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THE RESERVE BANK
ORGANIZATION COMMITTEE

"FEDERAL RESERVE DISTRICT DIVISIONS AND LOCATION
OF FEDERAL RESERVE BANKS AND HEAD OFFICES."




Los Angeles, Calif.
February 4. 1914.

3011

wr

Loa Angeles, Cai., February 4, 1914.
Met pursuant to adjournment at 10:00 A. M.
PRESENT:
THE SECRETARY OF THE TREASURY.
THE SECRETARY OF AGRICULTURE.

The Secretary of the Treasury:

Thia Committee ia re-

jj

' quired by the Federal Reserve Act to divide the country
into not leas than eight or more than twelve diatricte and
locate a Federal Reserve Bank in aome city in each one of
these districts; and in determining the districts, the
law requirea that due regard shall be had to the convenience
of trade and customary courae of busineaa; also that the
districta be not neceeaarily coterminua with state lines.
The object here is to get such information relating to
Southern California and the ccuraea of buaineas in this
district aa we may be able to obtain.
I aee that the Clearing House has preaented aome namea
here.

The first on the list is Mr. Elliott. We will be

glad to hear from Mr. Elliott*



<)3aL

3013

STATEMENT OF J. M. ELLIOTT.
The Secretary of the Treasury: Please give your name
and occupation.
Mr. Elliott: J. M. Elliott.
The Secretary of the Treasury: Your occupation, Mr.
Elliott.
Mr. Elliott:

I am president of the First National Bank of

this city.
The Secretary of the Treasury:

Are you president of the

Clearing House?
Mr. Elliott:

No, sir, I am not.

I had not thought I was

to be called upon.
The Secretary of the Treasury:

I tee your name is on the

list here*
Mr. Elliott:

The president of the Clearing House Associa-

tion is here, but I am willing to answer any questions that
may be asked.
The Secretary of the Treasury: Who desire* to present
thecaae of Lot Angeles?

j

Mr. Elliott: Mr. Fishbum, the president of the Los Angeles
Clearing House, Inpresume, will do *o.
{B* Secretary of the Treasury:




Then perhaps we had better

***

3013

have him first.
Mr. Elliott: Yes, sir.
STATEMENT 0? J. B. FISHBURN
The Secretary of the Treasury: Will you give your full
name and occupation?
Mr. Fishbum: J. M. Fiahburn.

I am president of the

National Bank of California in Los Angeles.
The Secretary of the Treasury:

Your relation to th*

clearing house?
Mr. Fiahburn:

I am president of the Clearing House.

The Secretary of the Treasury: We would be glad to hav*
your views, Mr. Fishburn, about this district here.
Mr. Fiahburn: As soon as we learned that these meetings
were to be held with a view to locating the various
Federal Reaerve Banks, the Los Angeles Clearing House and
the associated savings banks and trust companies of Los
Angeles, amounting in number to about thirty-two banks, got
together for the purpose of discussing this proposition of
location.

Having in mind first the greatest possible

efficiency for the Federal Reserve Bank, these banks are a
unit in intense desire that the system shall work successfully.




wr

3014

and it naturally hast their complete cooperation. The
result of that meeting was formulated in a resolution.
The Secretary of the Treasury: Have you that resolution!
Mr. Fishbum:

I have a copy of the resolution.

I also

mailed your Committee a copy, and if you haven't it, I can
give you another copy.
The Secretary of the Treasury:

I haven't seen it. You

may produce the resolution now and it may be filed here aa
an exhibit to your testimony. Will you kindly

read th*

I resolution?

j!
j
}
i
i

Mr. F i s h b u m :

It is quite long and I don't want to take

up too much of your time.
The Secretary of the Treasury:

Just give us the gist of

it.
Mr. Fiaburn:

The gist of the resolution ia that tht

Los Angeles banks unanimously recommend that one Federal
ReserveBank be established upon this coast, and that it
be established in San Francisco.

The reason for that is

to get the highest efficiency and to provide profits for
our Regional Bank, because the coast district can likely
employ the money of the Federal Reserve Bank nearly or
quite all the time.



***

30^5
J. E. Fiahbum

The resolution submitted by Mr. Flshbum i* aa follows:
"WHEREAS the Federal Reserve Act provides that there
shall not be leas than 8 or more than 13 Federal Reserve
Districts; each district to contain only one Federal Reserve
Bank; the districts to be apportioned with due regard to
the convenience and customary course of business, and also
proves that the minimum subscribed capital of each
federal Reserve Bank shall be not lees than $4,000,000,
every National Bank shall be required and every ttate bank
i

*ay be permitted to subscribe to the capital stock to the
extent of eix per cent of the combined capital and surplus
of each subscribing bank; and
"WHEREAS, in order to locate these Federal Reserve
Banks properly and equitably, it will be necessary to take
into consideration the items of convenience, natural course
of business, volume of banking business and the future
Utility and stength of the Federal Reserve Bank to aid trad*
and commerce as well aa the banking business in any given
region; and
ii

"WHEREAS, the latest returns from the Comptroller of
the Currency show substantially the following figures:




wr

3016
J. E. Fishburn.

"Total capital and surpluse of
National Banks in the United States,
about . . .

. . . . $2,060,000,000.

Total capital and surplus of
State Banks and Trust Companies
in the United States, about . . . . $3*000,000,000.
Total $4,000,000,000.
Total capital and surpluseof
National Banks of the Pacific
Coast States, including California,
Arizona, Nevada, Oregon, Washington,
Idaho and Utah, about

$130,000,000.

Total capital and surplus of
State Banks and Trust Companies in
Pacific Coast states, about

$130,000,000.

Total . . . .$ 260,000,000.
*It will be seen that all the banks of the Pacific
Coast states have only about 1/15 of the banking capital
and surplus of the United States, and as there will be only
fro& 8 to 13 Reserve Banks, and probably not more than 10,
the Pacific Coast states will not in equity be entitled to
more than one Reserve Bank; and




wr

301%

"WHEREAS; the banking capital and surplus of the
i State of California is #169,000,000 of which $73,000,000
!
!

is in S&n Francisco alone; and

i!
i
l

'WHEREAS, the utility and strength of a reserve bank

j will depend largely upon the extent and character of the
! area to be covered by its operations, and its efficiency
i will be greated if it covers a territory with different
i
j climatic, industrial, agricultural and manufacturing con!
ditions, with the result that when there ie a deaand for
credit or currency in one section, there will be a surplus
:

in another section and the Federal Reserve Bank will be the
Clearing House through which the average condition of the
entire section will be reflected.
It will better serve the interests of the public and
of the banks, if we have one largely capitalized Reserve
Bank covering a large, diversified territory, than to have
two covering a smaller and less diversified territory; and
"WHEREAS, the business of the Federal Reserve Ranks
will be soley with the member banks within its district,
no deposits from or loans to individuals being accepted or
made, nor any business transacted, that cannot be transacted
with a branch, the location of the Federal Reserve Bank in




wr

3916
J. E. Fisbbum

any district should be central, for the convenience of
ita member banks.
, It will be conceded that Ban Francisco will be the
logical place for one such institution.

Los Angeles and

some city in the Pacific Northwest could then have branches,
which will in every respect serve the needs of banks in
their respective communities^
THEREFORE, JHB IT RESOLVED, that the Los Angeles Clearing House Association and associated banks of the city of
Los Angeles favor one Federal Reserve Bank only, for the
Pacific Coast states, to be located in the city of 8an
Francisco, the Branches in the city of Los Angeles and in
one or more of the cities of the Pacific Northwest; and
BE IT FURTHER RESOLVED, that copies of this resolution
be forwarded to the Reserve Bank Organization Committee
and to the San Francisco Clearing House Association.*
Mr. Fishbum:

I think if we had a natural district in

the country, a district that runs north and south, and
which provides different maturities for thevarious crops
ef the territory covered and different maturities or different needs for the money, it would be the best thing possible.
Take it, for instance, beginning in December, and in the



3619
J. E. Fiahbum

southern end of the state, the requirements are and the
money is invested in the citrus industry in the way cf box
stuff, fertilizer, fumigation, and those things. That money
is released probably nearly all of it, by the first of
April.

Then it can be moved north to move the deciduous

fruit, and a little later the grain crop, and still a littl*
later the canned fruits of this district.

It then comes

back and goes into shooks, boxes again, and starts on the
new route around the circle.
The Secretary of the Treasury:
Mr. Fisburn:

In crop rotation.

Yes, sir; and that is the reason for that.

The Secretary of the Treasury:

Distribute the demand

equally over the year.
Mr. Fishbum:

Yes, sir; and we can amply the capital of

one Federal Reserve Bank, we emply its funds nearly all
the year round.
The Secretary of the Treasury:

Now, what is the district

that you are addressing yourself to?
Mr. Fishbum:

Our primary district would be California,

Oregon and Washington, to which we would suggest Arizona,
Nevada, New Mexico and Utah, or at any rate as far east aa
Arizona and Nevada, Idaho and Utah.



That, however, is my

*r

3030
J. E. Fishbum

personal view.

I have not consulted the other members upon

that.
The Secretary of Agriculture: The southern statea?
Mr. Fiehbum:

Yes sir.

The Secretary of the Treasury:

I suppose you have figured

up the capitalization and the course the bank would have
on the business of that district?
Mr. Fishbum:

Except just this, that i would make a
t

large and comfortable bank from the actual bank subscriptions without going outside for personal subscriptions or
to the government for the subscriptions. I have not the
figures.

Mr. Sarteri has those. With reference to the

location and cur reason for selecting San Francisco, it ia
because it is now the natural point to which all banking
business goes for this country that I have mentioned. There
is not a bank in Los Angeles, for instance, that would not
keep an account in San Francisco, and there is probably
not a bank in San Francisco that keeps an account in Los
Angeles for any real need; and that thing is true jp and
down the coast.
The ^Secretary of Agriculture:
accounts?



Where else do ycu keep

wr

3031
J. E.Fishbum.

Mr. Fitbbum:

We keep an account at Chicago, New York

and Kanaae City.
The Secretary of Agriculture: What percentage would you
aay you keep in San Francisco, and what percentage in tha
other cities?
Mr. Fishbum:

t
Well, it varies according to the needa. At

thie time of the year and a little later, our funds will
naturally drift to New York on account of the tourist travel
here that brings an immense amount of New YCrk exchange,
and the orange crop going east accumulates our money east
more or lees, so that I can't answer that question.
The Secretary of Agriculture: Normally what would you
aay?
Mr. Fishbum:

It is about evenly divided between New Yeyk,

Chicago and San Francisco.

The Kansas City accounts are just

for collection purposes.
The Secretary of the Treasury: Weil, you don't heep any
reserve balance in S&n Francisco?
Mr. Fishbum:

We are a reserve city ourselves.

The Secretary of the Treasury:

Your accounts in San

Francisco are for exchange purposes?
Mr. Fiahbum:



Yes, air.

j

***

3033
J. E. Fiehbum.

The Secretary of the Treasury:

To what extent do you

keep balances, or the banks in Los Angeles earry accounts
in San Francisco from year to year?

C"n you give the

figures?
Mr. Fiehbum:

No, I have no actual figures, but I think

they are about equally divided between Chicago, New York and
San Francieco.
The Secretary of the Treasury:

I was not speaking of

reserves; I was speaking of balances.
Mr. Fisburn:

San Francisco does not act as a reserve, but

the balances are about the same.
The Secretary of the Treasury:
couldn't you supply those figures?

In dollars and cents,
I mean the aggregate of

the balance carried in San Francisco?
Mr. Fishbum:

No, I have not made any calculation.

The Secretary of the Treasury:
*r. Fiehbum:

I say you can supply it.

I think perhaps you will find them before

you are through with the examination.

If not, I will get

them for you.
The Secretary of the Treasury:

Do you think that the

)ank should be located in San Francisco?
Mr. Fiahburn:



Yes, sir.

wr

3033
J. E. Fishbum

The Secretary of the Treasury:

I presume you would expect

in that case to have a branch here in Los Angeles?
Mr. Fishbum:

We would hope for one for the purpose of

convenience, yes, sir.
The Secretary of the Treasury: To what extent do the
Arizona banks carry their balances and reserve in San Francisco?
Mr. Fishbum:

I think very largely. The Los Angeles banks

have a considerable amount of that Arizona business. I

!

think every bank perhaps in Arizona approximately carries
a Los Angeles account, but I think the larger part of the
business is in San Francisco.
The Secretary of the Treasury:

Can you supply that infor-

mation, to what extent they carry balances here?
Mr. Fishbum:

Yes sir.

The Secretary of the Treasury:
Mr. Fishbum:

The banks of Arizona.

Yes sir.

{

The Secretary of Agriculture: Who could give us the most
definite information as to the course of trade from Arizona,
perhaps west of Arizona?
Mr. Fiehbum:

At the moment I can't answer, but I will try

to get you that information and get you the right person to




*r

3034
J. E. Fiehbum.

supply it.
The Secretary of the Treasury: How about Nevada- take
southern Nevada.
Mr. Fiehbum:

That comes town here.

The Secretary of the Treasury:

That comes largely to

Los AngeleeT
Mr. Fishbum:

Yes, air, of lage years. Still their bank-

ing connections are San Francisco connections. Every one
hag a San Francisco connection*
The Secretary of Agriculture: Still the territory is
naturally tributary to Los Angeles?
Mr. Fishbum:
has been opened

Yea; but it is only of late years that it
up

to business, and it has not yet been

weaned awary from S3n Francisco.
The Secretary of the Treasury: Do you carry any of y u r
reserve balances with St. Louis?
Mr. Fishbum:

A small amount, yes air.

The Secretary of the Treasury: What percentage would you
say of your entire reserve balances are carried in St*
Louis?
Mr. Fiahburn:

Oh, two per cent, perhaps.

The Secretary of the Treasury:



You mean two per cent of

vr

3035
J. E. Fiehbum

the 35 per cent?
Mr. Fishbum:

Yes sir.

The Secretary of the Treasury: You have some distinctive
paper

perhaps here, Mr. Fishbum, haven't you?

I mean you

have a distinctive character of commercial paper.

If you

have any such paper, we would like to have some information
about it.

In some places they have cattle; in some places

they have other kinds of commercial paper.
Mr. Fishbum:

The commercial paper that we get here is

the result of the sale of goods by the wholesale houses
and manufacturers, and they are taking for that the acceptances of the people to whom they sell.

In addition to that

there is the direct paper of these wholesale houses and
manufacturers manning directly to the bank.
The Secretary of the Treasury:
Mr. Fishbum:

One name paper.

One name or one fim., yes.

The Secretary of Agriculture: To what extent are the
fruit crops financed here?
Mr. Fishbum:

They are very largely financed here, and

when we have difficulties, as we had last year, it is a
great burden to the banks, and to some extent they have
relieved themselves by rediscounting their paper east.




wr

3036
J. E. Fishbum.

The Secretary of the Treasury: You mean the fruit people
rediscount direct?
Mr. Fishbum:

I mean the local banks vcarry the fruit people

and rediscount to do it.
The Secretary of the Treasury: Can you give ue any idea
of the time when that excessive demand arise* and the
ex tent to which you rediscount?

j
}

Mr. Fishburn:

Ordinarily it arises at the time they com-

mence to take on their box stuff and fertilization bills,
which wculd be in December, and they all have to be carried
the last of November and December. Money commences to be

I

released the latter part of January, and being practically

!

returned by the first day of April. The Valencia orange*
come later, as late as June, but not in quantities to
seriously affect the situation.
The Secretary of Agriculture: The situation last year
was very obnoxious?
Mr. Fishburn:

Yes air.

The Secretary of Agriculture:
Mr. Fishbum:

And most unusual?

Yes sir. The frost destroyed the crop to

some extent, although much better results were obtained than
were expected, by selecting the fruit and carefully cutting.



wr

3037

The Secretary of the Treasury: How are advances made
againat the growing crope?
! Mr. Fiehburn:
!

The advances are simply made direct on the

credit of the concern.
taken.

I don't think there are any mortgages

I don't think there are any ccop mortgages or any-

i

thing of that kind in this country.

I have not heard of

it.
The Secretary of the Treasury: You rely entirely upon
the responsibility of the maker of the note?
Mr. Fiabbum:

Yes sir.

The Secretary of the Treasury: Without any lien on th*
growing crop or anything of that sort?
Mr. Fishbum:

You know I am not entirely familiar with

the method of the local bank in the handling of that matter,
but I have not heard it, and the paper offered w*e for rediscount if not aecured by mortgage.

I have never seen any

paper secured by mortgage on a crop.

They are a community

of people -well know to their banker and he knows their
financial condition and whether or not their place is mortgaged; he knows what that place will produce under ordinary
conditions, and therefore knows whether or not to extend them
a line of credit and how much.




wr

3036
J. E. Fishbum.

The Secretary of Agriculture:

It is a aettled agricultur-

al condition?
Mr. Fiehbum:

Yes, air.

'

The Secretary of the Treaeury: Can you gice ue any idea
of the extent to which rediacounting hae been neceaaary
thia year in order to carry out the crop movement?
Mr. Fiehnum:

No 8ir, I cannot.

The Secretary of the Treasury:

It ie easy enough to

aecertain that?
Mr. Fiahbum:

!
It can be ascertained by interviewing the

banks themaelvea and adding up the total.
The Secretary of the Treasury: Can uou auppiy that information for me?
Mr. Fiahbum:

I can do eo.

The Secretary of the Treaeury: Take, for inatance, th*
month of December —

you might get the maximum for December,

which would give us a line of information we would like to
ha iB.

Mr. Fiahbum:

Yes air.

The Secretary of the Treaeury: Of courae, we can get a
lot of that information through the Comptroller^ office.
Mr. Fiehbum:




That can be forwarded to you a little later.

wr

3029
J. M. Fishbum.

The Secretary of the Treasury:

I will be very glad to

have it. We would like to have an idea of that extreme
demand inDecember for the national banks, and if possible
the state banks also, and if they will participate in giving
that information.

That might be forwarded to Washington

to the Federal Reserve Organization Committee.
Mr. Fishbum:

If you will have your secretary write me

a letter covering the point you want to develop, I will do
to.
The Secretary of the Treasury: Make a memorandum of that,
Mr. Stenographer, and give him a copy of those questions.
I e that be filed by the 20th of February.
.t
Mr. Fiehbum:

A note has just been handed to me suggest-

ing as to the Arizona business and the trend of it, the
course of it, that Mr. William W. Woods, vice president of
the Citizens National Bank here, i* familiar with that.
The Secretary of the Treasury: Very well,

The Federal

Reserve Act, in section 13, provides as follows:
'Upon the endorsement of any of its member banks, with
a waiver of demand, notice and protewt by such bank, any
Federal Reserve Bank may discount notes, drafts, and bills
of exchange arising out of actual commer&ial transitions;




3030
J. E. Fisburn.

that is, notes, drafts, and bills of exchange issued or
drawn for agricultural, industrial or commercial purposes,
or the proceeds of which have been used, or are to be used,
for such purposes, the Federal Reserve Board to have the
right to determine or define the character of the paper thus
eligible for discount, within the meaning of this Act.*
Now, the Committee desires to have the clearing houses
in the different cities of the countries, to which this
same question is being addressed, submit a brief giving a
definition of commercial paper within the meaning of this
Act.

We want their views as to what would be the beet

definition of commercial paper, fe should also like to have
suggestions as to the standard form of notes or drafts, or
bills of exchange which would be best adapted for general
vises among the Federal Reserve Banks and the member bank*.
In toherlocalities they have, as I said a moment ago, a
special character of paper, for instance, live stock paper.
Mr. FiBbum:

Yes.

The Secretary of the Treasury:

If you have any peculia

paper of any sort in this locality, we should like to have
* memorandum about that and an explanation of it, and as
full information concerning it as possible.




wr

3031
J. E. Fieburn

Mr. Fishbum:

I think you will find that Boat of the

notes in note form from which the banks take their paper,
Are not negotiable.

That particular paper that ie intended

to be used, or perhapa might be uaed for rediscount would
have

to be on a for& probably supplied by the Federal

Reserve Board, for the reason that in different localities
and in different states on this question of negotiable
notes different customs prevail.
The Secretary of the Treasury:

I know different customs

prevail, and that is why we desire to get this information
together, because the Board will in time promulgate rules
and regulations covering these points*
Mr. Fishbum:

You might, for instance, find paper that

was negotiable and be put into the Federal Reserve Bank on
the coast and then later the Federal Reserve Beard formed
might require the New Orleans Federal Reserve Bank to discount it for us, and if it went there it would not be
negotiable paper.

It is a very difficult question.

Hhe Secretary of the Treasury: We want full information.
Mr. Fishbum:

Yes.

The Secretary of the Treasury: Juet write that question
out, Mr. Stenographer.



wr

3033
J. E. Fishburn.

The Secretary of Agriculture: The Committee would like
a brief covering all that information.
The Secretary of the Treasury: And with that the recommendation on the part of your Clearing House. We would like
to have that by the 1st of March.
Mr. Fisburn: We can do that.
The Secretary of the Treasury:
point.

Now, there is another

In section 16 of the Act, page 19, it is provided:

'The Federal Reserve Board shall make and promulgag*
from time to time regulations governing the transfer of
funds and charges therefor among Federal Reserve Banks and
their branches, and may at its discretion exercise funtions
of a Clearing House for such Federal Reserve Banks, or nay
designate a Federal Reserve Bank to exercise such funtions,
and may also requre each such bank to exercize the funtions
of a Clearing House for it* member banha.*
That presents also a very important problem, and one
upon which we desire to have the different Clearing Houses
submit their views as early as possible. We would like to
have that by the lit of March. W* would like a brief on
that point with your suggestions or recommendations as to
how that clause can be best carried out and effectuated*



wr

.

3033

J. E. Fishbum

The purpose that ie obvious is to substitute a
system of bank clearances for the present store method of
check collections.
Mr, Fishbum:

Yes sir*

The Secretary of the Treasury: Also on the question of
the charges that will be made between the different Federal
R*serve Banks and their branches, and the transfer of funde,
w* would like to have your suggestions about that.
Mr. Fithbum:

Is it contemplated that there will be

charges between the Federal Reserve Banks on these items?
The Secretary of the Treasury:

The Board has the right

to regulate that. We would like to have your suggestions
as to whether or not charges should be made, and if so, to
what extent.
Mr. Fishbum:

We are all interested in having the Federal

Reserve Banks tarn money, and you will load them with an
enormous expense account if you don't make any charge for
these items.
The Secretary of the Treasury:

That ie a question for

the Board to determine, and we would like your views. If
you think there should be charges,to what extent 4o you
think they should be made?




We would like to h*ve th*

J. E. Fiehbum

3034

Clearing House give that very earnest thought.
Mr. Fishbum:

Very well.

The Secretary of the Treasury:

That ia all. You may

make Mr. Fishbum a copy of these questions. Also, Mr.
Fiehbum, you had better take a copy of this Act.

I will

mark these two sections.
The Secretary of Agriculture: And the stenographer will
give you a memorandum.
The Secretary of the Treasury:

I would like to ask if

there is any representative of Phoenix here today.
Mr. Goldwater: Yes sir.

I am here representing the

Arizona Banking Association.
The Secretary of the Treasury: What is your name?
Mr. Goldwater:

Morris Goldwater.

The Secretary of the Treasury: We will call you a little
later.
STATEMENT OF STODDARD JESS.
The Secretary of the Treasury:

Mr. Jess, your full name

and occupation.
Mr. Jess:

Stoddard Jess, vice president of the First

National Bank of Los Angeles.



3035
m

Stoddard Jess.
The Secretary of the Treasury: We would like to have your

views, Mr. Jess.
Mr. Jess:

Briefly restating what has already been said

by Mr. Fishbum, the president of the Clearing House Association, I would say that when this question of districting
the country for the location of Federal Reserve Banks first
came up, Los Angeles, in common with all other cities of
any pretense, was interested in the question. We collated
facts and figures and discovered that by reason of the
geographical location, the preponderance of banking capital,
and ^particularly as to its location between sections of
diversified products, that San Francisco seemed to be the
logical location for a Federal Reserve bank on the Pacific
Coast.

A meeting of the members of the Clearing House

.Association and of the allied savings banks and trust
companies was had, and a resolution was formulated and
unanimously adopted, stating that the banks of Loe Angeles
favored San Francisco as the location for a Federal Reserve
Bank in this vicinity.
The Secretary of Agriculture:

Did you discuss the more

general question as to the number of banks that should be
established at this time —




the number of districts?

m

3636

Stoddard Jess
i

Mr. Jess:

I think that it wae the expression of those

who considered the question locally here that the smaller
number would probably give greater efficiency with a proper
number of branches than would a larger one; and I think it
will be found to be the concensus of opinion of Los Angelee
bankers that eight Federal Reserve Banks would probably
give greater efficiency than a larger number.

!

The Secretary of the Treasury: Where would you put the
i

other banks if you had eight now?

You have designated

i

San Francisco as one.
Mr. Jess: I should say that New York, Boston, Chicago,
St. Louis, Minneapolis or St. Paul, Denver and Atlanta,
i

Georgia, or New Orleans.

I think personally I would give

the preference to Minneapolis over St. Paul, and Atlanta
over New Orleans, by reason of their size and geographical
location.
The Secretary of Agriculture:

In speaking of some of

these sections, you have not, of course, undertaken to discover whether a bank could be created there with the
requisite capital.
Mr. Jess:

In these different locations?

The Secretary of Agriculture: Yes.



3037

Mr. Jess:
knowledge.

Well, in most of them that would be common
I have never examined carefully into the eligibil-

ity of Atlanta, we will say, as to the necessary capital,
and possibly Denver might be questioned.
The Secretary of the Treasury: Have you laid out the districts tentatively?
Mr. Jess:

I have not, except our own district here. I

felt that it should include what is commonly known as the
Pacific Coast states, Washington, Oregon, California,
Nevada, Utah and Arizona.
The Secretary of Agriculture: You have got telephone and
telegraph communication with San Francisco?
Mr. Jess: We have.
The Secretary of Agriculture:

Is it easy to speak on the

telephone?
Mr. Jess:

Very easy.

The Secretary of Agriculture:

Is the traffic often inter-

i rupted?
Mr. Jess: Very seldom.

Our service is remarkably good.

It is difficult to tell when called on the phone whether
you are talking with somebody in the city or in San Francisco.




3038
m

Stoddard Jeas

The Secretary of Agriculture: What is the time of your
fast mail?
Mr. Jese: Our faet mail makes the trip in about fourteen
hours between the cities.
The Secretary of the Treasury:

Can you give us any idea,

Mr. Jess, of the excess demand — for rediscounting purposes
what the rediscounting here ia?
Mr. Jess:

I should say that would be very difficult

to arrive at.
The Secretary of the Treasury: Why?
Mr. Jess:

I think that probably that money is borrowed by

the banks indirectly to a degree, as well as directly. The
direct rediscounting or borrowing would be evidenced by
the Comptroller's reports.
banks themselves.
don't knew.

The other would be known by the

To what extent that may be prevalent, I

I think there is a growing opinion that the

idea of borrowing indirectly is becoming obsolete. The
banks are favoring the rediscounting idea as being entirely
compatible with good banking, as well they may, for it is
one of the main advantages that we hope to receive from
our new currency system.
The Secretary of Agriculture:



I suppose under the old

n

3039

Stoddard Jeas

system when you had reached a certain point you simply
stopped?
Mr. Jess:

Oh yes.

The Secretary of the Treasury: Well, it would be of
some value to know, in laying out these districts and determining their necessities, to what extent there has been
both the direct and indirect method of discounting, so we
can get an idea of that demand.
Mr. Jess:

I think that information could be and should

be furnished by the banks.
The Secretary of the Treasury:

Of course I would call

on you formally for it if necessary, but I presume that ie
unnecessary.
Mr. Jess:

Yes sir.

The Secretary of the Treasury: You have heard the question,
have you?
Mr. Jeas:

I did.

The Secretary of the Treasury:

If you will be good enough

to impress yourself with that question and give us that
information by the 20th, we would like to have it.

I will

propound the same question to you so you may furnish the
information also.



3040

Stoddard Jese

The Secretary of Agriculture:

It would be very serviceable

if we could have a statement of those conditions.
Mr. Jess:

I feel that the banks should cooperate, because

cooperation is to their interest and the welfare of all,
and I believe they will be glad to do it.
The Secretary of the Treasury: Well, of course the Committee could get it, because it haa the power to issue
subpoenas, and to compel the production of such testimony
as is necessary.

Are there representatives here of the

state banks?
Mr. Jess:

Yes, Mr- Sartori, vice president of the Clearing

House Association and president of the Security Savings
Bank.
The Secretary of the Treasury: We would be very glad if
the national and the state banks would furnish that information so we may have it for the purposes of the Committee.
It is very useful to know what the maximum demand is so
when we lay out the districts we may know what extreme conditions have to be met.
I will now call Mr. Sartori.




3041

STATEMENT OF J. F. SARTORI.
The Secretary of Agriculture: State your name.
Mr. Sartori: J. F. Sartori.
The Secretary of Agriculture: Mr. Sartori, you have heard
the statement of the problem.

The Committee would be very

glad to have any suggestion or statement of your views.
Mr. Sartori:

I am fully in accord with the resolution of

the Clearing House and the testimony given by both Mr. Fishburn and Mr. Jess, that an ideal district would be composed
of the seven Pacific states mentioned, with San Francisco
its the location of the Federal Bank Reserve. It has been
suggested that there should be a Federal Reserve Bank located
in Los Angeles for this southwestern district.

I took the

trouble to gather together a few statistics to show that
these seven states were only entitled to equity or from
trend of business and volume of business, and volume of banking
capital and surplus, volume of deposits and volume of clearings, and so on —

that they are not entitled to more than

one Federal Reserve district out of either eight cr ten or
twelve.

I have a few statistics to show that down here in

the southwest it would be rather difficult to form a district
t&at is to say, if volume of business should




j

m

3042

J. F. Sartori.
!
in any way govern the location.

Some of these statistics

I see are practically the same that were offered in San
Francisco.

I will file them if you desire.

The Secretary of Agriculture:

!

I think they may be very

serviceable, Mr. Sartori. Just file them {as an exhibit
to your testimony.

i

(The papers submitted by the witness were filed.)
The Secretary of Agriculture:

Is it your view that this

district would be self-sufficient?
Mr. Sartori:

I think the district would be self-sufficient

district for the reasons stated in the resolutions of the
Clearing House Association, that it has a variety of condition*
and a very Large variety of products and industries. One
section down here received its report principally during
the winter months; in the north, it is during the summer and
fall.
The Secretary of Agriculture:

You have heard the question

asked, Mr. Sartori, as to the extreme demand in this
section and the extent of it. Do you think the state banks
would cooperate with the Committee in furnishing the figures?
Mr. Sartori:

Very gladly.

We have an association here

of the state banks and trust companies and we will very



m

3043

J. F. Sartori.

gladly cooperate with the Clearing House Association.
The Secretary of the Treasury:
Clearing House?

Are you members of the

I mean these state banks members of the

Clearing House?
Mr. Sartori:

They are not.

The Clearing House is composed

now, I think, of eight national banks, the trust and savings
bank association of the state banks, and there is a movement
on foot at the present time to enlarge the scope of the
Clearing House and take in a large number of state banks.
I think it will be consummated in a short time. If you
please, there is one suggestion I would like to make.
The Secretary of Agriculture:
Mr. Sartori:

Proceed.

I am the president of a trust and savings

bank, a departmental bank in the state of California.

I am

naturally interested as to the advisability and possibility
of entering the system.

Section 9 provides as follows:

"Any bank becoming a member of a Federal Reserve Bank
under the provisions of this section, shall, in addition to
the regulations and restrictions hereinbefore provided, be
required to conform to the provisions of law imposed on
the national banks respecting the limitation of liability




3044

J. F. Sartori.

which may be incurred by any person, firm or corporation
to euch banke, the prohibition against making purchase of
or loans on stock of such banks, and the withdrawal or impairment of capital, or the payment of unearned dividends
and to such rules and regulations as the Federal Reserve
Board may, in pursuance thereof, prescribe."
Now, I suppose most of the trust and savings banks of
the country have made loans and have time loans on the books
to certain individuals and firms and corporations exceeding
in amount thie rule of 10 per cent of the capital and surplus.

I know it is true of most of them in the state of

California.
The Secretary of the Treasury: To what extent can you
make loans under the California law?
Mr. Sartori: Under the law as it has been on the statute
books for many years, to any extent.
The Secretary of the Treasury: No limit?
Mr. Sartori: No, limit. Under the new amendment to the
Bank Act, 50 per cent -- to the extent of 50 per cent of
capital and surplus. Now, how many of the state banks here
have other loans.

These loans won't mature for years. The

question will be what will be the ruling of the Federal



3045

J. F. Sartori.

Reserve Board on that subject.
The Secretary of the Treasury: How do you mean?

As to

the amount that may be loaned?
Mr. Sartori: No.

The state banks when entering the system

must conform to that provision of the national bank Act.
The Secretary of the Treasury: You mean the time within
which the state banks may be allowed to conform to thie
provision?
Mr. Sartori: Yes.

It has this provision further:

"And to such rules and regulations as the Federal Reserve
Board may, in pursuance thereof, prescribe."
Will that permit the Federal Reserve Board to make an
exception in the case of state banks on that subject in
case the state banks desire to enter the system?

Can

they enter the system although they have loans amounting
to more than 10 per cent of their capital and surplus?
The Secretary of the Treasury:

I presume what you want to

know is this, whether or not in order to be eligible to
membership you must at the time of application, have loans
not in excess of 10 per cent of the capital and surplus.
Mr. Sartori: Yee.
The Secretary of the Treasury: We have had that question




p

3046

J. F. Sartori.

a.eked ue before. While my associate and myself have said
that we cannot, of course, as a committee, make a ruling
on that point, we believe it is not necessary that at the
time of application the state banks and trust companies shall
3have reduced their loans tc each individual or corporation
to that extent, and the Federal Reserve Board would undoubtedly, by rule, prescribe a reasonable time in which they might
conform to that requirement.

The eligibility would relate

to the amount of capital.
Mr. Sartori: Yea.
The Secretary of the Treasury:

And then they would be

given a reasonable time to conform to the requirements of
this Act.
!
t

The Secretary of Agriculture:

I don't think that would

work any hardship, and the Board would consider the matter
of having eligible banks in this system.
Mr. Sartori:

Naturally a state bank would want to know what

the ruling of the Federal Reserve Board will be on that

i

question.
The Secretary of Agriculture: While we cannot state positively, that seems to be a reasonable interpretation and



we think it will be made.

B

3047

J. F. Sartori.

The Secretary of the Treasury:

It may be that the Com-

mittee will formulate the rule or a statement on that
particular point very shortly and address it to all the
state banks.
The Secretary of Agriculture:

That is, - e may make an
w

official rule.
The Secretary of the Treasury: We are considering the
question.

There is another point in that same eection^to

which our attention was drawn, and that is this, that state
banks and truet companies should observe the prohibition
against making purchase of or loans on stock of such banks.
Mr. Sartori:

That is the law in this etate*

The Secretary of the Treasury:

If that'is the law here,

there is no point in California, but in some other states
they are permitted to make such loans. They seem to interi pret that clause to mean that they could not own stock in
other banks or in other corporations where the law of the
ttatee permitted it.

This prohibition relates solely to

your making loans upon your own stock, or making purchase of
your own stock.
Mr. Sartori:

I presume in seme states there is a law

against state banks investing in stocks of any kind, or
assuming any kind of stockholders' liability?




3048

J. F. Sartori.
The Secretary of the Treasury: Yee, that ia true, but
that is not true in California.
Mr. Sartori: No.
The Secretary of the Treasury: Your law permits you to
subscribe for the stock in these Federal Reserve Banks.
Mr. Sartori: Yes.
The Secretary of Agriculture:

There ia one question.

Have you anything to show in your statistics or anywhere
else, the growth of banking power in this section and in
this city especially during the period of say ten years?
Mr. Sartori: No, I did not go into comparative figures on
that subject.
The Secretary of Agriculture:
Mr. Sartori:

That would be easy to get?

I can show the volume of banking capital

and deposits in this section, in the southern counties,
and in Arizona, Nevada and Utah.
The Secretary of Agriculture:

That is, just for the pres-

ent?
Mr. Sartori:

For the present.

The Secretary of Agriculture: Would it be difficult to
give us that?
Mr. Sartori: Oh no; we have that prepared.




Of this

3049

J. F. Sartori.

particular city, for instance?
The Secretary of Agriculture: Yea, and for thia eection.
The Secretary of the Treasury:

Of course, we have it

for the national banka; we haven't it for the etate banke.
If you would be good enough to give it to me for the national
and etate banke separate, and summarize it.
The Secretary of Agriculture: The growth has been very
rapid here?
Mr. Sartori: Yes, very rapid.
The Secretary of the Treasury:

That is all. Thank you.

FURTHER STATEMENT OF J. M. ELLIOTT.
The Secretary of the Treasury: Will you be good enough
to give us your views, Mr. Elliott, on this problem?
Mr. Elliott:

I would be glad to see a large district with

San Francieco as its center, including not only Washington,
Oregon and California, but at least a part of — at least
all of Nevada and part of Utah and part or the whole of
Arizona,,and possibly that part of the states the majority
of which are east of the mountains but have a small portion
west of the mountains.
The Secretary of the Treasury:



Are you familiar with the

3050

J. M. Elliott.

normal courses of business throughout that district?
Mr. Elliott:

In this part quite well and in the other part

fairly well.
The Secretary of the Treasury: Now, to what extent would
Arizona, Utah and Nevada, be contiguous to and best served
by that sort of an arrangement?
Mr. Elliott:

All of Nevada would be served best by San

Francisco than by any other city except possibly some small
part of it might be served by Salt Lake, if Salt Lake was
considered.
The Secretary of the Treasury:

Does Salt Lake do more

business with San Francisco than with some of the eastern
cities?
Mr. Elliott:

I think Salt Lake would be better served by

San Francisco than it would be by Denver or anything
further east.
The Secretary of Agriculture: You eaid a part of Utah.
What part of Utah?
Mr. Elliott: Well, I think it would include nearly all
of the State of Utah.
The Secretary of Agriculture:

Isn't it true that this

section east of the mountains has relatively few banks.



a

3051
J. M. Elliott.

and that they are attached to Salt Lake City?
Mr. Elliott: Yes sir, I think so.
The Secretary of the Treasury: Now, about Arizona, to
what extent are you familiar with the course of exchange and
business with Arizona?
Mr. Elliott:

I am fairly well acquainted with it. A great

deal of the business is done here, except the southeasterly
part, in which nearly all of their business is done in El
Paso, Texas. They carry a considerable amount of their
balances here, and a considerable amount of their balances
in San Francisco.
The Secretary of Agriculture:

It was represented toua

in one of the northern states on the coast that failure to
establish a bank up there would do injustice to that section.
Does that appeal to you as sound reasoning?
Mr. Elliott:

I hardly think so. You gentlemen recognize

that if a large district is given, the bank representing
that district can do comparatively a small amount acting as
a clearing house for that whole district.

The smaller

the districts are the nearer a bank can come to acting as a
clearinghouse.

Practically, San Francisco would be of

little use in thia section, and hardly any use whatever to



*o

J. M. Elliott

3052

Arizona and the remoter parts of the district, aa a clearing
house, for the reason that the length of time taken to
send the item from the locality where they went into the
bank first, to the clearing house, and then having them
sent out through the district would take so long that it
would render it unworkable.
The Secretary of the Treasury: With branches acting as
clearing houses, that would simplify the situation very
much.
Mr. Elliott: Yes sir, that would simplify the situation
very much, but there is nothing in the Act which would lead
anyone to expect that they would act as clearing houses
unless, of course, the Central Reserve Board concluded that
I that was part of their duty.
:
The Secretary of the Treasury:

They may, of course, con-

fer such authority upon the branches.
Mr. Elliott:

If they did, it would largely obviate that

difficulty and would relieve the banks, especially in a
reserve city like Los Angeles, of a very great burden.
It would also require very considerable capital for them
to do it.
The Secretary of the Treasury:




It is upon that point

ec

J. M. Elliott

3053

that we should like to have your views very fully expressed
from the clearing house.
Mr. Elliott:

I will be glad to do so. I will be glad

to answer any further questions I can.
The Secretary of the Treasury:

It is well to assume

in making up that brief that the branch banks may act as
clearing houses; of course, in their particular localities,
they, in turn, will act through the Federal Reserve Bank.
Mr. Elliott:

Could they do that, Mr. McAdoo, without

having the same difficulty or experience in the banks directly sending their items to a clearing house in San Francisco?
The Secretary of the Treasury:

Now, that is the very

question on which we *re seeking light*
Mr. Elliott:

That is impractical.

The Secretary of the Treasury: We would like to have

j

: as much light as we can get.
Mr. Elliott:

The impracticability rests in the length of

time between the time the item is deposited in the bank
and the time it would reach the bank on which it was drama,

'

and the payment be advised and come back in its channel.

!

! The further you get that away, the greater is the difficulty.




ec

J. M. Elliott

The Secretary of the Treasury:

3054

Oh yes, the difficulty

increases with the distance, there is no doubt about that;
and yet it may not be insuperable.
Mr. Elliott:

If you make enough branches you can obviate

the difficulty largely.
The Secretary of the Treasury:

That is all. Thank you.

The Secretary of Agriculture: As the Arizona representatives may want to get out of town, we will hear from them
next. Mr. Goldwater.
STATEMENT OF MORRIS GOLDWATER
The Secretary of the Treasury:

Give your full name, address,

occupation and whom you represent.
Mr. Goldwater: Morris Goldwater.
Arizona.

I live at Preacott,

I am a merchant and connected with the banks. I am

also Secretary of the Arizona Bankers Association and have
been for ten years.
The Secretary of the Treasury:

Are you here with any

credentials from that association?
Mr. Goldwater:

No air.

The Secretary of the Treasury:
individual?



Simply acting as an
'

ec

J. M. Elliott

Mr. Goldwater: No sir.

3055

The president asked me if I would

come over and hear what was going on and afterwards come
j himself. Before coming I wrote a letter to each one of
; the banks in Arizona askindtham a few questions.

I don't

I think I have the letter with me, or a copy of it, but I
i have a sort of symopais of the questions and anawere.
Mr. Elliott:

If my certification is worth anything, I

know that Mr. Morris Goldwater is what he represents. I have
letters from Arizona stating that that is the case, and I
know that he is the secretary of the association.
The Secretary of the Treasury: Well, I only want to know
if Mr. Goldwater is authorized to speak for the Bankers
Association of Arizona by express authority.
Mr. Goldwater: We have had no meetings since November?
The Executive Committee will meet in Phoenix next Monday.
The Secretary of the Treasury:

Give us an idea of what

you asked them.
Mr. GoldwaterL:

I asked them. Has you bank accepted the

previsions of the Federal Reserve Act?

If not, do you

expect to within the next thirty days?

Where should the

Federal Reserve Bank of which you would be a member be
located to best suit your needs?




If a branch bank be asked

ec

J. M. Elliott

3056

for Arizona, in what city do you think it should be located?
The Secretary of the Treasury: What reply did you get?
Mr. Goldwater: There are thirteen national banks in the
state of Arizona, and I received replies from eleven of
them. The first choice of the answers received were eight
for San Francisco, one for Los Angeles, and one for Kansas
City.
The Secretary of the Treasury: Where were those banks
located?

Can you giverus that data?

Mr. Goldwater:

If I had known that I was coming up here

to answer these questions, I could have done so, but I
have left my valise over in the hotel. The train was late
and I didn't even open it to take the papers out.
The Seeretary of the Treasury:

Suppose you file those

replies as an exhibit to your testimony during the day.
Mr. Goldwater:

I can dc that. I have them with me. Do

you care to hear the rest of those?
The Secretary of Agriculture: Oh yes.
!i

Mr. Coldwater:

Second choice, six of them were Los

Angeles, one Kansas City and two El Paso. Of the eleven
ten
replies received,/of them answered yes, they had accepted
the provisions of the Federal Reserve Act.




One of

ec

Morris Goldwater

them said no.

The other banks did not reply at all; were

probably toob far away.

3057

I can give you the locations of

these national banks. There are two in Phoenix, two in
Tucson, one in Prescott, one in Globe, one in Douglas,
one in Rogalee, two in Yuma, one in Tempe and one in Tombstone. The bank in Tombstone is the one that has not yet
accepted, although he answers that he expecte to do so
within thirty days.

If a branch bank be asked for Arizona,

in what city do you think it should be located?

The first

, choice, ten of them are for Phoenix, one for Tucson, one
for Los Ahgeles or El Paso. Of the letters cent to the 43
state banks —

and besides the 43 state banks there are

13 branch banks in Arizona —

there were 31 replies received.

The replies received from the bank itself, of course includes its branches.
time to answer.

I don't know that some of them had

The letter was sent eight days ago, and it

takes to some places quite a while tc get an answer back.
In answer to the first question. Have you accepted the provisions of the Federal Reserve Act?

All 31 replies no.

In reply to the second question. Do you expect to do so
within the next thirty days, one answered yes. One answered
yes, as soon as our capital can be increased.




Two were

ec

Morris Goldwater

3058

doubtful about it.
The Secretary of Agriculture: What is your state law?
Is there any limitation?
Mr. Goldwater:
any of them.

I think not.

I know of nothing to prevent

The law as it has been in existence quite a

long time was amended by the last legislature.

I don't

think it has been amended or changed in any way since we
became a state. There is nothing in it prohibiting it that
I know of. To the third questions there was one answered,
Denver, two selected Phoenix, six Los Angeles, six San
FrancisBo and four El Paso.
banks down in Douglas —

I will say that m&st of the

only the banks in Douglas and

Biabee favor El Pago aa the Reserve Bank. To the fourth
question Phoenix was selected by 15, Prescott by 3. El Paso
by one and Tucson by one. Tpw of them made no reply.
The Secretary of Agriculture: That would indicate that
the great majority of both your state and national banks
think that Arizona ought to be attached to a district with
a central abank inthe west.
Mr. Goldwater: Not only that, but they think they ought
to be attached to San Francisco and Los Angeles.
The Secretary of Agriculture: Yes.




ec

Morris Goldwater

Mr. Goldwater:

3059

I don't know of any of the banks there that

do much business that keep accounts all over the United
States for that matter, but the greater part of the business
is done with California.
The Secretary of Agriculture: When we were in Denver
they laid out a district including Arizona and New Mexico
on the south and Montana on the north.
Mr. Goldwater:

I saw that in the paper, but I believe we

have very little business with Denver. When mining is quite
active and machinery is being sent in there, there may
be some business with Denverm but the biggest part of our
bank balances are kept —

well, I wouldn't say that. The

largest part of our balances are kept in the east, New York,
Boston and Chicago.
The Secretary of the Treasury: Why do you keep them
there is the bulk of your business is in California, instead
of San Francisco?
Mr. Goldwater:

For one reason we find it best to do that.

When we want to do anything in Califnmia, we can generally
get a little premium by sending the, exchange on New York.
The Secretary of the Treasury:

When you get a parring

of exchange between the different reserve banks, that same




ee

Morris Goldwater

3060

condition will net exist.
Mr. Goldwater:

Probably that is one of the reasons why

they did not care for the Reserve Bank, taking away some
of the profits.
The Secretary of the Treasury:

On the other hand, there

^ may be profits in some other directions.
Mr. Goldwater:
j
j

There might be.

The Secretary of the Treasury: Where do you keep the

i!
)<

bulk of your reserve now?

Are you a director of a national

bank?
Mr* Goldwater:

Yes sir.

The Secretary of the Treasury: Which one?
Mr. Goldwater:

Prescott National Bank, and vice president.

The Secretary of the Treasury:

Where do you keepnthe

bulk of your reserves?
Mr. Goldwater:

In New York and Boston, for the larger part

of i t .
The Secretary of the Treasury:

What percentage would

i
i
you say?
'

M r . Goldwater:

Well, I am not prepared to say, because

j it changes from time to time. We keep a very large balance
j
in San Francisco and Los Angeles for a bank of our size.



ec

Morria Goldwater

3061

The Secretary of the Treasury: What is the general direction of your commodity shipments in Arizona —
Where do they go?
Mr. Gcldwater:

your crops?

Where do they find a market?
Well, most of it finds its way east. The

fruit finds its way east. The hay and grain is consumed
locally, and the slrplus of hay then usually comes over to
California when they have a bad season here. The high
chargds of the railroads prevent the shipping here.
The Secretary of Agriculture: What about your cattle?
Mr. Goldwater: Well, the cattle are shipped both ways.
They feed a great deal of feed to cattle down there and in
that way consume the hay without^shipping it out of the
country.
i

The Secretary of the Treasury: What is your principal
j

fruit crop in the territory?
j

Mr. Goldwater:

Well, the Salt River Valley produces oranges,

melons and apricots.
same products.

I think down in Yuma they have the

In the larger part of the territory they

are raising some apples and peache3 but not to the extent
that theu are able to ship them out iof the state. Right
now they are turning their attention to the growing of
apples in large quantities. There are two or three orchards




j

ec

Morria Goldwater

3063

that produce large quantities in the northern part.
The Secretary of the Treasury:

In the northern part?

Mr. Goldwater: Yee, around Verdi and that neighborhodd.
The Secretary of the Treasury:

la the sentiment of the

business men generally in favor of attachment to the California San Francisco district?
Mr. Coldwater:

I think so.

The Secretary of the Treasury:

So far as you have been

Able to learn.
Mr. Goldwater:

So far as I have been able to learn. I

think it is.

Ithink that is the sentiment of the town of
is
Ph&enix, which/the largest town, and I think the town of
Tucson also.
The Secretary of the Treasury: What is the time of the
fast mail between Phoenix and San Francisco?
Mr, Goldwater: We can leave there at 7 o'clock in the
evening and get here at 8:55 the next morning, provided
they are on time. Usually, as they were this mcrrning, they
are an hour or an hour and a half late.
i
i

The Secretary of the Treasury:

And then it is another 14

hours to San Francisco,
i
i

Mr. Goldwater:




I don't know what that time is. Of oourse,

ec

Morris Goldwater

3063

if we want anything frot San Francisco, we don't come through
here.

It goes right direct.

The Secretary of the Treasury:

It goea through Bakera-

field?
Mr. Goldwater: Yes.

j

The Secretary of the Treasury: What is the time from Tucson
to Los Angeles?

j

Mr. Goldwater: Well, it ia only two or three hours difference. The same train that you take out of Phoenix you v catch
at Tucson and get here at the same time.
The Secretary of the Treasury:
Mr. Goldwater.

That is all. Thank you,

Is there anyone else here fro, Arizona?
STATEMENT OF ALFRED STEINFELD.

The Secretary of the Treasury:

Give your full name,

address and occupation?
Mr. Steinfeld:

Alfred Steinfeld, banker and merchant,

Tucson, Arizona?
The Secretary of the Treasury:

Are you president alsoaof

the Bankers Association of Arizona?
Mr. Steinfeld:

I am.

The Secretary of the Treasury: Does that comprise all of




ec

A. Steinfeld

3064

the national and atate banks in its membership?
Mr. Steinfeld:

Nearly all of them.

There are some that

are not members.
The Secretary of the Treasury: Are you representing the
association as well?
Mr. Steinfeld: We have had no formal meeting, but I think
j that we are going to have a meeting next week.
The Secretary of the Treasury: You have heard the testimony of Mr. Goldwater?
Mr. Steinfeld:

Well, I didn't hear it very distinctly.

The Secretary of the Treasury: Well, the question is
where Arizona should be attached in the organization of
these districted Is it your view that she should be connected with a district of which San Francisco should be
the reserve center?
Mr. Steinfeld:

Yea sir, decidedly so. Our interests are

entirely in that direction.
The Secretary of the Treasury:
Mr. Steinfeld:

What is your bank?

Consolidated National Bank of Tucson.

The Secretary of the Treasury:

Where dcyou keep ypur

reserves?
Mr. Steinfeld:




Well, we keep them all over the country,

ec

A. Steinfeld

3065

but our principal reserves are in New york and San Franciaco.
The Secretary of the Treasury: What per cent is in San
Francisco?
Mr. Steinfeld:

I should say probably 15 per cent.

The Secretary of the Treasury* 15 per cent?
M ^ Steinfeld:

Yes sir.

The Secretary of the Treasury: And 85 in New York?
Mr. Steinfeld: No.
The Secretary of the Treasury:

Oh, 15 per cent of the

total?
Mr. Steinfeld:

Of the total. I mean of the amount of

money represented.
The Secretary of the Treasury:

Of the amount of money

represented by those totals?
Mr. Steinfeld:

*

Yes sir.

The Secretary of the Treasury! Then that leaves you 85
percent of the money that you keep somewhere else. Where
do you keep that?
Mr. Steinfeld:

We keep it in Los Angeles and New York,

Kanaaa City, Denver, Chicago and St. Louia.
The Secretary of the Treasury! How much in New York would
you aay?



^

3066

A. Steinfeld

Hr. Steinfeld:

Well, that is our main reserve there. I

would say probably about 30 per cent. This is just a guess.
The Secretary of the Treasury:
giving an approximation.
Mr. Steinfeld:

I understand you are just

How much in Chicago?

Probably about 10 per cent.

The Secretary of the Treasury:

In St. Louis, do you keep

some there?
Mr. Steinfeld:

Yes sir.

The Secretary of the Treasury: How much, about?
Mr. Steinfeld:

Well, we don't carry much in St. Louis.

Probably about 5 per cent.
The Secretary of Agriculture: What about Denver?
Mr. Steinfeld:

We carry a balance there.

The Secretary of the Treasury: How much there?
Mr. Steinfeld:

I would say about the same as St. Louis.

The Secretary of Agriculture: Do you agree to the statement that Arizona should not be attached to a district of
which Denver was the center?
Mr. Steinfeld:

Yes sir.

The Secretary of Agriculture:

That would do violence to

your customary business rales?
Mr. Steinfeld:

I think ec.

Our trade and our natural

flow is more towards the coast.




m

3067
A. Steinfeld.

The Secretary of the Treasury:

To what extent are your

balances in Chicago, and New York, necessitated by your
exchange requirements?
Mr. Steinfeld:

Well, we find in the first place that New

York exchange can be more readily used than other points,
for general commercial purposes.
The Secretary of the Treasury: Does it generally command
a premium?
Mr. Steinfeld:

1
No, not entirely so.

The Secretary of Agriculture:
Mr. Steinfeld:

la it better known?

Well, it is less liable to a discount.

Some of these points are subject to a discount, although all
the connections we have remit for our account to New York whenever it is required, without any charge.
The Secretary of the Treasury: With the barring of exchange
between these reserve banks, that necessity would very largely
disappear, wouldn't it?
Mr. Steinfeld:

Yes, to a certain extent I should think.

But the natural flow of business, I think, would control
to some extent as to just how and where you could carry
your balances.
The Secretary of the Treasury: Whatever is normal would



m

3068

A. Steinfeld.

continue?
Mr. Steinfeld:

Yea sir.

The Secretary of the Treasury:

And whatever is abnormal

or artificial would disappear?
Mr. Steinfeld:

Yes sir.

The Secretary of the Treasury:
of it.

That is about the size

Do you think that would be desirable for the country

to get rid of the artificial relations?
Mr. Steinfeld:

Yes sir, I do.

The Secretary of the Treasury:

Thank you.

Is there anybody else from Arizona?
(No response.)
The Secretary of the Treasury:

I notice a large number of

representatives of the Chamber of Commerce. Who is to be
the spokesman for the Chamber?

May we know who wants to

be heard as representing the Chamber?

We have quite a number

of names here.
(No response.)
The Secretary of the Treasury:

I see that Mr. Cole is the

first name on the list handed to me. Will Mr. Cole please
come forward.
(No response.)




P

3069
0. 8. Patton.

The Secretary of the Treasury:

Ie Mr. George S. Patton

here?
STATEMENT OF GEORGE S. PATTON.
Mr. Patton:

I didn't understand that there was to be any

representation from the Chamber of Commerce.

I thought

they were to leave that matter to the Clearing House Association.

At least, I received no communication.

If there is

any data that the Board would like to have that the Chamber
of Commerce could supply, the secretary of that Chamber,
who is a very efficient gentleman, can supply it, in regard
to the quality and quantity of the manufacturing business
here.

That could be supplied later.

The Secretary of the Treasury: We would like a brief on
that point or a memorandum of it, giving us such data as
you think is peculiar to the issue, giving ue some knowledge
of the growth of Los Angeles. We are fairly familiar with
it anyway, but it might be reduced to figures and statistics.
Will you see that that is done, Mr. Patton?
Mr. Patton: Yes sir.
The Secretary of the Treasury:

Now, are there any merchants

or business men in the room from Los Angeles who would like



3070

Q. S. Patton.

to be heard.
(No response.)
The Secretary of the Treasury:

I understand that Mr. Perrin

would like to be heard, Mr. John Perrin.
STATEMENT OF JOHN PERRIN.
The Secretary of the Treasury:

Mr. Perrin, at this hearing

we desire to be posted more about the local conditions in
this territory, and any light you can give us we will be
glad to get. As far as Indianapolis is concerned, we expect
to hear from you further.
Mr. Perrin:

I am sorry I have not prepared anything with

reference to the local situation, but only as to the general
situation.

The extent of one of the districts depends so

much upon the extent of the other that the problem will have
to be attacked as a whole.
The Secretary of the Treasury:

Are you going to appear

at the hearing at Indianapolis?
Mr. Perrin:

No. I am domiciled here, although Indianapolis

is my legal residence.

I have been here for three years

past.
The Secretary of the Treasury: We would be very glad to



m

3071
John Perrin.

hear briefly from you as to any suggestion you have to
submit

.

Mr. Perrin: What I have is very brief.

The principle upon

' which I have entered upon this is that each reserve bank
:
should have strength to meet unaided the normal requirements
of the district; that the several reserve banks, except that
of New York, should be as nearly uniform as may be in amount
of resources; aiid that the Reserve Bank of New York should
have special strength to take care of the demands of abroad
bear market.
It has seemed to me that large banks in one or two places
might be determined within the letter of the law, but that
is contrary to the purpose of the law, as I understand it,
and sc I have sought to keep within what has seemed to me
the purpose of the law in what I submit. The trouble with
cur present situation is the focusing of demands, particular)?
in the southern states, at one season, and next to that the
focusing of similar demands in the Northwest, eo I have
begun districting in the south.
The Secretary bof the Treasury:

Now, have you the districts

outlined that you would suggest?
Mr. Perrin: Yes.
The Secretary of the Treasury:



Have you got a map?

m

3073
John Perrin.

Mr. Perrin:

I have.

The Secretary of the Treasury:
Mr. Perrin:

Let me see that.

I include the south in three districts, each

of them extending north so as to give sufficient resources
to make each one independent, taking Alabama and Georgia as
the first and extending them north up to Pennsylvania but
not including Pennsylvania.
The Secretary of Agriculture: You include Maryland?
Mr. Perrin:

Include Maryland.

The Secretary of the Treasury:
Mr. Perrin:
each district.

Now, give us your summary.

This is the detail of what is included in
It leads up to this, and I number them in

the order in which I have districted them.

The first dis-?

trict includes Alabama and Georgia, the next Louisiana and
Mississippi and part of Texas, and the next Texas. That
makes three districts.

Then going to the Northwest t<&

include the wheat districts and swinging south —
The Secretary of the Treasury:

You propose to put a

Reserve Bank in Washington, another in New York, and another
in Boston for the Atlantic seaboard?
Mr. Perrin:

I start from the other end.

The reason for

the suggestion of these particular cities is that they are



m

3073
John Perrin.

convenient for intercommunication.

It is not essential for

the purpose of any one district, but the cities suggested
are so conveniently situated that except for Kansas City,
within a night's ride the Federal Reserve Board and the
representatives of seven of the Federal Reserve Bank could
meet for conference.

Telephone communication would be

very easy.

Transfers of currencies and securities would be

very easy.

So for that reason I suggest these cities.

Washington for the first district, St. Louis for the second,
Kansas City third; then going to the Northwest, Chicago;
then swing over to take San Francisco for the Pacific Coast;
then going back to district what remains, that would mean
New England, Boston, New York, and then districting for the
j final district what is left, Number 8, which includes, ae
I suggest, Michigan, Ohio and Western Pennsylvania.
The Secretary of Agriculture: Where do you put Kentucky
and Tennessee?
Mr. Perrin:

They go in with the St. Louis district to take

care of Louisiana and Mississippi.

You must have eight

districts.
The Secretary of the Treasury: Does not Michigan unanimously request to be attached to Chicago?



3074

John Perrin.

Mr. Perrin:

It has seemed to me there are two objections

which I suggest.

One is the matter of inconvenience in

the transaction of current business.

It has seemed to me

with the location of branches that inconvenience would disappear practically entirely.

The other objection is the

administrative difficulty of applying a uniform discount
rate to a section which includes a high rate territory and a
low rate territory; but hight rates are necessarily due to
lack of loanable funds, and if you seek to make each
jdietrict independent you must include loanable funds in that
^district.

If the Federal Reserve Board cannot by its

^classification of paper, and otherwise, take care of the
^administrative difficulty, and that must remain, I submit
that that is less important than that a reserve bank should
jbe made a member bank, in effect, of some other reserve bankr
jl have sought to make the lending power of the different
institutions as nearly uniform as possible.

They do not

vary greatly in capital.
I




Washington
St. Louis
Kansas City
Chicago

§10,000,000
11,000,000
9,000,000 or $8,000,000
14,000,000

*

3075
John Perrin.

San Francisco,
Boston,

$7,000,000 or $8,000,000
9,000,000

New York,

33,000,000

Cleveland,

10,000,000

The lending power would run from I believe $73,000,000
up to $103,000,000.
The Secretary of Agriculture:

That ie based only on

. national banks.
Mr. Perrin:

That is based only on national banks, and

is included in this way:

6 per cent of capital and surplus,

hf course, for capital, and roughtly 6 per cent of individual
deposits.

I assume that bank balances with other banks

will greatly disappear, and that consequently that is an
inconstant factor.
deposits.

So I take 6 per cent of the individual

In central reserve cities I take 7 per cent,

but for country banks I take 6, because being a little
more remote from branches, they would perhaps require a
little larger margin of deposit for current operation than
a bank that had a branch, or a reserve bank.
The Secretary of the Treasury:

You are assuming that

cutsideof the reserves which these banks would carry for
member banks, they would keep a deposit line of this much



m

3076

John Perrin.

in addition.
Mr. Perrin:

No. That is required.

The Secretary of the Treasury:

I understand the reserve

is required.
Mr. Perrin:

That deposit is what is the required deposit

from the member banks, and this which I call reserve is
the reserve of the Federal Reserve Banks.
The Secretary of the Treasury:

This is the combination

of the two.
Mr. Perrin: Yes.
The Secretary of the Treasury: Where do you get the rediscount?
Mr. Perrin:

Taking the 35 per cent reserve against that

amount of deposit liability, rediscount liability not taking
the form of notes.

Of course, to the extent that notea

were taken for those rediscounts, the reserve would have to
be 40 per cent instead of 35, but this is based simply upon
a rediscount privilege creating a credit for checking.
For New York in the suggested division, it includes no
important agricultural demand at all.

It is exempt from

that, but it seemed to me the obligation resting upon New
York is of a two-fold character. We must look to the New



*

3077
John Perrin.

York institution to make the investment in loans in Federal
Reserve centers, both to regulate rates of foreign exchange
and as a potential secondary reserve for the whole country.
iThere is no other bank naturally as situated for that, or
or so apt to do it.

The others are all given more or lesa of

local or agricultural demand.
In addition to that, if we are to provida an alternative
for the present call loans on the stock exchange, we are
'bound to have a strong institution to make certain the
I availability for rediscount, or the rediscount possibility

I
jof bills and acceptances.
i

^

I am told that in London the average current investment

in bills is about $2500,000,000, mere or lees.

The only

reason why a market ^ould be so broad and so stable as that
of London is the certainty of rediscount if desired. The
Bank of England does not in terms declare that it will re' discount without limit, but as a matter of fact it does so,
and so that bill market is possible. Unless we provide
some such commercial channel for surplus funds to flow
into, there seems no way but that temporary investment of
surplus funds must go as now into call loans upon the stock
exchange.



That means that we have all the disturbance that

m

3076

John Perrin.

comes from the withdrawal of funde needed for commerce aa
as the need arises, and all the difficulties that arise from
! that present situation from which we wish to depart. Consequently, I have not seen any other way except to give the
New York bank a special strength for that purpose, and, so
iyou see, the lending power runs from ^73,000,000 to
; #100,000,000 and with the other I have suggested a lending
j
power of $310,000,000 for the New York bank.
I

In dividing the whole country in this way, it is my

ithought —

I can't say that I have worked this out accurate-

l y , although these figures are accurate based upon the
! National Bank resources —

it is rather as an illustration

of, the principle which I suggest rather than an attempt at
'precise definition.

If that is no accurately worked out

that we have eight principalities here with a central bank
}
in each, which I take it is the organization contemplated
jby the law, it would very rarely happen that any one reserve
ibank would need assistance from another.

If it did, if

seven are approximately equally uniform in power, the burden
upon any one bank could be shared by five or six of the
!'others without even appealing to New York, eo the whole
!i
r

^machine would be uniformly strong.

jg




i Now, as to how far the rediscount would be called for,
i

m

3079
John Perrin.

assume, for instance, that a rate —
district.

take the St. Louia

Assume the discount rate was 5-1/3 per cent, with

a going rate, let us say, in Chicago, of B per cent. It
seems to us altogether probable that the individual banks
j in New Orleans would, to the extent it was possible, arrange
with individual banks in Chicago for loans of 5 per cent
rather than discount at 5-1/3 per cent with their own reserve
banks.

So there would be a constant and free interflow of

credits in that wqr between banks, and the reserve banks
would be appealed to only when the market began to have
; itsloanable funds absorbed.

'

The Secretary of the Treasury: What is your chief reason,
Mr. Perrin, for advocating the dominant bank for New York?
Is that because of the foreign exchange question, or for
the other reason?
Mr. Perrin:

No sir.

was a secondary reason.

I would say that the foreign exchange
The main purpose is the encourage-

ment and maintenance of a broad bill market, which it
seems to be absolutely essential to have for the full success
of the system.
The Secretary of the Treasury:
obtained only that way.



You think it can be

m

3080
John Perrin.

Mr. Perrin:

There may be other ways.

No other way has

suggested itself to me.
The Secretary of the Treasury? What I mean is this, do
you believe that you cannot have a broad bill market of
that kind unless there is a dominant bank of that kind somewhere, whether in New York or some other place?
Mr. Perrin:

Suppose one is guided by the experience in

other countries.

In France, in Germany, in every financial

center in which a market of that kind naturally centers —
The Secretary of the Treasury:

But conditions are not

analogous.
Mr. Perrin:

To be sure, but a financial center, I take

it, is so because that is the place where the bulk of
trades are made.

It is the great clearing house, the

great market place where buyers and sellers meet. You
cannot scatter them.

They must meet in some place.

The Secretary of the Treasury:

Of course our system in

this country has created an artificial condition largely,
with the creation of certain cities as central reserve
cities, and the pyramiding of reserves and the payment of
interest balances, all of which have attracted capital. In
aome cities the reserves we have discovered in our



ee

3081
John Perrin.

investigation.

Those reserves are practically wholly

'

artificial.
Mr. -perrin: Yes.
The secretary of the Treasury:

to
Now,/that extent,

jthese conditions are not a safe guide to future action, and
t*hat we must consider are the conditions in the light of
(normality or abnormality, and the question which arises in
j n mind is this?
iy

To vthat extent, in vien of these abnormal

ii

pcnditions, these who argue in favor of a dominant bank
! L New York are not being influence! ty that condition rather
Jn
than by letting the mind revert to a normal state of affaire
again and then divide it with reference to that normality.
Mr. Perrin:

Suppose wejsought to have eight, Mr, Becretary,

bill markets, one at the point at which each of these reserve
banks are located.

They will not all have the same disccunt.

i)
The Secretary of the vreeeury:
not?
Mr.
The
!
!
right

How do you knew they will

They might?
Perrin:
That is entirely possible.
Secretary of the Treasury: The Reserve Board has the
to regulate that absolutely.

Mr* Perrin:

I don't know whether that would be physically

possible or not to have eight bill markets.



,

**

John Perrin

The secretary of the Treasury:

3082

They are all dealing on

the same basie of rate, and it would certainly be far 3 o e
.r
possible than if there v a a variation, and that in turn
.s
would depend upon the strength of the different units, and
then again you have coordination with the Federal Reserve
Board.

So that the argument in favor of a dordnent unit

in the system would not be as Qtrcng as if you did ret
have that coordinating power.
Mr. Perrin:

!
i

I have dwelt en that In which I have submitted

there, and incidentally it has seemed to me that that coordination and cooperation on the part of the Federal Reserve
Banks could be best obtained, and that is one reason why
I suggested their contiguous location or nearly contiguous,
to bring about voluntary cooperation as nearly as possible.
But even with that and making the whole system a unit,
I have not grasped the thought that it would be possible to
have more than one center where investors from other countireg
and investors from this country would find the whole flow
of either investments offered of this character or of
funds to invest.
The Secretary of the Treasury:

if you had heard the

arguments of the different cities we visited, you would have



ee

John Perrin

3063

a different point of view. At least we are struggling with
that now.

I see in your plan here you omit New Orleans

for a Reserve Bank,
Mr. perrin:

For the purposes of the operation of the

one which I mark number 2, there is no reason why that
Reserve Bank should not be located at Jackson, Mississippi,
or New Orleans, or any other point in that distnct.
The Secretary of the Treasury:
Mr. Perrin:

Or St, Louis.

Or St. Louis, I assume that there will be

branches located in all theimportant cities of the country,
and that the convenience both for clearance and for discounts will thereby be served so that the actual location of
the Federal Reserve Bank itself is not very vital.
The Secretary of the treasury:
Mr. Perrin:

yt is not material.

It dees not seem to me so. Like the old state

bank of Indiana, it makes no difference.
The Secretary of the Treasury:

Holding these reserves,

as long as they are accessible to banks in the district,
your view is that its location is not material?
Mr. Perrin:

Yes, It does not seenijto me, for instance,

if there was a branch at *?ew Orleans that it would be at
all essential that the reserves of that district should be




ee

John Perrin

3064

located proportionately at tyew ^rleans, but the reserves in
St. Louis are juatvas available aa a basis for loans made
in New Orleans as if the Reserve Bank were loated in New
Orleans.
The Secretary of the Treasury:

In other words, you take

the view that the power of the parent bank can be exerted
at any branch?
Mr. perrin:

Exactly.

The secretary of the Treasury:

And that so long as the

Reserve Bank itself, its headquarters, are at an available
point in the district it will satisfy the situation?
Mr. Perrin:

That is exactly my view.

The Secretary of the Treasury:

We had suggestions from

some gentlemen that it was not necessary to have a Reserve
Bank in New York that it might be served by a branch.
Vr. Perrin:

I think that is true.

The Secretary of the Treasury:
Mr. perrin:

It could be done.

I think that is true.

The Secretary of the Treasury:

The same thing could be

said of Chicago?
Mr. Perrin: Exactly.
The Secretary of Agriculture:




Y&u have included

ee

John Perrin

3085

Cincinnati in number 3?
Mr. perrin:

j

Yes. That is simply to build up the resources

in number 3 district so as to make it 9eem sufficient to
serve the needs of that district and so as to make it fairly
i

uniform with the other districts.

!

The Secretary of Agriculture: Would you say that would
be of considerable advantage?

^ouM you get the same strength

by bringing the line farther west?
Mr. Perrin:

!

Then you diminish the strength of number 3.

If we stop to analyse the different transactions and have
in mind that inconvenience to which they refer —

Take, for

instance, New Haven. New Haven does its business almost
wholly with New York, undoubtedly, and they would say they
ought to be Allotted to the New York district. A branch at
NewHaven receiving checks upon New York today. I assume,
bank
would send them directly to the * e York/ and report
?w
to the Boston bank, if tnat were the Reserve park, that it
had remitted 30 cuch, and to charge the New York bank with
the accounts that were kept in Boston, As a matter of
rediscount convenience, I don't see that it v^ould be material.
A bank does not borrow money within five minutes or fifteen
minutes.



It usually knows some weeks ahead when it is

*e

John Pertin

3086

going to require funds*
The Secretary of the Treasury:

Many of the bankers and

business men who appeared before the Committee seemed to
have the view that these banks are ordinary banke of discount
and deposit.
Mr. Perrin:

That haa not been my ecnception of it.

The Secretary of the Treasury:

I understand that, but they

have a wrong idea about the necessity of having the bank,
Mr, -perrin:

Well, it has not seemed to me that the conven-

ience in clearing is by any means the matter ofmajor consideration; that the convenience in clearing can be adequately
served through the branches, and that the very vital thing
is to provide possibly rediscounts.
The Decretary of the Treasury:

Mr. Perrin, you heard the

;

j
questions I addressed to the Clearing House here a moment ago
about this definition of commercial paper?
Mr. perrin:

Yes, sir.

The secretary of the treasury:

Also the question of clearj
!

ances?
Mr. Perrin:

Yes, sir.

I donlt know that I heard the question

of clearances.
The Secretary cf the Treasury:




I mean the question of

**

John perrin

30S?

Reserve Banks acting as clearing houses.
Mr. Perrin: Yes.
The Secretary of the Treasury:

You are familiar with

section 16 of the Act, aren't you?
Mr. -oerrin: Yes, sir.
The Secretary of the Treasury: As to rules and regulations
governing the charges for transfer of funds between the
Federal Reserve Banks and their branches, and that they also
may act as Clearing Houses or require member banks to act
as Clearing Houses.

I mean the reserve banks may themselves

act as Clearing Houses or have the Reserve Bank for the
district act as a clearing house. Have you given any thought
to those two subjects?
Mr. Perrin:

Yes, sir; I am fjree to say I have*

The Secretary of the Treasury:

We shall be very glad if

you would submit a memorandum on that subject, first, as to
the question of commercial paper —

I mean the definition of

commercial paper, which I should imagine will occupy your
time for a little while, and, secondly, as to the charges
that should be made, if any, between the Federal Reserve
! Banks and their branches, and on the queation of their acting
i

as Clearing Houses of banks in their respective lietrict.




j

John Perrin

Mr. Perrin:

3088

I should be glad to comply with the suggestion,

Mr. Secretary.

I aho Id say this, as I have worked over

!

th&se different problems— it has presented itself to me
in this lipat;

I question the human possibility of defining

conmercial paper in such a way as to conform to what the

j

ultimate practice will be. It has seemed to me that at the
cutset there must be considerable latitude, considerable

'

discretion.
The Secretary of Agriculture:

That is the reason it ie

left to adninintrative hanlding instead of being enacted
into law.
Mr* Perrin:

*
Yea. If they knew how they would have put

it into the law, and it seems the way to meet that is to
require of each bank offering paper for rediscount a state**
ment of the funds represented by these notes and the ^ rpcses
for which it ia to be used.
The Secretary of the Treasury:

That is the point we

would like you to submit a written memorandum on.
Mr. Perrin: Yes.
The Secretary of the Treasury:

Because it requires a

great deal of study and thought.
Mr. Perrin:




I was going to say further that it has seemed

John Perrin.

3089

to me that from time to time the attitude of the Federal
Reserve Board in regard to that would change.
The Secretary of the "Treasury:
left to administrative method.
not
thr Act, then you could/have

Well, it may be.

That is

If it had been fixed in

dealt with it except by new

legislation.
Mr. Perrin:

If you are successful in bringing in to exis-

tence a large volune of acceptances, both bank acceptances
and trade acceptances, the situation could be changed.
The Secretary of the Treasury:

The idea is to ^et some

sort cf definition which will designate the kind of paper
we ought to have under this bill.
The Secretary of Agriculture:

Or any suggestion you have

to make which you think we should have.
Mr. Perrin:

I will be glad to do that.

It seems to me

exceedingly desirable for the general economy that the
Federal Reserve Banks should, as far as possible, act as
clearing agents.
The Secretary of Agriculture:

That is contemplated in

the law, if you will jast indicate hov; you think that
should be brought about.
Mr. Perrirh::



Yea.

Will ycu file that as an exhibit?

John Perrin.

The Secretary of the Treasury:

3 ^

If it is convenient, we

would like to have those exhibits in triplicate.

I will

say that to the Los Angeles people who ha^e appeared here
also.
Is there anyone else who desires to be heard here now
at this hearing?
Mr. Fishbum:

I notice present in the room, Mr. Frank Knox,

President of the National Bank of San Francisco, also Mr.
Roberts, secretary of the Bankers Association of Boi3e,
Idaho.
The Secretary of the T reasury:
very throughly

We have heard from Boi3e

We would be glad to hear from Mr^Knox.
STATEMENT OF FRANK KNOX.

The Secretary of the Treasury:
-yr. Knox:

What is ycur name?

Frank Knox, president of the National Bank

of the Republic of Salt yake City, president of the State
Bankers Associatecnof Utah, vice president of the Salt lake
Clearing Htuse Association.
The Secret ry of the Treasury:

Are you here with author-

ity tc represent those associations?
Mr. Knox:




No sir.

I was to have gone to Denver, but I

Frank Knox

was not home.

3091

I amhere simply as an individual.

The Secretary of the Treasury:

Now, we would like to

know something about the Utah situation and as to what
your view as to the place you should be attached,— I mean
what Reserve District

would best se-*ve the cuetomery

course of business.
Mr. Knox:

I was home only t&o days since you were in

Denver, , and the bankers,I spoke to all favcr San Frahciao,
if it i3 selected for a FeJ^ral Bank Reserve, excepting cne,
and that bank also has a bank in Denver.
The Secretary of the Treasury:
Mr. Knox:

Which bank is that?

That is the Contential National and the Mer-

chants National Bank.
The Secretary of Agriculture:

Is that a member of the

Clearing House!
Mr. Kiiox:

Yes sir.

The Secretary of the Treasury:

Suppo e Portland, Oregon,

was choten, how would that operate so far as Salt &ake
City is concerned?
Mr. Kxox:
as we ha"

We have no direct connection with Pertlandsuch

with San Francisco; but Idahc bankd do a great

Dorticn of their business with Portland.



They also keep

Frank K^ox

3093

accoun ta in St. Louis.
The Secretary of the Treasury:

T& what extent do you keep

your reserves in St. Louis and Chicago?
Mr. Knox:

I keep, speaking of By own bank, 45 per cent in

Chicago, about the sa&e in New York, and 10 per cent in St.
Kouis.

That is my reserves.

The balance ie in San Fran-

cieco.
The Secretary of the Treasury:

The other portion in San

Francisco is merely for exchange purpos st
Mr. KRox:

Yas sir,

The Secretary of the Treasury:

Which represents a normal

requirenjent?
Mr. Knox:

We accumulate tha balance by reason of wheat

shipments and stock shipments, and then we are United States
depository and we used that money for paying the
each day the exce 3 deposit.

government

We get rid of it in that way.

People in cur city general v,ant eastern exchange.
The Secretary of Agrivulture:

Your western connection,

you think, is the normal cne for Utah?
Mr. Kr:ox:

I would certainly prefer to be connected with

San Francisco rather than Denver or Omaha, or a city of




Frank Knox

3093

that kind.
The Secretary of Agriculture:

The state should go as a

whole into one district?
Mr. Knox:

Yes, sir, I think so.

The Secretary cf Agriculture:

There are very few banka

east cf the mountains?
Mr. Knox:

East of the Rocky Mountains.

The Secretary of Agriculture:
Mr. Kicx:

East of Salt Lake.

Th e^e is none that I know of really east of

Salt rake in tttah —

tyat^cnal ^anks.

And we certainly

prefer to be connected with a strong Federal Bank than a

j

tail end and weak one, and it wbuld require all the states
west cf the Rocky Mountains, excluding California and in-

i

eluding Colorado, to have a capital and surplus of $7C,000,0C0;
and as far as business is concerned, I don't see how we
could raiae the capital in that community.
The Secretary of Agriculture:

What is the course of the

woven ent of ycur commodities froir Utah?
irr. Knox:
goes west.

Our wheat, barley and grain, practically all
Soire gees south occasionally, but it practically

all goes west.

I don't know whe^e the sugar goes to.

Sheep

and live stock largely gc wast to Omaha, Kansas City and



Frank K^ox

3094

Chicago, except in certain periods we sell a gocd deal of
stock in California and the west.
The Secretary of the Treasury:
linde of commercial paper in Utah?

That i& sheep and cattle.
Have you any special
I mean any coirKercial

paper that is peculiar to the district there?
Mr. Knox:

Well, we have no paper there that is subject to

rediscounting;

at least not much of it.

The Secretary of the Treasury:

Cattle —

dc you have

that?
Mr. K^ox:

No, we are not a cattle country.

We have some

but money is largely loaned on sheep and live stock —

what

i* known as live stock, but we loan to merchants and the
best growers borrow money and we loan to mining people and
the mining companies endorse the paper.
matter.

That is a very large

Ninety day paper is practically something we don,t

know anything about.

We loan for ninety days sometimes,

but we only get paid about twice a year.
The Secretary of the Treasury:

To what extent will this

be a benefit to Utah?
Mr. Kncx:

It will be a benefit to the country banks which
as security
are obliged to take it occasionally/— net that they do it;
they have not sufficient capital; but



Frank Knox.

3095

it may enable then to get better security in ecne cases*
It would be of v.iry little advantage really.
The Secretary of the Treasury:
Mr. Knox:

That is all, Mr. Knox.

May I ask a question?

The Secretary of the Treasury:
Mr. Kncx:

Certainly*

I want to know to what extent National Banks

are supposed to be able to rediscount.

In my bank I expect

to loan about $700,000 of xy four and a half million deposits
and if I can only rediscount to the extent cf

my capital,

how am I going to do it?
The Secretary of the Treasury:
I recall it.

There is no limitation as

I think there is a specific provision ii. the

iAct there that you may =— I have not time to lock it up.
Mr. Kncx:

I think it is still governed by the old law.

The Secretary of tne Treasury:

No, there is no limitation,

as I recall it, on the power of rediscount with the Federal
Reserve Bank.
Mr. Knox:

I would like to say one v,crd more.

We are

about equi-distant frorr Denver and San Francisco. 34 hours
either wyy, and Denver is 34 hours frc& Chicago, and we
are 36 hours frcp! Chicago, and v e certainly prefer to
;
be attached to San Francisco.




Frank K^ox

3096

The Secretary of Agriculture: You think you represent
the majority of the bankers?
Mf. Kncx: Well, I rather think I do, tut I an not authorized to speak for them.
The Secretary of the Treasury:

Does anyone else desire

to be heard before the meeting adjourns?

If not, the meeting

will now adjourn*

Whereupon, at 13 o'clock noon the hearing at Loe Angeles
was adjourned/