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Mi n u t e e o f M eetin g of t h e
Federal Advisory Council
November 19, 1917.

A statutory meeting of the Federal Advisory Council was held in the
Federal Reserve Board room, Washington, D C, Monday, Nov. 19, 1917, at
10:30 A. M.
Present:

Absent:

Daniel G. Wing,
J* P. Morgan,
L* L. Rue,
W. S. Rowe,
J. W. Norwood,
Charles A, Lyirly,
James B. Forgan,
F. 0. Watts,
John R. Mitchell,
E. F. Swinney,
Herbert Fleishhacker,
Merritt H* Grim, Secretary,
T* J* Record

Mr. James B. Forgan, President, called the meeting to order, and read
a letter from Mr, Neville Brooks, Cashier, City National Bank, Paris, Texas,
dated November 12, 1917, stating that Kr, Recota had undergone a severe
operation and was not yet able to attend to business.
On motion of Mr. Rue seconded by Mr. J. P, Morgan the chairman was re­
quested to send Mr. Record a telegram expressing sympathy for him and regret
that he is not able to be present. Unanimously carried. Mr, Forgan sent
the following telegram to Mr. Record: "By resolution Federal Advisory
Council has requested me to express to you their syn$>athy with you in your
present illness and their hope that you may have a speedy and complete recover^
On motion of Mr. Rue the minutes of the Federal Advisory Council of
meetings held September 17th and 18th, 1917, and of the Executive Committee
meeting held on September 17, 1917, were unanimously approved.
Mr. Forgan informed the Council that he had arranged with Governor Hardirg
that the Federal Reserve Board would meet with the Council at 11 o'clock to
lay before the meeting the topics on which thwy wish the Council’s advice.
The time having arrived the Federal Reserve Board members came in and the
Council adjourned.




S e c re tary .

M in u te s

of

J o in t

M e e t in g

November 1 9 , 1 9 1 7 .
Present: Hon. W*P»G .Harding, Governor, P.M.Warburg, Vice-Governor,
F.AJ)elano, C.S.Hamlin, J .S.Williams and H. Parker Willis, Secretary,
members of the Federal Reserve Board, and James B. Forgan, President,
L. L. Rue, Vice-Presmdent, D. G. Wing, J. P. Morgan, W. S. Rowe, J. W.
Norwood, C. A. Lyerly, F. 0. Watts, J. R. Mitchell, E. F. Swinney,
Herbert Fleishhacker, and Merritt H. Grim, Secretary, members of the
federal Advisory Council.
Mr. Forgan called the meeting to order and asked Governor Hardinfc to
state to the Council the topics on which the Board desired its advice.
Governor Harding then addressed the session, after which a short
general discussion was held. The members of the Board then retired.

Secretary.

Minutes of
Federal Advisory Council
November 19, 1917.
The Council resumed its session at 12 o*clock when the Chair laid
before the meeting the topics submitted by the Federal Reserve Board
48 follows:




Page 5 .
M inutes o f C o u n c il m e e t in g of November 1 9 , 1 9 1 7 ,

The Council

i n f o r m a l l y d i s c u s s e d all

C ontinued

of t h e t o p i c s and the

Executive C o m m i t t e e w a s r e q u e s t e d t o f o r m u l a t e t h e views e x p r e s s e d into
a rep ort e m b d d y i n g t h e o p i n i o n of t h e C o u n c i l t h e r e o n t o b h s u b m i t t e d
to a later meeting .
During the discussion the Council adjourned for lunch, and at
five o'clock the Council adjourned until 9:30 Tuesday morning, to
r e c e iv e the report of the Executive Committee.

Secretary.

Minutes of Executive Committee
Federal Advisory Council
November 19, 1917.

A meeting of the Executive Committee of the Federal Advisory
Council was held at the Metropolitan Club, Y/ashington, Monday evening,
November 19, 1917, at eight o*clock.
Present: Messrs. James B. Forgan, L* L. Rue, J. P. Morgan,
D. G. Wing, W. S. Rowe, and Merritt H. Grim, Secretary.
The Committee having fully considered the views expressed by
the members of the Council at its meeting in regard to the topics
submitted by the Federal Reserve Board proceededto formulate
tentative recommendations, all of which the chairman was authorized
to lay before the Federal Advisory Council at ite meeting Tuesday
doming.
See minutes of meeting of the Federal Advisory Council of
November 20 th, 1917, for the recommendations as finally adopted.




S ecretary .

Page 6 .

M in u te s o f M e e tin g of t h e
F e d e ra l A d visory C o u n c il.
November 2 0 , 1 9 1 7 .

As arranged the Federal Advisory Council met in the Federal
Reserve Board room Tuesday, November 20th, 1917, at 9;45.

Fresent:

Absent:

D. G. Wing,
J. P. Morgan,
L. L. Rue,
W. S. Rowe,
J. W. Norwood,
C. A. Lyerly,
Jas . E . Forgan,
F. 0. Watts,
John R. Mitchell,
E. F. Swinney,
Herbert Fleishhacker,
Merritt H. Grim, Secretary.
T. J. Record.

The President, Mr. Forgan, called the meeting to order and laid
before the Council the tentative recommendations of the Executive
Committee on the topics submitted, which were carefully considered.
The following are the recommendations as finally approved by the
Federal Advisory Council, which were ordered to be presented to
the Federal Reserve Board by the President at the forthcoming
joint session to be held for this purpose.
(See printed copy herewith.)
The President was requested to notify the Governor of the Federal
Reserve Board that the Council was ready to meet with them and
present its recommendations, after which the Council adjourned.




S ecretary .

RECOMMENDATIONS OF THE FEDERAL ADVISORY
COUNCIL TO THE FEDERAL RESERVE BOARD
November 20, 1917
DISCOUNTS A N D I N V E S T M E N T S :
T O P I C N O . 1.— Should member banks make a practice of discount­
ing their own acceptances?

Recom m endation:
W hile it may not be considered as being in accord with best banking
principles for a bank to purchase its own acceptances and carry them as an
investment, nevertheless until a wider discount market is developed, which is
most desirable, it may be at times necessary for a bank to purchase its own
acceptances for the protection of its customers.

T O P I C N O . 2 .— Suspension of commodity rates and reasons therefor.
Recommendation:
The Council does not believe there is any necessity for a preferential
rate for the rediscount of so-called commodity paper.

T O P I C N O . 3 .— Is it desirable and necessary that preferential rates
be established for customers’ paper running not longer than ninety days, which
is secured entirely by United States bonds or Treasury certificates?
Recommendation:
T o facilitate government financing we believe it desirable that there
should be a preferential rate established for customers’ paper running not
longer than ninety days which is secured entirely by United States bonds or
Treasury certificates.

T O P I C N O . 4 .— General discussion of assistance to banks and savings
banks especially in carrying investments in railroad and corporate bonds.
(a )
W h a t means, if any, are there of affording adequate relief under
the present law?

Recommendation:
T he present law does not permit any relief by granting loans to savings
banks against the security of railroad and corporate bonds.
(b )
Should the Federal Reserve A c t be amended so as to permit the
rediscount by Federal Reserve banks of notes secured by bonds of railroad
or industrial corporations?




— 20 —

1

Recommendation:
It is our opinion that the i" ederal Reserve A ct should not be amended
so as to permit the rediscount of notes secured by bonds of railroads or indus­
trial corporations, as such amendment would be contrary to the spirit and intent
of the Act as expressed in its title: “ A n A ct to provide for the establishment
of Federal Reserve banks, to furnish an elastic currency, to afford means of
rediscounting commercial paper, to establish a more effective supervision of
banking in the United States, and for other purposes.”
(c )

Discussion of an alternative plan.

Recommendation:
It may be desirable to have enabling legislation to provide for the neces­
sary financing of railroads, public utility corporations and savings banks, either
directly or indirectly, by the United States government during the duration
of the war and under the supervision of a Federal commission.

C AP ITA L A N D R E S ER V E R E Q U I R E M E N T S :
T O P I C N O . 5.— Should the Federal Reserve A c t be amended so as
to allow state banks which were in existence on November 16, 1914, to be­
come members of the Federal Reserve system, although their capital be less
than national bank requirements?
Recommendation:
W e think it inadvisable so to amend the law.

T O P IC N O . 6.— Should the Board be given authority to exempt from
the reserve requirements imposed upon banks in reserve and central reserve
cities, banks not located in the business centers whose business is largely local,
and which do not receive accounts from other banks?
(Note)
The Board has received numerous requests that it ask Con­
gress to modify the existing law in the manner above indicated, but so far
has reached no conclusion in the matter. W hat would the Council advise?
Recommendation:
W e think it undesirable that there should be any distinction made in
regard to reserve requirements of banks located in central reserve or reserve
cities simply because some of them are not located in the business centers of
these cities. W e believe, however, that sooner or later the basis on which
reserve requirements are established should be changed and should be deter­
mined by the character of deposits carried by the various banks under such
classifications as bank deposits, commercial deposits and time deposits. W e
think, however, it is inadvisable that any legislation looking to this change
should be asked for under present conditions.




— 21 —

GOLD E M B A R G O :
(N o te )

The Board has been charged with the duty of advising the

Treasury in matters relating to foreign exchange, and to exportations of gold,
and it would like to have the opinion of the Council in the following matters:
T O P I C N O . 7.— T o what extent, and for what purposes should gold
be released for shipment to other countries?
Recommendation:
Gold should not be released for shipment to other countries except in
sufficient quantities to settle unfavorable trade balances against us before the
dollar exchange in the foreign country falls to a level low enough to increase
intolerably the cost to us of the principal commodities imported by us from
that country. Imports should be restricted to such as are necessary for carry­
ing on the war and exports should be facilitated in every possible way.

T O P I C N O . 8 .— Should the stabilization of sterling exchange by pur­
chases of sterling bills in this country be continued?
Recommendation:
Yes.

T O P I C N O . 9 .— Should any attempt be made to stabilize dollar ex­
change in countries of continental Europe, such as Sweden, Holland, Switzer­
land and Spain?
Should an effort be made to bring the dollar back to its parity in South
American countries?
Recommendation:
It is very desirable to make such arrangements as are possible that do
not involve the undue shipment of gold.

T O P IC

NO.

10.— Exchange relations with Canada.

Should unre­

stricted shipments of gold to Canada be permitted, or if limited what arrange­
ments can be made to continue normal trade relations with Canada and to
facilitate the movement of Canadian crops?
Recommendation:
The Council makes no recommendation as it is informed that exchange
relations with Canada are in process of satisfactory adjustment.




— 22 —

T R E A SU R Y CERTIFICATES OF IN D E B T E D N E S S :
T O P I C N O . I I.— W hat means should be availed of to secure a more
general distribution of Treasury Certificates of indebtedness?
Recommendation:
The market for Treasury Certificates is constantly broadening and we
think it inadvisable and unnecessary that any special steps be taken to force
their distribution among the banks.

Additional Recommendation:
Now that the financing of the Second Liberty Loan is effected it is
our opinion that discount rates should be increased and we would recommend
that the current rates be increased one-half of one per cent in each of the
various classifications of paper discounted or purchased by the Federal Re­
serve banks.
The following members of the Federal Advisory Council were present
at this meeting: Daniel G. W ing, J. P. Morgan, L. L. Rue, W . S. Rowe,
J. W . Norwood, Charles A . Lyerly, James B. Forgan, F. O . Watts, John
R. Mitchell, E. F. Swinney, Herbert Fleishhacker and Merritt H. Grim,
Secretary.




Pag© 1 1 .
Minutes of Joint Session
of the
Federal Advisory Council
and the
Federal Reserve Board.
November 20, 1917.

A joint meeting of the Federal Reserve Board and the Federal
Advisory Council was held in the Board room, Washington, D C,
at 11 A. M.
Present: Governor W.P.G.Harding, in the Chair, Vice-Governor
P. M. Warburg, C.S.Hamlin, F.A.Delano, J .S.V/illiams, and Sherman
Allen, Secretary, members of the Federal Reserve Board, and
President James B. Forgan, Vice-President L. L. Rue, D. G. Wing,
J. P. Morgan, W. S. Rowe, J. W. Norwood, Chas . A, Lyerly, F. 0* WattB,
John R. Mitchell, E. F. Swinney, Herbert Fleishhacker, and Merritt H.
Grim, Secretary, members of the Federal Advisory Council.
Governor Harding asked Mr. Forgan to read the recommendations of
the Federal Advisory Council, which was done.
Then followed the usual informal discussion concerning the topics
and other matters pertaining to the Federal Reserve system, in
which members of both boards freely participated.
During the discussion of the advisability of changing the basis
on which reserve requirements are established, Mr. Warburg on behalf
of the Board suggested the appointment of a committee to
confer with a committee from the Federal Reserve Board in regard
to what change is desirable and when same should be effected.
Mr. Morgan moved that the President appoint such a committee
to include himself as chairman. Motion seconded by Mr. Fleishhacker
and unanimously carried, whereupon Mr* Forgan appointed the members
of the Executive Committee and in addition thereto Mr. F. 0. Watts,
representing the third central reserve city. Governor Harding
stated that the Federal Reserve Board would appoint a special com­
mittee of the Federal Reserve Board within a short time and have the
necessary data tabulated for the use of both committees.
Governor Harding then asked members of the Council to report on
conditions in their Federal Reserve districts. Each member of
the Council present then reviewed general conditions in his own
Federal Reserve District.
The joint session then adjourned.




S e c re tary .