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Federal Reserve Bank of St. Louis
FIFTH CONFERENCE
GOVERNORS O F FEDERAL RESERVE BANKS
MINNEAPOLIS, MINNESOTA
HOTEL RADISSON
Wednesday, October 20, 1915
Thursday, October 21, 1915
Friday, October 22, 1915
Saturday, October 23, 1915
WALTER
SHORTHAND
S. CGX
REPORTER
COLUMBIAN BUILDING—TEL. M. 8324
WASHINGTON,
D . C.
Hotel Radissen, Minneapolis,
Saturday, October Zord,
The Conference reassembled a t 9:30 o'clock a. m.
Attendance
a s o n p r e c e d i n g days.
here were present a l s o Messrs. P a u l Warburg, Member
the Feceral Reserve Board, a n d ¥. B . @. Harding, Member
the Foderal Reserve Board.
The Chairman:
T h e meeting will c o m e t o order.
I have h a @ a little further t a l k with Mr. Narburg
regard t o tne resolution that w a s passcd recoanending
amendment
t o the “ederal Reserve A c t which would require
the transfer o f the fiscal agency function t o the reserve
banks within t w o years.
H e has rather strongly urged
that the terms of the resolution b e dcalt with in the
same w a y that t h e o n c i n regard t o the Comptroller's
office w a s d e a l t with.
H o s
O n , une o p i n i o n t h a t a s w e
want t o make progress i n these matters i t would b e a goed
Geal better t o exercise a ‘little discretion i n wording that
resolution, j u s t a s w e have enceavored t o d o o n the
different subjects. I
believe h e is right about it, gen-
tlement.
The r e s o l u t i o n a s p a s s e d w a s s i m p l y a
bare s t a t e m e n t
that i t i s the sense o f this meeting
tne E
e
f u n d a n d t h e fiscal agency function should b e
made m a n d a t o r y a n d c o m p l e t e d w i t h i n t w o years,
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Federal Reserve Bank of St. Louis
490
Mr. Warburg thinks t h a t b y framing that u p a little
more diplomatically i t might hasten matters i n that cirection a n d p r o d u c e r e s u l t s , w h i l e
i n its present f o r m i t
may just producc irritation.
Governor ilcDougal:
H o w would i t d o t o let the S e c r e -
tary f r a m e t h a t u p L i k e h e d i d m y p r o p o s e d r e s o l u t i o n r e -
garding intcrost rates?
The Chairman:
T h a t strikes
m e a s being j u s t t h e
thing t o do.
Governor McDougal: I
think that would b e the thing
to do with it.
Governor Fancher:
I t would b e well t o have the Sec-
retary S h a p e t h a t r e s o l u t i o n u p , a s w e l l a s t h e o t h e r
resolutions,
a n d s e n d i t around a n d l e t u s g i v e i t t h e
Zonce-over" a n d we can then make any suggestions w e like
and send i t back.
The Chairman:
preperation
G o v e r n o r iicDougal, y o u move that t h e
o f a substitute resolution o n Topic 1 1 (c),
"Transfer of subtreasury functions" b e referred for prepartaion
t o t h e Secretary?
Governor McDougal:
W i t h the understanding that t h e
resolution that w a s passcd will b e modified,
Governor Wold:
Y o u d o not m e a n modified,
The Chairman: W i t h the understanding that it be
roframed.
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Federal Reserve Bank of St. Louis
Is the motion seconded?
(The motion was seconded a n d was d u l y carried.)
The Chairman:
W
e coneluded o u r meeting yestcrday
49}
with a n u n f i n i s h e d G i s c u s s i o n
Governor iicDougal: I
o f v o t e Mo. 2
of the con-
would move that w e proceed
with the understanding t h a t this committee o f transit m e n
were rignt i n thcir assumption a s indicated i n paragraph 2 .
Governor V a n Zandt: I
Governor Aiken:
second t h e motion.
I s there n o t a motion o f mine before
house that we concur i n this, which I made yesterday?
Tne C h a i r m a n :
T h a t
is a
fact,
a n d Governor MeDougal
has s i m p l y r e p e a t e d y o u r m o t i o n i n substance.
was secondod.
B e f o r e voting o n i t let m e ask Whether a n y
One h c r o d e s i r e s
t o suggest a n y addition t o t h e language
of t h i s s e c o n d v o t e a s a n a m e n d m e n t
ed b y Governor Aiken,
reopened
t o the resolution offer-
s o that discussion will n o t later b e
o n this p a r t i c u l a r s e c t i o n o f t h e r e p o r t ?
Governor Aiken: I
plain. I
Y O u r motion
simply m d e a
would like t o have that made
motion t o b r i n g t h e q u e s t i o n
aefinitoly b e f o r e t h e moeting.
Governor Fancher:
D i d y o u not m k e s o m e suggestion
as t o that section, lir. Chairman?
he Chairman: M r . Hendricks tells m e that a later
section o f t h e report, V o t e 6 , m a k e s c l e a r t h a t t h e a c c e p t -
ance a t par b y Federal Reserve banks o f checks drawn o n
member b a n k s d o e s n o t i n t h e i r o p i n i o n n e c e s s a r i l y r e q u i r e
immediate credit, b u t deierred credit.
Mr. Hendricks:
T h a t “ a t par" d i d n o t necessarily
mean i m m e d i a t e credit.
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Federal Reserve Bank of St. Louis
Governor
V a n Zandt: I
offcr
a n amendment
t o Governo>
492
Aiken's motion that w o concur i n Vote No. 2
with the under-
standing that immediate crcdit i s not implied.
Governor Kains: I
The Chairman:
second that.
w e h a d better g e t all these motions
pefore u s a n d then take t h e m u p seriatim.
I s there a n y
other m o t i o n t o a m e n d t h e d e c l a r a t i o n c o n t a i n e d
i n the
second v o t e ?
Mr- Foote: I
would like t o have t h a t resolution s o
amended a s t o bring out t h e idea that this b o d y does n o t
attempt t o put a n y such cast i r o n construction o n the law.
Therce i s a
certain a m o u n t o f d o u b t a b o u t i t , b u t I
do not
think w o are justified i n going that far with it. I
in view o f the admitiéd;;:complications o f fact
think
n o n e
of us know definitely what t h e l a w means, a n d that w e
should protect ourselves b y passing some sort o f a
tion here that would n o t commit u s i n such a Way.
The Chairman: Would the substitution of the word
“essumption" f o r the word "theory" i m p l y what y o u have i n
mind?
I t i s a n assumption o f what t h e l a w implies rather
than a
direct s t a t e m e n t
Mr+ Foote:
Y e s , 1
The Chairman:
o f t h e language
o f t h e statute.
think that would b e all right.
D o y o u offer that a s a n amendment t e
Governor Aiken's motion?
Mr. Foote:
Y e u .
The Chairman:
A r e there any other amendments offer-
ed t o Governor Aiken's motion?
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Governor Rhoads: I
second Mr. Foote's amendment.
Governor Sawyer: I
simply want t o say that Kansas
493
imCity h a s o f m u r s e b e e n a c t i n g o n t h e a s s u m p t i o n t h a t
medbte c r e d i t w a s required:
F o r that r e a s o n I
will v o t e
against t h e amencment.
G o v e r n o r Sawyer wishes
The Chairman:
t o have i t
recorded t h a t K a n s a s C i t y i s o p e r a t i n g u p o n t h e a s s u m p t i o n
that t h e language o f the a c t requires immediate credit a n d
immediate debit.
I here n o c t h e r a m e n d m e n t s o f f e r e d a n d w e w i l l v o t e
for t h e m i n t h e r e v e r s e o r d e r made,
Are y o u r e a c y f o r t h e q u e s t i o n
o n ir. F o o t e ' s a m e n d -
ment which substitutes t h e word "assumption f o r the word
"theory" 2
(There w e r e c a l l e d f o r t n e q u e s t i o n
a n d the motion was
duly carried.)
Mr- Foote:
I s i t consisteat f o r m e t o b e recorded
as not having voted?
a m afraid i t i s pretty late f e r that,
The Chairman: I
Mr. Foote.
Mr.» Foote:~ A l l right, sir, let i t go.
The Chairman:
A r e y o u r e a d y t o v o t e o n Governor V a n
Zandt's motion that this vote does not imply that a n immediate d e b i t a n d c r e d i t i s required?
(There w e r e c a l l s f o r t h e q u e s t i o n a n d t h e m o t i o n w a s
carried. )
The Chairman:
G o v e r n o r Aiken, a r e y o u willing t o
original motion
accept t h e s e a m e n d m e n t s ,a n d v o t e u p o n y o u r
with i t s m o d i f i c a t i o n s ?
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Federal Reserve Bank of St. Louis
Governor A i k e n : I
am.
494
The Chairman:
A r e y o u ready t o vote o n the original
motion a s amended?
(There w e r e c a l l s
motion
f o r the question,
a n d t n e original
a s amended w a s p u t a n d duly c a r r i e d , )
Tne Chairman:
T h e effect o f these votes i s that w e
have n o w votcd t o accept t h e conclusions o f the transit c o m -
mitted, changing the word "theory" t o "assumption",
and declaring that w e d o not understand t h e l a w t o mean that
immediate c r e d i t a n d d e b i t i s required.
Governor Sawyer hasstated o n the record that his b a n k
is operating o n the assumption that immeciate debit a n d
Credit.
1 a reduired.,
Is the record perfectly clear t o everybody here.
There being n o objection, I
assume that t h e record i s clear.
We w i l l n o w p r o c e e d t o V o t e 3 :
"3, V o t e d - T h a t the Federal Reserve Banks should
have t h e p r i v i l e g e
a t i t s discretion,
o f accepting checks
on any bank, banker o r trust company." " U n a n i m o u s l y carried."
Governor - - i n Zandt: T
curre:
move t h a t v o t e N o * 5
be c o n —
i n a s i t stands.
Governor Seay: I
The Chairman:
I s there a n y further discussion?
Governor W o l d : I
Mr. C h a i r m a n . I
against i t - I
second t h e motion.
d o n o t c a r e t o discuss t h e c u e s t i o n
a m not. i n f a v o r o f i t a n d w i l l v o t e
c a m o t r e a d i n t o t h e l a w anything t h a t ioacs
me t o b e l i e v e t h a t i t w a s c o n t e m p l a t e d t h a t t h e s e b a n k s
should
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Federal Reserve Bank of St. Louis
b e commercial institutions.
495
Mr. McKay: M r e D e l a n o stated that the counsel for
the Federal Reserve Board had given the opinion that the
Federal “oserve banks m a y collect checks o n non member
banks, a n d that this opinion was concurred i n b y counsel
in New York,
The Chairman:
T h a t opinion ought t o b e road b y every
one here, i t seems t o me, a t the very first opportunity.
Mr. Curtis, you will correct me if! a m not right, but the
substance of that opinion is that counsel for the “ederal
Reserve Board i s o f the opinion that i t is*necessary a n d
incidental p o w e r t o t h e c o n d u c t o f t h e b u s i n e s s
o f these
banks t h a t t h e y s h o u l d b e a b l e t o c o l l e c t c h e c k s
o n banks
tiich are not members o f the system,
Governor Seay: I
want t o ask Governor wold i f he
thinks t h a t a n y c o l l e c t i o n s y s t e m c a n b e o p e r a t e d s u c c e s s ~
fully without receiving checks o n those banks which a r e
not members?
Governor Wold: (Interrupting) I
don't believe the
Federal Reserve Banks will develop the cohlection system
of this ountry.
Mr-e Qurtis: I
want t o make this statement:
T h a t I
have never seen this opinion o f counsel for the Board, and
I nave n e v e r f o r m e d a n o p i n i o n a s t o w h a t t h e p a r a g r a p h
means.
The Chairman: V o t e 3 of the transit Committee's
recommendations
i s before u s with a motion t o adopt it, a n d
that motion has b e e n ceconded. :
cussion?
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Federal Reserve Bank of St. Louis
Is there a n y further dis-
496
(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
carried. )
The Chairmen:
4, V o t e d -
W e will n o w consider Vete No. 4 :
We recomuend that t h e actual expense o f
handling items o n nonmember banks shall b e assessed b y the
Federal “eserve Y a n k against t h e member depositing s u c h
items 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 - " " W n a n i m o u s l y c a r -
Governor F a n c h e r : J
Governor Aiken: I
meve t h a t
w e eoncur
“ i n Vote
second t h e motion.
(Tie motion was duly carried.)
The Chairman:
G o v e r n o r t o l d wishes
t o b e recorded
as stating that, having voted i n opposition t o Item No. 5 ,
his vote o n No. 4
is recognition o f the fact that h e was
not successful i n opposition t o vote No- 3. ( L a u g h t e r )
would like t h e record S
Governor Wold: I
disclose
that m y vote o f "No" o n No. 3 is not t o be construed
: i n d i c a t i n g as a n o b j e c t i o n
o r as, t h e p o S i t i o n w e w i l l t a k e c o n t r a r y
A
to the general wishes o f this Conference i n working o u t
Pace -¢ ol cection= problem,
J
e a r e g o i n g t o d o o u r share t o
help s o l v e t h i s problem.
Governor Kains: I
feol t h e s a m e way. I
feel t h a t
the whole thing i s absolutely rotten a n d that w e are making
no progress a t all. I
trould like t o see the Conference
come o u t a n d m o v e t h a t t h i s w h o l e t h i n g b e e x p u n g e d f r o m
the Federal ““eserve Act.
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Federal Reserve Bank of St. Louis
The Chairman:
t i e are very likely t o do that before
we get. through with, it.
Mr, Foote:
h y can't p e stop right n o w and do that,
and save a l l this time.
L e t ' s have a motion right n o w
that w e a r e o p p o s e d t o t h e * e d e r a l lieserve S y s t e m i n v a d i n g
the fields o f the commercial bank, a n d recommend that this
section 1 6 b e a b o l i s h e d i n 1
T
Whole thing ought t o b e settled.
h
a
t i s the way the
T h e r e ought n o t t o b e
any invasion o f the field o f commercial banking b y this
system.
T h i s p r o p o s i t i o n o u g h t t o b e l e f t t o t h e traders
themselves
t o settle.
The Chairman:
7 @ would lose o u r right t o issue notes
if w e h a d all o f Section l6knocked out.
Mir. Foote: +
Cll, a l l e x c e p t t h a t p a r t t h a t i s neces-~
Sary t o keep u p the circulating medium o f the Muntry.
I move, Mr. Chairman,
t e get the cuestion before t h e
house f o r discussion, t h a t t h e sense o f this meeting i s that
this i d e a o f nandling country checks ougnt t o b e abandoned
by the reservo system once a n d for all.
Governor ‘gins:
Mr. Foote:
F o r t h e present?
Y 6 s 3 f o r t h e present.
Governor Seay:
n a t i s hardlyin order---
f o r the
present.
The Chairman: I
a m afraid i t i s not i n order.
are a t p r e s e n t a c c e p t i n g t h e r e p o r t o f t h e C o m m i t t e e
Transit Hanagers, a n d i t seems t o m
W e
of
w e ought t o conclude
the discussion o f this report,at a n y rate o u t o f courtesy
to the gentlewen w h o have spent some days i n working o n the
matter.
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Federal Reserve Bank of St. Louis
W h e n that i s concludec, a n d w e have acted o n the
4.98
report, t h a t motion would b e i n order, a n d 1 will s e e that
1%. 28 put Defore t h e meeting,
Mre Foote: I
certainly G o not want t o treat t h e mem-
bers o f t h e T r a n s i t C o m a i t t e e w i t h a n y l a c k o f c o n s i d e r a tion, n e c a u s e t h e y c e s e r v e e v e r y consiceration.
Governor Van Zandt: I
move that tr. Foote's motion
pe. tabled.
Mir. F o o t e : I
will w i t h d r a w
Tne Chairman:
t h e motion.
Y o u r suggestion i s a n important one,
i
‘yp. Foote, a h d w e m s t a c t o n it.
Gentlemen, . h a t i s your pleasure i n regard t o Vote
RO B y
“S5 V o t e d -
That consideration o f a service cnarge
for t h e c o l l e c t i o n o f checks
o n member b a n k s d e p o s i t e d
with t h e Federal Reserve Danks b e deferred a t this time."
“Carried without a cissenting voice."
Governor Aiken: I
move that w o coneur i n Vote No. 5 .
Governor V a n Zandt:
I
n that connection, d o e s t h a t
mean that w e shall not a t this time ask the "ederal Neserve
Board t o perform the duties p u t upon them b y Section 16, t o
fix ecnarges?
ir. McKay:
W e d o not a t this time make a n y Cnarge
to o u r m e m b e r b a n k s f o r t h e s e r v i c e
o f collecting i t e m s u p o n
them.
Governor V a n Zandt:
little
~ o u l d n o t t h a t v o t e b e clarificd
b y sayingthat t h e consideration
of a
service
charge "by the Federal eserve Yanks"?
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Federal Reserve Bank of St. Louis
hir. M e K a y :
T h a t
i s really what
i t means.
499
The Chairman:
D
o y o u o f f e r t h a t a s a n anendment
to
Governor Aiken's motion?
Governor V a n Zandt:
Tne Chairman:
E
Y e s .
o there y
.iscussion
o f Governor
Van Zanct's motion amending Governor Aiken's motion?
Ciiers w a s n o discussion;
t h e motion was d u l y seconded
and c a r r i e d . )
Tne Chairman:
G o v e r n o r Aiken, a r e y o u willing t o
accept t h e a m e n d m e n t
to
a s passed w h i c h specifies t h a t t h e
service charge b e made i s a charge t o b e made b y the
Bederal Reserve banks?
Governor Aiken:
The Chairman:
Y e s .
T h e n w e will consider t h a t t h a t v o t e
covers Governor Aiken's original motion.
(The original motion b y Governor Aiken was, a s
above stated, c o n s i d e r e @ d u l y carried.)
Tne Chairman:
A r e y o u rcoady t o c o n s i d e r V o t e N o . 6:3
"6, V o t e d - Vhereas Section 1 6 of the federal Reserve
Act stipulates t h a t Fedcral Reserve Banks shall accept a t
par from their member banks checks a n d drafts o n their
members, this conierence recoamends t o the “overnors' C o n ference that this provision o f the Act b e developed b y the
several Federal Reserve B-nks o n a deferred credit a n d
deferred cebit basis, b u t w e believe t h a t t n e privilege t o
handle items o n a n immediate debit a n d credit basis, s o
far as expedient t o d o so, should b e granted." "
‘otion
carried."
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Federal Reserve Bank of St. Louis
Governor R n o a d s : I
move t h a t
w e concur
i n that, v o t c .
500
The Chairman!
I s there any discussion o f it?
(There w e r e c a l l s
f o r the cuestion
a n d the motion
was G u l y seconded a n d carried.)
Mr. Foote: I
would l i k e t o b e r e c o r d e d a s v o t i n g
no, mr. Chairman,
Goernor Sawyer: I
d o not want t o b e recorded a s vot-
ing no, b u t 1 do want t o b e recorded a s explaining t h a t
Soensas City has a platform of its own.
Mr- McKay:
I n regard t o that, Governor Sawyer, you
will notice t h a t t h e last part o f that "but w e believe that
the privilege t o handle items o n a n immediate debit a n d
credit basis,
s o far a s expedient t o d o so, should b e
granted", w a s p u t i n there entirely a t the suggestion o f
the K a n s a s C i t y representative.
Governor Sawyer: I
want t o o p p o s e i t ; b u t I
understand t n a t . I
want t h e C o n f e r e n c e
d o not
t o k n o w that
we will n o t imuediately adopt t h e deferrcd debit system,
Governor Seay:
M a y + ask, ‘ir. MeKay, i f that means
that e a c h b a n k s h o u l d d e t e r m i n e t h e e x p e d i e n c y o f t h a t
matter a s a
Thole?
Mir. MeKay:
T h a t means that each bank could put i n
the immediate debit and credit system i f it so desir ' ,
within i t s cistrict only.
T h e sense o f the meeting was
that d e f e r r e d d e b i t a n d c r e d i t w a s t h e p r o p e r s y s t e m t o
adopt,
a n d i n order t o g e t t h e K a n s a s C i t y r e p r e s e n t a t i v e
to vote o n this w e put i n this last phrase here s o that
the hanks should have t h e privilege o f handling o n immceaiate
debit a n d credit basis i f they found i t expedient t o d o se.
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Federal Reserve Bank of St. Louis
5OL
Governor Seay:
w a c h bank t o b e the judge o f the e x —
Tach bank t o b e the judge o f the expediency
Governor Fancher: S h o u l d not this section be claria little b y saying that "banks within their districts"?
Mr. liendricks: T h e y have no control over items out
of their dis tricz.
Governor Seay: I
think perhaps i t i s wise a s i t
Stands, betéause t w o d i s t r i c t s m i g h t b e n e a r t o g e t h e r a n d
it m i g h t b e b e t t e r f o r a
b a n k t o accept i t e m s
o n the near-
est district where i t wes within c a s y reach, t h a n i t would
be t o a c c e v t i t e m s
In some cases I
o n some p o r t i o n o f i t s o w n cistrict.
can see, a s between Philadelphia a n d N e w
York and Boston, a n d possibly Richmond, t h a t i t might b e
xpecdient-for t h e m t o accept f o r i m m e d i a t e c r e d i t i t e m s
on those districts, because t h e mail connection i s s o
quick.
Mr. McKay:
I
t i s not intended
t o prevent b a n k s f r o m
accepting f o r immediate credit items o n Federal teserve
Cities which are exchange centers--Governor Aiken:
(Interrupting)
l
t would L i k e t o
ask, f o r m y own information,
o f the gentlemen w h o a r e
experts i n transit matters,
i f i t i s not impracticable
to have t h e t w o systems working side b y side?
No, i t i s not impracticable.
City b a n k c a n g o ahead,
T h e Kansas
i f they desire t o c o so, o n the
immediate debit a n d credit basis, b u t i n the Chicago
district w h e n w e a c c e p t i t e m s f r o m o u r m e m b e r b a n k s
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Federal Reserve Bank of St. Louis
on
502
as C i t y D i s t r i c t t h e y w i l l s t i l l b e o n t h e s a m e
and cr edit b a s i s a s i f “ansas C i t y w a s o n
the deferred debit a n d credit basis.
w e p a y n o attention
&0 t o h o w the other b a n k s a r e going t o collect their items.
we a r e going t o put them =
o n that basis. I
t h i n very
k e
bank could d o the same,
Mr, Hendricks:
Mp, McKay?
Y o u d o not really mean that, d o you,
I f you sacept items o n the 4ansas City District,
instead o f adding their transit time y o u will only a d d t h e
time necessary t o reach Sansas City, because they take
them f
i m m e d i a t e debit a n d credit.
Kansas c i t y iould n o t permit u s t o d o
that.
Mr- Hendricks:
T h a t q u e s t i o n i s u p t o Kansas C L e y s
If they give immediate debit a n d credit f o r all their
items o f c o u r s e t h e y w o u l d t a k e t h e m o n t h e s a m e b a s i s f r o m
the other banks.
Governor Aiken:
I f 1 remember correctly you suggested
yesterday t h e necessity o f setting u p two sets o f books
for t h i s a r r a n g e m e n t ,
operating problem.
The Chairman:
books.
I
M
y inquiry w a s a s t o the practical
t seems t o m e i t i s not workable.
I t certainly does involve t w o sets o f
W e don't want t o g o over t h e same sround again,
but 1 think Mr. McKay was ready t o edmit yesterday that i t
meant r e a l l y t h e a b a n d o n m e n t
o f oneplan o r the other i n
each district.
Mr. McKay:
I t does mean that, “~r. Chairman, but if
the Sansas City Bank wants to do it on two different bases,
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Federal Reserve Bank of St. Louis
503
why, t h e y c a n d o w h a t t h e y p l e a s e a b o u t i t .
T h i s perhaps
is best illustrated b y the w a y w e would d o i t i n your o w n
district.
W e woulc take everythdng o n the deferred debit
and c r e d i t w i t h t h e e x c e p t i o n o f items
items p o s s i b l y
o n the f o u r cities
o n Chicago a n d
o n which exchange c a n
be sold; b u t a l l t h e r e s t o f t h e c o u n t r y w o u l d b e o n t h e
deferred debit a n d credit f o r a certain number o f days.
It w o u l d n o t r e q u i r e a n y e x t : a b o o k k e e p i n g
t o handle
it
in t h a t way.
The Chairman:
Y o u s a y that y o u c a n r u n both systems
and t h e n y o u s a y t h a t y o u cannot,
d i c n o t s a y that. I
Mr. M e “ a y : I
say they c a n
run both systems i f they desire t o d o it b u t i t ian..'t a
good w a y t o handle it.
Governor Wold:
at the wrong end.
I t scems t o m e that w e started o u t
A r e w e voting o n Nos. 1 , 2 , 3 , 4 and 5
on the theory that w e are going t o open this initer-cistrict
clearing matter wide open?
The Chairman:
N o , w e come t o that later,
Governor ‘old: B e c a u s e ,
my vote. I
i f w e arc, 1
want t o change
a m not prepared t o p u t i n inter-district
clearing.
Governor Seay:
W
e c a n move a
reconSideration
a t any
time.
The Chairman: C e r t a i n l y .
(A m o t i o n t h a t V o t e N o . 6
be concurred
i n was d u l y
carried. )
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Federal Reserve Bank of St. Louis
Mr- Qurtis:
M e r e l y a s a matter o f geographical a n d
504
historical interest, I
would like t o s a y t o Governor S e a y
that h e i s n o t s t a t i n g i t v e r y g e n e r a l l y w h e n h e s a y s t h a t
wo districts might b e close togetner.
Gowernor Seay: i
convey was conveyed,
Mr. Hendricks:
Tne Chairman:
hops t h e m e a n i n g 1
intenced 1 0
i f the words were n o t right.
S o m e d i s t r i c t s a r e c l o s e r t h e n others.
W h a t i s your pleasurein regard t o
Vote 7 ?
"7, V o t e d -
That items s e n t t o feceral “eserve Yanks
should n o t b e c o u n t e d a s r e s e r v e u n t i l c r e d i t e d b y t h e
Federal *eserve Yank, but i n computing reserves, the total
amount o f such items m a y b e deducted f r o m the member
banks! gross demanc deposits." " U n a n i m o u s l y carried,"
Governor Seay:
I s that meant, Mr. McKay, t o include
items w i t h i n t h e d i s t r i c t t o o ?
Mr. Mcobay:
T n a t i s meant t o include items sent t o
Federal “ e s e r v e B a n k s t h a t a r e n o t r e c e i v e d
credit.
f o r immediaté
I t rcpresents a l l i t e m s t h a t a r e s e n t t o Federal
Reserve Yanks.
Governor Seay:
D o e s i t mean that
cash items t o t h e “ederal tteserve S a n k would n o t charge t h e m
OU he. Danie On,
Mr. Mckay:
m n e y wouldn't b e charged t o the “ederal
Reserve B a n k until t h e d a y the Federal Reserve D e n k creditad
such items.
Governor Wold:
ate
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Federal Reserve Bank of St. Louis
i n reference
M a y I-inguire
t o items receive
a s t o h o w i t would operT a s L i m OR POl t oco On. o Gs
Paul, seven miles away?
2
w f r e n ter
Mr. MeAay:
It depends
o n h o w y o u collect t h e m i n
St- Paul.
r W o lo d : n
You
r a ree going
v
ot o G
have
credit,
Mr. Mckay:
Ona o t e
H o w long does i t take y o u t o collect
Paul i n y o u r b a n k ?
One Gay, through t h e mails--- that
Governor W o l d :
is o n the following day.
Loliir.
MeKay:
You could arrange t o take St- P a u l f o r
ey
d eab iit da ne d m credi
e t
m i
t, t h e Same a s Minneapolis.
Then t h e y w o u l d r e c e i v e é@redit t h e d a y t h e i t e m s r p a c h e d
your bank.
r Seay:
o
Then
n
it
r means
e i t e mvs
on o
Federal
G Re-
serve cities?
. McKay:
No, i r
t means all checksM sent t o “ederal
Reserve Banks,
Governor S e a y :
I n c l u d i n g items
o n FederalReserve
cities?
. McKay:
Y e s 3r
including itemsM o n Federal Re-
Serve C r i e d .
r wold:
o
give i m m e d i a t e
We
n c a n nro t b uey C h i cva g o e xoc h a n gGe a n c
crecifor
take Chicago exchange
and
immeciate c r e d i t .
Mi.
p, eM caKa a y ?
exchange
l
b u t the bank sending
it w o u l d n o t r e c e i v e
y o u ,eceived
t h e wtieme,
“if you nt a k e
i
t
Creds u
e
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Federal Reserve Bank of St. Louis
You g e t i m m e c i a t e c r e d i t f o r C h i c a g o
+ln oy
credit
l e niL
j LLU
i m m
U e d i a t e
506
Governor Van Zandt:
T h e y count i t as reserve a t
the minute y o u give t h e m credit f o r it.
Mr. McKay:
A
s i t i s n o w they count i t a s
reserve the day they sank i. t a vou.
T h e y don't count
it a s reserve until i t goes into t h e account a t the bank-—
The Chairman: (Interposing) Gentlemen, there has
been n o r e s o l u t i o n o f f e r e d w i t h r e s p e c t
Governor Sawyer: I
Governor Seay: I
t o V o t e No. 7 . °
move that w e concur i n Vote No.7.
think that vote needs a n amendment,
Mp. Chairman, and 1 am struggling to think of what the
amendment s h o u l d b e .
The Chairman:
I
t seems
t o m e t h e subject should b e
turned around, t h a t is, that member banks should n o t r e ceive credit o r count a s reserve items s e n t t o the Bederal
Reserve bank until received b y the bank,
There was a second t o Governor Sawyer's motion.
I s
there a n y further discussion?
Governor Seay:
M r . Chairman, I
can v o t e f o r t n a t now.
cuss i t a
do not feel that I
[ I would l i k e t o h a v e ‘tir- M c K a y @ i s -
little w h i l e t o s e e i f h e c a n p u t m e i n a
posi-
tion to: vote fOr: t t «
There i s just a s much float involved
men a bank i n Montana sends items t o Minneapolis o n
Minneapolis
if they
t o t h e Y e d e r a l R e s e r v e B a n k a t Minneapolis,
t a k e t w o a o three days t o get there, c s t h e r e
would b e o n a n y O t n e r i t e m s t h a t t a k e t h r e e d a y s t o g e t i n t o
the reserve account.
T h e bank i n Montana charges t h e m u p
ther
thts r e s e r v e a c c o u n t t h e d a y i t sends,
pank,
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Federal Reserve Bank of St. Louis
t
o t h e Minneapolis
I t may b e two o r three days before t h e Minneapolis
507
bank receives i t , s o the float involved i n items t h a t a r e
on Minneapolis
i s v e r y large,
t h e s a m e a s o n o t h e r items.
it i s a matter o f time,
The Chairman:
T h a t i s yeur objection
t o this i t e m
No. 7 , Governor e a y ?
Governor Seay:
W e l l , f o r illustration,
say t h a t i t e m s f r o m P h i l a c e l p h i a
w e will
t o New York are t o all
intents a n d p u r p o s e s j u s t a s g o o d t o t h e P h i l a d e l p h i a
member banks a s checks o n the Philadelphia b a n k itself;
so little time i s consumed i n the collection that i t does
not s e e m worthy o f consideration a n d would n o t justify
deferred credit.
I
f Mr. M c K a y w i l l p r o m i s e
a reconéiceration i n case i t i s called for, 1
t o ask for
a m willing
tO VYoLe 7 0r it.
Governor Aiken:
D o e s n o t Governor Seay's objection
bring u p t h e c u e s t i o n a s t o whether t h e “ e d e r a l lieserve
Bank should carry a part o f the float o r not?
admittéda that i n the
I t does. I
Governor Seay:
beginning:
The Chairman:
W h e n a Feceral Reserve Dank, f o r t h e
purpose o f getting exchange,
i s willing t o accept items
for immediate credit, o f course i t i s buying that portion
of tne float represented b y the items f o r which i t i s
giving immediate credit.
Governor Aiken:
that i s a
T h a t i s within i t s o w n control, a n d
v e r y i m p o r t a n t factor.
The Chairman: i I n t i r e l y printipal a d o p t e d b y V o t e N o . 7
I
n this instance t h e
i s identical w i t h t h e o n e
we discussed carlier i n our session, o f suggesting that t h e
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Federal Reserve Bank of St. Louis
508
Comptroller,
i n cooperation w i t h the b a n k authorities o f
the various states, endeavor t o secure a
uniform change i n
the method o f computing reserves.
Governor Seay: I
had i n mind the operation o f this
plan a s b e t w e e n c i t i e s e x t r e m e l y c l o s e together,
a s t o the
practical working o f it.
The Chairman: Philadelphia and New York are the
nearest reserve cities t o each other, a n d while Philadelphia r e x e i v e s N e w Y o r k f o r i m m a c e i a t e c r e d i t a t p a r t o s o m e
extent, I
believe, Philadelphia i s unwilling a s yet, a n d
the member banks a r e unwilling a s yet a t least, t h a t w e
should d o t h e s a m e w i t h t h e i r checks.
T h a t i s just t h e
Situation y o u h a d i n mind, G o w r n o r S e a y ?
Governor Seay:
Yes. I
was wondering whether t h e
Philadelphia banks tha& sent you items o n New York would
be willing t o postpone t h e charge a n d n o t count t h e m i n
reserve.
T h a t was t h e question I
me Chairman:
h a d i n mind.
W h y should they when the "ederal
Heserve Bank of Philadelphia, i n that instance, is willing
not o n l y t o assume t h e float, b u t t o give immediate credit
to the reserve account.
T h a t i s just what t h e y dn.
(Further discussion followed.)
The Chairman:
T h e r e i s a motion before t h e house
and w e h a d a l m a s t c a r r i e d i t w h e n G o v e r n o r S e a y h e l d u s
up.
Governor Seay: I
apologize, M r . Chairman, a n d a m
ready t o vote.
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Federal Reserve Bank of St. Louis
The Chairman: E
will a s k f o r 4 volts o n t h a t motion.
508-A
(The motion being d u l y seconded, w a s carried.)
Mr- Foote: I
want t o b e recorded a s voting no. I
want t o e x p l a i n m y v o t e a g a i n s t t h a t r e s o l u t i o n b e c a u s e I
think the question o f float ought t o b e treated more definitely m d b e more definitely understood.
The Chairman:
W e cleaned that u p pretty well day be-
fore yesterday, Mr. Foote,
i n that there was a resolution
passed recommending t h e treatment o f that matter b y the
Comptroller
i n cooperation w i t h t h e banking departments
of the variousstates.
Mr. Foote:
W i l l there b e a n y further discussion
on i t now?
The Chairman:
I t i s o n our program f o r further dis-
cussion.
Mr. Foote:
B u t i t i s not proper t o bring i t u p now?
The Chairman:
N o .
Are y o u ready t o dispose o f Vote No- 8 :
"9,
V O t e d -— That when items arc collectible a t par
on a sufficient number o f banks t o warrant s o doing, a l l
restrictions a s r
e
n
removed,"
"Unanimously
carried."
Governor Wold:
M r . McKay, what d o y o u mean b y para-
graph 8 ?
Mr. McKay:
I n a majority o f the districts n o w no re-
strictions a r e maderogarding endorsements o n items received
from other districts.
T h e Sans, « s i t y District will n o t
acceptitems bearing endorsements outside o f the district.
They have some restrictiens i n St- Louis.
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Federal Reserve Bank of St. Louis
W h e n a suffi-
509
cient amount o f territory i s covered t h e Kansas C i t y Bank
tells u s that they will b e willing t o d o away with all
endorsement restrictions.
T h e y have t h e m n o w because
they G i d not have enough offset i n connection w i t h items
from o t h e r districts.
I
t i s important t h a t w e d o away
with restrictions o n endorsements.
Governor Van Zandt:
l h o i s t o be the judge o f the
efficiency of the endorsement?
Mr. McKay:
T h a t w a s n o t covered.
to b e that i t was a
T h e idea seemed
temporary matter a n d they protected
themselves temporarily until there would b e sufficient
offset b y items
o n o t h e r districts.
h
e
n
t h e inter-
district p l a n g o e s i n , i f i t does, t h e K a n s a s C i t y r e p r e -
sentatives s a i d that t h e y would not have a n y reason t h e n
to continue t o restrict endorsements, because t h e y would
have enough offset, that is, they would have sufficient
items
o n the other banks
Governor Seay:
t o e n a b l e t h e m t o d o a w a y w i t h it.
L a c h reserve bank would have t o be
the judge.
Mr., McKay:
O h , yes, e a c h reserve banks would h a v e
to b e the judge.
he Chairman:
W h y n o t m a k e t h i s clear, a n d probably
more satisfactory t o Kansas City, b y saying that i t is
recommended t h a t w h e n i t e m s a r e c o l l e c t i b l e ,
Mr. M c K a y :
Mr- F o o t e :
cities
a n d s o forth.
Y e s ; t h a t w o u l d b e better.
I t would n o t
d o tqpermit banks
i n reserve
t o collect f o r state b a n k s a l l o v e r t h e country
and give t h e m the benefit e f this system without contrdbut-
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Federal Reserve Bank of St. Louis
ing a n y t h i n g
t o it.
Mr. McKay:
T n e state banks would have t o carry a n
account w i t h a member bank, a n d i f w e restricted items
received f r o m the member bank i t would b e t o the disadvantage o f the member bank i n handling items reseived f r o m
the state banks, a n d would w o r k both ways.
Mr.Foote:
D o n ' t you think i t would tend largely
to encourage s t a t e banks t o remain o u t o f the system,
if
they get a l l these benefits without coming i n ?
Mr. McKay: I
d o not think i t will make a n y ciffer-
ence; no.
The Chairman:
A r e y o u willing t o receive a
vote o n
this section, Mr. McKay?
Governor Sawyer: I
understand t h a t s e c t i o n m e a n s
that e a c h bank i s t o b e the judge o f the restrictions?
Mr+ Foote:
T h e r e will b e n o restrictions .
Governor Aiken:
I t doesn't seem t o me i t is prac-
ticable t o leave this a s a matter o f discretion i n any
district.
I f w e a r e going t o open this t h i n g wideevery-
body has g o t t o take what comes t o him.
Y o u cannot have
the Kansas C i t y District saying that t h e y won't take
checks with endorsements from the Boston District and
then have t h e Boston e r any other district w i d e open.
If w e are going t o open this thing u p w o will make n o
mention o f restrictions a n d assume that there shall b e
no l i m i t a t i o n s b e c a u s e
The Chairman:
I
o f outside e n d o r s e m e n t s .
f this principle
i s n o t adopted
all o f the twelve banks i t would leave o n e district,
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Federal Reserve Bank of St. Louis
by
in
511
case K a n s a s C i t y c o n t i n u e d
t o maintain restrictions
a s to
endorsements, unable t o interchange items w i t h all the
otner eleven banks. C e r t a i n l y t h e other e:even banks would
not receive items o n Kansas C i t y i f Kansas C i t y woulda
not receive items f r o m the other eleven banks.
T h a t
situation ought t o take care o f itself.
Governor Aiken: I
cannot s e e a n y a d v a n t a g e
i n this
resolution.
The Chairman: I
can see some disadvantage
i n pas-—
Sing i t the w a y i t is.
Mr. Foote:
P o s s i b l y somebody will suggest a
substi-
tute f o r i t and w e c a n vote o n it.
Mr. Hoxton:
Y o u suggested a n amendment, Mr. Chair-
The Chairman:
Mr. Hoxton:
T h a t w a s i n deference
t o Kansas C i t y .
Y o u suggested the words "It i s recom-
mended",
The Chairman:
T h i n k i n g i t over further I
a m inclined
to believe t h a t this vote No.8 should provide that a n y
plan f o r i n t e r - d i s t r i c t c o l l e c t i o n s s h o u l d o n l y o p e r a t e
as t o those districts w h i c h agree t o remove restrictions
as t o endorsements.
Governor ‘Wold:
Mr. McKay:
W h y not leave i t out entirely?
T h e r e a r e restrictions
o n enccersements
now and this was designed t o relieve t h e situation n o t
only between t h e districts, b u t within districts.
[In
the Dallas District t h e y restrict endorsements o n items o f
non-member banks.
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Federal Reserve Bank of St. Louis
T h i s w o u l d c o v e r t h e whobe thing, o c t h
inside a n d outside.
T h i s i s t o protect a
Govennor Aiken:
district t h a t
has b e e n t h r o w n o p e n f r o m a d i s t r i c t t h a t i s n o t o p e n a t
all, a s I understand it.
W e a r e not interested i n any restric-
The Chairman:
tions w h i c h t h e D a l l a s B a n k o r t h e t a n s a s C i t y B a n k m a y
impose u p o n e n d o r s e m e n t
o n checks t h a t t h e y w i l l receive,
where
t o the endorsement
i t simply applies
banks within t h e district.
particle.
o f non-member
T h a t does n o t affect u s a
W h a t does affect u s i s the restriction n o w
applying i n Kansas City, a n d 1 believe t o some extent i n
St» Louis, b y which the Federal Reserve Bank will not receive f o r credit items t h a t bear tndorsements o f banks
outside t h e district.
from sendingitems
O
f course t h a t w o u l d precluce u s
t o Kansas C i t y a n d naturally s e could not
receive items f r o m Kansas City, a n d that situation would
take care o f itself.
If i t i s necessary t o have a
recommending,
vote here, instead o f
o r instead o f attempting t o declare, t h a t
restrictions a s t o endorsements b e removec, w h i c h i s a n
attempt
t o tell a
perfectly a u t o n o m o u s a n d i n d e p e n d e n t b a n k
how t h e y s h o u l d r u n t h e i r business,
i t w o u l d b e m u c h betvier
to declare t h a t t h e interchange o f checks between cistricts
will b e c o n f i n e d
t o those banks w h i c h impose n o restric-
tions u p o n endorsements.
W e could n o t have interchange c r
checks w i t h districts t h a t d i d a p p l y s u c h restrictions.
I think, w i t h all due respect t o y o u gentlemen, t a a v
you have n o t really expressed what was intended, which w a s
to remove a n obsiacle i n the w a y o f interchanging cnecKs
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Federal Reserve Bank of St. Louis
513
between districts, a n d t o bring this t o a point |! woulda
like t o offer a
resolution i n substitution f o r No. 8 ,
to this: effect:
"That any plan for the interchange o f checks between
the d i s t r i c t s s h o u l d a p p l y o n l y t o t h o s e b a n k s w h i c h d o n o t
impose r e s t r i c t i o n s
a s t o endorsements,
Governor Aiken: I
second t h e motion.
Governor Fancher:
impose r e s t r i c t i o n s
T h a t will leave e a c h bank t o
t o apply t o intra-district items,
as
it chose.
Governor Wold:
Y e s , but they could not deal with
the other Federal Reserve Banks unless they removed all
their restrictions.
The Chairman:
I
t would b e j u s t a
One-sided p r o p o -
sition a n d t h e y c o u l d n o t d o business.
Are y o u ready f o r thequestion?
(There were caller for the juestion and the motion
was duly carried.)
The Chairman:
A r e you ready t o consider vete No. 9:
"9, V o t e d - We recommend t h a t t h e matter o f transfers
of funds b e t w e e n t h e s e v e r a l F e d e r a l R e s e r v e B a n k s
be
handled o n the basis outlined b y the Governors o f the
Federal Reserve Banks a t their recent conference until
such time a s the intra-ddistrict clearing facilities a r e
developed
t o a n extent w h i c h w i l l j u s t i f y a
reconsider-
ation o f this question," " U n a n i m o u s l y carried."
Governor Fancher: I
move that w e concur i n the
recemmendation o f the Committee a s expressed i n Vote 9 ,
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Federal Reserve Bank of St. Louis
Governor McDougal: I
The Chairman:
I
second t h e motion.
s there a n y further discussion?
(There w a s n o f u r t h e r discussion;
calls were made
for the question and the motion was duly carried. )
Mr. Foote: I
would like t o b e recorded a s not
having v o t e d , because I
did n o t see this suggestion.
I did uot know anything about i t and did not vote.
Governor Seay: I
a m speaking after t h e matter has
been voted upon, b u t would i t not clarify i t t o recommend
that "The matter o f transfers o f funds for member banks,
between the several Federal Reserve Banks"3 a n d s o forth,
inserting the words "for member banks"?
The Chairman:
A r e you willing, b y mutual eonsent,
to emcept Governor Seay's amendment t o Vote No. 9
by
adding the words "for member banks" after the word "funds"
in the first line?
(There being n o objection made t h e amendment w a s
made
b y mutual consent.)
Governor Aiken:
M r . Chairman,
h a v e y o u n o t some
suggestion t o make a s t a vote No. 9 ?
fhe Chairman: I
would like t o insert another vote,
if you hold t h e same views t h a t I
do about it, a n d that
is, that pending t h e adoption o f such a plan which modifies
the present p l a n o f intra-district collections
a n d modi-
fies t h e present p l a n for transfers between t h e Federal
Reserve Banks, t h a t t h e privileges o f these transfers b e
confined t o those members o f the Federal Reserve System
who have joined t h e collection system o f the various r e -
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Federal Reserve Bank of St. Louis
515
serve districts, a n d that transfers should not b e affected
for members w h a havo n o t joined t h e collection system o r
for institutions t h a t a r e n o t members o f the Federal R e Serve System.
W o u l d n o t that b e somewhat i n
Governor V a n Zandt:
opposition t o t h e p o s i t i o n t a k e n b y a
former c o n f e r e n c e ,
where t h e transfers o f funds were arranged?
think t h e a c t i o n t h a t w e t o o k c o n +
The Chairman: I
fined t h e t r a n s f e r s
t o members
o f t h e c o l l e c t i o n system.
Mr. Warburg h a s the same recallection o n that matter,
that that was t h e intention.
Governor Wold: I
do not k n o w that I
on what y o u are trying t o get at.
a m just clear
W o u l d that preclude
us from transferring t h e proceeds o f a bill discounted f o r
a member bank that was n o t a member o f the collection system?
W e frequently have discounts offered with
request t h a t t h e p r o c e e d s
b e c r e d i t e d t o t h e i r corres-—
pondents in Milwaukee, Ghicago, or St+ Paul.
Governor McDougal:
W e frequently have excessive
balances t o the credit o f banks that a r e not members o f
the system, s o m e o f i t from discounting a n d some O f a a
from other sources, w h i c h 1 believe w e have been asked t o
transfer.
The Chairman:
W h a t charge d o you make for doing
that?
Governor McDougal:
T h a t I do not know:
have t o a s k Mr. McKay that;
b u t I know w e d o collect a
lot o f items f r o m banks t h a t a r e n o t m e m b e r s
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Federal Reserve Bank of St. Louis
Y o u will
o f t h e collec-—
tion system.
Mr. McKay:
W e d o it i n accordance with the charge
agreed u p o n b y the Governors a t a previous conference.
On t e l e g r a p h i c t r a n s f e r s t h e r e i s a
for time saved.
charge t h a t c o m e s i n
E Y 2hePe- 1 8 4 medl transfer f o r a n ex-
change point i t i s mace a t the market rate, a n d i f not a n
exchange point i t i s done a t par.
The Chairman:
MOL Members.
D
o y o u d o i t f o r state institutions
O r t n e S y o u em?
Mr. McKay:
N o , w e c o u l d n o t m a k e a n y transfers f o r
them because w e have n o accounts o n our books.
W e could
buy exchange f r o m tham, b u t that would n o t make t h e transfers
T h a t i s a cifferent proposition.
The Chairman:
S u p p o s e t h e y brought t h e g o l d t o y o u
anc a s k e d y o u t o m a k e t h e t r a n s f e r ?
Mr- McKay:
that sort,
w
v
e nave never h a d a n y transactior
o f
é h a v e p u r c h a s e d e x c h a n g e f r o m them.
Mr- Hendricks:
T h e y are buying N e w York exchange
from s t a t e i n s t i t u t i o n s a n d d i r e c t i n g t h e m t o d e p o s i t
money with u s t o their credit.
quests t o transfer cirect.
directly-
W e nave n o t h a d a n y r e -
2 : e @ have always gotten t h e m in-
W e h a d o n e b i g transfer made b y a state insti-
tution, b u t the request came t o us from a member bank, and
we.did n o t see o u r way clear t o refuse t o d o it, because
of the fact that t h e r e ucst w a s made b y the member bank,
We h a v e n o t h i n g
t o cdo w i t h t h e c u s t o m e r
bank, whether i t b e a state institution,
a corporation.
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Federal Reserve Bank of St. Louis
o f the member
a n individual o r
517
Governor Seay:
I f they brought g o l d t o you would
you give them Federal Reserve notes?
Me. Hendricks:
Y e s , w e have done that.
A s Mr.
McDougal n a s said w e frecuently have excess balances i n
banks t h a t a r e n o t m e m b e r s
o f t h e c o l l e c t i o n system. 2
think i t would b e rather difficult f o r u s t o refuse t o make
transfers
t o them.
Governor Fancher: I
a question,
would like t o ask Mr. Hendricks
a s h e i s i n a position t o observe these things:
Are the Federal Reserve Banks generally using this transfer
System, o r d o they permit their member banks t o send drafts
to New York to create balances?
Mr. Hendricks:
S o far a s w e are concerned t h e trans~—
fer operation i s increasing, b u t i t has been confined, a s ]
recall,
t o about two, o r perhaps t h r e e o f the Federal R e -
serve banks.
O
f course t h e s a m e S i t u a t i o n w o u l d a r i s e i f
we refused t o m k e a
transfer f o r them, a n d that i s they
would send their checks a n d the transfer would have t o b e
made just t h e same.
Governor Fancher:
this.
T h e point I wish t o bring o u t i s
T a k e f o r instance t h e St. Louis cistrict.
b o
St. Louis bank. present their drafts t o the Federal Reserve
Bank o f St. Louis t o create N e w York funds, instead o f ask-
ing the Federal leserve Bank t o make the transfer?
Hencricks: I
do n o t think that t h e Tist o f
items received o n other Federal Reserve vanks
ing. I
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Federal Reserve Bank of St. Louis
t h i n k i t i s decreasing,
Governor Fancher:
i s increas?
i f anything.
T h e thought I had i n mind was this:
518
According t o the transfer system which w e put into operation i t was supposed t h a t banks were going t o permit member banks t o send their checks t o reserve points t o create
balances, a n d t o d o i t through t h e Federal Reserve Banks.
In District 4
we have adhered strictly t o that.
put o u b t r a n s f e r s y s t e m i n t o o p e r a t i o n
use i t . I
W e have
b y h a v i n g the: b a n k s
wonder i f w e a r e n o t t h e o n l y i s t r i c t t h a t
is adhering t o that strictly?
Governor McDougal: I
coubt i f these remarks bear
directly o n the question that w e have before us, which i s
the report o f this committee's recommendations.
The Chairman:
T h i s i s a l l m y fault, G o v e r n o r HMc-
Dougal, a n d 1 apologize humbly. I
from Mr. “arburg,
would like t o hear
i f h e will s a y a few words i n regard t o
the transfers,
Mr. Warburg: I
d o not know what Governor Strong
wants m e t o say, b u t I
a m very seriously interested i n
what Governor Fancher brought u p just now. I
think the
transfer facilities w e c a n give will ultimately b e the
basis o f o u r c o l l e c t i o n s y s t e m ,
a n d t h a t o u r s t r o n g point,
that is, what w e c a n contribute, w i l l b e through t h e transfer system. I
hope w e c a n o n e d a y w o r k o u t a
system w h e r e
we c a n transfer without a n y charze among ourselves, I
think some mischief h a s been brought about b y this floating o f checks,
b y the use o f the draft o r local check i n
other districts. I
think that what Governor Fancher has
said i s true, t h a t t h e Cleveland District i s t h e only one
that h a s really taken a n active interest i n this thing a n d
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Federal Reserve Bank of St. Louis
SL
has tried t o develop i t b y discouraging t h e u s e o f local
checks
i n their districts,
a n d b y t r y i n g t o m a k e transfers.
Unless a l l o f t h e m come i n some w a y Ougnt t o b e found whereby the advantagea that w e will b e able t o give i n the e n d
will a c c r u e
t o those m e m b e r banks o n l y w h o j o i n t h e c o l -
lection system.
I
f w e c a n carry out @
plan i n which w e
get t h e m a l l t o enter, t h a t p r o p o s i t i o n w o u l d f a l l t o t h e
ground.
I
t might b e well n o t t o say that w e refused t o
give i t t o the others, b u t that w e will make a charge t o
the others which i s higher t h a n that made t o the member
bank,
o r that w e will make a
charge t o t h e m a n d w i l l s e r v e
the member banks free o f charge. I
think that t h e member
banks ought t o have the advantage i f w e c a n Bive i t t o
them,
GOvernor V a n Zandt:
I
n t h e L i t h c i s t rict sour -dis=
counting would b e materially decreased i f our member banks
that w e r e n o t m e m b e r s
permitted
o f t h e collection System were n o t
t o h a v e u s t r a n s f e r t h e proceeds
o f these r e -
discounts f o r them,
is WEaPbDUPes Y o u . coule easily make a rule that y o u
will transfer f o r your members a n d make a
charge against
non-members.
Tne Chairman:
T h i s ciscussion really applies t o
Vote R o ; 2 0 :
"10. V o t e d ~
transfers
It i s the sense o f this
o f funds b e t w e e n a n y t w o b a n k s
a o e
that
i n a n y Federal
Reserve District should b e made b y means o f direct order
rather than b y checks and crafts." “ U n a n i m o u s l y carried."
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Federal Reserve Bank of St. Louis
Tne q u e s t i o n i s w h e t h e r t h e t e r m s
o f Vote 1 0 s h o u l d
520
oe i n any way modified,
remarks,
a s I have suggested i n previous
o r a s Mr. ‘arburg has just indicated,
s o as t o
confine t h e benefits,to a s large a n extent a s possible,
to
these banks which have joined t h e collection system.
In o r d e r t o b r i n g t h e m a t t e r
make a
to a
head w i l l s o m e o n e
motion a s t o t h e a d o p t i o n o f v o t e N o - 1 0 ?
h e n
if i t i s t o b e modified i t c a n b e amended,
Governor Fancher: I
will make s u c h a motion, Mr.
Chairman.
Governor Aiken: I
The Chairman:
I
second t h e moitfon.
s t h e r e a n y s u g g e s t i o n a s t o a n amend-—
ment t o vote No. 10, which Governorfancher h a s moved t o
acopt.
I f there i s n o suggestion made 1
make o n e myself,
and 1
d o not care t o
will a s k y o u i f y o u a r e r e a d y f o r
the question o n Governor Fancher's motion f o r the acovtLon o f Vote Wo. 3205
(There were calls for the question and the motion
Was c a r r i e d . )
The Chairman: I
would l i k e t o m a k e j u s t a
about o n e d e v e l o p m e n t t h a t a p p l i e s
section,
w
f e w remarks
t o this a n d t h e previous
e have rocently a g r e e d w i t h Bichmond
t o receive
on deposit f o r credit under certain terms, satisfactory t o
them and t o us, items drawn o n member banks i n the C i t y o f
Richmond.
that a
w e have found a s a result o f that arrangement
bank i n Baltimore, f o r instance,
o r i n cities i n
the d i s t r i c t v e r y n e a r R i c h m o n d w i l l s e n d i t e m s
mond b a n k s
t o N e w Y o r k f o r credit, t h r o u g h t h i s plan,
through their correspondents,
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Federal Reserve Bank of St. Louis
o n the R i c h
i n order t o make N e w York
52L
exchange, a n d that the practice i s srowing.
v e have n o t
done anything about it, b u t w e are thinking @ f suggesting
to Governor Seay that i f this i s permitted t o develop
so that a n y bank i n the Richmond district, a n y member
bank i n that district, w h i c h has a n account w i t h a bank
in the C i t y o f Richmond, c a n send checks drawnon that bank
by individual c u s t o m e r s
o f the bank,
i f y o u please,
to
New York i n order t o make New York exchange, 4 +
may bother h i m a good deal later o n i f that volume grows
to such a n extent that i t i s going t o b e t h e basis o f a
settlement.
Governor Seay:
banks,
I t is a most difficult thing t o help
o r for that matter people, without b e i n g taken advant-
age of.
T n e s e v e r y banks h a v e b e e n crying t o the effect
that after accumlating reserve bahances with them that
they have been unable t o get them away t o their satisfaction.
I t was f o r the purpose o f enabling t h e m t o d o s o
that w e undertook a trial o f it.
I d o not think that t h e
abuse h a s become flagrant a s yet.
The Chairman:
B u t i t i s growing.
Mire Hendricks: I
not a
think t h e volume i s growing, b u t
great dcal.
Governor Seay: I
think i f y o u will a d d u p t h e amount
that h a s b e e n charged i n that w a y that y o u will find i t i s
insignificant.
W
e received a
communication f r o m the
Bank of New York t o that effect, a n d immediately o n that
day w e e x a m i n e d t h e i t e m s a n d f o u n d t h e r e w a s p r a c t i c a l l y
nothing i n the mail;
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Federal Reserve Bank of St. Louis
b u t w e would like y o u t o feel that w e
522
have a
watchful e y e o n that a n d i f i t grows i n t o a n abuse
some m e t h o d w i l l h a v e t o b e t a k e n t o s t o p i t ,
The Chairman:
i I wanted t o brins this point u p for
this r e a s o n , p a r t i c u l a r l y :
i
n our treatment
o f this c o l —
lection matter i n New York frequent changes h a v e b c e n made
and further changes contemplated o f methods which nocessitate rather @ifficilt negotiations w i t h the clearing house,
We are a limited momber o f the clearing house, and, f o r
perfectly obvious reasons,
i t vould b e almost impossible
for u s t o conduct o u r b u s i n e s s w i t h o u t g r e a t i n c o n v e n i e n c e
to the member banks unless w e sent t h e checks d r a w n o n
member banks through the clearing house.
F o r that reason
wnenever a n y arrangement, s u c h a s ..e have affected w i t h
Richmond,
i s made, w e are very anxious t h a t i t shall b e
upon s u c h t e r m s t h a t t h e r e i s n o d o u b t o f i t s p e r m a n e n c y
and soundness o r otherwise, within a
very short time, w e
have g o t t o g o back t o the clearing house a n d g e t t h e m t o
modify a l l their rules again, which involves reprinting
Oovast m a s s o f l i t e r a t u r e w h i c h t h e c l e a r i n g h o u s e s e n d s
to all o f its members, a n d which t h e members o f the clearing house h a v e t o send t o all o f their correspondents. I
do not vant t o see the N e w York bank placed a t a disadvantage that. would result f r o m being either required t o withdraw from the clearing house, o r b y incurring t h e displeas—
ure o f t h e m e m b e r s
o f t h e clearing house s o that w e cannot
have t h e i r cooperation.
Governor Seay: I
would l i k e t o s a y t h a t t h a t a r r a n g e -
ment was made o n i y after a n umerstanding arrived a t b y
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Federal Reserve Bank of St. Louis
523
correspondence, f r o m which w e inferred t h a t t h e matter
was entirely agreeable t o you a n d that y o u approved it.
The Chairman:
Y
Governor Seay: I
e d i d approve it.
would like t o s a y further i t was
only after some thought a n d after conferences, prolonged
confcrences, w i t h o u r Richmond member banks.
Unless we
had thought there w a s a n clement o f permanency i n i t w e
should n o t have b e e n willing t o agree t e it.
I t was
not action taken o n the spur o f the moment, b u t after
quite a
good deal o f d e l i b e r a t i m b o t h a s t o results a n d
as t o w h a t i t w a s n e c e s s a r y t o d o i n o r d e r t o a c c o m p l i s h
it.
Tne Chairman:
10. t2y 2 b out, I
M r . Hendricks w a s personally anxious
cannot s a y that I was very heartily i n
favor o f it, b u t w e must t r y these things out, a n d i f
they d o not work we will just have t o admit it, and withdraw.
T h i s i s the only case where w e have opened t h e door
in t h a t way.
W y e t h your cooperation w e c a n keep i t within
reasonable bounds, a n d b y making N e w Yorke xchange through
the method that I have described,
w e possibly will g e t
valuable e x p e r i e n c e o u t o f it.
(Informal discussion followed.)
The Chairman:
A r e you ready t o consicer vote 11?
“ik V O T E D -
That the direct interchange o f items
between members b y settlements through t h e Federal Reserve
Banks b e encouraged." “ U n a n i m o u s l y carried."
Governor V a n Zandt: I
red i n .
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Federal Reserve Bank of St. Louis
move that vote l l b e concur-
5e4
Governor F a n c h e r : I
Mr. McKay:
m
1
second
t h e motion.
T h a t m a y require a
little e x p l a n a t i o n .
4
1
s :
*
:
a
e
take t h e Chicago
district
a s a n illustration——
The Chairman:
port.
D
o y o u n o t give a n illustration?
Mr. McKay:
question.
items
n a t i s all explained later i n the r e -
Y e s , b u t Governor Rhoads asked m e this
U n e Preserve
c i tres
i m o u r district.
o n o t h e r r e s e r v e c i t i e s nearby.
for t h e K e s e r v e c i t i e s n e a r e a c h o t h e r
s e n d -out
T h e idea here i s
i n o u r o O W n district
to exchange i t e m s w i t h e a c h o t h e r r a t h e r t h a n s e n d checks.
The Chairman:
I
s there a n y further discussion w i t h
refarac v o youre 11?
(There w a s n o f u r t h e r c i s c u s s i o n a n d t h e m o t i o n w a s
carried. )
The Chairman: B e f o r e taking u p Vote 12, which emboGdies a
recommendation
o f the committee b a s e d u p o n t h e
various votes t h a t w e have j u s t discussed,
that M r . F o o t e i s e n t i t l e d
i t seems t o m e
t o offer t h e motion w h i c h h e made
once b e f o r e a n d w h i c h w a s h e l d t o b e o u t o f place
i n our
program.
Mr» Foote:
M a y I
The Chairman: 1
make t h a t m o t i o n n o w ?
think this i s t h e place t o make it,
Mr. Foote.
Mr. Foote: 1
offer t h i s resolution:
Resolved t h a t i t i s t h e s e n s e o f this m e e t i n g t h a t t h e
Federal Reserve Banks should n o t undertake t h e collection o f
cnecks arawn o n member banks b y the customers o f member
banks, except chacks a n d drafts member banks m a y draw o n
each other, a n d that Section 1 6 should b e reframed accord-
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Federal Reserve Bank of St. Louis
ingly.
I d o n o t want t o put t h e country b a n k under t h e burden o f o b j e c t i n g
t o everything a n d a s n o t being willing t o
make h i s contribution toward what t h e best interests o f
the section demand.
H e i s not sitting d o w n kicking o n
everything a n d offering nothing.
H e i s contending f o r
his life t o start with, for his very existence. w i l l i n g
to make every sacrifice t h a t h e c a n afford t o make, h e wants
to d o that which i s his duty. I
want t o call your atten-—
tion t o one particular moral advantage t h a t 1 think the
country bank has i n this discussion.
T h e country bank,
from the very beginning o f this discussion, h a s not asked
for a n y t h i n g new.
H
e has not asked f o r ane dollar o f
additional benefits f r o m this reserve act.
F r o m the
very b e g i n n i n g h e h a s s i m p l y b e e n c o n t e n d i n g a g a i n s t a
plan
that w i l l i m p o s e t h e m o s t s e v e r e i n f l i c t i o n s u p o n him.
In t h a t r e s p e c t t h e t r e a t m e n t
o f t h e t w o classes
o f banks
and the wholesalers a n d manufacturegs differs v e r y mech
from the treatment t h e member banks will suffer under t h e
provisions o f this act, i f they are imposed along t h e
Zines enforced. here.
T h e reserve cities n a v e h a d very
large reductions o f their reserves, v e r y much larger
than t h e c o u n t r y b a n k h a s enjoyed.
T h e country b a n k d i d
not a s k f o r w h a t h e g o t i n t h a t respect;
him without a n y s o l i c i t a t i o n
o n h i s part.
i t just c a m e t o
T h e reserve
cities g e t immense benefits f r o m the amount o f reduction
of reserves
a s compared
gerived f r o m t h e p o w e r s
t o t h e c o u n t r y banks;
t h e berdits
o f trust a r e immense a s compared
to a n y benefit t h e w u n t r y b a n k c a n hope t o obtain i n that
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Federal Reserve Bank of St. Louis
526
regard.
B u t the~cruntry b a n k does not value those privil-
eges a t all scarcely.
T h e r e i s hardly a n y field o f operaI n looking into this question
tien i n that regard f o r it.
the country banker asks: "Why all this?
mental principle i s being served?
h a t sort o f funda
W h a t i s there connect-
ed with this clearing system that h a s t o d o with currency
H
reform o r elastic currency.
e sees i n the infusion o f
this question into t h e Act o r under t h e system nothing but
an attempt o f the large i
a
nou
- o tl
burden
n t e r e s t -sdthe
Onto- b i n , ———
M a y I
The Chairman:
interrupt y o u r i g h t there.
Y o u
are pointing o u t the distinguishing feature o f the ! ederal
Reserve Act. I
cannot believe that Congress conscien-
tiously ever intended t o confer a l l the benefits t h a t a r e
conferred u p o n t h e m o n o p o l i s t i c b a n k s
i n the m a n y centers,
such a s they have b y this Federal Reserve Act, and t o a n
effect destroy t h e eernings o f the country banks a s they
d o net think they conscientiously i n -
apparently have. I
tended t o d o t h a t o v e r i n Washington.
T h e i r habit i n
legislative matters i s i n the other direction, a n a b y some
mistake o r for some
e e
o r Other this inadvertently
slipyed t h r o u g h i n t h e act.
W
e h a v e a l l admitted,
and
we have debated i t heme a t great length, t h a t i t was a
to t h e c i t y banks.
fer. it,
T h e y d i d n o t g o down there a n d ask
T h i s legislation was passed,
in r e s p o n s e
to a
gift
a s I understandit,
demand m a d e b y merchants a l l o v e r t h e
United States t o get r i d o f the nuisance o f paying collec-—
tion charges o n their checks.
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Federal Reserve Bank of St. Louis
M u c h t o everybody's s u r -
527
prise, I guess a s much t o Mr. Harding's surprise a s anybody else’s, i t results t o a considerable injury t o the
country banks.
I n the course o f a discussion o f seven o r
eignt years, w h e n t h e c u r r e n c y legiftlation w a s u n d e r d i s c u s -
Bion, a n d “py. Lerburg t o o k pride i n all o f that, a
deal more actively than I did, I
sreat
never heard o n e o f the
big banks o f New York City suggsed that a plan should b e
Slipped. i n t o t h i s b i l l - o r t h e A l d r i c h B l l l t h a t w o u l d e n =
able t h e m t o collect a l l t h e i r c o u n t r y c h e c k s f o r nothing.
I do not think they advocated a n y such scheme o r considered
it a s a
part o f t h e plan.
T h r o u y ; n some inadvertance
or
some freak o f legislation, o r some misunderstanding this
thing h a s happened,
a n d w e h a v e g o t t o d e a l w i t h it.
I d o n o t like t o feel t h a t t h e a c t i s being construed
in o u r r e c o r d a s h a v i n g b e e n d e s i g n e d
t o give these c i t y
banks all the acvantage, o r that they"pulled something off",
because I do not think they Cid.
W w e are all very much
interested i n your motion, but I would like t o have a little e x p l a n a t i o n
question I
o f one feature
o f it. I
have s e e n t h e
a m going t o a s k you reflected i n the faces
around t h e table here.
I
f you a r e going t o ceprive t h e
country b a n k o f this machinery t o collect i t s checks, h o w
is the country b a n k going t o collect t h e m without carrying
big balances w i t h its collecting banks a l l over t h e United
States?
Y o u say that the Federal Reserve banks should
not receive o n deposit checks drawn u n member banks b y
their customers.
H o w i s y o u r b a n k i n Mississippi g o i n g
to c o l l e c t i t s c h e c k s w h e n y o u r r e s e r v e s a r e a l l t r a n s f e r r e d
tothe Federal teserve Panks?
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Federal Reserve Bank of St. Louis
528
Mr. Foote: I
want t o come t o that.: I
very b r i e f a b o u t i t , too. I
want t o b e
a:-preciate t h a t y o u g e n t l e m a n
have gone all over this question and I will not atiempt t e
elaborate o n any o f the details. I
know you understand
the principles, and, s o far a s the N e w York banks a r e concerned, I
want t o agree w i t h y o u that t h e y have n o t been
guilty o f a n y e f f o r t a t a l l t o p u t a n y t h i n g over. I
that c a n b e s a i d a l s e o f m a n y o f t h e c i t y banks.
Y
think
o
u
city banks a r e n o t a s a whole against t h e country bank i n
this proposition a t all. ©
fuiiy appreciate than.
country bank i s a friend t o the c i t y bank.
a lot o f t h e c i t y b a n k a n d h e w a n t s
e thinks
t o continue h i s relations
with the c i t y bank a s long a s h o can.
about it:
H
T h e
H e feels this w a y
T h e country bank ought t o d o i t s duty, b u t y o u
cannot p u t m o r e b u r d e n o n h i m t h a n h e c a n bear.
T h e r e
are c e r t a i n e c e n o m i c a l n e c e s s i t i e s t h a t p e r t a i n t o t h e
realm o f country banking that mist b e respected, a n d not
only for t h e protection o f the country bank, b u t t o preserve i t s u s e f u l n e s s .
he Chairman:
H o w i s the country bank going t o col-
lect its checks i f this amendment t o the Federal Reserve
Act which y o u suggest should b e adopted?
Mr. Foote:
best h e could. I
H e would have t o collect h i s checks a s
think h e would continue t o get liberal
favors f r o m his reserve agents b y virtue o f carrying t h e
reserve balance w i t h them.
H e will h a v e t o continue t o
handle h i s b u s i n e s s v e r y m u c h i n t h e f u t u r e a s h e h a s i n
the past.
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Federal Reserve Bank of St. Louis
529
Of course that. brings u s u p t o the question o f float,
which 1
will h a v e t o d w e l l
o n here j u s t f o r a
moment.
T h e
disposition seems t o b e t o unload t h e float o n the country bank.
I t has been stated that t h e country b a n k i s
responsible f o r i t a n d t h a t i t o r i g i n a t e s w i t h t h e c o u n t r y
bank. I
d o not agree with that statement a t all.
Tne Chairman:
Mr. Foote: I
“ h o would c a r r y it?
think i t i s just a n arbitrary adjustment
of tne onus o n the m u n t r y bank.
T h e country bank i s sim-
ply one o f the rokak points i n the float, a n d i t could b e
just a s consistently charged that t h e c i t y bank i s responsidle,
The Chairman:
banker
b e satisfied
M r + Foote, would not the country
i f h e w e r e nowt r e q u i r e d
t o remit a t
par f o r checks presented against t h e country bank, o r that
he e s c a p e t h e p a r p a y m e n t
collection a c c o u n t s
o f those checks
o r accounts,
b y maintaining
i f y o u please, w i t h banks
that would exchange items w i t h t h e country banks, i n addition t o the reserve accounts t h a t would have t o b e carried
with t h e F e d e r a l R e s e r v e b a n k s ?
I
n o t h e r words, w o u l d
the country b a n k b e willing t o take out o f its usable
assets a
sufficient amount o f funds t o place these reserves
with the Federal Rescrve bank aml then continue its operations just a s i t has i n the past?
Mr, Foote:
Y e s sir.
The Chairman:
T h e y would b e satisfied
reserves?
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Federal Reserve Bank of St. Louis
Mre Foote:
Q u i t e satisfied.
t o carry t w o
530
Mr. Harding: I
agree with you, Mr. Foote. I
think they would.
Mr- Foote:
@ h e n it @
mes t o t h e q u e s t i o n o f f l o a t
I do not believe y o u are ever going t o b e successful u n less y o u find some w a y o f carrying i t back t o its origin.
The float proposition i s the biggest problem i n the
whole thing. I
appreciate t h a t t h e q u e s t i o n o f f l o a t n e e d s
treatment a n d adjustment. I
Will a l l agree t o that;
believe t h e country banks
b u t i f you attach t h e proposi-
tion t o t h e m w i t h o u t p l a c i n g a
cannot meet t h e situation,
cure i n t h e i r hands, t h e y
T h e y will become victimized
by it.
It seems
ELS
t o m e that t h e o n l y practical w a y o f handling
CWOStln
O Of f l o a t s
t O
SO“ ehter: 1 b .
oe
I
t has been
suggested that there might b e a tax o f two cents o n all
checks o f every kind, state a n d national b a n k checks,
except s u c h checks a s will f l o w through t h e reserve system.
If t h e r e c o u l d b e s o m e l a w w h e r e b y a l l i t e m s d e p o s i t e d
in
all t h e banks must b e held a s deferred credits until
they h a v e b e e n r e a l i z e d u p o n , t h e n y o u p l a c e t h e f l o a t
right w h e r e i t belongs.
M r . A , Who sold some cotton
at a distant point, comes i n with his draft:
l e you
make i t impossible f o r a l l banks, state a n d national,
credit M r .
A . with that draft until
to
i t has been realized
‘upon, the burden of the float will be in the proper place
at t h e p o i n t o f origin.
ne Chairman:
M r . Foote, I want t o interrupt you
again a t that point t o call your attention t o thefact that
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Federal Reserve Bank of St. Louis
§31
this provision was put into the Federal Rescrve Act i n response, a s 1 unéerstand it, t o a demand b y the merchants
ao t h e country that they b e relieved o f this expense a n d
annoyance o f paying. charges o f five, t e n a n d twenty cents
on checks t h a t c a m e t o them.
B
y y o u r plan, t h e y w o u l d
probably b e required t o pay a charge i n some form, either
by deforred credit o r othorwise, o f 90 or 100 per cent of
all the checks that would m m e through their hands.
Mr. Foote:
W h a t e v e r burden that float carries, that
burden certainly belongs t o the person with whom i t originated, and i t cortainly originates with the business m a n
and not with the country bank.
I f you unloaded o n the
country b a n k t h e c o u n t r y b a n k w i l l b e h o l d i n g t h e b a g
without a n y sort o f protection.
The Chairman:
B u t h e i s the first offender, Mr.
Foote, because t h e merfhant w h o goes i n t o a country bank
and deposits a
check p a y a b l e
in a
distant p l a c e i s g i v e n
immediate credit.by t h e country bank.
Mr. Foote:
U n d e r t h e present system?
The Chairman:
U n d o r the present system.
commences the process o f creating float.
R i g h t there
H e has been able
to s h i f t t h e b u r d e n b y virtue o f t h e m e t h o d p e r m i t t e d
by
the Comptroller and b y virtue o f the profit that the State
bank realizes o n the balances t h a t t h e country banks carry.
He i s p e r m i t t e d
t o take that v e r y check that h e has a c -
cepted a s c a s h a n d c o u n t i t a s a
Mr. Harding:
c a s h reserve.
T a k o a typical country bank o f 425,000
to $5_0,000 capital, a n d 1 woulda like t o know whether that
country bank has t o p a y more checks drawn o n him that come
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Federal Reserve Bank of St. Louis
532
to him through state banks t h a n h e gets i n turn from his
customers c r a w n o n other banks that h e has t o send off?
Doesn't t h e average country bank, a s a matter o f fact, g e t
very f e w checks o n other banks?
that h a v e a
T h e y have local dealers
f e w checks, p o s s i b l y ,
or a
few come f r o m a n
adjoining town, b u t t h e rest o f i t i s cash transactions.
The local dealer i n paying his bills sends o f f his checks
and the result o f that i s that the average country b a n k has
more checks t o pay coming i n o n him than h e has outgoing
checks t o s e n d t o h i s correspondents.
Mr. Foote:
B e tar.
Tne Chairman: G e n t l e m e n ,
w e d o want t o make progress
in this matter a n d w e want t o get t h e benefit o f the contributions t o this discussion; b u t w o want t o talk directly
to t h e q u e s t i o n
that,
i n point, w h i c h i s this:
T h a t y o u believe
i n c o n s i d e r i n g t h e r e p o r t o f t h i s committee,
it
would b e w i s e r f o r u s t o a b a n d o n t h e s p e c i f i c r e c o m m e n d a tions,
a n d i n substitution f o r that adopt a
nondibton
which would r e o mmend a n amendment t o the Act.
Mre F o o t e :
Y e s .
The Chairman:
Y o u have offered a
resolution bearing
in that direction and 1 would like t o have y o u tell us
what y o u believe t h e effect o f that resolution would b e i f
it should b e carried out.
W
e would t h e n get a vote o n
it, i f y o u are able t o @ n v i n c e these gentlemen t h a t that
is the thing t o do, and I will see that the question i s put
properly a n d that y o u b e given a chance t o secure their
support.
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Federal Reserve Bank of St. Louis
533
It would give t h e country banker t h e protection h e
wants
i n r e g a r d t o t h e p r o p o s e d p l a n o f c o m p u l s o r y parring.
He could continue t o receive h i s customer's checks i n the
future through t h e same channels through which they come
at present.
The Chairman:
T h e volume o f drafts would be, o f
coursé, immensely reduced w h e n the reserve transfers a r e
completed a n d t h e n u m b e r o f accounts c a r r i e d
b y one bank
with another reduced ultimately t o a n absolutely minimum.
Mr. Foote:
T h a t depends a
checks c o m e in.
we are facing.
good deal o n how many
I t i s a great prohlem, gentlemen, t h a t
T h e r e a r e about four state banks i n the
country t o one national bank.
I n Arkansas there a r e
fourteen state banks t o one national bank, a n d i n our
district there a r e twelve t o fourteen p e r cent national
banks. N a t i o n a l banks a r e usually attracting business
from a large area.
I t i s not ® Lecal problem with them,
The national bank, located a t t h e county seat, would
gather i t s business f r e m threc o r four counties, maybe
five counties, a n d i t i s probable t h a t o n e o f these national
banks gets half o f its deposits f e m a large area occupied
by several banks.
I hope y o u will pardon a personal reference. A
cer-
tain bank i s located i n a little t o w n w h e r e there i s a
State bank.
G h a t b a n k prefers t o d o busiress w i t h the
National Bank, a n d for personal reasons they prefer t o
de business with us, and we handle all o f tnose accounts.
If w e cannot g i v e that b a n k the same banking Bacilities
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Federal Reserve Bank of St. Louis
534
that t h e little state b a n k c a n give it, 1.e cannot continue t o handle i t s business-—-—The Chairman:
T n a t is a
problem w h i c h arises f r o m
time t o time, a n d w e are going t o tackle i t a n d t o make
progress; but, Mr. Foote, I
want t o get t o the point where
we c a n v o t e o n y o u r motion,
W
e are a t a
quarter p a s t e l e v e n
now and i f your vote goes through that disposes o f some
hours o f discussion, b u t i f i t does not, w e have g o t a
lot o f work ahead o f us still.
Mr- Foote: I
d o not believe that this compulsory
clearing would b e o f any sort o f practical service a s re-—
gards t h e c o u n t r y bank. i
put that o u t b f business.
think i t would practically
w e are attempting here t o en-
force compulsory clearing without a n y real investigation
of the real facts concerning t h o country baks,
B e f o r e
we g o s o f a r a s t o e n f o r c e t h i s s y s t e m o f clearing,
we
ought t o a t least halt until w e c a n measure t h e effect o f
it,
T h e last Comptroller's report showed that t h e banks
in our district collected {2,000,000 o f exchange, a n d
fortunately t h a t report d i d n o t s h o w how m u c h exchange
was earned o n incoming checks o r how much was earned o n
items originating a t the b a n k counter.
to h a v e t h o s e t w o i t e m s d i v i d e d
I t i s essential
t o m e a s u r e t h i s question.
When y o u c a n get that information, t h e n y o u a d d the float.
Then y o u add the expense under t h e reserve system which i s
to b e charged t o member banks, a n d i t i s very e a s y t o determine t h e extent o f the burden.
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Federal Reserve Bank of St. Louis
I d o not think that w e 9ught f o r o n e moment t o cast
535
ourselves u p o n t h i s g r e a t q u e s t i o n w i t h o u t g e t t i n g a t l e a s t
that information,
The m a n i n our bank who made u p these figures f o r m e
said t h a t t w e n t y b a n k s d i d n o t r e p o r t a n y e x c h a n g e i t e m s
because t h e y h a d n o t k e p t a
separate e x c h a n g e account.
H e
said h e h a d reason t o believe, though, f r o m the character
of t h e b a n k s ,
t h e i r s i z e , etce., t h a t a
report
from them
on the exchange would have largeky increased t h e amount.
I simply thought 5 0 per cent o f the $2,000,000 required was
earned o n incoming checks.
H e said h e thought a very
much l a r g e r p e r c e n t a g e w a s e a r n e d t h a n f i f t y p e r cent.
If I had the time t o go inte the question o f expenses
of national banks I
could s h o w y o u h o w much deposit capital
the loss of a mere $500,000 would obliterate. I
ould
make some v e r y convincing s t a t e m e n t s ~
The Chairman:
this?
W h a t a r e y o u going t o d o about a l l
W h a t d o you want u s t o do?
Mr. Foote: I
want t o c a l l y o u r a t t e n t i o n
t o one
thing,that t h e average country b a n k haS a n expense account
of five p e r cent o n its loans. I
d o not think i t has ever
been given a n y study, t h e immense expense under which
country b a n k e r s operate.
The Chairman: I
want y o u t e accept o n e thing a s
meeting w i t h general agreement i n this c o n f e r e n c e ,
and that i s that w e recognize better t h a n a n y other group
of bankers i n the United States, better t h a n the country
bankers themselves, t h e degrec t o which consideration m u s t
be shown t o the @ountry bankers.
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Federal Reserve Bank of St. Louis
T h e y would have a
mere
536
Sympathetic nearing hore than they would i n
Congress
o r i n a n y cle-ring house
i n the U n i t e d States,
I believe,
I a m going t o a s k y o u i f y o u will g e t right a t the
discussion o f your resolution, w h i c h w e ought t o act upon
very quickly,
o r w e will b e here a l l day, I
Mr. Footc: I
a m afraid.
do not think there i s very much more
to b e said i n view o f the full information y o u gentlemen
already possess. I
think y o u a r e f u l l y qualified
te
vote o n the motion without further argument.
But I do want t o say that m y impressions o f this
body a r e s u c h t h a t I
have e v e r y c o n f i d e n c e
i n whatever
conclusion t h e y reach, a n d that t h e decision y o u arrive
at will b e i n the utmost g o o d faith a n d justice t o all.
I believe these m e n are laboring a s earnestly a n d sincerely a n d a s d e v o t e d l y
i n t h e c a u s c a n d a r e a s anxious
t o do
what i s right a n d best f o r all a s a n y body o f men I have
over Seen, I
a m very glad I have h a d t h e privilege o f
appearing amongst you, a n d I appreciate t h e spirit o f
fairness a n d sympathy a n d kindness t h a t i s here, a n d which
has becn maintained throughout this meeting. I
a m confi-
dent that whatever action y o u take here i s not going t o b e
taken along a n y line b u t t h e broadest a n d the mos t
reason-
able a s y o u s e e it.
I think i n view o f your understanding o f this ques~
tion i t i s u n n e c c s s a r y f o r m e t o s a y a n y t h i n g more.
The Chairman:
I
n r e p l y t o wnat y o u said, a n d i n par-
ticular w i t h reference t o the resolution that y o u have offer-
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Federal Reserve Bank of St. Louis
537
red, personally I ..ould not vote for it, Because I believe
the e f f e c t o f i t w o u l d b e t o p u t a
heavier b u r d e n u p o n
the c o u n t r y b a n k t h a n w o u l d r e s u l t f r o m w h a t e v e r p l a n i s
adopted a t this meeting.
My reasons a r e theze:;
T h e country bank, under t h e
amendment t o the Act that y o u suggested, w o u l d b e required
to lock u p a dead reserve w i t h the Federal Resorve b a n k
and keep a balance w i t h the agont o f the bank that h a s
got t o d o this m®llecting f o r him, a n d ultimately, 1
be-
lieve, will b e forced t o assume s o m e i f not all o f the float
of t h a t v e r y c o l l e c t i n g a g e n t w i t h w h o m h e o p e n s t h i s a c -
count.
I n other words, I
to t h e c o u n t r y b a n k e r
believe t h e expense ultimately
b y kecping o u t o f whatever reasonable
plan i s attempted t o b e adopted f o r handling checks along
the line that w e suggest i s going t o b e greater t h a n what
we propose-~-—
Mr. Foote:
T h a t w i l l b r i n g a b o u t a n automatic s e t t l e
ment o f the question.
Y o u will t h e n arrive a t the point
where t h e country bank would submit t o i t a s the best
means o u t o f his trouble.
H e i s prepared t o s e e i t that
way a t the present, a n i t h a t i s w h y I have contended a l l
along t h a t i f w e l e t t h i s t h i n g r u n t h i s s y s t e m o f v o l u n -
tary clearing
t
o continue until a l l t h e reserves h a v e
been paid in, t h e question will b e very much more Ssimplified a n d very much easier t o settlc a n d w e will g e t along
very nicely- I
would l i k e t o s e e t h e w h o l e t h i n g a b a n d o n e d
and let voluntary clearing continue.
B u t i f y o u a r e going
to act o n the question before u s 1 think i t i s very mich
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Federal Reserve Bank of St. Louis
538
better f o r the ©
untry bank i f w e have these resolutians
than t o have these recommendations t h a t came f r o m t h e
Pransit experts.
Governor Aiken: I
would like t o encourage Mr, Foote
by s a y i n g t h a t w e m e e t v e r y s i m i l a r o p p o s i t i o n t h r o u g h t h e
New England banks i n the process o f installing o u r country
Clearings.
W
e now,
f o r agood m a n y years, h a v e b e e n deal-
ing with practically a l l the banks i n New England,
in
Bosten, o n a par daily remittance, a n d s o far as I know
no b a n k h a s b e e n p u t o u t o f couwmission,
z z very b a n k h a s
been a b l e t o s o a d j u s t i t s a f f a i r s t h a t i t h a s t a k e n c a r e
of itself, a n d 1 think that almost without a n exception
VOU W a d i
and, that o u r c o u n t r y b a n k e r s
i n N e w England
will tell y o u that t h e y believe o u r daily remittance i s
the m o s t s a t i s f a c t o r y a n d e c o n o m i c a l s y s t e m o f h a n d l i n g
checks t h a t t h e r e i s i n t h e U n i t e d S t a t e s today.
of the best things i s that there i s hardly a
O n e
month goes b y
that w o d o n o t h a v e b a n k e r s f r o m a l m o s t e v e r y s e c t i o n o f
New England investigate t h e system that c a n b e applied i n
their district.
The Chairman:
I t has j u s t been adopted i n New York,
Nena our Clearing house centers a r e about investigating i t
~~
fork adoption.
aNow, the march o f events i s going t o be a contrcl-—-
ling factor, Mr. Foote, and I think we ought t o consider
the question that i s before t h e meeting s o that w e c a n get
to ¢ n e o r algother s o l u t i o n
motion if it ks seconded;
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Federal Reserve Bank of St. Louis
b y a c t i n g u p o n Mr. F o o t e ' s
539
Mr. Foote: I
want t o s a y there that 1 fully agree
with Governor Aiken, a n d 1 believe there will come a time
when the natural course o f evolution will have worked t h e
problem out. G o v e r n o r Aiken o f course knows more t h a n
I do about it, but I understand that only about half the
customers! checks a r e handled b y the country clearing
houses i n Boston.
Governor Aiken:
B u t t h e y remit a t par, j u s t the
me.
Mr. Foote:
T h e y will remit a t par everywhere i n
the c o u r s e o f time.
T h e r e i s justi. o n e s e n t e n c e t h a t
want t o read as regards the capital possessions o f the
country that make f a r a measure o f economy that o n e sec-—
tion c a n enjoy towards another:
"The average rural wealth p e r capita i n Tennessce
is 380; Arkansas, $325; Mississippi, $302; Alabama,
$230; Georgia, (3325; Kentucky, $500; N o r t h Carolina,
322; South Carolina, $449; Louisiana $286"~-Governor Aiken:
Mr. Foote:
H o w about “ e w ingland?
T h e average w e a l t h p e r capita i n the
United States i s {994--Governar Wold: I
Mr: © hairman.
d o not want t o b e discourteous,
T h e s e figures a r e all very interesting,
but w e will b e here a l l next week unless w e get down t o
discussing the resolution that has been offered, o r voting
on it.
I f we d o not do that I am afraid w e will have t o
remain over.
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Federal Reserve Bank of St. Louis
Mr+ Foote: I
just merely offered that, Governor
®
wold, t o show that those conditions exist. *
The Chairman: I
drive ahead.
really think that w e have g o t t o
H a v e y o u been able t o get a seconder f o r
your motion, M r , Foote?
Mre Hoxton:
Chairman.
M a y I just interpose o n e word, M r i
W e have the largest proportion o f members
our c l e a r i n g s y s t e m o f a n y o f t h e b a n k s e m p l o y i n g t h e
voluntary system.
W e have l o n g since ceased t o hear
plaints i n regard t o the exchange charges.
T h e only
complaints t h a t w e : get a r e Objections t o immediate credits
and w i t h r e g a r d t o t h e c o n d i t i o n o f their r e s e r v e balances.
Mr. Foote: I
members
can tell y o u somethings about y o u r
t h a t y o u d o n o t know.
I
t would take
m e a n hour
to d o that b u t I hate a wad o f information o n your district
that would astonish you,
(The question w a s called for.)
the Chairman:
T h e question i s called o n your motion
and I-cannot put the motion unless i t is seconded.
Governor Rnoads:
F o r t h e purpose
o f getting a
I second the motion.
(The question was called for and the motion was
Tne Chairman:
the t e n d e r m e r c i e s
I t is los t , Mr- Foote, y o u are
o f this crowd.
Y o u did not even
for i t yourself!
Mr. Foote:
Y e s I did, Mr. Chairman. I
do not
want these minutes t o show that 1 did n o t vote f o r m y
own r e s o l u t i o n .
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Federal Reserve Bank of St. Louis
The Chairman:
Gentlemen,
t h e question before t h e
541
mecting i s Vote 1 2 o f tho report o f tho transit men,
This vote No. 1 2 consists o f a plan, a n d I
whether y o u d o n o t w a n t t o c o n s i d e r a
a m wondering
plan o r considerany
alternative t h a t w o u l d o c c u r t o y o u t h a t w o u l d d i s p o s e
of
the whole subjoct before w o come t o a discussion o f the
pian i n detail, I
want t o warn y o u that this meeting
has r c a c h e d t h e p o i n t w h e r e y o u h a v e g o t t o t a k e a c t i o n
rather promptly,
a n d there will n o t b e much time allowed
for discussion.
If anyone here h a s i n mind t h e Suggestion o f any
plan i n s u b s t i t u t i o n r
o
f the p l a n recomnended
men, I
b y the transit
think that should b e brought o u t right n o w before
we g o t o a discussion o f the plan i n detail.
T h i s re-
mark applies t o Mr. Harding and Mr. Warburg who are here
to participate
i n this d i s c u s s i o n w i t h us.
Governor V a n Zandt:
f i t i s strictly a n interéistrict
plan, i s i t not?
The Chairman:
Yes.
Governor Aiken:
Mr. Curtis:
I t covers t h e whole?
Y e s ; i t i s a pan-cistrict plan.
Governor Rhoads:
i
s n o t t h i s a i i s u b j e c t to. t h e
assumption t h a t w e s t a r t e d o u t w i t h t h a t w e h a v e t o h a v e
that assumption ruled upon b y the Federal Reserve Board?
The Chairman:
P o s s i b l y w e should have explained t o
Mr. Harding and Mr. Warburg that vote No. 2 was adopted,
but w e changed t h e word "theory"
Furthermore,
t o "assumption",
w e added a clause t o the effect that this
vote d i d n e t commit this meeting t o the theory that i m -
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Federal Reserve Bank of St. Louis
médiate credit and debit must b e made.
Mr» Harding:
T h a t made i t possible f o r you t o
have proceeded with thesubject. I
d o not s e e h o w you could
have proceeded w i t h i t i f y o u nad not changed that.
The Chairman:
Y e s t e r d a y a t our meeting o n e o f two
of those present suggested that i t might b e best t o deal
with this matter b y having t h e Federal Rcserve A c t amendeds I
d o not think w e ought t o g o agead”
w i t h the
plan which i s t o cover t h e entire country a n d subject a l l
of us t o negotiations w i t h o u r clcaring houses where i t
is possible t h a t later o n w e are going t o turn around a n d
endeavor t o securo a n amendment t o the Federal Reserve Act,
If w e are going t o d o that next December,
o r when
Congress meets, w e ought t o adoptsome p l m i n the meantime that would n o t necessitate t h e possibility o f later
changes.
S
o I do not like t o s e e this meeting g o ahead
on the theory that w e are n o t going t o consider a n amendment t o the A c t i f that i s i n anybody's m i n d here.
M r .
Foote, y o u have suggested o n e resolution o n this subject.
It failed, but i t was a specific resolution specifying
the character o f amendment w h i c h I a m sure would n o t meet
with a p p r o v a l
a t this meeting,
a s y o u saw.
I
s there
any suggestion a s t o procedure i n respect o f amending t h e
Act?
M r . “arding,
d o y o u care t o s a y something o n that
subject?
Mr. Harding: I
Governor Seay: I
believe not, Mr. Chairman.
would like t o ask one question o f
the members here which would involve merely a n e x p r e s s i o n
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Federal Reserve Bank of St. Louis
543
on the part o f each, a n d that i s whether t h e y believe a
country c l e a r i n g h o u s e p a r r e m i t t a n c e p l a n w o u l d b e m o r e
acceptable
t o t h e banks
o f the country t h a n a n y clearing
that w e c a n develop through t h e Federal Reserve System.
Governor Wold: I
a m o f the opinion that a n y plan
that m i g h t b e d e v i s e d w o u l d b e r e c e i v e d w i t h m o r e e n t h u s iasm b y t h e b a n k s t h e m s e l v e s t h a n a n y S%peration w e m i g h t
have under section 1 6 o f the Act.
I n Our Gistries. there
is n o c r y i n g n e e d i n t h e m a t t e r o f c o l l e c t i n g checks:
It seems t o me, Mr- Chairman, t h a t t h e time i s not opportune t o open u p inter-district clearings until w e have
solved t h e p r o b l e m i n o u r o w n district;
t h e intra-district
problem s h o u l d b e s o l v e d f i r s t b e f o r e t r y i n g t o c l e a r t h e
whole country.
The Chairman:
W
e have never considered f o r a
mom-
ment, Governor Wold, t h a t w e were going t o clear checks
between t h e d i s t r i c t s
o n the s a m e basis a s immediate
debit a n d immediate credit, s u c h a s employed within t h e
districts.
T h a t was considered inadvisable w h e n w e
first d i s c u s s e d t h i s matter.
Governor Seay:
I n this v e r y plan itself w e recommend
that principle, t h a t wherever practicable interchange o f
checks b c t w e e n b a n k s b e made,
The Chairman:
N o suggestion i s made with respect
to possible amendments t o t h e a c t discussed i n substitution
for t h e p l a n r e c o m m e n d e d
b y this report,
a n d w e might a s
well proceed t o a discussion o f the plan i f the meeting
is n o t
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Federal Reserve Bank of St. Louis
t o make
a n effort
t o devise a
scheme
c i mendments.
544
Governor V a n Zandt:
Section 1 6 m i g h t
n o t
I n asking f o r clarification o f
vreak
u p a n y plan which w e might
put into effect now?
The Chairman:
W
e would stand committed
if w e a d o p t e d t h i s p l a n ;
to a
plan
a n d naturally t h e committee
which i s charged w i t h the work o f clarifying section
15
would u n d e r t a k e
t o mako i t conform t o the p l a n that w e
had adopted.
e have declared
W
i n the course o f these
eleven v o t e s t h a t w e u n d e r s t a n d S e c t i o n 1 6 t o m a n
cer-
tain things, a n d w e are n o w endeavoring t o adopt a
according t o that understanding. I
plan
assume t h a t the com-
mittee w o u l d f o l l o w t h e s a m e course,
Governor V a n Zandt:
B u t suppose t h a t i n the changing
of the verbiage o f Sections 1 6 and 1 3 Congress should n o t
meet o u r v i e w s
o n clarification.
I
f they s a y they did
not i n t e n d t h a t a n d w e g o t o w o r k a n d a d o p t a
plan w h i c h
would b e i n direct opposition t o some o f the sections-—~
Governor Wold:
Y o u l d i t not b e wiser t o pass t h e
whole m a t t e r u p t o Congress a n d o p e r a t e
a s w e a r e at, p r e -
sent, unless t h e Board insists u p o n further effort being
made along other lines, a n d wait, beforo formulating a
definite p l a n , u n t i l C o n g r e s s h a s t o l d u s w h a t i t d o e s
mean?
Mr. Warburg: I
do not know, Mr. Chairman, whether
that i s e n t i r e l y practicable.
H e r e w o have started
on a
plan, a n d I think w e should n o t a t a n y moment n o w sease t o
try t e c o m p l e t e
have .
i b a n d develop i t with every power t h a t w e
O f course, i f w e strike,
a s I have n o doubt w e
have, s o m e p o i n t s w h e r e t h e r e i s n e e d o f s o m e Clarification,
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Federal Reserve Bank of St. Louis
545
or anamendment,
w e ought t o g o for it.
B u t y o u know
there a r e just a s great chances that w e will n o t g e t a n y
action o n i t a s that w e may.
N o b o d y knows whether this
thing w i l l c o m e u p f o r d i s c u s s i o n a t Congress,
o r whether
it will not, a n d I rather thing w e ought t o consider well
the w h o l e matter. I
d o n o t w e n t t o intdbrrupt t h e p r o c e e d -
ings, because i t i s very difficult t o dispose o f these
various q u e s t i o n s ,
b u t t h e thing that alarms
m e about t h i s
little p l a n i s that i t Grops thequestion o f immediate
ercdit and debit, i f I understand i t correctly.
The Chairman:
I t has that practical effect, although
by r e s o l u t i o n s p a s s o d i t w o u l d p e r m i t a n y F e d e r a l R e s e r v e
Bank t h a t c e s i r e d
t o d o s o t o conduct a
double scheme.
t would b e immediato d e b i t a n d credit
I
very complicated
within its o w n district, b u t deferred debit a n d credit
on c h e c k s w h i c h s o m e f r o m w i t h o u t
Governor Wold:
Mr. Warburg,
M a y +
t h e district.
s a y t h a t i t w a s n o t m y thought,
t o abandon e u r present methods .
W e are
continuing t h e m a n d getting n e w members f r o m month t o month.
Mr. Y arburg: I
understand that, Governor iiol
2 d
you are inclined rather not t o g o into a development o f
the inter district. I
unéerstand t h a t one o f the weakness-
es i n our system a t present d i d not develop because w e were
not i n condition sufficiently t o handle t h e interdistrict
problem, a n d i f w e should d o that w e would g a i n f o r o u r
interdistrict clearing.
Governor Wold:
tariff.
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Federal Reserve Bank of St. Louis
T h a t is a
local question, l i k e t h e
W e cannot undertake t o g o into that
a l l , be~
546
cause w e w o u l d b e s w a m p e d w i t h i t o m s t h a t c o m e t o u s i n
the Twin Cities, and w e would b e unable t o cover them e x cept b y - - -
Mr. warburg: I
d o not quite understand that.
Governor Aiken:
I
s not that a
natural p r o c e s s
of
exchange t h a t y o u h a v e t o t a k e c a r e o f ?
My. Warburg:
view.
“xactly;
t h a t would b e m y point o f
T h a t should n o t frighten, us. I
go o n d e v e l o p i n g t h e s y s t e m o n a
Mr. M c K a y has outlined it. I
think w e should
Ceferred s c h e d u l e ,
as
think 1 % would b e
free f r o m a great deal o f criticism i f you would d r o p t h e
OUnEr p a r t O f 1 .
Governor McDougal: I
think i t has been pretty nearly
demonstrated t h a t t h a t i s necessary.
Mr. arburg:
T h a t i s what I
wanted t o bring out.
We would like t o g o back t o Washington a n d report about
this, a n d w e would l i k e very much t o have t h e views o f
the G o v e r n a s
o n t h a t point.
The Chairman: I
belicve t h a t M r . H o x t o n e x p r e s s e d
one feature o f one difficulty i n regard t o this immediate
debit a n d credit plan which i s impressing a l l o f us very
seriously, a n d that i s that i n a time o f the greatest
easy o f money, where b a n k reserves a r e n o t o n l y abundant
but easy t o maintain, a n d are excessive, a n d where t h e
least d i f f i c u l t y w i l l a r i s e t o t h e m e m b e r b a n k i n maintainnot o n l y
ing s u f f i c i e n t r e s e r v e b a l a n c e b u t a n e x c e s s b a l a n c e i n
order t o c o v e r u n e x v e c t e d i t e m s c h a r g e d a g a i n s t t h e account,
we are a l l o f u s facing unexpected overdrafts .
rather
alarming p r o p o r t i e n s , s o m e t i m e s , b e c a u s e t h e n u m b e r o f m e n -
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Federal Reserve Bank of St. Louis
547
bers i n c r e a s e s t h e v o l u m e
o f i t e m s t o s o m e through;
and a s they increase t h e number o f overdrafts will i n crease.
I t i s a danger which increases i n actual propor-
tion t o the success o f the plan, a n d i f such a situation
arose f r o m active business, h i g h money rates a n d lowmm
or deficient r e s e r v e s ,
w e would have a
very s e r i o u s p r o b -
lem t o face i n taking care o f the situation o f banks t h a t
could n o t only not maintain their reserve balances b n t
keep cnough money i n our hands t o meet demands,
That i s a n objection which has nothing t o d o with the
objection o f the country banker a s t o his exchange charges
and his income a n d his earnings.
I t does involve t h e
question o f the float, because those banks which follow
that method assume t h e float S e tant method a n d carry i t
themselves.
T h o s e t w o difficulties, outside o f the
Question o f exchange charges, h a v e always impressed m e a s
being a menace t o the system t o have this scheme o f immediate caipeee a n d c r e d i t t o the point where i t really suc-
ceeds a s a collection system and will b e a hazard t o the
System a s a matter o f credit. I
a m willing t o g o o n
record a s I have frequently done, t h a t I
it.» I
a m afraid o f
do not believe i n it, and I think it is dangerous.
Mr. Warburg:
W o u l d y o u think i t i s dangerous i f the
banks c o u l d p r o t e c t t h e m s e l v e s ? f
man,
i f they a r e not
forced t o give this privilege t o everybody b u t could extend
it t o the banks t h a t t h e y have confidence i n , if, f o r .instance t h e y c o u l d g e t b e n d s
provide against overdrafts?
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Federal Reserve Bank of St. Louis
o r collateral
o r something
+0
548
The Chairman:
A
n attempt
t o conduct a
system o f
clearing o n any such basis a s that would impose a
lot o f
trouble a n d inconvenience, a n d possible cxpense u p o n the
member b a n k s t h a t c a m e i n t o t h e system,
not g e t members t o clear.
s o that y o u could
S o m e o f the best banks i n our
clearing system, outside o f the city o f New York, a r e t h e
enes that suffer these b i g overdrafts.
T h e best b a n k
is gencorally t h e o n e t h a t h a s t h e l a r g e s t a n d m o s t suc-—
cessful business, a n d that i s the b a n k that i s constantly
having overdrafts. I
do not want t o d o all t h e talking
on this subject, but 1 would like very much to have all
of y o u express y o u r v i e w s a b o u t t h i s f e a t u r e o f t h e p r e -
sent p l a n o f immediate debit a n d credit a n d let Mr- Harding a n d Mr, Varburg g e t first hand impressions f r o m everyone o f you.
Governor Wold: I
good b a n k i n g p r a c t i c e
would like t o a s k Mr. McKay i f i t
t o o p e r a t e inter-district c l e a r i n g s
on the d e f e r r e d c r e d i t a n d i n t r a d i s t r i c t c l e a r i n g s f o r
immediate credit a n d immediate debit?
Mr. McKay: . e @ l l , i t c a n b e done.
Governor wold: I
asked y o u i f i t w a s practicable.
Do y o u t h i n k i t i s p r a c t i c a b l e ?
It i s being done a t Kansas C i t y n o w t o
a limited extent.
Governor Wold:
W o u l d i t b e good banking practice?
Either take o n e horn o f the dilemma o r the other,
Mre MeKay: I
think thero ought t o b e deferred
cobit a n d eredit i n all cases i n which i t i s p r per 2 6 2 0
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Federal Reserve Bank of St. Louis
549
handle it. a n d nearly a l l t h e banks d o except t h e Kansas
City Bank a n d possibly t h e St- Leuis Bank.
Mr. Hendricks: i
think i t i s entirely possible
opérate t h i s i m m e d i a t e d e b i t a n d c r e d i t
to
o n the intra-
district a n d t h e d e f e r r e d d e b i t a n d c r e d i t o n t h e i n t e r -
district,
i f the b a n k operating a n immediate debit a n d
credit w i l l r e c e i v e i t s i t e m s i n t h e s a m e w a y a s t h e o t h e r
Federal Keserve Banks.
Governor Wold:
Y e s 3 ; b u t g o o d business judgment
would n o t t a k e t h a t m a n n e r o f handlin,
t h e accounts f o r a
commercial bank.
(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 t h e s t e n o g r a p h e r
was directed not t o report; after which the following
proceedings were had:)
Governor Wold:
T h e r e i s one problem, Mr. “Narburg.
Take Fargo, N o r t h Dakota.
T h e y a r e o n our collection
list. T i v e m s o n Fargo,North Dakota, that w e receive from
the m e m b e r b a n k s w i l l b e t a k e n f o r i m m e d i a t e c r e d i t a n d
immediate debit;
o n the same day we get from New York
through t h e interdcistrict checks u p o n Fargo, N o r t h Dakota,
What s r e w e going t o d o with them?
W w e have t w o systems
of bookkeeping f e r every item--The Chairman:
Y o u r o r o b l e m c a n b e dealt with,
view it, practically i n only one o f t w o ways.
Classified t h e m e m b e r s
W
as I
e have
i n each district i n t o t h o s e t h a t
clear a n d t h o s e t h a t d o n o t clear.
W
e can. confine t h e
exchance items between t h e districts t o items drawn o n those
banks w h i c h come i n t o t h e clearing system,
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Federal Reserve Bank of St. Louis
o r else w e c a n
550
abandon the clearing systom a n d put everything o n the deferred baSis; because, otherwise, w i t h 125 institutions
in
our clecring s y s t e m i n Now York w e would have t o keep o n e
set o f books f o r all 610 members, a n d another s e t o f books
e
for 1 2 5 m e m b e r s f o r t h e E
have t o have a
A
third s e t o f records,
n
d then y o u would
i f you please,
to
show the record o f t h e d eferred credits f o r those members
which have immediate credit within t h e district.
Governor Wold:
The Chairman:
You c o u l d n o t r u n a
T h a t i s t h e difficulty.
A n d i t i s a n impracticable scheme.
bank w i t h s u c h a
complicated s e t o f
records,
Governor Fancher:
M r . Chairman, t h e
been,
t h o u gs ha
th
expressed here that this p l a n o f inter-district collection
as proposed here b y the committee w i l l stimulate y o u r
d o not agree w i t h t h e com-
intra-district propostion. I
mittee
i n t h a t rospect.
This p l a n o f interdistrict collections w o u l d n o t
bring t o u s the small banks, a n d t h e matter o f a deferred
debit a n d credit scheme f o r outside items would only benefit a
few o f the larger banks i n the reserve centers, a n d
would n o t i n c r e a s e o u r m e m b e r s
collection, I
d o not believe,
i n t h e interdis t r i c t
t o a n y appreciable extent.
This situation arises w i t h your larger banks.
them a n offset y o u p r o p o s e
t o receive i t e m s
tricts o n a deferred credit basis.
T o give
o n other a i s -
Y o u have g o t t o handie
your intra-district items o n the same basis absolutely,
pecause y o u r larger banks manifestly will n o t receive iteus
from o v i s i d e
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Federal Reserve Bank of St. Louis
o f the district
f o r immediate
credit
a n d imme-
551
déate debit.
T o offset that y o u say, " W e will take your
items, but o n a deferred credit basis."
The Chairman:
W e wore following t h e consequences
of applying t h e deferred credit basis o n l y t o members, t h a t
is, c o n f i n i n g t h e i n t e r - d i s t r i c t e x c h a n g e
o f checks o n l y
to checks drawn o n members o f the collection system, a n d
that would b e a n enormous increase i n their difficulty o f
maintaining balances.
Governor Fancher:
Why?
The Chairman: B e c a u s e i t would precipitate items
from all parts o f the m u n t r y f r o m those poor, unfortunate
banks w h o had been l e t into this immediate debit a n d credit
plan.
Mr. Hendricks: I
very much.
D
d o not think i t would increase
o w e n o t g e t t h e m a l l now, i n d i r e c t l y ?
The Chairman:
W e d o not g e t them all.
w e would
get a great deal a s the direct relations between member
banks b e c o m e reduced,
Mr. Hendricks:
T h e only difference i s now that we
get these items f r o m our member banks, a n d i f the interdistrict w e n t i n t o o p e r a t i o n w e w o u l d g e t t h e m d i r e c t l y
from the other federal reserve banks o f the other district.
Governor Seay:
N o t altogether.
Mr. Hendricks:
N o , but largely sQ.
Governor Seay:
T h e r e i s interchange t h e volume o f
which w e have n o t begun t o appreciate:
I
t occurs t o m e
this i s going t o encourage t h e use e f checks.
T h e y are
bound t o accumulate i n the industrial centers, a n d the
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Federal Reserve Bank of St. Louis
552
volume w h i c h w i l l c o m e t o u s u p o n t h e s m a l l b a n k i s s i m ply g e i n g t o m a k e i t i m p o s s i b l e f o r t h e s m a l l b a n k t o m a i n tain i t s balance,
Mr. Warburg:
A r e y o u fonfident, M r + McKay,
i f a plan
of t h i s k i n d c a n b e a d o p t e d t h e d e f e r r e d c r e d i t i n t h e t
case w o u l d n o t c o m p e t e w i t h t h e b a n k s t h a t n o w d o t h i s
business?
Mr. McKay: I
think not, Mr. Warburg.
M r . Foote
H e
made a remark about the Boston Clearing House men,
said t h a t w h i l e t h e y w e r e c l e a r i n g c h e c k s a t p a r t h e y w e r e
not h a n d l i n g a n y m o r e t h a n h a l f o f t h e items. I
think
that t h e items will continue t o b e handled outside o f
the Federal Reserve banks, n o matter what arrangement w e
make a s regards d e f e r r e d d e b i t a n d credit,
are i n Boston.
t h e same a s they
T h e Boston banks s e n d their items direct
to t h e correspondents.
T h e y d o not p u t t h e m through t h e
Boston clearing house.
S o m e o f them p a y a small exchange
charge rather t h a n p u t them through the clearing house. [
see n o r e a s o n u n d e r t h i s p l a n w h y t h e y s h o u l d n o t c o n t i n u e
tS a 5 this a a they choose. I
regard this p l a n a s a n
influence i n making checks par, a n d whether t h e F e d e r a l Reserve B a n k h a n d l e s t h e s e c h e c k s
it makes a
o r not, I
d o n o t believe
great deal o f difference, f o r there i s a channel
provided t o par these checks.
O f course,
a S the member
banks have discannected their relations w i t h the correspondent banks, t h e n the tendency will b e for more checks
to get into the foderal Reserve Bank o n this basis.
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Federal Reserve Bank of St. Louis
The Chairman:
L e t u s suppose t h a t this p l a n i s
553
adopted a n d t h e i m m e d i a t e d e b i t a n d c r e d i t i s a b a n d o n e d
and w e d e c l a r e o u r o p i n i o n t h a t t h e a c t m e a n s t h a t t h e
country b a n k m u s t r e m i t a t par.
bank sends a
T h e n suppose t h e member
large volumo o f items f o r collection o n defer-
red c r e d i t u n d e r t h i s p l a n , a n d t h e m W u n t r y bank, w h e n i t
gets them, remits less coxchange.
Mr. McKay: I
do not think you are going to-be i n
any more difficulty t h a n t h o Kansas C i t y Bank has been in,
where t h e y charge t h e m off immediately. I
understand
there are only threc banks i n Kansas @ity that still object
to it.
I s not that so, Governor Sawyer?
Governor Sawyer: I
do not know that the word "object"
16 “just Pieht .
(At this point informal Ciscussion 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 were had:)
Governor McDougal: I
want t o s a y a s a matter o f
interest t o Mr. Harding and Mir. Warburg, and for their benefit, t h a t w e have figures h e r e showing t h e extent o f the
operation
i n the various districts,
a n d they m a y see the
effect o f t h e operation,
In Chicago w e have gone f a r enough, W i t h 115 willing
banks, banks undertaking t o maintain their reserves,
to
have s a t i s f i e d o u r s e l v e s t h a t i t i s impossible f o r a n y
bank t o foresee w h a t charges m a y come against t h e m tomorrow
or next day.
I
t i s not m y intention
t o g o through w i t h
this fully, b u t i n Chicago w o have b e e n operating a t the
expense
o f about a
that there were a
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Federal Reserve Bank of St. Louis
million a n d a
quarter, m e a n i n g
b y that
great m a n y banks deficient i n their r e -
554
Serves.
I
f y o u will t a k e o n e o f these sheets y o u will
find that i t i s a remarkable showing.
member banks,
at that time.
S t . Louis h a d 3 6 3
o f which 2 1 8 were deficient
T
h
i n their reserves
e deficiency here i s reported about
3800 .000.
Now w e g o onto another sheet a n d get into St. Louis,
and y o u w i l l s e e t h a t t h e e f f e c t
i n Kansas C i t y h a s been,
in regard t o the balances, t h a t they have 1 0 0 accounts o f
member b a n k s
o n t h e average overdrawn,
a n d their average
overdrafts are 1,843 a day, which i n no case includes the
CeiuCleney
tonic
reserves
T h a t
i s s i m p l y t h e r e d figure.
It i s o w i n g t o t h e f a c t s t h a t h a v e b e e n a c c u m u l a t e d
in
this f o r m a n d w h i c h h a v e b c e n c o n s i d e r e d b e f o r e t h a t i t
seems
t o m e s h o w s t h a t t h i s i m m e c i a t e d e b i t a n d credit,
voluntarily o r otherwise,
Governor Aiken: I
i s not workable,
would like t o call attention t o
the confirmation o f your contention o f the difficulty i n creasing a s t h e success o f the undertaking increases.
Referring t o the Kansas C i t y figures, a s the volume o f
the t r a n s a c t i o n h a s i n c r e a s e d t h e o v e r d r a f t s h a v e s t e a d i l y
increased---— 3 0 2 i n July, 5 2 0 i n August,
Governor Sawyer:
8 4 3 i n September.
P r o b a b l y 6 0 per cent, possibly
more,of those overdrafts have been caused b y transfer
crafts»
F o r instance, Wichita h a s a number o f small country
bank correspondents.
City.
W
e also have accounts
i n Kansas
T h e s e banks semé@. checkson Wichita a n d Kansas C i t y
for c r e d i t t o t h e i r K a n s a s C i t y correspondent.
them through t h e Federal Reserve Bank.
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Federal Reserve Bank of St. Louis
H
e passes
W e a r e endeavoring
to make these transfer crafts.
(At this point informalidiscussion occurred 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 w e r e had:)
Governor McDougal:
M r . Chairman, I have undertaken
to s h o w t h a t s o f a r a s C h i c a g o i s c o n c e r n e d o u r e x p e r i e n c e
Warrants u s i n expressing t h e belief that w e cannot g o
ahead permanently o n the immediate debit a n d credit p l a n
and 1 personally a m very much interested i n hearing what
the others have b e e n finding i n that regard.
The Chairman:
G o v e r n o r V a n Zandt, w i l l y o u express
your v i e w s a s t o t h e i m m e d i a t e d e b i t a n d c r e d i t plan, a n d
accept kindly m y warning that w e want t o make t h e statements brief?
Governor V a n Zandt:
O n l y i n that
m e m b e r s
collection system are not o n the increase mow.
ter o f fact, they are o n the decrease» A
o f our
A S a mat-
great percent-
age O f o u r m e m b e r s a r e t a l k i n g p r e t t y h a r d a g a i n s t t h i s
proposed collection system, a n d saying that i f w e are not
going t o get a n y more members t h e y want t o get out,
T h e y
simply went into i t t o help develop t h e system, n o t feeling
that there was anything i n it to start with, and their
belief has seemed t o be getting more strongly fixed i n
their minds. I
d o n o t believe t h a t t h e matter o f chargkng
checks t o the Federal Reserve Banks received directly against
the r e s e r v e b a l a n c e w i l l e v e r b e s a t i s f a c t o r y
ber banks.
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Federal Reserve Bank of St. Louis
The C h a i r m a n :
G o v e r n o r
t o the mem-
556—<
Governor Seay:
M y conviction i s that there will b e
sO many cases i n which i t will n o t work, although i t will
work i n some, t h a t i t will b e impracticable.
The Chairman:
G o v e r n o r Sawyer?
Governor Sawyer:
W
e nave,
a s y o u know, b e e n e n d e a v o r -
ing t o work i t out since l a s t December, a n d i t resulted
in a
great m a n y overdrafts. A
s y s t e m w a s p u t i n i n Decem-
ber u p o n t h e t h e o r y t h a t t h e F e d e r a l R e s e r v e A g e n t h a d re-~
ported t o u s t h a t t h e B o a r d e x p e c t e d
that system.
to
h a v e u s put i n
B u t w i t h t h e present reserve
difficult proposition t o handle without a
overdrafts.
W
i t is a
very
large amount o f
e find that while probably a greater number
of our banks a r e endeavoring t o cooperate,
m y own view
has b e a , w h e r e t h e r e s e r v e s a r e a l l f i n a l l y p a i d i n , t h a t
as the number o f corresponding accounts h a v e b e e n necessarily
decreased outside o f the banks, probably i t tould b e made
to operate.
The Chairman: G o v e r n o r Kains?
Governor Kains:
M r . Chairman, I
was originally
etrongly i n favor o f the deferred credit a n d debit system.
Deferred d e b i t
i n our district
i s n o t o n l y t h e practicable
way o f h a n d l i n g t h e proposition,
but I
a m stronglyin
favor o f deferred debit a n d credit interdistrict w i s e a s
the o n l y h o n e s t w a y o f h a n d l i n g t h a t situation.
The Chairman:
Mr. Hoxton:
G o v e r n o r Hoxton?
T h e only thing that I would say, Mr. Chair
man, weuld b e a n expression o f personal opinion, a n d I can
only report, a s 1 said before, that I have heard no com-
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Federal Reserve Bank of St. Louis
567
plaint i n regard t o our present system except t h e complaint directed against immediate charge a n d immediate
Credit.
T h e r e h a v e b e e n n o complaints
o f a n y sort f r o m
the central reserve a n d the reserve cities.
The Chairman:
G o v e r n o r McDougal, h a v e y o u expressed
all t h a t y o u want t o s a y o n that?
Governor McDougal:
The Chairman: I
Yes.
should l i k e t o hear Mr- MeKay
express h i s views.
Mr. McKay:
A
t t h e meeting nearly e v e r y representative
there o b j e c t e d t o t h e i m m e d i a t e d e b i t a n d c r e d i t w i t h t h e
exception o f Kansas City.
our o w n Situation,
The Chairman:
D o you want m e t o s p eak about
i n Chicago?
Y o u have participated n o t only i n our
discussion i n this matter, b u t i n a discussion b y the
transit men, a n d 1 think i f you could state briefly whether
you believe o r d o not believe that t h e present system i s
feasible,
i t would b e a n important part o f o u r record.
That i s a matter i n which y o u are particularly experienced.
I do n o t think w e ought t o g o into a n exaplanation o f ree-
sons, though, Mr. McKay, a t this stage o f the discussion.
Mr. McKay: I
of o v e r d r a f t s
is o p e r a t e d
think that owing t o the large amount
i n the districts w h e r e t h e collection s y s t e m
t o some extent w e proved t h a t t h e s y s t e m o f
immediate charge i s not a practicable oneto o p e n o u r d i s t r i c t
restrictions, 1
i n Chicago
I f w e were
o n that basis, w i t h o u t a n y
would fear that a very large percentage
of our deposits would b e invested i n float t o such a n ex-—
tent t h a t i t w o u l d r e d u c e o u r l o a n i n g power, p e r h a p s
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Federal Reserve Bank of St. Louis
to a
568
very large extent, especially w h e n money i s tight.
are having large overdrafts now, large deficiencies,
when money i s plentiful, a n d where i t i s easy f o r the member banks t o carry pretty largo reserves; b u t i n times
when money i s scarce, w h e n there i s a n emergency, I
think
it w o u l d b e v e r y dangerous, b e c a u s e t h e n w e w o u l d g e t
all of the items possibly dumped into the Federal “eserve
Banks, a n d t h e y would b e very glad t o b e able t o convert
all o f thos e
items i n t o cash, I
think the drain o n the
Federal Reserve banks would b e s o tremendous t h a t i t would
simply p u t u s i n a
position w h e r e w e c o u l d n o t t a k e c a r e
of tho rediscounts o f our member banks. I
believe i t i s
as serious a s that i n time o f a n emergency. I
think
it i s entirely impracticable t o receive items f o r immediate
charge a n d immediate credit.
The Chairman:
Y o u feel, then, that i f we had a n
xtensive i n t r a - d i s t r i c t c l e a r a n c e p l a n i n o p e r a t i o n
so
that all of the banks i n the district were c l e a r i n g
on that basis, whentimes o f stress arise, t h e banks, i r respective o f their arrangements w h i c h t h e y would n o t regard u n d e r t h o s e c o n d i t i o n s , w o u l d d u m p a l l o f t h e i r i t e m s
on the reserve banks, s o a s t o get immediate credit a n d
draw the c a s h out--Mr. McKay: I
think there i s n o question about that,
Mr. Chairman, because i n 1907 w h e n the demestic exchange
facilities w e r c i n the m n d i t i o n that t h e y were, i t would
-have b e e n very difficult t o find some place where w e could
have dumped a l l those items,
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Federal Reserve Bank of St. Louis
n o matter what t h e cost o f
doing i t m a y have been,
Governor Rhoads:
B a s e d o n o u r experience I
a m con=
vinced t h a t i m m e d i a t e c r e d i t a n d d e b i t s y s t e m i s i m p r a c -
ticable- I
believe w e m a y b e able t o carry o u t the
spirit o f the A c t b y a remittance a t par basis.
GOvernor Aiken: I
believe it’ i s impracticable. E
think t h e records will bear m e aut that I , from the first,
have always wanted a
deferred credit o r remittance basis,
and o u r e x p e r i e n c e w i t h t h e p r e s e n t s y s t e m h a s c o n f i r m e d
that stand,
The Chairman:
M r . Foote, w e would like t o hear
whether the Atlanta bank jas distinguished from your own
personal feeling i n this matter, believcs o r does n o t believe i n this system. I
you m a y hold, b u t I
d o not know what personal views
a m anxious t o get a n expression o f
what m a y b e the views o f your bank?
Mr- Foote: I
can express t h e unanimous views o f the
Board o f directors o f our bank.
The C h a i r m a n :
T h e y are epposed
t o the immediate debit
and c r e d i t p l a n ?
Mr. Foote:
Y e s , opposed t o any system o f clearing
that does not reach all state and national banks alike.
Governor Wold: I
am convinced, Mr- Chairman, that
the only development would b e based o n the deferred credit
and defered debit basis.
Governor Fancher: I
am satisfied a s t o that. i
think our experience i n District No- 4 , b y reason o f the
fact that w e are n o t increasing i n the humber o f the banks
joining interdistrict collection shows t h a t i t i s n o t popu
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Federal Reserve Bank of St. Louis
570
tex. “ W h i t e our record I s good as t o overtrafts, still
there a r e a
number
o f banks t h a t a r e deficient
i n the r e -
serves, a n d + do not think immediate debit and credit would
be successful o n present Lines.
The Chairman: I
have already expressed m y own views
about this matter, but 1 did not call your attention t o
one thing:
T h e New York bank has 125 members i n the
dlearing system.
T h e average overdrafts i n September
were {368,000 i n amount, a n d we estimated that the average
deficiency i n reserves o f those members o f the clearing sys-
tem that had deficiencies i n reserves was $800,000.
I n
other words, o u r overdrafts represent less t h a n 7 per
cent o f the reserve deficiencies.
overdrafts i n the whole system,
T h e total average o f
i f the same percentage a p -
plied m i g h t r e p r e s e n t t o t a l d e f i c i e n c i e s
o f reserves
as
distinguished f r o m the r e d i n k figures o f overdrafts o f a
great m a n y m i l l i o n dollars.
Governor McDougal:
four million.
T h e total deficiencies were about
Y o u r s are given a s (31,432,000.
Mr. Varburg:
F o r a l l districts?
Governor McDougal: .
The total deficiency i n round
numbers i s about four million, o f which New York's was
&1432,000,
Governor Wold:
F o r t h e purpose o f getting i t onto
the record, Mr. Chairman, I would like to state that the
experience
o f t h e Minneapolis b a n k h a s b e e n v e r y
Sabisfactory i n that regard.
W e have n o t been troubled
with overdrafts o r depleted reserves, b u t i t does n o t s e e p
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Federal Reserve Bank of St. Louis
O72
possible
t o develop t h e celhection s y s t e m r a p i d l y e n o u g h
+
on t h e basis
o f immediate c r e d i t s a m d i m m e d i a t e debits.
Mr: w a r b u r g :
I
t has been said here that
stress t h e y would b e buying t h e float.
l o w that. I
of
L . d 0 not. quite f o l
a m quite a w a r e o f w h a t t h e r i s k s o f t h e t r a n s —
action would be.
checks
i n case
o n you;
B u t suppose a l l the. banks d u m p their
t h e y would o n l y d u m p t h e checks
o n banks
pe |
that you would charge immed is v&yTor the checks that you
would receive.
S
o the f l o a t would o n l y arise i n case
they w o u l d overdraw.
Mr. McKay:
T h e balances w o u l d b e wiped o u t a t
once.
Mr. Warburg:
I
n case t h e y c i d not maintain their
balances a s they ought.
Mr. McKay:
T h e banks
i n our system are doing
their b e s t t o m a i n t a i n t h e i r b a l a n c e s w i t h us:
S o m e of
them are carrying as high as 1,200,000 of excess reserves,
and a t t h e s a m e t i m e a r e o v e r d r a w n
o n o u r books.
T h e y
cannot a n t i c i p a t e t h e t r e m e n d o u s v o l u m e t h a t c o m e s i n
there a t certain times, a n d we find i t is impracticable
because t h e y are doing their v e r y best t o carry their
balances o n our books.
Governor McDougal:
A n d those banksare n o t i n the
larger cities.
D
Me. Warburg:
o they make g o o d immediately w h e n
thney a r e n o t i f i e d ?
Mr. McKay:
sometimes,
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Federal Reserve Bank of St. Louis
Y e s sir.
V i e have t o wait t w o days,
t o get t h e money.
573
Mr. Warburg:
Mr. McKay:
A n d that i s what. y o u call the f l o a t ? -
Y e s sir.
T h e temporary wiping o u t until t h e
Mr. Warburg:
bank i s able t o resstablish i t s balance?
Mr. McKay:
Y e s »
The Chairman:
I
t h a s t h e s a m e e f f e c t a s t h e pur—-
chase o f the float, although i t takes a
Mr. Warburg: I
different form.
expected t h a t answer,
but I
wanted
to bring i t out.
Mr. McKay:
T h e Chicago b a n k might take i n a million
dollars, possibly, b u t t h c y would C r a w that out a t once.
That i s where w e lose o n it, a n d the banks t h a t were deficient would n o t make i t u p f o r t w o days a n d w e weuld b e
holding t h e b a g for t w o days.
Mr. Warburg:
M r - e Hendricks j u s t suggested something
tome, and I think possibly i t is a good suggestion. W o u l d
it not b e wise f o r the committee,
o r for t h e conference
to write f o r Congress, a s i f w e had n o l a w a t all, a
clause covering what i s desired?
B e a r i n g i n mind, o f
course, w h a t t h e @ u n t r y w a t s a n d what would b e fair a n d
equitable.
I t i s very hard t o write, but, knowing what
the country expects o f us, w h y not help Congress t o write
a clause that, t o the best o f our knowledge andadvice,
we c o u l d d i s c u s s a n d b r i n g o u t s o m e t h i n g d e f i nite f r o m ?
Of c o u r s e t h e s e m e n w e r e n o t experts.
T h e y meant t o b e
fair a n d they meant t o d o the right thing, a n d I think w e
know what some o f them thought.
Senator Williams thought.
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Federal Reserve Bank of St. Louis
M r - Foete tells u s what
S o I think that what i s needed
573
in this case i s a definite, positive suggestion, a n d I do
not think w e should s t o p o r rely o n that, b u t I think w e
should g o o n risht away a n d consider what would really
be best f o r the organization.
The Chairman:
M r . Warburg,
w e took action i n that
direction, although n o t specifically,
i n connection with
"Clarification o f Sections 13, 14, 1 6 and 18,"and also 22,
making clear what Congress intended.
T h a t has been refer-—
red t o the Lxecutive Committee with the expectation that
they w i l l r e d r a f t t h a t s e c t i o n o f t h e A c t i n o r d e r t o
make clear the interpretation which w e understand should
be put upon i t from this report o f the Transit Committee.
I very m u c h prefer
t o use t h e instrvetions c o n v e y e d
t o that
Committee o f the character that Mr. Warburg h a s just suggested, t h a t t h e E x e c u t i v e C o m m i t t e e
b e instructed
b y this
meeting t o p r e p a r e w h a t t h e y b e l i e v e w o u l d b e p r o p e r a s a
provision o f the Act t o wover t h e matter o f handling
checks,
a n d then, w h e n C o n g r e s s m e e t s ,
i f opportunity arises
we c a n g o over there with all the data o n the subject a n d
meet t h e s e g e n t l e m e n a n d t e l l t h e m t h e d i f f i c u l t i e s a n d
endeavor
t o deal w i t h t h e m i n that way.
I
n t h e mean-—
time, l e t us, i f possible, decide t o give every evidence
of our intention t o carry o u t the statute a s w e unwerstand
it.
That i s a b o u t t h e c o u r s e y o u suggest, M r . W a r b u r g ,
is
it not?
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Federal Reserve Bank of St. Louis
Mr. Warburg:
Mr. McKay:
Yes.
T h a t w o u l d n o t i n t e r f e r e wf{th g o i n g o n a
574
deferred d e b i t a n d c r e d i t b a s i s
The Chairman: I
i n the mcantime?
think i t would. I
would n o t g o
to the deferred @ebit a n d credit basis f o r intra-districts.
Mr. McKay:
T h e San Francisco bank, a s you possibly
know, i s o n that basis now.
The Chairman:
Y e s ; t h a t i s the o n e district where
the Board did authorize them t o Go so; but I do not think
you e x p e c t r i g h t n o w ,
d o you,
t o change y o u r operations
i thst respect 2
Mr. McKay: I
believe t h a t i f w e c o n t i n u e
o n the
immediate debit a n d credit arrangement f o r o u r member
banks withtm o u r district w e will have v e r y f e w members
Left inside o f the next three o r four months.
T w o of
the most important ones a r e going t o drop o u t next month
and I believe t h e member list will dwindle.
Governor Rhoads: I
would like t o ask i f w e are jus-
tified i n going o u t a n d undertaking something t h a t w e
believe t o b e o n a false basis?
Governor Seay: I
know they will d r o p o u t t o a
great e x t e n t i n our district under t h e operation o f the
creditplan-
Mr. “arburg:
V o u l d n o t that depend o n h o w tnis
thing i s being handled?
Governor Seay: I
really d o not think so, Mr. War-
burg.
Mr. Varburg:
i
f i t were known that s o m changes
are trying t o b e worked o u t , d o y o u not think t h e y will
approve a n d w o u l d b e p e r s u a d e d
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Federal Reserve Bank of St. Louis
Governor Seay: I
t o continue?
think t h e y have continued this long,
575
Sir, o n l y o n the assumption that w e would work out some-—
thing more satisfactory.
I f y o u delay i t t o a n indefinite
period I do not think they would remain.
Governor Wold: I
a m n o t s o sure, G o v e r n o r Seay,
i
it w e r e m a d e k n o w n t h a t e f f o r t s a r e b e i n g m a d e t o have
that ‘ S e c t i o n c l a r i f i e d a n d t h e l a w p u t u p o n a
basis, I
workable
rather think that most o f the banks would l e n d
their aid.
T h o s e that have already lent their a i d a n d
name a n d i n f l u e n c e
t o the development
o f t h e s y s t e m would
remain.
Mr. Harding: I
think Mr. warburg suggested a
important point, t h a t y o u g e n t l e m e n f r a m e a
he e f f o r t s t h a t
o e
very
report s h o w i n g
b e o n m a d o a n d s u o w i n g t h e obstac#&as
you h a v e t o c o n t e n d with, a n d p o i n t i n g o u t w h y i n y o u r
juc.gment t h e thing would n o t b e made t o succeed a s the l a w
stands now, and craft a suggested modification o f the
system a S y o u think i t ought t o be.
The Chairman:
T h i s i s the psychological moment f o r
some g r o a t i n t e l l e c t
i n this r o o m t o offer a
resolution
that will bridge t h e g a p between n o w a n d next January,
say, a n d t h e Chair will entertain a
motion right n o w i f
someone will frame one.
Governor Aiken:
T h e only trouble, Mr. Ghairman, i s
in our exhibiting that egotism suggestec b y the gentleman
who m a k e s t h e motion.
The Chairman: S l i m i n a t e thos e
portions o f m y re-
marks, a n d 1 will a s k i f some ordinary member will n o t
offer a
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Federal Reserve Bank of St. Louis
resolution?
=
576
Governor Seay:
T h e r e w a s o n e point t h a t w a s brought
as t o t n e e x c h a n g e t h a t t h e m e m b e r b a n k s
might charge. I
would like t o ask .ir- McKay i f he con-
templates t h a t t h e r e w o u l d b e d i r e c t r e m i t t a n c e
member banks t o the Federal Reserve Yanks,
b y the
o r i s i t all
to b e b o o k entries?
Mr. McKay:
T h e i d e a i s that t h e items w i l l b e
charged u p b y b o o k entries, a
specified n u m b e r o f days,
and that number o f days will give t h e member b a n k time t o
be a b l e t o p r o v i d e s u f f i c i e n t
The Chairman: I
d o n o t s e e that this does t h e coun-
try banks a
bit o f good.
the same,
I
Tne. i
t o take c a r e a @ t h a t charge.
I t puts t h e float o n them just
f i t gets deferred credit i t i s carrying
Oats
(At this point a n informal discussion t o o k place
which t h e stenographer w a s directed n o t t o report; a f t e r
which the following proceedings were had: )
he Chairman:
matter
M r . vwarburg c a l l s
i n connection
w i t h this procedure
will e n a b l e u s t o cover t h e pap.
district c l e a r i n g ,
m y attention
toa
t h a t possibly
T h e p l a n f o r intra-—
a n d a n y plan which w e might adopt f o r
inter-district collections,
i s subject t o the regulation
of the Federal Reserve Board, a n d if we should adopt the
plan herein contemplated i t would undoubtedly b e necessary
for a
committee
o f this B o a r d t o g o t o Washington
t o take
the matter u p with the e d e r a l Reserve Board.
We h a v e f o u n d i n o u r p r e v i o u s d i s c u s s i o n s t h a t t h a t
wag a matter n o t o f weeks, b u t o f months i n order t o finally r e a c h a
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Federal Reserve Bank of St. Louis
conclusion.
I
f you are willing
t o employ t h e
577
Same m e t h o d t h a t w a s e m p l o y e d b e f o r e ,
o f having s
committee
deal with the final working o u t o f the details o f this p l a n
and a t t h e s a m e t i m e e n d e a v o r i n g
t o frame a n amendment
to
the Federal Reserve Act, I do not believe that we need to
consider t h a t t h e t i m e eclapsing b e t w e e n n o w a n d t h e t i m e
whatever p l a n w e are considering i s finally dealt w i t h
in Washington i s lost time, o r that w e are delaying matters
any.
W
e could ~
r i g h t ahead a n d adopt this p l a n a n d g o
to Washington a n d thresh outthe whole -ucstion over again,
and w e are not losing a n y time o r deferring action.
Havwould i t do, therefore, f o r each o f us here t o read
theplan a s s u b m i t t e d
b y this g o m m i t t e e a n d a c t u p o n i t a s
a whele w i t h o u t t a k i n g i t u p b y paragraphs
a n d submit
it
with instructions t o a committee o f this conference o r
to the Executive Committee o r a special committee, a n d
let i t b e understood t h a t t h e matter i s t o b e dealt with
as I
have suggested,
Board.
b y conference w i t h t h e Federal Reserve
M y Suggestion t h e n would b e that the Committee
would o c c u p y t h e t i m e i n t e r v e n i n g b e t w e e n t h i s m e e t i n g a n d
a meeting o f the whole Confrence, w h i c h w e could agree
should h e heldin Washington sometime i n December,
if
necessary, a n d w e will b e making progress, a n d a t the
December meeting w e could submit t o this meeting t h e conclusions arrived a t b y the committee i n conference w i t h the
Federal Reserve Soard.
Governor Yeay:
of operations
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Federal Reserve Bank of St. Louis
T h a t would n o t involve t h e extension
i n the meantime?
578
The Chairman:
Y O .
I n fact, the extension o f opera-
tions prior t o that time would b e absolutely impracticable,
anyway.
Governor Fancher:
W e would just mark time, a s we
are d o i n g now.
Mr. Warburg:
ment stop, b u t I
T h a t e
t o see t h e interdistrict develop—
can see the necessity o f dealing with
thatic
The Chairman:
us, i f y o u please,
w
e would propose t o deal with it» L e t
n o w consider this report w h i c h contem-
plates a
plan for interdistrict transactions, a n d t h e con-
tinuance
i n the meantime
o f t h e present intradistrict plan,
and a d o p t i t t e n t a t i v e l y f o r s u b m i s s i o n
to b e appointcd,
t o the committee
w h i c h committee w i l l t h e n take i t u p i n
detail with the Federal Reserve Beard a n d t h e whole matter
be r e p o r t e d b a c k a t t h e c o n f e r e n c e
in December.
W
t o b e heldin Washington
e have never been able ©
p u t through a
plan, a n d never will, a t onc meeting o f the Conference, p u t
through a plan.
w e have g o t a
lot o f consideration t o
give t o i t ane deliberation f o r a couple o f months before
we get t o the point o f actually coing business.
I move a recess, without private conversation, f o r
five minutes, during which all o f t h a e
present r e a d this
plan.
Governor Fancher: I
second the motion.
(The motion was carried.)
(At the expiration o f the brief refess referred t o the
following proceedings took place:)
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Federal Reserve Bank of St. Louis
579
Tne Chairman: G e n t l e m e n , a r e y o u ready t o start?
Governor V a n Zandt:
F o r information,
i n the event
this p l a n s h o u l d b e adopted, d o e s i t c o n t e m p l a t e t h a t w e
shall receive f r o m other Foderal Reserve banks items o n any
member, rogardless o f the fact that they are members o f
our collection system?
Mr. McKay: W e l l , i t does, Mr. Van Zandt?
Governor V a n Zandt:
I n that event, t f some o f those
banks want t o charge exchange o n items s e n t t o them, what
happens?
Mr. McKay:
Y o u c a n charge i t back.
Governor V a n Zandt:
Mr. McKay:
Yes.
Governor Wold: I
question.
R e f u s e t o have it?
would like t o ask Jr. McKay one
D o e s this p l a n contemplate t h a t w h e n credit
is given a t the e n d o f the t w o days' deferred t i m e i t indicates t h a t t h a t s h a l l b e t h e f i n a l p a y m e n t ?
Mr. McKay:
N o .
Governor Wold:
that?
T h e r e i s nothing i n here t o indicate
W e mignt have a
delayed mail o r lost check.
I s
there a n y t h i n g h e r e t h a t i n d i c a t e s t h a t ?
Mr. McKay:
N o .
Governor Wold:
Y o u have a
different k i n d o f a
plan
here n o w e
The Chairman:
deta 1, that really i s one, a n d - e all have I t i n mind, 7
want t o s u g g e s t t h a t u n d e r t h e p l a n t h a t w a s d i s c u s s e d a
minute a g o dealing w i t h this subject, whatever p l a n i s
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Federal Reserve Bank of St. Louis
580
eventually evolved f r o m this will b e subject t o further
consideration b y a meeting o f the Governors:
A s w e are
all furnished n o t o n l y with this recommendation b u t a s all
the Governors will b e furnisned w i t h Whatever conclusion
is arrivedat,
i f this matter goes t o the Executive Coaait-
tec o r t o a committce f o r treatment a s Suggested, t h a t r e port w i l l a l s o b e s u b m i t t e d b a c k to. t h e G o v e r n o r s p r e v i o u s
to the mecting, a n d i t seems t o m e w e are going t o b e i n
a position carefully t o consider a l l these details a n d
bring t h e m u p i n Washington,
Governor Wold: I
am prepared t o offer a motion that
it b e referred t o the Zxecutive Committee t o take u p with
the Federal Reserve Board a n d report b a c k t o t h e Conference
in Deccomber.
Governor McDougal:
T h e adoption o f the p l a n wouid
empody that same idea, b u t m a y I
suggest, n
i view o f the
compliment y o u pay the Transit Managers! Committee, a n d i n
view o f their ability t o handle t h e technicalities involved
here, probably better t h a n o u r committee could, t h a t a
committee o f the transit managers o r the transit managers'
body a s they were represented i n Chicago b e given the
responsibility
o f taking this u p n o w with the Board a n d
then returning a
report t o u s rather t h a n leaving i t with
the E x e c u t i v e C o u m i t t e e
o f thisConference.
Governor Aiken: I
avout that.
24
:
i
:
have some doubts, ™r. Chairman,
t 2 8 within t h e power o f the Executive C o m —
r
y :
o
s
mittee t o invite members o f the transit Managers t a consult
With t h e m .
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Federal Reserve Bank of St. Louis
581
The Chairman:
A s a matter o f propriety,
i f nothing
else, Governor !cDougal, this matter Will be dealt with b y
a committse meeting with the Federal Reserve Board, and it
might e v e n f e e l t h a t i t n e c e s s i t a t e d p r e k i m i n a r y c o n f e r e n c e s
with some members o f Congress o r the Senate, w h o a r e pery
much interested,
i t appears,
i n the development
o f this
matter, a n d they possibly would consider i t strange that g e
should s e n d a
departments
committee
o f the m e n who a r e running t h e
o f the banksover there instead o f some o f
us g o i n g ourselves.
Governor McDougal:
I t would b e entirely satisfactory
for representatives o f the Transit Men's Committee t o
work along with u s either i n Washington o r elsewhere.
The Chairman:
T h e n may not a motion, i n substitution
for Governor Wold's, a s h e indicated t h a t h e would accept
a substitute, c o v e r that point?
I would r e c o m m e n d t h e a d o p t i o n o f a
resolution v r o v i d -
ing that this conference adopt a s their recommendation
the s u b s t a n c e
o f Vote 1 2 adopted
b y t h e Transit Managers
as r e p r e s e n t i n g s u b s t a n t i a l l y t h e v i e w s e n t e r t a i n e d
by
this Conference o f the method t h a t should b e used i n handling this collection matter, a n d that the development o f
tne d e t a i l s
o f the p l a n a n d the submission o f i t t o the
Federal Reserve Board b e left t o the Executive Committee
of this Conference, w h i c h will b e emppwered t o invite t o
attend these meetings s u c h o f the transit m e n o f the different banks a s they see fit.
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Federal Reserve Bank of St. Louis
Governor Rhoads: I
second t h a t motion.
582
The Chairman:
D o e s t h a t embody your view, Governor
McDougal?
Governor McDougal:
T h a t i s e n t i r e l y satisfactory.
(The motion was duly carried.)
Governor S e a y : I
would l i k e t o b e r e c o r d e d a s n o t
voting a t all.
The Chairman:
B e f o r e
w e adjourn, I
a m going t o take
the liberty o f reviving a subject that was n o t completely
dealt with a t the Chicago meeting.
You will recall t h e discussion o f certain inconveniences t h a t h a d a r i s e n i n c o n n e c t i o n w i t h c o m m u n i c a t i o n s
sent by the Federal Reserve Board t o the Federal Reserve
banks.
D r + Miller, w h o was i n attendance, I
think thor-
oughly u n é e r s t o o d t h e d i f f i c u l t y a n d w a s w i l l i n g t o t a k e
it u p i n f o r m a l l y w i t h , t h e B o a r d i n W a s h i n g t o n u p o n h i s r e -
turn from California:
W e a r e i n the same situation now,
not having heard f r o m the Board o n that subject,
is your pleasure I will hand t o Mr. Warburg and Wir. Haraing a
copy e a c h o f the resolution p a s s e d a t t h e Chicago
meeting which was t o b e deakt w i t h informally b y Dr. Mister,
and entrust t h e m with t h e responsibility o f this matter,
Is that entirely agreeable t o the m e t i n g ?
Governor Kains: s n b i v e r y , air.
The Chairman: I
should l i k e t o explain t o Mr. War-
burg a n d Mr. Harcing that the discussion a t t h e Chicago
meeting brought o u t the fact that b y the present
with the Federal Reserve Board practically all official
communications o f the Board were addressed t o Federal R e Serve Agents, a n d s o m t i m e s d e l a y a n d inconvenience arose
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Federal Reserve Bank of St. Louis
583
in connection w i t h those communications.
there w a s s o m s e n t i m e n t
Furthermore,
i n some.of o u r F e d e r a l R e s e r v e
anks t h a t correspondence o f that character, relating t o
tne actualmanagemert o r the business o f the banks i n many
tO b e addressed t o the Federal Reserve B a n k
rather t h a n t o a n individual i n that bank.
I t i s a matter
Of routine a n d alvthough i t d o e s n o t i n v o l v e a n y c o m p l a i n t
At-Gii,
2 t 1 8 simply a desire t o facilitate business, a n d
avoid n o w a n d t h e n s o m e inconvenience.
Governor
W
o
u
l
d y o u indicate what kind o f
routine m a t t e r s y o u r e f e r t o ?
the Chairman:
F o r instance, t h e r e w a s a time w h e n
the telegrams which reported t h e result o f the Golé Fund
were adcressed personally t o the “ederal Reserve Agent.
fir. Warburg:
T h a t w a s Changed, t h o u g h ?
The Chairman:
T h a t was changeé;
tratcs t h e necessity,
respondence,
b u t that illus-
i n connection w i t h a lot o f this cor-—
o f nothaving i t addressed t o & n individual
Who might not b e i n the bank and concerning which possibly.
ve have n o instructions
Warburg:
t o o p e n t h e mail.
W e brought that u p when we opened tLoh e
Gold Fund, a n d that was done. I
would like t o ksow what
the other things are, j u s t t o get i t straight.
Governor Wold:
I n answer t o letters acdressec t o
the F e d e r a l R e s e r v e B o a r d D Y t h e - G e v e r n o r
sponse h a s b e e n received addressed
Agent.
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Federal Reserve Bank of St. Louis
Mr. warburg:
W h a t w a s i t about?
of 14
Governor Wold: i
Mr. Warburg: I
a6 not remenbex,
wish y o u would l o o k i t up.
W e ought
to respect t h e feelings o f the agents, too.
The Chairman:
D r . Miller suggested t h a t i t might
be desirable t o have a l l o f those letters prepared i n
duplicate a n d one c o p y mailed t o the pank, s o that there
might be no difficulty i n the bank's receiving it. There
is n o u s e i n p o i n t i n g o u t w h a t p a r t i c u l a r b a n k h a s e x p e r -
ienced these difficulties, b u t t h e Federal Reserve Agents
in the different banks certainly entertain different
views o
f their r e s p o n s i b i l i t i e s
charge t h e i r duties,
I
a n d h o w t h e y s h o u l d dis-—
n some o f these banks t h e y a r e u n -
willing e v e n t o deliver t h e mail t o the bank.
sider t h a t t h e y a r e t h e d i r e c t r e p r e s e n t a b i v e s
T h e y cono f the Feder-
al Reserve Board a n d that this i s mail o f a rather fiduciary character, a n d they convey instructions,
please,
i f you
t o the officers o f the Federal Reserve Banks,
ratner t h a n consider that t h e y a r e officers o f the b a n k
in dealing w i t h their associates i n conducting t h e business.
Such a situation,
i f these m e n were n o t o f the right
type, would surely becomeintolerable.
W e are very anxious
to a v o i d t h e p o s s i b i l i t y o f a n i s s u e o f a u t h o r i t y
o r dis-
eretion i n those matters b y a n arrangement that will make
it w o r k a u t o m a t i c a l l y
b y having t h e b a n k receive o n e c o m -
munication a n d the +ederal Reserve Agent another.
I hope I
have n o t e x a g g e r a t e d
o r overstrained t h i s
point, b u t i t was dwelt o n a t length i n Chicago a n d w e
thought w e ought t o bring i t u p now,
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Federal Reserve Bank of St. Louis
585
Mr. Warburg: I
just wanted t o get your view, because
wehave a meeting of the Federal Heserve Agents
soon. I
think the principle i s right that a
question o f
business routine ought t o g o t o the bank a n d that a
communi-
cation with reference t o a ruling ought t o g o t o the “ederal
Reserve Agent. I
wondered i f there were a n y particular
instances y o u had i n mind?
The Chairman: I
showld- L i k e to: dilustrate.
t h e point
a little further b y calling your attention t o this fact,
that some of the “eserve Agents are maintaining separate
private files o f their correspondence, a n d this correspondence i s o f a character that t h e officers o f the bank are
abaolutely d e p e n d e n t u p o n t o r e f e r
t o f r o m t i m e t o time.
They cannot conduct their business withoutnaving a t their
convenience a n y minute t h e various communications u p o n which
this s y s t e m i s b e i n g established,
a n d such a
Situation,
if carried t o hts logical conclusion, would mean that the
officers o f the bank would b e obliged daily t o g o t o the
Federal Reserve Agent and ask what they could do. T h a t
also would b e unworkable.
Governor Seay:
to take a
I t also m a kes i t necessary sometimes
copy o f those letters i n order t o keep current.
Governor wold:
T h a t i s t h e c a s e i n ilinneapolis.
The best o f good feeling prevails between t h e Federal R e serve Agent a n d t h e officers o f the bank, b u t these letters g o i n t o a
private f i l e u n d e r l o c k a n d k e y , a n d t h e
only thing f o r u s t o d o i s t o make copiesof a l l these that
come
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Federal Reserve Bank of St. Louis
t o t h e bank,
586
The Chairman:
W e never have a n y such a situation i n
New York.
T h e files o f the Feceral Reserve Agent are
oun Lives.
T h e y a r e a l l together,
a n d there h a s been
built u p a n i n d e x a n d c l a s s i f i c a t i o n
o f all o f these c o m -
munications f r a m the Board which w e regard a S very neces-—
Sary.
Mr. Warburg: I
ceive a
think that t h e b a n k might easily r e -
copy; b u t t o s a y t h a t t h e e n t i r e c o r r e s p o n d e n c e
of the Federal Reserve Agents should b e a file o f the
bank would b e going t o a n extreme.
The Chairman:
communications;
T h e r e may be occasion for confidential
but as a
result
o f the business operation
with which all o f these m e n are familiar, t h e scheme o f
dividing t h e bank into twoparts, o n e supervisory a n d the
Other administrative, a n d attempting t o keep them distinct
and separate,
a n d t h e different departments u n d e r l o c k a n d
key, would b e a very unfortunate development.
Mr. Warburg:
T o a certain extent I think you are
right; b u t i f you g o t o the extreme m d m a k e t h e Federal
Reserve Agent absolutely a n officer of the bank, his
correspondence belongs t o the bank, a n d then y o u will
destroy the meaning o f the Act. I
do not think you could
go that far, because there mist b e some matters which are
confidential The Chairman:
however,
T h e y would b e distinctly exceptions,
t o the routine o f the correspondence.
Governor Fancher: I
recall, Mr. Chairman, that Mr.
Warburg w a s a b o u t t o s a y s o m e t h i n g
operations.
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Federal Reserve Bank of St. Louis
t o u s o n open market
587
Mr. Warburg: .- -The board would like very much to
have a n e x p r e s s i o n o f t h e C o n f e r e n c e
o n that. I
think
we would like t o hear f r o m the Governors a s t o h o w they
feel about that, and 1 think you raised the question, Mr.
Fancher,
and
o f the r a t e , i f any there would bad. Vcd oias that
would b e dealt with o n a similar basis a s the acceptances
Will be-
W e tabled that for our return, because w e thought
it w o u l d b e useful
The Chairman:
tions
t o h a v e a n e x p r e s s i o n f r o m y o u first.
W
e have already passed s o m e resolu-
o n this s u b j e c t w h i c h h a v e n o t b e e n reported.
L
E
have n o t attempted t o g o over this program a n d report
what h a s been done.
I n dealing with those classes o f
paper which would b e permitted under Section 1 4 o f theAct,
other t h a n the classes which are already covered b y regulation, I
think o u r action w a s rather unfavorable t o the
extension o f the activities o f the banks a t this time.
In the matter o f rates, a
ing a t t e n t i o n
resolution w a s passed draw-
t o the fact that s o m e pressure s e e m e d t o have
been exerted i n thc matter o f fixing commodity rates, a n d
that i t was t h e view o f this meeting that t h e rates which
had been adgpted b y the Reserve banks were a S l o w a s were
consistent w i t h conditions, b o t h domestic a n d international,
that h a d existed u p t o this time.
T h a t matter was dis-
cussed at much length, and 1 think the sentiment o f the met—
ing w a s t h a t t h i s w a s a
time when,
t o use t h e words that
were used last night, t h e FederalReserve banks should con-
serve their resources, a n d while they would not possibly
employ a n y more o f their funds b y lowering their rates t h e y
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Federal Reserve Bank of St. Louis
588
would b e sentimentally affecting rates, a n d consequently
adding t h e i r i n f l u e n c e
by t h e m e m b e r banks.
t o t h e expansion o f the l o a n account
T h e r e is a
very d e c i d e d f e e l i n g
here t h a t t h e r a t e s g e n e r a l l y e s t a b l i s h e d f o r r e d i s c o u n t s
are a s l o w a s s h o u l d b e p e r m i t t e d a t t h i s time.
Mr. Warburg:
that I
T h a t i s very interesting.
T h e o n e point
should l i k e t o h a v e c o n s i d e r e d - - - a l t h o u g h y o u
possibly a r e n o t p r e p a r e d
t o g o into t h a t now, a n d i f y o u
do not expect t o g o into t h e subject there i s n o hurry
about i t - - - i s w i t h r e f e r e n c e
t o d i r e c t acceptances.
T h e
point that struck u s was that t h o principle t h a t was t o b e
applied
endorsed
i n buying p a p e r cndorsed
by a
by a
member b a n k a n d u n -
member b a n k h a d s o m e relation.
w h a t relation
Should t h e u n e n d o r s e d r a t e h a v e t o t h e e n d o r s e d r a t e ?
There i s the point that y o u want carefully t o consider
before a n y policy i s adopted.
The Chairman:
w o u l d i t b e practicable
t o have a
shortmeeting after lunch with you and “r. Harding?
Mr. Warburg:
Y e s . _
The Chairman:
W o u l d i t b e possible f o r u s t o meet
here again a t half past t w o o r quarter o f three?
Mr. Warburg: I
would b e willing t o make that four
o'clock.
The Chairman:
Suppose
w e take a
recess
t o meet unthl
four o'clock.
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Federal Reserve Bank of St. Louis
Governor Fancher: I
so move, Mr. Chairman.
(The motion was duly seconded.)
Mr. Foote: I
think I ought t o b e allowed t o make
589
some explanations
t o our Board, a n d 1 want t o b e perfect-
ly ethical i n everything I say. I
to g u a r d t h e s e c r e t s
want t o b e very careful
o f this o n f e r e n c e properly,
F o r
instance, I l think I ought t o b e privileged t o explain t o
the B o a r d a b o u t t h e r e s o l u t i o n p a s s e d
i n which i t w a s d e -
creed t h a t i n t h e f u t u r e t h e r e w o u l d n o t b e a n y b o d y p e r m i t —
ted t o a t t e n d t h e s e c o n f e r e n c e s e x c e p t
a n active executive
officer o f a Federal Reserye Bank.
I think that action w a s thoroughly consistent a n d
right, a n d I
a m more convinced o f i t now, a n d I should
have retired f r o m the Conference a t that time i f i t had
been p o s s i b l e f o r u s t o h a v e r e p r e s e n t a t i o n ;
b u t I
see
the w a y a stranger gets i n here a n d gets i n the w a y o f
the wheels o f progress b y virtue o f not possessing previous
information a n d b y v i r t u e o f n o t h a v i n g t h e e q u i p m e n t t h a t
comes t o the m e n who are sitting i n this body. A
stranger
"putts" i n here and h e is i n the way and h e retards progress a n d h e Coes n o t d o intelligent work.
begin t o get t h e results that a
H e does n o t
man would g e t whe h a d been
sitting i n these conferences.
I think
i n the future that
i f our bank cannot
b e
represented b y a n active executive officer i t would b e best
for o u r bank and t h e system t o b e unrepresented. I
think
I ought t o be able t o go into that fully with our board
so that they may not make this mistake again.
The Chairman: I
wish you would, Mr. Foote. I
want
to assure you, however, t h a t t h e resolution was p a s s e d —
in t h e i n t e r e s t s
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Federal Reserve Bank of St. Louis
o f t h e Atlanta, Bank.
590
T h e r e a r e three copies
Mrs Foote:.
o f that transit
report that were sent o u r bank a n d they are going t o a s k
me q u e s t i o n s a b o u t i t .
T h e r e will b e some member banks
who will a s k m e questions about it.
W i l l i t b e consistent
for m e t o e x p l a i n w h a t a c t i o n w a s t a k e n o n * t h e r e c o m m e n d a -
tions o f the transit managers ?
The Chairman:
Mr+ Foote:
N o t t e the member banks.
B u t I can t o our o w n bank?
The Chairman:
Y o u r o w n bank.
G o v e r n o r McCord will
receive f r o m u s i n due course t h e transcript o f S L L O F
the discussion a t this meeting, a n d h e understands t h e
discretion that i s imposcd u p o n h i m i n dealing with the
matter.
Mr. Foote: I
can tell o u r board about t h e action
on i a t report, c a n 1 7
The Chairman:
Yes. I
think i t has b e e n customary
for those w h o have b e e n i n attendance a t these meetings.
to generally report t o their boards o f e
n s
the m e e t i n g h a s a l w a y s b e e n r e g a r d e d a s o f a
b u t
most c o n f i d e n -
tial character.
Mr. Foote: I
want
appreciate that, “ir. Chairman, a n d l
t o b e most careful.
Governor, another thing, i f I may b e permitted t o
inquire.
I
f I
a m asked b y a
jones
p a n k i f there i s
going t o b e deferred debits a n d credits,
o r what t h e plan
of clearing is, I cannot make any comment a t all o n that;
I cannot give them any information?
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Federal Reserve Bank of St. Louis
Governor V a n Zandt:
T e l l t h e m y o u d o not know.
591
The Chairman:
I t has not been decided yet, Mr.
Foote, and 1 think that you would not be justified i n
giving o u t t h e information.
Mr: Foote: I
just wanted t o b e careful.
The Chairman:
Surely.
Governor Aiken: I
think I
a m expressing t h e opinion
ofall of those present when 1 say that it has been a
pleasure
t o have h a d Mr. F o o t e w i t h us-
in t h e w a y o f t h e wheels ¢
progress,
H
e has not been
a n d w e hope h e has
enjoyed t h o meetings.
Governor Wold: I
second t h a t s e n t i m e n t v e r y h e a r t i -
BS
Mr. Foote:
We Gh 7 0 u I
I
t has certainly b e e n a
pleasure
t o be
t h a n k you.
ne Chairman:
w e are glad you are here. I
think
it does u s a lot o f g2 o o d t o get together o n these things. g
(whereupon, a t 1:L0 o'clock p. m., the Conference
took a recess until 4 o'clock p. m-)
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Federal Reserve Bank of St. Louis
pee yes ie a
R E
C E Ss.
The Conference reassembled, pursuant t o recess,
at
4
0 G l o c k p . tik.
T h e meeting will come t o order.
The Chairman:
The o n l y open subject o n the program, aside f r o m the
various items under Topic 7 , Collections a n d clearances,
is the question o f daily settlement through t h e Gold
Settlement Fund.
T h a t m a t t e r h a s b e e n considered, I
be-
lieve, b y the Federal Reserve Board, a n d w e ought n o t t o
adjourn w i t h o u t g i v i n g s o m e e x p r e s s i o n o f views a s t o
whether t h e time i s ripe toundertake d a i l y settlements.
The subject w a s suggested b y the Federal Reserve
Board.
os G O L D SETTLEMENT FUND - ~ DAILY SETTLEMENTS.
Governor Kains:
W h y should w e settle every day?
Why shoulda not e a c h bank keep a n account w i t h the Federal
Reserve Board a n d just leave o u r balances there, l i k e t h e y
T h e y always
do i n the head office o f the Canadian Banks.
million dollars there,
keep a
a n d sometines
m u c h more
W
to
should n o t s e t t l e a t all, e x c e p t w h e n w e a r e a s k e d
settle.
I t i s a n awful nuisance.
Mr. Hendricks:
T h e idea i s that t h e y would have a
running account w i t h the Gold Fund?
Governor Kains:
Governor Aiken:
Yes.
I
t practically means a
daily s e t -
tlement, h a v i n g t h e c h a r g e s a n d credits m a d e e v e r y day.
The Chairman:
W h e n t h e balances g e t t o o heavy i n
call f o r a
one place o r another, t h e creditor b a n k could
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Federal Reserve Bank of St. Louis
e
_~ _ s e t t l e m e n t .
Governor Aiken:
Mr- Hendricks:
Yes.
T h e y could Withdraw their excess
balances.
Mr. McKay: L v e r y t h i n g sent t o another Federal R e serve B a n k could b e charged t o the Gold Settlement F u n d
and everything received b e credited t o the Gold Settlement Fund, a n d the bookkeeping would a l l b e done i n Washington .
Mr. Warburg: I
think this w a s brought about more
after advising w i t h t h e banks.
W
e thought a
great bene-
fit would b e gained b y greatly increased clearings.
h
e
Board would b e quite ready t o see t o i t that t h e daily
settlements should b e made, b u t unless this thing grows
I do not think thore
4 g a n y cause f o r change a t present.
We only have t h e idea,
i n connection w i t h the whole develop~
ment, t h a t i t might b e desirable.
for d a i l y s e t t l e m e n t s
w e could easily arrange
i f i t w e r e desired.
W
e wondered
if i t would b e helpful?
Mre McKay:
U n d e r t h e present arrangement t h e large
accumulation o f balances i n one bank could b e transferred
between dates o f settlement.
Mr. Warburg:
Mr+ McKay:
T t could be.
L t i e Gone now, t h i n k ,
Mr. Warburg:
T h e y withdraw t h e balances n o w once a
week?
Mr. MeKay:
y e s .
n v e n now, u n d e r t h e p r e s e n t p l a n ,
any bank that h a d a large accumulation w i t h a n y other
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Federal Reserve Bank of St. Louis
594
bank could have i t transferrcd between settlement periods.
The Chairman:
U n c e r t h e presont s c h e m e w e simply
Make a n entry i n the books o n c e a week a n d t h e title supposcdly passes t o the credit balance o r the debit balance,
as the case m a y be, f r o m time t o time, a s transactions
occur, a n d then w e credit o u r books t o conform;
the balance a n d g e t t h e n o w figures confirmed.
going t o h a v e d a i l y s e t t l o m e n t s
w e report
i f v e ave
i t i s more important t h a t
an understanding should b e arrived a t a s t o the liability
for a n y expense.
W e have dealt w i t h that subject t o m y
entire s a t i s f a c t i o n ,
expense,
and I
was t h e k i c k e r a b o u t p o s s i b l e
I t doesn't make much difference t o us whether
it i s weekly o r daily settlement.
Mre Hendricks:
T h e only thing i s that under t h e
daily s e t t l e m e n t p l a n w e m a y h a v e a
large b a l a n c o
t o pay
one d a y and t h e situation would b e revorsed t h e next day.
The Chairman:
Y e s , a n d t h a t i s a n i m p o r t a n t point.
If these balances a r e t o b e settled daily w e should have
an u n d e r s t a n d i n g
a s t o t h e operation o f t h e exchange a c ~
count - C h i c a g o might send u s five million dollars o f
exchange o n e d a y a n d w e would settle it.
T h e next d a y
the drafts would come i n against i t a n d reverse t h e w h o l e
thing:
Governor Wold:
W e would like t o hear Mr. Warburg's
and 4p. Harding's views o n ite
W e are sending Chicago
and N e w York oxchange a n d that automativally goos into
the Gold Fund.
T h e y g e t silver certificates i n the clear-
ing h o u s e i n settlement
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Federal Reserve Bank of St. Louis
o f the craft t h a t w e send t h e m o r
595
the c r e d i t w h i c h t e create,
gold i n t o t n e G o l d Fund,
a n d a r e roquired
I
t o pay out
f w e allowod t h e balance d u e
from the N e w York Bank t o accumulate until w e commenced
to soll exchange a g a i n t h e y would n o t b e obliged t o take
any s i l v o r c e r t i f i c a t e s a n d p a y o u t gold.
i
t scems
to
me the logical thing t o d o i s for t h e Minneapolis B a n k t o
open a n oxchnange a c c o u n t w i t h t h e N e w Y o r k Bank, j u s t a s
they send u s exchange w h e n they purchase it, a n d against
which w e draw wnen w e sell excnange i n turn.
g:
I
t would create a
figuring o f deposits a n d reserves.
good d e a l o f m i x e d
T h a t i s n o t very im-
portant, a n d i t i s the only objection I
¢an see against
G3
The Chairman:
I t does n o t involve a s serious a
re-
adjustment o f reserves o r disarrangement o f reserve caleu-
lations.
T h a t is, the inconvenience resulting from making
this account i n making reserve calculations w o u l d n o t compare w i t h t h e inconvenience t h a t would result f r o m daily
settlements through t h e Gold Fund, i f they were obliged
to s e t t l e b o a s
a o m wis
i n fut,
we are afraid o f i n Now York,
T h a t i s one thing that
i n connection w i t h the daily
settloment, t h a t without having time t o turn around o r
communicate w i t h t h e b a n k s t h a t a r e m a k i n g t h e s e l a r g e
accounts w i t h us, w e will b e snifting immense quantities
of gold backi
a n d forth.
Governor McDougal:
I s there a n y objection o r would
there b e a n y inconvenience
sent plan, Mr. barburg?
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Federal Reserve Bank of St. Louis
i n our going along o n the pre-
596
Mr. Warburg: I
cannot s e e a n y a t all.
W e only
a t
Suggested i t for your convenience,
Lt: I
i n case y o u required
d o n o t think a t t h e present t i m e i t would b e wise
to c o m p l i c a t e m a t t e r s
a t all.
Governor McDougal:
I f w e were a l l Strangers h e r e
it might b e a good idea t o begin clearing daily, b u t i t
is very plain that t h e work i s going along fairly satisfactorily, a n d I see n o reason f o r making t h e change,
The Chairman:
T h e Board h a s n o objection,
understand you, Mr. Warburg,
a s [I
t o the continuance o f t h e
arrangement b y which t h e balances a r e withheld f r o m settlement s o a s t o enable us, without paying settleménts
through t h e Gold Fund,
t o meet checks that come i n against
exchange s e n t u s b y o t h e r banks. I
deo n o t s e e h o w a n y
objection c a n b e r a i e u , b e c a u s e t h e A c t p r o v i d e s t h a t
Resorve Banks m a y eStablish accounts f o r exchange purposes
with e a c h other.
Governor McDougal:
the Board,
O u r arrangement w a s ratified
by
o r a t least t h e y were acquainted w i t h o u r plan
by which w e would hold a n amount i n keeping with the
probable requirement.
Governor Rhoads: I
think there w a s a
stancing
order t o hold t w o million f o r o u r anaes,
Gcvernor Warburg:
Governor Rhoads:
Mr, Warburg:
T h o s e d o not exist a n y more?
Y e s sir.
A t the present time I
do not s e e tne
least objection t o it- P e r s o n a l l y I never s a w a n y obije ctA OY C O E t e a t s a s
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Federal Reserve Bank of St. Louis
897
The Chairman:
H a s the difficulty o f New York's
Situation b e e n e x p l a i n e d
t o y o u gentlemen
i n regard t o
clearing h o u s e o p e r a t i o n s ?
Mr. Warburg:
know w h e t h e r
I t was explained t o me. I
i t w a s explained
Governor Fancher:
do not
t o ir. H a r d i n g o r not.
M r s Chairman,
i t occurs t o m e
that there i s n o necessity just a t present f o r a change.
I t h i n k p e r h a p s s i x t y o r n i n e t y d a y s m a y witness a
change
of conditions i n the flow of exchange back to New York,
and w e will have h a d a period t h e n t o bather measure t h e
flow o f exchange b a c k a n d forth.
longer t h a n ninety days. I
continue
I t m a y take a little
believe i t would b e well t o
a S w e a r e until w e measure t h a t a n d g e t a
further into t h e operation o f the fund.
little
L a t e r on, w h e n
we g o i n t o t h e i n t e r d i s t r i c t c o l l e c t i o n p r o p o s i t i o n c o n -
ditions m a y arise that will make i t necessary t o have o u r
balances *viped out daily.
Mr. MeKay:
I f any change w a s made i n the matter o f
the G o l d S c t t l e m e n t F u n d I
think I
would b e i n f a v o r o f
the suggestion made b y Governor Kains that everything sent
to a Federal Reserve B a n k b e charged t o the Gold Settlement F u n d o n t h e d a t e t h a t i t i s a v a i l a b l e
i n the Gold
settlement Fund, a n d vice v e r s a , d o i n g away with carrying t h e d u e t o a n d d u e f r o m accounts.
Governor Fancher:
T h a t i s w h a t t h i s p l a n contem-—
plates.
The Chairman:
before agreeing t o
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Federal Reserve Bank of St. Louis
w o u l d like t o see that figured o u t
598
Governor Kains refers t o the operations o f one b a n k
between i t s brancnes,
O u r operations extending t h i s
clearing business m e a n a settlement o f balanccs between
7600 b a n k s
i n t h e l a s t analysis.
(Informal discussion followed.)
Governor Seay:
I n anticipation o f the probability
of beginning interdistrict clearings a n d increasing t h e
volume, I
became convinced t o a n almost certainty-that i t
would b e necessary,
i n the case o f the smaller banks,
have daily clearings. I
to
a m still convinced o f it. 4
had the bookkeeping methods worked o u t i n our bank, a n d
that i s a l l t h a t p l a n is.
AS w e a r e going n o w 1 do not s e e a n y particular reason w h y w e s h o u l d c h a n g e a t all.
I
t L e “ c e r t a i n t o n ing
mind, however, t h a t i f w e interchange clearings i n great
volume, t h a t t h e smaller banks would accumulate i n the
space o f a week a very large proportion, a
larger propor-
tion o f their reserves w i t h their reserve banks, depending
on the flow o f exchange, t h a n they could afford t o keep
there f o r a week,
The Chairman:
Governor Seay:
I L believe that i s true.
I
t was o n l y w i t h that v i e w that 1
had worked o u t i n our bank this plan, w h i c h i s nothing b u t
the bookkeeping mperations involved, a n d a s far a s bookkeeping goes I think i t would b e simpler a n d give less
+hrouble
t o the reserve banks t h a n t h e present method o f
two accounts.
T h e r e would b e more workinvolved
i n the
statistical department o f the Board, b u t i t would b e f a r
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Federal Reserve Bank of St. Louis
Simpler.
I was also responsible f o r putting i t u p for discussion, b u t with n o disposition t o press i t unless t h e
clearing matter should b e cetermined upon.
I wish v o u gentlemen would t u r n this p l a n over t o
your s t a t i s t i c a l d e p a r t m e n t s a n d h a v e t h e m e t h o d studied,
We w o r k e d o u t a
day's o p e r a t i o n s
i n detail.
W
e h a d pre-
viously w o r k e d o u t a n e n t i r e w e e k ' s o p e r a t i o n s , g i v i n g
w i t h errors, o m i s s i o n s a n d s o
the h y p o t h e t i c a l e n t r i e s ,
forth, b u t i t was s o complicated w e could hardly g e t the
Department a t washington t o study t h e mutter,
p
s o w e made
operations which are sufficiently simple t o
J
twou days!
think y o u will find i t worked
make t h e matter clear. I
eut i n rather complete cGetail a n d I wish y o u would t u r n
it o v e r t o y o u r b o o k k e c p i n g d e p a r t m e n t s f o r t h e i r stucy,
It would practically accomplish what tire McKay has suggested, o n l y i n a little different Way.
The C i irman:
H a s o u r discussion reached a peint
where this matter c a n b e disposed o f b y resolution?
Governor S e a y ,
y o u a r e particularly responsible f o r t h e
item being o n the program.
Governor Seay: I
move that i t i s the sense o f the
change
Conference t h a t u n d e r t h e p r e s e n t c l e a r i n g p l a n n o
in t h e m o t h o d o f s e t t l e m e n t
The Chairman:
I
i s necessary.
s there a n y further ciscussion?
Governor V a n Zandt: I
think i t would b e well t o
amend that motion b y saying that the subject b e left o n
the p r o g© r a m a s u n f i n i s h e d b u s i n e s s .
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Federal Reserve Bank of St. Louis
600
Governor Fancher: I
Governor Seay:
would second t h e amendment.
A n d the statistical departments o f
each bank study the plan i n the meantime?
Governor V a n Zandt:
The Chairman:
Y o s e
D o you accept t h e amendment ,Governor
Seay?
Governor Seay: I
accept t h c amendment; yes.
(The motion a s amended w a s duly carried.)
The Chairman:
T h i s i s that moment i n our meeting
when the program i p completed--- except (laughter).
Mr. Curtis:
T h e record shows that 2=(c) a n d (da)
and 1 5 a r e n o t completed.
The Chairman:
2 ( c ) a n d (d) a r e a s follows:
2 (c) W E E K L Y RUOPORTS @ RESERVES B Y MEMBER BANKS
(da) B I M O N T H L Y STATEMENTS F R O M MEMBER BANKS
S O W NG REQUIRED RESERVE AFTER SECOND R E S-RVE PAYMENT H A S BEEN MADE.
These subjects were suggested b y Governor Seay,
Governor V a n Zandt a n d Governor Fancher, a n d were also
Suggested b y membors o f the Reserve Board.
Governor Wold: I
suggest that t h e Federal Reserve
Board o p e n t h e discussion,
The Chairman:
M r . Warburg,
w e would like t o hear
from y o u o n this subject.
Mr. Yarburg:
T h i s subject i s interesting t o me,
because e v e r s i n c e w e o p e n e d t h e b a n k s I
have b c e n w i s h i n g
for the moment w h e n these weokly, bi-woekly o r monthly
reports w o u l d b e m a d e b y t h e m e m b e r b a n k s
t o us.
W
e be-
lieve t h a t until w e get statements o f that kind w e
Shall really b e a great deal i n the dark a s t o the reserve
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Federal Reserve Bank of St. Louis
601
condition
o f t h e mombper b a n k s ,
we w i l l k n o w t h e c o n d i t i o n
in a
position t o f i x a
Governor ®cay:
Vith t h o s e s t a t e m o n t s
o f the resorve
a n d w e will
be
penalty i f t h e y a r e t o o low.
~e p u t the burden o n you a t this
meeting o f fixing t h e venalty.
We cannot f i x a penalty until w e
Mr, sarburg:
the method o f finding o u t t h e condition.
have
If a c e o u n t s
are overdrawn w e have n e w a y o f kmowing i t without gcotting
a Statement
Lous
o f the condition
t O bevye tiais
o f t h e bank.
done b e c a u s e
I a m very anx-
there a r e n o r e a l s t a t i s t i c s
available about national banks
of the country, I
like t o i v i n a position where
our o w n ctatistical dcepart-
ment c a n begin t o work o u t o u r
own problom, I
anxieus
t o have t h i s started.
would
a m very
The argument h a s been
made against i t that t h e member banks a r e exasperated h y
requests f o r statoments a n d t h a t w e should n o t a s k t h e m
for a d d i t i o n a l
them
statements
think that
w e should
ask
t o make t h e additional statcments---
The Chairman:
year.
. «I
T h e y are
making t h e m five times a
Iwas just wondering i f for the present t h e f o r m
of report t h e Comptroller h a s
could n o t b e m a d e s o t h a t
tnese p a r t i c u l a r c a l c u l a t i o n s
could b e simply sent i n o n
a different s l i p o r m d e
separatestatement
ona
i n that
form s e that w e could g e t the
information w h i c h w a s n e e d e d
and not impose u p o n t h e banks
the annoyance c f making a n
additional
s e t o f statements.
Governor F a n c h e r :
May I
inquire, M r . W a r b u r g ,
if
you h a v e d c t e r m i n e d : e
n how e l a b o r a t e a s t a t e m e n t y o u r e -
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Federal Reserve Bank of St. Louis
Quire f o r youxy s t a t i s t i c a l d e p a r t m e n t ?
Mr. Warburg!
W e would like t h e statement m a d e a s
simple a s possiblé+ W h a t w e vould really like would b e a
Statement
o f deposits a n d reserves.
T h a t means a
some-
what simplified balance shect, w h i c h i s all that i s necesSary.
I t would b e somewhat like that gotten o u t b y some
of the New York banks every week end,
Governor Fancher:
C o n t a i n i n g probably seven o r
eight c o m p u t a t i o n s ?
Mr- Harding: I
think the Federal Reserve Banksought
to know the condition o f these member banks.
Governor Seay: I
a m convinced o f t h e importance o f
having t h e statement made h y member banks t o the reserve
banks.
Governor Fancher:
V e get a statement o n c e a
month
from our district bank, a n d i n that w a y w e c a n keep a n
approximate l i n e o n t h e i r roserves,
Governor V a n Zandt:
D o the statements s h o w you what
they are carrying i n addition t o what t h e y are required
to h a v e w i t h y o u ?
Gevernor Fancher:
s @ Simply a s k them f o r the amount
that t h e y s h o u l d m a i n t a i n t i t h u s a s s h o w n b y t h e i r books.
(Further discussion followed, )
The Chairman: I
a m still doubtful about t h e necessi-
ty a t the present time o f getting these figures.
T h e y are
intercsting f o r purposes o f statistical information, b u t
unless w e are prepared t o say that penalties a r e t o b e
imposed f o r deficiencies
i n reserves,
any object except information.
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Federal Reserve Bank of St. Louis
d o they weally serve
W e n o w get t h e information
6046
about f i v e t i m e s a
year,
a n d w e would perhaps g e t i t under
this arrangement possibly twelve times a
year instead.
[Is
it worth while t o d o that unless i t i s made t h e basis o f
a regulation b y the Reserve Board s o that the penalties
begin t o work a t once?
Governor McDougal!
N o t only d o they get that infor—
mation f i v e o r s i x t i m e s a
year, b u t t h e y g e t i t f o r t h e
thirty d a y s p r e c e d i n g t h o s e f i v e o r s i x t i m e s a
They c o v e r t h e e n t i r e y e a r ,
Governor Seay: I
distinct purpose.
year.
i n reality.
believe t h a t i t would serve a
T h e r e i s a distinct tendency t o use
the r e s e r v e a c c o u n t
i n the Federal Reserve B a n k s
b y check-
ing o n i t a t will a n d according t o the convenience o f the
member banks.
T h e r e i s nea question about that i n our dis-
trict, a n d i t i s a
thing t h a t w i l l s p r e a d a c c o r d i n g
the necessity i n the district.
to
I t m a y not b e s o preval-
ent i n the districts n o w with excess reserves, I
that i f t h e statement i s simplified enough
i
believe
t will
come t n b e a matter o f routine requiring n o more atten-
tion than mere placing o f a blank i n a n envelope every week,
ine Chairman:
h e s e banks h a v e always k e p t a
re-
serve account w i t h the reserve agents t h a t t h e y have
checked o n a t will, a n d the responsibility o f checking
them u p when their reserves a r e below t h e required amount
rests w i t h the Comptrollor.
& change
n fact, i s i t not s o that
i n this m a t t e r i n v o l v e s
ef a u t h o r i t y
i n some other hands
The q u e s t i o n arises:
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Federal Reserve Bank of St. Louis
i
as a
firststep t n e p l a c i n g
t o c h e c k u p the reserves?
H o w f a r i s t h a t a u t h o r i t y goeing t o
604
be exorcised?
I
t seems t o m e that w h e n y o u make a
step
in that direction y o u want t o make certain where y o u are
S0ing to stop-
I f the Federal Reserve Board and the Feder-
al Reserve Banks a r e g0ing t o begin t o lecture t h e memberr
banks f o r failure t o keep u p their reserves, t h e y are doing
say 15 per cent o f the (© omptroller's business a n d he is
continuing t o d o the balance. I
ing
d o not believe i n carry-
t h i s division o f responsibility a n y further t h a n
necessary until w e are prepared t o f a g e the whole question
squarely.
Mr. warburg:
T h e statement will b e made "You say
you h a v not sufficient authority.
Y o u have never tried
to exercise your chare o f the authority." I
far a s possible,
think, a s
w e ought t o b e i n a position where w e c a n
say that w e are carrying o u t the law.
The Chairman:
of a s t wishbt,
G o i n g back t o Mr. Hill's remarks
I t i s n o t t h e case o f onetoil wagging t h e
dog, b u t i t w i l l b e a
wag t h e dog. I
case o f t r y i n g t o g e t t w o t a i l s
a m afraid o f it. T h e s e banks nave b e e n
irritated t o dcath during t h e last year.
to c o n v e n t i o n s
to
o f bankers,
a n d s o forth, a
I n going around
lot a f t h e m
tell m e that t h e y are deluged w i t h circulars;
t h a t they
chuck t h o m i n the waste basket a n d d o not r e a d t h e m a n y
more; that they d o not understand all "this stuff",
W e
have sent t h e m a nice little folder, cutting t h e place
for them t o fill o u t a n d telling t h e m h o w t c d o it, a n d
Still they “chuck them i n the wastebasket,"
v
e are get-
ting expressions a l l t h e time o f the degree o f irritation
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Federal Reserve Bank of St. Louis
605
that cxists among t h e membor banks, a n d i t i s just a s
Strong today almost a s i t has b e e n a t a n y time, I
believe.
I was o u t a t t h e C o u n t r y C l u b t h e o t h e r d a y p l a y i n g
golf. I
happened
Of this: tonne,
t o d e standing n e a r t w o o r three bankers
O n e o f t h e m invited t h e o t h e r t o s t a y o u t
to dinner, a n d h e said h e could not.
H e said " I a m going
to t a k e s e m c o f t h e s e R e s e r v e B a n k m e n b a c k i n m y auto~-
mobile, "
T h e other man said "Oh, p&haw, what i s the
use o f doing that; they don't amount t o anything."
I d o n o t b e l i c v e t h e t i m e i s ripe,
o r that i t i s desir-
able t o begin until w e have relieved t h o m o f some o f
their irritation,
Governor V a n Zandt:
H a v i n g been o n e o f the suggest-
ors o f that topic I would l i k e t o state w h y I suggested
it. I
had notheed that out deposits would shrink direct-
ly a f t e r a
statement c a l l , s h r i n k materially.
I
n look-
ing over some o f the banks’ statements a s called b y the
Comptroller, I
found o n e statement o n which one a n d two-
tenths w a s t h e amount o f avcrage resorve carried w i t h the
Federal Reserve B a n k for thirty days prior. I
letter
t o the Comptroller
tention t o t h a t fact.
wrote a
o f the Currency calling his a t -
h a t w a s S o m e months a f t e r t h e
call, a n d I asked h i m whether anything h a d been Said t e
that bank, a n d i f not, whether i t was h i s d u t y o r the
duty o f the Federal Reserve Bank.
T h e reply that I got
was that i t was probably t h e duty o f the office o f the
Comptroller
o f t h e Currency,
b u t that they were some weeks
behind i n the analysis o f these reports a n d were unable
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Federal Reserve Bank of St. Louis
606
to c a t c h u p w i t h t h e i r work.
it would a t least nave a
Simple w e e k l y s t a t e m e n t
F o r that reason I
thought
good moral effect t o have a
o f the required amount
very
o f reserve
and the amount o f roserve carried sent either the Federal
Reserve Bank, t h e Comptroller o f the Currency o r the
Federal Reserve Board.
The Chairman:
O f course, Governor V a n Zandt, t h a t
time honored policy o f banks permitting their reserves
to r u n down until just before t h e y give a
just before a
statement
statement o r
i s called f o r h a s existed i n
this country a s long a s w e have h a d these reserves.
That
condition i s not o n l y true o f the effect o f the Comptrol=
ler's c a l l u p o n t h e r e s e r v e s
o f t h e banks,
b u t i n every
clearing house c i t y i n the United States t h e banks a r e
in the habit--- and i n New York i t has always been so--~
of p e t t i n g t h e i r b a l a n c e s o u t e a r l y i n t h e w e e k a n d b u i l d -
ing them u p near t h e e n d o f the week.
W i t h i n t h e last
few years t h e clearing house started i n t o require average
statements.
N o w they d o the same thing o n l y they build
up sufficiently a t the e n d o f the week t o bring their
average u p .
n a t i s g o i n g o n j u s t t h e same.
Y o u will
divide t h e time i n t o twelve periods o r more, a n d i n the
case o f t h e c o u n t r y b a n k s y o u m a y c h e c k t h e m u p r i g h t
close, because t h e y cannot b e adjusted a s often a s tnat.
Governor Wold:
I n Minneapolis w e d o not s e e m t o have
had very much difficulty along these lines.
W h e n copies
of the reports t o the Comptroller come i n and the banks
show deficiency i n reserves w i t h the Federal Reserve B a n k s ,
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Federal Reserve Bank of St. Louis
607
we j u s t d r o p t h e m a l i t t l e n e t e q u o t i n g S e c t i o n s 1 6 4 a n d
165 of the Federal Reserve Act to them, and we have no
trouble.
Mr. Warburg: I
do not personally think that this
will a d d a great deal o f irritation, because after t h e
first w e c k i t will b e routine work, a
rather simple
statement, w h i c h t h e cashier will s e n d i n a t the e n d o f
each weok,
(Informal discussion followed, w h i c h t h e stenographer
was d i r e c t e d n o t t o take.)
Governor Seay:
T h e Comptroller's office, Mr. Chair-
man, h a s 71500 banks f r o m which t o gather reports t o make
Statistics.
reports
T h e y are n o w so far behind i n getting out
o n weekly statements
a s t o make t h e m o f far less
value than they formerly wero. I
think there i s n o
doubt about the fact that the law confers upon tne Federal
Reserve B o a r d t h e p o w e r t o h a v e t h e m e m b e r b a n k s m a i n t a i n
heir balances,
a n d i f w e a r e t o b e dependent u p o n t h e
Comptroller t o exercise t h a t power i t cannot b e effectively
accomplished.
(Further discussion followed. )
Governor Fancher: I
a m convinced that a n y change
simplifying the Comptroller's statements a n d going back
to t h e s i m p l e r f o r m s t h a t w e r e i n u s e t w o y e a r s a g o w i l l
be very welcome t o the member banks-
T
o illustrate a 4
Little a s t o the irritation that some o f the banks a r e
showing.
A b o u t four weoks ago, just a t the time o f
the September call, i n the western part o f Pennsylvania, i n
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Federal Reserve Bank of St. Louis
608
a little
d i s t r i certeh
twh e u a v 9 0 - o d d member banks i n
four c o u n t i e s , a
representative
o f o u r bank happened
to
be i n this section a t one o f these banks just about t h e
time t h e y were making a statement f o r t h e Comptreller,
He s a i d t h a t e v e r y o f f i c e r w a s u p i n t h e a i r , c o m p l a i n i n g
and fussing about t h e t w o o r three n e w schedules t h i s time.
He m a d e s u g g e s t i o n s
t o h e l p them, b u t h e s a i d i n e v e r y b a n k
he visited,--- a n d out o f the 9 2 banks h e visited 45--here w a s t h a t c r i t i c i s m a b o u t t h e C o m p t r o l l e r ' s s t a t e m e n t s
becoming m o r e c u m b e r s o m e
a t c a c h call; t h a t t h e r e w e r e
new Schedules, calling f o r more work, a n d that i t was b e coming a
great burden t o somo o f the smaller banks.
The Chairman:
S o m e months a g o I attended a
meeting
of bankers where that matter was very frankly discussed,
and a t t h e v e r y f i r s t m e n t i o n o f t h e r e p o r t s
t o the Comp—
troller's office a n d t h e Comptroller's examinations, t h e r e
was a
shout o f derision.
The c o u n t r y b a n k e r s
i n our d i s t r i c t f i n g t h a t t h e
examination, u n d e r t h e present system, i s costing t h e m
from 50 t o 340 per cent more than i t was under the old
system,
amount
a n d that t h e y have g o t t o put i n a
o f work preparing reports,
tremendous
a s compared w i t h t w o o r
three years ago.
I often vonder whether t h e Board i n Washington fully
SPPrecdatles t n e d e s r e c O f irritation, t h a t exvets:
O
n
of the smaller N e w York C i t y Bankers w a s i n our office a
few months ago and showed t e a draft} o f a letter which
his bank h a d prepared addressed t o t h e Comptroller a n d
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Federal Reserve Bank of St. Louis
e
609
making a
demand upon h i m for a n accounting o f this money.
I talked i t over with h i m and finally t h e y persuaded h i m
that that was not t h e w a y t o get a t the matter,
B
u
t I
fear the effoct o f adding e v e n this slight straw t o the
load t h e y a r e carrying.
Governor Seay:
T h o s e things a r e inheritances t h a t
we h a v e a n d w e a r e c o n s i d e r a b l y h a n d i c a p p e d ,
b u t since
we
are getting nothing else f r o m thom i n the w a y o f statements
I d o not feel that that should govern o u r action,
in t h e i n t e r e s t
o f t h e development
i f i t is
o f t h e s y s t e m t o request
statements.
The Chairman:
a d o not care t o urge m y opinion too
strongly about it.
Mr. warburg:
“ i e have r e a c h e d a
point n o w w h e r e t h e
Comptroller i s willing t o let t h e member banks have avcopy
of t h e examination, a n d h e has s e n t a letter, a n d w e sent
a letter t o the Federal Roserve Agent t h e d a y before w e
left Washington asking t h e m t o m a t o
t h e Board, after
consultation with their board, s o m e su;gestions a s t o what
the report that i s being given t o the members should contain. I
think that letter will create a
faction among the momber banks.
T h e y will know at least
what they are paying this m o n e y forreceive a
report
o f t h e examination.
lead t o t h e a b a n d o n m e n t
good deal o f satis-
T h e directors w i l l
I
t m a y ultimately
o f t h e clearinghouse.
T h e Comp-
troller suggests that the rcport b e cut i n too; t h a t one
part b e a
full r e p o r t a b o u t t h e b a n k a n d t h e s e c o n d p a r t
contain t h e confidential report t o the Gomptroller i f there
should b e s o m e t h i n g t h a t h e w a n t e d
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Federal Reserve Bank of St. Louis
t o investigate f u r t h e r ,
610
something which h e does n o t want t o g o t o the banks, a n d
which i s conficential information f o r t h e chiof examiner,
Tne C o m p t r o l l e r ' s p r e s o n t a t t i t u d e
i s that where there
are relations between t h e Federal Resorve Banks a n d the
membor banks,
s o far a s rediscounts a r e cGuterned., of: for
other reasons, t h a t t h e Federal Reserve Agent c a n see the
report
o r see a
c o p y o f i t u p o n request,
Governor Seay:
I s that confined t o the Federal
Reserve Agont?
Mee
a r ours + N o , o r the Governors. I
that because 1
only state
thought i t might interest t h e Governors t o
know o n what line w e are proceeding.
the Chairman:
T h a t vould n o t meet t h e situation
in
our district a t all, because t h e chief examiner's office
is three quertors o f a mile o r a mile f r o m our office,
and i t v o u l d n e c e s s i t a t e M r - J a y ' s
o r m y going t o his
office t o see a complete c o p y o r else his permitting a
to m a k e a
complete c o p y t o b r i n g t o us.»
man
¥ e cannot a n d
would n o t subject t h e bank t o that, o r place i t i n the
E T E
o f having t o g o t o a suborcinate officer o f the
bank t o getinformation o f that kind.
Mr. Larburg: I
point.
t
do not take issue v i t h y o u o n that
e n o t a subordinate o f your bank.
Chief examiner,
H e is the
H e just happens t o b e your ceputy federal
reserve agent,
ne Chairman:
d o n s . persons responsible f o r funnive: L a o
banks a r e n o t able t o maintain fine distinctions between
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Federal Reserve Bank of St. Louis
r
m e n i n the bank.
i
e
h
H e i s just o n e m a n t o us--t
a
611
I do not take issue w i t h y o u o n the
not think h e i s a subordinate i n that
CAQRCLUT,
The Chairman:
H e ought t o be.
A t any rate h e
couic have nothing t o d o with running o u r bank:
, could not this matter b e disposed o f b y one
tro gentlemen w h o s u g e s t e d t h e s e topics offering
a resolution f o r u s t o act upon.
T h e sponsors f o r this
topic were Governor Ceay, Governor Fancher a n d Governor
Van Zandt,
G o v e r n o r V a n Zandt, s u p p o s e y o u t a k e a
try
et it,
Governor Van Zandt:
T o get i t before the Conferonce,
I move that i t i s the sense o f this Conference t h a t t h e
Federal R e s e r v e B o a r d s h o u l d b e g i n w i t h o u t d e l a y a s k i n g
the member banks t o furnish e a c h week t o the Federal R e serve Banks a
very simple report o f average weekly reserve.
Y o u are going much further than w e
Mr. Warburg:
had considered.
W e had o n l y considered a
report e a c h
month.
Governor V a n Zandt:
The C h a i r m a n :
I
T h a t w a s m y suggestion.
s that motion seconded?
Governor Fancher: I
will s e c o n d t h e motion,
would l i k e t o o f f e r a n a m e n d m e n t
should a s k f o r a
statement o n c e a
t o it. I
but I
think w e
month showing t n e aver-
AZO Governor V a n Zandt: I
will a s c e p t t h e a m e n d m e n t
as
offered b y m y seconder:
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Federal Reserve Bank of St. Louis
The Chairman:
T h e resolution n o w provides t h a t t h o
612
Reserve B o a r d s h a l l s t a r t ,
a s soon
a s possible,
requir-
ing monthly statements f r o m the member banks o f their
average reserve.
T h a t motion h a s b e e n seconded:
I s
there a n y further discussion o n this subject?
Governor V a n Zandt: I
here m y reasons,
would l i k e t o explain right
o r o n e o f m y reasons f o r S a y i n g weekly.
I have b e e n very intimately associated w i t h figuring o u t
reserves o f a very large number o f small banks during m y
carecre I
find that i t will b e m u c h easier f o r t h e m t o
average t w o days t h a n i t would b e for a month, o r a week
instead o f a month, o r t w o weeks instead o f a month.
when t h e y have t o get a whole month's w o r k and average
90 p e r c e n t o f t h a t t h e y h a v e a
Mr. Harding:
The Chairman:
T h a t i s t h e w a y they keep their books.
T h e trouble with the country bank i s
that e i t h e r t h e c a s h i e r
that figuring.
hard j o b o n their hands.
o r t h e p r e s i d e n t h a s g o t t o do.
T h e y haven't anybody else i n the bank ex-
cept t h e bookkeeper, a n d t h e irritation comes f r o m the
fact that t h e cashier h a s g e t t o spend a n evening i n the
bank.
Are y o u ready f o r t h e question?
ups Hoxton:
A r e these reports
t o b e made t o the
Federal Reserve Vank o r the Federal eserve Board?
The Chairman:
Mr. Hoxton: I
T
o t h e F e d e r a l R e s e r v e Yank.
understand i t i s f o r t h e purpose o f
ascertaining w h e t h e r t h e b a n k i s k e e p i n g i t s p r o p e r r e serves?
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Federal Reserve Bank of St. Louis
The Chairman:
Y e s , a n d also f o r t h e purpose o f pre-
paring a
.
statistical summary o f these figures,
4
Hoxton:
T h o r e i s n o penalty attached;| there i s
r
M
Le
no w a y o f forcing t h e banks t o sond i n a statement should
thoy r e f u s e t o d o i t , i n t h e f i r s t place.
I
n the second
place, there i s n o way o f making t h e m make g o o d i f they
Oo
he
are n o t u p t o t h e i r r e s e r v e rcoquirements.
v
e a r e unan-
imously a g r e e d h e r e t h a t t h e e x a m i n a t i o n s m a d e b y t h e C o m p -
troller o f these banks should b o i n the hands o f the Federal
Reserve Board, a n d until that i s i n the hands o f the Federal
Reserve Board I do not sce any use i n making such a demand
on them,
Mr. Har@ing: I
wish t o call Mr+ Hoxton's attention
to the fact that the Federal Reserve Act provides that
the Feceral Reserve Banks m a y examine t h e member banks.
It seems t o m e i f you send out this request t o the member
bank ana the bank does n o t p a y a n y attention t o it,
you could write a
letter calling their attention t o the
fact t h a t t h e r e c u e s t h a s n ' t b e e n c o m p l i e d t i t h a n d t h a t
if they d o not comply w i t h i t y o u will s e n d a n examiner
out.
Mr. Hoxton:
Mr.
n
S u p p o s e t h e bank does n o t comply?
g W e l l , there i s a n expense connected
with it.
Governor Seay:
T h e Federal Reserve B o a r d h a s power
to fix a penalty under t h e act.
Warburg:
W e c a n tax them with a note issue.
There i s n o e n d t o the things w e c a n d o t o them.
The Chairman:
4 r e y o u ready t o vote o n the motion
calling f o r a monthly statement o f average reserves?
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Federal Reserve Bank of St. Louis
614
Governor S e a y
W o u l d i t not b e better t o a s k for
a weekly statement o f actual conditions t h a n a monthly
Statement o f the average?
iin. Warburg:
i t . might be. better.
Governor Seay:
I
t would b e a n easier t h i n g t o m k e y
it woule b e much less w o r k t o give a weekly roport o f
reserve u p o n s o m e s p e c i f i c date.
I
t would b e easier t h a n
giving t h e monthly report showing a n average.
Mr. warburg:
I t i s the wish o f the Board that
something o f the kind b e done.
T h e n I think t n e Execu-
tive C o m m i t t e e could v e r y well work o u t with the Board
a Simple statement o n e w a y o r the other which would #111
the bill. I
think t h e m a i n thing n o w i s t o find o u t
whether y o u want t o begin this tning o r not.
The Cnairman:
G o v e r n o r V a n Zandt, instead o f sub-
mitting y o u r motion,
of p a s s i n g a
t h e suggestion i s madc that instead
resolution w h i c h w o u l d a m o u n t
to a
request
that this b e dono, t h a t t h e motion b e t o declare i t the
sense o f this meeting that these statements should b e obtained a n d r e f e r i t t o t h e L x e c u t i v e C o m m i t t e e
out a
t o work
f o r m o r m e t h o d w i t h t h e Board,
Governor V a n Zandt:
not s p e c i f y a n y form.
manner
I
M y motion,
a s 1 remember it, d i d
t simply s a i d a
simple f o r m :
The
i n w h i c h w e s h o u l d g e t u p t h a t f o r m i s another
Question entirely. I
snould think that would b e a phase
of it that ought t o be left t o the Executive Committee t o
handle.
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Federal Reserve Bank of St. Louis
The Chairman:
Y o u want t h e statement
t o g o t o the
615
Feceral R e s e r v e B o a r d w i t h a
recommendation t h a t a
monthly
average statement b e asked for.
Governor V a n Zandt:
The Chairman:
Fancher.
Y e s .
T h a t m o t i o n w a s seconded b y Governor
I s there a n y further discussion?
(On a
vita v o c e v o t e t h e m o t i o n
w a s lest a n d i t was
likewise l o s t o n a counting o f hands.)
The Chairman:
T h e next s t e p would b e t o submit
the subject t o the meeting f o r a n expression o f whatever
View p r e v a i l s
a s t o how this
mtter
« a n b e dealt with,
That c a n b e suggested b y a motion a n d will save further
debate.
Governor Wold:
F o r myself 1 would like t o s a y that
I believe I would vote favorably u p o n a motion t o provide
for a statement o f their actual reserves o n c e a month.
This computation o f averages, y o u know, w i l l cause a
ceal o f irritation o n the part o f the banks. I
that t h e y w o u l d m a k e a
statement
think
o f their reserves
given timo, a n d i t will very shortly bocome a
good
ata
question o f
doing that, b u t I think t h e y would resent this computation
of averages.
The Chairman:
D o y o u offer a motion, Governor wold?
Governor Wold: I
offer practically t h e same motion
that has been made, with the exception o f the rords "actual
condition",
The C h a i r m a n :
T h a t motion
i s identical
w i t h Govermor—
Van Zandt's motion except that i t substitutes t h e word
"actual" f o r the word "average".
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Federal Reserve Bank of St. Louis
616
Governor Wold:
month.
S o m e b o d y h a s suggested twice e a c h
f h a v e N o oblectLon.
The C h a i r m a n :
ne Chairman:
V o that,
T w i c e e a c h month?
T h a t m o t i o n i s seconded.
Y o u r mo-
tion i s t h a t t h e F e d e r a l R e s e r v e B o a r d t a k e s t e p s
Statements twice a
t o secure
month showing t h e actual reserve c o n -
dition o f t h e m e m b e r banks.
T h a t motion has been second=
ea.
Governor V a n Zandt:
would b o this:
M y objection t o tnat motion
I t i s very easy t o run u p tne reserve
for t h a t o n e d a y a n d t h e n r u n w i t h o u t a n y r e s e r v e f o r
the r e s t o f t h e month.
Governor Aiken:
I t seems t o me that i t isn't worth
While t o take a n y formal action o n this. I
think Mr.
Harding and Mr. Warburg both know that the Governors o f
tinese b a n k s a r e a n x i o u s
t o cooperate w i t h t h e m w h e n e v e r
they t h i n k i t i s n e c e s s a r y t o h a v e t h a t donc.
know t h a t t h e G o v e r n o r s
T h e y also
o f the banks f o e l that there should
be r e l i c f f r o m s o m e o f t h e s t a t i s t i c a l i n f o r m a t i o n
Comptroller's r e p o r t , w h i c h i s m d e f i v e t i m e s a
Six t i m e s a
year b y e a c h c o u n t r y bank.
that w e c a n leave t h e m a t t c r
I
year o r
t seems
i n t h e i r hands,
I
i n the
t o me
f they find
that t h e y need this information a n d i t i s practicable t o
substitute i t for the information now i n the Comptroller's
report, a n d that i t i s information t h e y want, t n e y c a n
bring t h e m a t t e r u p . I
d o not s e e anything t o b e gained
by o u r t a k i n g t h i s a c t i o n a t t h e p r e s e n t t i m e I
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Federal Reserve Bank of St. Louis
a m not
OL
in f a v o r o f t a k i n g a n y a c t i o n i n t h i s m a t t e r a t t h e p r e Sere onsne:.
Tne Chairman:
b o y o u offer that a s & Frosolution,
Governor A i k e n ?
Governor Aiken:
Mr. Curtis:
Y e s .
T h e n y o u move that w e l a y the last o n e
on t h e tables?
Governor Aiken: I
move that Governor o l d ' s motion
be l a i d o n t h e table.
The Chairman:
and actec upon, I
T h a t m o t i o n i s e n t i t l e d to b e s e c o n d e d
believe,vwithout discussion.
Mr. sarburg: I
would b e sorry t o see i t disposed o f
“e w o u l d l i k e t o k n o w w h a t y o u G o v e r n o r s r e a l l y
advise u s t o do.
Governor Aiken:
Mr. warburg:
points
D o y o u not lmnow now?
N o , w e d o not, because o f the cifferent
o f v i e w expressed.
t o s :
a b r o a d : ducstion.
1 )
we begin t o get statements f r o m t h e member banks~--—- and
porsonally I
d o not c a r e s o much whether
i t i s actual
or
average--— w o are going t o get some i n f o r m t i o n f o r o u r
statistical department.
T
e a r c v e r y anxious
t o get our
ovm bearings i n the matter a n d g e t o n a footing where w e
can g e t a l l t h e i n f o r m a t i o n w e want.
Harding: A
statement t w i c o a
month f r o m t h e
average c o u n t r y b a n k w o u l d b e p r a c t i c a l l y
a n average
monthly statement.
Governor Seay:
to say. I
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Federal Reserve Bank of St. Louis
i r . Warburg has said what i wanted
understood t h a t t h e S o a r d r e a l l y w a n t e d t o f i n d
618
out what w e thought about it, a n d let u s s e o what w e dna
think about. 4s,
I f w e cannot agree lct's have a
divided
vote.
The Chairman:
T h a t i s right, Governor Seay.
Governor Aikon: I
Tne Chairman:
will withdraw m y motion,
G o v e r n o r Wold's motion i s for a state-
ment o f t h e a c t u a l r e s e r v e s t w i c e a
month.
Are y o u ready t o vote o n that motion?
(There w a s n o durther discussion a n d the motion,
being put, was lost b y one vote.)
Governor McDougal:
The Chairman: I
M a y I make a motion, Mr. Chair-
wish y o u would, Governor McDougal.
Governor McDougal: Tligtthe statement w e receive n o w
five o r s i x t i m e s a
year, w i t h r e s p e c t
t o t h e reserves,
cover not o n l y a definite date, b u t cover theaverage f o r
the t h i r t y d a y s preceding,
T h e y a r e s w o r n statements a n d
I move that f o r the present w e depend u p o n these statements
for a showing f r o m the banks a s t o a status o f their r e Serves, until s u c h time a s the reserves a r e a l l paid i n
Then i f i t i s n e c e s s a r y w e c a n t a k e s o m e s t e p s t o w a r d
recéiving frequent statements f r o m the banks.
fhe Chairman:
I s that motion seconded?
Governor Kains: I
Governor Aiken:
will second that motion.
{ I ao not w i s h m y position t o b e
misunderstood i n regard t o this. I
think the information
we would g e t from these statements would. b e better t h a n the
information w e have now, O r that w e get now. I
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Federal Reserve Bank of St. Louis
think the
619
country b a n k i s a
very i m p o r t a n t bank. I
d o not k n o w
that t h e N e w 4ngland Yankee i s a particularly radical
person,
b u t o u r people a r e v e r y sensitive a b o u t this a n d
I Shall b e very anxious that some relicf f r o m t h o statist-—
ical information that t h e y n o w have t o give should b e
given them.
When w e get back t o Washington,
in
commenting o n this mecting a n d referring t o these votos
that have b e e n taken, w e c a n s a y that i t seems t o b e the
unanimous o p i n i o n o f t h e G o v e r n o r s t h a t t h e b a n k s o u g h t t o
have this information,
‘ y t they G o not. think i t i s politic
to a s k f o r this information i n view o f the enormous amount
of statistical information that t h e Comptroller i s asking
for, a n d t h e n see i f the Comptroller i s willing t o d o away
some o f the information a n d simplify his statements.
if w e c a n d o that w e c a n g o ahead without pregudic-—
ing the system a n d get the information w e want.
Governor McDougal: I
The Chairman:
will withdraw m y motion.
M a y w e a s k tho Secretary t o reduce
your motion according t o lip. Harding's suggestion and then
act u p o n i t ? .
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Federal Reserve Bank of St. Louis
Governor McDougal:
Yes.
620
The Chairman:
T h e substance o f your resolution i s
that i t i s the sense o f this meeting t h a t the information
would b e most desirable, a n d that w e would like t o have it,
but that i t i s undersirable t o ask f o r it, i n view o f the
extensive demands f o r statistical information that a r e n o w
made upon t h e member banks, a n d w e feel unwilling t o impose this additional burden upon t h e member banks unless
they c a n b e relieved o f some part ¢
t h e present statistical
turdens.
Governor MeDougal: I
think that i s what I
had i n
mind; and, going further, t h a t w e c a n get along very well
with the information tie receive w i t h the 8worn statement.
The Chairman:
T h a t m o t i o n w a s seconded.
A r e you
ready t o vote o n it?
(The q u e s t i o n w a s c a l l e d f o r a n d t h e m o t i o n w a s d u l y
carried.)
The Chairman:
T h a t i s unanimous, Mr. Harding.
13. C O S T OF Ri TURNING FEDIRAL RESERVE NOTES TO
BANK OF ISSUE.
The Chairman: I
think w e c a n dispose o f Item No- 13,
Gost o f returning Federal Reserve Noates t o bank o f issue ,
by reporting t h e substance o f the discussion a t the first
day's session.
It appears t h a t t h e views entertained b y the officers
of s o m e o f t h e m e m b e r b a n k s a r e t h a t i n a s m u a c h a s s o m e o f
these notes a r e i n fact redeemable a t all twelve o f the
banks, n o matter b y which bank they m a y b e issued, there
arises S o m e doubt a s t o whether t h e burden o f expense i n
shipping t h e m back t o the bank o f issue should b e wholly
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Federal Reserve Bank of St. Louis
621
borne
b y the b a n k that remits t h e m f o r final redemption
at the b a n k o f issuc-.
m
o o r three o f u s who a r e guilty
of issuing a large amount of Federal Reserve Notes endravored t o persuade t h e other banks that i f they were
equally diligent o n e redemption woulca offset t h e other,
and t h a t t h e b a n k w h i c h h a d t h e l a r g e s t a m o u n t o f notes
outstanding w o u l d n e v e r t h e l e s s h a v e i n t h e a g g r e g a t e a b o u t
an equal amount o f notes t o return t o all o f the other
eleven banks.
B u t thet. Gid- mot-se very. veri.
still s o m e d o u b t s
o n t h a t subject,
T h e r e ape
a n d w e Tinally cecided
to leave this question f o r ciscussion until y o u arrived,
and endeavor, i f possible, t o get a n expression o f views
from t h e F e d e r a l R e s e r v e B o a r d a s t o w h a t t h e i r u n d e r s t a n d -
ing o f the l a w i s a s t o the place o f redemption a n d whether
there was anything i n that law w i c h would serve a s a guide
in t h e v i e w o f t h e b o a r d t o d e t e r m i n i n g w h o s h o u l d b e a r
the expense o f shipping these notes b a c k t o the bank o f
I f any o f you disagree w i t h the completeness
issue.
or a c c u r a c y o f t h a t statement, I
w i s h you.vwould p l e a s e c o r -
rect me,
Mr. Hasd@ing: Governor Wold called ourattention to
this objection,
t h a t where y o u have g o t notes outstanding
and p u t u p 1 0 0 p e r c e n t g o l d a g a i n s t t h e m y o u h a v e a l r e a d y
redcemed those notes, a n d y e t t h e act requires t h a t t h e
notes b e B é d c e m e d
o n presentation
any Federal Resorve Yank.
a t the treasury o r a t
Y o u have got t o redeem them.
Of course you get your money right back from the “ederal
Reserve & g o n t , b u t t h e r e i s t h e p r o c e s s
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Federal Reserve Bank of St. Louis
o f redemption that
goes o n just t h e same,
The Chairman:
character.
I
n a sense t h e note changes i n
M r . Curtis h a s made a
study o f this matter,
and I must say I have not argued i t out with hin.
H e
may h a v e s o m e views.
Governor Van Zandt:
I f Mr. Curtis has m d e a study
of this, and I hope h e has, c a n he enlighten m e o n the
question that I
asked y o u about, a s t o why these notes
should b e returned t o the issuing bank?
Mr. Curtis:
T h e only answer t o that that I know o f
is that the statute says ao,
Governor Seay:
M a y I
ask what alternative disposi-
tion y o u t h i n k s h o u l d b e m a d e o f i t ?
Governor V a n Zandt;
Governor Seay:
P a y them out.
O h , n o ; t h a t would n o t do.
I
t is
the o n e influence, tir. C h a i r m a n , w h i c h would tend t o
keep a
currency f r o m b e c o m i n g redundant,
t h a t carries i t
back t o t h e o l d S u f f o l k system, w h i c h w a s o n o o f t h e s o u n d -
s, a n d which i s pointed t o now.
The Chairman:
B u t i t developed o u t o f a n entirely
CLiLerent set: O l Cirsumstances,
Governor S e a y :
b u t nevebtheless t h a t principle
is
Still.good.
The Chairman:
% @ Should n o t g e t into a
discussion
of the whys a n d vwherefores o f putting this provision i n
the Federal Reserve Act, particularly a s time i s fleeting.
Can w e n o t a g r e e u p o n t h e d i s p o s i t i o n
o f this t o p i c b y
requesting t h e Federal “eserve Board t o advise u s o f the
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Federal Reserve Bank of St. Louis
623
views that a r e held i n Washington a s t o the specific
liability that w e are dealing w i t h now?
Governor Aiken: I
s o move.
Governor Fancher: I
second the motion.
(The motion was d u l y carried.)
The Chairman:
privilece
T h e Chair has always reserved the
o f offering o n e motion i n conclusion a n d that i s
that t h e next place o f meeting b e determined whenever t h e
time c o m e s ,
at a
place t h a t h a p p e n s
t o suit h i s o w n conven-
ience. ( B a u g h t e r )
1 shoulda l i k e t o m o v e t h a t o u r n e x t m e e t i n g b e h e l d
in the C i t y o f Washington a t a d: finite date i n December
to b e c e t e r m i n e d n o w t o m e e t t h e c o n v e n i e n c e
o f t h o s e here.
I would assume that the date would have t o be somewhere
between t h e f i f t h a n d t h e fifteenth.
(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 t h e s t e n o g r a p h e r
was direcitcd not t o report; a f t e r which the following pro-
ceeg@ings were had:)
fhe Chairman: S u g g e s t i o n i s made that the date b e
the 13th o f December,
Governor Fancher: I
second t h e motion.
(The motion was duly carried.)
Tne Chairman: I
prepared a
want t o r e p o r t t h a t M r . - C u r t i s b a s
very brief a n d conservative Statement,
a s usual,
for the press, a n d a statement t o b e sent t o tne * ‘ederal
Reserve Board for thé Bulletin.
Our c a l e n d a r
i s n o w clear.
I also suggest t h a t somebody offer a resolution author~izing t h e Secretary a n d the Chairman,
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Federal Reserve Bank of St. Louis
i f necessary,
t o re--
624
vise t h e language o f the resolutions a n d g u t tnem i n
that b e a u t i f u l f o r m i n w h i c h t h e y a p p e a r w h e n s u b m i t t e d
to -~ashington,.
(The m o t i o n w a s
o f f e r e d , s e c o n d e d a n d carried.)
M r . Warburg h a s a
The Chairman:
subject that h e
would l i k e t o bring u p for discussion before w e adjourn.
did n o t mean t o detain you, b u t what
Mr. “arburg: I
I h a d i n m i n d w a s this, t h a t v h e n w e c o m e t o t h e a c c e p t a n c e
Clause, domestic acceptances, 1 think w e ought t o bear i n
mind that a t present t h e l a w permits e a c h bank t o accept
all i t s 1 0 0 o r 5 0 p e r c e n t f o r o n e risk. i
de not think
that that i s sound business, n o r that that really was what
think w e ought t o con-
the l a w originally intenced. I
sider before w e finally take action o n that whether i t
would n o t b e a d v i s a b l e
o n o u r part t o make t h e suggestion
that u n l e s s t h e t r a n s a c t i o n b e a
covered o n e i t m u s t c a r r y
a limit o f t e n p e r c e n t f o r e a c h u n c o v e r e d risk.
T h e same limit a s o n loans?
Gorrernor Fancher:
Mr. Warburg:
Y e s .
think that i s a very good
Governor HeDougal: I
suggestion,
The Chairman:
that
“ g 1 1 l someone o f f e r a resolution making
t h e sense o f this meeting?
will m a k e s u c h a
Governor Fancher: I
Governor Aiken: I
(The motion was
Mr. Warburg: I
resolution.
second t h e motion.
O
e
}
have o n e more thing t o say, a n d
that i s that 1 want t o express m y admiration o f the way in.
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Federal Reserve Bank of St. Louis
which t h e C h a i r m a n h a s h a n d l e d t h i s meeting.
Governor Fancher: I
move that o u r avpreciation o f
our entertainment l a s t night b e conveyed t o the bankers o f
the T w i n Cities,
(The m o t i o n w e s d u l y s e c o n d e d
The Chairman:
a n d Carried.)
G o v e r n o r o l d , w i l l y o u kindly convey
that i n courteous f o r m t o y o u r colleggues.-in t h e c i t y ?
GOvernoOr Wold:
z i abet
b e pleased
t o d o so, i
thank gou.
(Whereupon, a t 5:25 o'clock p. m. the conference
adjourned t o meet i n Washington, D . C., O n Monday, LecemDeri,
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Federal Reserve Bank of St. Louis
191s
e t 1 0 O o Clock a . me)
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Federal Reserve Bank of St. Louis