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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.