Full text of Federal Reserve Governors Conference : Meeting Documents : October 25-29, 1921, Sixteenth Conference of Governors of Federal Reserve Banks : Proceedings, Volume 2: October 26, 1921

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

VoLumeE 2

PROCEEDINGS

CONFERENCE OF GOVERNERS OF THE FEDERAL RESERVE BANKS

HoTEL WASHINGTON
WASHINGTON, D.C,

OCTOBER 25-29, 1921

ASSOCIATED S H O R T H A N D REPORTERS
WASHINGTON, D . C,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1350
GOVERNORS O F THE FEDERAL RESIRVS BANKS

SECOND DAY.

Washington, 1). Cs,
weanesday, O c t o b e r 26th, 1 9 2 1 .

The Conference reassembled pursuant t o edjourmment i n
Parlor A , washington Hotel, Washington, } . C., 6 6 Gis

o'clock a mon Wednesday, October 26th, 1921.
Present:

The G o v e r n o r s

a s indicated

i n y e s t e r d a y ' s record.
.

P R O C E E D I N G S .
ne Chairman (Governor Strong).

‘ T h e meeting will come

GO o r d e r ,

I d i d not have a

chence yesterday,

getting a l o n g w i t h o u r program,
of w h a t

w e should

i n the urgency o f

t o open u p a n y discussion

s a y t o Mr. M e v e r t h i s

morning.

M a y I

explairz

now just what I have’in mind.
If w e decice, a f t e r m e e t i n g w i t h t h e s e S e n a t o r s t o ~


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

morrow, t h e t i t i s going t o b e a wise thing t o send a n y
communications

t o the member banks

o n the

loans a t all, t o send o u t a n y questionnaire,
thing t o stimulate their interest i n looking
cattle industry,

i t m a y efforc opportunity f o r u s t o get

in t o u c h w i t h t h e W a r F i n a n c e C o r p e r a t i o n a n c t u r n o v e r t o

them some needy borrowers,

i f you please; t h a t w e all Imow

thet i t will take time t o develop machinery t o cover this
country, m a c h i n e r y n e e d e d t o r e a c h t h e c a t t l e m e n , a n d I

hea i n mine seying t o Hr.
with y o u r views, t h a t w e w e r e c c n s i c e r i n g s u g g e s t i o n s f o r

h

epproaching t h e member b
which h a d t

credit,

a n d whether

e cattle districts i n

yet been G e t e é

h e was n o w prepared

us i n c o n s i g e r i n g l o a n s o f a

p o n , which

t o cocperate

with

character t h a t c o u l d n o t b e

held b y us for the membcr banks, that is, loans o f too
u p n o v vith his board

i n such a

long maturity;

i s h e fixed

way that h e ¢

e a c h t h e n o r h a 3 h e a n y practical means

of reaching t h e {
The W a r Finance

a

.

"i

p o r a i _

to b e reached most.
before went through s o

thing
meny guerantees v r three o r four people t h a t t h e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

they were designed t o do, a n c that i s
themselves,

a n d i s h e i n better s h a p e

t h e y never d i d ,

in that w a y than h e was before, unless h e i s ready t o take
gome reasonable r i s k like anybody else.
F o r your information I might s a y
an
that t h e W a r Finance Corporation h a s established/agriculGovernor V a n Zandt.

tural l o a n agency i n Fort Worth, Texes, a n c also i n Albeit
guerque, N e w Mexico, b o t h i n the Eleventh District.

m a k i n g loans, a n d w e

one a t Fort Worth i s operating a
have paid o u t the money o n some

T h e

t

h

e

y have already

KG y and they have applications f o r several million collars

worth o f loans t h a t they a r e working u p anc turning over t o
the w e r Finance Corporation a

w i d l y a s they c a n handle

them.
Governor Morss.

h e

I f

s

o

, a r e those t h e character

of l o a n s t h a t c o u l d j u s t a s w e l l b e m a d e b y s o m e b o d y e l s e
that i s t o say, a r e y o u l o a n i n g G o v e r n m e n t m o n e y , s i m p l y

loaning Go_ernment money e t perhaps a

little cheapcr rate.

W e have nothing t o c o with i t ex-

Governor V a n Zandt.
cept t o p a y o u t t h e money.

Governor Morss. I

know that, but the War Finance Cor.

poration does not loan anything but Goyernment money.

I t


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

certificates.
The Chairman. W h e point i s this, really:

y e r F i n a n c e Corpora-

industry i s being approached b y
tion w i t h a n offer,

t h e cattie

i f y o u pleese,

i

i

t

. for a

ionger

time t h a n the commercial banks o f the country will n o w exc

tend i t because t h e y c a n n o t r e d i s c o u n t
Banks.

h

b pay

e w a r Finance Corporation h a s stenped

a

t Heserve

i n cirectly

loans t o the cattle incustry. W i t h o u t discussing
whether a

a

wise o r unwise t h i n g f o r o u r G o v e r n m e n t

to do, i t i s S¢ing cone,
Governor M o r s s .

The Chairman. I
Governor Morss. I

I s it a

p r a c t i c a g a a r a roan &

t h e m

t o do

think so.
G o n o t iknow a n y t h i n g a b o u t

have none o f i t i n m y country a n d I

a m only esting

formetion,

Governor McDougal.
inquiry, I
proceedec

I n further resvonse t o Mr. Morss's

would state t h a t t h e W a
i n a

vse é

w

e

. ‘

3 C o r p o r a t i o n hes

3
2

8 o u r Gistrict

is concerned i n Chicago, a n d that is, t h e y have taken three
bankers,

w h o a r e practical bankers,

ases o f the cattle business,

e n c familiar w i t h a l l

a n d they h a v e formed a


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

committee c a l l e d t h e I l l i n o i s c o m m i t t e e .
lished a

similar c o m m i t t e e

i n I o w a a n d o t h e r States,

and

there h a s b e e n o n e l o a n m a d e i r i s s t r i c t so-far.
Governor Morss.

T h e n y o u c o n s i c e r t h e r e i s n o object-

ion t o o u r n o w w o r k i n g u p s o m e v l a n o f c o o p e r a t i o n w i t h them,

in case w e d o d o anything b y way o f communicating wit!
member banics?

Governor McDougal. I

think i t is very acvisable. I

do

not s a y cormunicats w i t h t h e member banks--the member b a n k
aré well informed a s t o the plan a n c procedure a n d the in-~
quiries a r e already v e r y numerous.
is t o have t h e m eliminate a
formalities a n d g e t
The Chairman,

o

w h a t w e want t o see
a

n

y unnecessary

n 2

what I

a m after i s something different,

and I do not think y o u g e t it. W h a t w e have been after i s
to have t h e Feceral Reserve System take some affirmative
action t o push this thing along.
Governor Calkins.

G o v e r n o r Horss's auestion a s t o

whether t h e w a r Finence Corporation i s ready t o c o business
has n o t been answered yet.

I t i s coing business.

I t is

not a question o f whether i t is, but whether i t is prepared
to d o business. H e r e t o f o r e t h e y have b e e n obliged t o make


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

such r e q u i r e m e n t s

°
a s t o m a k e i t possible f o r t h e m t o r e n c e r

T h e y might have made loans, b u t they

real assistance.

4 3 I uncerstanc t h e matter,

not G o a n y gooc.

h

lave arrangec t o mais

e cattle

t . eat need t h e assistance.

the cattle growers

farmers a n d canners i n Celifornia,

t o whom t h e y have

that a n y more t h a n I cid, a n é i t

money, c i d 4

cattle p e o p l e w h o n e e d assistance.

T h e y have made arrange-

ments t o make loans t o the cattle growers without t h e bank
jncdorsement a n d w i t h o n l y t h e i n d o r s e m e n t

o f t h e cattle l o a n

company, w h i c h w a s o r g a n i z e d f o r t h e p u r p o s e

o f incorsing t h e

peper a s a matter o f fact, s o that they have meaae arrangement:
to e n a b l e t h e m t o m e k e l o a n s w i t h o u t t h e i n t e r v e n t i o n

of a

lot o f guarantees.
Governor Morss.

The Chairman.

T h a t i s w h a t [ I hi

i n mind.

H o w d o you feel ebout it, Governor

Calkins?

Governor Calkins.
encourage t h e cattle grower a n d t o assist h i m should b e done.
I also f e e l t h a t t h e W a r F i n a n c e C o r p o r a t i o n h a s d o u b t f u l use-

fulness w h e n i t goes into t h e thing i t has gone into i n some
parts

o f t h e country.

F o r instance,

t h e y loan money t o the


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

136
so-called C a n n e r s ' A s s o c i a t i o n
not h a v e h a d a

cent.

T h e r e

i n California,

i s n o reason

w h i c h should

w h y they shculd

be favored a s compared w i t h other smaller corporations.
They also have loaned money t o the California prune
growers. J

am a

living e x a m p l e

California p r u n e grower,
at all.

o f the prosperity o f the

T h e y d o n o t n e c d a n y assistance

T h e y have also made a

loan o f » 1 0 , 0 0 0 , 0 0 0 . 0 0

t o thse

Northwest wheat Growers' Association, a n d there should b e
no necessity f o r borrowing long-time money o n wheat.

I f

it is carried a long time i t is only cone t o control the
price.
Governor Morss. I

asked t h e q u e s t i o n b e c a u s e I

am

not informed a n d I wanted t o know whether t h e corporation,
under t h e present arrangement, coulda b e mace o f real use t o
people w h o n e e d i t most,

a n d w h e r e w e d o n o t t o u c h then,

anc that i s long-time credit,

o r whether i t i s just a

fact that they would g o through the form--whether w e will
get a n y results f r o m it--well, I
word--let

m e s a y t o show a

Go not want t o use t h e

Gisposition

t o help these

cattle p e o p l e w i t h t w o o r t h r e e y e a r loans.

The Chairman.

T h e y have already furnished t h e m with

$50,000,000.00, which i s being pracually loaned.

The


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

157
is actually loaning money t o the
cattle people.
E x c u s e m e just a

Governor Morss.

moment.

[ I f you

mean o u t i n Chicago, t h a t scheme there i s a private enter-=
prise,

a n enterprise

o f t h e banks themselves,

a n d i t has

nothing t o d o with t h e Goyernment a n d nothing t o d o with
any law.

T h e activitiés

o f t h e W a r Finence Corporation e r e

governed quite strictly b y its laws e n d regulations,
*

am trying t o find o u t i f i t i s
on
pretends,

matter. I

t h a t is,/which pasis

w e

a p p r o a c h

feel i t makes s o m e Ciitere

i

f w e know just

what t h e t h e o r y i s .

The Chairman.

T h e i r theory i s thet t h e y have g o t t h e

and they a r e willing t o loan them for t w o o r three
to the cattle industry, t h a t t h e y are organized t o
and are alreacy malting loans.
Governor Morss.

B u t have t h e y a great many g u a r a n
them

tees? T h a t has been the trouble with/all the time. T h e
a s they
loans have a l l been guaranteed b y a s many people
needed, member banks a n d anybody else.

The Chairman.

M r Weyer h a s stated tha

nance C o r p o r a t i o n d i d n o t i n t e n d t o l o s e a n y m o n e y ;


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

was p r e p a r e d

plein

proper r i s k . a

to t a k e a

anglish, t h a t

d n u oloans
r

means

with. a s

ably, b u t e r e n o t

going

feoing

thet they

to surround.

r

e

a s t h e y c a n reeson-

t h e n with

s o many that

P

L

S Chess: S o m ic

Reserve Sent: i n Chicago?

Governor

McDougal.

Governor

Young.

They

g

t e hthe
t
BuVeeton.

u

a n y business.

Gan t o S s y

iGo@cenved “by t h e

s

many s a f c g u e r d s

to b e e p l e t o

Governor

a t e d in

o f u r t h e r t h e n that.
COraOretion:

They c o n o t r e q u i r e

1 S Porno t o

that t h e c a t t l e l o a n s

to: thems

T f am

o r

A l s - they -reavire

+to= t h e m t h a t s . 20en o f s 0

for agricultural o r livestocl:

require-

then y o u ‘can offer t h e m township

warrants

much w e s m a d e

MSNCS

n C

T h e y will

t a e

most

o r

a n y paper that

iar F i n e n c e C o r p o r a t i o n
ne t o function,

means b u s i n e s s

These c o m n i t t e e c s

in a l l t h e l a r g e cities, t h e s e bankers,

thei r t i m e
are

men w h o a r e

icultural s e c t i o n s .

and I

committee

i n Mi


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

olis, a n d Mr. Jaffrey i s o n it, a n d Mr. M
Mitchell, a n c they a r e operating. I

d o not think i t i s

necessary f o r t h e Federal Keserve Banks t o sencd a n y circulers o u t a t all, because t h a t committee o u t there h a s réceived r e q u e s t s f r o m 1 5 0 0 beniss f o r applications.

N o w , they

telk about r e d tape, b u t i f you will look over these tia
Finance a p p l i c a t i o n s ,

w i t h a l l i t s cifferent f o r m s a n d every-

thing, when you get through with i t it isn't anything more
then t h e F e d e r a l R e s e r v e S a n k asi:s, e x c e p t t h a t t h e y a s k f o r

4% ail a t once.
The Chairman.

communicutions. I

Y o u s a y i t i s not necessary

t o send o u t

do not think i t i s necessary, b u t I thint:

it i s a Gesireble thing.
n say very frankly t o you that i f 1

a

Governor Young.

have w r i t t e n o n e l e t t e r I

have w r i t t e n t w o h u n c r e d

t o some o f

our b a n k s t h a t a r e t i e d u p t o u s o n t h i s c a t t l e p a p e r t h a t

€

cannot v e paid a t t h e pres
that they seek some

i

n

c

é anc suggested t o them

e through t h e w a r Finance

Corporation.

The Chairman.
these meetings a n d
times.

i k H a ‘

e

v

e b e e n attending

f i n g t o these people

D o y o u s e e t h e value n o w o f t h e Federal ft


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

140
Bans

i n those sections o f t h e country tealting a n affirthe member banks t o get
d t h e w a nr Financei Corporation,
h

incustry?

I a m not cevisin

t i s t o malice
n
t they are

a

n

to
e h e l p t hye cattlic

c means, b u t what I

e for t h e Fwe d e r a l Kegs
sserve Banks,

e eé l p i n t h i s hsituetion.

not tellked w ivt h t h e s e S e n a t o
e here tomorror
ars w h o will b h

e

morning t o 4 i‘iscuss

Situation t o
Sister

this suggestion because I

meh eL t w i lvl n e t o
enly b e
i

s

of i nlt r i n s i ce h e l p bi n t h e

the cattle incustry, b u t I think:it will b e

G n tai

s o m e a f f i r m a t i v e a c t i o n anc. t h a t t h e s e

mén w i l l a p p r e c i a t e a n c w i l l i n c i c a t e a
ne
t

g

i

,

t that

m

P|

o n the part

Gangerous situetion i n that important incustry.

nothing m o r e t h e n a n c x p
e but
c ut ot t hi e te xtt e an t

is oau r a t t i t u d e
h
r #ellborn.
o
n

,

desire

serve tystem t o help o u t i n a cifficulty, w h i c h y o u

call a

h

It m a y b e

T E S S

sion o f o u r h e l p f u l

hat i t i s m o w n a n c understood

i t will b
t e helpful.
I appreciate
r
e
y ovu r position,
o
G Mr.

en n ca I m a mr iin fa u l hl a cC core w i t h you. I

e Gaily operation o
h f the w a r
y

t You g e n t l e m e n

o f Atlanta.
t

‘financetCorporation i n m y

T h e y have g o t a
i

c

have s e e n \

cass

committee,

they a r e f u n c t -

ioning, a n d they are assisting t h e agricultural industry


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

141

very m a t e r i a l l y .

21 letters

heve w r i t t e n

L i k e Go,ernor Young, I

T h e y have written t o

t o o u r m e m b e r banks.

my advice about it, a n d I thin! w e ought t o
give t h e m s o m e e s s u r a n c e t h a t w e thiniz t h a t t h e y o u g h t t o

go into this. I

think

Keserve S y s t e m t h a n i t

i t is more t h e cuty o f the Federal
i s the d u t y o f t h e w a r F i n a n c e

_Corporation.
I n the Sleventh District w e a

Governor V a n Zandt.

sen¢ing o u t speakers t o the different sections, writing
letters, a n d a r e encoureging t h e m i n every w a y t o cooperate
with t h e “ e r Finance Corporation i n the making o f
cattle loans.

T h e y have taken a n active part i n

organization o f cattle l o a n compenies,
t
under t h e suggestion o f Mr. i i e r e r o

t o b e organized

% e t h e original

are
loans anc. t o follow t h e m u p anc t o see that t h e y
teen c a r e of. T h e s e cattle

their loans until

a

r

p

a

n

i

c

s

¢ o n o t maize

s sure thet t h e v a r Finance Cor-

poration w i l l t a k e

Finance
(Mr. ilever Managing Director o f the w a r
Corporation, e n t e r e d t h e c o n f e r e n c e r o o m ) .

The Chairman.

‘ T h e situetion i n regard t o the cattle

industry i n t h e c o u n t r y s¢cems t

t h i s .

W e a l l uncer-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

142
stand t h e difficulty i t i s in. T h e r e a r e t w o special

avenues o f relief now, one the 350,000,000.00 cattle loan
fund i n Chicago a n d t h e other t h e ‘iar Finence Corporation
The Federal Reserve Banks c a n d o nothing dircctly t o extend a n y relief t o the cattle grovers.

T h e only means

by which they c a n extend a n y relief i s possibly b y s t i m lating t h e member banks t o assist, a n d i t i s always a
question a s t o t h e e x t e n t o f s t i m u l a t i o n t h a t i t i s w i s e f o r

the Federal Reserve Banks t o attempt through i t s members.
we h a v e n o p o w e r a n d n o d e s i r e

t o tell o u r member banks

what loans they shall meoke, nor can v e restrain them from
meking a n y loans thet t h e y want t o make.

O n the other hand

I think w e are all agreed hore that i t is desirable that
the Federal Reserve Banks should,

i f possible, t a l e some

affirmative position looking t o thet, o n d if they do, the
result o f a n y effort they m a y make,

s o far a s w e c a n see,

should b e directed towards y o u a n d t h e ‘var Finance Corpopation; t h a t i s t o say, i f w e a r e t o undertake t o approach t h e member banks i n any w a y t o deal with t h e cattle
industry i n the respective communities,
in t h e e x p e c t a t i o n t h a t i t w i l l r e s u l t

w e must d o s o
i n replies

t o in-~

quiries t h a t w e might make, b e i n g referred t o your organi -


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

that.
Yo y o u c o n -

templat: s e n c i n g o u t
The Chairmen. w e l l ,

i f w e Go a n y t h i n g o f that sort.

we have n o t “ecided whethsr i t would b e wise t o c o so; i n
fact, w e have n o t h a c time t o @iscuss
Mr. Mever.
pusiness.

i t yet very fully.

T h e members m a y stimulate t h e m t o c o n o

I t is, I think, a

fect thet member b

calling c a t t l e l o a n s anc. livestoc’: loans.
Me

Chairman,

Y e

I thin’: there i s @ good ceal o f impe~
tus s t i l l c f f e c t i v e f r o m t h e c o n t r e c t i o n p s y c h o l o g y o f

collecting e n c recucing.

“ h e n y o u start a wave o f con=

traction--I d o not meen when y o u start it, I

mean when

wave o f c o n t r e c t i o n s t a r t s - - i t c o e s n o t e l w a y s

goon a s i t might b e considered 2
stop.

I n accition

good thing t o have i t

t h a t , y o u a r e perfectly familiar

with the psychology o f the decline i n prices and ce-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

creasing confidence,

t h a t i s , p e o p l e l a c k i n g confidence.

They h a d t o o m u c h c o n f i d e n c e d u r i n g h i g h p r i c e s

i n the

cattle industry a n d they haven't g o t enough confidence i n

low prices. " G i v e u s our money" i s the attitude o f a good
bankers.

T h e y want t o clean up. T h e y have
time a n d t h e y c i c n o t i n t e n a t h a t

they shoulc b e ecarricé

h

e

r

e is 6

little bit o f

fear i n the situetion; i t i s ea state o f mind. I
think there i s anything emanatingfrom t h e

Go not

R e s e r v e

Boerd t o keep thet going, b u t o n the contrary i t seems
to m e t h e t t h e r e h a s b e e n n o i m p e t u s f r o m W a s h i n g t o n a n d I

do not know o f a n y from t h e banks.

T h e cifficultywhich

the s i t u a t i o n a n d w h i c h e v e r y R e s e r v e
in almost e l l t h e d i s -

tricts,

i s the fact that i n a period o f ceclining prices

and enforced economy a n d debt paying, b a n k depos
cline a n d ligquicetion i s f o r c e d u p o n m a n y b a n k s t h a t

have over-borroved, possibly bani:s which hac not over~
borrowed a t the time o f the crisis, b u t are over-borrowed
because their deposits a r e declining, a n d lots o f the

member banks are borrowing from a hundre¢c t o five hundred-and i n one case reported h e r e yesterday a thousand. times


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

145
their reserve d ee
o
pp o s i t ,

n o t because t h e y celiberately

borrowee t h a t much, b u t because their deposits have f l o w
ana liquiGation h a s been forced upon then.
Of c o u r s e t h a t i s o n e o f t h e i m p o r t a n t
and t h o s e b a n k s

o f c o u r s e neéed assistance.

Jeyer, Yes, anc.
encoureging t h e m t o come
to r e w r i t e

t h e loans

a n c take e

shrinkage w e cennot take
Pal
Cc.

he - e s t e r n S t e t e s - - I
company--ceame

o

m

p

e

n

y

c o not vant t o icentify

t o u s a n d asked u s t o take o v e r their entire

bills payable o f sbout »~600,000.00.
corporation

c

in a

limitec area.

T h e y a r e a financing

T h e committee recommended

ané the paper i s recommended b y the committee.
Wie n a t u r a l l y t o l c t h e m t h a t i t w a s a n e x t r a o r c i n a r y a n d un-

usual thing t o a s k u s t o talc over t h e entire bills payaOLE

o f

a cattle financing institution.

discounted

now

in a

number

o f bans

i n the State

i n which

his finance company i s engaged i n operation, a n d i n two
or t h r e e o t h e r S t a t e s . I

gency a b o u t l i q u i d a t i o n

doubt whether

t h e r7oe1

i

s

any ure

o n t h e p a r t o f some o f those b


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

146
nevertheless t h e y G i d offer u s t h e entire bills payable
Our r e p l y w e s t h a t w e w o u l d t a k e a l l t h e b i l l s p a y a b l e

through t h e banks t h a t n o w held them, o r w e would take a
first mortgage o n the outfit f o r two-thirds o f the bills
payable a n d l e t t h e baniss t h e t h e l d t h i s p a p e r n o w t a l e

a second mortgage o n all the assots, including t h e bills
payable a n c t h e c a p i t e l assets,

a n d that w e would i n turn

rediscount f o r those baniss, which a r e mostly member banks,
the basis o f their seconc mortgage. 3
Cheirman.

“ever.
uv

F o r h o w long a time d o they want t h a
e

T h e y G i d n o t w a n t it. T h e a t was o u r propo-

Chairman.

H o w long would t h e loan run?

lleyer.e w e coulé give i t t o them for a year, w i t h
en option f o r another year a n c still a

third year.

time element i s entirely i n their favor. I

The

think there

were some fifty loans made b y this Finance Corporation t o
the stock growers i n that country, a n c their capital i s
invested

i n r e a l e s t a t e a n c b a n k stock, w h i c h r e p r e s e n t s
capital.

It w a s n o t really a

h a t i s p r o b a b l y h o w i t w a s formed.
f o r m e d l o a n company i n the
properly
pro} v


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

place a n d y c t e v e r y b o c y c o n n e c t e d w i t h t h e b u s i n e s s

is supposec t o b e all right, t h a t is, I
to b e very good.

mean t h e moral

T h a t i s gust a

of w h e t w e a r e u p eaceinst.
tistricts

t h e banks r e r c a r d u s a s s i m p l y a

source t o ;

Gumping r e -

c o f everything t h e t they want t o get

i

rid o f w i t h o u t a n y s t e n d i n g b y
penis. I

I n some

thint: w e m a d e a

t h e situation b y ths

f a i r proposition.

were loacec u p with 600,000.00, w h e r e t h e
not p e r h a p s e n t i r e l y setisfactory.

them 7 5 por cent., without resource t o the b a n s ,
asked t h e m t o stand o n 2 5 per cent. suborcinatec
reciscount t h e 2 5 vor cent. i f

s y wanted it,

banks l e t i t go.
The Chairmen.

T h a t a l l depends o n whsther t h e y just

wantee e r e c i t o r w h e t h e r t h e y w a n t e c
pad asset.

Mr. Myer.

w e askec t h e m t o indorse 2 5 p e

we w o u l d r e l i e v e t h e m entirely, w i t h o u t r e c o u r s e
per cent.

i d o n o t think i t i s e

was a n unusual t h i n g t o a s k u s t o t a k e

bills payable.

I f they have confi: ence


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

148
they should b e willing t o stay i n for 2 5 per cent.
the othscr h a n d w e o f f e r e d t o s i v e t h e m a
with t h e o p t i o n o f a n o t h e r y e e r a n c a
they h a v e n ' t a n y c o n f i c e n c e

i n t h o paper,

year'
uv o

bad

this
w h y should w e

fake i t .
o unculy

t

The C h a i r n
shorten t h e
Mr. iaver.

a . w a n t e c t o s a y a b o u t thet.

h e j

The C h e i r m a n ( c o n t i n u i n g ) .

- - b u t I

t o get

wantec

at

one thing, f o r t h e benefit o f our future ciscussions here,
enc t h < t i s whether,

i n case t h e Circuler s h o u l e b e s e n t

to t h e m e m b e r bani:s i n regard

t o the cattle loans a n d t h e

cattle industry, w i t h regaré t o conditions i n the various
sections w h e r e t h e m e m b e r banits operete, w o u l c

Geemecd wise t o d o A

=

p eee

welcome c o m m u n i c a t i o n s f r o m :

i t be

w a r Finence Corporation

e s e r v e Banizs a n c f r o m

>
member banks incicating
where

the “ e r F i n a n c e C o r p o r a t i o n ?
other worés, f r o m y o u r stancpoint,
member banics j

Me. Byers. A

w

a

for us to ge

y s o a s t o stimulate them?

s a t G e a l woulc G e p e n d o n the form o f

that communication a n d a l s o the procedure follaved b y the


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

149

ad
Governors a n d t h e officers i n the fielc. I

would like

to telk thet over, a n d ifeyou a r e g o i
ler I woulc liize y o u t o let u s have a
you send it.

“ e regerc t h a t a s gooc coonere tion. I

wouled s a y off hene. that w e woule regarc. thrt a s a good
tning o

i f

done i n thse right wey e n ¢ carriec o u t i n the

{this

tas

s i n t e r

rathsr i m p o r t e n t point...
are v e r y r e l u c t a n t

ner, w h i c h really ought t o come t o
stay outsice o f the Feceral heserve system, f o r
Feceral Keserve Banirs
will u s e t h o s e l o a n s

i n recuct-

ion o f t h e b a s i c l i n e w h i c h t h e

with t h e Federal Reserve B a n s .
e

Gifferent sources.

y <c s i v e
i

thet, b u t they just s

s going h e p v e n .

The Chairman.

s u t the b e s j

a transaction

a s

Mr. Meyer. T h a t

h

e n y basis f o r

i n é h a s n o reletion t o

e impression that vrevails v e r y

generelly i n some o f the districts. Some Ollahome


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

150
bankere t
h
e other

d a y that came

t o u s o n t h e cotton:

site

‘
t
e e e t
uetion,
w h e ne w e saice t o ithem
"Why d o n t you come t o u s
with some o f your cattle loans-~I h a c also asked t h e m t o
orsenize a

loan c o r p o r a t i o n t h e r e - - t h e y r e p l i e c

s e cifi-

cally t o the question a s t o why they didn’t come t o us b y
saying thet i t wasn't a

bit o f use because i t would simply

automatically reduce their line with t h e Federal R

uys tem-Governor

N e lier.. P h e r e

Mr. Ueyer, I

M

O

P

.

O L T i m 321-48;

kmow there isn't, b u t that i s the w a y

they feel, a n c thet impression h a s g o t t o b e removed. I
there i s nothing i n it, b u t that i s the point.
you going t o malic t h e m uncerstanc. t h e t there i s
nothing i

O

f course t h e liability o f a bank with

he “ a r Finance Gorporation i s t h e s a m e thing a s a n y liability i n the general concition o f the institution.
Governor Hiller.

B u t t h e t h a s absolutely n o relation

to the basic line.
The Chairmen.

N o t e t all.

Mr. Myer. w e l l , y o u have t o finc a
information t o them.

way t o convey that

O n the othsr hand, w e could n o t s a y

that a liability t o the w a i n a n c e Corporation w a s n o t a


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

liability.
Governor M i l l e r .

t

L e

k s }

their l i n e

h

the
e banks--

o f reciscount.

2% Goes n o t e n t e r i n t o i t .
i

Governor Calkins.

to s a y i s p e r f e c t l y correct.

c Shab w h a t Myr.

i n t e n d s

T h e c o u n t r y benker argues

thet i f h e g e t s m o n s y f r o m t h e “ a r F i n a n c e C o r p o r a t i o n ,

i f

he i s alresdy over-extenced, t h a t t h e Federal heserve
Bank w i l l s a y t h a t h e o u g h t t o apply t h a t t o e

reduction

of h i s r e c i s c o u n t s w i t h it.
The Chairman.

B u t will

Governor Caltins. N o , they will not, but the benter
that t h e y w i l l a n c f e a r s t h a t t h e y will, a n c t h a t i s

Mr.ieyer.

z

Inere

) n e r a l impression t h a t t o the

extent t h e y borrow f r o m t h e w a r Finance Corporation their
be
line w i t h t h e F e d e r a l k e s e r v e S a n t i n t h e G i s t r i c t w i l l
automatically curtailed.

Governor Miller.

w e heve never s c e s t e d anything litre

Cb.

Mr.Meyer. I

know that, b u t I

a m telling y o u what t h e y

152
think. G o v e r n o r Celkins agrees w i t h me, a n d I think others
of y o u do.

N o w what y o u c a n d o t o alter thet state o f

mind i s a very important question.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairman.
relation

T h e r e a r e t w o provisions o f the l a w i n

t o indebtedness t h a t a

member b a n k m a y incur.

O n e

is Section 5202 o f the Revised Statute, w h i c h placcs a

lim-

it u p o n t h e l i a h i l i t i e s t h a t N a t i o n a l B a n k s m a y i n c u r t o

borrow money, b u t that limit specifically does n o t apply
to borrowings f r o m t h e Reserve Banks.
Mr. Meyer.

A n d n o t f r o m t h e “:nr Finance Corporation.

The Cheirmen.
Mr. Meyer.

N o t from t h e W a r Finence Corporetion.

T h a t i s b y l e g i s l e t i o n r e c e n t l y cnacted.

Goyernor Galkins. A

great many o f the bankers d o not

uncerstand that.
Mr. Meyer.

T h e y c o not, e n d t h a t i s o n e o f t h e p r o b l e m s

in t h e situation.

T h a t i s u p t o you, b e c a u s e I

cannot

speak f o r the Federal Reserve System.
The Cheirman.

T h e r e i s a subject that this discussion

brings u p where, i f we d o decide t o communicate with the
member banks,

i t c a n b e pointed o u t t o them i n plain lan-

guage j u s t what t h e provisions o f the statute a r e i n re~


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

gard t o the limitations o f borrowing.
Mr. Meyer.

U n d e r t h e provisions o f the statute t h e y
te

have t h e right t o borrow without limit f r o m t h e Federal
Reserve system legally; b u t the trouble w i t h these banks
is not the legal right t o borrow, b u t their misunderstanding
of their line w i t h the Federal Reserve B a n k i n the district.
Is that right, Governor Calkins?
Governor Calkins.

I t i s right i f you mean t o s a y

that t h a t i s what t h e y think.

Mre Meyer. Y e s , that i s all I mean t o say.
Governor Calkins.
Mr. Meyer.

B u t i t i s net true.

B u t they think i t is, a n d that h a s every~

thing t o d o with their action a n d inaction.

The Chairman. T h e y have been taught t o think s o by a
lot o f irresponsible a g i t a t o r s w h o a t e p i n n i n g

o n t o the

Federal Reserve S y s t e m the responsibility f o r policies
adopted b y member banks.
Mr. Meyer. I

think i t i s just ignorance, Q u s t fear

and syspficion--

The Chairman.
Me. Meyer.

I t i s not ignorance.

I t i s partly so~-{

The Chairman.

I t is not ignorance when i t is based


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

5A

on statoments m a c e

=

by

a

rr esponsible p e o p l e w h o

1 O G . O F

press,

in
% t h e i r s t a t e msmménts
ent

went t o

the a g r i c u l t u r a l p r e s
Governor

O f

ei Loorn.

in

gs

hor t i a l l y

country. =

the

by gooa

£ 6 4

forme. a

pes t h e y h a

sp

big liability

E C o r p o r a t i o n a n c continue
Hear Finence

inelemer a

Fo. b o r r o w a

Tull t i n e

easine t h e i r l i a b i l i t y

Yrom the bant, t hhey
e are

rons t h e i r c r e d i t

no c o u b t a b o u t

“erer,They g o furtl 1er then thet, Governor. I
ié@een t o t h e m t h e t i f

can-=

they

e Corporation i n an unlimited é e
2Fires t e as Seals:

eonsic.cred 4

Governor S e a y T h e r e
Mr u e rer
because
to

FPector=o

n u k

ou h e

You c a n n o t t e l l t h e m

to c o n v e y

it i s S86, b u t t h e t h o u g h t t h a

them i s that there i s not
and

eth:

a

n

matnematicel G e c u c t i o n mace,
Wer F T nent

's n o r m a l

total fig-

line

Governor Seay.

d

propor-

o n borrowings

Corporation, a g a i n s t

oF crecit.

B u t i t suits m a n y o f the banks t o

a
o
) enother p o i n t t o
that interpretation u p o n it. T h e r e i B

put


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

155
be considered.

N e i t h e r t h e Var Finanee Corporation

Act nor a n y other s c t exempts a

benlt from Section 5202.

If they are loaning t o one borrowsr a s much a s they a r o
permitted t o loan, t h e y cannot l o a n h i m a n y more, whether
they g e t i t from the W a r Finence Corporation o r some o n e
else.
Governor ‘Yellborn.
this circular,

H o w would i t @o, i n getting o u t

t o state t h a t a n y loan sccured f r o m t h e W a r Fi-

nance C o r p o r a t i o n w i l l n o t b e c o u n t e d a g a i n s t t h e i r d i s c o u n t

line?
Mr. Meyer.

A n y t h i n g t h a t y o u c a n s a y i n that respect

I think will b e helpful. I

do not imow h o w f a r y o u could

go without creating misunderstencing.
Governor Galkins. I
War F i n a n c e C o r p o r a t i o n

would like t o ask Mr. Meyer i f the
i s prepared

t o make loans

t o the

cattle e n d s h e e p g r o w e r s w i t h o u t b e n k indorsement.

Mr. Meyer.

W e cannot d o it, except through livestock

loan companies.

Governor Calkins.

A n d y o u a r e proceeding t o organize

livestock companies.

Mr. Meyer. ‘Ye are stimulating the organization o f them.
We d o not organize them.

J I think i t will b e intercsting


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

156
for y o u t o I m o w t t :

t h s e l o a n companies w h i c h w e a r e

stimulating a r e not exclusively livestock companies i n

most cases.
emount

h e ya

i n t e n c e d t o tale u p the excess loans,

i n excess c

p e r . Cant.

Netional bantz a u s

6 1 t h e Caprvel s t o c k

h e e 2 l e a n s w i t h o r without

sement o r other

s t e

L L guara ;

through

the l o a n c o m p e n y t o t h e

have mace a

good ceal o f

scetive i n Hontene.

e l e p h o n e c some o f

enc. t h e y seaic that they would borrow
72200 ,000.00

t o h e l p o u t ji:ontana, s t e r t i n g w i t h t h a t i n

é lump sum.

I n srizona t h e y a r e forming some loan comDay b e f o r e y e s t e r c a y t h e y

hec a

meeting i n which ~f00,C00.00 v a s subscribed a n d

22090,000.00 vaic. in.

2 % Fort ‘orth they formed a

company

n the leth a n c received subscrintions t h e t c a y amounting
to ~950,000.00.
sulphur compenies
:

J I astzed t h e railrosc companies, t h e
e n d t h e o4i l c o m p a n i e s

t o4 i n t e r e s t t h e m -

~ banking situetion i n the
State o f Texas.

T h e people f r o m Houston came i n the c a y

before yesterday a n c agreed t o put u p »500,000.00 f o r a
loan company. A

loan company h e s becn formec e t L,beral,

In Salina, sansas, t h e y are putting u p


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

2000, 000.00. N e b r e s i z a i s worlring

t h e proposition,

& company vith .,c00,000.00.
Mr. E y e r ,

w e heve

Chairman.

Might b o ccsireble
ommunica
member b a n k s e b o u t t h e c a t t l e iantere 3
form 1 6 = i ii take.

t h e R e s e sWeneck et!

T

Go not ‘mow what

s e n c e circulars

to t h e i r m e m b e

axplanetion with regarc. t o the cuplicetion o f
Resorve B a n k a n d t h e . a r Finence Vor-

liability: with e
poration.

v o y o u s e e a n y possibibity o f e n y constructive

good c o m i n g

o u t Suasuch.

Mr. Mever,. I

a n a t t i tuce: o y v i e n o s e r v e

co, especia n
Keserve

thet point o f

a n .

point,
they a r e preteen
If y o u g e t 2

c i

a

r w e wi >

very glec

working togethe

c o o p e rate

n a you ere


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

158
going t o r e f e r

t o t h e tiar Finance C o r p o r a t i o n , I

think

it woulé b e e good thing f o r u s t o see t h e circular.
The Chairman.

t p o s aeb l e fHo r t h}e
tricts--there a

hairman.

T o prepare a uniform circular,

a uniform circular, a

circul

ples, m a c e
it reacybefore

we

Mr. Meyer. Thet would b e a very good thing. I

not b e here, but Mr. McLean could g o over it.
leave i t until bLondcea

j

a

y

will

I f you will

, ir. Cooksey, H r . L e v i s

we are making a

weel-end t r i p

little slowly.
I a m thinking o f send ~
ing telegrams t o the a c s o f the state banking associations, p o i n t i n g o u t o u r vnowers anc. resources e n c p o i n t i n g
out t h a t w e h a v e a

bunch o f committees,

a n d calling o n thom

to study the agricultural needs o f their States, w i t h a

view o f getting the cooperation o f the banks o f the State


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

159
as a

whole

i n o r d c r t o mate o u r f u n c s a v a i l a b l e

a s promptly

as c a n be, because w e have unlimitec resources f o r the
purposes

w e have i n v i c .

Governor Ceallrins. I

would lilze t o a s k e

perhaps impertinent.

or l e s s p o i 3 6 : &

question m o r e

I s i t your v i e w

singling o u t t h e l i v e s t o c k i n c u s t r y - - a n d I
ine a b o u t a n y o t h e r - - i s

a m not talk-

i t your v i e w t h a t y o u r corporation

peas]

5

can b e most helpful i n meking loans based o n livestock w i t h
other t h e n ban’: incorsement;
nity t o b e h e l p f u l

i s n ' t t h a t i t s best opportu~

t o t h e s e livestocl: l o a n c o m p e n i c s a n d

corporations t h a t y o u a r e stimulating t h e orgenizas

Mr. lieyer. Yes, b u t I think t h e benizs ought t o stand
reasonably b e h i n d i t . I

do not think w e want t o s a y t o

it c a n g e t r i c o f all i t s l i v e s t o c k b u s i n e s s
pass i t on.

Governor Galkins.

[ I Go not Imow whether y o u imnow this

or not, b u t this i s a common situation w i t h small panks i n
sheep~growing sections: t h e bank i s i n a position t o
either d o one o f t w o things, t h e t is, close o u t the sheep
grower a l t o g e t h e r a n c t a x e i t s l o s s o r c a r r y h i m f o r h i s
current operations, p r o v i d e d h e c e n g e t s o m e t h i n g o u t -


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

side o f the bank, f r o m some other source, w i t h which t o
carry o n .

d o both, n o t o n l y o n account

I t cannot

o f the

loan limitation, b u t because i t i s already overloaned-=

Mr. Leyer. I

think the banks ought t o be encouraged

to c o m e t o t h s “ a r F i n e n c e C o r p o r a t i o n w i t h t h e i r r e d i s counts

o f livestock loans f o r t

present,

a n a then per-

haps a s new orgenizations c o m e into existence y o u will fine
that t h e y will automaticelly begin t o flow out.
for a

T I look

restoration o f t h e c a t t l e l o a n p a p e r m a r k e t
é

on -Obner p a p e r c e c l i n e a n c

a s rates

¢ loan p a p e r b e c o m e s a t t r a c t ~

ive o n account o f t h e rate.

Governor Callins.

T h e r e i s one great obstacle, and.

Mr, lieyer interrupting).
7 more.
stry, I

B u t T-do n o t thine pricss a r o

A s soon a s w e g e t enough money

a m conficent t h a t y o u e r e g o i n g t o

sec a restabilization o f prices a t a somewhat higher level,
r 36.50 w i l l n o t b e obdtainwhen b r e c c i n g e w e s a t 5 7 . 0 0 o

able.
Governor Calkins.

T h e y e r e n o t now.

Governor Norris. Before y o u go, Hr.iieyer, I would
like t o submit this suggestion i n your hearing.

J u s t as

161
the w e r F i n a n c e C o r p o r a t i o n c a n n o t u n d e r t a k e

t o speak

for t h e Reserve Banks o r their member banks,

i t seems

to m e e a little b i t i n a p p r o p r i a t e v e r h a p s f o r u s t o a d dress o u r m e m b e r b a n i s t h e k i n d o f l e t t e r o r s t a t e m e n t
mat t h e w a r F h e n c e C o r p o r a t i o n m i g h t v e r y p r o p e r l y a d Gress.

N o w wouldn't

i t be a

solution o f t h e s i t u a t i o n f o r

the wer P i n a n c e Corporation t o e cddress t o u s a léttér o r
statement requesting u s t o transmit t h a t through o u r meme
ber banits, which w e could t h e n d o i n a letter, s a y i n g
thet w e were v e r y glad t o transmit t h e statement a n d putting i n s u c h e x p l a n a t i o n

e s local conditions w o u l d require

as t o the effect o f their availing themselves o f the privileges o f the war. Finence Corporation would have o n their
relations w i t h us.
The Chairman.

L e t u s take u p that discussion w h e n

we come t o the question o f formulsting t h e letter.
Mr. W e y e r . I f y o u w a n t t o f o r m u l a t e

i t i n two letters

it would b e all right, a s long es.we agree o n the form
of t h e letter.
Governor Norris.

I t seems t o m é i t would b e more prope

for y o u t o state your case a n d have u s transmit i t and
our c o m m e n t


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

o n it.

162
Mr. lieyer, T h e i m p o r t a n t t h i n g i s t o c o n v e y t h e i c e s

first that t h e b i g banks a r e n o t forcing liquidation o f
cattle loans; seconc, t h s t borroving f r o m u s Coes n o t au.
tometically reduce t h e line w i t h t h e Federal heserve system.
think y f w e w r o t e t h e o r i g i n a l

Governor Norris. I

letter i t would b e very a p t t o convey t h e impression t h a t w e
were trying t o shift t h e burcen f r o m our shoulders o n t o


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

yours.

Mr. Neyer. That woule b e Gangerous.
Governor Calkins.

T h e r e i s another question

i n which I

that w e have n o t touched o n a t
anc. thet i s w i

r

é t o furnishing h i m with m e n that

a n c orgenization.
Ss
he wants f o r his personnel
Fy
The Chairman.

a p e w e not t o get a list o f his re-

quirements before discussing them?
Mr. Meyer. T h e o n e m a n that v e want quickly - - I have
a list, b u t I forgot t o bring i t over e n c will s e n d i t overee
is a . m a n o f e x e c u t i v e a n d a d m i n i s t r a t i v e e x p e r i e n c e ,

with

ability t o practically r u n the ecministrative e n c o f our
worls under Mr. Ontjes, w h o will teke t h e loans w h e n they
are passed over f r o m t h e Board o f Directors, w h i c h con=
stitutes

t h e executive end. a

n v e t e k e n rooms

i n the


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Southern Building, because w e need a
we coulé n o t g e t i n the Treesury.

lot o f space that

v e have ample r o o m

man who has experience, w h o will n o t

there, a n d w e want a

have t o lsern t h e routine banking Dusiness, t
orgenization under Mr. Ontjes, w h o will b e t h e h e a d
the whole ectivity, b u t w h o will spenc most o f his time a t
our mestings t a k i n ;

b u s i n e s s w h i c h w e pass over f r o m

the executive t o t h
know h o w t o c a r r y o u t i n s t r u c t i o n s a n d h o w t o c o m m u n i c a t e

with the Feceral Keserve Fiscal xgents *
generally.

W e want e

supervise things

man o f that type

Governor Hiller. I

wouldc like t o

new loan companies b e i n g formeé would take t h e loans f r o m
bank without indcorsement.
Mr. Heyer.

N o ; t h e y would take t h e excess ioans i n

eme w a y t h a t t h e c o r r e s p o n d e n t bani:is h a v e c a r r i e c t h e m

vefore.
The Cheirman.
Meyer

“ e ere very much obligec t o you, Hr.

W e will thresh this o u t a n d let y o u imow.
ur. e y e r .

V e r y veli. I

thankz you.

(Mr. L e y e r t h e r e u p o n r e t i r e d

The Chairman. I

f r o m t h e Conference room).

woulé lite t o €ispose o f this cattle


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

164

matter b y doing this, w h i c h I thint will save time: I
if w e a s k t h e o f f i c e r s

o f t h e Reserve Banks,

think

t h e s i x banks

that a r e interested i n the cattle situation,

t o cismss

the matter a n d formulate, n o t necessarily a

letter now,

but formulate a

proposal f o r a letter, g o i n g over t h e pro-

posec legislation o f which copies a r e i n front o f you,

and which i s very conficential, w e can put i t o n the calencer f o r C i s c u s s i o n t o m o r r o w i m m e d i a t e l y a f t e r w e m e e t w i t h
Senator h e n d r i c k :

a n d h i s associates.

T h a t means that

possibly a t noon today o r after adjournment tonight those
six men will b e called upon t o s i t Gown a n c consider t h e
matter.
Governor Calkins. I

think y o u r purpose

the F e d e r a l R e s e r v e B a n k s s h o w a
every w a y possible,

The Chairman.

willingness

i s t o have
t o assist

in

a n d t h a t t h a t i s y o u r w h o l e purpose.

T h a t i s m y purpose, yes.

so, G o v e r n o r Norris, I

I f I may s o y

d o n o t think t h e purpose w o u l d b e

served b y o u r s i m p l y t r a n s m i t t i n g a

communication f r o m

the W a r F i n a n c e Corporation.

Governor Biggs. I

would like t o s a y that i t i s not

our member banks i n the cattle section, because w e have
ie

Ce.Sivtchodhiawttettcere interested. T h i s matter


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

is being very well handled i n our State.
The Chairman. I

venture t h e prophecy that i f this

situation wortts o u t through t h e agency o f the W a r Finance
Corporation,

o r s o m e o t h e r a g e n c y c r e a t e d b y e n a c t roy

Gongress, a n d t h e Federal keserve Banks, w h o have a

respon-

bility i n these districts, s i t b y anc G o nothing a n c take
no a f f i r m a t i v e a c t i o n ,
this

t h e reaction f r o m

“ L o o k a t t h e t crowd; t h e y h a v e e l l t h e m o n e y i n t h e

worle a n d t h e y d o n ' t c o a

darnecé t h i n g ; t h e y d o n ' t r a i s e

e finger". T h a t i s the
Governor Norris. I

thin:

w e c e n accept Governor

Strong's opinion o n thet matter, because h e hes been
amongst these m e n s o much anc his jucgment i s certainly
gooc.

[ I think w e will b e very glac t o c o anything w e can.
Governor Calkins. I

e concrete case.

might support h i s judgment w i t h

‘ h e n t h e w e r Finance Corporation u n c e r

took t o assist the Northwest -heat Growers! :ssociation
we w e r e asizeG t o hancle t h e trensactions,

a n c upon inquiry

we found that a n y requirements l a i c b y us, i n passing o n
the paper, w o u l d a r o u s e t h e a n t a g o n i s m o f t h e Northwest
Wheat G r o w e r s !

Association,

a n c w e thought

i t wes necessery


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

toa

c h e

i n e n c e Corporation

On every cetail o f >

t o arrange e n d p a s s

transaction a n c leave nothing f o r u s

to d o b u t t o p u t t h e t r a n s a c t i o n through.

ports wret y o u say.

I

T h a t j u s t sup-~

f w e had founc a legal d e

the c o n t r a c t a n c p o i n t e d

i t out, t h e y w o u l d h a v e Said, “ Y e l l ,

the Mederal Reserve S a n k i s trying t o blocl t h e whole p
sition".

w e Cid n o t want t o b e put i n that position e n d

conseguently a s k e d t h e m t o p a s s o n it.
Governor Miller.

T h a t i s exactly o u r attitude

i n the

Lansas C i t y district.

Governor Young.

1

2

w h e t w e had t o cdo i n Minnee

mén i n W a s h i n g t o n g e t a l l t h e s e
stories.

T h e y a r e a l l sent o v e r h e r e b y their constituents

and t h e y a r e f l o o d e d w i t h then.
Governor Calkins.

W

e saic o n every

that w e w o u l d e x p e d i t e t h e t r a n s a c t i o n

coulc a n d assist i n every w a y possible.

i n every w a y w e

W e saic

the W a r F i n a n c e C o r p o r a t i o n a n d n o t t o t h e b e n k e r s

o r bor-

rowers, a n d w e told t h e m that w e wanted t h e m t o handle t h e
n

o
a s
f a ir

t
s
as
t hce d ea t a i l
s

wn é r e a c o nrc e r nt e d .a

If that program i s agreeable t o you, w e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

167
will Goal with i t i n that waj

h i n t :

w i l l s a v e-time.

we c a n n o w g o ahead with o u r regular prorrrm.

T

h

e

next question is w h e n woule y o u lite t o invite kr. Gilbert
to j o i n t h e m e e t i n g a n * c i s c u s s S u p p l e m e n t N o .

Governor hHcDougs
woulc b e r e a d

m

a
e

w Hr. Gilbert e n c

e r a t almost. s n y time.

we might call h i m u p
Te C h e i r m e n .

T h e first topic o n tie

hes n o t becn passec f o r consiceration latsr,
$0 ccal with it, 1 s
Crecit Transactions a n c Policies
(o) b l i g i b i l i t y c o m m i t t e c ,

(1) S c o p e . D e f i n i t i o n Gesirable, 2 s
variance

i n the iceas o f
to t h e f u n c t i o n s

o f

Goyornor Gal'-ins
or l a c k o f u n i f o r m i t y nov.

discrimineting between eligidi y
communications

ence. acceptebility.

Some

w e receive f r o m o t h e r benis s e c m t o apoly

to a c c e p t a b i l i t y r a t h e r t h a n

t o teeonical e l i g i b i l i t y ,

anc

I thint: t h e duties o f the cligibility committee should
be a

little m o r e c l e a r l y Gefined,

s o that w e coule have


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

uniformity e f action.
The Chairman,

I t was o u r understending

i n N e w Yori: a t

least, e n d w e have proceeded u p o n t h e theory, t h a t t h e subject o f eligibility i s naturally civiced i n t o t w o parts,

one technical eligibility, which ineluces all the requirements o f the l a w and regulations o f the law, a n c t h e
other eligibility i n the sense that paper becomes ineligible b y reason o f a poor statement, f o r instance.
Governor Calkins. I

thini a l l t h a t i s n e c e s s a r y

to

correct this situation, i f i t neecs correction, i s t o state
that a n d have i t understood.
Governor Miller.

D e s i r a b i l i t y insteac

Governor Calkins.

H a v e i t uncerstooc t h a t the cuty o f

the eligibility committee i s t o pass o n both t h e technical

eligibility and the eligibility from the point of view of
acceptability.

The Chairman.

i l l y o u offer s u c h a resolution?

Governor Caltrtins. I

offer a

resolution

t o the effect

that t h e eligibility committee i s t o vass o n both technical eligibility a n d the acceptability o f the paper,
Governor Miller.

i e have t w o o r three letters f r o m

the F e d e r a l R e s e r v e B o a r d t h a t e x p r e s s l y s t a t e t h a t i t i s


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

the function a n d prerogative o f the Federal Reserve Board
alone, usingthese words,

t o pess o n eligibility o f paper,

and f o r t h a t r e a s o n w e h a v e n e v e r a p p o i n t e d

committes. £

x

a n eligibility

W e wrote Governor Calkins t h a t w e

woulc n o t appoint s u c h a comnittee, b u t i f they would call
it the cesirability o r acceptability committee t h a t w e
would d o thet.
Governor Calkins.
finec b y the statute,

a s Ge-

i s t o formulate rules o f eligibility.

Governor Miller.

e Chairman.

T h e function o f the Boarc,

Yes.
el

S

a

l

E v 4e r y
h # edéral Reserve TBank: h a s g o t t o

cetermine w h e t h e r p a p e r s u b m i t t e d c o n f o r m s

Governor liiller.

t o t h o s e rules.

I t i s the function o f every Federal

serve B a n k t o p a s s u p o n t h e 5

a s t o whether

conform t o t h e r u l e s o f eligibility,

i t does

a n d y o u cannot escape

that responsivility.
Governor Miller.

w

e got a

very s e v e r e reprimanc.

hat certain classes o f paper were eligible--~I
am sorry; I

thought I

ters o n t h e s u b j e c t

hec brought t h e t with me, t w o let-

i n which Governor Harding stetes pos-

itively t n a t i t t h e s o l e p r e r o g a t i v e

o f t h e Federal K e -

serve B o a r d alone, t h a t t h e B o a r é a l o n e c a n


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

eligibility o f paper, b u t t h a t w e c a n c e t e r m i n e t h e d e s i r a -

bility o f it.
The Chairman.

Y o u are confusing t h e t w o sudjects,

Governor Miller.
Governor ‘iicllporn. W

. v e t o construe i t when i t

comes b e f o r e u s .
Governor Seay.

Perhaps

i t was a

class o f p a p e r t h a t h a d

never come before t h e Roard f o r ruling.
Governor i I

think not.

Governor Calkins.
ly careful

T h e Board, I

think, h a s been extreme-~

t o s a y i n every case t h a t t h e opinion o f the

Board a s t o eligibility o f paper d i d n o t c etermine t h e question o f whether i t would b e accepted b y the banks o r not.
Governor Miller.

T h e y stated that i n their letter.

Governor Wellborn.
lar piece o f paper.

T h e y could n o t rule o n a particu-

T h e y would n o t s e e t h e paper, a n c the

committee would have t o rule o n it.
The Chairman.

E v e r y Feceral Neserve B a n k h a s t o de-

termine w h e t h e r p a p e r i t discounts c o n f o r m s

t o the rules

of eligibility, e n d thet i s all the committee i s for.
Governor Calkins.
it s o f a r

as I

T h e motion I have made will cover

a m concerned.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

171
Goyernor Miller. I t i w W i l l c o v e r i t s o f a r a s I

a m cCon-

cernede

Governor Young. I

will second t h e motion.

(The motion, h a v i n g been duly seconded, w a s unanimously
carried).
The Chairman.

Sub-topic 2

is -

(2) U n i f o r m procedure o f eligibility committees o f the

Governor Fancher. I

The Cheirmen.

think t h e m o t i o n p r a c t i c a l l y c o v e r s

T h e n sub-topic 2

i s covereac b y G o v e r n o r

The n e x t t o p i c u n d e r c r e d i t t r a n s a c t i o n s

Acceptance

a n d policies

b y member b e n k s o f p a y m e n t

is

i n full o r

in p e r t o f n o t e s r e c i s c o u n t e d w i t h t h e F e d e r a l

Reserve Banks.
penks

I n view o f growing prectice a m o n g
c c e p t payments

i n c e r t a i n sectio3

customers!

notes which

v

e b e e n reciscounted

on
or

pleéged w i t h t h e F e d e r a l K e s e r v e Sank, s h o u l e

notices b e sent o u t b y Federal Reserve Banks t o

°e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Se
makers o f such notes t h e t payment should b e made
to t h e h o l d e r t h e r e o f

a s protection

t o t h e Reserve

Bank i n the instances o f failed bants.
Governor Calkins.

T h a t s u g g e s t i o n h a s b e e n m a d e a n d re=-

2

mace;

i t has b e e n G i s c u s s e c e a c h time.

it was opportune. I

w e d i d not feel t h a t

do not imow whether t h e rest o f you Gov-

ernors have h a d t h e same situation w e have, b u t I presume y o u
heve.

W e will take o n e instance.

on a c c e p t i n g p a y m e n t

o n account,

a n d i n some cases payment

in full, o f notes under rediscount w i t h t h e Federal Keserve
Bank, a n d instead o f remitting t h e proceeds t h e y have
5

charged i t t o t h a t a c c o u n t a n d p u t t h e p r o c e e d s

i n cashiers!

checks a n d held t h e m i n the note file awaiting maturity o f
the note.
ed.

I n one instance during t h e meantime «

bank

w e o f course have recourse o n the maker o f the note,

but i t has been suggestec, a n d I thinlk i t i s a good suggestion, t h a t i n d u e t i m e t h e m a k e r s
Federal-Reserve Banits s h o u l d

o f notes rediscounted w i t h

b e informed

that the

been redisountec a n d that t h e Federal hoserve
holéer

i n c u e course.

W

e have always postponed coing

that because w e thought i t would cause t o o much disturbance,
put i t i s a

very s e r i o u s question.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

173
Governor M e D o u g a l .

A r e y o u applying your suggestion

to p a p e r w h i c h i s h e l d o r m a y b e h e l d i n c o n n e c t i o n w i t h
failec b a n k s

o r a l l benks?

Governor Caltzins.

A l l bans.

I t would n o t c o any good

fter t h e bank hac failed.
Do y o u o f f e r a
the p o l i c y o f t h e R e s e r v e B a n s

motion t h a t i t s h o u l d b e

t o senc. notices

t o all makers

of notes?
Governor

s i n s

c e r t a i n l y w i l l n o t c o s o a t this

time, b u t I would like
however. I

woulda l i k e

h a v e ciscussion o f the matter,
i m o w something o f the experience

of the other banks, b u t I offer n o such motion a t this time.
would m a k e a

Governor Seay. I
consensus

o f opinion t h e t a

motion t h a t i t i s

communication

i n that respect

should b e sent a s a warning t o member baniss. I

think i t

is very proper t o call i t t o the attention o f member banks,
but I believe t h a t i s a s far a s w e should go. t
proper

t o send a

warning

t o o u r member banks

is quite

i n that par-

ticular.
Governor Calkins. P h a t coes n o t answer m y question.
Governor Seay.

I t does n o t fully, b u t I believe i t i s

as far e s w e shoulc go.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

174
Governor Calkins. I

agree w i t h you, b u t t o s h o w h o w

fer i t has gone, a'National b a n k examiner i n one section
of o u r d i s t r i c t c a m e i n t o t h e o f f i c e o n e d e y a n a s t a r t e d t o

tell m e the result o f a n examination h e had just been making
of small banks, a n d h e stated that i t was t h e general practice i n t h a t s e c t i o n o f t h e c o u n t r y a m o n g &
to a c c e p t v a y m e n t

o n account a n d payment

tify t h e Federal Reserve Bank. I

numbcr.

o f brhiss

i n full a n d n o t no-

pinned h i m cown o n the

question o f general practice a n d made h i m give m e a specific
instance, a n c h e backed u p a little o n that a n c said h e did

not mean i t was general practice, b u t h e did furnish m e with
about five instances i n which i t hac been done.

W e ran

Gown every case a n d i t was corrected; b u t i t i s a serious

Ganger that we have got t o deal with and what w e want t o
know i s h o w t o deal, w i t h it. I

send o u t notices a t this time. I

do not thint t h a t w e c a n

feel like Dr. Miller,

who says that t h e proper time t o d o anything disagreeable
is some other time.
The Chairman.

T h e n would your situation b e met b y

Governor Seay's proposal that this b e mace the subjeet o f
a circular t o member banks, calling their attention t o the
fact that i t i s a reprehensible a n d indefensible practice

anc thet t h e y should n o t indulge i n
it?
Governor Calirins.

sending a

circular

I can see a serious objection t o

of that kind, because nine-tenths o f
the

banks would s a y ‘ W e never @ i a

it, w e never d i2c3 anything o f

that sort, a n d w e d o not need

any such admonition’.

ft cannot b e the general practice,
Governor Calicins.

Governor Young.
LENCE

It i s not the general practice.
e have

hed
W

we h a v e h a d s o m e losses,

been coing f o r the

last s i x m o n t h s

Sometime

when «

i n acvance

t o wetch o u r

i s this.

have

w e usually l n o w

promptly p u t a

collateral, £

three b a n k s t h a t c l o s e d w e d i c n o t
The Chairman.

What I

banks i s i n trouble a n d w h e r e

this situation might exist, a n d w e
there

s r e a t

How w o u l d

caught i n thet way.

i t d o t o send a

©

mmnication

to t h e C o m p t r o l l e r

of the Currency, pointing this o u t
to

him ané asking h i m

tO sence. a

examiners a n d t h a t

where t h e y f i n d a

such p r a c t i c e - - a n d

circular

t o e l l National
bank i n c u l g i n g

Q

banlc

i n any

the examiner should b e especially
warned

to l o o k f o r i t - - t h a t t h e P e c e r a l h e s e r v e
Ban!- s h o u l c b e
“promptly n o t i f i e d ?


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor C a l k i n s . i

think that i s a very good sug-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

gestion.
Governor V a n Zandt. I

think t h e banker s h o u l d h a v e

his attention called b y the examiner t o the fact that there
is a criminal f e a t u r e

t o it.

Governor Young. I

will make t h a t a s a motion, M r . Chair

(The motion, having b e e n Guly seconded, w a s unanimously

cerried).
Governor McDougal.

T h e r e i s one matter relating t o

Subject that m a y b e o f interest t o some here.

I n two

thet I have clearly i n mind w e
ciscount b y banizs which failed.
advance

b y the maker

t o t h e b a n k o r a t least m r t l y paic,

enc i n both eases w e have proceeded a n d collected t h e
whole
amount

f r o m t h e maker,
The C h a i r m a n .

E

t i s admittec

t h a t the maker does n o t

Gischarge h i s responsibility.

Governor McDougal. I

a m stating that a s a matter o f

interest, a n d
The Chairman.

Shall

ecretary, t h e chairman,
Governor Young.

[ I

g

o r who?

E t h e secretary.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

#Esacd
The Chairman.
prepare a

M r . Secretary, y o u s r e instructed t o

communication

communicate

t h e result

i n accordance w i t h t h i s m o t i o n a n d
t o t h e t w e l v e GovVernors.

The next topic i s s u b Givision (e).
{(e) R e d i s c o u n t i n g non-negotiable notes.
should n o t measures b e acoptec f o r t h e protection o f Federal Reserve Banks against equities
which m a y exist between borrower a n c lender, w h e n
reciscounting notes supportedby chattel mortgages

Governor Calkins.
Practically a l l chattel mortgages Gestroy t h e negotiability
of the notes

T h e maker o f a chattel mortgage secured note

Ceposited i n a bank, a n d o n which that bank has securcd rediscount, h a s t h e right o f off-set.
The Chairman.

i h a t cdo y o u p r o p o s e

i n regarc

t o this

topyc, Governor Calkins?
Governor Calkins. I

think w e should make a n effort t o

procure uniform chattel mortgage procedure, a n d that i s
about a s far a s I think w e c a n go.
Governor seay. I
ferent S t a t e s .

think t h e l a w i s different i n the dif-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

178
GOvernor Calictins.
Instrument 4 A
OY

i

Not €

s b e e n passec,

Stetes where t h e Negotiable
a n d

6

The Chairmen. F o r t y ~ t h r e e o f the states, I
Governor Senay.

I

believe.

n some cases where

is given a chat
for t h e note.

The
without acequate conveyance o f the
security,

y o u e r e l i a b l e t o l o s e t h e s e c u r i t y o n t h e note,

and y o u c a n n o t . m a k e

a n effective t r e n s f e r o f t h e note.

Governor Calkins.

I f the note bears evidence t h a t i t

is secured b y a chattel o r other mortgage,
i t i s non-negotieble i n ell o f the forty-three States mentioned.
I
thet i s a n accurate s t a t e m e n t .

Y o u cannot make a

think

note s e ~

cured by a mortgage o n real estate a negotiable note unless
it i s mace without imowledge o f that fact. I

tried that

out i n c o u r t myself.

The Chairman,

n e question i s how t o get

It is the sort o f thing that ought t o be dealt
& carefully prepared circular, a
lawyer

circular prepa

t o a l l t h e m e m b e r banks, p o i n t i n g o u t t h e i n h e r e n t

L79
difficulty o f attempting t o negotiate a
unless a

non-negoticble n o t e

legel conveyance o f the security i s mace.

Governor Calkins.
this suggestion:

I n orcer t o snve time I will offer

W e have a n attorney o t home w h o m I think

is qualified certainly i n this kind o f practice, a n d I will
be glad t o get from h i m a n opinion t o b e transmittec t o the
twelve banks,

i f thet i s agrecablc, f o r further c o n s i d e r a

tion.

The Cheirman.

G o u l d y o u not g o a little further a n d

ask him t o prepare a

form circular which might b e considered

by each o f the Reserve Banks t o send t o their member banks,
because i n that w a y w e would have opportunity f o r uniformity, w h i c h i s exceedingly desirable i n a circular o f that
character.
Governor Calkins.

H e i s not s o strong o n writing

circulars, b u t h e will t r y it.
The Chairmen.

W e l l , s u p p o s e y o u prepare t h e circu-

lar a n d i c t h i m p r e p s r e t h e opinion.
will a p p o i n t G o v e r n o r C e l k i n s «

A t a n y rate, I

comnittce

o f o n c t o pre-

pare t h e n e c e s s a r y p n p e r s a n d c o m m u n i c a t i o n s

ject.

I f there i s n o opposition t o thet, i t vill b e con-

‘sidered t h e sense o f the necting.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

o n this sub-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The n e x t t o p i c i s

(f) S h o u l d t h e Federal Reserve B a n k discontinue
rediscounting f o r member banks notes o f nonmember banks secured b y Government obligations

That i s suggested b y the Federal Reserve Bank o f Atlanta
at l e a s t i t i s a

hold-over f r o m a

Governor wWellborn.

previous session.

I n view o f the fact that since this

wes suggested t o the meeting t h e Board has requested t h a t
we t a k e n o n - m e m b e r b a n k s p a p e r , I

the matter.

see n o necessity c f pushing

I t might just a s well b e dropped.

Governor Morss. I

do not s e e h o w i t could b e left i n

better shape t h a n i t i s now.
The Chairman. T h e n i t i s understood t h e t this topic
is withdrawn f r o m t h e program.
The next topic i s (g), which appears o n supplement 5 .

(g) Furnishing crecit information t o member banks.
That topic was suggested b y the New York Bank and I
would l i k e t o c a l l t h e a t t e n t i o n o f t h e m e s t i n g t o t h i s

fact, t h a t t h e member banks a r e calling upon u s i n inereasing volume f o r reports u p o n commercial paper a n d i t is
evident that other Reserve Banks a r e calling upon e a c h
other f o r such information i n creased volume, a n d that Fed-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

181
eral Reserve Banks a r e sending credit inquiries o f that
Character

t o member b a n k s

i n o t h e r districts.

recall t h i s m a t t e r w a s d i s c u s s e d

good deal.

at a

N o w you will

former c o n f e r e n c e a

T o show t h e importance o f the subject,

in

September o f this year w e had 415 reports t o make o n commercial paper;

i n January o f 1921 w e had 460, a n c a t that

rate w e will shortly b e sending o u t possibly a s many a s 5,000
reports a

year.

Governor Callins.

T h a t is, reports made t o other Feder-

al Reserve Banks?
me Chairmen.

Reserve Banks, w e get some f r o m t h e a r Finance Corporation,
but m o s t o f t h e m a r c f r o m o u r o w n m e m b e r baniss.
Governor Calkins.
The Chairman.

D o y o u furnish t h a t information?

T o s o m e o f them.

S o m e inquiries

of

that character a r e mace t o our member banks b y the credit
department o f other Federal Reserve Banks.
Governor Calirins.

D o y o u furnish information

t o your

member b a n k s ?
The Chairmen.

W e s i m p l y t r a n s m i t w h a t w e get, w i t h o u t

any conment.

Governor Calkins.

T h a t i s not furnishing information i n


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

the s e n s e t h a t I

mean.

The Chairman.

p

e Lice

r

e n a u i r i e s a n d transmit

just whet w e get.
Governor Morss.

D o y o u make i t a

practice

t o answer

these inguiries a t all?
The Chairman.

w

e do, b u t w e went t o discontinue it,

to b e a u i t e f r a n k w i t h you.
Governor HMorss,

W

Governor Cellins.

e have n e v e r
v i e

e

o mnever 6

L

u O L ener.

Governor Miller.
Goyernor V a n Zencdt.
The Ghairman. I

do not want

Fank thet, t o the extent
we s h o u l e G i s c o n t i n u e i t .
togsther.

Governor Calkins.
Governor liorss.

D o you want a resolution?
T h e r e a r e other reasons f o r not doing

it besides t h e matter o f simple convenience.
serious matter f o r a

I t i s a pretty

Federal Reserve Bani: t o absolutely t u r n

down o r t o give unfortunate information t h a t concerns t h e

responsibility o f a bank, e n d that i s the reason w e co not


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Calkins.

meetine thet t h e Federal
formation

t o membsr b a n k s

o r a n y bank except Federal heserve

Banks.
The Chairman. 3

War F i n a n c e C o r p o r a t i o n ?

Governor Caltrins.

e s I

thinti the exchange

information between t h e Federal R e s e r v e Banks i s perl
proper.
Governor Young. I

will seconc that motion.

(The motion, hsving been G
The Chairman. .

u leconded.
y
s

now come t o
f

EL. C o l l e c t i o n s a n c C l e e r

e

(4) R e p o r t o f Collection Committee. a
\

ison has been closely engaged i n the last s i x
months o n matters t h a t have really mace i t impossible t o have
a meeting o f that committee.

T h e committee consisted o f

officers o f the Reserve Banix of Richmonc, Mr. Logen o f the
Federal R e s e r v e B o a r d ,
a report

anc i

a e e;

M

r

. Earrison has

t o submit w h i c h cannot b e submitted a s a

report

of the committee, although both h e a n d lir. Logan have b e e n
over i t a n d a p p r o v e

o f it, b e c a u s e t h e t h i r d m e m b e r o f t h e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

committee h a s n o t seen i t anc has n o t had opportunity t o
see it, d u e t o cause beyond o u r control.

M r . Harrison will

submit this report.
Mr. Harrison.

T I have distributed t h e substance o f the

report i n these various memoranda.
said, w e have never h e d a
committee, .

A s Governor Strong has

regular meeting o f the collection

I T accept t h e e n t i r e r e s p o n s i b i l i t y S o r that,

and I want t o qualify any statement I make here now with
the statement thet Mr.valden.,

t h e third member o f the com-

mittes, h a s never h a d opportunity t o g o over i t and has never
given h i s a p p r o v a l

o r consent

t o a n y t h i n g t h a t w e h a v e here.

During t h e first part o f the summer, w h e n I was i n Washington, I

had v a r i o u s o c c a s i o n s

t o discuss matters t h a t w e r e

before t h e c o l l e c t i o n c o m m i t t e e w i t h Mr. L o g a n ,

myself o f those opportunities,

a n d I have a

of h o w b o t h h e a n d m y s e l f f e e l w i t h r e s p e c t
referred

:. I

aveiled

pretty good idea
t o t h e questions

t o us.

If i t meets w i t h t h e approval o f the Governors, I

would

just like t o report what Mr. L o g e n a n d I do feel about-these
atters t h e t w e r e r e f e r r e d

t o u s a t the l a s t Conference a n d

let i t b e r e c e i v e d j u s t i n t h a t way. I

might a l s o s a y t h a t

I have discussed it, o r discussed some o f these subjects, wit:


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

185
other o f f i c e r s

i n t h e R e s e r v e Banlx o f N e w Y o r k a n d h a v e

had corresponcence o n different occasions w i t h other Fea@6éral R e s e r v e B a n k s a b o u t p o i n t s

a s a n d w h e n t h e y c a m e up.

The f i r s t q u e s t i o n t h a t w a s r e f e r r e d

t o t h e committec

was t h e uniform collection circular produced last year b y the
New York Bank.

T h e t was referred back t o the committee

with t h e t h o u g h t t h e t w e m i g h t p e r h a p s a g r e e u p o n s o m e s o r t

of general liability clause t h a t would b e incorporated i n
the circular o f each Federal Neserve Beant. ‘ T h e
this i s obvious.
member banks,

W e are n o w collecting agents f o r o u r

n o t o n l y w i t h i n t h e district,

b u t i n every

*

othcr cistrict o f the United States, a n d
every other Federal Reserve Bank.

T h e result

i s thst w e

very direct interest i n what t h e provisions o f other

srve Banks' circulars are.
If w e take a

checl from one o f our member banks f o r

collection i n the S a n Francisco district a n d S a n Francisco
avails itself o f collection facilities o r processes t h a t
we have n o t specified i n our circular, t h e r e i s
question whether w e would n o t b

a b l e f o r a n y loss re-~

sulting f r o m the employment o f means i n San Francisco t h a
we G o n o t s p e c i f y i n o u r own c i r c u l a r ,

F o r t h a t reason,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

186
5

fer the protection o f each individual Reserve Bank, i t is
very i m p o r t a n t t h a t w e n o t o n l y k n o w wheat i s i n e a c h other's

circulars, b u t that these circulars o f other banks coincice with o u r o w n eteenlar.

W e have gone over this cleuse,

or two cifferent clauses, o n e f o r collection o f cash items
anc one f o r collection o f non-cas:
them pretty carefully, -.. W .

e m s ;

L V S L

w e have gone over
f

a

s

t

tried o u t one o f them i n our o w n circular since last March,
and. w e h a v e n e v e r y e t h a c a

case c o m e u p o f a n y k i n d w h e r e w e

haven't felt that w e were absolutely protected.
f a m willing t o read this, o r will j u s t refer i t t o
the G o v e r n o r s f o r t h e i r c o n s i d e r a t i o n ,

a s t h e y please,

but

tfam rather inclined t o believe t h a t i f w e c a n get some
sort o f opinion expressed b y the Goycsrnors i t would
sirable; b e c a u s e o t h e r w i s e

The Chairman.

i t may g o back a n d Crift

I s not this a matter w h e r e most o f the

Governors will feel t h a t t h e y will want t h e advice o f counsel
at home?

Governor Calkins.

I t i s a very technical matter a n d

we ought t o study i t quite carefully.
Mr. Harrison. I

think that i s very true, b u t I

a m also


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

187
convinced

a t t h e opinion o f n o twelve lawyers i s going

to b e the s a m e o r that t h e words t h a t a n y other lawyer
would use a r e just t h e words t h a t t h e y would use. I

do

not mean by. that that w e ought t o shut off a n y consideration b y the other banks, b u t
my suggestion would b e t o have t h e GoVernors approve o f
this, s u b j e c t

t o s u c h amendments

a s their attorneys c a r e t o

make, w i t h t h e understanding t h a t those amendments b e
much a s
limited as/possible under t h e circumstanees, because other~
wise w e will never reach a n y agreement o n it.
Governor Seay. I

move that this b e receivec f r o m t h e

committee a n d t h a t e a c h G o v e r n o r t a k e u p t h e r e p o r t

or

recommendation w i t h the technical officers o f the banks
and t h e i r c o u r s e l a n d r e p o r t t o t h e c h a i r m a n o f t h e committee.

I think w e will have t o discuss t h i s thing with o u r technical officers, a n d w e also will have t o discuss i t with o u r
counsel

t o s o m e degree. I

a m sure that t h e a i m o f the com-

mittee i s t o reach a conclusion i n the matter, a n d none o f
us a r e G i s p o s e d

t o quibble.

Mr. Harrison. I

did not mean t o imply anything o f

that izind, G o v e r n o r - —

Governor Seay. I

a m sure y o u d i d n o t a n d I did not s o


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

take

Mr. Harrison, I

a m only t o o anxious, a n d I lmow Mr.

Logan is, t o have the views o f each one o f the other banks.
My o n l y t h o u g h t w a s t h a t i f y o u c o u l d a p p r o v e o f t h e

set-up--or,

t o put i t this way, t h a t you refer i t t o your

technical o f f i c e r s

t o consicer f o r t h e purpose o f amending

in such slight ways a s they may deem necessary.
Governor S e a y .
The Chairman.
your m o t i o n a

h

a

t

h

e purpose

+ - o u l d y o u b e willing

recommendation

o f m y suggestion.
t o incorporate

in

b y expression o f t h e sense o f

eeting that i t i s desirable i n principle t h a t t h e
firad

circular which /

t h e liability of the Reserve Banks for

collecting c a s h items a n d noh-sash items shall b e uniform
in all t h e Federal Heserve Banks, a n d that i n orcer t o bring
about that uniformity this suggestion shall n o w b e promptly
examined a n d a n y Changes t h a t s c e m e s s e n t i a l

b e incorporated,

and that i t b e promptly reported t o the chairman o f the com-~

mittee o n collections, s o that we may get something i n the
nature o f u n i f o r m i t y

i n t h e circular?

Governor Seay.
intended p u r p o s e

i n referring

Governor Calkins. I

t o i t i n t h a t way.

would l i k e t o s e c o n d t h e m o t i o n


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

189
and then t o make m y usual oration.. T h i s action a s suggestec

b y Governor S e a y ' s m o t i o n a n d your supplement s h o u l d

be f o l l o w e d
experts

u p b y a n actual b u s i n e s s c o n f e r e n c e

o r collection experts

o f transit

t o s e t t l e t h e questions.

W

e

have h a d i t for ebout seven years n o w a n d don't y o u think
it i s t i m e w e r e a c h s o m e cGefinite c o n c l u s i o n ?

get anywhore i f w e have a

w i l l we

reference bac!s t o the Governors

in
and /turn b a c k t o t h e c h a i r m a n o f t h e c o m m i t t e e

o n collect-

ions? S h o u l é w e not g e t right d o w n t o business a n d have a
conference o n this o n e subject,

i f necessary, f o r the pur-

pose o f getting t o a conclusion?
Governor Seay.

to reach a

I f I

conclusion.

may answer that,

i t was m y purpose

I f the result o f these communica-

tions f r o m t h e banks d o not show uniformity o f opinion,
as I hope t h e y will, t h e n t h e chairman o f the committee
might notify t h e banks t h a t there i s a variation o f opinion
and a

committee would b e appointed t o resolves t h e dif-

ferences

o f opinion,

and I

believe

w e m i g h t g e t somewhere.

The Chairman. G o v e r n o r S e a y a n d Governor Calkins,
Our experience i n New York i s this, t h a t i f w e refer
questions

o f policy t o t h e transit men,

t o t h e experts,

so-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

celled, t h e y d o not think i n terms o f the whole systen,
but just i n terms o f their o w m Gesk a n c their o w n organization, a n d simply o n the question o f
want t o s a y just o n e word further o n this matter i n regard
to pending litigetion. S u g g e s t i o n s have b e e n mace b y the
Federal Heserve Board about t h e imposition o f cherges b y
the member banks o n checks t h a t come f r o m non-member banks,
anc s o on. I

know ‘how, Mr. Davis, special counsel w h o has

been retained i n this litigation i n the Atlanta District,
feels,

and I

lmow t h e feeling

i n o u r o w n offices,

i s that

at the moment there should n o t b e anything cone a t all t o
chenge t h e s t a t u s o f t h e c o l l e c t i o n s y s t e m g e n e r a l l y a s a

whole, that the first thing i s t o gst b y with that litigation a n d t h e t w e s h o u l d n o t m a k e f u n d a m e n t a l changes.

Governor Calkins. I
my oretion. I

want t o submit a

Gid n o t intend t o s a y that t h i s t h i n g should

be l e f t t o t h e d e t e r m i n a t i o n

of a

gers o r a n y t h i n g o f t h a t sort. I
be a

supplement t o

meeting o f t r a n s i t mana-~
think perhaps

i t should

meeting o f t h e Governors, s u p p o r t e d b y t h e i r t r a n s i t

managers

o r counsel,

but I

think i t should b e handled

that m a n n e r i f w e w a n t d e f i n i t e c o n c l u s i o n s a d o p t e d .

in
3 8

want t o say further, i n regard t o what you say about chang-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

ing the status, t h a t w e have litigation i n our district n o w
and w e a r e p r o u c o f it.

W

e have w h a t w e think i s a

much

better case t h a n anyone else, a n d w e are going t o push i t
as hard a s w e c a n push it.

W e sincerely hope t h a t untii

entire question i s decided b y the courts t h a t nobody
throw a monkey-wrench i n t o t h e machinery, a n d that i s
will b e done i f w e impose a
Governor Fancher.
district.

charge.

T h a t i s the situation w e have i n our

w e have litigation e n d w e seem t o have a

pretty

fair case and want t o g o through with it.
The Chairman.

T h a t sudject i s o n the program later

for consideration.
Go,yernor Fancher.
pared a

M r . Chairman, M r . Harrison h a s pre-e

report here f o r his committee bearing u p o n t h e

matter o f the legal phases a n c responsibilitiss o f the Federel Reserve Banks.

w e are i n a very much confused con|

Gition i n regard t o this matter o f handling non-cash items.

j
i
i
j
|

We h a d a, committee which considered this whole question a n d |

>
‘i

made report t o the Governors, recommending certain forms /
j
}

which n e v e r h a v e b e e n p u t i n use.

T h i s matter o f handling

non-cash i t e m s i s o n e o f t h e m o s t c o n f u s e d c o n d i t i o n s
the R e s e r v e B a n k s today.

in


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

192

‘ir. Harrison. I

was c o m i n g t o t h a t m a t t e r f u r t h e r

in

toi8 report.

Governor Fancher. I

want t h e matter threshe

cause i t i s a thing that I feel quite strongly about.
Me. Harrison, I

had a

i s t o f four things, a n c the

first o n e i s uniformity o f circular.
The Chairmen.

‘ v e have t w o distinct matters t o deal
=

with now under the general head o f collections and clearing.
the whole principle a n d method = o ore going t o apply
to t h e d e v e l o p m e n t

o f t h i s business, w h e t h e r

w e are going

to charge o r not charge, whether w e are going t o have a
par l i s t a n d a

non-par l i s t , a n d t h o s e a r e q u e s t i o n s

policy w h i c h t h e G o v e r n o r s

of

o f these banks h a v e g o t t o

deal with. B e h i n d thet there i s a question o f technical
practice, w h i c h h a s n o t h i n g

t o d o w i t h policies,

the

technical practices i n carrying out the policies that w e
have adopted, a n d a s t o most o f those technical questions
T do not feel competent t o deal with them, b u t went t h e
technical m e n i n t h e b a n k t o d e a l w i t h them; b u t o n t h e

matter o f policies,

a s t o whether w e are going t o impose

these charges t h a t a r e suggested o r not, I

do not want t o

have t h e t e c h n i c a l m e n d e a l w i t h that, b u t I

want t o dis-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

cuss that myself.
Governor Fancher. I

a m heartily i n accord with that,

and that i s the thing t o do.
have r e p o r t e d m a t t e r s
committees

B u t t h e trouble i s that w e

o f technical o p e r a t i o n s

t o r e p o r t back,

t o certain

a r d reports h a v e b e e n made a n d

forms recommended a n d nothing come o f it, a n d they have
never b e e n p u t t h r o u g h a n d h a v e n e v e r b e e n p u t i n operation.

Governor Calkins. I
éxtent. i

i

differ w i t h t h e Chairman t o this

s impossible t o separate what y o u call

technical q u e s t i o n s a n d q u e s t i o n s

o f policies;

i t cannot b e

done o

The Chairmen.
of p a y m e n t

N o w , under “ B ) w e have (1): F i n a l advice

o f items f o r w h i c h available f u n d s h a v e n o t b e e n

received, a n d s o forth. T h o s e a r e a l l matters o f detail,
not policy. I
perts.

think they should g o t o a committee o f ex-

T h a t i s what I refer t o when I

speak o f technical

matters.
Gevernor Seay.
motion, s u p p l e m e n t e d

M r . Chairman, I

still t h i n k t h a t t h e

b y you, w i l l m e e t t h e s i t u a t i o n p r e -

sented i n regard t o the report o f the collection committee
so far, b u t I think t h e collection commi,tee should b e
continued a n d i f possible have a n early meeting a n d thresh


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

194
these

e

p

o

r

t to a

subsequent meeting o f

Governors o n this a n d other matters.
T believe

W i t h regard

t o

i m p o r t a n t and

that those questions shoulé b e settled
Silvie.

- { sm o f the Opinion that there 6

some u n i f o r m : *
:

agreement i f not e n t i r e u n i f o r m i t y a m o n g t h e e x e c u t i v e s o f
presentec.

here.

You mean, cispose o f this without going
into t h e g e n e r a l s u b j e c t of. policies

a n g ceteils?

h a t cdo

wish t o c o with t h e report o f the committee?
gestion was that
FEGuest

wie

lzwith t h e

to

committees
ti
u iuif
“

T h e sug-

rman

o f the

9

& uniform circular shouleé b e adopted b y all
which w o u l c d e f i n e t h e i r i i a b i l i t y a n c r e s p o n s i b i l
Governor Callzins. I
but I
want
sense

cdo not wish t e continus m y oration,

seconded t h e m o t i o n a n d c f f e r e d a
t o

h

e

r

o f this m e e

t y

supplement, a n c

supplement,

and I

2

t h e ta. t h e t

t

a

t

ing thet w e should reech a n agreement

in regarc t o this matter a n d p u t that agreement i n t o
operation a t t h e e a r l i e s t p o s s i b l e moment.

Governor Seay.

A n d thet f o r that purpose t h e col-

e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

olection committee b e continued.

Governor Calkins. A l l right.
The Chairman. G e n t l e m e n , y o u a r e n o w aware o f the
motion.

W h e t i s your pleasure w i t h regard t o it?

Governor Young.

L e t u s nave t h e question.

(The motion, b e i n g duly seconded, w a s carried).
The Chairman.

T h a t disposes o f the report o f the col-

lection committee.
It really coes not, Mr. Chairman.
Governor V a n Zandt.
Mr. Harrison.

N o , t h a t i s only one part o f it.

T h e rest o f i t will n o t take long, b u t

there a r e o n e o r two things t h a t ought t o b e mentioned.
A t a n y rate, t h a t d i s p o s e s

The Chairman.

o f t h e quest-

ton o f t h e circular.
A n o t h e r question t h a t w a s n o t referred

Mr. Harrison.

Girectly b y the Governors t o the committee w a s o n e
referred

t o t h e F e d e r a l R e s e r v e B o a r d which t h e B o a r d r e -

ferred t o t h e committee.

nents |
uniformimdorse/i

T h a t w a s t h e question o f the

E

S:

:

o f inter-cistrict collections

ms a n d c a s h i t e m s a l s o ,

Governor Fancher.
Mr. Harrison.

as a

o f non-cash

matter o f fact.

C a s h items a s well, w a s i t not?

Yes.

T h a t matter w a s referred

t o the.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Pederal Reserve Board I

*

believe a

Logan e n c myself prepared,

yee

N

o

w

, Mr.
4

a t the request o f the Federal

Board, t w o drafts o f a Letter,

o r drafts o f two

CArect sending o f cash
non-cash items.

I t is

mendation t h a t
these letters,
of sending e a c h one o f the other Federal Reserve Banls o n e
of these letters signed.

I n other words,

but a blanket indorsement,

i t i s nothing

i f you will, concerning non-

cash a n c cash items s e n t Cirect b y member banks which have

been specifically authorized t o be sent direct and which
covers nothing else.
Now t h e l e t t e r i s d r e f t e d

i n s u c h f o r m t h a t a n y Federal

Reserve B a n k c a n m a l e i t c o v e r a l l o f i t s m e m b e r bentrs o r

can specify t h e names o f those member banks t o whom they
wish t o give t h e privilege o f sending direct.
mittee believes

v

e

r

T h e com=-

y necessary t o give e a c h Federal
mine t o what extent

it w i l l p e r m i t i t e
wirether c a s h i t e m s

m e m b e r benks
o r non-cash items.

t o s e n d direct,
I

t i s necessary,

matter o f agency,

i f you will,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

197

which i s the only authority that member banks have t o send
direct.

I n the letter referring t o the direct sending

of cash items, y o u will notice i t specifies “ Y o u a r e hereby authorized a n d requested t o receive a n d handis s u c h items
in a l l r e s p e c t s

i n the same manner a n d subject

t o the same

terms. a n d conditions s e t f o r t h i n t h e report, w h i c h w a s a p proved b y t h e C o n f e r e n c e

o f Goyernors

i n April, 1921") T h e n

I have attached t o that, f o r t h e convenience o f the Governors, t h a t report,,which t h i s committee wishes t o rerecommend.

I n o t h e r words,

w e believe

. that t h e a c t i o n o f t h e G o v e r n o r s

i t i s very necessary

i n approving t h e report

of the earlier collection committees, w i t h reference t o
the direct routing o f 1 - c o l l e c t i o n items, b e confirmed
and b e carried o u t b y the b a n k s i
n the future, because,
Governor Fancher says, there i s now n o uniform procedure
with regard t o the handling o f these non-cash items. I
each Federal Reserve B a n k will agree t o send n o t only these
blue c o p y letters t h a t I have submitted, b u t also a carbon c o p y o f t h e l e t t e r t h a t i s a t t a c h e d underneath,

which

is from t h e report approved a t the last Conference, I
think that matter o f non-cash items will b e fully covered.
You all have copies o f the full report approved b y the last


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Conference, f r o m which this letter i s merely
a n extract.
Governor Fancher,

A n d the forms agreed u p o n S a t rece

onmended?

Mr. Harrison.

T h e forms were attached a n d agreed upon

by t h e Conference.
Goyernor Fancher.

Perhaps

w e c a n g e t a n agreement h e r e

thet w e w i l l p u t t h o s e f o r m s i n t o operation.

Governor Seay.

I s not that whole matter included i n this

report o r these several reports t h a t y o u have here?

Mr. Harrison.
The Chairman.

B y reference, Governor seay.
T h a t i s , b y reference

t o the previous

action?

Mr. Harrison. Y e s , b y reference t o previous action.
Reference t o i t i s necessary, a n d i t i s
also necessary t o
incorporate

i n t h e procedure

o f each bank t h e action which

was recommended a t the last Conference,
a n d that i s not
being cone now.
Governor Seay.

I t was within m y contemplation t h a t

what y o u n o w p r o p o s e w a s c o v e r e d b y t h e p r e v i o u s
resolution w e passed?
Mr. Harrison.

I f t h a t i s true, I

a m perfectly satis-

I thought i n view o f Go_ernor Fancher's request
you


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

199
consicered
features

i t necessary t o appoint a

committee

o n the other

o f t h i s memorandun.

(The papers submitted b y Mr. Herrison a r e a s follows):

Draft o f L e t t e r

t o a l l Federal

Direct sending o f cash items.
Dear Sirs:

The undersigned Federal Reserve B a n k o f
advises y o u that i t has authorized e a c h ( o r the following)
~

OL

”

its member a n d non-member clearing banks t o act a s its

agent i n sencing cireet t o you checks anc. other c a s h items
drawn o n p a r b a n k s

i n y o u r district, p r o v i d e d t h a t t h e y a r e

indorsed b y the sending bank.
are h e r e b y a u t h o r i z e d a n d r e q u e s t e d
and h a n d l e s u c h i t e m s

i n all respects

t o receive

i n the same manner

and. y j e c t t o the same terms a n d conditions t h a t a r e prescribed b y y o u f r o m t i m e t o t i m e f o r t h e h a n c l i n g o f c h e d s
forwarded

t o y o u b y other Federal Reserve B a n k s

member banks.

o r b y your

I t i s understood t h a t t h i s letter i s a

blan-

ket guarantee o f the indorsements o f all such items for-

warded t o you i n the manner described, a n d that i t authorizcs y o u t o c h a r g e b a r k t o o u r a c c o u n t t h e a m o u n t o f a n y

such item f o r which y o u m a y fail t o receive t h e proceeds


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

for a n y reason except your o w n negligence.
Very t r u l y yours,

Draft o f l e t t e r

t o a l l F e d e r a l R e s e r v e Banks.

Direct sending o f non-eash collection items
Dear Sirs:
The u n d e r s i g n e d F e d e r a l R e s e r v e B a n k o f

advises y o u that i t has authorized t h e following o f
ber banks ( a n d non-member clearing banks)

t o act a s

agent i n sending direct t o you f o r collection maturing
notes a n d bills,

o r other collection items payable

i n your

district, p r o v i d e d t h e y a r e p r o p e r l y i n c o r s e d b y t h e s e n d -

ing bank,
You a r e h e r e b y a u t h o r i z e d a n d r e q u e s t e d
end h a n d l e s u c h c o l l e c t i o n i t e m s

t o receive

i n t h e manner a n d subject

to t h e t e r m s a n d c o n d i t i o n s s e t f o r t h i n t h e report,

which was approved b y the Conference o f Governors i n

April, 1921.

I t is understcod that this letter is a blanket

guarantee o f the indorsements o f all such collection items
forwaréd t o you i n the manner described.
Very truly yours,

Paragraph defining General Conditions under which


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

201

Federal Reserve Banks will accept checks o r other c a s h items
for collection,
Recommendation:

vo
T h a t this paragraph b e inserted

i n the |

collection circular o f each Federal Reserve Bank.
Bvery bank sending checlzs o r other
or t o a n o t h e r F e d e r a l R e s e r v e B a n k direct,

t

o wus;

f o r o u r account,

will b e understood t o have agreed t o the terms a n d conditions
of this circular a n d t o have agreed that i n receiving s u c h
items w e will a c t only a s the collecting agent o f the sendthat w e - w i l l

b e r e s p o n s i b l e o n l y f o r c u e dili-~

promptl ¥3

items, f o r payment i n cash o r bank Craft, direct t o the
k o n which t h e y are crawn, o r , i n our Ciseretion,

to

forward. t h e m t o another agent with authority t o present

or send them, f o r payment i n cash o r bank draft, direct t o
the bank o n which t h e y ere Grawn; a n c that w e are author2

ized t o charge back the amount o f any items (whether o r
not the items themselves c a n b e returned) f o r which w e have
not a c t u a l l y r e c e i v e d p a y m e n t c i t h e r

proceeds o f the bank craft.

i n oesh o r i n the

Paragraph defining General Conditions uncer which
Federal Reserve Banks will accept maturing notes a n d bills
and other non-cash items f o r collection.
Recommendation:

T h a t this paragraph b e inserted

in

the collection circular o f each Federal Reserve Bank:
Every bank sending m

turing hotes,

o r bills,

o r other

non-cash items t o us, o r t o another Federal Keserve B a n k
Girect f o r o u r account, w i l l b e understood t o have agreed
to the terms a n é conditions o f this circular a n d t o have
agreed that i n receiving s u c h items w e will a c t only a s

the collecting agent o f the sending bank; that w e will b e
responsible only for due diligence a n d care i n forwarding
or presenting s u c h items promptly; t h a t w e are authorized

to present o r forward such items, f o r payment i n Cash
or bank draft, direct t o the baniz o n which t h e y are drawn,

at which they are payable, o r through which they are collectible,

o r t o present t h e m direct t o the person, firm, o r

corporation o n which t h e y a r e drawn for payment i n cash o r
bank check,

o r i n our Ciscretion t o forward t h e m t o another

agent with t h e same authority t h a t w e have t o present
or forward t h e m for payment; a n d that, except e s herein

provided, w e shall b e held liable only when we have reé-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

203
céived j y m e n t

i n cash o r i n t h e proceeds

Graft o r check,

Subject:

o f the bank

o r when w e have given advice o f payment.

D i r e c t routing o f non-cash collection items
payable i n other Federal Reserve Districts.

To the member bank addressed:
In order that non-cash collection items payable i n other
Federal Reserve Districts m a y b e handied f o r o u r member banks
with t h e least possible delay, arrangements h a v e been made
with other Federal Reserve Banks, whereby s u c h items m a y
be r o u t e d b y o u r m e m b e r b a n k s d i r e c t

t o the other Federal

Reserve B a n k o r branch serving t h e territory i n which t h e
item i s payable.

Member banks may avail themselves o f this privilege,
if the volume o f their non-cash collection items payable
in other Federal Reserve Districts i s large enough t o
justify sending t h e m direct.

I t i s not compulsory, h o w -

ever, f o r member banks t o route s u c h items direct into
other Federal Reserve Districts, a n d they m a y continue,
as i n t h e past,
collection

t o s e n d t h e m t o t h i s b a n k ( o r branch) f o r

i f t h e y s o Gesire.

If y o u should desire t o avail yourself o f the privilege,
it w i l l b e n e c e s s a r y f o r y o u t o . o b s e r v e c a r e f u l l y t h e

204
following regulations, applicable t o the direct routing
of collection items:
First -

Application f o r permission

t o route non-cash

collection items direct t o other Federal Reserve Banks a n d

Branches must first b e mace t o this bank (or branch), a n d
said p e r m i s s i o n m u s t b e o b t a i n e d f r o m u s b e f o r e a n y s u c h

items m a y b e routed direct t o other Federal Reserve DisTriets.

Second -

After permission h a s bee obtained f r o m us, a l l

non-cash c o l l e c t i o n i t e m s f o r w a r d e d

t o the collecting Fed-

eral Reserve B a n k o r Branch o f the other district must b e
accompanied b y a collection letter showing t h e name o f your
bank a n d giving a completé description o f each item, viz:
your collection number, payer, p l a c e payable, a m o u n t a n d
due date.

T h i s collection letter should also prominently

State t h a t t h e p r o c e e d s a r e t o b e c r e d i t e d

Reserve B a n k o f
Third -

(

o

t o t h e Federal

r branch) f o r your aceount.

A n exact c o p y o f this collection letter should

be forwerded t o u s a t the same time t h e t t h e original letter

(with the items) i s forwarded t o the Federal Reserve Bank
for B r a n c h o f t h e d i s t r i c t


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Fourth -

t o w h i c h t h e i t e m s e r e payable.

The collecting Federal Reserve B a n k o r Branch~


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

of the other district will u s e every effort t o obtain
returns a t par, a n d will make n o charge f o r effecting
the collection, except f o r actual expencitures
where

i t i s necessary

for p r e s e n t a t i o n a n d a

i n cases

t o send t h e i t e m t o another c i t y
collection f e e i s d e c u c t e d

b y the

bank collecting the item, a n c for registration and insur-~ance i n cases where i t i s necessary t o forward securities
or coupons b y insured registered mail.

Fifth - The proceeds of saic items will be credited
to u s b y the collecting Federal Reserve B a n k o r Branch
of the other district, a n d immediately u p o n receipt o f
advice o f such credit, y o u r account with u s will b e credited a n d advice o f such credit will b e forwarded b y u s t o
you.

T h e Collecting Federal Reserve Bani o f the other

Gistrict w i l l a l s o f o r w a r d y o u a n a d v i c e w h i c h w i l l s h o w
that t h e c o l l e c t i o n h a s b e e n m a c e a n d t h e p r o c e e d s h a v e
been c r e d i t e d
Sixth (or branch)

t o u s f o r y o u r use.
The Federal Keserve B a n k o f _

c a n assume n o responsibility f o r s u c h collection

items f o r w a r d e d

b y you d i r e c t ’ o
t othsr Federal Reserve

Benks a n d Brenches other t h a n t o give y o u proper credit
for items credited t o u s b y the collecting Federal R e -


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

serve B a n k s a n d B r a n c h e s
seventh =

o f t h e o t h e r cistricts.

Any special instructions,

the h e n d l i n g o r G i s p o s i t i o n

proceeds

i n connection w i t h

o f a n y collection i t e m o r the

r e o f , should b e transmi;tecd direct t o the Fed-

eral Reserve B a n k o r Branch t o whom sent a n d t o us. C o l lection items s e n t t o other Federal Reserve Banks a n d Branches
should b e trased b y you directly t o the Federal Reserve
Bank o r Branch t o whom sent.
Eighth -

Any collection items which a r e unpaid will

be returned direct t o you b y the collecting Federal Reserve Bank o r Branch o f the other

.

c

t and the pro-

test fees u r service charges ( i f any) o n such collection

items returned unpaid will b e chargead t o us b y the collecting Federal Reserve Bank, a n d w e i n turn will charge
your reserve account a n c forward y o u a n acvice o f the charge.
The Chairman.

N o w I want t o s a y just a word with

regerd t o Goyernor Fanchex's

s

eI

think i t has

been a weakness i n the results a t e d by the meetings
of the Governors o f the Ressrve Banks i n the fact that
there i s not sufficient fcllow-vy
but t h e y a r e n o t p u t i n t o
Governor Fancher.

Absolutely.

W

e agree u p o n things,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

207
The Chairman.

Y o u a l l g e t copies.

o f t h e transcript

of the meeting with t h e discussion a n d minutes o f the action
taken, a n d unless t h e Governors o f the Reserve Banks a r e
Willing t o check u p o n the record a n d d o the necessary
issuing o f instructions t o the banks about putting things
into effect,
The p r o c e d u r e

w e will n o t g e t the results o f these meetings.
i n N e w Yor'tt i n t h i s - - a n d t h i s g o t m e i n t o

hot w a t e r l a s t t i m e - - t h e G o v e r n o r s e n d s a

head o f every cepartment, a

memorandum t o t h e

menorandum dealing with the

action taken a t the Conference o f Governors. ‘ T h o s e memorancums a r e p r e p a r e d

b y Mr. H a r r i s o n a n d t h e y a r e i n -

structions t o give effect t o the action o f the Conference.
Now o n the subject w e have j u s t been discussing, unless
I a m mistaken a n d Mr. Herrison c a n correct me, thesc
instructions w e r e issued a t the time o f the Conferénce,
anc. w e a r e c o m p l y i n g w i t h t h e a c t i o n o f t h e C o n f e r e n c e

in the matter o f direct routing a n d immediate credit.
Mr. Harrison.

Y o u are n o t correct i n s o far a s this

letter i s concerned.
Strong.

I t i s a t t a c h e d a s a n appendices

and was o v e r l o o e d
bank.

T h a t was entirely m y fault,Governor
t o t h e report

i n drawing u p our instructions t o the

A S a matter o f fact, i t was apparently overlooked

208

every o n e o f the Federal Reserve Banks, because s o far
I imow not o n e o f them has sent this Linc o f a letter
any o f i t s m e m b e r banks.

Governor Fancher.

M r . Chairman, t h e facts were t h a t

this committee report w a s considered a n d referred t o Mr.
Herrison's committee i n connection with other things.
n o t this

b e g y o u r pardon, G o v e r n o r ,

Mr, Harrison. I

particular report just adopted.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairman.

I f the fault rests w i t h t h e bank i n

New York, w e will admit i t and apologize, a n d will n o w t r y
to get results.
t h i n -i£t dees, Mr. Chair-

Governor Fancher. 1
man. I

think t h e t r o u b l e w a s

a

t the report

i n question

was considered very hurriedly. T h e r e was a jamb a t the
enc o f t h e C o n f e r e n c e a n d s e v e r a l m a t t e r s w e r e r e f e r r e d

toMr. Harrison's commiztee, this along with it. f h e
question o f our legal status i n the matter o f hencling
cash items f o r collection w a s brought u p and with s everal
matters w a s referred t o that particular committee.
The Chairman.

N e e d w e take t h e time n o w t o g o bade

and fix the responsibility?
Governor Seay. I

C a n we not teld ection?

believe w e have passed a

resolution


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

on the subject already a n d referred i t t o several o f the
Governors

o f t h e Federal Keserve Banks f o r consultation

with their technicel men and counsel, t o be reported i n
tori.

Harrison. I

cover e v e r y t h i n g

to

i n t h e s e papers.

Governor Fancher.
cedure

intended t h e t r e s o l u t i o n

I s that necessary

t o put t h e pro-

i n operation?
The Chairman.

h

the forms, I

woulc s a y so.

Governor Fancner.

a

v

e n o t consic-

T h a t report w a s acted upon a n d

adopted b y t h i s Conferences a

year ago.

Goycrnoz. Foanch... S
i c this e x t r a c t :
a
The committec.: submitting t h i s r e p o r t w e s a p p o i n t e d

the last Conference o f Governors h e l d i n April, 1929.
commiz¢teec consisted o r 1
Mr. H e n d r i c k s

e

June 2 n d , 1 9 2 0 , t h e c o m m i t t e e s u b m i t t e d a

repor

Conference o f Governors, w h i c h w a s acted upon b y t h a
T h e report

o f t h e committee

accepted a t that time and the Federal Heserve Board
proved t h e action taken a t the Conference i n 4
January 4th, 1921, No. x~-d5014.

T h e

r o f Cleveland, chairman,

o f N e w Y o r k a n c Mr. w a l d e n o f Richmond.

body i n October, 1 9 2 0 .

at

T h e forms committee

O n


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

was instructed t o design forms necessary t o take care
of all transactions arising o u t o f the cirect routing o f
collection items.

T h e committee o n forms,

i n accordance

with the ruling o f the Board, prepared all necessary forms,
were submitted t o the Conference o f Governors

held i n april, 1921, a t which time the entire matter was
again t u r n e d o v e r
nad

rison

t o a

committee consisting

;

o f Mr.

Har-

.

n, s c o u n s e l
o f N e w York, ?M rB. oL oig a l

f o r t h e Yederal

Re-

serve Board, a n d Mr. “valden of the Federal Reserve Bank o f
Richmond.
The C h a i r m a n .

I

n the minutes

o f t h e three days!

ses-

sion o f t h e C o n f e r e n c e l a s t A p r i l t h i s a p p e a r s u n c e r t h e

heading “Report of the committee o n the method of handling
collections s e n t d i r e c t b y m e m b e r b a n s

i n on

to Federal Reserve Banks i n other districts, w i l l b e
submitted

t o t h e committee

o n standardization

o f inter-

Federal Reserve Rank forms, a n d upon motion o f Goyernor
Van Zandt i t was voted that t h e report o f the committee
approved",

Governor Van Zandt. D i d the Federal Reserve Board
take a n y action o n that?
The Chairman.

T h e y h a d already taken action.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Mr. H a r r i s o n .

b

o w e have

that metter, Governor Fancher, because
our fault o r not, 10D was

by a e

o f t h e fact, whether

v e z

e c into effect

federal Reserve Banks,

ring t o i t now i s t o scp that t h e
do G a r r y o u t t h e pollicis:

report, and, second,
covered

t o refer t o a matter t h a t

i n % a n c . t h a t i s a letter c o n c e r n i n g u n i f o r m i n -

corsement.

h a t i s a supplement t o the rcport a n c referred.

to t h i s c o m m i t t e e

b y t h e F e d c r a l Re¢

last Conference, a n : this i s all containec inthe&’e verious
to you anc. whicn I understood
earlicr action.

The Chairman.

S h o u l d w e not first a c t upon t h e three
suomi,ted b yv the
rv,
fr

a Letter coverine cCirsct
items, t h e Craft o f a letter c o v e

V
non-cash c o l l e c t i o n i t e m s , v a r a g r a p h
Gitions u n d e r w h i c h t h e Federal k e s e r v e B a n k s w i l l a c c e p
checks

A¥
o r o t h e r c a s h i t e m s f o r collection, anc. a

Gefining general concitions uncer
will accept maturing notes anc:

regraph


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Can 1 tems Tor-collection.

N o w w e have already acted upon

of
wish I n regerd to. the
which a r e reported upon b y the committee o n collections?
Governor Seay. I n a s m u c h a s there seems t o b e quite
a considerable amount o f confusioanon these matters, I
coubt i f a n y o f u s know-exactly where w e stand, a n d w h y
not l e t t h e t t a k e t h e s a m e c o u r s e t h e o t h e r s t a k e ?

“Governor V a n Zandt. I
Governor Seey. I

thought i t all was inclucec.

intended t o incluce these things i n

the recommencation I made just now. T h e whole trouble
arises f r o m the committee n o t having h a c time t o get together
and melke these reports o n agreemé e m o n g themselves.
e

Chairman.

5

h

T
'
L e t m e state
m y understanding

position o f t h e report o f the collection committee.
have submitted o proposed peragraph g

>

They

collection

circular whic ‘ t h e y recommend a s
liabilities a n c responsibilities; that,
meeting h e r s ,

i s referred

t o the Goyernor

submit t o h i s c o u n s e l a n c t e c h n i c a l m e n ,

Mr. Harrison,
uniformity.

b y action o f &
o f sach bani

to

t o report b a c k t o

i n orcer t o determine whether there c a n b e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

213
This c o m m i t t e e h a s a l s o a c t e d u p o n a n o t h e r m a t t e r

which h a d already b e e n dealt with previously b y the Conference, a n d that i s the method which shoulc b e formulated
and a d o p t e d b y t h e R e s e r v e Banits a n d t h e f o r m s w h i c h s h o u l d f t
formulated a n d a c o p , e d b y t h e R e s e r v e B a n k s

i n connection w i t

these three clesses o f items, one, t h e
cash items, secondly, t h e direct sending o f non-ceas
lection items, anc, third, t h c d e f i n i t i o n i n the circular
of the general concition which shall govern t h e acceptance
of t h o s e i t e m s f o r c o l l e c t i o n

b y t h e Reserve Banks.

N o w

o r re-submittec, because i t was

that i s all submi,ted,

already d e a l t w i t h a t a n earlier Conference.

N o w whet d o

you wish t o do?
Governor Seay.

M y motion w a s that these m t t e r s a l o n g

with t h i s o t h e r m a t t e r b e r e f e r r e c
banks

i n the same w a y for a

t o t h e Governors

written r e p o r t

o f the

t o Mr. Harrison.

Governor Norris. G o v e r n o r Seay's motion was intended
to c o v e r a n o t h e r subject,
apparently u n d e r s t o o d
why c a n ' t w e h o l d t

o r a t least s o m e o f the members

i t t h a t way.
h

a

I f t h e r e i s n o o p jection,

t does include t h e whole sub-

ject?

The Chairman. T h e understanding, then, i s that the


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

214
previous m o t i o n s h a l l e x t e n d a l s o t o t h e s e t h r e e i t e m s ?

Go ernor Seay.
The Chairman.

T h a t w a s m y icea.
I s that seconded?

Governor Norris. I

will s c c o n c t h a t .

(The motion, being duly seconded, was carried).
\

The Chairman.
anc 6 ?

H o w about sub-paragraphs l , 2, 5, 4, §&

D o you wish t o take those u p seriatim o r d o you want

to refer t h e m t o t h e c o m m i t t e e

Governor Norris.

o n collections?

w h a t a r e y o u referring t o now, Ilr’

Chairman?
The Chairman. C o l l e c t i o n s a n d clearings, sub-paragraph

(db), Nos. 1 to 6.
Governor Calkins.
it i s possible

T h e intention there w a s t o see i f

t o reach uniform practices

of those things.

i n regard

t o all

W e find there i s entire l a c o f uniform-

ity, a n d w e think that condition should b e corrected.
Governor McDougal.

W i t h that object i n view, I

would

move, w i t h respect t o No. 1 , that t h e banks adopt t h e policy

of not advising payment o f collection until available funds
have b e e n received.
Mr. Harrison.

T h a t i s one o f the matters t h a t Mr. Logen

and. I considered i n the general discussion, a n d his fecling


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

5

w

substantially t h a t

i

t

h certain qualifications,

a n item
ror
thipeyment w h i c h i s n o t i m m e d i a t e l y p a y a b l e p u t / w h i c h y o u

in t h o s e cases, f o r instances, w h e r e y o u r e c e i v e

3

are willing t o take full responsibility - - f o r instence,
in New York a n d i n Boston a n d other districts w e get
certified checks n o t payable through t h e clearing house,
ane. t h e following G a y y o u give advice o f payment,
n

least w e dq, although i t i s i

o r at

t a n available

o

{tem until t h e next cay.
Governor f s a }

B u t y o u a s s u m e t h e responsibility.

Mr. Herrison.

‘ 6 a s s u m e t h e responsibility.

Payment

should never b e given until i t i s intended a
jrrevocable advice o f payment--

The Chairman.
Mr. Harri

Y o u mean adv

w . a v i c e o f payment, yes.

Governor Fancher.

A r e y o u familiar w i t h the practice

which h a s s p r u n g u p i n s o m e

Mr. Harrison...

Y e

m

o f the b a n k s

i n that connection?

, a n c I heve a

made t o Governor Strong o n it.

I t i s just a

report that 1
paragraph a n c

i -Wili: read. 2%.

ithe question presented i s whether there should b e a
uniform procedure i n giving final advice o f payment o f


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

216
collection items f o r which available funds have n o t been
received.

It i s believed t h a t i n any case where a
serve B a n k a c c e p t s a

bank d r a f t

Federal R e -

i n payment o f a

non-cash

collection itey i t should not give advice of "payment"
unless i t intends t h a t that edvice will b e final a n d irrevocable.

A n y intermediate advice o f the receipt

uncollected remittance draft should, i f given a t ail,
be clearly expressed as:-an advice o f progress f o r infor-

mation only.

Federal Reserve Bank accepts

I f , however, a

a certified check i n payment o f e collection +hem goad i s
prepared

t o accept t h e r i s k o f its ultimate payment,

i t

before
may, o f course, g i v e final advice o f payment e v e n

the check has been actually paid.
Benk o f N e w Y o r k i a r e c e i v i n g a

T h e Federal Reserve

certified cheelr o n a

clearing house b e n k i n payment o f a collection i t e m gives
immediate a d v i c e o f payment,

b u t i t i s realized t h a t

should t h e c h e c k n o t b e p a i d w h e n f i n a l l y w

would heve t o absorb t h e loss.

esented

it

T h o s e Federal Reserve

Banks which receive immediately available funds i n payment
of a collection i t e m a n d which, a s stated b y S a n Francisco,
advise t h a t t h e collection h a s been paid but that t h e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

ae |
crecit w i l l b e m a d e u p o n f i n a l p a y m e n t o n l y c o n f u s e t h e
Lssue.

T h e rule should }

The Chairman.

a s statea above.

N o w , gentlemen, w h a t action G o you wish

to t a k e ?

Go,ernor Calkins. I

Governor Young. I

think t h e r e s o l u t i o n

i s suffic ient.

have seconded it.

y

Noy ( T h e motion,having b e e n duly secondec, w a s carried).
X

The Chairman.

T h e next sub-topic i s (2).

(23 A d v i s a b i l i t y o f Federal Reserve Banks placing
the non-responsibility clause u p o n bills o f
lading attached

c r e a t r a n c l e d f o r collect-

ion. D e s i r a b i l i t y

o f uniform procedure

b y ali

Reserve Banks.

Governor Calkins. D e s i r a b i l i t y o f uniformity i s the k e y
to t h e w h o l e proposal.

Governor McDougal. I

have a n opinion f r o m o u r counsel

in regaré t o it, i n which h e states t h a t t h e use o f such a
stamp i s w o r t h l e s s
Governor S e a y .

i n h i s opinion.
O u r counsel gives t h e same opinion

practically.
Governor Fancher.
same opinion.

A n d o u r attorney has given t h e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Calirins.

2Weperighin ave our c o u n s e l

2

is n o u n t f o r m i t y i n réeseard t o
The Chairman.

M a y I

a
h t h ots e tih a t whhave

spoken o n t h i s

does n o good a n c thi
termined

thet

ebete

i

n agreement

subject, thet the stamp

H s i guestion o f responsibility i s de-

i n the

Governor

Va

is) w h a t o u= r c o u n sce l

The Chairman.

W h e t icine

says

Or

on t h i s m a t t e r ?

Governor Calkins.

To Cciscontinus t h e u s e o f s u c h stamps.

The Chairman.
Governor
The

H

Yeither
a

S

not

v

e you

the sBt a m p si n New-York.
U

Go w e i n Philadcclphia.
aA resolution

t o offer,
~
Governor

Calizins?
resolution

esrnor Callzins.

Governor Young. i

will

econc

(The motion, having b e e n aul}
The Chairman.

Tee n e x t -Lopee

Requirement o f
f c r a f tos
attachec.

with

certifiec. c h e c k
securities

o r bills

t o that


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Bi
( A t e

Governor Norris. i
45 O n t o s

3

k n o w whet t h e practice

t o e o e eee

had frequent a r g u m e n t s d u e t o our instructions t o runto deliver o n l y o n payment o f cash, c e r i e d check o r
oojected

Several o f the larger h o e
everal

o f t h o m have s a i c t h a t they will

igsue instructions t o their customers n o t t o senc these
through t h e Federal R e s
Governor Seay.

w e have h a d some trouble, b u t fortu-

nately t h e c l e a r i n g h o u s e r u l e s

i n our c i t y require

s o n o member b a n k c a n collect without

thing thet w e require,

taking a certified check.
Governor Norris.

d i t h u s t h e commercial banks

i n all

cases w h e r e t h e y a r e s a t i s f i e d w i t h t h e c r e d i t t a k e
t o t h e prectice

so t h a t v e a r e i n o p p o s i t i o n

o f wactically

all o f o u r m e m b e r banks.

Te Chairman. I

think the practice among the member

cocubanks generelly i n New York C i t y i s only t o deliver
ments a n d s e c u r i t i e s a g a i n s t t h e c e r t i f i e d

Goyernor McDougal.

k

ao leave these documents during t

, howeve

1 2 % the banks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

220

ccept t h e check a n d get i t certified, w h e n
with a

customer

i n whom t h e b a n k has c o n

think » e w i l l h a v e t o d e that.
whet a c t i o n c o y o u propose, G o v e r n o r
Norris?
Governor Norris.

anything else. I

[ I

wanted t o lmow what t h e practice w a s i n

the other Reserve Banks.
we t r y t o g e t Cfan, &

certittec: check,

o r Federal Re-~

serve B a n k funds i n New York,
Governor Morss.

neat i s

Governor Fencher.
The Chairman.

A n d

s a m e i n Cleveland.

I s there :

d i s t r i c t i n which t h e R e

accepts c h e c k s ?

Governor Young.

# 6 accept t h e m sometimes.

Governor McDougal.

W e accept t h e m i n some cases, b u t

aré a l l certified before t h e G a y i s ended.
Governor Young.

T h a t is

Governor MeDougal.
one i n w h i c h I

T h a t i s common banking practice a n d

think w e heave

o O male s o m e concessions,

GoVernor Young. M i n n e a p o l i s a n d Chicago a r e t h e

only two districts, aren't they?


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor McDougal.
Governor Young.

W e d o a very littie o f it.

W e d o a very little o f it, b u t some-

times w e h a v e t o .

Governor Calkins.
red t o a s a

W e have something which i s refer-

preferred list.

in t h o s e cases.

e accept uncertified checks

T h o s e a r e special cases a n d a r e o f n o im-

portance whatever,
carry G o c u m e n t s

w

a n d i t does n o t a p p l y t o crafts t h a t

o r securities
M a y I

Governor S e a y .

i n a n y case.

a s k i f yeo u r tm e s sa e n g er |r s

g

g Ee t t h e m

2

certified.
Governor Calkins.
Governor Norris.

W e g e t them certified.
T h e r e a r e many cases where w e can-

not get them certified, because w e would not get the check
until 2

o r half past i n the afternoon;

i t would b e some

Gistance from the bank drawn on, and we could not get i t
certified that day.
The Chairman.

I s y o u r i n q u i r y answered, G o y e r n o r

Norris?
Governor N o r r i s «
The Chairman. I

Y e s , 1 - think i t i4.
do n o t want t o b e considered

ing matters along, b u t w e have a

a s push-

large program.

The n e x t t o p i c u n d e r c o l l e c t i o n s a n d c l e a r i n g i s


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

B. Maturing notes, bills anc other collection.

(4) Uniform method of hmdling railroad drefts,
insurance c o m p e n y crafts, p a y a b l e

a t or

through banks, a l s o certificates o f ceposit.
Governor Fancher.

h a t i s a matter, M r . Chairman, w h i c h

seems t o lack uniformity o f treatment.

I n many cases checks

letters a r e n o t p a y a b l e t h r o u g h t h e c l e a r i n g h o u s e

to b e presented, a n c i t appoars t o u s that there
be some uniform method o f hancling matters o f
thet sort.
Governor Morss.

I t i s o u r practice

t o give immediate

erecdit for a l l railroad a n d insurance crafts payable a t o r
through banks that apparently c a n b e collected that.way,
and otherwise w e enter s u c h items f o r collection.
deposit a r e h a n d l e d

Cert-

a s t i m e items.

The Chairman. E v i c e n t l y , Governor Fancher,

i t rests

upen your shoulders t o suggest a resolution looking towards a uniform method o f handling railroad Grafts, domand
certificates

o f deposit, w h i c h d o n o t b e a r interest,

and

time certificates o f deposit, w h i c h d o bear interest, a n d
possibly t o include i n that drefts o n savings banks w i t h
pass b o o k s atteched.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Soncascry,

m e r e e r e tivo classes

o f items

certificates o f ceposit c r a w
end Grerts u p o n savings benks.

T h e last t w o

bs c l e a r l y l i s t e d a s

It would s e e m

m

e t h a t t h e other classification,

shouic b e
passed

t h i g h t h e s e r i n g house b e passed

through a n c t h e t t h o s e t h e
collectec--th:

a t t e

x

b

e=
e

speciel t r e a t m e n t

be

o x e n up--but certein

cdecucted f r o m t h e c a s h l e t t e r a n c t h e n c e r t a i n c r e c i t s

the following c a y a f t e r certain items e r e collected
To h e handilec a s c i t y c o l l e c t i o n s ?
Governor Pencher. .Y6ce.

included,
so s m a l l

Chairmen.

e

n what i syour resolution, Governor

Fancher?

Governor Fancher.

K y resolution w o u l e b e t h e t reilf deposit b e i n c l u d e d

Governor M c D o u g a l .

F o w about insurance crefts?


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

ane

Governor Fancher.

I n s u r a n c e c r a f a n c . C o m e n d certifi-

cates, en’ that those three classes

o f items b e included a s

cash items,
Governor Leey.

D o not some o f the

to charges crechenge o n those items?
Governor V a n Zandt.

T h e y co, e n c u n c e r t h e ruling b y t h

Roara t h e y can.
Governor S e a y .

collection items i n meny cases

the right t o charge exchenge.

w h a t c a n you G o i n ce

member ben's taices t h e t position?

The Chairman.

Y o u have g o t t o treat t h e m a s collection
charge i t bscl: t o the member.

Governor Van Zanét.

I n our district w e cannot hendle

reilroac crefts, insurance Grafts end s o forth a s cash items.
It c a n n o t b e cone.

Governor McDougal.

T I woulé t h i n k thet/railroad

insurence c r a f t s o u g h t t o b e h a n d l e d

i n e a uniform m a n n e

they m u s t b e h e n d l e c f o r collection, b e c e u s e t h e r e a r e
OL -€ecn c l a s s

h a t

he C h a i r m a n ,

w e
H o w about those cistricts

possible, because o f the small volume,

t o hancle t h e m é


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Seey.

B u t t h e n t h e r e c o u l d n o t b e uniformity.

The Cheirman. g x a c t l y .
desire uniformity,

- h a t G o you cesire?

V o you

o r d o y o u desire t o handle t h e m a s col-

lection i t e m s w h e n t h e y m u s t b e s o hancled a n c

tnere t h e y c a n b e s o handled?
s there a n y objection t o leaving i t
avoic s u c h confusion?
e o r l e s s confusion,

Governor Celkins.

T a l e o n e specif i n s t a n c e .

W

but

e

had a railroad draft f o r something over $155,000.00 r e -

twice with the comment “Collect through oth
My o p i n i o n i s t h a t t h e f e c c r a

assumed responsibility,
pay.
Governor V a n Zenct.

h a t we. e

Houston b r e n c h d oif

our benk, e n c for that y o u have received G u e e n d abject
apology f r o m t h e h e a d office.

Governor Calkins. I
raise i t f o r t h e p u r p o s e

understand, Governor, b u t I only
o f bringing o u t t h e fact that w e

cannot c o n t i n u s t h e t k i n d o f p r e c t i c e

in


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

226 -

things a r e t o b s
they a r e not.

That

is whet Governor Fencher i s ¢criving at.
(Aftor further discussion):
will w i t h c r a w

Governor Fancher. I
program, tir. Chairmen, I
hea

n o uniformity c a n b e

a m satisfied

i n the matter.
W o 4

The Chairmen.

i s withcrawn.

(5) L i e b i l i t y o f c o l l e c t o r

T h e next i s
o f time items w h e n chee

or o t h e r e v i c e n c e
Wwnich p r o v e s
Governor h

:

n m e . q

e

In collecting time items w e u i r e

a large s u b j e c t

r e l

chergo t h e member bank's reserve account &

in

‘ o r orcer a n c
aparts of

memDcr o r non-member bantzs Gravm o n the Boston bank: anc vayeple through t h e clesring house association, certifica c h e c k
to b e receivee. f r o m t h e m e m b e r b a n k o n i t e m s p a y a b l e

in

Boston u p o n presentation b y messongers,
or c o r p o r a t i o n s .
the c o u n s e l

o f a

T h i s dquéstion w e s r a i s e a

b y u s because

N e w Yorts ban’: c l e i m e d t h a t t h e y a c c e n t e d

=ithout bhics cucrantees w h i c h w e reqgui
those chect:s w o r e n o t p a i d t h e Federal

”


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

in conforming t o the l e w o f the
not resvonsible.

I t appears

Bank c o n f o r m e c

t o be a

fact t h a t

t o the Raws o f its

State t h a t t h e Federal R e s e r v e Banik: coing that i s not
the N e w York: b a n k i s
under w h i c h c o l l a t e r a l

can

eiven o u t a n d t h e incéersement waived, w h i c h m e a n s w h e n
® chee): i s t a k e n a n d 1 % i s n e t f o u n c o u t w h e t n c e

1 9 4s

until t h e next day, a r c w e protecting o u r member banks
the w a y w e ought t o protect them?

~The Cheirman. G o v e r n o r Horss,
is lack o f uniformity i n the statutes o f
Pelieuce-1or p r o t e c t i o n
Reserve B e n k s m u s t h a v e n e c e s s a r i l y i s i n t h e f o r m
the c i r c u l a r w h i c h t h e y s e n d out, a n c t h a t i f w e a c o p t

what m o r e c a n w e d o ?
Governor Morss.

Y
a

e c a n n o t c h e n g e t h e S t a t e laws.
t m i g h t cover it, b u t epperently

we g o t t h e impression t h a t

N

e

w York proposec t o protect

itself behind i t s l a w insteac o f agreeing t o anything e s pecially.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

thini: t h e r e m u s t

Ve. Harrison... 1

Morss, because e s 2

apout that, Governor
law

. w
N e w nYho r k , i

acespt p a y m e n t

any

ey
7 a u t h o r i z i n g

that m a n n e r G o e s

But o u r c i r c u l a r s

Governor Morss.

No, b u t I

cog ceeag a b g e y

ecirculer e u t h o r i z e s
ment

i n &

as a

banic d r e f t .

matter o f f

admit that, t h e colle ction s y s t e m
of our collections

tists

epe n o t i d e n t i c a l

very

neserve

therm

eG, 21. y o u d o n e t

remittance

because m o s t
in Danie =cretie

negligent t o take p a y m e n t i n t h e t

check

o r rémittar

collecting a g e n
now

EGEX

falls flat,

a

are b a s

Now o r c i n a r i l y i t i s

manner, e n a if a

we p r o t e c t e d

not

got uncer a circular

s tth ahn ygo ui heve
r

t o

uler Bives

the l a w p r o v i c e s t h e t

in

fact t h e

collecting b a n i

and y o u r

.

T h e fact thet

by taizing p a y m e n t

matten-or

us eny g r e e t e r p r o -

i n che

ot c o
w
n o i
than
e utr n
YOu.

l

a misuncerstencing

be

PR
UW

erart r s n o t n e t a p o e

so t h e t t h e F e d e r a l

heserve Banks

protect themselves b y means o f circulars which euthorthem t o

circular

tale p a y m e n t

i n b a n k ’c

is superfluous,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

of i t i s concerned,

but

Rank h a s

ane e r c h P e c o r a l
y

a nt- é ri

e e es

Governor

banks

ne

Yori:

practice

o f the c o m m e r -

on c o l l e c t i o n i t e m s ?

Evsolutely.

Mr. Harrison.

comes w i t h a

the

Morss.

in

Governor

i n other

give u p « collateral t h a t

Morss.
note f o r c o l l e c t i o n

in e x c h e n g e

for

a n orci-

nary c h o c k ?
The Chairman.
that-that-i7- t h e y

You certainiLy
would

woulc h a v e t o i m p l y f r o m
up t h e c o l l a t e r e l t h e y

not

would t h e n b e
Governor

Norris

lateral -anc
pank

woulc. t h e y b e
The Chairman.
ular. 2

bea 2

aepends

thet s e n d s

upon t h e t e r m s o f t h e c i r -

submit this question, w h i c h comes u p

connection w i t h

New Yori:

practice,

connection w i t h

study

of t h e

circulisr,

y o u wilt

Cuestien.
Herresou.

t h e item?

the

to your counsel,

proposed u n i f o r m

circular c i s p o s e s

o f the


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

250

ber bent: sends Cirect t o us we are better protected tha
the banits i n youre cistrict, f o r tois P r
lew a u t h o r i z e s

u s t o a c c e p t payment

i n«

t

h

e

t

t h e

a n c . i f the

naic, t h e n t h e owner, 0 1 ! 1 6 pers h o l c i n g

on the originel note.

“ v e n i f they heave

not g o t i t they c a n g e t a certified c o p y o f it. T h a t i s
not t r u e i n a n y o t h e r Gistrict.

p n e r e t h e l a w coes
+

thorize y o u t o tekxe payment i n check a n a y o u c o so, t hage n
the obligor o n t h e
where y o u take e
na
Te)

t e i s released.

I n your cistrict,

chock i n payment, t h a t i s the lest thing,

the originel obligor i s concernec.

4.

Governor Norris.

ae!
i s true, b u t i n o u r c i r c u l a r

T e t

pound
say w e G o not tot:c them, e n d that l s whet w e e r e
Days

Mr. darrison. T

imow that, b u t what I

a m trying t o

show i s that not only i s the N e w Yor!: l a w not unfair, b u t
t o our member banks

it i s e v e n p r e a t e r p r o t e c t i o n

t o u s anc.

anc t o y o u r m e m b c r b a n k s tue)

h e l a w s i n other States w h i c h

Go n o t a u t h o r i z e p a y m e n t
Governor M o r s s .
the h o r s e h a s b e e n 1

b y means

I s not thet
m n ’

I

f you give

eral i t i s pretty hard t o get i t bacl:.

u p your collat-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Miller.

B u t t h c incorsers w o u l c n o t b e r e -

ec b y the. f a c t o f c a n c e l l a t i o n

o r c e l i v e r y o f collat-~

al, would they?
Harrison. I

think not, b u t I

woula l i k e t o i n -

think not, f o r t h e

vestigate t h e t a little further. I

reason that that i s a n authorizec means o f accepting payment.

Governor Miller.

i f w e took one i n Missouri e n e

sent i t t o New York, w o u l d t h e suit b e brought uncer t h e
Missouri statute o r the N e w York statute?
Mr. H a r r i s o n .

T h a t cepends

T

f you acopt t h e cir-

cular t h e t t h i s p a r a g r a p h r e f o r s t o , t h e n y o u s p e c i f i c a l l y

authorize yourself t o send t o u s for collection items i n
the m a n n e r t h a t w e h a v e defined,

a n c thet i s the beauty

of it.
Governor Morss.
Federal Reserve Bank.

I t i s not a case o f protecting t h e
h e banks a r e protected, b u t i f you

were t o sencd your items t o New York, t h e owner o f the
note

i s not es w e l l protected

Harrison. I

thint:

a s he i s if it is to be

i n New Y o r

protected t h a t h e i s i n Boston, 3b?e c a u s e

h e i s much petter
i n N e w York, u n -


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

like Boston, h s c a n sue o n the original notes
in Soston, w h e n y o u t a l e p a y m e n t

in a

bank d r a »

note

is gone forever, a n d obligor i s releasad.
Governor: Seay.

i n one case

he gets h i s collateral pach.
Governor Morss.

l i e coes n o t want

the last thing h e wants.
Chairman.

S u p p o s e y o u get 4

creft, w i t h

crayn o n a b a n k i n Portland, Maine.
do you g e t payment f o r thet d r a f t ?

How

Y o u send i t t o Port-

lenc f o r

you accept a
obligor
2|

o n the craf

bani craft, t h e

w i t h security attached,

i s released,

st h i s

make i t absolute because o f such things

Harrison.

your p r a c t i c e
Y o u c a n n o t mailze a
a p o l y a n y place,

ept Boston.
Governor Morse.

i

e Cannot m a k e i t apply t o evcry

but w e c a n maize i t anply t o most cases.

N e w

ex-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

2538
i t avply t o
apparently Goes n o t c o thet; t h e y d o not make

We c o i n New York City; w e always
check i n payment

o f t h e i r collections.

It only arises outsice o f N e w York, where i t does with you,
as outsice o f Boston,

w e never re-

lease notes collateral i f we can help it, but i f we c o we
have o n e adcitional advantage t h e t y o u have
got « check which m a y o r may not b e peid, a n c
to sue o n the original note o r a certified c o p y o f it,
you c a n n o t do.

B u t t h e collateral i s

Governor Miller.
Mr. Herrison.

Y e s , b u t i t i s i n Boston

Y e s , I think i t is, w h e n y y
:
@ got t h e impression f r o m t h e corresponcence

Governor Morss.
_Boston.
“
outside /

cid not protect
end conversstion that we had,that you
the o w n e r o f t h e note,
well

i n whet y o u accepted

i n peyment,

2s

a s w e p r o t e c t e d t h e m i n Boston.

We accept just what you do.
w e hac

Governor Morss.
Mr.

Harrison.

A

s I

say,

there

was a

misunderstending.

your member
We have figured i t out that w e n o t only give


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Dank a n d our member b a n k a l l that y o u do, b u t that w e have
the additional advantage i n New Yori: that w e can s u e o n the
note.
Governor Calkins.

n

o

t t h e t covered b y the circu-

Chairman.
next i s No. 6 .
Exchange Charges:

T h e r e should b e a n uniform practsrve BSanis i n the following

Decuction o f e x c h a n g e

o n Cemanc c e r t i f i c a t e s

of deposit a n c time certificates o f cepnosit
sent f o r c o l l e c t i o n

a t maturity.

That m a t t e r i s a u t o m a t i c a l l y c e a l t w i t h , i s n ' t i t ?
whet cdo y o u p r o p o s e

i n regard

Goyernor McDougal.

t o this topic?

h e r e i s a memorandum i n a re-

port h e r e t o t h e e f f e c t t h a t i t i s c o m m o n p r a c t i c e
districts

t o use t h e certificate

cashier's c h e c k o r b a n k creft, A

o f deposit

i n rural

i n licu o f a

certificate

o f Geposit

is a cirect obligation o f the issuing b a n k a n c e s such
5|

v

e

heck; o t h e r ~

wise i t s h o u l é b e h a n c l e c

as a

cash i t e m a n d n o cscuction


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

a ve
Governor Caltins.

h e Board has:
i

Governor McDougal,

e d , c o n t r e r y .

s n o w t h e practice

o f all b u t

cnrec o f the keserve 3anizs, Richmond, Minneapolis a n c SenFrancisco,.

4

t o handle

practice s h o u l d b e uniform, I

However,

think i t has b e e n t a k e n c a r e

n o action i s asked t o d e taten

On G a l s topic.

The Cheirman.

I f n o action i s necessary w e will g o t o

next one,

Topic (b). D e d u c t i o n o f exchan: n

checks protested

anc returneca f o r n o n - p a y m e n t when r e -

forwercec f o r collection a n d paic b y crawee

Governor MeDoug:

I

n accor€ance with the Board's

of November 29th, 1919, protested cheeis forwarced
second time a r e handled e s collections.
Gishonored i t e m s a

I n collecting

cistince

fore t h e collecting bank i s entitled t o a charge f o r
service.

T h a t was put

i n here f o r t h e reason t h a t

i n some

instances items o f that sort came i n through banks where

collectéd:snd e n exchange charge decucted,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

ng banis w o u l d n o t s e c e p t payment.
Have y o u been a b l o t o c o l l e c t e x -

change t h e t has b e e n deducted a n d collected b y a
Governor McDougal.

w e would.

New Yort:
an a m e n i m e n t

t o t h e Federal Keserve

has n o r i g h t t o i m p o s e t h e excnangs c h a r g e u p o n the.

uceseded i n g e t t

m

e exchange b a c k

have b e c n e c c e d
mace

t o collect

is necesssry t o reforwarc i t for vayment i t i s n o t a

cash i t e m a n d c a n n o t b e m a c e s o .

The Cheirman. W e v e r t h e l e s s i t woulc n o t b e subject t o

Governor G a l t - i n s .

Toc Chairman.

I t should n o t be.

T h e mere f a c t that t h e Boarc rules

a
‘or physical, mechanical a n d mathematical reasons


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

257
accounting,

i t must b e hencled e s « collection item.

You

“o n o t a l t e r t h e l a w i o t t h e Unite: &tetes, w i i c h p r o v i c e s

that a chetk arewn e

member ben’: i s not subject t o de-

efuction f o r e x c h a n g e w h e n p r e s e n t e c

a t the Federal Keserve

Balke.

Governor Seay. I

move, Lr. Chairman,

i t i s the sense

of tne Conference thet s u c h checks shoulc n o t b e sudject t o
deduction f o r exchange.
The Gheairman.

v e n

i f p r e s e n t e c f o r collection.

(The motion, being duly secondec,
"

The C h a i r m a n .

T h e

FPeceral Reser
prectice

i n hend-

née collections, w i t h t h e a i m o f
Ba

the motnocds o f hancling checks f o r
member b a n s ,

so

sible, a s simple a s were
of the banis with their c i t y corresponden%
been subjected t o somewhat t h e
¥

same complaint t h a t Gevernor Fancher referrec to, i n the
development o f the technique i n another banic which i s dif-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

238
Ferent f r o m o u r s . I

thins p o s s i b l y s o m e o f o u r m e n fekh,

were surrouncing t h e collection business w i t h a good
cd

formality a n d r e a t a I

mittee.

may b e wrong about

I t is one that recuires
~

rgy a n d technique.
icthe dt? Gisele

n i g e

intencec

b

e raised b y that question w a s the o n e
previously r e i s e c anc. w h i c h h a s b e e n
Af y o u will, a n c

without p a s s boolis

ve Minneavolis pod

stemped “Can handle for collection
they
VoreLuseq

L O aceout

t o a aa

item, b u t t h e y

al a

eee c a s h

not e x e r c i s e t h e i r céisecretion t o handle
item, b u t returneé

h

a

c o l l e c t —
t they

could hancle o n l y f o r collection.
Governor Young.
Mr. Harrison. I

w

e

s n o t from Minneapolis.

understood i t wes f r o m Minne


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

although I

may b e

The Cheirman,.

No. ©

t h i n =the onvinion oo: t h e G o v =

in t h s d i s c u s s i o n o f t n e c u e s t i o n
1

that G o y o r n o r F a n c h e r p r e s e n t e c .

to have t h e Reserve Banks start a

campaign t o ecucate t h e

have p r i n t e d c e r t a i n i d e n t i f i c a t i o n s y m b o l s
the c h e

t

o t h e i r customers,

c Jh
5)

ecits which they

to facilitete t h e sorting a n c collect-

This comes uncer topic No. 2, uncer C.
2) I d e n t i f i c a t i o n s y m b o l s o n member sani:s!
do n o t i m o w w h e t h e r

Up =0r not.

I

t h e t i m e has arrivec

t o take

t woulc p o s s i b l y s u b j e c t t h o

some expense a n c consicerable annoyence, b u t i n time
it ought t o b e done. I

do not imow whether y o u tnow

but i n England, w h e r e o f course h a s ceveloped through
prench extension,

e v e r y c h e c k t h a t h a s t o pess t h r o u g h

the London clesring house must bse
One symbol i s e« circle, another i s


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

240
third i s a square.

T h e y a r e printed plainly i n one corner

of the check i n black ink.

T h e y have inside o f one symbol

a "C", inside o f snothcr a n "Mm"; the "0" indicates the
country, a n d the "ii" "metropolitan", a n d then they have
another letter that indicates t h e area immedictely around
that city.

T h e y have three clearings,

a s you imov,

the distinguishing feature between t h e three clearings
being t h e t i m e a t w h i c h t h e c l e a r i n g closes,

t h e clecrings

in the London clesring house being continuous. I

have

been i n the clesring house, a n d I have seen how i t works.
These checks g o rattling through 2 1 1 d a y long, a n d t h e sorting a n d h a n d l i n g o f t h e c h e c k s

i s v e r y m u c h feciliteated,

just a s the counting o f moncy i s facilitated b y having
the denomination i n a plain figure and i n a handy location.
If the day ever comes when w e can get our member banks t o
adopt a

system o f s y m b o l s - - t h e o n e s u g g e s t e d h e r e m a y n o t

be t h e best b y a n y means--you e r e going t o find that t h e
cost a n d t h e t i m e r e q u i r e d

i n sorting a n d routing t h e

checks a n d t h e amount o f lost time a n d lost motion d u e t o

error i n sorting is going to be tremendously recuced.

Tf

do not vant t o recomnend t h a t w e d o thet now, b u t i f w e
have a

committee appointed t o consider t h e perfection o f


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

eo
the
ths t e c h n i a u e o f / c o l l e c t i o n

s y dv
s3t e m

=

h

e

n

e topic which

hey covulc t a k e u p a m i c o n s i c e r a n d s h o u l d c o n s i c e r c a r e LULLY<

I f i e ever

course o f time
the checks bearing
Governor Scay.

e s e symbols.

I t could

coumunication a n d
mé i t w o u l c s e r v e t h e p u r p o s e

if a

resolution w e r e p a s s e d

to t h e e f f e c t t h a t t h e F e c e r a l R e s e r v e B a n k s p u r s u e t h i s

as a matter o f education w i t h their banks andgraduclly bring it: about.
Governor V e n Zandt.
ton n u m b e r s

W w e started o u t b y heving t h e skele-

o n t h e checks,

b u t that didn't meet with much

SUCCESS.
The Cheirmen.

Y o u r motion would be, Governor Seay, t o
et numbers o n the checks, inasmuch e s
DSéeginning a n c a greet m a n y o f then

have t h e m o n there now, a n c thet i t w o u l d b e confusing t o
abencon thet f o r a new Cesienetion?
Governor

V a n Zanat.

T h e stzelston n u m b e r doses n o t a n s w e r

the purposes t h e t t h e s y m b o l c o e s , f

h

e

r e

t h a t some


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

AS
for instehce S a n Frencisco, h e v e a

great many

the cistrict numocr a n c also a n
indication o f the branch,

i t would facilitate sorting

materially.
The Chairman. I

hpeve a feeling thet when w e undcerteke

a campaign f o r t h e c e v e l o p m e n t

checis w e c a n develop a

o f t h e u s e o f symbols

on

system o f symbols which will b e

easy t o epply to existing checks,

b y a ruboer stemp i f

necessary, u n t i l existing p p l i e s a r e

e d up, o n e that

will b e m u c h m o r e c o m p l e t e

skeleton number o f the district, w h i c h i s not a

very com-

plete s y m b o l a n d d o e s n o t a f f o r d t h e c o n v e n i e n c e t h a t a

better system o f symbols woulc afford.
Governor Fancher.

involved
in the hants o f
think i t tool: three o r four
years b e f o r e t h e y r e a l l y
in fact,

i n order t o

of this sort, i t would have t o b e tairen i n henc
comaittes t h a t would simply live with i t
and i t wouléG b e a

vw

f

F several years before

i t could


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Chairman.
a metter

I s this a n opportune

a s this?

Goyernor Frencher. I

co not dDelieve i t is.

i -om- witting,-it- there i s
that s

p

e

s

s t n e topic.

m e ne.t-tpopic 1 s

UNLEOrm-praccice

a2

on vehelf
anc t h e i r b r e n c h e s
bank failures.
Governor McDougal.

I t i s o u r prectice

t o file elaims

on recuest- o r ceposi tore.
Cine

5 6 rencer

Reserve Soard,
Banks, g a v e i t
claims

o n behalf

collection i s a

o f membdsr b a n k s

o n checks r e c e i v e c

service w h i c h t h e Yeders

might properly render. I

feél that t h e

cuestec t o file these claims s h o u l

c o it,

T h e practice

not d e i n g u n i f o r m i s perheps t h e r e a s o n t h a t i t w a s p u t o n

by Chicazo e n d also St. Louls.
Governor B i g g
s. W
£&

L i an t, i t h i g he lJy v ad e s i r a b l e t h a t a l l


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

244
anc orsnches f o l l o w u n i f o r m p r a c t i c e s
metter o f f i l i n g clsims
checlrs i n v o l v e d

o n behelf

i n the

o f encorsers, c o v e r i n g

in

Governor Seay.

W w e have o c c a s i o n t o file claims

for other Federal Reserve Benlzs, a n d we h a v e cone i t very
Willingly,

ané I

coneur

i n t h e opinion expressec

ernor licDougel t h e t i t w o u l d b e r e n é c r i n g a
the banizs w o u l d a d o p t t h e s a m e practice.

b y Gov-

service i f a l l 5
c

o i t cheer-

fully.
Governor V a n Zandt.

I n our district w e have done i t i n

& great m a n y i n s t a n c e s n ¢ c . i n s e v e r a l i n s t a n c e s
9

w e have

suceeedcd i n getting a preferred claim through for our in-~
coser, where owners o f checks t h a t were included i n the
eble t o get a

preferred c l a i m through,

t might b e worth something t o the banks t o
use o u r service.
The Chairman.

w

e file claims unless

check, t h e bank that owns t h e check, instructs u s that t l
will c o i t themselves.
Governor V a n Zanct.
authority.

w e file claims o n l y o n written


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

in t h i s m e t t e r ?
Governor N e l o u g a l . I

tion

woul

o f t h e Conference t h e t =

recommenc

f o r consicera-

uniform p o l i c y b e adoptec a n d

that when recuestee t o d o s o b y the owner o f thc checks
tere] H e s c r v e Bdtils f i l e
Governor Millor.

Y o u mcen t h e member

tie c e n ?
Governor
Governor H i l l e

e a e couastec

C

O s o D Y t h e other

member

iBACH rk
SOncC i n e

USCtause

Governor V a n Zandt.

They can

their customer.

The Chairman. T

P S o f Governor McDougel's motion

would b e t h a t t h e F e d e r a i e s e r v e B a n k s w o u l c f i l e c l a i m s
against f a i l e d b a n k s f o r unpeicd collections.
Governor MeDougal.
an.

O n request.

U n e request of: their L a s t

vractice b e mace uniform.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Fancher.
Harrison,

C 2 6 O a k Us

1 6 CO-1 S u n l e s s t i e

mat they will file their o w n claim.
Governor V a n Zandt.

B u t w e have d e c n

Federal K e s e r v e B o a r d t h a t
authority.
The Chairman.
serve B o a r a w o u l d hold.
Governor V a n Zandt.e

n

anything a b o u t euthority.

Governor Calkins.

i

D o e

n

i

: the motion contained

a

y when rcauested?

m y o v o c y p r o d u c e thet r u l i n g o f

the B o a r d ?
Mr. Herrison. I

a m s u r e l r . L O g a n c o e s n o t i m o w o f it,

because I heave Giseussed this whole question o f claims with
him e n d I

tole h i m t h a t

un lees “requested m o t t o
Governor Fancher.

w e file claims

G o 80.
‘Thet is

Mr. Harrison.
Clevelanc c i d t h e
fie. Chairman.

of motion, e n a that
the meeting that claims o f this

f o r o u r member banks

247

banks shall b e filed b y Federal Reserve Banks i n behalf o f


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

the m e m b e r b a n k s a n d o t h e r R e s t r v e B a n k s w i t h o r w i t h o u t
the r e q u e s t

o f t h e momber b a n k unless t h e Federsl Reserve

Banlt i s instructed t o the contrary; t h a t Governor V a n Zandt
be requested t o apply t o the Board,

i n onse h e finds a

written ruling o n this subject, informing t h e Board that
the Conference h e s taken this action, f o r e different ruling
from t h e Board.
Governor V e n Zandt. I
in response

think that ruling w a s sent t o m e

t o a n i n q u i r y a t e a time w h e n t h e y s e n t m e s o m e

correspondence t h a t they had with Governor S e s y o n some
claims t h e t h e had filed.
I t h a s b e e n o u r practice,

Governor Seay.

reted i n the motion o f Governor Strong,
gervice u p o n request,

o r , i n the absence

a s incorpo~

t o rencer this
o f request

t o the

contrary.

The Gheairman.

H o w does t h e t motion strike you, gentle-

Goyernor Seay. I
Mr. H a r r i s o n .

will second it.

T h a t includes

Reserve Banks

o r last en-

dorsers.
Goyernor V a n Zandt.

L a s t endorsers, y e s .

(The motion, having been duly secondec, w a s carried). /


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

248
Governor Seay.

M r . Ghairman, before adjourning, I

want t o mention o n e thing, w i t h Governor licDougal's con-

currence,

L a s t night the Board appointec a commiztee o f

Governors a n d t w o Fedcral Reserve Agents t o consider t h e

subject o f group meetings, a s t o whether i t was cesirable t o
continue them, anc, i f Ccesira! w h e t h e r t h e banks should
be r e g r o u p e d

o r not.

The o p i n i o n w a s «

a s s e c h e r e yesterday,

a s IL

it, t h a t i t woulc b e highly advantageous t o the Governors
themselves

t o have meetings,

greater frequency the:

h e y e

e s formerly,

a n d with perhaps

now called. a n c have t h e m

gton, where t h e y would n o t b e s o occupied
thet they woulc n o t have t h e

t

o

questions w h i c h s f

passed through m y mind, without talking t o Goycrnor McDougal,
thet conferences o f the Governors,

a s formerly held, s a y

quarterly, w o u l d b e more desirable a n d would effect better
results-The Chairman.
Governor S e a y .

T o b e hele a t ciffe
A t c i f f e r e n t K e s e r v e Banks. I

haven't

consulted w i t h anybody, n o t having h a c time, b u t I thought
might
b e brought o u t here before
ben)


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

mecting a t lunch today.
GOvyernor iiiller.

m

st completed a

e F e c e r a l R e s e r v e B a n k a t kansas

very beautiful office builcing,

the c e n t r a l point,
O.I v e t e y o u B e n o t e a n e 2 %

Governor Seay. H a v i n g just moved into o u r n e w buildcenc. b e i n g a c t u c l l y o c c u p y i n g i t , p e r h a p s

The Cheirman.

m y invitation

T h e suggestion h a s deen mace b y three

Governors, now, t h a t t h e work o f the Federel heserve Sanks
will b e greatly bensfitted b y having mectings o f Governors
banks i n Gcifferent Federal Reserve citiés f r o m time
to time, a n c m o r e frequently,

a n c that insteac o f having

> Which a r e i n c o m p l e t e a n c c a n n o t c e cice anything,

t h a t i t woulc b e m o r e ¢ e s i r a b l e

meetings o f the Governors a s suggested.

i a t I

t o have

uncerstend

is the sense
Governor S e e j

opinion 3

e

G 1 6

group meeting

4

y e t h a t i t 1a: n y

b

e mace beneficial a n d

s irom: them, b u t n e v e r t h e i e s s

haves expressec myself.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

30
LTa m s i m p l y introcucings
sfic.

a t t h e meeting,

but 1

S e c o n a - nh

uncers
t o w o r k on.

j u s t a s something

conversation,

Governor McDougal. C h i c a g o belongs t o
have h e l e G u r i n g

C a l l e d

t h e l a s t ycsr o n l y o n e mest-

iG, e n o thet
=

groups I f uncerstenr

DEVS

1ave gotten all

‘

e

r

i

n

g this

subject thet
e

helc.
bw e t
threc
r
e
wy w e e n

of Governors a n :
ine bined t o thin:

G

o

v

e

r

n

o

r

s

co Tiwonhkdé

whith h a s b e s n

they w o u l c h a r d l y t a s e
plece o f t h e g r o u p m é c t i n g s s u c h a s h a v e b e e n helc.
The Chairman. a
G

o

v

e

r

n

o

1

r

u

s Gonsicer w h a t
ray
t 1a
he
m s

1 boston,

ons

are v e r y G e l i g h t -

ful meetings;
up some

w e attcondec t h e Diréctors! meeting
v V
4

t

h

i

n

g

s a s contrasted
luncheon a n d cinner;:


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

251
we hac a delightful chat, b u t there were o n l y three cenks
involved e n d nothing could b e cecided.

T h e r e w a s little

opportunity f o r d i s c u s s i n g t h e t e c h n i q u e

o f t h e system, t h a t

we a r e a l l working o n and want t o perfect, a n d I
to s a y t h e t I

a m frank

would r e t h e r g i v e u p t h e n e c e s s a r y t i m e t o

having three mectings o f the Governors a

year, o r four,

or any number that i s feasible, i n ordcr t o get something
definitely decided, t h a n I would t o have thesc group meetings,

which are perfectly delightful, I admit, but which t o m7
mind d o not accomplish a

fraction o f what these mectings

of the Governors accomplish.
Goyernor Morss. I

agree w i t h y o u there.

Governor Calkins. T h e faet of the matter is we haven't
time enough t o devote t o these group mectings.
all t h e t i m e t h a t w e s h o u l d d e v o t e

Conferences o f Governors,

I f w e devoted

t o discussion

a t these

w e would give a l l t h e time that

we should b e away from t h e offices f o r such purposes.

T h e

group meetings e r e entirely inconclusive a n d always will
be, a n d o n that account I

a m i n favor o f inercasing t h e

Governors! Conferences a n d cutting o u t the group meetings.
The Chairman.

W h a t I would like t o d o i n connection

with the Governors' Conferences i s something like this,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

+-Or

e

t

s program
n
i
made
a
consists

f

topics berr

o

anc. u p o n c u =PagL r C e n c y ,

i

month i n atvance a n c

ana t r a n s i t m a t t e r s
e

e o u l c

g e t

p r

g r a m

u p

everyone w i l l h a v e o p p o r t u n i t y

study the subjects i n their banks, w e
melze

‘ a k e

to

woulc G heave t i m e

to

a thorough stucy, anc. then w e could g o t o a mecting,
take s o m e

o f t h e m ean

in the
2G

completely,

g

a

C e e Te: ra
=) them

t nh e ti i m e
k th
a e tt

Governor Caltzins.
most ¢évery C o n f e r e n c e

i

t

n

d

thoroughly a n d
would

Ls

o se F

o f Governors

Lo.

Governor

T

S

h

e

r

e @So u l e

t

a

l

have h e d

ns
dwios c u s

e

Es)t

to

hem,

e is

agricultural condition,
e interested,
r

t

been h e l d w e h a v e

tnat }

been unable t o get through w i t h t h e program
Gropp 1 6 % 2of 4 )

a

Governors

a in’; i t Bae

exe)
eoul¢c/into that cistrict and s e
woule g e t a better viewpoint.
of-the p e o p l e

otucr s e v e n G o v e r n o r s

the

e C O n ictons
ei
os

Soa l i manteen =Ger clatoa
i n the extreme

west a n d


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Central

west and

i n t h e South, I

think

i t would

b e very

beipr al.

The Ghairmen. I

think thcre i s a great advantage i n

doing j u s t whet y o u say.
Governor Seay. I

advencec t h e subject w i

getting a n expression o f opinion, a n d I might auc this,
as you recall objection w a s mace before t o these meetings o f the Governors i n cifferent <

f

-the country

on the ground thet t h e y were junkets. I
no o n e i s m o r e a v p r e c i a t i v e

a m satisfied that

o f hospitality t h a n I

it might b e well t o consiccr whether,

am, b u t

22

i f “«¢

trips, w e should have i t understooc t h a t w e ere n o t t o b e
entertained b y bankers a n c are n o t t o devote t i m e t o any~
thing b u t business.
The Cheirmen.

T h a t they will b e nothing b u t business

meetings.

Governor Calkin

h

e n a v e something further t o conto consicer

the s a m e s u b j e c t ,

a n c i

B

e

t i e t - 1 - thing

s e

prover

procedure w o u l d b e c o n s u l t t h e B o a r s

The Chairman.
resclution.

T h e r e

w a s g o i n g t o suggest that w e pass a
d i f f e r e n c e

between

t h e Conferences


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

agents a n c
reserve
woule n a t u r e l

we C a n C O L E D e t e r

p y mectin=

nthe

committee

of

matter.
thet t h e purposs-of-

th

PESPECTLE
V pertios

or not i t woula b e proper t o continue o r discontinue t h e g r o u p mestings.

1

e Board itseli referred

the . t t e r t o t h i s c o m m i t t e e f o r r e c o m m e n d a t i o n b a c k t o
the Board.
The Chairman. t

n o w proper f o r . u s

t o indicate

to Governor McDougal enc. Governor
think t h e group mectings should b e continued o r ciscontinued?
That i s whet they specifically a s k

t

o do.

H o w d o you


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

feel arout continuing t h e group mectings?
iovernor wellborn. |

think w e a r e a l l pretty w e l l

agreed o n thet, t h a t w e ought t o ciscontinue t h e m after

Governor Biggs.

i t i s very cifficult t o hold them.

ie h a d o n é i n Dallas t h a t w a s a

good one, a n d w e e x p e c t e d

Chicego a n c Dallas t o come t o St.Louis.
Gificrent a p p o i n t m e n t s .

a

w e m a d e three

t these g r o u p meetings t h e Board

was t o have n o t less t h a n one member.

O n One occasion w

a memocr o f the Board, a n d o n another occawent down through Dalles a n c through N e w
Governthe time, b u t w e

then w e could n o t g e t a representative of. the Board.
The Chairman.

N o w , Governors

you not thin: y o u heve a

Sea 1

McDougal,

d o

pretty clear uncerstending o f the

sense o f the meeting e n d t h a t you w i l l b e a b l e t o ceal with
tie -qucsbion?
Governor
Governor

Governor \ V Z a n d G e n t l e m e n , every time w e
sticn coming u p o f


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Pavone.
Govornors

t
*

o move n o w that f o r t h e
t Governor

Strong

b e mace

parraseon s e c r e t a r y .
(The m o t i o n w a s G u l y s e c o n c e c
q

r o l

motion t o

The &

(otion

Conferences

a n c unanimously

c a

o u r n is

e s . journ being mace

n

t

" Lio'tclock p m'until 2 o'clocl=
+
\

p m


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

SS.

The Gonf:rence roconvenea at2o'cloc! p m, c t the expirevlon o f tine e c e s s .

me Chairmen.

T h e mecting w i l l please come t o order.

the next i t e m o n the program i s
C.- Praensit.

Letters t o banks calling attention t o failure
to g i v e r e a s o n f o r n o n - p a y m e n t
turned.
This

w s proposed

Governor Biggs. I
May I

c f checks r e -

) o . h i s p r a c t i c e b e ciscontinued?
b y St.Louis.

G o v e r n o r Biggs?

Go not fine t h a t among m y pepers.

pass t h a t ?
Governor C a l k i n s :

T h e following motion w a s adopted

at the Transit Conference h e l d i n Cleveland o n June 23, 1919,
and approved b y the Federal Reserve Board.

"that where a member bank o r non-member bank returns
a check t o a Federal Reserve b a n k without giving t h e reason
fer non-payment,

t h e recciving Federal Reserve b a n k returned

the cheek t o its endorser w i t h the notation ‘ N o reasecn given!
and advised t h e b a n k b y which i t was returned t h a t i t failed
to give a
it cxpects

roason, a n d askcd t h e m forit, a n d also stated t h a t
t o hols t h e m r e s p o n s i b l e f o r t h e i r f a i l u r e

Endorsers a r e e n t i t l e d

t o this information,

reason t h e p r a c t i c a s h o u l d n o t b e discontinued.

t o doso

a n d Lor: t h i s


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

258

The Chairman.

A r e

Governor Calkins.
The Chairman.

N

o

. 4 6 m No.: 5 ?

N o . 4.

W i s 1 5 - 8 c y n o b i s teote.

found i t yet, Governor Biggs?

Governor Riggs. N o . P a s s o n to the next one yntil I
Can f i n d 1 % .
The Chairman.

L e t

Federal “ e s e r v e B a n k o f
writing.to m e m b e r b a n k s i m m e d i a t e l y u p o n r e c e i p t o f a n i t e m
unpaic w i t h o u t a n y r e a s o n f o r non-payment.
Governor V a n Zandt.

T h e F e d e r a l N e s e r v e B a n k o f Vallas

the same thing.
Governor Calkins. I
Governor F a n c h e r .

The Chairman.

think w e d o the seme thing.
w e GO«

I t i s Gifficult

t o arrive a t what should

case o f t h i s kind. C e r t a i n l y ,

y o u have

information f r o m y o u r m e m b e r bank,

Governor Caltins.

The Chairman.

v h a t i s your procecure?

w e just advise them o n that form.

Governor Callzins.

A c t i o n w a s taken b y the transit

managers Cepartment a n d confirmed b y the Federal heserve
Board

é


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

259

Governor B i g g s r a i s e s t h i s question.

I imegine t h e preetice o f the Feceral
uniform.

i

c wents t o tmow whether t h e t practice

*iscontinuec.
the a t t e n -

o f >

T h e vractice

Governor N o r r i s :

n't ¢ 0 its feilurs t o give reeson f o r not
of payment o f items whict

a v e prev-

outstancing?
not t h e t r e g u l a r l y c o n e b y e l l o f t h e

p

Governor Norris. 5
the g u e s t i o n w a s a s k e d w i t h a

view

u
t

i

t w e assumed t h e t
n

g r i c o f the.

trouble o f vriting t h e letters
Governor V a n Zandt.

Y o u g e t mors trouble o n your

shoulécrs b y the long chain o
it

heve i n tattingfup with these
reason given.

Topic
Governor 3 i g g s ?
Governor
5. C h e c k c o l l e c t i o n s .

cévices o f payment

F i n e l

o f items w h i c h h a v e p r e v i o u s l y b e e n a d =

visec a s outstancing.
Governor Calkins.
ieceral h e s e r v e Ban's

T h i s avpe
o f St.Louis.

O n ttems f o r w a r d e d

te

the F e d e r a l R e s e r v e B a n k o f St. L e v i s w e r e c e i v e a

letter which reads a s follews:

"This i s only to notify you that wea are without returns
on the following items.

T h i s notice dogs n o t necess-

arily imply non-payment,

a s the advice o f remittance m a y

have g o n e a s t r a y i n t h e mails.

N

e are tracing a n d will

advise y o u later."
That i e all. right.
and t h e n w o g e t a
in substance

T h e n w e notify our indorsers,

communication t h r o u g h St. Louis w h i c h reads

t o t h e cffcect t h a t , r e f e r r i n g

t u their advice

of n o returns s e n t t o u s o n t h e d a t a c o m m u n i c a t e d a b o v e ,

regarding t h e following items, t h e y b e g t o advise u s that t h e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

same i s n o longer outstanding o n their books.

T h i s second

letter i s very vague, a n d they d o not give u s the nocessary i n f o r m a t i o n

t o pass u n o n t h e m a t t e r .

I do not think e n y action i s necessary o n that.

Governor Van Zenct. “ N o longer outstan: ing"
means i t i s not received o r might have been returned.
Govirnor Seay.
Governor Caltzins. I
Mr. Herrison,

Go not think so.

O n e i s maturing notes anc. the other

is checis.
Governor Seay.

T h e word “ i t e m

‘

But i t i s uncer t h e transit topic.
I wish t h e t i t w e r e c o v e r e c

(1).

T h e a t woulé

be

o f it.

the b e s t c i s p o s i t i o n

Governor McDougal.
Chairmen.

by B

h

e

T h i s subject h a s becn covered.
v

e

e

r

e

d

t

h

e memoranda

which I have o n this topic © (5) that the men a t the

Dank a t N e w York regard
being u n n e c e s s a r i l y bur: ensome
Governor Calkins.

T h e y are.

very bur. ensome a n d not help-

“Tt has been &
banks

practice o f several o f the western

t o very promptly s e n a o u t notices

o f non-payment

o r

unsatisfactory returns. s p p e r e n t l y s u c h notices h a v e been
mailec

i r B S S oof2

Ce 3

C e lLew 4 3 e c e i v i n g r e m i t t a n c e ,

in s o m e c a s e s e v e n h e r
than l o c a l exchange. .
notices

e r a n c e w a s mace i n

wery l a r g e percentage

i s followee w i t h i n f o r t y - e i g h t h o u r s

n e r

of

by a

Sing that t h e items have b e e n paic, e l l o f
a great ceal o f work, n o t only
bani:: sencing t h e notices out, b u t also
on the part o f the bents receiving them.
"hile p r o m o t a c t i o n w i t h respect
this c h e r e c t c r

t o a l l items o f

i s v e r y m u c h t o b e commended,

i t would,

nevertheless, a p p e a r t h a t i n m e n y c a s e s n o t i c e s h a v e b e e n
sent o u t u s s l e s s l y e n c c o n s i c e r s t i o n m i g h t w e l l b e g i v e n
bOtHS


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

for items under »500.00,

i t were t h e

ths sending o u t o f these notices o f non-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

payment o r u n s a t i s f a c t o r y r e t u r n s f o r a
hours, e x c e p t

period& o f 4 8

i n cases w h e r e a c t u a l n o n - p a y m e n t

is

sooner determineé, m u c h work woulc b e avoiced f o r ell
concerned without increasing t h e risks incicent t o the

handling

o f such items."

Governor Calkins, t h e t i s our comment o n this topic.
Governor Fancher.

O u r comment

t h a t o u r practice

with regard t o sencing o u t notices o f non-payment o r
unsatisfactory returns,

i s that w e mate o u t a notice i n

triplicate, t h e original c o v y f o r the incorser, t h a t t h e

item i s unaccountec for, a n c a duplicate o n finel advice o f payment, anc. w e r e e

triplicate

o f the copy

for o u r f i l e s .

The Chairman.

H o w s o o n c o y o u sénc t h e t notice o u t ?

Governor Fancher.

T h e first notice, Mr. Chairman,

immeciately.

The Cheirman. G o v e r n o r Calkins, w h a t i s your sugSestion o n t a l s t o p i c ?

Governor Calkins. N o t h i n g . I
action i s necessary.

do not thin!: that a n y

T h e complaint w a s o n l y with regard

to St.Louis anyhow, a n d they might rcform their practice

and thereby cure the situation.

I s there anybody else


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

tnat i s concerned, Governor Strong?
The Ghairman.

e t m e see, H e r e i s a little record

in the month o f Januery, that Minneapolis sent us 612 ¢&
without return advices, a n d i n February oo.

T h e

of returns received amounted t o ¢90 i n January
147 i n February.
Governor Young. I
have

was late getting in, f o r which y o u

m yv h u m b lB e a p os l oBg y y. 3 I

have a

memorancum

I asstme t h e t t h e m a t t e r y o u a r e d i s c u s s i n g

o n that

i s (5),

collections-~final advice o f payment o f items which have
previously been advisec a s outstanding.
The Chairman. C o r r e c t .
Governor Young.

Reserve Bank o f H i

I t i s the practice o f the Feceral

X Y 2 ¢ v i s e their incorsers
received f o r collection e r e still

outstencding after reasoneble length o f time i n which t o
ecure payment h a s elapsed.

T h i s i n order thet t h e y m a y b e

put o n notice t h e t t h e i t e m s h a v e n o t b e e n p e i d u p t o t h a t

time.

S h e n payment o f the remittance i n which these items

were i n c l u d e d

i s received, n o t i c e i s s e n t t o o u r i n c o r s e r

thet t h e i t e m u p o n w h i c h p r e v i o u s n o t i c e h a s b e e n sent,

ts n o longer outstanding.

T h i s places t h e Federal R e -


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

265

serv® Bank a n c t h e indorser i n the same position a s though
no noti

a

d b e e n sent--that t h e i t e m was outstanding.
orm bound i n books, w i t h tardboard bacis,
the first being t h e notice t h a t

outstanding=-the second notice, t h = t i t i s n o longer outanc. the thirs., a

copy for o u r records.

three forms a r e all filled .
we thus hove a

T h e

©

samc t i m e except a s

r e+

showing that w e heve

notified o u r i n c o r s e r t h e t t h e i t e m i s outstanding,

end

record s h o w i n g t h e t w e h a v e s u b s e q u e n t l y n o t i r
that i t w a s n o l o n g e r outstancing.

indorser t h a t t h e
making a

o m w a s paic,

i t would necessitete o u r

thorough investigation t o sce

been returned u n p e ¢
our i n c o r s e r n o t i f i e d

a t t h e item had not

if i t hac b e e n returned unpaid,
i n this event.

ight n o t i f y o u r indorser,

Otherwise,

w e

t h a t a n item hac b e e n paic when

such i t e m h a c n o t b e e n p a i d e v e n t h o u g h
items i n c l u d e d

I f w e advised o u r

i n the sams remittance

t h e belence

o f the

hac bee

used the worcing o n our second notice "returns have now
been receivec,"

t h i s might b e interpreted

b y o u r incors

as advice o f finel payment, a n c they b e thus misled.

I f

inal edvice o f payment i s cesired b y our indorserg t h e y

266

Sceciel r e q u e s t f o r s u c h information,

e n c i t will

but i n the great majority o f cases, t h e
item i s n o longer outstancing o n our recorcs,

i s a l l t h e t i s ¢esired.

forms used b y u s i n acvi g
I co not Imow anyth

A t t a c h e c a r e conies o f t h e

outstancing items.

a b o u t this.

I t was prepared

by

is a very scrious thing with
eheve

k e p t a n accurats r e c o r d

supvose t h e t cvery c a y there e r e between 8 0 0 a n d 900
ben'ss a t t h e H e l e n a b r a n c h a n c t h e M i n n e a p o l i s b r a n c h t h a t

ere behin¢ f r o m o n e t o thirteen deys i n their remittences.

They sey “vhy con't you get - men out there?"
senc. out there. s

u

“ e have
s3

t whets

with i n the ninth "ecera]l “eserve District o n this par c o l l e c t i o n o f checks, a n c I teli y o u i t

The Chairman. I

am not going t o quarrel with you

about cutting the burden o n us to loo: u p these items s o
long a s you open those banks ena get the money for us, s o
I a m concerned.

Governor Young. I
heve


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

o n this.

c o not know what s u g

T E imow t h e t o u r i n s t i t i t o n w i l l

b e reason-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

267
able about it. I

assume t h a t o u r transit manager handled
H a s there b e e n a

this i n the w a y h e thought w a s best.

resolution offered o n it, o r anything?
The Chairman.

No.

W e were just sitting o n the corpse

T h e suggestion seems t o b e that there i s o n unnoc-

here.

essary number o f notices going out.

W h e n w e founc,

a s we

aid i n New York, t h a t t h e notices were scent i n o f n o return faster t h e n w e could check them back a n d look u p the
s o that t h e advice o f payment came i n before w e

items,

had l o o k e d y p t h e a d v i c e o f n o rcturn,

w e thought--we h a d

1100 o r 1200 o f them i n one month, t o check up-Governor Young. I
appear.

think that this will gradually cis-

W h i l e counsel f o r t h e Federal Reserve Board ox-

presses t h e wish that banks d o not d o enything t o change
the present p a r collection o f checks,

s o far a s the Min-

neapojis district i s concerned i t i s almost impossible t o
continue t h i s thing.

W e are taking »

big chance a n d risk

every d e y o n it.

The Chairman, G o v e r n o r Calkins, w h a t disposition would
you like made o n that topic?
Governor Calkins.

M y acvice h e r o i s that i t only

applied t o St.Louis, b u t inasmuch a s there a r e others, I

do


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

268
but
not Imow/wwhat w e ought t o take some action. I
to know i f t h e

would like

i s a n y othsr bani: taking t h e same position

het

Governor

Minneapdis, a n c t n e

w e c t h e same thing i n

t i i nis: Wes.

Governor Young.

- e w a s followed i n

h e same p r e

or returnca"™

Governor Caltrins.
a
fering with banlzrs such a s Governor Strong has ment

Go n o t w a n t t o i n t e r f u w w i t h t h e r e e p e n i n g o f Banks.

Governor Biggs.

Y o u want a

I thin': you should have it.
Governor Norris.

o b j e c t i o n t o ecvis-~

I s there a
insteac.

O C :

i n g that i t i s n o

longer outstanding?
Governor Young.
fortunately feels thet

a

b

i f .

o

u

check

t because o u r m a n uni n that letter should

he returnee o r shoulé b e outstanding, y o u would g e t that

anyway, y o u would have notice
you that this check wes paid,
ecvice,

o f a t , w h i l e i f he advised
i t would n o t b e a correct

outa n c h e simply acvises t h e t i t i s n o longer


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

269

stancing,

wnichi
s the same thing a s advising that i t was

peid.

Governor Calkins.

N o , i t i s not t h e same thing e s adthe burcen o f finding o u t

whet r e a l l y h a p p e n e c

o n t h e o t h e r bank.

Governor Norris. I

do not think so, because y o u have g o t

item bact..
Governor Caltzins.
Governor N o r r i s .
Governor

T h a t i s whet y o u mean?
H e coes not--

V a n Zandt (interposing).

T h e returned

item

might b e lost i n the mail.
Governor C a l l i n I

a m willing t o pass i t without a n y

action.

Governor Young.
The Chairman.
is p o s s i b l e

T h s t would b e fine.

M a y I ask Governor Young t o s a y i f i t

t o s a y w h i t h e r t h o s e a r e b l a c k o r white i t e m s - ~

whether t h e y h a v e b e e n p a i c o r n o t p a i d ?
Governor Young.

[ I t will b e c i f f i c u l t

If there i s a n y possible chenece o f coing
we Will b e very gied t o c o it, o r i f y o
anc. w e

t o c o thet.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairman.
that w a y

Governor B i g g

T e s

w

e c a n G o better.

W e c a n ad~

is t h e complaint.
Chairman.

S h a l l w e c h e c k No. 5

anc pass t o t h e next

topic, w h i c h i s
if. C O L L E C T I O N S A N D CLEARING.

edit f o r officers! checks i s Reserve Banks.

T t 2 s 8

recommended t h a t i m m e c i a c e c r e d i t b
at a l l F e d e r e l K e s e r v e B a n k s a n d branches

So
for e l l checks issued b y another Federal
r branch,
ing b a n k b e p e r m i t t e d

a n c that t h e receiv

t o deduct s u c h items

from i t s credits t o the issuing bank,
there!
his r e c o m m e n d a t i o n

t o place

everal Federal Reserve Banks
as availability

is concerned, a s transfer crafts and
chenge Grafts issued b y member banks.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

271
Governor

S e a y

Mr. C h a i r m a n . I

»

I

y
will answer

move t h a t

n

m
e affirmative
t o that,

i t i s t h e s e Scnse

thet immediate credit b e given f o r officers! checks
issued
by F e c e r a l k e s e r v e

Ba

Governor Young. I

seconc t h e motion.

Governor V a n Zanct. I
itself

i s sufficient

think: t h e e x p l a n e t i o n
t o t a k e t h e place

o f any

ready f o r t h e question.
The C h a i r m a n .

N o further

(The m o t i o n w a s v u t a

Par clearings i n the Sixth District--Its j w csent
status, legal e n d otherwise,
Governor wellborn. I

have a

paper here, w h i c h i s not

very long, e n c I will b e glad t o read it,
able.

Y o u ‘snow, a n injunction v a s brougit

the country bantirg,
éeenting f o r your considersation t h e legal
s

tion, I shall trace only the bare outlines o f
issues i n the suit a n d o f its cevelovmen
conclucing w o r d a s t o what r e m a i n s

d a t e , with

t o b e done b e f o r e t h e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

issue i s finally determined.
s a y b y t h e statement

I might p r e f a c e a l l t h a t I

just ripe f o r a hearing o n its merits, w i t h
question definitely determined--viz:

the

of the Federal Courts over t h e controversy.
7

E y

Except f o r a final determination

t h e fact that t h e Fed-

eral Courts have jurisdiction o f the s u i t , t h e Cecisions.
heretofore hended d o w n have b e e n b a s e d entirely o n the
pleadings

a s filed i n t h e

defendants.

h

e plaintiffs a n d t h e

i o issues o f fact have b e e n heard o r deter-

mined.
the collection a t
checks drawn o n all banks

i n the Sixth F e d e r a l e s e r v e

District, t h e Federal Reserve B a n k o f Atlanta announced

then remitting a t par its intention t o
spirit
carry o u t what i t c o n c e i v e d t o b e t h e i n t e n t a n c
of t h e F e d e r a l R e s e r v e A c t i n t h i s regard.

In December, 1919, a letter t o this effect was prepared a n d sent o u t t o a number o f
Srree

T h a t letter contained t h e

t

h

e S i x t h Diss

n e r widely adver-

the
tised phrase t h a t t h e Atlanta B a n k would regret, in.
f a refusal t o remit a t par, t o adopt methods o f
ecllection “which might prove expensive, annoying a n d

embarrassing, ! n i g h t appropriately b e here s a i d
ietter w a s s e n t o u t t h e r e w a s n o
intent

o n the p a

t

h

e F e c e r a l R e s e r v e Bani: t o embar-

Pass, a n u o y o r injure a n y banking institution.
Simply m e a n t t h a t a n y method

T h e letter

o f collection w r i c h involyeg

preseutation a n d remittance through channels other
t h a n thé
meil o r c o r r e s p o n d e n t b a n k s , w o u l d p o s s i b l y
C o r r y with=i¢

features which might,

i n some Cegree, prove annoying both

to the Reserve B a n k a n d t o the remitting bank.

Those

words, a s used, were, however, n e v e r intended t o
contain
a threat o f substentiel o r material injury o f a n y kind
or

After

t h e lettor w a s sent o u t some conferences

were

hele with t h e officers o f non~member banks, a n d every
effort w a s mede t o explain t h e ec.ventages o f a system
of
universal p a r collection t o the b a n s t h a t a i d not cesire
to remit a t par ang, also, -the fact t h a t t h e remitting
at
par woulc n o t injure o r hamper legitimate ectivities
of
any institution.
Despite t h e e f f o r t

t o matre p a r c l e a r a n c e

plished fact without friction, a

a n acconm-

number o f Stete non-

member banks, describing themselves i n the bill
of com


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Plaint a s "country benks", filed, i n January, 1920, a n
equitable s u i t i n t h e S u p e r i o r C o u r t o f F u l t o n County,

Georgia, asking f o r a n

j u n

m n against t h e Federal hke-

serve Bank o f atlanta a n d its officers.

T h e bill was

ks had been making,
for a number o f years, charges t o cover the su-called

"service" of remitting at par, and had the legal right to
continue t o make s u c h cherges, whether o r not t h e Federal
Reserve B a n k o f ai t b a desired t o avail itself o f the

“alleged service".

I t was alleged that the loss o f reve-

nue from exchange woulc seriously cripple a l l o f the
plaintiff b a n k s a n d w e u l d d r i v e s o m e o f t h e m o u t o f busi-

ness.

T h e fallacy o f these contentions w i l l b e

ceivec, b u t will n o t n o w b e specifically pointed
being t h e p u r p o s e

o f this paper t o state t h e casé which

the plaintiffs endeavored t o bring rather than t o argue
the p r o p o s i t i o n s involved.

The bill contained t h e further cherge--a mere concluSion-~that t h e F e d e r a l h e s e r v e Sanit o f A t l a n t e w a s p i a n ning, u n d e r t h e g u i s e o f a

per c o l l e c t i o n program,

t o

force n o n - m e m b e r S t a t e banits i n t o a n i n v o l u n t a r y a f f i l i a -

tion with t h e Pederal Reserve y s t e m , either a s regular
or c l e a r i n g members.

I

n o t h e r words, t h a t t h e u n d e r -


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

lying p u r p o s e o f a

par

to collect checks, b u t w a

b

y o t h e r and

ulterior motives.
5

The b i l l c o n t a i n e c a

f h

h

vite y o u r p e r t i c u l a r attention.
the b a s i s f o r t h e decision

particuler

in-

i n a s m u c h a s i t constitutec

t o accumulate c h e c k s d r a w n

institution until

amount,

( t o which I

o f t h e Supreme Court) t h a t t h e

Federal R e s e r v e B a n k i n t e n d e d
on a

a >

t h e aggregate

o f checks

a n d t h e n c t o present t h e
ag, Geclined

per, a n c d e m a n c payment

i n currency.

t o re-

W h e ps1

chargea that such tacties would inevitabiy embarrass
the bank subjecte

e r e a

that F i n a l l y i t would b e

forced t o y i e l d t o t h e d e m a n d s
driven o u t o f business

o f t h e Keserve B a n k rather
b y the continued pressure

over-the-counter d e m e n d s f o r c u r r e n c y payments.
this b o c y o f m e n i t i s u n n e c e s s a r y

of course,

1 S £412 .

t o s a y that,

Bank h a d n o irtention o f accumulat-

ing checks i n the w a y charged. I
was contained i n the bill.

a m only stating what

T h e preyers f o r relief s e t

out i n the bill were f o r a n injunction egainst t h e collection

o f cheeks

i n any way except through

t h e mail,

through ¢

r i n g houses

o r c o r r e s p o n c e n t banks.

was asked ‘ e c e t e b y its decree a

T h e Court

situation where t h e

Atlanta S a n k could collect checks drawn o n non-member banks
Geclining

t o remit

a t p a r o n l y i n t h e m e t h o d s p o i n t e d out.

Being inhibited by-:tthe Federal Reserve A c t from collecting
by such methods w h e n exchange charges were exacted, t h e
bank would b e compell

( 0 forego t h e collection o f checks

drewn o n all non-member
The bill contained
directed a t the policy o f the defendant bank a n d o f the Federal Reserve Board i n the premises.

T h e s e attacks were n o t

material t o the case, w e r e f e r beyond t h e scope o f the immediate controversy a n c hed n o relevancy thereto-~the obvious
purpose béing t o enlist sympathy f o r t h e country banks
Upon t h e p r e s e n t a t i o n o f t h e b i l l

t o t h e court,

and

‘

was granted.

The pleintiffs i n the original bill were all Georgia
panks, b u t a number o f bantss i n the other States v e r y
shortly came into t h e case b y the f

i g of interventions

ana, therefore, c a m e within t h e protection o f the restrain-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

277
ing order.

I t was then deemed advisable t o cease attempts

to collect. c h e c k s

a t par, e x c e p t w h e r e r e m i t t a n c e s

at mr

were being voluntarily mace, pending a termination o f the
litigation.
Messrs. Hollins N . Rancolvh a n c Robert S . Parker,

of

Atlanta, counsel f o r the bank, immediately filed i n the
Superior Court o f Fulton County, Georgia, proceedings t o
secure a

removal o f the controversy into t h e District Court

of t h e U n i t e d S t e t e s

f o r the Northern District

The r e m o v a l w a s s t r e n u o u s l y r e s i s t e é

o f Georgia.

b y t h e plaintiffs,

end the
several days.

ing the case into the United States Court, but carrying
with i t the temporary restraining order which hac been
granted u p o n t h e filing o f the petition.

J u a g e Samuel

H. Sibley, o f the Northern District o f Georgia, h a v i n g
helé h i m s e l f


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

t o b e disqualified

b y reason o f his prior

connection w i t h some o f the plaintiff banks, J u d g e Beverly ). Evans,

o f the Southern District o f Georgia, w a s

appointed t o hear the case.
Plaintiffs moveé i n the District Court t o remand t h e
cause t o t h e S u p e r i o r C o u r t o f F u l t o n C o u n t y , Georgia,

raising thereby a n issue a s t o whether o r not t h e Federal Courts h e d jurisdiction.

G o u n s e l f o r the bank then

moved t o dismiss t h e bill f o r want o f equity.

S u s h

motion i s i n the nature o f a general demurrer, a n d its
legal effect i s t o raise a n ismic a s t o the sufficiency
of the bill t o state a
the motion,

case, conceding f o r t h e purpose o f

t h e t r u t h o f a l l t h e averments properly s e t

up i n t h e bill.

I n o t h e r words,

such a

motion t o d i s -

but
miss concedes f o r the purpeses o f the argument,/for t h a t
purpose o n l y , t h e t r u t h o f a l l t h e p r o p e r l y p l e a d e d

allegations i n the bill, a n d puts u p t o the court t h e

question: " D o e s the bill state a cause o f action i n equity?'
In April, 1920, t h e court heard arguments f r o m both
sides

o n t h e m o t i o n t o r e m a n d a n d o n t h e m o t i o n t o dismiss

for w a n t o f equity.

A t this hearing counsel f o r plaintiffs

took t h e position that t h e effect o f enforcing p a r clearance w o u l d b e t o deprive t h e p l e i n t i f ? s

of a

valuable

property right, viz: the right t o make and t o collect

charges for “exchange", from which source of revenue
substantial r e t u r n s h a d f o r a


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

alized.

long period o f time b e e n

I t was stated that t h e Reserve

Bank had no

right

t o ceprive t h e plaintiffs

o f t h i s source

o f revenue,

which r e s u l t w o u l c f o l l o w t h e c o m p l e t i o n o f t h e

Our c o u n s e l a r g u e d w i t h f o r c e t h e p r o p o s i t i o n t h a t

the Federal Ressrve B a n k had >
other person),

right ( a s would have a n y

i f i t s a w fit, t o present a

check directly

to the payee b a n k a n d a t its counter a s k for payment either
in currency c r acceptable exchange,

a s might b e desir

It was arguec t h a t t h e a i n t i f f banks h a d n o right
insist u p o n rendering a

scrvice which w a s n o t asked b y

2 Bank, a n d that i t was lawful f o r the
Federal Keser

B a n k t o maize collection o f checks i n any

awful way.
In t h i s v i e w o f t h e law, t h e D i s t r i c t C o u r t concurred,

and €

. e e r i n g a n d consideration o f the matter,

an

orcer w e s filed Gismissing t h e bill f o r want o f ecuity.
it the same time a n order w a s filed retaining jurisdiction
of t h e c a s e a n d r e f u s i n g t h e m o t i o n t o remanc.

The effect o f a Gismisal o f the bill was, o f course,
to t e r m i n a t e t h e t e m p o r a r y r e s t r a i n i n g o r d e r w h i c h h a c b e e n


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

when e

s u i t w a s filed.

T h e court, 3h o w e v e r ,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

‘

superseded i t s j u d g m e n t p e n d i n g a p r e a l a n d , t h e r e f o r e ,

the original restraining orcGer which h a d been granted b y
the Superior Court o f Fulton County, Georgie, remained i n
effect until t h e case could finally b e passed o n b y the
higher courts.
The p l a i n t i f f s t h e n t o o k a n appeal

t o the Circuit

Court o f Appeals f o r t h e F i f t h Circuit, a s s i g n i n g a s e r r o r

both the refusal o f the court t o remand t h e case a n d the
dismissal o f the bill f o r want o f equity.
Term, 1 9 2 0 ,

A t the October

o f t h e C i r c u i t C o u r t o f Appeals,

again came o n for a hearing.

t h e matter

I n that court the same

points were made a s i n the court below, a n d t h e l a w was
elaborately presented b y both sides, orally a n c b y vriefs.

In November, 1920, the.Circuit Court o f Appeals hanced
down its decision, w h i c h was unanimous, o n d which affirmed
Judge Evans i n all respects.

T h e opinion o f the Circuit

Court o f Appeals w a s written b y Judge Grubb,
clean-cut v i n d i c a t i o n

and w a s a

o f Alabama,

o f everything f o r which

the bank a n d its counsel h a d contended.
Plaintiffs, h o w e v e r ,

took a

still f u r t h e r appeal,

and

carried t h e matter t o the Supreme Court o f the United
States.

I

n the Supreme C o u r t t h e same important questions


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

were p r e s e n t e c f o r d é c i s i o n e s h a c b e e n p r e s e n t e d

i n the

two lower courts, viz: t h e fundamental question o f whether
or not t h e United States courts h a c jurisdiction o f the
controversy,

a n c t h e question o f whether

o r n o t t h e bill,

concecing t h e truth o f all i t s averments, s t a t e d a

cause

of action.
In v i e w o f t h e p u b l i c n a t u r e

o f the case a n d o f its

importence, counsel f o r the bank filed a

motion i n the

Supreme C o u r t t o a d v a n c e t h e c a s e u p o n thse cockets

o f that

court, t h e t h e n Solicitor Gencral o f the United States-Hon. wm. L . Frierson--joining i n the motion a s i s required
by t h e r u l e s o f t h e S u p r e m e Court.

T h e court granted

this motion a n d the case was assigned f o r a hearing i n
April o f this year, l e s s t h e n twelve months after i t had
been first heard b y Jucge iivans, which record showed a
hendling o f the matter w i t h the utmost dispatch,
In t h e S u p r e m e C o u r t t h e c a s e w a s a g a i n e x h a u s t i v e l y

argued orally and b y briefs filcd b y counsel, T h e Federal
Reserve Board,
prepared

a n amicus curiae, presented a n able brief

b y i t s counsel, M r . “alter

S . Logan,

a n d signed

by Mr. L o g a n a n d b y the Solicitor General.
At t h e argument,

t h e Supreme C o u r t repeatedly quest-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

282

iloned counsel a s t o the allegations i n the bill respecting the intent o f the Federal Reserve B a n k t o accumulate
checks until t h e y reached a

large aggregate amount a n d then

present t h e same f o r payment i n cash for the alleged ul-

terior motive o f breaking down the business o f plaintiffs
#8 i t had been conducted a n d thet t h e bill contained t h e
bald, u n s u p p o r t e d a s s e r t i o n o f s u c h a n i n t e n d e d a c t , h a d ,

of course, b e e n noted f r o m t h e beginning o f the litigation,
but i t hac been successfully contended theretofore t h a t
this charge, coupled w i t h t h e other allegations o f the
bill, d i d not make a case.

T h e lower courts h a d consid-

ered t h e c a s e a s o n e i n w h i c h t h e r e h a d b e e n n o p r o p e r l y

pleaded averment o f e n attempt £ 6 d o a n unlawful thing,

or of a lawful thing i n a n unlawful way.

O n the contrary,

it hac been determined t h e t the bill contained n o proper
charge o f a n y thing except a n intent t o d o a lawful thing

in a lawful way.

O n this basis, t h e issue had been decid-

ed twice, a s above set out, i n favor o f the Federal Reserve
Act.

The Supreme Court, however, viewed the allegations o f
the bill differently, a n d construed t h e same a s charging that
the defendant bank, a n d its officers, w e r e undertaking,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

283

maliciously a n d w i t h o u t j u s t i f i c a t i o n ,

tiffs.

t o injure t h e plain-

T h e decision d i d not challenge t h e right o f the

Federal R e s e r v e B a n k t o m a k e o r d e r l y a n c p r o p e r p r e s e n t a tion o f c h e c k s

a t the counter o f a

bank f o r payment,

nor

cid i t question the right o f the Federal Keserve Bank t o
make collection i n a n orderly a n d legal w a y o f checks drawn
on non-member banks.

T h e sole effect o f the decision w a s

an adjudication that i f the Federal Keserve B a n k intended t o
accumulate checks i n the w a y charged i n the bill, a n d t o
“present t h e s a m e f o r p a y m e n t

i n c a s h e n masse a s charged

in the bill, s u c h action would b e equivalent t o maliciously
starting a

run o n a bank a n d would, therefore,

b e action-

able.
Accordingly,

a n opinion w a s rendered b y the Supreme

Court i n line with t h e above reversing t h e lower courts, a n d
remanding t h e case f o r trial o n its merits.
cision t h e S u p r e m e C o u r t d e c i d e d
Gietion o f t h e F e d e r a l Courts.

I n its de-

i n f a v o r o f t h e juris-~-

T h i s w a s a n important

victory, inasmuch a s i t assures t o all ReservesBanks t h e
right t o s u e a n d b e s u e d i n t h e F e d e r a l C o u r t s

i n all

cases i n v o l v i n g m o r e t h a n 45,000.

Counsel anticipate a trial o f the case o n its merits


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

284

in the Uni,ed States Court,

a t Atlanta, t h e last week i n

November.
I sum u p its present legol status, therefore,

»

b y say-

ing that t h e case stends undeterminec a n d uncisposed o f

awaiting trial o n its merits.

n

e first time i t will

hen b e possible f o r the defendants t o introcuce evicence
which i t i s believed will disprove t h e truth o f the averents o f the bill.
I d o not conceive
paper t o i n d u l g e

i t t e b e w i t h i n t h e scope o f this

i n p r o p h e c y a s t o t h e o u t t o m e o f t h e case,

but a s I read t h e decision o f the Supreme Court, a n d a s its
import h e s been stated t o m e b y counsel,

i t would s e e m that

the only element i n the plaintiffs' case, a s set o u t o n

which worked a reversal i n the Supreme Court, was the
unlawfully t o accumulate checks. K n o w ing that such intent coes n o t i n fact exist, I
orcerly, j u c i c i a l inaqutry i n t o t h e f a c t s

distingu |

feel that a n

a s they exist ( a s

from the facts a s the claintiffs alleged t h e m

to exist) will result i n the eventual denial o f the injunetjon sought.
It m a y b e o f i n t e r e s t

t o state t h a t t h e Honorable J o h n

. Davis, o f New York, o n e o f the foremost lawyers i n the


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

States, h a s been associated

5

iven y o u the status o f the present legal
famous p a r - c l e s a r d i n e se
s
a
c i n this cistrict,
ing that t h e Federal Reserve B a n k o f Atlante
trialt.of t h e c a s e n

whatw

>

the next move
orcor f o r u s t o

make a n y f u r t h e r headway,
so a s n o t

t o come into conflict

the State legislatures,
Here i s a

i t wi :

c e s s a r y t o proceed

w i t h the-seversl

laws

o f

i n all t h e states o f our district.

brief s y n o p s i s

o f these laws, which,

a s i t ap-

nears, w e r e passed f o r t h e purpose o f Gestroying t h e effectiveness

o f par-remitting, *

par c l e a r i n g , i n s o f a r a s t h e

state non-member banixrs are concerned:
ALABAMA

Shall charge for exchange not exceeding 1/8 of 1 4%.
When forwerdec f o r payment b y a n y Federal heserve
express company,

o r postoffice employe,

thereof, t h e paying bank,
remit,

t

i

n

o r b y a n y egent

g bank, m a y P a y o r

a t its option, i n m o n e y o r exchange drawn o n its re-

serve agent; and, a t its option, charge not exceeding 1/8
of 1 % - minimum 1 0 d.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Unlawful f o r a n y person, notary,

o r other offico

in State knowingly t o protest check f o r non-payment, w h o n
payment i s declined solely o n the ground thet paying bank
exercises i t s option t o collect cxchange.
GEORGIA
Bank has >

Tight t o pay checks drawn upon it, w h e n

presentec b y a n y bank, banker, t r u s t company,
i n money,

either

o r a n y agent,

o r i n exchange c r e w n u p o n i t s approved

reserve agent, a n d t o charge exchange n o t excee: ing 1/8

of4°.
LOUISIANA
Established custom o n the part o f banks t o charge a
service f e e ( c o m m o n l y c a l l e d exchenge)

remitting,

f o r collecting o r

b y exchange o r otherwise, t h e proceeds o f

checks, Grafts, bills, etc., (commonly Imown a s cash items),
declared t o b e law o f State.
Banks s h a l l h a v e r i g h t t o m a k e s u c h charge,
by custom, w h e n s u c h i t e m s a r e p r e s e n t e d

a s fixed

t o t h e payea

pank, through o r b y a n y bank, Federal Reserve Bank, postoffice, express company,

o r a n y other agency, n o t t o ex-

ceed 1/10 of 1%, minimum charge 10 ¢.
No such charge c a n be made b y benks for collection


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

287
= 7

x

1}
of checks
cepositer,, w h e n t h e check i s crawn o n any other

pani:
Optional

or crafts,
a bani within o r wit out
NO V e t r i c e r = 1 G

non-payment

tave

i s solely o n a c

1 3a

No right o f action, either

S

refusal

a t l a w o r equity, against

any bank i n Louisiane f o r refusel
fuseal i s basec alone o n t h e g

4

t o pay, w h e n such re-

i c . of non-payment o f such

shall vrevail.
a misdemeanor f o r a n y person,
any bani,
4a

o r o t h e r corporation,

by p u b l i c a t i o n

o r otherwise,

o r employe,

of

t o

o f t h e non-payment

o f any

4

check o r Graft, c r a w n o n any State bank, savings bank,
cr t r u s t company,

stitution,

i n Louisiana,

a f t e r s u c h banking i n -

o n whom saic c h e c k i s ¢rawn, s h a l l have offered

to p a y the same i n accorcaance with &

laws o f the state.

Upon conviction, punishment b y fine o f not léss t h a n
100,00, n o r oxceedci 3 9 0 0 . 0 0 , o r imprisonment f o r not
less t h a n t e n cea


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

MISSISSIPPI
Same a s Louisiana law,
it a misdemeanor f o r a n y person,
or o t h e r corporation,

o r employe,

t o issue o r give notice

Court o f the United itates,

wa

terrible

o f a n y bank,
b y publica-

i t m u s t b e confessed,
he F e t e r a l R e s e r v e B o a r d

put i n t o e f f e c t t h a t p a r t o f t h e

Which relates t o bar ciéaring.
Mir. Justice Holmes unquestionably h a d
£ 0 6 = Ghat

weapon to strike us, b y declaring that “Congress n e
this sort o f warfare u p o n legitimate creations
I believe t h a t this opinion, revealing,
the Hostil* a t

‘

a s it

© O f t h e Suprems Court, h a s h a d a

Snce o n public opinion, t h e force o f which will
ficult t o overcome, i f w e continue t o fight t h e
out o n t h e s a m e l i n e s w h i c h h a v e h i t h e r t o p r e -

n

trui
w s m that,
o

in n o r dke r t o- e s t aib l i s hhi


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

importent l a w , o n e m u s t h a v e p u b l i c o p i n i o n b e c k o f it.

enforce p e r remitting.

most solicly i n sympathy with
this cempeign. f

n e €

thought t h a t t h e y

s, anc that m o s =

i

P e the atrugele,
e n

i t was

i s t r i c t w o u l c support

s m were anxious

t o s e e checks cleered

at par; but, when-fhe t u g o f war came, w e i s 2 , much t o
our surprise,
meny

t o receive t h i s e x p e c t e d support.

o r t h e c i t y bankers

openly took sides

I n fact,

with the

2s now, s t r o n g l y o p p o s e d

What i s y o u r c e s i r e
report

i n its present status?
Governor Seay.

thanks.

The Chairman.
Governor Seey.
recorc.

i n regere

to


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairman. G o v e r n o r vcllborn,
whieh Vou.

wisi

t o have

Governor - e l l b o r n . . N o ; - I w o u l d j u s t - l i x e
PECOPC.

juncture i f Governor
surjects

‘ie Cheirmar

Y e s

f a y e Shia

e

f o r cis-

e

trying t o f i n i s h t h i s s e c t i o n o f c o l l e c t i o n s a n e

nc t h e n telte u p t h s three suovjects that h e Cealt with i n
ertec. o n this, G o v e r n o r

thought w e hac better f i n i s h it.
Governor Seay.
about i t .
Thet Ghairmer

h e r e i i s o n l y o n e m o r c ai t e m t o it, w h i c h

“Removing the limit from

Governor wellborn. D o n ' t you want
paper t h e t I

wave r e a d ?

Governor Young. I
[O-OLSCudG= 1 b . Letter,

do, but I assume that w e will come


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

291

The Chairman.
Harding's address.

I t comes i n connection w i t h Governor
R i c h m o n d submitted this topic, Gov-

ernor Seay.

(8) R e m o v i n g the limit { ‘ e e s r a l Reserve Exchonge
Drafts.
tir. Chairman,

w e are a l l femiliar

been t a k e n h e r e t o f o r e

t o introduce

Reserve exchange drafts, w h i c h have proved more o r
less abortive.
placed a

T h e first attempt,

limitation o f 2 5 0 . 0 0

a s you will recall,

o n each Federal Neserve e x -

change draft, a n d t h e limitation w a s s o low that i t rather
prought r i d i c u l e u p o n t h e suggestion,

a n d [ I think t e n c e d

more t h a n a n y t h i n g e l s e w e h a v e e v e r c o n e t o p o s t p o n e t h e

introfuction o f Federal Reserve exchenge, 1
trial, I

think, a s a result o f a meeting i n Chicago, t h e

limit o f Federal Neserve exchengs draf
or r a i s e d

eat the next

t o 5000.00.

T h i s sudject

w a s increased

h a s been one uncer Gis-

cussion a t t h e g r o u p m e c t i n g o f t h e Richmond, « t l a n t a a n d
Cleveland banics, a n d w a s G i s c u s s e d p o t h a t A t l a n t e a n d

at Cleveland, a n c a t Cleveland a

resolution w a s passec which

approved t h e removal o f the limits t o Federal Reserve
exchange, a n d which was intended t o create o r introduce


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

the use o f tederal Neserve exchan a m o n g o u r mempor Danis.
That is, briefly, t h e situation, a n c t h e cuestion n o w i s
other w e shell remove t i e limits f r o m t h e issue o f Feder.l Kesorve exchange a n c s a y what u s e will b e mace o f i t

resolution t h a t t h e limit i n the issue o f
feceral R e s e r v e exchange c r e €
matter

The Chairman.

s e©

the motion.

A r e t h e r e a n y remerks?

Governor Biggs.

er.

t o bring t h e

u p f o r ciscussion.

Governor Norris. I

that.

removec,

i

s one thing i n connection with

I t cic not d o a n y good.

I t just annoyed t h

H e would come in, i f h e wentec »20,000.00 a n d aglz for

four five thousand dollar crafts, t o meke u p the »20,000.00.
You could n o t explain t o h i m w h y i t was necessary t o cive
him four crefts f o r 45,000.00 e a c h insteac. o f one Graft f o r
%20, 000.00. I

second t h e motion. I

thints i t should

be removed.
Governor Young. I

d o not think i t should b e removed.

enyone wants t o buy $20,000.00 worth o f these Federal
eserve exchange drafts, t h e y c a n resort t o the Federal


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

transfer draft, a n d t h e y cdo not want it, because t h e y
heave t o notify r e c e r a l tteserve B a n k immediately.
Governor seay.

T h e y have g o t t o d o that trkth th:

Federal Reserve exchange drafts, too.

I t i s t h e same

plan, a n d I think that t h e abolishment o f the Federal
Reserve transfer draft will b e a concomitant o f this resolution.

I t i s confusing. A

Federal transit draft does

not accomplish anything now, a s long a s the transfer over

the wire i s i n vogue, a n c there i s no use o f the Federal
Reserve transfer craft. >

exchenge craft i s a different

anc there h a s been a gooc ceal o f complaint i n our
drafts issuec b y member banks
cannot obtain immed

c r e d i t i n other districts.

Governor Young. I

then. I

have b e e n i n c o r r e c t l y informed,

was told thet F e d e r a l Kescrve cxchang

available f o r i m m e d i a t e c r e c i t

i n a n y other

pecause t h e y s i m p l y G e d u c t e d i t .

Governor Seay.

< A Federal Keserve exchange draft i s

immediatehy available i n a n y other cistrict, b u t t h e
v

point i s t h a t t h e c r a f t h a s n o t c o m e i n t o u s e b e c a u s e

of

inconvenience o f having t o issue several crafts f o r
specific r e m i t t a n c e .

A t t e n t i o n

was callec

t o the


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

294

Tact t h e t a

baniz w h i c h w e a l l e c u p o r

‘

ie

420,000.00

Keserve exchenge woulc h a v e t o resort t o the
rafts o f 35,000.00 each, a n d i t tenas t o
Giscourage t h e u s e o f Federal Reserve exchange rather t h a n
to encourege it, a n d the original p l a n was t o encourage
the use o f Federal Reserve exchenge.

N o bank,

i n making a

remittance o f $13,500.200°, will resort t o the use of Fecereal Heserve erchange, because h e has t o issue three
piraits f o r it.

I f h e coulc. issue o n e Graft,

i t might

tend t o encourage the use o f Federal Heserve exchenge,
a
anc w e have b e e n o f the opinion thet i t s use shoulc b e

encouraged rather t h a n retarded.
Governor HNeDougal. I

believe I

can state t h a t t h e

principal reason w h y this medium o f exchenge h a s n o t

been usec i n our part o f the country i s that i t necessiates a n almost immediate charge agai

h

e crawing:

reserve account a n d consequently h e had rather
st another a c m u n t w h i c h draws interest, a n d
recéive t h e b e n e f i t

o f g s:

T h a t i s what w e h a v e t o

We have consistently endeavored t o intro-

duce this form o f exchange t o our banks, b u t they do


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Seay. I
to mé, h o w e v e r ,

a m aware o f

T

h

a

t coes n o t s e e m

t o stand i n the w a y o f removing t h e lim-

it o n Federal Reserve exchange.
Governor McDougal.

N o t a t all,

Governor Seay. a
to h a v e i t , I

Gifferent matter.

I

f we are

d o not think i t s u s e should b é restricted

by any such a limitation.

1 t - 4% 1 8 Geeiced t o use it,

give i t the facility o f unlimited issuance.
Governor Young.

W e do. not use either t h e Federal R e -

serve exchange draft o r the transfer draft i n our Gistrict.
LG=is v e r y t a m i ted.

L e t u s see i f I

a m clear o n t h e

cistinction between t h e trensfer a n d t h e exchange draft,
On a n exchange draft there i s n o advice f r o m the Federal
Reserve

B a n k upon whom t h e draft

i s dPéim

b u t with a

transfer d r a f t i t stetes s r e c i f i c a l l y w h e r e t h a t i s t o
be payeble,

a n i t h e f u n d s a r e w i r e d there.

The C h a i r m a n .

A n d there

Governor Young.
are p l a c e d

i s n o limit

t o t h e amount.

B u t y o u d o n o t p a y until t h e funds

i n t h e o t h e r F e d e r a l K e s e r v e bank.

Governor Seay.
Governor Young.

T h a t i s right.
N o w , y o u propose,

i n increasing t h e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

296

Federal Heserve exchange draft,
the amount,

t o remove t h e limit u p o n

s o that N e w York o r Dallas o r San Francisco

or where n o t will p a y a n y kind o f a Federal Reserve e x -

change craft that i s presented t o them i n unlimitec amount
and. deduct i t immediately. 1

think that i s very danger-~

ous.
Governor Seay.

i

s t h e question which i s now u p

for a vote, a n d I would like t o s e e this Conference v o t e
WHO. Ee.

The Chairman. I

would n o t d o it, w i t h banking condi-~

tions a s t h e y a r e now. I

thing.

think

i t is a

very G a n g e r o u s

T h e r e i s n o advice.
Governor Seay. There i s a n a d v i c e

t o the Federal

Reserve B a n k o f issue...
The Chairman. I

lmow.

Governor Seay. T h e r e i s a n advice u p o n t h e Federal
Reserve B a n k upon which i t d r a w n , a n d y o u wiil recall
the conditions under which i

tfasued.

I t i a issued

under a form o f agreement passed b y the board o f cirectors o f t h e b a n k t h a t t h e b a n k i s s u i n g i t w i l l m a i n t a i n
extra r e s e r v e

t o m e e t t h e Graft,

advice u p o n r e c e i p t

o f t h e draft,

an

a n i t h a t i t will dispatch
a n c t h e amount i s charged


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

to the issuing bank.
The Chairman. ‘ t h a t are those drafts u s e d for?
Governor Seay.
as d r a f t s

F o r 2 1 1 purposes,

t h e samc purposes

o n Minneapolis a r e u s e d b y i t s member b a n k i n

that State f o r remitting f o r items s e n t t o it, drsfts u p o n
Chicago a r e remitted b y Chicago member banks, a n d drafts o n
New York a r e used b y interior member banks f o r romitting
purposes.
The Chairman.

T h a t i s o11 right, b u t i f the remittance

is t o make payment a t some specific point, t h e y have either
the telegrephic s y s t e m t o use n o w o r the transfer draft f o r
an unlimited amount.

T h e exchange dreft n e g o t i a b l o a n d

immediate credit will b e given f o r i t i n a n unlimited amount.
If you take t h e limit off, resolution o r n o resolution,

it

would b e the hancicst little instrument f o r kiting that y o u
can imagine.

Governor Seay. D o n ' t you forget, i f you do, ,that the
exchange draft i s reccived f o r immediate credit b y all
exchange b a n k s , j u s t a s w o a g r e e t o r e c e i v e t h e c h e c k s

of

officers o f the Federal Reserve Bank, although t h e under-

lying reason i s diffcrent?


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairman.

O n e i s v e r y c i f f e r e n t f r o m t h e other,

Governor Seay.

B u t i n this case t h e y are a l l received

subject t o finel actual p
e

a

y

m e t nimmediate
u tb ,‘
cre

Theresn i s n o danger
e
t o the
v receiving
i
tederal
z Reserve

bank, b u t t h e proposition i s that immediate credit should
be given, b u t they are received a s all other items subject
o final actual payment,
t

a t h u m a n ohb j e c t i o n w
there c a n
a n c wha

pe t o receiving t h e n I ¢o not see,
r Young.
o I

n know r a hundred
e
v
G and
ion North
banks

South Dakota that would just work

f i n i s h .

Governor Seay. W h a t if w o u l d ? D o n ' t you reseive
s f r om m s iel o ft y o u ri correspondents--don't
r
e
n
u y o uO receive Chicago, N e w York a n d S a n Francisco exchange?
Governor Young.

B u t w e d o not give immediate credit o n

B u t w e a r e arranging t o give t h e Fed-

Governor Seay.

l Reserve exchange
a
draft a

r
preference,
a ne
a

it i s always

received, n o t w i t h s t a n d i n g i m m e d i a t e c r e c i t i s given, s u b -

ject t o final payment b y the bank upon which t h e dreft
is. d r a w .

Goyernor
Governor I

T

h

e

m they c a n use t h e transfer draft.
think t h e u s e o f both drafts

i s very


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

299
the use o f

confusing and is caleulated t o bring/both of them into
disrepute.

Go,ernor V a n Zandt. I

want some information. I

wantte

lmow what would b e the status o f a paying Federal Reserve
Bank i f one o f these Federal exchange drafts were t o b e
drawn b y a bank i n m y district a n d sent t o a bani i n Gov-

ernor Seay's district, and Governor Seay should give that
bank immeciate credit a n d i t should use t h e funds a n d fail,
and b y t h e t i m e t h e d r a f t h a d g o t d o w n t o m y bank,

the

bank drawing i t would have failed, w h o would have t o hold
the bag?
Governor Seay.

I s not that same thing true o f a n y

other draft?
Goyernor V a n Zandt.

I f you give immediate credit.

Governor Seay. Y e s , i f you give immediate credit,
or, a s w e n o w do, i f you give credit according t o the
average
gE;t i m e ‘of transit,

w h e n

t h e draft itself

has not

been paid. D o r ' t w e receive i n all o f our districts
drafts o n different bases a n d give credit therefor before
they a r e c o l l e c t e d ?
Governor Young. I

think w e watch t h e m quite c l o s e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor L e e y

t e S e e e o rw
e

principle,
sounc.

since t h e

from t h a t ?
sy
establishment

o f the collection

talzing

erat

t o male a

paymen

ceflectec f r o m t h a t
LG 338
bO aGit s t e

e e

country t o
use t h o m t o m a k e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Sel

payments

a t o t h e r places.
Ey

D r a f t s have been drawn o n

Coumir

to malxe p a y m e n t s

a n c they have been used

3

a t c e r t a i n o t h e r u n s m c i f i e d places,

and

the w h o l e s y s t e m h a s b e e n b u i l t u p o n t h a t prectice.
There i s o n l y o n c f i n a l p l a c e o f payment,

a n c that i s the

place o n which t h e craft i s crawn. Nevertheless, t h e s e
drafts have always b e e n used a n d a r e n o w all over t h e
country f o r t h e p u r p o s e

o f making t h e payment

at a

speci-

fied place, a n d yet t h e y are drawm o n other places.
(At this point Mr. Gilbert enterec t h e room) Governor V a n Zandt.
house, I

T o g e t the question before t h e

move t h a t w e d o n o t r e q u e s t

a n increase

i n the

limit o f $5,000.00 o n a Federal exchange craft.
Governor Young.

Cheirman. A
remove t h e limit.

T h e r e i s another motion before t h e

motion has been mace a n c seconded t o

W e increased i t once t o ~5,000.00,

and now t h e motion i s t o take

l i m i t off.

Governor

McDougal h a s seconded t h e motion.
Governor McDougal.

T I should like t o e s k Governor

volume
Seay, a s a result o f his inquiries, w h a t i s the
b e i n g usec.
or t o w h a t e x t e n t i s t h i s f o r m o f e x c h a n g e0 5


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Seay.
suppose
in &

i n the most limitec form. I

a t the present t i m e t h a t w e have a

month o f t h a t character.

do not

dozen c h e c k s

I t will b e recalled t h a t

at one time during Mr. Delano's connection with the Federal Keserve System, h e was chairman o f a committee appointed t o devise a

plan uncer which Federal Reserve ex-~
his

change c o u l d b e s a f e l y issued.

A s a

result

o f /chairman-

ship o f that committee, t h e present p l a n was devised, a n d
the matter has. a s y o u al] i o w , b e e
time t o time from then until now.

i e r discussion f r o m

l i n k I

a m not mistalen

in saying that a s a result o f the meeting o f some minor
body i n Chicago, t h e recommendation w a s made some time a g o
that t h e limit b e removed.
The Chairman.

I s there a n y ewemand for i t from a n y o f

the m e m b e r b a n k s ?

Governor Seay. T h e r e h a s b e e n a cemand i n our distriet,
anc there w a s a

demand i n the b e g nning a n d I believe n o w

is. I

think the reason i t was brought u p was

because o f that very fact, that the member bank cannot obtain t h e same currency f o r their drafts o n their o w n Federal Reserve B a n k that t h e y c a n obtain f o r arafts o n
certain other centers i n the country.

I t i s not confined


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

503
to a n y center,

b u t t o other contors, N e w York, Chicago,

San Francisco.
The Chairman. I

would like t o debate t h a t with a n y

member b a n k that presents t h a t suggestion.

Y o u mean that

a check o f one o f your members o n your bank will n o t prey a
bill o r perform t h e function o f a check i n Chicago, Kansas
City o r a n y other place,

i n the same w a y a s a check o f one o f

your banks o n the National C i t y Bank o f New York?
Governor Seay. I

mean t o s a y that a

dreft issued b y

one o f our member banks, i f sent t o one o f the Cleveland
Commercial banks, w i l l n o t b e received o n the same basis
as the N e w York, Cincinnati o r Chicago draft i s received
in that district.
The Chairman.
York,

T h a t i s because Richmond i s not i n New

W e cannot alter that.
Governor Seay.

B u t t h e facility o f obtaining payment

of that check i s greater t h a n t h e facility f o r obtaining
payment

o n a n y o t h e r check,

a n d banks

i n Cincinnati

or

Cleveland make t h e distinction that t h e y have greater facility i n obtaining payment o n i t than they have this other
kind o f check.
Goyernor Young.

I f they used a

Federal Reserve


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

transfer draft, there would b e « preference.
Governor Seay. I

The Chairman.

Mr. Gilbert.

co not t h i n so.

D o n ' t let us keep Mr. Gilbert waiting

j u s t way 1

few moments

t o tell y o u

personally whet I have t o s e y a n c which I woulc crci narily

sion ensued w i t h Hr. Gilbert which was
directed b y the Chairn

b

The Chairman.

n

“ e a

by Governor S e a y t o remove

e%
o

reported).

w Giscussing t h e proposal advanc

i

m

o

n Federal Reserve e x -

There is: a
has been seconded,

t o remove t h e limit .

A r e y o u reacy f o r

the o u e s t i o n ?

Governor Seey. B e f o r e t h a t i s out, I
just a

few more words.

would like t o s a y

v e m e y h a v e l o s t o u r recollection

of t h e p l a n u n c e r w h i c h t h e c r e a r

a r s issued.

I

t may

be recallec that w h e n t h e Fecerel K e s e r v e Soard, w h o pro-~
posed this matter, a n d i t did come f r o m them, I believe,
ing
that t h e y elaboratec a plen o f report/by wire t o all other
ral K e s e r v e B a n k s ‘ o f i s s u e o f t h e r e c e i p t o f t me
hese

sderal sieserve exchange Grafts, a n c the plan contemplates


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Federal Reserve B a n k m a y over i t s wires
give o n the a a y o f receipt a
has receivec,

list o f the Grafts that i t

a n c m a y receive payment therefor

o n the

same c a y through transfer through t h e gold fund. I

do

not share i n the belief o f those w h o entertain conviction
that t h e r e i s g r e a t cGanger

i n t h i s plan. I

thin's t h e F e d -

eral R e s e r v e B a n k m e y r e c e i v e p a y m e n t f o r t h e s e c r a f t s
3

for which t h e y give t h e credit b y wire advices o n the very
day o n w h i c h t h e y receive

S i nI

cdo n o t b e l i e v e t h a t t h e y

will b e u s e d t o s u c h a n e x t e n t t h a t i t w i l l n o t b e a n

entirely practicable arrangement.
his m a t t e r

v

e have G@ifsussed

i n C l e v e l a n d a n d i n Atlanta. I

would l i k e

very much t o hear Governor Fencher's cpinion o n the
matter,

J e Giseussed i t with his Federal Reserve Agent

and somewhat with his Board a n d e great deal with himself, a n c w e arrived a t a

n

there, a f t e r a

very

thorough consi.ceration o f the matter, ané¢ I would like
very m u c h i f h e w o u l d e x p r e s s h i s v i e w s here,

The Cheirman. G o v e r n o r Fencher?
Governor Fancher.
matter b r o u g h t

H r . Cheirman,

u p t o u s m e n y t i m e s b y o u r m e m b e r banks,

why they cannot draw theiv /

ain:

e

n

d

586
have t h e m c i roailate,

i f they

New Yori: and Chicago accounts,
Several times w i t h member
benks; a n d w e found many
times,
Previous
b u p several
1
t i m e s in’ 7... discussion,
eserve B a n k c r a f t b e i n g r e c e i v e d
draft o n a

N e w Y o r c o r r e sponcent

many i n s t a n c e s I

know o n e c a s e o f

benk where t h e Craft was
taken i n preferred

bank's Greft i n another
%
presume t h a t i s occesior ¥
l

s p i n g house 8

i n Chicago,
i
a
v
e
giving
pref

t

r

which

x7
o p New Yort
exchange.

4m I right, Governor MeDougal?
Governor M e D o u g gal. I
Governor F a n c h e r ,

should t h i n s o .

I t scoms t o m s that T

can

cifferent rsason i n v o l v e d
ni pas
of C o l l a r s

o f items.

The Chairman.

D o y o u thin’: then, Governor
Fancher,

thet the art o f banking really contemplates
that a check:
rawn o n a bank i n Cleveland o r
o n a bani: i n Richmone o r
On a bank i n Dallas, h e s e r v e Sank,
should perform t h e

function o f New Yor: exchange? G s t
bac!
weniais


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

o f +4;

T h e money i s

h

e fundaa-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

ee

Governor Fancher.
The Chairman.
in Dallas
us a s a

I have

favor

Because

o r Cleveland

i t is a

check cGrawn a n d

o r Richmond.

t o your member b a n k t o c a s h t h

a n y cuty

t o d o that

i n N e w York,

whether

i t is the

whet

banks t o carry accounts i n New
Governor Fencher.

I n many casés,

Governor Seay. I

cid not have N e w Yori: p a

in mind.
The Chairman.

W h a t t h e y complain about i s the N e w

Governor Seay. Z l s e w h e r e o u t s i d e
which t h e d r a f t originetes.
Governor Fancher.
Governor Seay.

o f t h e district

T h a t i s t h e point.

ixectly.

I t applies

t o all cistricts alike,

whether i t b e N e w York, Chicago, Minneapolis,
Sen Francisco, S t . Louis o r Kansas City.
Governor Callsins.

I t Goes n o t apply i n that sense

in


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

508
which G o y e r n o r S t r o n g means.

I t would a p p l y w i t h a

great

deal more force t o New York a n d Chicago.
The Ghairman.

N o w , j u s t suppose t h a t the Fedcral Re-

serve Bank o f New York, which has a duty t o its members
who have built u p their business o n the basis o f the usual
course o f banking--suppose t h a t w e came before this mecting with a proposal o f this kind, w h i c h y o u gentlemen bolieve would w o r k a n injury t o the usuel course o f banking

in your districts, what position i s the Fodvral Reserve
Bank o f New York o r the Federal Reserve B a n k o f Chicago
going t o b e i n with its members i f w e efford unlimited
facilities f o r getting immediate ercdit, w h i c h i s making

New York exchenge for every bank i n the United States that
is a member o f the Federal Reserve System?

Governor Seay. S u p p o s e you take the other side o f
the question,

a n d i t i s j u s t a s foreible. I

believe

it i s a fact that conditions a s they n o w exist c o re-~

quire the maintenance o f belances outside o f the cistrict,
when, u n d e r t h e s y s t e m c o n t e m p l a t e d

i n t h e Foderr.l R e -

serve Act, they necd not be meintained outside of the
district,

f o r t h e transfer

o f funds c a n b e made t h r o u g h

the Federsal Resorve System, a n d i f New York i s given


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

@ameans o f getting its funds immeciately, h o w is New Yor:
injure¢.

N e w Y o r k i s g i v e n t h e mea:

f

£ gettine i m m e -

ciate p a y m e n t u n c e r t h i s plan,
on t h e p l a n u n c
issuec.

T h e present arrangement I

believe d o c s w o r k

against t h e r e s t o f t h e c o u n t r y e x s c t l y w h a t y o u c o n t e n d

new arrengement might w o r k against N e w York.
to g e t a t i s

otherwise,

o f a n y consid~
tendeg t o t h e

ra o f it, except-the- cases
whith have b e e n spoken o f i n Richmond, w h i c h I always
felt arose, i f you please, f r o m t h e efforts o f the bank
in Roanoke t o get their checks o n the p a r list
¥orik.-te n e t

Governor Seay. I

have n o vefcrence t o Roanoke, b u t

the matter h e s arisen i n huncrecs o f cases throughout o u r
entire district.
The C h a i r m a n .

W h y i s i t there a n d n o t

i n other dis-

tricts?
Governor Ssey.
more l e t t e r s

F o r m e r l y w e receivec a

t h a n w e d o now,

but

great m a n y

w e are receiving a


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

eat number o f letters now, about: ciscrimination
issusd
member b a n i a g a i n s t t h e i r o w n F e d -

crafts/oy a
bank,

facilities

f o r payment:

o f whieh

orcinarily b e obteined, a n c which i t i s contemobtainec through t h e Feccral Reserve plan.
yo y o u fine that i n Atlenta, Governor
wWellborn?

W o ; I

Governor “ellborn.

have n e v e r h e a r d i t men-

tioned eat:-all.

The Chairman.

H o w apout

Governor V a n Zandt.

i n Dallas?

i v e c o n o t have

The Chairman.
Governor Miller.

w

e d o not have a n y

The Chairman. G o v e r n o r Young?
Governor Young.

w e never have

The Chairman.

Governor Biggs.
ts that w e have t h i s five thousanc gollar limit, a n c they
come i n e n e s a y “Here a r e t h r e e c n e c k s m a d e p a y a b l e

to

the same party f o r 5 , 0 0 0 . 0 0 each, a n c w e d o not unaéer=
stend w h y we heve t o give three checks w h e n o n e would d o
t Goes n o t make a n y Gifference a t all, b u t
oS

3
cons iS

well

I


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

we c a n n o t e x p l a i n t h a t t o a

The Chairman.

man.

D o y o u have a

cemand i n your cistrict,

Governor F a n c h e r ?

Governor Fanchsr.
The Chairman.

G o v e r n o r Calkins?

Governor Callrins.
wes f i r s t

Y e s sir, f r o m the smaller banis.

‘ Y e had s o m e complaint w h e n

proposed,t
u
b i t never a

@

t o anything.

The Chairmen. Governor Morss?
Governor Morss.

N o .

The Chairmen. G o v e r n o r McDougal?
We h a v e p l a c e c t h e bDlaniks w i t h some-

bantrs i n our district.
very l i t t l e u s e d ,

T h e facility:is

a n d this question h e s never arisen t o m y

lmowlecge.
The Chairmen. G o v e r n o r Narris, cdo you have any?
Governor Norris.

W e have n o t h a c complaints, b u t w e

have h a d banks take threc, f i v e o r seve
thousand d o l l a r d r a f t s .

The Chairman.

t h e t for the purpose

of c o l l e c t i o n i t e m s ?
Governor

Governor Biggs.

f

e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Cnasors,

T h e y cannot understand t h e t kinc o f a rule.

Governor Calt-ins.

w h y should n o t they remit that

3£5,000.00 b y wire, where t h e y have t o get seven five
thousand dollar crafts?
Governor i

:

I

cdo not know w h y they c i c not.

Governor g
Governor N

O
i

r use « transfer draft.

I

do not 'movw.

The Chairmen.
matter,

but I

co not w a

O

o Sti

D o s S

i

n

New York just now. N o w , t h e motion i s t o remove t h e limit.
I have n o t C i s c u s s e d t h i s w i t h a n y o f t h e N e w Y o r k b a n k -

you gentlemen have ciscussed i t with
your benkers--that is, y o u have, Governor S e e y a n d Govern-

or Fenchsr--anc there is a possibility i n this, i t may be
remote, b u t there i s a pdsad bility i n this that i t will

storm o f »vrotest among the New Yor’: banks,
co not thin’: t h a m
cilities o f @

justified i n seying that t h e fa-

feceral nescrve

o

f N e w York: will

be o p e n e d u p w i c e f o r t h i s b u s i n e s s w i t h o u t f i n c i n g

what t h e effect o f i t i s
vote o n it, a n d l e t m e r e s e r v e o u r position
we c a n f i n d o u t .

i n New York


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Seay.

W e had a meeting o n this subject

early i n t h e d w y s o f t h e f e d e r a l R e s e r v e S y s t e m i n N e w

York,

a t which some o f your directors w e r e tresent, a n d they

69 j8¢ted To: t h e p i s s o m e w h e t u p o n t h e g r o u n c s w h i c h y o u

have advanced.

T h a t was t h e time wheh t h e Fede R e s e r v e

submitted t o u s ¢

r m s of

elaborated s c h e m e

w h i c h were

o f telegraphic acvices
from o u r member dant:

h Federal Rese

B e n e

h

e whole scheme a t

wes Dcing vorked.
woodvard

was

consent t o the plan, b u t I

Go not think

probable t h a t t h e N e w Y o r k b a n k s w o u l c o b j e c t

rangement. I

think i t very natural.

their s e l f - i n t e r e s t might prompt ther
arrangement.

The Ghairman.

T h e plan o f using these drefts w a s

originelly advanced a n d t h e emount o f each Graft limitec. t o 9 2 5 0 . 0 0

a s a n accommocation

t o people

facilities f o r m a k i n g s m a l l r e m i t t a n c e s w h e r e t h e member

banits would sell these drafts t o their customers, w h e r e
they c o u l d s e n d t h e m anywhere,

a n d this i s e

complete


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

O14.

Cistortion o f t h e p u r p o s e f o r w h i c h t h e i r p l e n o f feder-

to mele d i g ban!: trensfer

little merchant's remittances, c e
where i n the United States i n any cistrict, l i t e
dreft,

and I

purpose

a m p e r f e c t l y c l e a r i n m y mince t h e t e v e r y

o f bank transfer w i l l b e served b y t h e wire sys-

tem o f the Federel R e s e r v e Sank, j u s t c s well a s a n y
dreft s e n t around.

I t c o s t s nothing.

I t is

immu Ciate, a n d I thint: w e are liable t o get into h o t
it i n N e w York. I

c a n f r a n k l y s a y that. I

can see h o w e n energetic bunch o f bankers c o w n i n Richmona

or i n some other district, especially i f

e s federal Re-

serve Bank promotes it, will m a k e a very considerable
use O f this feature, educated t o what i t means.
Governor S e a

I

t has never b e e n ciscussed i n any

formal w a y w i t n o u r R i c h m o n d b a n k e r s

a s such.

T h e matter

has arisen wholly i n the federal Neserve Bank, a n c i t
has arisen b y reason o f our experience w i t h o u r memberrc
banks outside o f Richmond a n d n o t i n Richmond.
Governor Calkins.

T h e r e seems t o b e a very clear di-

vision o f o p i n i o n here, w i t h o u t a n y v e r y e v i c e n t pre-~
ponderence, a n d i t a l s o a p p e a r s t o m e t h a t t h i s i s a matter
of v e r y v i t a l i m p o r t a n c e t o a l l o f us, n o t o n l y t o t h e

New York Bank, b u t a l l t h e rest o f us.

It perhaps should have been settled years ago, b u t i t has n o t
been,

and I

vrisht
o suggest

a n amendment

t o Governor Seay's

motion, w h i c h i s t o p u t t h i s o n t h e p r o g r a m f o r c e t e r m i n a t i o n

at the next Conference.

I n the meantime I

think all o f the

Governors s h o u l d m a k e i n q u i r y e n d c o m e h e r e p r e p a r e d
rhat t h e p e o p l e

L y

i n their districts desire.

Governor Morss. I
Governor Seay. I
The Chairman. I
occurs

to

second the motion.
a m perfectly willing t o d o that.
rant t o b e fair about this, a n d this

t o me, t h a t t h e establishment

o f the Fedsral Reserve

System deprives banks i n some parts o f the country o f the
fecility o f drawing N e w York exchange unless t h e y were willing
to m a i n t a i n b a l e n c e s r h i c h o t h e r r i s e r o u l d n o t b e necessary.

That _is your point?
Governor Seay.
The Chairman.
understand h y ,

T h a t i s a part o f the point.
O r a part o f it.

do not

I f that i s true, I

i n 9 0 per cent o f the entire country, there

hes n o t been a n outcry sbout it.
is s o i n Cleveland. I

I t i s s o i n Richmond a n a i t

admit thet. I

d o n o t k n o v why.

Pos-

sibly i t hes something t o d o vith our time schedule, b u t what
impresses m e very much i s this, t h a t tre have p u t i n the telegraph system, o v e r w h i c h l a s t y e a r t h e N e v Y o r k B a n k m a d e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

316
17 billion dollars o f payments.

i v e made 176,000 wire

transfers i n the N e w York Bank, a n d with t h e requirements o f

exchange that could possibly b e afforded t o the momber banks,
there i s nothing t h a t c a n cqual that.

N o Federal Reservo

Exchange draft will ever take t h e place o f that.

Governor Seay. T h a t i s positively true, all o f which
we recognize.
The Chairman.

n d inasmuch a s w e are Coing a n awful

lot for the member banks and spending a lot o f money t o do
it, I do not want t o stir u p a hornet's nest i n New York i n
this matter, which would possibly result i n o cisturbance
of relations that w e ought not t o disturb without consult-

ing them, until we have looked into it further.
Governor Calkins.

I n offering m y motion a s a n amendment

it i s t o meet that situation.

I t i s not t o spare N e w York.

I go not think that w e should b e deterred from taking this
action merely because i t would arouse antagonism i n New
York, b u t I

do not believe w e are propared n o w t o s a y whether

it i s t h e p r o p e r t h i n g t o do.
Governor Norris.

G o y e r n o r Calkins m o v e s t h e postpone-

ment o f i t until t h e next Conference, a n d I understood Govern
Seay t o say that i t was satisfactory t o him.

Governor S e a y .

Perfectlye

Governor N o r r i s .

D o e s n o t that dispese o f it?

The Chairmm, I

hate t o b e g off o n the ground e f the N e v
T h e other difficulty

York banks, b u t that i s one difficulty.

which I sapprehend~- a n d this i s suggested b y the men i n the
Bank a t New York-- i s the possibility o f kiting.
Governor Fancher. I

c m n o t s e e a n y more possibility o f
a s t h e y exist today.

kiting t h a n w e h a v e u n d e r t h e c o n d i t i o n s

Gevernor Seay. I

do n o t think so, either. I

think i f

one medium o f exchange vere used, against several vthich are
nov used, t h a t the opportunity o f kiting would b e diminished,
and I believe t h e safeguards w h i c h could b e throrn around
this system a n d s rule applied o f depriving a n y bank which
did i t o f t h e p r i v i l e g e o f i s s u i n g t h e e x c h a n g e v h i c h i s i n volved i n t h e p l a n , v o u l d b e a s n e a r l y p r o n i b i t i v e

as a n y arrangement y o u could make. I
the u s e o f Federal Reserve Exchange a

o f kiting

think i t throrvs around
safeguard vhich does not

no" exist enyrhere.
Governor Calkinse

I t occurs t o m e that i t should b e de-

tormined whether t h e banks w o u l d sd@opt this system a n d discard

the old system. Personally, I

do not believe that the removal

ef t h i s l i m i t w o u l d e f f e c t t h e s i t u a t i o n


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

i n the N e v York Bank

at all.
The Chairman,

M a y b e i t vould net.

Governor Seay.
The Chairmen.

I t might note
B u t I want t o make surée
A n y change, however, w e u l d b e gradual,

Governor Seay.

whatever i t might be.

Y o u c m n o t change customs t h a t have

grorn up,in a short while.
Governor Calkins.

I t might b e argued that the wire trans=

fers would take balences a w a y from t h e N e w York Bank; b u t I
do not think that a n y such thing has resulted.
The Cheirmen,;.

I . think i t Has.

Governor Calkins.
The Chairman. I

N o t t o a n y considerable amount.
vould b e quite willing t o d o this, i f the

Conference vants t o take a preliminary vote and vete i n favor
of removing the limit’, subject t o further investigation, v e
can g o a h e a d a n d make t h e i n v e s t i g a t i o n

i n N e w York, a n d i f v e

find n o objection there, that is, n o serious objection, which
vould b e teken seriously,

v e c a n advise t h e Governors o f the

other banks.
Governor Seay. I

think that t h e motion o f Governor C a l -

kins w o u l d b e preferable
ed.- I


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

t o taking a

vote w h i c h m u s t b e d i v i d ~

e qiite w i l l i n g t o s e e t h i s t h i n g p a s s e d ,
would b

but I

os

recall that a t our last meeting there w a s a

resolution about

receiving National B a n k notes, thich passed seven i n favor
anc five against, a n d although I

proposed t h e motion I

also

proposed « reconsideration, u p o n t h e ground t h a t i n m y judgno policy o f the Federd@ R e s e r v e Banks ought t o b e carout o n a n y s u c h d i v i d e d opinion,

and I

vould f e e l t h e

same w a y i n regard t o this, a n d I greatly prefer that t h e
matter b e left f o r consideration a n d study a n d g o over t o


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

subsequent meeting.
Governor F a n c h s r ,

Governor Seay.
The Cheirman.

A n d f o r determinetion.

f n d for determination.
T h e n I will p u t the motion t o place this

on the program f o r t h e next Conference.

(Motion put and cerried unanimously.)
2

The Chairmen.

R

N o r , p r o c e e d i n g u p o n t h e arrival

o

)

o f Mr,

Gilbert w i t h the rest o f the program, d o n ' t y o u think v e had

better pick u p Governor Harding's address a n d make a s much
progress y i t h that e s w e c a n t

.

W

e have completed Tran-

sit a n d Collection matters,
Governor iicDougal.

“ i t h your permission, Mr. C h a i r m @ ,

there was o n e part o f a subject which vas passed vhich I
should dike t o brine upy

I t i s found o n the second page o f

528

progrem, T o p i c 1 , subject W o (4), a n d that i s i n regard
to uniform practice i n handling bankers! acceptances t e k e n
from brokers under repurchase agreements.
Governor NcDougel, v i l l y o u discuss (4),

Governor McDougal.

( 4 ~ a ) i s t h e one I rant t o discuss.

Under p r e s e n t c o n d i t i o n s t h e Federal R e s e r v e B a n k s a r e n o t

following a

uniform practice o r m e t i

On such bills.

in figuring discounts

I t i s our policy t o have the discount a @ the

specified rate deducted f r o m t h e face o f the bill covering t h e

unexpired period o f its life and eEéa the broker takes the
ar o p e r a t i o n i s i n v o l v e d e

The Federal Reserve B a n k o f S e n Francisco figures fifteen~
day d i s c o u n t

o n the b i l l a n d hes instructed u s t o d o likerise

in all transactions involving acceptance o f bills f o r i t s
account.
Under o u r plan t h e bill

i s discounted i n the usual manner

of taking G s c o u n t a n d would remain m

earning asset o f this

bank even though t h e repurchase agreement f o r any reason should
become ineffective.
Under t h e S a n Frencisco p l a n should t h e repurchase
a

ment become ineffective thebill would n o longer b e a n earning


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

asset a t the expiration o f the fifteen-day period.
That, o f course, I

think y o u «ill understand, a n d the

recommendation i s suggested that a uniform basis o f Cdiscount b e
used br.all Federal Reserve Banks, t h e practice o f a
ing t h e bill t o its maturity a n d rebating f o r t h e unex
period w h e n t a k e n u p b y t h e broker,
That i s t h e r e c o m m e n d a t i o n e

The Chairmen.

O f course t h e lergest csalings o f that

are probably i n Ner York now, a n d Mr. Kenzel, r h o has made
memorandum

o n t h i s topic, s e e m e d t o t h i n k t h e t

i n Nev York

present practice, w h i c h i s similar t o S a n Francisco, discountin:
for the actual period o f the contract,
one suggested b y Chicagoe

i s preferable t o the

I n the first place, i f w e take five

millions o f bills f r o m one déaler a n d exact a discount f o r
90 days o n five millions o f bills, s e y a t s i x per cent, v e

requiring that dealer t o give u s ©75,000in margin, end that i s
a.lot o f money for h i m t o t i e u p i n « short transaction.
Governor Morss.
Governor Y o u n g ,

O u r practice

i s t h e s a m e a s N e w York.

H e d i s c o u n t e d t h o s e bills.

Y o u are not

asking a n y more o f him.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Cheirman.

B u t y o u are lending h i m o n the bills.

Governor McDougale

T h e question involved i s what w o u l d


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

your position b e i n case that broker should not b e
perform?

The Chairmm. I

admit that r e vould b e i n a weak posi-

tion, a n d your criticism i s the o n l y important criticism t o
be advaneed against it, a n d i t i s a n important one.
Governor Morss. S u p p o s e t h e concern failed, w h a t vould
your p o s i t i o n b e ?

The Chairman.

T h e n v e vould b e stuck.
D o n ' t y o u want t o keep t h e title o f your

Governor #

bill i n the name o f the broker, s o i n case o f loss from any
cause h e surely stands i t ?
The Chairman.
broker l i a b l e

O u r contract, #

t o us.

to repurchase, I

I

recall, makes t h e

I n ease h e does n o t exercise h i s contract

suppose v e vould have a

To b e vary frank, I

claim i f h e failed.

do n o t think t h e practice o f discounting

for fifteen deys a n d exacting only the fifteen days’ ?discount
in l i e u o f a l o a n o n t h e p r e s e n t worth i s defensible
except t o s t i n u l a t e a

to d o the business. I
Wr. Harrison.

marxet. I

a t all

think i t i s t h e r o n g w a y

a m frank t o s a y that, Governor licDougal.

A n d p r o b a b l y illegal.

The Chairmen. Y e s , a n d 2 s Mr. Harrison says, probably
illegal.

I f the Conference wants t o pass « resolution

condemning t h e practice, t n i s i s
like t o have i t out rith the brokers i n Ner York f
see just where t h e y stand.
mergine=- I

mem a

T h i s

i s exacting a

much

nev practice-~ discount f o r ninety

vould b e exacting @

very much larger mergin f r o m the standpoint

ef the brexer, w h o i s n o w making a profit o n it, which h e
othervise v o u l d n o t make.

T h a t i s w h a t i t enounts t e ,

as i t sometimes happens t o us, v e carry 4 e n o r fifteen
lions f o r these brokers, e n d i t 1
in their prorit.

very considerable

I t hens helped t h e market.

Governer Calkins. I

vould l i k e t o l m o r w h y Mr. H a r r i s e n

thinks i t probably vould b e illegal.
have n o t s t u d i e d i t a t all, b u t i t h e s

Mr. H a r r i s o n . I
just o c c u r r e d

t o m o during t h e pregress

o f this d i s c u s s i o n

that the Federd Reserve Bank has a right t o buy and sell
bills i n the open merket.

T h e inference i s thet they have a

right t o buy them i n fee, i f I may relate i t t o a trensaction
jin land, a n d n o t f o r aterm o f ‘years-- t o carry out the analogy.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Chairmen.

I t is 2

Harrison. I

conditional s a l e .

think personally that even rith these

the
contracts where t h e discount i s based u p o n the period o f
repurchase agreement, there ought t o b e n o doubt that

o24

in the bill goes absolutely t o the purchesing Federal Reserve
Bank, a n d upon the failure o f the broker t o repurchase, t h e
only thing that would happen i s that h e has broken h i s contract a n d that the title i s still i n the Federal Reserve Bank,

Governor McDougal.

A n d you carry the title t o the

maturity.

Mr. Harrison.
in t h e a r r a n g e m e n t

I n other words, I think there i s nothing
o f discounting

on a

fifteen d a y d i s c o u n t

basis but to see that the title in the contract goes along
in the bank.

E v e n though the broker fails t o carry o u t

his contract t o repurchasc.

T h a t would b e the only way you

could justify the thing legally.
The Chairman. I

think i t would b e illuminating i f you

gentlemen a r e n o t f a m i l t a r w i t h i t , t o d i s c u s s f o r a

how this pusiness i s handled i n London,

minute

I n normal times, when

they heve a normal market, a bill market i n London, t h e bill
houses, which correspond i n their relation t o the banks with
such concerns a s Smithers a n d others w h o deal i n bills,
are i n the habit principally o r largely o f confining

their dealings t o those types o f securities like short
term Treesury obligetions, which are eligible a t the
Bank o f Englend, a n d they d o not discount them a t tho Bank o f


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

325
England u n l e s s t h e m o n e y m a r k e t g o e s a g a i n s t them.

They

borrow o n them enc resell t h e m a t a profit, a n d they borrow
on them from d a y t o d a y money o r week money.

in the market “floaters". A

T h e y a r e called

bank like the Union Bank o r the

London Joint C i t y a n d Midland B a n k alweys h a s a lot o f floatcrs

end I have seen bundles of them in Lioyd's Bank and others,
with a

strap a r o u n d them.

them, b u t h e signs a

T h e bill broker G o e s n o t c v e n endors

little memorandum which i s the equiva-

lent o f a contract, a n d every day--thnt is,it i s his contract t
take u p t h e b i l l s

the term is,at a
bank, t h e y have a

a t the end o f a

d a y o r s e v e n days, w h a t e v e r

rate--every d a y i n the money room i n the
little stand o r a little pulpit. T h e m a n w h o

runs these accounts goes into his pulpit a t 1 1 o'clock o r whenever i t is, a n d the brokers c o m e i n and g e t a notice o f the

rate, and if the money market i s going ageinst them, they g o
out a n d make arrsngements t o take u p these floaters.

‘ i e have

no such machinery i n New York, a n d t h e Fedcrel Reserve B a n k
has n o power t o make loans o n floaters,and furthermore t h e
banks, under t h e influence o f this «tock Hxchange d a y loan,whic’


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

they have n o t g o t i n London, a r c t o o much inclined t o take a d vantage o f the higher rates o n the stock “xchange whieh t h e

brokers are able t o pay o n these bills, s o thet w e have had t o

S26
step i n anc carry t h e bills f o r the brokers, a n d having n o

power t o lend o n these bills, w e have t o buy them under these
repurchase arrangements o n d reselling arrangements.
That i s t h e situation w e are i n i n New York, because
the banks a r e n o t yet educated t o lending a t a much lower
rate o n bills t h e n they a r e able t o lend from d r y t o day o n
the S t o c k Exchonge.
Mr. K e n z e l

as a

< A herd a

fast r u l e m i g h t a p p e a l

death b l o w t o t h e d e v e l o p m e n t

to

o f t h i s market,

and I would not like t o impose i t upon him, b u t I would

like very much t o get a n capression hcre from the Governors
as t o whether this practice i s s o unsound i n their opinion
that i t ought t o b e absndoned.
Governor V a n Zandt.

D o I understand t h a t y o u d o not

deduct t h e discount t o maturity o n these bills w h e n y o u b u y
them?

The Chairman. N o , w e d o not,
Goyernor Morss.

T h i s expedient which t h e banks have o f

loaning o n fifteen d a y repurchese agreements w a s gotten u p

to help the brokers, because the commercial banks hed not
developed a practice o f loaning o n those bills a t a rate which
would b e anywhere reasonable.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairman.

I t was first gotten u p t o avoid t h e stamp

tax o n a

promissory notc.

Governor M o r s s -

T h a t market w h i c h w e might h o p e f o r

amongst t h e commercial banks h a s n o t developed yet, a n d w e
have b e e n through many herd a n d abnormal conditions, a n d i t
has n o t h a d t i m e t o develop.

‘ J e all hope t h a t t h e t market

will d e v e l o p i n t h e c o u r s e o f time, b u t u n t i l

to carry t h e brokers a s w e d o now.
discount

o n a l l seceptances,

i t coes w e ought

A s t o talting the full

i t seems t o m e that y o u penalize

the brokers t o quite o a considerable extent w h e n y o u c o that,
end t h a t i t i s unnecessary, a n d i n Boston w e have t a k e n considereble p e i n s

t o hel.

t h e brolrors s l o n g i n e v e r y w a y t h a t

seomed reasonable, a n d this was one o f the ways, e n d I would
very much dislilte t o chenge i t a t this timc.
The Cheirman.

O f course, Governor horses, y o u realize this,

the objection t o m y ergument which I would like t o sustain f o r
a few deys longer,
million d o l l a r s

i s when a o broker comes i n t o u s with f i v e -

o f which h e h a s j u s t Ciscounted f o r 9 0 days

at S i x por cent, t h e omount o f discount o n those bills i s
$75,000, a n d consequently those bills heve cost h i m 4,925,000.

Now, a s a mattcr o f fact, w e advance him, sey, 4,990,000.
those s a m e bills.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor M o r s

Ma (nieirmin,: - And they <re: vorthn 1%.

I t i s his

on

obligation t o r e b u v t h e n t h a t e n a b l e s h i m t o d o that.

W

e

W e

lending h i m more money o n those bills t h a n t h e y cost hime
do that, a n d i t i s absolutely indefencible.
xcept

Governor M o r s s .
T

The C h a i r m a n e

2s a

temporary expedient.

o help t h e n out, y e s e

Governor Morss. Y e s , t o help them oute
The C h a i r m m « “ e have n o t talked about that i n the b m k ,
and I

do not know whether

o u r directors

realize thate

D

o

they, M r . H a r r i s o n ?

Mr. Harrison.

T h a t “as a

practice thet developed before

I got there, a n d I do not k n o e
Governor Morsse

I f t h e y go into a

commercial bank, would

not t h e y expect t o make loans o n them o n the same

The Chairmen. T h e y vould borrow o n these bills u p to
present worth of these bills, which is (4,925,000, less a
margin of, say, %50,000.

T h e y might b e able t o borror u p t o

ths t o t a l o f t h e p r e s e n t w o r t h ,

b u t v e Lend them more than

I m o r it, e n d I have -been conscious o f i t ever since
ve s t a r t e d i t .

Governor Seay.

Y e h a d one practice analagous t o that

when w e a d v a n c e d a n o t h e r b a n k p a r o n e& Government b o n d w h e n
owas


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

N o p Nore

it,

VYeSe I

d o not suvpose t h a t t h e Federal

nm

it ° s absolutely indefensible except a s a quiet means o f giving
them 2

certain a m o u n t o f m o n e y t o h e l p t h e n c a r r y t h i s market.

Governor ‘ellborn.

I t was not exactly the same

the ease o f Government bonds, because t h e y paid p a r f o r their
bondse
Governor Seaye
v

I t vas n o t worth ite

Governor ‘ellborn.

B u t they paid par for the bondse

Governor McDougal. G o v e r n o r Strong, y o u r position,
$s n o ditferent f r o m ours, except y o u ere handling a

of

larger

volume e
The Chairman.

Y o u r practice i s t o discount f o r n i n e t y d a y s

Governor McDougal.

N o . f o r the maturity o f the bills, a n d

after learning that t h e majority o f the banks s r e folloring
the o t h e r c o u r s e w e r o u l d b e v e r y v e l l s e t i s f i e d t o h a v e t h e

sub ject rithdrarne
Governor Calkins. I
Governor Young. I

do not think i t ought t o b e vrithdcrawn.
do not think so.

Governor McDougal. B e c a u s e v e s h a l l n o t depart f r o m o u r
practice,

n o matter w h a t y o u do, because t h i s i s

a right a n d sound practice.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

T h a t i s agreed t o b y the Confcrenc


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

oO

The Chairman.
Myr. Parrison.

' 4 t h ereet reluctance I admit it.
t h i n k there i s onc thing thet o u g h t

to b e considered, h i c h v a s brought o u t i n the discussion
a moment ago,
e n d that i s thet there ought t o b e n o doubt
ba)

that the title does pass t o maturity, vhatever you pay for it.
Governor Norris.
dollars!

sorth

T h e people w h o d e a l i n five million

o f bills

by-night pcople. :
five t h o u s e n d

ats V i b e

a t a

i

dol

time a r e n o t lightwaisted,

fly-

a difference o f fifty o r

h

e amount that they borrow

be

t o the

The C h e i r m a n ,
and I

suppose t h a t t h e y a r e d o i n g 4

cause t h e y b o r r o w m o n e y
Governor N o r r i s e
to b u y t h i n g s

and e

i n excess
i

s e

much l a r g e r business,

o f the cost

o r these bills.

very nice business

n e e , borrow

bee

t o b e able

o n them more than y o u pay

for them.
Governor M o r s s . I

would l i k c t o

you hold them t o maturity a n d the broke
why y o u v o u l d n o t h o l d t h e m a b s o l u t e l y

as

him, b u t s u p p o s i n g t h a t t h e m a k e r o f o n e o f t h e bills f a i l e d ,

whom d o y o u vant t h e title i n then?
Governor Galkins.

Y o u sant title i n

Mr. H a r r i s o n .

T h e o n l y r e c o u r s e t h a t y o u »-ould h a v e i n
>

i cts
fa
~oulé b e under y o u r contract

f

o

h vour broker.
Governor “ o r s S e

Y e s s

C o u l d h e possibly s e t up,

i f the

irretrievably i n the e d e r a l Reserve Bank, t h a t
did not heve title t o it?
Mir. Harrisone N o , 1

think not, because

a contract liability i n a n y event.
Governor Morss. Y e s , I

guess so.

Governor Seay. H e v i n g started o n a n y kind o f 4 purchase,
it i s not a n sasy thing t o change i t
5

the opinion expressed b y yourself, a n d y o u cannot f i
me i n doing that, Mr. Chairman.
The Chairman. I
Governor Seay. I

o

never f i n d fault with you.
believe, however, t h a t both i n the Boston

and i n the New York case, that the matter might well b e
with t h e m t o c o r r e c t

2 s t h e y s e e T i t i n d u c time.

T h e r e

are some things “hich v e d o from expediency, a n d there always
will b e s u c h things,
Nov -Des16 0

is j u s t i f i e d


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

and I

b e t e n 06-1 O r e

c o n o t s e e w h y7 i n this c a s e i t s h o u l d
2 4

O b

SI

d o not believe

b y the l a r o r sound Tederal R e s e r v e practice,

i t

Dut

=]

think i t can b e ~orked o u t i n good time, a n d
I move thet i t b e left t o the judgment o f these banks t o pursuc their policy.
Governor M o r s s e I

could l i k e t o » s k

i f ea note b r o k e r

a l o a n o f © hundred t h o u s a n d d o l l a r s f r o m s o m e o f h i s

customers f o r s i x months, a n d h a cannot sell the note right
off, h e goes t o his bank. a n d borrows?
The Chairmen.

T h o s e a r e taken « s collateral

present t o r t h e n d n o t e t t h e i n f a c e v a l u s e
Governor Calltins. I

d o not a g r e e t i t h Governor S e a y that

~e ought t o continue a n unsound practiccGe
Governor Seay.

V o u s r e doing it, s r e you?

Governor Calkins 2
thet has been made
are worth.

~e:arce

J ] think the best point

n e t * ¢ a r e advancing more t h a n t h e bills

I n fact, t h a t i s t h e o n l y p o i n t o f a n y p a r t i c u l a r

CONSEQUENCE 6

A n o t h e r p o i n t i s that i t might a r o u s e s o m e

criticism e m o n g m e m b e r b a n k s

i f they found that

- e ere loan-

brokers m o r e t h a n t h e v a l u e o f t h e i r c o l l e t e r a l a n d ‘ve
T think t h e matter s h o u l d h a v e c o n -

on, a n d b e put o n the program a t the next Conference
and p r o b a b l y t h e p r o g r a m reversed.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairman.

T h e 12st motion,

a s *~ understand

DOD
not seconded.

H o r vould i t d o f o r u s t o toke a

vote f o r a n

-; e n d follo:

that

an @€xpression o f o p i n i o n 2 s t o i t s d i s c o n t i n u a n c e

a s soon

as i t can b e done vithout difficulty i n the discount market?
I think t h e time i s coming «shen ~ e can d o it. E a s i e r money
conditions t7ill m a k e i t possible.
Governor Calkins.

are justified

T h a t raises t h e question whether

re

i n continuing a n unsound practice f o r a minute.

Governor Seay.

I f your conscience troubles you, I

think

you o u g h t t o s t o p i t .
Governor F a n c h e r e

I

t developed t h a t four

banks are following the practice.
The Chairman.

T h e y d o i t i n New York.

o l e cls e a t

Governor F a n c h e r .

W o w , g e t u s out.

Governor Norris. I

c a n understand,

o f course, t h a t

people f i g u r e v e r y c l o s e l y o n i n t e r e s t r a t e s a n d a l l o f
that,

but I

cannot i m a g i n e thet t h e y f i g u r e

amount o f capital i n v o i v e d

s o Closely

o n

i n that business t h a t t h e y h a v e

more
got t o borrowsseventy o r s e v e n t y - f i r e t h o u s a n d /than t h e y h a v e

paid f o r a thing t o enable t h e m t o continue i n the business,
end i f they a r e i n that position i t seems t o m e they ought
not


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

t o b e i n t h e business,

~4

the v o l u m e

o f

enormous, b

discount a n d a 90-day
to d o b u s i n e s s e

Governor L i k i n g T h e y figure s o closely o n
tions t h e ‘ b a y c o u n t t h e p o s t e g e s t e m p s I

a l e s t o d o their

business.

Governor “ellborn.
break even

I n addition t o the £

e n d get exactly ‘he n e y p a y i i

they vould
i t yould not

be emploving cespital.
Governor N o r r i s s

the N e w York Bank
AeNnote-cO-

C a

tTh a v e t h e

and a c v i s e vou. ilo
Mere
cisco, C l e v e l a n d


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor e

do not c a r r y theme

Governor Fencher.
The Chairman.

~

@ only carry 1 5 days.

T h e n t h e list o f benks t o b e dealt tith

wll] b e Chicago, Boston, S a n Francisco, Cyeveland a n d St.
Louis «
Y o u sould take u p the question o f t h e

Governor N o r r i s .

of i n d e b t e d n e s s

The Chairman.

ould

y o u not?

N o . T h e y bear intsrest.

Governor S e a y .

time, I

i n t h e s a m e vay,

I f i t i s ~ o u r purpose

t o correct

it in

can very readily see h o r i t +ould b e serviceable t o you

to obtain t h e opinion o f t1!
tice which ought n o t t o b e continucd.
The Chairman. I
thet y o u a l i f e

a m per: cct c l e a r

h e t r a y 2 b o u t e n y unsound practice, a n d

we a l l segree t h e t t h i s i s unsound.

Governor Sery. I

think i f you ~ould desire t o have a

resolution o f thet kind, I

rill b e pcorfectly vrilling t o offer

ite
Governor Calkins. I
pecause I

do not want =

sould h a v e t o s t o p i t t o m o r r o w morning.

The Chairman.

I d o not think : e h a d better have e resolu-

tion, G o v r r n o r S e a y .


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

resolution o f that kind,

Governor Seay.

f l l righte

The Chairman.

M r . Harrison calls m y attontion t o

a fect which I had overlooked, where the same difficulty
applies

t o t h e fifteen d a y rediscounts w h i c h w e have w i t h

member banks.

W e d o not d o very much o f thet.

W e do a

lot o f bill business.
Mr. Harrison.

great deal f o r t h e momber banks, I
Governor Calkins.

understand.

W e have additional collateral

i n that

Case.
Governor Young.
day bill,

W e take t h e Giscount o u t o f the fiftcen

a n d w e a l w a y s heave a d d i t i o n a l c o l l a t e r a l .

Goyernor Seay.

‘ N e l o n g a g o d i s c o n t i n u e d tho. 1 5 - d a y .

purchase.

The Chairman.

N e prefer t o discount i t for fifteen days,

to keep away from the stamp--isn't that it?
Mr. Harrison. I

think w e a r e talking about different

things. W h e a t I mesn i s tho 90-day bill which w e rediscount
for 1 5 d a y s u n d e r

a n agreement

t o repurchase,

a n d we do it

at the l5-day rate.
The Cheirman.

F o r mempor

Mr. H a r r i s o n ,

Yes,

stemp o n the fifteen d a y


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

T h e purpose b e i n g t o avoid t h e

@hle- 4

T a d 1 9 6 k Inco t i s

you look into t h e member b a n k

Governor S e r v e

Gilbert -ntered ths conference room.)
tWov7,

gentlemen,

a g e m- Ge S e c t i o n .

progrei,

s n d “2 i

O l tne

b e good e n o u g h t
o turn t o Supplement I I ?

I vill report first t o"r. G i l b e r t i n regard t o the first topic
on the Tréasury program, supplement I I , “hich ~ e discusse
enc t h e conclusion o f the mesting,

a t leest t h e

sense o f the meeting, r e s this, t h a t = e e r e unanimously i n
fevor o f .2 reduction i n the size o f the notes.
Governor Calkins.
The Chtirmen. I
In principle,

N o t unanimously.
<i11 p u t the msalification

w e d o not think t h e

mitted e f f o r d e d t h e m a x i m u m o f p r o t e c t i o n

feiting, reising, a n d the moximum
+

in o r d e r t o d e v e l o p t h e m a t t c r
a

privileges o f h a v i n g

o f des

n é e O F the snore expert: c u r r e n c y m e n - i n

the S v s t e m m e e t a t t h e T r e a s u r y w i t h s o m e o f y o u r m e n t o d i s cuss t h o s e matters,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

a n d t h e whole subject

o f t h e chenge

i n the

f the notes w e s madesubject t o this recommerdetion t o the

de
we

Treasury that such inquiry a s has b e e n macc o f the member
banks indicates a
and t h e r e i s a

belief o n the part o f the member banks,

very d i s t i n c t p o l i e f

i n this r o o m among t h e

Governors, t h a t among ignorant pcople o f the United states
the r e d u c t i o n o f t h e s i z e o f t h e n o t e s

ness.

i s g o i n g t o c a u s e uncasi-~

T h a t was brought out b y a number o f benkers who were

consulted

b y t h e Governors w i t h regard

in siaé, a n d i t was s u g g e s t e d

t o t h e proposed change

i n t h e b a n k a t N e w York,

and I

think there is a pretty strong sentiment, that there is a
certain clement o f denger i n it.

S o that the suggestion that

this meeting now conveys t o you is couplec with that further
incication that they fecl thet thore vould b e some possible
uneasiness caused b y the reduction i n the size.
That i s based o n a number o f considerations, o n e o f which
we e x p l a i n e d

i n our letter.

‘ T h o purchasing power o f the dolla

hes cecreasec, a n d somc poople might think that 2 reduction

in size of a bill was coused by the deercased purchasing pover
of the dollar.

A n o t h e r consiccration i s that Europo i s

flooded with Gepreciated currcney of a very small size, i n
France and Germany, the chember of comaeres and municipcl notes
in France, é n ’ t h e smell dcnominetion o f bank notes, e n d the
Bradburys


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

i n L o n d o n h e v e e l l r e d u c e d t h e s i z e o f t h e i r notes,

339

and the suggestion t o ignorant people o f that fact might
give rise t o discrimination a n d uneasinesse
Mr. Gilbert. I
Agents

spent a part o f the morning with t h e
Fac)

o n the question o f currency designs

Of course t h e small note idea i s not a new
to them t h e only reason f o r bringing i t u p
is that r e realize t h e t there has g o t t o b e some n e r currency
i n order t o give a

better protection against note-

raising e n d counterfeiting.

T f ~ e are going t o have smail

designs,

notes, t h i s i s t h e t i m c t o d e c i d e w h e t h e r

* e are going t o have

them, a n d the Treasury i s not a t all clear whether v e ought
to have t h e m o r note T h e r e f o r e , t h e t h i n g r e a r e most interested i n i s t o g e t a

perfectly f r a n k expression

from e v e r y b o d y i n t e r e s t e d ,

to a

a n d i share myself

extent t h e c o n s e r v a t i v e v i e w t h a t i t w o u l d

o f opinion
very large

b e tell n o t t o m a k e

a change, b u t t h e thing i s u p a t all times. S e c r e t a r y MeVey
hed i t w h e n h e v a s S e c r e t a r y a n d h a d d e s i g n s a l m o s t c o m p l e t e .
a n d n e w designs

When M c f d o o c a m e i n t h e y w e r e a l l s c r a p p e d ,

made, f r o m rhich some o f t h e Federal Reserve note designs
were developed. I

think t h i s i

>

time t o

thing, because i t i s coming u p a t all times.
to h a v e s m a l l notes, I


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

think i t w i l l b e a

I f re a r c going

metter

o f tro o r

three years before t h e thing-can b e rorked o u t a n d plans
completed f o r a substitution.

I f i t i s simply a

suggestion

of designs o f the present size, w e can probably have new de-

the question o f whether the change
should b e made, because there i s a very material dirference i n
time, which i s important i n the present situation.
rency d e s i g n s

which

h a v e been submitted, I

think,

attractive, a s e l l e s rather incomplete.

T h e cure
a r e rather un-

B u t the fact

that ~ e have got new designs a n d modifications o f designs
mind. i

e

Federal R

B

a

n

k will appoint a

mittee a n d have i t here i n “ashington i n about a month o r
vweoks, t h e t h i n g ' 1 1 1 b e i n s h a p e f o r a

fairly definite deci-

sion.
The Chairman.
Mr. Gilbert.
The Chairman.

H o w many vould y o u like?
N o t too many. I

would s a y from three t o five

S o u l d . i t n o t b e desirabic

t y pick out

those m e n from the m e n that handle t h e largest currency
gram?

F h a t d o y o u think o f that?
Mel G i l e e r t .

w

e have a

currency committee nov, I

might

suggeste


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The C h a i r m a n .

c

o

m

m

i

t

t

e

e

t h a t might requir

341
some change o f personnel t o get the best results. I

would

be inclined t o put Mr. Chapmen o n the committee f r o m N e w Yori.

Mr. Harrison, wouldn't you?
Mr. Harrison.

‘The Chairman.

Yes.

A s t o designs?

Mr. Harrison. Y e s .

H e made a great record i n the Sub

Treasury.
Mr. Gilpert.

H e w a s i n t h e S u b T r e a s u r y f o r m a n y years.

The Chairman. Which o f you gentlemen are willing t o admit t h a t y o u h a v e t h e b e s t c u r r e n c y m a n i n t h e c o u n t r y
your b e n k ?

in

T h e b a n k s t h a t h e n d l e t h e l a r g e s t v o l u m e o f cur-~

rency a r e N e w York, Chicago, S a n Frencisco a n d Cleveland, I
think.
Goyernor Calkins. I

a m willing t o acmit a t once t h a t w e

should n o t h a v e t h e b e s t c u r r e n c y m a n o n t h e committee.

The

best currency m e n i n the Federal Keserve Benizts i s a men who
has b e e n handling currency a l l o f his life a n c has preconceived
notions.

F o r instance, t h e currency m a n that w e inherited

from t h e Treasurer's office; undoubtedly, t h e m a n who i s the
best i s the m e n from t h e S u b Treasury. I

think h e i s the

last m a n i n the world that w e ought t o have o n this comnittee.

I think we ought t o have a man with vision, i f I may use that
word again.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor M o r s s e
ps

the design a n d not t ho
e
other man, w h o i s t h
b
e s t,uthe

Governor Y

best currency m a n i n the rorld, v o u l d select t h e same type
dealt sith i n the past forty years.
T h e T r e a s u r y i s c o m m i t t e d t o n e w designs,

Mr. Gilbert.

but t h e s i z e i s debatable.

Governor Callins.

T h e @ofect =

sac isthat these designs

de not depart from the designs that have been i n use from
time immemorial.

W h a t w e vant i s the best design that c m

be d e v i s e d f e r protection.
Governor S e e y e

I

s i t y o u r vier, G o v e r n o r C a l k i n s ,

that

a bank teller, for instance, vould not be the proper man for
this Committee?
Governor Calkins. I

think h e should b e #

man accustomed t x

andling currency, but I do not think he should be the late
cashier o f the sub~Treasury, r h o frommy experience h a s b e e n a
man O f limited initiative,
Governor S e a y .

t o put i t that vay.

H e v a s n o t accustomed

s o much t o the

physical hendling, w a s h e ?


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Calkins.
The Cheirmsn.

Y e s , i n most casese

T h o m have y o u got, Mr. McDougal?

343

Governor M c D o u g a l e “ e have §

&

mean t e could u s e f o r

that purpose.
The Cheirman.

H a s h e imagination?

Governor McDougal.

H e has everything that i s necessary,

should think.
Governor C a l k i n s .

T h a t

Governor M c D o u g a l . I

i s his nati

rould n o

fathers w e r e Norvegianse


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairman.
e

T h e advantege t o b e Jerived from this com-

from points nearby s o that t h e y could
ie s t i nt having
i
m
© i t

would b e Chicago, Cleveland, N e w York e n d Philadelphia-you want t o send a man over, Governor Morss?

do

H a v e you get

8 good m a n ?
f a i r l y g e o d man, r h o h a s b e en e n t h e

_ Governor M o r s s . A

currency c o m m i t t e e D S L O r S s
move t h a t s u c h c o m m i t t e e

Governor V a n Zandt. I

b e appoint.

ed e n d b e directed t o come t o Washington a n d confer with Mr.
Gilbert a t such time a s M

Governor Seaye I

3

n a y selecte

second the motion.

(Motion put a n d carried unanimously. )
The Chairman.

T h a t elects Philadelphia, Chicago, Boston,

Cleveland a n d N e w Y o r k t o p r o v i d e a

m a n o n call.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

544

Governor Seay.

s u p p e s e , M r , Gilbert, y o u have super~

ficial r e p o r t s f r o m a l l o f t h e s e f i v e banks, g i v i n g t h e r e
opinion?

iy, Gliders.
benks, b u t s o far a s I

can recall I

have n o reperts o n the
i t i s Hardiy

exect designs s e n t o u t t r o o r three weeks ago.

Governor Seey.

Mr. Gilbert.

Y o u c e n eaveil yourself o f those reports?

O h yes, they are available, e n d we have

other r e p o r t s a v a i l a b l e t o e .
The Cheirman.

Me, Gitbert.
The Chairman.

D o e s t h a t ansrver T o p i c N o .

Y e s , sits
T h e l a s t pert c f topic No.

on the program, Supplement No. 1 , stggeste
serve B o a r d f o r c o n s i d e r a t i o n

a t t h e separate meetings

Governors a n d t h e R e s e r v e A g e n t s ,

o f the

a n d v e have already a c t e d

upon that a n d have made this recommendation, M r . Gilbert;
desired that t h e Federal Reserve Banks shouid
d
nor; undertake t h e purchase o f the t r o per cent bonds a s p r o v i -

ed i n S i

1 8 of the Federal Reserve Act u p t o the maximum

&
of $25,000,000in any one year for the purpose o f retiring a
cerresponding amount o f National Benk notes,

i t would b e found


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

that e

Act was ineffective, because o f the selling price,

1013, o r 101-5/8, a n d the provision o f Section 1 8 contemplates t h a t the bonds should b e sold a t p a r and intereste
We r o u l d n o t g e t t h e bonds a n d :-e ‘ o u l d n o t eccomplish a n y - =

thing, e n d i n order t o secure a

retirement o f these National

Bank notes a t a rate greater t h a n nine million dollars a

month,

ITthink i t i s necessary f o r them t o b o purchased under the
provisions

o f Stction 1 8 3 s o t h a t t h e a c t i o n o f t h e C o n f e r e n c e

to suggest t h e edvisability,

i f that was t h e object o f the

suggestion o n the program submitted b y the Federal Reserve
Board, t h a t i t « o u l d b e m u c h b e t t e r

t o submit

a n amendment

to

the National B a n k Act, substantislly t o the effect that t h e
privilege o f issuing National B a n k notes shall n o t b e accorded
to newly organized National Banks a n d t o those banks whose
charters a r e extended f r o m time t o time.

T h a t rould effect

the retirement o f the entire National B a n k notes
in 2 maximum period o f 2 Q y e a r s .

i n circulatioi

T h e r e a r e a good many dif-

ficulties involved i n i t other t h e n that amendment, t h e general
difficulty o f replacing t h a t amount o f currency i n circulation
among other thingse

I t would m e a n t h e t the "ederal Reserve

Banks would ovn, a t the end o f 2 0 years, s o m e seven hundred

million o f tro per cent bonds w h i c h they rould heve t o hold

546

as two, largely i n order t o b e i n a position t o issue currency.

T h a t w a s t h e result o f t h e discussion hsre a s t o t h e

general subject o f retiring the Netionel Bank notes. ‘ Y e
have n o t discussed t h e question o f the handling o f National
Bank notes, h o w they shall b e assortod, whether t h e y shall

be paid out o r redeemed, a n d s o on. T h e r e s was a n incicental
discussion, w i t h o u t a n y a c t i o n b e i n g taken,

t o ths general

effect that t h e provision o f l a w contemplates t h a t National
Bank notes shall b e subject t o redomption b y holders a t a n y
time b y the process provided i n the National Bani act. T h a t

is, they shell b e sent into the Treasury for redemption, a n d
there i s a strong indisposition o n the part o f the Governors

of the Federal Reserve Banks t o get into any situation where

they believe they will become sinks for the accumulation of
National B a n k notes which a r e i n effect a

redundant currency.

The general impression which I gathered from the conversation,
however,

w a s t h e t w e would always b e able t o p a y o u t t h e notes

as fast a s we got them in, proviecd i n doing s o that w e m s t
face a n accumulation o f other kinds o f currency, l i k e silver

certificates and United States notes. ‘ h e n the currency i s
contracting, t h e actual dey t o day turnover must b e sufficient


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

to keep those i n circulation.
We a l s o c a n y a s s e d e v e r y G o v e r n o r here,

a n d ciscovered

there w a s n o Federal Reserve B a n k which h a d a n y accumulation
of U n i t e d S t a t e s n o t e s a n d s i l v e r c e r t i f i c a t c s b e y o n c w h a t

it was prudent t o carry. I

think i n New Yori that will n o t

always b e so, because w e have n o t becn able t o count t h e m
as f a s t a s w e h o p e t o i n t h e future.

Mr. Gilbert.

T h e inquiry which went o u t f r o m the Treas-~

ury was designed a s much a s anything else t o find o u t just
that thing.

O n the National B a n k note question,

there should n o t b e a n y question. A
would have a
demption.

o f course

Federal Reserve B a n k

right t o send i n National B a n k notes f o r re-

T h a t i s a b s o l u t e l y inconcscivable. I

think t h e

question o f what i s done b y a Feceral Reserve B a n k has a

consicerable bearing o n the first cuestion you Giscussed,
whet s h o u l d b e c o n e w i t h N a t i o n a l B a n k n o t e c i r c u l a t i o n

in

the way o f retirement under the Fecdcral Reserve Ast o r otherwise.

I f a l l o f t h e F e d e r a l R e s e r v e B a n k s s e n d i n f o r re~-

demption a l l the National B a n k notes y o u receives, I

think

you would soon be able t o buy the twos a t par.
The Chairman.

O f course t h e y would f l y around i n a cir-

cle very fast f o r a while, a n d t h e expense would a c e w m l a t e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

so fast that t h e b a n k s vould n o t tolerate i t .
Governor Seay. A r e y o u familiar with t h e suggestion

by Mr. Mitchell o f the Federal Reserve Board last night?
Yes.

Mr, Gilbert.

r e talked that overe

“ h a t d i d h e rant t o do-- retire them?

The Cheirman.

I t was evident t h a t his mind h a d been werk:

Governor Seay.

u g g e s t i o n o f the Board.

ing along the same n e s &
“onted

t o retire

t h e entire issue,

leaving

i n the hands

H e

o f

the Fed-rel Reserve Bank the sole issuing power i n the country,
and his proposition was that since there w a s a

profit t o the

Nationel Banks i n issuing them, i t would b e perhaps a n injusdeprived o f that p r o f i t ,
the a

teke over the entire issue

1

of G o v - r n m e n t

a n d h e proposed t h a t

t v o s e n d p a y t o t h e banks

the ennual

profit

which they were deriving from their circulation.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor V a n Zandt.

Governor Seay.
or t h e r e t i r e m e n t

U

p t o the terminetion o f their char

U p t o the termination o f their charter

o f the bonds.

Mr, Gilbert. F e d e r a l Reserve Banks m a y soon be glad t e
have a

three p e r c e n t n o t e s
w i t h a three p e r c e n t n o v e

is-- or, there a r e t w o difficulties.

O n e i s that t h e possibdili

of cepreciation i s very consicerable, a n d I do not think
that t h e Federal Resorve Banks should become v o r y large hold-

ers of the Government's debt for an investment. I
it i s a

wholly w r o n g principle.

think

I t has always turned o u t t o

be wrong i n banks t h a t have gotten into that position, a n d t h e
only justification f o r accumulating 2

mass o f Goyernment bonds

is t o simplify t h e currency, t h o retirement o f National B a n k
notes,

a n d put t h e currency

where i t should be.
Reserve A c t was a

o f t h o b a n k s o f issue,

I t has always seemed t o m e that t h e Federal

very short s t e p i n the solution o f currency

matters, a n d w e had a
Bank notes.

i n t h e hands

big difficulty t o get rid o f the National

I m a g i n e t h e situation which t h e Fecerel Reserve

Banks would b e i n with seven hundred millions o f the Government
debt, a

long time debt, i n their hends. S u p p o s e Congress

shoulé t a k e t h e n o t i o n s o m e c a y t o m o c i f y t h e c i r c u l e t i o n

privilege i n some way; w e might face a

tremendous loss.

W e

can not afford t o convert t h e m into three, w i t h t h o 3 per cent
bonds s e l l i n g a t 7 8 today, a

Mr. Gilbert. I

i

loss o f 2 3 points,

doubt i f anything v e r y much c a n b o Gono

with National Bank notes without logislation. ‘Whethor anything c a n b e done through legislation i s another question.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

550
A Congressman c a m e i n very lately t o talk about National
Bank notes,,and h e seemed t o have i t i n his mind--he m a y
have h a d i t from some member o f the Board, a n d I rather think
he did.
The Chairman. P e r s o n a l l y I

should b e quite willing t o

start t h e p r o c e s s u n d e r S e c t i o n 1 8 w h e n e v e r

w e are able t o

get the bonds a t par.

Governor Seay.

I t is doubtful, I think, i f any morc pract-

ical o r more judicious plan could b e proposed than the one
which i s already embodied i n the Act, a n c that i s the gradual
process o f retirement.

Mr. Gilbert.

I t is a matter o f a good many yeers.

Governor Seay. I

have r e e c h e d a

conclusion

i n m y own mind

that w e might take u p the resumption o f the purchase o f these

bonds if we could get them at par, and I am inclined t o think

that we will get them at par. Particularly I think it is desirable t h a t n e w N a t i o n a l B a n k s s h o u l d n o t b e g i v e n t h e p o w e r

of circulation.

Mr. Gilbert. T h a t would require legislation, i n order t o
make i t effective.

The Chairman,

T h e y almost hac thet through when the

Federal R e s e r v e A c t w a s u n d e r ciscussion.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Governor Young.

I t w a s n e a r l y done.

I n our resolution yesterday, d i d n o t w e

Sol
suggest o r recommend legislation t o prohibit a

new National

Bank o r o National Banl: whose charter w a s being renewed from
issuing circulation?
The Chairman.

T h e action that w e took ycsterday w a s

to the effoet t h a t i f the object o f the suggestion contained
in the program was t o bring about a
National B a n k notes,

more prompt retirement o f

i t might better b e done b y that method

than b y attempting t o buy the bonds a t par when they were selling a t 1014.

T h a t i s what i t amounted ta.

Governor Young. I
this mo,yent.

have b e e n thinking o f that just a t

L e t u s assume t h a t that legisletion w a s passed,

there w o u l d b e n o d e m a n d f o r t h e s e t w o p e r cent. b o n d s , a l t h o u g h

they pave circulation privilege a n c all b u y them, t h a t w e
could n o t u s e t h e m o t h e r t h a n t h r o u g h t h e F e d e r e l R e s e r v e

Banks.

E v e n i f w e bought t h e m from the banks a t par a n d accrued

interest, w h a t would happen t o the price o f these t w o por h a e
bonds i n case w e had t o sell them?
The Cheirman.

w e would b o stuck.

Governor V a n Zandt.

Y o u would never have t o sell them.

You woula always b e able t o issue circulation against them.
The Chairman.

T h a t i s the only thing that would protect

us, the circulation privilege.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

GOyernor Young.
The Chairman.

T h e y woulc g o lowcr t h a n the throeos.

T h e y might.

Governor V a n Zendt-» Y o u could always issue full value
of circulation against thon.
The Chairman.

would b e t o have a

T h e ultimate result

o f a n y such program

fiduciary issue o f Federal Resorve notes.

That i s what i t amounts to, exactly similar t o the issue o f
notes i n the Bank o f Hygland.

T h e r e a r e 18,450,000 pounds

sterling o f Banik of Mngland notes issued ogainst the bonds o f
the British Government.

T h e rest e r o a l l issucd against gold.

We would have, insteed o f ninety million dollars,
figures,

w e would heve 7 0 0 million collars. I

tremendous l o a d t o put o n the Reserve Banks.
over
distributed/all

i n round

think i t i s a
N o w they a r e

t h e N e t i o n a l B a n k s m o r e o r l e s s ovenly-»

I n any

upheavel, social o r otherwise, i t would b e concentrated i n the
twelve banks.
Governor Young.

D o you think thet w e should reconsider

that recommendation?
The Chairman.
Governor Young.

The Cheirman.

I t was n o t a recommendation.
tlas it a

suggestion?
Rt

I t was a suggostion that i f the object o f

the program was t o hasten t h e retirement o f the National Bani
notes,it could b e better done t h a n b y Sec. 1 8 , which i s in_offect-


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

O55
ive right now.

T h e o n l y thing which occurred t o mo--I d i d

not went t o complicate t h e discussion yesterday--was t h a t a

very lerge number o f large National Bank cherters mature i n
the same year. I

do not recall what proportion i t i s that ex-

pires i n the same yerr, b u t I think fifteen N e w York banks have
charters expiring i n the same year.

Governor Seay. S o m e of them heave no circulation, isn't
that s o ?
The Chairmen.

T h e N e t i o n a l Bank: o f C o m m e r c e h a s none,

and perhaps s o m e o f t h e o t h e r b a n k s h a v e none.

Governor McDougal.

T h e First Netional B e n k o f Chicago

has none, h a s it?
Goyernor McDougal. [
The Chairman.

W h a t i s your v i e w about that, M r . Gilbert?

Mr. Gilpert. I

legislation.

think not, no,

G o not belicve m u c h c a n b e Gone without

I t might b e done b y amending Section 18.

The Chairman.
Mr. Gilpert.

M u c h better thon any other plan.
There is a

You G o n o t w a n t t o b u y a

double d i f f i c u l t y w i t h t h a t now.

bond o n a

promium,

a n d t h e only thing

you could g e t would b e a t a discount.

The Chairmen,

A t such a discount thet the plan i s wholly

inoperative, e x c e p t that i t i s intenced t o maintain Netional


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Bank n o t e s a s Federal R e s e r v e B a n k notes.

Mr. Gilpert. I

think the Federel Reserve Banks c a n d o

a good. d e a l t o accelerate t h e r e t i r e m e n t

b y the plan which

they adopted i n regerd t o payment o f National Bank notes.

As I understand i t now, practically all o f the Reserve Banks
pay u p i n National Bani notes.
Governor Seay.

r

e i t for granted t h a t all o f u s are

of opinion that they have t o b e eliminated f r o m circulation.

Mr. Gilpert.

A j l o f us agree o n that. I t would b e very

well f o r t h e Treasury.

The Chairman. I
respect.

agree, with the reservation i n one

T h i s country,

d u e t o t h e o r g e n i z a t i o n of. t h e

Federal R e s e r v e S y s t e m a n d t o t h e war, h a s c e v e l o p e d a

total circulation o f all kinds o f money i n the hands o f tho
people o f the country outside o f what w e have i n our roserve, o f something over five billion dollars,

call.-about five billions, roughly.

a s [I reé~

O f that amount 3726,000,00

are National Bank notes. T h o s e National Bank notes are
issued under a

plan b y which they impose n o t a x upon t h e

borrowers from the banking system o f the country a t all. T h e y
have been absorbea into t h e circulation, a n d the amount o f
circulation


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

i s s o m u c h i n excess

o f t h e National B a n k notes

O55
thet there i s n o question o f there being = place f o r them
in t h e c i r e u l e t i o n o f t h e c o u n t r y e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Nor, i f you retire t h e m mtirely, t h e propabilit
that t h e i r p l a c e m s t

b e taken b y some other k i n d o f

tion, a n d “ h a t i s there t o t a k e t h e p l a c e o f Netional B a n k

Notes exeept Federal Heserve notes?
Governor V a n Zendt. F e d e r a l Reserve B a n k notes.
The Cheirmen.

T t i s the same thing.

the
going t o retire t h e m completely a n d pass t h e bonds o u t t o
Republic a n d s i m p l i * y t h e c u r r e n c y b y i s s u i n g o n l y F e d e r a l

is. rhat
serve B a n k notes, t h a t i s « good v a y t o d o it, r h i c h
has b e e n frequently suggested.

Y o u have t o replace t h e m b y

the i s s u e o f F e d e r a l R e s e r v e n o t e s a g i n s t

t h e b o r r o w i n g sf.o.-

and
member banks, v h i c h i s really a very considerable tax,
sure h o y i t would rork t o sustain a loan a c ~
of 700-million dollars
to t a k e t h e p l a c e

o r r e

Govenor “ellborn. ‘

< q Netional B a n k notes.

l e r whr i t i s t h a t the. bonds

are m o r e t h a n par, a n d t r o y e s

a g o ;

at p a r a n d o t h e r b o n d s a r e b e l o r p a r ?
The Cheirmen.

always

T h e v o n d s Frith t h e c i r c u l a t i o n p r i v i l e g e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

356
‘ Y c had a n easy time along i n 1915

Governor Wellborn.

and 1916, a n d w e could b u y then a t par, a n d people were
glad t o take par.
Goyernor Seay.

A l l o f which convinecss m e that t h e

plen contemplated i n the Federal Reserve A c t i s perhaps
the wisest p l a n that has been proposed, a n d that i s the

gradual retiring, a n d the problems will b e solved i n the
passage o f time. I

a m firmly convinced that ultimately

they ought t o b e retired.

Governor Van Zandt.

T h e Fcoderal Reserve Act is very

indefinite i n respect t o the permission t o issue n o w circulation a f t e r t h e c i r c u l a t i o n h a s o n c e b e e n r e t i r e d

by a

National Bank.

The Chairman.
temptea

t o hasten t h e retirement

to t r a n s f e r

al Banks

I f any plan for legislation i s at-~

t h e issue

o f National

o f National B a n k n o t e s
B a n k notes

or

f r o m t h e Nation-

t o the Federal Roserve B a n k s m o r e readily t h a n

contemplated under Section 18, I would like t o see the whole
subject o f currency studied i n connection w i t h it.

I t

seems t o m e w e cannot take that s t e p without consiccring. some

other step that might b e taken for the protection o f tho
Federal Reserve System before t h c y d o it.

T h e ability o f


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

557

the Federal Reserve Banks t o convert these t o s i n t o threes
is a protection,

i f threes e v e r sell a t the equivalent

of h a t t w o s a r e selling, e x c e p t a s t o t h e o n e - y e a r n o t e s
which r e n e r e v e r y veer,

m d those r o u e m n o t sell.

Y o u can

loan them, i n effect, b u t y o u have g o t t o take them back
at the e n d o f the year.

Y o u cennot shake loose f r o m that

Class o f business, a n d that maturity i s a perfectly false
thing.

I t i s not a

of them.

real thing a t all.

N o one rould ever make 3

Y o u cannot g e t r i d

contract t o conduct

that reneval f o r the entire thirty years, b u t I think that
part o f the Federal Reserve A c t i s very b a d indeed a n d i t
ought t o b e changed.

I f the Federal heserve Banks a r e go~

ing t o take over the National B a n k circulation a n d o r n the
bonds t o secure t h e circulation, t h e bonds which they o w n
should b e capable o f conversion into a

bond rhich y o u really

can sell a n d get r i d o f forever.
Governor Seaye

" f e must n o t overlook t h e fact that. the

s ituation has b e e n tremendously changed b y the happening
of events w h i c h h a v e tekken p l a c e s i n c e t h e a c t w a s p a s s e d .

Mr. Gilbert.

I t might b e changed s o that t h e Treasury

rould gradually redeem those bonds a n d take u p some o f the

refunding bonds e s well s s Liberty bonds.

I t could b e done


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

gradually o n the pert o f the TrecsuryGovernor Seay.
appointed

T h e r e was a

b y t h e Confurcnee

time w h e n a

bond c o m m i t t c e

o f t h e G o v e r n o r s siccceded i n

selling these threes a t a premium, which illustrates the difference between t h e n a n a now.
Tho Ghrirmen.

T I want t o tell y o u that .the boys i n the

Bank a t New Yor’: which were handling t h a t account s o l d Cvcery
blessed bond that w e could soll.
sell a n y morc.
Now, I

T h e r e w a s n o t a chance t o

‘ Y e were hunt u p with over @

would litzo t o make a

two, three, f o u r a n c five.

million o f thon.

suggestion about t h e topics

y e have discussed Topic 2 , a n d

please disagree w i t h m e heartily i f you do.

I t has b o o n m y

pression f o r some months p a s t titet ‘ve have

the result o f Mr. Emerson leaving us, when h e went t o Texcs.
You will recall a t the last Conference when w e discussed
the arrangement for establishing stendards o f fitness i n
sorting a n d the distribution o f the n e w notes, o n c s o Porth,
it was a l l entrusted t o Mr. Emerson, b u t his suddenly leav~ing--I t h i n k t h e o p e r a t i o n o f t h e t p l e n h a s g o t t e n i n t o a
little disorder.

York. I

T h a t i s the impression

i n the benk i n New

do not lmow whether y o u have t h e semo views.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

559
I believe

w e s h o u l d d o i s t o heve t h e c u r r e n c y c o m m i t t e e

take u p that subject again o n d gct down t o some method o r
control which does n o t n o w exist, t h e control o f distribution
of n e w c u r r e n c y a n d o f t h e m a i n t e n a n c e

of a

uniform

stendard o f sorting i n all o f the Reserve Banks.

“ e got

evicence--so t h e y s a y a t tho Bank; t h e money department tclls
me--we g e t evicence o f a very wide difference i n standard
of sorting. D u r i n g t h e war the stendard o f condition
of c u r r e n c y w h i c h w a s i n c i r c u l a t i o n w e n t c o r m v e r y m u c h i n
our district,

was a

a n d t h e r e w a s v e r y l i t t l e n e w moncy,

a n d there

tremendous amount o f very bed conditioned money.

‘Ve

have b e o n very gradually raising t h e stendard, e n d w o have
gotten i t u p pretty well i n New York, I

think, b u t there i s

a great difference between the stencard which v e have gotten
to, whether i t i s a s good a s i t should b e o r not, between

ourselves and some o f the other banks.
Goysrnor Seay,

W e are cautioned, Governor Strong,

in

this progrem o f the Treessury Department against raising
the standerd t o o high.
The Chairman. o

;

just t h e point.

H o w are w e t o tel:

what i s the standard?
Mr. Gilpert.

T h e r e i s a very grest variation now.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairman.

“

e must have some o n e

te s a y rhat s t a m a r d t o observe.
Mr, Gilbert.

T t needs a t least o n e man i n Vashington

practically a l l o f the time t o vetch the whole o f the cure
rency business,

t h e a m o u n t s i s s u e d a n d redeemed,

a n d the stand

ard applied t o the amounts o n hand i n the banks a n d the
Treasury Reserve a n d other things-

“ e found about the i s t

of August t h a t s o m e k i n d s o f c u r r e n c y h a d b e e n r e d e e m e d t w o
or three t i m e s e s f a s t a s t h e y o u g h t t o h a v e b e e n , p a r t l y

due t o the fact that t h e currency “as floating in, a n d also
duc

i n part

t o the fact that

ed i n t o o g o o d condition.

O

over twice the monthly quoto,

i t vas being c u t u p a n d destroy-

r o n e class o f currency w e were

a n d o n that currency w e rere

bound b y a n appropriation o f Congress.

I f ve kept o n a t that

rate, b y December 3lst there vould have been n o more currency

a nev appropriation, vrhich was difficult

ofthat ind, wv t
to get.
The Cheirm:

f

t t h e last conference w e h a d quite a

difference o f opinion, t h e vote standing seven to five, a s t o

the policy of receiving National Bank notes, and ve took
this action, expressing i t very roughly, t h a t “ ¢ should first
pay out silver certificates,
States notes,

w e should next p a y out United

m d s o long a s we could meet t h e demands o f the

v6
currency with those t w o issucs, w e would n o t p a y out Federal
Reserve notes a n d Fedcrel Rescrve B a n k notes; t h e t w e should,
nevertheless, h o l d Federal Reserve B a n k notes elready prepared--I t h i n k there w a s quite a

supply o n hend--as a

reserve

stock o f small denomination notes f o r use i n case o f necd,
case w e got low.

T h t action,

in

i t sccms t o ms, should n o w

be m o c i f i o d w i t h N a t i o n a l B a n k n o t e s c o m i n g i n v e r y fast,

by

the p r o v i s i o n t h e t w e s h o u l d f i r s t p e y o u t f i t N a t i o n a l B a n k

Notcs, seconc, silyer certificates, thirc, United States notes,

end not pay gut Fedcrrel Reserve notes and Federel Rosorve
Beniz n o t e s u n t i l t h e s u p p h i c s

o f t h e o t h e r lrinds o f m o n e y h a v e

becn exhausted, b u t o u r capecity t o pay out these various tinds
of money, t h e rate c t which they e r e paid out, a n d t h e length

of time which they stry out, depends more o n denomination than
upon e n y othor factor.

A j l lerge Cenominetions c o m e i n very

the small ones s t a y out longer, b u t wear o u t fester, a n d
I do not s e o h o w w e e o n errive a t a program o f osteblishing
and. meainteining eae stancerd o f fitness, unless w e have a committee c o m e nere t o .ashington, worl: out t h e problem thoroughLyya n d scientist e s i i y 2

e

Conominations a n d t h e k i n d s
¥

to

be peid out, e n d then thet there b e i n the Treasury Departnmont


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

362

an orgenizetion,

o n which the Federal Reserve Board should

be represented because t h e y issue Federal Reserve notes,
a
and the Comptroller o f the Currency should b e r e p r e s e n t e ds

he hes charge o f the currency o f the United States.
Governor V a n Zandt. f
The Chairmen. A

piere o f ite

piece o f it, a n d the fiscal department

of the Treasury b e represented, b e c a u s e t h e y supervise t h e
whole thing, m o r e o r less.

T h a t i s what I ¥Fould d o t o Fork

out this currency problem, and I will b e very glad t o send
anyone f r o m our bank i n New York over here t o study it.
te, “Ga tnert, 1

think 1 6 - 3

problem h e s t o b e s t u d i e d a s a

y t h a t t h e currency

a
wholee

do

V o u cannot

thing « i t h N e t i o n a l B a n k n o t e s a n d a n o t h e r t h i n g « i t h
and a n o t h e r r i t h g o l d certificates,

they “ould all be jammed up. I

a n d R e t anywhere, b e c a u s e

do not quite understand

the r e a s o n f o r p a y i n g o u t N a t i o n a l B a n k Hates.

b f tire the

question o f “hich shall b e paid o u t has t o b e handled b y denomination, p r o b a b l y ,

F o r o n e reason particularly

to i s s u e s i l v e r c e r t i f i c a t e s
as s o o n %

* e declined

i n the o n e dollar denomination

t h e turnover resulting f r o m t h e recoinage

silver u n d e r t h e P i t t m a n A c t c a m e i n t o force.

A

being there are 2 good many five dollar ce rtifica

of

y the tims

563

time silver certificates

i n the one dollar denomination ought

to b e out almost exclusively.

T h a t , b y the vay,is ‘in

response t o what i s almost a n express provision o f lar.

Then

United States notes come next, t o the extent t h a t t h e o n e
dollar denomination i s necessary, a n d ° s
the lav, t h e belsnce
i

denominations.
culated.

o f the legels r o u l d g o o u t i n the higher
n

d

2=

s

a r r e n c y have t o b e cir-

T h e Treasury cannot efford t o have them beck u p i n

the Treasury.

T h e y m e y back u p i n the Reserve Banks a n d

be carried a s reserve, b u t the Treasury i s i n s position vhere
it hes t o keep those i n circulation. O t h e r i i s e ,

v e ere forced

to borror while carrying
think y o u overlook o n e thing about

The Chairmen. I

National B a n k notes, a n d that i s a t - time v h e n there i s
redudence o f currency, t h e National Banks s e e k t o

them, a n d casés

suggested i n Wer York some time ago s n instance where the
the entire n o t e issue o f 2 National B a n k vill b e dumped into


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Reserve Bank, b r a n d n e v bills, j u s t t o get r i d o f theme
e g e t them a t the n e x t dumpe

Mr. G i l b e r t .

“

The Chairmen.

Y o u g e t them e t the next dump.

I

n my


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

epinion that i s a wholly unseund situation,
cen promptly g e t rid o f them a n d p a y them out e n d keep t h o m
in c i r c u l a t i o n t h e r e d u n d a n t c u r r e n c y c o m i n g i n v i l l b e
ly i n t h e f o r m o f National B a n k notes, w h i c h w i l l d r i f t i n t e

the Reserve B a n k e n d lie there.
account o f the eXPeNnse y end e

" T e cannot redeem them o n
cannot p a y them out because

our currency i s coming in.

Mr, Gilbert.

Y o u may b e able t o enforce the recmption

through retirement o f National B a n k notese
The Chairmen,
Mr. Gilbert.

N i n e millions e a month.
T h a t i s o n e hundred a n d eight millions a

yeere.
Governor S e a y .

I

t i s certainly t h e majority opinion,

if not unanimous, t h a t Federal Neserve Banks should not per~
mit themselves t o b e ieee b y a National B a n k s s amedium f e r
the c i r c u l a t i o n o f t h e i r n o t e s , w h e t h e r r i t o r unfit,

and

absolutely n o quxlification, moral o r legal, should b e imposed u p o n : a F e d e r a l R e s e r v e B a n k w h i c h v o u l d l i m i t t h e p r i v i lege o f s e n d i n g t h o s e n o t e s

i n for redemption j u s t a s freely

as t h e y -€ilect t o d o ,

The Chairman.
of Redemption,

“ h e n they g o i n for redemption t o the Bure

t h e y c a n b e shipped right b a c k t o t h e B a n k o f


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

issue€e

The Chairman.

A n d i t i s just asmich a

question e f tir-

ing out the banks a s anything ¢lse.
Mr. Gilbert.

S o m e t i m e se
r p a y them o u t here, probably

extra~legally, instesd o f buying t h e Reserve B a n k notes f r o m
Richmonde
e m taking t h e privilege

The Chairmen. I

e have b e e n over most o f these.
et some length, a n d I

o f discussing

* e h a v e discussed

e m trying t o state t h e conclusions.

“hat b o t h e r e d m e e b o u t v o u r s t a t e m e n t r a s
YOu

WOGCUG

Were

8 0

G o

Governor

L y T r e policy o f o u r bank

£ National B a n k notes o n deposit

I t has b e e n

ever s i n c e t h e o r g a n i z a t i o n o f t h e s y s t e m .

The Chairman.
are n o w getting a
Mr. Harrison.

T h a t w a s o u r policy until recently.

E S

gob o f them.
I d o n o t think r e are.

Chairman. f r e n ' t ve?
Harrison. I

Chairman.

do not think s o many.

‘ ' e certainly ought to pay them out, don't

you think so, Mr.
ie. G i l b e r t . 1

think:so.

T h e Federa

assumes e n obligation t o keep them out.
gation t o keep anything out, I

I f there i s a n y

think i t i s legal tender,

as silver certificates a n d legal tender notes.
T h e y shot t h e minutes under

The Chairman.
York.

T h e mistakes r h i c h ‘se .

gradually e n d unconsciously.

w a d e ,

v e vere J e d into i t

T h o s e o f u s that d i d d o it, b y

the wey, r e supposed that « « h e d t o take a n y kind o f currency
e s e n t t h e c h e c k s f o r collection,
from t h e b a n k s t o w h i c h w

end

they shipped National Benk notes a n d w e took them, and gradual~
ly I

imagine m o s t o f t h e Federal R e s e r v e B a n k s h a v e t a k e n

National B a n k n o t e s

i n thet waye

I s not that a

fact?

“Gby Van Zandt.

Governor Young:

“ o e take them in.

Governor Morss.

“

e do, b u t w e have never P e l t

of s e n d i n g t h e m t o u s a t a l l .

T h e y come

i n the usual c o u r s e o f

our business.
Mr. Harrison. I
it s i t h a

think that i s true o f Ner York

little r e s e r v a t i o n , becseuss I

34. O a t . ) thine. +

r e a c t i o n which

more o n f e a r t h a n o n a n y actuality.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

have n o t i n v e stigated

you heve got now i

based


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

fhe Chairmesn, N o . I

have resisted this f o r seven years,

taking National B a n k notes.
Mr. Harrison.

No. I

s a y that the reaction w h i c h y o u

got from the bank i n Ner York i s raised b y the ferr that the
en there have g o t that v e vill g e t them, rather t h e n that r e
are getting theme
The Chairmen. M r . H i g g i n s s a i d something t o m e which i m plied that since w e have b e e n receiving Nationel B e n k notes h e
had not beat able t o put out United States notes a n d silver
certificates a s f a

1 s r e wanted to, because r e had t o g e t

rid o f them first, a n d that i s t h e ground upon thich mr, Gilbert complains,

o r a t least suggests t h e possibility o f cri-

ticism o f o u r p r e s e n t p o l i c y , t h a t i t i n e v i t a b l y r e s u l t s
some a c e u m u l e t i o n o f s i l v e r c e r t i f i c a t e s

notes.

i n

e n d United States

I s not thet about i t ?

Mr. Gilbert.
Governor Scay. T h e r e c u e s t i o n , b u t i t i s a certainty, t h e t «oe v o u l d b e c o m e a

dumping ground o f Netiona

notes i f te h a d chenged o u r policy.

W e receive t h e m fron

non-member benks a s shipments i n p2yment o f collections, b u t
we d o not allow o u r member banks t o impose u p o n u s s t will,
with that circulation c h e c k ageinst it, a n d payments a r e made


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

by us i n gold, a s they have t o b e made.
Mr, Gilbert. I

shoulc t h i n k ,

a s Letween a

Federal Re-~

serve bank e n d a9 member bank, t h a t could b e controlled.
Governor Seay.

Y e a l l exercise =

benevolent assimila-—

tione
Governor V a n Zandt.

T h e y have t o have some currency t o

meet their obligations vith, end that is 211 they have.
The Cheirman.

M y conclusion i s thet the National Bank

notes, r i t h t h e F e d e r a l R e s e r v e s y s t e m o p e r a t i n g a s i t is,
hes b e c o m e a n i n t e p r a l p a r t o f t h e c u r r e n c y o f t h e country,
today,

s o f a r a s m e m b e r b a n k s a r e conecsmed,

and

t h e y serve t h e

samé p u r p o s e o f reserve t h a t a n y o t h e r k i n d o f r e s e r v e m o n e y

does, because suppose a

member b a n k h a s ‘:50,000 o f its circu-

lation i n its hands, i t cannot u s e it, i t cannot p s y i t out,

nobody will take it, and the currency i s coming i n very fast,
and they deposit i t i n the Federal Reserve b a h k andteke credit
a reserve deposit j u s t a s m u c h s s t h e deposit

of gold is, and what they have succeeded i n doing i s sim
substituting o n e kind o f deposit f o r another, o n e kind o f
credit f o r another kind o f credit,
serve.

i n maintaining their re-

T h a t i s a l l there i s t o it, a n d that i s t h e condition

which ve have gott
atedined © to face and recognize.
e

T h Be vay to obviate

Netionesl Bank notese
4 s betreen u s and o v r member banks,

Governor Se2ve

there i s not t h e slightest friction.
~{ithout a n y friction, a n d a s r e believe, f r o m s o u n d policy

from the federal Reserve standpoint.
The Chairmene

M r . Cilbert, h o w does t h e committee sug-

gestion eppeal t o you?
Mr, Gilbert. I
it o u g h t t o b e a

think there i s some question o f whether

committee

t o have

o r a n ectuel o r g e n i z a t i o n ,

the Board designate s o m e o n e permanently t o handle i t , a n d
I rill designate someone f r o m the Treasury.
make this a


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

permanent proposition.

w

e may have t o

T h e t i s more a

matter o f

detail t h e n anything else.
Governor V a n T a n d t e

I s there n o t «

civision

i n the “ e d -

eral R e s e r v e B o a r d a t t h e p r e s e n t t i m e t h a t h e s c o n t r o l

o f the

supply e n d distribution o f currency?
The Chairmen.

“ e heve never heard from theme

Mr. Harrison.

e r e i s o a Federd “ e s e r v e note issuing

and redemption civis i

h e Tederal “ e s e r v e office.

Mr.

things o f thet sort.

t h i n k v o u m a y rant a committee t o

cover t h e general question o f qarrency payments, w h a t policy

370
shall b e pursued;

o n the d e y t o day vork o f kesping track

of the currency circulation, I

think v o u nesd © permanent

organization.

The Chairman. M r . @merson vas designeted e s the representstive o f the Fed-ral Neserve Bankg,es much ss anything,
as I recall,

‘<
t o b e t h e medium through which these matters

could b e handled “ o r distribution.
Governor V a n Zandt.

organized 2

M r . "merson told m e thet t h e y hed

division t o hendle t h a t entirely.

The Chairmen,
Farrison.

T h e n i t i s n o t functioning,
H e vas t h e r e p r e s e n t a t i v e

o f that com-

by common consent, a n d he rather took jurisdiction
They have that d i v i s i o n i

>

=a
Reserve
Federal

vhich i s celled the Federal Reserve Boerd's division
of redemption s n d issue, b u t they rould n o t b e qualified t o
do t h i s p a r t i c u l e r t a s k . I

mean, t h e p e r s o n n e l h e s n o t

the opportunity o r the experience t o hendle t h i s rhole currency problem,

T h e y are purely a n administrative division,

very smell a n d purely mechanical.
The Chairman.

recommendation,
Gilbert,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

“ e l l , h o r sould i t d o f o r u s t o pass a

i n 2zccordance sith your wishes here, Mre

o n topics 2 , 5 , 4

and I

think the k i n d o f

O71
currency t o b e paid out, t h a t the different Federal Reserve
agree right n o v that i t s o u l d b e i n the order
in thich I have named, National B a n k notes, s i l v e r certificates, United States notes, bexvore t e loosen u p o u r Federal
Reserve notes o r Federal “ e s e r v e b e n k notes, b u t that t h e
control

o f o u r p o l i c y t o p a y o u t i n that o r d e r d e p e n d s v e r y

largely upon a n adjustment o f the denominations, a n d then i f
re a r e i n agreement o n that fact, t h e n all that is n e e d e d i s
someone t o study that question a n d the standard o f fitness.
Mr. Gilbert.

T h e payment o f Netional B a n k notes first

will n o t happen a s a practical matter, because o f course t h e y
are not available i n the one a n d t r o dollar denominations.
You have t h e small denominations problem t o face, t h e legals
and silver a n d Federal Neserve b a n k notes, a n d the possible
currency t c b e paid out, a n d then you have t h e five dollar

up on the other question.
The Chairmen.
Mr. G i l b e r t .

The Chairman.

There is m

o v e r supply o f ones a n d tros.

Y e S e

T h e r e cannot b e a n oversupply o f f

tens a n d tventies, because w e c a n simply contract t h e Ped>rai
Reserve


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

note issue

‘Me. Gilbert.

s o that there cannot

Ssolutely.

b e a n over-supplyv.e

3

a

The Chairmen.

f i n e t h e p r o b i c m G r s u p p l y must’ b e

dealt r i t h b y a n adjustment between silver a
Mr. Gilbert.

é n d betreen Federal Seserve b a n k notes

and reserves.
The Cheirman.

Y e s

Governor M o r s s e D o e s M r . G i l b e r t t h i n k t h e t ~ e s h o u l d
take N a t i o n a l B a n k n o t e s

t o t h e credit o f t h e Treasury's a c ~

count a n d p a y t h e m o u t a s s o o n 2 s possible,

o r only i n the

usual c o u r s e o f business?
Mr. Gilbert.

I n t h e u s u s l c o u r s e o f businéss.

Y

e do

not have a n y intention o f shipping i t t o y o u i n payment o f
accounts.

T h e r e i s n o possibility o f that.

Governor M o r s s .

D o f T understand

t h a t these banks that

have p a i d i n t h e i r w h o l e c i r c u l a t i o n --:
Mr. G i l b e r t ( I n t e r p o s i n g . )

T h a t is, a

r

v

e account.

That i s n o t a n y o f o u r action.

Governor Seay.

W e take i n notes, w e ship them t o you

at o u r expense.

D

o you cut them

Governor S e a y . f e d o not cancel thene

U n f i t notes

Mr. Gilbert.

T h a t i s right, uncut.

nev, o r d o y o u cancel them?


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

we do, b u t t h e f i t ones v e d o nerte
Mr. Gilbert.

U n f i t National B a n k notes a r e cancelled

at the Reserve Banks.
The Chairmm.

I f you form a n orgmization o f t h a kind,

Mr, Gilbert, a n d got answers t o questions raised b y these f o u r
think t h e Fed-ral N e s e r v e B o a r d w o u l d l i k e t o

topics, t h e n I

heve o p p o r t u n i t y t o g e t y o u r v i e r s a s t o t h e m e t h o d o f r e d e m p t i o

rhich takes place o n shipments between Federal R e s e r v e Banks,
and s O one I

know t h e member banks i n New York think that v e

could improve t h a t method considerably-- t h e method o f counting
shipments,

a n d s o One

T h a t e v e r organization i s a p pointed here wil

Mr, Gilbert.

have t o adjust i t s plans f r o m time t o time a s the situation
develops, a n d a s i t gets reports f r o m Federal Reserve Banks.
The past case

I s i t understood t h a t ive trill leave t h e

appointment o f the orgsnization t o you?
Mr» i e r ’

I

think i t i s u p t o the Federal R e s e r v e

Board t o make a t least o n e appointment. I

will undertake t o

appoint o n e o r t r o f r o m t h e T r e a s u r y e

The Chairman. I

suggest 2

recommendation, then, t o the

Federal R e s e r v e B o a r d t h a t i t i s t h e o p i n i o n o f this m e e t i n g

that i t i s desirable t h a t a


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

permanent orgenization shall b e

created i n the Treasury, i i t h
Reserve B o a r d , v h i c h s h a l l b e c h a r g e d v i t h t!

2, 3 , 4 end 5 , a n d + >

adr s t r a 1

or the issue o f

the currency e n c t h e sdjustment o f denominations a n d t h e
lishment o f standards o f fitness, etc.
T h a t organization

Mr. G i l b e r t .

time v i t h t h e c u r r e n c y c o m m i t t e e
Yes.

The. Cheirmen.

O

e

t o conter

f r o m time

t o

o f t h e Pederal R e s e r v e B e n k g ?
b

t m o t i o n strike y o u # s &

subjects? “ i 1 1 1 some one

Governor Fancher,
Governor Young.

(Motion put and carricd unenimously. )
The Chairman.

There

is t h e question o f paying
go into that? I

can report right nov.

I t

tunity 2 s a n y t o report t h e results o f o u r

by t h e m e e t i n g t h a t
the p a y i n g o u t o f g o l d certificates,

c o r t a n l y i n some sections

of the country, “ould result i n putting actual gold coin into
circulation quite rapidly, a n d that that w a s a n uneconomical


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

375
hing t o d o e

T h e second point there raised ¥

in t h e o p i n i o n o f t h e g e n t l e m e n h e r e i t ras i n e v i t a b

day thet this country vould t e called upon t o return t o
mass o f gold “hich ~ e have received i n ¢ x
of w h e t u n d e r n o r m a l c o n d i t i o n s

v e should hold,

a n d that i s

monetary g o l d , a n d t h a t r e s h o u l d b e p r e p a r e d f o r that.

wag p o s s i b l e t o accumulate t h i s g o l d from t h e banks a n d i n
general circulation during t h e rar a s * wer emergency MEPSUPE ,
pased m o r e o r l e s s o n a patriotic a p p e a l , t h e t e x c e p t w e r
conditions p r e v a i l

i t vould b e difficult a n d f

i b l y impos-~

e now p a y out a t a rate
sible t o reaccumulete g o l d w h i c h ~
much m o r e r a p i d t h a n r o u l d e r i s e i n t h e u s u a l

t y p e s o f rorn

out c u r r e n c y e

comments t h a t are possibly n o t a t ell controle
linge

e

r c o m m e n t ras that a n y amount p a i d o u t

into cireculction,

i n order t o b e e f f e c t i v e

t o eccomplish t h e

purpose o f reducing the reserve percentages, v o u l d have t o b e
a vory considerable amount, quite a

proportion o f what ‘ve hold.

and that the minute t h e g o l d certificates sppear i n general
eireculation,

i t ~ould attract sttention a n d cause comment ,

that t h o s e c r i t i c s

o f t h e Pederel Reserve S y s t e m

and t h e p l a n o f t h e T r e a s u r y v h o felt. t h e t v e r e r e r e s p o n s i b l e

fer forcing inflation, a n d s o on, a n d that r e were maintaining
unnecessarily high discount rates, vould s a y "Here, these people
are absolutely recalcitrant.
habits.

T h e y camnot b e cured o f their b a d
a

T h e y are absolutely getting t o the point n o v o f indulg-

ing i n « subterfuge, t r y i n g t o fool u s e T h e y are.a ectually pay-

ing out their Reserve money, s o as t o avoic the necessity o f
reducing t h e i r rates.

T h e y a r e profiteers, anyhov,

a n d this

is a scandsl ous thing f o r then t o b e doingy a n d I think there

is more danger i n that than anything else, a n d Ithink every
man here believes t h e s a m e thing, a n d that i t would defeat
the v e r y purpos? t h a t v e e r e a f t e r t o p a y i t o u t e
Mr. Gilbert. f

put out.

good d e a l vould depend

o n hor much y o u

I t is hardly Peir t o call i t = subterfuge.

The

gold i s actually o u t o f your reserves, a n d i n thet respect i s

different from holding gold from ebrosd o r chm ging the form o f
statements s o ss t o t h r o 9 good deal o f the gold into the

4eents' funds.
The Chairmen.

*

e thought the sentiment vas that i t

would appear t o Congressmen, f o r instsnce,
a n d Senators who

were criticising if re were paying out our resources i n order
to escape d o i n g t h e v e r y thing which they think r e ought t o do,
to make cheap money.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

S77

Mr. Gilbert.

T h e y will think t h a t whatever y o u do, t o

expand e n d make cheap money. I

do not think y o u should t r y

to a r o i d t h a t d a n g e r f r o m criticism, b e c a u s e t h e y w i l l t h i n k

C e r t a i n l y you

that i f you heave a fifty p e r cent reserve.
a

should n o t r e d u c e y o u r r e s e r v e m o r e t h a n f i v e o r t e n points

in

the course o f a year o r SO6«
Possibly the extent t h a t r e paid gold out,
accumulate moneyeo

Gilbert.
It seems

Y o u vould b u y Federal R e s e r v e notes then.

t o m e t h e t t h e g o l d question, ‘+: o u g h t t o b e c o n s i d e r -

ed along the lines

o f payme

ry
o f emoderate amount o f it, a

hundred o r tro hundred million dollars.
The Chairman.

" h a t i s the object t o b e accomplished b y

it-- just t o reduce the reserves?
Mr. Gilbert. T

think t h a t i s a n i m p o r t a n t e l e m e n t . 'I

think i t emphasizes t o some extent t h e absolute convertibility
of gold end Federal Reserve notes a n d all o f t h e currency, a n d
the Federal FPeserve Banks have been i n t h e a t t i t u d e

o f hoarding

the gold, a n d they still a r e »
The Chairman.

“ e a r e sll agreed o n one thing, a n d that

is thet n o Federal Reserve B a n k should hesitate a n instant i n
making a n y call f o r gold i n any amount a t a n y timee

Mr. Gilbert.

‘ h a t policy vould « e
pursue, f o r

with r e g a r d t o Christmas
2010?

The C h a i r m m ,
. €

T h e t vill c o m e u p
t h i s year. e

have n o t discussed it, b u t
I have n o

doubt t h a t t h e D e n k i n
Ner York TOUiG p a y 2 b
oat.

r

e

faust
6d
Ciscuss /
i
t here -ithout taking any
section, and the consensus o f

the viergvas t h a t i t would come
baek =
Mr. Cilbert,.

Y o u -ould have i t

Governor M i l l e r ,
Mir. Gilbert,

fast

T h a t ~ould b e smal

Y e s

The Chairmsn, 6 1 1 , this topic and
the Goverment bond
matter b o t h a r e t o b e discussed
“ i t h the “ederal Reserve Board,
firs Gilbert. f n d - : 4 t h th° agents

a s vrell,

Th s i r m a “ e l l , I suppose so,
yes, and at the Joint
Conference.

D o you want t o continue i n regard
t o the ecid centin

Pf cates?

Mr. Gilbert.

No; I

-oula not eore t o continuc thet
nor,

#3 I understand i t , v o u have rlready
taken certain action yos~
terday e x p r e s s i n g i n f o r m a l l y
t h e attitude

The Chairmen.

o f t h e Governors.

J u s t expressing a n opinion, yes.
I think that ought t o ¢ o t o the joint
confer

ence, p e r h a p s , f o r f u r t h e r
discussion.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairmen.

I t ought t o g o t o t h e Joint
Conference f o r

O79
further discussion b y the Federal Reserve agents, y o u mean?

Did the Federal “eserve Agents discuss this?
Mr. Gilbert.

I d o n o t nor.

The Chairman. I
of vievrs expressed,

vas g r e a t l y s u r p r i s e d
and I

a t the strength

«as c a r e f u l n o t t o e x p r e s s

m y orn vier

until everybody h a d finished expressing theirs, a n d there w a s n o
dissenting voice heard a t alle
Wir. Gilbert. —-Very relle
The C h a i r m m .

N o w , a s t o t h e fiscal a g e n c i e s m a t t e r ,

six o'clock now., C a n you spare u s a
Mr. Gilbert.
agency a c c e p t a n c e s

The Chairmen.

i t is

fer minutes tomorror?

H a s therebeen a n y discussion o f the fiscal
u p t o date?

N o , b u t i t i s o n our program a s well a s o n

*ours, e n d r e haven't reached i t o n our program yet. ‘ ' e have
already discussed t h e question o f allotments, N o . 3 , b u t that
be convenient f o r y o u t o g o through this program w i t h u s s o m e t i m e t o m o r r o r ?

Yes. I

should suggest somewhere e a r l y after

elevene
The Chairman.
There i s a

v

report f r o m a

e W . m e e t a t 9:30 tomorrow morninge
committee a p p o i n t e d

of o u r Federal “ e s e r v e a g e n t s

o n the subject

They have h e d a meeting a n d have a


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

t o confer w i t h t w o
o f group meetingse

report t o makes G o v e r n o r


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

McDougal, r i l l y o u report?
Governor ticDougal.

T h e report

i s n o t s t a l l complete,

but t e held a little meeting a t noon ‘ith Mr. J a y and Mr. Martin, representing t h e other wing o f this organization, a n d
it developed that t h e y also h a d submitted t h e matter t o that
Conference. I

do n o t think t h e y had considered i t very care~

fully, b u t the opinion was expressed i n that conference t h a t
these g r o u p m e e t i n g s h a d b e e n p r o d u c t i v e

gestion ras that they be continued.

o f good,

a n d the sug-

~ “ e explained that, i n

matter here, the Governors felt that h i l e
some good hed come f r o m those conferences i n 4 number o f inpes

stances, the group meetings h a d not been neip/at all, and
et i n g i v i n g c a r e f u l c o n s i d e r a t i o n
that

v e felt that

t o t h e relatedmatters,

r e might better meet

perhaps t r o o r three time's a

a s Governors

oftener,

vear, o u t s i d e o f Vashington,

if

thet could be erranged, e n d that i n view o f the time that
those m e e t i n g s v o u l d t a k e a n d a l s o i n v i e w o f t h e f a c t t h a y
re trould c o m e h e r e t o g&e t h e r

a t least o n c e o r trice a

yer,

that v e felt r e could not consistently devote t h e time neces-~
sary t o c o n t i n u e t h e s e g r o u p meetings.

Mr. J a y spoke f o r his c onference a n d stated thet while
they h a d expressed

v i e r that t h e y would like t o s e e the


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

meetings continue, t h a t they h a d not gone v e r y carefully into
the matter, a n d the understanding vas
the mattcr u p again today, a n d ‘ e were
morrow,

t o f u r t h e r d i s c u s s t h e matter.

e e

m
i

t i s very evident

thet t h e other conference feels that these meetings h a v e
been satisfactory a n d successful, a n d ¥ :
them a t least f o r the forthcoming yeare

e

t> continue

j y v y , w e r e there

any o t h e r p o i n t s b r o u g h t o u t ?

Governor Seay. I
& Presume e

think Gove mor McDougal i s giving

‘ e expressed t o those gentlemen o u r opinions

and the opinion o f this conference just is freeiy 8
ive found that t h e y rere i n accord v i
the v i e w s e x p r e s s e d here.

T h e y belicvedthat t h e r e w a s

ndministreative necessity for more frequent meetings o f
Govermorse T h e i r knowledge o f the vorkings o v their o r
panks l e d them t o that conclusion, a n d thot
meetings o f the Governors a n d
could n o t b e devoted

t o both,

l e y D e l i e v e d t h a t t h e meetings

of the Governors w e r e o * greatcr importance t h a n these group
meetings.

The Chairman.

I t seer e

that conclusion is unes-

capable, because w h e n v e all meet, w i t h the r o g r a m which has

one has, (it has b e e n

been studied in: dveance 2 s ;

the greatest possible adventage t o have them studied
n
a these group meetings
vance,) ~e really g e t s o m e v h e r e , d
are very plesant a n d i t gets u s acquainted, b u t i t does not
accomplish a n y t h i n g f o r t h e ivhole S y s t e m e
Governor Seay.

T h e y 2lse expressed t h e opinion, G o v e r -

nor Strong, that these joint mectings qere were a little
ponderous, t h a t there were t o o many subjects t o b e handled,
and t h e i r e x p r e s s e d b e l i e f

v e s i n eccord w i t h ours, t h a t

re w e n t a v a y w i t h o u t d i s c u s s i n g t h o r o u g h l y m a n y s u b jects

thet w e came here t o consider.
The Cheirmen.

n e t i s righte

Governor Seay. They believed that i t would also b e ad~
vantegeous f o r t h e agents t o meet more than once o r twice a
year, a n d i f they met b y themselves i t was agreed o n all
hands t h a t i t ‘ o u l d b e a d v i s a b l e

t o have t h e Joint Confer-

ence a t least once a year betveen t h e Governors a n d the
“cents a n d the Board.
The Chairmen.

O n c e © year?

Governor Seay. O n c e , a
they d i d n o t express

y e a , but they nodded rhere

i t verbally, w h e r e v e r

w e leid stress

upon t h e n e c e s s i t y o f t h e a d m i n i s t r a t i v e o f f i c e r s
banks m e e t i n g t o g e t h e r

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

o f the

t o discuss s o m e o f their e v e r y d a y

problems.

T h e y called ettention t o t h e fect,

2 % so

pressed i t h o y g a m e a c r o s s

purpose

o f discussing these things, o n

a state

o r dissatisfacti

‘

them i n a v e r y superficial

'

e were c o m p e l l e d t o t r e a t

a y , and

s o m e cases t o

them altogether, anc the necessity w a s recognized b y them,
just @ a r e

a s w e recognize

i

a

£ 4 v o u l d h e to: the

Governors h a v e m o r e f r e q u e n t
meetings,

e n d that t h e y

b e devoted e x c l u s i v e l y t o t h e d i s -

cussion o f p r o b l e m s

or rather, recounted

for the discontinuence o f the Governors!
1dwe expressed t h e opinion that i f these neet-to b e held they were t o b e absolutely working
that n o t i m e w a s t o b e c o n t e m p l a t e d
to r e c e p t i o n s

o r banquets

o r pleasures,

t o b e devoted

b u t that they rould

be wholly occupied ~ i t h the administrative w o r k o f the T e d eral Reserve Banks,

m d t h e y eppesred t o b e i n perfect accord

<ith u
s on that subject. T h e y stated that they hed not distheir o w n m e m b e r s
parently h a d d i
suggested


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

x

e

: s

:

a s we ap=

a n d f o r t h e t reason t h e y

that t h e y g o back a n d report

what hed

084

this meeting o f the committee, a n d that - e .

subsecuent

meeting o f o u r Committee.
it i s supposed that t h e Board expects s
Moruit w O o t e

o t

A

S Tittle d e l ieee: matee

committee t o
T h e r e are

tvo representatives o f the Board, being the 4gents, and tro
representstives o f the Govemors, a n d i t i s felt
agreement c a n b e resched betreen t h e t r o e s t o what ought
to b e done, i t -‘ould heve more effect.
The Chairmn.
them o u r program?
Governor Seev,

- @ did b

3

4 t h e m , b u t w e called

eir attention the difficulties «hi “ e n e d , € - ¢ a i l i e d
attention t o the fact that v e tere subjeect t o numer“interruptions f r o m sil sources v h e n » e c a m here, a n d that

was
elvays o u r progrem/more ambitious a n d comprehensive t h e n v e
could settle, and v e f

f

¥ --e met more frequently o u r pro-~-

grem could be shortened and there vould be no necessity for
continuing,gs w e nov continue, topics forsubsecuent meetings.
“e p o i n t e d o u t t h a t c e r t a i n p r o b l e m s

o f administration v e r e

actually held u p here because w e did not have time t o reach
e common agreement.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Chairmen.

o

S

See =

o85

other, s r else heve a lot ef dissimilar practices, methods
developing i n the banks, a n d disorder.
Governor Seay.

“ e also expressed t h e opinion that

it rould tend t o solidify the Federal Kserve System i f the
Governors should meet, for instance, i n different Federal
Reserve cities, a n d that t h e body o f Governors should meet
the directors o f the particular b a n k a t which they rere reet~
ing.

I t was suggested that possibly r e might b e given op~

portunity for meeting these directors a n d possibly a t times
discussing some f e w questions o f policy, leaving t h e rest
of the meeting t o the Governors themselves, a n d i t was be-lieved that i f the l a a l directors o f the Federal Heserve
system could m e e t u n d discuss r i t h the officers o f othe~

Federal Reserve banks the problems rrich they had i n their
districts,

t h e t they:ould have a

very comprehensive i d e a

of the vorkings i n that district.
The Chairmen.

M a y I remind y o u o f the program tomorrow?

At 9:30 w e meet w i t h Senator Kendrick a n d his associates.e
They vill probably b e through a t il, a n d then v e will a s k
Mr. Gilbert t o meet vith us, end w h e n ~ e are through rith
him w e have t h e n t o take u p the three topics suggested i n
Governor Harding's talk, a n d i n the afternoon r e can g o back


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

336

to our regular program. I

thi

w e had n o w better adjourn,

is it i s ten minutes p a s t sixe

(“hereupon,

a t 6:10 o'chock p-m., t h e Conference adjournec

until tomorrow, Thursday, October 27, 1821, a t 9:30 o'clock


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

s

e e er
o et o e


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis