Full text of Minutes and Recommendations of the Federal Advisory Council : Meeting documents, November 18-19, 1918, Box 1, Volume 1915-1921

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iriaUTSS Qtf KKST1N0
of the
ITOSRA3- ADVISORY COUNCIL
and the
71D RAL R7.S3JRVR FOARD
IZovamber lb, 1918
Th# regular statutory meeting of the i’ederal Advisory
Coi.noii 01 *ned by a joint session it! the federal /;e*jerve
}cirti, Monday, November 1. , lil. , ut eleven o 1clook A. *. in
the ?ederal Reserve Board roa; in the ;utropoiitar* Ban*
] i1dinff* *r'ich 1nr.ton , I). C .
*roaent:
The folio -inf: Rtonber» of Die Council, Lienare
j,
Forgan* .‘resident,
L. Hue, Vice President,
•. C. V ire, J* V, organ, V . S. Hywo,
. I,cr cod,
C. u Lyerly, "•*. 0. Witte, J. ft. Lite oil, K. V. \iIi;iot#
. PielehhaCicex, and Merritt
rJjfce^-'Cr e t a r . / U s o
the following members of the Board - Governor . P. G. Harding
'e rs C. 3. liarelin, A. C. ilier* J .
.*s» Albert
ftr&uss# and *. A. Broderickr Secretary.
ro <sre. H, I,ef fingwelX, assistant Sec rotary of t.- e Treasury,
•rd Tcr.J** in Strop# >» J r ., tov ;rnor of tj.s ‘eicral Reserve
Fan> of New Yor were also present by invitation.
Absent:
Mr, 2. 7, Swinney of St«.Leuls» member of the
7el'»ral Advisory Council.
r. J. . Port an c’.tiled the ..eotiri/, to or ier jnd a a U a Governor
r&rtiing to a ;irees tho meetinc•
Governor Karding explained that as Secretary of the
’m s u r y "oA *oo eoul i not be jrecent at the meet in.; no hid
fieVM IT* Lef'findwell# the Afl *intant Hecrotary to attend the
joint session o^ing to the importance of the natters to be
11*C’j»3ed, *ilno that Governor Strong h ;j }oned to be in
*\shirw',ton n d he i tJ. i .vlte : hir. to be rreo nt.
IVc Cov inor
ilao onnve. e:l an invitation from focretary JcAdoo for the
aierT'-rs of the Council to remain over until Tednesday and
ive lurch an t an infernal ©onferttnoc with him it one o 1eloci
on that day.
’ight members of the Couneil signified their
intention of attending the lunchecn*
Governor Hard Inc reviewed some of the important financial
conditions that
tve devoio. ed dnoe the /ederal Reserve
r
j .
*•■ a i ..
../
.itcid .t
to t:
r whic
Just closed rid he outlii ou the financial
roble? •* confronting tho ( ov >rnr m t during the period of
r *».!,ju tr. nt and reconstruction hien the country now faces,
rtioular or?]has is on f • u sstion of note expansion
tr
;olu -it ttion cov .rod in t. s to] ie submit tea Vy tne
■ir 1 for tin Council' s con 1 Titian
Gov rnor }i irdini;
‘J i' o Council to nor * fr '1 criticise
,eoi lion■» or
loard1* reason* t srofor.
•e said the oard r .mid
0 oo
any !n irio , .m^estior s or criticisms fre. the
^ouno11.



*2
9 a C Continued
Hovtjr.bor 18* ifcib

jr. Lef fin*;w!*ll then brought a greeting froui Secret ..rj vo odoo
tnd r^no^ed hin invitation to tho Council to raoet him on Vednouiay.
tfr.B^rolin# Cli.tim.m of tha O ^ital Io»uet» Qor&uittee .mnounced
n conference *cst af»n the r>$nbm of that committee ind
rejreeentative bankerb from various j arte of the country on
Tuc.’i v it three o’clock -mu *akod the members of t.va Council
to neet with tiiecri at t, t tine.
>ui. members present indicated,
t,?-'jjr intention of bein*: ireeent.
!r. ’organ* or. behalf cf tuo Council thanked the Governor
*or hia heljful retroa^ ct of financial conditions ana su^estod
t e ’
.*teno*;ru,
re copiec of hiu a4 tree a fox the
benefit of the Council, v» *ioh it waa agreed ’oux i be Uon*i.
it Mar* For-:\n*;j eut> cation Governor ’tron, of U?* York
n1 ’r,Albert $trauo» th•• ni'v rrr-smber of tho ?o ier U iie» rve
Tc’
.r:* both r n,1o inter i^tin* uiareeuee on the various fin.uioi JL
•iuestion* no v joniin**;. &fter which t. f* joint Mcceion adjourned.




Kxmrras or ic-k t i m o
OF THS
ysDi^AL advisofot com ic i l

November 18, 1918
The formal meeting of the Federal Advisory Counoil was
colled to order by the President. Mr. James B. Morgan# at
i2j3C P*
* Monday# November 10# 1918.

Present:

Tho following members of the Council, liesare.
J. T. Morgan, President, L. X.. Hue, Vice President
3 G. ^ing, J. P. Morgan, " • *. 3ov/e, J. V7. Norwood,
C. A. Lyerly, P. C. :vtt3, J. P. Mitchell, i;. P. •iliyiot,
IT. Fleishhacker, and Territt II. Grim, Secretary.

Atsent:

Mr. K. P. S'vinney of St. Loui , member of the
Federal Advisory Council.
Tr.e President stated
that he had a letter from Hr. Swinney indicating that
other business jresented his attending the mooting.

On motion duly made and carried tno minuter of the meetinr.e
of the Federal Advisory Council and of its Executive Coraiittee
held on September 1<3 and 17, 1918, copies of which had been
sent by the secretary tc the members of the Council, were
approved.

Jlr. yor^an anked the Council what action should be taken in
regard to the request of the Governor of the federal Reserve
Beard that the Council should be more free in criticising and
adviairv; the Board in regard to itn decisions and policies*
Several suggestions were made, an J after some discussion the
folio "in;; resolution was unanimously i assed by the Council:
R5PS0LVHD:
That the President of the Council be requested
to *rite the Federal Reserve A;ent« of the twelve Feaeral
flenarve Banks statin# that some of the Federal Reserve Banks
invite their members of the Federal Advisory Council to
attend their regular meetings of Directors and au££;eetin£
that in order to keep the members of the Council in cloeer
touch **ith whnt is going on in the Federal Reserve System
they should each be invited to attend the meetings of the
Directors of the Ranks of their respective districts.
The Council then adjourned until two o ’clock.




Secretary

Later Centsion
•-* A C November lo, j^Il,
.

it 2:15 o ’clock ' onday, November lh, 1916, th©

?e if*r*il Alvinory Council resumed ita session, all
renber3 except

r.

V.

The matter of try in

"innay bo in,; irecent.
to f:.t individual jrenbera

of the ^eder il Advisory Council to make nug ;eotionu
v* to top ion to -e con -ido red by the Council at its
raa*tirt£8 “* .a diocue -od*

"r. " itts sug(;e ;ted two

••:eta of topics, on " set from the hoard jzi i another
frcr
to

V

> Council rier.1 ?rn, tha .rcaidei t bein,

mo icea

rite all r;embers thirty days in odYanoe of th©

•tuted Floatings?? for sug esjtcd topicnt or itie! liras,
et cetera.

It -me understood without formal

action t li

r# Watt a* it :estion would be acted

uj on.
The Proaidont then laid before the Council
letter from Br. A. <3. filler, ©f Hi* JfcJtoal Resorve
rd,
or

-it tin

on beh#i ‘ of t .a 2-o rd t ■ topics

ich t. ’ Council's reooinr.enditionu are do fired*

u» follower.:




October 30, 19IS.

Dear Ur. Forgan:

In the absence of Governor Harding, there
has been re fe rre d to me for reply your l e t t e r to him of
October 25th advising th a t the next statu to ry meeting
of the Federal Advisory Council w ill be held in Washington
on Monday and Tuesday, November 18th and 19th, and
requesting th a t you be sent a l i s t of topics which the
Federal Reserve Board d e sires to have considered by the
Federal Advisory Council a t i t s coming meeting.
At a meeting of the Executive Committee
of the Board held t h i s afternoon, the following topics
and questions were agreed upon to be submitted to the
Council:
I

1. Federal Reserve Notes.
Is i t d e sira b le th a t steps should be taken
to check fu rth e r growth in the volume of
Federal Reserve notes issued? I f so, what
a ctio n i s recommended?
2. Development of open markets for bankers1
acceptances.
What steps can be taken to promote and
a c c e le ra te the development in each Federal
Reserve D i s t r i c t of an open market for
bankers1 acceptances?
3. Drafts drawn fo r the purpose of furnishing
d o lla r exchange.
The Board has h e reto fo re granted permission
to member banks to accept d r a f ts drawn upon
them by banks and bankers in Central and South
America for the purpose of furnishing dollar
exchange.
The opinion of the Council is desired as to
whether th e re are other countries in which the
"usages of trade" are such as would warrant




Forg3*11 " 2 9
- t h e

.

*'

extension o f- the boa rd 's p o lic y .

of American banking f a c i l i t i e s in
foreign cou n tries.
(A) Are th ere any sp ecial steps which the
Council would recommend th at the Board
should take for the purpose of encouraging
the establishment of add itio nal American
banking f a c i l i t i e s in foreign countries?
(B) Should the Board, in the exercise of i t s
powers over foreign branches of national
banks and banking corporations engaged
in foreign banking, in the stock of which
n a tio n a l banks are perm itted by the Board
to in v e s t, req u ire th a t reserves of not less
than a s ta te d per cent be maintained against
demand deposit l i a b i l i t i e s of such branches
and banks? I f so, (a ) should requirement be
uniform in a l l countries in which such branches
and banks are operated, and (b) of what should
the reserv e c o n s is t, and (c ) what reserve per­
centage i s recommended?
(c) What lim it or r e s t r i c t i o n should be imposed
upon the acceptance power of banks engaged in
fo reig n banking, which arc operated under
supervision of the Federal Reserve Board?

Extension

5, What fu rth er se rv ice s should be rendered by Federal
Reserve banks to the public through
a d d itio n a l f re e f a c i l i t i e s granted to member
banks ?
II.
In view of the apparent near conclusion of h o s t i l i t i e s ,
the a tte n tio n of the Council i s in v ite d to the con­
sideration of;
After-war p o l i c i e s , both domestic and foreign, of
th e Federal Reserve System.
With respect to the requirements of the domestic
s i t u a t i o n , should the policy of the Federal
Reserve banks be r e s t r i c t i v e or lib e r a l? In
other words, should c o n tractio n of c re d it and
currency be a c o n tro llin g consideration in
the Board's p o lic ie s ?
In connection with the consideratio n of the changed
p o s itio n of the United S tates with respect
to in te r n a tio n a l finance and banking, what
should be th e policy of the Federal Reserve
System with resp ect to:




tir< Forgan -

3.

(A)
(B)

t h e managt.mL.nt of its gold reserveoperations m the purchase and sale of
foreign bills?
e or

w i t h the discussion of (A) . c o n s i d e r a t e ™

I n connection
of

th e

f o llo w in g

fu rth e r

q u e s t io n s

is

a lk e d -

(a) Is it desirable that the gold embargo should

be continued on shipments of gold to any
country or group of countries°after the
termination of the war? If so, on what
principle?
(b) Should the gold embargo be lifted on behalf
of any country or group of countries before
the termination of the war?
(c) Is it desirable that the Federal Reserve
System should undertake, by informal con­
ferences with other central banking systems,
to formulate policies or promote arrangements
to regulate the international distribution
and flow of gold in an orderly manner, at the
end of the war?
(d) Is it desirable that provision should be
made in the treaty stipulations following the
conclusion of war for the establishment, un­
der suitable safe-guards and international
guarantees, of international trust funds of
gold so as to minimize the hazards and costs
of gold shipments?
In connection with the discussion of (B), consideration
of the following further questions is asked:
Should

t h e policy of t h e United S t a t e s
and maintain a f r e e gold m a r k e t .
(b) If such a policy is adopted, should the m a m
reliance of the Reserve System be the adop ion
of the English practice of regulating the lion
of gold by a variable discount rate-

(a )

to

i t be
e s ta b lis h

p
Doubtless other topics will suggest themselveB to
Council, either before or after it convenes at the co
^
the Board may have a few additional sugge
he#foregoing, however, embraces a consider^ PTtencied study
°Pics, many of which will demand careful
B e lie v e

m e,
V e ry

llr
t
^
~‘ Ja n e s B . F o r g a n , P r e s . ,
1O d e r a l A d v i s o r y C o u n c i l *

Chicago, I l linois.



tr u ly
A.

C.

y o u rs ,
M ille r .

AB

Tt wau aeoided th at tne Council members should
dlnouso «11 th * topieei n.i l«nvo i t to the *acutive
ffonrittee to formulate te n ta tiv e rocorar end ttions on
them embodying tho con^ensuo of the views expressed
'tfirt report to a euhste uent meeting.
The topica were
t^en ta>'m u\ seriatim , the memberb freely exiresaine
thnir opiniona on thorn.
rr* »T. . Morgan bu;: e >ted the Council should roco;
to the Pe,«er *1 Ronerve Uoard m arrcndmejit to tne
lur 1
He-'rva Act to provide th a t the nurilusea of ti..e Federal
«i«erve J:inVfs ahoul '3 be increased out of 'mxnin^» to
lC<f' of V
Q 5.pit:il:-.# instead of 4C; , .ft r fc’;iiOii .11
exeeHS earning!* to be turned over to the Gov rnnent.
T’r iisu g g e s tio n -Ino v.%u referred to t,*o ^xecutivo
(fpwnittee to rep o rt a reeOrr end lio n thdroon.
At 4:45 1\ i:. t i e Council
N cv^ ber

djourned unti„ ten

nd

0*0100

IV .

caretary
;;isuj2r c ? ’r;:c’J Tiv; c o r itt :~
b f the
CTKfUL ADVISOR* COUNCIL
Hoventer 18, ifclfc
,.fter the Co;.no 11 meeting a : eetin& of the Jtecutive
Committee Was V eil.
rre nerit:

Siefesre. J . I . J?or* an. .t . <. ■X•-■-» iv• Ga
•
J.
;o.'%vu'» . r.. So-e,
ar i t t , urirs*
^ eereta rf.

T n ta tiv reo on sriiaitbnr
jrn...vcre \*ere .a-e; ured ou
' 2 toj.-lc3 re fe rre d to t n Co u i t t a e by t 0 Council n^ the
& 1m n is re^u M?ted to j-reBent the r .port at tiu? te tir^
op th Co vanoil in the rornirv*.
r. 'ii.ij :w 0: ;eat:vd thut a reoo .31a it ion ahoui .» bo nude
}y t ;,r» Co" moil to increase th •.» ;.cccrt .tnee .;.ow©r of member
mW4 for ■o *-e i/’n acceptances* -.mi he *a» requested to
" }'e*“ te n t •• 1v r cor. . tior. "OVfcrli. i t n i
ment
H >.t t#> » r e o t l r e f th - Council! in the no m l




acre! ry

mijtutss op K">m m
of the
n m u is ADVISORY *£QUXC1L
llovember 19, 1916
Th® Fsderal Advisory Council met in the Federal
Ttesarve Board roan as arranged on Tuesday» llovember 19,
1916, Jit ten (10} A. ?*•
Present:

The foHewing members of the Council

Pass a rs. J , B. Morgan, Preaident, L. L« Hue,

Vice P resident, D. 0 . Tinr,» J . P* Morgan,
W. S. Ttov.o, J . W* Hcrwood, C, A. Lyerly,
P. 0, attss, J . H. h itch e l l , K. P. ilmot,
K. Fie i&hl lacker, and M erritt H* Or hr., Secretary.
Absent:

Mr. S. ? . Swinney of St. Louis, member of
the Federal Advisor;’’ Council.

Mr, Forgan c a lle d the meeting to order and announced
that the members of th e federal Re icrve Board would be
rraaent at 11:21 to receiv e the Counoll*& recoiimendations.
The? report c f the ]$xeoutive Committee was then taken
up anc a fte r fu rth e r di .cuKsion the following were adopted
as the recommendation a of the Council.




(Bee printed pafres following)

R E C O M M E N D A T IO N S
BY
T H E F E D E R A L A D V IS O R Y C O U N C IL
TO
T H E FED ERAL RESERVE BOARD
November 19, 1918

I
T O P I C N O . I.— Federal Reserve notes.
Question: Is it desirable that steps should be taken to check further
growth in the volume o f Federal Reserve notes?
If so, what action is
recommended ?
Answer:
During the period o f readjustment and reconstruction on which we are
now entering sudden changes in financial conditions are likely to arise which
will have to be met with practical banking judgment.
It would seem to
be undesirable to take any steps to check further growth in the volume of
Federal Reserve notes issued. T h e expansion which has taken place re­
cently incident to war financing, and which will continue undoubtedly un­
der additional government financing and probably through the reconstruction
period, is made possible chiefly thiough the issue o f Federal Reserve notes.
Their issue and redemption respond to the requirements of trade. Natural
and not artificial methods should control the situation.

T O P I C N O . 2 .— Developm ent o f open markets for bankers’ accept­
ances.
Question: W h a t steps can be taken to promote and accelerate the de­
velopment in each Federal Reserve district o f an open market for bankers’
acceptances?
A n sw er:
N o steps should be taken by the Federal Reserve Board as yet. Bank­
ing habits must be given time to develop and should not be rushed. The
open market for bankers’ acceptances is developing and must grow by use.

T O P I C N O . 3 .— Drafts drawn for the purpose of furnishing Dollar
exchange.
T h e B oard has heretofore granted permission to member banks to ac­
cept drafts drawn upon them by banks and bankers in Central and South
America for the purpose o f furnishing dollar exchange. T h e opinion of the
Council is desired as to whether there are other countries in which the usages
o f trade” are such as w ould warrant the extension o f the Board s policy.




— 16 —

Recommendation:
This question does not seem to require immediate attention. Under the
development o f peace conditions undoubtedly the drawing of drafts to
create dollar exchange from countries other than those prescribed may be­
come necessary, but the matter can be considered more intelligently later
as conditions develop.

T O P I C N O . 4.— Extension o f Am erican banking facilities in foreign
countries.
(A )
Question: A re there any special steps which the Council would
recommend that the B oard should take for the purpose o f encouraging the
establishment o f additional Am erican banking facilities in foreign countries?
A nsw er:
T h e purpose o f establishing Am erican banking facilities in foreign coun­
tries is o f course to encourage and enlarge Am erican trade. T h e two go
together. Branch banking in foreign countries may be considered as having
developed most satisfactorily under the trying conditions which have pre­
vailed since the Federal Reserve A c t, which first authorized this method
of banking, was enacted. U nder peace conditions doubtless there will be
further development and there would seem to be no steps necessary at this
time to further encourage the business.
(B )
Question: Should the Board, in the exercise o f its powers over
foreign branches o f national banks and banking corporations engaged in for­
eign banking in the stock o f which national banks are permitted by the Board
to invest, require that reserves o f not less than a stated per cent be main­
tained against demand deposit liabilities o f such branches and banks?
If
so, ( a ) should requirement be uniform in all countries in which such branches
and banks are operated, and ( b ) o f what should the reserve consist, and ( c )
what reserve percentage is recommended?
A nsw er:
W e are advised that the Federal Reserve Board has already definitely
decided this question on the lines that such banks will not be required to keep
a fixed ratio o f reserve and that foreign branches o f national banks will not
be required to keep any portion o f their reserve in Federal Reserve banks
against deposits received in foreign countries, the whole matter o f reserves
o f their foreign branches being left to the discretion o f the parent institution.
This Council concurs in the action o f the Federal Reserve Board in this
matter.
(C )
Question:
W h at limit or restriction should be imposed upon
the acceptance power o f banks engaged in foreign banking, which are oper­
ated under supervision o f the Federal Reserve B oard?




— 17 —

r
A n sw er:
A t present the ratio o f six to one between acceptances and capital and
surplus would seem sufficient to meet the requirements, but as the business
of the branches o f American banks grows, there is reason to believe that
it may be necessary later to increase the ratio, which, under proper control,
can be done conservatively.
W hen American banks begin to approach
their present limit o f six to one, and make application for permission to in­
crease the ratio, would seem time enough to consider such extension. Branches
o f foreign banks are operated ordinarily without limits.

T O P I C N O . 5.
Question: W h a t further services should be rendered by Federal re­
serve banks to the public through additional free facilities granted to mem­
ber banks?
A n sw er:
During the past year the Federal Reserve banks have added consid­
erably to the free facilities afforded to the public through member banks.
T h e Council has at this time no suggestion to make in regard to an exten­
sion o f these free services. It would not seem desirable to add materially
to the burdens assumed by the Federal Reserve banks until the relations
o f the Federal Reserve banks and their member banks are established upon
a peace basis.

II
In view o f the apparent near conclusion o f hostilities, the attention of
the Council is invited to the consideration of
A fter-w ar policies, both domestic and foreign, of
the Federal reserve system.
T O P I C N O . 6.
Question: W ith respect to the requirements of the domestic situation,
should the policy o f the Federal Reserve banks be restrictive or liberal:
In other words, should contraction o f credit and currency be a controlling
consideration in the B oard’s policies?
A nsw er:
T h e policy o f the Federal Reserve banks should be as liberal as is
consistent with safety. A n y attempt at enforced contraction o f credit on
their part w ould be injurious to the business interests of the country.

T O P I C N O . 7.
Question:
In connection with the consideration of the changed posi­
tion o f the United States with respect to international finance and banking,
what should be the policy o f the Federal Reserve system with respect to




— 18—

A

T h e management o f its gold reserve:

B

Operations in the purchase and sale o f foreign bills.

A n sw er:
A . — A ctin g in conjunction with G reat Britain the U nited States should
get back to a free gold market as soon as feasible.
B .— T h e purchase and sale o f foreign bills should be engaged in by
ihe Federal Reserve banks only as a means to regulate the exchange market
and to control gold.

T O P I C N O . 8.
In connection with the discussion o f A
the follow ing further questions is a sk ed :

( T o p i c N o . 7 ) consideration of

Q uestion: ( a )
Is it desirable that the g old em bargo should be con­
tinued on shipments o f gold to any country or group o f countries after the
termination o f the w ar? If so, on what principle?
Q uestion: ( b )
Should the g old em bargo be lifted on behalf o f any
country or group o f countries before the termination o f the w a r?
A nsw er (a and b ) :
It w ould seem desirable that the question o f the g old em bargo be left
to the G o ld Committee, to be handled with such elasticity as developing con­
ditions make advisable.
If the G o ld Com m ittee o f the Federal Reserve
Board is free to pass on all applications for g o ld for shipment with entire
freedom, the merits o f each individual case in connection with the whoje
situation can decide its action. W e w ou ld recom m end that the necessary
legislation be obtained as soon as possible continuing the pow ers o f this Com ­
mittee for a period o f six months beyon d the declaration o f peace.
Q uestion: ( c )
Is it desirable that the Federal reserve system should
undertake, by informal conferences with other central banking systems, to
formulate policies or promote arrangements to regulate the international dis­
tribution and flow o f gold in an orderly manner, at the end o f the w ar?
Question ( d )
Is it desirable that provision should be made in the
treaty stipulations follow in g the conclusion o f war for the establishment, un­
der suitable safe-guards and international guarantees, o f international trust
funds o f gold so as to minimize the hazards and costs o f gold! shipments?
A nsw er ( c and d ) :
It w ould not seem desirable at this time to encourage any informal
conference with other central banking systems for the purpose stated. Dur­
ing the war w e have had a close working arrangement with G reat Britain.
Such a working arrangement if continued w ou ld probably meet the situa­
tion. N o treaty stipulations in connection with international trust funds o f
gold w ould seem to us to be desirable.



— 19 —

T O P I C N O . 9. In connection with the discussion of B (T o p ic N o. 7)
consideration o f the following further questions is asked:
Question ( a ) : Should it be the policy of the United States to es­
tablish and maintain a free gold market?
A n sw er:
T h e United States should as soon as possible reestablish and maintain
a free gold market if it is to remain a world banker and hold the place it
has secured during the past four years. Particularly will this be necessary
if Great Britain carries out its intention of reestablishing its free gold market.
Question ( b ) : If such a policy is adopted, should the main reliance
of the reserve system be the adoption of the English practice of regulating
the flow o f gold by a variable discount rate?
A n sw er:
T h e main reliance o f the Federal Reserve system should be the adop­
tion o f the English practice o f regulating the flow of gold by establishing
a variable discount rate.

A D D IT I O N A L R E C O M M E N D A T IO N S
N O . 1.
Am end the Federal Reserve A c t to allow surpluses of Federal R e ­
serve banks to accumulate until they are 1 0 0 % o f their paid-in capitals.
T h e Federal A dvisory Council recommends that the First paragraph
of Section 7 o f the Federal Reserve A c t be amended to read as follows:
“ Section 7. A fte r all necessary expenses o f a Federal Reserve bank
have been paid or provided for, the stockholders shall be entitled to receive
an annual dividend o f six per centum on the paid-in capital stock, which
dividend shall be cumulative.
A fter the aforesaid dividend claims have
been fully met, all the net earnings shall be paid into a surplus fund until it
shall amount to one hundred per centum o f the paid-in capital stock of such
bank, after which all the net earnings in excess of aforesaid dividend shall
be paid to the United States as a franchise tax.”

N O . 2.
A m end Federal Reserve A c t to allow member banks to accept foreign
bills up to 2 0 0 % o f their capital and surplus.
It is generally conceded that following the declaration o f peace, this
country will have an opportunity to develop its foreign trade to an extent
impossible before the war. If we are to develop and maintain our export
and import trade it should be financed by American banks and bankers
and it is therefore essential that the member banks be granted additional
acceptance powers to properly take care o f the increasing volume of dollar
exchange and credits.
W e recommend that the Federal Reserve A c t be amended as soon as
possible so as to allow member banks to accept on purely foreign transactions




up to 2 0 0 % of their capital and surplus. T h is limit to include acceptances
of foreign banks or bankers for the account and under the guaranty of the
member banks. This acceptance power to be in addition to that now pro­
vided by the A c t for domestic acceptances.

N O . 3.
T o make bank acceptances available as reserve to the owning bank
on the day o f maturity.
The Council suggests the institution by the Federal Reserve Board
of a uniform plan by which bank acceptances may be available as reserve
to the owning bank on the day o f maturity and payment.
It would seem
a simple process to accomplish this end by wire through the G o ld Fund and
the service would broaden the market for such acceptances.
N O . 4.

Federal Reserve banks should not afford non-member banks clearing
privileges unless they belong to the Clearing H ouse if any exists in the city
in which they are located.
The Council recommends that the Federal Reserve banks should adopt
the policy o f not permitting non-member banks to avail themselves o f the
privilege of clearing their items through them unless the non-member banks
are members or affiliated members o f the clearing house association if any
exists in the city in which said non-member banks are located and subject
lo clearing house rules and regulations.

The following members o f the Federal A dvisory Council were present
at this meeting: President, James B. Forgan, in the chair; Vice-President,
L. L. R ue; D . G . W in g, J. P . M organ, W . S. R o w e , J. W . N orw ood,
C. A . Lyerly, F. O . W atts, J. R . M itchell, E . P . W ilm ot, Herbert Fleish­
hacker, and Merritt H . Grim, Secretary.




— 21 —

•
’ C Continued

N o v e m b e r 11 , i?i

; r. ?a tta re id the following telegram to the Council fror:

vr*n ^enrid&e Jones the C! a in an Committee of U ;nagorient, of '

<51 * i,oui* Clearing House Association*
•Mr • *"• C. a t t *■
Ui# v11 l Hard Hotel»
" ^Mn,itnn , D. C.

Refwring to my telegram of lu a t Saturday to you tnat te r way#
tii*cuaaed fu lly Committee of i anal>®'ent today resulting it»
ir.thorial
to -iro you on V- 'h
°- cor.r.ittea urging you
tc dinouon n a tte r frooly there . Some problems wil 1 oon
jresent themselves to ever;/ Clearin& house in country•
I rec kenr id&e J once- • Cii lirr: an
Committee of r mageraent.
f>t. Louiu Clearing Kcuae Association.*
iftor discussion Kr, ' a t t a j resented the following* wfcica vc
umniriously adopted:
"The Council recommends th a t the .**0 derail Reserve banks should
dopt t: o policy of not i orri ttin,-? non~memt or bani;s to
avail tr c^selves of tho : riv ile g c e f clearing the ir iter.s
throng t esn unless th e tion-m^nber banics are '.:raber» or
V’’-5l i \ t ;d nher^ or' t ,e C... .ri r. ';cti^e v-. .-.oCi-*vt ion ih
any e r i * t s in the cit. in which s \ie ncn-. - : her banka
are located md eub.3 ?ct to <5Loaring House rulee and
re g u la tio n s. "
.t hr. 4'ilm ot1s bw ^eat ion the Council ltso adopted the
fol 30 '*rin<? rec onrandat 1on :
"The Council nu^/ro^te the i n s t i t u t i o n by the Fe
Beserve
• 0 rd o*' a uniform plan by which b nk acceptance a nay be
available -v re nerve to the owning: bank on the day of
r:itur i ty -:n I j .aymen t .
It
u 1a so em a ©i r pi e pr oc es 3
to accomplir/
In end by wire through the Gola Pund and
th service **ould broaden the market for auoh \ccftj tancea
r • ’inn presented the fo llo ,+ii\. ssugr.eeted r ecomtrendat ion»
• which was unanimously

approved.
T<' is generally oonoedod th a t followinr, the declaration of
ra-or, t h i s country ^ i 13 have an o].port unity to develop
His foreign tra d e to an extent imroaslble before the war.
are to develop and maintain cur export and import
tr-vir
a or... i bo inaneed by American banks and banker^
^ ! i t ie therefo re eneential th a t the member banks be
■' fc ?
11 ;
ce- t
. t.o ; roper... «.*
of t i n c r e a s i n g volume of d o lla r exchange and c re d its .
r*oon,aond th a t the Federal Reaerve Act be amended as soon
possible so a s to alio - mber bank:i to accept on purely

fore ign tran mot lone u] to 'XC f of th o ir c a p ita l ana eurj


? A C Continued
Nov amhor 19, 1v16
.. - Thi lim it lo in clu ie acceptances of foreign banko
03r VmVnrs for the account and un ler the guaranty of the
flCTnb^r bonks.
Thi s aocejtanco power to bo in addition
to ‘it no'*, provides.! by the Act for domestic aooext mce-u *

Tho President v.as requested to present the recommend it ions of

frv Council to the3?ecieral Renerve Board at the .joint session

for.

On

notion the Council then adjourned.

Secretary

JOIBT JTHUT ^

0 7 !: ; ;TIMG

of the
F&DKRAL RSfTSRVK BOARD
and the
FTSDKRAL ADVinOHV CClftlCIL
N o v e m b e r lfc, 1 9 1 b
A s arranged a t 1 1 : 5 0 A.
the federal R e s e r v e P o a r d
held in the Board room.
of

Preoent:

1 . N o v e m b e r 19, 1 9 1 8 , a j o i n t m e e t i n g
a n d t h e Federal a d v i s o r y C o u n c i l was

The

f o l l o w i n g m e m b e r s o f the B o a r d , G o v e r n o r
0.
trdin^. K e s n r s . J . S . T il l i a m s , A l b e r t S t raus
C. r. H a m l i n , A. C. T i l l e r , a n d ?. a. E r o d e r i o k ,
S ecretary, n i th e f o l l o w i n g m e m b e r s o f the C o u n c i l ,
Kessrs* J
s 1. F o r f a r , P r e s i d e n t , L. L. Hue,
P.

Vico 1'ro siie n t, D. 0 . "Inf,* J .

J.

• fcort>tn,

. S. Hc-.;e,

N o r w o o d , C. A. L y e r l y , h. C. w'atts, J . R.
P. -fi l m o t , K. f l e i s h h a c k e r , and I e r r i t t K.Grir

3.
S e c re ta ry .

,

Governor Hording c a lle d the meeting to order and asked
to read the Co rnell*?? re* o r t, -hicl. he lid .

itcheli,

r.

’organ

vembers of both Boards then informally discussed tho topics
■r*’ the Council1rr recomr en&ations thereon.
At the request
Viewed corrmerc .1al
^ trio te .

Harding the ir-ambers of the Council
nd fin a n c ia l conditions in t e ir respective

of G o v e r n o r

At 1:3C P. £ . the J oin t session adjourned.




Secretary