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IONUTSS OF THE FEDERAL ADVISORY COUNCIL. SEP!’. 18, 1916. A statutory meeting of the Federal Advisory ttunoil was held in the Federal Reserve Board room at the Treasury De partment in ashington, D.C., at 10:30 A M, Monday, ^ept. 18, 1916* The full Council was present: iir. D. G • ».'ing, Federal Reserve District No. 1 U r . J. . Morgan, Federal reserve District H o . 2 , h r . L.L. Rue, Federal Reserve istrict Mo. 3. Lr. . 8. Howe, Federal .eserve District No* 4. ir. J. *. Norwood, Federal Reserve District No. 5. kr. Charles A. Lyerly, Federal Reserve District No. 6. : r. James B. Forgan, Federal Reserve District No. 7. Ir. ?. 0. utts, Federal Reserve District No. 8. h r . -. T. Jaffray, Federal Reserve District No. 9. Lr. . Swinney, Federal Reserve District No. 10. Ir. . J. ecord, Federal Reserve District No. 11. Mr. Herbert FIeishhacker, Federal Reserve District No. 12. ;/r. erritt H. Grim, Secretary. he President, *r. James B. Forgan, called the meeting to order. The minutes of meetings of the Federal Advisory Council of kay 16, 1916 and of the Executive Cocrcittee of May 15th and 16th, 1910,copies of which had been sent to members, vere on motion ap proved. The Presiaent laid before the Council the topics submitted for its consideration at this meeting by the ffederal Reserve Board in lovemor Harding's letter of rept. 2nd and 5th, 1916, as follows: "Sept. 2, 1916, &r James B. Forgan, President, Federal Advisory Council, Chicago, 111. Dear 5ir:Referring again to your letter of August 15th I hwndyou herewith, with the approval of the Board, list of suggested topics for consideration at the forthcoming quarterly meeting of the Council. Very truly yours, (Signed) P G Harding, Governor." Pag* 2 . S ept. 16 , 1916. Cont. TOPICS SUGGESTED FOR CONSIDERATION OF FEDERAL ADVISORY COUNCIL AT ITS MEETING September 1 8 , 1916. 1. THE RESERVE SITUATION• Reserve conditions in the country at large and in the several district*. XI. DISCOUNT POLICY. Suggestion* or recommendations of any change* in discount rates to be raade in the c o m i n g month*. III. VAULT RESERVES OF kivlfBKR BANKS IN FEDERAL RKS !RVi BANKS. (a) What use should b* made of the permission granted member bank* under the Federal Reserve Act, as emended, to carry vault reserve money in Federal Reserve banks! (b) Suggestions as to how this provision of the law may be made effective. (c) How can th * u*e of the 15-day, secured notes of member banks, for th* purpose of settling or maintaining balances with their Federal Reserve Banks be developed? IV. STOCK OWNERSHIP BY UJ&BKR BAiiKS IN BANKING CORPORATIONS TO BS ORGANIZED FOR CONDUCTING FOREIGN BUSINESS. Suggested regulations to be issued by the Board in connection rsrith the recent amendrcent of the Federal Reserve Act. V. C1SCK CLEARINC AND COLLECTION . (a) Should charges by the Federal Reserve Banks on member bank* be made per item or per thousand dollars of checks collected? (b) Should Federal Reserve Banks be required to receive for immediate credit (funds to be immediately available) check* drawn on member bank* maintaining excess balance*: in other words, abrogate the time allowance now in force against such check*? (c) Should the Federal Reserve Board, at this time, proceed to regulate charges to be made against deposits of out-of-town check* with member bank*, such checks being collected through Federal Reserve Bank*? (d) Immediate availability in Federal Reserve cities of bank drafts drawn by a member bank upon the Federal Reserve Bank of it* own district, and *tep* which should be taken to protect the Federal Reserve Bank ca*hing *uch draft*, as well a* th* endorser*. (Suggested Plan: Immediate advice to Federal Reserve Bank upon *yhich drafts is drawn, with instructions to charge to account of drawing bank. Advice by the drawee Federal Reserve Bank to the Federal Reserve Bank requested to cash such draft. Settlement by Gold Settlement Fund or by means of account* kept for exchange purposee.) LINUTKS OF THE Page 3. FEDERAL ADVISORY COUNCIL Sept. 18, 1916, Cont, "8ept. 5, 1916 My dear Sir:At a meeting of the Board’s Executive Committee this morning, there was suggested as an additional topic for consideration by the Council at its approaching meeting, the following: What steps should be taken to further the entrance of State banks into the Federal Reserve System? In this connection, your attention is invited to a letter published under the heading, ’’Informal Rulings of the Board*” on page 393 of the August number of the Federal Reserve Bulletin, Very truly yours, (Signed) W P G Harding, Governor Mr. J. B. Forgan, President, Federal Advisory Council, Chicago, 111. c/o First National Bank," Mr, Forgan stated that he had asked the members of the Coun cil to individually prepare in writing reports on topics Nos, 1 and 2, as they relate to conditions in their individual districts, to be read at this meeting and later to the Federal Reserve Board and then filed with the Board. The following are the statements prepared by the members on Topics Nos, 1 (the Reserve Situation) and 2 (the Discount Policy) : FEDERAL RESERVE DISTRICT NO* 1, Mr. D, G , Wing. "TOPIC NO. 1, There has been no material change in reserve conditions in District No, 1* The Boston banks show a considerable excess of reserves at the present time, some $ 2 7 , 0 0 0 , 0 0 0 , and of this amount nearly $ 2 4 , 0 0 0 , 0 0 0 is excess in New York. There is practically no change in ths country bank situation. The New England banks are borrowing only a small amount from the Reserve Bank, and a comparatively small amount from their Reserve agents. I think, however, that they are gradually increas ing their holdings in foreign loans and similar securities. Page 4 . S ep t* l b , Kj&AKVX UlS?hJCT .*G. 1. fcr. U >. -ing. 1^16• C ont. (Cont.) "TOPIC MO* 2. The ft®serve bank ai®count rate® ere about right at the present tine and I se® no n®ed of any change in the near futur®. In th® prevent condition of th® mon®y market change® in the R®s®rve Bank rat® vould hav® very littl® ®ffect one way or the other. Business in thie district continue!* very activ® and at gradually increasing prices.” KED&KAL HKSLKVK DISTRICT NO. 2. U r * J. P. Morgan. "TOPIC NO. 1. In general, th® banks in the Second District have not very large amount of excess reserve, certain of the larger banks in Nsw York City holding practically the entir® excess reserve of the District, though this excess reserve can, of course be arcade avail able, as and when necessary, by the shifting of loaj 9 f r o a one bank to another. In view of the very large amount of out of town bank deposits in N e w York at present, the total excels reserve is not more than is needed to car® for th® situation should the out-of-town banks withdraw a substantial amount of their deposits,. In opinion, however, this phase of the situation is thoroughly understood ana the bfinks in general are taking very great care to keep themselves in such a liquid condition that, should their deposits be withdrawn, they would be able to meet all requirements. **I understand that a thorough stuay of the reserve situation is bein^; undertaken both by the Federal Keserve agents and by the Governors of the federal Reserve Banks, with a view to having complete data on hand for Congress to study and decide what, if any, changes should be made in the present existing laws in view of the t'^ct th“t, after November, 1917,no deposits in Reserve or Central Reserve Cities can be counted a? roserve by any bnnk in the system* It is certainly specially desirable that this stucty should be made and completed as soon as possible, as it is important that if any changes iij reserve requirements should be made, they should be made before the final transfer of all reserves to the Federal Reserve Banks. nny my "TOPIC NO. 2. Th© policy at present in force appears to me to call for no change, except that 1 should recommend that the 10-day rate be changed to 15-Uays, in order to most advantageously meet the new authority to iseiaber bonks to bsrrow upon their own notes upon eligible pap®r for periods not exceeding lb days. t n- <\aL. .KKVh blSTHJC'i tfO. 3. t*r. I*. L. Rue. "TOPIC MO. 1. Reserve conditions in District No. 3 are about normal. Rates for m o n e y remain conparatively low, the current r^te for time collateral loans a n d commercial paper being 3 to Surplus reserves of clearing house b a n k s in Philadelphia ere now about 32 millions of dollars, which i n d i c a t e s that there is no pressure for money. Page 5. SPET. 18, 1916. Coot. FEDERAL R3SERVE DISTRICT NO. 3 . Mr. L. L. Rue (C o n t.) 'TOPIC NO. 2. e have no suggestions to make as to change indiscount rates, and certainly would not undertake to name rates for the coming months. tates must be made from time to time to meet conditions as they prevail. Very few of the member banks of this district are rediscounting at this time, the total amount being less than half a million dollars. The investment operations of the Federal Reserve Bank of Philadelphia are made up largely of purchases in the open market." FEDERAL RESERVE DISTRICT NO* 4. fcr. tf. 5. Rowe. "TOPIC NO. 1. The conditions in district No. 4 are about normal. The member banks are using their credit with the Federal Reserve Bonk very lightly and the country banks are discounting but little paper with their city correspondents. There is less than the usual manufacturing and mercantile demand for credit in the District. "TOPIC NO* 2 Federal Reserve Bank rates for rediscounts are in accord with present conditions* tfe have no suggestion to make on.future rates, believing that they will be governed by the demand. General business in the District is active and is expanding.** FEDERAL RESERVE DISTRICT NO* 5. Mr. J. «. Norwood. "TOPIC NO. 1. It is the opinion of the management of the Federal Reserve Bank of Richmond that reserve conditions in the Fifth District are entirely satisfactory, and stronger than could have been foreseen two months ago. Reserve conditions in the country at large seem favorable. "TOPIC NO. 2. There appears to be no reason to change the discount policy of the past, and rates should be watched closely with a view to dis couraging speculation and expansion. FEDERAL RESERVE DISTRICT !JO. 6. I'r. Charles A* Lyerly. "TOPIC NO* 1. Reserve conditione are above normal, that is, banks have excess reservee. Their balances with correspondente are large; of course their balances with the Federal Reserve Banks are simply to meet the re quirements of the law, for they get no interest on balances. "TOPIC NO. 2. The change of the law, allov/ing direct loans to the member banks at a preferential rate and the present commodity rate, with member bunks’ domestic acceptances which can be bought in the open market,will bring about the adjustment in rates desired. The plethora of gold will not permit of increase of rate. Page 6 . Sept, 18, 1916. FEDERAL RESERVE DISTRICT NO. 7. Coat. U r . James B. Forgan. "TOPIC NO, 1. Between Dec. 31, 1914, and June 30, 1916, the net deposits of all th© national banks in the country have been increased by the enor mous sum of $2,033,000,000 or 3 0 % . During the same period their loan* and discounts have increased $1,331,000,000, or 2 1 % and their bone in vestments other than government bonds have increased over 4400,000,000, or about 40^. During the same period their reserve requireu increased $316 ,630,000 or 33^, while their total reserve increased #568,143,000 or over 3 7 % , Of the total legal reserve of the national banks,however, #842,390,000 is still in the hands of their approved reserve agents while their total excess reserves is ^801,243,000, so that #41,147,000 more than the total of their excess legal reserves is still in the hands of their approved reserve agents. After Nov. 16, 1917 when legal re serve balances can no longer be kept with present approved reserve agents and only balances in the Federal reserve banks and cash in vaults will count as legal reserve the present excess will suddenly disappear and the statements of the member banks in regard to their le^al reserves will make a very different showing. By that time it may be anticipated that peace will prevail in Europe, At all events when peace does again prevail there will likely be keen international com petition for gold and we will not doubt lose a considerable pert of the accumulation we heve gained during the war. It therefore behooves the Federal reserve banks to cooperate with their member banks in maintaining strong cash reserves especially gold reserves and to keep the banks in a liquid condition. The most notable feature in connection with the condition of the legal reserves in District No. Seven is that the percentage of the legal reserves of the national banks in Chicago has now been reduced to practically the new minimum required under the Federal Reserve Act, It shows a reduction between *.?ay 1st and June 30th of this year from 20.76^ to 16.34^, or 2.42;£* Twelve of the largest banks, members of the Chicago Clearing House (six of them national and six state) showed combined legal cash reservee of only 16/. in their last published statements of June 30, 1916, against 18.4^ a year ago. The excess reserves held by all the national banks in 3istriot ilo. Seven, outside of Chicago, amount to *616,000, *89,351,000 of their legal reserve are still in the form of balances with approved reserve agents. )10,735,000 more than their total excess of legal reserves is therefore still in this form. After Nov. 16, 1917, these balances will no longer count as legal reserve and the condition of the banks of the district in regard to their le^al reserves will present a very different aspect. Th® banks should therefore run strong in actual ecsh reserves or in their balances with the Federal Reserve Bank to provide against con tingencies that may arise when peace a^ain prevails in Europe. Sept. 18, 1916. KjCWSKAL ;iKSiiKYS DISTRICT NO. 7. Lr. James B. Forgan, (Cont.) "TOPIC HQ. 2. So far as can be seen at present there is nothing pending in the Seventh District calling for any change in the federal Re serve bantfs rates. Its present rates for short maturitiee are in accord with the current market rates for money while for the longer maturities they have been slightly above the rates charged by the Chicago banks when rediscounting for country banks* Comparatively little rediscounting has been done in the District and so far very little use has been made of the low rates offered for short maturities. The reserves of the member banks in Chicago, as shown by their last published statenents, being practically down to their limit, it is not improbable that as the Fall season advancee and the movement of money becomes more active there may be an increased demand for rediscounts on the Feaeral Reserve Bank of the District, but unles« the demand «hould prove to be much greater than can at present be anticipated there will be no occasion for any change in the discount rates during the balance of this year.” FEDERAL RiSSKTWK DISTRICT NO. 8. Mr. 0. Watts. "TOPIC NO. 1. The Reserve held by the member banks in District No. 8 are probably normal when based on present conditions. The Legal reserves (Lawful money and Federal Reserve Balances) in St. Louis are probably as low as should bo in view of the crop movement now under way. The banks have adjusted their position to the new reserve requirements and though actual reserves are lower than held at the season prior to the establishment of the Reserve Banks they probably have a greater amount of liquid paper available for rediOcount than ever before. Tho surplus in St. Louis of legal reserve (which excludes bank balances) is approximately three million dollars. Reliance is mainly, in the maturing "bought paper” and the extent to which such short time paper can be mode available. It is probable that New York and Chicago balances are not materially above the normal requirements of trade. "TOPIC NO. 2. There seems to be nothing in the situation to cause any change in the discount rates of the federal itoserve Bank of St. Louis. The bank has recently discounted its 10 day rate and has established a 15 day rate of 3% (subject to the approval of tho F.R. Board) to apply alike to rediscounts and to loans made on collateral under the recent amendment to the law.” Pago 8 . Sept. 18, 1*16. FEDERAL RESSKVE DISTRICT NO. 9. "TOPIC NO. 1. Reserve condition* in Dietrict Uo. 9 indicate a better demand for money and an expanding business. The loans of the larger city bonks are at high rates mark - even bet ore the heavy crop movement had com menced. It is possible that with the very high price of all kinas of grain and the necessity for the prompt movement to terminal markets on account of the very poor quality those banks may be forced to use the Federal Reserve Leak facilities. ‘ This situation, however, would pass by the first of the year, as by that time the grain will hove been very largely marketed. The smnll crops of all kina? of grain will undoubtedly affect commercial collections; also bring about a decline in commercial and bank deposit*. This situation may bring a stiffening of money rotes, and befere the next crop season the demands of the Federal Heserve Bank be quite urgent - the policy of the Reserve Bank should be conservative - loans should be clo-iely watched and rates moved up when any signs of expansion beyon3xbat is conservative begins to show. "TOPIC NO. 2. The discount policy of the Federal Reserve Bank of the 9th district should be maintained as it is now, so far as the rates are con cerned, but they should keep close track of their borrowing customers, and watch their reserve situation, and see that their loans are seasonable, and are liquidated at such times as their loans should naturally run off. The l o w rates of the Federal Heserve bnnk, and the ability to get high rate* from their customers, sometimes leads small banks to increase their loans beyond the conservative point. This should be watched closely by the Federal Heserve bank of ourdistrict 8.nd rates increased when evidence shows that banks are borrowing rather than liquidating their loans." FiiJSKAL itfSBilVB DISTRICT NO* 10. Kr. £. F. f>winn*y. Vor'IC ^0, 1. On account of the enormous income derived from the continuous increase in output of oil at a semmingly high price and the influx of capital being invested in purchase of lands and royalties fof Mii.ee*, tog e t h e r with the price* obtained for farm producte of all kinds end the large demand for surplu* working stock has given the farmer independence ia fiat,ice* nnri hn* increased the deposits of the country bank ahic in turn increases those in reserve city to such on extent - both the small as well as the larger institutions - cannot keep their funds employed in such securities and at 9uch rates as they would feel justified in placing them* As a consequence reserves are high and 1 do not see any prospect of them being reduced to any great extent soon. Page 9 . FEDERAL RKSBRVB DISTRICT NO. 10. Sept. 18, 1916. Vr. E. F. Swinney (Cont.) Cont. HT0PIC NO* 2. With an era of more or less inflation I do not think it vise to lover the rate of interest, thereby giving insitutions inclined to expand an outlet for cheap funds which might cause unhealthy ex pansion* H FEDERAL RE5SRVE DISTRICT -JO. 11. fcr. T. J. Record "TOPIC NO. 1. I beg to advise that the reserves of the banks throughout the Eleventh District with narrow exceptions are good. That the satisfactory prices prevailing for farm products, especially cotton, is causing an active market, with the result that banks' receivables are being reduced and reserves increased. "TOPIC NO. 2. The Dallas Bank fixed the rate of discount on 15 day paper at 3^;’* I have no change to suggest for their present rates. I will mention, however, that trade paper is very little known in the Eleventh District as evidenced by the nominal amount now held by the Dallas bonk, and 1 would recommend that an abnormally low rate be continued on this class of paper for the special purpose of encouraging its use." FEDKRAL RKSERVE DISTRICT NO. 12. ir. Herbert Fleishhacker. "TOPIC NOS. 1 and 2. There is no reason to consider the change in discount rates in District No. 12 at this time. The reserves are stronger at present than have ever been maintained in the past. In many of the larger institutions in San Francisco, Los Angeles, Portland and Seattle the reserves are running from thirty to forty per cent. The smaller country banks are relatively in the same condition. This is the first year in probably ten years that the coast country banks have not been borrowers to any extent to take care of the growing dicidious and citrus fruit as well as the grain crops.” Pag* 10. Sep t. IB, 1916. Cont. The remaining to p ic s were then considered inform ally by the Council. On motion of U r » Swinney, seconded by Jsr. Watts, the executive Com mittee was requested, after the Council members had informally expressed their views on the topics submitted, to prepare a report to be made to the Federal Heserve Board, said report to be submitted to the Council for its approval at an adjourned meeting to be held at 10 o'clock tomorrow forenooc In connection with Topic 8o. 4, U r . Sing suggested that a committee of the Council be appointed to confer with the Federal Reserve Board, or a committee thereof, on the subject of regulations to be issued by the Board when member banks make applications to be permitted to organize corpora tions to do business in foreign countries and to own stock in such cor porations. fcr. Rue moved thata committee of three be appointed by the President for this purpose, i’otion duly seconded and unanimously carried. At 1 o'clock the Council adjourned until 2 P. L. At 2 P. «. the Federal Advisory Council restored its session, all members being present. The informal consideration of the topics was again taken up and con cluded. Er. Forgan moved that the Council make the following recommendation to the Federal Reserve Board: HThe operation of the new Federal reserve bank collection system has shown that th* general use of the statement now being stamped on bank checks reading *"Collectible at par through the Federal Reserve Bank o f ,**' is misleading to th* public and results in confusion and considerable fric tion between the member banks and their customers. Such checks being subject to the Federal reserve bank's handling charge and in many cases to a ch«rg* mad* by the banks receiving them based on the handling charges plus interest for the deferred availability of the funds during the process of collection through the Federal reserv* bank they cannot be said to be ’"collectible at par*'* under the present system, .^e woulu therefore recommend thet the words "*at par"* be stricken out and that the only statement permissible on checks collectible through the Federal reserve banks should be "'collectible through the Federal He«e rve Bank o f «w * The motion was seconded by Lr. Jaffray and unanimously carried. I,r. Forgan suggested that the Federal Reserve Board's attention should again be drawn to the Council's recommendation of Feb. 15, 1916 to the effect that the Federal Reserve Act should be amended so n s to permit member banks more latitude i n connection with the issuing of commercial letters of credit and travelers checks. After some discussion further eonsiueration of this m a t t e r was, on motion of r. V/ing, postponed until the next meeting of the Federal Advisory Council, f,'r. iue suggested t ha t enlarged authority should also be g r a n t e d to member banks to rediscount documentary b i l l s or foreign bills of e x c h a n g e . Ur. Hecord moved, seconded by f r. Lorgan, that k r . Rue be r e q u e s t e d t o d r a f t a n a m e n d m e n t to the Federal Reserve /vet covering his s uFRASER g g e s t i o n t a d s u b m i t i t t o t h e n e x t meeting of the Council, k r . Forgan Digitized for http://fraser.stlouisfed.org/ w a s a l s o r e q u e s t e d to p r e p a r e a n a m e n d m e n t covering the point raised by him. Federal Reserve Bank of St. Louis i' age 1 1 . Sept. 1 8 , 1916. Cont. The President read a le t t e r from Governor Harding as follow s: "September 18, 1916. "fcr. James 3. Forgan, President, Federal Advisory Council, Washington, D C tty dear Sir:- "The Federal Reserve Board would appreciate an informal expression of opinion from the Federal Advisory Council as to the propriety of a director of a Federal Reserve Bank retaining his directorship after his removal from the District for which he had been chosen. "In one of the districts a Class B director, whose term will expire on December 31, 1917, removed to a city located outside of his district, which city, by the way, is itself a Federal Reserve City, about April 1st of the present year* The Board was advised of the removal by the Federal Reserve Agent, but was informed that the director would probably tender his resignation in due course. It now develops that he does not wish to resign but that he contemplates serving out the remainder of the term for which he was elected. "Several letters have been received from member banks of the district from which he was chosen, stating that in their opinion they should have the right to choose a director from their own district and asking What the Board can do in the matter. HA letter received fromttedirector in question indicates some dis position to be guided by the wishes of the Board, but is not altogether de finite. "The Board is entirely clear in its opinion as to the action it should take but as this may establish a precedent, it would, as above stated, like to have an informal expression of opinion from the Council as to the general policy that should be adopted in cases where a director having re moved from his district actually rsfuses to resign. Very truly yours, (Signed) W P G Harding, Governor." It was decided that the President should inform the Federal Re serve Board informally that the Federal Advisory Council is of opinion that a director of a Federal reserve bank should not continue to serve as a dir ector after he has removed from the district for which he was elected or appointed. On motion of kir. Watts the Council adjourned until Tuesday, September 19th, at 10 A. k. Page 1. Executive Committee September 18, 1916* telNUTES OF NESTING OF THE SXECUTIVE COMMITTEE OF 7!US FEDERAL ADVISORY COUNCIL. A meeting of the Executive Committee of the Federal Advisory Council was held in the New Willard Hotel, Washington, D.C,, at 2 P. L • Present. Lr. Forgan, f.'r. Rue, *r. >ing, k r , Vorgea and kr. Howe, and Merritt H. Grim, Secretary. The Committee proceeded to prepare a report to be made to t h e Federal Reserve Board on the topics it had suggested and finally agreed to submit the following to the Council at its meeting to be h e l d at 10 o'clock tomorrow forenoon. Page 1 A. fixooutive CorxrJLttee. Sept. 10, 1216 TOPIC NO. 3. VAULT llKSEHVt-S OK li^BER HA'JKS IN FKEKftAL RBS25RVB BAMKS. (a) tfhat use should be made of the permission granted member banks under the Federal d e s e r v e Act, as amended, to carry vault reserve money in Federal Reservs Bank*? Ana. T h e permission granted meaner banks under the Federal Reserve Act, as a m e n d e d , to curry vault reserve n o n e j in Federal Reserve Banks is a l l right theoretically and some u?e can be mude of it. The member banks, especially those in the larger cities, will, r e believe, aim to keep w i t h the Federal Reserve Banks such portion of their legal reserves as t h e > conveniently can. Until, however, the State banks jointhe system and daily clearing house balances can be settled by checks on the Federal Reserve Banks, the member bonks, especially in the larger cities, must keep a sufficient supply of cash on hand for settlement of clearing house balances as well as for counter use. This will necessitate their keeping on hand not only that portion of their legal reserves which the law has heretofore required them to carry in their vaults but l. con s i d e r a b l e p o r t i o n of that which the ia* h a s ^ade optional. Moreover, fo r the g e n e r a l strength of the cash reserves of the communities it is not desirable that too great a proportion of the g o l u reserves of the m e m b e r b a n k s should bt k e p t i n ona reservoir. During the past decaae t h i s h a s b e e n considered a weakness in the reserve situation of the London b a n k s » h i c h the chartered banks there have been endeavoring to c o r r e c t by k e e p i n g more of their g o l d r e s e r v e s i n t h e i r own v a u l t s and l e s s '*ith t h e Bank of L’ngland. (b) Suggestions «s to h o w t h i s provision of t h e la? may be m a d e effeetive? Ans. it o u l d h e l p to m a k e th i s p r o v i s i o n of t h e l a w e f f e c t i v e if the m e m b e r b a n k s c o u l d fee l s u r e t h a t t h e y c o u l d at all t i m e s r e c e i v e from t h e f e d e r a l R e s e r v e B w n k s g o l d and c u r r e n c y i n t h e d e n o m i n a t i o n s r e q u i r e d a n d if th e F e d e r a l R e s e r v e B a n k s c o u l d a r r a n g e w i t h t h e T r e a s u r y D e p a r t m e n t to k e e p on h a n d a s u f f i c i e n t s u p p l y of c u r r e n c y for tha t p u r p o s e . It w o u l d a i d t h e F e d e r a l R e s e r v e B a n k s in u n i n t a i n i n g su c h a s u p p l y of c u r r e n c y if t h e ferred to functions of the Jnited states sub-treasury were trans them . (c) H o w c a n the us e of t h e 1 5 - d a y s e c u r e d notes of member b a n k s for the p u r p o s e of s e t t l i n g or m a i n t a i n i n g b a l a n c e s w i t h t h e i r F e d e r a l Reserve Bunks be developed! Ans. T h e n e w priviic. _.e /.ranted the mer.ber b a n k s of b o r r o w i n g on t h e i r p r o m i s s o r y n o t e s fo r a p e r i o d n o t e x c e e d i n g f i f t e e n da ys s e c u r e d oy c o m m e r c i a l p a p e r or b y U n i t e d f-tates b o n d s or n o i e s is a v a l u a b l e one a nd w i l l be d e v e l o p e d as a n a w h e n t he m e m b e r b a n k s h a v e o c c a s i o n to m a k e use of it. T h e o n l y s u g g e s t i o n ne h a v e to m a k e is t h s t the d i s c o u n t rate o n s u c h s h o r t l o a n s s h o u l d be the s a m e as t h a t f i x e d f o r r e d i s c o u n t ing c o m m e r c i a l paper maturing within t e n days. Page 2. K xecu tive Committee. S ep t* 1 8 | 1 9 1 6 Cont# TOPIC MO, 4 . STOCK OWHJBR3JUF BY MEJLBtiR BANKS IN BANKING COHJ>UHA'HQNS TV BS ORGANIZED FOR CONDUCTING FOREIGN Bt/SItfJBSS. Suggested r e g u la tio n s to be is su e d by th e Board in con n ection w ith th e recen t sraendirent o f th e Federal Reserve A ct. Ans. Foreign banking is a comparatively war proposition to the bankers of this country• It seercs to us that the formulation of regulations in regard to the conditions under which national banks may invest in the stock of corporations organized for the purpose of doing international or foreign b a n k i n g cannot be intelligently undertaken until applications from banks desiring to avail thesselves of the privilege have been received. These applications will in dicate w h e r e it is proposed to locate such insitutione, in what territory thsy propose to operate, the nature of the business they propose to do and what powers they '/ill want to exercise. The law do63 not see;*! to indicate that the Federal Heserve Board should take the initiative in the organisation of foreign banking corporations. Banks interested in international business will doubtless attend to this. When such action is taken it will have to be in cooperation with the Federal Heserve Board whose sanction and approval oust be secured. As the negotiations proceed the necessary terns add conditions will develop and the Board will then be able intelligently to formulate and prescribe regulations governing and controlling the business proposed*. It would seem to us to be impractical to undertake to do this in advance. The Board might let it be known that it is prepared to take up with eligible banks or their r e p r e s e n t a t i v e s the organiza t i o n by them of banks or corporations to do international or foreign bankin^ such as is contemplated in the amendments to the Federal Heserve Act approved September 7, 1916, and that it will oe prepared to formulate its regulations in connection therewith as soon as it is fully informed as to the territory in which such banks propose to operate and the nature of the business they propose to do. The Council has authorized its President to appoint froj- its members a Committee of three to confer on this subject with the federal Keserve Board or a committee thereof when the Board so desires. \ Pago 3. S©pt. 18, 1916. Coat. Executive Committee. TOPIC HO* 5. CHECK CLEAR ING AND COLLECTION. (a) Should charges by the federal Reserve bonks on member bonks be mad© per item or per thousand dollars of checks collected! Ans. As the Federal Reserve banks do not convert the checks they collect into immediately available funds the practice which has been established of making a per item charge to cover cost of handling seems to us to be more nearly correct in principle them it would be to make a charge per thousend on the amount collected. (b) Should Federal reserve banks be required to receive for immedistt© credit (funds to be irsneaiately available) checks drawn on member banks maintuining excess balances: In other words, abrogate the tic© allow ance now in force against such checks! Axis. understand that in operating the recently abandoned voluntary collection system involving immediate debit and credit it was found to oe impractical for member banks, especially those in the reserve cities, to maintain the necessary balances with the Federal reserve banks in excess of their legal reserve requirements for the purpose of protecting the un knowable amount of the checks on them coming into the hands of th© Federal reserve banks and that the system proved unsatisfactory because of this and of the involuntary encroachments on tho legal reserve balances of the member banks which frequently occured. If under the very limited operation of th© so called voluntary collection system member banks were unable to maintain their reserves in the Federal reserve banks they could hardly b© expected to do so with the increased volume of items on them which these banks expect to receive under their no^ collection system. $/© are therefore of opinion that the federal reserve banks should not b© required to received for immediate creuit (funds to be immediately available) checks drawn on member banks maintaining excess balances, thus abrogating the time allowance now in force against such checks. At all events we think the present system of deferred credits should be tried cut on its merits before even a partial return to the forir.tr system i3 considered* (c) Shoulu the Federal Reserve Board, at this time, proceed to regulate charges to be made against deposits of out-of-to^n checks with member banks, such checks being collected through federal Reserve Bank©! Ans. If the ambiguous language of Section 16 of the Federal Reserve Act, reading MThe federal Reserve Board shall, by rule, fix the charges to b© collected by the member banks from "its** patrons whose checks are cleared through the Federal reserve banks and the charge which may be imposed for the service of clearing or collection rendered by the federal Reserve banks,” is to be construed as moaning that the Board can regulate the charge© made b y meziiber banks against customers for out-of-town checks deposited which are collected through the Federal Reserve bank, it would appear to be t h e duty of the Board to undertake the regulation of such charges* If the Board will base its r e g u l a t i o n on t h e principle Pag# 4. Executive Committee. Sept* 18, 1916. TOPIC Me. 5. (c) CHECK CLKARING AND COLLECTION (Continued). Continued. which we understand it hae already recognised as fair and equitaule, vi*., that the mecber bank® are entitled to charge their cu*tomer* the cort of handling such items plus interest at a reasonable rate for the period of the deferred availability of the funds on items collected through the Federal Reserve Banks, we are of the opinion that the member banks would be materially helped in their relations to the public if the Federal Reserve Board should formulate « regulation on that basis and would be pleased to have it do so. (d) If mediate availability in Federal reserve cities of bank drafts drawn by a member bank upon the Federal Reserve Bank of its own district, and steps which should be taken to protect the Federal Reserve Bank cashing such drafts, as well as the endorsers. (Suggested plan: Immediate advice to Federal Reserve Jfrank upon which draft is drawn, with instructions to charge to account of drawing bonk. Advice by the drawee Federal Reserve Bonk to the Federal Reserve ra.ik requested to cash such drafts. (Settlement by Gold Settlement Fund or by means of accounts kept for exchange purposes.) Ans. We would regard s»s impractical for domestic exchange purposes the general use of drafts dra'vn by member banks upon the Federal Reserve Bank* of their o?^ district* with the proviso that such drafts be charged by the Federal Reserve Bank to the drawing member iBsnediately on advice of their having been drawn and that the drawee Federal Reserve Bank should sdvi** the Federal Reserve iJunk requested to cash such drafts. The reasons for this opinion are: 1st. The proposed system of double advice would be cumbersome, in convenient and impractical in operation except possibly under some special circumstances. Kxcept in in*tance* where drafts are drawn by member bank* located in Federal Reserve cities, advice would have to be by wire. Otherwise drafts would reach the place of payment at least on© day before the advice sent by the drawee Federal Reserve Bank. 2nd. There being no profit to the issuing banks on such drafts while there would be considerable expense connected with the supplying of the. to the public; we believe that the member banks would only evail themselves of the privileges of issuing them to a very limited extent. 3rd. Unuer the present system the member banks can offset their daily remittances to New York of checks collectible through the New York clearing house against their daily drawing* on New York, which practically make* checks on H*w York immediately available for their use. If the member banks in the larger cities, including the two central reserve citie*, Chicago and St. Louis, should adopt the proposed system of supply ing t h e i r patrons for domestic exchange purposes with draft* on the TOPIC NO. 5* CHECK CLKARIViG AND COLLECTION (d) Page 5. Executive Committee. Sept. 18, 1916 (Continued) Cont. Federal Reserve Banks of their districts, instead of draft* on I^ew jfork as at present, and were they required simultaneously with drawing such drafts to furnish the Federal Reserve Bank with funds to pay them, it would be necessary that the Rftsbtr banks should have the privilege of depositing with the Federal Reserve Banks at par free of the service charge and for immediate availability the checks on New York which they receive on deposit from their patrons, otherwise there would be two days' deferred availability on the Hew York items thus deposited, while all their drafts drawn on the Federal Reserve Banks for domestic exchange purposes would have to be covered with immediately available funds. To a very considerable extent the member banks through the country can similarly offset their daily remittances to their corre spondents at the two other central reserve cities, Chicago and St Louis, against their aaily drawings on these cities, and to a lesser extent the same legitimate practice exists in connection with the accounts of country banks with their correspondents in the reserve cities. 4th. The profit to rrember banks (which is an important item to them) other than the commission they may charge on drafts issued for exchange purposes, is derived from the interest earned on the balances against which they are drawn during the time they are outstanding. As the Federal Reserve Banks pay no interest they are not in a position to compete and we do not think they should undertake to compete with their member banks at the large financial centers for this legitimate branch of t h e banking business. In practice the member banks must k e e p b a l a n c e s with their correspondents for exchange purposes in ex c e s s of t h e i r legal reserve requirements. The balances maintained f o r s u c h p u r p o s e s , especially in the case of the banks in the larger c e n t e r s o u t s i d e of Mew York, usually equal and sometimes exceed t h e a m o u n t of t h e i r legal reserve requirements. ?*'hen all reserve b a l a n c e s h a v e been transferred to the Federal Reserve Banks and the member b a n k s cease to receive interest on them, more than ever will there be good reason why they should earn a profit on the large bal ances they must maintain for use in the domestic exchange branch of their business over and above the interest paid them on such bal ances. T h e principle of a reasonable remuneration being paid for s u p p l y i n g t h e public with drafts for use i n domestic remittances is r e c o g n i z e d b y t h e Government in i t s schedule of charges for Post O f f i c e m o n e y o r d e r s and should not be d e n i e d the b a n k s doing the same b u s i n e s s at a n e q u a l r a t i o o f expense. Page 6. Executive Committee Sept. 18, 1016 T O P I C NO . 6. V/HA7 STEPS SHOULD BE TAKEN TO F U R T H E R T HE ENTRANCE O F S T A T E BATIKS INTO THE F ED ER A L RESERVE SYSTEM? Ans. w h i le S t a t e banks are sl o w to join the Federal Rese rv e s y s t e m there are i n d i c a t i o n s that their i nt er es t in it is increasing. As t h e t e r m s u p o n w h i c h t he y r.ay ente r the ayst em have b e e n ma de as r e a s o n a b l e and at tr a c t i v e as possi bl e we k n o w of n o th in g that c a n be done t o h a s t e n t h e i r a c t i o n b ey on d the edu ca ti on al propa ga nd a now beiri£, c a r r i e d on. They will p r o b a b l y g r a d ua ll y join the s y s t e m as it s u s e f u l n e s s is do: onstrated. MINUTES OF MEETING OF TH7-: FEDERAL ADVISORY COUNCIL SEPT. 19, 1916. An a d j o u r n e d m e e t i n g of th e F ed e r a l Ad vi s o r y C ou nc il was hela in the f e d e r a l H e s e r v e B o a r d room, Sept. 19, 1916, at 10 A. f. Pr es en t; 6Bs?• M r. ?t!.r S *»* ar. kr. hr. far. ‘ M r. „Hr. kr. Mr* kr. M r. J.. G. 'ding, J. P. Morgan, L. L. Rue, . S. Rove, J. , . Norwood, C h a r l e s A. Lyerly, James B. Forgrn, f* 0. ;/8ttS, C. T. Jeffrey, E. F. Swinney, T. J. Record, He rbe r t FI ei shh ac k© r , e rr ii t H. Grim, Se cretary. I t * F o r g a n i n f o r m e d the m e m b e r s that he had arranged a joint meeting ■with t h e Federal H e s e r v e B oa rd at 11 A. ‘ . pared iVr. r o r g a n stated that the E x e c u t i v e C o m mi tt ee had me t and pre a t e n t a t i v e repo rt w h i c h he p ro ce ed ed to read to t-.o Council. The f o l l o w i n g is t h e r e p o r t as ascended by the Council. TOPIC NO. 3. - VAULT RESERVES OK UEwBiiR BANKS IN FEDERAL RESERVE BAriKS. (a). what use should be made of the permission granted member banks under the Federal Reserve Act, as amended, to carry vault reserve money in Federal Reserve Banks! Ans. The permission granted member banks under the Federal Reserve Act, as amended, to carry vault reserve money in Federal Reserve Banks all right theoretically and some use cun be made of it. The member banks, especially those in the larger cities, will, we believe, aim to keep with the Federal Reserve Banks such portion of their legal re serves as they conveniently can. Until, however, the State banks join the system and daily clearing house balances can be settled by checks on the Federal Reserve Banks, the member banks, especially in the larger cities, must keep a sufficient supply of cash on hand for settlement of clearing house balances as ;fell as for counter use. This will necessitate their keeping on hand not only that portion of their legal reserves which the law has heretofore required them xo carry in their vaults but a considerable portion of that which the law has made optional. (b). Suggestions as to ho;: this provision made effective. of the la may be Ana. It would help to make this provision of the law effective if the member banks could feel sure that they could at all times receive from the Federal Reserve Banks gold and currency in the denominations re quired and if the Federal Reserve Banks could arrange with the Treasury department to keep on hand a sufficient supply of currency for that purpoee. It would aid the Federal Reserve Banks in maintaining such a supply of currency if the functions of the United States sub-treasury •ere trtin^ferred to them. (c) How can the use of the 15-day, secured notes of member banks, for the purpose of settling or maintaining balances with their Federal Reserve Banks be developed! Ane. The ne^ privilege granted the member banks of borrowing on their promissory notes for a period not exceeding fifteen days secured by comnercial paper* or by United States bonds or notes is a valuable one and will be developed as and when the member banks have occasion to make use of it. The only suggestion we have to make is that the rate on such short loans should be the some as that fixed for rediscount ing commercial paper maturing within 10 days. Page 2. Sept. 19, 1916. T.;-IC :I0. 4. STOCK CMNannilXP BY ^Ei/.BKR EAHKS IN BANKING QGRPGtlATIOKft tc r,« oinxnzvv foa cwiDucnNO ponsicti busimiss. S u ^ e s t e d r eg ul a t i o n s to be issued by the Board in connection with the recent a r e n &n en t of the F e de ra l Reserve Act. An s. Fo rc \c/' b a n k in g is a compara ti ve ly new p r o p os it io n to the buyers f this country. It seeus to us t ha t the formulation of r« 1 “ .ions ir r e co rd to the con di ti on s under vhioh national banks inve- in the stack of corpor- tions orge-lized for the purpose o" o'l’ . i t e m a t l o n a l or foreign banking cannot be i ntelligently undertaken until applications frou banks aesirin^ to avail theaselvss of t v privilege hrvo been received. These applications m i l indi .to -he rc it is proposed to locate such i n s t i t u t i o n s , in what territory they propose to operate, the nature of the busi ne ss they propose to jo ;nd whet powers the;, v il l .ant to exercise. The lav dees nc-t ?ccr; to indicate that the Federal R es e rv e Board should take the initiative in the organization of foreign banking corporation®. Banks interested in international business vill d oubtless attend to this, ./he;: such action is taken it ivill have to be in coope ra ti on with the Federal Reserve 2-oard whose sanction and approval must be secured. A* the negotiations p r o c e e d the n e c e s s a r y terras and co nd it io ns will develop and the board -will then be able i n t e l l i g e n t l y to formulate and prescribe regulations governing anu controlling the business proposed. It would s ee m to us to be impractical to undertake tc no this in advance. The Eoard might let it be k n o w n that it is prepared to take up /ith eligible banks or their representatives tVie organiza tion by thCL- of b a n k s or corporations to do international or foreign b an ki ng such as is c o n t e m p l a t e d in the amendments to the Federal Reser ve Act a p p r o v e c C e p t e m b e r 7, 1S16, and t h a t it will be prepared to formu la te its r e g u l a t i o n s i n c o n n e c t i o n therewith as soon as it is fully i n f o r m e d a« to the t e r r i t o r y in -vhich such banks propose to o perate and the n a t u r e of the b u s i n e s s they propose to do. T h e C o u n c i l has a u t h o r i z e d its President to appoint from its Berbers a C o n r i t t e e of t h r e e to c o n f e r on this subject w i t h the Federal R es e r v e Board or a dcsaa&ttee thereof w h e a the Board so desiree. Page 3 . S ep t, 1 9 , 19X6 TGF1C H O . 5. CHSCK CLEARING AND COLLECTION. (a) Should charges by the Federal Heserve banks on member banks be made per item or per thousand dollars of checks collected! Ans* As the federal Reserve banks do not convert the checks they collect into immediately available funds the practice which has been established of making e per item charge to cover cost of handling seems to us to be more nearly correct in principle than it would be to make a charge per thousand on the amount collected. (b) Should Federal Reserve banks be required to receive for immediate credit (funds to be imr.edin.tely available) checks drawn on member banks maintaining excess balances: In other words, abrogate the time allow ance now i n force against such checks? Ans* *e under stand that in operating thA recently abandoned voluntary collection system involving immediate debit and credit it was found to be impractical for member banks, especially those in the reserve cities, to maintain the necessary balances with th e Federal reserve banks in excess of their legal reserve requirements for the purpose of protecting the un knowable amount of the checks on them coning into the hands of the Federal reserve bonks a n d t h a t t h e s y s t e m p r o v e d unsatisfactory because of this and ofthe involuntary encroachments o n th e legal r e s e r v e balances of the member banks w h i c h frequently,occured. If u n d e r t h e very limited operation of the voluntary collection system m e m b e r b a n k s w e r e unable to maintain their reserves in t h e F e d e r a l r e s e r v e batiks t h e y c o u l d h a r d l y be e x p e c t e d to do so w i t h the i n c r e a s e d v o l u m e of i t e m s on t h e m w h i c h t h e s e b a n k s expect to receive u n d e r their new c o l l e c t i o n s y s t e m * #e are therefore of opinion that the F e d e r a l reserve banks s h o u l d n o t be r e q u i r e d to r e c e i v e for i m m e d i a t e credit ( f u n d s to be i m m e d i a t e l y a v a i l a b l e ) c h e c k s d r a m on m e m b e r oanks main taining e x c e s s b a l a n c e s , thus a b r o g a t i n g the t i m e a l l o w a n c e n g v in force against s u c h c h e c k s . At all e v e n t s w e t h i n k t he p r e s e n t s y s t e m of deferred credits should be tried out on its merits b e f o r e e v e n a partial return to the f o r m e r s y s t e m is c o n s i d e r e d * (c) S h o u l d the F e d e r a l ?.eserve Doa ru , at thi s time, p r o c e e u to r e g u l a t e c h a r g e s t o be made a g a i n s t d e p o s i t s of o u t - o f - t o ^ n c h e c k s w i t h :.ember banks, such c h e c k s being collected t h r o u g h Federal R e s e r v e banks? Ans* If th e a m b i g u o u s l a n g u a g e of S e c t i o n 16 of the Federal R e s e r v e Act, reading "The F e d e r a l B e s e r v e B o a r d shall, by rule, fix the c m r g e s to be collected by the member banks f r o m ’its** pa t r o n s w h o s e c h e c k s are c l e a r e d through the Federal Reserve banks and the charge which may be i m p o s e d for the service of clearing or collection rendered by the Federal reserve banks," is to be construed as meaning that the B o a r d can regulato the charges made by member b a n k s a g a i n s t customers for out-oftown cheeks deposited which are collected through the Federal Reservo batik, it would a p p e a r to be the duty of the rioard to undertake the regulation of such char; es* If the b o a r d jrill base its regulation of the principle Page 4. 3ept. 19, 1916. TOPIC NO. 5. (c) CHKCK CLSABING AMD COLLECTION. Cont. w h i c h we u n d e r s t a n d it has already recognised us fair and equitable, vi*.t tha t t h e member banks arc enti tl eu to charge thei r customer* the coat of h a n d l i n g such i t e m s plu s inter es t at a reasonable rate for the period of t he d e f e r r e d a v a i l a b i l i t y of the funds on items collected through the F e d e r a l d e s e r v e Ban ks , we are of the opinion that the member banks would be m a t e r i a l l y h e l p e d in t h e i r r elations to the public if the fede ra l R e s e r v e B o a r d sboulo formulrte n re gulation on that basis* (d) launediate a v a i l a b i l i t y in Fe de r a l reserve cities of banks urafts d r a w n b y a ir.o^ber b a n k upon the Federal Reserve bank of its own district, an d s t e p s w h i c h should be taken to protect the Feaer&l Reserve dank c a s h i n g such drafts, as w e l l as the endorsers. ( S u g g e s t e d rian: I mm ed ia te aotvice to F eueral Reserve Bank u p o n w h i c h d r af t is drawn, w it h i n s tr uc ti o ns to charge to account of d r a w i n g bank. A d vi ce by the drawee F ed er al R es e r v e bau«c to the rederal R e s e r v e Bank r e q u e s t e d tc c?.sh such drafts. ( S e t t l e m e n t by G o l d S e t t l e m e n t F u n d or by m e an s of accounts k ep t fo r e x c h a n g e pur po se s. ) Ans. We v o u l d r e g a r d as i m p r a c t i c a l for domes ti c e xchange purposes the g e n e r a l a so of d r a f t s dr^rwn by m e m b e r banks u p o n the Fed er al R e se rv e banks of t h e i r ow n d i s t r i c t s w i t h the p roviso that such drafts be charged by the F e u e r a l R e s e r v e Bonk to the drawing m e m b e r i m m e d i a t e l y on advice of their h a v i n g b e e n d r a w n *nd t h a t t he drawee F ederal Reserve Bank should advise the F e d e r a l R e s e r v e Rank r e q u e s t e d to cash s uc h drafts. Th e r e a s o n s for thin o p i n i o n are: 1st * i’he p r o p o s e d s y s t e m of double advice w o u l d be cumbersome, in c o n v e n i e n t a n d i m p r a c t i c a l in o p e r a t i o n except possibly unu cr some special circumstances. Except in i n s t a n c e s w h e r e d r a f t s are d r a w n by m e m b e r banks l o c a t e d i n F e d e r a l R e s e r v e cities, advice w o u l d havs to be by wire. O t h e r w i s e d r i f t s w o u l d reac h the plac e of p a y m e n t at least one day b e f o r e the a d v i c e s en t by the d ra we e Fede ra l R es er ve B a n k . 2nd* T h e r e be ing no profit to the i s su in g b a n k s on such drafts w h i l e t h e r e w o u l d be c o n s i d e r a b l e e x p e n s e c o n n e c t e d w i t h the s up p l y i n g of t h e m to the p u b l i c ; we b e l i e v e that the m e m b e r banks ’^ould only avail t h e m s e l v e s of the p r i v i l e g e of i s s u i n g the:, to <•-. very limited extent. 3rd. U n u e r t h e p r e s e n t s y s t e m the m e m b e r b a n k s can o f fs et t h e i r d a i l y i e m i t t a n c e s to M e w York of ch e c k s c o l l e c t i b l e t h r o u g h the U e w Y o t k . c l e a r i n g h o u s e a g a i n s t t h e i r daily dr a w i n g s on ,ie./ York, which p r a c t i c a l l y m a k e s c h c c k s on M e w Y or k i m m e d i a t e l y a va il ab le for t h e i r use. If the m e m b e r b a n k 3 i n t h e l a r g e r cities, i n c l u d i n g the two central r e s e r v e c it ie s, C h i c a g o an d ?t L ou is , s h o u l d adopt the p r o p o n e d s y s t e m of supp ly i n g t h e i r p a t r o n s for dor^estic e x c h r m g e pu rp os e s w i t h drafts on the Pag* 5. Sept. 19, 1916. TCFIC NO. 5. (d) CLKCK CLSARIHG A'W COLLECTION (continued; Cont. Federal H eserve Bank? of their district*, instead o f drafts on .New York as at p r e s e n t , and were they required simultaneously with drawing such ugafts to furnish the Federal Reserve Bank with funds to pay thera, ij^would n e c e s s a r y that the member banks should have the privilege of d e p o s i t i n g w i t h the Federal Reserve Banks at par free of the service charge and for immediate availability the checks on & e w Y o r k which t h e y receive on deposit from their patrons, otherwise there would be two days' deferred availability on the N ew Y o r k items, thus deposited, while all their drafts drawn on the Federal Heserve Banks for domestic exchange purposes would have to be covered with irs ediately available funds. To a very considerable extent the member banks through the country can similarly offset their daily remittances to their corre spondents at the two other central reserve cities, Chicago and St. Louis, against their daily drawings on these cities, and to a lesser extent the sarie legitimate practice exists in connection with the accounts of country bonks with their correspondents in the reserve cities. 4th. The profit to member banks (which is a n important item to then) other than the commission they may charge on draft? issued for exchange purposes, is derived from the interest earned on the balances a g a i n s t ,/hich they are drawn during the time they are outstanding. As the federal Reserve Banks pay no interest they are not in a position to compete and we do not think they should undertake to compete with their m e m b e r banks at the large financial centers for this legitimate branch of the banking business. In practice the member banks must keep balances withtheir correspondents for exchange purposes in ex cess of their le^al reserve requirements. The balances maintained for such purposes, especially in the case of the banks in the larger centers outside of New York, usually equal aad sometimes exceed the amount of their legal reserve requirements. W hen all reserve balances have been transferred to the federal Heserve b a n k s a n d the member banks cease to receive interest on them, more than ever will there be r;ood reason why they should earn a profit on the large bal ances they must maintain for use in the domestic exchange b r a n c h o t their business over and above the interest paid them on such bal ances. The principle of a reasonable remuneration being paid for supplying the public with drafts for use in domestic remittances is recognized by the Government in its schedule of charges for Post Office money orders and should not be denied the banks doing a similar business. Page 6. Sept. IS, ,1916 TOPIC NO. 6. /HAT STEPS SHOULD HE TAKEN TO F U R T H E R THE 2NTRANCE OF 3TAT C B A N K S I N T O T H E F EDERAL R E SE RV E SYSTEM? Ans» W h i l e " H a t e b a n k s are **low to join the Federal R eserve system t h e r e are i n d i c a t i o n s that t h e i r i n t e r e s t in it is increasing. As t h e t e r m s u p o n w h i c h t h e y m a y e n t e r the system have be e n made as r e a s o n a b l e n n d a t t r a c t i v e as p os si bl e we k n o w of n o t h i n g that can be done t o h a s t e n their a ct i o n be y o n d the educa ti on al p ro p a g a n d a now b e i n g c a r r i e d on. T h e y will pr ob a b l y g r a d u a l l y join the system as i t s u s e f u l n e s s i s demonstrated. I n c o n n e c t i o n w i t h the subje ct (d) of V o pi c 5, hr. i. J. record a s k e d t h a t he be a l l o w e d to s u b m i t to the Fe d e r a l Reserve B o ar d a m i n o r i t y r e po rt on t hi s subject. H i s r e q u e s t was granted. Ur. Recor d a c c o r d i n g l y r e a d hi s statem en t, as follows: ” *e t h i n k t h e u s e f u l n e s s of the F e d e r a l Reserve S y s t e m w o u l d oe e x t e n d e d if d r a f t s d r a w n by m e m b e r ban ks a ga in st funds to t h ei r credit in the F e d e r a l Reservir Bank of t h e i r District we r e mad e ac ceptable and i m m e d i a t e l y a v a i l a b l e up o n p r e s e n t a t i o n at any other F e d e r a l R es e r v e Lank. *nd ’ve a p n r o v e t he p ur p o s e of the F e d e r a l R es er ve B o a r d in s e e k i n g to make such a v a i l a b i l i t y e f f e c t i v e and we h e r e b y tende r to the F e d e r a l Reserve Board our c o o p e r a t i o n to the e xt en t that the President of this Council will be p l e a s e d to ap po i n t a c o m m i t t e e at the r e qu es t of th e Federal R e s e r v e B o a r d to c o n s i d e r with t h e m plan s and details of procedure.” On notion of Vr. Rue, seconded by Ur. ‘atts, the final report as above written wa« approved, &r. Record voting in the negative as to Subject (d), Topic 5. Lr, Lyerly moved a vote of thanks to the Executive Committee for its work in proparing the report. Motion unanimously carried. The Council adjourned at 10:50 pending the arrival of the Federal Reserve Board. Page 7. Sept. 19, 1916. . 1.. ' 01’ JOINT LSOT.'iO OK THIS F SL& KA L Ri.SERVk i>OAHl> AHu i'.vi«i#KAL v^Vl CoiJUClL. September 1 9 , ;1916. A joint s e s s i o n of the fed er al Reserve P o e r d arid the Federal A d v i s o r y Co un c i l uas held es arrang ed in the Hoard root, nt 11 A. k . , S e p t e m b e r 19, 1916. P re se n t : G o v e r n o r ■ P J truing, presiding, Yi cc -S ov er no r P.P. "rbur-7 , : c**«rs* • C. il’l e r , J. S. «llliams, rind Sherr.an P. Allen, A s s i s t a n t S e c r e t a r y of the i cuer-d He serve Board; and f r. L. G. './ing, J. r. i.or;T:i, ’ . I.. Hue, .. . i'.o.ve, J. . Norwood, Charles A. I.yarly, J & a es d* /or,;®, f* u* atts, G. Jaf t’rny, E. F. Spinney, T J Record, H e r b e r t F l e i s h h n c k e r , a n c . erri tt H. Grim, Secretary, of the Federal ■idvi«sor-. Counc il . C o v r-or H a r d i n g ca l l e d the m e e t i n g to order and asked Hr. to r e p o r t on b e h a l f of the F e d e r a l Ad vi s o r y Council. “’organ I r . Forma n re'u to the m e e t i n g the report of the Council on T o p i c s ’'Jos. 3, 4, 5, 6 s u b m i t t e d by ths Federal Reserve i-oard, t o gether iith the a d d i t i o n a l r e c o m m e n d a t i o n adopted by the Council. Ir. R e c o r d ^.lso read his r e p o r t on subject (d) Topic 5.(Sec r i nu tc s of icsetin^ of F e d e r a l advisory C o un ci l of Sept. 19th for there r e p o r t s .} Th e scii-oers of the C o u n c i l then r«a u to the n e s t i n g their i n d i v i d u a l r e p o r t s on Topic** l«os. 1 and £, c o n c e r n i n g the reserve s it ua tion tv>- d i s c o u n t p o lic y in t h e i r various districts. ( For these r ep or ts see m i n u t e s of m e e t i n g of the Council of S e p t e m b e r 13th.) . r. r or..* n t h m i n f o r m a l l y r ep or te d to the Fe de ra l Reserve B o ar d the C o u n c i l ' s o p i n i o n th a t Fede ra l reserve bank d i r e c t o r s should not c o n tinu e in office a f t e r th e y h av e r e m o v e d fron the di st r i c t for w h i c h they w e r e e l e c t e d or a p p o in te d. G o v e r n o r H a r d i n g s t a t e d t ha t the Feder al R e s e r v e Board w o u l d be very glad, w h e n th e m a t t e r cor.ee befo re them, to have thei r speci al corx.ittee c o n f e r w i t h the corjriitee of the I-ederal A d v i s o r y C o un ci l on th e subject of r e g u l a t i o n s in c o n n e c t i o n ’rith b a n k s o wn in g stock in c o r p o r a t i o n s o r g an i s e d t o do a f or ei gn b a n k i n g busine ss . A f t e r Siiftiti tii o s p e n t in g en e r a l d i s c u s s i o n on the v a r i o u s topics, p a r t i c i p a t e d in by the m e m b e r s of the F e d e r a l Re s e r v e B o a r d ?-nd the F e d e r a l A d v i s o r y C o u n c i l the c e e t i n g t . d j o u m e d at 1 2 : 4 5 A. h. Secretary.
@FedFRASER