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Federal Reserve Bank of St. Louis
PROCEEDINGS
O F A
CONFERENCE
OCF GOVERNORS
OF THE FEDERAL RESERVE BANKS.
HOTEL
WASHINGTON
.
WASHINGTON,
D.c.
O C T O B E R 14, & 15. 1920.
ASSOCIATED S H O R T H A N D R E P O R T E R S
SUITE
{ 8 2 3
APPEALS
BUILDING
426 FIFTH STREET, N. W.
WASHINGTON, 0. G.
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Federal Reserve Bank of St. Louis
CONFERENCE O F GOVERNORS O F T H E FEDERAL RESERVE BANKS
Hotel Washington,
Washington, D.C.
Thursday, O c t e 14,1920.
The C o n f e r e n c e
o f Gcverners
o f t h e Federal Reserve
Banks w a s caliea& t o order i n the Hotel Washington, Washing--
ten, D.C., o n Thuradey, October 14, 1920, a t 10 o'clock
GeMo
Precent:
Governor J . B . McDougal, Federal Reserve B a n k
of Chicago, (Chairman).
Governor C h a r l e s A . Morss, F e d e r a l R e s e r v e
Bank o f Bosten,
Actixg G o v e r n o r J . H. Case, Federal Reserve
Bank o r N e w Y o r k
Governor Ceorge W . Norris, Federal Reserve
Bank o f Philadelphia.
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Federal Reserve Bank of St. Louis
Governor HE, R, Fancher, Federal Reserve Bank
of Gleveland,
Governor George J , Seay, Federal Reserve. Bank
of Richmond.
Governor M,. B,. ellborn, Federal Reserve B a n k
of Atlanta,
Governor D. C. Biggs, Federal Reserve Bankr
or: St, Louis.
Governor R, A. Young, Federal Reserve Bank
of Minneapolis.
Governor J , Z,. Miller, Jr., Federal Reserve
Bank o f Kansas City.
Governor R. L, Van Zandt, Federal Reserve Bank
of Dallas.
Governor J, U. Calkins, Federal Reserve Bank
of S a n Franciseo.
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Federal Reserve Bank of St. Louis
PROCEEDINGS,
The Chairman. G e n t l e m e n , t h e meeting will please
come t o roder. I
will b e pleased t o have any sug~
gestions a s t o the procedure w e shall follow i n
handling this program.
T h e arrangement o f the program
calls f o r the reports o f committees a n d other un-
finished business first.
Governor Morss,.
T h e reports a r e here Mr. Chair-
man I suggest that w e g e t through with those first.
The Chairmen.
T h e n w e will proceed with t h e
progrem i n accordsnce with this arrangement.
Check clearing and collections.
Direct routing o f collection items
by member banks i n one Federal Reserve
District t o member banks i n another
Federal Reserve District, f o r wire
transfer f
o proceeds to sending bank's
Federal Reserve Bank.
The propriety o f Federal Reserve Banks Sending
Collection items direct t o member a n d non-~member banks w i t h instructions t o remit t o
‘the nearest Federal Reserve b a n k for the
credit o f the sending Federal Reserve Bank.
The Chairman. A
committee w a s eppointed a t the
April Conference consisting o f Straiter,Clevelaend,
Hendricks, N e w York, a n d Walden, Richmond,
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Federal Reserve Bank of St. Louis
This c o m m i t t e e s u b m i t t e d a
report w h i c h w a s t r a n s -
mitted, through me, t o all o f the Governors. I
have
hed compiled a digest o f the recommendations o f the
committee a n d also a n analysis o f the replies received
from the twelve banks.
The committee report i s a s follows:
The first question considered i s whether a member \ \
bank o f o n e d i s t r i c t s h o u l d r o u t e c o l l e c t i o n i t e m s
direct
t o member b a n k s
o r non-member b a n k s
i n another
Federal Reserve District f o r wire transfer o f proceeds
to sending bank's Federal Reserve Bank.
The C o m m i t t e e s t a t e s t h a t i n i t s opinion,
the
confusion existing a t present i n connection with trans-~
actions o f this character i g due t o the difference o f
opinion a s t o what constitutes a
proper telegraphic
transfer o f funds, a n d recommends that the Board issue
a mandatory ruling t o the effect t h a t a request f o r
telegraphic transfer, t o be ‘made t o a member bank,
be accepted b y all Federal Reserve Banks, whether
the
request b e m d e p y a member bank, a non-member
an individual, f i r m o r corporation,
e e
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Federal Reserve Bank of St. Louis
The s e c o n d q u e s t i o n c o n s i d e r e d i s t h e p r o p r i e t y
of Federal Reserve Banks sending collection items direct
to member banks a n d non-member banks i n other districts
with instructions t o remit t o the nearest Federal R e serve Bank,
The Committee tas s s u s e
t h a t this privilége
be n o t permitted unless t h e time involved i n the collection i s such that t h e Federal Reserve B a n k must necessarily s e n d the items direct,
i n order f o r col-
lections t o b e made before t h e maturity o f the items,
and i n such cases i t i s recommended t h a t t h e sending
Federal R e s e r v e B a n k r e q u e s t t h e r e m i t t i n g b a n k o f t h e
other district t o remit only direct t o the sending
Federal Reserve Bank, a n d that t h e collecting bank b e
advised t h a t i t may not remit t o the Federal Reserve
Bank o f i t s o w n district,
Reference i s made b y the Committee t o the recent
ruling o f the Federal Reserve Board, permitting Federal
Reserve B a n k s
t o receive c o l l e c t i o n items d i r e c t f r o m
member banks o f other districts, a n d allowing t h e m t o
permit t h e i r m e m b e r b a n k s
t o route collections d i r e c t
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Federal Reserve Bank of St. Louis
te o t h e r F e d e r a l R e s e r v e B a n k s a f t e r t h e p e r m i s s i o n
of s u c h o t h e r F e d e r a l R e s e r v e B a n k s h a d b e e n o b t a i n e d
by t h e F e d e r a l R e s e r v e B a n k o f t h e d i s t r i c t
i n which
the m e m b e r b a n k r e q u e s t i n g t h e p r i v i l i s e w a s located,
The r e c o m m e n d a t i o n
mitted
i s made t h a t member banks b e per-
t o send collection items direct
Reserve B a n k s
t o Federal
o f other districts a n d t h a t a l l Federal
Reserve Banks b e required t o accept non-cash items ,
for c o l l e c t i o n w h e n r e c e i v e d f r o m m e m b e r b a n k s
of
other districts, a n d i t i s also recommended t h a t the
Federal Reserve Board make a manda tory miling t o that
effect,
It i s f u r t h e r r e c o m m e n d e d t h a t t h e B o a r d d i r e c t
each Federal Reserve B a n k t o issue uniform circulars
s
a
n
e
on the direct routing o f collection items embodying
certain essential points, a n d i f this report meets
with t h e a p p r o v a l
o f t h e Federal Reserve Board, t h a t
the Gommittee o n forms appointed a t the last Governors!
Conference b e instructed t o design forms necessary t o
take c a r e o f a l l t r a n s a c t i o n s a r i s i n g f r o m t h e o p e r a
tions m e n t i o n e d h e r e i n ,
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Federal Reserve Bank of St. Louis
The twelve banks were furnished with a digest o f
opinions o f the several Federal Reserve Banks relating
to report t o conference o f Governors b y committee a p -
pointed a t April meeting'to investigate a n d report
their recommendations rélating t o routings o f non-
cash collection itsms. Minneapolis, Bosten, Chicaco,
Kansas City, and Richmond concur i n report o f committee
with t h e exception that t h e y recommend telegraphic trans-«
fers o f funds *. b e limited t o requests made b y member
banks.
Philadelphia, concurs fully i n the Committee's recommendations .
Cleveland, concurs i n the report o f the Committee
with e x c e p t i o n t h a t t h e y d o n o t f a v o r t h e a c c e p t a n c e
requests f o r t e l e g r a p h i c t r a n s f e r s
o f funds f r o m a n
individual, f i r m o r eerporation,
New York, c o n e u r s
some reservations
i n report
o f Committee w i t h
o n the use o f our private wires a n d
with t h e further exception t h a t t h e y favor t h e priviigge t o Federal Reserve Banks f o r routing direct
gto member a n d non-member banks outside their o w n
of
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Federal Reserve Bank of St. Louis
8
district, claiming a distinct advantage t o the Federal
RY
Reserve Bank o f New York as practically all banks
carry a New York account.
Atlanta, d o e s n o t concur i n vecommendation o f
Committee t h a t requests f o r telegraphic transfers o f
funds b e accepted f r o m non-members,
Opposes direct routing o f collection items b y
member banks t o Federal Reserve Banks o f other districts, a n d opposes direct routing b y Federal Reserve
Banks t o member o r non-member banks i n other districts
unless time element involved makes i t necessary. —
Favors mandatory ruling a s t o telegraphic transfers.
St, Louis, concurs i n report o f Committee a s t o
Topic 3 , sub-section 4 , a n d further favors extension o f
telegraphic transfer service t o non-member Clearing
banks,
Favors discretionary limiting o f direct sending
privilége o f collections b y member banks t o Federal
Reserve Banks outside their own district, a n d that
such privilege b e n o t accorded t o member banks Located
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Federal Reserve Bank of St. Louis
in cities where there i s a Federal Reserve Bank o r Branch
unless t h e element o f time i n presenting i t e m a t place
of payment enters i n t o transaction.
Considers advice b y member bank t o Federal
Reserve B a n k o f own district o f each item forwarded t o
Federal Reserve B a n k outside o w n district unnecessary
as bank advising pavment should report complete description o f item,
Dallas, recommads t h a t request f o r telegraphic
transfer o f funds b y non-member banks, individuals,
firms
o r corporations
b e limited
t o proceeds
o f a col-
lection fommarded t o them b y member bank, a n d immediately available funds must accompany reduest,
Does n o t concur i n recommendation t h a t Federal
Reserve Banks b e prohibited f r o m forvarding items
direct t o member a n d non-member banks i n other dis~
tricts.
Agrees that a mandatory ruling b y Federel Reserve
Board i s desirable,
Otherwise concurs,
San Francisco, concurs i n report o f the committee
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Federal Reserve Bank of St. Louis
with the following exceptions:
They d o not favor accepting requests f o r tele-
graphic transfers from individuals, firms o r corporations.
They d o not agree either i n the recommendation
that F e d e r a l R e s e r v e B a n k s b e p r o h i b i t e d f r o m f o r w a r d i n g
items direct t o member ana. Koemnenner banks i n other
districts, o r t o the instructions t o remitting bank
to remit only direct and not to Federal Reserve Bank
of i t s o w n district,
T h e y are o f the o f the opinion
that these matters should b e discretionary.
The Chairman,
W h a t i s the wish o f the
ference with regard t o this report gentlemen?
Acting Governor Case,
F o r the purpose b f bring-
ing the matter before t h e conference I
move t h e adoption
of the committee's report.
Governor Calkins, I
The Chairman,
will second that motion.
B e f o r e w e a c t o n t h e m o t i o n i t might
be well b o review the report a little,
A¢ :
(After
discussion.)
Several o f the banks have g o n e o n record a g being
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Federal Reserve Bank of St. Louis
opposed t o o p e n i n g t h e g a t e s
t o transfers
o n behalf
of
individuals, firms, and non-member banks,
Governor Fancher, I
will m o v e y o u t h a t t h e r e p o r t
be amended t o the effect that Federal Reserve Banks e x clude a c c e p t a n c e
o f telegraphic transfers f r o m a l l e x -
cept member a n d non-member clearing banks, excluding i n dividuals, firms a n d corporations,
Governor Seay. I
will second t h e amendment that
we exclude individuals, firms a n d corporations, b u t that
does n o t involve approval o f the resolution a s a whole,
It simply climinates t h a t from the recommendation,
The Chairman.
T h e q u e s t i o n t h e n i s o n t h e appro-~
val o f the report o f the committee w i t h t h e modification w h i c h w o u l d o s x é t u r t e e
h
t privilige
o f telegre phic
transfers f r o n individuals, f i r m s a n d c o r p o r a t i o n s
as
I understand it. Governor Case made the original
motion f o r t h e a p p r o v a l
o f t h e report,
I
s that amend-
ment satisfactory t o y o u , G o v e r n @ C a s e ?
Governor Case,
Y E S
(The motion having b e e n d u l y seconded was carried.)
(After discussion referring t o non-member clearing
banks, the following occurred: )
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Federal Reserve Bank of St. Louis
Governor Case, I
move reconsideration o f the
motion.
(The m o t i o n w a s s e c o n d e d a n d carried, )
The Chairman.
T h e motion t o reconsider having
been carried w e return t o tur starting point.
“ h a t
shall w e d o w i t h t h e c o m m i t t e e ' s r e p o r t ?
Governor Case, I
words "individuals
move t h a t w e strike o u t the
o r corporations" a n d adopt t h e re-
port,
(The motion wags duly seconded.)
The Chairman. I
think i t i s well t o remind y o u
that Minneapolis, Boston, Ghicaso, Kansas City,
Rich-
mond, Cleveland, a n d San Francisco, a n d geveral o f the
other banks, have gone squarely against the proposition
to permit non-member banks t o make’ telegraphic trans~«
fers.
T h e question i s shall w e include t h e non-member
banks i n those that w e are coing t o restrict,
Covernor C a g e , I
think w e o u g h t t o vote o n t h e
proposition before u g irrespective o f what might
have
been said t o you, Mr. Chairman.
Governor Young.
M r . Chairman, w o u l d i t not b e
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Federal Reserve Bank of St. Louis
13
well t o g o around t h e table a n d g e t a n expression f r o m
the G o v e r n o r s
o n this q u e s t i o n o f t h e n o n - m e m b e r b a n k s ?
The Chairman.
T h e y have expressed their opinion
in writing, a l l o f them.
Governor Seay.
M r . Chairman, i f the subject i s
for discussion, a motion havdng been put, I would
to speak t o it.
The Sheirman.
Governor Seay.
Y e s , Governor Seay.
I t seems t o me, Mr. Chairman and
Governors, t h a t w e are going a very long, have gone
already a
very l o n g w a y and are still o n the same
road, t o keep t h e State banks o u t o f membership i n the
Federal Reserve System.
F i r s t there was 2 ruling b y
the F e d e r a l R e s e r v e B o a r d , w h i c h w e h a v e a l w a y s r e -
gerded a s a dangerous ruling, a n d have managed, I
within t h e proprieties
think,
t o avoid, a n d that was t o the
effect that the Federal Reserve Banks might discount
the paper of non-mbyiber banks which had been talcen in
the r e g u l a r c o u r s e
o f business.
V
e never 2
poroved
ot
that resolution, believing it/in the interests o f the
system,
T h e next thing was t o permit the member banks
to open collection accounts w i t h a Federal Reserve Bank,
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Federal Reserve Bank of St. Louis
keep balances and, without membership, practically
secure t h e benefits o f the system with the exception
of rediscount.
N o w w e gota s t e p still further a n d
we want t o open t h e transfer priviliges, w h i c h i s one
of t h e m o s t y a l u a b l e e x c h a n g e p r i v i l i g e s e v e r c r e a t e d
in the world, involving billions o f dollars a s i t now
does, w e want t o open o u r private wire system, main-~
tained a t our own cost, for the benefit o f the nonmember banks »
I t seems t o me that w e are moved t o d o
this thing b y a consideration o f the convenience o f
our m e m b e r b a n k s a n d t h e c o n v e n i e n t o p e r a t i o n o f o u r
Federal Reserve Bank also.
overstating t h e fact when I
N o w , I believe I
am not
gay that a very considere
able number o f our member banks a r e n o t over-enthusiast-
ic about getting the State banks into the System. T h e y
seem t o b e o f the opinion that i t will deprive t h e m
of customers, possible customers a n d will reduce the
balances t h a t a r e k e p t w i t h t h e m b y n o n - m e m b e r banks,
i tharefore t h i n k that s t e p b y step w e are giving
the non-member b a n k t h e privilige o f the Federal
Reserve System without insisting o n membership, a n d
that i n the end it can't but result i n helping t o
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Federal Reserve Bank of St. Louis
keep these non-member banks o u t o f the system.
p a
velleve w e ought t o consider very carefully giving
them this additional privildge.
on the system even now,
I t i s a burden
“ @ know that the non-mem-
ber bank i s perhaps t h e cause o f this unrest, t h i s
recent disquietude, because i t hasn't ready a n d direct
access
t o the resources
o f the Federal Reserve System}
they are compelled t o tell their borrowers t h a t they
cannot obtain credit,
v
e know i n many cases t h e y
cannot obtain t h e credit t h e y desire a n d further t h a n
that t h e y have b e e n eplled o n b y their correspondents
in some districts t o reduce their accounts, which has
compelled t h e m t o a p p l y t o correspondents w i t h i n t h e
district, a n d these correspondents a r e borrowing
heavily f r o m t h e Federal Reserve B a n k t o support t h e
non-member bank. I
realize n o w that t h e non-member
is a very valuable customer t o the member bank,
it seems
t o m e w e a r e supporting,
n o t indirectly,
B u t
but
almost d i r e c t l y t h e n o n - m e m b e r b a n k a n d i f w e w a n t t o
amalgamate a n d consolidate t h e banking system o f this
country w e are postponing that step, I
cannot s e e
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Federal Reserve Bank of St. Louis
16
how t h e Federal Reserve System can w o r k t o produce t h e
greatest lending power o f vhich i t I s capable without
a consolidated b a n k membership. I
believe t h a t con-
traction a n d trouble w i l l always arise t n l e s s e
H can
have a n a p p r o x i m a t e c o n s o l i d e t i o n
clal banks o f the country.
o f a11 t h e commer-
Moreover I
believe i t i s
the ultimate a i m t o get them under the administration
of the Federal Reserve System and I believe banking
would receive t h a t supervision, w h i c h i s one o f the
purposes o f the Federal Reserve Act, a n d I think i t
is never going t o receive proper supervision, until
the banks o f the country and the Federal Reserve System
are brought i n t o the closest relation.
It i s for these broad reasons t h a s I
disagree
with the majority o f the report there t o taking t h e
step recommending that the non-member bank be eliminated,
ibe G h a i rman.
Y o u r v i e w i s that a l l transfers
of t h i s c h a r a c t e r s h o u l d b e c o n f i n e d
banks t h e n ?
Governor Seay, Y e s .
t o the member
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Federal Reserve Bank of St. Louis
if
Governor Calkins. T
would t h e n move a n amendment
to the resolution excluding non-member panks «
Te Chairman.
T h a t would leave the recommendation
to the effect that transfers o f this character b e ex~
tended only t o member banks?
My understanding o f your gtatement, Governor Seay,
is this:
T h a t i n effect w e have already extended t o
non-member banks priviliges which the law itself does
not c o n t e m p l a t e a n d that, s t e p b y s t e p , w e a r e proceed-~
ing apparently i n a cairse t h a t will ultimately give
them all they need without becoming members o f the
system o r contributing t o the loaning power o f the
| system, a n d f o r that a n d other reasons y o u believe t h a t
they should not be permitted t o enjoy this privilace o f
telegraphic transfer.
Governor Seaye
I s that about i t ?
T h a t i s m y conviction Mr. Chair-
THe. The I t may be that m y view i s not as broad a s i t
should b e a n d does n o t take i n all t h e considerations;
put after giving same thought t o the subject that is
our carviction.
Governor Young. I
- amendment.
will second Governor Calkins!
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Federal Reserve Bank of St. Louis
Governor Calkins. I
moved that t h e resolution
be amended s o a s t o exclude t h e acceptance o f teles
graphic transfers from all except member and clearing
member banks.
The Chairman.
T h e n you move that the camittec's \
report with fee pest t o the subject o f telegraphic trans- }
fers b e adopted, except that the privilige o f telegraphic transfers b e accorded o n l y t o member banks a n d
clearing banks.
Governor Fancher, I
will second that motion,
(The motion was duly carried.)
The C h e ieman
W h a t shall w e d o with t h e second
question i n the committee's report, t h a t i s the propriety
of Federal Reserve Banks sending collection items t o
member a n d non-member banks w i t h instructions t o reinit
to t h e n e a r e s t F e d e r a l R e s e r v e B a n k : for t h e c r e d i t o f
the sending Federal Reserve Bank?
T h e Federal Reserve
Banks have generally I think approved the recommendation o f the committee w i t h respect t o this feature ‘
Governor F a n c h e r , I
Governor Young. I
move t h a t i t b e adopted,
second the motion,
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Federal Reserve Bank of St. Louis
(The m o t i o n b e i n g d u l y s e c o n d e d w a s c a r r i e d . )
Governor Case.
T
o g o back t o the action w e have
just taken, i t seems t o m e t o be consistent,
i f you
are going t o exclude transactions w i t h non-member banks,
individuals, a n d souvonst ions a n d limit i t t o member
banks, a s that i s clearly t h e intent, w e ought n o t t o
include clearing non-members.
T h o g e accounts a r e
merély o p e n e d f o r t h e p u r p o s e
o f clearing c h e c k s a n d
the discount privilege a n d other privileges extended
to member banks a r e n o t extended t o those banks, I
would therefore move that we exclude the words "clearing non-member banks." I
be l i m i t e d
think the transaction should
t o the purpose f o r which t h e account
i s open-
ed, t h e clearance o f checks, a n d that this privilege
should n o t b e extended,
Governor Seay. I
fully c o n c u r
i n that a n d d i d
when the vote was taken, but I always dislike t o take
an opposite v i e w t o a well considered point a n d I
merely acquiesced i n i t without approving it.
Governor Calkins, I
de not wish t o prolong the
discussion, b u t i t appears t o m e that w e have some
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Federal Reserve Bank of St. Louis
20
obligations with what w e call the clearing non-member
banks «
W e require those banks i n all o f our branch
cities t o carry t h e same balance w i t h a Federal Reserve
that they would b e required t o carry i f they were member
banks.
The Chairman,
T h i s i s a question which has beon
injected i n t o the matter,
T h i s i s not recommended
by the committee.
Governor Van Zandt.
L f understand, Mr. Chairman,
‘hile we have n o clearing nompmtribor hanks i n our district, o n e o f the inducements offered t o the non-member
banks, particularly those t h a t a r e n o t elisible f o r
membership, t o become clearing members, i s that the
funds accumulated b y them a t the Federal Reserve Bans
in excess
o f the balances t h a t t h e y are required
to
carry, c a n b e disposed o f a s they direct, a n d i f they
wont @ telegraphic transfer made I
think t h e y are en-
titled t o have that thansfer made.
Governor Seay, I w o u l d like t o ask o f thoge
banks w h i c h have thoge accounts--«we h a v e none-.whether
i n view o f a
that practice now,
universal p a r t h e y a p p r o v e
I t was started before t h e
of
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Federal Reserve Bank of St. Louis
parring system h a d became s o generally prevalent a n d
I would like té# know whether they approve o f the practice n o w without t h e bank having membership i n the
system.
Acting Governor Case, I
would like t o answer
that b y s a y i n g t h a t i n N e w Y o r k w e h a v e a
such accouts, A
accounts
o n @
number
of
year o r s o ago w e p u t all o f these
s i x months p r o b a t i o n p e r i o d a n d a t t h e
end o f t h e s i x months t h e y had t o eigh o r cut bait,
they could say w h e t h e r t h e y cared t o come i n t o the
system o r they could g e t o u t entirely.
not c o n t i n u e t h e s e a c c o u n t s i n d e f i n i t e l y .
W
e will
T
h
e
proposition i s tha t some o f them are timid, they
are n o t sure whether t h e y want t o come i n t o t h e system o r not a n d that the l a w provides t h a t t h e y m a y
come t n under this basis,
V
e have required s u c h
banks t o carry one-half o f the reserves t h a t a member
bank would carry, a n d Governor Callrins surprised m e
very much when h e said that they required t h e m
to
carry t h e full amount.
Governor Calkins,
Y e s .
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Federal Reserve Bank of St. Louis
22
Acting Governor Case, I
cannot understand a non-
member bank varrying t h e full amount o f reserve t h a t
9 member bank would b e required t o carry and still
not joining the system.
O u r experience i s that
there i s nothing i n this theory o f the clearing nouT h e y d o not come i n but they use t h e
member banks.
system t o the limit t o get the advantage o f it, O u r
accounts n o w are limited t o some half dozen; w e have
closed o u t a good many during t h e last year a n d w e
are n o t proposing t o continue t h a t policy.
The Chairman.
I t is very evident that the banks
that are carrying these accounts are not operating
uniformly.
M
y recollection i s when t h e matter
was discussed arrangements were made whereby the non~
member b a n k w o u l d s t r i k e b a l a n c e w i t h a
reserve b a n k
at least equal t o the amount o f the collected balance,
or a t least equal t o the amount o f the ehecks t h a t
were f l o a t i n g - « «
Governor C a l k i n s ,
T h a t i s i n the law, Mr. Chair-
The Chairman, T h i s first half of the conmitbee's
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Federal Reserve Bank of St. Louis
25
report h a s b e e n a c t e d u p o n a n d i t h a s b e e n voted, u n animously, I
think, t h a t t h e r e p o r t b e a d o p t e d w i t h
restrictions
o n the transfers
b y nonemember banks,
individuais, firms and corporations.
Governor Calkins. I
perhaps
a n explanation
of the others.
prepared
would like t o s a y that
i s due Governor C a s e a n d some
Although I
a m not a t this moment
t o support t h e w i s d o m
o f the course
L e
was followed with regard t o clearing non-member banks,
it i s a fact thet when w e undertook t o establish
branches
i n several
o f the centers
o f o u r District
we said w e would n o t establish branches unless a l l
the eligible banks i n the cities where branches were
to b e l o c a t e d w o u l d b e c a m e e i t h e r m e m b e r s
o f the
Federal R e s e r v e S y g t e m o r c l e a r i n g n o n - m e m b e r s
and
carry t h e full amount o f thetr weserve balances, a n d
we thereby cleared a considerable number o f clearing
non-member bank accounts,
f a m v e r y much inclined
to agree with Covernor Case that those banks should
Cluhen t i e n o r cut batt, I
anticipate
i n the hear
future that w e will eliminate them, but i n the meantime I cannot see any way that w e can deny those banks
the priviléze o f transferring their accumulated
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Federal Reserve Bank of St. Louis
balances wherever t h e y see fit.
Governor Seay,
i f I might b e permitted I would
like t o have the vote reconsidered o n that part, be-+
cause i t means
a n announcement
o n t h e p a r t o f this
body t h a t i t u n i t e d l y a p p r o v e s t h e g r a n t d n g o f trans-
fers o f the clearing non-member banks when a g a matter
of f a c t I
think w e a r e o p p o s e d
t o i t i n principle,
and i t i s not consistent w i t h o u r first resolution.
The Chairman.
W o u l d i t suit you t o have the
action modified t o thig extent, t h a t t h e privilege
be confined t o member bank transfers, excepting that
because o f obligations b y sane o f the Federal Reserve
Banks t o their nonenenberiglearing members, that they
may b e p e r m i t t e d t h e p r i v i l e g e ?
Governor Calkins.
I f that would be acceptable
to Governor S e a y i t would n o t b e acceptable t o me,
I think we ought t o go o n record one way o r the other,
and I
am perfectly willing t o see t h e record exclude
the non-member clearing banks.
Governor Van Zandt.
that.
I a m quite willing t o d o
I n the Eleventh District, a n d I
assume t h e
same condition exists i n all districts,
w e have a
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Federal Reserve Bank of St. Louis
very large number o f ineligible banks t h a t are,
under t h e law, authorized t o become clearing members,
and they have gone t o work and had the law changed,
in those States where i t was necessary a n d there i s
an agreement o n the part o f the banking commissioner
in every State i n our District t o the effect that
the Federal Reserve B a n k o f Dallas would b e cpproved
by the banking commissioners a s the reserve agent
for such State banks as requested it, and in that
way w e hope t o build u p quite a line o f ineligible
clearing non-members,
The Chairman.
T h e n you are i n favor of the
original motion?
Governor Van Zandt.
f a m i n favor o f the ori-
ginal motion.
Governor Fancher,
that t h i s i s n o t a
I t seems t o me, Mr. Chairman,
matter
o f tremendous importance.
There may be a principle involved here, but i f we let
this action stand permitting the clearing non-member
banks t o use t h e transfer privileges, t h e matter c a n
be r e c o n s i d e r e d
a t same future time.
The Chairman.
D
o you move that the matter stand?
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Federal Reserve Bank of St. Louis
Governor Fancher. I
will b e g a t i s f i e d
t o let
«Stand,
Governor S a y e
the subject I
j a v i n g expressed m y feeling o n
do not insist o n a reconsideration Mr.
Chairman.
The Chairman.
T h e n if. there i s n o objection
the course suggested b y Governor Fancher, aOR ae rr
original vote stand, will b e followed f o r the present.
Mere i s a motion before t n e Conference t h a t t h e
report o f t n e c o m m i t t e e w i t h r e s p e c t
t o the other
question involved b e approved.
Governor Van Zandt.
I n that connection, i t
occurs t o me that where t h e Federal Reserve B a n k i n
San Francisco should send a collection f o r remittance
to a bank i n Fall River, Masschusetts, f o r instance,
that i t is a waste o f cmsiderable time t o recuire
the bank i n Fall River t o send its draft o n Boston
clear t o S a n francisco a n d then have S a n Francisco
send i t bank; that much time would b e saved i f the
bank i n Foll R i v e r c o u l d r e m i t t o t h e F e d e r a l R e s e r v e
of Boston for the credit o f the Federal Reserve
if San Francisco.
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Federal Reserve Bank of St. Louis
Governor Callcins,.
I t occurs t o m e there i s
absolutely n o argument i n regard t o that,
I t i s con-
clusive a n d there i s n o answer t o it.
T h e majority o f the banks @pprove
The Chairman.
the r e c o m m e n d a t i o n s
o f the committee w i t h respect
to
this particular point, and San Francisco, I believe,
stated that i n its opinion this matter should remain
discretionary w i t h t h e bank.
Governor Calkins.
I s that so, Mr. Calkins?
Y e s s
Governor Van 4andt. M i e . Chairman, I move that
the l a s t f i v e l i n e s
o f the recommendation
o f the com-
mittee, which will be found on page 4 of the cammittee's /
f
report b e eliminated, beginning w i t h the words " i n
‘such case."
Acting Governor Case. I
will second that motion.
(The motion being duly secmded was carried.)
The Chairman, e
next subject is:
Currency a n d Circulation,
That i s one o f the subjects t h a t Mr. Emerson
wished
t o have d i s c u s s e d w h e n h e w a s m w e s e n t , t o g e t h e r
with Mr. Broughton and Mr. Gilbert, Assistant Secretary
of the Treasury.
V e will pass that until a n ensage-
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Federal Reserve Bank of St. Louis
ment i s made w i t h them,
SHE O M E | es
Operation.
The f i r s t s u b - t o p i c
o f that i s
The Pension Fund.
Do you care t o make a n y report o n that, Governor
Case, further t h a n what y o u have?
Governor Case.
hands o f a committee
( C o Pages vnderstand i t is i n the
o f which y o u are a member,
The Chairman. Y e s , and the Governors are all informed w i t h r e s p e c t
t o the a c t i o n t a k e n a n d t h e progress
being made.
Governor Fanchere I
might say, Mr. Chairmen,
that there will probably b e a meeting with the actuaries
next w e e k t o f u r t h e r c o n s i d e r Progress.
Governors w a s f u r n i s h e d w i t h a
H a c h o f the
copy o f t h e minutes
of
the meeting o f the pension committee w i t h the actuaries
in New York o n September Sth, I
think, a n d that gives
the status o f the committee's activities practically
up t o t h e p r e s e n t time.
T h e matter. i
s n o w i n the hands
of the actuaries, information i s being studied a s i t i s
presented f r o m all the banks i n order t o enable t h e
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Federal Reserve Bank of St. Louis
actuaries t o make their estimates, I
will s a y f o r
the Cleveland B a n k that t h e information has b e e n com~
piled a n d forwarded.
Governor Morss. I
move t h e adoption o f the com-
mittee's report, Mr. Chairman.
The Chairman.
J u s t before v e act upon that motion
I would like t o say that t h e pension committee, c o n sisting o f Mr. BE, R. Kenzel, Governor Fancher, a n d
Governor McDougal, submitted a report under date o f
November isth, 1919, outlining various pension plans
in operation a n d recommended t h a t a committee o f expert actuaries a n d a pension specialist adtise w i t h a
committee
t o b e appointed representing t h e Federal R e -
gerve Board a n d t h e Federal Reserve Banks a n d that
together they work out the cost and a n equitable distribution o f the cost between t h e Federal Reserve Banks
and their officers a n d employees a n d such others a s
may be permitted t o participate i n the benefits.
On August 9th, 1920, the Federal Reserve Board
formally approved this recommendation a n d authorized
the nenessary expenditure.
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Federal Reserve Bank of St. Louis
On September 8th, 1920, t h e original members o f
the committee m e t together w i t h Mr. Monell Sayre,
Pension specialist, Mr. H e n r y Moir, consulting actuary,
Mr. George D. Buck, actuary, a n d Mr, J , F. Curtis,
counsel.
I t was decided t o employ t h e foregoing a n d
they were instructed t o participate i n the matter o f
developing a suitable plan for submission t o the committee, with the understanding that i f their recommendations were concurred in, t h e plan would t h e n b e gubmitted t o the Federal Reserve Board f o r consideration
and action,
The next topic, under operation i s
Personnel a n d Velfare.
The committee h a s compiled a n exhaustive quegtionnaire
o n the personnel subject,
w h i c h has been sent t o
all Federal Reserve panks, also t o a few o f the larger
mombers banks, w i t h a view t o ascertaining a g nearly
possible t h e scope o f the work n o w being undertaken
the Federal Reserve Banks a n d t h e larger member
benks o f the country.
It i s the intention o f the committee t o compile
the data gathered i n this way and use i t as a basis
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Federal Reserve Bank of St. Louis
for a
definite r e c o m m e n d a t i o n
practices
a s t o policies a n d
i n personnel a c t i v i t i e s
a t somé. future G o v -
ernors' Conference.
I sugecst that t h i s t o p i c b e p a s s e d a s t h e c o n mittee h a s n o t r e p o r t e d f i n a l l y ,
a n d without objection
that a c t i o n w i l l b e taken,
The n e x t t o p i c i s
Discount t r a n s a c t i o n s .
of acceptance purchases a m o n g all
eserve banicts.
®
Stabilization o f the open bill market b y the
system a s a whole a n d a n equitable basis f o r
making s u c h s u p p o r t effective.
“ie will ask Governor Fancher t o speak o n this
matter...
Governor Fancher.
M r . Chairman t h e Committee h a g
found that i t was assigned 4
very difficult takhk.
have h a d three meetings a n d have spent considerable
time i n discussing t h e various phases a n d the report
will b e found t o deal with the subject i n a pretty
general way.
It i s the judgment o f rour committee t h a t t h e
Federal R e s e r v e B a n k s c a n b e s t a s s i s t
i n the broad-
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Federal Reserve Bank of St. Louis
ening a n d d e v e l o p m e n t
o f the o p e n discount market f o r
Bankers' bills b y coming t o a mutual understanding
with respect to:
(a) P r o p e r principles a n d practices t o
be followed b y accepting banks;
The p r o p e r m e t h o d f o r p l a c i n g t h e
bills o n t h e market; a n d
The proper practice a n d policy f o r
Federal Reserve Banks i n purchasing
bills
i n a n d f r o m t h e markets
1 . ¢.?
the character o f bills, t h e i r source
and v o l u m e o f curchases a s w e l l a s a
policy a s t o rates, a n d t h e n c o n d u c t
such o p e r a t i o n s i n accordance w i t h
such understanding.
Hach F e d e r e l R e s e r v e B a n k should,
s o far a s pos~
sible, w o r k f o r the development o f a market within i t s
district i n which dealers a n d discount houses m a y
carry a
p o r t f o l i o o f bills f r o m w h i c h t o s u p p l y t h e
local demand.
T h i s will require t h e development
in
each district o f a local call, money market o n ac-
ceptance collateral, a t rates which will permit t h
dealer t o carry eae port folio without loss,
T h e Fed-~
eral Reserve Bank should supplement this b y itself
extending reasonable accommodation to dealers locally
on their port folios through fifteen-day purchase a n d
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Federal Reserve Bank of St. Louis
resale agreements suitably safeguarded.
Hach Federal Reserve B a n k should encourage t h e
widest possible investment b y banks within i t s district
in Bankers! Acceptances a s their most desirable sgecond-
ary reserve, a n d stand back of its advice b y making
that reserve liquid o n @ccasion, w h e n i t b e c m e s ne-~
cessary t o realize o n such bills,
b y buying freely
from i t s m e m b e r s g o o d b i l l s w h i c h t h e y h a v e p u r c h a s e d
in the open market; a n d should render every reasonable assistance i n affording facilities t o its members f o r the purchase o f bills.
Hach F e d e r a l R e s e r v e B a n k should,
b y its o v n
purchase e i t h e r f o r i n v e s t m e n t b e c a u s e i n v e s t m e n t
is
/
desired,
o r i n support o f the general market when
support i s necessary, a i m t o emphasize i t s adherence
to p r o p e r p r i n c i p l e s a n d practices,
t h e r e b y indicat-
ing that they stand behind t h e Bankers! Acceptance
unreservedly a n d that i t i s entitled t o the most
attractive r a t e t h a t c a n b e consistentiy offered under
any a n d a l l circumstances.
T h i s c o u l d b e s t b e accom-
by cach Federal Reserve B a n k developing i n
district
such
a n open market demand
for
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Federal Reserve Bank of St. Louis
54
as would effectively mobilize credits s o that with due
allowance f o r varying seasonal conditions a n d re-
quirements i n the several districts member banks would
normally carry a substantial proportion o f their
secondary reserves i n bankers’ acceptances; this
without r e g e r d t o t h e a m o u n t
o f bills c r e a t e d
in
relative districts,
This procedure w o u l d n o t leave t o other banks
the burden o f supporting bills made for the financing
Ss
of Dusiness not originating 2 i n or benefitting their
The support o f 211 Federal Reserve Banks generally o f bills i n open market i s not o n l y 4 benefit t o
the m a r k e t a s a
of a
whole, b u t a l s o a
proper a s s u m p t i o n
reciprocal p a r t o f t h e s t r a i n O r C i n a n o i n e c e a =
sonable movements i n staples i n their own and other
districts which, without distribution through t h e discount market, w o u l d congest a s bank loans i n partis
cular districts f r o m time t o time a n d increase t h e
volume,
i f not the frequency,
o f inter-district fédis-
counting. T h e r e f o r e , even i f open market purchases
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Federal Reserve Bank of St. Louis
of Bankers! Acceptances might s e e m t o involve
discount, t h a t rediscount i s not inconsistent
the purpose o f purchases m a d e a t such times,
To g h o w t h e ' i n e q u i t a b l e d i s t r i b u t i o n
o f bills.
held b y the Federal Reserve Banks a t the present time,
five banks have i n their port folios 90% of the total
neld b y the System,
This comnittee concurs a n d holds t o the vievrs
expressed b y Mr. “arburg i n treating fundamental
questions o f theory, policy, a n d practicelpromulgated b y the Federal Reserve Board i n its question-
naire o f last april,
H i s replies %
were discussed a n d unanimously approved b r t h e full
board o f the Executive Committee o f the American A c ceptance Council a n d have b e e n published b y the Council
in booklet f o r m under title of: "Practical Problems
in the Development o f Bankers! Acceptances,"
erally approved b y the banling community.
committee recomnends t h e distribution o f
this booklet b y the Fede R e s e r v e Banks t o all
member banks making o r who contemplate making acceptances,
a s well a s t o all banks purchasing o r con+
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Federal Reserve Bank of St. Louis
templating curch sing, and the adoption b y all Fedprinciples a n d p r a c t i c e s
ag
to o p e n m a r k e t o p e r a t i o n s t h e r e i n s e t f o r t h a n d
recom=
mended,
Particular a t t e n t i o n
ig A g e
i s invited
t o questions a n d
d o n gs dey E n e ys eg
e e
g e e t
57, a n d 38, a s appearing i n the book~
This C o m m i t t e e f u r t h e r r e c o m m e n d s t h a t
a
a
standing
committee b e appointed t o confer a t frequent
intervals,’
by ‘phone o r wire, a s t o market
conditions a n d rates,
W i t h ted v i e w
o f neaining rates i n conformity with con-
surrounding t h e bill market, a n d that each
bank b e advised promptly a s t o any
changes suggested b y the committee,
the committee i s unable t o agree o n a Plan
whereby each Federal Reserve Bank shaild agree t o
take its
proportion o f bills, under a n y and
all circumstances,
bought b y other Federal Reserve
Banks,
Governor Calkins,
M r , Chairman, I would move the
adoption o f the report a n d a s k f o r
a n expression o f
thanks b y the Conference t o the
gentlemen w h o have
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Federal Reserve Bank of St. Louis
worked
g o assiduously
Governor Sear.
t o prepare it.
L I second that motion.
Governor Morss.
I f these bills a r e bought i n
New York b y the Federal Reserve B a n k i n New Y o r k a n d
gent t o another Federal Reserve Banksthere i s n o offer
on the open market i n the transaction, furthermore,
while I cannot prove it, I believe that these trans-~
actions w h i c h h a v e b e e n o f f e r e d b y t h e F e d e r a l R e -
serve B a n k o f New York have b e e n unduly used b y
brokers i n throving bills o n the New York market--The Chairman.
M i r . Martin, f r o m t h e Conference
of Federal Reserve Agents i s here and would. like t o
make a
gtatement.
Mr, Martin. I
have b e e n sent over b y the Con-
ference o f Chairmen t o ask i f this b o d y has taken
action o n the suggested division o f the caintry i n t o
districts a s suggested b y Governor Harding, f o r the
purpose
o f inter-change
o f business.
W h a t w e wish
to d o i s t o make o u r action uniform w i t h your action,
Ne have tentatively adopted the sugrsestions o f the
Board and i f agreeable t o yourgentlemen w e would like
to know what your action i s before finally acting o n
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Federal Reserve Bank of St. Louis
it o n t h e program,
Governor Case.
M r . Chairman I will move that we
addépt the suggestion o f the Federal Reserve Board,
Governor Van Zandt. I
second the motion,
(The motion was unatrhmousSiky carried. )
The Chairman. G o v e r n o r Morss, will you contime?
Governor Morss. I
do not think I have much more
to say, except t o outline t h e difference o f opinion
between counsel representing t h e N e w York Bank a n d the
Boston Bank,
T h e r e i s one thing that might help and
that i s that a standing committee b e appointed t o confer o n the proper o r most desirable prices a t which t o
buy acceptances.
T h a t i s a question which i s mixed
up i n this whole business, because the bank which offers t h e best price f o r the acceptance w i l l naturally
get the most; they will flow t o that bank,
‘ W e have
thought that the practice o r policy was not always
correct a s carried o n i n New York.
I a m talking v e r y
frankly, Mr, Case, and we have not been willing t o
follow.
“
e feel that New York made lower prices dis-
tributed amongst t h e Federal Reserve Banks a n d that they
really took into the System o f Banks more acceptances
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Federal Reserve Bank of St. Louis
oF
T h e last clause $85
than i t was necessary t o take.
this r e p o r t s i m p l y s t a t e s t h a t w e s n o u l d n o t a g r e e o r i
that question.
Acting Governor Case.
W e want t o make progress
should l i k e t o move t h e
as r a p i d l y a s p o s s i b l e a n d I
adoption o f t h i s r e p o r t , t h a t t h e r e c o m m e n d a t i o n s m a d e
be p u t into effect, t h a t i s the appointment o f a
standing camittee,
a s was j u s t suggested, a n d that
the canmittee f o r the present,
f r for the first year,
bethis committee which has submitted this report.
After this question i s f «
of s a y i n g a
I should like t h e privitege
w o r d i n r e p l y t o Governor Morss.
Governor Calkins.
T h a t i s a n amendment t o the
resolution which I offered, a n d I would like t o amend
it again b y adding t o it an expression o f gratitude f o r
the work o f the committee a n d also a n expression o f
regret that they have not reached a n agreement.
Acting Governor Case. I
second Mr. Calkins!
amendment.
Te Chairman.
B e f o r ew
e vote o n this queg tion
f want t o refo# as briefly as I can t o the question
that arosé between our bank and sour bank, ‘Governor
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Federal Reserve Bank of St. Louis
40
which
Case, a short time ago, a s 4 result o f a telegram
we g o t daily, I
think all t h e banks g o t it, announcing
as
that there was a shortage o f prime bills. I n a s m u c h
ing
we were carry/a considerable amount o f bills which
wired the
we were onxious t o get rid o f if we could, w e
t o whether
Federal Reserve Bank o f New York inquiring a s
part o f twentyor not i t could sell f o r o u r account a n y
five million dollars o f indorsed bills.
Y e had n o
o f the
thought o f throving t h e m overboard o r anything
sort.
prace
T h e reply w e received was that there was
York
tically n o demand f o r indorsed bills a n d that N e w
banks objected t o having their names, a s indorsers, h e l d
elsewhere t h e n i n Federal Reserve Banks; further, t h a t
"there t g n o question a s t o the legal right o f a Federel Reserve Bani: t o sell bills f r o m its port folio
pack i n t o the market, b i t the wisdom a n d propriety o f
so doing has b e e n considered, b o t h b y the Governors i n
Gonference a n d t h e Directors o f this Bank, w i t h t h e
result that both bodies discountenance the practice,
the principal thought being that Federal Reserve Banks,
like all central banks, being places o f ultimate rediscount, should n o t b e traders a n d that paper which
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Federal Reserve Bank of St. Louis
has b e e n taken o u t o f the market b y Federal Reserve
Banks should n o t again b e found i n the market. .
Also
that regard for the credit o f a bank which has indorsed
and sold paper from its port folio t o a Federal R e ~
serve B a n k would prevent t h e Reserve B a n k from i n jecting that indorsement i n t o the market, f o r i t might
be hawked around,
t o the embarassment,
i f not t o the
detriment o f the indorser."
This was t h e first intimation w e h a d received
that there would b e a n y difficulty i n disposing o f
bills s h o u l d w e d e s i r e
t o d o so.
W
e h a d always
considered that our bills were our property and there
were n o restrictions.
W e were informed t h a t while
there was n o definite understanding w i t h the indor~
sing banks that bills bearing their indorsement would
not b e offered, t h e l r views were known, sand the Fed-
eral Reserve Bank o f New York was i n full sympa thy
with them under the conditions that prevalled a t that
time,
then advised t h e Federal Reserve B a n k o f New
York a s follows:
"That with respect t o bills now i n our possession
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Federal Reserve Bank of St. Louis
purchased b y you i n our behalf, w e d o not consider
that there i s any obligation o n the part o f this bank
which would serve t o prevent o u r disposing o f the same,
if, i n our opinion, i t should b e necessary o r advise, either through the open market o r through other
channels.
T h a t i f we continue t o participate i n
the purchase o f New York bills,
i t wohld b e with t h e
understanding that there are n o restrictions, implied
or othervise, which would deny us the privilege o f
freedam o f a c t i o n i n c o n n e c t i o n w i t h t h e b i l l s p u r -
chased."
Vie were then informed b y the Federal Reserve Bank
of New York that the bills purchased b y them f o r o u r
account were unquestionably our own bills, and that
we had the right t o d o with t h e m a s w e s a w fit; t h a t
the question was n o t o n e o f right, b u t rather a s t o
the wisest policy t o pursue, a n d further, t h a t the
subject had been discussed by the Governors in March,
1919, and the folloving recommendation was acquiesced
in b y them:
"It is recommended that it be the policy of the
System that n o sales o f bills b e made b y Reserve Banks
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Federal Reserve Bank of St. Louis
out o f their port folios, except t o other Reserve Banks;
but a s a temporary matter,
t o aid i n the development
market f o r bills among member banks, certain
Re \
2 s e r v e
Banks m a y find i t necessary f o r the time being
the agent o f member banks i n making pur-
chases o f bills a n d t o some extent t o act a s dealers
in bills f o r that purvose.
T h a t Federal Reserve
Banks m a y very properly b u y bills f r o m member banks,
assist t h e m i n their purchases b y giving advice a n d
taking deliveries for them."
We u n d e r s t a n d
i t has b e e n t h e practice
o f the
Federal R e s e r v e B a n k o f N e w York, w h e n b u y i n g b i l l s
from dealers, t o require them t o obtain a bank indorsement, a n d that t h e banks a r e p a i d a comnission
by the dealers for their indorsement,
account f o r t h e o b j e c t i o n s
T h i s might
o f N e w Y o r k banks
to
their indorsement g o l d i n the
open inmarket, a s they are probably liable f o r a large
amoung o f bills which they have never owned, but
which have b e e n indorsed merely a s a n accommodation
to d e a l e r s .
Ag long a s dealers a r e permitted t o dispose o f
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Federal Reserve Bank of St. Louis
their unsold bills t o Federal Reserve Banks a t a
profit t o the dealers a s well a s t o the indorsing
banks which are paid for their indorsement,
i t would
seemsthat t h e Federal Reserve Banks a r e encouraging a n
unsound practice.
I f they desire t o assist t h e deal-
ers i n d e v e l o p i n g t h e o p e n market, w h i c h i s o f c a r s e
highly d e s i r a b l e ,
w h y not b u y the bills
f r o m t h e deal-
ers a s the price t h e dealers p a y f o r them.
It h a s c o m e t o o u r n o t i c e t h a t a
dealer
i n New
York refused t o gell bills t o a,Chicazo Bank a t the
market rate because h o was able t o dispose o f the
bills a t a better rate b y having them indorsed and
sold t o the Federal Reserve Bank of New York,
If w e are n o t permitted t o sell indorsed bills
in the open market, then w e should not buy such bills.
They r e m a i n i n the Federal Reserve Banks until their
maturity a n d cannot b e realized u p o n i n the mean time,
and therefore, h a v e l o s t their value a s a quick asset
because t h e y cannot b e reconverted i n t o cash i n the
open market.
I
n fact,
a s f a r a s realizing
o n them i g
concerned, w e would b e better o f f with unindorsed bills.
It was not intended, under the Federal Reserve Act,
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Federal Reserve Bank of St. Louis
that F e d e r a l R e s e r v e B a n k s s h o u l d b u y b i l i a - i n - t h e o p e n
market w h e n their reserves a r e low, a n d i t has been potut
out
b
y prominent students i n banking that when t h e
Pederal Reserve Banks were i n need o f money t h e y could
ligpose o f their bankers’ bills i n the open
market,
ith t h e present heavy demands f o r rediscount b y
member banks,
i t i s essential t h a t effort b e m d e
to
reduce the holdings o f bills i n the Federal Reserve
Banks a n d t o let Bankers' B i l l s f i n d their place i n
the o p e n market a t whatever rates a r e necessary t o
sell them.
As long a s dealers a r e able t o make a
profit b y
selling bills t o Federal Reserve Banks, and a s long as
member banks can make a profit b y indorsing such bills,
the situation i s unsound.
Treasury Certificates h a v e finally been marked u p
to a rate a t which t h e market absorbs t h e m readily.
Various note issues a r e constantly being marketed,
and i n most cases well distributed.
T h e discount
rates have been advanced s o that there i s n o profit
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Federal Reserve Bank of St. Louis
46
to member banks i n borrowing against
certifi#ates o f
indebtedness a n d l i b e r t y bonds,
T h e rates
o n accept-
ances should b e marked h i g h enough
s o that t h e Federal
Reserve Banks would not haye t o
st'gpobithe market,
and t h e r e s h o u l d b e n o a r b i t r a r y
preferential r a t e
established f o r the Federal Reserve
Banks f o r indorsed bills,
L e t the open market itself
determine
wheat preference i n - rates s h o u l d
b e G i v e n a n indorsed
Dei.
The Federal Reserve Banks are carrying
a t the pregent time over three hundred million
dollars i n bankers !
bills o u t o f a total o f approximately
s i x hundred mil-«
lion.acceptances o u t s t a n d i n g ,
O
n M a y 4th, L 9 2 0 , t h e
last figures which a r e available,
t h e total amount o f
acceptances outstanding was $678,000,000
i n all ine
stances a n d the amount o n hand
i n all Federal Reserve
Banks o n April 30th, 1920, was three
hundred and ninety-~
five million,
I t i s therefore apparent
t h a t about
half the acceptances made are
held b r the Federal Re~
Serve Banks.
I f the market were Properly
developed,
they would be relieved o f the
greater part o f three
hundred millions n o w held
b y them.
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Federal Reserve Bank of St. Louis
Acting Governor Case, I
wola s4%5 to move thé
adoption o f the report o f the camittee,
would l i k e t o s a a
e d then I
vord i n r e p l y t o G o v e r n o r M o r s s 3
the motion a s o including t h e appointment o f a per~
manent committee,
The Chairman. A
motion has been made and second-
6d and the question i s o n the adoption o f the committee's report a n d shat t h e present committee b e made
a permanent c o m m i t t e c ,
(The motion was carried, )
Acting Governor Case. I
would like t o say a word
on the subject o f bankers' acceptances. I
report w h i c h h a s b e e n s u b m i t t e d
think this
i s a n excellent report,
with t h e exception o f the last paragraph,’ which inatcates t h a t t h e committee c o u l d n o t AELCES »
LInotice o n page two, t h e second paragreDph, they
say "Each Federal Reserve Bank should, b y its own purchases, “either f o r investment because investment i s
desired,
o r i n support o f the general market when
Support i s necessary, a i m t o emphasize i t s adherence
to proper principles a n d practices, thereby indicating
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Federal Reserve Bank of St. Louis
that they stand behind t h e banker's acceptances u n reservedly a n d that i t i s entitled t o the most a t tractive r a t e s t h a t c a n b e c o n s i s t e n t l y o f f e r e d u n d e r
any 6nd all cireoumstances."
Governor Morss h a s indicated that h e does n o t
feel that his bank, f o r instance, s h o u l d b e called
upon t o purchase o r carry a n y proportionate share
of the bills that t h e Federal Reserve B a n k o f New
York might acquire.
T h e committee points o u t that
five banks todoy have ninety per cent o f the banker's
acceptances t h a t a r e i n the Federal Reserve Banks.
Perheps I can illustrate a condition which exists
from day t o day b y pointing oht what i s likely t o occur
in New York tomorrow a n d that i s this:
There i s maturing tomorrow upwards o f two hundred
here
millions o f these Anglo-French bonds; then/are the
September 1 5 t h certificates maturing i n our district.
From t h e best imformation w e c a n obtain t h e amount o f
the Anglo-French bonds maturing i s two hundred a n d
thirty million, t h e certificates mature, a n d coupon
addition t o
interest payment are t o be made b y the Treasury.
I n /
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Federal Reserve Bank of St. Louis
those three items a call for forty per cent o f the
procecds
o f t h e S e p t e m b e r 1 5 t h certificates,
amount
ing i n our district t o sixty million dollars,
what I want t o point out is this:
some v e r y heavy transactions
day;
Now,
T h a t there are
t o be cleared o n one
i n other words w e a r e g o i n g t o have i n New Y o r k
tomorrow a
very abnormal situation,
N o w , i f the com-
mittee recommends, a s I t does here, that the Federal
Reserve Banks should stand back o f the bankers! a c ceptances unreservedly, u s i n g that word i n its broad~
(
est sense, I
think I t means t h a t tomorrow t h e Federal
hee
Reserve B a n k o f New York m a y b e called u p o n t o take,
right off the bat, twenty-five million o r tt
forty million of bankers' acceptances. D e a l e r s
carrying t h e m have borrowed money around a t various
Places,
a t the Chase Bank, t h e Guaranty Trust a n d
other places, and Morgan a n d Company t o pay off the
Anglo-French bonds i s going t o call o n all these
banks v e r y heavily” a n d a s a result t h e banks
will
call all of their quick loans and it will put the
dealers
i n a hole,
Now, w h e n y o u g e t right d a m t o i t the Federal
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Federal Reserve Bank of St. Louis
50
Reserve B a n k o f New York i s the c o u r t f
o last resort
for perhaps thirty or forty millions of bankers!
acceptances tomorrow.
N o w , w h a t shall w e do? S h a t i
that i t does n o t suit o u r ticket t o buy those
bills a n d therefore w e will k e e p o f f the market, k e e p
out o f the market; that w e are not interested, a n d
thus bust the thing wide open?
O r shall w e follow
the p r a c t i c e t h a t w e h a v e b e e n f o l l o w i n g i n a s i t u a e
tion o f that sort and support t h e market?
I think there i s a great question o f principle
involved i n this thing, a principle which has been
very clearly l a i d down i n numerous instances.
T a k e
for instance t h e matter o f ear marking gold.
V e have
had three transactions, one with the Bank of England,
two with the Bank o f France a n d a proposed transaction---
iam not sure that that will be followed---and third
the Argentine g o l d deposit,
T h o s e things c o m e t o a
financial center i n the first instance.
I t was
suggested that t h e Bank o f New York make t h a t en-
gagement and that the other banks b e permitted t o
go in; the other banks all went in; they went i n o n
the B a n k o f England's p r o p o s i t i o n a n d t h e y w e r e v e r y
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Federal Reserve Bank of St. Louis
glad t o have the Argentine deposit.
I n the case o f
the Bank o f France Agreement w e offered the other Sleven
Banks t h e privilege o f coming i n i f they cared t o d d
SOs
W i t h o u t exception e a c h o n e o f the banks c a m e in.
nature, come through the financial center---if i t is
sound p r i n c i p l e t h a t t h o s e t h i n g s , b o t h t h e d e p o s i t
here i n America a n d t h e e
m a r k i n g abroad should b e
distributed among all the banks, i t dwes seem t o me
that i t i s sound principle,
i f w e are called u p o n -to-
morrow i n this emersency t o take over forty o r fifty
millions o r any large s u m o f bankers! acceptances b e causé a
real emergency exists, I
respectfully submit
that w e a r e s u p p o r t i n g t h e m a r k e t f o r t h e w h o l e c o u n t r y ,
and that i f the principle i s sound i n one instance,
that t h e B e d e r a l R e s e r v e B a n k s s h o u l d p a r t i c i p a t e
in the argentine g o l d deposit, a n d i n the e a r marking
of cod d n England, that
t
h
i
s sort the
Principle i s also sound---that i f they believe, a s
the committee does i n its report, that the Federal
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Federal Reserve Bank of St. Louis
Reserve Banks should stand back o f
unreservedly,
w e have g o t t o stand back o f them, a n d
the Bank o f New York will tomorrow, notwithstanding t h e
fact t h a t w e a r e b e l o w o u r r e s e r v e t o d a y ,
i f necessary
take o v e r tihatever i s necessary o f bankers! acceptances
to keep t h e situation sweet, a n d I think when w e d o that
that w e are performing a s ervice f o r the Federal R e serve B a n k o f Chicago a n d Boston a n d these other dis-
tricts.
T h a t i s the way the matter presents itself
to myrmind.
The question t h a t y o u raise w i t h regard t o
a .
Federal Reserve B a n k selling f r o m i t s o w n portfolio
these b i l l s t h a t c a r r y b a n k indorsement,
i s one upon
Thich I would b e very glad t o submit a memorandum,
but speaking t o this report, and the fact that the
tammittes cannot agree o n the basis o f distribution,
he situation a s I see it, which
To ONne.. O b pra n e L T
h
in a n emergency at a
a
t t e should support t h e market
time w h e n i t does n o t suit o u r
ticket, w h e n w e d o not want the bills, a n d i t does
not seem t o me that i t ought t o be difficult, having
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Federal Reserve Bank of St. Louis
53
established this principle i n these other matters, t o
establish t h e g a m e p r i n c i p l e w i t h r e g a r d t o bankers!
acceptances,
T h e r e m a y have b e e n cases here a n d there
where evils have crept in,
Y o u speak o f New York Duy=
ing bills w h e r e t h e d e a l e r t a k e s t h e m
bank a n d procures a n indorsement,.
% o t h e member
M y information i s
that that has been done i n a very limited number o f
cases, perhaps o n e o r tivo. P e r s o n a l l y , I
only know
of one bank which has adopted that Doractice.
if t o m o r r o w e
B u t
dealer h a s t e n o r twelve m i l l i o n s
i n
these bills, w h i c h they have borrowed against, a n d
the
loans are cakled tomorrow, a n d we only buy the indorsed
bllis, and they take them into the American Exehango*
Bank o r the National C i t y Bank o r some b a n k and,
pay~
ing a commission, h a v e their indorsements p u t o n
the
bills i n order t o make them qualify for our port folios,
it seems
t o m e i t i s n o t a n improper practice f o r t h e
New York Bank t o hold. the b a g a n d take t h e bills
in
under that situation,
The Chairmen,
I t seems t o m e the danger y o u are
in there i s one o f the results o f having operated
under
& plan whereby the rate,on bankers! acceptances have
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Federal Reserve Bank of St. Louis
Dden fixed a t a point where t h e y will n o t g o i n the
open market. I
believe, a s I have stated, that
there h a g been a n d there i g a market f o r these bills
if the rate i s right. I
have stated i n my remarig
that our Board i n Chicago i s i n favor o f supporting j
the m a r k e t f o r Banlrers' a c c e p t a n c e s
conditions
current
dition o f t h e bank.
Pe
D O G CtOn. ot 1
and
i n accordance
i n accordance w i t h
w i t h taeh e
O u r Board b e
r e s e n t t i m e t o take o n
ments a n d questions t h e correctness o f our policy
in having done so.
The committee states t h e y recomnend that the
benks stand behind bankers!
and t h e t t h e y a r e e n t i t l e d
to a
most a t t r a gtive p a t e ,
the m o s t a t t r a c t i v e v a t e t h a t c a n b e c o n s i s t e n t l y
offered,
T h e y also state they have been unable t o
acres o n Any p r o rata p l a n f o r distribution. *
i want t o go on record here a s stating, i f this
word "unreservedly" means that the New York Bank or
the San Francisco Bank o r the Chicago Bank can at
any
time command the other banics t o teke any part o f the
bills which they find that t h e y have t o take over,
that
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Federal Reserve Bank of St. Louis
we are n o t i n favor o f it, i f that i s what the word
means .
Acting Governor Case, I
d o not s e e h o w w e c a n
pprove the report o f the committee that the Federal
Reserve B a n k s s t a n d b a c k o f bankers! a c c e p t a n c e s u n -
reservedly,
i f that does n o t mean a proper distribu-
tion---you will o n l y take part i n fatr weather, a n d
4f i t doesn't s u i t your situation t o buy the bills
you want t o be l e t out, j u s t a s y o u might a s k t o b e
let o u t o n some o f these other things, t h e Argentine
deposit, f o r instance,
o r the e a r marking o f gold i n
the Bank o f England.
The Chairman. I
do not think t h e cases a r e gimi-+
lar a t all, because w e have had opportunity o f doing
as w e p l e a s e w i t h r e s p e c t t o t h e A r g e n t i n e m a t t e r a n a
with the Bank of England matter, H o w e v e r , I might
say that I cannot bind our Board o f Directors i f the
word “unreservedly”
!
i n this report means what vou
think i t means, Mr. Case, I
of t h e o t h e r f o v e r n o r s
would like t o hear same
o n this point.
G o v e r n o r Morss,
what i s your idea?
Governor Morss,
T h a t verd."unreservedly" a g I
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Federal Reserve Bank of St. Louis
understood
i t meant t h a t a l l o f t h e Federal Reserve
Banks should stand behind acceptances i n regard t o the
development o f the open market, a n d I think that t h e y
all should d o that, and that was the reagon that we
allowed that word t o g o in, s o far a g I
a m concerned,
does n o t h a m p e r a n y F e d e r a l R e s e r v e B a n k i n
taking bills f r o m N e w York i f the'ly see f i t t o d o so,
If t h e r e p o r t h a d b e e n t h e o t h e r w a y i t c o u l d v e r y w e l l
N
have b e e n interpreted t h a t N e w York a t a n y time could
call on any Federal Reserve Bank to, take a certain
proportion o f bills i f they held, a n d that i s what
I objected t o very sericusly, a s Governor McDougal;
but I f you call u p and s a y that y o u would like t o have
us take some, not as a digcount transaction, but simply
because o f reasons t h a t y o u s a w f i t t o give us, t h a t
would b e all right i f we cared t o d o it, a n d w e have
done that,
a s y o u know,
Conference adopted a
i n special cases; b u t i f t h i s
report s u c h a s y o u require,
or
such a s y o u a s k
for, i t seems t o m e that w e would b e
oblig 6d t o t a k e
them, and I do not vant to-be put i n
that
position,
it being t h e game a s foreign business,
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Federal Reserve Bank of St. Louis
ov
it does n o t s e e m t o m e t h a t t h e tivo cases a r e p a r a l l e l
at all.
T h i s foreign business i s a peculiar thing,
There i s only one bank that really knows anything
about it, and that i s the bank making the transaction,
The Boston Bank does n o t pretend t o know about this
foreign business,
T h e foreign banks d a not came t o
the Boston Bank, b u t naturally c o m e t o the N e w York
Bank a n d when t h e N e w York Bank asks u s t o take a
share w e s a y yes a n d are entirely willing t o leave
the whole management o f the thing t o New York because
they u n d e r s t a n d
i t a n d w e r e s p e c t t h e i r judgment;
but when y o u come t o the question o f acceptances w e
have a n independent judgment; w e think we lnow somsthing about the opén market for acceptances a n d we
are n o t always ready t o accept t h e judgment o f the
New York Bank o n something t h a t w e think w e know about.
I do not consider t h a t t h e t r o things a r e parallel
at all.
T h i s report leaves e a c h bani t o
ag i t pleases;
i t does n o t hamper t h e m i n
while t h e o t h e r f o r m o f r e d o r t w o u l d
hamper everr
bank,
8 n d that i s what w e objected t o ,
acting Governor Case,
T o follow Governor Morsa!
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Federal Reserve Bank of St. Louis
58
suggestion through, his bank and a number o f banks
have bought very freely a n d very liberally o f bills,
but only at a time when i t suited their convenience,
Ags a matter o f fact, t h e great majority o f these
bills originate o u t o f foreign business, import and
export transactions; y o u cannot have a n y foreign
business
o r a n y import a n d export transactions unless
your b i l l m a r k e t
i s suprorted.,
S
i
x o r seven o f the
banks a r e borrowing a n d manifestly t h e y are n o t i n
the outside market f o r investments, a n d today, a s
you look over the reserves o f the banks, i t would be
timited to Philadelphia, Boston, and Cleveland as
being the only banks t h a t were i n a position t o sup-
Port the market; also San Francisco. Personally, I
think that i s wrong.
i think the sugzestion t o set up a standing committee i s an excellent one, the comnittee t o deal with
the question o f rates covering the matter that Gov-
Ornor Moras touched upon,
O u r judgment, o f course,
is not infallible; i t may b e that w e were wrong a t
times i n the matter o f rates a n d I therefore t h i n k
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Federal Reserve Bank of St. Louis
that t h e suggestion o f having a committee i s a n excellent
one.
Referring again t o the possibilities o f tomorrow's
transactions, the Federal Reserve Bank o f New York i s
today below its reserve and may be obliged t o take over
thirty o r forty millions
i n bills, a n d i f we d o that
Imaintain that we are doing i t for the entire system,
and for Cleveland, Boston, Philadelohia, a n d San Francisco t o gay that they are not interested, that the
thing belongs t o N e w York,
i n m y judgment i s all WYONG.
I think w e are dealing w i t h a question o f principle,
and that to have a committee to fix rates and ga
itself t h a t the business i s being conducted properly
.
and t h e purchases distributed
p r o rata amonr ot t
he
twelve banks,
i n season a n d o u t o f season,
i n fair
weather and stormy weather, irvespective
o f their reserve p o s i t i o n ,
t h a t y o u axe dealing w i t h a
principle
of supporting the bill market
and that 4 4 ts a n ooligation o
f the twelve banks and not o f one, and not
dependent upon th¢ reserve position
o f the various
institutions.
Governor Seay,
I f we accept the report
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Federal Reserve Bank of St. Louis
60
aceept
i t as a
whole,
I
t appears
t o me that t h e cam-
mittee h a d t h e situation, described b y Mr. Case,
in
view, a n d dealt with i t partly, a t least,in t h e report.
The report says, a t the bottom o f page two:
"Therefore, eveh if open market purchases of
bankers! acceptances might s e e m t o involve rediscount,
that rediscount i s not inconsistent with the purpose
of purchases made a t such time,”
The question,
i t seems
t o me, v a s anticipated,
vnether i t deals w i t h i t t o the satisfaction o f Nev
York i n s u c h e x t r a o r d i n a r y i n s t a n c e s ,
is a
question;
but i n a general way it daes seem t o deal with the
Situation and t o meet it.
The Ghairman.
V o u r i d e e i g t h a t t h a t implies
that J f New York feels obliged t o take the bills
that i t should rediscount?
Governor Seay,
T h e y would have t o pediscount
and therein I s involved t h e question o f inter-reserve
bank rediscaint rates, t h e question that Dr. Miller
referred t o i n his opinion given t o the Board yeste r day.
The C h a i r m a n ,
T h e r e p o r t h a s b e e n adopted,
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Federal Reserve Bank of St. Louis
61
If the report
i st
g c e s p t e d with respect t o the u s e
of this word "unreservedly"
i n the light that Mr. tats
understands it, then I would call for a reconsideration o f the vote, i f I am a t liberty t o d o so.
event Twill state that, i n accordance with the judgment
of the Board of the Chicaro Bank, w e cannot be a party
to t h i s p l a n w h e r e b y w e w o u l d b e e x p e c t e d u n d e r a n y
circumstances
t o tale o n from N e w York, S a n Francisco,
or a n y o t h e r bank, a
large a m o u n t
o f bankers! a c c e p t -
ances when, a s a matter o f fact w e were required t o
borrow money t o d o 80. I
want t o g o o n record t o
that effect a n d i f i t i s necessary t o reconsider t h e
vote o f the conference, I would like t o have that done.
Governor Norris.
I t does n o t s e e m t o m e i t i s
necessary t o reconsider i t for this reason,
This
paragraph o n page t w o does n o t s a y that a l l Federal
Reserve Banks o r that t h e Federal Reserve Banks jointly,
o x that t h e Srstem a s a
whole s h o u l d s t a n d u n r e -
servedly behind bankers! acceptances,
each b a n k should,
I t says t h a t
b y i t s o w n p u r c h a s e s a i m t o empha ~
size i t s adherence t o proper principles a n d p r a
and s o forth, thereby indicatingwoZ that they stand behind
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Federal Reserve Bank of St. Louis
the bankers! acceptances unreservedly,
N o w , I
do not
know whether i t was worded t h a t w a y advisedly o r not--Governor Morss.
Y e s ; that I s the w a y I under-
Stood i t s
Governor Norris.
I t means that each bank shall
develop i t i n its o w n district,
s o that i t does n o t
seem t o me that i t permits o f joint action,
I f Mr.
Case's view, w h i c h h e has argued w i t h great force I
think, were adopted I see serious objection--«while m y
own mind i g still open--=I s e e serious objections t o
® joint liability, a n d realizing these objections and
realizing t h a t
i e board would probably object strongly
to i t IT do not feel a n y hesitation i n voting i n favor
of the acceptance o f this report,
The Chairman.
‘ i e have here a report which i g
susceptible o f more t h a n o n e interpretation,
Morss s u g g e s t s t h a t t h e n d c a i i n t e n d e d
M r ,
i t t o be
left t o the discretion o f the banks,
acting Governor Cage,
factory t o me, I
I t is entirely satis-~
just want t o s a y that m y under-«
standing of it is quite i n line with the vieus exe
Pressed by Governor Norris. T h e r e is no obliration
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Federal Reserve Bank of St. Louis
resting o n a Federal Reserve Bantr.
T e have accepted
the revort a n d t h e comnittee s a y s i t i s sorry b u t i t
cannot agree o n the question o f distribution, I
talking, a f t e r t h e adoption o f the report,
am
o n a ques-~
tion o f principle a s t o whether o r not the banks a s a
group ought n o t t o be---
Tie Chairman (interposing)
Y o u r opinion being,
Governor Case, t h a t this should b e a matter-~-
Acting Governor Case(continuing) A
matter of
principle, Mr. Chairman.
The Ghairman,. A
matter o f principle which should
be i n j e c t e d i n t o t h e p o l i c y o f a l l b a n k s ?
Acting Governor Case, Y e s ,
The Ghairman.
A n d that i f one i s r
carticipate a l l must participate?
Governor horss. ¥
theory o n that i s that
that w o u l d d e s t r o y t h e o p e n market,
The Chairman.
Governor Morss,
i e heven't a n y open market now.
r r idea i s t h a t i f New York
is obliced t o take these bills t h e y should g o t o the
Places w h e r e t h e b e s t a v a i l a b l e f u n d s arse t o a b s o r b t h e m
and not g o t o a Place where t h e y have other use f o r
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Federal Reserve Bank of St. Louis
their funds, and have use for more funds then they
have,
acting G o v e m o r
U s
M
a
y I
ask Governor Morss
a duestion?
Governor Morss, Certainly.
Acting Governor Case.
f
t 1s mite likely t o
occur tomorrow---New York i s below its reserve, a n d
Tounderstand that two o r three others have money t o
buy bills.
S u p p o s e t h e loans a r e called b y Morgan
and others o n the discount h o u s e s i a
n
d they come i n
there tomorrow about
are called a n d
they have got to have money or they will go broke,
“Nat would be the correct procedure for us? O u z h t
ve t o say "we are sorry we are tot i n the market, “ O U
g°0 to Boston and Cleveland.” g
that what we should
do?
but I f you o u t u p o u r rates somewhat under conditions
like that those men would dispose o f those bills i n
Boston,
1 f our rate w a s lover.
I f you said t o us,
on the question o f rates, t h a t y o u were going t o put
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Federal Reserve Bank of St. Louis
up y o u r r a t e a n d a s k e d u s n o t t o p u t u p ourg, s o t h e t
the bills would flow t o us, why, w e vould probably d o
that.
i f we were t o jack u p our
Acting Governor Case.
Cy
tes, according t o our position a s i t will b e tomorrow,
”
they would n o t deal i n b
V
e have g o t t o have a
suitable rate. M o r e o v e r , they cannot b e dependent
upon t h e c o n d i t i o n o f t h e B o g t o n B a n k t o m o r r o w
o f the
Claveland Bank; t h e y have g o t t o have t h e help instantly a n d w e have g o t t o deal w i t h the situation
say that w e will toke t h e bills o r w e will not,
Governor fiorss,.
T h a t i s one thing that I hope
the committee sugcested might b e able t o help on.
do not believe i t i s necessary t o hola t h e price
which y o u are buying bills skways a t
or with t o o much respect f o r the price
brokers bought t h e bills.
~ @ think that v o u protect
them t o o much; t h e t t h e y d o n o t t a k e a n y c h a n c e s
alle
at
“ h y should t h e y n o t take chances i n the market+
=
ing o f bills t o some degree?
Acting Governor Case,
with t h a t q v e s t i o n a n d I
T h a t committee w i l l w o r k
think t h e c o m m i t t e e w i l l
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Federal Reserve Bank of St. Louis
become, better informed about it.
Governor Morsse
M a y b e so, b u t the question o f
raising t h e rates o n these pills,a quarter o f one per
cent sometimes w i l l throw t h e m t o one side o r the
other,
T h a t trould m e a n t h a t t h e y w o u l d l o s e
t s fie
profit, and w e think they should b e obliged t o take
some chances.
eting Governor Case. I
will not disagree with
you o n that,
Governor Morss,
Y e think the N e w York Bank
protects t h e m absolutely a n d ought n o t t o d o it.
Acting Governor Case,
T h a t i g a question that
the committee will deal with, but i t does not touch
upon the vital question o f principle,
a s t o what w e
shall d o tomorrou, when i t does wot svit our ticket
tomorroy t o take a bunch o f bills. I
would like ean
answer t o that, “ V h a t shall w e s a y t o these dealers.
who have thirty o r forty millions
i n bills a n d have
G0t t o have money tomorren?
Governor Morgs,
dhy s h o u l d y o u n e t p u t u p t h e
rate?
“oting Governor Gage,
T h a t i s a matter that the
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Federal Reserve Bank of St. Louis
67
committee has got t o determine,
W e have figured i t
out that i f you put u p your rate a t eleven o r twelve
o'clock tomorrow o n bills and that i s done from timo
to time the result will b e there will b e a slowing
down o f purchases o f bills b y dealers.
T I think you
gsentlemen have a wrong conception of the fact that
these rates d o not fluctuate a t ail. T h a t is a
matter that t h e committee will cover, b u t i t does
not deal a t all with the vitel principle a s t o whether
New York should tomorrow take thirty millions i n bills,
or g a y that o u r share i s t e n millions, w h i c h w e will
take, and that they can then go to Cleveland o r Boston
with the other bills; that w e will take our share o f
them and quit.
in
Governor Norris.
I t seems to me that it/your
judgment the emergency i s such that you have rot t o
take thirty or forty millions in bills that the
thing t o do is t o call u p the banks that you lmow
may b e willing t o participate a n d ask them i f they
are willinge
I f they refuse, t h e n y o u have recourse
with the Federal Reserve Board,
The Chairman.
W e have here the committee's
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Federal Reserve Bank of St. Louis
68
report which has been approved.
T h e framers o f the
report have s a i d that there i s nothing i n this report
that binds a
bank t o support t h e market i f the condi-
tions o f that bank are s u c h a g t o justify i t i n not
doing so. T h a t o f course i s not mite i n harmony
with your expressed views, Governor Case, o f the language that i s used.
T h a t being t h e case, i f you will
make a motion covering the mtter w e will act upon it,
Acting Sovernor Case. I
prefer t o leave the
matter a t the moment, with this little discussion
which h a s c l a r i f i e d t h e s i t u a t i o n s o m e w h a t .
a
e
feel this---and this i s not said i n a spirit o f critiva) 5
P
t
.
°
P
e
e
§
2
2
cism a t all---that s o m e o f the banks should d o more
in developing a market i n their o w n districts f o r
acceptances.
(Further discussion followed, o f an infoxmal
nature.)
GoveBhor Galkins., M r . Chairman, I do not think
we should consider t h i s discussion a s conclusive.
I think t h e discussion has degenerated i n t o a digcussion o f things t h a t are n o t related t o the report
of this committee a t all, m t I think there ought t o
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Federal Reserve Bank of St. Louis
be opportunity for full discussion,
The Chairman. T h e r e will be further opportunity t o discuss it.
(At this point Mr. Gilbert, Assistant Secretary
of the Treasury, Mr. Broughton, a n d Mr. Emerson,
Assistant Secretary o f the Federal Reserve Board,
entered the Conference R a o , )
The Chairman.
T h e tepiea-concermping which Mr.
Ghibert, Mrs Broughton and Mr, Emerson wish t o confer i s Currency and Cireulation.
Currency a n d Circulation.
In view o f present insufficient supplies o f
new currency, i s i t desirable that ‘the
Federal R e s e r v e B a n k s a n d b r a n c h e s a g o p t
the uniform policy o f paying out new and
redeeming unfit currency?
Redemption
o f National B a n k notes a n d cor-
rection of tot.l Federal Reserve notes o u t
standing
the Chairman,
T h e report o f the currency com-
mittee appointed a t the last Governorg? Conference
held i n sashington april 7 to 10, 1920, was
submitted
to and approved b y all the Federal Reserve Banks
during July.
The c o m m i t t e e r e n d e r e d a
report, a
copy o f which
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Federal Reserve Bank of St. Louis
70
was distributed t o the Board first and-then t o each o f
the banks, was i t not Mr, Emerson?
My. Hnerson.
Yes.
The Chairman,
T h i s report dealt particularly
with a plan f o r t h e equitable distribution o f new
currency between Federal Reserve Banks a n d t h e manner
in which t h e reserve supply o f new currency o n hand
could b e congerved,
T h e p l a n proposed setting aside
aS r e s e r v e t e n p e r c e n t o f t h e o u t p u t
o f the Bureay
of Printing and Engraving, and the distribution aéf
ninety per cent o n the basis o f a bank's requirement
as determined fron monthly reports sent i n
by Federal
Reserve Banks t o the Federal Reserve Board,
T h e
plan further recommended that a s the reserve supply
of currency o f all Federal Reserve Banks w a s
v e r y low,
as full a percentage a s possible o f currency
received
for deposit should be sent to Yashington for redemption.
A later meeting o f the currency committee
wag
held i n September,
a t whieh a report was drafted t o
be submitted a t the next conference, showing
that
the facilities for printing new currency
are inade-}
quate a n d recommending t h a t the capacity
o f the Bureay
“~~.
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Federal Reserve Bank of St. Louis
71
of Piinting eanduEnsraving,
s
w onlargea. T h i s report
Will b e presented b y Gavernor Morss,
Have v o u something further t o offer o n that Gover.
nor Morss?
Governor Morss. |
I have n o t h i n g s p e c i a l
a t this
time,
Ag the committee understood t h a t the Federal R e serve Board h a s under consideration t h e t w o following
topics,
n o action was taken:
Re domption o f National B a n k notes.
Correction o f t o t c l P e d e r e l r e s e r v e n o t e s
outstanding,
Mr. Emerson, Assistant Secretary o f the Federal
Reserve Board, i s a member o f the new currency committee
and i s well informed o n all subjects which have b e o n
referred t o the currency committee,
Governor Morss, I
ferred t o e r
d o n o t k n o w w h r i t was r e ~
L I was o n the cannittee t o make a
procrem f o r the confercnce, b u t I wag n o t a member o f
the special committee t o make a n report
o n the cure
rency situation,
4.
The Chairman.
o
y
w e understood t h a t perhaps there
would b e some supplementary report made b y
you,
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Federal Reserve Bank of St. Louis
pe
Governor Morss.
have r e a d this A
N o , I
i
have nothing more,
‘ i
t seems t o me t h e conmittee
males o u t a very strong case.
T h e danger that w e m a y
have i f there i g a serious shortage o f bills i s a dan-
ger that ought to be avoided i f possible,
tnows t h a t t h e b i l l s a r e d e t e r i o r a t i n g
i v e rybody
i n character
every d a y becsuse there a r e n o t sufficient n e w bills
to replace t h e o l d ones,
I
f that deterioration
of
bills should deplete o u r stock o n hand seriously there
might come a
very serious question t o deal with,
Take t h e t r o u b l e s t h a t w e h a d i n B o s t o n a
of weeks ago.
cmple
‘ V e had three o r four small, weak,
non-member banks t a k o n over b y the Banking Commissioner,
That erceted more o r less o f a scare.
T h e result w a s
that the Boston Bank paid out on Monday of that week,
after the Cosmopolitan Bank failed, eleven million
Gollars.
i n bills,
V e : pated 2 h out t o Bil winds o f
banks; thet i s I mean t o say some o f our best banks
took t h e m a s a precaution,
T h e y d i d not know what
they might be called upon to do and they wantsd the
bills i n the benk so as not to have to wait for them.
That was t h e case when some small banks failed,
t f
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Federal Reserve Bank of St. Louis
one o f the larger o r stronger banks should fail I do
not k n o w w h a t w o u l d h a v e happened; I
do not know what
demand micht have been made o n us for bills.
I t shovs
the necessity o f keeping a very large s t o c k o f bills
on h a n d a l l t h e time.
O n e o f the f i r s t questions
that the big banks asked was "How meny bills have you
on hand, i f w e h a d t o have them; h o w much currency
I
have you cot that we oan get quickly?"
f our
stock w a s d e p l e t e d s e r i o u s l y a n d i t became n e c e s s a r y
for the b i z banks t o have those bills,
the whole situation.
Therefore, I
i t would wreck
think t h e question
yyimportant one.
Chairman. I
might say that the
far a s i t wes conpleted, w a s submitted t o the
reserve banks;
i t was approved b y all, a n d a s I under~
stand i t the plan i s i n operation,
A
m I right, Mr.
n m se ron?
So f a r a s t h e f i r s t r e p o r t i s con-~
cerned, Ves.
the Chaiyman.
T
h
e p l a n i s t o supply t h e weaker
banks with a ten per cent reserve that can be plsecdanywhere ?
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Federal Reserve Bank of St. Louis
14,
Mr. Emerson.
Yes.
T h e only thing that held
he v e p o r t u p f r o n g e t t i n g i n t o c o m p l e t o o p e r a t i o n w a s
the fact that the Federal Reserve Bank has not as yet
taken over t h e operations o f the United States airrency,
which w e contemplated would b e cone immediately.
has h e l d u p t h e t r a n s f e r
aré w o r k i n g o n a
T h a t
o f t h e s u b treasuries a n d W e
plan t o build u p t h e reserve
o f the
banks whese supply i s lowest, but we cannot make much
headway b e c a u s e w e cannot g e t enough notes t o supply
the current demand,
Governor Morss,
T h e report o f the committee
would indicate t h a t our reserve s t o c k o f bills i s
liable t o be depleted within six months o r a year,
and when y o u have g o t a plant that i s turning o u t
all
the bills t h a t i t possibly e a n a n d still y o u are
drar-~
ing o n your reserve and that reserve i s being pulled
down every day, i t becomes a
very serious question,
The only remedy seems t o be t o increase the plant,
and that i g & point that this coannittee report
very
strongly brings out,
Governor Seay.
M a y I ask how soon i t i g possible
tomake a n increage i n the plant?
I t seems t o me
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Federal Reserve Bank of St. Louis
that i s Looking t a o f a r into the future.
T h e question
brought o u t b y Governer Morss m a y become a
very wide-
a
spread o n e , t h e r e m i g h t a r i s e a n o c c a s i o n f o r
need
of a very much greater amount o f currency than we: have
available,
b u t i f w e a r e t o depend u p o n t h e enlarge-
ment o f the facilities o f the Bureau o f Printing and
Engraving, h o w s o o n c a n w e depend u p o n that enlarge~-
ment being put into effect?
am going t o ask Mr, Gilbert
The Chairman. I
to give u s such message a b h e may haves
Mr. Gilbert. I
have scen some o f the reports,
not all o f than.
Te Chairman. I
know that you have a message
for us, Mr. Gilbert.
Mr. Gilbert. I
to i t because
have some difficulty in regard
i t i s n o t u n d e r m y supervision,
the Bureau, a n d I
thet is
a m gomewhat i n the position o f giv-
ing orders t o the Bureau and then not seeing them tarried out. I
One » I
think t h e
i
s chiefly a physical
understand i t will probably take six months
to remedy t h e equipment difficulty.
T h e y have pover
Presses w h i c h have t o b e specially built a n d TI think
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Federal Reserve Bank of St. Louis
they e s t i m a t e t h a t n o new. presses c a n b e delivered
before about three months.
The o t h e r a s p e c t o f t h e p h y s i c a l d i f f i c u l t y
is mostly a labor matter, w h i c h i s always a n exceptionally delicate matter a t the Bureau.
w e have
felt that i t was better t o produce a s much a s pos»
sible, and get i t every day, than t o have a strike
and produce nothing,
T h e r e h a b e e n very absurd
labor restrictions. I
myself’ thank there i s a n
agreement t o restrict t h e output.
Vhile I
gay
a t
rather informally I really think i t is so, because
they a d h e r e c o n s i s t e n t l y
to a
limited program.
There
aré also statutory vestrictions o n the number o f power
Presses which may b e used, which i s a relic o f an
ancient system. T h e y have now nearly five hundred
hand pwesses which are still used, which occupy a
greet deal o f s p ace and which produce rela tively
little currency,
Governor Cage, V W h n a t a r e t h e v o s s i b i l i t i e s
of
getting the statutory provisions changed?
Mr, Gilbert, I
think w e c a n d o a good deal
without changing t h e statutory restrictions, although
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Federal Reserve Bank of St. Louis
ih
the existence o f the restriction encourages t h e unions,
particularly t h e plate printers! union,
strongly t o a n y i n c r e a s e
t o object
i n p o v e r presses,
T h a t is
thing they have alvays had t o face a t the Bureau,
ay are working n o w practically twentysfour
hours a
day. T h e i r time will b e teken u v with permonent
bonds, probably until april o r Moy.
T h a t takes u p
about twenty-five p e r cent o f their time
a n d they
anticipate a
cousiderable i n c r e a s e
i n the output o f
currency u p t o that time o n the basis
o f t h e present
equinment a n d staff, a s soon a g t h e
bond program i s
completed,
ip
Governor Morss,
bert,
Y o u l d i t b e possible ,Mr, Gil-
t o contract w i t h Private printing
concerns f o r
Printing currency t o cover t h e emergency?
Mr, Gilbert, S p e a k i n g offhand, ste
far a g I
know I
think i t i g legally possible,
I
should
like t o have t h a t i n mind a s something
t o tell the
Bureau,
Governor Morgs,
n é e Treasury a g I recall
it
Bent ontside during t h e war,
I
think t h e “ a r Finance
Corporation bonds were printed b y the American Bank
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Federal Reserve Bank of St. Louis
Note Conpany.
Mr. Gilbert,
[ T h e y were i n a different position,
being theoretically a n independent corporation.
Acting Governor Case, I
think the cuestion Mr.
Morss h a s raised i s a very important o n e because a
situation s u c h a s h e has outlined i s pretty serious,
Governor Morss,
Y e s i t is.
Actin; Governor Case,
I f the Treasury is not
geared u p t o produce, a n d t h e y c a n g o outside, I
think they ought t o give very oareful consideration
to the suggestion.
Mr. Gilbert,
i ¢ @ will b e very glad t o give
very careful consideration t o it. i
think i t i s a
very good point t o use w i t h the Bureau. I
doubt t h a t t h e A m e r i c a n B a n k N o t e C o m p a n y ,
with the plates, e o u l d produce 4
have n o
i f furnished
great deal o f cure
FENCY s
Governor Miller.
T h e y use power presses, d o they
Mr. Gilbert, I
think so.
not?
well informed a s t o the ecuipment o f the American Bank
Note Company, but I understand that the equioment at
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Federal Reserve Bank of St. Louis
19
the B u r e a u
i s v e r y m u c h i n excess
o f any orivate e q u i d +
=
printings i s t h e
ment i n the country, a n d that currency
ryea ter p a r t o f t h e B u y e a y o p e r a t i o n s .
Me, Emerson.. T h e Board Corncil gave the opinion
Reserve
that i t would b e permissible f o r t h e Federzl
Rene t o have Federal Reserve notes printed outside.
note
tThave been informed b y a n official o f the bank
time
company that they have facilities a t the present
uhnich they would like t o use i n printing currency
end that they would b o glad t o get a n order from.
System.
V a t h reference t o the stock o n
Covernor Seay.
hand, while I
em n o t i n position t o give figures, I
we
do know that with respect t o certain denombnations
are almost i n a state o f panic.
Mr. Gilbert.
Y e s , w i t h ones a n d twos parti-
cularly.
Governor Seay.
N o t only ones a n d twos, b u t fives
and tens.
Mr. Gilbert,
T h e r e i s n o auegtion b u t what t h e
country i s u s i n g c u r r e n c y t h a t i g unfit.
Governor Sceaye
Y e s ,
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Federal Reserve Bank of St. Louis
Mr. Gilbert, I
doubt i f w e equild increase t h e
supply b y putting i n new equipment before t h e first o f
February.
Governor Seay,
I t seems t o m e that unless t h e
Conference goes o n record as impressing vron the Department t h e v i t a l n e c e s s i t y
o f Preparing f o r a
pos~
sible emergency that it will fall short of its duty,
I feel t h a t w e h a v e a
very serious responsibility
on
US.
( After f u r t h e r d i s e u s s i o n , )
Governor Seay.
f
t move you Mr. Chairman i t is
the sense o f the Conference t h a t inasmuch
a s the
Treasury Department i s unable a t the Present
time t o
furnish a sufficient number o f bills
t h a t t h e Federal
Reserve Board take u p with the Secretary
o f the Treagury t h e q u e s t i o n o f p r o v i d i n g
t h e necessary bills
throigh contract w i t h private concerns,
(The motion duly seconded, was unanimously carried,
)
The Chairman.
M r . Emerson, d i d y o u
wish t o dig«
cuss t h e o t h e r p o i n t c o v e r s d
i n the committee r e p o r t
which i s "Correction o f total Federal
Reserve notes
outstanding?"
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Federal Reserve Bank of St. Louis
Mr, Emerson,
N o , t h a t s i m p l y applies t o
sone s t a t i s t i c a l r e c o r d s .
The Chairman.
My, Emerson.
T h e r e i s no further report?
Wo.
Tho “hairman. i
understand thet Mr. Gilbert
desires t o b e with u s when w e consider t h e question
of transfer o f sub-treasury functions,
A
m I right,
Mr. Gilbert?
Mr. Gilbert,
Y e s ,
The Chairman.
o u l d y o u like u s t o g o ahead
at this time o r will v o u come a t some other time?
Gilbert. I
would like i f possible t o
at three thirty this afternoon.
Lwould like t o say that the Federal Reserve:
Bank o f Boston i s already undertaking operations under
the n e w p l a n f o r t h e d i s t r i b u t i o n
o f currency t h r o u g h
the Federal Reserve Banks and the Federal Reserve
Bank o f New York i s about t o take it, UDPe I
hope t h a t
the Federol Reserve Banks s o far as possible will all
do t h a t a t t h e e e r l i e s t moment.
prs
(whereupon, u p o n motion d u l y seconded t h e Con-
ference adjourned a t 1 o'clock t o meet a t 2.30
o'clock
P,M. of the same day.)
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Federal Reserve Bank of St. Louis
AFTGR RECESS
The G o n f e r e n c o r e a s s e m b l e d o u r s u a n t
t o recess
at
o'clock P . M ,
the Chairman.
orcer. I
T h e meeting will pleasé c a n e t o
presume the first thing we should d o skonied
be t o continue t h e disowssion o f this matter d f bankers!
acceptances. However, i n the absence o f several banks
that are interested perhaps w e can find something else
to d o o f less importance,
Acting “Yovernor Case. U n d e r the head o f unfinishe
ed business,
i f you skip the acceptance matter,
i g the
topic
ACCOUN PING
St a n d a r d i z a t i o n
o f inter-federal roserve
bank f o r m s .
The Chairman.
T h a t was left t o a committee,
Acting Governor Case.
A n d that canmittee h a g
reported p r o g r e s s ?
The Chairman. T h a t committee consisted o f
Reash, o f New York, Wagner, o f Cleveland and Vogt
of Chicago,
The c o m m i t t e e a p p o i n t e d
I
t o repoP
rt
o n the above
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Federal Reserve Bank of St. Louis
subject does not ddem i t advisa
formal report a t this time b u t simply
Mee R a a s c h o f N e w York, C h a i r m a n o f t h e G o m -
mittee subnitted the following byltelerram o n October Sth:
"At the Governors! Gonference last fall a
committee consisting o f Mr. Vogt o f Chicago, Mr,
vagner o f Cleveland, a n d myself w a s appointed t o consider t h e possibilities o f standardizing inter-Federal Reserve b a n k accounting forms.
S i n c e that
time the committee has gathered a complete s e t o f
7
:
forms used b y each o f the Federal Reserve Yanks a f
nOd
one meetin; w a s h e l d i n Cleveland a t which t h e forms
now i n use were discussed and the principles laid
Gown governing t h e standardization o f forms b y the
Committes,
T h e vork was then divided equally among
the three members o f the Committee and since then
much time e n d study has b e e n devoted toward t h e
drafting o f forms that carld b e made standard through
out the system, f n a s m u c h a s there are a great many
points t o b e considered i n connection w i t h each forn,
the c o m m i t t e e h a g n e c e s s a r i l y m a d e s l o w
progress.
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Federal Reserve Bank of St. Louis
84.
pone s t a n d a r d s h a v e a l r e a d y b e e n a d o p t e d
b y the Com-
mittee b u t i n a s m u c h a s i t s t a s k i s n o t y e t c o m p l e t e d
the C o m n i t t c e d e e m s
i t advisable n o t t o r e n d e r a
finel report but simply t o report progress,"
If that i s satisfactory t h a t will b e accepted
without any vote and the subject will be passed,
acting Governor Gauee M r s Chairman, I
now
move that the Ghair appoint a committee t o prepare a
U
paper t o accompany the motion made b y this Conference
On currency matters,
t o b e submitted t o the
(The motion being duly seconded was carried.)
The Comnittee w i l l b e composed o f Governors Norris
and Calkins,
The next topic, and the last I think with respect
to unfinished business, i s
Treasury Relations,
Relations b e t v e e n T r e a s u r y a n d F e d e r a
Reserve B a n k s ,
A committee w a s appointed t o handle t h a t subject
consisting o f Mr, Craemer o f Chicazo, Mr. Higgins
of
New York, and Wagner o f Cleveland,
T h e y have rendored
& report a n d y o u have n o t h a d a copy o f i t
because i t
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Federal Reserve Bank of St. Louis
85
has
n
y recently ble e n prepared,
n i I will aos k Mr. H o k -
t oo readt t! La is report,
Mr. Hoxton: —
a
e
Tae C o m n i t t e e n a m e d F e b r u a r y
OVS
bo, L O Z 0
, 1920,
dy
ior Strong, Chairman o f the Conference o f Gover-
nors held i n Vashington, November, 1919, with
3
the
Board,
under
Topic
No,
l Reserve
a
r
e
d
e le,FU.
Se
LSUTELrS
' Account; reports
the
n January 21, 1920,
O
: a: etter,
Fedejercal Reserve Board
230
d % , . 40 each F e d e r a l R e s e r v e
Bank, i n which it requested a
question o f practice
o r t "covering the
i n the hand t
accounts
of the Treasurer o f the United States which w e r Se
causing any difficulty.
d classified, a n dn the
The replies w e r e r e c e i v e d
a
a t Vashineton
Committee met
on Merch l i t h and 12th,’ 1920, i n conference w i t h
. H a n ds,
r
mn
s, Emerson,
n s o te ahn dgMother
u o Ireasury
r B
S I T LAL18s
C
It was observed t h o t many o f the items included
by the Reser
e Banies
Department's service
involved t h v
e efficiency o f the
rather than matters o f principle,
and t h a t s u c h c o n d i t i o n s w e r e w e l l k n o w n t o t h e D e e
partment.
The d i f f i c u l t i e s ,
w h i c h were d u e principally
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Federal Reserve Bank of St. Louis
to the character o f help obtainable i n Vashington
are, however, b e i n g rapidly overcome, M e n t i o n . o f the
details o f those items i s omitted i n this report,
The several proposals,
i n conference w i t h t h e
respective officials having juyvisdiction, were received i n the usual spirit o f hearty cooperation, a n d
the committee were requested t o present them i n write
ing in order that formal action and record might be
had,
On May 14, 1920, the Committee formally submitted
@ list o f proposals addressed t o Assistant Seore tary
of the Treasury, R . C. Leffingvell, covering those
questions o f practice referred to. T h e y were left
with the Treasury Department for consideration and
action.
T h e Committee a g a i n met i n «ashington o n
September 20, 1920, t o discuss t h e replies waich were
subsequently m a i l e d
t o the Committee, ( O c t o b e r Lae w e e y:3
The questions are written i n this report ag
submitted t o Mr, Leffinguell, a n d the answers inmmedjately follow the respective proposals:
question 1-ST. ToMmINTS,
1?
i
s
Recoznmend t h a t w h e n t h e p r e s e n t s u p p l y o f
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Federal Reserve Bank of St. Louis
omitted a n d t h a t t h e w o r d i n g o f
line 8
o n form 1 7 b e changed a t the next
ing t o r e s ' F u n d s transferred t o other
positeries and mi L a n e o u g deQits.!"
Ansver--=The Treasury deems i t best t o have
special f o r m o f d a i l y t r a n s c r i p t p r i n t e d
the u s 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 a n d
branches which will conform t o the recommen«
dations above quoted,
T h e present f o r m 1 7
is satisfactory for use b y National Bank
depositaries
a n d w i l l b e c o n t i n u e d P o r them.
in the meantime, pending t h e distribution o f the.
new f o r m ,
i t i s n o t understood w h y t h e Federal
reserve banks cannot continue t o include misc@llaneous debits i n the amount reported o n
line 8 , even though t h e title i s not changed,
Question 2 e - Meer o n s B e i
d that
n
e
n
m
tellers
to sign certificates
porting t i c k e t s
c
e
R
fi
b e ogranted
permission
o f deposit a n d other sup-
o r vouchers
i n the place o f bank
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Federal Reserve Bank of St. Louis
officers, a n d that their signatures b e filed
with t h e Treasury Department t o indicate t h e i r
capacity t o s o sifn.”
Ansver---The Treasury accepts this recommenda-
tion, provided the Federal Reserve Banks file
With the Treasury Department, i n triplicate,
not only the signatures o f the tellers
authori-
Zz60 to sign but also written authority from the
Federal R e s e r v e B a n k t o t h e t e l l e r s
for t h e b a n k c e r t i f i c a t o s
supporting t i c k e t s
t o sign
o f deposit a n d other
o r vouchers t h e t a c c o m p a n y
the transcripts o f the Treasurer's general
AOCCount.
Question 3---RECONCILEMENTS .
"Recommend t h a t a uniform
reconcilement
form b e adopted o y the Federal
Reserve Banks,
subject t o the aporoval o f the
Treasury Depart-
ment, a n d t o b e printed b y the
latter
can arrenge i t t o conform with
their system o f
g o they
accounting and filing."
Answer--- The Treasury believes that a uniforn
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Federal Reserve Bank of St. Louis
reconcilement f o r m would b e a n improvement
over the f
s e n t method o f listings the differ-
ences i n a letter,
allow f o r a
T h e form, hovever,should
description
o f unadjusted items,
and also for the retention b y the Treasurer's
office o f a carbon copy, i n order that a complete r e c o r d m a y b e r e t a i n e d
i n the Department
for reference Durposces.
Comment---The C o m m i t t e e
o n Uniform Forms appointed
at the Governors! Conference, November, 1919,
have b e e n a s k e d
this p u r p o s e ,
t o prepare a
suitable f o r f o r
t h i s f o r m when completed will b e
adopted b y the Treasury Department.
Qestion 4 - - —
"Recommend t h a t a
be maintained b y <
transit
o r deferred account
a s u r o r vith each Federal
Reserve B a n k a n d that a separate reconcilement
be made f o r this secount,"
A p i i e eet 7
anstver--=The
accounts r e c mnended a r e
already being
carried with the several Federal Reserve
Banks,
and the Treasury h a g n o Objection t o the f u r n i s h
2
ing
b y the office o f the Treasurer o f
the United
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Federal Reserve Bank of St. Louis
States o f a monthly reconcilement statement o f
the transit a n d other deferred accounts main-~
tained with t h e Federal Reserve Bank.
Comment---Such F e d e r a l R e s e r v e B a n k s a s w a n t t h i s
reconcilement c a n o b t a i n i t u p o n r e q u e s t
t o the
Treasury Department.
Question 5 - - - " I R E T R A N S F E R S ,
"Recommend that telegrams reporting balancos
of the Treasury Department b e sent the Department a t t h e s a m e t i m e a s t h e G o l d S e t t l e m e n t
Fund wire,
t o tnable i t t o figure i t s v o
and thus make transfers before closing time,"
Answer--= The Treasury Department would b e glad t o
have this recommendation p u t into effect b y the
Pederal Reserve Banks,
Coinnent-+«-This réecomnendation v a s m a d e p r i o r
t o the
Present method o f settlement i n the Gold Fund,
but still applies t o banks not reporting Treas~
ury balance a t close o f business same day.
a
d
r
Question 6---MISORLLANEOUS.
Cancelled Coupons.
i
"Recommend
t h a t the Federal Reserve Banks
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Federal Reserve Bank of St. Louis
adopt a uniform system of marking their coupons,
to show f r o m which bank t h e y are s e n t and under
what date, f o r t h e p u r p o s e
o f safeguarding them-
selves a n d saving t h e Treasury Department f r a n
with
the tremendous volume of work/irhich they are at
present involved.
T h i s system t o establish
complete i d e n t i f i c a t i o n
o f any coupon that m a y
subsecuently b e returned t o a Federal Reserve
Banks”
Ansver---The Treasury hopes that this recomnendation will b e carried o u t b y the Federal Reserve
Banks a s D r o m p t l y a s possible.
Cancelling
machines adequate t o make t h e cancellations r e -
commended are now i n use a t the Treasury Department, a n d machines c a n b e furnished a t the expense
of the Treasury t o some extent, o u t o f stock
already
o n hand,
t o Federal r e s e r v e b a n k s p r e -
pared t o u g e t h e m ,
F e d e r a l Reserve Banks a r e
expected e v e n n o w t o u s e d i s t i n c t i v e p u n c h e s f o r
the cancellation o f coupons forwarded t o the
Treasiver o f the United States,
A n y Federal
Reserve Banks o r branches, n o t n o w using s u c h
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Federal Reserve Bank of St. Louis
92
distinctive p u n c h e s w i l l , u p o n a p p l i c a t i o n
t o the
Treasurer's office, b e furnished with a special
design o f cancellation p u n c h t o identify coupons
forwarded
t o t h e Treasury.
Conmment---Thig q u e s t i o n w a s r a i s e d b y o n e o f t h e
federal R e s e r v e B a n k s , w h i c h r e p o r t e d t h e e x i s t ence o f a r u m o r t h a t t h e r e s e r v e b a n k s w e r e t o b e
required t o assort coupons i n numerical order,
and i n the discussion w i t h t h e Treasury officials
it was suggested that the Federal Reserve Banirg
Might use a mechanical device that would save a t
least o n e c a n c e l l i n g o p e r a t i o n
Department,
i n the Treasury
b y distributing t h e work i n the B a n s ,
The Committee believes that the Reserve Banks
could undertake t h i s additional labor b u t think
it should b e referred t o each bank first,
W e
» hovever, b y Assistant Secretary
Gilbert, that: the reserve baniks would
not be
called upon t o assort b y numbers.
westion 7---LOST TRANSORIPT AND JARRANTS D E T
4 lea bend
FEDERAL RESERVE BANKS AND TREASURY.
"Recomaend that consideration b e given
to
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Federal Reserve Bank of St. Louis
permitting Federal Reserve Banks t o make iImmedtate entries i n case o f lost transcript a n d warrants s e n t b y them t o the Treasury Department.
The present practice o f being obliged t o carry
these i n suspense accounts until t h e auditor o f
the Treasury will permit adjustment i s consider~
ed unfair and unsatisfactory."
Answer~--The Treasurer o f the United States i s not
permitted, under existing law and accounting
procedure,
t o enter a charge i n the account o f
the d i s b u r s i n g o f f i c e r u n t i l a
lost check has b e e n obtained,
believes t h a t t h i s p r o c e d u r e
duplicate
o f the
T h e Treasury
i s i n accordance w i t h
cood banking practice and that i t would not be
reasonable t o expect the Treasurer t o give credit
for lost warrants a n d checks never received b y
him, inasmuch a s t h e Treasurer himself could n o t
make a corresponding charge against the disburs-
ing officer's account for items lost and not
produced,”
Question 8---FLOAT,
"Recommend that Mr. Leffingwell be requested
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Federal Reserve Bank of St. Louis
94
to confer with t h e Secretary o f the Treasury a n d
the Federal Reserve Board, i f it meets with the
!
approval o f the Governors! Conference,
o n the
subject o f s h o w i n g m o r e c l e a r l y t h e t i n e c o n d i t i o n
of the Treasury account with respect t o uncollected checks.
I t i s felt that a state-
ment gshorld ghow o n the liability side: 'Treagurer o f the United States General *ecount Collected P u n d s a n d T r e a s u r e r
o f the United States
Deferred Credits,’ a n d o n the asset side: ‘Items
in process o f collection devosited b y the Treag-
urer o f the United States! a n d thet when there
is n e e d f o r a
special c e r t i f i c a t e
o f indebtedness
tO cover an overdraft that this would also show
&@8 a loan t o the Government,"
ANSWELr-~-- The Treasury feels t h a t t h e question o f credit
in the Treasurer's account for uncollected items,
articularly f o r uncollected income a n d profits
tax checks received during t h e f o u r large t a x pay~
ment periods,
i s a question o f general policy
whieh has beon determined a s between t h e Trea sur
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Federal Reserve Bank of St. Louis
and the Federal Reserve Board,
seneral a t t i t u d e
(abv)
toward credit
T h e Treasury's
f o r checks
de-
posited w i t h t h e Federal Reserve Banks i s s e t
forth i n paragrphs 19, 20, and 2 1 of Treasury
Departinent c i r c u l a r N o . 1 7 6 , d a t e d D e c e m b e r
919.
S o far as the Treasury is informed,
the question o f credit f o r uncnllected items i s
not causing a n y technical difficulties
i n hand-
ling entries i n the Treasurer's general account.
Comment~-~This Committee feels t h a t t h e Federal
reserve banks should n o t t o n t i m e
for uncollected items.
tice i s unsound.
t o give credit
I n our opinion the prac-
V i h i l e t h e effect i s t o slightly
improve t h e reserve position during t h e periods
of heavy t a x receipts,
statement o f condition,
i t results i n a n untrue
Y e , therefore, u r g g
the Conference o f Governors t o take this cuestion
upvith the Federal Reserve Board with the view of
heaving this practice corrected,
The
NA LIMAN »
# @ Will dispose
o f this partieu-
tar topic No. 8, as the committee has made special request t h a t w e d o s o .
T h e question involved
i s whether.
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Federal Reserve Bank of St. Louis
96
or not w e propose’. t o permit t h e Treasury Department
to continue t o demand that w e give a n immediate credit
for items that are n o t immediately available i n Chice20, a n d w e declined t o d o that, a n d adhered t o that
Policy until, I think, perhaps the last two o r three
installments, t h e last two installments, I believe,
of taxes, when we reversed the policy.
Governor Calkins,
v e declined t o d o i t and,
being a t a distance a n d hard t o get at, the Treasury
Department nullified o u r declining t o d o s o b y calling
upon u s t o t r a n s f e r
s o t h a t t h e b a l a n c e w a s exhausted,
collected a n d uncollected both. I
think w e should sup-~
port the view taken b y the committee; i t is absolutely
sound, t h e p r a c t i c e e x i s t i n g i s u n s o u n d a n d I
would
move that the Conference o f Governors support the view
taken b y the Committee a n d that further effort should
be made t o induce t h e Treasury Department t o modify
its views,
i n that t h e practice i s unsound a n d poten-~
tially dangerous, violating the principles that have
been adopted i n our relation with member banks a n d
the first principles of sound finance, and that 44 makes
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Federal Reserve Bank of St. Louis
funds a p p a r e n t l y available7itich.
collected;
a n d that a
a r e a c t u a l l y tum-
committeeb
e appointed
to
present this matter t o the Board.
Governor Morss,. Z
will s e c o n d t h e motion,
(The motion being duly seconded was carried,)
The Chairman. I
will name o n that committee
Governor Seay, Governor Fancher,and Governor Morss,.
Mr. Hoxton:
/ Question J u - = C L A I M S , R E T U R N I T E M S , L O S T I T E M S A N D
ADJUSTMENTS.
Form letter enclosing return items.
"Recommend that formal written request be
made t o the Treasury ethat t h e y list return items
one form letter, which would render the handling o f these items safer and more convenient,”
answer---Arrangements have already been made b y the
Office o f the Treasurer o f the United States t o
forward a letter o f transmittal with the returned
items
i n e a c h case.
T h i g l e t t e r o f transmittal
Will i d e n t i f y t h e e n c l o s u r e s a n d s h o w
a
total
agreeing with the sum o f the individual
items,
Question LO-~-CLAIMS , RETURN ITEMS ,LOST
ITEMS A N D
ADJUSTMENTS,
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Federal Reserve Bank of St. Louis
98
Checks deposited f o r credit o f Treasurer
byAgents.
Return I t e m s
"Recommended that when checks are returned
to collectors, the Treasurer's account be im-~
mediately charged with their amount, with such
explanation a c c o m p a n y i n g t h e c h a r g e a s i t n e -
cessary t o identify it, and that notification b e
given t o the collector o r depositor f o r the Gove
Srnment that his certificates o f deposit has been
reduced accordingly."
Lost items,
"Recommend that the representation by the
Federal Reserve Bank t o the depositing agent
that
& check Bor a given amount deposited b y him
on a
éiyen date included i n his certificate o f deposit
of given amount had been lost should i n
all cases
constitute sufficient authority t o
charge t h e
Treasurert a c c o u g t a n d p l a e e
t h e burden o f
securing duplicate o n the c o l l e c t o r
r
o agent
where
i t properly belongs.”
Ansver---The Treasury's attitude a s to checks retypred
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Federal Reserve Bank of St. Louis
to t h e F e d e r a l R e s e r v e B a n k a s u n p a i d f o r a n y
reason has been s e t forth a t longth i n baragraphs
19, 20, a n d 21 o f Tueasury Department Circular
No. 175, dated December 31, 1920, and a g vou know
paragraphs 1 9 and 2 0 o f this circular already give
authority t o Federal Reserve Banks t o charge back
checks d e p o s i t e d
b y Collectors
o f Internal Revenue
and Collectors o f Customs a n d returned t o the Col-
lectors a s uncollectable, after first holding the
items
i n EE
a N
f o r a
few d a y s w h i l e t h e Gol-~
lector makes a n effort t o collect t h e amount,
The Treasury does n o t feel that i s can properly
extend this authority t o other depositors, cover+
ed b y p a r a g r a p h 2 1 , e v e n a s t o u n p a i d o r uncollectable c h e c k s , c h i e f l y f o r t h e r e a s o n t h a t
the camparatively f o w caseg likely t o arise n e e d
to b e s p e c i f i c a l l y h a n d l e d b e c a u s e
ance o f t h e c e r t i f i c a t e s
o f the imoort-
o f deposit issued a n d out~
standing azainst the original deposit.
A s to
checks deposited w i t h t h e Federal Reserve
Bank
and lost after deposit, i n transit o r otherwise,
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Federal Reserve Bank of St. Louis
LOO
paragraphs 19, 2 0 and 21 of Gircular No. 176
provide t h a t a s t o all depositors i f checks de-~posited a r e l o g t a f t e r deposit,
t h e depositor
"should b e promptly notified and the item o r
items should b e held i n suspense f o r not exceeding
thirty days while the depositor makes a n effort
to collect t h e amount.
I f h e fails t o make
collection within this time t h e Federal Reserve
Bank should make full report t o the Secretary o f
the Treasury, Division o f Public Moneys, a n d re~
quest specific instructions.
T h e Federal Re-
serve B a n k w i l l n o t , w i t h o u t f u r t h e r a u t h o r i t y
therefor, charge the Treasurer's account
with
the amount of such checks." Comparatively
few
cases o f checks l o s t after deposit
have arisen u p
to date, and the Treasury will make every
effort
to adjust Promptly each such case
a s i t arises,
In view of the difficulties inherent i n
dealing
With these cases a t a distance,
a n d particulaply i n view o f the complications
likely t o arise
ot o f the particular facts i n individual
cases,
}e
u
Treasury feels that in cases of uncollectable
f
“ I "
h
4
t
2
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Federal Reserve Bank of St. Louis
items deposited b y miscellaneous depositors a n d
cases o f items l o s t after deposit b y depositors
of all classes, specific action by the Federal
Reserve b a n k i n cooperation i
t e the depositor
to adjust t h e i t e m tends greatly t o simplify t h e
handling o f the case, and that, i n the long run,
it would o n l y lead t o delay a n d confusion i f the
Treasury w e r e d e p r i v e d
o f t h e assistanee
o f the
Federal Reserve Banks i n adjusting these matters
end compelled t o take u p each case with the de-~
Positor direct,
Comnent~«-In t h e opinion o f the Committee this
practice i s incorrect, b u t after considering i t
fran
the s t a n d p o i n t
o f the Ireasury Department
as it
refers t o checks returned a s unpaid for
any
reason, i n view o f the small amounts
involved and
of the extraordinary complications named
b y the
Treasury officials connected With
the revergal
of entries o f such retuimnea items,
w e believe
that f o r the present better
results a r e h a d
by continuing the method outlined
i n Treasury
Circular No, 176, because o f
the greater
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Federal Reserve Bank of St. Louis
flexibility
o f t h e accounting methods
i n the
Federal Reserve Banks t h a n those o f the Treasury
Department,
B u t , a s i t concerns lost checks,
the Committee does not believe that Federal Reserve
Banks should b e required t o await specifia i n -
structions before making any charges,
mittes f e e l s t h a t i t i s n o t a
T h e Come
cuestion o f depriv-
ing the Treasury Department o f the assistance o f
the Federal Reserve banks, w h i c h t h e latter have
invariably civen, but one o f bad principle, a n d
it, therefore, recounends that measures b e taken
that w i l l d i s c o n t i n u e t h e p r a c t i c e
a a soon a s cog-
sible,
Governor Van Zandt, I
move you Mr, Chaixman,
ae i s the sense o f this conference t h a t
w e agree w i t h
the comment o f our committee a n d that the
views o f
that committee b e transmitted b y the
game committee,
which y o u have j u s t appointed,
t o the Federal Reserve
Board,
(The motion being duly seconded was
carried,)
Mr. Hoxton, T h e next i s cuestion eleven,
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Federal Reserve Bank of St. Louis
Question 1l---CLAIMS RETURN ITEMS, L O S T IT#MS A N D
ADJUS THEN TS.
Checks deposited b y banks o n the Treasurer o f
the U n i t e d S t a t e s ,
Return_on account o f indorsement, signature, etc.
"Recommend t h a t i t e m s r e t u r n e d
ury o n account o f irregularities
b y t h e Treas~
i n signature,
indorsement, filling, etc. b e accepted b y the Federal Reserve Banks f o r adjustment w i t h depositor
and t r e a t e d a s c o l l e c t i o n i t e m s a n d t h a t t h e
account
‘
p
s:
g
e
a
k
s
o f t h e “reasurer o f t h e United States b e
not credited therefor,"
Answer---Arrangements will b e made whereby checks
z‘
and w a r r a n t s
g o returned b y t h e T r e a s u r e r o u t o f
ordinary course will b e handled a s between t h e Treag-~
urer and the Federal Reserve Banks a s collection
items; provided, however, t h a t these arrangements
are n o t t o include i t e m s r e t u r n e d
o n account
of
forged andorsements.or other items a s t o which t h e
Treasurer's right t o charge back is not affected
by l a p s e o f time,
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Federal Reserve Bank of St. Louis
104
hp
Comient--~jiie d o not agree with the proviso "that
these arrangements a r e n o t t o inelude items
returned o n account o f forged endorsements o r
other items as t o which the treasurer's right
to charge back i s not affected b y lapse o f
time ,"
.
(After informal discussion}
Governor Biggs. I
move that this topic be re-
ferred t o t h e s a m e c a n m i t t e s , c o n s i s t i n g
o f Messrs.
Seay, Fancher, a n d Marss, a n d that the whole report
beapproved subject t o the review o f that committee,
Mr. Hoxton. I
will vead the last part o f i t
before that action i s taken.
rn
e r i t,
Question lo---§CLAINS, RETURN ITEMS, L O S T ITEMS A N D
ADJUSTMENTS
Checks deposited b y banks o n the
of the United States.
Adjiugtments.
"Recomnend that all adjustments b e made o n
line 3
o f the transeript supported
b y detailed
deseription o f each i t e m making t h e total o n
separate s h e e t form 7 , without obtaining anuthor-
ity from the Treasury for entries a s i s the
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Federal Reserve Bank of St. Louis
custom at present."
Ansvere-- This recommendation i s agreeable t o t h e
Treasury Department, i n so far as i t relates t o
the correction o f bookkeeping a n d accounting
errors, Drovided that the following procedure
is adopted:
(a) A separate sheet o f the transeript s h o l d
show i n detail t h e individual items comprising the total credited o n line 3 , civing a
full d e s c r i p t i o n
i n e a c h case,
(ob) A separate sheet o f the transeript should
show i n detail t h e i n d i v i d u a l i t e m s comprigsing t h e t o t a l d e b i t e d
o n line 1 0 , S i v i n g a
full description i n each case,
(c) A letter i n regard t o each guch item o f correction made should b e written t o the Treagurer, Giving also t h e date o f the transcript
in which t h e correction appears,
s o that such
letter m a y b e referred t o the proper Division
for attention,
—
s
a
s
h
a
Governor V a n Z a n d t , I
Biges’ motion,
will s e c o n d G o v e r n o r
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Federal Reserve Bank of St. Louis
(The motion being duly seconded w a s carried, )
The Chairman.
T h i s report having been disposed
of the Conference w i l l g o back now t o the subject o f
banke rg! acceptances a n d I believe Mr. Case has some~
hing t o s a y o n the matter.
Acting Governor Casc,
T h i s question was dis-
cussed a t the Governors! Conference, March 20, LOLoy
and the result, a g stated o n page 359 o f the minutes,
Wag:
"It is recomnended that it be the policy of the
System that n o sales o f bills b e made b y
Federal Reserve
Banks o u t o f their portfolios except t o
other Federal
Reserve Banks; b u t a s a temporary matter
t o aid i n the
development o f the market for bills among member
banks,
certain reserve banks may find i t necessary
for the
time being t o act a s t h e agent o f member
banks i n
making purchases o f bills and t o
some extent t o act
ag d e a l e r s
i n bills f o r t h a t purpose,
T h a t Federal
Reserve Banks may very properly buy
bills for member
banks, assist t h e m i n their purchases
b y giving advice
and taking delivertes f o r them,"
That has been the policy o f
this b a n k ever Since
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Federal Reserve Bank of St. Louis
LO7
the time t h a t o u r directors first seriously considered
the subject and i s the attitude that Governor Strong
unqualifiedly m a i n t a i n s
a s t h e proper attitude f o r this
bank,
You may recall t h a t upon o n e oecasion several vears
ago, during his absence, a n d before w e confined our
purchases
t o three-name p a p e r ,
w e d i d sell a
few un~
indorsed bills t o a momber bank, a n d that upon his r e turn h e was much disturbed o v e r i t and brought t h e
matter
u p f o r discussion
b y o v r directors w i t h t h e
result t h a t they determined t h a t w e should n o t b e trad6rs i n bills.
The thought is that Federal Reserve Banks, like
all central banks, b e i n g t h e places o f ultimate r e -
discount, should not be traders a n d that paper which has
been. taken out o f the market b y Federal Reserve Banks
through purchase should not again b e found i n the
market.
The market i s composed o f three elements:
A. S e l l e r s o f bills,---conmercial houses
and banks,
B. P r i m a r y purchasers a n d distributors o f
bills,
1. @., discount houses and dealers,
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Federal Reserve Bank of St. Louis
Buyers o f bills, which class comprises the
great number o f Individual, corporate a n d
banking investors, including Federal Reserve Banks, which buy not only i n the
market but also from mamber banks, bills
held b y them which they have taken from the
market,
The purchase b y our bank from its members o f
bills which they have taken i n the market and have
carried d o w n t o a comparatively short maturity, c o n e
stitutes a very important proportion o f our entire
Purchages,
The discount houses a n d dealers endeavor t o main-«
tain stability o f rate for prime bills, which i s t o the
advantage o f the vosition o f dollar exchange i n world
markets,
T h i s stability they are able t o maintain
fairly well i n view o f the limited amount
o f funds
available t o them a t rates related t o the discount
rates rather than stock market rates for e211 money,
beca**se the Supply and demand i s fairly constant
ana
in somewhat equal bropeortion, b u t the
market i s not v e t
big enough and broad enough t o sustain stability
for
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Federal Reserve Bank of St. Louis
LOB~A
Long;
i f t h e suppiry o f bills o f f e r e d e x c e e d s t h e
normal a m o u n t
o f Rianne
cidade
T h e amount
o f money
available t o the discount market a t any rate i n veason
is not sufficient t o permit i t t o absorb important
amounts o f even t w o large borrowers i n any one d a y
without relatively violent reaction o n rates,
For
instance, i f a large amount, say from 35,000,000 t o
37,000,000,
o f bills f r o m portfolio o f a n Oriental b a n k
camé i n t o t h e market a t the same time that, sey, t h e
Mercantile B a n k o f the Americas h a d t o move a n equal
anount o f its bills receivable, t h e rates for prime 90day b i l l s w o u l d p r o b a b l y a d v o n c e 1 / 8 o r 1 / 4 o f o n e
per cent.
indicates,
I
n a market s o delicately adjusted a s thig
i t w i l l r e a d i l y b e s e e n t h a t t h e offering:
of a round block o f bills b y a Federal Reserve Banik
would serlously affect t h e market
rates, b a g e d o n
supply a n d demand, irrespective o f
the entire probabil-~
ity that t h e fact o f the offering would b e
interpreted
as a contemplated increase i n buying rates b y the
Fed~
eral Reserve Bank offering the paper,
I believe t h a t those b e s t acquainted. with
t h e bill
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Federal Reserve Bank of St. Louis
market are unanimously o f the opinion that the entry
of the Federal Reserve Banks i n t o t h e sti lcs a s traders
would b e most detrimental t o the market, throuzh t h e
usurpation o f t h e f u n c t i o n o f t h e d i s c o u n t h o u s e a n d
dealer through competition with them i n the market,
thereby limiting t h e supply t o them and that i f banks
and bankers f e l t that they could trade w i t h Federal
Reserve Banks a n d make their purchases f r o m them,
the activities n o w making f o r a very wide distribution
of bills t o investors over the whole country and even
to foreign buyers, would b e limited, with resulting
disadvantage t o the market a s a whole,
If a central b a n k becomes a
trader i n a discount
market t h e weight o f its operations would ten&
t o make
it the markeb a n d n o t t h e stabilizer a n d controller
of
the market, w h i c h would b e a misconception o f
the
function o f a central b a n k a s judged b y the historical
standards a n d e x p e r i e n c e ,
The market, f o r its proper a n d logical develop-~
ment, must depend t o a very great degree
upon the
Operations
o f d i s c o u n t h o u s e s a n d dealers t h r o u g h
the
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Federal Reserve Bank of St. Louis
109
mecdiun o f w h i c h t h e m a x i m u m
o f distribution
can be
-
obtained, thereby making available through t h e discount market t h e idle funds o f all sections t o carry
the c r e d i t s i n c i d e n t a l
but p r o v i d e d
t o and required
b y commerce,
b y central a n d l o c a l acceptors,
There i s another factor that should b e cons
ed, i. es, the cthics o f issuing i n the market the
indorsement o f bank o r banker t h a t has been g i v e n t o a
Federal Reserve Bank.
A l l banks a n d bankers a r e
jealous o f their cred
a n d 3
Serly
T h e y natural-
t anc c o n t r o l t h e i n d o r s e m e n t
liability a n d when that indorsement i s given t o a Fed~
ercl Reserve b a n k a s a condition o f its purchase f r o m
them o f the bills accepted b y other banks, they are
not issuing their indorsement i n the market, a n d I
have reason t o believe t h a t many o f the largest a n d most
constant buyers o f bills would n o t buy-them s o freely,
if atall,
i f they apprehended that presently, after
having h a d o c e a s i o n t o m e l t s o m e o f t h e i r p o r t f o l i o
reserve bank, they might seo their indorsement
hawked around o n dealers! sheets.
A g a case i n point,
the Hongkong a n d Shanghai Banking Corporation will n o t
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Federal Reserve Bank of St. Louis
110
sell f r o m its portfolie t o dealers t h a t publish lists
but instead pays a commission t o a broker for selling
its r e c e i v a b l e s
t o buyers a p o r o v e d
There i s n o need t o confuse a
with legal right,
b y it,
matter o f oolicy
T h e law gives a Federal Reserve
Bank the right t o buy and sell, a t home o r abroad,
The latitude granted might v e r y properly b e exercised
on occasion with respect t o bills i n a foreign market
drawn i n any currency but that i s a very different
thing from assuming.a trading position o r function i n
Giscount market,
fam entirely convinced that a chance from the
policy recommended b y the governors i n conference i n
March, 1919, would be a mistake a n d a n experiment ex-
tremely hazardous t o our discount market i n its present s t a t e o f d e v e lopment.
£t may be cited that the Bank of England has at
times a n d a s a
measure
o f control
o f t h e money market
when rates wore t o o low, appeared t o b e a borrower,
I understand t h a t this i s true, b u t I also understand
that the method employed i s t o have confidential brokers
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Federal Reserve Bank of St. Louis
rts 8
borrow t h e money f o r them and t h e y d o not appear a s
borrowers a n d n e v e r a s sellers
The Chairman,
o f paper
i n t h e market,
B e f o r e w e leave this subject
here i s one matter that I would like t o have under~
stood a n d that i s that t h e Chicazo B a n k does n o t feel
that t h e recommendation e o n t a t e s
i n this report o f
Mr, Kenzel i s binding upon the Chicago Bank, a n d i n
view o f the fact that the N o w York Bank has t o l d u s
it really i s not binding,
Governor Calkins, I
on this subject,
and their distri
w e are o f course satisfied,
would like t o saya f e u words
T h e matter o f bankers! acceptances
m
i
s
o f importance.
N o less
an authority than Mr. iiarburg has taken the extreme
position that the success o f the development o f bankers!
acceptances w o u l d determine t h e success o f the Federal
Reserve System.
I a m a little inclined t o think that
is a n o v e r s t a t e m e n t p e r h a p s ,
b u t i t certainly i s cn-
titled t o respect coming from guch P B LSOURCHs
have h a d a
long a n d v e r y diverse discussion
W
e
i n regard
tobankers! acceptances which has deggnerated into a
discussion o f other points t h a n those which were i n -
tended t o be brought u p b y the report o f the committee,
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Federal Reserve Bank of St. Louis
Tho arguments o f all o f those w h o are opposed t o a
pro rata distribution o f New York's purchases o f acceptances o v e r l o b k t h e f a c t t h a t a c c e p t a n c e s g o l d i n
New York, which i s the only and one bill market i n
the country, originate i n all parts o f the country;
that a very large proportion o f the acceptances
which we take from the Federal Reserve Bank of New
York are acceptances originating i n Chicago, Boston,
and S m Francisco and from other districts, with fow
exceptions,
it i s perfectly obvious,
i t does n o t admit o f any
argument; i t is mathomatical that if the New York Bank
is compelled t o take all o f the acceptances i n its
market i n order t o sustain the bill market, which
would otherwise g o smash, i t i s carrying the load
also o f each o f the other Federal Reserve Banks, a n d
that situation could n o t b e avoided unless t h e twelve
Federal Reservo Banks participated i n the N e w York
purchases,
Governor M o r s s h a s a r g u e d t h a t t h e p r a c t i c e s
in
New Y o r k d i d n o t m e e t w i t h h i s g p r o v a l a n d t h a t t h e i r
Practices Would interfere w i t h t h e dovelopment o f
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Federal Reserve Bank of St. Louis
113
the bill market i n Poston. I
am perfectly willing to.
agree t o all that, but I go back t o the original discussion i n the Governors' Conferences
o n the matter o f
bankers! acceptances a n d their distribution, where i t
Wag s e r i o u s l y p r o p o s e d t h a t t h e t w e l v e b a n k s s h o u l d s e t
up a n agoncy i n New York, independent o f the Federal
Reserve Bank, through which they would take their pure
chases o f bills i n the market.
T h a t has nothing t o
do with the queetions that I wish t o argue, which i s
that i t is our duty i n the interest o f the system and
the development o f the market, t h a t the purchases made
in New York, i f New York i s the market through which
they a r e made, o r in Boston if Boston is the market
in which they are made, o r i n Chicago i f Chicago i s
the m a r k e t
i n w h i c h t h e y a r e made, s h o u l d b e d i s t r i b u t e d
pro rata among t h e twelve Federal Reserve Banks.
then, what i s the argument t o the contrary.
Now,
A s I gee
4% there i g just exactly one, and that i s that sane o f
us d o not agree w i t h t h e procedure o f the Federal R e s
serve Bank o f New York.
I f that i s the only argument
then this committee w h i c h has j u s t been s e t u p b y the
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Federal Reserve Bank of St. Louis
adoption o f the report will reetify the objectionable
bractices i n New York, i f there a r e any, a n d i f they
do that they remove all arguments that have been made
against this p r o rata distribution.
The Chairman, I
do not know, Governor Case,
what t h e other participants h a v e done, b u t m y recol-
lection i s that while w e have participated t o the oxe
tent o f a fixed percentage i n the purchase o f bills,
we have also participated t o a greater extent i n
telling y o u that w e are willing t o protect y o u i n connection with Chicazo bills. I
just s a y that t o let
Governor Calking k n o w t h a t w e have given consideration
to that feature a n d w e know that a l l the bills d o
not
originate there,
(At this point Mr. Gilbert, Assistant Secretary
ofthe Treasury, entered the Conference Room.)
The Cha iran.
M r . Gilbert, w e know that you
desired t o be present, a n d I think Mr. Emerson wanted
to be here and w o invited him t o come, when
w e discussed
the subject which I have o n my Progeam as topic
No, 9,
transfer o f sub-treagury funds. I
believe t h a t y o u
wen ted t o be here and w e are very glad that
you are,
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Federal Reserve Bank of St. Louis
.@ will b e very glad t o hear from y o u i n regard t o tho
matter.
Treasury Relations.
9, Transfer o f sub-treasury functions.
Mr, Gilbert,
W e expect t o move fast i n discontin-
uing the sub-treasury,.
I n fact plans are already
laid t o discontinue t u o o f them o n o r about t h e M e e t
of November ,namely Boston a n d Chicago,
possible
I t i s im-
t o s a y a t the moment whether t h a t date c a n
be strictly adhered to, but regulations a s t o the handling o f currency are already i n the hands o f the
Federal Reserve Banks a n d that matter i s provided f o r
as f a r a s remgilations a r e concerned.
The Banks i n a good many instances d o not have the
facilities t o take over this sub-treasury space, and
in cases W h e r e t h e s p a c e i s c o n d i t i o n e d u p o n t a k i n g
over the operations w e have tried t o make the thing
simultaneous a n d have the Federal Reserve Bank put its
name over the door instead o f having the words "Subtreasury."
C o i n regulations a r e practically i n
final shape a n d will b e issued t o the b a n k within
probably a @ week o r so,
T h e y are under discussion,
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Federal Reserve Bank of St. Louis
but I d o not believe i t will b e necessary t o refer
them to all the banks for consideration unless you feel
that you would like t o see them i n advance,
T h e y will
be al ong the lines o f currency regulations which will
permit the matter t o be handled, s o far a g possible, a g
a banking opdration, with probably permission t o put
undue accumulations o f subsidiary and minor coins into
the fiscal agenoy account which will not be put into
the treasurer!ts Sains? S e e s
s o that as we draw the
amount o f coin transferred t o other treasury
offices
or other banks i t will b e transferred a s coin.
t l e do
not plan to put with the Federal Reserve Banks, except
to meet emorgencies, the so-called trust funds,
that
is t o say the gold behind gold certificates
and the
silver behind silver certificates.
S o far as possible
all o f that kind o f bullion will b e Placed
i n the mints
and assay offices,
W h a t w e would like t o do,
mdtI
think this i s already embodied i n
the suggestion from
Chisago, would b e t o have the banks
a t points where
there are no mints or assay offices maintaining
a
sufficient stock o f gold and silver coin
t o meet nedemptions, w h i c h w e will t h e n reimburse
i n kind a g
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Federal Reserve Bank of St. Louis
necessary a n d a s demands a r e made b y the bank,
a l l exbenses
o f shipment
you release a
t o b e p a i d b y t h e treasury.
a
r
million i n gold y o u will g e t a million i n
the n e x t shipment.
The Chat rman. I
do not know what t h e other
banks have done, but w e have already given
consideration t o this matter i n Chicago, a n d have
formulated
& plan, which has been submitted t o the
Federal Q e
serve Board and through the Bosra to tie
Treasury De~partment, indicating o u r Willingness
a n d o u r desire t o
take t h e funetions o v e r o n the
first o f next month,
The matter i s resting with you a t
the present time,
I believo Mr. Gilbovt.
Mr. Gilbert,
that date,
Yes.
Y e hope t o d o i t o n o r about
Y e have a similar request from
San Frank
cisco for November lst and we are hopeful
o f doing i t
within afew weeks after November
ist, W @ anticipate
that the closing out o f the
sub-treasuries will b e a
fairly simple operation and
the developments o f the
last t w o o r three W e e k s
i n the handling o f
checks a n d
balances generally hag Pretty
well prepared the way for
it.
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Federal Reserve Bank of St. Louis
Governor V a n Zandt.
H a v e y o u worked o u t a n y
plan whereby t h e banks i n those districts,
d n which n o
sub-treasuries a r e located, w i l l take o v e r sub-treasury
functions?
Mr. Gilbert,
S
o far a s w e are concerned,
i t is
worked out; t h a t will b e covered b y the general regu-
lations,
T h e question o f facilities f o r the handling
of i t will d e p e n d a
good d e a l u p o n what t h e banks a r e
able t o d o i n those places, F
or instance, I
do not
know what the banks will d o with regard t o vault facilities a n d t h e other facilities required.
Governor Van Zandt. I
assume w e will have suffi«
cient vault. facilities, b u t not until after w e get
into
our building o n the first o f the year.
Mr. Gilbert,
Y o u have n o sub-treasury
i n your
district a t al1, have vou?
Governor V a n 4 m dts N O .
Mre Gilbert, I
cannot see any reason why the
exchange O f currency i n coin cannot b e covered,
" e
propose t O make gpace i n the dub-treasury building
available
t o the Federal Reserve Bank.
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Federal Reserve Bank of St. Louis
Governor Van Zandt.
T h a t transfer i g not t o be
made simultaneously all over the country, i s it?
Mr, Gilbert,
N o t all over the country no,
E v e ry
transfer will have t o be preceded b y a final e x a m i n a t i m
of the sub-treasury, something i n the nature o f a bank
examination.
I
t will take time a n d will need three
or f o u r p e o p l e f r o m t h e T r e a s u r y D e p a r t m e n t
t o handle
it and 1 t may t a k e aweek o r ten days, m d the wnole
process will spread o v e r probably f o u r o r five months,
The Chairman, . T h e r e i s one feature o f ths
matter w h i c h p e r h a p s o t h e r b a n k s a r e i n t e r e s t e d
which I
in
would like t o bring t o your attention, a n d
that i s that w e want your permission t o brocedd a t
onee i n the matter o f arranging t h e present quarters
of
the
the sub-treasury to suit/requirements of our bank. I t
Will mean o f course refurnishing, additional fixtures,
rearranging and things o f that gort,
Mr. Gilbert,
Y o u refer t o constructual changes?
The Chairman,
Yes,
T h e expense will not be
very great, but we want t o proceed at once and I think
Perhaps other banks would like t o d o the
game thing.
Mr, G i l b e r t ,
T h a t will take t h e action o f i e
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Federal Reserve Bank of St. Louis
Supervising Architect o f the Treasury I think.
I f
possible I will try t o get a representative from the
Treasury t o g o o t t o the sub-treasury i n Chicago,
The Chairman.
W
e have elready h a d o u r archi-
tect a t work o n i t and o u r plans a r e complete.
W e
will b e ready t o have a representative consult with
us a t a n y time,
The Gilbert,
T h e thing t o do is to submit your
plans t o the Supervising Architect, e n d perhaps w e
can have Mr. Huddleston g o out thore,.
The Chairman.
I s there any phase o f this matter
which y o u would like t o have t h e representative f r o m
the banks discuss here,
W o u l d y o u like t o know a s t o
how they feel with regard to the matter of taking over
the s u b - t r e a s u r i e s
a n d t h e i r readiness
Mr. Gilbert, I
t o d o so?
already have a good m m y written
reports W h i c h c o v e r t h e g r o u n d f o r m o s t o f t h e banks.
i would b e very glad i f any o f the banks desire t o ask
aay gestions with regard t o sub-treasuries, t o answer
them.
Governor Morss, I
suppose e a c h bank has submit ted
its proposal o f what i t understands i t i s t o
do m d how
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Federal Reserve Bank of St. Louis
it ought t o d o it, and before w e actually take thom
over there will b e a letter f r o m t h e Treasury Department a c c e p t i n g t h o s e p r o p o s a l s ,
Mr, Gilbert.
w i l l there not?
Y e s , either accepting t h e m o r fur-
ther discussing them. T h e r e i s one question o f
personnel which i s a little difficult,
W h a t w e hope
is that t h e banks will take care o f and take o v e r a g
many a s they want; t h a t t h e y will l e t u s know h o w m m y
they d o want t o take over and we will try t o arrange
with t h e treasury officers i n the same t o w n t o use
the remaining employees who are not putsired
i n any
vacancies they may have,
The Chairmans M r , Huddleston took that up with
us the day before I came away and we told him we could
accommodate t h e Ireasury Department b y taking some o f
his men, but we had not included i n our list the temporary employees.
Mr, Gilbert.
The Ghairman,
T h a t will b e very helpful.
W e did that on the understanding
that t h e Treasury Department would dispose o f them
within t h e t w e l v e m o n t h s w h i c h i s a l l o w e d
t h e m under
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Federal Reserve Bank of St. Louis
the c i v i l service.
Mr, Gilbert.
e shall p l a n t o d o that within
W
a month o r sa.
W e told him we would b e very glad
Te Chairman.
to accommodate h i m t o that extent.
i e expect t o take over a certain
Governor Calkins.
number f
o the employees, b u t we will take them o n the
same terms.
W e want i t distinctly understood t h a t
Wwe aré n o t t a k i n g t h e m pinanently.
Mr, Gilbert.
T h a t i s perfectly agreeable, a n d
I think i t i s right.
The Shairman.
T h e r e i g one other matter I would
like t o ask about and that i s whether i t is necessary
that plena , . :
g h o u l d b e approved b y the
Supervising Architect before w e can d o the work.
Mr, Gilpert,.
A
nO escape f r o m that.
C
L
l e See I
think t h e r e i s
H
e does n o t move w i t h t h e great-
est speed at times, but we think we can arrange the
matter i n such a way that he will.
The Chairman.
O u r position i s one i n which we
cannot take over the functions o f the sub~treasury
without using t h e quarterg o f i t and w e cannot expect
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Federal Reserve Bank of St. Louis
123
to u s e t h e m u n t i l w e c a n m a k e t h e n e c e s s a r y a d j u s t -
ments.
Mr. Gilbert,
I t will b e understood i n all
cases o f that sort t o have t h e bank g o over t h e m i l d tag and s e e what i t would like t o have done a n d make
a report,
Governor Seay.
C o u l d n o t they submit plans
to the Supervising architect f o r approval?
Mr. Gilbert. Y
Governor Seay.
68.
I t would n o t b e nevessary
for a man t o g o t o San Francisco.
Mr. G i l b e r t , I
think t h e y h a v e l o c a l r e p r e -
sentatives i n a creat many placos.
T h e r e i s one
in San Francisco.
The “Vhairman.
D o any of the gentlemen present
vant t o discuss t h e matter o f the transfer o f subtreasury functions?
by t w o Governors,
T h i s question w a g p u t o n here
a s I understand i t , a n d bein: o n e
ofthem Iwill simply state that we have formulated
& plan, o u r directors have approved i t and
i t now i s
awaiting the approval o f the authorities
i n washington, the hope being that w e can take the functions
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Federal Reserve Bank of St. Louis
over o n the first o f next month.
Governor Morss,
Y
e have d o n e t h e s a m e thing,
Mr.
Huddleston was i n Boston o n Monday about some o f the
details a n d w e are ready t o take i t over a n y time o n
a week's notice.
Mr, G i l b e r t ,
O
n t h e s u s e e ton o f e x a m i n a t i o n I
assume that it will be entirely feasible to have representatives o f the Federal Reserve Banks present a t
the final eximination t o accept the.» :saint whioh i s
then made,
Governor kellborn, I
ference w a s t o take u p w i
understood t h a t this ConM r . Gilbert t h e matter o f
war loan organization,
Mr. Gilbert, I
would like t o have Mr, Lewis
when v o u d o that,
(4fter further discussion a n engagement was made
with Mr. Gilbert for the following afternoon any time
between tuo and gix ofclock,.)
Governor Norris, M r . Chairman, the Committee ape
Pointed b y you has prepared the letter t o accompany
the resolution o n currency a n d i t might b e well
t o have
it r e a d w h i l e M r , G i l b e r t
i s here,
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Federal Reserve Bank of St. Louis
The Chairman.
Y e s , this i s a szood time t o present
Govenor Norris.
T h e l e t t e r i s a s followe:
It was t h e feeling o f the Governors o f the Federal
reserve b a n k s a s s e m b l e d
subject
i n semi-annual
conference
o f the supply o f nev currency was o n e
the most important engasing their attention,
N o t
only has there b e e n f o r some time a n inadequacy
of
supply,
b u t t h e quality o f noteg delivered r e c e n t l y
has b e e n s u c h t h a t t h e i r l i f e i s m u c h
shorter t h a n
was formerly the case,
A s & result o f this condition
there h a g b e e n a widespread complaint a s t o the
unsuitable character o f the currency
i n circulation,
Even more serious i s the lack of a roserve supoly
available
t o meet e m e r g e n c i e s w h i c h m a y
readily b e
anticipated a n d a r e c e r t a i n t o
oceur,
T h i s creates
& condition o f actual a n d positive danger,
A
comne~
mittee w h i c h h a s b e e n c a r e f u l l y
considering this
matter,
i n cooperation w i t h
representatives
o f the
treasury Department, reports t o
us that while there
should b e 1,200,000,000
pieces Sngraved each year,
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Federal Reserve Bank of St. Louis
thig v e a r h a v e b e e n r u n n i n g a t t h e
vate o f 638,000,000 pieces and the maximum output o f
tne > Bureau
o f Engraving and Printing with its pres~
ent plant would b e about 900,000,000 pieces.
T h e
Gonference h a g t h e r e f o r e a d a p t e d t h e r e s o l u t i o n e n c l o s ed herevith,
a n d has directed t h a t this supplemental
statement b e forwarded t o your Board.
Acting Governor Case. I
move t h e adoption o f
that.
Mr, Gilbert.
Y o u limit t h e quality o f paper,
and that i s a matter over which w e have absolutely
no control,
—____—s-—«s(Further discussion followed.)
The Ghairvman,.
T h e r e igs n o t h i n g m o r e i m p o r t a n t
_.t h e
vO c o n f e r e n c e a t this t i m e t h a n providing meang
for increasing the stock o f currency.
T h e banks o f
the country a t the present t i m e hairs n o t sufficient
reserve supply and the condition i s such as t o give
concern.
w h a t w e would like t o
have done i s something that i s necessary t o take
care o f t h e situation.
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Federal Reserve Bank of St. Louis
Acting Governor Case, I
would like t o muve the
adoption o f the Letter submitted b y Governor Norris.
the Chairman,
further action,
I d o n o t think that requires a n y
v e have already passed a motion t o
have it transmitted to the Treasury Authorities,
Are there anv other matter, eoncerning whisch ‘you
would like t o make any suggestions Mr. Gilbert?
Mr. Gilbert,
t o have t w o things i n mind.
Y o u
will b e interested t o know that the present issue
of
certificates w a s considerably oversubscribed this
morning a n d that w e will have some aifficulty i n
cutting d o w n t h e oversubscriptions.
T h e subscription
so far has been very well distributed Sind g o u t
half
the banks have subscribed o r over-subscribed
their
quotas I
think one o f the most important factors i n
whole Treasury Certificate situation a t
this time and
for the future i s i n the development
o f the Treasury
Certificate m a r k e t , w h i c h h a s
b e e n exceptionally well
developed i n New York a n d i g being
developed i n Philadelphia a n d Boston a n d t o some extent
i n Chicago.
Governor Seay.
T h a t i s developed b y the rate?
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Federal Reserve Bank of St. Louis
Mr. Gilbert,
has b e e n a l s o a
V e r y l a r g e l yy
b the rate; but there
very pronounced develorment
ings i n certificates,
o f the deal-
M r . Case knows t h e details o f
that, h o w t h e y operate f r o m d a y t o day, a n d
t h e certi-~
ficates are really being actively dealt in,
There i g one more thing with relation
t o certificates a n d that has t o d o with t h e railroads.
T h e
railroad domands are the most important factor,in
our
certificate dealings.
I t i s impossible t o s a y a t the
moment what the railroad demands may
be.
Y o u probsbly
rend I n the newspapers t h e recent
ruling o f the Camp~
troller o f the Treasury o n the present
demands o f the
railroads.”
T h e effect o f that m a y b e
t o somewhat s l o w
down t h e demands under t h e guarantee
a n d perhaps a c célerate t h e loans,
Governor Seay,
f s that ruling likely
t o stand?
Mr. Gilbert, i
rather think go, T h e r e i s
no
appeal f r o m it.
(Informal discussion fotléred,
)
Acting Governor Case.
D o you anticipate t h a t
these specific offerings will
continue for a considerable
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Federal Reserve Bank of St. Louis
period?
Mr. Gilbert,
ficates
Yes, I
i n November
anticipate offering certi-
o f bettveen a
hundred a n d t w o
hundred million, m a y b e a s mach a s t w o hundred million,
.@ have interest payments i n November a n d all through
period o f t h e year.
The Cnairman.
w h a t i s the tota] outstanding
now?
Mr, Gilbert.
a b o u t t w o billion,three hundred
and forty million.
(Informal d i s c u s s i o n followed. )
The Chairman.
I f there i s nothing more that
you w a n t t o b r i n g b e f o r e t h e C o n f e r e n c e ,
ceed with o u r rogular program.
w e will pro-
v @ Will b e glad t o
have v o u stay w i t h us.
Mr, Gilbert, I
opportunity
have b e e n very glad t o have this
t o a p p e a r b e f o r e -rou,
(lin. Gilbert thereupon retired, )
the Chairman,
T h e first topic under t h e head
of
new business i s
Operation.
clency o f t h e p e r s o n n e l
ral R e s e r v e B a n k s ,
o f the several
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Federal Reserve Bank of St. Louis
The Chairman, I
have a
little memorandum t h a t
I would like t o give o n that.
agt ecisht o r nine months w e have been
steadily a t wotk with a view t o improving the efficiency
of the accounting systems and the personnel o f the bank.
Our first s t e p wags the creation o f a Planning Depart-+
ment whose duty it is to study and analyze accounting
methods i n effect throushout t h e bank, devise short
cuts, a n d eliminate duplication.
Our next step was t o commence a careful analysis
fication o f e v e r y j o b i n t h e b a n k a n d a t t h e
same time introduce wherever possible standards o f
which w e exsect t h e clerks t o maintain, and,
in
those departments whers such standardization i s Dossible,
grade salaries accordingly.
“While w e have n o t yet completed o u r j o b analysis
and c l a s s i f i c a t i o n n o b p u t i n t o f u l l o p e r a t i o n
the
standardization o f the york sxpected o f each
clerk,
the r e s u l t h a g b e é n v e r y g r a t i f y i n g
a n d h a s unquestion-~
ably i m p r o v e d o u r efficiency.
I
t was,
w e believe,
ag a direct result of this policy that we were enablea
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Federal Reserve Bank of St. Louis
to release
o n September S O t h ,
1 7 people f r a n o u r
Transit Department, 2 department i n which i t is
possible t o keep a n absolute record o f the work
done
each clerk,
In addition t o the 1 7 released i n the Transit
Department, t h e fact that the Treasury Department
will
not b e i n a position t o commence exchanges
of
for permanent Fourth Liberty L o a n bonds
until
some time next swnmer, h a g made i t
possible f o r u s t o
release
o n September SOth,
5 9 people f r o m o u r Bond
Department,
while the trend i n the number o f employees
hag
been downward i n the lagt three o r
four months, t h e
reduction d u r i n g S e p t e m b e r
i s b y far the Sreatest
of
any preceding month,
During t h e war I believe there w a g
n o duestion
as t o the efficiency o f the
organization and the wills
ingness t o work, regardless o f
hours, b y t after that
indifference was notable i n our
departments a n d we had
& great deal t o contend with,
W o ane doing all we
man to improve the efficiency and I would like
to hear
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Federal Reserve Bank of St. Louis
132
from those around t h e table a s t o
whether o r not they
are giving careful consideration t o
this. G o v e r n o r
Biggs have y o u noticed a n y relaxation?
|
Governor Birgs.
Yes.
V e are getting a little
better efficiency, b u t i t is only slightly
better, [ I +
is still very poor.
‘ f e have t o have considerably e e e
help,
The Chairman,
A t any rate trou are working
o n the
proposition?
Governor Biges, Y e a ,
Y e have considerable more
in number, brought about b y a number
o f reasons, I
think proportionately more than any other bank,
W e
are investigating the matter, but,
for instance, w e
have twelve o r thirteen people w h o
are kept o n our
payroll who are really not clerks,
but i n view o f the
fact that t h e building which w o
purchased i s tenanted
it necessitates keeping that number o f
people there t o
take care o f the building.
thousand d o l l a r s a
Y e get a n income o f a
month i n excess
o f t h e payments t h a t
show u p o n our Payroll. H o w e v e r ,
there i s some ime
provement,
The Chairman, f
think t h e Board i g interestog
in
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Federal Reserve Bank of St. Louis
knowing whether o r not w o are giving d u e consideration t o the q e s t i o n o f improving t h e situation a n d
getting t h e highest efficiency f r o m o u r employees,
My belief i s that w e have come t o a point n o w where
there i s plenty o f help available,
to release a
w e have commenced
few people a n d t h e others a r beginning
to take notice a n d w e are getting better results,
Acting Governor Case.
M r . Chairman, I would
like t o move t h a t w e refer this question t o the several
groups, t h e f o u r groups o f Federal Reserve Banks t h a t
we have approved, a n d let them consider i t i n the
Groups.
T h e n a s these various groups develop plang
and ideas i t is a n easy matter t o have a clearing
house and york them out.
I t would seem t o me that
this v e r y b r o a d s u b j e c t c o u l d b e t a k e n u p
i n these
group. meetings, inasmuch a s we have approved the idea
of having these group meetings, a n d t h e n have
o u r findings reported b a c k t o this meeting,
G
The “hairman,
i
think vou are right, Governor
Case, but at the same time I think w e
had better make
& General statement here a g t o what
i s being done. I t
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Federal Reserve Bank of St. Louis
will b e a good many months before these groups coanmence
to operate, not until next year and I would like t o ask
those who are giving attention t o this qestion o f undertaking t o improve t h e efficiency o f organization t o
raise their hands.
(All members present raised their hands.)
Then the record shows that all banks are giving
careful consideration t o this matter with a view o f
bringing i t u n t o the highest possible degree,
Governor Seay,
‘ i e are giving inuch attention t o
developin= a n d r e c o r d i n g t h e e f f i c i e n c y
o f o u r employees.
All personnel work i s i n charge o f one man who, for
some time past, has been a senior officer of the bank,
He i s responsible f o r t h e sélecting, t r a i n i n g , t r a n s f e r ,
promotion,
a n d discharce
o f a l l employoes,
H
e fixes
the initial salaries (in conference with other officers)
and directs all subsequent adjustments o f salarics i n
conference with the officers i n charge o f the respective
departments, submitting his revort through the Management Canmittee o f the Bank to tHe Executive Committee
and thence t o the Board o f Mirectors o f the Federal
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Federal Reserve Bank of St. Louis
1355
Reserve Bank, « A l l employees, other than officers,
are considered twice a vear---that i s , o n the anniversaries a n d s e m i - a n n i v e r s a r i e s
o f their entrance u p o n
our employ---for salary adjustments, s u c h increases
&S aro made being effective the first o f the following
month,
Detailed records a r e kept i n those departments,
where i t i s practicable t o d o so, o f the qduen tity o f
work handled b y the respective clerks a n d o f the accur~
acy w i t h w h i c h i t i s rerformed,
C a r e f u l records a r e
maintained a l g o a s t o runctuality a n d attendance, A
systom o f recording monthly t h e judgment o f the officers
in charge o f the employees a s t o personnel efficiency
is maintained,
A l l these records are carefully stud-
ied a n d u s e d a g a
guide
i n fixing salaries a n d i n
making transfers and promotions,
Governor Calkins. f
will second t h e motion made
by Governor Gage t o refer this subject t o
the groups o f
banks «
(The motion having been c u l y seconded w a s carried, )
The
Chairman.
T
h
e
n e x t
s u b - t o p i c
i s
n u m b e r
t i o
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Federal Reserve Bank of St. Louis
under o p e r a t i o n s ,
Advisability o f providing a method, a
"Clearing House," s o to speak, for the exchange o f details concerning methods o r devices which a n y Reserve B a n k has.found efficient
i n operation.
I will a s k Governor Case t o speak t o that topic.
Acting Govexznor Case.
here r e c e n t l y a n d a t a
T h a t matter was discussed
meeting o f a committee ,appointed
by the Pederal Reserve Board, held i n New York, a com-
mittee o f Governors, the question was raised as to
whether i t would b e advisablo * > a t this time t o undertake t o have a
clearing house where w e might have a n
e x c h m ge o f i d e a s
operation
o n methods
o r devices w h i c h a r e i n
i n some o f the bayks f o r handling t h e i r
transactions, anything that they have found efficient
in their operations, I
think the general feeling
among thoge that discussed i t at that time was. that
we ought t o establish s u c h a clearing house.
“
i
feel that this matter, like the previous one, i s a
very proper subject t o b e referred t o these groups o f
banks .
The Chairman,
T h e n i t is satisfactory t o vou t e
have t h e matter referred t o these groups o f banks
which
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Federal Reserve Bank of St. Louis
have b e e n o r will b e designated?
Acting Governor Case, Y e s sir, I suggest that
that b e done.
(Discussion followed, )
Governor Calkins. I
will make a
motion that this
topic No. 2 be referred t o a conference o f operating
men o r operating officials o f the twelve banks, a n d that
topic No, 1 0 which i s
Advisability o f Standardizing Methods
of auditing a n d accountings, including
real estate accounting.
be referred t o the same conference t o b e held i n the
near future,
Governor Fancher, I
will second that motion,
(The motion having been duly seconded wag carried.)
Discount transactions,
Uniformity i n the application o f the
rules a n d r e c u l a t i o n s
a g t o the oli-
gibility o f paper,
Governor Morss,
T h i s was a matter that was dis-
cussed i n the committee formulating the program.
I t
did not refer t o the definite, technical m i e s o f eliBibility which were p u t o u t b y the Federal Reserve
Board,
but r e f e r r e d
t o the f a c t t h a t w e understood t h a t
same
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Federal Reserve Bank of St. Louis
138
of the Federal Reserve Banks have come o u t with seme
sort o f a gtatement refusing t o take certain kinds o f
commercial paper, s u c h a s automobile p a p e r and, i n
one o r tivo cases, packers! paper.
I t seemed t o be
an unfortunate statement o n the part o f a bank t o
gay
that t h e y r e f u s e d
t o take s u c h p a p e r a n d s i m p l y t h r e w
en t o tie o t h e r F e d e r a l R e s e r v e B a n k s p a p e r
which was
Perhaps a fair share for that bank t o take. ‘ h e t h e r
the s t a t e m e n t w a s m a d e b e c a u s e t h e
particular b a n i h a d
too much o f this paper o r whether i t wag
notice t o its
member banks that they should not take it,
I do not mite
understand,
b u t i t seemed t o us i n any
event that i t wags
& rather unfortunate statement
t o MAIS
In addition+--I a m not sure about thige-=but
I
believe t h a t some banks have s a i d that certain
paper w a g
eligible when other banks thought i t was
not eligible and
the idea o f this question w a s
t o see i f i n discussion
Some method could not be brought out whereby
guch action
Would not be taken b y a Pederal
Reserve Bank without a t
least C o n s u l t a t i o n
o r notification w i t h
o r o f the other
banke,
Acting Governoy Case, t
would like t o say, Mr,
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Federal Reserve Bank of St. Louis
15¢
hairman,
t h a t i n o u r b a n k w e h a v e already a p p o i n t e d a
committee o f three o n the eligibility o f paper.
have a p p o i n t e d a
W e
committee w h i c h i s v e r y c o n p e t e n t
to
deal with t h a t subject a n d I would like t o say a word
about it.
«
@ have t a k e n t h e manager o f o u r loan
department, Mr. Chapin and then we have added t o him
Mr, Harrison a n d Mr. Kenzel a n d I feel that w e have
solved t h e problem i n our bank o n the question o f eligibility.
T h i s committee w i l l consider a n d pass upon
these questions a s they arise, a n d i t seems t o me that
if e a c h F e d e r a l R e s e r v e B a n k r e p r e s e n t e d h e r e
would
follow s u c h a course a n d have a
of p a p e r t h a t i t w o u l d t h e n b e a
committee o n eligibility
very simple matter
to exchange information f r o n tiie t o time;
that i s t o
say i f our conmittee considers a piece o f
packers!
baper for instance and decides
i t is o r i g not eligible,
that they o u l d pass that information
o n t o the other
banks, and each one o f the
other banks would d o the
game e T h a t would tend t o
make f o r uniformity o f
practice, and I would like
t o sugsest that i f that
Practice b e followed i t
would b e a solution o f
the question,
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Federal Reserve Bank of St. Louis
Governor Fancher.
V i e have h a d t h i s experlence:
An Ohio concern selling lighting plants put u p to
us t h e question o f eligibility o f the class o f paper
which they were getting i n payment f o r their various
machines,
W
e submitted
t a i t t o cur board a n d there
was some question about i t and t h e Board muled i t was
not eligible. H o w e v e r , t h e sales agents i n one o f the
other districts submitted t h e matter t o the Federal Re-
serve Bank, and without referring i t te the Board the
bank wrote a
letter expressing t h e opinion t h a t t h e
paper was eligible a n d a fac-similie o f that letter
was circulated v e r y generally throughout t h e company's
sales organization a n d was v e r y promptly brought b a c k
LO US.
The Chairman.
W o u l d vou object t o telling the
Conference the purport o f that letter?
A
s a matter
of fact o n e o f the Federal Reserve Banks n o t only
went that for put they went further I think than prudence dictated they should have gone i n giving a letter
which was the best selling medium I have ever seen put
out b y anybody,
I t was 411 advised and I am sorry that
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Federal Reserve Bank of St. Louis
the bank that p u t that o u t i s not here,
(Discussion followed.)
The Chairman,
w i l l someone make a motion covering
this matter t o dispose o f it?
4&cting Governor Gase, I
nor o f e a c h B a n k b e r e q u e s t e d
will move that the Covert o appoint a
camnittee
o n
\elisibility o f paper t o pass o n this question, a n d
then as they d o act t o advise the other Federal Reserve
a
e
Governor Fancher, I
Governor Norris,
will second that motion,
I a m n o t qiite sure t h a t I under-
stand t h e motion a n d I would l i k e t o have
i t read again.
{The motion was thereupon read.)
Governor Morss. i
will raise one point o n that,
and that is whether the Federal Reserve
Bank that made
the statement that i t vould not take
the paper did i t
not because i t was 2
e e e b u t because they felt that
they d i d n o t
w m tS 1 7 m o r e o f t h a t b a p
e r i n the bank?
The Chairman, I
think that is another ques-
Pues
“olen Goveinan Gages’ I
donot iene gale ctouches
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Federal Reserve Bank of St. Louis
the point,
I
t may b e possible t h a t t h e Soper i s
unacceptable a n d still elizible. I
think i t i s merely
a cuestion o f practice t h a t w h e n y o u c o n s i d e r t h e e l i -
gloility o f paper that that information b e distributed,
The Chairman.
O n l y i n impertant cases, because
we have some lccal matters that i t would not be necessary
to pass around.
Governor Seay. I
imagine i t i s only when t h e
eligibility o f a certain class o f paper i s brought into
question; a f t e r the b a n k determines i t for itself i t
can
communicate i t s d e t e r m i n a t i o n
t o t h e o t h e r banks.
“cting Governor Case, Absolutely.
A s matter of
fact Mr. Harrison h a s t o l d m e that while h e
was here i n
washington there were j u s t s u c h incidents
a g have b e e n
alluded to, that i s one bank would say paper was not
eligible a n d another bank would s a y that i t
was,
have a
l e
Very competent committee appointed i n our
bank t o
Pass o n this question a n d when c h e a e reach
a decision
WG will b e very slad t o furnish that
information t o the
other Banks a n d I think t h e other
banks i n turn should
do the game.
t f do not know that this i g a n
ideal
method o f treating with it, but
i t is a great improvement
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Federal Reserve Bank of St. Louis
143
over what w e have, a n d perhaps o u t o f that later w e m a y
develop a more perfect plan.
The chairman.
s
I
M r . Case's motion h a s been second+
s t hd e r e a n y f ou r t h e r d i s2 c u s s i o n ?
( The motion havine been duly seconded was carried,
The Chairman,
actions
T h e next topic under discount trans-
is
4s S h o u l d o r should n o t Federal Reserve
Banks b e free t o gell t o member banic
or i n the open market, bankers! ac.
ceptances h e l d i n their port folios?
That matter h a s been thoroughly discussed,
Governor Young.
discussed. I
" T was a w a y a t the time that w a g
have b e e n selling some o f those a c e
Septances o u t o f our port folic t o
other banks,
The Chaiyman.
i t has been decided,
a g I under-
stand it, that they are vour property t o
do with
you please,
T h e N e t York Bank h a g presented
a
on the subject i n the record which
y o u will have
tunity t u read,
The next topic ‘is
Circulation,
Se T h e imposition o f a
tax o r charge o n
Pederal R e s e r v e n o t e s
uncovered 2
ae os a
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Federal Reserve Bank of St. Louis
Governor Calkins,
T h a t i s o n the joint Con-
ference p r o g r a m a n d t h e r e a r e tyvo papers
o n t h e subject,
one b y Mr. J a y and one b y Governor.Morss, a n d I sugsest
that w e pass t h a t f o r the time being,
Governor Morss.e
m o far a s m y paper i s concerned,
I can s a y that i t would b e entirely undesirable,
Governor Calkins.
M y opinion i s that i f the Board
imposes a tax, thereby making i t necessary for the managing officers o f the banks t o scratch t o make money, t h a t
it will ¢ o far toward destroying t h e system.
The Chairman.
U e will pass this topic until the
papers referred t o have b e e n read,
acting Governor Case. I
think w e can gay that
everyone disapproves o f the proposal,
The Chairman,
T h e n i t i s the unanimous opinion
of the Conference that i t would b e inadvisable,
I f
that i s s o we will take u p the next subject,
Checlr Clearing and Collection,
$8. C o l l e c t i n g o n doubtful b m k s i n
par
states,
Governor Seay, I
am responsible f o r having that
put on the program and I would like t o read
a short memo-
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Federal Reserve Bank of St. Louis
randum with regard t o it,
Where t h e w h o l e s t a t e i s o n t h e p a r l i s t a n d
where there i s n o ppssibility o f a non-par list, W e
are frequently placed i n a n exceedingly ombarassing
position.
W e receive information, sometimes f r o m o u r
own experience, a n d sometimes o f a confidential nature,
which makes w a doubtful a s t o the wisdom o f forwarding
whecks direct t o a certain b a n k f o r collection.
i n ,
under these circumstances, w e accept the checks and
fomiard them, i n spite o f o r knowledge,
i t i s hard t o
escape t h e conviction t h a t w e are assuming responsibility f o r the ultimate payment o f the checks,
O n the
other hand, t h e weak bank i s frequently t h e o n l y
bank i n the place, a n d there have b e e n cases w h e n there
were other banks, but they refused t o accept the checks
for collection.
I t i s not always possible t o present
checks through a n express azent, because i t freqnently
happens t h a t t h e r e i s n o express o f f i c e
a t t h a t point.
Under these circumstances, t h e only course left
open t o us i g t o decline t o accept t h e checke
andreturn
them t o the correspondent, without presentation,
o r to
send o u t a general notice t h a t w e cannot
handle t h e
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Federal Reserve Bank of St. Louis
146
checks drawn o n that particular bank, except a t the
risk o f t h e sender,
B i t h e r course means t h e "death-
warrant" o f the bank named i n the notice, and I have
nodoubt that, in many cases, the bank would be put
out of business, when, b y the exercise o f some care,
it cold b e tided over the crisis.
There i g another consideration:--- ‘hen a whole
state I s put o n the p a r list, n o w a few o f the small
country banks g o o n against their will.
I n such cases
it is difficult, i f not impossible, t o secure remittance
in funds that c a n b e collected i n a reasonable time,
we have had a number o f cases i n which small banks -ould
agree t o remit i n acceptable funds, and very soon
hold u p remittance, o r try the experiment o f remitting
in other funds. ‘ i t h o u t a non=par list i n a state, and
particularly i n cases i n which w e cannot reach t h e
banks except b y direct sending, w e are more o r less
helpless.
I f w e h a d a gmall non-par list f o r the
state, I
believe t h a t nine cases o u t o f t e n could b e
Controlled b y the mere threat t o put the bank o n the
non-par list, B u t , having n o recourse, except t o
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Federal Reserve Bank of St. Louis
147
run the risk o f breaking the bank, w e are compelled t o
stand the imposition, o r take the risk, until i t gets
to a point where w e are willing t o r u n the risk o f
breaking the bani.
We p e a
typical case n o t very long since. A
non-member b a n k i n S o u t h C a r o l i n a f a i l e d t o remit,
remittince checks actually received were protested, t h e
member banks i n the same place refused t o make collections f o r us, e x c e p t a t w r r i s k a n d w i t h t h e p r i v i -
lege o f taking payment i n exchange which would b e collected a t our risk.
T h e member banks i n the same
place a l s o declined t o take hold o f the situation,
until~--having a par list i n South Carolina---we took
the offending bank off o f the par list,
banks
T h e other
i n the same place immediately recognized t h e fact
that t h e burden was theirs, a n d that i t could n o
longer b e transferred t o us, s o came t o the assistance o f the non-member b a n k a n d undertook t o make a
decent citizen o f it, which we think they will succeed
in doings
The p o i n t I
wish t o m a k e i s that, w i t h a
non-par
list possible, t h e number o f banks o n this list
can
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Federal Reserve Bank of St. Louis
148
be kept a t a minimum, a n d t h e banics o n the p a r list
controlled f a r more effectually t h a n they could possibly b e controlled under existing circumstances,
I feel sure that during the next six months, o r
certainly during t h e next trelve months, m a n y o f the
Federal Reserve Banks, particularly those i n the South,
are going t o have cases i n which, from knowledge
Possessed b y them, they will b e required t o collect o n
non-member banks a t their o w n risk, e n d I
am perfectly
confident that the time will come when some sert o f a
black list, under the guise o f a non-par list, will b e
absolutely necessarye
The point i s this, I
think w e all know that there
are &@ number o f banks among our members that have been
in a délicate situation and that are functioning now b y
virtue o f the fact that the Federal Reserve Banks a r e
carrying them, T h e r e i s a much larger number of State
banks.
Govern@ Calkins,
that i f w e receive a
I t appears t o me, Governor Seay,
check f o r collection w e are regpon-«
sible t o the extent of being under obligation t o use
due diligence a n d our very best efforts t o
collect that
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Federal Reserve Bank of St. Louis
149
check; a n d if, instead o f endeavoring b y the best means
available t o collect the check, w e return i t without any
effort t o collect it, that w e assume a l l t h e responsi-~
bility that c a n b e assumed,
I f i t c a n b e shown that
we might have collected t h e dheck a t the time a n d d i d
not make a n y effort t o d o s o we would b e responsible.
Governor Seay. I
a m sure y o u will understand,
Governor Calkins, t h a t i t i s not a cuestion o f desire
to shift responsibility o r any lack o f inclination.
to
assume it, but i t is a question o f whether o r not the
situation could b e avoided
bars tiev,
I
t i s not a
b
y the creation o f a non-
pecuniary consideration w h i c h
moves u s t o bring u p this discussion,
w e d o not shrink
fron respongibility, b u t the question i s c a n w e avoid
the situation b y the adoption o f some wniform rule a n d
the creation o f a non-par list,
Governor Calkins,
Governor Miller,
I t is a very difficult situation.
Y o u think t h e adoption o f a non-
par list and the publication o f it together with a list
of non-members would b e putting t h e m o n notice t h a t
FOU
would return t h e vhecks?
Governor Seay. Y e s ,
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Federal Reserve Bank of St. Louis
150
Acting Governor Case, I
think the question of
having a non-par list o f the banks o f this type i s
a very delicate one,
W e are making progress w i t h
our par list, a s we understand i t i n a broad gauge°
WAY.
f i e have about thirty thousand banks o n the
pare List, I
think w e a r e a l l i n s y m p a t h y w i t h t h e
problem that Governor S e a y hag alluded to, b u t i t
does n o t seem t o m e that this i s just t h e w a y t o deal
Wen. 1h. I
have a
short memorandum t h a t was prepared
by cur controller o f collections, a n d with your permission I
would like t o submit it.
The Chairman, C e r t a i n l y , Governor Case.
Acting Governor Case,
E v e r y Federal Reserve
Bank undoubtedly h a s t o meet t h e problem o f what t o d o
with checks that are dravin upon banks that may not be
in good condition, whether t h e y are member o r non3, Q l t h o u g h i n t h e c a s e o f n o n - m e m b e r b a n k s
it
ds-a little more difficult because o f the lack o f any
Kind o f security. ‘Inere a n entire state has been put
on the par list, i n m y opinion, some arrangement ghould
be made b y the Federal Reserve B a n k t o handle items
in
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Federal Reserve Bank of St. Louis
L51
spite o f the fact that they may b e drawn upon doubtful,
weak o r badly managed banks because t o vemove t h e n
from the par list o r refuse t o handle these checks,
would j u s t a d d a n o t h e r n o n - p a r s t a t e ,
G e r t a i n l y the
Federal R e s e r v e B a n k s a r e a b l e t o p r o t e c t t h e m s e l v e s
&38 well o r better than a n y other bank,
There are tvo ways o f handling items upon dculitSUL DABS:
1.
T o send t h e m b y express o r establish a n
agency a n d demand cash. T h i s i s a rather drastic
méthod e n d i n many cases would probably result
in the closing o f the doors o f the banks,
ae T h e other method igs t o require t h e doubtful
banks t o deposit collateral w i t h t h e Federal
Reserve tBanks,.
’
The latter plan m a y seem a difficult o n e
to
propose ,especially
i n t h e e a s e o f non-member insti-
tutions when they are remitting a t par, but
i f the
bank's c o n d i t i o n i s s u c h t h a t i t
i s unsafe
t o send
their letters direct a n d there i s
n o other way o f
collecting them they onty have the
other alternative
of Paying their checks i n cash throuzh the
express
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Federal Reserve Bank of St. Louis
company ( o r a n agent},
o r properly securing t h e
Federal Reserve B a n k with some g o r t o f collateral,
“hen it develops that there i s a doubtful nonmember bank i n a state t h a t i s not par, w h y tnere i s
no reason why its name should not be removed fron
the p a r list,
I
n t h e e a s e o f doubtful m e m b e r banks ,
their names cannot b e removed f r o m t h e p a r list a n d
it would b e p e r f e c t l y p r o p e r
deposit collateral.
security
t o reqiire t h e m t o
T h e v e i s , o f course, m o r e o r less
i n their reserve balance a n d capital stock.
As t o the amount o f security t h a t should b e
required, i t must be remembered that even i f the
bank i s situated one day distant fran the Federal Re-~
serve Bank there are always t w o days letters, a n d i n
many cases three days letters, i n process o f collection,
: G o v e r n o r Sear.
T h e p l a n t o w h i c h G o v e r n o r Ga&gnc
refers has been thought o f by us and even adopted.
ve required security where w e could get, but m y chief
Paecpose i n bringing the point u p now i g t o de termine
whether t h e question i s o f sufficient importance
in
every district a s t o justify @ unifom plan c r whether
it Would be better for each Federal Reserve Banlr to
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Federal Reserve Bank of St. Louis
deal with t h e problem according t o its o w n judgment.
The C r e deman. T
have a
short memorandum
o n
this gestion o f collecting o n doubtful banks.
Checks d r a w n o n doubtful banks which w e c a n
not collect through their correspondents a r e preesented a t their i n t é <
f o r payment i n money.
Vie either u s e t h e express company a s o u r colLecting a g e n t o r a p p o i n t a
responsible c i t i z e n o f
the t o w n where t h e bank i s located t o act a s a
representative o f this pank.
where w e appoint o u r o w n agent s u c h agent i s
bonded i n accordance w i t h t h e volwne o f business hand-~
led &nd t h e currency collected i s shipped t o this bank
by registered mail insured,
There a r e n o w n i n e b a n k s
i n this d i s t r i c t w h o s e
checks w e are presenting o v e r their counters b e cause w e prefer n o t t o send them direct t o the banks
for remittance,
The f o l l o w i n g t a b u l a t i o n s h o w s t h e s t a t e s
i n
which s u c h banks a r e located a n d t h e collecting agents
used;
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Federal Reserve Bank of St. Louis
Presented through
iy
E x p r e s s
Agent
tilinois 1
Indiana
Lowa
Michigan
Wisconsin
The question i s whether w e should adopt t h e
uniform method,
Governor Seay.
published o r whether some other method should b e
employed.
T h e question i s whether
i t i s of’suffi-
cient importance t o the district t o justify the adopte
lon o f some uniform plan.
Governor V a n Zandt.
W e h a d some banks d o w n i n
our District that asked t o be put o n the non-par
list a n d w e w o u l d n o t d o aL bs
Governor Biggs,
f h i s question came u p a t the
Conference l a s t April, a n d i f m y memory
serves m e
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Federal Reserve Bank of St. Louis
right t h e Board d i d not approve a t that time o f o
non-par l i s t a n d they expressed about t h e same views
that Mr, Case h a s expressed. I
time i n April
o f l a s t year.
T h i s cuestion w a s threshed
out a t one o f the conferences I
Governor Young. I
think that was some
a m sure, v e r y thoroughly.
think w e have t h e same prob-
lems that Governor S e a y has a n d i t i s really quite s e r Lous i n our district, I
think there were some three
hundred a n d thirty banks, the last time E checked i t
up, t h a t h a d n o t m a d e r e m i t t a n c e
t o us within t h e
scribed time o r within t w o days off, s a n e o f them
thirty days later,
banks.
N o w , there are. several o f those
w e have sane employeés t h a t w e s e n o u t t o get
the checks o f get the money and one thing o n another,
but there a r e innumerable places where v o u cannot g e r
an express agent o r cannot get the postmaster o r vou
cannot get anyone i n town t o handle t h e matter,
top o f that w e have a
O n
law i n South Dakota Which permits
a State B a n k t o deduct o n e - t e n t h
o f o n e r Q&S
e r cent.
O f
course w e d o not admit that that law i s constitutional,
but there i s a further proviso i n the l a w
that i t i s a
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Federal Reserve Bank of St. Louis
156
misdemeanor f o r a notary public t o protest those .hecks.
Governor Calitins. T h a t i s not constitutional
either,
Governor Younss.
Lt?
I
Y e s , b u t what c a n w e d o about
f we present a check a t a bank's counter and
the bank refuses t o pay it, that ends it.
no recourse o n the bank a t all.
to the indorser o r the maker,
Y o u have
Y o u have got t o go
I t i s quite a
serious
situation w e are finding out there and we have been
carrying many thoisands o f dollars worth o f those checks,
and we are i n fox.a loss there gooner o r later and i t
does seem as though w e would have t o at some time o r
other p u t o u t a non-par list, S i m i l a r action i s n o
doubt going t o be taken i n Minnesota and possibly i n
Wisconsin,
i t makes n o difference whether the law
is constitutional o r not, i t is just enowgh for those
people
t o fight y o u o n i t and w e cannot d o anything
about it, I
think consideration h a g t o b e given t o
& non-par list, certainly w i t h us.
The Chairmane M r , Fancher, what is the situation
with regard t o this matter i n your District?
Have
you many banks that you are having trouble with?
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Federal Reserve Bank of St. Louis
Lot
Governor Fancher.
wnere w e h a v e a n a g e n t
‘ i e have one bank i n Kentucky
t o collect checks.
T h e r e is
only o n e o u t o f eichtesn hundred banks i n our district,
The problem i s a much greater o n e i n some o f the districts t h a n i n others.
The Shairman.
W e have about ninety o u t o f prob-~«
ably four thousand banks.
Governor Seay. I f fhe matter i s not considered o f
sufficient importance t o deal with i t b y this conference I
would b e perfectly satisfied, having pre-
sented t h e matter t o you, t o have t h e conference g a y
that i n its judgnent i t i s not necessary t o deal with
it by any uniform resolutions
Governor Calkins. I
will move, Mr. Chairman,
that t h e view o f the Conference i s t h a t this matter
is o n e t h a t s h o u l d b e d e a l t w i t h i n d i v i d u a l l y b y t h e
banks for the time being,
Governor Seay.
T h a t i s perfectly satisfattory
to me,
Acting Governor Case, I
will second Governor
Calkins! motion,
(The motion having been duly seconded was carried, )
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Federal Reserve Bank of St. Louis
Governor Young.
under t h e s u b j e c t
topic t h a t I
M r . Chairman, c a n I introduce
o f check clearing a n d collection a
would l i k e t o p u t i n ?
I
t is a
matter
that c a n b e disposed o f very quickly.
Toe Chairman. G e r t a i n l y , Governor Young.
Governor Young.
T h i s c a n b e called tovic No.
circuitous routing o f checks.
Circuitous Routing o f Checks.
Governor Younge
A t the last Conference w e had a
sub-section No. 5 "Routing of checks through intermediary banking centers instead o f sendinz direct t o
drawee bank, sub-topic A being "Could not the wires
be used t o expedite such clearing.”
It was voted t h a t i t i s the recommendation o f the
Governors that any circuitous routing o f checks, which
delays presentation should b e discontinued jiithin a
reasonable time, C h i c a z o voting no,
T h e Board took
the position o f the Chicago Bank and replied i n this
Teas |
"Tne Board believes that in certain cases the routing
of checks through intermdeiary banking centers micht b e
\.
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Federal Reserve Bank of St. Louis
159
of distinct advantage t o the system i n that i t would
+
leave undisturbed t h e relations between t h e banks i n
Local centers a n d their country correspcundents,.
T h e
Board feels that the Federal Reserve Banks should avoid
any action tending t o force a
country b a n k t o remove i t s
accounts f r o m its o w n correspondent t o the c i t y o f a
Federal Reserve Bank, i
It i s evident that loss o f time
in routing checks through inter-mediary baniing centers
is generally immaterial, a n d especially i s this true
if the wires a r e used i n effecting o r reporting settle-
ment.
T h e Soard holds that the practice a s contem-
plated i n this topic should not b e 'discontinued within
a reasonable time’, b u t that all Federal Reserve Banies
Will give thought t o the matter o f establishine some
a
system b y which checks u p o n country banks m a y b e sent,
upon request,
b y the Federal Reserve B a n k t o the country
bank's near-by correspondent."
Now, that effects t h e banks i n the Minneapolis
District q m ite materially.
L o have written Governor
Harding about this asking if we could not reconsider
it at this meeting, a n d h e replied that we could,
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Federal Reserve Bank of St. Louis
although i t i s not o n the program.
The Shaiyman. D i d you not write and ask him to
put i t S t i
p r o g r a m i f h e s a w fit?
Governor Youngs Y e s .
The h e irman.
I s i t o n the program?
Governor Young,
W o , although h e replied that he
would b e glad t o put i t on.
Governor Morss, I
gram. I
did not put i t o n the pro-
referred this program t o the Joard and they
simply replied t h a t they h a d nothing more t o add,
Governor Young. I
did not want t o take i t up
here without first getting Governor Harding's thought
ag t o whether i t should g o on.
Governor Seay.
I s i t your conclusion that y o u feel
bound b y that decision t o permit t h e practice i n your
district i f you d o not approve o f it?
Governor Young,
T h a t i s not the gidaikd amg G o v e
ernor MceDougal does permit i t and i t hag given me a
lot o f trouble,
The Chairman. G o v e r n o r Young has stated very
plainly that i t is a subject i n which h e i s greatly
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Federal Reserve Bank of St. Louis
L61
interested. I
can say the same thing for Chicago. ‘le
are interested i n the subject, b u t i t i s going t o take
@ long time t o dispose o f i t i f w e start a discussion
of i t here.
Governor Young,
T h e action o f the Board o f Gover-
nors w a s that this circuitous method o f routing checks
should b e discontinued,
N o w , i t i s a serious t h i n g i f
Milwaukee a n d Sioux C i t y are permitted t o d o that o r
any other member b a n k i s permitted t o d o it, a n d i t i s
hard t o tell where i t i s going t o end, I
it i n our own District.
will n o t d o
i e are not routing through the
circuitous method w i t h a n y Federal Reserve Bank,
in Northern Yisconsin,
O v e r
i n order t o offset what i s hap-=
pening i n the Chicago District,
i t i s i s necessary f o r
me t o take Chicaco exchange in“payment o f those checks,
That i s simply a temporary arrangement w i t h those
banks because I
felt that the Governors o f the Federal
Reserve Banks would feel the same way about this that
I dos
f n the circular f r o m t h e Federal Reserve Board
the a r g u n e n t
i n connection w i t h p a r collection o f checks
was that i t avoided this circuitous method o f
routing
checks, and now the Board says that i f the
wires are
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Federal Reserve Bank of St. Louis
L62
in effecting o r reporting settlement t h a t thig
is t o their advantage.
T h e wires a r e never used i n it:
it i s not t h e object t o force a n y accounts i n t o t h e
bank---they c a n all b e taken care o f i n a v e r y satis-
factory way, which hag been tried out and approved and
you ane using it in your ovn district and it is satis-~
factory---that i s t o route t h e A n a t d i r e c t a n d
the
non-member bank can request its correspondent a t any
point t o put those funds i n t o us b y wire a n d w e
p a y the
telegraphic enarges, g o that the correspondent member
banks i s not out anything i n the transaction a t all,
I tuink i t should b e uniforn through t h e whole
system,
chat i s the way t o handle i t without disturbing any
of the present banking relations.
T h i s i s eausing the
Gwin City banks a great deal of trouble and the
loss
ofaccourts,
I a m going t o make t h i s statement, I
will h a v e
to a s k Y o u n o t t o request a n y p r o o f
a t t h e moment,
because I cannot sive 1 0 t o you, bat Ty
ogn give i t to
you eventually, M i l w a u k e e , I
have b e e n informed,
holds o n t o this business o f routing
checks out t o
fnes€ non-member banks and i n some
cases the member
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Federal Reserve Bank of St. Louis
163
banks permit t h e m t o deduct exchange.
true i n South Dakota. I
T h a t i s also
wrote o u t t o a number o f the
banks o u t there attempting t o get some specific information o r evidence t h a t this was being done, b u t I
could n o t g e t it. I : . f i n a l l y h i t o n the plan o f hav-
ing the chief examiner i n our district get that information f r o m t h e member banks, a n d i f i t i s true
of the member banks there i s n o question b u t what i t i s
true o f the non-member banks.
for me. L
H e has that information
cannot give i t t o you now, b u t I will s e n d
it t o you. W o w , the Milwaukee Bank and the Sioux City
Bank have placed themselves i n the position where t h e y
6 permitting the non-member o r member bank t o deduct
exchange, a n d 4 g goon a s i t gets noised around every one
of t h e i r c o r r e s p o n d e n t b a n k s w i l l c o m e a n d d e m a n d t h e
same thing, and there i s n o end i n sight t o it, I
think t h e whole thing i s wrong a n d I would lfke t o
have t h e Governors a c t upon it.
i
@he Chairman, ‘ h i g topie can be divided into
tvo questions, o n e o f which i s not i n any sense related t o the other.
T h e first plan used b y the Chicago
Bank i n developing t h e collection system, t o avoid
the
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Federal Reserve Bank of St. Louis
164
matter o f driving. accounts i n t o Chicaco, havin: t e n reserve cities i n our district a l l carrying a large number
of bank balances~--in order t o avoid t h e necessity o f
f
these small banks opening accaints i n Chicaso, which w e
were accused o f working i n favor, w e devised this plan,
a plan under w h i c h t h e correspondents
o f the D e s Moines
banks a r e permitted t o make arrangements w i t h t h e
Des Moines Banks b y which checks received o n a country
bank f o r Des Moines w i l l b e paid o n receipt a n d returns
are made immediately t o the Federal Reserve Bank, ‘This
question wag discussed a t the last conference and, a g
Governor Young has said, the Governors voted that the
plan s h o u l d b e discontinued.
T h e r e W a s o n e negative
vote, and that wag the vote of Chicago.
S o much for
that part o f the subject.
The other point involved i n the ovestion i s whether
or not any member bank, which i s handling checks i n this
manner,
i s collecting member a n d non-member bank checks
and permitting those hanks t o deduct exchange,
That
question was discussed a t ‘he l a s t conference a n d I
stated then, a s I state now, that i f the Minneapolis Bank
sJ
J
C
J
will give u s a definite case i n point w e will stop i t
|
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Federal Reserve Bank of St. Louis
immediately.
G o v e r n o r Young a t the time said that
he h a d a couple o f men who were scouring around while
he was here i n Vashington and that b y the time h e
got b a c k t h e r e w o u l d b e a b u n d a n t e v i d e n c e
t o sub-
stontiate h i s charge a n d h e would present i t t o US»
Governor Youlhs. i
statement a
think that i s stretching t h e
little G o v e m o r , I
said I would g e t the
evidence,
The Chairman. However, after seven or eight
months o f investigation h e has n o t been able t o produce
any single c a s e where h e knows t h a t t o b e a fact.
Governor Young. i
will admit i t has been very
hard t o get,
The Chairman,
T h o practice w i l l b e stopped i f
you will give u s definite instances where i t is being
Committed,
W e will not tolerate i t for a moment,
I will assure you, a s I did before,
i f you will submit
the proof,
w e know w h o i s
“ 6 8 c a n n o t d o i t unlegs
involved.
The other question was disposed o f unless y o u want
to reconsider it,
Governor Young. I
wish the Conference would re~
Consider it. T h e banks i n Northern Wisconsin
request
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Federal Reserve Bank of St. Louis
that
w e collect checks
o n Northern Wisconsin
ing them down t o Milwaukee---
Governor Seay(interposing) H a v e not the Governors
gone a s far as they can b y disapproving i t ? The Chairman, I
think i t i s a matter t h a t Governor
Young ought t o take u p with t h e Board.
O n e thing I
eglected t o state w a s that when this p l a n was worked
out i t was submitted t o the Board and received their
approval. I
think w e c a n t h a t o u r d i s t r i c t
different f r o m a n y o t h e r d i s t r i c t
is a
little
i n this respect, t h a t
we are operating there t e n reserve cities, m o s t o f which
are small banking centers, a n d thdly accounts embrace
banks that d o not keep Chicago accounts.
i e thought
that a great deal o f consideration should b e given them,
and i t was given them. T h o s e a r e t h e facts.
Governor Young. I
think w e ought t o have one
way o f doing i t and not two ways o f doing it.
(Discussion followed.)
Governor Young.
to make this motion:
I w i l l ask, Governor McDougal,
T h a t the Governors ask the Fed-
eral Reserve Board t o reconsider their decision i n
reference t o the circuitous method o f routing checks,
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Federal Reserve Bank of St. Louis
167
as given i n their letter No. X~1944 o f April 7, 1920
and issue a ruling i n accordance w i t h t h e recommendatians
Governors a t that meeting.
Governor V a n Zandt. I
will second t h e motion.
(Tae motion being duly seconded e e
Toe Chadrman.
C h i c a g o will a s k t o
voting i n the negative o n that motion.
Governor Fancher.
have a
A s I understand i t we are t o
joint conference w i t h the agents a n d the Board
tomorrow.
T h e r e were f o u r questions submitted t o u s
to consider a n d t o submit answers t o a t the conference
tomorrow. I
wonder i f 1 t would n o t b e t h e prope
to t a k e t h o s e u p now.
The Chairman. W e will proceed then to the topics
that were referred t o us a t the meeting o n yesterday.
The first topics sugeested b y Governor Harding was:
1. W i l l i t be advisable o r oractical next
year, o r i n the near future, t o establish
in each Digtrict a
uniform rate o n all
classes o f paper except bankers! acceptances, d o i n g away with a n y differential
on Government secured paper?
That brings t o m y mind t h e question o f whether o r
not t h e a c t i o n o f t h i s G o n f e r e n c e c a n b i n d t h e B o a r d
of Directors
o f a Bank.
T h e r e is a
difference
o f
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Federal Reserve Bank of St. Louis
opinion i n o u r B o a r d
Governor Seay,
o n this cuestion,
L I do not think t h e action o f the
Conference c a n bind a Board o f Directors,
“acting Governor Cage, I
do not think w e have
authority t o bind a board, but we can express our judgment a s a
Conference
o f Sovernors
The Chairman. I
t o the boards
want t o say that I should not
undertake t o bind o u r Board i n this Way.
Governor C a l k i n s ,
T h i s i s o n l y c m :expression
of opinion,
Governor V a n Zandt.
L
t is a
recommendation
to
the Federal Reserve Board,
Governor Calicins,
N o , I
think i t i s a n expression
of opinion,
(after further discussion.)
Governor ‘Galkins,. I
move i t i s the view o f thig
Conference t h a t i t will b e a d v i s a b l e a n d p r a c t i c a l
in
the near future t o establish i n each District a uniform
rate o n all classes o f paper except Bankers' acceptances,
doing away with any differential o n Government secured
paper except possibly Treasury certificates,
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Federal Reserve Bank of St. Louis
(The motion having been duly seconded was carried.)
The Chairman.
T h e next i s
a. S h o u l d t h e r e b e a
limit f i x e d i n a d ~
vance o n interbank borrowing?
Acting Governor Case, I
move that the answer
%O that question b y the Conference b e i n the negative.
(The motion being duly seconded was
The Chairman.
carried, )
T h e next i g
Koes S h o u l d t h e r e b e a
discount r a t e ?
Governor Pancher, I
uniform interdistrict
move i t i s t h e g e n s e o f t h e
Conference t h a t t h e r e s h o u l d b e a
uniform inter-bank
rediscount r a t e ,
The Chairman.
be a n s w e r e d
Y o u r motion i s that this question
i n the affirmative?
Governor Pancher,
Y e s .
(The motion being duly seconded was carried, )
The Chairman.
N u m b e r four i s
he S h a l l t h e b o r r o w i n g Feaeral r e s e r v e
bank
be v e q u i r e d t o f i x a rate t o i t s c u s t o m e r s
t o
meet t h e r a t e o f t h e F e d e r a l r e s e r v e b a n k
from
which i t borrows?
Governor Seay. I
would like t o move, M r , Chairman,
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Federal Reserve Bank of St. Louis
170
that i t i s the sense o f this Confersnee t h a t t o take
such action would introduce a
new factor i n t o the fix-
ing o f a discount rate a n d might involve, under certain
circumstances, a change o f rate o n the part o f the rediscounting bank which would n o t b e justified b y fundamental conditions i n the District, a n d therefore s u c h
action would b e injudicious.
Governor V a n Zandt. I
will second that motion.
(Tie motion having been duly seconded was carried.)
(Whereupon after informal discussion which t h e
Reporter was directed not t o take, the Gonference ad-
journed at 6.75: o'clock pem. until Friday, October 15th,
1920 at 9,30 o'clock aem.)
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Federal Reserve Bank of St. Louis
ats
BANKS
CONFERENCE O F GOVERNORS O F THE FEDERAL RESERVE
SECOND D A Y
Hotel Washington,
Washington, D . O . ,
Friday, Oct. 15, 1920.
The Conference o f Governors o f the Federal
Reserve Banks w a s called t o order, pursuant t o adsournment o f October 14, a t the Hotel Washington,
Friday, October 15, 1920, a t 9.50 o'clock, e m .
Appearances:
As h e r e t o f o r e n o t e d .
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Federal Reserve Bank of St. Louis
PROCSUDINGS .
The Chairman.
T h e next topic o n t h e regular
program i s
Check Clearing and Yollection (continued),
Gompetition w i t h m e m b e r b a n k s
i n collections
on individuals i n Federal Reserve a n d branch
cities,
We will hear from Governor Seay,
Governor Seay.
M r . Chairman,e
h
t member banks
in Richmond, b r clearing house action,voiced a n objection t o the undertaking b y the Federal Reserve Bank
of making collections
o n individuals, w h i c h was formerly
their business and for which they received a n exchang
charge, 2
question seems t o me t o be a very broad
one and a n underlying one, and that i s whether the
Federal Reserve Banks shall assume t h e collection functions f o r their members whieh correspondent banks
for-
merly exercised, o r whether w e shall undertake t o give
all the follectiion facilities t o our member banks which
Such correspondent banks formerly gave.
That is the only point, s o far as I can remember,
+n Which the Federal Regerve Banks are brought
into
intimate contact with the public, a n d that
i s the eol-
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Federal Reserve Bank of St. Louis
lection o f drafts u p o n individuals.
other r e s p e c t
i n which w e have a
relation with t h e public.
T h e r e is no
direct c o n t a c t
or
I - a m aware t h a t some o f
the Federal Reserve Banks hold that inasmuch a s i t is
expected t h a t i n time, a t least, t h e Federal Reserve
Banks will absorb a l l o f the responsibilities e n d
duties a n d assume a l l o f the accommodations g i v e n
by correspondent banks
t may b e t h e duty o f the
t h a t i
Federal Reserve B a n k t o undertake s u c h collections.
The Chairman. ‘2D think this topic was considered
a long time ago i n one o f our Conferences a n d since
that time that department i n the banks has been pretty
highly developed.
i e have been working o n it and I
think there i s a very large department i n New York,
Is not that so, Governor Fancher?
Governor Fancher.
Governor Seay,
Y e s .
T h e object of putting thig questinr
on the program i s t o exchange experiences w i t h t h e
other reserve banks i n a n effort t o gather whether i t
is their judgnent thet the Federal Reserve Banks should °
all undertake t h i s work, whether t t i s a n inevitable
outcome o r whether i t breeds discontent among o u r member
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Federal Reserve Bank of St. Louis
banks; whether w e are regarded a s talking from them a
profitable business which t h e y are entitled t o enjoy,
and whether w e ghould come i n contact with t h e public,
ag Wwe necessarily must come, i f we carry c u t that r e s
lation,
Governor Calkins. I
think a n entire answer t o the
ob jection o f the member banks i s the fact-«~-1 know i t
is a fact; investigations Indicate that i t 1s a fact---+
that these collections m a d e b y member banks a r e wade
ata loss, regardless o f whether t h e y collect exchange
OY not.
T h e cost o f making t h e collection o n individ-
uals o n the part o f the member banks i s far beyond a n y
compensation t h e y g e t f o r it, that t h e collection o f
items i s conducted a t a very material loss. I
think
you will find t h e member banks i n the larger cities
have realized t h a t f o r a long time, a n d have carefully
analyzed their costs, a n d have ascertained that i t
costs (2.50 t o collect a n item for which they charge
15¢ in many cases, I
believe a number of banks i n
the cities would welcome our taking the collection
business o f f their shoulders, relieving t h e m o f a n une
profitable p a r t o f their business,
T h e o n l y objection
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Federal Reserve Bank of St. Louis
arises from the fear that i t might disturb their
relations w i t h dorrespondent banks.
T h a t i s m y oping
ion.
Governor Van Zandt.
I n the city o f Dallas i e
have h a d a memorial presented t o us b y the Clearing
House a s s o c i a t i o n c o m p l a i n i n g a b o u t o u r p r a c t i c e
of
making collections. direct f r o m the people, a n d w e told
them that w e would take t h e matter u p and study it.
We threshed o u t the matter o u t a t our directors meetg@and i t c a m e t o n o t h i n g a t all.
was d o w n t h e r e a n d a
G o v e r n o r Harding
committee f r o m t h e C l e a r i n g H o u s e
came before Governor Harding a n d presented their views,
and after giving the matter further thought and study
we told t h e banks o f Dallas t h a t i f they would estab-
lish a fixed rate for making collections i n the City
of Dallas a n d adhere t o it that w e would b e very glad
to fix the same charges o n all such collections, a n d
that ended t h e controversy right then,
Governor vellborn,
I t was dropped.
T h e Atlanta Banks are opposed
to the collection system.
T h e y are opsosed t o our
attitude, that i s the public with wham we come i n contact, b e c a u s e w e d o n o t s e n d t h e c o l l e c t i o n s a r o u n d
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Federal Reserve Bank of St. Louis
176
to their place o f business, but just notify them.
They d o not like that,
T a e y would rather f o r u s t o
come t o t h e c o m m e r c i a l b a n k s ,
The Chairman,
C h i c a g o has qiite a
department o f
‘that kind a n d w e believe i t amounts t o real service, a
cheap service t o the member banks; a n d they are beginning t o appreciate i t and the department i s growing,
Governor Calkins. H a v e you met with any objecti ons? /
The Chaiyman., N o t at all. I
think they rather
commend u s f o r it.
Governor :Morss.e T h a t i s true with us.
Governor Fancher,
jection whatever,
I n Cleveland t h e y have n o ob-
I t seems t o mo, Looking a t the col-
lection facilities t o be affurded b y the Federal Re-~
serve Bank, that i f we are coing t o afford the broad
facilities that have been afforded b y the correspondent banks that w e must necessarily handle these c o l s
Lections.
Governor V a n Zandt, I
think w e will f i n d that
the objections arise i n the smaller cities like Richmond, Atlanta, and Dallas, and those places where
they
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Federal Reserve Bank of St. Louis
seem t o feel that w e are interferring w i t h their
ness relations w i t h their customers.
According
recollection action was taken o n this subject b y
Governors! Conference a year o r tio ago.
Governor Wellborn,
determine anyway.
I t i s not a matter f o r
I t i s i n the Federal Reserve
is i t not?
Governor V a n Zandt. I
d o not know that i t
specifically i n the act,
Governor Wellborn,
L a m quite s u r e i t is,
There i g a.rhling. y
b the counsel that i t had t o be
dene and that i t i g obligatory o n the bank t o do
it,
The o n l y reason w e are doing i t i s because
counsel f o r
the P e d e r a l R e s e r v e B o a r d g a v e a n o p i n i o n
o
t o that ef-
fect.
Governor Van Zandt. Governor Harding advised
us,
as well a s I recollect, t h a t i t was o u r duty
t o make
these collections t h a t were g e n t t o
use
Governor Wellborn,
That i s i n the Federal Re-
serve Act,
Governor V a n Zandt,
t h e only question that arose
Was whether o r not we should charge
exchange,
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Federal Reserve Bank of St. Louis
Governor Tiellborn.
O u r Soard has gone s o far
on the question a s t o take u p the matter o f having
the F e d e r a l R e s e r v e A c t a m e n d e d a n d h a v e t h a t e l i m i n -
ated from the act, T h e r e f o r e I
is n o t a
am quite sure i t
matter f o r u s t o d e t e r m i n e o n e w a y o r t h e
other.
Governor Seay.
I t is not i n the Act, I am sure.
The Acbwonly applias t o checks, I
think the ruling
of the Board may be that the bank may make these collections, but I do not think i t is the mling that they
are required t o make t h e collections. I
confess t h a t
E have a feeling that t h e inevitable t r e n d o f events i s
that w e must come t o that relation with o u r member banks.
At the same time I believe i t is undesivable, from many
points o f view, for the Federal Reserve Banks t o be
brought i n such contact with the public.
Governor V a n Zandt.
( P r e s i d i n g temporarily.)
Governor Seay, G o you offer a motion o n the subject?
Governor Seay. I
have n o motion, no.
T h e
Purpose Was t o bringyout a discussion a s t o the experience o f the other banks with their members a n d t o
find out whether there was universal objection.
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Federal Reserve Bank of St. Louis
179
Governor YVellborn. I
would like t o b e recorded
as being opposed t o the policy o f making these c o l ~
lections, and I believe the 4ct should be amended or a
ruling made covering t h e point.
(After further discussion)
Governor Seay.
to m a k e a
L I do not think i t i s necessary
motion o n this subject,
i
t was p u t o n for
the purpose o f brinzing o u t t h e disctission,
Governor P e n c h e r ,
Governor Seay.
T h e n I
move t h a t i t b e passed,
I t will be perfectly. satisfec-
tory t o ine i f i t i s handled i n that way.
Governor V a n aandt. (presiding)
T h e next topic
is number 8 .
8.6 E x c h a n g e o f letters between Federal Reserve
banks covering indorsement o n items sent
direct t o other Federal “eserve Banks b y
member banks.
(After discussion. )
Governor Young. I
heve a copy o f Mr. Hendricks
letter, dated September 14th, lezo, inclosing the form
referred t o by Governor Biggs and their sugsestions f o r
handling i t .
4 3 I T understand t h i s P o r m i t i s a
blanket
letter that would cover everything that they sent t o us.
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Federal Reserve Bank of St. Louis
The m a n w h o h a s c h a r g e o f t h a t w o r k i n o u r b a n k
not approve o f the f o r m o r the method sugsested
New York for handling i t and I would like t o go
record a s opposed t o it. I
would like t o r e a d !
w
he has t o say:
"Tn preference t o the sugzestion o f the Federal
Reserve B a n k o f New York a s t o arrangements f o r direct
routing o f checks a n d drafts f o r collection f r o m member
banks i n one district t o federal Reserve Banks i n
other districts.
"The Federal Reserve Bank o f Minneapolis hag
never d e e m e d i t advisable
t o sive planket authority
to
other Federal Reserve Banks t o receive direct f r o n o r
member b a n k s c h e c k s a n d d r a f t s f o r o u r a c c o u n t g u a r a n =
teeing the endorsement o f member banks o r anv a u thority
to charge back t o our account the amount o f any such
items where t h e other Federal Reserve B a n k m a y fail t o
receive t h e proceeds f o r a n y rcason except their o w n
nosiigenoe,
"i@ believe that the privilege o f direct routing
should only be sranted b y us where our member bank has
taken t h e m a t t e r
u p with u s a n d has demonstrated
to or
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Federal Reserve Bank of St. Louis
181
satisfaction that t h e volume o f business o r the amount
of business i s sufficient t o justify such direct routing.
also believe t h a t the standing o f the member
bank a s t o correct banking practices a n d responsibility
should enter i n t o the question a s t o whether o r not w e
Will guarantee t h e i r endorsement a n d authorize t h e
charging back t o our account o f items forwarded direct
to other Federal Reserve Banks b y them f o r o u r account.
" Y e also believe t h a t t h e Federzl Reserve B a n k
to w h o m i t e m s a r e t o b e r o u t e d d i r e c t b y m e m b e r b a n k s
should b e consulted a s t o whether o r not such arrangements should b e made a s well a s membér banks o w n Fed-
eral Reserve Bank, the receiving of direct
from members i n other districts imposinz a n addi
purden o f w o r k u p o n u s o v e r r e c e i v i n g t h e i t e m s d i r e c t
from the Federal Reserve Bank, t h e r e the voluwne of
business
i s sufficient
w e are willine
t o assume
extra work, but where t h e items a r e f e w a n d t h e
small w e d o not feel that w e should b e burdened
unnecessary work.
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Federal Reserve Bank of St. Louis
182.
"I believe that the arrancements
f o r direct routx
ingeshould b e uniform
i and that identic
m letters suarantesing t h e endorsements
o n all checks received direct
from member banks i n other districts a n d authorizing t h e
charging back o f the items uncollected for reason other
than the receiving bank's o w n negslisence, should b e
brought about, I
believe the form o f letter sugzcested
by the Federal Reserve B a n k o f New York i s a good o n e
for the purpose intended w i t h t i e exception that i t
is general and i s a guarantee a g t o all member banks
in the district,
"For Your information I waild state that we have
always required fron other Federal Reserve Banks
authority for any o f their member banks t o route items
direct t o u s f o r their account and guaranteeing o f
other member banks endorsement u p o n such items a n d
authority t o charge back items which remain uncol-
lected for any reason except our negligence."
Governor Seay. I
do not understand that the
sending o f such a letter would commit a n y Federal R e ~
serve Bank t o the endorsement o f members. I
believe
myself the practice should not be generally indulged in,
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Federal Reserve Bank of St. Louis
185.
but that when i t i s permitted i t should b e b y special.
arrangement,
Governor VandZandt. I
think t h i s c o n f e r e n c e h a s
taken such action prior t o this meeting.
Governor Seay.
T h a t i s m y impression. H o w e v e r ,
as I recall, t h e position taken b y New York i t i s this:
that c e r t a i n b a n k s w i t h o r without p e r m i s s i o n
d o a t times
indulge i n this practice, a n d i t is the opinion o f their
counsel t h a t i n s u c h c a s e s a n d i n o t h e r c a s e s w h e r e
it is wrmitted b y arrangement, some guarantee o f indorsement
be made.
a s between t h e Federal Reserve Banks should
B u t I don't understand that that commits u s
to t h e i n d o r s e m e n t
o f members,
Governor F a n c h e r , I
Governor Young.
d a y o u Governor Fancher?
d o not.
M r . Hendricks letter igs:
"ie have had some discussion and considerable
corwespondence w i t h s e v e r a l
o f t h e F e d e r a l r e s e r v e barics
with reference t o some uniform basis u p o n which checks
aan b e r o u t e d d i r e c t f r o m m e m b e r b a n k s
i n one district
to Federal Reserve “anks i n other districts,
»
Many
of the member banks a r e using t h e privilege o f direct
routing, a n d we have felt f o r a long time that there
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Federal Reserve Bank of St. Louis
should be exchanged identic letters guaranteeing the
indorsements
o n all such checks received direct f r o n
member banks i n other, districts and guaranteeing the
charging back o f the items not collected for reasons
other than the receiving bank's own negligence. T h i s
is certainly o n e matter that should b e upon a n ab~
solutely uniform basis a n d i t should n o t b e left t o
negotiations between the several Federal Reserve
Banks.
I f left t o separate negotiation, t h e r e might
be undesirable variety i n the arrangements a n d pos-
sibly failure t o cover the system a s a whole.
We enclose a suggested form o f letter which has
the approval o f our counsel.
T h i s letter authorizes
the Federal Reserve banks t o receive checks direct f r o m
any member bank i n other districts and the guarantee o f
indorsement i s o n that basis.
In this connection, I may explain that while
naturally f o r a c c o u n t i n g p u r p o s e s
w e h a v e required,
and will continue t o require, that our member banks
Which s e n d direct t o other “ederal Reserve Banks must
in all instances advise u s o f the transactions,
we
are thoroughly convinced that it is inexpedient, i f
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Federal Reserve Bank of St. Louis
185
not impossible,
t o xermit some o f our member banks t o
gend direct a n d deny t h e privilege t o others,
W e
believe moreover t h a t nothing would b e gained b y
nination among t h e m i n this regard s i n c e ,
practical matter, t h e sugzested risks a n d dangers i n
allowing banks indiscriminately t o send direct a r e i n
mo way less o r diffcrent w h e n t h e checks a r e sent
through t h e Federal Reserve B a n k o f the home disHUngMere ger
It i s possible t h a t a different v i e w o f this
particular matter m a y prevail i n some o f the other
» @ feel, however, t h a t i f any other
al Reserve Bank does desire t o discriminate
among its member banks i n this matter o f direct
sending, i t s arrangements i n that regard should b e
administered a n d e n f o r c e d s o l e l y b y i t , w i t h n o
obligation
o r responsibility
eral Reserve Bank.
o n the receiving Fed-
I n other words,
i f a member
bank, withovt authority, sends for collection a check
to a
Federal R e s e r v e B a n k i n a n o t h e r d i s t r i c t ,
the
receiving Reserve Bank should be permitted t o handle
the check exactly a s i f the sending member bank were
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Federal Reserve Bank of St. Louis
on the authorized list and under the same guarantee
of indorsement b y the other reserve bank, S p e c i f i c ally, whatever t h e internal arrangement m a y b e within
a district, the Federal Reserve Banks should all
authorize e a c h o t h e r ’ o
t receive checks f r o m all their
member banks and the guarantee should b e o n that
basis.
i e feel, therefore, that our suggested form
letter i s appropriate, whatever t h e intra~district
policy may be,
in making t h e foregoing sugsestion,we h a v e t h e
following considerations i n mind.
that a s a
i t seems t o us
practical m a t t e r t h e r e c e i v i n g b a n k i s
obliged t o collect t h e c h e c k , w h e t h e r t h e s e n d i n g
member bank has been authorized b y its home reserve
bank o r not,
would c r e a t e a
f o refuse o r delay t h e collection
most u n f o r t u n a t e s i t u a t i o n ,
and if
instances were multiplied, t h e result would b e
serious p r e j u d i c e
t o the relations b e t w e e n t h e system
and the banks of the country.
I n short, i t seems t o
us that the only possible practical procedure i s for
the receiving bank to make the collection and later
the reserve bank of the home district, i f it so desires,
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Federal Reserve Bank of St. Louis
187
may take whatever steps s e e m proper t o i t t o prevent
further unauthorized direct sending.
"Viewing the matter fron another angle, I may add
that i n o u r o p i n i o n i f t h e r e c e i v i n g r e s e r v e b a n k s
were required t o maintain lists o f the authorized member
banks i n all the other districts and t o check all
letters received against such lists, the result would
be a d d e d e x p e n s e a n d i n t o l e r a b l e o b s t r u c t i o n a n d
delay i n the handling o f the bank's check collection
operations.
"This topic will come u p at the Governors! Con-
ference a t ‘ashington next month, and that is the
‘reason for writing this letter so that you may have
the matter brought t o your attention, a n d possibly
give i t some sonsideration, before t h e conference takes
place."
Governor Calkins. I
would like t o recall a
discussion which was inaugurated b y Governor Strong
at the last conference w h i c h I
attended,
A t that
time Goyernor Strong made a pleas for the
holding u p
of this method o f handling checks, a very strong
plea,
and his argument wag. that if i t was permitted
without
restriction the Federal Reserve Bank
o f New York would
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Federal Reserve Bank of St. Louis
be absolutely swamped a n d p u t o u t o f business.
Following that conference I went t o New York a n d ascertained i n New York that Governor Strong had
the wrong stecr and that the operating a2ficers o f
the bank had taken the other side o f the argument,
and that i t was owing t o his misapprehension that he
made the arguments —
T h e i r opinion wag then, and i s
now, a s this letter indicates, that they must handle
every check o f that kind that comes t o them and w e
must each one o f us handle e v e r y check that comes
to us i n such ways; that i f we return a check which
can b e collected w e are unquestionably responsible
for failure t o collect t h e check a n d liable f o r the
loss incurred o n the part o f any holder o f the check.
4s t o the question o f whether w e should require a l l
member b a n k s
t o obtain o u r permission before t h e y
carry Out this transaction, i t is perfectly obvious
that i f Mr. Young grants this privilege t o the largest
bank i n his district h e must grant i t t o the smallest
bank in his district, because i f it once becomes
known t o the member banks i n his district t h a t o n e
bank has been granted the privilege, the other banks
have a perfect right to assume that they have the game
privilege a n d a right t o act o n that assumption,
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Federal Reserve Bank of St. Louis
LOO
I can see n o escape f r a m that,
i e cannot discriminate
between t w o banks a n d s a y here igs a n item from o n e bank
which i s exactly comparable i n every respect w i t h t h e
item from another bank, b u t w e will take o n e a n d won't
take the other, that we like this bani and don't like
that one. I
think that i s a n absolutely untenable
position f o r u s t o take.
Governor V a n Zandt.
Y o u would n o t think because
specific permission h a d been given t o one bank along
that line t h a t that vould imply o r carry with i t permission t o m y o t h e r bank, w o u l d vou?
Governor Calkins, I
think i t would i f the other
bank insisted o n having it, beyond question,
Governor Van Zandt. I
Governor Calkins. i
do not think so,
think i f i t i s eranted t o
one bank t h e other banks would b e perfectly justified
in assuming t h a t i t would apply t o them, I
d o not
think y o u c a n make g o o d banks o u t o f one s e t and b a d
banks o u t o f another. I
think i f o n e b a n k h a s t h e
privilege o f using the Federal Reserve System i n any
particular t h a t every other bank has t h e same right,
ipso facto,
Governor Van Zandt. I
disagree with vou there,
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Federal Reserve Bank of St. Louis
290
If I grant o n e bank rediscounts without a n y excess
collateral n o other bank c a n take t h a t a g indication
inat i t c a n borrow f r a n m e Without excess collateral,
Governor Galkins.
I f trou lend t o one bank every
other bank i s perfectly justified i n assuming t h a t y o u
will make loans t o i t under conditions t h a t are justi-
fiable.
I n other words, v o u cannot say t o one bank
"Ye will take your note secured b y liberty bonds a t
par" and t o another bank "Je will only take your note
secured b y liberty bonds ot seventy-five,"
Governor Young. I
think, I n answer t o Governor
Calkins, that i t is not discrimination between member
DANKS «
i n any arrengement that we would onter
with a member b a n k t h e volwne o f checks rather t h a n the
amount o f checks would b e the only reason for granting
the privilege---it relieves u s o f a certain amount
of
worke
Governor Calkins,
B u t you cannot b e relieved
of the o r k that you d o for your j»ember banks,
I t
Would relieve you o f a great deal
o f work i f you only
discounted for the large banks, but you
cannot b e
rélieved o f that work, E v e r y bank i s either
entitled
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Federal Reserve Bank of St. Louis
to this privilege o r n o bank i s entitled t o it. Y o u
can take wvour choice.
B u t y o u cannot g o half w a y and
say that some banks c a n d o thie a n d others cannot.
law e x p l i c i t y f o r b i d s d i s c r i m i n a t i o n
Governor e l l b o r n , I
The
o f t h a t kind.
would like t o read a letter
from our cashier covering this subject:
agreeable t o your request, Mr, W. R. Patterson
and I have carefully considered t h e sugsestion made
by Mr.
L. H
, Hendricks o f the Federal Reserve Bank
of New Y o r k with regard t o the adoption b y all Federal
Reserve Panks o f a uniform letter o f instructions a n d
guarantee o f endorsements applying t o all cash items
routed direct b y member banks o f one district t o
Federal Reserve Banks a n d Federal Reserve Branches o f
“@ believe that Mr. Hendricks!
reasoning i s sound, a n d that t h e idea should meet with
the approval o f all Federcl Reserve Banks and be
adopted b y them.
I f i t shold appear after thig
Plan i s inausurated t h a t certain member
banks
route items direct without authority
o f their
7 Pe >
e
Hederal aReserve n Banks,
;
they can
i
undoubtedly
b e vreA4
a
d
a y pay
o
x4
a
R espe. h e
~
y1
So
from
e repeating
t
n
e
v
the
practice,
a n d + I do not
believe that we would incur any greater risk by
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Federal Reserve Bank of St. Louis
siving blanket instructions i n the f o r m suggested b y
Mr. Hendricks t o all Federal Reserve Banks, than we
do now i n issuing instructions specifically applying
to certain member banks.
M r . Hendricks' idea is
attrawtive because o f its simplicity, a n d further
because i t will insure uniformity o f action b y all
Federal Reserve Banks,"
The Chairman.
M y memorandum o n this subject
is a s follows:
Items handled b y Federal Reserve Banks and their
branches are @ndorsed "Prior endorsements guaranteed"
but checks which a r e sent direct b y member banks i n
one district t o Féderal Reserve Banks in.” é t h e r districts d o not bear the guarantee o f endorsements o f the
Federal Reserve Bank for whose account the items are
sent.
Such guarantees c a n best b e furnished b y the
Federal Reserve Banks civing to each other a blanket
guarantee o f endorsements. T h i s method would b e
Preferable t o the use o f a doubté endorsement staimp
by the direct sending member banks because double
endorsements are the cause o f many errors. A
clerk
handling a n unpaid item bearing a doable
endorsement
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Federal Reserve Bank of St. Louis
cannot d e t e r m i n e f r o m s u c h e n d o r s e m e n t w h e t h e r t h e
item w a s r e c e i v e d froin t h e m e m b e r b a n k o r i t s F e d e r a l
Reserve B a n k because s o m e Federal Reserve Banks
have their member banks u s e a double endorsement
stamp o n items d e p o s i t e d w i t h them.
Most o f the large banks using t h e Federal
Reserve collection system use endorsing machines and
would b e obliged t o change their systems for handling items i f they were required t o supply a special
endorsement o n certain checks.
Governor Fancher, M r . Chairman, I move that
this matter b e referred t o the Federal Reserve Board
with t h e request t h a t caunsel f o r the Federal R e s e r v e
Board prepare a
letter o r regulation coverings these
indorsements,to b e exchanged b y the twelve Federal
Reserve Banks.
(After discussion the motion being duly seconded,
Wag sacirdgie’
The Chairman,
T h e next topic i s number nine.
Treasury Relations,
cP T r a n s f e r o f sub-treasury functions,
That topic h a g been disposed o f ,
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Federal Reserve Bank of St. Louis
The next i s
Accounting.
10, A d v i s a b i l i t y o f standardizing methods
of auditing and accounting, including
real estate accounting.
That matter has b e e n disposed of,
I t wag
referred t o a committee,
The next i s
inter Federal Reserve B a n k Transactions.
li. T h e devising o f a method t o avoid present
frequent holding o p e n o f books i n connection
with inter-bank rediscount operations,
12, 4
better method o f prepayment b y Federal
Reserve Banks o f paper under rediscount b y
other Federal Reserve Banks.
Governor Fancher,
M r . Chairman, I
am responsible
for putting that topic o n the program, because o f
various q u e s t i o n s t h e t h a v e a r i s e n p a r t i c u l a r l y
i n the
accounting operations covering d@idcounts o f other Federal Reserve Banks, F o r t u n a t e l y o r unfortunately w e
are doing the greater volume o f i t at the present time
and there i s a very badly confused situation which hag
arisens I
will not g o into details, b u t this i s one
thing which prevents u g from closing our books. ‘ T h e
Board requests ug-to hold our books open
for discounts
of some o f the other banks ana very frequently
w e are not
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Federal Reserve Bank of St. Louis
able t o close o u r books a n d complete t h e transactions
until two o'clock in the afternoon, and at times later
than that,
T h a t n o doubt occurs because é6f differ-
ence i n time and delays i n transactions, necessitating
an exchange o f wires with the banks. Because
o f this
the matber o f accounting i s very much confused,
The other matter which causes confusion i s that
the schedules which a r e forwarded u s giving
t h e details
of the paper a r e v e r y siow i n being received.
I n in-
stances, i n the case o f the Atlanta bank,
the schedules
have b e e n t e n and eleven days i n reaching
u s a n d they
have h a d twenty-five t o thirty a n d
forty items i n
anticipation
o f t h e payment.
Y o u c a n appreciate w h a t
that means i n trying t o put these
transactions through
your books without having the Original
sehcdule,
I t
seems t o m e there h a s z o t t o
h e worked o u t a simpler
operation i n the matter o f rediscounts
f o r other Federal
Reserve Banks, I
do not believe that the discounting
bank should b e requested t o
hold i t s books open,
R i
believe that this matter should
b e given very much
Prompter consideration,
I f in ascertaining its
reserve position a t the close
o f any particular day,
& bank i s likely t o be
low i n its reserve, that
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Federal Reserve Bank of St. Louis
matter ought t o b e taken immediately u p with the chief
executives a n d its reserve position ought t o b e determin
at the close o f business, o r earlier i n the day, and
if i t is necessary t o rediscount that the operation
should b e s t a r t e d t h a t d a y o r v e r y p r o m p t l y i n t h e m o r n -
ingSe f
i believe t h a t the matter o f rediscounting o n
ag
one day/of the previous day cold be done away with,
with possibly t h e exception o f Friday w h e n the combined
statement o f all the banks i s given o u t and their reserve positions known, I
d o think that i n some i n -
stances the rediscounting banks work pretty close t o
the line all the time.
W e have had requests, f o r in«
stance, t o discount five hundred thousand dollars for
some other bank, which amount perhaps just made their
reserve good,
T h o s e operations a r e numerous a n d i t has
resulted i n a good deal o f confusion i n our bank. N o w ,
in the case of Governor Van Zandt's bank, w e have had
some correspondence a n d have found o u t that
i t occurs
out o f their relations w i t h their branches.
Governor V a n Zandt, Y e O S e
Governor Fancher,
W e appreciate tho situation, put
we Want the rediscounting banks t o appreciate o u r situati.
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Federal Reserve Bank of St. Louis
Lo?
and what i t means t o u s when w e are rediscounting f o r
six banks, w h e n w e have t o hold o u r books o p e n each
day, a n d t h e n w e have anticipations---we h a d i n one
day from three banks eighty o r ninety items o f anticipated p a y m e n t s , l i t t l e i t e m s f r o n f i v e h u n d r e d d o l -
lars ube
Governor V a n Zandt.
w e appreciate v o u r position
in t h e m a t t e r a n d nothinzs w o u l d p l e a s e m e m o r e t h a n t o
have t h e Federal Reserve Board require u s t o rediscount
as o f the d a y the shortage i s shown;
i n other words w e
cannot find. out how w e come o u t i n today's clearings
until after we hear from Washington, and that is because
our branch banks have t o go i n to Washington, t h e
contra fisures have t o b e entered, a n d I think i t
would
be much better practice t o let the bank s h o w short
in
iis reserve and i f necessary pay the penalty for being
short i n its reserve f o r that one day, except o n Fridays.
The Shairman. T h e schedule which has been
referred
to i s t h e detail w i t h respect t o the
paper offered?
Governor F a n c h e r ,
The Chairman,
Y e s a
W h y should i t take g o
long?
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Federal Reserve Bank of St. Louis
think there i s a good deal i n Governor Fancher's con+«
tention and I think it is a matter that ought to be
corrected.
The General Bookkeeper o f the Federal Reserve
Bank o f Chicago makes a n estimate a t about 3.30 o!fclock
each day, indicating i t s probable settlement t h e fol«
lowing morning, and its reserve position afer the
sottlement has been mde.
T h e s e estimates have
been very accurate, a n d b y this method the Chicago
bank has been able t o determine, each afternoon,
whether
o r n o t 4 t w o u l d p r o b a b l y h a v e t o borrow
the following morning.
I f all reserve banks fol-
lowed thig method, a n d especially i f they borrowed
where they found their canbined reserve below a
cer~
tain figure, say 40% against notes and deposits, i t
would not be necessary for other Federal Reserve
Banks t o hold their books open for any length
of
time following the morning.
Itis nearly time for us to go into joint
Session with the Agents and the 3oard, and are you
Willing t o let that g o until w e have
had that S€ssion,
Governor Fancher?
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Federal Reserve Bank of St. Louis
Governor Fancher. Y e s . i n d e s d , Mr. Chaixman.
The Chairman.
T h e n w e will adjourn a t this
time until two-thirty this afternoon.
(Thereupon a t eleven o'clock a.m. t h e Gonference
of Governors adjourned f o r the purpose o f soing into
joint s e s s i o n w i t h t h e F e d e r a l R e s e r v e B o a r d a n d t h e
Federal Reserve Agents a t eleven o'clock,
t o reconvene
4
at two-thirty o'clock p.m. o f the same day.)
AFTER R E C E S S
The G o n f e r e n c e r e a s s e m b l e d p u r s u a n t
Pee !
at t w o thirty o
clock p.m.
The Chairman.
when w e t o o k a
t o recess
W
e were Giscussing topic eleven
recesse
Inter FederalReserve B a n k Transactions.
lle T h e devising o f a method t o avoid
resent frequent holding o p e n o f books i n
connection w i t h i n t e r - b a n k r e d i s c o u n t
operations.
12,
< A better m e t h o d o f p r e p a y m e n t
b y Federal
Reserve Banks o f paper under rediscount b y
other F e d e r a l R e s e r v e B a n k s .
GI
Governor “ancher,
F o r the sake o f making progress.
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Federal Reserve Bank of St. Louis
while I hesitate somewhat t o offer a motion, lest
we appear a little b i t t o o stringent i n our require~
ments, I-dé steel that there arewome practices now
prevailing that ought t o be corrected, a n d I will
offer t h e following resolution.
That i t is the sense o f the meeting:
le T h a t rediscounts m a d e b y one Federal
‘Reserve B a n k f o r a n o t h e r F e d e r a l R e s e r v e
Bank b e made a s o f the d a y when the request i s made, except o n Friday when t h e
réserve p o s i t i o n
o f each b a n k i s made
public,
That e a c h F e d e r a l R e s e r v e B a n k r e d i s c o u n t -
ing with another Federal Reserve Bank prepare a n d forward promptly t h e schedule o f
paper i t has been rediscounting.
That requests f o r anticipation o f paper
under rediscount b e combined i n one
wire e a c h d a y a n d that such transactions
be effected upon the day o f the receipt
of the request,
i f received before t h e
Close o f business;
lowing day.
i f not upon t h e fol.
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Federal Reserve Bank of St. Louis
201
(After discussion, t h i s motion having b e e n duly
seconddd, was carried, )
Governor V a n Zandt.
I n that connection I
would
like t o offer a resolution t h a t this resolution b e
Promptly transmitted t o the Federal Reserve Board,
with r e q u e s t t h a t t h e s u b s t a n c e t h e r e o f b e t a k e n i n t o
consideration i n the instructions t o b e issued covering
the matter,guch instructions a s the Board may see fit
to issue,
(The motion being duly seconded was carried, )
Governor Calkins,
T h e resolution offered b y
Governor Fancher coyers number 18,
The Chairman, Y o s s
The next igs under the heading
General.
13.
h e advisability o f meeting criticism
of the “ederal Reserve System and the
method (if any) t o be pursued,
Without o b j e c t i o n t h i s t o p i c w i l l b e
passed.
The n e x t i s f o r t e e n ,
14, Advisability o f Placing club Qualifica-~
tions o f Federal Reserve Banks o n quarterly
basis.
In t h e a b s e n c e
o f Mr. C a s e d o e s a n y o n e d e s i r e
to
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Federal Reserve Bank of St. Louis
discuss t h i s ?
Governor C a l kins.
I
t seems t o m e t h a t i s a
matter t h a t w o u l d h a v e t o b e d e c i d e d b y e a c h bank.
The Shairman. T h e n you suggest that i t be
passed, leaving i t t o the discretion e f each bank?
Governor Calkins. Yes.
The Chaimman.
I f there is no objection that
action will b e taken.
The next 4 s fifteen,
15. P o l i c y o f furnishing a n d suggesting
pe)
Pedercl Reserve System advertisements t o
member banks.
The man i n our bank w h o has charge o f this w o r k
wanted i t discussed, I
presume some o f the banks,
particularly Cleveland, are doing a good deal o f it,
end i n order t o present the matter here I
you a memorandum which I have,
W
will read
e d o furnish certain
advertising matter t o o u r member a n d non-member banks,
and these reasons are advanced b y Mr. Harris, w h o
hag
harge o f t h a t matter,
Reasons f o r furnishing t o member banks sugsestions
for use i n advertising membership i n
System a n d f o r ¢oOperation between Federal Reserve Banks
i n this work:
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Federal Reserve Bank of St. Louis
le T h e r e i s a n i n w i r y f r o m m e m b e r b a n k s f o r
sugcestions o f advertising material t h a t c a n b e
used i n giving publicity t o their membership.
ee M e m b e r banks n o w make improper references t o
their membership, largely because their efforts
are unguided.
Se M a n y banks a r e accustomed t o the use o f
prepared advertising matter, a m d are unable t o
prepare their o w n advertisements satisfactorily.
A, T h e r e i s a valuable advantage f o r member banka
in building business b y giving proper publicity
to their connection w i t h t h e system.
5. A
gtate member b a n k will b e more firmly at-
tached t o the system i f i t has advertised i t s membersnip.
Gs B e t t e r education o f public o n Federal R e s e r e
matters w i l l result f r o m proper publicity which
member banks will usually b e glad t o public and
to circulate
i f w e will furnish it,
73 C o o p e r a t i o n between Federal Reserve Banks
will
save t i m e a n d e x p e n s e
i n preparation
material a n d publicity.
o f advertising
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Federal Reserve Bank of St. Louis
A little booklet wae gotten o u t but the statements
were entirely t o o broad a n d were misleading a n d w e have
encouraged t h e bank t o discontinue t h e use o f many o f
the cuts,
Governor Calkins’. I
would like t o give t h e exe
perience w e had quite reacntly, A
member b a n k i n a
country t o w n published a n advertisement o f the most
extravagant kind.
T h e attention o f our Federal Re~
Serve Agent was called t o it by some oné else and he
wrote quite a severe letter t o the President o f the
offending bank, w h o pranptly came back and said that
this w a s a n advertisement furnished b y vou, w o r d f o r
word,"@nd upon investigation i t appears t h a t that was a
fact.
I t was f r o m o n e o f those pamphlets prepared
under the direction of the “ederal Reserve Bank of New
York,
M r , Perrin and the rest o f us have looked over
a few o f them, w e took i t for granted that they had been
carefully e d i t e d i n N e w York, a n d w e s e n t t h e m out.
The advertisement w a s something t o the effect that there
were t w o b i l l i o n f i v e h u n d r e d m i l l i o n d o l l a r s
i n Govern-
ment money behind this bank, o r words t o that effect,
Governor F a n c h e r ,
W
e found t h a t i t was n o t t h e
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Federal Reserve Bank of St. Louis
right sort o f publicity and for that reason w e em~
ployed a
bank publicity m a n w h o writes these a d -
vertisements a n d w h o goes o v e r t h e m very carefully.
We h a v e t h e m p r e p a r e d a n d t h e b a n k s can. take t h e m i f
they want them.
The Chairman. I
would like t o s a y that s u c h
material a s w e have furnished has b e e n very ‘carefully
supervised a n d w e have b e e n particular t o see that
there were n o promises made which were n o t consistent.
Our e f f o r t s a l o n g t h a t l i n e h a v e a p p a r e n t l y b e e n ap-~
breciated because w e have received a
good many letters
from banks t o that effect, a n d the reason f o r sugs
gesting t h i s t o p i c i s t h a t o u r Mr. H a r r i s ,
w h o has h a d
charge o f this particular work, tho:ght i t might b e
well t o have a set o f advertising material, a s
he ex~
pressed i t , p r e p a r e d u n d e r t h e s u p e r v i s i o n
o f a com-
mittee o n publicity canposed o f men f r o m
the interested
banks, men who were familiar with banking
advertising
amd w e are willing a t amr time t o
furnish t h e banks
with copies o f the material t h a t w e
send out.
T h e
question i s whether w e want t o take
any action o n this
tmportant matter, because i f we are
going t o furnish
material w e should furnish the
right sort o f material,
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Federal Reserve Bank of St. Louis
Governor Calkins.
I t occurs to me it would be
desirable f o r u s t o furnish advertising material,
provided
i t i s t h e p r o p e r k i n d o f material,
and I
feel
that i f we decide t o go that far that we must necessarily g o a little further and prevent improper ad-«
vertising o n the part o f member banks.
some examples o f that,
W e have had
F o r instance o n e state member
bank ran a display advertisement-~~I donft remember just
exactly the wording o f it---but i t was t o this effect---+
"Hold your wheat, the United States Treasury is behind
this bank andthere are unlimited funds available
t o en«
able the farmer to hold his wheat."
I f we are going tc
furnish advertising matter w e have also got t o
exercige
some kind o f control over the advertising which a
member
bank puts out,
I t i s not proper t o permit o n e member
bank, w h i c h a p p a r e n t l y h a g officers
without a n y re-}
sponsibility,
t o rin that sort o f stuff t o the detri~
ment o f another bank across t h e street,
which has consclentious a n d regpectable officers,
I n going into
this w e are Going n o t only t o
considerable expense, b u t
I think w e must exercise some
disciplinary authority,
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Federal Reserve Bank of St. Louis
207
I stated i n the case o f the bank I referred t o that I
thought i t s membership should b e cancelled a t once.
W e have n o t h a d a n y trouble d f
Governor Norris.
that kinds
Governor Morsse
W e have n o t h a d much.
O n c e
or twice w e have s a i d t o certain banks t h a t w e d i d not
like their advertisements.
T h a t happened gpite lately
during t h e troubles w e h a d i n Boston.
T h e banks d o
not often s a y much except that t h e y are members o f the
Federal Reserve System.
Governor Calkins.
W e have n o t had many cases,
but the cases w e have h a d have b e e n extreme cases.
Tie Chairman. I
might say that we have only made
suggestions where inquiry has been made and where w e h a
geen indications t h a t the banks were n o t advertising i r
& proper way.
Does this conference w a n t t o take a n y action o n
this subject,
I t is not necessary, b u t I think every
bank s h o u l d b e careful,
a n d that bankgthat a r e putting
out advertising matter should b e sure that i t i g well
within bounds.
Governor Calkins,
I t would b e highly desirable
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Federal Reserve Bank of St. Louis
We could act uniformly i n the matter o f advertising
matter.
G o v e r n o r Fancher h a s stated t h a t h e hag h a d
prepared advertising matter which i s beyond criticism
and I believe i t would b e a good thing i f we could all
have t h e benefit o f his fdeas.
Governor Fancher. i
might s a y that i n Cleveland,
be c o n d u c t i n g o u r r a t h e r a c t i v e c a m p a i g n f o r s t a t e b a k
members w e employed various methods a n d w e believed t h a t
if w e c o u l d s e t u p a
follow-up s y s t e m o f putting o u t a
little pamphlet o r letter o r samething o f that sort
that i t would prove effective.
W e therefore p u t o n
our b a yrood the president o f one o f our leading bank
advertising concerns, at a nominal campensation, and
tried i t out for six months, h e agreeing t o get o t a
lotter each month, dressing i t u p i n different
ways,
building u p the advisability o f membership,
a n d w e found
that method very effective.
W
e found that using the
follow-up system was effective i n bringing the
banks in,
and those t h a t came i n were k e e n t o
take u p something i n
the way of publicity,
i e found that was very well
received, a n d the matter was v e r y
carefully prepared,
The Chairman,
A s I understand it, gentlemen,
after
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Federal Reserve Bank of St. Louis
209
this discussion, t o p i c number fifteen will b e passed
Without action.
I f there i s n o objection that will
be done.
There a r e t w o matters r e m a i n i n g f o r consideration,
One i s topic thirteen, suggested b y Governor Seay, a n d
the other i s that Mr. Gilbert h a s sent word over that
he will b e available a n y time after t w o forty-five t h i s
afternoon f o r the purpose o f discussing with u s t h e
matter o f war savings organizations. i
would suggest
that Mx. Gilbert b e requested t o came o v e r a t once,
and i n the meanwhile w e will proceed with topic No. 1s.
Governor Seay. I
think developments have been
such since that time that w e need n o t take u p that dis-~
cussion here.
The Chairman.
T h e n your suggestion i s that t h e
matter b e p a s s e d w i t h o u t a c t i o n ?
Governor Seay. 2 e S 8 %
The Chairman. ‘That completes:the regular program
with the exception o f the fifth question submitted b y
the Board o n yesterday, which i s
56 S h o u l d there b e a theoretical limit o n issue
of Federal R e s e r v e n o t e g t o member b a n k s ?
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Federal Reserve Bank of St. Louis
210
Governor Seaye I
move that the answer t o that
question b e nos.
(The motion having been duly seconded was carried,)
Choivman.
A r e there a n y other subjects con-
which any Governor would like t o speak? :
Governor Young,
section 1 1
M r . Chairman, there i s a part o f
t h e Federal Reserve Act which expires b y
limitation D e c e m b e r Slst, 1920. S u b - s e c t i o n M of
section 1 1 is a s follows:
"Upon the affirmative vote o f not less than five o f
its members,
t h e Federal Reserve B o a r d shall have p o w e r
topermit Federal Reservet3anks o
t discount for any
member bank notes, drafts, o r bills o f exchange bearing
the signature o r indorsement o f any one borrower i n
excess o f the amount permitted b y section 9
and section
15 o f this Act, b u t i n n o case t o exceed twenty p e r
centum o f the member bank's capital a n d surplus: provided
however, that all such notes, drafts, o r bills o f exchang. Ji,scounted f o r a n y member b a n k i n excess o f the
amount permitted under such sections shall b e secured
by n o t l e s s t h a n a
like f a c e a m o u n t o f bonds
o r notes
of the United States issued since April 24, L917, o r
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Federal Reserve Bank of St. Louis
ail
et
certificates
o f indebtedness
o f t h e United States;
pro~
vided further, t h a t t h e provisions o f this sub-section
(if) shall not be operative after December 3lst, 1920."
Whether w e w a n t t o l e t t h a t e x p i r e
b y limitation
or whether w e want t o suggest t o the Board that the
law b e amended f o r the purpose o f extending that i s the
question. I would like t o raise.
The Chairman,
A s I understand it, a member bank
can lend a n y amount o n Government bonds provided t h e y
have a gufficient margin o f collateral.
Governor Young, S e c t i o n 5200 also expires b y
limitation o n December 31, 1920, but that can be re-
newed b y an affirmative vote o f the Secretary of the
Treasury a n d the Comptroller o f the Currency,
Governor VanZandt. I
do not think Section 5200
expires o n December 3lst, b u t Section 8202,
The Chairman.
A s I understand i t we will b e
advised officially i n due time t o get out our circu-~
lar letter?
Governor Fancher, I
The Chairman,
understand so, Mr. Chairman.
T h e n t h a t c o n c l u d e s o u r séssion.
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Federal Reserve Bank of St. Louis
Governor Van Zandt. I
move a vote o f thanks t o
Governor McDougal, Chairman of this Conference.
(The motion was unanimously carried.)
Governor VanZaydt. I
would like also t o offer a
vote o f congratulations t o the new Secretary o f the
Board, Mr, Hoxton.
(Thig motion being duly seconded, was unanimously
carried, )
The Chairman,
T f that i s all gentlemen this Con-
ference will adjourn.
(Whereupon a t 4
o'clock P . M . t h e C o n f e r e n c e
of
Federal R e s e r v e G o v e r n o r s a d j o u r n e d s i n e d i e , t h e member
of the Conference going into joint conference with the
Federal R e s e r v e B o a r d a n d t h e C h a i r m e n a n d F e d e r a l Re-~
serve A g e n t s
a t 4.350 o ' c l o c k B.eM. o f t h e s a m e d a y . )
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis