Full text of Federal Reserve Governors Conference : Meeting Documents : October 25-29, 1921, Sixteenth Conference of Governors of Federal Reserve Banks : Joint Conference Proceedings, October 25 & 28, 1921

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Federal Reserve Bank of St. Louis

ROCEEDINGS O F A CONFERENCE WITH THE FEDERAL RESERVE BOARD O F

GOVERNORS AND CHAIRMEN AND FEDERAL RESERVE AGENTS

OF THE FEDERAL RESERVE BANKS

ASSEMBLY ROOM
FeperaL Reserve Boarp
METROPOLITAN BANK BuitbING

WASHINGTON, D, Cc.

OCTOBER 2 5 & 28, 1921

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


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Federal Reserve Bank of St. Louis

B

PROCEEDINGS O F A CONFERENCE W I T H THE PEDERA

O

A

R

D

OF GOVERNORS A N D CHAIRMEN A N D FEDERAL RESERVE AGENTS
OF T H E F E D E R A L R E S L A V E B A N K S

Washineten, D.C.
Tucsdey, October 25,1921.

The c o n f c r e n c a w i t h t h e F e d e r a l s e s e r v e B e a r d o f
the F e d e r a l R e s e r v e G o v e r n o r s
Reserve

B a n k s wags c a l l e d

a n d Cheirmen

t o trder

o f ths Federal

i n the Boerd R o o m

of

the Federal Reserve Board, 7 Metropolitan B a n k Building,

Weshineton, U.C., a t 1 8 o'cicck ams,

o n Tussday, Octob-

Present:

emer renee earner

Hon, W . P. G . Harding, Governor o f the Federal
csurve Boerd,.

Edmund Platt, Vice-Governor o f the Federal
Reserve B o e r d .
Member

o f the Federal Reserve

C. S. Hamlin, Member o f t h e Federal Reserve
Board.

John R. Mitchell, Member o f the Federal
Reserve Board.
A. W. Mellen, Secretary o f the Treasury a n d
Ex-officio m e m b e r
Board.

o f t h e Federal Reserve


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Federal Reserve Bank of St. Louis

Hone D . R e Crissinger, Comptroller o f the
Currency a n d ex-officio member o f t h e
Federal Reserve Board.

Charles A . Morss, G o v e r n o r , F e d e r a l R e s e r v e
Bank o f Boston.

Frederick H . Curtiss; Cheirman a n d Federal R e -

serve Agent, Fedcral Reserve Bank e f Boston.
Benjamin Strong, Governor, Federal Reserve B a n k
ef N e w York.

Pierre Jay, Chairman and Federal Reserve Agent,
Federal R a s e r v e B a n k o f N e w York.

George ¥ . Norris, Governor, Fedcral Reserve
Bank o f Philadelphia.
R. L. Austin, Chairman a n d Federal Keserve
Fedoral Reserve B a n k o f Philadelphia.
E.R. Fancher, Governor, Federal Reserve B a n k
of Cleveland.

DD.C. Wills, Chairman end Federal Reserve Agent,
Federal Reserve B a n k o f Clevelend.
Seay, G o v e r n o r , F e d e r a l R e s e r v e B a n k
gof Richmond.

Caldwoll Herdy, Chairman e n d Federal Reserve
Agent, Federal Reserve B a n k o f Richmond.
M.P. Wellborn, Governor, Fedsrel Reserve B a n k
of Atlanta.
Joseph A . McCord, Chairman a n d Federal Reserve
Agent, Federal Reserve B e n k o f Atlanta.
J. B. McDougal, Governor Federal Reserve B a n k
of Chicago.
William A . Heath, Chairman a n d Fedcral Reserve
Agcnt, Federal Reserve B a n k o f Chicago,


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Federal Reserve Bank of St. Louis

D. C. Biggs, Governor, Federal Reserve B a n k o f
St. Louis.
m wWMcc,
a

Mertin,
i
Chairman
l
l
a n d Federal
i
Reserve
W

, F e d etr a l R ens e r v e e Bank po f St.Louis.
&

R
k
. A . Young, Governor, Federal Reserve B a n k o f
Minneepelis.
n H H.Rich, C hha i r m a n a n do Federal Reserve
J
Agent,
Federal R e s e r v e B a n k o f Minneapolis.

J.- 2. Miller, Governor, Federal Reserve B a n k o f
Keanses City.
Asa EH. Ramsey, Chairmen a n d Federal Rescrve Agent,
Federal Rascrve B a n k o f Kansas City.
R.L . V a n Zandt, Governor, Federal Reserve B e n k
of Dallas.

illiam a e e S
C h a i r m a n a n d Federal Reserve
Ager e d e r a l Reserve B a n k o f Dellas.
J. U. Calirins, Gov vies F e d e r a l Reserve B a n k e f
San FPranci sco
N Portia.

Chairman
O
a n d OFederal Reserve
J
Agent,

Federal R e s e r v e

Bank

o f S a n Francisco.


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Federal Reserve Bank of St. Louis

P R O C E E D I N G S .
Governor Harding.

Gentlemen,

t h e Conference w i l l c o m e

to order.
The Secretary o f the reeweney i s with u s this morning.
I do not know i
not.

.

a n y t h i n g t e say t o you o r

Y o u h a v e a l l m e t h i m personally.
Secretary M e l l o n . I

d o net k n o w o f anything t o s a y

to y o u especially, except t o welcome y e u t o Washington. I

just dropped i n here t o meet you. I

haven't anything t o add

to the work e f the Conference that I know e f at this time.
Governor Harding. I

call the attention o f the Confer~

ence t e the program for this week's work. T h e r e will b e
a dinner tonight a t the Metropolitan Club.

I t is scheduled

for 8 o'clock, b u t i n view o f the discussions which w e will
probably have a t the dinner,

i t i s thought better t o have

it at 7:30. Arrangements have been made t o have the
dinner a t 7:38 a t the Metropolitan Club.

W e hope that

all Governors a n d Federal Reserve Agents c a n b e present.

If any cannot b e present, please indicate i t t o the Secretary o f the Board a s early a s possible,

make arrangements.

s o that w e c a n

I f wa d o not hear t o the contrary, w e

will assume that you will all come.


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Federal Reserve Bank of St. Louis

This a f t e r n o o n , u n l e s s somet! i n e develops t h i s m o r n ing w h i c h w o u l d m e k e i t s e e m a d v i s a h l e
Joint C o n f e r e n c e

t o continus t h e

d u r i n g t h e afternoon ecssion,

t h e Federe-

Reserve Agents a n d the Governors c a n eech heve their sepsrete conference.

T h e Governors w i l l meet i n Room 4

on

the mezzanine f l o o r o f the »ashington Hotel, j u s t across
the street.

T h e Fedserel R e s e r v e A g e n t s w i l l u s e t h i s room.

The seperate conferences v i l l continue a l l d a y tomerro#

and also o n Thursday morning. A 4 é t 2:30 o'clock Thursday efternoon the Federal Reserve B o a r d will meet with the
Federal Reserve Agents i n this r o o m a n d a t 1 0 o'clock o n
Fridey morning t h e Federal Ecscrve w i l l mevt with t h e
Governors

a t t h e i r m e c t i n g p l a c e i n t h e # a s h i n e t o n Hotel.

at 2:30 o'clock Friday afternoon w e will resume t h e Joint
Conference.
The m a i n t o p i c s f o r d i s c u s s i o n

a t the Joint Con-

ference w e r e g e n t o u t s o m e t i m e e r o a n d a
there w a s a

suoplementery list, w h i c h I

little l e t e r

believe v o u a l l

heve. T h e s e matters v e r e suscested b y the Treasury L e ~
partment. T h e y will b e discussed b y the Federal Kescerve
Board e n d theFederal Resdrve Agents a t the conference
Thursday a f t e r n o o n

a m

on

b y t h e Federsl Keserve B o e r d e n d


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Federal Reserve Bank of St. Louis

the G o v e r n o r s

o n F r i d a y morning,

finally o n Friday afternoon a t the Joint Conference a n d
with both bodics.
It i s hoped, hovever, t h e t c a c h oarty will find time
to discuss t h e s e m a t t e r s s e p a r a t e l y .

i‘i4 Practicability o f putting into circulation the
silver certificetes a n d legal tender notcs n o w held b y
Federal R e s e r v e B a n k s ,

s o a s t o put t h e reserves a t i r c l y

on @ gold basis.

(2) D e s t r a b i l i t y o f restoring some gold certificates
to circuletion b y heving Federal Reserve Banks pay them
out.

(3) Expediency of authorizing Federel Reserve Benks
to purchase i n cech celendar year the maximum amount permitted u n d e r S e c t i o n 1 8 o f t h e F e d e r a l R e s e r v e A c t ,
#25 ,000 ,000.00

o f United States bonds eligible

e s security

for bank note circulation.
Suction 1 8 authorizes t h e Federal heserve Banks t o
purchase bonds available f o r circulation from National
Banks a n d take i n payment c n e yeer 5

af the Treasury.

per cunt gold notes

F o r a while such purchases were meda,

but i n 1917 e n d 1918, w h e n these w a r issues o f bonds


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Federal Reserve Bank of St. Louis

were v e r y frequent, 3

p e r c e n t b o n d s c o u l d n o t d e solid a t

per a n d the Board, exercising t h e discretion given i t b y
lew, d i d n o t require t h e banks t o make theee vurchases.
It 4 s not intended t o requirethe banks t o meke these purchases a t present, b u t the sugeestion h a s b e e n meade thet
if a n y National b a n k reelly vished t o eive u s its circulation a n d s e l l i t s bonds, w h i c h i t c a n d o n o w o n t h e

market, theFederal Keserve Banks micht consider t h e a d visability o f their buying t h e meximum amount o f bends
permitted u n d e r S e c t i o n 1 8 ,

i n a n y o n e calender yeer,

#25 000,000.00, a n d hold t h e m 6 s e n asset ageinst which,
4f they wish, t h e y could issuc Federal Reserve noteSe
The Federal Reserve B a n k note i s closely e k i n t o the
National B a n k note, b u t this will b e o n e step i n the

rétiring o f the Nationel Benk note circistion.
Now, o n the m a i n topics, efficiency e n d economy
tn administration o f Federel Reserve Benks, t h e recent
developments

i n the p e r c l e a r a n c e s y s t e m a n d p r i n c i p l e s

governine t h e discount rate, I
thoughts o n that

g c

views o f the Board. .

have jotted d o w n some

w h i c h I bolicve represent t h e
There i s nothing particuler i n

respect o f this discussion.

I t was n o t deemed advisable


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Federal Reserve Bank of St. Louis

to attempt a

conclusion a t t h e b e g i n n i n g

of a

conference.

It simply throws o u t some ideas f o r your consideration.
You c a n have t h e m i n mind a l l during t h e week a n d o n
Fridey afternoon,

i f any conclusion c a n b e reached,

w e can

coma t o i t e t that time.
HFFIGLENCY A N D ECONOMY I N ADMINISTRATION O F
FHDERAL RESERVE BANKS.
In the program f o r this Conference, w h i c h was sent
out about a month ago, t h e first subiect listed f o r
discussion i s " f f i c i e n c y a n d Economy i n édministration

of Fedcral Reserve Banks”. T h i s subject, always a n important one, has edded significance a t this time because
of charges which heave b e e n given wide circulation a n d publicity that there h a s b e e n a n amazing waste o f public mong:
in t h e i n c r c e s e

o f salaries a n d i n t h e e x p e n d i t u r e s o f : the

Federal Reserve Banks.

T h e s e charges are, n o doubt, r e -

sponsible f o r the resolution recently edopted b y the Unite:
States Senate, directing t h e Federal Rescrve Board t o
inform t h e Senate o f the number o f officcrs a n d omployees,
together with their respective salaries,

o f the Federal

Reserve Benk of New York, e s well a s o f the otherFederal
Reserve Banks, a n d the expenditures meade b y each "Branch


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Federal Reserve Bank of St. Louis

Bank" i n the erection o f publis ruildings a n d the general
exvenses i n the sdministration o f each Federal Reserve
Rank, a n d h o w much o f the n e t earnings have b e e n paid t o
the United States a s a franchise tax.
In t h e o p i n i o n o f t h e B o a r d i t i s u n f o r t u n a t e t h a t
matters

o f this kind should assume a

political a s p e c t

or

that they should become t h e subject o f a Congressional
resolution.

T h e Board h a s kept Congress informed o f

these matters e v e r since t h e Banks ware organized late
in the year 1914.

I n each annual report information re-

garding saleries h a s b e e n given i n detail, nemes o n l y
being omitted.

A n exhibit h a s been made f o r each Feder-

al Reserve Bank, showing t h e number o f officers b y grades,
salaries p e i d t o each, t h e total number o f employees,
the average salary a n d t h e aggregate o f all salarias paid.
Information e q u a l l y e x p l i c i t h a s b e e n g i v e n f r o m y e a r to.

year regarding t h e building operations o f the several
Federal Reserve Banks.

T h e Bosrd h a s endeevored t o

make clear t h e character a n d functions o f the Federal

Reserve Banks and t o distinguish between matters which
come under t h e supervision a n d controaiof t h e respective poards e f directors a n d under t h e general super-


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Federal Reserve Bank of St. Louis

vision of the Federal Reserve Board.
For s o m e t i m e p a s t , @

persistent propagenda h a s

w h i c h i s calculated

conducted,

t o mislead t h e public

which apparently i s designed t o bring t h e system n d
menegement i n t o disrepute.

T h e powers a n d dutics

of the directors c f Federel Reserve Banks ere defined i n
Section 4 of the Federal Reserve Act. R e s v o n s i b i l i t y
for the management o f these b a n k rests primerily e n d directly u p o n them e n d upon their d u l y appointed officers
and sgents.

T h e l a w reauires t h a t e n y compensation that

may be provided b y boards o f directers for directors,
officers

o r emoloyees s h a l l b e s u b j e c t t o t h e a p p r o v a l

of the Fuderel Reserve Board.

T h e Board h e s n o t i n all

cescs a p p r o v e d s a l a r i c s w h i c h h a v e b e e n v o t e d b y directors

of Federal Reserve Banks, but e s a rule the recommendetions o f t h e d i r e c t o r s w i t h r e s v e c t

t o salaries h a v e b e e n

epproved b y the Board, sometimes, perhaps, w i t h some r e =
luctance.
The Board h e s taken the position, however, t h a t a s

the directors are primarily responsible f o r the eadministration o f the banks, m u c h consideration should

b e given

to their views a s t o the rate o f compensation necessary


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Federal Reserve Bank of St. Louis

to secure honest, efficiant a n d careful management.
In i t s A n n u a l R e p o r t f o r t h e y e e r 1 9 1 8 ,

t h e Beard pointed

out that perticulariy w i t h respect t o junior officers a n d
employees s a l a r i c s m u s t b e p a i d e p p r o x i m a t i n g t h e s a l a r -

ies paid b y lerge momber b a n k s i n the cities where t h e
Federal Reserve Banks a r e located.

I f , i n order t o reduce

expenses, t h e policy should b e adopted

o f meking t h e

Federal Reserve Banks mere training schools f o r bank
officers,

i t i s h a r d l y possible,

because

o f the fre-

quent changes involved, t h a t the banks would heve t h e
degree o f efficiency i n administration a n d smoothness o f
op¢ration w h i c h t h e y w o u l d h a v e i f t h e c o m p e n s a t i o n p a i d

be sufficiently liberal t o retain the services o f trained
end capable men.
The Board docs n o t for & moment believe t h a t the
directors o f eny Federal Reserve B a n k i n fixing salaries
or i n authorizing expenditures

i n developing t h e business

have b e c n actusted b y e n y desire t o deprive t h e Government o f t h e r e v e n u e w h i c h i t i s e n t i t l e d
the t e r m s o f S e c t i o n 7

t o recsive u n d e r

cf the Federel Reserve A c t , a n d

mest assuredly t h e Federal Reserve B o a r d would n o t b e a
party t o any such undertaking.


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Federal Reserve Bank of St. Louis

Federsl Reserve Banks a r e not, strictly speskina,
Government i n s t i t u t i o n s .

T h e Government

owns

n o stoc&

in them, t h e y are n o t sugported b y aporoprietions made
by Congress, t h o y a r e subject t o locel taxetion o n their

real estate just a s national banks sre and t h e i r payments
out o f earnings

t o the Government

as 4

franchise

t a x at

times g r e a t l y e x c e a d a l l taxe¢s p a i d b y a n «qual n u m b e r o f
the l a r g e s t n a t i o n a l b a n k s , e t a t e b a n k s a n d t r u s t c o m p a n -

fes i n the United States.

T h e directors o f Federal R e -

serve Banks are given such incidental powers a s shall
be necessary t o carry o n the business o f banking within
the limitation prescribed b y the Federal Reservo A c t

and "shsll verform the duties usually spperteining to the
office o f directors o f banking associations a n d 61] such

duties as are orescribad b y lew".
There c a n b e n o question, therefore,
thority o f directors

e s t o the a u -

o f Fedcrel Reserve B a n k s

t o provide

their i n s t i t u t i o n s w i t h s u i t a b l e b a n k i n g querters.

hes been repvatedly pointed o u t t o Congress,
impossible

t o lease a d e q u a t e q u a r t e r s ,

A

s

4 t has been

a n d building

operators have, therefore, become necessary.

T h e Senate


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Federal Reserve Bank of St. Louis

13

resolution,

t 9 which ellusion h e s been mace, refers t o

the Federel Reserve feniee s e "prenches".

T h e Federal

heserve Act, however, m a k u s i t very plain that these
benks s r e n o t branches.

T h e i r itndenendent p o w e r s a r e

defined i n Section 4 and suthority t o esteblish branches
of t h e i r o w n i s r i v e n t h e m i n S e c t i o n 5 .

The buildings ecquired

o r constructed b y Federel

Reserve Banks a r e i n n o sensé public buildings.

The

funds necessery f o r their eequisition o r construction
were n o t agpronorieted b y Congress, t h e title i s not
vested i n the United Stetes, b u t i n the Federal Reserve

Bank, end they ere not exempt from taxation 4 s all
public b u i l d i n g s a r c , b u t a r e e x o r e s s l y m a d e l i a b l e

to

stete snd local texation. T h e officers o f Fedarel Reserve Banks a r e n o t officers o f the United States, a n d
sre n o t a u b l i c o f f i c i a l s a n y m o r e t h a n o f f i c e r s
Netional b a n k s a r é p u b l i c o f f i c i a l s .

of

F e d e r a l Heserve

Benks, l i k e netionel benks, a r e organized under the
laws o f the United Stetes a n d esch are supervised

by public officials; the Federel Reserve Banks
by
by the Federsl Keserve B o a r d a n d the National benks
the Comotroller o f the Currency.

B o t h classes e r e


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Federal Reserve Bank of St. Louis

impressed w i t h duties t o thepublic, b u t i t i s true
that Federal Rescrve Banke,

b y reason o f their supervisory

povers o v e r the member banks e n d t h e neture o f their business, a n d b y reason o f the elimination o f the clement o f
competition, h e v e more o f the attributes o f rovernme ntal
institutions t h a n Netionel banks.
In order t o render efficicnt survice t o the member
banks o n d t h r o u c h t h e m t o t h e p u b l i c e n d t o o r rform t h e

functions imposed u p o n them b y the Act, Federal Reserve

Banks are o b l i g e d t
o make large c¥penditures which are

not imposed upon National benks, State benks a m trust
compenics.

T h e Board does n o t wish t o impair i n ény

degres t h e efficiency o f the Fedvral Reserve Banks, b u t
deems i t importent, nevertheless,

t o call your attention

to t h e r e a c t i o n w h i c h h e s t a k e n o l a c e d u r i n g t h e p e s t

gighteen months, t o the gencrel business depression now

prevailing throughout the country, t o the smaller volume
of eerning assets n o w carried b y the Federel Reserve
Benke e n d the consequent reduction i n the earnings, a n d

tothe change in public sentiment with regerd to large
expenditures,

The Board urges you, therefore, t o do all i n your


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Federal Reserve Bank of St. Louis

power t o eliminate u n n e c e s s a r y e x p e n s e a n d t o c o n d u c t

tho businces o f your respective institutions

i n such a

manner a s t o cive n o reasonsble grounds f o r a n y chorge
of extravagence a n d waste.
RECENT DEVELOPMENTS I N THE P i R CLEARANCE SYSTEM
AND S

U

G

G

E

A H
DC
SS ETIGN NEMefras.

The Board desires t o call your attention t o the persistent opposition o n the pert o f a large number o f nonmember b a n k s

o f t h e country

t o the Federal Reserve p a r

clearance s y s t e m e n d t o the imoediments w h i c h have b e e n
thrown i n the w a y o f making this system universel i n its
scope.
The injunction which was obteined some eirhteen
monthe a g o b y State banks i n Georgie sgainst t h e Federal
Reserve B a n k o f Atlante i s still i n effect.

T h e Federal

Rescrve B a n k was successful i n removing t h e case f r o m
the S t a t e c o u r t t o t h e U n i t e d S t a t e s D i s t r i c t C o u r t a n d

won a clear c u t decision i n thst court.

I t w o n also i n

the United States Circuit Court o f Appeals, b u t t h e d e cision p f the United States Supreme Court w a s t o the
effect t h a t i f the ellegations made b y the complainants


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Federal Reserve Bank of St. Louis

could b e susteined they would b e entitled t o relef.

B y

reason o f thelaneuege u s e d i n t h e o p i n i o n e f t h e S u p r e m e
Court t h i s c e c i s i o n h a s b e c n r e p r e s e n t e d

t o the public a s

sweeping victory f o r the compleinents a n d a s @ condemne+ion b y the highest court o f the land @

t h e policy o f the

Federal Reserve Banks w i t h respectto collections.
As a matter o f fact, however, t h e case h a s merely
been remanded t o the United States District Court i n Georg:

for trial o n its merits, and a favorable outcome i s an-

ticipated b y the bank's counsel, with whom is associated
Hon. John w. Devis, former Solicitor Generel o f the
United S t a t e s a n d m o r e r e c e n t l y U n i t e e S t a t e s A m b a s s a d o r
to Great B r i t a i n .

T h i s c a s e w i l l doubtless c o m s a g a i n

before t h e Supreme Court o f tha United States i n regular
courses e f t o r i t h a s ' b e e n d e c i d e d

b y the United States

District Court and the United States Circuit Court o f
Apoeals.
It i s nccessory,

however,

t o call y o u r attention

t o

the fact t h a t the legieletures o f the States o f Louisiana,
Mississippi, Alabama, Tennessce, Georgia, Florida a n d
North C a r o l i n a h e v e e n a c t c d l a w s w h i c h w i l l m a k e i t


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Federal Reserve Bank of St. Louis

i?

difficult,

i f not impossible,

t o oblige non-members banks

to remit a t par, a n d while there i s doubt a s t o the constitutionality o f these laws, 4
be made i n gach instance.

separatetest will have t o

T h i s will thvolve great expense

and perhaps m a n y years will elapse before a

1 1 the cases c é

be decided finally.
It i s not the purpose o f the Board t o recommand a n y
immediate change i n policy, f o r counsel i s anxious t h a t
nothing b e done t o confuse t h e issues a s they have already
been defined i n the case n o w psnding i n the United States
District Courtin Georgia, b u t after that court h a s decided
the case t h e Board m a y suggest a
plan.

modification o f the preset

I t seems opportune, therefore, t o : discuss t h i s

question

o n the present occasion a n d request t h e Federal

Reserve Agents a n d Governors o f the banks a t theirseparate
meetings t o devote s u c h time a s m a y b e necessary f o r 8

full discussion o f this subject,
Section 1 6 o f the Federal Reserve A c t authorized t h e
Federal Reserve B o a r d t o exercise t h e functions o f a clearing house f o r t h e Federal Reserve Banks o r t o designate
a Federal R e s e r v e B a n k t o exercise s u c h functions,

and


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Federal Reserve Bank of St. Louis

Slso t o require e a c h s u c h b a n k t o exercise t h e f u n c t i o n s

of a clearing house f o r its membér banks.
velooment

I n the de-

o f the present s y s t e m t h e Board h a s attempted

to

establish s u c h a clearing house i n each district.

In many o f the large cities there are banks which
are n o t members o f the locsl clesring house, b u t which
ere permittedto u s e some clesring house member b a n k a s
& Clearing acant.

S u c h banks are, however, obliged t o

conform t o all t h e rules a n d reculetions w h i c h eovern
clearing h o u s e member. banks.

H o n - m e m b e r benks which re-

fuse t o remit a t per f o r checks d r e y n o n them heve b e e n
availing themselves o f the facilities o f the Federal Reserve
per clearance s y s t e m t h r o u g h t h e i r m e m b e r b a n k c o r r e s p o n d -

ents.

I t has been sugsested t o the Board b y the Gov-

ernors

o f t w o Federel Reserve B a n k s t h a t i n view o f t h e

legislation

i n t h e S t a t e s a b o v e n a m e d e n d o f pvossible

Similar legislation i n other Stetes,
take e d v a n t a g e

o f another provision

i t would b e well t o
i n Section 16, w h i c h

authorizes t h e F e d e r a l R e s e r v e S o a r d t o f i x t h e c h a r c e

which m a y b e imposed f o r t h e service o f clearing o r collection r e n d e r e d

b y t h e Federal Reserve Bank,

b y author-

izing Hecerel Reserve Banks t o advise t h e i r member banks


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Federal Reserve Bank of St. Louis

thet o n a n d a f t e r a

certain d a t e a

compensatory charge

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

the member banks o n all checks endorsed b y o r originating
with a

non-member b a n k whose n a m e i s n o t o n t h e p a r Lists

Under such a rezulation non-member banks which refuse
to lend their cooperation t o the Federal Reserve collection system would hava t o pay f o r the benefits derived b y
them from that collection system, f o r member banks would
hardly b e willing t o collect checks f o r s u c h non-member
venks u n l e s s v a i d f o r d o i n g s o a t r a t e s e q u a l t o t h o s e

charged b y the Federal Regerve Banks.
The Board requests t h a t t h e Governors a n d Federal
Reserve Agents i n their separate sessions discuss t h i s
proposition

i n 8 1 1 i t s bearings.
PRINCIPLES G O V E R N I N G T H E D I S C O U N T R A T E .

Control o v e r discount rates, a s exercised b y the Federal Reserve B a n k and t h e Federal Reserve Board, i s one
of t h e m o s t i m o o r t a n t a n d f a r - r e a c h i n g p o w e r s e v e r d e l e -

gated b y Congress t o andbhher instrumentelity.

T h e grant

ranks with the power given t h e Interstate Commerce C o m mission t o regulate r a i l r o a d r a t e s .
sary t h a t p o w e r s

w h i l e i t i s neces-

o f this kihhd s h o u l d b e v e s t e d

i n oe f e w


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Federal Reserve Bank of St. Louis

hends t h e y s h o u l d b e u s e d w i t h d i s c r e t i o n a n d t h e e f f e c t
of a

change

i n rate s h o u l d b e c a r e f u l l y c o n s i d e r e d b e f o r e

the change i s made.
The p r i n c i p l e

i s well established t h e t i n theory t h e

Federal Reserva B a n k discount rate should b e Slightly i n
excess

o f current r a t e s .

T h e r e h a s b e e n m u c h discussion

of t h e r e d u c t i o n s w h i c h h a v e b e e n m a d e i n discount r a t e s
during t h e l a s t s i x m o n t h s a n d d i s r e g a r d i n g o p i n i o n s

of

the prejudiced a n d the uninformed, l e t u s consider t h e
conflicting views o f some whose o p i n i o n s a r e worthy o f

attention and respe

T

h

e quotetions which follow

are f r o m a symposium recently published i n e financial
journel.
A New Y o r k banker a n d a n Kestern economist expressed

themselves therein, e s follows:

" T h e basic idea i n this

policy o f keeping the rediscount rete above the merket i s
that Reserve Bank money i s for exceptional and unusual
use--that i t i s not t h e province o f a Reserve B a n k t o
supply a

substantial p a r t o f t h e o r d i n a r y f u n d s e m p l o y e d

in t h e m a r k e t

i n o r d i n a r y times.

pected t h a t a

Reserve B a n k s h a l l m a k e m o n e y f o r i t s s t o c k -

O f course,

i t is exe

holders end shall employ such o f its funds a s may be


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Federal Reserve Bank of St. Louis

necessary t o mest expenses a n c t o p a y civicends.
provision o f t h e F e d e r a l R e s e r v e

ret operetions o n the »:

t

h

e Feceral Reserve
discretion

i n this

matter, whother t h e member banks shoulc. reciscount w i t h
them o r not.

B u t t h e position o f a

vory peculiar one.

Reserve S e n k i s a

I f a n ordinary b e n k makes e a loen,

checks c o m e i n ageinst it, a s 4
which i t must mect

o

consecucnee o f the loan,

f its reserve unless i t should

happen that simultensously n e w deposits e r e mace w i t h i t o:
cheel:s G r e w n o n o t h e r benks.

L o e . sien) a

k, however, n e e d n o t leac : ‘ r e i n s
hen,

i

keserve

a Preserve.

i n maxing:a loan, i t issues its notes o r gives

2 deposit c r e d i t

to a

rediscounting bank, t h a t n o t e

or « transfer o f that deposit credit will b e eccepted a s
ultimate p a y m e n t

b y s o m e o t h e r institution.

T h e deposit

liabilities o f the Reserve Banik: count a s ultimate reserve
for the other banks o f the country,

m c t h e volume o f

reserve money i s conscouently inereasea t h r o u g h a mere
increase i n the Gcposit liabilities o f the
With e n increase i n ‘the volume o f reserves

o f the member

banizs, there i s a n immediete tendency t o « recuction i n


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Federal Reserve Bank of St. Louis

the gencral lcvel o f discount retes throughout t h e country,
ne t h e m . b e l o w t h e l e v e l w h i c h o p e n m a r k e t e o n d i t i o n s

woule otherwise c a l l f o r a n d cresting a
the u n e c o n o m i c a l u s e o f bani: funcs.
lerly a

temptation

t o u s e bank f u n d s

temptetion f o r

T h e r e i s perticui n a n 6ExCGssive c e e

grce f o r capital purposes, a n d for t h e orcinary banks
of the country, misled b y the artificial excess o f liquid
Gash, t o tie u p too great a part o f their assets i n nonlicuid form.

T h e Rescrve B a n k which makes reciscount

too low, t h e r e f o r e , i n s t e a d o f p e r f o r m i n g i t s

Function o f increasing t h e licui¢ity o f the vanking system,
tends rathcr t o destroy liquicity".
“ Chicago b a n k e r r e i t e r a t e s t h e o p i n i o n e x p r e s s e d

by

him several t i m e s t h e t t h e F e d e r a l R e s e r v e R a n k s a n a t h e
in
Federal R e s e r v e “ o a r d o u g h t t o proceec. v e r y s l o w l y

lowering the present rates. [ i e anticipates that there
is c o n s i c c r a b l e c e n g e r ,
precipitately,

o f a

i n ecsé t h e rates a r e lowered

nencwed j n f l a t i o n ,

with &

consequent

-we a r s
reaction m o r e v i o l e n t t h e n t h e o n e t h r o u g h w h i c h
now pessing.

H e t a k e s t h e v i c w t h e t i n goncroal i t T s - 2

complete m i s t a l e

t o have t h e peciscount retes l o w e r t h a n

if
the prevailing merket rates f o r comuercial loens, f o r


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Federal Reserve Bank of St. Louis

panks e r e e n a b l e c

t o reciscount t h e i r p a p e

l

o

w

e

r

rete t h e n they themselves reccive, obviously a 2 continued
inflation i s p r o f i t a b l e

t o them.

H i s opinion coincices

with t h e v i e w s o f t h e Bastern banker e n c t h e economist
above q u o t e d a n c hes s s s e s t h e p o i n t t h a t o u r l a r g e

golc. ressrve is, after all, cue only t o the fact that
‘old i s not being circulated a t the present moment e n c

that much of this gole is litely t o flow out of the
country 2 s soon a s there i s 2 change i n the balences o f

trade.
amount

H e concurs, also, i n the view thet a certain
o f the gold which t h e heserve Banks

is m e r e l y h e l d ,

i n a

sense,

i n trust

have

a t present

f o r .urope.

H

e

regards a s entircly fallacious t h e argument mac.c
herents o f a volicy o f low-ring rcdiscount rates
aetion i s Gesireble because t h e reserve retion e n c
accunuletions o f the Federel Reserve Renks justify ©
rélexation o f the official rates.
& Milwaukee banker w h o contens t h a t t h e policy shoule.
in accord with the money merket tendency, states t h a t t h e
“main p o i n t m a c e b y t h o s e o p p o s c a

to l o w e r i n g of

Federal neserve discount-rates i s that t h e rediscount
rate s h o u l c a l w a y s b e a b o v e t h e mearizet P a


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Federal Reserve Bank of St. Louis

gown a s a
ceptions.

general p r i n c i p l e

t o which t h e r e a r e n o e x -

F a d e r a l R e s e r v e f u n é s a r e o n l y scmergency funds,

it i s seid,and i t should n o t b e possible f o r banks t o
prorit

b y rediscounting

ct «

lover r a t e t h a n t h e

He calls attention t o the fact that “when t h e
€emand. for credit i s e x c e s s i v e a n d increasing, t h e heserve
Banks should move i n t o a

Gominating position b y raising

heir r e t e s a b o v e t h e m e r k e t r a t e s f o r money.

B u t the

same nocessity f o r Giscouraging resort t o federal Reserve
Bants coos n o t exist when the comen: f o r crecit slows down,

loans cre being paid off anc roserves ere accumuleting.
whet hes happened a s a rosult o f the recent lowering o f
pociscount r a t e s ?

H a s i t resultes?

loans o r reinflation? ,

at a l

i n a n expansion o f

t

h

e other hance,

the p u b l i s h e d r e c o r d s s h o w t h a t m e m b e r b a n k s h a v e c o n -

tinued t o recuce their rediscounts anc. borrowings a n d t o
Go this have brought pressure u p o n their customers t o
licuidate.

Customers

w h o haves v o l u n t a r i l y l i q u i d e t e d

and g o t themselves b e c k into gooc financial condition a r e

offeres lower retcs o n new loans. T h i s , o f course, i s a n
incentive
Mis

t o thoss w h o h a v e n o t c o n e s o t o liquidate.

i a t h e practical 3


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Federal Reserve Bank of St. Louis

6
Federal Reserve Banks i n rccucing their rates has workec.

There h a s n o t been t h e slightest tencéency toward renewed
infletion.

R a t h e r t h e tendency h e s been t o further

Licuidetion."

g e n e r a l princi-

T h i s banker agrees that “

ple o f keeping Federal Reserve reciscount rates ebove t h e
market rate f o r money i s sounc, b u t i t does admit o f
es i n the present condition o f things.

The

present F e c e r a l R e s e r v e p o l i c y i s i n accord. w i t h t h e t e n d -

ency o f the money market a n d i t

n e r d t o sce h o w i t has

hed o r will heve a n y but a wholesome a n c constructive
effect.

well-lmown b a n k e r a n d

I n s e recent p u b l i c a t i o n ¢

economist h e s a s s e r t e d t h a t t h e b e s t i n d e x o f t h e m o n e y

mariet i n this country i s the rate o n line-of-crecit loans
to borrowers f r o m t w o o r more banks, a n d n o t the rete o n
benk acceptences,

a s i n Bngland.

T h e volume o f line-of-

credit loans i n this country i s fer larger t h a n t h e volume
nani acceptance cercdits, b u t i t may b e doubted whether

the rates o n such loans are a s competitive a s bank accepto

ance rates.

T a n k accentances retes a r e fixed i n the o n e n

mertzet a n d s r e published.

Line-of-crecit loans have n o

open marixet a n d t h e r e a r e n o p u b l i s h e d rates.
erecit , 0 e n s a r e n o t a s c o m p e t i t i v e

Line-of-

e s t h e y m a y scem.


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Federal Reserve Bank of St. Louis

A smell firm commonly meintains 2
at its o w n benk.

line o f credit o n l y

L e r -e corporations usually have lines

of credit n o t only i t h their home banirs b u t with large
penis

i n finenciel c e n t e r s ,

n o t necesserily beceuse t h e y

ean secure lower rates, but because n o one bank wants t o
teke care o f their full needs.

F o r these reasons i t i s t o

be doubted whether line-of-credit loans afford a s good
an i n d e x o f m o n e y m a r k e t t e n d e n c i e s

rates.

a s t h e b a n k acceptance

T h e latter represent t h e minimum rates f o r t h e best

class o f paper a n d because this i s so, t h e y indicate f a r
market.
beyond t h e i r a c t u a l m o n e y v o l u m e t h e d r i f t o f t h e

The present rate o n eligible bank acceptances o f 5-1/8 t o 5
percent i s a better indication o f what i s taking place a n d
i the o p e n money market t h a n rates
what m a y b e e x p e c t e d . n

on

more
line-of-credit l o a n s w h i c h r e f l e c t m o r k e t c o n d i t i o n

slowly".
Another C h i c a m b a n k e r t a l e s

tive view.

e n extremely consorva-

H e would like t o see many o f the so-called

tiwar amendments"

t o the Federal Keserve A c t repealed a n d

courage a n d
states that a s the l a w stands,"nothing b u t t h e

a disas~
wisdom o f the management prevents i t from becoming


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Federal Reserve Bank of St. Louis

trous e n g i n e

o f inflation".

E

e objects particularly

the a m e n d m e n t w h i c h f o r c e s m e m b e r b a n k s

entire lawful reserves

to

t o carry their

i n the f o r m o f collected balances

with t h e Federal Reserve Banks a n d believes t h a t this
amendment, w h i c h h e regards a s practically demonetizing
gold,

i s most dangerous

i n normel t i m e s . R e f e r r i n g

to

the complaints which have b e e n made t h a t t h e agricultural
districts h a v e b e e n discriminated afainst,
that e x a c t l y t h e o p p o s i t e

h e believes

i s t h e cease a n d a p p e a r s

t o be-

lieve a l s o that t h e Federal Reserve System h a s worked a
great injury t o the country a s well a s inestimabze benefits.

H e states " I n a time o f inflation s u c h a s w e h a d

& year ago, i t nullifies the overation o f the usual normal
remedies f o r such conditions.

I f i t had n o t been for the

Federal Reserve Banks, farmers generally would have b e e n
compelled

t o sell their crops a

y e a r a g o a n d p a y t h e i r debts.

This would havea saved them and the country from the diseaster that h a s overtaken them. A l s o , h e d i t not been f o r t h e
Federal R e s e r v e B a n k s , m a n u f a c t u r e r s

e n d merchants w o u l d

have been unable t o accumulate o r carry the heavy inventor-~
fes entailing losses i n e single year which i t will teke
&@generation t o reolace."”

H e believes that "The solution


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Federal Reserve Bank of St. Louis

to this i s t o keen t h e Federal Reserve discount rates above
current market rates,

s o that there will b e n o temptation

en t h e p a r t o f t h e m e m b e r b a n k s

Federal Reserve Banks.

t o profiteer t h r o u g h t h e

S o long a s the Federal Reserve

rates a r e k e p t b e l o w c u r r e n t r a t e s , t h e r e i s , i n m y j u d g -

ment, n o way i n which this kind o f infletion can be prevented.

O n t h e o t h e r hand,

to rediscount

i f borrowers c o m p e l t h e i r b a n k s

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

goods f o r higher prices, t h e y a r e p u t o n notice t h a t t h e y
are acting against t h e general judgment.

I n normal times

member banks should understand t h a t t h e y are n o t exnected

to borrow except t o meet emergencies, a n d they should b e
made t o feel that borrowing a t such times i s a n indisation
of weakness a n d needs explanation."

H e expresses t h e

hope t h a t t h e Federal Reserve B o a r d will make a

public

statement o f what i t s future policy will b e regarding ratas
and expresses t h e belief that t h e confidence o f the country
in the Board i s such thet a n y clear statement o f fundamental
principles m a d e b y i t w o u l d b e a c q u i e s c e d i n .

Another New York banker while convinced that under
normal conditions i t is logical that the Federal Reserve
rate should b e higher t h a n the prevailing commercial
rate, believes t h a t i n view o f t h e world-wide conditions


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Federal Reserve Bank of St. Louis

Pont

that exist to¢ay, t h e adoption,
ficial m e a n s

e t this tims, o f artio f r e a c justment

t o accelerate t h e process

would b e a Gengerouccourse t o sursue.

os
H e states YConsicer-

extent t o w h i c h c r s c i t f o r s p e c u l a t i v e p u r p o s e s

een liquidetec, a n d elso telting into consiceration

the present reserve and gold position o f the Reserve banics,
“oule s e e m that t h e reduction i n rate i s jully justified. F u r t h e r m o r e , I

cdo n o t b e l i e v e t h e recuction a t this

time i n the rate will
towerd renewed crecit
courageously h e n c l e d

isral heserve
to offer acriticel o b -

“selutary
that woulda heve
high retes b e s n p u t anto effect i n the
1920".
soring o f 1919 instesc o f t h e summer o f
4&Boston banizer t a k e s t h e v i e w t h a t t h e F e c e r a l
Reserve S y s t e m w e s g a n i z e c f o r t h e p u r p o s e

erecit,

b y meens o f reciscounting,

banks o f the country. i

t o the c o m e r c i a l

s a y s “In a general way the

Curing
time w h e n this credit i s needec i s just before,
end imnedietely after a

credit crisis,

o r eredit pinch,


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Federal Reserve Bank of St. Louis

50
and i t seems clear that a t such time t h e rete charge¢ f o r
reciscounting shoulé b e a t about t h e current market rate
charged b y the commercial banks t o their customers.

T o

malce the rete higher than the prevailing rate would
tena t o restrict t h e granting o f necessary credits t o merchants a n d similar borrowers.

T o make t h e rediscount

rate much lower than the prevailing rate would tend t o encourage overloaning b y the commercial banks.

the reciscount rates, t h e managers o f the Federal Keserve
Banks should try, s o far a s possible, t o keep their minds
free from influence, other than those which directly
concern t h e prevailing rates o f money, b u t they certainly

are justifiec, when fixing the redis@ unt rate, i n being
influeneéd b y motives o f the safety o f the Federal Reserve
Banks themselves,

a n d w h e n t h e rediscounts a p p e a r

t o be

approaching a

dangerous total, t h e y should u s e their rate-

fixing p o w e r

t o c h e c k s p e c u l a t i o n s n c t o p r e v e n t a n y possi-

ble c a n g e r t o t h e F e d e r a l R e s e r v e Banits, w h i c h a r e t h e

foundation o f our whole banking system,

I t was never in-

tended a n c n e v e r s h o u l d b e i n t e n d e d t h a t t h e F e d e r a l R e -

serve Banks consciously use their power and authority
either t o encourage o r to ciscourage business. T h e i r
chief p u r p o s e s h o u l d b e t o a s s i s t c o m m e r c i a l b a n k s a n c t o

51
the r a t e s o f r e d i s c o u n t

s o eas t o b e s t a c c o m p l i s h this,

e same tims t o protect their o w n position f r o m

ny possible overstrain".

H e regards a s one o f the

grcatcst dangers the Federal Reserve System can be subjectec t o would b e the attacks a n d manouverings o f politicians,

i n oréer t o make t h e System serve political. ends.

Another leading banier coes:not believe t h a t t h e time
has y e t arrived w h e n discount rates should b e held


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Federal Reserve Bank of St. Louis

point a b o v e t h e r a t e s f o r c o m m e r c i a l p a p e r b e c a u s e

conéitions o f business a r e n o t y e t o n quite a
basis.

normal

H e says that i t has been t h e habit o f commercial

bankers t o argue with their commercial customers t h a t
their rate t o their customers i s based o n the Federal K e serve B a n k discount rate a n d that i t should b e enough
higher t h e n t h e discount rate s o that there would b e a
profit t o the banker between t h e Cciscount rate a n d his
rate t o h i s customers.

H e says further “There i s yet i n

our baniss a lerge amount o f so-called frozen loans which
may b e Gescribed a s loans which a r e probably g o o d but which
the borrowers a r e not i n e position t o pay off a t tho
present time., T h e r e f o r e , t h e y a r e not i n a position t o
trade o n market rates o n a n even basis w i t h the banker.
Uncer these concitions, a

high Giscount rate o f the Fecer.

al Reserve Bantts simply has helpec t h e commercial


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Federal Reserve Bank of St. Louis

banker t o get higher rates f r e m his customers t h a n
are justified b y the conditions o f credit. T h e r e f o r e ,
it was desirable a n d necessary f o r the Federal Reserve
Benks

t o reduce t h e i r d i s c o u n t r a t e s f r o m 6

to 5 - 1 / 2 p e r cent.

or 7

p e r cent.

i n order t o inform t h e commercial

community that t h e credit situation n o longer demanded

takes the view that “Fede
Reserve B a n k c i s c o u n t r a t e s s h o u l d n o t b e m a c e w i t h t h e

idea o f controlling business o r market prices o f commodi-

ties", but that “They should b e indications o f the effect
that t h e p r e s e n t b u s i n e s s

i s heving o n the supply o f

ercdit and o f anticipated conditions that will affect the
supply o f credit i n the nesr future".
‘when t h e b u s i n e s s c o m m u n i t y h a s b e c o m e t r a i n e d t o t h e
point o f w a t c h i n g t h e r e s e r v e p o s i t i o n anc. cis@m u n t r a t e s

of the Federel keserve Banks a n d has come t o a n uncerstanding o f what these figures meen*-*they will b e
very much b y studying t h e published concitions o f
deral Reserve Banks a n c will anoreciate w h e t a chang:

in discount retes moans, provided of
officers

a n d CGirectors

o f the Federal

s

e that the

Kescrve

Banics

are not hampered i n using their judgment i n these matters
by outside influences",


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Federal Reserve Bank of St. Louis

A Chicago merchant notes t h e difference o f opinion
among e x p e r t s

a s t o t h e proper t i m f o r r a i s i n g o r

lowering t h e Federal Reserve Feciscount rates.

H e

points o u t t h e t n e i t h e r t h e F e c e r s l R e s e r v e S y s t e m

nor a n y part o f i t c a n b e r u n o n any formule, a n d thet
43f i t could very little brains would b e requirec f o r
at part efter t h e formula h a d been f o u n d .

H e believes

hat “ I f w e 2 e t o b e a worlé power i n commerce,

a s we

mey be, w e shall heave t o make t h e N e w York o r some other
Gistrict

r a t e attreactive f o r t h e c i s c o u n t

or o t h c r vurposées, b u t i f “7c maize a

o f the world's

pulses t o h a v e t h e r a t e

above t h e commercial p a p e r r a t e i n N e w York, o u r

to b e the world b a n k e r s ,

o r t o compste w i t h

in commerce a n é finenee, w i l l vanish into t h i n
He t e e s

t h e v i e w t h a t i n crises a n c extreorci-

nary emergencies a

Rescrve Banit may w e

i

f

i

e

d in

violeting temporerily t h e orcinary canons o f sound finance,
put e m p h a s i z e s t h a t u n c c r n o r m a l c o n d i t i o n s

a n d uncer

concitions w h e n i t i s p o

the well established traditions covering
operations must o ¢ c I

w o d

i

e chief o f these canons


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Federal Reserve Bank of St. Louis

reGiscount r e t e o f R e s e r v e Banlzs s h o u l d b e
kept a b o v e t h e marixet.

The Federel Advisory Council,

a t its last meeting,

axpresed, i t s b e l i e f t h e t r a t e s s h o u l d

a Federel Reserve Bank's reserve a n d t o the general money merket, a n c that i n adcition c o n s i c e r s t i o n s h o u l d >

given t o t h e i t e m s e n u m e r a t e d

n the Council's recommenc.ation o f
follows.
the F e d e r a l R e s e r v e s y s t s m e s a

whole.
2 T h e reserve position o f t h e Fececral H e s e r v e B a n k
whose rate i t i s contemplated t o change.
The conéition o f ell t h e banis o f the country a s
anc o f t h e sever: f e G e r e l R e s e r v e cistricts.

Mie economic e n c financial concition o f this
country.

World concitions, b o t h economic a n d political,

Tie sventuel establishment o f a crecit rate polic:
Reserve B a n k s

to member penks

i s highs

v y which t h e r e c i s m u n t rate

n a n tic

prevailing commoreie1
he
ecee prevailing
i
B open


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Federal Reserve Bank of St. Louis

martct r a t e s

f o r Various

classes

o f loans b o t h

i n this

country a n c abroad.

7. Uniformity. o f rates, w h i l
end desirablis, should not b e acopted a s a
Svspem o c i n g p r e c i c a t e d

fixeca policy, t h e

n o s h e princivie t h e t v a r y i n g

concitions might exist i n different

t

h

e

country.

cered i n a r r i v i n g 4
the c u r r e n t r a t e f o r money.

to their regular customers.

“6b P a b E S

OF

mnTreresury-Certificatos.
The B o a r c a s k e d t h e C o u n c i l
ye

importencc o f each o f

f o r its views

a s t o ths relativ

f a c t o r s e n d the council e x nec e r e i m p o r t -

the money mart!ce b u t there m e y b e

which should likewise b e givon consideraA M A R A
Bet
e r a l

position o f a


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Federal Reserve Bank of St. Louis

the Council thet t h e roulimg rate f o r money i n a dis-

trict will adjust itself automatically t o these concitions.
The G o u n c i l e x p r e s s e d t h e v i e w a l s o t h a t a
Reserve B a n k w h i l e

i t i s porrowing shoulc n o t Lower i t s

out stetes t h a t special concitions might exist i n
a district which would mekc a

recuction cesirable

woule justify such & course.
It seoms clesr t o the Roarc that i t i s not practi-

cable i n this country for Fecerel Reserve Benks t o maintein
Ciscount higher t h e n current moriket rates i f
a s t h e criterion.

Line-of-credit l o e n s a r e t o b e s e c e p t e c
sst permittec

i n many states a r e s o

a possibility-

circumstances w h e n t h e ceresi i s i x

e

I

n orcinsry

t a minimum the

retes paid f o r nigh grade commercial paper sold i n the
open martzet m a y b e regercea a s a measure o f the market
ateat=-presens T i e r e

is much considerstion t o b e given t o the basis o n which
short time obligetions o f

[ r e a s

a r e sold a n c t o

market retes f o r prime bankers’ acceptances.

T h e prop-

therefore, i s more simple a t this time i n districts

, m e lai

like N e w Y o r , Chicago a n d Philadclphia,


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Federal Reserve Bank of St. Louis

al Reserve c i t i e s a r e d o m i n a n t

i n their d i s t r i c t s ,

but

in other districts which cover a larger territory and
where t h e b u s i n e s s

i s m o r e d i s t r i b u t e d a n d diversified,

the p r o b l e m i s m o r e d i f f i c u l t .

A

t the present time

four Federal Reserve Banks a r e rediscounting about
45,000,000 w i t h t h r e e o t h e r F e d e r a l R e s e r v e R a n k s .

T h e

directors o f one o f these borrowing banks more t h a n a
month a g o voted t o reduce t h e i r discount rate f r o m 6
per cent.

t o 5 S p e r cent.

o n &ll classes

o f paper, b u t

the F e d e r a l R e s e r v e B o a r d h a s n o t y e t a p p r o v e d t h e
reduction.

N o evidence h a s b e e n p r e s e n t e d

t o show that

current rates f o r bank accommodations a r e less t h a n the
Federal Reserve B a n k rate, o r that current retes would
be reducec b y lowering t h e Reserve B e n k rate, b u t t h e
directors argue t h a t t h e consolidated reserve position
of the system justifies a

lower rate.

T h e Board desires

to have t h e Views o f mambers d f this Conference a s t o
the advisability o f permitting a n y Federal Reserve B a n k
to reduce i t s p r e s e n t d i s c o u n t r e t e u n t i l i t s o w n re~-

serve have increased t o a point t o meke i t unnecessary
for i t t o rediscount w i t h o t h e r F e d e r a l R e s e r v e B a n k s .
The B o a r d h e s b e e n i n c l i n e d

t o the view that the re-

serve percentage o f gach Federal Reserve Bank, a s “tell


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Federal Reserve Bank of St. Louis

58
ags~that o f “the System, stroulc b e talen into consiceration
as one o f the determining factors i n fixing t h e discount
rete.

I f the Federal Reserve B a n k o f Chicago,

serve o f a r o u n d 7 0 p e r cent.
of St. Louis, w i t h a

w i t h are-

a n c t h e Federal Reserve B a n k

reserve o f 6 5 p e r cent.

c o not feel

justified i n reducing their discount rates below t h e
orescnt e v e l

of 6

per

a borrowing bank, like
reciscounts o f only 2 2

ate?

O n the other hand, whet are the
Ststricts

w h i c h heave s o

The Bosrd requests t h e members o f this Conference t o

discuss all these cuestions involving principles o f the

discount rate freely and fully anc to report their conclusions before t h e close o f the Conference.

I t seems desir-

able, i f possible,

t o formulate a

general policy regarding

rates o f discount,

f r o m w h i c h there w o u l d b e n o Civergence

except i n unusual o r emergency cases.

&

x
3 s Bw.


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Federal Reserve Bank of St. Louis

Secre~
Now, t h e r e a r e s o m e l e t t e r s f r e m t h a u n d e r

protery e f the Treasury regerding t h e topics e n the
whe
gram. T h e r e i s also a suggestion f r e m Mr. Hixon,
Minneapelis,
4s a director o f the Federal Reserve B a n k a t
who i s leceted a t L a Cresse, Wisconsin.

H e has been

says:
very p a r s i s t e n t a b s u t t h i s a n d h e r e h e

" T t saoms

a t least d e
ta m o vital that t h e present system should
modified i n some w a y a s t o render highly profitable
redisceunt eperatiens,

b y banks which chargs h i g h ratss

te their customer, impossible. I

suggest f o r consider~

bank has reached
atien a rule previding that when a n y
discounts
Sts basic line, t h e rate e n all additienal
charged b y the
shall i n n o case b e isss t h a n the rate

for discount."
bank t o its customer o n the paper effered
l r . Pryor,
Alse a letter f r o m a St. Leuis vanker,
u s e their i n asking i f the Federal Reserve Banks will
fluence

abolished
t o have t h e p a r clearance f i g u r e s

ana t h e e s t a b l i s h e d f i g u r s s u s e d instead.

letter
The Beard sent out some time ago a circular
made b y banks
asking f o r infermation a s t o the charges
tn various S t a t e s a g a i n s t t h e i r c u s t o m e r s

o n eut o f town

threugh
items depesited w i t h t h e m which were collected

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

the Federal Réserve Banks. I
oF a

ruling.

heve here a

tentative draft

T h e Board has n o t issued it,

Board c o n s * d e r s

i t v e w o u l d like. t o

by this Conference.

T

t hes b e e n chorged b y 4

country banks who obiect t o remitting a t par, that the
public gets n o real benefit f r o m t h e p a r clearance system,
a n

in t h e c e n t e r s c h a r g e t h e i r c u s t o m e r s

exorbitant amount f o r collecting these items j u s t eas t h
no p a r c l e a r r n c s

system.

S

o

,

t h e subject

to i n t e r e s t c h a r g e s

o f

b y member

banks against customers o n checks closred through Federal
Reserve B a n k s .

Under a u t h o r i t y o f t h a t p a r t o f S e c t i o n 1 6 o f t h e Ped-e

epel Reserve A c t ~hich provides t h a t t h e *ederal Reserve
b e collected b y me
Board shall, b y rule, f i x the charges t o
ber b a n k s f r o m t h e i r p e o

the Pederal Reserve B a n k

n s “ h o s e c°acks a r e clesrsad t h r o u

h

e Board r u l e

M

e

r

pent shall collect from its patrons a n y charge b y way o f
interest o n account o f a n v check deposited with i t and

cleared through 2 Federel Reserve Bank i n excess o f 10¢
amoune—OF


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Federal Reserve Bank of St. Louis

41

less t h a n 1 0 ¢ p e r £ 1 0 0 o r f r a c t i o n thereof, a r e , o
optional, t h s t i s , t h e y m a y o r m e y n o t b e i m p o
diseretion

o f seach member

e e

to a v o i d u n n e c e s s e r y c o n f l i c t s « i t h

x various local clicaring houses, t h e Board
not attempted i n its ruling t o d o more t h a n prescribe
the m a x i m u m c h a r g e t h a t m e r b e i m p o s e d
of t h e t i n e r e q u z r e - s
count o f s h i 6n

i

r

point. o u t , h o v e v e
checks e r s d i t e d

lection, a r e

f h e collection o f t n e check o n a c e
g

e

i n a n y event, r e g a r d l

e

1 s meade

T h e B o a r d desires

t interest charges

t o depositors! a c c o u n t s

i

t

e

l

to

o n account o f

i n advance

o f col-~

y « h e n t h e y are bona f i d e inte

carried o u t b y the cherging banks a s
credits.

I n other v o r d s ,

depositor’ n
o 2

check “ h i c h w i ‘ q u i r e a

time f o r collection, t h e intere szharge,
the bank against w e g tog {

cartain length o f

i f eny, imposed
not b e i n excess o f

a

interest c h a r g e a t a reasonable

t i s given to a

i

i t immediate

t

h

e amount o f

period required f o r its collection.
concerns checks clenred through a
Reserve B a n k i s , o f course,

This

Federal

t h e period f o r which available

credit i s c e f e r r e d

o n the books

o f t h e Federal Reserve

Bank accorcing t o that bank's time schedule, plus the
period r e q u i r e d f o r t r e n s i t f r o m t h e m e m b e r b a n k t o t h e
Federal R e s e r v e Bank. C o n s e q u e n t l y ,

i n the absence o f spec-

ial circumstances, interest charges o n checis for which
member banks receive available credits o n the books o f the
Federal R e s e r v e B a n k a f t e r t h e l a p s e o f s h o r t p e r i o d s s h o u l d

if made a t all, b e less then the maximum o f 10¢ per 100,
anc. should vary a

ting

h

e length o f time the aveil-

able c r e d i t s a r e t h u s deferred.
=

e

h e Td e
as
F
ral Reserve R o a r c h a s b e e n lea t o issne t h i s

ling because its attention has been calicc t o the fact
that i n s o m e F e d e r a l R e s e r v e D i s t r i c t s b a n k s a r e e x a c t i n g

unreasonable charges from their Gepositors.
no complaints, h o w e v e r ,

w i t h regerc

of Federal Reserve Districts.
desires

t o banks

i n the majority

F o r this reason t h e Board

t o leave i t t o t h e éiscretion

Bank a s t o whether a n é t o w h a t e x t e n t
Cesirable

T h e r e have been

o f each Federal Reserve
i t i s necessary o r

t o call t h i s r u l i n g t o t h ? attention o f member

benks.

Gentlemen, I

thank y o u for the patience y o u have dis~

pleyed i n listening t o me,


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


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Federal Reserve Bank of St. Louis

Dr. ifiller, heve v o u anything further t o say?
Dre Miller.

W o t a t this time.
M r . Platte, h e v e y o u anything t o

Governor Harding
sey now?

Mr. Platte. i o , sir, I don't think so.
Governor Harding.

M r . Mitchell, h a v e y o u anything t o

No, s i r , n o t a t t h i s t i m e »

Frazer i s
Governor Harding. G e n t l e m e n , S i r Drummond
entertain
in the city, a n d t h e Kiwanis C l u b i s going t o

him a t luncheon o n Thursdey. I
of t h a t c l u b w i s h e s

men, I

understand the president

t o e x t e n d y o u t h a t invitation.

Gentle-

wish t o present Mr. “roodvrard a n d Mr. Neuhausere
Mr.

C. H. '

oodrvard.

v e vant

Gentlemen,

t o extend

to

a t t h e *ashington
you a n invitation t o attend o u r luncheon
Hotel o n Thursday a t 12:50 o'clock.

“ ‘ e are going t o have

#rezer,
--4th u s o n t h a t o c c a s i o n S i r Drummnon

we

delighte
to speak o n banking, I believes, end/rill be
have y o u g e n t l e m e n 2 s o u r -suests

o n t h a t occasion.

Cressinger W a s g o o d
Mre R e L . Neuhauser; C o n p t r o l l e r

Frazer, w h o y o u a l l
enough t o have m e meet S i r Drummond
know p r o b a b l y c a m e f r o m E n g l a n d

t o Los fngeles

t o speak


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Federal Reserve Bank of St. Louis

44

before t h e Americen Bonkers! Association, e n d h s said h e
knew y o u would like t o hear him; s o , ~ e have taken h i m a t
his w o r d a n d n o r i n v i t = v o u t o a t t e n d t h e l u n c h e o n .
re g o i n g t o s h o r y o u s

Governor Harding. I

‘We

r e g u l a r time.

rould a s k thet those o f you rho

cannot a c c e p t t h i s i n v i t a t i o n ,

t o notify t h e Secretary n o t

later t h a n t o m o r r o y morning.

further a t this time?
It hes been suggested that v c might expedite matters a

little s o as t o d o away witi ¢
afternoon,

joint conference Friday

t o enable members w h o heve come a

to g e t b a c k h o m e b e f o r e t h e r a i l r o a d s t r i k e ,

long distance
i f i t eventuat«

The B o a r d w i l l b e v e r v g l a d t o c o o p e r a t e v i t h y o u o n anythi:

you desire t o d o regarding thet.
I vould suggest thet i t might b e proper o n this occasion, o r latcr perhaps,

t o discuss a m o n g ourselves w h a t v e

can d o tovard having a better understanding o n the part
of the business community and the public a s t o what the Peceral R e s e r v e s y s t e m i s .

T h e r e h a v e b e e n s o many false
=

stetements published a n d given wide circulation, t h a t i t
scems something should b e done a t this time. P e o p l e


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Federal Reserve Bank of St. Louis

generally s e e m t o r e a d a n a l l e g a t i o n w i t h e

evidity than t h e y read the ensver t o i

i

grea

t does s e e m t o

me that w e ought t o consider w h a
legitimatcly t o enlighten t h e public o n rhat ~
to do. T h e r e sceris e

l e c o r r e c t information regarding

the Federal Reserve System then there w a s s i x years ag0Governor Seaye

4 1 1 state that sinee y o u recently

delivered

a d d r e s s

stetin

not,

r e printed

a n d circulated

that

of o u r D i s t r i c t a n d t h e r g p a p e r s
the c o l l e g e s

o f o u r District, t h i s a d d r e s s

o f yours,

also s e n t i t t o e v e r y C o n g r e s s m a n a n d S e n a t o r
States.

W

e also furnished it, é ¢

ana S a n Francisco,
contribution

t o those b e n k s

and re

o f the United

h e request o f Dallas
T h a t i s t h e cost recent

t o the defcnse

System that ~e have had. I

will state that

very favorable reaction t o that.
for m o r e c o p i s s

M a n y people havo applied

o f i t and some Congressmen have

copies.

S o that there h a s b e e n something s a i d

the ‘Federal Reserve System i s and w h a t i t i s not.
preat desl, however,

t o b e desired still.

Heath. T h a t s a m e thing hes been done i n the Chica:


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Federal Reserve Bank of St. Louis

District, a n d v e have had quite a

little

that already i n a n expression f r o m t h e outside
effect created b y the circulation o f that address.
it n o t o n l y t o e v e r y m e m b e r b a n k i n t h e District,

‘ f e sent
but to

all t h e nerspapers i n the District a n d v e a r e still circulating i t i n pleces w h e r e ~ e t h i n k i t o u g h t t o 2 0 .

Governor Herding. “ e s will -have 2 further opportunity

inthis reply to the Senate, which has been withheld partic~
ulerlv b e c a u s e

v e w a n t e d t o discuss

My i d e a i s t o h a v e a

i t w i t h y o u gentlemen.

lot o r stabistics

e s exhibits

to

this reply, and to make the reply of reasonable length and
as s n a p p y a s p r o p e r r e s p e c t

t h e Senate ©

a d m i t .

I f

you will read that preamble a n d resolution y o u will s e e that

it shows either total ignorance o r wilful misrepresentation
o the resolution. [ I t absolutely
art of the a u t h o r f
gnores the independent character of the Federal Reserve
Banks.

I t says nothing i n the vorld about their directorse

Federal Reserve Banks *s branches o f the

It. speaks of -

Tederal Reserve Board.
Reserve 8 B

t

son says ¥e are.

h

T t seems t o assume that the Federal

Wate all-poverful d i c t a t o r t h a t Senator

I t speaks of the Federal Reserve Bank bi.

framer
ings a s public buildings; a n d unless the whole
that resolution i s criticised i n 2 ressonable, dignified


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Federal Reserve Bank of St. Louis

47

he v e r y f a c t t h a t t h a t h e s b e e n d e b a t e d
3

b y the Senate

referred t o 2 comof the United States, vrithout being e v e n
mittee

the impression a l l
o r without a n y debate, m i g h t g i v e

concsption o f the Federe
over t h e country that aftsor all o u r
«ve have g o t a contral
Reserve system h a s been «rongs t h a t
banking system here

h

few men i n fYashington;

es
dummies;

thet v o u r d i r e c t o r s a r e 4

t h a t the officers

of

h i g h l y p a i d ¢tl-rks; a n d i t
the Federal R e s e r v e B a n k s a r e a l l
t o use t h e Congres~
seems t o m o t h a t r e herve a n o p p o r t u n i t y

means o f circulating a
sional Record which n a s been t h e
m a d e
great m a n y o f t h e misrepresents t i

o f the system,

ligh
in a way which will throw t h e true
ink i t t o u l d b e j l l u m i n a t i n g
the C o n f e r a n c e

t o the

o u l d express their

t h e Board ought t o send
as t o the nature o f the reply that
to t h a t r e s o l u t i o n , p e c a u s e

week.

i t hes t o g e t u p t h e r e t h i s

time f o r u s t o got
T h i s will probably b e the pest

your suggestions.

members o f
(The various sentiments expresssc b y the
Conference,

were
a t t h e direction o f Governor Harding,

recorded.)
Governor Herding.

I s there a n y other matter that o c c u


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Federal Reserve Bank of St. Louis

to the mind o f any memb: t
take u p a t t h i s t i m e ?

tions o r i

this C o n f e r e n t s t 4h a t re. should

A n y t h i n g regarding business condi-

¢

Distr :

that w o u l d b e o f inter-

If a n y o f y o u h a v e a n y t h i n g

tbat “onic b e o f general interest,

o n your mind

~ ¢ would like t o hear i %

NOW e
Governor Strong.

I s there t o b e a general discussion

on discount rates before t h e Conference ends?

Governor Harding.

M y idea about the discount rate pro-

position was t o l a y before t h e Confcrenee a l l t h e various

facts thet are worth considering, e n d have you discuss i t
among yourselves, a n d then v e vould take that u p
future J o i n t Conference.

D o y o u t h i n k i t would b e advisable

er into that discussion now?

Governor Strong. I

just wanted t o make sure

was i n your mind t o have s u c h 2 discussion.
Governor H a r d i n g

‘thet wight b e o f intere

i

i

s o n e a n g l e o f that

f i t vere brought u p risnt

ome c o r r e s p o n d e n c e s o m e t i m e a g o w i t h t h e
that c o r r e s p o n d e n c e h a s b e e n m a d e

e letter

my lost letter.

H e raited about three weeks.


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Federal Reserve Bank of St. Louis

49
f .

lest l

e

t

t

rrote
,
e r ’h i m I

i n which I

of t h e d i s c o u n t t r e n s e c t i o n s

gave h i m a n a n a l y s i s

a t t h e Omahe branch f o r t h e

month o f October, 1920, a n d the same f o r fugust, 192],the
the p r o p o r t i o n o f p a p e r w h i c h h a d
banks t h r o u g h c u s t o m e r s w a s
per cent, l a s t October,

a t t h e r a t e o f 1 0 p e r cent, r h e n

progressive r a t e w a s i n e f f e

w h i l e t h e proportion o f

per c e n t p a p e r t a k e n i n August,

of s i x per cent was i n effect, w a s over 5 2 e por cent; t h a t
over o n e - h a l f t h e t o t e l ~ u m b e r

o f n o t e s t a k e n were t a k e n a t
asked t h e G o v e r n o r

10 p e r c e n t b y t h e m e m b e r banks. I

in

my first letter i f h e thought = » reduction o n the p a r t o f
the Federal R e s e r v e B a n k w o u l d b r i n g ebpout a

corresponding

reduction o r a n y reduction o n the part o f the member b a n k
as t o the interest rete charged b y the member b e n k t o his
customer.

H e d i d n o t a n s v e r thet.

S

o i n m y second letter

he head not ansvered t h a t a n d I

waye

D o y o u think t h a t the

in t h e F e d e r a l R e s e r v e B a n k . a t K a n s a s

beneficent result i n your State?"

C i t y would

A f t e .r three

said t h a t h e h a d b e e n c o n s i d e r i n g t h e m a t t e r a n d


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Federal Reserve Bank of St. Louis

matter u p with the farmers a n d Frith the banks, a n d h e beTjeved

1 2 banks w o u l d r e d u c e t h e i r r a t e s

n o w that

i f the

federal R e s e r v e B a n k r a t e w a s reduced.

Upon reading t h e nevspapers I

find that h e has evident-

ly stirred u p something o f a hornet's n e s t i n Nebraska.
He had a meeting i n Omahe rith some banksrs
i n en a t
sion seemed t o take o persons] t o n e a n d resulted
tack o n h i s o w n administration.

T h e banks s a i d t h e taxes

were t o o high.
the banke
Iam a l s o advised from newspiper reports t h a t
in N e b

k

against
e who were s o m e time a g o protesting

a t Kenalleged high rates o f the Federal Reserve B a n k
Ciby-are w e l l s a t i s f i e d w i t h t h e s e r e t e s ,
farmers

e n d other operators

o f Nebrasxe

b u t that the

a r e oressing

for

t h a t a lore
lower rates t o themselves a n d they believe
about a
y the Federal Reserve B a n k vould b r i n g

lower

Miller,
to them a n d they a r e pressing i t e G o v e r n o r
is your situation “ i t h regard t o that?
Governor M M €

t

i g t h e situation, j u s t a s y o u

explained.

Governor Harding. “ e l l , would you just tell us sbout
Nebraska episode? I

think i t sould d e very interestir


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Federal Reserve Bank of St. Louis

Governor Miller,
from f a r m e r s a n d merchants a n d e s p e c i a l l y l a r g e s t o c k m e n i :

Nebraska a s k i n g u s t h e rate ~ e charge member benks i n Nebraska f o r loans.
steting t h a t o u r

of them write u s that they vere carrying some

industry a n d t h e i r o r n pere-

to b e pretty vell cryska that i t i s not t h e
Federal R e s e r v e B a n k 2
that h a v e b e e n p r o f i t e e r i n g

o n the

people, a n d give a s t h e reason
high rates thet they, t h e
Federal R e s e r v e B a n k s .

MeKelvy started something thrt
he h a d m a d e t h e a c c u s a t i o n

robbing t h e p o
L o r farmer,

Governor Harding.

Governor M i l l e r .

that

v e vers

h e could n o t substant

“ a s there


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Federal Reserve Bank of St. Louis

opening u p a

n e w p o i r o n t i e r f t N o “Gitivens:

o f Teors:

Governor McKelvy h a d t o call this second meeting «ith
hope o f defending h i s position, b u t when h = g o t into
meeting t h e rhole thing « a s turned ags
though h e presided,

st

onsolation about this, nobody
3

this meeting vas cut and dried"; beceuse h e
the m e c t i n g b y fer.
Mr. t i t c h e l .
1
Governor Millar.
Mr. M i t c h e l l .

a n ' t t h a t rhere t h e trouble

Governor Miller.
Mr. Mitehsll.

is?

Y o u mean about t h e high rate?

Yes.

Governor Millers “ e l l , I don't know. I
cent i s rether reasonable. I

think ten pcr

think ten per cent i s reason-

the f a u l t
redereal R e s e r v e
Bank o r t h e F e d e r a l R e s

Governor Miller.

T h e Fedsrel Reserve Bani o r

e : poder

al Reserve Board has nothing ~hetever t o d o with that. 2
have three States i n our District where t h e contract rate


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Federal Reserve Bank of St. Louis

$a 1 2 p e r cent.

Mitchell.

Then

Governor Millers - i - d
States.

I t i s necessary

i

n

t

i

s t h e fault o f

t o have p r e t t y h i g h r a t e s b e c a u s e

is + Orth 205
Governor Harding.

A s long = s these retes prevail, f i v
not g o i n g t o m a k e a n y difference.

put A t 262
ticuler S t a t e s

t o adjust

t

t h e rates

h

e lewmakers o f the par-

a n d not t h e Fedsral

Reser

Bank o r the Federal Reserve Board.
Governor Miller.

Y e s , b u t i t has never b e e n deemed

advisable b y the legislatures o f those States t o reduce t h e
contract rate.

O f course, t h e better risks a n c t h e larger

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

is higher, b u t I would s a v that 6 0 per cent o f the money
thet i s loaned b y the banks i n Nebreska i s loaned a t 1 0 per
cent. P r o b a b l y 2 5 per cent i s loaned a t 8 per cent, a n d
then there i s probably 1 5 p e r cent that gets less rates.

Mr. Mitchell. D o n ' t vou think the farmers out i n Nebre
ought t o amend their laws a n d reduces the u s u r y rate?
Governor M i l l e r .

S u p p o s e t h e y reduce

i t t o eight p e r


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Federal Reserve Bank of St. Louis

cent, t h a t v o u l d h e l p some, b u t t h e t i m e h a s n o t y e t c o m e

rate i n Nebraska, 'yoming a n d N e w

to r e d u c e t h e c o n t r a c t
Mexi COs

Govemmor Seay. I t would cut off their money supply?
Governor Miller.

“ h y yes, absolutely.

Y o u would absoi-

utely d i m i n i s h t h e s o u r c e o f loans.
Governor H e r d i n g .

G o v e r n o r “ellborn,

w e r e y o u here

morning?
Governor *ellborn.
Governor

“

p

oF a

Y e s , sife

i

l

r cent rediscount rate i n view o f

e

your 5 2 p e r c e n t reserve,
should 2

l y o u discuss y o u r proposition

pprove t h a t r a t e

2 s t o whether

o r not t h e Board

y your d i r e c t o r s w i t h o u t a n :
a s k e d b

to t h e r e s e r v e p o s i t i o n o f o t h e r banks,

a n d the

t ~ould have o n other banks, and ag to whether you
h higher reserves should reduce: their

discount rate? r e f e r t o Chicazo, St. Louis and
a higher p e s e r v e Frith

“411 y o u discuss t h s t question, please?
Governor Y e l l b o r n .
helf

p e r cent rate and

a borrowing bank.

™

O u r Board desires 4
i t has b e e n Geniec

five e n d o n e ~

u s because

w e are

e d o not think that i s a very sound


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Federal Reserve Bank of St. Louis

m
noitisopi

f o r t h e P e d e r a l R e s e r v e B o a r d t o take.

csus¢ w e a r e a

borroring bank, t h e t i s n o r e a s o n w h i

business interests o f our district should
highcr r a t e , b e c e u s e t h e # e d e r a l R e s e r v e

lished i n that cistrict n o doubt controls t h e rate t o the
business rorld.

think t h a

O u r mamfacturcrs

a n d merchents

d o not

w e ought t o have t o p a y a higher r a t e

commercial b a n k s
soing r a t e i s there?

Most o f the money
loaned i n o u r D i s t r i c t i s a t |

p e1

A 4 1 1 t h e c i t y bank:

charge that rate.
Governor Harding. T e n n e s s e e charges eight a n d Flori
ten, while Georgia his seven.
horeEror S t r o n g .

D

o the country banks charge more tha

7 per Cént?

Governor .ellborn. W o . T h e small banks charge ¢
per cent, b u t the great v o l u m e o f the monev discounted
district, I

should s a y r a s _ a b o u t s i x t y p e r cent.

Miller t o o k 6 0 per cent a s his

b a e n d I

ebout 6 0 p e r c e n t i n o u r D i s t r i c t

vould

i s loaned a t 7


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Federal Reserve Bank of St. Louis

Governor Strong.
charge &

B u t the country banks generally

per c e n t ?

Governor “ellborn.
large i n volume;

Y e s , b u t their loans a r e not s o

n o t n e a r l y s o large

& s

ville, f o r instance.

Governor Herding.
respondence v i t h b e n k s

‘ e have had 6
i n thse l c r g e c i t i e s ,

that i n New Orleans a n d B a

t

h

e bankers a r e objecting
lot o f c o u n t r y banks.

Nev Orleans w o u l e l i k e t o b e i n t h e B o s t o n D i s t r i c t a n d
Baltimore v o u l d l i k e t o b e i n t h e P h i l a d e l p h i a District.

Governor Seay. T h a t h e s o n l y happened since Boston

reduced from 7 pe i
Governor H a r d i n g .
Governor “ellborn.

S 5 3 per cent, though?
O h , yése
Gentlemen,

w e take t h e

the raébas- s h o u l d b e b e s e d u p o n w h a t t h e b o r r o t i n g i s for.

“e met the demands o f our member banks a n d w e thin
They think that o u r rate i s

in other districts.

Governor Harding. “ h a t would the situatio
the B o a r d s a i d “ A l l right;

n o w y o u take that v i e w o f it,


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Federal Reserve Bank of St. Louis

57

you w a n t t o r u n y o u r b a n k s s o n independent p r o p o s i t i o n

t the wishes o f the people i n your District,
and r e s p o n d o

yc

may d o so, b u t v e ‘ill n o t permit o r require a n y other Federel Reserve B e n t o rediscount f o r you. “ h a t vould t h e s i t
tion b e t h e n ?

Governor ‘ ellborn.

“ e l l , t h a t would b e entirely con-

trary t o t h e r h o l e s p i r i t 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 e

Y o r

~ell a b o l i s h t h e system.

Governor Harding.e

2 B

- e have thet pover.

T h e l a r says

thet t h e Pederal Rserve B o a r d m a y permit o r require another
Federel R e s e r v e B a n k n o t t o r e d i s c o u n t f o r y o u e

T h e y should see rhat t h e condition:

Governor ellborn.
are.

I f i t i s speculative entirely,
“

in n o t rediscounting.
under t h o s e conditions.

t h e y rould b e justified

e ourselves v o u l d p u t u p o u r r a t e
‘ ‘ e have d o n e i t .

Governor H a r d i n g .

t that v e were n o t going t o l e t a n y other bank redorm t o
discount f o r you, a b o u t t h e t i m e y o u r r e s e r v e g o t
about 1 0 p e r c e n t y o u w o u l d p u t y o u r r e t e u p .

Governor “ellborn.

“ e l l , i f one section wents i t they

should h a v e i t .

Governor Mill:

F r o m your orn standpoint, w h a t harm


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Federal Reserve Bank of St. Louis

do y o u think t h e present rate i s doing your District?
Governor Vellborn.

W e l l , t a k e o u r business i n compari-

son with other Districts through t h e country, t h e y have a
auicker return.

T a k e o u r c o t t o n industry,

f o r instance.

T h e

the
have t o buy their cotton, warehouse i t and sell i t for
purpose o f menufacturing t h e goods e
matte f

Governor Harding. >

fact, didn't t h e t e x -

tile i n d u s t r y o f G e o r g i a a n d £ l a b a m a b o r r o w f r o m t h e i r b a n t s
to c a r r y t h e m ?

Governor Wellborn.

T h e y m a y borrow f r o m them, b u t they

porrov very heavily i n our own District.

Mr. ills. Wouldn't i t really b e better
go a w a y f r o m y o u r D i s t r i c t ?

Governor tellborn.' T h e y could n o t g e t credit elsewhere.

Governor Saye A n d they could not get the rate, either’
Dr. Miller.

“ o u l d the member banks reduce their rates

to the operators i f you vould reduce your s?
Governor “ellborn.

T h e y ce

bankers e v e r y d a v t e l l m e t h e y d o n o t w a n t t h e r a t e s reduced.

I said "Thy do you vant to keep it so high?" They said that
they had a great many losses and they wanted to make profits
to s u s t a i n t h e i r l o s s e s .


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Federal Reserve Bank of St. Louis

Governor Strong. ~ouldn't they make mere profits i f
you reduced their rate a n d they still charged t h e same rate?
Governor “ellborn.

N o . T h e y g e t 7 per cent rrom t h e

very best customers, wherea f
have t o é u t their rate down.

we reduced o u r rate they woul
T h e s a m e influence vould fore

them dorn.
Governor Seaye

Y o u are o n l y loaning your member banks

about t e n o r twelve p e r cent o f rhet t h e y a r e loaning their
customers, a r e y o u not?
Governor “ellborn.

to sll their customers.

Y e s , t h a t i s true, b u t t h e y a p p l y th:

I f the banks i n Atlanta a r e not bor-

roving « dollar f r o m u s they charge t h e 7 per cent rate j u s t
the s a m e .
Governor Harding.
or St. L o u i s

sh L

D o y o u t h i n k t h a t a b a n k i n Chicago

reduces i t s r a t e s l a o ?

Governor *“.ellborn.

T h e question i s whether a n y o f t h e
c, Boston,

theme. 2

Pece :

Reserve System.

I

reduced o u r rates--Governor Harding.

“ h y should y o u have

than t h e C h i c a g o b a n k o r the. St. L o u i s B a n k ?

o r any of

f they h a d n o t


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Federal Reserve Bank of St. Louis

60
Governor “ellborn. I

think that i s e matter thateach

board o f directors f o r t h e Federdl R e s e r v e B a n k s h o u l d con-~

sider.

O u r Board takes t h e vier that v e ought t o have a

low-

er rate.
Governor Harding.

S p p o s e y o u take t h e other three bore

rowing banks, R i c h m o n d , D a l l a s a n d Minneapolis;

suppose they

all have t h e viev firmly i n their h e a d s that t h e y d o not want

to reduce their rates; then you are i n exactly the same fix
FOU, a r e Now.

=a

“ Y o u 4 s h e a d a n d reduce t h e r a t e t o 5

and that simply increess

n

e e S>

per

on them. T h e y
e n d one-half.

say “You heve reduced f
“hy not reduce ours?"

Governor “ellborn.

F e l l , I would say the other banks

“would p a y t h e l o w e r r a t e .

Governor H a r d i n g .

B u t what about their reserve though?

Governor «ellborn. : I do not think the reserves would
have a n y t h i n g t o d o r i t h i t e

I t is a

q u e s t i o n o f whether

re are meeting the legitimate demends o f the business i n our
District.
Governor H a r d i n g .

T h a t

i s the reason

w e want some

cussion o f the principles governing t h e rediscount rate,
to whether t h e reserve means nothing o r whether i t would


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Federal Reserve Bank of St. Louis

depend upon t h e populer demand, t h e whims

o f>

Board o f

Directors.
Governor “‘ellborn. I
letter t h i s morning,

listened v e r y intently t o your

a n d y o u referred

t o t h e Advisory Council

recommendations, a n d they said that they should think that
not
borrowing banks should/reduce their rates, except i n
certain cases.
trict.

T h a t exception i s very important i n our Dis-

‘ T e have t r e m e n d o u s c r o p s t h a c a n n o t b e m o v e d i m -

mediately.

I t takes time.

“ e have a

year's c r o p t h a t h e s n o t b e e n paid.

great p a r t o f last

B u r o p e has not been buy

ing o u r cotton, a n d the Zastern Mills a n d the Southern mills
have n o t b e e n b u y i n g i t , b e c a u s e t h e y h a v e b e e n b u y i n g f r o m

hand t o mouth because i t has

m

o f a l l i n g market.

K e

could not sell it, a n d should n o t force liquidation b y puttin
these things o n the market.
they c m . I

They

remember well i n the debates i n Congress i t

rasmsaid that t h e Federal Reserve system vould protect t h e
agriculturd d i s t r i c t i n the distribution o f their products;
that t h e y w o u l d n o t h a v e

t o dump t h e m o n t h e market

had always h e d t o d o heretofore, b u t vw--1ld have a

a s they

reasonable

time within which t o liquidate.
Governor Seay. A d m i t t i n g f o r the sake o f the argument


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Federal Reserve Bank of St. Louis

t h e t i
t is =

-

q

v

e

s

tt tne-retes
ia o
h rt

Benits s h o u l d n o t h a v e b e e n reduced,

the line:

o t “sone F e d e r a l R e s e r v e
t a k e t h o other e n d o f

e q u a l l y a question whether Boston a n d

York should e v e r have b e e n raised t o 7 per cent, according
to that.

T h a t involves t h e question a s t o whether

i t should

now b e five p e r cent i f i t had s t the t i m e b e e n raised t o
~ per cent.

Governor

-ellborn. ¢

count i n this country.

of chaos.

e

I t is =

e have g o t n o rule: about diswixe p

a

i n2

state

O n e set o f people think that t h e rates should

be h i g h e r t h e n t h e c o m m e r c i a l r a t e s .

I a m very m u c h interested

i n your m a i n

statement, a n d I think i t o u l d b e very interesting t o
canvass

to-wit,

t h e Confcrence

s

e vhethe

h e r e

i s a n asreement,

t h e t i f your Pedsral Reserve B a n k rate

will t h e m e m b e r b a n k r e d u c e t h e i r r a t e s o t h a t t n e c o s
of c r e d i t t o t h e borrorver i s l e s s . «

Governor “ellborn.

N o r as t o tht, I

to these member banks a n d they urged m e not

rate for thet very reason. T h e y said “‘e will


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Federal Reserve Bank of St. Louis

63

Auceour r a t e s .
up this way?"

a

T s a l d “ h y do-you want t o hold them
i

d a f f e c t s t h e commerce a n d

business o f our country." T h e y said "Well, w e have had
enormous losses a n d w e think v e ought t o b e alloved t o
make a @ profit

t o t a k e c a r e o f those l o s s e s . ”

is one w a y o f looking a t i . I

N o w that

really represent t h e member

banks «

Governor Harding.

" i t h a five per cent rediscount

rate i n Philadelphie , Boston a n d N e w York, isn't t h e pres~
sure o n y o u r m e m b e r b a n k s f r o m t h e l a r g e r b o r r o v e r s l e s s

rith your rate a t s i x p e r cent than vould b e the case i f
you reduced your rate t o 5 per cent a n d met t h e Boston a n d
New York rate?

Governor “ellborn. T E L 1 l 1 l you please state that
sin, G o v e r n o r ?

Governor Harding. I

say, isn't t h e pressure o n your

member banks f o r accommodations f r o m t h e larger customers
less vith your present rate a t s i x per cent, w i t h the N e w
York, Boston a n d Philadelphia rate being five p e r cent,
than rould b e the case i f y o u should reduce y o u r rate t o
more n e a r l y t h e E a s t e r n r a t e ?

Governor ‘ellborn. W e l l , the pressure would not de
any greater a t all.


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Federal Reserve Bank of St. Louis

Governor Seay.uv ‘ o u l d n ' t they borrow more
from y o u ? ,

Governor “ellborn.

‘ e l l , they don't want t o borrow

any more t h m t h e y are obliged t o borror.
banks

d o n o t w a n t t o d o that. I

[ I am sure the

have h e d agreat m a n y c o u n t r y

banks tell m e that i f the rate was four p e r cent they would
not borrow another dollar.
Governor Harding.

T h e y want t o g e t o u t o f debt.

I t i s a fact that t h e larger manu-

facturing concerns a n d t h e larger mercantile houses i n your
District, a n d the Richmond district, a n d t h e Dallas district,
all have Eastern connections a n d they borrow i n the Rast
just a s m u c h a s t h e y d o f r o m t h e i r l o c a l bank, d o n ' t t h e y ,

rhenever t h e y can?
Governor “ellborn.
it o n t h e b a s i s o f 4

‘ell, I

think they d o now. N o r ,

s e l f - c o n t a i n e d district,

i t never

contemplated t h a t o u r d i s t r i c t v o u l d b e s e l f - c o n t a i n e d

| be able t o take care o f itself. N e i t h e r w a s Dallas
nor Richmond. I

remember w e l l w h e n t h e y h a d hearings

i n

Atlanta, t h e y asked that question o f you, Governor Harding,
and y o u said-they could not.
Now gentlemen, another phase o f this question i s that
we are accused o f profiteering. I

get letters every d e y a n d


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Federal Reserve Bank of St. Louis

in conversation t i t h business m e n t h e y s a y "You a r e a lot

of profiteers."

T h e y say “You are charging this high rate

here a n d making great profits a n d i t i s just hampering u s

in our business."

N o v , i f th a t e s a r e lower, o f course

it w i l l l o w e r o u r profits.

ir. Curtiss.

W i “TS
l l i t increase your borroving?

Governor Wellborn.
no sir, n o t a

dollar.

I t should n o t increese o u r borroring.

T h e m e n i n our District

g o t o the

bank t o b o r r o w m o n e y f o r a n y i n v e s t m e n t p u r p o s e , h a v e t h e

hardest t i m e i n the world getting it; e v e n t o b u y bonds o r
stocks, unless h e i s a n exceptionally good customer a n d carrics a

big balance.
Governor Seay.

W h a t percentage o f your banks a r e

not borroring f r o m you?
Governor Wellborn.

N e a r l y one-third, b u t those banks

who are borrowing f r o m us~- o u r main business p o r t i s N e w oOrleans, a n d that i s the largest c i t y i n our District.

are borroring $14,000,000.

They

T h e y cmnot g e t along with a

cent less t h a n that. S o m e t i m e s t h e y drop t o a million dollars a

day but t h e n they g o back.
Governor Harding.

T h e y e r e borrowing some i n Her York,


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Federal Reserve Bank of St. Louis

are they not?
.

Governor Yellborn. =

Yes.

i

our banks

s enother suggestion I

g e t t i n g licuidation.

They are using funds t o p a y o f fthe N e w York correspo1
They write u s t o that effect every day.

W e tell t h e m that

is all right; t h a t that i s t h e thing t o do.

to establish their eredit there, that is the proper thing
.

tr h e
o Nom
rLs. 0 - c 0 .

care o f them.

I
a

r

t i s proper f o r t h e m t o l e a n o n u s t o take
e vi i n g

just m e r e l y t o b r i n g r

Ppeservese

in e n indiviecual w a y

Mr. Fills.
> FOr 2

i

W

y

W
W

e

e e r e handling e a c h

e wetch their loans a n d keep i n

M a y I ask you, y o u h a d a seven p e r cent

while?

Governor Wellborn.

Y e s , sire

Mr. Wills. T h e s e Atlanta banks thet are charging 7
per eent nov, w h a t were t h e y charging then?
Governor “ellborn.
Mee a t i c .

t h e n our rate was 7

per cent?

=-Yes.

Governor Wellborn.

Whr, I

hardly t h i n k i t w e n t a s h i g h

as 8 per cent.
“your reduction?

Y o u say


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Federal Reserve Bank of St. Louis

that they a r e charging 7 per cent n o r because t h e
Reserve B a n k rate i s 7 per cent.

Y o u have g o t 2

per cent rate now, haven't you?
Governor tiellborn. Y e s .
Mr. Wills.

W e l l , d i d they come i n when y o u reduced

your rate a full p e r cent, f r o m 7 t o 6 per cent? I

want

to know whether t h e public g e t t i n g the benefit o f it.
I d o not believe t h e y a r e dorn your way.
Governor Wellborn.

W e l l , o u r prevailing rate

city b a n k s i s s i x p e r c e n t a n d a l r a y s h a s b e e n .

I

f

duced o u r rate now, t h a t i s what they vould charge.
is t h e c u s t o m a r y rate.

T h e y a l l k e e p posted.

the rates a r e going dorn i n New York.
money i s down t o 4 4 the other day.
is t h e F e d e

T h e y s a y that

T h e y s a v that c a l l

T h e y a l l s a y that i t

R e s e r v e B a n k here that keeps t h e rat

I think o u r dipvectors voted unanimously f o r this lover Patee
%e think that i n s t e a d o f 5 ¢ i t ought t o b e 5 , a n d w e think
it ought t o b e a s l o r a s a n y other bank.
Mr. W i l l s .

B u t y o u have n o t answered m y question yete

I wanted t o know whether these Atlanta banks, o r the banks
in the b i g cities that borrow t h e b i g bulk o f your money,
whether t h e y heve pulled d o w n their rates w h e n y o u reduced


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Federal Reserve Bank of St. Louis

your rates.

Governor Fellborn. W e l l , I

c a m o t answer t h a v e r y

clearly, because these have b e e n abnormal times, y o u know,
and they h a d n o liquidation a t that time.
Dr. Miller.

H o w high have t h e y charged their c u s t o m

Governor “fellborn. F i g h t p e r cent.
Then t h e y m a y b e down 1

per cente

d o not t h i n k thet e x i s t e d t o s u c h

Governor “ellborn. I

think that o n l y 4p] a

2 great extent, though. I

rew

loanse:

Governor Harding.

H a v e b o u g h t a n y bankers! &

ences s i n c e t h e r a t e w a s r e d i

Governor Wellborn. I

cept-

to’5 p e r c e n t ?

think i t w a s 58.

W e have s i x

per cent for unendorsed bankers! acceptances.
Governor Harding.

the Board h a d reduced your minimum purchase r a t e t o 95 per
{
cent o n bankers' a
cceptances.

Governor “Yellborn.

Governor Harding.
Governor “ellborn.
ferentlye

F i v e and a

F i v e p e r cent.
W e l l , Mr. McChord informed u s dif-

H e said i t was five a n d a half. N o w , there i s


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Federal Reserve Bank of St. Louis

another question i n handling these bankers’ e c c e p t m ces.
That i s something there i s n o question about.

T h a t i s movin

the crops e n d w e should n o t p a y a n y higher rate f o r moving
the crops.

i t has b e e n stated t o u s that after r e g e t i n

shape t o pay, “ e will reduce t h e rate.
then. I

W e d o not vant i t

vent t h e r e t e t h e n t o s t a y up. I

want t o k e e p d o r n

he excessive borroring b y banks a n d t o make profitse
Dr. Miller. I

think i t would b e a very interesting dis-

cussion t o g e t a quick y e s o r n o arounc t h e table * s t o
whether w h e n t h e member banks' rates g o down when the reserv«
pank rates g o dom.

T h a t seems t o m e t h e theory.

T h a t is

what G o v e r n o r “ e l l b o r n i s c o n t e n d i n g f o r here.
Governor H e r d

Perrin?

V

e

r

y well.

T h a t

d o you say, M r .

D o they g o dorn?

Mr. P e r r i n .

“ h e n o u r r a t e w a s f i x e d sat: 5

p e r cent,

there was a n apparent settling o f rates somewhat. I
think thet they folloved dorm.

do not

T h e rates i n Portiand, L o s

Angeles a n d Seattle remained a t 7 per cent, a n d i n Salt Leake
City, s i x per cent.
Governor Herding.

T h e country banks have n o t modified

their r a t e ?

Mr. Perrine I

do not think i t has affected the


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Federal Reserve Bank of St. Louis

banks a t alle
Governor

H a:

“ h a t .is o u r s i t u a t i o n , G o v e r n o r

Hiller?
Governor M i l l e r e

N o t i n the same proportion

o n the v e r

g o into t h e
€ h e accounts whore firms could

best accounts;

Fastern merkets for their money. T h e r a v e i s reduced ehen
remain about t h e
our rate i s lovered, b u t othervise t h e y
SAMS»

Governor Harding.

o n the ¢th o f Sotember i n Omaha,

r e r e t w o notes,
when s i x p e r c e n t p a p e r T A S o f f e r e d , t h e r e

banks.
for $25,000 each, t e k e n b y tro Omaha
wae f o r G i f t &

O n e o * them

Companys

Governor Miller.

Commissior
“ e prepared f o r t h e Joint
27

quite

a n elaborate l o t o f s t a t i s t i c s

o n that.

‘ ¢ got the

t h e rate t o June 50th,
retes f o r three years back, including
o u r District w e r e jus’
showed that t h e rates a l l over
$ n 1918, 2 n d just a s high i n
as high i n 1921 a s they were
years, r e g e r d l e s s
1918-— a b o u t t h e s a m e f o r f o u r

rate o f the Federal Reserve Banke
Governor NeDougale

A s a result o f the

rates i n the Chicago District b y the Chicago
has been, I

think, 4

noticeavle reduction i n

o f the


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Federal Reserve Bank of St. Louis

paper offered through the banks o n the o p e n market. T h e r e
has b e e n a slight reduction i n the
counte y

banks i :

over the

1 6 city o f Chicago, b u t not a t all

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

t h at v e h a d made.

Governor Harding. ‘ T h e
country b a n k s

rates o f f e r e d

you s e n t f r o m t h e

i n Iowa shows that t

here h e s b e e n

n e effect

at a l l e

Governor M c D o u g a l e . 8 t o t h e country banks, r e h a v e
recently compiled figures there t h ich s h o r e d t h a t t h e r a t e
cherged b y the Iora banks, outside

or t h e Federal R e s e r v e

Banirs i n that State, a r e almost u n iformly e i g h t p e r cent,
and t h a t t h e

i

Governor Seaye

effect r h e t e v e r e

n rate has

i f teers

tion i n our rate i t could n o t b e d efended, a n d I
there m i g our D i s t r i c t

reduction i n many

of t h e m e m b e r

i s six

per cent, a n d

t h e lev:al r a t e

able reduction o f e half a
reduction

per c e n

would

not b e

t o t h e customers.

Mr. MecChorde

“ o u l d t h e R i c h mond b a n k s r e d u c e ?

Governor Searye

but I don't Ikmor hor many.

borrowers,


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Federal Reserve Bank of St. Louis

72

Mr. McChord.

f n d they vould g o into the Atlante Dis-

trict a n d g e t i t .

Governor Seay. I

do not think m e n y o f them rould.e Y o u

might c o u n t t h e m o n your f i n g e r s e
Governor

Morss.

I

n country banks

per c e n t i s p r e t t y t e l l established.,

Gifference r h a t rate s e h a v e ;

the rate

o f six

I t d o e s n o t malze m u c h

does n o t affect us; b u t 3

amongst o u r S t a t e b e n k s a n d c o m m e r e i a l b e n k s , t h e i r r a t e s

folloved rether slightly o u r reduction; b u t probably t h e y

were forced fully e s much b y the trend o f interest rates
generally

i n the whole situation e s they were b y our rate.

Our rate led the way, that i s about alle

Governor Fancher. O u r higher rate was six per cent and
in tro o f our States t h e legal rate i s s i x per cent.

Our

rates were reduced t o 5 5 per cent the fore part o f fugust,
and I cannot s e e that

h e s b e e n the general basis a t all.

In some cases where t h e borrover was borrowing n o t only i n
some o f our centers, b u t i n other centers vhere t h e rates
had b e e n r e d u c e d

i n the matter

o f competition

customers were obliged t o mect the lower rate.

i n rates,

our

J f cennot s e e

that t h - reduction hes b e e n generally followed comm. ‘ l e require f r o m o u r applving benks that t h e y give u s t h e rate o f


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Federal Reserve Bank of St. Louis

73

intcrest charged, e n d v e a r e very particular about it.
is quite a

I t

surprise n o r t h e t i n some o f our rather important

centers t h e rate seems t o b e gencrally 7
are p r e c t i c a l l y

i n Ohio, b u t I

per cent.

T h o

d o n o t t h i n k t h e t t h e reduc-~

tions have b e e n generally passed along.
Governor Worris.

“ i t h i n the lest week o r tro I have

noticed very fev cases of 58 and 52 per cant ra
smaller State banks.
to 5

O u r tro reductions

i n rates f r o m

a n d t h e n t o five p e r cent h a v e h e d absolutely n o

feet i n the country; absolutely n o effect a m o n g a n y o f
larger State banks, a l l o f whom t a k e ©

position t h a t

long s s t h e demands u p o n t h e m are greator t h a n they c a n meet,
they a r e obliged t o borrow from u s s n d there i s n o justi
tion a n d n o necessity f o r their reducing t h e rates, a n d
are not going t o d o ite
Governor Biggse
except

t o discontinus

“ e h a v e made n o chenge i n the
thse progressive rate.

i n e the -ie

hes b e e n 2 slight reduction, n o t
brought a b o u t b y t h e c h a n g e
virtue

o f a n y r a t e r i t h them, b u t b y

o * t h e f a c t t h e t l - r g e b o r r o r e r s c o u l d g o t o He:

oe
a
nd. g e t a

little b e t t e r rate.

o u t i n the outlying cist


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Federal Reserve Bank of St. Louis

the c o u n t r y t h e y c h a r g e t h :

igic a n d 1920.

T h e y heve never chenged f r o m the 8

cent, whatever they could get.
lifference

i n Arkenses

their t e n p o r

T h e vate will not make any

o r Mississippi.

T h e y a r e getting

n t .

Governor Harding. I

think t h e majority o f the country

banks doyvn i n vour seetion,

the rule:

or 1 0 por

o n the discount proposition,

he

f s i t res i n the beginning, n o r and ever shall

be, vorld rithout end, amen,”
Governor Biggs. Y e s , sir. T h e y think i t i s the l e w down
there.
Governor Young.

I n the a g r i c u l t u r d d
n
a livestock sec-

tions o f our District, there has been n o reduction rith our
two reductions.

I n the Trin Citics when r e reduced from 7

per c e n t t o 6 % p t r cent, t h e d a y afterwards

t h e Trin City

Benksmade a corresponding reduction i n p r a c t i c a ’ Wla o f
their l o a n s .

cent,

“ h e n

v e reduced

i t hes been m u c h slower

from

6 5 per cent

i n o u r opinion.

t o 6

per

T h e other

banks i n the Trin Citics have n o t genorally reduced their
rates yete
Governor Calkins.

“ h e n o u r rate was reduced from 6


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Federal Reserve Bank of St. Louis

per c e n t t o 5 5 p e r cent, t h e r e w a s a

slight s o f t e n i n g

in

San francisco, « h i c h - i s t h e financial e s n t e r o f t h e P a c i f i c
Coaste b u t p r o b a b l y n o n e elserhere;

n o n o i n the country dis-

tricts certainly.
Governor Strong. I

think i n N e r York,

i t i s necessary

to d i s t i n g u i s h b e t w e e n t h e o p e n market r a t e s t h a t r e p r e s e n t
transactions o t h e r t h m c u s t o m e r s ! t r a n s a c t i o n s w i t h b a n k s ,

and the retes charged o n customers! loans, a n d I think r e
also have t o distinguish betreen cause a n d efi
there i s a

sentimental e f f e c t u p o n t h e o p e n m r k e t

in N e ~ Y o r k w h e n ~ e r e d u c e o u r rate, b u t I

slight effect,

think a

i f any, u p o n t h s rates that a r e generally

charged b y benks f o r loans.

T h e reductions

i n interest

rates i n New York i s due t o the f a c t thet m a n y o f the
member b a n k s h a v e p a i d u s o f f i n full,

get £

a n d a s soon

debt t o the Federal R e s e r v e Bank, t h e

are c o m p e t i t o r s
nevr business.

t o l o a n money a n d they c r e competitors f o r

T h e y g o i n t o the market

t o g e t n e v accounts.

Our rate i s influenced b y that, b u t o u r rate does n o t influence t h e r a t e whi t h e y allovy t o their customers until
they aré out o f debt t o us.


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Federal Reserve Bank of St. Louis

Governor Herding.

=

f r e the banks i n Ner York C i t y

beginning t o m a k e a n y n e r l o a n s n o w t o m a n u f a c t u r i n g a n d

mereantile concerns i n the interior?
Governor Srong.

Oh, I

think so. I

been t h e tendency since m a n y o f 2
banks

think that h o s

larger N e w York C i t y

h a v e entirely repeid their borrowings f r o m use B u t

just a s s o o n f s t h e b a n k g e t s o u t o f d e b t a n d t e s m o n e y t o
loan i n N e w York,

That creates a

i t c o m e s i n t o t h e m a r k e t a n d i t u s e s m O N C VY.

competitive condition.

I t results i n lorer

market rates and justifies our lowering our rate.
to this subject o f discount rates because I
to another a s p e c t o f i t e

mt

S o e te
t o refer

I t seems t o m e that i t r o u l d e
b

most unfortunate i f other Reserve banks were unduly influenced i n changing their rates b y any change which w e might make
in New York, because t h e interest r a t e i n New York i s mater-

ially changing.

I t is the fluid money market o f the country

the general interest level comes d o r m r e a r e justified i n reducing o u r rates; b u t i f t h e reflection o f t h e lower cause o f credit i n New York i s not f e l t i n other districts I

do not s e e w h y a general rule should b e applied

those districts.
Governor Harding.

T h e Federal Reserve B a n k A c t states


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Federal Reserve Bank of St. Louis

that the rates n e e d not b e uniform i n all districts.
Governor S t r o n g .

T e k e , f o r instance,

w h a t i s occur-

O u r discount r a t e i s 5 per cent f o r

ring n o w i n N e v York.

f£line; b u t u p t o s i x montl

7 :

1 6 Majority

of certificates were selling a t 4 per cent. T h o s e d u e i n
December e r e s e l l i n g :
bills a r e s e l l i n g o n a

o S p o r c e n t basis.
4 : per c e n t basis.

loans rarely command more than5 p

S t o c k Exchange

er cent nov-~ call loans.

The best commercial prper i s selling at Sz: p e
presents a

T

h

a

t

very different situation f r o m that i n a district

where o n l y customers! l o a n s e r e dealt vith b y Reserve banks
and where those l o m s a r e commanding s i x and seven a n d
eight p e r cent.
I vwmt t o bring o u t t h e fact that there i s a very different situation i n New York a s t o interest rates. that
may j u s t i f y u s i n r e d u c i n g o u r r e t e s t h a t r o u l d n o t

any other District.

S i m p l y t o emulate t h e example

York i n r e d u c i n g r a t e s i s a

very u n s o u n d b a s i s a s a

rate

policy i n other districts where t h e interest l e v e l i s s o
different

t o whot

i t is i n N e v York.

Governor Seav.e

e r e a r e three hundred million doilers


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Federal Reserve Bank of St. Louis

78

of a c c e p t a n c e s t a k e n b y f o r c i g n c o u n t r i e s

are there not? I

i n your c i t y ,

think thet r a s reported recently.

Governor Stronge

£;
s
:
Y o u m e m purchased with forcign

funds?
Governor Seaye A m e r i c a n acceptances purchased with
foreign money t o the e x t e ¢

Governor Stronge
have a

three hundred million.

h e r e i s a very large amount.

Jarge amount i n Hew York nor.

Governor V a n Zandt.
cent t o 6

" o e peduced our rate from 7 per

per cent a n d v i t h t h e exception

o f avery f e w bor=

rowers i n the larger banks thet r a t e w a s never passed on.
gied t o s e e the Eastern money centers reducing
their rates, because those borrowers t h a t c m b o r r o w u p
there will g o there a n d get t h e money a n d therefore lighten
the load o n us t o that extent.
never m a d e a n y v e r i a t i o n

changed o u r rates.

T h e country banks have

i n their rates

a t all, w h e n w e

T h e y d o not chenge theirs.

Mr. Platte. G e n t l e m e n , I

feel v e r y strongly that this

is 4 regional system; t h a t Congress viewed i t a s a regional
system,

a n d o n e r e a s o n t h e y d i d s h a t s o that t h e rates

should n o t b e uniform.

T h e Aldrich B i l l before Congress

provided f o r uniform retes throughout t h e country a n d


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Federal Reserve Bank of St. Louis

é

Congress deliberately turned that bill d o m a n d passed

a

bill which d i d n o t provide f o r uniform rates throughout
the country.

f o r t hO
e region al syse o f the main arguments
n

tem w a s t h a t i t d i d n o t p r o v i d e f o r u n i f o r m r a t e s .

Condi-

tions a r e different i n different parts o f the country a n d
e p a y generally ought
l t o be
ance r i t h the conditions.

It ssems t o m e that t o a consider-

able extent, Gov-rnor Miller ras right when h e said
a t t e n pte r cent a r a
s i n Nebraska
e
e

has to be
r

e

h

T

ry
A

in sccord-

erhaps n ort t o o high.

rate i n c e r t a i n s e c t i o n s

that i s h i g h e n o u g h t o a t t r a c t money.

thet t h e

o f the country

I f people

in Nebraska

are selling their money over to Flint, Michigan, t o buy
k

automobiles
o r over ti o Detroit tu o b u y Ford B a u t o m o b i l e s
c

nst 6a:

of keeping i t a

t h e i r retes o f interest will

remain h i g h u n t i l t h e r c a n g e t m o n e y i n there,
l k e serve B a nak c m n o t

a n d the

Sed

p u t rd o n i t s r a t ee a n d f u r n i s h

Fed-

eral Reserve m o n e y borrored f r o m other centers o f the coun-~
try for all t h e ban!
happened
s
got a

to »

i nk N o r tnh

requiremen ts o f the country. I

old man

knovy what ¢

h o was proprictor
w
O o f @ chain o f

Dakota
a i nb en n d
M
e s o t a .

lot o f F a s t e r n m o n e y o n d e p o s i t

I know * tha
i n the banks

o n which


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Federal Reserve Bank of St. Louis

he pays 6

per cent.

H e c a m o t g e t his money i n his banks

without paying a high rate o n deposits.
in thos e

‘ T h e interest rates

districts h a v e t o b e h i g h e n o u g h t o a t t r a c t
money

from other neighborhoods.

T h e Federal Reserve Banks cannot

possibly safely p u t their rates d o r m solely
for t h e purpose
of lowering t h e rates t o borrowers.

I t i s a regional s y s -

tem and I feel very strongly thet vith the general
level o f
interest rates a s they are throughout the country
following
the Great “ar, - e Imow that a Federal R e s e r v e
Benk that i s
borrowing f r o m other Fedsral Reserve Banks a n d cannot
stand
on i t s o w n b o t t o m a n d o n i t s o r n resources, c a n n o t l o t e r
its d i s c o u n t r a t e b e l o w s i x p e r c e n t a t t h e p r e s e n t
time,

In the districts r h i c h a r e still borrowing, s i x per cent
is away below t h e average rate t h a t ths average borrowers
aré paying.

I t seems t o m e that t h e testimony sround this

¢ is plein that a n y further lowering o f retes will not
be passed o n to any of the smaller customers.
will g e t n o b e n e f i t o u t o f it.

T h e farmers

S o m e o f t h e large borrowers

who are able t o borrow i n different pleces rill
get a little
benefit o u t o f i t b u t I

believe t h a t t h e rates, s u c h a s t h e

Atlante rates, f o r instance, should not b e reduced below six

&

43 per cent a n d that t h e N e v York rate h a s nothing t o d o rith


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Federal Reserve Bank of St. Louis

YOUe

Governor ‘-elliborn, T a k e 2 district ©
enormous crops like e

ours, that has

have, t o move i t takes s o m e time t o

do that. N o w , w h y should t h e y heve a

specially high rete

for moving © crop?
Mr. Platte.

I f you p u t your rate _dovm nobody will g e t

the benefit o f it.
Governor Wellborn.
Lieve t h e y will. 2

vant it.

“ h y , I

said t h e y would, a n d I be-

‘ c e - Ghee

T

h

e

t i s the reason

Y o u make t h e point that because we. are borrowing

ought n o t t o h a v e a

l o r rate.

T h e point I

a m making i s

that v e are borrowing t o assemble these things a n d bring
them t o the centers a n d distribute theme
heve s u c h a high rate? I
always have a
Mr. Platte.

do not m e a n t o s a y that v e

low rate o r e uniform rate v i t h N e y York.

W h e n your crops a r e marketed t h e money

will c o m e f r o m o t h e r d i s t r i c t s

t o v e y f o r it.

Y o u r accepte

ances c a n b e sold i n the o p e n market, either Nery York, Phila-~
delphia,

o r a y o t h e r district. I

do n o t think t h a t t h e

rate has a n y effect i n holding b a c k the marketing o f your


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Federal Reserve Bank of St. Louis

crops o r preventing t h e m being held for a

reasondl
e

price,

Governor “sllborn. ~

Governor Herding.

k

s like discrimination t o

L a s t Fe

ietters f r o m people i n the cotton district:
the h o p e t h a t n o c h a n g e v o u l d b e m a d e i n t h o
serve B a n k d i s c o u n t r a t e u n t i l a f t e r t h e c r o p s w e r e p l a n t -

ed; that i t was very important t o have a

reduction i n

acreage o f cotton, a n d they sincerely hoped that nothing
rrould b e done i n regard t o the expension o f credits that
would e n a b l e p e o p l e
plant;

crop.

t o plant m o r e cotton t h m t h e y should

t h e y tranted t h e r a t e s k e p t

N o r , I

discussion

think o n e t h i n g v e heave o v e r l o o k e d

t o d a y i s this:

pete d o r n t 6 - s 4

u p t o discourage a

o r a

5

i n this

S u p p o s e that a l l benks rould

per c e n t rate,

our s t t i t u d e n e x t s p r i n g ?

larg

“ o u l d

then what vould

be

y o u heve nerve enough,

any of you, t o go ahead and raise your
sort o f a

s t o r m o f protest v o u l d t h a t

if y o u r e d u c e d v o u r rates,

ould

v o u b e Cisposed

t o raise

them agein next spring?
Governor “ellborn. I

certainly would, because

the rates t o s t a y up.
want t h e m high.

T I do not want t h e rates lowered.

A f t e r this trouble I

T I

rent t o keep t h e

rates u p .

Governor Seay.

“ h y should t h e banks lover their rates

on 8 5 per cent o f their line because t h e y c a n borrow t h e other
15 p e r c e n t f r o m t h e Federal R e s o r v e B a n k s ?

I s i t reasonable

to suppose that they will d o it?
Governor Harding... N o , I
ler, I

i r . Comptrol-

e m sure r e rould a l l
Comptrollor C r e s i n g a

nor,

do not think so.

L have n o t h i n g t o say, H r . G o v o r -

I

a t this time.

Governor Harding. 5
entertain a

motion

3

t 4 8 Atunch times

to

The meeting vill stand adjourned, then, a n d this afternoon the separate conferences w i l l meet a t their respective
meeting p l a c e s e


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Federal Reserve Bank of St. Louis

(Whereupon, a t 12:30 pem.e, the Conference a d jour

84
PROCEEDINGS


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Federal Reserve Bank of St. Louis

O F A CONFSRENCE W I T H T H Y F E D E R A L R E S E R V E B O # R D

OF G O V E R N O R S A N D C H A I R M E N A N D F e D U R A L R N G S A V E A G L N T S
OF T H Y FREDGRAL RES#@RVE BANKS.

ee

The C o n f e r e n c e

i

a

e

y

w i t h t h e Federal Reserve

al R e s e r v e G o v e r n o r s

was c a l l e d t o o r d e r

e n d Chairmen

Board

o f t h e Feder-

o f t h e Federal Reserve Banks

i n the Boarc R o o m o f t h e Federal Reserve

Board, Metropolitan Bank Building, Washington, Db. C., a t 10
o'clocls a m, o n Fricay, October 28th, lvl.
Present:

Hon. .

P . G. Harcing, Governor o f the Federal Reserve
Bosrd.
C. Miller, Member o f the Federal Reserve Board.

Hamlin, Member o f the Federal Reserve Board.
John R. Mitchell, Member o f the Federal Reserve
Board.
D. R . Crissinger, Comptroller o f the Currency
end e x - o f f i c i o m e m b e r
Board.

o f t h e Federel keserve


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Federal Reserve Bank of St. Louis

Aiso:

Cherles A . Morss, Governor, Federal Reserve B a n k
of Boston.
Frederick H . Curt iss, Chai
a n d Federal
Agent, Federal Reserve n i : of Boston.
Benjamin Strong, Governor, Federal Reserve Banlr
New York.
Pierre Jay, Chairman a n d Peceral Reserve Agent,
Federal R e s e r v e Bantx o f N e w York.
George W . Norris, Governor, Federal Reserve B a n k
or P h i

i e e e .

R. G . Austin, Chairmen a n c
Federal b e w e u e e p e n i s

35

4

sserve A g e n t ,
h

e

al
e PCie

R. Fancher, Governor, Federal R o s e r v e Bank o f
Cieveiand.
Shairmen and Federal Reserve Agent,
escrve B e n k

o f Cleveland.

George J . Seay, Governor, Fede1al Reserve
Richmond.

Caldwell Hardy, Chairman a n d Federal

s e r v e agent,

ederal R e s e r v e Banik o t Richmond.

HM. P. Wellborn, Govcinosw» c f Hedéeral Reserve Benkk
of Atlanta.

Joseph A. McCord, Cheirman a n d Federal Reserve A g e n
Federal Reserve R a n t o f Aclanta
B. MeDougal, Governor Fode
Chicago.
A. Heath,
eral R e s e r v e


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Federal Reserve Bank of St. Louis

D. CG. Biggs, G o v e r n o r , F e c e r a l R e s e r v e B a n k o f St.Louis.

Chairman e n d Federal R e s e r v e Agent,
of St.Louis.

e Young, Governor, Federal NReserve Bank o f Minneapolis

John H. Rich, Cheirman a n c Federal keserve
al Reserve B a n k o f Minneapolis.

lier, Governor, Federal Reserve Bank o f ransas

so i. Ramsoy, Chairman a n d Federal Reserve Agent, Federal
Federal Reserve B a n k o f Dallas.

J. U. Calkins, G o v e r n e ,Federal Reserve
Francisco.
John Perrin, Chairman a n d Federal Reserve
Reserve B a n k o f San Francisco.


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Federal Reserve Bank of St. Louis

S
r Harding.
o

BED
RI S
NP G

€

n Gentlemen,
r

5.

«et t h e vo p e n i nog c o n f G
erence

preliminary d i s c u s s i o n o f t w o v e r y

on T u e s d a y t h e r e w a s a

qmportant topics, first, economy a n d efficiency i n the administration 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 , s e c o n c , p r i n c i p l e s
governing t h e cGiscount policy.
Lm a
n
i
a
committee
o fd twon o f its

g

y anc. efficiency,
m
o

a n d ans

l m e e t a n c c o nls i d e r t h e

ac.vi

f these t w o members

&

o n

e n l a r wg i n g t h a t
were, composed

of t h e B o aor d a n d o f o n e F e d e r a l R e s e r v e

Agent a n d t w o Governors,
w e w i l l h a v ea

members
t
s

soon a
o s c o n v ec
n i e n t t hee B o a r d

t

committees, naving :

t

few weeks

to v e appointesc.

b y t h e Board,

so

h
o f five to n this whole
joint committee

subject.
No e c t i o n h a s
poses

t o mesos

becn t a k e n y e t o n that; o u t t h e B o a r a p r o t

t

.

end will probably take s o m e

action possibly before t h e d a y
On t h e s u b j e c t o f Cciscount

other d a y were purposely indstorminate.

e remarks mace the
Y o u have h a c

the

o f the
time n o w t o consider among yourselves t h e presence
discount rate, a n d I wish t o elaborate a
u a n outline
o

little more a n c give

f y
m y o w n i €oeas. T h e s e oe r e m y p e r s o n a l i d e a s ;

88
they have n o t been dismssced formally with t h e Board;
T do not know whether other members o f the Boarc agree
with t h e m o r not,

o r w h e t h e r t h e y w o u l d c a r e t o express

themselves a t this mecting, whether they woulc not like
nll: i t over among ourselves.

B u t I will give y o u m y

views i n orcer t o start t h e Ciscussion.
As y o u lmow, there h a s b e e n a great deal o f criticism

of the Federal Reserve System curing the past two years.
The storm o f criticism i s still raging. I

think that m y

viows are entirely unbiased b y this criticism, I hope they
am sure thet n o one here would consd ously b e
the extent o f advocating
unsound policies with a

= a a p p e a s i n g t h e critics. I

think the thing for us t o do is for u s t o disregerd t

%

criticism altogether i n our consideration o f this matter,
anc forget it, a n c proceec t o consicer this question, a n d
if possible t o reach a definite conclusion w i t h a view t o
i n orcer that w e m a y cdo the right thing a t

prompt action,
the right time.
Of course,

i t i s w e l l u n c e r s t o o d t h e t t h e p r o p e r exer-~

cise o f the rate-making power involves first © recommendation
ection
by t h e executive. officer o f t h e F e d e r a l R e s e r v e Bank, Pd

Heserve
py the Board o f Directors, a n d approyal b y the Federal


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Federal Reserve Bank of St. Louis

Board.

T h e t i s the orderly conduct o f a n y change i n

the cdiscount rates.

T h e B o a r d appears

t o have povers

which i t hes never exercised i n ths matter o f discount
rates, a n d I for one vould b e exceedingly reluatant e v e r
to see t h e Board exercise t h e povers, which,

i n the opinion

of the Attorney General's office t o years ago, i t was
seid that t e could exercise, a n d I a m quite sure i f i t vas
norely © locel question, a

question o F adjusting the dis-

count retes o f one bank t o meet a local situation, t h a t t h e
Board sould b e inclincd t o defer t o the views o f the offieg
cors o f t h e t b a n k e n d o f i t s directors.

But there m e y b e times w h e n there i s » general discount
policy involved, i n v o l v i n g t h e vrhole system, w h e r e n o

change c a n b e made v e r y well a t a n y particulear b a n k unless
here

i s a n agreement o n the p a r t o f 211 o f the vanks t e

come i n and take pert i n the general policy, involving a
modificntion, probebly,

* t aj} t h e banks.

I n such a n

if a mejority o f the bankse- nine o r t e n o r eleven
of them-- s h o u l d f a l l i n line, s n d o n e b a n k s h o u l d h o l d
out, a p p r r a n t l y - i t h o u t g o o d reason, then t h a t v o u l d p r e -

sent another issue, a n d the Board rould have t o determine
whether o r not a n d h o w far i t rould g o i n the exercise o f


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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

its f u l l porers.
AA
a
e
L a e
v e s A
perhaps
ta h en m o
se tS erfrective
c 4r i%

Ai

CLCLSM

be msde sg-inst the Federal Neserve system hes been over~
looked,

o r i n a n y e v e n t i t hea i

e e m p h e

6 d , and

System may perhaps have been
story i n p u r s u i n g t h e p r o p e r policy.

I t hss temporized

in the l o n g mun, b u t probsbly
~e s h o u l d heave o b t a i n e d t h e p o s i t i o n taken.

tba)

the p r e s e n t c i r c u m s t s n e e s , I

a m convinced the psychological

moment h e s arrived. I

. c have a n opportunity. I

think

em about to propose

of thought d u r i n g

think

t h e correct policy. I

1 € p A t r e l v e months,

a n d cconsisten

action that has already b e e n taken.
asvmposium s h i c h I
Tuesday m o r n i n g , I

presented t o t h i s C o n f e r e n c e

called a t t e n t i o n

on

t o verying views o f dif-

ferent benkers a n d merchants, a n d verious elements that
seemed

t o enter into t h e r a t e structure. I

with o n e thine h e t w h i l e

"as i m p r e s s e d

t h e sur a c e there was 8 s conside

opinion,

v e t i f you g o t right d o m

there i s « basis f o r 2

common understanding.

“@ d o not vant t o d o anything t o create a
pression,

to

t o s t a r t a n o t h s r v i l d r a v e o f speculation.

nev im~
" “ e do


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Federal Reserve Bank of St. Louis

not rant t o d o anything contrary t o sound banking a n d
economic p r i n c i p l e s ,

w h i c h ‘ould p u t ourselves

i n the atti-~

tude o f retreating f r o m a sound position previously taken;
but i t seems t o m e v e m s t b e a r i n mind the changes which
i n public s e n t i m e n t

have t a k e n p l a c e

i n ths merkets

country and i n our o v n reserve position.

o f the

I t i s very rell

understood, I think, that the discount rate ought t o b e
normally+~ p o s s i b l y i t i s a

matter o f t h e o r y i n most c a s e s - =

above t h e current market rates, but, a s has b e e n already
pointed out, i t i s absolutely impossible f o r &

bank t o estab-

lish a discount rate that i s going t o b e above what s o m e
people might s a y tére t h e current imrket rates, t h a t iss
loans b y bsrnks f o r h i g h e r interest rates t o their customs
ersgé T h e loans made b y a bank t o its customers a r e deter~
mined very largely b y competition e n d b y the supply o f credit
and c a p i t a l »

I

f there i s a

r e a l case o f ménhey i n any

community, an: abundance o r a suptrabundance o f funds, rates
on c o m m e r c i a l p a p e r l o a n s a n d o n l o a n s

will naturally t e n d t o decline.

o f credit paper notes

T h a t i s inevitable.

A t

e ere approaching t h e t u r n o f the year;
the present t i m e v
the t i m e w h e n : e n a t u r a l l y g e t liquidation.

easing i n the situation last January.

T h e r e was a n

F e d e r a l Reserve

note issues b e g a n t o g o dorn.sfter Christmas, a n d the r e d u c

92
tion i n the readjustments o f the Fedoral R e s e r v e Banks b e gan t o t a k e p l a c e a f t e r t h a t t i m e .

T h e same thing hes hepe

pened i n January, 1920, t o every smell small extent, a n d t o

a lerger extent i n January, i¢91¢.

T h e same thing i s likely

to h a p p e n i n December a n d January, 1922.6
The s t a t e m e n t

o f the twelve Reserve Banks w h i c h vas p u b

lished yesterday morning shots a

s e r v e position o f 70,8

per cent f o r the System, o s a g e inst

t

h

e previous week,

nst about 423 or 43 per cent for the corresponding
year,

T h e statement also shovs s n increase i n
m

gold reserves o f about fifteen
TH
f oF=e d c r a l

Reserve n o t e issues

four o r trenty-five million dollars, a n d a n increase i n dsposits o f about thirteen million dollars, a n d i t seems t o
me rhen “ e consider t h e date-- this is, I believe, October
28th--

i t establishes t h e f a c t t h a t t h e c r o p m o v i n g i s w e l l

under vay, a n d that there i s n o probability o f m y t h i n g like
a money stringency during t h e present c r o p moving period.

The question, therefore, presents itself, that vould b e
the e f f e c t o f a

modification

i n o v r discount schedules u p o n

the movement o f crops; v o u l d i t stimulate a n undue holding


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Federal Reserve Bank of St. Louis

er t h e c r o p s f o r m r k e t ?

Fach o f y o u i s just a s rell able t o form @ conclusion o n

that m a t t e r

sonally, I

a s I

am,

a n d perhaps

some

o f you better so-

P e r -

co not believe t h a t t h e “iscount rate i s going t o

have v e r y m u c h e f f e c t

o n t h e c r o p m o v e m e n t t h i s year. A

burnt chile Greads the fire.

I n the cotton districts, t h e y

no longer have exaggerated ideas.as*to t h e value o f cotton,
end t h e c o t t o n m o v e m e n t since t h e i s t o f S e p t e m b e r h a s s h o w n

conclusively t h e t there i s a disposition u p o n t h e part o f
the holders o f cotton t o sell o n the high spots, a n c t o hold
temporarily

o n the 4

a

again, t h e y l e t loose a

n

o when t h e market acvances

little more o f it.

to m e that i s a n ideal
ly marketing.
Gistricts.

T h e same thing m a y perhaps exist i n the wheat

T h e c o r n s i t u a t i o n i s r a t h e r different, b e c a u s e

they raised a

record crop o f corn i n 1920 a n d w e received a

very large c r o p o f corn this year.

S o possibly t h e only

thing that c a n b e done f o r t h e corn States i s t o ease t h e m
anc let them have a

chance t o feed thsir c o r n t o their

hogs. T h a t seems t o be the best solution o f the corn problem, a n d y o u r e a l l y s o l v e t w o p r o b l e m s w h e n t h a t i s done.

New York, Boston a n d Philadelphia s r e well established
money markets.

I n t h e o l c d a y s a n d i n normal t i m e s p e o p l e

had b e e n a c c u s t o m e d

t o look upon those three centers

cheapest m o n e y m e r k e t s


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Federal Reserve Bank of St. Louis

o f t h e country.

a s the

T h e same t h i n g exists


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Federal Reserve Bank of St. Louis

and a t certain times i n Chicago, b u t
Chicago has some f e v local problems which these other districts have not.

T h e N e w York, Boston a n d Philadelphia

banks have very strong reserves » “e “ill. say, roughly,
running f r o m 8 0 t o 8 5 per cent.

T h e r e i s another group

of benks w i t h reserves running f r o m slightly bela’

60

mo c o fe, 7a, 7 4 o r 7 5 per cent--— Clevelend, Chicago, St.
Louis, S a n *rencisco, a n d t o a smaller degree, Kansas City,

all free of indebtedness t o other Federal Reserve Banksy
And there i s still another group, ‘tlanta, Dallas, Richmond

in distinctly agrimltureal sections ,which

Minnea »

are still rediscounting vith other Federal Reserve Banks,
heving reserves, independent o f discounts,

o f from about

S050 50> b e r cont.

I cannot escape t h e conclusion that a s a n index t o
the banking e n d credit situation i n e district,
shorm

t h e con-

solidated reserves b y a Federal Reserve bank a b o u t a s
good a guide a s we c a n use.

I T do not mean t o s a y that t h e

discount r a t e s h o u l d b e f o r m u l e t e d e n t i r e l y u p o n r e s e r v e

percentage e

T h e Federal Advisory Council has discussed

that and brought out very clearly thet there are factors t o
be considered.

N o r d o Tt for a

moment t a k e a n y stock i n

this theory that some people s e e m t o have, t h e t discount

snould b e uniform.

o* Boston,
ought

t o b s lorer t h a n those

wherever p r a c t i c a b l e

N e York and
i n other districts,

° think

i t i s important t h a t t h e y should

be lower, e n c .thore i g certainly
n o herdship.
enothcr F e d e r a l k e s e

T

o n banics i n

D i s t r i c t that that shoule
b e the

case, b e c a u s e p r o b a b l y 9 9
per cent o f
country h a v e

a n account

and i f t h e a

(

i n Oné- o r t h s

accommodated

by

on better terms t h a n they c a n

the most important tt. g

at the vresent

to worl: out a proper proportion.
I
Giscussions

o n the Fecera R e s e r v e S y s t e m

toc m u c h a t t e n t i o n h a s b e e n g i v e n
to a

to f i x and estat

think i n all

Strainec e f f o r t

absolute, a n d not enough
atten-

tion h e s b e e n g &i v e n t o relativity,
J 9 oi r t h e p rIo p epr p r o portion o f o n e t h i n g t o another,
ertainly, I

woulé l i k e t o h a v e a n
opportunity

the n e a r f u t u r e o f v o t i n g
o n t h i s l:ind o f a

proposition,

a Ciscount r a t e i n N e w
Yor!:, B o s t o n a n d P h i l a d c l p h i a


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Federal Reserve Bank of St. Louis

in

aa e e

of


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Federal Reserve Bank of St. Louis

4-1/2 p e r cent; Cleveland, C h i c a : S

i s , S a n Prancis-

coanc possi bly iansas City, 5. per cent.--although 5-1/2
might b e consicered f o r nonsag City; a n d f o r t h e
other four
borrowing banizs 5 - 1 p e o r cent,
many a d v a n t a g e s

which shoule come f r o m s u c h a policy.

t o the system

I

t i s needless t o

am n o t a n opportunist. i

the Soarc has demonstrated
pressure, anc: under

artillery fire, o r any other irind o f werfare imupon it.

But I

f

t has n o t wealened

i n a n y respect.

a m averze t o refraining f r o m coing t h e proper thing

merely because someone says "Oh, well, I told you so*,
We h a v e b e e n h a v i n g t h i s a l l t h e time.

discover what t h e critica& may y
straight i n the face,

W

e should

l o o k t h e proposition

c e c i d e $ 4 i t s merits

T h e

a

time

Lng

i s c o m / when

i t will

b e necessary

a d v a n c s

the

ciscount rates, a n d I believe that w h e n that time
comes
the moral effect o f a n advance i n Giseount rates will
be v e r y s t r o n g .

C o n s i c e r

some o f the cistricts--6 p o r cent.

T h a t i s regarded a s

rate f o r r e c i s c o u n t o p e r e t i o n s b e t w e e n


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Federal Reserve Bank of St. Louis

in ordinary times.

H o w are y o u going t o adavance o n

a 6 per cent rate without causing a

great deal

turbance t h a n you would i f you reduced n o w t o a
cent level a n c h a d t o advance f r o m that, o r from
per cent.

i n some oa:
i t h i n the. senticountry i s t o t a l l y d i f f e r e n t f r o m w h a t i t w a s
I d o not s e e a n y Gisposition anywnere

large speculations,
themselves.
Jenuary,

and Y

i

to

o r that peopie will r u n

f w e put off

i e c - - I am not a

prophet,

but

I a m satisfiec--that i f w e delay action until January
we w i l l t h e n t a k e a c t i o n i n t h e t e e t h o f
2

criticism a n e p r e s s u r e

o f every

will p u t ourselves i n thé attitude o f being
&@position.

it s o happens "*.at the moment that there i s no pare

ticuler p r e s s u r e b e i n g e x e r t e c f o r l o w e r d i s c o u n t rates.

The pressure i s running alonz n o w i n other cirections.

There i s a lull. T h e n , egain, i t seems t o #6 t o be unfortunate

a

E a

Giscount rate regardec a s a Kind o f
ana G o w n t h e


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Federal Reserve Bank of St. Louis

nobocy k n o w s w h a t t o c o u n t o n , a n d i f w e
shoulc l o w e r t h e s c r a t e s a n d i n J a n u a r y b e u n d e r t h e

of raising t h e m again, t h e latter part o f
FeDruary o r the l s t o f March, m u c h cisturbance a n d confusion would result, whereas i f w e take action now, right
midst o f the crop-moving season,

w e can

there i s not the remotest chance f o r a money stringenc
Detween n o w end January.

v

e have a

longer r u n o n the n e w

schedule, a n c having established s u c h rates, effective,
November, anc. then when t h e l s t o f
March comes, i f there i s a n y seasonal necessity t o raise
it c a n b e done.
proposec,

B u t o n the plan I have

i t seems t o m e that w e should stick t o a very

Cefinite principle, first, t h e cemand for money a s inredis@unts,

a n d t h ea

has certainly Geclined.
is tremendously strong.

W

proportion, a n e rre

T h e i r reserve position

o n , a n c t w o others a p -

e establish a

g

of these

O n e o f the banks h a d a re-

serve o f 8&5 per cent anc ea f
proximatec i t .

;

e

principle

of a

proper

t psoplée accustomed t o the
and n a t u r a l a n d normal

in s o m e

o f

G S Cis

h

e Gis@m unt rate

t o be


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Federal Reserve Bank of St. Louis

ebout 1

per c e n t above t h e

we have g o t down t o a level f r o m wnich w e
with g r e a t e r f a c i l i t y t h a n i f w e a t t e m p t t o m a i n t a i n

préscentevels, a n d w e establish a

stebility i n the

rate structure which w e would n o t have i f w e Gilly-dally
with this thing until January, a n c
the p r e s s u r e w h i c h I

lmow w i l l b e

force b e t w e e n n o w a n d
~,

be forced t o the necessity o r incréasing rates

a f e w weeizs--I t h i n k t h a t w o u l d b e unfortunate.
Now, I

bers

l a y t h e p r o p o s i t i o n before

o f t h e Board

2

they c o not w a ¥
profer

d i s

a

Miller.

:

t
n

o

SA

o i aCuss 1 5 f r e n y

s

i

z them G i s c u s s

L hope t h e y w i
n

y o u geni

i t if

o u t they might

g themselves

M r . Gilbert h a s

to e cuestion o f mine, that the recent i s
cates h a s b e e n o v e r s u b s c r i b e d - Mr. G i l b e r

T h e totel sudscrintions

o n the lst

oversubscribed o v e r « 2 0 0 , 0 0 0 , 0 0 0 ,
Governor Uaracines.-

Yes, T

you g e n t l e m e n v e r y frani:ly,

anc I

have stetec

went t o l e y


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Federal Reserve Bank of St. Louis

before y o u n o w
from a n y o f t h e G o v e r n o r s

o r t h e Federal Reserve

eny more t o s a y o n the subject.
Governor Miller. I

think your views a r e exactly

right a n d timely. I

would like t o recuce o u r rate t o

& p e r cent.
Governor Wellborn.
be a

I f think y o u r s u g g e s t i o n w o u l d

heppy s e l u t i o n t o t h e w h o l e matter. I

be v e r y a c c e p t a b l e

thin

i t will

t o our Board a n d t o our

would l i k s t o s e c t h a t p u t i n t o e f f e c t r i g h t a w a y ,

o n

November.
Governor Strong.
LIapprecicte

G o v e r n o r Harding, w h a t I

a m going

i s nothing different f r o m vhat I

have alreacy said t o you Curing t h e m s t s i x months,
to
and /lir . Gilbert, i n discussing t h e question o f rates
upon certificates

o f indebtedne

T

h

e policy that

we pursue i n New Yori i n reducing rates has been designed
celiberately w i t h a

view t o g e t t i n g r a t e s down, b u t n o t

recucing t h e m f a s t e r t h a n c o n d i t i o n s justified.

what developed i n New Yor: late i n the winter and
in the spring was, briefly, this, that one after
larger banks i n New York were able t o repay

101
all that they owed us, a n d j

1 S€

e

a number o f

large banks were i n thet condition, whenever t h e y had a n y

thing over, s o t o speak, a t the end of the day's clearings, t h e y were t h e n competing t o lenc. money, b u t s o long a s
ell t h e baulzs w e r e i n d e b t e d

lend money i n New York.

t o u s there w a s n o competition

to

A n y surplus arising i n the trans-

actions o f a n y bank was a t once appliec t o repay what was a l »
ready borrowed f r o m us.
veloped,

A s rapidly a s thet condition d e -

w e h a v e r e c u c e d o u r rates, anc. while t h i s p r o p o s i -

tion has n o t been sudmitted t o our directors, n o r i n fact
have I

had e n opportunity t o discuss w i t h ir. Jay, w h a t I

have i n m i n d p e r s o n a l l y h a s b e e n f o r s o m e t i m e p e r s o n a l l y

he results o f this issue o f certificates
a
before malxing a n y recommencation t o our directors a s t o
further recuetion, a n d a s I stated t o Nr. Gilbert yesterday,
me t h a t t h e t i m e w a s approaching,
we m i g h t p e j u s t i f i e d

i f i t had n o t a r

i n making t h a t r e c o m m e n d a t i o r

There i s e n o t h e r i m p o r t a n t c o n s i d e r a t i o n

t h a t I thiniks

would influence t h e benk o f New York more directly t h a n
any other Reserve Bank.

N e w York i s the market through

which a l l n e w issues o f securities a n c all importent bor-


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Federal Reserve Bank of St. Louis

ii


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Federal Reserve Bank of St. Louis

LO2
rowings

i n t h i s c o u n t r y a r e o r i g i n a l l y negotiated.

O u r

Girectors feel, a s I have discussed with you
more than
once, t h a t this country a s a matter o f
National banking
policy c a n n o t a f f o r d t o c o n t i n u e

t o receive t h e s e v a s t

Masses o f monetary gold, t a k e i t into t h e reserves
of
ve
the Federal Reser/Bank, a n c loci i t up, and, i f
you
please, s t e r i l i z e

i t a n d n o t permit i t t o perform i t s

function, a n d w e regard it--I think a l l o f our
cirectors
agree i n New York that w e regard it--as one o f the pecupossibilities o f that baniz as this development vrogresses t o d o what i t c a n t o make t h e N e w
York marlzet the
cheapest a n d most desirable Dorrowing market
i n the world,
.for t h e p u r p o s e

o f stimulating,

i f y o u please,

i n a

broad

wey, t h e recovery o f the world's trade,
a n d i f w e receive

this gold, lock it up ane put it out of business,you
might
ey that w e were engaged i n cemonetizing gold, e n d
we do
not went t o d o that.
I would lilce t o explain,
bank h a s e n c e a v o r e d

DLLs

may,

i n what w e y the

t o h a s t e n e n c s t i m u l a t e t h i s operation.

For t h e p a s t f e w months,

or s i x months,

i f I

i n fact I

think f o r t h e m s t f i v e

w e have always b e e n i n the martet t o buy

a t constantly lower rates.


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Federal Reserve Bank of St. Louis

103
Governor H a r c i n g L i n s S

Governor g

W

your D i l l r e t e t h i s m o r n -

e have been. buying them, I

think,

I have h a d n o report f o r the
he rate, a n d the Boarc ap-

provec. e rate o f 4

f

t was with the idea i n mind

that o n e w e y t o influence market rates was t o bring
epout thet i n c

o f comnetitio 1

-Tnougn 2

aioerrercd

some wha
about.
Another thing which w e have cone

EV

U e

=

a

M a r e t -boe3 =

h

e certificates t y a t e r e

an over-allotment anywhere,
remium.
That i s -about t h e l i m i t '

wha S

possible f o r u s t o do.

directly t o a f f e c t s e n t i n o n t a l l y a n d a c t u a l l y

are s u c c e s s f u l

ve

i WOULG F i e

45


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Federal Reserve Bank of St. Louis

present t h e p i c t u r e

a s we
Hreparcc.in c o n n e e tion

that right c o w n t o ths firs
count rate™ o f the
neserve

Ban

J e w VYorls . Wa é

all t h e mariret retes,

enc that beginning w i t h Trensury borrowings, f r o m that
Cime~un b a t h s

spring

o f 1920,

o u r rate was below a

the m e r k e t rates.
The e f f o r t w h i c h h a v e been m a c e b y t h e T r e a s u r y a n d p y
the r e c e r a l K e s e r v e Ban’: i n N e w Yori: h a v e n o w r e s u l t e d

rate being n o t only above t h e certificate rate--it
our ciscount rate I eam referring to--but i t i s below
in position t o ignore t h e Stock
call m o n e y r a t e entirely,

a s i t has n o influence

upon o u r pete, a n t insteccd o f having a
Paper CemG.

4) t s

t

cifference o f 1

to

e a t w a i i c h commercicel p a p e r i s s e l l -

ing a n d o u r r a t e - - t h a t i s , t h e c o m m e r c i a l p a p e r r a t e

peing above ,
of 1

5

n

a half

per cent. abdove o u r r a t e
I think o u r e x p e r i e n c e

i n the l a s t y e e r o r cichtcen

months inodicetes that our policy must deliberately ignore
rate

veen our rate a n d t h e commercial paper/


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Federal Reserve Bank of St. Louis

185

for t h e t i r e oeiae.
Or n o t r e m a i n s

Governor Earding, i s this, thet i n this new
the tracditionsl idea that g r o w s o u t o f
the London money market, t h a t t h e bank
be a t o n s a b o v e t h e m a r k c t i o r monsy,

s o

be m a c e t o e p p l y i n t h i s country.

Governor Harcing. C e r t e i n l y n o t i n the interior
cejstricts, a n c 1 de not feiseve 1 7 Gan i k

Governor Strong. I

do not believe i t

York.

Governor Harding.

N o . Perhaps not.

Goveror Strong.

n

a

erecit i n s t r u m e n t

l t i m e s i n Loncon thcre
i n the Lonton market

a relation i n its rate t o the vanlers,
rate f o r t h e import bill.

only rate thet reletes to t h e bani: rate. T h e y
have n o stock exchenge c a l l loan; t h e y heave n o commercial
peper;

e n d o f course u n t i l t h e w e r arose t h e porrowings

Ob c u e ort |
amount

T r e s sury W e r e C o n t ineU 1 0 , 8 V e r y

W A Y S onc. means acGveances,

country a A great v e r i c t y o f raves.

W

eS h a v e io n t h i s


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Federal Reserve Bank of St. Louis

that p e e r

believe enc. n e v e r h a v e
tradi t i o n o f
yy

mothoe o f mating rates.
‘st oné t o acvocetc,

O n the other hanc,

i n response t o

felt i n maling rates

of w h a t y o u m a y c e c i c e

would v e willing t o vote

justifies T
4 nt
w<Ti4 7

which I

—

a
w e p7
— >
e v 2e n 1 : + y o u
suggestec,
have

If y o u c o n o t w a n t

t o g o Delow the othe

G e i s tie TOS o u s

i
mlPOneBe

a M SLY¥LoS e x p r e s s

t o you a s

have rogerded a s a consistent
which i s justifiecé b y concitions.
Governor Harcing.

M y only

your rate to 4-1/2, i t woulc accentuste ths
o

outline, a n c t sive a

it then i f yourrat

with a n 8 5

cay

ie
expomore forcible


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Federal Reserve Bank of St. Louis

count rate, a n c why should a
Oo is P e C O N .

bank w i

6 5 per cent.

go

1 f thar 1 a - s o

Governor Strong. I

think w e heve approached t h e

point where v e c a n reduce o u r rate, b u t w h a t I fear i s
this, t h a t i f w e reduce o u r rate t o 4-1/2 p e r cent, i t
scems t o m e a system policy will b o absolutely nenes
sary

i n order

s s c a p e t h e p r&e s s u r e

sult i n o t h e r G i s

w h e r e a

which will again i

reGuction

t o 4 - 1 / 2 p e r cent.

is wholly unjustifiabl
Governor Harding. :
an o p p o r t u n i t y

:

€

reason i t seemed t o m e

t o bring i t u p ea n i s t i m e , w h e n w e a r e

all h e r e a n c w e c a n G i s c u s s

t h n a t t e r from a

argument

the Cheirmen. I

scretched o f f while w e

afternoon something t h e t might
policy--perhaps h a r d l y a

principle.

i

G

occurs t o m é that inasmuch a s w e cannot achieve i n the
near future a

ciscount rate for t h e system above t h e

going rate, whatever t h e “going rate" means,cach one
will decide, t h a t rate changes m u s t b e governed b y many
consicerations; that, summing those up, w e might say.


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Federal Reserve Bank of St. Louis

that r a t e s s h o u l d b e p r o m p t l y a n d s u b s t a n t i a l l y a d v a n c e d

cemend a n d inereasing cemand,
anc t h a t r a t e s

sh

C c be moderately dcereased

i n the

face o f diminished Cemané, s u c h a s w e have a t the present
time. I

quite agree w i t h t h e v i e w that there

be uniform retes throughout t h e country, u n c e r t h e concitions w h i c h p r e v e i l
however,

a t t h e p r e s e n t time. I

t h a t t h e civergs

i

« o feel,

n rates p e r h a p s w i l l issed.-

Some c r i t i c i s m .

fhe divergence i n rates coes
arouse c o n s i c e r a b l e e r i t i c i s m ,
isited

a n d

m a y

w e l l

p e

anc I

think t h e cusstion
why

a s i e a /

ergument,

t h o s e

p a n i c s

s i t u a t e d ,

i n Cleveland, C h i c a g o a n d

San Francisco, w h i c h a r e a l l o f t h e m i n easy position, e n d
probably a l l o f t h e m f a c i n g a

prospect

anc. position, s
bly h i g h e r t h a n N e w Y o r k

Governor Harcins.

C

o f continuing ease,

c have a

pete apprecia-

°

o e s

i t occur

to eriticism--of course, w e will have that criticism.
have i t now a n d w e will have i t i f w a

divergence


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Federal Reserve Bank of St. Louis

in rates, b u t w e woulc. also have t h e criticism t o o
chengs was made a t all until N e w Yor:
then everybocy
rate.

n a c e a

chenge t o mset t h e

T h e n the criticism would b e that nobody coes

fit t o lower i t s rate, a n d

Governor Calizins.

T h e reply t o that i s that before

Giminishes its rate t o 4-1/2 per cent. i t would
nese o t h e r b a n k s w h i c h a r e i n a n e a s y c o n cition a t t h e p r e s e n t t i m e t o r e d u c e

Governor Harting.

to 5

per cent.

T h e best answer t o the critics

point out. the: f a c t t a a t t n e F e d e r a l

matively permits t h e civergence i n rates,

to them, “ I f you G o not like that, g e t Congress t o
change it".
Governor Calkins.

h i s m a y be very inconsecauential,

but m y o p i n i o n i s that i t m a y

to reduce their rates t o 5

bef

b e desirable f o r t h e s e b a n k s

N e w York reduces i t s

rate t o 4-1/2.
Governor Hercaing. G o v e r n o r Morss, w h e t i s your view?
Governor Morss,. e

with a l l t h a t y o u h a v e


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Federal Reserve Bank of St. Louis

at t h i s t i m e
GOO L a s t .
You m e a n t h a t

Governor M o r s s . E

Gistrict too, because

E n e =Cstr1eLs:

ane

« 4 w e r d i s c o u n t rate
which c o m e f r o m c h e a p

moncy--speculation a n d e l l o f t h a t s o r t o f thing.
nezt place,

i t seems

t o m e that t h e influence

Ranizs s h o u l d b e a

I n the

o f the

conservative a n d a

influence, a n d business i n this country
to consicerable extremes a n d quite sudcenly,
anc. sentiment changes ‘very sudéenly, a n c thet i s very well
there w a s c o w n n e r e

six months a g o about ciscount rates a n c what there i s
tocay.
Governor Harding.

B u t has n o t sometning else changed

besices sentiment?
Governor Morss.
going

a

Certainly
t Federal

1

S

, b u t whet IT am

Heserve Banks

have a

tendency

to follow t h e extremes o f sentiment, a n c they ought t o
keep inside, a n c t o reduce o u r cGiscount rates n o w i s


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Federal Reserve Bank of St. Louis

3

going t o s n extreme,

in

Country t h e t a5 r e
¢+

over t h e well thet y o u

sot

bs]

cdo n o t

conference

ipligetaicye.ce e ke7<

es

L he

in
p e s t

things f r o m

mst ter o f fact, w h i l e
L L Ebe
V
chance

that

n o results77ill

forthe b e s t mysel;
b e

=

arrived

On t h e dv7velopvmer
v

of t h i n g s

e
F like
thinga

i n Furope

do H u s t n e s s ono
to r e c u e s

the

to e x e r c i s e .
Lns

Gov. Fancher.

a

that t h : s e m e r a t e s c a n n o t p r e v a i l

e

your

am c u i t e

G o v e r n o r Harding,

the principles which you

r

i down i n y o u r plan,
in

“i

t h s districis;

thet w e a r e i n f l u e n c e d

b y d i f f e r m t conditions rhich have

the d i s c o u n t r a t e s s h o u l d b e ,
May I

interrupt j u s t e

moment?

T h e r e

is o n e p r i n c i p l e vrhich T f may n o t heave l a i d d o w n a l t h o u g h I

i th

I

t may have been inferred
ai strives

constant b o r r o i e
er d i s c o u n t

rate

Governor Fancher. P e r h a p s t h e inverse o f that might
ply t o t h e C l e v e l e n d Bank, b e c a u s e w e h a v e b e e n r a t h e r a

persistent lender, b u t 3

h e matte :

Ghe Paces

preveiled i n the Cleveland District
vide f l u c t u a t i o n

i n our rete -

@ did not g o t o seven
per cent,

s o that t h e c h a n g e s w h i c h h a v e t a k e n

rate have been different from the banks
seven p e r cent rate a n d have eradually reduced those rstes
=astern b a n k s ,

tion has b e e n o n l y one-half o f one p a r
of reducing o u r rate t o 5 per cent ras
of d i s c u s s i o n


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Federal Reserve Bank of St. Louis

a t o u r last Board meeting

a n d o u r reduce


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Federal Reserve Bank of St. Louis

n

of t h e

ago-- was that r e believed t h e
for a

further reduction.

the v i e r e x p £r e s s e d

b y Gov-

ao
. f u r t h7
er red$
uction

Fastern B a n k s , t h a t

should probably b e adjusted; t h a t v e
to a

have t r o

five p e r c e n t r a t e b e f o r e t h a t t o o k

S S C X a

b y the o f ficers o y our i n e
or t h e f a c t

eed

Y o r k

D i s t L I G s z ,

should follo” t h e N e w York r : t h e t they a r e
in c o m p e t i t i o n w i t h t h e
and b e l i e v e t h a t i n v i e w

o r o u r reserve posi-~

which has been nemed b y F a s t e r n banks
should

hand,

b e one thet should

i a heve

reduction;

s

h

b e mace

o

u

a t our

l

t h e t o u r rate i s probebiv
+

Governor Harding.

d
l o enough.

another observation j u s t
reasonadle probability

a reduction

7

i n


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Federal Reserve Bank of St. Louis

reasonable tii
inct adwentage, ]

i n i z , i n other benks Acting

heir Yates, f i r b e c c u s e w e “ould g e t avey f r o m this
hat nothing c n n be done until t h e y g e t r e a d y to do soneYer Yorle a n d t h e n e v e r y b o d y f o l l o w s s u i t e
quite

Governor F a n c h e r . m

ed to bring out enother vointe

i n accord

v i t h that. I

I f v o u r mind, i n vier o:
s r e h.k a m

SYS

vcil

ticular b a n k ,

«hether

you

+ s t e m v o u l d possibly i n -

t h e reserves o f
though
<a
a little m o r e , whother

|
t h e rates “ n i c h y o u h e v e i n

mind n o m a n d which y o u have named here should b «
doe

I

Gov. Hardin; =

t h i n k they should

bottom.

n ¢ point

should b e t h e L
G o v e

r i d

t

i

e

s

t

h

i

n

k

pottom f o r a borroring
T had i n mind wes m y idea o f e

minimum rates a t a n y time
as F r e - c o u l d

4
are o n your


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Federal Reserve Bank of St. Louis

ri
more observation,
ba t h e resudt:

o2

aserve p e r e e n t a g e t h a t w e report,

count rate, t h e eritic¢s ~ill i m m e d i a t e l y g e t u
ere trying t o
retess.

Gove Harding.
templated,

h i n k

t h s thing t o d o

ve announce a

B

u But
t a2 d

o

i f a n y chenges

n

e

simul

i n rates

o i t simultaneously,

d

s o

reduction i n t h e discount r a t e a n d change
announcing t h e reserves, a n d p a y out t h e gold

Governor N o r r i s , “ h a t
Governor

s

p
<

o
r

t t h e matter?

u
i

t

h some

of cifficence i n expressing a n y views a s t o the broad
general policy.

A s y o u lmow i n our Cistrict o u r trouble

for « long time has been, n o t with t h e commercial situation,
but with the lerge volume o f loans o n Government
bonds which w e have had.

T h o s e have sone d o w n from t h e

peak figure o f about 215,000,000

t o between 985,000,000

and 370,000,000, a n c their proportion o f our total has
gone c o w n from 8 7 t o under 70, b u t 7 0 per cent. o f our loans
still r e p r e s e n t l o a n s

o n G o v e r n m e n t securities.

When o u r rate was s i x per cent. a l l those people o f

course felt that i t was a great hardship that bonds that
they h a d p a t r i o t i c a l l y s u b s c r i b e d f o r , w h i c h o n l y p a i d t h e m

4% per cent., t h a t they should b e charged6 p e r cent. f o r

carry;ng them.

N o w that our rate i s cown t o five per cont.,

that differential o f three~-querbers o f one rer cent. a year
is not bothering them very much, a n c we have very little complaint.
I have n o t i c e d

i n t h e l a s t f e w months a

very cistinct

chenge i n the attituce o f member banis towards o u r rates.
When t h e y w e r e a l l v e r y h e a v i l y i n o u r Gobt, t h e y w e r e v o r y
much c o n c e r n e d a b o u t o u r r a t e s a n d v e r y m u c h i n t e r e s t e d
everything t h a t w e did.


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Federal Reserve Bank of St. Louis

N o w thet a

in

number o f t h e l a r g e r

117
banks a r e either entirely o u t o f debt o r borrowing v e r y
they a r c not nearly a s much concerned a s they
used t o b e about o u r rate, a n d several o f them have frankn o t care a

ly saic. t o m e t h a 3


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Federal Reserve Bank of St. Louis

continentsl w h a t

our rate was, t h a t their rates t o their customers were going
to b e controlled b y the ceman¢ a n é supply o f money, a n d that
s the demend continued e s i t was now, f u l l y u p t o
ability t o meet, t h e y would n o t recuce below s i x per
if w e went t o four.
Without csoing into this question o f t h s relation o f our
rate t o the

i n g rete, I

feel that w e ought B o consicer t h e

psychological e f f e c t o f our rate, a n d that, utterly irrespectbetween o u r rate anc. the so-called going
when w e a r e i n a

condition o f s p e c u l a t i o n

tion o u r r a t e s h o u l d b e r e i s e d , i r r e s p e c t i v e

irrespective o f reserve position.

e n d infla-

o f going rates a n d

T h e y shoulé b e raisec. a s

a warning t o the business world, a n c o n the other hanc, w h e n
are i n a

period o f Gepression,

speculation b u t w h e n e n t e r p r i s e

discouraged,
we

h

w h e n there n o t only i s
i s paralyzed a n d everyone

i f our reserve position makes i t justifiable

t t o make a

reduction

i n rates w i t h a

view n o t t o

increasing price, o r stimulating business, b u t t o help t h e


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Federal Reserve Bank of St. Louis

118
general a t m o s p h e r e a n d g i v e p e o p l e s o m e e n c o u r a g e m e n t t h a t
~e b e l i e v e t i m e s

sre inor i

a n d tna

e

v need not b e

on lcgitimate business enterprises.e T h e r e fore, I

feel t h a t t h i s i s o n e o f t h o s e t i m e s w h e n t h e r e d u c -

further reductions might b e made.

F o r example, I

can see

no gooc reason t h y Cleveland, Chicago a n d S m Francisco
should n o t c o m e d o r n t o =

five p e r c e n t rate.

thet there ought t o b e e n y metcrial recuction i n the rates
a

Qi

the borrowing banks, a n d I mist say--4.

Gov. Herding (Interposing:})

L e t m e point o u t o n e thing

right there, speaking o f a borroring bank.

Y i t h Governor

ion I a m going t o speak about Richmond.
per c e n t r a t e a l l d u r i n g t h e
ressive r a t e e n d d i d n o t
¥-per C e n t .

pressure I

-lt..stayed fistly a

e

r cent.

T h e y

presume f o r lower rates i n their District.

reason c a n Richmond give n o w a n d h o y
tion

o f not going ebove

words,

s i x per cent last year’

h o w cain 2 0 i u s t i f y

not t a k e

s o much

nor S e a y w a s g i v e n t h e e x c l u s i v e p

I n other

*

minutes
questions, b u t unfortunately about e v e f i f t e e n

ansver them.


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Federal Reserve Bank of St. Louis

Gov. G e y .
fon f r o m G o v e r n o r N o r r i s e
I t ould

Worrise

seem to

por cent tas regerded. b y most o F tho bank
rete, v n i c h

serves were belo” t h e limit,

a n d shich they will maintain

reserves h e v e r e a c h e d t h e f i x e d minimum.
me, i s a n a n s w e r

t o that, t h a t t h e 6

That,

por c e n t r a t e

still continue
them over t h e shoals, a n d that t h e y mast
ther a r e entirely o u t o f the woods.
Feeling that I
rould

nd £

to z o t o 4 = i n o u r o w n district,

.ould b e
b e sorry

b u t o u r raserve percentage

6 7 t o Tle
is not &0, i t has b e e n fluctuating sround
Gov. Harding.

B u t I think i n

Anterior b a n k s s 0 i n g
to a

your rate

hole i n a d o u g h

. a s e o f three o r four
P

A
a

p e r cent, I

t v o u would reduce

p r e t t y quick.

GoyeNorris. I

feel t h a t 2

reduction

~ould

t o


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Federal Reserve Bank of St. Louis

120

d bl e u
4 o
yp rwe ttt a redical a n d h a s t y

Governor
reduction.

k

n

o

that
consider i t fully, b u t m y impression i s a t the moment

.te reduction below

rather s o r r y t c

sli b e a

reduce

or
panis thet e r e i n 2 s good * reserve p o s iti
vho h a v e n o t a n y p r e s s i n g p r o b l e m s

o
e s h e a dr

9
e
n
¢2
still maintaining t h e 5 = o r 6 per cent rate

Governor Biggs, ©

t ere your viers?

1B
w e h a d t h e s i x p e r c e n t rate.
r ago

hed

a
and w e are still maintaining @

p

e

r Come

s k n aFBSb 0

ce

avout
reserve o f '22 per cent a year 8 g o a n d
shoule

recommend

our

i t t o o u r Board.

reduce o u r rates a n c
e e 2S
a bene s h a t

terday t h a t they were o u t o f our
hes

They

peen

here w a s another bank y e s t e r d e

e e n t i rre l y

a
and
out,

tho said they h a d four mil-

loaning
ollars i n money secking t o invest, a n d
On S a l

i n New Yore.

ens y in the city.

a

o o cur commercial banks a r e

T h s

that have borrowed most i


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Federal Reserve Bank of St. Louis

agricultural sections rere liquidating
~e have n o fears about them.
any more money,
sixty o r n i n e t y davs.e
think t h e t i f v e

thet money gets
n s i x t y days, c o m m e r c i a l p a p e r

trould then b e

or under. i
then

to going l o w e r fthat. I

think the time will come

now a n d the l s t
suggesting, t h a t v e c a e
we reech that time I

sbove t h e commercial rate,

a m heartily i n fevor ¢ @ alrays

nz above i t a n d not trying t o regulate i t from t h e stendMhen t h e r e w o u l d b e n o c o m p l a i n t
ee -TOULd. g e t a

P T i v e p e r cent.

Gov. Harding.
Gove M e D o u g e l e

tO vour statement a n d srgument f o r a
general r e d u c t i o n i n the discount rates, a n d ‘as m u c h impres
sed w i t h i

Y

o

u stated

f r o m A

more s o perhaps t h a n r e h a v e a t a

very b r o a d standpoint,
times,

a t least

i n Chi-

cago, v i e w e d t h e s i t u a t i o n r h e n t h e question i n v o l v e d W A S U D ,

three things thet heve clrays b e e n
shen d i s c o u n t r a t e s r e r e u n d e r d i s our O F T a n k ' s r e s e r v e ,
o f

the r e s e r v e
going r a t e s

f o r money,

ros S o r over-the-counts:r l o a n s ,
ser e x t e n t

ir reserve h a s g o n e

tro months, a n d n o i s epproximetely

p e r cent.

ts-elso

the collatoral
es t o the gene
District.

T h e licuidation ™

I i m o y o u understand it, Governor
Board, b u t p e r h a p s

“hich ive neve h a d i n our
niformly b y t h e b a n k s

in

fact, though, t h a t unrortuneven e ten p e r cent rate i n vour district voule n o t
wa

bring about a n y


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Federal Reserve Bank of St. Louis

Gov. jicDouesl.
.

“

e RAVE our-Detk


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Federal Reserve Bank of St. Louis

your retes?
Gov. MeDougal.e L i q u i d a t i o n coulc n o t safely b e forced

Gov, Harding.

I t seems t o m e i n vour

money, properly controlled, v o u l d bring about more
tion tnen t i g h t money would.
McDougal.

“ell,

i n any e v e n t e
v have t h e lergest
Srv 3

“6 N A V E

or thereabouts.
am S S

point =I

were a

.

h i l e o u r r e s e r v e h a s grormn u p t o

a
e P e i o e5
have
mentioned,

there

f e r d a y eos5 a g o t h a t

like 5 3 0 arc borroving i n excess o f their so-called basic
line, a n d i n c l u d e d

i n that cless o f banks there e r e

dozens o f them thet are borroved t o t h e danger point,
ve have t h a t p r o b l e m t o c o n t e n d with,

and I

think i t

very i m p o r t a n t f a c t o r a n d s h o u l d b e w i t h u s , b e c e u s e y o u

cen g a y what y o u like, a n y further reduction i n rates vould
be a c c e p t e d

b y such institutions

enecy ‘vas over,
o >

g6e-Tit, a

o r that t h e y c o u l d s o a h e a d a s t h e y m i g h t

f r e rould heve some dirficulty i n controlling

the
ink those institutions t o which y o u


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Federal Reserve Bank of St. Louis

124

refer v o u l d h a v e n o t i c e t h a t t h e s t r i n g e n c y i s n o t o v e r s o
i f y o u ramind than o f h o w mach

hey a r e coneerned,
they

o e

youe

Gov. MeDougel.e

“ith rega

V e are

a e ree! a s h f u l about thet.

t h e other point, t h e system a w h o l e ,

have alrays f e l t t h a t - e s h o u l d l o o k f o r r a r d t o t h e t i m e

vhen banks generally vill give careful conside
retum t o the o l d state o f -ffairs, w h e r e s t least during
ban p a r t

o r the your.

they

can

o p e pate

Nov, v h e t i s t h e s i t u a t i o n

>

within

i n t h e c o u n t r y 4&8 2

The banks a t @

present time a r e borroving something over

1 ,300,000,000.

h e rates rhich e r e established a n d i n

force throughout t h e country i t s e e m s t

a r s I

mposing

commerce a n d industry o r agriculture, e n d
rates
as a n excuse f
money,

end I

h

e

r

e i n forces cannot b s taken

e farmer paying vhat h e

believe .

Eh f

“-e s h o u l d f u r t h e r r e d u c e o u r

“ould n o t b e passed t o the borrover. I
believe t h a t b e c a u s e o f o u r o m n e x p e r i e n c e s
District,

i n the Soventh

e n d becouse o f t h e i n f o r m e t i o n t h a t h o s

vulgea here.
Gov, Harding.

T h a t m a y b e true, b u t that

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

our

c o n c e r n e

Gov. McDougal. I

understand that.

A n d so I

feel

at

not
penalize t h e borrovers,

and I

would b e d o u b t f u l

as

propriety o r r e d u c i n g t h e r a t e s j u s t a t t h i s m o m e n t .
Gov. H a m l i n .
tion

t

h

e e f f e c t o f v o u r lrsst reduc-~

i n r=ate?

Gov. H e D o u g e l .

Y o u m e a n upon t h e rates t o t h e public?
“hen y o u v e n t d o m

t o your pre-

of y o u r h o l d i n g s
cid n o t r e s u l t

o f paper?

i n increased

Gove M c D o u g a l .
Gov. H a n l i n .
Gov. H e D o u g e l .
an i n e r e s s e

also

i n

There has. been a continuous liquidation
& short t i m e
The >

Hamlinge;

Notwithstanding


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Federal Reserve Bank of St. Louis

ter I cuoted the other day, Gov. S e a y ?
Governor H e r d i n g ,

t h e r e has been s o m e pres-

i n o u r District, n o t r i t h -

“Or t h e l o r e r i n g o f rates

stending the fact “hich y o u mentioned that t h e Richmond
no time ‘uring the most severe money stringency
U p t o the present time v e

per cent.

ve could logicelly o r s t e n t l y l o v e r
have held
onee t h e o p i n i o n

could n o t b e calied a t all
14
the c o u n t r y h a d e x c e s s f u n d s o f t h e i r o r n t o e m -

q-

merket f o r competition, e n d that

a e n b h re

r

o

) 4

4

k

e

- _ } «

not t o b e m e d e c h e e p b y t o o g r e a t a

4

+ a

lovoring

count r a t e o f the F e d R e s e r v e Banks,

o f t h e Cis-~

t o enable t h e m

ion is undoubtedly sound, I
nk rith ths present schecule o f rates i n
S, y o u r r a t e
Sea Vo

G o v e r n o r


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Federal Reserve Bank of St. Louis

PEyou C o u r s

I subscribe particulorly
thet t h e further lovcring o * the discount rate should b e
based u p o n t h e f a c t s e n d t h e concitions,
.ne

a n d not upon e n

e-OpinLon o F - t i nhc s o s e n bricd so: fect C
ofthe

GaG- Tacos.

i t h deferenes

lowering

t o t h e outstanding expertof

of
—

I am >

conference,

rnor
2 t r o m what t h e G o v
onc
bank i n t h e F e d e r a l R e s e r v e S v s t e n e n d
Jpeeeie

e s

in the world has said, there h a
district i n
Bvidentiy, t h e r e f o r e ,

there

g number o f banks thich have s o m e excess funds

Therefore,
upon them, h a v e been*brought d o r n more
by t h a t t h a n b y a n y o t h e r f a
néetural

f a

a n d - i t A s ° t h e o n e “hich:

into t h e f u t u r e .
* continuation
i think,

r , a n d thet i s a

the

4h :

s h o u l d operate 5

d o ,

o f the p r e s e n t r e s e r v e s ,

per: octly

¥

s n d y o u understood,

126

agein that I believe a change i n the retes should b e based
on t h e facts a n d t h e conditions.

W e e r e fully entitled t o

talze advantage o f e n y psychological effect which might b e
procuced

by a

Therefore,

change o f rates

a t t h e o p p o r t u n e time.

i f i t were t h e opinion o f those banks which have

lerge excess reserves that t h e y are bounc t o come t o a diminu-

tion o f the discount rate, I think w e might very well consider here wh: ther the opportunity has arrived now. I
had rather b e a little i n advance o f that than behind it.

Gov. Strong. Don't you think thet the gradual esteabOn)
lishment o f ea generally lower level o f interest rates i n

New York Gity, w i t h a surplus o f eredits f o r loans b y the
large banks i n New York City, i s gradually going t o extend
its i n f l u e n c e t h r o u g h o u t t h e c o u n t r y a n y w a y ?

Gov. Seay.
not e x p r e s s e d

T h a t i s the opinion I hold, a n d i f I have
i t I

a m sure I

was c o m i n g

t o it.

W e cannot

{gnore t h e influence u p o n t h e interest rates o f the country o f the interest rates o f the banks i n the large money
the country.

I t i s impossible.

F o r instance,

se the New Yorks bonc market, i f that i s lowered, o r
if the N o w York Federal Reserve Banik: discount rate i s
much lower, t h e heavy borrowers i n t h e Richmonce vistrict
will n o t borrow i n that district.


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Federal Reserve Bank of St. Louis

T h e y will g o t o the N e w

129
lower
York district o r other districts where t h e y c e n g e t


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Federal Reserve Bank of St. Louis

money.

t o transfer

T h e inevitable consequences are, first,

some o f the loans hele b y the Richmond district i n t o t h e
other Cistricts, ant. then competition b y t h e banks o f our
district

t o m e e t t h e i r rate,

T h a t has taken place

is going t o take place. I

believe t h e t o n y lowering o f

Ciscount r e t e n o w s h o u l d b e l o o k e d u p o n a s a

System, a n a the e i fect will be, I
greater i f i t is a
tive lowering.

v e r y much

consistent lowering t h e n i f i t i s a rela-

I f the @iscount r a t e s o f the banks having t h

st reserves were lowered, I
pélled

believe,

Lowering o f

know thet w e would b o coam-

Bank
t o lower t h e discount r e t e o f t h e Federal Kescrve

*
tne e x
of Richmonc, f r o m consistency, f r o m logic, a n d from

pressed o p i n i o n o f t h e b a n k s

i n our cistrict w h i c h a r e en-

titled t o o u r r e s p e c t f o r t h e i r opinion.

I feel confident t h a t t h e Cirectors o f our bank, s u p portec

b y a n y r e c o m u e n c e t i o n t h e c f f i c e r s w o u l d make, w o u l d

pe inclined t o the reduction o f the r a 0

& : per cent.

I ,

however, s h e r e t h e opinion---at leest I wish t o s a y that a n
flashed t h r o u g h m y m i n e a s y o u Ccelivered y o u r
enticipated

b y several

o f t h e Governors h e r e

entitled t o take advantege o f any psychological
effect which m a y b e procuced,

a s I think w e are, I

think i t

will b e increased
neously

i f the rates a r e cither lowered simulta-

o r i f t h e lergcer F e d e r e l R e s e r v e B a n k s s h o u l d f i r s t
ae )

announce their lowering prior t o thet o f the N e w York Bank.
I a m not wishing t o say, n o r < o f T have i n m y o w n mino a n y
thought, t h e t t h e N e w Y o r k p o s i t i o n c o e s
neting i n f l u e n c e u p o n t h e d i s c o u n t r a t e s o f t h e country,

eause I

Go not think I can get away from that fact.

a fact, b u t I

be~

I t is

do believe t h a t i n the present situation

it w i l l h a v e e

better p s y c h o l o g i c a l e f f e c t i f y o u w i s h t o

take a c v a n t a g e

o fj

a n d w e o r e entitledc t o t a k e e c v a n t a g e

of it, i f t h e o t h e r F e d e r a l K e s e r v e Baniss w i l l e i t h e r r e c u c e
simultaneously

o r just a

little

i n adva f

the N e w Yori

Bank,

a m very much interested, Governor

Governor Harcing. I
Seay,

i n w h a t y o u h a v e h a d t o sey, a n d I

hope v e r y m u c h t h a t

before t h e C o n f e r e n c e d i s s o l v e s a l l o f u s c a n r e a c h a

com-

se I feel certain i f there i s
anything like unanimity o n the part o f these gentlemen around
the table, t h e directors o f the various banks, w h e n the
matter i s reportec. t o them, w i l l fall i n line with t h e action
taizen.


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Federal Reserve Bank of St. Louis

Governor V a n Zandt?
Gov.

V e n Zenct,

2

.j

7 , i n the Hleventh Dis-

ESORE
trict c o n c i t i o n s a r e v e r y b e c l y strained, p r o b a b l y w o r s e t h a n

any o f the other districts. I

was very much im-

pressed with t h e soundness o f your preliminary statement,
perticularly w i t h r e s p e c t

throughout t h e country.

to e

divergence

i n the rates

T h a t must exist, e n a still w e m a y

have criticism about that.

T h a t criticism i s unsounc, a n d

woule b e sound i f w e hac. a uniform rate throughout t h e
whole country.
In s o fer a s any lowering o f our rates i n our district
is concerned, I

would n o t like t o d o i t until w e could show

that i t was simply t o come Gown toward t h e level o f the other
banks,

o n account o f concitions throughout t h e country, a n d

not b y r e a s o n o f a n y i m p r o v e m e n t

o r a n y encouragement t o -

wards borrowing i n our district.

Gov. Harding. T h a t could be made clear i n a statement
FPO Vou,

C O U

C E nec.

Gov. V a n Zanct.

Y e s , I

thin’: so. I

co not know wheth-

er the concitions throughout t h e country a r e such a s t o justify a general lovering o f rates everywhere n o w o r not.
not i n a position t o say, b u t i f w e 2

to b e required gener-

ally t o r e d u c e o u r r a t e s b e f o r e t n e l a s t o f Januery, I
it w o u l d


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Federal Reserve Bank of St. Louis

b e well

t o head t h a t off. I

_ I am

would

n o t want

thint:

t o

132
see a

simulteneous reduction. I

would w a n t o u r rate

follow, because w e are borrowing.

t o

W e ere not only borrow-

ing ourselives-Gov. Herding (interposing).

Y e s ; y o u are n o t i n a po-

sition t o take a lead.
Gov. V a n Zanét. £
the year, o u r banics >

2

tine I r e t h i

a t this season o f

i n normal times n o t a borrower among

them, while a t the present t i m e probably 8 0 per cent.

o f our

banks a r e borrowing a n d probably 7 0 per cent. a r e i n a very
bacly extended condition. I

heartily concur i n all that

Governor S e a y has t o ¢s p a r t i c u l a r l y w i t h reference t o the
lower rates i n the money centers tending t o ease o u r situation
in our cistrict b y reason o f the larger borrowers going there,
thereby bringing about a n cquealization o f the supply.
Mr. Crissinger.

D i d y o u s a y 7 0 o r 7 per cent. w e r e i n a

very badly extended position?
Gov. V a n Zandt. I
Mr. Ramsey.

should s a y about 70,

G o v e r n o r V a n Zandt, h a v e n ' t y o u g o t y o u r

figures wrong? A r e n ' t there about a third o f our banks n o t
borrowing a t all?


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Federal Reserve Bank of St. Louis

Gov. V a n Zandt.

T h a t m a y b e so. I

mean 7 O per cent. o f


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Federal Reserve Bank of St. Louis

Hor C e n t 0 : DOrro-ers a r e
Cen.

A

Governor Young, “ h e t have y o u t o say?
our p o s i t i o n i s n o t

elmost continuously * o

been

ae

PIV

duces the r a t e 3 2 . from c e r a e e 4
coalhegeeNc,

increases,

to say. T h e Mederal “eserve Bani: o f Minneapolis i n

advences normelly, 7
move t h a t C r o d e

p e r h o e q u i r e “.50,000,00

f a d

v h e n v e reduced o u r rete t o 6

per cent, I did not feel just r i g h t about it, and the very
peculisr p é r t o f i t is t h a t s o m e

o : the c e ricultural d i s -

Lo

Septembcr ist.
end South Dakotc:, ‘hich i s s corn country, will

134
not liquidate until January o r February, a n c that liquida-

tion will come about through hogs, hes only reduced about
only »800,000. M i n n e s o t a , outsice o f the Twin Cities, has
reduced o n l y about five o r s i x hundred thousand.
Cities have reduced v e r y materially.

T h e Twin

I f i t was Minneapolis

alone which w e had t o consider, I would not care t o reduce
this reciscount rate a t the present time. I

would n o t care

to recommend t o our directors t h a t i t b e reduced. N e v e r t h e less, i

realize t h e t o u r rates should bear a

to t h e r a t e s o f t h e System;

a n d because

certain relation

o f o u r position I

think i t should b e a higher rate than the other Federal Reserve Banks.
Your t a l k this morning has impressed m e very much, a n d
I a m prepared

t o recommend

t o the directors

o f the Federal

Reserve Bank o f Minneapolis, i f this reduction i s mace
in t h e other districts, t h a t w e d o a s suggested b y
Gov. H a r d i n g .

Place

i n the record here t h a t o n e

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

be determinec, a n d whatever action i s going t o b e taken i t
will b e taken i n the very near future,

i s the opportunity

that i t w i l l g i v e t h e F e d e r a l R e s e r v e B o a r d i n i t s a n n u a l

report t o Congress i n the discussion o f the events o f the


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Federal Reserve Bank of St. Louis

135
year 1921, a n d the basis policy, a n d s o forth,
o

a n opportunity

bef

t
1
meke a full, clear-cut
and definite discussion
o f the

whole p r o p o s i t i o n , a n d l a y o u t t h e results, a n c w e c a n e n u n ~
than
ciate a policy/vhich h a s a l r e s c
3 6 l e t e r m i n e d upon, w h e r e -

as i f this thing hangs fire w e will have t o ignore a l l o f
that a n d miss a

great opportunity. I

this i s concerned I

acmit thet s o far a s

a m a n opportunist.

Mr. Gilbert, w i l l y o u s a y something?
Governor Harding,

t h e matters w h i c h y o u have

been discussing a r e matters o f Federal Reserve policy rather
then Treasury policy, b u t there a r e some considerations f r o m
the p o i n t o f v i e w o f t h e T r e a s u r y w h i c h m a y b e o f s o m e i n -

terest.

T h e Treasury i s still, o f course, t h e largest bor~

rower i n t h e country, a n d has a n interest i n a general low-~
ering o f interest rates.

T h e Treasury a l s o holds t h e view

thet i t would b e a good thing f r o m the point o f industry
and agriculture,

i f the general lowering o f interest rates

could b e rsached i n a sound way.
I agree, gensrally speaking’ with t h e consicerations
which Governor Harding
with t h e view that t h e
Reserve Banks ought t o lead s o far a s possiile, a n c not t o


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Federal Reserve Bank of St. Louis

if t h e t i m e h a s c o m e t o t a k e s u c h a c t i o n a s

56
he suggested, t h e Federel Reserve Banks ought t o c o it.
I heve some reservations

o n the suggestions made. I

thin most o f those have already b e e n brought o u t b y the
Governors. I

should say, i f anything i s t o b e done, t h e

non-borrowing banks, w h o would still have t h e s i x o r five
and one-haif p e r cent rate, ought t o take t h e lead, b e c a u s e
their rates would b e r a t h e r seriously c u t o f line, f o r in«
stence, w i t h t h e four a n d one-half p e r cent. rates i n New
Yori: o r Philadelphia.

T h e question whether t h e borrowing

banks s h o u l d w a i t f r t h e A s p e r tent,

o r follow a

change

in the non-borrowing bank rates, i s a matter o f Federal
Reserve p o l i c y ,

I think there

a s t o which I

express

n o opinion.

i s one general consideration t h a t ought

to b e kept i n mind, i f there i s t o b e a n y general lowering
of the discount rate level a t the Federal Reserve Banks,

Governor Harding has already suggested that i n part when
he said that t h e System would adopt a

new method o f treat-

ing its réserves, a n c would probably climinate t h e m w esent
figure based o n setting aside 3 5 p -

against deposits

end then showing the balance against Federal Reserve notes,
I think there i s a gooc deal t o b e saic f o r m i n g o n e step
further a n d continuing,


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Federal Reserve Bank of St. Louis

o f course, t h e combined percentage

which has been established, anc.
rate n o w s h o w n f o r p u r p o s e s

then sudstitute

o f illustration ©

on setting alside 1 0 0 p e r cént.

for the

figure b a s e d

against notes a n d

S
oe

p e r c e n t a g e

ageinst ceposits.
Do I uncerstend y o u t o agree

Gov. H a r d i n g .

proposition,
percentage,
CLON

i f a n y chen s

made

in t h e t

with t h e

statement

o f

following t h e modifica-

i t would b e most prucent

O f Likes n a t e ?
Gi Lbert.

Yes. 2

think

3 4

should

If the Federal Reserve System thinks
for the lowering o f discount rates,

b e simultaneous.

that t h e t i m e h a s c o m e

it i s n e c e s s a r y t o

give simult aneous consideration t o the question o f paying
out a

which have t h e largest percentage. I
Pay

W A

1

bs.

7

Banks

emount o f gold i n the Federcl Reserve

moderate

O

n

would n o t g o very

think i t ought t o b e

e

more than @ ® mod-=

erate a m o u n t .

million, all~-told?

Gov. Harding.
Mr

G i lL bect.

n order

t oi c a l c u l at

aoS

think otherwise t n e r e i s danger t h a n
count rates, w i t h t h e


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Federal Reserve Bank of St. Louis

just

- d o u t

thet might have. I
he lowering o f cisfo
2m
gold

now


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Federal Reserve Bank of St. Louis

Genvored

I n the

e

s

e

r

v

e centers,

m a y lead t o a

best safeguards
a streight-out acceptance b y the Federal
Ra

T r i

t e

e(aa8 h s Soe @ 2 t h e

proposition thet gaidc b e freely paid

Perrin. M r . Gitbert, -on't you be good mough t o
why v o u t h i n k i t
S 8‘ oau l d
put g o l d i n circuletion,

a n c the danger o f

inability t o g e t i t back i n t o the Bank?
very herd cuestion t o ansrer,
there would b e denger, a n d I think o n e danger o ft

not getting into thet difficulty *ould be not t o put out

Gov. Herding.
mum-OL

Y o u suggested,

» s I understand, ©

maxi-

e e hundred m i l t i o n dollars.

Mr, G i l b e r t . 4

the -ffects a r e felt.

maximum o f a

hundred million

T h e figures o f currency d:

thet betreen S O and $ 5 per cent o f the currency
end comes back t o the redemption division through
a1 Reserve B a n k s .

T h e development

o f that s y s t e m

that t h e r e e r e n o

cold mekes r e doubt v e r y much whether there would
or any difficulty o f getting i t beck


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Federal Reserve Bank of St. Louis

If a n y emergency, s u c h a s a war emergency, s h o u l d arise,
of course i t is--I think i t i s rather difficult t o conesive thet a n y emergency short o f a war emergency would
bring i t back.

I f the war emergency were t o happen, t h e

patriotic impulse would return t h e gold certificates.
Gov. Harding.

M r . Comptroller,

d o y o u care t o s a y

anything?
Mir. Crissinger. I

have b e e n a

very interested listen-

er t o wheat has been said here this morning, a n d I a m sure
that there i s n o person connectec with this body o f men
who would want t o c o anything that t h e y would feel would
not b e absolutely right i n t h i s matter o f taking care o f
the f i n a n c i a l m a t t e r s

o f t h i s country.

O n t h e o t h e r hand,

I feel that w e cannot overlook t h e conditions a n d the
criticism that i s about u s all t h e time. I

a m a Penn-

sylvania Dutchman a n d i t would b e pretty hard t o drive m e
if I thought somebocy w a s just doing i t t o t r y t o drive
me, a n d I feel that this Board could n o t b e driven t o d o
something t h a t was wrong, b u t this organization, t h e
Federal Reserve System,
cannot forget that.

i s a creation o f Congress, a n d w e

I t i s a creation o f Congress, a n d

whatever m a y b e o u r notions about it, thet i t ought t o b e


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Federal Reserve Bank of St. Louis

kept o u t o f politics-—~and
kept o u t o f p o l i t i c s - - y e t “

m c i

mains t h a t u v o n t h e w h o l e t h e r e a r c e

a

c still re-

bunch o f fellows

7 —

that are everlastingly after the Federal Reserve Syst
and i t has been brought about v e r y largely,
by i g n o r a n c e

i n m y opinion,

o f the operation o f t h e Fedcral Reserve S y s ~

tem, a n d some o f i t purely f o r political effect,

yestercay morning--I want t o tell you
I feel thet i t i s important; I

feel

I would n o t b e doing m y cuty t o you i f I did not-—no
+
longer t h a n yesterday morning «

man came t o m y office w h o J

I think ? s the best reader o f public opinion i n the United
States,

a r d said t o m e that t h e Federal Reserve S y s t e m

would b e the issue i n the neat Congressicnal campaign,
of the Federal Reserve System, a n c
particular friend o f thse Federal Reserve S y s
li u s e h i s v e n a n d h i s i n f l u e n c e

t o d o anything t o

make i t c outctending merits Imown t o the people.
So that w e must n o t t r y t o divorce ourselves f r o m
the view,
opinion.

a s B h a t i e s n a t w e a r e n o t amenable
b

honest p u b l i c o p i n

cause I

e amenable a n d responsive
v

i

e

w 1

I

t o public
t o an

a m s a y i n g t h i s be-~

feel that w e ought t o know it. I

feel that w e


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Federal Reserve Bank of St. Louis

141
ought

t o trim our

necessary,

3

0 t h a t

m - ke t h e d o f e

r e can,

i s 2

defense

i s

that vill meet t h e approval

ox the people o f the United Stetes.

Nor, I heven't a n y doubt but what the final issue
be, w h e n t h e v e r d i c t

i s rendered a n d everything i s

known t o t h e public-- i

t h e y d o not I m o w nor-- t h e

verdict +ill b e whth the Federal Reserve s y s t e m g . t
u
b
feel t h a t this bocy o * msn,

h o rep

cial strength o f the Republic, s h o u l d alvsys s p e
the v i e w o f doing right a n d thas the greatest interest o f
all t h e n u b l i c s h o u l d b e conserved.

discount rate, and it has been a rate
ter

o f constant i r r i t a t i o n e v e r s i n c e TIT heve b e e n i n office.

I do not think anrbody hes b e e n moved particularly b y the
constant c r i t i c i s m o f t h e Pederal Res: >
Ped-ral R e s e r v e Banks,

b u t nevertheless

Boa

a n d the

i t i s t h e discount

rate t h a t h a s b r o u g h t s b o u t a l l o f t h e u n f a v o r a b l e d i s c u s -

sion o f the Federal Reserve System-- except
which iI think a r e el] right.
Now, w h e t h e s b e e n t h e m d i t i o n :

W

e have started

system tically t o lorer these discount rates, n o t t o keep u p
vith public opinion, 1

do not think, b u t rith conditions a s


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Federal Reserve Bank of St. Louis

they appesr,

a n d t h e r e s u l t h a s n o t b e e n disastrous.

even a thought o f renevred speculation. I

be a great blessing if we could g .
lation i n c e r t a i n p l e c e s

woulc d o u s good.
and I

I t would b e a n incentive t o business,

Fedural R e s e r v e B o a r c m e n who,

if e

a

n
W E2

c

. i n the
Penowed e f i ort

a r e w i l l i n g a n d able t o s t o p it.

Now, w h a t d o w e f i n d ?
and d l imbing

little renewea specu-

i n the

think t h e t t h e r e s i t esround

at speculation,

think i t would

W

e find a

resorve c l i m b i n g u p

u p a n d nobody c a n g o t o the country b u t what

they hear o f it.

Y o u g o back t o your pecple a n c the people

who r e t h e s e reserves a n d keep t a b o n them, a n d they
cannot u n d e r s t a n d w h y t h e r e d i s c u n t r a t e s h o u l d b e e s i t

am not cuilte willing t o concede that the law of
enc demand ought i n all cases t o regulate it, a n d
I think it coes i n mery many cases, b u t w e are confronted

with a ccncition such, I believe, a s has never occurred

pefore in the United States. a

conéition which

challenges t h e best thought o f the nation, a n d i t chal~

lenges a consideration o f things which w e ordinarily would
Noto,

I

t i s proposed b y the Governor, a n d I

a m entirely


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143
in sympathy v i t h every word h e saic, t o lewer these discount r a t e s

i n N e w York, B o s t o n a n d P h i l a d e l p h t a

t o 4 5 per

cent., a n c a s I look a t m y friend Wills i n the face, a n d
Fancher f r o m m y o w n district, t h a t has b e e n t h e reservoir
of resources f o r this country i n all these crises,
that t h e y o u g h t t o &

4+. I

want t o b e v e r y f r a n k w i t h you,

With all o f the reserve y o u have, e n d I Imow, a s y o u m o w ,
that trere will b e n o speculation ccne i n the Fourth,
but w h a t e v e r t h e r a t e i s t h e r e i s n o h e a r t m u c h f o r s p e c u -

lation. I

a m not s o sure about Chicago. I

would b e willing

to leave it. a t 5 per cent.;, b u t they wilt have difficulty i n
y a five p e r cent. r e c i s c o u n t r a t e s h o u l d p r e vail w i t h t h e r e s e r v e s t h a t t h e y have.

I d o not think i t i s worth while t o ccnsider whether
is going t o b e parsed o n t o the Darower o r nots. I
think. thet i s very much o f ovr business.

i t

do not

I t ought t o be, I

it i s the business o f the Federal Reserve Board
Governers o f the Federa] Reserve Banks t o meke
et

e S accordance w i t h wnat will b e for t h e best
S11 n e C o p e . 8

ae a g e r e s t h e t i f w e d o

not cdo i t now, i f w e l e t i t g o along a t the present rate
which w e have n o w establishec, t h e r e might come a
we would have t o raise them,

and

i t would b e

time when


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Federal Reserve Bank of St. Louis

sing thing t o do.
rlend f r o m California o v e r there. I

think

I s a v o n the C o a s t , s h o u l d

sith your moneys
I am i n entire accord “ith t h e policy
wn D y Governor Harding,
This furthcr thought:

Y o u are gathered here together

for the purpose o f talking over these conditions, a n d there
could not b e anything more inspifting
to h a v e a

t o the people o r the

conesrted a c t i o n o n t h e part

Reserve B o a r d a n d t h e t c l v e MPederal R e s e r v e
discount r a t e e t t h i t i m e

=

e peddle

it

and t h e people never find i t out, s n d i t occurs i n a
“gpapers about that size (indicating),
One b a n k l o v e r s

Ss

Ijusted a l l o v e r
got headlincs,.
the U n i t e d S t a t e s ,

H

a

e p a 7s t i c e t o t h e p e o p l e o f

t o Congress

u p h e r e o n t h e Hill, t h a t

really t h e Pederal “eserve
Bank G o v e r n o r s

d o r u n t h e finences

o f this c o u n t r y

145
N o w , whether that will b e passed

welfare o f all the people.
on o r not, I

« o n o t t h i n k y o u n e e d t o consicer. I

the psychological effect will b e tremendous,
starts a

speculation, I

do think

a n c if it

will b e with Governor Strong a n a the

rest o f the Governors o f the Banks i n raising t h e rates,.
which will stop it.
M r . Mitchell,

tovernor HerCing.

G o you wish t o say any-

thing?
Mr. Mitchell.

No.

Governor Hanlin?
Governor Hamlin.
Governor Harding.

Wo.
D r . Miller?

There e r e o n e o r two words, Governor, w h i c h
I think I might say. I

have b e e n very much impressed b y

what t h e Comptroller h a s said. I

think all o f u s must b e

very m u c h i m p r e s s e d w i t h t h e c l e a r e r a p p r e c i a t i o n

o f our

problems which this Ciscussion o f rate policy has evicenced.
In t h a t r e g a r d i t s u r p a s s e a

m y p r e c e d i n g conference. I

was

particularly delighted a t the frank avowal o f Mr. Strong
thet t h e B r i t i s h c i s c o u n t p r i n c i p l e

o f alweys m a i n t a i n i n g re=-

serve b a n k r a t e s a b o v e g o i n g m a r k e t r a t e s w a s n o t a p p l i c a ble t o A m e r i c a n conditions.


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T h e whole tenor o f the dis-


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146

cussion here this morning indicates above all that there
is increasing appreciation o n the pert o f the managers
of the Federal Reserve S y s t e m that t h e Federal kKeserve
ks a r e p a r t n e r s

i n American i n d u s t r y a n c enterprise a n d

that t h e t o u c h - s t o n e

o f t h e successful operation o f t h e

Federal Reserve Banks i s t o b e found i n what those banks
fo t o assist t h e production a n c distribution o f goods.
They, t h e r e f o r e , f u n c t i o n b e s t w h e n t h e y h e l p t o p r o m o t e
essen-

tial t o thet, a

healthy condition o f mind o n the p r t o f

the business a n d producing community.

I am sure that w e would err egregiously i n t h e acministration o f the Federal Reserve Banks i f w e overlooked
the fact that t h e Federal Reserve System i n our country
ocapies a

much m o r e i n t i m a t e r e l e t i o n s h i p

t o industry

then the Bank o f England does, f o r instance,
ness a n c incustry i n that country.

t o busi-

O u r jucgments a r e

of very much more c o n c e r n s d
n a r e o f very much more e f fect i n their (

i

c e n c e t h a t t h e judgments o f
tution enywhere i n the world.

end this morning conccrning t h e principles governing


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144
discount rates.

L e t m e s a y franizly thet I

a

o : t h e value o f so-called princivles

l a c i ms

is s o much a

a m very skept-

i n a matter

matter o f jucgment based a s i t must b e
3

upon concitions a n d circumstances.

I , myself, would,

ther :forc, b e very hesitent i n laying « o w p r i n c i p l e
in the matter o f d i s m unt policy. I
in c o n t r a c i s t i n c t i o n

may, however, s a y

t o t h e oft-repeatec statement t h a t

Reserve B a n k rates shoulé b e svove market rates that I
believe o u r constant stucy should b e not t o see h o w high
we c a n m a i n t a i n r a t e s b u t h o w l o w w e c a n s e f e l y g o i n e s -

teblishing rates without inviting cangers o f unhealthful
aevelopments

i n business a n c incustry.

T h i s i s not inflas

$ionist Coctrince: t i t s 144 t h e c c o n c m ¢ V i c w .

The cost o f credit i s a n element o f cost o f reproduction.

p r o v i d i n g business a n d credit a r e i n a healthy

concition, there i s n o reason f o r t h e ressrve Danks
doing anything that adds t o the costs o f credit.
incustry C i s c l o s e s t e n c e n c i e s t o v a r d s p e c u l a t i v e e x p a n - "

sion, t h e n i s t h e time t o adc t o the cost o f credit. I
believe t h e t i t i s the ‘part o f wiscom t o recognize t h a t
in the formulation o f a ciscount policy a n e i n the adcjustment o f ciscount rates w o should secl: just a s ear-


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148
as w e s h o u l d t o a v o i d inflation.
m a n e x p a n s i o n o f ecrecit t h a t e v e n t u a t e s

in a rise o f generel prices.

B

y deflation I

mean a re-

straint o f erscit that cventuates i n a fall o f pricés.
Good economic a n d ercdit policy wiil enceavor t o steer
a miccdle c o u r s e b e t w e e n t h e s e t w o c a n g e r o u s shoals.

A ycar o r fifteen months a m t h e business a n d industry

of the country began their cescent from the apex o f specuexpansion i n t o t h e t r o u g h o f d q r e s s i o n b y w a y o f t h e
most v i o l e n t r e a c t i o n o f p r i c e s t h a t w e heave e v e r e x p e r -

tencec i n this country.
‘time?

N o w , where are w e a t the present

W e ere still i n the trough of cepression, b u t w e

are b e g i n n i n g

t o see here a n c there little symptoms

enimeation anc. recovery.

I

of

t would n o t

e concition o f monetary ease develop i n t h e United States
where commercial retes would g o a s l o w a s 4 ; per cent.
I mean market rates,

n o t d i s @ u n t rates

a t the reserve

I hope n o c o n c i t i o n o f e x t r e m e e a s e c o m e s t o pass.

We have, howevcr,

i n former periods o f extreme business
great accumulation o f idle fundsat t h e

great centers,

s o great t h a t n o rate coulc. b e mace l o w

enough t o incuco borrowing, because t h e outlook f o r t h e


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profitable u s e o f borrowed funds was t o o unpromising.
That was true efter t h e crisis o f 1875, a g a i n after 1895,
anc i t mey prove true i n 192] o r 1922, t h o u g h I believe
and I

certainly h o p e t h a t vefore l o n g there w i l l b e a

bus-

iness revival o f healthy character a n c consicerable proportions s u c h a s w i l l malze a

cemanc f o r c r e d i t a n d k e e p

rates f r o m slicing simply because nobocy wants t o borrow.
I thin:

t h e p r o b a b i l i t y i s that f o r a

come, certainly I

good m a n y y e a r s

to

believe f o r

period a s lon:

very rapidly shifting scenes
world. I

look for very frequent alternations o f ff riods

of s h o r t - l i v e d

a n c f e v e r i s h a c t i v i t y dv i n b u s i n e s s

and

incustry followed b y periods o f acute, s h o r t - l i v e d:
d
pression.

I n other words, industry will have t o travel
Such has usually b e e n the case after e l l

great cconomic crises incucec b y great wars.

T h a t was

true a f t e r t h e N a p o l e o n i c w a r , w h i c h s u p p l i e s t h e n e s r e s t
analosy t o t h e v r e s e n t situation.

1875 when reac justment followed a

I

t was also true after

bacly Cisturbed ¢ fn

five years, a n c o n n o o n e o f these o c the w h o l e s t r u c t u r e

o f incustry a n d commerce


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150
of t h e l e e c i n g p r o c u c i n g c o u n t r i e s

s o bacly cislocated

at t h e p r e s e n t time.

We have g o t t o v e prepared, therefore,

t o Ceal with

concitions a n g circumstences a s they cevclop a n d not
accorcing t o fixed principles.
always s t r i v e t o m a i n t a i n

mint.

in @

i

s means that w e must
Federal Reserve S y s t e m

O u r principe. preocm pation,

I repeat, shoule b e t o ceal with concitions enc. circumstances rather t h e n with principles.

W e have g o t t o d o

st what 2 wise physician Goes when h e a t times hesitates
a patient s

small c o s e

o f some powerful

mecicine

times Coes n o t hesitate t o give h i m e very
heavy cose.

‘ v e have g o t t o base o u r judgments a n c bottom

our p o l i c i e s u p o n f a c t s r a t h e r t h e n u p o n preconceptions.
Now, « e t t h e moment, w h e t i s t h e o u t s t e n c i n g f a c t i n t h e
incustrial situction?.

I t i s that incustry

fer cown i n the trough o f Cepression.
.8 t o a

i s still-pretty

w h a t coes this

proper r a t e p o l i c y a c j u s t e c

t o ciraim-

of the opinion t h a t a t the present time
no r a t e a t oc Federal R e s o r v e Bant: c o u l c D e m a c e s o L o w

thet i t woulc. induce borrowing f o r t h e selte o f what would
be callec illegitimate uses. B a n k s c o not borrow f r o m


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151
the F e d e r a l R e s e r v e B a n k f o r f u n o r s i m p l y b e c a u s e m o n e y i s

cheap.

N o r c o merchants a n d manufacturers borrow f r o m

their b a n k s s i m p l y b e c a u s e m o n e y i s cheap.

Y o u c a n lead

a horse t o water b u t y o u cannot make h i m drink.

W h e n he

will n o t Gdrink y o u c a n n o t r e g u l a t e t h e a m o u n t h e m a y d r i n k

by regulating t h e amount i n the trough.
pretty m u c h w i t h r e s p e c t

A n d s o it is

t o the relation o f money rates

at Federal Reserve Banks.

I t is when things are o n the

upwarc m o v e t h a t t h e F e d e r a l R e s e r v e Banit c a n become a

very

real influence i n restraining what i n its judgment i s a n
unhealthful a n d undesirable tendency,
rates.

b y advencing i t s

I t can, i n other words, through a

wise a n d timely

epplication o f i n c r e a s e d r a t e s d o m u c h t o restrain,

altogether t o prevent inflation.

i f not

A t the present time,

.

however, t h e r e a r e n o undesirable tendencies o f this tind
in the business situation. ’

a n d i t needs

whatever modicum o f comfort a n d support i t can g e t from a
cheapening o f t h e c o s t o f credit.

There h a s b é e n some discussion here o f the influence
actually exerted b y Reserve. B a n s ! r a t e s u p o n the ratcs
customers

ference

o f member benks.

T h e r e

o f opinion a s t o h o w extensive

i s some dif-

i s the influence


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Federal Reserve Bank of St. Louis

exerted b y changes o f Reserve Bani: rates.
fair reading o f the
in o n e w a y o r another

I o think

ming o f t h e C o n f e r e n c e
cost

the a c t u a l

ers a t this t i m e i s i n f l u e n c e d

t o say a

o f credit

t o borrow-

b y Reserve B a n k rates

to

a sufficient depree t o make i t necessary for u s to recoge

z
i
t h e bearing
t h a t Reserve
B a nn k rate ¢ hanges have i n }

the i m m e d i a t e e c o n o m i c e n d i n d u s t r i a l situation.

W

e have

got t o recognize t h e fact that w h e n business i s b e 4:
the p r e s e n t t i m e o n v e r y n a r r o w margin,
n o r su
ob t r a c tii o n o ft 1 k

i
or 1

a n

w rc c e n t .c i n t hae c o s t

of borrowed funds i s 2 matter o f a great deal o f moment.
A refuction o f Reserve B a n k r a t c s

i n such circumstances

may

consicersable effect i n m i c k e n i n g t h e pace o f indusin a c c e l e r a t i n g s
t
i revival.
it n o t a t a l l u n r e a s o n a b l e

O n t h e o t h e r hand,

t o anticipate t h a t

within oa period o f a year, o r even possibly six months,
we m a y h a v e a
the c o u n t r y

spurt o f a c t i v i t y

i n certain portions

a t least that will male

a firmer g r i p o n the reins.

of

H t very cesirable

W e m a y even s e e specu-

lative a n c i n f l a t i o n i s t t e n d e n c i e s G e v e l o p t o a

where i t will b e advisable t o press o n the curb.

point


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not, h o w e v e r ,

T h e runaway

t h e s i t u a t i o n s t t h e moment.

has b e e n b r o u g h t

to a

standstill,

we t h i n k b y doing s o h e

civing h i m a little f
show s o m e d i s p o s i t i o n

l e t u s relax our

t o m o v e along.

I a m cisturbed b u t not surprised b y what t h e Comptroller
has reported o f a recent conversation with a
whom h e r e g a r c s

as a

come t e n t i n t e r p r e t e r

congressional o p i n i o n . I

gentleman

o f public a n d

have r e c a l l e d a

great m a n y t i m e s

to myself i n connection with t h e perils through which t h e
Federel Reserve System has been passing i n recent months,
what i t was that really brought t h e Second B e n o f the
United States t o the brint: o f cissolution.

A s i c e from

the m a s s o f r a t h e r seconédery p o l i t i c a l a n c
cherges,

i o n a l

i t was t h e greet exps s i o n o f crecit supported

by

that institution i n the year 1852 followed b y the violent
contraction o f e r e c i t in the winter o f 1835-4.

T h i s begot

in the minds o f people, n o t all o f whom were sympathetic
with A n é r e w Jaci:son i n h i s a t t a c k a g a i n s t t h e Bank, t h e

conviction that t h e Bank heda too much power, t h a t i t was
an arbiter o f economic destiny, t h a t i t could make o r mar
the p r o s p e r i t y o f t h e c o u n t r y b y a s s u m i n g a
41.biberal a t i z e t u c e i n : t h e m a t t e r

o f crecits..

lineral
< 2

or


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Federal Reserve Bank of St. Louis

154
therc a r e s y m p t o m s t h a t n o t a

f e w people

i n the Unites

t
t
S
"
a t t h e ep r e s e n t t
i m e a r e a o f e c similer
opinion w i t h

s

roference t o the Federal Reserve system, I

thini-: the

influence o f the Federal Reserve System i s i n canger o f
being over-emphasized b o t h b y its enemies a n d
friends.

I t i s important, therefore, t h a t o u r policies

shoule b e carefully a n d quict:ly acijustec. t o the trend
of
concitions i n orcer t o minimize t h e baneful effect o f
either exaggerstec criticisms o r unwarranted expectations.

T h e yveople s r e i n «

certein s e n s e peartners,--

sometimes silent, sometimes active,--in t h e
serve System, e n c what t h e y think

w h a t t h e y believe,

what they hope o r what t h e y fear i s a factor n o t t o b e
overlooked

b y us.

[Thave stated a good manyPid times i n Federal Rescrve discussions that i n my judgment the word contraction had n o
place

i n t h e voceanulary o f Federal K e s e r v e banting.

N o t h -

ing i s surer than that the American people will
never
stané contrection i f they i m o t h a t i t c a n b e helped.
ey stanc contraction.
contraction a

h e E

o

Least

i f t h e y think i t i s

r with t h e consent of,

an

ieserve System, s e t u p under
ility a n d char~


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Federal Reserve Bank of St. Louis

155
I a m glad, therefore, t h a t t h e Comptroller h a s
brought into this discussion t h e fact that t h e people a r e
partners w i t h us.

B u t l e t m e a d a b y w a y o f caution t h a t

I G o n o t m e a n b y t h i s t h e t w e m u s t l e t "politics"

into

the Feceral Reserve System.

There i s a great Cifference between “politics” a n d public opinion.

T h e less w e have o f "politics" i n the Fed-

Reserve S y s t e m t h e p e t t e r f o r t h e R e s e r v e B a n k s a n d
people.

y n h e l o n g run, h o w e v e r ,

t h e Federal

System will n o t sueceed a n d i n m y judgment will
right t o think i t i s succeeding unless i t has t h e
substantial a p p r o v a l

o f s v e r a g e p u b l i c opinion;

this r e a s o n principally:

a n c for

t h a t p u b l i c s e n t i m e n t a n d public

opinion i n economic a n d financial matters i n our country
reflect t h e experiences, t h e conditions a n d t h e difficulties t h e procucing elements o f the population a r e going
through.

T h e thought o n public matters o f a n economic

character o f the average American i s formed b y his caily
experience a s a breadw
factor o r c i r c u m s t a n c e

o r m o r e t h a n b y any other q d ngle
o f his

E

e

fact thet t h e Federal Reserve Banks a
incustry, i n a g 3

G

W

e cannot ignore t h e

f a c t o r in

i n commerce.

Still le


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Federal Reserve Bank of St. Louis

156
can w e i g n o r e

t h e fact that this

i s believed

a n c under-

S e rfact
j ee cannot
cannot i
i g n_o r e thse

average
stood bb yy tthhee a
stooa
e e M A N .W

thet stetes o f trade a n d industry e r e vory largely influencec b y stetes o f mind.

i

y£

all c a n w e ignore t h e

fact t h a t a t c e r t a i n t i m e s t h e p o l i c i e s , p a r t i c u l a r l y t h e

ciscount policy, o f the Federal Ranks can influence and
in¢uce s t a t e s

o f mind.

T i m e l

$

s

o f action

essence o f s u c c e s s f u l F e d e r a l r e s e r v e action.
,

o
i
t
above na l l means
timely
action.

i s o f the

R i g h t

c Herein Ia

think

System h a s n e e d o f improvement. {
I can t o emphasize w h a t t h e Governor

said i n his opening remerks,

i f I got his meaning,--that.

our action i n the matter o f ciscount changes has frequently
been t o o slow.
followed w h e r e

A s I woulé p u t it, w e have t o o freaqusntly
w e should leac.

Action

o n the part

of 4

Federal Reserve Bank i s valuable i n just the cegree i n
which i t correctly anticipates either 2
ward s w i n g i n t h e m o v e m e n t

p w a r d o r cown-

o f b u s i n e s s a n c credit.

g e e

is a dangerous proceecing t o weit till y o u are o n & d o w n
grade anc. then j a m the brates o n sudcenly.
yo ur brelkes w h e n y o u s e e w h a t
Re serve

i s going

B e g i n t o set

t o happen.

N

o

B a n k c a n develop a s uccessful discount policy ex-


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Federal Reserve Bank of St. Louis

cept o n t h e b a s i s o f foresight.

we
lie should l e a d upwerds i n the matter o f rates a n d
should l s a d Cownwards.

or mitigete inflation;

W

e should l e a d upwerds

t o prevent

w e should lead covmwards t o prevent

licuidation f r o m becoming @
We should n o t hesitate f o r a

moment t o rec

we believe t h a t conditions a r e w e
proceeding, e n d business slackening, J

a

s w e should

not hesitate w h e n w e s e e that business i s swelling unhealthily e n d its momentum i s being accelerated b y unhealthy market concitions,

t o anticipate a n d b y antici-

pating t o p r e v e n t t h e i r c o n s u m m a t i o n

i n Gisaster

by

applying t h e b r a k e s s o o n e n o u g h t o p r e v e n t t h a t e x t r e m e

peing reachec.

T h e Federal Reserve System cannot "male"

to
the b u s i n e s s s i t u a t i o n b u t i t c a n G o a n i m m e n s e cGeal
make i t s e x t r e m e s l e s s p r o n o u n c e d enc. violent.

Tt has beon very interesting t o me, e s one who has
devoted most o f his time t o the study o f esonomics e n d
economic history t o note w i t h what unerring certeinty what
are callea business cycles recur. I

have often woncsred

how l o n g i t would take t h e business m a n a n d the banker
+o a p p r e c i a t e t h e b e a r i n g o f t h e b u s i n e s s c y c l e u p o n


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158
him.

I t has long been recognized b y economists t h a t

modern business moves through cycles; t h e t o n e extreme
of the cycle i s the phase o f violent speculation giving
rise t o extreme business tension a n d collapse o f prices,
that t h e o t h e r e x t r e m e

i s t h e t r o u g h o f depression,

as w e are i n a t the present time.
general o b s e r v a t i o n ,

call i t a

such

I f I were t o make o n e

principle,

i f y o u prefer-~-

thet makes i t sound a little more impressive--it would
pe that t h e discount policy o f the Federal Reserve Banks
shoule s l w a y s a d d r e s s i t s e l f

t o t h e phase o f the business

cycle through which t h e country happens t o b e passing.
In the degree i n which i t i s successful i n correctly interpreting t h e trend o f affairs a n d anticipating t h e approan

of the next phase o f the business cycle and translating
this i n t o i t s e q u i v a l e n t

i n t e r m s o f d i s c o u n t policy,

the

reserve system will b e a great a n d useful institution--

I see t h e Federal R o s e r v e Banks i n their larger economic r e l a t i o n s

a s moderators.

I t i s t h e business

of a

Federal R e s e r v e Bani: t o m o d e r a t e t h e p a c e o f business w h e n

business i s very good, because experience has demonstrated
over a n d over again that when everybody thinks a n d feels


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that business i s very goot., i t i s selcom a s good a s
hought.

O n the other hand, i t i s the business o f the

Federal R e s e r v e Bantzs t o m o d c r e t e t h e r e t r e a t

o f business

when business i s getting bac, because experience
a y t h a t business n e e d never g e t

onstrated t i m e a n c

it will i f i t i s allowed t o g o its cownward cours:
If I

correctly i n t e r p r e t t h e temper o f t h i s

conference, m u c h has been saicG that i s extremely reassur-.
ing thet w e a r e looking i n the right cirection i n the
b e l i e v e w e understand o u r o p -

System,
portunities

a n d o u r responsibiiitics.

A b o v e e@11 s h o u i d

we unccerstane t h a t w e m u s t o u r s e l v e s d e v e l o p i n d e p e n d e n t l y
out o f o u r o w n e x p e r i e n c e a

e must recognize t h a t t h e condi-

W

American concitions.

discount p o l i c y s u i t e c t o

tions w h i c h o b t a i n i n t h e U n i t e d S t a t e s a r e d i f f e r e n t f r o m

those t h a t obtein anywhere e l s e i n the world; cifferent
from those which obtain i n a n old a n c conservative b r n k
center like =nglanc o r i n a new anc untamed country lixe,
W e i n t h e United states n e e d

let u s sey, Argentina.
to t a k e

a n economic

PecGeral R e s e r v e

view

o f the ciscount function

B a n k anc w e necc

comprchonding s e n s e .

W

o f the

t o co it in @

e neea t o c o i t i n the spirit


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160
of t h e F e d e r a l R e s e r v e

A c t itself.

I t i s well

t o recall

the words o f t h e t Act ( I have often wondered w h o
sponsible £
14, w h e r e , A

h e i 2Authorshir

T h e y o b c u r iIm=sectL0Nn

iG p

n

e R e s e r v e Benics

anc. R e s e r v

shall b e f 1

“with a view o f accommodating commerce a n d

business",
Whet Goes “accommodating commerce a n d business" mean?
I will n o t u n d e r t a k e .
t
o explain what I
worcs t o mean further t h a n
whot I

heve said. I

uncerstanc these

h e \lreacy b e e n suggested i n

will, h o w e v e r , acc. t h a t t o under-

stanc what “accommodating” commerce anc
have t o understend w h e t c o m m e r c e a n t b u s i n e s s require.

By wey o f illustration I will a d d that y o u d o not accomo-

date commerce and business p y high rates when four million
men a r e o u t o f employment e n d business i s s i c f o r

cf markets a n d mariets are lacking because the world i s
more o r less i n commercial

O

n the other hanc, y o u

are n o t eccommodating commerce o n d business i n a n ¢6¢o~
nomic sense a n d i n thet large public sense which should
control t h e c e c i s i o n s

o f t h e Federal Reserve S y s t e m

when y o u allow a rate t o drag o n a t a n artificially l o w


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161
level

at a

time w h e n b u s i n e s s

i s speeding o n the upgrade

so rapidly that i t can only b e a question o f time when i t
will tale a

heaclong plunge i n t o a

will involve t h e whole community.

sea o f Gepression which
7

a

3 t h e situation

in 1919,
speaking specifically about t h e rate schedule suggested
by the Governor this morning, I
one fact.

want t o call attention t o

F o r m y personal i n f o r m a t i o n I

have h a d a

wr-

céntage computed f o r t h e Federal Keserve System which shows
28. rve percentages w o u l d b e i f the System wore still
operatings o n the 1
words,

golc reserve a s a year a g

I

n other

s o a s t o show t h e degree o f improvement i n the re-

serve position o f the system due t o liquidation o f the loan
account.

W h e t coes this computstion show?

I f w e compute

the percentage o n t h e basis o f what i t would b e had thero
been n o i n e r e a s e

i n gold holdings a n c t h e reserve position

consequently h a d been affected o n l y b y the diminution o f
the l o a n account,

t h e System woulé s h o w

ege t o d a y o f a p p r o x i m a t e l y

5 2 pe

other worcs b y far t h e greatest m r t o f the improvement
of the resorvs s i t i ;
liquidation o f t h e

the S y s t e m has come n o t f r o m

a n eccount b u t from importation o f gold.


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This i s particularly true o f the Reserve B a n k o f N e w Yor':.
That Bank shows a

reserve percentage o f 83.

O n the basis

of the liauidation o f the l o a n account alone, i t s reserve
percentage would b e computed a t something like 4 6 o r 4 7
per cent. A

computetion o f this kinc made f o r each o n e

of the twelve reserve benks will s h o w which banks have i n

the vernacular o f banking improved their reserve position
by “cleaning up" and which appear t o be strong largely
because o f heavy accitions o f their g o l d holdings. I

would

be inclined t o suggestion i n connection w i t h the Govern-

or's proposal, the consiceration of this thought: that i n
making a

general revision o f Keserve B a n k rates, those

s, I think they are four o r five i n number, t h a t show

the greatest amount o f cleaning u p during the past year,
that s h o w t h e g r e a t e s t i m p r o v e m e n t

i n their reserve p o -

sition through liquidation rather t h a n through increased
gold holdings, s h o u l d b e t h e leaders i n any Cownward r e vision o f rates.
While o n the subject o f reserve rates l e t m e express m y
opinion i n p a s s i n g
day's c o n f e r e n c e ,

the F

i n answer

that I

to @

question a s i e c i n yester-

regaré. t h e r e s e r v e p e r c e n t a g e

of

a l Reserve Banizrs a t the present time eas a pretty


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163
worthless i n d i c a t o r

o f d i s c o u n t policy. I

regard i t

as almost worse t h a n useless e s a guice t o changes i n
Giscount rates.

I t i s utterly misleacing a n d will b e u n

gome considerable number o f leading commercial countries

are operating upon something l i e a gold basis.
we a r e likely t o experience a

[ I think

gooc deal o f embarressment

over t h e roserve banks showing a

high reserve ratio sim-~

ply beceuse they are the dumping ground of the world's
gold.

T h i s will occur when w e g e t u p against a

tion w h e r e
to u n d e r t s k e

situa-

i t will b e g o o d banking a n d economic p o l i c y
t o control t h e e x p a E

e d

y

a Vise

of rates. S o o n e r o r later, a n d I thin’: sooner rather than
just
later, w e shell f i n d ourselves confronted with/such a

situation, a
into a

situetion which unless controlled will develop

secondary inflation a n c culminate i n a secondary

crisis. U n l e s s w e e r e forchended a n d resolute enough
to a p p l y r a t e p r e s s u r e b e f o r e b u s i n e s s a n c c r e d i t e x p a n sion g e t s t o o m u c h headway,

a n d this q u i t e ivrespective -

of how high o u r reserves may. happen t o be, there will b e
trouble.
With regard t o the matter o f gold policy touched o n
in the Giscussions t h i s morning, I

may s a y that I do


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Federal Reserve Bank of St. Louis

164
not feel very much enthusiasm f o r the suggestion that
gold o r gold certifigates shall b e p u t into circulation
to a n amount o f a

hundred

o r perhaps o n l y f i f t y millions.

If we are going t o restore gold t o circulation, let's d o
Lt boldly, n o t hesitatingly.
tem has reached a

T h e Federal Reserve Sys-

position, I

think, where w h e n i t moves

it s h o u l d m o v e o n s t r a t e g i c l i n e s ,

lines.

n o t o n merely tactical

W i t h respect t o gold, a s with respect t o dis-

count rates, l e t u s take a
manouyer timidly.

I

big a n c broac position a n d not

t i s m y belief a n c certainly m y

hope thet t h e golG which w e have receivec i n unprecedented volume i n the last year w e hold essentially a s
economic trustees.

T h e poorest u s e t o make o f this

gold i s t o put i t into circulation i n this country.

The

best use w e c a n make o f i t i s when t h e situation i s right
for s u c h i n t e r v e n t i o n

t o use i t t o help t h e restoration

of the currency i n surope a n c the restoration o f the gold
standard t h e r e i n a t l e a s t s o m e q u a l i f i e d form.
shall u l t i m a t e l y h a v e t o t a t e a

very p o s i t i v e p a r t i n

the f i n a n c i a l a n d e c o n o m i c r e c o n s t r u c t i o n

o f Europe.

Part o f our assistance will, I believe, tele the form
through specified g o l d loans, o f sencing some o f the


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165

gold w h i c h w e h a v e r e c e i v e d d u r i n g t h e c u r r e n t y e a r i n

such huge amounts, baci: t o Zurope t o b e usec i n effecting currency reorganizations there.

T h e movement o f gold

into t h e Unitsd States i n 1921 i s ebsolutely without
paralicl or. precedent.

T h e countries w h i c h have s e n t u s

this gold have sent it not because they are rich, not
because t h e y can a f f o r d t o Cispense w i t h i t i n their curorganization, b u t because a

crisis h a s

reached i n their financial relations w i t h u s a s a
result o f w h i c h a n i n c r e a s i n g p r o p o r t i o n

o f business h a s

got t o b e conducted o n a cash basis.

third, perhaps more, o f the excess o f
sent t o Europe c u r i n g t h e c u r r e n t y e a r h a v e b e e n p a i d f o r

with gold. s

is a very serious situation.

ments seriously restrict business.

C a s h pay-

N o r c a n trede g o o n

in considerable volume i f the existing rapidly a n d violently fluctuating exchanges C o not find correction.

B u t

there c a n b e n o c o r r e c t i o n e x c e n t a s s o m e g o l d i s p u t i n t o

the founcations o f the currency structures o f the n o w cis~
tressed countrics o f Europe.


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166
its vaults where i t now i s mobilizec a n d whence i t can
be readily mobilized f o r use clsewhere w h e n t h e moment
errives, a n c n o t t o Gemobilisze it. I

should b e very sorry

‘

to s e e t h e R e s e r v e S y s t e m p u r s u e a

policy w h i c h i n d i c a t e d

lack o f comprchension o f thse situation i n Europe, lacir o f
appreciation o f our reletion t o it, l a c k o f
of the obligstion which w e must sooner o r
leck o f a p p r e c i a t i o n

o f t h e stark f a c t that w e a r e going

to a s s u m e t h a t o b l i , a t i o n w h e t h e r

T repeat w e a r e

interest a s ¥

w e n o w intenc

t o c o i t because

2

posal, t h e r e f o r e ,

t o o r not.

w e must i n our o w n

3 i n the interest o f surope.

T h e pro-

t o teke t h i s g o l d o u t o f t h e vaults

of

the Reserve Banks a n c cissipete i t b y putting i t into circulation t o m y m i n d m e a n s e i t h e r t h a t ‘7e l a c k c o n f i s e n c e

in our ability t o restrain a n expansion o f crecit when w e
show a high reserve (shoulc s u c h restrain become cCesir-~eble) o r because w e are proceecing a s theorists i n the
atter o f our gold policy anc. slavishly adopting t h e principle t h a t t h c r e c a n b e n o g o l d s t a n d a r d

in a

country

unless i t is buttressec b y « consicercble dispersion o f
gold j n the pockets o f the people.

It o p i n i o n that there will b e no golé standard


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Federal Reserve Bank of St. Louis

>
qualifiee
restoration o f the golc

of Hurope.

S

4
o l o n gE> a sa g o) 3l d m o v e s a s i t n o w Coes,

n o t as

a normal instrumentality o f commerce b u t a s t h e instrumentelity o f t h e pawnbroker,

t h e r e i s goil

b

e n o golad stand-

ard i n a regulatory sense.
While i t Goes n o t pertain t o the present Ciscussion, I
am, n e v e r t h e l e s s ,

tempted

t o inculge m y s e l f

i n this c o n -

nection t o express t h e thought that t h e Federal Reserve
Gonference having clarified t h e etmosphere w i t h regerd t o
erecit c o n d i t i o n s e n d G i s e o u n t policies, c o u l d n o t d e v o t e

thought more usefully t h a n t o investigate a n d study
what t h e r e i s t h a t w e c a n u s e f u l l y d o t o h e l p t h e r e s t o ration

o f a better c u r r e n c y e n c e x c h a n g e c o n d i t i o n

in

Europe a n d t o devise s o m e plan f o r intervention w h e n t h e
moment

i s r i p e f o r i n t e r ention.

a

m inclined

t o thint:

thet the time i s not far o f fwhen something can end should
be cone.

I f a general c l a r i f i c a t i o n a n d improvement o f

the general international situation follows t h e confer-

ence t o be held i n this city next month, i f something
4s d o n e

t o elter

t h e practices

a n d policies

which have

given rise t o the neec o r the supposed ’ n e c c o f extrava-


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Federal Reserve Bank of St. Louis

gant expencitures f o r armaments, anc. furthermore i f something i s cone t o show the mischievous a n c obstructive effect
of economic a n c f i n a n c i a l b a r r i e r s b e t w e e n countries,

the

time w i l l b e near when something c a n b e uncertelren t o
initiate e

constructive program o f curreney a n d exchange
A s the strongest nation i n the world a n d

restoration.

as the custodian o f the greatest gold hoard that has eer
been m a s s e d

i n a n y single control

aom, t h e o b l i g a t i o n

i n t h e h i s t o r y o f Christen-

t o blaze t h e w a y - - t o

c o t h e thinking,

t o

do the planning, rests with the group o f men who are assemble
in this room.

Governor Herding. M r . Hamlin, con't you want t o change
your mince and s a y something?
Governor Hamlin. I

shell h a v e v e r y l i t t l e t o say.

[ I

am i n entire accor’ with every worc that Governor Harcing
has said. I

should much prefer, however,

t o see these

reduced retesinitiated a t New York. O t h e r w i s e ,
benks

i f other

i n the country lowcr t h e i r rates a n d a r e folloved

by N e w York,

i t woulda g i v e t n e a s p e c t o f rivalry,

and

another agitation m a y start u p t o lower rates s t i l l fur-

eceuse o f t h e lowering o f the New Yori retes. I
the logical w a y i s for t h e N e w Yori Benk anc t h e


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Federal Reserve Bank of St. Louis

other benks similarly t o start o f f b y fixing t h e rate
that they believe t o b e wise, a n t t h e n for t h e other
banks t o determine t h e matter f o r themselves.

s

e

not f o r a minute believe t h a t the discount rates should
be uniform throughout t h e United States o r throughout t h e
believe,

twelve Fecsreal Reserve Banks. I

a s Governor

Strong showed i n his ecmirable testimony before t h e
Joint Committee,
modity.

t h a t credit after a l l i s simply a

i a c h b a n k manufactures creait.

com-

T h e member

banks w h e n they neec e n extra supply b u y i t wholesale f r o m
the Reserve Banks, e n d i n turn sell i t a t retail,
thet t h e r e d i s c o u n t p o v e r g i v e s

ty that i t c a n get more

t o e n y b a n k i s t h e certain-

h a t commocity w h e n i t needs

it, b u t i t does n o t necessarily follow thet i t should
sell i t a t the same price a s i t woulé f o r a commodity
nage o u t o f its o w n resources a n d not borrowed f r o m the
Federal Keserve Banis I

firmly believe o t the presont

time that this proposed lowsring o f rates will

st valuc t o business, industry and agriculture
throughout t h e U n i t e d States.
passed 2

g

t o the consumers

I t m a y n o t b e immediately
o f t h i s commoaity,

but in

the long r u n i t makes i t possible f o r the c o n a m e r s

oe


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Federal Reserve Bank of St. Louis

170
credit t o get some benefit f r o m that lewer rate.

[ I

feel a t t h e present time that that old motto, " H e
gives twice who gives quickly", i s the motto which we
ought t o follow todey. I

believe w e a r e able f r o m every

point o f view t o give this rate reduction t o the member

benks.

J I feel very strongly, too, a s does Dr. Miller, a n d

I think all o f us, that the Federal Reserve System i n a
crisis s u c h a s the present, o u g h t t o lead.

[ I cannot

edopt the theory, however, thet w e should lead o n a fiery
charger when we put u p rates, b u t that w e should b e dragged along like a
rates. I

dend automobile w h e n w e reduce o u r

think w e should lead i n both directions, b o t h i n

raising and i n reducing rates.

B

y lowering our rates

today w e shall give a n opportunity t o that competition
among commercial b a n k s which i s necessary i n the long r u n
to reduce interest rates, w e must never forget that,
although i t i s t r u e t h e t d e m a n d a n d s u p p l y i n t h e l o n g

run regulate t h e price o f a n y commodity, credit o r anything else, w e must n o t forget, I

repeat, t h a t t h e people

of the United States, when t h e y enactec the Federal Reserve Act, had grave doubts, t o speak milcly, whether
aemand a n d supply elways d i d regulate interest rates a n d


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Federal Reserve Bank of St. Louis

py B
S
discount rates throughout t h e Unitec States,

e n d they

created Federal Reserve Benks a n d they created a

Federal

that Boarc. they vestec. t h e centralized power which t h e y feared t o give b y making o n e central reserve b a n k with twelve o r fifteen o r whatever t h e
number was, o f branches. I

firmly believe t h e people

of t h e U n i t e d S t a t e s e x p e c t o u r B o a r d a n c t h e R e s e r v e

Benlis t o b e regulators o f crecit.
limitec powsr,

T h e y give u s a very

t o b e sure, t h e open market power, a n d t o

my m i n t t h a t p o w e r w a s n o t s i m p l y t h e p o w e r t o m a k e e a r n -

ings b y getting investments w h e n there were n o dism unts.

the intent o f Congress went very much further
then thet.

I t was t o give u s a great power o f regulation

through t h e o p e n market retes.

Now, I believe i f w e do not leac, t h e next move that
will b e i n i t i a t e d
Reserve B a n i s

i n Congress w i l l b e t o g i v e t h e F e d e r a l

t h e power

t o fix maximum Giscount

member benks throughout t h e United States,

rates

o f

o r failing

that, t o expend t h e o p e n market power s o thet w e c a n not
.

only b u y bills, b u t that w e c a n also b u y notes,

believe was provided for i n the Alérich Act. I

cert-

ainly feel that w e ought t o lead, t h a t n o w i s the time


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Federal Reserve Bank of St. Louis

L72
to leac. b y lowering these rates a n d thereby meke i t eas~
fer

f o r member banks

t o compete

i n the o p e n market f o r

. course I J believe will inure t o the
benefit o f the people o f the United States.

Governor Harding.

M l i f e l l , woulc you not like t o

say 8 word?
Mr. Mitchell. [

dia n o t e x p e c t

proposition, b e c a u s e I

t o s a y anything

o n this

had n o t been i n W a h ington l o n g

enough t o really understand it. I

thought I

imew a great

a

deal m o r e a b o u t i t w h e n I

first c a m e C o w n there, b u t I

firmly o f the opinion that t h e longer I

am

stay and t h e more

I heer t h e less I ‘now.
fhere seems t o b e ean opinion among some o f those w h o m
Ihave talkec w i t h this morning that public
to govern o u r rate policy. I
public opinion hes nothing

ness concitions that ought t o regulate our rate-making policy.
an abnormal s i t u a t i o n c o n f r o n t s t h e c o u n t r y

absolutely impossibic t o mele any formula
I a m i n favor o f Governor Herding's argument

a tendency t o lower the rates along the line. I
Should b e a < e r e n t i a l , a n d I think that the

schecule that h e has suggested

i s a sounc one. I thint: the

173
policy w h i c h h
e has given u s t o consider i s a very sound
one t o follow.
taken a

position t h a t t h e r a t e s s h o u l d

originate w i t h the different Federal Reserve Benks.
as Governor Harding a s stated t h e Boerd h a s a
from t h e a t t o r n e y General, r e n d e r e d a

While

strong opinion

couple o f y e a r s a g o ,

to

the effect t h a t t h e Board has t h e
Boarc has, a s you all Imow, never taken ndvantage o f that,
and I

nope i t w i l l n e v e r h a v e t o .

be governed b y what t h e )

n

h

Reserve Benks believe i s the r i g

k v e w i l l have. t o

e different Federal
t

o follow i n their

listricts, a n d I want t o s a y that i f they come d o w h e r e w i t h
& proposition t o reduce thsir rates along t h e schedule which
has b e e n suggested, I

shall vote i n favor o f it. I

believe

conditions certainly justify t h e reduction o f rates i n some
sections. I

know that a

reduction i n the Minneapolis dis-«

trict i s t h e o p i n i o n o f s o m s o f t h e b e n k e r s o u t t h e r e
€ are certain

other conditions t h a t will perhseps induce t h e m t o change
Ghels o p i n orn,
Jigece peesBe i

think I

have t o say,
v

Gov. Harding. Gentlemen. t h i s situation i s not going t o
pertein t o a n y p a r t i c u l e r Ccistrict. I


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Federal Reserve Bank of St. Louis

want t o a s k m y c o l l e a g u e s


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Federal Reserve Bank of St. Louis

174
on the Federal Reserve B o a r d i f they woulc have a n y o b j e c t
ion t o e x p r e s s i n g t h e m s e l v e s

a s t o the propriety o f in-

viting Mr. Rue, t h e President o f the Federal advistory Council, t o send his executive committee t o meet with u s
on next Wednesday.

T h e y are a

statutory body, a n c a n y

change o f this sort I think w e should have their advice a n d
support o n .

Gov. Strong. W h i l e w e have n o proposal w i t h regard t o

rates i n New York, there are realfy very important considerations t h a t should move us.
Gov. Harding. I
Gov. Strong.

understand that.

T o act immediately efter t h e certificate

issue.
Gov. Harding.

Y o u need n o t wait f o r t h e Advisovy Coun-

cil's meeting with us, b u t that i s just o n e reason I wanted
them here a s soon a s possible.

T h e y are just a

little b i t

sensitive about these matters, a n d i f a general rate policy
was edopted and all o f these changes made and they come
here a n d w e tell t h e m o f i t a t their regular meeting o n the

2lst o f November, t h e y might say “ive have already asked you
repeatecly

t o let u s imow when y o u have anything

i n mind

we will send our executive camnittee here t o confer with
youl,

m d

175
Gov. Strong.

O n the point o f the rate a t New York, I

Go n o t w a n t t o p r o p o s e a

change t h e r e t h e t w i l l b e e m b a r r a s s -

ing, either t o your program o r esre cially embarrassing t o
bank, b u t what w e would do, unless i t
provec t o o u n w i s e

as a

result o f t h i s d i s c u s s i o n ,

would b e t o

act immediately after this certificate issue w a s placed,
we dic i

a n d i f w e cdo not w e are going t o

lose some advantage o f the program which w e have consistentcn following f o r some months, w h i c h i s partly actual,
rectly w i t h t h e m r k e t ,
psychological,

i n

2 G w ea

n

a n d partly

e v e r y minute t h a t condi-

tions arise which justify it, which w e ereate largely ourselves, a n d I

a m v e r y sure that i f w e pestpone considera-

tion,.for another w e e k o r t e n 4

o

r two weeks, t h a t w e

are going t o lose o n e o f the advantages.
Gov. Havding.

T h e meeting o f the executive comnittee

of t h e F e d e r a l A d v i s o r y C o u n c i l n e e d n o t i n f l u e n c e
the
action o f a n y

referring t o the discussion t h a t
AVE Some other banks a c t first.
I can see en.acvantage i n some sections
if t h e N e w Y o r i r a t e w a s r e c u c e d f i r s t .


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Federal Reserve Bank of St. Louis

T h e r e has been

a n


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Federal Reserve Bank of St. Louis

mm

ession h e r e t h e t t h a t i s n o t t h e r i g h t c o u r s e f o r

"we agree o n the proposis

t i o n , t h e opposition

e

t

t

l

e

d

, because

Federal “aserve Board a t this particular juncture cannot
jesreds i t s p o r e r j u s t m e r e l y * s a

o f courtesye

matter

least ecual pertners i n e proposition i n a
I vill point o u t i n e minute a

ray t o bring

about this result. Those Governors who e r e rilling to
go h o m e a n d a d v o c a t e t h e i r b o a r d o f cirectors b r i n g a b o u t

this rete reduction rill plense standa(sxcept Gov. McDougal.
vant t o s a y that I

Gov. Calkins. I

have already done

the Governors s t o o d , }
If K e n s n s City, S t . Louis a n d Cleve-

I heve got n o doubt a t all about

That v o t e s o u l d i n d i c a t e t h a t h e n I

vent

my Board o f Directors t h a t t h e y
rate dorn.

a

m n o t prepared t o s a y that I vill d o

thet, p u t I want t o explain thet o f course I

will prssent

this whole condition an¢ t h i s whole argument a n d t h e whole
case t o m y Board o f Directors,

s o that t h e y c a n use their

own jucgment.
Gov. H a r d i n g . I

heve n o c o u b t a b o u t t h i s proposition.

This i s a case where a

lot o f pigeons a r e sitting o n the

fence, a n d w h e n o n e o r two o f the b i g ones fly, a l l o f
the rest o f them will fly. I

a m not going t o b e bothered

about Chicago a t all.
Gov. M c D o u g a l .

Gov. Harding.

W i l l y o u l e t Chicago speak?

Y e s , sir.

Gov. McDougal.

O n e o f the greatest acvantages, a n d I think
from

the o n e that s t a n d s o u t alone/all others i n connection with
this Conference i n Washington,

i s the benefit o f a n ex-

pression o f views i n regara t o all metters o f importance,
anc. this o f c o u r s e

i s o n e o f the greatest importance,

and

I feel that i n any body o f Girectors where the weight o f
opinion i s s o s t r o n g l y i n f a v o r o f a

thing, t h a t i t m a t

be influential w i t h the minority i f they ere fair minded
and intelligent. I

have endeavorec t o state before this

bocy m y o w n conviction i n regard t o this m t t e r ,
feel that I T a m right, b u t I certainly would,


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Federal Reserve Bank of St. Louis

and I

o n m y return


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Federal Reserve Bank of St. Louis

to Chicago, 7 s best I can, give o u r directors t h e bene fit
of the statement a n d the argument which hes b e e n mace
here, a n d I

a m sure t h a t t h e y r i l l b e i m p r e s s e d a t l e a s t

with the opinion “hich hes b e e n expressec b y the majority.
farding.

L e t them understand thet there i s n o

cosrcion ebout it.

Gove Seay. Governor Harding, i f I may
it seems t o m e that i t i s perticulerly desirable that t h e r e
b e n o impression o n the public mince that whatever

should
chenges

i n rates e r e m e d ? a r e n o t b r o u g h t a b o u t i n t h e
it

usual mamer, foutthetfis b y the independent ection o f the

announcement s b o u t r a t e s o r a n y c h r

is icft ontirely t o the bang, and v o u must us¢ your o m
at

diseretion anc judaner

i

t m i g h t b e reli f o r y o u gentle:

tog: ths

shat y o u trant t o do.
Gov. Strong.

T h e Governors ar’ soing t o stay until

Saturday, Governor Harding.

Gov. Harding.

a

m glad to heer it. I s there mything

else vhich y o u want t o discuss a t this meeting?

T h e


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Federal Reserve Bank of St. Louis

Reserve Agents will b e leaving this afternoon.

P o they

went t o brine o u t anything further?

Gov.. Norris.
possible f o r ‘

r o u l d like t o ssk whether i t ~on't b e
2

o

v

o f 1 @ addresses made

this morning t o b e aveilable w h e n a
by o u r b o a r d s

o f directors. I

t

o be

heve b e e n v e r y m u c h i m p r e s =

ed this morning, particularly b y the remarks o f the Comp-~
troller a n d Dr, -iller,

m e d Ican imagine that their re-

marks m i g h t h a v e t h e s a m e e f f e c t
of o u r b o a r d o f

e e n s

o n doubtful m e m b e r s

t h a t h e v e n o t h a d t h e opportun-

ity t o b e h e r e t o l i s t e n t o them.

Gov. Harding.

I s there a n y objection t o having

stenographer furnish these ganticmen v i t h copies o f
proceedings t h i s
Gov. S c r o n g .

i t seems t o m e t h a t ieee

of the mechanics i n gctting i t out.
Vithout objection, e n d i f i t i s pos~
her will furnish t h e proceedings t o
ror . . c o n s i d e r a t i o n

Gov, “Way.

H a y I taks t h e liberty o f asking Governor

Strong t h e o p i n i o n o f t h e G o v e r n o r s
ing o u t g o l d ?

o f the

o n the metter o f


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Federal Reserve Bank of St. Louis

Gov. Harding.

“ e r >

Strong. I

very glad to heer

hesitete t o express opinion

contrary t o “hat vossibly i s your o r n opinion

Gilbert's i n regard t o that matter.

Eut

fully discussed trith

when Mr. Gilbert tas not there.

L t F: >

feeling o f the meeting thet i t ~ 1

unanimous

b e omistake t o dele

iberately undertake t o psy out gold certificate

H O W y

there v e r e c e r t a i n m i n o r c o n s i d e r a t i o n s d i s c u s s e d a t o u r

meeting, b u t the more important were tro.

O n e was exact-

ly t h e p o i n t w h i c h D r . M i l l e r raiscd, w h i c h v e

co ntrolling,

i n ih&elf.

recognize t h a t t h e r e i s a

T h e other point i s thise
public o p i n i o n ,

‘ 6

h o w ~idespread

re cannot say, b u t a strong public opinion, a b o u t t h e

lowering o f the rediscount rates o f the Federal Reserve
is not roing t o b e satisfied e v e n b y a
en. cent rete,

T h e r e a r e people i n this country

that r a n t t o r e d u c e

i t t o f o u r e n c s o m e e v e n t o three.

‘e cannot pay out our gold certificates
out having i t attract widespread attention.

I t will a t


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Federal Reserve Bank of St. Louis

once b e featured i n the nerspapers,

m d

m o f the Governors a t their meeting that
~@ did s o i t ~ould b e regsrded - s ssubterfuge,
~e tere obdurate i n our position that + e ‘ould n o t p u t
at v e vere dissipating o u r reserve t o

I do not think there « a s b u t one membe
Federel Reserve Board that ever cared anything sbout
the matter.

T h e matter w a s presented

it ceme f r o m the Treasury. I

t o t h i s Con*terence

dount t h e propriety

the Board, e v e n i f i t felt thet t h e eertificates o u g h t
be paid oute-

d o not exactiy s e e h o r the Board would

about g e t t i n g t h e m p u t o u t ,
23 I

e m

i f you d o not rant t o

a m concerned i t vould n o t m a k e A

pare

to s a y this principally
for t r o reasons. =

S s .

y o u r o r n remarks y o u mene

tioned t h e p o s s i b i l i t y t h a t s o m e o f t h e P e d e r a l R e s e r v e

out sold certificates, a n d of course the
entire s y s t e m i f a n y reserve
attractec a t t e n t i o n .


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Federal Reserve Bank of St. Louis

Gov. &

f i e i n d t o « less extent I

a m influenced

to make s t e t e m e n t b y the f a c t thet there ~ a s a n
indication a

e

time, I

thint =

Of your letters,

thet the Treasury might pey out gold certifi
am v e r y m u c h sfreaid t h a t t h e e g i t c t i o n m i g h t g i v e trouble,
Ve, Crisesinger,

{ r e there a n y o f h e

m e m b c +banks

r out fpold coin?

got emy to pay out.
a poe ket Dini o f
coin,

e n d h e said he g e

Gov. Srong.

N

e

v York.

e r e i s some, not a great

it i s probable t h e t r e w i l l p a y o u t s o m e g o i d
satisfy t h e demands f o r Christmzs,

b u t beyond

have n o special demand.
Mr. C r i s s i n g : r .

T h i s m a n ; h o m t T saw a t t h e ‘illard

that h e got i t a t the counter.
GOV.
attract a

i o n 2 s much

Gov. Harding.
because I

o n l y reason I mentioned. that ras

presumed t h e Treasury h e d hed i t u p "ith some

of the Governors, a n d i t was g o i n g t o b e done, a n d s e P a r
as IT a m conesrned I

have never been a n advocate specially


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Federal Reserve Bank of St. Louis

1835
of paying o r t a n y gold I n f a c t , I

share t h e same views

that Dr. Miller h a s o n t h e sudject, w h i c h h e has expressed,
and I hoped that i f i t was p a

o u t there would

set.

Gov. Strong. I

think t h e Governors t h i n k that a n y

aemanda f o r g o l d s h o u l d b e i n s t a n t l y m e t i n a n y amount,
And.

l o n g a s w e m a i n t a i n t h a t position,

i t will n o t b e

cemanced, b u t i f w e volunteer t o pay out golé instead
of currency,

i t will immeci

Gov. Harding.
complication

a t t r a c t attention.

I t seems t o m e i t would b e a needless

a t this time. I

cannot s e e seny g o o d t h a t

would come o f it.
Gov. Strong.

F o r t i m e i t will result i n the accumu-

lation o f o t h e r f o r m s
ecertifiestes

o f currency

i n o u r hands,

l i k e silver

a n d United Stetes note

Mr. Hiller. W h a t d o you think o f Mr. Giybert's suggestion, namely, t h a t

i n stating t h e reserve t h a t 100
the notes

and t h e balance a g a i n
Gov. Strong. I

would b e glad t o sea that done a t

the turn o f the year, s e y tne i s t o f Janvary, b u t n o t now.
Mr. Gilbert. I

should perhaps m a k e some statement o n


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Federal Reserve Bank of St. Louis

the gold payments.

T h e Treasury thinks ons o F t r o

things ought t o b e done, t h e B e d e r a HKeserve Banks ought
=

to make a policy o % paying o u t gold certificates a n d make
ad

inction b e t v e e n t h e c i r f e r e n t forms,
the g e n e r a l l o v e r i c g

o r i n connec=

o f retes thersshould

be

a echenge i n the method o f calculating the reserves o f
the System. I

think i f some s u c h change

i s made

curse i s taken off.
Gov. H a r d i n g .my

h

Mr. Gilbert. I

e

t s u g g e s t i o n heave y o u t o i n a k e ?

heave

holding t h i s g o l d i n t r u s t f o r Furope e

A

g a

fact, most o f the cold - e heve gotten h e s come “ r o m tro
sources, cither n e y mine procuction, perticularly f r o m
ectly o r indirectly t h e xmussian
eserves.
Gov. Harding.
and 2

‘ a s that 1 6 0 million y o u g o t f r o m

6 4 million y o u got f r o m Sveden a i i from

r, Gliibert.

“

s i t hepper t h e . s o l d r e s e r v e s

he western F u r o m a n countries a r e cither greater o r
stentielly t h e s e m e a s t h e y r e r e b e f o r e t h e w e r , a n d
there e r e s e v e r a l t h i n g s t h e t « i l l h e v e t o b e d o n e b e f o r e


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Federal Reserve Bank of St. Louis

anything l i k e a

substential g o l d m o v e m e n t c a n b e m a d e

from t h i s c o u n t r y , ° % s f o r example, s o m e e f f o r t t o c a t

circulation.
i think, that a n y o f
golé

s

T h e r e would sce n o suggestion,

@ countries c o u l d g e t enough

t o support t h e p a p e r c u r r e n c y ‘ h i c h t h e y n o w h a v e

outstanding, a n d the first and obvious thing t o do i s for
then t o c o r r e c t t h e i r p r e s e n t p e p e r c u r r e n c y circulation.

Secondsrily a n d * s a part o f that, t h e y “ill have t o
heir budgets, and, third, there vill have t o b e
something done sbout t h e Furopern dsbt t o

c o u n t r y e

Nationel g o l d loans t o
Furope right a v e y
Mr. Jay.

o s wry. remote.

M e y I say 2 word e s t o thé

suggestion o f Mr. Gilbert o f stating 100
gold egainst the notes and the balence against deposits?
© somewhat arbitrary statement o f r e e
serve.

i n fact,

n y eyetem r e l o p t about reserves i s

more o r less a r b i t r a r y , b e c s u s e

i t i s difficult

t o make

a statement t h e p u b l i c c a n c o m p r e h e n d a n d c o m p l y « i t h t h e

sions o f

v

of r e p o r t i n g o u r reserves. e

e heve h a d various methods
have a l s o f o l l o r e d - - I

the system « s a rhole-- t h e p l e n o f stating t h e average

mean


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Federal Reserve Bank of St. Louis

reserves.

T h e n t h e Board has stated, a n d I think most

of the b a n s h e v e stated, t h e 5 5 psr cent against d e posits a n d the baisnce against notes.
period ~ e s d o p t e d t h e r e v e r s e

T I think a t one

i n N e w York o f putting 4 0

per cent agrinst notes a n d t h e rest ageinst deposits,
of these srbitrary methods have a t one time o r
led u s into difficulty, except t h e straight o n e
the averege reserve against t h e notes a n d
end before s u c h a nov erbitrary method i s adopte
ed o f stating 1 0 0 per c e n t against notes a n d the balance
agoinst deposits, I

t h i n k i t ought t o b e given very care-

ful considcration.

Gov. Harding.

- h a t recommendation have the Gover-

nors t o m a k e a b o u t t h e n e v m e t h o d o f r e p o r t i n g t h e s e p e r -

intended t o s a y t h a t v e h a v e n o t c o n v

that, b u t vill d o soe
Gov. Harding.

T h e n y o u vill suggest

a n appropriate

+

to mate t h e change, too, Par i l l you?
Gov. S t r o n g .

Y e s

thing t o do. I

i

2 fy

t appeals

t o t h e meeting

state s s m y personal vier that

T have n o obiection, b u t I think Mr. J a y i s absolutely
right t h a t i t s h o u l d b e v e r y c a r e f u l l y considered.

ay.
I do not think t h e Board would want
.

to report t h e 1 0 0 per cent. agsinst notes

W

e want t o

merely r e p o r t t h e c o m b i n e d r e s e r v e p o s i t i o n a n c s t o p r i g h t

Gov. Hamlin.

W h a t objection woulc thsre b e simply f o r

the statement t o b e 100 p e r cent. against notes a n d the

Gov. Harding.

Y o u will have

had i n t h e e a r l y p a r t o f 1920.

do thet.

A s I remember,

I t would b e embarrassing

to

w e had enough reserves t o consti-

tute 66~2/3 per cent. against notes end nothing against
ceposits.

Gov. Seay.

T h e Richmond Bani: has h a d about 1 1 0 million

of notes, a n d w e have about 7 5 miliion o f gold i
have about 5 0 million o f ceposits.
t aside 1 0 0 per cent.

we

‘ W e have n o t enough o f gold

i n gold behine o u r notes even.

I hope t h e G o v e r n o r s w i h l t a k e t h i s

up carefully a n c melke a clear-cut a n d definite recommenda~
tion,

ay

a n d i f t h e y make a n y affirmative recommendation,

state when t h e y want i t t o g o into effect.


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Federal Reserve Bank of St. Louis

Gov. Strong.

Y e s , w e will.


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Federal Reserve Bank of St. Louis

Gov. Herding.

I s there anything else, Governor

Te have considered t n e various points
3

statement “hich y o u made Tuesday morning.
Gov. Harding.

M a yI

ask y o u i f you expect u s t o

have another m e t i n g « i t h v o u some time tomorror?
* e probably vould l i k e t o d o so, b u t

Gov. Strong.
not b e l i e v e

t o complete t h e

i t would b e vossible

discussion a t this meeting.

(After discussion o f fthe record the following occurred):
Gov. Harding.

I s the

report rhich you have considered?
Gov. Strong
gard

I n the course o F whet y o u

t o the collection

a n e transit situation

vhole, ~ s are unenimous f
it w o u l d b e a

mistake

a t t h e presen

=

+L.

opinion that

i m e t o make a n y

methods o f
the p o r c o l l e c t i o n
to a d o p t i n g a t the

present time a n y system o f charges, ¢ v e n t h o u g contenwag

n o dissent

i n the


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Federal Reserve Bank of St. Louis

view that i t would b e better t o get this litigation
out o f the w a y first.
Gov. Herding.

I s there onything else?

I t i s now

about one o'clock.
Gov. Hamlin. I

move that w e sdjourn.

{The m o t i o n w a s seconded,

p u t a n d unanimously

carried.)

(Whereupon, a t 1 o'clock p.m., the joint meeting of
the F e d e r a l R e s e r v e B o a r d w i t h t h e G o v e r n o r s
Reserva B a n k s e n d t h e P e d e r a l R e s e r v e A g e n t s ,

o f t h e Federal
w a s e d journed.)

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