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https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VOLUME I f A CONFERENCE O F GOVERNORS O F FEDERAL RESERVE BANKS Treasury Building Washington, D . C . November 8 - 1 0 , 1 9 2 6 . Walter S . C o x Shorthand Reporter Washington, D . CO. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis arder. Governor Seay. I The Chairman. move that v e adjourn f o r lunch. I f i t i s agreeable, w e will reconyene at. 2 of cicck. (“hereupon, at 1 o'clock p.m., a récess w a s t a k e n until 2 o'clock p.m.) The C o n f e r e n c e r e c o n v e n e d p u r s u a n t t o recess at o'oLloeck pum. The Chairman. T h e meeting will plesse come t o The next topic i s II-f, report o f Stending Committee Collections, o f which Mr. Strater i s chairman. very i m p o r t a n t r e p o r t . This “ e g w i l l b e g l a d t o receive y o u r report, M r . Streter. Mr. Streter. I think i t will b e best t o read i n its entirety thet pert o f the report having t o d o with revision o f the time schedule w i t h + view t o reducing float and avoiding existing inequality. follows: T h e report i s as https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis To the Conference o f Governors: The Standing Committee o n Collections b e g s t o stbmit herewith i t s r e p o r t o n the following topics: REVISION O F T I M E S C H E D U L E S " I T H ? VIE" T O REDUCING FLOAT / N D / V O I D I N G E X I S T I N G I N E ’ U*LITIES. “hen this topic w a s submitted t o the Standing Committee on Collections a t the Conference o f Governors h e l d i n November 1 9 2 5 , a number o f i n e q u a l i t i e s in t h e e x i s t i n g t i m e s c h e d u l e s a n d inconsistencies o f the various Federal reserve banks were pointed out. In the Committee's report t o the Conference o f Governors h e l d i n March, 1926, tables “ere presented which showed thet various inconsistencies a n d irregularities a p parently existed i n the time schedules o f the various r e serve banks a n d brenches, T h e Conference t h e n voted to r e q u e s t t h e S t a n d i n g C o m m i t t e e o n Collections study o f the present time schedules a n d prepare & t o mske o a scien- tific revision o f them i f that should b e necessary. The Committee deems i t appropriate a t this time t o express i t s o p i n i o n e s t o h o w e scientific a n d a c c u r a t e time s c h e d u l e s h o u l d b e c o n s t r u c t e d benefits i n order t o extend t h e o f the check collection system equitably a n d i m - https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26. partially t o all member banks e n d a t the same time reduce float t o the lowest possible point consistent w i t h expediency o f operstion. The Committee understands t h a t w h e n time schedules for t h e v a r i o u s F e d e r a l r e s e r v e b a n k s w e r e f i r s t prepered, it was recognized thet t h e Federel reserve banks must necessarily a b s o r b a small v o l u m e o f fleat a n d t h e principal objective was t o keep the volume o f float within reasoneble bounds. f s the volume o f checks collected w a s small, it was comparstively simple t o arrive a t s n average ieferred time f o r various states o r sections whereby floet crected by establishing a n insufficient deferred time i n one section could b e offset b y establishing a deferred time i n ether sect- tons sufficiently in excess of the sctual time required to collect. Because t h e v o l u m e o f checks n o w c o l l e c t e d s s multi- plied m a n y times a n d because existing inequalities result in giving member banks i n certain districts a n unfair advantage o v e r member banks i n other districts, t h e Committee feels t h a t t h e original theory c a n n o longer b e adhereg t o without subjecting t h e Federsl Reserve System t o serious criticism. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 263 The logicel a n d scientific basis f o r a n accurate time schedule i s the time required b y esch Federal reserve bank t o collect checks payable i n its o w n distiict a n d i f checks originate outside o f the district i n which they are payable, t h e deferred t i m e o f the Federal reserve y a n k of the district i n which t h e checks originate m u s t b e t h e time r e c u i r e d t o resch t h e Federal reserve b a n k o r branch of the district i n which they are payable e f t e r t h e checks reach it. In o r d e r t o o b t a i n a c c u r a t e f i g u r e s s h o w i n g t h e a v e r - age time required b y each Federal reserve b e n k e n d brench to collect candies payable i n each stete o r part o f state in its territory, t h e Committee obtained f r o m esch Federal reserve b a n k a n d brench a n anelysis covering a period o f one week, and, using this e s o basis, prepared » tentetive time schedule f o r each Federal reserve b a n k a n d branch, duplicate copies o f which were forwarded t o eech o f the governors, accompanied b y a n interim report explaining t h e manner i n which these tentative schedules h a d been prepared a n d requesting that t h e y b e reviewed a n d returned to the Committee w i t h such changes e n d corrections a s were necessary i n order t o make t h e time schedules accentable. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 262 In certain instances where t h e tentative t i m e schedvile s h o w e d t h e t t h e esctual t i m e r e q u i r e d by a reserve b a n k to collect checks payable i n its o w n district w a s more than t h e deferred time shown o n the current time schedule of t h e F e d e r a l r e s e r v e b a n k concerned, t h e Committes w a s advised that t h e Federal reserve b a n k preferred t o continue to give credit after t h e lapse o f the shorter time a n d t o carry 8 moderate amount o f float f o r the benefit o f 4ts memher banks. T h e Committee understands t h a t i t i s n o t cherged w i t h t h e d u t y o f r e c o m m e n d i n g c h e n g e s district t i m e s c h e d u l e i n the intra- o f a n y Federal reserve b a n k b u t since t h e Committee w a s i n possession o f reasonably eccurete current firures, i t was thought desirable t o drow attention to a n y variations between existing intra-district schedules and t h e d a t a f u r n i s h e d t h e C o m m i t t e e b y each Federel r e - serve b a n k f o r its o w n district i n order thet eppropriate changes might b e made i f the Federal reserve b a n k concerned deemed i t advisable t o make them. The Committee h a s confined i t s efforts, therefore, an attempt t o suggest revisions i n the inter-district time s c h e d u l e s w i t h a view t o reconciling existing i n e - qualities a n d t o c o n s t r u c t i n t e r - d i s t r i c t t i m e s c h e d u l e s to https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis £63 which will compare favorably with each other i n eccurecy. The C o m m i t t e e f o l l o w e d c e r t a i n s c i e n t i f i c p r i n c i p l e s the p r e p a r a t i o n i n o f the revised t i m e schedules f o r e a c h Federal reserve b a n k a n d branch e n d insofar a s possible i n dicated t h e actual average time required t o effect collection o f checks p a y a b l e i n the verious states. when t h e corrected schedules v e r e returned t o the Committee i t was fourd that m a n y o f the minor inequalities pointed o u t i n the Committee's report t o the Conference o f Governors h e l d i n March 1926 would adjust themselves e s i n many c a s e s c h a n g e s s u g g e s t e d b y the Committee w e r e acceptable and those t h a t were n o t could b e sdjusted t o meet existing conditions a n d still b e sstisfactory t o the Federal reserve banks c o n c e r n e d . The major inequelities, however, existing i n the time schedules o f certain o f the Federal reserve banks still eppear t o b e irreconcilable, s i n c e these banks h o l d t h e firm conviction that i t i s impractical t o adopt a n eccurate time schedule covering checks paysble i n adjoining districts for which t h e y n o w give credit a t least o n e d a y i n advence of t h e t i m e r e q u i r e d t o c o l l e c t b e c a u s e t h e i r m e m b e r banks, having e n j o y e d t h e b e n e f i t s o f a n admittedly incorrect https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 264 time schedule f o r s o many years, w o u l d b e violently o p posed t o a change which would result i n their being obliged to assume a t least a large proportion o f their volume centers . In s o m e o f these i n s t e n e e s c h e c k s p a y e b l e i n states n o t o n l y 4n a d j o i n i n g d i s t r i c t s b u t a l s o i n districts b e y o n d a r e received f o r credit »fter t h e lapse o f two business deys. Checks paveble i n these states e r e n o t collectible i n the time s p e c i f i e d b u t r e q u i r e e t l e s s t threes b u s i n e s s d e y s a n d , in some cases, four, t o convert i n t o available funds. one In o t h e r i n s t a n c e s w h e r e s t a t e s l i e p a r t l y i n district and partly i n another, they ere not split o n the time s c h e d u l e b u t c h e c k s p a y a b l e i n that p a r t o f a stete lying outside t h e district a r e accepted o n the seme deferred basis a s those payable i n thet part o f the stete lying within t h e district notwithstending those checks payrble rein t h e t p a r t o f t h e s t a t e l y i n g i n another d i s t r i c t quire a t l e s s t o n e a d d i t i o n a l d a y t o collect. ‘ / s stated in its interim report o f July 10, 1926, the Committee i s of the opinion thet the principle o f "split" states should be recognized and in order to construct accurate time schedules a state lying i n two districts should b e treated s s tyo separate states i n the time schedules o f https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 265. the r e s e r v e b a n k s b e t w e e n w h i c h t h e s t a t e i s d i v i d e d in ‘ \ order t o correctly reflect t h e actual time required t o collect. The Committee understands t h a t arguments, w h i c h m a y appeer perfectly logical, a r e advanced b y eech Federel reserve bank operating under a n incorrect time schedule. T h e fect remains, however, t h a t n o scientifically accurate t i m e schedule c a n p o s s i b l y b e c o n s t r u c t e d u n l e s s t h e p r i n c i p l e s on which i t i s based apply equally t o each Federal reserve district. T h e Committee d o e s n o t undertake t o s a y that the theory upon which i t has b e e n working i s the correct one b u t a n y o t h e r t h e o r y i s untenable u n l e s s a radical chenge i s made i n the check collection system which will permit a l l Federal reserve banks t o operate strictly u p o n the same basis. fssuming that t h e Governors Conference desired t h e Gommittee t o accomplish * s much s s possible i n correcting inconsistencies pointed o u t t o the March 1926 Conference, a second tentative revision o f the time schedules h a s b e e n made f o r each Fedsrrl reserve b a n k e n d branch a n d these are being forwarded sgsin f o r consideretion. I n making this second revision, particulsr attention has b e e n given https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 266 to the possibility o f reducing t h e deferred time f o r country items payable i n other districts because t h e Com- mittee feels that this i s a field i n which much can he accomplished. I n many instences checks payable i n a Fed- eral reserve b a n k o r branch c i t y m a y arrive t o o late t o be cleered o n the d a y o f receipt, particularly where t h e clesring h o u r i s early, w h i l e c o u n t r y i t e m s , r e c e i v e d a t the seme time, m a y possibly b e handled a n d credit given o n e dey esrlier t h a n i s n o w the case. I f reductions c a n b e mede i n these cases, i t will b e o f distinct benefit t o member banks, and, i f passed o n t o their depositors, r e - lease a large amount for active use o f their community. “hile t h e Committee feels a lreen sense o f disappoint~ment because i t s efforts have n o t met with a full measure of success i n revising t h e time schedules, i t believes that a s a result o f its efforts, t i m e schedules have h e e n worked out end submitted which ere based o n scientific principles a n d represent t h e actuel time required t o col- lect. I t is, o f course, obvious that unless the reserve hanks evince a willingness t o adopt these schedules, t h e Committee cannot accomplish enythine further. mittec w i l l b e perfectly willing, however, T h e Com- t o continue i t s https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 267 work a n d will make e v e r y effort t o overcome a n y obstacles which n o w s t a n d i n the w a y O f satisfactory accomplishment if the Governors desire t h a t this b e done. REVISION O F T H E F O R M O F T R E / S U R Y “ / R R A N T S T T O F S C I L I T SE THEIR H/NDLING B Y FED! R‘L RESERVE B/NKS. This topic was submitted t o the Standing Committee o n Collections b y the Conference o f Governors h e l d i n November, 1925. T h e Committee i n its report t o the Conference o f Governors i n M a r c h 1 9 2 6 s t e t e d t h a t t n e T r e a s u r y Department’ would b e agreeavle t o make some changes i n the Treacury warrants, b u t a t that time t h e Committee c o u l d n o t definitely say what changes would b e made. The Committee h a s h a d several conferences w i t h t h e Treasury officials, w h o have egreed t o the following changes in the f o r m o f Tressury warrants: (1) L a r g e r type serial numbers--to b e punctuated b y commas. (2) L a r g e r type symbol numbers with a hyphen between the first t w o nuubers. (3) M o r e f r e q u e n t r e n e w a l s o f serial numbers o n the larger accounts. (4) b l o c k number o r letter o n #11 Government checks, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis which will designate t h e ledger section o r line o n the transcript o n which t h e cheeks a r e t o b e listed. (5) D o l l a r amount t o be printed o n a greater number o f checks a n d i n larger type. The Bureau o f Engraving a n d Printing i s n o w equipped with the new numbering machines a n d a s the various depertments a n d d i s b u r s i n g o f f i c e r s r e q u i s i t i o n n e w supplies of checks, the changes i n the size and punctuation o f the symboi a n d serial a e v e will b e made. ffter January 1, 1927, n e w checks designed t o show the block n u m b e r o r t h e l e t t e r d e s i g n a t i n g t h e i r k i n d w i l l ype printed a s the various disbursing officers e n d departments order reprints. The Committee called t h e Treasury Department's attention t o the fact that i t i s quite a reserve b a n k s burden t o the Federal t o list t h e serial number o f each check o n the transcript, but the Treasury officials feel that this is necessary owing t o the system used i n the hecount ing Division. T h e Committee, h o w e v e r , d o e s n o t t h i n k t h a t this w o r k should b e required o f the Federal reserve banks and w i l l c o n t i n u e an effort t o work with t h e Treasury Department i n t o devise s o m e m e a n s w h e r e b y t h e l i s t i n g o f t h e https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis serial number m a y b e eliminated. NUMBERS ‘ND SYMBOLS ON CHECKS T0 INDICATE FEDER L R SERVE B N K O R BR‘ NCH TERRITORY. This topic was submitted t o the Committee a t the Governors Conference h e l d March 22-24, 1926, w i t h instructions t o consider t h e advisability o f having checks b e a r a number o f some sort o r a symbol t o indicate t h e Federal r e serve b a n k e r Federal r e s e r v e b r a n c h b a n k t e r r i t o r y i n which the draweg:..bank i s located a n d was given authority t o take the matter u p with the special committee o f the Clearing House Section o f the /merican Bankers fssociation, which was u n d e r s t o o d t o b e considering s u c h a series o f symbols. ft a meeting o f the Committee, t h i s question was thoroughly considered a n d a list o f symbols w e s prepared a n d submitted t o the Clesring House Section o f the /merican Bankers !ssociation o n May 27, 1926. advised that a T h e Committee w a s committee o f the Clearing House Section h a d already a d o p t e d a series o f symbels s u b s t a n t i a l l y i n the form recommended b y the Standing Committee o n Collections, except that n o provision w a s meade t o designate a Federal reserve b a n k b y any other symbol t h a n the district number, although Federal reserve b e n k branches a r e designated b y https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 270 including a n abbreviation. indicating t h e branch c i t y with the district nuiber. The Clearing House Section o f the American Bankers / s sociation further advised t h e Committee t h a t t h e u s e o f the symbols elready given publicity would b e recommended vigorously cver a period o f two years a n d a t the e n d o f that time the committee i n charge would hold a conference t o make s u c h modificetions o r changes a s seemed desirable. The Committee suggests therefore t h a t a n y bank making inquiry a s t o the proper symbol t o be used o n checks o f *ts depositors o r o n its o w n drafts o r checks b e referred t o the Clearing House Section o f the /merican Bankers fssociation. Respectfully submitted, H. F . Strater, C h a i r m a n 3.S&S. Walden, J r . 6. M. sttebery. GC. H.. 0o0e. J. M . Toy. Deputy G o v e r n o r C a s e . I Strater a question. I should l i k e t o a s k Mr. understand f r o m tris report https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis etl an i t e m o n a n y p o i n t i n o u r district, f o r instance, a plase like Niagara Falls, which i s four o r five hundred miles f r o m N e w York, t h e t a member b a n k i n our district sending there a n d getting t h e remittance back, w i l l probably b e doing that o n a two-day point. Mr. Strater. Exactly. Deputy Governor Case. B u t coming n o w t o N e w Jersey, which i s a split. dbase, a n d all points within « radius o f thirty o r forty miles a r e i n our district, a n d then crossing over a n d taking Princeton a n d Trenton, w h i c h a r e less t h a n fifty miles f r o m N e w York, i f your recommendation w e s followed t h e y would b e put o n the three d e y basis. Mr. Strater. Exactly. Deputy G o v e r n o r Case. I n dividing u p t h e States. I cennot h e l p but feel that while i n theory your report is splendid e n d idealistic, a practicel s t a n d p o i n t i t does s e e m t o m e that f r o m t o d o that--take t h e B a n k o f Commerce, w h i c h takes i n all o f N e w York State a n d has no trouble, a n d then N e w Jersey, t h e y have g o t t o sort them into t w o different groups a n d the fellow that sorts them has g o t t o know e a c h plece. f large member b a n k in New York i n listing f o r checks f o r u s could take a n y https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2v2 point. i n o u r district, w h i c h cleeserly w o u l d b e a two-day point; b u t i n the case o f the split States, s u c h a s N e w Jersey a n d Connecticut--because o f the three States i n our d i s t r i c t t w o o f t h e m a r e s p l i t S t a t e s - - t h e y w o u l d b e no fault mede three-day points. N o w I find/with the report from an idealistic point o f view, but from a practical point of view i t seems t o m e t o b e terrible t o s a y that w e would take P r i d g e p o r t , o r Elizabeth, N . J., i n one case f o r t y or fifty miles away and i n the other twenty o r twenty-five, but w e wont take N e w Haven o r Hertford o r Trenton seems t o m e that i t would create « if we were t o S e t e a Governor Fancher. I t great d e a l o f confusion that. C o u l d n o t thet b e covered i f the member b a n k had a n y considerable volume o f direct sendings? Deputy G o v e r n o r C a s e . N o , I covered, b e c a u s e t h e r e e r e a district. I do n o t think i t would b e great m a n y m o r e p l a c e s i n the do not know h o w Governor Norris feels about it, but the same thing i s true from his point o f view. It i s e11 Fight with his member banks i n Trenton o r Princeton, b u t i f i t comes t o N e w Brunswick, w h i c h i s t e n miles away, a n d within fifty miles o f Philadelphia, t h e n it m u s t b e o n another besis. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 275 Mr. Strater. T h e t i s net the fault o f the time schedule sc much a s i t i s o f the machinery under which t h e Federal Reserve B a n k operates. N o matter what y o u d o t o the time schedule, u n d e r t h e p r e s e n t m a c h i n e r y t h e N e w J e r s e y p o i n t s thet s r e attached t o the Philadelphia district must necessarily b e collected through t h e Reserve B a n k a n d y o u cannot eliminate o n e day's time, under a n y arrangement w h i c h y o u would make o f the time schedule. T h e fact that N e w York puts e l l o f New Jersey o n a two-day basis does n o t mean thot t h e y could collect a l l o f N e w Jersey o n a two-day basis. Deputy G o v e r n o r Case. I Mr. Strater. quite a p p r e c i a t e t h a t . f n d the same argument y o u u s e with re- spect t o N e w Jersey, w h i c h i s a split State, applies equally to a n y district l i n e as, f o r instance, i n the fourth dis- trict, where w e will collect o n a two-day besis points in Ohio that a r e near o r o n the Indiana line, points t h a t are p e r h a p s f i v e o r t e n m i l e s r e m o v e d i n Indiana n e a r t h e Ohio line, w i l l b e taken o n a three-day basis. N o matter where y o u draw thet line v o u have t h e same problem. The Chairman. “ e have t h e same thing t o contend with. te have f o u r split States; w e have Illinois, Indiana, Michigan a n d Visconsin, a n d i n commenting o n this p a r t i c u l a r https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis e74 feature, o u r officer i n charge states that f r o m e technical standpoint t h e committee's recommendstion with respect t o these S t a t e s i s undoubtedly correct, but from a practical standpoint w e are strongly opposed t o showing a n y split States i n our time schedule. I a m sure o u r officers feel that i f this were imposed u p o n u s thet i t would cause hardships o n the member benks a n d difficulties within o u r own institutions. “ e g hove a t a l l times b e e n opposed t o the Bplit State proposition and ere still of that opinion. ™“e want t o see this recommendation o f the committee fcllowed, Mr. Strator. Mr. Strater. M r . Chairman, y o u r committee h a s n o t meade a n y definite recommendation w i t h respect t o that particular problem. I t has confessed i t s inability t o cope with it, that i s ell. Governor Norris. M r . C h a i r m a n , t h i s t o p i c g e t on.the program from a surgestion that I a year ago. I made originally, I think made objection t o the existing schedules because m y attention w a s called t o the fact thet N e w York and Boston were collecting certain points i n the Scutheast, or undertaking t o collect them, i n less time t h a n w e did, and, i n some cases, i n less time than Richmond did. T h a t https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 275 was t h e perticular point thet I gated a n d corrected, thought ought t o b e investi- i f i t c o u l d b e done. T h i s question of split States d i d n o t enter into m y consideration o f it. “hile t h e committee h e s cutlined t h e logical a n d scientific basis f o r a correct time schedule, i t seems t o m e that w e must recognize t h a t w e cannot make i t o n a purely scientific end theoreticel basis, t h a t w e have g o t t o take t h e practical consideretion i n t o account, a n d w e ought n o t t o depart from p r o p e r p r i n c i p l e t o d o w h a t t h e c o m m i t t e e seys.théi-s present schedules a r e doing, namely, giving a n unfair a d vantage t o member banks i n certain districts o v e r memoer banks i n other districts, w h i c h is, a s they say, a pract- ice w h i c h w i l l s u b j e c t t h e F e d e r a l R e s e r v e S y s t e m t o s e - rious criticism. It seems t o m e thet a point t h a t could v e r y easily b e waived i s this question o f split States. I imagine w e a l l feel just s s y o u have expressed t h e opinion o f the Federal Reserve B a n k o f Chicago a n d a s Mr. Case h a s expressed thet o f the Federal Reserve B a n k o f New York, that v e went t o s i m p l i f y t h i s t h i n g a s m u c h a s p o s s i b l e a n d d o not w a n t t o i m p o s e a d d i t i o n a l s o r t s Therefore I o n member banks. think that point might well b e waived a n d https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 276 that e v e n t h o u g h i t i s n o t e n t i r e l y s c i e n t i f i c t h a t w e might t r e a t t h e s p l i t S t a t e s a s o n e State. T h e main feature o f this report, e m i t t i n g t h e question o f split States, i s the principle t h a t i s s e t u p that t h e deferred time w h e n the Federal Reserve B a n k o f the district i n which the checks originate m u s t b e t h e time required tea reach t h e F e d e r a l R e s e r v e B a n k o r b r a n c h o f t h e d i s t r i c t in which t h e y are payable, p l u s t h e deferred time given b y such F e d e r a l R e s e r v e B a n k o r b r a n c h a f t e r t h e c h e c k s r e a c h it. That seems to me to be the vital recommendation.in this report, a n d i t i s a recemmendation that I would like to have discussed. The Chairman. W e will b e glad t o hear from enyone on thet question. Mr. Strater. Governor N o r r i s , ‘ h a t t h e c o m m i t t e e h a s a c t u a l l y done, i s t o reconcile p r a c t i c a l l y a l l t h e d i f - ferences t h a t existed; i n o t h e r werds, w e have g o t t e n t h e m all s o that t h e y square o n e with t h e other. “ e have tried t o k e e p t h e t i m e b e t w e e n D a l l a s a n d M i n n e a p o l i s t h e same a s from Minneapolis t o Dallas, e n d s o o n through the whole list o f combinations, which i s quite a considerable job. I might also say, Governor Norris, t h a t t h e differ- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 277 ences y o u m e n t i o n e d a moment a g o between, f o r instance, the time schedule o f your bank a n d the N e w York bank o n Southern points, h a v e b e e n worked out. T h e N e w York bank has con- sented t o lenghten i t s time o n some o f the Southern points thet were o n their two-day schedule. I n fact, I firmly believe t h a t every inequality has b e e n adjusted w i t h the exception o f those three-day points which a r e taken o n a two-day basis b y Boston, N e w York, Philadelphia e n d Chicago. Mr. Harrison. Mr. Strater. I Governor Seay. T h a t i s the r e a l issue r i g h t now. think i t is, yes. T h i s question was brought t o some- thing o f a crisis b a c k i n 1922 when one o f our member banks in Baltimore received a communication f r o m the Philadelphia pank w h i c h r e a d a s follows: "The Philadelphia Clearing House Committee has arranged to have t h e Federal Reserve B a n k o f Philadelphia amend i t s time schedule s o that items payable i n N e w England, N e w York, N e w Jersey, Pennsylvania, Meryland, District o f Columbia and Virginia hereafter will b e available t o business d a y s after receipt,” which is the time that we make them available. "Now, a s the result o f this action"--this i s what the Philadelphia bank is saying to the Baltimore bank--"as https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 278 the result o f this action i t will favorably affect t h e in. terests credited t o your account a n d i t will enable u s t o collect a t par a larger proportien o f country checks a s compared with balances than heretofore. W e are pleased to extend t o y o u f r o m time t o time a n y concessions w e may o b t a ia i nthe t cost o f handling y o u r business a n d trust you will give u s a large share o f it." N o w , b y reason of that, the Philadelphia banks were entering into competition with o u r member banks i n Baltimore f o r bank accounts. It will epitomize t h e whole t h i n g i f I read o n e par. agraph o f t h e l e t t e r w h i c h t h e R i c h m o n d b a n k s e n t t o t h e Federal Reserve Board covering t h e situation. f f t e r re- citing those facts and going into some discussion o f the situation the following paragraph concludes the letter: ""¢ therefore request the Federal Reserve Board t o consider t h e time schedule o f the Federal Reserve B a n k o f Philadelphia a n d the time-schedule o f those Federal Reserve banks which had compelled the Federal Reserve Bank o f Philadelphia t o amend i t s schedule t o the e n d that t h e member banks o f one district m a y not erbitrartily b e placed at a disadvantage w i t h the member banks o f another district, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 279 and t o the e n d that t h e member bank i n the reserve e i t y o f one district m a y not b e able t o offer t o the member banks of other districts advantages i n the matter o f time sched-~ ules which their o w n Reserve b a n k i s not able t o give g r does n o t g i v e t h e m , a n d t h u s d r a w a c c o u n t s a w a y f r o m o n e district t o another." Now, j u s t o n e further quotation f r o m the letter f r o m Governor Harding e t thet time, and. I believe t h e meat o f the w h o l e c a s e w i l l b e b e f o r e t h i s C o n f e r e n c e ; if I Clevelend, may s a y so, t o o k t h e s a m e v i e w a s t h e Richmond b a n k and made t h e same protest t o the Federal Reserve Board. Governor Harding, t h e n Governor o f the Reserve Board, said i n this letter: the "tt 4 s evident, a s you say, thet unless/Richmond a n d ultiCleveland banks c a n act a s a buffer, these changes w i l l i n the mately a f f e c t t h e w h o l e c o u n t r y a n d p u t t h e S y s t e m attitude o f giving credit for items i n advance o f the time in which they can possibly b e collected." s the whole situation here. T h e Philadelphia Now, t h a t i bank c a n s o i tent i t e m s o n N e w York, N e w Jersey, a n d s o forth, quicker t h e n w e c a n collect t h e m f o r Maryland banks, a n d they c a n collect o n Virginia j u s t a s quickly a s w e c a n https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis collect f o r Ricnmond banks. The Chairman. T h e y cannot collect t h e m i n any shorter time b u t t h e y take t h e m o n a shorter time. Goveror Seay. T h e y will take t h e m and give credit for them i n spite o f the fact thac t h e y d o not collect them. Governor Norris. S u p p l e m e n t i n g Governor Seay's gtate- ment, I would like t o say, i n the first place, that w e are not r e s p o n s i b l e f o r w h a t a member b a n k i n Philadelphia m a y write t o 8 bank i n Baltimore. T h e statement o f the Phila- delphia Clearing House fssociation g o t t h e Federal Reserve Bank o f P h i l a d e l p h i a tion. t o d o this i s entirely without founda- T h e fact is, a s stated i n Governor Seay's letter t o the P o a r d , t h a t w e w o r e d r i v e n t o t h i s p o s i t i o n b y t h e f a c t that t h e N e w York a n d Boston banks were doing t o u s just wheat i t eppears t h a t o u r b a n k s a r e n o w d o i n g t o t h e R i c h m o n d bank. I originally took the matter u p with t h e F,yderal Reserve B o a r d t o ascertain whether t h e N e w York a n d Boston schedules c o u l d n o t b e corrected, and, after some distussion a n d i t appearing that t h e N e w York a n d Boston sched- ules were invincible, a n d that i t would b e difficult t o get them t o change them, they esked m e the question whether https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis e81 I would b e satisfied t o shorten o u r time t o meet t h e N e w York a n d Boston time. I then stated t o the Board that that would simply b e transferring t h e trouble; t h a t then, instead o f our complaining about N e w York a n d Boston, Richmond a n d Cleveland would b e complaining about us, which i s just what happened. I t shows t h e interrelation o f the whole thing a n d the necessity that, unless there i s t o b e an indiscriminate scramble i n which each Reserve B a n k will endeavor t o secure t h e largest possible measure o f advantage for its o w n member banks, t h e schedules o f all the Reserve Banks must b e made u p o n some scientific a n d logicel basis. Governor Seay. Governor Herding then wrote, Mr. Chairman, thet t h e N e w York B a n k hed reluctantly expressed a willingness t o change i t s schedule i n accordance w i t h the time o f collection, b u t Boston would not; that i t was t h e purpose o f the Reserve B o a r d t o call a conference l a t e r on to see if this matter coutd“be adjusted o n a scientific basis. T h a t conference, f o r some reason o r other, w a s never called, a n d w e are i n the anomalous position o f attempting t o o p e r a t e t h e m o s t s c i e n t i f i c b a n k i n g s y s t e m that this country hes ever had, o r thet a n y country hes ever had, u p o n a scientific basis, w h e n the fact i s w e https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 282 are operating i t upon a n arbitrary basis a n d n o t upon a scientific basis. The Chairman. D o the conditions w h i c h existed w h e n you h e d t h a t c o r r e s p o n d e n c e s t i l l p r e v a i l ? Governor Seay. Y e s , sir. The Chairman. I f your recommendations a r e approved and carried out, would that correct t h e situation, M r . Strater? Mr. Strater. I think i t would. I have, for instance, the first revised schedule which was sent t o N e w York a n d came b a c k approved, I think b y Mr. Harrison, i n which t h e State o f Virginia i s shown o n a four-day basis; a n d that is true also o f Marylarid, which i s shown o n a three-day basis. P h i l a d e l p h i a a l s o returned t h e original time sched- ule corrected the same way, s o that I feel now, without being able t o demonstrate it, because I have not received back the second suggested revision, t h a t a l l the differences heve b e e n reconciled w i t h the exception o f those which re- sult a s the aftermath o f the policy o f the Federal Rgserve panks i n Boston, N e w York a n d Philadelphia rdégarding t h e States i n immediately adjoining districts. Mr. Harrison. f s I understand t h e schedule, M r . Stratez https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 288 we were agreeable t o shifting Virginia a n d Maryland a s y o u proposed? Mr. Strater. Y o u did; t h a t was approved. Mr. Harrison. ‘ n d w e elso etated t h a t w e could n o t object t o the statement o f fact that e s t o the other States ‘an your list we could not collect them within three days. The o n l y reservation w e made w a s this: that, admitting that w e could n o t collect t h e m under three days under t h e present system, should w e o r should w e not abolish t h e two-day points? T h a t i s the problem that has b e e n before u s two o r three d i f f e r e n t t i m e s b e f o r e . I t was o n e w h i c h w a s raised i n 1922, a s Governor S e a y says, a n d t t i s one o n which Governor Norris, myself, a n d I think Governear IMorss of Bosten h e d 2 long debate a t one time before t h e Federal Reserve Board. O u r defense o f the two-day point i s merely this: t h a t p r i o r t o t h e i n a u g u r a t i o n o f the Federal Reserve System the country collectian department o f the N e w York clearing house n o t only gave credit i n two days f o r items drawn o n the eleven Northeastern States, b u t actually cleared t h e items i n those t w o days. “ h e n the Federal Reserve B a n k o f New Vork went t o take over the collection system, which w e h a d a d v o r t i s c d a s a n expeditious a n d https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 284 facile way of collecting checks, w e felt that w e could not inaugurate a collection system i n a concentrated banking area b y giving a n increase o f 50 per Bent i n the time taken by the banks, that i s an increase o f 50 per cent over the time which was taken before w e entered t h e field. T h e whole difficulty resolves itself into this, t h a t n o t having a central bank |b u t aFederal Reserve System of 12 hanks, you have arbitrary district l i n e s which largely were deter. mined not out o f consideration for collections, b u t rather out o f considerations o f credit a n d for credit reasons.. The linee f i x e d i n the various districts determined member~ ship, capital a n d reserve requirements a n d determined t h e situa o f credit facilities which t h e member banks were t o get, fortunately t h e y also determined collection limits, lieve that the time will come — Un- W e be- whether i t is right n o w or not remains t o b e geen —. when t h e collection system will be scientific, b u t not until i n some way, some how, w e can ignore district lines for collection purposes. W e have made some figures t o indicate t h e resuit i f w e were allowed t o send across t h e line that n o w separates t h e first a n d second districts, W e could actually collect 65 per cent of the items in New England by sending direct to only 22 cities https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis in New England, a n d i t seems t o u s that i t will b e most unfortunate t o go back, after a period o f some twelve years, to a three-day b a s i s o f c o l l e c t i n g c h e o x s t h a t h a d a l w a y s been collected i n two days, when all we o u l d have t o d o to actually make collection i n two days would b e t o send L e t u s contemplate t h e system a s i t direct t o 2 2 cities. is set up, and i t seems that w e might well enough ask, before w e are asked t o give u s the two-day basis i n those i n stances, t h a t w e b e given opportunity o r the Conference i t — self have opportunity t o consider whether the Federal Reserve Banks might n o t disregard certain district lines f o r collection purposes? G o v e r n o r wigDougel has indicated s o m e o f the difficulties t h a t h e has i n his district, W e all r e c o g nize t h e difficulties w e have i n the northeastern area. I understand that e v m t o d a y minneapolis i s actually sending direct t o S i o u x Oity, o r some place? Governor Young, W o , w e do not send direct. ifr. Harrisot. Y o u d o not? Governor Young. Wait a minute. renitt i n idilwaukee exchange. W e have some banks that f e have a n arrangement w i t h the wilwauxkee banks w i t h regard t o payment o f transfer items, and w e ship those right t o Mylwaukxee a n d they pay u s for https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis them, wr. Harrison. I t i s really not very material n o w whe~ ther they do i t now, but the point i s whether w e can properly consider whether o r not w e should o r should n o t do it, because i n spite o f the tal< about eliminating indirect routing, w e are guilty o f the most indirect routing i n the northeastern States. F o r c i n g u s to send items t o three day points increases the collection time dollar by 50 per cent o n an immense/volume o f items, Govemor Young. That i s true all over the System. wir. Harrison. A s I say, I think t h e district lines, while v e r y e f f e c t i v e f o r t h e o n e p u r v o s e f o r w h i c h t h e y were inaugurated, a r e a n i m m e n s e handicap, o b s t a c l e a n d u n — necessary obstruction i n devising what i s a really efficient, scientific andlection system. Governor Seay, W h a t d o y o u think o f the proposition of your member banks having freedom o f collecting b y send~ ing d i r e c t t o t h e i r o w n correspondents, a n d getting t h e m back i n t h e quickest t i m e possible t o them, o r depositing with your bank a n d getting credit f o r three days? O f which do you think they w u l d avail themselves? Mr. Harrison. I think o n account o f t h e immense volume https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 287 of items that a r e collectible i n the eleven northeastern States b y banks i n New York City, that i f we fix a three~ day point instead o f a two-day point, t h a t t h e y would h a v e | to revert t o the country collection system o f the o l d clear. ing house association. Governor Seay. B u t what about t h e expense o f doing that wir, Harrison. ‘ W h i l e there would b e a n expense i t would not b e comparable t o the expense o f losing a n entire day o n a large volume o f items. Governor Seay, they w o u l d r e v e r t “ r e y o u inclined t o the opinion t h a t t o that p r a c t i c e ? Mr. Harrison. T h a t i s only a It h i question o f judgment. n y ewould, k ht Governor Young, Governor Seay, Governor Young. I n minneapolis w e have a lot o f that. I n how many cities? I n Minneapolis a n d St. Paul. Governor Seay. Collecting o n how many points? Governor Young, F r o m North a n d South Dakota, i f they can beat o u r schedule b y collecting direct. wr. Strater. B u t not through t h e clearing house, T h e country clearing house banks d o i t individually. aic. Harrison. 8 7 per cent o f the dollar volume o f items handled through dky transit department, whether actual- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ly through t h e Federal Reserve B a n k o r through direct da sendings, a r e payable o n our 6 . doints, a n d that being s0 t h e y w o u l d t a k e w h a t e v e r s t e p s t h e y c o u l d t o m a i n t a i n that b i g v o l u m e o f items o n a two-day b a s i s r a t h e r t h a n a lreé-day basis. Governor Seay. D o you believe that statement i s based upon actual experience, that they actually did collect those items within t w o days? ir. Harrison. V e l l , o f course they collected what was probably a very large percentage o f them i n two days, which justified t h e m i n giving credit i n two days, j u s t as w e could most certainly collect a very immense p e r c e n t age o f them i n two days i f we did not follow the yrtnien’ w e rangement o f sending through the Federal Reserve Banks o f Boston and Philadelphia. I n other words, w e could pick out 3 5 cities i n those eleven States and w e would get 7 0 to 7 5 per cent o f the total dollar volume, exclusive o f the Federal Reserve Bans cities where w e send direct anyway. This i s just another angle, which i s an illustratiog, i f you will, o f the split State difficulty. vise a I f you could de. system f o r disregarding t h e district lines f o r these collection purvoses, y o u would n o t only avoid the split State * https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis difficulty, t o which Governor McDougal refers, b u t y o u would really d o more than anything else t o speed u p collections a s compared with t h e set u p under which w e n o w collect them. Governor Fancher. W h a t States a r e included i n those two-day points, itr. Harrison? idr. Harrison. A l l the N e w ingland States. Governor Fancher. T h a t i s five o r s i x o f them? wir. Harrison. N e w Yorks, N e w Jersey, Velaware, wary- land, Virginia a n d Pennsylvania. Governor Fancher. B u t y o u have divorced Maryland a n d Virginia; they are three-day p o i n t s now? wie. Harrison. ‘ Y e are willing t o d o i t i f w e have t o d o it, because the volume i s relatively small. Governor Norris. A n d that, o f course, includes the District o f Columbia? wir, Harrison. I d o not k n o w what w e d i d with t h e Dir— trict o f Columbia. , wr. Strater. T h e District o f Columbia should b e shown as @ three-daypoint. I think w e put that o n the same basis with siaryland. O f course there i s another element w h i c h https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 230 enters i n t o the consideration o f time schedules, a n d I think i t is an important one, and that i s the question o f float, Obviously i f New York a n d Boston collect a n y volume, and I assume that t h e volume i s relatively large i n adjoining States, t h e n they a r e going t o carry o n e d a y floats. The fact that t h e total amount o f float carried i s small indi cates to', m y mind only o n e thing, a n d that i s that a bask tain proportion o f i t i s compensated f o r b y passing t h e b u r den along t o the more distant Federal Reserve Banks. ur. Harrison. N o , I think you are wrong i n that, Mr. Strater, because I think 8 7 per cent o f our transit items o n the dollar volume are drawn o n those eleven States onwhich we give two days! credit; and that being so we cannot compensate f o r i t very much b y shortening o r l e n g t h ening t h e time o n the other 1 3 per cent, A s a matter o f fact I do not claim that the amount o f our float i s small; I think i t is large. I t is large enough t o be explained just b y this thing that I mentioned, a n d that i s that w e are giving credit o n two days o n items that w e d o not col~ lect for three days. Now, just for our o m amusement and edification w e have tried t o wor¥ o u t a map h e r e (indicating map) showing https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 291 how far each one o f the Federal Reserve Banks, Philadelphia, Cleveland, N e w York a n d Richmond | could collect b y sending direct across district lines. I t i s quite interesting what a large area each oue o f these banks would b e able t o cover if what w e suggest i s done, that is, i t i s made possible t o send direct across district Lines t o cities o n which large volumes o f items a r e drawn. I t i s not worth while on the smaller points. Govemor Norris. T h a t would require a n amendment o f the Act, would i t not? Wir. Harrison. N o , )I think not. I see n o reason w h y we should not send items direct t o Springfield just a s we may s e n d them direct t o a city i n New York, allowing t h e r Boston e x Springfield bank to renit to us in New Yor’ o change. T h e problem i s not a t a l l different f r o m t h e problem we have i n New Yors, where w e have t o split the state with the B u f f a l o Branch. W h e n w e s e n d direct f r o m N e w Y o r k t o a oity i n the Buffalo area w e give t h e bank i n that a r e a opportunity t o remit either i n Buffalo o r N e w York exchange. Governor Seay, But.ia member bank o f one district i s not required t o receive checks f r o m a Federal Neserve B a n k of a n o t h e r district. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 898 Mr. Harrison. That i s very true, a n d w e would have to make some sort o f a n arrangement wherepy w e would d o i t over the endorsement o f the Federal Reserve Bank o f Boston, for instance, T h a t would be no different from what is “being done n o w where o u r member banks i n New York City send direct t o Boston, T h e o r e t i c a l l y the Federal Reserve Bank ofBoSton is under no obligation at all, and perhaps has no right technically, t o accept items from the First Nation~ al Bank of New York, except that the First National Bank of New York i s acting a s our agent i n sending them t o Boston. Governor Seay, Byt the act does require that those checks Teach j;the member bank o f one District from its own Federal Meserve Bank, and it is required by law that the member bank’ receive from its own Federal Reserve Bank; but the law does not require a member bank i n one district to receive checks sent direct b y the Federal Reserve B a n k of another district. Mr. Harrison. Really, I think, Governor Seay, that any member bank anywhere i n the country would have t o r e ceive a check f r o m any point f r o m which t h e check happened to come. I a m speaking technically now, would t h o y rofuso https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 293 to receive a check merely because i t comes f r o m N e w York whentey want i t t o come from Boston — Governor Seay, Y e s , but they would not receive i t direct, another Federal Reserve Bank — . wr.. Harrison. (Continuing) B u t if we do it as agent for t h e F e d e r a l R e s e r v e B a n k o f Boston, o v e r t h e i r e n d o r s s — ment, i t i s n o different f r o m the fact t h a t t h e Federal Re—serve B a n k o f Boston really does not have t o receive items to the First National Bank o f New Yor«*, a s they are doing today. Governor S e a y . T h e point o f difference i s that a member bank: o f one District d o e s not receive checks except f r o m its o w Federal Xeserve Bank | a n d i n the other case i t would do 80.. ir. Harrison..I figure that i t would b e logical t o send them i n that way. Governor Seay, I cal, I do not contend that i t would b e illog: merely s a y t h e act does not s e e m t o provide that they shall receive then, Mr. H a r r i s o n . I think a s a matter o f policy w e will possibly h a v e t o m a k e s o m e a r r a n g e m e n i s w i t h e s o h t banks a whereby i t would be/wholly amicable thing t o send the items direct t o them, over the endorsement o f the Federal Reserve https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Bank o f Boston. Governor Seay. O n e difficulty would b e that perhaps the member bank might not b e entirely willing t o cash checks upon itself which would reach i t one day sooner. wr. Harrison. they B u t t h e offset t o that would b e that i f a s that Boston h a s got t o put a l l the items o n t h e second, third and fourth districts o n a three-day basis, so they lose i n o n e case what t h e y gain i n the other. Governor Seay, I am wondering whether the New York banks are not compensated, o r whether they wouldn't b e compensated, b y the fact that t h e y have t o give o n e d a y longer ‘n collecting through the Federal Axeserve Bank o f another district t h a n t h e y formerly could collect. wr, Harrison. I am not really arguing that t h e y should or should not d o it, because I haven't studied i t as mich myself as I would l i k e to. W e only suggest t h a t before the Conference votes t o lengthen the period which w e now have i n our time schedule that w e take every possible step we c a n t o s e e t h a t F e d e r a l R e s e r v e B a n k s generally, not only Boston, N e w York a n d Philadelphia, a r e collecting all items a s quickly as they can. in o t h e r d i s t r i c t s I f there i s opportunity t o 6 l i m i n a t e o n e o r t w o days, p e r h a p s https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 295 we might consider a n d should consider whether this thing i s proper o r not a s a general volicy and whether t h e y could not c u t o u t sane o f the time n o w taken t o eollect checks by sending t h e m indirectly through t h e Federal Reserve Bank o f the other d i strict. Governor Fancher. I t seems t o m e that Philadelphia is not a member o f the trio b y choice, b u t rather b y coercion. I f N e w York makes those three d a y points t h e n y o u have y o u r r e i t e t aie Governor S e a y , B u t I think t h a t i s o n l y a n e x p r e s s i o n of willingness o n the part o f N e w Yors. T h e y a r e not actually doing it. wr. Strater. T h e y have approved t h e Committee's recom mendation t o put t h e m o n a three-day basis i n the tentative time schedule, which i s not finally approved. Governor Seay, T h e y are not doing i t a t the present time. Mr. Harrison. T h e ‘aoproval w a s merely t h e anvoroval of the committee's assumotion o f time that i t actually takes u s t o collect t h e checks. the indictment. I y other words, w e admit I t takes u s three days, b u t w e t h i n k we ought not, uhless w e have exhausted every possible https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis avenue o f approach t o the situation, t a k e this immense step backward, w h i c h w e believe i t mould be, a s long a s there i s a possibihity o f actually collecting the checks i n two days. A t t h e moment t h e float w e carry i s the cost to u s of doing the thing i n acumbersome and indirect way. think G o v e r n o r s e a y ' s s t a t e m e n t a b o u t The Gpairman, I the effect unon his institution i s very interesting. and recited a condition that ought t o be corrected, | ir, Strater. I t might b e i n t e r e s t i n g t o read s o m e o f the correspondence that I received f r o u ur. Waller o f R i c h mond, correspondence between h i s b a n a n d t h e Jat chovia Bant & Trust Comvany o f Jinston-Salem, North Carolina. Governor Seay., I vie, Strater. wish you would, .dr.. strater. I t illustrates perhavs better than a n y — thing else the point o f view from which a menber bans looks at this particular problem, Gov'rnor Seay. T h e Yatchovia Ban's oe Trust: Company is a bans o f about 2 0 million dollars deposits. branches. I t has I t i s orobably t h e largest b a n between Richmond and New Orleans, with the exceotion o f Atlanta, a n d larger than most o f then i n atlanta. T h e r s a r e only e few banks between those t w o points that a r e lerger. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis wir. Strater. T h i s i s a letter f r o m the Yatchovia Bank & Trust Company, dated August 13, 1926, addressed t o Mr. Guthrie o f the Richmond Bank: 'We have today received f r o m our N e w Y o r corresvondents a list showing deferred time o n various cities and states that w e assume w a s made u p b y the N e w Yor’ Cleating House T h e y offer t o handle f o r u s Virginia Association. on a two-day deferred basis, ~hich i s o n your list a s two days deferred, t o handle irtansas, Florida, Tansas, .winnesota and wississippi o n a four-day deferred basis, which a r e shown o n your l i s t a s s i x d a y s deferred; K e n t u c k y , m i s s o u r i and Tennessee o n a four d a y basis, which. are shown o n your list a s five days deferred. W e . w o u l d Like t o inquire just how the New York Federal Reserve Bank can get quicker returns o n those S t a t e s t h a n t h e F e d e r a l R e s e r v e B a n k o f n Virginia i n Richp,ond. A l s o , h o w d o they collect i t e m s o two , days? I t certainly s e e m s t o u s that i t would require one d a y f r o m N e w Y o r k t o Richmond. a n d t w o days f o r t h e Fed- eral Reserve Bank o f Richpond t o realize o n the items, maxing it a three d a y S t a t e f r o m N e w rede. A n y information you c a n g i v e u s i n r e g a r d t o t h i s m a t t e r w i l l b e g r e a t l y appreciated. " https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 298 Governor Seay. W i l l y o u read the reply, please? wr. Strater. T h e reply o f wr. Valler was: "Your letter o f ..ugust 1 3 addressed t o wr. Guthrie, manager o f our adjustment a n d transit department, with r e f erence t o the deferred time o n various cities a n d states fur— nished b y you b y your N e w York correspondent, h a s beer, refer— red t o me for reply. I do not know from your letter whe- ther y o u have i n mind particularly t h e inconsistencies O r inequalities i n the deferred t i m e schedule o f the N e w York commercial bants, a s compared w i t h the deferred time schedule with t h e Federal Reserve B a n s o f Rich»ond, o r whether vou h a v e i n m i n d t h e d e f e r r e d t i m e s c h e d u l e o f t h e Federal. Reserve Bans o f New York i n comparison with that o f this bank. H o w e v e r , w e wish t o state that the deferred time schedules o f all the Federal Reserve Banks a r é n o w under study b y a comnittee f o r the c u rpose o f adjusting a l l i n e qualities a s far a s practicable. T h i s comnittee will revort at thenext Conference o f Governors." dirt. Waller's letter was replied t o o n the 25th o f sugust and reads a s follows; "Ye had n o idea o f giving our items a n indirect rout— ing just t o save o n e o r two days transit time, b u t w e are https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis age in receipt o f another letter f r o m our N e w York corresnond— ent i n which they advise u s that their time schedule f o r the handling o f checks o n various cities i s based o n the time schedule issued b y the Federal Reserve Bank." H e then gives a list o f the States, which I will not read. T h e y total about eighteen. T h e n h e goes on; " I f the Federal Reserve Bank o f New Yorsx c a n collect Florida, f o r instance, in four days, w e do not understand why the Federal Reserve Bank o f Richmond cannot collect a n item i n four days also. In fact w e believes that t h e Federal Reserve B a n k o f Richmond should collect Ficrida items o n a shorter deferred basis than t h e Federdl Reserve Bank o f New Yorx, a n d the Same r u l e w o u l d a p p l y t o wississivpi a n d Tennessee. W e believe that t h e Federal Reserve Bans o f Richmond should collect o n irkansas, ansas, Kentucky, winnesota and Missouri just a s q u i c k l y a s t h e F e d e r a l R e s e r v e B a n k o f N e w York. If i t i s possible that t h e Federal Reserve Bank o f Richmond can collect items o n States t h a t f a r just a s quick as. the Federal Reserve B a n k o f New York then a r e w e not justified in asting a that t h e same time b e allowed o u r letters mailed direct t o Federal Reserve Banks i n various districts? the case o f our letters going t o Jacksonville, Florida, I n https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 300 hours, a n d they leave a t 5:20 p.m. and i t requires 2 6 two New York t o Jacesonville requires 3 4 hours, only jours! difference. you W e should b e very glad indeed i f arrange would investigate this matter, a n d if you cannot please to give u s the bensfit o f shorter deferred time s o much better advise u s just h o w the N e w York schedule i s lixe t o sat— than the Rich,ond schedule, ‘ Y e would a t least isfy cur minds i n this matter." adjust this mat— The Chairman. W i l l i y o u undertaxe t o ter, mr, Case? Deputy Governor Case. Governor Seay, V e will, yes. I t i s undesirable, M r . Chairman, t h a t indefensible it 1 8 Olacing the Federal Reserve Ban<s i n a n position a n d w h i l e t h e y s a y t h e y a r e o p e r a t i n g on a scien- basis tific basis they a r e really operating o n a n arbitrary a satisfaoand i t i s impossible t o answer these queries i n tory way. The Chairman, I think t h a t i s a fair statement» Have a s t o how you a n y suggestions o r recomrendations t o make it could b e satisfactorily reconciled? Governor Seay, o embarrass I t i s far from m y p u r p o s e t oro,0se any Federal Reserve Sank with its menber banks o r t o https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 301 an arrangement w h i c h i s n o t a s a d v a n t a g e o u s a s t h e arrange~ ments which have existed Site many years back, lieve that a b u t I d o be- Federal Reserve B a n k o f a n y district h a s o o r tain responsibility i n protecting t h e business o f its o w n member banks, a s far a s it may legitimately d o so, and i t does appear that the banks of some districts are maxing inroads u p o n t h e correspondent banks o f other districts. Therefore I>think that there i s some justice i n the complaint. of the member banks o f our district. There: is a great d e a l in what ir. Gitek bon Bays, that. want? w e do pretend t o oper ute a scientific banking system, t h a t nevertheless a n effectual collection system might b e attained. to act abruptly i s she matter. I W e would not like a m willing that t h e standing committee of this Conference, i f it decides that it is advusable t o do so, g e a e consider whether the collection system’ may n o t b e imoroved a n d whether o r not a plan cannot b e worke out b y which i s Federal Reserve Bank o f one district might send, where the volume would justify it, directly t o a member o its own Federal Rebans o f another District f o r a c c o u n t f serve Bank, T h a t i s about what y o u had i n mind, w a s i t not, wir, Harrison? : wir. Harrison. That is it exactly, for this reason; https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 302 The district lines were arbitrarily fixed t o suit the par— ticular purpose o f eekes. was tee reasons that control the fixing o f those lines for that purpose have n o relation whatsoever o t the lines that should be fixed for collection purposes. I n other words, Governor Cal*ins, o r the Federal a c send direct t h #very vast Reserve Bank o f San F r a n c i s c o ; n o the fact that credit atea, geogravhically, merely b e c a u s e f conditions i n that country are s o sparsely situated a s to not justify a very restricted banking district i n that s e c — tion, I f we had authority t o send as many miles directly a s Gove rmde. Gal eine::hak we sould actually collect i n two days time itens w h i c h t .now i takes three days to collect, and we ht s are o p e r a tcollection i n g asystem for r e a s o tnahave nothing t o do with collections, that is on district lines that are draw for credit purposes. © -I°do" not feel that the suggestion I-have wea P S R S E o n e , bat w e n I do feel i s this: Tyat we have for a long while mde an effort to make the collection system one of the most efficient and expeditious collection systems that i t was possible t o conceive, and I think w e have come against a barrier now “hich is going t o defer a n y further progress i n collection matters unless w e are courageous enough t o overcome it, either b y 303 rule o r regulation i f possible, a n d i f not courageous enough & t o seek a n amendment t o the act i f necessary, before w e are jis r e q u e s t e d o r required t o give u p our two-day points. 7s a n d oncludes oves', https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 304 Harrison has very Governor Calkins. idr. Chairman, Mr. o f saying for some ably said what I have been upon the verge time. I t havpened that I sat i n with the first Conference collection system, a n d that w a s held i n connection w i t h t h e a n d what t i m e w e have spent I have been sitting i n ever since, been spent, a s i t has been for t h e past five o r s i x years h a s one o r two eastern today, i n differences o f opinion between not gotten over it. Federal Reserve banks, a n d they have was crude, defect— The collection system i n its inceotion ive, a n d unscientific. I t has been improved i n some respects. a t the start, b u t for It i s a much better system than i t was been standing still ertne past four o r five years w e have matters. cept a s t o some small a n d umimportant W e check u p relations between on time schedules and quarrel about the efficient a n d neighp,or hanks, but s o far as devising a n scientific colleotion system, w e are not maxing a n y progress that i s the reason atall, and it is time, i n my opinion — I a m talxing -—- that a new note was injected i n t o the collec~ Bank, a n d that note i s tion system o f t h e Federal Reserve progress and not standing still. themselves o r wiy opinion i s that either the Governors Conference should some committee appointed b y the Governors! endeavor t o make a Reserve comprehensive study o f the Federal https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 3 0 5 collection machinery a n d point o u t ifspalpable, obvious a n d serious defects a n d seek t o remedy those defects, I t isabsurd, absolutely, that w e should sit here day after day a n d year after year a n d t r y a n d iron o u t differences in the collection o f items between N e w York and Philadelphia and Boston, a n d swilwaukee a n d winneapolis, a n d not g e t any— where, wir, Harrison h a s stated m a n y o f his grounds f o r what I a m going t o say, a n d that i s that t h e system has n o w reached a point w h e r e i t 1 8 incumbent u p o n t h o s e w h o o p e r a t e the F e d e r a l R e s e r v e b a n k s provement i n t h e system. t o t r y a n d effect s o m e real i m . I t i s f a r f r o m perfect. I t has net been v e r y materially improved i n the last f e w years, and there i s room for improvement, I f it needs a change in the regulations b y the Federal Reserve Board, o r even inmodification of the Act, both of those things should be attacked and some real, scientific, effective improvement in this country-wide collection system, which has been under attack f r o m its inception a n d has been vulnerable a l l o f that time, should b e made. I think that t h i s may n o t b e the moment, t h e time m a y not b e ripe, b u t either a t this Conference o r a t one i n the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 306 3 t o try a n d very near future, s o m e steos should b e taken devise and discharge what I believe i s our plain duty, t o operated, operate the best system that v a n be devised and has been i n opera~ and not o n e that b e g a n 1 2 years a g o and ( tion ever since without any vety material change. Applase) encore because fhe Chairman, N o w , I do not join i n that a n injustice t o I a m afraid that i t unintentionally does the committee that h a s b e m working o n it. Governor Calkins. my N o t a t all. Y o u have misconceived remarks, a n d I a m entitled t o reply. I t has n o application to t h e p r e s e n t c o m m i t t e e , The Chairman, W a i t until I finish. Governor Calkins. I t has n o application t o wr. Strater': comnittee i n any way whatever. w i r . Strater's committee a n y other committee has d i s c h a r g e d i s s d u t i e s b e t t e r t h a n Reserve System. that e v e r sat o n this subject i n the Federal The Chairman. A n d yet y o u think w e have made n o pro- better i n our col— gress i n t h e matter o f changing for the I d o not agree lections i n the Federal Reserve System, a n d with yous I made think this reoort that Mr. Strater has made would f o r m the and t h e recommendations t h a t t h e y have basis f o r such action a s y o u have mentioned. to make your motion? A r e y o u ready https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Calkins. N o , sir. Governor Seay. M r . Cpaizman, what I suggested i n son- nection with the standing committee o n collections, based $ on what Mr. Harrison h a s said, w o u l d certainly b e a step f o r ward and perhaps b e as far a s we could see t o go. involve, I am sure, some further increase i n the collection. staff o f the Federal Reserve Bank. ant point. I t will B y t this i s the i m o r t — T h e deferred credit principle i s based entirely upon t h e time o f collection. T h e r e was t h e case o f the bank in Winston-Salem, North Caroiina, which attempted t o force immediate credit. I f w e got credit i n two days f o r a matcer that cannot b e collected i n three days, w h y shouldn't w e get immediate credit f o r a matter which c a n b e collected i n one day? I f w e are t o defend t h e collection system o f the F e d e r al Reserve Bank, i t has got t o b e based vpon scientific m e t h ods a n d upon questions o f fact. best methods o f collection. W W e have g o t t o adopt t h e e have done 2 great deal, I believe, notwithstanding Governor Calkins does not think w e have made much progress i n the last f e w peers, and I do not believe w e have; b u t I believe that i f the committee would undertake a study o f that one point, whether o r not Federal Reserve banks i n one district m a y not t o advantage, collect https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis m08 5 items i n another district b y some arrangement w i t h t h e F e d eral Reserve Banks in that district, I believe we will go about a s far as w e can go at the present time. The Ohairman, D o you want t o make that a s a motion? Governor Seay, Y e s , sir; I The Cyai rman, I s that seconded b y Governor Calkins? Governor Calkins. 2 The Chairman. make that a s a motion, b e g your pardon? D o you second the motion? Governor Calins. N o t yet. I would like t o say i n thai connection that while I approved o f Gavernor Seay's suggestion that i t is progress b y inches o r half inches, o r some— thing o f that cort, that i s not what igs needed i n this con- nection. M r . Strater's committee, I believe, has discharged its duties with great fidelity. Mr. Strater's committee has been handed some, dnimpertain’s, more o r less technical questions, involving disputes between banks, f o r solution, a n d o the best o f its ability a t this time it has solved t h e m t and heretofore. m a n e 0 n o reason t o find a n y fault w i t h that committee, a n d I believe i f they a r e given a larger job they will d o better than t h e y have before. Mr. Harrison, T h e r e i s n o intention o n m y part t o m s t any reflection o n the committee, a n d I believe with Governor https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 6. Calkins that they have been a great 4ob. 0 9 n a done a good c o m m i t t e e d O n e o f cur m e n signed this report because h e b e lieves it, and I believe h e was dead right, I would have signed ths report teo, because that was the job given to them.and they have done it to the best of their ability and they have given u s a n honest opinion. The situation now is, merely, admitting everything that the committee says i s true, that the Federal Reserve Bank o f New York should not b e giving credit a day ahead o f when they actually g e t i t ;What- c a n w e d o actually t a collect n the t w o days? the i t e m s i T h a t i s what w e want t o do, a n d I think there i s a n opportunity t o say that, T h a t i s all. wi. Strater. i r , Shairman | may I say a word i n connec- tion w i t h t h e a c t i v i t i e s o f this committee? F r o m the very beginning, w h e n t h e committee w a s first appointed, i t has always f e l t a n d understood thet i t was t h e desire o f the Conference t o turn over t o it operating problems, e n d i t has studiously avoided a n y reference o r any suggestiqn T o garding changes i n Federal Réserve Bank policy, a n d that j s the reason that w e have confined ourselves purely t o the preblems that have been. submitted t o u s a n d solved them, a s we u n d e r s t o o d t h e C o n f e r e n c e w a n t e d t h e m solves, w h e r e v e r a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 310 7 solution w a s possible, a n d where there w a s n o possible solu— tion w e have explained the reason why we thought a solution could not b e presented, Governor Norris. I The Chairman, will second Governor Seay's motion, W o u l d y o u r p u r p o s e b e answered, G o v e r n o r Seay, b y adopting Mr. Oalkins' suggestion? had i n mind, i f w e gave this commit- Governor Seay. I tee too large a n order, although I appreciate the force o f what Govemor Caikins has said, that i t would require more extended time i n which t o make a report, t o obtain first a l l she information necessary t o enable them t o Make a report, but that i g their investigations with respeot t o this narticular suggestion i t might l e a d t o still other suggestions, and I see no reason why other suggestions might not b e incor— porated i n their r e p o r t w h i c h a n s w e r s t h i s o n e suggestion, I do believe that w e have g o t t o approach this collection problem b y degrees, W e have found that true. I t is very 4 vexatious thing and i t will continue t o be for a long time. The Chairman. Would you be willing, Governor Seay, to formulate a motion n o w that will cover your views? Governor Seay, I thought I had done 80; that is, that the standing committee o n collections b e asked t o continue their studies o f the collection problem, h a v i n g i n mind par— https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 3 1 1 ticularly whether Federal Reserve Banks o f one district m a y not shorten the time for collection b y sending, when the volume o f checks justifies it, direct t o a member bank i n another district, b y arrangement w i t h t h e Federal Reserve Bank i n that district? The Chairman, Y o u have incorporated i n that t h e suggestion o f Governor Calkine, t h a t i t b e referred t o the same comnittee? Governor Seay, |That the standing committee b e request— ed t o report what i n its opinion m a y b e doné-to p u t t h e collection system generally o n a more scientific basis. Governor Talley, W o u l d y o u b e willing t o g o just a little L i t further a n d g a y disregard t h e present basis t o what extent i t seems desirable t o d o so? Governor Calkins. I offer a n amendment, a provision that t h e standing committee shell proceed a s h e has outlined and a t this Conference a n enlarged committee o n collections, with wr. Strater a s chairman, b e appointed t o review the whole operation of the collection system of the Federal Reserve System, and make such improvement, modification o r change a s will bring about a better, more effective and more scientific collection system i n the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis $123 The Chairman D o you want t h e standing committee enlarge Governor Galxins. I think i t should be, f o r that p u r pose. The Oheirman, W o u l d y o u b e willing t o let that rest so that mr. Sprater could call those that h e would like t o have w i t h h i m o n it? Governor Calxins. The Chairman. Yes. W o u l d that b e satisfactory t o you, Mr. Strater? Governor Seay, H o w many members have you now, Mr. Strater? Mr. S t r a t e r , I h a v e f i v e o n t h e c o m n i t t e e now. Governor Calkins. I entitled t o a l l t h e i t h a t j o b mr. S t r a t e r thinkn is b e able t o g e t f r o m a s s i s t a en would ch e any source, a n d I would b e perfectly satisfied t o leave with him the selection o f the man i o assist him. I f he thinks judge. the committee i s sufficient a s i t is, h e i s the better dir, Strater. I would hesitate t o answer your question, wir. Opairman, because a large committee i s cumbersome, a s you <now. I t i s difficult t o get together, a n d i t worxs more slowly than a small one. I really believe that J a m expressin: the opinion o f the other members o f the Committee w h e n I say https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 31S 10 that I of think i t w o u l d b e b e t t e r t o h a v e t h e c h a i r m a n which might the Conference appoint any additional members appear t o b e desirable. The Snairman. I d o not t h i n k 4 t i s Governer Calxin's anyone fntention t o arbitrarily inject i n t o t h e committee that y o u d o not aesire. M r . Chairman, Mr. S t r a t e r . if I m a y r e f e r t o Governor collection Walkins amendment t o the motion, h e refers t o the system, I system. assume that h e means t h e check collection Governor Calxins. wr. Strater. I Yes. would l i k e t o k e e o a w a y f r o m t h e n o n - c a s h G o v e r n o r Seay, The Chairman. d o y o u accept t h e p r o - posed amendment? Governor Seay. Y e s , sir; I The Chairman, wiil accept that. I s there a n y further discussion? (The motion was put and unanimously carried. ) The Chairman, T h a t disposes o f that report. Then w e have I I - B : II. C O L L E C T I O N S AND CLEARINGS B. D i s c u s s i o n o f recent ruling o f the Federal Reserve Board relative t o the handling o f non-oash collection items payable a t street addresses. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 53.4 The Chairman. T n e next i s II-B, 'Digscussioon o f recent ruling o f the Federal Reserve Board relative t o the hand— Ling o f non-cash collectiun items payable a t street addr es— ses. " This topic i s brought about, I think, a s the result o f a letter sent o u t b y the Board, w h i c h reads a s follows: "In the considerations w h i c h have b e e n given during he past two years t o the question o f whether o r not the Federal reserve banks should discontinue the handling o f so-called non-cash collection items, considerable opoosition has developed t o the continuance o f the service a s a t p r e sent, that is, without charge and without limitation a s t o items payable a t street addresses. "The ,rovisions o f the Federal Reserve Act euthorize, but d o not require the Federal Reserve Banks t o handle noncash items and the inauguration o f the function was not the result o f an order b y the Federal Reserve Board | but rather at i t s suggestion. T h e Board wishes t o suggest t o the Rderal reserve banks that e a c h bank exercise i t s o w n option a s t o the collection of non-cash items at street addresses, but continue the collection o f non-cash items collectible a t banks, " https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis With respect t o the Board's statement that "the inaug— uration o f the function w a s n o t t h e result o f a n order b y the Federal Reserve Board, b u t rather a t its suggestion", there i s quoted below a n excerpt taken from the Report o f Sub-Committes o f Committee o n Voluntary Services Assumed b y Federal Reserve Banks t o Conference o f Governors, November 12, 1923: "The Board watild like t o see the Federal reserve banks develop this function a s early a s possible, because that i s one o f the important ways i n which Federal reserve banks may b e o f service t o their country members." And another letter later, w i t h which y o u are probably familiar, advising the banks that the Board wanted that function adopted a n d put i n operation o n the dete specified, Governor Galxins. I want t o r e a d a n e x c e r p t f r o m t h e Board's letter X-291, dated July 19, 1917, the last w e n s graph beginning: "It seems proper t o take this opportunity o f calling attention t o the suggestion o f the Board some months a g o that t h e Federal Reserve Banks arrange i n the near future to collect maturing notes a n d drafts for t h e menber banks." The Chairman G o o n and read the balance, "Each bank, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1.3 therefor," a n d s o forth. Governor Fancher. I took occasion t o call the Board's attention t o that when this letter was sent out. Governor Wellborn, T h e y u s e t h e w o r d "suggestion" i n that letter, don't they? Governer Calkins. be made. I I t i s a s plain a direction a s i t c a n would like t o ask Govermor Bailey h o w h e feels about this, Governor Beiley, W e are sitting pretty. Governor Calkins. Governor Seay. T h a t i s a l l right, b u t w e d o n ' t n o w . W h a t would other Federal Reserve Banks d o if they received items with street addresses? Governor Calxins. T a t would other Federal Reserve banks do if they received items from you? Governor Young, S o that y o u c a n g e t a correct u n d e r — standing o f where wjnneapolis i s , I will t e l l you. Governor Fancher. I s this going t o b e your plan under the Board's letter? Governor Young. N o , sir, i t is not. 1923 p a s s e d a resolution O u r Board i n t o abolish handling o f non-cash c o l — lections except those actually owned b y Federal Reserve Banks. I took i t u p with t h e m a few days ago, a n d they told https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 14 me t o come down here a n d maxe a suggestion o n that. i n other words, then, y o u collect Governor Fancher. discountable b y F e d only items owned; t h a t would b e paper eral Reserve Banks? Yes. Governor Young. Governor Seay. paper H o w d o y o u distinguish between owned a n d not o w e d ? Governor Young, T h e same a s we do now. A r e w e t o be notified o f that? Governor Fancher. O h yes. Governor Young, begin? h e n are you going t o Governor Fancher. do not know. Governor Young, I Governor Norris. I Governor Young. W thought h e said i n 1923. 1923 that e passed a resolution i n o f the Federal R e we would d o that i f w e got t h e approval serve Board, W e have never gotten it. Governor Seay. to I n the meantime y o u will continue handle i t ? Governor Young. O h , yes. Y o u will have ample notice if w e make a change. Governor Seay. make @ D o you consider that y o u c a n Reserve Board? change without t h e approval o f the Federal https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 31.8 Governor Young. T h e i r last letter, which came along, said they h a d never required t h e banks t o d o this. W e do not k n o w just h o w t o interpret that, a s t o whether w e c a n abolish t h e whole thing o r whether w e c a n put a charge o n or what w e can do, That w e will have t o find out. S i m u l t a n . eously w e received a wire asxing u s t o hold o f f o n the mat- ter until this meeting, which w e were glad t o do, should like t o ask wr. Strater i f Governor Seay. I his committee d i d not arrive a t the conclusion that i t would not b e practicable f o r t h e Federal Reserve Banks t o receive some items and not t o receive: ‘others? ir. Strater, Y e s , sir, that was the conclusion a t which the committee arrived, a n d which was incorporated i n one c f its voluminous reports o n the non-cash collection system. Governor Seay, I t appears t o m e that this permissive ruling o f the Federal Reserve, Board will throw the non-cash collection items i n t o material confusion. Mr. S+trater. I Governor Oalkins. t u n d o u b t e d l y w i l l d o that, I t i s obvious that i f the three banks - — Kansas City, winneapolis a n d Atlanta — a r e t o dis- continue the handling o f non--cash collection items, that the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 16 rest o f the Federal Reserve Banks, the other nine, will b e compelled t o d i s c o n t i n u e r e c e i v i n g i t e m s d r a y n o n t h o s e three districts a n d give notice t o their member banks o f that discontinuance. A t the same time, o f course, i t i s ob- viously necessary that w e should refuse t o receive f r o m those three banks a n y non-cash items drawn o n our o w m districts, Governor Young. and Atlanta, Y o u assume Kansas City, winneapolis T o that should b e added Dallas a n d Boston, This suggestion c a m e from Boston a n d was approved b y Dallas, Governor Calkins. T h a t i s news t o me. I never heard o f that before. Governor Talley. T h a t w a s only t o reach a compromise. Governor Young. I t was agreed t o b y those t w o banks. Governor Fancher. I as a thinx Governor Harding t h r e w i t out suggestion, Governor Young, H e made t h e positive statement t h a t h e would n o t b e willing t o d o this. Governor Fancher. G o i n g back before that, a t a confer— ence here the suggestion was thrown o u t that h e thought perhaps a n arrangement c o u l d b e made with o n e o r two o f the banks t o handle street address items, H e had i n mind get- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 330 Lt street ting o n e o f your l a r g e r banks + o take over your said h e address items, a n d a t a later meeting I think h e d i d not had approached o n e o r two o f the banks a n d they want t h e items. I s that correct? Deputy Governor Paddock. Governor Young, T h a t i s correct. I t would make n o difference what Dal— las o r Boston said a t all. W h a t i a important i s what their position i s now. A n y b o d y c a n change their opinion. Deputy Governor Padd,ck. W e propose t o continue it. Governor Fanoher. J y s t a s they are, Governor Talley. I was going t o say t o Governor Young that t h e situation n o w even m a had i n mind the idea o f naking a h st broader. I k ee option suggestion o r 4 motion that its own each Federal Reserve Bank b e permitted t o exercise t should collect items option a s t o the manner i m w h i c h i t street addresses, when of this nature i n its own c i t f e s a received f r o m other Federal Reserve Banks. Governor Oalkins. But T understand t h e position o f these banks t o be that they wikl handle n o non-cash collec tion items. The Chairman, T h a t w a s Jinneapolis. Governor B a i l e y , I w o u l d l i c e t o s t a t e o u r position. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 331 18 Reserve Inasmuch a s the Board has ruled that e a c h Federal continues Rank m a y u s e its o m discretion a s t o whether i t to handle non-cash collection items o r not, w e belisve thai the result f o r which w e have contended a l l through this matter will be attained if we adopted e plan of handling at only non-cash collections w h e n t h e items were payable or drawn directly o n the bank. T h i s : would o f course cover all checks sent t o u s a s collection items, a l l nertificates of deposit a n d coupons a n d bonds which are. made payable a t banks, a l l notes a n d acceptances which are: made payaole at banks, a n d d o away with t h e large wumber o f miscellaneous items, such a s commercial checks, city, county, sohool district e n d State warrants, t h e great majority o f which are not payable a t the bank, bills o f lading a n d drafts, w h i c h require unusual c a r e a n d attention and: therefore a r e much more expensive t o handle. W e would o f course b e compelled - 49 continue t o handle f o r other Federal Reserve Banks a n y item which was ownec b y the Federal Reserve Bank, such a s bills o f lading which e a e h a e taken, coupons f r o m bonds held for safekeeping, a n d any other items o f a similar na~ ture. I f due notice were given t o other Federal Reserve i the matter i n amp Banks a n d member banks o f our p o s i t i o n n https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3228 19 time t o permit t h e o t h e r b a n k s t o n o t i f y t h e i r members, policy i n a we d O not believe t h e adoption o f the above handling very short time would caus any difficulty i n the h a n d non-cash collection items, a n d a t the same time much more safety ling o f such collections c a n b e done with than a t the present time. Governor Fancher. T n e s e items would not come inte and be ~ your bank. They would go to the commercial banks they not? subjected t o your clearing—house charge, would Your clearinghouse prescribes a o this class o f charge. n items which the member bank would coecest Governor Bailey, Yes. W e would let them have i t as pefore, Governor Fancher. T h e n y o u would g o back t o the clear— ing—house charge for collecting items?. Governor Bailey, F o r collecting items. Governor Fancher. A n @ the same would b e true o f Minneapolis a n d St. Paul? Governor Young. I t i s i n St. Paul n o w and has been all during t h e System. Governor Talley. Fort Worth too. Governor Young, S o i t woulc not change St. Paul a t https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Fencher. I wondered whether y o u have thought ebout what other cleering house associations might do. Governor Young. Yes. Governor Fancher. I , T h e y could d o the sdme thing. think y o u will f i n d that inmport— ant’ C l e a r i n g h o u s e a s s o c i a t i o n s i n the country would pre— scribe rules o r adopt rules which would nut a charge o n items c o m i n g f r o m St. P a u l a n d X a n s a s City, S o o n all of your non-cash items there would b e a charge. Governor Seay, I would l i k e t o a s k G o v e r n o r B a i l e y if his bank would receive f r o m its memper banks nom-cash items o n street addresses i n other districts? Governor Young. N o , certainly not. Governor Bailey. L e t them send them direct. Governor Feliborn, A s J understand, y o u only want to receive items that a r e ownsd b y Federal Reserve Banks? Governor Calkins. I f w e send you a bill o f lading draft which w e have i n c o m e s , which i s payable a t a street address, wiat are you going t o do with it? Governor Young, Governor Badiey. W e are going t o collect it. W e are going t o collect it. Governor Young. T h e resolution o f our directors P r o v i d e https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis el that. Governor Talley. Governor Young, Governor S e a y , A r é y o u going t o make a charge f o r No. Y o u will r e l y u p o n t h e Honor o f t h e Federal Neserve Bank not t o send younany such items? Governor Bailey, I Deputy Governor Oase. rely upon t h e Honor o f most o f then, M r . Ohairman, I would like t o make one observation on this, and that is this, that the National Assc ciation o f Credit Men, which i s a fine organization o f business m e n throughout t h e country, h a v e been very much i n t e r ested i n the development o f the par collection system o f checks. I think they have been very helpful. I have wielded a think they very strong influence o n the side o f en- couraging the development o f this par collection system. We h a v e u p t o t h e present t i m e a uniform s y s t e m i n all t h e Federal Reserve Banks for collecting non-eash items, a n d [I mast c o n f e s s t h a t i t s e e m s t o m e that t h e p o s i t i o n t h a t t h e Federal Heserve System will occupy i n the minds of the business men o f the country — take a large organization such a s the Simmonds Hardware Company, o r something o f that sort; items o n certain sections and areas can b e handled through https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 335 32 the Federal fleserve Bank, items on other points cannot, and it seems t o m e that t h e reaction o n the part o f the business men has been s o helpful i n the par collection o f checks it i s going t o b e very, v e r y bad. ; The Chairman, I do not think i t has c o m e t o that. think this wil] have t o be adjusted o n a uniform basis way o r the other, o r it will not work. Deputy Governor Gase, J a m glad t o have y o u s a y that. Goverrjor Beay, Either collected o r not collected. The Cpairman, Either collected o r not collected. Governor Seay, T h a t h a s been t h e opinion o f the standing committee o n collections which w e havé adopted b y a majority but n o t b y @ unanimous vote. W e have heard from two vanks that Governor Fancher. are lixely t o revise their non-cash collection vlan, M i g h t we not h e a r from Atlanta? Governor Wellborn. ‘ W e feel about like Brother Bailey expressed himself. e would handle o n l y items that a r e W owned b y the banks. The Cpairman, I dit n o t h e a r you, w r . Wellborn, O n l y what? Governor Wellborn. O n l y bill o f lading drafts that are https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 386 23 owned b y the Federal Reserve Bank, that have been discount ed b y the Federal Reserve Bank, Governor Fancher. H a v e y o u w o r k e d o u t a n y p l a n a s yet? Governor Wellborn. N o , w e have not weked out any i € plan. Governor Calkins. T h e opinion i s expressed b y the chair man that i t would b e impossible t o proceed with the non—cash collections function upen a n ununifom basis; that i t will be necessary for us all t o adopt one plan o r another, a n d itappears, a s we are going now, that only one thing i s vos. sible, that nine will give i n to three, a n d that we will adopt t h e u n i f o r m p l a n t h a t t h e t h r e e i n s i s t t h a t t h e y w i l l adopt, regardless o f the opinions o f the other nine. The Chairman. I a m not s u r e t h a t t h e t h r e e b a n k s r e f e r red t o are o f the same mind. I think that, f r o m the resolu. tion passedby t h e wannecrpelis Board. t h e y a r e getting ready to discontinue the handling o f all #émds o f non-cash collections. Governor Young, T h a t i s the resolution. Governor Seay, I do not believe that that interpretation can b e r e a d i n t o t h e communication. The Chairman, I t canbe, T h e Board h a s specially recom. mended that even though some o f these banks exercise this https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 24 3 2 7 option t o discontinue, that they continue t o handle other non-cash items, Governor Seay. I think that i s all, Governor Young. T h e letter states that they» have nevermadé t h e requirement. T h e r e has never b e e n a request. Deputy G o v e r n o r U a s e . B u t t h e r e has. Governor Young. T h a t referred t o maturing notes a n d bills, T h e stuff that w e are handling o u t there, w e are not referring t o notes a n d bills. Governor Galxins. I a m o f the opinion that t h e three banks which have determined n o t t o handle non-cash items and adhere t o it, i t would b e neoessary for the rest o f us to proceed a s w e s e e fit, a n d i t will n o t b e necessary f o r us t o conform t o their action. Governor Young, Y o u a r e quite right, W e are not ask. ing that. The Chairman. D o you think you could operate satis— factorily with t h e three panks o u t o f the ring? Governor Calkins. N o t satisfactorily, b u t we can operat Governor Young. T h a t is, y o u could n o t put i t o n a scientific business, The Chairman, W e could operate i n the face o f the co. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis os 3 2 plications a n d restrictions, w h i c h probably would result 8 in discontinuance o f that particular feature. Governor Seay. I agree with t h e v i e w expressed b y iir. Case; t h a t is, i t c a n hardly fail t o bring i n t o disrepute the method generally pursued b y Federal Reserve Banke. They are nos in agreement among themselves; they have not adopted a n y uniform policy. Governor Bailey W e wil] s e n d a letter o u t and announce our policy, and you will all get it. The Chet omen M a y b e y o u won't after w e get through here, Governor Bailey. I an assuming that t h e Board n o w what ‘ i t was doing, a n d I am sittigg hack o n the authority of the Board, Governor Foncher. I s n o t t h i s g o i n g t o b e t h e result, Wr. Onairman? A s s u m i n g that the Federal Reserve Banksof Minneapolis, X a n s a s C i t y a n d Atlanta adopt t h i s policy, t h e t items payable a t street addresses i n the cities where t h e Federal Reserve Ban's and branches are located and where they have clearing house arrangements f o r exacting charges, that Glass o f business and those items are now going back t o the o l d status before t h e organization o f the Federal Reserve https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26 Bans collection system, and they will b e subjected t o a charge? W h a t will b e the effect i n Minneapolis? H a v e you abrogated your o l d clearing house system o f charges? Governor Young N o . W e still have them, Governor Fancher, T h a t means a charge o n Omaha, Denver and Sioux City? Gevernor Young. T h e r e i s a charge now, b u t I d o not kno: what t h e charge is, Governor Fancher. It was a Y o u will g o back t o your charge. tenth years ago7 Governor Young. The Opairman. Yes. T h e r e i s a paragraph here that I think will illustrate t h e situation that might arise b e tween Chicago a n d winneapolis; should the Wynneapolis Bank, for example, discontinue handling items payable t o street addresses, Chicago banks would b e obliged t o send their items t o minneapolis commercial banxys a n d would meet w i t h exchange charges. W i t h that practice i n effect w e could not i n fairness t o our Chicago banks continu2 t o collect from Minneapolis banks items f o r collection a t street a d — dresses i n Chicago, Governor Young. T h e r e i s n o dispute about that a t all, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 330 Governor Scay. I do not believe the Board understands that. hb o w e v e r , The Ohairman, No. T h a t same condition of course woulc prevail elsewhere. Governor Young. I n s o f a r a s wiinneapolis i s concerned, I question very much whether t h i s ruling o f the Board would be o f a n y p a r t i c u l a r b e n e f i t collections. I t i s all right i n getting r i d o f t h e non-cash t o s a y t h a t w e won't c o l l e c t at street addresses, but if any fellow will stop to think a bit a l l h e has t o d o i s t o maxe i t payable a t a commercial bank o r a t a Federal Reserve B a n s a n d nobody c a n stop him. So that ruling won't amount t o anything t o us, Governor Biggs. I think that i t is going t o be very discouraging unless w e have uhiformity i n it. W e have made quite a study about this, m o r e particularly i n the last year. Our m e n have visited a l l o f o u r banics a n d they have raised this question w i t h t h e m i n a quiet way, a n d a large p e r centage think i t would b e a great favor t o them. T h e y feel that i n many instances drafts drawn o n merchants, t h a t where they s e e the endorsement o f the Federal Reserve Bank, t o pay that. I and d o it. see n o reason w h y they should not g o ahead https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis % & The Chairman. What are w e going t o d o with this matter? Governor Calkins. T h i s situation i s surrounded b y various difficulties, a n d i t i s neoessary that w e should find o u t where w e are a t before w e should undertake t o d o anything. I should like t o as< t h e representatives o f the three banks w h o will not handle these items what t h e y propose t o d o i n t h e various contingencies w h i c h a r e s u r e to arise. S u p v o s e , f o r instance, w e will take Mr. Young, notwithstanding t h e fact that notice i s given that y o u will not collect non-cash collection items, some member bank i n the San Francisco District sends a non—collection item and it reaches your bank | what will y o u d o with it? Governor Young, I will g o and collect and wire them and say we won't d o it again. Governor Calkins. I f that banc pays n o attention t o your statement that you won't d o it again, what are you going t o do the next time? Governor Young, I Governor Calkins. will send i t back t o them. Y o u will take a great responsibility in doing that. Governor Bailey, I would d o it. I t i s just like that fellow that sent down a collection covering Chicago, St. Loui https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 29 3 3 3 and Kansas City, 4 0 drafts hitched t o h i s bill o f lading for canned fish, a n d I would not handle it, and I got a wire from San Francisco asxing b y what authority did I do this, and I s a i d o n m y o w n authority, b e c a u s e a r o u n d t h i s Board I heard i t said b y three Governors that t h e y would not handle such freak drafts. Governor Calkins. O f course not. W h o would? Governor Bailey, Taat i s what I say, a n d we wired them back a n d i n a n hour after I wired that b a c k I got a wire from San Francisco wanting t o «now that was the matter with us. Governor Calkins. I a m not talking about a freak draft, if a draft comes i n t o your hands f o r collection a n d y o u refuse t o collect i t and return i t for collection, y o u are liable f o r any damage suffered b y that person. Governor Bailey. I will p u t o u t a letter a n d give you vlenty o f notice. Governor Cal’cins. W e get the notice b u t somebody else sends t h e draft.. Governor Bailey, W e are going t o clear ourselves b y putting o u t a n open letter t o you, a n d y o u c a n notify your clients o r not, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Calkins. T h e y won't d o it. Governor Bailey. take t h e a d v i c e W e will take the gamble. W e will o f o u r attorney. Governor Calkins. Y o u will b e liable. Governor Bailey. Y o u d o not happen t o b e our attorney in t h i s case, Governor Calkins. O n the other hand, y o u d o not happep to b e m y attorney | either. Governor Bailey, I a m not asking y o u what y o u would do, Governor Calkins. I a m telling y o u i t i s m y belief that. you w o u l d b e l i a b l e f o r a y l o s s s u f f e r e d that draft. b y the sender of I f there is anything established in banking practise i t i s that a bank i s responsible f o r failure t o exey- cise due diligence i n the collection o f items sent t o i t for cOllection, a n d y o u cannot evade that b y a n y i n d o f notice. Governor Young, D o e s that mean i f a n individual sends you a n iten f o r collection y o u have t o collect i t ? Governor Calcins. N o t your bank, b u t a commercial bank. If the First National Bank o f Chicago sends a draft back t o me without exercising due diligence t o collect it, they are liable. T h e r e i s n o better rule o f law. Governor Young, T h e y c a n wire y o u and tell y o u that t h e https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 31 do not handle those items a n d a s k your instructions. Governor Calkins. A n d i f i n t h e meantime I have s u f f e r , ed a loss, y o u are liable, Governor WVellborn. I would just wire them we d o not handle i t and would turn i t over t o a commercial bank i n the city. Governor Young. The Chairman’ W e are doing that. I s your first question satisfactorily answered? Governor Calkins. N o , sir. The Chairman, M h a t i s your second question? Governor Calkins. I ir» Harrison. haven't a n y second question. I s not this whole discussion based o n a misunderstanding that i s reflected i n two different letters of the Federal Reserve Board? I n 1917 the law was amended 80 as t o authoriae Federal Reserve Banks t o collect maturing notes and bills. S h o r t l y after that the Federal Reserve Board sent out a letter aggesting that we consider the o r ganization o f a collection s y s t e m for handling maturing notes and bills. The Federal Reserve Banks f a i l e d to ma'ce very mach progress i n a period o f some six weeks, and the Federal Reserve Board later sent out a letter directing https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 335 32 every Federal Reserve Bank before a specified date t o institute a collection service f o r handling these bills. In 1923 t h e Board asked a n opinion f r o m the committee o f Governors o n Voluntary Services a s to what should b e done about non—cash collections, whether they should b e continued, and i f s o whether there should b e a charge. T h e Committee : has made two o r three reports, a n d this Governors' Conference has a t practically every conference since then reaffirmed those reports, w i t h certain exceptions o n the part o f three Governors, asking that the Federa] Reserve Board continue the service a s a t present a n d without charge. The final a n s v e r t o these repented rocpris mendations from the Conference t o the Federal “eserve Board is a letter i n which they s a y that they never ordered i t but suggested it, which i s obviously a n inaccuracy, a n d leaving t o each Federal Reserve Bank a n option, not o n the whole thing, but rather o n one item, that with respect t o street a d d r e s s items. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Nellborn. I n 1933 didn't t h e Federal Reserve Board make a report o n it? Didn't t h e y make a revort against non-cash collections? wir. Harrison. N o , sir» Govemor Wellborn, I remember that Mr. Harlan (?) Was O n that c o m m i t t e e a n d m a d e s o m e r e p o r t wr. Harrison. T h e r e were f o u r things — o f t h a t «ind. safekeening o f securities, wire transfers, non-oash collections, a n d s h i n ments o f currency, A l l four topics were covered i n one r e port. wr. Strater. wr. Harrison. T h r e e o f t h e m i n one a n d o n e i n another. Yes, a simultaneous letter. T h e Federal Reserve Board by official letter approved the recommendations of the committee a s t o three o f these matters a n d said a s to: the other, which was non-cash collections, they still had itunder consideration, and having failed to give their judg ment i n the matter o n the basis o f the report submitted a t their request | this Conference repeatedly reaffirmed their earlier recommendation and asked for a decision, a n d w e have never until this letter o f September c 4 t h got a n y decision, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 337 34 and thet, a s I Say of fact. I i s obviously based o n a misconception will maxe t h e statememt that applies t o every— thing I have said, that where I have mentioned the Confer— ence a s reaffirming i t s earlier renort, i t was always b y a majority vote, with three voting "No," Govemor Young, I thins i t i s n o more t h a n right that I should call your attention t o one thing, a n d that i s that this last Conference appointed a committee — - I a m not going to s a y that i t was a good committee -—- but i t represented the majority view, b u t nevertheless i t was a committes, that comnittee b y a vote o f four t o one made a end recomnendation about this matter. wir. Harrison, I do not m e a n t o overlook t h e appoint— ment o f t h a t c o m n i t t e e o r w h a t t h e y did. I do not under— stand that this Conference g a v e a n y authority t o any commit— tee t o overthrow what had been a fairly large majority o f their r e c o m n e n d a t i o n s o v e r a period o f t h r e e o r f o u r years. I would l i x e t o look u p the record o n that before I make any statement, b u t I a m quite certain that | s o far a s this Conference i s concerned, there was n o authority i n the comni* tee a s a committee o f t h e Conference, t o vote contrary t o the recommendation o f a majority o f the Oonference over a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 35 period o f three years. Governor Young, No, I do not think there was, Governor Wellborn. T n e y d i d meet d i d n ' t they? Governor Young. » Yes. Governor Talley. I d o not think a n y formal report w a s by the Oommittee, Governor Young. N o . Governor Talley, I t just blew u p here. Governor Fancher, I Governor Bailey. I will s a y i t blew up. was wondering i f some o f the fellows could remember just what happened. Governor Talley, I would lixe t o say something that is pretty closely a k i n t o a question o f personal privilege, and I just want t o state m y o w n position o n this. I a m not o the discontinuance o f the non-cash collection in f a v o r f function based o n the agitation that has been presented t o the Board, because I do not believe that i t is correct i n principle, a n d while I agree that the non—cash collection function i s the biggest nuisance that w e have t o contend with andcauses more grief i n our own bank than any other one thing, I am not willing t o vote for its discontinuance or its modification t o any great extent simply b y reason https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 36 3 9 of the fact that banks located i n the Federal Reserve cities and i n t h e b r a n c h ‘ c i t i e s h a v e r a i s e d a complaint a b o u t i t . In refermce t o the clearing house charges, t h e only cities i n which the clearing house charges have been broxen down b y reason o f the Federal Reserve Banks and branches handling these items are the charges that are made b y the banks i n those cities. I t does not affect t h e clearing house charges i n any other cities, does not affect the method o f collection even, because w e get these items with street addresses d r a w n o n some point where w e have n o t a branch and outside o f our o m city, a n d w e send them t o a member-pan'c a n d t h e m e m b e r b a n k p r e s e n t s t h e m j u s t l i k e t h e y do the items f r o m a n y other source, a n d they make whatever charge they please. So I do not see a bit o f differmce i n the world i n receiving these items that m a y b e drawn o n street addresses in our own hame cities and i n our branch cities, a n d maxing an effort t o collect those ourselves instead o f sending t h e m to member banks i n our o w n cities a n d branch cities, I not s e e a bit o f d i f f e r m c e can. i n the world, a n d i t seems t o methat this would solve the whole proposition. I that, a s f a r a s t h e Dallas banks a r e concerned, xnow | i t has said https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 340 37 to them t o turn t h e items dramm o n street addresses o v e r to them and will they collect them, just a s we send items +o Forth Yorth a n d Galveston. Governor Cal*ins. D o they make a charge? Governor Talley. T h e y make a charge, a n d I d o not s e e A s a matter o f fact, @ bit o f difference i n the world. here i s a n incident that illustrates m y point. W e had a bans located i n Dallas that g o t t o b e a pretty g o o d sized bank a n d was never a member o f a Dallas Clearing House A s s o ciation, a n d i t was not permitted t o clear its items through the Dallas Clearing House Exchange. They just went t o section 16 o f the Federal Reserve A c t a n d just sent a l l o f their items o n Dallas banks t o us, because they were drawn o n menber bants, and i t forced the other banks i n town t o either present the items o n that bank a t its counter, o r d o the same thing. I do not think i t changes the status o f a member bank as @ member bank, jyet because i t happens t o be i n the same city with the Federal Reserve Bank, S » I cannot see any dif- ference i n the world i n turning these items over t o local ban’s f o r collection o r sending t h e m t o your member banks i n outside cities, a n d i f you will bear with m e just a while I https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 38 will read this motion again: "tl move that e a c h Federal Reserve B a n k b e permitted to exercise i t s o w n option a s t o the manner i n which i t will collect items i n its o w n o r its branch cities payable to street addresses received f r o m other Federal Reserve Bans." The Chairman. That i s exactly what the Board recommaends. Governor Talley, N o , I d o not think so, T n e Board says that t h e y can exercise their option a s t o whether t h e y will handle these items a t all. The Chairman, T h a t i s not going t o help t h e situation. We are almost i n a n irreconcilable situation here. Nine banks a r e willing t o continue a n d desire t o continue. Governor Bailey, L e t t h e m continue. The Chairman, T h r e e bants a r e not i n favor o f continuing and have indicated a determination t o discontinue. Majority o f the nine banks, I T n e think, believe that unless this function c a n b e tie vind along uniformly, that i t will not work satisfactorily, a n d I believe that. N o w , what are you going t o d o with t h e question? Governor Calkins. Y o u say n o t work satisfactorily. O f course, that i s correct, i t won't work satisfactorily, f r o a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 39 our p o i n t o f v i e w o r f r o m t h e p o i n t o f v i e w o f t h e t h r e e banks t h a t refuse t o handle t h e item, b u t i t will work nevertheless. way. nors, I W e can get along the best we can i n that t i s not reasonable t o expect n i n e o f t h e G o v e r — i f they have a n y principles, t o throw those principles Over because three have principles o n the other side, a n d if t h e y a e t o their determination i t appears t o m e that the o l y practical solution i s for the nine banks that propose t o continue t o handle t h e items t o notify their member banks, first that they will not receive for collections items d r a m o n those three districts that refuse t o handle it, these non-cash collection items; and, second, n o t i f y those three banks that they will not handle non-cash collec- tion items received fran then. bast t h e y can. L e t them get along as T h i s a c t i o n w i l l a t t r a c t attention, r e f l e c t very serious avprobrium o n the Federal Reserve System, which cannot conduct a s simple a n operation a s the collection o f non-cash items uniformly. Governor Vellborn. ‘Yell, i n turn w e will notify o u r menber banks that w e woubdnot t a k e them o n your bank. Governor Calkins. Certainly. The Chairman R a t h e r t h a n expose t o the System t o that https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 343 40 criticism I would feel like Mr. Case expressed himself, that I had rather s e e t h e collection o f street address items discontinued entirely. Governor Calkins. T h e s e a r e not street address items. The Chairman. A t the time that resolution w a s passed in winneapolis, conditions were not a s good a s they are at the prese@t time. Governor Young, O u r position i s just this, now, T h i s ruling o f the Board h a d come o u t a t the time I talked this over w i t h o u r directors. T n e y still felt that they should not handle non-cash items, b u t t o put that into effect I suspected w e would h a v e t o get t h e approval o f the Board, If w e d o not g e t t h e approval o f the Board w e have either got t o act under this ruling that they have put out o r else not a c t a t all. Governor Wellborn. T h e Federal Reserve Board s a y i t i s for y o u r determination. Governor Young, That i s as far as street addresses i s concerned. Devuty Governor Oase. T h e r e i s one other phase o f this matter that I think should b e brought out. I have listened to what Governor Calkins has just said with a great deal o f ‘“ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 344 41 that i f these interest, a n d I agree 100 per cent with him, o f non—cash three banks were t o discontinue t h e collection items o r limited e v e n t o street addresses, i t would b e neces— a l l their member sary f o r the other nine panks t o notify handle these non— bance. The question of whether w e could handle thea, i s a n immortant cash items o r whether w e want t o h o w m c h m o r e important i s cuestion t o deal with here, a n d Federal Reserve the big question a s to the position that the System o c c u p i e s b e f o r e t h e country. T h i s i s something t h a t been before I have cnown very little about, b u t i t has the Fed:ral Reserve Board for a a long time — year o r two-— t h e y have n o t setand i n the exercise o f their aiseretion t o the discretion o f tled it. They s a i d i t should b e left each v a n . o u t some Now, i n Conference here w e ate trying t o work m plan o f getting together, a n d i t seems t o that i f we I think can Teach unaninimity i n this important matter, t o the F e d r a l R e that t h i s Conference should g o o n record out o f gerve Board, and before the proposal i s carried going on, v e the three b a n s discontinuing a n d the others just what ought t o menorialize t h e Board a n d tell t h e n the situation i s and ask f o r a ruling. I think w e should https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 345 do that o r do something o f that sort before going ahead as i t i s proposed here, Governor Bailey, I would like t o call your attention to the fact that this has been before t h e sameriean Bankers! Association a n d memorandums h a v e been submitted a n d a great majority o f the banks o f this country a r e against t h i s noncash collection. I t i s not going t o j a r t h e banks o f the Country, T h e y a r e i n favor o f it. Deputy Governor Case. I d o not want t o argue that. Governor Bailey, T h e y a r e opposed t o it. Governor Cal*xins. I would like t o «now that ground there i s for a belief that the great majority o f the banks in the System are opposed t o this matter, T h e r e i s not a n y evidence that I know about. Governor Bailey, I f y o u read t h e renort o f wir. Barton, he has got t h e facts. Governor Seay, T h e majority o f those w h o replied d i d have a n opinion against it, b u t i t was not a means, a n d i t was not a majority b y any fair exoression o f opinion. I a m sure that the circular sent out b y the Barton committee did receive @ wrong impression f r o m the banks that received it, I t was a n e x parte expression. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 346 Governor Caltins. T h e best evidence available i s the fact t h a t t h e non-cash collection system has grown ever since i t was inaugurated a n d i s still growing. I f a major- ity o f the member banks a r e opposed t o the non-cash collection system, w h y should they d o it? T h e y a r e under n o obli- gation t o do so. ‘They use i t because they find i t a very great convenience. I n m y opinion, t h e revort t o the contrary notwithstanding, t h e majority o f the member banss are i n favor o f the non-cash collection system a n d a l w a y s — have been, a n d all o f those who were approached o n the matter directly a r e favorable t o it. Governor Norris. I can only testify i n our own dis- trict that a number o f banks, after t h e y received that Par— ton referendum r e p l i e d t o i t the way i t was desired that they should reply to it, and then received our letter Bug— gesting that they d o not reply until t h e y h a d considered the matter. T h e n t h e y called u s u p and said that they h a d replied t o i t t h a t w a y b e c a u s e t h e y h a d s u p p o s e d w e w a n t e d them to reply that way, a n d I am sure that I am perfectly safe i n saying that over 9 0 per cent o f the oanxs i n our District are not i n favor o f it, but regard i t as one o f the strongest advantages o f menbershin i n the Federal R e - https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis serve System. this additional would like t o make Governor Talley. I still receiving T h e panks that a r e point i n that regard. not make these items, j t does collecting for their charges Reserve Bank whether t h e Federal them t o any difference o f these banks a n d naturally m a n y not, o r items handles t h e Association the »merican Bankers’ replied the way the way t o them whether I t makes n o differmce wanted them t o reply- they continued o r discontinue, Ranks Reserve the Federal charge just t h e Same. Governor Young, impression t h a t t h e y - r é y o u under t h e went t o all t h e banks? Governor Fancher. Se O n l y member pank Governor Talley. S u r e . The Chairman. i s one o f these topics M r . Calxins, t h i s y o u referred: element o f time that game that that i s taxing p %4 subject. another w i t h to a while a g o i n connection this u p t o how 7 é c a n hurry a s here there i s any suggestion w e are i n I t seems t o m e that it. have t o we will b e glad and agree among ourselves, cannot w e where a position now Reserve back t o the Federal thing this throw t o we may have Board. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 348 Governor Calkins. I do not know, Mr. Chairman | that there i s any suggestion that can be offered that has not been offered t o solve the situation. I t seems t o m e t o be particularly lamentable t h a t this Conference o f Gover— nors, representing t h e 1 2 Federal Reserve Banks, a r e unable to solve a simple routine matter o f procedure among t h e m selves, and that théymust b e advertised t o the world, a s they will be, a s disagreeing o r a s being unable t o adopt a n y uniform practice i n regard t o what i s not a matter o f orin— ciple but a matter o f convenience t o our member banks. The argument o n which this system was s e t u p i s just as good today a s when w e installed it, a n d that i s that the provisions o f the Federal Reserve c t h a d deprived a large number o f member banks o f the opportunity t o carry collection accounts, a n d that w e should undertake this function because the provisions o f the Federal Reserve Act had deprived then o f that opportunity, T h a t argument i s just as g o o d a s i t ever was, a n d i t i s a good argument, a n d the Board thereupon, a n d upon that argument, directed the 1 2 Fed eral R e s e r v e B a n k s t o take o v e r t h e collection o f non—cash items | as i s shown i n the copies o f the letters which h a v e been read today. W e did not d o i t o n our own motion; w e https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis did i t b y direction o f the Federal Reserve Board. Deputy G o v e r n o r Case. D o e s n o t t h a t d i r e c t i o n s t i l l stand l e g a l l y ? Governor Fancher. The Chairman. I Y e s , sir. have asked wir. Harrison t o try t o make a statement here that will embody all o f these views and g e t i t back t o the Federal Reserve 3o0ard. I do not know whether h e i s working o n that o r not. Governor Wellborn. I enough o n that. I think w e have worried t h e Board think w e ought t o acquiesce n o w and w e ought t o be grateful about it. Governor Seay, Three of you have no diffimlty i n agreeing, but the other nine will not. Govemor Wellborn. I think w e ought t o cut out t h é non- cash collections. Governor Calkins. T h e question before t h e house i s whe-: ther t h r e e o f t h e r z p r e s e n t a t i v e s o f t h e B a n k s a r e t o pre- vail against nine, whether the principles o f nine are t o be brushed aside b y the principles o f three. I have n o f those Goverdoubt o f the sincere conviction o n the v a r t . o nors that their position i s right, I have n o doubt o f the sincere conviction o n the part o f the other nine Governors https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 350 that their position i s right. N o w , t h e question i s what should b e done under these circumstances, S h o u l d t h e Sys— tem g o o n record before t h e banks o f the country a n d t h e people o f the country a s being rent b y dissensions t h a t can- not b e cured, because three o r of a different opinion fran the other nine? I f we are going t o let that idea prevail w e are going t o be subject t o the preatest a n d the most justifiable criticisn that w e have e v e r met. The Chairman, T h e graceful thing t o do, a n d I think t h e right thing t o do, would b e for these three dissenting banks, all c f whom I am sure have great confidence i n most o f the nine members who are opposed t o them, t o express a willingnes to continue as they are going for a year, o r temporarily, a t least. Governor Young, W i t h n o opportunity t o discuss this o r dispute some o f the statements which have b e e n made, b u t just f a l l i n line? The Chairman, Y o u have had all afternoon t o do that, Governor Young, There have been some statements just made that I am not prepared t o agree with a t all. T h e r e i s no argument but that there should b e uniformity i n the Federal Reserve System when you can have it, but when you get https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 351 a condition i n N e w York such a s y o u have i n the Ninth Feder, al District, t h e n y o u will have uniformity. Y o u cannot have uniformity o f rates, y o u cannot have uniformity o f loan policies, y o u cannot have uniformity i n handling n o n — cash collections. I think that this i s nothing b u t a wild imagination, that this i s going t o hurt the entire country. Minneapolis c a n quit handling non-cash collections tomor— row, a n d i t won't affect anybody. Governor Seay, Governor Young. I n sinneapolis? O r outside. Governor Norris. I think i t i s perfectly evident what the effect o f this thing i s going t o be, the moral effect on the public. They would s a y that the Federal Neserve System had tried t o enforce t h e par collection system and that now, a s to a vital element o f that system, three o f the Fede al Reserve Banks themselves h a v e refused t o g o along o n the par collection system. The Chairman’ This i s not par collection. Governor Norris. I a m not speaking technically. I speaking o f the broad effect o n the public. am T h a t i s the way i t would b e interpreted. Governor Seay, I t i s a part o f the collection policy. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 352 It i s perfectly true that uniformity i n every other directior has been urged upon the Governors o f the Federal “eserve Banks. T i m e a n d again t h e necessity f o r uniformity of action h a s been pointed o u t here b y the Board, a n d I believe that a uniformity o f action i n this particular direction, which comes i n contact w i t h t h e public i n s o many different directions, i s most essential; I t cannot fail t o bring u s into disrenute i f w e disagree along ourselves a s t o a volicy, In no: other body... that I have ever been connected with have I seen uniformity i n opinion always vorevail, but if it dic not generally the opinion o f themajority did prevail. Governor Young, I will mike this statement, that insofaz asuniformity is concerned, winneapolis has followed it a lot better than anybody else i n the System u p to this time. We had a fine example not over ten o r fifteen minutes ago of your uniformity, when i t did not happen t o fit into a certain case, a n d something that i s going t o subject u s to @ lot o f c r i t i c i s m a l l o v e r t h e country, time schedules, a n d that i s your Y o u are not subjected t o criticism now, Some good, first class fellow, will get a hold o f that thing, and h e will rip this par collection system all t o nieces. Governor Seay, T h a t i s t h e r e a s o n w e a r e t r y i n g t o https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis reconcile it. Governor Young. Y o u have not. I f New York and Boston kicked i n o n that y o u w u l d reconcile it. Governor Seay, I t i s indefensible i n principle, a n d I believe w e all agree o n it. Governor Young, L e t u s have some uniformity o n it. Kick i n first and set a good example for minneapolis, a n d see w h a t happens. Governor Wellborn. w i r . Chairman, a few minutes a g o y o u referred t o these three banks a s dissenters. I think y o u should avply that t e r m t o us. I d o not think y o u a r e all dissenting f r o m t h e powers t h a t be, t h e recognized authority of the Federal Reserve System | and y o u all s e e m t o b e i n open rebellion against t h e nowers that constitute authority, Governor Fancher. I n what respect? Governor Wellborn. Y o u d o not seem t o acquiesce i n their rules. Governor Fancher. I t i s not a ruling. T h e y have given you a n option. Deputy Governor Case. T h e last ruling they have made i s compulsory t o handle it. Governor Wellborn. I t i s plain enough that they are https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 354 against n o n — c a s h collections. I think y o u s h o u l d a d m i t that. Governor Norris. T n e Board's letter 4 s especially stated to be a suggestion. I t says: "The Board wishes to I t does not order suggest t o the Federal “eserve Banks." or d i r e c t o r e v e n advise, Governor Galmins. b u t i t m e r e l y suggests. M r . Chairman, w e s e e m t o have reach- reason. ed a place there there igs not much opportunity t o this discussion. Very little reason has been injected into It i s a simple statemmt o n e way o r the other. I Mp. Case’ s think suggestion i s perhaps the only one available, consisting and I therefore move you, sir, that a committee direc of three, t w o representatives o f the majority o f nine tors, and one representing the minority o f three directors, petibe appointed t o memorialize t h e Federal Reserve Board, non tioning them to rule definitely upon the subject o f cash collections. The Chairman. W o u l d you b e willing t o have ir. Harrison read what h e has been preparing, 4 which I have made comment a wir. Harrison. I temerity: statement concerning few minutes ago? submit t h i s with considerable https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 355 MWhereas, i t i s the sense o f the Conference that uniformity o f policy a n d procedure i n the matter o f handling non-cash c o l l e c t i o n i t e m s i s e s s e n t i a l l y i m p o r t a n t ? t o the bestuinterests o f the banking and business interests o f the country | and "hereas, l e t i t appears, after considering the Board's out o f twelve banks a r e i n favor o f tt .1926,three pe e rS exercising t h e option given b y the Board ‘toi discontinue handling non-cash items a t street addresses, a n d nine are opposed t o doing so: "Therefore, B e it Resolved, because o f the importance of the matter, that the Federal Reserve Board reconsider its letter i n the light o f its earlier order o f 1917, a n d decide whether a l l Reserve Banks shall o r shall not handle items payable a t etreet addresses." The Chairman, T h a t does n o t quite cover t h e wlinneapolis situation. ir. Harrison. T h a t i s a collateral question, I think, anyway, Governor Biggs. D o you put that i n the form of a mo- tion? The Chairman. 4 4 1 1 y o u put that i n the form o f a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis motion, wr. Calkins? idys Oalkins. I will substitute that f o r the motion. which I have inexpertily tried t o formulate. Governor Talley, I second it. Governor Seay, M r . Chairman, t h e r e i s only o n e a s p e c t of the case, a n d that i s by that resolution i t arrays the Federal Heserve Board against itself. I am wondering i f the first part o f that w h i c h I believe i s admirable, c o u l d not b e coupled with some o f t h e language i n the latter vart which would merely present t o the Federal Reserve Board the firm disagreement o f the mjority, a t least, o f the Gover- nors here with the last suggestion o f the Board, that Feder— al Reserve Banxs b e vermitted t o exercise their discretion. The Board has said that i t was not a n order a n d they s a y that this i s a suggestion. I gain anything, a m doubtful whether w e would i f w e desire t o gain something, b y saying that they are mistaken i n having said to us that it was not in order, b u t i t w a s i n order, something definitely — wr. Harrison. a n d i n calling u n o n t h e m t o d o either d o something o r let i t alone. W o u l d i t cover your point if I put i t this w a y merely, "Resolved, b e c a u s e o f the importance o f the matter, t h a t t h e Federal “eserve Board reconsider i t s letter", https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 357 and strike out the clause "In the light o f its earlier order o f 1917"? Governor Seay, Y e s . ? Mr. Harrison. . n d decide whether t h e Federal R i g e n Banks shall o r shall not? Governor Seay, Y e s . That would make a difference, I think. P e r h a p s a psychological difference i n their o w n mind, b u t i t makes n o difference o n me. Deputy Governor Case, T h e y have already h a d their attention called t o it. : wir. Harrigon. Yes. I think they < n o w it. Governor Seay, Yes, they snow it. I believe uniformity of action o n this thing should b e taken, a n d the standing committee o n collections i s one o f t h e most studious efforts to collect a l l t h e information o n the subject available that w e have ever experienced — - i n fact, o f those efforts which have been presented t o the Board — a n d I feel that this i s evading t h e question. Governor Calkins. I ana o f f e r t h i s a s a withdraw m y attempted resolution substitute a s i t h a s b e e n seconded. (Cries o f "Question, Question. ) " (The question was put and was adopted, nine in favor and three against, t h e Governors from Kansas City, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 358 winnéavolis and .itlanta voting "No. ) " Deputy G o v e r n o r Case. M a y w e have t h a t S i e i a i hhc reread again? wir. Harrison. This might neéd a little polishing, b u t that i s a privilege I have always assumed: "Whereas, i t i s the sense o f the Conference that uniformity o f policy a n d procedure i n the matter o f handling non—Cash collection items i s essentially important i n the best i n t e r e s ft o the s bancing and business interests o f the country; and, Whereas, letter X-~ i t appears, after considering the Boare. 4 t h yr e e o u t o f t h e t w e l v e F e d e r a l “ e s e r v e Banks a r e i n favor o f exercising t h e option given b y the Board t o discontinue handling non~cash items payable a t street addresses a n d nine o f such banks are oodosed t o do- ing so, now, therefore, "Bi IT RESOLVED, because o f the importan‘ce of the matter, t h a t t h e Federal Reserve Board reconsider i t s letter o f Sept, 1926and decide whether all Federal Reserve Banks shail o r shall not handle items payable a t street addresses." Governor Seay, w r . Chairman, I wonder i f I might sug. gest that i t is further the opinion o f the Conference that https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 359 to handle some non-cash items and refuse t o handle others, as pointed out i n the report o f the standing committée o n collections, would greatly diminish the value o f the non— cash collection system, Mr. strater. w a y I suggest there, w h e n that w a s first pointed o u t b y the committee o n voluntary service o f the Governors? Governor Fancher. I t has been incorporated i n both reports, h a s i t not? Governor Seay. M a y I as: wr. Harrison i f h e thinks anything o f that suggestion? wir. Harrison. is « s y own feeling about i t is that i t only o n e o f many exdehlent arguments w h y w e should continue the collection service a s at present, a n d those earlier reports many what o f t h e voluntary service committee g i v e u s I consider quite excellent arguments, that I think there I is some disadvantage i n calling attention o n l y t o one, be rather fear that i f you are going t o d o that i t might preferable t o call attention specifically t o the reports which have been filedby t h e Board's committee o n voluntary services and its request concerning h i c h the Board has tacen n o action, but you have got t o assume that they have judicial ‘cnowledge o f those reports. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 360 Governor Seay, I know it, b u t Tl doubt i f they have them i n imind, Governor Norris. i d r . Chairman, t h e only difficulty that arises i n m y mind i n connection w i t h t h e motion that has just been adopted i s this: T h a t motion does not pro- provide for the appointment o f a committee, n o r does i t vide f o r t h e e x p r e s s i o n o f a memorial. I t simply asks t h e Board t o reconsider its letters, expresses the opinion the that uniformity i s essential, a n d states that three o f I t not. banks propose t o exercise this option and nine d o seems t o me that the arguments ought t o be rehearsed t o the Board, o r that t h e matter ought t o b e summarized, or something ought t o b e done o r said t o call their attention t o the not o n l y t o what h a s already b e e n presented, b u t a whole effect o n the nine other banks and o n the System as of permitting three banks t o exeroise this option, because, as they read that resolution, I can imagine @ member o f the Board saying "Three want t o do it and nine d o not; w h y to not let then all b e havoy? L e t the three that want not do it.” do it, d o it, and let the others the banks Governor #ellborn. T h e y permit a l l twelve o f to exercise that option. T h e y d o not o n l y vermit n i n e t o https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis do it, but twelve. Governor Bailey, G e n t l e m e n , I @ mountain o u t o f a mole hill, and i t i t does n o t wor’ o u t I think y o u are making L e t u s t r y i t for a year, will back up. The Chairman. Does the Conference want t o take any action o n Governor Norris! suggestion? Denuty G o v e r n o r Case. I thins i t i s important t o have this right, a n d while w e have adopted it, o f course the resolution i s one that i s very hastily prepafed, a n d I wondered, a s it was reread, i f i t woulc n o t sit better with all o f us, and Sarticularly with our three friends who want t o g o ahead w i t h i t — Governor Bailey (Interposing:) B u r three friends, t h e enemy. Deputy Governor Case. Y e s . - — — i f y o u dealt w i t h the broadprinciple o f the importance o f unanimity i n important decisions, rather than t o just unanimity o n this p a r t i c u l a r o o i n t . I t h i n k t h a t i f e @ little m o r e time were given t o the preparation o f that resolution, could b e improved upon; i n other words, i f a committee of two or three would take a half hour, o r thereabouts, they would cdo better. it https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Calkins, I Mr. Harrison. think s0, too. A s I stated, I submitted i t originally mith some hesitation, because a t best i t i s incomplete, h a s inand t h e matter i s o f such importance a n d o n e that volved, I imagine, more cumuletive hours o f concentrated effort o n the part o f this Conference than any other, 1 what repthink w e had better present t h i s i n the light o f the resents the best opinion, plus the arguments made b y three o n the other side, Governor Norris. to put a I n other words, I think i t i s a pity t o the matter o f such vital importance a s this of Board without presenting them with all the history the the thing and with our views o f the consequences o f action. The Chairman, H o w ~ould i t do, wi. Norris, t o apvoint Reserve a committee t o present this action t o the Federal that Board, and t o give them the views and the atmosvhere prevails here? Governor Norris. I t h i n i t mould b e a very good idea. on I do not make the motion, because I do not want t o be any s u c h comnittes. Deovuty Governor Case. I would like t o offer a motion https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 363 that w e reconsider t h e action that h a s just been taken, and l e t t h e Chair appoint a committee o f three t o prepare a very careful a n d well worked o u t resolution t o b e present— ed along t h e lines just indicated b y Governor Norris. Governor Norris. N o w , o n that committee -- does that include your original suggestion, that one representative be appointed — Deputy Governor Case. O h , no. Governor Young, J u s t apvoint a comaittee o f three o f the nine banks that favor t h e non-cash collections, a n d let them g o aheaded prepare what t h e y want. Gevernor Norris. I t i s agreeable t o y o u that t h e c o m mittee should b e made o f the nine? Governor Young. O h yes. Governor 3iggs. T h i s committee i s just t o prepare t h e resolution? Governor Young. Y e s , and which will present the views of the nine. There i s no use putting our views i n at all. The Chairman’ I s that satisfactory t o you? Governor Young. Y e s , sir. The Chairman, T h e r e i s a motion made t o reconsider the f o r m e r action. I s that s e c o n d e d ? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis will second it. Governor Young. I (The motion was put and carried. ) The Chairman. D o e s that motion embody t h e appointment of a committee o f three? Deputy G o v e r n o r Case. T o prepare a resolution, y e s . That w a s all. The Chairman, I will appoint o n that committee G o v ernor Norris, G o v e r n o r O a l k i n s a n d G o v e r n o r Seay. I have left you off of that, Mr.. Young, because o f your request. Governot Young, “ n t i r e l y satisfactory, The Chairman. I hope that comnittes will g e t b u s y tonight. Deputy Governor Case. a n d report i n the morning. The Chairman. Yes, report i n the morning. That finish es the second section o f the program, a n d I do not ‘snow of anything further o n Section l . 1. G R E D I T TR.NSACTIONS a N D POLTOLSS. borrow G. N o t e s o f D a r e n t c o r p o r a t i o n s r e p r e s e n t i n g ings t o b e a d v a n c e d Governor Seay. t o subsidiaries, w r . Chairman, before Lunch there was @ motion offered i n connection with the Board's ruling with reference t o the discount o f the paper o f parent c o r https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ’ porations having subsidiaries, a n d y o u will recall that ide. Syatt w a s t o take that under consideration a n d h e l p dress i t u p a little. H e has done that, a n d the motion is n o w i n the hands o f the Secretary. ure t o have i t considered, I I f i t i s your pleas— would suggest that that b e done. wir. Harrison. S h a l l I read t h e resolution, wr. Chair— The Chairman. Yes, please. wir. Harrison. T h e revised resolution reads a s follows: "Where t h e borrower i s a parent corporation having a number o f subsidiaries a n d t h e parent corporation a n d i t s subsidiaries a r e i n practical effect o n e single organization and m a y with propriety b e considered a single borrower, t h e paper o f such parent corporation t h e proceeds o f which have - been used o r are t o b e used b y the parent corporation o r by the subsidiary corporations f o r a n industrial, commercial or agricultu:ral purpose, w i t h i n t h e meaning o f the Federal Reserve Act and the Board's regulations, m a y be considered eligible f o r redisscount i f i t canplies i n all other respects with t h e provisions o f the l a w and the regulations o f the Federal R e s e r v e B o a r d , " https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 366 will o f f e r t h a t resolution. Governor F a n c h e r , I Governor Norris. I second it. (The m o t i o n w a s p u t a n d u n a n i m o u s l y carried. ) IV. OPERATION AND :DAMINISTRATION. RELATIONS I T H FORSIGN B:NXs. The Chairman. W e have reached Section I V o f the oro- gram, "Operation and .dministzration." T h e first i s a, peeketinas o f docbiar banks. wir. Case, d o you want t o say anything about that? Deputy Governor Case. N o . I suggest that Mr. Harri- son, who handles these matters, speak for the New Yor Bank, in order t o save time. The Chairman, A j 1 right, sir. Mr. Harrison. There are several matters regarding the conduct of the foreign business of Federal “eserve Banks which I would like t o report t o the Conference, It h a s b e e n c u s t o m a r y i n t h e p a s t f o r t h e F e d e r a l Re—- serve Bank o f New York, i n handling the various accounts in which other Federal Reserve Banks participate, t o send to each Federal Reserve Bank a complets schedule o f all bills which w e buy for account o f a foreign correspondent, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 367 and also a duplicate order o r ticket whensver securities are purchased. The schedules o f these bills a n d the duplicate orders of the security purchases a r e quite voluminous, involving quite a bit o f wors o n our part, a n d i t i s our thought that i f i t i s agreeable t o the Conference w e would like slightly t o anend t h e present procedure a n d would like to suggest that w e eliminate, first, t h e schedule o f bills, and also the copy o f the orders for seourities, but i n place o f those t o give y o u periodically - - perhaps e v e r y two wees, o r oreferably every month -—- a liability schedschedule o f acccptors a n d endorsers ule o f a c v c p t o r s , a of bills that w e buy for foreign account, o f which y o u are partly a guarantor. T n a t will enable y o u t o study the liabilitiss which y o u are guarantesing., I t will n o t burden y o u with individual lists o f bills purchased f o r individual correspondents which a r e not grouped according to acceptors o r endorsers and which really involve a creat deal more work o n your part t h a n t h e Drovosal which w e have t o suggest n o w would involve. Governor Fancher. send t h e m ——- o n c e a H o w often would y o u propose t o month? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 368 O n c e a month, wr. Harrison. able t o you. W i f that would b e a g r e e e think that would b e sufficiently often, but i f for any reason t h e Federal Reserve Banks found a more frequent revort would b e necessary, to furnish it. H o w e v e r , Governor Fancher. I w e would b e glad w e had rather n o t d o it. would thins t h a t would meet t h e situation. Deouty Governor Case. O f f e r i t that way. Governor Fancher, ity o f the. S o that w e would s e e the liabil- a c c e p t i n g bank? Deputy Governor Case. I t would b e much more compre- hensive, mre Harrison. T h e n ~ e w o u l d l i x e t o s e n d you, w h e n — ever t h e r e i s D a r t i c i v a t i o n i n the account a n d a t t h e e n d of every month when there i s necessarily a participation, a list giving t h e anount o f free balances t h a t w e hold f o r individual accounts | @ list o f the securities which w e heve purchased for foreign accounts, a n d a list o f the acceptances w e have, a s w e l l a s e a r m m a r k e d gold, This ig substantially what w e give y o u now, b u t w e would like to change t h e form s o as t o coincide w i t h t h e form w e have prepared i n the bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 369 Ye would lite also t o send y o u for your o m sa+isfac— tion a copy o f the renort which w e maxe t o our o m d i r e c t ors Gach weex, w h i c h i s i n totals o n l y a n d eliminates t h e detailed reoorts o f amounts purchased f o r individual a c counts. I t also eliminates t h e detailed revort f o r t h e free balances f o r individual accounts. I t i s a convenient way O f submitting t o your directors what they have a right to «now, a n d eliminating what w e have all felt they should not xnow. W h e t h e r o r not y o u use this i s o f course a mat ter for you to decide, but I thought o f course you would like t o have a copy o f what w e give. Governor Fancher. Y o u r thought i s that i t i s furniehed i n the same f o r m that y o u use t o your o w n board? wip. Harrison. Yes. I t contains what w e consider to b e the maximum o f what t h e directors ought t o have a n d does n o t c o n t a i n w h a t v e t h i n k t h e y o u g h t n o t t o have, Governor Seay, D o e s what y o u propose m a k e a n y change in our records? tir. Harrison. Wo. T here i s n o change i n your records at all. T h e s e schedules o f bills a r e merely individual schedules that come t o you after there i s a participation, anyway. Y o u d o n o t r e c e i v e t h e m u n t i l a f t e r t h e partici- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 370 pation h a s been accorded, a n d they receive varying degrees of attention i n the different Federal “eserve Banks. I have a feeling that a great many o f them ignore then, Governor Seay, I t creates quite a n inmense file. iy. Harrison. Yes. I think that t h e information w e would like t o give you i n the new form as a liability s c h e d ule would give you very much more concisely what you want to know. Governor Seay. I f that seems satisfactory, will you comnunioate with t h e Federal Reserve Banks a n d outline what you want t o do? Wir, Harrison. Yes. I f the Governors would approve of this suggestion a s a recommendation, t h e n w e would write a letter t o each b a n k . | I may say that I have presented this matter t o the open market investment conmittee, which has supervision over t h e transactions i n the foreign account, a n d they were all i n favor o f the suggestions. I do not want any formal action, i f I understand there is nothing against it. The Chairman. I f there i s n o objection t o this policy, it will b e considered that t h e change i n the f o r m ef advice https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis be adopted. wr. Harrison. T h e n I eign accounts. d i s t r i b u t e asummary o f the f o r I t does not give the detailed items. T h e detailed items will g o t o you i n the regular monthly s t a t e ments, a n d I have avoided distributing t h e m n o v only o n account o f our anxiety t o have a s f e w o f those distributed as necessary, b u t I have before m e a mass o f individual accounts, a n d i f there i s any question about these accounts I would b e g l a d t o h a v e y o u a s k m e a n y questions. The Chairman, ‘ V e get them, wnyhow? Mp. Harrison. Y e s , sir; y o u get that monthly, anyway. There i s o n e o t h e r t h i n g w h i c h I wouhd l i k e t o m e n t i o n the Conference, a n d that i s this: I in do not think this should g o o n the record. (Off the record.) The Chairman, i n y t h i n g else, Mr. Harrison? wee» Harrison. No, sir. The Chairman. D o you: wish t o g o o n with your »yrogram? Governor Norris. T h e r e i s Item 2, "Taxes o n income earned f r o m oills purchased f o r the account o f foreign banks, * D o you want t o take that up? wir. Harrison. T h a t won't t a k e a minute. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Chairman. W h e r e i s it? Governor Norris, Mrl, Harrison. T h a t i s IV-A-3, I t s o hanpens thet t h e present income tax law exewnts from taxation denosits i n american banks to the credit o f foreign corzorations. Unfortunately, however, t h e l a w retaine a tax o n the discount earned o n accept— ances p u r c h a s e d i n this market » y fcreien corporations, It i s wholly illovical, when they have recornized the exemp— tion o f the bank liability i n the form o f e denosit. reeult h a s b e e n t h a t f o r e i z n c o r r e s p o n d e n t s T h e w h o have learn— ed o f this fact have been forced t o ~ o into t n e Government security m a r k e t r a t h e r t h e n t h e b i l l market, A s t h e years go o n the Government Security market i e voing t o DSecome tizhter and tighter anyway, a n d i t i e soing t o ve more difficult for foreign corresnondentr t o purchase i n t*is market, e e would like t o d o whatever i s necessary t o »ut a n amendment i n the l e w t o exewnt t h e bankers! acceptances from thie tax, I have taken this matter u n with 4#r. Vineton, a n d h e saye there i s n o poseisility o f nrocurinz a accomplish w h a t w e w o u l d l i k e t o have, an amendment t o the law, ruling that will I t will have t o v e T h e Federal advisory Council h a s https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 373 recommended that s u c h steps a s may b e necessary shall b e taken t o secure this amendment o r a ruling. I think a l l we c a n d o here, a n d I would like t o suggest i t i f that i s agreeable t o the Conference, i s t o have a motion urging u p o n the Federal Reserve Board taking whatever steps a s m a y b e appropriate t o p r o c u r e a n amendment t o the Federal Reserve tt S o a s t o except f r o m taxation t h e discount earned o n bankers! acceptances purchased b y foreign corporations. Governor Fancher. I Governor Young. I offer that i n the form of a motion. second it. (The motion was put and unanimously carried, and, a t 5:35 p.m., a n adjournment was taken until tomorrow, Wednes- day, November 10, 1926, a t 10 o'clock a.m.) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 374 A CONFERENCE O F GOVERNORS O F THE FED*RAL RESERVE BANKS Waehineton, D . C., Wednesday, November 10, 1926. The Conference reassembled, nursuant t o adjournment, in the hearing room o f the Federal Reserve Board, Treas— ury Building, Washington, D.C., o n Wednesday, November 10, 1926, a t 10 o'clock. Appearances: (As indicated i n the first day's record.) PROCEEDINGS. The Chairman. Gentlemen, t h e meeting will come t o order, please, I have a letter from Governor Strong's son Fhilip, w h i c h readea - e follows: "Father received your telegram yesterday" — Thie i f addressec t o the acting Chaivman-— -~~"and a s h e i s not able t o d o s o himself, h e has asked m e t o w r i t e a n d t h a n k y o u a n d t h e o t h e r G o v e r n o r s for your good wisher, H e is making a splendid rec very https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis eC 5 7 5 from his illness, gaining strength deily, e n d w e ere i n hopes t h e t h i s convelesence w i l l b e 9 rapid one. H e send his remembrance sand best regerds t o s11 members o f the Conference. I am, Philip Strong." Is the committee r e e d y t o report, t h e @Gommittee t h e t wes t o discuss w i t h t h e F e d s r a l R e s e r v e Bosard t h e m e t t e r of non-cash collections? Governor CGrlkins. I f so, will t h e committee report? M r . Norris i s the cheirmen o f the committee. The Cheirmen. M r . Norris, w i l l y o u report f o r the com- mittee? Mr. Norris. T h e committee h e l d » mecting l a s t evening end drefted » report which wes left vith Mr. Harrison f o r revision. I do n o t k n o w -hether h e hes i t i n form t o pre- sent. Mr. Herrison. I t i s being typed n o w e n d i s possibly reedy a t the moment. The Chairman. T h e rerort prepared b y the committee is n o t g u i t e r e a d y , I yy. o m informed. O P "Y T .R IOM. + ND “BMINISTR’ TION, B. R e v i s i o n o f Tressury Department Circuler https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis No. 92, ’i s s u e d ‘pril 17, 1919. “ i e will g o now, then, t o Section Iv, The Chairman. Topic B o f t h e program, " R e v i s i o n Circular N o . 9 2 . o f Treesury Depertment M r . N o r r i s , t h e t i s y o u r topic. Governor Norris. M r . Chairmen, I supposeca t h a t it will b e possible t o discuss t h a t with Mir. Dewey, b u t Mr. H a r r i s o n a d v i s e s t h e t M r . D e w e y i s i n Chicego a n d c e n - not b e fFere today. do not U n d e r those circumstances I know thet t h e Conference c e n d o anything more perheps t h a n to u r g e u p o n t h e D e p a r t m e n t t h e p r o p r i e t y o f m e k i n g a early revision o f that circulzr. very T h e circular i s n o w seven e n d one-helf years old, a n d s s y o u know, t h e Tressury Deprrtment h e s b e e n considering © revision o f it. T h e revision i s very desireble, n o t only for certain rether redical changes that i t moy be worth while t o make i n it, but slso with the view t o simplifying the definition o f "ceceptance security", which includes eight classes o f securities. S o m e sare a c c e p t a b l e s t per, o t h e r s « t 90 per cent, others s t 7 5 per cent, e n d there s r e distinctions between foreion and domestic bonds, e n d then i n foreign bonds t h e r e s r e f u r t h e r d i s t i n c t i o n s , d e p e n d j n g o n the dete w h e n c e r t a i n s o v e r n m e n t s w e n t i n t o t h e “ o r l d a r , https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4. and i t requires extreme c a r e toe observe a l l o f those qualifications. This matter was called particularly t o m y attention by the examination that w e s made o f our bank lest Mey, when t h e examiners f o u n d that while i n dollars e n a cents ell t h e c o l l a t e r a l t h a t w e h a d w e s p e r f e c t l y r o o d security, that v e h a d q u i t e a few securities i n there t h s t d o n o t technically c o m p l y ‘ i t h t h e s e r e q u i r e m e n t s . T h e y were securities m o s t o f which h s d been there f o r years, a n d they had never b e e n discovered i n any previous exeninetions. The e x a m i n e r s w e n t t h r o u g h t h e t c o l l a t e r a l w i t h u n u s u a l core o n thet exemination, a n d found quite e number o f ex- ceptions. I thin’ thet t h e t emphesizes t h e necessity f o r a re- vision and simplification o f the circtilar, and the only ection thet I would suggest being taken, i n the absence of Mr. Dewey, i s , i f the Conference feels thet wey, that we should adopt « resolution urging u p o n the depertment the revision a n d simplificetion o f thet circuler e t the eerliest n o s s i b l e d e t e . Governor Calkins. Secretery ‘-inston? C a n n o t w e discuss t h a t with https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Norris. I The Chairmen. do not ‘now. M r . inston wont b e eble t o help -us on this. M r . Dewey has I think communicated with ell o f banks end ve heve given him our ideas that the circu& back nusber, a n d h e knows v e r y ‘ e l l thet i t should b e revised, a n d I oe all right e n d I think Mr. Norris! o»jection will think i t would b e better still i f the fssistant Secretary could b e notified eccordingly end Mr. Norris b e eppointed t o teke i t u p with h i m persenally. It i s = complicsted, unwerrsnteable t h i n g t h e w e y i t is. Governor Norris. W r . H a r r i s o n s u e r e s t s t h e t tir. Innd i s h e r e e n d eveilable, e n d that h e i s probebly t h e chief lieutenent o f Mr. Devey i n this matter « n d i s perhaps e n t i r e l y f a m i l i a r w i t h i t . The Chairman. S h e w Deputy G o v e r n o r C a s e . e s s k Mr. H a n d t o c o m e i n ? H o : w e stent. f o :ao thet? “7b is going t o teke time t o heer o u r tielve different b e n s . -hy i s not the suggestion o f Mr. Worris that w e just edapt e resolution asking f o r a change t h e proper thing t o do? ‘ f t e r sll, i t is u p t o the Trersury t o make the ehrnges, o n d t h e different banks have a l l given t h e m their iders, e n d w h y i s n o t t h a t a satisfactory w a y i n which t o https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 leave i t ? think i t would b e more sstisfactory The Chairman. I if w e could have Governor Norris s e e Mr. Hand himself t o day a n d t e l l h i m o f o u r actions, and I think that w i l l g e t action. do not think Mr. Norris i s Governor Norris. I going t o have m u c h time o n his hends t o d a y t o see Mr. Hand or eny»vody else. I m a y b e a h l e t o tomorrow. to p u t i t i n t h e t w e y , w h y n o t a d o p t a I f you want resolution u r g i n g the revision e n d simplificetion o f the circuler e t the eerliest p o s s i b l e d a t e , a n d r e c u e s t i n g m e t o c o n f e r w i t h M r . Dewey o r Mr. Hand o n the subject? Deputy Governor Case. | Governor Young. I I make s u c h a motion. second it. (The motion was put and carried.) IV. O P E R TION / N D /DMINISTR'TION. C. / s between Federel Reserve Banks, should the stetute o f limitations b e set u p t o escepe liability o n forged endorsements? The Chairmen. Now,-we come t o Section Iv-c, "Fs between Federsl Reserve Ranks, should t h e statute o f limitetions b e set u p t o escape liability o n forged endorse- ments?" M r . Bailey? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Bailey. I just simply submitted this i n order t o get ean expression o f opinion. Y e heve eae suit in Denver sgeinst o n e o f our member banks, t h e First Notional B a n k o f Denver. T h e Goodyear Rubber Company has e n eccount w i t h t h i s b a n k . T h e y authorized a certain manito s i g n checks against that account. T w o e f thosec-checks were p u t i n c i r c u l a t i o n n i Califormia. One was séme trust company and the other was with the Southvest Trust & Savings Bank. T h e s e checks were for- warded b y the San Francisco Bank t o our bank e t Denver gueranteeing t h e previous indorsements. O f course, w e sent them o v e r t o t h e F i r s t N a t i o n a l B a n k a n d t h e y p a i d them. Then, f i v e years after thet, t h e Goodyeer Rubber Compeny discovered t h e t this fellow h a d defrauded them. wes n o q u e s t i o n a b o u t t h e g e n u i n e n e s s o f the signeture the bottom o f the check, b u t epparently I confessed, There at believe h e hes i f I remember t h e record, t h e t h e drew these to some phony m e n e n d endorsed t h e m with this fellow's endorsément a n d w e n t t o t h i s t r u s t c o m p e n y a n d p o t t h e money. T h e y heve brought s u i t against t h e First Yetionel B a n k o f Denver t o credit their eccount w i t h the amount o f this check, something like «2,000, a s I remember it. O f course, the First National Bank of Denver come back https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8 5 8 1 to the Federol Reserve B a n k o f Kenses C i t y through their branch. “ @ g o back t o the S a n Francisco b a n k a n d they re- port t o u s t h a t t h e t r u s t c o m p a n y a n d t h e o t h e r b a n k p l e a d the statute o f limitations. Governor Calkins. N o t quite. Governur Bailey. I T h e y have n o t plead would like t o get through with the story and let the gentleman explain his side o f it. T h e result i s that t h e y have refused t o p a y it. T h e y have n o t paid it, I will p u t i t thet wey. Governor Celkins. Governor Bailey. could obtein, I T h a t i s better. h a t i s i n m y mind is, i f that thing do not know --here ‘ e would 2 1 1 te. a ) endorse millions a n d millions o f dollers o f checks. i f after f i v e y e a r s s o m e b o d y c a n d r u m u p t h e t t h i n g - - o f c o u r s e , I think, i f I may b e permitted t o express m y legal opinion, though i t i s not worth much, I would s a y thet t h e Goodyear Rubber Company cennot w i n i n this case o n account o f nepgligence; t h e t t h e y have r o t e-systom o f auditing that t h e y cannot t e l l within five years whether t h e y have b e e n defreuded, a n d i f so, that t h e y would b e barred, a n d o u r attorney thinks thet would b e a defense egainst them. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 582 fnother t h i n g i s , I wes p o i n g t o e s k G o v e r n o r C a l k i n s Tenth District if h e ‘new within o u r Stete a n d within t h e r u n until efter the statute o f limitetions d o e s n o t begin t o fraud i s discovered. withF r a u d wes n o t discovered until I will s a y - B u t the point i n m y m i n d e 6 this: should this r u n fraud wont r u n sgeinst t h e Government, a n d ageinst Federal Reserve Ranks ? The Chairmen. I n a n eppropriate case, ves. Governor Bailey. I think this--taking this case a t bar-~ the Los ‘ngeles the mistake w a s made b y e member b e n k i n district. bank. I t was n o t made b y our member becked u p f r a u d u l e n t i n d o r s e m e n t s , check t o us. T h e y t h e y gueranteed t h a t of I f enybody hes t o per, i f thet stetute National B e n k limitetions b a c k there obteins, t h e First of Denver i s stuck. ~ ado not think t h e Federal Reserve Renk o f Kansas C i t y i s stuck, put I to r e s t u p o n t h e b a n k w h o w a s & think t h e b l e m e o u g h t party t o putting t h i s fraudulent c h e c k i n circulation. I just submit this. I The Chairman. do not think w e c e n settle it. i t c a n o n l y b e settled b y t r y i n g i t out. C i t y benk elear b a c k You w i l l h a v e t o f o f r o m y o u r K a n s a s along the Lise . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5835 Governor Calkins. T h e question o n the progrem indi- cetes t h a t o n e F e d e r e l R e s e r v e B a n k p l e e d t h e s t a t u t e limitations. of T h e case h e s n o t been tried e n d there have been n o plerdings, a n d o f course t h e Federal Reserve B a n k of S a n Francisco h e s n o t plead t h e statute o f limitations. It q u o t e d o n e o f i t s m e m b e r banks. I epres w i t h Governor Bailey t o this extent, t h a t I think the loss ultimetely should fell o n the dreners o f the c h e c k s t h s t “ e r e u n d o u b t e d l y fpuilty o f negligence, and I think thet t h e y were legally guilty o f negligence, but o f course s s betveen t h e Federel Reserve Senks i t i s immateriel. Y o u wont stand a n y loss a n d w e wont s t a n d eny loss i n t.is cese. fortunstely--and I T h e statute o f limiteticns u n - sey unfortunetely e n d I from vie w i l l s a y f i v e t o f i f t e e n y e a r s mern i t - - v a r i e s i n different Stetes--far “wider then thet; o n judgments f r o m five t o twenty yerrs; s o thet the statute o f limitet&ons might bar a recovery i n some Stsetes, but I do not believe i t will in this ¢ase. Governor Sciler. D o e s freud begin t o r u n a t the time t h e freud w e s perpetrated, your S t a t e ? o r when discovered, in https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 584 Governor Celkins. I do not think I have thet ;n- for*mtion. The Chairman. G o v e r n o r Bailey, for a lo-r while, b u t I w e c a n discuss t h i s do not think w e c e n answer your question. Governor B e i l e y . I wented t o t r y t o get t h e opinions ol d u r Governors. Governor Talley. z a brief memorendum f r o m o u r counsel o n this subject end h e reises e point that i s not touched on. I f I mav read thet, i t will take e couple Of M L n N U b e . a s (Governor T a l l e y r e a d t h e m e m o r a n d u m r e f e r r e d P O s ) j G o v e r n o r Bailey. able t o me. I T h a t decision i s perfectly sgree- do not expect ©» finel settlement c f it, but i t ves a n interesting thing a n d I expression o f t h e Governors just wanted t h e o n it. Deputy G o v e r n o r C a s e . I pressed t h e r e i s t h e v i e w p o i n t think t h a t v i e w p o i n t o f o u r o w n counsel. Governor Reiley. T h e n I think thet i s right. is a n unusual thins. I believe t h a t t h e G o o d y e a r R u b b e r Company never could force collection o n i t five years aftervards. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 385 Denuty G o v e r n o r Case. T h e i r messenger r a n orf s i t h the woney, t h a t i e w h a t h a n v e n e d -—- their o w n messenger, The Cheirman, avs T h e n w e will nroceed t o the next tonic, O F “RATIGN A P D AD- INISTRATICHN B. S a f e k e e r i n g (Tonics 1 to 5 o f securities, under t h i s h e a d i n g w e r e i n f o r m a l l y dis cussed b y the Conference, a f t e r which t h e following occur-— red: Governor Seay. discussion, n o formel action wes taken? The Chairman. IV. i g h t y o u a d d that after t h e forecoing Y e e , O F URATION AND AD..INISTRATION, E, S a f e k e e r i n g o f securities, 6, authority of a Federal “eserve Bank to receive denosits o f securities f o r safe— kéening from Ferm Loan Regietrars, Federal L a n d Banks a n d intermediate credit b a n k s , https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 586 Governor Young. I think D r . M i l l e r b r o u g h t s o m e - thing u p yesterday that h e will want 5 s reply on; thst is, whether ~ e would b e willing t o act a s custodian f o r the land benk o r the f a r m loan registrars even, i n view o f the opinion o f t h e counsel. The Cheirman. I do not think you hed better thet u p a n y more. Governor Young. H e m a d e t h e inquiry. The Chairman. T h e t i s IV-E-6. Governor Young. Yes. neps C O L L E C T I O N S ‘ N D CIE.’ RINGS. in D i s c u s s i o n o f recent r u l i n g o f t h e F e d e r s l Reserve B o a r d relative t o the handling of n o n - c e s h c o l l e c t i o n i t e m s p a y a b l e at s t r e e t a d d r e s s e s - - C o n t i n u e d . The Chairman. M 2 . Harrison has a report t o make on this n o n - c a s h c o l l e c t i o n i t e m matter. Mr. Harrison. sub-committee T h i s i s thereport prepared b y the o f t h e Conference l a s t night, w i t h certain changes which I , a s Secretary, I imagine, have incorpo- rated i n the memorandum a t the request o f the committee, but which t h e committee h a v e n o t a s yet been able t o review; s o that I read this w i t h t h e reservation that per- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 14 5 8 7 haps t h e committee itself, after herring t h e changes made, may care t o make some further surgestions: "Section 1 3 of the Federal Reserve ‘ct, a s amended in 1917, euthorizes Federal reserve banks t o receive m a turing n o t e s e n d b i l l s f o r collection. T h i s auvhority is permissive a n d not mandatory. C o n c e i v a b l y , therefore, e Federal R e s e r v e b a n k c o u l d t e c h n i c e l l y r e f u s e t o receive such items f o r collection just # s they might conceivably decline t o exercise e n y other permissive p o v e r conferred _ by t h e l a w . But e v e r s i n c e t h e i n a u g u r a t i o n o f t h e c o l l e c t i o n function, i t hes b e e n the policy o f the Federal Reserve System t o have t h e severel Federal reserve banks offer their m e m b e r s u n i f o r m services a n d u n i f o r m privileges. It has b e e n a n d still i s the belief o f the Governors Conference t h a t member banks i n one district a r e entitled to the seme fundamentsl services ¢ s are accorded t o member barks i n other districts. T h e Conference believes t h a t greet h a r m mirht result t o the System a s a whole i f the benks a n d t h e p u b l i c i n one district a r e denied © service which i s afforded t o banks a n d the public i n other distriets . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 388 has by Regulation "'Indeedthe Federal Reserve Board provided for t r e universal ana uniform collection J of cash dirJuly 35, 1°17, (x-29S) i t of letter ite in items and the estaclien a service f o r t o Bankes ected ell Federal “eserve Since f o r tueir member ranks, collection of non-caeh steme it has Deen collection services, these eaci o f jnaugurating maintain Federal Reserve Banks t o the aim of the consistent of service for all member uniformity nossiole ag far 7 s Danke i n all sections of the country, relatively insignificant h e a etanding comaittee teres o f proceaure even i n matters o f detail. T h e Jovernore' Conference on collections ta which various mat- time, chiefly wit. are referrea f r o m time t o the purnoee o f promoting uniformity. therefore, tuat uniformity "Te Conference oelieves, in t h e c h a r a c t e r functions o f f e r e d o f t h e services a n d b u t essential only rignt i n nrinoiple, not i s banks member Federal Reserve Banks and the Federal the i f in practice, serious and possibly danzerous avoid to are Zoard Reserve criticism, o f the Federa: Reserve I f a small minority the “oard's option surzestec i n banks i n exercising h e https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 15 3 8 9 letter o f September 24, 1926, (X-4677), refuse t o handle items p e y e b l e e t street eddresses, i t means n o t o n l y t h a t those items will n o t b e received f r o m their o w n member banks, b u t also that n o other Federsl reserve b e n k c e n receive f r o m its members a n y items payable a t street a d dresses i n the districts w h i c h refuse t o hendle those items. The resulting discrimination cgsinst a certain class o f items i n a few districts a n d the difficulty o f prescribing different r u l e s f o r d i f f e r e n t c i t i e s a n d districts, w i l l , the Conference believes, result i n such disorder i n the collection function that i t will likely subject t h e System t o wholly unnecessery b u t justified attack. "That being so, i t becomes important i n the opinion of the Conference t o determine whether s l l Federal reserve banks s h o u l d c o n t i n u e a s a t present items peyadle e t street addresses, t o receive n o n - c a s h o r whether n o Federal reserve h a n k s s h o v l d r e c e i v e s u c h i t e m s f o r collection. "In the fall o f 1923 this h o l e question was referred by t h e F e d e r a l R e s e r v e B o e r d t o t h e G o v e r n o r s f o r t h e i r review o n d recommendetions. ‘ gommittee o f Governors, known a s the Committee o n Voluntary Services, w a s a p pointed b y the Board. T h a t committee prepared a n d with https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BES the approval o f the Governors! Conference f i l e d a with the Federel Heserve B o e r d i n March, 1924, it w e s r e c o m m e n d e d i n substence i n : e s follows: "*. T h a t the non-cash collection service b e continued, n o t o n l y f o r items payable a t banks, b u t f o r items peyeble i a t street a d d r e s s e s a s well. "5. T h a t n o service charge b e made for collecting any class o f n o n - c a s h items. "C. T h a t esch Reserve Benk and branch ende fear a s possible, t o effect i t s local collections i n that manner m o s t c o n s i s t e n t w i t h e s t a b l i s h e d b u s i n e s s e n d banking practices, w i t h a view t o elimineting e n y unnecessary causes o f possirle friction a n d discontent o n the part o f those business houses w i t h whom the Reserve necesssrily c o m e i n contact i n making presentetion of items f o r peyment. "D. T h a t each Reserve Bank and branch continue, e s in the past, vigorously t o promote further economy a n d efficiency i n the operetion o f its collection service, eiving d u e c o n s i d e r a t i o n direct s e n d i n g s t o the encourcgement f o r more b y member banks, prectices d e s i g n e d e s well a s t o other t o eliminate e x t r a o r c o s t l y handlings. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 591 "This report wes approved b y all o f the Federal Reserve banks, except those o f Minneapolis, Kansas C i t y a n d ftlantea. "rt each conference o f Governors since t h e t time, t h e matter h e s been reviewed a n d the recommendstions o f the committec s e t forth above ratified a n d the Federal Reserve Board urged finally t o pass u p o n the matter. O n eech o f these occesions, n i n e Governors voted i n favor o f continuing the non-cesh collection service a s a t present, including items payable a t street addresses, while three Goyernors voted i n opposition t o doing so. "ll o f the various erguments for and egrainst the continuence o f this service h a v e therefore b e e n considered a t numerous times b y the Governors a n d presented i n detail from time t o time i n written reports t o the Federal Reserve Boerd. T h e r e seems n o need further t o review those erguments a t this time. "Unfortunately, however, u p o n consideration o f the Boserd's letter o f September 24, 1926, w h i c h suggests t h a t each Federsl Reserve B a n k exercise i t s o w n option t o collect i t e m s p a y e b l e s a t street a d d r e s s e s , t h r e e F e d e r a l Reserve Banks e r e i n fevor o f discontinuing t h e collect- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 19 3 9 2 ing o f these p a r t i c u l a r i t e m s , w h i l e t h e r e m a i n i n g n i n e banks are i n favor o f continuing handling them for all of the reesons w h i c h have b e e n fully set forth i n the previous reports t o the Federal Reserve Board. "In these circumstances, i t i s the sense o f the Conference that i n order t o preserve that uniformity which i s believed t o b e s o essential t o the vest interests o f the Federal Reserve System, i t s member banks a n d the public, the Federel Reserve Board. should reconsider i t s letter o f September 2 4 , 1 9 2 6 , a n d d e t e r m i n e w h e t h e r f r o m t h e p o i n t of view o f the Federal Reserve S y s t e m a s a whole, a l l Federal Reserve Banks shell o r whether a l l Federal Reserve Banks s h e l l n o t c o n t i n u e t o handle f o r collection i t e m s which are payable a t street pddresses.” The Chairman. I think the procedure f o r that would be for thet committee t o consider i t first. “wouldn't it, Mr. Harrison? Mr. Harrison. T h e committee h a s considered i t and epproved o f the report, w i t h the exception o f a few additions w h i c h a r e i n c l u d e d i n the report a s I have j u s t read i t . Governor Norris. T h e substance o f the report w a s https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 20) prepered a t t h e c o m m i t t e e m e e t i n g l a s t evening. chenges t h a t have since b e e n made a r e merely changes i n phraseology, e n d t h e committee presents t h a t unanimously as i t i s written. Deputy G o v e r n o r C a s e . I Governor Talley. I move i t s adoption. second it. (The motion w a s p u t t o a vote a n d each Governor present voted "aye ?w i t h the exception o f Gevernors Beiley, Young and “ellborn, who voted "no.") IV. O P E R ’ T I O N ‘ N D ‘DMINISTR'TION. H. R e p o r t o f subcommittee o f general c o m m i t t e e on benkers! acceptances. The Chairman. T h e next topic i s Section IV, topic H, report o f the subcommittee o f the general committee o n bankers! a c c e p t a n c e s . Mr. Harrison. I shall read t h e report: "Since t h e last Conference n o question hes been submitted t e the sub-committee, consequently there i s nothiag to r e p o r t a t t h i s t i m e . "Your committee, however, respectfully calls sttention to t h e r e p o r t o f the Generel Committee o n Bankers c c e p t - ances submitted t o the conference o f March 22, 1926, a n d https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ei 5 printed 9 o n pages 5 7 0 - 5 7 8 4 o f the stenographic record o f the conference, o u t l i n i n g c e r t a i n p r i n c i p l e s a n d r u l e s desired b y the conference i n its consideration o f a general broadening o f practice i n bankers domestic acceptance credits, w h i c h report w e s approved b y the conference w i t h the r e c o m m e n d a t i o n t a h t the Federal Reserve B o a r d b e requested t o a d o p t t h e r e c o m m e n d a t i o n s c o n t a i n e d therein. Your committee understands t h a t t h e latter action i s still pending. Respectfully submitted.” The Chairmen. “ h e t shall w e d o with this report? Mr. Harrison. I can d o w o u l d should t h i n k t h a t t h e o n l y t h i n g y o u b e t o renew t h e recommendetions made a t the lest Conference o n this subject. Governar Young. I s o move. Governor Calkins. I second t h e motion. (The motion vas p u t a n d unanimously carried.) tv O P E R ' TION ‘ N D 'DMINISTR’ TION. I. R e p o r t o f leesed wire committee. The Chairman. T h e next topic I leased wire committee. arrengement is the report o f the T h e r e h a s b e e n n o change i n the o f wires c o m p r i s i n g t h e S y s t e m s i n c e t h e l a s t https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis e2 Conference o f Governors. Governor Norris. t h e t t h e report b e accepted and filed. Governor Young. I Governor Calkins. with this that I fore, t h a t I second t h e motion. T h e r e i s one matter i n connection will mention. f supgestion w e s made be- believe w e s approved b y the Leased “ire Com- mittee-~-I cannot s a y positively--and thet i s that a l l Federal R e s e r v e B a n k s a f f i x t e s t w o r d s t o wires a d v i s i n g credit about direct routed collections i n the same manner ascsuchnwords e r e n o w affixed t o telegraphic trensfers. There i s the seme reason involved, t h e seme reason f o r test words a n d moreror less control. I Streter i s not here, because I a m sorry Mr. would o f course defer t o his opinion i n regard t o this The Chairman. “ h a t action d o you desire t o teke i n regard t o it? Governor Calkins. of which I I n a letter f r o m Mr. Strater, just find a copy, t o the cashier o f our bank, dated Merch 5 , 1926, Mr. Strater says: "Tt seems t o our committee that the chance for fraud or l o s s b y r e a s o n o f t h e l a c k o f t e s t w o r d s i s v e r y remote. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2% The affixing o f es test word wohld apparently, however, make t h e perpetration o f fraud e little more difficult, and w e c a n see n o objection t o the u s e o f the test word on telegraphic advice i n payment o f collections. T h e Leased “ire Committee concurs i n this opinion, a n a the matter c a n possibly b e entirely disposed c f i f Governor Calkins would discuss t h e matter e t the Conference e n d offer a motion that the test words b e used." That i s t h e r e a s o n I The Chairman. “ 4 1 1 y o u offer that a s a motion? Governor Celkins. I Ranks a f f i x t e s t w o r d s routed collections a m o f f e r i n g t h e motion. move that s l l Federal Reserve t o wires a d v i s i n g c r e d i t f o r d i r e c t i n the same manner a s test words a r e n o w affixed t o telegraphic trensfers. Governor S e s y . I second it. (The m o t i o n w a s p u t a n d u n e n i m o u s l y c a r r i e d . ) IV. O P " S R T I O N ‘ N D /DMINISTR’ TION. J. R e p o r t o f Insurance Committee. The Chairman. T h e next topic i s Topic J under Section IV, the report o f the Insurance Committee. Mr. Harrison, T h e committee reports that nothing has https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis a4 been referred t o i t since t h e lest Conference, a n d therefore t h e y h a v e n o t h i n g t o r e p e r t b e c k t o t h i s C o n f e r e n c e . The Chairman. T h e n t h e r e i s n o t h i n g t o b e done. iV. O P E R ' ’ T I O N * ND *DMINIS?PR’ TION. Ky R e p o r t The Chairman. o f P e n s i o n Committee. T h e next tepic i s Topic K , t h e report of the Pension Committee. (The report i s a s follows): "Since the lest Conference o f Governors, your compittee h a s d e v o t e d i t s e f f o r t s t o w a r d s s e c u r i n g f a v o r a b l e action b y the Congress o n the Federal Reserve Pension Bill. The bill was introduced i n the Senate o n March 22, 1926, and referred t o the Committee o n Banking e n d Currency. This c o m m i t t e e h e l d t w o herrings, o n /pril 1 5 , 1926, a d a fpril 27, 1926, b o t h o f which were attended b y representatives o f y o u r committee. Y o u r committee f o u n d t h e Senete Committee o n Benking a n d Currency generally favoreble t o é&pension plan, t h e d i s c u s s i o n a t the hearings having t o do m a i n l y w i t h t h e f i x i n g o f a limit o n t h e a m o u n t o f pen- sion t h a t c o u l d b e p a i d u n d e r t h e p r o p o s e d p l a n . I n order to meet a n y criticism thet might develop o n this point, the S e n a t e C o m m i t t e e w a s d e s i r o u s o f amending t h e p l a n https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 25 5 9 specific l i m i t . to provide f o r e 8 S u b s e q u e n t l y t h e Senate Committee t o o k f a v o r a b l e a c t i o n e n d r e p o r t e d t h e t t h e bill ought t c pass with t h e following emendment: "tend provided further, That n o pension shell be p a i d o u t o f t h e e m o u n t s c o n t r i b u t e d o r t o b e con- tributed b y the Federal reserve benks, t h e Federal Reserve Board, a n d the Federal Reserve /gents e t a rote i n excess o f 3 0 per cent o f the maximum annual salery r e c e i v e d b y such officer o r employee .! "Tt will b e noted that t h e limitation i s effective only with respect t o thst part o f the pension peid f r o m funds c o n t r i b u t e d b y t h e employer. O u r actueries a d v i s e thet t h i s l i m i t a t i o n w i l l s e l d o m i f e v e r b e c o m e o p e r a t i v e in the ectual operation o f the proposed p l a n f o r the resson thet i t i s unlikely that t h e limitation stated would ever be reached i n operation under t h e plan. “ h i l e reported favorably, t h e bill d i d n o t actually come u p i n the Senate before t h e adjournment o f thet body. "Simulteneously with the steps taken for the introductjon o f t h e b i l l i n the Senste, y o u r committee a r r e n g e d with Representative Louis * . McFadden, Chairman o f the Banking e n d Currency Committee i n the House, t o secure i t s https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 599 26 introduction i n the House. I t , however, h e s n o t veen introduced i n the House u n d Mr.McFadden h e s explained t o the Chairmen o f your committee t h a t t h e deley i n causing its introduction w a s n o t due t o his I s c k o f interest o r any apprehension o f opposition either i n his comm.ttee, to which i t would naturally b e referred, o r i n the House a t any time excent w h e n the benking bill was t h e subject o f bitter political controversy. H e explained t h e t h e deemed it unwise t o take u p the pension bill until t h e banking bill h a d been disposed o f and hes promised t o deal with it a t the earliest opportunity. "In this regerd your committee i s informed that i f the b i l l i s p a s s e d b y the Senate i t w i l l f o sutomeaticelly to the Joint Committee o f the Senate e n d the House without separate introduction i n the House a n d Mr. “cFadden hes p r o m i s e d h i s s u p p o r t t o i t a n d indicated t o your Cheirman that i t might b e good politicel strategy t o at- tompt t o have i t pessed i n the Senate without weiting for action i n t h e House. "Your committee desires t o egein emphasize the importence o f p r o c u r i n g t h i s l e g i s l a t i o n a n d t h e inasugure- tion o f the p l e n with the least possible delay. T h e lest https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 27 4 6 0 valuation b y the ectuaries e n d the rates o f contribution are good o n l y for the calendar yeer o f 1926. I f the p l a n is not operative until well into next yeer, t h e accrued liabilities, w h i c h a t the present t i m e would require o f the older employees w i t h severel years o f service h i g h rates o f contribution, w o u l d b e s o increased that s u c h hirher ,ates would b e recuired a s might afford substantial obstacle t o a general f u l l a c c e n t a n c e o f t h e p l a n b y s u c h employees, and your committee would regard i t a s unfortunate i f the Systea w e r e t o l o s e t h e b e n e f i t o f the p l a n i n its applica- tion t o s u c h employees. "Itiis, therefore, recommended t o the Governors that it i s desirable t h a t t h e y a n d the chairmen o f the respective banks attempt t o interest members o f Congress w i t h whom they have personel scquaintance o r influence, w i t h a view t o expediting the errly passage o f the bill. "Respectfully submitted, Fencher, McDougel, "=. R. Kenzel, Chairman,” Governor Seay. I Committee b e received move the report o f the Pension a n d t h e action therein recommended https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 28 be t a k e n a s f e r a s practicable. The Chairman. I s that seconded? second i t . Deputy G o v e r n o r C a s e . I Governor Young. I second i t . (The motion w a s p u t a n d unanimously carried.! The Chairman. I have here a letter addressed t o Mr. Case f r o m Governor Crissinger: "The Board has considered the report o f the Open Merket Investment Committee a n d notes particulerly the Committee's s u g g e s t i o n t h a t ' i t m a y b e d e s # r a b l e t o pur- chase u p t o 100 million e f securities d u r i n g t h e coming six weeks, t o b e sold again a t such time a s credit condi- tions appesr t o make thet course desirable.' T h e Board understends f r o m the Committee's report thet a s the Committee views t h e situation a t this time there i s n o need for ection looking toward a change i n the amount o f the special investment account, a s approved b y the Board o n September 10, 1926, a n d i n this v i e w the Board concurs. The Board, therefore, construes t h e Committce's suggestion es e n expression o f opinion o n the part o f the Committee thet i n the event o f a future change i n the present situation, i t m a y b e desirable t o give consideration t o increasing t h e a c c o u n t t e m p o r a r i l y . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 402 "The Board assumes that should there b e any change ir the present situation o r any new developments which would s e e m t o warrant increasing t h e account temporarily the C o m m i t t e e w i l l c o n f e r f u r t h e r w i t h t h e Board.” Deputy Governer Case. I Governor Fancher. think thet i s setisfactory. T h e y d o not concur i n the récommen-~ detion. Deruty Governor Case. needed. T h e suggestion w a s whenever I t said "it may be desirable", e n d they say "all right.” i f the situatinn changes, w e will take 4 + un. The Chairman. in r e l a t i o n M r . E d d y has mentioned t o m e a matter t o t h e c o d e book. it will b e necessary, I Mr. Eddy. think, T h e s u p p l y i s short e n d t o order some n e w copies. Y e s ; I wanted t o speak t o vou about the q u e s t i o n o f t h e p l a t e s f o r t h e c o d e book end the n e w copies t o b e printed, I made u p before I understend these plates were was S e c r e t a r y o f t h e B o e r d , e n d t h e code book was gotten u p i n New York a n d printed there o n d the pletes “ere sent d o w n here f o r custody, a n d since t h e book h e s b e e n i n o p e r a t i o n t h e r e have been a greet m a n y https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 30 werds added t o i t and the plates a r e o f n o use. supply n o w i s a b o u t e i g h t y copies, The e n d during t h e year we will undoubtedly have t o replace eighty outstanding copies w i t h t h o s e w e h a v e o n hand. “ e want t h e Leased “tre Committee t o state whether o r not t h e y want n e w books printed a n d where. The Chairman. I f the Gonference i s willing t o leave that t o the Leesed “ire Committee, Governor Seay. I i t will b e s o ordered. move i t b e left t o the committee, power t o get. second t h e motion. Governor Young. I (The motion was n u t e n d unanimously carried.) think M r . H a r r i s o n h a s a The Chairman. I topic o r topics n o t o n the progrem that h e would like t o have y o u consider. Mr. Harrison. G o v e r n o r Norris wrote m e a letter concerning the matter which was left w i t h h i m a t the last Conference o f Governors, farm l o a n coupons. I o n the question o f handling assume y o u want t o report » a c k t o the Conference w h e t y o u have done concerning that matter, Governor N o r r i s . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 404 Governor Norris. I will b e v e r y g i s d t o . £ % the last Conference t h e question was raised a s t o whether Federel Reserve Zanks shiutd n o t b e compensated f o r handling coupons me 4 o n f e r m l o e n bonds, comnittee a n d t h e Conference appointed o f one t o take t h a t matter up, l o o k into it, and report o n it. The o n l y w a y i n which I can make a n intelligible r e - port i s b y summarizing t h e correspondence a n d memoranda that have b e e n since submitted o n the matter. I wrote o n March 2 6 t o Governor Cooper, t h e n F a r m Loan Commissioner, celling his attention t o the fact that when the first issue o f farm loen bonds was made i t was felt that i t would b e edvantageous a n d help the market ability o f the vonds i f the coupons c o u l d b e meade cesh items payable i n any one o f the thirty-six cities where Federal Reserve Banks o r branch banks were situated, a n d the Federal Reserve Banks were quite willing t o essist i n the matter. I said t h a t s i n c e t h e n t h r e e t h i n g s h a v e o c c u r r e d to g r e a t l y i n c r e s s e t h e m e c h a n i c a l l a t o r coupons : i n handling these F i r s t , t h e v o l u m e h a s b e e n i n c r e a s e d f o r t y fold; second, t h e practice h a s b e e n changed i n that t h e other https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 405 32 Reserve Banks o r branches, instead o f forwarding a l l coupons t o N e w York i n one shipment, s o r t t h e m a n d forward t h e m in twelve shipments t o the Federal L a n d B e n k b y which t h e y wereAssued: and, third, the calling o f certain issues for redempticn h a s made i t necessary that t h e serial rumbers o f coupons b e checked egeinst s list o f call bond nu~bers t o provide sgsinst t h e pavment o f coupons o n call bonds; t h a t reimbursement i s being made f o r postage a n d insurance, b u t not f o r the time o f the clerks engaged i n handling t h e cnupons; t h e t t h e Federal Reserve B a n k o f Chicago estimetes that this latter i t e m costs i t from $75 t o J10C a month, the Cleveland ba:»k expresses t h e opinion thet t h e coupons that S i t e t h e i r offices i n 1925 cost them approxi- mately $2,343 t o handle, a n d that a s the L a n d B a n k has now r e a c h e d t h e p o s i t i o n w h e r e t h e y h a v e t h e m e a n s a n d doubtless t h e d i s p o s i t i o n t e pay a proper c h a r g e f o r e n y service rendered, t h e Conference o f Governors authorized me t o take t h e matter u p with h i m . In r e p l y t o t h a t h e w r e t e m e o n f p r i l 3 that a con- ference o f Federal L e n d B a n k presidents authorized h i m a n d Judge Lockwood, Fiscal ‘gent f o r the banks, t o work o u t a satisfactory p l a n f o r compensating t h e Federal Reserve https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 406 “4 that that i t occurred t o h i m Banks, a n d further seid o f New Federel Reserve B a n k the w i t h made deposit the York i n a n t i c i p a t i o n o f maturing coupons o f call bonds these s e i n governments, sna: invested b e might properly York; Reserve R e n k o f New Federal the b y h e l d curities thet t h e i n v e s t m e n t apply only i n i n governments s h o u l d which u p o f bonds a n d coupons the event o f the holding t h e payreesonavle t i m e after a i n presented had not been ment d u e dete. to m e with further reference On ‘pril 2 8 h e wrote t h e following f o r o u r consideration the matter, suggesting paar’ i f call bonds ment w i t h i n 4 presented f o r payo r coupons a r e n o t Reserve R a n k e time t h e F e d e r a l reasonal in balance o f such deposits a n y invest t o York of New Penks the charginr Federal Lend securities, government t o be service, t h i s commission such f o r usuel c o m i s s i o n i n accordFederal Reserve Banks apportioned cmnONg, ell n o w obteins w i t h reference a v i c h practice the ance w i t h to other fiscal transections. on f p r i l 3 0 1 meke t h e trenswrote h i m t h e t woulda N e w York the transection o f # s basis seme action o n the that i n the settlement nevks with the foreign eccounts; https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 54 4 0 7 ef t h o s e a c c o u n t s t h e N e w Y o r k b a n k d e d u c t f r o m g r o s s commissions r e c e i v e d t h e e s t i m a t e d o u t - o f - p o c k e t e x p e n s e of a t t e n d i n g t o t h e business, a n d i t i s the balance t h a t is divided among the eleven other Reserve Banks, a n d thet unless t h e i n v e s t m e n t a n d r e i n v e s t m e n t s w e r e v e r y m u c h more f r e q u e n t t h a n I would a n t i c i p a t e t h i s d i v i s i b l e balance would b e very small, a n d I did n o t think that t h e other Reserve Banks would regard their respective shares as a d e q u a t e c o m p e n s a t i o n . f n d further, a n o t h e r o b j e c t - ion t o that p l a n would b e that t h e compensation t o the other Reserve Banks would n o t be, a s i t should be, o n the basis o f the number o f coupons handled. I suggested: "It seems t o me that a compensation t o each bank at the r a t e o f o n e c e n t f o r e a c h c o u p o n h a n d l e d w o u l d b e a reasonable compensation." On June 1 8 h e wrote me; "I think your suggestion that the compensation t o each b a n k b e a t t h e r a t e o f o n e c e n t f o r e e c h c o u p o n handled will be satisfactory." On September 2 1 the Federal Reserve B a n k o f N e w York w r o t e m e : "So far as this bank i s concerned, w e have not asked https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 55 4 0 8 to b e peid f o r this service, n o r d o w e think i t desirable that t h e F e d e r a l R e s e r v e B a n k s b e p a i d f o r it. L G . i s a comparetively small service t o b e rendered, a n d i t would eppesr that i t might better properly b e absorbed a s a part o f t h e s e r v i c e r e n d e r e d t h e Government. f s a matter o f fact, i t m a y b e doubted i f a n y o f the banks would b e a b l e t o reduce t h e i r a c t u e l o u t - o f - p o c k e t e x p e n s e if they did not pay these coupons." Governor S e a y . “ h o expressed t h a t opinion? Governor Norris. N e w York. " " e do, nevertheless, feel t h e t i f a r y o f t h e b a n k s a r e t o b e p a i d f o r t h i s service, then they all should, inc.uding this bank, b e paid o n the same basis.” That was i n answer t o a suggestion that I had made in another letter, that perhaps the New York bank would be willing t o accept the commission o n investments a n d reinvestments a s its compensation f o r handling t h e ceupons, in w h i c h c a s e t h e c o u p o n h a n d l i n g c h a r g e w o u l d o n l y b e by the other banks, a n d therefore o n l y about two-thirds of the total volume o f business, a s the N e w York bank ap- parently h a n d l e s a b o u t o n e - t h i r d o f t h e coupons. Further i n the l e t t e r f r o m N e w York: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 409 "The attitude o f the Farm Loan Board a p p e a z: oshes t it would b e willing t o p a y the Reserve B a n k f o r hatdling these coupons, provided t h e y could invest t h e belances in t h e i r c o u p o n a c c o u n t s r e p r e s e n t i n g t h e o u t s t a n d i n g u n - paid coupons, s o a s t o produce t h e revenue f r o m which t o make these payments a n d have ea profit besides." Subsequently I the M e w York bank, a wes furnished w i t h a memorsndum f r o m memoresndum b y “Mr. Rounds t o Mr. Case, giving v e r i o u s f e c t s a n d f i g u r e s a s t o the coupon account in thet ban', a n d calling attention t o the fact that t h e balance c o u l d n o t b e invested unless t h e accounts o f sll of t h e tyvelve L e n d B a n k s c o u l d b e consolidated; that the totel b a l a n c e r e p r e s e n t i n g c o u p o n s t h e t h e d n o t b e e n p r e - sented f o r payment within a reeésonazvle time w a s s o small thet i f t h e t w a s d i v i d e d u p among t h e twelve t h e matter of investments would b e prectically impossible. Thet b e i n g t h e s i t u a t i o n I have h a d n o t h i n g f u r t h e r from the F a r m Loan Board officials, B u b s e q u e n t t o that expression o n their pert that a coupon w o u l d b e setisfectory, cherge o f one cent. per b u t t h e N e w Y o r k bank, w h i l e it i s not asking compensstion, takes t h e position that i f compensation i s t o b e paid t o a n y Federal Reserve B a n k https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 37 it s h o u l d b e p e t d f o r i t . Deputy G o v e r n o r Case». n I other words, w e bélieve-in_ uniformity. Governor Norris. f n d that unless a consolidation o f these accounts c o u l d b e made, t h e F e r m Loan Board o r the Federal L a n d B s n k c o u l d n o t r e s l i z e a n y e p p r e c i a b l e a m o u n t on investments o f these i d l e belances. Thet i s t h e situation. P e r h a p s M r . Case would like to s u p p l e m e n t i t , i f t h e r e i s e n y p o i n t t h e t I have n o t covered. Deputy Governor Case. H o t o word. I t i s very ‘ell covered. Governor Norris. I f we insist upon making the charge, I suppose t h a t t h e precticel result would b e thet, instead of carrying t h e balence t h e t t h e y n o w carry with the Federal Reserve Bank o f New York, which o f course i s o f h o profit o r advantage t o thet bank, b u t would b e t o commercial b e n k s there, t h e y w o u l d t r a n s f e r t h o s e a c c o u n t s a n d p r o b a b l e g e t 2 p e r c e n t o n those b e l a n c e s . The Chairmen. mittee. M r . N o r r i s h a s r e p o r t e d a s o u r com. “ h a t i s t h e w i s h o f the Conference w i t h regard t o his r e - o r t ? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Telley. I t will probably cost u s 9 3 much to k e e p t h e e c c o u n t a n d r e c o v e r t h e e x n e n s e a s i t will amount to, b u t i f i t c a n b e worked o u t o n some flav charge for each interest peying date, i t will b e a very simple thing. The Chairman. ‘ r e y o u willing t o let tris matter rest where i t is, Governor Fancher? Governor Fancher. ten enywhere. I I t seems t o m e that w e have n o t rote was o u t o f the r o o m when Governor Ngrris wes malting his report, o r « 42 portion o f it, b u t e s I understend there i s not reslly a n y solution o f the matter; that is, w e are n o nearer getting poid for the service rendered t h a n w e were before. Governor Norris. I made a suggestion o f = charge o f one cent f o r 6sch coupon e n d h e replies t h a t h e thinks t h a t would b e setisfoctory; b u t h e i s n o t w i l l i n g t o p a y i t unless. he c a n recoup t h e ¢xpense somewhere. The Chairman. T h a t i s one new development, to the N e w York bank's attitude. i n respect T h e y have expressed themselves a s perfectly willing t o g o o n and absorb this expense a n d they handle sbout one-third o f the coupons, I understand. as https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 412 Governor Norris. Y e s . T h e y t h o u r h t t h e y handle a b o u t one-half, o u t the Farm Loan foard tells m e that they think it i s not s o very serious. Deputy Governor Case. I think thet i s ebout right. The Chairman. U n l e s s someone c o u l d make a tion o r desires t o d o so, I recommenda- think we h e d better l e t the matter rest. Governor Norris. I have made s calculation i n our office o n the besis o f the number o f hours o f time o f em- ployees consumed i n this, a n d the calculation e s i t was first handed t o m e cane t o 4400, e n d thet w a s s o very different f r o m t h e C l e v e l e n d c o s t + - I k n e w s o v e l l h o w e c o n o m i - cally everything w a s dene i n Cleveland--thet I thought +hat could not »e right, and I asked them to check i t up, end they finished with some padding and got i t u p to 700. Governor Fancher. I think o u r f i g u r e s e r e p r e t t y high. i a m goins t o have these computetions g o n e over srsin. Goverror Seay. T h e r e m a y b e n o re‘son f o r taking ection a t this time, b u t m y feeling i s that, i n view o f the general disposition o f all governmental bodies t o impose burdens o n the Federel Reserve System, either n o w o r et some time t h e y ought t o b e expected t o p a y their o w n https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Fancher. T h i s thought comes t o me, 3‘ r . Cheirman, w h y not e t the next Conference e e c h bank make a very c a . e f u l s t u d y o f t h e c o s t o f h a n d l i n g t h e s e c o u p o n s end c o m e p r e p a r e d w i t h f r e s h f i g u r e s e n d l e t u s s e e w h a t t h e picture i s s t that time. do not believe their income account Governor Scsy. I ought t o b e padded b y reason o f freedom o f expenses f o r services w h i c h o t h e r i n s t i t u t i o n s s r e performing. I think ought t o show whet t h e expense o f operation is, i f i t i s material. I t i s n o t materiel w i t h us, a n d therefore heve n o motive, wut I we certeinly f e e l t h e t w a y w i t h r e s p e c t to the operation o f these independent governmentel organizetions. The Cheirman. “ o u l d Governor Fencher's m o t i o n satisfy or d o y o u want t o meke i t more generel? Governor S e a y . The Chairman. W o , sir. T h e t will b e satisfactory t o G o v e r n o r Feneher moves e n d y o u second Governor S e a y . I s¢écond i t . (The m o t i o n w e s p u t a n d u n a n i m o u s l y c a r r i e d . ) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 414 The Chairman. coming u p . I “ ‘ e have o n e v e r y important m a t t e r will a s k Mr. H a r r i s o n G O a 8 1 2 - 1 t v e -your attention. Mr. Herrison. T hove h e r e c o p i e s o f correspondence between the Postmaster Generel a n d the Federal Reserve Board concerning recent mail robberies. T h e Goyernor o f the Federel Reserve B o a r d referred these t o m e with the r a ~ quest thet w e take i t u p with the Conference f o r whatever action t h e y cared t o five it. I the letter. suppose I had better read T h i s i s from Postmaster General N e w t o Governor Crissinger: "My dear Governor: "The custom o f certein banks o f sending large sums o f money b y the United States mails h a s undoubtedly furnished the motive for meny o f the recent sttecks o n the United States mails. T h e shipments referred t o are generally found t o have b e e n mede b y the Federal Reserve B a n k o f a district u p o n request o f a member b a n k i n response t o which very large sums of currency #re put u p in packeges and committed t o the United States mails e s parcel post i n order t o h a v e t h e m t r a n s m i t t e d a t v e r y l o w cost. T h i s money i s generally intended f o r payroll purposes a n d i s https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 415 42 consigned t o plents employing large numbers o f men a n d requiring v e r y l a r g e s u m s o f m o n e y f o r p a y r o l l p u r p o s e s at stated intervals. "It does not require a very smart thief t o learn such shipments a r e being made a n d the trains o n wnich t h e y ere cerried, routes followed between reilroed stations e n d plants where s u c h transportation i s necessery. Fore- knowledge t h a t these shipments a r e d u e f o r delivery b y a certein train undoubtedly enables these gangs t o attack a cer o r a guard, truck i n s u c h f o r c e a s t o o v e r w h e l m a n y ordinsery a s i n the c a s e a t Blizsbeth, N e w Jersey, y e s t e r d a y . f shipment o f currency consigned f r o m the Federal Reserve Ban’: a t N e w York, t o the Singer Sewing “echine Company, approximating £160,000, w e s t h e object o f attack. Every ressonable precaution h a d been taicen t o safeguard it. f n armed guard was o n the sest o f the truck with t h e driver who w a s a l s o a r m e d a n d b y p r e a r r a n g e m e n t w i t h t h e m u n i c i - pal esuthorities, a city policeman, f u l l y armed, r o d e behind t h e t r u c k o n s motorcycle. men w e r e s h o t f r o m t h e i r s e s t s f l l t h r e e o f these by a band o f n o t l e s s t h a n C6ight men, w h o attacked t h e m with mechine guns, o n e m a n being killed a n d t h e other t w o desperately wounded, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 43 before a move w a s made t o get t h e money. "Ihe point of all this is to make i t clesr that shipments o f m o n e y m a d e i n this w a y o f f e r t h e g r e a t e s t p o s s i b l e temptetion t o desnsrate m e n w h o d o n o t h e s i t a t e either employees o r bystenders t o murder i n order t o get the money. Iam sure that i f other means could b e found f o r the trensportation o f these s u m s w h e r e transportation currency itself i s a necessity, o f the i t would serve t o grertly reduce t h e nusber o f attacks o n United States mails w i t h their attendent murders a n d other acts o f violence. If the b a n k s w o u l d u s e t h e i r i n f l u e n c e w i t h b u s i n e s s c o n c e r n s now meeting pavrolls w i t h direct payments o f currency t o substitute t h e check system therefor, t h i s would a l s o help. "I would be aled to have a n expression of your views on this subject o r a n y phese o f it. "Very truly yours, "Harry S. New, "Postmaster General." Then a n o t h e r l e t t e r i n r e p l y f r o m G o v e r n o r Platt: "My dear General: "In the absence o f Governor Crissinger, I acknowledge https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 44 receipt o f your letter, addressed t o h i m under date of. October 15th, i n which y o u call ettention t o the frequent mail rebberies induced largely b y the practice wi.ich «revails o f dispoetching large sums o f currency b y parcel post. "You suggest i n your letter that banks u s e their 4 n fluence w i t h business concerns n o w meeting peyrolls w i t h direct payments o f currency t o substitute t h e check system therefor, e s 9 means o f reducing t h e number o f attacks o n United States mails w i t h their attendant murders a n d other acts o f violence. “ e are t o have e conference o f the Chairmen o f the Boards o f Directors o f the Federal Reserve Banks, a s well a s a conference o f the active executive officers o f those banks, d u r i n g t h e e e r l y p a r t o f next month, e n d your communication t o Governor Crissinger will be read t o the conferences, w h i c h will b e asked t o discuss the matter. "I feel that I should assure y o u thet every possible safeguerd i s placed a r o u n d c u r r e n c y shipments m a d e b y the Federal Reserve banks. T h e s e shipments s r e made between the reserve banks e n d their branches, a n d b y individual reserve b a n k s a n d brenches districts. t o the banks i n their respective N o currency shipments a r e made b y a Federal https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 45 4 1 8 reserve b a n k ether t h a n t o another bank. T h i s leads m e to suggest thet i t i s doubtful whether adoption b y business concerns o f the practice o f paying their employees b y check instesd o f i n currency would have t h e effect o f lessening the r e s p o n s i b i l i t i e s o f the Post Office Department e n d the risks incurred b y its employees, accounts a s the banks carrying t h e o f factories, m i n e s a n d others, m u s t o n payroll detes b e i n a cash position t o enable t h e m t o meet t h e checks presented b y employees o f their depositors. They must obtain t h e necessery currency f r o m the Federel reserve banks, either directly o r indirectly. I n the case o f the recent hold-up i n New Jersey, t h e shipment o f currency t o which y o u r e f e r w a s m a d e b y t h e F e d e r e l R e s e r v e B a n k o f New York a n d consirned t o the Elizabethport Banking Company, a n d not t o the Singer Sewing Machine Company "I shall take the liberty of communicating with you further o n this subject following the conferences shove referred to. "Very truly yours, "Hdmund Platt, "Vice Governor,” Then another letter f r o m Mr. N e w t o Mr. Platt: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 46 "Dear Mr. Platt: "Receipt o f your letter o f October eed is~avknowledged. It i s o f course understood t h e t there a r e m a n y difficulties in the w a y o f inducing payment b y check instead o f currency f o r p a y r o l l purposes. I sible t o d o t h i s u n d e r t h e lew. times e m p l o y e e s o b j e c t n some S t a t e s i t i s n o t pos- I t i s also true thet many t o payment b y check a n d that there ere many other difficulties, a l l o f which heve t o b e considered, a n d y e t t o just whatever extent t h e check system may b e substituted f o r payment i n currency the Post Office Depertment would b e relieved o f the r i s k involved i n trensportation o f l a r g e s u m s s h i p p e d f o r t h e t p a r t i c u l a r p u r p o s e . "There c a n b e n o criticism o f the method employed b y the Federal Reserve barks i n the shipment o f money consignments s o l o n g as. it i s i n Federal R e s e r v e h a n d s a n d n o n e such i s implted. T h e Federal Reserve delivers currency to the Depertment under guard which i s believed t o b e adequete, a n d egain gives i t protection when received f r o m the mails, b u t unfortunately t h e Post Office Department has n o adequate g u a r d n o r means o f obtaining one. / peckage o f currency some times o f very large smount i s committed t o the mails a s registered parcel post a n d from https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis the time i t i s thus received until i t i s once more i n the hands o f the banks, i t i s without o t h e r protection t h a n is afferded b y e n unermored c a r o r truck a n d the presence of two o r three postal employees, who, i f armed a t all, are unfamilier w i t h the u s e u f arms a n d a t such a disadvantage t h a t t h e y are n o t t o b e blamed i f ghey cffer slight resistance t o a n armed bandit w h o i s prepered t o a d d murder to theft i f that i s necessary t o the accomplishment o f his purpose. “ h a t t h e Postmaster General secks i s t o re~ lieve this Department o f the r i s k involved t o i t and t o its e m p l o y e e s i n the transmission o f large s u m s o f m o n e y by t h e m e a n s d e s c r i b e d . "The express companies provide armed guards for the protection o f money consignments a n d charges accordingly, but, i n the absence o f a n organization o r the meens with which t o supply one, t h e Post Office Department conresses it i s n o t e q u i p p e d t o d o this. "“e will be very glad to have the matter considered at vour conference a s y o u suggest, i n the hope that any- thing thet c a n b e done i n a n y w a y t o reduce t h e temptetion thet i s a f f o r d e d d e s p e r a t e m e n f o r r o b b i n g t h e U n i t e d States M a i l s b y t h e m e t h o d s n o w i n vogue w i l l b e a d o p t e d https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 48 cooperstionin the s p i r i t o f mutual "Very truly yours, “"Herry S. hew, "postmaster Generel." The Chairman. does n o t g e t the T h e Postmester Generel him t o the letter written t o right slant w i t h regerd about p e y i n g b y check. Governor Young. The G h e i r m e a n . H e overlooked that. / n d 4 t seems t o m e that t h e absolute a n d obligation o f findauthority f o r the responsibility is f o r grester protection ing o way o f edepting measures if c a n get this currency i n y o n e department. the with they simply g0° after it. Governor Calkins. is T h e Post Office Department now u s i n g t h e M e r i n e s . The C h a i r m e n . Governor Calkins. centers. That i s i n the lergest centers. Yes, I think only i n the largest f o r h i m t o cover ali. I t i s almost impossible center o n lerge snipments. shipments, b u t t h e y might a n y sugdo not s e e thet there i s The Chairmen. I gestion thet w e c a n offer. Mr. Harrison. I sugpestt h i n there i s one possible https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 49 4 2 2 ion, thet t h e Federsl Reserve Ranks o r the appropriate committees o f the Federsl Reserve Banks might consider nore extensive u s e o f the express companies rather t h a n the mail. Governor Norris. T h e express companies s r e v e r y reluct- ant t o d o it. Deputy Governor Case. Me. H a r r i s o n a n d I had a T h e d e y following this robbery committee o f bankers w a i t o n us. They were represntstives o f two o f the largest banks i n a nesr-by city, a n d they wented u s t o esta»vlish a currency depot o v e r there. I think t h e t i s t h e s o r t o f develop- ment thet i s likely t o arise f r o m this k i n d o f thing. They f e e l t h e t i f v e w o u l d e s t a b l i s h a currency depot over there t h e y would mske their o w n exchanges f r o m time to time. Governor N o r r i s I s there e n y t h i n g v e c a n d o ebout this? The Chairman. I just suggested t o Mr. Herrison that h e might refer this matter beck and state that the only surrestion that h a d occurred t o u s would b e possibly the g r e e t e r use o f the express companies, b u t when wes that w e s d i s c u s s e d w e w e r e a t o n c e c o n f r o n t e d w i t h t h e https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 50 very materiel increase i n the expense involved. Governor Norris. N o t o n l y that, b u t t h e express companies a r e v e r y reluctant t o d o thet, a n d e t one time not loner safo t h e y n o t i f i e d u s t h a t t h e y w o u l d n o t a c c e p t shipments f o r certain points, a n d w e hed t o call them i n to remind t h e m that t h e y were common carriers a n d that they were bound to. The Chairmen. H a v e y o u a n y supgestions t o make, Governor Norris? Governor Norris. N o , sir. The Chairman. M r . Harrison, c a n you handle i t ? Vr. Harrison... i e s S i y . Governor Norris. I would like t o offer a resolu- tion which, unless i t c a n b e edopted promptly a n d unanimously, I will withdrew. T h e resolution i s that this Conference r e c u e s t t h e F e d e r s l R e s e r v e B o a r d t o u s e its influence t o secure e t the first appropriate opporturity a n amendment t o Section 4 of the Federal Reserve fet, i n which t h e quelifications o f Class B Directors a r e defined, and Cless C b y adding t o those clauses t h e words: "other then a purely mutualsavings bank." https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 424 2net i s the resolution. I will just s e y this o n it. “ie all know o f the provisions t h e t s r e n o w i n the ‘ct, thet n o director o f Class B shall b e a n officer, director or employee o f any bank, a n d that n o director o f Class C shell b e a n officer, director, employee o r stockholder o f eny bank. Under a ruling b y Judge Elliott i n 1915 a purely mutuel savings b a n k was deseribed n o t t o b e es bank within the meaning o f the /ct. S u b s e q u e n t l y t h e question arose, I believe within t h e last vear-~how I have never been able to ascertain--but t h e counsel o f the Board gave a n opinion that e n y benk included a purely mutual savings bank. That opinion was reviewed b y the fttorney Generel o f the United S t a t e s e n d affirmed. N e i t h e r t h e opinion o f the Boerd's counsel nor that o f the /ttorney General gave any considerstion whatever t o the meaning o r purpose o f that provision. I think i t i s perfectly menifest t h e t t h e object o f the provision was t o insure t h a t Class B and Class C directors should n o t b e interested i n eny benk thet h a d or might have dealings with a Federal Heserve bank. / & purely mutual savings b a n k has not, cannot have a n d never https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4239 52 has h a d a n y dealings ‘with a Federal Reserve Bank. practical w o r k i n g o f t h e B o a r d ' s d e c i s i o n T h e i s simply t o grestly increase t h e difficulty i n securing proper Class B and Class C directors. In Philadelphia w e have five large purely mutual savings b a n k s , w h i c h a r e s o f a r r e m o v e d f r o m o r d i n a r y b a n k i n g functions t h a t a s e matter o f fact t h e y are n o t even called banks. T h e i r corporate titles a r e t h e s o and s o savings fund. B u t under this ruling w e cannot have a s a director anyone w h o i s s director o r mansger, cslled, a s they are generally o f a n y one o f those savings funds. me t h e t t h e e m e n d m e n t t h a t I a false i n t e r p r e t a t i o n ernors f e e l a s I I t seems t o surgsest i s s i m p l y t o c o r r e c t o f the ‘ct, a n d i f the other Gov- do avout i t , I would “ e glad t o have t h a t recommendation p u t i n the files o f the Federal Reserve Boerd. Governor Calkins. ‘ . h a t a r e t h e words y o u propose t o Governor Norris. “ O t h e r than a purely mutual savings bank", o r any similsr words that would convey that meaning. Governor B a i l e y . I t d o e s n o t a f f e c t u s s t all. I for y o u a n d a m r e a d y t o v o t e f o r i t . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor F a n c h e r s I The Chairman. second i t . I s there e n y discussion? ( C r i e s o f "suestion, -uestion.") (The motion wes p u t a n d unanimously carried. Governor Young. I have one more topic I would like t o take up, Mr. Chairman. I thought this would b e o n the program. £ t the last meeting o f t h e f d v i s o r y Council, w h i c h w a s h e l d o n S e p t e m b e r 17, t h e y p a s s e d t h i s r e s o l u t i o n o r this recommendation: "Attention has also been called t o the Federal fdvisory C o u n c i l t h e t t h e v a r i o u s F e d e r s l R e s e r v e B a n k s have different practices a n d requirements a s t o the f o r m and c h a r a c t e r o f the statement t o b e f i l e d b y companies. The Federal Advisory Council believes t h a t t h e requirements a n d statements should b e standardized a n d thet companies having o n e o r more subsidiaries shvuuld b e reguired to file with their banks o f deposit a consolidated statement and detailed statement o f a1] their subsidiaries," This c a m e t o m y a t t e n t i o n a short w h i l e a g o , a n d I have learned what t h e other Federal Reserve Banks were doing. “ e @ had not been doing it. /pparently this https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 427 54 recommendation i s a modification o f what i s n o w being done. For instance, t h e Russell-Miller Elevator Company i n Indianepolis h e s a number o f subsidiaries. T h é e i r re- port, prepsred b y a certified public accountant, w h i c h i s the o n l y report y o u c a n use t o adventage i n determining eredit, i s a report almost a s large e s all these papers I have i n m y mind. T h i s i s quite willingly furnished t o Federal Reserve Banks, w i t h a copy o f it. T h e y have furnished their depository bank, a n d i n addition t o that a good deal o f that paper gets o n the market. unressonanle I t seems t o require t h e t c o n c e r n t o furnish e a c h little bani out i n the country thet mey buy “2500 worth o f peper, to h a v e e l l o f t h e t i n f o r m e t i o n , a n d i t ssems t o m e that this recommendation o f the /dvisory Council i s 2 good one, that t h e y s i m p l y d e p o s i t w i t h t h e d e p o s i t o r y b a n k s . This Russell-Miller Elevator Company have e couple o f accounts i n “Minneepolis a n d St. Peul, a couple i n New York, a couple i n Philadelphia, a n d mavbe i n Buffalo; b u t to--. distribute t h a t information a l l over the country t o each bank that might b u y 9 smoll amount o f their paper a n d buy i t e s commercial paper, i t seems t o m e i t i s getting https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 55 too technical. The Chairman. D o y o u think that i s what t h e /dvis- ory Council recommended? Governor Young. The Chairman. T h a t i s what t h e y s a y here. T h e y d o not m e e n thet. Governor Young. T h e y don't? The Chairman. N o . I t i s not necessary f o r you t o satisfy yourself thet every benk offering a note for dis-~ count has a statement. Governor Young. The Chairmen. I t i s a reguistion o f the Board. I f vou have 2 stetement, thet i s all that i s necessery. Governor Young. O h , no. N e w York i s following a n entirely different policy. Deputy Governor Case. “ t e are following a very sim- s note o n ple policy, a n d that is, i f a member bank offers hed the application form, they just sey “hether they have a stetement o r not, a n d w e d o not s s k anything else. “ i had some correspondence recently with your Mr. Gerry about this, and I thought w e hed made i t pretty clerr what our practice wes. H e seemed t o think that we would r e q u i r e e a c h b e n k t o h a v e a c o p y o f t h i s statement. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 429 56 know t h a t t h e s e b a n k s h a v e n o t s u c h Governor Young. I a statement a s Russell-Miller furnishes The Chairman. t o you: D o you want a n y sction o n this? Governor Young. Yes. I think t h e r e s h o u l d b e a n doing understanding o r modificatian o f whet N e w York i s now, which i s a regulation o f the Board. “ e have n o t b e e n thet anybody following it, that i s all, a n d I did n o t know else w a s doing what N e w York i s doing. The Chairman. D o y o u require e a c h bank which offers new paper t o submit statements? “ e g peqguire e statement o n every Governor Young. o f notes note o f f e r e d f o r r e d i s c o u n t w i t h t h e e d c e p t i o n secured b y United S t a t e s b o n d s . I t frequently happens i n our portfoiio that w e h a v e s t a t e m e n t s o r i n our TiAes paper o u t of m a n y o f t h e l a r g e c o n c e r n s t h a t h a v e t h e i r w e d o not in the commercial market, a n d i n those cases benk have a e d o n o t e v e n require t h e t t h e “ require t h i s p a p e r . statement, w e d o not a s k it, b u t e s near a s I the Board that t h e ean find o u t there i s a regulation o f member b a n k has t o have that statement. Mr. Harrison. Yes. It i s provided that a I t i s i n Section 4 o f Reguletion / . recent financial statement o f the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 430 57 borrower must b e o n file w i t h t h e member b a n k i n all cases, unless t h e note wes discounted o y a member b a n k for a depositor, a n d i n that case i t must h e secured b y a warehouse receint o r the aggregate o f the obligetions must b e less than “5,000, o r 10 per cent o f the capital of the bank.» Gevernor Seay. T h e r e i s e t least o n e good reason f o r that. T h e member b a n k ought t o b e i n » position o r placed i n a position t o judge f o r itself o f the eligibility and.of t h e goxdaness o f that paper. Governor Young. T h a t i s 6 very food reason. Governor Seay. S o I do n o t think t h e member b a n k ought t o accept that paper i f i t i s o n the bare knowledge that i t i s considered o r has b e e n considered i n other cases a s eligible b y the Federsl Reserve Bank, because t h a t is passing the responsibility o n to the Federal Reserve Bank, a n d many o f the member banks a r e willing t o hide behind it. Governor Fancher. see that a “ e a r e v e r y particular about i t , t o statement i s furnished b y the broker t h o brings t h e paper i n for discount. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Chairman. D o y o u a s k t h e m t o send i n the copy? Governor Fancher. Y e s ; w e require i t . Deputy G o v e r n o r Paddock. practice I t has elways b e e n t h e i n B o s t o n t o require t h e m e m b e r b a n k t o h a v e a statement b a c k o f the paper submitted f o r rediscount. The Chairman. ™ e are ready f o r your motion, Goyernor Young. Governor Seay. I do not think there ought t o b e a n y formal variation f r o m that practice. The Chairman. T h e r e w i l l b e variations, a n d there are. Governor Calkins. T h e r e m a y b e varistions to s o m e d e t a i l o f practice, i n regard b u t n o t i n regerd t o t h e prin- ciple. Mr. Harrison. “ 7 e have b e e n confronted w i t h consider- able embarrassment i n our district because o f the fact that we h a v e r e q u i r e d o u r m e m b e r b a n k s t e certify thet t h e y have statements o n file i n all cases, where w e know that the p a p e r o f t h e s a m e b o r r o w e r h a s b e e n d i s c o u n t e d by other Federal Reserve Benks, although those statements are’fn file with the member bank presenting the paper fer rediscount. Deputy G o v e r n o r Paddock. ™ “ e have h e d that s a m e https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis situation i n B o s t o n p u t u p t o u s r a t h e r strongly. Goveror Ceallins. " “ e d o n o t a c c e p t esny paper until w e require t h e b a n k t o certify that i t has a state~ ment, e n d o f course furnish the b a n k with a statement. The Chairman. Y o u g e t t h e seme statement f r o m many sources i n many cases. Governor Calkins. Yes, w e do. Deputy G o v e r n o r Case. “ h a t banks d o not follow that? Governor Young. Minneapolis. The Chairman. M y impression is, i f w e receive t h e statement and place i t o n file, i f the bank stetes that have a statement, w e d o not a s k then t o send a copy. Deputy G o v e r n o r Paddock. The Chairman. f n d I T h a t i s t r u e o f Boston. think i t w o u l d b e u n n e c e s s a r y unwise a n d imprectical t o enforce t h a t rule. Governor Seay. P r o v i d e d t h e y have i t o n file. Mr. Harrison. There i s n o issue about that. T h e 4ssue is t h a t i n t h e c a s e w h e r e t h e m e m b e r b a n k h a s n o s t a t e m e n t on file, w e have b e e n sdvised t h e t Philadelphia a n d I St.Louis h a v e o different procedure. Governor Voung. ignorance. think v e h e v e h a d i n Minneepolis, t h r o u g h https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Chairman. B u t i t werks a l l r i g h t ? Governor Young. For instance, a N o , i t throws N e w York i n a hole. country bank sends i n a note o f the Russell-Miller Hlevator Company, a n d I have a file o f the Russell-Miller Elevetor Company a s large e s that (referring to bunch o f papers), w i t h a l l o f its subsidieries a n d everything. I has a do not bother whether t h e country b a n k copy o f that o r not. The Cheirman. No. Governor Young. T h a t throws N e w York i n a hole, b e cause t h e y d o require it. I d o n o t went t o d o that. b think perheps w e have become t o o technical. D o you think this should b e uniform? Governor Seay. I n principle i t ought t o be, I a m sure. Governor Young. S h o u l d i t i n practice? Deputy Governor Case. I think so. M r . Chairman, Governor Y o u n g s a y s t h e t i f t h e C h a i r m a n o f this C o n f e r e n c e will f o along end adopt that procedure, h e will. The Chairman. I will state v e r y frenkly thet I am not positive a s t o what o u r custom is. Deputy Governor Cese. D o n ' t y o u think there i s danger in such @ procedure s s h e hrs just outlined? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Chatrman.. Y e s , I do; b u t I think i t i s imprecti- cal t o expect a l l o f these banks t o heave statements a n d full i n f o r m a t i o n w i t h r e s p e c t Deputy G o v e r n o r C a s e . t o a l l t h e p a p e r t h e y own. N o t o n t h a t s o r t o f paper. I think i t i s a very sound principle, a n d I do think that country banks will g r o w t o assume t h a t t h e Federel Reserve Pank i s passing o n thet paper. The Chairmen. T h e r e i s n o ectien suggested a n d n o action desired. Governor Seay. T h e general opinion i s that t h e regu- lation o f the Poard should b e complied with. The Chairmen. I think t h a t i s true. “ o u l d y o u like a n y formal action o n this, Mr. Young, excepting that t h e provisions o f the regulation should b e complied with? I donft think yeu want that, d o you? Governor Young. I t makes n o difference w h a t I Governor Seay. want. Y o u could n o t take t h e position that it might b e awkward. The Chairmen. Conference? I s there any further business before this I f not-- Governor S e a y (interposing). I The Chairman. move w e adjourn. T h e mecting will b e adjourned, a n d the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Joint Session, I believe, takes place a t 2.50. (“.hereupon, a t 1.15 p.m., t h e Conference o f Governors adjourned sine die.) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis