
T h e report
prepared a n d copies furnished t o the Board,
t o r,Barton
members o f his Committees, a n c also copies furmished t o
members o f t h e Advisory Couneil,
t o whom this matter
was referred f o r the third time a f its last mseting,
Boa
b y the
ra e
The A d v i r s e r y Gounvil, u n d e r d a t e o f
My
“the Council gave careful consideration t o the
standing Committee o n Collections and o f
Committoe o f Governors o n the question a s t o whether o r
the systom o f collection o f non-cash items a s now i n prac=
tice should b e discontinusc.
S o m e o f the
that when t h e plan was originally adoptec b y the Feceral
Reserve B a n k s
i t would perhaps h a v e b e e n w i s e t o put i n
er}
some Limits o r restrictions t o the itemg that should b e
collected, b u t n o w that t h e practice i s i n operation, a n d
has been s o f o r a number o f years,
disturbanco
i t would causo t o o much
i t a t t h i s time.
t o c h a n g ce
omm
foro a p p r o v e s
o f the reports
T h e Council there-
o f t h e t w o committees
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Federal Reserve Bank of St. Louis
and believes t h a t their recommendation should b e followsd,”
Following t h e neeting o f the Council I
wrote t o
Govermor Crissinger reviewing t h e activities o f the Committes,
going back t o when the Committse was appointed, givi:
set-up o f the non-cash coilection functions a n d t h e report
wrote hiin as follows:
that h a d been rendered. I
"As this matter has now been 1
more t h a n t y o years,
c o n s i d e r a t i o n for
a n d a s t w o committee
great d e a l o f t i m e a n d e f f o r t
t o t h e preparation
o f the
reports, h a s not the time arrived for tne Board t o tak
final action a n d make a
definite statoment t h a t t h e non-
in
cash c o l l e c t i o n f u n c t i o n i s t o b e t o n t i n u e d a s n o w
operation i n all o f the Federal Reserve b a n k s ? S p e a k i n g
for t h e o t h e r m e m b e r s
o f C G o m m i t t e s a n d mysell’,
w e
would like ver; much t o have t h e mattor closed before t h e
next C o n f e r e n c e o f Governors
s o that a
report t o that
effect may be made.”
Tne Chairman.
W h a t i s t h e cate o f that letter
Govermor Fancher. O c t o b e r 15, 1925. G o v e r n o r
Grigssinger answered t n a t under date o f October 16th, a s
follows:
"My dear Governor:
Your l e t t e r o f O c t e d e r
1 2 i n r e voluntary services
ol4
o Federal Reservo Banks for member banks has been roceived.
history
Y o u have v e r y accurately recited t h e
Or this conbtroversye
"the Board furnished copies o f your reply brief t o
the Barton Committee and since which time they nave given
ug n o i n f o r m a t i o n a s t o w h e t h e r
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Federal Reserve Bank of St. Louis
o r not they woulc file a
reply brief o r ask f o r furthor consideration. I
they a r e n o t o v e r l y a n x i o u s
feel that
t o p r e s s t h e m a t t e r now.
will, however, bring tho matter before the Board and see
whether i t should b e s e t down f o r final disposition a n d
will then acvise you."
And o n October 1 7 h e again wrote m e a s follows:
“My dear Governor:
I have h a d t h e record looked into with regard t o
the non-cash items controversy. I
find that t h e record
shows t h a t w e are t o give a hearing t o the Barton Committee
inif thoy want Onde T h e y have n o t y e t signified their
tention o f wanting such a hearing. I
a m writing t h e m
t h e y want furthor
a s k si n g a t
today, h3 o
: h e m w hJe t h e r
3 wever,
to b e heard.
I n the event
3 )I
will write your
t o thermin~
Committee. Personally I think the matter ougant
has proate here b u t i n view o f the f a c t that the Board
mised t h e m further recognition I
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Federal Reserve Bank of St. Louis
presume
go forvard with it,"
morning that
Governor Crissinger stated t o m e this
he h a d received a
communication f r o m Mr. Barton i n which
a further inhe hac said that this Committee w a s making
another questionyestigation o f tho matter a n c s ending o u t
w a s still
aire o f some sort; t h a t apparently t h e matter
being agitated b y Mr. Barton's Committes.
The Chairman.
r
i
n
k t h e understanding w a s that
have a copy
report w a s t o b e made, a n d they were t o
N o w i f thoy are going
1
have a hearing.
t o vitndraw
ahzad with more propaganda stuff w e oucht
¢ that as sent t o a hearing again and start
Govesrmmor Calkins.
I t certainly i s
the mattor b e
of t h e S y s t e m a n d t h s tmombor h a n k s t h a t
t o b e l e f t open f o r
determined a t . s o m e d a t e r a t h e r t h a n
agitation for a n indefinite time.
Govemor Fancher.
T h e report o f the Sommit teo
‘
filed w i t h t h e B o a r d o n M a r e n 2 4 ,
half agoe
1924, a
year a n d a
w e r e con~
T i e recommendations o f the Committee
a s t o non=cash colcurred in, except t n e recommendations
Lection functionse
action a S y e t e
T h e Board hag not taken any definite
216
The Chairman.
W h y could w e not pass a resolution
asking f o r a final dotermination o f the Buard i n regard t o
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Federal Reserve Bank of St. Louis
the report o f the Committee which h a s been approved b y
the Conference a n d which w a s submitted a
Governor Calkins.
Governor Wellbom.
determination
year a n d a half ago?
A n d approved a l s n b y t h e Advisory
W h a t i s t h e use o f asking f o r a
o f t h e Board?
i
g a l r e a d y i n use b y t h e
System.
Tie Ghairman. ‘ e s , but the mattor was under investigation a n d a move made b y t h e Board t o discontinue i t
or propose charges?
Governor Wellborm.
T h e agitation doesn't s e e m t o
affect t h e working o f i t a t all.
Mr. Harrison.
T h e record stands
i n t h i s way:
Some
year and a half ago the Federal Reserve Board referred t o
this Conference f o u r different matters f o r consideration
and report.
T h e y involved shipments o f currency, w i r e
transfers, safe-keeping o f securities a n d non-cash collections.
T h e Govemors
h a v e reported
o n a l l f o u r o f those.
The Board has affiramatively a p p r o v e d throes o f the reports
and they have advised this Conference t h a t they still have
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Federal Reserve Bank of St. Louis
oLT
the fourth report o f March ‘24 concerning non-cash collections
under consideration committee w a s a p p o i n t e d a t t h e
Govermmor Fancher. A
November, 1 9 2 3 conference, a n a these items were referred t o
the Conference f o r study.
Governor Wellborn.
I
t Looks t o m e that i f the
American Bankers! Association wants t o present something
further, a n d they have asked f o r furthei time, t h a t w e
ougat t o give i t t o them. M r . Fancher staves t h a t they
want t o make further investigations a n d probably s e n t out
another questionnaire.
Govermor Fancher.
S
o f a r a s t h e Committee
is co
cermed, i n speaking for myself, t h e Committee has studied
this from every anglo, a a d i t might b e well, i f they want
a further study o f it, t o appoint a new committee.
The Chairman.
W h a t would y o u like t o have done,
Governor Fancher?
Governor Fancher. I
would l i k e t o h a v e t h e B o a r d r o -
quested to, i f possible, a d o p t t h e report o r reject it,and
have t h e B o a r d c o m e t o s e m e d e f i n i t e c o n c l u s i o n
The Chairoman.
i n t h e matter.
Y o u motion i g that t u e houfesoane r o ~
guest t h e F e d e r a l R e s e r v e B o a r d t o a p p r o v e
o r disapprove t h e
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Federal Reserve Bank of St. Louis
report o f the Committee a s t o non-cash items?
s o move.
Govemor Fancher.
Y e s , sir, I
Govermor Biggs. I
second t h e motion.
T
Govermor Calkins.
Committee
o approve t h e report o f t h e
o m the recommendation
o f t h e A d v i s o r y Council.
The Chairman. G o v e r n o r Fancher h a s moved t h a t w e
request t h e B o a r d t o a p p r o v e t h e r e p o r t r e c o m m e n d e d
Advisory Council.
b y the
I s t h a t i t Governor Fancher?
Govermor Fancher.
Yose
Governor Biggs. I
second that.
Govermor Seaaye W o u l d y o u b e w i l l i n g t o a d d t h e
expression
o f opinion t h a t i t i s believed
lay i s l i k e l y t o w o r k injury,
Governor Fancher. I
t m t further de-
o r would y o u l e t t h e matter
would p r e f e r
t o have t n e motion
put a s originally stated.
Govermor Harding.
W h y n o t state that t h e report
wags s u b m i t t e d 1 6 months ago, r e p o r t e d
o n b y t h e Advisory
Gounsil, a n d w e respectfully roquest that action b e taken
one w a y o r t h e o t h e r o n it.
Govermor Wellborm. I
Fancher's m o t i o n o n t h e table.
will m o v e t o l a y G o v e r n o r
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Federal Reserve Bank of St. Louis
will second that.
Govoarmor Younge I
(The motion being p u t o n the ayes a n d noes t h e Chair-
man declared the motion loste)
The Chairman.
T i e noes seoém t o have it, a n c t h e
qaestion now i s o n Governor Fancher's motion.
Governor Bailey. I
would l i k e t o h a v e t h a t m o t i o n
Ghairman. G o v e r n o r Harding stated t h e motion,
he report w a s gubmitted 1 0 months,ago, t h a t a
supple-
mentary report h a s since been submittod w i t h regard t o the
Barton brief,
h a s b e e n b e f o r e t h e : System n o w f o r t w o years,
that i t will b e detwimental t o the System t o have t h e s u b
ject r e m a i n unsettled,
a n d w e recommend t h a t t h e Federal
Reserve Board approve t h e report o f t h e Committee o n noncash collections,
a n d recommendec
Governor Biggs.
b y t h e A c v i s o r y Council.
t T w i s socond it.
{The motion having b o o n p u t the Chair was unable t o
determine the result)
Governor Wellbom. I
The Chairman.
call f o r a division, Mr. Ghali
T h o s e i n favor o t t h e motion g a y
(Governors McDougal, Norris, Talley, Fancher, Biggs,
Calkins a n d Harding, S e a y a n d Strang voted i n favor o f the
rman. +
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Federal Reserve Bank of St. Louis
motions
(Those opposed, Governors Balley, Wellborn and Young.)
(The Chair declared tho motion carried. )
The Chairman.
T o e next topic 1 8 # C .
220 0 R e v i s i o n o f Time Schedule w i t h a viow t o
reduce: float a n d avoid oxisting inequali-
ties; particularly t o oither abolish f i v e
and s i x d a y poirts,
o r else make t h e m uni-
versal.
Tho recommendation i s that a Committee b e appointod
on w h i c h t h e F e d e r a l R e s e r v e B o a r d w i l l b e represented.
This was suggested b y Philadelphia.
Gévernor Norris.
T h e deferred availability schedulos
T believe were made u p five, s i x and seven yoars ago a t a
meeting here i n which all o f vhe banks wero represented.
The S c h e d u l e w a s s u p p o s e d
t o b e s c i e n t i f i c a n d accurate,
basod o n tho actual t r a i n time between points involved, a n d
intended t o reduce t h e floats t c the smallest possible
volumo. I
notice t h a t t h e float,
in
l a s t consolida-
ted statemont o f October 28, w a s about s i x o r seven million
dollars.
I t i s about 22,000,000 more t h a n i t was i n the
game w e e k o f l a s t year. I
notice a
number
o f peculiaritios
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Federal Reserve Bank of St. Louis
gel
in the different time schedules,
o f which I will read a few
gainples:
The Federal Reserve B a n k o f Richmond collects o n
Kansas, Nebraska, Minnesota, N o r t h Dakota a n d South Dakota
in g i x days;
The Baltimore branch o f the same bank coliects those
states i n eight days, y e t the Baitimore branch i s t w o hours
hearor t o Washington, t h r o u g h which mails f o r the wost from
all p o i n t s p r e s u m a b l y g o e s t h a n R i c h m o n d i s .
Philadelphia collects o n North and South Carolina i n
four days,while Boston,
1 2 o r i 5 hours further a w a y collects
in t h e s a m e timo.
Boston a n d N e w York both undertake t o collect Georgia
in four days, w h i l e Philadelphia, R i c h m o n d a n d Baltimore
take f i v e days.
Boston a n d N e w Y o r k c o l l e c t s F l o r i d a
i n four d a y s
ag againgt five days i n Baltimore a n d s i z days i n Philadelphia a n d Richmond.
Boston a n d N e w Y o r k c o l l e c t A l a b a m a
i n four days a s
against six days i n Philadelphia and five days i n Baltimoro.
and Richmond.
5
Boston a n d N e w York collect Mississippi
i n four days
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Federal Reserve Bank of St. Louis
B22
as against s i x days i n Philadelphia a u d Richmond, o n d five
days i n Baltimore.
New Y o r k h a s f i v e - d a y p o i n t s w h i l e B u f f a l o h a s none;
Chicago h a s n o five-day points.
B o s t o n , N e w York, Buffalo,
Baltimore a n d M i n n e a p o l i s h a v e n o s i x - d a y points.
Philadel-
phia, Boston, N e w York, Buffaic, Cleveland, Cincinnati,
Pittsburgh, Richmond, Baltimore, C h i c a g D e t r o i t , Minneapolis have n o seven-day points.
S t . Louis, Holena, Kansas
City, Oklahoma City, Omaha, Donvor, S a l t Lake m v e n o
eight-day points.
New Y o r k a n d B o s t o n c o l l e c t M i s s i s s i p p i
i n f o u r days,
but t a k e s e i g h t d a y s f o r t h e a d j o i n i n g S t a t e o f Louisiana.
On the other hand Philadelphia coliects Colorado, Louisiana,
Florida, Nebrasxa, N o r t h Dakota, S o u t h Dakota,
i n s i x days
while 1 t takes N e w York a n d Boston eight days t o collect
them.
I would respectfully a s k whether: t h a t looks like
.
a selentific s c h e d u l e b a s e c
o n actual t r a i n t i m e b e t w e e n
the v a r i o u s p o i n t s .
Seriously i f t h e s c h e d u l e s h a v e s u c h d i s c r e p a n c i e s
ag that I have n o doubt that some o f them are perfectly
capable o f p e r f e c t l y p r o p e r a n d r e a s o n a b l e e x p l a n a t i o n .
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Federal Reserve Bank of St. Louis
eeo
There m a y n o t a p p e a r
t o be a
reason o n t h e surface f o r
such differences b u t t h e reason m a y b e there.
O f course
most o f them a r e d u e t o t h e f a c t that some o f the banks
have n o five a n d six-day points, a n d thorefore must
put all o f their points i n t o either f o u r o r eight days.
Most o f t h e b a n k s
d o h a v e f i v e - d a y points. A
few years
ago there w a s a difference i n view between Philadelphia
on the o n e side a n d New York a n d Boston o n the other.
As N e w York a n d Boston could n o t b o moved i n the matter
we had t o make a change i n ourscheduie t h a t somewhat ineree sed o u r -float, a n d t h e change I
believe w a s not par-
ticularly a c c e p t i b l e e i t h e r t o R i c h m o n d
o r t o Cloveland.
Now it is not possible, i t seems t o me, for one bank t o
make a
schedule without regard t o the other banks, a n d
the question I want t o raise i s whether o r not i t is
desirable whether w e should g o o n with this very un~
scientific schedule that w e have now, o r whether w e
ghould have a committee appointed t o look into i t and
to s e e w h e t h e r t h e r e c o u l d n o t b e a r e v i s i o n m a d e t h a t
will m a k e t h e s c h e d u l e s
and m o r e n e a r l y c o r r e c t e
more consistent
w i t h each other
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Federal Reserve Bank of St. Louis
224.
Governor S e a y e
T
o further acccntuate t h e point
brought o u t b y Governor Norris, I
of October 3 0 t h I reneived a
will s a y that under date
letter from a member b a n k t h a t
gaid t h a t t h e t i m e s c h e d u l e w a s u n d e r s t u d y b y t h e m e m b e r
anks, a n d that perceving i t s inequalities a n d its inconsistencies, t h o letter says, " W e have before u s a copy
time gzhedules o f each o f the 1 2 banks relating t o collect-
ing out of time items, "they mako a
say that the New York and Philadolphia banks require one
day t o collect Virginia items other t h a n Richmond while
according t o the schedule the Richmond Reserve Bank threo
days are required.
Governor Harding.
W h a t i s your average float, Govern-
or Norris?
Governor Norris.
O u r float i s very high, b u t the
great bulk o f i t i s i n Philadelphia.
Governor Harding.
O u r average float i s about two
We have $64,000,000 o n one side, and
&@2,000,000 o n the other, leaving abcut a 92,000,000 float.
Mr. Harrison.
W e h a v e about ten millions i n transit
floate
Chairman.
A s I
understand it, Governor Norris,
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Federal Reserve Bank of St. Louis
a2o
committee b e appointed,
your resolution proposes that a
which t h e F e d e r a l K e s e r v e B o a r d b e r e p r o s e n t e d
on
t o study
thig matter o f time schedules a n d that should perhaps
go t o the Standing Committee o n Coliections.
Governor Norrise
ghould v e r e p r e s e n t e d
I t seems t o m e t h e Reserve Board
would b e
o n a n y s u c h committee. I
very giadd indeed t o have i t handled b y the Committee o n
Collections
i f they a r e willing
t o undertake i t .
he Chairmane I s n ' t i t a fact that a time schedule
is subject t o review a n d determination b y t h e Board? i
in t h e p a s t t h a t h a s b e e n t h e a r d i n a r y p r o c e d u r é e
made a
gtudy o f i t and have made recommendations
Board f o r t h e i r approval. I
have i n m i n d a s a
W
think
e have
t o the
substitute
for your resolution, Governor Norris, t h a t shicmaitoucbe r e ferred t o t h e Standing Committee o n Collections w i t h the
‘recommendation t o t h e Committec t h a t steps b e taken t o
gecure a
scientific revision o f the time schedule, a n d that
as a baSis f o r that t h e necessary information c a n first b e
obtained f r o m e very reserve bank, a n d then that t h e matter
b e referred b a c k t o t h e i n d i v i d u a l r e s e r v e b a n k s f o r t h e i r
comments.
W h a t I
have i n mind i s this:
W e have changed
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Federal Reserve Bank of St. Louis
226
our practice i n the handling o f o u r mail i n the course o f
the l a s t f e w y e a r s a n d i t h a s b e o n m u c h expeditec,
and it
might be that w e would agree t o effect changes i n the time
sehedule;
i n addition I
think these questions should b e
taken u p b y t h e Committee a n d made a study of, a n d i f that
is done a n d w e Nive a general rovision o f the time schedule
I don't know but what i t might furmish u s a n cpportunity i n
New York t o d o away with these two-day points t h a t ought t o
be Longer.
Governor Norris.
T h e suggestion thet y o u make, Mr.
hairman, w o u l d b e entirely satisfactory t o me. I
have n o
pride i n regard t o the w a y that i t i s t o b e done.
Govemor S e a y e I
will s e c o n d t h e m o t i o n a s s t a t e d b y
the Chair.
(Tho motion having been d u l y seconded w a s carried.)
The Chairman.
T h e next topic i s 2D:
a-De P r o c e d u r e i n handling oxchange drafts.
That i s suggested b y S a n francisco.
Governor Calkins.
N
o a c t i o n i s indicated.
W
e discus;
ed the matter o f the handling o f the exchange drafts a t some
length, a n d w e would like v e r y much t o have t h e views o f
some o f t h e other banks w i t h regard t o it. T h e r e i s a con-
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Federal Reserve Bank of St. Louis
Pe |
bo
giderable risk with us. W h e t h e r any arrangement could
mado which would minimize t h e risk I
and I
a m not prepared t o say;
the exthought possibly w o could g e t the benefit o f
perience
o f others.
Thre Chairmen.
o f them
W o u l d y o u Like t o have t h e u s e
abandoned?
am inclined t o think
Covermor Galkins. I
should b e a b a n d o n e d oventually.
I t is v e r y little used, i s i t not?
The Chairman.
Governor Calkins.
and h a v e a p p r o v e c
t
W
e have h a d fifty-nine applications
o dato.
C o n e r a l l y speaking t h e appli~
i n a questioncations have como f r o m those banks waich were
was
able position and not from those regarding which there
no doubt.
T h a t has been t h o most disturbing foaturo o f
the d e v e l o p m e n t
s o far.
Governor Harding. T h e practice was changed.
W e
used to have a 85000 limit, and ab Governor Fancher's suggestion i t was raised t o $50,000.
T h a t put the Federal Reserve
000,
Bank i n the attitude o f either approving a limit of BDO,
or n o L i m i t a t all.
T h o r e w e r e s o m e banks t h a t u s e d t h e
5000 limit that did not oxpect t o use i t any further.
wouldn't appeal t o t h e m a t a l l .
I t
W e have g o t t w approve i t
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Federal Reserve Bank of St. Louis
28
a t ell under
350,000, because there wasn't a n y gradation
twenty.
which w e could approve i t for five, t e n o r
either fifty o r nothing.
I t was
W e h a d n o Grounds f o r disapproving
the a p p l i c a t i o n s w h i c h w e r e m a d e t o U S »
h e r e w a s n o diffi-
of
culty about approving them at &5000, and s o as a matter
1,
form i t was approved a t $50,000.
W e reserved t h e right a t
o u t that they were
any t i m e t o c a n z e l t h a t approval, p o i n t i n g
i n excess
not accustomed a t any timo t o having that amcunt
of
of their free balance w i t h us, a n d that w e h a d the means
witha
checking a n y abuse o f it. T h e n w e followed that u p
that
letter t o all o f the Federal Reserve Banks suggesting
in c a s o a n y e x c h a n g e d r a f t t o b e p r e s e n t e d
t o them that they
Look u p t h e rating o f the bank i n the blue book, a n d i f
excessive
850,000 appeared t o then o n tho face o f i t t o b e a n
as to
amount that w e would b e glad t o answer a n y telograms
whether t h e draft was g o o d o r note
W e d o not have v e r y
u s a n y trouble.
many o f them, a n d s o f a r t h e y h a v e n o t g i v e n
Governor Seay.
have n o t h a d o c e a s i o n
W e have experlenced n o trouble.
t o refuse t h e application
W e
o f any
applying bank.
The Ghairman.e
I n regard t o New York, t h e report i s
one o f c o n s t a n t progress.
W e d i d have three customers
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Federal Reserve Bank of St. Louis
for t h i s v u s i n g a s c a n d n o w w e h a v e o n l y two.
Governor Calkins.
Limit w a s removed,
sponded
did.
I n view o f tho fact that this
i t follows t h a t the banks w h o have re-
t o t h e inquiry should express themselves
Boston,
a s they
i s in
a s G o v e r n o r H a r d i n g h a s indicated,
favor o f a limited permission t o five, t e n o r twenty
thousand;
N e w York i s epposed; A t l a n t a non~-commital 3
Chicago o p p o s e d ;
M i n n e a p o l i s v e r y m u c h opposed;
Dallas
never advocated it; R i c h m o n d non-commital; K a n s a s C i t y
very much opposed; Philadolphia, non~-commital; C l e v e l a n d ,
non=commital;
S t . Louis non-commital.
I g there any enthusiasm left about
The Chairman.
these oxchangse d r a f t s ?
Govormnor Fancher.
down a n y application.
W e have h a d n o occasion t o turn
o
f
W e have approved a p p l i c a t i o n sr
forty-six banks.
The Chairman.
A r e t h e yJ 6b e i n g u s e d ?
Governor Fancher,
T h e y are.
Governor McDougal.
A r e t h e y being used t o a greater
extent t h a n they wero under t h e former privilege?
Governor Fanchers I
Governor McDougal.
think they are.
T h e y are not i n our case. T h e y
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Federal Reserve Bank of St. Louis
30
are nov. i n t o r e s t o d
a t all.
W
o n a v e a p p r o v e d gixty-fivoe
applications, v e r y T e w o f which have been availed of.
volumo numerically h a s heen falling off.
The
W e have h a d from
the Boston District nine drafts, Cleveland 4, Philadelphia 1.
That represents o u r activities a n d I think i t shows pretty
conclusively t h a t t h e m e m b e r b a n k s a r e n o t interested.
The C h a i r m a n e
H a v e you a
Governor Calkins.
motion, G o v e m m o r C a l k i n s ?
N o , Mr. Chairman, I
gave notice
in advance t h a t I would make n o motion i n regard t o this
mattere
The Chairman.
T h e r e being m o motion t o change t h o
recent action o f tho Conference,
w e will proceed w i t h ths
next topic, w h i c h i s
ernEe G o v e r n n e n t checks,
The recommendation o n that is:
T h a t t h e Standing
Committee o n Collections boa requested t o study t h e question
of h a v i n g G o v e r n m e n t c h e c k s p r i n t e d a n d n u m b e r e d
i n some
way as better t o facilitate theiz handling b y Federal
Reserve banks.
Mr. Harrisone
T h i s i s somewhat o f a detailed ques-
tion t h a t r e a l l y n e o d s n o d i s c u s s i o n here.
W
e would like
to recommend t h a t i t b e referred t o t h e standing Committee
Dp
ou
on C o l l e c t i o n s
i n order t o work u p some s o r t o f system o f
having Governmont chocks printed i n a w a y that will enable
ug t o w o r k o u t a
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Federal Reserve Bank of St. Louis
system o f s o r t i n g w h i c h i s s i m p l e r t h a n
the o n e w e h a v o n o W e
T h e schemo t h a t h a s been proposed b y
to
the operating m e n i n our department w e will b o very glad
gubmit t o the Committee,
i f i t suits t n e Conference t o
refer t h e matter t o the Committee.
T h e checks will b e
very
separated b y colors a n d the symbols will appear i n
plain b i g letters o n the different colored checks.
B y a
be
very simple printing process t h e handling o f them will
snormously facilitated.
Governor Fancher. I
move t h a t t h e m a t t e r b e r e f e r r e d
to the Standing Committee o n Collections,
t o make a
report
to this Conference.
The Chairman. T h a t i s seconded.
(the motion having been duly seconded, w a s carried.)
The Chairman.
T h e next topic i s 2-T.
LE s R o t u r n e c n o n - c a s h itoms.
The recommendation is:
T h a t t h e Federal Heservs3
banks telegraph f o r instructions before returning non-cash
itoms,
o r cash items forwarded a s non-cash items, o f 5500
or over which a r e n o t being handled f o r a n y reasone
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Federal Reserve Bank of St. Louis
ZOD
Govermor S e a y e I
adopted.
I
move t h a t t h o r e c o m m e n d a t i o n b e
t apeaks f o r itself.
Govemor Young. I
will second that.
(Te motion having been duly seconded, was carried.)
The Chairman.
Ce
T h e n e x t t o p i c i s 2-G.
D i r e c t sendings o f non-cash items.
Tne comment o n that is:
Discussion o f the advisability o f encouraging
those membor banks having a substantial number
o f
out-of-district non=cash items t o sond such items
at
direct t o t h e F e d o r a l R e s e r v e B a n k o r b r a n c h o f t a e
district w h e r e payable.
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Federal Reserve Bank of St. Louis
O28
Perey A)
Mr. H a r r i s o n .
O n account
o f the enormous
volume
o f
non-cash items that were being deposited w i t h u s b y our New
Yous Gity Banks,
w e considered l a s t spring, a n d Governor
Strong discussed i t with this Conference, a
plan t o have
our large city banks send non-cash items “direct t o other
districts rather t h a n through the I
R e s e r v e Bank o f
I t has resulted i n a saving o f GO-pencaaninin.
handling
the cost of/the items t h a t would have come t o u s otherwiso.
New York.
There i s a certain amount o f clerical w o r k that w e have t o
continue, a n d that i s what comprises t h e remaining 4 0
per cent.
A
t t h e time t h i s w a s discussed
feronce t h e r e w e r e a
a t t h e last Con-
number o f G o v e r n o r s w h o e x p r e s s e d t h e
thought that perhaps this might b e a good matter t o con~
sider generally throughout t h e System.
effect f o r o u r larger banks, I
W e h a v e p u t i t into
think w e put i t i n last July,
those banks that have a large volume o f non-cash items and
it h a g w o r k e d s p l e n d i d l y
resulted
in a
s o f a r a g w e a r e concerned.
v e r y s u b s t a n t i a l economy.
W
I t has
e have n o recom—
mendation t o make a S t o the other reserve banks other toaa
the mere suggestion that, f r o m o u r experience, t h e y might
find i t profitable t o consider adopting somewhat t h e same
scheme, n o t generally, b u t w i t h those banks i n tueir states
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Federal Reserve Bank of St. Louis
which have large volumes o f non-cash items payable i n other
districts:
will offer i t a s a motion.
The Chairman. I
Governor Seay.- I
will second it.
Governor Calkins.
W e a r e i n f a v o r o f q a little f u r t h e r
extension t h a n indicated b y Mr. Harrison, a n d that i s practically that a l l non-cesh items should b e sent direct t o the
Federal R e s e r v e B a n k o f t h e d i s t r i c t
i n which t h e y a r e pay-
abloe
a
w carried.)
(The motion having been duly seconded, s
The Chairman.
T h e n e x t i s 2-H.
ome S h o u l d Federal Reserve banks request
Smaller member banks t o sort cash items
strictly i n a c c o r d a n c e w i t h T i m e
Schedule,
o r should reserve banks aver-
age availability o f unsorted cash letters?
Mr. Harrison.
W
o have made a
gtudy o f t h e mothod
by: which other Federal Reserve banks handle c a s h letters
from their country member banks.
W e wrote t o each o n e
of the Federal Reserve Banks a n d have © report f r o m them.
It s e e m s t h e r e i s a
jtetters are handled.
jnezuding N e w York,
great v a r i a n c e
i n the w a y i n
F i v e o f the Federal Reserve Banks,
i n a
very Limited degree aacept unsorted
cagh items f r o m some o f thoir smaller country banks o n tho
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Federal Reserve Bank of St. Louis
average avilability basis.
Ons
g ZN
BOL
fay
P o u r o f them accopt, b u t give
availability f o r tho whole lotter only after t h e elapsed
time taken t o collect t h e most distant items.
T w o o f the
reserve banks n o t only accept t h e m but actually s o r t the
letters themselves and then give availability according
to coach class o f items.
T h e y d o t h e work f o r the country
member banks.
Goveror
Seay.
Mr. Uarrison.
ive credit
R i c h m o n d g es
f o r t h e latest
B u t y o u d o a c c e p t u n s o r t e d letters.
Governor Seay. Y o s , b u t w e give credit o n l y f o r the
latest date.
Governor Fancher,
T h a t i s what w e doe
Governor Seay. O u t s i d e o f the four big banks w e d o
the largest collection business.
pringing about t h i s assortment.
W e have notrouble i n
O u r out-of-towm collection
business occupies about fifth position, a b o u t seven miliion
items o v e r y quartor,
a s r e p o r t e d b y t h e Boards lige abuet
put t h a t i n t o i l l u s t r a t e t h a t w e f i n d n o C i r e renLey 2 0
requiring this o f our member banks, b u t w e would f i n d
difficulty i f w e d i d not requiro it.
The Chairman.
I s there a n y collateral q u e s t i o n i n -
volved, s u c h a s t h e float, t h a t would need a n y special study?
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Federal Reserve Bank of St. Louis
Bo
T h o acceptance
Governor G a l x i n s e
Zz
o f unassorted
Letters u n d o u b t e d l y w o u l d i n c r e a s e t h e f l o a t materially.
Mr. Harrison.
I t actually docreases t h e f l o a t i
you d o what Richmond docs.
Covernor Fancher.
I t decreases t h e f l o a t i n o u r case.
Governor Calkins.
W e d o not receive t h e m a s a
Governor Fanchor.
O u r custom i s t o receive
matter
of fact.
ters a n d d e f e r t h e o n t i r e l e t t e r
t o t h e l a t e s t maturity.
discourages v e r y l a r g e l y t h e s e n d i n g
Mr. Harrison.
t h e letT h a t
i n o f i t e m s unassorted.
W e have found t h a t i n the case o f some
25 o r 3 0 o f t h e c o u n t r y m e m b e r b a n k s t n a t t h e v o l u m e o f
letters i g s o very small t h a t i t would h a r d l y |
quire t h e m t o assort, a n d i t makes s o little
us that w e aro perfectly s a f e i n giving t h e m
ability.
The Chairmeane
T h e responsibility
o f t h i s topic
is o n you, Mp, Harrison, a n d will you sugsest what action
shall b e t a k e n b y t h e C o n f e r e n c e ?
Mr, Harrison.
J T think i t is @ matter o f sufficiont
importance, because t n e question h a s been raised b y some
of t h e c o u n t r y b a n k s - - Mr. J a y h a s b e e n p a r t i c u l a r l y
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Federal Reserve Bank of St. Louis
interested, being concerned with the momber bank relations-Commitgufficiently important t o have u s ask Mr. Strater's
i t is
toe t o take i t under advisement a n d report whetner
optional
worth while t o d o anything w i t h it, o r t o Leave i t
an-es.ch district a s i t ssoms t o be noWwWe
ing t o o much o f the Committee L
eonsider
T f itis not a s k
would like t o have t h o m
i t i n a n y evert.e
Mr. Strater.
T h e Committee will cortainly b e glad
to consider it.
Governor Fancher.
A n d I so move, Mr. Chairman.
Governor Talley. I
second that.
(The motion having been duly seconded,
Tho Chairman.
The n o x t
T h a t completes Section 2
l s Section
ws
of the program.
S e
TII. COIN, CURRENCY A N D CIRCULATION
Ae C u r r e n c y p r o g r a m e
That i s a matvcer o n which Mr. D e w e y wishes t o b e pre-~
sent during t h e Giscussion.
The noxt is:
Be S h o u l d n o t t h e Treasury Department absorb
the cost o f transferring o n e dollar bills
from o n e F e d e r a l R o s e r v e
That i s Suggested b y Kansas City.
Bank
t o another.
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Federal Reserve Bank of St. Louis
237
suggested the topic because
Governor DBailoy. I
t h e bank.
TIthink i t i s t h e i r f u n c t i o n r a t h e r t h a n t h a t o f
The Chairman.
T h o y d i d p a y that a t one time, a s I
understand it, but then fourd they would have to get an
appropriation.
t
Governor Bailey.
h
e
r
e should b e some action
e should
taken o n tho part o f the Governors through w n i c h w
re roimbursed f o r tnis.
Governor Calkins.
A
t t h e Currency Conference h e l d
at t h e Treasury July 15, 1925 i t was recommended "The
possible
Treasury D e p a r t m e n t w i l l e n d e a v o r a S S o o n a s
to
gocure a n appropriation t o cover t h e c o s t o f transfers o f
this character,
b u t s u c h a n appropriation cannot,
o f course,
be mado retroactive." T h a t seems t o be the situation.
Thea tChadrman .s T h i s i s a matter t h a t interests Mr.
Deweye
H e will b e here shortly, I
belicve, a n d w e c a n dis-
cuss i t with him.
The n e x t s u b j e c t i s 3<C.
SO
G o l d holdings a n d payments.
Mr. Harrison.
Y o u m a y remember that sometime a g o
this Gonference considered t h o amount o f holdingsoer &o f payable
gold b y each Federal Reserve Bank, a n d w e wore somewhat
eae
percentage w a s i n relation
surprised t o f i n d h o w l o w t h e
Jdabilitied
o f the reserve banks
i n the caso o f some
to
t h a t
i n 1922 was 11.09 p e r cent.
the the average f o r t h e whole system
banks t h a t were b e l o w
There w e r e s o v e r a l F e d e r a l R e s e r v e
5 ner cent a n d one polow 1
which I
per cont.
T h e percentage t o
a m roferring i s t h e percentage
gold certificates
o f gold coin and
to total note a n d deposit liabilities
of t h e bank.
take t h e matter u p with
The c o n f e r e n c e r e q u e s t e d m e t o
the Treasurys 1
Mr. H a n d
did so, a n d i n conjunction w i t h
wherein w e recommended
of the Treasury submitted a report
each r e s e r v e b a n k e n d e a v o r
to nand wold,
hand
t o build-up i t s s u p p l y o f
o r payable gold,
t o a n amount approximating
liabilities, a n d o f that
20 per cent o f its note a n d deposit
amount
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Federal Reserve Bank of St. Louis
a t least one-third
t o b e i n coin.
T h e difficulty w a s
t o g o around a n d also t O
that there w a s n o t enough coin
form a basis f o r note circulation,
upon a
s o t h e Treasury entered
program which h a s helped
very comprehensive minting
a n d whicn h a s enabled u s n o w
the s i t u a t i o n v e r y c o n s i d e r a b l y
to i n c r e a s e t h e p e r c e n t a g e
i n t h e System a s a
whole f r o m
i s boing made, a s you gee
11:9 t o 18.1 per cent. P r o g r e s s
from t h o s e figures,
o f the reb u t i n t h e case o f some five
5
serve banks t h e amount i s still below
per cente I
take i t
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Federal Reserve Bank of St. Louis
wateh t h e thing a n d gradually endeavor t o build u p a n ade~
quate supply o f gold coin, particularly certificates a b
the present time, because g o l d will g o s o much further i n
certificates t h a n i t will i n tne form o f coin.
Governor Fancher. I
would like t o ask whether t h e
Treasury i s going t o supply t h e free g o l d a t tne present
time?
O u r Board voted apout a year a g o t o build u p o u r
coin holding t o the extent o f 525,000,000, b u t I found o n
investigating the matter here there w a s n o g o l d coin available a t that time.
gent t i m e ?
W h a t i s t h e mint situation a t the pre-
H a v e t h e y g o t a n y free gold?
Mr, Harvison.
past y e a r a n d a
T h e situation i s this:
half t h e T r e a s u r y h a s m i n t e d a p p r o x i m a t e l y
tyo s h u n d r e d i * million d o l l a r s
used a s a
T h a t in
i n coin b u t that n a s been
basis f o r c e r t i f i c a t e s a n d a l l o f t h e r e s e r v e
banks a s a result have been snabledto increase their supply
of c e r t i f i s a t e sUD t h e Treasury minting program gave u s n o
coin a t the moment.
I t has permitted u s t o build u p a
supply o f certificates, a n d after that i s done I
assume t h e y
will continue their progrem o f minting s o a s t o permit u s
to build u p our coin supply also.
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Federal Reserve Bank of St. Louis
The Chairn
t was slowed d o w n a
I
little
mean t h e relation o f coin t o bar gold was disturbed a
Little
bit - « by the fact that there was some eighty million dollars
of gold coin shipped t o Germany, a n d other gold coin shipped
elsewhere,
w h i c h reduced t h e propcrtion
o f c o i n t o bars,
which i s fixed b y law, a s y o u know, against which certificates
may b e issued.
Mr. H a r r i s o n .
I t i s rather a
We n o t i c e p a r t i c u l a r l y
difficult situation.
i n N e w York t h e imports o f gold aro
all i n the form o f bars, a n d t h e exports o f gold, execpt t o
the Orient,
a r e almost always
Governor McDougal.
i n Coins
I n what form does i t g o t o
ganada?
Mr, Harrigon.
in c o i n t h a t
I + i s ali coin. T h i r t y - o n e million
w e have taken o u t
o f our cash
i n N e w York.
Governor M c D o u g a l s A n d t h e imports a r e a l l bars?
Mr. Harrison.
w a r s , yese
Governor McRougal.
W h a t causes t h a t movement o f
gold t o Canada?
Mr, Harrison.
T h e oxplahation that w e make f o r i t i n
Ney Y o r k i s thet there h a s been a certain amount o f wheat
purchases
i n Canada which h a s affected t h e exchanges a n d
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Federal Reserve Bank of St. Louis
241
is being made through oxporting c o i n rathor t h a n
purchaging Canadian dollars.
The Chairman.
I f it has not been done I suggost that
the t a b l e t h a t y o u h a v e p r e p a r e d b e g e n t t o e a c h o f t h e
regerve banks, a s they c a n judgo tneir o w a position i n relation t o that o f t h e othor banks f r o m that table.
will b e glac t o d o that.
Mr, Harrisone I
Governor Fancher.
payments."
T h o t o p i c reads “Cold holdings
T h e r e i s nothing t o indicate t h e payment that
Mr. H a r r i s o n h a d i n mind.
Mr. Harrison. W h o n that was put o n the program
I had i n mind particularly t h i s fact.
h
e Treasury i s now
They
printing g o l d certificates o n a m u c h larger basis.
have o s t i m a t e d t h e a m o u n t t h a t t h e y w i l l p r i n t b e t w e e n n o w
They
and t h e e n d o f t h e f i s c a l y e a r , t h a t i s n e x t June.
have asked a l l c f the reserve banks t o estimate w h a t willbe
the amount o f payments o f gold cortificates between n o w
and t h e e n d o f June.
A l l t h e banks have sent i n quite
substantial ostimates, a n d the Treasury has made a n a l l o t
ment
o f the n e w certificates
t o each bank somewhat
pasis o f t h e e s t i m a t e s t h a t h a v e b e e n submitted.
of f a c t t h e r e p o r t s
o f payments
o n the
A s a
b y t h e reserve banks
matter
do
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Federal Reserve Bank of St. Louis
248
not seom quite t o gibe with t h e estimates t h a t were submitted, a n d ,
o n a
careful a n a l y s i s
as though some o f the b a n s ,
are really doing what I
o f t h e situation,
i t looks
i n the guise o f making payments,
have referred t o a moment a g o ~--
puilding u p t h e i r s u p p l y o f certificates.
T h a t i s about
the Treasury policy, a n d the policy o f some o f t h e resorve
banks,
t o t r y a n d maintain
i n circulation approximately o n e
billion dollars in: gold cervificatese
I
t may b e difficult
for u s t o d o that i f some o f t h e Danks t a a t have estimated
going
certain amounts o f payments i n gold ‘certificates a r e
new certificates a n d put them i n thoir vaults
rather t h a n t o give them t o those banks t h a t a r e actually
putting t h e m into circulation.
T h a t perhaps i s a matter
betyeen those reserve banks and the Treasury, b u t w e aro
falling bohind already because w e are not gotting from the
Treasury a S many n e w certificates
a s w e really should i n
order t o maintain t h e circulation a t the billion dollar
figure «
The Chairman.
reserve a g e n t s w o u l d
M r . Harrigon reminds
m e t h a t t h e Federal
i k e t o h e a r Mr. D e w e y ,
a n d w e have
deferred that. m a t t e r t h e r e f o r e u n t i l t h e J n i n t Confnprencee
That will permit us to go ahead with our program, and without
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Federal Reserve Bank of St. Louis
243
objection that course w i l l b e pursued.
The n e x t t o p i c i . t h a t w e s h o u l d c o n s i d e r
i s 5-B;
Should n o t t h e T r e a s u r y D e p a r t m e n t a b s o r b t h e c o s t o f t r a n s -
ferring O m e dollar bills f r o m o n e Federal Reserve B a n k t o
another.
I understand t h e motion,
b y G o v o r n o r Balloy,
i s that
the Gonference concus i n the recommendation o f the Currency
Committee with regard t o this matter.
Governor Young. I
will second t h e motion.
(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 c a r r i e d . )
Tho Ghairman. T h a t brings u s t o Division I V of the
program, oporation and administration, a n d we Wil take
up t o p i c r l .
Am Te C o m m i s s i o n s chargod o n bilis a n d
cortificates bought for foreign banks.
I have a
Harrigon
momorandum
t o read,
o n that which I
will a s k Mr,
i n o r d e r t o s a v e m y voice.
f
ft e
e S e
Mr
, Harrison:
i
a
e
e j
I+ t
that the Conference
is suggested
t
review t h e p r e s o n t s c h e d u l e
o f commissions charged t o
foreign correspondents f o r the purchaso o f bills and
treasury certificates with a view t c determining whether
4+ w o u l d b e a d v i s a b l e
t o r e d u c e t h e s e commissions.
T h e y
were a d o p t e d s e v e r a t y e a r s a g o w h e n t h e v o l u m e o f business
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Federal Reserve Bank of St. Louis
was m u c h s m a l l o r t h a n a t present,
a n d bofore
e44
w o were able
5
to detormine w i t h accuracy t h e cost o f buying, holding a n d
collecting t h e bills a n d certificates.
A further reason f o r consideration o f the matter a t
this t i m e i s the fact that o n e o f our foreign correspundents
(Tae Swiss National Bank) h a s suggested a
reduction i n the
commisgicn o n billg f r o m 1/4 p e r cent t o 1/8 per cent per
ANNUM e
T h e y g a y t h a t other N e w Y o r k yanks b u y DiLts
o r
them without charging a commission a n d aiso that t h e Bank
England buys f o r them without making and such chargee
shis connection, however,
I n
i t should b e mentioned that t h e
other N e w York banks a n d the Bank o f England require m u c h
larger uninvested balances t h a n w e d o and g e t remuneration
for t h o i r s e r v i c e s
i n t h a t way.
S i n c e a n uninvested balance
is o f Little u s e t o u s becauso o f the small percentage o f
our deposits which m a y b e considered a s boing employed,
we
have asked t h e foreign banks t o keep o n l y nominal f r e e
balances w i t h us, a n d have sought remunoratilon f o r o u r services b y means o f a commission sharge.
For t h e f i r s t s i x m o n t h s o f t h i s y e a r t h e c o m m i s s i o n
charged o n bills bought f o r foreign banks aggregated
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Federal Reserve Bank of St. Louis
245
holding and collecting these bills was 57000 exclusive o f
overhead. C o m m i s s i o n s , therefore, w e r e about seven a n d a
half times the actual out-of-pocket cost o f performing the
services which would make t h e cost o f handling t h e bills
about one-thirtieth o f 1 per cent per annum.
T a k i n g similar
figures f o r t h e 1 5 months f r o m January 1 , 1924, t o June 30,
1925, t h e actual out-of-pocket c o s t was about one-~twenty-fourt:
of l per cent.
T h i s compares w i t h t h e commission o f one-
fourth o f 1 per cent o n bills which leaves a considerable
margin a s compensation f o r our guarantee a n d agreement t o
discounte
W i t t h respect
t o Treasury certificates t h e c o s t
of handling t h e m i s negligible,
s o that practically a l l o f
the c o m m i s s i o n o f o n e - e i g h t h p e r c e n t p e r a n n u m m a y b e c o n -
sidered a s applying against our undertaking t o buy back
the certificates ( w e d o not guarantee payment o f Treasury
certificates a s we do bankers’ bills).
In view o f the fact that w e d o not seek t o make large
profits from our business with foreign banks, b u t rather
perfcrm gervices f o r them f o r other Lroader a r d more i m portant reasons,
i t i s suggested t h a t consideration b e given
to the following recuctions
i n the commissions charged t o all
Ve F o r purchase o f bankers’ acceptances w i t h o u r
guarantee o f payment a t maturity, a n d o u r agreemont t o buy
back a t any time before maturity - - reduction f r o m 1 / 4 o f
p e r c e n t p e r a n n u m o n t h e f a c e amount.
L per cent t o 1/8 o f 1
Be F o r purchase o f United States Treasury certificates o f indehtedness a n d United States Treasury notes (with
a m a t u r i t y n o t e x c e e d i n g o n e year) w i t h o u r a g r e e m e n t
t o buy
‘back a t any time before maturity -~- reduction f r o m 1/8 o f
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Federal Reserve Bank of St. Louis
1 per cent t o 1/16 o f 1 per cent per annum o n the face amount.
Se F o r purchase o f bankers' acceptancos wituout o u r
guarantee
o f payment o r agrecment
t o b u y p a c k - - retuction
from 1/3 o f 1 per cent t o 1/16 o f 1 per cent p e r annum o n
the face amount.
4s F o r purchase o f United States Treasury certificates o f indcobtedness a n d Treasurzy n o t e s w i t h o u t a g r e e m e n t
to
buy back -- reduction from 1/16 of 1 por cent to 1/32 of 1
per cent p e r annum o n the faco amount, comaission o n treasury
notes running longer t h a n o n e year not t o oxnesed charge f o r
one year.
(No commissions are charged t o the Bank o f England. )"
The Chairman.
I
t may b o that i f this i s dono a n d
ae
approved,
t h a t i t w o u l d b e desirablo f o r u s t o a s k that t h e s e
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Federal Reserve Bank of St. Louis
247
balance i s
payments b o somewhat inereasod, n o t because t h e
a profit t o us,
any profit t o us, bocause i t i s really n o t
put all o f this
but i n order that v o may n o t b e obliged t o
a i n i n t o t h e market.
money b a c k a g oS
T h e fa
afc
9 t is,
aJ s y o u h a v e
o f establishing
heard m e s a y before t h e “ultimate object
these r e l a t i o n s
i s t o enable u s tltimately
t o h a v e a n under-
back t o the gold
standing with these banks when they got
standard
influence
s o that w e h a y have g o m e reasonable
w h i c h will b e done,
upon t h e extent o f t h e gold movement,
oach
by t h e u s e o f balances nmeaintained b e t w e e n
other when such
other a n d t h e purchase o f bills f r o m each
i s not going t c b e
a course seems t o b e indicated; a n d i t
a very slow development.
B u t i n the meantime what i s happen-
w h o aro doing busiing i s that the foreign banks o f issue,
Loddon are using these
ness v i t h u s ancia similar business i n
accounts a S g o l d exchange standard accounts;
are using t h e m t o maintain their exchange,
t h a t i s they
a s they accumulato
then they invest
the gold that iss corttedtad<intto dollars, a n d
the dollars here.
O n e o f our largest accounts i g with a
standard
foreign bank that has Similar accounts i n gold
p o r t folio concountries w h e r e p r a c t i c a l l y t h e i r e n t i r e
gists o f b i h l s b o u g h t a b r o a d .
T h e y h a v e n o demand f o r
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Federal Reserve Bank of St. Louis
money a t home a t all.
L will s a y t h a t o u r p o l i c y h a s b e e n a
little d i f f e r -
T h e Bank o f England
ent from that o f tho Bank o f England.
exhas been endeavoring t o secure arrangements w o i c h are
clusive w i t h t h e nower banks o f issue, t h o s e which have
been r e v i v e d g l n c e t h o w a r a n d p u t o n t h e i r f e e t ;
are i n s i s t i n g u p o n a n a r r a n g e g o m e n t
they
b y which t h e Bank o f
England does a l i o f their buginess i n the London market;
they have n o other connections, a n d vice versa.
Bank o f England does anything outside,
C e Ge
a s yith us, t h e y
would o n l y d o i t through t h o bank o f issue o f that country.
That arrangement i s not capable o f application t o some o f
the older banks which have old, w o l l established connections
in London, a n d some o f which have o l d and well ostablisned
connections i n New x X
T
e d o not want t o assume a n arbi-
trary position a n d insist upon those exclusive arrangements,
because i t willarouse t h e animosity o f the member Sanks, a n d
furthermore b e c u u s e t h e r e a r e s o m e t h i n g s
L a t t h e y wiello n e e d
to have done f o r them i n New Yors which, u n d e r t h e law, w e
cannot do, a n c with regard t o which they would naturally
need other banking facilities.
T h e Bank o f “nglanc, a s a
matter o f fact, does buy bihls under these exclusive arrangements w i t h o u t a n y c o m m i s s i o n w h a t e v e r a n d r o g a r d s t h e
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Federal Reserve Bank of St. Louis
249
t o thom.
balance a s c o m p e n s a t i o n
to charge a
W
e have felt that w e had
commission because t h e balance would b e n o
compensation t o us. I
am <ather i n favor o f roducing this
charge, b u t ondvavoring a t whe same time t o somewhat i n croase t h e m i n i m u m b a l a n c e s t h a t t h e y a r e e x p o c t e c
t o carry
With us.
Governor Fanchcr.
D o y o u make a
charge f o r carmarking
gold?
The Chairman.
W e d o i n thoso cases where w o haven't
a commission arrangement a n d a n account. ‘ W h e r e w e have i t
soems t o justify doing i t for nothing in=those cases wiere
we have oarmarked gold i n any gausiderable quantity.
instance,
F o r
w e havo h a d a large amount o f gold f r o m t h e
Rei chsbank a n d w e have made n o charge becauso t h e y carried
an immense balance w i t h u s all t h e time.
I f I had not been
abroad this summor I would have suggested before this a some~
what e x t e n s i v e r e a r r a n g e m e n t
o f t h e s e matters.
F o r instance
there a r e o n e o r two accounts w h i c h w e have n o t been dividing
among the other reserve banks, a s i n tho case o f the Bank o f
England, becausc,
in L o n d o n f o r a
a s I have said, w e have a nad 2 balance
long t i m e a n d t h e depreciation
i n sterling
would have resulted i n a lag@ge loss t o the N e w York Bank,
N o w that sterling
tf we had divided i t u p at the low valuo.
is back again a n d i s being maintained,
Level w h i c h n o t o n l y i m p o s e s
s o t o speak,
ata
n o L o s s o n uS; b u t g i v e s u s
a profit o n the account, inasmuch a s t h e Bank o f Bugland
now a t t i m e s i s c a r r y i n g v e r y l a r g e b a l a n c e s w i t h u s i t
seema t o m a t h e t i m e h a s a r r i v e d
t o effect a
of that account a s w e have o f the others.
ble t o d o i t without o u r standing a
Governor Young.
distribution
I t was n o t possi-
pretty b a d loss before.
M r . Ghairman, I
move that t h e action
suggested i n the report o f the Federal Reserve B a n k o f New
York b e approved.
The Chairman.
is.
W
W e understand w h a t t h e responsibility
e a r e b u y i n g bills e v e r y d a y f o r a l l o f the Federal
Reservo B a n k s
i n N o w York.
T h e bills t h a t w e b u y f o r t h e
other F e d e r a l R e S o r v e B a n k s a r e t h e v e r y b e s t b i l l s t h a t
are i n the market, a n d w e are very careful,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a s careful a s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
we c a n b e i n buyiag then.
other F e d e r a l R e s e r v e banks,
W e cdo not guarantee t h e m
b u t w e checx t h e m u p and
that they are domestic bilis, a n d w e c a n furnish information a b o u t t h e m i f a n y b o d y i n t h e S y s t e m w a n t s Wert l e i s
identically t h e s a m e k i n d o f p a p e r t h a t w e b u y f o r
foreign banks.
A s a matter o f fact i f W e d i d not buy the
paper t h e y h a v e i t y o u l d a u t o m a t i c a l l y c o m e i n t o u s f o r dis-
tribution t o the other federal reserve banks.
operation
I n practical
i t would n o t increase t h e responsibility
i f w e did
guarantee t h e bills, because i f we did not buy them from the
othor b a n k s
escape it.
banke
w o w o u l d b u y t h e m f o r ourselves;
w e could n o t
I t i s just t h e ordinary f l o w o f bills i n t o t h e
W e ondeavor t o fill the nveds o f the foreign banks
for bills,
a s distinguished f r o m Treasury certificates,
by
giving them bills out o f our own port folio, i n order t o
reduee t h e p o r t f o l i o
o f t h e N e w Y o r k bank.
how a S t o t h e T r e a s u r y c e r t i f i c a t e s w h a t w e u n d e r t a k e
to d o igs n o t t o g u a r a n t c e t h e p a y m e n t
o f t h e certiticates,
put where t e foreign banks, f o r instance, m a y i n some
short noticc retire funds,
w e undertake t o buy nevortiiobes
at the market a t the time, b u t d o not undertake t o guarantee
the p r i c e
o r anything
o f that sort, a n d i f t h e y w a n t t o c a s h
them w e s a y t h a t w e a r e a l w a y s r e a d y t o b u y b a c k t h o s e
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Federal Reserve Bank of St. Louis
258
certificates t h a t w e b u y f o r them a t tho market price a t
the moment t h e y want t o sell them. T h a t does n o t apply t o all
of them b y a n y means, because m a n y o f them b u y thom with a
maturity date fixed t o suit their convenience, a n d w e assume
no responsibility whatever.
Governor Norris.
Y o u have nover h a d a difference
in commission, w h e r e there w a s o r was not a guarantee o r
agreement
t o rebuy, h a v e y o u ?
we have.
W e have always h a d
a differenceeIn o n e case i t was one-quarter o f 1 per cent
and i n the other one-oighth, a n d w e have considered making
it one-eighth a n d one-sixzteenth.
I would like t o explain later,
T h e reason w e d o this
i f you approve o f doing it.
Of course y o u understand w o make n o arrangement w i t h a n y
bank o f issue o f this character where t h e y d o not agree t o
do for us every single thing that w e agree t o d o for thom.
It i g completely reciprocal i n that respect.
ask u s t o charge a
commission below what t h e y Would charge
us and assume a n y greater responsibility t h a n they would
assume t o US.
Governor Talley. I
will s e c o n d G o v e r n o r Y o u n g ' s
motione
(The motion having been duly seconded, w s carried.)
(Whereupon a t 6 o'clock p . m., t h e Conference o f
Governors adjourned until Wednesday, November 4 , 1925, a t
LO o'clock a s me)
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Federal Reserve Bank of St. Louis
P e t a Dp A Y
Wednesday November 4, 1925.
The Conference o f Governors m o t pursuant t o adjournment o f yesterday a t 1 0 o'clock a » me, i n the main r o o m o f
C
e
D
the Federal Reserve Board, Treasury Building, W a s h i n g t o n , APPEARANCES:
(The same a s noted i n yesterday's record)
EEDIN
The Chairman. T h e mocting will piease come t o order.
We w i l l t a k e u p f i r s t T o p i c 4 - K .
Lom K R e p o r t o n Foreign Accounts.
(The report referred t o is as follows:
= )
e
@
REPORT FOR GOVERNORS! CONFERENCE - NOVEMBER 1925
PERIOD SINCE LAST CONFERENCE
STATEMENT O F FOREIGN R A N K ACCOUNTS COVERING
BANK ACCEPTANCES
Bank of Japan
of B a n k of
De Nederlandache D e Javasche S w i s s Natl. Bank
B a n k E n g l a n d F r a n c e B a n k Polski
B
B a n k
a
n
T o t a l s
k
$2,000,571-21 $50,455,429.49
Close o f Business
$8 445,240.88 0 0
7$35, 952,506.50 $5,562,526.
0
OnHand 3/31/25 $2,515,590.9
.
9
5 38,479,753.12 1 5 354, 637-52 22,843 ,809.00 0
0
B
G
, 211,441.59
9 , 0 3 3 , 2 4 1
Purchased _
: 1 0 0 , 244,935.93
Matured o r Discourt-
36,421 ,935-15
7 , 0 1 9 , 6 5 6 . 7 2 56,952,357-91
ed ;
OnHana 1729/25 4,529,176.42 13,458,895.71
U. § . CERTIFICATES O F INDEBTEDNESS
1 ,400 ,000.00
$
Gerpral for Reparation Payments,
Gold Collateral
Maturity Date
To
Bankovii Urad Ministerstva
$
Financé, Prague,
k
Polski, Warsaw,
n
a
B
3
N
3 ,000 ,000 .00
3
0
0 ,000.00. ]
o
A
m
o
u
n
H
t
e
d by
l
147.28 N a t i o n a l Bank of Belgium
. 30, 1925 $ 1 1 , 1 0 9 ,
6-6 B a n k of England
N o v e 25, 1925
v
“$6,300, 000.00
$14,260.00
De Javasche Bank,
Bank o f t h e Republic, Bogota,
1
,
Swiss National Bank, Berne, 9
0
0
0 ,000.00
554,965.90
$11, 369,225.90
N. B. of Bk. o f 2Bgtofen.
Nederlandsche
N . B . o f Bk. o f B k . of f o r Rep. o f Col. Polski Totals
S w i s s
Nederlandsche
n k o v n i B e l g i u m England France Paymts.
(25-41
Bk. of Japan B a n k J a v a s c h e Bk. N . B . B a$101,152.52
FO. $ 0 $457,282.48 957,247.34 $511 ,Bb1.G2$9588.0592256 P47 25
2396
$249,208.57 $250,712.59 $98,850.42
Close 3/31/25 $500,529.54
660,364.72 100,159.63 585.14.
* 10/19/25 505,241.86 250,262.69 250,776.80
P
R
TOTAL COMMISSIONS EARNED
t 10/19/25 ipod ygs yg or
From 4/1/25o
Bankers
Rep.Paymts.
DeNederlana- Bank of_Javasche Bk. Swiss N.B.
sche Bank J a p a n
$13, 731-85 a 0
Acceptances $21,430.03 $ 5 ,025.81 $3,959.24
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Federal Reserve Bank of St. Louis
6 6 . 2 8 32,338.15 495 2244.09 1010.36
E
P
B
A
A
T o t a l s
$49 »246 °9l
R
N
2
0
E
D BY FEDERAL RESERVE
K OF NEV YORK, October
, 1925.
e
e
258:
I made a
gtatement o n this subject yesterday, a n d
when w e c o m e t o d e a l w i t h a c c o u n t s t h a t h a v e n o t b e e n d i s - —
tributed, a
mail.
T
subsequent w e p o r t w i l l h a v e t o b e m a d e b y
t cannot b e d e a l t w i t h h e r e b e c a u s e
quire the preparation o f figures.
i t will r e -
h e question arises
whether a n y o n e needs a n y further light o n this report.
Governor McDougal. +
d o not think this requires
any action.
The Chairman.
N o , bhdé report h a s been filed i n the
record i n t h e u s u a l c o u r s e .
T h o n o x t t o p i c i s 4-L.
4—Le R e p o r t o f Sub-committes o f General
Committee o n B ankers a c c e p t a n c e s .
The r e p o r t r e f e r r e d t o i s a s follows:
REPORT O F THE SUB-COMMITTE: O F THES GEND RAL
COMMITTES O N BANKERS ACCEPTANCIS T o T H E
GONFERENCE O F GOVERNORS, NOVEMBER 2,1925.
Your S u b - C o m m i t t e e p r e s e n t s a
report a n d recommenda-
tiong o f a Special Committee o f the American Acceptance
Council,
i n regard t o the law, regulations a n d rulings
affocting the use o f acceptance credit i n domestic transactions.
Tie C o m m i t t e o
o f the American Acceptance Council
whose report i g submitted i s composed of:
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Federal Reserve Bank of St. Louis
206
Mr. E . OC. Wagner, President, Discount Corporation,
New York, Chairman,
Mr. L e S - Tiemann, V i c e Pres., American-Exchange
Pacific N/B., New York,
Mr. Howard Sache, o f Goldman, S a c h s & Coe, N e w York,
Mr. H . G e P. Deans, Vice-President, Illinois Merchants
Trust Coe, Chicago,
Mre W e S e MeLucas, President, Commerce Trust Co.,
Kansas City, M o e
and has, a S e x officio and advisory members o f the committee,
Mr, P a u l M . Warburg, N e w York, a n d the members o f your
gub-committee, namely:
Mr.
C e
R e
McKay,
C h i c a g o ,
Mr. W . W e Paddock, Boston,
Mr. F e J . Zurlinden, Cloveland, a n d
Mr. E . R e Kenzel, N e w York.
At a meeting o f the Special Committee o f the American
Acceptance Council h e l d i n New York o n October 5 , 1925, a t
which t h e conclusions reported w e r e reached, t h e Committee
was joined and assisted b y Mr. Fred I. Kent, Mr. Alfred Swayne,
and Mr. J e r o m e Thralls, m e m b e r s
Committee
o f t h e Policy a n d Operations
o f t h e American Accontance Council.
A l l members
of t h e s p e c i a l c o m m i t t e e w e r e p r e s e n t e x c e p t i n g Messrs.
Deans and McLucase
embodied
T h e conclusions o f the Committee,
i n t h e report hereto attached,
w e r e arrived a t
unanimously b y a l l o f t h e g e n t l e m u n present,
a n d havo
since been approved i n writing b y Messrs. Deans and McLucas.
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Federal Reserve Bank of St. Louis
255
Under these circumstances, o a c h member o f your subcommittee h a v i n g p a r t i c i p a t e d
in t h e c o n c l u s i o n s
ance Council,
i n t h e discussions a n d concurrod
o f t h e Committee
o f t h e American Accept-
t h a t r e p o r t r e p r e s e n t s t h e i r views,
and it is
accordingly a p p e n d e d h e r o t o a s t h e r e p o r t o f y o u r subcommittee,
with i t s r e c o m m e n d a t i o n f o r f a v o r a b l e c o n s i d e r a t i o n b y t h e
Conferences
Respectfully submitted,
E. R. Kenzel, Chairman.”
Governor Young. I
move t h a t t h e r e p o r t b e a p p r o v e d
by t h e C o n f e r e n c e s
Governor Galkins. I
The Chairman.
second t h e motion.
Y o u will find attached t o the report
copy o f a c o m m u n i c a t i o n a d d r e s s e d
in t h e l a s t t w o p a r a g r a p h s
paragraph
t o Mr, F r e d I . Kent,
and
o n tne first page a n d t h e first
o n t h e s e c o n d p a g e y o u w i l i f i n d t h e i r conclusions.
Governor Fancher.
I n tne last paragraph they say,
"The opinion w a s oxpressed t h a t t h e Acceptance Committee
of the twelve Federal Reserve Banks could properly d r a w
up a set o f principles t o b e used i n connection w i t h
domestic acceptances a s a guide i n determining thsir
eligibility."
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Federal Reserve Bank of St. Louis
The Chairman.
I
f w e approve t h e proposals
i n the
a n d the first
last t w o paragraphs o n tho first page
paragraph o n the second page,
i t will permit u s t o advise
their proposals
Mr. K e n t that w e are prepared t o consider
s o move Mr. Chairman.
Governor Fancher». I
will socond that.
Governor Younge i
carried.) /
motion havingro) been duly seconded was
The Chairman.
Governor Seay.
T h e next tupic i s 4-H.
that
I t has been suggested that
Meetings
bo deforred until t h e Joint Conference
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Federal Reserve Bank of St. Louis
The Chairman.
V e r y well, t h e n w e will take u p 4-N.
Standardization
4—N e R e p o r t o f C o m m i t t v e o n
and P u i c h a s e o f Supplies.
report from
I understand thore i s nothing new t o
that Committoe.
The n e x t
40»
Governor MzDougal.
Aommittee
i s a s follows:
“mq the Gonference o f Governors:
Two m a t t e r s w e r e s u b m i t t e d
mittee f o r i t s c o n s i d e r a t i o n
t o the Leased Wire Com~
b y t h e Conference
o f Governors
held i n April, 1 9 2 5 , w i t h r e s p e c t
the Gommittee, I
a m pleased
t o which,
o n behalf o f
t o r e p o r t a s follows:
Topic No. l . S h o u l d Federal Banks pass o n t o the
requesting member banks t h e cost o f
telegrams s e n t over commercial wires
representing transfers o f funds when
the leased wires a r e unavailable
because o f gtorms o r other interruptions?
The Loased Wire Committoe's report t o the Govemors’
Conference i n M a 1? 9? 2 4 , i n c l u d e d a
firm recommendation t h a t
the cost o f telegrams o f the charactor referred t o should
be charged t o the member bank from which t h e request w a s
‘ T h e r e c o m m e n d a t i o n w a s approved,
receivod.
of f a i l u r e
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Federal Reserve Bank of St. Louis
o n t h e part o f sume o f t h e reserve banks
proceed accordingly,
for d i s c u s s i o n
Committee.
b u t because
to
t h e question w a s a g a i n brought
a t t h e last Conference
a n d sent back
Y o u r Committee h a v i n g again considered
matter, finds n o reason f o r changing i t s former recommend-
tion, and consequently, reiterates t h e original recommendaGLO s
Topic No. 2 e T h e question o f reimbursing t h e Federal
Reserve Bank o f New York f o r the ex-.
pense involved i n telegrams sent over
the leased wires a t the request o f and
for t h e s o l e b e n e f i t
o f other Federal
reserve banits.
Your Gommittee w a s requested t o make a study o f the
allocation o f the expense o f sperating t h e Leased Wire
System with a view t o determining whether t h e basis o f
charges i n proportion t o the number o f words s e n t should
be changed s o far as i t relates t o certain telegrams forwarded b y t h e F e d e r a l R e s e r v e B a n k o f N e w Y o r k f o r t h e
account o f and a t the request o f other Federal Reserve
Banks.
I t was also understood that t h e Committee would
undertake t o ascertain whether t h e receiving reserve banks
care t o have omitted a n y o f those telegraphic advices f r o m
New York.
A questionnaire was accordingly addressed t o each o f
tho Federal Reserve Banks f o r the purpose o f ascertaining :
ie T o t a l numbor o f words contained i n telograms
dispatched b y New York solely f o r the benefit o f t h o receiving Federal reserve banks during t h e month o f April.
we h e t h e r a n y o f the messages involved could b e
shortened
o r discontinued.
Se N u m b e r o f words contained i n telegrams s o n t b y
each F e d e r a l R e s e r v o B a n k t o t h e F e d e r a l R e s e r v e B a n k o f
New York during the month o f April for the sole benefit o f
he New York Bank.
4. W h e t h e r e a c h bank would b e willing t o make reimbursoment f o r t h e cost o f telegrams o f the character referred
to r e c e i v e d f r o m N e w York.
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Federal Reserve Bank of St. Louis
e261
that a
of t h e r e p l i e s r e c e i v e d d i s c l o s e d
i n telegrams received
total o f 40,151 words w a s involved
reserve banks f r o m N e w York
during A p r i l p y a l l F e d e r a l
banks; t h a t i n
sololy for the benefit o f tue receiving
approximately 1,600
the same period telegrams involving
t h e F e d e r a l keservse p a n k s
words w e r e s e u t b y f o u r o f
York f o r its sole benefit.
t o New
T r e remaining seven banks
this character t o New York
stated t h a t their sendings o f
were o f n o consequence.
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Federal Reserve Bank of St. Louis
i n favor o f
Replies also contained suggestions
a n d t h e briefing o f others
eliminating s o m e o f t h o messages
the elimination o f
through the uso o f the code and
unnecessary w o r d s e
A l l banks expressed willingness
t o
f o r messages o f the
bear ‘their proportion o f the expense
character under consideration.
R e s e r v e B a n k s o f CleveA.count m a d e b y t h e F e d e r a l
their 'Daily Call Money
jand and Ghicago disclosed that
received f r o m New Yerk
and Market Condition’ telegrams
p e r c e n t o f t h e t o tal
represented a p p r o x i m a t e l y f o r t y
messages o f the class
number o f words contained i n the
involved, r e c e i v e d
b y theme
One b a n k e x p r e s s e d i t s d e s i r e
contannort: without modification.
t o h a v e t h i s advices
Two banks favored i t s continuance, b u t with s o m e
of the material omitted.
Light banks expressed either a willingness er.a d e gire that t h e advice b e discontinued.
F o u r o f these
banks desired t o b o advised o f changes i n buying rates a n d
of special matters.
The foregoing information was communicated t o the
Federal R e s e r v e B a n k o f N e w Y o r k e
T h e requests h a v e b e e n
complicd with i n s o f a r a s i s practicable,
W h i l e a material
reduction i n the number o f words h a s ensugd, t h e expense
involved, according t o advice received from the Federal
Reserve B a n k o f New Yerk, still represents a
substantial
figuro, a n d therefore, your Committee recommends:
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Federal Reserve Bank of St. Louis
That t h e Federal Reserve B a n k o f New York b e reimpursed f o r the expense involved i n telegrams s e n t over
the leased wires a t the request o f and for t h e sole benefit
of other Federal reserve banks.
If the Conference concurs i n this recommendation,
it i s suggested t h a t t h e Federal Reserve Bank o f New York
in making i t s monthly report t o the Federal Reserve Board
ef t h e total number o f words s e n t over t h e Leased Wire
System, a c c o m p a n y t h e s a m e w i t h a
supplomentary report
of t h e n u m b e r o f words i n c l u d e d t h e r e i n s e n t t o e a c h o f
the other Federal reserve banks f o r their sole benefit.
In apportioning t h e expense t h e Federal Reserve Board will
then make d u e allowance i n favor o f the N e w York bank a n d
will distribute the expense imvolved equitably among the
Federal reserve panks f o r whose s o l e benefit t h e messages
were Sent.
Respecttully submeétted,
(Agd) J . B. McDougal,
Chairman,Leased W i r e Committee."
move that t h e report b e adopted.
Governor Seay. I
Governor Talley.
T h e r e i s one thing I
wanted t o
d o not remembor n o w whether
say i n t h i s connection. I
it
ig i n this report o r not, b u t w e have h a d some difficulty,
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Federal Reserve Bank of St. Louis
if not embarrassment,
i n reference t o conditional trans-
fers.
Governor McDougal.
T h a t is not i n this report and
is not referred t o e
The C h a i r m a n
I
t was n o t referred t h i s Committee
at t h e l a s t G o n f e r e n c e r
Governor Talley.
I a m raising t h e point a t this
time, because t h e motion n a s been put, a n d I did not want
to s p e a k o f i t after t h e v o t e h a d b e e n taken. I
just w a n t e d
to make a n observation i n reference t o the transfers. I
aggumed t h a t t h e y w e r e c o v e r e d
i n tne Leased Wires Com-
264
mittee's r e p o r t .
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Federal Reserve Bank of St. Louis
n reference
I
t o conditional
w i r e s a s k i n g(on)
the transfers, t h e y m a y recite a number o f conditions a n d i t
makes i t ratther a n awkward situation f o r a bank t o attempt
to act o n the transfors because there seems t o be a good
deal o f responsibility about it.
I t seems t o m o that the
i f i t has n o t been heretcfore referred t o that
subject,
Committee,
o r t o whatever Committee handles t h e transfer
questions, s h o u l d b e reforred t o a Committee.
B u t that has nothing t o d o with
Governor McDougal.
this rcoport.
The Chairman.
I t i s simply a topic relating t o wire
transfers t h a t y o u w o u l d l i k e t o h a v e r e f e r r e d t o a
for investigation,
Committeo
i s that it?
Governor Talley.
T.o
ia C h a i r m a n .
Y e s
T h Pe n w i l l
Govermor T a l l e y .
lease o f f e r a
y o u pp
resolu-
Y o u m a y proceed w i t h action o n
this, a n d I will try t o find a momorandum that 1 have o n
it here.
Tre Chairman.
T h e n w e have before u s t h e motion o f
Governor S e a y t o approve t h e Leasod Wires Committee report.
Governor Norris. I
will second that.
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Federal Reserve Bank of St. Louis
265
Governor Young.
W i t h rogard t o Topic No. 1
report " S h o u l d F e d e r a l R e s e r v e b a n k s p a s s
in t h a t
o n t o the roquesté&
ing member banks t h e c o s t o f telegrams g e n t over commercial
wires representing transfers o f funds w h e n t h e leased
wires a r e unavailable because o f storms o r other interruptions,"the Committee recommends t h a t they d o pass t h a t
One
I t geems t o m e that would bring about a n awkward
situation.
suggest t h a t y o u read the
Governor McDougal. I
collateral recommendation i n regard t o that.
Governor Young.
L l have r e a d i t , b u t i t j u s t s a y s
that you have considered it.
Governor McDougal.
W
e have reconsidered i t .
W e
considered t h a t long ago a n d made o u r recommendations t o
this body.
T h e y w e r e approved,
D u t a s t h e procedure
i was again referred
has n o t been adopted b y the b a n k s t
to the Committee a t the last Conference a n d w e have made
our recommendations again.
Govemor Younge I
mendations I
am just questioning t h e recom-
do not think 1 4 i s t h e fault of-our member
banks w h e n o u r w i r e s a r e down.
Governor McDougal.
D
o y o u think w e ought t o make
266
i l e i b l i c wires i f w e have
transfers a t our exponse 3
no w i r e s y s t e m o f o u r o w n ?
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Federal Reserve Bank of St. Louis
we did not
wire s y s t e m ?
Govemor McDouga-t.
N o , i
Govemmor Y o u n g e
it i g o n l y f o r a
Yose
period o f a
wold
nos
t e
S O eisues
d a y o r s o m e t h i n g like t h a t
I suppose t h e r e h a v e n o t b e e n o v e r f o u r o r f i v e d a y s i n
the l a s t t h r e e y e a r s w h e n t h o s e w i r 3 s h a v e b e e n o w n ?
Governor McDougal.
V e r y seldcm.
T h e n w h y n o t absorb t h a t
Governor Young.
charge?
The Chairman.
A s Governor Young i s unable t o voto f o r
the report a s a whole,
w e will have t o take i t u p i n sections.
There a r c o n l y t w o sections.
W h a t i g your motion a s t o
Topic 1, Governor Young?
Governor Young. I
move that t h e F e R e s e r v e
banks absorb t h e cost o f telegrams s e n t over commercial
wires representing transfers o f funds w h e n t h e leased
wires a r e n o t a v a i l a b l e b e c a u s e
ruptions » I
understand
o f storms
i t j u s t applies
and d o e s n o t a p p l y t o a n y t n i n g else.
o r other intert o bank balances
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Federal Reserve Bank of St. Louis
Oe
W o u l d y o u b e willing t o p u t that i n
Governor S e a y e
the form that they b e given t h e discretion o f absorbing i t ?
Governor Young.
Yese
will second t h o motion.
Governor Harding. I
The Chairman.
T h e motion i g that i t b e left t o the
discretion o f each reserve bank act t o absorbing t h e cost
of making transfers o v e r t h e commercial wires when t h e
i s f o r a n y c a u s e interrupted.
leased wire, s e r v i c e
Governor Fancher.
passed, a
W o u l d that mean,
i f i t were
modification o f the leased wire regulations a s
put o u t ?
do not know.
The Vnairman. I
Mre Harrison.
I
g that i n the regulation a t t h e
present t i m e ?
Govermor McDougal. I
change
ite I
d o not think this v o t e would
think t h i s b o d y should
considering thise
b e very careful
i n
T h e Gommittee h a s congidered this
vhing, were have made our recommendation, a n d i t was
approved
at a
prior meeting, a n d ,
as I
have said, f a i l u r e
on the part o f the banks t o follow this procedure r e -
sulted i n the question coming back t o the Committee again.
The Chairman. T h i s was discussed a t great length
at the last meeting.
T h e r e must b e some reason f o r i t
Governor Youngs
coming u p againe
Governor McDougal. I
have stated the reason, because
the banits w e r e n o t f o l l o w i n g t h o p l a n v o t e d u p o n b y t h e
Cohnferonce-formerly.
T
t do n o t t h i n k i t l e 4
matter o f
extreme importance, a n d I do not think i t should have been
referred b a c k t o t h e Committees. i
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Federal Reserve Bank of St. Louis
think t h e l a s t C o n -
ference, however, g a v e orders t o t h e banks t o follow t h e
plan agreed upone
Governor §$eaye
L l have e x a m i n e d i n t o o u r c x p e r i e n c e
in t h e m a t t e r a n d f i n d t h a t i f w e h a d a b s o r b e d
i t i t would
charges amounting t o only a few
rave resulted i n absorbing
a
dollars.
T h a t m a y b e due t o t h e conditions i n our dis-
trict, which i s not subject t o extremes o f temperature
and s o forth. W h i l e w e are willing t o follow t h e recommendation o f t h e Comm:
left t o t h e discretion o f eac
(The motion being put b y the Chair
unable t o determine a n d a division being called f o r
seven Governors v o t e d i n favor o f the motion a n d four
against the motion, a s indicated b y their right hand,
4
and t h e C h a i r d e h l a r e d
t h e m o t i o n c a r r i e d . <}
269
Governor Scaye I
upon t h e s t a t e m e n t
a m willing t o vote f o r the motion
o f t h e Chairman o f t h e Committee t h a t
consequences
he does n o w regard i t a S a matter o f any great
t+
Governor MeDougal.
money expense.
I t does n o t involve a great
I t i s a matver o f principle.
W e felt that
our former recommendation w a s based o n conditions t h a t
justified it, b u t since t h e Conference feels t h e other w a y
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Federal Reserve Bank of St. Louis
Lam satisfied fModausel< d d d t o g e t i t off the slate.
T
The Chairman.
the report is:
e Second topic i n
h
" m e question o f reimburging the Federal
Reserve B a n k o f N e w Y o r k f o r t h e e x p e n s e i n v o l v e d i n t e l e -
grams s e n t over t h e leased wires a t the request o f and f o r
the sole benefit o f other Federal reserva banks."
Governor Young. I
move that t h e recommendation
of the Committee b e approved.
Governor Saay
S e c o n d t h e motion.
Tre Ghairman.
T h e intent o f the proposal i s that
wo s h a l l r e d u c o
t h e amount
o f wires
o f the character
dealt
with i n the socb&adisection o f t h e report a s much a s p o
Governor McDougal.
T h a t h a s b e e n dons.
right t o w o r k o n t h a t a n d q u i t e a
W
e wen
good d e a l h a s b e e n
accomplished, b u t there i s a considerable amount still
involved w
osed
here t h e o x p e n s e s h o u l d b e i m pie
o n the
other banks.
The motion having been duly scconded, w a s carried.)
would l i k e n o w t o r e f e r t o t h e
Governor Talley. I
to
matter I brought u p a moment ago, which I would like
have referred t o t h e Leased Wire Committee f o r interpretation a n d s o m e s o r t o f r e c o m m e n d a t i o n
s o that t h e liability
transfers
of the banks might b e defined i n connection w i t h
corporations
of the accounts o f individuals, f i r m s a n d
forth i n
which a r e payable under certain conditions s e t
the F e d e r a l
the telegrams, t h u s making i t nocossary t o r
Reserve b a n k s
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Federal Reserve Bank of St. Louis
t o properly construe t h e conditions s e t
forth, a n d i n some cases t o assume responsibility f o r
caso i n point w a s a request f r o m
their fulfillment. A
3 00
t o m a k e n taJy m e n t o f s o m e { 6 6 , 0
the P h i l a d e l p h
4 ia B a n k
o f some
upon receipt o f a favorable report o f appraisal
pankrupt's assets.
W e received t h e telegram a n d immediate-
t h e payment
Ly telegraphed Philadelphia t h a t w e would make
for t h e a m o u n t s p e c i f i e d
responsibility w h a t e v e r
i n the telegran without a n y
o n m y part.
W e thought t h a t these
orders s h o u l d b e d e f i n i t e a n d unconditional.
Govemor McDougal. 1
come t o o u r committee.
between o u r s e l v e s .
d o not think that that should
T h a t is a
matter t o b e s e t t l e d
ro
I t i s a matter o f banking adminis-
Governor Seay.
tratione
Governor Talley.
W e w o u l d b e roluctant
in the position o f refising t o execute a
me Chairman.
t o b e plaged
transfor.
D o y o u move, G o v e r n o r Talloy, t h a t
each Governor b e requested
t o give t h e necessary instruct-
fons T h i s b a n k a n u n r e a s o n a b l o r e q u e s t f o r t h e e x e r c i s e
of d i s u r e t i o n
i n connection w i t h wire transfers s h o u l d
not b e m a d e o f t h e o t h e r r e s e r v e b a n k s ?
Governor Talley. I
think t h a t w o u l d c o v e r t h e
CASS
Governor N o r r i s . I
will s o c o n d t h a t motion.
(The mocion having been d u l y seconded w a s carried.)
The C h a i r m a n e
T h e next topie i s 4 P .
AnsiP « R e p o r t o f I n s u r a n c e C o m m i t t e e ,
The report o f t h e Insurance Committee i s a s follows:
INTER-BANK SELF INSURANCE
The status o f this matter continues t o b e t h e same a s
reported a t the conference of-April 6 , 1925, frem which
roport t h e following i s quoted.
IThe B o a r d h a s s i n c e a d v i s e d y o u r c o m m i t t e e
its approval o f the principle o f inter-bank fidelity
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Federal Reserve Bank of St. Louis
of
a)
insurance.
T h e Board states that the question of inter~
bank Life insurance w i l l b e considered i n connection w i t h
the proposed pension plan.
T h e Board has, however,stated
that i t would not approve a n y plan f o r self insurance
"without first obtaining the authority of Congress.”
Your Committee directs t h e attentuon o f the Conference t o
this status o f proposed inter-bank s e l f insurance t h a t
o procedure
consideration m a y be given L y the C o n f e r e n c e t
for obtaining legislation i f it is desired b y the Conforence.!
STERED MAIL INSURANCE CONTRACT
As reported a t t h e last Conference, several o f the
eastern banks protested t h a t t h e flat rate charge o f
4 7/0 cents p e r thousand dollars o f value w a s inqg@aiahAbe
as botween t h e banks.
A t the request o f the Treasury
the brokers handling this business, Messrs Marsh &
McLennan, prepared a
y,
schedule o f rates representing,
in t
their judgment, a n oquitable distribution of this premiun.,
These rates were submitted b y t h e Treasury t o all banks,
and i t igs the understanding o f your committec that a
majority o f the banks approved this plan. F a i l u r e t o
obtain a undnimous approval, however, h a s prevented making
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Federal Reserve Bank of St. Louis
273
the plan operative a n d has resulted i n the matter being
again refesred t o your committee f o r its consideration
and suggestions.
The Committee has given the matter consideration
with a view t o finding L f possible s o m e basis f o r a n equitable d i s t r i b u t i o n
o f t h e i n s u r a n c e promium.
I n order
that i t might have t h e benefit o f underwriting exporience
in this connection, t w o o f the leading underwriters w e r e
interviowed w i t h a view t o learning what factors a r e
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Federal Reserve Bank of St. Louis
given consideration i n *he making o f registered mail
rates. “ B o t h o f the gentlemen interviewed frankly stated
that there i s n o scientific basis f o r registered mail
raves, t h a t they have developed through force o f circumstances a n d competition v i t h t h e necessary object o f having
the premiums Gover t h e loss oxperience w i t h some hope
of profit f o r the underwriters.
this i t w a s c i t e d t h a t when,
experience a
few years ago,
premium revenue,
A s a n illustration o f
o n account
o f disastrous
i t was necessary
t o increase
i t was accomplished b y ostablishing a
new minimum rate o f 10 cents i n theeplace o f the o l d
Cc
rate o f 5 cents, a n d moving all intermediate rates u p
to 1 0 cents, b u t making n o increase i n rates above 1 0
B74
cents.
O n the other hand, competition o v e r several years
_s
’ 5
had forced actual cuts i n the higher rates applying t o a
number
o f points p r i n c i p a l l y t h o s e ¥
of businoss.
i c h produced a
volume
T h e companies d o not analyzo their loss ex-~
in
perience either with respect t o the premiums produced
the territories where losses are oxperienced, s r by the
other method o f analysis.
T h o y regard their p r o b l e m a s
making votal premiums oxceed total losses a n d make n o attempt
to accomplish this b y the application o f any Scientific
bases f o r rato-making.
Under these circumstances i t has appeared t o your
in
Committee t h a t oxisting tariffs a r e useless a s a basis
distributing t h e premium o n shipments o f new Federal R e serve Notes a s between Federal Reserve Banks. A
careful
consideration o f all o f the factors involved a n d a discussion o f the problem with underwriters a n d others having
experience i n this business convinced y o u r Committee t h a t
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Federal Reserve Bank of St. Louis
the r i s k n a t u r a l l y s o p a r a t e s i n t o s e v e r a l d i v i s i o n s
as
follows:
(L) W h a t might b e termed the terminai risk, that
is, t h e transporting o f the currency f r o m t h e place o f
shipmont t o the train a n d o n the other e n d from the train
to the consignee.
T h i s i s regarded a s t h e greater risk,
275
considerably exceoding a n y other, a n d i t seems reasonable
that t h a t r i s k s h o u l d b o a p p r a i s e d s u b s t a n t i a l l y t h e s a m e
in oach Federal Reserve a n d branch city.
2)
N e x t i n importance comes t h e risk o f transfers
n route, w h e r e mail i s transferred
e
c i t her across t h e c i t y
from o n e railroad terminal t o anovher,
a s i n Chicago,
or
where i t i s merely transferzed across railroad platforms
er streets i n hand trucks i n cities whore t h e terminals
practically adjoin.
T h i s i s regarded a s somewhat less
but approximatéug one o f the terminal risis.
(3 and 4) T h o third and fourth elements are
time i n t r a n s i t a n d d i s t a n c e
i n transit,
a n d emphasis
is
given t o the differonce i n the risks o f a daylight run
as compared w i t h a n over-night run, i t being pointed o u t
that holdups a n d inside j o b s are generally pulled a t night
and s e l d o m i n t h e daytime.
The distance alone seems t o b e regarded a s probably t h e l e a s t i m p o r t a n t
it i s t h e m e a s u r e
o f these olemenis
o f exposure
o f risk, b u t
t o l o s s t h r o u g h accident,
such as collision, train wreck, fire, etc. W h i l o i t wovld
geem, theoretically a t least, t h a t another element which
might b e appraised comparatively w o u l d b e the character
of t h e c o u n t r y t h r o u g h w h i c h t h e s h i p m e n t w o u l d travel,
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Federal Reserve Bank of St. Louis
276
law~
that is, whether i t would b e a settled a n d presumably
abiding district,
a s i n New England o r the middle west,
sy
or whether i t would b o a wild and thinly populated country
remote f r o m organized volice protection, a s , f o r instance,
the mountains o f the Garolinas o r the oastern part o f
Kentucky o r t h e m o u n t a i n o u s s e c t i o n s
sparsely s e t t l e d s e c t i o n s
recent
e e s
i n the West and
i n t h e Southwest, e x p e r i e n c e
p a n e n o t seem t o justify a
distriction
in
on
that account alone.
With these factors i n mind t h e committee h a s attemptand
ed t o rate e a c h o f these risks a s fairly a s possible
then t o assign s u c h values t o cach factor a s would produce
the
a gross premium o n t h e total movement approximating
premium p r o v i d e d f o r i n t h e 4
7/8 c o n t f l a t rate, a n d
submit t h e following:
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Federal Reserve Bank of St. Louis
he t w o terminal risks i n each shipment a t
1 1/2¢ oach, total 3¢;
The transfers en route, 1¢ each;
Time - 1/2¢ per night o n route and out o f bank
vault;
Distance ~ 1/e¢ for the first 1,000 miles o r any
part thereof, and 1/2/ for cach additional
1,000 miles o r part thereof,
i n excess o f
100 miles of additional distance.
2v7
If t h e s e f a c t o r s a r e t o b e c o n s i d e r e d
i t seems d e -
sirable t o establish a separate r a t a f o r each separato
point, t h a t is for shipments made t o the branch banks
and with this i n mind a schedule h a s been prepared indicating what would b e t h e rato f o r each shipping point o n
this basis.
T h e s e rates a n d t h e factors o f their consider-
ation are get forth i n schedule "A" attached.
T t will
benoted that these rates range from 3 1/2¢ ior Philadelphia and Richmond, t o 9¢ for threo o f the branches o f
the S a n Francisco bank.
W h i l o these rates have been
prepared o n the basis o f the best information available t o the committee w i t h vespect t o time i n transit,
number o f transfers, otc., t h e y are nevertheless subject
to c o r r e c t i o n
and
i f the recommendation hereafter
made
is approved b y the conference, w i l l b e checks before
operative.
There i g algo attached schedule "B" showing the
total premium that would have been assessed t o each bank
on t h i s b a s i s f o r t h e s h i p m e n t s w h i c h a c t u a l l y m o v e d
during t h e twelve months ended September 350, 1925.
I t
will b e noted that these rates produced a total premium
of $52,501.40
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Federal Reserve Bank of St. Louis
i n comparison w i t h a premium charged a t
o/s
the flat rate of 4 7/8¢, of 352,451.10.
I f any plan is
adopted i t will, o f course, b e necessary t o provide f o r
an adjustmont o f any difference existing betwoen t h e
actual premiums charged and the contract flat rate o f 417 %e,
for even through rates might b e worked out which weuld
exactly equal t h e flat rate f o r a g i v e n year, t h o difference i n the proportionate amounts shipped t o the several
banks w o u l d m a k e n e c e s s a r y s o m e a d j u s t m e n t f o r a
g u b sequent
period,
While it is obvious that the values ostablished for
the various portions o f the sisk involved i n the handling
of these shipments a r e t o b o a considerablo extent arbitrary,
i t i s nevertheless t h e v i e w o f your committee t h a t
they will result i n fixing a rate for oach bank which i s
fair and
S e e s
a n d your committee, therefcre, s u b -
mits t h e following:
RECOMMENDA TION
That t h e Treasury b e requested t o arrange w i t h t h e
underwriters f o r t h e billing t o coach Federal Reserve
Bank o f t h e p r e m i u m o n i t s s h i p m e n t s
o f n e w Pederal
Reserve Notes from Washington a t the rates indicated i n
the attached scredules, a n d that a t the e n d o f «. stated
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Federal Reserve Bank of St. Louis
periods, either s
ferable
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Federal Reserve Bank of St. Louis
months o r one year (as may be pro~
t o t h e underwriters),
a n adjustment
b e made t o
take c a r e o f a n y d i f f e r e n c e t h a t m a y o x i s t b e t w e e n t h e
total premiums charged o n this basis a n d the total premium
figured a t the flat rate o f 4 7/7¢, o n y such differenco
to b e adjusted with the banks i n the proportion t h a t t h e
premium p a i d b y e a c h b a n k b e a r s
premiums p a i d ;
of p r e m i u m
t h e difforoace
t o t h e totaz o f all
t o b e adjusted
by a
returm
i n c a s e t h e t o t a l p r e m i u m s p a i d a r e i n oxcess
of the contract rate, o r b y a n assessment i n case t h e
premiums a r e less than t h e contract rate.
Respectfully submitted,
W. & . Teayier
a
Be
o
B. R e Kenzel, Chairman
Insurance Committee."
sanmpoun. "A"
SHOWING FACTORS CONSIDERED
I N FIXING PROPOSED
RATHS F O R INSURANCE O F #EDSRAL RESERVE
FROM WASHINGTON, D . C s
BANK
D
I
Boston
New Y o r k
Buffalo
S
T
A
4
N
6
o
3
e
4
1
Philadelphia
1
n
4
3
5
0
S
2
i
S
0
8
Chicago
Detroit
te L o u i s
5
6
O
6
8
9
5
8
Levuisville
o e
Little R o c k
9
3
Memphis
L
Minneapolis
2
0
4
2
1
r
1
7
m
o
l
e
Helena
L
L
5
5
Y
i
t
y
Kansas
L
e
Denver
Oklahoma C i t y B o s
b
6
S
e
Omaha
1
6
4
.
6
Pallas
2
5
0
2
ELlpaso
L
7
9
4
Hougton
5
0
6
1
San F r a n c i s c o
Los Angeles
Portland
Seattle
3
5
S L 4 5
1
1
2
4
S
F
R A T E
ms
e
R
at
e
r
cael
R
O
R
e
s
o
t
e
T
E
O
R
e
a
e
a
l
a
e
a
l
a
c
e
o
o
e
,e
e
S
R
w
o
e
M
r
e
P
E
S
r
a
9
8
2 7 6 5
Spokane
Gity 2 6 1 6
Lake
Salt
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
N I G H T TRANSFERS
5
7 5 5
Jacksonville
9
7
8
Nashviile
P E G S
New O r l e a n s
6
E
5
5
O
5
Gleveland
S
0
Pittsburgh
B
o
Cincinnatt
E
L
Richmond
4
:
Baltimore
6
4
Atlanta
B irminghan
C
A
O
i
R
R
O
e
n
I
N
P
R
I
O
R
T
P
R
E
H
P
R
P
N
P
F
E
N
Y
N
P
R
P
F
E
N
Y
N
D
N
D
N
D
D
N
N
H
D
M
SCHEDULE "3B"
SHOWING APPLICATION O F PROPOSED RATES FOR I N S U R A N C
.
C
.
D
SHIPMENTS O F FEDERAL RESERVE R R E N C Y FROM W A S H I N G T O N ,
[O THE ACTUAL SHIPMENTS MADE DURING THE YZAR ENDED
SPTEMBER 30, 1925.
(OCO omitted)
Bank
V o l u m e
Boston
1 . 5 3 , 800 4
Now York 1 8 5 , 8 4 0 4
R
A
S
2 2 , 1 4 0 4
Buffalo
4
2
Pittsburgh
,
4
0
0
8 5 , 1 4 0
2
Gineinna ti
, 200
1
Richmond
3 8 , 1 L 6 C
Baltimore
3 5 2 , 600 a
L
6
, 800
Atlanta
3
Birmingham
2
4
,
1
2
5
0
2 5 , 0 0 0
Detroit
5
,
8
0
0
St. Louis
L
g cia)
Louisville
1 , 5 4 0
Little R o c k
4
,
5
0
0
Memphis
Minneapolis
2 3 , 9 6 6 6
4
,
7
8
0
Helena
k
Denver
3
4
Oklahoma c i t y
7
,
Omaha
Dallas
3
0
,
4
, 860
6
0
8
0
672.00
153.60
633,60
116.60
7
4.
1, 534.40
5
4
1 , 1 5 0 . 0 0
2,240.00
152.00
5
65.00
6
5
92,40
247.50
1 , 4 3 7 . 6 0
382.40
600 200
1,185.00
i
7
, BOO
b
848.00
’
8
6
1 0 , 9 0 0
Kangas City
3,405.60
5
0
, 006
6
2,220.00
4
4.
4.
2 1 , 9 2 0
New Orleans
Chicago
8
1
,
9
BL P a s o _
270420
447 460
6
6
8
3
1
Houston 2
San Francisco
Los Angeles
L
1
Portland
Seattlo
Spokane
5 6 , 1 0 0 /
4 0 , 3 2 0
4
O
5
,
1
3
,
2
7
2
0
948.50
1,407.60
350 «20
0
1,075,920
.
4 , 7 6 8 «50
5
.
8
0
, 540
, 640
Salt Lake City 7 , 9 0 0
632.00
5
1,075,920,000 at 4 7/8 = $52,451.10
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
6
5 60
3,938.20
1,335.60
lpa 1 , 1 4 1 . 0 0
5
1 5 , 5 4 0
Jacksonville
Nashville
,
8
i)
5
4
4.
Philadelphia 1 1 2 , 5 2 0
Cleveland
E INSURANCE PREMIUM
6 , 1 5 2 . 0 0
435.60
7
T
2
, 501.40
282
The Chairman,
insurance
W i t h regard t o the inter-bank s e l f
i t i s i n exactly t h e s a m e status t h a t i t was s i z
months ago, and has been for all time past.
if y o u desires t o r e i t e r a t e
I n other words
t o t h e Federal Reserve B o a r d a
request that legislation b e obtained which w o u l d pernit
of the adoption o f some plan o f inter-bank fidelity insurance a n d o f inter=bank life insurance,
w e must bear i n
mind that the board takeg tho position that no such plan
of insurance w i l l b e approved b y t h e Board unless i t i s
authorized b y an Act o f Congress.
gGOVermor Seaye I
movo that n o further action b e
taken at. this time with respect t o the insurance plan.
Govermmor Harding. I
will second t h a t motion.
(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 carricd.)
ne Chairman.
W i t h regard t o the registered mail
insurance that i s something w e want t o discuss with Mr.
Dewey.
The next i t e m i s 4—Q, the Report o f toe Pension
Committee.
The report o f the Pension Committee i s a s follows:
"there h a s been n o change i n the status o f the pension
plan since t h e last Governors Conference.
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Federal Reserve Bank of St. Louis
I
t may b e
desirable, however,
t o review briefly t h e history o f t k
pension prograrie
The Ponsion Committee w a g appointed a t the March,
1919, Conference o f Governors, f o r t h e purpose o f studying
pension plans a n d t o mako recommendations w i t h respect t o
a plan f o r t h e Federal Reserve banks.
authorised
T h e Committee w a s
t o employ actuaries a n d o t h e r experts a n a d i d
subsequontly e m p l o y t h e following:
Nr. J e n r y Moir a s consulting actuary,
Mr. George B , Buck a s working actuary,
Mr. Monell Sayre a s pension adviser, a n d
Mr. J a m e s F . C u r t i s a s counsel.
The C o m m i t t e e w i t h i t s a d v i s e r s c a r e f u l l y c o n s i c e r e d
the pension problem i n its relation t o the Federal Reservo
System, w i t h the rosulc t h a t a plan was outlined a n d recommended
in a
report
t o t h e Conference
o f Governors a n d t h e
Federal Reserve Board, dated February 24, 1921.
That r e p o r t w a s c e a l t w i t h b y t h e F e d e r a l R e s e r v e
Board a n d t h e G o v e r n o r s C o n f e r e n c e
i n F e b r u a r y a n d April,
1921, w i t h t h e result t h a t i t was decidsd to.secure Fedoral
Legislation esuthorising the banks t o contribute t o the fund
and t o organize a Federal corporation t o operate t h e fund.
To this and a subcommittes o f the Gonference o f
April 12, 1921 waited o n Senator Smoot i n the matter, w i t h
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Federal Reserve Bank of St. Louis
284
the result that Senator Smoot sugcested certain modification o f the plan a s necessary i n his judgment t o assur
the passage o f t h e bill t o provide it. T h i s modification
was t h a t t h e b a n k s s h o u l d a s s u m e o n l y h a l f o f t h s a c c r u e d
liability.
T h a t condition w a s m e t a n d a
dill accordingly
was prepared b y Mr. Curtis, counsel for the Committee, i n
May, 1921, a n d that blll w a s transmitted b y the Board t o
Senator Smoot o n June 10, 1921, w i t h t h e request that
it b e enacted into l a w a s early a s practicablo a n d with a
statement t h a t i t s general details w e r o approved b y t h e
Board.
During t h e summer a n d autumn o f 1921 t h e plan was
accepted a n d a p p r o v e d
p y t h e boards
of tha twelve Federal roserve banks.
o f Girectors
o f each
T h e bill t o provide
for t h e Pension Fund, however, w a s not introduced a n d subseyrantly,
o n Docember 4 , 1923, t h e Board again conferred
with the Pension Committee, a n d later i n the same month
the matter was again dealt with b y t h e Board, a
subcomsittee
of which, consisting o f three members, reported t o the
¥ a s*
Board, ragaiding it.
T h e majority report o f that gub-
committee w a s f o r m a l l y a p p r o v e d
by
B o a r d o n February 1 ,
L924 « T h e following i s quoted f r o m the majority report
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Federal Reserve Bank of St. Louis
adopted b y t h o Board:
“your c o m m i t t e e
prini s i n general s y m p a t h y w i t h t h e
e v e n t o f t h e adoptciples u n d e r l y i n g t h i g p l a n b u t i n t h e
t h e views o f
ion o f this report i t would recommend that
Governors
the Board b e transmitted t o the Gommittee o f
t o t h e general
with t h e statement t h a t the Board i s opposed
Life insurance principle,
t o t h e inclusion o f any employees
the particihaving salaries cver 95,000 per annum, a n d t o
pation o f member banks i n said plan.
WYour Comaittes furthor recommends appro
contributory p r i n c i p l e
o f this p l a n b u t w i t h t h e Limita-
Board t o 5 0
tion o f the contribution o f the Feceral Reservo
per cent o f the total cost o f administering the fund.’
on Octobor 30, 1924, t h e above reservations regard~
with t h e Federal
ing the plan were discussed a t a meeting
Reserve B o a r d o f t h e P e n s i o n C o m m i t t e e
o f this Conference
the
and all o f its szpert advisors and counsel, during
course o f which t h e advisers o f your fommittee expressed
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Federal Reserve Bank of St. Louis
their v i e w s
first
t o t h e e f f e c t that, w h i l e w o m e o f t h e
necessarily
three l i m i t a t i o n s n a m e d b y t h e B o a r d w o u l d
prevent a
fairly gatisfactory although limited operation
of
of the plan f o r a large percentage o f the o m p l o y e e s
206
Fedoral Reserve banks, t h o s o limitat:
e v e r t h s l e s s , would
evontually c a u s e t h e p l a n t o p r o v e i n a d e q u a t e f o r t h e p u r p
for which i t was intendod, a n d i t was omphasized that, notwithstanding a n y present limitations
i n the scope o f the
inaugural operations o f the plan, legislation should b e
obtained o f s u c h a c h a r a c t e r a s w o u l d n o t prevent, e i t h e r
at tho inauguration o f the plan o r ata
inclusion o f the features previously recommended b y
committe
counsel
tag a result o f this sonference/for your committes
was requested t o redraft t h e bill which h a d b e e n prepared
for introduction i n the Senate, bringing i t d o w t o dato
and leaving i t i n such form a s would not p r o n e
features
o f t h e p l a n a s recommende y
Bey
your committee
but leaving t h e determination o f alli details o f the plan
and i t s g u p e r v i s i o n
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Federal Reserve Bank of St. Louis
tofore r e c o m m e n d e d
t o t h e Federal
Reserve Board,
a s there-
b y y o u r Committes.
"your Gommittee roported t o the April, 1925, Conference
that s u c h a bill h a d been prepared f o r introduction t o
6Sth Congress, 2 n d Session, a n d that i t had been considered
and discussed i n sevoral o f its details b y t h e counsel f o r
your committee a n d t h e office o f counsel o f the Federal
Reserve Board, w i t h t h e result that your Committee understood t h a t t h e r
n
e m a i
o qtiestion b e t w e e n c o u n s e l b u t
that t h e b i l l a s p r a p a r e d w a s i n proper a n d s u i t a b l e f o r m
for the purpose f o r which i t was designed.
Y o u r Committee
further r e p o r t e d t h a t i t u n d e r s t o o d t h a t f i n a l d e c i s i o n
had n o t b e e n t a k e n b y t h e F e d e r a l R e s e r v e B o a r d a s t o t h e m e r -
its o f the plan a n d t h e desirability o f inaugurating i t a t
this o r a n y f u t u r o time, a n d y o u r C o m m i t t e e u n d
the situation i n that respect remains unchanged a t this
time «
Your Committee a g a i n referg t o t h e problem o f accrued
increase a t the rate of about $1,000,000
per annum. C a l c u l a t e d originally a s o f October 1 , 1920,
they were $1,975,519;
f o u r years later,
o n October 1 , 1 9 4 ,
they were ostimated b y the actuaries f o r your Committee
b
%6,052,000.
In t h e s e circumstances,
in u r g i n g t h a t t y e c o i
e
y o u r Committee
n t a k e steps
of t h e q u e s t i o n o f pensions
a s related
t o dispose p r o m p t l y
t o Federal r e s e r v e
banks, believing that unless i t i s dealt w i t h promptly t l
penefits
o f t h e p l a n p r o p o s e d b y y o u r Committee,
o r of any
other plan that might b e devised t o provide reasonable
pension benefits f o r Federal reserve banks, will b e long
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Federal Reserve Bank of St. Louis
e
4
deferred a n d e x t r o m e l y d i f f i c u l t
o f realisation.
Respectfully submitted,
Fancher,
McDougal,
Kenzel, Chairman."
Governor Younge 1
move that t h e report o f the Com-
mittee b e epoepted.and approved.
The Chairman.
T h e management a n d conduct o f the
business o f t h e Federal Reserve Bank.of N e w York would
be o n a sounder basis, t h e gtaff would b e happier, there
would b e a more permanent attachment t o the bank, a n d good
faithful e m p l o y v e s w o u l d b e s u r e t h a t t h e y w o u l d g e t t h e
bpenerzit o f their long service i f the pension p l a n was en-
forced,
T h e Covermment o f the United States has recog-
nized t h a t n o w a s a pension system, t h e Civil Service which
is a tomtributory system, w h e r e t h e employee convuributes
as w e l l a s t h e Government.
M y idea i s that t h e servico
in
the Federal Reserve banks has got t o be made more attractive
and this i g one o f t h e very best ways o f doing it.
tion i s w h e t h e r
T h e ques-
w e c a n g e t a n y action b y making s o m e recom-
mendation t o the Reserve Board.
Governor Seaye I
and I
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Federal Reserve Bank of St. Louis
o the Chair,
share t h e c o n v i c t i o n f
move t h a t v h i g C o n f e r e n c e r e p o r t
t o the Board that i t
4
is t h e c o n v i c t i o n
o f t h e Governors
present
that t h e interest
promoted i f
of t h e F e d e r a l R o s e r v e S y s t o m w o u l d m a t e r i a l l y
a sound pension plan were adopted.
Governor Calkins.
w i l l second that motion.
o f it, t h a t
The fact is, a n d I think w e are all conscious
the r e f u s a l
t o permit t h e adoption o f a
pension p l a n h a s r o =
roserve banks, t h a t
gulted i n actual waste o n the part o f the
a n c @dnereasing
ig i n d e c r e a s i n g t h e L o y a l t y o f o u r o m p l o y e e s
4.
the cost o f conducting t h e banks.
Governor Seay.
A S w e grow older i t will become moro
and it is |
apparent t h a t w e shouid have s u c h a plan,
regretable t h a t i t has n o t been put i n force.
Governor McDougal.
T h e matter i s resting n o w with t h e
Federal R e s e r v e B o a r d a s u n f i n i s h e d business.
T h e y have t h e
plan a n d they have o u r recommendasione
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Federal Reserve Bank of St. Louis
The Chairman.
T h e facts a r e stated i n the report
on
your Committees reported t o the April,1925, Conference
t o the
such a bill h a d been prepared f o r introduction
6Bth Congress, e n d Session, a n d that i t had been considered
and d i g c u s s o d
d n soveral
o f its details
your C o m m i t t e e a n d t h e o f f i c e o f counsel
b y t h e counsel f o r
o f the Federal
underReserve Board, w i t h the result that your Committees
stood that there remained n o question botween counsol b u t
in
that the bill a s prepared w a s proper a n d suitable f o r m f o r
the purpose f o r which i t was designed.
Y o u r Committce fur-
thor reported t h a t i t understood that final dscisgion h a d
not b e e n t a k e n b y t h e F e c o r a l R e s e r v e B o a r d a s t o t h e m e r i t s
of the plan and the desirability o f inaugurating i t at t h i s
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Federal Reserve Bank of St. Louis
or a n y f u r t u r e t i m o , a n d y o u r C o m m i t t e e u n d e r s t a n d s
t h a t the
gituation i n that respect remains unchanged a t this timo."
d o not suppose anything w e could
Govermor Norris. I
do here would have any practical result, b u t ontertaining
the strong convictions that w e all d o I think that w e ought
s t r a i g ha |t
to k e e p+ o u r r e c o r
a d
tarily. I
,
this thing volun-
would suggest t h a t e i t h e r t h e C h a i m m n ,
a
o r the yCommittee,
statement
a n d not abandon
o 2 -Governor
a
prepare
y o u pleaso,
o r whoever
e
S
a
o f o u r position
o n this - - I
believe
w e a r e rotaa
of one mind o n i t - - and that i t b e placed i n tho minutes
as a resolution o r suggestion t h a t i t b e presented t o the
Federal Resorve Board.
The Chairman.
I f you instruct me to present a
letter t o the Federal Reserve Board expressing t h e sentiment
of t h e G o v e r n o r s
o f t h e Reserve B a n k s
o n this subject I
will b e glad t o d o so.
Governor Seay.
I f Governor Norris will offer that
as a motion I L wild b o glac t w setond it.
Govermor Norris.
Governor Seay. I
L o i w i d offerncit 2 s a -motlon.
sccond i t .
(‘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 ,
he Chairmane I
w a s carried, )
would l i k e t o r e f e r t o a
matter t h a t
was passed, a n d that i s Topic 4-A.
AoA
C o s t o f securing reports o f examination o f National banks.
I have n o t h a d o p p o r t u n i t y
t o g o over the draft c f
the letter t o the Comptroller o f the Currency, a n d I
a m won-
dering whether some Membor o f the Committee should n o t b e
charged with showing that letter t h e Comptroller a n d getting some expression t o h i m a s t o woether i t i s acceptible
to him, a n d then report back s o that w e c a n finish that
topic.
T h e letter w a s r e a d t o and approved
b y t h e Confer-
Without objection t h a t course will b e pursued.
Mr, l a r r i s o n . s t a t e s t h a t t h e s t a t a g o f t h e r e p o r t o f
the Open Nerket Committee, w h i c h h a s been submitted t o the
Conference a n d which h a s been approved a n d adopted,
this:
is
T h e Committee h a s m e t with t h e Reserve Board a n d
fiscussed the report.
A t that me¢ting, while the Board
preferred t o act o n the report a t its o w n regular meeting,
and took n o formal action approving t h e report, t h e r e w a s
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Federal Reserve Bank of St. Louis
no a p v e a r a n c e
report c o n t a i n e d n o
o f dissent
done a t once, p u t pointed
recommendation f o r things t o b e
s r e re-
out some things t h a t might have
newal
o f maturities
and t h e p o s s i b l e s i t u a -
c f Docember
woz t h e purchase o f more
tion which might result i n need
gecurities l a t e r i n t h e year.
rocommendations
I
n t h e absence
o f definite
i n this report, a n d i n view o f the fact that
contained a
gtatoment
t o e t f r e c t that 2 6
2
immediate transactions seemed t o b e necessary o r idesirable
ittes, t h a t t h e present situation,
i f i t required
any treatment, w i l l have t o b e dealt w i t h S y disseount rates,
and a s t h e Board i s not sure anything should b e done w i t h ro-
gard t o discount rates, that that i s a matter which originates
in e a c h r e s e r v e b a n k a n d h a s n e v e r b e e n t h e f u n c t i o n
o f the
Open Market Committce t o deal with, the matter i s now i n h a t
shape i n the hands o f the Board, a n d a t the Joint Conference
Or a t t h e i r p l e a s u r e t h e y w i l l b r i n g t h e s u b j e c t u p .
Governor Calkins.
D i d I
understand y o u t o s a y t h i s
Conference h a d a c t e d o n t h e O p e n M a r k e t C o m m i t t e e ' s r e p o r t ?
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Federal Reserve Bank of St. Louis
that ig incorrect.
The Chairman. I
I t
was passed a n d n o action w a s
think that is correct. T h e report
should b e placed i n the record a n d acted upon now.
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Federal Reserve Bank of St. Louis
293
ort o f t h e O p e n M a r k e t C o m m i t t e e
i s a s follows:
covernors conference t h e
Investment A
f f the s y s t e m h a s b e e n r e d u c e d b y
n
million dollars, f r o m 2h5 million t o 210 million.
4s reduction h a s taken place gradually i n connection
with t h e redemption o f maturing issues a t quarteriy t a x
days, occasional sales t o the Treasury f o r their accommodation, a n d ' a
tO h
l e t o the B a n k o f England amounting
million dollars,
‘ T h e gradual reauction
i n the port-
folio h a s b e e n i n k e e p i n g w i t h t h e p o l i c y o f m a i n t a i n i n g
he effectiveness o f the discount rates o f the Reserve
Banks
b y insuring a
round a m o u n t
o f borrowing
b y member
n principal cities
Credit Conditions.
in business a n d c r e d i t c o n d i t i o n s s i n c e
last s p r i n g h a v e c r e a t e d a
situation w h i c h i s m o s t u n u s u a l
and m o s t p e r p l e x i n g f o r t h e d e t e r m i n a t i o n
o f Federal H e -
serve policy.
When w e m e t i n April d o m e s t i c b u s i n e s s w a s e x p e r i e n c -
ing some slight recession f r o m the ercat activity o f the
23 m o r e t r u e i n c e r t a i n t y p e s o f i n -
activity t h a n i n tne general
The recession d i d not prove t o b e serious a n d i n the past
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Federal Reserve Bank of St. Louis
have b e e n i n d i c a t i o n s
o f a n increase
and greater business optimism, V a r i o u s i n of the total volume o f businecs indicate that b u
ness has been above what w e may call normal, o r average,
conditions f o r t h e e n t i r e y e a r ,
T h e construction i n -
dustry a n d the a u t o m o b i l e i n d u s t r y h a v e b e e n p a r t i c u l a r Ly active.
Business appears generally t o b e i n healthy conditicn. W h i l e forward buying has increased somewhat latorly
1t continues t o b e generally conservative.
Commodity prices a r e firm but there a r e a s yet n o
considerable price increases.
L o o k i n g into t h e future
i n t h e business s i t u a t i o n w h i c h offer possi-
the f e a t u r e s
bility o f l a t e r d i s t m r b a n c e a p p e a r
t o be:
automobile industry evidently n o w has a
y and annual rate o f production which i s
than t h e g r o w t h i n t h e p o p u l a t i o n
inervease
i n the domestic
demand
port f o r a n y extended pericd.
f o r cars
or
can
W e are aporoacning
a saturation point i n that industry, unless exports
increase w i t h great rapidity.
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Federal Reserve Bank of St. Louis
4
shortage i n home
that shortage h a s
anc that sometime, perhap
year o r two, there will o f
i n new bullding con-
necessity uv b e a d : t i o n
y o f the industries
t
gtmietien e n d i n
which a r e c o n c e r n e d w
n a t u r a l l y be a c c o m p a n i e d
speculation,
by a
w h i c h i s n o w active
some y e a r s p a s t a
in
steady
inerease i n installment buying, involving t h e
pledge o f future income a n d the build aes:
OF.
call c o n s u m e r inventories.
this h a s c r e a t e d a
situation
i n which
extended period o f unemployment o r any change
lead t o a
considerable d i m u n i -
of activity i n those industrics serving
consumer directly.
In none o f these three
of a n immediate chance i n
for s o u n d s u b s t a n t i a l
business
a ta
high l e v e l
f o r some
months
t o come, b u t i t i s c q u a l l y Ye c l e a r t h a t t h e p r e s e n c e
oe
t h e contirmuance
of t h e s e u n c e r t a i n factors m a .
consorvative t e m p e r
of 2
i n business m o s t desirable.
Stocz
Tie stock market appears t o offer a
fourth elemont o f
stock
possible instability i n the business situation, f o r
market m o v e m e n t s h a v e a
widespread p s y c h o l o g i c a l nbaliienullasnue<ers
market
The most serious element about t h e recent stock
movement
i s t h e possibility
of a
later r e c e s s i o n
i n prices
-anore
which micht a d d impetus toward business ybactioie
are a number o f indications t h a t a
crease t i n stoci: market p r i c e
d
u
part o f the recent i n e t o fundamental
t h e swing
changes i n values, b u t i t i s also possible t h a t
of prices m a y n o w have gone beyond a
level which c a n b e
maintained permanently.
Gredit Requirements.
The growth i n business activity has b e e n accompanied
100 million dolby a n increase o f currency circulation o f
o f about
larg since t h e e n d o f April a n d b y a n increase
banks.
400 million doluars i n commercial loans o f
This is
a n d has c o m e some~
larger t h a n t h e u s u a l s e a s o n a l i n c r e a s e
“~. what earlier i n the year than usual.
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Federal Reserve Bank of St. Louis
I n addition, loans
o f 300 million, w h i c h
on stocks a n d bonds s h o w a n increase
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
297
represents l a r g e l y t
l a c i n g o f additional f u n d s i n t o
exchange m o n e y market.
dollars
j
advanced b y w e e k l y
a
T h e n e t result i s a n
* n total b a n k credit
g m e m b e r banks, s u t s i d e
of an
AY
increase which may
increase h a s been made possible b y
a
f
f about
250 million dollars i n borrowings f r o m tLe Federal K e the same time t h e non-reporting banks
have dcereased their borrowings slignt-
Accompanying this acditional borrowing a t the Fed24
eral R e s e r v e B a n k s t h e r e h a s b e e n a n i n c r e a s e s i n c e A p r i l
of about 1 / 2 o f 1 per cent o r more i n the various o p e n
market money
The figures a r e shown
in t h e t w o d i a g r a m s
in the accompanying tablo a n d
i n t h e appendix:
Changes
April, 1°25.
Earning Assets Federal Reserve Banks
Discounts a n d "Advances
Bills O v m e d
Bilis S a l e s C o n t r a c t
U. S . S e c u r i t i e s O w n e d
U. 8 . S e c u r i t i c s S a l e s C o n t r a c t
Loans and Investments Weekly Reponting.
Member Banks
Gormercial L o a n s
Loans
o n Stock
Investments
Total L o a n s &
Investments
Borrowings a t Federal Reserve Ban“Ber reskly reporting S a a s
New York C i t y
C o e
Chisago
Other principah cities
Total p r i n c i p a l c i t i e s
By non-reporting banks outside
principal cities
Money i n circulation
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Federal Reserve Bank of St. Louis
Since
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Federal Reserve Bank of St. Louis
299
Gold M o v e m e n t .
;
While m o n e y r a t e s h a v e becn m o v i n g u p w a r d 1 / 2 On.
per c e n t o r m o r e i n this country,
n London b y abouti
t h e y have moved lower
1 per cent a n d
has reduced its rate o n e per cent
from 5 to |, per cent.
~t weeks rates i n London
~ have become slightly
ia
iRataguitouaery
The result o f higher rates here e n d lower rates
American belances
in L o n d o n h a s b e e n t h a t c o n s i d e r a b l e
which h a d b e e n p l a c e d
d t h e r en
country,
i n London h a
has bae e n a
WwFa
VX
returned
t o this
gold movement f r o m Londen
nillion dollars, partially off~
to New York of about )0
set b y a movement o f 2 1 miliion dollars f r o m this country
T h e movement f r o m London i s slightly larger
to Canada
4n amount t h a n w a s c u s t o m a r y i n t h e f a l l i n t h e
before t h e e s t a b l i s h m e n t
o f the Federal Reserve
years
System.
hat t h e r e l a t i v e l e v e l o f interest r a t e s
is
and i n foreign countries i s a n important infiucnce
on g o l d movements,
levols without a
gold m o v e m e n t
to
Tf o u r i n t e r e s t r a t e s r e a c h h i g n e r
corresponding increaso i n London, a
larger
this country m a y b e stimlated.
European Situation.
-The general
recovery
i n European business a n d credit
conditions is, under present circumstances, facilitated b y
Low money rates i n this country
With industry abroad
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Federal Reserve Bank of St. Louis
500
below normal activity a n d struggling against h i g h taxes
and the nece
t y for many readjustments, t h e actual
cost o f money i s a n important factor i n England a n d
the European countries.
moreover, t h e supp
I n many o f these countries,
o f working capital i s insufficient.
As long a s o u r extension o f credit abroad either i n the
farm o f short-sorm o r long-term credit i s for productive
purposes a
considerable f l o w will b e beneficial t o the
own
recovery o f Europe a n d will react fayorably upon o u r
trade.
T h i s f l o w i s encouraged b y low money rates.
With
changes i n
the finances o f Europe i n unstable condition small
w a y o r another,
eredit conditions m a y have large results o n e
and i t i s clear that this country has a
definite respons-~
somo regard
ipility t o determine i t s monetary policy with
borders.
to the effects o f such policy outside o f our o w n
Recommendations,
in the broad credit
any
hey d o n o t s e e m t o i n d i c a t e t h e n e e d f o r
change i n our open market policy.
W i t h t h e momber banks
tue Resorve
in principal cities substantially i n debt a t
of. seeurl-=
Banks there i s little t o b e gained i n the sale
7
ties f o r t h e p aEu£ r p o s e
tivo.
o f em a k i n g e d i g c o u n t r a t e s m o r e e f f o c -
T h e i n f i v e n c e of: o u r r a t e s
i s n o w felt o n a
©
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Federal Reserve Bank of St. Louis
the next s t e p should possibly
count r a t e s , r a t h e r t h a n c h a n g e s
i n o p e n m a r k e t holdings.
a
c
c
o
u
n
t
Tt a l s o s e c m s c e s i r a b l e
t o maints
or e t isast i t s preseny:
= . t h a t w e m a y b e prepared t o
h e committec, there-
deal with a n y emergency situation,
at present a n y change
ly T a x D a y Opcrations.
The June a n d September t a x dars furnished a
oppertunity f o r s t u d y i n g t h e n e e d f o r s p e c i a l o p e r a t i o n s
with t h e i n v e s t m e n t a c c o u n t
temporary case i n money
t o prevent a n y
\ ‘ t the June t a x date sales o f
51 million dollars were made
e a ly i n the t a x d a y period,
with t h e very satisfuctory r e
at a
h
t money rates remained
a
constant l e v e l t h r o u g h o u t t h e e n t i r e p e r i o d ,
September p o r i o d s a l e s
A t the
t o t h e marizet d i d n o t a p p e a r t o b e
to
necessary because o f unusually large receipts relative
disbursements
te)
b y t h e government
of r e d i s c o u n t s .
anda
considerable v o l u m e
N o sales w e r e therefore
easing i n money rates f c
a
m a d e a n d there
w de.
T h e exper-
that
sence o f these t w o t a x days would appear t o indicate
t o the
it i s usually desirable t o make temporary sales
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
markes e a r l y i n t h e t a x d a y pericd,
Turn o f the Year,
Last January i t was found desirable t o make sales
of about 1 5 0 million dollars o f securities t o tale u p the
seasonal slacix i n credit resulting f r o m the return o f
Christmas curroncy a n d the usual seasonal f l o w o f funds
T h i s coming yearond i t appears likely
to money centers.
banks w i l l b e s o l a r g e l y i n d e b t a t t h e H e s e r v e
that s l a c k w i l l b e m o s t l y t a k e n u p b y t h e l i q u i d a Of Guscounts.
S u c h Liquidation
i s frequently a
1lit-
cle slow, however, a n d i f credit conditions remain a s
present
debt.
i t would b e undesirable
t o have t h e banks o u t
I t will, therefore, b e well t o consider some temp-
orary p u r c h a s e
o f securities
a t t h e t i m e o f the Christmas
T h e widdon o f
currency demand t o b e sold i n January.
such a policy cannot b e determined f a r i n advance.
Method o f Apportionment.
During t h e past f e w months further s t u d y has been
made o f the methods o f apportioning purchases o f bankers
in t h e l i g oh t a f c u r r e n t e a r n i n g ss) a n d expenses.
The principle h a s been adopted o f apportioning acceptances
among t h e banks, first,
h
e b e
o
f estimated expense
tho banks: a n d o f required earnings
to m e e t l o s s e s
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Federal Reserve Bank of St. Louis
a s f a r as-pos=
o r d i n a r y chargeofis
present e s t i m a t e
the b a n k s
s a r s t o indicate t h a t t h e
b e sufficient
f o r the year will
t o
and dividends a n d t o cover t h e major
Included i n exhibits a t end
ed are tables reflecting Government security
Lons
n d distributions
OW
satenent
b y the Committee during
F O A L S
Transactions
i n the System Spec a l
Gove
Investment A c c o u n t S i n c e L a t
ernors
Confer-
ence i n April, 1925.
Statoment S h o w a y v g t e m Purchases
o f Bankers A c c e p t ~
vom January 2 , 1925, t o October eis 1 9 2 5 »
» Allotment
ascots
Showing D i s c o u n t s
t o Partict
ting
o f All Federal heserve Banks
i
s
f o r Bank n
i n Principal Cities
and Outside o f Principal Cities.
aart o f M o n e y R a t e s
i n N e w Yorts
EXHIBIT " A "
T13-14
STATEMENT SHO"NNG TRANSACTIONS I N THE SYSTEM SPECIAL INVESTMENT ACCOUNT
SINCE LAST GOVERNORS! CONFERENCE I N APRIL 19¢5.
$245,203 ,500
Holiings March 31, 1925 -
Purchases?
4,000 ,CO0
April 1
4 Market $
45.
6 9 3109,
Partiolio
¥.R.B.
Chicago
1
,
A
15
6
U
g
15,000 ,000
0
7 ,000
5,000,000
;2
8,500,000
1,000,000
5
,
«
e
e 2,900,000
7
5
,
s :
a
0
3
:
15 Foreign Acc't. q
3
. 2 6 Market }
a
.10&15 Market
3 ,4oo
5 , 2 0 0 ,000
/
21 Market a
am
4;
10
12 :
12
0
. 3
r
0 ,000
5
5
0
0
a
s
700
60,147,700
$305 ,351 ,200
15Market
21 .
4 "
June 1 5 £Treas.~Redemp.
" 2 4 Foreign Acc't.
" 2hee9 Treas. a/e APC
,6/I "
4"
Gjt. G a n t . 2 , 0 0 0 , 000
1
5 ,000 ,000
3rd L.L.
4T/T due Dec. 2 , 0 0 0 , 000
C/E ™ Sapt.15/ 2 , 0 0 0 , 0 0 0
C/I " Sept.15/ 2 , 0 9 0 ,000
E
N
U
Aug. 11 F o r e i g n Acc!t.
Sept.10 T r e a s . — R e d e m p .
8 ,500
1
sent.15/: 5 , 2 0 0 , 0 0 0
Dec, 15/: 2 0 ,000 ,000
m/v " June 15/: 31,132,700
F
U
E
July 1 5 M a r k e t
9
G/I due Dec.
Ss
N
E
3rd L.L.
jibes Treas.-Sink.Fd. P
95,351,200
Total sales
Balinese Eolaines: Gctover <i; 29e5-<-
o m e e
n
ee
~
$219,000 ,000
(Net profit o n Sales amounted t o $128,117.25)
OCTOBER
PARTICIPATION AND MATURITIES O F SYSTEM HOLDINGS CLOSE O F BUSINESS
21, 1925.
Participation R a t i o
Boston $
1,985,000
New York 5 1 , 4 2 7 , 0 0 0 2 4 . 5 % March 15,1926
o t . 15,1926 e
Philadelphia 1,565,000 S eO pa
s
°
Cleveland 1 1 , 6 5 1 ,500
Richmond 4 , 1 0 2 , 5 0 0
Atlanta 1 2 , 0 9 7 , 000
Chicago 2 2 , 0 1 0 , 5 0 0
St Louis 1 8 , 8 7 2 , 5 0 0
,020 ,000
Minneapolis 9
Kansas City
2 0 ,S44, 000
Dallas 2 2 , 1 4 3 500
San Francisco 34,281,500
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Federal Reserve Bank of St. Louis
$210 ,000, 000
-——
38,160,100
0 . 9 % Dec. 15,1925 4 , $
M
aI
U
D e
N
U
W
v
w O
W
F
~o
7
L
O
7
5 ,266, 0
, 401 ,000
2 3 , 8 7 5 , 9 0 0
rR c h 15,1927 ;
A
V
15,1927 3 2 , 2 9 6 , 3 0 0
QG
Ac .
t
O
eN
rI
$210 ,000,000
505
EXHIBIT *B"
STATEMENT SHOWING SYSTEM PURCHASES OF BANKERS ACCEPUANCES FROM JANUARY 2, 1925 TC
OCTOBER 21, 1325 AND THEIR ALLOTMENT TO PARTICIPATING BANKS
G
P
u
r
c
h
e
s
e
Particirations
s
157,089,000
$ 173,804,000
New York
S66 ,314, 000
173 ,320,000
Philadelphia
107,778,000
107,778,000
Cleveland
23,697,900
108 ,924,000
Richmond
1 4 ¢,3000
5
4 593 ,000
Atlanta
9,219,000
66, 88E,000
Chicago
54,739,000
1 6 6 2,8,4
000
Boston $
St. Lovis
1
1
1
,
0
0
0
76,220,000
Minneapolis
21, 807,000
Kansas City
91,557,000
Dallas
63, 730,000
124,596 ,000
San Francisco
Totals $ 1,281,699,9U0
$ 1,221, 699,000
* Does not include sales from New York portfolio to Atlanta of $13,123,000
nn
i"
n
"
n
i
Lgt
n
i
ft1
n
t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i
tt
:
"
*
5
t
ti
Kansas City 5 , 0 2 1 , 0 0 0
Dallas 5 , 0 0 0 ,000
Minneapolis 43,271,000
Dallas
3 3 , 1 9 2 , 0 0 0
EXHIBIT “c"
MILLIONS
OFDOLLARS
1400"
TOTAL
EARNING ASSETS
BILLS D I S C O U N T E D
P R I N C I P A L CITIES J
BILLS DISCOUNTED
B
E
E
S
,
OUTSIDE PRINCIPAL
. Cire
P e a
Mod
P t A
eee
fere
)
~
2Otal
a SESS L E E R
L
KETENE | a
S
o
a e
o
m y
T O E ,
<
s
e
d
a
N
[
|
Po T C A
e
9
|
i d e
2
A
S
t t a c d abies 15!
S e
5
sts; Bills Discounteci r o r Banks i n Principal Cities and
Outside Principul C i t i e s b y t h e Federal Keserve B a n k s .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1
!
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Federal Reserve Bank of St. Louis
EXHIBIT "D”
COMMERCIAL PAPER
(60-90 DAY)
CALL LOAN
RENEWAL
RATE
TREASURY
CERTIFICATES
4+°6MOS
1923
Rates i n the N e w York Murket
PACED) 6
M r . Chairman, I
Governor Young.
move that t h e
be a p p r o v e d b y t n e Conference,
Govermor Bailey. I
second t h e motion.
(The motion having been d u l y seconded w a s carried.
The Chairman.
W e w i l l n o w t a k e u p 4-J.
LimaJ o C r i t i c i s m s o f Federal R e s o r v e S y s t e m =
Past a n d Prospective.
pcested t h a t there b e a n exchange o f view a s
to w h a t s t e p s a r e t a k e n a t e a c h r e s e r v e b a n k t o m a k e s u r e t h a t
bank a n d t h e System are n o t properly subject t o criticism
because o f any practices o f the bank o r its personnel.
This igs a matter I
frankly, I
suggested f o r the program because
a m i n a good deal o f doubt about i t i n New York.
It i s a matter w e h a v e been dealing w i t h off a n d o n and has
caused a little trouble i n the bank once o r twice i n the
question o f management.
Tnere a r e t w o general fields o f criticism o f the
Federal R e s e r v e S y s t e m e
O n e i s t h e particular criticism
which h e s t o d o with t h e w a y t h e System h a s operated, t h a t
igs t o g a y discount rates, deflation, inflation a n d all o f
those matters t h a t have resulted i n newspaper magazine a n d
banker criticism;
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Federal Reserve Bank of St. Louis
t h e par collection system, o u r policy
SCT
for buying a n d selling securities a n d s o forth.
I n a general
way I should s a y t h a t criticism o f that type whilennow a n d
then being rathor spiteful, nogativo a n d
general way is probably helpful rather than harmful .
gives y o u the point o f view o f the fellow o n the other side
of present d a y questions whicn w e have t o consider.
But
there i s a n o t h e r t y p e o f c r i t i c i s m t h a t c a u s e s m e s o m e u n -
easiness, f o r t w o reasons.
rocall,
I n 1921, a s Governor Harding will
w e had a n investigation b y t h e Joint Agriculturel
Commission, a n d w e h a d a rathor negative attack u p o n t h e
managemont o f the System, a n d especially u p o n Governob Marding
and m y s e l f
b y t h e former Comptroller
o f t h e Currency,
who
was apparently i n a freme o f mind t o charge u s with every
wrong~doing
o n t h e Calendar,
o v e n a s t o o u r personal c o n d u c t
and integrity i n some respects.
whether,
I t set m e t o wondering
i n the Federal Reserve Bank o f New York, w e were
absolutely bomb proof
i n case this Congress t o o k the notion,
as Senator Heflin h a s charged, t h a t there w a s #raft i n the
construction of our building, for instance.
O n the floor
of Congress h e deScribed m e a s a grafter i n connection w i t h
his building, a n d tried t o give t h e impression t h a t this
nuge
b uli l d i
n g ]o p e r a t i o n
SS
o
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Federal Reserve Bank of St. Louis
i n s o m e w a y w o u l d r e s u l t i n personal
J°8
Profit tO. mee
A g e rosult
o f that, a n d o f s i m i l a r things,
we h a d t h e bank combod from t o p t o bottom t o see just what
could b e d o n e t o i n s u r e t h a t n o A c t o f t h e p e r s o n n e l
any w a y shall b e one that possibly could g i v
charges against t h e I
a
in
n
y
i t s management, ethics, a n d s o
on, i n case Congress should ever undertake t h a t type o f inNow the suggestion which came from the
Capitol last year that w e were g o i n g t o have another i n quiry a s t o f e d e r a l Reserve Systom a n d its managoment,
led m e t o review i t all again with o u r officerse
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Federal Reserve Bank of St. Louis
to h a v e i t c l e a r l y i n m i n d I
went back.
I n orcer
t o the days o f in-
vestigation b y the Pujo Committee, a n d t h e gentleman w i e
was counsel for the Committee, w h o m I knew, discussed i t
with
reat Lenmeth a n d a t t h a t t i m o
m e a t se
Oo <
h e told m e o f
things a h d showed m e letters which h e h a d received charging
officers o f the N e w York Bank a n d individuals i n the banks
with all sorts o f wrong doing, most o f which were absolutely
unjustifiable a n d somo which m a y possibly have h a d some
foundation
i n fact.
Now with regard t o this renewal o f the charter,
we
cannot expect Congress t o take action f o r their renewal until
after t h e y h a v e s a t i s f i e d t h e m s e l v e s t h a t t h e y O u e©n t t c b e
509
renewed a n d after ther have conducted gome kind o f inquiry,
not o n l y a s t o t h e w a y t h e b u s i n e
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Federal Reserve Bank of St. Louis
i
s b e i n g done, b u t a s
whothner i t needs amendment, a n d s o forth.
hat i g m y general theory about it. A n d , a s 1 say, w e have
or three times had a thorough combing o f
made inquiry o f the officers a n d having
make inquiry G o w n through t h e rank a n d file
is going o n a n d h o w well w e are protected.
I would like t o get the reaction o f this nm
whether
w e are a l l copper-fastened
i n those thing
are trying t o b e i n New York, a n d whetne
that what w e have done i n N e
our mon, because maybe I
geems
i
o u think,
i n fact,
s g o i n g t o o f a r with
am oversensitive about it.
N e w York
t o b o t h e c e n t e r o f attack f o r a
I have prepared
subject o f i n v e s t i g a t i o n
i n the b a n k s o t h a t y o u m a y s e e
that w e have given i t some considerable study. I
read t o y o u t h e t o p i c s w h i c h h a v e b e e n discussed:
wilt j u s t
SLO
(a)
D e the questions o f religious creed o r of political
affiliation e v e r enter into t h e selection o f ndapottems, officers
or employees.
(6)
I s there any evidence o f nepotism i n the selection
of directors, officers o r employees,
o r evidence o f favoritism
of any particular group o r section o r o f friends o f the management o f t h e bank.
Ce)
I s there strict observance o f the rule that n o
directors, officers,
o r employees shall b e engaged i n politi-
cal activities.
(d)
o f directors c o n d u c t e d
A r e t h e elections
i n such a
manner a s t o a v o i d criticism.
a) W i r a t rules prevail i n the
Sosculation
i n stocks
o r commodities.
Borrowing from member banks.
Outside profit-making activities o f officers .
and employees.
(f) w h a t understanding exists i n the various Reserve
Banks a s t o the undesirability o f any director, officer o r om-
ployee obtaining any advantage o r financial gain such astbmough-
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Federal Reserve Bank of St. Louis
1. T h e letting o f contracts f o r supplies.
SL0S
The e m p l o y m e n t
o f brokers
t o execute o r d e r s f o r
securities.
the e m p l o y m e n t
o f r e a l c s t a t o brokers.
The e m p l o y m e n t
o f i n s u r a n c e brokers.
The d i r e c t i o n
o f s u c h business
t o friends
o r re-
latives.
(g) I s care exercises t o insure that the interest of
any director, o f f i c e r o r employee
i s disclosed
t o the other
directors i n connection w i t h a n y contracts l e t b y the bank.
I n general, what rules apply i n the soloction o f
(hh)
all o f t h o s e w h o r o c e i v e c o m p e n s a t i o n f o r s e r v i c e s r e n d e r e d
to the bank outside o f t h e official a n d clerical force,
such f o r instance,
(4)
a s brokers, s u p p l y houses, etc.
W h a t precautions
to i n s u r e t h a t t h e b u s i n e s s
directors, o f f i c o r s ,
a r e employed
b y the Reserve banks
o f the bank i s n o t discussed
o r employees o u t s i d e
o f the bank i n a n y
such w a y a S might subject t h e bank t o criticism bocause o f the
misuse
o f confidential k n o w l e d g e
o f t h o System's a f f a i r s
or
politics.
3) A r e all nocessary precautions observed i n the handling o f business f o r the Treasury o f tne i t e d States s o that
no c o n f l i c t
o f t h e interests
the Treasury m a y arise.
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Federal Reserve Bank of St. Louis
o f t h e b a n k a n d t h e interests
of
eile
That i s i n g e m r a l a
revicow o f the topics that w e have dealt
F
with, a n d o n some o f them w o have &
o
r
instance w e have a culo i n the
bank c a n b o r r o v a n y m o n e y w i t h o u t
Governor Bailey.
Goveirmor H
‘ t o u m e a n b o r r o w m o n e y anywhere?
T o a t seems
ling
g
Governor F a n
m y perm.
h
o
u
l
v o b e going pretty fare
d hate t o impose a
condi-~
hrow O u u l e u- sort. On. O u r
Governor Calkins. I
do not think y o u have t h e
to d o it.
The Chairmane I
a m not gure but what something o f
that s o r t c a n g o j u s t i f i e d
i n t h e c a s e o f t h e N e w Y o r k Banke
In our digtrict practically a l l t h e banks o f any consequence
are m o m b e r s
o f t h e System,
a n d practically a l l t h e people
y
in t h e T e d e r a l R e s e r v e B a n k h a v e b a n k a c c o u n t s
i n member
banks, a n d i f a member bank,is loaning t o a n y one o f o u r
employees, particularly a n officer, w h o has some position
of res} i
i
n tae bank y o u g e t a relationship there
that e a s i l y m a y b e r e p r e s e n t e d a n d m i s u s e d
i n case i t i s
cnown, a n d m a y b e t h e v e h i c l e o f c r i t i c i s m
i n connection
with t h e m e m b e r bank.
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Federal Reserve Bank of St. Louis
g
Governor Calkinse
i
e practically t h e
v
ee
was
gamo basis f o r such criticism i f a n officer o r emoloyee
porrowing f r o m a non-member bank »
Governor Harding.
O f course I
imgine there i s great=
other district,
er need f o r protection i n New York t h a n i n any
activities
because N e w York i s the center o f the stock market
and S O O n e T h e r e h a v e b e e n s o m e e x a m p l e s
o f officer :
x
National banks taking advantage o f their position i n
large gums o f money o n t h e outside «
of the Bank i s concerned, I
the t i m e I
S o f a r a g the Governor
have always b e e n careful f r o m
came t o W a s h i n g t o n n e v e r t o b o r r o w a n y m o n e y a t
all f r o m a n y m e m b e r bank.
A t the same time a
man d o e s n o t
forfeit h i s rights o f American citizonship b y trying t o e a m
I t has
an honest living i n working f o r 2 reserve oank.
been i m p r e s s e d
o n the member banks
o f the Boston District
two o r t h r e e t i m e s t h a t i f t h e y s e e f i t t o l o a n a n y m o n e y
B a n k that
to a n officer o r employee o f the Federal Reserve
they d o s o without a n y obligation whatsoever o n the part
Federal Reserv: Bank, a n d that there will b e n o r e t u m
favors
t h a t i t will n o t affect t h e position
o f their dis-
counts, b u t t h a t i t i s p u r e l y a n o u t s i d e m a t t e r .
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Federal Reserve Bank of St. Louis
Governor Wellborn.
the game Light.
W
e havo Lookec
W e have made a
a t the matter
in
rule that n o officer shall
meear
berrow f r e m a member b a n k without putting u p the actual s e ~
h e c a n n o t b o r r o w o n h i s p i a i n note. I n d i v i d u a l l y
curities:
whenever I
borrow f r o m a
put u p U n i t e d S t a t e s bonds.
bank I
I
Governor Fancher.
n our bank I
lkmow several
of
our officers h a v a bought homes, t h o y are mortgaged, a n d
they are gradvally paying f o r them, a n d t h e member banks a r e
carrying t h e m o r t g a g e s e
lateral,
t i s perfectly satisfactory col-
a n d a p e r f e c t l y gatisfactory loan.
The Chairman.
people,
I
T h a t i g the case with a number o f our
a n d t h o y s i m p l y tell m e t h a t t h e y a r e d o i n g it, a n d
they g e t a noto from m e
Governor Fancher.
W h a t w e d o i n o u r bank i s that I
have a complete l i s t o f the borrowings o f o u r officers a n d
employees,
3
2
l
y f u t o discuss t h o s e loans
with them.
The Ghairman.
Suppose a
man i n the reserve bank says
to himself now, w e are going t o put down t h e discount rate
on Thursday, a n d = will j u : '
stock a n d makes m y s e l f a
as I
f o w hundred shares o f
ga
couple o f t h o u s a n d dollars.
am concerned there igs n o question b u t what I
s S o far
could make
all t n e m o n e yev in the world i f I wanted t o d o i t now and then,
Lt i s just a question o f degree,
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Federal Reserve Bank of St. Louis
i s i t not?
SLA
+ t t h e New York Stock Exchange
H e .
Governor Norris.
a milo prohibiting i t s members f r o m carrying accounts f o r
o r requiring t r o n t o report
officers o r omployees o f bans,
Ut
rule o r some t h i n g o f that
U n o y cOOr T a n t t t h e r e a
sort?
a o r their o w n members a n d em-
t
t h e
Tho Chairman.
think, employoes o f the Stock HEzchar
ployees I
Governor Talley.
A r g y o u asking f o r
this matter f r o m all t h e banks?
The Ghairman.
I a m asking what y o u think about i t e
assume.
We have gone pretty far, I
Governor Talloy.
W o h a d a n outstanding vase, a n d the
action w e t o o k w a s n o t o n l y v e r y p r o m p t a n d preemptory,
Somewnat d r a s t i c e
W
o had a
but
junior o f f i c e r w h o m w e d i s c o v e r -
od w a s n o t g e t t i n g a l o n g v e r y w e l l i n h i s p e r s o n a l f i n a n c e s .
I had a
talk with h i m
we f o u n d t h a t
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Federal Reserve Bank of St. Louis
tov,
W
a
h e owed obligations
a n e t o amounted
aipii ier.
m
x
e gome inquiry,
and
t o five member banks
i n
t o just five times h i s
e admonished h i n and w o r k e d o u t
him.to s e o i f h e c o u l d n o t c l e a r h i m s e l f a n d
We h a d n o p a r t i c u l a r f a u l t t o f i n d w i t h h i s w o r k ;
t h e r e was
no ovidence o f any immorality o r anything o f that kind.
An little later o n w e Ciscovered that h e was making small
Loans with member banks outside o f Dallas, a n d w e advised
him o n the d a y that w e found i t out that his connection
with the bank was terminated right there.
W e did n o t wait
to call t h e Exocutive Committee ti. gether o r the Board o f
Directors o r anything olse.
Tro Chairman.
the a b s e n c e
T h a t i s a good case i n point, because
o f some k i n d o f control
i t i s just a
matter
shanco whether y o u hear about i t o r not, B o r r o w i n g f r o m
member b a n k s
D y m e n i n the reserve banks
of causing trouble.
ig a
good possibility
B u t o f course there a r e a good many
other questions involved i n this, some o f them very puzzling.
Ther) i g t h o quostion o f outside occupation f o r profit,
%
where additional confidence i s placcd i n a man because o f his
connection w i t h a banke
Governor Talley. I
did not attempt t o tell t h e
story, p u t o n e o f the outstanding indiscretions w e t
was that h e had gotten some o f the department managers, a n d
28
people under h i g o w n supervision,
The Chairman.
t o ondorse h i s notese
H o w can you deal with a case o f that
ess y o u have some understanding a s t o
be pursued b y the banks i n those matters?
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Federal Reserve Bank of St. Louis
516
Governor Younge
W e have p u t u p a notice i n our
bank requesting omployees not t o endorse o r guarantee for
I t i s broken, I
any Onee
quest only. T
W o have made i t a r e n
suspect,
the e m p l o y e e s a
think 21% h a s ] i
because t h e y have been a l
lot,
t o turn down other employees.
We f o u n d t h a t o u r p e o p l o w e r e b o r r o w i n g f r o m
Plan Banzx, a n d a lot o f sharks around town, a n
Little find o f some 52500 t o take caro o f cases i n our bank,
Tne Chairman.
W e have a
fund o f $10,000 t o deal
with that.
Gevernor Younge
with their troubles, i
pretty dad.
W e asi t h e employees t o come t o u s
they c
S
o
m
e o f them a r e i n
yas very
T h e case Governor Talley speal f
A
untortuaate, u n f o r t u n a t e t h a t h e s h o u l d h a v e g o t
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Federal Reserve Bank of St. Louis
Was h e i n a position
Govornor Talley.
t o d o anything
t
h
v So
e member
h e r e w a s n ' t a n y evidence t h a t h e
had shown a n y discrimination o r favoritism toward a n y o f
tho m e m b e r banks,
b u t i t happens t h a t t h e officers
o f those
country b a n k s p a r t i c u l a r l y w e r e i n c o n s t a n t t o u c h w i t h h i m
in connection w i t h buying a n d solling government securities
and they apparently w e r e grateful f o r his
SLT
services,
o r something o f that kind.
_T
J e took t n e position
conthat h e was merely using t h e influence o f his official
nection w i t h the Federal Reserve B a n k t o obtain loans.
W h a t w a s h i s special
Goveraor W e l l b o r m
a d t i . 2 loan discount department
Govermor Talley. f
the Fiscal. Agency supervision.
T h a t i s where h e hed t o d o witt
Governor Wellbom.
government securities?
Governor Talley.
Yease
W
e have a
p o l i c y i n o u r Dank,
o f the
not pronounced particularly, b u t t h e senior officers
with
bank make i t a point t o associate a s much a s possible
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Federal Reserve Bank of St. Louis
wey
the junior officers a n d department managers, a n d i n that
we c a n g e t a
pretty g o o d Line o n t h e y o u n g fellows personally
and t h e i r p e r s o n a l a f f a i r s a n d d e t e r m i n e w h e t h e r
o r not they
are introuble o r anything o f that kind.
Governor Harding.
O f course every bank clerk has a
horrox o f being ‘sgawenisheed.
Governor Galkins. I
sharo the Chairman's view that
any serious attempt t o bring about r e c h a r t e r i n g t h e banks wil’
precipitate a
very close inquiry into t n e conduct o f the Sys-
tem a n d i n q u i r y o f s o m e o f t h e banks, p r o b a b l y N e w York,
as
that bank i s i n first place, a n d i t i s highly desirable t h a t
318
such p r o c a u t i o n s
a s appear
t o h a v e b a e a k e n s g n o u l d b e takon,
Chairman suggests t h e y
if uhey a r e n o t carried t o o far, a s e
Di W e have n o t gond s o f a r a s t o prohibit t h e emd o not think w e
ployees o f the bank f r o m borrowing money, 1
have the right t o d o that.
The Ghairman..
W e s i m p l y a s k t h e m t o r e p o r t t h a t t o moe.
Govermor Calkins.
should say. I
I
t i s a very delicate matter, I
would h a t e t o r e q u i r e
a n employoe
o f the bank
to report t o m e individually, although i t might b e advisablo.
We have,
b y reasolution o f the Board o f Directors, prohibited
any o f f i c e r
o r employee
o f t h e bank f r o m acting a s a n officer
or director o f a corporation conducted f o r gain o n g a g i n g
in a n y o u t s i d e business.
v
O f courssc b
inetitution s u c h a s o u r g i t i s p o s s i b l e
gmaller
e ina
t o have a
closer
contact with, a n d get a better idea of, t h e quality a n d
character o f employees t h a n i t would b e i n New York, a n d
that i s a thing that w e have seriously endeavored t o do.
By knowing w h o o u r poople a r e a n d their qualities a n d chars
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Federal Reserve Bank of St. Louis
acteristics,
w e have been v e r y succossful i n avoiding diffi-
culty i n regard t o criticisms against t h e System. I
heartily t h e C h a i r m a n ' s v i e w , b u t I
different slanp. I
seem t o have a
share
Llittlo a
believe t h a t the criticisms t o which
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Federal Reserve Bank of St. Louis
51a
the System was subjected i n Governor Harding's time, hard
as they vere upon him, w e r e less harmful t h a n t h e criticisms
that m a y b e l e v e l l e d a t t h e S y s t e m a t t h e p r e s e n t t i m e o r
at some later date, because o f what I believe t o be a fact,
and that i g that those criticisms w e r e criticisms o f people
who were uninformed a n d comparatively tinintelligent, a n d
that t h e eriticisms t h a t will arise i n the future, a n d which
to some extent havearisen, a r e criticisms b y competent
eritics pretty woll informed a n d extremely intelligent, a n d
thereby a r e much more dangerous t h a n the former criticisms.
Gav. Herthing.. Following Mr, Williams’ speech i n
July, 1921, Senator Heflin made a speech i n the Senate, t a k i n g
that a s a basis,
i n which h e came o u t a n d made such direct
charges a n d t h e Federal Reserve Board addressed a letter t o
the Chairman o f the Senate Banking & Currency Commattee asking that a committee b e appointed t o investigate atl o f
those charges.
I t was taken before the Senate Committee
on C o n t i n g e n t E x p e n s e s a n d t h a t C o m m i t t e e r e p o r t e d t h a t t h e y
were willing t o appropriate s o m e money o u t o f the Tontingent
fund t o direct the investigation.
T h e n Heflin and Watson,
two o f the violent critics o f the Reserve Board, m o v e d n o t
to have t h e investigation.
T h e y d i d not want a n y investiga-
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Federal Reserve Bank of St. Louis
tion becauso t h a t would force t h e m t o come t o t h e front
sive the Board a chance t o show that there was nothing i n
the charges, a n d what they wanted w a s t o have something
1o talk about a l l t h e time. M e a n w h i l e t h e Committee o n
Agricultural Inquiry had been appointed and they sought t o
stop i t b y preferring a l l o f these charges against t h e Reserve Board a n d t i e reserve banks t a that Committee,
T h a t
Committee w a s n o t a t all interested i n the charges a n d paid
very little attention t o them.
them absolutely.
I n its report i t ignored
T h e v e r y criticis
o f t h e Federal R a s e r v e
Board a t t o o t t i m e w e r e t h e v e r y o n e s t h a t d i d n o t w a n t a n
investigation.
So f a r a s t h e Federal Reserve Bank o f Boston i s ccncerned I
cannot g e e anything that a n investigation w o u l d
bring out which would prejudicial t o it.
W e have been
cutting t h e f o r c e u o w n a n d w e h a v e g o t p r e t t y g o o d people;
wo are keeping the bost ones anc letting the undesirables
Zoe
WT
o :
The no ni lty Dt ah vi n
g tG h aa ta o c c u r s
t o me, G o v e r m o r Strong,
ig that i f there should b o an investigation, a n d it should
be directed against t h e Federal Reserve B a n k i n New V o r ,
as i t p r o b a b l y w o u l d b e , t h a t y o u w o u l d b e c r i t i c i s e d f o r
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Federal Reserve Bank of St. Louis
the very precautions y o u have teken against it.
The Chairman. T h e r e may be something i n that, but I
think t h a t criticism,
i f i t should a r i s e w o u l d o n l y apply
Lo our rvle about people borrowing money, because a l l t h e
other things have t o d o with matters whero i t is perfectly
clear that t h e bank has t h e right t o oxercise absoluto c o n
trol, f o r instance, s u c h a s borrowing money for speculative
purposes or things of that kind. L e t us take this case.
One o f our junior officers, w h o occupies a n important position a n d has t o pass o n paper reffered b y momber banks, h a d
an a c c o u n t w i t h o n e o f o u r m e m b e r b a n k s w h i c h w a s a
steady b o r r o w e r w i t h u s e
from t h e m o n collateral;
H
pretty
e frequently borrowed m o n e y
i n fact. h e rarely was without a
loan there. ‘tle was a single man,.he would borrow the money,
invest i t a n d c a r r y i t .
a c o n el him I
hadn't t h e s l i g h t e s t
doubt a 8 the propriety o f ‘tho’ thing h e was doing, b u t that
the bank might b e eniba rragsed some d a y i f i t was found
that he, a s a n a
e e
o f o u r bank, charged w i t h passing
on the paper offered b y that bank, s h o u l d a t the same time
be nobrowing money f r o m it.
A t first h e was inclined t o
demur about it, but a little later h e came t o me and said,
“You a r e right, absolutely right,
dollar,"and do not intend to."
a n d I do not owe them a
S22
Now i n the instances o f clerks borrowing money from
time t o time t o buy a home, t h e y have plenty o f opportuni-~
ties t o borrow f r o m mutual savings banks, l i f e insurance
companies, a n d s o forth, a n d d o not have t o g o t o t h e
member banks. I
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Federal Reserve Bank of St. Louis
do n o t know o f a single account t h a t t h e
membor banks a r e carrying f o r a n y o f our people.
Governor C a l k i n s e
A
t t h e p r e s e n t t i m e o u r employees
may b u y a n y t h i n g t h e y w a n t t o b u y i n t h e w o r l d a n d p a y f o r
it a t the rate o f a dollar d o w n a n d a dollar i n the next
two years, a n d i t seems t o m e that that i s q u i t e a dangerous
and insidious practice t o indulge in.
Governor Harding.
E v e r y now
n d then w e have been
roposition o f t h e Federation
faced w i t h t h e pis
ing t o recruit t h e bank clerks.
o f L a b o r t r y y-
W e have been ablo t o counter-
h t now.
act it. T h e r e i s n o s u c h d i s p o s i t i o n r i g oS
I
t i s some~
thing that w e d o not want t o encourage.
Govermmor Calkins.
Y e s , a n d t h e American Federation
of
Labor a t its last Convention resolved t o g o a t i t agains
The Chairman. I
about this.
will tell you what my theory dbo
O f course t h e o n e thing against which n o claim
of unwarranted action o a n b e taken i s this matter o f buying
supplies a n d things o f that sort.
T h a t h a s g o t t o b e safe-
Seo
guarded against t h e charge o f misuse o f position i n
bank.
W h a t I do want t o have i n the bank, a n d what I think
will b e beneficial t o all o f u s t o have would b e evidence o f
the f a c t t h a t t h e s e m a t t e r s a r o s y s t e m a t i c a l l y d e a l t w i t h
and a r e s t u d i e d
a n d are subject
t o suporvision.
I
t has
boen the subject o f study f o r some years w i t h us, a n d i t
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Federal Reserve Bank of St. Louis
is very evident that w e are taking reasonable precautions
to protect t h e bank i n case i t should t e subject t o any
hostile inquiry along that lino.
Then another mattor i g that anybody caught dealing o n
margins i n the bank i s fired, a n d I would Like t o asx i f
that practice prevails i n other resdnye banks, whether t h e y
undertake
t o control t h a t m a t t e r w i t h r e s p e c t
t o buying
stocks either o n margin o r otherwise?
Governor Young.’
W e d o not i n Minneapolis, b u t i f
we should learn about i t w e shoukd perhaps p u t t h e m a n o n
the carpete
W e have never n a d reason
Governor Harding.
any one doing it.
Governor Young.
W e have n o rule about it.
Governor Bailey.
N e i t h e r h a v e we.
Governor McDougal.
W e have n o rules o r regulations
in relation t o it.
Governor Norris.
W e havo n o rule. I
think i t i s not
o f
as oasy a 8 i t sounds t o s a y what a marginal account is.
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Federal Reserve Bank of St. Louis
course t h e r e a r e s o m e a c c o u n t s t h a t a r e p e r f e c t l y c l e a r l y
marginal accounts, whero a man buys $10,000 worth o f stock
and puts u p t w o o r throe thousand dollars c a s h o r securitios
O n the other hand a man m a y buy fifty o r a
as a margine
hundred s h a r e s o f stock,
quartor
pay a
o r half f o r i t a n d
oxpoct i n the course o f a fow months, w h e n h e sells something olso,
t o p a y t h o balanco.e.
al a c c o u n t e
f I
I
margin-
T h a t i s technically a
know o r l o a m t h a t a n y o f f i c e r o r o m p l o y e e
ig running a regular marginal account, without a n y evidence
of intontion ultimately t o settle t h a t account, I
him t h a t
Sign.
r
u
h e would oither have
B u t I
would toll
t o close t h e account
o u t o r re-
do n o t s e e h o w y o u c a n v e r y well maintain a
ln thate
eo
I would like a copy o f the various points t n a t y o u
quoted i n regard t o which y o u made inquiry i n New York,
because w h i l e I
havo a l w a y s h a d t h i s m a t t e r
never s y s t e m a t i z e d
i n mind I
i t t o t h e e x t o n t t h a t y o u have.
far a s b o r r o w i n g m o n e y i s concormed, I
would m a k e a
distinction b e t w e e n m o n o y t h a t w a s b o r r o w e d
S
have
o
sharp
o n real e s t a t e
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Federal Reserve Bank of St. Louis
325
security, w i t h t h e purpose o f purchasing a home, a a d anything o f t h a t n a t u r e
a n d anything t h a t w a s borrowed f o r
any Speculative o r semi-speculative purpose. I
also m a k e a
distinction b e t w o e n m o n e y t h a t w a s borrowed
on a note a n d m o n e y t h a t w a s b o r r o w e d
ity. I
would
9 n collateral s e c u r -
think a l l o f thoso things a r e extremely difficult
to determine, b u t I think i t i s extremely useful t o have a
chart o f t h e possible danger points bofore y o u s o that
they c a n b e c o n s t a n t l y g i v e n attention.
The Chairman.
are a l m e tamusinge
L e t m e give a few illustrations t h a t
W e made a contract, w h e n o u r building
was under contemplation, w i t h a firm o f engineers i n New
York, w h i c h involved paying t h e m a
large s u m o f money t o
take charge o f the whole business o f designing; supervising
and constructing t h e mochanical plant, heating, lighting,
Wentilation, elevator servico, a n d everything o f that
kind - - i t w a s a , b i g j o b , i n v o l v i n g v e r y h e a v y L O G Se
W e
gsolected a firm o f engineers who stood a t the top i n New
York,
T h e head o f that concern happened t o b e a classmate
of one of m y brothers a t Stevens Institute, T h a t brother i s
an engineer.
W i t h o u t a n y k n o w l e d g e whatever, w i t h o u t
the slightest thought o n his part that i t would have a m y
particular bearing o n our affairs,
h e went into partnership
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Federal Reserve Bank of St. Louis
with t h i s m a n a f t o r t h a t c o n t r a c t
was a w a y a n d I
about i t e
w s let.Thahiwee while
never l o a r n e d o f i t until
m y tmother t o l d
S o I put i t before t h e Directors a n d I
did n o t w a n t a n y g r o u n d s
o f criticism
said I
i n the construction
of the building, a n d m y brother entored i n t o a n agreement
that h e w o u l d h a v e n o p a r t i n t h e w o r k a n d w o u l d h a v e n o
part i n the profits resulting f r o m it.
Was m a d e
T h a t arrangement
O n the other hand i f that h a d not been done,
Some hostile criticimight h a v e s a i d "there y o u are; t h e r e
is the Federal Reserve Bank lettimg a contract for $100,000,
and here i s the Governor's brother coming i n and getting his
share o f the swage"
have been p u t o n it.
T h a t i s the construction that would
I t was done perfoctly innocently.
I know m y brother t o l d m e that h e would n o t g o into t h e
building o r have anything t o d o with it.
We had another case involving Mr. Jay, who had
occasion
t o verfect t h e readjustment
necessitated borrowing a
securities that h e owned.
writing.
o f h i s insurance.
I t
little monoy f o r awhile o n some
H e submitted his program i n
I t was considered a n d approved a s a perfectly
proper thing f o r h i m t o éo. I
had occasion t o borrow some
money a Little while ago, a n d I sold some investment securities a n d bought s o m e others.
L t took a little time. I
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Federal Reserve Bank of St. Louis
S27
submitted
i t t o t h e d i r e c t o r s a n d t h e y l o o k e d i t over. T h e r e
was nothing speculative about it.
I t was Simply a tomporary
loan.
Govermmor Harding. W i t h rogard t o kr, Jay's case, that
was purely a voluntary matter because 7 6 i g not responsible
to t h e B o a r d
o f Directors.
P u r n a l y so.
Tne Chairman.
Govermmor Fancnor. I
a c o p y o f y o u r memorandum,
The C h a i r m a n e I
would L i t e t o b e f u r n i s h e d w i t h
G o v e r n o r Strong.
d o n o t w a n t y o u t o t h i n k that: 1
am
suggesting this a s applicable t o all t h e banks a t all, b u t
I will b e glad t o send copies o f this memorandum t o y o u i f
you w a n t i t e
Govermor Norris. I
Govermor Calkins.
Tho Chairman. I
reaction
yould l i x e t o h a v e i t .
A n d I
would l i k e t o h a v e a
was S i m p l y d e s i r o u s
copy
o f getting y o u r
o n t h e matter.
(After further discussion n o action was requested o n
thig topic, a n d t h e Conference proceeded t o the consideration
of other matters, )
The Ghairman.
E x c e p t f o r t n e topics t h a t areto b e
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Federal Reserve Bank of St. Louis
528
considered
Mr, D e w e y
b y t h e Joint Conference a n d thoso w i t h
exception
w e have completed o u r program, w i t h t n e
present,
of t h e d i s c o u n t rate.
T h a t being a n important sub-
Governor Mcpougal.
would suggest that that 6
ject, I
taken u p b y the Joint Con-
ference.
:
Governor Calkins. I
think w e ought t o Ciscuss i t
here before w e g o t o the Joint Conference.
(Gomptroller
o f the Surroncy McIntosh entered t h e
Conference room.)
My, MeIntoshe
sent t o me, I
M r . Chairman, 1
have read the letter
did not want t o bind t h e Comptroller d o w n
to t h e fact that t h e price c o u l d n o t hereafter b e raised
under a n y circumstances, because I
can imagine circumstances
cost
where i t might b e necessary t o raise it, n o t f o r t h e
of making t h e cxaminations, b u t t o meet other omergencies.
cost
For instance I toid Mr. Harrison o f a case where i t
us n e a r l y $ 1 5 0 0
bank,
t o m a k e t h e examination.
a n d really n o t a
pay f o r it. t
T h a t was a
stato
c a s e w h e r e t h e national b a n k s h o u l d
have asked f o r a n appropriation, w h i c a I
have gotton b y the Committee, t o take care o f such cases
ag that.
I f I can g e t the appropriation,
on us, 3 o n you,
i t will n o t fall
o r o n a n y b o d y e l s e ?p u t w i l l f ayl l directly s
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Federal Reserve Bank of St. Louis
Ong
a m i n hopes o f getting t h e appropria-
on the Government. I
tion s o that I can g e t through. H o w e v e r there might b e contingencics arisce
F o r instance w e had one tnis morning,
a case i n which t w o state banks a n d one national b a n k i s
involved, a
n d i t has roquired sending a
man o u t there,
or maybo t w o o r three cxaminors, a n d i f w e multiply a situation like that a hundred fold, t h e n w e would certainly
l i t t l e help.
como t o y o u p e o p l e f o r a
Toe Chairman.
T h a t situation could b e mot i f w e
would agree t h a t before t h e increase w a s made w e would
talk i t over.
The Cenptroller.
Y e s e
The Chairman.
T h e n l e t u s d o that.
Mr. Harrison.
T h a t can be accomplished
out t h e w o r d s w h i c h r e f e r t o t h e a s s u r a n c e
b y striking
o f the price
not being raised, bocauso the rest of the letter i s entireLy c o n s i s t e n t w i t h w h a t t h e C o m p t r o l l e r w a n t s t o accomplish.
The Chairman.
T h i s subject h a s been hanging o n for
two years, a n d i f w e dispose o f i t now I hope t h e Comptroller will b e satisfied w i t h it.
Tae Comptroller. L
Governor Norris.
we mot have a
certainly w i l l a p p r e c i a t e i t .
W h i l e t h e Comptroller i s here m a y
few words with h i m with regard t o Topie H ,
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Federal Reserve Bank of St. Louis
“Nadvisability o f a n arrangement wheroby t h e r
7 9 banits
would r e p o r t c h r o n i c c a s e s o f r e s e r v e d e f i c i e n c i e s
t o the
superintendents o f banks i n the various states a n d t o t h e
Somptrollier o f the Currency, a f t e r a n understanding h a s
been reached w i t h those officials t h a t they will promptly
communieate with tho directors o f tho b a n k s concerned,
acquainting t h e m with t h e financial l o s s which t h e bank
ig suffering through its failure t o maintain required
reserves a n d calling their attention t o the fact that
$h
they a
r e continually v i o l a t i n g t h e law.
5
The Comptroller. I
will b e glad t o discuss that.
Governor Norris. I
d o n o t remember w h a t action w a s
taken o n i t .
The C h a i r m a n e i
think t h e t w o f o u n d t h a t i t w e s
almost universally being done.
Governor C a l k i n s .
I n our case
i t was being regularly
done with satisfactory results, w i t h a s satisfactory r e s u l t s ©
we c o u l d e x p e c t f r o m t h e C o m p t r o l l e r ' s o f f i c e a n d t h e
Ghief Examiner.
The Comptroller.
W e would b e glad t o give y o u all
the c o o p e r a t i o n y o u w a n t o n that, G o v e r n o r .
want u s t o d o w e will d o .
Whatever you
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Federal Reserve Bank of St. Louis
SdL
think m o s t o f t h e m a r e d o i n g i t .
Governor Calkins. I
know that w e are Going i t i n
The Comptroller. I
most casos.
The Chairman.
n a t i s very fine, i f i t i s satisfac~
tory t o you, s i r .
I n some cases w e have a n idsa that
Governor Norris.
the Chief Bvaminer i n our district,
i n a case where things
don't look quite right i n a bank, a n d we Suggest t o him
that h e make such inquiries o r that h e make a special
examination
o r something o f that sort, d o e s n o t seem t o
be inclined t o give u s much information, because h e appears
to have t h e idea that w e want t o strengthen o u r position
not
as creditors there, t h a t i t i s entirely f a i r t o t h o other
creditors o f the bank t o give u s the information which t h e
other c r e d i t o r s
d o not'have.
D o e s that feeling s e e m t o
exist i n a n y o f t h e o t h e r districts?
Governor Young.
N o t i n our district.
Governor Bailey.
Noe
Governor Seay. U s u a l l y , Governor Norris,
w e aro able
to supply t h e examiner w i t h information t h a t h e himsolf
has not been able t o get, s o i t i s a question o f give a n d
take i n our district, a n d I think there i s n o hesitancy i n
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Federal Reserve Bank of St. Louis
S538
giving u s the benefit o f any information which thoy may
SECUTLE «
Governor Norris.
O u r relations w i t h t h o Chief Exan-
iner's offieo a r e generally satisfactory, b u t t h e infornation i s n o t a s f u l l a s w e w o u l d l i k e i t t e b e sometimes.
have t h e idea that h e has that feeling i n tne b a c k o f
hig head, a n d i n the case o f the o n e member bank failuro
that w o have h a c i n our t o n years,
w o did not g e t satisfactory
cooperation f r e m hime
Governor Calkins.
O u r relations w i t h the Chief Ex-
aminer have b e e n entirely satisfactory.
noticed a n y h e s i t a t i o n
W e have never
t o furnish u s w i t h information t h a t
we had t h e right t o ask for.
?
T e have, however, h a d con-
giderable e x p e r i e n c e w i t h t h e receivers
o f national banks,
and o u r experience w i t h them h a s n o t beon satisfactory.
The Chairman.
N o w , gentlemen,
w e have concluded o u r
a 8 I say, excopt f o r t h e discussion o f rates.
program,
Governor M c D o v g 8a5)l| s u g g e s t e d t h a t t h a t b e d e f e r r e d u n t i l t h e
Joint G o n f o r e n c e a n d t h e n t h e r e w a s a
here before t h e Joint Conference.
The G h a i r w i l l o n t e r t a i n a
or l a t e r .
call f o r a
discussion
W h a t i s your pleasure?
motion t o d i s c u s s
i t now
mer
Ou
Governor Seay.
Joint G o n f o r e n c e I
I f it is t o be d i
feel t h a t i t w o u l d b o r
s e d with t h e
a
t
h dvisablo
e r
a to
have a preliminary discussion here s o that o u r views m a y b o
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Federal Reserve Bank of St. Louis
erystalized.
Tre Chairman.
Governor Seay.
Y o u r motion i s t o n a v e i t discussed
Yos.
Govomor Norris. I
will second that.
(The motion having been d u l y goconded, w a s carried.)
Governor McDougal.
< = piacod t h a t o n the program f o r
the reason that i t i s a matter w e aro all intorested in,
and largely f o r the purpose o f ascertaining Sifio viows o f
o
n
y P
e
u :
:
;;
those banks t h a t a r e still operating o n a S / o per cont basis
as t o t h e underlying reasons f o r it.
The Ghairman.
A r e y o u addrossing y o u r remarks t o
me about t h e Sel/2 p e r centirate?
Governor McDougal.
Toe Chairman.
Y e s , sir.
Well, I
think o u r reason f o r making
31/2 p e r cent rate have been gonerally t h a t nothing i n t h e
gituation justified advancing it, not even the relation
between o u r discount rate a n d t h e market rate. R o c e n t l y ,
however, t h e market rates have beenadvanced,
and Ln Son
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Federal Reserve Bank of St. Louis
354
sequence o u r rate seems
t o some people t o b e a little o u t
of line w i t h the market vrato f o r credits.
There a r o d i f f e r e n c e s
being o u t o f line.
o f v i e w a s t o w h a t i s meant b y
I f you will g o over t h e reports 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 r a t e p o l i c y i n p a s t
years y o u will f i n d that almost nevor h a s t h e discount
rate o f tho reserve banks been above t h e market rate;
that i t i s practically impossible t o have i t above t h e
market rate.
A
rate advances.
g t h e d i s c o u n t r a t e a d v a n c e s the m r k e t
W h i c h i s the cause Aandwhich
I am not competent t o say;
i
t the fact’ i g i deubt i f
will b e possible, while the member banks aro borrowing
from u s i n any volume,
t o have t h e discount rate above
the m a r k c t r a t e w i t h o u t a
am n o t q u i t e a
c a l a m i t y t o t h e country.
s t r o n g l y influenced
S o I
b y t n e suggestion
t h a t
our rate i s out o f i i a g some mayv be, and such as I believe t h a t e v e n a ¢
2
per c e n t r a t e i n N e w Y o r k t o d a y i s
t o b o r r o w f r o m us, b u t
not o n l y n o t a
general t e m p t a t i o n
still o p e r a t e s
a s some ponalty - - reduced o f course - -
put o f s o m e n e n a l t y
o n borrowings.
h
e N e w York banks
are n o w p a y i n g v a r i o u s r a t e s o f i n t e r e s t
bank deposits, 1 - 3 / 4 p e r c e n t a n d &
o n t h e i r deposits,
per cent o n a
large
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Federal Reserve Bank of St. Louis
535
part o f their business a n d slightly higher rates o n some
partse I
think y o u c o u l d g e t o a n y b a n k i n N o w Y o r k today,
any important member bank, a n d offer o
deposit o f any
amount of money at 3-1/2 per cent, and they would not take
ite
n e y would not take a deposit
special collateral o r disccunting o f paper o r securities,
At 3~1/2 per cont there isn't much temptation t o borrow money,
to ghow i t i n t h e i r s t a t e m e n t a n d p a y 3 = 1 / 2 p e r c e n t o n i t
except f o r resorve purposes.
to €
M a y b o i f the market
y w o u l d borrow,
s
b u t with a
o f 4-1/2, a n d o u r rate a t S-1/2 I
general l e v e l
do not think t h e tempta-
tion i s very strong.
Ag t o t h e b u s i n e s s s i t u a t i o n
i n t n e country,up t o date
we have n o t seen anything i n the devolopment i n business
that was unsound o r dangérous o r speculative,
of increase
o f inventories
n o ovidence
c r forward b u y i n g o r unsound prac~
tices, a n d that soems t o justify n o attempt b y the reserve
bank t o restrain i t by advancing the discount rate.
h a t
opinion m a y not b e quite a s strong today a s i t was t w o o r
three weeks agOe
nere a r e t w o o r three things i n the situation, how-
ever, that have made u g wonder about the rate situation,
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Federal Reserve Bank of St. Louis
556
and w e have considered i t over a n d over again.
stock e x c h a n g e s p e c u l a t i o n a n d a n o t i e r
speculation.
O n e i s the
i s t n e real estate
T a e third proposition i s instalment buying.
With regard t o t h e real estate speculation,
i t i s rathor
remote f r o m o u r rate, a n d i t would b e ratner difficult t o
justify saying t o the country that w e have marked u p the
discount r a t o o f t h e F e d e r a l R e s e r v e B a n k o f N e w Y o r k b o cause t h e r e i s S p e c u l a t i o n
i n r e a l e s t a t e d o w n i n Florida.
That would make u s very ridiculous, although i t i s semo
factor i n t h e situation.
As t o t h i s i n s t a l m a n t buying, I
d o n o t bolieve a
rate a d v a n c e w o u l d b e o f a n y p a r t i c u l a r i m p o r t a n c e
i n that
I t might have some little influence, b u t i t really
matter.
boils d o w n t o t h e question o f whether t h e Federal Reserve
Bank i s c h a r g e d w i t h s o m e r e s p o n s i b i l i t y f o r r e s t r a i n i n g
speculation off the N o w Yor: Stock Exchange b y advancing
its rate.
Now Looking a t the situation a s a local matter a n d
at t h e N e w Y o r k s p e c u l a t i o n
responsibility,
a s i f i t were a
New York City
g t i l l t h e fact i s that t h e banks o f N e w
York City have reduced their loans o n the:Stock Exchange
materially since t h e l s t o f January, 150,000,000
to
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Federal Reserve Bank of St. Louis
Of
250,000,900.
T h e money which i s being employed t o carry o n
the b i g speculative accounts c o m e f r o m all over t h e country;
it d o e s n o t c o m e f r o m N e w York.
erease
i n in-
i n t h e speculative l o a n account m a s come f r o m o u t o f
town places,
banks,
T h e ontire amount
s o that y o u cannot s a y that t h e N e w York C i t y
a s t o t h e i r o w n operations, r e q u i r e m u c h r e s t r a i t
from t h e F e d e r a l R e s e r v e B a n k o f N e w York.
T h e fact
however, t h a t there i s a big speculation now;
no-
body knows whether these prices a r e justified o r not, a n d
I d o n o t t h i n k i t i s o u r business
t o pass o n t h e prices
at which t h e securities s e l l o n the Exchange.
T h e responsi-
bility o f the Federal Reserve System i s doubtless t o determine whether their funds a r o indirectly, t h r o u g h t h e t o r
tuous channels o f credits, b o i n g drawn o u t o f reserve banks
and ultimately flowing t o unsound a n d dangerous speculation.
We have l o s t o n e hundred a n d fifty millions o f gold
net since t h e l s t o f the yeare
W e have s o k s o m e o n e hundred
and fifty millions o f o u r securities, w h i c h h a s taken
three hundred millions o f credit o u t o f the market, o u r
credit, a n d that has been replaced t o the extent o f one
hundred t o one hundred a n d fifty million i n New York b y
borrowing from Uus+s T h e increase i n the loan account o f
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Federal Reserve Bank of St. Louis
538
charged
tho N e w York bank today, i f the whole situation w e r e
against the New York banks, would not even take care o f a
and
third o f t h e sum o f the gold exports/ sales o f securities
always
by t h e S y s t e m a n d s e a s o n a l d e m a n d s f o r e r e d i t w h i c h
occur i n the fall.
S o there foes n o t seem, f r o m the stand-
point o f the N e w York Bank,
t o be much i n support o f the
argument t h a t o u r funds a r e geing into t h e Stock Exchango
speculation.
T h e N e w York banks have shatevtedi pretty well--
the reason w h y t h e call rato i s 5 per cent right along - -
I think i t will g o down today -- i s simply because when the
New York banks h a v e t o borrew f r o m u s t o make their reserves
good and they have some c a l l . l o a n s t o pay, t h e y right a w a y
call their loans.
I a m n o t sure that all o f the downtowm
Lenders o n the N e w York Stock Exchange d o that, b u t t h e
money which i s loaned o n the Exchange, w h i c h comes f r o m
banks which have t o maintain beserves,
o r comes f r o m b i g
industrial and other concerms, i s subject t o the same influence t h a t bank loans are. T h o s e b i g concerns have n o t
a reserve p o s i t i o n
t o adjust o v e r y d a y o r two;
t h e y just
have a certain s u m o f money which t h e y lend a n d they keep
it loaned;
t h e y have n o ocecasion t o call i t until t h e y
need t h e m o n e y i n t h e i r business,
T h e .flracrtuat.Lonsy in
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Federal Reserve Bank of St. Louis
559
he Stock Exchange loan accounts which gives rise t o changes
in rates a r e those that arkse through t h e difficulty o f pla-
cing loans i n order that member banks may adjust tneir roServes without borrowing a t t h e reserve banks.
Governor Seay.
D
o those industrial concerms l e n d
largely o n call?
The Chairman.
Governor Seay.
O h yes.
h r o u g h banks o r brokers?
The Chairman. T h r o u g h banks. T h e y do i t from all
over the country.
U p todate I have not felt that the re-
sponsibility h a s rested u p o n u s t o deal w i t h this matter
by a
r a te advance
question.
h
i n N e w York.
T h a t i s o n e gide o f the
e other side o f the question i s what benefi-
clal results c a n b e expected a s the result o f maintaining
our rate without change. I
think the principal ones are
first, t h a t i f w e should make a
rate advance a t t h e New
York bank first i t would undoubtedly force the other banks,
he other reserve banks,
t o advance their rates, a n d the
psychological effect o f that mwp0e business might b e unfortunate.
I
t would certainly result i n some general
over
advance i n interest ratesa@i/the country, w h i c h would come
at a time when w e are marketing o u r cotton a n d other vroduce
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Federal Reserve Bank of St. Louis
abroad,
w h e n t h e e x p o r t o f i t i s t a k i n g p l a c e actively,
and, a s w e know,,there i s a demand f o r a l a r g e part o f
for
what w e are exporting,
a s well as/the payment o f debts owing
in this country t o the government i n others, which are largely now being financed b y loans that are oxtended through
cur bankers a n d investors t o foreign countries.
f e e l i
a hesitation a t this season o f the year, w n e n t n e burden
of b o r r o w i n g
i s heaviest,
w h e n t h e burden o f payment
bg
the rest o f the world i s heaviest, a b o u t having a n y ad-
vance a t the New York Bank which might have the effect,
temporarily,
a t least, o f arresting t h e stream o f f a eign
loans which would probably c o m e t o this country.
Now I
am not gure that this g a m e argument would apply
in other districts. I
think t h e influence o f the N e w York
rate i n these matters i s pretty strong. I
feel that changes
in t h e N e w York Reserve B a n k rate have become o f some con-
sequencee N o w this condition m a y not continue long. I t
may b e that t h e speculation, w h i c h i s perfectly obvious t o
all o f us, w i l l j u s t i f y o r requiro u s t o d o something. I
had i n mind the fact that the condition might ocfur this
year as i t did last year, when w e had a large increase o f
porrowing t o w a r d s t h e e n d o f t h e y e a r a n d then, a f t e r t h e
BLL
first o f the year, w e h a d over three hundred millions i n
Tore
currency come back We/the l a s t o f January,
‘weekg o f January.
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Federal Reserve Bank of St. Louis
i n t h e last t w o
W e will probably h a v e t h e same thing
on a larger seale this year, a n d i f w e c a n g e t past that
period without increasing our rate i n New York i t would
avoid s o m e p r e s s u r e w h i c h m a y b e u n n e c e s s a r y a t a
reaviest borrowing.
influence
time o f
A t any rate w e have considered the
o f the rate v e r y carefully
i n N e w York;
w e have
discussed i t from covery aspect, a n d s o far our directors,
while t h e y a r e a l i v e t o t h e f a c t t h a t t h i n g s a r e h a p p o n i n g
that have a bearing o n our policy, h a v e n o t y e t been willing t o vote f o r a n increase i n rates.
W e undoubtedly will
certain gmall class o f people
come into s o m e criticism, a
who t h i n k t h a t t h e y c a n r u n t h e s e m a t t o r s v e r y m u c h b e t t e r
than w e do, a n d that i s sspecially true w i t h regard t o some
newSspaperse
Governor Calkins.
h
e Chairman indicated, I
believe,
that i t was n o t the function o f t h e Federal Reserve B a n k o f
New Yori: t o determine whether speculation i n securities w a s
a condition indicating whether o r not prices was too high.
I wonder i f that would b e extended to:the opinion t h a t i t
was n o t t h e b u s i n e s s
o f the Federal Reserve Banks
t o consider
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Federal Reserve Bank of St. Louis
“es £6
pt
the condition o f speculation, w h i c h oxtends n o t only t o secubities b u t t o o t h e r t y p e s o f b u y i n g - - i t i s m y o p i n i o n
i n a condition o f
that w e aro, throughought t h e soutien:
extromeLy a c u t e s p e c u l a t i v e buying.
Tho Chairmane
O f commoditics.
Governor C y l k i n s ,
L o s s o f what y o u call commodities
than o f these other things that a r o n o t called commodities.
Thero igs no doubt about thore being a
Stook Exuchango everywhere.
speculation o n the
W e d o not have much o f it, b u t
we h a v e s e e n i t e T h e r e i s s p e c u l a t i v e b u y i n g o f F O A L
estate.
The Chairman.
O
Governor Calkins.
h yes.
Y e have heard o f Florida.
W e do
not h e a r a g m u c h o f s e m e o t h e r p i m c e s b e c a u s e F l o r i d a 1 8 N O W
in t h e limelight. I
believe t h a t t h e t r e m o n d o u s Werziman o F
instalment b u y i n g s h o u l d b e c o n s i d e r e d
a s speculative b u y i n g
and nothing else - - speculative i n the l a s t d.gree, P e o p l e
puy t h i n g s w i t h o u t k n o w i n g w h e t h e r t h e y a r e e v e r g o i n g t o
pay f o r t h e m o r not, a n d w h e n t h e y d o that, t h e } a r e s p e c u -
lating.
The Ghairmane
I t i s congumers' i n v o n t o r i e s .
Governor Calkins.
Y e s , consumers! speculations.
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Federal Reserve Bank of St. Louis
543
inventories a r e j u s t a s r e a l a s anybody else's
Consumers!
inventories, a n d sometimes m o r e dangsrous.
I t appears t o
ke t h e f a c t t h a t t h e f u n d s s u p p o r t i n g t h e L o a n a c c o u n t
in
New Y o r k d o n o t a l l c o m e f r o m N e w Y o r k h a s n o t a n y particu-
Lar bearing upon the question o f New York discount rates.
Tie effect i s just a s bad i f New York banks w l l l g e t out o f
the market and the banks o f the rest o f the country get
into it, perhaps,
a s i t would,bé, i f the N e w York banks were
supporting t h e loan account. I
believe t h e discount rate
in N e w Y o r k w o u l d a f f e c t t h a t m o v e m e n t promptly, p e r h a p s
more promptly, t h a n i t would affect a n y other movement i n
New York.
The C h a i r m a n .
I f w e advance
t n e discount
rate
i n
New York w e are going t o raise t h e rates o n the Stock Exchange a n d t h e N e w York banks a r e going t o pay a higher rate
and c o n s e q u e n t l y c a l l m o r e o f t h e i r loans.
W h e n ’ they c a l l
more o f their loans t h e banks throughout t h e country c a n
borrow f r o m t h e reserve banks a t a l o w e r rate than ours
they a r e going t o sent their money t o New York i n order
to supply that deficiency a n d make a larger profit which
otherwise would n o t come t o N e w York.
Governor Calkins.
I s not that so?
c o u p t= tha t..
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Federal Reserve Bank of St. Louis
The Chaizxrman.
34
worse.
situation
A n d w o might make t h e
T h a t i s a matter o f
Governor Calkinse.
o
f
COUrSé eo I L believe i f y o u advance t h e discount
New York i t would b e notice t o t h e banks o f the rasa o f
the country that i t 73.8 time f o r them t o stop a n d consider
what they wore doing.
The C h a i r m a n e
L e t u s consider t h a t t h a t i s t h e m u b
of the whole thing - ~
T
Governor Calkins.
The Chairman.
t is only a
part =<-
B u t let u g stick t o the Stock Exchange.
S u p p o s e w e have
We are discussing t h e Stock Exchange.
rate
a 6 per cent o n the N e w York Stock Exchango a n d the N e w York
banks a r e l e n d i n g m o n e y a n d h a v e t o p a y f o u r p e r c e n t t o
the Federal Reserve B a n k t o keep t h e i r reserves good, a n d
they endeavor t o pay off $200,000,000 which they now owe use
Every dollar o f the
m
i
l
l
i
o
n
s o f the Stock
Exchange account i s going t o b e b i d for b y the Stock Ex-
change from all the banks of the country, and it is coming
into N e w York exactly a s i t has been doing u p t o date,
touthe e x t e n t o f o i g h t h u n d r e d million.
T h a t account f r o m
out o f town has increased, w h i l e t h e New York account h a s
decroasede
T h e increase h a s b e e n r a p i d lately because
the rate h a s been higher, a n d i f w e put i t still higher
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Federal Reserve Bank of St. Louis
645
thore will b e more money coming into N e w York from o u t o f
town.
W e see i t happening covery day.
Governor Galkings
Y o u see it happoning every day,
put would y o u s a y that i f tho rate w s mwapidly advanced --=
which i s o f c o u r s e p u r e l y h y p o t h e t i c a l
- - t h e result w o u l d
sdebe t o inereaso t h e flow o f money into N e w York, O P t o
oreaso i t ?
I
The Chairmane
t will increase
i t under present
conditions.
Governor Norris. I s n ' t i t a fact that those 5 and
Bel /2 p e r c e n t r a t e s
i n New Y o r h a v e beog really rather
artificial, a n d that there h a s been most o f the time monoy
offered o n the so-@alled outsido o r outlay market a t lower
rates than the rates paid o n the Stock Buchange?
Tro Chairman.
N o t always.
T h a t does happen some=
days w h e n w i r e t r a n s f e r s c o m e i n e
Governor Seay.e
I g i t a fact, a s sometimes reported,
that when t h e rate h a s gone u p t o 5 and 5-1/2 that money
has come i n from t h e interior t o b e loaned?
Tre Chairman.
T n e minute t h e rate goes up, i n ite
comes, a n d w o d o not know t o w h a t extent t h e money i s being
borrowed f r o m t h e r e s e r v e bani:s e l s e w h e r e
i n t h e country.
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Federal Reserve Bank of St. Louis
546
Governor Calkins. I
would t h i n k t h e i n c r e a s e
in
the N e w York rate would have n o influenco u p o n that whatever.
will t e l l y o u w h e r e
The Ghairmane I
an influence.
I
i t would have
f w e p u t o u r r a t o u p considerably higher,
say t o 4 per cent, I
think i t would d o it.
I t would have
a sentimental e f f e c t u p o n t h e s p e c u l a t o r a n d c a u s e s t o c k s
to decline, w h i c h would have t h e offect o f reducing t h e
account.
Govermor Calkins.
The Chairman.
T h a t w o u l d b e a n incidental e f f e c t .
Y e s , b u t t h e only direct effect w e
would e x p e c t w o u l d b e o n t h e v o l u m e o f Lomey,
b y a n advance
in t h e N e w Y o r k d i s c o u n t rate.
Governor Calkins. T h e o r e t i c a l l y rates a r e supposed
to b e determined i n each district i n accordance w i t h t h e
condition o f t r a d e a n d c o m m e r c e
i n e a c h district. I
be-
Lieve i t would be fair t o say that throughout the country,
of c o u r s e w i t h s o m e exceptions,
t h e conditions existing
in
the various districts, e x c e p t N e w York, a r e probably n o t
such a s t o c a l l f o r a n i n c r e a s e
i n t h e discount rates.
Of course along with that goes t h e opinion t h a t conditions
in New York a r e such a s t o call f o r ite
The Chairman.
B u t d o n o t l e t u g leave t h e Stock
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Federal Reserve Bank of St. Louis
Exchange yote T h o r e i g a lot tm» be said about that. I
do
not Inow that y o u realize it, b u t o f the total amount o f
money b e i n g o m p l o y o d
i n t h e speculativo account
o f the New
i s furnished
b y t h e New
York S t o c k E x c h a n g e o n l y o n e - t h i r d
York banks.
N o w , i s i t the responsibility o f the Federal
furReserve B a n k o f New York, w h e n t h e N e w York banks a r e
nishing one-thidd o f the fund and are reducing their loan
account o n the Stock Exchange,
other banks? I
t o put the rate u p o n the
mean i s that t h e sole consideratin,
if
we are dealing w i t h them i n a watertight compartment? D o o s
he condition o f trade a n d commorce i n the N e w York District
require u s t o do that?
I t won't restrain money from coming
into N e w York, b u t w i l l coven f a c i l i t a t e a n d i n c r e a s e i t .
Governor Norris.
accounts
T h i s algo should b e taken into
I f there w a s s u c h a general advance i n rates,
eithor b y t h e N e w Y o r k B a n k s
o r t h e o t h e r banks,
o r all
of them, t h a t would p u t money u p o n the Stock Exchange,
it
would n o doubt throw a chill over t h e Stock Exchange, b u t
after t h e y g o t over t h e chill, unless something else
occurred
t o s t o p t h e speculation,
i t would g o right a h e a d .
again, because a s long a s peoplo a r e making 5
per cent
over night t h e y don't care whether t h e y p a y 5 per cent o r
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Federal Reserve Bank of St. Louis
15 p e r c e n t a
y e a r f o r t h e m o n o y t h a t t h e y borrow.
Govermor Calkins.
T o recuce y o u r argument t o a few
t h e spectlawords i t is that t h e rates h a v e n o offect u p o n
tive activity o n the N e w York Stock Exchange?
T h o y have a little offect, b u t
Governor Norris.
think i t i s exaggerated.
Governor Galkins.
W e interrupted Governor Strong
his statement about t h e Stock Exchange.
Governor Norris.
T h e r e i s another matter which seems
Market Investto m e t o b e contained i n the report o f t h e Open
ment Committees which I
of Ciscount rates.
thin
I t seems t o me, f r o m reading t h a t ro-
o p i n i o n that
port, t h a t t h e Committee i s plainly o f the
dealt
the fund which i t has t o deal with i s t o o smali t o b o
with,and t h e r e f o r o
w e now h a v e n o opportunity
t o consider
mea sures
whether a n y @ r r o e t i g o / c a n b e b r o u g h t a b o u t b y t h e u s u a l
open market workings ~ - that there i s nothing left b u t t h e
discount rate t o use, a n d i f that i s the situation,
a s it
Seems t o m e the report indicatos, t h e discount rate i s
certainly t o b e considered.
The C h a i r m a n e
Y e s e
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Federal Reserve Bank of St. Louis
549
Governor Young.
I
n a few words, t h e whole thing
means t h a t i t i s i m p o s s i b l e f o r t n e F e d e r a l R e s o r v e B a n k
any o n e e l s o
t o stop speculation through o p e n marke
operations, discount rates,
o r anything G1LSOe » T h e only
thing w e can d o is what w e did before, a n d that i s when
the harm w a S a l l done, a n d i t i s all over, t h e n
for open market operations w i l l b e effective i n adjusting
thing t o a normal condition.
4.
Toe Chairman.
Governor Younge
T h e view w o take o f i t i s this,
T h e member banks o f the country now owe
us i n the neighborhood of $600,000,000 i n discounts.
I f
we wantod t o deal with a speculative situation through the
discount ratcos w e w o u l d m a k e a n e f f e c t i v e a t t a c k u p o n s p e c u -
lation b y putting a penalty u p o n borrowing f r o m u s and
putting that penalty s o high that the banks would have
to pay u s off.
Governor Young. I
six months ago.
know, b u t t h e h a r m w a s a l l done
I t i g just getting worse, t h a t i s all.
The Chairman.
T h e harm that would result f r o m such
a course a s that would b e this:
D u e t o tne fact that i n
order t o liquidate w h a t t h e y o w e u s t h e reserve banks,
roughly speaking,
o r the banking system a s a whole, t h e y
have t o c a l l t e n dollars
o f loan f o r every d o l l a r t h a t *»>"
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Federal Reserve Bank of St. Louis
pay t o u s i n o r d e r t o r e d u c e t h e i r r e s e r v e requirement,
and
no such liquidation c a n take place i n this country without
a big decline
i n prices, w h i c h m a y b e s t o c k prices,
o r which
may be commodity prices.
Governor Calkins.
M a y I ask whetner t h e Chairman i n -
tends t o s a y what i t seems t o m e h o does say, a n d t i t i s
that h e believes t u a t n o influence o f any consequence will
follow unless there i s a drastic increase i n discount rates?
In other words a modertate increase would have n o influenco
wha teve r? G o v e r n o r Young's opinion seems t o b e that t h e
FederalGneserve S y s t e m i s f u t i l e
i n a n y case, e x c e p t
to
repair t h e damage caused b y t n o fire after i t occurs.
that i s t h e view, a n d t h e C h a i r m a n s e e m s t o s u p p o r t
saying t h a t n o t h i n g b u t a
I f
i t by
drastic a n d d e s t r u c t i v e r a t e
increase w o u l d h a v e a n y effect,
t h e n w e a r e i n a p r e t t y helpy-
less condition.
The Chairman. I
think, Governor Calkins, that the
advance i n the prices o f stocks, brought about b y widespread,
speculatimg b u y i n g o n t h e p a r t o f p e o p l e w h o k n o w n o t h i n g
of stocks, a n d just g e t o n the wagon w i t h t h e rest, b e cause t h e wagon seems t o b e good riding ~ - t h o s e psople
are i n a state o f mind that has b o be dealt with, a n d i t is
rather a statemof mind than a state o f money, s o t o speak.
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Federal Reserve Bank of St. Louis
351
The difficulty about dealing w i t h t at state o f mind b y
the discount rate i n New York i g that once w e make t h e
change, s a y t o 4 per cent, t h a t i n itself i g a relief o f
the anxiety a S t o what i s going t o happen t o them i n monoy,
and after a pause t h e y g o jogging right along again.
L e
you will look a t the result o f the rate action which w e
took last March y o u will s e e that that i s omectly what
happened.
T
t checked
u p t h e market;
decline“of about 5 points;
i t caused a n averago
i t caused a
couple o f h u n d r e d m i l l i o n d o i l a r s
roduction o f a
i n t h e l o a n accounts,
but
after t h e y g o t t h e i r gsocond w i n d t h e y w e n t o n i n t h e i r m e r r y
way, a n d they wore induced t o g o along a little morfrier
by the unjustified assumption t h a t thore w s s o m e arrangemont with t h e British which made i t impossible f o r u s t o
inercase o u r r a t e because’ t h e y h a d r e d u c e a t h e i r r a t e i n
London.
Governor Calkins.
prevails, I
I t i s a n assumption t h a t still
believe.
The Ghairman.
M y own theory i s that y o u are dealing
with a state o f mind, a n d that y o u have g o t t o keep t h e m i n
a state o f a n x i e t y r a t h e r t h a n r e l i e v e t h e i r a n x i e t y b y
advancing t h e N e w York discount rate;
y o u have g a t t o keep
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Federal Reserve Bank of St. Louis
the sword hanging over them with the understanding that
3% c e n f a l l a t a n y minute.
Governor Calkins.
I n other words,
gtate i f y o u i n c r e a s o t h o r a t o S n e - h a l f
in
of 1
per c e n t y o u
believe their apprehension w o u l d b o reliaved instead o f
incréased?
t h i n k possibly i t would b e botter
The Chairman.
if w e c o u l d i n c r e a s e
r e h e n s i o n w i t h o< u t i n c r e a s i n g
t h e e p p Ly
<
Governor Calkins. Il-agree, b u t h o w c a n y o u d o it?
Youyhave nothing left t o deal w i t h but t h e rate.
W e d o not want t o sell more securi-
The Chairman.
ties a n d gust p u t t h e banks heavier i n our debt without
4
avcomplishing anything, because w e would lose o u r insurance func, s o t o speake
Governor Calkins.
Y o u r insurance f u n c i s s o much
reduced n o w - - i t i s almost dissipated altogether.
Govermor S e a y e
gure,
?
T h e r e i s o n e thing which i s pretty
a n d that i s i f the speculative account w a s reduced
it would increase t h e volume o f loanable funds, a n d i f
they w e r e n o t taken
u p b y business t h e y would b e i n a s h o r t
time p r e s s i n g f o r employment.
I t would b e a
que
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Federal Reserve Bank of St. Louis
then w h e t h e r t h e s p e c u l a t i v e s p i r i t h a d r e c e i v e d s u c h
check a s t o have quicted d o w ,
o r whether i t h a d oxporien-
ced a stato o f recrudescences
The Chairman.
I f w o have a
continued advance o f
money rates i n New York w e arc going t o get more gold, a n d
that would make t h e situation worse.
Governor Calkins.
T h a t i s t h e f i r s t argument I
have
heard i n support o f the present policy.
Governor Seay.
I t does not accomplish anytuing t o
bring about a chonge o f stocks f r o m o n e hand t o another,
thus resulting i n a profit t o some people and a loss t o
out again and start
others, i f the thing Co>i s going t o break ‘
from t h a t p o i n t =--— n o g o o d i s a c c o m p l i s h e d e x c e p t
t o thoss
people w h o w e r e benefitted.
I t i s common t o Speak o f t h e
matter a s having received a
wholesome check, b u t t h e situa-
tion i s simply readjusted,
i t i s all t n e stronger a n d
it proceeds t o follow t h e same line again.
T h a t does n o t
accomplish anything.
Tye Chairman.
Governor Seay.
W h a t would y o u do, Governor Seay?
I t igs not u p t o m e t o propose, a n d
I am not proposing.
The Chairman.
W h a t woukd y o u do, Governor Calkins?
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Federal Reserve Bank of St. Louis
354
a m not running t h e Federal
Governor Calkins. I
Reserve B a n k o f New York.
Governor Seay.
T h e r e i s o n o t h i n g t h i s thing demon-
stratos, a n d that is that i t is easy t o put the rato dow,
and L t i a Givticult t o get i o ue.
agree with you. I
The Chairman. I
would like t o
ask G o v o r n o r T a l l e y t o w a i t u p o n G o v o r n o r C r i s s i n g e r a n d
toll h i m that w e have completed o u r program, e x c e p t f o r our
meeting with the Board.
Governor Calkins.
T h a t argument w a s used with great
offect w h e n t h e r a t e s w e r e r e d u c e d a n d t h e r e w a s n ' t a n y
strong justification f o r remuction - - that i t would s o much
easier t o put them up if we put them down.
Governor McDougal. I
would like t o inquire o f
Governor Galkins w h a t t h e underlying reasons a r e that exist
in his bankfor a
continuance o f the 3—1/2 percent rate i n the
face o f t h e p r e s e n t m o n e y m a r k e t c o n d i t i o n s ?
Governor Calkins.
lying c o n d i t i o n s
a continuance
increasc.
call
for
T h a t i s perfectly oasye T h e under-
i n o u r district a r e s u c h a s t o justify
o f the rate because t h e y d o not justify a n y
T h e r e a r e n o conditions
a n increases
i n the district which
i n t h e discount rate.
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Federal Reserve Bank of St. Louis
555
Are your banks lending a n y money
Governor hicDougal.
to W a l l S t r e e t ?
have n o t combed t h e m all, b u t
Govermmor Calkins. I
I think those t h a t a r e borrowing a t the reserve bank a r e
pretty free f r o m loans t o the street, a n d I think that condition p r o h a b l y e x i s t s t h r o u g h o u t t h e country.
The G h a i r m a n e
I t i s cspecially
believe
Governor CGalxins. I
i n N e w York.
tre
a n inercase
i n t h e dis-
the
s0ount r a t e i n S a n F r a n c i s c o D i s t r i c t w o u l d h a v e n o o f f e c t
whatever u p o n t h e contribution o f the banks i n that district t o the street loans.
Govornor McDougal.
D o y o u think t h e discount rate
in t h e S a n F r a n c i s c o B a n k w o u l d h a v e a n y r e l a t i o n t o t h e
going rates f o r money?
Governor Calkins.
Governor MeDougal.
Y e s , s o m e relation.
W h a t a r e t h e going retes f o r
money i n y o u r d i s t r i c t ?
Governor C a l k i n s .
Chicago, probably 5
A b o u t
the same
i n
per cent.
Govermor McDougal.
O u r country rates a r e 4m1/2,
think your rates
and i n a few special cases h e F E I
are a
a s the rates
little higher.
Governor Calkins.
G
e
n
e
r
a
l
l
y t h e y are
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Federal Reserve Bank of St. Louis
556
nearer t h e N e w Y o r k r e t e s t a n d y o u r r a t e s t h a n a n y o t h e r
place i n t h e country.
Governor Harding.
I t soems t o b e t h e impression
among t h e speculative talent that t h e Federal R e s e r v e Board
was n o t g o i n g t o p r o v e a n a d v a n c e
o f d i s c o u n t rates,
and
therefore t h e y are r u m i n g w i l d i n New York, a n d money i s
coming i n from all over t h e country.
N o w suppose S a n Fran-
cisco should advance t n e rate t o 4 per cent a n d t h e rate
should b e a p p r o v e d b y t h e F e d e r a l R e s e r v e B o a r d ?
W o u l d or
would not that have t h e effect o f having t h e speculators
pause f o r a moment a n d speculato over t h e fact that t h e
Federal R e s e r v e B o a r d h a d a d v a n c e d t h e r a t e i n S a n Francisco}
and suppose a
little later some other outlying bank should
raise i t s rate, a n d i t would create another pauso o n their
part, wouldn't that have a healthful
Governor Calkins.
T
o answer y o u r question I
would
gay that i t m i g h t have some slight effect, b u t v e r y slight.
Governor Harding. S u p p o s e t h e Boston Bank, t h e next
door neighbor t o the N e w York Bank, w o u l d raise i t s rate t o
4 per cent?
Governor Calkins. I
think-that i t would have more in-
fluence t h a n a n increase i n the S a n Francisco ratde i
be-
lieve there i s a widespread belief throughout t h e country
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Federal Reserve Bank of St. Louis
SO7
that t h e Federal reserve banks will n o t raise their rates
because o f some understending w i t h England.
Te Chairman. ( A f t e r a little furthor discussion)
If there i s n o further discussion o f this, there i s o n e
more matter I
want t o bring up.
Governor Talley. ‘ l e have been able t o oncourage a
good many o f our larger member banks t o adjust their position with u s rather t h a n t o use t h e call money market t o
adjust their position, w h i c h t h e y ha‘ 2
That h a s b e e n d o n e b y a n i n c r e a s e
tendency t o do.
i n t h e q u a n t i t y o f bills,
employing t h e surplus funds i n that w y a n d reducing their
call loans, a n d adjusting their position w i t h us.
Tho Chairman.
B y bills?
Governor Talley. H i t h e r b y bills o r borrowing o n
Government.
he Chairman.e H a v o t h e y a d j u s t e d t h e i r p o s i t i o n
with y o u a n d still maintain a
very b i g call loan account i n
New York?
Governor Talley.
appear
T v o o r three o f the larger banks
t o b e s o l d o n the i d e a t h a t i t i s less confusing a n d
better f o r them t o d o it, a n d a good many o f them are getting
the idea that b y carrying large call loans means a large
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Federal Reserve Bank of St. Louis
558
amount o f m o n e y o n c a l l t h a t t h e y a r e c o n t r i b u t i n g
t o this
speculation - The Chairman.
A n d they d o not want t o d o it?
Governor Talley.
The Chairman.
N o e
I t i s a good idea.
Governor Talley.
S o i t seems t o m e that a n y roeadjust-
ment o f the New York rate, i f that did become more o r less
prevalent over t h e country, t h e call rate would g o u p without
any a c t i o n o n t h e p a r t o f t h e F e d e r a l R e s e r v e B a n k o f N e w
York, a n d that would b e a corrective measure.
Governor Calkins.
W a s n o t t h e question intended
to bring out a discussion o f dhbeount rates o n the part o f
Governor McDougal?
Goveror McDougal. I
have notning further t o s a y
about i t o x c e p t t h a t w h i l e w e r e a l i z e t h a t G o v e r n o r C a l k i n s
and nis associates o u t there a r e well qualified t o handle
the question o f discount rakes f o r their o w n district, t h a t
we feol that w e would like t o b e enlightened adsrtéhahe underLying r e a s o n s f o r m a k i n g t h e 3 = 3 / 2 p e r c e n t r a t e i n t h e f a c e
of the present money market.
W i t h regard t o t h e rate i n
Chicago w e feel that i t is about where i t should be, and
we are glad that i t i s right there.
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Federal Reserve Bank of St. Louis
359
Governor Norris.
O
f course c a c h o n e o f u s hesitates
to discuss tho discount rato i n another Federal Reserve distriat, b u t I
understand t h e discussion h a s been invited
hero n o W e
The Chairman.
Y o u a r o a t perfoctly liberty t o t a l k
about mine,
Governor Norris.
W e all reducod o u r “ratovabomttbhe
game t i m e i n t h e s u m m e r o f 1924.
that has advanced since.
N e w York i s the only bank
T h e r e are four otnor banks whose
rates a r e usually higher t h a n N e w York's t h a t are n o w the
same figure.
Governor Calkins. I
do not think that i s correct,
Governor Norris.
Govermor Norris. T h r e e o r four of them anyhow.
I don't suppose a n y one o f u s will undertake t o s a y that
there i g n o relation botween o u r discount rates a n d t h e going
rates f o r money.
I
t seems t o m e perfectly obvious t h a t
either t h e 3-1/2 p e r cent rate w a s t o o hight i n the summer
of 1924, o r i t i s too L o w now. A c c o p t a n c e s t h a t were about
e~1/4 t h e n are n o w Se1/4 t o 3e1/Sth t o a half, a n d w e are
holding t h e m a t a rate that i s three~quarters o f a per cent
below t h e rate o n commercial paper.
I t i s more t h a n that
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over t h e counter rate o f tho city banks, a n d Q~1/2 p e r
cent ou. oithe countor rate o f all t h e banks outside t h e
cities.
T t i g holding o u t a n inducement continually t o
those banks t o borrow f r o m us, oither f o r t h e purpose o f
helping t h e N e w York speculation,
o r for a n y othor purpose.
We first invite t h e m b y o u r rate t o come in, a n d then i t i s
suggested that w e should tell t h e m that t h e y ought n o t
come in. S p e a k i n g personally, a n d not f o r o u r Board,
think i t i s perfectly clear that t h e Philadelphia r a t e
should
b e increased.
I
for B o g t o n a n d G l e v e l a n d
t seeme
t o m e that
t o increase.
i t would
b e wise
T h e Pacific C o a s t i s
too f a r off a n d t h e conditions there a r e t o o individual a n d
separate f o r m e t o form, m u c h less express, a n y opinion about
the rate i n San Francisco.
B u t a s t o three o r four o f the
panks outside o f New York that have a 3-1/2 per cent rate
it seems t o m e clear that they ought t o raise i t t o 4 per
cent, a n d that that increase should precede a n y increase i n
the N e w Y o r k rate.
Governor Harding.
T h e New York rate h a s a national
and international effect a n d t h e Boston r a t e has o n l y a
Local offect.
Governor Fanchere T h e rate of 31/2 per cent has
prevailed i n the Cleveland Bank since t h e middle o f August,
361
19 24
W e had a mecting nearly four wocks ago i n which
we initiated the discussion o f a higher rate and the matter
was g u b m i t t e d
t o t h e F e d e r a l R e s e r v e Board.
W e have s e e n
a little more activity a n d a little more borrowing,
rates a r e u p a little i n the member banks, b u t w e believe
now that a 4 per cent rate i s more i n line with conditions
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Federal Reserve Bank of St. Louis
M y o w n judgmont a t the present time
as t h e y exist now.
is that a 4 por cent rate i n Cleveland i s about right, a n d
our raiso i n rates should precede a
raise i n Now York.
A s
Governor Norris h a s s a i d i t has boen a n unusual t h i n g f o r
the Cleveland rato t o b e o n a level w i t h t h e New York rate.
We usually have been above t h e N e w York rate.
Governor Talley.
M x . Chairman, t h e Fodoral Reserve
Board suggests t h a t t h e Joint Conference b e called f o r
2.30 o'clock this afternoon.
The Chairman. G e n t l e m e n ,
a S w e have completed
our program, t h i s C o n f e r e n c o w i l l a d j o u r n
t o meot with
the F e d e r a l R e s e r v e B o a r d a t 2 . 3 0 o ' c l o c k t h i s a f t e r n o o n
in J e i n t C o n f o r e n c e .
(Whereupon,
a t 1 o'clock p e m., t h e Conferenco o f
Governors adjourned,
t o meet i n Joint Conference w i t h the
Federal R e s e r v e B o a r d a n d t h e C h a i r m e n a n d Federal R e s e r v e
Agehts a t 2.50 o'clock pem., o f the same daye)
Thursday, November 5, 1925.
The Conference o f Governors reconvened, pursuant t o
adjournment o f the Joint Gonference,
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Federal Reserve Bank of St. Louis
a t 4.55 o'clock DeM.
Present:
The Governors a s previously indicated i n this
recorde
The Chairman.
i r , D k w b i s o n will deal with the ques-
o f t h e Insurance
tion t o b e b r o u g h t u p , w h i c h i s t h e r e p o r t
Committee.
Mr, “arrigon.
T h e Gonference h a g already considered
Committees.
the f i r s t s e c t i o n o f t h e r e p o r t o f t h e I n s u r a n c e
inThe remaining question covers Treasury registered mail
surance,
a n d that question w a s postponed pending a
of the Gonference w i t h Mr, Dewoy.
meeting
M r . D e w e y read a copy
Reserve Banks
of t h e L e t t e r w h i c h h e h a d s e n t t o t h e F e d e r a l
o f insurproposing certain arbitrary adjustment i n the case
ance f o r e a c h bank.
U e r e p o r t e d t h a t 1 1 o f t h e 128 banks
Francisco
had agreed t o this proposed adjustmont b u t S a n
Francisco
had objected, a n d t h a t t h e schedule o f rates t o S a n
was b e t w e e n t e n a n d e l e v e n c e n t s e
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Federal Reserve Bank of St. Louis
565
Governor F a n c h e r e
Mr, Harrison.
A b o u t t e n and a
h a l f cents.
S i n c e S a n Francisco h a s objected
the matter h a s been considered b y the Insurance Committee,
and w e have submitted a
now schedule o f rates which t h e
Committee thinks will b e more equitable,
a s i t takes into
songideration certain factors w h i c h were n o t considered
when t h e first schedule w a s prepared.
I
n tho n e w schedule
ofrates the rate to San Francisco is 8-1/2 cents rather
than t e n and a fraction.
Governor.Baileye W h a t change fid that make i n the
rest o f it?
Mr, Harrison. S l i g h t increases i n others. I
haven't
the original schedule here, b u t t o compensate f o r t h e reduction t o San Francisco there h a s b e e n a very slight increase
in g o m e o f t h e o t h e r r e s o r v e banks. I
spoke t o G o v e r n o r
Calkins about i t and he said that while hoe had objected t o
the first proposal h e would n o t object t o the n e w schedule
which w a g submitted b y the Committee.
Governor Seaye I
move t h e adoption o f the report,
Mr. Chairman.
Governor Younger I will second the motion.
The Chairman. G o v e r n o r Biggs authorized m e t o s a y
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Federal Reserve Bank of St. Louis
364
e ig i n favor o f the recommendation i n the report.
that’ h
Governor Galking h a s stated t o m e that h e i s opposed t o
the r e a d j u s t m e n t
o f oxisting rates u n d e r t h e p l a n submitted
by the Treasury.
H e might feel mollified b y this proposal
of the Committees, a n d I am inclined t o recommend that some
offort b e m a d e b y t h e T r e a s u r y D o p a r t m e n t
t o secure t h e
adoption b y all t h e Reserve Banks o f the proposal contained
in the report. I
feel quite sure that there will b e n o
difficulty a f t e r t h i s i s t h o r o u g h l y e x p l a i n e d
t o svery ones
(After a little further discussion, t h e motion,
having been duly seconded, w a s carried. )
(Whereupon, a t 4.55 o'clock p. me, upon motion duly
seconded, t h e Conference o f Governors adjourned.)
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Federal Reserve Bank of St. Louis