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C 0 r X
WAShxi'iGTL , D. C
. SECTIO
M
A meeting o f the Advisory Committee o f the Federal
J'JL 23 1343r
was held a t the o f f i c e o f the F ederal Reserve Board at 11 o ’ clo c k a , m. th is day.
Present:
t
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Messrs. Harding, N o rris, Faneher, Seay
and McDougal, Governors, and Mr. Case, Deputy Governor,
M essrs. W ills and M artin, F ederal Reserve Agents.
/ **
The fo llo w in g members o f the Federal Reserve Board were
present a t the morning se ss io n :
Governor C rissin g e r, Honorable H. M. Dawes, Com ptroller
o f the Currency, and the Honorables Cunningham, M ille r ,
Hamlin and James.
Mr. Case was appointed chairman and Mr, Martin acted as se cre ta ry .
The members o f the Federal Reserve Board join ed the meeting at th is p oin t
and the situ a tio n presented by the recen t d e cis io n s o f the United States Supreme
Court in the North Carolina and A tlanta par c o lle c t io n ca se s, was discussed at
len g th .
Governor C rissin g er on b eh a lf o f the F ederal Reserve Board reauested the
committee to form ulate recommendations suggesting appropriate a ctio n to be taken in
view o f these d e cisio n s and to arrange f o r the sending out o f a uniform c ir c u la r
l e t t e r by a l l the twelve Federal reserve banks.
Honorables C rissin g e r, Dawes, M ille r , Hamlin, Cunningham and James l e f t
the meeting a t th is poin t and sh o r tly th e re a fte r a recess was taken f o r lunch.
Upon reconvening the committee c a r e fu lly considered the par c o lle c t io n
m atter, and on motion duly made and seconded, the fo llo w in g re p o rt to the Federal
Reserve Board was adopted:
The p ro v isio n s in the F ed eral Reserve Act which
a uthorize the establishm ent o f a F ederal reserve c o lle c t io n
system were designed w holly f o r the b e n e fit o f the banking and
commercial in te r e s ts o f the coun try. The System i s now in
op eration between banks which in number are about 92 per cen t,
o f a l l banking in s tit u t io n s and which have more than 98 per ce n t,
o f the t o t a l banking resources o f the country. I t i s the
opinion o f the Committee that the System has become a necessaiy
instru m en tality in e ffe c t in g domestic exchanges o f the country;
that i t s op era tion , including f i n a l payments through the Gold
Settlem ent Fund, has been o f inestim able b e n e fit and has resu lted
/
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in enormous saving to those a c t iv e ly engaged in carrying on the
commerce o f the country; and that there are no other f a c i l i t i e s
f o r operating a c o lle c t io n system which could approximate i t in
economy o f o p era tion . I t has elim inated a very la rge p ortion o f
the time form erly consumed in the c o lle c t io n o f checks and has
cut down the co s t o f making the cou n try's exchanges to the minimum.
The Committee th e re fo re b e lie v e s that the System even though not
imposed upon the F ederal reserve banks by the A ct, as in terp reted
by the Supreme Court of the United States in i t s recen t d e c is io n ,
has f u l l y ju s t i f i e d i t s operation and is o f such value to the bank
ing and commercial in te re s ts o f the country that i t s continuance i s
o f v i t a l im portance. Certain changes, however, in the basis o f
the par clearance system appear to the Committee to be advisable
in view o f the recen t d e cisio n o f the Supreme Court.
The Committee b e lie v e s that p a r tic ip a tio n in the par
clearance system should be based upon the p r in c ip le o f r e c ip r o c it y
and th at h erea fter the F ederal re se rv e banks should not re ce iv e
f o r c o lle c t i o n checks on any non-member bank which w i l l not agree
to rem it in a ccep ta b le funds without deduction. The recen t opinion
o f the Supreme Court makes i t ce rta in that the F ederal reserve banks
are not perm itted by law to pay exchange. I t must be c le a r that
the more in c lu s iv e a c o lle c t io n system i s , the more e f f i c i e n t i t w i l l
be, and the grea ter w i l l be the s e r v ic e i t can render a lik e to the
business and banking community. T h erefore, sin ce i t is the o b je c t
o f the Federal reserve banks to maintain an e f f i c i e n t system o f par
c o l l e c t i o n , which must at the same time be a voluntary system as fa r
as non-member banks are concerned, the concession s involved and the
r e s u ltin g b e n e fits should be made and received by a l l p a r tic ip a tin g
banks. I t is c le a r that those non-member banks which are un w illing
to rem it without deduction f o r checks drawn on themselves have no
r ig h t to share in the .advantages o f the par c o lle c t io n system.
I t is th e re fo re recommended by the Committee (1) that the
F ederal Reserve Board p ro h ib it the c o lle c t io n o f checks drawn on
non-member banks which w i l l not v o lu n ta r ily rem it in acceptable
funds without dedu ction , and (2) that the F ederal Reserve Board, in
the e x e rcis e o f i t s le g a l a u th o rity , f i x a charge that Federal re
serve banks s h a ll make f o r th e ir se rv ic e s in c o lle c t in g checks which
bear the endorsement o f or o rig in a te with those non-member banks
which d e clin e to rem it to the Federal reserve banks w ithout deduc
t io n , and i t i s suggested that such charge be made equal to that
which said non-member banks make when paying or rem itting f o r checks
upon them selves.
In order t o give e f f e c t to the foreg oin g recommendation,
the Committee submits f o r the con sid eration o f the Board the f o l
lowing amendment to Regulation J:
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Authority E .6 .
A fte r Condition No, 5 o f Regularion J
in s e rt two new con d ition s reading as f o llo w s :
(6)
No Federal re se rv e bank
s h a ll r e ce iv e on d e p o sit or f o r c o l
le c t io n any checK drawn on a non-member
bank which refu ses t o rem it a t par in
acceptable funds.
(7)
Whenever a F ederal reserve bank
re ce iv e s on d ep osit or f o r c o lle c t io n a
chec.lc drawn by, endorsed by or emanating
from any non-member bank which refu ses to
remit a t par, i t s h a ll charge f o r the se r
v ic e o f c o lle c t in g such check a c o lle c t io n
charge equal to the exchange charged by such
non-member bank f o r rem itting f o r checks
drawn on i t .
I t was the consensus o f opinion that b e fo re making the recommendations o f the com
m ittee e f f e c t i v e , the proposed amendment o f R egulation J should r e ce iv e the approval
o f Honorable John W. D avis, counsel fo r the System in the par c o lle c t io n l i t i g a t i o n ,
and that the Board should send out a uniform c ir c u la r l e t t e r in the form suggested
by the committee in a separate memorandum, lik ew ise a ft e r approval by Mr. D avis.
The committee then took under con sid era tion Board l e t t e r X-3750, dated
June 20, 1923, on the su b je ct o f the permission granted to member banks to apply fo r
discoun ts o f e l i g i b l e paper acquired from non-member banks.
On motion duly made
and seconded, i t was
VOTED to recommend to the Federal Reserve Board that the permission here
to fo r e given t o member banks to a c t as agents or media in red iscou n tin g f o r non
member banks, be immediately rescinded in t o t o .
A l e t t e r from Mr* Charles deB. C laibourne, dated June 20, 1923, addressed
to Governor C rissin g e r, requesting a hearing on the par c o lle c t i o n m atter, was sub
m itted .
A fte r con sid eration i t was decided to recommend to the Federal Reserve
Board that in the opinion o f th is committee i t i s inadvisable to comply with
Mr. C la ib o u m e 's req u est.
The meeting adjourned at 6 o ’ clo ck p. m. to meet a t 10 o ’ clo ck a . m. the
next day.
J . H. Case,
Chairman.
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E.6. iilSlo
Washington, D. C., June 26, 1923•
A meeting of the Advisory Committee of the Federal Reserve Bank Governors
was held at the o ffic e of the Federal Reserve Board at 10 o*clock a, m. this day.
j HEC'D I-HFILES SECTIOH
Present:
\fhM
I '
O O 4r>j,0t •!(rt'/
'<3
Mr. Case, Chairman,
u } 3 3 3 > - V"
j
__________ J
Messrs. Harding, Norris, Fancher, Seay, and McDougal,' Giwomnrfl,
Messrs. W ills and Martin, Federal Reserve Agents,
n.
The following members of the Federal Reserve Board were <
present at the afternoon session:
i
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Governor Crissinger, Honorable H. M. Dawes, Comptroller
of the Currency, and the Honorables Cunningham, M iller,
(
Hamlin and P la tt.
Honorable S. P. G ilbert, J r ., Under-Secretary of the Treasury
attended the meeting part of the time.
Mr. M. B. Angell also attended the meeting part of the time.
|
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The report of the open market investment committee was received and
accepted.
Governor McDougal called attention to the fact that a l l of the Federal
reserve banks are practically out of Treasury certificates of indebtedness.
The chairman submitted a suggested le tte r to be sent to the governors of
a l l Federal reserve banks concerning the distribution of b i l l s purchased by Federal
reserve banks.
The le tte r is as follows:
The Open Market Investment Committee for the Federal
Reserve System, appointed by the la s t Governors* Conference,
has given careful consideration to the matter of effecting an
equitable distribution among a l l Federal reserve banks o f b i l l s
purchased in the open market by the Federal Reserve System.
The Committee has adopted the suggestion submitted
by Mr. O’Hara of the New York bank that such distribution be
made upon the basis of the reserve percentages of the several
banks.
Under this plan i t is proposed \ry means of a simple
method to distribute each week the aggregate of b i l l s purchased
by the Federal Reserve System among a l l reserve banks in such
manner that the amount retained by and/or allotted to each bank
w ill affect it s reserve position to exactly the same extent as
those of a l l other reserve banks.
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As several of the banks may in the ordinary course
be purchasing in their lo c a l markets an amount of b i l l s greater
than their proportion of the aggregate purehasea of a l l banks,
i t is obvious that in order to make this plan effective these
several banks w ill give o ff their excess to other banka "hose
local purchases of b i lls are less than their proportion of the
aggregate purchases of the System,
I t therefore seems necessary and desirable that the
distribution be arranged through one point and i t would appear
lo gical that i t should be handled by Mr. Matteson, the secretary
of the committee in New York.
Once a week each bank* s proportion of the aggregate
purchases of the {System would be figured on the basis o f it s
reserve percentage at the close of the preceding week and
y\
distribution would be effected accordingly. Such banks as may /
have purchased more than their proportion, would be requested to
make sales from their portfolios to such other bank or banks as
the secretary might indicate, subject, o f course, in this respect
to the convenience or any special wishes of the particular banks
between which such transactions would pass.
I t is recognized that at the present time most of the
reserve banks are in a comfortable reserve position. I f and
when -the time arrives that the reserve percentage of any of the
banks are substantially reduced and they should consider i t de
sirable that they cease participation for the time being, the
same plan can be readily continued with the remaining banks.
The Committee proposes to put this procedure into effect
commencing with the business of the week ending July 11 next.
Whereupon, after consideration and on motion of Governor Fancher, seconded by
Governor McDougal, i t was
VOTED to adopt for the present the plan as set out in the above
le tte r.
The open market rate for purchases of b i l l s was then discussed.
Each
one present made a report of the conditions in his d istric t and i t was the unanimous
opinion that there should be no change in present rates for purchases of b i l l s in
the open market nor any change in discount rates.
At this point, 1 p. m., the committee adjourned for luncheon.
The committee reconvened at 2:30 o’ clock p. m.
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- 3 The chairman in d ica ted to the Federal Reserve Board the view o f the com
m ittee that b e fo re making the recommendation o f the committee e f f e c t iv e in the par
clearance m atter, the proposed amendment o f R egulation J should re ce iv e the approval
o f the Honorable John W. Davis, counsel fo r the System in the par c o lle c t io n l i t i g a
t io n , and that there should be sent out by the Board a uniform c ir c u la r le t t e r in
the form suggested by the committee in a separate memorandum, lik e w ise a fte r approval
by Mr. Davis,
I t was unanimously aggreed that the c ir c u la r should be e f f e c t iv e on
August 15, 1923.
At th is p oin t Mr, M. B. A ngell, a sso cia te d with Mr. John W. Davis, entered
the conference and the rep ort o f the committee on par clearance was submitted to him.
He expressed the view that i t was con stru ctiv e and should be h e lp fu l and sta ted that
he could see no o b je ctio n s to i t from a le g a l standpoint but that he would submit i t
to Mr. Davis tomorrow and advise the Board by telephone i f Mr. Davis had any other
view s.
Governor C rissin ger c a lle d fo r a re p o rt from those present as to e x is tin g
c r e d it con d ition s in th e ir r e s p e ctiv e d i s t r ic t s and as to whether or not i t was de
s ir a b le that any change o f ra te s be made in the open market or otherw ise.
Each one
o f the governors responded and sta ted that in h i s judgment there should be no change
in eith e r open market o r d iscoun t ra te s at the present time.
At t h is p oin t the members o f the Board other than Governor C rissin ger and
Mr. M ille r withdrew.
In response to a request f o r an expression o f the views o f the Board as
to the d e s ir a b ilit y o f continuing the p o licy o f esta b lish in g r e la tio n s with fo r e ig n
cen tra l banks, Governor C rissin g er stated that i t was the view o f the Board that
these r e la tio n s were d e sira b le and in the p u b lic in t e r e s t .
Ten o f the Federal re
serve banks having Expressed the view that these arrangements were d e s ira b le , the
chairman was requested to have the Federal Reserve Bank o f New York send each month
to a l l p a r tic ip a tin g banks a complete schedule o f investments held f o r the account
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- 4o f fo re ig n correspondents.
General d iscu ssion fo llo w e d in regard to the d e s ir a b ilit y o f the Federal
reserve banks paying out more g old c e r t i f i c a t e s .
Mr. Case rep orted that New York
was paying out an amount s u f f ic ie n t to approximate the net gold im ports.
Governors
McDougal, Faneher and N orris sta ted that th e ir r e s p e ctiv e banks were paying out but
moderate amounts.
Governors Harding and Seay and Mr. Martin sta ted that they f e l t
the p r in c ip le was wrong.
No a ctio n was had thereon. .
Mr. S. P. G ilb e r t, J r . , U nder-secretary o f the Treasury, then appeared
b e fo re the committee and d iscussed the question o f reimbursement o f Federal reserve
banks f o r f i s c a l agency expenses, sta tin g that the Treasury was in p o s itio n to deal
lib e r a lly with the Federal reserve banks on s a le s operations but that Congress had
made no p ro v isio n s f o r assuming a l l f i s c a l agency expenses.
Mr* G ilb e rt a lso
sta ted that there were to be some changes in the Government Savings organization
and that he would presently communicate with the sev era l reserve banks asking th e ir
cooperation in e ffe c t in g wider d is tr ib u tio n o f savings c e r t i f i c a t e s .
The meeting adjourned a t 6:15 o’ clock p . m.
J . H. Case,
Chairman.