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or
or ttiSTiHo
rm
*:asH*L *avi >aaT coiwon,.
f
.
February 16 1920
* r««ular statutory — ting » , th. r9 j. ^
ill th* F d«r»i Koaorv* Soard roon in th.
1* th®
0 0,
* « * „ „
s_
oU ^
^
m trQpixi&m bank building,
w d iy , f . b . 16, 1930, at 10,30 4 a.
J'““ S
?#r®“ •*“ * * th* * * * « t. »ru«- M l Mr. 4. L. ^
«u cho*«n tflwpormry cnair. tn.
i* *i ‘
£■
.*•'■- •jc •f ar*? * nfc-,;.«.r?->4r| ®h'fct,r*s$as. .«J9<*, -»<v f’^rgaik took th*
,
* ’
Ih. . . 0r « t « r , r.j-ortad t n . f .lle r t n ,; M e r u it * * • « * « - . o f t h . F M .ral
Adviaory CJoun *il for th* year 19^0*
•t t
r
?
a
&
r
raiani R* ,,*r T * s i r t r 4 « t *•• *
*
-
L L Hue
9 £ How*
i 0 $ra*s
Oncar Wall*
J ewe j}. Korean
5
6
y
F o f .tt*
C T Jaffr^y
X F 3#lnn*y
8
t
R i. 8*11
10
U
, ,
A L M ills
12
Th* following imdhnrv war* jrnt&ntJ
^»**r* L L Ha©, 3T. S . R*w*t J 0 8ro»n, Jaiao* % ?cr;*an# f u 3<*tto#
3 1 < U ff**y K L 1 U f A L S U llo ,
*b«or»t|,
rnd i i * r r i t t
H. Grim,
j «*c p 9;
*ry.
Item m . >h ilip :>toekton, * 1 Itopburn, Owcar *eiln and X F
Mr, Forgm »t tt#d th t he had word from Mr .Hoe«ton am
ltin ^ t* tm in dd ay they wo dd b* l i t * in arrivxn«j that *r
1 ^ ’ln**i in >|#w Y*rk on bu: in*»* ’*nd
^Iftoo* froa ,tt*nding Ih* la jntin ;•
r *c»ll* that
i*pb«m wna
Hr * * **±nn *y wa» prove***d by
s*
F8DKJUJL \DVX^ORY COUHCIL
Ur* t 0 Watts moved that Mr. Jones B. For *an b* el*ct*d Fraaidjnt ef
tn* federal Advisory Counoil for til# yoar 1320, and that tho Secretary bo
instr cted to caot tho unanioeuo ballot for *r ergon.
hr H L Ball, and unani^ouly carried*
Motion seconded by
Tho Seoretiry having caot tho ballot
tt directed tho tenjorary chairmen declared Mr Forgan duly elected President
f«r the onoulng ye*r*
Mr Mills than resigned ae temporary chairmen and Mr Forgan took tho
chair*
It vas raoved by Mr Grille that Mr L L Hue be elected Vice-Fre ident
of tho Council for the or suing year end thnt tha Secretary bo instructed to
tu t the unanimous b allot for
$r Kuo*
Motion seconded by Mr Brown «md
on*nif;.ousljf> carried. The Secret r y Moving caot th# ballot aa directed
r
Forgan declared Mr Rue duly elected fiee-rreeidewt*
Mr Uills Mowed that J*r Stockton, &r iepbum ^nd Mr Watts bo eleted
Matt.ro of the Sxecutive Co«edtt^e for tho year 1920 and that the Secretary
£2#exatsft ?os
bo instructed to oaot th# unanimous ballot for theeo gentlemen.
Motion
duly seconded and unanimously carried.
The Secretary cast the ballot as
directed and tney were declared elected*
Th* official organisation ef the Federal \dvinery Council for the
year 1920 is therefore ae fellow s:
President,
James 3 . For***
Y ice-frnsld ent, L L Rue
Executive Oo «*ittea: MMoars* J imee 1.
fhilip Stockton, 4 ft Hepburn, M S Ho^e md ' 0 Watte*
‘o r ^ n , L L Rue
Tho report of the Secretary shoeing hie traveling and incidental
•rfrnooo for th<» ye-%r 191 > *ae en motion of Mr M i l
filed.
approved and ordered
(3eo copy hereto attached an'l wade a part of these minutes.)
Feb. 16, 1920
REPORT OF SECRETARY, FEDERAL ADVISORY COUNCIL, FCR YEAR 1919
Balance on hand D e c . 3 1 ,
1918,
a c c o r d in g
to l a s t
rep ort
$ 3 3 4 .8 8
HJCCEIPTS :•
March 1 5 , 1 9 1 9 , A n n u al A s s e s s m e n ts
Banks o f $ 1 5 0 . e a c h , t o t a l
on 12 F e d e r a l R e se rv e
1 f 8 0 0 .—
$ 2 ,1 3 4 .8 8
TOTAL
DISBURSEMENTS:
E xp en ses a t t e n d in g , fora* m e e t in g s o f th e F e d e r a l
A d v is o r y C o u n c i l an d two s p e c i a l m e e tin g s o f th e
E x e c u tiv e C o m m i t t e e ,in W a s h in g to n a s fo llo w s -?
1919
R R F a re
$ 6 1 ,9 6
5 9 .8 8
5 9 .7 0
8 1 .5 5
7 6 .2 1
Feb 17,
Mar 20
May 19
June 19
Sept 15
6 7 .2 6
Nov 17
Totals — ----- $ 4 0 6 .5 6
H o te l
M e a ls
$ 2 4 .7 5
2 9 .9 0
3 3 .9 5
1 7 .1 0
6 5 .4 0
3 5 .6 0
$ 2 0 6 .7 0
M e ls
$ 2 .2 6
1 0 .9 4
6 .0 9
2 .8 2
Total t r a v e l i n g e x p e n s e s a s a b o v e
Stenography, S t a t i o n e r y
P rinting
Telegrams, P o s t a g e
Salary S e c r e t a r y 1 9 1 9
Balance in F i r s t - N a t i o n a l S a n k ,
D ec. 3 1 ,
9 *72
4 .6 4
3 6 .4 7
1919
.
T o ta l
$88*97
1 0 0 .7 2 E x e c .
9 9 .7 4
1 0 1 .4 7 E x e c .
1 5 1 .3 3
Com.
Com*
1 0 7 .5 0
6 4 9 .7 3
6 4 9 .7 3
2 4 .3 5
1 1 1 .9 0
3 4 .7 9
1200*00
C h ica g o-,
1 1 4 .1 1
R e s p e c t f u l l y s u b m it t e d
M e r r itt H.
Grim
Secretary
$ 2 ,1 3 4 .3 8
3*
Xn ardor to provide for the secretarial *Jid incidental expanses for tho
* \ K r ' rcm frnt tne Secre
yoar 19iO Mr Kuo moved tho adoption of the following
"Reeolvad that th- f'rnuidont be and no io hereby authotiiod to
ai l atch f eierai Reserve lank to cont ri'out e
toward pi ih s secretarial
and incidental expenses of the Federal Advisory Council for tho yonr
1120 ana to draw on t.-.en far t h it pur, aiie,
Motion duly carried*
*ir Hue «**»ved iASI Ur Merritt H <lria ba reelected secretary of tho
federal Advisor/ Council for thu year 1 0 iQ with a salary of 31,200 per
m
r? °*
» VtU„ r ;)
f u i
-
t >uncil shall be
l&otion duly carried.
On not ion th* by-law* for th* past y ar were readout#* ao th# Hy-la*« of the
feieral Advisory Jeumll for tho ensuing year.(So* copy hereto attached and
with the heder-.*
u'\d© a part
01
<
1I
these mjnut « . )
gf-s? ro th?
«-* »'
.
-
«*'•
Mr Rue raored that the tsinute* of the ®eet ing of the Federal dviaory
h old in g their yt * tlst %*v. ? ’
•
Council h*5ld on Wov ^>er 17th. copies of hich had bow sent to a dbers of
such m inutes
o r d tk ?
the Council, be improved.
The notion , was carried.
•
■•. .?r
A m ajorn y
Tho President having arranged for in informal v isit n the part of the
Council to tho new Secretary of the Treasury,
Booting
ion# Daniel F. Houston, the
adjpumed for that purpose*
C ity
o f
W t t lw n g 'v
<n
'■
•'
-r '&***
September and
S K C K I H
T hese B> 1
a vote of a
r
H V.
BY-LAWS OF THE FEDERAL ADVISORY COUNCIL
ARTICLE I.
OFFICERS
O fficers o f this C o u n cil sh all be a P resid en t, V ic e - P r e sid e n t and S e c r e
tary.
ARTICLE II.
PRESIDENT AND VICE-PRESIDENT
T h e d u ties o f the P re sid en t sh a ll be such as u su a lly pertain to the o ffic e ;
an d in his a b sen ce the V ic e - P r e sid e n t sh all serve.
ARTICLE III.
SECRETARY
T h e S ecr eta ry sh all be a salaried officer o f the C o u n cil and his duties
and com p en sa tio n sh a ll b e fixed b y the E x e c u tiv e C om m ittee.
ARTICLE IV.
EXECUTIVE COMMITTEE
T h e r e sh all b e an E x e c u tiv e C o m m ittee o f six ( 6 ) m em bers o f the
C o u n cil, o f w h ich the P r e sid e n t a n d V ic e - P r e s id e n t o f the C o u n cil shall be
ex-officio m em bers.
ARTICLE V.
DUTIES OF EXECUTIVE COMMITTEE
It sh a ll be the d u ty o f the E x e c u tiv e C o m m ittee to k eep in clo se touch
w ith the F e d e r a l R e se r v e B o a r d an d w ith their regulations and p ro m u lg a
tions, an d com m u n icate the sam e to the m em bers o f the C o u n cil, and to su g
gest to the C o u n cil from tim e to tim e sp ec ia l m atters for consideration.
T h e E x e c u tiv e C o m m ittee sh a ll h a v e p o w er to fix the tim e an d p la c e o f
h o ld in g their regu lar an d sp ecia l m eetin gs an d m eth od s o f g ivin g n otice thereof.
M in u te s o f all m eetin gs o f the E x e c u tiv e C o m m ittee sh all b e kept and
such m inutes or d ig est th e re o f shall be im m ed ia tely fo rw a rd ed to ea ch m em ber
o f the C o u n cil.
A m ajority o f the E x e c u tiv e C o m m ittee sh a ll con stitute a quorum and
action o f the C o m m ittee sh all b e b y a m ajority o f those present at an y m eeting.
ARTICLE VI.
MEETINGS
R e g u la r m eetin gs o f the F e d e r a l A d v iso r y C o u n cil shall be h eld in the
C ity o f W a sh in g to n on the third M o n d a y o f the m onths o f F eb ru ary, M a y ,
S ep tem b er an d N o v e m b e r o f each year.
S p e c ia l m eetin gs m ay be c a lle d at any tim e and p la c e b y the P resid en t
or the E x e c u tiv e C om m ittee, an d shall b e c a lle d b y the P resid en t upon w ritten
request o f an y three m em bers o f the C o u n cil.
ARTICLE VII.
AMENDMENTS
T h e s e B y - la w s m ay be ch a n g ed or am en d ed at an y regular m eetin g by
a vote o f a m ajority o f the m em bers o f the F ed er a l A d v iso r y C o u n cil.
jp-
FEDERAL RESERVE BOARD
WASHINGTON
QpFlCF OF THE GOVERNOR
January 22, 1920.
My dear Mr. F o rg a n
I ackn ow ledge r e c e i p t o f you r l e t t e r o f th e l& th i n s t a n t a d v is in g
that the n e x t m e e tin g o f th e F e d e r a l A d v is o r y C o u n c il w i l l be h e l d on
Monday, F e b ru a ry l 6 t h , a t 1 0 :3 0 A .M .
The B oard w ou ld s u g g e s t t h a t th e r e be a d i s c u s s i o n o f th e new p o l i c y
of e s t a b l i s h i n g a s p e c i a l r a t e f o r b a n k e r s 1 a c c e p ta n c e s d is c o u n te d by a
member b an k . H e r e t o f o r e th e b u rd en o f s u p p o r tin g th e a c c e p ta n c e m arket has
f a l l e n upon th e F e d e r a l r e s e r v e banks d i r e c t l y , and i t i s th e B o a rd ’ s view
that a s p e c i a l r a t e e s t a b l i s h e d w i l l r e s u l t i n b ro a d e n in g th e m arket a s w e ll
as in g i v i n g th e member banks a m ost d e s i r a b l e fo rm o f in v e s tm e n t*
The B o a rd w ould a l s o l i k e t o have th e C o u n c il’ s v ie w s a s t o th e
p o lic y w hich s h o u ld be p u r s u e d by F e d e r a l r e s e r v e banks w h ich have t h e s e
s p e c ia l d is c o u n t r a t e s i n t h e i r open m arket p u r c h a s e s o f a c c e p t a n c e s .
I t i s s u g g e s t e d t h a t i t w ou ld be w e l l f o r th e members o f th e C o u n c il
to in fo rm t h e m s e lv e s a s t o i n t e r e s t r a t e s , n o t o n ly on bank b a la n c e s but upon
d e p o s its g e n e r a l l y , p a i d by c o m m e rc ia l banks i n t h e i r r e s p e c t i v e d i s t r i c t s i n
order t h a t t h e r e may be a d i s c u s s i o n a s t o what s t e p s , i f a n y , s h o u ld be ta k e n
to d is c o u r a g e th e p r a c t i c e o f p a y in g e x c e s s i v e r a t e s on d e p o s i t s .
W ith r e f e r e n c e
to
m eeting on November 1 7 th ,.
th e recom m en d ation s made by th e
I have t o
sa y t h a t
th e B oard i s
C o u n c il a t i t s
la s t
i n f u l l a c c o r d w ith
the recom m en d ation t h a t e x p a n s io n o f c r e d i t th r o u g h the d is c o u n t f a c i l i t i e s o f
the F e d e r a l r e s e r v e ban k s s h o u ld be h e ld i n c h e c k .
A lth o u g h th e F e d e r a l ,r e
serve banks h a v e 'b e e n r e p e a t e d l y u r g e d t o do a l l .in t h e i r power t o r e s t r a i n
the te n d e n cy to w a rd s e x c e s s i v e r e d i s c o u n t i n g , a d m o n itio n s have p r o v e d in
e f f e c t i v e i n s e v e r a l o f th e d i s t r i c t s .
S in c e December 26 th a b o u t two hundred
m i l l i o n d o l l a r s o f F e d e r a l r e s e r v e n o t e s have b e en r e t i r e d , b u t th e n e t r e
d u ctio n i n i n v e s t e d a s s e t s c f a l l F e d e r a l r e s e r v e banks h as b e en o n ly a b o u t
s i x t y m i l l i o n d o l l a r s and t h e r e h a s b een a n e t in c r e a s e i n th e co m m e rcia l
d isc o u n ts h e l d by th e s y s te m a s a w hole o f s i x t y - f o u r m i l l i o n d o l l a r s .
It
i s p r o b a b le t h a t any s u b s t a n t i a l r e d u c t i o n i n lo a n s t h a t may be made i n th e
near fu t u r e m ust be a c c o m p lis h e d b y th e 1 5 t h o f M arch, and th e B oard h a s con
s e q u e n tly a p p r o v e d s u b s t a n t i a l i n c r e a s e s i n r a t e s f o r th e t h r e e e a s t e r n banks
and has n o t i f i e d a l l o t h e r F e d e r a l r e s e r v e ban ks t h a t i t i s p r e p a r e d t o a c t
at once on t h e i r reco m m e n d a tio n s f o r a r e v i s i o n o f r a t e s c h e d u le s *
The B o a rd c o n c u r s w it h th e C o u n c il t h a t th e o p p o rtu n e moment h as n o t
yet a r r i v e d f o r
b r i n g i n g up th e q u e s t i o n o f a r e v i s i o n
of
reserves*
The
argument made b y th e C o u n c il on November 1 7 t h w it h r e g a r d t o t h i s to a tte r
a p p lie s w ith e v e n g r e a t e r f o r c e t o d a y .
W ith r e s p e c t t o th e q u e s t i o n o f w h eth er bank b a la n c e s due t o f o r e i g n
banks s h o u ld be o f f s e t by f o r e i g n c u r r e n c y b a l a n c e s due fr o m th e same banks
in f i g u r i n g th e r e c i p r o c a l b a la n c e and a s t o w h eth er f o r e i g n c u r r e n c y b a l a n c e s
due from f o r e i g n
banks may be d e d u c te d fr o m am ounts due t o b a n k s r t h e B o a rd h as
not m o d ifie d i t s
p r e v io u s r u li n g ,
p u b lis h e d i n
th e B u l l e t i n f o r O c to b e r 1 9 1 9 *
The B oard ’ s G e n e r a l C o u n s e l h a s ex am in ed th e l e g a l o p i n i o n s s u b m itte d by th e
Council and f e e l s t h a t , in d e p e n d e n t ly o f th e q u e s t i o n o f w h e th e r o r n o t a
fo r e ig n bank i s a ban k w i t h i n th e m eaning o f th e n e x t t o th e l a s t p a r a g r a p h o f
S e c tio n 1 9 , w h ich p e r m it s d e d u c t io n s o f b a l a n c e s due fr o m ban ks fr o m t h o s e due
to banks, i t was n e v e r in t e n d e d b y C o n g r e s s t o p e r m it o f th e d e d u c t io n o f a
in a f o r e i g n c o u n t r y fr o m a d e p o s i t l i a b i l i t y p a y a b le i n d o l l a r s i n th e
U n ited S t a t e s .
C o u n s e l w i l l su b m it a f u r t h e r o p i n i o n on t h i s s u b j e c t f o r th e
c o n s id e r a t io n o f th e C o u n c il a t i t s n e x t m e e t i n g .
balance
V ery t r u l y y o u r s ,
Mr.James B .F o r g a n ,P r e s i d e n t ,
(S ig n e d )
W .P .G . H a r d in g ,
Digitized F
fored
FRASER
e ra l A d v is o r y C o u n c i l,
G overn or.
http://fraser.stlouisfed.org/
Chicago,
111.
Federal Reserve Bank of St. Louis
4*
MINim.o OF JOINT J4KKT1NO
OF* THK
abvxboMt council,
and
THE rrv:H;\L R ’ FRVR 30vW>.
Febniary 16, 1990
At 11:30 turn Fedoral Advieory Council net in joint session with the
rtdaral lUt«rr« Board In tha office o ' lovamer Harding In the Traaaury u*p"urtiaa»t •
il^nbrra of th# Federal Advisory Council 1 JAessr** I* L Hue,
FrouontJ
f 5 Jle*a, J 5 3roen, Jaf;;es 'I Forgan, 5* 0 tfhtts, (3 T J*ffray, R u BhII, A is
iila ,
and Marritt H. Grira, Secretary*
U.rfcera of tha Federal R *»e m Boird:
iilliiw ,
0*ear
Governor
.1 f
0 Harding, J S
itn \ iil, 0 3’ MihXIa >nd A C M illar.
3ovaraer
Hardinft called th* mooting ordar and talked on th# topic*
i ubtit tod to tho Council in hi* le tte r of J inviary
eo ditiona affectin g tho Federal Reserve System.
additional topics for tho Council** conoid oration.
22,
1920, al*o on general
Fla suggested tho following
***
rjff^ctivemaaa of t'he Federal Kaaorvc Hankot*
6^
rediscount rwto.
D ifferen tlal rates for loans secured by ^ovamraant bond*.
An wnandaant to the Federal Hasnrve Act recot»aended by the federal
Reserve ^©urd giving it an additional pvwef hy adding to subdivision (d ), Section
14, a proYiao that each Federal Raecrve^Bank, may, with the approval of the
federal Reaorve 3eard, dwteriuia*
u n ifo rm rule, applicable to a l l it * *eti>er
bank* alike, tha noraal asaxir»um rediscount line of each wa*Aer h'mk and that it nay
submit far the review and datenninstion of tnc Federal Reserve 3*ar« graduated
rates an an ascending acile to apply equally and ratably to a ll its taamoar bar.*#
rc^iiacauf;ting aaousif to *xcom of t^a nortsal H r# so determined*
in th i* way
in the opinion of tn 'loard it would be possible to reduc# excessive borrowing
♦f oa*,;bar b&nki and to induce thaai to hold t h iir own larj’ e &orr*j'#'erB in ch^ck
vitkout raiaing basic r it e * .
Rates of i/iter aat at which fixture fovornfcant ce rtifica te s #f indebtedness
should bo issued.
Ctovaroor ‘larding aekai the Council to stake recoisra*ndations on any other
•abjeots desired,
Ti»ere was soeie ganeral uiecuaaion., during which U r .
Philip iiteckton arrived.
Tha joint sesjion twon adjoumad Jid tha makers of tha ilounsil ratumed
ts the Federal Raaerva Do xrd room.
r
s.
MJENUT
fit-.
OF II**TBtO
OF
-uvi
y
3IL.
Fob* 16, 1 #i (a*
The Federal Advisory Joun a i l re*.uned i t a ••••ion
in
«d ,*esion)
th® tfoderal ReaerYO
•i*rd roan i t 12|15 M.
Present!
itmm n *
8# F«rg*n, *lr«si cnt, in the cnair, l L Ru«( V ce-
Presidsat, rhiLip it«-?*tan, ? ft R«we, J ' 3rown# F 0 tf«tte# G T Affray,
I i. 3vil, \ L HiUa, ind tferritt H. Ori», Secretary,
Abso’i t : ^eaern,
4 1
firpbum, Oscar -<*lls,
*4 ii*inn©y*
The <tKUr laid before th® ra««t ing Governor Harding*# lfttt«r of January
U , 19,20, \a horato attachad w d mda a \art of t he«e
dnut as*
Tha topics tharain e u ^ a t a d were carefully considered*
Tijpic f?a* 1, *B"ink*rs
In regard to
cceptancas," after an in o r ^ l discussion the Executive
Cotuaitt•• w%a requested to draft a feriaal recoJuBendation er» tha subject es»badyin^ th't via**a than expressed*
lixh rei^ard to f pie No* 2, *^1*1*• of int ir*ot on deposits paid by laosrtoer
Sinks," after discussion th* following Kecew.'aandation '♦ts unani oualy agreed to :
**Tna J*UTiaii ha* had tauter aonoideration th® r<*t«s of interest paid
on saYaral cias»«» of dapeeit* by tho bwks located in tha larg* c i t i * of e^eh
Federal A***rve D istrict a* shwn in a otate;?»ent prepared by th« Federal Reserve
agent* and sub nit tad to a c o n f e r e n c e if binker* repr*»b*nting the tw*lr* d istrict*
raoar.tly h«ld in 3hi:age*
tne binks in tr»« threw o<mtr 1 r«serv* c iti*e and
thoaa in a ll *th«r o itia * , where tha rat* * f interest paxd on bank deposit* ha*
b*«n regulated by th* currant rat* of discount at tho Federal Reserve bnnk* on
aiaaty day eonaeroial y> P"**, havo already taken action lisiiting tha taaxistun rat*
•f interest t* be p iid or n«t and aYailabl* daily balance* of b mke rnd trust
toopariee ta 2^ f* and aa such action enables the Federal Resarvf* banks to increase
tneir disc unt rate without reference to existing clearing hous* rules re ulating
tha paytMvit ef intererrt, w* are af the opinion that no further stepe are necessary
•r advisable looking to thn ra ulation of the rateo of interest to be paid
•n deposits* "
Tha Co /ncil adjourned for luniih to ra**et at 3:30 i I .
S ; C R K T \R T,
6.
f OKR L VJVI 0 Y 3 •:
IL.
41 3: <0 ) M the F «d »n l A^vi.ery Council r o u edit* session*
•aaar#, Jaroae % -’or^an, * r e a l 3*nt, in tho chair, L L Hue#
freaont:
Vice-hrwuident, Fhiiip Stockton, # 3 Haw*, J 0 ^ro^n, Oecar ?alle, ? 0 Vitto,
c I Jnffr.y, H L B i ll, A L M ille, and Merritt H Grim, Secretary*
motors. K 3
Ab* * n t :
Th* President
epbum a d
S in^ey.
laid before th* Goun'sil f*r its consideration
Senate l i l l 37T3 providing for tho paynent * f intereet on reserve deposit*
*5 IOfH3R8#®SS®% s£* ®(0#vJ$t$: O? '?'I
Mr ^or^an road to ths seating a statement giving
$■■■
in f*deral Reserve b w k *.
-•
-v,- ?** Z +* %.
*% m v--.ms* * ^
* Jf
* ’• •-
.*> -rta
'US
f 4jki $
it #
4
*.*> >
tjSfc't
^>6^^398
jP*?- { T ^ f T M M S
his vie** and ir^uaients against tho principle involved in tho , roposed b ill*
After careful consideration Mr Hue moved that the Executive Ceomittc* be
.
:I »
^W^9l 1
. ^ Hi P#.r‘:
L
'- **’ ■* v# '-Jr&
•■£»Vs.JfcH
^
'■•($£> V*HU*
** •'■•1-
requited to fr tne a reconaaendation basod on Mr. 7organ*■ etatemmt*
T o additional tepioe suggested by Governor harding at the woming
jpint suasion were then t Mean up*
They were a l l diseusned thoroughly
and in an infernal »m ner, nnd tho Executive Gojmitteo oaa requested te
fo .ulitt reco»i. endation* trioroon*
Mr F. ( .
irly trvin#
H ite asked te fee excused a* he had te 1© ve for hotne on an
H* «'»*» •~'U«ert.
At 5:45 I M the Jowieil adjeumod until 11
a
* Tuesday, lobruary
H c a n u t
17tn.
7*
•-
i **•
mxnut:;.. of
axjfCBTiVd: o o ^ a r a s
or
rm
m M & \L advi^cs* a o ^ ciL
•
Following
»1 jnumnwsnt
iot 1^20
of rwotijng of F«deral Advisory <*oun i l
the ^xaoutiv* ^oswitt»e im t to * 9* idor tho topic* t At hnd 5
rfiI*rred
te i t .
teosro* J 4 F*r$a»# 1> L ftua, Fnilip Stockton 4ma # S Row*,
Pr *-mt:
Als* Merritt H. ftri»# 3 so ret *ry#
\bsoni: A B Hepburn
and F 0 &tt&«
Thn Bxoeutlve Coranittea p r ja r a d tentative r -cofcsraend'ttions on tho
topics subaittod, and the eeeratttry vra* instructed to typewrite copies
of uaae,
Tho Committee arthrtin* adjourned at 7:15 1 M until 10 A S February
17th.
ifes
’■
'r' ■ '
mX i i k k t
i|* |«
$}-■£■#,
$&***
fe. '.lii-
£ LQH S f A R I .
MINUTKS Of TUB
SXKCUTIVK GQMHITTK&
or
TH£ FSDKRAL UJVlbORY COUNCIL*
Feb. 17, lt2 0 .
4s arranged the Executive "Jommittee met in th® Faderel Reserve loard room
*t 10 A M Tuesday, Feb* 17th, 1920*
Prsaert:
Messrs. James S. Forman, L L Rue, end W i» Rowe, alno Merritt h.
Qfisi, iiecrot ajpy*
Absent: Uoe r s . Philip Stockton, A I Hopburr* and F 0 Watts*
The typawit^en eopisn of the reeeRm^ndntlone prepared at the m^etinp held
y#4terday afternoon ware oarefuily tfon* over abd after soss Hjr.«ndmonta* wero approved.
The £ortsltt4i» stlao prepared for 2 jbmi jaion to the Council the fallowing as an
additional rewa'serwiaticii:
tfejrtc:
Vr« bil-sncos due from foreign banteo deductible from balances due to
binxs fiir th* purpose of dat ©Training rs&orvea*
Rocojsaendat ion* <le have read the opinion of your Counsel lou’ ertiJkiafE to refute the
•pinions c* tto-'sre* Xhvrxan A Starling; tfhita * Jias; «iay*r, *ayer, lustrioa 4 F latt;
Ststson, Jennings A H usssll, and ^c^rd 2 3r-pwn, a l l ©niaont bmk <rcur.s>tl, who agrss
thit balances dus from foreiap b ,nks aui lawfully be deducted fro* baiancse du* to
banks for the purpose of determining reserves ia the aanas? provided by Section 19
of tho Feiam i Acacrva -ict .
Wa submit that tho great preponderance of counsel is on the side of
ths opinion •vrprs.;35d by us Lo the affect tuat bounces due frs» foreign banks may
lspdly be so deduct ad.
Wholly apart f hovtv^r, fcron. tbe Issfsl question on which
th* lawyers &*cn tc li f f e r five to one, it,is the opinion of this Council that the
question shoula be considered sad decided by your 3ward along
linea of good
banking practice.
Tho practice has heretofore existed and we know of no good reason why
it saoyild be c^nged now.
At the present tir-ie i t aakee very l i t t l e difference
t# banks carryI / l g 3.?!ances# as nearly a ll of thaa h*vs l i t t l e or no balance due thea
I* foroijTi countries*
In normal tiiaes, however, these balances mount up into very
■ubetintial figures and there are no balanafta on th eir books sore easily and more
faadily convertible into legal reserve balances with tne Po.ieral Reserve Banks than
thijr are.
in ths interast ef financing tne fareijp! trade of this country, wo theref#rs sp in respectfully urge a rec onaider at i an of your ruling in thic matter."
The Chairman was requested to present the report of the Bxecutivs
S»anittee to ths Federal Advisory Council*
SECRETARY,
9*
MINUTE OF m w n w
or
THE
ri:>HK4L ±VJX '>OHY OO'JNOIL.
"• ** ^
Twrwiy *
> ••
»
*
feb. IT, 1320
JYaaanti
M&'after* 9 t ika ftutomj. A.avisd"^ C&vm?.i£t
i&aacrs • a Far&is,
Iho a n n d aaating of tha Faderal Advisory Council wts hald in
tho Fadoral Kaaarvo So«rd roots, a* 10 A m 'I**oada>y# Ftabruary 17, 1*20*
Protont :
biatsara* J:*j*aa 1. F©rgant Prflaidant, in t no chair, L L Rue,
Vioo-frocidaat, <t S rio^a, i £ Browu, Oao&r .tell a# G T Jaffray, P. L 3^11,
A L U ills, and fcorritt ri. 3riw, Secretary*
Abaont: Maaars*
8,
r h ilip iitockton, A B liepburn, F 0 Watts and
/ . ii. irnoy*
6#
Vi fM
v
i£333
u f% ST -I&iL&.fc 111&r#
Mr* JVrjan announced that an arrangoraant had bean aado with the
ftderal honervf* ioard to asaat with tha Council at 12
Aaaoastndations*
-jtta it
0*clock
to racaive ite
■%*&**% b i l l 4» fc¥7
*m hr*
The raport of the e Sxacutiva Coyaaittoa was than laid before tha
aaatiAg m.i aach topic was carsfo lly raad ind considered,
iroa Hocojara^n intion %-> they vara fin a lly adoptad following ainutoa
•f tho joxat eanfernnca held immediately aftar thia aaating.
At twalve o'clock ths
^aiobara of tha federal Raeorve Board having
arrivoa tne Jauncil want JLnto joint aaaaj.on»
3 B C R S T U T ,
10#
MD1UTKJ 0 / JOINT SSS3ICK
o r t h *:
yry.JHAL ADVISORY COUNCIL.
\ND
th h rsn.;:R\L Rttsavsi ioard .
Feb. 17, 1920.
At 12 **• Tuesday, February 17thf 1920, the members of tho Federal
kayitory Couiictil anu Faderal Reaarve lio'trd ra^t in joint eeaeic-n*
Preefent:
Lumbers of tha (federal Advisory Council:
Messrs J 3 Virgin,
irre*i i».rtt L L Rue, Vxoe-freoi l :r«t, i o H&are, J 0 Brown, Oscar iJells, C T
Jaffr-.y# R L 3 a ll# A L M iilo, and Lerritt H, Qriia, Secretary.
kaufcers of th® Federal Sw srv* io^rd:
Governor V i‘ G iiarding, A C
iiillcr, ilbert iitraae, 0 3 Hfl.nlin, J S Willinme, and ^ T Chapman, secretary.
Governor iiarding aa*ad Har Forgan, as Prcsi ent of the Federal Advisory
Council, te r« id it s rec option dat ions *
Ur Forgan tnan road xhe Council's racornnandatiens, after wnieh ihart
was a general riiacuasion regarding ths various ra co inmandat ions.
After an axpla at ion made by Governor Harding in
■ r, i^ave tne control m ?>•
1
regard to
the Fedaral
Aaesrvi Doard's attitude to^varda Senator Gore’ n b i l l (a 3773) it was un
animously agreed by tha Council (on notion of *^r Rue, seconded by lir tfalls)
tout ita reco.aoendaticm in conn ction therewith should not fere, a part of its
regular racoiwaendation* out unould be handed to th# Board infernally with the
understanding tnat tne doard could »Uco such us a of it as in it * judjgoitant
would ‘cunt serve tne purpose ef defeating tna b ill#
Tnts Council*4? r « ;^ ia r racorasondations as subraittad to the F#d«rai ftasemt
Board are ittached in printed forn xnd made a part of these lainut-a.
The Counoil’ a recommendation
(in fo r m l) regarding Sonat# b i l l 3773 is
also nereto attached and *«ade a part of th#re rainutes.
(typewritten copy)«
Various other natters \/ere then discuBPed by the members of the t#o
boards end 1j15 t Um the meeting adjo^rred.
3 K S R, }$ T \ R Y«
RECOMMENDATIONS OF THE FEDERAL ADVISORY
C O U N C IL T O
THE
R ESERVE
FEDERAL
BOARD
F ebruary 1 7 , 1 9 2 0
T O P I C N O . 1— S p e cia l rates for the rediscount of bankers’ ac
cep tan ces and the p o licy w h ich should be pursued by F ed eral R eserve
banks, h avin g such rates, in their open m arket purchases.
R e c o m m e n d a tio n :
T h e sp ecial rale estab lish ed b y F ed era l R eserv e banks for the redis
count o f b an k ers’ a ccep tan ces affords m em ber banks the legitim ate oppor
tunity o f p urch asing them , carrying them as a secondary reserve, and
realizin g on them prom ptly w h en ever they have occasion to do so. It also,
h ow ever, affords them the opportunity o f purchasing them at current open
m arket rates and h avin g them rediscou nted at the preferred rate sim ply for
the profit in the transaction if this is perm itted.
It sh ou ld b e u nd erstood that the o b ject o f the special rate is to en
cou rage m em ber banks to carry lines o f this class o f paper as a secondary
reserve, p rom p tly con vertib le into le g a l reserve b a la n ces w hen such conver
sion b ecom es n ecessary.
W ith such an understanding prevailing m any o f
the m em ber b an k s w o u ld no d ou b t a d o p t the p o licy o f carrying lines of
b ank ers’ a cc ep ta n c es as seco n d a ry reserves and the m arket for them w ould
thus b e m a teria lly b road en ed .
In som e districts this has alread y occurred.
T h e p o lic y to b e pursued th erefore b y F ed era l R eserv e banks should
be to le a v e the con trol o f the op en m arket for such accep tances in the hands
o f m em ber b ank s an d d iscou n t houses, so lon g as the former use the special
rediscount rate leg itim a tely an d d o not abuse it. T h e F ed era l R eserv e banks
should not th erefore n orm ally b u y a ccep ta n ces in the open market b elo w
the current rates at w h ich the m em ber banks and discount houses are buying
them.
S h o u ld it b eco m e u rgen tly n ecessary to curtail rediscounts at the
F ed era l R e se r v e b ank s rates can be raised and should it be found that the
preferred rate for b an k ers’ accep ta n ces is b ein g abused such discrim ination
in their fa v o r sh o u ld b e d iscon tin u ed .
T O P I C N O . 2 — R a te s o f interest on deposits paid b y member banks.
R e c o m m e n d a tio n :
T h e C o u n cil has h ad under consideration the rates o f interest paid on
the several cla sses o f d ep osits b y the banks lo ca ted in the large cities o f
each F e d e r a l R e se r v e D istrict as sh ow n in a statem ent prepared by the
F ed eral R e se r v e agen ts an d subm itted to a con feren ce o f bankers represent
ing the tw e lv e districts recen tly h eld in C h ica g o . A s the banks in the three
c e n tr a l reserv e cities a n d th o se in a ll o th er cities, w h e r e th e rate o f interest
p a id on b a n k d e p o sits h a s b e e n r e g u la te d b y th e cu rren t rate o f d isco u n t at
th e F e d e r a l R e s e r v e b a n k s on n in e ty d a y c o m m e r c ia l p a p er, h a v e a lr e a d y
ta k e n a c tio n lim itin g th e m a x im u m rate o f in terest to b e p a id on net a n d
a v a ila b le d a ily b a la n c e s o f b a n k s a n d trust c o m p a n ie s to 2Y a r7< a n d as
su ch a c tio n e n a b le s th e F e d e r a l R e s e r v e b a n k s to in cr ea se their d isco u n t
rate w ith o u t r e fe r e n c e to e x istin g c le a r in g h o u se ru les r e g u la tin g the p a y
m en t o f in terest, w e are o f th e o p in io n th a t n o fu rth er step s are n ecessa ry
or a d v is a b le lo o k in g to th e re g u la tio n o f th e ra tes o f in terest to b e p a id on
d ep o sits.
T O P IC
NO.
3 — E ffe c tiv e n e s s o f th e
F ederal
R eserve
B a n k s’ 6 r c
R e d is c o u n t rate.
R e c o m m e n d a t io n :
It is th e o p in io n o f th e C o u n c il th a t th e F e d e r a l R e s e r v e B a n k s ’ 6 ^
rate fo r th e r e d isco u n t o f n in e ty d a y c o m m e r c ia l p a p e r h a s n ot b e e n w ith
o u t its e ffe c t on th e c r e d it situ a tio n b u t this ra te h a s n o t b e e n lo n g en o u g h
in o p e r a tio n
to d e te r m in e w h e th e r
or n o t it is h ig h
enough
to
e ffe c t
the
co n tro l d esir ed .
T O P IC
N O . 4 — D iffe r e n tia l rates fo r lo a n s se c u r e d b y G o v e r n m e n t
b on d s:
R e c o m m e n d a t io n :
In th e o p in io n o f th e C o u n c il th e d iffe r e n tia l rates n o w e s ta b lis h e d in
fa v o r o f lo a n s se c u r e d b y
th e L ib e r ty
a n d V ic t o r y
lo a n
b o n d s w ill u lti
m a te ly h a v e to b e d is c o n tin u e d b u t w e d o n o t b e lie v e th a t th e tim e h a s y e t
arrived w h e n it sh o u ld b e d o n e .
T O P IC
NO.
5— The
F ed era l R eserv e
B oard
r e c o m m e n d s to C o n
gress th a t a n a d d itio n a l p o w e r b e g r a n te d it b y a d d in g to su b d iv isio n
(d),
S e c tio n 1 4 , a p r o v iso th a t e a c h F e d e r a l R e s e r v e B a n k m a y , w ith th e a p
p r o v a l o f th e F e d e r a l R e s e r v e B o a r d , d e te r m in e b y u n ifo rm ru le, a p p lic a b le
to a ll its m em b er b a n k s a lik e , th e n o rm a l m a x im u m r e d isc o u n t lin e o f ea c h
m em b er b a n k a n d th at it m a y su b m it fo r th e r e v ie w
a n d d ete r m in a tio n o f
th e F e d e r a l R e s e r v e B o a r d g r a d u a te d rates o n an a s c e n d in g s c a le to a p p ly
e q u a lly a n d r a ta b ly to a ll its m em b e r b a n k s r e d isc o u n tin g a m o u n ts in ex c ess
o f the n orm al lin e so d e te r m in e d .
In this w a y , in th e o p in io n o f th e B o a r d ,
it w o u ld b e p o ssib le to r e d u c e e x c e s s iv e b o r r o w in g s o f m em b e r b a n k s an d
to in d u c e them to h o ld th eir o w n la r g e b o r r o w e r s in c h e c k w ith o u t raisin g
b a sic rates.
R e c o m m e n d a t io n :
The
C o u n c il
ap proves
th e
p r in c ip le
of
a p p ly in g
r e g u la to r y
rates
to
such banks as are m aking an excessive use of the facilities of the Federal
R eserv e B an ks, but doubts the practicability of establishing a normal m axi
mum rediscount line ap p licab le alike to all member banks.
In determining
the line o f discounts and loans to be granted to a member bank due regard
must b e given to the nature o f the business o f each member bank, as it is
obvious that a bank serving a com m ercial clien tele w o u ld legitim ately require
a larger rediscount line than one w hich did not serve customers w ho require
con sid erab le borrow ing facilities, and such bank should not be pen alized for
p erform ing its proper function in financing com m erce and trade.
T O P I C N O 6 — R a te o f interest at w hich future governm ent certifi
cates o f in d eb ted n ess sh ould be issued.
R e c o m m e n d a tio n :
If such certificates are to be o f short m aturity, not exceeding three
m onths, the C o u n cil b elieves they m ay be m arketed if they bear a rate of
4^4 % •
If. h ow ever, they are issued to m ature in nine or tw elve months,
it is the op inion o f the C ou n cil that a higher rate, bearing a closer relation
to the rates current in the investm ent m arket, w ill be necessary in order to
find a m arket for them .
In either case a more general distribution o f them
sh ould b e aim ed at an d their concentration in the F ed era l R eserve banks as
security for loan s to m em ber banks sh ould be discouraged.
For this pur
p ose the F e d e r a l reserve b an k s’ rate for loans to m em ber banks secured by
them sh ou ld b e not less than ’/ 4 o f 1 % ab ove the rate o f interest at w hich
they are issued.
T O P I C N O . 7 — A r e b alan ces d u e from foreign banks deductible
from b a la n c es d u e to banks for the purpose o f determ ining reserves.
R e c o m m e n d a tio n :
W e h a v e read the opinion o f your C oun sel undertaking to refute the
opinions o f M essrs. S herm an & S terling, W h ite & C ase, M ayer, M eyer,
A u stria n & P la tt, S tetso n , Jen n in gs & R u ssell, and E d w a rd E . B row n, al!
em inent b ank cou n sel, w h o agree that b a la n ces d ue from foreign banks can
la w fu lly b e d ed u c te d from b ala n ces d ue to banks for the purpose o f deter
m ining reserves in the m anner p rovid ed b y S ection 1 9 , o f the F ederal
R ese rv e A c t .
W e subm it that the great p rep on d eran ce o f counsel is on the side o f the
opinion exp ressed b y us to the effect that b a la n ces due from foreign banks
m ay le g a lly be so d ed u c te d .
W h o lly apart, how ever, from the legal ques
tion on w h ich the la w y er s seem to differ five to one, it is the opinion o f
this C o u n cil that the question should be con sid ered and d ecid ed by your
B oard a lo n g the lines c f g o o d b ank ing practice.
T h e p ractice has h eretofore existed and w e k now o f no good reason
w h y it sh ou ld b e ch a n g ed n ow .
A t the present time it m akes very little
d ifferen ce to b an k s ca r ry in g fo r e ig n b a la n c e s , as n e a r ly a ll o f th em h a v e
little or no b a la n c e s d u e them in fo r e ig n co u n tr ies.
In n o rm a l tim es, h o w
ever, th ese b a la n c e s m o u n t up in to v e r y su b sta n tia l fig u res a n d th ere a re no
b a la n c es on their b o o k s m ore e a s ily a n d m o re r e a d ily c o n v e r tib le in to le g a l
reserve b a la n c e s w ith th e F e d e r a l R e s e r v e B a n k s th a n th e y are.
In th e in terest o f fin a n cin g the fo r e ig n tr a d e o f this c o u n tr y , w e th ere
fo re a g a in r e sp e c tfu lly u rge a r e c o n sid e r a tio n o f y o u r ru lin g in this m atter.
T h e f o llo w in g m em b ers o f th e F e d e r a l A d v i s o r y C o u n c il w e r e p resen t
a t this m ee tin g :
P r e sid e n t;
M e ssr s. J a m e s B .
P h ilip
S to c k to n ,
F . O . W a t ts , C . T .
G rim , S ecr eta ry .
W .
J a ffr a y , R .
F o r g a n , P r e s id e n t;
S.
L.
R ow e,
Ball,
J.
A.
G.
L.
L. L.
B row n,
Mi l l s ,
R u e , V ic e -
O scar
and
W e l ls ,
M e r r itt H .
C-O-P-Y
FEDERAL RESERVE BAHK OF CHICAGO.
J a n u ^ y 3 1 , 19 3 C .
*e*oraadu» fo r Mr. Tbrf^aniIn ro Senate bill 3773, introduced Januaary
1930 by 3»‘
r. Gore, referred to Committ#* on BanVing tmd
Currency, to provide for the payment of Interest on rsaerve
balonoea In Federal Heserve Banka:
Amending Section 19 of the Federal Reserve Act:
K&ch Federal Itaearve 3anl< shall pay to each member
bonk intiix^iit on reaervo balance®. to be computed on the daily
balance at the current rate prevailing on doraiuiH deposits In
the roeerve or central reserve city In vshioh euch reserve bank
ie located:
Provided that in oaee the earning of auch Federal Reaerve 3an*:
after all necensary expannea and dividends have hoen paid, are
not sufficient to pay auoh rate, then interest shall be paid
on such reeerve balanceo at mann rate as mtih earning still per
mit,
. » < K 31 i.
,
tc
..
t. i\
'
T'hro
thfc c>:
-v,r facil;
s.- recorr- and erotxv*}.
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t
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ilcly
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te n t s
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& attics
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to
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fc o iv w
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HJFOmiAL RLCOIvHEl© AT ION
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JlQllNCIl
S e n a te B i l l
13773
FEB 17 1920
Hec
onsnendat i on;
The C o u n c i l 's a t t e n t i o n
lias been drawn to
3773 in t r o d u c e d b y S e n a to r G o r e , J a n u a ry 2 2 ,
to the C om m ittee
the payment o f
1920,
S e n a te B i l l
and r e f e r r e d
on B a n k in g and C u rren cy w h ich p r o v id e s f o r
in te r e st
on r e s e r v e b a l a n c e s
in F e d e r a l R e se r v e
ban ks.
In th e
o p in io n
of
th e
C o u n c il t h i s
i s fu n d a m e n t a lly u n so u n d and w ou ld l e a d
p roposed l e g i s l a t i o n
t o d a n g e ro u s r e s u l t s .
•
Tho Federal Reserve system *as not intended to be, and should
n ot b e ,
s u b v e r s iv e
that have
Io n "
of
th e
existed and
g e n e r a l b an lrin g m ethods
w h ich
have jrown
up
o f th e c o u n t r y ,
with and been
the wants and convenience of the public.
adap ted t o
policy
of
The
growing
the Federal Reserve banlrs i. to offer their member
banks through the country every facility and service v/hich they
have hitherto had fro«i their correspondents of long standing
the reserve
and
central reserve cities.
in
The result of such
policy certainly tends to the elimination of correspondent banks>
other than t..e T e ..oral reserve banks or t.iOir crunches i'- whet
*re still d e s i s t e d reserve and central icc,orve cities.
The
oc-y.-^nt by the Podei'al reserve jainis of i...tjrest o .. Jan.: balances
t the ca.:.e rate t ow be in3 paid V
othei coi'.’.aspor.dont baaucs would
oeyond doubt, greatly enhance this tendency and would result in
the transfer of a larrje portion of the balances still being
carried by the banks through the country as secondary reserves
with their correspondents
in tho reserve and central reserve cities
These
secondary reserve deposits amount t o over 4:3,000,000,000
in the national banks, according to the last published combined
statem en t
of their condition, to which may be added an estimated
amount of ^1*500,000,000 in the State.banks and trust companies,
leaking together the lar~e sum of ^4,500,000,000,,
The present
amount due by the Federal Eeserve banks to member banks on reserve
deposit balances is ^1,850,000,000.
The combined balances of
the banks with the Federal Eeserve banks and with other corres
pondents is therefore (partly estimated)
(,,6,350,000,000, of which
the former have now 34/£ a n d the latter 66%.
It might be well to consider the effect of the transfer
of any considerable portion of these secondary reserve balances
from present correspondent banks to the Federal Reserve banks.
It can be shown that to the extent of such transfer takes place the
availability of such funds for loaning purposes will be reduced
26/o. This is shown as follows?
The present bank deposits in national banks according
to their last published combined statement are
$.,3*053,000,000
Estimated bank deposits in State banks and trust
...........
. 1.500♦000<000
companies
4,553,000,000
Deduct average legal reserves carried by banks in
reserve and central reserve cities, say 12$*
546,360,000
Present amount available for direct loans to cus
tomers engaged in trade and commerce . . . . . . . §4,006,640,000
These bank deposits all transferred to Federal
Reserve banks would increase their deposits by
4,553,000,000
against which their required gold reserve
would be 35% . .x.............................. .1*593^.55^000
The available loanable amount would b e ........... . 2,959,450,000
but this amount could only be loaned in the
channels of trade and commerce through the
process of member banks rediscountirg their
loans at the Federal Reserve Banks,
Tho amount of these bank deposits now available
for direct loans made by member banks to their
customers i s ......... ....................
The amount of the same funds available for re
discount' by Federal Reserve banks and therefore
not di.ectly loanable to .trade and commerce
would b e . . . . . . . . . . . . . . . . . . .
The shrinkage in useable funds would therefore
be 26% or.................................
$4,006,640,000
2.959.450,COO
£1,047,190,000
It will be noticed that the member banks now have
their legal reserve against bank deposits in the
Federal Reserve banks, presumably in gold, amount
ing t o .................... * ......... .
546,360,000
Transferring these deposits to the Federal Reserve
barks would increase tho legal reserve required
on them, also in gold, to . . . . . . . . . . . . 1.595.550.000
The Federal Reserve banks would therefore havo to
find somewhere . . . . .................. . . . 1,047,190,000
additional gold reserve, or an amount exactly
equal to the amount of the shrinkage in available
loanable funds; where would they get it.
The next point to be considered,is, that the correspondent
Janks, would of necessity have to call in and curtail their loans
to an amount practically equal to the amount transferred from them
to the Federal Reserve banks.
It may be said that they could
rediscount at the Federal Reserve banks, but with the increased
gold reserves these banks v/ould have to find for their increased
deposits their ability to thus protect the situation is oper. to
sjrious doubt. The inevitable result v/ould be to produce a violent
contraction of commercial credit resulting in serious confusion
and distress.
The profits of the twelve Federal Reserve banks for the
year 1919 in excess of their dividends paid were £97,000,000.
These were of course quite abnormal due to tho extraordinary con
ditions prevailing and connot be accepted as a criterion for what
they will be in normal times.
Had the banks paid interest on
paid
reserve deposits at the average current rate/by other banks,
-4:~
say 2 -1 /4/S their profits would have been reduced by about
£4 0 ..000 ,000 .
Under ordinary conditions owing to the sold reserves
they must carry, the Federal Reserve banks cannot afford to pay
interest- on balances as the other member banks in the reserve
and central reserve cities can, illustrated as follows:
On deposit o f ............................. v 10 Q.OO
reserve city banks carry legal reserve
cf 1052 ................. .......... . . , 1 0. 0 0
and have available for loaning purposes
90,00
loanable at present at, say 6$, yields
&5.40
The overhead expense may be placed at 1-1/2$
1,50
and present average interest paid is 2-1/4$
2.25
3 .^5
The net profit is therefore •
1*65%
On a deposit of ................... .
.^100.00
central reserve city banks carry legal re
serve of —«*/»?»•• . . . * . « * . . • « •
13.00
and have left for loaning purposes . . . .
87.00
Loadable at present at, say 6$ . . . . . . . .
'.5,£2
Less overhead exponses 1-KL/ 2 $ ......... . .
1.50
less interest paid 2-1/4/S . ............ . .
2.25
3.75
Their net profit is therefore . . . .
1.47$
On a deposit of . . ............ .
(100,00
Federal Reserve banks carry gold reserve of 35$ 35.00
and have left for rediscount purposes . •
65.00
At their present 90 days* rediscount rate 6 $
yields ............... .
*
7ess overhead expenses 1-1/2$ . . . . . . . . .
1.50
Less interest paid 2-l/4$ ...................
2.25
Their net profit would be ....... . . . . . .
3,90
5.75
.15/l00th
of 1 $
This shows that the Federal Reserve banks* profits under normal
conditions are very largely dependent on their not paying interest
on deposits.
H oreovor,
opposed to a l l
th e paym ent
sound p r i n c i p l e s
p c id on su ch d e p o s i t s
correct
p o lic y
of
of
in te r e s t
of reserve
on
reserve
b a n k in g .
th o ;/ m ust be k e p t s t e a d i l y
If
d e p o s its
in te r e s t
i n v e s t e d w h ile
F o d w a l ^ e n e r v e b a n k s iu n orm a l tim e s
is
s h o u ld
is
th e
bo
to in v e s t as little as possible«
v-fc has toon suggested that interest mj.ght be pr.id on
the atnounu of legally required balances only, which would simply
mean that the stockholders would receive a dividend not of 6% but
6# plus interest on their reserve balances, which might please the
individual member bank but would be a most unsound course to pursue
as it entails the necessity of keeping such balances steadily invested.
It should be also borne in mind that tho Federal Re
serve banks pay neither local nor Federal Taxes and that after their
surpluses have been built up equal to their subscribed capitals,
all profits above dividends, less 10% to be added to surplus, go
to the U. S. Government in lieu of taxes.
They could easily have
paid interest on reserve deposits the past two years but instead
they have been permitted to materially strengthen themselves in
their capitalization and have no doubt laid tho.Souudabifina for
a substantial government revenue in the *
future, while in the
meantime their member banks have practically all had unusually
lar-e earnings and have therefore no good grounds for complaint
in that connection.
The fears herein expressed are all contingencies to
be guarded against, and to us they appear so ominous that we would
strongly urge the Federal Reserve Board to use their influence and
their effort to prevent Senate Bill 3773 from being enacted into
law.
@FedFRASER