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Federal Reserve Bank of St. Louis
Voiume 7
PROCEEDINGS
CONFERENCE OF GOVERNERS OF THE FEDERAL RESERVE BANKS
HorteL WASHINGTON
WASHINGTON, D. C.
OCTOBER 25-29,:1921
ASSOCIATED SHORTHAND. REPORTERS
WASHINGTON, D , C.
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Federal Reserve Bank of St. Louis
PROGEEDINGS
O F A CONFERENCE
O F GOVERNORS
ef t u e
FEDERAL RESERVE BANKS»
Washington, D.C.,
Tuesday, O c t . 25,1921.
A conference o f Governors o f the Federal Reserve
Banks convened i n Parlor A, Hotel Washington, Washingten, D.C., o n Tucsday, October 25, 1921, a t & o'cleck,
Ppem.
Presents:
Benjamin Strong (Chairman), Governor, Federal
Reserve Bank of New York.
Cherles A . Morss, Governor, Federal Reserve
Bank e f Boston.
Gecrge W . Norris, Governor; Federal Reserve
Bank e f Philadelphia.
E.R. Fancher, Governor; Federal Reserve
Bank o f Cleveland.
George J . Seay, Governor, Federal Reserve
Benk o f Richmend.
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Federal Reserve Bank of St. Louis
P. Wellbern, Governrr, Federal Raserve
Bank o f Atlanta.
B. McDougal] G
overnor, Fedcral Reserve
Bank e f Chicage.
A. Young, Governor, Federal Reserve B e n k
of Minneapolis.
GC. Biggs, Governor, Federal Reserve B a n k
of St. Louis.
Ze. iiiller, Governor, Federal Reserve B a n k
of Kansas City.
L. V a n Vendt, Governor, Federal Reserve
Bank o f Dellas.
U. Galkins, Governor, Federal Reserve
Bank o f S a n Francisco.
George L . Harrison, D e p u t y Governor, F e d e r a l
Reecrve Bank o f New York, Secretary t o
the Confer¢neca.-
PRO
¢ € EE
Governor Strong. G e n t l o m e n ,
D1
I G -s.
w e vill come t o order,
is the election o f a Cheirman.
(Governcr Strong o f the Federal Reserve B a n k o f New
Yori:, b y motion d u l y secondec., w a s unanimously selected
Cheirman).
The Chairman,
T h e next metter
i s t h e e l e c t i o n o f asec-
retary.
move t h e t M r . H a r r i s o n o f t h e N e w Y o r k
Governor Young. I
Bank b e m a c e secretery.
was unanimously selectec Secretary t o the
Conference).
The Chairmen. N o w , . gentlemen, o u r first business will
be t o heer Mr. Meyer, Managing Director o f the \
Corporation.
ATSMENT O F HON. © . MOYER, JR., MANAGING D I K C T H
OF TH: WAR FINANCE CORPGi:sTION.
Mr. Myers.
Gentlemen, n
glac o f t h e o p p o r t u n i t y
to
meet y o u here a n c t o express t h e thanlis o f the members o f
the W a r Finance Corporation f o r t h e help that your bank
end branch banks have given the war Finence Corpora~
Pion s v C S w o r e . ,
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Federal Reserve Bank of St. Louis
W
w
e have m e t w i t h t h e f u l l e s t a n c
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Federal Reserve Bank of St. Louis
finest c o o p e r a t i o n everywhere.
O f course,
w e imow that
when w e t u r n t h e m a t t e r o v e r t o o n e o f t h e b a n k s o w t h e
branch banks w e c a n forget it, s o far a s the carrying o u t
of t h e d e t a i l s
i n accordance
w i t h instructions
coule n o t G o o u r w o r k a t a l l , I
i s concerned.
believe,without y o u r
help.
The t h a n i s o f t h e W a r F i n a n c e C o r p o r e t i o n a r e n o t
only f o r past fevors, but, l i k e most gratitude,
in c o n n e c t i o n w i t h f a v o r s
t o come. I
critical about i t a t el1; I
will t e l l y o u t h a t I
i t i s var
will n o t b e e n e r
wili n o t d o a n y kidcing, b u t I
a m here s p e c i f i c a l l y ,
i n addition
to
2b we really G o thank y o u for whet y o u have done
me. are Going,
i n connection w i t h
would like t o present t o you.
You a r e familiar w i t h t h e law, a n d y o u lmow that o u r
powers sxpire o n July lst.
W e feel pretty confident t h a t
by thet time everything that w e are Going will b e unnecéssary, b u t w e believe s o m e w a y will have t o b e founc t o
finances t h e breecing e n d o f the livestock business o n a
sounder l e sis than a e b e e n cone before, a n c which involves
a longer t e r m o f finencing t h a n has been provided, a n d I
hink p r o b a b l y s o m e t h i n g w i l l b e t h o u g h t o u t b y t h a t t i m e
that will help t o take care o f it, i f the normal agencies,
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Federal Reserve Bank of St. Louis
5
existing institutions a n d methods d o not prove that t h e y
can d o it.
rapicly.
‘ t e have g o t r a t h e r a
quick job, a n d i t i s g r o w i n
T h e number o f applications f r o m business
ercasing consicerably, t h e t is, t h e n u m
plications.
N o w , i f w e g o out a n d
en organization,
b y hiring people t h a t a r e
an oda m a n here enc. there e n d everywhere,
o r i f w e have t o
rely o n talking people a w e y from their positions a n c permanently d e t a c h i n g t h e m f r o m t h e f u t u r e t h e y n o w have,
where they are, i t is going t o be a very Gifficult thing t o
co, and I doubt very much £ f we can get the kind o f men
that w e ought t o have t o d o the work sanely a n d soundly f o r
the Government, d o the work with a speed that a ready
experience, instecsd o f a n i m m a t u r e e x p e r i e n c e , w r m i t s .
the Board, through me, h a s deto ask you for your cooperation i n the matter o f
personnel. I
d o n o t thin: t h a t w e n e e d a
greet m e n y people,
but those that v e c o need, w e want just the best w ople obWe could g o end asi the cooperation o f the
Nationel banks o r the commercial banks generally, a n d trust
compenics, b u t f thint: i f “ e get your cooperation that
we will b e getting t h e most effective cooperation that w e
coule get.
O f course,
w e hope t h a t y o u will sometimes h e l p
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Federal Reserve Bank of St. Louis
6
us out i n getting a
man out o f a bani: who has peculiar
quelitics f o r a particular position; a n é I was just woncering, Governor Strong,
i f i t would b e asking t o o much
of this meeting t o consider whether o r not this organization
of G o v e r n o r s w o u l d c a r e t o c o o p e r a t e w i t h u s i n t h e m a t t e r
of personnel a n d organization b y appointing a
smell com-
mittse f o r t h e purpose o f doing it, s o that when w e want a
men that y o u have somewhere i n your organizetion, ©
man
that c a n b e s p a r e d m u c h b e t t e r f r o m o n e p l e c e t h a n e n o t h e r - -
know
and y o u would/that,
w e would not--we c o u l é simply place o u r
wants b e f o r e t h a t s m a l l committes, a p p o i n t e d f o r t h e p u r pose o f c o o p e r e t i n g w i t h u s i n t h e m a t t e r o f o p g a n i z e t i o n a n d
onnel, a n d that comnittee couléc tell u s what w e c a n
what w e cannot expect, a n d tell us,if a
man
coule n o t b e gotten f r o m a certain plece,the place h e could
be most quickly gotten from.
we have a
large amount o f cctail there, gentlemen.
w e
have p e o p l e eprvearing b e f o r e u s o n n e w p r o p o s i t i o n s c a l l i n g
for p o l i c y consiseration--lit:e t h i s b e e t s u g a r p o p o s i t i o n
the other Ga T h e a t took us « whole cay, but we die it.
we must have a n administrative organization t h a t will b e
in competent hands while w e conduct hearings a n d consider
the d e v e l o p m e n t
o f n e w things
t o meet a
perticular e m e r g e n c y
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Federal Reserve Bank of St. Louis
like t h e beet sugar situation o u t i n Coloredo
Maybe you 211 d o not know ebout that, but the beet suger
people there came i n and w e loaned t h e m eclevei.
million dollars on the basis of 5-1/2 and 2.60 a
pounds.
T h e y have been having a
hundred
struggle i n New York, a n d
we kmow that New York has taken care o f a lot of sugar
all over t h e world.
The C h a i r m a n .
Mr. Myers.
was q u i t e a
A n é that eleven million dollars I
breeze f o r t h e N e w Y o r k fellows.
think
T h e y were quite
pleased, w e r e t h e y not?
The Chairman.
Mr. Myers.
Y e s , t h a t sweetened u p t h e situation.
N o w , t h a t isn't v e r y m u c h f o r t h e Federal
Reserve Bank o r the Federal Reserve System, but whonever v e
can take care o f a situation like that w e are doing a
great
deal better than we would b e doing b y taking u p our time
trying t o develon personnel e n d organization.
The Chairman.
of personnel?
M a y I a a
question about t h e matter
A r e the men that you recuire t o be lo-
cated entirely i n Washington o r i n the field t o some extent?
Mr. Myers.
is i n your hands.
I n Washington.
A l l the field work w e have
T a k e t h e case o f Mr. Ontjes, a
former
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Federal Reserve Bank of St. Louis
8
banker i n South Dakota, w h o just happened t o b e free, a n d
Mr. McHugh was i n d onough t o reconmend him a s being a n experienced ‘iestern benker w h o happened t o b e free.
N o w we
cannot locate bankers w h o heve t h e right experience a n d who
happen t o b e f r e e v e r y frequently.
I t j u s t h a p p c n e d t h a t Mr.
Ontjes w a s free, a n d h e i s going t o b e i n charge o f the adadministrative banking e n d o f our work.
W e are going t o sep~
arate i t i n t o e x e c u t i v e w o r k a n d sadministretive w o r k ,
and
Mr. Ontjes i s going t o build u p a small, a n d w e hope a very
good organizetion w i t h your help.
The Gheirmen.
I t occurs
t o m e t h a t i f your recuirements
ere sufficiently «ell known n o w t o ensbie y o u t o give u s a
list o f t h e p o s i t i o n s t h a t y o u f e e l n e c e s s s r y
type o f m e n requires,
pookkeepers
t o f t i irae v e e
t h a t i s , h o w m a n y y o u c l a s s a s clerks,
e n d s o on, h o w many would have executive respon-
sibility a n d tthe t y p e o f t h a t r e s p o n s i b i l i t y ,
t h a t i n the
course o f the discussion here o f the program w e might b e
able t o v o r
meeting,
o u t aplan, i f your suggestion appeals t o the
time
t o get these m e n autometically f r o m time t o
as you needa them.
have a
I t i s highly d e trable t h a t w e should
list o r statement t o work to, a n c then w e c a n M S s
4t around a n d Ciscuss i t and i t s possibilities.
Mr. Meyer. I
d o n o t think w e will b e troubled
s o mum
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Federal Reserve Bank of St. Louis
for ordinary clerks a n d bookkeepers. I
them around here, although w e may W a i 2
portent p o s i t i o n h e r e a n c there;
think
man i n
b u t w e have
Ontjes w i t h t h e work o f organizing that department, a n d I
thin: h e had better consider t h a t matter this afternoon
and report t o you E o n s
m o r n i n g a s t o exactly what h e
wents y o u r h e l p o n ,
The Chairman.
I f h e w o u l d d o t h a t i n writing, I
think
it w o u l c h e l p v e r y much, M r . Heyer.
Mr. e v e r .
M r . Glasgow, f r o m St.Louis, t h e Federal
Reserve B a n k o f St.Louis w a s good enough t o release t
end h e i s m a k i n g e x a m i n a t i o n s
statements,
o f o u r applicants accounts
a n d i s doing i t i n a
and
fine way. T - t h i n i w r .
Glasgow might need some assistance, a n a I think i t would
well for Mr. Ontjes a n d Mr. Glasgow and Mr. Thompson
the F i r s t N a t i o n a l Bantxr t o s i t c o w m a n d c o n s i d e r w h a t
they need e n d present t h e matter t o you. I
take i t w e
may h o p e f o r y o u r c o o p e r a t i o n ?
The Chairman. ‘ e l l , I thinks you can leave that with
us.
W e can fix somcthing thet I hope will be all right.
Meyer.
A l l right.
W e a
g o i n g ahead
t o c o what
We are letting people k n o w that good loans a r e
We a
n o t disseminating t h e idea that t h e w a r
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Federal Reserve Bank of St. Louis
10
Finance C o r p o r a t i o n
curity.
i s putting t h e l o a n money o n bad se-
W e d o not want t o G o anything t o impair t h e stand-
ara o f good security o r make loans that would n o t b e helpful
in t h e l o n g r u n f o r a n y b a n l o r a n y r e s e r v e s y s t e m o r a n y body i n t h e country.
curity.
W e a r e trying t o stick t o good se-
W e are doing this: w e are letting t h e m know that
are n o t b o u n d b y t h e f e a t u r e a n d l i m i t a t i o n o f l i q u i d i t y t o
the same extent that a n ordinary bank o r rediscounting
institution ought t o be, but that the fact that a loan i s
good, e v e n i f
n o t immediately liquid,
state a n d c o m b i n a t i o n
i s the peculiar
o f circumstances w h e r e w e temporar-
ily o u g h t t o f u n c t i o n a n d b e helpful,
Ressrve S y s t e m i s n o t i n t e n d e d
i n which t h e Federal
t o a n d should n o t b e asked
to help them, a s w e have understood t h a t t h e thing that w e
should d o a n d Congress intended t o d o i s just the thing
that t h e Federal Reserve System was n o t intended t o c o and
should n o t do, namely, t a k e unliquid security e v e n i f i t i s
very good.
N o w I
would b e g l a d t o a n s w e r a n y q u e s t i o n s
that e n y o f the Governors would like t o ask.
The Chairman. I
was n o t lobbying,
Mr. Meyer.
as I
was i n the Capitol yesterday, a n d I
a m charged with doing.
t all i f y o u
Y o u must n o t g o t h e r e a
ao not want t o b e charged w i t h that, Governor.
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Federal Reserve Bank of St. Louis
a1
The Chairman. I
was e t t h e C a p i t o l
tlemen w h o a r e i n t e r e s t e d
t o mest some gen-
i n this v e r y matter.
T h e y told
mé something o f their views o n what t h e War Finance Corporation i s doing. T h e y were v e r y complimentary a n d stated
that t h e w o r k w a s e x c e e d i n g l y h e l p f u l
districts.
i n their r e s p e c t i v e
T h e y were a l l Senators f r o m t h e West a n d they
inquired w h e t h e r w e w o u l d cooperate,
and I
stated t h a t w e
were not only doing all that w e could, but i t was our
to co it to even a greater extent. J u s t before you came in,
Mr. Myers, I was saying t o some o f the Governors o f the Reserve B a n k s t h e t I
had a
suggestion t h a t I
wantea
t o discuss
with them about t h e functions o f the Federal Reserve Banks
in the situation, e n d i t was i n my minc that after w e had a
little c o n f i c e n t i a l d i s c u s s i o n
o f t h a t here,
w e would a s k
if you would come b a c k again.
Mr. Meyer. I
will b e very glac :
I
a m going
to leave f o r Chicago tomorrow noon a n d I will b e glad t o
come back a t a n y time between n o w a n d then.
The Chairmen.
Mr. Meyer,
L e W
a r r a n g e that.
I t would probably interest t h e Governors
if I told them what I was telling y o u about these n e w
institutions that a r e being started.
re: C h a i e m a n .
< 1 thins s o .
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Federal Reserve Bank of St. Louis
in a s a
part
to them. I
o fe
Giscussion, a f t e r submitting
dco n o t i m o w w h e t h e r
i t woulc b e wiser t o defer
that u n t i l t o m o r r o w m o r n i n g o r t a k e i t u p now,
i f you
can s p a r e t h e time.
Mr. vieyer. That will b e first rate, Governor.
Governor Norris.
O
will want t h e m f o r a
n t h i s q u e s t i o n o f personnel.
you
six o r cight months' j o b i n weshington?
Mr. V e v e r . Y e s .
Governor N e r i s .
probably b e e a s i e r
O t h e r things being equal,
i t will
t o get them from this part o f t h e country
than f r o m s o m e c i s t a n c e away.
Mr. Maver. I
hed i n minc thet i t would b e easier t o
to t h e o .
Governor Norris. W w W t h e t thought i n minc, I
suggest
t o you a t
h
a
six people i n the R e s e r v e B a n k o f i
to leave.
W e@
r e d u c i n g o u r force.
went t o
t w e have twenty
i e l p h i a under orders.
I t i s not that a n y
one o f them i s incompetent o r objectiondle, b u t i t i s simply
e reduction o f force.
T h o s e people, I
suppose,
a r e all
hunting f o r jobs now, s o that i f you should want a n y o f
them, t h e sooner y o u l e t u s know t h e better, a n d w e could
then p u t t h e m i n t o u c h w i t h you.
Thank y o u very much, Governor.
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Federal Reserve Bank of St. Louis
13
Governor Calkins, I
,ake i t t h a t Mr. M y e r s w i l l p r o b -
ably want t o get m e n more o r less familiar with t h e problems
with which they will have t o a é
a n c I T am inclined t o
think i f that i s the case thet some o f them will necessarily
have t o c o m e f r o m o t h e r p a r t s o f t h e country.
I s } aot t h a t
correct?
Mir. iieyer. I
the positions,
think t h a t i s v e r y L i k e l y i n certain o f
a t least a
Governor Calkins.
f e w positions, y e s .
W o u l d i t not b e well t o fix the
time n o w w i t h Mr. i e y e r w h e n w e w i l l m e s t w i t h h i m again?
The Chairman.
Meyer, I
I f i t meets w i t h your convenience, Kir.
would suggest that w e have a
tomorrow morning. I
mecting a t 1 0 o'clock
a m contemplating taking some liber-
ties with your organization elso, Mr. -ieyer, o n the question
of getting a little bit together i n »
Field, and I want
to Giscuss i t with the Governors o f the Rkeserve Banis
before w e open the discussion here,
s o that they will
2 little better understanding among themselves o f how
we c a n go.
Mr. Never.
Y e s , Governor.
The Chairman.
T I think t h a t w o u l d b e v e r y helpful.
Mr. lieyer. I
will be glad to come in at 10 o'clock to-
morrow morning.
The Chairman.
I s there anything else that you would
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Federal Reserve Bank of St. Louis
like t o suggest, Mr. Meyer?
Mr. Meyer.
M r . Ontjes, h a v e y o u «nything thet y o u would
ley before t h e Governors?
Ontjes.
No, I
think not.
Meyer.anc. Mr. Ontjes left the meeting a t this point).
Cheirman.
N o w , gentlemen, before teking u p the
program that has been prepared, I want t o take the liberty
of making a
suggestion somewhet along t h e line o f iir. Meyer's
remarks. I
will make i t a s short a s possible.
« h a t I might
say about legislation i s quite conficential a n c within t h e
four w a l l s
o f this room.
In the course o f t h e n e a
J
on griculturs] Incuiry, I
o
i
n
t Com-
t o o the liberty o f making
a suggestion ebout legisletion f o r agricultural credits.
It was rather hastily coneeived. I
hac n o t workec o u t a n y
Geteils c t ell, b u t Mr. Harrison o n d I gethcreo t h a t i t
cic apreal t o the members o f the Commission, a n c , getting
some encouragement f r o m them, w e have,
Anderson,
atter.
t h e chsirman, p r e p a r e d 8
a t the recuesit o f Mr.
bill t o G e e l w i t h t h e t
T h e bill i s still i n e formative state a n c must
of course pass through t h e cGiscussions o f that commission,
subsequently through t h e legislotive mill, inelucing t h e
committees o f the respective houses o f Congress, b u t with
some p r o s p e c t
o f Icgislation
a s t o egricultural ereci t
generally along lines which w e believe t o b e sound a n d
which I will b e glad t o explain later i n dctail.
The situation a s t o cattle a n d cattle credit i s today
about this: t h e banks o f New York, Chicago a n d the West
generally have provided a credit o f $50,000,000.00, which
is being loaned through a n organization i n Chicago,
o f which
Mr. McClure, w h o i s one o f the directors o f Governor Miller's
bank, i s manager; h e i s handling the business.
O f that
$50,000,000.00 approaching $20,000,000.00 has been loaned,
and they are making loans a t the rate o f about a million
dollars a
week, T h o s e loans a r e only being made through
banks w h i c h e n d o r s e t h e l o a n s a n d i n amounts
o f $5,000.00
and over, a n d generally t o the larger borrowers a n d t o the
cattle loan companies; but the fund will probably be all
loaned,
afford a
o r the greater p a r t o f it, i n due course, a n d will
certain amount o f relief. t o the cattle industry.
The n e x t i m p o r t a n t m e a n s o f r e l i e v i n g t h e c a t t l e i n =
dustry i s through the ‘iar Finance Corporation, which is
principally active j u s t n o w i n promoting t h e organization
of new cattle l o a n companies, which,
money a n d l o a n i t o n t h e cattle,
i n turn, will borrow
a n d n e w capital
is
being gathered together i n the various localities i n the West
for the purpose o f making loans upon cattle.
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Federal Reserve Bank of St. Louis
T h a t is
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Federal Reserve Bank of St. Louis
16
the second moans o f rilicving t h e cituation, a n c th: thire
means o f rclicf, w h i c h will b e permanent i f i t i s succossful,
will b e i n the form o f this legisletion that I have referred
to.
Now, i n the meantime, t h e r e i s a good dcal o f evidence,
so w o hear i n the East, a n d i t i s s o reported i n Washington,
that t h e smaller borro'crs i n the livestock industry, b o t h
eattle a n d sheep a r e still i n a position o f more o r less
difficulty. I
say that rather positively because o f talks
that I have h a d vith four o r five Unitcd States Senators
who a r c t h e m s e l v e s
i n the cattle business
o r the sheep busi-
ness, a n d all but one o f them i s a t the same time interested
in bantting.
I had a
meoting ‘ i t h t h e m yesterday,
a n d they have em-
phasigzod quite strongly that while these meacurcs o f relief
that have n o v been adopted a n d which a r e beginning t o function
are good a n d helpful a n d encouraging, nevertheless t h e y c o
not roach t h e small man, a s i s particularly needed.
mon t h a t I
The
mot y e s t e r d a y w e r e S e n a t o r ‘ia sworth, w h o ,
48
you know, i a from N e w York, b u t i n the cattle business i n
Texas; S e n a t o r iarren,
f r o m wyoming; S e n a t o r hendrick,
from
Wyoming; Senator Goodings o f Icaho~--Senator Stansficld w a s
to b e there, b u t could not, although I
had mct h i m previously
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Federal Reserve Bank of St. Louis
af
They are all cattle men, a n d I imagine t h e y have a l l been
more o r less hurt b y the slump i n the value o f cattle, a n d
consequently t h e i r v i e w s a r e a l l t h e m o r e p r o n o u n c e d
as
to what ought t o b e done.
This legislation t o which I refer was discussed w i t h
them quite fully, a n d they were rather enthusiastic about
it being desirable, b u t they waid "It will b e slow; w e do
not know h o w soon such a bill c a n b e put through Congress,
if a t all, a n d i n the meantime these little fellows throughout
the breeding, feeding a n d fattening sections a r e still i n
difficulty; what can we d o about it?" I
pointed out that
the Reserve Banks were helpless t o c o anything unless t h e y
were willing t o g o t o their member banks and tell them what
kind o f loans t o make; that w e had never attempted t o exer~
cise t h e p o w e r t o t e l l t h e m e m b e r b a n k s w h a t k i n d s o f l o a n s
to m a k e a n c w h a t leinds o f l o a n s n o t t o make, c e r t a i n l y n o t
Since t h e war, b u t that o n the other hand I did feel t h a t
the Reserve Banks exercised a
considerable influence o v e r t h e
policies o f their member banks generally; a n d i t has ocurred
to m e that i f the Governors o f the Reserve Banks i n the
cattle districts were willing t o g o the extent o f circular-
izing the member banks i n their districts, some means might
be f o u n d t o s t i m u l a t e t h e m e m b e r b a n k s
i n those sections
to
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Federal Reserve Bank of St. Louis
18
take e
little more liberal v i e w o f their duty towards t h e
cattle industry. I
had not formulateé anything i n m y o w n
mind a n c could n o t s a y off-hand whether s u c h c o m m u n i c a t i n
o
should take t h e form o f advice o r whether i t should take
the form o f a questionnaire,
s i m p l y seeking information,
or what f o r m i t should take, b u t I did think that i t would
be highly desirable f o r u s t o discuss t h e matter a n c s e e
whether t h e Reserve Banks could d o anything.
{ want t o explain t o you gentlemen quite frankly w h y
I believe
i t i s desireble
t o p r o c e e d w i t h s o m e s u c h policy.
I have b e e n coming over here a l l summer Ciscussing these
matters w i t h m e n w h o a r e i n t e r e s t e d
i n cotton f r o m t h e
South, with Senators a n d Congressmen who are interested i n
cattle and grain i n the West, and every time we have come
forward w i t h a
constructive s u g g e s t i o n o f a n y t h i n g
i n the
nature o f help, t h e y h a v e a t o n c e b e c o m e f r i e n d l y a n d h e l p -
ful anc, i f you please, appreciative o f the system, a n d I
firmly believe t h a t there i s more t o b e accomplished i n
overcoming this prejudice against t h e system b y getting i n
contact w i t h t h e s e v e r y m e n w h o h a v e b e e n o u r c r i t i c s a n d
endeavoring
t o work o u t t h e problems t h a t t h e y a r e dealing
with, r e c o g n i z i n g t h a t t h e y t o o h a v e a
responsibility j u s t
as w e have, a n c l think w e will make friends o f them a n d
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Federal Reserve Bank of St. Louis
19
they will b e supporters o f the system a n d w e will g e t somewhere.
F o r instance,
a s the result o f meeting these m e n
who a r e t h e m s e l v e s i n t e r e s t e d
i n t h e c a t t l e business,
and
getting this f u n d together, t h e y are a l l friendly t o the
system, e v e r y o n e o f them, a n d they e r e n o longer criticising t h e F e d e r a l R e s e r v e B a n k .
T h e same thing happened
considerable extent o n the cotton question. I
meet Heflin o r Senator Watson, b u t I did meet a
Congressmen a n d S e n a t o r s f r o m t h e South,
to a
did not
number o f
t h e West a n a the
Southwest, a n d their attitude v e r y consicerably changed a s
soon a s w e agreed that i f money was required there t h e y would
get it.
This Commission o f Agricultural Inquiry was, I think,
composed o f m e n w h o s t a r t e d w i t h a
very d i s t i n c t p r s jucice
against t h e R e s e r v e B a n k i n g S y s t e m a n c e s p e c i a l l y a g a i n s t
the Reserve Banks i n their o w n districts, b u t I found after
frenk t a l k s w i t h t h e m t h a t t h e i r a t t i t u d e c h a n g e d v e r y d i s -
tinctly, a n d I think t h e attitude o f the members o f that
Commission h a s changed v e r y distinctly a s the result o f what?
Not o f t h e e x p l a n a t i o n s
o f t h e policies
o f t h e system,
but
as the result o f one little thing, a n d that was suggesting
to t h e m a
plan t h a t a p p e a l e d
t o them a s a
and f e a s i b l e p l a n t o i m p r o v e c o n d i t i o n s
reasonable,
i n respect
sound
t o credit
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Federal Reserve Bank of St. Louis
matters among t h e agricultural classes o f the country.
So I took the liberty o f going t o this length a n d saying t o those four Senators t h a t I thought t h e t I could
promise t h a t this meeting would invite t h e m t o come here
and t e l l t h e story, t e l l e x a c t l y w h a t t h e t r o u b l e w a s a n d
what their feelings were about t h e policies o f the Reserve
Banks, a n d that w e would t r y t o get together a n d agree u p o n
a program o f some kind.
[ I have nothing v e r y definite t o
suggest e x c e p t t h i s , t h a t i f w e c o u l d g e t i n t o c o m m u n i c a t i o n
with t h e m e m b e r s b a n k s
o f our respective districts--that G o e s
not a p p l y t o N e w York, b e c a u s e
there--but
w e have n o cattle business
i n those d i s t r i c t s w h e r e t h e c a t t l e i n d u s t r y i s
important, e n d astertatitiwaat t h e needs o f the district are,
and w h e r e t h e difficulties are, w e c a n perhaps g e t t h e
member banks t o mele the necessery loans.
I f they need
longer credit t h e n they a r e n o w getting f r o m their local
benks, p u t them i n touch with the War Finance Corporation
end cooperete w i t h that institution;
i f they need such
crecit a s the cattle l o a n func i n Chicago c a n give them,
put t h e m i n c o n t a c t w i t h t h a t fund.
I
n o t h e r words,
get
behind t h e situation instead o f opposing i t ana fighting
{t and I thinlt w e will g e t somewhere. I
a m strongly i n
favor o f asking them t o come here and of giving them a
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Federal Reserve Bank of St. Louis
hospitable a n d f r i e n d l y a n d s y m p a t h e t i c r e c e p t i o n .
They
are m e n o f standing i n their respective communities, a n d
endeavor b y every means i n our power t o get t h e banks o f
the country that ought t o b e taking care o f the cattle m e n
in @ better frame o f mind toward coing it.
Governor Calkins. I
would l i k e t o s a y t h a t t h e r e i s
one thing that must b e kept i n mind when y o u speak o f the
banks i n the cattle a n d sheep sections o f the country,
and t h a t i s t h a t t h o s e b a n k s n e e d r e l i e f
a s much a s the
cattle and sheep growers need it, and any mechanism that
depends u p o n t h e c o o p e r a t i o n
in that w a y will n o t work.
o f t h e banks
i n making credits
T h a t should b e borne i n mind
in discussing the matter with such men asgtansfield and
Gooding a n d i n tryyng t o work o u t some p l a n which will
operate, s o m e plan should b e thought o u t that would operate
without t h e assistance o f the local banks, w h i c h are n o w
loaded.
t o t h e guards a n d i n trouble because
o f advances
which t h e y h a v e m a d e t o t h e s m a l l s h e e p a n d c a t t l e growers.
That i s the situation i n Idésho a n d Eastern Oregon.
There
is another thing t o b e considered i n dealing with s u c h men
as Senator Stansfield particularly.
A l l o f them are human.
Stansfield w a s rated a t from two t o three million d o l t s
two y e a r s a g o a n d h e i s n o w s a i d t o b e bankrupt,
a n d any
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Federal Reserve Bank of St. Louis
He
man who hes gone through that experience i n a short time
is sure t o fcoscl thet that was d u e t o some definite mechanism a n d h e i s going t o curse t h a t mechanism, a n d a suggestion o f cooperation that really means assistance w i l l
of c o u r s e a p p e a l
t o him.
am willing t o stake m y word o n the’
The Chairman. I
fact that even s u c h little sympathetic discussion a n d assistance a s hes already b e e n rendered t h e cattle industry
has m a d e m o r e f r i e n d s
e G
u p a t the Capitol t h a n anything
any bank management has yet donc. ‘This record i s very
carefully guarded, a n d I d o not mind having this statement
go down, a n d that i s I find Senator kKkendrick i s a loyal
defender
o f t h e F e d e r a l R o s e r v e S y s t e m tocay,
a n d Governor
Herding tells m e that s i x o r cight months a g o h e was o n e
of its bitterest critics.
These mcn have been most cordial t o mc u p a t the Capitol,
and they welcome a n opportunity t o have a meeting and diseuss t h e s e matters,
and I
t h i n k w e o u g h t t o m e e t them.
They
are our representatives i n the legislature o f the United
States, a n d w e ought t o find s means, i f there i s a
possible means,
o f dealing w i t h t h e situation t o the ex-
tent that t h e l a w permits t h e Federal Reserve System t o
go, end where w o find that w e cannot deal with it, w e
ought t o c o o p e r a t e “ i t h t h e o t h e r t w o organizations,
that
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Federal Reserve Bank of St. Louis
| 25
is, t h e W e r F i n a n c e C o r p o r a t o n a n d t h e l i v e s t o c k f u n d
in o r c e r t o g e t t h e m t o f u n c t i o n o r t o h e l p g e t t h e m t o
function.
T h e n I
g o one step further. I
have d i s m s s e d
a plan o f l e g i s l a t i o n w i t h t h e s e m e n i n detail,
and I
think
that w e c a n indorse i t andget behind i t andsay that i t i s
@ thing that w e will stand f o r i n the Federal Reserve
Banks.
Governor Miller.
you had formulated.
Y o u spoke o f some legislation that
W h a t i s your idea o f the best means
of furnishing relief t o these small cattle people?
The Chairman. I
Governor Miller,
will explain t h e legislation briefly,
i n this way:
and
The National/State Banks of the United States today
are permitted t o make loans f o r one year, t w o years o r
three years,
a n d there i s n o l e g d i m p e d i m e n t against
making s u c h loans.
T h e reason w h y they a r e not m k i n g t h e m
is because t h e y d o not regard i t a s goodbusiness t o tie
their m o n s y u p f o r t h a t l e n g t h o f time.
I n the case o f
cattle i t is not only tying their money u p a t a fixed
rate o f interest for a long period, s a y for two o r three
years i n some cases, but there are ¢ebtain conditions i n
the cattle business t h a t w e all recognize a s additional
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Federal Reserve Bank of St. Louis
and unusual risks.
growing crop can.
safeguarded.
C a t t l e c a n walk o f f faster t h a n a
A l l o f those things have g o t t o b e
T h e w a y t o attack this problem o f getting
the banks t o insure t o the cattle people, t h e grain growers
and cotton growers t h a t adequate credit f o r a long enough
is
period i s t o give t h e m assurance t h a t it/safe f o r them t o
extend t h e credit.
O n e means o f making i t safe i s t o give
them a n outlet f o r t h e i r l o a n s w h e r e t h e y c a n discount.
them i f they need t h e money,
them.
o r i f they need t o convert
T h e y cannot convert t h e m a t the Reserve B a n k now,
they a r e t o o long: a n d approaching i t from that stancpoint
I have tried t o puzzle o u t some means o f giving t h e m t h e
necessary assurance, e n d I think t h e only means i s t o open
the d o o r s
o f t h e Federal F a r m L o a n System a n d permit t h e m t o
make these short ‘ n a c e Gistinguished f r o m the twenty-year
mortgage loans.
N o w there are certain objections which I
neve r a i s e d t o d i n g e i t h e r ,
jections a r e overcome,
thet l o a n s
but I
think m o s t o f t h e o b -
i n t h e firsit place b y p r o v i d i n g
s o made b y t h e banks s h a l l b e indorsed b y banks
when t u r n e d o v e r
t o t h e F a r m L o a n System.
Another
ob-
jection was that even i f that money wasborrowed b y a g r i m l turists
a s well a s livestock people
tent f o r a
ca)
year o r e v e n f o r a
to a
considerable e x -
longer period, n e v e r t h e l e s s
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Federal Reserve Bank of St. Louis
20
a large part o f the borroving vwoulc b e seas nal borrowing just ¢ h e same, t o cover t h e planting o f a crop a n d
the moving o f i t i n season, a n d that would throw upon t h e
farm loan syetem t h e peak load a n c necessitate t h o i r being
nished w i t h funds a l l the year round t o meet that maxiLen “rould only occur s a y i n tho Teil o r possibiy
To o v e r c o m e t h a t o b j e c t i o n w e
propose that, w h e n theso loans epproech ‘7ithin s a y three
months, o r , i f neccessary, s i x months o f maturity,
a s now,
in the case o f egricultural
paper which v e take, t o then
as
permit t h e Farm Loan Banks t o discount t h a t with t h e Federal Reserve Banks w i t h their incorsements,
a n d then y o u
have t h e incorsenent o f the loerl b a n k t o the Farm Loan
Bank a n d - c tale t h e paper,
t o b e sure f r o m a non-memper,
but n e v o r t h c l e s s w i t h r e a s o n a b l e s e c u r i t y ,
a n d w e c a n sur-=
round i t with such regulations governing security a s we require.
T h e rcsult o f that a s I see i t i s that y o u have a
loan
requirement expressce i n so curve ‘hich goes reasonably high
ring, G o w n i n the summer, u p t o a maximum i n the
then Gown agein i n the winter until t h e next
eround.
T h e m e a n o f that curve woulc b e rep-
amount o f ercdit b y ell the agricultural
one year,
s o that ultimetely i t
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Federal Reserve Bank of St. Louis
would b e o n e year, a l t h o u g h a t t h e o u t s e t p o s s i b l y i t w o u l d
average eighteen months.
T h e peak load will b e taken b y the
Reserve Banks taking over t h e surplus which t h e land banks
could n o t f i n a n c e p e r m a n e n t l y .
T h e F a r m L o a n Banks w o u l d
finance permanently t h e mean load b y selling o n e year obli-~
gations secured b y these notes.
N o w that matter w a s pre-
sented t o Mr. Lobdell o f the F a r m Loan Board, a n d h e objected,
on o n e g r o u n d only,
e n d that was thet t h e sale o f one year
notes would interfere w i t h t h e sale o f the twenty-year bonds.
Now I have been dealing more o r less i n the investment market
for twenty five years i n New York a n d I Imow that h e i s all
wrong about that.
I t will n o t interfere a t all. F u r t h e r m o r e
I believe i t will result i n i s m ing a form o f security which,
if h e n d l e c w i t h a
reasonable a m o u n t o f energy, O u g h t t o f i n d
a market right i n the locality where i t i s produced, r i g h t
in the Western sections o f the country, b e i n g a
compara-
tively short note.
Governor V a n Zandt.
M o r e t h a n likely i t would. \
~
The Chairman. T h e r e i s another objection which impressed m e p r e t t y strongly,
a n d that i s that t h e present
farm l o a n bonds a r e exempt f r o m Federal, s t e t e a n d municipal
taxes. There is a great sentiment i n Congress and in the
country g e n e r a l l y i n o p p o s i t i o n
t o further enlargement
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Federal Reserve Bank of St. Louis
Be
fer
ofthe volume of these tax-emimpt securities in the’ country.
I believe t h a t that sentiment i s going t o result i n stopping i t , a n d i t s e e m s a l m o s t i n d é f e n s i b l e j u s t n o w t o advocate a n amendment
t o t h e F a r m L o a n o r Federal R e s e r v e
which will result i n the enlergement o f the volume o f
empt securities.
T h a t w a s v e r y clearly pointed o u t yester-
day b y these Senators.
O n the other hand, there isn't any
reason w h y they shoulda b e tax-exempt,
Congress w a n t s
i n m y opinion.
I f
t o pass a n a c t without t h e t t a x exemption I
better
will be/satisfisd than i f they pass i t with the exemption
reature.
I t mates n o f f e r e n t e , n o t 4
ference t o me, which horn o f the dilemma y o u take. I
would p r e f e r n o t t o h a v e t h e m t a x exempt,
b u t some o f us
have felt i n Giscussing the matter that i t would b e unwise
to a t t e m o t
t o get a
Now that i s a very rouch s
taxable d e b e n t u r s i s s u e c .
k e td outline
dn h
a
o f the plan,
Governor Norris, a n d because y o u managed t h e tederal Ferm
Loan System, I would lite t o hear y o u criticize i t if you
will o r commenc i t i f you can.
Governor Naris.
I s i t your view that the Federal
Land B a n k s s h o u l d p r a c t i c a l l y r e c i s e u n t c a t t l e p a p e r
of c o m m e r c i a l
banks
The Chairmen.
S s , a n d pledge t h e m a s security f o r one-
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Federal Reserve Bank of St. Louis
year notes.
Governor Caelizins.
W h i c h loans w i l l b e obligations
of t h e U n i t e d s t a t e s G o v e r n m e n t ?
The Chairman.
N o . T h e y are n o t n o w a n d will n o t bk.
r Norris.
o
e
nWould ry o u expect
e
t
v h e Land
o Banks
G
to
a
g
i
s
eoriginal
v
n
t th e security
ot f the
mi
.
alice
er
Ae
o f the note
anc a l s o t h e strength o f the incorsement o f the bank?
I think they certainly should, just
as m u c h a s a
Federal R e s e r v e B a n k does.
Governor N o r r i s .
[ I f 6 x pected y o u t o
snswer
i t i n that
If you had wesented
way, b u t I just wanted t o make
thet t o m e w h e n I
was o c c u p y i n g t h e p o s i t i o n n o w o c a p i é c e
py Judge Lobdell,
m y principal objection t o i t would h a v e
been that t h e Federal L a n d Bankes have n o organization,
mechanism o r
no
apability o f c o i n g that. T h e y d o n o t a e a l
at a l l w i t h p e r s o n e l credit;
t h e y cdo n o t c e a l w i t h t h e
value o f the growing crop o r the value o f the herd. Thetr
whole organizetion h e s been centered o n the value o f land
d t h e s e c unr i t y o f t
ah e
we hope,
and I
On those subjects
TAP SG
think t h e y a r e experts,
p u t they a r e total
o f those
strengers t o personal creait,
anc t h e o f f i c e r s
banks a r e m e n who, a s a rule,
were formerly connects ed. w i t h
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Federal Reserve Bank of St. Louis
20
conecrns o f that lind a n c scarcély
‘ny o f them have h a d a n y experience
so that they would have -
i n any commercial bani;
builG u p absolutely f r o m the pbotto:
& new organization t o hancle t h a t business.
Toe C h a i r m a n ,
[ a m anxious
t o Geal w i t h that point
mey t e k e t h e l i b e r t y o f i n t e r r u p t i n g y o u f o r t h e p u r p o s e
2 f £
of
pointing this out: that the alternative o f having the l a
benks c o that very thing which they are perfectly capab
of coing-~I m e a n i t i s not more diffialt t o c o that than i t
was t o o r g a n i z e t h e R e s e r v e B a n k s o r i g i n a l l y ,
i n fact, l e s s
Cifficult, because t h e y have g o t existing organizations
ich coulc b e somewhat expanded.
that
i s t o have Congress
pass
T h e alternetive
a n act remiring
the eceral
Giscount p a p e r o f t w o o r t h r e e y e a r s m a t u r i t y
you rathsr d o ? T h e y will d o that a s sure a s
Governor Norris. B u t why not take a thirdcAlterneative
and let them provide for a n organization--I d o not Imow what
you would call that, but say short-term rural crecit banks
The Chairman.
T h e n w e woulé have
organizations i n the U n i t e d States, t w o o f them ce
Ssinéss o n l y w i t h farmers.
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Federal Reserve Bank of St. Louis
Governor V a n Zandt.
T o d o business w i t h o n e c l a s s o f
people only.
The Chairman.
Y e s , w i t h only o n e class o f people, a n d
that secms t o m e t o b e indefensible.
Governor Norris.
T o m y mind there i s a
r a d i G
c stincta dl
ion between t h e taking o f a thirty-five year first mortgage
on real estate a n d the making o f a one o r two year l o a n o n
cattle.
The C h a i r m a n .
Yes,
Governor Norris.
sir.
3
I t i s a n absolutely different k i n d o f
business.
The Chairman.
B u t isn't i t possible t o builé u p a n
organization i n the farm loan system,
don't know.
Governor Noris. I
s o that t h e y c m d m i t ?
When I
was c o w n h e r e
members o f Congress o f t e n usec t o tal’: t o m e about that, a n d
ITalways replied that when they pout thet cuty o n us they
would g e t m y resignation.
The Chairman. I
do not want t o brush aside y o u r ob-
jections, G o v e r n o r N o r i s , p u t I
from t h e s t e n d p o i n t
went t o s p e a k v e r y f r a n k l y
o f t h e heserve System, a n a ,
for t h e p r o t e c t i o n
in a
o f t h e Reserve System, e g a i n s t
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Federal Reserve Bank of St. Louis
a program
o f legislation
w h i c h I think
lying principles o f the system.
ganization.
i s vital
t o the a n d e s
H e r e w e h a v e a going or-=
I t will r e c u i r e o n l y f a u r o r f i v e s e n t e n c e s
emenc a n act i n order t o enlarge their powers, I
to
a m hope-
full that thet plan willmeet t h e situation i n Congress a n d
produce w h a t t h e y w a n t e n d r e l i e v e
u s of a
is just n o w pertious t o the system.
situation w h i c h
T h e o n l y thing that
stands i n the w a y i s the belief i n the minc o f Judge Lobdell,
which y o u u n d o u b t e d l y h a v e s h a r e a
i n t h e past, t h a t t h e y
were j u s t organized t o make mortgage loens upon real estate
and that t h e y should n o t d o anything else.
I t looks t o m e
a little b i t as, though, b e h i n d i t all, i s a desire
co anything else, b u t w e a r e facing a real emergency.
Governor Norris. That i s a man's j o b end I Go not
wonder that they C o not want t o c o anything else.
The Chairman.
O f course i t is.
Governor Wellborn.
W h y would i t not be just a s well
to enlarge t h e facilities o f that corporation i n Chicago,
the $50,000,000.00 fund, t o enable them to make smaller
loans? T h e y are already making larger loans.
Governor V a n Zandt.
B u t their overhead would b e greatly
increased i n taking the smaller loans.
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Federal Reserve Bank of St. Louis
The Chairman.
Y e s , i t woulc. eat i t up.
Governor Calkins.
Y o u r proposition i s t o offset attack
on the Federal Reserve System anc. protect it,-.coupled with
+
your s u g g e s t i o n w i t h r e g a r d t o t h e f a r m l o a n banks.
The Chairman.
e s , and t
t h e suggestion meets t h e
situeation--
Governor P E T E S
P e r h a p s i t does, b u t that i s a minor
point.
fhe Chairmen.
N o , i t i s not. I - t h i n k i t has. three a c <
I will n o t name t h e m i n ord:r o f importance, b u t
as they have b e c n disciosed.
O n e i s that
a possible undermining o f the principle o f the
tem a n c p r o t e c t t h e system; s e c o n c ,
i t w i l l heave t h e e f f e c t
of t e k i n g t h e T r e a s u r y o f t h e U n i f e c S t a t e s o u t o f t h e b a n k ing business, b e c a u s e
i t never should b e i n the banking
business; anc, third, i t will provide funds, a
type o f
crecit which i s not n o w provided b y the banking system o r
the farm loan system, w h i c h t h e y are entitlec t o have.
Those a r e three arguments advanced i n support o f such a
plan o f legislation.
Governor Norris. I
agree w i t h y o u that these people
ought t o have that credit facility, Mr. Chairman.
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Federal Reserve Bank of St. Louis
The Chairman.
Yes.
Governor Norris.
T h e r e i s a vacuum i n the credit.
structure n o w that ought t o b e filled; t h e r e i s a
situation
that ought t o b e taken care o f i n some way, e n d i t ought
not t o b e taken care o f b y the F < R e s e r v e System.
can y o u p u t i t ?
Governor Norris. I
care
o f b y loens
agree t h e t i t ought not t o be taken
o f Government money,
e n c that leaves
one of
two alternatives, e v e n i f the l o a n banks o r some n e w type
Of banks.
The Chairman.
T h a t i s correct.
T h a t i s just t h e line
Oi reasoning that I followed before making t h e suggestion.
Governor Caltrins.
I n carrying thet reasoning out, i f
it w e r e p r o p o s e d t o C o n s r e s s
t o set u p a
new m e c h a n i s m t h e r e
would b e very great objection, a n d very probably sound objection, p u t i f i t were w o p o s e d
t o Congress t o a d d
to the machinery o f a n existing organization, t h e r e
not b e the same oojection.
Governor Norris.
O f course,
i t i s much easier
through Congress a n amendment t o a n existing bill than i t is
to get e n entire n e w dill through. A n o t h e r m w acticel opjection that occurs t o me, a s I see it, i s that there i s hardly
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Federal Reserve Bank of St. Louis
55
a facility
i n t h e Lositi panks t o d a y t h a t w o u l d b e o f a n y u s e
in t h e t r a n s a c t i o n
o f t h i s business.
T h e y woulc h a v e t o
puild t h e organization y o from the v e r y beginning f r o m
the model, a n d i t would b e a considerable t i m e before t h e y
woule b e ready t o c o a n y business.
The Chairman.
H o w much longer would i t b e before y o u
could g e t a brand-new bill through Congress, a
type o f institution?
brand-new
T h e y have a clerical organization
end everything o f that kind, e n c y o u could c o i t i n a
fraction o f the time necessary t o put a
Governor Norris.
new bill through.
Y o u c o u l d c o i t ouicker,
but it
coulén't b e Gone i n a month o r three months, o r probably i n
six months.
The Chairman.
T h e t brings
u p the very point I
mine i n suggesting t h a t w e meet with these Senators.
had i n
W w e
have t h i s c a t t l e l o a n f u n c a n c w e h a v e t h e W a r F i n a n c e
Corporation,
a n d w e have t h e possbility
i n the P e e s
o f
some legislation, which will not become effective for a
good while, b u t i n the meantime l e t u s stimulate o u r o w n
member banis t o c o what t h e y c a n a n d then t r y t o agree
with these gentlemen upon some yermanent legislation which
will b e p e r m a n e n t l y helpful.
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Federal Reserve Bank of St. Louis
34:
Now, Mr. Anderson, chairman o f this commission, a n d
the m e m b e r s
o f t h e commission individually,
when I
appeared
before them, w e r e a l l insistent, w e r e v e r y definitely i n sistent that existing machinery must b e used a n d that w e
must n o t create more organizations b y acth of Congress.
this meeting yesterday every S e n a t o r si
A t
that w e ought
to b e able t o take care o f credit f o r t h e agricultural
in‘ustry o f the tounty without creating a
lot o f new ma-
chinery, w i t h a l l its overhead a n c s o on.
E v e n though i t
would require s o m e sacrifice o f present ideas o n the p r t
of t h e m a n a g e m e n t
o f t h e f a r m l o a n organization,
be p e r s u a d e d - - j u s t
i n m y o w n minc I
t h e y must
sey that t h e y c a n b e
forcet--to undertake this v e r y j o b a n d organize t o c o it.
This q u e s t i o n o f a g r i c u l t u r a l c r e d i t I
believe h a s g o t t o
be solved.
Governor Norris.
D i d y o u gather f r o m your interview
with Judge Lobdell t h a t h e was unalterably opposed t o i t
or that he just had thet thought, that fear i n his mind
that i t would interfere w i t h t h e sale o f the bonds?
The Chairman.
[ I did not have a n interview with him,
but t h e Secretary o f the Treasury sent f o r h i m anc put i t
squarcly u p t o him,
so I
a m told, a n d h e t o l d t h e S e c r e t a r y
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Federal Reserve Bank of St. Louis
o5
of t h e T r e a s u r y t h a t t h e f a r m l o a n s y s t e m c o u l d n o t u n c e r take { t b e c a u s e t h e s a l e o f s h o r t - t i m e c e b e n t u r e s w o u l d i m -
pair t h e market f o r their long-time bonds.
Governor Norris. I
agree with y o u perfectly that
would not. T h e r e w a s another objection t h a t I had. I
fraid that t h e y would saddle something o f that sort o n
that then they would want loans o f that k i n c a n d come i n
with the mortgeges a
The Chairman,
e
h e f a r m loan bonds.
O h , no.-
Governor Norris.
The Chairman.
i
That, I
think, wouic. b e fatal.
O h , no, they wouldn't think o f coing thet.
Governor Norris.
B u t i f t h e t w o classes
o f security e r e
to b e kept entirely separate a n d t h e farm loan bonés,
as
heretofore, a r e t o b e securec solely b y first mortgages, a n d
these n e w c e r t i f i c a t e s t h a t t h e y w o u l d s e l l w o u l d b e s i m p l y
one-year notes secured exclusively b y notes o f this kind,
then those could not interfere with the bonds, unless the
bondholders g o t t h e idea that t h e loan banks a r e malrcing
such enormous loans t h a t i t woulc wipe o u t their surplus a n d
their solvency; b u t I do not think anybocy would b e
riously a f r a i d o f that.
The Chairman.
T h e s e l o a n s w o u l d h a v e b a n k obligations
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Federal Reserve Bank of St. Louis
behind them.
Governor Norris. Y e s , but I would suppose that where
they would b e obligations o f the kind o f banks o f which
Governor Calkins spoke, w h o a r e loaded u p t o the guarcs
already a n c w h o need essistance themselves almost a s much a s
the c a t t l e r a i s e r s , t h e i r i n d o r s e m e n t p r o b a b l y w o u l d n o t b e
so strong.
The Chairman, I
do not agree with you. L o a n s o f that
type w i l l b e t a l e n a s r e l i e f m e a s u r e s
b y t h e W a r Finance
Gorporation, a n c this legislation, w h i c h woulc b e cesigneg
as @ permanent instrument for agricultural crecit, woulc not
get under wey in six months o r a year, but that gap has got
to be bri¢ged i n the meantime b y existing facilities, and
this w o u l d b e a
n e w f a d lity. I
d o n o t anticipate t h e bili
would begin t o operate until t h e emergency situation i s
pretty w e l l b e h i n d u s .
Governor Calkins. I
co not think i t woulc follow that
under this p l a n you a r e n o w ciscussing t h e t o n l y banks s u c h
as 1 spoke o f would handle t h e matter.
a
m talking o f the
concitions now.
Governor Young.
Y o u would require t h e indorsement
of the bank, w o u l d y o u not?
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Federal Reserve Bank of St. Louis
tne Chairman, Y e s .
Governor Young, S t a t e banks a s well a s Netional banks?
The Chairman.
Y e s , a n c non-member banks.
Governor Young.
happen t o t h e N a
H a v e y o u stopped t o consicer w h a t w o u l d
b a n k s
i n the egricultural Gistricts?
They would g e t out o f the system, a s there would b e n o object
of their staying in.
The Chairman.
W h y , Governor.
Governor Young. B e c a u s e t h e y c a n get all t h e assistance
want without putting u p a n y reserve.
T h o s e fellows
sit f o w n a n c f i g u r e t h a t o u t a l l right.
National
P e o p l e that
b a n s w i l l c l o s e t h e m o u t a n d o p e n State banks,
as they c a n g e t the assistance t h e y want through those banks.
Governor Calkins.
W h e t C o y o u mean b y saying without
putting u p a n y reserve, G o v e r n o r ?
Governor Young.
I f t h e y b o r r o w e c m o n e y f r o m t h e s e Feédera:’
Joan Banks t h e y woulc n o t b e r e m i r e d t o wmrry reserves.
Governor Calkins. I
understand t h e banks a r e going t o
secure t h e i r n o t e s t h e t t h e F e c e r e l L o a n B a n k s w i l l sell.
Governor Young.
T h e p o i n t i s this.
T h e y cannot cis-
count a n y p o p e r w i t h t h e l o a n hbant:s w h i c h h a v e
of l e s s t h a n s i x m o n t h s .
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Federal Reserve Bank of St. Louis
58
The Chairman.
D o y o u t h i n k i t would c r i v e t h e m o u t o f
the system?
Governor Young.
Y o u c e n figure i t out yourself.
L e t
us s a y that y o u are i n South Dakota, where y o u a r e handling
agriculturel loans, a n d you had a benk and were required t o
carry fifty, s i x t y o r seventy five thousand dollars o f
reserve,
i f you coulc g e t your assistance without car-
that reserve y o u would g e t out o f the system a n d get
stance through t h e Fodersl L o a n Banks.
Governor Cellzings.
B u t t h e banlz would have t o carry a
reserve somewhere.
Governor Young. T h e t is true, but they woulc get 2-1/2
per -cent..on. it.
Governor Celkins.
have t o c a r r y a
B u t i n many o f the ctate
w o u l d
heavicr r e s e r v e o u t o f B hGils
she Sn steSerr)
Governor Young.
T h t o n l y applies
tO
S u e d e
i n our
district.
Governor Calkins.
I t applice
t r o Stetes i n our district
Governor Seay. ‘ a s i t i n your mind that these loa
would b e for cattle raising purposes only?
The Chairman.
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Federal Reserve Bank of St. Louis
&9
psychologica
Governor Calkins. >
effcet o f the mechanism, e n c ‘ l i e v e t h e r e i s good ground
for looking t o that cffect.
Governor Young. A
National bani woulc telke the v i e w
thet there w a s n o use being i n the Fedcral Reserve System
when his competitor across the street got what h e ‘vanted
without carrying a
The
o e Ba
reserve i n the system.
B u t l e t m e tell y o u just another aspect
of this matter that troubles m e a great deal.
O n e Senator
and one Congressman, b o t h very active i n this agricultural
bloc, o n e o f them being Senator Capper, t h e leader o f the
outfit, h a v e b e e n mecting ‘sith Governor Herding f o r about
twice a
weck for some r e c
conferences a
A L E o n d a 6 the result o f their
bill h a s b e e n p r e p a r e d w h i c h provices, f i r s t ,
for t h e making o f these long-time loans o u t o f the surplus
funds o f the Federal Reserve Banks; second, f o r t h e making
of dircet loans b y Federal Reserve Banks t o agricultural
borrowers, o p e n i n g t h e door,
i f y o u please,
just a
crack
at first--
Governor Calkins (intsorrupting;.
Y o u mean Ccirect t o
borrowers?
The Cheirman.
Direct
t o borrowers e n c n o t t h r o u g h 2
40
pank.
T h a t bill has been turned over t o the Secrctary o f the
Treasury a n d h e i s g o i n g t o t a l k w i t h S e n a t o r C a p p e r a n d
Congressman Streng--curious t h a t a
man o f that name should
propose s u c h =
w e co
stitute a
measurc--and u n l e s s
better measure, t h e first t h i n g y o u know that
SiLi 1s. going
a s s , togethcr w i t h other legislation,
ciscounting
J e
opening t h e d o o r s 3
paper w i t h m a t u r i t y o f t w o o r t h r e e y e a r s
of
p
N o v e t n e < L u c i l iy
of that i s apparent «when you consider thet 1 6 per cent o f
the banking resources o f the United States a r e employed t o
finance agriculture a n d cattle--18 per cent o f %45,000,000,00C
six o r eight billion collars, a n c t h e y are proposing simply
a meagre .j100,000,000.00, which will b e absolutely inedcequate,
because $100,000,000.00 w o n t b e a
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Federal Reserve Bank of St. Louis
they w i l l w a n t a n o t h e r hundred,
speck o n this wall.
t h o n f i v e hundred,
Then
a n a the
3
first thing y o u Imov t h e Federal Resorve System,
i f a n y such
legislation posses, v i l l b e the cumping ground f o r long-time
loans.
Governor Young. I
a m not opposing this, b u t i s there n o v
something i n m y argument?
The Cheirman. I
think there i s somcthing i n it, b u t I c
not think there i s :nough i n it t o overcome its acvantages.
41
It has g o t t o b e dealt with, a n d w e have g o t t o look o u t
for 355
Governor Norris.
W o u l d i t not b e possible
t o s o limit
the rediscount privileges w i t h the losn banks t h a t i t would
not be worth their while t o got out o f the system?
I f you limited it, i n some o f theso
Governor Young.
districts w h e r e t h e y h a v e l i t t l e S t a t e b a n k s w i t h a
of t e n thousand o r twenty five thousand dollars,
capital
i t would n o t
io what i t i s supposed t o do.
Governor
s e a
The Chairman.
W h y n o t confine
W h y n o t confine
reserve w i t h F e d e r e l R e s e r v e B a n k s
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Federal Reserve Bank of St. Louis
i t t o member b a n k s ?
i t t o b e n s t h a t keep a
a s roquired
b y the Fed-
eral Reserve Act.
Governor Norris. T h e r e i s a prececent for a distinction
of that kind. U n d e r t h e Federal F a r m Loan Act the Federal
Loan Banks a r e only permitted t o retain dcposit accounts w i t h
member banks o f the Federal Reserve System.
Governor Young.
T h e r e i s another phase o f t h e situation
that i t might b e vell t o Giscussc.
startec t o function,
W h e n t h e Federal L o a n Benks
o f course t h e y drove most o f the mort-
gage compenies o u t o f business.
I n 1907 o u r mortgages w e r e
the things i n the Northvest t h a t w e raised money o n guicker
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Federal Reserve Bank of St. Louis
than anything else. T h e s e mortgage conccrns h a d a large list
of investors a l l over t h e country that t h e y used t o solicit
2
ant sell these farm mortgages to, a n d they had a lot o f
people boosting t h e m , b u t when t h e Federal L o a n Bank started g
to f u n c t i o n i t G r o v e a
l o t o f t h e s e p e o p l e o u t o f business
because there wasn't enough margin i n i t for them, t h e y could
not male a n y money, a n c t h e y g o t busy with public utilities
and other things.
S o i n the last three years i n the West,
when t h e F e d e r a l L o a n B a n k s c o u l c n o t function, t h e s e o r genizations w e r e a l l t o r n t o p i e c e s a n c t h e y h a v e n o t b e e n
able t o s e l l a n y f a r m m o r t g a g e s
Northwest;
T t isa y
serious
i n two o r three years
situation r i g h t now.
One hundred a n d five million collars worth o f
gages meture every year i n those four states.
A s I sey,
ITam not opposing the whole scheme, but a m simply brings [- see then.
That i s what w e want, Governor.
Governor Young.
I f the Federal Loan Bank goes into
the cattle loaning business i t practically crives out of
business t h e great majority o f cattle l o a n companies.
Those cattle l o a n companies,
a s a rule, a r e handled i n this
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Federal Reserve Bank of St. Louis
43
banker goes o u t a n a locates i n a small c o m m -
wey. A
nity;
h e g a t h e r s t o g e t h e r $ 2 5 , 0 0 0 . 0 0 f o r capital;
he
usually b o r r o w s t h e t f r o m h i s N e w Y o r k c o r r e s p o n d e n t
or
his correspondent i n Minneap6lis o r Chicago, w i t h the
understanding t h a t h e i s going t o keep a n account there.
a few county deposits a n d a few township dcéethen h e has about four hundred farmers a n d
ranchmen w h o m h e serves a n d who carry small balances
to w h o m h e l e n d s s o m e money.
H
in the East o n his certificates,
per cent.
m d
e t h e n offers incucements
a s high a s five o r
A l l o f the western part o f North Dakota a n d all
of the pighland o f Montana i s financed that way.
Then
along comes a n emergency, w h i c h came lest year a n d the
year before, a n d though uneble t o collect o n their loans,
reduced pretty well. T h e r e was a great
shrinkage o f deposits t h a t went o u t o f that district, a n d
on the small amount o f deposits t h a t t h e banker g o t o u t
there h e couldn't make a
12 ver cent.
exchenge
living e v e n i f h e charged 1 0 o r
I n the o l d days h e used t o get a little
o n t h e cattle loans.
T h e cattle l o a n companies
lerge organizations a n d they sent m e n out there t o
investigate t h e c a t t l e a n d s e e t h a t t h e l o a n s w e r e a l l
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Federal Reserve Bank of St. Louis
44
right, a n d o n r e c o r c ing e
bankers h a c a
small
m
i
chattel mortgage t h e country
O
U
S and-<ia o r d e r
201s: T h e t
for h i m t o get that commission h e used t o have t o incorse
the paper. T h e n i n 1920, when these cattle loan com
were pressed, t h e y just went o u t t e the banker a n c
him; a n c w h a t d i c h e do*%
ors h e put i t into his nank a n d reciscounted i t with t h e
Federal Kes:
R a n i r 3
a
b i g c h a n c e o f cCriving
all o f t h e s e c a t t l e l o a n c o m p a n i e s o u t o f business w i t h
this cattle l o a n cepartment o f the Federal L o a n Sans.
The Chairmen. ‘ w h a t c o they get? h a .
a t e o f inter.
est c o they get?
Governor Young.
I t costs the cattle man from 6 to
10 t o 1 2 p e r cent.
Governor Norris.
C a n y o u tell m e where i n the chain
the cattle loan company comes in? Where Coes i t get its
money, a n d w h o does i t loan i t to?
Governor Young. T h e cattle loan company usuelly has
a capital subscribed b y Armour, Swift,
interestec
i n t h e business,
o r whoever m a y b e
a n d whenever t h e y g e t this
paper t h e y t u r n a r o u n c a n d p e d d l e
i t over i n nortacrn
Michigan ané Massachusetts o r where not. T h e y just keep
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Federal Reserve Bank of St. Louis
stuff turning, t h a t i s all.
Governor Calizins.
T h e c a t t l e l o a n c o m p a n i e s brolrc
down i n this late emergency, a n d why? Becsuse they could
not s e l l t h e i r peper.
Governor Toure. = Foss
Governor Calkins.
most n e e d e d
I n other words, w h e n o u r assistance
i t was n o t available because t h e y could
sell t h e i r paper.
Governor Young. T h a t i s true.
Goyernor G a l k i n s .
T h i s mechanism would
not meet with
the seme Waterloo, beceuse i t t‘ould ~ork under t h e sane
concitions u n d e r ‘ h i c h t h e y p r o k e cotm., I
a m convincec,
reluctantly convinced, thet unless something c a n be done t o
deflect t h e a t t a c k f r o m t h e F e d e r e l R e s e r v e S y s t e m t h a t t h e
act i s going t o b e amencedc t o its ultimate destruction.
The Chrirman.
N o one thi
a n d I speal: frankly t o
you gentlemen--no one thing h e u s e d m e s o much conecrn
then to have.a bill procuced b y the Counsel of the Federal
Reserve Board ~hich is an opening ‘edge t o the dostruction
of the System,
s o fer a s sounc principles go. I
d o not
think that Governor Harcing d i d it i t h eny conviction
that i t v e s s o u n d o r wise, b u t h e d i d i t because h i s b a c k
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Federal Reserve Bank of St. Louis
46
enc h e h e c
C
r o n r e v one
G
a y .
EG o f f e r
w h a t Dili
those f e l l o w s s o m e -
you
do
to, G o v e r n o r
Strong?
The Cheirman.
Reserve R a n k s
plus, o n e - h a l f
anc.
h
e bill
which w o u l c
,000,000.00
t o i n v e s t m e n t {10
of
the
their s u r e
in this
o f t h e i r surplus,
t o make c i r e c t loans
authorize
agriculiiureal
t o the
andccattle
people.
You r e a n f r o m t h a t f u n d ?
Governor C a l k i n s .
Chairman.
r o m
t h a t func.
Only f r o m that fund?
ernor Gallkins.
Chairman,
Mellon's C e s k .
N o .
is r e s t i n g o n Mr.
T h a t bill
thet. t
G o v e r n o r Harcir
measure w a s t o d e
submitted t o Congre »ss h e w o u l d n o t t a k e
2.t i t w o u l d h a v e t o b e
the r e s p o n s i b i l i t y o f 1
the political
done b y some member o f
$s m y Licenss,
O aneacd
i
s
g
with another
program,
say this, t h a t a l t h o u g h I
n
any suck
sur
=
anc
administration.
eient Titense,
t o
I want t o g o further a n d
a m speal cing very confiientially
this room,
t h a t HLud’ e r r i s o n h a s
i
us
bill-tnaet I have describec, f o r the
preparea t h e o t h e r
Joint C o m m i s s i o n o f
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Federal Reserve Bank of St. Louis
47
Agricultural Inquiry.
M r . Gilbert i s fully avere o f vhat
ve have Gone. T h e r e h a s b e e n a lot o f necesssry conficence
involved
i n t h e v a y i t h e s b e e n handled.
Imorrs vhat w e have done. G o v e r n o r Ilarding i s sitting still
avaiting the d e v e l o p m e n t f
o events, M r . Gilbert i s ensvoring t o a r r e n g e . i t h Mr. M e l l o n t o g e t S e n a t o r C a p p e r
ang Mr. Anderson, Governor Herding
end Judge Lobdell, togethsr i n his office. W o w , v e went
to solye this problem o f agricultural credits.
H e r e are
plans t h e t h a v e b e e n d i s c u s s e d a n d considered.
S o m e
plan, I
-do n e t I m o “ M i e n ome, 1
a
e suggested i s satisfactory t o the
v
administration I
lmov that i t vill b e satisfactory t o a
consiGerablic c l e m e n t
i n t h e Senate,
element i n the House. I
setisfactory
b a y 2 a satisfactory
a n c i s i t S a t i s t f e c t o r y to. y o u ?
to t h e e d m i n i s t r a t i o n ,
if -the
iid:
and I
thini t o s o m e
do not know whethor i t will b e
t o S e n a t o r C a p p e r a n d C o n g r e s s m a n Strong.
They s e e m t o have gotten i n their teeth t h e adventages o f
direct attack upon t h e Fedcral Reserve System.
Frankly,
when I
appecreé b e f o r e t h e c o m m i s s i o n I
found
that there «ere t r o members o f the commission, Congressma.
Symners
e n c C o n g ar ?e s s m e n T e n y k e ,
‘ h o cauestioned
o
‘ f those
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Federal Reserve Bank of St. Louis
me, those tivo alone were entirely working along t h e line
of long time loans b y the Federal Reserve Banks.
W e had
e lot o f argument about it, w h i c h y o u vill s e e i n the
pecoeea T r you viil reac. it. I
from that...
think they sre-Civerted
I t i s m y hope that they. are.
senctor Kencrick a n d Senator .arren a r e
sO.
w
e have alrecay a
good
in t h e Senete t h e t will stenc f o r
Senator “erren, a s you Imo, i s a most influential member
of the Senete, being Chairmen o f the Appropriations Committee.
N o w I
do not vant
t o argue y o u into yoting
for
5
enything o n vhich y o u hrve n o t a sound conviction, b u t
if ‘e can get e n arrengement upon this program, 1
-
think i t
woulda b e 2 good thing t o incicate t o those Senators t h e
Vay e e F e e l sbout: it. T
:ant t o c o thet, b e c a u s e I
would
like t o heve men like Werren, Koncriek o n d others say
Reserve B a n k pcople a r e
o n l y ones
out this
therefore [
He knows edout it.
V i t oe
the bac
t a meeting a t 9:50 o n Thursdsy morning,
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Federal Reserve Bank of St. Louis
49
we will particularly take u p two things, o n e i s the legislation along some line upon which w e e a n reasonably agree,
and t h e s e c o n d i s w h a t t h e R e s e r v e S y s t e m , t h r o u g hses i t s
member banics, c a n G o >
meantims
effective a n d h e l p f u l a n é
ration more effective,
cago more cffective,
n a t
h
t o make t h e system
e War F
C o r p o -
make
i n giving relief particularly t o the
industry.
Governor Young.
Y o u would n o t g o s o far a s t o have
‘eral L o a n Bants, t h a t i s , t h e c a t t l e p r t ,
make
cirec?
t
The Chairmen.
stic: t o that.
a m not sure that w e will
T h a t i s something that w e shoulc. ¢cismss
with these men. I
joan banks,
w e l l , yes. I
thought i t w a
t h e F a r m L o a n Senks,
a n c t h e associations
Girect l o a n s , b u t t h e s e g e n t l e m e n t h o u g h t o t h e r w i s e ,
end
the reason I thini: they thought otherwise, Governor Norris,
1s y o u h a v e b e e n o u t o f t h e S y s t e m f o r a
that t h e r e
i s a n increasing feeling
carclesness i n the locel manageme
money,
good while,
o r evidence
was
o f some
i n regarc t o lending
a n a they would n o t like t o see t h e Ferm Loan system
male G i r e c t l o a n s w i t h o u t bani: incdorsement.
They-are all
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Federal Reserve Bank of St. Louis
50
agreea t h a t t h e people .sho c e n male good loans locally
are t h e local bankers a n d that t h e y should make those loans
enc i n d o r s e t h e m .
T h e y a r e p r e t t y s t r o n g o n t h a t point.
Governor V a n Zondt.
such v i t a l i m p o r t a n c e
i E thinkthits 1 s 2. master o r
t o t h e Reserve System, b o t h present
and future, a s voll a s taking care o f the present situation,
that i t i s right u p t o u s t o invite these gentlemen here
to confer w i t h us, a n d I
Governor Biggs. I
Governor Seay. I
s o move, Hr. Chairman.
will second that.
think that t h e objection that Gov-
ernor Young raises strikes a t the vitals o f the Federal
Reserve System.
I f w e d o not guard t h e interests o f the
member banks b y malting a radicel distinction i n their
favor, v e will n o t have a n y member b a n s .
I t i s common
knovledge t h a t t h e member benis o f the System h e a o n their
backs during t h e recent emergencies t h e non-member system
of t h e country.
The Chairman. Y e s .
r Seay.
o
n
r
e
v
o
olaun ee oo
G mmees ida.
em would h e v e gone
to t h e ‘all.
Now,
i f v e a r e t o make a n y l a v o r recommend
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Federal Reserve Bank of St. Louis
51
any l a w o r a n y machinery b y which t h e non-member b a n k will
have u l t i m a t e a c c e s s
t o the funds
o f the Federal
Keserve
then o u r h o u s e i s
TO
a n c t h e F Fed
divicec
to b e
qisinterrate.
T believe
of
e System i s
1at e n y legislation
certeinly must guard very rigicly t h e
thet i s c o n t e m p l a t e d
interests
v
cur member banks.
The Chairman.
W o u l d t h e y b e protected
by a
provision
that no. bank which was eligible otherwise f o r membership
in the Keserve System a n d was n o t a
carry t h e required reserves,
member,
anc. d i d n o t
coulc have t h e privilege o f
ciscounting.
Governor ¢
Partly. I
RG5625 Y e
a firm distinction betwsen
believe
i f we d o not craw
t h e member Danks
a n d t h e non-
memoer benks, whether t h e y b e large o r small, t h a t t h e
tederel K e s e r v e S y s t e m w i l l n e v e r
aevelopment
which w a s contempleted.
Governor
V a n Zandt.
if w e h a c s u c h a
W o u l d
i t not answer t h e purpose
provision t h a t woulcé r e q u i r e a
pank, which
tool: adventage o f this discount facility with t h e Farm
Loan Banik,
to: c a r r y
¢
a,
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Federal Reserve Bank of St. Louis
Governor Seay.
I t might b e done i n that way.
hopeful t h a t i t might b e done b y confining t h e entire
action t o member banks.
Governor Young.
T h a t would b e a l l right i f they
required t o carry t h e roserve a n d not b e permitted t o
ageinst it. O t h e r v i s e t h e reserve would n o t b e there
four hours.
The Cheirman. H o v r about requiring them t o make a 5 per
cent subscription t o the capital s t o c k o f the land bank i n
order t o a v a i l t h e m s e l v e s
Governor Seay.
o f t h e privilege?
T h a t vould b e e n insignificent a m o u n t
in c o m p a r i s o n w i t h t h e reserve.
The Chairman.
N o , equal t o their 5
per cent reserve.
Governor Secy. H o : ever t h e matter i s reached,
it
ought t o b e reached i n some « a y t o protect t h e System.
The Chairman. T h a t is a thing to be safeguardeg, and
the point is to provide means of safeguarding it.
Governor Norris.
D o e s i t safeguard i t ? W o u l d i t not
little arvkvardg t o have the objections that have just
side o f the table made i n the
presence
o f these Scnstors?
The Chairman. I
d o n o t t h i n k s o ; n o t t h e s e men.
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Federal Reserve Bank of St. Louis
53
Governor Norris. I
thint: they woulc probably g e t the
hat w e were rether lcss interested i n helping
than w e w e r e i n p r o t e c t i n g ourselves.
The Chairman.
and s u p p o r t e r s
No, I
thint these m e n e r e staunch acvocate
o f t h e Federal K e s a r v e S y s t e m ,
m c t h e last
hey vould want t o see w o u l d b e anything that
would weaizen t h e system.
S e n a t o r Lenéricl: statec t o m e
yesterday before t h e mecting, a n c t h e lest thing when w e
left, h e said "Mr. Strong, I want you t o understand that I
end a lot o f other m e n here a r e firmly o f the opinion thet
the F e d e r a l K e s e r v e S y s t e m s a v e d t h i s c o u n t r y f r o m t h e w o r s t
possi ble calemity curing the war, and afte
e . ¥ turing
shoulé b e done t o weaken it",
along 3
‘
f
legislation that I
I do not think that they woulc object
put I
b e c t o you.
ce
a
ta
particle,
those t h i n g s p o i n t e d
think t h e y w i l l b e g i s d 3
out t o them.
Governor Norris. I
a m heartily
i n favor
with these gentlemen o n Thuradey morning, anc. it seems t o
me i t would b e v e r y useful if, i n the meantime, Mr. Harrison's bill could b e submitted t o the Governors,
Covernors
w h o have cattle loans
i n their Gistricts
o r those
anc are
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Federal Reserve Bank of St. Louis
familier w i t h this.
i
have a meeting, a n d I
2
n
k i t woulc b e w e l l f o r t h e m t o
it would b e highly desireable
for Governor S e a y t o meet with t h e m t o see whethcr t h e r e are
not s o m e l i t t l e c h a n g e s
i n phraseology o r some limitations
or provisions t h a t might b e inserted i n that bill which
would safeguard the points that have been raised here.
he Chairman. I
a m g o i n g t o a s i y o u t o c o this:
First
Mr. H a r r i s o n w i l l p r e p a r e c o p i c s f o r v e r y c o n f i ¢ c n t i a l u s e
for t h o s c m e n o r f o r a l l t h e Governors,
to b e :
understanding
that
i t is not/nown
w i t h t h e Ccistinct
t a t
i t exists-Cven,
here a r e r e a s o n s f o r t h a t t h a t a r e v e r y importent.
we c a n c o n s i d e r
T h e n
i t a n c consicer changes a n d omendments
to
it
nei
I em going to ask another thing, enc that is/you dccide t o invite these gentlemen t o come u p here, I
very
strongly urge that n o t o n e wore b e saic a t the meeting
which i n c i c a t e s
a n attitude otherwise
sympathetic f o r t h e 4 i f f i c u l t i c s
a
n helpful a n d
o f t h e s e veople.
W i t h
the exception o f Senator. iiadsworth, e v e r y m a n that w e
were t a l k i n g t o h a s e i t h e r b e e n w i p e c o u t o r v e r y b a d ly
financially b y this difficulty i n the cattle busi=
anc while t h e y a r e open-minded a n d very cecent men,
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Federal Reserve Bank of St. Louis
they a r c sensitive a n c sore. G o o d i n g s , w h o i s
men, h e s oveen v e r y b a c l y hurt.
man a n c h e h a s b e e n hurt. N e I P r e n - i s s n e e r c s i e a
cattle e n d sheep, a n d I thini:
Stansfield, I
uncerstand,
1 1 -po Ln
h ehes f e l t it, a n d Senator
h a s been about wiped out.
Governor Calling. =-Gateie
The Chairman.
Yes.
Governor Calltins. A
Chairman.
bac combination.
S e n a t o r encrict:
neighborhood,
Imew, there a r e a
tole r
o f the friends a n c
number who, a
couple
rated t h e m s e l v e s w o r t h f r o m h a l f
collers,
a n c h e saic n o w i f they solcevery
they owned. t h e y c o u l d n o t p a y t h e i r cebts.
Governor Y a n Zeenat. I
imow m a n y m e n i n t h s same s i t u a -
tion.
was somewhet s t a
Governor Celltins. I
e a b y the sug-
gestion o f Governor Young,vhich seems t o b e sharec b y some
of the others, t h a t t h e banks €
Fedsral R e s e r v e S y s t e m
going t o get o u t o f
o n t h i g h t e s t provocetion.
anybocy secon e n y e v i c e n c e
Governor V e n Zanct. I
o f that cisposition?
peve n o t s s é n a n y - -
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Federal Reserve Bank of St. Louis
Governor Scay. I
expect w e will s e e some evicence o f
it a s soon a s they g e t o u t o f their difficulties.
Governor Callzins. I
Governor Seay.
G o n o t s e e a n y sévicence o f it.
T h e parasites u p o n t h e banking system
the country e r e small b a n k s l i g i b l e f o r entrance i n t o
They a r e n o t l e n c i n g institutions;
chronically borrowing institutions.
t h e y are
M a n y o f tne States
permit t h e organization o f n e w banks o f that character.
I mention thet i n answer t o the voint thet w e might confine
that a r e eligible 3
Reserve Syston.
a n c e into t h e Federal
I f w e place obligations o n those p e r -
ticular banks a n d leave banks that are not eligible, o f
which there are a very large number, with access t o the
losns o f the Federal heserve System, i t woulc hurt the
System. I
believe that point must b e guarded.
Governor Wellborn.
out i n t h a t section,
W i t h regard
to a
number
o f bank
t h e y a r e p r e t t y h e a v i l y over~extended,
aren't they?
Governor Young.
I n what section?
Governor Wellborn.
Governor Young.
I n t h e c a t t l e section.
M a n y o f t h e m are.
Governor Wellborn.
T o whet e x t e n t ?
O n l y capital
an
surplus
o r basic l i n e ?
Governor Young. I
cannot onsior thet. I
a m speaking
only f r o m t h i s standpoint, eG o v e r n o r Wellborn: I
a m told
thet i n t h e s h e o p c o u n t r y , “ y o m i n g a n c n o r t h e r n Colorado,
and through there, t h a t t h e banks a r e loaded u p tith loens
that cannot b e liquidated because t h e y have loaned t i c e
the value o f a eve a n d tiice t h e value o f a lamb.
Governor Calltins.
T h e people w h o d o not ‘mo: t h e sheep
business c o not understend, b u t the fact i s that
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Federal Reserve Bank of St. Louis
e w e
past s i x yoers o l d i s a liability insteac o f a n assét.
The sheep grovers i n the country gencrally, a n c particularly
in the best lamb-producing sections, f o u n d themselves i n a
position where t h e y could sell t h e lamb but could n o t sell
anything else; t h e y coulé n o t sell a pounce o f ‘ool a n d
could n o t sell breeding eves, b u t coulc sell female lambs.
The rcport f r o m Idaho, t h e lergest sheep section that i ¢
have t o decal vith, shoved t h a t f r o m 6 0 o r 6 5 per cent. o f
the ewes left o n the ranges ‘ere past s i x years old. T h a t
4s ths serious aspect o f the situction i n rogard t o the
sheep grovers.
T h e cattle m e n a r e i n somevhet a
parable p o s i t i o n ,
b u t i t i s n o t q u i t e a s acute.
58
Governor \iéllborn.
me.
h y
T o c r e i s one point n o t chear t o
i s i t t h a t t h e F e d e r a l R e s e r v e Banizs o f t h o s e d i s -
tricts c a n n o t t a k c c a r e o f t h e s i t u a t i o n l i k e «7c have t a k e n
Situation
all t h i s t r o u b l e
i n t h e cotton section?
i n t h e c o t t o n section,
“
e have
a n d w e carried
stuff.
Governor Secy.
B u t cotton i s a n ontirely cifferent
procuct f r o m sheep.
Governor Young. A
range esttle loan i s from thirty
to thirty-six months. ‘ T h e r e i a n o use i n trying t o make
then that.
Chairman.
T h o facts a r e that t h e situation h a s
takcn care of. ‘“hatever might o r might n o t have
reasons, this Congress i s Gotermineé. t o get some
icgislation, e n d most o f them think that t h e v a y t o get
the relief i s t o get a t the cnormous funds o f the Federal
Reserve
Bans.
)ser
Governor Norris. T h e bens c o not have t o se
curities t o get the money t o loan.
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Federal Reserve Bank of St. Louis
The Cheirman. Y e s , they hove it, and they say. "Let's
No’; t h e q u e s t i o n b e f o r e t h e m e e t i n g i) i s i n r e -
to inviting these gentlemen here.
T I hseve not plecaged
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Federal Reserve Bank of St. Louis
59
the mecting t o a n y such errengoment, b u t I very strongly
recomnena It, s e lothine- 2
Governor Fanchcr.
y
o
C
L e t me ingui
o
e
h
i M i r . Chairman.
“ould w e indulge i n gencreal discussion,
e e ee
o r what form vould
the Ciscussion take?
The Chairmen.
M & M c e a i s t o have a
ably formal mecting, w i t h a
if t h e y h a v e a n y o b j e c t i o n
22
neeting, a
reason-
stenographer present; a s k them
t o stenographic n o t e s b e i n g
]
taken, w h i c h i s orcinary courtesy anyway; m e c t their objection
t o that i f they d o not vant t h e m taken, b u t have
the m e c t i n g p r o c e e d
in a
very o r d e r l y w a y w i t h o u t i n t e r -
ruptions a n c w i t h o u t g e n e r e l discussion,
concucte”
a n d heve i t
i n such a wey thet o u r record will b e i n such
shape thet i c can take i t before Congress a n d use i t any
time t o show t h e attitude o f the Federal Reserve Banks t o ward this legislation a n d towards 2
Governor Seesy.
program o f assistance.
B u t there woulc b e n o objection t o
questions t o dcvelop certain points?
The Chairman.
N o t a t sll; p u t every c a r d o n the table.
That i s t h e o n l y <ray t o d e c l w i t h t h e s e matters.
reecy f o r t h e question?
A r e you
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Federal Reserve Bank of St. Louis
60
a n c duly seconded, was unani-
(The motion being
mously cerriec).
woulc lile t o renew m y suggestion
Governor Norris. I
thet t h e choir appoint =
committee o f Governors w h o a r e
pemiliar w i t h this subject t o g o over Nr. Harrison's draft.
Governors licDougal,
‘ies going t o as f
The Gheirmen. I
Calkins, Young end Biggs--you are i n the cattle cistrict, a r e
you not, Governor Biggs?
Governor Biggs. ;
The Chsirman.
j
t o some extent.
G o v e r n o r Seay, Governor lilller a n d
Governor V a n Zandt.
Governor Cclirins.
The Cheirmen. I
w h y n o t incluce everybody?
thought I vould submit copies o f the
proposed bill t o s11 the Governors. I
cortainly vant
Governor Norris t o lools ~ t it, because o l
with the ferm loan system, enc a s H
who are i n the
cattle scetions o f the country, together v i t h Governor
Norris,
t o suomit s
Governor Seey. T h e r e i s precticelly n o cattle busiin oar: ‘sce tion.
The Cheirmen.
we w t l l s a v e a
M r . Harrison h a s prepered a
bill,
snd
lot o f t i m e i f c a c h o n e w i l l s u b m i t c e f i n i t e
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Federal Reserve Bank of St. Louis
61
en¢ specific suggestions w i t h regard t o changes s o that
they c a n b e discussed h e r e .
{after informal Giscussion a s t o the topics o n the
progrem t o b e t a k e n u p f o r discussion, G o v e r n o r F a n c h e r
submittec t h e following report:)
REPT
G @ THE STANDING COMMITTEES O N OPi.N MARKET
CONDITIONS
A D O P ReTIONS T O THE CONFER-
ENCE G F GOVERNGES O f TH. FEDERAL RESCRVE
BANES.
This committse w a s appointed a s a stanc.ing committee
by the Gonference o f Governors i n October, 1 % 0 ,
tinue i t s s i c e r a
concitions, a
n
c study o f market practices a n d
a
21 Reserve B a n k s
the market,
e
t o con-
l
i n conformity w i t h conditions
l
in
t o encdesvor t o develop uniform practice a n d
policy f o r reserve banks a n d i n gensral b y helpful c o operation a n c s u g g e s t i o n t o worl: t o w a r é s t h s b r o a d e n i n g
ané G e v e l o p m e n t
o f t h e o p e n c i s c o u n t m e r k e t f o r bankers'
acceptances,
BY THE COMMITTEE
The c o m m i t t e e d e c i c e c t h e t i n o r d e r t o w o r k i n t e l l i -
gently a n a t o achieve t h e best results,
i t would b e nec-
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Federal Reserve Bank of St. Louis
62
essary f o r i t t o h a v e e s c l o s e i n f o r m a t i o n
o f t h e differ-
ent markets a s i t would b e posd ble t o get, a n d a s these
i t would b e advisable f o r
markets a r e widely distributec,
the c o m m i t t e e
t o receive w e e k l y t e l c g r a p h i c a d v i c e f r o m
the various Reserve Banks w i t h regard t o operations a n d
conditions i n their respective Cistricts, a n d that chan-
néls should b e established through which such information
might b e reported t o a central point, where i t would b e
‘digested a n d summarized b y the committec.
I n order t o
carry this p l e n into effect, t h e committee, h a v i n g eppoint-
ec a secretary i n the New York bani, requested the various
Reserve Banks t o telegraph t o the secretary c a c h week t h e
desired information, inclucing the rates a t which the Re-~
serve 3 e n k s h a v e p u r c h a s e d b i l l s a n d t h e a m o u n t o f bills
purchased b y them; t h e amount o f bills held uncer salescon~
tract sand the rates a t which held; t h e rates a t which
x
cealers o f f e r bills; c o m m e n t s
o f the dealers a n d o f the
Reserve Banks a s t o the suoply a n c demand f o r bills i n the
respective districts, whether o r not t h e y are moving freely
at offered prices, a n c with regard t o market conditions
anc tencenciecs
i n e a c h aistrict.
ingly b e e n r e c e i v e d
R e p o r t s have accord-
b y the secretary u p t o the pesent
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Federal Reserve Bank of St. Louis
63
time f r o m all the Reserve Sanks w i t h t h e exception o f the
Kansas C i t y a n d Atlante banks, w h i c h reported t h a t a s
there w a s practically n o bill martet i n their districts
and t h e i r o p e r a t i o n s
i n t h i s r e g a r d w e r e limited,
they
did not ceem i t necessary t o report.
The committee experienced some difficulty a t first
in obtaining uniform information f r o m t h e various Reserve
Banks.
T h i s condition, however, w a s corrected a n d the
committee w a s able t o make a
summary o f the reports r e -
ceived commencing with t h e month o f February.
T h e com~
mittee f e l t thet t h e best w a y t o present this information wes t o combine i n a n exhibit t h e statistical infor~mation covering operations a n c t o write a
short review
with regarc t o the conditions reported i n the various
districts. C o m m e n c i n g with February, t h e committee began
sencing s u c h a
summary a n d r e v i e w t o a l l t h e R e s e r v e
Banks i n form sifiler t o the attachcd exhibit “A”.
The committee consicer this o n l y <«s a start i n what
they b e l i e v e
t o b e t h e r i g h t cirection,
a n d are relying
on the continued cooperation a n d helpful suggestions
of the Reserve B a n s i n order that any changes which may
be thought Gesirable m a y b e mace, t o the e n d that t h e
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Federal Reserve Bank of St. Louis
best r-sults m a y b e obtainec i n the cGevelopment o f a
broac, o p e n market.
DEVELOPMENTS I N OP: N MAREFT SINCS UcxS? C O N F E R E N C E
OF GOV) RNORS.
A&A brief review o f conditions i n the opon marke
since October, 1 9 2 0 , m a y b e opportune.
outstencing a c c e p t a n c e s
g1,000,000.00.
L a s t fell there were
t o the extent o f approximately
W h i l e n o recent statistics a r e available,
it i s the general b e l i e f that there h a s beén a fairly
substantial Gecrease i n the volume o f new bills.
Thosc
which have avpeared i n the market were Crawn principally
ageinst seasonal crot
M
m a s sugar, cotton. coffec,
irst o f t h i s y e a r b i l l s cGrawn
purpose o f furnishing collar exchan
in substa ntially increased volume e n c four-month bills
from t h e Orient, w h i c h h a d p r a c t i c a l l y c i s s p v e a r e d f r o m
the martet e r e a g a i e v i c e n c e t o a mocerate extent.
The demenc f o r bills o n the whole has b e e n good,
particulerly:
banks.
f o r t h e bills o f t h e best I m o w n member
T h e banner month was January, d u r i n g t h e first
two weeks o f which there was a n exceedingly heavy demand
following the large January disbursements.
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Federal Reserve Bank of St. Louis
65
ers w e r e p r a c t i c a l l y s o l d o u t a n d p i e s Ler con m u c h c i f ficulty
i n m a i n t e i n i n g t h e i r vortfolios.
One o f the most interesting a n c encouraging features
of t h e m a r k e t h a s b e e n t h e c o n t i n u e d v e r y merizec d e v e l o p -
ment i n the breadth o f distribution.
A s a n indication
of this, o n e o f t h e N e w s o r s c e e
that i n 1919 t h e y sold t o 197 customers: c u r i n g 1 % 0 , t h e y
2 4 0 cities o f
so0lé t o 6 1 6 c u s t o m e r s l o c a t e d
and e t t h e p r e s e n t t i m e t h e y h a v e a v r oximately 6 7 5 c u s tomers l o c a t e d
i n 263 cities
o f 2 7 stetes.
I t i s o f fur-
ther v e r t i c u l e r i n t e r e s t t h a t o f t h e i r 6 1 6 c u s t o m e r s
j n
1920, 1 5 3 were firms, corporations a n c incivicuals.
‘Saternaaneunerent
The ettached statement (exhibit B'B) i n icates t h e
meriieé i n c r e a s e
purchasers a
i n the number
O t a
T
h
o f vanks w h i c h h a v e become
i
s shows, f o r exemple, t h a t
of t h e m e m b e r vanics i n t h e S e c o n d District,
2 0 6 held ac-
eevtances o f other bantss o n December
tinguished. from 4 4 o n June SO, 1919.
The increasing cistribution o f bills throughout t h e
of
country i s reflected i n the fact t h a t t h e totel amount
bankers! acceptances purchased a n é held b y all federal
Reserve Santis were further recuced t o a p r oximately
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Federal Reserve Bank of St. Louis
66
@l22,491,000 a t the close o f April 1 , I#Z1, a s cdistin-
guished from about » £ 6,000,000 o n October 30th, 1929,
and. about 555,000,000 o n January Slst, 1920. A
fur-
ther interesting development w a s t h e increase i n volume
of foreign funds ceposited w i t h the Federal Reserve B a n k
of N e w Y o r k f o r i n v e s t m e n t
otherwise.
i n bankers a c c e p t a n c e s
or
O n September 50th, 1920, s u c h funds aggre-
gated approximately 27,000,000.
O n March 26th, 1921,
these funds amounted t o a p r oximately $66,000,000,
which a b o u t 4 0 , 0 0 0 , 0 0 0
w a s invested
of
i n bankers a c c e p t -
ances, about 616,000,000 i n Unized States certificates
of indebtecness,
a n d free balances
o f a b o u t yt0,000,000.
it is understood thet important amounts o f bills are also
held b y several large N e w Y o r k banks f o r foreign account.
COMMITTEL'S O B S E R V A T I O N S A N D REGOMMENDATIONS.
Rates---It will b e noticed i n the attached statement
(exhibit "A") t h a t there i s a laclz o f uniformity i n the
rates a t w h i c h v a r i o u s R e s e r v e B a n k s p u r c h a s e d b i l l s
Curing February, 1921.
of the banks were 5
W h i l e t h e minimum rates o f most
3/4% f o r 30's, 5
7/8 for 60's a n d 6 %
for 90's, B o s t o n a n d P h i l a d e l p h i a a p p e a r t o h a v e p u r c h a s e d
some 60's at 5 3/4%, while Philadelphia appears t o have
purchased a l s o some 90's a t that rate,
T h e committee
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Federal Reserve Bank of St. Louis
67
recommend t h a t i n t h e a b s e n c e
nary l o c a l c o n d i t i o n s
o f s p e c i a l anc. extraordi-
the p r a c t i c e
o f t h e verious Réserve
Banks b e uniform i n this regarc,
ft w i l l b e n o t i c e d
Réserve B a n k s p u r c h a s e d
o n the exhibit t h a t
some o f the
bills f r o m céalers u n d e r s a l e s
Contracts et rates ranging from
5 O/4 40 648 2 ) m o w ae
ably t h e r e t e s
a t ‘hich t h e dealers h a d
purchased
rious m a t u r i t i e s
offered u n d e r s u c h contracts.
committee f e e l t h a t t h e c e v e l o p m e n t
The
of t h e o p e n m a r k e t
would b e b e t t e r s e r v e d i f
t h e keserve Banks accord
the d e a l e r s
the v a -
to
i n case o f need t h e
most favoreble r a t e c o n e
sistent with the Reserve Banirs! Open
market purchase rates,
ie, t h e minimum ( a t present 5
3/4%) irrespective
rates
a t which t h e dealers purchased
t h e bills.
should b e able t o obtain i n the
oP&n market a
of the
Dealers
sufficient
Supply o f money a t rates related t o
discount rates i n the
open market.
I t should orcinarily b e
t h e cheapest m o n e y
market, c o n s i t e r i n g t h e c l a s s
o f t h e collateral,
as i n the case i n established
markets abroad, a n d should
eneble dealers t o carry portfolios
adequate t o meet t h e
Gemands
o f buyers a n d s e l l e r s
at a moderate orofit.
t o maturity,
i f necessary,
U n t i l s u c h time a s this
important
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Federal Reserve Bank of St. Louis
68
fundamental i s generally recognized i n this country, F e d ~
eral Reserve Banks a t least shoulc recognize i t and extenc t h e r e a s o n a b l e a s s i s t a n c e r e q u i r e d
emergenctes.
I n such case e
b y cealers
in
rate shoule b e a secondary
ary c o n s i c e r a t i o n a n c s h o u l d b e t h e m o s t f a v o r a b l e o n e
consistent w i t h current rates referred to.
Purchase
o f unindorsed bills
b y Feceral R e s e r v e Banks-~-
The r o p o r t i s s u e d b y t h e F e d e r a l R e s e r v e B o a r d , D i v i s i o n
of Reports a n d Statistics,
o f which a
copy i s attached
hereto (exhibit "C"), showing acceptances held b y each
federal R e s e r v e B a n k o n January Sl, 1921, indicates t h a t
all t h e R e s e r v e B a n k s e x c e p t i n g S a n Francisco, M i n n e a p o l i s
and N e w Yort: helé bills o n thet cate which d i d not b e a
the indorsement o f a n y bank o r banker.
Banks h e l d s u c h b i l l s
S o m e o f the Reserve
i n substantial amounts,
a n d i n the
case o f Richmond, Atlanta a n c Dallas, a l l such bills were
purchased direct f r o m the acceptors.
T h e committee
o
the opinion that i t i s contrary t o the best mwactice a n d
not i n t h e b e s t i n t e r e s t
o f t h e o p e n m a r k e t f o r Reserve
anizs t o purchase u n i n c o r s e d b i l l s
cCirect from the acceptors.
o r t o purchase b i l l s
M i s i s clearly assertec i n
the A m e r i c a n A c c e p t a n c e C o u n c i l ' s a n s w e r s
t o questions
f
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Federal Reserve Bank of St. Louis
69
27 and 2 8 (approved b y the Board) t o the Board's questionnaire
o n "Practical Problems
ers' Acceptances".
i n the Development
o f Benk-~
D u r i n g t h e v e r y early cevelopment o f
the m a r k e t s u c h p r a c t i c e w a s a t t i m e s C e s i r a b l e a n d n e c e s sary, b u t t h e m a r k e t h a s n o w r e e c h e d t h e s t a g e o f cevelopment w h e r e t h e p r a c t i c e sghoulc b e a b a n c
G , @ s - i t frus-
trates t h e efficiency e n c one o f the main virtues o f
bankers! a c c e p t a n c e s
i n their relation t o t h e e b b a n d
flow o f f u n d s a n d credit.
T h e committee recommend
that t h e p r a c t i c e r e f e r r e d
t o b e ciscontinued
:
a s promptly
i:
Ey
i
4
:
sible anc. t h a t s t e p s b e t a l e n t o encourage t h e s a l e
é
.
of such bills i n well established markets, unless a n d
i
i
j
i
i
until t h e y c a n b e better absorbec i n the cistricts where
they originete.
While a
gooé d e a l h a s a l r e a d y b e e n c o n e t o d e v e l o p
the discount market, t h e r e
w
h
i
c
h m e y b e yet accom-
plished t o assist i t s further development.
I n this regarc,
the undernoted lines o f action a r e suggestec.
F o r the
sake o f brevity, t h e thought o n l y i s expressec, without
further e x p l a n a t i o n
o r comment:
1. M o r e liberal a n d more uniform State laws governing t h e i n v e s t m e n t
b y insurance compnies a n c savings banks
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Federal Reserve Bank of St. Louis
of t h e i r s u r p l u s f u n d s
i n bankers s c c e p t a n c e s .
The establishment o f a more general money market
.gainst bankers! secaptances.
Oo. The encouragernent o f the issuence o f acceptances i n
well a s s o r t e d d e n o m i n a t i o n s
L
r se s a y , yo,000.,
2000 a n d 25,000.
Conduct a campaign o f education designed t o inform n a t i o n a l a n c S t a t e ban’: e x a m i n e r s w i t h r e g a r d t o t h e
3
e
o f bankers'
u
acceptances
l
e
a s a safe
v
and -l i q i d invest-
ment for bans! surplus funds.
5. T h e ciscouragement o f the practice o f some banks
who a c t a s Gealers
i n their
o w bills.
6. A m e n d S e c t i o n 5 2 0 2 o f t h e N a t i o n a l B a n i A c t i n r e -
spect o f the 7th provision thereof, which reads: "“Liabilities created b y the indorsement o f acceptec b i l l s o f exchenge payable abroad, actuslly owned v y the incorsing bank
anc. Giscounted a t home o r abroac,"?
b y celeting t h e words
“payable abroad".
7. ‘ B r i n g t o the attention o f accepting banks t h r o u g h
out the country the nature o f the obligation which they
incur when issuing a
letter o f crecit; t h a t uncer n o cir-
cumstances whatever except a
violation o f the terms o f
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Federal Reserve Bank of St. Louis
41
the letter o f crecit should they cecline t o honor Grafts
drawn thereunder; t h a t t h e ethics o f the commercial. letter o f c r e c i t a n d b a n k e r s a c c e p t a n c e c r e c i t b e t h o r o u g h l y
appreciated a n d understood and b e strictly adhered t o i n
practice
b y all grantors
o f credit a s well a s b y t h e takers
of crecit, w h i c h i s o f vital importance t o the good name
anc c o n t i n u e d u s e o f A m e r i c a n d o l l a r credits.
8. T h e i s s u a n c e
o f a
concise
a n c authoritative
state-
ment b y the Federal Reserve Board o r b y the Fecereal Reserve
s, setting forth the advantage o f eligible bankers'
acceptances f r o m a n i n v e s t m e n t p o i n t o f view.
9. T h e c o n t i n u a t i o n
o f effort
o n the part o f ali
Federal Reserve Banks t o the e n d that a l l accepting banks
ective districts m a y become thoroughly familiar
with c o r r e c t p r i n c i p l e s a n d p r a c t i c e s
i n t h e u s e o f bank-
ers! acceptance crecits a n d the regulations o f the Federal
Reserve Board.
Respectfully suomitted,
Morris
Kenzel
Fancher
ApPid 1
e e as
C
h
a
i
r
m
a
n
.
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Federal Reserve Bank of St. Louis
October 17, 1921.
REPQGRT O F THE STANDING COMMITTEX O N OPEN
CONDITIONS A N D OBERATIONS T O THE
ENCE. O F GOVERNOR 2SODFTEHE FEDERAL R E
BANKS .
This committee, appointed « s a stanuing committee
by t h e C o n f e r e n c e
o f governorsitin October, 1 9 2 0 ,
t o con-
tinue i t s c o n s i c e r a t i o n a n c s t u c y o f o p e n m a r k e t p r act~
ices a n c conditions, w i t h a
view t o suggesting rates f o r
all Federal Reserve Banks, etc., suomittec cetailed report
anc recommendations, dated April lst, 1921, t o the Conference
o f Governors h e l d i n April, 1 9 2 1 .
O w i n g t o lat
of time, s a i d report w a s n o t consicered a t that Conference
ana the official minutes d o not s h o w that i t was received.
Your committee, therefore, rée-submits its report o f
April lst, 1 2 1 , a n c f o r t h e veriod elapsed since t h e n
further reports a s follows:
Weekly and monthly summaries o f open market conditions
in t h e s e v e r a l R e s e r v e d i s t r i c t s h a v e b+e e n r e c e i v e d
secretary o f t h e c o m m i t t e e
i n N e w York,
b y the
b y h i m summarized
for t h e committee, a n d m o n t h l y 4 s t s o f conditions a n d
operations h a v e b e e n b y t h e committes s u b m i t t e d
t o the
Governor o f cach Federal Reserve Sank.
During t h e period since April lst, 1921, m o n e y conditions have quite steadily improved a n c this change h a s been
reflected i n the open markets, w i t h the result that t h e
~
merizets h a v e c e p e n d e d l e s s a n c l e s s u p o n t h e F e c e r a l R e s e r v e
Banks f o r s u p p o r t a n d accommodation.
P r o b a b l y t h e most
important factor contributing t o this condition h a s been
the continued a n d increased volume o f foreign owned monies
injected into o u r Giscount market.
T h e extent o f foreign
owned monies invested i n and through t h e discount market
of New York has been recently estimated a t about #300,000,000,
or a n amount approximately eaual t o the decrease i n bills
bought a n c held b y the Federal Reserve System since about
one year ago.
These foreign owned balances accumulate a s the logical
result o f t h e p o s i t i o n o f t h i s c o u n t r y a s a
creditor n a t i o n
and a free g o l d market, a n d the necessity f o r their maintenance
interest
i n absolutely liquid f o r m without u n d u e l o s s o f
e r e s
t h e i r employment
i n t h e d i s c o u n t market.
This employment tales t w o forms, i e , t h e purchase o f
pills and advances o n bills, both o n call and a t stated
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Federal Reserve Bank of St. Louis
maturitiécs.
T h e effect o f the latter, particularly,
have b e e n able
has been that discount houses e n c acalers
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Federal Reserve Bank of St. Louis
o f this
to cerry larger portfolios a n c t h e volume
was the
secxing employment i n the Giscount market
effective urge t o lower rates i n the market.
further
With this condition e n d the somewhat
reflecting
volume o f new bills coming into t h e market,
i n overseas
poth lower commodity prices a n d less activity
trede, t h e Federal. keserve B e n s
i n the active markets
through those
heve h a d steadily fewer demands o F offerings
markets.
I t seems vrobable, however, t o your committee,
here
that the volume o f foreign-owned monies accumulated
future, or. 8b
may be substantially reduced i n the near
least t h a t t h e a m o u n t c o n c e n t r a t e d
i n certain hands will
o f important
diminish through t h e retirement a t maturity
also that the
issues o f foreign government securities;
will
seasonal activities i n the crop moving sections
of
presently operate temporarily t o lessen t h e cemand
t h e Keserve
country banks f o r bills a n d that, therefore,
volume o f offerings
Banks m a y again experience increased
to
t h e m
P k :
a
l minimum purchase r a t e
On September 23rd, t h e o f f i c i
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Federal Reserve Bank of St. Louis
of 5 % a t the N e w Yorts bank was recuced t o 4 %
your c o m m i t t e e r e c o m m e n d s t h a t F e d e r a l R e s e r v e B a n k s
shoulc, u n c e r t h e circumstances a n d present conditions,
buy bills freely i n the open market a n c assist t o m i n t e i n
a stability o f r a t e s w h e n a n d i f t h e w i t h d r a w a l
ownec f u n é s a b o v e r e f e r r e d
o f foreign
t o m i g h t -otherwise t e m p o r a r i l y
cause rates sharply t o acvance.
Respectfully submitted,
a. R . Fancher,
Chair
The Chairman. N o w , gentlemen, w e wili
s t a r t a
discuss o
n of our program with just one! preliminary remari
that I would litre t o make.
Some representatives o f the press i n tiashington, a f t e r
the last Conference o f Governors, un¢ertook t o reveat t h e
suovstance o f private conversations t h e y had hac with some
one, conversations which t h e y cleimed t o have h a d with
someone attencing t h e meeting. T h e y c o that, sometimes,
without e
shred o f be f
i oelieve 1
s
i
n
d
t h e present
going t o b e exceedingly dangerous t o
eny tell: with members o f the w e s s
a t all.
any statements t o give t o the press, I
I f we
think w e
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Federal Reserve Bank of St. Louis
should revert t o our original practice a n d give i t i n
writing without a n y comments.
‘ T h e newspapers have b e e n
seized upon b y the critics o f the system, newspaper a c counts o f interviews, discussions, a n c s o on, statements
by officers
o f Reserve Banks e n d s o forth have b e e n seized
upon b y t h e f
t h e s y s t e m a s t h e basis o f t h e gross-
est l i n d o f m i s r e p r e s e n t a t i o n
o f o u r p o l i c i e s a n d affairs,
I hope y o u will n o t thin: i t out o f the w a y for m e t o
suggest that i f a n y newspaper m e n become aware o f the
fect that w e are here i n this meeting anc gather t o get
interviews, t h a t w e will just s a y t o m
that w e will
give t h e m something i n writing, b u t otherwise there will
be n o statements meade.
Governor Calkins. I move, M r . Chairman, that it is
the sense o f this meeting thet n o statement should b e
mace t o the pwess i n m y w a y except b y the Chairman o f
this Conference.
Governor Norris. I
seconc that motion.
(The motion, b e i n g culy secondec, w a s unenimously
carried).
The Chairman.
N o w , gentlemen, I
a m going t o apolo-
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Federal Reserve Bank of St. Louis
77
gize i n advance f o r galloping through these topics t o the
extent necessary, a n c w e will stert with the consiéeration
of S u o p l e m e n t N o . 1
t
the Conference.
request,
t o t h e l i s t o f topics f o r d i s m s s i o n
a
T h e s e topics,
b y Governor Harding'sH
a r e t o b e considerec separately b y the Governors
anc. t h e F e d e r a l R e s e r v e a g e n t s
o n w e c n e s d a y a n d Thursday.
We c a n take t h e m u p this afternoon, because
pectec t h a t w e woulce b e a b l e t o h a v e a
i t was n o t ex-~
separate c o n f e r -
ence t h i s afternoon.
The f i r s t t o p i c t a
(1) Practicability of Putting Into Circulation the
Silver Certificates a n d Legal Tender Notes Now Held b y
so a s t o Put the Reserves Entirely
Golé Basis.
In o r er t o get a t the meat o f this topic, w h y not
confine t h e c i s c u s s i o n e n t i r e l y t o t h e G o v e r n o r s
banks w h o h a v e h a d e n y c i f f i c u l t y
o f those
i n carrying o u t that
program.
Governor
V a n Zandt,
heve y o u an accumulation
o f
silver c e r t i f i c a t e s a n c l e g a l t e n c e r n o t e s ?
Governor V a n Zanct.
legal t e n d e r n o t e s
N o .
O u r total certificates a n d
i s only about %851,000.00 a l l
COL
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Federal Reserve Bank of St. Louis
78
We have n o accumulation
o f them. W w e have quite a
large
accumulation o f silver dollars, w i t h regarc t o which w e
are n o W making a n arrangement w i t h t h e Treasury Department t o s h i p t o t h e mint.
The Chairman. G o v e r n o r Miller?
Governor Miller.
The Chairman.
N o n e a t all.
Y o u have n o cifficulty
i n cisposing
legal tender notes?
DLL.
The Chairman.
G o v e r n o r Seay?
Governor Seay. T h e r e e r e only five million o f them
altogether, »2,800,000
i n silver certificates, t h e major
portion o f which i s i n e e
anc. two's.
them out except a s i t i s requested.
I
W e cannot p a y
t i s not a prob-
lem with us.
The Chairman.
Y o u simply have what y o u regard a s
an acequate s u p p l y o f s m e l l b i l l s ?
Governor Seay. J u s t that, Mr. Chairman.
The Chairman. G o v e r n o r Young, h a v e y o u a n accumelation?
Governor Young.
W e have n o cifficulty a t all.
We have not over eighty o r a hundred thousand dollars,
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Federal Reserve Bank of St. Louis
anc w e k e e p t h e m p a i d o u t a l l t h e time.
The Chairman. G o v e r n o r Biggs, w h a t have y o u t o say ?
Governor Biggs.
W e have quite a
of the f a c t that w e elways a t t t
C
supply b y virtue
e
a
y ima
voretty
heavy supply t o take u s through t h e cotton-picking season.
We a r e a m p l y supplied.
Governa
amount
Fancher.
W e have
n o trouble whatever.
T h e
o n h a n d i s small.
Governor Calkins.
S i l v e r certificates a n c legal
tender e r e n o t held b y the ban':, b u t obtained a s occasion
requires.
Governor Morss.
W e have thirteen o r fourteen m i l l i o n
of one's, that is, all are one's excevt %260,000.00 i n
Those a r e a c c u m u l a t e d
i n enticipation
of
Christmes season, a n d w e expect t o get r i c o f them
that time.
Governor
i Currency?
is i n small
is not more t h a n w e feel i s necessary a t
the year a n d for t h e succeeding t w o months.
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Federal Reserve Bank of St. Louis
out first our silver certificates a n d then our legal
tenders, before w e p a y o u t Federal Reserve notes,
Governor Norris. ‘ “ c ¢ have a
The Chairmen.
very small a m o u n t o f one's
I n Governor ‘:ellporn's absence--and
I will call o n him for a report o n his return--I v i l l s a y
that w e have a n accumulation i n New York “hich runs f r o m
fifty to sixty millions, cnc 2 part of it is cue t o the
fact that the operstion o f counting the small bilis when
they c o m e i n s o f a s t n e c e s s i t a t e s
Governor Seay.
a n accumulation.
h e t d o you meen by"small bills”
The Ghoirman. O n e ' s anc tyvo's ané t o some extent
fives.
T h e difficulty thet -e« have i s i n keeping u p the
count o f them, a s much a s anything.
and I
B u t i t is our policy,
gether f r o m t h e s t a t e m e n t s t h a t h a v e b e e n m a c e a t
the meeting thet i t is the policy o f all the Reserve
Banks,
t o p o y o u t silver certificates
notes j u s t a s fast
a n d legel tender
a s they c a n b e paid out, s i t h t h e sole
exception t h a t a t this scason o f the yesr curing crop
moving a n c with the Christmas holicsy approaching that
the banks s e o m t o find i t necessary t o have a
reasonable
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Federal Reserve Bank of St. Louis
81
supply o f s m a l l e r c u r r e n c y t o m e c t s e c s o n a l demands.
I mis-stated
H e v e
i t i n a n y respect?
Governor McDougal. I
think you have steted i t cor-
rectly, Mr. Chairmen.
Governor Seay.
Y o u vill recall t h a t t h e Treasury De-
partment eriticised u s f o r a tendency towards withcrava
of Federal Reserve Bank notes, a n d if ve pay out silver
it vill eecentucte t h e tendency t o withdray
Tie Chairman. I
think Nr. Gilbert's point wos that w e
can afford t o l e t bank notes accumulate i n our hands unuseé a n d p a y out silver certificates a n d legal tender
notes j u s t a s f a s t a s t h e y c o m e i n , l e t t i n g t h e r e s e r v e
small notes accumulate i n the f o r m o f bank notes a n d not
small
use t h e m until there w a s a n actual shortoge o f
money.
Governor Morss.
T h a t brought about this condition,
because w e a s k for ones a n d twos sometimes t h e y prefer
to ship us silver certificates e n d legals instead o f
our banis notes.
Governor Sesy.
T h a t i s perfectly true; t h e y d i d
of
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Federal Reserve Bank of St. Louis
that with u s too.
Governor Morss.
S o w e accumulated these b y force
almost, a n c w e p a y them o u t a s fast a s w e can. T h e y held
back our bani notes o f these denominations.
The Chairman. I
want t o c a l l y o u r a t t e n t i o n t o another
thing i n connection with this matter, a n c t h a t i s that
there seems t o b e some difference a s w e discovered
at the last Conference, betvreen politics o f the different
Reserve Banks i n receiving National Bank notes.
vhere
we tale National bank notes, f i t and unfit, without
limit o n deposit, w e get a n accumulation o f currency
which makes i t difficult t o pay out silver corpificates
in lerger denominations unless w e are willing t o hoard
the National Bank notes, s o to speak.
I
n the old
days i n New York City i t was n o t a n uncommon thing f o r
a Weational Bank, w h i c h h a c difficulty i n keeping i t s circuletion out, t o g o t o a State b a n k o r trust company a n d
make a n arrangement w i t h t h e Stete pbenk o r trust company
to take i t s National B a n k notes a n d hold t h e m i n the vault
of the State Bank, because they wore counted a s reserve
for t h e State Bank, w h i c h w a s simply 4 means o f enabling
the N a t i o n a l B e n k t o k e e p i t s c u r r e n c y o u t a n d r e a l i z e
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Federal Reserve Bank of St. Louis
83
o n it.
a profit
T h a t t a s n o t uncommon. I
heave a l w a y s
felt, a s o Reserve Bank, t h e t i t was pretty poor practice t o let a large smount o f Netional B a n k notes accumulate i n our vauit.
lating a
I t i s simply t h s means o f accumu-
non-interest bearing o b l i g a t i o nfo the
National Bank,
profit d u r i n g a
currency.
o n which t h e National B a n k i s meking a
period w h e n t h e r e i s a
redundancy
i n the
O f course, t h e Nationel B a n k notes d o count
as reserve f o r members w h e n deposited w i t h t h e Fedsral
Reserve Banks.
I
f w e d o receive Netional B e n k notes o n
deposit, then we heave this problem.
W e ought t o pay out
the National Banlx notes a n d out them into circuletion o r else
send them for redemption a t the Treasury, w h i c h t h o Treasury
Goes n o t want u s t o do, i f they e r e f i t notes, a n d likewise
we ought t o pay out silvor certifiertes a n a United States
notes.
O n the other hand, w e will g e t a n accumulation
of N a t i o n a l B a n k n o t e s w h i c h v e c a n n o t rotire,
be-
ceuse t h e y are o n l y retired c t the rate o f 9,000,000 a
month.
S 8 0 that there i s need f o r a nico adjustment o f
things a n d arrangement o f policy a s t o the kind o f currency t h a t v e p a
a
n
d a s t o what kinds a r e vrinted
of the verious denominations.
I t i s m y belief that eas
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Federal Reserve Bank of St. Louis
84
to thet whole subject a s t o what should b e paid out and
what kinc o f notes should b e printed, i n what denominations, t h a t i t should b e mace t h e subject o f study b y a
committee a n c t h e t w e s h o u l d h a v e a
policy t h a t i s eccerpt-
able t o the Treasury a n c stick t o i t absolutely through21 Reserve System.
to me, s h o u l e t n c l u d e a
member
Federal R e s e r v e B o a r d a n d a
T h a t committee,
o r representetive
representative
i t seems
o f the
o f the Tressury
Department a n d representetives o f two o r three o f the near-~
by Reserve Banks.
T h e y coulé m e e t i n washington a n d l a y o u t
a policy f o r the Reserve Cystem which can be submitted i n
deteil
t o t h e Reserve B a n k s a n d acopted a s s y s t e m p o l i c y
mee S t u c k CoO;
Governor Calkins.
T h e discussion o f the question o f
leaving National benl: notes o n Geposit a t the former CGonference resulted i n not reaching a n agreement i n regard t o
it, end that left each bank t o act e s i t saw fit.
Governor S e a y .
upon
m y motion, I
T h e division stood seven
being t h e proponent
t o five,
and
o f t h e resolution,
it w a s l e f t t o e a d F e d e r a l K e s e r v e R a n k t o pursue i t s
Own policy. I
have b e e n C i s c u s s i g
n t h e matter w i t h t h e
Treasury Department, which finally answered me by saying
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Federal Reserve Bank of St. Louis
85
that t h e T r e a s u r y w a s p a r t l y o f o u r opinion,
t h a t i t appre--
ciates t h e m a t t e r f r o m o u r p o i n t o f v i o w a n d d o e s n o t w h o l l y
disagree w i t h us.
The Chairman. I
they s l i p p e d
bit. I
d i d n o t w a n t t h e m i n N e w Yorl:, a l t h o u g h
i t oycr o n m e when m y back w a s turned a
find I
little
a m o n record there a s approving it.
Governor Seay.
W e stated t h a t i n n o event would w e con-
sent t o t h e p r o h i b i t i o n
o f shipment
notes, whether f i t o f unfit,
o f National B a n k
t o the Treasury, a n d w e re~
ceived what might b e called a disagreeable letter from
some m e m b e r o f t h e T r e a s u r y D e p a r t m e n t a s k i n g u s t o a c c o u n t
for t h e r e a s o n f o r s h i p p i n g f i t n o t e s there,
a n d h e had n o
business t o ask u s t o account f o r thet, because w e have
a perfect right under t h e law.
A l l h e could a s k u s t o d o
would b e t o pay for t h e f i t notes.
‘ i e answered t h e
letter a c c o r d i n g t o o u r o w n opinion,
a c o n t r o v e r s y w i t h t h e Treasury.
a n d that g o t u s into
T h o UnderSeerctary
claims never t o have s e e n that letter, w h i c h w e s addressed
to u s b y some person i n the Treasury Depsrtment, b u t w e
maintained o u r view that i t should n o t b e t h e policy o f
the Reserve B a n k t o circulate Nationel B a n k notes.
The Chairman.
I n o r d s r t o acecunulate them.
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Federal Reserve Bank of St. Louis
Governor S e a y .
I n orcer
t o acmmulate
then.
We have h a d them frequently tendered t o us; w e have h a d
the entire n e w circulation o f a bank sent t o u s for
deposit,
a n c w e advised t h e b a n k that t h e o n l y thing
thet w e c o u l d d o w i t h t h e m w o v l d b e t o f o r w a r d t h e m t o
the T r e a s u r y D e p e r t m e n t f o r r e d e m p t i o n a n c t h e y w o u l d
diately returned t o the bank.
Governor Calkins.
I f w e acopt a
general p o l i c y o f
accepting N a t i o n a l b e n k n o t e s a n d h o l c i n g them, w e w i i l
get them all.
Governor iicDoug:
I
f you edonted a
them e n d p a y i n g t h e m o u t y o u w o u l d n o t a c c u m u l a t e
In Chicago
i t i s o u r practice
t o accept National
bank notes f o r deposit regardless o f conditions.
unfit N a t i o n a l b a n k n o t e s a r e f o r w a r d e d
The
to
and charged t o the Treasury account o n date o f shipment.
The f i t notes a r e immediately p a i d out. I
can s a y that
we h a v e h a d n o accumulation.
The Chairman.
‘
Governor Miller.
a
r
o
m N e w Yori, I
guess.
Governor McDougal. I
t i s e x a c t l y o u r policy, t o o .
think, Governor Strong,
if
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Federal Reserve Bank of St. Louis
87
you lmew t h e facts, y o u vould probably find that e
very
large amount o f the circulation o f National B a n k notes a r e
in the vaults o f New York banks, n e v e r having been circulated.
The Chairmen. ‘wWhet benks?
Goyernor McDougal. I
do not know, b u t I
d o know that
there a r e cases o f that sort i n our community, a n d I think
you would probably have a
The Chairman.
larger share.
D o y o u think i t would b e wise f o r u s t o
open t h e d o o r t o t a k i n g t h e m i n ?
Governor McDougal. I
do not think y o u would g e t t h e m
if you were willing t o teke them all.
The Chairman.
W h y not, i f they count a s reserve?
Governor McDougal.
W e have never gotten them.
You
are n o t prohibiting t h e m now.
The Chairman.
W e have recently opened t h e door some-~
what t o the New York banks.
M y belief i s we are getting them
pretty fast, t h e fit ones, a n c when w e t r y t o ship t h e m over
to W a s h i n g t o n w e p r o m p t l y g e t a
protest f r o m t h e T r e a s u r y
Department t h e t t h e y d o n o t w a n t u s t o s e n d i n f i t N a t i o n a l
Bank notes.
Goyernor Miller.
C o u l d y o u not p a y them out?
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Federal Reserve Bank of St. Louis
88
The Chairman,
I t i s pretty h e r d t e p a y t h e m o u t when
“your currrency i s coming i n a s fast a s ours has been coming.
We h a d
e t one time some thirty million uncounted pieces
of money i n the Federal Reserve B a n k o f New York, which [I
state merely t o indicate t h e rapidity w i t h which the currency
is coming in. U n d e r those circumstances t h e turn-over might
be entirely m e t b y the combination o f National b a n k notes,
silver certificates, United States notes, a n d Federal Rescrve
Bank notes, t h e entire turn-over,
get
i n which event y o u could
a n accumulation.
O u r f i r m cinviction, M r . Chairman,
Governor Seay.
is
that the National banks should keep i n cire:lation their
own notes i f they can; t h a t i t i s not incumbent u p o n t h e
Federal R e s e r v e B a n k s
t o recieve t h e m f o r a n y purpose
e x
eopt deposit a n d that t h e Reserve Banks should b e able t o
b y forwarding
get r i d o f t h e m i n a n y m a n n e r t h e y choose,
them for redemption o r i n a n y other manner.
The Chairman.
I f w e receive t h e m w e should n o t b e crit-
icised f o r forwarding them, f i t o r unfit,
t o the Treasury.
We ought t o y;ave that privilege n o matter what condition
the notes m a y b e in.
Governor Seay. I
think t h e l a w contemplates t h a t
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Federal Reserve Bank of St. Louis
clearly.
Governor Fencher.
D o e s n o t the Treasury raise t h e
point o f economy i n the matter o f having f i t notes redeemed?
Governor Seay.
principies c o n c e r n e d
Governor Morss.
I t does, b u t I think there a r e broader
in 1
- tian that.
I t would appear t h a t t h e privilege
depositing N a t i o n a l b a n k n o t e s h a s b e e n a b u s e d
of
i n some i n -
stances.
Governor Seay, Undoubtedly.
W e are convinced that i f
we receive t h e m that there a r e banks i n our district which
have n o circmilation w h i c h w o u l d t a k e o u t cirq@m lation; t h o s e
banks w h i c h h a v e n o t a v a i l e d t h e m s e l v e s
o f t h e full privi-
lege c f cironulation w o u l d t a k e o u t circulation,
t h e y would
come t o us, w e would k e e p t h e m i n circulation, anda they
would k e e p t h e m i n circulation,
a n c t h e y would continue
to
issue them.
The Chairman. I
did n o t introduce t h e subject o f
National b a n k notes i n contempletion o f getting a n y action
on the policy o f receiving o r not receiving National b a n k
notes o n ceposit, b u t rather a s having a
bearing upon
Item 1, relating t o silver c-rtificates a n c lega t e n c e r
notes b e i n g p u t i n t o c i r m lation.
W
e seem t o b e agreed
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Federal Reserve Bank of St. Louis
90
that w e are doing i t i n all t h e Reserve Banks a n d interd
to continue t o d o it, b u t there i s n o undue accumulation,
and i f t h a t i s t h e s e n s e o f t h e m e e t i n g w e c a n s o r e p o r t
to the Federal Reserve Board eat the Joint Conference.
Governor Calkins.
D o you mean that t h e Federal R e -
serve B a n k s s h o u l d r e c e i v e t h e m w i t h o u t l i m i t a t i o n ?
The Ghairman. S i l v e r certificates a n d United States
notes I
a m referring to, n o t National b a n k notes.
The n e x t t o p i c i s
(2) D e s i r a b i l i t y o f restoring s o m e gold certifi-
cates t o cirailation b y heaving Federal Re-
serve Banks pay them out.
I would l i k e t o state, i n e x p l a n a t i o n
o f t h a t topic,
that i t has been t h e subject o f discussion back and forth
between t h e o f f i c e r s
o f t h e T r e a s u r y Department,
t h e Federal
Reserve Board, a n d t o some extent with officers o f our
banks w h e n t h e y h a v e b e e n i n Washington,
a n c apparently
arises f r o m a desire o n the part o f Secretary Gilbert
to begin putting g o l d certificates i n t o circulation f o r
the d e f i n i t e p u r p o s e o f r e d u c i n g t h e K e s e r v e p e r c e n t a g e s
the Reserve Banks and thereby indirectly relieving the
pressure f o r lower ciscount rates, o r , i f you please,
of
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Federal Reserve Bank of St. Louis
soft money, a s distinguished from a proper cism unt policy a n d hard money.
Governor Calkins. I
believe that i s Dr. Miller's
proposal.
The Chairman. I
vocate i t . I
think Dr. Miller d i d a t one time
think h e r a t h e r w i t h d r e w h i s a d v o c a c y o f
at o n e t i m e i n f a v o r o f a
he s t e n d s n o w I
cifferent plan.
A
s t o where
c o n o t linow.
Is not this t h e kind o f topic o n which w e should g o
around t h e table a n d a s k for expressions o f views?
Governor Wellborn,
W i l l y o u pass m e for t h e present,
Mer. C h a i r m a n ?
The Chairman. Y e s .
Governor Norris. I
Governor
s
Norri?
a m not prepared t o discuss a n y o f
the larger aspects o f it. O n e o f the small questions t h a t
arises
i n c o n n e c t i o n w i t h t h a t i s this:
W
e have lately
hed s e v e r a l i n q u i r i e s f r o m b a n k s w h o h a n d l e t h e b u s i n e s s
of large industrial concerns a s t o whether w e were willing
now t o p a y out gold f o r use i n t h e s e counting machines
for malting u p pay-rolls;
for C h r i s t m a s purposes.
a l s o i n connection w i t h coins
T h e y said i f w e d i d not want t o
give them t o them that they would just bring their gold
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Federal Reserve Bank of St. Louis
92
certificates i n and 1 e would have t o give t h e m the gold.
Now t h e m o r e g o l d c e r t i f i c a t e s t h a t t h e y g e t o u t t h e m o r e
golc coin i s likely t o get into circulation, i t seoms t o
me, a n d I d o not suppose t h e Treesury wents thet.
The Cheirmen. I
agree with you,but generally how c o
you f e e l a b o u t t h e p r o p o s a l
o f putting s o m e g o l d certifi-
cates into circulation?
Governor Calkins. I
do not s e e w h y i t should b e con-
fined t o gold certificates.
G o l d certificates meson gold,
nothing more n o r less.
The Chairman.
G o v e r n o r N o r r i s c m p h a s i z e d t h a t point,
but w e w a n t t o g o t t h e e x p r e s s i o n
o f views
i n ordaor a r o u n d
the table a s t o the wiscom o r unwisdom o f r e m mmending o r
opposing t h e suggestion.
Governor Norris.
I c a n n o t s e e anything
t o b e gained
by i t t h a t w o u l d m a k e i t w o r t h vhile.
The Chairman. Goyernor McDougsl?
Governor McDougal.
B e f o r e t h i s country cntered t h e
war w e began a n accumujyation o f gold into t h e Federal R e -
serve System b y requesting the member banks and other
banks t o send u s their golc.
T h e y responded, a n d t h e y
have continued t o pursue t h a t policy u p t o the present
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Federal Reserve Bank of St. Louis
time.
I t seems t o m e t h a t i f w e commence
t o pay gold
thet w e lose control o f the g o l d that w e p a y out, a n d w e
will a l s o i m p r e s s u p o n t h e b e n k s t h e f a c t t h a t t h e t i m e
has c o m e w h e n i t i s n o t n e c e s s a r y t o k e e p s h i p p i n g u s
gold a n d that w e might, through that means, l o s e a
large
of our gold a n d not b e able t o recover i t when t h e
comes.
M y own belief i s that i t might b e better t o
the gold a n d h a v e i t available f o r use, believing
there a r e going t o b e uses f o r i t i n the future.
The Chairman.
G o v e r n o r Morss?
Governor Morss. I
notice t h a t t h e t o p i c s a y s t h e
desirability o f restoring s o m e gold certificates
culetion, w h i c h would indicate a
The Chairman.
few. I
limited amount.
T h a t i s intended.
Governor Morss. I
out a
t o cir-
d o not s e e a n y object i n paying
d o n o t s e e t h e e f f e c t t h a t woulc. h a v e o n
main obour r e s e r v e p o s i t i o n , w h i c h l I understanc w a s t h e
ject o f doing it. I
was under m y control,
would not consider i t a moment i f i t
i f i t would reduce t h e reserve
together
position materially, because w e gather this golc
with a
good dcal o f effort, a n d w e nave gotten t h e country
in the habit o f taking o u r notes.
A
l
l o r practically
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Federal Reserve Bank of St. Louis
G4
all o f the monetary g o l d i n the world, apparently, e x c e p t
that which i s a sort o f fixed amount i n the central banks
of Europe, w h i c h amount h e s v a r i e a b u t very little,
is accumulated i n the Federal Keserve Banks. W h i l e I
when o r how, I
can-
cannot h e l p f e e l i n g
other t h a t g o l é w i l l b e n e e d e d f o r t h e p u r p o s e
to restore a
country;
of
sound b a s i s f o r t h e c u r r e n c y o f t h e
i n other worcs, t h a t w e will finc profitable u s e
for that gold i n the course o f time, a n d I would keep i t
against t h a t time.
Governor Calkins. I
d o n o t t h i n k i t i s possible
or
proper a t this Conference t o g o into t h e root o f this
matter a n c cCiscuss fundamentals.
v
e a r e Giscussing
policy now, a n d a change o f policy might lead t o a very
radical change.
it w a s C e s i r a b l e ,
W e accumulated t h i s g o l d a n d w e thought
a n d when t h e public was
i n a
freme
mind t o assist u s i n doing s o i n every way possisle.
o f
t e
on the Pacific Coast have probebly usec gold f o r circulasxtent t h a n e l i the rest o f the country
combined.
T h e orcinary mecium o f circuletion o n the
Pacific C o a s t , p a r t i c u l a r l y
was gold coin. A
i n California b e f o r e t h e war,
man carried five, t e n o r twenty.doller
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Federal Reserve Bank of St. Louis
95
gold p i e c e s
i n his p o c k c t a s h e n o w cearriespills.
think i t w o u l d b e « a mistake
t o take a
a
f
step b a c k w a r d s a n d
substitute golé certificates, w h i c h mean gold, nothing
more o r less, f o r Fecerml Sceserve notes,
the public h e s become eccustomec.
notes e n d h e s e n t i r e c o n f i c e n c e
I n the first
t o F ceral wneserve
i n them.
I n our section t h e
public h a s been fully edvised that t h e y a r e redeemable i n
gold b y t h e F e d c r a l S e s e r v e S y s t e m w h e n e v e r desired.
svery time a
m é r goes o u t t o the Orient, t h e people
come i n t o t h e Federal “eserve B a n k t o get golc t o ship
vory prominent a t t o r n e y
there A
whether
i t was possible
to h i m t h e t i f h e w a s a
question,
i n t h e c i t y a s k e d meé
t o g e t g o l d anywhere,
a n d I said.
avlctser
Chineman h e w o u l d n o t @
b u t w o u l d inmow.
E v e r y Chinaman
i n S a n Fran-
cisco, whether h e be a laundry man o r something else,
Imows t h a t h e c a n get golc a t the Federal Reserve Banks
for Federel Keserve notes, anc h e does it. T h e r e i s
another i m p o r t e n t r e a s o n f o r n o t r e t u r n i n g
t o former
practices, a n d that i s that t h e position o f the world
4
Hea
+
today i s a
O 3 82
>
precar/ p o s i t i o n . I
F
t
h
r o e
i
a
1]
.a
suppose e v e r y o o c y w i l t
dispute t h e fact, b u t i t i s m y belief that g o l d i s
simply o n e o f two things, a n d n o more;
i t i s either a
26
commodity o r a superstition.
I f i t i s a commodity i t
is subject t o very violent fluctuations o f value.
it i s a
superstition,
and a
great m a n y p e o p l e
L f
i n Europe
are béginning t o feel i t is, i t will b e discontinued
is a basis f o r c i r c u l a t i o n
i n time.
B e y o n d that the
Federal keserve note, which i s based upon current transactions i n trade, i s ea better security a n d a more useful
circulatory m e d i u m t h e n a
the p u r p o s e
note b a s e d u p o n golc.
o f circulation
L t . is
t o carry o n t h e business
o f the
country e n d t h e F e d e r a l R e s e r v e n o t e a c c o m p l i s h e s t h a t
better t h a n a n y t h i n g e l s e t h a t h a s e v e r b e e n cevised,
at least i n this country. I
do not believe i t i s proper
to t r y t o force gold into circulation f o r t h e purpose
of hiding the fect that there i s a great deal o f gold
in t h i s country, w h i c h s e e m s
t o b e t h e o n l y purpose
in
‘view; i n other words, g e t the gold out o f the Federal
Reserve Banks and, i f their reserve percentages fall,
then hold i t u p as a n argument o f the fact that the
reserves a r e low, s o w e cannot d o anything more i n the
“way o f extending credit.
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Federal Reserve Bank of St. Louis
I n other words, t h e whole thing
is unsound i n principle a n c unsound i n prectice, a n d 1
-o n o t t h i n k i t s h o u l d b e done.
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Federal Reserve Bank of St. Louis
o7
The Chairman, G o v e r n o r Fancher, w h a t i s your view?
Governor F a n c h e r .
I t seems
t o m e that
i n view
o f the
fact that w e have gone t o considerable effort a n d expense
in accumuleting g o l d i n the Federal keserve B a n k that t o
put i t i n c i r c u l a t i o n f o r t h e p u r p o s e o f r e d u c i n g o u r g o l d
supply a n d t h e r e b y r e d u c i n g o u r r e s e r v e p e r c e n t a g e s
a procedure w e should adopt. I
backward. I
i s not
think i t would b e a step
do not think that t h e large g o l d reserves
that t h e banks have a t the present time neecG give u s a n y
undue concern.
gold, I
I
n cue t i m e there w i l l b e u s e f o r t h e
think.
Governor Biggs.
F r e n k l y , M r . Chairman, I
public does n o t care f o r it.
believe t h e
T h e banks c o not want it,
and y o u a r e n o t f o o l i n g a n y b o d y a s t o reserves. I
c o not.
think t h a t w e s h o u l d p a y o u t a n y a p p r e c i a b l e a m o u n t o f i t
now.
I d o f e e l t h a t i n holiday t i m e s t h a t i f t h e people
want gold t h e y should have it. ‘ v e had a n experience
yeer.
W e paid out 5 5 , 0 0 0 . 0 0
i n gold a n d i n thirty
%34,000.00 o f i t was back i n the bank.
Governor Norris.
Governor Biggs.
extend a
D o y o u p a y anything less than @20.007
W e p a y anything t h e y want i f they
reason f o r it.
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Federal Reserve Bank of St. Louis
Governor Norris. I
mean,
d o y o u p e y less than
them fives e n c
Governor Biggs.
W e give t h e m anything t h e y want.
If they want »5,000.00 worth o f gold they c a n come i n and
get it.
other.
I t w i l l c o m e b a c k i n t o t h e b e n k i n s o m e wey. o r
W e will n o t have t h e same demand f o r gold this
year t o give bonuses t h a t w e have had, because t h e y are
not g i v i n g bonuses.
T h e r e a r e just a
few people t h a t want
& small supply, b u t i t comes b a c k into t h e b a a s
B
a
e
to start t o pay out gold i n a general way would b e a bad
idea, because
w e h a v e worked h a r é t o get it; nobocy wants
{t; they just want t o !mow that they can get it.
Governor Young.
h i n t 5
o r golc certificates
should be paid out when requested, but I do not think it
I>
is necessary for us t o go,beyond thet. T h e r e are
people w h o a r e s t i l l
notes.
i n coubt a s t o t h e
I f they cemanc g o l d w e
instances o v e r i n northern Michigen, w h e r e there a r e a
great number of foreigners who are heavy depositors i n
the banks,
a n d t h e y s o m e t i m e s m a l e d e m a n d f o r golc.
told those bank
w e
p a y t h e m in gold and we would send
them t h e g o l c i f t h e y w a n t e d i t .
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Federal Reserve Bank of St. Louis
29
The Chairmen. G o v e r n o r Seay, w h a t i s your view?
Governor Seay. I
believe, M r . Chairman, t h a t t h e
deal
is where i t ought t o be.
I t took a great/of trouble t o
put i t into t h e Federal “eserve Bank, a n d i f w e could g e t
the country into the Federel ‘te
a good thing, I
think. A
little more
then a yeer a g o w e were alarmed because nearly 3400,.00,000
in g<ao¥ l d l e f t t h e country; 3 ?t h a t is,
w e were uneas
a
n o t
alarmed, a n d w e recovered that 400,000,000 a n c some
considerable amount more.
A s long a s our banking system
is based u p o n gold reserve, I
believe t h a t that g o l d re-
serve shoule b e i n the central banks. I
think that t o
deliberately undertake t o diminish o u r crecit power,
which w e d o when w e diminish o u r golc fund, i s a step
packward,
a n d where a n y SbHer currency p e i c
answer i n place o f gold I thin’: w e ought t o
%
in preference
t o p a y i n g t h4ie
The Chairmen.
Governor
Governor Miller. I
a m opnosed t o vaying o u t golc.
I think w e h a v e a c c u m u l a t e d i j =
r e a t expense a n d I
thin: i t would b e a step backward t o p a y i t out now.
The G h a i r m a n -
Governor
V a n Zandt?
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Federal Reserve Bank of St. Louis
100
Governor V a n Zandt.
is concerned, I
f
a
r a s t h e general situation
a m i n hearty accord with the views e x ~
pressed b y t h e v a r i o u s G o v e r n o r s w h o h a v e e x p l a i n e d
cifficulties o f acquiring our present s t o e o f gold.
far a s the Federal K e s e r v e B a n k o f Dalles i s concerned,
our p r e s e n t r e s e r v e p o s i t i o n w o u l d n o t p e r m i t u s t o p a y
out a n y gold i f i t was cemanded.
Governor wellborn.
golc.
w e have occasional cemands f o r
w e usually suppiy i t without question,
man w a n t s
a s much a s five thousanc
I f a
o r t e n thousand;
but
I a m not i n favor o f the policy o f paying i t out just
to recuce the gold reserve o f the ‘ystem.
The Chairman. I
may b e mistaien i n m y views, b u t
they are a s follows, briefly:
e
t
, 1 -think.1t is: ime
perative t h a t e v e r y F e d e r a l K e s e r v e Banlz s h o u l d m e e t a n y
Gemanc. f o r a n y amount o f gold which i s mace a t its
office without a n instant's hesitation.
T h a t i s the first
thing thet I think should b e a fundamental policy o f cvery
Keserve Beni.
S o long
e s w e o b s e r v e t h a t a n d c o i t with-
out z s i t e t i o n whatever,
w e will n o t have requests
for gold except possibly f o r Girectors' fees, Christmas
presents
a n d for use
i n the arts
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Federal Reserve Bank of St. Louis
101
The second thing is: t h a t this g o l d was gathered
together f r o m bank reserves a n d gold i n circulation i n the
early deys o f the w a r under conditions vhich really mace i t
readily explainable t o the country w h y v e wanted t h e
country's gold, because w e were a t war, o r war was raging
in Europe,
a n d t h a t i t was a n elcment o f protection
in
the banking situction a n d credit structure o f the country
and w e d i d n o t n e e d t o apologize.
B u t i f i n time o f peace
any emergency arises where w e would need t o get i t in,
we w o u l d e i t h e r h a v e t o r e l y u p o n t h e r e g u l e r o p e r a t i o n
of the currency wearing o u t a n d coming i n for sort a n d
the gold retained,
for it.
o r else w e would have t o make a n appeal
I f w e relied upon t h e first method i t would b e
very slow, a n d i f w e fell back upon t h e second method
it might create o n alerm, a n d I would n o t went t o see
the Federal Reserve Banks attempting it.
Now a demand f o r t h e gold u p o n u s m a y n o t arriv. f o r
some years, w e cannot tell; but I firmlY believe that i t
will b e foolish n o t t o recognize t h e fact that some d a y
we are going t o have a
demand m a d e u p o n us.
T h e situ-
ation o f the world trade i s some day going t o change and
we a r e going t o b e a nation buying goods t o a greater
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Federal Reserve Bank of St. Louis
102
extent t h a n w e are exporting them, a n d whenever t h a t time
comes w e may have considerable g o l d movement against us.
Furthermore,
w e may b e called u p o n t o grant credit t o
foreign countries f a r beyond what w e have been called
upon t o d o u p t o date, a n d I think t h e store o f gold i n
the Reserve Banks 4 s one thing that i s going t o enable
us t o meet a n y situation t h a t might arise.
Now the reason for the suggestion thet some part
of the gold should b e paid out i n the form o f gold
certificates I
believe g r o w s e n t i r e l y o u t o f t h e f e e l i n g
that i t will r e d u c e t h i s d e m a n d u p o n t h e R e s e r v e B a n k s
to
make l o w r e t e s o f d i s c o u n t a n d d o a l l s o r t s o f t h i n g s
that i t i s impossible f o r them t o do; b u t looking behind
little bit I see this reaction t o such a policy:-~
that those extreme critics o f the system w h o claim that
we took the banks o f the country b y the throat and wrung
their n e c k s a n d t h a t w e p u t a
pressure
o n credit a n d
brought about disaster, t h e minute they discover i t they
will say, "Look.at those fellovs, t h e y a r c just a s de-
termined i n their policy s s they have been.
N o w they
are paying out their gold reserve s o as t o be i n @ position t o apologize a n d explain t h e maintenance o f this
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Federal Reserve Bank of St. Louis
p r e arence o f a
I < think i b witli pay A
poitey".
subterfuge.
I t will b e c i
commented u p o n a n d turned egai
n i t will b e
e
s
e c a n face
sound rete policy b y the
‘much more courageously a
Keserve Banks with all o f this gold o n hance than we can
out an¢
by indulging i n eny subterfuge o f paying it
w e are going
n saying what w e would have t o say, that
thet
to k e e p r a t e s u p o r p u t t h e m u p e n c é o s o m e t h i n g
r e s e r v e s a r e low,
they d o n o t w a n t u s t o G o b e c a u s e o u r
make that a
if we should p a y out s o much gold a s t o
cannot s e e t h e w i s c o m o f a t t e m p t i n g
fact. I
trich p o l i c y e b o u t this.
T h e g o l d i s here;
e n os1 5 8
A n
out w e simply expose
the proper place, a n c i f w e p a y i t
ourselves
indulging
t o the criticism that w e a r e
in a
a n d escape o u r responsisubterfuge t o becloud t h e issue
bilities.
T h a t i s t h e w a y i t occurs
Governor Calkins.
pearance,
amount
have t
N o t only would i t
b u t i t would b e a m b t e r f u g e
Governor Norris.
t o me, g e n t l e r
i n fact.
I f w e c.0 not v a y o u t a
sufficient
i t would n o t have
t o really recuce t h e reserves
thet effect.
our reason
I f w e dic. and then gave i t a s
w a n t e d u s t o do, w e w o u l d
for n o t c o i n g w h a t t h e p u b l i c
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Federal Reserve Bank of St. Louis
104
be i n a position o f saying thet w e could not c o a thing
we h a c c e l i b e r a t e l y d e p l e t e d o u r o w n reserve.
to m e t h a t t h e g o l d i s n o w i n a
st.place t h e t i t - c a n
b ei
proper p l a c e
n c that w e should
leave i t there.
The C h a i r m a n
e t h e r f r o m t h e remarks t h a t h a v e
en mace t h a t w e a r e p r e t t y u n a n i m o u s
hat I
a m authorized
t o s o report
o n this subject
a t t h e joint meet-
Tae next i s
Expediency o f suthorizing Federal heserve
Ban's
t o purchase
i n each calender y e a r
the m a x i m u m a m o u r
18 o f the Federal HKeserve A c t (%25,000,000)
of United States bonds eligible a s security
for b e n i n o t e c i r a l a t i o n .
I think thet perhaps w e should g o arounc the table o n
that subject.
Governor V a n Zandt.
i e r existing market
States bonds, w h i c h a r e eligible a s security f o r bank
note circulation,
i t avnears t o m e that t o authorize
Reserve Baniksto v u r c h e s
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Federal Reserve Bank of St. Louis
1@ wey they co, woulé n o t have a n y
The Chairman.
i e d o not have t o buy them
accruec. i n t e r e s t .
Governor V a n Zanct.
R
o
a
r
c suggest t h a t v e
them a t t h e m a r k s
eo
ta
?
Chairman.
T h e y cic favor buying t h e m a t the
marizet.
Governor V a n Zandt.
n o u g h t t h e m before a t pre
interest.
The C h e i r m a n .
W h a t
Governor Young.
unless I
t
w
o
s now?
O n e huncrec a
have b e e n i n f o r m e d incorrectly.
Governor Callcins.
hunéreé
i s
anc one and a
L
e
s
t quotation I
hac w a s o n e
fraction.
Governor Wwellborn.
cL ‘
T h e .t
woulc involve,
u c s t i o n
of
course, retiring t h e t much currency f r o m circulation,
woulén'’t it?
The Chairman. Yes, i t will, b u t t h e whole thing i s i f
you r e t i r e t h e c u r r e n c y
threes y o u g e t o n e - h a l f
c
c
o
n
e
v
n
e
t
r
t your twos into
. thirty-yeer voncs
which y o u sell a t a
Governor
V a n Zand i
berreves
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Federal Reserve Bank of St. Louis
LOG
The Chairman.
O n e half .
p
e
r cent one-year notes
which k e e p r e v o l v i n g f o r t h i r t y
interest, a n d n o one could possibly
Banks i n buying those bonds excep y
continue t h e m a s 2 per
privilege.
d
were going t o
s with >
cirm lation
W e cannot afford t o take iosses o f 2 5 points
on e v e r y blocls o f t h o s e b o n d s t h a t w e bought,
investment
s o that t h e
i n those b o n d s a n c r e t a i n i n g t h e c i r c u l a t i o n
twos, putting u p §25,000,000.00 a year for this purpose
and buying t h e m i n sbove par~-why,
w e just wouldn't g e t
them, a s I understand it.
Governor Y o u n g .
Y o u could b u y them uncer €ection 14,
o w n m a r k e t operations.
The Chairman. O h . >yaees2 ,
Governor Calkins.
The Chairman.
w e coule b u y t h e m uncer fection
B u t y o u could not g o above per.
I t says b u y a n d sell, a t home o r abroad,
bonds a n d notes o i t h e United States.
Governor V e n Zancét.
Y o u m e a n b u y t h e m a t a n y price?
When w e were compelled t o tale t h e m from the National
vefore w e were compelled t o take t h e m a t per
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Federal Reserve Bank of St. Louis
accrued interest, a n d they were selling i n the market
below par, a t 9 7 o r 98.
T h e r e h a s been a
Governor Biggs.
bonds
i n t h e l a s t f o u r months,
demanc f o r those
a p e rently.
W e h a d about
%$15,000,000.00 a n d w e have s o l d %7,000,000.00 a t the
request o f the Board, w h i c h wanted t o imow i f w e could
not furnish them.
T h e y have e l l come East, a b o u t seven
million i n less t h a n s i x months, a n d w e only have about
eight million now.
The Chairman.
A s interest r a t e s decline t h e twos
become m o r e d e s i r a b l e f o r c i r c u l a t i o n purposes,
a s I
understand it.
Governor S e a y .
Y e s , strange
t o say,
The Chairman. S t r a n g e t o say, b u t that i s the w a y
it operates,
retiring,
a n d when y o u would expect currency t o b e
t h e profit,
b y reason o f t h e lower general
level o f interest rates, becomes greater o n the twos.
I a m not sure that I understand w h y this topic i s sug-
gested, unless the Board o r the Treasury Department desires t h e Reserve System n o w t o begin t o retire National
bank notes.
Governor S e a y . I
a m q u i t e s u r e t h a t i s 41%, m o
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Federal Reserve Bank of St. Louis
Chairman,
The Chairman,
i f t h e y do, a n d w e take advantage
of Cection 18, the provision o f which i s that w e ean
only b u y b o n d s
o n tender f r o m t h e National banks
a t pap
anc accrued interest, o r boncs t o be immedi ately withdrawn
from the Treasury i n order t o retire a
corresponding
amount of circulation, then we wouldn't get any of
those bonds.
Governor Seay.
I t i s possible t h a t a n announcement
of t h e p u r p o s e o f t h e F e d e r a l R e s e r v e B a n k s
t o carry sut
that provision o f the Federal HKeserve ect which looks
toward t h e retirement o f bonds might have a n effect u p o n
market prices a n d w e might g e t them. I
was &
good p r o v i s i o n
retired,
and I
believe t h a t that
i n the a c t a n d that t h e y should b e
believe
w e ought t o resume buying t h e
bonds u n d e r t h a t p r o v i s i o n o f t h e a c t a n d s e e i f w e
can't g e t them.
The Chairman.
H o w c a n w e g e t them o n tenders?
Would y o u feel that y o u were doing your cuty t o a
member bani i n buying bonds a t par when t h e y c a n got
out i n the market a n d sell t h e m for 1017
Governor Seay.
I f i t would b e the purpose o f the
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Federal Reserve Bank of St. Louis
109
banks t o retire t h e m i t might have ‘ a n effect o n the
bonds. I
d e not know, b u t I believe there i s one thing
that would have a n effect u p o n them, a n d which I believe
ought t o b e done, a n c :
t h i s : I
cdo not believe
that newly-organized banks should b e permitted t o issue
circulation.
provision,
[ I have always thought that was a n unwise
and I
think i t should b e s t o p e d . A
newly-
organized Netional b a n k should n o t b e permitted t o c o
it; t h e y a r e n o t required t o issue circiiftion, a n d 1
believe t h e y ought n o t b e permitted t o d o it, i f i t i s
the purpose o f the Federal Reserve Act, a s i t is, t o
retire gradually National b a n k note c i r m lation.
I f
we could g e t that provision, t h a t t h e y not b e f w rmitted
2
o
c o so,
madeL a
t
law, I
believe w e would g e t the boncas,
and I think i t ought t o b e a part o f the law. I
believe
that w e should recommend t o the Board that i t seek t o obtain a n amendment t o the l a w which would prohibit newlyorganized National banks f r o m issuing c i r m lation o r
present organized banks f r o m increasing their circulation.
The Chairman,
T h a t might have a n effect o n the value
of t h e s e t w o s a n d p u t t h e m d o w n a b o u t t e n points.
Governor Seay. H a r d l y ,
a s long a s they c a n maintain
their p r e s e n t c i r c u l a t i o n a n d t h e F e d e r a l K e s e r v e B a n k s -
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Federal Reserve Bank of St. Louis
take u p ,25,000,000.00 a year o f them.
Governor V a n Zandt.
T w e n t y -five millions a
year
would n o t r e t i r e t h e m .
Governor Seay.
N o v entirely.
I t might b e a m e n d e d
a3 t o h a v e t h e b a n k s p u r c h a s e m o r e o f t h o s e bonds.
Governor V a n Zandt.
T f the National B a n k Act were
amenced s o that n o charter h e r e a f t e r issued, w h i c h would
include t h e e x t e n s i o n o f charters, w o u l d c a r r y w i t h i t t h e
circulation privilege,
a n d that t h e Federal Keserve B a n k s
should b e recuired pro-rate t o purchase e t par t h e circu-~
lation bonds o f every bank whose charter expires a n d who
wishes t o retire i t s circulation, e v e n i f necessary t o
issue Federal Reserve Banks notes ovainst t h e m a t the end
of twenty years y o u would automatically b e without a n y
tional bank circulatien ,
Governor Seay. I
favor t h a t proposition.
a m inclineo t o think I would
T h e r e i s o n e t h i n g t h e purcheas-
the bonds woulc do, i t would ciminish t h e profits
ral K e s e r v e B a n k , w h i c h i n t h e e y e s o f s o m e
scéms t o b e e Gesirable thing t o do,
The Chairman. G e n t l e m e n , I
think w e a r e getting
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Federal Reserve Bank of St. Louis
xoy
awey from t h e subjec
appeals
K e L i teic 4
t o m e about t h e
we b u y t h e m i n
the currency,
T n e point thet
D O s e ll fo. b u y O n e s
i s Bust
B = O F m a r k e t w e secure n o recuction
a n c i f w e attempt
t o buy them for
currency w e h a v e p o t t o s u c c e s d - i n
buying them at 1 1/2 per cent less than they are selling
for i n the open merket.
S o w e cannot g e t them anc there-
fore there i s n o point i n the suggestion.
U n l e s s w e are
Willing t o p a y o u r m o n e y i n t h e meriret s o
ebsorb a l l t h e s u p p l y a n c , t h r o u g h m a r k e t operations,
pull c o w n t h e b o n d s t h a t n o w s e c u r e c i r c u l a t i o n ,
and I
do
not know what that would involve, b u t t h e last
circulation t h a t I
saw was :,726,000,000.00 National b a n k
notes n o w outstanding.
entire i s s u e
o f twos
T h a t means t h a t practically t h e
i s pledged
=
t o National
b a n k notes.
2 matter o f fact, b e able t o g e t some
twos t h a t n o w s e c u r c c i r c u l a t i o n u n t e r S e c t i o n
of t h e Act, b u t i n c o i n g s o w e w o u l d s i m p l y b e b i d d i n g
them u y r i g h t a l o n g t o a
greater premium.
I f the ob-
ject o f t h e s u g g e s t i o n i s t o r e d u c e t h e c i r c u l a t i o n
National bank notes, i t seem
+
=
of
e it might b e well
brought about b y amending t h e National Bank Act, discon-
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Federal Reserve Bank of St. Louis
tinuing t h e privilege o f
charters r u n out.
B u t
twenty y e a r s t h e b a n k s w o u l d o w n a l l t h e t w o s a n d u n l e s s
they c o n t i n u e d
t o hole t h e m a s twos a n d issue their o w n
bank notes against t h e m y o u would n o t accomplish anything
in recucing t h e circulation.
Governor Seay. “ w h e n c o t h e y mature?
Governor Young.
T h e y a r e indefinite, b u t t h e cecre-
tary o f t h e T r e e s u r y e t h i s o p t i o n c a n r e n e w t h e m i n 1930,
The Chairman.
tional ban’: n o t e s
I f w e secure t h e retirement o f
b y discontinuing t h e circulation privi-
lege, a s you suggest, then w e are actually reducing the currency b y »726,000,000.00 a n c w e have g o t t o restore s o m e
kind o f notes i n the place o f thosc retired.
words, a
I n other
new c u r r e n t y h a s g o t t o b e b r o u g h t i n t o b e i n g a s
the result o f Giscounting b y member banks with the Heserve
Banits. U n l e s s w e are willing t o assume t h e National b a n k
anything
note i s s u e a n d h o l d t h e m a s twos, t h e n w e w o n t a c c o m p l i s h / ,
In other words, I
see
n i n g
h
e suggestion o f topic
3 o r i n the suggestion t o amenc t h e National B a n k ict.
The inevitable consequence w o u l d b e a transfer o f the
National b a n k n o t e c i r c u l a t i o n
t o t h e Federal Reserve
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Federal Reserve Bank of St. Louis
answer
t o it.
2
Governor S e a y . ‘ t h e r e i t o u g h t to.be,
lieve, I
think.
T h e r e wes a
a s we e l l be-
time i n o u r c a r l y c o n f e r e n c e s
when w e were consi¢cring plans t o simplify t h e currency,
which i n v o l v e d n o t o n l y t h e r o t i r e m e n t
o f N a t i o n a l bani:
notes, b u t t h e retirement o f legal tender 1
member t h e r e was a
Y
o
u reé-
committee t h e t h e t t h e t u n d e r c o n s i d e r a -
tion, a n d I believe y o u yoursslf, Govsrnor &
some p l a n t o e f f e c t t h a t pnurposc.
The Chairman.
‘ o Gid h a v é a grand plen, b u t nothing
ever came o f 1%.
Governor Seay. I
woulc. b e i n favor
o f resuming t h e
purchase o f these notes under section 1 5 o f the act, whatever i t is, a n d l e t u s s e e whet talres place. I
would a l s o
be i n f e v o r o f t r y i n g t o b r i n g a b o u t a n
Netional Bani: A e t w h i c h woulcG p r o h i b i t i s s u s
bank c u r r e n c y b y n e w l y o r g a n i z e d banks.
Governor iwwellborn. I
hardly think: w e c a n d o
There i s a n element o f p r o f i t there.
Governor M i l l e r .
B u t t h e profit
i s s o small
Herdly t a i n k i t w o u l d i n f l u e n c e i t .
The Chairman.
I s i t your desire, then, t o deal with
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Federal Reserve Bank of St. Louis
114
this s u b j e c t
b y recommencing t h a t t h e policy o f buying
4u25,000,000.00 2
year b e acoptec. whenever i t
to get them e t par a n c interest,
e s cemended
2
by Section 18, and i f it is the desire o f the Federal R e =
serve Boar:
=
}
t o hasten t h e retirement o f National b a n k notes,
that thet might best b e accomplished b y a n amendment t o
the Waticnel Bani: Act which will provice t h a t n o n e w
Wetional bani: and n o Nsetional ban’: whose charter i s extendshall have t h e privilege o f issuing Nationel bank notes
hercafter.
Governor V a n Zandt. I
Governor Seay. I
s o move, iir. Chairman.
would b e i n favor o f that.
=
Governor McDougal.
there i s a
U n d e r t h e language usec here 7 thin’
at 2
question a s t o w h i t h e r
L
e
w e could proceec u n c e r
section 1 8 i n the matter o f buying a n y amount o f
per cent bonés f o r the purpose o f holcing t h e m for investment, w h i c h i s whet i t would amount to, w h e n t h e L a w c o n
templates t h a t t h e s e bonds,
i f purchesea,
exchanged for 3 per cent securities.
can e
immediately
M y belief i s that
if you vere t o purchase bonds under Section 18 we probably
inwoulé want t o exercise o u r right t o place behine t h a t
vestment 3
p e r cent instrument ,ather t h a n a
2 per c e n t
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Federal Reserve Bank of St. Louis
instrument.
The Cheirmean.=
B u b t h e n y o u lose. t h e e i r e u i e t i o u D r i v —
iiece e n c y o u lose. 4
2
5 points
o n every conversion m a d
ic
you w o u l d n o t w a n t t o - o that.
Governor McDougal.
conversions yet.
l
w
e have n o t lost anything o n
=f
v e had a n interesting experience, y o u
l d sold them i
rememher, a n
just before t wh e Cron t o %8
80 a t 101.65.
The Chairman.
B u t i f you b u y them a s twos a n c convert
them into threes y o u are bound t o sustein a
Governor Miller.
bonds sold.
loss.
S o m e o f u s G i d not g e t all o f o u r
“ w e have g o t 3607, 000.00 o f them t h e t
not g e t sold.
Governor S e a y .
Governor
W e h a v e o v e r 2 a million
MeDouga
T
h
e cuestion
o f them.
i s whether
o r not
under S e c t i o n 1 8 w e c a n p u r c h a s e t h e s e b o n d s f o r i n v e s t m e n t.
The Chairman.
Why, I
Governor McDougal.
t h i n k w e can.
O r whether w e are required t o ox-
chenge t h e m for threes.
The Chairman.
I t does n o t require a n exchenge.
Governor V a n Zandt.
tion privilege.
T h e y c a n b e u s e d f o r t h e circula-
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Federal Reserve Bank of St. Louis
a lot o f them now; a
The C h a i r m a n .
Y o u
d o not acwmmplish
t h e retirement
corresponding amount o f Netional bani: notes.
the question).
The C h a i r m a n .
T h e subject
o n the program undoubtedly
re-
fers t o a n o p e r a t i o n u n d e r S e c t i o n 1 8 a n é i t sa;
I think w e s h o u l d a d d r e s s o u r s e l v e s
t o thst. I
gathsr f r o m
the discussion a t the meeting that y o u favor doing s o when
the bonds could b e bought a t par e n d interes
inasmuch a s they cannot n o w b e h a d a t par a n d interest t h a t
the Conference would favor a plan,
i n case i t i s cesired t o
retire t h e National b a n k notes f r o m n o w on, o f smencing t h e
National Bani: s c t s o that t h e circulation privilege mould
not b e g r e n t e c t
o néewly-orgenizec Netional banks a n d those
whose c h a r t e r s
have expired
Governor Seay. I
a n d a r e b e i n g renewed.
think that perhaps I
a m a t least
partly r e s p o n s i b l e f o r t h a t b e i n g o n t h e program.
A
t
least I mace the suggestion, an¢ I simply had i n mind when
I did i t what I have expressed here a t this conference.
(The motion being duly seconded, was carried).
The Chairman.
T h a t concluces t h e topics referred
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Federal Reserve Bank of St. Louis
i Ey
for separate a n d general discussion b y the t w o
organizations b y the Federa
W
e
s
now t o t h e t o p i c s u g g e s t e d
. °
and w e will proceed
b y t h e U n d e r oSecretary o f t h e
Treesury, u n d e r S u p o l e m e n t N o . 2 . N
S
e
.
(1) F u r t h e r discussion o f the n e w designs f o r
paper
Currency,
w i t h particular reference
t o reduction
size i n t h e n e w m o d e l s w h i c h h a v e b e e n s e n t
out t o the
Have 3
.
s e a l Federal
sceivedc a
R e
p a n t s .
n p l e cesigns
o f the pro-
new notes which a r e being consi¢ered b y the Treasury?
They involve radics1 changes
in size, anc, f r o m m y point o f view, s o m e objectionable
technical f e a t u r e s
LO S a y t h a t |
i n t h e make
u p o f t h e notes. I
d i d not: h a v e a n o p p e r t u n i t y
men i n t h e c u r r e n c y d e p a r t m e n t
a m sorry
t o discuss t h i s
o f the N e w York
Benk, b u t y o u have e l l seen them a n d y o u a r e all familiar
» and I think w e should b e prepared t o disthe matter with Under ‘ e c r e t a r y Gilbert, anc.
we have discussec this program, I
think w e should invite
him t o join the mecting.
Governor Biggs. I
thinit w e a r e
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Federal Reserve Bank of St. Louis
118
counterfeiting e n c t h e raising o f currcney vould b e highly
desirable.
Governor Sesy.
Y o u will recall, Governor Strong,
that t h e Treasury Department wrotc u s that i t had decided
on some features, a n d one o f the foatures w e s t h e cignettc.
Governor Norris.
Here is a
lotter, w h i c h I
is a n identical l e t t c r ( e x h i b i t i n g l e t t e r
suppose
t o Governor
Seay).
Governor Seay. Y e s , that i s the one t o which I refer.
A uniform beck and e
different portrait f o r cech denomina-
tion, uniform f o r a l l issues.
Governor Norris.
And a
different color t o designate
the kind o f money.
Governor Wellborn.
‘ W h y could v e not settle t h a t with-
out a n y d i s c u s s i o n w i t h t h e S e c r e t a r y ?
The Chairman.
T h e only point I had i n mind vas that
it s t r u c k m e t h a t t h e d i s t r i b u t i o n
o f t h e words a n d letters
indicating denominations o n the fronts a n d becks o f these
notes d o e s n o t o f f e r a s c o m p l e t e p r o t e c t i o n
a s might b e
brought about b y having the denominetions vorled into the
design o n the border a l l the w a y eround.
Governor Calkins.
W e have m a d e s o m e suggcstions a l o n g
cesigns o f which y o u have
offer a n y grcater protection agai
old designs offered.
Governor Seay.
s u c g e s t i o n f r o m t h e money cdoignating t h e cenomination
bill might b e o f ditiere
s i z e o n each bill, which
woulc a l s o afford
The Chairman.
Governor S e a
s s , t h e numbers t o b e o f cifferent size.
Governor C a l k z
R
e
c
h different Cenomination,
y o u meen‘
Governor
Governor
Governor
little amelier,
Governor Young.
Governor S e a y .
all t h e w a y t h r o u g h
B u t thet coes n o t g o all the w a y through.
I t i s i m p r e s s i o n t h a t i t cic. n o t g o
t h e cesis
b i n e h o r suggestion
w e
made wes w i t h regard t o the portrait, a n d w e arrivec a t
that c o n c l u s i o n b e f o r e
t h e letter
was sent
t o us, 3t h a t t h e
same portrait should b e o n one Genomination and that thet
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Federal Reserve Bank of St. Louis
4
heanc s i d e a n d n e v e r
i n the
accustomed t o secing t h e m
the susgestion o f our department v a s that t h e
tellers l e a r n t o G e t e c t t h e b i l l
h
e portrait rather
than otherwise.
The Chairman.
T h e s e two
on the left, t h e t e n anc twenty, w o u l c b e wrong, then?
Governor Seay.
Yes.
The Ghairmen. T h e more important identifi
shoule a p p e a r
o n t h e r i g h t s i c e o f t h e bill, b e c a u s e t h o s e
who c o u n t bills,
t h e g r e a t e r n u m b e r o f them, c o u n t b y t h e
the e y e woulde catch i t quicker.
Governor:
Young.
“ Y o u w i l l notices t h e t
o n the lower de-
billi-end
nominations t h e portraits a r e o n one site o f the
center,
on t h e h i g h e r d e n o m i n a t i o n s t h e y a r e i n t h e
a n c they
against raisfigured t h a t that would b e anothcr safeguard
inethe bili.
Governor S e a y .
five, t h e p i c t u r e
Y o u will notice t h a t a n y bill above
is in a
different position.
(After further ciscussion):
Governor Calkins. I
effect t h a t w e a p p r o v e o i
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Federal Reserve Bank of St. Louis
would o f f e r a
n e proposal
resolution
t o the
t o cecrease t h e
size o f the notes b u t feel t h a t accitionel safeguercas
b3!e a p p l i e d
shoule
The Chairman.
t o p r e v e n t r a i s i n g a n c counterfeiting.
o u l d . y o u eac t o that that i f i t i s
of t h e T r e a s u r y J e p a r t m e n t
w e will have &
se~
the money ccunters a n d money m e n i n the heserve
Banks come t o -ashington t o confer with t h e officers o f
o n that suggestion?
the T r e a s u r y
Governor Celkins.
Governor Horss. I
Yes I
?
would a c c e p t 6
woula like t o raise
Let u s hear it, Governor horss.
to reducing t h e
first, c o s t o f paper
trensportation, because
this establishs< size o f Unitec. =tatos curfor a
great m e n y years.
The Chairman.
Governor
heve a
b o u t s i x t y years.
orss.
I t i s v e r y well establishec,
feeling that that has a
conficenece
o f people
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Federal Reserve Bank of St. Louis
gooc ceal t o c o with t h e
i n o u r currency.
if y o u r e d u c e t h a t s i z e i t
anc I
I n other
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Federal Reserve Bank of St. Louis
Sy C C H L C e n C e s
i n our section
people
tale ¢
a
n
o f t h e country w h o cannot read, w h o
c w h o cannot s e é anything b u t t h e figure
you
wrobebly, e n d i f you change the size o f thet curreney
will e f f e c t t h e i r c o n f i c e n c e
The Cheirmen.
bani: i n this way.
i n it
T h a t q u e s t i o n w a s raised i n the N e w York:
T h e point w a s brought u p thet cven
have been
the p o o r e s t a n d m o s t i g n o r e n t p e o p l e t h e s e c a y s
has a
made aware o f the fact t h a t t h e dolla>
chasing p o w e r t o c a y t h a n i t h e d a
lesser pur-
few years ago, e n c a f
peosize o f t h e paper notes wore reduceé. t h e ignorant
this dollar s o
would sey "By George, they are fixing
i t eny more,
that w e will never b e able t o buy a s much with
t h e current notes m a d
anc t h e y w i l l c i s c r i m i n a t e a g a i n s t
hoaré them". T h e r e i g something i n thot.
suggestec
T h e point was
t h e f o r e e o f it.
t o Mr. G i l b e r t e n c h e s a v
Governor M o r s s . I
The Cheirman.
wrote
him 4
letter
t o t h e t effect.
I
H e asiec h o w t o deal w i t h it, a n d
i t we
him I felt t h e only safe w a y t o deal with
greet d e a l
o f public discussion
it possibly shoul¢c b e tried o v t
told
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Federal Reserve Bank of St. Louis
123
Nov. W o r k v o ous.
2b
3
h
against it. f
e
e a p y e area t o b e a n y dciscrim-
r
r i m i n a t i o n c a n d o n o harm unles
the c o n v e r s i o n i s forcec.
I f y o u p u t a hundred m i l l i o n
in
circulation a n d s t o p there, y o u will s h
whether t h e r e i s a n y C i s c r i m a n a t i o n a g a i n s t t h e paper.
The difficulty about trying i t out i s that i t involves
preparation
o f vlates a n d a
iculty o f putting
lot o f ex»nensc o f operation.
i t i n operation
i n full blast
the f a c t t h e t t o maize i t s u c c e s s f u l y o u h a v e g o t
to put i n a n enormous store o f it, a n c the initial expense
Ls
Governor Morss.
O f c o u r s e y o u woulc. h a v e t w o sides.
Wot long a g o a bill was brought t o m y bank, I
forget what
bank bill i t was, b u t i t was issued i n the 60's.
3
a perfectly g o o d bill;
i t was n o t cirty a n d h a c n o t b e
used u p o r e n y t h i n g o f t h a t sort, b u t i t s o r t o f s h o w s
the possibilitiss o f having t w o kinds o f money, a n d i t
would p r o b a b l y b e q u i t e a
nuisance f o r m a n y years.
be p u t t i n g t o o m u c h s t r e s s
have b e e n abroad,
o n t h a t point,
I l
b u t peo-
l e y have gotten t h e franc piece,
the mark piece, a l l that sort o f thing, a n d all sizes o f
paper, L i t t l e b i t s o f paper,
a n d there i s n o standind
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Federal Reserve Bank of St. Louis
to i t a t all.
T h e o n l y satmearda b i t s ;
tocay, a r e t h e bills o f the United States a
notes. T h e y d o not change; t h c y e r e stable t h e y
right there a l l the time
T h e only real money i n
“orld t o G a y i s t h e U n i t c é S t a t e s money,
co a n y t h i n g t o wealren t h e c o n f i c e n c e
anc I
would
o f t h e people o f
worle i n that money, n o r talsc a chance o n doing it.
Governor V a n Zandt.
I t might b e interesting
there for m e t o say, a s bearing out Goycrnor Morss's
view, t h a t there 2
probability
pscople i n t h e U n i t e d S t a t e s w o u l é l o o k w i t h G i s f a v o r
the s m a l l e r bill, t h a t I
happenec
on
t o b e over i n the Philip-
pines w i t h t h e Treasury Department f o r a while, where w e
had A m e r i c a n c o i n a g e
a n c Mexican coinage,
ran a b o u t t w o f o r one. ‘
M e x i c a n dollar w a s w o r t h j u s t
about f i f t y c e n t s o f A m e r i c a n money.
of Filipinos
t o do a
a n c the ratio
I f y o u hired a
bunch
certain a m o u n t o f w o r k a n d p a i d t h e m
a dollar a dey, y o u coule either p a y them i n Mexican money
or American money, g i v e them a
Mexican dollar o r a n Amer-~
not m a k e a n y cifference;:
coulé n o t p a e
Lexican a
b u t you
dollar a n c a n o t h e r o n e
cents, because t h e y would n o t wort: for it, although t h e
125
Mexican dollar d i c not have a s much value a s the ameri-
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Federal Reserve Bank of St. Louis
Gan
T L
C e n t pioeex
wrote a lette
Governor Morss. I
B
Y e r s ,
O F
BPGOpy aere.
The Chairman.
h a t did he
GOVGYnOr Mores... 5
n i z w e need g o into that corre-
)
The Chairman. i
sponcence?
H
Governor liorss.
e simply stated t h a t t h e points
size o f t h e c u r r e n c y h e c o n -
sicered was q u
e
n important point a n c thet t h e change
would n o t b e made without v e r y careful consiceration. I
tool i t that when h e asked u s t o confer w i t h t h e »Santers
about p r o p o s e d changes
i n t h e currency,
V e e
Nestea
=i
this letter, t h a t the size was t o be talked ebout also, a n e
ncopic a b o u t i t .
thing i s first presented t o them,
v o s t people,
sa
W h
y e s , recuce
size", b u t t o t e l l t h e truth, s o m e bankers,
opinion I
when the
f o r whose
have t h e m o s t respect, s t a t e d n o t t o c h a n g e i t
under a n y conditions. I
City B a n k a
o e men i n t h e N a t i o n a l
talized- t
short t i m e a g o a n d h e s a i d n o t t o c h a n g e i t .
The Chairman.
O n what ground?
O n the ground thet i t
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Federal Reserve Bank of St. Louis
would arouse cistrust?
Governor M o r s s .
Y e s .
a
i
d t o h i m "If you féel
that way, why,will y o u not write t o Mr. Gilbert,
officer o f the National C i t y Bank, a n c express t h a t opinion, a n d h e promised t o c o so. I
d o not lmow whether h e
has done s o o r not.
Governor wWwellborn.
I t seems t o me, o n that line o f
discussion, t h a t i t would b e very pleasing t o the people,
because t h e purchasing power o f the collar
and they cannot raise that objection, a n d i f they had a
smaller bill i t would b u y the same stuff.
The Chairman.
B u t t h e y woule b e afraid i t would not.
Governor Seay. M r . Chairman, I do not believe any
living m a n could tell what t h e effect would de.
Governor Norris. I
thints Mr. Gilbert's original let-
ter s a i d t h e t i t w o u l d b e t w o o r t h r e e y e a r s b e f o r e t h i s
change could g o into effect a n d that during that time t h e
matter would b e thoroughly threshed out, a n c f
ing t h a t G o v e r n o r M o r s s r e f e r s
the Ttect-
t o i s expressea a n d i s a t
beall general, i t would find expression i n Congress,
cause i t would tale legislation, I
The Chairman. I
think not.
believe, t o d o this.
127
Mr. Harrison.
[ d o n o t think so.
T h e Secretary o f
the Treasury has full authority t o determine t h e size o f
notes.
Governor Norris. I
thought Mr. Gilbert i n his letter
stated that i t probably would require legislation.
A t all
events,
i t seems t o m e that o u r recommendation o n i t ought
to b e a
recommendation t h a t r e p r e s e n t s t h e s e n t i m e n t
o f the
bankers a n d t h e business people a n d the people o f intelligence.
N i n e t y p e r cent o f the nation i s composed o f
thet class rather t h a n t h e 5
foréigners. I
or 1 0 per cent o f ignorant
discussed t h e m a t t e r w i t h r e p r e s e n t a t i v e s
of
four o f our banks, a n d one o f them said, j u s t i n a general
way, "Oh, don't fool with it; don't make any changes", and
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Federal Reserve Bank of St. Louis
the o t h e r t h r e e w e r e a l l h e a r t i l y
The Chairmen. I
i n f e v o r o f it.
a m sorry t o s a y that w e have h a d n o dcis-
cussion i n New York with the bankers about it, b u t m y personal opinion i s that i t i s a good thing t o d e provided w e
can get a reasonably satisfactory belief o r reasonable a s surance t h a t i t i s not going t o cause some uneasiness a s
to the currency. I
you gentlemen agree,
would b e inclinec,
i f the rest o f
t o submit i t i n that w a y t o the
Treasury, pointing o u t the fact that there i s that pos-~
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Federal Reserve Bank of St. Louis
sibility e n d t h e t i t s h o u l d b e
against.
Governor Norris.
you believe t h e
n
n i n k i f y o u would summarize w h a t
e
w
e cen see i f we all agree
WO. 3G. O l 1 0 os
Tne Chairmen.
the r e c u c t i o n
M y summary i s thet t h e Conference favors
i n t h é s i z e o f notes a n c t h e general p l a n i f
it i s f e l t t h a t a d c i t i o n a l sefeguarcés c a n b e i n t r o c u c e d
raising o f notes; t h e t f o r the
s¢ o f considering s u c h acciticnal safeguards t h e
Conference t h o u g h t
rency e x p e r t s
i t would
b e desirable
t o have t h e cur-
o f some o f t h e Reserve Ranks m e e t w i t h
of the Treasury a n d discuss these practical
matters; a n c now I woule a d d the further suggestion that
the p o i n t h a s b e e n r a i s e d w i t h s o m e e m p h a s i s t h a t a m o n g
ignorant p e o p l e a
reduction
i n t h e p r e s e n t s i z e o f curréen~
Cy-in- t h e U n i ted S t a t e d m i g h t c a u s e u n e a s i n e s s ,
a n c that
it should n o t b e done a t all until t h a t aspect o f i t had
been thoroughly investigated a n ¢ consicered.
Governor Norris.
I f
s r e i s n o further ciscussion,
I call f o r a question o n thet motion.
Governor S ¢ 6 a
W
i
.
e S SGOnG = 2b.
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Federal Reserve Bank of St. Louis
(The motion, b e i n g d u l y seconéed,
w a s unenimously
carried).
The Chairman.
[ I will n o w e n t e r t a i n a
motion t o
adjourn.
(whereupon,
o n motion d u i y seconded, t h e Conference
ecjourned a t 6:10 o'clock p m until ‘iednesday, October
25th, 1921, a t 9:30 o'clock a m.}
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Federal Reserve Bank of St. Louis
@FedFRASER