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WNUTKS OF NESTING OF
THS FKD2RAL ADVISORY COUNCIL
February 19, 1917

A statutory moating of the Federal Advisory Council was held
in the Federal Reserve Board room, in the Treasury Building,
.t'aahington, D.C., on Londay, February 19, 1917, at 10 A. M.
Present:
Federal Reserve
Daniel C. v/ing,
Federal Reserve
J. P. Morgan,
Federal Reserve
L. L. Hue,
5. Rows,
Federal Reserve
Federal Reserve
J. W. Morwood,
Charles A. LylerlyFederal Reserve
Jaiaes B. Forgan, Federal Heserve
Federal Reserve
F. 0. Watt8,
John x1. Litchell, Federal Reserve
V1• X
IS*4 Swinney,
Federal Reserve
^
Federal Reserve
T. J . Record,
H. Fleiahhacker, Federal Reservo
llerritt H. Grim, Secretary.

District
Distriot
District
District
District
Distriot
District
District
District
District
District
District

No. 1.
No. 2.
No. 3.
No. 4.
No. 5.
No. 6.
No. 7.
No. 8.
No. 9.
No. 10.
No.11.
No. 12.

The credentials of ail the mejabors were on file ^ith the
secretary.
The President stated the first business in order would be the
election of officers of the Council and the elective members of the
Executive Committee for the ensuing year.
Mr. Fleiahhacker nominated Lr. James B. Forgan a3 President*
There being no oilier nomination on motion of Mr. Floishiiacker,
seconded by Ur. J. P. Morgan, the secretary was instructed to cast
the unanimous ballot for Mr. Forgan, Mr* Morgan putting the motion.
Lr. Janes B. Forrran was declared re-elected as President for tho
ensuing year.
. I r . f.owe nominated ..ir. L. L. Hue as Vice-President.
There
being no other nomination on motion of Mr. Ro^e, seconded by fir. V/atts
the secretary was instructed to cast the unanimous ballot for Mr. Hue.
iir. Rue was declared re-elected as Vice-i resident for tho ensuing year

Mr. Fleiahhacker nominated Ur. J. P. Morgan, Hr. Daniel G. J/ing,
and Mr. J. 3. Rowe as members of tho Executive Committee. On motion
of Mr. V/atts, duly seconded, the secretary was instructed to cast the
unanimous ballot for these gentlemen. They were declared re-elected




Pag# 2.
February 19, 1917

Cont.

forth# enouing year.
On motion of Mr. Watts, seconded by Mr. Morgan, Ur. Merritt
li. 3rin vae reappointed secretary ef the Council for the ensuing
year at the same salary, vis• $1,200 a year.
The report of the Secretary covering his expenses for the
year 1916 was then read. On motion it was approved and ordered
placed on file. (See copy of statement hereto attached.)
On motion of Mr. Fleishhacker, seconded by Mr* Morgan, the
first paragraph ef Article VI ef the By-laws was amended to read
as follows:
"Regular meetings of the Federal Advisory Council
shall be held in ths City of Washington on the third Monday
of the months of February, May, September and Hovember of
each year."
Mr. Rue then moved that the old by-laws as amended be adopted
as the by-laws of this Council. Motion carried.
On motion the minutes of meetingsof the Federal Advisory
Council and its Executive Committee held on November 20th and 21st,
1916, copies ef which had been sent to members, were approved.
On motion of Mr* Swinney, duly seconded, the minutes of
meeting of the Executive Committee held in New York on January 17th,
1917, copies of which had been sent to members, were approved and
the aetion taken by the Executive Committee was made the action of
this Council.
On motion of Mr. Fleishhackor, seconded by Mr. Mitchell,
the following resolution was passed:
"Resolved that the President be and he is hereby authorised
to ask each Federal Reserve Bank to contribute $150 towards the
Secretarial and incidental expenses of the Secretary of the
Federal Advisory Council for the year 1917 and to draw on them
for that purpose as heretofore."
M r . Forgan suggested that it might be well to have the
recommendations of the Council for the past two years as well as
succeeding recommendations printed and indexed. On motion the
Secretary was instructed to have this done.
The Council then adjourned, pending the arrival of members of
the Federal Reserve Board, a joint session having been arranged for
10:30 o*clock.




REPORT OF SECRETARY

FEDKHAL ADVISORY COUNCIL

FOK THS YEAH

iO c a a b e r 3 1 ,
Feb. 2 5 ,

1915

b a la n c e

fo rw a rd

1916

$

1 6 9 .9 4

191C,
A nnual assessm en t 12 F e d e ra l
re s e rv e banks
-150 e a c h 1 .3 0 0 .0 0

Disbursements:
E x p e n s e s a t t e n d i n g f o u r m e e t in g s o f t h e
F e d e r a l A d v is o r y C o u n c il and o f th e
Executive C o m a it t e o in W a s h in g t o n

at fallow:

1 R fare
Berths

Hotel
Leals

Feb. 14-15

v»51.

Lay 15-16

Date
1916

j els

Total

|27.40

|3 .05

-31.45

51

27 .40

4.42

82 .32

i>sp. 18-19

45

29 .95

3 .46

73 .41

Nov. 20-21

47 .1.

22 .95

5 .45

75 .50

194. 10

1 07 .70

Total

16 .38 313. 13

Total traveling expenses
Stenographers, stationery, etc.
Telegrams
Salary 12 months
Balance in First National Ban**, Chicago,
December 31, 1916




313 .13
15 .15
11.46
1 ,2 0 0 .
425 .15

$1,969.94

Page 3.

MIMlTjMS OF JOINT GONFdKBNGE
0F THB. FiiDIJRAL RKSKRVK BOARD WITH THE
FBUKRAL ADVISORY COUNCIL
February 19, 1917

As arranged a joint oenferenee with the Federal Reserve
Beard was held in the Board room at 10:30 A.M. February 19, 1917.
Present:

Governor $.P.G.Harding, Vice-Governor P . M . Marburg,

A. C. Millar, C. S. Hamlin and H. Parker Willis, Secretary, of the
Federal Reserve Board;

President James B. Forgan, Vice-President

L. L. Rue, Messrs# Daniel G. &Lng, J. P. Morgan, W. S. Rows, J* W.
Norwood, Charles A. Lyerly, F. 0. v/atts, John R. Mitchell, E. F*
Swinney, T. J. Record, Herbart Fleishhacker and Merritt H. Grim,
Secretary, of the Federal Advisory Council.
Governor Harding called the meeting to order and suggested
an additional topic for the Councilvs consideration, as follows:
**./ould the Council recommend a plan providing for rotation in
its membership!"

The Governor thin briefly reviewed the

topics submitted by the Federal Reserve Board inMLs letter of
February 5th and telegram of February 6th, after which the
joint conference adjourned*

Secretary.

The Governor’s letter and telegram follow:




Pago 7

MINUTES OF MKETING OF TUB
F12DSRAL ADVISORY COUNCIL
February 19, 1917

At 11:15 A.M. the Council reconvened, all members being
present
The topics submitted for the Council*s consideration by the
Federal Reserve Board (see minutes of Joint Conference this date
for topics) were then laid before the meeting for informal con­
sideration, it being understood that the Executive Committee
would later formulate formal recommendations expressing the views
of members in regard to them.
Recommendations were unanimously approved on Topics 3, 4 and 5
and the Sxteutive Committee vere requested te make them part of
their report (see minutes of lixecutive Committee this date); also
the following additional recommendation was likewise approved:
"Our attention has been directed to tha proposed plan whereby
a draft drawn by a member bank upon its Federal Reserve Bank could be
made receivable at par by another designated Federal Reserve Bank.
"In order that such a plan should be made practically safe and
effective in its operation drafts drawn under it should be made
•"payable upon advice"' instead of *"receivable for immediate availa­
bility"* at the designated Federal Reserve Bank.
"In connection withall new plans inaugurated in the Federal
Reserve system for the transfer of funds or the collection of checks
‘"safety first"* should be the watchword; otherwise ouch unfortunate
complications accompanied with probable lose as have lately arisen
in connection with the collection of checks through the Federal
Reserve Bank of San Franicsco on three State banks in Seattle which
recently failed, are likely to be repeated to the discredit of the
system."
(Hr. Reoord voted in the negative and asked to be
allowed te file a minority report on this subject, for which permis­
sion was granted.)
After some further informal discussion the Council adjourned
until 3:30 P. IX% to receive the report of the Executive Committee.




Secretary.

Page 8

MINUTES OF MEETING OF THE
EXECUTIVE COMMITTEE
OF THE FEDERAL ADVISORY COUNCIL
February 19, 1917.

A meeting of the Executive Committee of the Federal
Advisory Council was held in the Board room at 2:15.
Present: James B. Forgan, L« L. Rue, Daniel C. tfing,
3 . o. Howe, and Lerritt H. Grim, Secretary.

Absent:

Mr.

J. P. Morgan•
The topics submitted to the Federal Advisory Council
by the Federal Reserve Board which were referred to the
Executive Committee to prepare formal recommendations thereon
were fully discussed and the following recommendations were
formulated and the President was requested to present same
to the Council for ratification,

after which the exec­

utive Committee adjourned.

(See three following printed pages.)




Secretary.

R E C O M M E N D A T IO N S OF T H E F E D E R A L A D V IS O R Y
CO U N C IL T O T H E F E D E R A L R E S E R V E B O A R D
February 19, 1 9 1 7
T O P I C N O . 1.— D om estic Branches o f F ederal R eserve Banks as re­
quired by Section 3 o f the F ederal R eserve A ct.
In this connection the
attention o f the C ouncil is called to the report of the Comm ittee of the G ov­
ernors o f F ed eral R eserve Banks, which advises that agencies rather than
branches be established.
R ecom m en d atioin :—
T h e F ed eral A d v iso ry C ouncil approves the amendment proposed to
Section 3 o f the F ed eral R eserve A c t contained in Section 7 o f H R 2 0 6 6 1
and w ould recom m end that further legislation should be enacted giving the
F ederal R eserve B an ks the right w ith the approval o f the Federal R e ­
serve B oard, to establish agencies rather than branches where they w ould
afford all the facilities necessary.

T O P I C N O . 2 .— F oreign agencies or branches o f F ederal R eserve
Banks. S h ou ld their establishm ent at this time be encouraged?
R eco m m en d a tio n :—
T h e C ouncil recom m ends that the foreign business o f the Federal R e ­
serve B an ks should for the present be conducted through correspondents
and that neither agencies nor branches should be established in foreign coun­
tries by any F ed eral R eserve B ank until w orld conditions are more settled
and until the efficiency o f the service rendered b y correspondents be thoroughly
tested.

T O P I C N O . 3 . — R eserve position o f member banks.
are anticipated in the present situation?

W h a t changes

R ec o m m en d a tio n :—
T h e position o f m em ber banks in relation to their la w fu l reserves con­
tinues to be one o f considerable surplus.
T h e further continuance of this
position d ep en ds on the continuance or discontinuance o f gold importations.
T h ere seem s to be in prospect further foreign loans o f considerable size as
w ell as a loan o f large proportions to our ow n governm ent. C onsiderable
dislocation w ill inevitably result from these issues, bank deposits w ill no
doubt be largely draw n upon.
T h en the proposed changes in regard to
the legal reserves o f the m em ber banks including the discontinuance o f h av­
ing balances w ith legal reserve agents counted as part o f such reserves w ill
more or less upset the position o f the m em ber banks in regard to their legal
reserves as they n ow calcu late them. In v iew o f these prospective features of
the situation w e look for a shrinkage in surplus legal reserves and for higher
rates for m oney than have prevailed during 1 9 1 6 .




T O P I C N O . 4 . — Sub-Treasuries. (S e e letter of Secretary of the
Treasury in February B ulletin, page 1 1 0 ) .
T o w hat extent is it practicable or advisable that their functions be
performed by the F ed eral R eserve B anks?
R ecom m en d ation :—
W e agree with the Secretary o f the Treasury that the gold coin and
bullion held against gold certificates and the gold reserve held against U . S.
notes and T reasury notes o f 1 8 9 0 and the silver dollars held against silver
certificates should all be kept in the physical control of the government
so long as the governm ent’s obligations are outstanding against them. T h e
government cannot properly transfer its trusteeship to the Federal Reserve
B anks or any other agency.
In our opinion how ever it m ay be possible
w ith the co-operation o f the governm ent under legislation providing for it
to gradually retire the governm ent gold certificates and allow Federal re­
serve notes in suitable denom inations to take their p lace in the circulating
m edia o f the country. T h e governm ent now m erely acts as warehouseman
for the gold w hereas in the hands o f the F ederal R eserve Banks it could
be more econom ically and scientifically and quite sa fely used as the principal
basis for the issue o f F ed eral reserve notes and w ould thus m aterially con­
tribute to the strength and efficiency o f the F ederal R eserve system; the
ultimate ob ject being the replacem ent o f the governm ent gold certificates by
F ederal R eserve notes.
B y co-operation b etw een the T reasu ry department and the Federal
R eserve B an ks the latter m ight be kept w ell supplied w ith U . S. notes,
T reasu ry notes and silver certificates in denom inations to suit the convenience
o f the m em ber banks.
W e see no reason w h y practically all the current
funds o f the governm ent should not be deposited w ith the F ederal R eserve
B anks and the governm ent disbursem ents as far as practicable m ade by
checks on these banks. T h e F ed eral R eserve B anks should becom e the
governm ent depositary banks and should be used b y the T reasury depart­
ment as such on an equitable basis as to the cost o f handling the business
and the profits to be derived therefrom.
T h e question o f interest on governm ent deposits need not be considered
as w hatever profit there is in the business o f the F ed eral R eserve Banks be­
yond 6 % to their stockholders reverts to the government.
It is quite evident that there are m any functions perform ed by the
sub-treasuries w hich the F ed eral R eserv e B an ks are not equipped and could
not probably be efficiently equipped to perform. W e are not sufficiently fa­
miliar w ith the operation o f these functions to give specific advice as to
w hich o f them it w o u ld be p racticable or advisable to turn over to the F e d ­
eral R eserve B anks.
W e agree w ith the Secretary o f the T reasury that
this is an im portant m atter and should be considered deliberately. It w ould
seem to be one w hich can best be w orked out b etw een the T reasury offi­
cials and your B oard co-operating together tow ards establishing the most
efficient and m ost econom ical m ethod o f handling the public business in the
interest o f the public. T h e benefits to be derived from any changes afford
the best if not the on ly reason for m aking them.




T O P I C N O . 5 .— Shou ld the Federal R eserve Board employ a com­
petent man to make a thorough study and investigation of foreign exchange
and its bearing on the efforts being m ade to establish dollar exchange in
this country?
R ecom m en d ation :—
T h e value o f such a study or investigation w ould entirely depend on
the practical know ledge, experience, efficiency and breadth of view o f the
student or investigator.
A foreign exchange department manager whose
training and experience has led him to gather in under the keenest of com ­
petition all the business he could control for the profit in it, might find diffi­
culty m grasping from a broader point o f view the use that should be made
of such a departm ent in a F ed eral R eserve Bank. A t the same time no
one could satisfactorily m ake such an investigation w ho has had no prac­
tical experience and w h o does not thoroughly understand the business in
practice as w ell as in principle. S uch an investigator should be very carefully
selected and m ay be difficult to find, but w hen found w e have no doubt
that his investigation and report w o u ld prove o f sufficient value to the Board
and all connected w ith the F ed eral R eserve system, to warrant his ap­
pointment.
T h e B oard should, how ever, tentatively settle in advance just
w hat attitude the F ed eral R eserve B anks w ill assume towards the foreign
exchange business and the investigator should be given to understand that his
investigation is to be m ade on the broad basis o f how best F ederal R eserve
Banks can co-operate w ith their m em ber banks in an effort to develop the
foreign exchan ge business and to establish d ollar exchange in this country.
T h e investigation should be m ade broad enough to include the elements other
than banking facilities w hich contribute to the developm ent o f foreign business,
such as transportation, insurance, consular service, etc.

T O P I C N o . 6 (sub m itted verbally by G overnor H ard in g at joint con­
feren ce.) W o u ld the C oun cil recom m end a plan providing for rotation in its
m em bership?
R ec o m m en d a tio n :—
A s the F ed eral R eserve A c t provides that mem bers o f the F ederal
A d v iso ry C ouncil shall be elected annually b y the directors of the F ederal
R eserve B an ks w e doub t the propriety o f either the F ed eral R eserve B oard
or this C oun cil taking any action or m aking any recom m endation in the matter.

A d d ition al recom m en d ation :—
O ur attention has been directed to the proposed plan w hereby a draft
draw n by a m em ber bank upon its F ed era l R eserve B an k could be m ade
receivable at par by another design ated F ed era l R eserve Bank.
In order that such a plan should be m ade practically safe and effective
in its operation drafts draw n under it should be m ade “ p ayab le upon ad ­
vice” instead o f “ receivab le for im m ediate a v ailab ility” at the designated
F ed eral R eserve B ank.
In connection w ith all new plans inaugurated in the F ed eral R eserve
system for the transfer o f funds or the collection o f checks “ safety first”
should be the w atch w ord ; otherw ise such unfortunate com plications accom ­
panied w ith probable loss as have la tely arisen in connection w ith the co l­
lection o f checks through the F ed eral R eserve B an k o f S an Francisco on
three S tate banks in S ea ttle w hich recently failed, are likely to be re­
peated to the discredit o f the system .




Page 12.
MINUTES OF UNITING OF
TH* FEDERAL ADVISORY COUNCIL
February 19, 1917
The Federal Advisory Council reconvened at 3:30 P. M. as arranged,
the entire membership of the Council was present.
iir. Morgan on behalf of the Executive Committee laid before the
meeting its report. The Council considered each recommendation as
presented. The report of the Executive Committee was adopted and
the recommendations therein contained were made the recommendations
of the Council and the President was requested to present them to
the Federal Reserve Board.
(See minutes of Executive Committee
this date.)
In connection with the additional recommendation Mr. Record
voted against its adoption and submitted his minority report,
as follows:
■*fH&\SAS, The services rendered by the Federal Reserve Banks
will be extended and made more helpful both to the member banks
and to tho general public when exchange written by a member bank
on the reserve bank of its district is made immediately available
at a Federal Reserve Bank of another district, designated in the
face of the draft.
"THiiRSFGRE, «e approve the recommendation made on this question
by the governors of the Federal Reserve Banks at their meeting held
January 22, 1917.
"*e desire to state that the system will be further improved
when exchange written by a member bank on the federal Reserve Bank
of its District is immediately available at any other Federal
Reserve Bank.*
On motion of Mr. iVatto, duly seconded, the following additional
recommendation was unanimously adopted and ordered placed before the
Federal Reserve Board.
"RESOLVED, That the Federal Advisory Council reiterates its
previous expression upon the issue of Federal Reserve notes directly
against the deposit of 100/, gold or 100$ of paper, or both, and for
tho counting of gold held by the Federal Reserve Agents as security
for notes as part of the gold reserve required to be held by the banks
against such Federal Reserve notes,. In the opinion of the Council,
nt more important recommendation has been presented by the Federal
Reserve Board, v/e, therefore, strongly urge the enactment of the
principle into law.
*i&BOLV£D FURTHER, That the President of the Council is in­
structed to at once convey to the Federal Reserve 3oard this
unanimous expression of tho entire federal Advisory Council.*
Tho Council then adjourned to go into joint session with the
Federal Reserve Board as arranged.



Secretary.

Page 13.
MINUTES OF JOINT SESSION OF
FJSDKRAL rsskrve board and
FEDERAL ADVISORY COUNCIL
February 19, 1917
A joint session of the Federal Reserve Board and the Federal
Advisory Council was held as arranged in the Beard room at 4 P. M*
February 19, 1917.
Present: Grovernor if.P.O.Harding, Messrs. A. C. Millar, P. M.
u&rburg, C. S . Iiaulin, J. S. iiiiiams, and ii. Parker Lillis, Secre­
tary, of the Federal Reserve Board. The entire Council was also
present.
Governor Harding called the meeting to order. Mr. Forgan read
the report of the Federal Advisory Council, including the minority
report submitted by Mr. T. J. Record. (See minutes of 3:30 P.M.
mooting of the Federal Advisory Council of this date.)
Governor Harding called on the members of the Council to make
reports on general business conditions in their districts with
special reference to the condition of the member banks in regard to
their cash reserves and as to present and anticipated rates for
money, to which each member ef the Council verbally responded.
On motion of Mr. R«e, duly seconded and carried it was resolved
that in the opinion of this Council the last clause of Section 3 of
Senate bill 8359 (dated Feb. 14, 1917) reading as follows:
"Provided Further, That in no event shall a bank accept
for any one person, company, firm, or corporation to an amount
equal at any time in the aggregate to more than twenty per centum
of its paid-up and unimpaired capital stock and surplus." should
be stricken out.
There being no further business the joint session adjourned.




Secretary.