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Federal Reserve Bank of St. Louis
A JOINT CONFERENCE O F THE FEDERAL RESERVE BOARD WITH T H E
GOVERNORS A N D CHAIRMEN A N D FEDERAL RESERVE AGENTS
OF THE FEDERAL RESERVE BANKS
Treasury Building,
Washington, D . C .
Wednesday, November 10, 1 9 2 6
Waiter S . C o x
Shorthend Reporter
Washington,D.c.
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Federal Reserve Bank of St. Louis
JOINT CONFERENGE O F THE FEDERAL RES*RVE BOARD V I T H
THE OHAIRMEN A N D FEDERAL RES“RVE AGENTS
AND T H E GOVERNORS O F THE F E D R-
AL RESERVE BANKS.
Treasury Building,
Washington, D . C.,
Wednesday, November 10, 1926,
2 ololock P.M,
Present:
D . R, Crissinger, Governor o f the Board;
Vice Governor Edmund Platt; Mr. Hamlin, Mr, Miller, Nr.
James, Mr. Cunningham, Members o f the Boerd, a n d Mr. MeIntosh, Comptroller o f the Gurrency and ex-officio member
of the Federal Reserve Board,
Present also:
W , . VY. Paddock, D e p u t y tovernor, Feder-
al Reserve Bank o f Boston,
J. H. Chase, Deputy Governor, Federal Reserve Bank
of New York,
George Y, Norris, Governor o f the Federal Reserve
Bank o f Fhiladelphia.
E. R. Fancher, Governor o f the Federal Reserve Bank
of Cleveland,
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Federal Reserve Bank of St. Louis
George J, Seay, Governor
t h e Federal Reserve
Bank o f Richuond.
M. B, Wellborn, Governor
t h e Federal Reserve Bank
Atlanta,
J. B. McDougal, Governor
t h e Federal Reserve Bank
Chicago,
D., 6. Biggs, Governor o f the Federal Reserve Bank
St. Louis,
R, A. Young, Governor o f the Federal Reserve Bank
Minneapolis.
W. J, Bailey, Governor o f the Federal Reserve Bank
Kansas City.
Lynn P, Talley, Governor o f the Federal Reserve Bank
Dallas.
J. U. Galkine, Governor o f the Federal Reserve Bank
San Francisco,
G. L. Harrison, D e p u t y Governor o f the Federal R e -
serve Bank o f New York, a n d Secretary t o the Conference
of Governors,
Frederick H, Ourtiss, Ohairman o f the Board and
Federal Reserve Agent, Federal Reserve Bank o f Boston.
R, L . Austin, Chairman o f the Board a n d Federal R e serve 4cent, Federal h a n n o B a n k o f Philadelphia.
Pierre Jay, Chairman o f the Board a n d Federal Reserve
Agent, rFederal Reserve Bank o f New York,
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Federal Reserve Bank of St. Louis
3
George d e éamp, Chairman o f the Beard and Federal
Reserve Agent, F e d e r a l Reserve Bank o f Cleveland.
William W. Hoxton, Ghairman o f the Board, a n d Federal Reserve Agent, F e d e r a l Reserve Bank o f Richmend.
Oscar Newton, C h a i r m a n o f the Board and Federal ReServe Agent, Federel Reserve Bank o f Atlanta.
William A. Heath, Chairman o f the Board and Federal
Reserve fgent, F e d e r a l Reserve Bank o f Chisago.
William McC. Martin, Chairman o f tho Beard, and Federal Reserve fgent, F e d e r a l Reserve Bank o f St. Louis.
John Re. Mitchell, Chairman o f the Beard, and Federal
Reserve Agent, F e d e r a l Reserve Bank o f Minneapolis.
M. L. Mc Clure, Chairman o f the Beard, and Federal
Reserve Agent, Federal Reserve Bank o f Kansap City.
6. CG. Walsh, C h a i r m a n o f the Bearc, anc Federal Reserve A g e n t , F e d e r a l R e s e r v e B a n k o f Dallas.
Isaac B. Newton, Chairman e f the Board, and Federal
Reserve f g e n t , Federal Reserve B a n k o f San Hancisco,
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Federal Reserve Bank of St. Louis
Gevernor Grissinger.s
W e have w i t h u s this afternaon
Mr, Yehe, o f the Departmeat e f Agriculture, w h o wants t o
eccupy a few minuces, a n d the Beard has thought i t was i m e
portant t e have h i m discuss with the Joint Conferences the
bended warehouse? preblem, which i s of great interest t o the
Agricultural Department a n d t o the farming interests o f
the country.
Without a n y further remarks I
now a s k Mr. Yeho t o pro-
ceed w i t h h i s talk.
STATEMENT OF MR. H. 8. Y@HE, U. S, DEPARTMENT
OF AGRICULTURE.
Mr. Yehe. M r . Governor and gentlemsn, from time t e
time I have had the privilege o f meeting some of you men in
your respective banks a n d a t various times i n the past five
years ¢ r s e various representatives o f the Departments,
as
well a s myself, have met with various members o f the Board
here i n W a s h i n g t o n t o present t c y o u some o f the outstand+
ing and salient features o f the Warehouse Act and what w e
are trying t o do under thet law, a n d what i t means t o
agriculture.
As most o f you know, t h e l a w was passed back i n 1916,
Little o r nothing was done under that law until about be-
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Federal Reserve Bank of St. Louis
5
ginning i n the summer o f 1921, S i n c e that time w e have made
quite substantial a n d remerkable progress
i n ecnnectien with
some commedities,
When the l a w was first passed i t applied o n l y t e four
staple products, - - cotton, grain, wool and tebacce.
B y
amendment i n 1923 the limitation with respect t o the products spplicable w a s removed, leaving i t entirely discretionary with the S e c r e t a r y a s t @ what products might b e
made eligible.
T h e law Ss restricted, however, t o agricul-
tural products a n d i s limited i n its applicaoility t e public
warehousemen only. I t does not apply to people who are engaged i n s o called private warehci ses.
Since the amendment o f 1923, w e have added a number o f
cemmedities
s o that a t this time w e have t h e original f o u r
staples - - cotten, grain, wecl and tobacca - ~ and these
additions.
W e have t h e late c r o p o f petatoes, peanuts i n
the shell, b r e o m carn, dried beans, dried fruits, syrups
(including cane, maple a n d extracted honey), canned geods,
and the last baby was cotton szed.
S c w e n o w have about
thirteen preducts t h a t a r e storable uncer t h e Warehouse
Act a n d i t reaches pretty well t h e agricultural industry
ef the country.
The l a w functions through a
system o f licensing.
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Federal Reserve Bank of St. Louis
It i s n o t a
m a n @ a t e r y statute,
n o warehouseman needs t e
operate under i t unless h e s e elects.
I t provides f o r the
licensing o f warehousemen u p o n condition t h a t t h e y meet
certain requibements.
T h e y must s h o w that t h e y have a
certain amount o f net free assets, a n d they must furnish a
bend f o r the benefit o f anyone t h a t m a y b e injured b y virtye o f impreper acts o n the part o f the warehouseman, T h e y
must demonstrate t h a t t h e y have proper storage facilities
and that t h e y have facilities equipped w i t h apparatus f o r
taking care o f the products, that they have men i n charge
of the warehouse w h o a r e cempetent t o handle t h e products
and t e recegnize w h e n a
preduct
i s i n proper c o n d i t i o n f o r
storage a n d when a product m a y b e deterierating while i n
storage t h e y must k n o w what action t o take t e arrest that
deterioration.
It also provides f o r licconsing inspectors, samplers
and weighers.
I t is not mandatory that there shall be
licensed inspecters, samplers and weighers except under
certain conditions. W h e n you have a product that gees
into storage witheut lesing i t s iéentify, s u c h a s a bale
of cotton, which never leses its i¢entiry, i t is never
necessary t e have t h e weight a n d grade determined b y
licensed men; b u t when y o u have a
product t h a t loses i t s
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Federal Reserve Bank of St. Louis
identity,
s u c h a s b u l k grain, s u c h a
spected, sampled a n d weighed,
product m u s t b e i n e
b y men who a r e licensed b y
the Department.
In conrection with this licensing, I
want t o s a y that
the tendency o f the Department f o r the past five years,
to
my certain knowledge - - and that peried covers about the
period that I have been engaged i n his work - - has been t o
increase t h e requirements,
t o make higher standards applica-
ble t o these men who are going t o qualify for licenses a s
inspectors, weighers,etc.
o f warehouses.
I n other words,
we f e e l t h a t b a c k o f t h e W a r e h o u s e A c t t h e r e i s o n e p r i m e
purpose,
e n d that i s t o g e t a
warehouse r e c e i p t t h a t i s
going t o constitute good collateral for current purposes,
and t o d e that w e feel that t h e standarés m u s t constantly
be elevated. I
do net want you t o infer that w e had locse
standards, b u t y o u know that w h e n y o u start o u t with something entirely new, t o which t h e particular trade i s not
any too friendly to start with, you must make your requirements s u c h that y o u c a n interest people,
a t least, e n d make
a start.
@ur tendency has b e e n a l l the time t o make t h e requirements higher.
N e t that w e a r e going t o make t h e m arbitrary,
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Federal Reserve Bank of St. Louis
%
net that w e are going t o make them s o men cannot qualify,
but s o that w e c a n feel reasonably sure that w e are i n the
vanguard,
i n the advance,
o f n a s warehousing, leading t h e
way t o something better i n the matter o f cellateral.
@ne o f the improvements w e instituted a
little o v e r
two years a g o i n cotton i s the f o r m o f warehouse receipt
that I
have just distributed t o you. T h a t has b a c k o f i t
the idea that w e are aiming t o check u p a n y possible fraud.
Hitherto warehousemen have b e e n permitted t c get their
warehouse receipts f r e m a n y kind o f printers a n d print t h e m
on any kind o f paper, j u s t s o i t was n o t t o o cheap. T h e r e
was nothing formerly t o prevent a
man going t e aprinter a n d
having a lot o f receipts printed about which w e knew nothing,
and that has happened, n o t i n Federal licensed warehouses
but i n other warehouses where t h e y thought s u c h a
nct possible.
tice was
N o w w e have required t n e warehousemen t o get
their r e c e i p t s f r o m printers t h a t a r e u n d e r c o n t r a c t a n d
bond with t h e Department, a n d those printers m u s t g e t the
paper f o r printing their receipts f r o m a
manufacturer o f
paper w h o is, again, under contract a n d bond with the
Department, a n d both the manufacturer a n d printer a r e
required strictly t o the Department f o r a l l the paper
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Federal Reserve Bank of St. Louis
9
which goes into this.
W h e n t h e receipta a r e ready t o b e
sent t e the warchousemen w e have inspectors w h o g o t o the
printing plants a n d inspect the receipts t o see that t h e
erder i s properly filled, a n d then a register i s made up,
and when the inspectors g o around t o check the warehouses
from time t o time t h e warehcuseman must account f o r every
receipt, either i n the form o f the original receipt, a copy
of the original receipt, o r finally i n the form o f the m céipt having been duly cancelled.
That gives a pretty wide check o n the warehouse receipts.
I ought t o s a y that t h e real backbone o f the Warehouse
Act i s not i n the fact o f licensing i n the first place, but
it i s the fact that the Department maintains a
strict supere
visory service o v e r these warehousemen f r o m time t o time,
just a s u n d e r y o u r N a t i o n a l B a n k A c t y o u h a v e y o u r e x a m i ners g o o u t t o c h e c k u p o n t h e banks.
I n the s a m e w a y w e
have inspectors g o out i n connection w i t h the Warehouse
Act t o check u p o n the warehouses f r o m time t o time. W h e n
we find something n o t i n line w e take prompt action t e see
that i t i s corrected, a n d I might s a y i n passing that thus
far our record h a s been that w e have n o t sustained a n y
less u n d e r t h e W a r e h o u s e
Act.
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Federal Reserve Bank of St. Louis
16
There a r e t w o carainal principals i n cennection w i t h
the warehouse t h a t w e insist shall b e observed. T h e y are
qite elementary.
T h e y a r e i n all the uniform receipt
acts, a n d y o u w i l l f i n d t h e m i n t h e s p e c i a l s t a t u t e
t o the
states.
First, t h a t t h e warehovse receipts shall n o t b e issued
until the product i s actually i n the custody o f the ware+
houseman;
a n d , second, t h a t t h e product s h a l l n o t b e deliv-
ered f r o m the warehouse until t h e receipt i s surrendered t o
the warehouse.
I.want t o point o u t a
men.
few principal types o f warehouse-
F i r s t o f all, there i s the m a n who h a s a warehouse
and w h o i s a l s o a
dealer
i n t h e p r o d u c t w h i c h h e i s storing.
Thet fellow takes i n not only hie o w n product b u t somebody
else's product.
Y o u have v e r y evidently t w o forms o f ware-
house receipts there, one issued o n products i n which the
warehouseman h a s n o interest, a n d the other a product i n
which h e has a l l the interest.
Y o u have interested a n d
disinterested custodianship, a n d the value o f the receipt
in cne instance i s usually different f r o m its value i n the
ether,
f o r collateral purposes.
T h e n w e have a
warehousing that i s calleé field warehousing.
type o f
I t has grown
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Federal Reserve Bank of St. Louis
11
up i n agricultural a r e a s .
I t i s found
i n western N e w Y o r k
im c o n n e c t i o n w i t h t h e c a n n i n g industry.
T h i s y e a r i t will
be found i n Wiscmnsin i n connecticn with the p e a eanning
industry.
Y o u will find i t very largely o n the Pacifie
Coast, particularly California.
‘By field warehousing I
mean this. A
regularly con-
stituted public warehouseman take ovor, b y virtue o f a
lease, t h e building which t h e particular party whe ewns
the praduct has t e store h i s product.
N o w , o f course, i f
he puts the product i n there himself and issues a warehouse
receipt t o himself i t weuld n o t b e worth much f o r collateral purposes.
F i e l d warehousing h a s m a n y qualities
of
merit but i t all depends o n how well the set u p is i n the
first instance; i f you are going t o permit this warehousman,who i s a public warehouseman a n d has n o interest i n
the product, t o set himself u p as the @perator o f the
particular building connected, w e will say, with the cannery, for the storing o f the eannery's goods, a n d represent himself t o the world a s the custodian o f those products, w h e n a s a4 matter o f fact t h e real custodian i s a n
empleyee o f the éannery you have not disinterested custedianship, despite the fact that the warehouseman i s handing
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Federal Reserve Bank of St. Louis
12
out the receipt under his o w n name. T h e r e f o r e , I
think the
big thing i s disinterested custodianship.
The p o s i t i o n t h e D e p a r t m e n t t a k e s
i s that disinterested
custodianship, whether through field warehousemen o r straight
warehou semen, a n d t h e c a n n e r s t o r i n g h i s p r o d u c t
i n the p u b -
lic warehouseman's o w n warehouse, i s the best proposition
we have i n warehousing.
U n d e r t h e Warehouse A c t w e would
license a n y one o f the systems already s e t up.
W e have n o t
any discretion there i f they c a n meet o u r requirements.
the collateral standpoint there i s always a
question,
From
a s we
see it.
Now, what w e have spread throughout t h e country i s that
if you want real collateral y o u must g e t disinterested custodianship.
Y o u find a lot o f organizations traveling
under the name o f disinterested custodianship that a r e n o t
really disinterested.
W e have had various organizations
tell u s that i t i s none o f our business t o tell bankers t h a t
there i s not disinterested custodianship i n certain cases.
I feel thet working together, t h e Lepartment o f Agriculture
and these banks a n d the intermediate eredit banks, c a n g o
a long ways towards accomplishing proper custodianship o f
products.
T h e b i g trouble i n a lot o f coses i s that there
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Federal Reserve Bank of St. Louis
13
is a n antagonistic interest involved.
# & warehouseman i s
frequently a dealer i n the product h e i s strring.
S o m e time
I hope that i n the ease o f agricultural products i t will b e
as i t i s i n the case o f manufactured preducts, where t h e
products a r e going into t h e hands o f men who a r e warehousemen a n d nothing else.
I do n o t want t e take u p a n y more o f your time, Mr.
Governor,
L e t me say that the Department i s always willing
to work with the F e d e r a l reserve banks, a n d i n m y travails
from time t o time I t r y t o mect a s many o f you m e n a s I
can, o r a t least representatives
i n your banks,
i n the hope
we m a y have something t o offer that will make f o r more solid
collateral. I
like t o think, a s one o f your bankers said
some time a g o i n comneeticn with 2 serious situstion i n tho
cotten sectien, t h a t after a l l these troubles a r e n o t s o
big i f we simply use t h e facilities n o w a t our disposal,
and his thought w a s that t h e Federal Reserve Act, t h e n e w
Credit Act and the Warehouse Act, working hand i n hand,
can g o a long w a y towards giving real relief i n almost a n y
agricultural situation where w e g e t into what seems tempo-
rary emergencies. I
hope w e may have close cooperation,
and I assure you the Department, e s far as the warehousing
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Federal Reserve Bank of St. Louis
a4
proposition i s concerned, will b e only too glad t o work
with you. ( Applause.)
Governor McDougal.
“ l e all recognize t h e importance
of disinterested custodianship; b u t I
am not clear o n the
point a s t o whether t h e custodian i n connection w i t h warehousing o f this character i s a representative o f the D g
partment o f Agriculture o r whether i t i s etherwise.
Dou
d¬ appoint the custodian?
Mr. Yohe.
O h no.
T h e custodian would b e appointed
by the warehouseman himself.
F o r instance, I
outfit that h a s o r did have a
know one
string o f about a
dozen dif-
ferent warehouses i n different towns, t h a t t h e y were operating.
selves.
N o w , t h e y appoint a
man i n each warehouse them-
T h e t same outfit h e l d o u t t o the bankers t h a t
he was actually their men, that n e was representing their
{interest solely, b u t investigation showed that t h e particular m e n i n charge o f these warehouses w e r e being paid t o
the extent o f about nine-tenths
b y the m e n storing the
product i n there a n d the other one-tenth b y the warehouseman. I
do not regard that a s disinterested custodianship.
On the other hand, i f the warehouseman takes charge o f a
warehouse cennected w i t h a canner b y virtue o f a lease,
and that i s what w e tell him, p u t u p signs e t points o f
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Federal Reserve Bank of St. Louis
15
entrance, that this warehouse i s uxder his contrel, a n d does
not permit t h e canner o r the c o t t o n merchant, whoever i t
may b e from going into this warehouse, e n d prehibits h i m
from going i n wherever h e might want t o go, a n d exercises
absolute control over the product, t h e n y o u have a
terested c u s t o d i a n s h i p .
disin-
W e have required h i m even t o carry
the keys t o the warehouse.
Governcr Seay. I
would like t o ask how often you in-
spect a particular warehouse.
Mr. Yohe,
T h e inspections
a r e f o u r times a
year, b u t
tney also depend o n the conditions. S o m e b u d y mignt g e t a
dozen inspections.
spections a
T h e r e are, howover,
year. I
a t least f o u r in-
have k n o w n s o m e o f t h e m t o g e t a s m a n y
as s i x inside o f two o r three months.
Governor Austin.
Mr. Yone.
inspection.
W h o pays t h e cost o f the inspection?
T h e warehorseman.e.
@ n l y for the
i n i t i a l
T h e s e inspections t h a t a r e made from time t o
time, after the warehouseman i s once licensed, a r e paid f o r
out o f appropriations m a d e b y Congress.
Governor Crissinger. I
Yohe's remarks.
am sure w e all appreciete Mr.
T h e y have been quite instruetive a n d
ought t e b e helpful t o the Federal reserve banks a n d the
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Federal Reserve Bank of St. Louis
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Federal Reserve B o a r d i n passing u p c n warehouse receipts
and particularly warehousing.. I
think w e h a d better take
up n o w Pr. Goldenweiser's statement i n joint conference
before w e enter o n other phases e f our discussion, a n d that
will give u s a good background.
STATEMENT O F MR. E. A. GOLDENWEISER, STATISTICISN
OF THE FEDER/L RESERVE BOERD.
Mr. Goldenweiser. G e n t l e m e n , I
spoke t o these gov-
ernors a b o u t s i x m o n t h s a g o , v e r y briefly,
o n the business
sifuation, a n d a t that time there w a s v e r y little statistical evidence o f any difficulties
and yet there w a s a
i n the business situaticn,
fairly widespread feeling o f misgivings
about t h e immediate future.
Since that time those misgivings w e r e rather rapidly
dissipated, a n d the second quareter o f the year, a n d into
the third quarter, there h a s h e e n very active business a n d
there h a v e b e e n v e r y prospereus t i m e s
i n a general way,
with o n l y a few spots that were n o t a s high a s the others,
Now,
w e are again in’a condition where there i s a
definite feeling o n the part »7f many that t h e t u r n i n the
situation either i s just about t o ceme o r has come and,
again, there i s as yet little statistical - - there i s
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Federal Reserve Bank of St. Louis
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perhaps a
little more evidence t h a n thero w e s s i x manths
age, a n d I will refer t o i t very briefly.
Perhaps t h e m o s t d e f i n i t e e v i d e n c e
ening i n the demand f o r commodities
slack-
b y the consumers h a s
just r e c e n t l y coine o u t i n o u r s t a t i s t i c s
stere sales,
w o have o f a
o n department
T h e s e seles f o r the month o f @ctober nave
been somewhat smaller t h a n f e r September, e v e n after taking
into c o n s i d e r a t i o n t h e u s u a l s e a s o n a l v a r i a t i o n
i n sales,
and are considerably smaller than a year ago. T h a t represents a slackening i n the consumers demand for goods.
W e
find that decrease, particularly compared with last year,
is, a s might b e expectec, larger i n the agricultural districts a n d i n the southern districts, w h i c h have recently
been affected b y the rapid decline i n the price o f cotton.
The ether evidence o f . aslackening i n business a r e
that t w c principal industries whose unusval velume c f activity has supported o u r prosperity both show certain signs
of a decline. I
mean the building industry a n d the auto-
mobile industry, :both o f which have b e e n discussed here
frequently.
Building i s somewhat smaller t h a n i t was a
It has b e e n smaller t h e n a
year a g o a
month ago.
good deal o f the year,
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Federal Reserve Bank of St. Louis
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but o n l y slightly smaller, a n d smaller t h a n the v e r y exceptionally large y e a r o f 1925.
B u t builcing still continues i
in large vclume, a n d while there i s some decweass, particular]
in the Eastern Staves,
tells continuously a
i t i s not a t ali definite t h a t i t fore-
radical ceclinc.
The contemplated projects o n which w e also g e t reports
are considerably smaller t h a n they were a
year ago. T h a t
may indicave something i n the w a y o f a state o f mind a c t o
the future demand.
B u t those figures are less dependable
and I would n o t attach t o o much weight t c them.
The automobile industry, w h i c h o f course y o u know hes
been developing phenominally a n d has heen l a r g e r q e r y month,
pretty much, t h a n the preveding month, h a s shown some d e cline i n the last f e w montns.
ployment i n istroit.
T h e r e h a s b e e n some unem-
T h e r e has been considerable price
cutting, a n d there i s some evidence o f e n aecumulation o f
stocks. I
case, I
do not want i n tnis case either t e overstate t h e
think t h e movement i s n o t very proncunced.
The
automobile industry happens t o b e s o situated thac i t nas
a physical protection oegainst large c v e r producticn,
the b u l k o f its pruducts.
in
I t was pointed o u t t o m e b y a
very close observer o f the industry that t h e y d o not build
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Federal Reserve Bank of St. Louis
19
°
up excessive stoeks, not because o f their acumen o r foresight, b u t because t h e automobiles a r e s o bulky that w h e n
they d o n o t m o v e i n t o t h e c h a n n o l s
exceed t h e storage capacity.
o f trade t h e y v e r y s o o n
I f automobiles w e r e a s easily
stored a s automobile tires t h e automobile industry would
probably g o through t h e same radical change i n prosperity
and depression a s the tire industry has gone through.
The p r e s e n t i n d i c a t i o n s a r o t h a t t h e r e i s s o m e d e c r e a s e
in t h e a u t o m o b i l e i n d u s t r y .
I have mentioneé n o w the factors i n the situation f r o m
the sido o f industry thet are not a s favorable a s they were
a while back. T h e purchasing power o f the community, which
is the determining factor evidently i n business activity,
has, generally speaking, been maintained.
If we analyze t h e purchasers o f products i n t e indus-
trial, agricultural end forcign, the industrial population
hes had a year o f great activity, full emplovment a n d full
payrolls.
T h e r e h a s b e e n n o evidence s o f a r o f a n increased
demand f r o m the industrial population.
Taking u p next the foreign, y o u have probabiy alli notived t h a t t h e r e c e n t a n n o u n c e m e n t
b y the Department
of
Gommeree indicates t h a t o u r exprts f o r the third quarter
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Federal Reserve Bank of St. Louis
20
were larger, I
believe, t h a n for a n y other yuarter.
rate t h e y were extremely large.
continues
u p t e date.
A t any
S o the foreign demand
T o what extent t h a t advance
by our loans a n d t o what extent that m a y present a
I a m not here t o discuss teday, although I
i s met
problem
think that i s
the point that w e ought t o b e keeping i n mind e n d that will
become increasingly important.
As f a r a s the agricultural pucchasing power i s concerned,
there have b e e n several unfavorable devolopments, w i t h which
you a r e familizr.
T h e r e h a s b e e n i n the spring wheat r e -
gion a partial failure o f crops, a n d certain states, S o u t h
Nakota f o r instance, a r e i n a fairly bac condition f r o m the
point o f view o f agricultural purchasing power; a n d i n the
corn s t a t e s t h e c o r n c r o p h a s b e e n o f f a i r s i z e b u t i t h a s
been injured b y floods a n d b a d weather, a n d the condition
is probably n o t a s good a s might heve b e e n hoped.
The Department o f Agriculture, however, i n a state-
ment i t has just issued, sizes the corn situation u p in gen-
eral as being somewhat better than a year ago. T h e livestock industry, o n the whole h a s done well this year; but
recently the h o g industry has b e e n affected b y a n extrémes
ly severe epidemic o f cholera.
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The most recent a n d most seasonal daevelepment h a s
been the v e r y large docrease i n the price o f cotton, a n d that
has b e e n follcwed u p o n three o r four years o f exceptional
large p r a d u c t i o n u f eovton.
T h e cotton acreage increase
of
ten million between the l e w point after 1920 - - I think t h e
low point was 1922 o r 1921, I
am not sure which, a n d since
that time the acreage o f cotton has increased b y ten million end o f
the p r i c e o f cotten, w h i c h w a s o v e r 3 6 cents a f t h e
addi1923, has been declining continuously since, a n d every
tional large ercp has resulted i n a n additional decline.
there h a s
This year, w i t h the eighteen million bale crop,
very d e c i d e é d r o p i n t h e p r i c e o f cotton,
been a
a s you
know »
b y the
You also know the measures t h a t have b e e n taken
organizations
President ' s C o m m i t t e e a n d b y the seuthern
exceptionall over, t o market mitigate t h e effect o f this
ally large crop.
T h e growth i n the cotton c r o p i n this
b e e n accompanied
country a s t n e r e s u i t o f h i g h p r i c e s h a s
perts o f
also b y the growth o f cottcn production i n other
world
the world, and the proportiun o f the cotton o f the
a s i t was
that i s produced i n this country i s not a s large
four o r five years ago.
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Federal Reserve Bank of St. Louis
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Whether t h e severe decline i n the cottcn prices will
discourage c o t t o n production abroad remains t o o e seen.
That i s perhaps a
rough anelysis o f the position o f
the country i n regard t o the purchasing power o f the people,
and the fact that t h e agricultural purchasing power i s less
satisfactory t h a n t h e other t w o i s what i s beginning t o b e
reflected i n our figures, w h i c h s h o w the decline t n department store sales i n the rurel districts a n d i n the decline i n
mail order house sales, which a r e more particularly t h e r e flection o f the aecline i n che purchasing power o f the segricultural population.
The producticn i n general - - with t w o elements o f the
demand kept o u t continuously throughcut t h e year ~ = has L e e n
on a n e x c o p t i c n a l l y l a r g e s c a l e ,
e n d o u r letest i n d e x o f in-
dustrial activity has b e e n a record level.
It might b e worth while, perhaps,
t o take a look a t t h i s
chart f o r a minute, because i t i s a new one i n that i t i s
oased o n a much more representative g r o u p o f commodities t h a n
we have h a d before, a n d s i e Yeded automobiles a n d gives moro
weight t o building materials a n d somewhat l e s s weight t o the
iron industry, w h i c h was, according t o our best information,
overeweighted i n the original index.
T h i s chart was prescnte
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Federal Reserve Bank of St. Louis
23
in some detail t o the agents! meeting the other day, and I
think i t would b e sufficient f o r m e t o just point o u t that
we a r e here a t tre highert point i n the history o f the coun=
try (indicating o n chart ) .
These e r e figures f o r Cecteber. T h a t i s h i g h e r
(indicating o n chart) than the provious peak i n 1923, although o u r o l d index i s lower t h a n 1925, a n d that i s because
during this period m u c h o f the industriel activity hes come
from the industries w h i c h were underweighted i n this former
chart.
Y o u seo that that industry which would b e affected
by a slackening o f demand 2 little later does n o t show a n y
evidence o f a decline but is, o n the contrary, higher than
ever, a n d h a s b e e n a d v a r c i n g
i n the p a s t couple
o f months.
We h a v e n o t t h e f i g u r e s f o r Aactober y e t , b u t t h e
partial reports would, forcshadow a
somewhat higher figure
for October t h a n f o r September.
The mest significant fact t o compare with this large
volume o f reduction, I velieve, i s the .
m o v emnt
of prices, which has been downward, a s has been pointed
out t o you before,
The blaek line o n this chart shows t h e Board's o w h
weekly p r i c e i n d e x , a n d t h e r e d l i n e s h o w s t h e B u r e a u o f
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Federal Reserve Bank of St. Louis
24
Lebor Statistics! m o n t h l y prices.
I t shows that there h a s
been f r o m a little aftor t h e middle o f 1925 a decrease o f
about 6
per c e n t i n t h e prices
o f commodities.
I t shows,
though, that i n the last few weeks tnere has been a n advance, t h e advanse b e i n g chiefly due t o the rise i n the
price o f s a t . resulting f r o m the foreign demand o n account
of the British coal strike.
If w e analyze t h e prices i n t o t h e agricultural a n d nen+
agricultural commodities,
crease i n both.
w e find that there h a s b e e n a dew
T h e decreasc i n agriculture prescnted b y
this g r e e n line i s much more censiderable t h a n the decrease
in non-agricultural commodities, a n d i n the last month o r
so there h a s b e e n some edvanceo i n both.
I t i s probably
the most significent single statement about t h e present
business situation that t h e very large inereaso i n production a n d trade h a s taken place during e a period o f a
gradual deciine i n these prices.
I t i s not, therefore,
far a s c o m m o d i t y m a r k e t s a r e i n d i c a t i v e ,
companied
i n a n y sence a c -
b y speculative a c t i v i t i e s ,
Mr. Cunningham.
weeks o r s o i n prices.
made u p ?
so
Y o u show e n increase i n the last s i x
H o w i s that price i n d e x preparod o r
H o w would v o u account f o r that advance?
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Federal Reserve Bank of St. Louis
25
Mr. G o l d e n w e i s e r .
T h i s advance d o e s n o t y e t include
®ctober, because i t was n o t avail able.
I t reflects a n ad-
vance i n livestock prices chiefly.
Tt has b e e n a n interesting year i n that i t i s different
from the last two years, because there has been very little
general growth i n the volume o f memper banks! credit a s reflected i n these banks i n the leading cities. 1 8 2 4 a n d 1925
were years o f large increaso i n credit. 1 9 2 6 has becn a
year during which credit h a s b e e n maintained a t a high level
without m a t e r i a l i n c r e a s e ,
a n d i n that respect w e a r e m o r e
like 1923 than like either o f the t w o following years.
And
that i s true, i f the credit i s analyzed i n its constituent
elements - - there has been more grawth i n 1924 and 1925,
phey wore years o f very large increase i n credit, a n d they
were years i n which the g r o w t h occurred i n investmonts a n d
loans o n securities i n 1924, a n d i n loans o n securities i n
1925, while commeréial loans, leans t o finance ‘the current
production a n d distribution o f goods remained relatively
constant i n these t w a years.
In 1923 and i n 1926, whatever growth has occurred has
been i n t h e c o m m e r c i a l l e a n s , t h e o t h e r , m o s t l y i n v e s t m e n t s
and loans o n securities, having declined.
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Federal Reserve Bank of St. Louis
26
I have a
chart here that shows commercial laans i n a
more focible way, a n d alse t h e loans o n securities. I
think
it might b e o f interest t o show i t t o you f o r a minute. Y o u
see 1924, a
In 1925, a
very large growth i n the loans o n securities.
very large growth i n the lyans o n securities.
Here i s 1926 (indicating o n chart}. 1 9 2 3 i s not o n the
chart because i t zocs below the beginning o f it (indicating),
but i n 1925 also there w e s a demand.
In commercial loans, there was i n 1925 a very large
growth.
I n 1924, there w a s a
large growth, b u t o n l y i n the
end o f the year, w i t h a Cccline i n the mid€dle. i 9 2 5 was the
game way. 1926: t h e r e w a s practically n o decline,
al decline i n the middle o f the year.
was v e r y slight. I
n o season-~
I t started late a n d
was taking the year a s a whole. I
the year a f t e r date.
mean
O f course there i s a n increase o f
500 million i n commorcial loans (indicating), a n d that may
correspond t o the growth o f the business o f the country.
It i s a curve t o b e watched, because i f a t this time there
should b e a continuous g r o w t h i n this particular k i n d o f
credit that would b e negative probably o f some slackening
in the channels o f depression, some accumulation o f inventory.
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Federal Reserve Bank of St. Louis
27
The usual scasenal p e a k i n commercial demand comes
either late i n October, the middle o f October, o r else a t
the v e r y end o f Nevember.
T h i s y e a r y o u see t h e largest
figure w a s reached t w o weeks ago. T h e n there w a s somo c e cline. I
think the course o f this line during the next
few weeks i s going t o be extremely significant (indicating
on chart).
I do not know whether i t i s too late n o w t e make a n y
references t o 1920, but I found i t rather interesting t o
consider that when w e compare the total volume o f loans afid
investments f r o m the reported number o f banks n o w with the
peak i n 1920, w e are about two and one-half billion dollars
above, a n d o f that t w o a n d a half billion, t w o billion a n i
over represent a growth i n investment a n d less than half a
billion a grewth i n e e
leans
o n securities
a n d when you take loans alone,
h a v e incressed
b y nearly a
billion
and a half, a n d the commercial loans ere still nearly a
billion below their high figure o f six years ago.
Now, i t will be interesting foz the next few weeks and
months t o watch this eommerical l o a n figure, because I
think i t i s i n thet figure that a n y unfavorable credit developments w i l l chiefly b e reflected.
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Federal Reserve Bank of St. Louis
2b
In general, the years 1924 and 1925 were years when
bank funds were seeking investment, w h e n i t was a
market f e r money,
buyers?
a n d m o n e y rates w e r e r e l a t i v e l y w
o
l and
the b a n k s w e r e p l a c i n g t n e i r f u n d s
i n v e c e u e m i e s link l e a n s
and securities. 1 9 2 3 and 1926 have been years i n which
there w a s a
sellers' market f o r money. T h e r e h a s b e e n a deo
mand for credit o n the part o f the people rather then a n ate
tempt o f the banks t o find profitable employment f o r their
funds, w i t h the consequence t h a t money rates have b e e n some=
what higher a n d the situation has b e e n i n closer relationship
with the actual industrial and trade activities than during
those other i n c a w h e n funds were handled.
I think that i s all I wish t o say, Governor.
Gevernor 6rissinger.
Governor Seay. I
A n y sigeki sue:
would like t o a s k i f there a r e a n y
evidences t h a t t h e diminution o f the dopartment store a n d
mail o r d e r b u s i n e s s w a s n o t i n c o n s i d e r a b l e m e a s u r e d u e t o
unusual weather conditions, particularly i n the Sath end
West?
Mr. Goldenweiser. I
the reasons, -
think that i s mentioned a s one o f
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Federal Reserve Bank of St. Louis
29
Governor S e a y .
S
o that i t m a y b e possibly post-
poning - Mr. Goldenweiser.
I t may. I
any v e r y d e c i s i v e e v i d e n c e
Mr. Pratt.
do not think there i s
o f o n e k i n d yet.
O n the other hand, l a s t year i n Octoben
we h a d pretty cold weather, t h a t brought November business
into October.
Mr. Goldenweiser,
Y e s , last October was a n excep-
tionally high month.
Governor McDougal. I
notice from your exhibit that
in September, 1926, industrial production reached the highest point i n its history i n this country.
Mr. Goldenweiser.
Governor McDougal,
T h a t i s correct.
A n d that during the last few
months there h a s t e e n a decline i n the price o f commodities.
Mr. Goldenweiser.
Governor MoDougal.
Yes.
A n d I was wondering whether your
investigation disclesed a n y evidences o f accumulating inventorics.
Mr. Goldenweiser,.
T h e r e i s a n y evidence e f that ex-
cept that there i s some i n the automobiles, a n d very slight
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Federal Reserve Bank of St. Louis
38
evidence
o f i t n o w i n the department stores;
b u t t h e departe
ment stores stocks have b e e n decreasing a l l the year, a n d
the rise during t h e last month was n o t large enough t o constitute a
real element i n the situstion.
I believe t h a t what this indicates i s thet t h e v e r y
large volume o f production, p a r t l y becsuse o f the lower
price level, h a s found i t s w a y into t h e channels o f distribution without obstruction.
Governor Seay.
Y o u d o not think that t h e increase i n
commercial loans i s a n y indication o f accumulation o f
stocks?
Mr. Goldenweiser, I
tion. I
though. I
think i t i s not e direct indica-
think a n accumulation o f stocks would b e séuk tea.
want t o say that t h e growth i n commercial loans
has n o t b e e n o f enormous
o r exceptional v o l u m e .
I t has
simply been o n e kind o f loan that k e s incressed this yeoor.
If they should continue t o inecreasc a n d should fail t o show
the usjal seasonal decline from hence on, I think we should
have t o t a k e t h a t i n t o c o n s i d e r a t i o n .
Governor B a i l e y .
price charting there,
W h a t i s your opinion a s t o the
i n regard t o the parity o r disparity
in exchange values o f agricultural commedities e n d nonagricultural commodities?
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Federal Reserve Bank of St. Louis
ol
I t indicates, of course, that
Mr. Goldenveiser.
i n the terms o f his
the purchasing povexr o f the farmer
product
pover o f the
i s much lower than t h e purchesing
product o f those engaged i n industry,
i n the terms o f
their products.
Governor Reiley.
it
H o w much lower would y o u s e y
was t h a n two years ago?
I t i s a little higher t h a n t w o
Mr. Goldenweiser.
years ago.
u p t o the base
I t i s lower when y o u take t h e m
i n the lsst
period, b u t there h a s been n o deterioration
few years.
Governor Crissinger.
H a v e y o u s o t t h e bernyard prices
or what t h e farmer gets?
Mr. Goldenwiser.
T h e barnyard price i s about 150.
price o f 152.
It i s about 1354 compared with the general
There i s a
difference
o f a b o u t 1 8 o r 2 0 points b e t w e e n
f o r his commodities
the prigfes that t h e farmer receives
commodities.
and the general prices o f wholesale
Governor Norris. I
thet p o i n t , w h i c h I
ance.
wouid like t o a s k a question o n
cennot a s k without e x p o s i n g
m y ignor-
those compari“ h e n y o u speak o f 134 a n d 152, a r e
o f a n y ersons o f present prices without t h e selection
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Federal Reserve Bank of St. Louis
bitrery date a s t o base?
O h , yes, there i s a
Mr Goldenveiser.
Governor Norris.
price o f
“ e l l , t h a t basis i s the
1913 o r 1914, i s it?
Mr. Goldenveiser.
Governor Norris.
Y e s , 1915.
i s that
S o what y o u mean p y that
the p r i c e o f o t h e r c o m m o d i t i e s
i s 150 o d d per cent o f the
1913 o r 1914 price?
Mr. G o l d e n w e i s e r .
Gevernor Norris.
T h e t i s right.
“ h i l e t h e price o f agriculturel
o f the 1913 price?
commodities i s 158 per cent
Mr. Goldenveiser.
Governor Norris.
T h a t i s right.
not, that
f n d i t i s a fact, i s i t
prices i n either
ifinstead of taking the 1913 or 1914
say, 1909 o r 1910, t h e price
case y o u took the average o f ,
today b e higher t h a n a i l
of agricultural commodities would
other p r i c e s ?
Mr. Goldenweiser. I
think i f you went b a c k t o 1910
that would b e so.
Covernor N o r r i s .
years
B e c a u s e 1 9 1 3 s n d 1914 were
commodities, w e r e
of unusual h i g h prices o f epricultural
they n o t ?
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Federal Reserve Bank of St. Louis
33
Mr. Goldenveiser.
Yes. I
think I
may s a y that t h e
Department o f é¢griculture for thet resson does not like
“ I e ere n o w making a
to use 19135.
considerable headway
in getting a w a v from the prewar base a n d i n using f o r all
our indices 1 9 2 3 e n d 1924, i n order t o have a
basis o f
comparison t h a t i s r e c e n t a n d t h a t i s n o t a f f e c t e d
the e n o r m o u s d i s l o c a t i o n
Governor Crissinger.
by
o f prices c a u s e d b y t h e war.
B u t t h e fact i s that f a r m prod-
ucts a r e selling f o r from 1 8 t o 2 0 per cent lower than
other things.
Mr. Goldenvweiser. I
think thet i s right i f w e ex-
press i t i n terms o f prewar prices.
Mr. fustin. H i g h t e e n points, n o t 1 8 per cent.
I t
would b e about 1 2 per cent.
Governcr Crissinger.
N o w , when the agents were i n
conference w i t h the Board t h e y gave t h e Board their views
of the industriel situation a n d the economic situation
throughout t h e various districts. I
was wondering whether
any o f t h e G o v e r n o r s w o u l d l i k e t o o e h e a r d o n that s u b ject.
D o e s t h e Board desire
on that subject?
the m a t t e r s
V e r y well.
t o have t h e Governors t a i k
T h e n we will proceed t o
w e h a v e h a d u n d e r consideration.
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Federal Reserve Bank of St. Louis
54
Governor McDougal. G o v e r n o r Crissinger, t h e Govern-~
ors completed their confezrence, finished their progrem todey.
T h e y have given, I
think, deliberate e n d very care-
ful considerstion t o the questions w h i c h the Board placed
on the program, a n d i n our conference w i t h the Board yesterday w e r e p o r t e d
o n t h e findings a n d i n relation t o e l l
those questions excepting t w o i n respect t o the other subjects a p p e s r i n g
o n t h e program,
a n d y o u will b e fully in-
formed through the customery channels i n due time. T h e r e
may b e some topics included there which t h e Board will
like t o discuss w i t h
“ a
I f so, w e w i l l b e v e r y plead t o
discuss the matters thetit is desired to have discussion
on.
The t w o q u e s t i o n s w h i c h I
have r e f e r r e d
t o and which
we e r e n o t considering were these, Y e s t e r d a y a t the time
of o u r c o n f e r e n c e w i t h t h e B o a r d t h e s e t w o q u e s t i o n s w e r e
not c o n s i d e r e d ,
O n e r e l a t e d t o t h e n o t e s o f parent c o r -
porations representing borrowings t o b e advanced t o subsidieries, a n d i n respect t o those, a f t e r careful consideretion,it w a s v o t e d t h a t t h e C o n f e r e n c e r e c o m n e n d
t o the
Federal Reserve P o a r d that t h e Eoard's ruling o f December
30, 1925, X-4484,
b e rescinded e n d i n lieu thereof t h e
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Federal Reserve Bank of St. Louis
Board rules substantially a s follows:
Where the borrower i s a parent corporation heaving a
number o f subsidiaries
e n d the parent corporation a n d its
subsidfaries a r e i n practical effec. o n e single organization
end m a y with propriety b e considered a
single borrower, t h e
pepdr o f s u c h p a r e n t c o r p o r a t i o n t h e p r o c e e d s
o f which have
been u s e d o r a r e t o b e u s e d b y t h e p a r e n t c o r p o r a t i o n
o r by
the subsidiary corporations f o r a n industrial, commercial
or agricultural purpose, within t h e meaning o f the Federal
Reserve A c t a n d t h e B o a r d ' s r é g u i e t i o n s ,
m a y b e considered
eligible f o r rediscount i f i t complies i n all other respects
with t h e provisions o f the l a w a n d the regulations o f the °
Federal R e s e r v e B o a r d .
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Governor Crissinger. I
was wondering whether t h e
*gents wanted t o discuss t h i s feeture, t h i s n e w recommendation, w h a t t h e ‘gents n a v e t o s a y about it.
D o you
want t o v e heard o n it?
Mr, Hoxton.
I t was n o t o n our program a t all.
Governor Crissinger. I
know, b u t i t i s here, a n d I
thought maybe y o u would like t o discuss i t anyhow. T h a t
is what t h e Conference i s for.
Mr. Jay. I
have n o t a n y viéws off-hand.
T I do not
know what i t arises from.
Governor Crissinger.
I t esrises i n the case o f the
M. ' , Hanna paper thet came o u t o f Boston.
H a v e y o u got
that ruling?
Governor McDougal.
T h e ruling there declared t h e
paper o f t h e H a n n a C o m p a n y ,
w h i c h otherwise
es very desirable paper, a s ineligible,
w e recognized
a s I recall 5 ee
for t h e r e r s o n t h a t t n e “%. ' . H e n n a C o m p a n y w e r e m a k i n g
some s d v a n c e s
t o companies o t h e r t h a n t h e s u b s i d i a r i e s
owned and controlled b y them.
I
t developed, a s I
have i t i n fact, a n d G o v e r n o r F a n c h e r w i l l c o r r e c t m e
if I am wrong, t h e t there advances w e r e made t o companies
that were engaged i n the production o f tron a n d coal,
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37
and that t h e cosl a n d iron were under contract, I
think,
for sale b e c k t o the Hanna Company, a n d they would just
advance t h e money t o enavle t h e m t o preduce this product.
Is that t h e situation, Governor Fancher?
Governor Fencher. Yes, substantially.
Governor McDougal. N o w , i f the Board will find i t
agreeable t o follow t h e suggestions o f the Governors,
the banzs will b e enabled t o use their discretion a n d I
think con safeguard the situation t o the satisfaction o f
all concerned.
Governor Crissinger.
f s I recollect it, tnat does
not state exactly what t h e Boerd did, does i t ?
My. “yatt.
“ h e n t h e Board made t h e ruling i t thought
it was going t o make the paper o f the Hanna Company eligible.
'
s the facts vere understood b y the Board, t h e
Hanne Company made advances o n l y t o its o w n subsidieries,
the subsidiaries borrowing money from the Hanna Company.
The B o a r d m a d e a
ruling t h e t w h e r e t h e p a r e n t c o r p o r a t i o n
owned a number o f subsidiaries a n d owns a t least 7 5 per
cent o f the stock i n each o f the subsidaries a n d makes
some e d v a n c e s
t o t h e subsidiaries t h e p a p e r o f the parent
corporation, t h e procesds o f which has b e e n advanced t o
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Federal Reserve Bank of St. Louis
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the subsideries, w i l l b e considered eligible a n d will
not b e considered financed paper,
i f three conditions a r e
met. First, that the parent corporation makes n o advances except t o subsidiaries.
T w o : that t h e subsidiaries
borrow n o m o n e y e x c e p t f r o m t h e p a r e n t c o r p o r e t i o n .
Three, t h a t t h e subsidiaries u s e t h e money f o r a n eligible
purpose.
I
t then developed t h a t t h e facts w e r e n o t a s
und. rstood b y the Board, t h a t t h e Hanna Company do¢és make
some loans t o parties other then its o w n subsidiaries,
and the question came u p whether t h e first condition l e i d
down b y the Board could b e eliminated.
rather d i f f i c u l t
I
t seemed
t o d o that without abrogeting t h e dis-
tinction a n which t h e ruling h a a been made a n d opening
the door t o a complete destruction o f your ruling against
finance paper, a n d that proposition was considered b y the
Governors a n d t h i s i s t h e s u g g e s t i o n t h e t w a s m a d e t o
meet it, t h e difference between this ruling a n d the
other ruling.
I n the first place,
i t leaves o u t a n y
specific reference t o finance p a p e r a n d a n y specific reference
t o edvances.
I t eliminates t h e requirement t h a t
the s u b s i d i a r y c o r p o r e t i o n s m u s t b e o w n e d e t l e a s t t h r e e -
fourths,
7 5 per cent o f their stock b y the parent cor-
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Federal Reserve Bank of St. Louis
39
poration.
t simply leaves i t a question o f fact a s t o
I
vhether t h e parent corpor:tions a n d the subsidaries constitute i n prectical effect a
single organization a n d m a y
be with propriety regarded s s a single borrower.
I n -
steed o f saving t h e paper m a y b e eligible t h e proceeds o f
which m a y b e advanced t o the subsidiaries,
i t says t h e
paper o f t h e p a r e n t c o r p o r a t i o n m a y b e e l i g i b l e
i f the
proceeds h a v e been used b y the parent corporation o r b y the
subsidiaries f o r a n eligible purposs.
T h a t necesserily in-
volves, o f course, the transfer o f those funds i n some
wey from the parent corporstion t o the subsidiary.
B u t
nevertheless that preserves the same distinction o n which
the Board's original ruling wes made.
I t does n o t elimi-
nate, either expressly o r impliedly eliminate, t h e first
condition.
Y
e have t h e first condition l a i d down i n
the B o s r d ' s f o r m e r ruling.
B u t i t o m i t s a n y emphasis
o n
thet condition and relieves, I think, considerable emharrassment.
It appears t h a t t h e r e h a s b e e n a
time f o r F e d e r a l K e s e r v e B a n k s
prectice f o r s o m e
t o consider p a p e r eligible
in the case o f borrowers whose business i s industrial o r
commercial i n spite o f the fact thet those borrowers might
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Federal Reserve Bank of St. Louis
40
make some insignificant advances t o customers, a n d i t
appears t h a t t h e Board's specifiying a s a condition that n o
advances should b e made t o other parties h a s raised a
doubt a s t o the validity o f that practice.
T h i s elimi-
nates a n y specific mention o f that point a n d I think i t
will eliminate t h e embarrassments t h a t nave resulted f r o m
the specific setting out o f that point i n the regulation
end would enable t h e Federal Reserve Banks t o continue t o
do for the Hanna Company a n d similar organizations t h e same
thing that t h e y have done f o r a n y other borrower.
Covernor Crissinger.
D o e s i t cover t h e case o f financ-
ing c o r p o r a t i o n s ?
Mr. “yatt.
Y e s , absolutely, because the fimgance cor-
poration c o u l d n o t m e e t t h e s e t u p t h a t h e s b e e n d e s c r i b e d
here.
Governor Crissingsr.
Mr. “ivatt.
Yee.
I t protects against that?
I t jeaves i t open t e b e handled a s
it always h e s b e e n handled i n practice.
I t would b e pos-
sibly disastrous t o push the finanee ruling t o such a n exe
tent a s t o s a y that where a
borrower uses a n y o f its money
to lend someone else all o f its paper will b e eligible.
This protects against t h e finance company, because i t says
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Federal Reserve Bank of St. Louis
41
that where t h e »orrower i s a parent corporation having
subsidieries a n d that t h e parent corporation a n d the
subsidiaries
m a y b e considered a
single c o r p o r s t i o n ,
that
then the borrowing f o r the parent company a n d its subsidlaries produces eligible peper--you cannot f i t that into
the subsidiaries because t h e y are lending t o outside
narties a n d y o u could n o t i n any w a y view t h e finance compenises sand t h e i r c u s t o m e r s
Mr. Jay.
as a
single o r g a n i z a t i o n .
B u t these subsidiaries m a y do a little
lending t o outside parties, b u t not enough t o amount t o
anything.
Mp. y a t t .
G o v e r n o r Fancher c a n probably give y o u
the »orrowings o f this particulur company a n d advances
made t o non-subsidieries.
Governor Fancher.
I n proportion t o their total bor-
rowings i t is s n insignificant amcunt, a n d i n other cases
the amounts were v e r y small compared t o the borrowings o f
other corporations which, u n d e r this former ruling, makes
all fhe paper ineligible.
Mr.
vatt. I
have h e a r d t h a t t h e a m o u n t l o a n e d t o
outside interests was only ahous “50,000, which i s insigAificent c o m p a r e d
porsetion.
t o the total »orrowings
o f the parent c o r -
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Federal Reserve Bank of St. Louis
42
Governor Calkins.
tween t h e a p p l i c e t i o n
I t illustrates t h e difference b e .
o f the ruling formerly made b y the
Bosrd a n d the proposed modification.
I n the first place,
it i s perfectly correct t o s a y thet there probably i s not
@ large »orrowing corporation i n the United States t h a t does
not make some edvances t o subsidiaries o f which i t does
not o w n 7 5 per cent.
T h e case t o which I
refer i s that
of a purely commercial organization making advances t o sub-
sidiaries which amount t o about $6,000,000.
T h o s e sub-
sidiaries a r e nine i n number a n d i t owns 1 0 0 per cent o f
eight a n d 5 0 per cent o n l y o f one.
U n d e r t h e Board's
former rulingbecause i t only owned 5 0 per cent o f one o f
these subsidiaries t h a t paper would n o t b e eligible.
I t
seems t o m e that i s t o o technical a h d that that should b e
considered a s o n e s i n g l e b o r r o w i n g c o r p o r a t i o n .
Governor McDougal.
“ w h a t I had i n mind h a d t o d o
with a certain class o f elevator receipt which originate i n
Minneapolis o r St.Paul, o n e o r both.
I
t i s the sense
oF tho conforcnee t h a t roeistercée terminal warchouse r o eoipts issucd under t h o precticc proveilin¢g i n Minneapolis
arc w i t h i n t h o s p i r i t o f t h e B o r r d t s r e g u l a t i o n r e q u i r i n g
that warchtust recoipts t o be clipiblo n s ecollrterrl for oc~
ecptanecs m u s t b e fissued b y 2
warehouse i n d e p e n d e n t
o f the
custemer a n @ that therefere t h e Beard skeuld rule that a e -
ceptances secured b y them are eligible previded, o f course,
they cemply with a 1 1 the relevant requirements o f the
Federal.Reserve A c t .
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Federal Reserve Bank of St. Louis
43
Therefore t h e B o a r d s h o u l d r u l e t h a t s c c e p t a n c e s a r e
eligible provided o f course t h e y comply with 9 1 1 the relevant r e q u i r e m e n t s
o f the Federsl Reserve ‘ct.
Governor Crissinger.
I f I remember correctly that
case t h e werehouse company was t h e »orrower.
H o w would
thet m e e t t h e r e q u i r e m e n t s l a i d d o w n b y Mr. Y o h e ?
Governor McDougal.
i n our judgment those receipts a n d
all t h e c i r c u m s t a n c e s a t t e n d i n g d o c o m p l y e t l e a s t w i t h t h e
spirit o f t h e l a w .
Governor Bailey.
them safe.
T h e r e a r e safeguards e n o u g h t o make
I t is the same way i n Kensas City, w e have
a world o f paper that o u r banks would like t o use, b u t cannot
use, although i t i s the best security thet c a n b e given.
Governor Seey. U n d e r t h e statute o f “Minnesota s u c h
receipts d o convey title, which i s not the case ordinarily.
Mr. Jay.
T I understand t h a t this i s not s change i n the
regulations b u t a proposed ruling b y the Board.
Governor Crissinger. Just a ruling.
Governor McDougal. I
know from long experience that
these r e c e i p t s h a v e b e g n a c c e p t e d a n d h a v e b e e n c o n s i d e r e d
one o f the most desirable bases f o r loans.
T h e werehouse
receipts i n question carry with them title and i f this
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Federal Reserve Bank of St. Louis
44
werehouse c o m p a n y u s e s t h e m f o r t h e b a s i s o f a c c e p t a n c e s
or for »orrowings t h e y caanot b e attached.
T h e r e is ot
any denger i n this a t a l l .
Mr. Jay. I
remember last year this w e s submitted t o
the fgents! Conference.
lation,
T h e proposas wes t o amend t h e regu-
a n d t h e comnittee reported a
resolution a n d t h e
Conference e p p r o v e d t h e r e c o m m e n d a t i o n
o f t h e committse.
If this c a n b e done w i t h a ruling without chenging t h e
reguletion i t seems t o m e i t would o e avvery desirable t h i n g
to do.
Governor Crissinger.
Governor McDougal.
‘ h a t i s vour next proposition?
/ 1 1 o f the topics y o u gave u s w e
have considered w i t h the Board.
Governor Crissinger.
“ N e did that yesterday.
D o e s t h e Board want t o bring
up a n y o f the topics considered b y the Board yesterday?
“hat were those topics?
Governor MeDougsel. I
think I
have t h e m a l l here.
One vas t h e advisability c f the Board adopting f o r all
National b a r k s a
minimum capital requirement a n d imposing
other r e q u i r e m e n t s
to s u c h b a n k s
i n connection w i t h i t s granting a u t h o r i t y
t o exercise t r u s t powers,
Governor Crissinger.
‘ell, I
think the Board has b e e n
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Federal Reserve Bank of St. Louis
45
advised o n thet b o t h b y the fgents--does t h e Board care
to h e a r a n y t h i n g f u r t h e r ?
Governor McDougal.
T h e next was t h e authority o f a
Federel R e s e r v e B a n k t o r e c e i v e d e p o s i t s
o f securities
for safekeeping f r o m farm loan registrars, Federal L a n d
Benks,
a n d intermediate c r e d i t banks.
“e heave o u r viéws o n that.
Governor Crissinger. H a v e the agents anything t o say
about that; d o y o u want t o start that?
Governor McDougal.
T h e next w a s t h e question o f
Federal Reserve Bani representation s t bankers! conventions-to w h e t e x t e n t s h o u l d F e d e r a l R e s e r v e B a n k s b e r e p r e s e n t e d
by officers a n d employeés.
The next was t h e advisability o f seeking a n amendment
to t h e l a w t o r e s t o r e
t o Federal Courts jurisdiction o v e r
suits b y and against Federal Reserve Banks.
I t was voted
to b e the sense o f the Conference t h a t i t i s advisable t o
procure
a n amendment
t o t h e l a w t o restore
t o Federal
courts jurisdiction over suits b y and oegeinst Federel Reserve
Panks i n the form suggested i n Paragraph No. 5 on page & of
Mr. “Wyatt's memorandum X-4551.
It was slso voted that i t would b e desirable t o seek
the enactment o f legislation t o exempt Federsl Reserve
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Federal Reserve Bank of St. Louis
46
he process o f attachment o r garnishment before
final judgment i n s n y case, a s Netionel banks a r e n o w exempted u n c e r t h e t a r m s
o f the U n i t e d S t a t e s R e v i s e d Statutes.
Those were t h e topics, I
Governor Crissinger.
think.
I s there anythine further t o
bring b e f o r e t h e J o i n t C o n f e r e n c e ?
I would like t o s a y thet Mr. Martin has sdvised m e thet
are through a n d have adjourned subject t o the will
of the Rorrd.
I s there anything thet t h e Board w a n t s t h e m
to d o that would k e e p them here longer?
I f not, seme o f
them would like t o errange f o r their transportation t o g o
home .
I s there anything thet a n y membor o f the Board
would like further information about?
Governor ieDougal.
‘ r e w e roing t o have e n y discussion
on the tonics e n d actions t a ' e n » y the ‘rents! Conference?
Governor Crissinger.
T h a t i s what this meeting i s for.
Martin, Governor “icDougal i s incuiring about c h e action
taken » y the ‘gents! Conference.
C a n you take t h e m u p
in the order they come?
Mr. Miller.
G e v e r n e r , w h e t disposition
i s going t o
be made o f cguestions submitted t o the Roard?
Governor Crissinger. I
have b e e n esking f o r e dis-
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Federal Reserve Bank of St. Louis
47
cussion o f them. l i f t e r each conference h a s made their
recommendations I
presume w e h a v e p a s s e d u p o n them.
are submitted i n writing.
T h e y
T h a t i s the w a y w e have hereto-
fore done it.
Mr. Willer.
Yes.
T h e r e w e r e c n é o r two pretty inm-
vortant things.
Governor Crissinger.
“ e l l , probably t h e y will come
up right here.
Mr. Martin.
I t was our purpose, o f course, o n all
these t o p i c s s u b m i t t e d
b y the Board,
t o p r e s e n t o u r conclus-
ions i n writing t o the Board, a n d w e hope t o do that within
a d a y o r two.
The first topic was Federal Reserve B a n k ropresenta-
tion a t bankers’! conventions, “hich has come u p before you.
The next topic w a s reduction’in reserve requirements.
Practicability o f reviewing a t least once sech year the
situation with respect t o membor banks located i n outlying
sections o f Reserve a n d Federal Reserve cities, which have
been g r a n t e d t h e r e d u c e d r e s e r v e p r i v i l e g e ,
i n accordence
with the Board's policy outlined i n its letter o f December
a9, 192¢.
Governor Crissinger. “ h a t i s your recommendation?
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Federal Reserve Bank of St. Louis
48
Mr. Mertin.
O u r recommendation i s that i t i s pract-
and desirable t o make t h e review a t leest once e a c h
o f t h e B o a r d b y December
and h a v e i t i n t h e h a n d s
31
year, together w i t h a recommendation.
Governor Crissinger.
N o w , d o a n y o f the Governors
to talk o n that subject?
D
e a n y o f the members o f
the Board want t o b e heard?
Mr. Martin.
T h e next o n e i s one that w a s also o n the
Governors! program, t h e advisability o f the Board adopting
for all National banks a
minimum capital requirement a n d
imposing other requirements
i n connection w i t h its granting
authority t o such banks t o exercise trust powers.
Governor Crissinger.
“ h a t i s your recommendation o n
that?
Mr. Martin.
@ u r general recommendation w a s t o the
effect that i t i s not necessery a t the present time. ‘ ’ e
want more information along certain lines.
O u r report
in regard t o this fiduciery matter includes t h e general subject o f fiductary bankers.
I t i s rether a long document,
stating t h e generel situation; b u t o u r general conclusion
in regard t o minimum capitalization requirement i s that
thet i s not advisable a t the present time.
Governor Crissinger. I
think the Governors m a d e t h e
same finding.
Has anybody a n y further remarks?
Mr. Mertin.
T h e next o n e submitted
procedure i n elections o f Class f
Governor Crissinger.
and B
b y the Board i s
directors.
Y o u h a d hetter explein that t o
the G o v e r n o r s .
Mr. Martin.
Sox. FORS.
an
"
n
d
a
I t was decided b y the Conference that,
in view o f the fact that t h e present procedure f o r con-
y
ducting elections, w h i c h comes under the jurisdiction o f
Bw f o l s
the Chairman o f the Board, hes been subject t o criticism - -
Steve
in #11 instances nrecticelly, w e believe, unjustifiable
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Federal Reserve Bank of St. Louis
eriticism--but criticism which has’ arisen o n account o f
the procedure i n conducting elections o f Cless *
Directors.
and B
S o m e o f the small »anks meke t h e stetement,
es I understend it, that they dare not nominate e» man
arter t h e t m a n h a s b e e n n o m i n a t e d
by a
large c o r r e s p o n d -
ent; t h e stetement h a s further b e e n made t h a t banks object
to v o t i n g f o r m e r if: those m e n a r e s p o n s o r e d
correspondents. I
b y other
understand t h e criticism h a s also
been mede that i f e man n o w o n a board o f directors i n a
bank i s put u p for re-election t h e banks hesitate t o
vote egainst h i m o n the theory that should that m a n b e
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Federal Reserve Bank of St. Louis
50
re-elected t h e y w o u l d b e - t a
recdiscounts.
mersure
N o w ,
dissdvantare
o f course,
i n submitting
v a know thet
i s unjustifiable criticism,
b u t t h e peneral i d e n
secms t e b e that t h e ballots a r e n c t secret.
in prectically a l l o f the banks, I
i n lerge
i n effect,
a m inclined t o helfeve
thet t h e y ere secret now, b u t the procedure i s such that
eriticism c r n b e brought sgeinst t h e m e s not being secret.
Our Conference v e n t i n t o t h e general question o f the
slectior o f Class ‘
end Cless 8
directors.
F r o m e n in-
vestigetion o f the law we find thrt i t i s necessery that the
cendidates, t o r e t h . r w i t h t h e n e m s s
o f those b y w h o m t h e
candidates c r e nominsted, m u s t b e listed e n d © copy o f that
list s e n t t o the intercsted b a n s .
T h e t mesns there c e n
be n o secrecy “ s t o nominetions, b u t i n regerd t o the
bellot t h e l e w makes t h e strtement t h e t t h e belleat i s t o
be s preferentirl bellot o n » form prescribed b y the Federe] Reserve Board, a n d the method o f procedure i n the
ecnduct c f the elictions can, t h refore,
b e modified,
in
our judgment.
“e e r e n o w following t h e proc:dure w h i c h wes insugureted b y the Orgesrizetion Committee.
T h e forms e r e
those t h a t were s e n t o u t b r the Orgenizetion Committee.
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Federal Reserve Bank of St. Louis
51
feting under the sugrestion o f Governor CGrissinger, w h o
brourht o u t the propositicn o f voting a n ehsentee b y
mail, teking those surgestions c f Governor Crissinger,
it
hes b e e n the idee o f our Conference t h a t w e will w e r k out
the dete l s o f pr plen a n d ineugurate i s commencing w i t h the
next election.
I t i s t o o l a t e n e w t o d o e n y t h i n g t h i s yeer.
it doss n o t chenge t h e mothod o f nominstien which, u n d s r the
lew, cenret b e seeret, but s o far - s the bellot i s concerned
the idea i s to have » preferential ballot, i n the form i n
which w e now have it, i t h o u t hevine the signeture o f the
man c e s t i n g t h e ballet.
fn envelope, perhcps o f + distinctive color,-swe h a v e
not werked out the complete details o f this--merked "For
ballot", will v e sent from the office o f the Chairmen t e
the m e n a u t h o r i r e d
t o cast t h e v o t e f o r h i s bank,
befere y o u e s clee r l y a s I ean, I
in mind:
T e get this
will indicete what w e have
T o heave the Chairmen send c u t f r e m his office t e the
man who i s designated t e east t h e vete,
e n envelope, perhaps
of a distinctive color, merked " f e r balict"; alsa a preferential b e l l o t
i n the f o r m h e sends e u t new, w i t h t h e exeeptien
thet i t will have w e plaee fer signeture.
eut whet m e y be ealled
H e will alse send
o a letter e f transmittel,
t o b e signed.
by the man whe casts the ballot, s o thet his signeture c a n be
checked against t h e autherized signeture i n the offices.
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Federal Reserve Bank of St. Louis
52
There w i l l also b e sent o u t a n snvelope i n whieh a l l o f
these t h i n r s m a y b e snelosed,
T h e n t h e m a n w h e casts the
vote will teke t h e ballot, w h i c h conteigs 6 n i t n o merk o f
identificetion, e n d h e will indicate h i s preferential hbellot.
He will fold thet, put i t i n a n envelope, o f distinctive |
color, merked "For ballet", end seal it. T h e n he will take
the letter o f transmittal t o b e sent t o the Cheirmen,
he
will sign thet letter o f trensmitteal with his signature,
end his signeture i s o n record i n the Chairments office,
t o r e t h r with t h e t i t l e a f h i s bank.
H e will t h e n take
the envelope w i t h the ballet i n it, a n d t h e letter o f trensmittel, e n d plece those things i n the other envelope eaddressed
t o t h e C h a i r m e n o f t h e Board.
I
t c a n easily b e
worked g u t s o that when these envelopes a r e received b y
the Chairmen o f the Board, insteed o f apening t h e m s s they
come in, they will not b e touched until a certein dete.
They w i l l b e p u t i n t o t h e b a l l o t b o x .
T h e n t h e Chairman
cen notify t h e nominees t h e t t h e ballot b o x will b e epened
end t h e b a l l o t s c o u n t e d
on a
certain d e y e t »
riven t i m e
end thet i t would b e thoroughly proper f o r himself o r hls
representatives
t o b e present
i f t h e y w i s h t o come.
In
this w a y w e hope t o work e u t e scheme which will give u s
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Federal Reserve Bank of St. Louis
53
e secret ballct a n d which will remove i t , s o fer a s i s
possi>le u n d e r t h e l e w , f r o m a n y p o s s i b i l i t y
Mr. Hoxton.
o f criticiem.
T h e r e i s o n e potnt w h i c h v o u left out,
which i s the crux o f the whole matter.
“ ¢ alsa recommended
‘thet t h e Federel Reserve E o a r d seek t o hrve t h e “ c t amended
so thet t h e names o f these nominating candidetes would n o t
have t o b e puhlished.
Governor Crissinger.
‘ n d make the nominetions the seme
as they d o the voting?
Mr. Curtiss.
There
i s o n e o t h e r point,
a n d thet i s
thet these ballots should b e opened i n the presence o f the
euthorized representatives o f the Chairman.
Mr. Mertin.
Thet is .
detsil.
O f course t h e ballot
box will b e opened end’ the bellots counted i n the presence
of t w o c u e l i f i e d p e o p l e , c u r l i f i e d
Cheirmen t o meke a
o f the
certificete o f slection.
Governor Crissinger.
ted,
i n the judgment
J u s t arother point that I
o n d thet i s thet “ h e n t h e bellot
omit-
i s sent out, w i t h this
letter o f trensmittrl e n d the envelope, t h e t there slso b e
included 8
»loprephy o f the cendidates s o thet a
miles c w a y m a v h a v e s e m e i d e r o f t h e » u s i n e s s
for whom h e i s votinre, ~hsther h e b e a s
man 150
o f the m a n
‘ director
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Federal Reserve Bank of St. Louis
Aivector.
Not p r e p r r e d
Governor Crissinger.
Mr. Mertin.
b y t h e bank.
N o , prepered b y the nominee.
“ e will ~ o r k these deteils o u t cerefully
end s e f e g u e r d t h e m .
Governor Crissinger. I
think i t wiil b e a very nice
schen
vou w o r k i t . o u t .
Mr. Miller. I
wes j u s t s u r g s s t i n g
t o Mr. J e y , m o r e b y
wey o f joculer diversion, t h e t v e mirht have someone i n the
Federal Reserve System t o b e known e s the officiel biorreoher.
Governor G r i s s i n g r e r .
Mr. Mertin.
“hot was the next
T h e n e x t c u c s t t o n submittesc
wes t h s cusstion o f ‘ssistent Federsl Reserve ‘pents eat
>renches . ‘ m y e Borrd desires t h e t Federrl Reserve ‘gents
consideration
t o the precticability a n e desirebility
of establishing some uniform procedure f o r handling t h e
note functions o f Federel Reserve ‘gents a t those brenches
of Fedeorel R e s e r v e B a n k s w h o r e t h e f v l l - t i m e s e r v i c e s
fssistent Federsl Reserve ‘ r e n t would n o t epnersr t o b e re-
quired."
I will e s k “r. DeCamp t o read h i s report o n thet.
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Federal Reserve Bank of St. Louis
55
Mr. DeCamp. T h e r e e r e 235 branches e f FedersiiReserve
Banks.
A t only & ef these a r e unissued F e d e r a l Reserve
netes kept e n hend, namely: C i n c i n n a t i , Pittsburgh, Jacksen-
ville, N e w Or&@eans, Detroit, Denver, Omeha and Oklehame City.
At the first five mentioned branches there a r e Asse. Federal
Reserve Agents.
T h e Committee assumes thet there 1 s seme
special reason a t these brenches f e r keeping c n hand a supply
of unissued notes a n d f e r meintaining Asst. Federal Reserve
Agents.
The C o m m i t t e e b e l i e v e s t h e t n o t h i n g s h c u l d b e d e n e t e r e -
duee t h e protection which these branch territeries n e w cerive
from having a supply e f unissued Federal Reserve notes msintained a t the branches named.
@ n the other hand, t h e Crmmittee
feels thet a s éther brenches, some e f which are a s lerge a s
these eight branches, n o w conduct their business setisfactorily
withaut meainteining a
suppky e f unissued notes, seme i f not
ali e f these eight branches should now give cons ideretien t o
evelving somé method w h e r e b y present protection c r n b e main-
teined fer their member benks withgut the meintenence o f e
supply o f unissued notes e n hend.
It i s impossible f o r tne Cemmittee,
know t h e c o n d i t i o n
i n each:
s s a Committee,
o f these brenches s n d whether
to
it
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Federal Reserve Bank of St. Louis
55-1/2
wauld
b e possible f o r a n y o # ell e f these branches t o eerry
thetr reserve supply o f notes i n the benking deprrtmint insterc
cf i n t h e A
gent's D e p e r t m e n t . A
shortsgsc o f ecolleterel
at
certein sersons o f the yeer, e r other reesons e f o n emergency
neture o r i n the neture o f » greduel chenge i n bonditions o v e r
6 Lionger period, m e y make this imprecticseble,
T h e Committee
eon o n l y s u g r e s t t h e t w i t h o u t c h e n g i n g t h e p r e s e n t f e r m
orpanizetion, eech o f these brenches should, during the
six months, experiment w i t h t h e possibility e f cerrying
reserve supply i n the benking adepertment insterd o f i n
Agent's depertmont,
A t the e n d o f this period e s c h o f
branches would b e i n » position t o know t h e extent t e which
this would b e practicable, slthough i t might b e necessary i n
somo o f the orenches t e cerry e n the experiment longer i n
erder t e b e sole t o observe a l l o f the cenditions w h i c h might
erise # t such brenches during t h e full course o f a yeer.
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Federal Reserve Bank of St. Louis
56
Governor Crissinger.
I s there a n y discussion o f that
recommendstion?
Mr. dey. D u r i n e t h e discussion i n the "gents! c o n ference chairmen representing a
were n o t p r e s e n t
number c f these brerches
M r . N e w t o n o f ‘tlanta,
w h o h e s brenches
in Jacksonville a n d f e w Orleans, w a s n o t present e n d M r
Heatn, w i t h the brench e t Detroit, w a s n o t present.
Governor VeDougal. I
c a n o n l y s e y t h e t i n m y opinion--
i do not know hew Mr. Hesth would feel about this--if the
Board wented t o do awey with ‘ssitstent Federel Reserve
fgents,
o r the Federel Reserve ‘sent a t Detroit, ‘ h i c h i s
only a few hours eway, thet w e could seferuard t h e situstion
setisfectorily through the maintenence o f * rersonable
supply of cash snd through the medium of shipment. I
have not discussed the subject with Mr. Herth, but I feel
that thet could h e done.
Governor Vellborn.
“ e f e e l t h e t i t i s necess
r y to
have s n ssistent ‘gent i n New Orleens o n account o f the
lerge banks there and the tremendous smount o f business,
to teke cere o f emergencies that m e y arise.
“ é e also
think w e should heve one i n Jeeksonville, Floride.
Con-
ditions down there have been rether unusuel this yeor,
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Federal Reserve Bank of St. Louis
57
end until those conditions a i e streightened c u t w e think
thet w e should have e n fssistnnt Federnl Reserve /pent r n d
have »
pood supnlv o f notes o n hend.
Birminghen o n d Neshvillo,
et Jecksonville.
‘
w e could d o without them, b u t n o t
@ have a
m a n i n Jacksonville
nominel ssalery, aimnst nothing,
of the branch bank.
* t our other brenches,
H e i s » Cless B
et a
director
H e i s i n the commercial business e n d
just comes i n oeccesionelly e n d sets w h e n i t i s necesssry.
it cots u s hardly enything e t ell.
Governor Crissinger.
heerd o n this subject?
D e e s anyone else desire t u b e
f n v member o f the Board?
i s there
anything else?
i. Mertin.
i t h t h e exception o f the guestion
asked w i t h regerd t o releasing t h e censolideted stetement
of m e m b e r banks, r e l e c s i n g p r r t s e p e r a t e l y
i n edvance
of
relesesing the consolidsted stetementq+
Governor C r i s s i n g e r .
T h e Governors v o t e d t h e t t h e y
would interpose n o objection t o the relersing o f this statement ehesd c f time, M r . Mertin.
ie. Mertin,
T h e n thet concludes t h e topics placed a n
the p r o r r e m b y t h e B o a r d w i t h r e c u e s t f o r e n s e r s .
is the topic o f Fxeminrtions.
T h e r e
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Federal Reserve Bank of St. Louis
58
Governor Crissinger.
H e v e v o u reached a n y conclusion
on thet?
Mr. Mertin.
M r . J e y c a n meke e
statement i n regerd t e
thet matter.
Mr. cgay. The Conference having discussed this metter
with t h e Boerd o n lrst Fridsay-Governor Crissinger.
Y o u herd hetter stete w h a t i t is,
so t h e t t h e G o v e r n o r s w i l l k n o w w h e t i t i s .
Mr. J a y . . ‘ t t h e l e s t J o i n t C o n f e r e n c e e
“gents w e s a p n c i n t e d
of e x a n i n s t i o n
t e study a n c report
t h e y presented a
committes
of
o n the whole question
b v Fedirsl R e s e r v e e u t h o r i t i e s .
mittee m e t s e v e r r l t i m e s w i t h s
fi: /ugust
committee
T h i s com-
o f t h e Beerd,
and
report t o the Poerd's com-
mittee, =
conv o f » ich wes sent t o ereh Chairmen e n d
Governor,
s o thst a l l have b e e n furnished conies o f it.
‘t the Conference b e t e r :
n the ‘gents a n d the Board lest
Fridey Mr. Platt reed t h e report o f his committce o f the
Then the Conference, having hed cur own report
end hevine hed the report o f the Boerd's committes, dis-~
cussed the whole question sgain and hed one o r two surrestions t o rke.
M e y I just summerize this, Mr. Plett?
Vice G o v e r n c r P l e t t . C e r t a i n l y .
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Federal Reserve Bank of St. Louis
59
Mr. Jey. >
report e f the Boerd's committes, w h i c h
: understend h e s r e c e i v e d t h e s o v r o v e l
o f the Beerd i n
eeneral, proposes t o esteblish = division o f the Board, a t
lesst temporerily,
exeminer t o make »
u n d e r t h e sunervision
of »
competent
survey a n d report e s t o the efficiency
end thoroughness o f examinations d
credit invest
mede b y eech Federsl Reserve P a n k e n d e s
and t h o r o u r h n e s s
o f exeminetions m a d -
h v t h e S t e t e bank4tng
depertmente, " T h e Posrd's cammittee belteves that the
idesl system f o r State b a n k members i n many stetes would
be t o have o n s examinetion b y State authcrities, o n d g n e
by Federal Reserve authorities e s c h yerr.
T h i s cannot b e
dene under Steate lews excepting i n a fev States a t the
present time, b u t e n effort should b e mede t o obtain the
necessrry amendments t o State laws s o that i t m e y b e evthor-
ized."
The Conference expressed i t s grest setisfection
s t
the proposed survey and i t s hope t h a t t h e work would develop
into 9
permenent d i v i s i o n o f t h e B o e r d ,
. o keep t h e Boerd
fully sdvised » t e11 times o f the efficiency e n d thoroushncss
of the exeminations a n d credit investirations m e d e b y the
Reserve Benks e n d * s t o the efficiency o n d thorourhness o f
evaminations mede b y the itete bank dep-rtment.
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Federal Reserve Bank of St. Louis
60
“ith regard t o the surgestion o f the committees thet
the State lrews should b e emended,
i n the crse where t w o
exeminstions ere recuirsd - yesar, s o thet one of those
efficiel e x a m i n a t i o n s r e q u i r e d
» v the State should h e mede
hy t h e S t a t e s u t h o r i t i e s e n d o n e b y t h e Federnrl Res«irve
esutheri-ies, t h e feeling o f the Conference w a s that this
would b e # n essunption »by the Federel Reserve cuthori' ies
of the responsibilities e n d duties t h e t a r e impossd v y low
on the Stete supervisors e n d thet t h refore i t would b e o n
undesirrhle progrem t o develop.
~ e feel thet probshly
this srises f r o m the desire o f the Borrd t o hrve more srtisfectory e x e m i n e t i o n s m e d e b y Federrl R e s -rve s u t h o r i t i e s
in ceses where t h e Stete examinetions e r e n c t setisfrctery,
end - e »elieve t h e t o n e o f the difficulties
i n the w e y
of sccomplishing this e t the present time i s the frct thet
we m u s t c h e r r e f o r m e l i n e t h e s e e x n m i n r t i o n s .
we r e c o m m e n d
the l e w ,
Therefore
t e t h e F o a r d t h e t t h e y s e t k e n smendment
s s s o o n a s possi>le,
s o thet t h e chrrge
to
t o he
mede f o r examination should » e discretionary “ith the
Fed r e l Reserve System.
The report o f the committee i s quite a long une. T h e
gist o f i t i s c o n t r i n e d
i n three
o r f o u r peres, e n d i f I
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Federal Reserve Bank of St. Louis
61.
moy r e e d e h o u t o n e pare, G o v e r n o r ,
i t will express t h e
view o f the comnittes w i t h regard t e the position o f the
Federel nesorve ‘gents i n connection w i t h examination.
méey sey that this i s s fone o v e r v e r y carsfully a n d discussed v e r y thoroughly « n d certein cheares made. x
will
reed t h e c h a n g e d p a r e r r e o h s ,
w h i c h were apresd
t o b y every
Federel Reserve ‘rent press
N e w t o n o f ‘tlente e n d
Mz. H e s t h o f C h i c e r e h e i n g
"(r) Federal Ressrve *gents
T h e cemnittee feels that
every F e d e r c l R e s e r v e ‘ r e n t u u s t n e c e s s : r i l y
b e o t h inter%
ested a n d setive i n hevine reperts o f exeminetions
banks
i n h i s c i s t r i a t senelvzs
equete,
i n taking t h e n e c e
e n d , where these e r e inad-
r y
s
e
c
u
r
e edequate
informetion c o n c e r n i n g t h e o f f e i r s s n d c o n d i s i e n
member b e n k i n his district.
should
o f mem,er
o f cverv
v e r y Feder] R e s e r v e ‘ r e n t
h a h i g h - g r e d e c h i e f e x a m i n e r e n d c n adecurte
steff. E v e r y Federrl Reserve J pent should b e ebhle, upon
re-sonahle sttice,
t e undertske e n indeperdsnt exeminetion
of any benk i n his district. n
tne crse o f lerse banks
ar benks having m e n y »rsnehos h e should b e ehie t o errenge
this o v drewing o n memners o f his euditinr depertment,
of ether deprrtments o f his benk,
or
o n the examinine steffs
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Federal Reserve Bank of St. Louis
62
of neer-dv Reserve bonks, e n d o n the Porard's exemining
staff, i f necess ry.
S y e r y Federsl Reserve ‘rent should
stend reedy t o keep the Beard sdvised, whenever t h e RPoard
so desires, regerding t h e menepement, affeirs, e n d condition o f e n y m e m b e r h a n k i n t h e district.
E v e r y Federel
Reserve ‘rent should meintein personal contsct w i t h t h e
Comptroller's c h i e f examiner,
s n d w i t h t h e Stete supervisors
in his district, e n d either personally o r through his chief
should b é i n constent t o u c h w i t h t h e s e s u p e r v i s o r s
regarding conditions i n eny member b e n k which rere unsetisfectery."
Thet c o n t e i n s -
strtement
o f w h e t t h e /frents c o n s i d e r
the position a f their office requires o f them with respect
to ¢xeminetions.
Mr. James. I
doen't quite understand t n e statement
there w h e n y o u s e y when t h e ‘gents s r e desired t e perform
certein things.
® y whom ere t h e y going t o b e destred, e n d
when?
Mr. J a y . “ e l l ,
i f the ‘ g e n t himself finds
i t necessrry
or i f requested b y the Federal Reserve Forrd.
Mr. Jomées. S o m e b o d y h r s r o t t o c e l l t h e “‘gent's a t t e n -
tion t o . specific bank?
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Federal Reserve Bank of St. Louis
micht c e l l i t himself.
ir, Jey. >
thet L
referring.
know e ectly t o whet y o u ars
O r th: crdministretive sectior:
Governor Secy.
mirht c e l l
Jay.
t h e exemination’
Y o u m e e n s v o u t melking
o x e nine.
I meen t h e n e c e s s i t y o f i m p r o v i n g
tions.
thet evory Federsl Res rve
Mr. Inv. " T h e committce fecls
iInterusted e n d active i n
‘rent m u s t necessrrily b e »oth
hevine r e p o r t s
o f exominetions
o f mamber benks
i n his dis-
trict nnelyzcd", enc s o forth.
Mr. Mertin.
him.
I t puts t h e initietive o n
Mr. Jay. Y e s ,
the executive
o f i f you sre pominded s y
obthe Board t h e t y o u heve some
dopertment o f the b e n k o r
"Every Federel Ruserve ‘ g e n t
ligetion. T h e comnittce s r y s
exeminer e n d e n adequate
shovld heave » hirh-grede chief
u p o n rorsoneble notise,
steff a n d should b e ssle,
tale o n i n d e p e n d e n t e v e m i n e c i o n
Mr. J n m e s .
ne j u s t i f i s d
T h e ides I
t o undéTe
o f s n y D a n k i n his aistrict.”
Saard
hed 4 n m i n d w o s wounldothé
sbsence
i n fooling t h e t i n the
t h e Board,
far e c t i o n o n t h e p e r t o f
o f some recucst
b y the member benk,
i n feeling
t h e Roerd b e justified
Netionel e r Stete, vould
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Federal Reserve Bank of St. Louis
64
thet t h a t o e n k v r s p r o p e r l y m e n e g e d e n d w e s c o m p l y i n g w i t h
the l a w end the rules e n d reguletiens o f the Board e n d cone
ditions o f its membership?
Mr. Jay. I
ferrot t o mention thet.
brourht u n lest Fridey.
T h e t mettor wes
T h e cemmittee h e s elrerdiy sterted
to preprre its schedule, which will contsin 411 those requirements o f law, repuletions a n d conditions o f mempyership,
end t h e s u g r e s t i o n
i s t h e t ‘ h e n t h e t i s prepared
xe distributed t o ecch o f the ‘ ¢ 8
t
i t should
thev could psss
it o n t o the necessery suthorities « n d endesvor t o get »
check-up o n eech of those points o n ech examination.
Mr. Jemes.
I v e s wondering whith-r t h e Bocrd would
bec f j u g t i t f i c dni f e e l i n g t n a t t h e t w a s e t t a n d e d
t o o y the
‘gents, rether then heving t o set u p « steff here t o trike
#11 t h o reports o f exeminAtions,
e s filed i n the Compe-
troller's office, o r sent t o the Board b v the ‘gents, s s
releted t o reports o f State member bsenks, c n d heve t h e starr
here ¢ o t h r o u g h e n d s e r r e h f o r t h e s e violations:
the B o r r d b e j u s t i f i e d
o r would
i n feeling t h r t t h e /gents a r e
ettendinr t o i t end the responsibility i s telen o f f the
Poerd?
Mr. J v .
T h e o ‘gents d i d n o t Aiscuss
e x ctly where t h a t
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Federal Reserve Bank of St. Louis
65
respensibility w o u l d l i e , b e e s u s e t h e c e m m i t t e e h r d n e t y e t
prepered its schedule snd hud not discussed it. I
should
assume t h e t u n l e s s s o m e s u c h s c h e d u l e w n s p r e p e r e d e n d furne-
ished t h e Stete suthoritiecs e n d t h e Gomptroller, t h e t w e
would find'it difficult t o ascertain f r o m the records n o w
submitted whether e l l conditions h e v e b e e n complied w i t h o r
not.
Mr. James. I
do not have e n y difficulty,
some o f the reports I
i n resding
heve rerd, t o find # let o f them.
Mr. Jey. No, y o u c e n find e food many, b u t v e wish
to make u p s gomplete schedule a n d submit it. I s n ' t thet
what v o u h a d i n mind?
Mr. Jemes. I
would like t o heve hed someone call m y
attention t o some o f the thines t h e t I
dug out o f the re-
port mvself.
Mr. J e y .
Y o u coulc d i g o u t -« o o d meny,
but vour thourht,
o f course,
e s I understood i t , wes thet w e should
endesvor t o make » complete schedule, questionnaire o r
whetever y o u call it, s o that t h e supervisor could sdvise
us o n these p o i n t s
s o f e r s s h e could s n d w e would have
opporturity t o c h e c k u n e s c h report.
Governor Crissinger.
“ h y could n o t t h e “pent make e n
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Federal Reserve Bank of St. Louis
66
enolysis c f the report s n d roint o u t t h e things, a n d then
4t c o u l d c o m e t o t h e s u p e r v i s o r e n d l e t h i m p o o v e r i t .
Thet i s wheat Mri Jemos h a s i n mind, i s i t not?
Mr. Jeomes,
N o , I
e m just asking t h e question “hether
the “oard would b e justified i n thinkins thet the / gents
vere pivine this thorourh ettention end thet the Poard's
responsibility w s teken care o f by its representatives i n
the twelfth district, o r “hether i t should b e ettended t a
here i n § eshinrton.
Mr. Jev. I
think “ h e n this schedule i s preprred i t
desirsble f o r o u r committe.
t o sit cown vith the
s committes e n d vork o u t just h o w thet m a y best b e done.
i think t h r t i s r c sood lider.
Mr. J e y . I
heve i n m v pocket c
l o t o f requircments
of l n w e n d conditions c f membership e n d s o on.
poinge
t e
m e e
avyvery long
L i s t oF. cuestions
i t is
t o b s discussed
in connection with their report, i f vou went t o mske - come
plete ststement.
I e m assuming thet t h e Stete supervisors
snd + h e C o m p t r o l l e r “culid l i k e t o h e v e s u c h 4
schedule
8s
thet i n orcer thet t h e y m e v ettempt t o indicste those things
in their reports.
ence,
’s
T h i s hrs b e i n discussed b y the Confer-
n d w e believe
i t would
b e best worked
o u t between
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Federal Reserve Bank of St. Louis
67
the o e r d ' s cemmittee,
opu r committee e n d t h e n e w s u p e r - ’
visor e r surveror, w h e n h e comes o n the job.
Mr. Cunninghem.
“ s s i t essumed
b y t h e ‘gents,
i n
the edoption o f the statement you heve resd there, that,
following t h i s s u r v e y t h e t i s g o i n g t o b e meade, t h e B o r r d
should d e c i d e t h e t s o m e s e t u p o f s o m e k i n d s h o u l d b e p r o -
vided f o r the corrving o u t o f the ides, f o r the doing-sf
certain t h i g g s w h e r e w e f i n d t h e t a e l i n g u e n c i e s o c c u r
in these examinations; w e s i t assumed b y the ‘gents t h a t
whetever s e t u n i s prepered, t h e t t h e /gents should b e required t o d o thus e n d so, s s enumersted, t h s t t h e deteils
of whatever arrangement w e s mede should require t h e fgents
to d o s o e n d so? Y o u s e y the “rent: should heave a feeling
of interest i n the matter, t h a t h e should h e recuired n o t
to d o t h i s a n d t o d o thet.
Mr. Jay. T h i s i s irrespective o f the survey, M r .
Cunringhem.
Mr. Cunningham. I
sey following t h e survey, t h e n i t
is c o n t e m p l e t e d t h a t t h e r e m u s t b e =
s e t u n o f some v i n d
mede.
Mr. Jey. “ i e hsve sttempted here t o indicete t h e duties
on the pert o f the ‘gents, whether y o u h v e «
survey o r net.
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Federal Reserve Bank of St. Louis
68
Mr. Cunningham.
T h e n t h e ‘gents a r e giving their
tentative a p p r o v a l o
t this survey-Mr. Jay.
N o t a tentstive approval. f
most hearty
epprovel, M r . Cunningliam.
Mr. Cunningham.
Y o u make a
counter propmsition,
and
I do not think that i s a hearty spproval, b u t s tentetive
approval.
Mr. Jay. O h , no, * most hesrty spproval s f the survey
and w e express t h e hope thet i t will become e s permanent
division o f the Board, which will meintein contect with the
‘sents w i t h regard t o all these matters o f examination o n d
informstion. I
Conference w h e n I
think I spesk for all the members o f the
say w e feel i t a
most h e l p f u l a n d d e s i r -
sble thing e n d w e regret v e r y much thet there hasn't thus f e r
been such a Civision. I
think i t will streighten o u t t h e
thing very much when we have thet division here.
Mr. C u n n i n g h a m .
T h e t recommendation I
quite a p p r o v e
of, s t lesst t h e procedure contempleted meets w i t h m y
epprovel; b u t thet conveys t h e impressian t h e t “ e might have
to provice »
set u p i n such a detail w a y f o r procedure,
which mirht contemplate o u r leying d o w n t h e rules directly
to t h e s e F e d e r a l R e s e r v e f p e n t s e a s t o t h e i r procedure.
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Federal Reserve Bank of St. Louis
69
Mr. Jey. That m a y be. I
assume t h e t i s ell e metter
hoventt e n y
for the future, # 8 your report says t h a t y o u
definite r e c o m m e n d s t i o n
until
t o make e t t h e present time,
vou heve mede thet survey.
Y o u do, however, s e y thet y o u
o u r repert
epprove t h e p e n e r s l c o n c l u s i o n s m e d e i n
follows:
es
sum‘ P h e Federe] Reserve ‘sents! committee i n
morizing i t s r e p o r t
lowing ststement:
fclt o the “osrd's committee makes t h e
' T h e committes nelieves i n maintrining
end improving t h e present examination prectice.
I + coes
examining
not frvor t h e concentrsetion o f Federel Reserve
this should
responsibilities i n the Boerd becruse i t believes
and
be ex. reised i n cooperetion w i t h State supervisors
chief Ketionel
cffective cooperetion
n“more
es,
e x a m i n ed r
ere imwith those sutherities, c l o s e personal relrtions
s t all
pertent; b u t the Sonrd shoule setisfy itself thet
distimes t h e Federsl Reserve frents s r e satisfactorily
charging t h e i r r e s p o n s i b i l i t i e s
i n this r e g a r d e n d s h o u l d
s s i t desires.
require f r o m them such current informetion
shich t h e
This i s the furndemsntal feeture o f the prorrer
committes recommends."
Phen your committees <sys:
Boerd's c o m m i t t e s
' m h e informetion before t h e
a t t h e p r e s e t t i m e 4 s no! s u f f i c i e n t
to
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Federal Reserve Bank of St. Louis
70
ena-le
i t t o determine
t o what extent
i t m e r uitimately
scossrry t o centrelize, u n d u r t h e Bearc, certein
of t h e e x ominetion w o r k i n o r d e r t o m e r e e f f e c t -
ively coordinste the oxsminetion work o f the System. I n
the main, hevever,; t h e committee f i n d s itself i n heerty
seaord w i t h t h e r e c o m n e n d r t i o n s
e s nuve r e c i t e d ;
a n d »6-
lieves t h s t f o r the present t h e Bosrd should hold t h e
Federel R e s e r v e ‘ g e n t a r e s p o n s i b l e e n d s h o u l d t a k e s u c h
ho necossrry t o satisfy itself that the
Fedérel iteserve “sents a r e tsstisfectorily disch*rging
their responsibilities
i n this regerd.'"
Ioune-rstend t h e present s e t u p i s thet y o u s r e going
to make »
survey t o find o u t h o w t o serve t h e henks, i s
that i t ?
Mr. Cunringhem. Y e s , possible centrelizetion, n o
matter whet form i t tekes, but v e heve committed ourselves
to cnvthine o f thet kind, y o u u n d rstrnd.
Mr. Mertin. I
would like t o offer * repert f o r the
informptien o f the Joint Conference.
T h e ‘gents! Con¢sr- .
ence spent a n entire efternoon with Mr. Goldenveiser end
the s t a t i s t i c a l d i v i s i o n
o f the Boerd s n d their entire
steff, r o i n g into t h e detetls o f the construction o f 4
number o f t h e s e c h e r t s .
“
e f c u n d i t e s very p r o f i t e b l e
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Federal Reserve Bank of St. Louis
71
study t o know whet foes i n t o t h e cherts t h e t a r e mede » y
the Roerd.
Governor Crissingsr.
Mr. Hamlin. I
I s there anything further?
move v e *djourn.
Govr-rnor Crissinger.
B e f o r e t h e t motion
i s put, I
understend thet the ‘rents have sdjourned subject t o the
plecsure
o f t h e Board.
T h e r e i s nothing further t h r t t h e
Boerd wishes f r o m the ‘gents.
( hereupon, upon motion duly seconded, bb. 4.40 o'clock
pem., t h e Joint Conforence -djourned susject t o the call o f
the Federsl neserve Board.)
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Federal Reserve Bank of St. Louis
@FedFRASER