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FIFTH C O N F E R E N C E
OF
!
G
O
V
E
R
N
O
R
S O F FEDERAL RESERVE BANKS
Fae
,t
h
w
—
i
M
I
N
N
E
A
P
O
L
I
S
, MINNESOTA
HOTEL RADISSON
Wednesday, October 20, 1915
Thursday, October 21, 1915
Friday, October 22, 1915
Saturday, October 23, 1915
WALTER
SHORTHAND
:
S. COX
REPORTER
C O L U M B I A N BUILDING—TEL. M. 8324
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Federal Reserve Bank of St. Louis
WASHINGTON,
D . C.
INDEX T O PROCEEDINGS
OF
FIFTH CONFERENCE O F GOVERNORS O F FEDERAL RESERVE BANKS.
Representation
o f Banks
a t Conference
Authority vested i n Chairman t o conduct
Preceedings.
Minutes
o f Foubth Conference
o f Governors
Unfinished business
(a) Directors! profits i n dealing with
member banks.
(b) Appointment o f representatives t o examine F e d e r a l r e s e r v e n o t e s s e n t t o
Washington f o r destruction,
2
0
(c) W e e k l y reports o f reserves b y member
banks
2
5 — 600
BiR-monthly statements f r o m member
banks showing required reserve after
second reser¥e payment h a s b e e n
maAd®.
2
7 - — 600
(e) D i g e s t o f action o f Governors!
Conferences,
5
Report o f a c t i o n o f Federal R e s e r v e B o a r d
cn recommendations o f l a s t conference.
Reperts o f Executive Committeoc.
Roport o f committee
t o confer w i t h Federal
Réserve Board a n d Treasury Department o n
Federal r e s e r v e b a n k s a s f i s c a l a g e n t s
of the United States.
Report o f c o m m i t t e e
dividends,
Collections
o n method o f c o m p u t i n g
a n d clearances.
Gold Settlement Fund -
Daily Settlements.
Functions t o b e e x e r c i s e d
member banks.
i n behalf
of
(a) Collecting of notes and crafts
(c) C o l l e c t i o n o f items drawn o n banks
not members o f t h e F e d e r a l R o s e r v e
System.
Execution e f orders f o r s e c u r i t i e s
Answering inquiries a s t o credits
Purchase
e f commercial p a p e r
lo. Information given t o member banks
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Federal Reserve Bank of St. Louis
9
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Federal Reserve Bank of St. Louis
Amendments f o Federal Reserve Act.
(a) I m m e d i a t e transfer o f reserves
2
9
3
0
2
5
(b) Reduction o f country bank reserves carried w i t h F e d e r a l r e s e r v e b a n k s
3
6
Transfer o f subtreasury functions
4
4
9
0
(d) Elimination of designation of capital
for foreign branches o f national
banks
3
4
7 370—
(e) Direct authorization of demestic
branches f o r national banks
(f) C o n s o l i d a t i o n o f Comptroller's
functitns
3
K
s 56
7
5
3 0 2
(g) Issuance o f reserve notes against gold
(h) “Reversing the pump" ({L) Domestic acceptances.
(m) L o a n s o n real estate
(o) S a v i n g s b a n k membership
Cost
3
BOS
3 —-430
2
3
0
2
6
9
9
o f Federal Reserve Netes
4
9
Cest e f returning F. R. notes t s bank o f
issue.
7
9 — 620
Should Federal reserve banks pay express
Chargesn
o currency f o r reserve payments
due o n and after Nov. 16th?
Policy o f reserve banks i n receiving national
bank notes,
Retirement o f n a t i o n a l b a n k n o t e s a n d p u r chases o f G o v e r n m e n t Bonds.
Committee to audit Gold Settlement Fund
Advisability o f assessment o n member banks
to c o v e r c a p i t a l s t o c k impairment,
i f shown
by any of the Federal reserve banks a t the
1
close o f operations f o r t h e current y e a r
Reserves
1
o f m e m b e r banks, ;
L
a
Standard f o r m o f trade acceptance
Commodity rates.
D
0
2 - 352
4
Adding commissions t o cost o f investments
3
7
4
) ake
a
N mS O
A
Advisability o f Limited o p e n m r k e t
transactions
2
6
Statements o f private bankers w h o accept...
bills o f exchange.
2
0
Invitations
9
1 220-
t o Federal R e s e r v e B o a r d a n d
Hon. Carter Glass.
i
s
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Federal Reserve Bank of St. Louis
Mailing o f circulars b y Federal Reserve Beard
Method adapted b y Federal Reserve Board i n
communicating with Federal Reserve Banks
Draft o f circular relating t o applications t e
sell U. S. bonds.
Compensation t o b e c h a r g e d b y b a n k m a k i n g
purchases f o r o t h e r b a n k s
Telegraphic transfers
Establishmentof S e u t h American agencies
Report e f Transit Managers Conference
FIFTH C O N F E R E N C E
O F GOVERNORS
OF
FEDERAL RESERVE BANKS
Hotel Radisson,
Minneapolis, Minnesota,
October 20, 1915.
The Fifth Conference o f Governors o f the Federal R e serve Banks w a s called t o order b y Governor Benjamin
Strong, Jr., Chairman,
a t the Hotel Radisson, Minneapolis,
a m. o n Wednesday, October
Minnesota, a t 10:30 o ' c l o c k .
20, 1915,
Present:
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Federal Reserve Bank of St. Louis
Governor Benjamin Strong, Jr., o f the Federal Reserve
Bank o f New York,
Governor A , L. Aiken, o f the Federal Reserve B a n k o f
Boston,
Governor C. J. Rhoads, o f the Federal Reserve Bank
of Philadelphia,
Governor J . B. McDougal,
o f the Federal Reserve B a n k
of Chicago,
Governor A. C . Kains, o f the Federal Reserve B a n k o f
San Francisco,
Governor Geoe J . Seay, o f the Federal Reserve B a n k o f
Richmond,
Governor E , R . Fancher,
OL Cleveleant.
o f the Federal Reserve B a n k
2
Governor Theo. Wold, o f the Federal Reserve B a n k o f
Minneapolis,
Governor R . L. V a n Zandt, o f the Federal Reserve B a n k
of Dallas,
Governor C . M . Sawyer,
o f the Federal Reserve B a n k o f
Kansas City,
Deputy Governor W. W. Hoxton,
o f the Federal Reserve
Bank o f St. Louis,
F. W. Foote, representing t h e Federal Reserve
Bank o f Atlanta,
C. R. McKay, o f the Federal Reserve B a n k o f
Chicago,
Mr. L . H. Hendricks, Assistant Cashier, Federal R e serve B a n k o f New York,
J. F. Curtis, Counsel f o r the Federal Reserve
Bank o f New York, a n d Secretary o f the Conference
o f Governors.
PROCEEDINGS.
he..Chairman: G e n t l e m e n , i f you will come t o order,
we w i l l o p e n t h e F i f t h C o n f e r e n c e f
o Governors
o f the
Federal Reserve Banks,
REPRESENTATION O F BANKS A T CONFRENCES LIMITED.
We have b e e n advised that Governor Wells, o f St. Louis,
will b e unable t o b e present a n d that another officer o f
the bank, Mr. William W. Hoxton, w i l l attend t h e meeting
and r e p r e s c n t t h e P e d e r a l R e s e r v e B a n k o f St. Louis.
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Federal Reserve Bank of St. Louis
3
Whenever a
necessity o f this k i n d has arisen i n the
b y unanimous consent, arranged t o
past w e have generally,
have t h e officer named attend t h e meeting a n d vote i n
behalf o f t h e absent Governor.
W h a t i s your pleasure i n
regard t o Mr+ Hoxten?
move. that Mr. Hoxton b e permitted
Governor Aiken: I
to a t t e n d t h e meeting,
a s t h e representative
o f t h e Federal
Reserve B a n k o f St- Leuis, a n d that h e b e allowed t o vote
for that bank.
Governor Fancher: I
The Chairman:
will s e c o n d t h a t motion.
M a y I suggest t h a t t h e motion b e
changed so the record will show that Mr- Hoxton is to represent t h e Governor o f the bank?
Governor Aiken:
The Chairman:
Yes.
I s there a n y debate o n this motion?
(There was n o debate and the motion, being duly
seconded, was unanimously carried, )
The Chairman:
W e also received advice l a t e last week
that Governor McCord,
o f the Federal Reserve B a n k o f Atlanta.
weuld b e unable t o attend t h e mecting, a n d that t h e bank
had arranged t o have Mr. F . wi. Foote, o n e o f the directors
of the bank, attend t h e meeting i n behalf o f Governor M c Cord.
T h i s a d v i c e w a s received indirectly through
‘Governor McDougal,
matter, a
o f Chicago, and, after considering t h e
tehegram was sent f r o m N e w York, o v e r m y signa-
ture, stating, briefly, that a s we had n o precedent for a n
arrangement o f that character, a n d Mr» Foote w a s not a n
active officer o f t h e bank, I
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Federal Reserve Bank of St. Louis
did not feel like assuring
4
Governor McCord that t h e arrangement would b e satisfactory
to t h e Conference,
the C o n f e r e n c e
o e
a t Least n o t without t h e approval
o f t h a t arrangement,
of
a n d suggested t h a t t h e y
a c t i v e officer o f the bank t o represent Governor
McCerd.
I n explanation o f the situation I have this let-
ter from Governor McCord that I would like t o read into
the record:
"I received yeur telegram today saying that you have
been advised b y Governor N a b e d e d t h a t Mr. F . % s Foote
will r e p r e s e n t t h i s B a n k a t M i n n e a p o l i s a n d n o t i f y i n g
me t h a t h e r e t o f o r e
w e have n o t permitted anyone e x c e p t
executive officers cof Federal Reserve Banks t o attend t h e
conferences o f Govcornors. I
replied that i t was absolute-
ly impossible f o r m e t o attend t h e meeting a t Minneapolis,
and I have stated this i n several commnications, feeling
that m y services w e r e needed here while this important matter o f moving t h e cotton crop was o n hand, a l s o the services o f our Cashier, Mr. Pike, a r e needed hero.
"I submitted your telegram urging m e to attend the
conference t o our Board o f Directors
14th,
o n Thursday, t h e
o n which d a y they were i n session here, a n d a s Mr.
Foote h a d been designated a s the o n e o f o u r Directors t e
act a s Deputy Governor during m y absence, a n d was still
under t h a t appointment,
t h e B o r r d o f Directors
b y unani-
mous vote designated Mr. Foote, w h e h a d been previcusly
named a s A c t i n g D e p u t y Governor,
at t h e c o n f e r e n c e
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Federal Reserve Bank of St. Louis
t o represent t h i s B a n k
a t Minneapolis,
"I therefore wired Governor McDougal t o make reserva-
tions f o r Mr- Foote.
M r . Giles Wilson, w h o was elected
Deputy Governor o f this B a n k when i t was first organized,
resigned h i s p o s i t i o n b e c a u s e
cer i n one o f t h e Class A
o f h i s b e i n g a n active o f f i -
banks, a n d n o t being elected a s
in
a Director,
h e felt t h a t h e c o u l d n o t a c t a s Governor
my absence.
T h i s resignation t o o k place last April a n c
since t h a t t i m e w e h a v e h a d n o D e p u t y Governor,
t h e Direc-
tors deciding t o fill that position i n m y absence b y naming from time t o time o n e o f their number t o act a s Deputy
Governor, from the Class A directors.
T h i s i n my opinion
clear right a n d title t o represent t h i s
gives iirs Foote a
Bank a t the conference o f Governors a n d I trust that y o u
will s o r e g a r d i t o n d w i l l r e c e i v e h i m a s o u r r e p r e s e n t a tive.
Yours v e r y truly,
(Signed) J o s . A. McCord,
Governor."
It certainly . ould have b e e n a n assumption o f authority that would have b e e n unwarranted,for
e indicated what appeared
W
yes o r n o t o this suggestion.
m e t o have s a i d
to b e a safe course t o Governor McCord t o assure h i s
being r e p r e s e n t e d
a t this mecting,
and u n d o u b t e d l y e x p e c t s
b u t tir. F o e t e i s h e r e
t o a t t e n d t h e meeting.
All o f t h e moinbers o f t h e e x e c u t i v e c o m m i t t e e h a p p e n e d
te b e o n the train last night,
a meeting o f the committee,
the result t h a t a
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Federal Reserve Bank of St. Louis
W
s o Governor McDougal called
e discussed this matter wtih
resolution w a s passed recommending what
6
the meeting should do. I
will a s k Governor McDougal t o
report t h e a c t i o n o f t h e E x e c u t i v e C o m m i t t e e a n d s u b m i t
it
for action b y this meeting.
Governor McDougal:
T h i s resolution i s a s follows:
"Mecting o f Executive Committee, October 19, 1915.
“Hresent: M r . MeDeugal, C..airman, Messrs. Aiken,
Strong, Rhoad:s, Fancher and Seay.
"Various telegrams were presented between Messrs,
MeCord, McDougal a n d Strong, w i t h reference t o the attendance a t the coming Conference o f a delegate f r o m the Federal
Reserve Bank o f Atlanta i n place o f Mr. McCord.
A f t e r con-
Siderable d i s c u s s i o n t h e f o l l o w i n g p r e a m b l e a n d r e s o l u t i o n
was unanimously adopted:
“Whereas t h e Conference o f Governors o f the Federal
Reserve B a n k s
is a
wholly v o l u n t a r y a s s o c i a t i o n ,
n o t pro-
vided f o r b y t h e F e d e r a l R e s e r v e A c t , a n d
"Whereas a t past meetings o f the Conference certain
executive officers o f Reserve Banks have b e e n invited t o
attend t h e meeting i n the absence o f t h e Governors o f such
banks, a n d
"Whereas i n the opinion o f this committee i t would
be inadvisable a s a
m t t e r o f principle t o have anybody
other t h a n t h e a c t i v e a n d s a l a r i e d e x e c u t i v e o f f i c e r s
the banks attend s u c h cenférences,
of
i n view o f t h e fact that
such o t h e r p e r s o n s m i g h t h a v e i n t e r e s t s n o t w h o l l y c o n f i n e d
to o r identical w i t h such Reserve Banks, b e i t
WRGSOLVED:
T h a t this Committee recommend t o the Con-
ference t h e adoption o f a resolution limiting t h e attend-
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Federal Reserve Bank of St. Louis
f2
ance t o the active a n d salaried executive officers o f the
Reserve B a n k s
t o b e selected w h e n necessary
b y such Gover-
nors a s cannot attend i n person,and b e i t
"PURTHLR RLSOLVLD: ‘That in view of the fact that Mr.
F, W. Foote, &
the Federal Reserve B a n k o f Atlanta, h a s
come t o Minneapolis f o r the purpose o f attending this Conference,
h e b e invited t o attend t h e Conference,
a s a mat-
ter of courtesy t o Mr- McCord.”
The Chairman:
T h a t resolution was unanimously adopt—
ed a t the meeting o f the committee.
T h e resolution V K unanimously
Governor McDougal:
adopted a n d t h i s r e c o m m e n d a t i o n
i s n o w offered
t o this c o n -
ference f o r action.
The Chairman: G e n t l e m e n , w h a t i s your pleasure i n
regard t o this report f r o m the Executive Committee?
not this a
i s
matter about which some v i e w ougnt t o b e expres-—
sed f o r o u r r e c o r d a s t e t h e p o l i c y t o g o v e r n t h e f u t u r e
meetings,
a n d should i t n o t b e expressed
as s u b m i t t e d
b y resolution s u c h
b y the Lxecutive Committee?
a m thoroughly i n sympathy with the
Governor Wold: I
ideas o f t h e E x e c u t i v e C o m m i t t e e u p o n t h a t question. I
mave that this resolution,
Committee,
a s adopted b y the Executive
b e adopted b y this Conference. I
will c o v e r t h e m t t e r
think that
a s y o u w o u l d l i k e t o h a v e i t covered.
Governar McDougal:
T h e resolution recommends t h e
adoption o f a resolution limiting t h e attendance, a n d s e
ferth.
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Federal Reserve Bank of St. Louis
Governor Wold: I
have suggested t h a t t h e report o f
8
the Executive Committee b e accepted a n d incorporated a s a
part o f t h e minutes
The Chairman:
o f this Conference,
G o v e r n o r Wold's motion, a s I under-
stand it, contemplates t h a t this report b e received a n d
adopted a s the action o f this meeting, a n d that the resolution therein outlined b e now voted upon.
I s m y understand-
ing correct?
Governor Wold:
i t is.
Governor Fancher:
The Chairman:
T h e n I will second t h e motion.
I s there a n y further discussion o f the
motion?
(After some little informal discussion t h e motion was
duly put and carried.)
(Mr. F. Ww. Foote, representing the Federal Reserve
Bank o f Atlanta, thereupon entered t h e Conference r o o m . )
The Chairman:
Possibly I
should explain t o Mr. Foote
what h a s transpired u p t o this time.
Mr. F o o t e ,
w e heretofore h a v e h a d occasion a t times
make a r r a n g e m e n t s w i t h officers
to
o f Reserve B a n k s w h o have
attended a n d r e p r e s e n t e d G o v e r n o r s
o f those banks,
as to
their attendance, a n d this has .enerally been done b y the
unanimous consent o f those attending t h e meeting.
T h e
alternate named b y the Governor o f the Bank o f St» Louis,
Mr. Hoxton,
i s accepted here t o represent Governor Wells,
of St+ Louis.
W e have, b y unanimous consent, arranged that
he should attend t h e meeting.
in r e g a r d t o a
Committee,
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Federal Reserve Bank of St. Louis
W e have j u s t taken action
report w h i c h w a s s u b m i t t e d
i n regard t o y o u r attendance,
b y t h e Sxecutive
that I
woulda l i k e
10 empleo,
I f T may.
These meetings have been, a s y o u know, voluntary a n d
informal meoctings o f the executive officers o f the Federal
Reserve. Banks; t h a t is, t h e Governors o f the Federal Reserve
Banks.
W h e n t h e quegtion o f your attending t h e meeting
was first brought t o ous attention w e did n o t k n o w what t o
do about it.
The q u e s t i o n h a @ n e v e r s e e n r a i s e d a s t o w h e t h e r a
director w h o was n o t a n active executive officer o f one o f
the Federal Reserve Banks, should attend t h e meeting.
A t
a meeting o f the Executive Committee l a s t night w e @iscussed t h e m t t e r
a t length,
a n d t h e v i e w was unanimously e x -
pressed that i t might cause embarrassment t o enter a n arrangement b y which o n e o f the Governors would n a m e some
representative
w h o was not
a n active executive
officer
o f
a F e d e r a l * Reserve Bank, o n e reason being that t h e m e t i n g
is v e r y largely givén u p t o a discussion o f matters o f
bank management, where directors might h a v e interests t h a t
would n o t b e q u i t e i n h a r m o n y w i t h t h o s e o f t h e F e d e r a l
Reserve Banks. A
resolution was passed u p o n that point
and h a s j u s t b e e n adopted.
w
e were about t o act u p o n a
resolution inviting y o u t o attend t h e meeting. I
wikl
ask t h a t t h a t r e s o l u t i o n b e n o w p l a c e d b e f o r e t h e C o n f e r -
ence a n d put t o a vote, s o that y o u will have t h e welcome
to a t t e n d o u r meeting. I
think Governor Kains m a d e t h e
motion a n d i t w a s seconded.
Governor Kains:
M y motion was that Governor Wold's
motion o r resolution b e accepted w i t h t h e exception o f the
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Federal Reserve Bank of St. Louis
10
separate v o t e b e t a k e n u p o n
last p a r a g r a p h a n d t h a t a
the last paragraph which contained a n invitation t o Mr.
Foote t e attend this meeting a s a representative o f
Governor McCord,
Governor Aiken: 1
was the second to that motien.
I f there i s n o further discussion w e
The Chairman:
will n o w act upon it.
(The motion was carried.)
G o v e r n o r McDougal:
The Chairman:
W i l l y o u b e good
enough t o road t h e resolution a s adopted b y the Executive
Cemmittee l a s t night.
(Governor McDougal thereupen read t h e minutes o f the
mecting o f the Executive Committee o f October 19, 1915,
above referred to.)
Mr. Foote: G e n t l e m e n , I
appreciate t h e invitation
t@ b e with you, especially t h e unanimous consent I
ehtained ;
but I
have
wish t o assure e a c h a n d a l l o f y o u t h a t I
did n o t o r d o n o t w a n t t o embarrass t h i s m e e t i n g
i n any
way.
The Chairman:
W e assure you, Mr- Foote, t h a t y o u
will not.
Mr- Foote:
I
f i t i s desirable,
o r i f y o u feel t h a t
the best interests o f this work demand that I excuse myself,
it will b e m y pleasure t o d o so. I
advantage
do not want t o take
o f your kindness a n d courtesy f r o m the f a c t t h a t
I a m a stranger i n a strange land. I
myself o f those assets, I
d o not want t o avail
assure y e u i t is a pleasure
for m e t o b e with you, b u t I do not want t o d o anything
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Federal Reserve Bank of St. Louis
that will b e i n the least inconsistent.
The Chairman:
L e t m e say, Mr. Foote, t h a t these pro-
ceedings a r e based upon a program which h a s been practically continueus since December l1Oth o f last year, w h e n w e
held our first meeting.
W
e realize probably more than
yéu c a n the importance o f having those w h o attend t h e
meetings i n teuch with everything that h a s gone before;
That i s o n e v e r y i m p o r t a n t o b j e c t
t o serve i n connection
with our proccedings, t h a t is, t o have those w h o are attend-—
ing thoroughly familiar w i t h all t h e provious discussion,
tremendous a m o u n t o f t i m e a n d prevents t h e
It s a v e s a
threshing o u t o f old straw.
If you will b e good enough b e stay with u s I feel’
very sure that y o u will enjoy t h e mecting a n d profit b y i t
as that has been t h e experience o f all e f u s w h o have a t tended them.
Mr-e Foote: I
thank y o u very much, Mr. Chairman. I
want t e get m y status exactly.
I f i t i s the proper thing
fer m e t e simply b e a listmer I want t e b e only a. listner.
If I have the privilege o f taking part i n the discussen
I wavld like t o know that, i n order that I “may s o indulge.
However, I
unless I
d o not want t o attempt a n y o f those privileges
a m e n t i t l e d t o them.
The Chairman: I
understand t h a t t h e action taken
“by t h e E x e c u t i v e C o m m i t t e e
o r b y this m e e t i n g i m p o s e s
limitation a t a l l u p o n y o u r attendance.
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Federal Reserve Bank of St. Louis
no
INVITATION E X T E N D E D T 0 F E D P R A L R E S E R V E B O A R D T O
SEND A C O M M I T T E R T O A T T E N D T H I S MEETING:
The @hairman: I
would l i k e t o a n n o u n c e f o r t h e p u r -
pose o f t h e r e c o r d that, c a r r y i n g o u t t h e i n s t r u c t i o n s g i v e n
at the last meeting held i n Chicego,
a n invitation w a s sent
to the Federal Reserve Board t o send a committee t o attend
this meeting.
V e are advised that a
committee consisting
of Messrs. Warburg a n d Harding will b e here t o attend o u r
session o n Friday.
T h e y w i l l n o t attend t h e meeting before
that.
INVITATIQ) EXTENDED T O CONGRESSMAN GLASS
TO ATTEND CONFERENCE.
I also w a n t t o announce t h a t s o m e w e e k s a g o t h e F e d e r a l
Reserve B o a r d r e q u e s t e d t h e E x e c u t i v e C o m m i t t e e
t o meet i n
Washington a t a time when they expected Congressman Glass
to b e there t o discuss certain features o f the operation
of the reserve banks.
A l l but o n e member o f the Executive
Committee attended that meeting.
desirable,
A t the time i t seemed
i n view o f some statements m a d e b y Congressman
Glass, that we should endeavor t o persuade him to attend
a portion o f this s e s s i o n i n o r d e r t h a t w e m i g h t
some o f these matters w i t h h i m personally. I
g o over
sent h i m a n
invitation t o attend a n d received a letter f r o m h i m about
a week a g o expressing very keen regret that h e could not
do so; that h e was n o t very well, a n d that, i n addition t o
that, h i s s o n w a s a b o u t t o b e married.
AUTHORITY V E S T E D I N T H E C H A I R T O C O N D U C T PROCEEDINGS.
The Chairman: I
is o u r custom, a
wish, n o w , g e n t l e m e n ,
few o f the very simple rules governing
discussion s t this meeting.
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Federal Reserve Bank of St. Louis
t o review,
Y o u have b e e n good enough
13
to give t h e Chairman a
certain amount o f authority t o s o
direct t h e viscussion o f the program that time i s not watted
in repetition, a n d s o that t h e stenographers a r e able t o
get a clear a n d consequtive record o f the discussion.
It i s customary,
a s y o u recall,
t o take u p the items
of the program a t the discretion o f the Chair, unless h e i s
etherwise directed b y motion, a n d i n each instance t h e discussion i s p r e c i p i t a g ” d
e
t b y the submission o f a motion
made a t a s early a stage o f the discussion a s possible,
and it is generally suggested b y the Chairman when the discussion h a s p r o c e e d e d f a r e n o u g h t o i n d i c a t e t h e p o s s i b i l i t y
of a motion prevailing.
Y o u will also recall that our in-
formal a r r a n g e m e n t permits t h e Chair t o offer motions
himself, a n d I would like t o continue t h e exercise o f that
privilege.
Mr. Curtis a l s o calls attention t o a rather important
matter, a n d that i s that i n each instance where a
topic i s
Suggested b y one o f the members i n attendance, t h e discus-—
Sion i s always opened b y the Governor w h e has suggested
that topic.
In regard t o ‘the present program,
e f which y o u all have
cepies, there a r e about seven o f the headings w h i c h have
been marked a s reserved f o r discussion until Friday, a n d
that is. because o f a request made b y the committee o f the
Ponce”
R e s e r v e Board t o b e i n attendance t o hold those
items f o r discussion w h e n they are i n attendance o n Frida y ,
as they are principally interested i n those matters.
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Federal Reserve Bank of St. Louis
Governor Wold:
D o y o u refer t o the first seven items,
Mr- Chairman?
The Chairman:
N o .
p
i
l dk 3 |
you c a n c n e c k t h e m o n y o u r programs.
them o f f s o t h a t
W
G Ware e a b e mo Fc,
Be p e s foes w e
Pies ol mes binges
Givergence
o f views
up for discussion;
i s w e a l l realize, h a v e d e v e l o p e d a
on a
great m a n y s u b j e c t s t h a t h a v e c o m e
b u t , w i t h three o r four, o r possibly
five exceptions, w h e n action has been taken i n this meeting i n r e g a r d
lution,
t o some matter that required a
i t has almost without exception
vote
reso—
o r a
been taken unan-
jmously, a n d w e have trained ourselves t o accept t h e judgment o f the majority o f those i n attendance,
I
that progress m a y b e m d e a l o n g uniform lines 1
n order
hope that
that spirit will continue t o direct t h e preceedings.
MINUTLS O F THE FOURTH CONPIRENCL O F GOVLiNORS,
The Chairman:
G e n t l e m e n , w h a t i s your pleasure
regard t o t h e minutes
o f the Fourth Conference
They h a v e a l l b e e n f u r n i s h e d
in
o f Governors.
t o t h e twelve Governors
b y the
Secretary a n d w e h a v e b e e n i n t h e h a b i t o f a p p r o v i n g t h e m
without having t h e m read a t the subsequent meetings.
Governor V a n Zandt: I
move t h a t t h e y b e a p p r o v e d
without b e i n g read.
Governor Faneher: I
The Chairman:
I
will second that motion,
s there a n y further discussion
of
the motion?
(There w a s n o f u r t h e r d i s c u s s i o n a n d t h e m o t i o n w a s
duly carried.)
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Federal Reserve Bank of St. Louis
UNFINISHED
(Item a . D i r e c t o r s ’
vrofits
i n cCealing w i t h m e m b e r
banks. }
The Chairman:
u n f i n i s h e d business f r o m the last
meeting, u n d e r T o p i c N o , 2 , I t e m (a), w a s p u t o n t h e p r o g r a m
some months a g o a t the request,
a s 1 recall,
o f a director
of one o f the reserve banks, a n d just before coming west 1
was asked b y a director i n our bank t o suggest t o this meeting that i t might b e well t o have s o m e discussion i n regard t o the effect o f t h e Clayton Act, w h i c h also has some
bearing o n this m t t e r . I
would like t o a s k i f that ques-
tion has arksen i n any o f the reserve banks,
o r wnether t h e
Clayton l a w has. been held t o disqualify a n y directors o f
ederal R e s e r v e Banks, o r has operated otherwise t o the
disadvantage o f the reserve bank, a n d whether this meeting
cares t o make a n y recommendation a s t o that matter o r a s t o
the provisions o f the Federal Reserve A c t i n regard t o the
profits
o f member banks
o f directors
i n dealing w i t h their
own institutions.
Governor ‘old;
I t doesn't seem possible that any
action w e s h o u l d t a k e w o u l d h a v e a n y e f f e c t
o n t h e law.
It i s a matter that, i t seems t o m , m i s t necessarily b e
worked o u t o f itself.
A n y action w e take would have n o
effect.
The Chairman:
I t i s perhaps a
matter o f more pressing
importance t o us than t o the other reserve banks, because
two o f o u r d i r e c t o r s w h o a r e s t r i c t c o n s t r u c t i o n i s t s ,
inclined t o b e l i e v e t h a t t h e y a r e d i s c u a l i f i e
are
r o m being
directors after this month.
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Federal Reserve Bank of St. Louis
Mr. Curtig: T h e y will b e disqualified two years after
the C l a y t o n A s t w e n t i n t o e f f e c
from next.December,
T h a t would b e a
year
J.
Governor M c e D o u : 5t
h
a
v
e
some correspondence h e r e
5
between Mr. Forgan a n d the board, a n d also t h e opinion o f
an attorney, a l l o f which i s directed a t this qmestion,
or
ene phase o f it, a t least, a n d I will b e very glad t o read
this correspondence i f y o u s o desire.
The Chairman:
A r e t h e l e t t e r s v e r y long, G o v e r n o r
McDougal?
Governor \ W Q
The Chairman:
N
o
, Mr. Chairman.
S u p p o s e y o u read them.
Governor McDeugal:
T h i s i s a letter addressed t o
Governor © . S. Hamlin, dated [ctober 5 .
"Will you kindly inform me if the Federal Heserve
1
Board has
made any ruling, o f if i t has obtained the opin-
ion o f its counsel i n regard t o the interpretation o f
paragraph 136 of the Federal Reserve Act,---"
I will eliminate part. o f it:
"The case I have i n mind i s that o f two bank officers
here w h o h a v e b e e n f o r t h e p a s t t w o y e a r s
o n a
creditors!
committee managing t h e affairs o f a large corporation.
The committee h a s done splendid work, having reorganized
the business o f the e
sound f i n a n c i a l b a s i s
and n o w has a
credit.
I
e
a n d re-established i t o n a
s o that i t has paid a l l o f its debts
large working capital a n d enjeys excellent
t happens t h a t t h e b a n k s
o f which these t i c
gentlemen a r e officers w e r e interested a s creditors o f t h u
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Federal Reserve Bank of St. Louis
ps
company a n d i t was t o protect t h e intercsts o f their banks
as well a s t h e interests o f many other banks a n d general
creditors that they were selected t o act o n the ercditors'
committee.
members
I
t h a s alavays b e e n t h e p r a c t i c e
t o compensate
o f s u c h committees f o r t h e i r services a n d t h e c o m -
pany n o w p r o p o s e s
t o romunerate t h e members
o f the Commit-
tee."
Tnere i s m o r e t o t h e letter, b u t . t h a t
That l e t t e r w a s r e p l i e d
i s t h e question.
t o a s follows:
“My Gear Mr. Forgan:
"Your letter o f October 5th, addressed t o Governor
Hamlin, h a s b e e n duly considered, a n d I have b e e n instructed t o r e p l y t h a t t h e B o a r d h a s h e r e t o f o r e c o n s i s t e n t l y
adhered t o the policy adopted b y i t i n advising a l l those
submitting i n q u i r i e s t h a t i t i s n o t w i t h i n i t s p r o v i n c e
to make a n y ruling o n concrete cases.
would n o t a f f o r d a n y p r o t e c t i o n
S u c h a ruling
t o a’party subsequently
indicted b y a Grand Jury."
That L e t t e r i s s i g n e d b y H . P a r k e r Willis.
a little m o r e t o it, b u t t h a t I
There is
will n o t read,
hen the question i s considered b y LL. &. Brown, Attorney for the First National Bank, a n d his letter, eliminating the first paragraph,
i s a s follows:
"In m y opinion this section o f the Federal Reserve
Act does n o t prohibit t h e acceptance o f compensation i n
such a case a s that stated i n your letter.
j n e work pcor-
formed b y the creditors! committee w a s n o t ‘ i n connectiol:
With a n y t r o n s a c t i o n
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Federal Reserve Bank of St. Louis
o r business
o f t h e bank!
Within tho
meaning o f t h e law.
T h e section
i n question i s penal
and t h e g e n e r a l r u l e o f l a w i s t h a t p e n a l s t a t u t e s a r e t o
not
be construed: strictly and, es kenned b y implication.
construing a
criminal s t a t u t e t h e c o u r t s w i l l t a k e i n t o
consideration t h e e v i l s w h i c h i t w a s d e s i g n e d
That i s Mr- Brown's opinion.
that charge.
A n d in
M r e Willis says,
that t h e y will not rule o n it.
t o remedy."
H e says t h e y c a n make
o n behalf o f the Board,
B u t i n another paragraph
Mr. Willis! letter h e does say:
"The provisions o f Section 2 2 of the Act were analyzed
in an opinion which was published i n the May Federal
Reserve Bulletin, p a g e 16, c o p y o f which i s herewith e n -
closed."
That bulletin I have here, b u t I d o not think y o u
would c a r e t o have i t read,
The Chairman:
S o far a s the subject t h a t i s dealt
with there i s concerned,
i t does n o t s e e m t o m e there i s
anything t h a t c a n b e d o n e a t t h i s m e e t i n g u n l e s s
taken u p u n d e r a n o t h e r s e c t i o n o f o u r program,
i t is
i n which
section w e consider making recommendations a s t o amendments o f the Federal Reserve Act. I
suppose i t would b e
proper f o r u s t o consider - - i f this meeting cares t o d o
so--- whether Paragraph 1 3 5 o f theAct should b e made more
clear
i n its application
t o t h e dealings
o f directors
of
Federal Reserve Banks w i t h other banks.
Governor McDougal:
M
y object i n reading this a t
this moment w a s t o let y o u understand t h a t t h e Doawd c e clined t o make a n y ruling i n specific cases.
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Federal Reserve Bank of St. Louis
19
The Chairman: W h e a t i s your pleasure i n regard t o
these t w o i t e m s ?
Governor Seay:
W h a t d i d y o u have i n mind, Governor
Strong, w i t h reference t o the discualification o f directors?
The Chairman:
w
e have b e e n wondering
i n New York
whether t h e Clayton Act might n o t b e cleared u p b y a simple
amendment t o the effect t h a t t h o restrictions o f the A c t
djd n o t a p p l y
t o directors
Governor Seay:
Reserve Banks,
T h a t i s the point.
aS n e c e s S a r y f r o m a
The Chairman:
o f Federal
D o y o u regard
legal p o i n t o f v i e w ?
Well,
i t i s important,
i n that t h e Act
Strictly construed, w o u l d d i s q u a l i f y e v e r y d i r e c t o r s h i p
reserve b a n k s a n d s o m e o f t h e m o s t i m p o r t a n t b a n k s
in
i n our
Various d i s t r i c t s ,
Governor Seay:
Class A
T h e Federal Reserve A c t Says t h a t
man m a y b e the representative o f a bank,
The Chairman:
B u t suppose h e i s also a director i n
a State institution located i n the s a m e town?
T h e Clay-
ton Act i s directed against that.
Mr- Yurtis:
T h e Clayton A c t was passed after t h e
Federal Reserve A c t Waspassea.
I f there i s a n y inconsis-
tency t h e C l a y t o n A c t w o u l d control.
Governor Seay:
T h a t i s t h e point I
Governor Fancher:
amended
was trying t o
T h e Clayton A c t would h e v e t o b e
i n o r d e r t o c l e a r u p t h a t DOInD,
The Chairman:
T h e question Governor S e a y raiszs i s
whether t h e Clayton Act, w h i c h was designed
t o limi
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Federal Reserve Bank of St. Louis
20
activity o f a director i n a national bank, would indirect-
ly apply t e a director i n a Federal Reserve Bank,
Governor Seay:
T h e r e exists n o doubt that a director
may b e a director i n a national. bank a n d o f a Federal
Reserve Bank.
The Chairman:
T h e r e i s n o doubt o n that point what-
ever.
“hat i s your pleasure w i t h regard t o these items? W i l l
you d o something t i t h them, o r will y o u decide t o eliminate
them f r o m t h e program?
T n e y have b e e n o n the program f o r
three meetings,
Governor Seay: I
move that they b e extended t o Sec-
tion 1 1 “Amendments t o the Federal Reserve Act."
The Chairman:
I
s there a
Governor Sawyer: I
The Chairman:
second
t o that motion?
will second t h e motion.
I s there a n y further discussion?
Governor Seay:
I t cannot b e left i n the state o f
uncertainty i n which i t n o w exists.
The Chairman:
i
t o u g h t n o t t o b e 16ft.
(The motion was carried.)
The Chairman: S u b j e c t (b), Governor Aiken, was suggested b y you prior t o our last meeting.
N o action hav-
ing been taken o n it, i t was carried forward t o this meeting.
(b) APSLOINTMENT O F iEPRLSEINTATIVES T O EXAMINE
FLOLRAL RESERVE NOTLS S E N T T O UASHINGTON i°OR
DLSTRUCTION,
Governor Aiken:
program 1
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Federal Reserve Bank of St. Louis
S i n c e that subject w a s p u t o n the
have h e a r d s e m a n y expressions
o f opinion a s t o
el
the r e s p o n s i b i l i t y
o f the government
i n the matter o f notes
being e q u a l t o o u r s a n d i t b e i n g h a r d l y n e c e s s a r y t o h a v e
an additional c h e c k i n the matter o f the destruction o f
notes, I
a m content
The Chairman:
t o h a v e t h a t withdrawn.
Y o u move the withdrawal o f that
ject, Governor Aiken?
Governor Aiken: I
s o move,
Governor V a n Zandt: I
Governor Wold:
W
second t h a t motion.
e are a l l agreed a s t o when o u r
Liability does ceases? T h a t i & ceases w h e n w e have depositgold with t h e Federal Reserve Agent t o retire t h e
notes?
T h e y are not destroying o r cancelling t h e notes
now i n accordance w i t h the A c t which, a s 1 read it, r e quires t h e Treasury Department, w h e n redeeming t h e notes o f
any Federal Reserve B a n k t o send t h e m back t o the bank
through w h i c h t h e y a r e i s s u e d f o r payment;
t h a t bank t o
cancel them, t u r n them over t o the Federal Reserve Agent,
who sends t h e m back t o Washington.
T h e y a r e redeeming
those notes i n Washington a n d cestroying them.
T n e y are
not coming b a c k t o the bank which put t h e m into circulation.
We have n o knowledge a s t o what denominations a r e destroyed
or redeemed a t Washington.
Mr- Curtis:
G o v e r n o r Wold, there i s a distinction
between destroying a n d redeeming.
Governor Wold:
T h e Act says t h e y should b e sent t o
the b a n k putting t h e m into circulation.
that;
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Federal Reserve Bank of St. Louis
T h e y . are not doing
t h e y a r e d e s t r o y i n g them.
Governor S e a y :
A n d determining t h e question o f fit-
themselves,
Governor Vold:
Y e s -
W w e have n o c o n t r o l e v e r i t ; w e
have n o accounting f r o m them a s t o the number o r | enomination o f t h e n o t e s they a r e d e s t r o y i n g
Bececenee,
v
o r that have b e e n
e d o n o t k n o w what denominations
are outstanding.
I
o r numbers
n view o f the fact t h a t w e are obliged
to r e a e e m t h e m w h e n e v e r p r e s e n t e d ,
e v e n though w e have
deposited with the Federal teserve Agent the gold for their
retirement,
i t seems
t o m e that w e have s o m e interest
in
that question.
The Chairman:
s n t e r t a i n t h e view, Governor Uold,
that i t would b e a
mistake
t o withcraw this t o p i c f r o m dis-
cussion without deciding finally whether o r not w e are t o
have a
representative
t o audit
t h e destruction
o f Federal
Reserve n o t e s ?
Governor 0 1 d :
v i e ought t o know definitely whether
our l i a b i l i t y f o r th@we n o t e s c e a s e s w h e n w e h a v e c e p o s i t e d
with the Federal Reserve Agent the funds t o retire them.
The Chairman:
I s not the l a w specific o n thet?
< I
says that w e m a y reduce c u r liability b y depositing t h e gold
with the Federal t e s e r v e Agent.
Governor Wold:
I t also says that w e are obliged t o
redeem them i n gold o r lawful money whenever presented — redeem o u r O w n notes o r t h e n o t e s
o f any other Federal
Reserve B a n k when presented, regardless o f whether y o u have
deposited t h e meney with the Federal Reserve Agent t o
retire t h e m o r not,
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Federal Reserve Bank of St. Louis
Mr. Curtis:
O
i
f course t h e statute s a y s “r
educe vour
ipa e t y "
I
t dees not say."aipe 4 t out",
N o ;
Governor Wold:
i t says"reduce it”.
I t seems
to m e t h a t t h e r e d e m p t i o n a n d ¢ e s t r u c t i o n o f t h e s e F e d e r a l
Reserve notes ought t o b e transacted i n such a way that
a t all times just h o w they stand
the banks would k n o
and w h a t t h e i r l i a b i l i t y i s .
(At this point Deputy Governor W. W. Hoxton, o f the
Federal Reserve Bank of St. Louis, entered the conference
room )
will repeat what I have already said,
The Chairman: I
put. i t need not b e put into t h e record,
(The Chairman thereupon explained t o Mr. Hoxton t h e
proceedings u p t o the time o f his arrival, w h i c h explana-
tion G e stenographer was directed not t o report.)
The Chairman:
W e were i n the micst o f a discussion
of item (b) under Topic 2 . G o v e r n o r Wold, y o u h a d the
FLoor.
Governor Wold: I
think I have relieved m y mind o f
most o f t h e m a t e r i a l t h a t w a s infit i n reference
ject. I
t o that sub-
d o think i t i s o f importance.
Governor Seay: I
agree with Governor Wold. i
awio
we cannot wholly trust t o the arbitrary action o f the
Department
i n Washington
i n assuming t h e raponsibility
without advising the Federal eserve Banks of what has
been done,
t o s a y t h e least.
i
f w e are n o t t o have a
repre
sentative present a t the destruction o f these notes, i n a s m c
as t h e r e s e r v e b a n k s a r e r e q u i r e d
ever p r e s e n t e d - - -
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Federal Reserve Bank of St. Louis
t o r e d e e m t h e n o t e s when-~
a n d even i f the l a w d i d not require
i+
24
it would result a s a matter o f practice--- t h e n the reserve
banks s h o u l d a t l e a s t b e a d v i s e d
is s o e v e n i f w e d o n o t h a v e a
o f w h a t i s done; a n d t h a t
r e p r e s e n t a t i v e t h e r e t o wit-
ness t h e destruction o f the notes.
The Chairman:
T h i s question has never been submitted
to t h e F e d e r a l S e s e r v e B o a r d f o r a
ruling,
o r with a
request
for a n opinion o f the counsel o f the B a r d , because this
Conference h a s n e v e r t a k e n a c t i o n o n this topic.
It occurs
t o m e that i f a
r e s o l u t i o n s h o u l d b e passed,
in place o f the one offered b y Governor siken--- i f he cares
to withdraw his--- directing o u r counsel t o submit this
question t o the Board i n washington f o r a ruling o r for a n
opinion b y their counsel, w e would have the basis upon
which t o m a k e a
final d i s c u s s i o n o f t h e m a t t e r a t o u r n e x t
meeting.
Governor Aiken: 1
will withdraw m y motion and submit
-another one based o n the statement o f the case just made
by the Chairman.
The Chairman: G o v e r n o r Fancher, you seconded that mo-
tion.
I s that procedure agreeable to you?
Governor B a n c h e r :
The Chairman:
Y e s ;
that
i s agreeable
t o me,
D o e s that meet with your views,
Governor + old?
Governor old: i n t i r e l y so, Mr. Chairman.
The Chairman:
ES t h e r e a . Second
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Federal Reserve Bank of St. Louis
T h e n that course will b e pursued.
t o thet m o t i o n ?
(The motion was duly seconded and carried.)
The Chairman:
G o v e r n o r Seay, y o u suggested i t e m
25
(¢) of topic 2 some months ago; anda + fing that Governor
Van Z o n d e A a s a l s o S u g g e s t e d i t .
W i l l
y o u open the dis-
cussion, G o v e r n o r S e a y ?
(c) W B K L Y REPORTS O F RESLRVES B Y thiiBuR BANKS,
Governor Seay:
T h i s item, gentlemen, y o u will recog-
its
nize a s a "carry-over",
I t i s o n e that w a s threshea o u t
at that time a n d desided against a
believe t h e m t t e r
weekly report.
B u t I
i s o n e o f importance a n d t h a t i t will b e
of i n c r e a s i n g i m p o r t a n c e
a s w e undertake
t o develop t h e
collection system; a n d , i n a s m u c h a s w e h a v e
t h e collection
system subject o n the program for discussion, I
would sug-
gest that w e pass item (c) b y until w e have reached some
conclusion a s t o the development a n d extension o f the collection system.
T h e first i t e m i s s o intimtely bound u p
with the last that I suggest i t be passed until w e have dis<
cussed t h e collection system.
The Chairman? W h a t i s your view o f the matter, Governor V a n zandt?
Governor Van Zandt:
M y suggestion was not m d e i n
connection w i t h the collection system a t all.
about
b y reason o f the fact t h a t I
have n o t i c e a w i t h m y o w n
member b a n k s t h a t i m m e d i a t e l y a f t e r a
statement w a s c a l l e d
for their balances b e g a n t o decrease w i t h us»
for t h e m o r a l e f f e c t
i t would h a v e - o n
know t h a t t h e y h a d t o f u r n i s h a
I t was brought
I t was o n l y
t h e member bank,
statement e i t h e r
t o
t o t h e comp-—-
4
troller o r t o the Yeceral Reserve bank o f the amount o f
ana now i t was figured, t h a t I
made t h e suggestion,
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Federal Reserve Bank of St. Louis
T h e y would t h e n keep t h e i r balaaces
26
i t makes little dif-
A t the present time, o f course,
up.
ference t o the Federal Reserve banks whether t h e member
banks. keep u p their reserve o r not.
Y e t t h e time will come
when the question o f whether t h e member banks a r e keeping
up t h e i r r e s e r v e s w i l l b e a
vital o n e t o t h e F e d e r a l R e s e r v e
bank.
The Chairman:
n order t h a t t h e history o f this p a r «
i
ticular Ciscussion should b e fresh i n the minds o f everyone,
I think w e ought t o review what w a s c o n e b y the Federal
Reserve Board o n this subject.
F o l l o w i n g that discussion there
us t o discuss t h e matter.
was s u b m i t t e d
A t one t i m e the Board asked
t o e a c h o f t h e 1 2 banks a
S
suggested f o r m o f
GS
statement t o b e made b y the member banks.
7 e analyzed t h e
I pelieve, w a s t o b e made once a week.
statement
T h a t statement,
i n the N e w York Bank a n d cailed
t h e attention
o f
t o t h e fact t h a t t h e statement
the F e d e r a l t e s e r v e B o a r d
required thirty-five calculations b y the member banks a n d
o f those calculations
then r e q u i r e d t h e t a b u l a t i o n
i n our
bank s i x hundred a n d t e n (610) times, o n e f o r each bank;
and. t h a t t h e a m o u n t
o f labor involved
i n the preparation
Gf T A O S S-ELeU r e a s s e m b l i n g t h e m a n d r e p o r t i n g t h e m t o
was s o extensive,
. Of-83
r
o3ther v>eliminating
et f h
time o r - recductng i t to
r
w e were v e r y Strongly
e statement entirely a t the
y small number o f items.
we mide that report f r o m N e w ‘Yo1 I
the o t h e r b a n k s m a c e a
in
think most o f
somewhat s i m i l e r r e p o r t
t o t h e Fedrr:
+
the results t h a t n o t h i n g h a s b e e n d o n c .
I am uncer tho impression that the Federal Reserve Ocarld i s
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Federal Reserve Bank of St. Louis
27
again considering t h e matter m d that doubtless t h e y will
be very glad t o have a n expression f r o m this meeting a s
to w h a t v i e w s a r e e n t e r t a i n e d
or m o n t h l y r e p o r t s
o n the question o f weekly
o f the reserves
o f m e m b e r b a n k s ; and.
1 hope this meeting will b e willing t o pass a
resolution
on this s u b j e c t a n d s u b m i t i t t o t h e F e d e r a l R e s e r v e B o a r d
at Washington.
Governor Fancher: I
think t h e question bears
o n the
next item, i t e m (a):
(d) B I - M O N T H L Y STAT. MENTS FROM M i MBER BANKS SHOWING
REQUIRED RESERVE aFTLR LLCOND RESERVE PAYMENT
HAS BEEN MADE,
We have b e e n requiring o u r member banks, w h o a r e mem—
bers o f the iniradistrict collection system,
t o report t o
us o n the first o f each month, f r o m their books, their r e serve w h i c h s h o u l d b e m a i n t a i n e d w i t h us.
I
n that w a y w e
can f o l l o w t h r o u g h t h e m o n t h a n d t e l l a p p r o x i m a t e l
y whether
these banks a r e maintaining their r e s e r v e s — ~ whether t h e y
are u n d e r
o r over.
Governor Seay:
the r e s e r v e
D o y o u mean t h e average reserve o r
a t t h e e n d o f the m e n t h ?
Governor Fancher:
T h e y carry t h e tabulation through
each d a y and average i t a t t h e e n d o f the month.
Governor Seay: I
mean does t h e bank report i t s aver-
age for the month?
Governor Fancher:
N o ; just o n that particular date.
We h a v e n o t e d t h a t s o m e o f o u r m e m b e r banks,
n o t members
of the intra-district collection System, a l l o w their reserves
to g o down.
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Federal Reserve Bank of St. Louis
I n the cases o f banks maintaining reserve o f
eight o r ten thousand dollars,
w e sometimes k n o w that t h e
balances a r e d o w n s e v e r a l t h o u s a n d d o l l a r s a n d t h a t t h e y
remain down for some little time,
in c a l l i n g t h e i r a t t e n t i o n
W e hardly feel justified
t o i t because
of t h e a m o u n t t h e y s h o u l d reserve.
I
w e are not sure
t seems t o m e w e a r e
approaching t h e time when w e should h a v e some sort o f report
instead o f :timply being able t o check u p the reserve a t
the time t h e y make their statements t o the Comptroller.
Governor VanZandt: I
weekly statement, a
o p o s e d b y t h e Federal Reserve Board,
for just t h e reasons t
Sitated t h e m k i n g
was v e r y m i c h o p p o s e d t o t h e
h a v e b e e n given + + that i t neces-
u p of a
great m a n y figures.
I
t was n o t
50 much our o w n work that w e were opposed to, b u t i t was
the w o r k p u t u p e n t h e m e m b e r bank.
W
e thought
i t would
antagonize t h e member banks against t h e system. I
think
by simply reporting nothing b u t t h e reserve i t would anaper
all o f t h e a c t u a l n . e d s
o f this m t t e r ;
b u t just t o show
the a v e r a g e r e s e r v e f o r t h e w e e k o r b i - m o n t h l y I
do not
think w o u l d answer.
The C h a i r m a n :
D
e you refer
t e t h e reserve carried
with t h e F e c e r a l R e s e r v e B a n k o r t o a n y o t h e r reserve,
Governor
make
i t cover
V a n Zandt: I
think
i t would
a n v other reserve.
The Chairman:
T
t seems t o m e that o n e calculation
without t h e other would. b e fruitless.
CxXCeSS. 1
I t would carry a n
One... ace, s n d pe. Saortain-anouner,
Govern
go togetner,
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Federal Reserve Bank of St. Louis
b e better -to
V a n AZanat: I
should t h i n k i t s h o u l d a l l
29
Governor Fancher: I
think when this matter was u p
for discussion with the Federal Reserve Board the banks were
know
asked t o make some suggestions a s t o the report. I
our particular b a n k went i n a suggested d o w m a n d I think
it o n l y i n v o l v e d r e p o r t i n g
The Chairman:
o n 7 items, a
v e r y S i m p l e report.
W e boiled i t down t o five,
i n New
York.
Governor Fancher:
W e boiled i t down t o seven and
sent i n a suggested f o r m for a weekly report.
I t was
quite simple a n d required v e r y little w o r k t o furnish t h e
figures e a c h week.
Governor Wold:
O u t s i d e o f the statistical value these
reports would have, I
d o not think w e would consider t h e m
of any consequence i n the operation o f o u r bank here.
The
suggestion m e t with a great deal o f disfavor o n the part o f
our member banks, w h o a r e asked t o make s o many reports a n d
asked t o g i v e s o m u c h information.
Comptroller
T h e y report t o the
o f the Curréncy five times a
year.
I
f we
should then a s k them t o report their reserve weekly,
would discourage state banks f r o m coming in,
it
T h e mainten-
ance o f the reserves might b e accomplished through t h e
Reserve B o a r d e s t a b l i s h i n g a
penalty f o r depletion.
W h e n
the examiner makes h i s examination h e c a n ascertain this
depletion a n d assess t h e m for it.
I f they are fined f o r
net maintaining their reserve, t h e n they will maintain it.
Governor Seay:
T h a t subject comes u p under Topic 19,
item (b), “Penalty for impairment o f balances."
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Federal Reserve Bank of St. Louis
The Chairman:
J t Gia Reece ver
30
a m satisficd that t h e problem i s
Governtr Seay: I
a little € i f f e r e n t
i n t h e d i f f e r e n t districts. I
a m also
quite sure that m a n y o f the member banks l o o k upon their
reserve w i t h t h e F e d e r a l R e s e r v e B a n k a s a n o r d i n a r y b a n k
balance e n d use it. accordingly.
T h a t would b e the case
particularly w h e n they begin t o check o n it.
Governor Wold:
W e have had no difficulty i n that line
at all with out member banks.
M o s t o f them maintain their
reserves fully, a n d there i s some excess,
Governor Seay:
Y o u r banks have b e e n affhent.
They
W i t h u s they
have n o t h a d o c c a s i o n t o u s e t h e i r reserves.
have n o t o n l y borrowed against t h e m once, b u t two, three,
four a n d five times.
I f , i n addition t o that, t h e y g o
question which
ahead a n d exhaust them, t h e n i t becomes a
ought t o b e looked into a n d governed b e c a u s e f
o the principle a t stake.
T h e y should n o t b e allowed t o feel a t liberty
to violate their reserve a n y more t h a n t h e y would i f i t was
cash i n their o w n v a u l t s - - - a n d t h e r e s e r v e i s s u p p o s e d t o
be a part o f their c a s h i n vault, transferred t o our keeping.
Governor Wold:
not g u o t e
I f that condition arises why d o you
t h e l a w t o them?
Governor Seay:
I t does n o t have a n y more effect t h a n
pouring water o n the proverbial duck's back.
write a
T h e y will
letter t o the Reserve Bank, couched i n very polite
language, Saying " W e h a d very heavy demands o n u s o n the
date w e w e r e c o m p e l l e d
t o c h e c k o n you.
W
to maintain o u r balance intact hereafter.”
light i n which they view it, a n d until a
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Federal Reserve Bank of St. Louis
e hope t o b e able
T h a t i s the
penalty i s imposec
31
I d o n o t believe t h e reserves w i l l e v e r b e m i n t a i n e d . I
believe .1° am-22 accordance w i t h your v i e w that there
should » e s o m e penalty.
the A d v i s a r y Couacli;
T h a t question was taken u p b y
t h e y formilated a
tion, W h i c h t h e y p r e s e n t e d
t o t h e Board,
very s t r o n g r e s o l u t o t h e effect
that the baiances o f the member banks i n the Federal Reserve
Banks were i n the Federal Reserve Yanks f o r the purpose o f
acting a s a basis o f credit;
be a l l o w e d
t h a t t h e banks Ought n o t t o
t o violate them, a n d t h a t a
penalty s u f f i c i e n t
to discourage t h e p r a c t i c e o u g h t t o b e imposed.
Governor Sawyer:
Governor Seay:
W h a t h a d the Board t o s a y about i t ?
T h e matter has been taken u p with
them o n more t h a n one occasion,
b y correspondence, a n d they
have deferred action o n it. I
think they realize t h a t
it i s a little delicate a n d difficult t o handle»
tion o f the Federal Reserve Banks,
i n arbitrarily charging
to t h e i r a c c o u n t t h e c h e c k s r e e s i v e d , 1
possible,
T h e ac-
think makes i t i m -
i n a good m a n y cases, f o r t h e member banks t o main-
tain their reserves b y the Federal Reserve Bank's books,
although t h e y c o u l d i n m a n y c a s e s b y t h e i r o w n books;
and
their r e s e r v e s a r e n o t o n l y e x h a u s t e d w i t h u s b u t t h e i r
accounts a r e v e r y l a r g e l y overdrawn.
T h e question i s
intimately c o n n e c t e d w i t h t h e q u e s t i o n o f c o l l e c t i o n s - - -
Governor McDougal: ( I n t e r p o s i n g ) P a r d o n me, Governor
Seay, b u t I do n o t believe a n y penalty should b e put upon
the t e m p o r a r y u s e
o f t n e reserve.
I
f that should
b e done.
of course t h e r e s e r v e s w o u l d b e o f n o u s e t o t h e banks.
The b a n k s a l w a y s h a v e u s e d thasec. r e s e r v e s u n d e r unusua’
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Federal Reserve Bank of St. Louis
32
conditions, a n d t h e y always will,
we a r e r e c e i v i n g f i v e r e p o r t s a
tion o f the reserves o n thos e
A t the present time
year, g i v i n g u s t h e c o n d i -
particular dates, a n d w e are
also getting sworn statements w i t h respect t o the status
of the reserves f o r the preceding thirty days.
I t seems
to m e that rabher t h a n impose a n y further work upon the
banks a t present, w e had better t r y t o get along f o r a year
or S O - ~ o r f o r a few months a n y h o w - — and see i f w e cannot
get a
pretty g o o d l i n e o n t h e q u e s t i o n o f w h e t h e r
o r not
they are maintaining their reserves f r o m what information
we have available. I
believe o u r banks will maintain
their reserves pretty well, a n d i f w e keep o u r information
before us, o n d check them u p occasionally, I
believe w e
can g e t a l o n g w i t h o u t m o r e f r e q u e n t r e p o r t s .
Governor Kains: I
with r e f e r e n c e
a m i n accord w i t h Governor McDougal
t o t h e collection system,
but I
think w e c a n
get along f o r a year o r so, until w e s e e what c a n b e done
in that connection.
Governor Aiken:
O u r banks i n New England h a v e been
long o n money a n d their reserves have b e e n well maintained,
I a m very sure that they are conscientious i n the mtter,
with perhaps a
very f e w rare exceptions. I
a m also very
sure that o u r banks i n New England w o u l d account i t a great
hardship t o b e called upon t o make u p these reports e v e r y
week.
O n e o f the most serious objections t h a t I meet i n
our district i s the objection t o the constant calls f o r information
a n d reports
under which they labor
a t the present
time, a n d 1 think that t h e y would b e very mich aggrieved
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Federal Reserve Bank of St. Louis
if w e i m p o s e u p o n t h e m a
The Chairman:
,
weekly r e p o r t o f reserves.
T h i s discussion brings o u t differcnt
a n d befs
ore a s k i n g
w
=)
for a
motion
e
I
want
i
t o r e avd a
memo-
randum w h i c h w a s j u s t h a n d e d t o m e b y Governor V a n Z a n d t
that i s almost exactly what i s suggested b y our bank i n
New York,
as I
recall.
I
t asks t h a t m e m b e r banks c e r t i f y
the average reserve f o r a week, ending o n a given date, a s
shown b y the books o f the bank,
bank vault, e x t e n d i n g
i n three items,
i n the
i n one columm t h e amount required a n d
in another column t h e amount carried, a n d the s a m e t w o
items,
t h e a m o u n t o f ceposits w i t h t h e F e d e r a l R e s e r v e B a n k
required a n d carried, and, third, t h e amount o f deposit
with Reserve Agents required a n d carricd, giving t h e total
with a
certificate
b y t h s c a s h i e r t h a t i t i s correct.
That i s a b o u t o u r v i c w o f w h a t s h o u l d b e r e q u i r e d w h e n
the time comes t o ask the member banks t o give u s a regular
reserve statement, a n d 1
do not think w e have e v e r felt,
in New York, t h a t i t would b e necessary f o r t h e present t o
have those statements f i l e d w i t h u s once a week,
I
t might
be GeSirable t o have them, Say, Once a month.
Governor Seay; I
think y o u a r e t h e senior
i n initiat-—
ing this topic, a n d m a y m e n o v have t h e matter f o r discussion i n o u e f o r m o f a resolution?
Governor Seay: I
repeat, Mr. Chairman, t h a t this i s
a lecalproblem t o a very large extent. i
have before m e
the statement which was submitted a t the recent meeting o f
transit managers i n Chicago, showing t h e averag
overdrarts d a i l y i n the different districts, a n d the ave:
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Federal Reserve Bank of St. Louis
34
amount o f overdrafts daily.
T h e variation i s very large---
from $7,400 i n the case o f Boston t o %800,000 i n the case
of Kansas City.
I should l i k e t o a s k Governor M c D o u g a l t h i s question:
For the district o f Richmond, where t h e Federal Reserve B a n k
has loaned t o its member banks, a
certain number o f them,
say 200 o f them, t h e entire amount o f its reserves, t h e
reserve deposits a r e about seven a n d one-half millions, a m d
the b a n k has loaned b a c k t o certain o f those banks eight
and one half millions; c a n y o u n o t see that i t i s o f more
importance
i n that district t h a t t h e member banks w h o a r e
doing t h e b o r r o w i n g a n d w h o a r e the offenders, should b e
required
t o maintain t h e i r reserves?
Governor McDougal:
M r . Seay, I believe that the banks
are required t o maintain their reserves. I
think, however,
that t h e p r e s s u r e s h e u l d c o m e f r o m t h e Comptroller,
and he
snould take s u c h steps a s m a y b e necessary t o make t h e m maintain t h e reserves. I
for our o w n
c e .
speak, I
I
admit, m o r e p a r t i c u l a r l y
think that i t would b e a hardship
upon o u r b a n k s n o w t o i n f l i c t t h e w o r k o f p r e p a r i n g w e e k l y
reports o f this kind which, I
believe, a r e unnecessary;
I c a n s e e plainly t h a t t h e conditions p r e v a i l i n g
but
i n the t w o
districts a r e v e r y dissimilar.
Governor Seay: I
will s a y i n further e x p l a n a t i o n o f
that t h e amount o f overdrafts i n our district i s n o t large.
They average from 320,000 a day, i n July, t o (83,000 i n
September.
5 0 that y o u see t h e offense i s not widespread,
and t h e aggregate amount i s not v e r y great; b u t i t i s the
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Federal Reserve Bank of St. Louis
35
principle o f the thing that I
feel that
a m looking at. I
if the banks start w i t h t h e feeling t h a t t h e y c a n draw a d
very
libitum upon this reserve force i t i s inculcating a
pad precedent, a n d that t h e y are acting upon a very b a d
principle.
Governor Wold:
A r e n o t thos e
overdrafts caused b y
checks s e n t t o them, charged totheir accounts?
Governor Seay:
they a r e n o t ;
but
T h e y are i n some cases, a n d i n some
i t i s t h e offenders
reached b y some penalty. I
F o r a 2uKks- 1 0 a v o i d t a t s
w h o ought
t o be
believe i t i s perfectly e a s y
I
t c e r t a i n l y s h o u l d b e easy.
In f l u s h t i m e s l i k e these, t h e y a r e encouraged---— I
Say,
encouraged---— t o check a g a inst their reserves a t their
convenience,
a n d w h e n m o n e y becomes r e a l l y m o r e valuable
to them, a n d tight, why, t h e y will use t h e thing further.
Governor McDougal: I
think t h e y have t h e machinery
there n o w t o compel t h e m t o m a i n t a i n t h e i r r e s e r v e s ,
they w i l l d o i t ; a n d t h e y a l w a y s
Governor Seay: I
if
h a v e h a d it.
should like t e s a y that w e are a
little loath t o leave anything t o the Comptroller's office.
The Chairman:
attention
M a y I interrupt j u s t a
t o o n e thing,
moment t o call
a n d that i s that there i s n o t t h e
slightest difference between the obligation t h a t rests
upon a member bank's maintaining i t s reserves t o d a y a n d what
it was before t h e Federal Reserve A c t was passed,
they k e e p a
part o f t h e i r r e s e r v e s w i t h t h e F e d e r a l R e s e r v e
in their vaults.
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Federal Reserve Bank of St. Louis
N o w
T n e responsibility f o r maintaining that
36
reserve h a s rested, a n d still rests, u p o n the member bank,
with this exception, that the Federal Reserve Act provides
that c e r t a i n p e n a l t i c s
failure
b e imposed u p o n member banks f e r
t o m a i n t a i n t h e i r reserves;
a n d presumably t h e
Federal R e s e r v e B o a r d i s c l o t h e d w i t h a u t h o r i t y t o f i x penalties a n d e n f o r c e t h e m , w h i c h a u t h o r i t y f o r m e r l y r e s t e d e x clusively w i t h t h e C o m p t r o l l e r
o f t h e Currency. {
never been clear i n m y mind that this was a
have
matter w i t h re-
gard t o which the Federal Reserve Banks w e r e expected, under
the terms o f the law, t o initiate a n y procedure.
If w e assume a
large authority o v e r the member banks
in this m a t t e r o f their reserves,
certainly g u i l t y o f a n
e r attempt t o , w e are
invasion o f t h e prerogatives
of
the Federal . R e s e r v e Board, a n d possibly o f the Comptroller.
a
ss
V
I d o not believe w e are y e t i n the position t o take over
the duties o f the Comptroller i n connection w i t h reserve
matters,
Personally, I
would n e t like t o sce t h e reserve banks
assume a n y r e s p o n s i b i l i t y
i n regard
t o the m t t e r
f e r the
present.
If i n a given district, s u c h a s yours, Governor seay,
the extension o f credit b y your bank t o t h e members h a s
assumed s u c h proportions t h a t i t b e c o m e s i m p o r t a n t t h a t w e
know the reserve condition o f these borrowing banks, a s a
matter o f policy y o u have undoubtedly t h e right t o ask f o r
this i n f o r m a t i o n ;
them;
t o g o a n d examine
b u t t o have t h e whole system start out, a s a
6f policy,
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Federal Reserve Bank of St. Louis
y o u have t h e right
miter
t o supervise t h e reserve calculations b y « h e
37
a n d possibly t o b e responsible f o r initia-
membcr banks,
ting a system o f penaltics f o r failure t o maintain reserves,
1 think i s going t o create a
lot o f antagonism among t h e
7600 member banks; w h e r e a s ,
i f you, i n your o w district,
undertook
t o get that information f o r y o u r o w n use a n d i t
were not a
not s u p p o s e
matter o f policy f o r t h e whole system, I
do
i t w o u l d c a u s e a n y harm, f o r y o u a r e g o i n g t o
get t h e - i n f o r m a t i o n f r o m p e o p l e t h a t a r e l e a n i n g o n y o u
now for neccssary accommodation.
W e would b e asking
statoments f r o m 610 banks, possibly a l l o f them maintaining
their reserves without exception,
o r very close t o it,
and not more t h a n t e n o r fifteen o f them borrowing a n y
money from us.
I
t would b e a rather offensive t h i n g t o
require these statements now, I
Governor Wold:
I
t appears
believe.
t o m e that i f w e were s u f -
fering f r o m t h e same difficulty that Governor Seay's b a n k
is w e would have incorporated o n the bank o f the application f o r recdiscount a
statement similar t o this, s o that
you would k n o w what t h e reserve was, a n d without bothering
those banks w h o were n o t borrowing a n d were maintaining
their reserves, y o u would a s k the figures t h a t y o u really
did need. I
do not believe that a bank would, under those
circumstanccs hesitate t o fill o u t this information blank.
Governor Seay W i t h o u t repeating too much, I want
to say that. i x h a u s t i o n o f reserve balances a n d the
overdrefts
p a t i
< 1 the R i c h m o n d District t h a n they are
in Bie O P seven C l h e r districts, s o . that 2 % t e n e r
25
ac@ministrative difficulty that w e are encountering.
There
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Federal Reserve Bank of St. Louis
38
are s i x other banks t h a t have that diffiqilty t o a greater
extent t h a n t h e Richmond Bank, although w e have loaned more
money t o our members.
B u t i t was n o t f r o m that point e f
view that I was introducing t h e subject.
The Chairman:
I
n the other cases t h e y use their
reserve. balances a n d d o not give t h e receiver banks t h e
penefit
o f the interest
o n loans, w h i c h i t i s v e r y n e c e s s a r y
for y o u t o have t h e benefit o f .
Governor Seay:
T h e r e i s this difference, Governor
Strong, between t h e Reserve situation n o w and that which
formerly existed, I
a m not prepared t o s a y that t h e
Reserve Banks should b e t o o active i n their control over
the balances,
b u t t h e required reserves
have b e e n appreciably reduced.
of b o r r o w i n g f r o m a
o f the member banks
T h e n , again, t h e amount
b a n k s i s n o t counted
i n the
liability o f the bank, and its real condition c a n be very
much weaker t h a n i t formerly could under the law.
becomes a
S o it
matter o f greater principle a n d importance n o w
that t h e m e m b e r b a n k s s h o u l d m a i n t a i n t h e i r reserves t h a n
formerly.
Mr. Foote:
W h a t i s t h e record o f the Atlanta Bank?
Governor Seay:
T h e Atlanta Bank, f o r the month o f
July, head overdrafts t o the extent o f ($24,000, and for the
month o f September t o the extent o f $200,000, i n addi tion
to t h e e x h a u s t i o n o f balances,
Mo. Foote:
we s u s v e c t e d «
W
e made i t a
bank,
policy d o w n there, w h e n e v e r
o f going a f t e r t h e m a n d t h e officers
of the b a n k could w r i t e t o them a n d urge their duty upon
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Federal Reserve Bank of St. Louis
og
them.
W
e discussed t h i s matter a
our board,
number
o f times
in
e n d w e never f e l t l i k e w e could throw t h e
checks o u t .
T h e y have shown a
Gisposi tion t o respond.
While w e h a v e b e e n a n n o y e c a n d tantealized a
little a b o u t
1G a r e a t 1 € a l w a y s b e e n a b l e t o c o r r e c t t h o s e i n d i v i d u c l
cases w h e n w e w o u l d t a k e t h e m a t t e r
Governor Seay:
months a g o , a n d I
meeting,
but I
u p w i t h them,
T h i s question was introduced several
should n o t h a v e b r o u g h t
i t u p a t this
remind y o u a g a i n t h a t i t w e s c a r r i e d o v e r ,
The Chairman:
I
t i s o n i n three places,
i n different
forms.
Governor S e a y :
A n d i n a @ifferent f o r m l a t e r o n I
shoulc l i k e t o discuss i t , b u t I
resolutian., I
d o n o t care t o offer a n y
move w e p a s s i t by.
Governor V a n Zandt: I
The Chairman:
sécond. the m o t i o n .
I s there a n y further discussion o n
Governor S e a y ' s m o t i o n ?
T n e r e b e i n g none, I
Will p u t t h e
euestion.
(The motion wes duly cerried.)
The Chairman:
T n i s , then, Gisposes o f items ( c ) a n d
(ad) u n c e r h e a d i n g 2 , a n d t h e m a t t e r w i l l a u t o m a t i c a l l y c o m e
when w e reach i t e m 19,
DIGEST O F ACTION O F GOVSRNORS' CONFERENCES.
The Chairman:
I t e m (e), Digest o f action o f Governors'!
conrerences, w a s suggested a t the last meeting with a
to m a k i n g t h e c o n t e n t s
o f t h e reports
view
o f these meetings,
which e r e n o w getting v e r y voluminous, m o r e evaileble f o r
reference t h a n t h e y a r e i n their p r e s e n t f o r m .
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Federal Reserve Bank of St. Louis
40
On returning t o New York I looked over the ifidex that
has b e e n prepared i n New York and found t h a t i t subs tantially answered t h e purpose.
I t gives a
of the contents c f cach volume. a n d I
very complete analysis
a m not going t o ask
for a n y action o n this subject, b u t take t h o liberty o f
making this suggestion, t h a t
if the minutes a n d the index
which w e have furnished t o each o f the banks, a n d a copy
of t h e p r o g r a m a n d t h e e x t e n d e d r e p o r t o f t h e d i s c u s s i o n
wero bound i n a bound volume,
a S c a n very readily b e done,
as w e have t h e m i n the N e w York bank, I
think i t will prove
very much more valuable a s a reference b o o k than i t i s i n
small cloth binding i s all that w e
its present form. A
have p u t o n then,
T h e y arc a l l o f uniform size now,
and they will bind u p very well. I
valuable record i n that form.
think i t will b e a very
W e will continue t o prepare
the index a s soon a s the text o f the proceedings reaches
US.
should l i k e t o knew, Governor
Governor Aiken: I
Strong, w h o prepares t h a t indox?
The Chairman:
I
t i s prepared
b y Mr. H i g g i n s ,
i n our
effice..
Governor Aiken:
I t has seemed t o m
that i t is a n
extraordinarily good piece o f work a n d w e are under obligations
t e y o u a n d t o h i m for t h e v e r y satisfactory f o r m
in which i t i s gotten up.
The Chairman:
Y o u will find practically everything
in t h e v o l u m e s f r o m t h e index;
a n d rather t h a n t o have t h e
whole record rewritten i n the f o r m o f a careful digest o f
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Federal Reserve Bank of St. Louis
41
the proceedings.
the index.
i t i s aimost a s simple t o make i t u p i n
L y that i s satisfactory,
w e will consider [ t a m
(@) a s having b e e n cisposed of,
oY R E P O R T O f ACTION O F FEDERAL RESERVE BOARD O N
RECOMMENDATIONS O F LAST CONFERLNCE,
The Chairman:
G o v e r n o r Rhoads, y o u suggested Topic
No. 3 , report o f action o f Federal Reserve Board o n recom-—
mendations o f last conference.
Governor Rhoads:
I
t was m y recollection t h a t t h e
Federal R e s e r v e B o a r d l e f t o p e n o n e o r t w o o f o u r recommenda-—
tiens, b u t I think some o f those a r e coming u p o n our program a t this time.
The Chairman: I
think Mr. Curtis h a s t h e record o f
what transpired after t h e last meeting, w h e n everything was
reported t o him, a n d h e will b e able t o m k e a
report o f
:ce
By the way, t h e record o f these meetings should also
contain t h e c o m p l e t e r e p o r t
o f the proceedings t h a t Mr. C u r -
tis always prepares a n d sends t o Washington, a
is furnished t o each o f the Governers .
I
copy o f which
think y o u have
all. r e c e i v e d that regularly after e a c h meeting.
Governor Seay:
The Chairman:
D o y o u send a full copy?
N o ; w e d o not send a full copy.
send s i m p l y a n a b s t r a c t
recommendations
Mr. Curtis:
W e
o f the record containing a l l t h e
a n d s u c h a c t i o n a s h a s b e e n taken.
O n June 2 4 a n d 2 5 I
reported
t o the
Federal Reserve Board t h e various r e s o l u t i o n s a n d votes
taken b y the Fourth Conference, a n d o n July lst I received
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Federal Reserve Bank of St. Louis
42
back quite a
long letter f r o m Mr. Willis stating what action
the Board h a d taken o n the various rocommendations, a n d
copies
o f t h a t c o r r e s p o n d e n c e w e r e s e n t t o e a c h Governor.
I have marked here t h e various recommendations t h a t
Board did not dispose of. T h e first one was Topic 10
(a) o f that Conference.
I t was t h e recommendation that
the B o a r d m a k e a r r a n g e m e n t s
for a
t o discount commercial p a p e r
time l e s s t h a n t h e a c t u a l m a t u r i t y o f t h e p a p e r a t
the a p p r o p r i a t e r a t e f o r t h e l e n g t h o f time f o r w h i c h d i s count i s a g r c c d upon.
The Board states:
"This recommendation, i f adopted, might easily lead
to renewals, o r what, a s a matter o f fact, would b e short
loans o n long paper.
T h e Board prefers t o g e b some exper-
jence w i t h the short rate n o w established before finally
passing u p o n this part o f the recommendation o f the Govern-
ors."
No further word has b e e n received f r o m t h e Board s o
far a s I know, beyond that; s o that h a s been left open.
The Chairman: I
not a
understand, however, t h a t that i s
final ruling b y the Board, a n d unless circumstances
justify o u r bringing that subject u p again f o r discussion,
there w o u l d b e n o p a r t i c u l a r p o i n t
i n renewing t h a t recom-
mendation.
Mr. Curtis:
I t i s a ruling b y the Board that t h e y
will n o t r e n e w i t o n t h e i r p r e s e n t k n o w l e d g e a n d experience.
The next questions l e f t open were topics 4 (b) and
4 (f), which relate’
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Federal Reserve Bank of St. Louis
t o the subject o f the cooperatien b e -
43
tween chief exhminers a n d local examiners, a n d t h e recent
order o f the Comptroller o f the Currency, authorizing t h e
omission o f c e r t a i n i t e m s f r o m reports.
T h e B o a r d reports:
"These matters have been the subject o f conferences
with the Comptroller, a n d i t i s hoped t o reach definite c o n -
clusions i n the near future."
I think y o u a r e a l l familiar w i t h what happened
o n the
first one.
The Chairman:
T h a t matter will also come u p under
item 20.
Mr. Curtis:
O n the question o f change o f form o f
statement, where this Conference recommended that t h e details o f the borrowings
o f the officers a n d directors
shall b e given, etc., I
d o not think a n y action has been
taken b y the Comptroller o n that, s o far a s I know.
The Chairman:
Washington, I
T h e matter w a s verbally discussed
think,
tive Committee.
a t one o f the meetings o f the Execu-
G o v e r n o r McDougal, correct,me,
not right about thié.
in
i f I am
T h e Comptroller's reply was that
he was observing t h e law, a n d that h e d i d n o t feel justified
changin
2 «Se .h
i
a
s
position i n the mtter. I
present w h e n that occurred.
think y o u were
T h e form o f the last statement
gent o u t b y t h e C o m p t r o l l e r o m i t t e d directors!
borrowings
and officers' borrowings, a n d the names o f the reserve
agents o f the member banks.
Governor McDougal: I
but I
think your statement i s correct,
do believe t h a t something should b e done t o accom-—
plish the desired result w i t h respect t e the liability e f
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Federal Reserve Bank of St. Louis
44
the individual directors.
to k n o w w h o t h e directors
i t is v e r y essential, I
e r e a n d f r o m whom they are bor-
rowlng, a n d t h e amounts that e a c h one borrows,
of having a
think,
lump s u m o f $150,000, f o r instance,
Instead
w e should
like t o know whether t h e cashier i s using a n y o f that, o r
the twice president.
Governor Wold:
A r e y o u not able t o get that informa-
tion f r o m t h e c h i e f e x a m i n e r ?
Governor McDougal:
W e d o not g e t that i n th& copies
of the official reports t h a t w e receive.
Governor Wold:
Y o u are able t o get that information
from t h e chief examiner, a r e y o u not?
The Chairman:
N o t automatically.
Governor McDougal:
W a l t a moment.
W w e nave n o t been
able: ta: got-its n o ,
The Chairman:
to o f f e r a
A r e y o u prepared, Governor McDougal,
resolution w h i c h w o u l d
i n a n y w a y revive
o r renew
the r e c o m m e n d a t i o n w h i c h w a s m a d e a t t h e l a s t m e e t i n g o f
Governors?
Governor McDougal: I
that p o r t i o n o f i t d i r e c t e d
would b e very glad t o revive
a t the matter
o f t h e individual
liability o f the directors o f the b a n k under which w e would
have i n c o r p o r a t e d
i n the copies
o f t h e reports
w e receive
not only the total amount o f the borrowings o f t h e directors,
but t h e amount that e a c h director has o n his o w n a c w unt.
The Chairman; G o v e r n o r McDougal, M r - Curtis suggests
that i t would b e appropriate f o r this m e e t i n g t o recite
the correspondence w i t h t h e Federal Reserve Board, a n d in-
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Federal Reserve Bank of St. Louis
45
stead o f renewing the recommendation, make inquiry o f the
Board a s t o whether a n y progress h a s been made i n adjusting this m t t e r w i t h t h o Comptroller,
a s their reply t o our
report o f the last Conference imlicated that t h e matter was
under discussion w i t h the Comptroller b u t h a d not a s yet
been settled; a n d i f w e direct a n inquiry t o the Board
asking i f the matter h a s not b e e n settled o r will n o t b e
settled a t a n early date, i t will have t h e same effect a s
though w e h a d renewed o u r recommendation.
Governor MeDougal:
I f w e could incorporate i n that,
however, a strong emphaSis o n the importance o f No. 1 of
the three items t o which reference w a s made, that is, details
of the borrowlngs o f the officers a n d directors, I
Lt W a s
think
V e well 4 0 06.38,
The Chairman:
w o u l d y o u care t o submit that a s a
motion?
Governor McDougal: I
would like t o submit that a s
a motion i n the form that y o u stated it, i f the Secretary
Can. Pe-Write it, t o unten = would like t o add some reference t o Topic No. 1 , t o emphasize t h e importance o f that
particular feature o f the report, t h a t w e received t h e
details o f the borrowings o f the officers a n d directors.
That i s t h e o n e t h a t I
have b e e n m o s t i n t e r e s t e d i n , a n d
I think i t is the one o f the greatest importance,
The Chairman:
I t is, Governor McRougal.
Y o u r
motion i s t o the effect that, after reciting t h e correspondence w i t h the Federal Reserve Board o n this subject,
this m e e t i n g d i r e c t
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Federal Reserve Bank of St. Louis
a n inquiry t e t h e B o a r d a s t o whether
46
any. progress h a s been mace i n negotiations w i t h the Comp-—
troller, and rem@w its recommendation that it is important i n the interests o f the reserve banks that t h e y should
peinformed as to the liability of directors and officers
to the member banks, a n d that information should b e contained i f possible t o arrange i t with the Comptroller,
in
copies o f the regular reports sent t o the Comptroller which
coues t o Federal Reserve Agents, f o r o u r files.
Governor McDougal:
Governor Rhoddd: I
T h a t will cover it, Mr. Chair-
second the motion.
(The motion was thereupon duly carried.)
The Chairman:
T h e r e a r e some more items i n this c o r -
respondence w h i c h a r e u n f i n i s h e d b u s i n e s s a l s e ,
Mr. Curtis:
I t e m No. 6 (b), was the question o f
the w i s h o f the Governors t o have t h e codification o r di-
gest of informal rulings o f the Federal Reserve Board.pre-
pared. T h e Board said that this would y o n l y be of
advantage a f t e r a
considerable a m o u n t o f m a t e r i a l h a s
been accumulated, a n d the Board h a s i n mind t o have a
com—
pilaticn o f this d a r a c t e r made, possibly a t t h e e n d o f
the c u r r e n t y e a r ,
In t h a t c o n n e c t i o n I
kept u p a
have m a d e f r o m t i m e
t o time a n d
digest o f informal r u l i n g s a n d instructions t h a t
have come-to 9 u r bank alone a n d t o other banks i n the form
ef circulars,
a n d others
made u p b y Sections
i n t h e Federal Reserve Bulletin
o f the Federal Reserve Act, a n d i t
really i s quite a document. already. I
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Federal Reserve Bank of St. Louis
thought perhaps [I
47
really i s q u i t e a
document already. I
thought p e r h a p s [ I
would offer a part o f that here, a n d the other Governors
might s a y whether t h e y thought i t was worth while t o have
the C o n f e r e n c e t a k e h o l d o f that.
much trouble t o have wnat I
I t would n o t b e very
have prepared roughly gone
over a n d smoothed o u t a n d put o n the mimeograph a n d sent
around after the conference, i f the Governors would care
to d o 2%. I
brought a
Governor Seay: I
that I have t o make a
copy o f i t here,
would l i k e t o say, M r . C h a i r m a n ,
research every n o w and t h e n t o find
out what h a s been done about a
Mr. Curtis:
cortain mtter.
T h e r e i s the size o f it (exhibiting same
to conference), a n d each page i s filled w i t h perhaps t e n
or a dozen instructions t h a t m a y have come b y telegraph,
letter, Federal Reserve Bulletin,
Gane 26° Treterred. to,
o r circular, a n d e a c h
S o that i f a n y cuestion arises a s t o
just what instructions w e have received, a n d how t o proceed
under Section 7 , say, off any question, y o u turn over here
and. find,’ for instance, just reading a t random, just where
you c a n p u t y o u r h a n d o n it.
H e r e i s tne o n e about taxa—
tion, a n d there have b e e n about seven rulings o n the taxation q u e s t i o n alone,
If the Reserve Board are not going t o got out something like this f o r a while, I
a m not sure that i t would
not b e a good p l a n for the Conference t o d o so,
The Chairman:
I
f this w o r e p u t i n shape, t h i s b e i n g
more i n the nature o f a n index n o w than a rcoal digest,
and a l l o f this material were gradually boiled down into
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Federal Reserve Bank of St. Louis
48
a summary o f the ruling in- cach instance,
o r the instruc-
“ions, a n d sent t o each o f the banks, divided u p a s i t i s
here under t h e various sections o f the Act, i t might b e
possible f o r each bank t o submit this digest which c o n s i s t s
Simply o f m t e r i a l which has reached o u r bank with such
material a s has b e e n received directly f r o m the Board, a n d
then i f i t were a l l sent back t o u s w e would g e t this same
man, Mr. Higgins, w h o p r e p a r e d e
h
t digest o f our proceedings, t o work i t u p into mimeegraph f o r m and furnish i t
to each bank.
I n erder that t h e work might b e e useful
continuously i n the future, i t would b e neccssary t o keep
it up.
T h e s e rulings a r e coming through a l l t h e time.
Pad
Aninformal ruling on one subjoct will be sentiij to one Ink
which t h e Board m a y not consider t o b e o f sufficient general importance t o send t o all the banks, a n d w e would like
to have a
complete review o f all these former rulings,
etc...
Governor Rhoads:
W e have quite a n elaborate c a r d
system o f a digest e f all the rulings which w e have b e e n
able t o assenbie, W h i c h w e would b e very glad t o offer f o r
what i t i s werth,
The Chairman? S u p p o s e , then, w e make a record b y
resolution indicating that i t is the wish o f the meeting
that t h e digest a s prepared i n New York b e put i n form t o
send t e each o f the b a n k s s o that t h e y c a n submit i t with
such r u l i n g s
a s t h e y have a n d t h e whole t h i n g b e s e n t b a c k
to New York and there reassembled a n d furnished t o all the
banks, a n d that i t i s the sense o f the meeting that instrac-—
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Federal Reserve Bank of St. Louis
49
tions b e g i v e n t o e a c h o f t h e R e s e r v e B a n k s t h a t a l l i n f o r -
mail rulings b e held out a n d digested a n d reported t o u s
for t h e time being until some other arrangement i s made
and w e will have t h e m put i n shape.
Governor Fancher: I
offer t h a t a s a
resolution,
Mr.
Chairman,
Governor Aiken: I
sendnd t h e motion.
(The motion was thereupon duly carried.)
The Chairman:
Mr. Curtis:
W h a t i s t h e next item, Mr- Curtis?
T h e next topic i s changes i n design o f
Federal Reserve notes « .
T h e Conference a t the last
meeting recommended four changes i n the design o f the notes.
The R e s e r v e B o a r d replied:
"This t o p i c h a s b e e n r e f e r r e d
t o the committee
o n note
issue a n d redemption (Mr. Delano, Chairman), w h i c h will
take u p this m t t e r with the Treagiry Department.”
So far a s I know, t h a t i s the last word received o n
Governor Wold:
I t seems t o m
the n o t e s w h i c h a r e f u r n i s h e d
t h a t t h e character o f
t o u s and the price which w e
pay entitles t s t o a better quality o f paper a n d a better
quality o f printing.
W h a t notes w e have received here
are v e r y p o o r l y printed,
alignment.
a n d some o f the numbers a r e o u t o f
T h e i n k will run.
just b e f o r e I
O u r teller handed o n e o u t
left, w h i c h c a m e i n yesterday.
T h e r e is
the back o f i t (exhibiting t h e note t o the Governors),
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Federal Reserve Bank of St. Louis
The Chairman:
Governor Wold:
W
e h a v e h a d s i m i l a r cases,
W
e are paying a
price w h i c h i t seems
50
to m e entitles u s t o a good paper a n d good ink, something
that c a n b e laundered.
The Chairman:
Y o u understand, Governor Wold, t h a t
ink o f the character that h a s heretofore b e e n used i n some
of these processes i s a little difficult t o get just now?
Governor Wold:
B u t these notes were printed before
the o l d i n k w a s exhausted.
The Chairman:
Mr. Foote:
S o m e o f them.
M r . Wold, h a s a
ever b e e n s u b m i t t e d
t o the B o a r d f o r i t s examination?
The Chairman:
V e a
Governor W o l d :
The Chairman:
note i n that condition
Y e s .
M a y I suggest t h a t this meeting ought
to take some action o n that matter.
careful inquiry made, i n New York,
of a l l t h e processes
W e nave h a d a very
i n regard t o the cost
o f m a n u f a c t u r i n g t h e s e notes.
T h e
correspondence i s not completed yet, b u t o u r m e n who have
studied t h e subject s a y that t h e y are convinced that w e are
paying t o o m u c h f o r t h e n o t e s a m d t h a t t h e q u a l i t y i s d e -
ficient and that the original design o f the note i s a n unsafe a n d incomplete one, I
pass a
think this meeting ought t o
resolution asking t h e committee o f the Federal R e -
serve Board,
t o which this matter h a s been referred,
a further investigation o f the whole subject,
t o make
t o see
whether t h e cost o f preparing notes cannot b e reduced a n d
the q u a l i t y c a n n o t b e improved.
Governor Rhoads:
in o r d e r n o w ,
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Federal Reserve Bank of St. Louis
1 . offer such a ,sesolgyion 1 2 4 % 3 6
51
Governor Seay: T h a t ccumes up-under-the heading’
over here, M r . C h a i r m a n , b e i n g N o . 1 2 ,
The Chairman:
W e h a d a note brought. i n b y the bank
which h a d been partly destroyed,
was concerned,
in a
s o far a s the engraving
W e could decipher what i t was, b u t i t was
b a d condition.
T h e story was that this note h a d
been i n t h e p o c k e t o f a
man w h o became intoxicated a n d
fell into the water, a n d i t was taken out o f his clothes;
that t h e w a t e r h a d reduced-it
t o this condition,
W
e sent
it t o Washington a n d i t was i n turn sent t o the Bureau o f
Engraving a n d Printing,
was u n d o u b t e d l y a
a n d they reperted t h a t t h e story
fabrication;
t h a t t h e y k n e w f r o m tests
and experiments m a d e with that particular note t h a t i t was
impossible f o r water t o destroy t h e engraving o f the note
LO t h e e x t e n t t h a t t h a t h a d b e e n destroyed;
quite a
number
that they had
o f notes c o m e i n t h a t w e r e i n v e r y b a d c o n -
dition a n d i t was very difficult t o determine whether they
were Federal Reserve notes o r not.
Governor Weld:
T h e story that comes w i t h that note,
gentlemon, i s that i t was carried b y a man who worked i n
a garage, a n d h e g o t grease a n d dirt o n i t and h e took water
and washed t h e greese o f f and that i s t h e result.
The numbers
O n our notes a r e misorably o u t o f align-
ment, a n d e v e r y u l i n g else,
Governor V a n Zandt:
recently h a v e a
T h e notes t h a t w e have
different c o l o r e d n u m b e r
o n then.
Vip. Foote, G o v e r n o r Strong, d i d t h e experts i n Vashington assume t o offer a n y opinion a s t o how t h e note
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Federal Reserve Bank of St. Louis
reached this candition?
The Chairman:
Yes.
T h e y said i t had been laundered,
and the ljc, o r something i n the soap, h a d affected t h e
ink and reduced i t t o that condition, a n d that note bore
every evidence o f having gone through a laundering machine.
Governor Seay:
I t i s a subject t h a t m a y become a
grave o n e w i t h r e g a r d t o t h e quality.
Mr- Foote: I
should consider i t positively alarming.
Governor Wold:
I f w e cannot put these notes out,
and t h e y cannot b e f i t f o r circulation, apparently, longer
than they are, i t will b e a great cxpense t o us,
Governor Seay:
A m d i t i s alse a
question o f the
ease with which the identity c a n b e lost.
Governor Wold:
W e cannot afford t o loan those notes
to our member banks,
The Chairman:
T h e y have abandoned the use o f carmine
ink for t h e seal a n d number a n d are using a blue i n k for
the seal and number, and the Assistant Secretary o f the
Treasury, M r . Malburn, r e p o r t e d
t o m e that h e was sure w e
would g e t better results f r o m a change i n the ink,
H e ad-
mitted that there was difficulty with t h e carmine i n k they
had been using.
Are w e not i n sufficicnt agreement a s t o the importance
ef this m a t t e r t o pass a
resolution w i t h regard t o i t ani
cona@ider t h a t w e h a v e d o n e o u r d u t y ?
Governor V a n Zandt:
I n that resolution i s anything
t* be said about the fact that only on three places o n the
bill are there any cistinguishing numbers, a n d that three-
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Federal Reserve Bank of St. Louis
53
fifths o f the bill might b e offered f o r redemption a n d
with n o evicence whatever a s t o what bank had issued that
bill?
The Chairman:
lution
T h a t was contained i n the former reso-
t o w h i c h t h e B o a r d n o w replies, s a y i n g t h a t t h e y
have t a k e n t h e matter u p with the Bureau o f ingraving a n d
Printing.
W e could a d d t o the resolution a
renewal o f the
recommendations m a d e a t t h e l a s t c o n f e r e n c e ,
a n d that would
contain t h e p o i n t t h a t y o u raised.
Governor Rhoads ;
I
thought t h a t t h e bill that w e
got f o r altering o u r plates w a s following t h a t out.
A m [I
mistaken?
Tne Chairman:
N o ; that was f o r ropairing plates.
Mr. Curtis will read t h e recommendations w h i c h w e made
at the last meeting,
Mr. Curtis: (Reading):) " P r i n t i n g the distinctive
letter or figure dbsignating tho Federal Reserve Bank of
issue i n larger a n d clearer type, a n d placing t h e same
directly below a n d a s near a s practicable t o the counter
figure i n the upper right hand corner o f the note. ( T h i s
recommendation
i s f o r t h e purpose o f assisting
i n the sobt-
ing o f notes.)"
Second. " P l a c i n g i n the border a distinctive letter
or figure. ( T h i s recommendatien i s for the purpose o f
identifying p o r t i o n s
o f mutilated n o t e s w h e r e t h e present
identifying mrks cannot b e seon,)"
Third. "Changing the ink or other material used i n
affixing t h e r e d seal i n such a way a s t o make t h e notes
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Federal Reserve Bank of St. Louis
fit for laundering."
Fourth. “Omitting the name o f the Federal Reserve
Bank through which the note i s issued, t h e text o f the
Federal Reserve A c t indicating that t h e means o f distinguishing t h e issuing b a n k should b e limited t o figures a n i
letters . "
Those were t h e four recommendations t h a t went forward.
The Chairman:
T h e motion will t h e n consist o f a re-
newal o f the recommendations m a d e a t the last confcrence,
and t h e f u r t h e r r e c o m m e n d a t i o n t h a t t h e B o a r d t a k e s t e p s
through their committee,
possible, a
o r a s they s e c fit, t o secure, i f
better quality o f paper a n d workmanship o n the
notes, and a reduction of the cost.
secomed.
T h a t motion is
A r e y o u ready f o r the question?
Governor Seay: W i l l y o u include i n the verbiage,
Governor Strong, t h e point that this Conference h a s considered a n d looked u p o n the matter a s such a grave one,
both f r o m u e yates o f view o f safety a n d expense, t h a t i t
should b e remedied?
The Chairman:
Secretary,
I n the draft o f that resolution, Mr.
w i l l y o u incorporate
Mr. Curtis:
the e
remarks, p l e a s e ?
Yes,
(The motion was duly carried.)
The Chairman:
T h a t will dispose o f a n item carried
over f r o m the last meeting, a n d item No. l e o f the program,
suggested b y Governor Rhoads, cost o f Federal Reserve
notes.
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Federal Reserve Bank of St. Louis
Governor McDougal:
T h e cost o f Federal “‘eserve notes
55
comes. i n indirectly i n connection w i t h m y report f r o m
another angle.
The Chairman:
M r . Gyurtis h a s s t i l l f u r t h e r r e p o r t
to m k e o n the results o f the last Conference a s submitted
to W a s h i n g t o n
t o t h e Federal Neserve Board,
Mr. Curtis:
a n d t h e i r reply.
T h e next topic i s "Transfers from the
Gold Settlement Fund for the account o f Federal Reserve
Agents."
T h e Board replicd:
"The Board i s unable t o find that i t has taken any
action with reference t o this m t t e r , b u t h a s i t under ad-
visement."
That was subsequently issued i n the f o r m o f a regulation.
Topic No. 1 9 , Federal Reserve Banks a s Fiscal Agents.
The reply o f the Board i s a s follews:
"This subject has been referred t o a committee o f
the Board and i s u n d e r careful pruaecs
That c o m e s u p later.
The Chairman: I
have a
report t o make o n that subject
later, a n d i f agreeable w e will pass discussien o f i t now.
Mr. Curtis:
Credit.
T h e next i s Topic No, 22, Letters o f
T h e reply o f the Board i s that this matter has
been taken under advisement w i t h the Comptroller o f the
Currency, a n d i t i s believed that a
sa tisfactery adjust-
ment will b e arrived a t shortly,
That w a s s u b s e q u e n t l y a r r i v e d a t .
The next i s Topic No, 1 6 (b), Deducting o f national
pank n o t e s
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Federal Reserve Bank of St. Louis
i n reserve c a l c u l a t i o n .
T
h
e B o a r d states:
56
“pyig matter i s i n the hands o f a committee, a n d as
goon a s r e p o r t i s r e n d e r e d
o r a c t i o n obtained,
y o u will
be advised."
I have n o t been advised o f anything more.
I s i t your pleasure t o take a n y action
The Chairman:
with r e f e r e n c e
meeting?
t o the topics
o n tne program o f the last
|
Y o u will recall t h a t w e recommended t h a t t h e
member b a n k s
b e permitted hereafter,
a S was t h e case prior
to the inauguration o f the Federal Reserve system,
t o de-
duct national b a n k notes o n hand from gross deposits i n
figuring their reserves,
o n the theory that i t was a due
from bank item ami was just a s eligible f o r deduction a s
would b e a check o n a bank i n the same town.
wish t o r e n e w t h a t r e c o m m e n d a t i o n
Governor Seay:
mendations
will b e s o m e - - - I
e r r e v i v e t h e topic?
M r - Chairman,
t o this conference---
I s i t your
i n reporting t h e recomam I
presume there
move t h a t t h o s e r e m a i n i n g o v e r u n a c t e d
upon i n the previous conference b e included--The Chairman:
G o v e r n o r Seay, t h a t would b e t h e case
that
with e v e r y t o p i c t h a t w e h a v e discussed, c x c e p t t h o s e
have b e e n r e p o r t e d a s s u b s e q u e n t l y d i s p o s e d o f .
F o r in-
stance, this matter o f letters o f credit h a s b e e n dealt
with, a n d the m i t e r o f transfer of, gold f o r the credit o f
Federal Reserve Agents h a s been disposed of, a n d those woulc
not b e reported again.
| G o v e r n o r Seay: Precisily. T h o s e which have not
peen acted upon b y the Board. I
My motion would cover that.
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Federal Reserve Bank of St. Louis
had reference t o that.
57
The Chairman:
G o v e r n o r Seay, there i s a motion t o
the effect t h a t w e should renew the recommendations o f
the last conference a s including t h e recommendation i n re-
gard t o treatment o f national bank notes i n our reports
subsequent t o this meeting m d e t o the Federal Reserve
Board.
I s that seconded?
Governor Fancher:
he Chairman:
I . second it.
I s there a n y further discussion?
Governor Aiken; W o u l d i t not bo more apt t o get
prompt a c t i o n i f i t w e r e m a d e a
The Chairman:
mattcr o f s p e c i a l i n q u i r y ?
I t will appear i n our report a s a
separate topic with a renewed recommendation,
Mr. Curtis: I
The Chairman:
Governor Seay:
have reported o n that now.
Y o u r motion would o n l y cover t h e last?
T h a t would b e practically all-
[ I
do n o t w a n t t h e F e d e r a l R e s e r v e B o a r d t o l a b o r u n d e r t h e
impresdon that after having pssed a resolution o f that
character, a f t e r full discussion,
lapse.
w e are willing t o let i t
D o e s that complete t h e memorandum?
The Chairman:
T h a t c o m p l e t e s t h e memorandum.
A r e
you ready f e r the question o n Governor Seay's motion?
(The question was called f o r a n d the motion was duly
carried.)
The Chairman:
Governor Seay:
T h a t will complete t h e last report.
W i t h t h e exception o f one item, P e r -
haps, i f i t has n o t been overlooked.
T h e r e w a s o n e ques—
tion which was f o r discussion b y the Board verbally, I
lieve.
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Federal Reserve Bank of St. Louis
A t the last meeting a
tentative resolution was
be-
58
offered relating t o W&mmunications between the Federal
Reserve Board a n d t h e Federal Reserve Banks, a n d I believe
it was then determined that instaad o f mking i t a subject
of formal resolution t h e matter would b e taken u p and dis-
cussed with the Board, and I believe the onus was thrown
upon o u r Chairman t o introduce t h e d i s c u s s i.
n
o I
a m cur-
joss a n d interested t o know i f a favorable opportunity o f fered itself t a introduce t h a t discussion, and, i f so, i f
anything came f r o m it?
The Chairman:
I t has b e m discussed, b u t I cannot
make a n y r e p o r t a s t o t h e a t t i t u d e
o f t h e Board. I
a long talk with Dr. Miller about that.
had
Y o u will recall
that i t came u p for discussion w h e n h e was a t the meeting?
Governor Seay: I
The S e r i n e
remember,
A n d Dr. Miller was t o submit t h e views
of t h e m e e t i n g t o 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 h e was
prepared t o recommend t h a t t h e f o r m o f communication sent
to the Federal Reservo Agents should be such as to insure
banks getting a
copy a n d being promptly i n a position t o
attend t o whatever businesswas required.
D r - Miller went
from Chicago dircctly t o the Pacific Coast, a n d I have been
in Washington o n l y once since h e returned, a n d I
a m sorry
to s a y that & have n o t a final report o n that matter,
savesnon Seay, m a y i t not b e a good plan f o r u s t o
put that down as Item 29, t o discuss with Messrs. tiarburg
and Harding here?
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Federal Reserve Bank of St. Louis
Mr. Curtis:
2
8 a n d 2 9 h a v e b e e n added.
4, REPORTS O F EXECUTIVE COMMITTEE.
The Chairman:
G o v e r r o r McDougal, t h e next i t e m o n
of
the program i s "Reports o f the Executive Committee",
which y o u a r e chairman.
Mr. Curtis: I
just want t o say that the word "Rhoads"
I t should have
opposite t h a t i t e m i s a n error o f mine.
been your name, Governor McDougal. I
d o not k n o w h o w
Mr. Rhoads! name got i n there.
W i t h your permission I
Governor M c D o u g a l :
verse t h e o r d e r h e r e a
little a n d m a k e a
Leng. I
general r e p o r t
t o the f o r m o f the topics a s
first, rather t h a n s a n e
suggested here. I
prepared m y general report.
will r e a d it.
I
The F o u r t h C o n f e r e n c e
ing E x e c u t i v e C o m m i t t e e
ero
W a
I t i s not
t i s a s follows:
o f Governors. a p p o i n t e d a
stand-
o f six, viz: G o v e r n o r s A i k e n ,
three
Strong, Rhoads, Fancher, S e a y a n d McDougal, Chairman;
members
t o constitute a
quorum.
T h e Conference referred
to this Committee t h e following matters:
Le C o m p e n s a t i o n f o r making purchases f o r other
Federal Reserve Banks.
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Federal Reserve Bank of St. Louis
Purchase o f Government bonds.
Inter-District Clearings.
The appointment o f a sub-committee o f Auditors
and “ccountants t o considor the following subjects:
(a) F o r m s .
(b) U n i t o f cost.
@c) D a i l y transactions - records and reports.
Analysis o f Operating Lxpenses.
60
(e) S t a n d a r d F o r m for
A n a l y fs Expense
io s
and
Income,
The above-mentioned matters have received-attention
allows:
1.COMPENSATION FOR MAKING PURCHASES FOR OTHER
FEDERAL RESERVE BANKS,
this subject i s assignod a
place o n our program,
be passed f o r the moments
PURCHASE O F GOVLRNMENT BONDS,
view of the ruling o f the Federal Reserve Board
that bonds bought prior t o December esrd, 1915, will not
count i n the allotment t o Federal Reserve Banks under the
terms o f Seétion 18 of the Federal Reserve Act, there
is no
need t o give further consideration t o the action
o f the
Fourth Conference o f Governors o n this B U D Ject,
3. INTCR-DISTRICT CLEARINGS,
This will b e passed f o r t h e present, a s i t comes u p
under Topic 7
o n our progran. .
4e SUB-COMMITTEE O F AUDITORS AND ACCOUNTANTS,
A sub-committee was appointed and held-its first mee —
ing July 26th t o 28th, inclusive, a t the Shoreham
Hotel,
Washington, D., C., there being present r e p r e s e n t a t i v e s
m
o
r
f
Boston, N e w York, Cleveland, Richmond, Chicago, Minnea-
polis and Dallas, C o p i e s o f the complete minutes o f this
mecting h a v e a l r e a d y b e e n s e n t t o e a c h o f t h e F e d e r a l
Reserve B a n k s a n d a
condensed r e p o r t m a d e b y t h e S e c r e t a r y
was incorporated i n the minutes o f the Governors!
Execu-—
tive Committee meeting o f August 1 0 t h and llth,
1915.
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Federal Reserve Bank of St. Louis
I will refer briefly t o the action o f this
Committee
61
on the subjects allotted t o them b y order o f the Governers!
Conference:
(a) F O R M S .
Their specific recommendations
o n this subject a r e
" T t was the
included i n the minutes above mentioned.
general sense o f the meeting that t h e forms u s e d i n the
transactions between t h e Federal Reserve Banks a n d between
theBanks and the Federal Reserve Board should b e uniform,
put that t h e forms used f o r the internal w o r k o f each bank
should b e those which t h e y considered best suited t o their
needs,"
(b) U N I T O F COST.
It was"recommendcd that the subject o f establishment
of Unit Cost f o r standard o f comparison b e deferred until
more experience would h e l p t o determine a
proper method o f
arriving a t Unit Cost.”
(c) D A I L Y TRANSACTIONS - — Records a n d Reports.
A conference w a s held with Messrs. Broderick a n d
Jacobson o f the Federal Reserve Board,
i n the course o f
woich a revision o f Form 3 4 (Daily Statement) w a s m n s i d e r ed;
a n d the members o f the Committee w e r e enabled t o get a
better u n d e r s t a n d i n g
b y the Federal
o f t h e reports required
Reserve Board.
(a) A N A L Y S I S O F OPLRATING L2P LNSES,
(e) S T A N D A R D F O R M O F ANALYSIS O F LAPENSES A N D INCOME,
The C o m m i t t e e r e c o m m e n d e d a
into a
minutes
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Federal Reserve Bank of St. Louis
great m a n y s u b - d i v i s i o n s
o f t h e Conference
distribution
a s detailed
o f expense
i n the complete
o f Auditors a n d Accountants.
I n
62
view o f the fact that t h e Fedcral Reserve Board n o w requires
monthly reports o f expenses distributed i n a certain manner,
no action has beentaken toward carrying o u t the Committee(s
recommendation o n this subject.
ee ese eee ee oe
MELTING O F GOVERNORS! EXECUTIVE COMMITTEE, AUGUST
loth and llth, 1915.
In accordance w i t h the expressed wishes o f a majority
of the Executive Committee o f Governors, a
mecting o f this
Committee w a s called August 3rd, 1915, t o b e held a t Gover-
nor Strong's office a t 10:30 o'clock A. M., August 10th,
1915. W h i l e the meeting was called primarily t o discuss
the operations
if possible,
o f the collection system, i t was intended,
t o dispose o f other matters referred t o the
Committee b y the Fourth e l a i n e
o f Governors.
Copies o f the minutes o f this m e t i n g were mailed t o
the Governors o f the several Federal Reserve Banks b y the
Federal Reserve B a n k o f N e w York o n August 28th, 1915.
These minutes, together w i t h the foregoing, constitute m y
goneral report o n matters handled b y the Executive Commit-—
tee u p t o that time, and I ask that a copy be filed with
the official minutes o f this Conference ofGovernors, although
it i s o f course unnecessary t o transmit t o each o f the
Governors a n additional c o p y with the minutes o f this c o n -
ference."
In a supplemontary report the Chairman o f the Committee s t a t e d t h a t t h e c o m m i t t e e a p p o i n t e d
t o correspond w i t h
the several Federal Reserve Banks w i t h a view t o securing
uniformity i n the forms u s e d f o r rendering t o member banks
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Federal Reserve Bank of St. Louis
63
daily s t a t e m e n t s
o f t h e i r transactions,
h a d reported t h a t
the adoption o f uniform means f o r this purpose seemed i m practicable,
That i s with reference t o subject No. 2 .
I n regard
to subject No. 5 , Mr. H . M . Jdferson, t h e Auditor o f the
Federal Reserve B a n k o f New York, appointed t o investigate
and report o n cost o f printing Federal Reserve notes, h a s
reported o n the progress m a d e t o date, and, moreover, t h a t
when t h e work i s finished h i s report will b e completed a n d
rendered,
Subject 4 , R e f e r e n c e i s made t o the Conference h e l d
at Washington o n Thursday, October 16, 1915, b y members
of t h e S x e c u t i v e C o m m i t t e e w i t h Hon. C a r t e r Glass, b u t
in view o f a report having w w eviously b e e n m d e b y letter
to each o f the Governors further reference t o the matter i s
considered unnecessary.
The substanco o f i t i s that o u r committee w e n t t o
Washington a n d w e were informed a t the outset b y Governor
Hamlin that this conference h a d been called a t his sug-
gestion and not a t Mr. Glass!,
after, a n d Mr. Glass, I
T h e meeting was held soon
noticed, prefaced h i s remarks b y
the statement t h a t h e wished i t understood t h a t this meeting was n o t called a t his instance; t h a t h e was ghad
t o
‘meet with us, b u t i n any event w e went along w i t h Mr,
Glass, a n d I think m d e p l a i n t o h i m that there was some
difficulty i n the way o f the develomment o f a check coilection plan that h e h a d i n mind, a n d h e expressed himself a s
pleased w i t h t h e o p p o r t u n i t y
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Federal Reserve Bank of St. Louis
o f m e e t i n g w i t h t h e committee,
64
and stated v e r y plainly that h e would l i k e i t understood
that h e h a d m a c e n o c o m p l a i n t r e g a r d i n g t h e progress t h a t
had been m d c , b u t that nevertheless h e was interested i n
seeing p r o g r e s s m a d e . I
believe
h e said h e was respon-
sible f o r those provisions o f the Act calling f o r that,
and that the A c t gave t h e Board full authority t o g o ahead
and make a
mandatory plan, i f i t s a w fit.
B u t nothing
developed i n this meeting execpt what I have written you,
and I think i t was a very satisfactory one.
Mr. G l a s s f o u n d t h a t t h e u n d e r t a k i n g w a s g r e a t e r t h a n
he h a d before thought, a n d there were some obstacles i n the
way that h e had never dreamed of.
7
That i s about all, Mr. Ghairman, t h a t I have t o report,
The Chairman:
“ h a t a c t i o n d o y o u c a r e t o take i n re-
gard t o the report submitted b y Governor MeDougal?
L e t
me remind you, ho.ever, t h a t w e have been i n the habit o f
making reports o f this character a
the proceedings,
part o f the record o f
s o that i t would b e preserved a n d
handy f o r reference,
b o I understand, Governor McDougal,
that this i s i n such shape that i t may
the s t e n o g r a p h e r
t o b e incorporated
Governor McDougal:
hairman,
b e handed t @
i n vthe record?
I f you will permit m o t o say, Mr.
m y general r e p o r t i s i n proper f o r m , b u t a s t e
the other I will instruct t h e stenographer about what shall
go. in.
What i s your pleasure about t h e report,
gentlemen?
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Federal Reserve Bank of St. Louis
Governor A:ken: I
move t h a t i t b e r e c e i v e d a n d i n c o r -
porated
i n t h e record,
Governor Seay: I
second t h e motion,
(The motion was thereupon duly carried.)
ITEM 5. R E P O R T O F COMMELTTEE T O CONFER WITH FEDERAL
RESERVE BOARD A N D TREASURY DEPARTMENT O N
FEDERAL RESERVE BANKS A S FISCAL AGENTS O F
THE UNITED STATES,
The Chairman:
I t e m 5 of the program i s t h e report o f
the committec t o confor w i t h Federal Reserve Board
and
Treasury D e p a r t m e n t
o n Federal R e s e r v e B a n k s
of the United States, I
committee,
was appointed a
a s fiscal agents
member o f that
i t boing understood t h a t w e would arrange
to
have a meeting, i f possible, with officers o f the
treasury
Departmont a n d a
member o f t h e F e d e r a l R e s e r v e Board,
Vice Governor Delano w a s appointed b y the Board
t o deal
with that matter, a n d w e h a d t w o meetings w i t h
Assistant
Secretary o f t h e T r e a s u r y Malburn,
a n d w e had a
very e x -
tended discussion o f the whole Subject o f the
fiscal agency
relations with the F e d e r a l Reserve Banks with
the Treasury
Department, I
structions
learned t h a t S e c r e t a r y M c A d o o h a d g i v e n
in-
t o Assistant S e c r e t a r y M a l b u r n t o m a k e
a n exam—
ination o f the subject a n d report t o him a t
length t h e
recommendations o f the course o f procedure t o
b e adealt with.
secretary M a l b u r n i n f o r m e d u s t h a t h e h a d
studied t h e
whole subject o f the Government deposits w i t h
the National
banks, a n d h a d made u p his mind, a s I recall
t h e figures,
that i t was possible t o reduce t h e number
o f special a n d
regular d e p o s i t a r i o s f r o m s o m e t h i n g l i k e
1 8 0 0 i n number t o
about 3500 i n number, without eerlous ly,
i f at. sit impairing
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Federal Reserve Bank of St. Louis
66
the service that was being rendered t o the Government i n
handling t h e Government's accounts.
H e was prepared t o
recommend t h a t the deposits w i t h these twelve o r fifteen
hundred beynks that were unnecessary b e gradually w i t h d r a w
and that arrangements b e m d e f o r opening government a c counts w i t h t h e r e s e r v e b a n k s a n d b y gradual s t a g e s t u r n
over a
considerable portion, probably t h e greater amount,
of the Government's deposits w h i c h are n o w held b y national
banks,
t o the reserve banks.
H
e felt that i t would b e
inadvisable e
t extend t h e services o f the reserve banks
very m t e r i a l l y a t the outset.
active d e p o s i t a r i e s
T h e y should rather b e in-
o f t h e Government's f u n d s because
of
the possible disturbance t h a t would result i n handling
the a c c o u n t s ,
o n the o n e hand,
o f t h e disbursing officers
of the Government, and, o n the other hand, o f those officials o f the Government w h o n o w required depositaries t h a t
were accessible t o custom houses and internal revenue
department officers, a n d s o on,
As I
understand h i s s t a t e m e n t ,
h e h a d prepared,
o r
would shortly prepare f o r submission t o Secretary McAdoo
a very complete report w i t h recommendations
o f t h e course
of procedure,
Subsequent t o the meeting a t thich this confersation
took place, a n d which was also attended b y Vice Governor
Delano, I
have received f r o m Washington a
report made b y
a submommittee o f the Federal Reserve Board o n this same
subject.
I t is a long, elaborate report, suggesting that
the Act contemplated that t h e Reserve Banks should a c t a s
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Federal Reserve Bank of St. Louis
67
the fiscal agents o f the Government, a n d that t h e Treasury
system should gradually shift t h e business o f the Government Departments t o tho Reserve Banks.
T h a t report h a s
not resulted i n any action by the Federal Reserve Board,
and s o far a s w e are concerned t h e matter seems t o b e blocked, or, a t a n y rate, i n a state o f suspense o n account o f
the failure t o act o n the report made b y Secretary Malburn
the failure o f the Federal Reserve Board t o agree w i t h
Secretary o f the ‘reasury upon a course o f procedure.
At our meeting w i t h Secretary Malburn b o t h Mr. Delano
I agreed i n urging that the Treasury Department should
undertake a
program f o r t h e transfer
o f business
to
the Reserve Banks without having substantially t h e whole
program l a i d o u t i n advance.
W
e felt i t was important
that t h e Reserve Banks should k n o w i n advance j u s t what
duties t h e y ultimately might b e expected t o perform f o r the
Government.
I t affects u s i n a good m a n y ways.
the q u e s t i o n o f h a n d l i n g c u r r e n c y ;
O n e is
a n o t h e r i s t h e o l d sub-
ject o f handling t h e enormous number o f checks t h a t a r e
disbursed b y the Government--- something l i k e 25,000 every
business day.
T h e third was t h e question o f the receipt
of the income o f the Government w h i c h i s paid i n through
_the Government's various fiscal officers i n a great variety
of different institutions
a n d b y different methods.
The more w e went i n t o t h e subject t h e more complicated
it appeared t o b e andthe m o r e work seemed t o b e involved.
We therefore ugged Mr. Malburn t o deveclep a
would i n d i c a t e
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Federal Reserve Bank of St. Louis
program which
t o u s where w e would e n d i n this business
68
without starting something that apparently would have n s
end a t all. I
think h e is agreed now i n the wisdom o f
the course a n d will n o t d o more a t the outset t h a n t o recommend t h e opening o f probably inactive accounts w i t h the
Reserve Banks a s regular Government depositories, a n arrangement b y which they would handle a
very limited amount
ef the Government's checking and deposit business.
I believe
i t w o u l d b e wise,
i f this report answers
inquiries raised a s the result o f the last meeting,
to
take somo action b y which a committee t o deal with this subject would b e appointed t o serve permanently, a n d that a t
every c o n v e n i e n t o p p o r t u n i t y w e t a k e t h e s u b j e c t
u p fer
discussion i n Washington and undertake t o m k e some progress.
A S indicating t h e necessity f o r a definite program
for the l o n g future, this affects o u r banking accommodations
in a very important way. G o i n g back t o the original
theory o f the Government's abandonment o f the independent
Treasury entirely, i f we took over the functions o f the
Treasury Department, asido from the Bureau o f Redemption,
etc., w e would have o n our shoulders a
tremendous amount
of work requiring a large clerical force and large accommodations, probably, a n d facilities that none o f us have,
and w e would have t o specially employ m e n who are experienced i n doing certain kinds o f work.
I would like t e see the subject handled i n a regular
and systematic w a y b y a committee that would b e prepared t o
keep the discussion going right along with the Department
in Washington a n d finally develep a definite program.
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Federal Reserve Bank of St. Louis
69
move t h a t t h e Committee appointed
Governor Seay: I
to confer with the Board b e continued.
Governor Wold: I
second t h e motion.
W o u l d y o u feel disposed, Governor
The Chairman:
Seay, t o provide f o r the enlargement o f the committee b y
appointing another member s o that when i t might n o t b e convenient f o r one o f u s t o b e there t o push this matter along,
the other o n e might attend?
Governor Seay: i n t i r e l y , sir, i f , i n your experience
that i s desirable,
believe i t would b e a desirable
Rhe Chairman: I
thing t o do. I
that I
will s a y two.
I s i t your suggestion
should a p p o i n t a n o t h e r m e m b e r
o f the committee,
or
do y o u wish t o suggest someone?
suggest that t h e Chair associate
Governor Seay: I
with himself amember with whom h e m a y find i t t o his c o n venience t o confer.
Governor Aiken: I
I t i s a question o f convenience v e r y
Governor Seay:
Largely, I
second the motion.
think, a n d h e ought t o be governed according t o
his convenience i n the location, ete.
The Chairman:
T h e n your motion i s t o continue t h e
committee w i t h t h e adcition o f one other member t o b e selected b y the Chair, a n d t h e committee b e requested t o continue
their w o r k i n the conference a t Washington looking toward
a development o f the program i n the matter o f fiscal agency
relations?
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Federal Reserve Bank of St. Louis
Governor Seay: I
make that m y motion, sir.
"0
The Chairman:
I s there a n y discussion o n the motion?
(There being n o further discussion, t h e motion was
duly carried. )
The Chairman:
I t i s n o w one o'clock,
we h a v e b e e n i n t h e h a b i t o f t a k i n g a
a t which hour
recess f o r lunch.
What i s your w i h a b o u t continuing?
Governor V a n Zandt: I
think w e h a d better comtinuce,
Mr. Chairman.
6. REPORT O F COMMITT:LE O N METHOD OF COMPUTING DIVIDENDS.
The Chairman:
report
L e t u s take u p Item No. 6 , then, t h e
o f Governor S e a y , w h o w a s a p p o i n t e d a
committee
to
investigate a n d report back o n the subject o f the method o f
computing d i v i d e n d s .
Governor Seay: I
believe, Mr. Chairmn, that the m -
ter was left t o the three southern banks,
i t being supposed
that the question o f dividends would b e more imminent i n
them than i n others, a n d I do not understand there was any
chairmanship
o f the committec
a t all.
I
f such i s the case
Ita m remiss i n not having communicated w i t h Mr. V a n Zandt.
I will endcave t o make such report as I have here,
The question involved, sir, i s the manner i n which
dividends s h a
1 1 b e calculated.
W
e h a d reached t h e con-
clusion i n Richmond t h a t t h e most equitable thing t o do
would b o t o c a l c u l a t e i n t e r e s t
o n the capital payments m a d e
by the banks from the dates o n which they were made, and,
since w e reached that conclusion w e have received a
com-
munication f r o m the Federal Reserve Board which m a y have
been sent t o all the banks a n d which was substantially t o
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Federal Reserve Bank of St. Louis
that effect.
T h e y did n o t authorize t h e calcula~
The Chairman:
tion o f a dividend o n payments m d e a s o f the date prior
to the date o n which the payment w a s called, a s 1 recall.
N o .
Governor Seay:
from November 2nd.
T h e dividend should cemmence
T h e calculation should b e based u p o n
payment a s o f November 2nd, a n d o f course a n y bank which
had a n t i c i p a t e d t h a t w o u l d n o t b e e n t i t k e d
advantage,
t o receive t h e
b u t banks w h i c h h a d n o t promptly m a d e i t should
have calculations
m a d e f r o m the date o f payment.
S o
it resolves itself i n t o a n interest calculation which shall
commence n o t prior t o t h e second d a y o f November and, i n
the c a s e o f banks w h i c h d i d n o t m a k e t h e m properly,
the date ~ on which the payments were madebank p r e p a r e a
from
W e had one
stock l e d g e r w h i c h w o u l d a t t h e s a m e t i m e
answer a s a dividend calculation ledger, a n d 1 can give
one o f these t o each o f the members present.
The Chairman: I
should b e very glad t o have a
sample o f that.
Governor V a n Zandt:
W h y the second o f November i n -
stead o f the 16th?
Governor Seay:
T h e early payments were called a s o f
the second o f November.
Governor V a n Zandt:
T h e charter w a s issued o n the
L6th?
Governor Seay:
N o ; t h e c h a r t e r w a s i s s u e d b a c k i n May,
and w e were a n organization f o r certain purposes a t that
time, B u t t h e Federal “eserve Board thought i t wise t o make
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Federal Reserve Bank of St. Louis
72
it the second d a y o f November. C o n s e q u e n t l y i t i s o f that
date, a n d i t was felt w e were entitled t o receive interest
from that date.
h
e banks d i d n o t open until later a n d
were n o t i n a position t o begin t o earn dividends, b u t
nevertheless i t was thought wise b y the Board, a n d equitable,
to determine o n November 2 n d a s the proper d a te.
W e
had reached that conclusion a n d 1 believe n a v t h e Board
has confirmed that, not due t o any reference o f the matter t o them b y us, b u t o n application f r o m some other i n stitution; I
do not know which i t was.
W e have a s k e d a n d h a v e not y e t
Governor V a n Zandt:
received a
reply.
Governor Seay:
to that effeeét.
O u r bank received a
reply a n d i t was
W e reached t h e conclusion that t h e banks
would expect t o receive intercst a t least f r o m t h e time
at w h i c h t h e y p a r t e d w i t h t h e i r m o n e y ,
a n d w e pelieved
T h e y were n o t t o blame f o r the
that that was equitable.
fact that t h e b a n k s failed t o issue i t until 1 4 days
later, a n d probably t h e y were entitled t o receive interest
en the capital f r o m the time t h e y placed i t i n our hands,
That i s the report I
wish t o make, t h a t divicend
calculations b e based upon t h e payment o f capital n o t prior
to the second d a y o f November, t h e date o n which t h e capital was called b y the Federal Heserve Board, but, i n the
case o f each bank, t o date f r o m the date o f its payment.
Governor McDougal:
matter, I
M r . Chairmm,
w e considered that
think, v e r y carefully, a n d concluded that t h e time
to b e g i n t h e c a l q i l a t i o n w o u l d b e n o t p r i o r t o t h e d a t e ,
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Federal Reserve Bank of St. Louis
but o n that date, a n d w e h a d calculated t h e
acerued dividends exactly i n accordance with Governor
Seay's plan.
Y o u figure f r o m the 1 6 t h instead o f
The Chairman:
from the second o f November?
Y e s , believing t h a t was t h e pro-
Governor McDougal:
W e were n o t a going concern prior t o
per time t o d o it.
that, a n d I
a m just speaking n o w o f what w e have done,
The Chairman: I
thought a l l the reserve banks h a d re-
ceived this ruling o r this opinion o f counsel for the Board,
dated October 7,
W e received such a n opinion i n New York,
as 1 recall. P o s s i b l y 1 saw this i n Washington, T h i s
matter has b e e n made t h e subject o f a n opinion b y counsel
for the Board, a n d I suppose that will b e conclusive.
Governor Seay: -
I concluded that o u r bank, having r e -
ceived that information o f other banks, h a d likewise r e eeived t h i s ---
Governor McDougal: I
do n o t think w e received that.
I have n o t received it,
Governor Seay:
I t was partly upon our o w n initiative
and u p o n t h a t o p i n i o n t h a t I
a m making this recommenda-
tion t o the Conference.
Mr. Curtis:
D i d y o u take w p a t all, Mr. Seay, t h e
question o f calculation o f dividends where surplus h a d
been e r r o n e o u s l y reported, w h e r e a
bank w a s i n temporary
receivership, a n d things o f that sort?
Governor Seay:
those things were a
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Federal Reserve Bank of St. Louis
N o ; n o t i n detail. I
felt that
little b i t t o o much i n detail a n d that
74
the Reserve B a n k itself would h a v e t o adjust that; t h a t i t
was n o t a Subject o n which the Board might m k e a
ruling
or even involve giving a n opinion.
The Chairman:
H a v e y o u concluded y o u r report, G o v e r -
nor Seay?
Governor Seay: Y e s .
The Chairman:
G o v e r n o r McDougal, referring t o your
remarks o n this subject, Governor Fancher has received a
copy o f t h e o p i n i o n o f counsel f o r t h e R e s e r v e B o a r d
dated October 7, which I ind upon reading i t over does
not answer your point, n o r does i t completely answer t h e
question a s t o what treatment should b e made o f payments
of c a p i t a l s t o c k r e c e i v e d b e f o r e t h e 2 n d d a y o f November;
and i n connection with the action o n the report o f Governor
Seay's Committee, i t may be desirable t o submit those
questions
t o Washington i f they have n o t b e m f u l l y answer-
ed b y a Special ruling o f the Federal Reserve Board.
G@ernor Scay:
man?
C o u l d w e have t h a t read, Mr. Chair-
i 8 2t. bone?
Governor Kains:
H a v e w e n o t the power i n each i n -
dividual b a n k t o control a f t e r i t s o w n m a n n e r a
of that kind?
question
W h y should w e want t o refer that t o the
Board?
The Chairman: I
of i n t e r p r e t a t i o n
should t h i n k i t would b e a question
o f t h e statute;
twelve d i f f e r e n t i n t e r p r e t a t i o n s
have a
little mix-up.
be highly desirable,
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Federal Reserve Bank of St. Louis
a n d i f w e happen t o have
o f t h e s t a t u t e w e m i ght
I t i s 2 case where uniformity would
75
Governor Kains:
Mr. Foote:
s
3
; Ll admit t h e desirability.
M r . Kains, t h e Government has a n interest
in t h e q u e s t i o n o f t h e revenues.
want t o p a r t i c i p a t e
i n a
W o u l d i t not naturally
decision o f t h e d a t e o n w h i c h
intercst s h o u l d b e c a l c u l a t e d ?
Governor Kains: I
d o n o t k n o w what interest t h e
Government h a s i n dividends
Mre Foote:
t o t h e m e m b e r banks.
T h e Government gets everything o v e r a
certain amount.
Governor Kains:
O h , yes.
The Chairman: I
This bears
will read this memorandum, Governor
o n the matter, a n d i s a s follows:
"This officc has been requested t o give a n opinion
on the question o f whether divi: n d s payable under Section
7 of the Federal “eserve Act accrue from the date of payment b y t h e m e m b e r b a n k s
o r from the date t h e several
Federal R e s e r v e S a n k s w e r e o p e n e d f o r business.
"Section 7 provides i n part a s follows:
"“lafter all necessary expenses o f a Federal +‘eserve
bank h a v e b e e n p a i d o r p r o v i d e d f o r , t h e s t o c k h o l d e r s s h a l l
be e n t i t k e d
t o receive a n n u a l dividend
o f six per centum
on the paid i n capital stock, w h i c h dividend shall b e c u m -
lative.
"Under t h e p r o v i s i o n s
Bank becomes a
o f Sectien 4
a Federal R e s e r v e
body corporate a n d i s vested w i t h the powers
enumerated therein upon filing o f a n organization certificate with the Comptroller o f the Currency, b u t under t h e
terms
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Federal Reserve Bank of St. Louis
o f this S e c t i o n
76
WIyo Federal resorve bank shall transact any busincss.
except s u c h a s i s i n c i d e n t a l a n d n e c o s s a r i l y p r e l i m i n a r y
to i t s o r g a n i z a t i o n u n t i l i t h a s b e e n a u t h o r i z e d
Comptreller
o f the Currency
b y the
t ® commence business u n d e r t h e
provisions of this Act.'
"The collectien of stock subscriptions i s clearly ‘incidgenta 1 and nccessarily preliminary t o its organization!
and payments were accordingly made b y the subscribing mem—
per banks before s u c h banks were authorized t e begin t h e
business o f banking.
i
a
p t o the bank,
T h e s u b s c r i p t i o n sd
therefore, c o n s t i t u t c d f r o m t h e d a t e o f p a y m e n t t h e p a i d in capital s t o c k o f s u c h b a n k a n d u n d e r t h e p r o v i s i o n s
of
Section 7, above quoted, the member banks are cntitled t e
receive
a n annual d i v i d e n d o f s i x p e r c e n t u m o n this p a i d -
in c a p i t a l stock.
"as thoso dividends are cumulative, a n d as the amount
is definitely fixed b y statutes a t s i x per centum, i t
would s e e m cleap that t h e y should b e g i n t o accruoc f r e m the
date o f actual payment, a n d i n the opinion o f this office
each member bank should, a t the end o f the first year, b e
crealtcd with dividends amounting t o s i x per centum from
the date o f the actual payment o f stock subscriptions —
such amounts t o b o paid w h e n t h e earnings o f such banks
aro s u f f i c i e n t
t o defray a l l necessary expenses a n d t o
take care d f such accrued dividends."
You c a n see that that does n o t f i x the date a s accurately a s i t s h o u l d b e fixed, b o c a u s e m a n y b a n k s m a d e c a p i t a l
stock p a y m e n t s p r i o r t o N o v e m b e r e n d , b u t i t i s a p p a r e n t l y
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Federal Reserve Bank of St. Louis
ale
hela t h a t t h e d a t e f r o m w h i c h t h e d i v i d e n d s
cahculated
should
be
i s the d e v e w h e n t h e payment w a s m a d e rather
than t h e d e t e w h e n t h e b a n k o p e n e d f o r b u s i n e s s
o r was
authorized t o comnence business,
discussed that i n our bank, a n d w e
Governor Seay: I
reached t h e opinion that i f banks elected t o p a y prior t o
November 2 n d , t h a t i t w a s t h e i r affair; t h a t t h e y w e r e n o t
required
t o p a y i t i n until t h a t d a t e , a n d a t l e a s t t h e
Federal Reserve Banks should n o t b e liable f o r i t prior t o
that date,
W e believe t h a t t o b e a just position a n d a
sound one.
Govermor McDougal:
Y o u r calculations, then, Governor
Seay, begin a s o f November end?
Y e s sir; a s t o these b a n k s w h i c h
Governor Seay:
made their payments o n that date.
Governor McDougal:
O r before,
O r before; i n t e r e s t running f r o m
Governor Seay:
November 2nd.
The Chairman:
W h a t does t h e meeting w i s h t o d o i n
the w a y o f a repert o r a recommendation t a the Reserve
Board? i
assume thet y o u ere willing t o receive a n d make
the committeo's revort part o f our records, b u t d o y o u wish
in adcition t o that t o ask f o r a n y further o r clearer ruling from the Board i n the matter o f calculating dividends
on capita’ stock?
T h i s opinion does n o t refer t o the
date f r o m which t h e calculation should b e made where t h e
payment h a s been m d e p r i a
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Federal Reserve Bank of St. Louis
Governor Kains:
t o November 2nd.
I f w e all agree w i t h Governor Seay
te date from November 2nd, or, i n fact, all the little
particulars about it, whether t o calculate 500 o r 3565,
and whether t h e second installment s h a l l b e f r o m February
2nd, a n d all o f that, t h a t will go, will i t not?
t h i n k i t u n d o u b t e d l y will.
The Chairman: I
Governor Kains:
The Chairman:
W e might j u s t a s well d o that.
M a y I suggest,
i n o m e r t o get this
record rounded up, that this committec b e asked t o prepare
a memorandum embodying their recommendations, w h i c h c a n b e
part o f this r e c o r d a n d a
made a
copy sent t o each o f the
twelve banks, a n d t h e n possibly there will b e n o accasion
to take the matter u p for further ruling b y the Reserve
W e would have a
Board.
uniform method provided e a c h bank
approved o f the method reported b y this committee.
W i l l
someone offer that a s a motion, o r some other motion that
will answer the purpose?
Mr+ Foote: I
offer that a s a motion, sir.
Governor Seay:
M r . Chairman, i t will b e understood
that t h e general idea, i n view o f the report that h a s
been m d e here, will govern that committee i n mking the
report,
rendered
a n d t h a t w e accept f o r o u r guidance t h e opinion
b y the counsel
o f t h e Federal Reserve Board,
(The motion was duly seconded and carried.)
(Whereupon, a t 1:25 o'clock p. m., the Conference took
a recess until 2:30 o'clock p. me)
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Federal Reserve Bank of St. Louis
AP
TER
B B O
B S SB,
The Conference roassembled a t 3 o'clock p. m.
The Chairman:
next s u b j e c t
T h e meeting will come t o order:
The
taken u p
i s Nos 1 5 , t h e next i t e m t o b e
reserved L o r
after passing those items that a r e temporarily
a r e here.
aiscussion while Messrs. Warburg a n d Harding
T O BANK
13, C @ A T O F RETURNING FEDLRAL RESLRVE NOTES
OF ISSUE,
The Chairman:
W i l l y o u open the uiscussion, Governor
Rhoads?
Governor Rhoacs:
T h i s matter h a s b e e n discussed i n -
hoped w e could
formally a number o f times, a n d I merely
it.
arrive a t a uniform practice a n d settle
The Chairman:
T h i s matter has been submitted for
also, a n d I think
discussion b y the Federal Reserve Board
i t they would appreciate
if w e could make a n y progress o n
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Federal Reserve Bank of St. Louis
it v e r y much.
Governor Rhoads:
Lleav
Y o u d e not t h i n k w e h a d better
The Chairman: I
it
de not think w e had better pass
a
if w e c a n make a n y progress a t all towards
settlement o f
the matter through discussing it.
Governor R h o a d s :
W o u l d i t help t o make a
That t h e c o s t o f r e t u r n i n g n o t e s b e b o r n e
motion:
b y the issuing
bank?
Ths Chairman: I
think that would bring o u t consider-
able d i s c u s s i o n .
Governor Ajken: I
will second t h a t motion.
80
s there a n y ciscussion
I
The Chairman:
o n this m o -
tion, g e n i l o m e n ?
Governor V a n Zandt: I
a m very m u c h opposed t o t h e
think that these notes a r e recelv-
moLion a s offcred. I
able under t h e l a w a t the counter o f the bank o r a t the
office o f the Treasurer o f the United States i n Washingten, a n d t o make a Federal Reserve B a n k that issues those
notes
g o o u t i n t o t h e h i g h w a y s a n d by-ways a n d p a y t h e c o s t
of the transporting o f those notes back t o the place o f issue, i s sokething that i s not contemplated b u t i s i n direct
opposition
t o t h e i n t e n t o f t h e law.
Governor McDougal: I
quite rignt. I
think Governor V a n Zandt i s
t h i n k t h e e x p e n s c w i l l h a v e t o b e borne
by t h e b a n k s t h a t r e t u r n t h e m t o t h e i s s u i n g bank,
The Chairman:
I t i s something like those g o l d coins
that a r e s h y o f weight o u t i n San Francisco.
T h e y pass
them along from one t o another, a n d the last bank gets
stuck.
Governor Rhoads: I
submit that t h e issuing bank
presumably gets t h e benefit o f the use o r credit b y the
issuing o f the notes, a n d t h e y should therefore b e a r t h e
expense.
Governor Wold:
T h a t word "presumably" i s good,
Governor Rnoads.
Governor Rhoads:
Governor Wold:
I t dnes n o t want t o lose t h a t bene-
B u t notes w e a r e putting o u t a r e n o t
of a n y particular benefit t o us, except i n anticipation o f
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Federal Reserve Bank of St. Louis
81
something t h a t m a y occur i n the future, w h e n our banks will
went c r e d i t a n d n o t w a n t currency.
I
t is a
matter o f i s -
suing Federal Reserve notes against g o l d with us, chiefly,
ond. t h e r e i s n o p r o g i t
i n T t 22-32,
T h e r e is a
consider-
gble expense connected w i t h it--- express charges a n d s o
forth.
B u t , a S a matter o f insurance against t h e future,
we have thougnit i t wise t o put o u t a number o f those notes
and g e t i n the gold,
Governor Kains:
W e feel that t h e cost should b e
borne b y the people sending the notes in.
The Chairman:
looks
T h e statute i s s o specific, t h a t i t
t o m e a s t h o u g h i t would b e a
voluntary p a y m e n t
by
the redeeming bank, t h e b a n k that issucs t h e notes, t h a t
possibly weuld b e o p e n t o objection.
T h e statute reads
that the note shall b e redeemed i n gold o n domand a t t h e
Treasury o f the United States i n the City o f Washington,
District o f Columbia,
o r i n gold o r lawful money a t a n y
Federal R e s e r v e B a n k -
T h e n i t provides l a t e r o n t h a t
no F e d e r a l R e s e r v e B a n k c a n p a y o u t t h e s e n o t e s o f o t h e r
Federal Reserve Banks w h e n once t h e y have received them,
except subject t o a severe penalty.
I
n other words, t h e y
are f o r c e d t o r e d e o m t h e m a t t h e p l a c e w h e r e t h e y a r e
payable.
Governor Seay:
T h e y are also forced t o receive t h e m
on deposit.
Governor Rhoads:
A n y reserve b a n k i s forced t o p a y
them i n gold o r iawful money.
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Federal Reserve Bank of St. Louis
Governar Wold:
B u t they g e t the gold back,
The Chairman:
C e r t a i n l y t h e y get t h e gold back.
Governor Aiken:
T h e y . are forced t o pay for them, b u t
are e s t e p p e d f r o m u s i n g them,
Governer Wold:
S t r a n g e a s i t may seem some o f our
notes have b e e n floating eastward.
natural thing f o r t h e m t o g o west.
are f i n a l l y r e d e e m e d a t Chicago,
beyond
m y comprehension,
I t would b e the
T h e y float east a n d
a n d howrethey d o t h a t i s
T h e Chicago b a n k gets m o r e
than a l l the other banks p u t together.
Governor Aiken:
I n some w a y o r other quite a
large
amount o f n e w Mederal Reserve notes f r o m one o f the small
western banks turned u p i n Boston.
T n e r e were quite a
number o f t h e m t h a t c a m e i n t h a t W a y e I
never k n e w t h e
transaction b y which they got thore, b u t there w a s a
block
o f t h o s e notes.
I t isa
get t h o s e n o t c s shipped.
W
great burden
big
t o the banksto
e have t o p a y o u t gold against
them, that is. advance it, for the benefit o f the issuing
bank.
The Chairman:
M r . Hoxton, w h a t i s your view o f this
matter?
Mr. Hoxton: I
feel, Mr. Chairman, t h a t t h e bank o f
issue should stand t h e cost.
The othor d a y I had o u r auditor figure o u t that matter
for me, and I found that w e were sending out for redemption f a r m o r e n o t e s t h a n a r e c o m i n g b a c k t o us;
the oxact proportion i s thirty t o one,
initialed a
i n fact,
S o m e time a g o I
package o f Federal Reserve notes, j u s t a s i t
came f r o m the bank o f issue, w h i c h was o n e o f o u r state
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Federal Reserve Bank of St. Louis
83
banks. I
have initialed t h a t package o f notes three
times i n the original package.
B a c h time I
the geld f o r i t a n d paid t h e cost.
have p u t o u t
T h a t bank, which i s
in the south, has issued that package o f notes t e a bank
in its o w n city; t h a t bank has sent t h e notes t o a correspondont
i n St. L o u i s ;
t h e correspondent brought
us i n the original wrapper a n d demanded gold.
W e sent i t
back t o the Federal Reserve b a n k a n d paid t h e cost.
happened three times after I
had marked t h e notes.
many times i t happened before I
package I
it to
This
H o w
put m y initials o n the
have n o way o f knowing.
B u t I do feel that t h e
bank o f issue ought t o stand t h e cost.
Governor Seay:
H o w many notes h a v e y o u issued i n
Chicago, Governor McDougal?
Governor McDougal:
B e t w e e n t w o a n d three million.
Governor Scay: R i c h m o n d h a s perhaps issucd t h e
la rgest amount noxt t o New York.
miliion.
W e have about thirteen
T h e y have b e e n put o u t legitimtcly.
T h a t is
to s a y they were n o t turned over t o one b a n k for shipment
to another bank, t o come b a c k three times i n that way.
These notes have b e c n issued i n response t o a legitimate
demand,
s o far a s w e know.
them for railroad payrolls.
and wide. I
W e have furnished s o m e o f
T h e y have b e e n scattered f a r
imagine there are quite a good many o f
them i n the Treasury Department now.
B e i n g o n e o f the
banks that has issued the largest amount, i t seems t e u s
that i t i s a question o f a little more t h a n the law. z
believe i f w e were t o follow out t h e exact verbiage o f the
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Federal Reserve Bank of St. Louis
84
Law that unquestionably t h e bank forwarding t h e notes f o r
redemption would h a v e t o pay the cost.
I t i s a questién
of what weuld b e equitable undor a l l the circumstances,
and t h a t i s always a
Governor Wold:
hard q u e s t i o n
t o determine.
w e h a v e worked t h e p u m p a S Governor
Strong h a s used t h e term, a
great m n y different w a ys,
legitimate ways, s u c h a s the moving o f crops a n d s o forth
py the country bank, a n d a great deal o f i t goes out
every day.
Governor Seay:
W h a t I
meant w a s t h a t t h e y w e r e n o t
issued t o t h e b a n k e n b l o c f o r t h e p u r p o s o
shipper
t o m a k e a n exchange. I
o f enabling t h e
t h i n k a n y provess
b y which
we get t h e m out i s legitimate a n d legal, s o far a s that i s
concerned,
W e have done some pumping a s well a s anybody
elsc.
The Chairman:
Governor Wold:
H o w many have y o u out, Governor ¥old?
W e have atts t e n million.
W e have
asked our banks n o t t o ship Federal Reserve notes o f the
ninth district out. o f the district.
W e nave asked t h e m
to ship t h e m t o banks that would b r i n g t h e m t o u s a n d not
send t h e m out.
Governor Seay:
I t seems t o m e that t h e bank that
does u s e t h e m gets t h e benefit o f the gold f o r future
use, a n d I
a m inclined t o believe that i t i s more equitable
for t h e bank o f issue t o bear t h e burden.
The Chairman:
G o v e r n o r Kains, w h a t i s your v i e w
with regard t o this matter?
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Federal Reserve Bank of St. Louis
Governor Kains: I
said I believe t h e place sending
85
the b a n k o f i s s u e t h e n o t e s s h o u l d p a y t h e expense,
A n d h o w d o y o u feel about it, Governor
The Chairman:
Fancher?
Mr. Hoxton:
I
f y o u will p a r d o n me, 1
would l i k e
reaempto a s k who pays t h e expense i n connection w i t h the
tion o f national v a n k notes?
h
The Chairman:
e bank that sends t h e m f o r reaemp-
tion, a n d that i s true o f all other forms o f currency i n
circulation i n the United States.
Mr. Hoxton:
‘ s u i n g b e c o e s n o t stand it?
he Chairman:
Governor Seay:
N o .
T h e r e i s a i f f e r e n c e with regard
to Federal Reserve B a n k notes:
T h a t i s rather a
again.
The Chairman:
W e cannot p a y them out
unique situation.
A t this stage o f the development o f
our note issue w e are performing,
selves, w h a t i s i n fact a
a t heavy expense t O ouRr-
public service,
ly getting t h e gold where i t belongs,
Federal Reserve Banks,
sive. I
W e a r e gracual-
i n tne control o f the
b y a process t h a t i s pretty expen-
think t h e expense t h a t w e ineur n o w i n connection
with the note issue amounts t o (315,000 a month i n New York.
It certainly averages $12,000 o r more, I think, including
the cost o f the notes i n the first instance. A
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Federal Reserve Bank of St. Louis
compara-
for redemptively small percentage o f them are coming i n
wpliolel-
O f course a s t h e volume increases t h e liability
for. the expense o f redemption,
i f i t were thrown o n the
a restraint
bank o f issue, could n o t help but operate a s
o f a very
upon the issuing b a n k against t h e cont. inuance
86
desirable operation. I
a m somevhat u n c e r t a i n
i n m y own
mind a s t o whether t h e hardship o n the o n e hand i s not
offset
b y the advantage
hand. I
believe
t o the whole system o n the other
i t would b e found o n inquiry t h a t t h e
redemption e x p e n s e w o u l d b e f a i r l y a p p o r t i o n e d a m o n g t h e
banks i f the reserve banks were a l l o f them doing what I
believe i s their duty i n facilitating this process o f getting o u t t h e notes,
T
o what extent t h e expense involved
has acted a s a restraint u p o n t h e reserve banks i n issuing
their notes, I
have n o means o f judging.
a great i n e q u a l i t y
banks.
B u t there i s
i n the volume i s s u e d b y the different
W e have nearly (65,000,000 outstanding now in
New York; Richmond has $15,000,000; Minneapolis (310,000,000;
Chicago only $2,000,000; Gleveland about (8,000,000--Governor Aiken:
W e have five million i n Boston.
Governor Van Zandt:
The Chairman:
I
W e have $15,300,000 i n Dallas.
f t h e n o t e i s s u e was substantially
ratable among t h e cifferent reserve banks i t i s fair t o
assume t h a t the redemption would w o r k out ratably among
tnem.
W e , for instance, would get more notes for redemp-
tion than probably any other bank, possibly as much as the
rest o f t h e m p u t together,
New York.
O
a t certain times o f the year i n
n the other h a n d t h e expense
o f redemption t o
the other eleven banks o f our notes, which are the largest
in volume and i n circulation, would b e divided u p amongst
the eleven banks. I
think i t would work o u t ratably i f
all the banks were issuing their notes i n fairly ratable
proportion.
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Federal Reserve Bank of St. Louis
w e have a
very large send-out o f these notes.
87
I Was amazed w h e n I came t o look a t the figures n o t long
ago t o find o u t t h e amount w e had sent out.
A b o u t every
third d a y w e send shipments o f notes t o five, six, seven,
eight o r even t e n o f the other Federal Reserve Banks.
have averaged twice a
week o n that, I
W e
think, a n d sometimes
it happened t w o o r three days i n succession, I
a o not
believe i t i s going t o affect t h e expense o f the reserve
banks
t o a n y v e r y great extent, e x c e p t t h o s e banks--- a n d
I cdo not want t o b e personal about this, gentlemen--- which
are inclined n o v t o economize i n connection w i t h note
issues, because o f the considerable expense.
T h e w a y they
can g e t b a c k a t u s i s b y s p e e d i n g u p t h e i r o w n issue.
Governor Rhoads: I
would like t o say that w e have
not b e e n deterred b y that sort o f expense.
w e have p u t
out all t h e notes that o u r market would take. I
not want i t t o degenerate i n t o a
would
contest t o see which
bank could flood t h e market w i t h the most notes,
i n order
to protect itself against expense.
The Chairman: I
that way.
d o not believe i t would w o r k e u t
H o w c a n y o u flood t h e market w i t h notes w h e n
you a r e S i m p l y g i v i n g a
one hundred d o l l a r n o t e f o r o n e
hundred dollars i n gold, a n y more t h a n t h e United States
Government c a n flood. the country w i t h gold certificates.
It i s simply t h e conversion o f one f o r m o f circulating
paper into another.
I
e gold together,
t has t h e important effect o f getJ u s t since this process started
in the month o f January, when i t really started, t h e
reserve banks have tucked away (135,000,000 i n gold; and
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Federal Reserve Bank of St. Louis
88
according t o the last figures t h a t I Saw the reserve banks,
including t h e g o l d h e l d b y t h e r e s e r v e a g e n t s , h e l d a
total of “428,000,000 in gold. ‘There is an object to
be served there that f a r outweighs a n y disadvantage t o
one bank o r another b a n k who, f o r t h e time being, m a y feel
themselves u n d e r s o m e l i t t l e e x p e n s e
i n redeeming t h e
notes o f those:- banks t h a t have b e e n able t o get a large
issue o u t .
Governor V a n Zandt:
sub-treasury+
I
n our district
w e have n o
O u r banke a t t h i s t i m e o f t h e w a n e e e e
needing worlds of currency to move the cotton crop. T h e y
will wire i n for u s t o ship currency a n d w e have got t o
ship them Federal Reserve notes o r nothing. _
They want
their money right now, and that i s the way our issue has
gotten s o large.
Y
e have o n e bank that w e shipped a
million a n d a half dollars o f currency t o already this
season.
Tne Chairman:
T h a t i s a perfectly legitimate oper-
ation a n d o u g h t t o b e promoted.
Governor Wold: I
feel very much a s y o u d o with
regard t o getting o u t these notes.
W e believe i t i s wise
to accumulate this gold a n d put o u t t h e Federal Reserve
notes against it, e v e n though i t i s done a t a n initial
expense t o us.
i f w e work from the dollar a n d cents
standpoint a n d n o t p u t t h e m o u t b e c a u s e
to
odes
a e s
o f expense,
the
w e are furnishing these notes c a n get t h e cur-
rency elsewhere,
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Federal Reserve Bank of St. Louis
Governor Fancher: I
would like t o say, i n speaking
89
for o n e o f t h e b a n k s t h a t a r e m a k i n g o c o m p a r a t i v e l y
l o w
earnings t h a t w e h a v e n o t i n a n y w a y h e l d b a c k i n t h e
issuing o f e u r notes,
w
e have p a i d t h e m o u t wherever
there h a s been a Gemand f o r currency. I
saved o u r member banks a t Cleveland a
presume w e have
good m a n y dollars i n
the m a t t e r o f c h a r g e s f o r t h e i n - s h i p m e n t
o f currency.
We supply payroll currency v e r y liberally, n o t only t o
Cleveland, b u t t o our member banks i n Pittsburgh a n d i n
Cincinnati.
“ Y e have n o t curtailed t h e m i n any instance;
we h a v e p a i d t h e m f r e c l y w h e n e v e r c a l l e d for.
W
e have
gone further t h a n that. S o m e t i m e a g o I arranged with
our state banks “whereby w e exchanged o u r notes f o r their
gold certificates a n d gold.
tinued,
T h e operation i s t h e n con-
T h e y have their maturities redeemed, a n d i f
they get gold certificates o f fairly large denominations,
we can exchange our Federal Heserve notes o f smaller
denominations f o r their matured notes.
v
e are supplying
a number o f our banks w i t h their currency i n that way.
In connection w i t h what I have s a i d a s t o the policy
of the banks, I
think i t might b e worth while t o review
the discussion that preceded t h e adoption o f this policy
and i t s a p p r o v a l
i n Washington.
T h e so-called p u m p
that enabled u s t o get t h e notes o u t i n large volumes
subjected u s t o considcrable criticism i n Washington.
Some o f the members o f the Board held the v i e w that w e
were i n fact violating t h e l a w i n respect t o making substitutions b y the process t h a t w e are n o w employing; t h a t
it resulted i n locking u p a lot o f gold that ought t o b e
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Federal Reserve Bank of St. Louis
gO
free i n the hands o f the banks, a n d s o on.
two m e m b e r s
o f the board advanced t h e theory that this w a s
& process O f inflation.
it i6@ &
T h e n one o r
process
L t 2 8 20t, o S a
me tper o f fact;
o f c o n t r a c t i o n r a t h e r t h a n o f inflation,
After s o m e d i s c u s s i o n a n d f u r t h e r t h o u g h t t h e y h a v e g r a d ually c o m e t o t h e i d e a t h a t t h i s i s a
very desirable o p e r -
ation a n d t h a t t h e R e s e r v e B a n k s s h o u l d b e p e r m i t t e d
it.
I t seems t o m o the feeling,
t o do
a s expressed b y Governor
Kains a n d Governor Rhoads, t h a t i t i s a hardship o n some
of the banks t o p a y t h e cost o f redemption, brings u s t o
this proposition,
a s I view it:
h a t t h e banks t h a t are
willing a n d a b l e t o b c a r t h e e x p e n s e o f a
very c o n s i d e r a b l e
note issue a t this time appear t o b e subjecting other
banks t o considorablo expense i n redeeming those notes
as t h e y c o m e i n .
First, what docs t h e l a w mean a s t o expense o f redemption?
W h a t does t h e l a w intend?
S e c o n d , i f the l a w
is ambiguous a n d bermits o f two interpretations, w h a t i s
the fair thing t o do i n regard t o this question?
thet t h e w a y t o look a t it?
W
I s not
e certainly must n o t stop
this process o f accumulating gold.
W e have adopted that
process, a n d I think w e are a l l i n absolutc agreemont that
it is the desirable thing to do; but w e must consider these
~wo points:
W h a t does t h e l a w mean a s
t o the redemption?
And i f the l a w does n e s t decide t h a t question, w h a t i s the
feiy t h i n g t o - d o ?
Governor Seay: O r d i n a r i l y , w h e n t h e demand f o r currency grows less these reserve notes would b e shipped t o
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Federal Reserve Bank of St. Louis
91
you, o r rather shipped t o N e w York, a n d i t would impose
upon y o u the expense o f sending t h e m t o us.
now t h a t d r a f t s
o n Federal Reserve B a n k s
into N e w York exchango a t par, I
T e the extent
c a n b e converted
think t o that extent t h e
notes could b e sent t o the Federal Reserve Banks nearest
Lo. t h e p o i n t o f Zesue,
T h a t would b e a
haphazard w a y
of distributing t h e expenses o f the redemption o f the
notes.
T h e r e i s one certain a n d sure w a y and that i s t o
have t h e e x p e n s e b e a r t h e s a m e p r o p o r t i o n
of issue.
t o the volume
T h a t would f i x the expense o n the b a n k o f
issue.
Governor V a n Zandt:
D o y o u take i n t o consideration
the fact that t h e Federal Rescrve B a n k has t o pay f o r the
shipment
o f these notes
t o the b a n k o f issue before t h e y
have ever been issued?
Governor Seay:
T o what bank?
Governor V a n Zandt:
Governor Seay:
T h e issuing bank, f r o m Washing-
Y e s , t h e y have t o d o that, o f course;
but that i s a disadvantage o f location which should n e t
be imposed o n another bank.
Governor Fancher:
C o u l d w e not defer this topic
until t h e next mecting o f t h e Board?
each bank could prepare a
I n the meantime
statement o f expense t h a t t h e y
have been put to, showing the proportion o f notes sent
in f o r r e d e m p t i o n a n d t h e a m o u n t w h i c h t h e y h a v e o u t -
standing, a n d w e c a n see then i f w e cannot determine j u s t
where t h i s b u r d e n rests,
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Federal Reserve Bank of St. Louis
W
e c a n all make a
transcript
92
from our records and bring here «ith us a statement o f the
expense t o each bank.
The Chairman:
G o v e r n o r ieDougal, w h a t views a r e
held i n your bank o n this subject?
Governor MeDougal: I
do n o t think this qiostion
has been discussed b y our board a t all, b u t the m t t e r o f
issuing reservo notes w a s discussed a
long time a g o a n d
the decision was reachod t h a t there would b e n o acvantage
in putting these notes o u t unless v e h a d a demand which
would make i t necessary, a n d w e have, h e r é f o r e , n o t i s =
sued a n y , c x c e p t a
few, a n c w e h a v e o n l y p u t t h e m o u t w h e n
they have b e e n especially called for.
O n the contrary w e
had: accumulated, some time ago, a largo amount o f silver
and L e g a l certificates,
seems
a n d h a v e u s e d t h o s e freely,
I t
t o m c that a s e a c h o f t h e banks a r e obliged t o
redeem t h e s e n o t e s a s t h e y a r e p r e s e n t e d ,
t h e y are also
obliged t o send thom back t o the issuing bank.
T n e issu-
ing bank does not invite us to d o t h e T h e y would not
eare i f we didn't d o it. T h e y would rather w e did not
do it. I
have b e e n o f the opinion t h a t w e probably woulda
expect t h e m t o pay t h e cmrge.
The Chairmu:
Y o u mean t h e issuing bank?
Governor .'eDougal:
N o , t h e b a n k that i s sending
them.
I d o not think i t i s clear i n the minds o f most o f
our board, Mr. Chairman, a s t o the theory o n which you
are accumulating tho gold a s you are accumulating it, I
can see h o w i t might b e important t o kmow where a l l that
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Federal Reserve Bank of St. Louis
geld is, but I do not understand what the object is.
The Chairman?
T h e r e i s a very important object.
Suppose w e had t o meet a n emergency, a
sudden demand, s u c h
as arose last August, f o r discounting, when i n one day we
got 65,000,000 of paper discounted at the bank.
W e
were i n a position t o return $65,000,000 o f commercial
paper t o the Fedcral Reserve Agent and take 65,000,000
@ gold a n d put i t i n our general reserve---
Governor McDougal: (Intcerposing)
C a n yeu get that
gold back directly?
The Chairman: I
t h i n k w e can.
T h a t question h a s
never b e o n absolutely a n d finally disposed o f and i s o n
the program f e r discussion a t this meeting.
Governor McDougal: I
will s a y that t h e matter o f
expense h a s never b e e n discussed i n our board, a s I remember.
O f course w e k n o w there i s a n expensc i n v o l v e d
in
issuing t h e notes, b u t the policy that w e have b e e n follewing was adopted simply f o r t h e reason that, until t h e time
arose n e c c s s a r y
t o use that kind o f q r r e n c y
n o advantage
weuld accrue f r o m Going so.
The Chairman:
T h a t makes your note issue a n emergency
issue.
Governor M c D o u g a l :
The Chairman: I
Y e s .
do not think that i s the intention
of the law, although, like a good many other things, the
intention o f the l a w i s not a s clearly disclosed b y the
text o f the l a w a s w e would like t o have it,
B u t when w e
get a l l o f the Government bonds i n our possessien a n d
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Federal Reserve Bank of St. Louis
94
have a l l o f the Foderal Reserve B a n k notes i n circulation against those bonds, a n d ultimatcly enlarge o u r note
issues v e r y much, t h e question o f note issucs b y Federal
Reserve Banks i s going t o b e a n immense problem, a
great
economic problem i n the currency system o f the muntry.
I think w e have a l l agrecd i n our bank that t h e foundation
for t h e strength o f the bank i n its note issucs will b e t o
convert them, a s the l a w roally permits,
w e believe, i n t o
a real note issuc backed b y a real gold basis, a n d the
emergency circulation w h e n required will simply b e a layer,
a superimposed i s s u e s e c u r e d
b y c o m m e r c i a l p a p o r on, top: o f
a very large issue secured almost entirely b y gold o r b y
Government bonds,
i n the case o f the Federal Reserve D a n k
notes.
I t would t a k e a very Small volume
Governor Seay:
of notes, b a s e d o n commercial paper,
t o lend elasticity
to t h e whole.
The Chairman:
Y e s ; I
frankly believe t h a t a
note
issue which i s t o b e the fundamental note issue o f a coun-
try, a 8 this i s ultimately dcsigned t o be, secured simply
by c o m m e r c i a l p a p e r ,
i s t h e r a n k e s t k i n d GO, A n i Lenton,
particularly i f they are permitted t o serve a s reserves,
If it is based primarily upon gold i t is not inflation;
it i s legitimate expanston t o the extent that commercial
paper i s used t o extend that issuc, particularly i n time
of heavy cGemand f o r accommodatien---
Mr. Hoxton: (Interrupting)
I f you will pardon me,
I would like t o ask this question, a n d I
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Federal Reserve Bank of St. Louis
ask i t simply f e r
95
information,
I f these Fodcera? Reserve notes a r e payable
and redeemable i n gold, t h e y mist b e redeemed i n gold a t
some future time.
W h a t i s the difference?
T h e y are gold.
I look upon them, whore w o are issuing t h e m dollar f o r dollar, a s nothing b u t gold.
T h e y must b e redeomed i n gold,
and h o w are y o u conserving t h e gold except f o r a short
period o f time. I
a m not taking a
c o n t r a r y view, b u t
merely want t o have a n expression made. I
do not under-
stand it.
The Chairman:
I t seems t o m e that w e have g e t t o
consider t h a t t h e c u r r e n c y o f t h e c o u n t r y s e r v e s t h r e e
different purposes i n its use.
O n e refers t o the fairly
fixed amount that i s i n general circulation i n the peo-
pile's pockets and tills, a n d s o forth.
T h e other division
is that which serves a s reserves f o r national banks.
Now w e h a v e c r e a t e d w h a t y o u m i g h t c a l l a
third purpose,
and that i s a n issue t o meet a sudcen demand f o r expansion-call i t a fiduciary issue--- which w e expect will come
in f o r r e d e m p t i o n v e r y p r o m p t l y w h e n t h e d e m a n d i s over,
Now, t h e process t h a t i s taking place a t present i n the
issue o f these notes f o r gold does n o t affect t h e bank
“reserve, t h a t is, t h e money held b y the national a n d state
banks.
I t affects t h e substitution o f s o many federal
reserve b a n k notes i n the pockets o f everybody w h o carries
currency, f o r s o much gold o r gold certificates.
practically constitute a
reserve O f t h e banks.
permanent addition t o the g o i d
T h e r e will b e a certain fixed
volume o f F e d e r a l R e s e r v e n o t e s
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Federal Reserve Bank of St. Louis
I t would
i n circulation.
I t will
96
vary moderately, b u t i t will consist o f a certain proportion
always o f Federal Reserve notes a s long a s w e have a l l
kinds o f currency i n circulation.
I
t will b e regulated
more b y the monipulation o f the cenomination of. notes t h a n
W e could count o n possibly (100,000,000
by anything else.
in notes i n circulation i n place o f the sml1l denomination g o l d certificates,
Mr. Hoxton:
W e have issued about $5,000,000 worth
of notes, a n d I should s a y that 9 0 per cent ef, that h a s
been i s s u e d t o banks
i n St. L o u i s t h a t h a v e p r o b a b l y u s e d
them f o r shipping purposes. N e i t h e r t h e national banks
or s t a t e b a n x e
i n St. L o u i s c a n c o u n t F e d e r a l R e s e r v e
notes i n thes,
reserve,
a n
be b r o u g h t
d when t h e y come b a c k they will
t o u s immediately f o r redemption
b y either t h e
national o r state institutions,
The Chairman:
Mr. Hoxton:
O
r t h e y c a n b e p a i d o u t again,
T h e y won't b e paid o u t again, because
there won't be the need for it.
The Chairman:
national
W e have i n circulation ‘;800,000,000
b a n k notes t h a t
Mr. Hoxton:
d o n o t count
a s reserves,
T h e y count a s reserves i n the state
institutions.
The Chairman:
Y e s , b u t t h e real circulation o f
national b a n k notes i s for payroll purposes, pocket money,
till money,
a n d s o forth.
T h e r e is a
certain amount a l -
ways o n hand i n national banks i n process o f rejiemption,
a certain amount i n reserve a t the state banks, b u t t h e
great bulk o f them are i n circulation i n the pockets o f
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Federal Reserve Bank of St. Louis
97
T h a t s a m e t h i n g w i l l r e m i n t r u e o f Federal
the people.
Rescrve B a n k n o t e s u n t i l t h e i s s u c r e a c h e s t h e p o i n t w h e r e
no more a r e going aut, a n d they will t h o n come back i n for
redemption, I
d o not think t h e fact that t h e y d o not
as
count a s reserves will drive t h e m i n for redemption,
if thoy had been issued temporarily, just to meet a n emer. gency. I
think i t is simply the exchange o f one form
of currency f o r another, a n d I think they will s t a y o n i n
circulation until t h e y wear out.
Governor Seay:
I t i s true that f r o m year t o year,
as t h e p o p u l a t i o n i n c r e a s e s t h e v o l u m e
o f business i n -
creases, W i t h a proportionate increase i n circulation,
During t h e p a s t f e w y e a r s t h e c i r c u l a t i o n h a s i n c r e a s e d
at
the rate o f 385,000,000 t o %100,000,000 a year.
(Discussion fellowcod which the reporter w a s directed
not t o take.)
The Chairman:
T h e r e i s another v e r y important
reason f o r taking advantage o f the present s i tuation
when gold circulates s o freely.
T h e d a y i s coming, w e
ao not k n o w when, w h e n i t will become necessary f o r foreign
banks generally t o restore their.gold reserves w h i c h are
now v a s t l y d e p l e t e d
o n account o f t h e expansion o f their
liabilities, t h e i r note circulation a n d deposit liabilities
both.
W h e n t h e time comes t o restore this g o l d reserve
there i s only o n e m r k e t
i n the world where t h e y c a n get
the gold, a n d that i s the m r k e t
i n this country.
have g o t t o b e p r e p a r e d f o r i t .
W
w e
e certainly a r e not
going t o b e i n a position t o fortify the position o f our
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Federal Reserve Bank of St. Louis
98
panks i n this country i f w e leave s i x o r eight hundred
b e availmillion dollars o f gold floating whore i t will n o t
take
able t o effect that readjustment w h i c h i s going t o
going
place after t h e w a r i s over just a s sure a s there i s
to
te b e a readjustment o f reserves$ a n d that w e have g o t
meet it.
T h a t i s the purpose o f getting t h e gold i n behind
the note issues n o w a n d I regard that a s the most important insurance w e c a n effect against t h e consequences o f
the war.
I s there n o t still o n e other point?
Governor Wold:
want
Have w e not experienced times w h e n t h e banks d i d not
W h a t t h e y wanted w a s credit.
a circulating medium,
The
based
capacity o f many o f these barks t o extend credit i s
upon the reserves alone.
L f : you haven't a n y notes o u t
or y o u r m e m b e r b a n k s d i d n o t w a n t notes,
to loan them gold.
B
y o u would have
y that process w e c a n reverse t h e
gold back
pump,--- a n d I think w e c a n d o it--- a n d get t h e
from the Federal Reserve Agents.
I s there a n y doubt about that?
Governor Kains:
Governor Vold: I
do not think there is.» G o v e r n o r
Strong r a i s e d t h e question.
he Chairman:
M r . Curtis a n d I have n o t discussed
was
advanced
this matter recently, b u t I know that the view
py one o f the members o f the poard,
i n a discussion o f
the
this matter, that w e might have difficulty i n getting
gold back.
came
I d o not k n o w whether y o u were there when that
up o r not.
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Federal Reserve Bank of St. Louis
o y o u mean getting i t
D
Governor V a n Zandt:
from the Federal Reserve Agents?
e
The Chairman:
x
c
e
p
t
by a
process
of
at Washington.
I t seems t o me t o be very plain, uncer
Mr. Curtis:
section 16.
Unne Federal deserve Agent shall hold such gold, gold
certificates o r lawful money available ex€lusively for exchange f o r t h e outstanding Federal reserve notes, w h e n
offered b y the reserve b a n k o f which n e i s a director.
Upon recuest o f the S e c r e t a r y o f the Treasury t h e Federal
Reserve Boaré shall require t h e Federal Reserve Agent t o
transmit s o mich o f said gold t o the Treasury o f t h e United
States
a S m a y b e required f o r t h e exclusive purpose o f
the redemption o f these notes."
if w e reverse t h e pump, taking t h e commercial paper
thet c o m e s
i n i n t i m e o f stress,
a n d y o u g e t o u t notes
against i t , those notes g o back t o the Reserve Agent a n d
he has g o t t o give y o u gold.
the g o l d for.
H
T h a t i s what h e i s holding
e has t h e paper
a m reserve notes a n d y o u
have n e a
Governor Seay:
T
h
e
n t w o a n d t w o d o not m k e
four i f you c a n d o i t one w a y a n d not the other.
Mr. Curtis:
I f the pump i s good one w a y i t i s good
for t h e r e v e r s e w a y ,
Gevernor Kains:
O u r Federal Reserve Agent transfer-
red the gold t o his credit t h e other day, i n Yashington.
t b ict
I was talking t o Governor Wold about i t and h e bhought
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Federal Reserve Bank of St. Louis
100
ras a mistake t o have allowed h i m t o c o it, i f I could
have prevented h i m from coing it.
Governor Wold:
Y o u r condition w a s a little differ-
ont f r o m ours,
Mr. Curtis:
I t i s still under h i s emtrol.
H e is
bound t o held i t for this v e r y purpose, u n d e r t h e statute.
Governor Vold:
and M i n n e a p o l i s
Shipment
T h e difference between S a n Francisco
t h e n w e w a n t g o l d i t involves a
i s this.
ang a
t o Vashington
San Francisco t h e y have a
reshipment
back
t o us.
iLvoe
sub-treasury a n d when the Federal
Reserve B a n k i n San Francisco wants g o l d all they have t o
do i s t o g O acrogs t h e street a n d get it.
Governor Aiken:
Y o s ; S a n Francisco gets a
transfer
that y o u c o u l d n o t h a v e m a d e here.
But, g e n t l e m e n ,
w e h a v e j u m p e d f r o m NO.
e s t o sno Ads
(h), which i s a topie t o be reserved for discussion when
the committce from the Federal Reserve Board i s here.
This matter i s before t h e meeting i n the f o r m o f a mo-
tion b y Governor Aiken, which motion I think was seconded
by Governor Rhoads,
Governor Aikcn:
T h e motion was m d e
Whonds and I seconded it. I
second t o that motion.
b y Governor
would like t o withcraw m y
T h e magnitude o f this problem has
peen laid before m e i n such a graphie way that i t seems t o
me that t h e cost o f the recemption o f these notes i s a
very small matter, and I publicly repent. (Laughter)
Governor Rhoads: I
had a thought i n mind t h a t a
great deal more was being m d e out o f this than I had
thought;
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Federal Reserve Bank of St. Louis
b u t a s t h e Federal Reserve B o a r d h a v e p u t t h e i r
1O1
name opposite this matter I was wondcring i f i t would b e
proper t o a s k Mr. Warburg o r Mr. Harding something about it.
I know that t h e y have considered i t because I
have spoken
to them about it.
The Chairman:
T h e y are v e r y anxious t o discuss it.
I think that whon I report these various items verbally,
as I prebably will, w h e n they come, t h a t t h e y will a s k
for the result o f the discussion o f this matter.
I f you
prefer, a s I understand y o u have indicated y o u might, t e
defer discussion until t h e y get here, w e c a n o f course d o
that.
Governor Rhoads:
W i t h t h e understanding t h a t n o t t o o
much time will b e given t o it.
The Chairman: I
really feel that this i s a very im-
portant matter, t h a t is, getting t h e g o l d together, a n d I
would like t o have a private scssion with Mr. McDougal, i f
possible, peters w e get away.
I t has b e e n taken u p i n a
very serious w a y i n Washington, n o t o n l y b y the board, b u t
py the Sceretary o f the Treasury.
H e fully understands
the situation a n d has decided t o cooperate,
i n certain meas-
ures t h a t t h e D e p a r t m e n t c a n take, t o w a r d s f a c i l i t a t i n g
this proccss. I
believe t h e Government i s keenly alive
to the fact that w o have g o t t o get busy and get the gold
together a s rapidly a s possible during a time w h e n gold i s
not a t a premium here, a s i t i s abroad, a n d thereby g e t i n
shape t o meet t h e demands t h a t will have t o b e met later.
Governor Seay: I
that.
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Federal Reserve Bank of St. Louis
W
think w e ought t o g o further t h a n
e o u g h t t o invoke t h e a i d o f o u r m e m b e r p a n k s f r o m
one e n d o f this m u n t r y t o the other.
Tho Chairman:
it.
W e have a l s o discussed that view o f
I t works automatically i f all t h e things that c a n
be d o n e a r e undertaken.
I
t really comes d o w n t o t h i s
Wo h a v e n o w f o u r d i f f o r e n t f e r m s o f p a p e r m o n e y , n a t i o n a l
notes, silver certificates, national bank notes and gold
certificates. I
a m leaving o u t o f consideration t h e
Feceral Reserve notcs.
I f the denomination o f gold certi-
ficates i s gradually increased; t h a t is, i f they discontinue
the issuing o f ten and twenty dollar certificates, a n d pos-
sibly later the fifty dollar gold certificates, a n d then
the Genominations o f Unitcd States notes a n d silver certificatcs a r e kept a t a minimum--- thet is, one, t w o and f i v e
dollar bills, which a r e always i n demand f o r circulation-—and i f the shortage created b y cGiscontinuing t h e issuance
of ten twenty end fifty dollar gold certificates i s supplied b y the issuance o f Fedcral Reserve notes,
i t will b e
found that t h e United States notes a n d the silver certi-
fimtes will gradually drift out o f bank reserves into
general circulation and that the gold which was i n circule tion i n t e n and iwenty dollar notes,
n o longer being
available because t h e issue h a s b e e n discontinued a n d only
large bills issued, will all finds its way into bank
reserves, n o t o n l y Federal Reserve Janks, behind their
notes,
b u t i n t h e reservos
state banks,
o f all t h e member banks a n d
T h e problem with which t h e member banks
will t h e n b e confronted will b e h o w t o get small notes
for circulation.
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Federal Reserve Bank of St. Louis
T h i s country absorbs a
tremencous
volume.
T h e y cannot m a k e t h e o n e a n d t w o dollar
notes f a s t enough t o supply t h e demand.
T o a n extent w e
can Supply t h e m with five, t e n and twenty doller notes
and t a k e t h e gold, b e c a u s e
give us.
i t i s all t h e benks h a v e t o
T o show y o u h o w thet works o u t i n New York:
Some of the lerger banks -- notably the National “ity
Bank - ~ h a v e sorted their reserveimoney, a n d f o r some
time have h e d nothing b u t gold i n their reserves.
They
have h a d very lerge calls made u p o m them t o ship currency, a n d they d o not want t o let t h e gold go.
I n one in-
stance they brought out $14,000,000 i n silver certificates,
at one clip, a n d asked u s t o give t h e m Federal Reserve
notes.
T h e y recognize v e r y clearly t h e advantage t o u s o f
getting those g o l d certificates. I
believe t h a t w h e n the
whole o p e r a t i o n i s w o r k e d o u t s c i e n t i f i c a l l y e n d t h e T r e a s ury D e p a r t m e n t
a n d t h e r e s e r v e b a n k s a r e cooperating,
that t h e effect will b e t o put a l l o f the banks u p o n a
gold reserve basis rather t h a n gold, plus a
large amount
of United States notes a n d silver certificates.
nothing b e t t e r t h a n t h a t c o u l d happen.
J u s t now
O f course t h e
national b a n k notes would have t o take care o f themselves
through t h i s g r a d u a l p r o c e s s
o f redemption,
over t h e t w o p e r c e n t bonds. I
long discourse o n the subject.
w h e n w e take
did n o t m e a n t o make a
W e feel very strongly a -
bout i t i n New York, a n d I would n o t want t o see the cost
of r e d e m p t i o n i n t e r f e r e
i n a n y w a y w i t h t h e continuation
of t h i s work,
Governor V a n Zandt:
M r . Cheirman,
a s Governor
Rhoads' motion did not receive a second, I move you it is
the sense-of this Conference t h a t t h e cost o f returning
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Federal Reserve Bank of St. Louis
LO4
Federal Reserve b a n k notos t o the bank o f issue should b e
borne b y the sending bank.
second that motion.
Governor Kains: I
I s there a n y further discussion o f
he Chairman!
this m a t t e r ?
A s I substitute I
Governor Seay:
ter b e deferred f o r furthor experionce.
move that t h e matO f course t h s
present practice would prevail i n the meantime.
The Chairman:
Y o u r s u b s t i t u t e m o t i o n i n effect i s
that
a m e n d Governor Van Zandt's motion b y provicing .-
that
c o s t o f redemption should b e borne b y the sending
bank
t h e present a t least,
o r until experience deter-
mines that some other course i s justified?
simply desire not t o commit our-
Governor Seay: I
selves t o the opinion that that i s the permanent basis o n
which i t should equitable b e settled,
W o u l a i t net b e better t o cefer t h e
Governor Aiken:
wholo matter until v e hear t h e opinion o f the Federal.
Reserve Board o n it,
D o you mean at this discussion?
Governor Seay:
A
Governor Ajken:
The Chairman:
seconded? I
t this discussion; yes.
I s that motion o f Governor Seay
cid not hear one.
Governor Seay: t
did n o t hear o n e either, Mr.
Chairman.
The Chairman:
I t will b e necessary f o r m e t o put
Governor V a n Zandt's motion.
Governor Rnoads:
I f b y seconding Governor V a n
I
Zandt's motion I can cefer final action o n this matter,
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Federal Reserve Bank of St. Louis
would like t o d o that.
T n e substitute motion i s simply o n
The Chairman:
the p r o g r a m f o r a c t i o n a f t e r t h e m o t i o n t h a t h a s t h e r i g h t
W e have t o vote upon the amendment
of w a y i s disposed of.
first.
I f the p r o p o s e o f the motion a n d his second
poth a c c e p t t h e amendment,
t h e n w e c a n vote o n the amend-
mont a n d t h e m o t i o n a t t n e s a m e t i m e ,
I t was s o antagonistic t o the motion
Governor Seay:
thet I
did not think i t could properly b e placed thereon
as a n amendment.
Mr. Foote:
W o u l d y o u not have t o vote o n the sub-
stitute first, Governor Strong?
do not think so.
The Chairman: I
M r . Secretary,
is not that simply a--Mr. Curtis: — I
really d o not k n o w the answer.
p s
was u n d e r t h e i m p r e s s i o n t h a t y o u v o t e d o n a l l a m e n d m e n t s
first.
Mr. Hoxton: G o v e r n o r Van Zandt's motion definitely
commits this body, does i t not?
The Chairman:
Y e s , i t does; a n d that i s the reason 1
suggestcod that Governor S e a y might b e e v t o persuade s o m body t o a c c e p t h i s m o t i o n a s a
substitute,
w h i c h would
nave t h e effect o f continuing t h e process o f having t h e
sending b a n k p a y the w s t o f redemption, f o r t h e time
being.
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Federal Reserve Bank of St. Louis
Mr. Hoxton:
The Chairman:
Mr. Hoxton:
w
e are doing that now.
Yes.
W h y i s i t necessary t o make a n y motion
at all?
Governor V a n Zandt: ‘ c h y would i t not b e a n answer t o
both questions t o acd t o m y motion the words “until experience has shown the practice t o be incorrect?"
Mr. Hoxton:
T h e n suppose t h e Federal Reserve B o a r d
should rule .ofinitely t o the peereree b e f o r e w e have h a d
the experience?
Governor V a n Zandt:
goes.
O f course whatever t h e y s a y
h i s was just t o s h o w the sense o f the meeting.
Mr. Foote:
W
e h a v e b e e n i n this w o r k a
year n o w a n d
it seems t o m o w e ought t o b e able t o express ourselves
decisively. I
fully agrce w i t h the sentiment expressed
by Governor Strong, which i s t o the effect that mobilization o f t h e g o l d r e s e r v e
importance, I
o f this country i s o f the first
Go not think w e ought t o make a n y uncer-
tain sounds o n the question. I
think w e ought t o take a
position--- I think w e ought t o speed t h e mobilization o f
the gold reserve w i t h all possible rapidity.
Chairman:
I t hardly seems t o m e that t h e
topie w e a r e ciscussing justifies r e c o r d being m d e o n
that particulor point, Mr. Foote.
T h e real question o n
our program f o r discussion i s w h o shall bear t h e expense
of redemption.
Mr. Foote: I
The Chairman:
was just looking towards t h e effect.
T h a t will come u p under Item ll-(h),
“Reversing the pump", which was what I had hoped the
meeting w o u l d d i s c u s s ; d
n
a the reason I
put i t o n was t o
pring o u t discussion a n d get some positive statement o f
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Federal Reserve Bank of St. Louis
LOT
the position o f the members o f this conference a s t o the
accumulation o f gold; t o have a n uncerstanding o f this p r o cess o f reversing t h e pump a n d removing a n y doubt f r o m the
minds o f the oefficcrs o f the banks t h a t there would b e a n y
difficulty o f a n y kind i n getting possession o f the gold t e
augment o u r reserves,
I a m going t o suggest that Governor V a n Zandt a n d
Governor S e a y a c t a s a
committee
they will offer jointly,
tion,
t o frame a
i f possible,
motion t h a t
t o meet t h e situa-
I n the meantime w e will g o ahoad with our program.
Governor V a n Zandt: I
would b e willing t o add the
word "present" before t h e word"sense"--- "that i t i s the
present s e n s o o f t h i s C o n f e r e n c e t h a t t h e c o s t o f r e t u r n ing F e c e r a l R e s e r v e n o t e s
t o t h e b a n k o f issuc s h o u l d b e
borne b y the issuing bank."
The Chairman: I
will h a v e t o p u t G o v e r n o r V a n
Zandt's motion, which was seconded?
Governor V a n Zandt: I
will submit m y original m o -
tion.
The Chairman: ’
hich was that i t i s the sense o f
this m e e t i n g t h a t t h e e x p e n s e
o f redeeming Federal Reserve
notes should b e borne b y the sending b a n k without qualifi“CObLOns
T h a t motion was seconded,
Governor Seay:
T h a t would m e a n t o imply that that
is t h e o p i n i o n t h e C o n f e r e n c e h o l d s a s t o n o t o n l y t h e
meaning o f t h e l a w , b u t a s t o t h e e q u i t y o f t h e charge.
The Chairman:
W e l l , i t comprehends everything---
law a n d t h e e q u i t i e s a n d t h e g o s p e l s a n d s o forth.
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Federal Reserve Bank of St. Louis
108
Mr. Curtis:
H o w tould i t be t o add the words "for
the present", o n the end o f that, a s Governor’ Kains suggestod?
Governor McDougal:
M y idea i s this: I
am porfect-
ly willing t o have t h e present p l a n g o along until w e have
found o u t , t h r o u g h experionce,
t h e proper thing t o guide
us,
Governor S e a y :
T h a t w a s t h e s u b j e c t o f m y substitute
motion, Mr. McDougal.
Governor McDougal:
B u t I think i t would b e wrong a t
this moment t o undertake t o f i x a definite policy where
there a r é s O many varying opinions here,
The Chairman:
H e r e s i t thirteen men, anyone o f
whom i s competent t o suggest a n amendment t o this motion,
and that amendment w o u l d require t h e Chairman t o put t h e
motion a S a m e n d e d
to a
vote,
£
8 all o f you seem s o ree
luctant t o take advantage o f your opportunities a n d rights
here, I
will b e forced pretty s o o n t o put Governor V a n
Zandt's motion a s i t stands.
Governor Seay: I
offered a n amendment, M r . Cnairman ,
which m e t with a very chilly reception. I
thought I
had
done m y duty i n that respect.
Governor Rhoads:
lag t h e s u b j e c t
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Federal Reserve Bank of St. Louis
M r . Chairman, I
o n t h e table,
Governor McDougal: I
The Chairman:
Mr. Curtis:
move y o u that w e
second that motion,
D o y o u offer that a s a n amencment?
T h a t last motion h a s t h e right o f way.
The Chairman:
V e r y vell, w e will vote o n the motion
to l a y this subject o n the table.
(The motion, b e i n g d u l y secended, w a s carried.)
Governor V a n Zandt: I
notion t 6 pases No. 15,
W e have n o t disposed o f it.
Governor Wold: I
thought i t was tabled.
Governor V a n Zandt:
the table.
presume there should b e a
N o ,
Y o u p u t m y motion o n
T h e subjoct itself w a s n o t tabled.
The Cnairman:
W h a t a r e y o u going t o d o with No. 13,
gentlemen?
Governor Seay: I
Governor Wold:
move that i t b e passed,
L e t i t come u p again during t h e
discussion w i t h the Board o n Friday.
The Chairman: I
Governor Seay:
won't d o that unless y o u want i t
W h e n w e have passed subjects hereto-
fore t h e y have generally b e e n brought u p i n some subsequent conference.
The Chairman:
W e have a
certain organic law--—— J
would n o t call i t a constitutional law, b u t just a n organic law, t h a t those items that a r e tabled o r passed automatically a p p e a r n
t h e program f o r the next n o o s e .
meeting c a n n o t e s c a p e a
topes
subjoct
T h i s
b y just l a y i n g i t o n t h e
W e have either g o t t o definitely conclude w i t h
44 o r t h r o w i t o f f t h e propram,
Mre Iloxton: I
move that t h e matter b e ciscussed w i t h
the members o f the Federal Reserve Board present,
he President:
that i n order;
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Federal Reserve Bank of St. Louis
T h e motion just passed would leave
t h a t is, w h e n a subject i s passed i t c a n
110
be called u p at a n y other time.
T h o only effect that
tne t a b l i n g has. h s 3 0 f a r h a s b e e n t o p u t G o v e r n o r V a n
Zanet's motion o n the: shelf.
Mir. Hoxton:
W i l l 1 t b e postponed t o the next
ine O F tae Docr?
The Chairman:
N o : i t c a n b e called u p a t a n y
it i s i n front o f overy m a g a t t h e table, a s a part
program.
The m o t i o n n o w b e f o r e u s i s t o p a s s i t e m 1 3 o n
program.
w a S that motion seconded?
Governor W o l d :
Y e s sir,
(The motion was d u l y carried.)
Tre Chairman:
N o w itv. H o x t o n ' s m o t i o n i s i n o r c e r i f
he; cares co. p u n t e
ix. H O X t o n 1
wi w i t h d r a w m y motion, a s i t c a n
be c a l l e d u p a t a n y time,
The Chairman:
T h e next i t e m was suggestea b y Gover-
nor Fancher,
14. S H O U L D FIDORAL RESLRVE BANKS P A Y "XPRESS
CHARGES O N CURRONGY F O R RESERVE PAYMCUNT DUE
ON AND AFTER N O V . MBLR L6th?
Governor Fancher:
think w e had .
A f t e r submitting t h a t subject I
communication f r e m t h e Board bearing o n
that, w h i c h communication cleared t h e m t t e r up.
The C h a i r m a n ;
T h a t was a
circular letter,
a s I
re-
call, which intimated that t h e member banks should themselves p a y all t h e charges o n these transfers.
A r e you
satisfied t o crop this i t e m from the program a s having b e e n
fully disposed o f ?
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Federal Reserve Bank of St. Louis
Governor Fancher:
Yes.
(As stated b y the Chairman, this matter had been disposed o f b y ruling o f the Federal Reserve Board made after
the program for the Conference had been prepared. )
Tne Chairman:
T h e next subject was suggested b y
Governor S e a y .
15. P O L I C Y O F RESERVE BANKS I N RECEIVING NATIONAL
BANK NOTES.
M r . Chairman, I
Governor Seay:
of course recall
the provision o f the A c t which says that w e m a y receive
on deposit. I
put this o n the program not t o call f o r
discussion a s a
matter o f policy,
b u t t o become acquainted
the various banks are now following
with the practice |
among themselves i n receiving national b a n k notes.
to q u i t e a
U p
recent t i m e n a t i o n a l b a n k n o t e s h a d a c c u m u l a t e d
to quite a n extent i n Richmond a n d the banks desired t o
put them off o n us. W i t h o u t meking a n y absolute refusal
wo did, a s the Federal Reserve Board recommenced i n its
recent circular, endcavor t o handle t h e matter tactfully.
I dosire t o exchange experionces w i t h the other banks;
I would like t o know i f they receive these notes i n volume,
if they accept t h e m freely,
o r i f they interpose a n y aipla-
matic objectiens?
The Ghairman:
T h a t i s one o f the subjects where w e
go around t h e table, Governor Seay, a n d give e a c h member
a Limited time i n which t o state h i s experience.
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Federal Reserve Bank of St. Louis
Governor Kains, what i s your policy?
Governor Kains:
W
e n e v e r t a k e them;
w e tactfully r e -
fuse then.
The Chairman:
M r . Hoxton?
T e take t h e m i n St- Louis.
Mr. Hoxton:
W e are
a member o f the clearing house and the clearing house
rules p r o v i d e t h a t n a t i o n a l bank. notes a r e p a y a b l e f o r
balances;
and inasmuch a s w e take t h e m through t h e clearing
house balances,
w e t a k e t h e m f o r deposit,
M e . Chairman, m a y I speak o u t o f
Governor Seay:
order right here?
The Chairman:
Yes.
Governor Seay:
T h a t w a s partly t h e reason t h e y were
offered t o u s i n Richmond.
W e entered t h e clearing house
but had the understanding that balances would b e payable
in lawful money.
T h e banks there settle a t their conven-
jence, s o m e t i m e s
b y interchange
o f n a t i o n a l b a n k notes,
They wish t o give them t o us, but w e decline t o take them.
Governor Kains:
W e are a l s a
member o f the clearing
house, b u t inasmuach a s national bank notes are not good
with u s w e c a n n o t t a k e them.
Tne Chairman:
Mr- Hoxton:
W
e settle
i n gold,
D o y o u get a large volume, Mr. Hox-
N o , w e d o not.
W e had quite a volume
up t o three months ago, but they disappeared. I
think
they will come backpretty strong about t h e first o f January;
in fact, I
a m certain they will.
The Cheirman:
G o v e r n o r MeDougal?
Governor McDougal:
w e have b e e n accepting t h e m from
the country banks, b u t declining t h e m from the c i t y banks,
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Federal Reserve Bank of St. Louis
ca
The Chairman:
V h a t i s your poSition, Gevernor Rhoaés?
Governor Rhoads:
W e have b e e n accepting them; during
the early months o f the year w e got a substantial volume,
We have h a d t o send quite a
GLOn.
lot t o hashington f o r recemp—
A t the present time w e have them ali cleaned up.
he Chairman:
G o v e r n o r Aiken?
Governor Aiken:
restrictions.
v
v e have t a k e n t h e m without a n y
e have never h a d a n y more t h a n approxi-
mately (800,000.
W e very seldom have more than $200,000.
We h a v e h a d n o t r o u b l e
The Chairman:
Mr+ Foote:
a t all.
M r . Foote?
w e have taken t h e m without restriction
and t h e y h a v e n o t e m b a r r a s s e d u s a s yet.
The Chairman:
H a v e y o u had a n y difficulty w i t h t h e
xpense o f redemption?
H a v e y o u sent very m a y through
Loe r e c e p u s o ?
Mr. Foote:
N o t a great manz,
W w e have u s e d t h e m
down t h e r e i n t h e c o t t o n m o v e m e n t a n d h a v e b e e n r i g h t s u c -
cessful i n getting r i d o f tnem.
Governor Seay:
D o y o u recall that last spring y o u
had a very large volume o f them?
D i d i t occur t o y o u a t
that time t o make a n y ruling against them?
Mr- Foote:
ject.
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Federal Reserve Bank of St. Louis
W e have n o t made a n y ruling o n the sub-
O u r board h a s never passed o n it.
The Chairman:
Governor Wold:
The Chairman:
H o w about you, Governor W o l d ?
W w e d o not take them.
G o v e r n o r Fancher?
Governor F a n c h e r :
W
e take themi:ithout
restriction
L14
except i n the matter o f transfors against currency deposits,
and i n cases o f that sort w e d o n o t take national b a n k
notes.
The Chairman:
G o v e r n o r Sawyer?
Gevornor Sawyer:
W e have o n l y h a d t o take them i n
a very small way, a n d w e have b e e n taking then.
he Chairman:
generally
but I
I n New York w e have n o t taken t h e m
o n dcposit.
W
e have a
f e w t h o u s a n d j u s t now,
guess w e n e v e r h a d m o r e t h a n f i v e t h o u s a n d o n hand.
Governor Seay:
T h e y d o not offer them t o us.
The Chairman: I
think thoy have b e e n offered t o us
from timo t o time, but I think they realize that i t would
be t h e worst sort o f proposition f o r u s t o handle t h e volume
that would come through f o r redemption.
T h e clearing
house does n o t use national b a n k notes i n its settlements,
They d o not d o i t now.
T h e y did, f o r a while, I
think u p
to last August, b u t they have discontinued it.
Governor V a n Zandt, w h a t i s y o u r position?
Governor V a n Zandt:
The Chairman:
D o y o u get a large volume?
Governor Van Zandt:
hand.
W e accopt without restriction,
N o .
W e have about 540,000 o n
W e will take a n y kind o f currency now.
hard u p f o r money,
Governor Fancher: I
might a d d that o u r bank i s not
a member o f the clearing houso association,
O u r needs
for payroll currency a r e s u c h that w e d o not accumulate
national b a n k notes,
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Federal Reserve Bank of St. Louis
h e y come i n a n d are paid right out.
The Chairman: G o v e r n o r Seay, would you like action
on this matter?
N o sir. I
Governor Seay:
is like t h e tariff;
a m fully satisfied.
I t
i t i s a local problem.
D o y o u wish this i t e m t o b e continued
The Chairman:
on the program?
Governor Seay: I
think this disposes o f it, Mr.
Chairman.
The Chairman:
I t e m 1 6 was also suggested b y you,
Governor Seay.
16. R O T I R E M O N T O F NATIONAL B A N K NOTES A N D PURCHASE
OF GOVIRNMENT BONDS.
Governor Seay:
T h a t i s perhaps a
larger question
than I thought i t would b e when I brought t h e matter up.
The t i m e i s a p p r o a c h i n g w h e n w e s h a l l h a v e t o p u r c h a s e
national bonds.
time comes.
e k n o w what w e have t o d o when that
W
i s apoint that I
There
thought, looking
ahead, might possibly b e discussed w i t h advantage here, a n d
that i s a n interchange o f opinion a s t o whether i t would
be d e s i r a b l e
o r feasible
t o undertake t h e p u r c h a s e
of
ponds t o a greater extent t h a n i s provided i n the Act, a n d
to undertake t h e r e d e m p t i o n o f n a t i o n a l b a n k n o t e s
to a
greater extent then i s provided i n the Act.
The Chairman:
Y o u recall t h e provision o f t h e
statute w h i c h s a y s t h a t t h e S e c r e t a r y
o f the Treasury
shall n o t permit t h e Federal Reserve Banks t o buy more t h a n
twenty-five million?
Governor Seay:
L r do, 7es. I
know n o w that that
would come under t h e head o f amendments t o the Federal Re-~
serve Act; \ but i t was w i t h a view o f exchanging opinions
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Federal Reserve Bank of St. Louis
116
on it and looking a long time ahead that I brought the
had i n mind the great diversity o f currency
subject up. I
that exists i n this country a n d the desirability o f simplifying i t i f possible.
question e x i s t e d w h e b h e r
I
t occurred t o m e that t h e
o r not Federal Reserve banks
could take o v e r the government bonds that a r e n o w i n circulation, become responsible f o r national b a n k notes outstanding, a n d get their o w n notes o u t a s rapidly a s possible i n place thereof,
The Chairman:
T h e expense
course b e considerable,
o f that process w o u l d o f
b u t i t probably w o u l d b e more t h a n
met. b y t h e i n c o m e f r o m t h e G o v e r n m e n t b o n d s ,
Do y o u wish f o r a n expression o f views f r o m the gentlemen around t h e tablo,
o r d o y o u just effer that f o r
general discussion?
Governor Seay: I
w o u l d l i k e a n e x p r e s s i o n o f views,
if you d e not think i t will occupy t o o much time.
i f
you consider i t worth while t o consider whether o r not
redemption o f n a t i o n a l b a n k notes might n o t b e more
expeditiously undertakon, y o u might g c t a n expression o f
epinion. I
am sure, whethcr w e tackle the problem now o r
not, that i t will b e a very few years before w e will have
to tackle i t i n a different way. P o s s i b l y i t i s a little
premature, w h e n w e have other things t o discuss
o f greater
{mportance, b u t t h e matter came i n t o m y mind a n d I therefore
proposed it.
The Chairman:
Governor Sawyer?
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Federal Reserve Bank of St. Louis
H a v e y o u a n y thought o n the subject,
L117
Governor Sawyor I
have n o t given t h e matter a n y par-
ticular considsration, Mr. Chairman,
M
y improssion would
be that t h o sooner w o get into that problem t h e better.
I t
would & c e m t o h e t o b e very desirable t o substitute o u r
federal reserve notes f o r national currenty a s soon a s i t
can b e accomplished,
Gevernor Fanchor: I
think possibly that matter
should b e deferred f o r a little while, possibly a
some o t h e r m o r e i m p o r t a n t m a t t e r s t a k e n up.
year, a n d
J u s t now
there are some matters o f more importance than the solution
of that question a s t o retiring national b a n k notes. <
quite a g r e e w i t h G o v e r n o r S e a y i n h i s p o s i t i o n ; I
think i t
is a Situation that w e have got t o meet, b u t i t appears t o
me that i t i s svveral years ahcad o f us yet.
Governor Wold: I
agree w i t h Governor S e a y a s t o
the desirability o f substituting o u r federal re: erve notes
for national b a n k notes. H o w e v e r , I
a m of the opinion
that w e h a v e o t h e r m a t t e r s m o r e p r e s s i n g a t t h i s t i m e t h a n
the solving o f that problem,
I t might b e well t o defer
that f o r s o m time.
The Chairman:
M r . Foote?
Mr. Foote: I
agree w i t h Governor S e a y i n his views.
Just a s t o when t h e work ought t o commence,
we ought t o press t h e matter actively,
not f e e l p r e v a r e d
t o express
practicable
volume
i s something I
a n o p i n i o n upon.
do
J u s t a s soon
w o o u g h t t o begin t h e reduction
o f the
o f national b a n k notes a n d substitute t h e notes o f
the F e d e r a l R e s e r v e System. y
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Federal Reserve Bank of St. Louis
o r h o w soon
The Chairman:
G e v e r m o r Aikon?
Governor Aiken: I
undertake
do not think I
a m prepared
to
a t t h e present t i m e t o substitute a n o t h e r b o n d
secured note i n place o f the national b a n k note. I
cannot
see sufficient advantage i n i t t o make u s undertake i t a t
the present time- I
think w e will come t o i t i n time,
however.
he Chairman:
A n d you, Governor Rhoads?
Gevernor Rhoads: I
a m very glad that Governor S e a y
brought t h e subject up, b u t I should like t o have more time
tm: whieh t o -copsicer: it.
The Chairman:
“ h a t i s your view, Governor McDougal?
Governor McDougal:
I t seems t o m e that w e h a d bet-
ter let this matter wait a while.
millions, p r o b a b l y ,
V e have tyventy-five
t o t a k e c a r e o f n e x t year.
T h a t will
give o u r bank a few million more bonds t o take care of,
perhaps,
wait a
ami I
believe
i t would b e t h e p a r t o f prudence
year o r two a n d s e e h o w things look.
to
W e will k n o w
then a little better what t h e demands a r e going t o b e upon
us, a m i t might b e wise not t o pledge t o o mich o f our
resources i n that direction a t present.
The Chairman:
Mr. Hoxten: i
A n d you, Mr. Hoxton?
do not think I can d o better t h a n r e =
eche e x a c t l y w h a t G o v e r n o r M e D o u g a l h a s said.
H
e expres-
sed m y view o n the matter exactly.
The Chairman:
G o v e r n o r Kains, what i s your opinion?
Governor Kains: I
agree w i t h Governor Aiken.
p i e2
not s e e a n y advantage i n changing t h e national b a n k notes
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Federal Reserve Bank of St. Louis
pa
into federal rcserve b a n k notes. I
think i t i s time
enough t o bid the devil g o o d morning w h e n y o u meet him, i n
regard t o the other feature o f it.
Tne Chairman:
W h a t d o y o u think, Governor V a n Zandt?
Governor V a n Zandt: I
d o n o t think t h e time i s ripe
for u s t o really consider t h e taking over o f more t h a n
twenty-five m i l l i o n a
take.
year t h a t t h e l a w requires
us to
O f ceurse i t would involve s n amendment t o the
Federal Reserve A c t before w e could d e it, m d I
do not
think that a n amendment o f that character i s d u e right now.
The Chairman:
T h e r e i s another feature o f this mat-
ter that has n o t been brought o u t i n the discussion, b u t
which I think ought t o be borne i n mind.
M a y I interrupt right there, Mr.
Governor Kains:
Chairman?
The Chairman:
N e s .
‘ n e n Governor S e a y brought u p this
Governor Kains.
question I
recalled t h a t o u r b a n k b o u g h t a
million d o l -
lars o f these t w o p e r cent DONGS .— W e were advised b y the
Federal Reserve Board they would n o t b e imputed t o u s f o r
righteeusness - - - (laughter)
he Chairman:
Y
e k n o y w h a t y o u mean.
(Discussion followed which the reporter W a s directed
not t o take.)
The Chairman:
T h e r e i s o n e point which has n o t been
brought o u t i n this discussion, w h i c h i t seems t o m e i s
very important.
T h e Federal Reserve b a n k notes w h i c h
would b e i s s u e d a g a i n s t G o v e r n m e n t b o n d s w o u l d b e o b l i g a -
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Federal Reserve Bank of St. Louis
120
tions o f the Federal Reserve Banks a n d not o f the United
States Government a t all.
A s s u m i n g that w e could g e t
ria o f t h e w h o l e n a t i o n a l b a n k n o t e c u r r e n c y b y a n amend-
ment t o the Act, -
the purchase o f two per cent bonds, a n d
one conversion operation,
W e would b o assuming (}750,000,000
in round figures o f net obligations payable i n gold o n demand a t our counter, a n d against t h a t w e would have
“750,000,000 o f obligationsof the Governnent which w e might
W e would n o t
or might n o t b e able t o convert i n t o gold.
even g e t the five p e r cent redemption fund which i s n o w the
real reserve behind t h e national b a n k notes.
Then there i s this difference:
T h e Revised Statutes
provide t h a t the United States i s absolutely obligated t o
pay national b a n k notes o u t o f the general fund. I
do: not
think that provision applics t o Federal Reserve b a n k notes,
We would b e assuming a
gold obligation,
o r a t a n y rate a n
obligation that would b e Gemanded o f u s i n gold--- a n d they
woulda p o s s i b l y f o r c e u s t o r e f u s e p a y m e n t
i n gold--~- f o r
an amount that I do not think the Federal Reserve banks
would b e j u s t i f i e d
i n assuming,
o r e v e n assuming a
of the amount a t the present timo.
fraction
T h e fact i s that t h e
Federal Reserve b a n k notes, w h i c h a r e a n obligation o f
the United States Government, a n d which they would have
to h e l p u s m a i n t a i n u p o n a
gold basis, r e q u i r e
forty p e r c e n t g o l d reserve.
a t least a
T h a t i s what t h e Act con-
siders t o b e a minimum safe reserve.
I f w e should take
on $750,000 ,000 o f notes, o r half o f that amount, o r a
quarter o f it, w e certainly would n o t b e justified i n doing
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Federal Reserve Bank of St. Louis
121
it w i t h o u t m a i n t a i n i n g
a n e q u a l g o l d r c s e r v e u p o n it.
I t
strikes m e that that would b e a big undertaking f o r these
banks
t o shoulder
a t t h e present time,
L e t u s suppose
that w e got 800,000,000 o f gold behind our Federal Reserve
notes,
W h y , t h a t v e r y operation would immensely facilitate
the retiremcnt o f national b a n k notes,
could convert i n t a reserves w o u l d
mented.
e s
T h e fund that w e
t o b e immensely aug-
I n time o f very heavy demand, always accompanied
by discounting,
w e could take d o w n t h e volume o f gold b e -
hind the notes a n d o u r reserves would b e just s o much t h e
stronger. I
would l i k e t o s e e i t w o r k a
little f a s t e r ,
when w e are strong enough,
Governor Seay: I
that this w a s a
would n o t have y o u gentlemen think
vital o r pressing question, b u t I think
there i s Something more i n it than appears o n the surface,
I had hoped t h a t there would b e a ruling b y tne Comptroller that h e would issve n o more national b a n k notes.
no s u c h r u l i n g h a s b e e n made, a l t h o u g h a
bank i s n o t requir-
ed now t o buy Government bonds t o issue notes,
the practice,
and I
B u t
T h a t is
think i t i s d o n e f o r t h e purpose
of
sustaining the Government bonds--- but, nevertheless t h e y
are issued.
T h e idea that occurred t o m e was that i f a
‘more w h o l e s a l e r e d e m p t i o n o f n a t i o n a l b a n k n o t e s w e r e e n t e r -
ed into; i f the policy were adopted b y the Comptroller o f
not a l l o w i n g a n y a d d i t i o n a l b a n k n o t e s
t o b e issued,
and
if t h e F e d e r a l R e s e r v e b a n k s w e r e t o b e c o m e t n e s o l e b a n k s
of issue o f this country,
i t would tend t o throw o u r mem-
ber banks u p o n u s i n a responsible way, which could n o t b e
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Federal Reserve Bank of St. Louis
122
done i n any other w a y i n the near future,
B u t a s long a s
they themselves c a n become banks o f issue, a n d under t h e
rulings o f the Comptroller are, d a y aftcr day, banks o f issue, I thought i t might t u r n our minds t o thinking o n this
subject a n d t o see i f w e could n o t devise some practical
way i n which i t would b e desirable t o retire national b a n k
notes i n a more wholesale w a y a n d put a stop t o the issuing
of them.
The Chairman: I
think myself t h e Comptroller ought
to d i s c o n t i n u e t h e b a n k n o t e issues.
C e r t a i n l y i t was
the general purpose o f the Act, i f i t was n o t specifically
so provided,
t h a t t h e i s s u e o f national b a n k n o t e s s e c u r e d
by Government b o n d s w o u l d b e dis c o n t i n u e d a s a
result
of
the passage o f this Act.
Governor McDougal:
A r e new organizations taking cir-
culations now?
Governor Seay:
Yes.
O n e organization bought
$150,000 i n bonds t h e other day---
Governor McDougal:
Governor Seay:
N e w organizations are doing that?
T h e y are permitted t o d o s o
They are not discouraged f r o m doing it.
(Informal d i s c u s s i o n f o l l o w e d w h i c h t h e r e p o r t e r w a s
directed not t o take.)
“The Chairman:
G o v e r n o r Seay, d o you wish t o offer a
resolution with regard t o this matter?
Governor Seay:
N o sir.
M y purpose i s fully served
by the discussion which y o u have v e r y kindly brought forth.
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Federal Reserve Bank of St. Louis
he Chairman:
I t has occasionally developed t h a t t h e
125
Federal R e s e r v e B o a r d i n Washington, p o s s i b l y t h r o u g h n o t
boing acquainted w i t h local situations
i n some o f the banks,
has sent o u t circulars bearing o n various matters which
have arrived a
banks
little t o o late f o r some o f the more remote
t o t a k e a c t i o n u p o n p r o m p t l y w i t h t h e i r m e m b e r banks,
Inasmuach a s t h e t i m e i s a p p o a c h i n g w h e n S e c t i o n 1 8 o f
the F e d e r a l R e s e r v e A c t b e c o m e s o p e r a t i v e
i n regard t o pur-
chases o f Government bonds, w e have b e e n anxious t o have
the Board prepare f o r that b y aporoving a
form o f circular
which might b e uniform a n d which w e all might s e n d t o our
member banks a t one time.
of a circular.
M r . Curtis h a s prepared a
draft
H e has made sufficient copies s o that
each Governor m a y have one, a n d I would like v e r y much t o
have comment u p o n that circular.
I f possible y o u m a y all
read i t o v e r t o n i g h t a n d t h e c o m m e n t n m a y b e m d e u p o n i t
Friday morning,
o r tomorrow.
T h e n w e c a n conclude o u r
discussion onthe subject before t h e meeting finally a d journs, a n d then send t h e draft t o the FederalReserve Board
for final action.
(The draft o f circular above referred t o is as follows: )
"DRAFT O F CIRCULAR RELATING T O APPLICATIONS T O SELL
U. S s BONDS.
To t h e C a s h i e r :
S e i
sectien 1 8 o f t h e F e d e r a l R e s e r v e A c t p r o v i d e s t h a t
any member bank cesiring t o retire the whole o r any part
of its circulating notes, m a y file w i t h the Treasurer o f
the U n i t e d S t a t é s
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Federal Reserve Bank of St. Louis
a n application
t o sell f o r i t s account
124
securing
at par a n d accrued interest, United States Bonds
circulation t o b e retired.
tenis section o f the Act takes effect December 25,
that
1915, a n d the Federal Reserve Board has announced
consider
the first quarterly period for which they will
Sas LILO.
such applications w i l l bethe period ending March
In accordance with the terms of the Act, all applications
to sell such bonds,
i n order t o b e considered b y the Board
Treasurer o f
at that time, m u s t have b e o n filed with t h e
o n d o f the
Lhe United States a t loast t e n days bofore t h e
quarter,
1916.
i . @., o n o r before M a r c h 21,
"Tt seems appropriate a t this time t o issuc blank
this district, t o g e forms f o r the use o f member banks o f
procedure t o b e folther with suggestions concerning t h e
should bear
I n making application, member banks
Lowed:
in mind the o w i n g points:
T h e only bonds that are eligible for sale i n
Wiett
a t the time o f
this manner a r e United States Bonds which
national
application are actually sccuring circulation o f
bank notes t o b e retired.
“end:
T h e applications should b e forwarded directly
Washington, D - C .
to theTreasurer o f the United States,
VOrGs
h
Treas e applications m u s t b e received b y the
days before t h e e n d
urer o f the United States a t least t e n
t h e sale i s desired
of t h e q u a r t e r l y p e r i o d a t w h i c h
t o be
made.
"4th:
whether
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Federal Reserve Bank of St. Louis
Boar.
I t i s optienal w i t h the Federal Reserve
banks
o r n o t t o require t h e F e d e r a l r e s e r v e
to
purchase t h e bonds offered f o r sale.
I
'5ths
f the Federal reserve banks a r e required
by t h e F e d e r a l R e s e r v e B o a r d t o p u r c h a s e t h e b o n d s , t h e p r c e
will necessarily b e par a n d accrued interest.
T h e aggregate amount o f such bonds which the
“6th:
Federal Reserve banks c a n b e required t o purchase i s limit-
ed to $25,000,000 i n any one year.
h i s aggregate amount may furthermore b e re-
BeDeke:
duced b y the amount o f such bonds purchased during the same
year b y the Federal reserve banks i n the o p e n market.
"APPLICATION
(Date)
To the Treasurer o f the United States,
Washington, D . C .
e e
o f the
In b e h a l f
N
a
t
i
o
n
a
l
Bank
of
, I hereby make application t o you t o sell f o r
its a c c o u n t
a t p a r a n d accrued interest, U n i t e d States
Bonds securing circulation o f the said bank t o b e retired,
as follows:
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Federal Reserve Bank of St. Louis
DESCRIPTION O F BONDS
Nos. :
Rate o f Interest :
Maturity ;
Respectfully,
Cashier
National
Bank
of
Amount *
126
With y o u r p e r m i s s i o n w e w i l l p a s s t o p i c No.
1 6 until
this circular h a s been read a n d discussed o n either tomorrow o r Friday.
The ne<t t h e m is: Now. 171
17. C O M M I T T E E T O AUDIT GOLD CETTLEM:NT FUND.
You will recall the regulation o f the Board i n regard t o the gold settlement f u n d provides t h a t t h e fund
shall b e audited a t least once i n three months b y a n auditor appointed b y the twelve banks, o r b y the Governors,
at
this meeting, a n d a n auditor appeinted b y the Federal R e serve Board.
G o v e r n o r McDougal h a s reported t h e comple-
tion o f the first audit which was mace a t the time t h e
auditors m e t i n Washington.
T h e time i s approaching w h e n
have b e e n requésted
another audit will b e necessary. I
by Mr. Broderick t o arrange,
i f possible,
t o have just o n e
man act a s the auditing committee rather t h a n a number,
was t h e case a t the last audit.
as
Y o u will #ecall i n the
report submitted b y the auditors t h e y determined i t would
be i n a d v i s a b l e
t o have j u s t o n e r e p r e s e n t a t i v e p r e s e n t
at
that audit, b u t inasmuch a s the regulation provides f o r
i n whom w e all have c o n e
just o n e man, a n d Mr. Broderick,
fidence, h a s expressed t h e w i s h “that o n e m a n b e appointed,
I think we would b e justified i n complying with nis wishes
and i n following o u t the regulations o f the Board.
What i s your pleasure i n regard t o the appointment o f
a representative
Mr. Hoxton:
t o make this audit?
I : made some comments, w h i c h I have
written down, t o this effect:
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Federal Reserve Bank of St. Louis
h
e regulation o f the
127
Federal Reserve Board p r o v i d e s t h a t t h e audit b o made b y
a representative
o f t h e Federal Reserve b a n k s together w i t h
a representative
o f t h e Federal Reserve Boards
T h e Commit-—
tee o f Auditors a n d Accountants suggested that the responsibility f o r t h i s oavdit s h o u l d n o t r e s t u p o n a
single m a n
representing t h e swelve banks. I
think that w e should
give that matter consideration,
a s that i s the reason w h y
the commiitee suggested if.
The Chairman:
Mr. H o x t o n :
O u r Committes o f Auditors suggested
V e s .
Governoy McDougal:
I t was suggested that the regu-
lation p e c h a n g e d s o t h a t t w o r e p r e s e n t a t i v e s f r o m o u r o r -
nt b e i n attendance a t the time, instead o f
Tne CGhairmen:
T h e statement I
full: consideration, I
have n o t discussed this matter
particularly w i t h 2 u r auditor,
16.
made was mace without
w h o w a s o n e o f t h a t commit-—
I f y o u feel that there should b e more t n a n one m a n
appointed, a n d that w e should make s u c h a recomaendation
nere today w e c a n put that o n the program, a n d when Messrs.
Warburg a n d Harding arc here o n Friday,
w e c a n explain o u r
views t o them a n d a s k them i f they cannot modify t h e regulation.
Governor McDougal:
of Auditors a p p o i n t e d a
npmbers.
T h e fact i s that t h e committee
sub-committee c o n s i s t i n g o f t w o
W h e n t h e y called u p o n the Board f o r permission
te begin this audit t h e y vere informed that t h e y coula pro--
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Federal Reserve Bank of St. Louis
128
ceed, b u t they would only b e allowed once represontative.
That p l a n was followed, o u r representative reporting back,
however,
t h a t i t would b e m o r e satisfactory i f h e h a d some-
one there;
t h a t is, s o m e other inatviauat
t O represent
the Governors! Conference, o r the banks,
The Chairman:
W h a t d o y o u suggest, Governor McDougal?
Governor McDougal:
I t would necessitate the modifi-
cation o f the regulation under which the auditis m a d e a n d
permitted,
The Chairman:
T h i s m a t t e r c a n b e disposed
promptly i f someone w i l l m a k e a
Governor MeDougal:
o f very
motion,
U n d e r the circumstances I would
move that the regulation governing the audit of the gold
fund b e amended s o that i t will provide f o r t w o represen-
tatives from our body t o be present a t that audit instead
of one,
The Chairman:
I s there a
Governor Rhoads: I
The Chairmans
second t o that motion?
second that motion.
I s there a n y further discussion?
(There w a s n o f u r t h e r d i s c u s s i o n a n d t h e m o t i o n w a s
duly carried,)
The Chairman:
i)
T h a t still leaves t h e Question o f the
appointment o f the representative open, Governor MeDougal.
What a r e y o u r w i s h e s
i n regard t o the appointment
one o r t w o representatives,
o f either
a s t h e c a s e m a y be, a f t e r t h e
Federal R e s e r v e B o a r d h a s a c t e d u p o n t h i s r e c o m m e n d a t i o n ?
Governor McDougal:
M y recommendation w a s that w e ap-
point t w o representatives.
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Federal Reserve Bank of St. Louis
129
The Chairman:
I f they s a y that t h e y will o n l y receive
one i t will b e embarrassing t o appoint two, S h o u l d n o t
the appointment b e subject t o ang’ ‘ a c t i o n t h e Federal
Reserve Board m a y take i n regard t o this motion which w e
have a d o p t e d ?
Governor McDougal: I
would recommend t h a t y o u n o w
appoint t h e committee, t h e number t o b e governed b y the finding o f the Board.
he Chairman:
ment,
D
o y o u wish m e t o make t h e appoint-
o r d o y o u want t h e appointment
o f t h e representative
to b e made a t this meeting?
Governor Wold: I
move that t h e chair b e authorized
to appoint t h e committee,
Governor Kains: I
second t h e motion.
Governor McDougal: I
mittee
b e alternated
would recommend that t h e com-
s o that the various
banks would
be
represented a t different times i n examination o f the fund.
The Chairman: I
was g o i n g t o s u g g e s t t h a t i t w o u l d
be entirely satisfactory,
i n making these aspointments,
for m e t o g o through the banks s o that e a c h bank will
have a
representative, unless a
find i t inconvenient,
very remote b a n k should
o r too expensive.
appointed i n rotation,
T h e y could b e
T o meet that situation I would
take advantage o f a time when t h e reserve b a n k o f San
Francisco, say, h a d a representative i n the east, t o
make a n appointment f o r h i m t o b e o n the Sommittee o f
Audit g t that time.
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Federal Reserve Bank of St. Louis
Governor McDougal:
T h a t would b e entirely satisfac-
130
tory, a n d I think e very proper w a y t o proceeds
Tne Chairman:
A s J understand t h e motion i t author-
izes t h e Chairman t o appoint a
committee o f one o r two, a s
the c a s e m a y be, a n d i t i s t h e s e n s e o f t h i s m e e t i n g t h a t
these a p p o i n t m e n t s s h o u l d r o t a t e t h r o u g h t h e banks,
motion h a s b e e n seconded,
I
T h a t
s there a n y further discus-
sion?
(There was n o further discussion and the motion was
duly carried.)
The Chairman:
T o p i c No. 1 8 was suggested b y Governor-
Fancher:
Lo. A D V I C E O F ASSESSMENT O N MEMBER BANKS T O COVER
CAPITAL STOCK IMPAIRMENT, I F SHOWN B Y ANY OF
THE FEDERAL RESERVE BANKS A T CLOSE O F OPERATIONS F O R THE CURRENT YEAR.
Governor McDougal:
T h a t question came u p a few weeks
The Chairman: I
a m afraid I
must call y o u t o order,
Mr. Fancher should o p e n this discussion.
Governor Fancher: I
Governor McDougal. I
The Chairman:
will b e very glad t o defer t e
d o d e f e r t o him.
Y o u have t h e floor, Mr. McDougal.
Governor McDougal: I
wish t o beg your pardon. W i l l
you proceed, G o v e r n o r F a n e h e r ?
I n a s m u c h a s y o u got into
the fight thicker t h a n I did I will b e very glad t o let
yeu have t h e floor,
Governor Fancher:
M r . Chairman, this refers t o a dis-
cussion that Governor MeDougal and myself had with some
members e f the Board,
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Federal Reserve Bank of St. Louis
i n fact a t a meeting o f t h e Board,
1351
The q u e s t i o n w a s a s k e d b y t h e S e c r e t a r y o f t h e T r e a s u r y ,
a
s t o what w e thougnt
who w a s p r e s i d i n g a t t h a t m e e t i n g , ‘
of assessments b e i n g m a d e o n those b a n k s w h e r e t h e y c i d
I t had
not s h o w sufficient earnings t o meet expenses.
never occurred t o m e seriously that that contingency would
W e thought t h a t with a return t o fairly normal
arise.
conditions t h e banks would b e able t o show sufficient earnings t o a t least take care o f their expenses.
I t had
eccurred t o both Governor McDougal a n d myself t h a t that
had been i n the minds o f some o f the members o f the Board
and probably h a d b e e n discussed;
a n d w e have simply sug-
gested t h e topic here t o bring o u t i n the minds o f the
ether Governors s o m e thought w i t h respect t o this mnrtter.
he Chairman:
G o v e r n o r MeDougal h a s t h e floor now.
Governor McDougal:
perhaps
i n full, w h a t I
G o v e r n o r Fancher h a s said i n part,
intended
t o say.
T n e die ston
arose there, anc, i n response t o Mr. McAdoo's inquiry,I
told h i m that I thought that n o thought o f such a n assess-
ment had occurred t o any o f the banks a t present,
I hoped there w a s n o such thought i n the minas o f a n y o f
the Board o r of the Board a s a whole, N a t i o n a l banks and
other banks,
i n the regular course o f business, struggle
along very often f o r a year, a n d sometimes f o r t w o years
before their income o r earnings a r e sufficient t o offset
their h e a v y e x p e n s e s i n c u r r e d
a t t h e outset.
e very ill advised t o permit t h e
I think i t w o u l d b
matter t o even b e considered here a t this time.
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Federal Reserve Bank of St. Louis
Governor Seay: I
can-say that t h e matter h a s been
132
talkedf
o b y t h e Board,
a n d that i t was discussed
meeting o f the Federal Advisory Council.
at a
T h e opinion o f
each member was asked a s t o the necessity O r advisability ~
of m a k i n g t h e s e assessments.
T h e r e a r e o n e o r t w o o n that
board who are banking men and who said that they thought i t
ought t o b e done i f the capital i s impaired.
not t h e majority opinion.
B u t that was
T h e majority thought i t would
be eatremely unfortunate a n d that t h e y did n o t believe t h e
MeECSSsiuy SCzisved for’ ib.
B u t that question w a s p r o p o u m -
ed to the Council b y tho Federal Reserve Bodrd.
The Chairman:
Y e s , I know i t was.
Governor McDougal: I
Le ofis
should l i k e to inquire whether
any o f t h e Governors h e r e a s t h e r e p r e s e n t a t i v e s
o f their
banks would b e i n favor o f a n y such procedure a t this time?
The Chairman: W i t h o u t going around the table, could
we just a s k i f there i s such a view entertained b y those
here a 8 suggested b y Governor McDougal that a
discount
should b e m a d e a t t h e e n d o f t h e c u r r e n t y e a r t o p a y u p
deficiencies of operating oxpenses? I
do not hear any
suggestions,
Mr. Hoxton:
Y o u mean, i f there i s anyone here of
all districts that entertains t h a t v i e w that a
should b e mido? I
be made.
discount
very positively think that i t should not
T h e s e banks a r e n o t expected t o b e i n full
eperation f e r a period o f three years, anyway.
The Chairman:
I t seems a s though that would b e ask-
ing the member banks t o p a y the tost o f advertising o u r
failure b y any such operatien. I
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Federal Reserve Bank of St. Louis
certainlya
n very posi-
133
tive that overy member o f our board i n New York woulda resist that t o the utmost.
O h , I think s o too.
Governor. Fanchor:
Governor Aiken:
T h e r e i s n o question about that a s
T h e y would b e very much opposed
to the b a n k i n Boston.
tO. Ute
The Chairman:
H a v e y o u gentlemen s e c n what t h e
Federal Reserve Board h a d t o s a y i n a recent issue o f the
bulletin?
N o w t h e last one, b u t a n earlier one.
T h e
statcment i s m d e a s t o the earnings o f the Reserve banks
which would makc i t very difficult for them t o levy a n
T h e y have made a
asscssmont j u s t now.
statement w h i c h
weuld indicato t h a t i n the future,and t h e not distant f u ture, t h e banks will substantially a l l b e earning their
expenses,
T a c y have verified that b y a statement r e c e n t -
ly indicating h o w mech must b e invested i n order t o enable
them t o earn their expenses a n d their dividends, a n d i n tolligent bankers w h o read the bulletins a n d w h o have
gainod f r o m these t w o copies t h e impression that t h e earning situation has taken care o f itself pretty well, would
pe very mmch shocked b y the suggestion that t h e Board i s
now going t o make a n assescment.
I
n the first place,
- there igs nothing i n the Federal Reserve A c t that provides
for a n assessment.
I
t probably w o u l d require
a n amend-
ment t o the Act, and the debate o n that topic i n Congress
I believe would o p e n t h e door t o disastrous results .
Governor Seay:
M r . Chairman,
d o y o u net think they
are looking a t it purely from the legal aspect, the
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Federal Reserve Bank of St. Louis
technical legal aspect o f the case?
The Chairman:
T h a t may be, yes. I
Hamlin asked m e some time a g o t o prepare a
think Governor
memorandum o n
that subject a s t o what t h e y ought t o d o a t t h e end o f
this year, w h e n i t might b e ascertained that capital o f
some o f the reserve banks w a s impaired, a n d I sent over a
very tarefully prepared statement o f the method o f account-
ing that would enable the banks a t the end o f the Grrent
year t o set u p o n their books a n account, a n d w e suggested
‘poms tiLles t o that account which would b e a fair a n d
frank statement t o the public that this bank i n the first
year o f i t s o p e r a t i o n h a s u s e d s o m u c h c a p i t a l f o r o r g a n i z a -
tion a n d expense o f operation;
a n d i f the banks d o that,
and state i t squarely i n their balance sheets and d o not
attempt any subterfuge o r evasion of iany kind, there is
not going t o b e a n y criticism, a n d t h e subject c a n then b e
dropped, I believe; b u t i f the Board thinks that they
are justificd i n having the law amended s o that they can
levy a n assessment o n all t h e member banks,
i t i s going t o
start u p a
i n it.
Wasps n e s t w i t h a b o u t 7 6 0 0 w a s p s
W h a t
is t h e u s e o f that?
Governor Seay:
A r e you convinced that that would re-
quire a n amendment?
The Chairman: I
am not absolutely convinced o f it,
no, Governor Seay; b u t I think i t i s possible t h a t i t
would b e tested.
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Federal Reserve Bank of St. Louis
Governor Seay:
The Chairman:
I
I
t i s t o o ill-advised
t o consider.
t i s almost inevitable t h a t s o m e b a n k
135
Lay d e w a n d w i l l n o t p a y , a n d y o u w o u l d h a v e l i t i g a -
that would make i t ncocessary t o make clear that t h e y
the power, a n d a s a
practical m a t t e r
i t would c o m e
to a n amendment o f the statutc, probably.
Governor Faneher, t h i s being your topic, I
will a s k
you the stereotyped quostion a s t o whether y o u have a
me-
tion o r desiro a n y action.
Governor Fancher: I
simply suggested
have not. I
the t o p i c t e b r i n g o u t t h e d i s c u s s i o n w o have: h a d here.
The Chairman:
D e y o u consider t h a t i t would b e de-
sirable o r undesirable t o have a
recommendation o n our re-
cord i n regard t o t h i s m a t t e r ?
Governor Fancher:
T h a t question,
t o m y mind, i s
whether i t i s dosirable t o make a n y recommendation, whether
favorable o r adverse,
M
y thought was what h a d come into
my mind from what had inspired the Board-
O u r showing
would n o t b e s o b a d but what w e could, w i t h a fair time
given t o us, return t o fair conditions a n d w e could possibly take care o f the expense itcm.
The Chairman:
W o u l d i t not b e a good idea t o get
some little information, roughly,
a s w e are sitting around
the tablo, a s t o what o u r position i s going t o be? i
ae
not mind stating frankly what o u r position i s i n New
York, t o start t h e subject going.
Of course o u r expense i s heavy i n New York.
v e have
got the resources for a very large earning power when the
time arrives.
B u t rents a r e high, salaries a r e high;
everything c o s t s a
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Federal Reserve Bank of St. Louis
great d c a l m o r e i n N e w Y o r k t h a n i t
aoes i n almost a n y other c i t y i n which there i s a Federal
Rescrve Bank;
a n d beyond that, t h e y are handling a very
large amount o f money i n that Federal Roserve Bank, a n d
our cloarings a r o heavy, a n d the whole clerical foree, t n e
whole clerical operation,
i s very. expensive, w h e n y o u
come t o consider that w e have n o earning power.
S
o
o n account
our expenses a r e r c a l l y m o r e o u t o f p r o p o r t i o n
of t h e s i z e o f t h e i n s t i t u t i o n t h a n i n a n y o t h e r bank.
Up t o J u l y ist,
b y t h e method o f accounting w h i c h
then was employed i n the bank, w e h a d earned a l l o f our
o n which w e carried undivided profits.
expenses and ‘343,000
W
2
During t h a t period, h o w e v e r ,
w e d i d n o t attempt
t o amortize
organization expenses o r the cost o f t h e initial issue
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Federal Reserve Bank of St. Louis
of Federal Reserve notes. C o m m e n c i n g w i t h July ist w e
the
set u p the accounts i n which t o cxtinguish a l l o f
cost
items o f organization expense a n d all o f the Original
the
of the note issue, a n d w e started t h e n t o charge i n
used.
actual c o s t o f a l l F e d e r a l R e s e r v e n o t e s c u r r e n t l y
ReSo that t h e charges f o r the current issues o f Federal
sorve n o t e s ,
a n d t h e charges f o r amortizing o u r organiza-
tion cxpenses I
a month.
think amount t o 1 5 o r 1 8 thousand dollars
O n e month I think i t was more t h a n that.
Up t o t h e t i m e I
left t h e o f f i c e w e w e r e a b o u t
15,000 behind i n our current expenses, including this
amortizing charge. S i n c e t h e first o f July, I mignt
had
say, w o have $28,000 t o the good since t h e bank was o r ganized
o n o u r e x p e n s e account.
W
e m a y r u n behind a
afcount
little i f w e are unable t o keep o u r investment
I
igoing,
& » b u t from what little
know t h e banks
are all
i n
LS
about t h e same position that w e are in, a n d all r u n their
accounts about t h e same way.
Governor Wold:
W e have s e t u p our amortization a c -
W e thought i t would b e better t o d o that.
count.
H o w
much €id y o u charge o n Federal Reserve notes, d o y o u Say?
The Chairman:
U p t o July lst w e put t h e entire
cost o f Federal Reserve notes i n the organization expense
account.
C o m m e n c i n g w i t h July lst w e divided t h e cost
of Federal reserve notes which h a d been used u p t o that
date.
Governor Wold:
Y o u mean, those t h a t h a d been p u t
into circulation?
The Chairman:
tion.
T h o s e t h a t h a d been put into circula-
W e divided t h e m into twelve equalparts,
a s I re-
call, a n d each month w e charged one-twelfth o f the cost o f
all notes issued u p t o July lst t o current expenses.
A n d
commending with July lst w e charged t h e c o s t ; — i t amounts
a thousand - + «
to about $10
o
f issuing Federal Reserve notes, new
notes issued e a c h month f o r our current e x p e n s e s ;
gO w e are payirtg t h e entire c o s t o f the current note
issue a n d o n e twelfth u p t o t h e l s t o f every month.
Governor Wold:
p o y o u believe y o u r notes will
be good a n d useful except f o r o n e year?
fhe Chairman:
which t o base that.
W e have not any experience upon
A l l w e c a n c o i s t o charge t h e cost
of issuing n e w notes a s they are paid.
M a n y o f them come
back i n such condition that w e c a n send them out again,
and we do send them out; a n d a s t o those, o f course there
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Federal Reserve Bank of St. Louis
138
is n o expense charged, b u t covery time w e take a
new note
out from the Federal Reserve Agent a n d put i t into circulationw
e charge t h e cost o f that t o our current expense,
Governor Wold:
The Chairman:
A t &10 a thousand?
Yes,
Governor Aiken:
W e charge %10 a thousand.
Governor Wold: I
thought the estimate was eight
dollars a n i something.
Governor Aiken:
W e charge ‘19.56.
(At this point a n informal discussion took place
which t h o stenoz:rapher was directed n o t t o report; after
which the following proceedings were had:)
Governor Fancher: I
might say, Mr- Chairman, that
we set u p these accounts o n July lst; first, t h e Organization expenses, a n d then the expenses connected w i t h the
issuing o f Federal Reserve notes, a n d then u p t o that time
we had charged into expenses tho cost o f the notes w e had
issued, a l t h o u g h o u r figures w e r e n o t q u i t e a s l a r g e a s
they should bo.
W e are adjusting that now.
W e show a
deficit i n current earnings t o meet current expenses o f
something like (35,000.
S i n w h e first o f July, or,
rather, recently, w e are showing a
better earning, a n d I
think t h a t a s t h e r e s u l t o f t h e c u r r e n t y e a r ' s o p e r a t i o n s
in t h e t h i r t e c n a n d o n e - h a l f m o n t h s
w e will probably h a v e
a ceficit i n current oxpenses o f something like ‘20,000.
We a r e c h a r g i n g i n t o o u r c u r r e n t o p e r a t i o n s t h e a s s e s s m e n t
mace b y the Federal Reserve Board e a c h month, a n d also t h e
cost o f i s s u i n g t h e F e d e r a l R e s e r v e notes.
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Federal Reserve Bank of St. Louis
T h a t will
139
probably b e our situation, a s we view i t now.
Looking
ahead t o the first o f January, o u r expenses were about
%10,000 a month, and our earnings something i n that neighporhood--— somewhere i n the noighborhood o f 316,000.
The Chairman:
J u s t l o o k a t this subject w i t h actual
c e s 2.
figures, a n d s e e h o w absurd a n asscssment would be.
not believe t h a t t h e deficiency a t the e n d o f the first
year's operations o f all t h e resorve banks together, t h a t
have ceficiencies, leaving o u t thoso that have surpluses
which would n o t apply, would ahount t o more t h a n t w o o r
three hundred thousand dollars.
S u p p o s e i t amounts t o
two o r three hundred thousand aollars.
I n order that w e
might climinate three hundped thousand dollars o f deficiencies,
o r impaired capital f r o m o u r statement,
a n average
assessment o f 450 a bank, say, o f the 7600 national banks
of the Unitod States would b e levied.
thing that would be!
W h a t a n absurd
T h e little bank might pay :j1.50;
the b i g bank might p a y “500;
a n d such a procedure,
it
seems t o m , would b e t h e most unwise thing possible.
Governor Seay: G r o b e s q u e }
Governor Aiken: I
thi ~ Ww. o u g h t t o have a
vote o n
that question, Mr. Chairman.
Governor Rhoads:
B O 40 J%
The Chairman: I
think w e ought t o call t h e attention
of Mr. F o o t e a n d G o v e r n o r H o x t o n t o o n e t h i n g ; t h a t i s ,
the record o f these proceedings i s considared t m b e t h e
confidential record o f those that attend t h e meetings.
The discussion i s not submitted t o the Board a t washington,
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Federal Reserve Bank of St. Louis
140
and i n response t o one request t h a t w e d o so, w e declined
to d o so, politely, a n d they thoroughly understand t h a t
in order t o get value o u t o f these meetings t h e discussion,
af
mist b e freo, cites take involves a
ef the Board,
criticism o f the procedure
T h a t matter h a s been s o safe-guarded that
we can get the benefit o f the real views entertained b y the
men t h a t a t t e n d t h e meetings.
Se I hope thore will b e n o hesitancy i n speaking o u t
in m e e t i n g o n these matters.
Mr. Foote: I
think your position i s well taken,
Governor.
The Chairman:
G o v e r n o r Aiken, I
think y o u a r e t h e
one w h o c u g g e s t e d t h a t w e s h o u l d h a v e a n e x p r e s s i o n o f
views o n the subject o f assessment.
O r was i t Governor
Rhoads?
Governor Rhoads: I
move, Mr. Chairman, that i t i s
he sense o f this Conference t h a t i t would b e most inexpecdient t o levy a n assessment t o cover t h e deficiency i n
earnings f o r t h e c u r r e n t year,
o r the y e a r ending December
Sl.
Governor Fancher:
The Chairman’
Governor Kains:
I
s
o n e t h e motion.
I s there a n y further discussion?
M r . Seay referred t o the action o f
the Federal Advisory Council, a n d w e were asked a
there regarding this assessment,
question
a s t o whether w e thought
our constituencies would rather have a n assessment o r have
“the Board take action t o empower t h e Federal Reserve Banks
to e n t e r t h e o p e n m r k e t
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Federal Reserve Bank of St. Louis
i n competition w i t h their member
141
panks, a n d they asked m e t o state t n e sentiment o f our
constituents, and I said the sentiment o f our constituents
would b e that t h e y would rather have a n assessment.
The Chairman:
I t i s something like t h e i n n keeper
suggesting t o his guests " W o u l d y o u rather s t a y u p all
night,
ghousts?"
o r slecp i n the guest r o o m and b e visited b y
think the deficiency does n o t
Ghosts d e not exist. I
really exist i n sufficient quantity t o b e considered.
think, Mr. Chairman, y o u r sug-
Governor McDougal: I
gestion t h a t t h e s t a t e m e n t s
o f t h e banks b e prepared a n d
placed before t h e public i n such way that t h e y would state
squarely a n d truthfully t h e real condition i s the solution
of the thing;
of the Board I
a n d with that uncerstanding i n the minds
d o not believe t h a t they would seriously
consider going Yrurther.
that i f Goverwas going t o suggest
oO
The Chairman: I
nor Rhoads were willing t o a d d thet a s a part o f his
resolution
i t woulc
m k e
h i s resolution m o r e effective.
that a d That l e a v e s t h e m a t t e r r e a l l y i n t h e l n ga T 4 a t h
ought
dition i t states t h e consensus o f views a s t o what
LO- p e C o n e = a
Governor Rhoads: I
ascept that amendment, a n d the
s necessary t o Straighten u p the
Secretary m a y d o w h a t i
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Federal Reserve Bank of St. Louis
motion.
The Chairman:
T h e n the motion i s that i t i s t h e sense
attempt t o
of this meeting that i t would b e inadvisable t o
assess m e m b e r b a n k s
a n amount t o c o v e r t h e d e f i c i e n c y i n
this
earnings f o r the year ending December 31, a n d that
142
meeting recommends t h a t t h e Federal Reserve banks s e t u p
an account
i n their balance s h e c t s w h i c h would C l e a r l y state
their condition a s t o earnings a t t h e close o f the year,
Governor Wold:
T h e fiscal y e a r o r the calendar
year?
The Chairman:
I t would make Decembcr 5 1 the time,
Governor McDougal:
T h e matter o f setting u p a n
account might possibly not b e necessary.
I t i s the integ-
rity o f t h e s t a t e m e n t t h a t w e w a n t t o protect,
a n d i f the
statement shows that clearly, I think that ought t o be
enough.
The Chairman: I
think y o u have g o t t o have a n ac-
count f o r the deficiency w h e n y o u close your books,
an
asset account,
Governor MeDougal:
T h a t , o f course, would apply t o
the l e s s f o r t u n a t e b a n k s ; t h a t i s all.
The Chairman:
J u s t a s t o those banks w h i c h h a d a
deficiency?
Governor heDougal:
Governor Aiken: I
“ o s , t h a t i s t h e idea.
second t h e motion.
(The motion was duly carricd.)
19. R E S E R V E S O F MEMBER BANKS.
The Chairman:
T o p i c 1 9 has been already partly dis-
cussed under t h e heading o f "2-(c)", uncer unfinished business.
Governor Seay, t h i s i s your topic.
the d i s c u s s i o n ?
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Federal Reserve Bank of St. Louis
“ b i d y o u start
1435
Governor Seay:
M r . Chairman, these two topics are
so closely related t o the development o f the collection
problem, a n d i t was i n connection with that particularly,
item (a), t h a t I advanced this subject f o r consideration
and discussion, that 1 wish to say that the collettion system o f the Federal Reserve Banks i s being damned f o r some
pernicious practices t h a t have grown u p i n this country b y
the ruling o f the Comptroller's office. i
they h a d been corrected,
such a
Sen
BaP ae
i t trould not have l e f t u s with
difficult c o l l e c t i o n p r o b l e m t o handle. I
believe
that i f any unpopularity h a s come u p o n u s because o f our
having introduced a
collection system, t h a t i s practically
the real onus a n d i t ought t o b e laid where i t belongs,
The country banks everywhere have b e e n allowed t o send
their reserve agents items o n the Reserve Cities a n d every-
where else i n the country, a n d they have becn allowed t o
be
count a S reserves anything that t h e Agent would, pleasedto
\
have counted.
I t might b e i n the process o f collection
involving, a s w e all know, anywhere f r o m two t o six o r cight
days.
T h e p r o b l e m i s u p f o r u s t o settle s o that another's
burden m a y n o t b e p l a c e d u p o n o u r shoulders,
believe, I
a m quite s u r e , t h a t i t i s i n c o r r e c t
w
e all
i n »vrinciple
and unsound i n practice a n d everything else f o r these
things
t o g o around t h e country i n the process
o f collec~
tion, counting a s reserves; a n d 1 wonder i f w e could n o t
put ourselves o n record a s saying that t h e present practice
of allowing s u c h items t o count i n the b a n k reserves i s un-
sound and should. not b e continued,
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Federal Reserve Bank of St. Louis
144
The Chairman:
T h e subject i s open for discussion,
Governor Seay:
i f h a i
t h i s i s a time o f
super-abundant b a n k reserves, a n d I think w e all d o recog=nize t h a t thero i s more o r less danger i n it, a m i t might
be reached i n one o f two ways.
O n e w a y i s offered f o r
discussion i n onother topic here, a n d that i s putting t h e
Federal Reserve provision into complete operation;
and
thon another way that i t might b e reached i s that i f the
float were eliminated f r o m the member bank reserves a t the
present t i m e i t would curtail t h e reserves i n this country
ta a very large degroe, o n d this i s the time when i t might
very safely b e done, n o doubt t o very great public advant-—
AGE
I f this meeting c a n put itself o n record a s declar-
ing that the present practice permittod b y the Comptroller o f permitting the floating checks t o count a s bank
reserves i s wrong a n d should » e corrected, t h e n w e e a n
start o u t t o solve t h e collection problen,
The Chairman:
V h e n I saw that suggestion o n the
program, wovernor Seay, w i t h your further suggestion i n
regard t o making t h e reserve provisions o f t h e Act effective
at once, 1 took the liberty o f suggesting a s a topic Item
jl-(b),
i n order that w e might consider t h e reduction o f
the requirea reserves o f the country banks.
Governor Seay: f
also wrote y o u a letter because I
was curious t o know what y o u had i n mind. The Chairman:
I f you are going t o m k e t h e country
bank assume the float, y o u are g0ing t o put & burden o n
the country banks that i s going t o make them squeal.
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Federal Reserve Bank of St. Louis
wt
145
Governor Seay?
though,
O f course h e is the originator @ it,
i s h e not?
The Chairman:
Y e s ; b u t o n the other hand, i f y o u
require h i m t o k e c p t h e p r e s o n t p r o p o r t i o n
o f reserve
on
deposit, t h a t is, t h e same portion that i s n o t required,
in cash i n his vault, t h e result will b e a n increase o f the
reserve requirements o f the country banks.
I t will not
affect t h e central reserve banks s o much, b u t i t will a d a
to t h e r e s e r v e r e q u i r c m e n t s
o f the country banks v e r y
materially,
Governor Seay:
J u s t a s w e are required t o keep t h e
matter o n our books, a n d w o are getting a "cussing" now,
and 1 t does n o t belong t o us,
The Chairman:
T h e n y o u want t o “pass t h e buck" t o
Comptroller.
Governor Seay:
Governor Aiken:
S u c h was i n m y mind.
M r . Chairman,
i f the float were
eliminated, a n d the country b a n k obliged t o carry it, i t
would m a k e s u c h a
huge i n c r e a s e
i n the actual reserve
requirements o f our eoauntry banks t h a t I
a m sure there
would b e a very large exodus f r o m the Fedcral Reserve S y s =
tem t o the State b a n k system.
The Chairman: I
not sure o f that.
think there would, possibly. I
T h e r e i s a great deal o f threat a n d
talk o f that, b u t not much performance.
Mr. Foote:
M r . Seay, I
close study o f the probhem.
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Federal Reserve Bank of St. Louis
presume y o u h a v e m a d e a
W h a t percentage o f the d e -
an
146
posits o f the country banks a r e n o w represented b y what
you understand t o b e t h e float?
The Chairman:
Y o u mean, w h a t percentago o f the re-
serves?
Mr. Foote:
w e l l , t h e deposits,
bank chose t c deposit $250,000.
s
a
y a
country
W h a t percentage of thoso
deposits i s absorbed o r representeé b y the float?
Governor Seay:
T h e r e i s only o n e general way, per-
haps, o f arriving a t that.
W e will s a y that t h e deposits
of the country a r e about s e v e n e n d one-half billions,
Mr. Foote:
A r e those t h e country banks?
Governor Seay:
T h e ceposits o f the banks o f the
country a r e about eight billions.
T h e float h a s b e e n
variously estimated a t from two t o four hundred millions,
and e v e n more,
The Chairman:
I t i s estimated a t s i x hundred mil-
lions.
Governor Seay: S u p p o s e i t is eight billions and
six hundred millions.
T h a t would b e about t e n p e r cent,
The country bank is responsible f o r the float, really. ‘ H e
originates i t , a n d the deposits o f the country banks a r e
about t h r e e a n d a
half billions.
I
f h e i s responsible
for four hundred million dollars o f the float, y o u will
see t h a t t h e r e i s a b o u t f i f t e e n p e r c e n t o f deposits f o r
reserves. I
a m just answering y o u r question roughly,
Mr» Foote.
Mr. Foote:
estimate.
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Federal Reserve Bank of St. Louis
Y e s , I understood that i t would b e a n
147-148
the. Chairman:
W e are a p p r o a c h i n g s
i
h
t question:
We are a p p r o a c h i n g e
h
t method. f
o clearing which has been
recommended b y our transit fommittee; t h a t is, that t h e
Federal Reserve banks shall check everything o n a time
allowance, a n d i f all the clearing i s @ n e t h r o u g h the
Federal Reserve System, that will have the effect o f making
each bank b u y its float,
i f I a m not mistaken.
W o u l d it
not, Mr. McKay?
Governor M c K a y :
The Chairman:
T e s s
W e know that those transit buncaneers
re the most courageous robbers i n the world, a n d they
have just gone after t h e country banks.
"Soak them! "
T h e y are smart men, too, Mr-+ Foote.
Mr. Foote;
Y e s , t h e y are very brilliant.
The Chairman: I
though I
T h e y have said,
a m afraid o f that procedure, al-—
would like mighty well t o see i t undertaken.
Governor Seay:
both ways.
T h i s thing goes forward a n d backward
T h e country b a n k i s the o n e that i s raising
the howl n o w about putting i n force t h e collection system,
and y e t i t i s t h e o n e t h a t i s t h e c a u s e o f t h e w h o l e p r o b lem.
Perhaps
i t i s n o t s o m u c h t o blame f o r i t a s i t
might be, because t h e practice h a s gradually grown u p i n
this country a n d been indulged in, which never was intended f r o m t h e beginning,
analysis. I
a n d perhaps
i s illegal
i n its last
d o not want t o throw a hand grenade i n
here w i t h a short fuse o n it,
Mr. McKay: I
would like t o s a y that a t the e n d o f
three years' time, w h e n t h e reserves a r e a l l in, e a c h o f
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Federal Reserve Bank of St. Louis
149
the country banks a n d the ordinary Reserve c i t y banks will
then b e i n exactly the s a m e position a s the central
reserve c i t y banks have always been.
T h e central reserve
city banks have h a d t o carry 2 5 per cent reserves.
I n ad-
dition t o that t h e y have h a d t o carry t h e float, n o t only
of their o w n local depositors, b u t o f all o f their country
correspondents.
A f t e r t h e reserves a r e p a i d i n a n d t h e
central reserve c i t y banks n o longer a r e connected with
reserve agents, t h e n e a c h c o u n t r y b a n k w i l l h a v e t o c a r r y
its o w n float represented b y the checks deposited b y its
n
own local customers only.
e Chairman: B e c a u s e they
must cound the reserves a s they are calculated o n their
books.
W
e will count only a s reserves those checks
which have gone through the bank and o n which credit has
been received after payment.
T h i s thing i s going t o
work automatically i n the end, there i s ne doubt.
Governor Seay:
T h a t i s one reason I said a t the
beginning t h a t i t w a s r e a c h e d i n t w o ways.
O n e i s that
it w i l l b e c o r r e c t e d w h e n t h e r e s e r v e a c t i s p u t i n t e f u l l
foree, a n d a s a preparatory w a y i t might save u s from the
"cussing" t h a t w e are certainly going t o gets I
Mr- Foote:
please.
M r . Seay, another question,
believe.
i f you
D o not t h e country banks generally show about
forty per cent time deposits o r savings deposits o n a n
average?
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Federal Reserve Bank of St. Louis
The Chairman:
I t i s not a s much a s that.
Governor Seay: I
The Chairman:
do not think so; no.
T h e t o t a l t i m e deposits r e p o r t e d
ina
150
comparatively recont report o f the Comptroller a r e about
$650,000 ,O00.
Governor Seay:
Tne Chairman:
banks,
A n d that i s more than i t was.
I f that w a s a l l held b y the country
a s d i s t i n g u i s h e d f r o m t h e r e s e r v e c i t y banks a n d
central banks,
i t would b e a b o u t t w e n t y p e r cent; b u t I
do
not think i t would a l l classify a s reserve deposits.
Governor . e a y :
N o , I
réemembcor a
proportion t h a t I
macdein a n analysis before t h e Act wont into operation, a n d
at that time t h e deposits were about seven billion o f dol-
lars, and the total time deposits only (3450,000,000, but
a vory m u c h l a r g e r proportion,
a n d that was made b y the
country banks.
Governor Wold:
A s t o the country bank i n this section,
the timc deposits a r e anywherco f r o m sixty t o seventy-five
per cent o f its total deposits.
Governor Seay: I
at t h a t time. I
a m telling y o u about where i t stood
think t h e c o u n t r y b a n k deposits w e r e
about t h r e e b i l l i o n ,
a n d t h e time deposits
o f the country
banks a s they were calculated t h e n were something m o r e than
three hundred millions.
T h a t i s the prpportion i t e e
at that time.
Mr. Footo: I
have gained t h e impression that t h e
time deposits i n the South r u n about forty per cent.
T h e
idea was running through m y mind that l e d m e t o assume
that i t w o u l d o n l y r e q u i r e t e n p e r c e n t t o a b s o r b t h e Lioat;
that that t e n per cent ought t o b e reckoned o n the current
business r a t h e r t h a n o n t h e t o t a l d e p o s i t account.
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Federal Reserve Bank of St. Louis
L151
there i s a tax o n business,
o n the active business
Theat i s w h e r e t h e b u r d e n w i l l rest; n o t o n t h e
the f a r m e r o r t h e c a p i t a l i s t w h o h a h a s a
eertiticate,
w e o h a s n o current. t r a
O
time
n With t h e parc;
but t h e burden vould s o against t n e people w h o are h a v i n g
active transactions w i t h thc banks, c n d t h e percentage o f
be necessary t o take c a r e o f the float
against t h e current account a n d n o t
accounts a s a wholei V h a t e v e r t burtransitofficers o f course will have
to b e f o loved
positon, f
—o >
i
think i n
] rigine
i d e g
w i i c h
i s the de-
this matter that y o u will
have t o reckon i t a s regards t h e current business rather
than t h e sross deposits.
I
n that event t h e percentage w i l l
run v e r y m i c h hieher,
Governor Seay:
M e . Chairman, t h a t would h a v e refer-
ence merely t o the methodof getting a t what the time deyoulad n o t h a v e a n y b e a r i n g o n t h e m e t h o d
adopted for solution, because t h e y have t o b e considered
independently o f e a c h othor.
i - think y o u m a y b e correct,
in apportioning the time deposits i n certain localiticg,
but y o u a r e n o t c o r r e c t
i n doing g o v i t h relation t o t h e
country banks a t large, because I
a m quite sure that t h e
bank deposits d o not oceupy s u c h a large proportion o f the
deposits--- about t e n per cent o f tne whole.
Mr- Foote:
b o you know how they run i n Texas?
Governor V a n Zandt: I
per cent.
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Federal Reserve Bank of St. Louis
.onlé r o u g h l y g u e s s a b o u t
152
about t o n per cent for t h e
runs v e r y much higher i n our district.
Governo> Wold: %
runs a S high a s sixty, here.
in c o n s i d e r i n g
that y o u h a v e t o reckon
Governor Seay:
a s reszards t h e a c t i v e
“ c @ a r e looking a t i t from a little
LL ETEPOR D o u n t O f view. L l talme,
e s poste,
“ @ are n o t
evence t o a n y policy that will b e
tne c o l l e c t i o n p r o b l e m a t all.
a
e
“ntercsting incidental things that come
nG-—GOl T6327 LOn- Proper,
the Guestion o f expediency.
it i s +
6
x a r p o l y o m expediency, I
should
imaginc.
This question o f percentage t h a t y o u
I think c a n b e clearcd u p b y calling
root t h a t i s unacoubtedly neccessary.
eastern States, t h a t is, N e w sngland, N e w
York, Pennsylvanie, O h i o a n d Illinois, too, have g o t state
vastly stimulated t h e creation o f exiensions.
T n e r e a r e charitable cocperative banks
or
a t e
volume c f bank deposits a r e held t h e time deposit h a s gone
into t h e Stato bank, w h i c h i s able t o p a y a higher rate o f
interest, becausc i t involves a
those s e c t i o n s
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Federal Reserve Bank of St. Louis
very small reserve; a n d i n
o f the country where t h e state l a w has n o t
153
developed t h e savings b a k k , t h a t business h a s been going
naturally morc t o the commercial bank, a n d i t will b e
found, a s i n Texas a n d the Southern States, t h a t t h e percentage o f time deposits i n the National banks i s pretty
large, but when you get t o a state like New York i t will b e
very Small indeed compared t o the total volume o f National
bank deposits,
T h e more y o u get a w a y from t h e big money
centcors t h e higher the proportion o f savings accounts.
Mr- Foote:
A s a further matter o f information, i s i t
known what the value o f a dollar o f deposits i s i n tho w a y
of net returns? H a v e we any statistics t o show the
valuo o f the deposits, t h e n e t value?
Governor Wold: G o v e r n o r Kains h a s s u c h a department,
I understand.
The Chairman:
W e have t h e report already completed
in New York o f a mcthod o f ascertaining that, which I guess
is a s g o o d a s a n y t h i n g t h a t h a s b o e n d o n e t o date.
not ready for publication yet.
I t is
I t has been the subject o f
some months o f study; a n d I think that i f the average
bank a n a l y z e d i t s b o o k s
i t would find that one-third o f its
business i s carrying a t a loss t h e other two-thirds,
Governor Seay:
Y o u are getting a t i t from the bank
point o f view?
The Chairman:
Yes,
Mr. F o o t e :
s i t not less t h a n o n e p e r cent?
I
Governor Seay:
Mr- Foote:
thing?
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Federal Reserve Bank of St. Louis
O h , no.
A f t e r a l l expenses a n d losses a n d every-
154
The Chairman:
I
Governor S e a y :
I
ir. Foote: I
said, I
n N e w Y o r k i t i s less; y e s .
t w o u l d n o t b e i n t h e e n t i r e county.
think i t i s the country over.
have n o t a n y books t o base that on.
heersay, a n d I.asked f o r information. I
A s I
I t i s just
thought maybe s o m e
expert h a d d e v e l o p e d t h e r e a l truth.
The Chairman:
I t has becn done in individual institu-
tions, a n d I can tell y o u o f a t least o n e case about a
ago o f one bank that s o analyzed i t s accounts.
banks d o not d o so, except t h e b i g city
year
B u t most
sbanks, a n d t h e re-
sult i s a great deal o f confusion o n d misundorstanding a s
to what the bank's carnings are,
We are going t o correct that i n our district b y giving
out a method, anc, i f necessary, instructing t h e country
banks h o w t o operate this method o f ascertaining w h a t t h e y
are making o r losing.
Mr. Foote:
T h a t would b e a wonderful addition t o
the information o f the country. I
district, a
lmow one b a n k i n our
large country bank, t h a t i s making oeven tenths
of one p e r cent o n its entire deposit a c w u n t .
paying eight p e r cent divicends,
T h e y are
T h e stock i s worth well
above p a r , a n d t h e y a r e c i a r g i n g t h e business w i t h t h e
egght per cent dividends, a n d are fixing t h e amount t h a t
is left a s what t h e y mike o u t o f the deposit accounts,
on
the t h e o r y t h a t t h e c a p i t a l a n d s u r p l u s w h i c h i s
by t h e s h a r e h o l d e r s p a y s t o t h e s h a r e h o l d e r s t h e G i v i d e n d
they receive;
t h e m o n e y i n possession
o f the shareholders
In
would b e worth t o them a s mich a s the bank pays them, t h i s
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Federal Reserve Bank of St. Louis
155
particular b a n k the eight p e r cent divicend amounts t o about
six p e r c e n t o n t h e b o o k v a i u e o f t h e stock;
e n d i n esti-
mating t h e worth o f o m m their deposit accounts t h e y charge
the n c t earnings w i t h eight p e r cent dividends.
T h a t
bank has a n expense account o f three a n d a half p e r cent o n
its loans.
T h e average expense account o f the banks i n
Mississippi
i s f i v e p e r cent.
T h e r e a r e some v e r y small
panks i n that State, banks with (50,900 deposits o r
575,000, that have expenses o f six per cent involved o n
T h a t feature i s a very important one i n the dis-
loans.
tricts w h e r e t h e b a n k s a r e poor, w h e r e t h e p r o p o r t i o n
of
deposits i S small a s t o capital.
The Chairman: G o v e r n o r Seay, w e are facing this problem o f yours w i t h great courage.
M r . Chairman,
Governor Seay:
a s Governor Aiken ms
come t o t h e c o n c l u s i o n t h a t w e h a v e f o u n d w h a t t h e p r o b l e m
is, I
presume
w o m a y m a r k t h a t i t e m satisfied,
2
S es
e c
good deal t o kmow what t h e problem is, a n d a s the matter
will come u p i n another form later, I move w e take that
off.
P a sS
extent,
think,
I
e
i n ll-(a),
t o a great
o r i t will b e covered b y the result which would pro-
eced f r o m i m m e d i a t e t r a n s f e r
o f reserve, j u s t a s Mr. M c K a y
has explaincd.
The Chairman: I
a m making a
note t o bring that
that time, Governor Seay.
Governor Scay:
The Chairman:
T h e t w o things a r e related,
W h a t treatment d o y o u wish meted
to Item 1 9 o n the program?
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Federal Reserve Bank of St. Louis
156
Governor Soay:
I t e m (a) I would check off a s having
been discussed t o m y satisfaction;
a n d Item (b) would
come u p f o r d i s c u s s i o n then.
The Chairman:
T h a t would come u p under I t e m 1l-(a)y
or did y o u wish t o take i t u p now?
Governor Seay:
he Chairman:
P e n a l t y o f impairment o f balances?
Y e s .
Governor Seay:
I t will come u p i n another form.
The Chairman: 2
(ce), Weekly reports o f reserve b y
member banks.
2 (c) Weekly Reports o f Reserve.
Governor Seay: I
think that might c o m e u p very well
now, b e faced a n d b e disposed of.
T h e matter was discus—
sed under these t w o headings a n d was passed over.
The Chairman:
reached No. 19.
Y e s ,
i t was t o b e brought u p when w e
W i l l y o u open t h e discussion?
Governor Seay: I
impariment o f balance,
believe, sir, t h a t t h e penalty f o r
a t least b y the books o f a member
bank, should b e fixed b y the Federal Reserve Board.
I t
is provided i n the Federal Reserve Act, a n d I believe i t
is desirable that the Federal Reserve Board should consider placing a
penalty u p o n t h e wilful violation o f a
reserve b a l a n c e ,
s o that i t will a p p l y o n l y t o those
banks which do violate it.
The Chairman:
Y o u would m a k e t h e penalty dependent
upon the disclosure o f the intention o f the member bank?
Governor Seay:
J u s t t h e fact---
The Chairman:
I
n other words, t h e bank that used i t s
reserve t o meet a n emergency would still b e subject t o a
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Federal Reserve Bank of St. Louis
157
penalty a s w e l l a s o n c w h i c h w i l f u l l y v i o l a t e d t h e s t a t u t e ?
é
7
, =
-
a
e A
Governor Scay: t h a t . i s the only contingency that i s
provided f o r i n the act, t h a t t h e b a n k m a y use i t under
certain restrictions--Governor Wold:
D o e s n o t t h e l a u provide t h a t these
reserves shall b e maintaincd inviolate?
Governor Seay:
Yos. I
think w o are cutting o u r o w n
throats b y allowing t h e banks t o check o u t against those
deposits w h i c h they are required b y law t o maintain.
Governor McDougal:
G o v e r n o r Scay, w o u l d t h e penalty
whieh is provided in the National Bank Act, if it were
enforced, h a v e some good resulis i n this direction?
Governor Seay:
is?
W i l l you tell m o what that penalty
A b o u t t h e payment
o f dividends a n d m a k i n g o f loans?
Governor MéeDougal:
M y recollection i s that when the
reserve i s impabred t h e y shall discontinuc lending a n d that
the penalty following i s the winding u p o f the institution
if they d o not make good.
do not think that would deter them
Governor Seay: I
at all. I
d o not think there i s a bank i n the whole
system that would refrain f r o m making a
loan o n a deferred
dividend,
Governor McDougal:
Governor Seay:
I t docs n o t deter them?
t t i s o f very small money consequence
a this time, t o have a n y bank
to the Reserve S y s t e m , t
violate i t s reserve,
structive,
T h e principle i s absolutely ce-
o f course, o f the theory a n d the l a w upon which
theReserve System i s founded. I
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Federal Reserve Bank of St. Louis
BY
do not believe t h a t
158
they‘ ought to be encouraged by acquiocscence in their
use
of reserve balances, e v e n i f i t i s donc
a t a time w h e n the
Federal Reserve Banks h a v e n o use f o r
t h e funds, I
think
that that matter ought t o b e regulated
b y the Federal R e —
serve B o a r d i m p o s i n g a
penalty t h a t i s p r o v i d e d f o r i n
the
law and which was clearly intended that
the Federal Reserve
Board should imposo,
T h e Federal Advisory Council t o o k
that u p about t w o months ago, I
think, a t the instigation
of the Board, a n d they passed a
very Strong resolution t o
the effect that I have j u s t explaired,
Governor McDougal:
W o u l d y o u think that that applied
to the matter o f peserves,
O r Simply the reserve o f the
Federal Reservo banks?
Governor Seay:
T h a t i s o n e w a y i n which w e
c a n reach
it--—— t h e r e s e r v e d e p o s i t s
o f t h e Foderal Reserve Banks,
Governor Wold:
T h a t i s the o n l y w a y i t i s provided
Governor Seay:
A n d I would approach the subject,
Mr.
Chairman,
b y moving that i t i s the sense o f the
conference
that t h e Federal Reserve Board shoulda
consider t h e imposition o f t h e p e n a l t y f o r v i o l a t i o n
o f reserve balances
provided
i n t h e Act.
Governor Wold:
- Governor Seay:
D e y o u offer that a s a motion?
Yes.
Governor Wola: I
The Cnairman:
I
second it.
s there a n y discussion?
Governor McDougal; I
tempered somewhat. I
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Federal Reserve Bank of St. Louis
as
should s a y that this. should b e
do not think that an Overnight im- J
159
pairment ought t o b e punished, becausc i f i t is, o f what
use a r e t h e reserves?
T h e y are certainly o f n o use i f
they a r e p u t i n there t o r e m i n i n t a c t a n d n o t t o b e used;
but i f they were rebuilt quickly I
do not believe t h e y
should b e fined heavily f o r dipping uncer t h e m a dollar o r
twé.
Governor Aiken}: U n d e r our system i t is impossible
for a bank t o lmow where t h e charges a r e t o b e paid.
I t
happens a l l t h e t i m e i n o u r district, w h e r e c o u n t r y b a n k s
on the reserve basis a r e really i n large manu. acturing
centers, a n d i t i s a common thing i n the Worcester b a n k
to be drawn against for $100,000 a t a clip.
Governor Kains:
T h e r e i s a bank u p i n our country
that is required to keep about {600,000 with us, and we
had a check come through and they took ‘:360,000 more.
Governor Wold:
T h a t c a n b e taken care o f b y having
the p e n a l t y a p p l y w h e r e t h e d e f i c i e n c y o f r e s e r v e i s s h o w n
on their own. books,
Governor Seay: I
had reference t o that, a n d I think
iLso mentioned.
Governor Wold:
cism is Mncernec, I
A s far a s Governor McDougal's critido not agree with him at all. T h e s e
are n o t reserves i n t e ordinary sensc that reserves h a v e
been kmown heretofore,
for extending credit.
T h e y have b e e n placed a s a basis
T n h c y have b e e n materially lessened
on actount o f the fact that those banks c a n extend credit
using reserves a s a basis.
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Federal Reserve Bank of St. Louis
I f they are going t o use t h e
160
reserves o n d a s k credit i n addition, y o u are- worse o f f
than y o u w e r e u n d e r t h e o i d system.
tained,
T h e y mist b e main-
a n d i f y o u a r e going t o permit t h e m t o use t h e m
without a n y penalty,
t h e y probably w i l l continuc
t o use
them.
The Chairman:
T h a t i s mixcd u p with t h e question o f
float---
Governor Wold:
I f the penalty i s based upon the i m -
pairment o f the reserves a s shown upon the member bank's
books, t h e float does n o t enter i t a t Bit.
Mr. Hoxton:
H o w are w e going t o ascertain?
Governor Wold:
Mr. Hoxton: I
T h e examiner i s there twice a
had a case the other day, i f I may
mention i t , Mr. Chairman. A
bank h a d a
ment that i s of about 513,000.
%15,000. I
reserve require=—
T h e y had o n our books
got a telegram. asking for a shipment o f ten
thousand dollars i n currency. I
only five thousand left,
reserves,
year,
wrote t h e m that t h e y h a d
a m t h e y were short o n their
T h e next morning
m y lettor c r o s s e d a
coming f r o m them vith {75,000 i n it. I
Governor Wold:
letter
felt rather cheap.
i n o i r r e s e r v e s w o u l d n o t brave b e e n
mpaired u p o n their o w n books,
Mr. Hoxton:
H o w d o w e knowthat?
Governor wold:
Mr. Hoxton:
T h e i r books disclose i t ,
B u t o n l y once o r iwice a
year, w h e n
the e x a m i n e r g o e s there.
Governor Wold:
H
e i s supposed
t o s a y whether t h e y
are maintaining their reserves o r note
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Federal Reserve Bank of St. Louis
T h e examiners i n
Gistrict a r e s o strictt,-——
Governor V a n Zandt:
h a t i s t h e reason I
wanted
it
exactly, Mr. Chairman,
Goernor Seay!
T h e imposition o f a specific fine would
have t h e tendency t o deter, b u t I realize every time this
is brought u p that i t i s conneéted s o intimately w i t h a lot
of other subjects t h a t y o u c a n hardly separate o n e from
the c i n e , I
d o not s c e h o w w e a r e g o i n g t o approach a
solution o f any o f them unless w o take t h e things u p b y
section, a n d i f w e agree that i t i s desirable t o f i x this
p onalty, s i n c e t h e y m a y n o t c h e c k a g a i n s t t h e m e x c e p t i n
that w a y ,
penalty,
t h e y might not
b e checked against except under
a n d according t o requirements p r e s c r i b e d
Federal Resorve Board.
b y the
I f they g o ahead and d o that, I
think that a n y other provision o f the l a w o f that character
will b o violated with impunity i f i t i s treated i n a slight-.
ing manner.
I t was there, a n d i t was thought that i t
should b e there, a n d i t ought t o b e provided for.
T h e
very fact that t h e penalty i s imposcd will make them remem-—
ber the sacredness o f the reserves.
I
f it was i m a time
of emergency indulged i n i t would destroy t h e Federal
Reserve System.
O u r counsel h a s a
The Choirmans:
question t o p r o -
pound to-you.
Mr. Curtis:
D o y o u consider,
i n view o f the language
of the Act, t h a t t h e y have a n y right t o check against these
accounts a t all, i n the absence o f regulations?
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Federal Reserve Bank of St. Louis
Governor Seay:
N o t t o v i o l a t e t h e i r reserves; I
would n o t t h i n k t h e y have,
Governor Wold: J u d g i n g from Judge Blliott's last de=
cision, 1
think y o u c a n d o most anything.
Governor V a n Zandt:
Y e s ; u n t i l t h e regulations h a v e
been issued.
Governor Seay:
w i t h reference t o foreign exchange.
Governor Wold:
Y o u cannot b u y warrants, b u t y o u « a n
buy bills
o f exchange.
Mr. Hoxton:
I f the l a w i s there, certainly somebody
ought t o b e c h a r g e d w i t h t h e t a s k o f enfaording i t ;
The Chairman:
the r e g u l a t i o n s ,
T h e Federal Reserve Bank may, under
a n d subject
t o s u c h ponalties
a s may be
prescribed b y the Federal Reserve Board, b e cnecked against
and withdrawals a r e permitted b y member banks f o r the purpose o f mecting existing liabilities?.
Governor Seay:
Y e s ; i t gives them the privilege
of doing that subject t o a ponalty.
{At t h i s p o i n t f u r t h e r d i s c u s s i o n f o l l o w e d w h i c h t h e
stenosrapher w a s directed n o t t o report.)
Governor Fancher:
me r a t h e r
T h c r e i s o n e thing that secms
t o establish a
precedent
nize t h a t t h e b a n k r e s e r v e s
their o w n books,
to
i f w e i n a n y w a y recog-
c a n b e computed
a n d carried
+L
o n
T h a t i s a very dangerous precedent.
The Chairman: I
Governor Seay:
a m afraid o f that.
D
o n e t t e t w e d o its
L e t t h e board
determine thet, then,
Governor V a n aandt:
V i s e
ter t o p u t i t i n t h e s h a p e o f a
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Federal Reserve Bank of St. Louis
1 4 not b e 4
request
23tLie 2
o f the Federal
P e
163 - 4-5
t the earliest possible m o e n t , p r o -
a
Reserve
malgate regulations ané fix the penalties prescribed under
Section 1 9 o f the Federal Reserve Act?
Governor Seay:
T h a t w a s m y resolution, e x c e p t t n e
addi tion o f the words " A t t h e earliest possible moment."
The Chairman:
T h i s Giscussion h a s b e e n proceeding
in a very disorderly fashion since t h e resolution has
been introduced,
was s e c o n d e d
yourselves
Y 6 u r resolution i s before t h e House a n d
b y Governor Wold.
A r e y o u gentlemen preparing
t o v o t e o n Governor S e a y ' s r e s o l u t i o n t h a t w e
request t h e F e d e r a l R e s e r v e B o a r d t o p r o c e e d W i t h t h e p r o -
milgation o f the regulations w i t h a provision f o r t h e penalties provided b y paragraph 164, being a portion o f Sec-
tion 19 of the Federal Reserve Act?
(The question was called for and the motion was duly
carried.)
The C h a i r m a n :
T h e r e
i s n o power vested
i n anybody
to collect that penalty, a n d no provision i s made a s t o
think w e might b e confronted
where i t shall b e paid. I
with a bit o f litigation about collecting it..
P h a t
probably would raise t h e question a s t o whether t h e a c t i s
effective a t all where t h e provision.is
s o incefinite a s i t
is, a n d w e would never collect anything.
Governor Van Zandu:
T h e regulations would cover
that.
Governor Aiken: -
I would like t o b e rocorded a s op-
posed t o that resolution, i f I may. I
the t i m e t h e m o t i o n w a s put.
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Federal Reserve Bank of St. Louis
did not vote a %
166
did not vote o n that o r o n a n y o f
The Chairman: I
same
these motions, b u t I would b e inclined t o take t h e
position, Governor Aiken.
T h a n k you, sir.
Governor Aiken:
The Chairman:
G o v e r n o r Rhoads, y o u suggested I t e m
20, C o o p e r a t i o n w i t h National B a n k Examiners.
T h a t has b e m covered b y the “Hold-
Governor Rhoads:
over", has i t not?
The Chairman:
T h a t matter w a s i n one o f the unfin-
the last
ished items i n the report o f the proceedings o f
Conference o f the Federal Reserve Board.
W e have n o t
Reserve
recommitted that recommendation t o the Feceral
Board.
W e c a n d o i t probably without m u c h cebate-
p e
like t o
this matter i s t o b e dealt with again, I l should
recommenda—
urge that i t b e made i n the w a y o f a separate
tion renewing t h e o l d one.
Governor Rhoads: I
would like t o make i t a s forceful
as possible.
w h i c h the
(At this point informal discussion arose
stenographer was directed not t o report.)
The Chairman:
I
the
n our Giscussion t h i s motning o f
a n d the Federal
unfinished business between this Conference
t h e reconReserve B o a r d a resolution was passed renewing
e
mendation made a t the last meeting that t h e
to the Comptroller five times a
g
year, a n d a copy o f that
Banks,
report, a t least, which comes t o the Federal Reserve
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Federal Reserve Bank of St. Louis
167
should h e r e a f t e r i n c l u d e a
of d i r e c t o r s
a n d officcrs
statement
o f t h e liabilities
o f member banks
t o their
otm
as
banks.
w e did not spccifically refer t o the general recom-
mendation made i n a carefully prepared resolution that t h e
Federal R e s e r v o B a n k s s h o u l d h a v e a c c e s s
t o t h e reports
of
national b a n k examiners, a n d that copies should b e furnished t o the Federal Resotve Banks, a n d complete information
with r e g a r d t o t h e c o n d i t i o n o f affairs
should b e f u r n i s h e d
o f the member banks
t o t h e Federal Reserve Banks
b y the
Comptroller's examiners,
In reply to the report made t o tho Federal Reserve
Board o n that subject t h e Board stated that t h e matter
was under consideration w i t h the Comptroller, a n d Governor
Rhoads n o w suggests t h a t some action b e taken a s t o that
matter.
I t has not finally been disposed o f t o his satis-
faction i n Philadelphia, w i t h respect t o t h e way i n which
they g e t a c c e s s
t o this information. i
de n o t think t h e
resolution passed this m o m i n g would incluce a
renewal o f
that recomiendation t o the Federal Reserve Board.
What i s your wish about Item 20, Governor Rhoads?
Governor Rhoads:
M i r , Chairman, I
believe that t h e
resolution p a s s e d l a s t t i m e c o v e r s o u r requirements.
Whe-
ther i t would b e good policy just t o reaffirm i t or t o adopt
something new, I do not know.
The Chairman:
the fact, I
G o v e r n o r Rhoads, y o u are atvare o f
presume, having listened t o the statements
that have been mace here, that s o m o f the Federal heserve
banks n o w have complete access t o all o f that information,
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Federal Reserve Bank of St. Louis
168
particularly some o f the banks where t h e chief examiner o f
the district makcs h i s officc i n the same building w i t h
the Federal Reserve Bank.
T h a t i s not the case with us,
Our chief examiner, w h o i s also deputy Federal Reserve
fgont, h a s h i s office half a mile o r three quarters o f a
mile f r o m our office, a n d his instruetions f r o m the Comptrol—
er o n l y a u t h o r i z e m
i
h t o exhibit t h e r e p o r t s
o f the examin-
ers t o Mr, J a y o r m y s e l f o
r t o some competent p e r s o n w h o m
we shall select t o oxamine t h e m i n his office,
Governor Rhoads:
he Chairman:
credit,
Or a
O n l y i f they apply for loans?
O n l y i n case application i s m d e f o r
situation a r i s e s u n d e r t h e c o l l c e t i o n s y s t e m
that makes i t necessary t o investigate a
bank. |
Us are n e t eatiefisd w i t h that situation, a n d have s o
advised t h e Board i n washington, a m l t h e matter i s
in
about t h e same shape a s i t was when w e last discussed i t
here, a n d w o would like t o see recommendations g o t o
Washington o n this subject a n d f r o m this meeting.
B u t it
seems t o m e that t h e recommendation will b e very mich
stronger i f the a t t e n t i o n f
o the Board i s directed t o the
fact that those banks t h a t have immediate access t o the
é@éxaminer's offico b y reason o f its being i n their
building are getting a l l t h e information asked f o r f r o m t h e
Comptroller, a n d some o f the Danks that are not s o
situated
are not gotting it.
Governor HicDougal:
I n Chicago, Mr, Chairman, w e
are one o f the banks where t h e examiner i s located i n the
same building, a n d the procedure that has b e e n followed
with
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Federal Reserve Bank of St. Louis
169
us h a s b e e n t h a t t h e R e s e r v e A g e n t ,
request h a s m a d e a
formal a
o r t h e deputy, u p o n o u r
i c a t i o n t o t h e National b a n k
examiner a s k i n g h i m t o p e r m i t u s t o s e e t h e reports;
wo have b e e n doing that i n cases where a
and
bank has actually
called f o r t h e extension o f credit a n d rediscounting o f
paper, b u t w e a r e n o t p o r m i t t e d
are o n l y permitted,
t o m a k e a n y memorandum.
o r h a v e b e e n u n t i l recently,
carry a w a y s u c h i n f o r m a t i o n a s o u r r e p r e s e n t a t i v e
aole- to: Dring i n his own: mind,
a t least,
may be
1 b i s very-difiicult t o r
him t o bring what w e need.
{ had a talk with Mr. Smith, who recently arrived o n
the scene.
H e has n o t been i n Chicago heretofore.
H e
. Stated that I could depend upon a more liberal attitude
peing s h o v m n o w t h e t h e w a s present;
not g i v e u s a
copy o f the report,
b u t o f course h e c o u l d
b u t tte p r o b a b l y - — -
he
lid not state this a s a fact--- would b e able t o take such
information away as we might desire, which had been denicd heretofore,
S o w e are probably i n a stronger position
than you, a t least, a n d perhaps t h a n many o f the other
banks.
I t is not exactly what w o have asked for--- a
copy o f the report.
The Chairman:
T h e y are incorrect i n stating that y o u
were getting a l l y o u have asked for, b u t y o u are getting
access t o the original report?
Governor McDougal:
T h e r e i s o n e thing w e d o not get,
or have not succeeced i n getting s o far, a n d that i s advance information.
W e would like, o f -course, t o have t h e
permission t o reviciw these reports i n anticipation o f their
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Federal Reserve Bank of St. Louis
L70
results, a n d i t would b e very helpful a n d wot.ld expedite
action,
I t seems t o m e i f w e could h a v e i t sioner t h e
act w e ought t o b e permitted t o have i t before,
W e are
evidently getting more t h a n most o f you, b u t w e are n o t
getting everything woe would like.
Governor V a n Zandti I
want t o c o r r e c t
m y statement.
We c a n g e t t h a t o n l y w h e r e w e h a v e a n application,
but we
can take a n y data that w e want to, e v e n s o far a s making
a complete c o p y o f t h e E x a m i n e r ' s r e p o r t a n d t a k i n g i t t o
Our O f FLGE.
Governor Wola: I
think i t might b e unfortunate
mention were mace that some o f the banks whre getting
formation ami others w e r e not.
M i g h t i t not lead t o the
Comptroller o f the Currency cutting o f f some o f the privileges that some o f the banks have, a n d tightening things u p ?
The Chairman:
i E should t h i n k i t w o u l d b e p u t a
porary inconvenience t o thos e
Governor McDougal: I
banks.
do not want anything done a s
far a s this b o d y i s concerned.
pleqse w i t h it.
tem—-
Y o u c a n cdo what y o u
T h a t i s what w e are getting,
a n d of
course y o u are entitled t o the same privilege,
Governor Rhoads:
O u r Situation i s most unsatisfac-
tory, because t h e chief examiner o f our district i s generally away from his office t h e greater part o f the week,
and there i s nobody there until h e comes in, a n d then
we s e n d s o m e b o d y u p t h e r e a n d t h e a g e n t
o r his a s s i s t a n t
can give u s a n hour, a n d then w e c a n take a w a y what w
can g e t i n a n hour,
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Federal Reserve Bank of St. Louis
W
e m a y have a n application
o n Mon-
bbs 8
7
jay and n o t g e t a n y information until t h e following Tuesday a week.
Governor Kains:
O u r chicf coxaminer was instructed
by the Comptroller i f h e was n o t there t o keep a
man there,
and i f w e wanted t o g o over h e could s e c what w e wanted.
As a
matter o f principle I
would l i k e t o s e e t h e s e r e p o r t s
sent into us, a n d I think t h e y will b e ultimately, b u t i t
is a guestion o f degrees.
The Chairman:
information,
G o v e r n o r Kains,
a m I correct i n this
t h a t t h e Advis:ory Council unanimously recom-
mended. that these reports should n o t b e given t o the Reserve Banks o r t o certain officers o f the Reserve Banks?
Governor Kains:
O h , no; that i s not so.
stonographer w a s d i r e c t e d n o t t o report.)
Governor Seay:
tO 0
O sb C a d i
W h a t t h e Advisory Council endeavored
B a c h individual expresscshis
o w n opinion,
anc. if they can act together o n any measure that i s not
violently
i n conflict w i t h t h e v i e w s h c l d b y a n y member,
they vote a s a body, j u s t a s w e d o here,
T h a t cuestion was
referred t o them b y the Board, and both Governor Kains
and myself explained--- I
the G o v e r n o r s
copies
o n this m a t t e r w a s t h a t t h e y s h o u l d h a v e
o f these r e p o r t s
for granted;
a m sure I did--- that t h e view o f
as a
regular t h i n g ,
t h a t thesc reports should,
t o b e taken
i n their j u d g m e n t ,
be s e n t t o t h e r e s e r v e banks.
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Federal Reserve Bank of St. Louis
Tne C h a i r m a n :
Automatically?
Governor Seay? Automatically;
a n d that the Govern-
ors w o u l d n e v e r b o c o n t e n t e d w i t h a n y o t h e r view.
Governor Kains:
W e are sound o n that point.
Governor Seay:
I t was exaplained there that t h e cues-
tion w a s b e t w e e n t h e C o m p t r o l l e r a n d t h e F e d e r a l R e s e r v e
Board, a n d i t i s not thoroughly threshed o u t yet,
T h e
Comptroller w a s asked t o come down t o explain what h e h a d
done u p t o t h e p r e s e n t t i m e ,
a m t h e Council,
w i t h those
statements before it, gave t h e d@pinion that t h e informa—
tion w h i c h t h e C o m p t r o l l e r h a d r e q u e s t e d t h e e x a m i n e r s
give was sufficient f o r t h e present.
to
H e must bear i n
mind that perhavs a majority o f the mombers o f the Council
are national bankers themselves, a n d they might take a
ferent view, a n d we cmphasized that fact.
understand y o u r view, g e n t l e m e n ,
W
dif-
e said, "We
a n d w e want y o u t o under—
Stand t h e views o f the Governors, a n d tho Gevernors w i l l
never b e satisfied with anything less."
Governor Kains: I
know that t h e y must have h a d some
very strong urging o n the part o f t h e Comptroller, b e cause t h e attitude o f the examiners i s that t h e y would d o
anything n o w f o r us.
Governor Scay:
W
e a r e o n most amicable t e r m s w i t h
ours, a n d h e evinces t h e most friendly disposition.
Governor McDougal:
Y o u are speaking individually,
not collectively.
Governor S e a y : I
suppose t h e s a m e l e t t e r w a s r e c e i v -
ed b y all o f them.
Governor McDougal:
B u t y o u cannot g e t anything f r o m
any examiner i n the District, c a n you?
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Federal Reserve Bank of St. Louis
173
Governor Seay:
O u r chief cxaminer brought i n the
examiners t h e other d a y a n d they all said that anything
they c o u l d d o t h e y w o u l d d o v e r y g l a d l y a n d w o r k w i t h me.
( An informal discussion followed which the stenographer was directed n o t t o report.)
Governor Rhoads:
M e . Chairman, w i l l y o u submit a
reso-
lution covering your ideas o n this subject?
The Chairman: I
will withdraw t h e suggestion that
some o f the banks a r e getting information a n d some are not
so favored,
i n view o f this discussion.
ing t o pass a
I f you are will-
resolution simply renewing the recommendation
made at the last conference asking the Federal eserve Board
to endeavor t o facilitate a
conclusion i n the matter a s
promptly a s possiblc, w h y , t h a t w i l l c o v e r e v e r y t h i n g t h a t
I have i n mind,
Governor McDougal: I
will second that motion.
(The motion was duly carried.)
(Whereupon,
a t 6:25 o
clock p e m., t h e Conference t o o k
a recess until 8:15 o'clock p. m-)
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Federal Reserve Bank of St. Louis
Y B .
L e e
E
e S S 5.0.8
The Conference reassembled a t 8:15 o'clock.
The Chairman:
T h e m e e t i n g w i l l c o m e t o order.
The next i t e m o n the program i s suggested b y the
Federal Reserve Board a n d has t o d o with the method o f
accounting,in t h e matter o f investments, t h a t h a s been
employed b y nine o f the twelve reserve banks i n handling
investments
i n warrants a n d acceptances,
aaae A D D I N G COMMISSIONS T O COST O F INVESTMENTS.
Quite recently w e received a
communication f r o m the
Board s u g g e s t i n g t h a t w e a d d t h e c o m m i s s i o n s p a i d o n i n v e s t ments
t o t h e c o s t a n d consider t h e interest basis a s cor-
respondingly reduced.
T h a t gave rise t o some objection
among t h e accontadnts i n our bank, a n d the subject w a s
put o n the program f o r discussion t o see what t h e consensus
of views here might be.
should think that t h e commission
Governor Kains: I
T h e commission i s always a
is a part o f the cost.
part
of the cost o n everything.
The Chairman:
been t r e a t e d a s a
U n d e r t h e present arrangement i t has
service charge.
rendered once a month.
for e v e r y o n e
T h e s e bills have b é e n
I t makes a n easier computation
a t t h e e n d o f e a c h month,
bill f o r s o m u c h s e r v i c e r e n d e r e d
Governor Kains:
D
by a
t o simply p a y a
correspondent.
o y o u m e a n t h e commissions t h a t
one bank charges another?
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Federal Reserve Bank of St. Louis
The Chairman:
Y e s ; that o n e bank charges another
bank,
Governor Fancher: I
had o u r loan clerk write m e a
communication t h e other d a y bearing o n acceptances purchased
and allotted u s b y each bank a n d the manner o f accounting,
in getting down a n d figuring the earnings a n d s o forth,
and showing t h e complications i n the matter o f putting i t
through t h e books,
I t i s not very l o n g a n d I will read
it.
"Since October lst we have been handling our Warrants
and acceptances
i n the manner suggested b y the Federal
Reserve Board i n their letter o f September 21st.
A l -
though the commissions d u e o n these warrants a n d accept-
ances have not been billed t o us b y the Federal heserve
Bank o f N o w York, w e have nevertheless opened a n account o n our books under t h e caption 'COMMISSIONS D U E
OTHERS O N WARRANTS a N D ACCEPTANCES' a n d have m a d e t h e pro-
per credits thcreto o n our warrants and acceptances purchased since October lst, the difference between the discount a t the rate purchased a n d the commission h a s been
credited t o UNEARNED INTEREST ( i n the case o f warrants) a n d
UNTARNED DISCOUNT ( i n the case o f acceptances).
"To show the impracticability o f handling acceptances
at the actual earning rate w i t h the commissions deducted,
I cite t h e following instance:
U n d e r date o f October
14th t h e F e d e r a l R e s e r v e B a n k o f N e w Y o r k p u r c h a s e d f o r
us an acceptance o f 310,000 a t 2-1/16% for 85 days.
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Federal Reserve Bank of St. Louis
The discount o n this item at the rate purchased (47.55
176
Commission a t 5 per cent ( t o b e credited t o
{commissions due t o others o n warrants
' and acceptances)
(
2
Our actual earnings o n this i t e m
The q u e s t i o n n o w a r i s e s
4
4
3
5
,
8
1
7
a t what r a t e must this
acceptance b e carricd o n our books according t o our system
in ordcr t o make t h e proper daily earning entry.
2~1/16%
2
Less 5 %
»
.
1
1
Actual rate,
0
6
0
.
9
2
3
1
5
9
5
2
3
5
7
5
This i s approximately 1.96 o r 1-24/25¢; f i g u r i n g t h e
discount a t 1-24/25% t h e approximate r a t e f o r 8 3 days
gives u s only $44.27 while t h e actual earnings o n this
item is $45.17, a difference therefor, o f (;.90, which difference should b e adjusted i n some way.
It appears
w o m e that t h e charge f o r commissions
a charge f o r s e r v i c e a n d c o n s e q u e n t l y a n expense,
is
and
should b e handled a s such a n d not deducted f r o m the earnings rate o n the warrant o r acceptance,
the t r u e c o n d i t i o n ;
I
t does n o t s h o w
w e , carrying warrants a n d acceptances
purchased v i a the Federal Reserve B a n k o f Bew York a t one
rate a n d they, n o t having commissions t o pay, a t the
actual rate.
I t must b e remembered t h a t o u r system f o r
computing the interest o n warrants a n d acceptances i s t w o
distinct p r o p o s i t i o n s .
we t a k e t h e t o t a l a m o u n t
I
n t h e c a s e o f warrants mmdimons
o f unearned interest a n d divide
it b y t h e n u m b e r o f days t o r u n t o a s c e r t a i n t h e d a i l y
earnings; w h i l e acceptances a r e handled b y u s i n the manner
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Federal Reserve Bank of St. Louis
previously stated."
That shows something o f the complications t h a t arise
T h a t letter that I have read
in handling that matter.
is the o n e which I had o u r young m a n prepare, showing the
entry carried through o n our books.
wrote a t some length t o the Feder-
Governor A i k e n : 1
al Reserve Bosandabout t h r e e w e e k s a g o , e x p l a i n i n g t h e f a c t
hat i n our opinion i t was a
service charge a n d should b e
charged a s such, a n d was n o t a
We have n o t received a
deduction f r o m the income,
reply f r o m the Board a s yet.
Governor Fancher: I
will j u s t q u o t e f r o m t h e l e t t e r
we g o t O n September 2l1lst---
got that letter.
Governor Aiken: ( I n t e r p o s i n g ) I
My l e t t e r w a s i n r e p l y t o t h e i r l e t t e r i n s t r u c t i n g u s t o
make t h e r e d u c t i o n f r o m t h e i n c o m e a n d adjust
The Chairman:
i t t o net.
T h e bank o f New York has s o many o f
these items going through that t h e boys estimate i t will
mean a
very c o n s i d e r a b l o i n c r e a s e
i n the amount
volved, b e c a u s e e v e r y t i m e y o u h a v e a
o f work in-
transaction y o u
have g o t t o bill t h e c o m m i s s i o n t h r o u g h t o t h e n e t a c c o u n t
and put i t through o n the books f r o m one e n d t o the otner,
whereas,
i f y o u will p u t t h e m a l l together a n d put t h e m
through for the month, just taking tho items and making
up a bill a t the end of the month for the commissions, one
entry covers thirty days! transactions.
w e are very much
opposed t o the system submitted b y the accountants o f
the Federal Reserve Board, who are dealing with the matter
in a
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Federal Reserve Bank of St. Louis
highly t h e o r e t i c a l m a n n e r .
178
A r c y o u ready f o r a
Governor Ajken:
motion, M r .
Chairman?
he Chairman:
Y o @ s
move i t i s t h e s o n s e o f this
Governor Aiken: I
meeting t h a t commissions charged f o r handling investments
for other reserve banks b e charged a s a service charge a n d
not a deduction f r o m the income derived f r o m the investment.
The Chairman:
s that m o t i o n seconded?
I
Governor Fancher: I
The Chairman:
will second that motion.
I g there a n y further discussion o f
that m o t i o n ?
(There w a s
n o furtner discussion
o f t h e motion a n d
the motion was duly carried.)
The Chairman:
h
e noxt item o n the program--- and
by the w a y i t does n o t appear o n your copies--- has been
added a s a result o f a conversation with Governor McDougal
on t h i s s u b j e c t o f c o m p e n s a t i o n
that m a k e t h e s e p u r c h a s e s ,
t o b e chargod
b y banks
a s t o whether t n e recomnenda-
tion w h i c h w a s m a d e b y t h e E x e c u t i v e C o m m i t t e c s h o u l d b e
continued.
COMP=NSATION T O B L CHARGED B Y BANKS Y H O MAKE PURCHASES.
You will recall that o u r last mooting roferred t o the
Executive C o m m i t t e e t h e s u b j e c t
o f charges
the banks that make t h e purchases,
t o be made b y
T h e Committee h e l d
a meeting i n New York shortly aftcr the last meeting o f
Governors a n d determined, after considerable discussion,
that a charge o f five p e r cent o f the amount o f interest
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Federal Reserve Bank of St. Louis
te
earned o n each investment should b e adopted, a n d that was
adopted a n d a p p l i e d t o s u b s t a n t i a l l y a l l o f t h e i n v e s t -
ments t h a t h a d been made u p t o that date. G o v e r n o r McDouga.
is under t h e impression--- a n d y o u will correct me, Governor,
if I a m not right i n what I
state--- that some o f the banks
whom these investments have b e e n made felt that t h e
charge w a s somewhat larger t h a n i t should be.
T h i s is
t h a t matter a n d agree u p o n what i s a
the t i m e t o discuss
h e
fair charge, i f the one m d e i s not satisfactory.
only want t o charge what i s right and fair, and i t is
T h e ques=
rather a n arbitrary matter t o deal with anyway.
proper
tion i s r e a l l y f o r y o u t o d e c i d e a s t o w h a t i s a
charge, e n d v e will agree t o -it.
Governor Aiken: I
should l i k e t o s a y f o r o u r b a n k
that o u r feeling i s just t h e same a s that o f ths N e w York
Bank i n regard t o the charge which i s t o be mace,
do not think i t i s «
Governor Kains: t
ant matter. I
course,
mean t h é .
4
very i m p o r t }
+ i s a n A m p o r t a n t matter,
t o ascertain what t h e proper charge is.
of
T h i s
While i t might b e all right a t the
five p é r c e n t c h a r re,
6S
G
present time, might b e all wrong i f interest w e n t u p t o
five O r Six. p e r Gent.
T h e question I
a m concerned
that o f our being practically o u t o f the market.
i n is
Could
you tell u s what t h e proportion o f acceptances a n d warrants
that y o u b u y i s t o the amount available i n New York?
The Chairman:
O f course t h e reports o f all the state
“panks a n d national banks, whose acceptances a r e eligible
under the regulations o f the Board, Governor Kains, those
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Federal Reserve Bank of St. Louis
180
i n the case o f a state institution, q u i t e
reports include,
a large amount o f acceptances w h i c h have n o t becn eligible
up: to: t h e present: time.
B u t w e c a n arrive a t a
enalcsula-
tion without m u c h cifficulty a t the present time.
A l l
the reserve banks held, roughly, about $12,000,000 o f acceptances,.
T h e maximum that t h e y have h e l d h a s been
something o v e r twenty millions, I
believe. I
would s a y
that that w a s f r o m twenty t o thirty p e r cent o f the avalilable acceptances,
T h e rest a r e purchased
i n New York have
and I might s a y that certain institutions
made a
practice
themselves,
b y the banks---
o f buying a l l o f t h e bills t h a t t h e y accept
T h e y negotiate w i t h t h e holder a n d g o right
otter t h e m a r a D u y them.
those acceptances.
T e never have a
chance t o buy
“ h a t w e d o get come, i n a few cases,
from memberbanks w h o a r e willing t o deal with us, f r o m
te institutions o r larger trust companies t h a t a r e willvith us; a l s o f r o m the brokers w h o g e t t h e m
from t h e i r c l i e n t s a n d a r e w i l l i n g t o n e g o t i a t e t n e m .
have a
Governor Kains: I
feeling t h a t some c f our
banks, whose requirements a r e n o t very large, c o u l d fill
their requircments b y shading t h e rate a
can r e m e m b e r r e p r e s e n t i n g a
had t o buy exchange.
little bit. I
h a n k i n N e w Orleans w h e r e I
F o r the first y e a r I had o n e
corrospondent w h o w a s a
good b u y e r o n t h e market.
kept i n touch with the market a n d gave m e rates. I
H
e
found
I could d o a certain amount o f business, b u t I was beaten
a good deal i n competition . I
mace a r r a n g e m e n t s w i t h a
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Federal Reserve Bank of St. Louis
went u p to New York and
f i r m o f brokers t h e r e w h o w e r e i n
gesR8
touch with the market, a n d I could just g o out a n d clean
up the market almost, f o r several years,
We feel that i f v e could g e t into t h e market without
hurting y o u (New York) w e would like t o d o it; b u t i f i t
is going t o hurt t h e s y s t e m i n any v a y w e d o not Want t o
co 2c,
The Chairman: .
Governor Kains.
diffi
m i t t e r t o arrange,
O f course i f y o u b u y bills i n New York
through your connections, why, the same thing must b e done
by the other banks,
Governor Kains:
The Chairman:
one time.
I
Yes.
A n d there will b e nine buyers there a t
t will result
best h e c a n for himself. I
are o n t h e ground,
i n e a c h endeavoring
t o d o the
have always felt that a s w e
i f t h o s e r a t e s a r e g o i n g t o break, t h a t
we c a n beat y o u t o it, because v e are i
want t o see that situation develop.
rather demoralizing.
W
e d o not
t h i n k i t vould b e
I t would cause ¢ t
deal o f an-
tagonism amongthe banks i n New York.
Governor MeDougal: I
think i f we can continue t o have
the N e w York bank represent u s i n this matter o f buying
i n the same w a y that t h e y have
acceptances a n d w a r r a n t s
been doing, t h a t i t i s t o o u r b e s t interest. £
think w e
should continue t o have i t done t h a t way- W w e realize o u t
responsibility
in C h i c a g o t h a t t h e r e i s a n e l e m e n t of, :
iN
t
h
e
r
e
for w h i c h t h e N e w Y o r k B a n k d o e s n o t r e c e i v e c o m p e n s a t i o n ,
because i t cannot b e measured.
arein t h e s a m e p o s i t i o n ,
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Federal Reserve Bank of St. Louis
I
o n vl y s t o oa
3
t seems t o m e that y o u
g Sr3e a t e r extent,
a s the
182
al
Corn Exchange B a n k i n Chicago, f o r instance,
with t h e matter o f buying commercial paper.
i n connection
T h e y very
much p r e f e r n o t t o b u y c o m m e r c i a l p a p e r f o r their c u s t o m e r s
and correspondents, because notwithstanding their efforts
to h a v e i t d e f i n i t e l y u n d e r s t o o d
i n advance t h a t t h e y c a n
only u s e t h e i r o w n j u d g m e n t , t h a t t h e y c a n n o t b e r e s p o n -
sible i n case o f trouble, nevertheless w h e n trouble comes
it breaks tios here a n d there; there i s a fecling o n the
part o f the customers t h a t that b a n k i s responsible, although
not legally so.
T h a t condition i s not fair.
I t docs
exist t o some extent, a n d i t should n o t exist.
When t h i s m a t t e r c a m e u p a t t h e m e e t i n g o f t h e E x e c u -
tive Committee a l l the members o f the Committee were there,
I believe, during t h e diseussion o f the matter.
I t was
brought before t h e meeting a t night a n d I recommended, m y self, t h a t t h e service charge b e fixed a t a rate equal t o
one-eighh o f one p e r cent o f the amount invested f o r t h e
length o f time the investment ras.
T h a t opened t h e
discussion a n d some figuring ensued.
I t was then figured
out o n the basis o f five p e r cent o n the actual earnings,
and that i s where t h e matter was left.
T h e next morning
two o f the members o f the Committee h a d gone home. T h o s e
that remained t o o k action a n d decided t o recommend t o the
Governors t h e five p e r cent arrangement.
T h e Chairman
of the C o m m i t t e e s
a
w instructed t o communicate w i t h each
of the banks a n d place t h e plan before t h e m for their consideration.
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Federal Reserve Bank of St. Louis
T h a t w a s d o n e a n d s o m e o p p o s i t i o n d i d develop.
135
Tt was not general, b u t i t was sufficient a t least t o
warrant m e i n suggesting that t h e matter b e returned t o
this Confercnce f o r discussion.
In reconsidering t h e mattor,
i t seemed t o m e that o u r
w e have
committec did not g o quite far enough--- not that
paid t o o much.
t e belicve i n Chicago that t h e charge w e
w e could
have p a i d i s a very reagsonablo charge a n d that
get a
well afford t o pay i t because o f the fact that w e
have
large a m o u n t o f business t h a t w e p r o b a b l y w o u l d n o t
gottcn o n equal terms.
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Federal Reserve Bank of St. Louis
of t h e m a t t e r w h i c h I
N e v e r t h e l e s s t h e r e W a s o n e phase
d o n o t t h i n k t h e c o m m i t t e e g o t under.
just raised,
That w a s t h e question that Governor Kains h a s
conneci. 6 , t h e effect o f t h e five p e r cent charge i n
tion with fluctuating rates,
I n a month from now, o r six
warrants
months from now, i f this arrangement continues, the
.
or acceptances might b e going o n a four per cent basis
pelieve, m y s c l f , t h a t t h a t i s a
matter t h a t o u g h t t o b e
given further consideration a n d definitely adjusted,
one
I had our boys m a k e some figures bearing u p o n
the
phase o f this matter t o submit i f w e were t o change
charge.
i
s cha i
y
considered for the reason that
24
we believe t h a t probably t h e work a n d posponsibilitye-=
in
doubt a s t o the latter, but probably «he work entailed
a s i t would
connection with acceptances w a s not s o great
pe with warrants, a n d we figured i t o n this basis:
the investone-eighth o f oneper cent o n the p a r value o f
ments for the length o f time the investments were t o run.
That i s i n connection with warrants.
W e figured 1/16th
184
charge
o n acceptancesalong
t h e same lines.
T h a t method
of calculation woulc ¢ o a w a y w i t h a n y fluctuation i n the
charge o c c a s i o n e d
ject o f it. I
by a
change
i n retes.
T h a t was the ob-
think this w a s u p t o September l s t a n d i t
shows that w e have p a i d $1925, f o r which w e received
$3,101,000 i n warrants and %3,100,000 i n acceptances.
amounts h a p p e n e d
Those
t o b e about even.
I think these figures must b e wrong because o f the
fact that t h e commission doesn't figure o u t that way.
Yes; t h i s i s the memorandum prepared prior, I
mean,
to S e p t e m b e r 1 .
The F e d e r a l R e s e r v e B a n k o f N e w Y o r k p u r c h a s e d f o r
uswarrants amounting t o $3,101,000 and acceptances amounting t o $3,100,000.
The charge under warrants w a s $1,148.02, a n d o n the
acceptances $3777.16.
I
bought o n the basis I
have outlined, one-eighth o n warrants
and o n e - s i x t e e n t h
f these s a m e securities h a d b e e n
o n acceptances,
t h e charge w o u l d have
been “ ,538 as against $1,925, which i s the amount paid o n
the c u r r e n t p l a n .
I mention that a s one suggestion o f a plan b y which
we c o u l d d i s p o s e
o f the uncertainty t h a t n o w exists
i n
connection w i t h t h e f i v e p e r c e n t o f i n c o m e b a s i s .
The Chairman:
Y o u mean a s a means o f preventing t h e
charge f r o m automatically increasing w i t h the rate o f
interest.
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Federal Reserve Bank of St. Louis
Governor M c D o u g a l :
Y e s .
185
The Chairman: I
see n o objection t o that.
no p a r t i c u l a r d i f f e r e n c e
make a
t o us.
W
profit o u t o f t h e i n c r e a s o
I t makes
e have n o desire
to
i n ratcs t h a t t h e s e i n -
vestments might b e a r i n times o f high money.
W h a t we
do want t o accomplish i s t o see that t h e minimum charge,
on whatever basis i t m a y b e fixed,
i s suificient t o reason-
ably compensate t h e bank for the work.
ure would d o i t o r not I
W h e t h e r that fig-
do not know. I
have t h e figures propared i n New York. I
would have t o
think the point
that t h e charge i s a service charge a n d a service charge
goes n o t increase w i t h the increase o f the rate, i s well
taken.
B u t a t the present time rates a r e a t a minimum
and w e w a n t
t o b e sure that t h e basi# rate that
is a fair rate. I
i s now fixed
would very mich prefer t o talk to the
men i n the office before expressing a final opinion.
Governor McDougal: I
think t h e o n l y point y o u would
care t o discuss, M r . S t r o n g , w o u l d b e p e r h a p s
tion w i t h t h e s u g g e s t e d r e d u c t i o n
i n connec-
i n the charge
o n accept-
ances, because t h e one-eighth basis would give y o u fully
as m u c h - - -
The Chairman:
T h e way we arrived a t this, b y a very
rough calculation, w a s this. I
d o not think w e pencilled
it out, but a n investment running for three months bearing t w o a n d a halfper c e n t interest would p a y identically
the same commission i f the charge was five p e r cent o n the
income
o r o n e - e i g h t h o f o n e p e r c e n t p e r annum.
identical.
G
Sure
O n $100,000, at 2-1/2 per cent, the charge
vould b e 31.25.
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Federal Reserve Bank of St. Louis
V
I f that i s a proper charge for doing the
186
work i t ought n o t t o increase simply because t h e interest
increases t o five b e r cent, because 11° i s a service charge.
It i s not t h e lending o f our monoy, where w e are making
Sn 1 0 de@e trOtin a 0 n s i a
E
O O f L P C res te.
point i s whobher t h e Federal Rosorve B a n k o f Now York
is justified i n continuing a n arrangement which makes i t
necessary f o r t h e m t o cffFect a
division o f e v e r y t h i n g t h e y
buy a n d p r a c t i c a l l y g i v e f i f t y - e i g h t p e r c e n t o f t h e s e p u r -
chapgs t o the member banks a n d keep forty-two p e r cent
themselves.
Frankly,
Will m k e a
great dcal more money than w e make o u t o f
hesc commissions. I
abandoned, b u t 1
i f w e abandon that arrangement w e
do not want t o see the arrangement
d o want t o see i t justified b y being
properly p a i d f o r t h e w o r k t h a t i s d o n e i n t h e bank.
Whether
mente I
w e are properly paid o r not i s a
matter o f j u d g e -
hardly t h i n k w e h a v e h a d s u f f i c i e n t e x p e r i e n c e
to know finally h o w much work will b e imposed u p o n t h e
bank.
Mr, Hendricks:
A
s t o t h e difference
Warrants a n d acceptances, I
is j u s t a s m i c n work,
is o n warrants,
i n rate between
t:ould like t o s a y that there
i f n o t more,
o n acceptances
a s therzve
i n m o s t instances,
The Chairman:
A S a matter o f fact there i s more
work o n acceptances, because o f the difficulty o f dividing
them---
Mr. Hendricks: (Interrupting)
T h e y are o f odd
amounts a n d result i n increased figuring.
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Federal Reserve Bank of St. Louis
Governor Wold:
S
o f a r a s w e a r e concerned I
do not
aoe
care s o m u c h a b o u t t h e c o m m i s s i o n o r s e r v i c e c h a r g e a s I
do about increasing t h e proportion.
O u r proportion seems
so v e r y s m a l l t h a t i t h a r d l y s e e m s w o r t h w h i l e f o r y o u o r
for us. I
think there i s some justice i n Governor Kains'
contention t h a t w h e n t h e r a t e s a d v a n c e
i t mignt m a k e a
five p e r cent service charge s e e m rather large,
Frankly, I
that. I
have never thought o f
can see that i t would b e so,
Governor Sawyer:
I n Kansas City, Mr. Strong, w e
very m u c h a p p r e c i a t e t h e s e r v i c e y o u h a v e g i v e n u s a n d w e
feel that the chargo has been very reasonable; b u t I have
felt that the basis was wrong.
Y o u should get enough t o
compensate y o u .
The Chairman:
W e would n o t want t o increase t h e com-
mission j u s t b e c a u s e t h e r a t e w e n t u p .
Governor Sawyer: I
think the basis ought t o be
medé nov.
Governor Fancher:
a basis.
G o v e r n o r McDougal h a s suggested
I t appears t o m
t h a t i n the purchase o f war-
rants w e are being benefited b y the service that Mr. Ourtis renders u s i n passing o n the legality o f the issues
and examining t h e papers.
T h a t saves u s t h e work o f the
necessity of having it reviewed b y our attorneys.
That
impresses m e as being a service that i s valuable t o us and
possibly entitles t h e bank o f New York t o a greater charge
than the charge f o r purchasing acceptances, although there
:
d
e
t
a
l :
i
:
is possibly more actual, work i n connection w i t h the allot-
N
ment o f acceptances t h a n t h e r e i s w i t h t h e a l l o t m e n t
warrants.
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Federal Reserve Bank of St. Louis
of
188
The Chairman:
W h a t e v e r charge y o u gentlemen agree
is w i s e w i l l n e v e r p a y t h e b a n k f o r t h e w o r k t h a t w e h a v e
done u p o n t h i s question. j
a
guestion o f h o w
much w e are willing t o camtribute t o the welfare o f the
system b y continuing this arrangement.
L o o k i n g at it
from a selfish standpoint i t ought t o be discontinued a t
once.
Governor Fancher:
W w e feel that the service rendocred
to u s has b e e n valuable a n d that t h e charge which h a s b e e n
made f o r i t has b e e n a very nominal charge.
Whether or
not y o u h a v e a n y w a y o f d e t e r m i n i n g w h e t h e r y o u a r e c o m -
pensated o r not I
c o not know. I
presume i t i s hard f o r
you t o determine t h a t .
The Chairman: I
thought w e would g e t o u r clerk
hire b a c k and that sort o f work covered, a n d 1 think w e
have done that, b u t w e e a n never b e paid f o r t h o work o f
gue C4ak
k who have t a k e n s i x o r eight months
n
in doping this stuff o u t a n d wrestling w i t h i t i n Washington a n d elsewhere.
this:
I
T h e real consideration w i t h u s i s
f w e should a c t i n the N e w York m r k e t ,
the N e w Y o r k brokers, q u i t e i n d e p e n d e n t l y
and
m k e
all
o f our investments
through
o f e a c h other,
uncer Section
1 4 without
regard t o the interests o f ench other, w h y t h e result would
be that w e would g e t a
much larger proportion o f the total
in the N e w York market t h a n w e n o w do.
W
e are will-
ing t o surrender t h a t a n d a r e g l a d t o d o it; b u t I would
not feel justified i n recommending t h a t i t b e done continuously i n this w a y u n l e s s I
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Federal Reserve Bank of St. Louis
could t e l l o u r b o a r d t h a t
189
we were being reasonably compensated f o r our work.
What
is reasonable o r what i s not reasonable w e are quite willing
to leave t o you gentlemen t o decide.
Governor MeDougal:
M a y I make a motion, tr. Chair-
The Chairman: P l e a s e doGovernor McDougal: I
think w e have gone far cnough
to understand t h o situation, I
believe w e are agreed o n
onc m a t t e r a n d t h a t i s t h a t t h e c o m m i t t e e d i d n o t g e t
uncer this question f a r cnough t o provice f o r the change
in interest rate which will come some time.
T h a t being
the particular point w e want t o provide for, I move, i f
it i s i n order, t h a t t h e basis f o r t h e service chargo a s
recommended b y the bixccutive Committec b e discontinued, a n d
that i n the future t h e charge f o r this service b e onc-eighth
of o n e p e r c e n t p e r a n n u m o f t h e f a c e v a l u e o f t h e w a r r a n t s
_and acceptances purchased f o r t h e length o f time t h e investments n a v e t o run, putting b o t h classes o f investments
on the same basis, providing f o r increase o r decrease i n
the intcorcst rate,
A
g t o t h e interest matter I
would
like t o s a y that i t s o happens t h a t i f w e calculated t o day t h e purchases o n the n e w suggested basis t h e results
would have b e e n almost identical.
Tne Crairman: I
think the results would have been
the same,
Governor MeDougal:
Chicago,
o e :
r
e a r e concerned a t
w e not o n l y appreciate w h a t t h e N e w York bank
has done f o r us, b u t w e feel that t h e service charge h a s
been r e a s o n a b l e
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Federal Reserve Bank of St. Louis
i n censideration
o f the amount
o f work
190
involved a n d also the responsibility involved.
this arrangement c a n continue.
W e hope
M o r e o v e r w e believe t h a t
if w e d o not work together Chicago would probably b e i n
just a s good a position a s a n y o f the othor twelve banks,
Now Y o r k a l o n e excepted.
The Chairman: I
think so; yes,
Governor McDougal:
i t i s certainly better f o r u s t o
work along these lines t h a n i t would b e f o r e a c h bank t o
Bo i n and work for itself, I
make t h e suggestion a n d
offer t h e motion partly f o r the reason that I bolieve i t
is quite true, a s Mr. Strong says, t h a t w e have n o t gone
far enough yet t o know what m a y b e involved i n the question.
The p r o p o s i t i o n I
make w i l l b e e n t i r e l y s a t i s f a c t o r y
to
the Chicago bank.
The Chairman:
S o m e d a y y o u m a y b e discounting s o
much f o r your member banks a n d a t such good rates t h a t i t
will b e u p t o use t o buy all this stuff i n New York and
we would n o t want it.
Governor McDougal:
to r e o p e n t h i s question,
The Chairman:
I f i n the future w e should want
o f course w e could d o so,
Y o u put t h e question, Governor McDoug-
al, and whatever y o u decide i s going t o b e accepted b y
New York without question.
Mr. Hoxton:
W e have nothing b u t gratitude f o r t h e
Federal Reserve B a n k o f New York a n d the Federal Rsserve
Bank o f Boston,
W e want tohandle i t i n the w a y i n which
they want u s t o handle it.
N o t only d o w e want t o pay
a commission that t h e y think i s a fair commission, b u t w e
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Federal Reserve Bank of St. Louis
LoL
want t o handle i t o n our books i n the w a y that t h e y want u s
to, p r o v i d e d v e a r e n o t o v e r r u l e d
b y somo method p r o m l -
gated b y the Federal Reserve Board. I
should l i k e t o
know i f Mr. McDougal's suggestion i s entirely acceptable
to y o u gentlemen, Mr. Chairman?
The Chairman:
I t i s entirely, Mr. Hoxton.
A s I
have said, anything that y o u gentlemen agreo u p o n will
be acceptable t o us.
A s i d e f r o m t h e statement t h a t any-
thing would b e accoptablc, t h i s particular arrangement i s
acceptable.
Y o u d o not need t o have any hesitation i n
making this rate o r any other rate,
Mr. Hoxton:
M a y I ask Governor Aiken how he feels
about i t ?
Governor Aiken:
O u r business
i s s o small, c o m p a r e d
with N e w York--- I do not t h i n k w e have h a d more t h a n four
or f i v e m i l l i o n s
i n all f o r t h e banks--- t h a t i t i s hard-
ly worth considering.
I t would be entirely satisfactory,
though.
(Informal discussion followed.)
Governor McDougal:
T h e r e i s one phase o f this ques-
tion that h a s been discussed informally that I made n o
mention of, a n d that w a w the suggestion that i t might b e
maximum
c h a r g e
putting
4
well t o consider t h e m t t e r o f
on a n y u n u s u a l l y l a r g e p u r c h a s e t h a t y o u m i g h t make,
instanec,
F o r
i f y o u should c o m e a l o n g s o m e d a y a n d g e t f i v e
ar six million dollars o f warrants, w h y a maximum charge
should b e made.
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Federal Reserve Bank of St. Louis
The Chairman:
W e would b e delighted t o d o that i f
192
you will relieve u s o f the burden o f making t h e little
enes,
Governor hicDougal: I
mentioned that becauseit w a s
brought u p informally.
The Chairman:
W
e c a n t r y i t o u t anyway.
S o m e day
we m a y find o u t that i t doesn't w o r k a m w e c a n discontinue
Live
W e would a great deal rather b e free o f any doubt
as t o S i t u a t i o n o f the N e w York bank. I
will take a
walk around t h e block a n d allow y o u gentlemen t o discuss
it -if y o u w a n t t o s e t t l e
i t i n t h a t way.
Governor Kains: I
feel personally that I would
like t o see y o u discontinue acting a s agent f o r the rest
of us; b u t that i s only s o far a s m y bank i s concerned.
Whatever t h e majority does 1 will follow i n with cheerfully.
The Chairman:
W e will l e t i t g o that w a y i f the
rest o f y o u prefer it, Governor Kains.
Governor Kains:
I t i s u p t o the rest o f then.
Governor Ajken:
I
s there n o t a
motion b e f o r e t h e
heuse now?
The Chairman:
Y e s ; Governor McDougal m a d e a mo-
tion.
Governor McDougal: I
second
made a motion, b u t I heard n o
t o it.
Governor Kains: I
will second Mr. McDougal's me-
tion very gladly, a s f a r a s that matter goes, I
speaking f o r m y bank. I
would like t o see a l l o f the
banks g o into t h e market. I
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Federal Reserve Bank of St. Louis
was o n l y
de not think that t h e N e w
195
York bank buys enough--- y o u s a y that y o u b u y twenty p e r
cent o f thoso warrants--~- a n d 1! think y o u would f i n d i t
to y o u r i n t e r e s t
t o l e t u s g o in, a n d t h e r e s t @
t h e bdDuy-
ers a n d f i l l u p o u r l i t t l e w a n t s a n d l e a v e t h e m a r k e t o p e n
to y o u all. I
think i t would w o r k o u t better that way.
The Chairman:
H a v e y o u a n y idea o f the volume o f
that stuff i n New York, Governor Kains?
Governor Kains:
The Chairman:
Y o u s a y y o u get twenty per cent o f
w e get twenty p e r eent o f what i s
reported a s being outstanding.
w e g e t fifty p e r cent,
or a larger perccontage, o f everything that i s sold o r
dealt
i n t h a t i s eligible.
Governor Kains: I
think i t i s t h e fair way, e v e n
if w e do. n o t g e t a s much.
Governor McDougal:
Y o u mean i t i s the fair w a y t o
all c o n c e r n e d ? .
Governor Kains:
Y e s .
Governor Aiken:
i t i s a fair way.
Governor hiceDougal:
T
o have t h e N e w York B a n k
represent u s ?
Governor Kains:
N e . I
Governor MeDougal:
did not mean that.
T h e n 1 do not understand what y o u
said.
Governor Kains: I
said i t would b e fairer f o r ail
the banks t o g o into t h e market.
Governor McDougal:
I f w e all went into t h e market
we would b e bidding agains t
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Federal Reserve Bank of St. Louis
each other, a n d the results
might b e injurious t o all conccrned,
The Chairman:
I
g therc n o t a
motion b e f o r e t h e
house.
have m d e a
Governor McDougal: I
Governor Kains: I
Governor MeDougal:
this i s o n l y a
motien.
have scconded it.
Y o u all undorstand plainly that
temporary p l a n ; t h a t i t i s a
matter o f g e t -
ting along i n this w a y until w e find what t h e volume i s
going t o be, what w o r k i s involved,
n d s o forth.
I t is
my impression that t h e rato that h a s been named, uncer a l l
the circumstances,
i s a fair rate.
Governor Kains: I
second Hr. MeDougal's motion.
Governor MeDougal:
A m I presiding a t this moment,
Mr. Chairman?
The Chairman:
Y e s .
Governor McDougal:
W h o i s the presiding officer f o r
the purpose o f presenting this motion):
been m d e a n d secondcd.
T h i s motion has
I s there a n y further discussion.
(There was n o further discussion. )
Governor McDougal:
A r e y o u ready f o r t h e uecstion?
(There w e r e c a l l s f o r t h e ceustion.
T h e motion was
duly carried.)
Governor Rhoads: I
woula like t o s a y that I voted
aye o n that w i t h the understanding that the N e w York Bank
and t h e Boston Bank c a n reopen t h e question i f i t i s not
satisfactory.
Governor McDougal:
not i n v o l v e
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Federal Reserve Bank of St. Louis
T h i s is a
t h e B o s t o n Bank.
question t h a t d o e s
Governor Rhoads:
Y e s , i t does,
Governor McDougal:
Governor Aiken:
N o t o n t h e same terms,
Y e s , Governor McDougal o n exactly
the s a m e terms.
Governor McDougal:
A r e wegetting f r o m Boston a
part
of every purchase that i s m d o ?
Governor Aiken:
N
Governor MeDougal:
o ;
w e a r e nov,
A r e w e not getting thet f r o m
New York?
The Chairman:
Y e s , y o u are,
Governor McDougal:
there not, I
T h e n there i s a. difference,
mention that f o r t h e reason that this i s
something w e have g o t t o take up, because 1
working under a
is
think w e are
very cifferent arrangement between Boston
and Chicago o r Cleveland a n d Chicago, f o r instance, f r o m
the arrangemont we are working under with New York. T h a t
is the reason I said that I thought N e w York has been very
liberal i n that they are giving u s 5 5 per cent o f their
purchases,
The Chairman:
h
e real difficulty
is n o t t h e r a t e a f c o m m i s s i o n
i n this s i t u a t i o n
o m the percentage
o f divi-
sion, which i s a small matter, b u t i t i s the volume.
Governor Kains, w h o h a s been acquainted w i t h this business
over a
long experience, h a s been i n New York a n d has Looked
over s o m e o f t h e l i s t s a n d h a s s e e n a
l o t o f acceptances
that h e knows and would buy hot right off the griddle,
But I happen t o know that two-thirds o f them are ineligible
and that the Board would chop his head off f a buying them.
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Federal Reserve Bank of St. Louis
196
Governor MeDougal:
W h e n y o u spoke o f picking u p
twenty p e r c e n t y o u r e f e r r e d
t o those t h a t y o u f o u n d h e l d
by banks --The Chairman:
(Interposing)
T a k i n g t h e total amount
reported b y all o f the member banks a n d t h e state banks,
whose ac@ptances a r e eligiblo f o r purchase, a n d taking t h e
total amount roported a s the amount o f their liability,
that would indicate that w e g o t i n the neighborhood o f
20 per cents W h e n the banks i n New York reported that
they had {109,000,000 o f acceptances outstanding, a s I
recall i t we had something like $21,000,000,
our high water mark.
last f e w months. I
T h a t was
I t has b e e n going o f f within t h e
d o not believe t h e total amount o f
acceptances reported i n New York today exceeds (350,000,000
for national snd state banks.
O f the 650,000,000 total
amount reported outstandin, acceptances a t a given date
a considerable amount m a y b e o f state banks which a r e n o t
eligible a n d have n o t been eligible u p t o the present time
because t h e y rclated t o domestic transactions.
T h a t might
amount t o another cight o r t e n o r twelve million.
the remainder a
O f
very large amoynt i s purchased b y the
institutions t h a t accept.
F o r instance those accepted
by the National C i t y Bank, t h e Nawional C i t y Bank buys
all o f them that t h e y c a n get their hands on.
T h e
Bankers! Trust Company tries t o buy all the acccptances
that come t o their window f o r acceptance.
the p e r c e n t a g e
f you figure
Je
o f acceptances t h a t s o i n t o t h e market
that a r e available t o buy, I
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Federal Reserve Bank of St. Louis
I
should s a y that w e cet a very
197
largeproportion
o f a l l t h a t a r e eLigiple.
w
e have n o v
in New Y o r k a little less t h a n five millions o f acceptances,
I
f that i s 4 2 per . e n t o f all o f them, i t would
bring about eleven o r twelve millions i n the hands o f all
the banks, a n d t h a t i s a
very l a r g e p r o p o r t i o n
o f the bilis
that come into t h e N e w York m r k e t j u s t now.
GOvernor Wold:
M a y I inquire whether o r not under
this n e w r u l i n g o f t h e Board, w h i c h r e l a t e s
t o open market
transactions, y o u m a y purchase these state b a n k Comestic
acceptancos?
The Chairman:
T h a t subject comes u p immediately
after this one, Governor Wold.
Mr. Foote:
W o u l d y o u b u y acceptances t h e Guaranty
Trust C o m p a n y i s s u e d t o a
The Chairman:
Mr. Foote:
New Orleans r i c e house?
O n rice i n Warehouse?
Y e s .
The Chairman:
W e h a v e n o t been able t o .
r e foal
that w e have n o t been able t o a t the present time, because
that i s a domestic transection, a n d t h e bard, u p t o about
a week ago, had made a regulation which limited o u r transactions t o bills which were based u p o n importation a n d e x portation o f goods,
W
e could b u y the acceptances o f
the Guaranty Trust Company based u p o n import a n d export
transactions,
b u t not those issued
i n connection w i t h
goods i n warehouse,
Mr. Foote:
quite a
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Federal Reserve Bank of St. Louis
T h e reason I asked i s this:
T h e r e is
nice volume o f business o f that kind i n New Orleans
198
and t h e y a r e p a y i n g g o o d r a t e s f o r t h e accommodation.
think that business could b e controlled v e r y easily.
Governor Wold:
Y o u m a y got commodity rates o n it.
W
The Chairman:
o c a n o n l y g e t that w i t h t h e e n d o r s e -
ment o f the membcr bank, a n d i n order t o get the encorsement o f tho member bank w e would have t o take t h e bills
T h e y a r e n o t s e l l i n g now.
out o f t h e i r portfolio.
T h e y
are k e e p i n g e v e r y t h i n g t h e y c a n l a y t h e i r h a n d s o n .
Mr. Foote:
T h e r e is a
concern d o w n t h e r e t h a t h a n d l e s
directly t h e entire Louisiana output o f rice.
Their
drafts have b e e n accepted b y the Guaranty Trust Company
The Chairman:
D
o those bills s e l l locally i n the
Atlanta district?
Mr. Foote:
T h e y a r e s o l d principally
The Chairman:
i n t h e east.
Y e s , b u t t h e bills a r e purchased b y
some o f the banks i n the dis trict a n d sent t o N e w York
for acceptance, a r e t h e y not?
Mr. Foote:
T h e Louisiana Riee Milling Company h a s
an arrangement direct w i t h the Guaranty Trust C o m p a n y
for e
e
t h e s e
e n e
o i e a they g o into t h e market
and s e l l them.
The Chairman:
H o w d o t h e y g e t t h e bill accepted
by
the T r u s t C o m p a n y ?
Mr. Foote:
I t i s based o n the commodity stored,
properly warehoused, a n d
The Chairman:
T h e Rice Company draws a
Guaranty Trust C o m p a n y ?
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Federal Reserve Bank of St. Louis
bill o n the
Mr. Foote:
sure.
The Chairman:
T h a t bill h a s g o t t o b e sent t o New
York for acceptance,
I t must b e negotiated either local-—
ly o r i n New York, --Mr. Foote:
T h e y sell t h e m principally
I think t h e y have found quite a
i n t h e east,
market f o r them i n Phila-
delphia.
The Chairman:
is handled,
A s a n illustration o f h o w that business
a n d h o w difficult
get t h e acceptances, I
i t i s sometimes f o r u s t o
w i s h t o S a y t h a t t h e y callcod m e u p
on F r i d a y f r o m t h e Bankers!
T r u s t Company, w h i l e o u r
ixecutive Committee w a s i n session,
just a c c e p t i n g f r o m a
million t o a
bills c o v e r i n g i m p o r t a t i o n s
t o s a y that t h e y were
Hit Eton a n d s h a l t o f
o f rubber a n d that t h e y might
sell them t o us i f we could agree o n the rate; that they
had called m e u p t o let m e know about it.
W e l l , with
the committec sitting there i n m y room, I
did n o t want t o
buy those bills without saying something t o the committee.
I told t h e m I would call them u p i n a few minutes.
W e
spent fifteen minutes discussing t h e matter a n d other
matters, a n d I called t h e m u p t o S a y that w e would take
them a t o u r m i n i m u m rate,
I
n the meantime t h e y h a d h a d
a lot o f money come piling i n and t h e y said that they did
not w a n t t o s e l l them.
of t h e c o m p a n y a s a
T h o s e will appear
million a n d a
parently h a v e b e e n o u t s o m e t i m e
matter a
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Federal Reserve Bank of St. Louis
i n the statement
half a c c e p t a n c e s t h a t a p -
i n t h e market;
but,
as a
fact, w e never have h a d 2 chance t o b u y them,
Governor Wold:
W 1 l they show o n the statement?
rhe Chairman:
Y e s ,
Governor Wold:
H a s t h e State Banking Board made
any r u l e t h a t t h o s e h e l d i n t h e i r o w n p o r t f o l i o n e e d n o t
show?
The Chairman:
T h e State Banking Department does
not permit that i n New York. I
cdo not think that t h e
Bankers! T r u s t Company would t a k e advantage o f that anyway.
Governor Wold: N o t i o n a l banks are required t o show
those outstanding.
The Chairman:
I t i s a mistakoc t o have a n y such rul-
because w h e n t h e y g o t o s e l l t h e m t h e y h a v e g o t t o
the entries i n both sides o f their books.
Governor McDougal, I
when y o u t o o k action. I
was t d king t o Mr. Hendricks
c o not k n o w what t h e decision
Lt i s i t 1 8 s a t i s f a c t o r y
ever,
t o as.
H o w -
1 0 n o t want t c see this matter dropped before
Governor K a i n s h a s h a d a
chance t o t a k e a
shot a t t h e a r -
rangement, ,
Governor Kains:
I h a v e t a k e n all the shots t h a t I
care t o take,
Governor MeDougal:
G o v e r n o r Kains seconded m y mo=
tion,
Governor K a i
Y
‘The Chairman:
e
s
.
B u t I see y o u would prefer t o g o i t
alone?
Governor Kains:
O h , no, n o t unless i t i s wide open
and w e all g o in,
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Federal Reserve Bank of St. Louis
Governor McDougal: I
think Governor Kains m d e h i s
201
position quite plain o n that, Mr. Strong.
H e has e x -
plained h i s willingness t o g o along with the majority, a n d
that i t was entirely satisfactory t o him.
Governor Kains:
Yes. I
was o n l y expressing m y
personal opinion,
25. STATEMENTS O F PRIVATE BANKERS WHO ACCEPT BILLS
OF EXCHANGE.
The Chairman: I
will introduce another subject here,
which i s already o n the program i n another place, b u t I
think this i s the place t o tako i t up, a n d that i s i n
connection with our acting f o r the other reserve banks.
The situation i n New York with regard t o acceptcnces i s
a little c o m p l i c a t e d
position.
W
o n account
o f t h e p r i v a t e bankers!
e have n o t y e t worked o u t a
plan b y w h i c h
we c a n make their acceptances eligible b y getting statements i n accordance w i t h the board regulations,
T h a t re-
duces t h e volume that w e c a n purchase v e r y mterially, b e cause t h e y are accepting a n increasing amount right along.
I presume y o u h a v e a l l s e e n t h e l e t t e r f r o m t h e B o a r d
advising t h e t w e l v e b a n k s t h a t t h e y d i d n o t p r o p o s e
to
make regulations governing the extension o f operations
under Section 14, b u t that under t h e opinion o f counsel
for the Board w e are a t liberty t o g o ahead a n d develop
these o p e n market transactions i n bills o f exchange,
and not i n notes o r drafts.
I t m a y b e that s o m e o f the
other reserve banks will take t h e v i e w that this i s a n
opportunity t e b e taken advantage of, that w e could b u y
which
this p a p e r k s e l i g i b l e f o r u s t o b u y u n d e r t h i s n e w r u l -
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Federal Reserve Bank of St. Louis
202
ing b y the Board, a n d i f they d o take that v i e w i t means
we arc simply able t o buy acceptances growing o u t o f domes—
tic transactions t h a t a r e made b y such institutions.
w e
cannot b u y the acceptances o f private bankers, w i t h o n e e x ception.
T e cannot b u y a n y additional acccptances o f
national banks because w e are n o t authorized b y statute t o
accept a n y domestic transactions,
State b a n k s w i l l g e t a
from o u r operations,
accoptances,
I
ccortain’ a m o u n t
o f additional b e n e f i t
T h e r e i s quite a
T h o r e a r e quite a
volume
o f these
number o f a c c e p t a n c e s
handled b y the brokers i n Now York.
office right along,
t simply means t h e
T h e y come into t h e
W e never have b e e n able t o buy them
heretofore because t h e y did n o t comply with the Bankers!
acceptance r e g u l a t i o n .
T h i s i s t h e o n l y opportunity
we will have t o discuss this matter i n meeting together,
I want t o explain t h e view that i s held b y our board, a n d
then each bank c a n decide f o r itself what t h e y want t o do.
We feel that i t would b e a mistake t o extond o u r transactions
under Section 14,
I t would result i n the further reduction
of rates possibly, a n d i t might create t h e impression that
the s t a t e b a n k s a r e t h e o n l y b e n e f i c i a r i e s
o f this system.
If i t were loft t o u s alone w e would probably n o t take
advantage o f this opportunity t o buy those bills, b u t o n
the other hand i f the other banks d o want t o buy them, a n d
to continue t h e existing arrangomenis f o r the division o f
purchases,
w e would a c t f o r them anyway, a n d v e would suf-
fer all the odium o f buying t h e m although t h e y were n o t
for o u r account a n d w e would n o t g e t t h e income.
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Federal Reserve Bank of St. Louis
W e are
203
going t e b e governed very much b y the wishes o f the other
banks.
I t i s really u p t o this meeting,
t o the other
Federal Reserve Banks f o r whom w e act,to cecide whether w e
will g o into t h e market a n d b u y the bills o f state institutions growing o u t o f domestic transactions.
Governor Sawyer:
I s there a
The Chairman: R o u g h l y I
large volume o f them?
should judge 25, 3 0 o r 4 0
per cent o f the acceptances a r e domestic i n character.
Governor Wold:
Y o u say “accepted b y state banks."
confined t o acceptances o f state banks?
s a e a ae
a firm o r corporation w e c a n b u y t h e acceptances
bankers,
o f private
i f w e feel justified to.
The Chairman:
w e c a n i f w e get a statement.
Governor Wold: R e g a r d l e s s o f a statement.
There
is n o regulation o n it,
The Chairman:
W e might b u y some bills f o r ourselves
without a statement, from some private bankers, b u t we
certainly c o u l d n o t a c t a s a g e n t f o r t h e o t h e r b a n k s t o
buy bills where we had not seen the figures.
Governor Wold: I
raised t h e question because y o u
said i t was confined t o state bank a c c e p t a n c e s ,
M y
impression was that w e were n o t confined t o state b a n k
acceptances, b u t could accept either individualp firm o r
corporation.
Governor Fancher:
W h a t h a s b e e n t h e attitude
of
the l a r g e p r i v a t e b a n k i n g f i r m s t o w a r d r e n d e r i n g s t a t e ments ?
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Federal Reserve Bank of St. Louis
The Chairman: I
think t h e y have b e e n attempting
to
204
do i t i f they c a n safeguard t h o figures t o their o w n
Satisfaction.
T h e y know perfectly well that o u r boards
of directors w i l l change f r o m time t o time a n d that o u r
committces w i l l change f r o m time t o time.
directors a r e t h e i r c o m p e t i t o r s
S o m e o f these
i n N e w York.
W h i l e some
ef the morc important private banking houses might b e willing t o t r u s t t h e o f f i c e r s
o f t h e b a n k w i t h s t a t e m e n t s ,they
would want t o d o i t under arrangements t h a t would safeguard t n e figures s o that t h e directors would n o t have
access t o them. I
am under t h e impression that s u c h a n
arrangement would b e satisfactory t o the Board i n Washington. I
a m sure i t would b e satisfactory t o our board,
to delegate ontirely t o the officers o f the banic not o n l y
the p u r c h a s i n g o f bills,
statements,
b u t t h e a u t h o r i t y t o pass
T h e statements
on
o f member banks a n d state i n -
stitutions a r e available t o all o f our directors.
I n the
case o f private bankers t h e statements w o u l d have t o b e
locked u p i n the vault;
t h e directors c o u l d n o t s e e t h e m
and they would b e “going i t entirely blind."
I t is a
matter that h a s n o t been settlod b y our board a s yet,
Governor Fancher:
A s I »wecall o n e e f the acceptane=
-88 w e h a d purchased w a s t h e acceptance o f Goldman, S o x &
Company.
T h e y filed a
statement.
S o m e o f the other
houses h a v e n o t f i l e d any.
The Chairman:
W e discussed t h e matter w i t h somo o f
the more important private bankers,
Governor Seay:
W e h a d this sort o f a proposition
put u p t o u s b y o n e e f o u r m e m b e r b a n k s t h a t h a d b e e n ac-—
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Federal Reserve Bank of St. Louis
205
customed t o ciscounting foreign exchanges.
to k n o w i f w e c o u l d h a n d l e a
T n e bank
foreign a c c e p t a n c e
under a guarantee o f rate a n d allow them t o take i t u p a
short time before maturity--Tae Chairman:
O n e o f your member banks?
Governor Senay:
Tne Chairman:
O n e o f our member banks.
W h o would guarantee t n e rate?
Governor Seaye
rate.
T h e b a n k itself would guarantee t h e
T a k e i t a t the stipulated rate o f exchange, Guar-
antee t h e rate a n d p a y i t a t the same rate.
The Chairman:
are concerned, I
S
o f a r a s these domestic acceptances
hope y o u will understand t h a t w e are n o t
going t o d o anything voluntarily.
I f the other banks e x -
press t h e wish that something should b e done, v e will
take i t u p w i t h them.
Go ernor HMceDougal:
G o v e r n o r Strong, h a v e y o u decid-
ed, i n New York, whether y o u would b u y that class o f acceptances f o r y o u r b a n k o r n o t ?
The Chairman: I
McDougal:
H a s t h a t b e e n determined?
should say we have decided, Governor
V e r e i t left t o u s alone a t the prescont time
we probably would n o t buy them.
I f the other reserve
banks t h i n k they want t o take advantage o f this opportunity
te increase their earnings b y having that class o f acceptances, o u r board will undoubtedly n o t stand i n their way.
Our exccutive committce h a s taken that position, a n d w e
would a c t f o r them, a n d i n case t h e others wanted t o buy
them w e doubtless would b u y them ourselves a n d simply a d d
them t o the bills w e b u y n o w o f that class,
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Federal Reserve Bank of St. Louis
206
Governor Fancher:
I f i t assumed rather large pro-
portions, would i t result i n advantage t o the larger state
banks? W o u l d i t make their paper more Salable, more
popular,
i n better demand?
The C h a i r n a n s
same l e v e l .
i
s %.Ould p u t t h e bills
T h e a t i s a n indication
o n about t h e
o f t h e market under
was m a d e
Which tnais eitengement 4 Tor a credit o f twenty million
dollars t o & group o f French banks, s e v e n o r eight fFrench
banks a n d banking housés.
V h e n w e left N e w York there
had b e e n f i f t e e n m i l l i o n s
o f bills c r a w n a n d accepted.
Under t h e terms o f that plan e a c h acceptance b a n k o r banker was t o have t h e privilese o f Withcrawing h i s o w n acceptances f r o m sale, a n d the balances w h i c h were n o t
dravwm have b e e n offered once a
week t o brokers i n New
York, a n d they have named competitive rates,
est bidder gets t h e
have h a d a
chance
O
a m t h e low-
n some o f those sales t h e y never
t o b u y t h e m a t all.
(Informal discussion followed w h i c h the stenosrapher
irectcd n o t t o report.)
Tne Chairman:
O
f t h e total a m o u n t o f acccptances
reported b y the N o w York banks w e would count t h e m about
fifteen millions, a n d o u t o f the fifteen millions w e have
only been able t o b u y about t w o a n d a half millions.
Those
acceptances h a v e s o l d a t t w o p e r c e n t a n d t w o a n d o n e -
Sixteenth, a n d acceptances o f the private banks, l i k e
Morgan, Seligma n & Brown Brethers, w h i c h w e have left
or have n o t been able t o buy, t h e brokers h a v e h a d n o
difficulty i n turning around and selling a t the same rate.
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Federal Reserve Bank of St. Louis
207
Governor Wold.
T h o s e that a r e n o t eligible f o r re-
discount under t h e Federal Reserve A c t a n d under t h e
regulations o f the Board-—-- what rate have t h e y been
selling
at?
The Chairman:
T h e domestic acceptances?
T h e r e is
a differcnce of 1/8, or possibly a littloe more--- maybe a
:
quarter,
what
I t is very slight, but they have done and what
has made i t difficult for us t o get these bills i n
many
cases i s that t h e y take a lot with fifty o r sixty
or
seventy-five per cent eligible, a n d the balance ineligible,
and t h e y lump t h e m all i n one large l u m p rate a n d the good
ones carry those that a r e less desirable.
T h e brokers
know when they b u y a block o f bills t h a t t h e y c a n
only sell
those t h a t a r e e l i g i b l e
t o us, a n d t h e y m i g h t b e h u n g u p
with the others, a n d they d o not always c o m e t o us.
Y o u
gentlemen e n c o u n t e r a l l o f t h o s e t h i n g s , o n l y
you d e it
at longer range,
Governor Wold:
C a n you not have them offered direct
am c u t o u t that lump amount?
The Chairman:
N o .
T h e r e a r e reasons w h y w e have
not b e e n able t o d o it, really good reasons; a n d the
way we have been able t o get them i s that some o f the
brokers w i t h whom w e are i n touch have b e e n willing
t o go
in and bid.
W e have given them certain assurance that w e
would take a l l the eligible bills i n case t h e y
did get
them.
Governor McDougal: C a n n o t this be left i n such a
Wey
that t h e individual b a n k c a n take this matter
u p with y o u
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Federal Reserve Bank of St. Louis
by correspondence?
The Chairman:
Yes.
Governor Wold:
The Chairman:
I
t w o u l d h a v e t o b e l e f t t h a t way.
I t would have t o b e left that way-
it i s a& alter o f -poxicy,
Governor McDougal:
The Chairman:
I n s t e a d o f taking action here?
Y e s .
Governor McDougal:
A s I understand it, t h e plan
would b e that i f the banks wanted t o g o into the market,
you would b e willing t o deal w i t h them individually b u t
not collectively.
Tne Chairman:
I s that t h e idea?
W
e would a c t i n a n y w a y that t h e y want7
ed u s to,
Y e would f i x u p another percentage b a s e d
upon t h e present percentage, w h i c h would n o t b e difficult.
Governor Wold:
I f w e wrote y o u and said w e would
be glad t o participate w i t h y o u i n the purchase o f acceptances, w e would n o t g e t any?
The Chairman:
Governor Wold:
The Chairman:
O h , yes, y o u would.
Y o u would n o t b u y them yourself?
I
f w e attempted
t o s a y that o u r policy
in not caring t o buy these bills i s binding upon all t h e
banks ,we are acting for, w e might just a s well give u p
that arrangement.
Governor Wold:
remark.
W
Y o u d o not cetch t h e drift o f m y
e a r e trying t o throw t h e responsibility
you.
Y o u are buying }100,000 o r a million dollars
orth
o f those acceptances;
you i n & h e p u r c h a s e
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Federal Reserve Bank of St. Louis
up to a
w
on
e a r e participating w i t h
certain a m o u n t
s o that y o u
passing upon your own investment first.
Tne Chairman:
T h e y a r e a l l m e c h t h e s a m e bills,
to consider a
Governor Wold:
The Chairman:
lot o f new names i n this
U n d e r t h i s y o u do.
W e l l , w e might.
T h e r e are 4
few mer-
cantile houses t h a t accept bills, t h a t accept drafts drawn
on them b y various mills t h a t they finance, a n d I have
doubt that those a r e n o w eligible f o r u s t o buy.
n o
i t -i2
reaily another f o r m o f promissory note, b u t i t i s a bill
of exchange a n c not a note o f hand.
S
o w e c a n g o further.
Tnere a r e o t h e r f i r m s t h a t d o t h a t s a m e b u s i n e s s w h o s e
bills w e can buy, T h e y are not bankers! bills a t all;
but b e f o r e w e d o t h a t w e w o u l d w a n t t o submit
t o your o w n
judgment t h e figures w e got a n d get your instructions a s
to whether y o u wanted t o b u y them a t all, and, i f so,
to w n a t minimum,
(At this point informal discussion w a s h a d which
stenographer w a s c i r e c t e c n o t t o report.)
Governor Fancher:
M a y I inquire, Mr. Fancher, i f
a member o f the Federal Reserve System entered into that
operation, w o u l d t h e N e w Y o r k b a n k s
b e accusing t h e Federal
Reserve B a n k o f competition?
he Chairman:
W e l l , they mignt.
T h e y have accused
us o f about everything p m the Decalogue.
Governor leDougal:
B u t there would be direct com-
petition i n that connection. F r e d e r i c k Vietor and Achelis,
if they c a n b e financed i n that way, a r e getting t h e benefit
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Federal Reserve Bank of St. Louis
210
of extremely low_rates, a n d i f they-are putting o u t financial p a p e r t h e t e n d e n c y w o u l d b e t o s u b m i t t h i s f o w m a n d
eliminate t h e straight promissory note, would i t not?
The Chairman:
Y e s . R r e d e r i c k Vietor a n d Achelis
have got, I suppose,
a t least a
dozen bank accounts i n New
York, a n d they sell paper t o the brokers a n d Sell these
other b i l l a
i n addition, I
suppose t o d a y t h a t i s o n e o f
the best notes i n the market.
I f w e bought t h a t paper
and t h e brokers g o t onto i t i t would g e t back t o the member banks a n d they undoubtedly would growl about it, a n d
we would b e then f o r the first time i n real, direct c o m petition w i t h the member banks, outside o f our dealings
in warrants, w h i c h brings u s somewhat i n competition w i t h
them.
T h e r e a r e responsibilities t h a t enter into this
matter o f acting a s agent f o r t h e other banks that w e are
.
not a
bit k e e n about. I
a m not k e e n about sitting h e r e
and influencing y o u gentlemen o n e iota o n e w a y o r the
other a s t o whether y o u should start i n now and raise
Cain i n the N e w York markct, w h i c h y o u have g o t t h e right
to d o i f y o u want to, a n d w e d o not want t o restrain your
doing so,
Governor Kains:
W e would n o t raise v e r y much cain
there, because O u r cemands a r e s o big.
The Chairman:
I f y o u g o t the modest amount t h a t
each o n e o f you wants, a n d make a n investment, y o u might
not r a i s e c a i n , b u t y o u w o u l d r a i s e d u s t a r o u n d o u r d o o r
step.
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Federal Reserve Bank of St. Louis
Governor W o l d :
T h a t w a s t o b e discussed F r i d a y b e -
fore t h e members o f the Board, I
believe,
thought I would have a little pre-
The Chairman: I
liminary canter o n that.
Governor Fancher:
H a s this matter b e e n before y o u r
board?
The Chairman:
O u r ~xecutive Committee i s t o submit
a report t o it.
(At this point informal discussion took place which
the s t e n o g r a p h e r w a s d i r e c t e d n o t t o report; a f t e r w h i c h
the following proceedings oceurrcd: )
The Chairman: I
want to make clear at this meeting
that whatever policy m a y b e adopted individually i s really subject t o the wishes o f the other banks, a s f a r a s our
agency a r r a n g e m e n t
i s mncerned,
a n d i f w e hear y o u want
to buy some o f these bills, w e are going t o find a
way for
you t o buy then.
Governor Wold: I
move that i t b e left t o t h e dis-
eretion o f each individual bank.
(The motion was seconded and duly carried.)
22. S T A N D A R D F O R M O F TRADE ACC. PTANCE.
The Chairman:
T h e next topic i s No. 22, standard
form o f t r a d e acceptance.
Governor Seay:
M r . Chairman, I
do not know that
that matter i s o f paramount importance, b u t since the
trade acceptance rate w a s promulgated w e have b e e n cis-
counting a number of small trade acceptances, many of
them g i v e n b y c o t t o n m i l l s f o r t h e p u r c h a s e
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Federal Reserve Bank of St. Louis
O f cOLuonoLtor
spinning.
The Chairman:
D r a w n b y them, y o u mean?
who
Governor Seay:
N o ; dravm b y the broker handles i t ,
and the mill accepts. N o t w i t h s t a n d i n g t h e formula that
was suggested b y the Board, w e find that t h e banks d o not
use it.
We als® handle some lumber paper drawn i n some cases
by one lumber company upon another, a n d I think there i s
a tendoncy t o abuse t h e trade acceptance i n order t o get
advantage o f t h e lower rate e n it, and. that a n acceptance
which does n o t differ i n its essence f r o m a note will
gradually creep in. I
vented b y adopting a
do not k n o w that that could b e prestandard f o w m o f trade acceptance,
but since s u c h a special effort i s being made t o cultivate
that class o f paper, i t occurred t o m e that a
standard f o r m
in use f o r the purpose might t e n d t o develop t h e use o f
the thing, a n d I proposed i t t o see whether i t commends
itself t o the Governors a t this time.
W e h a d t h e idea
at the beginning--- some o f u s did, a t least--~ that i n
adepting commercial paper w e would u s e a distinct form,
but w e found i n practice i t was n o t needed o r practicable,
and i t m a y b e that w e m a y find t h e same thing about t h e
trace acceptance,
Governor V a n Zandt: I
had a form prepared a n d sent
a copy out t o each one o f our member banks suggesting that
they u s e t h a t f o r m .
( G o v e r n o r V a n Z a n d t here exhibited
the f o r m referred t o t o the members o f the Conference). I
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Federal Reserve Bank of St. Louis
2135
susgested t o them t h a t a
blank line b e left just above
that line (indicating), the -ebligation of the acceptor of
this bill, showing t h e purpose f o r which t h e bill was drawn,
covering invoice o f such a n d such a date, o r s o many bales
of cotton, o r whatever i t was r a w n for,
Governor Seay:
into it, too.
T n e r e i s one other i t e m that enters
I n meny o f our states t h e homestead waiver
laws a r e a t variance, a n d when a note i s given i t usually
has t h e homestead waiver i n it.
h
e
n a
Dill o f exchange
is drawn i t very rarely indeed h a s a homestead Waiver i n
it, a n d there a r e many people w h o think that i t might b e
added with advantage, a n d w h o believe t h a t t h e acceptance
would b e more readily accepted i f it had the waiver i n it.
I observe t h a t y o u d o n o t h a v e i t i n yours.
Governor V a n Zanct:
The Chairman:
H
e have n o use f o r it.
W h a t i s your suggestion i n this mat-
ter, Governor Seay?
Governor Seay:
acoption o f a
M y suggestion is, sir, that the
form a s I
see m a n y o f the districts h a v e
already t h o u g h t a b o u t , w o u l d t e n d t o p o p u l a r i z e t h a t f o r m
of p a p e r a n d f a c i l i t a t e o u r efforts
i n bringing i t into
general use.
The Chairman:
I t is, hovever, a fact that owing t o
variation i n State laws i t might b e necessary t o have a
different f o r m o f instrument
i n the place w h e r e t h e bill
was t o b e accepted.
Governor Seay:
A n d t h e object o f the diiscussion
was t o b r i n g i t t o t h e a t t e n t i o n o f t h o s e h e r e w i t h a
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Federal Reserve Bank of St. Louis
view o f
214
doing what w e could t o cevelop i t and adopting s u c h
forms
in our several states a s t o meet t h e emergency,
because I
believo t h e y w i l l h a v e t o b e d i f f e r e n t
Governor Fancher:
on acccptances
i n different s t a t e s .
i v e r since w e have named a
w e havc h a d several inquiries f o r
a
rate
forn,
an a c c e p t e d f o r m f é r acceptances,
Governor S e a y : I
fcel a
good deal o f confidence
that i t Will facilitate t h e making o f that
class o f paper,
and w e m a y eliminate abuses t h a t creep i n
a t other times,
Mr. Foote:
H a v e y o u prepared a
Governor Seay:
form, G o v e r n o r S e a y ?
N o ; w e have n o t yet.
I t i s apparent,
Mr. Chairman, t h a t t h e idea h a s taken hold
elsewhere, a n d
that was m y only object i n bringing i t
6.
The Chairman:
T h e r e i s not a n y rcason w h y w e
should
not consider this a s a matter o f uniform policy,
Governor
Seay, a n d p u t a
recommendation
facilitate t h e p r e p a r a t i o n
country,
o n O l e P e c o r e Gast. wae.
o f forms t h r o u g h o u t t h e w h o l e
i n all the districts,
Governor Seay: I
believe i t i s worth it, sir, f r o m
a practical point o f view.
Governor Fancher: I
might relate what was t o l d m e
by the president o f one o f our large banks i n
Cincinnati,
He i s interested, I
and h e prepared a
judge,
i n some mercantile business,
form o f acceptance a n d suggested
that
they give i t a test; t h a t is, that t h e y
mail t h e invoice
and write a
letter enclosing draft i n draft
f o r m and
filling i n the time, Suggesting t h a t
they are sold o n
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Federal Reserve Bank of St. Louis
215
certain time a n d seeing what t h e effect w o u l d be.
H e
sent those t o two o r three concerns a m l they have already
rounded u p about {3400,000 o f that sort o f paper.
Tne C h a i r m a n :
. Mr. Foote:
T h a t
i s v e r y interesting. s
T h a t i s very interesting.
T h a t is a
very fine thing f o r u s i n the State o f Mississippi.
would a
provision f o r attorneys!
H o w
f e e s affect t h e negotia-
bility o f i t i n Virginia?
Governor Seay:
I t would n o t affect t h e negotia-
bility o f i t i n Virginia.
T h e r e i s a n implication w h e n
you p u t i t i n t h a t t h e c o m m e r c i a l t r a n s a c t i o n i s n o t e v e r y -
thing that i t should be, a n d that there m a y b e some other
considerations i n v o l v e d t h a n t h o s e w h i c h r e l a t e m e r e l y t o
the p u r c h a s e a n d s a l e o f commodities.
be a c c e p t a b l e
i n a l l cistricts. ~
T h e idea might n o t
do not t h i n k i t would
be.
Mr- Foote:
D o not some o f the provisio n
other
states render i t non-negotiable?
Governor Seay:
N o t i n those states where t h e nego-
tiable instrument l a w i s adopted--- a n d that i s i n a majority o f them, perhaps.
B u t y o u would h a v e t o consider i t
and h a v e t o a c t u n d e r a d v i c e o f counsel
i n your several
states.
Governor Aiken:
I n the interest o f progress, Mr.
Chairman, w h a t i s the next subject?
The Chairman: I
think w e ought t o have a
motion o n
this matter, Governor Seay, t o wind u p the discussion,
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Federal Reserve Bank of St. Louis
Governor Seay: I
move, Mr. Chairman, that each re-
216
serve b a n k take into consideration t h e advisability o f
acgopting uniform trade acceptance within its o w n district.
Governor Aikon: I
second t h e motion.
(The motion was duly carried.)
Governor McDougal:
T h e resolution does n o t approach
any definite date a s t o when the n e w arrangement i s t o
go into cffect w i t h regard t o fees, a n d unless w e settle
that here i t will have t o b e settled b y correspondence,
I would suggest t h a t someone indicate t h e date u p o n which
the n e w instrument i s t o g o into effect,
Governor Wold: N o v e m b e r ist.
Gevernor McDougal:
I t i s only a matter o f having
it understood, because t h e question will arise w h e n w e g o
ba c k home,
ihe Chairman:
M e . Curtis will p u t that motion i n the
proper language, then.
The n e x t t o p i c o n t h e p r o g r a m i s No. 2 5 .
Before taking u p Topic No. 25, Mr. Curtis calls m y
attention t o a
our d i s t r i c t
practice w h i c h m i g h t h a v e d e v e l o p e d
in
i n Philadelphia a n d Boston i n t h e matter o f
accepting bills.
s o m e o f the Philadelphia banks, and, I
think, t h e Boston bank, a s well, accepted bills f r o m time
to time w h i c h w e r e d r a w n a n d p a y a b l e
b y t h e i r terms
a t
their own offices i n Philadedghia o r Boston, a s the case
might b e ,
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Federal Reserve Bank of St. Louis
a t t h e o f f i c e o f t h e i r N e w Y o r k correspondent.
In one case t h e Philadelphia National B a n k accepted
217
bills drawn o n i t making t h o m payable b y the terms o f the
acceptance a t the Hanover National Bank, i n New York.
Mr. Curtis n a s looked u p the l a w a n d i s o f epinion that
that i s a n a t t e m p t t o a l t e r t h e t e r m s o f t h b i l l w h i c h
is not binding upon the crawor o r the prior endorsers o f
he bill; that is, any endorser whose endorsements are
fixed prior t o the acceptanec, a n d who d i d n o t receive
apparent c h a n g e
i n place o f payment
time h e put his encorsement o n it.
a t the
S o w e have n o t been
buying a n y bills which were accepted payable i n some other
place t h a n t h e p l a c e w h e r e t h e y w e r e m a d e p a y a b l e
b y the
face o f the bill, b u t have cautioned some o f the banks
that i t was a n unsafe thing t o do.
v e d o not Want t o r u n
the risk o f a refusal o f payment a t the n e w place o f payment fixed b y the terms o f the acceptance a n d then find
that w e have lost a n endorser o r drawer a s a n obligor.
The banks that w e have corresponded w i t h I think understand that, b u t i t i s a precaution that should b e observed
in our purchase o f bilis, and I think somewhat she same
thing applies t o money a n d acceptances a t the clearing
house.
I t docs i n New York, a t a n y rate.
w h e r e a n item
goes through t h e clearing house t h e d a y after maturity, a n d
you cannot observe t h e terms o f t h e acccptance i n collecting those bills because w e have g o t t o present t h e m a t t h e
place o f payment o n tho d a y o n which t h e terms actually
mature o n the face o f the bill itself.
While w e are o n this subject, I
think I ought t o re-
peat t h e caution, probably unnecessary, a b o u t purchase o f
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Federal Reserve Bank of St. Louis
218
any bills unless there a r e substantial guarantees o f the
endorsements
o r endorsements t h a t a r e k n o w m t o t h e p u r c h a s -
er, because t h e question o f title i s involved i n them,
If you b u y a bill w i t h a forged cndorsement, a n d the
person o r firm o r corporation f r o m which y o u b u y t h e bill
is not ablco t o respond a n d t o make good, i n tase your
titie i s defective y o u are liable t o lose t h e recourse
upon the acceptor o f the bill.
is n o t b o u n d t o p a y a
T h e acceptor o f the bill
bill w h i c h i t h a s a c c e p t e d iff the
same holder has purchased i t from a person that sold i t
and forged a n endorsement o n it.
T h e obligation o f the
acceptor o f the bill i s conveyed t o the bona fide hoker,
and not t o one w h o acquires title b y a pure forged endorsement.
So we have had t o be very tareful i n buying bills i n
New York, particularly acting f o r the other banks,
to
make Sure that there i s not a n y possibility o f a failure
of title arising b y renson o f some proper endorsement
having b e e n forged.
T h a t i s a matter that will b e o f
very m u c h greater importance t o a n y reserve b a n k that
feels willing t o b u y these bills a t the market where t h e
acceptance i s actually made a n d where there i s less difsatisfactory
ficulty i n getting
' - @vidence o f the goodness a n d the
correctness o f the banks.
(At t h i s p o i n t a n informal d i s c u s s i o n t o o k p l a c e w h i c h
the s t e n o g r a p h e r w a s d i r e c t e d n o t t o report; a f t e r w h i c h
the following proceedings were had.)
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Federal Reserve Bank of St. Louis
219
Mr. Curtis: I
asked Governor Strong t o bring this
up, because w e had a form o f trade acceptance b y one o f
our member banks, a n d they have written across i t "Payable
at-—--" another place than the place the business o f the
drawee was conducted, and 1 wrote a rather elaborate letter t o then.
Governor Kains; I
put that i n not t o have the paper
payable a t another place, b u t t o have i t payable a t some
place.
W e would n o t take anything drawn o n a man i n
Philadelphia a n d have i t paid i n New York, b u t w e want t o
have i t set out where w e m a y expect h i m t o p a y it, i f i t
is not a t the town named,
Mr. Curtis:
T h a t i s all right i f it is notin the
same town,
Governor Kains:
B u t w e want h i m t o s a y where h e
wants that paid, whether a t his office o r a t his bank,
Mr. Gartis:
M y only fear was that i f you left i t
blank i n t h e s t a n d a r d f o r m s o m e f e l l o w w h o i s i n t h e
trade acceptance business might make i t payable i n the
next town, a n d that would v e r y likely spoil your bill.
Governor Kains:
The Chairman:
Y e s , I know i t would.
T h i s i s threshing o u t o l d straw,
W e
have been over this once before, but i t is going t o be
well t o exercise t h e utmost care a t the outset, because
the banks themselves a r e not acquainted w i t h this business
and they are making mistakes i n the bills now.
watching them, a n d wherever thos e
W e are
mistakes occur w e are
endeavoring t o have t h e m corrected right a w a y a n d get the
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Federal Reserve Bank of St. Louis
practico sound.
25-6 S T A T E M E N T S O F PRIVATE BANKS W H O ACCEPT BILLS
OF EXCHANGE.
The Chairman:
T h e next i t e m i s No. 25, statements
of private banks who accept bills o f exchange.
I have covered that story i n connection with the subject o f d o m e s t i c acceptanccs.
W
e have n o t y e t succeeded
in getting those statements, b u t I think there i s a possibility that within some weeks o r months w e m a y succeed
in doing so.
he q u e s t i o n a r i s e s
t o what extent w i l l t h e banks
for which w e are acting require those statements t o b e
filed i n detail w i t h them, a n d i f they are filed with then,
to what extent would t h e y b e willing t o observe t h e Same
rules a n d t h e same arrangoment t h a t w e are obliged t o
make w i t h t h e p r i v a t e b a n k s t h a t f i l e s t a t e m e n t s ?
T h e
chances a r e that i n time w e will persuade o u r directors
and the private banks a s well that t h e most satisfactory
arrangement will b e t o have those statements sent t o the
Federal Reserve Agent a n d t h e Governor o f the Bank; a n d
any change i n those offices
m a y give t h e private b a n k the
right t o take t h e figures t h a t h e has filed, i f h e i s
Satisfied that h e c a n trust his successor i n office.
Governor Kains:
T h a t would b e quite satisfactory t o
our office?
Governor Fancher:
The Chairman:
A n d f o r ours.
T h a t i s probably t h e course w e would
follow, a n d w e would endeavor t o make a n arrangement that
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Federal Reserve Bank of St. Louis
2el
would b e o f equal benefit t o all the reserve banks.
L f
our directors should object t o that, a s there i s some
possibility, aithough i t i s not finally decided,
w e thought
in endeavoring t o make this arrangement t h a t w e would a s k
our board t o consider what line t h e y would give t o such
houses a s Morgan, Brorm, Seligman a n d others, a n d assuming
that w e had n o statemont a t all o n file, w i t h t h e under-
Standing that w e would not buy those bills until Mr. Jay
and I had reccived figures a n d were satisfied that t h e line
which t h e B o a r d h a d f i x e d w a s satisfactory.
T h a t would
enable u s t o dispose o f ihe statement without really i m posing
o n the board t h e necessity o f going absolutely
blind, because t h e y would f i x a limit o n the line. I
think that i s probably t h e w a y i n which w e will handle it.
Governor Fancher:
M a k e i t subject t o the approval o f
yourself a n d Mr. Jay?
The Chairman:
Yes.
ordey O f things, b u t I
that.
i t i s reversing t h e natural
think t h e y will b e willing t o d o
h a t would m e a n i f w e h a d the arrangement completed
and i n effect that w e would likely want t o submit t o each
of the banks f o r which w e were acting a statement o f what
line o u r board h a d established b y that method, a n d subse-
quently and confidentially what i f any modification Mr.
Jay a n d I
had felt t h a t w e were required
Mr- Hoxton:
ation a n d
o o
t o make,
T h i s i s o u r acceptance involving exportof
y
p e o e e T h e y are n o t domestic ac-—
ceptances (Exhibiting form o f acceptance t o the Conference).
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Federal Reserve Bank of St. Louis
ace
by
I f w e found i t became necessary,
The Chairman:
reason o f the action o f the other Federal Reserve Banks,
w e will have n o
for u s t o buy thoso domestic acecptances,
aifficulty whatover i n having t h o banks undertake t o extend every bill that grows o u t o f a n import o r export
transaction.
W e c a n buy them a s long a s they have the
endorsement o f a membcor bank o n them.
W
Mr. Hoxton:
e yould b e g l a d t o take anything t h a t
the Foderal Reserve B a n k i s buying, b u t I understand y o u
are n o t going t o buy the comestic acceptances, a n d i n that
case w e might like t o see t h e statement.
W e probably will n o t b u y the domestic
The Chairman:
acceptances u n l e s s t h e o t h e r b a n k s w a n t them.
B u t y o u would n o t b u y them for your
Mr. Hoxton:
own account?
The Chairman:
our o w n account.
Y e s , w e probably would b u y them for
T h e r e w o u l d b e n o point whatever
in
buying millions o f those bills « n d being chargea With a l l
the odium.
Governor McDougal:
matter,
I f I correctly understand this
i n the event that y o u a n d Mr. Jay, f o r instance,
are permitted t o see o r t o secure t h e figures o f the financial s t a t e m e n t
o f these private concerns,
t h e confidential
information i s t o be divulged t o the Governor o r the
Federal Reserve Agent for each of the banks for their confidential use.
The Chairman:
Y e would endeavor t o s o arrange it, a n d
if we were not able t o s o arrange i t -
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Federal Reserve Bank of St. Louis
that w e could give
223
yeu the figures w e would not want t o b u y the bills o n our
account tinless y o u instructed u s t o d o s o without seeing
the figures,
A s the volume o f bills d i d not g e t very
large, i t probably would m e a n that w e were buying these
private b a n k acceptances.
I f the volume became v e r y large
it might b e difficult t o handle i t that way, b u t then
this w h o l e q u e s t i o n w o u l d h a v e t o b e revised.
Governor Kains: P e r h a p s this whole question may be
revised l a t e r o n .
vices
W
e m a y not need
t o lean
o n the ser-
o f New York s o mich .
he Chairman:
ing o u r dividends.
W
e m a y b e pretty b u s y s o m e d a y earn-
T h e r e a r e yome v e r y interesting figur-
es that I want t o report t o this meeting inasmuch a s there
is a moral attached,
An anslysis o f the operation o f the gold settlement
fund since i t was established M a y 19, down t o October 15,
shows t h a t t h e F e d e r a l R e s e r v e B a n k i n N e w Y o r k h a s r e c e i v -
ed i n settlement o f the due from account $127,785,000, and
we h a v e p a i d i n settlement
o f the d u e - t o a c c o u n t
“158,129,000, m a k i n g a total loss o f £30 , 344,000, which,
however,
i s subject t o certain adjustments.
Taking
into account t h e operations outside o f the Gold Settlement
Fund, Which i s principally investment accounts,
a s I under
Stand these figures i n settlement o f these losses, w e have
deposited out of our vaults, {28,000,000 i n gold for transfer t o the Fund through t h e Sub-Treasury, a n d o n the date
these balances were made u p w e h a d these figures which
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Federal Reserve Bank of St. Louis
224
showed a
balance i n the fund o f 56,274,000, a n d o u r real
net loss o f gold was about twenty-one a n d three quarter
millions. I
would like t o make sure that t h e otner
reserve b a n k s a p p r e c i a t e j u s t h o w t h i s g o l d f u n d w o u l d
operate with tho Federal Reserve Bank o f New York i f the
doors were thrown wide o p e n t o the creation o f Dalances i n
New York which would b e settled automatically once a
week,
or, ultimately, o n c e a day, a n d n o t checked against a n d
disposed o f b y that method.
I t would m e a n that t h e credit
balances w h i c h vould b e created i n favor o f the reserve
bank a t the clearing house would b e settled i n accordance
with t h e custom o f the d e a r i n g houso i n the various forms
of m o n e y t h a t a r e p e r m i t t e d
tling balances.
A
t o b e u s e d b y members
i n set-
t t h e present t i m e these a r e principally
silver certificates a n d legal tender notes o f a clearing
house depository, silver cortificates a n d United States
notes o f small denomination.
w h e n w e settle these
balances w h i c h w e collect through t h e clearing house v e
settle t h e m i n gold through the sub-treasury a n d the Gold
Settlement F u n d ,
s o that there i s a
possibility
b y reason
of the method o f scttling balances i n the clearing house i n
New York o f gradually reversing t h e process o f a c c u m l a t i n g
gold i n our roserves a n d cormerting o u r reserves i n New York
very largely i n t o silver a n d United States noves.
oo
We h a v e t o b e r e a s o n a b l y c a r e f u l , w i t h o u t i m p o s i n g
burdensome r e s t r i c t i o n s u p o n t h e e x c h a n g e a c c o u n t s
other reserve banks.
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Federal Reserve Bank of St. Louis
o f the
W e ought t o have i t understood that
225
if you are recoiving N e w York Exhlkange i n large volume i n stead o f requiring a
settlement f r o m us, simply telegraph
us t o w h t h h o l d f r o m s e t t l e m e n t t h e m a j o r p a r t o f t h e b a l -
ancc, w h i c h would indicate t o u s tnat y o u are checking
against i t , a n d then, through t h e clearing house, w h e n
that c h o c k c o m e s
i n w e would have a
day a t the clearing
house a n d w e would g e t r i d o f the silver a n d United States
notcs,
I do not s e e a n y other w a y i n which w e c a n deal w i t h
that matter except that s o m e d a y w e might b e able t o persuade the clearing house i n New York t o settle a l l balances
with u s i n gold, w e t o pay i n gold a n d receive gold only.
That would enable u s t o get r i d o f all o u r silver a n d
United States notes, a n d there would b e very few occasions w h e n w e would receive i t b y direct transaction w i t h
the member banks,
AS indicating how important this matter is, shortly
after t h e Gold Fund was established,
b y reason o f the
accumulation o f New York exchange, o u r silver certificates
and United States notes went u p from I think a minimum
of twelve million dollars t o forty-four million dollars
in o O Wery- f e w w e e k s ,
a n d the o n e means that
w e have been
able t o employ t o get rid o f that silver, a s stated, has
been b y direct exchange o f silver and United States notes
with member banks t h a t were shipping currency out, a n d g o l d
was left t o effect a n exchange w i t h us.
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Federal Reserve Bank of St. Louis
Governor Kains: T h a t is very valuable information,
Mr., Chairman, ~
Tne Chairman:
I t i s a warning that i f w e s a w those
exchange accounts p i l e u p too heavily w e would have t o
telegraph
y o u t o withhold balances?
Governor Wold:
G e o would m i c h p r e f e r to. k e e p t h e
balance i n New York instead o f i n the G o l d Fund, b u t t h e y
will n o t p e r m i t that.
The Chairman: I
do about that.
do n o t think t h e y have anything t o
T h e s e accounts would b e used f o r exchange
purposcs, a n d i t i s certainly a n exchange purpose.
T n e
statute m a y use the word "may", but that does not mean
that o u r o p e r a t i o n s
c a n b e i n t e r f e r e d with.
i
t is 6
per
feetly rcasorlable arrangoment t o prétect o u r gold holdings.
What h a p p e n s
i n connection w i t h those transfcrs
is
that the bank which has received a N e w York exchange i s
paying o u t a t the other e n d the very gold w e transferred
'to t h e m i n the Gold Settlement Fund, a n d w e are simply
putting gold a t one e n d o f the line i n exchange f o r t h e
silver a t the other e n d o f the line,
That proeess might b e continued indefinitely a s long
as exchange W a s moving that way.
(At this point informal discussion took place which
the s t e n o g r a p h e r w a s d i r e c t e d n o t t o report.)
Mr. Curtis:
h i s matter w a s brought u p a t the last
Conference i n the presence o f Mr. Miller, a n d i t was sort
of left that i f w e did not register a
granted.
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Federal Reserve Bank of St. Louis
protest i t would b e
eel
The Chairman:
w i t h all due respect t e Dr. Miller,
he did not understand t h a t situation, a n d the objeetion
that h e made was n o t t o the oxchange, w h i t h h e recognized
Was permitted b y the statute, b u t h e said h e thought w e
were possibly n o t authorized t o maintain accounts f o r i n ie
vestment p u r p o s e s w h e r e t h o s e
the settlement.
balances w e r e w i t h h e l d f r o m
I t is practically impossible t o distin-
guish between exchange which i s sent t o N e w York f o r the
purpose o f m a k i n g i n v e s t m e n t s
a n d t o p u t i n t o a n acceunt
an exchange which i s sent t o New york f o r the purpose o f
having a n exchange account.
things,
T h e y a r e o n e a n d the same
H e seemed disposed t o distinguish, a n d I did
not think his objeetion applied t o the exchange account,
but t h e a c c o u n t w h i c h w e w e r e c o n s i d e r i n g w i t h h o l d i n g
in
erder t o pay for investments w e were making.
Governor Seay:
H a v e y o u taken into account t h e oper-
ation o f that process through a long period?
W o u l d i t be
different i f you werg t o take i t when exchanges were working o n e W a y a n d when they are working another?
The Chairman:
Y e s ; w e have thought o f that,
I t
dges n o t save t h e gold during t h e period w h e n i t i s working against us.
Governor Wold:
gold fund.
W
W e have accumulated (325,000,000 i n
e a r e m o v i n g c u r r e n c y n o w t o t h e interior.
Whem the c r o p i s moved t h e exchanges will move t h e other
way, a n d eastern exchange will b e i n demand.
W e sell five
millions o f exchange b y drafts o n you, o r drafts drawn
upon u s that come through you.
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Federal Reserve Bank of St. Louis
Y o u get this money back
from the gold fund again.
he Chairman:
Y e s , w e d o i f you get geld f o r it.
Yeu undoubtedly will a s long a s y o u are able t o require
your member banks t o give y o u gold i n payment f o r t h e
drafts y o u g i v e t h e m individually;
a n d when y o u are un-
able t e get a n y i e s c e e y o u are
s s
t o craw a n y more
exchange,
Mr. Wold:
W e coulda sell four millions o f exchange
and drafts u p o n y o u and let t h e m .traw upon u s a n d :
get these four million o u t o f the gold fund.
This
four million would come back t o y o u when the pendulum
swings i n the other direction again,
The Chairman:
I f all o f eur money i n this country
were geld a n d hank reserves i t would n o t b e a matter o f
any c o n s e q u e n c e
a t all; b u t “ n s e
t h e proportion i s work-
ing against u s y o u are paying outthe gold i n the West.
want u s t o run the risk o f getting i t back.
Y o u
Y o u say
the exchanges a r e bound s o m e day t o turn, a n d what y o u
draw i n New York will b e turned o v e r t o u s i n gold.
is a
I t
muestion whether y o u will g e t it.
Governor Wold: I
do not s e e where y o u are not going
to get this g o l d back w h e n the pendulum swings.
H a d you
put u p this entire five millions i n gold, w h e n the pendulum swings a n d w e draw that geld fund down, i t comes b a c k
to you.
A s the gold comes f r o m the Gold Fund i t comes
out o f the Federal Reserve Banks.
The Chairman:
in Minneapolis?
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Federal Reserve Bank of St. Louis
W h a t have y o u g o t i n your reserves
Governor Wold:
The Chairman:
Gold.
A n d consequently,
a s you send u s
New York exchange now, y o u are oaying that gold out.
Governor Wold:
=
s e at o ngLe
t t i n g i n gold.
The Cnairman:
cerned,
K e are paying o u t Federal Reserve
B u t s o f a r a S y o u r reserves a r e c o n -
y o u a r e p a y i n g i t out.
S e e s
Wold:
The Cheirman:
Governor Wold:
N o ; w e d o n o t p a y o u t a n y gold.
T h e gold goes o u t a t one end-N o t a nickel,
(At this point a n informal Giscussion arose which
the s t e n o g r a p h e r w a s d i r e c t e d ‘not t o report.)
The Chairman: P e r s o n a l l y , i
would n o t b e willing t o
see t h e N e w York bank r u n the risk o f having t h e greatest
partion o f its rewerves converted i n t o silver certificates
and United States notes upon the general hypothesis that
e
wnen t h e @ h a n g e s S o m e d a y t u r n w e a r e b o u n d t o g e t t n e m
back.
7
e
@ G O not want
t o see o u r statement
reduced
t o
a Silver basis inside o f a period o f six months, a n d then
possibly come b a c k again,
handling o u r reserves,
Governor Seay:
T h a t will b e a new method o f
W e would n o t d o it.
I s not the whole difficulty i n the
method o f settlement i n the N e w York clearing house?
The Chairman:
N o , i t is not, unfortunately, f o r
this reason, t h a t back i n the eighties, w h e n this c o u n t r y
was debating t n e unlimited coinage o f silver, i t s quality
as legal tender, Congress passed a
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Federal Reserve Bank of St. Louis
law which i s still o n
290
the statute books, w h i c h grohibits a n y national b a n k from
being a member o f any clearing nouse association which prohibited t h e settlement o f balances i n silver.
ter o f courtesy,
A
s a mat-
n o bank i s i n a position t o g o t o a n y
clearing house association a n d tencer silver.
Governor Wold:
~ n e n the rules o f s u c h associations
settlements.
Governor Seay:
t o settle
agreement
I
voluntary
f w e were t o adopt a
i n gold, s o m e banks m i g h t a p p l y i t .
If you have that method of settlement, this thing would not
work that y o u are n o w explaining t o us.
The Chairman:
O h , no,
h e r e would b e n o question
about o u r p o s i t i o n i f v e s e t t l e d
y
i n gold.
e would simply
pe receiving gold f o r what w e paid o u t through t h e Gold
Settlement Fund.
Governor Seay:
q u e s t i o n been discussed
recently a t all?
ne Chairman:
N o t v e r y recently.
W e d i d discuss
it once w h e n some o f the Federal Reserve Board were i n
memNew York, a n d w e had a luncheon that w a s attended b y
pers o f the clearing house committce,
s
members,
a n d Mr. Malburn
fd
a n d Mr.
o r some o f the
ancerlip
a t that time
gold.
the clearing house agrec t o have their settlements i n
But w e have thirty-five state banks i n the N e w York Clearing House, a n d twenty-nine national banks, a n d a t the time
we Giscussed i t 1 think there was a good deal o f hesitation
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Federal Reserve Bank of St. Louis
in the minds o f some o f the Clearing House Committee
about sroposing a n y novel things t o the state vanks.
Governor Aiken:
f
t
.
I n our session with you, Mr. Strong,
what y o u cite could easily b e demonstrated.
W e a r e men-
pers o f the clearing house, b u t settlements a r e made i n
checks o n us, a n d the banks ceposit a l l sorts o f things
with u s i n order t o maintain their balances.
T e m a y get
silver certificates o r bank notes o r legal tencer o r anything else.
T h i s i s not a n academic proposition.
The Chairman:
There are six or cight hundred millions o f exchange i n
sow the figures some time ago. ‘ V h e n the
New York. I
xchanges a r e s w i n g i n g a l l o n e w a y i e n e
as t o w n a t t h e e f f e c t w o u l d be.
I
i s n o t a n y question
t vould t a k e a l l o f
our gold, a n d w e would b e speculating a s t o whether y o u
gentlemen would draw o n us t o a sufficient extent t o give
mide u p the figures a little while
us back our gold. I
ago, before s o m e o f these recent importations o f gold took
place, and there was (525,000,000 o f gold i n the hands o f
the clearing house banks o n d Federal Reserve banks.
D e -
ducting what w e havetoday--- w e hold (.200,000,000--- that
vould leave about 225,000,000 i n the hands o f the clearing
house banks. I
think that h a s b e e n increased t o a t least
“400,005,000; a n d deducting {400,000,000 f r o m t h e total,
it leaves, a s I recall, betweon eleven anc tivelve hundred
millions.
I t i s over a thousand millions now, I believe,
and i t would leave about s i x o r seven hundred millions.
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Federal Reserve Bank of St. Louis
Gavernar Seay:
I
n c a s h reserves?
The Chairman:
L i n e
h a oe
Governor Seay:
S u r e l y not.
think i t is.
The Chairman: I
Y o u sce, t n e ceposits
of the New York Clearing House banks r u n t o about threc
thousand a n d o n e o r two million, a n d they s h o w a surplus o f
nearly t w o hundred millions o f reserves.
T h e s e figures
have m o u n t e d u p v e r y consicerably.
(At this point a n informal discussion took place which
the steno _rapher was directed not t o report.)
have t h e Chicago figures, Governor
Governor McKay: I
Strong. 3 8 7 , 0 0 0 , 0 0 0 tleared for us b y other banks;
cleared b y us for other banks, “81,000,000.
T h a t i s since
the beginning o f the gold settlement fund.
The Chairman:
T h e r e are %168,000,000 i n and out.
Mr. Hendricks: T h e r e are “189,000,000, Mr. McKay.
Mr. MeKay: C l e a r e d for us b y New York “27,000,000;
cleared b y us for New York (8,000,000.
The Chairman:
W
e have reccived f r o m y o u i n settle-
ment o f due from accounts (38,672,000 o f gol }
t h e
settlement fund startec, ané we heave paid 327,000,000.
1s M c k a y :
T h a t a g r e e s w i t h o u r figures,
The Chairman:
T h e s e figures a r e a l l excnange trans-
actions, gross, including t h e settlement o f the balances
through t h e G o l d S e t t l e m e n t Fund.
It i s n o t n e c e s s a r y
t o take a n y action o n this m t -
ter, b u t I wanted t o give that w o r d o f warning, t h a t t h e
York B a n k c o u l d n o t s t a n d a
conversion o f i t s g o l d
by the operation o f these exchange accounts, a n d tne best
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Federal Reserve Bank of St. Louis
293
way t o h a n d l e t h e m i s t o k e o p t h e accounts t h e r e u n t i l y o u
are ready t o take t h e m out, o r w e would have t o hold u p
on them.
Topic No.
2 7 o n the program h a s b e e n reported already
at t h e o u t s e t o f this meéeti
28. D A I L Y CIPGCULARS B Y T H E FLDURAL neeSoRVE BOARD.
The Chairman:
N o . 28 t
b y t h e Federal Reserve
culars
us t o discuss,
members
s u b j e c t . . o f mailing cirBoard whicn they have asked
S o m e aoubt n a s arisen i n the minds o f the
o f t h e Board a s t o whether t h e y a r e pursuing a
cor-
rect course n o w i n shipping circulars t h a t a r e t o g o t o
member banks t o the Federal Reserve Banks a n d then naving
them remailed.
T h e y thought i t was rather expensive b y
the present process, because if they sent them out they
could b e franked,
W
d
e d o not-.enjoy the p r i v i l e g e f
franking our mail. F u r t h e r m o r e , i t involves some delay.
matter was discussed i n New York b y the officers,
of the opinion thet i t would b e a mistake t o
o f having t h e circulars s e n t
change the p r e s e n t p r a c t i c e
Out B y R e s e r v e Banks,
I
t is a
method o f c o n t a c t
with the member banks, o n e means b y which v e seem t o reach
them directly. O c c a s i o n a l l y w e have been able t o check
matter that i t a i d not seem advisable t o send out,
e endeavored t o make u s e o f the occasion
and, f u r t h e r m o r e , w
of sending o u t a page o f circulars about some
of our o w m mail i n the same envelope, a n d w e would n o t
like t o see that practice changed.
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Federal Reserve Bank of St. Louis
This
i s a subject t h e t w e shoule ciscuss a n d arrive
at a
consensus: o n .
Governor Fancher:
w
e prerer
t o continus’ w i t h t n e
present m e t h o d , b e c a u s e v e h a v e f u r n i s h e d o u r m e m b e r
banks w i t h i n f o r m a t i o n ,
W h i l e all
o f thém a6 net wee Tt,
those c i r c u l a r s o u t w i t h l i t e r a t u r e
of
that i t i s p r o p e r l y c u t f o r t h e binger,
Goveonor Seay:
Way.
I t seems t o m e that that i s the pro-
T h e requirements o f the Federal Reserve Board
govern t h e operations o f the Federal Reserve Banks i n their
dealings w i t h the members, a n d i t would s e e m t o n e a proper thing f o r t h e Board t o send i t s circulars t o the Federal Reserve L a n k a n d f o r the bank t o make i t s member banks
familiar w i t h the rules b y which i t i s governed.
The Cnairman:
S o m e o f them call f o r further informa-
tion from the member banks themselves.
Does anyone feel cisposed t o make a
have a
record =néd a
motion,
s o as t o
report t o m a k e o n Friday?
Governor Fancher: i
witt ofier t h e resolution, t h a t
it b e t h e s e n s e o f t h i s m e e t i n g t h a t t h e p r e s e n t p r a c t i c e
of mailing circulars o f the Federal Reserve Board t o the
banks
b e continued;
Mr, Hoxton: I
t h a t i s , t o t n e F e d e r a l R e s e r v e Banks.
second t h e motion.
(The motion was duly carried.)
Tne Chairman: G e n t l e m e n , t h a t disposes o f almost o n e
bet
O t ali o f t h e subjects
o n t h e program.
T h e remaining
one-half, however, a r e t h e tougher nuts t o crack.
i t
seems t o m e w e would b e justificd i n taking things a
little
easy f o r t h e rest: o f the day, particularly a s w e have a i l
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Federal Reserve Bank of St. Louis
been travding last night.
W e c a n get a fresh hitch
tonight a n d tomorrow w e will make a
big dent i n the balance
of t h e program.
Governor Fancher: I
move w e adjourn until 9:30
o'clock tomorrow morming.
Governor V a n Zandt: I
second t h e motion.
(The motion was carried.)
(Whereupon, a t 11:15 o'clock p s m., the Conference
adjourned u n t i l t o m o r r o w , T h u r s d a y , O c t o b e r 2 1 , 1 9 1 5 ,
9:50 o'clock a . m.)
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Federal Reserve Bank of St. Louis
at
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Federal Reserve Bank of St. Louis