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e x e c u t iv e

ja m

3 \l

cor: m i
tm ie& m

k o f th e

o o m n

April x s . m s .

A Keetin^ o; t it Kxcic live Co, called
the ^esiient, m s
held in the F«4eral H ea erve Board room in the Treasury Department,
ftohington, B. C., Monday, ^ r i l 19, 1915, at 10*90 A.M.
Present: Siesars* J a m a B. Forgan, in the sllilTt L. L# Hue, Daniel
Ting, W* 3. Hov»f and Merritt H« Grim, Secretary.
V: ->e ;t,

. J. I",

o r -m


(in >.urope).

The President presented to the m e< t i n g a copy of a letter ftois
mt, F* A,, Vice Governor, Federal Reserve Board, dated
1 '^ rch 5th, 1915, on the subject of leaiscounts between Federal Eeaerve
Panics, aid h i a re] ly thereto, «Jated Ktrch 7, 1915. ’r. . 3. I owe,
raove# seconded by L. Z . Hue, that the residents reply ef Mftreh 7,
1915, be apiroared* lotion unanimously carried*


letter i>

s olio a:
^as injten, Kareh %1915.

Tear ”r. Forga? •
The Board will soon have to deal for the first tin* wit!
the question of rediscounting letween Federal reserTe barJu., aid
haa already discussed the matter Informally*

4s the first transaction of this kind Mgr be r egcurded
as establishing a principle, the Board deems it wise to udvise you
that this question is no*# under consideration, in order that you
may hare an opportunity of giving it the benefit of any au^tfctlOBs
tat you s.ay a .ern «xo^vr to .a>;e.
There see?® at present to he no serious difficulties
in connection r i t h rediscount operations betv*een districts, aiid the
Bouru does not feel th*<,t the Luittfcr wuxr&nte calling tiiS Advisory
Council together for <
rence. Should you, h w r e r , entertain
a oontrsury opinion, v» would be gla* at any tii&e to meet the Council
or its Executive Co Ittee for a discussion o f the question#
The Federal Reserve Banfc of Atlanta has no* urner
a iscount for ita :^iber banks cor^roial paper aggregating approximate^
$ 5 ,200,000. and its net cash reserve against |ls net liabilities is but
a Uttie
than 45^* ve are approach!!^ a
a when southern
banks begin so reai^eount freely, v?*i it is ^sobable that ihe Federal
reserve ban’s in ?: « southern district* will W f o r e long have occasion
to aaJk otlier Federal reserve banks to discount for them* The
surest len iuas been na.*e that a n y Federal rest*rve banJk so desiring
s houM have an opportunity of partielpating pro rata in the purchase
of |ha.per from the southern reserve institutions*
As ^ou recall, the Board early in Jonu
favored a re«
auction of interest x^tee in the a uthern iat? icts in <ra« r to en*

r a c u T r o e m e a r m of tics

April 19,1915

oowragf the retirement of Aldrleh-Vrecland currency, mad lh»
low rates obtaining Imve been dffective in mat^rialiy reducing
th« amount of Aldrich-Vreeland currency outstanding in the south*
It see&s probable in fact tftat by April 1st there will be prasticdlly no Rational Bank Fotes in circulation in ti*e south except
those secured by United States Bonds*
When the Bocjrd a; roved the present discount rate* for the
southern banfcs it was realised that tae banks would sooner or later
reach a point where they mm* t rediscount, thdLs giving <*n opportunity
for Federal reserve ban&s* in other sections to employ profitable
m b s of their funds in the south*
.*s you }-noi, Sect ion 11, of tii© Federal I.ea«-rve Act impose*
upon the Board the duty of permitting or requiring F ^ e r a l reserve
banks to rediscount for each other, at rates to be J ixeu by the leasral Je^erve B- -id* While tut Baara ^os-ia refer to auoj t a xolicy,
as tw tt mm the public Interests will permit, of leaving tiie initia­
tive in these transactions to the Federal reserve banks, from whoa
it expects shortly topareoeive suggestions as to rates, it seems pro*
per that the Board should formulate its own v i e w regarding the sub­
ject, particularly ao t:aae rates m a t ultii ,tcly be fixe by thm
.r i•
It seen* to the Board that in consider lag the question,
that the Federal Be serve banks &ay be properly regaroed &s coral onertt parts cf a unified system,
ths prestige attu success of
entire Federal Reserve Bystroa is involved •
3fc«t novr it is a problem with sooc of the Federal reserve
baitls to earn t; eir operating expenses ana dividends
adding to the dangers inherent in a ^reut abandonee of ;noneyt
which condition, now exists in certain districts. On the other
M l . tfee c o u n try a t la rg e * n o t y e t th o ro u g h ly u n d e rsta n d in g the
1ro b Ia n s p e e u lia r to F e d e ra l r e s e r v e b an ks, may view w ith d is a p ­
point. e n t, even t iou h it iio u i re&uon, 11.e i n a b i l i t y of any o f
V ■ Han5 ,> to r-a/n a . t o ; « r n U'rn*
Those Federal reserve banks whieh rill have occasion to
negotiate for a rediscount of their ;ajer will have found locally
ample opportunities of employing their funds* For ©asmple:
the- bank ©1 Atlanta has at present invented more titan 310$? of its
capital, which even *d£ 4^ shoula mews a gross return of 12 i$f, «•
that the organisation and op rating expenses and a dividend of 0 .
would a rear assured. Whatever this bank would eomn in saccens of
65? wouli go, one- .If to its surplus account and the other hulf
to t' -e overroasttfc* An abnerrmlly loxr discount rate granted by
other Federal reserve banks t© Atlanta suight, therefore, bring
about the anomalous position of a profit to the government from
that bank at the expense o f other Federal reserve banha which iight
not be making their dividends* As dividends are cumulative, the
ultimate m u l t to the gsverro&ent ana the bank® will be the sums*
It appear*, therefore, that it would be more rational, satisfactory
and helpful for Jill the banks to earn ti*eir dividends if it cun be
dons with due regard to t,unserv«*tiwia* Present conditions a re

r x m r r v n : comttTjKB of thf

* ril 19,1915

a b n o r m l # as tMe demand fcr banting eecem odation i.i eonfined
mostly to the south. I n n o r m a l tine* banks deeiriAg to dispose
of paper are the recipients of a service rendered «.y other bdnxs,
and the rates fixed for these rediscount 01 orations generally exjreua t is condition* Qrainarily, one M f f s U reserve ban! would
regard its first duty as being to its owe a m b e r banks, and would
feel that in placing funds at the iio osal of oilier districts at
the rate given its own member bunks tisit it would be according as
liberal treatment to others as could be enacted. This §*oulu uuggest a rate of around ^ at this time, am that Is the lowest rate
w * prevailing in any of the districts. Howevert the argument say
be made that the ruling rates in m.jsy districts are nominal, as
under tIv m but little business is being secured by the banks. The
natural eagerness Cauaea by present conditions should not lead the
Federal fteaerve Board or the banks to a policy of exaggerated lib­
erality, which wouftd not add to the actual rofits of the banks
which are expected soon to offer the.
er for rediscount9 but
mi it lead to over-stimulation of expectations, with inevital le
1 isai •oint ent later on*
I have written you at length in order to put the matter
before you fully, ,na ill be lad to xiave an ex- ression ox your
Views by telegrapii if passible.
Very truly yours,
(signed) 7 . A. Tc Icvho,
Yio e Cov* raox .
vr. ’or.- v *j re -ly is ;w« folio* mt
Au :;usta,

1'e r


/a*, *reh 7,3 21 b


vR1 H ;ten to answer it*

am in receipt of yournfavor of the 5th

Unde r present conditions Z assure that such Federal
Reserve Banks **s 1 ,c& a local de and for rediscounts ~ ill be ,lad
of an epporti nity to rediscount for such ban k# as are having mere
t ail t; ey C, -?■ su_ ij .
Under such conditions the accomodation is mutual and
the benefits should alao be mutual between the Federal I.eserve
ring assistance *nd those fltrttiffhin^ it* It mey be as*
sur$ea that the Southern banJka are supplying a legitimate ex a&sive
de land for credit created by conditions in the South in eonneetias
with the cotton industry* Such a 4eiano should not, ho-ever, be sup­
plied at rates wtii
re abnor ally low for the j^jrticular disti icte.
•' strength of t*
and for rediscounts should measure ana govern
the current rate for thest in (ac district t*,nd the rate siiould be
Jitptly raiaad - net unduly - whenever the demand increases
beyond and ability of the local banks to supply it from their

wopcuTm coiaiiTm ; o f


r*n I: A t ADVISORY a m OIL


ril 1<J93M9

o*.?n resource**. Unaer t *;»e circumstances the />
* .*-• it© B
of the Southern districts
reattoru»bly and equitably be entitled
to sake mtm rofit on the cow^rc lul paper with which they au* ply
th* ban; 0 in other district* which from the standpoint o f earnings
need it m much* In other words, they should be paid for their
tndortBifli of th* paper they rediscount* It wcraM t *erefore mmmm

that the local rt iii Ki junt rate of Federal }]es*rr* Baste reaching the
li&it of their own resource* should be promptly raised say ^ above
the rates current in the districts where no such local demand
prevail*. The banks in the districts having a brisk local de&and
could then rediscount at a irofit with the bank* in the districts
lao>.in such ac.*ia4t
&s to eetabliai'iinc^ a ,rltciple governing tlm fixing of rates
of diicaunt between Federal He erve ban*## in agr opinion, th* Federal
F:eserve Board will have to recognise and be governed by eonaition*
> t h r y exiut irom time to tte**
If the deaand for rediscounts by a particular Federal Beserve
Bunk should be caused by a falling off in ite deyoait* or reserve
resource* at a ttoe when al} the banka are experiencing *ii iJLar
condition* to a greater or lea* degr*e, then eitfa p ^ t i e u l a r bonk
should not expect to rake a .rofit on th* p ^ e r it require* to rediscount hut *heuld *j* lud to supply ite eiidorse ent without actual
tfra er condition* <a* t ey no* exist it woulvi seea to e ti*&t
the rate* current in district* having a rcdiaeount de* and beyond
the resources of their own Federal Reserve Banks should be establle&sd
at one per cent above Due rat** current in districts euffering for
Icick of such a demand and that rediscount* between Federal Reserve
Bank* tiiioula be i&ade at the rat** current at tne bank* fgranting t m
x u a x counts.
It would be very desirable, I t ink, to let any Federal fcjerve
Bank so desiring iuave an opportunity of participating pro rata in
the r*-di&counting of papa* for th* Southern reserve bank*. I t link
fu©>t of them would be willia ; te hare the buwiness transacted through
the Federal Ee**erve Bank of Hew York and to have their accounts with
it charged with their pro rata share of any redl**ow»f wad e . In thi*
way the risk on the pap** rediscount** would b* equalised a ©ng all
participating bank*. This doubtleso would be s m convenient for th*
borrowing bank** and the book*k*eplng Ik tween the loaning banks und
the Tea- York Ba^k ' ^uld be u simple riattei .
These are *sy personal views on the subject of rediscounting
between Federal Reserve Banks. A copy of t;.is letter will be sent
to each ttstber of the advisory council a c that any member desiring
to express his vie*?* on the subject will have an opportunity of doing
wo by ■ v<;. lr» et ly tf< y e v .
Ve/y truly yeujs#

uiaent Asivi .ry

coutkj il.

xxkcirrm c o k i i t t o k o t t h e

A ril 11«,1916

The President laid before the juetting tvro resolutions passed by the
Directors of the federal heaerre Bunlnof Chlca o t oil April 10919fcft
as follows :
•KE90LVFD, That it is t e o inion of the Bo.^rd of Directors of
the Federal P.esjerve Bank of Chicago that the Federal reserve Banka oh*
ould buy Domestic Acceptances only from m*wtoer banks with their
€»ndcrse ent*.
"PI'S OLVH)f That

r . Forgan be requested to convey to the
Advisory Council the opinion of the Board of Directors of the Federal
Reserve Bank of Chicago, that the tendency of c^ber banks to put
into 9time deposit ft or ’50 day notice account1 a p ~rt of their
a o w i & r e l a l deposits in order to reduce the reserve requiroments to
5 f inimical to the eomreroiul interests of the country ana dangerous
to t. e eribrr ban) j".
The President then oalled the attention of the nv etla;'; to the
nsfiriorandua of subjects upon which the Federal Beserve Board aeslred
the views of tsie Federal Advisory Council, aated A ,ril a, 1916,
copy of T/hioh %a hereto attached ana
. a t of t «ue * inut^s.



For .n should ini orr. t e U.uc.r,,x J surrvethat tne >:xeoutivs
Corjiittee would be clad to meet them for an Informal exchange of
views in regard to tli* v ;rious questions, contained in their
e or^ndum dated a. ril ath, 191 v Thereupon
• Fori an cal~*a
on the Federal Reserve Board a no arranged a joint meeting at
2 830 P.*.
The so

i ittee then au journea m til to £ :3 0 P. •

J O Ii.T MET ? ll; 0 OS’ T in.
x o 'iv m

c o m m x w ri



m asAL um irnm

OOUJiniL Aim TiCt T O S H A t iil* E K V S
i*OAKD .

A joint


oi t in 1;k&vj'&X l *eeenre

C u ..• . . . i o f


F#ae3fri>l M v l e e r y

i*r«*as»tt lie i>•.;*£«


H i

■. *


i # J#

. i





tUe IsJtsSutA.vs
in t o e 1*0 **iPd

C w jn o l i v m m h sX d

in %im Tre-iujury Ttojuurt* « n t t A4 r i i

r - r . i i r i -g,

A. * 1 1 i',»,1-JU S .

I 9 f 191& , a t £ :^ 0 P*J‘ .

"Yeal ain,,
I I ’; 1 . :-»#




..j. bui *

^j j rko*

. .C*

*.'iX iis#

tieor* t&ry of the I$o<*rd# ttnd ;isir«« J* B# Fcix,i>^is# L. L. I>u«t
* S.
, . •■. . ;
'■ .
, #
* of the
Federal Advisory Council.
l:r, D t k a o o U l « 4 th*t the m # l i A | would fes considered Infcr^^l and
tb&t r*o 4tiut»» would be tm k svu
A ll

th e

q u e e tio n e

re fe rre d



t > - Z»o**rd to t?.e cout^ IX ^ e re

t l* e r c n o r & iK iu c * o f ^ u b j e e t ©
>f,n I n ; oitr-^lljp 4 ^ssusesd

s u b m it t e d

&t Xtft$th»

Ur. Xteluns usived the ttwutirs COKv-iittss to *iu^.;sst *ny oh«fl|wi
th sy

* e u X & ska v i* * e

«*e'iie« of
At i 1*0

* * ..


7 e d * j r * l J t e s e .j'v e B e ta -a 'c u j r e u l * * *

uiw regui. tier<*> J
.>., fitil ■ ..-^jcu:.-. m

Kt uertoo 01'

IX e n d

1 X&.


u x m irm
m m ? m * c& m x rrm of ths;
9 & r ’h * L h m i m c t councn,



A ; eeiiag of the Exeeetive Ceoaittee cullea fc\ Uie Preei&ent, *us
M.I.; in th<- I’edii



it jsrve Lsasrd

x q ^\

ten, i«. C.# Tucsusy, Ajril ,:0t

in t ». Treasury Ifej**rt.:«®tf

1915# at 10,


Prtscmt: t*-. es 13. Itax.j&n, in the c;air# I. I** rue, Daniel G.
Vin-;.t . S.
Kerritt • Jri-, ecretary.
Ab^rits I-r. *T.

* "er.., ..n (in l.urope)•

Kinutes of the iJwcttitc Committee l a i d on A]ril 19th tore read and
rov? .

the c o m it t M proceeded to consider the r e«orano«in o f question* mhmt*%ea to t? e Ik*c*;;rul advisory Council ky the FetuTul Reserve BeorcU
The following answers were un&r*i»ieusly adopted by tins C o o k ittee as
its reeesg&sendationr* to th® Federal Advisory Council:
Ho. 1. The ?«dtral Advisory Council «fltr careful corn*id* ration of
the subject of acceptances os set forth in the first question stabsitted fej the M « r & l titm m r ve Board under date cf &|ril 0, 1915, begs to
*wdviae that it hae not changed its opinion in re 1 st ion to this quest ion
m a tat ©4 in its cot* tiniest ion of January 1 9 , 1913, as felloes:
•That for the present at least we deoat it wise for th#:? Federal
Becerra banks to buy in the open m r ) » t under Seed ion 14. benders 9
acceptances and bills of eKcaange only when such bankers* acceptance*
or bills of exchange are the acceptance* or bear the endor aensent of
M s & e r banks* Siash M m d M K M I should also be subject te the follow*
in, limitations •rovided for aeeeg&ttMMNI under Seat ion 15, as amended,
t an offered for <i ioour;t, m follows:

•Any Federal Be serve Bunk may discount aceox tenses which are
baaed on the im ^ ortat ion or exportation of goods an4 which have a
maturity at t i m of discount of not more than three aontho. The
amou-.t f isero p t m o e s so iacconted ©hall at no tiiae exceed t:ie p%id uj
capital stock and surplus of the bank for WAieh the rediscounts are
\ But zm the Federal reoerve Board has dec iued to alio* Veaeral

Reserve BanVs to purchase acceptances of State bonks and bankers in
V v or;an narkett it is tha Oj> inicn of the Federal Advisory Council
jh m t such >.urchases should be limited to uuol State banks and bankers
r u&e issue of acceptsnses does not satceed on*:, hundred ier sent of
?. eir c;,. ital and our ltm funo ••
.;?•. • It. itf *;r:
ini 1 - t -v V<\ ,v..l V^vise^ ' .■ <1 t, .vt
see ( ctanees based upon the i-ore* «nt of
e x e h v M l m between
foreijn countries ahoiiln be ell ,ib!e for discount or j^urehase by the
T - r .i Te;3*--EtaiJ-ii?*

K X H d Y iv fc ocm tvrm car tm
m m & m * advisoit* council



e tfO not believe tfc&t thn ;.reu< nt U

a*jtix ;o#i&i5

u ;rvui u &


r f r

tte M m l StM»m Write to §» into the fcrt^ n ix d i« g i tatUwcs*
It ifi tlie opinion of ti*> Ffr.-crai Adviuory CtuuoU that
present financial and business conditions do noi vs&ke it desirable
or n#ces*sary for the Federal F t o e n e banks to 50 into the open market
ic jnmrlioc i>— utic ao<?eptcw»ce ef mm&mtmmtm and aiMtfaeteraa*
&c. 4*
?fce >'tH*cjrul <U.v_ .,oxy Hound11 a reclutes i t? usiratllity
of ceeorias thf adi l u a i o n of ti*> State banks into the Federal reserve
oyster* Ve wuJkb U«? ref ore eo&i e«t that t, e federal Receive Bc*»rd
proceed to ff rraUate isueh re-;u3u-*.tiene os in its JudiTvent arc ^-ropo*
and vould reboot that before tl*eir circular on the subject 1 ®
11 iu Count; 11 bo lv« r* m t nlty to consider it.
TI10 time ti^vina arrived for the convening of the federal Adtieory

Coy :-«c11 t--* ' x c c stiv e Co..

^ ijo ta n e a *

v m m A i advisory council

Atr u ;?o, m »

A etatutory m a t i n g of the Federal Adrioory Council «u« hold in the
Fetural i,e trve &oi*rd rooai in the Treasury De^artraar.t, Waai;in*£ten,
E* C., TnaaiW, At ril ;0, 1918, at U A. I.
Prceents Vaatfira# &a«*ie £ # For*;^, in v « C a lr, L. I • JJue,s .u.Iiowe,
George J . itoay, Cluarlea A. I ^ e r l y , K o lia V a lla , 3 . I . Swlnnay,
J« Howard Ardrey, «nl Merritt H. Orim# Qearetar^ •
Absent, ?eaere* J. >>. fcor&an, 0. V# Juf ir^y -urn Areulbala SUlne*
Mr* F o r ^ M w y t u i m l that Ittr* Herman rm » in Europe, that Mr. tfafs'rjuy
vie m a y oft a Weatorn trip and tl*at fcr* Kaine wa» u t U i M d on a&count
of the abaenoe of n m m ^ l ofiicera of M o baftlu
Ttia u a n i t M Of tac X'*uX ‘v/i^ry Cc.---.-cil of CSUn. 19tii .*rd -0th,
coulee of w}iioh had been sent M&feera were ap^rorad*
The minutee of a neetin^ of the I2*ecutiTe Ooimlttee of April l$th
eere read*
The Preoidant aiated that the Bxeeutiire Comittee had held a Beating
tale Bernlng at ^hloh unaware were drafted to foud of tho queet ions*
eubmitted to the Federal \ a v leory Council for it© eonoid* ration by the
Federal l<aeer*e Bourn **na tint they vauJUi be taken a* ^ U x .
The resolutions paaueu by the director*! of th® Ffeaural Reaarva Bank
of Chicago referred to in the isinutea of the Executive Co^ittee on
A^ril 19th, were reiaa for the informtion of the Council. U x . Bue
then r^oved that Um mimttoo of the Lxeoutive CaarUttee of April 19th
be ap, rored and that the resolution© of the Federal fteeerwe Bank of
Chicago therein referred to be eubmitted to the Federal lieoerre Board
for ite consideration. Motion unania»uely carried*
T£ie Preeiaent reported that lie h**d arranged with Ur. MilliefSearetaary
of the Federal Beserve Board, to have all circular* ana regulation*
ia&ued ana to be leimed by the B o ^ d forwarded vhan ana ae issuer*
to the member a of the Counoil; also that each of the Federal fteaerre
banka had contributed *150*00 toirarda the payment of the oecretary'e
aalary and incidental expense a for the current year# He also d»ew
alter ticn to the letter ha hod written Viee«0overae* telnna on
Maveh 7, 19o5, in answer to hi© letter of ftareh 5th on the subject
of redieaounte between Faderal reserve Banka* (8c*a mint*tea of ^ecutiva
Conaiittee April l # $ 1915*)
The Tlreeident then aubftLltted to the eeting the taaeutira Cowiittee’a
au^geeted aneweru to four Of the queisticne in the T^jRorandus of
eubjeeta aub *aitted to the Federal Adwieory Council for ita conaideration V,/ the Iferh ral Iiaaerva 3'o.jrd*
After due coneideration the anewara raaare ended by ttje •icecutiire
Con: Ittee to lueistiono 1 , § :•, -r:-k 4, Trere umttirxn uly copied -e
the anawera of the Federal AdTiaery council to theaa ^ueetiona and

Fft4«r»l Advisory Council April 20,1915
•rd«.te«4 wr>t to U n Federal Lm «r?« Bo^ard*
Cor, ittoe *f**etin- of thim cua« .)


( «o Minute* of


?r*e P.r--.,L;fent otuted t-iut the *c*iutiv« Co; ■ it tee &id not i*vre
sufficient time to eoeoider anewero to Humber* $ and 6 which wer*
beforw t M *©etin^ for ecmoider&tien*

Qm »otion of Hr*- Stay, eeeended by Hr* Welie.tte following iAVMr to
Vo* i w m «*aoj>twd a m ordered *ent to tte Federal fceoerv* Beerdi
. ;
In tte opinion of tte H r i a m ( M a i l It U
unbound la ptflneipl*, end In general garnetiM would m tieetruetive,
to i l l w *»ib*r bank* it ri4«t« their rmmrtmm below tte 1 *4*1

H u r n i should be a i i i ^ M i In tte M m X
Bencrwe banJke e* a tataie for credit to bo eactersued by the federal
r « « « m bank* to Unit a t e m «
* wlfidicni $#imlty
*houl& hr te; oiwd and atrietly enforced to dioeoura&e tte >jraotioot
ttiKi to inauee tt«nbtv bm* e to reaieoount with Vue Jeatr**
bai&s for t o iurpee* of ainteiniiii* their own re*<?rve» and
providing IhiMMtet with neoeweary finfti to m i their obUi^tionfS
In anower to Ho* 6, It v?** d*ieided tt^t fc-e federal Advisory Cau
had nothing to odd to tte view* ex^reacted in tte letter of tte
President on thie eubjeet adareeaed to tfiae Governor Belane on
I x r c h 7, 1915*


Tte Freeiaent nutted tu*t ho had arranged with rr. Delano for a
J< int ?«u?etin.; wit
Feut.r .1. ,'^nv#* Beurd t : 0 V ♦ ur*i there
bein?-: mc>- ’ ^. r:r tn $* i
t .i C W
il v.iJcnu-mMi lint* i ti--,t 11 .

APRIL 20, 1915.

A joint meeting of the Federal Reserve Board and
Federal Advisory Council was held as arranged in the Board
room in the Treasury Department, Washington, D.C., April
20, 1915.
Present: Messrs. F. A, Delano, Vice-Governor, pre­
siding, W. P. G. Harding, Paul M. Warburg, John S. Williams,
A. C. Millar, and H. Parker Willis, Secretary, of the
Federal Reserve Board, and Messrs. James B. Forgan, L. L.
Rue, Bar.iel G. Wing, W. S. Rowe, George J. Seay, Charles A.
Lyerly, Rolla Wells, S. F. Swinney, J. Howard Ardrey and
Merritt H -Grim, Secretary, of the Federal Advisory Council.
Mr. Delano stated that the Federal Reserve Board
were now ready to hear from the Federal Advisory Council
in regard to the subjects referred to in its Memorandum
of April 8 , 1915.
Mr. Forgan then read the ansv-ers of the Federal
Advisory Council to the six questions propounded in the
Memorandum referred to and a full discussion was had on
each answer as it was presented.
The joint meeting adjourned at 4:45 P.M.


188 b .

Tentative Circular No__
Series 1915.

Washington, B.C.May 6,1915.
A coordinated banking system, e/£oracing in its membership State
institutions as well as National banks, is the aim of the Federal Reserve
There can be but one American credit system cf nation-wide extent,
and it cannot attain its fullest potentialities if it rests upon an
incomplete foundation, and fails to include the greater part of the strong
and well managed banks of the country, whether large or small.
In the development of the new banking system,

far-sighted and

unselfish cooperation is expected of the banking community, and it seems
clear that some basis can be found for harmonizing differences of interest
or advantage existing among the National banks, State banks or trust com­
panies, sc far, at any rate, as may be necessary to secure the effective
coordination of these different types of banking institutions in the
Federal Reserve System,
Appreciating fully that the strength of the Federal Reserve System
is to be gauged by the quality of its members, rather than by their number,
the Federal Reserve Board is prepared to use all the broad discretionary
powers vested in it .by the Federal Re serve Act to bring about this coordina­

The Eoard has sought, in the regulations governing the admission of

State banks and trust companies hereto appended,

first, to establish only

such reasonable standards of admission as will be generally recognized as
necessary to protect the Federal Reserve System against the admission of
banks which would be a source of weakness rather than cf strength, and,
second, to prescribe only such regulations governing their conduct as will
insure a reasonable conformity to fundamental principles deemed essential
to the success of the new banking system.

Membership in the Federal Reserve System carries with it privi­
leges and guaranties of great value, not only to the ‘banks themselves, hut to
It may be confidently expected, provided the stan­

their customers as well.

dard for admission he kept sufficiently high, that with the further develop­
ment of the system and the fuller appreciation by the public of its meaning
and value, membership in the system will come to be regarded as a test of
banking solidity, and that the access afforded by membership, to the facilities
and resources of the system, will add to the prestige of even the strongest
institutions; so that in time the public in differentiating the banking in­
stitutions of the country will, instead of drawing the distinction as in the
past between "National banks" and "State banks", rather make the distinction
between the banks which belong to the Federal Reserve System and the banks
which do not, and ultimately recognize but two classes of banks: ''MEMBER BAMS"
The Board realizes, however, that membership in the system also
carries with it of necessity obligations and responsibilities as well as
privileges and safeguards.

The National banks are now, and perhaps will be

always, the mainstay of the system:

their membership is compulsory, the law

having left them no option as to whether they would or would not avail them■selves of membership.


responsibility of the system is theirs and

they are therefore fairly entitled to expect that membership of non-national
banks shall bring into the system only such institutions as can give sub­
stantial promise of being able to share the responsibilities as well as the
privileges pertaining to membership.
The Reserve Act, in Section 9, imposes certain fundamental conditions
governing the membership of State banks in the Federal

Reserve System, and

prescribes that banks not organized under Federal law must comply with the

,-3 capital and reserve requirements applying to National "banks, and must con­
form to the provisions of law imposed upon National banks respecting the
limitation of liability which may be incurred by any pers^r., firm or cor­
poration to such banks, and of transactions permitted with its directors,
the prohibition against purchases of or loans upon stocks of such banks,
and the withdrawal or impairment of capital, the payment of unearned divi­
dends, and to such rules as the Federal Reserve Board may prescribe.
With respect to loans on real estate or mortgages, the Board i.) not
disposed to assume as a matter of principle, either the authority or the
duty to impose restrictions of a character calculated to embarass State
barks in applying for membership, or to impair their usefulness in a field
which has been well developed.

It has endeavored in the regulations merely

to provide a reasonable limitation, so that loans or investments of this
character shall not be so excessive in amount as to endanger the liquid
condition of a bank.
Within the limits thus described, it will be the policy of the
Board to determine the eligibility of State banks for membership in the
Federal Reserve System by means of examination.

Since admission to the

system will be looked upon as an evidence of the bank’s strength, examina­
tions for admission must disclose clearly the condition of an applying bank
and the character of its management.

These examinations must, therefore, be

thorough and effective, and be under the direction of the Federal Reserve Board,
but the Board will endeavor to avoid any unnecessary additional expense to the
banks by dispensing with separate and independent examinations so far as possible
and by adopting a method of joint or supplementary examination in conjunction
with State banking authorities.

The Board plans to draw freely upon the examiner

and auditors in the employ of the respective Reserve Banks and to use their
services for the purpose of thus supplementing examinations conducted by
the banking departments of the several states.

It is hoped,

-4 .therefore) that in passing upon applications for membership, the Board
and the several Federal Reserve Banks will have the cooperation of State
banking authorities, so that every qualified applying bank may be admit­
ted to membership, and all not qualified be excluded.
Membership of State banking institutions in the Federal Reserve
System being optional, the Board appreciates that those charged with the
management -of these institutions might not feel authorized to enter a sys
tem which by regulation might restrict the scope of their operations un­
less a definite assurance were given them of their right to terminate
their membership if at any time they should feel it to their advantage
to do so.

The Board does not apprehend any such development; indeed,

it expects that as the system develops

membership therein will carry

with it guaranties of safety and security which will be of inestimable

At the same time it recognizes the responsibilities of those

entrusted with the management of the State institutions and has, there­
fore, in the appended regulation, clearly defined the conditions upon
which any State institution may withdraw from membership*

The Board

has taken legal advice from competent sources and has received ample
assurances as to its legal powers in this matter.

At the same time,

the Board has taken the precaution of fixing the aggregate amount
that may be withdrawn within any one year so as to fully protect the
system in this respect.





Tentative Regulation No._____
Series of 1915.




Statutory Requirements.
The federal Reserve Act provides:
Section 9. Any bank incorporated by special law of
any State, or organized under the general lav/s of any
State or of the United States, may make application to
the reserve bank organization committee, pending organi­
zation, and thereafter to the Federal Reserve Board
for the right to subscribe to the stock of the Federal
reserve bank organized or tc be organized within the
Federal reserve district where the applicant is located.
The organization committee or the Federal Reserve Board,
under such rules and regulations as it may prescribe,
subject to the provisions of this section, may permit the
applying bank to become a stockholder in the Federal reserve
bank of the district in which the applying bank is lo­
cated. Whenever the organization committee or the Fed­
eral Reserve. Board shall permit the applying bank to
become a stockholder in the Federal reserve bank of the
district, stock shall be issued and paid for under the
rules and regulations in this Act provided for national
banks which become stockholders in Federal Reserve banks.
The organization committee or the Federal Reserve
Boc.rd shall establish by-lav/s for the general govern­
ment of its conduct in acting upon applications made by
the State banks and banking associations and trust
companies for stock ownership in Federal reserve banks.
Such by-laws shall require applying banks not organized
under Federal law to comply with the reserve and capi­
tal requirements and to submit to the examination and
regulations prescribed by the organization commitoco
or by the Federal Reserve Board.
No applying bank shall be admitted to membership in
a Federal reserve bank unless it possesses a paid-up
unimpaired capital sufficient to entitle it to become
a national banking association in the place where it is
situated, under the provisions of the National Bank

Any bank becoming a member of a Federal reserve
bank under the provisions of this section., shall, in
addition to the regulations and restrictions herein­
before provided, be required to conform to the pro­
visions of law imposed on the national banks respect­
ing the limitation of liability which may be incurred by
any person, firm or corporation to such banks, the pro­
hibition against making purchase of or loans on stock
of such banks, and the withdrawal or impairment of cap­
ital, or the payment of unearned dividends, and to such
rules and regulations as the Federal Reserve Board may,
in pursuance thereof, prescribe.
Such banks, and the officers, agents, and em­
ployees thereof, shall also be subject to the pro­
visions of and to the penalties prescribed by sections
fifty-one hundred and ninety-eight, fifty-two hundred,
fifty-two hundred and one, and fifty-two hundred and
eight, and fifty-two hundred and nine of the Revised
Statutes. The member banks shall also be required to
make reports of the conditions and of the payments of
dividends to the Comptroller, as provided in sections
fifty-two hundred and eleven and fifty-two hundred and
twelve of the Revised Statutes, and shall be subject
to the penalties prescribed by section fifty-two hun­
dred and thirteen for the failure to make such report.
If at any time it shall appear to the Federal
Reserve Board that a member bank has failed to com­
ply with the provisions of this section or the regu­
lations of the Federal Reserve Board, it shall be
within the power of the said board, after hearing, to
require such bank to surrender its stock in the Fed­
eral reserve bank; upon such surrender the Federal re­
serve bank shall pay the cash-pB id subscript ions to
the said stock with interest at the rate of one-half
of one per centum per month, computed from the last
dividend, if earned, not to exceed the book value
thereof, less any liability to said Federal reserve
bank, except the subscription liability not previously
called, which shall be canceled, and ?aid Federal
reserve bank shall, upon notice from the Federal Re-

-3 -

servc Board, be required to suspend said bank from further
privileges of membership, and shall within thirty days of
such notice cancel and retire its stock and payment there­
for in the manner herein provided. The Federal Reserve
Board may restore membership upon due proof of compliance
with the conditions imposed by this section.

Section 19. If a state bank or trust company is re­
quired by the law of its State to keep its reserves either
in its own vaults or with another State bank or trust com­
pany, such reserve• deposits so kept in such State bank or
trust company shall be construed, within the meaning of this
section, as if they were reserve deposits in a national bank
in a reserve or central reserve city for a period of three
years after the Secretary of the Treasury shall have official­
ly announced the establishment of a Federal reserve bank in
the district in which such State bank or trust company is
situate. Except as thus provided, no member bank shall keep
on deposit with any non-member bank a sum in excess of ten
per centum of its own paid-up capital and surplus. No member
bank shall act as the medium or agent of a non-member bank
in applying for or receiving discounts from a Federal reserve
bank under the provisions of this Act except by permission
of the Federal Reserve Board.

Section 21. The Comptroller of the Currency, with the
approval of the Secretary of the Treasury, shall appoint ex­
aminers who shall examine every member bank at least twice
in each calendar year and cftoiior if considered necessary-,
PROVIDED, however, That the Federal Reserve Board may
authorize examination by the State authorities to be accepted
in the case of State banks and trust companies and may at any
time direct the holding of a special examination of State Banks
or trust companies that are stockholders in any Federal reserve


A State bank or a Trust company to be eligible for member­
ship in the Federal Reserve System must comply with the follow­
ing conditions:

It must have been incorporated under a special or

general law of the State in which it is located or of the Ur.!*;-*
States (District of Columbia),

It must have an unimpaired capital stock as follows:
In cities or towns of less than 3000 inhabitants,

In cities or towns of more than 3,000 but less than
6000 inhabitants, $50,000;
In cities of more than 50,000 inhabitants $200,000.

They must agree to comply specifically with the

requirements of the provisions of Sections 9, 19, and 21 of
the Federal Reserve Act.

Every State bank or Trust company whi^h shall desire
to become a member of the Federal reserve system, shall make



-5application on Form_____to the Federal Reserve Agent of its
district for an amount of capital stock in the Federal Re­
serve Bank of such district equal to six per centum of the
unimpaired capital stock and surplus of such State bank or
trust company.

Such application shall state that it is

made in accordance with a vote of its board of directors,
and shall be accompanied by a statement of the conditions
of the applying bank c e r t i f i e d by an examiner to be approved

or d esignated by the Federal Reserve Board.
Upon receiving the aforesaid application and statement
from any State bank or trust company within its district, the
Federal Reserve Agent shall submit the same to the counsel of
such Federal Reserve Bank, who ihall certify that in his opin­
ion membership in the Federal reserve system is not in con­
travention of the laws of the State or District in which the
said bank or trust company shall be located.

The application

and certificate of counsel shall thereupon be submitted to a
committee of

-,ot less than three members of the Board of

Directors of the Federal Reserve Bank.

The said committee

shall examine the application and if it shall find that
the applying bank has complied with the provisions of this
regulation, and is in compliance with the State la^,'

it d2?'*-.11

transmit the same to the Federal Reserve Eoard with its
recommendations .

In passing upon applications of State banks and Trust
companies for membership in the Federal reserve system, the
following considerations will be taken into account.


Whether the assets of the applying bank or trust

company are of such a nature as to entitle it to be con­
sidered a commercial banking institution in a liquid con­

Whether the charter provisions and the nature of

the powers exercised by the said bank or trust company are
or are not consistent with the proper conduct of the busi­
ness of commercial banking.

Whether or not the statutes of the State or Dis­

trict in which the applying bank or trust company is located,
do or do not contain provisions likely to interfere with the
proper regulation and supervision of member banks.
Whenever in the judgment of the Federal Reserve

an applying

bank or trust company fully complies with

the requirements thus indicated, the said Board will issue

* +»

- 7-

a certificate of approval of the application, and there­
upon the applying bank shall subscribe end ray in its cap­
ital stock to the Federal reserve bank of the district in
accordance with the conditions provided for member banks.

Every State bank or Trust company which shall
be admitted to membership in the Federal reserve system,
shall contorm to the following requirements:

It shall observe all those requirements of the

law to which State banks and Trust companies which have
become member banks are subject*

It shall conform to at least as high a standard

of commercial banking as controlled it at the time of its
admission to the system; with such improvements and changes
in its banking practice as may have been specifically re­
quired of it by the Federal Reserve Board as a condition of
the admission,
(3 )

It shall not engage in loans on real estate or

mortgages of a character or to an :*xtent which will impair
its liquid condition, and it shall carry in its investments
liquid loans eligible for rediscount with the Federal re­
serve bank to an amount not less than its paid in capital
and surplus.

- ♦

-8 (4)

If in any case such an applying institution has loans

secured by its own stocks or loans to one person, firm or
corporation aggregating more than 10% of its capital and
surplus, it shall adjust such loans to conform with the re­
quirements of the National Bank Act, the same to be done
within a reasonable time to be determined by the Federal Re­
serve Board*
Except as herein specifically provided, every State
bank or trust company becoming a member

of the Federal Re­

serve system, shall continue to retain its full rights as a
State bank and shall be entitled to exercise all functions
permitted by its charter*
Any State Bank or Trust Company which is a member,
shall the right Q£ withdrawal and may withdraw by giving
ninety days’ written notice of its intention so to do, to the
Federal Reserve Bank of the District in which said Bank or
Trust Company is located.

At the expiration of said ninety

days, such member shall surrender all of its holdings of cap­





sum equal to its








i zs










♦ ♦


9 -

surrendered, and one-half of one per centum a month from the
period of the last dividend, not to exceed book value thereof,
less any liability of such member to the Federal Reserve Bank;
said payments to be Dade twenty-five per centum (25%) on the
expiration of the ninety days' written notice aforesaid,
twenty-five per centum [25%) in ninety days, twenty-five per
centum [25%) in one hundred eighty days, and twenty-five per
centum [25%) in two hundred seventy days after the said first
payment; provided, however, that the said Federal Reserve

may have the right and option to make the entire payment

at any time after the surrender of such stock, provided further,
that no Federal Reserves Bank shall be required, in dealing with
the voluntary withdrawal of State banks and trust companies, to
cancel any stock offered for the purpose of effecting a voluntary
withdrawal if such Federal Reserve Bank has previously canceled
within the same year ten per centum of its capital stock under
the provisions of this regulation.

Applications for the volun­

tary withdrawal shall be dealt with consecutively in the order
as they shall be filed.

In the case of such voluntary with­

drawal of a member bank, the reserve balance kept by it under
the provisions of law with its Federal Reserve Bank shall be
transferred to the said liquidation


and shall be



pciid off in the same proportions and at the same dates as the
repayments of balance^ due on liquidation account with res­
pect to capital stock.
In the matter of examinations of State banks, the Fed­
eral Reserve Board expects to cooperate with State authorities
in making their examinations and avoid, if possible, dupli­
cation of this work.

It is proposed to accept the examina­

tions made by States wherever these are found to be thorough
and complete and of the same standard as the National bank

or else to appoint a representative of the

Board or of the Reserve Bank of the District to- act with
the State examination staff, and in that way enable the
Board to accept with confidence the report of the State
examiner s .
The Federal Reserve Board reserves the right to make
such amendments and adopt and publish,

from time tc time,

such further regulations as it may deem necessary.

5/6/15 .


A M E S B. F O R G A N , P R E S I D E N T


, L, R U E . V l C C ' P R E S I D E N T

O. W I N S . D i s t r i c t N o . 1

J . P. M O R G A N , D i s t r i c t N o . 2
L . L. R U E , d i s t r i c t N o . 3

Ek c c u tiv c

w. s.

C o m m it t e e

R OW E. D is tric t No. a




M L. R U E



J A M E S B. F O R G A N . D i s t r i c t n o . 7

. F. M O R G A N


) A N I E L C. W I N G


V §. R O W E

C. T . J A F F R A Y , D is t r ic t N o. 0
E. F. S W I N N E Y . D IS TR IC T N o . tO
J . H O W A R D A R D R E Y . D I S T R I C T N O . 11


K A I N S . D I S T R I C T N O . 12

I'ay 21, 1915

Hon. F. A. Delano, Vice-Governor
Federal Reserve Board,
Washington, D. C.
Dear Mr. Delano: Referring again to your le t t e r of the 7th i n s t . ; I have
now heard from the different members of the Federal Advisory Council in re­
gard to the draft of a circular on the subject of the admission of state
banks and resp ectfu lly submit for the consideration of the Federal Reserve
Board the following suggestions:
In connection with applications for membership it is suggested
that such applications along.with c e r t if ic a t e s of counsel should be sub­
mitted to the Executive Committee of the banks instead of to comri itte e s
of not l e s 3 than three d ire cto rs.
The governors of the banks being ex­
o f f i c i o chairmen c f the executive committees ought to be parties to the
Referring to Clause three, "Powers and Restrictions’1, it is
suggested that instead of requiring State bank members to carry among their
investments liquid loans e l i g i b l e for rediscount with the Federal Reserve
Bank to an amount not le ss than their paid in capital and surplus, it
would be better to require that a certain percentage of their demand de­
posits should be invested in such e l i g i b le paper, somewhere from 25
to 50 i .
It is also suggested that a more definite lim itation to the
real estate loans made by state banks should be established and that that
lim itation should also be related to the amount of their deposits by a
d e f in ite ly fixed percentage not exceeding 25 ic
Referring to paragraph 4 under "Powers and R estriction s",
it is suggested that in lieu of the payments to be made to retiring banks
extending over a period of one year, only a certain amount of capital shall
be retired in any six months’ period, somewhat along the lines provided by
the National Bank A ct for the retirement of national bank circulation.
Under such an arrangement only a certain number of banks whose capital would
aggregate the amount fixed, could withdraw during each six months' period.
Whenever the combined capital of banks app^ing to withdraw aggregates the
amount so fixed, the applications of banks for withdrawal subsequently re­
ceived would have to be postponed until the following six months’ period.

M E M B E R S

I A ME 9 B. F O R G A N . P r e s i d e n t


L. L. R U E . V i c e - P r e s i d e n t

J . P. M O R G A N . D i s t r i c t N o . 2

G. W I N G , D ISTRIC T N O . 1

e x e c u tiv e

w. S.

C o m m itte e

L L- R U E






J A M E S B. F O R G A N . D I S T R I C T N O . 7

J, P. M O R G A N

R O W E. D is tric t No.

G E O R G E J. S E A Y . DISTRICT N o. 5


C. W I N G



C . T . J A F F R A Y , DISTRICT NO. 9
E. F . S W I N N E Y . D I S T R I C T N O . tO
J . H O W A R D A R D R E Y , D I S T R I C T N O . 11

Hon. F. A. Delano jf 2

K A I N S . D I S T R I C T N O . 12


The idea is that under the provision proposed in your tentative
circular the reserve deposits of retiring banks are to be put into a
liquidation account along with their capital and are only to be paid out
at fixed periods extending over a year.
It might be a serious matter to
a State bank to have so large a part of i t s reserves tied up for so long
a time.
State banks would probably prefer to have action on their appli­
cations to withdraw postponed and remain members until they could withdraw
their capital and reserve deposits within a shorter period of time after
their withdrawal had become e f f e c t iv e .
Mr. Seay of Richmond has gone into the matter much more elaborately
than any other member of the Council and I respectfully beg to enclose
herewith a copy of his l e t t e r along with his suggestions in connection with
your proposed cir cu la r .

Very truly yours,
(Signed) James B. Forgan
P r e s id e n t.