The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
i.;INUT2i>
or
MEETING or
ttUS FKD&UL ADVliiOHY COUNCIL
May 19, 1919,
A regular statutory meeting of the Federal Advisory Council was
hold in the Federal Reserve Board room, /ashington, DC*, Monday, May
19th, 1919, at 11 A U*
Present: Messrs* Janes B. Forgan, President, L L Rue, Vice-President,
D. G* Wing, A B liepburn, if 3 Rowe, J 0 Brown, C A Lyerly, E F Swinney,
E P film ot, A L M ills, and Merritt H. Grin, Secretary.
Absent:
Messrs,
F.
o.
Watts and
C, T«
J iffray*
Mr. Jaues B. Forgan, President, called the meeting to order at 11 A L*
He stated that the Governor and other members of the Federal Reserve Bpard
would come in at 11:15, when Governor Harding would speak upon the topice
already submitted by the beard, in his le tte r of April 25, 1919, and perhaps
present additional topics for the Council's consideration*
On motion the minutes of the Counail meetings held February 17th and
13th and of the Sxeoutive Conuaittee held February 18th, 1919, copies of
which had been sent to inembers by the secretary, were approved*
The report of a special meeting of the Executive Committee held in
Sashington at the instance of the Federal Reserve Board, Malrch 20th, 1919,
to confer with the Governors of the Federal Reserve Banks, copiee of which
had been sent to Council members by the secretary, was on lotion accepted
and file d .
Mr. For'an also reported that the secretary had sent Council
members a stenographic copy of the proceedings of the Conference referred
to and a copy of the Comment s and Rulxngs of the federal Reserve Board with
respect to recommendations isfride by the Sov«mors at said conference^.
Mr. Lyerly suggested thatthe ciiair ask the federal Reserve Board i f they
recotmaetlded to Congress any amendments to the Federal Reserve Act*
On
w tion the President was requested to take the matter yp with the Governor
of t e Federal Reserve Board*
The President laid before the Council Governor* Harding's le tte r of
April 25, 191J, submitting certain topics to the Council for consideration
at th is meeting, alao certain topics suggested by Mr. A. L. k i l l s . Copies
hereto attached and made a part of thaM minutes*
The Governor and meisbers of the Federal Reoerve Board having arrived
the Council adjourned for joint session*
Secretary,
FEDERAL RESERVE BOARD
WASHINGTON
O f fic e of the Governor
April 25, 1939-
Dear Mr. Forgan:In reply to your request that the Board send you a l i s t
of topics which i t would lik e to have discussed at the next
meeting of the Federal Advisory Council, i t is suggested that
the Council give consideration to the following:
I#
Investment power of the United States
(a) Demands for capital at home and
abroad.
(b) Division of investment power between
home and foreign needs.
II.
Maintenance of Exports.
(a) Intensity and duration of foreign
demand.
(b) Best method of financing exports.
(c ) What would constitute satisfactory
security for foreign credits?
III.
Investment Trusts.
IV.
Foreign Exchange situ ation .
( a ; To what extent does depreciation tend
to reduce buying power abroad?
(b) Adjustment of trade to new basis of
supply and demand on altered level
of quotations.
V.
War Finance Corporation.
(a ) How can i t best cooperate with commercial
banks in extending credit based on
export transactions?
Use of acceptances.
(a) Can trade acceptances payable at a member
bank be remitted for upon collection without
chargeJ
(b) Domestic Acceptances - Definition of the words
"re a d ily marketable staples" which appear in
that paragraph of Section 3.3 of the Act read
ing, as follow s: "o r which are secured at
the time of acceptance by a warehouse receipt
or other such document conveying or
securing t i t l e covering readily market
able staples
V II.
Limitation of to ta l volume of outstanding ac
ceptances of foreign banking corporations
organized under the provisions of Section 25
of the Federal Reserve Act to a specified
m ultiple of the foreign banking corporations
c a p ita l•
NOTEt The practice of the Board has been
to authorize new foreign banking
corporations to accept up to six
times their capital stock, but as
th is lim it has been reached the
proportion has been increased so
that in one instance# at le a s t , a
foreign banking corporation was
authorized to accept up to twelve
times i t s capital stock*
A recommendation as to a fin a l lim itation is
requested*
Very tru ly yours*
W. P. 0 . Harding,
.Governor.
B» Forgan, President,
Federal Advisory Council,
Chicago, 111.
Topics Suggested by Mr. A* I** Mills
]4
Have 5$ redemption fund transferred to Federal Reserve Bank of d istrict so
national bank notes may be redeemed without sending to Washington.
2, Altogether too many s ta tis tic s are required of member banks*
The work en
tailed together with the Liberty Loan work make it almost impossible to keep
up the bank work; for instance, the la st two or three years there have been
six statement ca lls a year. Five are plenty. The request for interest
accrued but not collected, e tc. increases a bank's misery without adding
to the security o-f the depositors.
3,
Have Branches own their own building.
4.
Have member banks examined by Federal Reserve Bank at expense of Federal
Reserve Bank.
5.
Permit to join the Federal Reserve System state banks in c itie s of 50,000 pop
ulation or over and having $300,000 capital and who were doing business prior
to Nov. 2 , 3 9 3 4 , provided such banks set aside 30$ of their net earnings in
surp3fus until their capital and surplus equal $2 0 0 , 0 0 0 .
P.
The Federal Reserve Bank and it s branches should maintain a credit bureau for
the benefit of the member banks and to which they can apply for information
concerning commercial paper and double borrowings.
7.
Have branch banks supply silv er and fractional coin to member banks without
cost. Should be free from sub-treasury.
8.
Put Representative in the f ie ld to explain thoroughly to state banks the ad
vantages of the Federal Reserve Bank System.
9.
Is it desirable in each Federal Reserve D istrict to appoint an Alternate
or Proxy who may represent the D istrict Member at meetings of the
Federal Advisory Council?
10.
As the Recommendation of the Council at it s la st meeting reading as follows:
"The Council recommends that the Federal Reserve Board as a matter of addition
al service to member banks request the Federal Reserve banks to receive on
deposit for immediate credit from member banks national bank notes unfit for
circulation” , has been opposed by the governors of the Federal Reserve banks
and has not been acted on by the Federal Reserve Board, should the recommenda
tion be further urged by the Council.
jo in t
a & ijj^ N o r
THE mSRAi. ADVISORY COUN;ii,
AND
T.Ji jfcU&HAL Ri>~, -tV* BOARD.
ilny l'» ,
1519.
As arranged a joint session with the Federal Reserve Boarfl waa h«ld
at 11:15 A M.
Present— The following K*eaib«rfc of the STederai Reserve Board: Governor
i( Is 0 Hording, Uessrs. A C liilie r , J 5 i.liam a, C S Brualin, and J A
Broiorick, Secretary; and tne following merabere of the j-'aderafc Adv-'iery
Cfoisiexl: Jfe ident, JaweB 3 Forgan, Vice-President, L « Rue, D ’ ‘ing,
A B Hepburn, 3 3 --SWo, JOBrown, C A Lyerly, & f Swinnoy, & P tfilmot, A L
Mill;;, ind Merritt H Grin, Secretary*
Mr. Fortran called the meeting to order and aeked Governor Harding to
address the meeting*
Governor Harding talked o« raost of the topics in a general way, explain
ing tho Board’ s attitude in regard io thera. He also referred to the condition
of the Dallas Federal Reserve Bank, which having exhausted it s reserve by
subscribing for U S Treasury C ertifica tes of Indebtedness had been rediocount.nit heavily tfith other Federal Reserve brinks and in thia connection suggested
that the Council make a recommendation on the general subject of what should
be dona when a Federal Reserve baak’ o reserve is practically exha ated or is
ajTt^ined by borrowing fror other Federal Reaerve Banks.
After a general discussion of sonie length the Council voted to adjourn^,
until 2:30 P M.
t-.ry.
3*
Tho Council ztot xt 3:30 F tt*
Froaent: President, Jajcoea B. Forgan, Vice-President, I* L Ruaf
0 0 -tfinS, A B Hepburn, / 5 Rove, J 0 Bro-j«, C A Lyerly, S F Swinney,
- ^ /il~ot, A L « u l i i , and 4 erritt H &rim# liccrotary*
Oovornor iiarding m s also present* Before leaving he aug,seated ae
& additional topic for t h e Council'# oonaid oration the following
haiaoval of tha Embargo of Gold exports*
' ‘•to'* 5
\ Q* ta.
|
.
. . ,•
{=
The Council then took up the topics submitted by Governor riarding
ina for-aulated recoiatjendations on them. The topics aug-oated by IJ*. iiilla
*9re alao considered and formal recoauaendations perpared on such of thorn
as rafc thought advisable*
D ring the afternoon the i-ion. Cbarter Glass, Secretary of the treasury,
csuaa in with Governor Harding to m o t the Council neiabors in an in for -al
dinner. i>osretary Glass le f t the ajeeting*
Before Governor iiardxng le f t i*r* Forgan asked him i f the Federal
Reserve Board had reeouiaandad any aotmdaenia to the Federal Keaarve Act
to tha preaent eeasion of Congress*
Governor iriarding replied that tho
Board haa not mde any such x*ecomt;«ndations to Congress but that he had
in mind a change in the law providing for eleven directors four of whom
to be elass G Birectors appointed by the Federal Reserve Board, and tho
Governors to be elected by the Boards to be also e x -o ffis io rcazabara of
the Boards.
;ie aaked tne Council to consider th is topic and uoke a
recom-ndation thereon*
The Co uncil then res ^ued it a work* The Go ^ico.1 ajuin postponed
consideration u n til the next jaaeting of the subject considered at previous
seating, of basing the reserves of meubor banks on th® character of the
depocita neld rather than on preaent c la s s ific a tio n by reserve ind central
rose:.iti«s#
The attached printed copy of reco;-u«ndation having
&ten
fyr&LLXy approved by the Council wore ordered submitted to the Federal
Rtaervv uoard.
v
.
vt five tfixrty o*clock m-b&r* of tne fed eral Reoerve Beat A having
arrived f 0r tha joint session tha sweating adjourned#
Si-CVvKVAKY •
The Council**
reco mandat ion a are
as follow s;
•*
a!...... <
oth
••
**«u*. ‘ :l
'• -? -i D iw
*■ tgf ooiltfoi
t- rJSjjf great
RECOMMENDATIONS OF THE FEDERAL ADVISORY
COUNCIL T O THE FEDERAL RESERVE BOARD
M ay 19, 1919.
T O P IC N O . 1. — Investment power of the United States.
(a)
Demands for capital at home and abroad.
(b)
Division of investment power between home and foreign needs.
Recommendation :
The investment power of the United States depends primarily upon the
amount of the country’s savings and the portion of such savings available for new
investment, of both of which it is difficult to secure a reliable estimate.
Since we
entered the war the demand for capital at home for municipal and corporation
needs has been restricted by government mandates and surplus savings have been
more than absorbed by government issues, for war purposes, including large loans
to our Allies.
Not only have current savings been thus absorbed but future
accumulations have been largely drawn upon.
T h e ordinary requirements of
municipalities and corporations relieved from government restrictions will doubt
less, from now on, be largely increased, while the demands of the Federal
government, although likely to continue an important factor for some years to come,
should gradually be diminished.
T h e demands for capital at home will and
should receive our first attention.
T h e railroad requirements, especially when
they are returned to their owners by the government, will have to be met.
Railroad securities will have to be protected and the market for them stabilized.
This should have the effect of reestablishing a better market for all our domestic
securities and of preparing the way for a market for foreign investments. It would
seem that with the large international balances likely to continue in our favor we
should have a large surplus of capital available for investment in the securities of
our debtor countries.
In the interest of our foreign trade it will be necessary that
such investments should be made, otherwise the means of settling balances due us
by foreign countries will not be available to them.
T O P IC N O . 2.— Maintenance of Exports.
(a)
Intensity and duration of foreign demand.
Recommendation :
Undoubtedly the undeveloped portions of the world, such as South America,
and the East, will continue to need our goods, especially our raw products and
certain kinds of machinery.
It is not likely, however, that many of the European
countries will continue indefinitely to require our manufactured goods in large
quantity.
It is probably not even desirable that we should seek to control
European markets indefinitely, otherwise our Allies, if prevented to any great
extent from selling goods in their own territory might find it impossible to readjust
their own finances.
M oreover leaving out of account all question of wages and
the like it is very doubtful if w e could compete with the European countries in
many lines of manufactured goods on an even basis in view of the cost of their
transportation.
T h e sale of agricultural implements will doubtless continue to
Russia and similar countries when reliable governments are again established in them.
(b )
Best method of financing exports.
Recommendation:
The best method of financing exports is for the foreign purchaser to arrange
through his bank open dollar credits with Am erican institutions.
In some countries
such as Finland it is impossible to obtain dollar credits and it is still necessary to
arbitrage through London.
T h e burden and exchange risk in such transactions
should be thrown upon the purchaser who in making his estimates must take into
account the fluctuations that may take place in the relation of value of his currency
to Sterling and the relation of the value of Sterling to the Dollar.
H e is in a
better position to do this, however, than the Am erican exporter.
(c )
W hat would constitute satisfactory security for foreign credits ?
Recommendation:
In countries whose financial condition has not been too seriously inflated or
otherwise impaired their government, municipal,
or public utility obligations
deposited in this country would constitute satisfactory security for foreign credits.
In the case of undeveloped countries such as some of the South American states
it may be necessary for the country to mortgage its customs revenues or in some
such way to secure the payment of its debts.
This
may
be the only way in
which such countries can get the credit they require and without which they
would find it difficult to make progress.
The obligations of the foreign corporations, firms, or individuals, who pur
chase our raw materials or manufactured goods, endorsed or guaranteed by their
banks or bankers and (or) by their governments, would probably in some cases
form the best obtainable security.
T O P IC N O . 3 — Investment Trusts.
Recommendation:
This seems to be a very feasible method of floating foreign bonds in this
country.
It has already been adopted by the organization in N ew York of the
Foreign Bond and Share Corporation, with an authorized capital of $10,000,000,
the initial payment of which is being made today, and will doubtless be followed
by other similar concerns as the necessity for them arises.
T h e people of this
country have not heretofore invested in foreign securities to any great extent and
in order to accustom them to do so it will undoubtedly be necessary to have the
foreign securities thoroughly investigated and held by corporations organized for
that purpose in this country, which, in turn will issue their own stock, bonds or
debentures, based upon the foreign investments they make.
T O P IC N O . 4 . — Foreign Exchange situation.
(a)
T o what extent does depreciation tend to reduce buying power abroad ?
(b)
Adjustment of trade to new basis of supply and demand on altered
level of quotations.
Recommendation:
It would seem that the depreciation of the currency in any given foreign
country will tend to reduce the purchasing power of that country by practically
the amount of such existing depreciation on the aggregate amount it has to spend
in other countries.
If, for illustration, Great Britain has a certain amount of
money wherewith to buy goods in this country and if Sterling has depreciated,
say, 10 °/o, in relation to the Dollar, it is obvious Great Britain will be able by
just that much less to purchase goods in this country.
If however, the Sterling
has depreciated 10 °Jo in relation to our dollar and only, say, 5 % in its relation
to the Argentine peso, then likely such raw materials as can be had from either
country would be bought in the Argentine rather than here.
This however,
does not change the fundumental fact that in every instance the depreciation will
affect the purchasing power of Sterling by just the amount of its depreciation in
relation to the currency of other countries.
If the depreciation of Sterling becomes
very great it may in time prevent Great Britain or other countries from purchas
ing anything in this country except such raw materials as cannot be obtained
elsewhere in sufficient quantity and which are essential for the maintenance of
industry or life.
It is therefore to our interest to see to it, that the depreciation
of the currency of any country with which we have trade or financial relations
does not become so heavy as to hamper the proper development of such relations.
Depreciation of international exchange is a deterrent to actual purchasing and will
reduce the total amount of a country’ s purchases considerably below its purchas
ing power.
T O P IC N O 5.— W a r Finance Corporation.
H ow can it best co-operate
with commercial banks in extending credit based on export transactions ?
Recommendation:
By
independently financing the longer time credits based on export
transactions.
TOPIC NO. 6. — Use of acceptances.
(a)
Can trade acceptances payable at a member bank
be
remitted for
upon collection without charge ?
Recommendation:
In our opinion trade acceptances, provided they are payable at banks which
are members of the Federal Reserve Bank clearing system,
like checks.
should be treated
W e understand that at least some of the Federal Reserve Banks
are now treating them on the same basis as checks, but in some cases they meet
with charges made by the collecting banks, which they of course in turn charge
to the depositing bank.
A
uniform method in regard to the collection of such
items would be desirable.
(b )
Domestic A cceptances— Definition of the words “ Readily marketable
staples” which appear in that paragraph of Section
A c t reading as follow s:
I 3 of the
“ O r which are secured at the time of
acceptance by a warehouse receipt or other such document con
veying or securing title covering readily marketable staples.”
Recommendation:
“ Readily marketable staples” should be construed to mean all raw products,
such as cotton, grain and other foodstuffs, ores and common chemicals enjoying
a broad market, thoroughly standardized and fairly non-perishable.
There may
be some lines of manufactured goods sufficiently standardized as to methods of
production, styles, uses, customs and other factors and for which there exists
a broad enough market to warrant their inclusion in a list of “ readily marketable
staples” and it would be desirable if the Federal Reserve Board after full investi
gation, were to issue a list of staples which it considers readily marketable at all
times and under all conditions.
T O P IC N O . 7 — Limitation of total volume of outstanding acceptances of
foreign banking corporations organized under the provisions of Section 25 of the
Federal Reserve A ct to a specified multiple of the foreign banking corpora
tion’s capital.
(Note)
The practice of the Board has been to authorize new foreign
banking corporations to accept up to six times their capital stock, but as this limit
has been reached the proportion has been increased so that in one instance, at
least, a foreign banking corporation, was authorized to accept up to twelve times
its capital stock.
A recommendation as to a final limitation is requested.
-10—
Recommendation :
W e doubt if a specific multiple of the capital of a foreign banking corpora
tion operating under the Federal Reserve A ct forms the proper limitation of the
total volume of its outstanding acceptances.
It is self-evident that a much larger
acceptance business may be safely done where the acceptances are satisfactorily
secured by a great diversity of merchandise shipped to many different firms in
different parts of the world, than where such acceptances are secured by relatively
large shipments of one line of merchandise to a comparatively few consignees in
more or less the same part of the world. The strength of the acceptance business
lies in the wide distribution and the diversity of the merchandise against which
acceptances are made, the staple quality of the merchandise drawn against and the
strength of the shippers and consignees. W e are therefore inclined to advise that
the Federal Reserve Board should not lay down very specific rules, but should
leave the foreign banking corporations some latitude in doing this business, always
making careful investigation as to the nature and quality of the business done and
the risks assumed by such corporations in granting too large individual lines of
credit against any single kind of merchandise.
A D D I T I O N A L T O P IC S
SU GGESTED
BY
G O V E R N O R H A R D IN G .
T O P IC N O . 8 — W hat should be done when a Federal Reserve Bank’ s
reserve is practically exhausted or is maintained by borrowing from other
Federal Reserve Banks?
Recommendation:
W here any Federal Reserve Bank is in an overloaned condition resulting
in a too prolonged deficiency in reserve, the corrective measure to be applied in
our opinion would be an increase in the rate on loans whether secured by
government securities or otherwise,
T O P IC N O . 9 — Amendment to Federal Reserve A ct to provide for
increasing the Boards of Directors of Federal Reserve Banks to eleven members,
four of whom should be Class C directors appointed by the Federal Reserve
Board, and the Governors to be elected by the Boards to be also ex-officio
members of the Boards.
Recommendation:
The Council approves of the suggestion of Governor Harding that the
Boards of Directors of the Federal Reserve Banks should be increased to eleven
members, four of whom should be Class C directors appointed by the Federal
Reserve Board, and that the Governors elected by the Boards of Directors
should also be ex-officio directors.
-1 1 —
TOPIC NO. 10.— Embargo on Gold exports.
Recommendation:
In the opinion of the Council the time has arrived when the embargo on the
export of gold can safely be lifted.
T O P IC S S U G G E S T E D B Y M E M B E R S O F T H E C O U N C IL
(M r. Mills)
T O P IC N O . 1 1— H ave
5 °jo
redemption
fund
transfered to Federal
Reserve Bank of district so national bank notes may be redeemed without sending
them to Washington.
Recommendation:
In view of the fact that the gold formerly carried by the National banks in
their vaults is now concentrated in the Federal Reserve banks, w e would suggest
for the consideration of the Federal Reserve Board whether it would not be logical
and at the same time improve the service to member banks if the 5 °Jo redemption
fund were transferred to the Federal Reserve banks and have them redeem national
bank notes without sending them to Washington.
T O P IC N O . 12 — Have Federal Reserve banks supply silver and fractional
coin to member banks without cost.
Recommendation:
T h e Council recommends to the Federal Reserve Board that they should
consider the advisability of having Federal Reserve banks, as an additional service
to member banks, supply them with silver and fractional coin without cost.
T O P IC N O . 13— It is desirable in each Federal Reserve District to appoint
an Alternate or proxy who may represent the District member at meetings of the
Federal Advisory Council ?
Recommendation:
T he Council refers this matter to the Federal Reserve Board with the
request that they submit it for the opinion of their legal counsel and report his
finding as to the legality of such procedure to the President of this council before
its next statutory meeting.
The following members of the Federal Advisory Council were present at this
meeting: James B. Forgan, President. L. L. Rue, Vice-President. D. G . Wing,
A . B. Hepburn, W . S. R ow e, J. G . Brown, C. A . Lyerly, E. F. Swinney,
E. P. Wilmot, A . L. Mills and Merritt H . Grim, Secretary.
-1 2 —
JOINT S«ii3lON OF THS
FSD&HAL RBS1SRYB BOARD
AND
TdS FSDERAL ADVIBuRY COUNCIL
iiay 13, 1319,
A joint sesaion with the Federal Reserve Board was held in the
Fedsral Reserve Beard room at fiv e th irty P H.
present, the following members of the Board: Governor Harding,
A C killer, J S ./i l l i a a s , and J A Sroderick, secretary,
Present: ilea re . J mas S. Forman, President, L L Rue, Vice-President
3 0 ^ing, A B Hepburn, ti S ’iowe, J BBrown, C A Lyerly, £ F Bwinney, & P
Jiliaot, A L M ills , and * r r it t 4* Brim, secretary*
Absent!
jiesiirs,
F Q Vatts and G T J if fray.
Governor Harding called the naeting to order and asked for the
Council’ s report, which Ivlr, James B, Forman then read to the meeting.
The topice were then discussed to some extent in a general vty.as
wall as other matters re la tin g to the Federal Res rve system.
C on troller
/illiam n suggested that members of the Council report
c nditions as to noueing f a c i l i t i e s , includ-ng stores, e t c ., in the various
federal Heserve d i s t r i c t s .
A ll present indicated a shortage of houses
of ail sinds especially in the large c itio a
At 6:45 P M ths meeting adjourned.
■ •.
.«
Secretary,
@FedFRASER