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Federal Reserve Bank of St. Louis
PROCEEDINGS
OF A
CONFERENCE
WITH T H E
FEDERAL R E S E R V E
BOARD
AND C H A I R M E N
O F GOVERNORS
A N D FEDERAL
RESERVE A G E N T S
OF T H E
FEDERAL
RESERVE
BANKS
TREASURY B U I L D I N G
W A S H I N G T O N , D.C.
N O V E M B E R 5 , 6, 7, 1925
W A L T E R S , COX
SHORTHAND
REPORTER
COLUMBIAN BUILDING
WASHINGTON,
D.C.
JOINT C O N F E R E N C E
O F T H U PEDMAWAL R E S E R V E
BOARD WITH THE GOVEKNOKS AND CHATRMEN
AND FEDURAL RUSSRVE AGENTS O F FLD UNAL
RESEHVE BANKS.
Washington, D . ©., Novembor 4 , 1925.
2.30 o'clock p e me
The joint conference o f t h e Federal Reserve Board
with the Governors and Chairmon and Federal Reserve Agents
of Federal Reserve banks convened i n the Board Room,
Federal Reserve Board, Treasury Building, Washington, D . C .
at 2.30 o'clock p. m.
Fresent:
De R e Grissinger, Governor, Federal Reserve Board,
Edmund Platt, V i c e Governor, Federal Reserve Board,
Charles §. Hamlin, Member Federal Reserve Beard,
Edward H , Cunningham, M e m b e r Federal Reserve Beard,
George R . James, Member Federal Reserve Boards
Present Also:
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Federal Reserve Bank of St. Louis
W. P. G . Harding, Governor, Federal Reserve B a n k o f
Boston,
George W . Norris, Governor Federal Reserve B a n k o f
Philadelphia,
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Federal Reserve Bank of St. Louis
Benjamin Strong, Governor, Foderal Reserve Bank o f
New York,
EB. R e Fancher, G o v e r n o r B e d e r a l R e s e r v e B a n k o f
Cleveland,
George J . Soay, Governor Federal Reserve B a n k
Richmond,
Me B e Wellborn, G o v e r n o r F e d e r a l R e s e r v e B a n k
Atlanta,
J. B . McDougal, G o v e r n o r F e d e r a l R e s e r v e B a n k
St. Louis,
Re. A e Young, Governor Federal Reserve Bank o f
Minneapolis,
W. J e Bailey, Governor Federal Reserve Bank o f
Kansas City,
Lynn P. Talley, Governor Foderal Reserve B a n k o f
Dallas,
J. U e Calkins, Governor Federal Reserve B a n k o f
San Francisco.
Present Also:
Yrederic H e Curtiss, Chairman a n d Federal Reserve
Agent o f Boston,
Pierre Jay, Chairman and Federal Reserve Agent o f
New Y o r k ,
3
R. L. Austin, Chairman and Federal Reserve Agent o f
Philadolphia,
J. G . Novin, Chairman a n d Federal Reserve Agent o f
Cleveland,
Wm. W. Hoxton, Chairman and Federal Reserve Agent o f
Richmond,
Oscar Newton, Chairman a n d Federal Reserve Agent o f
Atlanta,
Wme A . Heath, Chairman a n d Federal Reserve Agent o f
Chicago,
Wm. MceCMartin, Chairman a n d Federal Reserve Agent o f
St. Louis,
John R. Mitchell, Chairman and Federal Reserve Agent o f
Minneapolis,
M. L e McGlure, Chairman a n d Federal Reserve Agent o f
Kansas City,
C.CO. Walsh, Chairman and Federal Reserve Agent o f
Tallas,
John Perrin, Chairman and Federal Reserve Agent o f
San Francisco.
Present Also:
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Federal Reserve Bank of St. Louis
Messrs. S i d n e y Anderson a n d Donald Conn Representing
tho American Hailway Association.
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Federal Reserve Bank of St. Louis
Governor Crissinger:
to order.
T h e meeting will kindly come
A l o n g about Scptember 1 7 t h I received a
letter
from Mr. Donald D . Conn, representing t h e American Kailway Association i n which h e said that t h e American
Railway Association a n d individual carriers throughout
the country have been developing a
public contact w i t h
industry and agriculture through the organization o f
regional Advisory Boards;
t h e t many problems have recent-
of
ly developed whicn nocessitate:the active cooperation
the b a n k i n g i n t e r e s t s
o f t h e country,
asked b y t h e r a i l r o a d s
a n d that h e hes been
t o l a y this problem before m e i n
order that t h e Federal Keserve Board might understand
this d e v e l o p m e n t , a n d ,
i f possible, s e c u r e t h e a c t i v e
cooperation o f the different Federal Reserve banks
threughout t h e country.
I had Mr. C o n n come t o the office t o discuss this
matter,
a n d i n the discussion
i t appears t h a t Mr.
Anderson, & Zormer Member o f Congress, w h o W&S on the
Joint Agricultural Commission which made a n investigation and made a report t o Congress, was vitally interest ed i n this proposition.
In view o f the fact that Mr. C o n n desired time t o
talk a b o u t i t t o t h e B o a r d a n d t h e n t o t h e F e d e r a l R e s e r v e
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Federal Reserve Bank of St. Louis
5
Banks, I thought the best place t o take i t up would b e
at this Gomtopenes) w h e n a l l would b e present w i t h the
Board, a n d y o u could hear a t first hand t h e matters which
they wanted t o present t o t h e various F e d r a l Reserve
banks a s well a s the other banks o f the country. I
think
when y o u get into this matter y o u will find i t one o f
imnaenso interest a n d y o u will also know that i t has done
and i s doing a
great service i n the matter o f distribu-
tion o f the commodities o f the country.
N o w , without
any further remarks I am going t o introduce t o you Pivsat
the Honerable Sidney Anderson, w h o will give y o u his
view o f the situation.
Mr. Anderson.
M r . Chairman a n d gentlemen, I
want
first t o express m y appreciation o f the privilege o f appearing before y o u t o discuss a
mattor which may, a t first
blush, s e e m somewhat outside o f your province a n d o f the
4nterest
o f t h e b a n k w h i c h y o u represent. I
can perhaps
best express this appreciation b y making m y remarks a s
brief a s possible.
While this matter m a y seem a t first blush somewhat
outside
o f t h e i n t e r e s t w h i c h y o u represent,
i f Mr. C o n n
and I ave a s good salesmen a s w e hope w e are, w e should
o
y that i t i s not o n l y not outside
be able t o c o n v i n c e u
6
of your interest, but that i t is well within the interest
nf the Federal Reserve banks, a n d that what w e are going t o
ask y o u t o d o i s not i n a n y way unreasonable.
Some o f y o u p e r h a p s m a y d o m e t h e h o n o r t o r e m e m b e r
that I was Chairman o f the Joint Commission o n Agricultural
Inquiry, w h i c h i n 1922 made a n inquiry into t h e then existing
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agricultural crisis, intd’o credit, transportation a n d marketing a n d distribution.
T h e transportation report w a s perhaps
the most comprehensive o f any o f theme
I n i t w e h a d some
1600 cooperative agencies a n d some 2 4 0 committees.
T h e
Commission w a s very much impressed with t h e fact that there
appeared
t o b e a n almost complete l a c k o f confidence a n d a n
equivalently l a c k o f understanding between t h e railroads
and the shippers w h o m they were endeavoring t o serve; t h a t
there w a s c o m o l e t e l a c k o f c o o p e r a t i o n b e t w e e n t h e r e c u i r e -
ments o f the shipper for cars and car service and the ability _
of t h e r a i l r o a d s
t o f u r n i s h t h e c a r s a n d c a r service.
I t
appeared that, instead o f working together, industry,
agriculture a n d transportation, u p o n a
problem which was
vital t o all o f them, t h a t t h e y were working more o r less
at c r o s s p u r p o s e s w i t h t h e c o n s e q u e n t m i s u n d e r s t a n d i n g a n d
faiture o f the transportation performance.
The Joint C o m i s s i o n recommended t o the railroads,
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Federal Reserve Bank of St. Louis
among other things, t i e creation o f regional boards, c o m posed o f r e p r e s e n t a t i v e s
o f t h e transportation companies,
of industry a n d o f agriculture a n d o f the industrial a n d
comercial interest o f the country,
t o a c t i n a n advisory
capacity i n ironing out the misunderstandings that had
theretofore existed, a n d i n bringing about some coordination betweon t h e requirements s e t u p o n the o n e hand a n d
the ability o f the railroads t o perform o n the other.
The Americen Railway Associetion undertook, through
its c a r service division, t h e organzing o f these regional
boards. T w e l v e o f them have becn organized a n d they n o w
comprise s o m e t h o u s a n d s
o f people representing e v e r y phase
of industry, agriculture a n d commerce a n d representing prob-=
ably ovor 9 0 per cent o f the tonnage involved.
T h e s e boards
are d i v i d e d u p i n t o c o m m o d i t y c o m n i t t e e s , r e p r e s e n t i n g
separate commodities a n d groups o f commodities.
mest q u a r t e r l y
T h e boards
a t points l o c a t e d c o n v e n i e n t l y w i t h i n t h e
district which they represent, a n d a t those quarterly meet~
ings t h e commodity committees report t h e condition i n the
particular industry which t h e y represent a n d its requirement
for transportation service during t h e ensuing quarter.
Thus there i s established a
basis u p o n which t h e re-
quirements f o r cars e n d for service c a n b e anticipated.
and
In other words, t h e s e reports, w h e n brought together
considered i n relation t o the roports t o the railroad,
o f the
make i t possible t o anticipate t h e c a r requirements
transportation c o m p a n i e s f o r t h e s n s u i n g period.
This feature, however,
i s i n m y opinion o f much less i m -
portance t h a n t h e c o n t a c t s b e t w e e n t h e s h i p p e r s t h e m s e l v e s
and botween t h e shippers a n d t h e railroad officials, w h i c h
grow o u t o f these meetings.
One o f the things which has resulted f r o m t h e meetings
of these boards h a s been a n ironing o u t o f the peak movements
of agricultural commodities. T h a t i s a matter which bears
a direct r e l a t i o n s h i p
t o credit requirements, b e c a u s o a s w e
are a b l e t o i r o n o u t t h e s e p e a k p e r i o d s a n d p r o v i d e f o r
an even, steady flow o f commodities just t o that oxtent w e
remove t h e n e c e s s i t y f o r l a r g e v o l u m e s
o f eredit
t o carry
as I
do, t h a t
these peak loads.
Now g e n t l e m e n I
think y o u appreciate,
there h a g been a very marked improvement i n the public genti-
ment with respect t o the Federal Reserve System, b u t I
think i t i s not unfair, a n d certainly i t i s not unkind t o
say t h e r e
i g still s o m e r o o m f o r improvement
i n that
direction.
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Federal Reserve Bank of St. Louis
The thing that I want t o pdint o u t t o y o u particularly
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Federal Reserve Bank of St. Louis
is that here i s a ready made instrument a t your hand
through which y o u c a n establish t h e contact w i t h the farming industry, w i t h agricultural a n d conmerclal pursuits
which y o u have herctofore lacked.
H e r e i s a contact
through which you can obtain querterly information which
you n o w gathor statistically, b u t g e t i t directly f r o m
the representatives o f the industries e
e
j u s t
what t h e conditions i n those industries are, h o w that
can b e measured i n transportation a n d h o w i t c a n b e
measured i n terms o f requirement f o r credit.
It does not s e e m t o m e that w e are asking y o u t o
do s o m e t h i n g f o r us, b u t t h a t w e a r e a s k i n g y o u t o d o
something f o r yourselves, w h e n w e suggest t o y o u - - a n d
that i s w h a t w e a r e h e r e t o a s k - - t h a t y o u a p p o i n t a
representative o r representatives f r o m your banks t o
attend t h e quarterly meetings o f these regional Advisory
boards and t o act o n their banking committees t o assist
in this work, which i s a public work,
i n the coordination
af the various phases o f industry, including «*‘pw#bzuction,
transportation, credit a n d all t h e rest o f it.
In substance that i s all I want t o say. M r . Conn,
of course, i s naturally much more femiliar with what has
been done a n d what i t i s proposed t o d o than I am.
can speak o u t o f the book, where I
H e
a m unable to. P e r h a p s
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Federal Reserve Bank of St. Louis
in
I should s a y t h a t m y o w n i n t e r e s t a r i s e s f r o m t h e f a c t t h a t
I happen t o b e a director a n d a member o f the Executive Committee o f the Atlantic States Rogional Advisory Board. I
have h a d opportunity o f seeing t h e m work o u t contacts t h a t
were v e r y valuable, a n d I
a m quite convinced.that t h e ad-
vantages o f membership o r representation o n the part o f the
Federal Reserve Board o n these boards will b o o f a s great
advantage t o the banks themsclves a s i t c a n possibly b e t o
the Boards i n the work that t h e y a r e doing. I
Governor Crissinger.
thank you.
M r . C o n n i s the Manager o f
this Association hore i n Washiingtons I
will n o w introduce
him t o you a n d let h i m tell y o u about this proposition.
Mr. Conne
M r . Anderson h a s covored t h e general
situation w i t h reference t o the boards a n d what I will
have t o say, perhaps will b e more i n detail, b u t more
or l e s s f r o m t h e t r a n s p o r t a t i o n a n d r a i l r o a d s t a n d p o i n t .
It i s unnecessary f o r w e t o reviow w i t h y o u the
condition o f the railroads o f the United States w h e n t h e y
were turned back from Federal Control t o their owners.
The hazards o f war time during t h e world w a r made their
inroads o n every form o f industry o f the country, a n d
the railroads were n o excoption.
A s soon a s the private managoments a g a i n took con-
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Federal Reserve Bank of St. Louis
Ll
trol o f t h e i r i n d i v i d u a l p r o p e r t i e s ,
t h e i r desire w a s t o
readjust their physical conditions a n d thoir relations
with t h e public i n the best manner possible i n order t o
create t h e m o s t a d c q u a t e b a s i s f o r t r a n s p o r t a t i o n s e r v i c e .
If y o u w i l l t h i n k b a c k t o 1 9 2 0 w e h a d v e r y h e a v y b u s i n e s s
during t h e first s i x months, inventories o f stocks were
built u p t o a tremendous point, a n d that situation, p l u s
the aftermath o f the war, gainedfor u s a perpendicular
drop i n commodity prices i n July o f 1921.
of the railroads suffered equally.
T h e business
T h e deflation went
through n o t only t h e last s i x months o f 1920, b u t continued
through t h e year 1921 a n d during that year t h e reilroads
of this country madetivae-tenths o f 1 per cent u p o n their
invested capital.
In 192 2 things began t o look bright for the first
three months and t o look as i f some readjustment, sone
definite program could b e developed which would start t h e
railroads r i g h t u p o n s o m e s o u n d basis, w h o n w e e n c o u n t e r e d
the mine strike o n April 1 . T h a t was s o o n followed b y the
Strike o f the shopmen o n July ist, and the accumulated
effect.
o f b o t h o f those disarrangements m a d e i t impossible
to adopt a n y definite transportation program during t h e
year 1922.
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Federal Reserve Bank of St. Louis
12
The J o i n t C o m m i s s i o n
o n Agricultural I n q u i r y s u b -
mitted their recommendation t o u s a n d w e told them that w e
would a t t o m p t
t o carry c u t a l l o f those recormendations
so far a s the railroads w e r o concerned a s quickly a n d a s
soon a s i t was possible f o r u s t o s e e some light o n the
situation ahead.
of 19236
T h a t came during t h e first three months
T h e so-called railroad program, w h i c h y o u prob-~
ably a l l heard adout, w a s adopted b y the American Kailway
Association, which i s a n organization o f ali o f the railroads o f the country, a n d a n overhead operating organiza-
tion, was adopted i n April, 19235 i n New York. U n d e r this
program t h e individual railroads practically agreed w i t h
the public t h a t t h e y would d o certain things t o bring
their machine u p t o date a n d t o meet t n e public requiroment
during a
certain period.
I v e r y o n e o f those things w a s
carried o u t with t h e expenditure o f some billion a n d a
helf dollars i n capital account, a
billion eight hundrod
million f o r supplies, maintenance a n d s o on.
Among the things i n this program was the acknowlodgemont o f the recommendation o f the Joint Cowaission o f Con-
gress with regard t o setting u p throughout the United States
of t h e s e r e g i o n a l a d v i s o r y b o a r d s ,
experiment. I
a n d w e tried o u t t h e
want t o telk very informelly about this,
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Federal Reserve Bank of St. Louis
135
because y o u c e n best understend i t that way.
W e tried out
the experiment first i n the Northwest, i n . Mr, Mitchellts
territory, North Dakota, South Dakota, Minnesota and Montana.
In October, 1922, w e called t h e different phases o f
industry together, t h e farmers, t h e banks a n d s o forth,
and w e said here, there ought t o b e some w a y that w e c a n
anticipate the transportation requiroments o f this district
in advance o f the actual needs.
W o w , gentlemen, w e all
know there i s one thing that will distuub economic conditions q u i c k e t t h a n a n y t h i n g e l s e i n t h i s c o u n t r y ,
a n d that
4s a n acute car shortage when the people cannot get the
equipment
t o m o v e t h o i r business,
a n d that condition w e
have had off and o n for about ten years i n these north~
western states, a n d s o under this regional b o a r d plan w e
said if we could get a definite picture of what the situation i s going t o b e i n the northwest i n the next three
months w e believe w e c a n meet that situation w i t h enough
equipment s o that there will n o t b e a car shortage, a n d
you will not b e subjected t o these other disarrangements.
There was n o bigger outstanding thing i n the Northwest
which the railroads felt that they could help o n than this
relationship w h i c h e x i s t e d b e t w e e n t h e d i f f e r e n t f a r m
14
organizations,
botween t h e receivor
o f the grain a n d the
producer - - w e felt that t h e regional boards w a s t h e solution o f the situation, t h a t i f w e could bring t h e people
together periodically o n the transportation a n d distribution questions t h a t they would automatically come togethor
upon t h e i r o t h e r probloms.
Therefore
w e tried out the
northwest regional board a s a n experiment f o r s i x months
before i t was adopted a s a final policy b y the American
Rallway Association,
W e asked all o f these f a r m organiza-
tions, t h e industries a n d b a n k e r s fi they felt that t h e
improvement w a s real o r imaginary,
i f they thought i t was a
good thing e n d i f they wanted i t continued o n a pormenent
basis, a n d they said that t h e y did.
experience,
B a s e d upon their
a n d entirely u p o n their experience,
t h e Board
of Directors o f the American Kailway Association, which i s
composed o f twenty-three railroad prosidents, directed
the Cer Service Division t o set these orgenizations
up
throughout t h e United Stetes.
In the first place w e had t o divide t h e
country u p
into regions where the transportation and
economic conditions were i n common.
your Governor,
I n going over this situation w i t h
i t wes singular t h a t o u r regions a r e
almost
identical w i t h those adopted b y tho Federal Reserve
System,
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
15
although w e did not have them all established a t that time.
There a r e some slight changes, b u t t h e y a r e almost t h e same.
We have f
ourteen regions, a n d I believo y o u heave twelve.
We h a v e t r i e d t o p i c k regions w h e r e t h e p r o b l o n s
o f the
farmer a n d the problems o f industry a n d transportation a r e
more o r less i n common, a n d where t h e y h a d t h e same economic
problems
t o meet.
I
n each district
w e place a
district
manager o f the American Hailway Association, w i t h headquarters a t sone central point, a n d w e charge h i m with
authority over the service and car supply feature o f railroad operation i n that territory.
I t i s true that e a c h
territory ls: a n authority b y itself, they have control
over t h e i r o w n operations,
o v e r t h e i r o w n c a r supply,
but when t h e y cannot meet t h e demands o r when they cannot
harmonize their relationships w i t h their connecting lines
or their competitors t h e n t h e matter comes t o the district
manager o f the American Kailway Association a n d each
railroad i s bound b y his decisions i n carrying o u t a n y
instructions which a r e issued.
These district managers, o f which there ere now
13, and will b e 14, roport t o the Car Service Division
office i n Washington,
I n that way we decentralizedthe
overhead organization w e have i n Washington b y granting
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Federal Reserve Bank of St. Louis
15
authority o v e r t h e t r a n s p o r t a t i o n o f t h e d i f f e r e n t r a i l -
roads i n each o f these 1 4 districts t o a centralized officer i n cach district, a n d then w e followed that u p b y
building around c a c h district manager o n e o f these regional
advisory boards.
T h e object w a s first t o bring t h e public
thenselves togetier,
t o bring t h e difforont phases o f agri-
culture a n d industry togother t o promote their o w n ¢economic d e v e l o p m e n t
i n e a c h territory.
the t r a n s p o r t a t i o n n e e d s
Secondly,
o f t h e district
as a
t o anticipate
whole
i n ad-~
vance, s o that the district manager could tell u s i n Washington "
We will n o e d 1 0 por cent more couipriocnt hore i n
the next three months t h a n i n the last three months, o r
5 per cent less, o r whatever i t might ba} third, t o settle
querterly t h e larger transportation a n d distribution prob-
lems and d o everything w e could through tho railroads t o
help solve s o m e o f the agricultural a n d distribution problems o f the country.
T o d a y w e have o v e r 12,000 members
in t h e s c a d v i s o r y b o a r d s a n d t h o i c o m n i t t o e s .
E a c h board
has c o r t a i n s t a n d i n g c o m m i t t e e s , c o m m o d i t y committees.
For instance,
committee, a
i n the Southcastern territory w e have a
cotton
brick committee, a n d a lumber conmmittec.
Then e a c h o f these committees m a y have subcommittees.
oF the. committees r e p o r t f o u r t i m e s a
Each
year a t b o a r d meetings,
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Federal Reserve Bank of St. Louis
ae
which a r e h e l d e v e r y t h r e e months;
t h e y roport n o t o n l y
as t o the general economic condition surrounding their i n dustry, b u t they also point o u t just about where t h e y are
heeded f o r i n t h e n e x t t h r e e m o n t h s ,
s o a s t o g i v e u s sonie
definite idea o f the distribution situation i n the district.
Purthermore,
i f these comaittees h a v e a n y particular prob-
lems o f distribution affecting transportation and service,
they have t h e right, under their by-laws a n d under thoir
rules o f proceduro, t o bring them t o the original board
and a s k the railroads! cooperation i n working t h e n out.
Now, I a m not going t o burden you with the detail o f
the board organization, because t h a t i s a thing that will
come t o you late> on. I
do want t o s a y soncthing, however,
about t h e accomplishments . T h e r e have been cight boards
organized f o r t w o years..
S i n c e last year four additional
were organized, twelve i n all fully orsanizec.
S o m e of
them a r e not porfected i n the w a y they. should 06, O u t i t i s
& process o f evolution which i s going o n and they ere getting
better every day.
T h e y are voluntary.
attached t o membership.
T h e r e a r e n o dues
T h e shipper o r banker,
he m a y b o p a y s h i s o w n cxpensées t o t h e mecting,
o r who ever
and in
order t o contribute o u r proportion o f what w e believe
t o be
én economic development o f the territory a s
a whole, t h e
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Federal Reserve Bank of St. Louis
18
railroads g i v e a
one W a y fare f o r t h e r o u n d trip,
individual members o f the board.
t o the
I t i s entirely volun-
tary, a n d i n that lies i t s strengthe
I n other words w h e n
t o help y o u d o
a man feels that h e has a moral obligation
time a n d money
something,than h e i s more willing t o put his
i s worth while.
into i t i f h e thinks t h a t t h e organization
There a v e n o dues;
i t i s simply a question o f paying e x -
contributes
pouses t o the meetings, a n d the comaittees
i n t h e interim.
reports
obtained.
There h a v e b e e n s o m e v e r y d a f i n i t e r e s u l t s
up in
The first i s this: T r a n s p o r t a t i o n hasbeen speeded
todey
the last three years until i t i s 4 0 per cent fester
than it: wes i n 20225
T h a t i s d u e t o three things, f i r s t
improvement i n the physical capecity o f the railroads,
initiasocond l o y a l t y o f t h e e m p l o y e e s a n d t h e i n d i v i d u a l
tive o f t h e e m p l o y e e s
o f t h e railroads,
p n d tAird c e s p e r a
tion o n the part o f shippers i n estimating their needs i n
advance.
T h e improvement
i n the service
deal t o the banks, h a s meant a
h a s meant e
great
great deal t o the country.
We c a n figure t h e improvement i n a great m a n y ways.
s s
figured the other day that w e had saved {80,000,000 i n
interest i n th: last t w o years o n goods i n transit. S o m e b o d y
clse figured : 4 0 per cent.
W i e all know there h a s been a
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Federal Reserve Bank of St. Louis
19
great deal o f waste s a v e d a n d there h a s been a great deal
saved i n inventory o f stocks. I
just h a c a report this
morning from the middlo Atlantic States Board submitting
2 resume o f the amount o f stocks o n hand i n the retail
lumber yards i n Atlanta, a n d i t shows that t h e y are o p e r a
ting with 4 0 per cent o f their stock that t h e y h a d i n their
yords
i n 1922,
o n w h i c h y e a r t h e cornparison i s made;
that t h e y a r e doing a
NeSS.
a n d
20 per cent greater volume o f busi-
T h a t w a s b e c a u s e t h e y h a d depondable,
expeditious transportation service.
timely and
I t all means a
great
deal f o r t h e prosperity o f the country t o keep this thing
going a n d t o keep i t going right.
Perhaps t h e biggest accomplishment t h a t h a s been made
has b e e n s o m e d c f i n i t e a c c o m p l i s h m e n t
o the country.
distribution p r o b l e m f
have i n the southwest a
i n t h e agricultural
F o r instance,
regional advisory board.
we
I n 192%,
or perhaps i t was 1922 - - I think 1922 i s correct -~- they
had conjestion a t the ginning points which made i t impossible t o kecp a proper supply o f cars a t the originating
points.
I n running that situation down, t h e coiyhotity
comnittes o f the board finally determined that t h e method
by Which t h e cotton tickets were financed through t h e banks
in t h e s o u t h w e s t e r n t e r r i t o r y w a s p r i m a r i l y r e s p o n s i b l e
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Federal Reserve Bank of St. Louis
20
T r e y got that matter
far t h e delay a t the ginning point.
more
straightened out, and i n 1923 and 1924 they havled
t h e y ever
cotton t o the ports a n d t o ginning points t h a n
jin circulatic
had before, a n d they h a d about 15,000 less cars
down theree
Another illustration:
e found o u t that the s h e e p
W
and l a m b s f r o m t h e c e n t r a l w e s t e r n d i s t r i c t , c o m p r i s i n g
arriving
idaho, Utah, Colorado, Vyoning a n d Nebraska, w e r e
a t the
in the markets o f Denver a n d Kansas C i t y a n d Chicago
on
rate o f 500 cars o n Monday, a n d probably fifty cars
Rebdigys--- p u t that Monday was t h e peak load.
tral west board,
i n cvoperation w i t h t h e railroads, z o n e d
that d i s t r i c t o u t there,
a n d through t h e plan which t h e y
created a n d m a d e operative, b e c a u s e
information from the railroads
tions
T h e cen-
i t was possible
t o get
a s to the railroad regula-
possible
i n distributing s h e e p a n d lambs - - i t was
last y e a r t o r e g u l a t e t h e s e s h i p m e n t s o n t o t h e m a r k e t s
so
that t h e y got practically t h e same number o f cars o n Friday
that t h e y d i d o n Monday,
a n d t h e prices i n s t e a d o f ranging
from 10-1/2 t o 16-1/2 cents, a s they did i n 1923, ranged
from 13+3/4 t o 14-1/4 last year.
W e have the testimony
,
of the President o f the Idaho Wool Growers A s s o c i a t i o n , a
member o f the Idaho Division o f the Central Western Board,
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Federal Reserve Bank of St. Louis
in w h i c h h e s a y s t h a t t h a t a c c o m p l i s h m e n t a l o n e p u t
$350,000 more back into the hands o f the Idaho sheep people.
The same thing i s true with t h e cars o f grapes
moved o u t o f California t o the cast, mostly wine grapes.
We have 20,900 more cars o f grapes this year, refrigerator
cars, t h a n w e h a d last year, j u s t wince grapes alone.WVewuvlll
move before t h e first o f next month about 3000 cars o f wine
grapes eastbound from California.
body else a r e getting them.
T h e bootloggers a n d every
T h e Pacific Coast hegional
Board estimated h o w those g r a pes would move a n d how many
cars w o u l d b e requircd.
T h a t i s a n important t h i n g t o
knew, w h e n i t costs %100 t o haul a n empty refrigerator c a r
from Chicago t o San Francisco, a n d there i s no use hauling
any more than y o u actually need.
I t i s important that
we Know accurately what i s going t o happen.
n e y estimated
for the montn o f September a n d October - - a n d they mada
in August - - and w e have n o t varicd 1
per cent f r o m that
estimate i n the actual shipments o u t o f California.
shows t h a t i t i s p o s s i b l e
That
t e e s t i m a t e w h a t t h e a c t u a l demand.
of transportation will be, even a t a distance o f 3000 miles
eWay.
In 1925 the Atlantic States Board Perisha ble Conmittee tried t o work o u t a plan whereby those grapes would
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Federal Reserve Bank of St. Louis
22
be delivered t o the Jersey C i t y side, w i t h regard t o that
portion o f the grapes t h a t went t n New York, e n d they
#$5evad have t o be lightered across, unloaded and the empty
ear brought back, a n d there was a delay from three t o eight
days i n getting t h e cars over, unloaded a n d back a n d started again t o California.
perishable r e c e i v e r
T h e y went around t o see every
i n t h e C i t y o f N e w York,
a n d they sent
wires a n d letters t o them, suggesting that t h e y accept t h e
grapes o n the Jersey C i t y side a n d they themselves t a k e
over t h e obligation o f getting t h e grapes across.
That
was done, a n d that o n e move alone h a s dono t w o things.
It has given u s about t e n thousand additional refrigerator
carsthan w e would n o t otherwise h a v e h a d i n the California
grape t r a f f i c t h i s y e a r , w i t h o u t p u t t i n g a n o t h e r d i m e o f
capital i n t o cars, a n d i t has done o n e other things,
which i s t h e b i g g e s t t h i n g i t h a s d o n e - - t h e G h a i r m a n
our P e r i s h a b l e C o m m i t t e s
i n New York - - I
a m not a
of
con-
mission m a n a n d d o not k n o w whether h e i s right o r wrong,
but I have figured that h e i s just about right - - says
that i t h a s s t a b i l i z e d t h o m a r k e t
thet i t h a s m e a n t 5 0 0 ,O0GCmore
California.
s o much i n N e w York City
t o t h e grape producers
T h a t same plan, b a s e d o n the same theory,
we a r e g o i n g t o t r y t o p u t i n o p c r a t i o n
i n Pittsburgh
of
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Federal Reserve Bank of St. Louis
25
with t h e Pennsylvania Advisory Hoard, w h e n i t i s organized.
In Chicago w e alroady have « a similar p l a n worked o u t f o r
wheats
I n other words w e mean t o have t h e same crystaliza-
tion o f public opinion built u p through these organizations
in the different districts where economic a n d transporta-~
tion conditions a r e common, where w e will w o r k with t h e
railroads, t h e shippers, t h e receivers, a n d bankers i n
order t o work o u t sone o f these difficult problems.
gentlemen,
That,
i s what these regional boards a r e doing.
Just o n e more illustration, w h i c h i s probably t h e
greatest a c c o m p l i s h n e n t
o f all.
territory, t h e northwest,
time u p t o 1922.
i
w e hat. a
n liv. Tiitehelirs
car shortage a l l t h e
S i n c e that Board was orgenized,
in
1923, 1 9 2 4 a n d 1925 w e have moved t h e greatest grain crops
that t h e y heve ever h a d i n that tersitory without a
single
blocked elevator, without.a single b i t o f congestion, withOut a Bingle additional industrial facility, a n d that w e
did with 17,000 less box cars i n that territory.
o f
course o u r main desire i s t o t r y t o get a greater turnover
ef our equipment j u s t like a n y other person.
make t h e b o x c a r d o more work.
V e try. t o
T h e r e a r e only t w o ways
that you can d o it. O n e i s t o speed u p the movement o n
the railroads, speed u p the loading a n d unloading o n the
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Federal Reserve Bank of St. Louis
24
part o f the shippers, a n d i n order t o d o thet y o u have g o t
to h a v e a
erystalization
o f interest
43 what t h e regional boards get.
That
b y t h e shippers.
T h e other w a y i s t o
find o u t tle movement o f conaodities o f the country a n d
organize better distribution systems i n industry a n d
agriculture e n d t r y t o arrive a s close a s y o u c a n a t a
proper balencedcarloading.
E v e r y time y o u g e t a peak
carloading y o u get a reaction against t h e service a n d also
me
i n p r i c e t o t h e producer.
& reaction
plishment
T h e b i g g e s t acconrm!?
i n that territory h a s been t h e fact that t h e
grain committee o f the Northwest Regional Board, because
of the power o f public opinion a n d nothing else - - because
there i s n o l a w i n i t - - w a s a b l e w i t h i n t h e l a s t t h r e e
weeks
t o reduce t h e number o f cars o f grain l o a d e d a t
7800 c o u n t r y e l e v a t o r s f r o m 8 0 0 c a r s a
day t o 500 cars
a day, t h e r e b y m a k i n g i t u n n e c e s s a r y f o r e m b a r g o e s
t o be
placed against t h e movement t o tiie primary markets o f
Duluth a n d Minneapolis.
I t was S e eeiele. j u s t through
the voluntary cooperation o f the country elevators t o
reduce their shipments from 800 t o 500 cars a day, until
the i n f l u x o f g r a i n h a d b e e n t a k e n c a r e o f .
There i s just o n e other thing I want t o say.
are w o r k i n g
on @
W e
plan t o apply a l l o v e r t h e country f o r
efficient potato distribution, b y drawing a line through
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Federal Reserve Bank of St. Louis
the southern white potato a n d t h e northern white petato
territories.
T h e railroads a r e putting their money into
it because t h e y are trying i n every w a y they c a n t o help
the people along t h e railroad a n d t o help both t h e producers a n d t h e recoivers.
W e believe i t i s better t o d o
it i n this w a y a n d that t h e results will b e much better
through these advisory boards than could b e obtained
through legislation here i n Washington.
We w a n t t o a s k t h e c o o p e r a t i o n v f t h e F e d e r a l K e -
sorve System i n this whole movement.
W e need t h e bankers
te advise w i t h u s a n d with the Committees a n d t o keep
us o n a steady keol i n the different regions, a n d w e
want their interest i n the business reports which a r e
rendsred a t t h e d i f f e r e n t m o e t i n g s e
W
e have h a d pretty
fair succoss w i t h t h e bankers generally speaking, b u t
there h a s never b e e n a n y national impulse behind these
movements i n each district, a n d that i s what w e need more
than anything ¢6lse.
pated a c t i v e l y
committes.
T h e Bank o f Minneapolis h a s partici-
i n t h e w o r k o f the northwest regional
O n e o f their assistant Federal Reserve Agents
1s Chairman o f the Executive Comaittee o f the Board, a n d I
think Mr. Mitchell will bear m e out when I
say that i t
has been a fine thing f o r t h e Federal Reserve Bank, a n d a
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Federal Reserve Bank of St. Louis
26
public,
t
h
e
finer thing, perhaps, f o r t h e railroads a n d
because i t has brought t h e Federal Keserve System i n
that territory into t h e closest possiblo conperative
contact w i t h the farmer, t h e receiver a n d t h e railroads.
We want t o a s k that same cooperation b y the other Federal
Reserve Banks.
I n other words, t h e railroads; through
the American Railway Association needs t h e Federal R e serve System t o help u s build u p what w o believe i s the
commencement
o f t h e greatest possible contact f o r public
good that has ever been established i n this country.
Governor Crissinger.
T h e s e remarks have been
extremely interesting t o me, a n d I know they must have
been t o you.
I g there a n y one here w h o desires t o a s k
any q u e s t i o n s
o r who desires
t o b e heard about i t w e will
be glad t o hear from a n y one.
Mr, Mitchell. I
can support a l i t h e remarks Mr.
Conn h a s m a d e r e g a r d i n g t h e b e n e f i t t h i s o r g a n i z a t i o n
has been t o the northwest a n d t o the movement o f grain
in the northwest.
O r d i n a r i l y there has been over a number
of years a
shortage o f cars a n d a conjestion o f cars a t the
terminals.
T h a t seems t o have been entirely eliminated
last year and this year,
I t is awonderful thing i n the
development o f transportation a n d has some bearing o n
the c r e d i t a s well.
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Federal Reserve Bank of St. Louis
et
Governor Seay. I
the d i s t r i c t s
i n w h i c h a t p r e s o n t h e h a s notorganizatic ?
Mr. Conn.
headquarters
would like t o ask lir. Conn
T h e southeastern rogional board,with
a t Birmingham,
That was organized quickly,
w a s o n e o f o u r f i r s t boards.
i t was very hastily threwn
together, a n d i t covers 1 1 states.
I t is altogether too
big a district, a n d we intend t o divide that into two
districts the first o f the Year.
W e will call one the
Mississippi Valley Advisory Board, a n d will take i n the
territory above t h e Alabama-Georgia line, a n d the n e w
Southeastern Board will take i n everything east o f the
Alabama-Georgia line south o f Virginia.
T h a t i s one
of the n e w boards that will have t o b e organized, a n d
the other board will b e the Allegheny Board, w i t h head~
qQuerters a t Pittsburgh,
T h o s e t w o regions h a v e n o t been
Organized, b u t w e will probably g o ahead with t h e Pittsburgh region before t h e first o f the year.
Governor Seay.
I s i t possible f o r your to: send
us & memorandum o f your organization, showing the committoes:
Mr. Conn. I
Governor Seay,
will b e very glad t o d o se,
T h a t will s h o w u s t h e territories
covered b y t h e d i f f e r e n t b o a r d s a l s o ?
Mr. Conn.
Yes, I
will b e glad t o d o thet.
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Federal Reserve Bank of St. Louis
28
think w e would a l l like t o have
Mr, Curtiss, I
that Mr. Chairman.
Governor Crissingor.
Y o u will s e n d that informa-
tion t o all t h e banka, Mr. Conn?
Mr. C o n n e I
will m a k e u p a
detailed m e m o r a n d u m
of i t s o that i t willgive t h e information with reference
to each o f the boards.
G overne Seaye I
think w e all know h o w t h e de-
mands u p o n credits w a s tremendously augmented i n 1920 b y
the railroad congestion a n d b y the tying u p c f goods, a n d
I think there h a s seldom been s u c h a demonstration
o f a
community o f interest between t h e railroads, t h e shippers,
the industries’ a n d banking interests o f the country a s
this organization h a s brought t o light.
G overnor Strong.
O
f course t h e r e a r e a
good m a n y
details about t h e program a n d the effectiveness o f participation b y t h e R e s e r v e S y s t e m t h a t w e w i l l h a v e t o l e a r n
about. I
know a little about the work o f this organiza-
tion, and I think I can assure you that anything you want
us t o do i n New York t o bring about effective coopera-~
tion we will b e very glad t o do. J u s t howwe should d o it
will b e pointed o u t t o u s later, b u t w e probably c a n b e
of s o m e h e l p e
Mr. Platte P o r h a p s Mr. Mitchell will tell u s
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Federal Reserve Bank of St. Louis
29
about t h e cooperation
o f the Federal Reserve B a n k o f
Minneapolis w i t h this Northwest Board.
Mr. Mitchell.
T h e Assistant Federal Resorve Agent,
Mr. Mosher i s Chairman o f the Executive Committee o f the
local o r g a n i z a t i o n .
H e has been devoting quite a
little
time t o that work.
I t i s one w a y i n whith t h e Federal
Reserve Banks c a n assist i n the movement.
Mr. Platt.
the o r g a n i z a t i o n
I t i s a question o f cooperating with
i n the mattor o f obtaining reports
in
rolation t o tho needs o f the district a n d s o forth?
ir. Mitchell. Fxactly.
Mr. Platt.
T h e points where crops ought t o b e
moved a n d s o forth?
Mr. Mitchell. ' Yos.
O f course t h e work i s done
entiroly outside o f the Federal Reserve bank, b u t Mr,
Mosher devotes quite a
little time while h c i s i n the
bank t o w o r k i n g o u t s o m e o f t h e d e t a i l s
i n connection
with the operation o f this local committee.
Governor Crissinger.
Dr. Stewart,
I s there anything further?
d o the operation o f these advisory boards
come u n d e r y o u r o b s e r v a t i o n ?
Mr. Stewart.
est very much.
I t has come under
m y range o f inter-
W e have received reports f r o m those
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Federal Reserve Bank of St. Louis
59
poards w i t h regard t o the transportation o f commodity
movement,
a n d we are i n a
position
t o exchange informa-
tion with them along that line.
Mr. Anderson.
W h a t Mr. Conn has i n mind i n par-
ticular I think, i s that h e would like t o have each
Federal R e s e r v e b a n k a p p o i n t o n e o r m o r e r e p r e s e n t a t i v e s
to attend these meetings o f the regional advisery boards,
and t o become members a n d chairmen o f the banking committees, a n d i n that w a y obtablish a
contact between t h e
banks a n d the regional advisory boards.
Governor Strong»
M r . Anderson,
d o these advisory
boards have come u p questions o f handling bills o f lading
on shipments, a n d things o f that kind?
Mr, Andersen.
Y e s , t h e y como u p constantly.
o f
course t h e regional advisory boards d o not deal a t all
with rates.
T h e y deal primarily w i t h c a r service a n d
other p h a s e s f
o distribution related t o car service, a n d
that c o v e r s p r e t t y n e a r l y everything.
Mr. Platt.
Y o u must h a v e s o m e connection w i t h t h e
cooperative m a r k e t i n g A s s o c i a t i o n s ,
i n order t o balance
your committees?
Mr. Martin. E v e r y t i m e t h e y have a banking committeo
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Federal Reserve Bank of St. Louis
SL
somehow o r o t h e r i n d i r e c t l y
i t devolves u p e n t h a t c o m -
mitto:. t o raise monoy, a n d I would like t o ask i f these
banking coumittees have any duty o f that kind?
Mr. Anderson,
Mr. C o n n .
N
N o n e whatover.
O
T h e y simply make a
Banking comuilttee o f each board makes a
report.
T h o
report a t each
meeting o n the general financial a n d credit situation i n
the area, a n d that gives you,with t h e other committee
reports, a
c o u p r e h e n s i v e p i c t u r e o f business c o n d i t i o n s
in t h e w h o l e district.
F o r instance w e just organized
the Pacific Northwest Advisory Board, including Orogon,
Washington a n d a part o f Idaho, e n d the executive secretary o f the board i s the president a n d chairman o f the
board o f directors o f the Dexter B a n k o f Seattle, o n e o f
the biggest bankers o f the northwest.
H e came into t h e
thing o n his o w n vélition, a n d h e has given 5 0 per cent
of his time since t h e 29th o f August t o this work.
H e
said i t i s the gieatest thing that ever happened i n his
territory e
the board,
T h e Chairman
o f the banking committee
a t each meeting, s i m p l y presents a
of
picture o f
the financial situation i n the district, which, t a k e n with
the reports o f the other committees, g i v e s &
picture o f
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Federal Reserve Bank of St. Louis
352
the whole situation.
T h e railroad executives a n d enm-
ployees are represented, a n d oven the railroad brotherhoods are asking t o be allowed t o attend the meetings
in order t o acquaint themselves w i t h certain problems
of railroad management which come up.
N o w , e a c h railroad
man, e a c h shipper, a n d each other porson w h o leaves t h e
meeting h a s a definito picture i n his mind o f exactly h o w
the transportation situatio n
is going i n that district,
how the business i s going a n d s o forth, f o r t h e next
ninety days.
Now there i s just o n e other thing I want t o .calljopou:
attention t o .
W e mado a
report
i n April
o f this y e a r t o
our board o f directors, setting out the carloading b y
weeks f o r the balance o f this year.
I t i s based entirely
uponthe reports entirely o f these cormodity committees
and down t o the 15th o f October w e have b e e n one-third o f
1 p e r c e n t o f f o f t h e e s t i m a t e m a d e i n April.
I
f we can
get things down that fine, because o r this actual local
contact ,with the farming industry a n d other industries,
it ought t o b e a valuable thing f o r t h e banker a s well
as f o r t h e b u s i n e s s e x e c u t i v e a n d t h e r a i l r o a d executive.
Mr. Platt.
some v a l u e b e c a u s e
Y o u r contact w i t h t h e banks would have
o f t h o fact t h a t t h e business
i n other
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Federal Reserve Bank of St. Louis
Oo
institutions n a t u r a l l y c o u l d a n t i c i p a t e t h e i r f u t u r o b u s i Vv
ness b y getting credit i n advance?
Mr. Conne Y e s , a n d another thing about t h e nevessity f o r t h e b a n k c o n t a c t - -
i t porhaps m a y a p p e a r
t o you
as theoretical more t h a n actual, b u t i t i s very actual t o
us - + a n d that i s that t h e individual manufacturer i n
any section who knows that t h e Federal Reserve b a n k a n d
his bank a r e interested i n the movement,
i s going t o d o
a little b i t more than h e did before t o make i t a success.
Mr. “oxton.
I t seems t o m e that cooperation
our p a r t w i l l b e e x c e e d i n g l y h e l p f u l
on
t o t h e Federal h e -
serve Agonts i n the matter o f their monthly business r e ~
views.
b e l i c v e i t will give u s anew outlet a n d a
chance f o r i n f o r m a t i o n a s t o conditions
i n o u r o w n diseri
tricts a n d will make o u r monthly reviews more interesting
to the veneral public.
lir. Newton, I
membership
was asked sometime a g o t o accept
o n this comaittee
I was invited t o become a
leans. I
i n tiie s o u t h o a s t e r n district.
member b y Mr. Moore o f New Or-
was v e r y appreciative o f the honor that was
conferred upon me, a n d I wrote t o Mr. Moore that I would
like t o have time t p consider t h e matter, I
had i n mind
conforring w i t h sone members o f the Hederal Keserve Board
with regard t o it. I
imagine that i t would take u p
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Federal Reserve Bank of St. Louis
54
up s o m e t i m e i f a
man w a s g o i n g t o b e o f a n y service.
I do not know h o w much time i t would take, b u t I
am
glad t o hear t h e matter discussed here a n d I would like
very muci) t o serve om. t h e Committee i f the Federal
Reserve Board felt I , a s their reprosentative i n the
Atlantacdistrict, c o u l d b e o f service, a n d i f they felt
that i t w o u l d n o t t a k e u p t o o m u c h o f m y t i m e f r o m t h e
duties assigned t o me.
Governor Crissinger.
H a v e v o u a n y idea about t h e
amount o f time involved, Mr. Conn?
Mr, C o n n s O f c o u r s e e v e r y m e m b e r i s s u p p o s e d t o
go - - although h e does n o t have t o - - t o each Board meeting, toere a r e four board mectings a
as now suggested. {
year i n the set-up
have already explained that that
section o f t h e c o u n t r y w i l l b e d i v i d e d u p i n t o t w o boards.
In the southcast a s i t i s now constituted t h e y hold their
meetings i n December, March, J u n e a n d September,
central point,usually a t Atlanta. I
of the meetings h e l d a t Atlanta. A
a t somo
have attended three
man i s supposed t o
attend t h e m e e t i n g s a n d t h e n o f c o u r s e i s s u p p s s e d t o
give a
little o f his time i n contributing towards meking
up the report o f the Committee. I
woulde t a k e a
would s a y that i t
full d a y ' s t i m e o n c e e v e r y t h r e e months;
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Federal Reserve Bank of St. Louis
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not over that, and maybe half a day's time once every
think that i s the maximum o f time that
three months. I
will b e required b y eny member o f the Federal heserve
System, except t h e d a y that h e attended t h e meeting. T h a t
would b e true o f course, except i f some b i g distribution
problem s h o u l d h a p p e n t o a r i s e w h i c n w o u l d i n v o l v e t h e
credit situation v e r y much.
T h e n o f course t h e banking
committee w o u l d c o m e i n t o p l a y a n d perhaps w o u l d h a v e
special meetings with regard t o it.
B u t that does not
happen v e r y often,
Governor Crissinger.
H a v e y o u e n y data which would
show h o w much more rapidly t h e cormaodities a r e moving t o
the consumer b y reason o f your association?
Mr. Conn. Y e s , sir. I
ment.
I
will give « general state-
t i s about 4 0 p e r cent faster n o w t h a n i t was
am 1 O 2 2 « I n sone districts i t i s better t h a n thet.
I will give y o u @ little illustration.
T h e average t i m e
on lumbor from the Pacific Coast t o Chicago was about 1 8
days i n 1922,
I t i s a rare exception w h e n w e d o not
a car t o Chicago i n nine days f r o m Seattle now.
another example:
W
H e r e
e h a v e b e e n m a k i n g & ® drive t o i n -
crease t h e westbound movement o f refrigerator cars.
Yesterday morning was t h e first d a y w e g o t o n t o p o f the
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Federal Reserve Bank of St. Louis
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W e furnished a
refrigerator c a r situation.
car supoly yesterday morning.
September 1
100 p e r cent
I n 1924 w e shipped between
and 20th about 20,000 cars o f grapes a n d this
year w e s h i p p e d o n l y a b o u t 4 0 0 0 c a r s o f g r a p e s
same period,
i n tne
a n d that means w e have 6 0 0 0 cars less i n the
east being unloaded toigo back empty and t o meet the peak
load.
T h e n when t h e peak load d i d come from California,
instead o f being 1100 cars a
day, which was t h e peak loan
in one d a y for 1924, this year i t was 1841 f o r o n e day.
We were able t o d o that b y having t i e reserve supply o f
cars thers.
W
e were a b l e t o move t h e e m p t y cars faster
westbound f r o m Chicago a n d w e c u t down t h e time f r o m
Chicago t o Fresno, Celifornia from 1 5 days last year t o
seven a n d e half days this year.
Railroed,
f o r instance,
T h e Union Pacific
h e s made a n average e m p t y mileage
westbound o f 3 2 5 m i l e s p e r c a r o n r e f r i g e r a t o r c a r s - -
a thing unheard o f beforo.
Governor S e a y . I
suppose t h e railrosed r e p r e s e n t a -
tives worked up the details of these reports.
Mir. Conn.
Y e s , t h e y work u p tle details o f their
own report,which t h e y have t o report on, s u c h a s outlining
the b a d order c a r situation a n d things o f thet kind. T h e n
the r a i l r o a d s h a v e s p e c i a l c o m m i t t e e s
t o meet w i t h t h e
commodity committees between board meetings f o r t h e purpose
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Federal Reserve Bank of St. Louis
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of d i s c u s s i n g p r o b l e m s
tion.
o f distribution f o r transporta-
T h e y discuss those matters w i t h t h e commodity
committees.
F o r example, there i s the lumber committee
G the Atlantic States Board that makes their o w n report
lumber b u s i n e s s
a brick cormittes, a
i n t h e territory;
there is
cement comnaittes, a n d s o forth.
Then each o n e o f the boards have a n oxecutive comuittee.
The railroads have a
committees
i s composed
contact comsittee.
T h a t contact
o f operating a n d traffic executives
Of the reilrosads i n each district.
T h a t committee meets
upon t h e c a l l o f t h e e x e c u t i v e c o m m i t t e e
o f the Board
whenever a n y questions i n the territory arise which i t
is n e c e s s a r y f o r t h e e x e c u t i v e h e a d s o f t h e r a i l r o a d s
and t h e e x e c u t i v e c o m i i t t e e
B E T
o f t h e B o a r d t o settle.
G a n y o u tell u s how i t i s financed?
Obviously there i s a preat deal o f machinery.
i. G C O n n » A s I said, there e r e n o dues connect-
ed with it. H a c h man pays his own way t o and from the
meetings.
A i l t h e mechanical machinery whici. i s neces-
sary i s paid f o r b y the American kKeallway Associetion.
The practical working o u t o f that i s this:
or instance w e have here i n Washington f o u r o r
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Federal Reserve Bank of St. Louis
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five rooms.»
T h e District He:
e r o f the fmerican Kail-
way Association i s selected «and w e a s k h i m h o w many
men h e necds, a f t e r a
board i s o r g a n i z e d a n d t h o y s a y
they need three t o five.
W e furnish t h e investigetors
for t h e work o f investigating t h e crop situation.
F o r
instance w e will s a y ti:at tie situation w i t h regard t o
packing apples i n Rochester i s bad a n d a4 man i s sent u p
from the N e w York office t o sec wnat w e c a n d o with. re~
gard t o g e t t i n g b e t t e r p a c k i n g f o r t h e apples.
W
e supoly
the working force, a n d even with t h e fourtoen organizeations t h a t w e h a v e i n mind,
w e will havo a
organization today than w e hed i n 1920.
much less
W e had 486
people i n Washington i n 1920, e n d todey w e have 8 4 o r 85.
That means that t h e men a r e o u t i n t h e field where t h e y
belong, a n d where the problems originate.
lir. Miller.
D
o y o u r u n u p agaiiust a n y criticisni?
It i s v e r y o b v i o u s ti-at a s t h i s m o v e m e n t s u c c e e d s t h e v o l u n e
of bank credit : 3
t o b e more efficient,
i t i s going
to have greater facility o f circulation, a n d very large
bank credit i s going t o b e required, a n d the profits o f
the bank will b e reduccd accordingly.
Mr. Conne I
had a talk with the Vice President
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Federal Reserve Bank of St. Louis
59
the American Bankers Association o f the State o f Utah
net long ago at Salt Lake.
H e took the same view.
W e
threshed i t out, t h e view being that anything that stabilas
4zeg8 economic conditions i s just a s good f o r t h e bank
it i s f o r t h e railroad,
In o t h e r w o r d s
t h e s h i p p e r a n d a n y b o d y else.
a n artificial s i t v a t i o n
i s j u s t a s bead
for the bank a s i t i s for t h e lumber mill, f o r t h e railroad,or f o r a n y o n e else.
N o w t h a t c a m e f r o m t h e Chair-
man o f the Banking Comuittes o f Utah, 4
central w e s t e r n b o a r d ,
a n d h e i s probably t h e largest
banker w e have i n that territory. I
action o n souwe o f t h e b a n k e r s
this:
comiittes o f the
know that t h e re~
o f the country has been
I f y o u specd u p transportation y o u d o not need
money f o r t h e same length o f time a s y o u needed i t before
and therefore y o u a r e n o t making quite « s much interest
on it.
B u t I think that idea has been pretty well
dissipated.
W e have good banking committees and very
good m e n o n those conmittecs.
F o r instance t i e Chair-
man o f the Banking Committee o f the Mid-West Board i s
Mr. Hazolwood.
l i e i s Vice President o f the Union Trust
Company o f Chicago, a n d h e has n o t missed a
meeting o f
that Board a n d has contributed a great deal more o f his
time t o i t than t h e average m e n has done t o make & success
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Federal Reserve Bank of St. Louis
40
Or aus I
think y o u gentlemen c a n count o n ¢ne thing,
and t h a t i s t h a t t h e banker,
w h e n h e finds o u t what w e
are trying t o do is 100 per cent back o f it, the individua
panker .» W i e have a
country banker f r o m Fargo,North Dakota,
board mecting i n that pert o f the coun-
who has n o t missed a
try. I
think t h e bankers a s a whole, w h e n t h e y find o u t
what w e are doing, w h e n they find tiie economic a n d stabilizing results i n business, a r e just a s strong f o r i t a s
the next fellow.
Governor Seaye
H o w about t h e manufacturer?
f The
nbility t o receive q u i c k deliveries a n d make quick deis tnppocsed t o have « bearing o n f u t r e orders.
Mir. Conn.
W
e h a v e meade a
information h a s c o m e t o us, I
study o f t h a t a n d t h e
d o n o t k n o w h o w authoritea-
tive i t is, b u t I think i t i s correct, t h a t where t h e y
to operate o n five month inventories t h e y n o w operate
few days inventory, which i s duc largely t o the fact
they know that i f they place a n order, t h a t a
teein, which cerries a
certain number,
that s t u f f a t t h e Lb. T . &
certain
i s going t o deliver
T, S w i t c h a t t h e t i m o specified.
That i s the w a y t h e whole transportation mechinery i s work-
ing. I t has had a great effect upon the lumber, cement and
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Federal Reserve Bank of St. Louis
41,
other building matorial, making i t possible f o r the rotailer t o matorially reduce h i s stock a n d d o more business.
Governor Seay.
D o y o u g e t the cooperation o f the
manufacturers?
Mr. Conn.
O h yese
T h e first reaction o f course
was against t h e s a w mill, a n d h e had t u cut down his
operations t o fit t h e d a y t o d a y demand f o r orders.
The
biggest lumbermen i n the districts are members o f the
lumber conmittees o f the boards. I
was talking t o the
Chairman o f the lumber committee o f the Pacific Northwest
Board t h e last time I
was o u t there.
H e i s the President
of a lumber company i n Spokane a n d h e told m e that they
would get a n order this morning, that i n thet order they
are now eble t o give the car number, a n d that the order
would b e shinped o u t b y r e e
Hr. Miller.
Mr. Conne
H o w ebout t h e lumber yards?
T h e lumber yards o f course sro benefitted
of course because t h e y a r e able t o d o more business w i t h
Lléss stock.
lir. Miller. I
cause I
am very much interested i n this be-
havo j u s t c o m e f r o m t h e P e c i f i c C o a s t a n d t h e y
were enthusiastic because t h e y said t h e lumber yerd was
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Federal Reserve Bank of St. Louis
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on t h e c a r e
T h e California people a r e interested because
they are feeling i t i n their perishable com.odities, b o cause i t i s t o their best interest t o get those c o m o d i ties o u t just a s promptly a s possible. I
question s i m p l y b e c a u s e I
asked t h e
want t o b e s u r e t h a t a n y c o ~
operation w e give i s intelligent a n d that w e are not inviting some n e w troubles f o r ourselves.
Mr. Conn.
cooperation
O f course w e are not going t o have t h e
o f the lumber wholesalcr
thing a t all.
o r the broker
i n this
W e are certainly n o t going t o have t h e co-
operation o f the broker.
could happen t o him.
T h i s i s the worst thing thet
T h e r e u s e d t o b e a situation
whereby lumber moving f r o m t h e southeast, t h e southwest
and t h e f a r west into this northern country, m o v e d o n a
basis which was celled i n transit, a n d ebout 4 0 per cent
of i t was i n transit a n d unsold. A
supply o f lumber would
be brought t o Hast St. Louis f r o m Cincinnati, a n d i t would
lay there for days waiting t o be sold, tying u p railroad
equipment a n d e v e r y t h i n g e l s e ,
or t w o d o l l a r s a
Waye
W
a n d they would g e t a
thousand p r e m i u m f o r t h a t l u m b e r
dollar
i n that
e ere never guing t o have t h e cooperation o f the
broker i n this, but w e will always have the cooperation
of
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Federal Reserve Bank of St. Louis
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he producer, t h e manufacturer, t h e reteiler a n d consumer.
Governor Harding.
T h i s must b e o f tremendous a d -
vantage t o the Birmingham District.
Mr. Conn. I
think i t h a s been.
Governor Harding.
W i e are told that
I n the o l d days, i n the coal
ground
mining district y o u couldn't g e t coal o u t o f the
unless y o u had empty cars a t the tipple;
wouldn't d i g it.
t h e miners
Y o u had t a have t h e empties right
there t o load the coal i n a s i t was taken o u t o f the
ground . T h e n i n the cotton business souetimes t h e cotton
warehouses would b e chock full, t h e banks would b e loaded
up c a r r y i n g t h a t c o t t o n ,
a n d they would n o t have t h e cars
to move i t out.
+ GCOtms
this m o r n i n g
W e have that situation confronting u s
i n a n anticipated c a r shortage
Governor Seay.
o n tho L e &
Ne
F o r t h e benefit o f ell concerned,
ean y o u teli u s frankly where t h e criticisms c o m e from?
g
Me. Conn. . This was not a criticism, but I was goingG.s
to tell y o u about t h e L. &
Ne situation.
T h e Coal C o m -
mittoe f r o m t h e Ohio Velley Board showed u p this morning
to take u p a certain peculiar development o n the L. & N.
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Federal Reserve Bank of St. Louis
EG
Railroad.
W e ave going t o have a
meeting w i t h the execu-
tites o f the roads i n the morning a n d study t h e situation.
We have @ coal comaittes d o w n there, e n d w e are going t o
get a chance t o fix t h e situation u p i n advance which
otherwise m i g h t h a v e r u n i n t o a
very b a d s i t u a t i o n a n d
have taken a lot o f time t o get o u t o f it.
Now y o u speak o f criticism.
W e haventt h a d a n y
9 utstanding criticisms o f this thing.
W e have h a d
criticisms f r o m the little fellowsand n o w a n d then t h e
big fellow would take t h e position that h e d i d not want
to lese t h e advantage w h i c h h e had i n transportation, b u t
all o f that i s being dissipated also. I
do not know o f a n
iastitution t o d a y o f importance i n the country that hasnit
a momber
o n o n e o f these a d v i s o r y boards somewhere.
The only criticism I know o f i s o f the railroads, w h e n some~
body s a y s i t 1 s r a i l r o a d p r o p a g a n d a
t o keep t h e m out o f
trouble a n d a l l t h a t k i n d o f thing. A
politician w i l l
go out somewhere and talk about some regional board and
say t h a t i t i s r a i l r o a d p r o p a g a n d a .
our chances o n that,
B u t w e will take
I f they want t o call i t railroad
propaganda a l l right, b u t t h e rank a n d file o f the people
in t h i s c o u n t r y a r e b a c k o f t h i s t h i n g 1 0 0 p e r cent.
Y o u
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Federal Reserve Bank of St. Louis
45
know i t i s pretty difficult t o bring t h e farm organiza-
tions togethcr o n any one subject.
I t t e airiieais t o
get t h e Farm Union, t h e Farm Bureau .
Federation, a n d
the National Grange together o n a n y question o f policy,
but they are together s o far a s this proposition i s con-~
cerned a n d are serving o n the same committees.
This
thing has been going o n for three years now end what w e
reed i s a r n a t i o n a l i m p u l s o b a c k o f t h e m o v e m e n t a p p l i e d
in the proper way. L a s t week I had a talk with the
President o f the American Telegraph & Telephone Company.
I went into t h e whole thing with him, a n d h e has delegatcd
an e x e c u t i v e
o f e a c h o f t h e Bell Telephone Companies
in
each region t o serve a s a member o f the Board a t large;
just t o h a v e t h e m there,
lar committee,
t o t a k e n o p a r t o n a n y particu-
o r anything, b u t simply t o b e there a n d
to h a r m o n i z e t h e s i t u a t i o n
s o f a r a s t h e y a r e concerned.
The Steel Corporation h a s just taken similar ection.
W o
have n o t asked them t o d o i t u p t o this time because there
is a certain psychology i n having a little fellow come
in first, because i f you d o not someone will certainly
say that t h e b i g corporation will want t o r u n it.
Resolutions favoring this proposition have been
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Federal Reserve Bank of St. Louis
adopted b y the following organizations:
Association o f Nanufacturers,
T h e National
t h e American F a r m Bureau
Federation, t h e National Grange, a n d i n fact all the
way d o w n t h o l i n e e v e r y o r g a n i z a t i o n
o f a n y importance
has gone into it.
There i s just one other thing, a n d then I
a m through.
I just want t o show y o u the value o f the contact through
these committees.
I n 1922 w e d i d not have a n y district
manager a t Dellas, Texas.
I s there a n y one here f r o m
Texas?
Governor Crissinger.
Y e s , Governor Talloy a n d Mr.
Vialsh.
Mr. Conn.
we d i d not have a
boarde
W e d i d not have a district manager,and
livestock committee o f tho southwest
Y o u will remember t h e drought d o w n there i n 1922.
Everybody i n the southwest a s k the Car Service Division
to gsond stock cars t o the southwest.
T h e War Finance
Corporation c a m e over t o our office a n d said, " Y o u have
got t o d o it, o r w e are ruined", a n d s o one
W e d i d it.
We took stock cars f r o m Chicago, f r o m Cincinnati, f r o m
South St. Paul a n d from Kansis C i t y a n d sent them down into
the southwest.
B e f o r e w e d i d that w e tried t o find o u t
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Federal Reserve Bank of St. Louis
47
accurately h o w m a n y s t o c k c a r s w e r e n e e d e d ,
b y conmunica~
ting with the Oklahoma Railroad Commission, the
Railroad C o m m i s s i o n a n d t h e N e w M e x i c o H a i l r o a d C o r m i s -
slone
W e thought t h e y would a s k for more cars t h a n they
were entitled to, a n d they did, a n d what happened was that
while m o s t o f t h e c a r s s e n t i n t o t h e t e r r i t o r y w e r e l o a d e d
we hauled t h e rest o f them o u t empty.
W e had & situation
this year o n the Texas Pacific, a n d we had a meeting o f
the livestock comiittee, a n d they told u s the number o f
cars that they would need.
W e made a
survey o f the
Southern Pacific a n d the Missouri Pacific a n d gathered
enoug c a r s u p within 4 5 hours s o that w e could g e t t h o m
out t o them a n d have t h e m ready f o r this movement o n
account o f the d r y weather, a n d there wasn't a single
empty back haul o f a n y o f the cars w e sent o u t there.
In other wcrds t h e cars.we s e n t o u t there were needed.
he Committee h a d given accurate information a s t o exactly
what their problem was.
T h a t i s a good illustration o f
how easy i t i s t o handle matters o u t i n the territory a n d
the difficulty o f doing anything here.
thing here.
W e cannot d o any-
W e have g o t t o build u p a contact between
each branch o f the industries, a n d the railroads, a n d
have t h o m solve their o w n problems i n their districts
48
with w
hat general supervision w e c a n give t h e m from hore.
That i s apout t h e size o f it.
would L i k e t o a s k w h e t h e r o r n a & y o u
Mr. P e r r i n . I
have a n y c o m p u t a t i o n s w h i c h g o t o s h o w w i t h a n y a c c u r a c y t h e
curtailing o f inventories i n various important tines, that
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would b e very pertinont i n our consideration h e r e a s t o the
decrease i n the amount o f credit roquired i n carrying those
inventories.
a m sorry I cannot give a n ansupate answer
Mr. Conn. I
to that.
W o have tried awfully h a r d t o get it, b u t v e have
been able t o g c t i n that form t h e figures o f tho iuicividdal
firms - - w e have only g o t four definite commodity reports
regarding t h e inventory situgtion a n d ono o f them i s t h e
one I mentioned, lumber.
H a c h board i n the future, that
is t h e oxecutive committes o f eacn board h a s asked cacl
commodity c o m m i t t e e
t o report roguiarly h o w t h o inventories
are ruming, whether higher or. lower.
thing w e have lacked.
information,
T h a t h a s been o n e
W e have not had accurato inventory
b u t w e bolieve n o w t h a t e v e r y t h r e e months
that i n f o r m a t i o n w i l l c o m e i n f r o m t h e s e c o m m o d i t y c o m mittees.
Governor Crissinger.
I
f there i s nothing further
AQ
to b e s a i d o n this s u b j e c t
w e will t a k e a
r e c e s s o f t e n minute:
and t h e n w e w i l l h e a r M r , D e w o y e
(Whereupon t h e Conference recessed f o r t e n minutes,
at the conclusion o f which, Hon. C . S. Dewoy, Assistant
o f t h e Treasury, o n t e r e d t h e C o n f e r e n c e r o o m , a n d
Secretary
the Conference proceeded a s follows):
Governor Crissinger. G e n t l o m e n , M r e Dewey desires
to g a y a
f e w words
t o you.
Mr, Dewey» G e n t l e m e n , about a year ago I had the
pleasure
o f speaking
t o y o u a b o u t s o m e o f t h e problems
the T r e a s u r y i n c o n n e c t i o n w i t h t h e currency.
of
A t that timo
I brought u p the subject o f the stancard silver dollar.
Somebody h a s started t h e proposition t h a t the Treasury h a s
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Federal Reserve Bank of St. Louis
invented a
new form o f hard money. I
believe i t i s t o
be a silver nickel w i t h a gold coentor. I
invented it;
don't kmow w h o
w o did not, b u t people f r o m all over t h e
country have been writing i n wanting t o know when the new
coin i s coming into circulation.
I
n addition t o that some-
one hag written i n offering t o sell the first thousand for
a thousand dollars apioce o r something like that.
me tell you that there i s nothing i n that. I
L e t
think the
Treagury h a s come t o the conclusion that there i s nothing
50
in t h e h a r d m o n e y
circulation,
a n y more
a s a n y roliof
i n this
miter
o f
I t was a tost t o seo what we could do with
rogard t o forcing o u t hard money into circulation, b u t
after having gotton a certain amount o f i t into circulation
it came back very quickly a n d w e havo about given that u p
ag a means o f relief.
I have had a few figures made u p t o show what the
circulation h a s been doing i n the past t e n years. I
just mention one o r two o f them.
and h a d a u t h o r i z e d
will
I m 1915 w e asked for
a n appropriation sufficient
84,000,000 sheets o f Cistinctive paper.
T
t o buy
o give y o u some
idea o f the increase i n the amount o f printing t h a t w e are
doing now at the Bureau o f Engraving and Printing, i n the
way o f currency,
bills
i n 1915 there were 189,000,000 o n e dollar
i n circulation.
O
n S e p t e m b e r 3 0 t h o f t h i s y eeayr
there were 420, noarly 421,000,000 dollar tills i n circulation.
W h e n w e started t o make a little concerted effort
to bring t h e circulation into a more readily handlec opera-
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Federal Reserve Bank of St. Louis
tion, w e formed a currency committee.
nine o r t e n months ago.
T h i s was done about
T h a t committee consists o f Mr.
Bddy, S e c r e t a r y o f t n e F e d e r a l R e s e r v e Board, M r ,
Broughton, Commissioner o f t h e Public Debt, a n d m y s e l f .
We have assigtants w h o compilo t h e facts received b y tho
yarious Federal reserve banks a n d branches a s t o their supplie:
of eurroncy, weekly, a n d they compilo those figures into a
report which i s submitted t o u s monthly. I
will seavo
with y o u copios o f the type o f reports t h a t w e got, i f you
care e e s e e a t them, a n d i f you will return t h e m t o mo.
They give u s the figuro o n overy denomination a n d kind o f
currency t h a t they have;
w e know just what overy bank has
in tho w a y o f news a n d fits a n d i n every denomination i n
kind;
w e k n o w w h a t r e s e r v e s t o c k s t h e y have;
w e know what
igs i n process o f manufacture a t the Bureau o f Engraving a n d
Printing;
w e know what a r e i n tho Treasury vaults, a n d with
that knowledge w e have b e e n able t o control t h e currency
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Federal Reserve Bank of St. Louis
gituation a little bit;
w e have been ablo t o build u p a
three months! supply o f currency o f every kind a n d the
denomination i n a partial s t a t o o f completion, o n e month's
supply i n partial state o f complotion a t the Bureau o f Engraving a n d a
two months!’ supply o f completed currency i n
the vaukts o f the Treasury.
W e haven't gotten very far i n
this program owing t o the fact that the demands o n us havo
continually increased.
W e put into circulation i n the last
the
twelve months forty million additional o n o dollar bills;
demand keeps growing, a n d makes i t very difficult f o r u s t o
put anything D y a S a reserve.
H o w e v e r , S i n c o 1923, w h e n
the reserve stocks i n all conditions o f one dollar bills
was o n l y & ,300,000,
w e have increased i t t o 15,600,000,
despite t h e fact that w e have h a d t o ~iace this enormous
increase i n cir culation.
W e also h a d authorized l a s t year,
and are a t the present time completing, a
uncompleted notes. I
reserve o f 50,000,000
mean sheets, w i t h four notes t o the
gheet, o f which 15,000,000 will have only t h e backs printed
and 15,000,000 will have t h e backs a n d faces printed,
This
reserve i g t o b e a revolving stock i n the Bureau o f Printing a n d Engraving, p e r m i t t i n g u s t o s l o w u p o u r process
manufacture a n d lengthening,
note about twicoe
of
w e believe, w h e life o f the
T h e n a reserve o f 25,000,000 s
which w i l l b e p r i n t e d d u r i n g t h e fiscal y e a r 1927;
heets
a n d
two months o f reserve supplies w h i c h w e hope t o keep i n
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Federal Reserve Bank of St. Louis
the v a u l t s o f t h e Treasury.
I
f w e c a n keep these reserve
stocks i t will permit t h e currency t e season, t h e i n k t o
harden a n d w e believe t h a t t h e currency will wear longer.
Having carried o u t this part o f our program,
on
20th the Secretary o f the Treasury authorized a
53
committee t o b e appointed t o consider t h e subjoct o f currency
as a whole.
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Federal Reserve Bank of St. Louis
I n the past there have been a
number o f such
committees formed f o r the purpose o f considering t h e design
of currency a n d other angles o f ite T h e s e reports h a v e been
furnished, were satisfactory, b u t thoy unfortunately have
been f i l e d a w a y b e c a u s e t h e y d i d n o t c o m p l e t e l y m e e t t h e
ontire situation.
F o r instance, t h e y woulc prepare a
design f o r c e r t a i n c l a s s e s
o f currency,
new
b u t when i t was
brought t o the attention o f the Bureau a certain defect i n
the design, that is a mechanical d efoct, made i t impossible
to carry t h e m out.
S o this time w e thought w e would make a
very c o m p r e h e n s i v e s t u d y o f t h e w h o l e c u r r e n c y situation.
The S e c r o t a r y o f t h e T r e a s u r y a u t h o r i z e d a
Treasury m e m b e r s
t o servo,
committee
of
a s w e l l a s s u c h crvperts o r persons
havang oxpert knowledge o f the currency situation not connected «with t h e Treasury,
committee.
t o b e drafted t o serve o n the
A n agenda w a s prepared covering overy angle o f
the research t o be made and this agenda was divided into
oight separate headings.
S o m e twenty members were asked t o
serve o n t h e v a r i o u s committees. I
List o f t h e subcommittoes:
Item 1.
N o w Design.
will j u s t g i v e y o u a
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Federal Reserve Bank of St. Louis
54
Mechanical aspect a t the Bureau o f Engraving
and Brinting.
Item I n a u g u r a t i o n o f new designs.
Item 4 . Distinctive paper.
{tem E e o n o m i e s resulting f r o m reducing size.
Item {
C o n t r a c t clauses, legends a n d s o forth appear-
ing o n the various issues.
Item 7 . E x a m i n a t i o n
o f procedure f o r destruction
of
unfit notes.
Item 6. L e g a l aspects.
These committecs have been working since Septomber 1 5 t h
T h e Committee o n design, t h e
and progress h a s been made.
first o n e t o make a
report, h a s approved t h e idea o f reducing
the s i z e o f t h e c u r r e n c y a p p r o x i m a t e l y o n e - t h i r d .
Their
recommendation a n d their study will b e passed o n b y these
various other committoes.
I
t i s very easy t o recommend
that t h e currency b e reduced one-third i n size, b u t i t i s
another matter t o consider a l l t h e mechanical aspects a n d
determine what the actual savings will be, and what legislation,
i f any, w i l i b e necessary.
B e f o r e Wwe m a k e a n y r e p o r t
on this situation a l l o f these points will b e covered a n d
55
studied a n d t h e mattor will t h e n b e forwarded t o the Secretary
of t h e T r e a s u r y f o r h i s recommendation.
A f t e r that i t i s
our intention t o submit i t t o t h e Agents,
and t o the Board
t o the Governors
t o get their reaction a n d their criticisms
a8 our plan.
ht s a y t h a t t h e h i s t o r y o f t h e p r o p o s e d r e d u c t i o n
in size o f notes discloses t h a t this was started first about
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Federal Reserve Bank of St. Louis
fifteen years a g o b y Secretary McVeagh, first, I
believe,
just prior t o t h e termination o f his term o f office, w h e n h e
made a
recommondation t h a t t h e scheme b e carried out.
Secretary McAdoo, w h o followed him, decided that i t
would b e b e s t t o s t u d y t h e m a t t e r a
study was started;
Little further.
Such a
t h e war came o n - ~ first, confirmation
by t h e Federal Reserve Board came, t h e other studies were
taken i n t o effect,
a n d t h e n t h e w a r c a m e along,
a n d the
Bureau o f Printing & Engraving w a s i n entirely t o o much o f
an upset condition t o consider a n y changes i n t h e present
methods a n d plans.
A t the present time t h e Bureau o f
Printing & Engraving i s operating under t h e most satisfactory
conditions a n d I believe t h a t w e can n o w make changes dovwn
there looking toward the reduction i n the size o f currency
and t h a t t h e w o r k c a n b e c a r r i e d o u t e f f i c i e n t l y a n d well.
56
Now i f t h e o a r e a n y q u e s t i o n s w h i c h y o u w o u l d l i k e t o a s k
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Federal Reserve Bank of St. Louis
me I would b e glad t o try t o answer thom.
Governor Seay. I
would l i k e t o a s k i f y o u r c h a n g e
in design ombracos any changos which would further the
convenience o f handling b y bank tellers?
Mr. Dewey. I
tilght s a y t h a t w e n a v e m a d e o n e t e s t e
We h a d f i t a n d unfit dollar bills c u t down t o approximately
the sigo o f t h o proposed reduced s i z e note;
t h e y wore
passed o u t t o the counters i n our gedemption division here
and counted fifteen times;
w o counted t h e m a s whole notes,
we c o u n t e d t h e m c u t horizontally, v e r t i c a l l y a n d diagonally,
to see what the effect would b e i n handling and classifying
the different notes.
I t was found that t h e whole note
counts e a s i l y a n d h a n d l e s v e r y easily, m o r e e a s i l y t h a n t h e
presont sizo; t h a t i t does not cramp the hand s o much;
they f i t better i n t o t h e hand;
t h e hanf notes c u t horizon-
tally - - i t was thought that they might b e t o o thin and mike
too n a r r o w a
s t r i p t o recocive t i e c a n c e l l a t i o n h o l e s
them, a n d t h a t t h e y w o u l d t e a r easily.
in
A f t e r being counted
fifteen times they showed n o wear a t all from tearing, b u t
the vertically c u t cancollod note w a s n o t very satisfactory,
cut
they were hard t o handle;
t h e diagonal was hard t o handle
57
and h a r d t o stack,
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Federal Reserve Bank of St. Louis
I
t was thought b y t h e money ceunters
that t h e reduced size note would b e more convenient t o
handle
i n t h e whole n o t o a n d j u s t a s convenient
i n the
half note.
Governor Seay.
W e have seen designs, Mr. Secretary,
which w e r e r i g h t s i d e u p , n o m a t t e r w h i c h w a y y o u t u r n e d
them.
H a s anything been done i n that respect?
Mr, Dewey.
T h e Committee o n design las studied the
subject o f design o f note f r o m every angle. P h o t o g r a p h y
hag advanced t o such a n extent that o u r note i s not really
proof against counterfitting from photography, ‘ a n d we
might h a v e t o institute entirely n e w features i n the note.
Our committee h a s studied t h a t ati t h e Bureau o f Standards
we have & committee o f two experts w h o are working o n the
distinctive p a p e r ;
w e are making studies
o f that, a n d I
might s a y w e have devdloped a paper o u t there that i s four
or five times t h e strength o f o u r present paper, b o t h
holding strength and bursting strength.
T h e tests show
increased strength a n d these paper oxperts a r e going t o
make studies o f water marking t h e distinctive paper, distinctive fibre a n d s o On.
Governor Harding.
M a y I
ask vwhat y o u r e x p e r i e n c e h a s
been i n keeping tho two dollar bills i n circulation?
Mr. Deweye
W e find that t h e supplies o f the bank
have been c u t down, t h a t there h a s n o t boen a n y approciable
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Federal Reserve Bank of St. Louis
demand f o r theme
I t goes back, I
think,
t o t h e public feel-
ing that there i s opportunity t o m i x them u p with o n e dollar
bills. I
do not know that there i s anything c a n be done
about it.
W e are trying t o push not only t h o u s e o f t h e
tyo dollar bills b u t t h e use o f bills d f higher denomination t o h e l p u s o u t i n t h e o n e d o l l a r b i l l situation.
Mr, Platt.
Y o u d o not think i t i s wholly a question
of superstition a n d prejudice?
Mr, Deweye I
do not think so.
W e have been looking
around f o r a real practical roason f o r failure t o use t h e
$2 bill and
o n e suggestion has c o m e from a very prac-
tical source, f r o m a man w h o does a lot o f change w o r k a n d
has a lot o f tellers.
H e said t h e average m a n carries
his bills o f larger denomination i n a pockotbook o r wallet,
the fives, t e n s a n d twenties, a n d s o o n up; t h a t h e puts
the o n e dollar bills i n his pants pocket a s t h e large change,
and that the two dollar bill i s neither a large bill nor a
small bill,
h e puts i t i n with t h e ones a n d pays i t out b y
mistake.
T h a t i s one o f the criticisms w e have had.
W e
had a n y n u m b e r o f t h e m o n t h a t theory, t h a t t h e y a r e t o o
oasily mimed u p with t h e one dollar bills.
T h a t Led t o
all sorts o f suggestions about having them o f a different
color a n d g o M e
T h i s has been takon u p with the study
A n o t h e r suggestion h a s been that t h e
already sugsestod.
two dollar bill i s not a multiple,
o d t h e noxt higher
denomination, a n d some suggestion h a s been made that a
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Federal Reserve Bank of St. Louis
two dollar a n d a half bill b o p u t o u t i n its placo.
Governor Harding. I
think that would b e worthy o f
consideration.
I f wo continue a bill of t h a t size and
Mr, Dewoy.
it i s necessary t o continue i t unless w e got legislation
to the contrary,
w e will have t o make i t s o distinctive t h a t
they d o not want t o onter into it.
Mr. Porrin.
make n o t o s
W o u l d i t not b e entirely possible t o
o f large denominations
o f t w o classes, H O U - o r L y
bearer notes b u t order wotes l i k e t h e t o n dollar gold certificates.
T h a t would relieve ombarrassment where there i s a
considerablo volume o f money although i n small volume i n
bulk.
56
Mr, D e w e y e I
think t h a t m i g h t b e w o r k e d e u t . I
think
thig committee will study that a n d all o f these other points.
All o f the difforent points are being brought up, and the
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Federal Reserve Bank of St. Louis
study i s going t o b e a s comprehensive a S w e c a n make it.
Mr, KeGlure.
M a y I
inquire w h e t h e r a n y c o n s i d e r a t i o n
has been given t o tho question o f destruction a t the Federal
Reserve B a n k s o f c a n é e l l e d c u r r e n c y ?
Mr. Deweye Y o s S e
studye
1 9a
an e f f o r t
h a t is being given very careful
matter o f fact w e aro going into everything i n
t o w o r k o u t s o m e plan.
O u r study does n o t only
pertain t o currency a s such, b u t i t pertains t o currency a n d
the h a n d l i n g o f c u r r e n c y s
W
a f e e l t e a t t h e - facilities f o r
handling t h o proposition i n 1915 o f 89,000,000 sheets o f
distinctive paper m a y n o t b e adequate f o r handling 230,000,000
I f there a r e a n y changes necessary
ghoets t e n yoars later.
which would make toward officioncy a n d oconomy w e want t o
know about i t and w e are going t o cover i t i n o u r dtudy.
Governor Fancher.
there would b e quite a
T h e feeling i s that i n Cloveland
saving i f the cancelled currency
wag a c t u a l l y d e s t r o y e d w h e n i t w a s rodcemod.
Mr, Doweye T h e r e i s a feeling that theroutieukd b e
a great saving, b u t o f courso there a r e some legal aspects
that would have t o b e covered b y legislation possibly.
Governor Seay. I
asked a question a moment ago,
but I did not apparently mako myself clear. I
have boen
a bank teller myself, a n d a great part o f the time o f a
bank toller i n sorting money received o v e r the counter
of a bank i s i n turning 1 t around. I
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Federal Reserve Bank of St. Louis
ask i f considera-
tion h a s been given t o the fact that atbiailcomidcbo m a d e
waich would b e right side u p n o matter which w a y you turned
it, a n d thereby save that operation o f turning t h e bill
around?
Mir, D e w e y e
S o m e o f those notes h a v e b e e n s o n t t o
us a s spocimens f r o m the Philadolphia bank.
W e have t h e m
with o v r collection o f spocimens a n d thoy are under consideration.
I f w e make, any changos a t all w e are going t o
try t o mako t h e m a s comprehensive a n d a s useful a s possible
aftor considering t h e thing f r o m all possible angles.
Mr. Flatt.
I f you have portraits o n the note y o u
cannot have both sides alike v o r y well.
Mr. Deowoy.
O f course t h e y could b e arranged s o
that one portrait could bo here and another ono hore (indicating).
O f course w e have a great many things t o put o n
the note, such aS numbers, symbols and things o f that kind,
6A
the s pace i s limitec a n d w e have t o b e very careful t e koep
the protoctivo features properly coverade
Mr. Platt.
M r . Secretary,
i s there a shortage o f
o r d o w e simply n o t g e t them?
fifty cent pieces,
W e havo a
Mr. Dewey.
we are Loaded d o w n with them.
largo quantitios o f thom.
redundancy o f fifty cent pieces;
T h o mint i n Philadelphia h a s
W o are trying o u r best t o push
them out b u t the banks won't take them. ‘ T h e demand i s for
quarters.
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Federal Reserve Bank of St. Louis
Mr, Platt. .
The banks won't p u t them out?
ir, D e w o y e
n e r e i s n o demand f o r
Mre Platt.
T h e y will always g i v e y o u bills unless
you particularly ask for small chango.
Mr, Dewoye
W o are minting just a s hard a s w e c a n o n
dimes a n d quarters a t the present time;
running over time.
t h e mints a r e
W e had t o stop minting gold for awhilo
to get out more subsidiary silver.
Governor Seay.
T h a t i s perfectly true.
T h e half
dollars accumulate o n u s a n d t h e quarters g o out a s fast
as w e c a n g e t them.
Mr, Platte I
have always b e e n under t h e impression
that there w a s a shortage, because y o u never g e t them unless
you particularly a s k f o r them,
Mr. Dowey.
W e have large quantities o n hand. I
am
planning t o ship o u t large quantities o f them t o Cuba,
T have o n e o t n e r m a t t e r
eut f o r the Board t o consider.
that I
would l i k e
t o throw
O n May end, 1925, there
was a letter addrossed t o the Governors o f the Federal Resorve Banks relative t o the contract f o r registored mail
insurance a n d a proposed change i n the ratio o f the rates.
The v a r i o u s banks, I
think, subscribed t o i t with
ception o f t h e B a n k o f S a n Francisca. I
would l i k e t o
read this letter, which is as follows:
"May 8 , 1925,
My d e a r Governor:
Since t h e present s e n t e d f o r registered mail in-=
surance h a s been i n effoct several oastern Federal Reserve
Banks h a v e protosted tnat t h e arrangement under which all
banks pay an equal flat rate of 4=7/8 cents per $1,000
ls not equitable, a n d docs n o t result i n a n equal distribution o f the s a v i n g offected under t h e n e w contract.
one c a s e i t i s c l a i m e d t h a t a
I n
Federal R e s e r v e B a n k i s a c t u a l l y
paying a larger premium under the present contract than was
paid under t h e o l d contract.
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Federal Reserve Bank of St. Louis
64
In view o f these protests, t h e mattor w a s taken u p with
Marsh @ McLennan, w h o have submitted a
schodule o f rates,
which i t i s stated would bear a reasonable relation t o the
hazard o f the shipments made t o oach point, a n d which would
at t h e s a m e t i m e p r o d u c e t h e s a m e g,r o s s p r e m i u m a s t h e
4-7/8 c e n t r a t o e
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Federal Reserve Bank of St. Louis
T h i s schedule
o f r a t e s i s a s follows:
65
It is understood t h a t t h e revised ratos which would b e
charged t o t h o Federal Reserve Banks might b o subject t o some
change, d u e t o a variation i n the proportionate amount o f
shipments made t o the several banks mignt b e subject t o some
change, d u e t o a variation i n the proportionate amount o f
shipments made t o the sovaral banks, b u t that L c 3 8 propose:
to use f r o m month t o month a rato f i g u r e d t o the nearest
t o t h e r a t e s s h o w n above, s u b j e c t
quarter c e n t c o r r e s p o n d i n g
a s m a y b e necessary i n t h e premiums assossec
to s u c h a d j u s t m e n t
h i s would result i n the use
for the last. month i n the year.
of rates varying from 2-3/4 cents per 31000 for Philadelphia
and Richmond t o 10=%/4 cents por $1,000 for San Francisco.
n the first instance would b o
The rates 1 : t o b e c h a r g e d i
as follows:
Boston 4¢
C
eS
Ne w
h
i
S
c
t
a
g
o
. bOULsS
York B a 1 / 4 _
liinneapolis
Philadelphia 2-3/4
Rangas o i t y
@levoland 4
Dallas
Riehmond 2-3/4
San F r a n c i s c o
Atlanta 5 - 3 / 4
This d o e s n o t m e a n t h a t t h e i n s u r a n c e
contract will
changed, t h e underwriters still receiving 4-7/8 cents p e r
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Federal Reserve Bank of St. Louis
be
$1,000, but would mean a more cquitable distribution of
the charges botween t h o various Federal Resorve Banks.
Will y o u pleaso consider t h e matter a n d advise m e
if such a plan i s agreeable t o your bank.
Very t r u l y yours,
(Sed)
C . S e Dewey,
ASsistant S e c r e t a r y o f t h e
Troasury."
That lottor w a s sont t o each o n e o f tho twelve banks.
Bleven o f the banks agreed t o the change a n d I believe S a n
Francisco d i d not wish t o come i n under a change a t t h e present time.
A
s a rosult I think t h e matter h a s been
Gropped, b u t i t was brought t o the attention o f the Governors
at their meeting.
Governor Talloy.
T h e Pallas District i n the last 25
years h a s nevor been able t o get cnough o n e dollar bills during t h e f a l l o f t h e year, a n d I
w o u l d l i k e t o a s k i f the
Committee h a s g i v e n a n y c o n s i d e r a t i o n
t o t h e furmishing o f
new ones oqual t o the amount o f mutilated ones shipped into
a district.
Mre Dewoye
h e r e was a’ currency conference h e l d here
in July and w e discussed t h e whole question relative t o t h e
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6¥
shipment o f one dollar bills a n d i t was decided that i f thoy
would a l l o c a t e
t o e a c h Federal Reserve B a n k =
f a m familiar with that.
Governor Talley.
Mr, Deweye T h a t is the last word that w e have been
told about it.
T h a t i s t h e last method y o u have been
Governor Talley.
able t o work out?
Mr. D e w e y s
Y e s s
Governor Talley.
O u r experience seems t o indicate t h a t
the »abis o f paying 4 0 per cont n o w a n d 6 0 per cent fit, h a s
resulted i n that i n tho other districts i t seems t h a t t h e
redeposit o f fit bills i s equal t o the amount paid oute
What w e have been under t h e nocessity o f doing i n Dallas i s
to a b s o l u t o l y l i m i t t h e a m o u n t o f n e w b i l l s
s o much p e r week
to oach bank a n d then raise t h e requirement o n fit bills a n d
the r e s u l t h a s b e e n a
receposit t h a t i s nearer 2 5 p e r c e n t
as against a n averago i n the other district o f 5 3 por conte
At the same time w e have imported there a large number o f
fit bills f r o m t h e other districts, a n d o f course w e are
paying t h e oxponse o n that a t the present time.
Governor Crissinger.
D u e t o cotton picking?
68
Governor T a l l e y e Y e O S e
T h e demand starts about
the middle o f August, reaches i t s peak along about t h e l s t
of O c t o b e r a n d t h e n i s i n sfmia v o l u m e u p t o C h r i s t m a s t i m e .
Then a large amount o f them are returned, a
large proportion
of those returned being mutilated bills o f course.
appeared
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Federal Reserve Bank of St. Louis
I t
t o u s that there c o u l d b e some p l a n worked o u t under
which n e w b i l l s c o u l d b e s h i p p e d o u t t o e a c h Federal R e s e r v e
bank equal t o t h e amount o f mutilated bilis shipped i n here.
Then there would not b e this differencu i n the volume o f bills:
in other words t h e banks a n d the other districts would n o t
get a n excess o f bills a n d w e would n o t g e t a n insufficient
amounte
Mr. Deweye I
do not h i r e t h a t a n y o f the banks
in any o f the districts a r e getting a n excess o f new bills
according t o the reports w e are getting.
Governcr Talley. I
a m applying i t t o the whole pro-
position o f } 1 bills, a n d n o t particularly n e w ones.
W e are trying t o work i t out just a s well
Mr, Dewoy.
we possibly can.
could print.
V
e have a limited number o f ones t h a t
W e are tiled down b y appropriation.
I t
not like Federal Reserve notes, t h a t a r e reimbursible = cannot
turn them out
a d libitum
a s w e would like to.
W uew
685
are a l l o w e d s o m a n y s h e e t s
structure,
t o cover t h e whole currency
a n d w e t r y t o distribute
i t t h e b e s t w a y w e cane
Of course there a r e conditions arising i n certain districts
that make i t seems a s i f they a r e n o t getting their fair
share, b u t I helieve t h a t gradually w e will work it.out inte
a more gratifying situation.
I t s o happens t h a t o u r additional
Governor Talley.
one dollar bills have tocoteprincipally f r o m N o w York, w h i c h
takes a
longer time i n transit.
ir. Dewoye
W e l l t h e drift unfortunately seems t o b e
to the centers i n one dollar bills. C h i c a g o g e t s a
fair
T h e f1lt bills pile
Situation
New
the
transient/in
i
g
O f course i t
drift, a n d N e w York gets a large drift.
up there v e r y rapidly.
York t h a t d o e s i t .
Governor Wellborn. L
would l i k e t o a s k i f y o u h a v e
taken into consideration t h e great d
new bills?
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Federal Reserve Bank of St. Louis
W
emand i n Florida f o r
e have a great difficulty i n supplying t h e
demand o f the banks f o r t h e hotels there.
Mr. Dewey.
O f course there i s a domand f r o m different
sections o f the country, a n d each one o f those demands seems
to b e equally important.
all.
G o 1e- dir Pic =
to satisly. then
T h e demands o f Florida and California come along during
a
69
the winter;
t h e n there i s a big demand i n t h o cities f o r
Christmas.
I
n fact there doesn't s c e m t o b e a n y time o f t h e
excess
year thnt we are not having andemand for one dollar bills.
Governor Seay.
T h e n there w a s a large demand t o
take care o f the races i n Baltimore.
Mr. D e w o y .
stant demand.
T h e r e i s never a n y l e t dowm i n that con-
W e aro trying t o build u p a sufficient re-
gerve a n d trying t o g e t enough t o make t h e m g o around.
(Wheroupon M r . D e w e y r e t i r e d f r o m t h e C o n f e r e n c e r o o m e )
Governor Crissinger. I
was wondering whether t h e
“onference w a n t e d t o t a k o a n y a c t i o n
presented
o n t h e matter t h a t was
b y Mr. A n d e r s o n a n d Mr. C o n n .
Mr. Platt.
I t seems t o me that i t is a very good
idea a n d t h a t w e o u g h t t o c o o p e r a t e w i t h t h e m a l l w e cane
Perhaps i f any action i s t o b e taken i t should b e prepared
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Federal Reserve Bank of St. Louis
for tomorrow's session o f the Conference.
Mr. Mitchell. G o v e r n o r Crissinger, I
committee o f three b e appointed t o make a
suggest that a
report o n this
matter tomorroWe
Mr. Jaye I
will second that.
(The motion having been duly seconded,
Governor Crissinger. I
w s carried.)
will appoint o n that committee
Mre Mitchell, Governor Seay a n d Governor Strong.
Mro Jaye
M r , Chairman, I
would like t o relate a
Little incident i n line w i t h what Mr, G o n n has stated here.
A concern with h e a d offices i n New York, w i t h about 2 0 0
offices s p r e a d o v e r t h e country,
w a s constantly transfer-
ring funds between those offices when they found out they
had about t e n million dollars which w a s i n the mail all t h e
h e y discovered t h a t there w a s
time a s unavailable funds.
a wire t r a n s f e r s y s t e m i n t h e F e d e r a l R e s e r v e S y s t e m a n d
they decided t o make u s e o f it.
B y transferring their
funds between t h e i r offices t h e y havo reduced that float
from t e n millions t o one million which means t h a t they have
nine m i l l i o n d o l l a r s m o r e t o u s e a l l t i e time.
gider this a very groat s
T h e y con-
orvice a n d are v e r y appreciative
of t h e facility.
Governor Strong. G o v e r n o r Grissinger, I
must esk
to b e relieved f r o m service o n the committee which y o u
appointed, a n d I
am sure that Mr. J a y will b e very glad t o
take m y place o n that committee.
Governor Orissinger.
Mr. J a y o n the Committee.
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Federal Reserve Bank of St. Louis
V e r y w e l l then, I
will a p p o i n t
T h e Chair will entertain a
motion
to adjourn,until tomorrow morning.
(Whereupon
a t 5 . 2 5 o ' c l o c k peme, u p o n m o t i o n d u l y s e c o n d e d
the Joint Conference adjourned until temorrow, Thursday,
November 5 , 1925, a t ten o'clock a . Me)
Thursday, November 5 , 1925.
The Joint Gonferonee o f the Federal Reserve Board with
the Chairmen a n d Federal Reserve Agents a n d Governors o f the
Federal Resorve Banks reconvened pursuant t o the adjoumnment
of y e s t e r d a y a t t o n o ' c l o c k a e m .
i n t h e Hearing R o o m o f
the Federal Reserve Board, Treasury Building, Washington,D.C.
PRESENT:
De R e Grissingor, Govemnor, Federal Reserve Board,
Edmund Platt, V i c e Governor, Federal Reserve Board,
Charles 8 . Hamlin, M e m b e r Federal Reserve Board,
A. G . Miller, Member Federal Reserve Board,
Hdward H . Gunningham, M e m b e r Federal Reserve Board,
Georgo R. James, Member Federal Reserve Board.
PRESENT ALSO:
The Chairmen and Federal Reserve Agents and the
Governors o f the Federal Reserve Banks a s indicated i n yesterday's record.
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Federal Reserve Bank of St. Louis
( o
Governor Crissinger.
to order. I
T h e m e e t i n g w i l l kindly c o m e
take pleasure i n presenting Professor Sprague,
who will say a few words t o you this morning.
72
Professor Sprague. I
will begin what I
have t o s a y
with a certain amount o f hesitation, bocauso i t relates
altogether t o the relations betwecn t h e reserve banks a n d
the particular member banks t h a t becomo borrowers, a n d
particularly habitual borrowers a t the Federal Reserve Banks.
Tho Federal Reserve Act, a S i t seems t o me, implies
the e f f i c a c y o f c e r t a i n p r i n c i p l e s a n d i n f l u e n c e s w h i c h d o
not seem t o m e t o b o applicable t c any except a limited
numbor o f momber banks.
T o e Act is, i n substance, b a s e d
upon Buropean central banking experionce, b a n k s t h a t are
operating a n d m a n y o t h e r b a n k s t h a t a r e o r g a n i z o d u n d e r
the branch bank system, practically a l l o f those banks hav~
ing a head office i n the central money market o f the country
with branches oxtending more o r less throughout their r e spective countries.
U n d e r such circumstances t h e whole
credit situation i s influenced b y the discount rate, a n d i t
ean a l s o b o l a r g o l y i n f l u e n c e d
b y t h e character o f the
paper which t h e banks, directly o r indirectly, u s c a s a
basis f o r credit a t the central banks.
A l l o f those banks
have l o a n s t o t h e i r o w n c u s t o m e r s a n d a l s o h a v e a
variety
of other assets o f a liquid sort, l i q u i d i n the sense that
they a r e s a t i s f a c t o r y a s s e t s f r o m t h e p o i n t o f v i e w o f
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Federal Reserve Bank of St. Louis
75
member banks.
N o n e o f these Zuropean banks, i n other words,
are tied u p with t h e local situation, a n d they are a l l in-
fluenced b y changes i n the different rates, which i s not
conceded t o b e the gituation w i t h the banks i n New York
Gity, which have loans t o their own local customers and a
largo amount o f assets which a r e well known a n d would b e
accoptable t o othor banks, n o t only t h e reservo banks i n
New York, b u t banks i n othor parts o f the country and, i n
a good many instances, t h e banks abroad.
Now, w o have i n addition t o such banks a large number
of banks doing a strictly local business, some o f which aro
conservatively managed, a n d some o f which are not. S o m e havo
all o f t h o i r f u n d s t i e d u p i n t h e l o c a l situation,
have a wider range o f assotse
a n d others
T h e Federal Reservo A c w made
a furthor a n d wider change o f a
very fundamental s o r t w i t h
regard t o the momber banks when i t removed t h e limitation
upon t h e aggrogate amount that a n y bank might borrow. A f t o r
the paSsago o f the Federal Reserve A c t a n y bank, u n d e r t h e
law, m i g h t b o r r o w d i r e c t l y m o r e t h a n i t s o w n c a p i t a l s t o c k .
Amy m e m b e r b a n k c a n n o w b o r r o w t h a t a m o u n t f r o m a n y sourco,
and
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a n indefinite amount
f r o m t h e Federal
R e s e r v e Banks.
74
The only limitation boing i t s supply o f suitable oligible
paper a n d that word "satisfactory" m a y b e i n part eliminated
whero t h e reserve banks adopt a policy o f taking extra collateral, w h e n t h e eligible paper itself, t h o u g h technically
eligible,
i s not particularly satisfactory f r o m a
point o f view.
h
credit
e bulk o f those member banks a r e n o t
and never will b e influenced i n their borrowing t o a n y very
definite extent b y t h e discount rates.
A f t e r t h e y once
bocome borrowers t h e y d o not havo t h e ability,
o r d o not have
the assets, w h i c h will permit them, b y t h e process o f shift-
ing t o other banks, t o roliove thomselves from the load.
That i s whero t h e y are t i e d u p with t h e local situation.
It haS apparently b e c n t h e practice,
instances,
a t least i n some
t c regard more unfavorably t h e cases o f the local
baaks which borrow w h e n they have outside investments, t h a n
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Federal Reserve Bank of St. Louis
the cases o f the local banks which borrow w h e n their funds a r e
entirely t i e d u p i n the local situation
view o f t h e d e p o s i t o r
F r o m t h e point o f
i t i s f a r bettor t h a t a
bank s h o u l d
have outside investment a n d berrow a t the reserve banks
than i t i s t h a t t h a t b a n k s h o u l d h a v e a l l o f i t s f u n d s t i e d
up i n the local situation a n d then borrow more f r o m t n e
reserve bank i n order t o put those additional funds into
75
the local situation.
F r o m t h e point o f view o f the doposi~
tor i t i s d i s t i n c t l y u n s a t i s f a c t o r y t h a t t h i s b a n k s h o u l d
borrow i f all o f its assets a r e liquid i n character - - and
u
r
t i f the community i s a
of course that i s p a r t i c u l a r l y . e
one industry community, whether a
dustry,
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Federal Reserve Bank of St. Louis
single manufacturing i n -
o r a singlo crop, c o m , wheat, cotton, o r whatever
it m a y b e .
I found that o n tho 3lst o f August o f this year there
wore 688 banks i n the Reserve System which h a d beon borrewing
steadily larger o r smaller amounts f o r more t h a n 1 2 months.
NoubtLess t h i s t o t a l o f 8 8 3 b a n k s w o u l d h a v e b e e n s o m e w h a t
larger b u t f o r t h e unfortunate f a c t that 259 national member
banks h a v o f a i l o d s i n c e 1920. I
estimate
think i t i s n o t a n o v e r -
t o assume t h a t 8 0 p e r c e n t a t loast o f those 2 r 9
banks h a d b e e n h a b i t u a l b o r r o w e r s p r i o r t o t h e i r failuro.
A v e r y c o n s i d e r a b l e n u m b o r o f t h o s o banks a r e
borrowing a s the rosult o f what happened i n 1916, 1919,
and 1920, but I find that there were 122 banks that wero
not permanontly i n the reserve banks prior t o January A e
1924, that h a v e b e e n i n t h e r e s e r v e b a n k f o r t n e l a s t 1 2
months w i t h o u t a
break;
1 4 4 banks t h a t h a v e b e o n i n t h e
reserve bank steadily since t h e boginning o f January,1923.
76
I suppose
i t i s doubtloss t h o c a s o t h a t o f t h o s e
260 banks that have c o m o into t h e roserve bank a s steady
borrowers i n the last t w o years, t h a t a good many o f them
are i n bocause o f the developments which took place prior
to 1923, which hark back i n one way o r another t o 1920 and
before.
Still I
cannot escapo t h e conclusion t h a t a con-
giderable number o f those banks must b o i n tne reserve banks
far
ag t h e r o s u l t o f operations w h i c h d i d n o t d a t e p a c k a s
as thate
Tho l a s t t w o y o a r s s e e m t o m e t o b e y o a r s
i n which if,
at any time y o u might expect m t h e r a small number o f banks
to b e getting i n t o t h e situation o f pecoming habitual borrow-
ers, I should expect that there would b o a n increasing number
in the next t w o years i f we m a y assume fairly good business
on a rising scale within t h e next t w o years,
i n the absence
of a concerted effort t o prevont t h e banks f r o m becoming
habitual borrowors through a reserve bank policy.
I f we
admit that eligibility a n d t h e discount rates a r e n o t
effective agoncies for preventing banks from becoming
over extended, t h o question presents itself a s t o whether
it i s possible,
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Federal Reserve Bank of St. Louis
b y other means,
t o bring d o w n t h e number
of cases.
From t h e point o f view o f the depositor i t i s clearly
the case that i n borrowing o n the part o f his bank, t h e bank
uses t h e best assets i t has a n d puts him, t h e depositor,
in
a less s a t i s f a c t o r y p o s i t i o n w i t h r e g a r d t o t h e a d d i t i o n a l
assets o f the bank, because those rediscounts a r e n o t a s o f
high a quality a s t h o paper which t h e bank hypothecates.
From t h e point o f view o f the depositor i t appears t o ina
that i t i s highly important that a reserve bank,
i n taking
oligible paper o f a mompber bank, s h o u l d have some knowledge
of the kind o f business i n which t h e bank i s engaged,
o r is
about t o cngage, a s a result o f such borrowings.
I concoive t h a t i n the case o f those mombor banks doing
a distinctly local business t h a t t h e problom i s not very
difficult f r o m t h a t w h i c h p r e s o n t s i t s o l f
i n the ordinary
commercial b a n k w h o n loaning t o the regular business customers
of t h a t bank;
t h a t i t i s nocessary
t o analyzo t h e condition
n
a
b in order t o determine the general
of dhoh p a r t i c u l a r k
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Federal Reserve Bank of St. Louis
charactor
o f i t s business,
t h e q u a l i t y o f i t s management,
the likelihood o f its becoming overoxtended a n d t h e likelihood
of its loans, f o r various reasons, bocoming frozon.
S u c h an
78
analysis w o u l d c o v e r c e r t a i n i m p o r t a n t points.
n the first
g o o d many o f these habitual borrowers a r e banks
place a
with a
I
very s m a l l a m o u n t off deposits a s w e l l a g l o w c a p i t a l -
izations
Y o u have banks w i t h deposits
o f less t h a n
’100,000 and earning assets of less than {100,000. N o w
the earning power o f a bank o f that size i s so low that i t
eannot possibly t a k e care o f losses tnuat are likely t o occur
even i f it is fairly well managed.
F o r instance, w i t h a
capital and surplus o f $20,000 and deposits o f 326,000, b y
porrowing $24,000 from the Federal Reserve bank i n order t o
do move business, even with the {25,900 o f deposits, i t
geemg t o m e t o b e a most unsatisfactory v i e w from t h e point
of the depositors o f that bank. U n l e s s i t i s reasonably
certain that the &24 000 that i t is borrowing i s simply t o
meet a peak requiroment o f the people i n that Locality, t h a t
bank has n o t earning power enough t o take care o f the
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Federal Reserve Bank of St. Louis
losses, a n d presumably i n hypotheticating t h o $24,000 o f
its assets - - and I
do not know whethor additional collateral
was taken i n the caso ~ ~ i t has transferred t o the reserve
banks t h e best o f its loans.
I n the second place i t seems
to m e important t o ‘edmamine t h e general character o f the
managoment o f such a bank with oxtreme cares I
have studied
79
the oxaminers! reports through a pericd o f years, prior t o
the failure o f a number o f banks, a n d I find t h a t i n almost
every instance, aaside f r o m the f e w cases o f stealing, t h a t
there w a s plenty o f evidence t h a t t h e bank w a s not satisfactovily managed i n many cases; t h a t there w a s evidence i n
an
many instanees o f unduhy Liberal policy i n loans t o officers
and d i r e c t o r s a n d t o t h e i n t e r e s t s
UP e I
i n which t h e y w e r e bound
am unable t o s e e a n y sound reason f o r believing, f r o m
the point o f view o f the aepositor, t h a t i t i s proper f o r a
reserve bank t u lend t o a bank when 6 0 per cent o f its assets
are i n loans t o directors a n d officers,and other interests,
regardless o f the quality o f t h e particular paper whioh that
bank m a y present f o r rediscount a t a time when there i s not
an emergency existing.
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Federal Reserve Bank of St. Louis
I f a n emergency presents itself i n
a case o f that sort I think i t i s desirable t o attempt t o
salvage t h o bank;
but I
do not believe i t i s possible t o
salvage t h e bank under s u c h circumstances b y a more Liberal
loaning policy o n oligible papor;
i t must b e coupled w i t h
a change i n the management o f a n institution o f that sort,
and I think t h e oxperience w i t h a large number o f the 259
national banks t h a t have failed will bear m e out with regard
to that point.
Now, asSuming that the bank i s large enough t o have
a fair earning powor, a n d i s safely a n d well managed, t h e
noxt question that seems t o m e t o present itself i g what i s
the extent o f the borrowing o f that particular membor bank.
Now t h o borrowings, f r o m one point o f view, y o u might s a y
that all deposits i n a bank are borrowings from the public;
but from another point o f view y o u might s a y that t h e deposits i n the bank, w h i c h represent t h e regular balances o f
people
i n t h e community, w h o t h e r t h e y a r o time, s a v i n g s
deposits o r checking balances, a r e t h o real a n d steady r o -
sourcos o f that bank as long as i t rotains the confidence
of the public.
W h e n a bank i n Minnesota sccures,
b y offer
of liberal interest, f u n d s f r o m individuals i n Wisconsin,
it is a borrowing bank. W h e r e again a bank secures public
deposits
b y o f f e r o f interest
a t a n u n d u l y highcrate,
that
bank i s borrowing j u s t a g much a s i f i t were roediscounting
for a n oquivalent amount a t tho Federal Roserve Bank, a n d
that igs oven more evident when t h e bank h a s t o plodge a
portion o f its assets a s socurity f o r that public deposit.
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Federal Reserve Bank of St. Louis
As a n illustration, l e t u s take a bank, t h e report
OL
of which I examined, t h a t h a d $600,000 o f local public funds
a g a i n s t which surety bonds h a d been taken t o t h e extont o f
over $300,000, and at the same time that bank w a s i n the
Federal Reservebank before those deposits h a d been withdrawn,
a n d apparontly
i t put a l l o f those public deposits
and all o f tne proceeds o f the rediscount a t the reserve
pank into t h e local situation.
oxtended, a
N a t u r a l l y i t was over-
nd, w i t h a n y chill i n the local situation,
it
was under t h e necessity o f borrowing more a n d more f r o m t h e
reserve bank.
Now, w hile a bank i n one o f these local communities
shows increasing deposits, whether t h e y a r e public deposits
or meroly deposits arising f r o m t h o growth o f the community,
it appears t o m e that borrowing a t the reserve bank a t the
same time, unless that borrowing i s for very short pericds
of time, 1 s i n itself ovidence o f over expansion a n d evi-
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Federal Reserve Bank of St. Louis
dence o f lack o f conservatism o n the part o f such banks.
I do not know h o w f a r i t i g possible t o g o i n actually
decliningrto r e d i s c o u n t p a p e r w h i c h i s i n itself o n t i r e l y
satisfactory.
I f i t i s necessary,
i n a mechanical,
pawn-broking way, t o rediscount paper, t h a t i n itself i s
satisfactory;
i f i t i s admitted t h a t t h e rate i s ineffect-
}tty
a
ive, t h e n I
should h o l d that i t would b e dosirable t o limit
by statute t h e amount that a n y bank might borrow f r o m a rex
do not, however, believe t h a t i t i s neces-
serve bank. T
sary t o l o a n m e r e l y b e c a u s o t h e p a p o r i s good, a n d I
do
I t is
nov u n d e r s t a n a t h a t t h a t i n f a c t i s t h e practice.
apparently perfectly possible f o r a reserve b a n k t o decline
to l o a n t o a
resorve b a n k t h a t i s n o t i n a
satisfactory
position, regardless o f the quality o f the papor which t h a t
bank m a y offor,.
I
t i g n o doubt t h e c a s e t h a t a
great
many b a n k s p r e s u m e t h a t t h e y c a n s e c u r e t h e a c c o m m o d a t i o n
if the papor i s i n itself satisfactory. I
should n o t
suppose t h a t i t was desirable t o introduce a n y rigid rules
of practice regarding this matter;
b u t o n the other hand
it does s e o m t o m e that i t would b o advantageous t o press
more s t r o n g l y u p o n t h e m e m b e r b a n k s t h a n n o w S e e m s
t o be
the caso, t h a t i t i s t h o businoss o f the membor banks t o
meet t h e p e a k r e q u i r e m e n t s a n d n o t t h e b u s i n e s s
o f the re-
serve banks t o enable particular panks t o satisfy a
steadily
Larger demand f o r accommodation i n their comrunities t h a t
can b e met b y means o f the resources o f the local banks.
Now the damage which results f r o m banks going into
the reserve banks a n d becoming habitually a n d permanently
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Federal Reserve Bank of St. Louis
83
indebted, m a n i f e s t s i t s e l f m o s t strikingly.
O
f course
a caso o f t h e l a r g e n u m b e r o f banks t h a t h a v e failed,
in
they
were i n t h e r e s e r v e b a n k f o r r e l a t i v e l y m o d e r n a m c u n t s f o r
some yoars oefore t h e failuro, a n d within t h e year o r more
before failure thoir borrowings h a d largely increased t e cause d u r i n g t h a t p e r i o d o f t i m e t h e i r d e p o s i t s v e r y
monly w e r e o x p e r i e n c i n g a
s h a r p decline.
som-
T h e reserve
banks have steyed “with those banks, guemiodcbhem additional
accommodations,
a n d v e r y proporly so, f o r a
good many o f
those b a n k s t h u s a s s i s t e d h a v e p u l l e d t h e m s e l v e s o u t . T h e r e
are banks t h a t would have failed b u t f o r the liberal policy
reserve
after t h e emergency h a d arisene
tho/banks
on the part o f
On t h e o t h e r h a n d i n t h e c a s e o f t h o s o 2 5 9 b a n k s t h a t d i d
fail I question, f r o m the point o f view o f the depositor,
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Federal Reserve Bank of St. Louis
generally spoaking, whether i t was not less satisfactory
than i t would have b e e n h a d t h e y been allowed t o fail
earlier.
Y o u have t o offset against t h e banks that y o u
have r e s c u e d t h e b a n k s w h o s o p o s i t i o n h a v e b e c o m e w o r s e
from the point o f view o f the d epositor, a s the result
of t h i s l i b e r a l policy.
Now t h e figures o n the liquidation o f these 2 5 9 banks
sghoy t h a t p a y m e n t s
t o depositors a r e g o i n g t o r u n between
forty a n d f o r t y - f i v e c e n t s a n d m a n y o f t h e m b e l o w t h a t
figure.
T h a t ig a
very m u c h l o w e r f i g u r e f o r p a y m e n t s
to depositors t h a n was t h o case prior t o 1914, w h e n i t
averaged slightly under S O cents.
a sonsiderabls extent d u e t o this:
T h e oxplanation i s t o
T h e defarred faiiure
possibly being due t o seoucing the accommodation a t the regerve bank i n the months just prior t o the failmre. a
haven't the figures for the 259 banks, but I have the
figures f o r all t h e banks t h a t failed between May, 1924,
and May, 1925 - ~ 120 banks - - and the figures show that
the deposits i n those banks were redused i n the twelve
months prior t o failure b y 3 0 per cent, i n the case o f demand deposits, a n d 1 0 per cent i n the case o f time deposits
of t h o s e banks,
a n d thoso banks almost invariably s h o w a
large increased borrowing a t the reserve banks during that
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Federal Reserve Bank of St. Louis
twelve months' period.
I n other..words t h e reserve banks
made i t possible f o r such depositors t o get their mouey i n
full a t the expense o f other depositors,
the e x p e n s e
i n particular a t
o f savings d e p o s i t o r s a n d t i m e depositors.
This experience seems t o m e t o suggest t w o things:
O n e
preventive measures designed t o keep t h e banks f r o m getting
into this position, w h i c h involves supervision a n d control
R5
through l o a n s
b y t h e reserve banks
i n t h e months before fail-
ure, i n the case o f the examined banks;
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Federal Reserve Bank of St. Louis
place a
a n d i n the second
question o f policy relating t o a period o f perhaps
a year prior t o t h o failrure, w h e n deposits a r e declining
and t h e banks a r e coming i n for larger amounts a t t h e reserve
banks,
i n that t h e granting o f t h e further accommodation
ghould b e c o u p l e d u p w i t h a n i n s i s t e n c e u p o n s o m e c h a n g e
Ppolicy o f t h e t h r e a t e n e d b a n k ;
o i n t h o persona n d s o m e c h a n g oS
hold t h e samo view with regard t o
nel o f its management. I
frequent r e q u i r e m e n t s
in
o f demand f o r additional m o n e y f r o m
the depositor t o take care o f impaired capital.
to m e pitiful t h a t t h e s c a t t o r e d s h a r s h o l d e r s
I t seems
of a
bank
should h a v e d e m a n d m a d e u p o n t h e m t o p u t i n m o n e y o n account
of impaired capital a n d then have t h e same o l d outfit left
in t h e b a n k t o f r i t t e r
The game principle I
i t away i n t h e course o f a
f e w months.
believe applies t o rediscounts a n d
accommodations secured a t reserve banks b y a bank that i s
obviously
in a
more o r l e s s p o t t e r i n g condition.
tion i s further involved
places
T h e situa-~
b y t h e fact that i n a good many
i t i s n o w becoming a n indication o f weakness
o n the
part o f a bank that i t i s a borrower a t the reserve bank.
Now that attitude i n the mind o f the public might from one
86
point o f view b o regarded a s a safeguard, b u t i t cannot b e
applied
b y t h e public intelligently a n d would work against
by
the u s o o f t h e r e s e r v e b a n k i n p o r f e c t l y p r o p o r w a y s
member banks i f the attitude becomes v e r y general. I
De-
Lieve i t i s n o w c e r t a i n l y n o t ‘ a n u n c o m m c n atultude.
Now I
sider. I
know t h a t y o u h a v e m a n y o t h e r m a t t e r s
think I
have u n b u r d e n e d m y s e l f
t o con-
o f all that I
had
couhd,
on m y mind i n the shortest space o f time that I
I,thank you.
Governor Crissinger. G e n t l o m e n , w e will now proceed
with t h e p r o g r a m o f t h e J o i n t Conference.
report o f
The B o a r d w i l l d e c i d e w h e t h e r o r n o t t h e
the Advisory Committec should b e brought before the Joint
Conference instead o f being submittedto t h e Board alone.
GonferIt has been suggested that i t b e brougat before this
that report
once a m d i f thore i s n o objection w o wlll hear
from G o v e r n o r S e a y e
Governor S e a y e
Y o u a r e referring
t o t h e report o f
the Advisory Vommittee, Governor Grissinger?
Governor Crissingere.
Governor Seay.
formal v e r b a l r e p o r t .
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Federal Reserve Bank of St. Louis
YoSe
T h a t Gommittee c a n make o n l y a n i n f h e Chairman o f t h e Committse w i l i
BY
give a resume o f what that Committee h a s done i f i t i s desired
The proceedings o f tho last meeting o f t h e Committees have
not y e t been received f r o m t h e stenographer w h o acted a s
Secretary t o the Committee.
I s i t desirable t h a t a verbal
resume o f matters w h i c h have been considered b y your Gommittee b e presented t o this meeting?
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Federal Reserve Bank of St. Louis
Governor Crissinger.
Y o u m a y make s u c h report a s
you a r e a b l e t o make, G o v e r n o r Seay.
Governor S e a y .
I t m a y be,
i n order t o give s o m e @ x -
planation, c h i e f l y f o r t h e benefit o f the reserve agents,
of the originaof t h a t committee.
At the Conference o f Governors i n April t h e Governor
of the Federal Reserve Board, a t the opening o f the Gonference, commented u p o n
p e e
Gapisia 6 n ,
H e stated
that t h e Federal Reserve Board h a d been consulted v e r y
little indeed a s t o this proposed legislation, a n d that
the Federal Reserve Board a s a body h a d taken n o part i n
any a c t i o n t o w a r d s u c h legislation.
H
e s a i d t h a t h e himsolf
felt t h e need o f some study o f the proposed legislation, a n d
b
he suggested that a committee peforiety t h e Governors f o r
that purposes
favors
f
T h i s suggestion m e t with a
good deal o f
t w a s r e g a r d e d a s a v v e r y i m p o r t a n t matter,
but it
88
wags n o t i m m e d i a t c l y a c t e d u p o n b y t h o C o n f e r e n c e
they discussed i t for awhile a
o f Govemors;
n d thon postponed i t until
later i n their mcetings. L a t e r i n their conference the
mattor came u p again, a n d after some discussion i t was agreed
het i t would b e highly esscntial t o form such a committee.
The c o n v i c t i o n w a s pmpressed, h o w e v e r ,
t h a t this Committee
ghould n o t b e a committee o f Governors o r the executives
of the banks;
appointed
t h a t i s t o s a y i t should n o t b e a committee
b y t h e m a n d s h o u l d n o t o r i g i n a t e w i t h them.
T h e
opinion was oxprossed t h a t t h e executives o f the banks ought
not t e mix i n legislation o r i n politics, a n d i t was believed t h a t i f t h i s committee w e r e f o r m e d i t h a d b e t t e r
appointed b y the Federal Reserve Board.
be
T h e Conference a f
Gcvernors gtatecd, however, t h a t i f i t was desired t o form
this committee t h e Conferenco would suggest t o the Board
toe namos o f certain Governors a n d certain Agents t o compose t h a t committee.
L a t e r there w a s a meeting w i t h t h e
Foderal Reserve Board a n d t h e matter w a s again discussed.
The matter o f immediate consideration o f pending legislation
was discussed a n d the future activities o f this committee
were discussed,
O n e member o f t h e Board expressed t h e
opinion t h a t u l t i m a t e l y t h e m a t t e r s c o n s i d e r e d
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Federal Reserve Bank of St. Louis
b y this
89
committee m i g h t assume quite a broad scope, p u t i t was felt
that t h o m a t t e r s w h i c h r e q u i r o d i h m e d i a t e c o n s i d e r a t i o n
by
the Gommittoe were those contained i n the legislation proposed, chiefly i n the t w o McFadden bills.
T h e Comnittee
was t o b e composed o f two Governors a n d four Agents, c h e
names were proposed, a n d the Board appointed t h e committee.
Tae Committee h a d its first meoting o n June oth.
@hat was about t h e time that t h e committee o f the Federal
and
Reserve Agents h a d comploted their report upon reserves,
the report o f the Agents u p o n reserves a n d t h e t w o McFadden
bills were considered a s the immodiate subjects requiring
attention b y t h e Committee.
With respect t o the roport o f the Agents i t had not
suffibeen examined because i t had just boen completed a n d
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Federal Reserve Bank of St. Louis
cient t i m o h a d n o t e l a p s e d f o r examination.
therefore e x p r e s s e d a
general a p p r e c i a t i o n
T h e Committee
o f the w o r k o f
but
the Committee, approved what i t had done i n principle,
the members reserved the privilege o f recording their exceptions w i t h r e s p e c t
t o t h e d i f f e r e n t provisions
o f this
report. G o n s i d e r a t i o n w a s given first t o the second
MeFadden Bill rather t h a n
t o t h e First McFadden Bii1.
That bill was condemned both i n principlo and i n texte
eke)
to
It was felt that a study o f tho offect o f that pill ought
bo u n d e r t a k e n a n d P r o f e s s o r S p r a g u o a n d Dr. S t e w a r t w e r e
t o mako s o m e a
requested
that bill.
nalysis
o f the possible offects
of
h a t was done, a n d i t soemed t o indicate t h a t
the immediate effect upon particular banks,
i f i t was p u t
into effect, w o u l d b e t o very seriously impair their reserves.
In one case I
rotall i t would have reduced t h e reserves o f
a Foderal Reserve B a n k down t o 2 1 per cent during 1924,
in the then condition o f the bank.
D u r i n g t h e five months
which have elapsed i n the year 1925 i t would have h a d t h e
effect o f roducing t h e reserves o f four o f the reserve banks
from 2 0 t o 3 0 points.
W o made some analysis o f the effect
of t h e bill i n our bank, w h i c h seemed t o indicate t h a t i f
the b i l l w e r e p u t i n t o e f f e c t
i n tho then condition o f tho
Federal Reserve Banks i t would havo reduced t h e amount o f
additional credit which they might have boen able t o oxtend
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Federal Reserve Bank of St. Louis
to one«soventh o f the credit which t h e y would b e able t o
extend under oxisting law.
It soon became apparent,after certain criticismswhich
appeared w i t h respoct t o this bill, t h a t i t d i d not meet t h o
public favor, a n d w e all know that eventually i t was withdrawn
by Mr. McFadden, a n d the conviction seemed t o exist i n certain
quarters t h a t i t i s permanently withdrawn e
The Committse t h e n t o o k u p t h e first McFadden Bill
and c o n s i d e r e d t h o s e p r o p o s a l s
a non~controversial natures
i n the bill which w o r e o f
T h o y tried, f o r the t i m e being
at least, t o eliminate t h e branch banking subject, although
the C o m m i t t e e f i r s t e x p r e s s e d t h e o p i n i o n t h a t t h a t s u b j e c t
was o f such f a r reaching consequence t h a t i t ought t o b e
embolied i n a soparate bill, a n d t h e Committee s o recorded
itself.
T h o s e provisions which are intended generally t o
add t o the privileges o f national banks i n order t o make
the Mational Banking System more attractive b y giving them
equal privileges with state banks, were generally approved
Ly t h e Committce.
I
t was felt that Section 5200 o f the
bill required amendment, a n d that Section 5200 required
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Federal Reserve Bank of St. Louis
considerable study.e P r o f o s s o r Spraguo w a s
make a
study o f Section 5200,
H S
a n d s u c h amendments
O F to
t o these
amendments w h i c h h a d b e e n p r o p o s e d a n d o t h e r a m e n c m e n t s
which,
i n his opinion, a f t e r many, m a n y years o f familiarity
with a n d study o f t h e National Banking System, ssemec t o h i m
desirable.
H o did that and reported back t o the meeting
of the Committee w h i c h d i d n o t take place a n d could not take
place until after I came here t o attend this Conference, a n d
92
y ou will therefore g e e that t h e Comnitves h a s n o t h a d a
great deal o f time t o consider these amendments w h i c h Pro-
fessor Spregue reported.
I t did have a second meeting,
and i t d i d g o over those amendments a n d g
u
c
dditional
h
a
proposals which were made b y Protessor Sprague, b u t i * would
take more time than I believe I
am expected t o boaand a t this
Conference t o g o into t h e details o f thdse provisions and,
as I have stated, t h e formal report o f tne Committee i n
that respect h a s n o t y e t been drawn u p and submitted t o
the Committee itsolf.
Governor Crissinger.
H a v e n ' t y o u a memorandum t h a t
you had over i n m y office t h e other night?
Governor Seay.
W i t h respect t o the first meeting,
yes, b u t n o t w i t h r e s p e c t
t o t h e s e c o n d meeting.
W
e have
report
not received the stenographic/from the second meeting. There
were certain amendments t o the W a t t o n ? B a r k L a w designed t o
furnish more adequate data regarding the cendition o f banks
through examinations w h i c h were proposed, a n d whicn were
of transcendent importance, which I think I might reviews
One o f the proposals w a s that a l l applieations o f
overy nature, b o t h direct a n d indirect, w h i c h a bank entered
into, w h i c h was n o t always customary f o r i t t o record i n
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Federal Reserve Bank of St. Louis
93
{+s records should b e recorded
i n it: records a n d showm i n
record s u c h
its report o f conditions, a n d that failure t o
obligations would subject the bank t o a fine of $500.
or
Another proposal w a s that where a n offjcer
a n officer
director o f a National Banking Association i s
or director o f another Banking Association,
a n d where i t
other banking
was necessary t o secure t h e report o f the
true conditions o f
associations i n order t o determine t h e
under examination
the bank under examination, t h a t t h e bank
that other bankghould b e required t o f u r n i s h aroport o f
ing association;
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Federal Reserve Bank of St. Louis
t h a t upon failure
t m d o s o i t was pro-
h a d obtained a loan
vided vhat t h e officer o r director w h o
his office.
from t h e bank should b e disqualified f o r
Another p r o v i s i o n
Revised
w s t h a t Section 5 4 4 6 o f the
this way:
Statutes should b e amonced somewhat i n
Association
be u n l a w f u l f o r a n y N a t i o n a l B a n k i n g
I t shall
t o make
aggregate, unless
a loan o r loans o f more t h a n $500 i n the
secured b y readily m a rice table collateral,
t o any salaried
corporation i n which
officer o f such association o r t o any
association
guch officer o r any director o f such banking
owns o r c o n t r o l s a
majority o f t h e stock;
t h a t violation
officer t o act
of this provision shall disqualify s u c h
as such officor o r director o f the bank.
Another p r o p o s a l w a s t o s h o r t e n t h e p e r i o d a l l o w e d
for the time o f assossments
i n cases o f impaired capital.
The Comptroller h a d oxpressed t h e opinion that h i s experience
seemed to indicate that this period should be shortened.
It i s now 9 0 days, a n d the proposal w a s that i t b e shortened
to 60 days, t o the extentod i n the discretion o f the Comp-~
trollor.
T h i s i s once o f the provisions which i s intended
to give t h e Comptroller's Office greater powers o f supervigion a n d t o add t o hig authority i n that direction.
There w e r e some provisions i n tho proposed amendments
to Section 5200 which were considered.
P e r h a p s t h e most
important w a s that which decreases t h e limit whsech a n individual f i r m o r c o r p o r a t i o n m a y b o r r o w u p o n n o t e s s e c u r e d
by shipping document, p i l l s o f lading a n d s o forth. ‘ T h e
Committee proposed that the limit should b e 15 per cent
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Federal Reserve Bank of St. Louis
for a
p e r i o d o f s i x monthse
B u t that for a
period o f t h r e e
months i n order t o aide a m orderly marketing, there might
be a n additional oxtension o f the limit o f 15 por cent,
making t h e total amount which mignt b e extended o n obligations o f that charactor 4 0 per cent, 1 5 o f which should b e
for a period o f three months i n any consecutive 1 2 months,
ay
15 additional might b e f o r s i x montnos upon identical commodities f o r any period o f s i x months i n a consequbive 1 2 months,
P a y
Or
C O M O ar =
thus m a k i n g t h e l i m i t
f o r a n y o n e person,
tion 4 0 per cent. I
might s a y the Comptroller oxpressed
the opinion t h a t h e was disposed t o g o much further than
tha te A s x understood h i m h e was even disposed t o go s o
fur u s t o p e r m i t t h e l e n d i n g o f 1 0 0 p o r c e n t o f capital a n d
surplus under s u c h condition. I
think that while t h a t pro-~
posal d i d not come formaliy before t h e Committee, t h e general
feeling was that i t wonldmimdvitably drive the menuber banks
into t h e r e s e r v e b a n k s a s b o r r s w e r s u p o n a
large scale,
it
would n o t b e s o easy t o get t h e m o u t and that i t would have
a tondency towards expansion
Committee w a s t h e r e f o r e
i f n o t t o w a r d s infiation.
«The
o f t h e o p i n i o n t h a t 4 0 p e r cent, u n d e r
the circumstances which have been enumerated, w o u l d b e t h e
extent t o which i t was pdwuiBablo t o go6.
There w a s o n e provision which h a d been proposed a s a n
amondment t o Section 2 4 o f tho Federal Reserve Act, referring
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Federal Reserve Bank of St. Louis
to the extent t o which banks might invest a n y o f their funds
in investment securities a n d s o forth, w h i c h i t w s thought
better t o place i n Section 5200 a s a n extension o f tho
Limitation,
a n d t h a t w a s d o n e accordingly.
I
t w a s thoreforoe
96
voted that the Limit t o which any bank might investits funds
in a n y o n e g e o u r i t y s h o u l d b e 1 5 p e r c e n t i n addition
t e tho
existing 1 0 per eent a n d i t was also voted that this should
be d o n e u n d e r s u c h r e s t r i c t i o n s
a s t o the character a n d
volume which a n y bank might engage in, a s imposed p y the
Comptroller o f the Curroncy.
< think, M r . Chairman,
t h a t t h a t covers t h e principal
points w h i c h t h e C o m m i t t e e c o n s i d e r e d .
I
t should b e under-
stood t h a t t h e s e a r e o p i n i o n s w h i c h w i l l b e r e c o r d o d a n d
transmitted
t o t h e Board f o r such u s e a s t h e B o a r d m a y desire
to make use o f them.if the Board igs called upon, a s the Committee understands,
t o take a n y position toward t h e legisla-
vion w h i c h i s n o w proposed,
Y o u m a y interrogate a n y other
members o f the committee a s t o any peints o f importance
which the Chairman has overlooked.
Governor Crissinger.
H a v e y o u a n y suggestions,
Professor Sprague?
Governor S e a y e
I
f y o u will pardon m e just a
there w a s o n e p r o p o s a l s u g g e s t e d
b y Professor Sprague
hig s t u d y o f t h e s e q u e s t i o n s w r i c h I
overlooked.
moment,
in
had f o r t h e moment
p r o f e s s o r Sprague proposed t h e appointment
of what might b e termed a superboard, consisting o f the
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Federal Reserve Bank of St. Louis
97
2 Governor o f t h e F e d e r a l R e s e r v e B o a r d ,
the C u r r e n c y a n d t h e U n d e r - S e c r o t a r y
t h e Comptroller
of
o f t h e Treasury, b e f o r e
which might b e brought those officers o f panks which continued
to violate t a e lawe A
pehalty w a s provided which would
vacate their offico u p o n declaration o f t h e Comptroller t h a t
they w o r e i n c o n t i n u o u s v i e l a t i o n o f t h e law.
considered t h a t proposal.
T h o Committec
T h o Committee h a d i n mind that
to
the general purpose o f the legislation n o w proposed w a s
increase t h e attractiveness o f tho National Banking System
and t o put i t tpon a n equality with t h e gtate banks, . a n d
in the minds o f some members o f the Committce, a t least,
the opinion w a s that this provision, although i t might have
s counterpart perhaps i n the N e w York Banking L a w imposing
a penalty, h a s n o counterpart i n the laws o f various states,
and the foar was expressed that i t might b o regarded a s a n
autocratic provision which might have some terifying influence
upon a bank, a n d t h e vote o f the Committee w a s t h a t i t was
inexpedient t o cstablish s u c h a suporboard.
Professor Sprague.
Y o u might say a ward about
the vote o n tho proposals o f the Agents’ Committee o n Reserves.
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Federal Reserve Bank of St. Louis
Governor Seay. W i t h respect to the Agents’ Committee
98
the report
on Reserves, s e v e n o f the nino points proposed b y
of t h e G o m m i t t e e w e r e t a k e n u n d e r c o n s i d e r a t i o n e
o f the
The f i r s t a n d m o s t i m p o r t a n t r e c o m m e n d a t i o n
deposits.
Committes w a s with respect t o deductions f r o m
clearing houses,
The Committee proposes t h a t exchanges f o r t h o
checks
o n other banks
i n t h e s a m e olty, a n d c h e c k s I n pro-
Banks o r
cess o f collection (whether with Federal Resorve
Schedule
correspondent banks) according t o Fecera). Reserve
b e deducted
of time required f o r collection o f checks, s h o u l d
from d e m a n d S o e c n k es,
the
The v o t e o f t h e c o m m i t t e e s e e m e d t o c e n t e r u p o n
a
point a s t o w h e t h e r t h e r e g h o u l d b e p e r m i t t e d
of c h e c k s
i n process
o f coilcction,
mittee w a s t a k e n u p o n t h a t point.
and a
deduction
vote o f t h e c o m -
T h e r e were t h r e e i n favor
deduction.
of allowing deduction a n d three opposed t o allowing
U p i n the
I might s a y t h a t s u b s e q u e n t l y t h e m a t t e r c a m e
anticipate
Governors! Conference, and, ywhilo not desiring t o
the report o f that Conference, I
matter w a s concidored,
might say that the whole
a n d those members w h o h a d voted i n
the
favor o f i t o n the committee t o o k into consideration
know,
ontiro scope o f the recommendation, w h i c h a s they a l l
due t o
permit n o w t h e c i t y banks t o deduct f r o m d u e from and
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Federal Reserve Bank of St. Louis
99
their checks f o r t h o clearing houses a n d banks i n the same
place, a n d they consider t h a t the c i t y banks h a d that pri-
vilege, p u t that the country banks, d u e t o the conditions
which s u r r o u n d e d t h e i r o p e r a t i o n s
i n carrying accounts
of
their member banks, d i d n o t have tnat privilege, a n d certain members o f the Sommittee w h i c h h a d votea i n favor o f
the amendment i n the scossion o f the committee voted against
the amendment i n t o to, a n d i t seems t o m e a t this point
there i s s o m e e x p l a n a t i o n
o f t h e attitude
o f t h e members
of
the Gommittee which i s noeded
Governor Strong.
Y o u have not oxplained the reason
why the Conference o f Governors t o o k t h e position i t did i n
regard t o t h e deduction.
W e have t o d a y pending a
suit against
thetioderal Reserve System which, a m o n g other claims contains
the claim that the member bank can assert the right t o count
yncollected checks a s reservo deposits, a n d i t Seems t c some
of u s rather inconsistent Ahdtweeshould s a y that that provigion i s a n unsound development i n banking i n the United
States t h a t a cneck i n process o f collection should f o r m a n y
part o f a reserve, a n d then a t the samo time u d e approaching
Yongress with a recommendation t o permit all such ehecks
in process o f collection t o b e deducted f r o m gross deposits
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Federal Reserve Bank of St. Louis
on which t h e reserve calculation i s made.
Governor Crissinger.s T h e r e i s a difference between
the Pascagoula c a s e a n d this proposal.
Governor Strong. I
beg your pardon?
Governor Orissingcr. I
say there i s a difference
botween t h e P a s c a g o u l a c a s > a n d t h i s proposal.
Governor Seaye
think.
T h e same principle i s involved I
T h e y are contending for the immediate credit o f all
checks.
T h i s proposal
i s r e l a t e d t o i t i n t h a t i t proposes
to pormit deduction o f such checks.
Govemor Crissinger.
D e d u c t i o n f r o m gross deposits
before computing reserves?
Governor Seay.
Yes.
T h a t i s o n e stop toward
adopting t h e contention o f the complainant i n the Pasca-
goula case. T h e r e were two points, Mr. chairman, which
the C o m m i t t e e f e l t m u s t b e r o s e r v e d f o r f u r t h e r study.
n
a the
One was t h e reserve o n time a n d savings d e p o s i t s , d
other was s
Sprague,
egregation o f savings deposits.
Professor
i n his travels over t h o country a n d i n his interro-
gations o f the banks with which h e came i n contact, came t o
the conclusion t h a t i t would b e wholly impracticable,
not impossible,
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Federal Reserve Bank of St. Louis
a t t h e present time,
if
t o d o anything which
Ol
would tend t o permit t h o segregation o f savings deposits e n d
he therefore, h a v i n g been a strong advocate o f that proposal.
decidod t h a t m t was incxpodient t o entertain t h e idea a t the
presont time.
T h e Committee w e n t o n record a s favoring
the Segregation o f savings depsoits i n principle, b u t + %
mattor w a s reservea f o r sore further study, a n d t h e question
of reserve against time a n d s
aving deposits being somewhat
analagous t o it, that was also raserved for future con-:
sideration.
I t might b e mentioned t h a t i t was felt that
the o n e burning question with regerd t o t h e McFadden Bill,
the branch banking system, w a s regardec b y t h e Committee t o
bo i n a vory unsatisfactory stago, b u t n o further position
than
by the Committees w a s taken which I have announced w a s takon
toward that p r o v i s i o n f
o the Act.
Governor Crissinpawsx I
think it vould be well i f this
question o f deduction o f checks f r o m gross deposits should h e
taken u p n o W e
T h e Federal Resorve Agents reported
i a favor
of i t and Mr. Martin will please present their position.
Mr, Martin.
A t the timo this question c a m e before
the Federal Peserve Agents f o r consideration w e knew o f n o
opinion having been rendorsd i n regard t o ite W e voted
that such deductions w e r e cesirable,
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Federal Reserve Bank of St. Louis
T h e duty o f preparing
6%
the re@®mmendation t o the Board w a s assigned t o me, a n d I per=
haps might preface m y report b y this statement:
I
n the
old days t h e due t o and d u e from banks seomed t o b e s e effort
to equalize w h a t w e might call t h e paper
P O
o e Since
the establishment o f the Federal Reserve banks, through
their deferred t i m e scheduie, t h e paper deposits have really
developed i n t o a c t u a l deposits.
W i t h t h a t purpose I
beg
leave t o submit the following report:
It i s b e l i e v e d
b y t h e Conferonce
o f Federal R e s e r v e
Agents t h a t i t i s desirable, a n d that t h e Federal Resorve
Board c a n b y regulation p u t i n force t h e first recommendation p u t i n t h e r e p o r t o f i t s c o m m i t t e e
o n reserves, n a m e l y :
‘Permit t h e deduction f r o m demand deposits o f (a)
exchanges for clearing houses, (b) checks o n other banks i n
the same place, a n d (c) checks i n process o f collection
(whether w i t h Feceral Reserve Banks or correspondent banks)
according t o Federal Reservo Schedule o f time required f o r
coilection o f checks.’
"all such items are accepted b y banks for collection
and credit, a n d all banks retain t n e right t o charge back a n y
such items not paid.
E v e n though called ‘deposits! t h e y
are entirely different f r o m a deposit o f cash.
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Federal Reserve Bank of St. Louis
S u c h a cash
LO3
deposit immediately creates t h e relationship o f debtor a n d
creditor, w h i l e t h e receipts o f any o f the above-mentioned
items i s i n the nature o f a n agency until t h e actual c o l Lection i s made, a n d i f the bank advances funds before t h o
collection i s completed and the collection i s never completed,
then Lbocharges b a c k t h e amount, w h i c h i s another w a y o f saying that t h e bank makes i t s customer p a y the loan o f the
money a d v a n c e d .
"Tig theory o f collection o f credit i s confirmed b y
the charge commonly made b y clearing house rules i n regard
to s uch items. C l e a r i n g houses d o not charge exchange,
put where i t takos time t o collect a n item, w h e n a
depositor
wishes immediately d r a w against s u c h a n item, t h e bank charges
interest o n tho amount f o r the time
i t takes t o collect i n
accordance w i t h t h e Federal Reserve Schedule, a n d i n the
evont the item i s dishonored, then b y charging back, t h e
bank i n effect c a u s e s i t s l o a a t o b e paid.
"Such being the case b y deducting the above mentioned
items the effect i s t o omit them i n computing the bank's
demand deposits, a n d there would s e e m t o b e every reason w h y
they should b e omitted, a n d n o conflict w i t h l a w i n doing so.
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Federal Reserve Bank of St. Louis
Such a ruling b y the Board would correct t h e present
LO4
jinoquality existing i n favor o f the large city banks i n
computing reserves, a n d i t is believed would have a n o x cellent effect, w i t h but a onmparatively small actual d e crease
r c g a t e r e s e r v e s ( a p p r o x i m a tel
i n t h e System's a g g
GErCE
542,000,000) «
Wpurther i t i g a regulation t o which n o one will
Ob jor.
i t cormects
a n injustice w i t h o u t creating a
hard-=
ship f o r a n y one.
It i s suggested, however, t h a t a s s u c h a r u l i n g
might have some bearing o n the Pascagoula caso now pending,
it might b e well for the Board t o consult with counsol i n
that case, a n d i f i n his judgment desirable, d e f e r such
muling, s h o u l d i t decide t o make it, until t h a t case i s
finally disposed of.”
Mr. Jaye
I t is interesting t o rote that this i s
the third successive y o a r that t h e Agents have recommended
this u n a n i m o u s l y a n d t h e G o v e r n o r s h a v e u n a n i m o u s l y r e c o m -
mended against it.
Mr, Jamese N o t unanimously.
Governor Stronge
I t seems t o m e there i s a little
inconsistency i n the resoluticn presented;
i n fact t h a t
the resolution seems t o b e predicated u p o n t h e theory
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Federal Reserve Bank of St. Louis
7.85
that a membor bank collecting a check i s acting i n the capa~
city o f a n agent with t h e relation o f debtor a n d creditor n o t
arising until t h e collection i s completed;
recognizes the fact that the procoeds o f t h a check when
collactei aro immediately drpditaddte t h o depositer's account,
and the bank does i n fact vreate t h e relationship o f debtor
and ereditor which i t i s claimed i n this resolution. Another
curious inconsistency arises i n the fact t h a t the charge o f
intorest w h i c h i s i m p o s e d a g a i n s t t h o d e p o s i t o r f o r t h e
collection
o f this i t e m which i s immadiatoly credited
his account,
w e know cannot b e sustained b y t h e practice
of banks, b e c a u s e t h e y o b j e c t
except
i n exceptional c a s e s , a
uncollocted funds.
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Federal Reserve Bank of St. Louis
to
t o i t a n d d o n o t permit,
depositor
t o draw against
T n e resolution appears t c m e t o b e in-~
consistent f r o m beginning t o end. I
fecl that i t i s also
inconsistent w i t h o u r position i n the Pascagoula case.
I n
the Pascagoula Caso - ~ I do not want t o argue t h e l a w with
Mr. Wyatt, w h o i s more compotent t o d o i t than a m I == but
in tho Pascagoula case w e set u p exactly the same conten~
tion, that i f the Federal reserve banks should act as agonts
in collecting these checks the relation o f dobtor and
creditor does n o t arise until t h e process o f collection
LOG
is completed.
T h e Pascagoula B a n k contends i n effect t h a t
° »
they b u y the checks, t h a t i s i f tney a r e entitled t o immed-
fate c r e d i t o r a d v a n c e u p o n that,
a n d that puts t h e check
in the position o f being cashmtihen i t is placed i n the poskose-
Bion of the reserve banke- i n other words collected funds.
To contend that deduction shall b e made f r o m gross d e p o s i t s
of checks i n process o f collection soems t o m e i s a recognis
tion o f t h e p r i n c i p l e t h a t c r e d i t i s i m m e d i a t e
o n t h e books
of the reserve bank, w h i c h tends t o create t h e relationship
oar debtor a n d creditor i n considering t h a t these checks a r e
items = - not items due from banks, b u t a balance due from a
bank, a n d they a r e n o t a balance d u e f r o m a bank until t h e y
are paid.
Mr, J a m e s e
M a y I
a s k G o v e r n o r Strong,
o n t h e basis
of the explanation h e has just made, w h a t relation t h e time
schedule o f the reserve bank would have i n a case o f that
kind?
I t i g just a matter o f theory that t h e collection
has been made a n d not a fact, w h e n t h e credit i s really p u t
to the account o f the bank f o r whom t h e Federal Reserve
Bank i s acting,
i s i t not?
Governor Strong.
Well, I
think t h e facts a r e that
it would b e impractical f o r tho Federal Reserve Banks t o
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Federal Reserve Bank of St. Louis
LOFT
time s c h e d u l e w h i c h w o u l d o p e r a t o e x a c t l y w i t h
dovise a
every p a y i n g b a n k w i t h r e g a r d t o t h e s e
c n e c k s ,hen¥ y o u c o n ~
sider delays i n the mails, a n d s o on, a n d which would insuro
that e v e r y c h e c k h a s a c t u a l l y b e e n c o n v o r t e d i n t o a
cash
balance a t the e n d o f the time schedule,
Mr. J a m e s .
Youldn't
i t b e necessary f o r i t t o have
been c o n v e r t e d i n t o a n actual c a s h b a l a n c e
and t e c h n i c a l l y c o m p l y with
Governor Strong.
i n ordor t o fully
l e g a l s i d e o f t h e argument?
I t would, e x c e p t y o u have g o t t o
recognize t h a t these mathematical propositions a r e n o t capable o f being perpetuated i n such a matter. I
yould v o m e u n d e r t h e r u l e o f l a w t h a t t h e l a w d o e s n o t t a k e
any account o f trifles.
I t i s a trifling inconsistoncy
ahich does n o t impair t h e principle applied t o t h e time
scnedule.
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Federal Reserve Bank of St. Louis
Mr. JamcoSe
given a
T h e Federal Reserve Agents m a y nave
reasonable a m o u n t o f c o n s i d e r a t i o n
t o that idea
a
too, G o v e r n o r Strong.
Governor Strong. M b . James, the Conference o n
yesterday considered t h e question o f time schedules v e r y
fully.
Oute
M a n y inconsistencies
i n the schedulewere pointed
W e rocognize t h a t i t i s not m a t h e m t i c a l l y accurate
e
L988
and a
rosolution w a s passed t o refer t h e whole subjoet
of
time: schedules to the standing committee on collections.
They are t o make a further, a n d I hope, scientific s t u d y o f
them, t o see i f the time allowed for collection o f checks
cannot b e s o perfected that float i s practically eliminatod
entirely.
T h e presont tine schedules a r e fairly accurato,
or t h e f l o a t w o u l d b e v e r y m u c h g r e a t e r t h a n i t i s i n propor-
tion t o t h e total. | Mr. Rounds pointed out, i n connection
with this proposal, a
very simple fact, w h i c h illustrates
how the time schedule could be made t o work, a n d that i s if
every member bank would s e t u p bookxkeeping o f its o w n
deposits a n d collection items, t h a t i s cash items, e x a c t l y
as t h e r e s e r v e b a n k s d o , t h e y w o u l d t h o r e b y c a r r y t h e m o n
their books a S a n agssot, t h o amount o n their books o f uncol-
Lleéted checks a t any one time being these which are determinod
by the time schedule, a n d then among their liabilities they
would s e t up, exactly a s w e do, a
contingent liability which
will become a n actual o n e t o thair depositors w h e n those
checks aro colloctod.
B u t the banks are not willing t o do
that b o c a u g e t h e y w a n t t o s h o w t h i s i t o m a s a
Mr, Waighe G o v e r n o r Strong,
deposite
d o I understand y o u t o
say t h a t t h e m e m b e r b a n k s s h o u l d k e e p a n account
o f that k i n d
of the items wnich t h e y send in, a n d not take credit f o r them
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Federal Reserve Bank of St. Louis
until t h e t i m e l i m i t expires?
T h e practice n o w pretty generally
Governor Strong.
established, I
deposited
am informed,
b y i t s depositors
in f r o n t o f t h e p a s s b o o k a
i s for a bank t o enter a l l checks
a g deposit liability,
notice
a n d t o put
t o the offect that t h e y
are acting a s agent i n 4 collecting those checks.
NT
Now w h e n a
depositor w h o n a s n ' t t h e v e r y b e s t c r e d i t , a t t o m p t s
out t h a t b a l a n c e w h i c
t o dra
Peer
W
hnhas not been collected, they promptly
\-
gend the check back gtamped "uncollected funds", gocthaé
- not
ookkeeping i s entirely i n accord, ascording t o m y notion,
vith t h e 1 e
oegal position o f the bank t h a t docs t h e collecting
*
nor i g i t i n accord w yi t h the common practice o f e f u s i n g
to allow depositors i n banks t o draw o u t uncollected funds.
Mr. W a l s n . A
very large numbor o f t h e member banks
n tho l l t h District c a r r y t h o s e items
in a
sustained a c c o u n t
and d o not take credit f o r thom until t h e time limit expires.
ITnotice t h a t b e c a u s e w h e n I
had a
sustained account
was i n a momber b a n k w e always
w carried t h e items t h a t
i n which: e
WayVe
Mr. Gurtiss. I
would like t o ask Mr. Walsh i f h e
carried t h a t account against e a c h individual account o n
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Federal Reserve Bank of St. Louis
he b o o k s ?
110
Walsh,
N
o w e d i d not.
W
e carried i t i n a
general sustained account.
Governor Seay.
Federal R e s e r v e Bank.
Y
o
u refer t o t h e account w i t h t h e
Y o u d o n o t mean a n account W i t h re-
gpect t o i t s d e p o s i t o r s ?
No, w e d o not d o that, b u t w e d o keep i t
the Federal Reserve B a n k a n d k e t a l l y o n it.
Governor Orissinger.
Mr. Miller.
cutLined
T h a t action d o y o u wish, gentle-
A r e w e t o understand that t h e report a s
b y Governor S e a y i s approximately t h e report w h i c h
is going t o be submitted i n writing?
Governor Crissinger.
Miller.
Y O s e
A n d that covers,
i n the judgment o f the
Committee, all that is necessary to do in order to
alize the National Banking Law?
Goveimor S e a y e
S
o f a r a s t h e Committee c o u l d encompass
those matters i n its short time, yes, a n d s o far a s t h o
studies o f Professor Sprague w e n t i n that direction a n d
proposals.
=
Mr. M i l l e r .
D
o I
understand
t h a t t h e recommendations
of t h e Committee a r e predicated entirely upon what t h e
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Federal Reserve Bank of St. Louis
Professor h a s recommended?
Governor S e a y e
Mr. Miller.
N o t entirely,
b u t v e r y largoly.
C a n w e not hear from Professor Sprague?
I would like t o ask, j u s t a s a matter o f information, woether
this represents a l l that,
i n your judgment,
i t i s necessary
to d o i n order t o liberalize the National Banking Law t o a
point where w e c a n regard the statute a s u p t o date s o far
as i t covers t h e rights a n d powers t h a t i t gives t o National
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Federal Reserve Bank of St. Louis
Professor Sprague. I
two problems.
should think there a r e really
O n e t h e possibility o f immediate legisla-
tion, a n d as t o that i t would seem t o me that w e can hardly
go very much further t h a n t h e Committee h a s gone,although
they d i d throw o u t perhaps t h e most significant proposal
waich both the Comptroller and I had inmind, and that is
the o n e about t h e Board o f supervision.
W e d o not think i t
is aavi nabs oes take u p matters t h a t a r e decidedly novel a s a
part o f the proposec legislation i n the next session o f ConGresse T h e r e a r e a number o f othor provisions t h a t i t
seomed tlighbabécdesirable t o have i n the law but which, o n investigation, w e adocided were not yorth while.
F o r example
in the matter o f chartering t h e banks, o n e o f the evils o f
ye
the sSituation unquestionably i s the excessive number o f
banks w h i c h h a v e b o e n c h a r t e r e d
the country.
i n a g r e a t m a n y parts o f
C e r t a i n state laws, s u c h a s those o f New York
and Missouri have provisions regarding t h e establishment o f
tiew hanks,
such as a
showing o f advantago
t o the community i n
having a n additionel b a n k a n d that sort o f thing, b u t there
ig n o t h i n g o f t h a t s o r t i n t h e N a t i o n a l B a n k Law. I
do
find i n the practice o f the Comptroller's office all o f
these considerations a r e taken into account, b u t i t was feared
that i f a proposal, similar t o that i n the New York Law, was
brought before Congress i t might not get through, a n d might
upset t h e practico i n the office, a n d i t was thought o n the
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Federal Reserve Bank of St. Louis
wholo that i t was bettor t o let sleeping dogs lie, thad you
wouldn't a c c o m p l i s h v e r y m u c h m o r e i f y o u h a d
a l l a f the
existing practice i n the statute, certainly nothing more than
igs accomplished under t h e present control, a n d that i f you
had a different s o r t o f Comptroller, ,
ready t o grant charters
wuenever they were asked for, t h a t y o u probably wouldn't
find i t prevented b y anything i n the statute.
In studying t h e provisions t h a t were considered
lating t o the capital o f banks, i t was felt that there
too many small banks, a n d that t h e mortality among t h e
113
banks w i t h small capital i s very great. I n v e s t i g a t i o n o f
that s u b j e c t c o n v i n c e d
m e that t h e proportion
hanks w i t h s m a l l capital,
o f failures
of
i n states w h e r e t h e r e h a d b o e n a
large mamber o f failures, w a s not excessive when account i s
taker. o f the rumbor o f such banks relative t o t h e total
number o f banks.
I t did not, therofors, s e e m t o b o worth
while t o urge a n inerease i n capitalization s a y t o the former
minimum of $50,000. I
do not think the evidence supports
the view that i t wwoulé b e a striking improvement i n the situatione
The mattor o f sogregation i s I believe o n e which sheuld
be given detailed s t u d y a n d a mattor that should b e brought
forward i n connection w i t h t h e McFadden Bill, a n d perhaps
and
rather informally a t banzers' conventions a n d s o forth,
thet there should b o a n educational campaign o n the subject
genoral,
in tho hope that something, w h o t h c r optional o r
ghould b e definitcly brought forward perhaps a
heneée
year o r two
T h a t covers about a l l ‘that i t seems t o m e t o b e de-
girable t o attempt t o propose a t t h e present time. I
feol
that i n these matters o n e has t o g o step b y step, t o see
what t h e r e s u l t o f s p e c i f i c p r o p o s a l s w i l l b e u p o n t h e w h o l e
Situation;
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Federal Reserve Bank of St. Louis
t h a t thére m a y b e desirablo stops t o b e taken
14.
after certain initial steps have been taken;
h a t i t i s rot
possible t o arrive a t a n ideal banking system all at once,
that o n e has t o move i n a more o r less piece _meal fashion,
if you pioase, a n d that perhaps i s a n explanation o f the
abseuce o f anything very strikingly revolutionary i n the
proposals w h i c h wore brought before y o u r advisory committee.
Governor Harding.
committee I
I n attending the meeting o f this
have been impressed w i t h t h e sentiments that have
been e x p r e s s e d a n d b y t h e a r o u n t o f a t t e n t i o n t h a t h a s b e o n
paid b y the committee tonthe question a s t o whether o r not i t
would b e advisable t o get legiglation o n certain points t h a t
seomed desirable.
N o w w e all know that legislation originates
in t h e committees o f Congress.
T h e committee t o whicn a
mattor i g reforred sometimes h a s ao hearing, t h e committoes
wants suggestions, a n d the Committee ivself i s certainly i n
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Federal Reserve Bank of St. Louis
much better position t o judge o f the practicability o f getting legislation t h e n are a n y outsiders. I
cannot oscape
the c o n c l u s i o n t h a t i f a n y c a r o f u l l y c o n s i d e r e d r e c o m m e n d a -
tions a r e going t o b e made t o a committee o f Congress,
tha t
those recommendations b e entirely frank a n d based upon what,
in t h e o p i n i o n o f any a d v i s o r y b o d y ,
i s r e a l l y desirable,
without a n y reforence a s t o the practicability o f getting i t
LL&
T h e y simply will l a y their views befcre
through Congress.
which :
the Gommittee/will reject some arid adopt others. I
do not
see h o w a n y o u t s i d e b o d y c a n f o r m a n y a c c u r a t e c o n c l u s i o n
i n
advance a g t o “W88itcr i t i s possible t o get through Congress.
One o f t h e M e m b e r s
o f the Board h a s been Chairman
Banking © Gurrency Committee o f the House and has
experience i n these matters, I
when I
think h e will bear
say t h a t w h a t t h e Committeo r e a l l y desires
is a
can-
did expression o f opinion, a n d that when t h e y have gotten
all o f t h o s e o p i n i o n s t h a t t h e y a r e i n a
better p o s i t i o n
than a n y b o d y e l s e t o j u d g e a s t o w h a t c a n b e p u t t h r o u g h
either t h e H c
y
r the Senate.
Mr. Platt. I
think that is true except the Banking
é Currency Committse generally like t o have their bills a i d
least p a r t l y w r i t t e n b y s o m e o n e outside.
Mr. M i l l e r .
D i d I
understand
f r o m Professor
Sprague
and Governor Seay that t h e Comptroller a n d Mir, Sprague h a d
agreed that i t would be advisable t o set u p wnat i s called
a super-advisory board t e report certain disciplinary action
against certain bank officers?
Professor Sprague.
with t h e Comptroller.
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Federal Reserve Bank of St. Louis
T h a t proposal I
think o r i g i n a t e d
H e was strongly o f the opinion t h a t
etal
there a r e a
large number o f cases where banks a r e probably
going t o fail, a n d where y o u c a n S e c that coming o n e o r
two y e a r s b e f o r e t h e f a i l u r e - - c a s e s w h e r e i t i s n o t s o
mucn v i o l a t i o n o f t h e l a w a s i t i s t h e q u e s t i o n o f u n s o u n d
practices w i t h i n t h e law, w h i c h y o u c a n n o t r u l e o u t b y
statute without naming all banks i n generals
h e felt i t
desirable that somehow h e should be allowed t o d o something
with those banks i n addition t o putting t h e m o n a special
List f o r f r e q u e n t examination,
which i s the only way h e can
do a t present, s h o r t o f forfsiture o f charter.
A s T under-
stand Lbathat action has only been taken once i n the history
ef the System.
H e did n o t believe t h a t s u c h power snould
be granted t o him as a n individual, b u t felt that it might
properly b e lodged i n a Board.
opposed t o the proposal.
ready said, I
T h e Committee w a s u m n i m o u s l y
I f I may a d d t o what I
think t h a t b e c a u s e
o f t h e absence
have al-
o f any such
control i n the Comptroller's office i t becomes more a n d
moro ineumbent u p o n t h e management o f the several Federal
Reserve Ranks t o soe t o i t that they d o n o t loan over freely
to banks t h a t a r o mismanaged a n d that have excessive loans
to their directors a n d all that kind o f thing.
T h a t i s the
only existing mote o f controlling the banks a t the present
time - - the lending power o f the reserve banks.
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Federal Reserve Bank of St. Louis
Lay
Mr. James. I
would like t o a s k whether t h e Committee
has given a n y consideration a t all t c what seems t o m e t o b e
o
e
S a r e e e a e ;
:
::
a growing practice, t h a t o f having holding companies o w n o c k
in National Banks?
Urofessor Sprague.
T h a t i s covered i n a sense b y t h e
provision which v a s agreed t o b y t h e Committee regarding
chain banks, t h a t i s , t h e p r o v i s i o n r e q u i r i n g s i m u l d a n e o u s
examination
o f banks w h e r e directors h o l d positiongin r e -
lated institutions.
I
t i s a sort o f analogy t o t h e Clayton
We felt that i t was desirable f o r t h e reserve b a n k
to have complete information regarding these related institutions,
g o that a trust company that owns 9 0 per cent c f t h e
stock o f a national b a n k c o u l d b e e x a m i n e d a t t h e s a m e t i m e
the national bank i s examined.
T h e proposals o f the Som-
mittee d o not g o beyond securing full information regarding
the i n s t i t u t i o n s t h a t a r e s o rolated,
i f the status
o r con-
dition o f one cannot b e determined i n the absence o f data
simultaneously secured relating t o other institutions.
may b e d e s i r a b l e
I t
t o introduce additional legislation w i t h
regard t o that matter, a n d that would b e a matter f o r t h e
future.
T h a t igs one o f the cases where i t seems t o m e
it i s n e c e s s a r y
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Federal Reserve Bank of St. Louis
t o g o s t e p b y step;
t o d o t h e obvious t h i n g
118
first, a n d then see what i t might b e desirable t o d o subse-~
quently.
Br. Jamose I
did not understand Governor Seay t o men-
tion i n his report anything relative t o chain banking,
or
to t h e particular subject that w e had i n mind, namely. t h e
ease where a holding company owns t h e capital stock o f a
national bank other than the qualifying shares held b y the
directors,
w o will say, t h u s limiting t h e liability o f the
stockholders i n case o f required assessment. I
ceive c f a case T
e
can con-
w h e r e a bank which found itself i n
difficulties might b e owned b y poople o f large means, t h a t
those owners, realizing that their investment i s gone, a n d
that, u n d e r t h e law, t h e y might b e called upon t o put u p
an amount equal t o 100 p e r cent o f their holdings, m i g h t
organize a
holding c o i p a n y a n d l e t that h o l d i n g c o m p a n y
pry t h e stock i n the bank, they,
ing company.
i n turn, o w n i n g t h e hold-
T h e n when t h e bank i s apparently i n a help-
less condition t h o y c a n simplW l e t nature t a k e i t s ecurso,
let a receiver b e appointed, t h e assets o f t h e holding company w o u l d c o n s i s t o f m e r e l y i t s h o l d i n g o f capital s t o c k
in t h e bank,
and a
wealthy f a m i l y w o u l d b e a b l e t o g e t o f f
without paying anything.
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Federal Reserve Bank of St. Louis
119
Governor Seaye
D o y o u belicve i t possible t o pass
a law, o r that such a law would be constitutional, t h a t nolders
of shares i n any national banking institution s h o u l d n o t
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Federal Reserve Bank of St. Louis
hold shares i n any other banking institution?
have n o t given that a n y thovght f r o m
Mic. James. I
that standpoint.
n
e logal side o f i t would b e a perfect
blank t o me., W h e a t I was interosted i n knowing was whether
the Committec h a d given this matter a n y consideration?
Governor Seay.
T h e y gave i t consideration t o
extent t o which professor Sprague has just described,
committee recommending legislation t o t n e offect that
in t h e e x a m i n a t i o n
o f o n e bank,
i t was found t h a t those con-
nected w i t a t h a t b a n k i n g i n s t i t u t i o n w e r e i n control
in
another banking institution, followed b y tne interchange
of investment, bills receivable a n d s c forth, a n d that
the c o n d i t i o n o f t h e b a n k u n d e r e x a m i n a t i o n c o u l d n o t b e
satisfactorily determined without a report o n the banking
institution w i t h which i t was affiliated, t h a t there t h e n
should b e required a statement o f the affiliated banking
institution i n order that t h e real condition o f the bank
under examination
m e a h bo deteimined.
Mr, J a m e S e
B v e n i f you had a
simultaneous examination
LOO
of the holding company a n d o f the banking institution a n d
any other affiliations t h a t they might have, after y o u get
this report o f the examination d o y o u stop there?
I t seoms
to m o that meroly developing t h e information would n o t b e
very much protection t o either t h e stockholders o r the depositors.
I
t looks t o m e like y o u would have t o have
supervision o f a corrective nature i f the examinations
developed t h e desirability o f taking corrective steps.
Governor S e a y e
I
f i t were disclosed t h a t there
existed a n y conditions w h i c h violated t h e existing law,
then i t is presumed that those having the vostod authority
to administer t h e l a w would t a k e action.
largely u p o n t h e Comptroller's office,
T h a t would devolve
o r chiefly upon t
Comptroller's office, s o far as I Imow, and a condition
is s e t u p which i s extremely involved a n d complicated.
Mr. J a m e s ,
1
t “certainly i s .
Governor S e a y e
I
t c a n b e e v a d e d b y various prococssos
which are regarded a s logal, a n d it-is doubtful that they
could b e reached under a n y condition.
consideration w i t h r e f e r e n c e
which i s r e c o g n i z e d
h e r e c c o n e s i n one
t e t h e s u b j e c t o f b r a n c h banking,
b y chain banks a n d which m a y b e even more
pernicious than branch banking becauso i t cannot be reached ~ ~
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Federal Reserve Bank of St. Louis
paront
that i s t h a t i n t h e c a s e o f t h e b r a n c h b a n k i n g t h e
d
n
a they
bank i s k n o w a n d t h o relations m a y b e f o l l o w e d ,
are all
j e c o z a m i n a t i o n , b u t i n the case o f chaim
banking t h e y a r e entirely within t h e text o f existing law,
so f i r a g i s Imown, a n d I believe i t i s generally considered
that thero i s nothing t o prevent a n d c a n b o nothingto provont t h e holders
e f stock i n one institution holdings stock
T
in a n o t h e r i n s t i t u t i o n .
law c o u l d b e
t may b e that a
passed f o r b i d d i n g t h o n o l d i n g o f a
preponderate i n f l u e n c e
o r a m a j o r i t y o f tho stock o f another institution, b u t that
ig a
matter w h i c h w i l l require v e r y careful s t u d y f r o m a
Logal standpoint.
Mire JamoSe
A n d that i s a study that I want made.
Governor S e a y e
that t h i s Committees
young committeo;
I
t must b e t a k e n i n t o consideration
i s i n i t s inception;
i t is a
very
t h a t a s f a r a s t h e prosent goes i t has h a d
for c o n s i d e r a t i o n o n l y t h o s e s u b j e c t s w h i c h a
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Federal Reserve Bank of St. Louis
immediately proposed f o r legislation,
a n d i t has chiefly
confined i t s consideration t o those topics.
T - b e l i e v e that
the Committee w i l l function along lines upon which i t i s
desired t o function b y the Board, and also along lines which
it may itsolf develop i n the consideration o f the subject.
Jae
think i t i s a very important subject.
Mr. Curtiss. I
We have h a d a developmont i n t n e N e v England District o f investment t r u s t companies.
W
e have o n e company doing nothing
put buying bank stocks and i n its advertisement i t points
out that a n y o n e participating i n that trust i s not subject
to double liability.
T h e y a r e simply pointing o u t t o o u r
memb3r banks t h a t they a r e losing a part o f the protection
that t h e y o u g h t t o have, a n d I
think i t i s a
very important
mattere
Mr, James.
S
Covernor Seay.
O 90 ks
D
o y o u k n o w o f a n y l a w i n your stato
which prevents those investment companies from functioning i n
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Federal Reserve Bank of St. Louis
that w a y ?
Governor Seaye
I - d o not.
Governor Seay.
T h a t i s the point wnich i s brought u p
for c o n s i d e r a t i o n b y Mr. James.
Governor Harding.
T i e point raised. i s a very. in-
portant question, because there i s going t o b e more a n d more
chain banking. C o r p o r a t i o n s w i l l b o organized f o r the
purposo o f taking stock i n national banks. I
de n o t know
whother i t i g a t all feasible a s a matter o f lay,
c o u n s e l
can advise o n that, b u t I think this whole thing could b e
123
very easily cured b y Congress enacting a
law that wherever
a corporation holds stock i n a national b a n k a n d i t becomes
necessary t o levy a n assessment o n the stockholders, a n d t h e
: n o t :
corporation i s capable o f meeting t h e assessment, t h a t t h e
assessment shall b o traced o n d o w t o the stockholders o f
he corporation.
Mr. JameSe
T h a t meets m y idea exactly.
do not know whether that is
Governor Harding. I
possible, b u t i f i t is, i t will cure t h e situation.
Governor Crissinger.
M r . Martin,
are g o i n g t o h a v e t w o r e p o r t s
i t seems t h a t w e
o n t h i s o n e subject.
Would
you mind stating whether y o u r report was unanimously sdopted
by t h e Federal Reserve Agents?
Mr, Martin.
I t was m y understanding that the report
as rendered w a s unanimously adopted. l l o w e v e r t h e Agents
are present, a n d they c a n state whether o r not that w a s a fact.
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Federal Reserve Bank of St. Louis
Governor Crissingere
J u s t f o r t h e benefit o i t h
Board, h o w d o the Governors s t a n d o n it?
I t was three t o
hree i n t h e Gommittee.
Mr, Platt.
Y o u are talking about t h e proposition
of the checks i n process o f ccllection being deducted from
gross deposits?
Yes.
Governor Crissingers.
Governor Strong.
W
e w e r e u n a n i m o u s l y o p p o s e d t o it.
Governor Young. N o , Mr. Chairman.
Governor Harding. I
Statement.
Gongerence.
would like t o qualify that
T h e r e w e r e t w o votes takes a t the Governor's
T h e first vote was unanimous, that deductions
might b e mado i n the case o f city banks, oxchanges f o r
clearing housse a n d checks o n other panks i n the same
place, b u t when i t came t o t h e quostion o f allowing that
deduction f o r t h e country banks I
think t h e vote was t e n
to two against i t e
Governor Strong.
T h a t i s correct.
Governor Harding. t
think t h e point was raised
about allowing a deduction for the city banks and not
extonding i t t o the country banks, a n d then t h e Conference
voted t o strike t h e whole thing f r o m t h e record.
T h a t is
my recollection o f it.
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Federal Reserve Bank of St. Louis
the d
Governor Crissinger.
T h e n y o u really h a d n o vote?
Governor Strong. A
thing which largely influenced
a
w the inconsistency o f this recommendai s c u s s i o ns
tion a n d the position taken i n the Pascagoula case.
Governor Orissinger.
this?
I
s there m
ything further o n
I f n o action i s necessary i t will b e referred t o
the B o a r d
f o r such action
a s t h e B o a r d s e e s f i t t o take.
Is t h e C o m m i t t e e a p p o i n t e d l a s t e v e n i n g o n t h i s A m e r ican R a i l w a y A s s o c i a t i o n m a t t e r r e a d y t o report?
:
L
2
Mire M i t e h e l l I
B
-
1
2
6
would l i k e t o s p e a k t o G o v e r n o r S e a y
about o w r report.
Governor Crissinger.
W i t h reference t o Mr, McFadden's
for
Letter t o m e i n reference t o permitting banks t o borrow
a period b e y o n d t h e 1 5 « d a y period,
s a y t o 9 0 days, I
would
has taken
lize t o k n o w w h a t a c t i o n t n e G o v e r n o r ' s G o n f e r e n c e
on t h a t a n d w e w o u l d l i k e t o h e a r n o w w n a t t h e G o v e r n o r s
have t o g a y about it,
Governor Stronge
W e voted, I
think unanimously,
i n inGovernor Grissinger, t h a t w e s a w n o particular h a r m
o n l y cover
ereasing t h e period t o 6 0 days, b u t t h a t i t should
eligible paper a n d not Government bonds.
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Federal Reserve Bank of St. Louis
Governor CGrissinger. W h a t action did the Federal
Reserve Agents take?
Mr. Perrin.
O u r vote o n that was s i x to three i n
favor o f e s t a b l i s h i n g a
period o f 9 0 d a y s f o r p a p e r s e c u r e d
o f their
by eligible paper. ‘ T h r e e voted against i t because
speedy
conviction t h a t such action would result i n the rather
discontinuance o f rediscounting a n d reliance u p o n borrowing
diminish~
py pledging a mass o f paper, resulting i n a gradual
ing o f the vigilance i n scrutinizing t h e paper ascopted,
on the ground that, having “120,000 o f collateral perhaps
with
tor a 3L00,000 note i t would not b e deemed necessary,
thig gradual diminishing o f vigilance,
t o determine whether
L27
2
each plece o f paper was o f a n acceptable character.
That
happenopinion i s b a s e d u p o n o b s e r v a t i o n o f w h a t i s a c t u a l l y
bank
ing where s u c h paper i s pledged a s collateral f o r member
notes. G o v e r n o r Crissinger.
I s i t the recommendation o f the
Governors t h a t these direct loans shall n o t b e secured b y
governments a t any time?
Governor Strong.
N o , but a t the time just be in-
creased f r o m 1 5 t o 6 0 days.
Governor Crissinger. Wouldn't it be a good thing if
they w o u l d j u s t e l i m i n a t e
Mr, Perrin.
i t CnpLroLy?
M a y I make a slight addition?
Governor Crissinger. C e r t a i n l y .
the L5-day
Mr. Perrin. M r . Curtiss reminds m e that
t o being se~note was t o be continued a s i t is now, subject
cured b y eligible paper o r government securities.
it
Governor Crissinger. A n y b o d y else? T h a t leaves
up i n the air.
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Federal Reserve Bank of St. Louis
T h e r e ought t o b e a n agreement o n ate
ite
some way i n order that w e may know what t o d o with
Governor Seaye
W a s that t h e unanimous report o f the
Agents! Conference, M r . Perrin?
Mr. Perrin.
N o , the vote was Sim-tio three.
Mr. Hoxton.
T h e report o f t h e Agents a n d the report
LSA
3
of the Governors tscidentical, w i t h t h e exception t h a t t h e
Governors v o t e d f o r 6 0 d a y s a n d w e v o t e d f o r 9 0 days.
i t is
just a question o f harmonizing those t w o suggestions.
Governor Orissingere
D o the Governors object t o
making i t 90 days?
would object t o i t personally.
Governor Norris. I
r. I
Governor C r i s s i n g eoS
a om a s k i n g SG&o v e r n o r
wnether t h e Governors w o u l d object t o 9 0 days?
Strong
H o w d i d the
Governors vote w i t h regard t o it. G o v e r n o r Norris i s objecting t o ite
Governor Strong.
i t think i t i s going « tittle far,
myself.
Governor McDougal. T
should l i k e t o r e p o r t t h a t
Governor Strong w a s mistaken i n stating t h a t t h e vote w a s
unanimous. I
registered m y vote a s being opposed t o a n y
change i n the law.
Governor Strong. ‘That i s correct.
T h e r e was a vote
against it.
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Federal Reserve Bank of St. Louis
Governor Crissinger.
D o e s t h e Board w a n t a n y further
information about i t ?
Governor Seay.
W i t h reference t o the comment o f Mr.
Perrin a s t o l a x i t y o f a d m i n i s t r a t i o n
i n t h e Federal Reserve
129
“k
banks a n d l a c k o f s c r u t i n y o f p a p e r w h i c h i s s u b m i t t e d w h e n
there i s excess collateral, I
cannot bring myself t o believe
that that practic@ c a n grow u p i n the Federal Reserve banks
when i t is the law that they shall receive only such paper
as i s eligible and acceptible. I
cannot believe that there
igs a n y d a n g e r o f l a x i t y g r o w i n g u p i n a n y o f t h e r e s e r v e
banks i n that respect.
Governor Crissinger.
I s that excess collateral eli-~
gible?
Governor Seay. I
mean when t h e y should offer f o r a
Loan o f 100,000 °)120,000 i n paper. I
think Mr. Perrin
oxpressed t h e opinion t h a t his observation i s t o t h e effect
that the scrutiny o f the paper offered i s not as greatas i t
would b e i f t h e p a p e r
S e o f f e r e d b y itself. I
would l i k e
to s a y t h a t t i e r e i s a t t h e p r e s e n t t i m e s o m e c r i t i c i s m a m o n g
the member banks, a n d I believe among non-member banks, t h a t
that p r o v i s i o n s u b j e c t s t h e m t o v e r y g r o a t inconvenience.
One o f the considerations w h i c h I
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Federal Reserve Bank of St. Louis
think governed s o m e o f those
Governors w h o voted f o r it, w a s that this provision w a s i n
accordance w i t h a n American practice w h i c h m d b e e n i n existence f o r many, M a n y years, t h a t i t w o u l d r e m o v e t h a t
criticism a n d that t h e proposal a t t h e time might b e extendéd
died
-
te 6 0 days would violate n o consideration o f economics a n d
that i t was entirely sound;
advanced a 8 quite a
t h a t i t would moet what h a s been
serious objection b y the banks i n the
System, t h a t i s inconvenience t o those banks a n d would remove a n objection o n the part o f those banks which hayennot
entered t h e Systom.
T h a t objection
i s advanced
b y those
banks a n d i t was thought advisable t o d o this.
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Federal Reserve Bank of St. Louis
Mr. Martin.
A g a matter o f practice I
take i t that
96-day
there i g n o m a n i n this r o o m who will not s a y that a
note instead o f a 15-day note would decrease t h e work o n the
part o f the member bank a n d decrease t h e w o r k o n the part o f
s a
matter o f j u s t m e c h a n i c a l
the F e d e r a l R e s e r v e B a n k .
A
practice i t i s desirable.
B u t i t ssems t o me that this
Conference h a s a
matter o f much broader i m p o r t before
it
than the convenience either o f the Federal Reserve Bank o r
of the member bank. W h e r e would such a relaxation,
may call i t that, tend t o lead us? I
i f we
thought o f this thing
quite a good deal after w e met a t the Conference last night.
I know that t h e practice prior t o the establishment o f the
Federal Reserve B a n k w a s t o have a bank make i t s note, t a k e
all the collateral necessary out o f the bill case, attach i t
to the note a n d send i t t o its correspondent.
T h a t was t h e
LL
B
regular process o f borrowing.
T h e correspondent,
i n large
measure, depended upon what i t new about t h e member bank
and not about t h e collateral t h a t was sent t o it. ‘ T h a t
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Federal Reserve Bank of St. Louis
was t h e method that was i n use, a n d then t h e Federal R e serve System came in.
I t purports t o establish a system
based upon actual conmercial credit, a n d s o the rediscount
factor was introduced.
L a t e r on. a s Governor Harding will
remember, t h e 15-day note w a s introduced.
N o w there i s a n
idea o n t h e p a r t o f b a n k s t h r o u g h o u t t h e c o u n t r y = - a n d I
rather suspect i f you will read Mr. McFadden's letter that
the g e n t l e m a n w h o p r p p o s e s t h a t m a t t e r h a d i n m i n d t h a t
banks could borrow o n things o t h e r than eligible paper o r
Government bonds,
o r i n other words c o u l d b o r r o w o n a n y
kind o f bonds a n d stocks,
T h e banks have a curious i d e a
about the law, i f that i s not his idea.
I t i s a thing
that t h e member banks a r e taking u p every n o w a n d then.
Tt comes i n from t h e Bank Relations Department occayionalkye
aS
I
f we make any change i n this law, a s desirable a s
it may b e from a practical standpoint, I
am afraid that i t
will open t h e door t o making a l l t h e bank notes secured b y
first Government, a n d then eligible, a n d then t h e next
amendment
i n t h e l a w w i l l b e i n t h e l i n e o f s t o c k s a n d bonds,»
a
“Then, u n l e s s L a m mistaken, a n d y o u -gentlemen -are- all prac-
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Federal Reserve Bank of St. Louis
tical men, e v e r y o n e o f you, y o u have all h a d experience
in seeing the correspondent bank deal with its member bank,
and unless I am greatly mistaken you are going to find that
your member bank i s going t o send i n its note secured b y
collateral o f the borrower rather than t o rediscount, a n d
that b r i n g s u s t o t h e q u e s t i o n r a i s e d b y P r o f e s s o r Spraguo.
The service o f the system,
i n its ultimate analysis,
is
pound t o d e p e n d u p o n t h e s u p e r v i s i o n t h a t w e g i v e t h e m a n a g e -
ment o f the banks.
I n a City like N e w York t h e y have a n
absolutely different proposition f r o m those cities o u t i n
the country.
I
n New York t h e y must deal w i t h t n e effect
upon t h e o p e n market,
t h e g o l d fund, t h e p o s s i b i l i t y o f r e -
lation between their rate a n d t h e foreign rate; t h e y have
to d o t h a t a n d s h o u l d d o it;
b u t when y o u get down t o our
section o f the country i t i s another proposition, a n d i t
ig the end of the thing that does not appeal t o the imagination. T
a m freo t o confess tonight that I
can have more
fun personally looking a t a lot o f figures about t h e payments
to the gold fund, international exchange, a n d all that sort
of thing, because t h a t i s painting t h e picture w i t h a large
brush;
b u t o u r j o b down i n our e n d o f the country - -
8
1338
Minneapolis, Richmond, Dallas, S t . Louis, Kansas C i t y a n d
t o a large extent, a n d >
Chicago,
San Francisco - - o u r j o b
is to watch the management of these little $25,000 banks,
to watch t h e type o f paper t h e y offer f o r rediscount a n d
the eredit conditions surrounding it, a n d although t h e note
ig only for $10.G0 -~ and Governor Biggs knows that we have
had them f o r that size ~ ~ our j o b i s not t h e broad, glorious
job o f world affairs, b u t i t is t o take care o f the member
banks handling that $10.90 note i n such a way that t h a t
bank m a y b e compelled t o deal with i t s depositors a n d customers
on 2
s o u n d basis. I
submit t o y o u t h a t t h e j u d g m e n t
with regard t o the small note has got t o be 4s sound as the
judgment with regard t o world affairs. A
mistake i n world
affairs m a y break t h e b i g city man, b u t t h e m a n w h o owns
four acres o f ground s a d a mule c a n have h i s heart broken
just a s quickly a s t h e m a n who owns a million dollars.
T h e
principle o f judgment a r e there, b u t I think a s this System
develops
w e have g o t t o appreciate t h a t d o w n i n o u r section
of the country t h e rediscount rate, t h e open market rate
and the world condition i s not effective.
O t h e r means a r e
necessary, w h i c h means a n everlasting, daily, hourly .and
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Federal Reserve Bank of St. Louis
minute c o n t a c t w i t h o u r m e m b e r banks.
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Federal Reserve Bank of St. Louis
Now, a l l o f that leads t o this:
T h a t i f this System
gets t o a place where, instead o f rediscounting t h e actual
paper with statements attached, t h e majority o f its Loans
are going t o b e o n 90-day notes o f the bank, secured b y
eligible paper with additional collateral,
i t is entively
human, i n my judgment, t o think that for awhile these banks
will closely scrutinize t h e bills receivable w i t h their
statements a n d then gradually - - and this i s just a human
tendency ~ ~ g r a d u a l l y
i t will r e a c h a
point w h e r e s o m e d a y
the note i g coming i n from a little bank - - and I
a m speaking
particularly about the little bank -- for say $10,000, secured
‘by eligible paper t o the extent o f 20,000, a n d you will note
that s o m e s t a t e m e n t s a r e n o t attached;
t h e y have been i n
too big a hurry t o get i t t o you; y o u have additional col-
lateral o f $10,000, and the reasonable thing for the banker
to d o i s t o take that note a n d what i t means i s that there
is a relaxation i n the scrutiny o f the individual paper
pohind the loan. I
dislike tc take so much time, but it
just seems t o m e that that i s a tendency
a s
w e should
eonsidsr.
Governor Wellborne
F r o m a practical standpoint i t
seems tna me i t i s a good idea f o r the banks i n our section
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Federal Reserve Bank of St. Louis
10
L
1
to take these notes.
3
5
T h e r e i s n o contention o r desire t o
eliminate oligible paper; I
would n o t contend r o r that a t
all, b u t t h e t h e o r y u p o n w h i c h t h e s e r e d i s c o u n t s
o f indivi-
dual nctes w a s based was that they were self-~Liquidating
think w e have all found o u t that that i s a myth,
paper. I
that w e have n o sgelf-liquidating paper outside o f open market
transactions. I
find i n the practical management o f the
bank t h a t i t i s safer f o r u s t o take t h e notes o f the member
banks because i n the case o f the failuwo o f the member bank
we c a n file o u r claim f o r the whole amount, whereas w i t h t h e
individual paper, each piece o f paper has t o stand o n its o w n
feet. T h e r e f o r e I think i t vould be a very good thing t o make
it 60-day paper.
Mr. Newton. I
approach this matter f r o m a little
different angle f r o m the w a y i n which Governor W e l l b o m h a s
approached it.
H e viewed i t with regard t o the advantages
it would give t o the Federal Reserve Bank. I
viewea it,
in m y vote, f o r this Committee report, w i t h regard t o the
advantages i t would give t o t h e c
e
banker. I
been v e r y f a r r e m o v e d f r o m t h a t s i t u a t i o n a n d I
there a r e a
security.
have n o t
know t h a t
good m a n y country bankers w h o believe
i n taking
M r , Martin spoke o f the fact that w e might e v e n
136
ide
find ourselves taking notes other than commercial paper. I
do n o t g e e w h e r e t h e r e w o u l d b e a n y o b j e c t i o n t o t h a t p r o -
vided t h e purpose ‘for which that note w a s given made i t
f a farmer would come into t h e bank that I
eligible.
I
operated I
would take t h e best security that h e had;
i f he
had some liberty bonds I would find i t out and get them;
he had some municipal bonds I
and g e t those bonds.
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Federal Reserve Bank of St. Louis
i f
would f i n d that o u t i f I could
I f h e d i d not have t h e m a n d I thought
he waS entitled t o t h e loan I would take a deed o f trust o n
hig livestock a n d his crops a n d o n his land - - not f o r the
purpose
o f making a
real e s t a t e loan, p u t t o i n s u r e t h e
A
fact t h a t h e w o u l d b r i n g m e t h a t crop.
friends s a i d t o m e that when I made a
s one o f m y old
loan t o a man a n d
took socurity o n a crop that t h e m a n might d i e before t h e
crop w a s made, o r something o f that kind might happen, b u t
[T gaid i f I
had a
mortgage
o n his l a n d I
pody l o o k i n g m e u p d n ‘ a n a f f o r t
would h a v e s o m e -
t o p a y t h e n o t e off. A
member b a n k t h a t p r o c e e d s a l o n g t h a t c l i n e s t a k e s a
good
deal o f agricultural paper maturing i n from s i x t o nine
months »
Mr. Miller.
H o w about a member bank that does n o t
proceed along that line?
O f course I am assuming that the major-
Mr. Newton.
ity o f our country banks a r e properly managed.
D
Mr, M i l l e r ,
o y o u think that i s a
do, because I
Mr, Newton. I
fair issumption?
think t h e number o f
failures w e have h a d would indicate t h a t t h e majority o f
the b a n k s o f t h i s country,
and a
majority o f t h e country
banks o f this country, h a v e g o o d managerse
Mir. Miller.
W o u l d y o u s a y that there i s a respectable
minority that i s not?
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Federal Reserve Bank of St. Louis
Mr. N e w t o n e
I a m g o r r y t o g a y past history has shown
that there are too many} b u t I do maintain that tre vast
majorivy o f country bankers a r e g o o d managers o f their i n stitutions, a n d I
statement.
folio, a
months,
think t h e records will sustain m e i n that
N o w , i f the country bank has notes i n its port-
large najority o f which notes r u n f o r s i x t o nine
w e will say, f o r advances f o r agricultural purposes,
that c o u n t r y b a n k e r d o e s n o t n e e d t o s e n d i n t h o s e n o t e s
to
the Federal Reserve B a n k a n d have t h e m discounted f o r s i x
or nine months a n d have them charged u p against h i s discounts
for that time, provided t h a t country banker i s sure that h e
can p a y t h a t m o n e y s a y i n s i x t y o r n i n e t y d a y s . I
in a
believe
great m a n y c a s e s t h a t t h e e x t e n s i o n o f t i m e w i l l b e v e r y
15
1
3
8
helpful t o the country banker, w h o represents a large majority i n the System, I
feel that t h e amendment would b e help-
ful t o a large majority o f the member banks, a n d for that
reason I
voted f o r ite
J u s t before w e go'further w i t h
Covernor Grissinger.
the d i s c u s s i o n o f t h i s q u e s t i o n I
would l i k e t o r e a d a
para-
graph from a letter t h a t was received b y m e from Mr. McFadden,
He r e f e r s
t o t h i s s u b j e c t a n d says:
How a n y group o f experienced bankers should limit b y
law t h e borrowing power o f member banks t o fifteer days,
I a m unable
t c c o n c e i v e b u t t h i s i s t h e law.
he rediscount privilege:
O
f course
i s available i f the member bank
has c o m m e r c i a l p a p e r t h a t i n e v e r y w a y c o n f o r m s
t o the rules
of t h e F e d e r a l R e s e r v e Act, b u t few, v o r y f e w c o u n t r y b a n k s
have enough o f this kind o f papec t o b e o f any great service.
Tt is, o f course,
a n open secret that loans have been renewed
and c a r r i e d u p o n g o v e r n m e n t
c r o t h e r collaterals,
large amounts f o r months andol presume f o r years.
i n very
N o w it
geems t o me that a n amendment giving the member banks the
privilege
o f porrowing f r o m t h e Federal Reserve f o r ninety
days would b e short enough time t o meet the average business
requirements, b u t fifteen days i s n o good a t all. B e f o r e t h e
organization of the Federal Reserve System, w e were accustomed
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
139
-
to take a list o f paper which w e had discounted i n good
faith without special regard t o the maturity o r the char~
acter o f the loans a n d borrow f r o m o u r N e w York correspond-~
ent a lump s u m o f s a y oighty p e r cent o f the face value o f
those notese
T h i s seems t o b e more satisfastory t h a n t o
notes
rediscount the several pieces of paper and the/pledged form
a semixliquid collateral."
i f t h i s b a n k e r i s correct, t h a t
It i s c o m m o n practice,
these 15~day loans are being constantly renewed with collateral o r Government.
GovernbcRbay.
A n d also oligible paper.
Governor Orissinger,.
A n d eligible paper, a n d i f s o
what objection i s there t o making i t sixty days o r ninety
days?
W h a t i s t h e different?
I
f you renew t h e m constantly
what i g the reason why you should not try t o discriminate
against this kind o f papor i f it is made for ninety days.
Et y o u h e c o n s t a n t l y r e n e w i n g
Governor Seay.
W
i t w h a t i s t h e difference?
e a l l k n o w t h a t t h a t i s correcte
It seems t o m e that Mr. Martin's comments c o n v e y 4 very
gerious i m p u t a t i o n a g a i n s t t h e m a n a g e m e n t
o f the Federal
Reserve B a n k s w h i c h i s f a r t o o s e r i o u s a n d w h i c h I
is unjustified.
believe
W h a t i s t o prevent some country bank,
tw
which Mr. Martin refers, f r e m sending a Federal Reserve b a n k
140
+5
a List o f paper, w e will say $10,000, a n d ask the bank t o
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Federal Reserve Bank of St. Louis
oxamine t h e paper a n d take all that i t coukd which conformed
T t e a n d o that just a s well a s i t c a n
to its requirements.
gend i n a note for $10,000 secured b y 315,000 worth o f paper.
Tt m u s t n o t b e o v e r l o o k e d t h a t t h e F e d e r a l R e s e r v e B a n k s r e ~
the
quire, with respect t o the paper eligible for seouring note,
the s a m e d e t a i l e d i n f o r m a t i o n w h i c h t h e y r e q u i r e w h e n t h e y
digcount a
single plieve o f p a p e r b y itself,
quire statements where t h e y a r e called for.
T h e y also r e -
A l l o f that
information h a s t o b e furnished t o t h e Reserve Bank. T h e r e
ig one limitation which will b e imposed u p o n t h e Federal
Reserve B a n k i n taking that class o f paper, a n d that i s
this:
T h a t when i t is lending very liberally i t cannot use
that c l a s s o f p a p e r i n r e d i s c o u n t w i t h o t h e r r e s e r v e b a n k s ;
it cannot u s e notes o f its member banks t o rediscount w i t h
otuer Federal Reserve banks, a n d that i n its elf will impose
a limitation u p o n a n y F e d e r a l R e s e r v e B a n k i n t a k i n g t h a t
papere
Mr. Miller.
W h y n o t include that?
Governor S e a y e
Y e s , and I
think t h a t w o u l d c o m e
naturally.
Mr. Miller. I
think i t would too, I
think overybod:
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16
at t h e Gonference knows this, b u t i t i s just a s well t o
state i t again, that i n the Federal Reserve Act as originalLy passed there i s n o provision f o r discounting bills pay~
ablo o f memocr banks.
T h a t w a s introduced later a n d t h e
restriction a s t o time limit w a s very carefully cecnsidered.
think i t would b e worth
It was finally fixed a t 1 5 days. I
whils, especially i n view o f both the statement and the implication that t h e period should b e lengthened, because t h e
provision i s not i n force, t o hear from Governor Harding and
Governor Strong, w h o are familiar with t h e circumstances
gurrotnding it, a s $ c just w h y t h e lo-day limit was criginally imposed. L
myself
a m not particularly attracted
t o an
amendment t o the l a w that i s predicated u p o n t h e failure o f
gome o f the Federal Reserve Banks t o successfully a n d effect-
Ually administer the law as i t is.
in and o f itself, well and good;
I f the thing i s good
i f it is t o be done only
becauso o f failure t o onforce the law and regulation a s i t
is, t h a t does n o t seem t o m e t o b e a very compelling reason.
I would like t o hear from Governor Harding, w h o i s probably
ag familiar with that a s anybody, j u s t what h i s recollection
is a g t o w h y t h i s a m e n d m e n t w a s o r i g i n a l l y a p p r o v e d
b y the
Board a n d w h y t h e t i m e l i m i t f o r t h e s e b i l l s p a y a b l e w a s
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Federal Reserve Bank of St. Louis
ae
142
fixed a t 1 5 d a y S e
Governor Harding.
M y recolloction i s that that r e -
commendation w a s s u g g o s t e d b y Mr. W a r b u r g .
P r o b a b l y h e had
b u t = do not
nad some consultation with the New York Bank,
i t t o 1 5 days.
know exactly what h i s reason w a s f o r limiting
Of c o u r s e
was v e r y useful
i t c a m e i n before t h e w a r a n d i t
when t h e Government w a s doing i t s financing.
M y recollect-
New York contended
ton i s that o n e o f the large banks i n
t e m p o r a r y emergenciss,
that i t n e v e r r e d i s c o u n t e d e x c e p t f o r
clearing house,
such a s covering bank balances i n the
or
i n order t o d o
something o f that sort, a n d that sometimes
paper that
any rediscounting t h e y would have t o rediscount
order t o take care
ran f o r a s long a s sixty o r ninety days i n
b e permitted
of these temporary porrowings; t h a t they should
w a s i n itself
to make their note a n d secure i t b y paper which
eligible. I
think t h e N e w Y o r k b a n k a g r e e d t o i t b e c a u s e
it would save t h e m a good deal o f work.
Y o u will remember
day
when w e a t first discounted items o f sixty o r ninety
paper t h a t p a p e r w o u l d b e p a i d i n a
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Federal Reserve Bank of St. Louis
would come i n f o r a rebate.
it w a s a
few days a n d then t h e y
T h e whole idea o f i t was that
temporary proposition.
Then when the war came o n and the Treasury's operations
used f o r
expanded s o greatly, t h e s e 15~day notes were
18
1
4
3
remember when w e had @ revenue
Government financing. I
pill u p with all sorts o f taxes, stamp taxes and s o forth,
that I
was u p b e f o r e t h e W a y s &
Means C o m m i t t e e
o f the
House a n d I suggested t h a t i n the case o f notes which were
secured b y Government obligations t h a t n o revenue stamp b e
required, a n d pointed o u t that that would facilitate a n d b e
persguagive i n making t h e distribution o f Government s e c u r i t i e s —
he Committee agreed t o that.
So f a r a S t h e B o s t o n D i s t r i c t
i s concerned,
Gurtiss will correct m e i f I am i n orror, 2
a n d Mr.
do not know o f
any instances where w e have a n y bankers! n o t e s discounted
secured b y customers’ notes.
O u r transactions a r e o n l5-~day
paper secured almost exclusively b y Government obligations.
Mp, curtiss.
T h a t is correct.
o avoid putting
Mr, Jaye I s n ' t i t a fact, i n o r d e r t
revenue s t a m p s
o f banks s e c u r e d b y c o m m e r c i a l paper,
o n notes
the Board mado a ruling whereby t h e Federal Reserve B a n k could
discount a lot o f ninety d a y paper f o r t e n o r fifteen days,
or w h a t e v e r
i t might bo?
Governor Harding. I
do not think s0, because the
provision w i t h r e g a r d t o r e v e n u e s t a m p s p r o v i d e d o n l y f o r
notes gecured by Government obligations,
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Federal Reserve Bank of St. Louis
Governor Seaye
Y o u are thinking o f the r e p u r c h a s e
agreement, M r . Jaye
Governor Strong.
G o v e r n o r Harding's memory o f t h e
oceasion f o r t h e a m e n d m e n t
i s p e r f e a t l y accurate.
During
the pericd o f very heavy financing b y t h e Treasury, t h e transfers i n and out o f New York became s o heavy that t h e member
bauks h a d t o Borrow f o r a day o r two large amounts o f money,
which t h e y were able t o p a y off after a
few days.
I t was
a fact that they d i d not have available i n their pertfolios
an adequate amount o f oligible paper maturing i n a f e w days
onabling t h o m t o make t h a t turn-around i n their reserve
account, a n d they were v e r y urgent t h a t some facility b e given
them.
f h e i r practice w a s t o discount paper bearing matur-
ities u p t o sixty days a n d over a n d then within a
few days
they would take that o u t b y rebating i t e T h e amount o f work
involved i n that w a s tremendous a n d one o f our largest borrowerg h a d s h e e t s o f a p p l i c a t i o n b l a n k s p r i n t e d w i t h t h e s a m e
paper o n it.
T h e y would bring i t in, a n d a t the e n d o f the
weok, w h e n t h e readjustment took:place,
t h e y would rebate
it, take i t out, and then come back with the same printed
sheets again.
I f I remember correctly, i n one case w e had
thirty g h e e t s f r o m o n e bank, t h i r t y p r i n t e d sheets, g i v i n g
a list o f t h e e l i g i b l e p a p e r t h a t t h e y w a n t e d t o d i s c o u n t
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Federal Reserve Bank of St. Louis
29
L45
for only a
few days.
I t was found t o b e necessary then, a n d
it i s necessary now, because there are weeks - ~ quarter days,
for i n s t a n c e
- — w h e n o u r advances
t o member bazks a r e v e r y
large, u p t o a hundred o r a hundred a n d fifty million dollars, j u s t temporarily.
Now a s t o t n e merits o f this question I
would like t s
gay a few words i f I may, Governor Crissinger.
I personally cannot s e e w h y y o u should n o t extert t h o
time for collateral loans for sixty o r ninety days, b u t i t
seems t o m e that i n the course o f the discussion t h e r e were
gome facts i n connection with i t that had not been brought
Outs F i r s t o f all I
do not share Mr. Martin's apprehension
that i t would result i n a rolazation o f care i n the reservo
banks.
I f this i s a good thing t o d o I d o not think w e
should hesitate t o d o it.because w e d o not trust ourselves
to do it right. W i t h o u t desiring to recommend a slavish
copying of practises i n othor countries, I think we have got
to recognize that the Federal Reserve Act has got t o be made
to apply t o t h e conditions i n this country, nevertholess seek-
ing t o benefit b y the oxperience o f foreign hanks o f issue.
Now, t h e desire t o have a piece o f paper discounted
upto its normal maturity, rather than to make a collateral
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Federal Reserve Bank of St. Louis
a
1
4
6
loan, I believe, i n the minds o f most of the men here,
rests upon t h e theory that i t i s self-liquidating paper
which will b e paid a t maturity, a n d will relieve t h e Federal
Reserve Banks o f a very common request f r o m member banks
and from country banks t h a t a r e borrowing f r o m city banks
to secure a n oxtension o f the collateral loans.
B u t this
is not self-liquidating paper i n a historical sense a t all.
Self-liguidating paper i s taat which i s now o n the New York
Market v e r y largely, w h i c h c o m e s i n t o t h e p o s s e s s i o n o f t h e
reserve bank through the holder and owner, that is a brokor
or m e m b e r bank, w h o h a s a b s o l u t e l y
n o relation whatever w i t h
the payer, t h e primary obligor, t h e bank which h a s accepted
it. T h a t is an accepted draft which comes into our hands,
which i s g o l d t o us,
i f y o u please,
b y a
member b a n k a n d
which has got to be paid by some other bank. ‘There is no
relationship oxisting t h a t justifies t h e bank which s o l d
that paper t o us i n coming t o us and asking for a n oatengion. W h e n i t matures i t will b e paid, o r there will b e
a default b y t h e obligor.
I
n t h e technical sense t h a t
is s e l f l i q u i d a t i n g papor.
a member bank
When w e take the customers’ paper o f
we take i t from a bank which has a customer relationship
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Federal Reserve Bank of St. Louis
147
with t h e m a k e r o f t h a t p a p o r a n d o b v i o u s l y t h e m e m b e r b a n k
ig u n d e r s o m e i n f l u e n c e
b y i t s customer
tenfiion i f they cannot pay it.
t o secure a n ox~
W e may thereby have the
same paper coming back t o u s over a n d over again, w h i c h
would n e v e r o c c u r
i n t h e c a s o o f t h i s s o l f ~ L i q u i d a t i n g paper.
Hurope
Now 1 t is a fact that the banks o f issue o f
havo t w o t y p e s o f r a t e s a l m o s t u n i v e r s a l l y .
O n e i s the dis-
count rate o f the bank which applies t o self-Liquidating
interest
papor coming t o it from third panties who have n o
it; a n d
in the discount a n d n e customer relationship t o
which
that self-Liquidating paper i s the instrement through
s o m o ina bank o f issue,by i t s discount rato, exorcises
situation.
fluence u p o n t h e money market a n d the credit
B u t
t o comwhen i t comes t o the extension o f credit generally
r a t e which operates v e r y
mercs a n d i n d u s t r y t h e y h a v e a n o t h e r
that i s the rate o n
largely through their branches, a n d
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Federal Reserve Bank of St. Louis
Lombard loans»
for
I f you take a bank like the Reichsbank,
the entire
instance, i t has 450 branches, a n d practically
t o i t through i t s
portfolio o f the Reichsbank, w h i c h comes
collateral loans; I
branches, consiists o f Lombard loans,
Bank o f England,
think almost the entire portfolio o f the
loans o n
coming through its 1 2 branches, consists o f Lombard
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Federal Reserve Bank of St. Louis
s
c
e ee
1
which they charge a higher rate.
4
8
T h a t i s true today o f
the Bank o f France, that its effective portfolio, outside
of the collection items consists o f five times a s many
Lombard loans a s i t does o f true bills, b i l l s o f exchange
With acceptance.
My t h e o r y a b o u t t h e F e d e r a l R e s e r v e S y s t e m i s t h a t
it has been developed partly a s a stabilizor o f credit conditions a n d operates i n that respect particularly i n tne
money centers,
a n d partly t o oxtend needed credit
country a t times.
t o the
W e have g o t t o uso t h e instrument o f
the bill o r exchange i n our money market a s i t gradually
develops i n mass a n d volume,
a s a means o f advancing t h e
discount rate, that is the rate a t which w e buy the bills,
in o r d e r t o h a v e a n e f f e c t u p o n m o n e y a n d c r e d i t conditions.
But when i t comes t o the interior banks, l i k e St. Louis
and Atlanta, their operations with their members are largeLy t h o s e o f e x t e n d i n g s e a s o n a l credit,
a n d i t seems
t o me
that operation should b e conducted b y the instruments a n d
means t h a t a r e h e c e s s a r y a n d c u s t o m a r y u n d e r t h e w a y t h a t
our banking System h a s developed.
why I
T h a t i s t h e reason
have rather favored having a n extension o f this t i m e
to sixty days o r ninety days ~=- I do not think the time i s
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very material = < t o meet what I belleve i s a need underconditions t h a t oxist i n the country, r a t h e r than t o endeavor a n d i n s i s t u p o n t h e i n t r o d u c t i o n i n t o t h e S y s t e m o f
a fiction that does a o t exist i n banking i n this country
in the interior Federal Reserve banks.
Governor Crissinger.
be g r a n t e d
i to
Y o u s a y t h e e x t e n s i o ns
o n eligible collateral paper?
Governor S t r o n g s
A l w a y s , yeSs
Governor Grissinger.
U n d e r t h e present method,
as I
understand it, i t i s renewed, e v e n when i t i s secured b y
Government obligations, f o r sometimes a s long 4 8 a year o r
maybe t w o years, w i t h regard t o some o f t h e loans, a n d what
is the difference between making i t 90 days a n d renewing i t
all the time? W h a t i s the difference?
Governor Strong. I
listened t o t h e discussion o f
that matter b y Professor Sprague with a good deal o f interest, I
did not say anything because h e has had oppor=
tunity w o make a statistical study o f the circumstances o f
the banks that have been borrowors f o r a year o r more and
T have n o t h a d opportunity t o make such a study.
Any
comments t h a t I would make o n i t would b e largely t h e result
of discussions a t these meetings.
B u t m y belief i s that
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Federal Reserve Bank of St. Louis
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25
cannot
in most o f these cases — - what t h e percentage i s I
day ~ < but i n most o f these cases o f persistent borrowing
banks,
i n the
t h e oceagion f o r t h e persistence r e a l l y arose
of deposits a n d has continued s o ever since;
that it
did not arise principally through a n unjustified exteasion
but d i d
of eredit, s u c h a s Brofessor Sprague rather implied
not definitely state.
T h e reason I
gay that i s this:
That
acting
during t h e period when t h e Federal Reservo System,
obligations
as the agent o f the Treasury, w a s golling short
of t h i s Government,
w e plastered e v e r y bank i n t h e country
with them right u p t o the limit,
w e loaned them t h e money
sale; n o w , w h e n
and created t h e credit which resulted i n the
a time o f adversity came t o many communities i n the country,
many o f t h e m w e r e r e d u c e d
o f the
t o poverty - - t h e swing
eycle w a s such that t h e people i n those communities wero r e -
duced really t o poverty - - 1 t was a debt paying period, a n d
bank doposits shrunk a n d left those banks h u n g u p with
n that period which t h e y could
assets which h a d boen c r e a t e d i
not l i q u i d a t e a n d w e h a d t o c a r r y them.
O n the whole [ I
think i t was a good thing for the country.
Governor Crissinger.
answered m y question.
B u t I think you have not yet
Y o u make a
loan f o r 1 5 days o n
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Federal Reserve Bank of St. Louis
L6L
26
Government collateral, a n d i t i s not paid.
T h e y come i n
i t with
and renew i t for fifteen days a n d keep renewing
the game collateral for a year, a n d I want t o know what
days
narm there i s i n making the loan for sixty c r ninety
W h a t i s the difference?
with t h e same collateral?
Governor Strong, T n e r e i g no difference.
I t is
just a question o f the intelligence a n d care Which t h e Re~
serve bank i s managed.
Mr. Mitcholl.
D o I understand that Governor Strong
favors t h e extension?
Governor Crissinger.
eligible collateral.
Yes.
H e says i t must b e o n
D o you mean secured b y Government
obligation also?
Governor Strong.
‘No.
Governod Crissinger.
T h a t should b e left a t 1 5
B u t those socured
securities h a v e b e e n o f f e r e d f o r r e n e w a l
and have r u n f o r a year, a
b y Government
o f the 15~day loans
nd I understand i n some places
two years.
Governor Harding. I
think I
can explain t h e object-
secured
fon t o extending t h e 15-day period o n payments
by Government obligations.
T h e necessity o f using that
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Federal Reserve Bank of St. Louis
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7
passed.
eredit t o c a r r y G o v e r n m e n t o b l i g a t i o n s h a s l o n g s i n c e
it i g i n t h e h a n d s m o r e a n d m o r e o f t h e investcrs.
a f e w banks,
w e h a v e a b o u t t w e n t y i n o u r district,
T h e r e are
w h o seem
and t o be
to want t e hang onto their Gevernment obligations
permanently borrowing against them.
I t results i n inconven~
but I
tence t o them t o renew these notes every 1 5 days,
exist. I
think t h e y w o u l d r a t h e r h a v e t h a t i n v o n v e n i e n c e
things,
have asked them w h y they did n o t sell off some o f those
liquid condiget rid of those securities and keep i n a more
tion and not be borrowing all the time,
I f you extend
the limit y o u will encourage t h e m t o Keep o n borrowing,
deters
although h a v i n g t o r e n e w t h e p a p e r e v e r y 1 5 d a y s
a good many o f them from coming in, don't you think, Mr.
Curtiss?
Mr, Curtiss. ‘ e s e
Governot.Seay.
I
t gives t h e reserve banks more
control over i t s reserves.
I i t h e paper i s short time
and o f frequent maturity t h e reserve b a n k has opportunity
4%
to determine whether i t will extend the loan, but L e
makos i t for ninety days t o begin with i t can say nothing
about i t until t h e n i n e t y d a y s n a s expired.
Governor Harding.
Y o u have n o t t h e same argument
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Federal Reserve Bank of St. Louis
285
to m a k e i n t h e c a s e o f o l i g i b l e p a p e r ,
Governor Strong. I
think there i s one real object-
m e believe t h a t
son t o this ninety d a y provision, w h i c h made
and
sixty aays would b e a trifle better t h a n ninety days,
there i s
that igs tho fact that i n some parts o f the country
member bank c a n
s.big spread between t h e amount t h a t t h e
bank.
got for its money and what i t pays a t the reserve
I f
money i s
there i s 9 demand for monsy i n some districts whore
worth 1 0 per cent, t h e member bank c a n make a
ninety d a y o r
borrow money
gix m o n t h s l o a n a t 1 0 p e r cent, a n d i m m e d i a t e l y
b a n k a n d make
for that same period from t h e Fedcral Reserve
that soread.
that.
T h a t will inerease the temptation t o d o
t o borrew o n col~
If o n the other h a n d t h e bank i s only able
thirty days, o r a
Lateral i n this w a y for fifteen days o r
t h e reserve b a n k i s
Less period o f time, h e will feel that
h e expects
in position t o mako h i m pay a t any time before
i t will o p e r a t e
to h a v e h i s l o a n s r e p a i d t o him, a n d
t o some
Reserve
oxtent a s a restraint upon misuse o f the Federal
Bank credit.
Mr, Heath. I
have a great deal o f sympathy with the
discussion
comment that Mr. Martin made a t the opening o f this
recorded
Ttconfess that i t was with great hesitation that I
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Federal Reserve Bank of St. Louis
29
my vote i n the affirmative i n the Agents! discussion. I
have given a great deal o f thought t o it, a n d I
a m wonder-
ing whether, a f t e r all, t h e basic principle o f the Act i s
violated i n this proposition o f a ninety d a y note against
paper.
Governor Orissinger. I s n ' t i t violated repeatedly
py t h e s e r e n e w a l s f o r f i f t e e n d a y s ?
a m basing m y proposition o n the O d a y
Mr, Heath. I
papers
M
y concoption o f t h e A c t i s that t h e paper
portfolio should b e short time business paper.
i n the
T h e question
is how f a r c a n w e g o without making t h e system actually un-~
workable o r practicality unworkable f o r t h e vast majority
of c o u n t r y b a n k s
o f t h e country, b e c a u s e I
think t h e d i s -
counting o f t h e s e five, t e n , f i f t y : and o n e h u n d r e d d o l l a r
notes i s i n itself o n e o f the great crawbacks t o t h e funct-
foning o f this System i n the minds o f the public.
Mr. Millor.
W o u l d y o u say, i n the light o f t h e evi-
denes i n 1920 a n d 1921, t h a t t h e banks o f the country found
it a
good d e a l o f trouble
t o g e t credit f r o m t h e F e d e r a l
Reserve S y s t e m ?
Mr. H e a t h .
H o w i s that?
Mr. Miller. I
addressed t h e question t o y o u because
ae
L
5
you w e r e t h e l a s t speaker. I
5
s a y i n t h e l i g h t o f t h e evidene:
in 1 9 8 0 a n d 1 9 2 1 w o u l d y o u g a y i t w a s d i f f i c u l t f o r m o m b e r
banks t o get credit from t h e Federal Reserve System?
you s a y w e n e e d t o l o o s e n t h i n g s
Governor Seays
mo means. I
up a
Would
bit?
I f I may answer that, I
would s a y b y
should s a y that t h e oase w i t h which t h e y could
obta*n credit led them t o go much further than they should
have gone. I
do not think, Dr. Miller, i t is in the
mind o f anybody that this proposal i s made because o f the
present practive o f the Federal Reserve Banks t o renew
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Federal Reserve Bank of St. Louis
the 1 5 - d a y p a p e r f r o m t i n e t o timo.
must d e e p e r t h a r that.
T r e basic reason i s
I t lies i n t h e commercial practice
which h a s existed f o r a long time a n d which will still exist a n d w h i c h w e c a n n o t u n d e r t a k e
t o alter a n d cannot alter
if we did undertake t o do so.
Mr. Miller.
paper?
W h y n o t loave i t A s i t i s n o w a n d invlude Govern-
ment bonis?
lateral
W h y have t h e loan restricted t o eligible
W h y n o t widenit
s o a s t o include o t h e r c o l -
o f the kind that will g i v e rise t o t h e type o f loan
that has been called t h o Lombard loan?
W h y restrict i t
if the security i s good?
Governor Seaye I
believe t h a t would b e a very severe
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Federal Reserve Bank of St. Louis
SL
blow t o the resources o f the Federal Reserve banks.
Mr, M i l l e r .
W h y go?
Govemmor Seaye Although i t has been stated that i n
commercial p r a c t i c e
i n the country banks there i s n o s u c h
I
thing a s really gelf~liquidating paper, nevertheless
be-
paper
Lieve w e should very jealously guard t h e standard o f
which t h o Federal reserve banks take. I
think that defini-
ought
tions o f a n d rulings w i t h respect t o oligible paper
to b e kept a t the very highest standard,
Mre Miller. W o u l d n ' t you say i t was when your member
bank's n o t s i s a c c o m p a n i e d
b y G o v e r n m e n t b o n d s a s collateral?
Governor Seay. Perfectly so.
Mr. M i l l e r .
T h e n what i g t h e objection
t o it?
Governor Seaye ‘ T h e objection t o it I think was pretty
j u s t about
well stated b y Governor Harding, a n d h e expressed
what i g i n the minds o f the members present.
W e believe,
necessary t o
I think, t h a t a n y member bank which finds i t
s h o u l d sell
continuously b o r r o w a g a i n s t G o v e r n m e n t bonds,
those bonds.
W h a t i s t n e reason f o r holding them? R e c e n t l y
banker f r o m
we received a visit a t our bank f r o m a country
potatoes.
the E a s t e r Shore.who h a d h a d a bad year i n
His
they had been
pank held $125,000 i n Government bonds which
holding f o r several years.
H e h a d h a d a bad season a n d
L57
3a
naturally asked
he wanted t o borrow $250,000 f r o m us. I
him w h y h e d i d n o t s e l l h i s G o v e r n m e n t bonds.
"Thig is, w e think, a temporary matter.
H
e said,
W e may have
occasion t o borrow f r o m y o u this year, b u t next year w e
-pelieve o u r deposits w i l l come back t o what t h e y wore,
and we will then be looking around for investment and w e
will probably have t o g o into the market and buy bonds,
they might b e higher than they are now, a n d I would like
to hold those bonds."
W e do not think the banks should be
-encouraged t e continuously borrow against Government se~
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Federal Reserve Bank of St. Louis
vurities.
Mr. Millor.
W h a t would y o u s a y about their con-
tinuously borrowing against their ninety d a y notes secured
by eligible collateral?
Governor Seay.
perrowing, e x c e p t
Sprague.
I
t i g not, I
would say, c o n t i n u o u s
i n certain cases a s cited b y Professor
W e know i n country banks,
i n dealing with their
customers f o r s e a s o n a l p u r p o s e s t h e t t h e y t a k e p a p e r f o r
sixty o r ninety days knowing peffectly woll that t h e y will
have t o renew i t perhaps thirty t o ninety days longer.
W e
might s a y i t i s the character c f the paper.
Mr. H a m l i n .
I
f y o u were t o make a
loan a n d h a d t h e
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Federal Reserve Bank of St. Louis
32
paper,
option o f taking a ninety d a y note o r rediscounting t h e
prefer?
agsuming that t h e l a w was changed, w h i c h would y o u
would prefer t h e note outright.
Governor Seay. I
Mr, Hamline
yank w i l l i n s i s t
I s not that t h e point, t h a t every reserve
t h e diso n t h e ninety d a y noto rather t h a n
against
count oporation because t h a t will b e a direct claim
other i s merely
the bank, a n d a better claim, whereas t h e
a contingent Liability? W o n ' t that tend to wipe out the
p u t i n place
rediscounts a n d havs t h e notes o f member banks
thereof?
Governor Seaye
W e d o not think that. i
a m speaking
with t h e bank
now from t h e viewpoint o f possible aifficulty
some points o n
and a n eventual roceivership, t h a t tiere a r e
a n d the
which i t i s advantageous t o hold t h o collateral
notes
o f t h e b a n k also.
T h a t i s not t h e point o f view
from w h i c h w e a p p r o a c h e d i t e
Mr. Miller.
F r o m what Governor W e l l h o m s a i d I
t h e notes rather t h a n
guspected t h a t h e w o u l d a l w a y s w a n t
the discount collateral.
Governor Wellborn.
W e frequently suggest that t o
a n d w e usually
the bank when w e see t h e bank i n difficulty,
get a note t o cover all o f their transactionse
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Federal Reserve Bank of St. Louis
L59
Mr. Miller.
W o u l d i t not be changing the whole
spirit o f the Federal Reserve System t o lend i t t o banks
on t h e i r n o t e s t a t h e r t h a n t o d i s c o u n t t h e i r paper?
Governor Seay, P o s g i b l y i t might invade t h e theory
upon w h i c h w e s t a r t e d o u r operations. I
would prefer t h e clean discounted’ bill.
am sure o u r bank
H o w e v e r t h e facts
nave been sufficiently described e n d there i s n o use o f m y
describing them agaite
Mr. Miller.
I t ig a condition and not a theory.
Y o u s a y when y o u advance t h e rate t h e
member banks suffer f r o m inability t o g e t credit when t h e y
want i t f r o m t h e Federa] R e s e r v o B a n k s ?
Govemor Seay>
Dr. Miller,
N o t from inability t o get credit,
i n the aggregate, b u t taney d o complain o f the
method b y which w e grant that
Mr. Miller.
B u t they would probably complain w h e n
you made these notes sixty t o niety days, s e c u r e d b y
eligibte collateral, w i t h Government bouds discriminated
againgt.
Governur Seay. I
doubt very much indeed if there
would b e a n y c o m p l a i n t b e c a u s e
Mr. M i l l e r , I
o f t h e difference.
think v o u w i l l h a v e a
surprise c o n ~
ing t o y o u then, i f tne amendment proposed h e r e goes
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Federal Reserve Bank of St. Louis
54
through.
Governor Seay.
I l feel t h a t t h e r e w o u l d b e n o i n -
superablo a@hjection t o making i t both.
Governor Crissingere I
Mr. Miller.
did not understand thet.
I a m referring t o Governor Seay's c o
ninety
remarks t h a t h e would s e e n o objection t o sixty o r
day notes secured b y Government's.
Govern: SeBy «: N a insuperable objection.
Mr. Millor.
has been reached,
W h y should w e object, o n c e that gtage
t o permitting t h e rediscount a t a Federal
Reserve B a n k o f n o t e s
bank secured b y stocks a n d
of a
ponds o f unquestionable value a s collateral? I
are a l l m o r e o r l e s s i n a
TOR me.
w i l l admit I
think w e
am - ~ a g
to
to just w h y t h e Federal A c t i n its original form, t r i e d
t o what
tie aown t h e investments o f Fedsral Reserve Banks
we call gelf~liquidating paper. I
fancy that Professor
Sprague would b e i n a s good a position a s a n y one t o give
ug a
o t h a t question,
r e a l l y i n f o r m a tive a n s w e r n
that is
to say, whether o r not i n his judgment t h e restriction
in t h e Act was o r was n o t a wise one.
often c r o s s e d
T h o question h a s
m y mind a s t o just w h y t h e Federal Reserve
Limited
banks were restricted i n t h e original A c t t o a very
class o f b a n k i n v e s t m e n t s ?
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Federal Reserve Bank of St. Louis
Mr. Sprague. I
have answered t h a t i n the beginning
of m y remarks this morning, t h a t i s t o say, t h a t i t was a
more o r l e s s a t a r i o h i m L t a t i o n o f t h e b u s i n e s s
BHuropean c e n t r a l banks.
I
o f the
n t h e second place i t h a d a
cor-
tgin s o c i a l r e a s o n i21 t h a t i t w o u l d r e l a t e t h e b u s i n e s s
the R e s e r v e b a n k s
of
t o t h e k i n d o f rusiness t h a t a l l t h e b a n k s
were p r e s u m a b l y doing,
w h
i
f t h e y h a d opened i t u p
stocks a n d b o n d s m u c h m o r e w o u l d h a v e b e o n h e a r d a b o u t
Wall Street i n 1913, w h e n t h e A c t was passed through
Now a s regards t h e effect o f opening u p t h e discount
business o f the reserve banks t o stocks a n d bonds satisfac-~
torily secured,
m y a n s w e r w o u l d b e this:
T h a t t h e limita-
tion o n e l i g i b l e p a p e r d o e s h a v e s o m e i n f l i e n c e
o n the
aggregate amount o f demands v h a t might b e made u p o n t h e regerve b a n k f o r credit;
n o t v e r y much, b e c a u s e t h e r e a r e
and
pillions i n eligible paper scattered through t h e banks,
since t h e Federal Reserve A c t was passed w o have orea ted
billions
o f G o v e r n m e n t s e c u r i t i e s w h i c h a r e n o w eligible.
Wnen i t comes t o making specific loans,
i n m y judgment t h e
paper that Mr. Martin describes, t h e t e n dollar dotes, a n d
goon, represent a positive defect i n the System.
W e d o not
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Federal Reserve Bank of St. Louis
56
L62
know w h e t h e r t h e bankvuis p u t t i n g u p s o o m a n y o f t h o s e p e r =
fectly g o o d t e n dellar notes a n d other notes o f that kind.
If t h e b a n k i s p u t t i n g u p a
moderate a m o u n t
i n trade e x -
change, well and good; b u t i f it is putting u p all o f its
good e l i g i b l e paper,
inclined
i t m a y b e c o m e o v e r extended.
t o think t h a t tnis proposition
S
c I
am
i s a good o n e because
it would lead t o more attention being given t o t h e situation
in tne borrowing banks, a n d perhaps a little loss attontion
to the particular paper that i s offered.
I t is the agere~
gate amount that i s loanead b y t h e Federal Reserve Banks a s
a whole that affects the situation;
i t is the agsregate
amount t h a t y o u loan i n a particular bank that affects t h a t
bank w i t h r e f e r e n c e
t o i t s depositors.
attention t o paper t o m y mind i s like a
coat t o b u y whiskey.
P a y i n g exclusive
man pawning h i s over-~
Y o u d o n o t g e t anywhere. I
would
rather, from the point o f view o f the soundness o f the
System, have you take $10,000 from some bank based o n al~
most anything than t o take $20,000 f r o m a bank based wholly
and absolutely o n good oligible paper.
I f you h a d stocks
and bonds s o m e b a n k s w o u l d p e r h a p s b o r r o w more, b u t o n t h e
other hand i t might have t h e effect,
i n some cases, o f
leading banks that borrow t o have outside investment.
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Federal Reserve Bank of St. Louis
37
163
I c a n c o n c e i v e t h a t t h e b o r r o w i n g b a n k s ought,
i f possible,
to have g o m e outside s t u f f because i f they haven't a n y out-
gide stuff vhey are i n grave danger o f becoming over-extended
unlegs their borrowings are very clearly confined within
safe, seasonal Limits.
T h o s e things I
do nct think y o u
heve i n mind when y o u are paying exclusive attention t o
the p a r t i c u l a r p i e c e s o f p a p e r t h a * a r e p u t up.
Governor Grissinger. I s n ' t it a fact that there are
communities which d o not usa the faciiities o f the Federal
o f these
Reserve R a n k f o r t h e v e r y r e a s o n t h a t t h e y t a k e a l l
bonds u p t o some c i t y bank,
d o tnueir porrowing through t h e
city bank, t h e y become the basis o f the credit, a n d tne
redisccunt=
Federal Reserve System gets n o benefit f r o m t h o
ing o f t h e loan direct.
community w h e r e I
I s not that a.fact?
supposs t h e r e i g n o t a
. 1 know e f 2
bank = ~ a n d t h e y
are all g o o d bauks = - that rediscount w i t h t h e Federal R e serve b a n k ;
b u t t h e y d o borrow;
t h e y t a k e t h e i r bonds,
b u t instead o f taking t h e m t o t h e Federal Reserve B a n k
they take t h e m u p t o some b i g bank i n one o f the cities i n
which t h o y h a v e t h e i r c o r r e s p o n d e n t s a n d l e a v e t h e m a s
collateral f o r the loans, a n d they ultimately g e t into t h e
Federal Reserve sank through the medium o f the borrowing
bank.
n a t i s a fact, i s i t not?
164
I t is a fact t o some extent, a n d i t
Governor Sea ye
our member
is also a fact that w e accommodate one~third o f
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Federal Reserve Bank of St. Louis
accustombanks every year and the balance o f them are not
ed t o borrowinge
Governor Talley,
I n the interest o f progress, i f I
may b e permitted t o d o so. I
will make a motion. I
first
this subject.
want t o refer t o the parliamentary phase o f
illuminating, particuI think t h e discussion h a s been v e r y
given t h e Members
larly s o i n view o f t n e fact t h a t i t has
w h o voted against
of the Board opportunity t o hear those
this proposal.
a pro=
I + seems t o m e that w o are debating
posal t h a t h a s b e e n a c t e d u p o n b e f o r e
b y both t h e Gonference
the r e a l q u e s
of Governors a n d the Conference o f Agents, a n d
tion t h a t t h o J o i n t C o n f e r e n c e
i s now addressing itself
to
days o r ninety
is w h e t h e r t n e o x t e n s i o n s h a l l b e s i x t y
dayse T
voted i n t h e Governors!
although personally,
Conference
t o s i x t y days,
s o far a S m y district i s concemed,
would prefer the ninety day extension.
[I
N o w let me say t o
o f the authority
those w h o m a y b e opposed t o t h e oxtension
day
for application b y a member bank t o borrow o n a ninety
c u t two holes i n the door,
note, t h a t i t i s not necessary t o
one for the big cat and one for the little cat.
Y o u can
L65
mehhe i t ninety days a n d then a n y bank that does n o t wish
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Federal Reserve Bank of St. Louis
to make advances t o member banks f o r a s long a s ninety
Gays c a n m a k e t h e m f o r a n y t i m e w i t h i n n i n e t y days.
cour section o f the country,
I n
a S Governor Strong brought
and it
out, i t i s e question o f extending seasonal credit,
would require a s Jong a s ninety days,
i n m y judgment,
if
thig proposition h a s a n y merit F a ae
Now, Mr. Chairman, I
would move, therefore, t h a t i t
amended
ig the sense o f t h e Joint Conference, t h a t t h e Act b e
to p e r m i t F e d e r a l h e s e r v e B a n k s t o m a k e a d v a a c e s
member b a n k s a g a i n s t b i l l s p a y a b l e
t o their
o f t h e m e m b e r banks, w h e n
of
secured b y oligiblo paper equal t o the f a c o a n d maount
the b i l l s p a y a b l e f o r a
Governor Seay.
m a x i m u m p e r i o d o f n i n e t y days.
I l offer a
substitute m o t i o n t h a t a
prefer
vote b e t a k e n i n t h i s C o n f e r e n c e a s t o w h e t h e r t h e y
sixty days t o ninety days. J
offerthat a s a substitute
motLone
Governor Crissinger.s
motion first. I
W e will take up the substitute
will a s k all o f those i n favor o f the
gixty d a y limitation t o stand up.
(Four members o f the Conference stood up)
Governor Crissingor.
A l l o f those i n favor o f the
ninety day limitation will please stand up.
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Federal Reserve Bank of St. Louis
(Fifteen members of the Conference stood up.)
Governor Crissinger.
A p p a r e n t l y t h e ninety days
it b y eo big majority.
Mr, Mitchell.
o I
D
understand t h a t G o v e r n m e n t b o n d s
only b e accepted f o r fifteen days?
Governor Crissinger,
F i f t e e n days, according t o
reporte
Mow Mitchell.
D o e s that mean that you are going
digcriminate against t h e very best collateral t h a t tnere
in t h e w o r l d ?
I
certainly
f so I
a m oppesed
think i t ought t o include Government bonds a s well a s eligible p a p o r e
would second that motion.
Mr. Austin. I
Mr. McClure.
T
e r e a s o n o u r Canaference d e c i d e d
azainst Government s e c rities w a s because there i s a certain class o f scientists w h o believe t h a t t h e issue o f
currency should b e stopped against Government securities,
and i n view o f that criticism w e thought i t best t o leave
it-as i t ice
Go veraor c r i g s i n g e r .
T h a t i s t h e best reason t h a t
has b e e n g i v e n yet.
Governor YoUnge I
voted f o r that recommendation, b u t
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Federal Reserve Bank of St. Louis
L6Y
5
I have m y o m v i e w s
i n regard t o Government bondse
W o u l d
it b e fair t o put before t h e C o n f e r e m e t h e question o f
whether t h e n i n e t y d a y L i m i t s h o u l d b e e x t e n d e d t o G o v e r n ment b o n d s a l s o ?
Governor Crissinger.
Govermor Young.
A g well a s eligible paper?
Yese
Governor Crissinger,
W o will p u t that before t h e
t o go
Conference, whother t h e Conference w o u l d b e willing
days
on record i n favor of gratiting the extention t o ninety
paper.
with reference t o Government bonds a s well a s eligible
Governor Stronge
I f that i s done, I
want t o s a y that
who
it will b e regarded b y the world o f onlightened people
understand central banking a s the worst blow t o the soundness o f t h e F e d e r a l R e s e r v e S y s t e m t h a t i t h a s y e t received.
Mr, Hoxton.
T f wnat i s done?
Govermor Strong.’
collateral
T o include Government bonds a s
t o b e p l a c e d b o n i n d t h e c u r r e n c y o f t h i s eouniry,
It igs unthinkable.
Governor Grissinger. I
will:ask a l l o f those i n favor
of that motion t o stand up.
Governor McDougal. I
Govermor Crissinger.
would like t o have i t restated.
T h e motion i s all o f those i n
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Federal Reserve Bank of St. Louis
favor o f using both eligible paper a n d Government bonds
as c o l l a t e r a l f o r n i n e t y d a y notes.
(Four members o f the Conference stood up.}
Governor Grissinger.
{fThereupon,
T h e motion is lost.
t n e Conference adjourned
a t 1.10 o'clock
until £630 o'clock o f the same day.}
Governor Orissinger.
A s I
understand i t Mr.Mitchell
is ready t o make t h e veport o f the committee appointed o n
the American Railway Association matter submitted b y
Anderson a n d Mr. C o n n e
Mr. Mitchell.
M r . Chairman a n d gentlemon, t h e r e ~
port o f the Gomaittee i s a s follows:
e Gommittee a p p o i n t e d
t o prepare a
resoluti
i
n
connection w i t h t h e r e q u e s t o f Hon. S i d n e y Anderson, P r e s i a dent o f t h e Millers N a t i o n a l F e d e r a t i o n a n d Mr. D o n a l d D .
Conn,
Manager
o f t h e American Railway ASsociation
Service Division, t h a t a
Gar
closer cooperation between t h e
Federal Reserve banks a n d member banks a n d t h e Regional
Advisory B o a r d s a c t i n g i n c o n n e c t i o n w i t n t h e A m e r i c a n
Railway A s s o c i a t i o n b e maintained;
y o u r committoe b e g s
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Federal Reserve Bank of St. Louis
to suggest the following resolution:
I t is the sense of the Con-
"RH I T RESOLVED THAT:
feronce t h a t i t w o u l d b o o f mutual b o n e f i t a n d d i s t i n c t l y
in t h e p u b l i c i n t e r e s t
i f the Federal reserve banks
c o
operate i n such manner a s m a y b e appropr.a t e i n the
efforts o f the Regioral Advisory Boards i n pringing together
the representatives o f shippers, t h e railroads a n d other
economic a n d industrial agencics w i t h a view o f creating
a closer relationship a n d cooperation, thereby penefitting
the transportation facilities o f the country a n d giving
having
acrioulture, industry a n d commorce t h e penofit o f
the q u i c k e s t p o s s i b l e s y s t e m o f d i s t r i b u t i o n
al products, manufactures, etc.,
o f agricultur-
\
t o t n o consumer.
(Sed) J. Re Mitchell, Chairman,
Plerre Jay;
Geo. J. Seays “
TImove t h e adoption o f the report.
Govornor Young.
(The m o t i o n h a v i n g b e e n d u l y s
Governor Crissinger. I
Ghief
econded,
w a s carried.)
have sent for Mr. Moran,
o f t h e U n i t e d S t a t e s Secrot. S e r v i c e b e c a u s e t ; tiink
we had better take u p the question o f protection a t this
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Federal Reserve Bank of St. Louis
momen te I
think e v e r y b o d y w i l l b e i n t e r e s t e d
i n it.
I t was p u t o n the program a t the
Governor Strong.
not
suggestion o f t h o Feceral Reserve Board, b u t w o were
whether
quito sure just what w a s indicated b y t h e suggestion,
thero w a s some Special thing i n the minds o f the Board.
Governor Orissinger.
M r . M o r a n i s here, a n d I take
pleasure i n introducing h i m t o you gontlomen.
Governor Stronge
W e nad a
discussion o f the general
tho
theory and practice i n each Federal Reserve Bank i n
matter
o f protection,
b u t all t h e reservc banks apparently
whatever i s
were v e r y alert d n d alive t o t h o need f o r doing
about
nocessary, a n d that quite largely t h e y were following
tho same plans i n their operations. I
think t h o genoral
a
w tnat t h e
conclusion t o b e drawn from t n e d i s c u s s i o n s
banks were pretty adoquately protected b y their protection
forcee
O f course w o recognizo that there are certain
disingido p r o t e c t i o n s r e q u i r e d b e s i d e s t h o s e w h i c h w e r e
cussed.
Governor OCrissinger. I
have asked Mr. M o r a n t o
talk a few moments awout t h e various possibilities o f the
question a n d Mr, Moran will state h i s proposition t o you.
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Federal Reserve Bank of St. Louis
6Ra
Mr, Moran.
anything I
Gentlemen, I
do not know that there i s
can s a y t o y o u that will contribute t o better
protection. C e r t a i n l y there isn't anything i n a general
way that I
needs.
could s a y t o y o u that would f i t your individual
E v e r y m a n h a s h i s o w n problem, b u t certainly there
ig great need f o r the exervise o f every precaution possible
today.
I n all m y experienco w i t h criminal activities I
nover k n o w n a
situation
t o o x i s t a s d o e s e x i s t today.
have
Y o u
have o n l y t o pick u p t h o papors e v e r y d a y practically t o
read o f some most daring noldup.
forecast s u c h a
thing a s h a p p e n e d
W h o , f o r instance, w o u l d
i n Buffalo t h e o t h e r d a y - -
an armored c a r attacked right o u t whore hundreds o f people
were, o r a caso last night about which I road, j u s t outside
of Pittsburgh.
is a n instances
O f course I blame the bank for that, but i t
H e r e w a s a man walking along wito a grip,
an automobile drives up, t w o m e n jump o u t and grab him,
knock h i m over t h e head a n d take t h e grip.
I t contained
.
in
,
$75,000 o r thereabouts o f the bank's money which h e was
taking t o Pittsburgh.
T h o s e a r e only a couple o f instances
of what i s occurring overy day.
I think those having charge o f institution housing
large amounts o f money, wwhere money i s being transferred
bt
from thoso institutions t o other places o r being brought
in
from other places t o them, cannot u s e t c o much care
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Federal Reserve Bank of St. Louis
surrounding that money W
p r o t e c t i v e measures.
W e can-
o f the
wot t o save o u r lives determine w h a t i s i n the mind
criminal, b u t here i s a suggestion:
Suppose y o u f o r the moment t c o k t h e place o f the
a n instiman w h o contemplates d o i n g o n e o f these acts i n
would
tution o r o n the outside; f i g u r e o u t jugt what y o u
do t o r o b t h a t p l a c e o r t o h o l d i t up;
u s e e v e r y argument,
go
every thought y o u c a n bring t o pear o n i t and then
about adopiing such measures a s will preve
your various departments d o t h e same thing;
to y o u and tell y o u h o w they could r o b their o m d epartmont
or bureau,
a n d t h e n adopt measures
that very thing.
t o prevent t
T h e r e igs always o n e element
my mind, enters more strongly a s a protective measure t h a n
anything else, and that i s the unknown t o the criminal.
That is, i f you have occasion
or gmall amounts,
t e a n s f e r moneys i n large
i t makes n o difference, t h e fewer people
who know that t h a t i s i n contomplation, a n d t h e f o w people
that k n o w w h e n i v i s g o i n g t n b e accomplished,
t h e b o ttor
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Federal Reserve Bank of St. Louis
ees
protoction y o u surround yourscol?’ with,
O f course y o u cannot
guard e n t i r e l y a g a i n s t i n s i d e i n f o r m a t i o a ,
the greatest care, I
Y o u exercise
a m sure, i n the selection o f the people
you trust t o d o certain things i n your institutions;
but
we all know that men g o wrong, a n d there are o r hare been a
number o f these holdups t h a t I
a m sure were t h e result o f
inside information, because t h e y could not guess a t just
what m o m e n t
y o u were
t o make a
c e r t a i n HMOVe.
T a k e the
am just a s well satis-
Denver Mint robbery, f o r instance, I
fied i n m y own mind that that was ingide information, through
the v e r y nature o f the holdup, w h i c h influenced those m e n
O f course hore
to come there, a s I can be o f anything.
you have institutions t o which are being brought valuable
securities e v e r y day. '
Is i t n o t possible
t o vary the time
and t h e method o f handling t h e m rather than t o have a
method o f handling, a
tecting yourself.
days o r a month,
stated time?
T h a t 1 8 one w a y o f pro-=
T h e s o people will t a k e a
i f necessary,
holdup.
week,
o r ten
t o advise themselves a s t o
what goes o n daily i n a n institution
+ransfer o f valuables,
routine
i
n regard t o t h e
i n order that they m a y stage a
I f they find that y o u regularly handle these
Securities t h e n t h e y know just what t o d o t o hold y o u up.
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Federal Reserve Bank of St. Louis
74:
If i t i s d o n e i r r o g u l a r l y t h a t n e c e s s i t a t e s a
man s t i c k i n g
around a n d t h o
the neighborhood are groater t
do n o t know
time that t h e transfer i s going t o b e made. I
just when i t was, b u t sometime a g o w e made a
datferent F e d e r a l
Reserve Banks
survey o f the
a n d different institutions
i n order t o sugsest
fase(6.
for the housing o f government funds,
These
protective measures a n d make a roport o n tne matter.
reports w e r e m a d s a n d t h e r e w e r e a
submitted b y the agonts. I
numbor o f r e c o m m e n d a t i o n s
know that some o f those recondo not know whether a l l
meniations h a v e been adopted, b u t I
of thom have. I
those r e p o r t s
us d o i t ,
think i t might b e well t o
t o e a c h o f you,
ger
o r i f you would care t o have
w e can make another survey
a t this time.
O u r
agents are available a t all times for you gentlomon for advice, seggestion o r assistance; I
shall b e very glad t o
direct a n y o n e o f t h e m t o g o t o y o u r b a n k a n d m a k e a
of i t a n d s u g g e s t
survey
t o y o u what might occur t o h i m a s better
p rotection f o r y o u r p r o p e r t y a n d y o u r pérsonnel. I
do not
moment t h a t y o u g h o u l d o v e r l o o k t h e f a c t
there i g d a n g e r a t a l l t i m e s o f s o m e t h i n g b e i n g a t t e m p t e d
in these times.
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Federal Reserve Bank of St. Louis
eo
Governor Crissingor.
I f there a r e a n y questions t h a t
you would like t o ask Mr. M o r a n h e would b e glad t o answer
any o f them.
I f n o t w e a r e v e r y m u c h o b l i g e d t o you, M r .
Moran
(Mr. M o r a n t h e r e u p o n r e t i r e d f r o m t h e C o n f e r e n c e
hairman. ‘The agents' program suggosts a discussion o f t h e r e p o r t o f t h e C o m m i t t e e
not know whether y o u want t o take t h a t u p o r not.
talked about reserves a
good deal.
L e d o
o n reserves.
W e have
I s there anything further
to b e said about it?
Mr. Mitchell. 1
would like t o ask i f we have finish-
ed the subject t h a t w e wore discussing before lunch?
Governor Crissinger.
Mr. Mitchell. I
Yes, I
think w e have.
thought there w a s a motion t h a t
was n o t acted on?
Governor Orissingoers.
Mr. Mitchell.
T h a t motion w a s carried.
T a t motion w a s carried extending
the time t o 9 0 days?
Governor Orissingers.
Y e s , gecured b y oligible
paper b u t l e a v i n g i t a s i t i s ,
1 5 d a y s o n notes s e c u r e d
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Federal Reserve Bank of St. Louis
by government securities.
The next subject i s t h e report o f the C o m m i t t e e o n
T h a t w a s suggested
Public Relations.
ference.
f o r t h e Joint Con-
W h a t h a v e y o u o n that?
Mr, Perrine
M r . J a y will maze the report o f that
Somnmittes e
Mr, Jaye
\
M r . Chairman a n d gentlemen, I
have t h e
port o f that Committee, w h i c h t h e Agents sugse sted suggested
ghould b e p r e s e n t e d b e f o r e t h e J o i n t G o n f e r o n c e r a t h
before o u r Coforence o n l y becatse i t was thought t h a t t h e
Governors w e r e a s m u c h interested, p o s s i b l y ,
a s w e were,
in the subject, a n d also because, w i t h respect t o the hand-
ling o f baak relation work i n four o r five o f the banks i t
ig under t h e Governors a n d n n t under t h e Agents. I
what I
have
have to. s a y a S C h a i r m a n o f t h i s C o m m i t t e e
rathor than making a presentation orally, because t h e report
good many tables a n d figures. I
yontains a
ask i f c o p i o s
each M e m b e r
would like t o
o f these reports m a y n o t b e distributed
o f t h e Conference
to
s o that each one m a y follow
along and look a t these tables when I refer t o them, because
otherwise
tained
i t i s almost impossible
i n t h e tables.
t o grasp t h e
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Federal Reserve Bank of St. Louis
uae
In the next place I
woula like t o oxplain that tnis
report c o v e r s t w o t o p i c s which, w h i l e t h e y a r e allied, a r o ,
however, quite separate.
O n e i s "rclations with banks"
and t h e othor i s "relations w i t h t h e public".
The <irst part o f the report h a s t o d o with relations
with banks e n d bankers v i s i t i n g reserve banks.
The particular development o f 1925 i n bank relations
work h a s been growth i n the tondency o f reserve panks.
The Boston b a n k has just heid i t s third stockholders’ mect-=
ing, attended b y about 202 out o f its 419 member banks.
Last spring t h o Richmond bank inaugurated t h e same plan, a n d
A
had p r e s e n t 1 6 0 m o m b e r s o u t o f a total o f 606.
t tne
opening o f the St. Louis Bank o n June 1 7 the St. Louis
Bankers C l u b invited t h e officers o f all t h e district
member banks t o come t o St. Louis a n d visit t h e Reserve
About 4 0 0 attended t h e reception.
winter a n d spring o f 1925 t h e N e w k
groups
o f officers
bank f o r lunch,
zf
x
D u r i n g the
invited small
o f member a n d non-member banks
o r i n s p e c t i o nh o f t eh e b u i nl d i n g
)
t o the
and fora
discussion o f Foderal Reserve operations a n d problems o f
mutual i n t e r e s t ;
9 7 3 officers
banks attonded these moetings.
o f member a n d non-member
T h e total number o f
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Federal Reserve Bank of St. Louis
L78
mombors i n the district i o
F o l l o w i n g t h e meetings
an individual invitation t o visit t h e reserve bank w h o n i n
New York was sent t o each director o f the banks which were
represented a t these meetings, together with a small
pamphlot about t h e systeme
I t i s reported t h a t relatively
few directors h a v e visited t h e bank thus far, b u t t h a t
generally speaking
t h e directors h a v e greatly appreciated
the i n v i t a t i o n .
ar
The Committee understands t h a t those banks which
have thus entertained their members feel that seeing t h e
bank i n oporation i s a most valuablo contribution towards
a botter understanding o f its functioning a n d services.
Visiting banks through bank relations men. S i n c e
January, 1922, t h e resorve banks have reported e a c h month
tn the Gleveland Bank t h e number o f visits made, a n d these
reports have been compiled a n d sent t o the Board a n d t o each
Federal Reserve Agent.
T h e total visits mace have been;
In 1922@,
in 1923,
In 1924
In 1926,
1 3 0 0 4 (threes months estimated)
In most districts t h e traveling m e n call o n non-member banks
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Federal Reserve Bank of St. Louis
L79
where there
in vpl a c e s
i s a
B u t
membor.
visits t o non-members a r e n o t made. c
i n other districts
following table
shows t h e estimated visits made i n 1925 b y traveling m e n
and b r a n c h m a n a g e r s a n d t h e r o l a t i o n w h i c h s u c h v i s i t s b e a r
to t h e t o t a l n u m b e r o f banks
i n t h e district.
ZSTIMATZD N U M B D R O F VISITS
MEN I N 1 9
B Y B A N RaLATIONS
Be ston
New Y o r k
Sleveland
Philadelpnia
Chicago
St. Louis
Dallas
San F r a n c i s c o
Richmond
Kansag C i t y
Atlanta
Minneapolis.
0
The above table gives t h e number o f visits
quite apparent f r o m the percentage column t h a t i n
of tho Boston Bank t h e y visited every bank i n the district
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Federal Reserve Bank of St. Louis
one a n d o n e - t h i r d times.
I
n N e w York, m o m p e r a n d n o n - m e m b e r
b a n k once, a n d s o o n down
once, e n d Cleveland visi e v e r y
aovernor N o r r i s e
number
T h a t means v i s i t e d t h e total
a n d non-member?
qf banks i n the district, member
Mr. J a y e
T h o t o t a l n u m b o r o f banks
i n t h o district.
figuress
Two things a r e obvious f r o m t h e
w o r k o f bank relations
Li T h a t i n r e c e n t y e a b s t h e
«
departments h a s been expending
carricd o n i n the
2. T h a t i t i s very unequally
different digtricts.
t h e value o f the work
Your C o m m i t t e e b e l i e v e s t h a t
i t s feeling that i t should
is sufficiently proved t o justify
now b e u n d e r t a k e n
uniform basis.
and on a
i n a l l o f t h e districts
more
on
T w o o f the res3rcve banks represented
i n rank relations
your Jommittee h a v e n a d long experience
greatest importance i n
work a n d beliove i t t o b e o f the
relations w i t h t h e banks i n
maintaining human a n d friendly
the district.
t h e system i s that
Tie feoling o f many banks toward
a n d lacking i n human
it i s bureaucratic, f u l l o f red tape,
relations.
will d e n y that
W o candid reserve bank officer
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Federal Reserve Bank of St. Louis
LB.
these tondencios against whichhis organization constantly has t o struggle.
B u t , provided t h e reserve bank,
itself, i s carnestly endeavoring t o oliminate Lheso shortcomings,
n o agency h a s proved s o effective i n eliminating
hom from t h o minds o f its membors a s t h e visits o f the
hank r e l a t i o n s mon.
N o t o n l y a r e h u m a n c o n t a c t s main-=
tained through these visits
t h e y bring about a n under-
standing o f our services and how t o use them, they discover a n d straighten o u t ali kinds o f misunderstandings
that arise through o u r daily transactions w i t h member
banks, a n d they bring t o our crecit filesa K i n G
mation r e g <a r di i ne g , m e m b e r b a n k sersonrel,
O r e
l o c a l conditions
3
P
and when desired, local eredits, w h i c a w e c a n obtain i n n o
Kistrict differences.
A s t h e Committec h a s indicated
the organization o f bank relations w o r k varies greatly i n
he different districts.
I n some, i t i s directed b y the
Ghairman, i n others = ~ at least four = ~ i t is directed b y
loss
the Governor.
I n some i t i s the primary work o f t h e junior
officer supervising it, i n others i t i s merely a socondary
consideration.
I
n some, non~member banks a r e visited,
othorgs non-member banks a r e not visited.
in
I n some, t h e visits
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Federal Reserve Bank of St. Louis
EeBier
aro o f a p u r e l y f r i e n d l y a n d c o n s t r u c t i v e n a t u r e ,
hey a r e s o m e t i m e s
of a
d i s c i p l i n a r y nature.
i n others
T h e Committee
to
will c o m m e n t b r i e f l y a n d e x p r e s s i t s v i e w s witan r e g a r d
coach o f these variations.
If the work i s well done, i t does n o t make mucn
enco w h e t h e r i t i s u n d e r t h e C h a i r m a n
Guecutive Committees’
Congerences
o r t h e Governors.
o f t h e Governors!
a n d t h e Chairmen's
i n 1915 however, definitely allocatsd t h e topic
to
MRelationg w i t h Banks” a n d I R e l a t i o n s w i t h t h e Public"
the G h a i r m a n .
T h e r e a r e also t w o reasons
w h y bank relae
Vv
tions work might well b e undertaken b y t h e Chairman;
Ll.
w e igs n o t s o b u s y w i t h b a n k o p e r a t i o n s
a s the
Governor;
One o f t h e p r i m a r y p u r p o s e s
ascertain
i f all i s going well between
o f t h e visits
is to
t h e member banks
and
the r e s e r v e b a n k .
Tie m i s u n d e r s t a n d i n g s
which arise often come from
difficulties w i t h t h e operating staff o f the bank.
organization matter, therefore, i
A S an
s e m g a s thousht t h e
at b e Likened t o a periodical audit o f t h e relations oxisting between t h e Reserve Bank a n d i t s momber banks.
he Committee believes i t igs most important that the
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Federal Reserve Bank of St. Louis
185
pank rolations w o r k should b e under t h e supervision o f a n
officer, preferably o n e n o t engaged i n bank oporations, w h o
T h e work o f the
can givo t h e work his primary attention.
traveling men,
i s arduous,
i f conscientiously dono,
tain thoir spirit a n d enthusiasm requires intelligent supe
T h i s cannot b e given b y
vision a n d constent attention.
an officer engrossed i n operating details w h o regards bank
relations w o r k a s h i s s e c o n d a r y interest.
The Committee believes i t vory important t o visit
non-member banks whemevsr practicable.
relations w i t h m o s t &
gend u s d r a f t s
them.
o r curroncy
many o f them d o not relish.
W e h a v e daily
W e send t h e m checks a n d they
i n paymont.
T h i s rolationship
T h e y have opinions about t h e
Reserve S y s t e m w n i c h t h o y expreys f
considerably moro ignorant about i t than t h o nembers.
W e
should visit t h e m a s a n oxpression o f our appreciation o f
their cooperation i n collection matters,
a s a n evidence o f
our desire t o maintain friondly relations w i t h them, a n d a s
an o p p o r t u n i t y
t o i n f o r m t h e m a b o u t t h e System.
T h e Com-
mittee suggests t h a t these visits should n o t b e t e urgo
,
mombership
o r e v e n t o discuss i t . N e v e r t n e l o s s ,
nation t o w a r d s m e m b e r s h i p m a y o f t e n b e d i s c o v e r e d
¢
a n inclii n vigit-
ing non-member banks, j u s t a s inclination t o withdraw
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Federal Reserve Bank of St. Louis
may often b e discovered i n visiting member banks.
of t h e d i s t r i c t s t h e p r a c t i c e
I n most
i s for t n e traveling m a n t o
call o n non-member banks a t least i n places w h e r e there
are member banks.
The Gommittee feels t h a t sank relations m e n should
not b e u s e d t o c o n v e y d i s c i p l i n a r y m e S s a g e s
t o m e m b e r banks.
If a bank officer i s not sure, w h e n t h o traveling m a n enters.
his bank, w h e t h o r h e i s thore f o r f r i e n d l y o r f o r d i s c i -
plinary purposes, t n e Committee believes h i s usefulness
is greatly diminished.
T h e r e ghould b e n o doubt as t o
the welcome o f the travelingman whenevor h e calls.
Sommittee bpolieves d i s c i p l i n a r y a d m o n i t i o n
The
o r action s h o u l d
bo takon through some other medium.
The Committee a l s o desires t o speak o f two other
aspects
o f t h i s work:
Vigiting b y officors. 4
s
o
m
e districts a n
operating officer occasionally travels f o r a few days o r
a week with o n e o f the bank relations men, visiting member
and non-membor banks.
T h e Committes believes t h a t i f
every oporating officer o f a Reservo Bank, a s well a s sono
of the heads o f departments dealing directly with member
Le)
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Federal Reserve Bank of St. Louis
banks, c o u l d t h u s s p e n d a
fow days overy yoar o r two
vigiting out of town banks, great advantages would accruo.
Many r e s e r v e b a n k o f f i c e r s h a v e n o t h a d p r e v i o u s b a n k e x -
perience, a n d d o not understand country bank conditions
and psychology.
I f they could thus obtain first hand in-
formation a n d appreciation o f t h e point o f view a n d t h e
operating conditions o f member banks, t n e Committee feels
sure a more sympathetic relationship and understanding
would result. I n c i d e n t a l l y , m e m b e r banks greatly appreciate receiving s u c h visits.
Frequoney a n d costs.
T h e second point which t h e
Gommitteo wishes t o discuss i s the frequoncy o f visits.
Tt igs dDbvious from the foregoing figures t h a t t h e frequency
of visits varics greatly.
Least o n e v i s i t a
T h e Committeo feels t h a t a t
year should b e made t o every member b a n k
and t o a S many non-member banks a s practicable.
I t regards
one visit a s t h e minimum a n d t w o visits a s t h e goal t o b e
aimed a t i n o r d e r t o k e e p s a t i s f a c t o r y c o n t i n u i t y o f contact.
It a sgumes t h a t some discretion will b e used a s t o theso
banks which should b o visited more often than others.
viously, S u c h a program involves increased eosts.
Ob-
T h e Gom-~
mittoe, accordingly, presonts a s a starting point a condensed
analysis
o f t h e present s t a f f a n d expense o f bank relations
work taken from the Board's reports.
T h e figures for the first half
of 1925 have been multiplied b y two a s a n estimate for the current year:
eh
COST OF BANK RELATION DEPARTMENTS FOR 1925
(last 6 months estimated)
No.of N u m b e r o f
v
i
s
ite
&
Men
R
o
a
d
Total A d m i n i s t r a t i o n
N
o
n
m
a
de
Ex-ense
T
r
a
v
e
l
Office Expense
Expense &
-
of B x - Offi- Employ~ E x - FEmrloy- (Esti- M e m b e r M e m b e r
p e n s e e893 mated)
a e s
Function pense cers
oe9
9
Boston 7 , 1 8 8 1 6 8 % - ~
New York 4 0 , 1 0 4 14852e** .90
2 5 , 2 5 2
Philadelphia 13,680 4344 8
9 , 3 3 6
-
Cleveland 3 2 , 4 8 2 8124
2
Richmond 28,926 13962
1 4 , 9 6 4
Atlanta 8 , 2 5 4 3090
St. Louis 5 1 , 5 0 6
5
,
,
3
7
2
5
6
4
,
4
9
B a n k s
5
1 , 4 5 0
8
5
2
8
4
G Cart
1
é
7 0 6 5 S 1GE 3
Caisuge
4
8
b a n k s
2
0
6,4<+
Ninneapclis
Kansas City 7 , 1 5 ¢
Daliss
San Francisco
ee
e e
e
e
TOTAL 248,576 7556 7-35 9-80 172,990 31.94 13,804
quarter only.
* First
of bank conferences.
** New York also expended $12,429.19 for the special series
heretofore referred to.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Tong a b o v e t a b l o s h o w s t h e t o t a l o x p e n s e o f t h e F e d e r a l
Reserve Banks a t the present t i m e a n d i t s distribution among
different banks a n d also t h e number o f visits e s t i m t e d f o r
the y e a r a n d t h e t o t a l n u m b e r o f member a n d n o n ~ m e m b e r
banks
i n o a c h district.
These f i g u r e s s h o w h o w u n e v e n l y t h e c o s t i s n o w
distrbbuted among t h e banks.
T h e minimum costs n o w a r e
in the four districts o f Atlanta, Minneapolis, Kansas
Gity a n d S a n Francisco - - districts o f immense area.
Committee
i s n o t prepared
The
t o submit a n y accurate e s t i m t e
of the additional costs o f making o n e visit a year t o every
member b a n k a n d a
practicable,
visit
t o eas m a n y n o n - m e m b o r s
a s may be
b u t i t belicves t h i s w o u l d c e r t a i n l y i n v o l v e
an increase o f from $100,000 t o $150,000 per annum. ‘The
added c o s t d o e s n o t i n a n y w a y m a k e t h e Gommittes h e s i t a t e
in its recommenaation,
a s i t believes t h a t t h e System i s
missing a valuable element i n those districts where t h e
work i s not fully organized a t present.
T h o Committee
feels t h a t i n districts which a r e n o w fully organized
study m a y w e l l b e g i v e n t o methods
o f reducing traveling
and other expenses, b u t that n o attempt should b e made
to lower t h e grade o f men doing either t h e supervising
18%
he traveling.
T h e s e m e n represent t h e bank i n a n important
capacity a n d should b e men o f experience, character a n d
personality.
Membership cenanges.
T n e Committee feels that a t
this point i t may b e interesting t o present t h e following
analysis o f year t o year changes i n our membership, t a k e n
from t h e B o a r d ' s f i g u r e s .
T h e purpose
o f this analysis
is t o ghow:
le A c t i v e increases i n membership due t o organization o f new national banks, conversion o f non-member banks t o
national banks a n d admission o f state banks.
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Federal Reserve Bank of St. Louis
Be A c t i v e decreases i n memborship, d u e t o withdrawal
o f state banks a n d absorption
o f members
b y non-
members.
Se W o a t might b e termed passive decreases i n
membership, d u e t o susponsion o r liquidation o f membor
banks
o r the combination
o f one member
b a n k w i t h another.
ce
CHANGES IN FEDERAL RESERVE MEMBERSHIP
(January 1, 1919. to Juns 30, 1925)
1919 3 o g 0 . - 1 6 e t A g e r . £ 9 8 )
Total membership beginning
8,692 9 , 0 6 6
of y e a r .
ACTIVE
Increases
National Banks Organized
L
t
Conversion of nonmember banks 6 2
Admission of state banks
2 3 0
20
2
1
3
6
3
0
3
7
6
3
4
3
2
y
1
o
2
%
B u
Becreases
Absorption o f member banks
6
by nommember institutions
Withdrawal o f state banks 9
Total decreases
Total active increases
PASSIVE
Mecreases
Member banks suspended,
liquidated o r combined
with other members
Net final increase
or decrease
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Federal Reserve Bank of St. Louis
f
g
U
e
6 1 9
9,606
9
,
3
5
9
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Federal Reserve Bank of St. Louis
189
You will notico t h e above table covers s i x years.
ne figures f o r 1925 are n o t estimated f o r the year, b u t
present only the first s i x months.
It i s guggestod b y the Committee t h a t i t would b e
woll i f some such distinction a s this could b e made i n
giving figures t u the public, because a t present i t i s
1, after t h e figures have been issued, f o r news~
papers t o commont o n the shrinkage occurring i n the
Whereas it
hrough t h e withdrawal o f state institutions.
is quite evident that i f i t were not for the passive deoroase w e should show a steady growth i n membership, o v e n
though at a decreasing rate.
Attitude
o f banks t o w a r d s t h e System.
Over a
pericd
of years there e a n b e n o doubt that t h e attitude o f banks
has grown more understanding a n d friendly.
S t i »
L h
must be said that there i s considerable variation, both
gectionally a n d individually.
T h e Committes a
ked e a c h
Chairman l a s t spring t o summarize t h e attitude o f bankers
tn R i s
d ii
favorable.
G e n e r a l l y speaking,
t h e reports w e r e
T h e earlier criticisms growing o u t o f par col-
Lectiong a n d t h e 1920 price decline have become l e s s active.
The e a s t h a s r e c e n t l y b e e n t h e c e n t e r o f c r i t i c i s m r a t h o r
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Federal Reserve Bank of St. Louis
190
than t h e West a n d South, t h e complaint being with t h e l o w
interest rates o f the last half o f 19c4. Q u e s t i o n a i r e s
sent o u t b y t h e A.B.A.
t o State banks
i n 1924 a n d t o trust
companies i n 1925 indicate i n general a recogpnitionof t h e
necessity o f t h e S y s t e m a n d a
friendly attitude towards it.
Yet a substantial number o f replies s a y that country banks
there
do n o t g e t t h e same advantages a s c i t y banks, t h a t
is too much red tape i n doing business with the Reserve
Ranke
T h e y c o m p l a i n o f a r b i t r a r y methods,
attitude;
a n autocratic
oporating
o f l a c k o f personal s e r v i c e d u e t o
undor uniform rules instead o f making requiroments
fit individual cases.
to
“ W h e n w e write the Federal Reserve
we get a lotter back filled i n by some clerk o r automaton"
gays o n e banker.
One f r e q u e n t l y h e a r s t h e r e m a r k " T h e m e m b o r b a n k s
are still far from sold on the Ststem."
M r . Merghon,
Aes
Secretary o f the Trust Jompany Section o f t h e A. B e
who h a s t r a v e l e d e x t e n s i v e l y
i r 1926:.covering e v e r y d i s -
trust
triet b u t Atlanta a n d Dallas, f i n d s t h e attitude o f
companies n o t a
v e r y h a p p y o n e individually, h o w e v e r c o -
operative t h e i r c o l l e c t i v e a t t i t u d e m a y be.
Gregory, a
M r . i. T.
British economist, w h o spent several months
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Federal Reserve Bank of St. Louis
GL
~
this year visiting banks i n tas United States, writes,
"put t h e predominant impressions with which t h e
t h e U. S e A e
student o f banking returns f r o m a visit t o
are tyvo i n number.
T h e first i s a feeling o f profoundy
extended t o
gratitude f u r the help a n d assistance which a r e
him b y bankers i n every part o f that vast country;
the
System
second i s the feeling that t h e prestige o f tis Reserve
ig much greater abroad t h a n i t i s a t home.
T h e present
many
writer h a s heard t h e Federa: Reserve System discussed
times; r a r o l y ,
exzi f ever, w i t h approbation, o f t e n with
treme bitterness.
T h a t does n o t prove anything beyond
appreciate
the fact that t h e task o f educating America t o
commenced.
the benefits o f a Central Banking System h a s hardly
How c a n this attitude b e improved?
interest o n deposits,
W e cannot p a y
w e should continue p a r collections,
and c a r d i v i d e n d s a r e n o t l i k e y
t o g o above 6
per c o n t e
b e done
The Committee, however, believes t h a t something c a n
in improving our. attitude, o u r rules a n d o u r methods.
I t is
which
the small things Like these, r a t h e r than t h e large,
often c r e a t e h u m a n relations.
T h e Committee a l s o believes
t h e y are n o w
hat w h e n t h e s e h a v e b e e n improved, w h e r e v e r
found t o b e unsatisfactory,
t h e moremembers u s e t h e System
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Federal Reserve Bank of St. Louis
192
in t h e i r d a i l y transactions, t h e y m o r e s a t i s f i e d t h e y a r e a p t
to b e with their membership.
The Committee, h a v i n g learned f r o m informal discusb y member banks varies
giong t h a t t h e u s e o r o u r s o r v i c e
considerably i n the different districts, h a s recently
asked oach Chairman t o furnish figures showing tho number o f
banks
a
i n his district w h i c h t h e various services w i t h
reasonable degree o f regularity.
T h e s e figures have been
tabulated s e p a r a t e l y f o r e a c h service,
a n d i n presenting
them t h e Committee wishes t o cali attention t o the possi-
bility o f likelihood o f some divergencies between the districts d u e t c varying interpretations o f the expression
"reasonable degree o f regularity".
T h e figures, there-
fore, cannot b e exact, h u t ere bolieved t o b e fair
approximations.
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Federal Reserve Bank of St. Louis
GOIN A N D G U R R E N
Per cent o f
Member Banks u s i n g service.
Members
i n F. R . C i t y
M e m b e r s Elsewhere
$8
Boston
New Y o r k
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louls
Minneapolis
Kansas C i t y
Dallas
San Francisco
All d i s t r i c t s
om
T r
P e
m H poe h e h e ,
It i s obvious f r o m these figures t h a t
M e m b e r
Banks, b o t h c i t y and country, a r e fully availing thomgelves
o f o u r c o i n a n d c u r r e n c y facilities.
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Federal Reserve Bank of St. Louis
SAFPEKERPING O F SECURITIES
Per cent o f
Member Banks using service.
$e.
s
r
e
b
m
e
R e Coy
M e m b e r s elsewhere
M
AB
Boston
0
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chica g
o
St. Louis
Minneapolis
Kansas C i t y
Dallas
San Francisco
ALL D i s t r i c t s
between
The foregoing figures d o not discriminate
a n d Government
securities h e l d regularly f o r gafeltteeping
h e l d i n safekeeping
gecurities p l e d g e d a s c o l l a t e r a l b u t
m a y not n o w
temporarily, because t h e banks owning t h e m
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Federal Reserve Bank of St. Louis
bo borrowings
T h e Committeo igs inclined t o think tnat
this i s particularly t h e case w i t h banks i n the Federal
their
Reserve C i t y , f o r r e s e r v e b a n k s u s u a l l y d o n o t o f f e r
safekeeping facilities t o the large c i t y banks.
I
n New
York, Governmont securities h e l d under conditions referred
to a b o v e h a v e n o t b e a n r e p o r t e d a s i n safokeeping.
h
e
country banks s e e m generally t o understand a n d avail o f
this service.
WIRMK TRANSFERS
Per cent o f Member banks u s i n g service
Members
New Y o r k
Cleveland
Richmond
Atlanta
Chicago
St. L o u i s
Minneapolis
Kansas C i t y
Dallas
San F r a n c i s c o
D i s
M i e m b e r s Elsewh
41
Boston 9
dope
I N F. R . C i t y
Ga,
cts
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Federal Reserve Bank of St. Louis
the Federal Roserve
As might b e oxpected, t h e banks i n
transferring for themGity use this sorvico very freely i n
B a n k s i n the country
selves a n d their correspondents e
although i n some o f the
districts h a v e less u s e f o r it,
a considerable
agricultural districts there i s obviously
demand f o r it.
COLLECTION O F NON CASH ITEMS
—=
per cent of Hamber banks using the service
Membors i n F. R . C i t y
Boston
New Y o r k
philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas C i t y
Dallas
San Francisco
All D i s t r i c t s
LOO
M e m b e r s Elsewhere
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Federal Reserve Bank of St. Louis
LOT
Here again t h e c i t y banks, s o m e o f whom are protest~
ing against t h e service, a r e uging i t quite generally}
depends
the c o u n t r y b a n k i t m a y b e t h a t t h e u s e o f t h e s e r v i c e
wrether
uvon
p
i t has been called
t o their attention.
T h e Com-
feeis t h a t varying interpretations o f the Gxpression
Mpeagonable degree o f regularity” m a y have particularly
affected the figures reported under this service.
‘EK COLLECTIONS
Porcent o f Member banks using sorvice
but excluding ‘hose w h o only send t o
Federal Reserve B a n k checks o n banks
in Federal R e s e r v e B a n k City.
Members
i n Fe Re C i t y M e m b e r s Elsewhere
Boston
New York
Philadelphia
Cleveland
Richmond
Minneapolis
Kansas vilty
Tallas
San F r a n c i s c o
Atl D i g t r i c t s
‘
B
9
M
e
yap n e
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Federal Reserve Bank of St. Louis
198
As i n m o s t o f t h e o t h e r s e r v i c e s t h e c i t y b a n k s a r e
W i t h respect
using o u r c h e c k c o l l e c t i o n s y s t e m freely.
to
the country banks, t h e difforent districts vary greatly. T h e
fommittee h a g excluded f r o m these figures t h e number o f banks
which o n l y s e n d t o t h e R e s e r v e B a n k c h e c k s
o n the city i n
which t h e Reserve B a n k i s Located, bocause s u c h checks, p r e sented through t h e cloaring house, m a y hardly b e said t o pass
through our collection systom.
Rocommendation.
™
o Committeo, t h r o u g h i t s consider-
ation o f the subject o f rolations w i t h member a n d other banks,
covering a period o f severel years, h a s reachel certain v e r y
definite c o n c l u s i o n s w h i c h i t n o w w i s h o s
Gonference
t o present
t o the
f o r i t s consideration.
lee T h a t e v e r y rosgerve b a n k s h o u l d h a v e a
proporly
of
organized b a n k r e l a t i o n s d e p a r t m e n t ,
u n d e r supervision
an officor, a s d h i s p r i m a r y interest,
a n d with onough travel=
ing men t o visit every memoor pank a n d a large proportion o f
the non-member panks a t least once i n every year;
mittee's preferense,
t h e Com-
a t least f o r the present, b e i n g
approximately t w o v i s i t s coach year.
That e v e r y r e s e r v e b a n k s h o u l d p r o m p t l y u n d e r t a k e
a gurvey o f the policies, r u l e s a n d regulations under which
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Federal Reserve Bank of St. Louis
LOG
it d o e s b u s i n e s s w i t h i t s m e m b e r banks,
the o f f i c o r s a n d e m p l o y e e s
o f the attitude
of
a t i t s h e a d office a n d branches
towards member banks,
o f its correspondence
and o f t h e c o m p l a i n t s
i t h a s r e c e i v e d f r o m mombe
a view t o making i t s relavions a n c correspondonce with’ member
banks neither bureaucratic n o r impersonal,
t o elim-nate a s
much r i g i d i t y a n d r e d t a p e a s t h e c i r c u m s t a n c e s w i i l permit,
and t o make t h e relationship a s nearly a s practicable t h a t
of a
city bank towards i t s sut-of-towm correspondente
Se T h a t t h e m o r o
the f a c i l i t i e s
t h e country banks learn
t o use
t h e better i s t h e i r under-
o f t h e System,
standing o f the system a n d t h e fewor t h e i r complaints o v e r
membership,
a n d that, t h e r e f o r e ,
t n e Gonference s h o u l d dis-
cuss w a y s a n d m e a n s o f i n c r e a s i n g t h e u s e o f t h e S y s t e m ' s faci:
ities b y c o u n t r y m e m b e r buaks,
b u t o n l y With careful c o n -
sideration o f and d u e regard f o r the c i t y banks u n d their
complaints
o f F e d e r a l R e s e r v e B a n k competition.
Governor Norris. I
think t h i s i s o n e o f t h e m o s t
importent subjects before t n i s Conferences
have o n l y j u s t s c o n t h i s report,
valuable o n e ,
Ouse iat I
and I
and I
Lope t h o r e w i l l
thik
O f course 1
t e s - a very
b e very full discussion
want t o a s k w h e t h e r d i s c u s s i o n w o u l d b e p r o p e r a t
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Federal Reserve Bank of St. Louis
this p o i r t w h e r e M r . J a y h a s g i v e n a
recommendation,
o r
whether i t had better b e postponed until the entire report
has d e e n c o m p l e t e d ?
Governor Crissinger. I
think w e had better complete
the report a n d then take the matters U p e
Mre Jaye
W e then eome t o t h e second provision o f
the report, Public relations work,
A t the last Conference t h e Committee
Work f o r 1925.
w o u l d b e favorexpressed t h e view that during 1925 conditions
t h e public
able f o r the extension o f the work o f informing
about t h e System, p a r t i c u l a r l y t h e businessmen;
a n d stated
Committee w o u l d
that i f the Board agreed with this view, t h e
like t o m a k e s o m e s u g g e s t i o n s f o r &
programe
T h e Board
replied that i t would b e glad t o receive o u r suggestions,
whereupon t h e Committee m e t twice,
and i n Washington April 26th.
proposed a
A t t h e latter meeting i t
number o f methods o f facilitating t h e dissemina-~
tion o f information,
jection.
i n New York, February 13,
t o which t h e Board interposed n o ob-
T o e minutes
o f this neeting W e r e s e n t t o every
Pederal Reserve Agente
The Committee subsequently held a meeting i n Chicage,
June 2 9 a n d 3 0 , a t w h i c h Mr. McClure,
o f Kansas C i t y , M r .
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Federal Reserve Bank of St. Louis
Stewart,
o f St» Louis, a n d various officers o f the
Bank were also present;
a n d a meeting a t Atlantic
September 2 9 and 50, attended b y several Chairmen,
tion t o Members o f the Committee.
i n addi-
A t these meetings the
Committee c r y s t a l l i z e d u p o n t h i s g e n e r a l principle,
boat the
most satisfactory medium f o r informing t h e American people
concerning t h e Reserve System i s not through officials o f
the System,
b u t through t h e users
o f t h e System,
that is
the Member banks.
Our m o s t o f f e c t i v e p u b l i c r e l a t i o n s w o r k i s i n f i r s t
informing t h e member banks a n d satisfying them with the systom and then making i t easy f o r them t o explain t h e system
to their customers a n d communities. I n c i d e n t a l l y , s u c h
activity o n the part o f member banks i s excellent adver-
tising for them.
Tho Committee believes t h a t i n all o f our contacts
with t h e momboer b a nks w e should d o well. t c bear i n mind
that t h e public attitude towards t h e Reserve System i n
each community lasvgely reflects t h e attitude o f the local
banks e
"f t h e b a n k e r s u n d e r s t a n d t h e f u n c t i o n s
System a n d g i v a i t t h e i r support,
t h e way t o a
o f the
better p u b l i c
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Federal Reserve Bank of St. Louis
facilitated.
understanding a n d s u p p o r t i s g r e a t l y
Gommitiee b e l i e v e s t h a t m o r e s t a t e m e n t s
b y member banks
b e helpful.
their attitude towards t h e System would
points o u t that w e have i n our Class B
of
I t also
Directors m e n o f wide
m a y perform valuable
influence i n business circles w o o
expressing their views
service f o r t h e S y s t e m b y p u b l i c l y
regarding it.
others, t h e
Largely a s a n aid * c member banks a n d
c o n s i d e r e d p r e p a r i n g vareSommittoe h a s d u r i n g t h e y a s t y e a r
t o the System which might
ious types o f material w i t h regard
thus be used.
proT h e follow!ng are the more important
t h u s f a r reached w i t h
jects c o n s i d e r e d w i t h t h e c o n c l u s i o n s
regard t o each:
b y persons
1. S o m e informative articles written
outside o f the System,
of
t o >e:. publishod i n magazines
‘national circulation.
s u c h cases,
Assistance h a s been given i n several
as
but the progress has no* been as satisfactory
the Committee hoped for.
the
5; B r i e f and timely informative articlos on
Systom f o r u s e i n o u r m o n t h l y reviews.
b y several
An article t a s prepared a n d used
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Federal Reserve Bank of St. Louis
203
monthly r e v i e w s
a t the time England returmed
to
second article w a s prepared
gold payments. A
but n o t u s e d .
Si A
manual for the use o f Speakers and writers
operations
explaining b r i e f i y t h e d i f f e r e n t f u n c t i o n s a n d
of t h e R e s e r v e System.
The Gommittee after a n earnest offort t o prepare
a manual believes t h e project impracticable a n d
5
that t h e p u r p o s e m a y b e s t b e s e r v e d b y g i v i n g t o
any s p e a k e r c o p i e s
o f speeches a l r e a d y m a d e b y
Board Members, Reserve B a n k officers,
of t h e System.
o r friends
T h e available s u p p l y o f
material o f this sort has been largely increased
during t h e year.
Short talks f o r radio usée
The Committee h a s collected a
number o f good
radio talks which have been given successfully i n
different districts.
I
t has also been i n touch
with a country-wide program f o r radio talks under
auspices o f the American Institute o f Banking,
which will ine2ude a t least o n e talk o n the Reserve System.
5. A d v e r t i s i n g copy, embodying t h e advantages o f
membership, w h i c h member banks might use.
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Federal Reserve Bank of St. Louis
204
The Committee h a s accumulated a
considerable
amount o f advertising copy, b u t i s not y e t preparod t o make recommendations
be A
n e w m o t i o n picture,
o n the subjacte
a s i t seemed possible f r o m
the u s e o f the present f i l m b y the Iowa State Agricultural
State Golloge that a good film would be widely used.
No progress h a s b e e n m a d e
of a new motion picture.
i n t h e p r e p a i a tion
T h e Reserve System i s
a very difficul’ subject for a motion picture.
7, A
traveling exhiLit of informative charts and
photographs which could b e loaned temporarily t o member banks
for use i n their lobbies.
The Committee has devoted some thought and exporimenta~
tion t o the development o f a mechanical d
the u s e o f such a n exhibit. A
evice t o facilitate
tentative exhibit h a s been
prepared a n d will b e show: t o the Conference i f desired.
The Committee also discussed a better a n d more regular c o n t a c t w i t h f i n a n c i a l r e p o r t e r s
cities;
i n Federal R e s e r v e
t h e desirability o f cooperating w i t h t h e public
relationg c o m m i t t e e s
w h i c h s t a t e bankers!
associations
the middle w e s t are showing a tendency t o establish;
i n
a n d
the superiority, f r o m t h e point o f view o f our contacts,
of
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Federal Reserve Bank of St. Louis
205
county bankers groups o v e r the larger groups prevailing
in most states»
Attitude o f the public:
T h e Committee believes t h a t
the atiitude o f the public towards t h e System a n d i t s opera-
tions has become distinctly more favorable.
where h e a v y d e c l i n e s
i n f a r m p r o d u c t s h a v e b r o u g ihn) tJ m a n y
individuel a n d banking disasters t h e 1925 prse i n prices
prought much relief, a n d the effect o f h i s was noticeable
in r e d u c e d c r i t i c i s m o f t h e s y s t e m a n d i n t h e L o c a l a t t i t u d e
towards it. A
+
good deal h a s been said a n d printed about
the Sygatem i n 1925, a n d with t h e exception o f certain pamph~
Lots published i n the Northwest u n d * h e oriticoLems o f -term
tain N e w York financial publications i t has been generally
friendly.
The C o m m i t t e e f e e l e i t m a y p r o p e r l y c o m m e n t u p o n
the f r e e d o m t h e S y s t e m h a s e n j o y e d t h u s f a r f r o m t h e
criticism o f the indiviaual conduct o f its personnel, whether Directors, officers o r clerks.
I n a n orgaaization
which has grown s o fast this freedom f r o m criticism indicates a
lively s e n s e o f t h e proprieties
o n the part o f our
pursonnel. Nevertheless, the Board has during the year
requested u s t o make a new survey t o gee i f any o f o u r
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Federal Reserve Bank of St. Louis
206
personnel w e r e engaged i n political activities j u s t a s last
asked u s t o inquiro i n t o o u r outside business actiThe Committee feels t h a t i n discussing this general question o f our relations w i t t h e public w e might well
ghether a n y other practices prevail among o u r
personnel which might subject a n individual reserve bank
or the System a s a wholo t o criticism o r attack.
Charter renewal.
h
e outstanding event o f the year
n our relations v i t h t h e prblic has been t h e raising o f
the re«charter questions
First, t h e directors o f the Chamber o f Commerce o f
the U. &
i n February authorizod a survey o f the Act a n d
of t h e S y s t e m ' s
y several committees
operationsb
appointed b y its Finance Section.
the G h a m b e r
i n a position
t o be
T h e purpose w a s t o put
t o express definite v i e w s about
the System n o t later than 1 9 2 7 when i t anticipated charter
discussion might begin.
Second, S e c r e t a r y M e l l o n w r o t e a n a r t i c l e f o r
h e
May number o f the Nation's Business w h i c h i s t h e organ o f
the Chamber o f Commerce c f the United States, discussing
re-charter, a n d Suggesting eexrly consideration.
Third, t h e National Association o f Credit m e n i n June
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Federal Reserve Bank of St. Louis
asked Congress t o re-charter t h e Systems
Fourth, the American Bankers! Association asked for
prompt settlement o f the re-charter question, f o r 99-year
or indeterminate charter a n d for consideration o f the charter
question entirely apart from amendments.
This successive raising o f the re-charter question b y
the S e c r e t a r y o f t h e Treasury,
a n d b y three important organ-
izationg during a period c f six o r seven months definitely
biings t h e s u b j e c t b e f o r e t h e p u b l i c w h e r e i t i s l i k e l y t o
remain u n t i l
i t i s d e f i n i t e l y a c t e d upon.
Y o u r Gommittee
feels t h a t i t s h o u l d proposes f o r d i s c u s s i o n
b y this Conference
(1) t h e relation o f the Ststem t o the re-charter question and
(2) t h e effect which t h e raising o f the question m a y have
upon o u r work o f trying t o cstablish among the banks a n d
the p u b l i c a
better u n d e r s t a n d i a g
o f t h e System.
W i t h re-
gard t o the first, t h e Board has already expressed the view
that t h e System should not b e active i n seeking charter
renewal.
The Committee believes t h a t a very potent element
in the abandonment o f the Second Bank o f the United States
wags t h e a n x i e t y o f i t s o f f i c i a l s
t o have i t rechartered a n d
the vigorous propaganda t h e y ongagecin through newspapers
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Federal Reserve Bank of St. Louis
20€
and o t h e r w i s o
t o secure a
rechantere
W
e are protected
in
t h e pitfalls w h i c h
our s t r u c t u r e a n d o p e r a t i o n s f r o m m a n y o f
we might
caused dissatisfaction with the Second Bank, y e t
w e were
easily c r e a t e a n a n t a g o n i s t i c p u b l i c o p i n i o n i f
actively
t o s e e k rechartere
The question o f recharter i s s o important that the
the
Committee f e e l s t h a t t h e C o n f e r e n c e s h o u l d d i s c u s s
agreematter i n all i t s aspects v i t h a view t o reaching a n
with rement a S t o what shall b e the position o f the System
Directors a n d
gard t o recharter, a n d particularly h o w the
with
officers o f the Reserve Banks should conduct themselves
regard t o ite
The g e c o n d p o i n t w h i c h t h e C o m m i t t e e
asks
t h e Confer-
o f the
ence t o discuss i s whether i n view o f the raising
the work
charter question w e shoulc continue o r should stop
a better
we are n o w engaged i n o f endeavoring t o obtain
o f the System
understanding o f the functions a n d operations
among banks and the public generally.
T h e Committee r e c o m
should g e e t o
mends that w e should continue t h e work, b u t
involvement
it i n oach district that i t i s free f r o m a n y
with t h e question o f charter removal.
In closing this report t h e Committee wishes t o
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Federal Reserve Bank of St. Louis
20¢
emphasize t h e Limitations under which t h e public relations
work o f t h e S y s t e m m u s t b e c a r r i e d o n e
T h e Committee h a s
staffs o f tho
no s t a f f o f i t s own, b u t m u s t r e l y u p o n t h e
and
yariouy reserve banks, T h e i r staffs, p o t h official
non-~official., a r e all busily working o n other duties.
o f any
Public r e l a t i o n s w o r k i s n o t t h e p r i m a r y i n t e r e s t
officer o r clerk i n the Federal Reservo System.
T h e Com-
b e othermittee i s not dispoged t o zecommendc that i t should
WLSC 6 t
i g oppesed t o t h e organization
department a n d g t a f f a n y w h e r e
o f a publicity
I
i n t h e System.
t belisves
such
hat oach part o f the System should continuo t o make
a n d abilities,
contributions a s fall within i t s opportunities
people cutanc that much o f o u r best work i s i n assisting
gide the System t o discuss i t intelligently.
T h e Committee
problem o n
does a s k f o r greater intersst i n solving this
o f each o f
the part o f the Board a n d t h e principal officers
the reserve bankse
T h e Gommittee,
i n addition t o under-
taking a s b o s t i t may, p r e p a r a vion o f material
o f the kind
already discussed, w i l l b e glac, i f requested,
t o meet, a s
th
it has already done, i n various districts a n d discuss
suyject w i t h t h e o f f i c e r s
o f t h e l o c a l r e s e r v o bank.
In the pest f e w months a
number o f reserve banks
O15
t h e Committee clippings
have been sending t o the Chairman o f
discussions o f the
and extracts f r o m newspaper a n d magacine
action o f t h o
System, ospecially those which follow t h e
American Bankers’ Aesociation Convention.
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Federal Reserve Bank of St. Louis
T h e s e have been
which are submitted w i t h
gathered together i n scrap books
o f t h o s e w o o m a y b e interestod.
this r e p o r t f o r t h e i n s p e c t i o n
Respectfully submitted,
John P e r r i n
Ww. A » H e a t h
Pierre J a y
Committee e
topics for discus
The Gommittee has suggested certain
sion, w h i c h are a s follows:
Bank R e l a t i o n s
Value o f bank relations departmontse
extension o f
Recommendation o f Committee regarding
work t o a l l r e s e r v e banks.
Cost o f bank relations worke
elimination
Recommendation o f Committee regarding
of f r i c t i o n w i t h m e m b e r banks.
Usc o f s e r v i c e s
b y m e m b o r banks e
b e extended?
Should t h e use o f services
Recommendations o f Committee.
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Federal Reserve Bank of St. Louis
PUBLIC RELATIONS
Attitude o f System towards question o f charter
renewal.
In view o f raising o f charter question should
public relations w o r k b e continued?
Govemor Crissinger.
pefore t h e C o n f e r e n c e s
has submitted a
A
T h e r e p o r t o f t h e Committee
is
s s t a t e d b y Mr. J a y t h e C o m m i t t e e
list o f topics f o r discussion.
one i s “Value o f bank relations departments".
T h e fi
I s there
anything o n that subject?
Governor Norris.
M r . Chairman,
i t appears that t w o
year
of the reservo banks made n o visits a t all during t h e
o f the
to m e m b e r b a n k s a n d o n e b a n k o n l y v i s i t e d o n e i n five
banks e I
presume t h a t those banks d o not regard this work
aS valuable,
but I
would b e v e r y m u c h i n t e r e s t e d
i n hearing
their point o f view.
Governor Younge
L T cennct j u s t understand t h e report.
I called personally this year o r 2 0 o r 2 5 banks I
know that
the manager o f our Helena branch did the same thing, o r some
officer i n that branch called o n fully 5 0 per cent o f the
member b a n k s
i n the State
o f Montana. L
know t h a t t h e m e m
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Federal Reserve Bank of St. Louis
ale
that
w e have out
i n t h e eLlosed b a n k s c o m e
i n constant
touch
daily.
with the momber banks a n d are compelled t o d o i t
There isn't a n y question about t h e value o f bank relations
wore.
i t if a. qudstion of how Lt is donee I
suppose Mr.
know
Mitchell and the other gentlemen, including lin, Moore
every membor bank i n the 9 t h district.
O n e o f those m e n
will know t h e managing officer o f overy bank. M r . Moore
b y their
lives i n North Dakota a n d perhaps c a l l s t h e m all
first names.
M r . Mitchel]. lives i n Minnesota a n d operated
in South Dakota f o r a great m a n y years. I
for e i g h t v e a r s a n d g o m o t i m e
have been there
o r o t h e r a l l o f these b a n k e r s
have b e e n into o u r institution.
T h a t i s not a n indication
because W e
that w e d o not believe i n the bank relations work,
doe
L y i
o u r officers w h o come i n contect with t h e member
lon euler
banks r a t h e r t h a n t h e m a n r e g u l a r l y h i r e d eperO
D o you
now think that i s a fair statement o f
hell?
ea
Mr. Mitchell.
Y e s , a n d I would s a y that t h e 9 t h
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Federal Reserve Bank of St. Louis
triet h a s n o t b e e n p r o p e r l y reportec.
Jaye
o v e r y month
W o ask oach district t o report
traveling
they make through their officers o P
I
Minneapolis district reported none.
am glad
that that i s not t h e fact.
somewhere.
Governor Young» T h e r e i s some mistake
Governor WelLlborne.
G o v e r n o r Norris s a i d h e would
h a s already
to hear from t w o o f the banks. M i n n e a p o l i s
Spoken i
which t h e work
think i t i s alt i n tho manner i n
is done T h a t i g the case with us»
W e have done a great
bank relations w o r k
deal o f public relations y o r k and member
also.
agency.
W e huve g o t four branches a n d one
Those
any trouble o r anything
men visit t h e banks whon there i g
visit them;
to straighten out, a n d our officers
w e attend
and see ail the
the bankers! conventions i n the district
pankers;
I
w e even attend t h e group mestings.
myself went
attending group meetings,
around t h e entire state last. year
w a y i s very offective
and I think t h e work done i n that
and very inexpensive.
be~
T t does n o t show a heavy cost
<«
cause i t is charged i n officers! traveling
before L a s t w e employed a
man t o gg o out a n d d o tnis w o r k
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Federal Reserve Bank of St. Louis
an.4
H e visited e a c h bank a n d made o u t
at pretty heavy expense.
T h e r e p o r t s i m p l y m e a n t this, t h a t t h e y s a i d
& reporte
they were g l a d t o s e e him, a s k e d h i m t o have a seat, t h e y
would begin talking abcut t h o Federal Reserve System a n d
they would want t o know w h y w e d i d n o t p a y interest o a deposits, w a i c h was o n e thing t h e y objected to.
S o m e o f them
T h e result w a s those m e n didn't
wanted exchange o n checks.
ccme
know h o w t o talk t o the bankers ait all, a n d they would
back t o u s and t h e y would write t o u s about i t and w e began
to get into a tangle a n d w e really reached t h e conclusion
that i t was doing more h a r m than good.
M r . Newton c a n g o
more i n t o t h e details, because h e i s chairman o f that committee i n our bank, b u t I think w e are conducting those
functions o f the bank i n a manner entirely satisfactory t o
our Board o f directors.
Governor Crissinger.
M r . Newton?
would like t o s a y that i n the oarly
Mr, Newton. I
part o f t h e year w e bogan t o reduce o u r expense j u s t a s
much a s w e could, b e c a u s e
the rear.
w e were running v e r y heavily i n
W e had determined t o effect every cconomy we
could i n t h e bank.
W
e decided a t that time t h a t w e would
not send o u t t h e t w o m e n who h a d been traveling regularly,
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Federal Reserve Bank of St. Louis
215
but t h a t w e w o u l d s e n d a
representative
o f the bank t o cach
of these group meetings a n d meetings o f the bankers’ associa-~
+LonSe
I t s o happens t h a t i n our district s o m e o f the states
have their group meetings i n the spring o f the year, a n d i n
other states the g r o u p meetings a r e i n the fall a n d w e have
not f a i l e d t o h a v e a
representative
o f the bank attend t h e m
go far a s I know, a n d also t h e state conventions.
gend a
W e always
m a n w h o i g t h o r o u g h l y c o n v e r s a n t W i t h t h e effsaivs o f
the bank. I
might s a y that w e sent a s o u r aliubassador t o one
of the state conventions Mr. Wellborn, a n c I attended o n e o f
he otherse
M r . Wellborm h a s attended several o f the group
meetings. I
had intended t o attend another convention, b u t
I wag 211 a t the time a n d could n o t go.
officer o f the bank.
W e sent another
W e have kept i n closs touch with o u r
members and I think that there i s a goo
district i n the main between t h e member banks a n d the Federal
Reserve B a n k o f Atlanta. I
cases,
do n o t believe there a r e a n y
o r a t least v e r y fewcases, w h e r e there a r e a n y com-
plaints presented.
recently t o which I
H o w e v e r , t h e r e were t w o cases presented
would like t o call attention,
I n Knozx-
ville a matter c a m e u p which looked like i t might result
in some considerable feeling.
W e sent o n e o f our m e n u p
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Federal Reserve Bank of St. Louis
216
immediately, a
man that w e thought was boast fitted t o treat
v
o
d
r
s from e a c h
eneity t o t h e effect t h a t t h e y were
e
banks i
i
W e h
with t h e situation.
the
t n e visit a n d with the resuits o f
satisfied ¥
bank.
Thet bags been o u r policy i n the Atlanta
T
¢
Governor ( g
e second topic recommended
h
by t h e Committees f o r d i s c u s s i o n
i s "Recommendation
o f Com-
all reserve banks."
mittee regarding extension o f work t o
That i s a p p a r e n t l y c o v e r e d
i n t h e o t h e r topic.
Ye haven't heard anything from the Reserve
Board o n tue sudject
Mr, Martin. i
a
matter o f information, I
think
m e n w h o were s e n t
it might b e o f interest t o know about t h e
out o n the roade
unless
h e is a
I t is absolutely wrong t o send a man out
highly trained m a n e
that i t was wise, before sending a
d e e r e L o u i s w e found
man o u t o n the road o n
i n practically a l l
work o f this kind, t h a t t h e man worked
o n l y know t h e language
departments o f the bank, t h a t h e not
the country banker about
of transits, a n d b e able t o talk t o
t h e processes inside
arranging h i s items, b u t that h e know
about a l l o f the
the b a n k a n d c a n t a l k w i t h t h a t b a n k e r
h i m with regard
operations o f his bank a n d i s able t o help
217
A
to the operations o f t h e bank.
man who c a n g o into h i s
able t o tell whether h i s notes
pill c a s e i f desired a n d b e
not; w h o i s able t o tell
are eligible for rediscount o r
c a n be made eligible
him that a certain bateh of notes
words w e find i t desirable
by doing s o and 30+ I n other
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Federal Reserve Bank of St. Louis
h e goes o n the road.
train h i m i n t h e bank before
W e have
him g o alone, until h e
also found i t desirable not t o let
months w i t h a n older man; a l s o
has traveled f o r about three
way. H e goes there
he i s never s e t o u t i n a n jnquisitorial
as a
friend
o f the banker
spirit o f criticism.
I
and not
,lly n o t
a s a n e x a m i n e rjo
n time h e oStablishes a
i n a
relation-
a n d they are g l a d t o see
ghip w i t h that banker o r bankers,
their affairs. Therefore
him and glad t o talk t o him about
a n d v e r y necessary,
we t h i n k i t h i g h l y d e s i r a b l e
i n order
relations department,
to get the full effects o f the bank
trainede
that t h e m e n b e h i g h l y
Governor Y o u n g e I
think I
would l i k e t o h a v e a
Little
fully take i t u p with o u r
time o n this matter i n order t o
Board o f Directarse
Governor Grissinger.
I f there i s nothing further
on
work",
this the next is "Cost of bank relations
Governor Strong. I
notice s e v e r a l c u r i o u s i t i e s
in
22.8
the r e p o r t o f e x p e n s e d
F o r instance S a n Francisco roports
banks
aa average c o s t o f 5 7 cents f o r disciplining t h e membor
and Dallas a n averago cost of $20. M i n n o a p o l i s shows $400
which uoes n o t involve a n y discipline. I
wonder i f ths
will
question o f expense could not b e reviewed s o that w e
know what w e are doing?
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Federal Reserve Bank of St. Louis
Governor Crissinger.
W i l l Governor Talley tell u s
why i t costs $20 i n hig district aud only 5 7 cents somewhere
else?
Governor Talley, I
was just noticing the same thing.
Governor Calkins Nas a total oxpense of $408. I
presume
that might be Cue t o the branches, wnich are located fairly
in a
equi-distant o v e r t h e district a n d they c a n b e visited
day o r a n o v e r n i g h t v i s i t anyway.
T h e r e s i g one i t e m that
4 any other item, and that is,
might bear a s close s c r u t i n y s
for instance, w i t h 2 4 o f our member bank relations m e n
wisiting overy bank i n the district, e v e r y member bank,and
quite a large numbor o f the non=member banks, they did i t
at L e s s e x p e n s e t h a n f o r 1925.
T h a t i s d u e t o better d i s -
tricting o f t h e i r territories.
O u r expense s h o w s p r o p o r
tionately h i g h compared * o some o f the other banks, a n d i t
looks excessive, b u t o f course o u r district extends f r o m
219
quite a n exNatchez, Mississippi e a s t t o Arizona, w h i c h i s
deal o f time t o get
panse o f territory, a n d i t takes a good
over thoge l o n g distances.
H o w o v e r , e v e r y i t e m o f expense
w o r k i s charged
sonnecved w i t h the member bank relations
into that.
of
N o officers' traveling expenses o r anything
I
thet kind absorbs a n y part o f ite W h i l e
am speaking I
bank relations
might a d d that w e somotimes c a l l o u r member
men attorneys f c r the member panks.
W
e expect them t o
the member bank
vigit t h e member banks, g e t t h e viewpoint o f
and bring i t into us.
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Federal Reserve Bank of St. Louis
W e find i t of great value, t h e filing
becausc
of copies o f their reports w i t h t h e credit department,
trade
they are expected t o make a n exonomic survey o f the
t h e y visit,
in the territory, a n d i n the member banks that
with-respect
and it gives u s quite a good deal o f information
verritory,
to the business conditions t h a t exist i n the
although t h e y a r e n o t e x p e c t e d
t o make a n y oxamination
of
he banks, a n c are instructed n o t t o d o sO-«
Mr. Hoxtone
T h e y could not d o that under t h e lawe
Governor Talley. ©
We w o r k e d o u t l a s t y e a r a
coordina-
t h e member bank
tion b e t w e e n t h e o x a m i n a t i o n d e p a r t m e n t a n d
Those
relations department that has proved v e r y effectivee
groups
reports c o m e across t h e same desk f r o m the different
OSD
ha
ONY
Bank
T n one direction w e get t h e Federal Reservo
of men.
banks a n d
viewpoint a n d the attitude toward t h e Member
banks' viewpoint,
through t h e other source w e get t h e momber
w h e n w e have
and w e c a n come t o very intelligen c o n c l u s i o n s
all t h a t i n f o r m a t i o n b e f o r e U S e
Goveimor Crissinger.
plain h o w y o u o p e r a t e
o n such a
Governor Calkins.
expendec
b y o u r bank I
upon .for a n y a p o l a g y e I
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Federal Reserve Bank of St. Louis
G o v e r n o r Calkins, w i l l y o u exgmalLl amount?
I n view o f the amount shown a s
was o f t h e i d e a I
would n o t b e c a l l e d
understand t h a t Mr. J a m e s h a s i n -
district, o u r
timated that, o w i n g t a the smallness o f our
men m u s t w a l k w h e n t h e y m a k e t h e i r visit.
fact h o w e v e r e
T h a t i s not the
branches
T h e fact i s w e have f i v e v e r y active
pank relations
and a n additional h e a d office, a n d t h e member
work h a g b e e n d o n e b y o f f i c e r s
o f our bank a n d b y c h e
locations.
managers o f the branches i n their respective
traveling e x { think t h e charging o f expense t o their
o n othen
penses i s proper, because t h e y frequently travel
t h e banks.
pusiness t h a n that o f a nere visit t o
T h o figures
e a c h member bank i n
in this report s h o w that approximately
a year, b u t that o f
the district h a s been visited once i n
banks that a r e not
course does n o t include t h e city tember
4
Zor
on t h a t list.
o f the
I T believe m y s e l f t h a t t h e c o n t a c t
branch managers w i t h t h e
i s t r i c t i s t h e dest
k sj
b a n k can h a v e .
kind o f contact that t h e F e a e r 3 s e r v e
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Federal Reserve Bank of St. Louis
Govermor N o r r i s e
that i s n o t c o v e r e d
j u s t w a n t t o develop o n e point
I
i n t h e report o f t h e committee.
think
o f the
that these visits o f the traveling reprosentatives
non-member banks a r o
reserve banks t o the member banks a n d
i f these traweling
gmmensely valuavle i n themselves; b u t
a n d that t h e offinen report t h a t they have visited a bank
membors, b u t
the bank have s a i d that yes, t h e y were
they were n o t using o u r service,
w e were n o t a n y good t o them,
h a d t o be,
they w e r e o n l y m e m b e r s b e c a u s e t h e y
o r what t h e y
about t h e system,
thought there was a great deal o f red tape
or that w e were bureaucratic,
*
o r anything o f that sort, a n d
the m a t t e r s t o p s there, t h e r e i s n ' t a
done.
great d e a l o f g o o d
reports
T o get the real benefit o f those visits t h e
governor o r
of these m e n w h o come into t h e chairman, t h e
should b e carofully
the officer w h o has charge o f that work,
o f that sort
eonsidered b y h i m a n d relieved o f complaint
bank, a n d
such a s failure t o use t h e service o f the reserva
t h a t has 2xpressed
it ought t o then b e taken u p with t h e bank
the criticism.
W
e i n v a r i a b l y f o l l o w t h a t practice.
A L L
eee
these reports come ovor m y desk, a n d I never fail i n any case,
t o write a
where t h e r e i s c r i t i c i s m o r u n f a v o r a b l e c o m m e n t ,
of
Letter t o the officer w h o made that report a s 4 result
the visit o f one o f our men, asxing h i m i f possible t o come
into t h e bank a n d g o over those matters w i t h me.
W e find
bank
in every c a s e whore w e c a n g e t t h e officer o f a member
to come i n that w e convert a
critic into a warm f r i e n d a n d
often into a booster f o r t h e Systome
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Federal Reserve Bank of St. Louis
Governor Bailey.
T h a t igs true i n our casee H v e r y
o f the
senior officer i n the bank gets a copy of the report
traveling Tene
Governor Crissingor.
T h e next topic i s "Recommenda-
tion o f committee regarding olimination o f friction with
member banks."
Mr, Jay»
T h e Agents! Committee, during the Agents!
Conference, Spent a n afternoon discussing this subject amongst
themselves,
v a n d while naturally n o Gefinite conclusion
could b e reeched, rules suggested o r anything o f that kind,
it being a n individual matter i n oach case, I
general t h e discussion w a s very helpful «
operating matter.
friction a s a
think i n
I t i s largely a n
I t i s operating conditions t h a t create
rule.
ir”
fa kor
of serGovernor Crissingere T h e next topic is "Use
vice b y member panks".
Mr, Jaye
T h i g i g the first time a n y attempt has been
o f the extent t o w
wede t c m a k e a n a n a l v s i s
h
i
s
c h
services
I thoughtpossibare being uged i n the different districts and
ly ther igonference might wish to disouss that.
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Federal Reserve Bank of St. Louis
Govemor Crissinger.
I s there anything o n that? I f
not the next is "Should the use of services be extended."
Governor S e a y e
department
I f w e h a d n o so-called b a n k relations
who has
w e ghould nevertholess o m p l o y e v e r y m a n
a place i n that organization. I
think i
acwonderfully
congood report and should be recommended t o the diligent
Bank.
sideration o f e v e r y F e d e r a l R e s e r v e
Governor Crissinger.
W e will have a motion t o that
affect when w e get througn.
Governor S 6 a y e
I
f this i g t h e e n d o f t h e discussion
of that part o f i t I will make i t rignt now.
Governor Crissingoer.
rank relations?
I s there anything frurtl
I f not w e will take u p t h e next subject
toward guestion
which i g public relations,"Attitude o f Systom
of c h a r t e r renewal.
Mr, Jaye
M a y w e have a statement o f the Board's
o n t h a t subject?
attitude
agree entirely with what t h e Committee
Mr, Hamlin. I
t o be put i n
has said, t h a t w e o u g h t t o b e v e r y c a r e f u l n o t
o f the
the p o s i t i o n o f p u t t i n g o u t p r o p a g a n d a f o r renewal
charters. W h a t e v e r work that can be done along that line,
i* i t ig the belief that the charter should b e renewed,
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Federal Reserve Bank of St. Louis
o f the
ghould b e done. by people other t h a t officials
system. i
think it ig a ease where grave danger might
reresult i f the Board o r the ective officers o f the
f o r that
serve bank sbould actively engage i n propaganda
PULrpO See
Governor Railey.«
for instance,
atarts
ayy I
B u t suppose a
Member o f Congress;
i n your district, c o m e s into t h e bank a n d
c l o s e u p entiroet o t a l k t o youabout i t , y o u w o u l d n o t
and
would certainly give h i m m y opinion about i t
support t h e S y s t e m a l l I
Mr. H a m l i n .
could.
W h e r e a
p e r s o n c o m e s d i r e c t l y t o you,
of c o u r s o y o u s h o u l d g i v e h i m s u c h i n f o r m a t i o n
Governor Bailey.
a s y o u can.
M y idea i s that w e reprogent t h e
not be i n
System a n d when people c c m e into t h e bani w e ghovld
a position o f not raiding o u r voice i n defence o f the System.
T want t o s a y t h a t I
have a
very w a r m h e a r t e d i n t e r e s t
i n it
t h e proper cirand would certainly express m y opinion under
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Federal Reserve Bank of St. Louis
cumstances.
Strong.
W h e t d o y o u t h i n k a b o u t that, G o v e r n o r
T follow your flag most o f the time.
havo a very warm hearted interest
Governor Strong. I
think t h e r e i s q u i t e a
mni t too, w u s t a s y o u havee 1
difference b e t w e e n a
man expressing a
purely personal v i e w
which
on a matter o f that sort a n d having a system policy
a s pute
results followirg s course that cannot b o construed
ting forth propaganda.
[ f the impression w e r e t o g e t abroad
enthat this great organization w i t h its immense power were
gaged i n seeking t o force u p o n a n unwilling public a
renewal
of their charters, a n d i f they were n o t renewed t h e y would
wreck t h e c o u n t r y -=- o f
would b e a
t
h
a
t i s t h e extreme v i e w - - i t
dangerous t h i n g f o r t h e System.
a question f o r t h e p o l i t i c a l g o v o r n m e n t
asks m y views a b o u t
it I
think I
A f t e r all i t i s
t o t a k e up.
I
f anybo:,
would h a v e n o d i f f i c u l t y
in expressing t h e m without creating t h a v impression a n d I
am perfoctly sure that a natural b o m orator like you,
Governor Bailey, c o u l d d e i t perfectly.
Govermor Crissinger.
any o n o o n this subject.
James?
V
e would like t o hear f r o m
H a v e y o u anything t o gay, Mr.
226
do not think I can contribute anything
Mr. James. I
to. what has been said.
Governor Crissinger.
think G o v e r n o r S t r o n g h a s e x h a u s t e d
Mr, Miller. I
agree w i t h him.
the subjecte I
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Federal Reserve Bank of St. Louis
r r , Miller?
Governor Strong.
W h i l e w e havo a l l agreed t o work
i n order that
to promote t h i s question o f bank relations
Lotter understanding
there m a y b e a
not a
b y t h e pubpLicy 3 8 ° 2 5
certain w e n i n the
gort o f specialty j o b delegated t o
reserve banks? I
would like t o give t o those men, s o f a r
as o u r b a n k igs concerned,
t h e freedom that that responsibility
justifies.
Mr. Jay. A g a i n I would like t o s a y that these t w o
with
things, w h i l o t h e y a r e inter-rela tod, t h e relation
are
banks, public speaking, information and s o on, they
really guite different.
T h e Committee a s a Committee does
relations w i t h
not a o anything with regard t o the work o f
banks «
banks
I t simply collects statistics f r o m reserve
and all that
oach m o n t h a s t o h o w m a n y v i s i t s t h e y m a k o
sort o f thing.
I t does n o t attempt t o d o anything oncept
to presont the mattes for discussion once a year a t these
conferencese
W i t h regard t o the public relations, t h e
committee a s a committec has sought t o prepare certain
projects t o assist i n various ways a n d i s doing 4 Little
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Federal Reserve Bank of St. Louis
something i n that direction;
b u t i t is not doing anything
at all i n any district i n regard t o bank relations, except
to d i s c u s s t h e m a t t e r o n c e a
Mr, James.
y e a r a t t h i s conference.
W o u l d i t b e i n order t o move t h a t w e
receive t h i s report o f the Standing Committee w i t h thanks
and
from t h e C o n f e r e n c e f o r t h e e f f o r t s t h a t t h e y h a v e made,
then c o n t i n u e t h e c o m m i t t e e
a n i t s work? T
Will m a k e t h a t
sort o f a motion.
Mr. Perrin.
B e f o r e t h a t m o t i o n igs put I
believe t h e
representatives o f the different banks would b e glad t o
know t h e attitude o f the Board i n regard t o undertaking
organized bank relations w o r k i n each o f the districts.
Some o f the banks m a y not wish t o d o it; o t h e r s m a y wish
tO" a0: 3 0 I
think t h e r e i s d o u b t a s t o r h e t h e r t h e F e d e r a l
Reserve Board would approve o f all the banks going inte it.
Mr, Miller.
attitude
T h e s o gentlemen a r e interested i n the
o f t h e Board,
a n d n o t i n o u r individual o p i n i o n s .
My recollection i s o n one a r two occasions t h e Board has
officially e x p r e s s e d i t s e l f a b o u t t h a t e P e r s o n a l l y I
have
always
the gravest doubts a s t o the utility o f the work a n d
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Federal Reserve Bank of St. Louis
have h a d e T
a m n o t v e r y f r i e n d l y t o it.
Mr. J a m e s ,
oe
nuing the work.
I
n a
broad s e n s o
w e are
i n favor
o f con-
O n the other hand I recognizo the difhave
ference t h a t exists i n the difforent districts. I
folt all t h e time that t h e officers o f the reserve banks
are perhaps i n a better position t o judge o f the werk a n d
to d i r e c t t h e s c o p e o f i t t h a n t h e B o a r d w o u l d b e i n t r y i n g
to direct i t as a Systom matter from Washington. I
gay t h a t t h o y s h o u l d b e giver. v e r y b r o a d l a t i t u d e
of t h e b a n k s
should
i n each
i n t h i s matter,
Governor Strong. B o f o r e putting that motion I
would
like t o state that I believe t h a t t h e subject o f recharter
b y various organizations. I
is a c t i v e l y b o i n g d i s c u s s e d
just learned today that anothor organization has passed
a resolution
o n t h e s u b j e v t a t i t s convention.
I
u goems
to m e that there i g a possibility n o w o f gome o n e officer o f
a reserve bank, s a y , m a k i n g s o m e i n c a u t i o u s p u b l i c u t t e r a n c e
which g o u l d c a u s e c o n s i d e r a b l e e m b a r r a s s m e n t
Theso r e p o r t s
t o t h e System.
o f t h e Pubiic relations m e n a r e carefully
read i n t h e r e s e r v e banks.
T h e r e i s a little m a t t e r o f
administrative d e t a i l t h a v I
would l i k e t o s e e u n d e r t a k e n b y
every r e s e r v e bank, a n d t h a t i s t h a t a
carefully p r e p a r e d
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Federal Reserve Bank of St. Louis
See
written statement b o made o f t h e attitude o f the membor
bank velations department,and t h a t t h e officers,
i n making
addresses a n d i n discussing t h e matter should have a
sta tement, t h a t a
copy
copy s h o u l d b o h a n d e d t o e v e r y
one o f t h o s e m e n s o t u a t t h e y a r e u n d e r s p e c i f i c w r i t t e n
instructions t h a t they a r e not t o vislate.e S o m e o n e might
go o u t t o a bankers! convention a n d make a n incautious speech
which t h e newspapors might take up. w h i c h might g e t into
Congress a n d cause a
great deal o f h a m o n this recharter
ma ttore
Govarnor Orissinger.
T h e r e i s some danger o f that.
Are t h e r e a n y f u r t h e r r e m a r k s ?
Mr, Perrin. T h i s should be considered from two
anglese
O n e bank relations w h i c h refer t o sfficers a n d
representatives
o f t h e banks,
lationg w h i c h r e l a t e s
a n d t h e o t h e r i s public r e -
t o s p e e c h e s m a d e a n d s o forth.
am covering both o f them. I
Governor Strong. I
mean private conversation a n d public utterances.
Mr. Perrine T h e r e i s obviously much more danger i n
the p u b l i c u t t e r a n c e t h a n i n t h e o t h e r a
Governor Stronge O m v i o u s l y .
G o v e m o r McDougal.
W
e h a v e p a s s e d o n this r e p o r t now,
23%
but I think w e are going t o leave i t i n a v e r y unsatisfactory
condition, particularly s o unless w e get from the Board a n
oxpression o f its views a s t o whet t h e attitude should
bo o n whe question o f tne charter renewal.
t T do n o t think t h e Board
Governor Crissingor.
hagupassed u p o n t h e question.
would like t o know from t h e
Governor McDougal. I
Board w h a t t h e i r a t t i t u d e
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Federal Reserve Bank of St. Louis
i s a n d w h a t o u r a t t i t u d e s h o u l d be.
Governor Cvissingor. I
cannot speak f o r t h e entire
Boarde
Mp, Miller. I
think it is stated i n the report that
they advise against a n y activity.
Y e s , w e would b e against that.
Governor Crissingor.
I think Mr. J a y knows m y personal opinion about it. I
am
very much o f the opinion vhat t h e banks a n d the Board should
gtey o u t o f the discussion a s much a s possible until called
upon b y C o n g r e s s
t o express
a n opinion.
T h a t i s m y notion
about it.
Governor Seay.
I + appears t h a t a s t h e R e s e r v e S y s t e m
itself d i s p l a y s r e t i c e n c e
i n that regard that o n g public o r -
ganization after another i s coming forward and showiug a
Little anziety.
T h e r e f o r e t h e work that ought t o b e done
SL
in that direction m e
organizations
public
d o n e a n d i s boing done b y
m o r e effect.
and p e r h a p s w i l l b e d o n e w i t h
show the m o r e anxiety t h o y
Porhaps t h e more reticence w e
will sgl.ow.
Mr. jays T e r e i s just one other
motion i s m a d e a n d t h e d i g c u s s i o n
wishes
T h e Committes
clused.
t h e Board a n d t h e Conference
t o have t h e ~iew o f
the raising o f the charter
or, this: W h e t h e r i n view o f
o f an informative naturo,
<
question our work which i s vurely
,
the committee i s that
o
f
opinion
T
o
e
on?
g
o
.should not
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Federal Reserve Bank of St. Louis
question should have n o effect
the raiging o f the charter
savors
keep o u t o f anything that
on its work, provided t h e y
the charter.
of propaganda w i t h respect t o
Governor
n
g
W h a t does t h e conference
about thet suggesvion?
Governor S e a y e T
the gonmove i t i s t h e s e n s e o f
bearrovbarter should have n o
forence that t h e question o f
ing upon t h e work o f this tommittee.
Governor |
i n g e
Mr. James! motion firste
W
h
e will h
e
)
dispose o f
i s nothing further o n
the quostion.
the motion o f Mr. Janes I will put
/
seconded, was carried.)
(The motion having been duly
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Federal Reserve Bank of St. Louis
Pa
Governor CGrissinger.
o y e
N o w , Governor S e a y y o u m a y put
vrour motion.
think Mr. James’ motion cevers
Govemmor Seay» 1
the wholo thing, a n d m y motion i s not nocessary.
Governor Norris.
T h e Board suggested a topic which
that
{ think i s closely allied t o this, 8 0 closely allied
perhaps
i t would b e well t o take i t u p nowe
T h e Board s u b
of
mitted t o t h e conference t h e question o f the advisability
at
discontinuing exhibits, t h a t i s Federal Reserve exhibits
such gatherings a s that o f the American Bankers Association.
My impression i s that t h e Governors a r e prepared t o answer
the question,
and I
presume t h e A g e n t s A L O »
W o u l d i t be
proper t o take that u p now?
Governor Crissinger.
Governors
W h a t was the conclusion o f the
o n t h a t subject?
Governor Strong. I
think w e a p p r o v e d t h e c o n t i n -
uance o f them.
Governor Crissinger.
Mr, J a y e
to t h e Secretary,
h
A n d what d i d t h e Agents do?
e committee t u r n e d i n a
t h e substance
wrivtch report
o f which w a s that inasmuch
as these oxhibits have n o w been made f o r four years, o n c e
in New York, t w i c e i n Atiantic C i t y a n d once i n Chicago,and
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Federal Reserve Bank of St. Louis
that t h e y c o v e r e d p r a c t i c a l l y e v e r y p h a s e o f D e d e r a l R e s e r v e
activity, t h a t i t has pretty well exhausted t h e subject,
that w e t h i n k t h a t i t i s n o t worth t h e t i m e o r t h e m o n e y t h a t
it cos:
t o prepare t h e m a n d continue them.
B u t w e & 2863
suggested that inasmuch a s t h e noxt convention w a s t o be
held i n Los Angeles,
i n a section o f the country where there
has b e e n n o s u c h e x h i b i t s ,
and that therefore m a n y people
attending t h e convention might never have seen one, t h a t
the exhibits t o b e placed a t the disposal o f the S a n Francisco
Bank, a n d i x the bank wishes t o make such a n exhibit i t could
be m a d e w i t h v e r y l i t t l e l a b o r a n d e x p e n s e a t t h e Logs Angeles
Sonvention,
i f i t was t h e desire o f the S a n Francisco B a n k
to d o it.
Governor Crissinger.
I s there anything further?
W e
have t h e report from t h e Governors’ Conference approving
the continuance o f i t while t h e Agents submit a n ontitmedl
report.
Governor S t r o n g e
M
a
y m e m o r y i s t h a t a t seeond m e e t i n g
we referred t h e subject back t o t h e Public Relations Committes.
Mr. Harrison.
M y r understanding o f the action was
that i t was t h e sense o f the Conference
w h o were prosent
at the Atlantic G i t y Convention a n d s a w the exhibits
Bok
that i t made a
favorable impression a n d that i t was a good
thing f o r the System t o continue it.
Governor Orissinger.
W a s a n y action t a k e n b y the
Roard?
Mr. H d d y .
N o t h i n g further t h a n t o report
i t and t o
place i t o n t h e program.
Mr. James. I
would like t o hear from Governor Calkins
held
on Mr, Porrin o n this, as the next Convention i s to be
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Federal Reserve Bank of St. Louis
in Los Angeles.
the
Governor Calkins. I n a s m u c h a s I did not attend
convention a n d d i d n o t s e e t h e exhibit, I
do not feel confi-
dent t o express a n y o p i n i o n a t t h i s t i m e .
Mr. Perrin. I
do not think a number o f u s have seen
it.
the exhibit a n d w e have h a d n o discussion together about
Governor Crissinger. I
would suggest that i f t h e
make
California B a n k s e o s f i t t o m a k e t h e e x h i b i t t h a t t h e y
application t o t h e Board a n d w e will pass upon it.
Mr. Austin. I
think a l i o f the materia?
i s available
for t h e e x h i b i t i f t h e y w i s h t o h a v e i t .
Governor Crissinger.
A s I rocall t h e procedure w i t h
regard t o the exhibit, t h e matter has been submittod t o the
Board and the Board has approved i t heretofore.
255
move that t h e matter boi're«
Governor Stronge I
ferred t o t h e S a n F r a n c i s c o B a n k ,
a s t h e y a r e t h e next Gonven~
tion City, o r rather L o s Angeles.
(The motion having been duly secondec, w a s carried.)
Governor Crissingers
T h e next subject presented b y
the Agents f o x discussion w a s t h e discount policy.
T h e
the Board h a d
Agents discussed that topic w i t h t h e Board a n d
the Committee o f Governors o n Open Market Operations before
theme
D o e s
a n y one desire
t o continue
t h e discussion
o f
this matter?
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Federal Reserve Bank of St. Louis
Governor Strong.
W
e had a
very full discussion
of
it a t our meeting, Governor, a n d s o far a s t h e Governors o f
the R e s e r v e B a n k s a r e concerned, I
think w e h a v e e x h a u s t e d
the s u b j e c t e
Governor Crissinger.
D o the Agents desire any f u r - -
ther d i s c u s s i o n o f L o e
Mr, A u s t i n . I
think
Governor Crissinger.
w e also cxhausted it.
D
o a n y members
o f the Board
wish t o s a y a n y t h i n g f u r t h e r a b o u t i t ?
Mr, Hamlin. I
think not, Governor.
Governor Crissinger.
T h e n w e will pass t h e subject.
The next i s IJpen Market Policy.
T h a t was also pretty
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Federal Reserve Bank of St. Louis
206
thoroughly discussed b y the Ageits a n d the Committee o f
GOVeErnorss
I
of
f n o o n e desires a n y further discussion
+ w e will pass i t likewise.
The n e x t i s t h e p o l i c y o f p a y i n g o u t gold.
is a
n e w subject.
W
Uoues|
W h o w i l l t a k e t h e s u b j e c t u p f o r discus-
sion?
[ I think t h a t w a s i n t e n d e d s i m p l y
Governor Strong.
a8 a
report
t o b e made,
a s w e always d o ,
o n paymonts
o f gold.
I understood Mr, D e w e y hed something t o gay o n that subject.
I happoned t o b e out w h e n h e made h i s statoment.
Govarnor Crissinger,
H e made a
stotement here.
Did
he a l s o m a k e o n e a t y o u r m e e t i n g ?
did not know whether i t was i n -
Governor Strong. I
tended t o be discussed at this joint meeting or not.
Mr, Harrison.
M r . Dewoy made n o separate statement
at o u r meeting.
Governor Crissinger.
ference o n t h e mattor.
Governor Strong.
W h a t i s the view o f the Con-
H a s anybody anything t o say?
W e d i d not p u t i t o n the Joint
Programe
Mrg Jay» I
think some of the Agents felt it would
be interesting t o discuss t h e general policy o f t h e System
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Federal Reserve Bank of St. Louis
257
with regard t o it.
do it.
S o m o banks d o i t and other banks d o not
W e undorstood i t w s o n the Governor's program.
thought i t m i g h t b e interesting,
W o
i f thore w a s a n y discussion
of it, t o have that discussion a t the Joint Conference rather
than a t t h e s e p a r a t e c o n f o r e n c e s ,
wiches
W h e t h e r a n y Agent present
t o bring i t u p f o r discussion n o w I
Governor Crissinger.
d o n o t know.
I f not w e will pass it.
We w i l l t a k e u p t h e Governors! p r o g r a m e
W
o have disposed
of Topic 1-B, recommendations c o n ained i n the report o f the
Agents C o m m i t t e e
o n member b a n k reserves. I
disposed o f a l l t o p i c s
o n page 1 .
O
think w e h a v e
n pago 3 , i s the topic
“oanouLd not the Treasury Dapartment absorb t h e cost o f transForring o n e dollar wills f r o m o n e Federal Reserve B a n k t o
anothor?
Governor Bailey.
T h e Treasury h a s expressed itself
as being i n favor o f that but they have n o appropriation;
that a s soon a s they a r e able y g 9 t a n appropriation t h e y
will d o it.
Governor Strong.
A n d t h e y are making a n effort t o
Governor Crissinger.
T h a t disposes o f that.
T h o n
=ffectiveness o f budget control o f the oxponse
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Federal Reserve Bank of St. Louis
258
of operating the Federal Reserve banks and s o forth.
A t
the present time t h e Federal Reserve Banks o f New York,
Philadelphia, Oleveland, Richmonc, Chicago, Minneapolis
end Sar Francisco a r é operating under budgets
along the lines suggested b y the Board's Budget Committee.
Tt} is e x p e c t e d that the discussion o f this subject i n the
Conference will be led b y t h e Governors o f those banks for
whe benefit o f the Governors o f t h e other banks w h i c h have
not y e t adopted a budget system.
Goveinor Strong. G o v e r n o r Crissinger, t h e list of
panks whieca have adopted the budget system i s not complete
in the topic a s submitted b y t h e Eoard. T h e r e a r e nine
banks instead o f seven.
O n l y three banks a r e n o t operating
along that line and those three banks, i n the course o f our
discussion, m a i n t a i n t h a t t h e s y s t e m w h i c h t h e y h a v e h a d i n
operation w a s substantially a s effective a s t h e Budget
System a n d s t a t e d t h a t t h e y h a d v e r y s a t i s f a c t o r y r e s u l t s
from t h e i r system.
Governor Crissingor.
D o t h e banks care t o b e heard
who h a v e n o t a d o p t e d i t e
Governor Talley. T
would s a y w i t h r e s p e c t
Tallas B a n k that w e have simply been under a
t o the
misapprehension
Boo
of what waS intended b y the word "budget".
W e find that
the Board desires t o have t h e control o f the expenditures
this Condeseribed a S a budget system, a n d since coming t o
Perence I
good deal o f light o n the subject
have gotten a
as t o w h a t t h e B o a r d r e a l l y intends.
I
n other words I
w e just
think w e have t h e baby d o m there a l l right, b u t
never have named it. T h a t i g all there i s t o it.
ir, JameSe
T t seems t o m e that a s Governor Talley
has repented and come into the fold that the other two ought
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Federal Reserve Bank of St. Louis
tO get i n line a n d make i t unanimous.
a i a m o n e o f t h e e t h e r two.
Governor Bailey.
I t is
oasy onough t o name it.
Governor Crissingere
I f there i s nothing further o n
the Budget question w e will g o t o page 4, Topic G, "Permanent
employmont
b y t h e Board a t a f i x e d retainer
sel o f o u t s t a n d i n g abdiilty t o a s s i s t
o f special coun-.,
i n litigation,
such as
the so-called Pascagoula a n d Brookings p a r cloarance cases,
and s o forth."
This h a s been before b o t h Conferences, a n d a s [ roememthe Agents v o t e d against it.
Mr.
P e r r i n .
Y
e
s
e
Governor Strong. I
think w e voted unanimously t o
sencur i n .
v o t e o f t h o Gonferonce o f counsel o f
vesgorve banks, t h a t i t w a s inadviseble-.
Governor Talley.
N o t unenimously Governor Stronge
Mllas v o t e d no.
Govermmor Crissingere
T h e r e i s anothor topic a t the
o f Committeo o n
mottom o f the page, M , report o f Chairman
Legislative Matters,
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Federal Reserve Bank of St. Louis
poen made.
W e h a v e had that.
T h a t cleans u p t h e prograle
T h e report has
I g there anything
further?
Mr, Miller.
W h a t disposition was made o f tho tepic
Board's control a l l
with regard t o coordinating under t h e
Systom?
of the examining w o r k o f the Federal Reserve
Governor Crissinger. W h a t did the Agents d o about
Mr, Perrin.
T h a t was o n the Agents’ program.
W e had
on
a long discussion o f the whole examination question
Thursday m o m i n g ,
a n d as a
result o f that a
committee w a s
appointed t o study into t h e whole guestione
Mr. Jays
T h e Public Relations Committee h a s develop-
o f the
ed a mechanical device for showing some pictures
small country
Reserve S y s t o m , w h i c h d e v i c e i s u s e d i n t h e
banks.
I t i g set u p i n Mr, Platt's room and we would
at e e
idke t o have members o f the Conference l o o k
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Federal Reserve Bank of St. Louis
41
Governor Crissinger.
o n f o r e n c e will take note
of that.
Mre Hamlin. G o v e r n o r Grissinger, I
move you that
‘he Gorference adjourn.
Mr, Austin, G o v e r n o r Crissingor, t h e Federal R e gerve Agents h a v e completed their program, e n d await a n y
further i n s t r u c t i o n s f r o m t h e B o a r d a s t o a n y f u r t h e r
business.
Governor Strong. I
would like t o call a short meet-
ing o f the Governors a t the conclusion o f this Conference
as there i s one topic o n our program that w e should dispose
ofe
Govermor Crissinger.
M r , Hamlin has moved that w e
adjourne
(The motion being auly seconded, t h e Conforence
adjourned a t 4030 o'clock peme, subject t o the call o f
tho Federal Reserve Board.)
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Federal Reserve Bank of St. Louis