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Federal Reserve Bank of St. Louis
VOLUME 2
‘PROCEEDINGS
CONFERENCE O F GOVERNORS O F THE FEDERAL RESERVE B A N K S
TREASURY BUILDING
WASHINGTON, D.C.
OCTOBER 10, 11, 1922
WALTER S, COX
SHORTHAND REPORTER
COLUMBIAN BUILDING
WASHINGTON, D. Cc.
SECOND D A Y
CONFERENCE O F GOVERNORS
of
FEDERAL RESERVE BANKS
Treasury Buildingy
Washington, D.C,
Wed. October 11, l9se,
The C o n f e r e n c e
o f Governors
o f t h e Federal Reserve
Banks reconvened i n the Treasury Building, Washington,
D.C.,
on Wednesday, October 11, 1922, a t 10 o'clock, a.m,
PROCEEDINGS,
The Chairman, The, meeting will come t o order.
You have before you, i n your folders, t h e report which
we adopted yesterday o f the subcommittee o n Centralized
Execution o f Purchases a n d Sales o f Government Seeuritics
by Federal Reserve Banks, w h i c h was approved,
a s I say, a s
well a s the minutes o f the last meeting o f the conmittee
held o n October 2nd, which contained various recommendations, w h i c h were n o t submitted, beeause t h e y had n o t
been
finally approved b y the committee. T h e committee h a s n o w
approved t h e minutes a s submitted, w i t h t h e exception
of
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Federal Reserve Bank of St. Louis
248
the following chen:..ss, s s ause they h e d not b e s n iinslly
proved
b y t h e coumittese.
renort
o f t h e comkiLctse
FIRE? REPORT O F CO.uuITTLE O i GOVLRNOR
O N Cul
IZED EXACUTION O F PURCHALES A N D SALES O F JOVERN..
SECURITIES B
V E R A L R&saRVE BANKE, SUBUITT
THE GOVERNORE' GONFARENCE O N OCTOBER 10, 1922,
@ PERIOD FRO:z. LAY 17, 1922, T O SEPTE..BAR
20, 1922, INCLUcIVE,
The v o m i t tee presents herewith @ brief survey o x its
2 operations since i t s roruation,
Formal ieetings o f the Conmit tee were held a t
Federal Reserve B a n k o i New York o n way 16, J u l y
and Ottober 2 , i92e.
Reports
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Federal Reserve Bank of St. Louis
T
h
e Conmittee hos sent t o the Governor o r esch
Federal r e s e r v e bank,
t o t h e Governor
o r t h e Feceral R e -
serve Boarc. s n d t o the U n d e r secrétary o f the Tressury, 4
weekly r e v o r t s h o w i n g ( 2 ) o p e r a t i o n s
the Treasury,
f o r t h e account o f
( b ) t r a n s a c t i o n s sairecting thse i n v e s t m e n t
accounts o i the reserve banks, ( c ) advances t o deelers
in Government . e c u r i t i e s u n c e r
sna (Gc) market conditions airrecting Govsrmiient ~scurities
in the several cistricts,.
bis tribution
Ox Tressury
Orc ers.
I n hancaling a l l t r a n s a c t i o n s c o v e r i n g o u r c h a s e s s n d
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Federal Reserve Bank of St. Louis
sales o f Government securities r o r account o: the Treasury
Devertment,
i t ha. been t h e c u s t o o f the Coiuwittee t o
transmit b y wire s u c h orders t o the other reserve banks
rejuesting t h e m t o sdvise t h e Couwnlttee o f market conditions existing i n their districts s o that t h e Coumuittee
may b e fully invormed a n d i n a position t o cistribut t h e
orders t o the best saventege.
I
n authorizing purchases
the Conumittee f o l l o w s t h e p l a n o f h a v i n g a r c e r s c o u p l e t e d
in one district c
tracts.
a
s i g i n g purchases i n other cis-
T h e resson f o r thie i s obvious.
T h e Govsrniient
security market i s today a very senbltive ons; cealers
heave bramches 2 n d ofvices i m meny o f the Feceral Reserve
cities o f t h e country s o that a n orcer t o purchase
given s e c u r i t y
i n one F e eral reserve c i t y pro.ptly a i -
iects t h e merkst i n othsr centers.
Exeept when the Treasury specirically recuests that
purcheses b e wace i n a certain market i t i s the practice
of t h e Conmittee, u n l e s s u n u s u a l c o n d i t i o n s p r e v a i l
i n the
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Federal Reserve Bank of St. Louis
250C
New Y o r k m a r k e t w h i c h m a k e i t iImcerative t o make i n m e d i a t e
purchases there,
t o give. other Federal reserve banks t h e
iirst o p p o r t u n i t y
o f p u r c h a s i n g t h e s e c u r i t i e s desired.
Frequently, however, t h e other Federal reserve banks a r e
unable t o execute orders f o r large ai.ounts a
obligations.
ia
Treasury
U p t o the present t i m e t h e Kensas C i t y a n d
Dellas banks have n o t participsted i n these transactions
at all.
Upon c o m p l e t i o n o f a n y v e n d i n g o r é e r s n o t i c e
i s sent
to all reserve banks.
The u l t i n a
t e purchases r e s u l t i n g f r o m t h e c i s t r i b u -
tion o f The Treasury orders since t h e Comrittse b e g a n
operations a
r e a s follows:
Boston
New York
y
p 30,249,500.
6 5 , 9 0 0 , 2 5 0 .
Philacelphia
1 7 , 7 3 3 , 0 0 0 .
Cleveland
,
3
Richmond
5
0
0
,
0
0
0
1 9 9 , 3 0 0 .
Atlanta
2
,
5
0
2
,
2
0
0
.
Chicago
4 1 , 4 7 4 , 0 0 0 .
6,183,700.
1,200,000,
San Francisco _
12,940,600.
TOTAL $199,712,556.
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Federal Reserve Bank of St. Louis
gs a n d
PodReserve
pen r e s e r v e b e n k s d e s i r e
the p r a c t i c e f o r s u c h b a n k s
t o purchase
or
t o notify t h e Coumittee o f
in
contemplated transactions a n d o f thegenerel conditions
thoir cGistrict.
I f such trensactions a r e n o t likely t o
or
interfere w i t h Tressury orcers o r pending opsrations
benks.
the Treasury, t h e Coniittee promptly s o advises t h e
sales
The exhibits hereto attsched s h o w purchases a n d
for t w o Giftierent reserve banks curing this period.
I n
o f SseDthis connection i t i s interesting t o note thet e s
thse
tember 20, 1922, there w a s a n setual cecrease i n
sount
o f Goverment securities h e l d i n the investment
accounts o i the réservo banks o f azsproximately 168,000,000,
¢ron. the high point o f June 14, 1922.
puring
2eriod
l
e
w aporoximately
held b y
@130,000,000 o i Tressury eertiticates a n d notes
the Fecaral reserve banks sctually natured.
I
t i s there-
suggestion,
fore evident t h a t t h e wederal Reserve Board's
that s l l banks a l l o w t h e i r investisents
t o r u n orf without
replacement, h a s b e e n generally followed.
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Federal Reserve Bank of St. Louis
252
statements rexlecting t h e rssult o f the Comnuittee!s
activitiscs a r e e p r e n a e a
3 s follows.
Exhibit "a" ~ Governient security Holdings o f Federserve Benks e s Reported t o t h e
Coumittee o f Governors e t the Close o f
Business secte.ber 20, 1922.
Exhibit "B“ T o t a l United states secubiti
x
e lu-
sive o f Pittuen A c t Certificates, H e l d
by Feceral Reserve Banks.
Hiedel ab Aeat te C o m a a r i s o n of.the Government security
Holdings b y maturities o f all Federal
Reserve Banks Coibi
a e
O f wey 17,5
June 3 0 a n d S e p t e m b e r 2 0 , 1 9 2 2 , S h o w -
ing t h e Net Changes Between t h e last
Two Dates.
As the guestion o f investient holacings o f Governiient
securities i s closely allied t o thst o i sarnin
penses
o i t h s F e c e r a l r e s e r v e banks,
t h e Co.mittse h a s o b -
deral r e s e r v e b a n k 6
statenent
o t esti-
watbed sarnings e n d expenses i o r the year 1922, s s o f wen-
tember 15, 1922, which i s shown herewith (xhibit “pD").
Respectiully submitted
EXHIBIT A
253
GOVERNMENT SECURITY HOLDINGS OF FEDERAL RESERVE BANKS AS RECORDED
TQTHE COMMITTEE OF GOVERNORS AT THE CLOSE OF BUSINESS SEPTEMBER 20, 1922, INCLUDING PITTMAN ACT CERTIFICATES
Boston
Oct. 16, 1922 Ctfa.
$ 15,000
~
- $
792,000 $10,330,500
March 15, 1923 ®
3,525,000
eune 15, i825
3,850,000 1 0 , 9 0 0 , 000
- *
Sept. 15, 1 9 3 "
Victorys (called)
n (uncalled)
Treasury Notes
Miscellaneous Bonds
Sales Contracts
HG le a e
Pittman Act Certs.
TT AS
~
121,500 $43, 517, 000 8 , 0 0 0 1 0 , 434,000
Dec. 15, 1922
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Federal Reserve Bank of St. Louis
N e w York Philadeiphia Cleveland R i c h m o n d Atlanta C h i c a g o S t . Louis Minneapolis Kansas City D a l l a s
1 5 , 006,000
150,000
-O~
5,936, 000
~
§
~
0
5
2
-
, 000, 000
0
5 , 8338, 000
4 , 600, 000
2 , 134, 500
2
~
0
8
, 500 2 9 2 , 0 0 0
O
- 5 , 9 7 1 , 800
1
5
0
- 0 - ~
~
O
-
0
$
- $
- $
1,022,500 $ 547,000
30,000 25,500,500 1,591,500
0
-
F a i a 2 , 0 0 0 , 000 1 0 0 , 0 0 0 1,736, 500 2 0 0 , 000
~
~
~
Q
~
-
~
0
-
~ Q -
~
O
~
~
9 , B22, 500
Q
50,000
~
0
-
21,943,450 1 1 5 , 5 8 5 , 3 5 0 2 9 , 2 1 7 , 8 5 0
~
O
=
-
0
-
$ 2,934, 500
-
2
, 500, 000 5 9 1 , 500 4 4 8 , 0 0 0
~
~
0
5
, 873, 500
0
- $
68,500 $
15,710,000
2 5 0 , 000 2 0 3 , 500 4 7 , 812, 500
3 , 782, 500 2 6 5 , 0 0 0 7,149, 500
3 5 , 818, 000
1 , 0 0 0
3
~
~
0
-
~
O
-
~
-
~
0
~
~
0
~
1
0
0
-
~
- 2 , 7 1 4 , 700
-
0
-
-
0
-
5 6 , 655,500 1 , 2 4 0 , 9 0 0 2,189,590 26,462,800 24,641,500 15,497,600
1 2 , 500, 000 3 , 5 0 9 , 0 0 0 3 , 5 9 0 , 0 0 0 3 , 4 6 0 , 0 0 0 3,999,000 6 , 6 6 7 , 0 0 0 3 , 5 7 1 , 0 0 0 3 , 0 0 0 , ed
O
-
-
2 4 , 7 5 0
-
O
0
-
-
, 850 1 6 1 , 2 5 0 10,065,300
- O - 1 , 7 5 6 , 5 0 0 11,458,100 9,796,600 23,283, 600
-
O
465,500 9 3 8 , 0 0 0 1,366,000 “395,000 2 5 0 , 0 0 0 4,040,000 62,195,000
8 5 7 , 750 1 , 4 6 1 , 100 8 7 3 , 2 0 0 1,199,900 4 5 9 , 5 9 0 4,425,600 7,303,400 3,140,000
2, 320,100 2 1 , 2 1 0 , 600
3,250, 000
-
- O = a
4,837, 000 20,000,000 22,127,600 10,959,000 $
535, 150
0
S a n Francisco T o t a l
~
0
, 211, 000
5 , 9 9 6 , 550
3 0 , 996, 050
~ 17,459,100 121,721,200
4 , 442, 000 2 , 6 2 9 , 5 0 0 10,157, 800 37,175,990
-
O
~
-
0
-
-
O
- 2 6 , 2 4 5 , 400
4 0 , 722,950 3 , 5 8 0 , 5 0 0 49,143,700 3 8 6 , 8 8 1 , 690
3 , 821, 000 1 , 9 0 0 , 0 0 0 2 , 8 3 2 , 0 0 0
5 2 , 000, 000
$25,193,450 $ 1 2 8 , 285, 350 $32, 747, 850 $60, 255, 500 $4,700,900 $6,188, 590 $33,129, 800 $28, 212, 5v0 $18,497,600 $44,543,950 $ 5 , 4 8 0 , 5 0 0 $51,975,700
$438, 881,690
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Federal Reserve Bank of St. Louis
,EXHIBIT B
AeSie t e
T
O
T
2
L UNITED STATES SECURITIES, EXCLUSIVE OF PITTMAN ACT CERPIFICATES
A
5
4
HELD B Y F E D E R A L R E S E R V E B A N K S .
{In Millions of Dollars)
Date
B o s t o n
N
e
w York P h i l a d e l p h i a C l e v e l a n d R i c h m o n d
Atlanta
Chicago
S t . Louis M i n n e a p o l i s K a n s a s C i t y D a l l a s
S a n Francisco
A l l Banks
1922
jon, 4
3
+7, 2 5
18 2 6
25 2 8
Feb, 1
2 9
3 3 0
15 3 0
21 2 9
Mar. 1
2 9
8 3 0
15 2 8
22 2 9
29 2 9
Apr. 5
2 7
12 2 7
19 2 8
26 4 1
May 3
4 2
10 4 4
eos 4 2
24 4 2
31 4 2
Jme 7
5 2
14 5 4
21 3 8
28 4 3
July 5
4 1
12 4 0
19 4 3
26 4 3
Aug. <
3 7
9 3 7
16 3 8
23 4 0
30 4 4
Sept. 6
4 5
13 4 6
20 2 1
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Federal Reserve Bank of St. Louis
HUWIBIT Cc C O M P A R I S O N
O F [ H E GOVFRNVES. SECURITY
(EXCLUDING PITIMAN ACT CFRS2F cars)
HOLDINGS B Y MATURITIES O F ALL RESERVE BANKS
COMBINED A S OF MAY 17, JUNE 30, and
SEPTEMBER 20, 1922 SHOWING THE NET CHANGES
BETWEEN THE LAST TWO DATES
Holdings W h e n Conmittee
Holdings o n
-was Formed May 17, 1922
June 30, 1 9 2 2
Victory 33% Notes $
Victory 47% Notes
1,065,100
9 4 , 3 0 1 , 650
mas
$ 54,497,900
Holdings o n
Septemoer 2Q, 1922
pang =
$ 36,992, 600
Net Change Between
June 3 0 and Sept. 20, 1922
AOE
$ 17,505, 300
Decrease
; 19e2
7
3
, 552, 700
eou
me
pare
1 , 1922
2
8
, 166, 500
20,384, 500
we
20, 984, 0
5
Decrease
September 15, 1922
3
3
, 192, 900
34,908, 500
wQan
94, 908, 500
Decrease
October 1 6 , 1922 4 4 , 4 6 6 , 0 0 0
26, 502, 500
15,710, 000
10, 792, 500
Decrease
December 15, 1922
4
6
, 879, 500
82,161, 500
62, 195,000
19, 966, 500
Decrease
Mar ch 1 5 , 1923
4
6
, 131, 500
48, 635, 500
47, 812, 500
823, 000
29, 896, 500
35, 818, 000
5,921, 500
Increase
3,211, 000
3,211,000
Increase
123, 816,900
121, 721,200
2,095, 700
Decrease
-
es
26,245, 400
26,245, 400
Increase
$455,296, 0
5
$420, 803, 800
$71, 098, 100
Decrease
June
August
June
1
5
1 5 , 1923
-
0
-
Decrease .
nT
September 15, 1923
Treasury Notes
8
0
7
Sales Contracts
~
~
, 542, 600
O
$349,705,07
Other Miscellaneous
Government Bonds
5
3
, 681,010
39, 2u1, 566
37,175,990
2,025, 576
Decrease
$503, 977, 560
$460, 05, 366
$386, 381, 690
$73,123, 676
DECREASE
256
EXHIBIT *D"
STATEVENT O F EARNINGS AND EXPENSES ESTIMATED B Y THE TWELVE FEDERAL RESERVE BANKS
FOR THE YEE 1922
AMOUNTS T O BE MET OUT O F EARNINGS
Boston
N
e
w York P h i l a d e l p h i a C l e v e l a n d
2,900,687.33 6 , 9 2 5 , 0 0 0
Exyenses
Reserves for depreciation 316,705.67
R i c h r o n d
A t l a n t a
C a i c a z o
S t . Louis M i n n e a p o l i s K a n s a s C i t y D a l l a s
2 , 1 1 2 , 900 2 , 5 1 6 , 3 3 8 1 , 6 8 1 , 4 5 5 . 1 5 1 , 2 9 3 , 6 0 0 4 , 3 3 6 , 3 6 3 . 3 5 1 , 8 5 0 , 0 0 0 1 , 1 2 5 , 0 0 0
576, 0OU
-
J
<
4 5 0 , WOU
2 7 3 , 000.08
L u u , sud
$ 2 2 , 267.0u
2 0 0 , 009 2 2 0 , 0 0 0
3 3 6 , 104.97
2 5 6 , 200
8 7 5 , 695.90 2 8 5 , 0 0 0
2
, 122,000
1 , 500, 000
3 0 0 , 000
2 5 0 , 000
2 7 5 . 9 0 0
2 5 0 , 000
S a n Francisco
3
6
, 3U0, 000
0
7COO,
and losses
Dividends
Total t o b e net o u t
of Earnings
492.607.00 1 , 6 4 5 , 5 8 8
5 4 8 , 000
2, 800,000.00 9 , 1 4 6 , 588 2 , 6 6 0 , 9 0 0
6 9 3 , 3 8 8
2 1 5 , 0 0 0
3 , 6 5 9 , 726 2 , 2 9 0 , 960.1¢ 1 , 6 4 9 , 8 0 0 5 , 7 3 4 , 2 3 0 , 3 5 2 , 3 3 5 , 9 0 0 1 , 5 6 0 , 0 0 0
£
, 697,000
4 5 2 , 0 0 0
2 , 000, 909 # 3 3 5 9 , 000
ESTIVATED EARNINGS
From Investments i n
U.S. securities
1,448,333.67 5 , 1 4 3 , 821
From Loans
1,255,676.90 3 , 0 1 5 , 0 6 7
From Acceptances
Miscellaneous
Total Earnings
BALANCE O F EARNINGS
AFTER DIVIDENDS
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Federal Reserve Bank of St. Louis
439,424.02 1 , 2 1 9 , 1 5 5
23,132.90
472,293
3,157, 567.49 9 , 3 5 0 , 3 3 6
357,567.49
708,748
1
, O72, U v 2 , 0 3 7 , Jad
9
5
, 362,46
2 0 5 , 600
1 , 932,106, 21 8 5 6 , 000
2 B , 24%, 050 2 , 0 2 7 , T30 2 , 4 4 0 , 5 9 3 . 4 8 2 , 0 2 5 , 2 0 0 3 , 3 9 5 , 3 4 0 . u 1 1 , 1 3 7 , 000
7 1 0 , 000
2 4 , 9 0 0 0
5 2 2 , B55 5 9 , 3 7 6 . 2 9
+
3
, 536
6 7 , 1 0 0 499,278.47
8 2 , 1 9 7 . al 4 7 , 9 0 2
1 7 8 , 900
2 5 6 , 347. 89 2 0 2 , 000
3 5 9 , GUO 1 , 4 1 5 , 000 1 2 5 , 0 0 0
i , B05, O W 1 , 3 6 9 , QUU
—
J
~
1 1 5 , 0 9
5
, 000
4 9 1 , 0 0 0
, 280, W y
4 , 0 5 0 , 000 4 , 5 3 7 , 3 2 8 2 , 6 7 7 , 5 0 , 0 1 2 , 3 4 5 , 80U 6 , 0 7 4 , 072.53 2 , 3 7 3 , 0 0 0 1 , 9 2 0 , 0 0 0
<
1 , 3 9 0 , 900
2 8 3 , 000
9 7 7 , 62
3 3 6 , 969.39
6 9 6 , Ivy
3 3 9 , 842.23
3 8 , JUO
3 6 2 , QU0
1
, 891, JG"
1 , 680, W G 2 , 1 5 4 , dud
5 5 , 0 9 0 .
5 1 2 , V0S
3 3 5 , 00U 1 5 3 , 0 9 0
2 , 195,000 '
1 9 5 , 000
4.710, 900
3 5 1 , 00U
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Federal Reserve Bank of St. Louis
257
The Chairnuan:
T h e Conmittes, gentlenen,
snoroved t h e minutes,
h e s now
a 8 subiitted, w i t h t h e exception o r
the following chsnges, a n d I will read,
i f you will per-
mit me, f r o m the changed copy o n the second page o f the
minutes t h e t y o u have,
s o t h a t y o u c é n cofipe rs t h e t W i t h
the o n e submitted, together w i t h t h e aaucition t h a t w e pronose t o subiiit g o r y o u r action.
Upon r e v i s w i n g t h e i n v e s t m e n t o p s r e t i o n s
o r the redersl
reserve benks during t h e y e a r 1922, t h e C o m i t t e e belisves
thet there will b e n o cissention o v e r - - thet i s changea
now t o read ‘ G i s s e n t t o " - - - t h e z r o p o s i t i o n t h e t i n »urchas-
ing Government securities t o o auch sttention must n o t b e
given t o t h e c o n s i c e r e t i o n o f e a r n i n g s e n a civicends,
anc s o iorth.
Wor,
T h a t i g the only change i n the first varai n the second w r a g r a p h i t i s made t o read
Ss-follows:
“At t h e p r e s e n t tinie i n d i c s t i o n s p o i n t t o inereas-
ing demend", instead o g “oressure", 9 n c t h e n e x t sentence
in the paregrach i s mace t o read “The Conmit tee i s there-
rore o f the opinion, i n view o f present conaition", i n -
stead of “the chsnged conditions"; a n d at the end of the
sentsnce
i t reads “ b o t h d i r e c t l y a n d indirectly,
w h i c h open
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Federal Reserve Bank of St. Louis
58
narket.opsretions
i n Government s e c u r i t i e s h a v e u r o n t h e
concition s n é t h e c o u r s e o f t h e nonsey merkst,
a n d t h e vol-
une o f crecit,"
Governor o r s s .
d a g there n o t another chance t o
ad “st least vor the mresent" instesd o f “sone tine
to cone"?
The Cheirnan:- Y e s , thet n o w rseacs “ e t least f o r
the pressnt."
T h e s e w e r e n o t cistributed,
except t o
members o i the Conmittee, a n d I will ssk Lr’ Harrison t o
read them.
Fursuent t o call o f the Cheirman, 5
Co.mittes
s s
held
On U c t o b e r 2. 2192s.
?
meetin;, o f the
3 t the r e d r a l neserve S a n k
s t 1 0 ese
&
n ,
o t New York
T h e rollowing w e r e
presert;
messrs, strong, .ce#ougsl, ..orss, Norris a n d vr.
wLliler o r t h e Fredsrel keserve board,
others i n attendance durins t h e course o f the usetwere,
weSSPrs. rancher a n d «ills o f the réderal néserve
Bank o f Cleveland,
Governor
we :
Atlanta,
O F the F e d e r a l K e s e r v e B a n k o f
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Federal Reserve Bank of St. Louis
259
veputy G o v e r n o r C a s e o f t h e r e d e r a l n e s e r v e B a n k o r
New Y o r k w h o a c t e d a t s e c r e t e r y o r t h e weeting.
The C h a i r m a n o r f e r e d r o r t h e econsia:retion o r t h e Cou-
iwittee a sugsested report t o b e submitted a t the coming
Governors' Conference o n October 10, 1922.
T h e report
WOS r e a d s n d o n m o t i o n w a s u n a n i n o u s l y approved.
Consideration was given t o the recounendation o r the
red¢tral a d v i s o r y C o u n c i l
i928,
i n respect
a t i t s iweeting o n septeilber 2 6 ,
t o t h e subject covered
b y Topic #8, s s
follows:
“Should there b e any change i n the earlier recam. endations mace b y t h e Council i n this regard, e n d reference
is made t o reconmendation No. 9
of t h e Proceedings o f the
Vouncil, April 28, 1922,”
ana the Council's renly:
“The Council reiterates its recoiuéendation that the
Federsl Reserve Banks i n their p u cheses o f governient
obligations choulc not be governed b y the necessity o f
covering their fixed charges a n d ¢arning their dividends.
The Council i s strongly o f the view that open market operations, p a r t i c u l a r l y
i n s o far a s they t o u c h investuent
i n
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Federal Reserve Bank of St. Louis
260
government securities, s h o u l a o e cerried o n unutr a unitorm p o l i c y b y t h e s y s t e u s s 3
whole.
s o u n c i l h e s learn-
6d with great satisraction o r the organizstion o f 4 cone
mittee o f Governors having supervision o f transactions
in government securities b y the federsl neserve berkss.
In the Jouncil's opinion, the polivy o r the
Federal Reserve syste.
a s @ whole should b e e t this tine n o t
to i n c r e a s e a n y r u r t h e r i t s i n v e s t u e n t s
i n Governient
securities."
& full discussion o f this recom-snaation rollowed
and i t wa. voted t o report t o the Governors! Conference
that t h e C o n m i t t e e c o n c u r r e d
i n t h e recommendation o f
the Advisory Council.
In continuing t h e d & cussion o f this subject, t h e
Chaiman was requested t o exprécs
t h e Governors’ con-
vergence t h e further visws o f t h e menbers o f the Cou. ittee,
s
which were substantially a s r o l l o :
“Upon reviewing the invesentnt operations o f the
Pederal Recerve Banks during t h e year 1922 t h e Con. ittee
believes t h e t there w i l l b e n o dissent t o the proposition
that i n purchasing Governient securities t o o much atten-
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Federal Reserve Bank of St. Louis
mast n o t b e siven t o the sonsi.erstion o f sarnings é6na
dividends.
p u e s t o t h e fact that liquication. w a s still
in process s n d thst t h e money sarket w a s sasy, w i t h l o w
srentéy n o particular h a r m hss result ea fron
these operstions curing t h e rirst halt o f the year.
buring t h e secona h a l r o f the year t h e citustion h a s chang-
ed sna with thet ciange there has ¢risen 9 nesd for 4 alrferent policy, t h e belief being thst ineresssa attention
must b e p a i a b y t h e s y s t e m t o t h e e a r i n g o f t h e i n v e s t e
ment ocerations o f the Federal Keserve Danks u p o n the
monsy merket.
“at t h e present t i n incvicstions point t o inersssing
uemang r o r l o s n t u n d s w h i c h h a s b e e n n o s t
the New York werket curing recent weeks
is thererore o r the opinion,
i n svidensein
T h e Comittee
i n vlew o f presen
thet t h é investuent policy o f the reacral nKeserve Banks,
at least r o r the present, s h o u l d givs b u t .inor con: icerstion t o the question o r earnings 4 n u constant considera-~
tion t o t h e ¢fvects,
b o t h v i r e c t l y a n a indirectly,
which
open markst opsretions i n Government securities h a v e upon
ths c o n d i t i o n a n d t h e c o u r s e o f t h e w o n s y m a r k e t a n d t h e
volume o t credit. L o o k i n g a t things frou. this stand-
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Federal Reserve Bank of St. Louis
262
point, t h e conmittee, without wishing t o i s y down s n y
invariable course o r action, i s nevertheless unsninously
or the opinion that, w i t h t h e heavy Tressury operations
impending during t h e next eight nonths, t h e r e should b e
a well considered policy o f systematically regulsting t h e
dealings
i n United states securities,
reference
opsrations
w i t h psrticular
t o t h e course o f t h e money uerket a n d t o t h e
o f t h e Treasury 3 s o n e o f t h e most important
factors o f t h e money situation, a n d recoiuencs t o the
Federal Reserve Board the spsroveslor such a policy."
The Chairman,
R i g h t arter that, e n d this i s a coni-
bination o f y o w memorsandui: a n d mine, Governor Norris,
Wlil come t h e following:
"The Conmittee recommends t o the Confsrerce that the
Fedsral Reserve Banks continue
a
t r=gulsb intervels t o
make necescary reports o r carnings a n d investments t o
the Committee, w h i c h the Coiwiit tee will,
i n turn, dis-
tribute t o all federal Keserve Banks.
In view o f t h e roregoing, t h e Coiuulttes further requests t h e C o n r e r e n e -
t o a d d t o the cuties
o i the Comittee
the making o f reco.mendations r r o m time t o tine t o cach
Federal R e s e r v e B a n k 8 s t o thse a d v i s a b i l i t y
o f purchases
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Federal Reserve Bank of St. Louis
26
Or sales o f G o v e r n i e n t s e c u r i t i e s ,
w h i c h recomendations
will i n every case receive serious considerstion b y the
oificers o r directors o f the several béenks,"
iar. Harrison:
A n a t h e n i t concludes.
“it w a s r u r t h e r v o t e d t h s t a
recoiusndation
b e nace
to t h e Governors! Contfz=renece that t h e Conuwittee b e continued until t h e opring Conference, a n d that t h e name o f i.
RK. Fancher,
G u e r n o r o f the red:ral keserve s a n k o f Cleve-
land, b e added t o menbership.”
The Chairman;
N o w , gentlenen,
t h e question i s upon
the r e p o r t a n d r e c o n m e n d a t i o n s w h i c h e r e eiubodied i n these
Minutes o f the meeting o f the committee, which the committee has op: roved a n d submits t o you r o r your final action.
Governor Young:
I f you do not mind, u.©° Chairmen,
I would l i k e t o h a v e t h a t s e c t i o n w h i c h y o u r e a d repeated,
The Chairmen:
" T h e committee reconuends t o the Cone
ference thet t h e Fed.ral Keserve Sanks continue e t regular
intervals t o make necessary reports o f earninzs a n d in-
vestments t o the committee, which the committee will, i n
turn, distribute t o all Hedsral Seserve Bankes.
“In view o f the foregoing, t h e coumittse further requests t h e C o n f e r e n c e
t o a d d t o t h e d u t i e s o f t h e wilimittee
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Federal Reserve Bank of St. Louis
264
the making o f recowuendations t r o m tine t o tinie t o each
zeserve b a n k a : t o t h e a d v i s a b i l i t y a @ p u r c h e s e s
a s a l e s o f Government securities, w h i c h recommendations
will,
i n every cese, receive serious c o n s ideration b y the
officers o r directors o f the seversl banks."
I
Governor Young:
t coss n o t s a y s o i n s o many words,
but does that m e a n that i f the directors o f t h e recerel
Reserve B a n k o f minneapolis decide t o purchase Governnent
securities, t h a t i t should b e referred t o the conmiittee?
The Chairman:
U n d e r t h e proceedure w h i c h w e have
hed heretofore, t h e execution o f orders a r e a l l reported
to t h e conmittee,
a s y o u know, w i t h t h e exception o f
counter transactions w i t h y o u members. i
that under this recomendation,
should suppose
i r i t i s adopted, w h e n
you report t o the © nmit tee the ection o f y o w b a n k reéquesting t h e purchase o f sone securities, t h a t i t may
bring back a recommendation f r a n t h e © mmittes,.
Governor Young’
The Chairman:
B u t i t would b e nothing binding?
N o t h i n g binding .hatever.
v i e have
no power t o control the actions o f the directors o f these
banks, a n d i f the Conferences i s reauy t o conrer t i s tporer
upon t h e c o m m i t t e e 1
would n o t w a n t t o a c t o n i t e I
do
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Federal Reserve Bank of St. Louis
not think they should.
Governor Fancher:
T
o r e f r e s h t h e m i n d s o f t h e Govern-
ors, I would like to have ur’ harm son read the action
teken b y the Conference i n creating this ommittee, t h a t
particular m r t w h i c h touches o n their duties a n d t h e
suthority given t h e m b y t h e last conference.
uP, Harrison:
T h e r e were three o r f o w different
t
votes taken by the Conference that relsted d i r e c t l yo
this same subject.
The first vote w a s that e a c h bank would prepare a n
estimate of earnings snd expensec.
The second that e a c h bank would stay o u t o f t h e merket
whenevor the treasury i s i n the market
for its own account,/either for the purchase o r sale o f
securities,until advice i s given o f the o n pletion o f the Tressury's orders,
i t being uncerstooa t h a t
notice o f t h e execution o f orders w i l l b e given i n the
same nenner 4 s original notice.
Another vote w a s that e a c h Governor should recommend
to h i s a i r e c t o r s t h a t i t b e t h e p o l i c y o f t h e b a n k t o
invest
i n Government s e c u r i t s s only t o t h e e x t e n t t h a t i t
may b e necessary f r o m time t o tine t o meintain sarnings
in amounts s u f f i c i e n t
t o m e e t expenses, i n c l u d i n g d i v i -
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Federal Reserve Bank of St. Louis
necessary reserves.
Governor /ellborn:
H o w w a s that v o t e d on, »r. har-
rison?
ur. Herriscn:
J u s t s s f£ read it, Governor,
Another vote w a s that t h e ,;rinciple should b e adopted
thst nothing should prevent Federal Reserve Sanks f r o n
buying Government securities f r o m o r selling t h e m t o
their o w n member banks, provived there i s n o violation
of t h e principles defined i n t h e p r s v i o u s v o t e s ,
last vote wasthe o n e which provided f o r t h e appointment
o f t h e Governors
o r t h e redseral x e s e r v e S a n k s o f
Boston, N e w York, S°hiladelphia a n d Chicsgo t o sct 3 8 & Coie
mittee f o r t h e purpose a t studying this question a n d working o u t a n orderiy prograi: for handling t h e buying a n d
selling o f G o v e r n m e n t s e c u r i t i e s
b y Federal neserve Banks
through some centralized control.
That w a s t h e only ofricial action taken b y the Conterencs itself looking toward t h e orgenization o f this
Conmittee, a n d conterring upon t h e conmittee f u l l authority t o work out @ prograini tor handling investments i n
Governient securities through “centralized control".
In pursuance t o thst section the Governors,spcecificd
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Federal Reserve Bank of St. Louis
267
in the vote o f the Confsrencs, n e t i n New York a n d t h e
coumittee established i t s o w n orgsnization
m d procedure
in minutes, which were subsequently distributed t o a c h
Federal reserve bank, t o the reacrai heserve Board 6 n d the
Treasury .
The Chsirman:
A t this point I
would like t o ssk a
question a b o u t t h e w o r k o f t h e coumittee.
o f course I
do ndt actually handle these orders myself i n t h e bank.
The whole transactions i n Government securities r o r the
Treasury account, f o r our own sccount a n d tor the committee a r e h a n d l e d b y mr. C a s e , a m d a
isrge department.
j
e
have made a very deternined efrort t o stinulate t h e market
in every other rederal reserve c i t y t o the extent possible.
We are telegraphing every day. n a n e v e r t h re a r e orders
every reserves bank gets t h e inrormeation;
the markst;
e n d I
s m enxious
t o k n o w whether t h e
of the o p e r a t i oi n a
tsh e coumittee,
good,
w e sound o u t
i n the rirst place,
a s t o t h e l o c a l market, w h e t h e r
is
i t h a s b e e n a n ef-~
fective procecure i n preserving t h e local markets; s e c o n d ,
whether t h e operations o f the Miumittee have been conducted i n a way thet i s satisfactory t o the reserve benks, o r
whether t h ere i s any objection t o the methods b y which
the ordirs have b e e n hsndled b y the conmiittee, a n d any-
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Federal Reserve Bank of St. Louis
268
thing o f t h e sort.
out, e n d I
T h i s i s the opportunity t o find that
will talk those things o v e r with wr, C a s e a n d
see what t h e trouble is.
Governor mcbougeal:
w
e INve gone further t h a n thet.
We have used not o n l y t h e telegraph wires, b u t w e have cone
ferred very frequently b y longs Gistanes phons beck e n d
forth, w h i c h , 1
think, h s s b e e n v e r y helpful.
Governor Young: I
woulac say thet i t ils very satis-
factory all the way through, ur* Chairman.
The Chairman: I
suppose there h a s b e e n a large
amount o f sctual dealing, b o t h f o r sccount a
and o n eccoucd
o f orders
t h e Treasury
t a t h e r e s e r v e banks, w h i c h h a s
been diverted t o other markets, more than ordinarily
would have b e e n ths case.
A l l arders t h e t a r e ex:cuted
in N e w Y o r k o r e t h o s e t h a t w e r e n e c e s s a r i l y e x s c u t e d t h e r e
efter the other markets h a d b s e n exhsusted i n one w a y o r
another.
u r . Case's principie hss been, t h e minute
we get a Treasury ordsr o r e n y order froni th: reserve
banks
t o e x s c u t e f o r a n y o f thesespeec lal T u n d s t h e t w e
handle, l i k e foreign banks,
t o sound o u t t h e other reserve
banks a n d t o s e e what t h e condition o r t h e market i s and
what w e c a n d o there.
Y o u m a y b e bothsred w i t h t o o meny
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Federal Reserve Bank of St. Louis
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telegrails o f thet kind, b u t sfter w e have exhausted t i s
possibilities
i n the other merkets, t h e n w e g o t o the
New York market,
Governor i.cDousal:
A s I remember it, ar” Cheiraisn,
this conmittee w a s sppointed largely beceuse o f t h e condi-
tions o f the Tressury it self.
T h e metter wes brought
up because the Treasury believed thet the iederal Reserve
Banks had been sorking a t cross purposes,
n d o n l y with
thenselves, b u t with the Treasury bepertment, s n d that
there s h o u l d b e s o m e e c t i o n t a k e n w h i c h w o u l d p r o t e c t
all; a n d m y understanding i s that the operations @
Comittee h a v e b e e n e n t i r e l y s a t i s f a c t o r y
this
t o t h e treasury
Department,
The Chairi.an:
U h , Ithink so. I
think t h e y s r e
greatly pleased w i t h what h a s b e e n done,
Governor Young;
report,
N o w ,
w e Chairman, l
e n d t h e recommendation contsined
moe that the
i n t h e minutes,
be approved, m y understending being that that includes the
appointment a d ur. Fancher e s a member o f t h e w o mnittee.
The Chairisian:
T h s t w a s done y e s t e r d s y ,
s o that
he could attend t h e neeting t h i s morning.
Governor Young: I
make that as a motion, ur” Chair-
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Federal Reserve Bank of St. Louis
Governor Calkins: i
will eseond t h e motion.
(The m o t i o n h a ving b e e n d u l y seconded,
The Cheirnan:
w a s carried.)
Y o u are s o familiar w i t h t h e report
of the operations o f the caumittee,
e n d with their ninutes,
that i t i s unnecessary t o retresh your minds w i t h that.
Béfore going further w i t h section 1
of t h e program I
em going t o s s k Governor Norris t o report t h e result a f
the Conmittse's meeting w i t h the Comptroller a f t h e Currency
on Yestercay afternoon,
Governor Norris:
u r . Chairman,
w e met t h e Comptrol-
ler sbout heslf past five e n d found h i m i n e very affeble
and ressonable mood,
H e sdmitted that h e h a d his exemina-
tions brought u p t o date, hiscdeficit wiped o u t s n d a surpilus o n hand.
He seid, h e w e v e r , t h e t w i t h o u t s n y c o n t r i b u t i o n
by
the Federal reserve banks h e would b e short about 450,000
eyear o n his present budget.
the present arrangement,
v
e put i t u p t o h i m that
a s w e all knew, w a s a temporary
one which h a d been snterec i n t o i o r the purpose o f taking
care o f 8 n eniergency, W h i c h h a d n o w passed,
m d that i f
the arrangement w a s t o be continued a t el] it should b e
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Federal Reserve Bank of St. Louis
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continued o n 4 perisanent a n d reasonsble a n d defensible
basis, a n d n o t o n the presont b a s i s thet h a d been hastily
entered i n t o t o tseke c a r e o f a n Gutrgency.
We r e p r e s e n t e d f u r t h e r t o h i m that,
i n o u r judgment
both h e and w e might b e subject t o criticism i f t h e fects
were developed, t h s t t h e l a w conteiplated t h e t t h e expenses o f his exsminat ions s h o u l d b
e borne b y sxyvesss.ent o n
the n a t i o n a l banks, t h a t e l l o t t h e s x p e n s e s w e r e n o t
being borne i n that way, a n d that t h e dericit w a s being
taken csre o f b y 2 contribution f r o m t h e reserve banks
of funds which otherwise would g o into the United States
Treasury.
He professed h i s willing néss t o dsiend
t m tprac-
tice, a n d w e intimated t o h i m thet w e w u l d rather h e would
meke t h e defense t h a n we.
H e admitted, practically admit-
ted, t h a t h i s p r e s e n t s c h e d u l e o f charges
n o doubt needed
évision, t h e t perhaps i t i s t o o high, # n d that h e would
be v e r y g l a d t o c o n s i d e r s
r e v i s i o n o f it.
It wes then past six o'clock.
ly t h a t w e w o u l d g s t &
decision
_ressonable hour that aay, I
i t did not seem like-
o n the juestion s t a n y
did not know how the rest
of the Committee felt about it, b u t I personally w a s anxioug
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Federal Reserve Bank of St. Louis
ote
to get away,
s o t h e suggestion w o s made t o h i m thet h e
think i t over overnight e n d get h i s subordinetes, <@rhaps,
to do a littB figuring o n it, that w e would think i t over
again, a f t e r d i s c u s s i o n w i t h o u r associates,
a n d meet h i n
agein sonetine sround n o o n today.
Now, u r e Chairman, t h e counittee h a s n d h a d a n y subsequent m e e t i n g ,
s o I
state t h i s s u b j e c t
t o correction b y
Governor S e a y s n d i n ignorance o f t h e fesling o f the other
two m e m b e r s
o f t h e committee;
b u t i t seens t o m e that a l l
he i s entitled t o esk o r expsct o f u s i s thet w o shall take
care o f this deficit o f sprroxinately ,50,000, w h i c h would
take place without a n y contribution f r o m us, or, i n other
words, t h a t w e relieve h i m o f the necessity o f revising
upward h i s scale o f assessments o n National banks which,
of course,
i s a
thing t h a t h e i s anxious
ur, Wlilie s u g g e s t e d
t o svoid,
t o h i m that, w i t h t h e i n c r e s s e
ir. the recources o r the national benks that v a s going o n
noi, h i s assessments t o r the next y s a r would yield h i n
more t h e n t h e y h a d y i e l u e d t h i s year.
however,
o
& against that,
h e stated that h i s ecale o f cayments t o his exsr-
diners w a s still low; t h a t h e h a d lost twenty t o twentyfive
men this year, w h o have been tsken a w a y f r o m hin b y offers
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of better p a y elsewhere, t h e t h e ought t o nske still further incresses i n saleries, t h e t h e thought t h e rederal reserve banks were interested,
a s h e wac, i n acding t o t h e
strength o f t h e entire banking structure, a n d thst h e was
of t h e decided opinion thet a
reserve b a n k had 4 perfect
right t o contract t o usake peyuent f o r any infori.ation that
wes o f value t o it, that t h i s information w e s undoubtedly
of value t o the reserve banks e n d that h e thought t h e only
guestion w a s w h e t w a s a
f a i r p r i c e t o p a y r o r it.
Now, wr° Cheirnan, t h e r e were, o F course, a
nuiber
of arguments, considerations a n d views thrown o u t i n the
course o f the meeting, b u t I think w h e n w e ucet agsin,
unless t h e members o f t h e Conference here héve a contrary
view a n d want t o make souwe other suggestion t o the c u n i t tee, t h a t w e will take t h e mettsr u p with hin. on the basis
of coming t o a n agreement o n 5 revised scsle thst will
yield h i n spproxiuately t h a t +°@,S00 &
ysar a s segsinst t h e
#i140,000 o d d that h e has been collecting f r o m u s under
the present basis,
Governor i,cLougal:
v p o e s that 5 0 , 0 0 6 ,
i n your opin-
ion, ressonably cover the expenses involved, o r does i t
go beyond that?
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Federal Reserve Bank of St. Louis
eve
Y o u méan t h e exgense
Governor Norris:
t o him?
l
: T h e expense t o hin, yes.
Governor i , c b o u g a L
I
Governor Norris:
t i s grossly i n excess.
not believe t h e expense t o h i m would b e 45,000.
T h e r e i s one suggestion t h a t 1
Governor Calkins:
t h a t is, t h a t while w e might prefer
think might b e made;
to have t h e Comptroller make t h e deiense,
i t will b e ¢n-
cunbent o n u s t o derend t h e expenditure because t h e Conptroller could not defend.it.
t
e ure t h e ones w h o make it;
he i s the one g h o receivesit.
s m very u u c h impressed
The Chétiri.an. I
b y the suc-
cess that this conmittee sesaus t o b e reaching i n these
negotistions and, s o far a s 1
a u cone rnea, i
would b e
willing t o authorize t h e m t o continue t h e negotistions
along the generel lines indicated i n Governor Norris’
report, a n d suthorize t h e c o u i t t e e
Governor Norris. i
t o conclude them,
do n o t want t o convey t h e ilupres-
sion that h e egreed o r intinuatea thathe would agree, o r
expressed a n y assent,
ately ,50,00C. L
t o atotai contribution o f spproxin-
only m e a n t o s a y that that i s t h e ides
of your committee, a n d whether i t will b e saticsisectory t o
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Federal Reserve Bank of St. Louis
275
him o r n o t I
B u t L I stated t o t h e o t h e r
d o not k n o w .
a s w e walked u p t h e «treet, t h a t
menbers o f the committee,
I thought w e ought t o oppose a n zt.
o
v
e
r that
% . 5 0900, ,
Governor wellborn,
I
n csse y o u 2eree t o make u p t h e
deficit o f 450,000, how would i t d o t o do that e s 6 tem
porery trade with him, not a permanent one, s o that leter
on # & could arrange i t o n the principle involved, t h a t is,
just the actual cost?
Gov ernor sor ss: I
think that i s a fsir question.
If you will make s n srrangement with him such 5
you pwo-
pose, y o u settle m o orinciple, a n d while y o u may settle
on the basis o f £50,000 this year, there i s n o resson why
he should n o t charge y o u ,250,000 next year.
the fundamental trouble w i t h t h e thing.
T h e t is
I t way b e the
easiest w a y t o settle i t o n a temporary basis a t this
time, b u t t h a t i s n o settlement.
T h e only ssttlenent
I can s e e would b e where h e w o u l d charge y o u t h e additional
cost t o him or to his ofiice o f preparing the report, and
that h e should not charge snother cent.
Governor Norris:
w h e n I put that argument t o hin
his r e p l y w a s t h a t w e w a n t e d t h e m f o r nothing.
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Federal Reserve Bank of St. Louis
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Governor worss:
T h a t w e y b e true, t h s t h e would re-
ply i n that way, b u t thet Goes n o t d a n g e t h e racts a t
ell.
Governor Norris: I
put this argunzent t o hin, wlrich
seened t o n e t o b e a feir one. T h a t t h e basis o n which v e
were paying hin. a t present
w s $ n utterly u n sound basis,
which could not b e derended o n sny rule o f princple trat
his ssvéssuent against t h e banks representsd t h e c a t o f
méKking t h e sxanination s n d was not s t 811 spplicable t o
rurnishing copies o f reports o f those exanilnations t o us,
because t h e c a t o f those examinations
t o ht: wa. just e x -
actly t h e same, whether h e furnished s
copy o f t h e re-
port t o u s o r w h e t h e r h e d i d n o t ;
b u t t h e bssis
o f his
price t o us ror furnishing 4 copy ought t o be,--- that the
only scientific principle o n which t o base i t was-e- the
nufiber o f pages that h e furnished t o us, a n d his reply
to that w e s that h e did n o t ilke t o séll t h e m t o u s b y
weight.
u f course there hsca been n o suggestion a t sell-
ing them by weight. I
do not know shat the basis I have
suggested would work out, w e t h e r = juerter o f 9 cent a
page o r five cents a page, becsuse I
haven't a n y ides o f
the number o f pages furnished, b u t i t secnus t o me that i t
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Federal Reserve Bank of St. Louis
Ltt
ought t o b e o n the basis o f a price p e r page which, a t
the present time, wW1l yield hin spproximately 50,000,
Governor «morss:
H
e has t o make sdcitional ec ples,
we will assume, when he rurnishes these copiss t o the
Federal Reserve Sanks, a n d that i s reelly a l l the cost
the re-.ie t o it,
I f you settle w i t h h i m o n thet basis,
which m e y b e c e s i r a b l e
3 t t h i s tine, s t i l l y o u h a v e n o
o
s
basis r o r 5 pernsnent arrangenent o r t h e whole d i r r i c u l t y . \ _
ees
The Chsirman:
H o w d o you teel about giving the
arrangement t h e o,;cearance o f pernuanency,
o r making i t
adéerinitely f o r s period?
\
Governor #*ancher:
u r e Chairman, I
feel that i t
Ought t o b e s temporary matter.
Governor worss:
Y e s , j u s t a s temporary a s c a n be.
Gosrnor Calkins:
I
i this matter i s cettied o n the
bssis o f t h e deficit i n Bis budget,
been a v croached s t 911;
Governor Norris:
n o principle h a s
i t i s s mere comproniise.
W h i l e cettlenent o n the basis o f
principle i s desirable, I
do not think that w e could make
any settlement o n any prainciple that would b e binding o n
Sny subse juent Comptroller.
I
f w e nsce t h e most scicn-
tific, permanent settlement t h e t y o u could think o f today,
a”
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Federal Reserve Bank of St. Louis
278
snd mr, Cricsinscr w e r e t o g o out a f o r i c e tomorron,
a new Comptroller could upset t h e whole thing w h e n h e
came i n the d a y after.
Governor mores:
Norris,
T h a t i s the difriculty, Governor
I f y o u settle w i t h h i m o n ,50,000 r o r thi: year,
next year another Conptroller might cherge y o u ,250,000.
Governor Norris:
T h s t i s equelly t r u e i r settled
on any basis.
Governor worss:
w e should n o t p a y anything except
actusl cost,
Governor Norris:
B u t sctual cost i s equivalent t o
saying that w e won't pay hin s t a11, because i t w u l d b e
such a trivisl amount i t wulca not mean enything.
Governor imorss. I
believe myselr t h a t i t i s a very
doubtful scheme, our péying hii snything, both from the
Conference point o f view a n d tran o u r point @
if the matter were msace public, I
v
iew, s n d
u o n d b e l i e v e a n y one
or u s would have a n y basie o n which t o stand r o r doing it.
The Chsirman: s u p p o s e 1 go around the table m d get
an expression o f views f r o m t h e members o f the Confere
ence,
Governor Seay:
u r , Choiruan, I would like t o sdd one
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Federal Reserve Bank of St. Louis
279
word to the statement which Governa@ Norris hes made,
which wés s o comprehensive thet there remains little i f
anything t o say. B u t i n enswer toGovernor worss I would
like t o mske t h e caument that w e began t h e interview w i t h
a statement which Governor Norris hae made t o you, t h a t
we thought t h e matter ought t o b e settled upon 4 principle,
and w é endsd t h e conversation w i t h t h e sane remark.
w e
made t h e s t a t e m e n t
3 s
t o h i m t h a t t h e l e w contemplated,
we believed, that the expense o r exaniination should b e re-~fleeted against the National banks, a n d celled his attention t o the fact that a t present the United States Treasury
wes paying t h e deficiency i n his oryice.
We also called his sttention t o the isct that i f i t
was settled u p o n a n y srbitrary basis t h s t a n y subsequent
Comptroller might eome in snd upset it, and therefore we
took the ground thot i t ought t o be settled upon some
principle.
H
e took the ground thst h e did not see that
sny principle w a s involved; t h a t h e had something t o sell
to u s w h i c h w a s o f value,
a n d thst i t was r o r u s t o agree
on a price, w h i c h w e did n o t sdnit.
Governor uc¥ougel?
A s I understand it, the Vomptrol-
ler's arfice i s suprorted from two sources, o n e assessiient
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Federal Reserve Bank of St. Louis
280
wsae against national banks for exauination,
m d the other
ap, repristions t r o m Congre:s f o r the general expenses a n d
conduct o f the office.
I f I em wrong i n thet 1 would
like t o b e corrected.
Governor Norris:
T h e t means t h e dashington office.
Govermor scbougal: I
an not positive, b u t I think
the banks i n Chicago p a y a
s high as 416,000 for examination.
T h e banks i n New York probably p a y 3 . high a s
~30,000 f o r e n examination, a n d i t c m n o t
b e said that t h e
amount assessed against the banks o f this country does not
produce a
rund large enough t o employ etricient examiners
in order t o take care o f their saleriécs.
I
f that i s true,
then the difficulty comes f r o m his n o t securing a n sdeyumte
6p,.ropriation rrom Congress. C o n s e q u e n t l y , anything
thet w e m i g h t p a y f o r t h e s e reports,
o v e r a n d above t h e
actusl cost t o the department f o r preparing them,
f @ pré-
paring thet csrbon copy, w o u l d b e f o r thse purpose o f take
ing c e r e o f t h e e x p e n s e s o f t h e o p e r a t i o n o f w h a t y o u t e r m
the “ashington offices, snd not ror purpose o r ensbling
him t o pay t h e reasonsble salaries t o his examiners,
or
for the purpose o f siding h i m i n waking more erficient
examinations.
f o r m e r l y t h e bank exaniners were paid, I
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Federal Reserve Bank of St. Louis
281
think until compsratively a
short time ago, a t least i n
New York a n d Chicago, t h e entire anount o f the fee that
was charged t o these banks r o r exsmination, a n d y o u will
reaenber when i t was 2 wonderfully productive office i n
thet City o f New York.
The Cheirfian:
B u t that w a s some years ago, Governor
nCvougel.
Governor wevougali:
T h e cost hao been incressed b y
incressing t h e fractional percentage, b a s e d o n the ré-
sources o r the bsnk, a n d there i s ample incoie trom that
Lepartment t o support t h e corps o f examiners, e n d I do
not quite s e e h o w t h e Comptroller c a n contend thet t h e
fees charged for exsmination of the banks are not adequate f o r the purpose.
neybe I
The Chsirman: G e n t l e u e n ,
slong,
a m wrong about that.
w e ought t o b e moving
d e perhaps will have t o get a t this matter egsin,
Governor Norris:
i a m , Chairman, 1
would like t o say
@ word i n closing, with regard t o whet Governor .cvougal
has said, I
have never h a d ocession t o exanine t h e ap-
propriations tor the Comptroller's ofiice, but I have no
Goubt thet the esp,ropristion i s specified, thst i s to
say, s O much f o r t h e salsry o f the Comptroller,
s o niuch
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Federal Reserve Bank of St. Louis
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for t h e veputy Comptroller,
s o much f a esalsriss o f clerks,
stenographers
a n d t h t t h e appropriation
a n d s o forth,
does take care o f the cost o f the aashington Office.
That
is oll that t h e Government undertskes t o pay o r does pay,
end I imagine that those expenses e r e fully m e t o u t o f
the Congressionsl aprropriation;
b u t t h e reason h e i s
short i n t h e expense o f the field force, o r exsmining
torce, according t o his statement, i s that while the fee s
paid i n the large cities where the large banks are fully
cover the expense o f examining them, 2 n d probably more,
the fees charged t o the greet msss o r small banks d o not
cover,
i n many cases, t h e cost o f the exaiination.
h e
samitted that t h e collsctions made i n New York, Cleveland
and Chicago, a n d other large cities, w e r e partly u s e d i n
defraying t h e cost o f examination o f country banks.
Tie Chairman:
once more.
lem.
I
w
t scems
e Will have t o ciscuss this question
t o m e that w e understand
t h prob-
I t has been discussed now ror over @ y-sr.
h a t
instructions d o you wish t o g v e your committee, gentlemen?
Governor Bsiley: I
sn very much impressed w i t h the
trading qualities o f the Chairman o f this Cgqumlttee, a n d
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Federal Reserve Bank of St. Louis
283
I move thet they b e given power t o make a contrect t h e
best they can.
Governor Young: I
The Chéeirman: A
will cecond that.
resolution has been made and seconded
conferring power upon the committee t o conclude orrsngenents
with t h e Comptroller,
Governor morss:
L e t w e a s k h o w l o n g t h i s present
basis would continue.
Governor Bailey: I
think i t should b e tor one year,
I ani convinced o f that,
Governor a.cbougal: I
should like t o g o on record
68 being entirely willing t o pay t h e Comptroller a
fee
which will fully cover t h e expense o f t h e preparation a n d
delivery o f these reports, a n d a s being op,osed t o paying
6 charge which would b e entirely u s e d r o r t h e purpose o f
making u p a deficit i n the operating expenses a f h i s d e partment,
Governor seay;
A r e y o u willing t o assume f o r the
present that the expense o t siurnkhing the report i s about
¢5 8 report?
Goverror wcbougal: I
Governor seay: I
am.
think w e would b e justified i n ecne-
284
Cluding a n orresngenent o n thet basis, without undertaking
to g o into t h e metter o f the aericit i n h i s office,
sonally I
Pere
would like t o see the arrangement c o v e r t h e cur-
rent year,
Governor Norris:
T h e r e i e this t o b e sold about nmek-
ing i t 4 permanent arrangement.
option o n this.
I f w e make a
T h e Comptroller h a s a n
long term contract a n d the
situation chenges i n such a wey a s to make that 6 n insdvisable contract f o r us,either this Comptroller @
quent Comptreller
W
i
l
a n y subse-
l attempt t o hold u s to
thet contract a n d claim that there i s s moral obligation,
at least,
o n our part t o live u p t o it.
The Chairman:
T h e t i s t o ssy, 1 f it is a n edvantage-
ous contract f o r u s a subsequent Comptroller c o u l d cancel
it, m d i f it is 9 Gisadventageous contrast f o r us he can
hold u s t o it.
Governor Norris:
uxactly,
a n d therefore t h e shorter
the term o f the agreement w e make t h e better.
Governer worss: w o u l d n ' t i t have t o be r @ t h e
fiscal year o f t h e Government, s a y t h e first a
or sometlLing @
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Federal Reserve Bank of St. Louis
July, 1923,
that sort?
Governor Norris: I
think w e h e d b e t t e r m a d e i t f o r
285 < 6
the fiscal year, s a y from July 1, 1922 t o July 1, 1923.
Governor worss;
T h e t w o u l d make i t retroactive,
with r e g a r d t o payments t h a t h a v e a l r e a d y b e e n msde,
Governor Calkins: I
would l i k e t o g o o n r e c o r d a s
expressing t h e v i e w t h a t w e a r e j u s t i f i e d
i n paying t h e
cost o f the report t h s t w e receive, b u t that w e c m f i n d
no justification f o r contributing f o r t h e purpose o f mak-
ing u p ® deficit i n the Comptroller's office, n o matter
how that deficit i s created.
Goernor seay:
propose
T h a t i s exactly what 1
t o this c o n g e r e n c e ,
s o t h a t w e might
was about t o
b e i n a posi-
tion t o say t o the Comptroller thet i t is the unénimous
Opinion o f t h e Conference t h a t i t would b e inderensible o n
the part o f the reserve banks t o undertake t o make u p a n y
deficit i n the revenues o f his orfice, b u t t h e y recognize
thet they might justly bear the expense o f turnk hing the
reports, s n d then l e t u s s a y thet t h e expense o f t h e reports
1s 4 3 per report,
The Cheirman:
T h e cammittse h a s n o w b e e n authorized
or vested w i t h power t o conclude a n srrengement w i t h the
Comptroller.
T h e caumittee has zained, i n s general way,
the v i e w s o f t h e Conference,
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Federal Reserve Bank of St. Louis
a n d n o w t h e juestion i s are
you willing t o entrust tint committee with this job.
motion —
b e e n seconded,
Governor Calkins: I
think f o r t h e p u r p o s e o f s u p p o r t -
ing the hands o f the committee, a n d not because a f
m y
distrust o f t h e conmittee, t h a t w e should e d d o m e s u c h
declorstion a s h a s b e e n m a d e b y s e v e r a l
o f thse G o ernors
here, that is, that w e are got justified, s n d can find n o
justification for meeting a deficit o f the Comptroller's
office. I
think that should g o t o the committees a s the
expression o f this conference.
The Ghairman:
b o y o u offer that a s a n écdition.
t o
Governor Bailey's resolution?
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Federal Reserve Bank of St. Louis
Governor Calkins:
Y e s cir.
Goverrpr Balley: I
will accept it.
The Chairman: . Gentlemen, I
would hesitate t o sssent
to t h e proposal thet this arrangement b e made retroactive.
I think that weakens o u r position a s s metter o f principle,
because w e have already p a i d tor the report under a n arrangement u p o n which w e relied a n d upon which t h e Comptroller relied, e n d I think w e are going t o o f a r i n sttempting
to make i t retroactive.
I
f w e made i t f r o m t h e current
Gate down t o July 1 , neat, f o r the belsnce o f t h e fiscal
288
year, I
think w e would b e i n nuch better position, bssed
on the general ground o f fairness.
Governor Seay:
have n o t elluded,.
T h s r e i s one other point
A
t o which w e
t t h e close o f the interview t h e
guestion o f t h e c u s t o d y a n d a c c e s s t o t h e s e r e p o r t s w a s
alluded to, o n d w e stated that t h e banks,
w e believed, w e r e
in agreement with the position o f the Comptroller a s recently taken, a n d set forth, I
think,
i n a conmunication t o
New York, a n d that that w a s t h e prectice i n our bank, b u t
thet i n the operation o f our branches thsre w a s a n equal
responsibility u p o n the executives o f the branches e s upon
the executives o f the home otfics, a n d that i t wes very ime
portant i n our opinion that i n some cases, a t leaste-- n o t
in all cases--- t h e executives o f t h e brenches should have
@s full information i n
a e a l i n g withbsnks i n their
territory s s h a d t h e o f f i c i a l s
a t t h e h e a d ofiice;
b u t
whereas w e might csll the mansger down 3nd lay these revorts befor. hin, o r w e might t a k e these reports t o t h e man-
ager and discuss them i n full, that thet wes a n expensive
procedure, inconvenient,
a n d required a lot o f time, a n d
that therefore i f he would consider extending t h e some liberty
to the manesgers o f branch banks that h e extended t o t h e
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2eg
executives o f the parent bank, tnai i t would b e advantageous,
H e said h e would teke thst matter under considscra-
tion.
Governor Norris.
A n d f
think h e rather Iintiniatd
e
thet h e would n o t object t o thst.
The Cheirman:
L e t us
cost o f the report first.
s c t o n the guestion d i t h e
Y o u have a
motion which suthor-
izes t h e conmittee t o conclude negotiations e n d t o express
clearly t h e view a @ this conference 3 8 t o payment iisdae,
whatever i t 1 s decided t o be, would b e for t h e cost o f prepering a n d delivering t h e reports, a n d not simply t o make
good 2 deficit i n the Comptroller's office, that the arrangement shsll take effect a t ones a n d continue until t h e first
of next July, when i t would b e subject t = revision. I
think I would be inclined t o suggest thst i t might b e until t h e next Conference o f Governors i n the fall o f next
year, because otherwise w e sre a l l u p i n the sir, i f i t
should either continue o r discontinue o n the first o f July-there would besn inconvenient intérval between J u l y i s t
end the meking o f some new srrangenent.
Governor morss.
t h y not make i t subject t o revision
st e a c h G o v e r n o r s C o n f e r e n c e ?
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Federal Reserve Bank of St. Louis
Governor Balley: I
The Cha tlrman:
will secept that.
T h e n the motion would b e to authorize
the conmittee t o concluie s n srrangement w i t h t h e Comptrol-
ler, setting the price, a n d that the arrengement b e subject
to revision a t each Governors! Conference o f the rederal
Keserve Banks,
Governor weDougel: B e f o r e you ect o n thet I would
like t o r e f e r t o s statement t h a t w e s m a d e yesterdsy,
that
this i s a metter i n which t h e Chairmen o f the Boards a r e
@lso interested, 2nd if left i n this way it possibly might
be construed a s neglecting t o consider thelr wishes, i f we
leave it entirely t o the Governors’ Conferences.
i t is
being considered i n both branches o f the Conference a t present.
The Chairman:
T h a t would make i t until the nsxt fall
conference o f the Governors s n d Keservs Agents.
Governor Fancher:
T h a t would b e around t h e first o f
October.
Governor Norris: I
imagine the Comptroller would like
to know that the srrangement, .hatever i t is, i s going t o
continue t o the end o f the fiscal year, s t least.
The Chairman: I
think s o .
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Federal Reserve Bank of St. Louis
291-2
Governor Norris: I
think with regard t o the feeling
of this b o d y a s t o n o t w a n t i n g t o mske u p a
office,
l f that i s suggested
t o hin I
thet h e d i d not a s k u s t o put &
deficit
i n his
think h e w i l l s a y
o n thet basis, b u t would,
‘T=: basis o n which + want t o put i t is the e a e
the information t o you."
a t
of
H e repeated t h a t several tines,
h
t
he h a d something
t o sell t o us ahich
was o f great
velue t o us, a n d thet w e ought t o pay h i m what i t w a s worth
to us.
The Cheirman:
w h a t d o you went t o d o with this reso-
lution, g e n t lenen?
(The resolution having been duly secondea, w a s esrried.)
The Chairman:
T e t disposes o f Topic A-l, u n d e r t h e
heading o f Credit Transactions a n d policies.
T o p i c 2 is
cover:d b y t h e report o f the coiw.ittee, t h i c h has b e e n
adopted, e n d the next i s
3. I n v e s t m e n t s f o r sarnings.
Thet i s suggestsa b y Governcr Calkins.
Governor Calkins:
t a e n o t t h i n k there i s a n y neces-
sity t o discuss i t further.
I
by the report ofthe conmittee.
t i s procably fully covered
w
e suggested i t enticipat-
ing thet i t would b e suggested b y meny other banks f o r dis-
293 -4
cussion,
b u t inasmuch a s i t &
covered
Yommittee o n Centralized operstions I
b y t h e report o f t h e
do not know that there
is a n y f u r t h e r d i s c u s s i o n necessary.
The Chairman:
i
t will b e passed, t h e n ?
Governor Calkins;
The Cheirnien:
I
t may be.
T h e next i s
4, P o l l e y i n relation t o gold imports
and money iiarket,
I simply want t o report t o t h e Conferenee that sone
ti. eago w e got advice o f a largs inpending movement a
gold t o New York fron London end other parts o f the world,
some coming fromHolland, s o n e indirectly f r o m scandanavia
and some from Yreece, a n d there wes s suggestion a t one
time that w e might get some German gold. T h e r e f o r e w e
have underteken, s s a matter o f policy, i n the New York
Bank, t
o endeavor t o continue liquidation o f our own investments, o f course having before u s t h e picture o f the entire investment sccount,
s t o rate which would a t least
offset t h e sfrects o f these further g o l d imports, t h e idea
being that w e had n o power t o srrest a n expension ofbank
logns a n d d e p o s i t s c s u s e d b y g o l d imports, e x c e p t b y off-
setting that g o l d b y liquidation o f our o w n investments,
That i s o n e o f t h e factors t h a t I
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Federal Reserve Bank of St. Louis
think s h o u l d e n t e r i n t o
295
the deliberations o f this Committse i n making reécosmendations sbout t h e investment policy o f the reserve banks, a n d
not only that, b u t i n ord r that w e may avoid t h e constant
recurrence, w e e k after week, o f a n increase i n the gold
holdings,
w e have b e e n gredually a k tributing g o l d and
gold certificates
i n New York, a n d w e have n o t been able t o
keep apace w i t h the additions t o our g o l d reserve, b u t w e
have prewyented a
rsther s p e c t a c u l a r i n c r e a s e
i n the amount
of gold which w e hold i n our reserves, s n d which results
in quite a good niany gold certiricates being i n circulation i n N e w York, I
think t h e n e t r e s u l t o f i t h a s b e m
rather satis factory, because i t has eliminated the feeling
thet there i s any difrerence between o n e a n d another kind
of p a p e r money,
Governor morss:
w o u l d i t be. proper f o r you t o tell
us the reasons w h y this f l o w o f gold cames here a t the present tine?
The Chéirman:
W e l l , there o r e a variety o f reasons.
There have been some special transactions,
9 s you know,
gold, t h e exact nature a n d detail o f which I
of, which have csused some shipments.
a m not awsre
T h e g o l d coming
from Greece w a s furnished b y the Bank o f England, e n d I
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Federal Reserve Bank of St. Louis
in
296
gether t o t i t was 9 part o f t h e operation t o pay interest
on the British debt t o our government.
T h e n a consider-
sable a m o u n t o f gold c a n e i n t h a t w a s d i r e c t l y s h i p p s < f r o m
London i n ord«ér to make these payments, a n d i f you will
watch the Bank o f England statauents, y o u will see thet i t
has been tsken partly f r o m the currencmoteo. reserve, s n d
partiy from the reserve of the Bank of England.
T h e y take
én e q u a l s m o u n t f r o m b o t h r e s e r v e s w h e n t h e s e s h i p m e n t s
are made,
T h e other gold shipsisnts are those which w e get
intermittently rrou couth Africa, w h e n Indis i s n o able
to b u y that g o l d i n competition w i t h the exchange houses
thet are handling i t ror New York, that is, the London and
New York bankers,
B u t there has b e e n quites large move-~
ment alreedy, e n d i t shows every evidence o f continuing.
Governor Fancher:
I s there a n y indication that some
of the gold i s for investment; t h s gold frouHolland, f o r
instsnee?
I
s t h e r e . s o m e i n v e s t m e n t g o l d c o n i n g here?
The Chairiian:
A
B a matter o f fact, t h e gold thst i s
coming rromHolland originally caie r o u Austria, a n d I
strongly suspect,slthough I
do not know, t h a t i t w e s gold
received i n connection w i t h sone temporeryrelief loans
which were probably mace b y the banks o f the Netherlands,
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Federal Reserve Bank of St. Louis
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through butch bankers, 6st a tine then Austris w a s i n s very
aemoralized c o n d i t i o n .
T h e r e wéers t u o con.id. rable
s h i -
uents o f sustrian crowns, w h i c h cause r o u Austerdam. T h o s e ,
by the way, w e r e shipped direct t o us.
h e d they arrived
when y o u leit, u r * H a r r i s o n ?
wP, Harrison:
T h e y h a d not come i n shen I lert N e w
York,
Govermr Fancher:
The Cheirman:
G o l d i n the f o r m o f Austrien crowns?
Yes.
be taken o n this matter, i
T h e r e i s n o sction necéssaryto
merely
e e e
=
report whet was
going o n beceuse i t had a n efrect u p o n o u r investment polLey.
The next topic under Credit Transactions sand Relstions
is Noe 5 .
5. P u r c h a s e o f exchenge.
Thst was mibuitted b y o a n *rs:ciseco.
Governor valkins:
T h e only point i s s s t o what i s
being done b y tome o f the other banks.
banks,
N o n e o f t h e eastern
N e w York, Boston a n d Philscelphia,
s r e interested,
but t h e result o f some fragnentary inguigies w h i c h were made
incdicsted that some o f the banks w e r e buying exchange.
The Cheirian: F o r o i g n exchange?
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Federal Reserve Bank of St. Louis
29 8
Governor Calkins:
N o , dowestic e:change, exchange
New York, b o t h telegraphic a n d mail.
d
o n
e were being inpore-
tuned # 1 1 the tine, a n d i f there h a e b e é n a n y relaxing i n
thet respect, I
would like t o know what i s being done, w i t h
regard t o Clevelend, u.inneapolis, C h i c a g o , s t . L o u i s
m d
Kensas City.
Governor Fancher; S p e a k i n g r o r Cleveland,
buying t r e n s f e r s
w e are not
a t sll, e i t h e r m a i l o r wire:
Governor Calkins.
V o u haves r e c e n t l y d i s c o n t i n u e d ?
Governor tancher:
Yes.
Governor Young: u i n n e s p o l i s ste:péd purchssing mail
trensters i n February, 1921.
Governor Calkins.
Governor Young:
respondents
H o w about télegrephic trénsrers?
T h e banks wirs their N e w York core
t o put f u n d s i n t o u s , b u t 2
d o n d buy them a t
ell.
The Chairman:
T h e r e ité n o jguctation i n exchange?
Governor Young;
Governor Calkins:
N o .
v o y o u give credit r o r wire trans-
fers b e f o r e y o u a r e advised?
Governor Young;
Governor Calkins:
N o , » € d o not.
W
e have 4
eitustion t h a & i s n o t
299
comparable t o thet i n eny othsr bank, o w i n g t o the dirference i n time.
Governor sucvougel:
méil exchange,
s
@ G o not meke s n y purchseses o f
w e handle wire trensfers, b u t n o t f o r
profit,
The Chairman:
I
Governor Celkins:,
s that sufficient, Governor Calkins?
€ 8 .
wire o r mail transfers.
I
s a n Frencisco does n & b u y
t has discontinued i t absolutely,
but will probably relax i t s sevsrity i n t h e n e a r future w i t h
regard t o wire trensfers.
T h e banks i n oan “ranciseo,
7
owing t o the tact that San “rancisco mekes settlement f o r
the entire coast, f i n d i t cifri alt t o meke adjustients,
owing t o the difference i n time between New Y o r a n d san
Francisco,
a n d t h e y therefore d « s i r e u s t o give credit t o d s y
for a trenster
t h t will b e efrective tomorrow.
The Cheirian:
A r e y o u going t o charge t h e m f o r it?
Governor Caiking:
w e certainly w i l l charge t h e m for
it, a n interest r a t e o r 4 recerve penalty rate.
I t doesn't
make a n y diiference w h i c h i t is,
Governor . . e v o u g a:
l T h e n y o u sre buying?
Governor Calkins:
w
e are not.
w e haven't done i t
for t w o years, b u t w e are going t o begin t o d o i t agsin.
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Federal Reserve Bank of St. Louis
390
The Chairman:
T h e n ,
s r e y o u ready t o proceed w i t h
the next tople?
Governor Calkins:
The Chairman:
I a m , u r , Chairman.
Y o u d o n & a e s i r e a n y a c t i o n o n this
topic?
Governor Calkins:
The Chéirman:
N o .
T h e next i t e m under Credit Transac-
tions snd Policy i s Topic B.
B - Interpretation o f "borrower" section 13,
Federal neserve Act, Liniting a.ount
which Federal heservé banks n a y rediscount f o r any ons bank.
That topie i s suggested b y nichiond, f o r «iscussion,
Governor seay:
u r . Chairman, this i s quite a n in-
portant matter, f r o m o u r point o f view, snd, judging f r o m
the allusion b y Vice Governor Platt t o the matter o n the
program, i t is quite a n inportant matter from the Board's
Point o f view,
The Chairian:
v i d Governor Platt p u t that o n the
program?
Governor Sesy: N o , but he #lluded, i n referring to
Our Own program, t o the fsct that there were some important
matters before t h e Conferenee r o r discussion, o n e o f which
302
was this subject, T h e r e f o r e 1 an. quite conridcent that t h e
Board views i t a: a n important matter, e n d w e therefore m a y
have t o deal with i t i n some cdeteil.
I will state that o u r purpose i n bringing t h e mstter
up i s to find the practice o f the other rederal reserve
banks i n this particular, e n d t o get their construct ion,
or t h e c o n s t r u c t i o n o f t h e l r o w n counsel,
a s tothe meaning
of the word “borrower” s s used.
It i s therefore necessery, u r , Chéirmen,
subject arose.
t o s s y how t h e
w e have a little bank inthe Veliey which
sends u s certain cattle paper, t h a t is, cattle paper discounted b y that b a n k f o r s cattle desler, various not es
endorsed b y the cattle dealer.
T h e y send us o n smount,
bearing the endorsement o f the cattle desler, equal t o ten
per c e n t o f t h e i r c e p i t s l s n d surplus.
w
e took the view
thet w e c o u l d not, u n d e r t h e F e d e r a l H e s e r v e A c t asc w e i n e
terpreted it, discount a n account bearing t h e endorsement
of a cattle desler, w h o obts ined t h e funds r r o m 3 member
benk, greater t h e n t e n per cent o t the capital a n d surplus
of t h e m e m b e r bank,
T h e President
o f thst b a n k made 6
visit t o Weshington t o get t h e opinion o r construction o f
the F e d e r a l h e s e r v e B o a r d w i t h r e f e r e n c e
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Federal Reserve Bank of St. Louis
t o the setion o f
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Federal Reserve Bank of St. Louis
302
the Richmond bank, a n d a s a result @
respondsnce,
a
very lengthy cor-
i n which the metter w a s thoroughly g n e into,
Vice Governor Platt wrote a letter t o the R i hunond Bank,
the concluding paragraph o f which i s 35 follows:
"You are sdvised, also, thet i n determining the smunt
of notes, drafts a n d bills bearing t h e signature o r endorsement o f any one borrower w h i c h t h e Fedsral reserve b a n k
may legally rediscount r o r any oné meuber bank, t h e neker
of t h e note should b e consider d a the borro#er unless i t appears that h e i s sccoru.odation maker,
i n which event t h e
endorser who receives the benefit o f the loen should b e cone
sidered t h e borro.er",.
That i s precisely opposite t o the construction which
we have placed u p o n section 5200 o r t h e Ststute a n d section
13 o f the Federal Reserve act.
T h a t , therefore, raises
& veryinportent question, w h i c h wa. n e c ssary t o b e pursued
by correspondence, a n d wwe called t h e attention a f t h e Board
to certsin o f its rulings w h i c h w e thought w e r e contrary,
to this persgraph i n Governor *latt's letter.
T h e metter
is now before the Board, a n d I wes handed b y 6 x Governor
Hamlin a
conclusion h e h a d reachec,
but I
d o not k n o w t h a t
I e m a t liberty t o present t h s t conclusion t o the conference,
303
since i t i s m a r k e a confidentisl. I
there f o r e w i l l h a v e
to present i t upon t h e correspondence: w h i c h h e s taken
place between t h e Board a n d our benk.
iLwould like t o ask whether t h e obher Fea‘ral reserve
banks interpret the word “borrower" according t o the fscts
in the case; t h a t is, whether the endorser may not i n fact
be the borrower f r o m t h e bank, o r whether,
i n point o f
fact, i n businecs paper, t h e maker o f the note i s regsrded
8s the borrower.
T h i s mahter w a s aiscussed somewhat a t
the Boston Group Conference, a n d those nembsrs w h o were
present a t that group conferenc: w e r e requested t o obtain
the opinions o f their counsel a i t h reference t o the inter-
- pretation o f the word “borrower" under Section 1 3 o f the
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Federal Reserve Bank of St. Louis
act, I
do not know whether I have made i t entirely clear
in this b r i e f p r e s e n t a t i o n ,
8s possible, because I
but I
wanted t o m a k e i t s = brier
feel that i t will b e necessary t o
take i t u p later i n detail, unless there i s so..e unanimity
of opinion among t h e Federal reserve banks w i t h respect t o
the proper interpretetion o f the word,
The Chairman: G o v e r n o r seay, i s it not really 4
question o f the legal interpretation o f the statute?
Governor seay: I
think 1 + is.
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Federal Reserve Bank of St. Louis
304
The Chairman: I
would n o t want t o express a n y opine
ion o n it without asking m y counsel t o advise me,
Governor Seay: w
hile i t is, I assume w e can all per}
haps state the practice o f our banks i n dealing with matters
of this charscter, s n d I presuse t h e practice o f the banks
in dealing with t h e m i s based u p o n either their o w n construction, t h e c o n s t r u c t i o n o f t h e i r e x e c u t i v e o f f i c e r s ,
o r th
opinion of their counsel. Therefore, i f we find out what
the prectice o f the banks 1 s i n dealing w i t h the matter
will w e not get a good idea o f whet the interpretetion ofthe
matter f e i n the respective banks.
w h a t L would like par-
ticularly t o know i s what the other banks are doing i n this
matter,
The Chsirman:
u u r counsel i n New York coneurs with
the Bosrd's position i n the mstter, a n d 4 think the interpretation o f t h e l a w b y t h e c o u n s e l r o r t h e B o a r d i s correct.
Governor seay:
H e v e y o u been rollowing t h a t proctice?
The Chairman: I
do not t h i n k t h s question has b e m
before u s i n New York,
Governor i.cbougsl: I
can sey that i n the case cited
by Governor seay, that our bank would be governed b y the
usker a n d not b y the endorser,
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Federal Reserve Bank of St. Louis
The Che irman;
T h a t i s o u r prsctice.
Governor Ȏllborn: I
was a wenber o f the Boston Con~
ferencs, b u t I did mot express a n opinion, I
the o p i n i o n @
o u r counsel.
upon t h e f e c t t h a t I
H
have here
e says, “ s y o p i n i o n i s based
d o n o t r e g a r d t h e p a y e e w h o «ais counts
the same with t h e member benk e s being,
i n law, 3 s borrower
from said bank." T h a t h e i s not legslly regarded a s the
borrower,
i n which event t h e paper i n guestion would not
be vittin t h e terms o f the restriction, e v e n though tit ogegregate o f t h p a p e r bearing h i s endorsement a n d otfered t o
you ror rediscount upon the end rsement o f the member bank,
night b e ten per cent o f the uniupaired capitsl snd surplus
of the bank, I
rower, I
regard t h e maker o f the note s s the bor-
would like t o have this opinion g o into the
record.
(The opinion referred t o i s a s follows: )
“You have asked i y opinion concerning t h e following
juestion, namely: w h e t h e r o r n o t t h e restrietion enbodaled
in section 1 3 o f the Fedsrs] Reserve Act, t o the sfrect t h a t
the various Federal Reserve Banks a r e prohibited f r o m diiscounting notes, drafts, bills, ete., where t h e aggregate
of such notes, drafts a n d bills bearing t h e signature o r
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Federal Reserve Bank of St. Louis
306
endorsement
o f any o n e
b o r r e w e hether
r , « 4 a person, f i m ,
»
company o r corporation, re-discounted f o r s n y one bonk,
shall a t any one time exceed 10% o r the unimpaired capital
and surplus o f such bank, ste., i s spplicsble t o certsin
notes submitted b y a member benk heaving cirferent iskers
but endorsed b y one person. I
under.tand that ell af the
notes are made b y aifferent parties but t o the order o f
the same person, a n d are all endorsed b y the peyee o n d discounted b y h i m with the member bank submitting t h e same
for re-discount t o the Federal Keserve Bank o f Atlanta.
In m y opinion, t h e s e notes, aescribed a s above, w o u l d
not b e within t h e inhibition o f thet portion @
above referred to.
section 1 5
T h e restrietion embodied i n that sec-
tion forbids, i n terms, the discount b y the Federal Heserve
RBenk o f n o t e s u p o n t h e e n d o r s e m e n t
o f menber b a n k s w h e r e
the sggregate o f such notes, u r a f t s a n d bills, bearing
the s i g n a t u r e
o r endorsement
o f a n y o n e borrower, e t e , ,
may exceed 1 0 % o f the unlipaired eepiteal a n d surplus o f
seid bank,
S E R S
opinion i s based upon the fact that I
do not regard t h e payee w h o aiscounts t h e salie with the
member bank 4 s being, i n law, @ borrower from said bank.
it h e b e not legally regarded a s a berrower, t h e n t h e paper
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Federal Reserve Bank of St. Louis
307
in question .ould n o t b e within t h e terns o f the restriction, e v e n though t h e aggregate o f the psper besring his
endorsement a n d offered t o you f o r rse-ciscount u p o n t h e
enaorsement o f the member bank, aight exceed 1 0 % o r the
unin;aired capital a n d sur;lus o f gaid bank.
The above i s the logical construction o f ths paraekant reirerred to, giving t o the term “borrower” i t s usual
and customary meaning,
T h e fact thet t h e restriction w a s
intended t o apply t o the paper o i borrowers o n l y i s indicated, furthermore,
in question.
b y the legislative h i tory o r the seetion
O r i g i n a l l y t h i s portion o f the A c t read e s
follows:
"The aggregate o f such notes e n d bills beering
the signature o r indorsement o f any one person,
anne
f i r m o r corporation rediscounted f o r s n y
one bank shall a t n o tine excesd t e n per centum o f
the unimpaired capital a n d surplus o f said bank", e t e .
The section 4 s originally enacted has b e e n a..endaed b y
striking t h e phrase “ s n y o n e person” a n d substituting i n
lieu thereof t h e phrase “ a n y ons borrower",
ment, i
n m y opinion, indicates s
T h i s simnend-
lecislstive intent t o
linit t h e restriction only t o paper owned b y the m e m b e r |
308
bank 8 n d madé b y one s h o borrows noney f r o m said bank.
I G o not regard a
sing t i t l e t h e r e t o
man w h o discounts paper w i t h @ bank, pesb y sndorsenent,
a 8 being a
borrower,
In legal efrect h e i s Selling souething t o tne ais counting
bank, although,
of
e S
u n l e s s t h e ¢naorsenent b e w i t h
out recourse, h e becomes liable b y virtue o f his endorsement t o the discounting bank ror the full auount o f the
paper s o discounted.
In @rriving a t the above d
cision I have considered
your letter of June 25th to ar’ “arding, asking for a
construction o f the portion o f the section quoted, w i t h
perticulsr r e f e r e n c e
t o t h e c a s e w h e r e s e p s r a t e a n d distinct
borrowers make notes running cirectly t o 8 nienmber benk,
Which s a i d notes bear t h e same individual encaorsesients,
together with w r Serding's reply of June 28th to you.
i think thet unquestionably t h e decision reached b y «ur.
Harding,
8 s embodied i n his letter o f June S t h i s sound,
and believe, furthermore, t h s t t h e grinciple upon which h e
based his decision, logicslly cevslopec, w o u l d sustain
the c o n c l u s i o n s w h i c h I
have r e a c h e d u p o n t h e p a r t i c u l a r
question presented herein.”
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Federal Reserve Bank of St. Louis
309
Governor seay: I
would like t o say that w e have t h e
opinion o f the former counsel o f the Board, w h i c h sppears
to us t o be exeetly contrary.
A t one time, i n 1918, w e
submitted t h e matter t o mr. Hiliott, t h e n counsel ror. the
Board, e n d h e replied w i t h his opinion, w h i c h &
exaetly
contrary t o that o f the present counsel o f the Board, a n c
thet o f t h e c o u n s e l
o f y o u b&nk.
H
e says:
'™e provision t o which you call sttention i n section
5200, t h e t s u c h paper ‘shell not b e considered 8 s money
borrowed! c a n only b e interpreted t o sean that i t shall not
be considered a s money borrowed within t h e meaning o f that
particular section, e n d c a n have n o reference t o t h e linita‘ tions imposed b y a n entirely separate Act,
I n other words,
we cannot r e a d i n t o S e c t i o n 1 3 a n y p a r t o f s e c t i o n
Section 5 2 0 0 d e a l s e x c l u s i v e l y w i t h t h e l i a b i l i t i e s
00.
o f per-
sons t o nationsl banks, wherees, that pert o f section 1 3
e
l of
u n d rconsideration rerers expressiy t o l i s b i l i t s
member banks t o Federal reserve banks.
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Federal Reserve Bank of St. Louis
must necessarily
T h e two statutes
b e considered independently."
Then h e says further that h e sgrees entirely w i t h
the construction a n d position t a k e n b y the Richmond Bsnk
in t h e matter.
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Federal Reserve Bank of St. Louis
310
u r , Harrison, w h o has b e e n counsel f o r
The Chairman:
the Board i n the past, e n d i s 9s member o f the Eligibility
Vommittee o f the New York Bank, has been all over this, I
think, with the Bosrd's counsel and with our own counsel i n
New York, a n d he i s very clearly o f the opinion thet the
provisions o f section 5200 aprly t o the meker of the note
except i n the case o f accomofation maker.
end not to the endorser, not the payee/ T h e r e is another
very practical consideration involved i n this, a n d that
is that the inter;yretation given b y the Board i s a brosder
one, apparently, t h a n the o n e which your counsel gives,
end onthe whole I
a m i n favor o f broad interpretations o f
the statute.
j a g that decision given y o u b y the
Governor worss:
Board d i s t r i b u t e d
t o t h e reserve banks?
Governor seay:
The Chsiriian:
N o .
T h e B o a r d has n o t promulgated
w h a t i s the objection t o adopting t h e
Board's ruling, which i s certainly tevorable t o the borrowing bank?
Governor beay: I
do not know thet i t i s favorable
to the borrewing bank, o r that i t will work out i n practice
as well a s i t Will t h e other way.
F o r instance, l e t u s
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Federal Reserve Bank of St. Louis
S11
take the case o f a cattle desler;
w e will tske i t that
there i s one buyer o f cattle w h o will b u y f r o m two aifferent cattle aeslers s n d f r o u each cattle desler h e will b u y
to s n amount that does not equsl the ten p r icent @
the
cepitsl a n d surplus o f the member bank, b u t t h e combined
purchsses f r o m t h é two wlll b e i n excsse o f it.
u n e cattle
d sler may offer u w the paper, a n d w e can rediscount i t for
him, b u t i f the other cattle dealer orfers u s the peper
we would not b e able t o touch it; wheress i f they were
separated,
w e might discount f o r one cattle aealer 45,000
worth o f paper and for the other cattle desler 45,000 worth
of paper.
B u t i f you take t h e ¢endorsesr, h e could not
discount t h e second paper s t all; I
teke i n t o a c c o u n t tite maker;
nean t o ssy, i f y o u
b u t i f y o u t a k e i n t o secount
the endorser, t h e endorser being t w o separate a n d d k tinct
persons,
w e c o u l d ¢ & count b o t h p i s c e s
o f payer.
B u t if
the maker i s to be regarded a s the borrower, w e cannot
take it.
I would like t o s s k i f those members o f the group conference w h o were rejuested t o ssk their counsel t o report
on this metter, h a v e secured a report, a n d i f s o that t h e y
be permitted t o give i t t o this meeting, a n d also thst y o u
312
ask what t h e practice o f the other banks i s i n this particuler?
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Federal Reserve Bank of St. Louis
v e take the signer o f the note.
Governor Bailey:
e d o t h e s a m e thing,\
#
Governor Young:
O u r practice h a s always b e e n t o
Governor Norris:
regard t h e party w h o obtained t h e loan o r advance f r o m the
bank a s the borrower, whether h e wa. the endorser o r msker,
end while I
have not t h e written opinion o f o u r counsel,
e
h
t his opinhe told me just before h e left P h i l a d e l p h i a t
Lon was that that w a s t h e correct interpretation o f t h e
word “borrower”,
Governor Seay: T h e a t i s exaetly o w ground and exacte
ly the opinion o f our counsel.,
o r otherwise w e o u l d n o t
understand w h y t h e words were used i n the statute e s they
are used,
T h e r e would b e n o ocession t o use them,
I
Governor Norris:
t seeme t o m e i t i s the o n l y rea-
sonable interpretation you can give to the word “borrower".
Governor Seay:
I t i s ¢ question o f fact a . t o who
is the borrower, s n d there i s n o other reasonable interpretetion t o place o n section 5200 o f t h e statutes i n our
judgment.
Governa worss: I
was 2 member o f the YVroup Contfer-
ence referred to, e n d I havehsre quite =
long opinion f r o u
our counsel o n this qestion, which caie yestsrcay.
H e
begins b y ssying thet i t i s 4a very difriculy question s n d
very eessy t o have 9 aliiferencence o i opinion. I
have r u n
over i t here rsther hastily e n d i judge thst his opinion
is that t h e actual borrower i s t h e one t o b e couslicerec,
whether h e b e t h e enuorses:
Governor ‘tellborn: I
o r the neker.
have sirsady placed t h e opinion
of m y counsel i n the record.
I t i s cated “eptenber 1919
end w e have b e e n ecting o n i t ever since.
Governor seay.
I
t i s a fact, however, t h s t t h e opin-
fon holds thst t h e maker o f the note i s the borrower.
Governor .ellborn:
Yes.
H e esys t h e payee csnnot
be consiaered a s the borrower.
The Chsirman:
T h e r e seeme t o b e a difference o l
opinion emong t h s various members o f the b a r o n this watter.
Governor Seay:
L e t m e quote halr s
dozen lines f r o m
@ ruling o f t h e Board i n respect t o this astter,
9 s pub-
lished i n the Bulletin f o r 1919, Volu.e 5 , page 1157, « h i c h
winds u p b y s-ying, “ I n t h e case acsuned, therefore, t h e
Federal Reserve Bank might lawfully rediscount all of the
bills o f exchengs drewn egpinst ectuslly existing velues and
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
314
an amount o f the straight losns ond commercial o r business
peper aggregating n o t more t h a n t e n per cent o f the cepital
snd surplus o f the méiber bank.
H e d the straight loans
in the case described ebove excseded t h e t e n per cent limit,
the Federal Reserve Bank could not have rediscounted for
thet member bank any o f the paper o f that customer, whether
strsight loans, bills o f exchenge drawn egeinst actus]
existing values, o r coumercial o r business paper,"
This i s dianetrically opposed t o the opinion--The Chairman:
it.
B u t what action d o you want taken o n
d e cannot rendera legal opinion and the legal opin-
ions appear t o be Civided?
Governor Seay:
I
f y o u would g o sround t h e table o n
it i t would satisfy 18,
Governor Biggs: I
have n o opinion from our counsel,
but w e look o n the maker o f the note a s t h e borrower.
Governor Fancher:
w e have n o t referred t h e msetter t o
our attorney but i t has been our practice t o look o n the
maker a . the borrower,
Governor Calkins:
w e have h a d @ long continued dis-
eussion a n d t h e r e w i l l b e n a d e m o r e G i s c u s s i o n s a b o u t t h i s
matter, becsuse i t will srise i n connection w i t h operations
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Federal Reserve Bank of St. Louis
315
of cooperstive m a r k e t a s s o c i s t i o n s ,
b u t 1 t seems t o m e
there i s n o ¢scape, t h e opinions o f counsel t o the contrary,
rron the conclusion that “borrower” mesns borrower, s n d that
the borrower n e y either b e the signer o f the note o r the
endorser o f t h e note, a n d thet i f w e are t o b e held t o a
strict interpretation o f the l a w w e will have t o b e held
to that interpretation o f it. I
think this i s one o f
the things u p o n which w e should have 4
from t h e F e d e r a l H e s e r v e Board.
I
definite ruling
t is a
difficult q u e s -
tion a n d the eounsel o f t h e various banks d o disagree i n
regard t o it.
to i n t e r p e t .
T h e question i s too d i f i c u l t f o r a
laymen
T h e question recently arose i n our dis trict
in tronsactions i n which t h e Northwest wheat Growers Assoe
cig tion was involved. I
think t h e Bosrd should b e request-
ed t o rule upon it.
Governor “eliborn:
T h e r e a r e t w o sentences i n the
opinion o f our counsel which a r e 4 s follows.
“ I d o not
regard 4 man w h o Giscounts peper w i t h a bank, pessing title
tisreto b y sndorsement, s s being a borrower,
I n legal
effect h e i s selling something tothe dis counting bank,
although, o f course, unle:s the endorsement b e without recourse, h e becoues l i a b l @ b
y virtue o f his endorsement t o
316
the d i s c o u n t i n g b a n k t o r t h e f u l l a m o u n t o f t h e p s p e r s o
dis counted."
Governor sceay;:
I s i t not t h e practice o f bsenks uni-
versally t o grant certain lines ofcredit t o their custoners
who oitfer them their own bills, notes and so forth? w o n ' t
they count, and don't the exauiners of the Couptroller's
orfice count t h e line extended t o the encorser a s the limit
to w h i c h t h e t b a n k i s p e r u i t t e d
Governor «cDougal:
Governor Calkins:
t o go?
T h e y d o note
N o , t h i s i s coumercisl paper
actually owned.
Governor morss: I
cdo not see anything t o it except
to follow the suggestion made b y Governor Calkins that
the Board b e requested t o rule upon it.
Governor :6ay: I
would l i k e t o call attention t o
enother ruling o f the Bosrd, t o which our counsel calls
attention, published i n Voluie ¢ , pege 5 2 0 o f the Bulletin,
in w h i c h h e c o n t e n d s t h a t t h e B o a r d s d o p t e d t h e v i e w t h a t
the word "borrower" neans “customer o f t h e member bank",
Governor «wtebougal: T h s e t i s pretty derlnite.
The Chéiri:an:
a s I understand it, Governor, teay,
you a s k that n o action b e taken o n this topic?
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Federal Reserve Bank of St. Louis
317
Governor seay:
T h e opinion h a s b e e n expressed b y
some o f the governors t h a t a s the metter i s o f cuch import~
ence i t would require a n opinion b y the Board t o settle it,
end i t probably will, a n d I presume that after o u r corresponaence i s concluded, t h e Board will publish i t s ruling
in the matter, a n d I think w e will esk them t o do so, becsuse I
divided,
sides.
think t h e opinion o f counsel seems t o b e just ebout
T h e r e 1 s 5 grest deal that c a n b e ssid o n both
w
e feel thet w e are right about t h e matter s n d
other counsel f e e l that t h e y a r e right about t h e matter,
snd the Board will have t o come i m sndceci:s it.
The Chéirman:
asked the Board,
I
n previous sinilar ceses t h e y have
i n effect,
t o make s tentstive ruling f o r
submission t o the reserve banks i n order that t h e y m a y
have t h e ruling a n d t h e opinion o f counsel o f the Roard
looked o v e r b y t h e i r c w n counsel, p s p e r s b e i n g s u b m i t t e d
in support o t their different positions t a k e n b y the banks.
You will recsll w e had thet berore u s i n en inportsnt metter connected with the Collection zystem, a s I recall it.
Governor Seay: I
think that would b e desirable,
rather than t o pass i t o n with simply a discussion.
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Federal Reserve Bank of St. Louis
Governor Calkins;
T h i s i s a very importent matter,
318
6 v e r y v i t e l matter,
a n d w h i l e i t i s v e r y desirable,
perheps w i l l b e necessary,
Bosrd o n it, I
t o have 3
and
formal ruling b y the
think i t would b e very undesirable t o have
snap judgment b y the Bosrd o r anybody élse.
T h e matter
should b e fully reviewed e n d n o determination reached uptil
it has been fully reviewed.
I r v the procedure i s t o ask
the boerd for a tentetive opinion, t o be submitted t o counsel o f the various banks a n d dis cussed o n the basis o f a
tentetive opinion, I can see n o objection t o that.
The Cheirman:
T h e t i s the idea I
Governor Calkins:
thet suggestion I
had i n mind,
B u t unless w e are going t o follow
think t h e matter should b e submitted b y
each benk t o its counsel, a n d discussed a t th: next conference o f Governors, because i t i s submitted t o the Board.
Governor seay: I
will agree t o that.
I r the Board
takes t h e position that 4 t will b e necessary,
i n vlew o f
the f a c t that t h e matter i s s o open t o differences o f
opinion,
i t appears t o m e that bsrore t h e Bosra resches a
final conclusion t o pronulgate t h e ruling,
i t might t e k e
into consi deration t h e opinions o f counsel r o r the several
banks,
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Federal Reserve Bank of St. Louis
The Chairnian:
W i l l y o u submit &
resolution thet will
embody y o u r i c eas?
Goverror seay: I
make 9 motion t h e t the Governors
here present request their o w n counsel t o «rite s n opinion
upon t h i s m e t t e r a n d transmit
The Cheirnan:
i t t o t h e Bosrd.
B u t i n the neentine y o u may have t h e
Board's ruling, s n d had better address 8 re,uest t o the
Board t o hold u p their ruling.
T h e y have elready given
en opinion o n i t e n d that opinicn m s y S e cistributed i n the
next Bulletin.
Governor seay: I
would like t o ztejuest the Board
not t o meke s ruling upon t h i e subject until counsel f o r
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Federal Reserve Bank of St. Louis
the various banks hive h a d opportunity t o exsiine i n t o i t
and submit t h e i r opinions o n the matter,
The Chairman:
Governor ceay:
Y o u offer thst ¢ s a resolution?
Yes.
The Chairman: Gentlen.en, y o u have heerd the resolution, w h i c h i s that t h e Gonicrencerejuest t h e Federal he-
serve Board to make n o ruling defining the word “borrower",
which eppears i n Topie 1-B oi the rogram, until counsellor
the reserve banks have h a d oprertunity t o submit their views
in writing t o the *rederal keserve Board.
pleasure?
w h a t i s your
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Federal Reserve Bank of St. Louis
Governor Young. I
will second thet.
(The notion, having been duly seconaed, w a s cérried.)
The Chairman:
w
e have o n e o r t w o reports t o submit.
The first i s the report o f t h e Chaimuan o f the General
Committee o n Benkers Acceptsnces, which coOtuittee L e coriposed o f officers o f the Federel reserve banks.
port may b e recsived without section.
T h i s re-
I t is siuply 2 re-
port o f the proceedings o f 8 committee o f oificers o f the
reserve banks, which i s 6 subcomittes, really, o f this neeting.
(The report referred t o will b e found a t the end o f
this record, beginning at page }
The Cheirman:
T h e next report i s thet o f the ctand-
ing Committee o n vpen Bill market Conditions a n d Operations, which i s submitted b y Governor “ancher.
wish any ection o n this report,
Governor Hancher:
v o you
G o ernor fancher?
O n l y that i t b e received a n d mace
a pert o f the record.
The Chsirman:
I
t i s moved a n d seconded thet this
report b e msde = cart o f t h e record.
(The motion, b e i n g duly seconded, W a s carried. )
(The report referred t o i s as follows: )
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321
REPORT O F T H E S T A N D I N G COuuwITT2E Y N O P E N B I L L
wARKET C O N D I T I O N S saNp OP: RATIONS
&NCE O F GUVERKNGRSOF T h E r i w s K A L A
T O T H E CUNrER}
oLRVE BANKS,
Since i t s last report t o the confer:nce i n may, 1922,
your o n m i t t e e h a s continued t o receive weekly suimuaries
of reports tiade t o the c m m i t t e e b y most o f the Federal reserve banks, s o m e banks n o t reporting, s n d mothly sumneries
of s u c h r e p o r t s h a v e c o n t i n u e d
t o b e issued b y your cone
mittee t o the goversor o f each Federal reserve bank e n d
to the division o f Anélysis snd kesearch o f the tederal
Reserve Board,
In its lest report t h e coumittese referred t o the d e e
crease i n the volume o f bills ocutstandini t o san esnount
estinsted i n Februsry, 1922, a t 555,000,000 s n d your
conmittee believes t h s t substontially t h i s volume h a s continued t o r e m a i n o u t s t a n d i n g s i n c e t h s t d a t e b u t t h e chare-
acter o f bills composing thet volume h s s c o n t i n e c t o reflect t h e reversion t o bank loans f r o m seceptance creaits
by more users o f credit i n dauestie lines a n d i t i s believed b y your @nrimittse thet t h e volume o f bills n o w out-e
standing conforms more generally w i t h t h e treditionsl
usés o f bénkers ace: ptance eredit t h e n e t a n y tine
since 1915.
c o m e juickening o f trade with south America,
322
substentiel increase o f imports t r o m t h e urient a n d heavier
movements o f suger inports have proviceda t h e principal
pases f o r the incressed proportion o f oversess bills that
has substantielly offset the decressed donectis use of acq
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Federal Reserve Bank of St. Louis
ceptance credit.
The new regulations have been particularly helprul
in this regard snd your coumdittes belie ves are operating
with satis faction t o bsnkers s n d users o f creait elike.
The volume o f dollsr exchenge bills hss decreased with
the i m p r o v e d c o n d i t i o n o f s u u t h a n e r i c a n e x c h a n g e s e n d t h e
resuuption o f larger exports o f couwocities frou. those
countries,
within t h e period covered b y this report, o p e n
market r a t e s f o r b i l l s G e c l i n e d
t o 3 % i n J u n e a n d July,
with exceptionsl cales a t 2-7/B%.-
T h e 2 % rate obtained
quite generally throughout t h e months o f July a n d August
and was pernitted principally b y t h e continusa demend o f
toreign purchasers a n d the relative l o w retes o y short
dated Treawury Certiiicates.
s u r i n g t h e latter halr o f
August, h o w e v e r , r a t e s o f T r e a s u r y c e r t i i i c a t e s a d v a n c e d
to higher levels a n d s o e changes i n the employnent o f
foreign monies w e r e noticed w h i c h resultec i n decressed
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Federal Reserve Bank of St. Louis
325
cemand t r o m foreign investors f u r seceptsnces,
U n d e r these
circumstances t h e bill imerket receivea more bilis t h a n i t
could d i s p o s e
o f sat t h e e s t s b l i s h e d r a t e s n d a n advance
in rates w a s i n d i c s t e d a s n e c e s s a r y
bution o f bills t o investors.
t o preserve a
dibtri-
F e a s r a l rsserve banks,
in
assisting t h e market t o higher levels acquired substantial
increased i n their bill portfolics b u t opserated i n such
a way a s t o avoid making drastic sdvances necessary o t
any o n e time, permitting t h e deslers s n d dis count hours
to c o n t i n u e
t o scconwodate t h e n e w bills coming t o t h e
market a t grodually sdvancing rates without unwieldy incresses i n their o w n portfolios.
encountered
s o u e private buying s s
a t 3¢, m o r e a t 3 - 3 / 8 anda a t 3-1/2,
t h e rate
st the time o r writing this report.
likelihood o f a rather erfrective ceusand, especially a s
short dated Tressury certific ates’ sre now selling a t o r
ebout that level a n d toreign buying i s sgain sssuming niore
substantial volune.
buring t h e entire perlod c o v e r e d b
y this report t h e
bill market i n London has been quted substentially a t 22%
Yor 90-day bills.
T h e committee i s advised that t h e sup-
ply o f bankers bills i n the London market 1 s very limited
end a t a
low ebb, sccompanied b y §3n slmost sntire absence
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Federal Reserve Bank of St. Louis
324
I
of conuereisl bills.
t aoes n o t epprehend that t h e rates
now obtaining i n this country, s a y 1 % above t h e London
discount rate, will materially o r sdversely atisct the use
of A m e r i c a n d o l l s r crecait i n o u r o v e r s e s s t r a d e , p o r t i c u l a r -
ly i n view o f the uncertainties regaraing t h e rates o f
foreign exchenge a t thissesson s n d i n view o f conditions
in Europe.
Your committee, therefore, secoiumends thst t h e policy
of Federal reserve bsnks a t the present t i n e should n o t
be todepress
t h r a t e s establi:heaé i n the A:erican d i scount
mwarket either b y seeking t o incresse their investments
through the bill asrket o r supporting a rate ortiricially
low, b u t o n the other hend thet their policy shoulda b e t o
continue t o astict a n d support the market t o and s t aich
reasonsble l e v e l s o f r a t e s 3 s w i l l causes 5
wider a i s t r i -
bution o f new bills anong banks s n d other investors b u t
not t o allow t h e r a t s
t o esdvance Gisproportionately t o
rates f o r c a t m e r c i s l p a p e r a n d T r e a s u r y certifkates.
C. A s m o r s s
kK. a . K e n z e l
x. R e Fancher,
The Chairmen,
C h a r man.
N o w , gentlenen, w e have one o r two
metters submitted t o u s which @re not o n the prograni,
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Federal Reserve Bank of St. Louis
S25
The Secretary o f the Conference o f Federal Keserve
,
“cents advises m e thet their conrerence h e s referred t o
us ror section a topic which was subudtteda b y the rederal
Reserve Bosra, w h i c h i s
Reimbursement
o f expenses incurred a s
fiscal agents f o r the W a r rinance Corporsetion.
I imegine t h e y consider thet s s a n opersting mobtt sr
that should b e disposed o f b y this boay.
Governor Caikins.
w a y 1
ask snether w e are golng
to have a discussion w i t h wr, Gilbert?
have srranged t o have ur, Gilbert
The Cheiriman: I
meet with us this sfternoon sbout rour o'clock, i f that i s
convenient
t o t h e meeting. I
slso w a n t t o a p o l o g i z e
to
Govermr Caikins f o r skipping h i s topic C , viscount Rate,
although i t will come u p under t h e discussion o f the Boards
program o n ercdit.
Governor Calkins: Y o u ncood not apologize, I t may b e
skipped.
The Cha irmsn:
d o u l d y o u like t o take thet u p now?
Governor Calkins:
The Chsirnisn:
N o ; w e will call i t péssed.
h e s anyone a n y suggestions t o make
with regard t o the topie submitted b y the Bosrd, xeinbursewent o f expenses incurred s s fiscal agents r o r the s a r Finence C o r p o r a t i o n ?
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326
Governor Seay:
D i d not Vice Governor Platt state
thet o n e o f t h e F e d e r a l r e s e r v e b a n k s
some O v e r h e a d s h o u l d b e i n c l u d e d
Governor Bailey:
W
h a s contended
thet
i n t h o s e expenses.
e made a cleim a t Kensas C i t y
and w e nade i t as a t:st clein, a s t o whether w e would b e
entitled t o reinbursenent f o r furnishing help.
T h e y made
4 partial allowance f o r three months s n d cut o u t s i x months.
#@ contend i f w e are entitled t o three months t h e t w e are
entitled t o the full s i x saonthe,
Governor ucvougal: I
would like t o inguire whether
eny members o f the Conference k n o w exsctly whet w e are t o
be reinbursed for,
The Chairmen:
W h e n a topic comes onto t h e progrsm
without previous notice t o u s and w e have n o opportunity
to investigate i t i n detail, I
e n frank t o s a y that w e
cannot give e n snswer s s t o exactly whet t h e reiibursement basis is,
Governor Cslkins;
T h e original p o d tion taken b y the
birector o f the . a r rinance Corporation,
a s I recall it,
was that t h e y woulc reinburse u s for sctusl out o f pocket
expense 4 n d nothing more.
varied thst i n same cesses I
& s t o how niuch they m a y have
do not know, b u t I
an quite
Sure that w a s t h e originsl proposition.
Governor Séay: I
would like t o a s k L f Governor Calk-
ins thinks t h e y c o n custeain t h t positiin,
i f the Federsi
reserve banks h o l d t o the contrary a n d desire t o put i n
charges f o r overhead.
I t has b e e n o u r practice
t o charge
only f o r the actual expense.
Governor ucDougal: v n h a t would you include i n overhead?
Governor seay;
P a r t tine o f orficers w h o have t o
supervise,
Governor mwcebougal:
Governor Séay:
a n d rent?
Y o u might have certain sllowance r o r
orrice e n d rent.
Governor Young:
{ I think I
our ceshier s t minneapolis,
can state po. itively that
w h o s ais afoing that w a r k hss
his entire salary p e i d b y the ifar Finance Corporation. I
an quite s u r e that t h e y a r e psying f o r ths rent e n a space
they. occupy. I
know t h s t t h e y p a y f o r a l t e r a t i o n s
and
repairs o n the old vault, i n connection with burglar alerms,
I know t h e y a r e osying f o r t h e stationery t h e y a r e using
and t h e y a r e p a y i n g t o r e v e r y e m p l o y e t h e t i s w o r k i n g
down
there o n d paying s o n e o f our psople f o r part tine.
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Federal Reserve Bank of St. Louis
W e
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Federal Reserve Bank of St. Louis
328
had some dit viculties about i t last October a n d i t w a s setinvited t h e m t o send 3 man out
tled very quickly. J
there t o check u p the expenses.
wh1ll move, mr’ Chairman, thst each
Governor seay: I
bank which tronsacts business w i t h t h e corporation sdvise
every other Fedsral reserve b a n k o f the basis o n which they
hendle the business f o r the corporation.
Governor Bailey: T h a t includes war Finance and fiscal agency?
N o , j u s t t h e s a r rinence,
Governor seay:
A n d how sbout t h e rederal L a n d
Governor Balley:
Bank?
Governor Seay:
‘ W e have nons o- that, sir.
The Chsirman:
W e pay their coupons forthem but I
don't think w e & nmumeise.
T h e y send bonds u p t o u s t o have
Governor Bailey:
them signed.
T
e h e e d oifice o f the L a n d Bank i s a t
Wichita, e n d the locel bank i s s t sansas City, a n d they
send bonds u p t o u s b y the millions a n d tens o f millions
to b e signed, w i t h inst uctions t o forward t h e m somewhere
else, w i t h nothing t o pay f o r it.
Governor Seay:
W
e trensact a
large volune o f business
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Federal Reserve Bank of St. Louis
329
with t h e W a r Finance Corporation. I
ed 1 3 o r 1 4 men i n the department.
think w e have employ~
i
e have b e e n compelles
to take certain i:en from o u r ofticisl ferce s n d trensfer
them t o that department, a n d they give their tlue exclusively t o it.
T h e y hendle some 15,000 t o 20,000 i t e s
in the department, a n d i t i s quite 4
bank.
big department i n our
w e have bee@m conducting i t a t the present tiine o n
the basis o f charging sach expense s s we are sctuelly subjeetedto, including salaries, b u t w e have ineluded n o over-~
head, n o rent, o r anything o f that character. I
think i f
the banks that sre transacting the business will exchange
infornation with each other w e could arrive a t a conclusion a s t o the basis t o b e charged,
The chairman: G o v e r n o r oeay's motion i s to the sffect that inasmuch 8 s this topic i s not o n the prograii and
we are n o t prepared w i t h full details o f whet s a c h bank
is doing, t h a t e a c h Fedsral Reserve B a n k siall make o u t
a statenent o f i t s practices w i t h regard t o reimburseiuent
of e x p e n s e s i n c u r r e d
o n sccount
o f t h e w a r Finance Corpora-
tion a n d send thet statement t o every other Keserve Bank,
so t m t e a c h Federal Reserve B a n k will b e i n possession o f
full i n f o r m a t i o n a s t o w h a t e a c h o t h e r R e s e r v e B a n k i s
330
Going o n this yuestion o f reimbursenient o f these expenses,
Governor eéllborn: I
Governor Bailey:
will second thet niotion.
T h e same principle w o u l d b e invol-
ved i f they were doing a lot of business for the farm
land banks,
T h e y send a lot of bond. u p there end regis-
ter them,
The Chsirman:
A s I understand it, Governor Balley
would like t o have included i n the motion Siiilar
infornation i n regard t o the taru loan s y stem,
Governor Beiley:
Y e s sir.
(The motion hsving been duly seconded, w e s carried.)
The Chairman:
T h e next t o p i c i s No. 4
o n the supple-
mental list,
Bond investments b y ienber banks.
The discussion o f thic was suggested b y Atlanta,
Richmond s n d thiladelphia a t the Boston Group
Conference,
8nd Governors N o r r i s a n d S e a y w e r e
requested
t o prepare
a memorsndum,
Governor Norris;
A
t 8 recent Group Conferences o f
the Boston, Richmond, Atlanta, a n d Philsdelphis
Banks, there
WaS & discussion o t the recent large increases
i n the in-
vestment holdings o f benks, s n d 8 consideration
o f the
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Federal Reserve Bank of St. Louis
question whether i t might n o t b e sdvisable thet t h e a p zrcact.
ing Governors Conference siould mske some recoisuencation
on t h i s s u b j e c t
perhaps
t o t h e Comptroller
o f t h e Currency,
t o t h e various s t s t e superintendents
snd
o f Banking.
kecent reports o f the Conptroller o i the Currency s h o w large
increases i n the investment holdings o f national bsenks,
and there i s resson t o believe t h e t there has b e e n a
similar increase i n sich holdings B y state benks.
The
increases shown i n the Colptroller's statements are both
in holaings o f govern.ent obligations a n d o f other securities, a n d apply slike t o reserve cities, Fecersl neserve
Benk, o r branch cities, a n d “countrybenks,"”
it may b e presuned that the banks i n the lerger cities
are intelligently misnagea s n d c a n take cere o f theuselves ~
that t h e i r i n v e s t n e n t s a r s m a d e s f t e r p r o p e r e x s m i n s t i o n
snd are i n ressonebly marketable cecurities,
however,
I
f r o n t h e r e p o r t s m a d e b y t h e Governors
t eppeared,
o f the
Richtiond e n d ‘hilsdelphia banks that t h i s i s not generelly
true o f the invéstaents o r the country benks, which have
been made largely i n foreign ana industrisl boncs,ss t o
Which t h e o f r i c e r s s n d d i r e c t o r s c o u l d h a v e h a d v e r y l i t -
tle personal knowledge, a i d evicently relied upon t h e state-
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Federal Reserve Bank of St. Louis
252
ments o f 8
b o n d solesman.
I t was felt t h s t t h e practice
under a n y circuiustences w a s e dangerous o n e - thsi coune
try banks invested i n bonds w h e n there w a s n o t suriicisent
local demand t o absorb their funds - 9 condition usually
prevalling s t a tine when interest rates sere low and bond
prices high.
T h e s e banks a r e i n the habit o f realizing
at least 6 % o n their local investuents, a n c therefore
bought o n l y b o n d s n e t t i n g t h e n 6 % o r more, w h i c h a r e n o t
ordinerily high-grade iarketable bonds.
T h e bonds s o
purchased t h e y h o l d u n t i l t h e l o c a l c s m a n d r o r f u n d s a g o i n
becomes good, which i s ordinarily a t a time o f higher retes
snd lower bond prices.
T h e y a r e therefore confronted
6t thet time with the t w o slternstives o f either celling
their bonds a t o loss, o r borrowing from the rdéderal
Reserve Bank to meet their local aewands.
while t h e pscticve i s objectionable becsuse o f these
general consi. :rations,
i t i s still more obiectionable
because o f the w a y i n which i t i s ordinarily done.
The
directors o f these bsnks ore generolly fermers o r small
merchants, elniost sntirely ignorent o f the principles o f
investment, a n d the buying o f bonds i s simost entirely
within the Giscietion of the president o r csshier.
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Federal Reserve Bank of St. Louis
H e
333
ordinarily buys f r o m some bond salesman, w h o m e y occasion-~
ally b e a mén with o conscience, reslizing t h e responsibility atteched t o his recaimendations, b u t S s , unfortunately,
more often interested i n selling those bonds u p o n which h e
realizes the largest profit o r conuwilssion. w h i l e n o
Governor present w a s prepared t o submit a n y eviaznce t o
substantiate a n y such charge, t h e r e wass general suspicion
that i n many céses purchases o f bonds were made eit her o n
the basis o f a division o f the eouuwission, o r as a matter
of personal friendship o r good fellowship.
T h e feeling
Was s o general that t h i s practice represents a
real ienace
to the interests o f country banks, a n d o f t h e local canmunities w h i c h they serve, t h s t i t wa: voted thet t h e matter
be referred t o t h Conference, e n d that t h e G w e r n o r s o f
the R i c h m o n d d
n
a Philadelphia banks b e requested t o prepare
a4memorandum o n the subject.
Governor Seay alluded t o psarticuler conditions sxist-
ing i n his district which w e had not noted, a n d doubtless
he has prepared his memorsndum,.
Governor Seay:
inquiry,
i t was t o a i d i n foriiation o f ozinion o r aid i n
determining
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Federal Reserve Bank of St. Louis
A s I understood t h e purpose o f the
a s t o whether
i t i s desirable t h a t a n y restric-
234
tion s h o u l d b e p l e c e d u p o n t h e i n v e s t m e n t
b y benking insti-
tutions o f their funds i n promiscuous bonds. I
confess
I s m uneble t o arrive a t a conclusion t h e t a n y <sffective
centrol c a n b e exercised,
snd I
a w very Gublous a s t o the
wisdon o f attempting t o exercise a n y control, slithough i t
is very flagrently abused.
We know thet 8 few years ago the Comptroller d:termined that nationsl banks should not invest anything i n stocks,
put that they might invest i n bonds, a n d n o limit w a s
pisced u p o n t h e inv<-stment i n bonds.
Now, I
csn give some illustrat ions.
bank i n t h e c i t y w h i c h w e s a
T h e r e was one
very h e a v y borrower f r o m u s
with a capitel o f a million doliars e n d 6 surplus o f
4+800,000, a n d i t has .1,044,000 invested i n bonds other
‘thsn United states bonds. A n o t h e r bank in the same place,
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Federal Reserve Bank of St. Louis
with a capital o f ,200,000 a n d 5s surplus o f ,300,000 h a s
3:.746,000 invested i n bonds other t h e n United states bonds.
Governor Young:
Governor seay:
A r e they borrowers from you now?
N o t a t t h e moment,
b u t they hsve been
borrowers, a n d the point i s that these investments a r e
the occasion tor theirhaving t o borrow from us frau tine
to tine very Leavily.
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Federal Reserve Bank of St. Louis
535
Governor Young:
b o they borrow f r o m you i n order t o
buy bonds?
Governor Seay:
N o , b u t having bought bonds s n d hav-
ing such @ large proportion o f their resources i n bonds i t
becomes necessary f o r them t o borrow f r o m u s later,
Governor Young;
Governor Seay:
O r sell their bonds?
O r sé6éll their bonds, o n e o r the other.
with respect t o our entire district, I
wuld s a y t m t b m k s
with a capitsl o f ;98,000,000 end surplus o f ¢66,000,000,
meking ~161,009,000, heve invested i n bonds other than
United states bonds {76,000,000 o r 4 7 per cent o f their
capital a n d surplus.
Governor Fancher:
m é e y I
inguire w h e t h e r t h e t h a s
shown @ very marked increase i n t h e last s i x months o r a
year?
Governor seay: I
These figures that I
he ve n o compsrative figures.
h v e w e r e i.ade u p curing m y ebsence
snd were made o n the strength o f e« telegram that I aispatched from Boston t o Richmond.
Governor HMancher:
T h e s e =pecial banks that y o u h w e
in mind, w e r e those bonds scquired some years a g o o r héve
they b e e n acquirea since they p a i d off their borrowings a t
the Federal Reserve Bank o f Kichimond?
Governor séay;
T h e y have b e e n acquired i n confomi-
ity t o the general praetice o f the banks t o make investments o r this character,
Governor Fancher:
A n d they have been accumulated
Over sone perlod a f t ime?
Governor Seay:
T h e y constently have these investe
ments o n hand,
The Chairman:
m a y I interrupt this discussion just
& moment t o niake a n inquiry?
(The inquiry of the Chair was with reference t o a dinher engagenent o r the Conference with the Board.)
was i t proposed a t the Boston Confsrence that this
meeting should pass some resolution o r take sone action
looking to intervening i n this matter of banks investing
in bonds?
Governor worss:
T h a t w a s n o t proposed
The v o t e w a s t h s t t h e m a t t e r
b e rererred
i n t h e vote.
t o b o t h t h e Govern-
ors' end Cheirnien's Conferences, a n d that Governors Norris
and S e a y b e r e q u e s t e d
Governor Ba fley:
t o p r e p a r e i.euorenda
A r e these borrowings 8 cont Inuous
thing o r just f o r a short time?
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Governor Seay:
I
n the case o f the banks I
have men-
tioned they were borrovers f o r two o r three ysars contin-
uously, s n d have just psid out.
bonds.
T h e y d i d not sell their
T h e y held onto their bonds and just recently paid
off their borrowings i n the Federal nmeserve Bank.
A s I
recall i t both Boston snd Philsdelphia thought the matter
quite important.
Governor usorss:
o n e o r both o f u s brought i f up.
Governor Ssey: I
did not initiate the subject, b u t
8s i t was brought u p I expressed the dpinion that i t was a
metter o f some consequence a s t o whetuer a bank should have
unlimited power t
i n v e s t i n securities, 6
bsnk, particul-
srly, o r banks, w h i c h were accustoned t o borrow s t t i e s
very hesvily f r o m the reserve bsnk, s n a have reached t h e
conclusion that i t 1 s injudicious t o attempt t o place a n y
contrel over them from the Federal reserve bank standpoint,
Governor wellborn:
I think. I
I t 1 s a very importsnt metter,
have found recently that a good many o f our
banks have gotten out o f debt, h a v e h a d surplus money a n d
hseve bought bonds. I
have always discouraged i t but they
would g o ahead s n d buy t h e m becausethey yielded s
revenue.
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They feel thst t h e y c a n alwsys g s t money s o sasily r r o n
the Federal reserve b a n k when they need it.
The Chairman; I
would like t o ask the menbers o f
the Conference i t any of you feel you would b e justiried,
when @ member benk cones t o you t o borrow money, i n locking
omer t h e statement o f that b a n k e n d finding that t h e y o m
some governient bonds o r any other kind o f bonds,
i n saying
to them, well, w e won't let you have this money, but you
will have t o sell your bonds.
Governor Bailey: I
Governor Young;
The Chairman:
strongly.
would not d o thet.
N o r would I .
T h i s i g a matter o n which I feel very
# e have spent a little o e r half a n hour thi s
morning discussing the interpretation o f this word “borrower"
snd thet i s a n outgrowth o f a n attempt i n our bsnking sys-
tem to regulate banking by law,
I n the case of the word
"Borrower" t h e Kichmond bistrict raised the point a s t o
whether t h e endorser o f the paper goes into t h e bank a n d
stieks i t through the iindow, o r «hether the maker does,
and i t i s depenasnt u p o n t h e i n t e r p r e t a t i o n
o f w h o i s the
“porrower"”, a s to whether i t i s the man who puts the poper
under t h e window o r whether i t i s the fellow t h a t cigns t h e
note, a n d w e are going t o cecice whether 6 bank can lend
339
ten per cent o f its capitel a n d surplus i n one c#se o r the
othér a s 6 metter o f law.
Now, I
N o ciscretion enters i n t o it.
think there i s too much régulation o f benking b y
law a n d b y mandste s n d b y the rulings o f Conmptrollers, s t a t e
Superintendents a n d s o on.
They s r e a l w a y s t r y i n
I t mekes f o r weekkneed benkers.
t o f i n d o u t s h e t h e r t h e y sare violate
ing the law snd not thinking s o much a t to wheter i t i s
good businescs o r not. T h e r e l s a constant teiptetion o n
the part o f Governient buresus o r comiissions, Comptrollers
and state superintendents, a n d maybe F e d ral reserve banks,
to think that i t 16 a part o f their Jobs t o tell benkers
how t o run their business.
N o w , possibly I
am expressing
this with a little t o o much force, b u t i t i s bsceuse I
feel i t very strongly.
Now, i f the rederel Neserve Benks get into the attitude o f mind towords their members where they feel celle d
upon t o go to them and tell then thet they should not buy
bonds o r should n o t b u y this o r should d o that, s n d that
they won't l e n d them noney unless t h e y béhave o r d o this
or that o r the other thing, t h e y a r e going t o shortly g e t
into a
pocition w h e r e w e a r e r u n n i n g ¢ v e r y b a n k i n t h e
system, a n d m y persons] view i s that w e v e
g o t t o lesve
those things t o the benks and t o the rsgulating authorities
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already e s t a b l i s h e d
b y law, w h i c h a r e t h e C o m p t r o l l e r
of
the Currency s n d t h e superintendents o f the state banks,
and t h a t o u r w i s e s t e o u r s e w o u l d b e t o k e e p o u r h a n d s off.
There will be resentment, and growing resentuent, snd that
is the reason why I have slweys argued o n the other side
of the proposition, t h a t i t e
e
e
t o control credit
trésnsaetions w i t h these member banks b y
s o m e rule o f
superhuman diseretion rather t h e n b y the cost o f credit
which y o u extend t o them. I
would hate t o see this con-
ference g o to the Comptroller o r the state authorities and
say that t h e benks o f the country s r e buying t o o many
bonds, a n d the Federal reserve banks would like t o have
you stop i t f o r them. |
W e w u l d b e i n a n i c e f i x i f our
menbers thought w e were undertaking t o do that.
I f we
should undertake t o d o that i n the case o f b o n d investments, a n d then undertake t o cdo i t i n the case o f sutomobile paper o r some other k i n d o f peper, t h e rirst thing
you know w e would hyve a nest o f hornets around our heads.
Governor Calkins:
coniprehsnsive,
Y o u r view,
a s expressed,
i s quite
o r a t l e a s t i t i s capable o f i n t e r p r e t a t i o n
that would make i t quite coniprehensive, a n d I
a m wondering
if you are intending t o express the view thet w e should not
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regsrd the condition o f the bank which 1 s borrowing o r
rediscounting w i t h t h e Federal Reserve bank.
The Chairmen,
Y e s , w e should.
Governor Calkins:
H o t c a n w e d o i t i f w e d o not reé-
view t h e investuents o f that b a n k e n d ascsrtain whether
they are sound, liquid and convertible.
W
e have encoun-
tered t h i s fact, t h a k sone o f t h e most serious dif riculties
in the relation between t h e federal reserve banks s n d mem~
ber banks have arisen i n cases o f banks which previously
had n e v e r b o r r o w s d o r r e d i s c o u n t e d a
cent, b u t w h i c h h e d
gotten into a n sbsolutely solid conaition before t h e y came
to t h e Federal reserve b a n k a t all.
The Cheirnsn:
F r o z e n sclid, y o u neany?
Governor Calkins:
The Chairman:
F r o z e n solid, yes.
b o y o u think t h e responsibility i s
placed u p o n u s b y law, t o tell thesebenks h o w they should
run t h e l r business’
Governor Calkins: I
think t h e responsibility i s
placed u p o n u s t o tell t h e m whet w e will d o for them.
The Chairman:
T h a t i s all right; t h e t 1 s 6 differ-
ent matter.
Governor incuougal: I
should l i k e t o express myself
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as h e a r t i l y
i n secord w i t h t h e ~Lews
o f the Chairman e s ex-
pressed o n thie metter, b u b 2 do not think i t wes the intention o f the Chairman t o suggest t h e t w e deprive t h e
Rhichmond bank o r any other bank o f t h e right, w h i c h o f
course i s theirs, t o consider such e x rence cases 8 s that
to which Governor s e a y m m « referred.
O f course w e all d o
that.
The Chairuan:
O h , i n an inaividusl csse where they
come t o borroi money, not a t all.
Governor wcbougal:
4 n d i n turther response t o your
inquiry a s t o #hether a n y Federal reserve b a n k has seen
fit o r would see f i t t o ask a bank t o dispose o r its invoestments, there a r e extreme cases where i t i s thelr duty t o
state t h a t b e f o r e t h e y w o u l d l e n d a n y m o r s m o n e y t h e y w o u l d
heve t o lijuidate s o m e o f those investuents.
T h o s e are
ceses which d o arise,
The Chairiuan:
Y e s ; but those are inaividual cases.
Governor mevougal: Individual céses. I
think as 3
metter o f policy that t h e views expressed b y you a r e the
safe a n d s o u n d o n e s f o r u s t o p r o c e é d upon.
The Chsirman:
w e have had frequent occasion, dmring
the past few years, t o examine state banks and trust come
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panies a,plying r o r iembership, a n d especially w i t h t h e
trust companics
i n our districts there l e s slways b e e n a
tendency t o buy bonds, I
think i t a very m h unwise ten-
dency e n d tar from good banking.
w e have frequently h a d
occesion t o point o u t t o them thst their bond investment
account was too large end that w e did not wasnt t o be alled
upon later on, when they became iwe.bers, t o lend them a
lot of money, i n order that they might invest i t or even
continue t o hold investnents, a n d w e kept o n e inportsant
trust company pending a s a n a ; : ; ; l i e s n tror admission f o r
over t w o years,
T h e n w e made t h e m increass their capital
before w e would take t h e m in.
B u t those a r e individusl
ceéses.
Now, a situation developed, a s s result o f liquidation i n this country, w h e r e reserves eccumulated, excess
reserves a c c u m u l a t e d w h i c h e n a b l e d t h e m e m b e r b a n k s w h i c h
were borrowing f r o m us, a n d nonemei.ber banks which were
borrowing f r o m their correspondents,
w h o were i n turn bor-
rowing f r o m us, t o pay their loans off, a n d they v e r y
generally paid them.
A t one time i n New York w e were only
lending o u r nembsr banks 430,000,000, f r o n a peak o f a
billion f d thirty million.
W h e n they h a d 8 surplus o f
544
money a n d n o loans t o b e paid they went o u t a n d bought
something, particularly Government bonds.
that?
H o w c a n y o u stop
H o c a n you intervene a n d tell every one o f 799
member banks i n our district t h a t t h e y m s t
n d d o thet,
becsuseé some d a y they m a y b e a n applicant r o r loans f r o m
the Federal reserve bank?
Governor Seay: T h e r e i s one point which has not been
touched upon here and which presented itself t o our minds,
and 1 emphesize u y remark b y reiterating whet I stated a t
the beginning, 2
nd thet was that I have come t o the conclu-
Sion thet i t would b e injudicious for teders] Keserve banks
to initiate a n y steps t o place e n t r o l o v e r member benks
in investments, s n d therefore I feelat liberty t o say what
I do without any misund-rstanding. T h e law limited the
emount which member banks may loan t o any one person.
I t
does not limit t h e anount which member banks m e y invest
in any o n e security,
Governor Valiins:
Y o u r interpretation o f t h e Comptrol-
ler's ruling is thet the lew does limit it?
Governor Seay; I
s m under t h e impression that there
is no limit by the Comptroller's office a s to whet amount
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mey b e invested b y a bank i n any particular security.
The Chairman: I
think there is. T h e r e i s 5 state
benking l a w i n New York a n d N e w “ersey s n d Connecticut s n c
New “ersey, a n d 1 thought there w a s i n the Kederal statute,
limiting t h e auount o f any one Lssue o f bonds, e x c e p t muni-
cipal boncs and government bonds,
Governor weLougal: &
strict interpretation o f the
law would require the Comptroller o f the Currency
in cssé a bank had :100,000 capital, t o limit the loan t o
plOO00,
i t would prevent thelr o r r y i n g ,5,000 i n bonds
in saddition t o 6 »10,000 line o f credit. I
do not know
whot t h e tendency o f the present Comptroller is, b u t I
do know that for a long period of years those things were
passéd along without a n y comment o r without eny criticism
except i n very extreme casées. I
do not believe, d u r i n g
my knowledge o f this psrticular metter, t h a t t h e Comptroleler pver ruled tormally thot t h e t w o classes o f loans
should b e combined i n dstermining shether @
n o t they h a d
reached t h e limit.
Governor seay:
P h a t w a c m y o w n point o f v i e w s n d t h e
could
question was whether sny little bank that wanted to/take
the entire i s s w o f county bond:, l e t u s say.
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Governor mefougal:
I f there i s nothing i n the l a w
which discriminates i n favor o f c n e class o f bonds a s
Sgainst another--- I
think t h e l a w itself, strictly inter-
preted, w o u l d make a
distinction, b u t t h e Comptroller,
previous years,
in
a t lesst, h a s n o t p a i d much attention t o
the bond holdings o f a bank.
w
y observation hes been that
st least for the last twenty years, e n d probably long before that, t h e banks, particularly i n the state o f Pennsylvanis, a n d I think there were outstanding cases t o illus-
trate the point, during the greater part o f the year usually
have had a large amount o f loanable funds over and above
the a m o u n t n e c e s s a r y t o t a k e c e r e o f t h e r e q u i r e n e n t s
of
their conmunity, a n d that w a s true a t t h e same time i n New
York and possibly i n New England, a n d they formied se habit
of investing, a n d properly so, I think, their available
funds i n bond: o f various kinds, l o u g before they g o t into
the habit o f buying eovmercial paper.
T h e t custom gradual-
ly extended t o the west, and I presume t o the far west,
until now i t is customary f o r banks i n the Central ivest,
et least, benks that have n o other w e f o r their funds, t o
invest t h e m i n bonds o r commercial paper, s n d I think i t
is right that they should d o it.
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Governor seay:
T o illustiate t h e point I
make, w e
recently received a n inguiry from 5 aember bénk asking i f
we would purchase @]]1 @
a n y part o f a n issue o f 4,300,000
or c o u n t y b o n d s - - -
The Chairman:
k r e “arrison cells m y attention t o the
fact that Section 5200 has b e e n intermsted t o apply, a s t o
limitations, t o any bonds owned b y s netionel bank, with
the exception o f United States bonas a n d bonds serensicespalities, w h i c h have b e e n held not t o b e corporations within
the ay.lication o f section 5200, a n d if the Comptroller's
rulings have permitted violations o f that interpretation,
it i s his mstter, a n d the responsibility i s his and not
ours.
Governor wseay:
T h a t w a s t h e sspect o r t h e case which
presented itself i n the most forcerul way t o us. I
still
maintain t h e conclusion w h i c h 1 have expressed, t h a t i t i s
injudicious for Federal reserve banks t o attempt t o exercise
any control over t h e investment sccounts o f the member benks,
except i n the ordinary
a y i n their ceslings w i t h member
banks which come t o them t o borrow.
I f the bank's invest-
ment accounts e r e entirely t o o hsavy e n d are evidently t h e
oceasion r o r heevy borrowing f r o m t h e recerve banks, I
think
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that i s 9
question o f ciscretion i n the reserve bénks.
rurther t h a n that, according t o m y exemination o f the case,
i wouid n o t like t o go.
The Chsiriian: G e n t l e u e n ,
it strongly,
w y thought is, a n d 4 feel
8 s y o u have heerd m e say, t h a t w e d o r o t want
to heckle a n d harrs:es t h e member banks a n y iore t h e n w e
absolutely have t o i n the conduct o f o u r part o f the business, W h i c h i s t o loan t h e m money.
I
t w e get into t h e
attitude o f mind that w e have g o t t o g o poking into thelr
policies s n d effairs a l l t h e time w e will mske eneniles o f
them and w e will never meke progress i n getting 4 good
ae
spir/into the system. I
Governor seay; I
do not believe i n doing it.
had expressed the same opinion,
only i n a different way. C o n d i t i o n s that surround institutions like yours, ur. Cheirman, a r e quite difterent f r o n
those which surround banks i n other iecersl reserve
districts, a n d I cannot s e e how t h e wetter c a n b e dealt
with other than b y the use o f discretion.
Governor Norris.
T h e discussion sesiisto have brought
out the unaniniows opinion that w e should n d ignore the
investment h:ldings o f member bénks end the yuestion i s
whether w = should treat t h e m i n 8 brosd w a y through snothes
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suthority,
o r ahether w e shall walt unttl t h e quest’on comes
up t o u s and then take upon ourselv’s t n e onus c f seying
to the member b a n k “You nmst sell these bends thst y o u have
bought, without anybody e v e r having celled y o w attention
to the possible r i s k o r denger o r injudiciousness o f your
buying them--- y o u nust sell t h e m before w e will lend y o u
money.
Governor Bsiley:
eligible paper.
B u t y o u wlll lena them money o n
. n a t risk docs t h e bank take w h e n i t
comes t o that, w h e n a bank comes t o y o u with = well secured
plece o f paper, shst difference does * t make i f i t has got
6 lot o f bonds.
m e n I
look a t his peper e n c find his
paper secured snd eligible, 1
wuld n o t ask how iueny bonds
he had,
Governor wcvougal:
cases. I
B u t that woss n o t work i n sll
a m reminaed o f t h e case o f a n institution that
was borrowing v e r y heavily f r o u ww.
Governor Bailey:
U i . L f it ls overboriowing, that
is another question,
Governor mucvougal:
N o .
T h e inroruation received
disclosed n & o n l y t h s t conditions w e r e n o t a s they chould
be, o u t t h e y were such a s t o give rise t o the question a s
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to whether w e were justiried i n extending the anount a f
credit w e had slready extended.
T h e resident o f this b a n k
came i n and said thst h e wanted t o borrow 3s large amount
for the purpose o f permitting h i s customers t o b u y lanbs
for feeding purposes, a n d deomenced thst w e accept thet paper
for rediscount.
h
e had, a m o n g o t h e r p a p e r s
i n h i s assets,
a large smount of -overnment bonds, bonds that were in
emount f a r i n excess o f what h e could ever expect actuslly
to carry periisnently i n his institution, a n d w e recomended
to h i m that before h e should s e e k further oredit that h e
dispose o f these government bonds, a n d that i n eny event,
under the circuustances,
w e would not increase his line,
even i f the peper was prine e n d eligible.
Governor Balley:
T h e a t i s s n extenard proposition.
I had i n mind s man who had bonds, w e will esssume, but did
not o w e y o u a n y t h i n g a n d c a n e i n s i t h t h a t l a n b peper.
Governor webougal:
T h e n take it,
Governor Norris. C e r t e i n l y .
the question ésrises. A
T h a t isn't a
case where
bank i n our district that hac a
seasonak daeiisnd cor money i n the cunmer g o t u p about five
times its basic line and we asked them t o come i n and exe
plein t h e reason w h y t h e y needed s o much more t h é n they
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had ever been i n the habéit o f borrowing before i n that
season, a n d their reply was thet a s 9 general rule they
esntieipated this demand a n d pregsred the.selves f o r it, b u t
thet last year, believing that the bond market was going
up, when they we.e flush they put all their money i n bonds,
that the market w s still going u p and they didn't want to
sell those bonds.
B u t the cashier said t o me,"Iif you say
we should sell those bonds w e will sell them."
The Chairman:
H a d he eligible paper?
Governor Norris:
T h e paper w a s eligible, yes.
The Chairman:
o you think y o u were justiried i n
b
taking the responsibility o f telling him what h e must do?
Governor Norris: T h a t i s just it.- I
to take the responsibility. I
wasn't going
said, “No, h e would have
to decide f o r himself whether h e ought t o sell the honds
or not; b u t I urged him, i n snother year, t o follow his
old practice a n d prepare himself f o r that demand e n d not
tie himselr u p s o that h e would n o t b e able t o meet i t when
it canie.
T h e t m a n h a d never h s d his attention cslled b y
sny a u t h o r i t y
t o the inadvisability
of «
bying up,
in
permenent investments, f u n d s that h e was going t o need
within s
few months, a n d m y thought i n bringing this matter
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up w a s t o avoid t h e necessity f o r o u r having t o sey t o a
bank, “ Y o u mist d o this o r y o u must n o t d o the other",
by
having their attention called b y sou.e other suthority i n
a general w a y t o the general preetice o f controlling that
sort o f thing.
The Cheirman: D o n ' t you think, Governor Norris, thet
it i s g o i n g t o l e a d u s i n t o v e r y d a n g e r o u s e a t e r s ?
aoes not only apply t o bonds.
T h i s
I t spplies t o any business
in a member b a n k t o which w e might r e a s mably raise obiece
tion.
Suppose f o r instance s
man i s running a n illicit l i q u a
manufscturing concern and you discover it? T h s t principle
of interference w i t h direction o f t h e sffairs o f member
banks can be carried t o any limit. I
would like t o re-
fresh the memory o f some o f the people i n this r o o m b y
recalling the fact that many o f the ditficulties that w e
encountered last year grew out o f these very ettempts t o
tell the member banks whet they should o r should not do.
Complaint was nade that a e vere trying t o direct their affairs.
u y theory i s that a s 5 0 t o 75, o r possibly a
lerger, p e r c e n t a g e
o f all t h e credit trensactions t h a t w e
have h a d with o u r member banks, a n d a s t o the grest mess o f
353
member b a n k assets,
s o t a speak, w h a t t h e y borray f r o m us,
has b e e n controlled s n d would b e controlled b y whet w e
charge t h e m f o r what t h e y borrow, o n d 9 s t o the exceptions-and there will b e neny o f tuemeee t h e principsl number o f
them will b e i n those sections where t h e disparity between
the general level o f rates i n the district a n d the discount
rate i s s o grosat that y o u cannot handle t h e m b y any other
method oxcept personel methods;
duce a
b u t t o attenpt t o intro-
policy o f seeking t o control t h e policy o f every mem-
ber bank w h e n 1 £ comes t o borrow b y telling i t what i t must
do or must not d o i s going t o make = most bureaucratic
institution out o f the Federal reserve system;
velop a
i t will dee
lot o f sutocrats a n d the first t h i n g y o u know w e
Will have come retaliation o f some kind, possibly i n the
form of legislation.
Governor seéay:
F o r the record, I
would venture t o ex-
press t h e opinion that t h e invsstiients o f national banks
in securities ought t o b e governed b y law. I
would like
to give two o r three instaness o f extravegent administration.
A bank with 375,000 cepital, with ,398,000 i n promise
cuous investments.
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Federal Reserve Bank of St. Louis
o5 4
A bank with
c a p i t a l w i t h ,324,000 i n promiscu-
ous investments.
A bank with 5 0 , 0 0 0 cepital w i t h 5 5 6 , 0 0 0
i n promi scu-
ous investments.
A bank with 475,000 capital and y221,000 i n promiscuous investments.
A bank with 450,000 capital and »496,000 i n promiscuous investments.
Now, whether i n each individual case those conform t o
the r e q u i r e m e n t s
o f Section 5200 I
d o n o t know.
i
t seems
to me, without intending a n y criticism, t h a t t h e Comptrol-
ler's office i s the place where such control a s would make
the banks conform t o the statute should b e exercised,
The Chsiman:
D a f hope t o hsve the Comptroller notify
the n a t i o n a l b a n k s a n d h a v e t h e e x a m i n e r s n o t i f y t h e n a t i o n a l
- benks that h e i s going t o make a new ruling i n regard t o
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Federal Reserve Bank of St. Louis
these investments, a n d that h e w s doing s o e t the request
of t h e Federal recerve banks?
Y o u know that y o u c a n cite
instences i n support o f a n y srgument. I
can cite t h e case
of the First National Bank i n New York whioh, including
Government securities,
v200,000,000
i s carrying between 180,000,000 a n d
i n investments,
I
t i s 3 pretty successful
555
bank e n d mskes more money than a n y other bank i n the United
states, a n d a t times i t borrows a s much 6 s sny bank i n the
United States,
i f i t i s proritable t o them.
they
I r i t ise un-
profitable and/don'it make s break on ths right side of
their borrowings, they liquidate and pay u s oif pretty
promptly.
W
e have h a d occesion t o say a grest d e a l about
this i n New York i n the last year, having been raked w e r
the coals for nad clubbing m e
did.
o f the banks more thsn we
B u t I would like t o continue the argument along a
little difrerent lines.
Picture t h e position o f the average b a n k tlio o r three
years ago, s a y three years 4 g o r longer, when this was teking place, a n d every two weeks w e ~sked these benks t o
loan the United ststes s a e e e e and tor tio o f those weeks
we asked t h a n t o loan ,750,000,000, a n d under a system b y
which they cane t o u s t o borrow w o n e y when the Government
withdrew t h e deposits.
N o w , t h e y h a d t o borrow t h a t money
or inmediately s e l l t h e i certificates.
L e t u s assume
thet they could sell their certificates
i n one w a y @
enother s n d grsdually wriggle o u t o f them i n time.
about t h e bank thet received a
H o w
c p o s i t f r o m soue private
customer, w h e n t h e government d r e w t h e deposits o u t f r o m
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556
the banks and they had t o purchase the securities, w h y h e
ets the deposit a n d he is going t o w e it.
H e goes out
end lends i t or he may byy securities with it. « h a t
kind o f control c a n the Federal Reserve Benk exercise there,
except i n the last a n é l y s i s , i
n
“ tell the first bank not
to buy government securities--- y o u see, that i s the only
way w e could read them, a n d that i s where w e split with
soue O f the people i n the Treasury Department, b e csuse they
did nad recognize that.
There is one other topic, o f rather ming Importance,
thet has just come in.
T h e sug.estion has been made thst
8 change b e msde i n the form o f weskly report which i s pub-
lished by the Federal Reserve Board and by the separste
Feceral reserve banks, s o ss to separate the non-reserve
cash from the other items that n o w g o into thst psrticular
item, which I believe include a t t h e present time uncolleeteed items a n d some other matters, t h e id.a being thet i f
those t w o are separated t o show non-reskrve c a s h 3 s one
item and uncollected items a s another,
i t will give u e a
better understanding o f the cash position o f the reserve
banks a n d o f t h e amount o f float that i s being carried b y
the Keserve systan.
T h i s seens t o have been referred t o
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Federal Reserve Bank of St. Louis
e of t h e
us b y t h e o t h e r C o n t e r e n e e - a f t e r t h e y h a d s p p r o y d
change.
m r . Chairman, I
Governor Calkins:
would like t o give
notice that I propese t e bring u p ror discussion a tople
not o n the programe-- pensions,
The Cha tone
T h a t will cone u p later. s h a l l w e
not dispose o f this?
« h a t i s your view about it.
Governor Young: I
mske s
motion thst w e approve o f
this suggestion.
(The motion, being: duly seconded, was esrried.)
The Chairman:
T h e Chair will now entertsin a motion
to adjourn.
(whereupon, a t 2:30 o'clock p. m., o n motion duly
seconded, t h e conference adjourned until 2:50 o'clock p.m.
of the same day.)
AFTER nBCESS.
The Conference o f Federal Keserve Governors reconvensd,
pursuant t o the teking o f recess, s t 2:50 o'clock p. m.
The Chsairien,
T h e meeting will cone t o order.
I a m egsked t o announce that t h e hour f o r the joint meeting
358
tomorrow morning i s ten o'cloek,
i n the Board Room.
Governor Calkins, y o u hsve ennounced a
you cesire t o bring up, that o f pensicns.
topic which
T h e topic i s
not o n our prograi.
Governor Calkins:
Fensions.
A s t o whether i t will b e necesssry
to give much tine t o the dis cussion o f this mstter w i l l depend o n whether t h e r e i s a n y i n t e r e s t
i n t h e question. I
Go not know whether there i s o r not.
uy own view is, now that w e are talking s o seriously
about economy and eriiciency, thst w e should adopt all of
the best means t o prouete efficiency s n d @conomy, s n d that
there i s no single ites. thet would be more efrective then
the establishment o f a pension system for the Federal Ree
serve banks. I
tbkrite the inevitable consequences o f a
decline i n the activities i n all the banks, t h e decrease
in the forees o f all the banks, has been a n inevitable demoralization, I
know i t i s true w i t h us, 6 n d I believe
there 1 s nothing that w e could d o that would g o further t o
pronote efriciency s n d economythsn t o offer s o e sssurance
to o u r employes o f the seeuvrity o f their employment, s u c h
as will b e brought about b y 4 proper rension cystem.
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Federal Reserve Bank of St. Louis
Now, I suppose the enswer will be that while that i s
359
all very well, w e cannot h a v e it, a n d I suppose i f i t i s
true that w e cannot have it, that w e might a = well stop
talking about i t o r considering it.
the proposal t o adopt s
B u t I
believe that
pensionsysten c a n b e spported o n
absolutely g o o d business judgment a n d that i t should b e
heerd,
I would like very much, m r * Cheirman,
t o hear whether
enyone else kere h a s a n y interest i n this mstter o r not.
Governor fancher;
u r , Calkins, this pension matter
was discussed rather briefly w i t h wr. Aenzel, who, 3 8 you
know, i s t h e Chairman o f the Pension comml tee. I
guess
the Governors are pretty well edvised e s t o how far that
plen w a s d e v e l o p e d a n d j u s t w h e r e t h e m a t t e r r e s t s a t t h e
present t ime,
I t got t o a point where i t was necessary t o
get a bill through Congress, a n d i t never has beemed t o
be a n opportune t i m e t o have the bill introduced.
course,
a s time goes o n i t becomes a
O f
grest question whether
the amount which t h e benks would b e required t o put u p
under t h e p l a n p r o p o s e d
i s not such 3
lerge amount t h a t i t
might n o t b e necessary t o devise s o m e other scheme t h a n t h e
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Federal Reserve Bank of St. Louis
one w e have b e e n working on.
Governor wevougal:
A s 6 member o f the Pension Coumit-
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560
tee, I
will s a y thet wr. Kenzel ciscussed this matter with
me snd called attention t o one ract, thet because o f this
celay e n t r y i n t o t h e p l e n a s d e v i s e d
more e x p e n s i v e
i s becoming more a n d
i f 1 t w a s t o b e retroactive,
a n d that t h a t
was @ problem that would have t o be considered when the
netter came u p sgein i f i t ever did come up.
a n afraid i t would b e slmost
Governor ianchers I
prohibitive,
Governor ucvougal: Thepension Committee has not
been esleep s t all, but ror the reasons stated b y ir.
Fencher i t has been inactive, because o f the tine not bee
ing opportune.
Governor Calkins:
T h e fact thet Governor uicbougal
hes just mentioned i s one or the things I had in mind when
I proposed this discussion.
v e r y day that passes makes
itmore digficult t o establish any adejuete pension cysten,
and the more opposition will b e encountered.
Governor wevougel:
i t will b e more airficult t o en-
list employe aeuwbership occsuss t h e y have a
big bill t o
pay, which some o f them cannot pay.
Governor Calkins:
I t will b e more dirficult t o get
the bill through Congress because o f the large anount that
361
the banks will have t o put.
i t ssems t o me, not speaking
too closely, t h s t w e might a s well s a y n o w o r never,
or
something t o that eriect,.
The Chsirnan; I
would like t o ask i f m y recollec-
tion i s correct, Governor ixcbougsl,
3 % you a r e o n the coni-
mittee; that is, that when the metter was investigated b y
ur, Curtis a n d others i t wes round that lesislation w a s absolutely e.sentis] t o the establishment o f the plan.
Governor ucvougal:
The Chairman:
T h e r e w a s n o zuwstion sbout that.
A n d a written opinion w a s given t o
that erfect?
Governor Fancher:
Yes.
I t sas gone into very care-
fully, « P + Chsimuan, a n d i t was dGeciced that i t was ebsolutely necessary t o the scheme.
Governor Calkins:
T h e matter w a s never passed u p o n
by the Federal kKerserve Board,
The Chéirnian:
N o ;
i t Was @ legal opinion, t h a t w e
haven't the power t o do i t under the law.
Governor incvougsl:
T h e p o i n t i n v o l v e d v a s this, t h a t
® pension funa, t o b e made permanent o r dependable, w o u l d
or necessity involve contribution o n the part o f the bsnk
itceli, a n d for thst pert o f t h e contribution w e would have
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Federal Reserve Bank of St. Louis
to ask special authority.
The Chairman:
u y recollection i s that 6 bil}. was pre~-
pered a n d very carefully exsmined b y senator smoot;
after changes were msde t o meet h i s views, h e was ready t o
introduce it; thet t h e n h e suddenly advised that t h e time
was inopportune, thst the bill wouldcertainly not g o through
ond advised sbanconing i t st that tine,
u r e Curtiss told
me some time ago that h e had seen senator smoot
\-~- i t wasn't very recently, b u t possibly s i x months ago-- end had asked h i m f o r e n expression o f his views s s t o whether the time h a d arrived t o take i t up, a n d h e said no,
that h e did not think i t had.
Governor C a l k i n s : ' The opinion,
a s 1 recall it, w a s
applicable t o the proposal thst t h e pension system b e made
retroactive, which involved contribution o f @ large sum by
the banks,
or not I
A s t o whether sny other scheme was consicered
do not know.
s o m e other scheme might b e consider-
ed.
Governor weay: I
think t h e reasonswhich existed f o r
the orgenization o f the pension fund at the beginning are
just a s cogent n o w a s they w e r e then, a n d 1 think t h e idea
ought n o t t o b e sbsndoned.
I
t is, o f course, probable that
583
we would have t o sbandon t h e retroactive feature o f i t a n d
stert afresh.
I t mey be, and I believe i t is, perleps a n
inopportune t i m e t c d o it. I
have n o idea,
i f i t required
legislative action, t h a t w e could get i t through.
The Chairman:
L o n ' t w e all recognize t h t i t would
be almost hopeless t o expect Congre:s t o give u s legisistion that w a s contemplated b y t h e former plan?
I f so,
met w e nd@ t h e n refer t h e matter back t o the o l d camuittee
for the purpose o f ascertaining whether some plan csnnot
be substituted that would n o t require legislation?
Governor Calkins:
mind.
T h e t i s a pert o f what I
had i n
I t sesms t o m e thet i f i t i s deternined that w e
cannotestabaish t h e system plan devised without legisla-
tion, and that w e cannot get legislation, that w e ought not
to absndon t h e icea o f 4 n sdsjuate pension zystem, b u t
cught t o sndsavor t o devise soucthing thst c a n b e put into
operation.
Governor djéllborn:
fon @¢s t o whether a
H a v e y o u ever hsd 6 legal opin-
n o t t h e banks could d o thet under t h e
present suthority, u n d e r t h e gsneral powers o f legislation,
ena 6 0 forth.
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Federal Reserve Bank of St. Louis
O t h e r bonks have systens o f that kind.
The Chairman:
Y e s , b u t they &
n o t p s y this t s x t o
the Tressury thst w e do.
Governor ‘.¢llborn:
B u t t h e y have general power t o
do things thst a r e not inconsistent w i t h banking.
The Chairnan; C e r t a i n l y t h e previous plsn, t h e plan
in the form i n which i t was a+veloped b y the colmittee, s s
we heve been advised, required legislation.
N o w , whether
some p l a n thst d i d not requirean sppropristion b y the banks
for l a p s e o f t i m e i n t h e service,
juestion. £
do not know. I
c a n b e cevised
i s another
expect w e would hsve t o get
the committee and their aivisers together t o review the
matter.
Governor Calkins:
I
t seems t o m e that «
plan, n o t
retrosctive, t o be cure, might b e = vised b y which the con+
tributions t o establish a pension fund might plainly b e a
part o f the compensation o f employes f o r whose benefit t h e
fund w a t estsblished,
m d thst i t might n o t require
cisl legislation.
r w e cannot have a good compensstion
I
system w e should have one le:s good.
opinion thet I have. I
o y spe-
T h a t i s the net
sm, o f course, entirely unable
to ss8y 6 s t o whether i t would b e possible t o get legisla-
tion through Congrecs n o w o r in the near future.
T h a t is
8 mere matter c f opinion o n the part o f everybody.
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Federal Reserve Bank of St. Louis
Senator
sucot, £ think, w a s fully convinced o f the soundness o f
the idea a t least e n d was willing t o support it.
vie: would b e now, o f course I
Governor seay: I
h a t his
do not n o r .
move that t h e question o f pensions
be referred back t o the "ension Comittee with a view o f
meking a study o f the metter a n d reporting «whether o r not
8 practical plan can be asvised n d put into execution.
governor Wellborn:
W i t h o u t action b y Congress?
Governor seay: L e a v i n g i t u p t o them.
The Cheirman:
b o e s that meet y o u r point, Governor
Calkins?
Governor Valkins: I
mp.ose so.
I t sesms t o m e that
the Conmit tee should n & b e advised b y resolution t o dismiss
the p r o p o s i t i o n a
getting
a n act through Congress
i f neces-
ssry.
The Cheirman:
T h i s résolution #111 not d o so.
Governor Calkins:
Governor Young: I
Governor Ualkins:
T h a t i s sll I
a m after.
second t h e motion.
W e should not pass resolutions o n
the subject, unless there i s a n active interest i n the matter o n t h e p a r t o f t h e G o v e r n o r s
banks.
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Federal Reserve Bank of St. Louis
o f t h e Federal Reserve
Y e won't g e t anywhere unless w e are a l l very desir-
ous o f seeing i t get somewhere.
Governor sicbLougal:
T e r e has been plenty o f ective
interest o n the part o f the committee, Governor Calkins.
This plan thst was worked o u t was w o rked o u t alter very
careful and long study o f the whole situation end i t invol~
ved considsrable expense. I
think a lot o f matter they
heve would still b e helpful, e v e n though conaitions have
changed.
T h e Committee's efforts, w h e n once they were well
started a n d h:d secured expert advice, w e r e devoted entirely
to the object o f developing a plen which w u l d b e retroactive s n d would date back t o the time w h e n t h e banks were
started.
I t may b e possible, a t least, i f they had had 4
aesirs t o d o so, that they might have found some plén b y
which w e could have started # pension plan a t the time they
began negotiations, without encountering the difficulties
thet were ¢ncountered i n asking t h e banks t o w m ntribute
seven million dollars.
Governor Calkins;
T h e r e i s one insignificant reason
thet i s sutricient r e a s e r o r continued interest i n it, a n d
thet 1 s that w e hove expended same %30,000 i n the matter,
snd t o simply let 1 t drop without e n y further eetion i s
utterly without justirication,.
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Federal Reserve Bank of St. Louis
367
The Chairman:
W e mve 6
very good mnmiuiittee. I
have
had opportunity t o discuss the merits o f t h e plan with
some people w h o have h a d experience w i t h those metters i n
New York, a n d they tell m e that i t i s t h e most complete
study a n d the best p l e n that h a s been produced,
i n their
opinion, a n d that i t was something o f o national service
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Federal Reserve Bank of St. Louis
if the organization w o u l d promulgate that plen, becsuse i t
would b e universally copied b y other lsrge institut ions
adopting pension systems,
Governor Calkins:
I t will not b e universally copied
if 1 t goes into the wastebssket.
The Chairman:
it up. I
s u p p o s e w e ask that committee t o take
think that motion w a s « econded.
(The motion, having been duly seconded, w a s carried.)
The Chairman:
W e w l l now ogain listen, f o r the
benefit o f t h e record,
t o the report o f the C o m i t t e e t h a t
woited o n the Comptroller.
But before taking thst up, l e t m e s a y thet since w e
discussed this question o f 4
sustaining membership i n the
merican Acceptence Council, mur. Herrison h a s ascertained
from ur. Kenzel that every Federal Reserve B a n k i s n o w psying a n annual membership f e e o f 100.
T h e proposal i s
568
simply t o mske this a special arrangement f o r a sustaining
menbership b y the reserve bonks f o r this year only, w i t h a
proposed t e e o f 4,500.
Now, Governor Norris, w e have waited tor your return
to h e a r y o u r r e p o r t o f t t e c o n m i t t e e ' s v i s i t t o t h e Compt rol-
ler, i n order that the record might b e wmplete, a n d that
t h e ewho were n d with us at luncheon today might hear the
story.
Governor Norris:
m r e Chairman, y o u r conmittee begs
to report that i t met the Comptroller w c advised him that
while t h e w m m i t t e e h e d b e e n empowered t o conclude a n 4re
rangement w i t h h i m o n behalf o f a i l t h e reusral Reserve
Benks, t h e t t h e s e n t i m e n t h a d b e e n u n a n i m o u s l y e x p r e s s e d
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Federal Reserve Bank of St. Louis
in this Conference o f Governors, s n d also i n the Conference
of agents, each acting separately and without knowledge o f
the other's action, that w e could not sgree t o make any
psyment o n the basis o f taking care o f the d<ficlency i n
the expenses athis acpartuent, t h a t w e could only consent
to pay
Y
a
@ the reports o n the besis a f the c a t t o him |
ot furnishing t h e extra copies o f t h e reports, t h e t w e relt
the cost should b e cslculated o n the basis o
t h e number
of sheets o r pages furnished, a n d that i n order t o svoid
369
detailed calculstion w e were willing t o assume t h a t t h e
reports would sverage thirty pages a n d thet w e felt t e n
cents a page o r 4 3 4a report, w o u l d coupensate h i s d-partment f o r the extra expense,
doubted whether t e n cents a
T
h
e Comptroller stated h e
page would compensate him, won-
sidering t h e general slowing u p i n his process incident t o
making t h e copy o f tabulated mstter, s h e r e i t w a s important
thet figures should be put i n on the exact line, a n d s o
forth, a n d sugested that a t h ure a
1 5 eents 6 page, o r
w4.50a report would compensate f o r tk: cost, a n d your e o mmittee agreed t o that basis o f compensation.
He further stated that h e would not object t o the mansgers o f the branches being furnished w i t h these reports
where i t was necessary f o r the proper mansgement o f the
benks,
The new arrangement i s t o uate from this date, settlements u p t o this date t o b e nade o n the o l d basis, a n d
the arrangement i s t o b e sucjisct t o the discussion o r revision a t each semi-annual conrerence,
Governor Calkins.
a s y L inquire whether t h e payment
is t o b e , 4 . 5 0 f o r e a c h r e p o r t ?
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Federal Reserve Bank of St. Louis
Governor Norris:
Y e s ,
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370
Governor Norris: R e g a r d l e s s o f the number o f pages?
Governor Norris:
The Chairman,
Yes.
H a v e y o u c o n c l u d e d y o u r report, G o v e r -
nor Norris?
Governor Norris:
Y e s , unless I
havs omitted some-
thing, Governor seay?
Governor Segy. i
think t h e report i s quite complete,
The Chairnsn; G e n t l e m e n , w e gaye carte blanc t o
these gentlemen a n d they have reported what they have done,
but I
suppose i t will b e courorting t o them t o hive i t rati-
riled b y t h e Conference.
Governor Young; I
Governor Bailey: I
The Cheirman.
w h a t i s y o u r pleasure?
move that their action b e ratiried,
second t h e motion.
I s there sny discussion?
L i . net,
the motion i s thet t h e setion o i t h e coumittee o n behalf
of t h e conference b e ratiried.
(The motion, raving been uuly seconded, was cerried,)
The Chairman.
G o v e r n o r Norris, w i l l y o u a n d Governor
seay b e willing t o iske 9 written report t o g o into t h e
record,
i n c a s e y o u f i n d t h a t wheat y o u h a v e r e p o r t e d
is
in any respect incomplete, s o that w e may have souething t o
reter pack to? -
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Federal Reserve Bank of St. Louis
Governcr Norris: —
The Chsirman:
C e r t a i rn Chatunam
le y s,
N o w , gentle en, I think wr” Gilbert._
will b e here e little earlier t h a n w e anticipated a n a oos~
sibly w e tilght aeke sone progress b y 9 preliminary «is cus».
sion o f the topic undsr No. 5 , w#isesl sgency operations.
We have elready aisposed . f Noe 2
o n the suprlecientsl list,
snd t h e first topic under -iscal sszency operstions i s
& Payment o f savings stanpsand certiticates d u e January 1 , 1923.
This topic w a s suggested b y Boston a n d w e sould like
to hear trom you, Governor «ores. 3
Governor morss,
w r . Chairuan,
w e got t o thinking
about t h e machinery t h a t woulu b e necessary t o set u p t o
pay off these savings certiricatss coming c u e January i y
five o r six hundred million dollars i n ail, snd
44,500,000 estinatea i n our cistrict.
L o o k i n g t h e mstter
up w e found thst the circulars issued o n these certiticates
stated thet they would b e psid prinarily s t ths f o s t urrices,
It did n o t :ppear t o be, uncer t h e rules l a i d down a t that
time, t h e t there would b e very much r o r the Federal n e s e r v e
benks t o do, b u t s t t h e same tine w e coulda not but believe
that t h e F e d e r a l r e s e r v e b a n k s w o u l d h a v e t o takes a
hand
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Federal Reserve Bank of St. Louis
872
in it, i x r o r n o o t h e r r e a s o n t h a n i f psyment r o r s u c h 4
lerge amount w o u l d b e aemanaed i n cash, i t would take a
great deal o f noney i n cash, a n d thet t h e reserve banks
would have t o do something i n the way or rurnishing that
cesh t o t h e p o s t orrices.
I
t seems
t o u s t c b e quite a
job t o furnish 5 surricient amount o f cash t o sonic 3,000
i n New sugland slone.
post orfices, m o r e o r less,
The Chairman.
T h e y ars only casheble a t money order
post orzrices.
Governor Norris:
Yes;
but i t is bad enough. I
i t isn't a s bad as I stated,
talked t o wr’ Gilbert about this
once o r twice, e n d he got interested i n the subject and
wrote m e some time ago thet the Tressury vepartment was
in consultation .ith the fost uvirice vepartiment *i:tojust
what w a s t o b e done a n d h o w t h e arrangements w e r e t o b e
made, a n d that probably the reserve banks would be called
in to play sone part i n it, snd I think h e ststed i n that
letter t h a t when the errangements with the Post ufrice
were completed h e would l e t u s know w h a t they were.
wince t h e n I
and 1
nave o f c o u r s e s a i d n o t h i n g t o h i m a b o p t i t
d o n o t t h i n k t h e r e i s v e r y m u c h t o & s y now, u n l e s s
he reels thet h e would like t o report w h a t h e has done
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Federal Reserve Bank of St. Louis
373
would n o t want
and what h e proposes t o a o about it. I
to d o more t h a n s s k h i m i f h e wished t o d o that. s o u b t i l e s s
»@ shall hear souething berore vanuary 1 , Snyway.
The Chsirman:
e feel a good weal o f concern i n New
w
York sbout the way the thing i s t o be handled. I
estimate, roughly, t h e t a
would
million a n d a hal? people i n New
York have these certificates a n d stamps,
i n New York City
alone, e n d I would not b e surprised i f i t ran over thet;
but a t the very minimun i t must b e a million people.
ivery
fenily, s l l the children i n 511 these families have them.
We cannot e s k anyone thst hasn't g o t them, a n d I hsve t a k e n
the trouble t o ask right ana left and 1 rind thet everyone
owns some o i then,
H o w they would handle a n y such crowd
or people a s that, i f not more t h e n t e n per cent o f them
turn u p a t a n y p l a c e
i n o n e aay,
is a
problem beyond any-
thing o r the sort that has ever been attempted before.
Governor wOrss: I
believe t h e y have the right t o
ten days' notice a t the post orrice, that they would have
ten dayswithin which t o p a y them, e v e n i f agemsnd i s nade
on Janusry 1 .
The Chairman:
T h a t only nmltiplies the air ficulties.
If y o u have proper tacilitics a n d organization t o get t h e m
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Federal Reserve Bank of St. Louis
374
in and get them away i n one day you cut the work i n half.
Governor seay:
T h e t i s t e n cays berore maturity,
is
it not?
Governor Young:
w o u l d i t not be possible t o have
the secretory o r t h e Treasury issue s o l e sort o f announce-
ment that any bank o r trust company i n tle United otetes
would b e prepared t o cash these?
The Chairman:
T h e y are working o n thé@ now, I under-
stand,
Governor mcbLougs:1 T h e department i s trying t o work
out a
plan n o w w h e r e b y t h e s e c a n b e p r e s e n t e d
a t any benk
or trust company, b u t that would have t o c o with those that
are n o t registered,
f h e registsred certirketes, t h e nuni-
ber o f which I do not know, woulda have t o be handled i n
some o t h e r way, I
suppose.
Governor Young’ a r e n ' t they oll registered.
stemps the owner's name is registered o n the card.
o n the
I t
isn't registered i n washington, b u t these stamps have got
to b e p l a c e d o n 2 cera, a n d t h e o u t s i c s o f t h e c a r d h a s t h e
name o n it.
Governor licbougal:
T h e r e a r e t w o classes o f certi-
ficates, those thet ere registsred and those thst ere not
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Federal Reserve Bank of St. Louis
registered,
Governor Young:
4 & l l certiricatss a r e registered,
but t h e stanps a r e n o t registered, e x c e p t i n the way thst
I have daeseribed.
The Chairman:
T h e y are régistsred ©
that they will
only b e paid t o the regi tered holder, a n d they tisy b e o nly
paid a t t h e post oriice where they e r e registered.
Governor worss:
A l l certizicates issued und:r t h e
regulations a r e supposed t o have t h e owner's n e m e right
on t h e face, written o n there b y the istuing agent,
T h i s
regulation precludes a n y change o t coipsring t h e signature
sppeoring o n the receipt w i t h that o n the face o f the certiricate.
T h e r e s are a l l sorts o f airfim ities, s o innuemer-
able, b o t h s s t o t h e p a y m e n t s a n d t h e p e o p l e
t o b e cealt
with, thet a n ordinary r u n o n § savings o a n k o r any other
kind of benk thet was ever heard o f wouldn't compore t e is.
The Chairman:
#
@ had a part poynent scheme o n the
las| three losns i n “ew o e
ments w i t h stonps,
«
w h e r e t h e y madac weskly pay-
@ rentea p a r t o r &
puilding u p o n
44th strest, w i t h windguws placed e s close together a s w e
could conveniently plece them, s n d they made a
line probably
as long e s one s i d e o r the treasury building.
v
e hed t w o
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Federal Reserve Bank of St. Louis
376
floors, a n d running a t rull capacity, w i t h a l l these windows
going, t h e m a x i n u m t h e t t h e y w e r e a b l e t o hendle
in a
day was 35,000 x s ople, a n d they had i t down s o fine that
it only took 1 5 seconds t o aske a
per person.
transaction e t 5 window
T h e y h a d m e n with ctop watches timing t h e m
and speeding t h e m up.
N o w , 4 f w e had t o have s n organiza-
tion like thet t o hsndle 6
msxiiua l o a d o f 35,000 people
per day-e~« a n d w e h a d t e h a v e i n t e r p r e t e r s ;
do nd spesk English;
i u a n y o r them
w e had men u p there speaking all
kindsof Languages--- h o w are w e going t o be eble t o hsndle
do not
all these people a t once when t h y w m e in? I
kno, how it is going to be done in New York city.
I t is
§ coOllossal problem.
Governor Fencher: +
These certiiicates,
i f not regis-
tered, are paysble a t any money order post olfice, e n d o n
January 1 , 1923, a t the treasury vepartment s t washington,
end if resistered are payable only s t the post orifice where
registered,
N o post office, however,
payment either o n vanuary 1 , 1 & 3 ,
i s required t o mske
o r a t a n y other date
until ten days sfter receiving written aewand tnerefor.
Governor morss:
T h a t prevents t h e m from becoming
actuelly overdue, i f they are ndt paid o n thst a t e .
37%
Governor Seay: I
would like t o ask i f w e have b e e n
asked b y t h e vbepsrtment
t o work out a
plan,
o r i f we are
anticipating c e l l i n g t h e a t t e n t i o n o f t h e vepsartment t o t h e
fact that i t i s necessery t o work out 4 a plen?
Governor morss: a u r , Gilbert says thst t h e treasury
Lepartment i s i n consultation w i t h the Post ufrice veparte
ment,
Governor seay:
T h e point I
mske i s thst i t i s pri-
mnerily t h e concern o f that departi.ent t o work thie plan out.
Governor worss:
The Cheirman:
v h , certainly.
G o v e r n o r oeay, this provision t h s t
they a r e only payable a t the Tressury i s only a technical
provision a n d never was intenaued t o b e enrorced,
I
t is of
equal significance with the fact thet <very check drawn
against t h e United States i s psyable a t the Tressury i n
“sshington.
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Federal Reserve Bank of St. Louis
v e do not make rinal payient a t the Federal
reserve banks.
i
e are t h e riscal sgents b u t w e simply
take t h e money o u t o r the account a n d get rinal payment
in ié6shington.
T h e r a c t i s w e heve b e e n i n correspondence
with t h e Departnent t o r thse last three o r rour months a n d
have h a d many talks about it, a n d w e were l e d t o d o s o b y
our concern lest, s t the last niinute, the Tressury vepart-
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Federal Reserve Bank of St. Louis
B78
ment, without perhsps f u l l con.ideravion, m i g h t a s k u s t o
undertake s o m e plen r o r which w e a l d not have adequate
foci lties prepared,
O
r course s s riscal egents f o r t h e
Treasury i t i s natural that t h e y shoulda a s k us, a n d w s cer-
teinly have got t o g o s o rar es t o furnish the post orvices
with t h e money required. I
d o not k n o t r o m what other
source o f supply t h e Post oftices c o u l d g e t the funds.
The
New Y o r k p o s t o r f i c e n o w d e p o s i t s i t s p r i n c i p a l r = v e n u e s
with ue end we would be their principal source of supply
of cssh.
Governor Norris: I
think one aanger o f the situation
is thet i f the Postmester UYeneral, r o r exsmpls, resorts t o
the Treesury thst t h P o s t Oriice vepartment w i l l cooperate
in every possible way, the Tressury may rely upon that,
and w a r savings organization reports that v e r y little cocper-
ation con be expected iran 9 great wany of the post offices;
that t h e postmasters s e e m t o take t h e attitude t h t t h i s
is s o m e t h i n g t h a t n e v e r h a s g i v e n t h e m a n y t h i n g b u t a
lot
or trouble end thst their regular duties are more thsn they
esn handle. T h e r s r o r e e v e n instructions that come frrom
the Postmaster General probably will not b e generally
heartily observed.
70
The Chairmen:
T h a t shcvld t e brought u p when w e are
Giscussing this with w e Gilbert, Governor Norris.
A r e
there any further cusgestions ror the aiscussion o f this
topic?
I
r not, w e will take u p B.
Allotments o n subscrintions t o n e w irsues
ot Govermient securities t o banks a n a
others.
It is recoumended that the tressury b e requested not
to make allotments t o reserve banks until subscriptions
are closed a n d the totel amount known, a n d then t o make
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Federal Reserve Bank of St. Louis
Sllotments o n the t a sis o r t h e t a a l subscriptions received
by each reserve b a n k o n a n e«act percentege basis,
i n order
thet t h e # e d - r a l r e s e r v e b a n k s m a y i n t u r n m a k e s l l o t m e n t s
on & sliding scele, slloting t h e sasller subscriptions i n
furis
Governor Norris;
Y o u a r e proposing s change?
think t h e change h a s already teken
The Chairnan: I
ettect, o r r i c i e l l y .
Governor Young;
i
n order t o get this started I will
wove that t h e Treesury b s requested n o t t o make allotnents
to redersl reserve banks until t h e subscriptions a r e closed
snd t h e total amount known, a n d then t o make allotments o n
the basis o r the total subscriptions received b y each rederel
a0
reserve b a n k o n a n exact percentsge basis,
i n order that
the Federal reserve banks n e y i n turn uake allotments o n 4
sliding scele, allotting t o smaller subscriptions i n full.
The Chairman:
O
r o n s o m e o t h e r basis.
L
t do-ne
think i t is intended t o be too specific, o u t thst the allotments b e mace after subscriptions a r e closed.
Governor «ancher:
T h a t sould not adult o f t h e reserve
benks asking aiiotiuents t o subscribers etter t h e subecriptions were closed?
The Cheirnen;
T h e t i s right.
Governor isncher:
I
t would h o l d t h e whole thing i n
abeyance?
Goverror Norris:
w o u l a not this put a premium o n
padding?
Gov. Fanchox:
a b s o l u t e ly.
The Cheirman: “ e v e n ' t w e hed that anyway?
Governor ..cbougal: T h e a t padding has been cut out.
Governor norss: w o u l d n ' t i t encourage i t if we did
this?
Governor seay. w o u l d i t not result in-concentration
of certificates i n this u i tricts which msue the lergest
suoscriptions, s n d would i t not interfere w i t h t h e more
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Federal Reserve Bank of St. Louis
381
general distribution o f the certiriczates?
epout i t i s this.
T h e w a y w e feel
a f t e r much tribulation w e have come
to a n understanding iith the subscribing banks i n our district which i s satisfactory a n d they a r e prepared n o w t o
accept c u r conclusion o r dictum a n d w e would n o t like t o
see the present p l a n disturbed,
The Cheirman: .
The airriculty encounter:d i n New York,
which l e d t o this suggestion, w h i c h 1 f think w a s originally
the propoeal o f sa.e other reserve bank, i s something like
this:
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Federal Reserve Bank of St. Louis
O n the recent issue o r certiricates,
3 8 i recall,
we had something like 3 0 0 subscricers w h o were not banks
snd w h o w e r e n o t a l l o t t e d o n e c e r t i f i c a t e s i m p l y b e c a u s e
the banks got thero rir st. T h e a t means w e do not get a s
good 8 distribution a s 6
would like t o have o f these cere
tiricetes, a n d w e were deresting t h e primary wethad o f
orrering government svecurities, w h i c h w a s that t h e y shall
be populer loans;
é n d w e wanaged t o work o u t 3 scheme
under which o n thet particular sllotnent t h e y g o t t e n per
cent o f whet t h e y h a d applied for.
B u t i t does s e e m un-
fortunate that w h e n s n issue o r certiiic a t e s i s made that
we have some hunareas o f subscribers w h o cannot g e t t h e m
at par because o f this method, b u t whenthey g o t o their
banks t o get t h e m they must p a y o premium r o r them.
Governor muorss;
i e got tabulated results o n 2 0 o r 3 0
banks, a n d they d i d not a n y o f them sell them t o their
cuss
toners a t a profit,
a t least a t t h e time they w e r e issued,
snd w h e n they were going issues, porulsr i s sues, attractive,
i think about two-thiis o f those w e r e delivered t o customers
at the p e r price,
m d w h e n the issues w e r e n o t s o attracte
ive t h e banks kept souwe o t then.
The Chairman:
T h e y n a d to.
Goverror morss:
T h e y a i d not distribute a s well. B u t
our banks, especislly the bigzest banks, when they are ate
tractive have s u c h demand t e r them fromtheir o w n customers,
many o f which a r e renewals o t those which have mstured,
that i f
they could not g s t t h e m snd sell t h e m t o those customers
at
@ profit t h e y would n o t stand f o r it.
Governor Norris:
trict,
I
T h e t i s t h e situation
i n our cise
n f a c t s o m e o r t h e indiviausl] s u b s c r i b e r s
will
put i n subscriptions
a t several banks w h e r e t h e y h a v e a c -
counts; t h e y make careful note or the proportion
they get
frou each bank end wake s
terrible k i c k t o the bank from
wiich they get the susller proportion. 1
it i s true @
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Federal Reserve Bank of St. Louis
ao not know whether
not, b u s o m e o f our banks clsti, that t h e y p s y
383
® prejilum I o r eertifiates
t o give t h e m t o their custo..ers
at par, t o hold their accounts.
Governor Fancher,
i
n the last three o r four nonths,
maybe longer then that, w e have mede tentative sllotmentsewe have t h e trouble t h a t Governor Norris speaks or, where
one s u b s c r i b e r w o u l d m a k e s u b s c r i p t i o n s
and g s t a dirrerent pere-ntage.
T h e n w e sdopted t h e plan
of t e k i n g t h s r e s o u r c e s oft t h e banks,
age o f t h e t o t a l r e s c u r c e s
i n :zeversl benks
w e s e t u p 6 s percent-
o f t h e banks a n d make 8
Sry Sllotment, s n d then w e wéke a
prelinin-
second sllotment w h e n w e
get the certiricates a l l in,
The Chelrian:
v o e s that work?
Governor rancher:
I t .orked then,
W
@ allotted i n
full t o the fellows u p t o ,10,000, a n d i s have h a d n o c o e
plaint because w e can verend that.
Governor Seay:
T h a t i s our identicalplan.
Governor Fancher:
Governor uworss3
The Chairman:
I t i s giving good satis rsction now.
Y o u d o thet i n New York, d o you not?
Y e s ,
Governor morss:
#
6 have sluays c o n e i t a n d w e have
got o u r banks n o w s o that t h e y will subscribe e s much
es
ve tell t h e n they c a n have, beceuse w e have tole t h e m inst
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
384
the Tressury d i d n o t want a pauding o f subscriptions, b u t
wanted t o keep t h e m aown becouse o t t h e b a d etfrect, s n d
because sonmetii.es they w e r e not 9
true ueasure o f the de-
mand,
The Chsirman:
- ° a r d o n meror interrupting,
b u t i f w e are
all sstisfied with the present basis, 1 will be glad t o
withcraw this rrom the program, because w e c a n wriggle
2long i n New York all right.
request r o r this 5
T h e r e wes guite a n urgent
ysar a g o s t the meeting, a n d a number
of t h e G o v e r m r s u r g e d i t q u i t e ctrongly.
Governor Fancher:
tory.
O u r present p l a n i s most satisrae-
I t has removec the incentive ror padding.
Governor u.cLougel:
Y o u did nave s little airriculty
in Pittsburgh once?
Governor rancher:
Y e s , b u t w e had this schene i n ere
fect a n d coulca d e i e n d i t .
T h e y clsined t h e y were being
uiscriminatsd sgsinst end that i s where they were wrong,
Lverybody i s getting the wane deal.
Governor uwevouzal: I
would like t o resd one p rae
graph relating t o this subject:
“Under t h e present system o f ellott ing cubscriptions
of Government securities, which i s based o n the total re-
385
sources o f all benks i n each o f the weaeral neserve vis~
tricts, each benk knows dsrinitely i n sdvance thst i t will
receive 4
certain aniount o f certiricatses being orfer*d, a n d
hes therefore b e e n able t o prevent pedcing o f subscriptions.
Un t h e o t h e r h a n d s h o u l a e a c h F e d e r a l i s s e r v e B a n k b e allot-
ted 9 n amount o f certiricates b a s e d o n the
S e
e
e
total suvecriptions pears t o the total subscription r o r the
United states there would b e every incentive t o pad subserip-
tions i n order t o secure a larger emount."
Our experience h a s been quite t h e sane a s that reporte
6d b y Governor rencher a n d s e are sure that w e have avoided
this psdding o f subscriptions.
i
t i s working w e l l «vith
us, and w e also have 6 plan b y which the siisll subscribers
are p r o t e c t e d
i n rull.
w h e t h e r i t i s .10,000 I
ain nad s o
sure,
The Chairmsn;:
#
@ hod t h e idea thet i t wes working
beautifully, b u t theyswenpec u s o n some o f these n e w issues.
Governor norss;:
T h e winiiaws anount r o r each issue
may b e fixed a t 1 0 , 0 0 0
o b i t m a y b e «25,000, depending o n
one o r two things, l i k e t h e size o f t h e issuanceee- i f you
have a n issue o f ..150,000,000 o r ~200,000,000 t h e mininum
amount i s snialler then i t is it it i s #000 ,000,000.
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Federal Reserve Bank of St. Louis
A n d
585
it aepends o n the g.pularity o r the issue.
i t i : 8 metter
of juaguent thet varies fran tlie t o tine.
Governor Norris.
I
t w e have a mousnt m o r e t o u vote
to this mstter there 1 s one juestion 1 woulda lLke t o isise.
The c y tem we sre following i s the same e s thst which
cescribed i n :evers]l other cistricts s n d 1 s vertectly
rsctory, b u t i n the last f e w issues s e have h e d « ney
ment t o d e a l with, A
Muuber o r t h e b a n k s r e c e i v e d
complaints rrom pretty large custouers, custoners who are
large sudscriners,
s n d t h e y s s i d t o t h o s customers, “
ell,
Or you sre n o t satisried w i t h what w e csn give you, p u t
your subscription incirect a n d s s e h o w y o u rare them.
i
e
have h a d subscriptions o f ,200,000 o r 3 0 0 , 0 0 0 r r o u quite
a number o f largs corporations, 3 s inaiviausl sun scriptions,
The Chairmen,
e @ have had weny willions cowing i n
that way.
Go: ernor Norris:
have h e d q u i t e 5
last f e w issu-s.
» @ have not h a d niillions, b u t w e
nuwiber.
#
@ have h a a v e r y r e w u p t o t h e
B u t owing t o the corcition I
have ce-
stribed s e hsve had quite a number o f these subscriptions
rrom .100,000 t o 500,000 each, a n d you have n o re: uices
to guiue y o u i n usking a n sllotment there, e n d your minimus.
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Federal Reserve Bank of St. Louis
387
or ,10,000 o r 2 5 , 0 0 0 w o e s n o t apply t o then, cecause
are w a y u p a b o v e i t ,
Governor ..P7Ss.
“vovernor Norris:
B u t i t ciscoursges t h e m terribly.
I
t i s 5 h ra .uestion t o know shat
is the reir thing t o c o tith s steel company o r loconotive
coupany o r s o m e o t h e r c o n c e r n t h e t p u t s
lor 250,000.
i
i n ® cubseription
x a bank subscriteda t o w250,000 s n d i s
allotted 960,000, r o r sxsnple, another b a n k o f lerger size
,uts i n a subscription r o r 4250,000 a n d i s allotted ~L00,G00,.
Then whet should t h e inaividual w h o surscribes t o 2250 , 000
be sllotted?
Governor worss:
T h e miniiun: aiount.
Goverror Norris:
T h e a t i s treeting h i n unrsirly, b e -
ceuseé a 6 uovernor strong has just steteu, t h e Tressury d e sires t o get 5 sice cistribution o r these certiricates
among bona tice i n v stors, s n d i think 9» bons r i d e invest-r,
when you know that h e i s one, i s sntitlea,
i r anything,
to
8 prererence.
Governor k.orss. =
i cay,the esaiuination which w e
mace tenaea t o show that t h e bona r i c e investor g o t those
at par,
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Federal Reserve Bank of St. Louis
Governor Norris:
B u t he didn't get anything like whet
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Federal Reserve Bank of St. Louis
he wanted,
Governor uOorss:
I
r w e h a v e o n l y ..17,000,000
t o di-
vide, o n d they w u l d take two o r three tines that, they
couldn't get it.
Governor Norris:
T h o n y o u diccourage individual sub-
scriptions?
Governor worss:
Yes.
I r w e d o not i:¢ c m n o t d o
snything w i t h o u r banks.
Governor Norris:
i
n the ease o r t h e concerns t h s t
i have r e t e r r e d t o , uthich s u b s e r i b e t o r ,250,000,
they
would get ,25,000, uhsrees i r they put the subscriptions
in throug.
t h e banks t h e y would .rcbably g s t o
hundred o r
® hundred a n d r i f t y t h o u s a n d ?
Governor worss:
thet anyway.
w e d o not know that they a o not d o
T h e y n e y put i t i n two o r three banks, f o r
all w e know.
Governor Norris:
T h a t m a y b e true, except t h e t the
cases I speak of srose principslly s t ilmington, e n d w e
notice thot w h e n these lerge inuividual suoscripttons r r o m
diluington came in, tust the subscriptions o f the .ilwington banks went w a y aown,.
The Chairiuan:
T h e Tressury o f t h e United ststes
389
today i s orfering large amounts o i securities w h i c h a r e desirable investments a n d which subsequently s e l l a t 3 preiiium. T h r o u g h t h e twelve reserve bsnks a n d their branches,
thereare t w e l v e a i : t e r e n t m e t h o d s
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Federal Reserve Bank of St. Louis
o f a r b i t r a r y sllotient,
or
more o r less arbitrary; a n d the principle i s srong e n d w u l d
be diificult t o asrend i n case attack w e r e made u p o n it.
Governor Norris: i
the T r e a s u r y
think t h e o n l y a l t e r n s t i v e
t o m a k e t h e sliotuwents i t s e l r ,
end i
i s for
suppose
that i s siechenicelly inpossible.
The Cheirnian:
O f course, during t h e w a r o n all bond
issuss w e h a d a n exsct msethenstical r u l e sypplying o n a l l
subscriptions, w h i c h was scrupulously ob:cerved;
b u t there
we were taking 6 1 1 the supscriptions that w e m u l d lisy our
hands
o n and w e were very g l s d t o
g s t them.
N o w w e are
sliply sweapea w i t h subceriptions f o r souwe o f these issues,
and what I
tear i s the possibility o t souwe kicker waking
an attack u p o n this rather srbitrary uwethod o f sllotiient.
Governor Norris: T h i e t , o f course,
i s 5 aanger.
I t
hss b e e n ciscussed céversl tines i n the group conrerences.
I remember 6
very rull discussion i n the N e w York bank,
when y o u were away.
n p e Gilbert «was over there s n d w e
ciscussed i t snd s]l these diirriculties were presented a n d
590
threshed over, and siter the little incident which m y
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Federal Reserve Bank of St. Louis
eharity p r e v e n t e d
m e t r o m allucing to, w h i c h hep.ened
@ contiguous a i s t r i c t
The Chsir«an: I
bo y o u nean that 1
i n
t o ours---
cian't allude t o it if I «usgn't there.
allud<«d t o i t here?
Governor Norris.
x
@ callec a
aseting o r 6 1 1 o f o u r
lsrge s u b s c r i b e r s s n d t o l d t h e m h e t o u r s y s t e
o f distrie
bution w a s s n d i n v i t e d a n d u r g e a t h e m t o j i v e u s t h e benerit
of a n y criticism that they h a d t o ueke o r t o suggest a n y
alternative methoa o r uoing i t o r a n y Liprovsient t h a t t h e y
@uld i n the existing method, a n a sfter sbout s n hour they
sdoptea a resolution ssying that they were perfectly satisried with our present system, m d thot if we sdopted any
new systen they pleagea thenselves i n advence t o b e pere
fectly satisfied w i t h that.
The Chairusn:
N o w , gentle.en, 4
am quite willing t o
withdrew this topic r r o m the progra.., 3 6 «.€ have ciseussed
it pretty thoroughly.
Governor Young’ I
will witharaw a y notion, ur.
Chsirnan,.
The Chairman:
tion w i l l b e taken.
V e r y .€11; without objection that ace
391
The n e x t t o p i e o n t h e p r o g r a m u n u e r rivseal s g e n c y
vperetions i s C.
Periusnent r e c o r d s o f s o u r c e o f a l l
Government s e c u r i t i e s ,
The recoiuendation unaer that is. T h s t t h e Tressury
be requested t o reconsicer i t s instructions regarding reserve
banks keeping 2
psrianent record o f the source r r o m which
811 Governient securities a r e rereivec s n d t o waive this
requirenent,
Governor Young: I
should s s y thst w e should continue
to keep these records, 3 n d I
a u not i n ravor o r that recoie
mendation,
Governor «ellborn:
O u r b a n k i s i n ravor o f t h e recone
mendation, ure Chairuan, s n d slso i n isvor o f your 2llotenent proposition,
The Chairmen.
t a t d o your people s s y sbout this,
Governor = e a y ?
Governor seay:
A c o u t keeping t h e records?
The Chatiriian.
Yes.
Governor s a y ;
“
G ars siIrsid n o t to, a n d w e believe
the Vepartinent w i l l n o t d v e w
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Federal Reserve Bank of St. Louis
The Cheirman:;
w
perniission n o t t o keep them.
o y o u k t e p t h e s e rscor.s,
Gowrnor
LOTES?
Governor worss:
Y e s , w e do.
ence with ur Gilbert about it. I
v @ had some Correspond-
think he rather insist-
ed thet w e should keep them, o r at least thet w e should b e
prepared t o do certain things o r i v e certain inrormation,
which w e c o u l d n o t d o i r s e s b a n d o n e d k e e p i n g them.
Governor Biggs:
« @ have found comparatively little
nesa t @ the records.they ssk us to waintelin and we dislike
very much t o keep them.
I t would mean s n sdditional exe
pense a n d burden,
Governor Fancher:
i
e d o not keep them a g fully a s
the Treasury would like to have us.
I f we do it the way
they would l i k e t o have u s d o it, w e estinate i t would b e
an additions] Sxpense o f about 36,900 a year,
Governor worss:
L e t m e read this paragraph t o m t h e
letter from ur* Gilbert.
“Accordingly, herearter, i n he.dling fiscal sgency
-trensactions r o r the Tressury, vederal rererve banks will
maintain s u c h records a s will snow, w i t h respect t o any
United states coupon bonds o r certiricates o f indsbtedness
received o r delivered b y them i n fiscsl agency trensactions,
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Federal Reserve Bank of St. Louis
393
the source from whieh a n y such security i s received a n d the
benk o r other person t o whousny - u c h security i s aelivered.
The exsct f o r m o f such récoras will not b e prescribed b y
the Treasury, b u t record must b e established o m sich a bo sis
that t h e intcruation i n ,nestion niay b e rurnished u p o n r e e
quest o f the Treasury o r upon request o f any person entitled
to r e c e i v e i t , p r o v w e d c s
acescription o f t h e s e c u r i t y i s
given, a n d i n case o f surrendered securities rerersiice i s
made t o schedule trensmitting such cecurities t o the +ressury.
In other worcs, Fed-ral Ke:erve B a n k records must b e adequéte f o r this purpose without rurther reference t o id-ntify-
ing notstions, merks o r symbols placed o n the securities
presented, a n d thet i n due course such securities will be
azstroyed,"
We have always h e d the recor.g a n d w e d o not want t o
be without them.
Governor valkins:
w @ are not keeping a record t h e
would meet t h e requirements o f the tressury a s stated i n
that letter and w e agree with ‘ew York thet w e should not
be required t o kesp s u c h 4 record.
w e nove a kind o f re-
cor d , 4 S everybody has.
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Federal Reserve Bank of St. Louis
Governor i.cvou al:
w e are not keeping them, o n d o n
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Federal Reserve Bank of St. Louis
Boa
receipt o f t h i s l e t t e r f r o m t h e T r e s s u r y v e p a r t m e n t
consideration
it w o u
w e gave
t o t h e matter e n d savised t h e Tressury t h e t
b e very expensive, a n d asked them t o récons lier
this crder, s t a t i n g t h e r e s s o n s w h y w e thought t h e y s h o u l d
do i t . I
believe w e have heard nothing more f r o m it.
Governor Norris.
W
e keep t h e record chronologicslly
but there i s n o incex t o it, s o that i t is of very little
value unless, upon subsequent inguiry, they csn give u s
the Gate o r approx imately the cate o f the transaction that
they want inguired into.
Governor Young:
W
Governor Bailey:
e d o keep then.
w
Governor »cLougal: I
e keep them.
should like t o endorse the
recolménastion o f t h e N e w York bank with réspect t o this.
The Chairnan:
T h e rz-asonsfor t h e réecouiensation sube
mitted b y t h e Department i n New York a r e that a t present a l l
securities r e c e i v e d b e s r a n i d e n t i r y i n g n u n b e r f r o m w h i m
source o f rec-ipt c a n beascertained a t any tine before
security hac bsen cestroyed.
T h e Treasury holds can-
celed <ecurities f o r sat least t w o years before destruying
them,
a n d t h e matter
i s open t o inquiry
i n the case o f
loss o f G o v e r n m e n t s e c u r i t i e s b e r o r e t h e e x p i r a t i o n o f t w o
395
years.
I r the record i s kept just a s specifiea,
i t will
mean double the aniount o f work i n listing s n d checking e n d
the very slight use t o be made o f mich ® record would not
seem t o justify t h e cost,
Governor Seay:
w
e would like t o b e relieved o f the
responsibility o f keeping thet, a n d w e think that t h e y
should leave t h e decision with u
a s t o whether w e should
keep t h e m o r n o t r o r o u r ownprotection.
w
& would like t o
be relieved r r o m being required t o keep then.
The Chairman:
Gilbert.
I
W
e will discuss this matter w i t h «ur.
t seems t o b e a matter moreror discussion t h a n
action,
Governor Norris:
w h e t i s the practice w i t h regard t o
keeping all papers ond recoras. I
iiscal sgency functions now.
em not speaking o f
r o r ¢xsuple, c e s h letters,
are they kept n o w indefinitely i n the other banks?
The Chsirnan:
w
e havé @
reguler schedule, Governor
Norris, a n d the length o f tixe fhat e a c h verious class o f
records i s kept dtpsndas entirely u p o n t h e schecule, b u t i
cannot t e l l y o u from uswory shat i t i s s s t o any particular
item.
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Federal Reserve Bank of St. Louis
A l l those
e e e
Governor Norris:
o x e régulatea b y a schedule.
A n a sfter a certain tine they are
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Federal Reserve Bank of St. Louis
296
aestroyed?
The Chairman:
T h o s e peitaining only t o the bank's
business a r e destroyed after 9 certain tine, b u t a l l records
releting t o fiscal agency matters a r e preserved.
Governor Seay:
w
e heve classizied a l l o f our records.
We keep some o f them a specified tine and another class w e
keepa dliferent length of tine and another clsss and so on.
s@ heave made u p a .cheaule, i n contultsation with our counsel, a n d w e destroy records sccording t o t h e s chedule.
Governor fancheré
T h a t i s whet w e do.
Governor morss: I
yet.
ado not think w e have destroyed a n y
W e have plenty o f room t o store them.
Governor Norris:
w e haven't destroyed a n y yet, b u t
our present storage facilities are nearing their end.
Governor worss:
w
e h a v e pisity o f room, s n d w h e n i t
is used u p w e will hesve t o provicse t h e r ieans,
The Chairman:
T h e last topic i s a n the juestion o f
psyment o n presentation o f coupens attsched o n called vVictory notes.
v “'ayment o n presentstion o r 411 ustured Vice
tory coupons regsrdiless o r whether t h e notes
trom which cetaeched have b e e n psid o r not.
New York reconmends thst the tressury b e requested t o
397
reconsider i t s instructions w i t h regard t o the handling o f
coupons f r o m called Victory notes, s n d t o suthorize Federal
ré.erve banks t o pay a l l matured coupons o n presentstion.
Governor seay:
“
@ concur i n the recoiuwnendsation here
s6t rorth.
Governor tancher:
Governor Young;
The Chsirman:
S o &
we.
w e do slso.
T h e r e a r e s i x separate a n d distinct
argunents i n tavor o f this recommendation i f you care t o
hear them, I
interest o r not.
do not know »hether they e r e o r sufficient
b o e s anyones eare t o express thelr visws
8s t o thistopic?
Governor valkins: I
would like t o have a n enswer t o
this suggestion, T h e Victory L o a n coupons nsturing m a y
Which
20th bear symbols
A , B, C , v , a n d k, m s y not b e redeenied
but must b e rorwarded t o the T r ssury o f the United stetes,
* ruling ils necessary beceuse these Victory notes were called
tor redeiption o n veceuber 1ldSth, and i n case the may, 1922,
coupon i s n&w& attzched t o the note the redsrsl xneserve
Benk m u s t d e c u c t t h e s u o u n t o r t h e c o u p o n f r o m t h e t a c e o f
the note i n redeei.ing 1t snd credit the Tressury for that
anount,
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Federal Reserve Bank of St. Louis
I n t h i s manner =
fund t o r redeeming s u c h deteched
398
coupons i s established and the Tressury will only redseni
such coupons r r o m t h a t rund.
P
o Lsscbitb o r t
t o ses how
eny other procedur: trom that suggested b y the Tressury
“epsrti:ent c o u l d b e s e t up.
The Cheirian:
I
s thst t h e r e m i t o f s o e correspond-
ence with t h e Department?
Governor Calkins;
N o , t h a t i s obiter dictum.
Governor #'sncher:
T h s t i s i n the Tressury Circular
Governor morss.
T h e notes, when paia, i f the coupon
is detached, the amount o f the coupon i s a. cucted;
but
the fund 1s accumulated wih which to pay the coupons,
snd therefore they c a n b e paid when presented.
The Chairnsn:
w 6 will take this metter u p h e n wr.
Gilbert i s here and get a n expression from his about it.
You Will recall thet we psesed one topic, subi.itted
by wovernor ucrinney, o n sccount o f his sbsence, I
have
8 televsram rrom which which I will e s k ur, “arrison t o read.
“subject t w o topic b
enu.rss.ents o n checks received
for collection s r e uniform i n sll tislve vistricts except
New York a n d sinnespolis.
b o not guarantee prior e n orse-
ments a n d ot. Louis uses restricted endorsenent conts ining
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Federal Reserve Bank of St. Louis
399
the w a a s r o r collection re.ittence although ct. Louis does
gusrantee r i o r encores. ents.
T h e inportance o f having
unifors. encorsenent e n c unlrorm lisbility throughout t h e
syste... l s manirest.
I n view o r sect that regulation J
or the Federal HKeserve Board cléarly mekes t h e u s only
én agent tor handling checks ror coli:ction ana w e acquire
no p r o p e r t y r i g h t s o r o w n e r s h i p
ould
i n clécks
s o nsndled,
w e use a n unj,usliried endorssment guarsntesing prior
endorsements a n d warranting t h e other things rererred t o
in the negotiable instruments act?
“wy Opinion i s w e would have .ifficulty i n getting
our nienber p e n k s
t o accspt c h e c k s u r s w n o n t h e m unlescs w e
used ungusliried snaorsenent guéranteéing a l l -eevious
enaorsenents.
I n view o f thst ract e n d rurther o n e that
our l i a b i l i t y
i s more o r l e e s n e g l i g i b l e a n d s p p s r e n t l y
would only represent l o s s i n ¢sses sthere w e d i d not have
solvent o r going bank t o reall back o n I think w e should
continue t o use the r o r m o f encorssuent n o w usea b y nwajority o r t h e banks a n d g n only bringing t h i s point u p i n
order thet . e c a n haveciscussion o f our lege] position.
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Federal Reserve Bank of St. Louis
w e K i n n e y
°
a
400
The Chairmen: 4
would a l s o l i k e t o p l a c e
i n the
record another tslezram received t r o m Governor «.Ciinay
with rererence t o subject 2 , Topic b .
“subject t w o tupice KB appro«inately eighty p e r esnb
or collections hsraled b y u s are received frou. reserve
city men.bers a n d b s l e n c e a r s d i v i u e d b e t w e e n o t h e r Fecdcersls
anc country meubers o f this d s & trict.
I
n 1920 vallas
handled 18,000 items kouston 6,000 and Elpsso 4,000
Totsl 28,000.
1921 v a l l e s 5 5 , 0 0 0 h o u s t o n 2 0 , 0 0 0 a n a s l P a s o 8 , 0 0 0 t o t a l
83,000,
lgee estinate ror entire yaar based o n nuuber itens hendlec t o cate we8llas 80,000, houston 27,000 3 n d 1
Paso
12,000, total 119,000,
Botinstedad c o s t r o r 1922; w s l l a s » 1 8 , 8 1 2 , 6 4 , h o u s t o n
#0 ,098.08 a n d E l Paso 2,783.84.
T o t a l 27,694.56; a p p roxi-~
mate c o s t p e r i t e m 2 3 cents.
uChLlauney,
Governar valkins:
T h e telegrai w i t h regard t o sube
ject 2 , T o p i c D , s h o u l d b e r e r e r r e d
t o t h e collections c o m -
mit tee, should i t notyz
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Federal Reserve Bank of St. Louis
The Chairman:
Y e s , a n d i t will b e s o referred,
4901
Governor
you g o around
Young’
u Y . Chairman, 2
would like t o have
the t s b l e a n d d i s c o v e r w h a t t h e F e d e r a l kRe-
serve banks a r e going w i t h regard t o employing collection
agents.
The Chelriusn: G o v e r n o r Halley, s r e you employing
collection sgents?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor
Bailey:
K e n s a s C i t y i s n o t employing them.
Governor
wucbouge lL: I
Governor
Calkins:
Goverror
Norris:
think w e hsve 6
v
very few.
é a r e a t present emp.ioying none.
# 6 are n o t employing any, ur.
Chairman,
Governor
e have o n e a t a
w
Fancher:
remote point
i n
Kentucky.
Governor
Biggs:
W e have Giscontinued them. \ /
Governor
mOoTss:
#
Governor
ve@llboorn:
Governor
weay:
6 h a v e none.
w
e h a v e none..
w # ¢ Have n o tilela egents a t t h e pre-
sent time, b u t w e occasicually h a v e t o send t o 4 bank that
is not satisfectorily sccounting r o r ifis checks,
t o col-
lect them.
Governor
san “ r a n c i s c o
valkins: I
mignt w a y that wr. vavis w a s i n
and w e d i s c u s s e d t h e m a t t e r w i t h h i m a f t e r
402
thie csse, t o which I have msde rersrence, h a d been decided,
a n a h e eapressed t h e opinion, n o t v e r y strongly,
because h e cidn't seem to think i t was 6 matter o f much importance, that i t would probably b e sdvis eble ror u s to
forget t h e metter until t h e casss n o w berore t h e court were
acecided,
T h e t i s the course w e sre now following. vcther-
Wise W S would collect b y sgents sherever necessary,
The Chsirmen:
W
Governor Young:
e have n o egents a t all.
#
@ have n o agents o t all.
{ would like t o put this other juestion, u r , chairman,
ir s stste bank o r non-uenber bank, t h e only o a n k i n the
COiuunity that woula not remit at par, would you teke then
oli the par list, a @ put e n sgent there? I
would like
to g o around t h e table o n thst?
The Chairman:
T h e question i s would you take thom
ori the per list or would you send a n gent,
a i e might
heve & @ hand vote o n thst.
(un @ hand vote five voted i n fevor o f sending a n
agent out end rive v o t e d t o take them ofr the per list.)
(At 4:30 o'clock p. m. Uiider ecretary Gilbert of
the T r e a s u r y v e p a r t m e n t e n t e r e d i n t o c o n t e r s n c e w i t h t h e
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Federal Reserve Bank of St. Louis
Govenors o r the redereal Keserve bsnks. )
The Chsiriian: G e n t i e u e n , w r . Gilbert i s here a n d I
have asked h i n t o tell u s souething about t h e subscrirtions
end the progran that h e hss i n mina,
i r h e will b e good
enough t o c o so,
ur, Gllberg:
T h e totel suoscriptions received, t h a t
I have d e r i n i t e w o r a o f , a r e a b o u t 850,000,000.
T h e way
that they are coming in, based o n last night's report, I
think they will b e pretty close t o a billion, f i v e hindred
million i n New York s n d about rive hundred miliion t o the
rest o f the country.
T h e reports incicate t h e t distri-
bution i s exceptionally good, s s fsr 8 s w e c a n gather rronm
the reports o f ellotuents o n suesll subscri;tions, a n d f r o m
the reports f r o m outside sources t h a t w e are getting there
is also a p p a r e n t l y 6
s u b s t a n t i s l n u m b e r o f exchanges, which
have incressed i n t h e l a s t d a y o r t o .
tion t o u s y t u r n e d
T h e steel Corpors-
i n sixteen million o f their Victory notes
on exchenge.
The Cheiriuan:
H a s t h e wetropoliten L i r e Company
eome in?
ur’ Gilbert:
T h e y are going to, 4 think.
when t h e orfer w e s p u t out o n wonday morning,
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Federal Reserve Bank of St. Louis
A S announced
w e sre offering
404
one oftrer o f tlve hundred millions o r thereabouts o n the
usual terms o f cosh subscri: tion s n d payment b y credit.
plan i s t o hola i t down t o ,500,000,000.
i
The
t may r u n
»l0,000,000, ..15,000,000 or 420,000,000 over the ,»500,000,000
in order t o make t h e necessary sdjustiients a n d sllotments,
but that will b e the limit,
v6 are putting o u t a statenent tonight t h e t t h e sub-
scriptions ror the ..50j3000,000 orrer will close a t noon
On saturdsy, a n d w e are hoping--- n o t o n l y hoping, b u t w e
want t o get the repats o f subscriptions here b y early
enough O n sunday o t le-st s o thst w e c a n make t h e allotments a n d s e n d o u t d e r e n i t e s l l o t m e n t i n s t r u c t i o n s
t o the
Fed:rol reserve banks, s o thst those allotients c a n g o out
wonday morning o r sundsy night.
T h e exchsnge offer w e
will k e e p o p e n r o r sbout a n o t h e r isesk.
T h e allotments
on thet are relatively smell, e n d they are being made i n
the order o f receipt.
I would b e < a r t i c u l e r l y i n t e r e s t e d
t o know whst t h e
Governors think sbout t h e hs.aling o r these allotuents,
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Federal Reserve Bank of St. Louis
whether o r not theirbanks will b e able t o make reports i n
goodseason,
b y scunday--- w e may have t o take s few chances--
and give u s a little leewsy o n t h e s a l l subscriptions.
w e
406
would like t o have fairly derinite iniorustion s o that
we would b e ssfe i n .aking siloti:ents.
I t i s rairly siine-
ple i n New York, Philecelphia a n d Boston, b u t I
suppose
in somes o f the more remote aistricts i t msy b e a little
ciifieult.
w
e sre prepsred Lere t o b e oper 3 1 1 saturday
night a n d e l l aay ounday i n ordsr t o receive reports.
The Choiraan:
I
s there anything i n your notice o f
closing w i t h r e g a r d t o s u b s c r i p t i o n s r e c e i v e d
b y mseil
bearing t h e postmark?
ax. Gilbert;
i
the rinel notice @
t i s n o t in, b u t w e con p u t thst i n o n
closing,
i f necéstary.
f £ wouk r e t h e r
not d o it.
The Chsirman:
the f i g m e s
I t makes 4 big cirrerencse i n getting
t o you,
Lr” Gilbert:
4
@ preter
t o heave t h e s u b s c r i p t i o n s
actuslly closed a t noon without regard t o .het.is i n the
mail.
é @ hope that any stragzliers i n siall snounts that
cone i n afterwarus c s n b % taken csre o f b y arrangement w i t h
some bank, a n d l t might b e «orth while t o r the rederal reserve banks t o protect t h e n s n a iuake 8s fsw exchanges o n
their o w n a c c o u n t
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Federal Reserve Bank of St. Louis
i n crder t o tske c a r e o t t h e little r e l e
lows that drirt in. I
think i t i s very inportsnt t o get
allotment notices out early moriday niorning.
Governor Norris:
G a n y o u send thst notice o u t about
¢losing o r subscriptions
o n caturday early this srter-
noon? T o m o r r o w , y o u see, i s s holiday i n most o f the
districte,
ur, Gilbert:
I
t hasn't gone o u t esrly;
sbout going o u t now. I
i t i s just
an. afraid y o u won't have i t berore
you close t o r the holiaay.
I t i s a holiday i n seven o r
Sight districts, isn't it?
Governor «cbougsl: « i 4 1 1 thet inforuation b e released
to the Asscocisted Press tonight?
ur Gilbert: Y e s .
The Chairuan:
H o w i s the warket t o r Libertiés today,
ur” Gilbert?
wr, Glibert:
T h e market r o r Liberties closed a shade
sbove par with n o buying o n our vart. T h e r e was none a t
cone o'clock end 4 do not think there hes been any since,
The Chairmen: P s y n e n t i s t o b e made o n vetober 16th?
mr? Gilbert:
Y e s ; I
think that i s next wondgy.
o f
course t h e banks will p s y b y exedit a n d there i s always a
little leeway there,
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Federal Reserve Bank of St. Louis
Governor #sncher;
N o t getting t h e allotnent notices
407
out until sunday night o r monday,
o r course t h e banks
won't know what smounts they sre allotted,
t o make their
entries‘?
mur® Gilbert:
The Cheiriuen:
2%, Glibert,.
no cirriculty.
i
N o t u n l e s s y o u télegranvh.
i
t i s going t o b e closed u p o n tins?
T h e benks tuat p a y b y credit w i l l heve
t i s t h e ususl practice t o permit t h e m
to send a wire t h e a a y arter they credit you, a s o f thet
date, s n d t h e t t a k e s c a r e o f t h e g r e a t b u l k o f it.
Governor Fancher: Y e s , that is usually done.
The Chsirman:
I
s there onything further
o n this s u b -
ject, ur Gilbert?
wr” Gilbert:
N o t unless cou.eone aesires t o a s k nie
8 q u e s t i o n o r two,
The Chelriian:
-
@ have o n é o r t w o matters
would like t o uiscuss w i t h you.
tht
w e
O n e « 9 8 t o ask y o u i f
you were ready s n d willing t o mske a little statenent t h e t
will throw soue light upon t h e extent,
t r a t all, t o which
the reserve banks will b e sskea t o hendle the payment o f
the w a r s a v i n g s a n d T r r i r t s t a n p s t h e f i r s t . % vanuary?
we Gilbert:
T h e receral keserve banks a r e slready
°
acting,
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Federal Reserve Bank of St. Louis
a s I understand i t , 9 s depositsry banks f o r the
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Federal Reserve Bank of St. Louis
408
"ostmssters i n the principal cities;
reserve b a n k s a n d branches.
t h a t i s , t h e Federal
T u e s e postwesters particular-
ly will be planning t o come t o the re.ervé banks with the
certiiicates thet they have receemea # n d gst im.calate cash
reimbursenent.
T h s t w i l l fall very directly
banks, a n d the postuasters w i l l dspend &
o n the reserve
g o o d e a l o n the
facility with which they c a n present the certiricates t o
get c r e d i t i n t h e # e a e r a l r e s e r v e banks. i
orrhand
8 m not s u r e
w h e t h e r all of the reécrerve banks now d o
that ror the postmesters, b u t I think wost o f them do, and
8 g o o d m a n y o r t h e bi: anckes.
T h e r e s r e depositary post-
mSsters i n each city snd the depositary orrice coincides
With t h e Fed.rel re.erve b a n k i n probebly n o t over halr o f
the clties.
.
@ are also preparing
t o p u t o u t s n sinounce~
ment, p r o b a b l y a r o u n d t h e r i r s t a d N o v e u b e r , o r r e r i n g
specisl f e c i l i t i s s r o r e x c h a n g i n g t h e n e t u r e d i a r sevings
Cert iricates for new Treasury saving Certirieates o f aate
January 1 , 1922, which will b e a d e svailsble o n consignment t o t h e rederal Keserve benks anda t o sgents w h o want
to hold them o n consignnient, a n d they will b e excisnged i n
sdvance o f danusry 1 tor the new certiricates.
throw s o m e b u r c e n
o n t h e reserve banks.
#
T h e t will
6 are also
409
plenning t o receive t h e certiriestes berore January 1 ,
ror
recenption o n Janusry 1 by Treasury check, a n d
w e would
like t o have those cone i n through ths reserve banks
to
vole extent.
T h e bulk o r the ceteil w o r k i n thst
will
fall o n the post Oicgices, I
The Chsirsen:
think,
I s i t expected t o niake t h e reserve b a n k
8 plece o r reacustion o f thsse cértiricates a t
all?
uP Gilbert: I
should like to do thst and also to
heve i t understood that t h e un-regcistered certiricates
méy b e p r e s e n t e d d i r e c t
t o t h e r e s e r v e b a n k s t o r redemp-
tion i n the ssme menner a g Tressury eertizicates, interest
Coupons s n d Victory notes a r e presented.
U n a s r t h e temas
of the certiricate, 9 1 1 certiric atés, except regis
tered
certilic ates, a r e psyable either s t the post of1ice
o r st
the Treasury, s n d i n sccordance w i t h o u r usugl practice
we woula like t o wake uhatever i s Payable s t the Treasury
in w a s h i n g t o n p a y s b l e s l s o &
t h e reserve banks a n d proba b l y
8lso a t the reserve b a n k branches,
The Chsirian:
O r e o x the weubers o r the Conference
stated t h a t i n h i s d b trict h e h a d inroriuation
w h i c h indieated t h a t cocp-erat ion b y t h e p o s t u s s t e r s
w a s n o t v e r y active
snd synpathetic i n handling this j o b o f
¢ither issuing t h e
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Federal Reserve Bank of St. Louis
410
stamos o r t h e i r psynent,
a n d the question w a s whether t h e
Bostiiester Gensral could g e t h i s orgsenizetion s t the eighty
oud thoussnd post ofrices t o buck up.
uM. Gilbert:
H e can't s t a lot o f them,
class postmasters a r e very hard t o handle,
T h e rourth
T h e r e are a
good iany thousands o r them too, b u t there ought t o b e n o
airriculty
Orsices.
i n getting t h e cooperation o f t h e first class
T h e greatest uirficulty may b e thet i t will b e
st t h e worst time o r t h e year t o r the post oirice aepart-
ment
T h e y ore workin; night and aay a t that tine onthe
Christmas rush sand they ore going t o be all played out
Just a t the tine w h e n thie mstter will best i t s worst.
But
we Will have n o trouble i n getting the Portmester Veneral
to send eny sort of instructions w e went t o the post ortices,
f a m satisriecé shout thet. w h e t h e r they will
coopsrate after that i s snother juestion.
Governor Fencher:
I
t msy b e necessary i n sone o f the
reserve banks to wake +, ecisl errangénents, becesuse i¢ the
Peuceral reserve benks a r e t o b e & source c t reaenotion
there isn't a n y doubt b u t ehst w e are gOing t o b e rlooded
with = lot o f peosle,
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Federal Reserve Bank of St. Louis
mun® Gilbert:
i n 4 good many o r the banks i t may b e
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Federal Reserve Bank of St. Louis
411
neces.ary t o establish 5» branch redemption ofrice o r soiething o f that kind,
The Cheirman:
a
@ are thinking o f our limitec recil-
ities o r it.
ue, Glibert;
I
n New York thet u p town ofrice that
you uséa auring t h e Liberty Loans m e y b e very necessary.
wovernor Fancher:
I
t i s nécessary thst w e should
heave rairly sdvance inroruation o f what t h e plans a r e i n
order that s e may make srrangements,.
wr, Gilbert:
I s uctober 31, o r N o v e m b e r ,
1 o r sonie-
where along that time surricient aavance notice?
Governor r a n c h e r :
wr Gilbert:
w
Y e s .
e may b e able t o give i t t o y o u ¢<oie-
time berore thew, b u t n d l a t e r then that.
Governor seay: I s n ' t i t probgsble that w e will heve
to invoke t h e a i d o f the banks i n esch city:
ine? Gilbert:
#
@ woula l i k e t o a o thet.
a
e want
the banks t o sssist b o t h o n the receuption a n d o n exchsngs.
The savings bank civis lon o r t h e aAmericsn Bar associs tion
edopted s resolution pieaging soue sort o f cooperation.
That i s quits 6
changs f r o m the more c r i t i c s attitude t h a t
they have heretorore had. T h a t is the first sign of co-
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Federal Reserve Bank of St. Louis
operation w e have e v e r h a d r r o m thst divis ion of t h e
Auerican Ber Association.
Governor séay:;
T h e y think, p e r h s p s ,
t h e t there i s
9 good chance thst they will get M m e o r the moncy,.
ur” Gilbert: T h e t is what they are efter particulerly; but they sey they will heip o n exchanges.
Governor Fancher: I
can see where w e c a n enlist
their sid s s t o redemption, b u t I sm wondering 3 s to the
exchanges,
ur, Gilbert:
T h e y s r e extren.ely enxious t o rreeze
Onto some o f the monsy shen it goes through, e n d they
uiignt a s well have i t e s t o have i t
wilé c a t stock o r something o r thet ovrt.
g
o into
f h e r e i s quite
8 bit o r aarger that a lot o f i t will g o into -peculetive
-@curities.
The Chairuan,
T u e savings banks coula b e induced
to nelp v e r y largely because t h i s monsy vill b e aunuped
right i n t o t h e m 1 . a c o n s i d e r a b l e siiount, s n d i r t h e y
could g e t tiese people t o opén sccounts right there i t
would b e a good thing because 1 t would b e @ bad thing t o
heve a
few hundred million dollars turned l o c s e i n the
hends o f poor péople o r people o r mocerate ieans j u s t t o
be blown in.
«r"* Gilbert: I
feel w e should not be s t sll sorrisd
by the ract thet t h e benks m a y g e t t h e money o n deposit
6s i t goes by, o r sone o r it. :
I think 4 lot o f these
people w i l l know what tney want, a n d i r the bank tries t o o
hard t o get t h e deposit t h e y w i l l b e 611 the more anxious
to get 6 n excnange, a n a they will m o b s b l y h a v e their o w n
ideas about w h e t they want t o c o with t h e monsy;
b u t if
the sovings banks d o get sone o r thore savings secounts,
so m u c h t h e better,
The Chelriuan, I
understand y o u a r e p s t t i n g o u t s
poster which will explain i n siiple terms exectly « h s t i t
S11 wesne.
becauss
c a n thst b e printed i n the various lengusges,
w e have s o n e s e v e n t e e n i s n s u c g e s
ur’ Gilbert.
i t may b e printed i n soue o f tnen,
especially Yiccdish.
Yidelsh anyway;
i n N e w York,
a @ Will have wermen, I[telian and
w e h a v e t o c o thot,
The Chsiriisn:
h o w sbout t h e expense o r hendling
this, w r Gilbert? T h e r e i s n o funa out of which this
cen b e paid,
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Federal Reserve Bank of St. Louis
i s there?
ur Gilbert:
we have to.
w
e C é n usually r i n d a little money i r
b y that tiie t h e reaszrs ;
b a n k s will
all k n o w t h a t t h e y h a v e 3
surplus, p r o b s b l y .
Governor <say: H o w e v e r small 1 & msy be,
8
The Cheirman:
a r e there any rurther questions o n
topic?
Governor Valkins: I
to g i v e u s s o w e i n f o r i a t i o n
woula like to ssk wr’ Gilbert
s s t o shat proportion
o r the
outstanding e c u r i t i e s w h i c h will sisture January 1
are
registered and what proportion not réegistsred?
mr Gilbert: L
do not believe anybody cen tell that.
That has been one ot the troubles #ith the regis tration
They were ragisterec i n probsbly 15,000 post
Oivices, a n d w e have n o con.olidated statement o f t h e
suounts thet were registered.
W i e con make 9 guess st it
sna that i s about all, I g e t h e r that there are m o r e them
100,000,000 registered out o f the 600,000,000, maybe not
that much,
Governor tancher:
A n d the smount outstanding i s
shout .600,000,000 now?
ur. Gilbert:
maturing J e n u s r y 1
T h e value o r whet i s outstanding a n d
i s .630,000,000,
Governor Calkins: T h e o r e t i c a l l y w e will b e cslled
upon
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Federal Reserve Bank of St. Louis
t o r e d e s m e 1 1 t h o s e t h o t e r s n o t regis5
tered,
o r in g
other words, »~500,000,0007
wr Gilbert: Theoretically, but I think they will be
rether slow i n coming in,
O n the rérunding o f them w e
have n o t worked out very derinite plans beyond t h e sxchange.
uur reeling i s thet w e ought t o c o w e r y t h i n g porsible
during Lecernber t o encourage exchanges i n sdvenee.
Then
we will have enough cash 3 s 4a result o r the bLeceniber sales
oi securities t o mset t h e césh psyuents t h a t fall inmediate-
after dsnuary l,.
B u t i f the conaitions are tavorable
we m a y c o n e o u t s t t h e o p e n i n g o f b u s i n s s s J a n u a r y 2 , w i t h
en otfering o f long time bonds t h a t would b e inusdlately
svailable r o r exchange f o r these certiricates o n 4 more
pretered basis.
The Cheiruan:
C a n we not stort the excuange earlier
becenber?
ur Gilbert: I
The Chsirnan:
think w e can very wall.
T h e r e i s n o cash involved i n thst.
Governor Fancher: I
should t h i n k i t s o u l d b e v e r y
Gesirable t o start i t sixty days i n edvsnce,
ur Gilbert:
W e will onnounce 1 % November 1 , end
I think there i s n o resson w h y i t could n o t begin substen-
tially a s soon a s i t i s announced.
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Federal Reserve Bank of St. Louis
I t i s very helpful t o
kno h o w many s r e going t o b e sxchen.,ea, too.
Governor ssncher:
A n d i t i s very helpful t o have
the time i n which t o nake t h e exchanges, w h e n they a r e
piling i n i n hordes.
Governor ncvougal: I
should like t o ask i f there
is anything i n the terms under which t h e certificates n o t
registered a r e issue., w h i c h woulda prevent a
bank from
eéshing those i f they w a n t e d t o end i n turn zepositing then.
in the Federal Keserve Bank?
“ur? Gilbert:
T h e certiricstes srenot transferable,
but a t the s m e tiuwe banks coula c a s h t h e m ror account o f
their custoniers s n d t u r n them i n a t the reserve banks.
That will b e done,
T h e y mey have t o fill o w 8 s form o r
‘wo, but it won't be very serious.
Governor Norris; I
don't like t o bring u p = dissgree-
able question o f expense, b u t i f w e have t o r u n a place
for a n agency t o attend t o this, e q u i p i t snd r u n i t f o r
8 couple o f months, y o u would have t o have a ground floor
location i n = convenient plece, a
fair size, e n d i t would
be considersble o f a n exnense,
ure Gilbert; I
clelus f o r expense,
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Federal Reserve Bank of St. Louis
think w e ean listen t o reasonable
w
e have suizicient funds.
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Federal Reserve Bank of St. Louis
417
Governor valkins:
i
e Should have a l l the inronriia-
tion porsible t o ensble u s t o jucge 3 s t o what w e are
going t o b e called u p o n t o do, o r how r a r w e will have t o
go i n providing yguérters a n d stafr t o a o it.
ur Gilbert:
H o r instence,
i f w e mede a n announce=
ment o n November 1 , providing f o r operations t o begin about
November 15th, w u l d that give time enough i n which t o make
srrangements?
Governor Calkins:
The Chairman:
I
I
t i s pretty short.
t i s s question o f clerks more t h a n
Snything else w i t h us.
ur Gilbert:
I
t will b e a very consiczrable iiechan-
problem, bécsuse there s r e millions o f them.
The Chairman: I
estimate thers a r e 9 million e n d a
separate i n d i v i d u a l s
i n N e w Y o r k City,
a t a
minimum,
hold these certiricstes,
ur, Gilbert:
tle now,
T
i the banks will canvass that a lite
d o y o u t h i n k y o u h a v e suifieisnt i n r o r m a t i o n
to
canvass t h e possibilities a@f what y o u may need i n clerks
and s o torth?
Governor Calkins:
be d i s p o s e d
T h e benks, very gensrally, will
t o p u s h t h e m s t t e r o f f o n t h e F e d e r a l re-zerve
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Federal Reserve Bank of St. Louis
418
banks i f there i s any opportunity t o d o it,
w @ are not
going t o get that réesdy sssistance a n d cooperstion that
we have gotten---~
iar Gilbert:
f h e o n l y t h i n g working r o r y o u i n that
is that they hope t o get some o f the money.
Governor Calkins:
B u t thet w i l l spsly only t o the
savings banks,
The Cheirnan:
A n d t o those thet heve savings depart-
ments.
ur’ Gilbert:
U g not 8 s good share o f the banks r u n
rather large savinzs: aepsrtments?
The Cheirian:
T h e r e e r e n o t s o mény i n New York
City.
ur. Gilbert.
k e get very little help from the down
town New York banks,
The Chairuan:
T h e y a r e r e t h e r r e m o t e anyway.
T h e
clerks i n the banks o n d i n the orricves will turn i n their
stamps a t convenient a
e
e t h e y have bank sccounts,
probably, b u t i t i s the great esst - n a west cide, t h e b i g
resid:nce areas u p town that w e have t o think about, a n d
when y o u c o n s i c e r t h e n a g n i t u d e
o f i t t h e p r o b l e m o f trans-
portation has got to be settled of how w e are going to get
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Federal Reserve Bank of St. Louis
419
these people t o convenient places
m d g e t t h e m away sgain.
There s r e @ good wany méchsnical things t h a t have g o t t o
be worked o u t very céretully.
Governor Cslkins: I
unaerstand y o u .xnect u s t o redeem
at t h e benks a n d t h e b.anches.
ur” Gilbert;
W
e would like t o have y o u d o it.
Governor Calkins: i
think s e c s n i f w e c a n get t h e
intormation o u t a t e n early enough date.
T h e brsnches,
several o f them, a r e located i n .econd floor quarters,
which will b e entirely unsuit able f o r the purpose, a n d i t
will b e nec:ssary t o find temporary quarters.
iar Gilbert; I
think I
can srrange that t h e rMederal
reserve banks c a n g e t advance inrormation o f what w e will
announce o n November 1 , s a y somewhere sround t h e 18th o r
19th of October.
Governor Calkins:
T h e transactions
i n the branches
will b e more expensive i n proportion t h a n t h e y will b e
elsewhere,
The Chairman:
W
S woulsd n e e d t o b e suthorized t o
start negotiations w i t h t h e banks themselves.
F o r instance
the Fedsral Keserve Bank o f New York will have a big job
to ao i n New York City, a n d i t has also got t o make grranse ments throughout t h e entire aistrict. T i e p é t o r e , t h e
429
quicker w e get those instructions t h e better i t will be.
Governor seay;
I f you could make 8 total wsiver o r
ti.¢ non-trausrerable teature i t would greatly facilitate
metters.
Governor Calkins:
# n a t objection would there b e t o
aoing that?
ur. Gilbert. I
ao not recall the nou-transterable
provision 9 s having s n y bearing o n redemption,
I r 1 t cones
through t h e bank I would like t o have sstatement f r o m the
bank thet i t has - p e i d the people whose nauwés are o n the
certiricate,
The Cheirman: I
would j u s t p a y t h e m a n d g e t t h e m
out o f t h e way.
Governor Fencher:
T r a t c o u l d n o t b e done, u r e G i l -
bert.
The Chairnan:
T h e burden thst would inipose o n t h e
banks would b e very serious,
Governor rancher:
A n d I co not think you coulda get
them t o cooperate,
wr” Gilbert: I
would not esk for a list o f nsies,
but i f they would send t h e m i n t o t h e reserve bank with
the statement that t h e y have ceshed t h e certificates f o r
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Federal Reserve Bank of St. Louis
421
the hole*rs named thereon, without o n y list, I
think w e
would b e happy.
Governor Fancher:
B u t that will require idsentitrk a-
tion,
mr’ Gilbert:
T h e y have t o identity the holder o f a
check,
Governor morss.
B u t y o u could n o t identify these
because t h e y d o not have t h e signatures o n then.
T h e names
are written o n b y t h e postuasters.
Governor Fancher:
A n d therefore t h e people could
not b e identiried,
The Chairman:
T h e scheme i s this, t h a t t h e Govern-
ment owes 4650,000,000 represented b y slips o f paper payable t o the holder thereof,
ux’ Gilbert.
W
{ I would just p a y them,
e have a n express clause i n our certi-
ticate which w e c a n rall back on, that w e are n o t Liable
for péynient o f a n unregistered certirisate t o a person
other t h e n t h e owner,
Governor Calkins:
i t segis t o m e L t will b e done
eventually, a n d i t might a s well b e aoneopenly s n d generSLiys
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Federal Reserve Bank of St. Louis
Governor seay:
i d o n o t think there i s any one other
422
thing that would produce s o much fscility i n red -nmption.
wr" Gilbert:
# 6 realize w e will hsve t o do thet.
Governor “ancher:
T h e simpler y o u could make t h e
operation t h e m o r e r e e d i l y y o u c é n e n l i s t t h e c o o p e r a t i o n
of the banks, e n d thst i s a very desirable thing.
The Chairman:
W
e hsve g o t t o have a supply o f cere
tificates r o r those people w h o have néver sttached t h e
staups
t o t h e certiricates,
because t h e y c a n only b e paid
when sccoms nied b y the certificste.
wr Gilbert:
w
The C h s irnisn:
e Will need 2
lot o f those, I
think.
A r e there a n y further u e s t i o n s
this topic, gentlenen?
I
o n
f not, ur’ Gllbert, there are
two o r three other little matters o f uetail that w e have
been Ciscussing,
o n which n o action h e s b e e n taken, b u t
with regard t o which some little expression o f view has
b
O
n
é o f the matters i s the question o f these per-
menent records o f source o f gvernméent securities,
w
e
find that some o f us think they should b e kept fully and
others think that i t i s a nesdless résponsibility.
does p r o v e e x p e n s i v e
t o t h e banks, I
I t
rather h a s t i l y
gathered that there were five o r six here who felt that
the reeoras should b e kept a n d s i x o r seven w h o felt that
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Federal Reserve Bank of St. Louis
it was needless,
w
and recuced costs.
e are o u t f o r economy a n d erticie ncy
H o w d o you feel about t h e t matter?
essential t o preserve t h e m c o r d o f the source?
ur’ Gilbert: I
lutely ecsential,
haven't regarded t h e records 3 s abso-
b u t i t heppens
have t h e m i n s o m e casés.
such records, I
t o b e very convenient
to
w o n e o r the banks have ssintsined
think, e v e r s i n c e b e g i n n i n g operations.
I think sensas C i t y a n d several others h a v e kept s continuous record.
w
é had thought f r o m t h e scheaules that were
used i n t h e s e o p s r a t i o n s a n d r r o m t h e r a c t t h a t t h e opera-
tions themselves h a v e b e e n much reauced, t h a t t h e records
could b e kept b y sdding one additional column t o the
sched le. I
do not k n o w whether i t ha. proved feasible
or not, but I understand i t has proved so.
W e had sup-
posed that i t could b e dons without seriously increasing
the expense.
I f i t i s 9 great deal o f extra sxpsense w e
would like t o know i t a n d would b e glad t o reessmine t h e
matter, b u t t h e record i s o f considerable convenience t o
the Treasury.
n
@ have h e d @ loss o x three million dole
lars i n bonds i n e matl robbery, W u l e h w e are particularly
anxious t o kee, t r a c k of, s n d they have b e e n o f sesistance
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Federal Reserve Bank of St. Louis
in tracing other irregular cases that have been presented
424
rrom voricus s o u r c e s ,
T i i ¢ n w e have h a d s
interest i n irregular ceses o n account
rather u n u s u s l
o f some o f these
stories w h i c h y o u n a y h a v e essen a b o u t d u , licate n u m b e r s
oa bonds and other irregularities.
T h e stories are un-
Tounasc, b u t they nevertheless made u s rather more snxious
than u s u a l
t o neintsin a s conplete s
record a s possible.
it seems t o me that i t i s better t o err o n the side o f
keeping more recorus t h a n necesssry t h a n i t i s t o err o n
the side o f keeping t o o little.
B u t £
do notregarda i t
sbsolutely essential, i f it is csusing trouble.
Governor sesy:
d h a t some o f u s would like t o b e re-
iieved o f i s the requirement
t t
w e should keep it. I
think w e have kept them a n d perhaps w e would prerer t o
continue t o keep then, b u t w e would like t o feel that i t
is not 4 reguirsment t h a t w e should d o so.
mr Gilbert:
situation,
w
B u t that would lsave 3 rether haphezard
e would never know whether the b a n k w e keep-=
ing t h e m o r not.
I
t scens t o n e i t ought
t o b e uniform
One w a y o r the other.
Governor . 6 a y
1 8 % I
mean i s thet i r t h e bank wants
to keep i t for its o w n use e n d not f o r t h e Treasury Leparte
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
ot, Glilbert ; w e never have prohibitec keeping
coras. Kansas C i t y kept recoras a l l siong n d w e have
objected t o it, s n d i t ha. been useful i n some cases t o
heve i t i n that district.
The Chsirman;:
S u p p o s e w e look into this question o f
expense, c e e shat i t amounts to, a n d advise you.
up Gilbert: I
think I would like to hsve it done
in thet way, i f possible.
two banks. I
«
@ had i t u p sith one o r
think ur’ Jones, o f Chicago, was here, and
as I understood i t a t the tine i t could be covered b y
simply using o n e o r the parallel coluuns o f the existing
schedule,
The Cheirman:
it i n that w a y .
I
f there i s n o objection w e will leave
i n q u i r y w i l l b e made s n d y o u will b e ad-
vised o f what t h e c e t is.
There i s siso 3 westion a s to ihethsr this ruling
With regard t o counons o n called Victories i s not going
toinpose §
good deal o r work, b u t 3lso ahether i t was n o t
going t o create a very b a d impression t o have a n y o f the
coupons s e n t b a c k ?
wr Gilbert:
T h e regulation w h i c h t h e Tressury p u t
out about coupons f r o n ¢slled victories, ,aeturing sfter t h e
226
celled cate, represents a
very o l d practice o f t h e Treasury
Which goes b a c k r1ifty o r sixty ysars, 4 n d waybe more than
het. b k x v e r i e n e s h a s b e e n t h a t t h e r e h a v e b e e n v e r y r e w
cases arise,
mM
s o few thst t h e Tressurer's
oftice hardly knew
what i t was, although there has been = unitorm prsectice o n
ll losns.
T h e regulations a s w e put them out would re-
guire the e c : ral r e s
t
o reruse t o pay coupons
on callec notes nisturing after the c l l e d date, a n d to send
those i n to zsshington ror payment out o f deductions iad e
upon n o t e s p r e s e n t e c w i t h t h e s e c o u p o n s missing.
T h e
coupons theiselves b e e r t h e express prevision that they
are payable o n the d u e uste unless called r o r previous
redemption,
T h e Treasury hss not felt thet it woo uesir-
oble t o p r o c e e d t o p a y t h e s e c o u p o n s
s s i f nothing h a d
_heppened, a n d while i r there were many csses arising i t
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Federal Reserve Bank of St. Louis
tlghnt cause s o e inconvenience, w e felt the probsbilities
were that there would b e s o rew ceses that w e m u l d handle
them betterthsn b y issuing sweeping instructions t o p a y
the coupons notwithstanding thse call. I
agree thet there
would not b e much loss t o the governucnt, e v e n if w e rollowed the other theory, because i t would probably wash out,
but i t g o e s a g a i n s t t h e g r a i n o n account
of 4
practice
of
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Federal Reserve Bank of St. Louis
427
riftyycars
o r more t o p a y @
the call date. 6
coupon t h s t h e s m e t u r e d a r t e r
G O not Like t o d o it.
The Chairman:
I t was done i n the cese o r the 32's,
was i t not?
I
G i l s e r t :
N
Governor s¢ay:
o
.
T h e situation a t present i s that
there i s m i c h @ treiendous volume o f outstending obligetions that conditions s r e n o t analogous t o whet t h e y sere
forty o r fitty years ago,
wr. Gllibert:
T h e r e i s this diirerence,
T h e coupons
irom called Victories presented this becenber w i l l s i l
be covered b y this regulsetion.
I f you p a y t h e m the
chances a r e w e woulc already heave nade t h e deduction hers
for the nilssing coupon o n the r e c e p t i o n o f the note.
i e
would make i t i n the ordinary course o f business, a n d i t
would wash out i n that way.
Governor seay:
I
t would b e a very complicsted
account,
um Gilbert:
T h e y keep i t rather siuply, though.
It i s all set u p here,
The Cheirman;:
topic?
A r e there s n y other cuestions o n this
428
ure Gilbert:
d n a t w e would preger
t o ao, u n l e s s y o u
snticipsate a n unu:rusl call, i s t o leave i t alone now.
I i
you have much trouble o n wecenber 15th, o n t h e relatively
Sii@l1 operotion with the 3-3/4's, w e could chenge i t i n
tiae t o e s t c h t h e nex’ p a y m e n t
o n the largsr operetion o r
the 4+3/4's on way 20th.
The Chairaan:
H o w wany of the 3-3/4's were tie:<?
ut Gilbert: Originally there were nearly a billion
dollars,
The Cheirman;
wr’ Gilbert:
O
s
w m a n y a r e lert?
s than ten million outstoending, and
if you have diriiculty with thet small issue y o u certainly
Will heve aitiieulty with the 4-3/4's.
The Chairman:
this,
I
t there e r e n o further yuéstions
on
t h e lest juestion is, w h a t progress i s being mace
with thet autocrat o r t h e Tressury, k n o w n 3 5 the geners]
Comptroller, w i t h r e g e r d t o the cancelling o f paid certirk ates?
uPpe Gilbert: i
shail hove t o c a y thet h e i s n o longer
the autocrat o f the Treosury. i
et e l l a n d not enensble
pline. I
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Federal Reserve Bank of St. Louis
:
nov i n the
t o any sort o f influence
hsve t e l k e d w i t h h i m a t i n t e r v s l s
of
429
two r o r I think three wesks,
H e ascured w e t h e ruling w a s
On h i s c e s k e n d L
5
would 2
i
Gai
G M O s
e
e
haven't got i t yet,
The Chairman;
w h a t sort o f a ruling i s h e going t o
give?
ure Glibert; i
ao not know.
H e saidahe realized
the dirficultiss e n d would t r y t o aset t h e matter.
is the most that I
The Chairman;
4
That
have gotten o u t o r him.
N o w , i r the practicel cdifricultics a r e
so sérious, couldn'tthey b e s t lesst cut i n half b y slice
ing these certiricates, just a » w e do bills and shipping
upper s n d lower halves?
to d o it,
T h e y have s l l the machinery
I t i s just 6s case o r making t h e straps a n d
binding t h e m properly.
ur. Glibert:
I
t c 8 n b e done, p u t i t i s rether dis-
turbing t o the Kegistrab's records, because h e will have
to n a t c h t h e m up.
i
f y o u make t w o pieses i n s t e s d o f o n e
it will double the work i n the Kegistrar's orrice,.
Governor tanchsr: ;
- O U l d i t n a t b e possible,
b y a
tystem o f numbers t o readily match t h e
they could b e éssenbled together e n d very readily matohed
UD.
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Federal Reserve Bank of St. Louis
T h e y would a l l b e sorted numerically o n d I
should
430
think that t h e matching o t them would b e 8 n €asy process.
Tne Cheirmen:
b o n ' t y o u use the numerical eystem
on tioney packages, a n d couldn't t h e y d o the same thing here,
so thst they would match u p automatically.
aeGilbert: B u t he woula still have two pieces,’
unlée.s y o u p a s t e d t h e m together.
w h a t happens
i t this.
hen these things g o to his n a t e theré ars about s thousvee clerks w h o examine t h e m o n d trsce t h e m back numericslly
end r e g i s t e r a n d r e c o r d them.
T h o n t h e y e r e examined
Sgain b e f o r e f i n a l cestruction.
O
r course i t c a n b e done
it it has t o be, but I would rather walt a week o r so o n
the Comptroller Usneral, I
the tinue; I
have t h e fire under h i m all
have o n e m a n d o i n g p r a c t i c a l l y n o t h i n g e l c e
but that.
Governor Fencher:
I
t i s going t o b e 4 pretty expen-
Sive operation t o insure then,
ur Gilbert: I
think i t i s ridiculous t o insure
them a n d I do not think i t ought t o b e done.
The Cheirnians
w h o i s going t o pay t h e insursnce
bills?
Governor uwebougal:
m r * Gilbert, a ciscussion af
this matter brought o u t t h e i s e t that since i t had been
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Federal Reserve Bank of St. Louis
431
gérinitely c e c l d s d t h a t t h e r i s k i n aelivery o f t h e s e
cancelled securities rested &
1
@ rederal messrve Banks,
soie O F t h e w e d s r a l HKéeserve B a n k s h o v e b e e n c a r r y i n g i n -
surancés-- Chicago being one o f thoitiee- a n d w e estimate that
paying t h e insurence e n d neking t h e shinwents w i l l cast
ecout thirty thousand dollars a
year.
withholding their shipiuents. i
u t h s r banks a r e
believe that sine: i t has
been deternminea t h a t w e have a n incurable valus, o n d be-=
cause o r the neccssity o f insuring them, thet the Tressury
should f i n d soie w a y t o reimbuyse th: Federal reserve banks
for t h e c o s t o i t h s t insurance, I
presume t h s t t h a t i s
being given consi: eration,
ur’ Gilbert:
w e have consiuered that oir snd o n for
rour o r itive years.
way there,
T h e Comptroller General i s i n the
a 6 have n o insurable intersst i n them and
therefore cannot reimburse,
T h e y a r e s o mach retired
peper t o us. Governor w»w.cvougal: W w & é Only have 8 n i n s u able interest because o f thse aéeterniination o n ths part o r the Treasury that w e cannot g e t creait i n our account until those
heve b e e n delivered,
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Federal Reserve Bank of St. Louis
wr” Gilbert: I
T h e r e 1 s where t h e trouble is.
think the Treasury might have a n in-
432
surable i n t e r < s t
o n almost t h e s a m e theory,
b u t the
Treasurer cannet g e t credit, cannot g e t t h e sccount passed
until h e shows t i e secuity. i
cept t o w a i t s
nerel. I
ao not s ¢ e much t o i t ex-
jittle w h i l e l o n g s r f o r t h e C o m p t r o l l e r
d o not l i k e t h e s i t u a t i o n a n y b e t t e r t h a n y o u
do, b u t w e are i n sxsectly t h e sane position t h s t y o u are.
The Treasurer cannot get credit i n his account until h e
has p r e s e n t e d them;
h e h a s tried.
Governor mcecvougel:
I n considaring this mstter w e
thought p o s s i b l y s o u e a r r e n g s m e n t n i g h t
Which t h e Federal Reserve Banks,
b e made under
a s your agents, might b e
perinitted t o act r o r you o n d retain these instruments u n til t h e t w o y e a r s l i n i t h a s e x p i r e d e n d t h e n d e s t r o y them;
or thst possibly y o u night have soueone o u t there yourseli.
wr’ Gilbert:
T h o t i s even less reasible because
under t h e l a w they have t o come here.
on i t i s exprossed b y a s
securitics.
w
O u r o w n attitude
w e d o with t h e fiscal sgency
@ are perrectly heppy t o have t h e m come
hsre cancelled and t o give creait t o the riscal agent's
account i n cese they g e t lost, s n a w e have cone it.
‘But w e h a v e n o s o r e c o n t r o l o v e r t h i s t h e n y o u have,
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Federal Reserve Bank of St. Louis
433
if the Treasurer proceeded o n thse theory that h e might
get credit, without having d. finite ascurance, a n d gave
you credit i n his acwmunt «with you h e woulé r u n ths risk
OL a i s a l l o w a n c e
o r t h e amount o z t h e shipment,
w h i c h would
ultiustely result i n a big less, a n d h e sould probably have
to g o t o C o n g r e s
t o get relief.
# e a o not l i k e t o leave
it o n that bssis,
Governor Calkins: w e o e s n ' t i t seem improbsble thst
the Comptroller will chenge his position?
ure Gilbert;
O n the @ntrary, I
think h e will al-
low i t o n the sene proor o t shipment e n d loss thet w e reew
quire w i t h fiscal agency trensactions.
The Chairman;
T h e n L t is a
question o f m a inte ining
8 suitable record, w h i c h w e d o anyhow.
ur. Gilbert:
ent,
C o u p o n shipients e r e wlatively uninporte
T h e insursne:
c a . e t h i n g , b u t i t costs much
less t h e n i t would cost t o sttenot t o record them.
The Chairiuan:
d Q u l d you b e interssted i n hearing a
report o f the ection taken b y this conference i n the n e t
ter o f reserve ‘bonk invéestients, a n d t o uiscuss thst
a bit,
if w e i n v i t e d y o u t o ?
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Federal Reserve Bank of St. Louis
ux Gilbert:
i o sm very much interested i n hearing
the report, b u t I thought the discussion was wer.
The Chairnian:
N o , l u o n d t h i n k i t i s over, b u t i
‘Would like t o hear y o u express y o u r views avout it.
The action thet was taken wes first t o ce :neur i n the
recolumendation o r stotement b y t h e Fecsral Advisory Council,
with w h i c h y o u a r e familiar,
t o express t h e v i e w t h e t parti-
cular regard must now b e given i n the mstter o f these investments t o money markst conuitions and <specislly the
interest o r the Treasury, snd thet the reoorts which we
heretofore ted been receiving shoula b e continued end
exchanged,
t h e t i s , o f esrnings
e n d investments;
elly t h a t t h e sadditionel d u t y shoulda b e a s l e g a t e d
a n d fine
t o this
commit tee to make recommendations s s to purchases a n d
sles w h i c h would receive t h e sarnsst consiasrution a f t h e
i.enagement o r t h e reserve banks,
T h a t Ls, o f course,
reaching i n t o t h e policy o f t h e banks which, heretorore,
the cammittee h a s not attenptsd t o do, b u t i t does n o t
mean that t h e comdittee i s going t o interrere i n any w a y
with the decision o f the directors.
however,
T h e coumittee will,
b e e : c e t e d t o make recoduendeations, 3 n d the
committee w i l l meet r r o m time t o tine a n d w e will agree
Smnongst
, ourselves, I
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s , a s t o w h e t s r eE t h e w i s e t h i n g sg &
435
end e v e n “ 1 t h e other r s s e r v e benks d o not
consic.r i t wise t o accent t h e recomendations
o r the cone
mittee, t h e flve banks thet a r s represented o n the come
mittee, w o u l d be, i n point o f tect, s u c h a large preponderent p r o p o r t i o n
o t t h e whole s y s t e m that i t w o u l d have
consluerable inrluence alone, j u s t those rive banks.
aD, Gilbert; i
think that that setion i s very helv-
ful s n d will help t o clear u p the investient situation
even m o r e t h a n i t h s s a l r e a d y b e e n c l e a r e d u p .
tion n o w i s
m u c h better t h a n i t was a t t h e time o f the
isst Confersnee,
the Treasury.
T h e situa~
w
@ feel a good desl better sbout i t i n
w e felt t h e n and-fresl a little n o w thst
the recderal reserve banks a i d n o t reslize,
a s much 3 s they
might have, w h e t 9 bearing those investments had, b o t h
ways o n T r e s s u r y opsretions,
b o t h purchsses s n d s
The C e n t r a l i z i n g C o n u i t t e s sovointedc
a t t h e la:zt C o n r e r e
ence has been o f the greet<cst assistsnce i n keeping t h e
csituetion steady, a n d hss seconplishsd a considerable
lijyuidation,
T h e tigntening o f money that comes every
tine there i s s little rurther liquiastion, w a s psrticulsrly i n evidence arter t h e September 1 5 t h maturities
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had a good deal t o d o with t h e tightening @
Latter halr o f neptembar,
m o n e y i n the
a s w e gee i t here i n the tpsasury.
I s m hoperul thet t h e success o f this l o n g time orzer o f
bonds wlll help t o clear u p the short term market and put
it i n so much better shape thet i t will b e possible t o
secomplish gradually rurther liquidation o f Federal reserve
bank investments without cisturbing Treesury operations i n
the next r e w months.
T h e next f e w months,
o f course,
Will involve s s heavy operations a s we have had sinee the
period following the Victory Loan, a n d we are going t o
look more t o the cammuittee t h e n ever t o keep purchases a n d
sales o f Fedsral reserve banks trom giving u s a ralse
market cither way, a n d I have every reeson t o believe that
the Conmittee will succeed i n doing thet, a s i t hes done
ior t h e last f e w months.
The Chairmen:
s
e were aisturdsd i n New York
on quietly canvessing t h e situetion,
t b find that there
wes s n accumulation i n the hands o f dealers i n New York a t
one time recently o f probably a
hundred million dollers o f
Short time Government securities o f various kinds, a n d
with the Treasury coming into the market from time t o time,
as i t does, t o r large amounts, t h s t i s too much t o have i n
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competition there, a n d i t isn't all bailed out yet.
A t
the close o f last week w e were carrying for dealers, just
those that were carried under purchase a n d sale contracts
with us, over fifty-three millions, a n d there was fifty
million more, I
a m pretty sure, carried i n other places,
from what Mr, Case tells me. I
think the dealers were
a little bit fooled b y the enthusiastic subscriptions t o
the last issue, which was very heavily oversubscribed,
As w e fully realize i n New York, o n e o f the great inducements f o r the subscription was: the deposit,
T h e j o b ahead
of u s n o w i s t o t a k e c a r e o f t h e a c c u m u l a t i o n t h a t i s take
ing place i n the hands o f the dealers.
i z w e develop a n
easier market a s a result o f this loan, w h i c h I hope will
be temporarily the case, w e ought t o be able t o get these
dealers. pretty well cleaned up.
Governor Seayy
a y I ask, Mr. Secretary, i f you
have considered abolishing t h e deposit feature?
Mr. Gilbert:
W e have considered i t but w e have not
been able t o see what i t i o u l d s s c o m e t s i s — — T o r i n s t a n c e
onthis offer, if made without the deposit privilege, it
would mean that $500,000,000 paid i n cash to the reserve
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benks would b e o f n o u e
t o us.
I t would slimply force
borrowing t o pay the money t o u s a n d t i e u p that much soney
in the reserve banks,
The Chairiuan:
w h e n w e see twenty-rive o r thirty mil-
lion going o u t o f New York through t h e gold settlement
fund i n a week, a n d the a c w u n t
i s snslyzed every w e e k t o
see just what i s transpiring, y o u can d pend upon i t that
money rates are going t o harden i n New York. « w h e n we
heave 460,000,000 o f esrtiticates t h a t w e r e owned b y the
reserve banks run off and paid, s n d the funds not reinvest-~
ed o n the 1 5 t h o f septenber,
w e have n a d a Ligh money
market e v e r sinee i n New York.
T h e money market 1 s very
sentitive t o the reduction i n the investment account o f
the reserve banks, a n d i f it sfreets i n any considerable
degree a n y one reserve bank i t is felt elsewhers, because
we immediately have these balances shirting throughout
the country.
w h e n payments a r e nade i n New York, a s you
have doubtless observed, w h e n withdrawals a r e made b y the
lpeesury,
w e have these witharewals chasing back a n d forth
throughout t h e whole country over the wires.
orfset b y tir’ Gilbert's transfers,
T h e y are
T h e y draw o n their
New York balances a n d call stock exehange loans.
s o m e
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asy 1
think t h e mechanism with which this i s all handled
can be perfected s o that these troubles won't develop, b u t
_it takes a good d e a l o r adroitness t o prevent money running
up s i x p e r c e n t a n a above, w h i c h w e G o n o t iiant t o hsppen,
mt, Gilbert:
T n e Treasury l o o k s o n these holdings
by the reserve banks nec_ssarily @ s s whole.
I t i s not
= question o f ten million hsre o r riity million there,
but werely 2 guestion o f having three o r four hundred million;--- a t o n e time over five hundred million--stantisLly o n e l o t o n a n overhanging market,
i n sube
o r i n a posi-
tion t o overhsng t h e markst, because t h e t.onsactions o f
both purchsses
m d sales a r e inmeciately rerlected i n the
central merket i n New York.
v e have alweys telt thst t h e
;sbanks w e r e perhaps a
little u n d u l y n e r v o u s
smout s a r n i n g s w h e n t h e y inv-sted, p a r t i c u l a r l y f o r t h e
resson thet i n the ordinary course o f busine:s there will
be 9 cértain amount o f actusl busine.., transactions o f
purchase s n d sale, during a temporary veriod o f tigttening a @ wtoney, o r ‘otherwise t h e y will result i n a temporary
investment w h i c h will b e cleaned o u t sutomaticelly.
(Further informal discussion followed, w h i c h thse Chair
directed should n o t b e reported, a t t h e conclusion o f
which, a t 5:40 o'clock p.m., t h e Conference adjournsd until 1 0 o'clock Thursday,uctober 12, 1922, a t which time they
were t o g o into joint conference w i t h t h e Cheirnen o f the
Federal Reserve Banks and the rederel neserve Bosrd.)
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