Full text of Report to the Reserve Bank Organization Committee
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Confidential
No. 4B
REPORT
TO THE
Reserve Bank Organization
Committee
BY THE
Preliminary Committee on
Organization
H. Parker Willis, Chairman
Edmund D. Fisher
Joseph A. Broderick
Andrew A. Benton
Ralph Dawson
O. Howard Wolfe
Stephen H. Farnham
The Reserve Bank Organization
Committee, Washington, D. C.
Nr::w YORK, June 1.
GENTLEMEN;
The undersigned, after careful Investlgation, beg leave to submit
the following report upon the nature and treatment of the vaJ:loulI
problems arising in eonneetion with the org'anizatlon of the new
banking system provIded for under the Federal Reserve Act of
December 23, 1913, the same being In accol'danee with the instructions conveyed by you through the Comptroller of the Currency,
Ron, ,Tohn Skelton WlIIlams,
In preparing the report herewith transmitted, spedal assignments for individual study and Inquiry weref,'om time to time made,
the effort being to secure the best work that could be done by
each member of the gTOUp engaged upon this Investigation. Cooperation between these individuals llas, however, been obtained
throughout, and every portion of the work, when completed has
been submitted to and revised by each of those whose names are
hereto appended. At meetings held tOI' that purpose, there hM
been genel·al discussion of the m€thods to be pursued and of the
conclUsions properly to be reached In each of the several divisions
of the report. The document Is, therefore, preseuted as the joint
opinion of those whose slguatures are appended to it, and has the
approval of each and all of them.
In addition to the work thus done, some material has been
obtained from outside sources, under careful supervision and direction. The portions of the material thus derived are in{Jjcated In
the document itself, and their authorship Is duly stated,
SpeC'ial acknowledgment is made to Mr. Max May, of the Guaranty Trust Co. of New York City, for advice and sugS"estions
fronl the boeglnning" of the work; as well as to Mr. Ralph Van· Ve('hten, of the Continental and Commercial National Bank of Chicago,
fo!" recommendations on certain special topics; and to Messrs.
Harry E. Ward and C, C, Robinson of the Irving National Bank of
New York City for Important work on the accounting sections of
this report.
Thanks are likewise g'enerally expressed to other
bankers and experts for courtesies and aid at various points in the
course of the inquiry,
Thus prepared and submitted, the recommoendations of the
report are offered as embodying a general scheme of ol·ganizatlon
for the new system which it Is believed wlll result in carrying out
the spirit and purposes of the Federal Reserve Act.
SCOPE OF REPORT.
Before proceeding to detailed discussion, It is deemed well to
enumerate the various speCific items of investigation sug'gested by
3
a careful analytical survey of the Federal Reserve Act.
line survey may be presented as follows:
(l)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(0)
(11)
( 12)
(13)
(14)
( 15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25 )
(26)
(27)
(28)
(29)
(30)
This out-
DISTRICT MAP.
FORM 01" DESIGNATION OF CITIES AND DISTRICTS.
SUBSCRIPTION BLANKS.
SHAREHOLDERS' RECORDS (AMOUNT SUBSCRIBED
and AMOUNT PAID IN).
RULES and REGULATIONS GOVERNING the TRANSFER of STOCK.
BY-LAWS (FEDERAL RESERVE BOARD-FEDERAL
RESEH.VE BANK).
BY-LAWS (BRANCHES).
RULES and REGULATIONS for BRANCHES.
CERTIFICATE SHOWING DIS'l'RICT LIMITS.
APPLICATION BLANK FOR MEMBER BANKS.
CERTlI<'ICATE OF ORGANIZATION.
AUTHORIZATION OF COMPTROLLER OF CURRENCY
TO OPEN HESERVE BANK.
CERTIFICATE OF ELECTION OF "ELECTOR."
LISTS 01" ELECTORS.
NOMINATING BALLQTS-RULgS AND REGULATIONS.
LISTS OF NOMINEES (WITH COLUMNS }o'OR 1. 2. 3.
4, 5, CHOICES).
BOOKS }O~OR FEDERAL RESERVE AGENT.
SCHEDULE FOR COMPENSATION-ALL CLASSES.
CLASSIl"IED LlS1' OF FEDEHAL RESERVE BANK
DIRECTORS (WITH THEIR TERMS).
CERTIFICATE OF COMPTROLLER O}o~ CURRENCY
SHOWING REDUCTION OF' CAPITAL.
DIVIDEND RECORD (SHOWING SEGREGATION OF
EAH.NINGS AFTER DIVIDEND PAYMENTS) and
DISPOSITION of SURPLUS.
ARTICLES OF ASSOCIATION. OrganiZation Certificate.
CERTIFICATE 01" COMPTROLLER TO CONVERTED
BANKS.
HULES and REGULATIONS re SUBSCRIPTIONS of
STATE INSTITUTIONS.
BY-LAWS (governing conduct In IWting upon applications
of State Banks, Banking Associations and Trust Companies).
OATH OF OFFICE-MEMBERS FEDERAL RESERVE
BOARD.
STATEMENT OF LEVY FOR EXPENSES.
GENERAL ANALYSIS OF ANNUAL OPERATIONS AS
BASIS FOR REPORTS. Dependent upon Plan for Statistical Department.
PLAN OF ORGANIZATION FOR FEDERAL RESERVE
BOARD.
PLAN FOR EXAMINATION OF FEDERAL RESERVE
BANKS. Regulations Regarding Statements and Re4
ports. Weekly Statement of Condition of Federal Reserve Banks. Consolidated Statements.
(31 ) RULES and REGULATIONS re ISSUE AND RETIREMENT OF FEDERAL RESERVE NOTES and DELIVERY to and CUSTODY by FEDERAL RESERVE
AGENT.
(32) CONTROL OF BONDS OF FEDERAL RESERVE AGENTS.
(33) REGULATIONS FOR INTERNAL MANAGEMENT OF
BANK'S BUSINESS.
(34) REGULATIONS GOVERNING
FEDERAL
ADVISORY
COUNCIL.
(3&) GENERAL BANKING PLAN Including Certificate of Organization, Minutes. By-laws, Stockholders' Records,
Statements and Reports, General Ledger, Record of
Rates-in classes (s. d. Sec 14), Tellers, Credit Department, CoUection Department, Issue Department. Loans and Disconnts (Schedule of Maturities)
Investments-Data (Schedule of Maturities SupportIng Business, (Kind), Bookkeeping, Audit, Open
Market Record, Statistics, Reserve ...... Contlnulng
Record of Elements of-With Percentage, Vault Control, Foreign and Domestic Exchange, Circulation,
Record of Note Series and Collateral, Record of
Notes of Other Banks, Continuing Record of Deposits with u. S. Treasury (16), Continuing Recor<.l
of U, S. Bond Accounts.
(36) REGULATIONS GOVERNING PURCHASES,
(37) FORM OF NOTE, Determination of Letter and Serial
NUMBER.
(38) REGULATIONS GOVERNING TRANSFER OF I<'UNDS
AND CHARGES.
(39) GENERAL CLEARING PLAN.
(40) APPLICATIONS and REGULATIONS GOVERNING ESTABLISHMENT OF FOREIGN BRANCHES.
Some of the f-oregolng items-for example, numbers 2, 9. 11, 13.
and others in the above llst-will best be studied in the offiee of
the Comptroller of the Currency, because of their predominantly
legal or administrative nature. Those which are considereu g·ermane to the present inquiry have been dealt with in this report.
It hM been deemed wise In preparing this report for transmis.
sIon to (Ilvldfl It Into two distinct parts as follows:
Part I, Dealing with the work of the reserve bank organization committee and the process of organizing the new banking
system up to the time that the Feoeral reserve bank directors are
named and the Federal Reserve Board appointed.
Part II. Dealing with the subsequent organization and operation of the new system, the relations between the Federal Reserve
Board and the several banks, and the inner workings of the banI,s
themselves.
Part I.
The first part of the discussion thus outlined may itself be
divided into two portions as follOws:
1. A discussion of the process of dlstrlcting the country for the
establishment of reserve banks.
2. A discussion of the process of providing for the election of
directors of the several reserve banks, the payment of subscriptions
to stock, and the general conditions under which banks may be
admitted into the system.
I.-DISTRICTING THE COUNTRY.
We may first deal with the question of dlstrictlng the country
for the establishment of the new hanks, In this discussion ('-areful
examination has been made of the hearings before the Reserve
Bank Organization Committee during its tour of the country and
of many of the briefs filed with it by the respective IJiaces that
were candidates for designation as Nserve bank cities.
CLASSES OF EVIDENCE.
Available data relating to dlstrictlng Illay be generally divided
into the following classes:
(a) That relating to the ImportancH, capital, business, and
future prospects of thH various placHs n·presented.
(b) That relating to the clearings and flnanclal transactions
of the various places, nnd their relation to other cltles with reference to banking accounts and reserves carried in other banks.
(c) That relating to the habits and customs of the surrounding communitiHs in reg·nrd to applications for loans and in regard
to the dislrlhution of their business betwE,en different cities under
the present banking systHrn.
(d) 'I'hat relating to railway facllItle.;,. Urnes of communkation, and delivery of mall.
(e) 'I'hat relating to the eapitaUzation of the banks of the section, state and national, the amount of their depOsits and of
thell· reserves.
CHARACTgR AND VOLUME OF LOCAL BUSINESS.
Relatively little attention neM be paid to the evidence with
regard to thH cha,.~ter and volume of local business, or with reference to the rapid development of such tnwH and lndustry in the
past or its probable future.
Under the existing banking System competition alln the g·eneral course of trade have mapped
out distinct channels within which funds are transferred, and
have dHtermlned the dlstrihution of banking capital upon known
lines.
There i.,> nothing in the new act to alter tllls distribution ('e.'tninly for the present, and there Is no reason to believH
that the main features of business, its distribution, and its Character will he mate.'ially altered In the near 'utUl·e.
'l'hey wlll
continue about n,e same under thH proposed system as they are
to-day.
The chiHf dif'l:erence that will be gradually developed
1\
will be found in the fact that those who have prime commercial
paper to dlspoae of will be able to market it in local reserve centres
instead of relying upon distant flnandal centres. But Inaamuch as
the ('apital and reserves of the new banks are to be determined as a
percentage of existing bank capital, the reaerve banks represent a
function, to speak mathematically, of existing banks. They ~'an
not do more for the given section In which they are situated
than their capital, contributed by existing banks, wlll allow,
A
certain limitation may of course be placed upon thia statem<lnt in
that some stock may be sold to the public at the discretion of
the Org'anizatlon Committee, This, however, will he a limited, and
douhtless, exceptional, resonrce, aod the conS<lquence must h<l
that in order to enlarge the resources of a reserve bank It would
be necessary to develop those of existing member banks.
Th1s
will be done as the wealth of th<l various centers develops. There
Is, therefore, no dh'cd or Immediate relationship between the
proposed reserve bank and the bnslness concerns of a given district which is not expressed in the capitalization of the hanks
of that district,
QUESTION OF CLEARINGS,
In like manner, it may be said that the question of clearings
is not one that Is vitally essential to the locating of the new
hanks.
Mnch of th<l testimony addnced has to do with the relative amount of clearing's at giVen places. On the other hand, it
has been freqnently pointed out by witnellses that large volumes
of trade are not expressed in ci<larings. Th<l r<lason why the
clearings need not be primarily considered as throwing light upon
the suitability of a given point as the location of a reserve bank
Is found in the facts that, (a) under the existing system of banking tile clearings are affected by many extranilOUs featUres which
will disappear under th<l new system; (b) the precise amoun t
of the clearings varl<ls as between different cities aod will
always do so, according to the number and charaeter of
th(> banks and th<l nature of their relations with ooe aoother
and with olltside banks. Clearings are never a very good index
of busln<lss elth<lr as to volum<l, nature, or stnUn on th<l financial resources of the places Where they are effected. There fa
little need. therefore, to examine flgures of cl<larings In seekIng to place the new reserve banks.
In all probability, eHm
the most conscientious study of clearings would be found to
be useless, owing to the complete alteration which will be effect.
ed so soon as th<l new system has been succ<lSSfully put Into
operation and has had time to produce Its r<lsuits in changing
the direction of remittances and in altering modes of payment.
CAPITALIZATION,
Again, the hare facts as to tbe capitaliZation of the banks and
trust companies of a given city or region are of only secondary
importance In determining the location of reserve banks.
The
law specifies that no reserve bank shall be created with a smaller
7
capitalization than $4,000,000 and it is, therefore, necessary to
obtain In every district an aggregate of banking capital which
sllall bear the proper relation to this minimum amonnt on the (;
per cent. basis Indicated In the law,
For reasons which will
be later stated, it is not believed that anything Is gained by
attempting to take in an unduly large amount of banking capital
in any given district.
Assuming these premises,--<:>ne based
on legislative provisions, the other upon general reasoning-the
question how great or how effective Is the capitalization of eXistIng banking facilities In any particular place Is not fundamentally
important.
The district reSHve bank, if operated 11pon pubUcspirited lines, will be managed in such a way as to serve in an
equitable manner the various needs of the district, and will 00
managed by directors who presumably represent the whole district, just as the reserve bank system will presumably be operated in the interests of the country a.s a whole and without
effort to serve the Interests of one particular section or group
of persons, It may be said, therefore, that since the capitalization
of the whole district wlll be available in Its due proportion for
the Ul:!es of the district in all of its varied parts, the development of a portion of this capitalization at a given point has
no fundamental bearing upon the placing· of the reserve bank at
that point.
Stili less is this trne in vl"w of the provisions for
the creation of branch banks.
RAILWAY FACILITIES.
A very different point of view must be taken with respect
to the question of ra.l.lway faclUUes. The Federal reserve bank of
a district must be located somewhere, and the ass11mption naturally is that It will be located In the pla.ce which is most accessible and from whleh it can best serve the community,
other
things being equal, a large city is fav(,red because it is likely
to contain a correspondingly large proportion of the heavy borrowers of a community and to bling th<em consequently close to
the reserve bank where their habits and methods can be easily
inspected. It remains t .. uc, moreover, that the larger places are
usually those where the railway faclUUes are the best.
The Federal reserve bank Is furthermore, called upon to perform the service of clearing for its members, and in order to
effect thiS object successfully it must be within as quick find
easy reach of the member hanks as pradicable. This is fundamentally Important in getting the clearing system into effective
operation, and it Is believed that this dearing system will be
found to be one of the most signiftcant features of the new law,
Moreover, easy communication fOf the purpose of prompt transmission of funds, the shipment of c,urrency in time of necessity
with as little delay as possible and the prompt receipt of deposits,
as well as the affording of immediate means of communication
with other Federal reserve banks, all oietate the selection of
places for the head offices of such banks that are best equipped
8
with means of communication and are able most speedily to receive from and send to their member banks such funds, checks,
drafts and the like as may be required by the course of busine$,'l.
The testimony affords considerable valuable information on this
point.
HABITS OF BORROWING.
It will be worth while to devote attention to the data that
have been developed with respect to the borrowing habits of the
commlmity Inasmuch as these habits undoubtedly will tend to
persist and it is not desirable to break them except where necessary. For example, if it Is shown that a large section of the
surrolmding country Is In the habit of dealing with point A and
of discounting its paper in the banks ot A, that Is a consideration In favor of recog'nlzlng A as the center of the reserve
district which is to include A and the territory adjacent. It Is
also an argument to be considered In that It indicates that A
is already a financial center for that territory with well developed lines of credit outstanding. At the same time, It should
be remembered that under the new act there is nothing whatever to prevent Individuals f"om borrowing olltside of their own
districts or to prevent member banks from rediscounting paper
with other banks in other districts or from selling or buying in
the open market.
They will be able to continue their present
practices in that regard.
Further, the existing hanklng system
has In some cases tended to centralize funds under an artificial
method, and so to build up balances in c<lrtaln points In a way that
they would not naturally have developed. It is, therefor<l, not absolutely essential, or always possible, in laying' out the districts,
to pay heed to the existing practlc<ls on the part of giv<ln banks
In borrowing through or from th<l banks of a SP<lclfied dty.
In some cases, it may b<l neC<lSSal·y to place such /}ot'rowlng
hanks or individuals in a district which will C<lnter at a point
not ll€'retofOl·e regarded as the fina.ncial metropolis of the region.
1t ma} be generally said that tile iJolTowing· habits of the community should h<l ,·<lgtlrd<:d as fnlly as possible, in all cases where
such regal·d does· not run counter to other mor<l forciblc or controlling .wnsi<1erations.
The testlmony throws much valnahle
IJght upon th<ls<l borrowing hahlts, and Is of material assistan('e
In d<lt<lt'minlng th<l limits to be assigned c<lrtain districts.
QUESTION OF A LARGE BANK OR BANKS.
Inspection of th<l records and t<lstlmony filed at th<l various
hearings of the organization committ<le shows that in several
places local bank<lrs advocated th<l <lstabllshment of a very larg<l
bank. This was not In all cas<lS becaus<l of the d<lsir<l for an
extr<lmely high capitalization, but was in not a few, tile outgrowth
of a feeling that th<l city wher<l the hank was to be located was
entiti<ld to a c<lrtain t<lnitory which was regardoo as naturally dep<lnd<lnt upon or ancillary to It. Thus pleas wet'e made fo,· a
bank with It V<lry large c<lpltal or a large t<lrrltory, or both, at
New York City, Chicago and St. Louis. At other plaees reqllestll
for large territories were filed, but In many such cases the re·
quests were due to the converse conslderatlon,-the necessity of
Including a sufficiently large territory to supply the banking
eapital requisite upon the percentage basis prescribed by the act,
to furnish the necessary reserve bank capitali:l:ation. Some analysis may now properly be made of the two points of view thus
offered.
Those who demanded the orga,nlzatiDll of a large bank on the
ground that snch a bank was necessary In order to supply the
necessities of the borrowing community dependent upon such
bank were manifestly in error, inasmuch as they assumed that the
bank In question was to be primarily dependent upon its capitalization for the means of supporting its discounts.
Such is far
from being the case.
'J'he act itself prescribes that the bauks
shall be provided shortly after their organiZation, not only with
paid In capital, but also with very large sums in deposited reserves representing the reserve funds of member banks. These
both can and should be (as they were intended to be) available
for use as reserve bank loaning resources. In addition the government deposits to be made with the hanks will furnish further
means of supporting credits. The capltnj will be simply an extra
or added strength to the banks. It it be '~ontended that the bank of
any given district is not large enough to meet the needs of the
community the criticism really amounts to a statement that the
amount of the reserves required to be deposited is not sufficient.
This difficulty, if it existed, could be ovet'come by the banks which
are jointly stockholders in the reserve t-ank, by simply depositing
more of their funds with the reserve institution. If necessary. It
will have to be corrected by enforcing a reQuirement that a larg'er
pel'cenlnge of reserveS shall be depOSited with the reserve banks.
Merely to extend the area induded within the territory belong.
lng to a reserve bank would not help. because such extension
would simply enlarge the area without enlarging the proportion of
the capitaii'l:atioll of the bank to that of the member banks. In
otheJ' worus, as fast as the area Increw:ed and the capltaJir.ation
with it. just so fast would the all,lount of demand or strain likely to be brought to bear upon the reserve bank be increased or
extended. This menns that no purpose whatever In tbe direction
of strengthening the reserve banks is aUained by enlarging the
area over which they presi<.le, assuming that a sufficient area
has been induded to give them a reasonable degree of capitalization ~t the start,
Se"ondly, the statement that a very large capitalization is nec·
essary in order to Inspire respect either abroad or elsewhere Ignores
not only the fact that the real strength of the banks lies in
their holdings of reserve funds as just set forth. but also ignores
the fact that the reserve system will undoubtedly be viewed as
a unit by foreign countries as well a:, hy domestic interests
There is, therefore, no argument whatever on the side of those
10
who demand tbat an exeeptlonally large banking capital shall
be assigned to some one or more of the new Institutions. 'rhfl
contentions put forward In this connection fall to recognize
Ule \'nitfld character of the system and tbe fact that In case of
necessity the reserve board lIas power to require anyone of the
reserve banks to come to the aid of anyone or more of the
others.
AVERAGE CAPITALIZATION.
An estimate of the probable <capitalization of the l"ederal hanks
as a whole, assuming' that only the national banks enter the
system at the start and that practkally all of them do so, or
(what eomes to the same thing), that enough state banks ente,'
to make up for any withdrawals of national hanks, would give
a total capitalization of about $107,000,000.
The Federal Reserve Act prescribes that the number of banks to be established
shall be not less tban eight or more than twelve.
Tbls means
that thfl average <capitalization of the reserve bani,s sball he not
more than one-eighth of $107,000,000, 01' $13,360,000, and not
less than one-twelfth of $107,000,000, 01'$9,000,000, In round numbers.
There Is nothing In the act to Indicate a deaire or intent on the part of its framers that none of the banks sbould be
materially larger than the others, but on the contrary the aet
has spedfkally left a large latitUde to those engaged In laying
out the eountry into districts in order that they may exercise
thclr best judg'nlent in apportioning the banking capital among
such 'Ustrlets.
It Is, however, obviously trufl that since the fl.<'t
reqllires that no reserve bank shall have a smaller capital than
$4,1)00,1)00, and since the wIlDie tenor of the law and of the
debate on It was against the creation of one overshadowing Institution, the framers of the act did intend that there should be
no marked or extreme disparity between the capitalization of the
several banks.
Inasmuch as the minimum capitalization and
the numher of banks is fixed, it is evident that if eight institutions were to he ",,,tabJished on the \)asls alrendy Indleated, the
ma;xilnlltn sl:o;" whleb could 1)<" given to anyone of them and
yet eOlllply with the law would be $79,000,000, while if twelve
In«tinttions we!'e to be established the maxinlUm size thllS asslg'nahle wouM be $63.001),000.
To these limits the organizers of the
act ('ouM go wlthollt violating the letter of the law. Sueh a
variation In size of tlle banl{s would, however, be a manifest violation of Its spirit. The same Is true of the proposal to establish three or four very large banks made by the hankers at the
hearings, This latter plan In turn repeats the proposal which was
urged during the debates on the bill that there should \)e not
to exceed four reserve institutions. That r,1an was an alternative to the plan of a single central institution and was rejed.ed
in the same way as the central plan.
If the recommendations
of the bankers of New York, Chicago, and St. Louis were to be
accepted, the country would he prfl.<'ticaJly divided up hetween
these centers except in so far as a fringe had to be left to comply
11
with the requirements of tile law.
Worked out in praetice and
harmonized with one another to some extent, the suggestions
of the bankers in these three cities would lead to the estahlishment of eight hunks o~ which three should be vel'Y large and
five small,
If the iivr, were kept down to the minimum capitalization of $4,000,000, thel'e would he .left $87,000,000 for division
between the three centel's, or an average of $29,000,000 as the
capitalization haais for the reserve bank in each place. It Is not
believed that this would be a compliance with the law or that
the bankers In those places submitted any evidence showing that
sueh a capitalization should be assign'ld.
Assuming this reasoning to be accepted, a tlrst approximation
towards a plan for laying out ihe proposed districts can be arrived at as follows:
The larg'est of the reserve banks to be located at the princi.
pal financial centers of the country sllould have a capitalization
whose minimum limits shOUld be in the neighborhood of $9,000,000,
01' less, and whose maximum limit should certainly not exceed
$28.000,000, and shOUld preferably be very much smaller than that
amount,-as much smaller as the convenience and customary
course ot business will permit.
FUNDAMENTAL PRINCIPLES.
The fundamental principles of a p{,sltive nature upon which
the process of districting should be carned out may now be laid
down.
(a) 'I'he act calls for not less than eight 01' more than twelve
districts: it leaves the choice of the number within these limits
entit'ely open and to be deeided without prejudice.
(b) The plaln intent of the framers of the act was to establish a number of ditl'erent and independent institutions, each
sufficiently strong to care for itself without the neceSSity In normal
times of dellendlng' npon any other.
(c) The Institutions to be created "hould, therefore, be reasonahly Similar to one another In siz€', without attempting to
bring ahollt any al'tlflcial Similarity, iLUd should be located at
such points as will most nearly convenience the business of
the country.
(d) The "reation of allY one large bank should be avoided,
meaning by large bank, a bank so prel.ondel'ating in Importance
as to mal{e it Ipso facto the most cottsplcuous and by far tile
strongest element in the system: while at the same time It
shOUld be sought to avoid the creation of two distinct classes
of banks, one consisting of large, powel'ful InstitUtions, the other
consisting of smaller and weaker institutions likely to become
dependent upon the neighboring and stronger banks.
(e) While the law requires that a minimum capital of
$4,000,000 shall be present in each and every reserve district and
while this requirement mltst be observed, there Is no harm in
approaching closely to it or even in going below this limit so far
12
as the banks are concerne{), making up the deficiency by private
or Government subscription, if It be true that within a reason,
ably uear future the district will probably advance In wealth
and capital so as to make th<) <)stablishment of such a bank
desirable.
(f) Special study "hould be giv<)n both In establishing the
districts and in establishing the point in each district where the
headquarters bank Is to be situated, to the facilities and speed of
transportation both hetween such point and those at which
other headquarters hanks ar<) locate{), and ootw<)en sUCh headquarters point and We outlying portions of the district itself.
GENERAL PROBLEM OF DISTRICTING.
A general survey of the country for the purpose of districting
clearly shows that several distinct problems are oJ'[ered In conneetion with the division of the eountry under the Federal Reserve Act.
These problems present distinct phases and vary
from region to region. While It will not be possible in making assignments to proceed in a consecutive way, geograPhically speakIng, in th<) division of the country, it will be w<)\J to l<lt the work
proceed so far as praetieable and convenient by grand divisions or
regions, recognizing the distinet character of the soil, industry, distrihution of population, and transportation systems of the several
portions of the Continent.
A limitation to he imposed upon this general prlnclple of procedure as well as a consideration which will aid In developing
the different distriets is found in the fact that to a certain ('xtent the sites of reserve banks must 00 regarded as practically
predetermined, as In the case of New YOt'k, Chicago, and St. Louis,
the present central res<)rv<) cities. Wherever that is true, for the
reasons already generally set forth III the foregoing analysis, it Is
possible to assign certain territory as d<lflnltely belonging to the
banks to b<) placed in the ciUes afor<)sald. Thereby eerWn definite
limitations neeessarily to be ohserved in connection with the subsequent outlining of the distriCts are laid down.
DIRECTION OF BUSINESS.
In the division to be mapped out eJ'[ort must be made to
]'eeognlze the fact that business at the present time has a northern and easterly trend. In most cases the headquarters of given
districts will 00 so 1000a.ted as to recognize this fact and to give
the fullest possibl<) $('op<) to existing habits and methods, doing
as little violence as possible to prevailing customs and wherev<)r
praeticahle adopting <)xtsting banking relationships as the basis
for the new organh:atlon, particularly In Its c1<)arlng Phases.
At the same time there should b<) no hesitation In making changes
wherever it is h<)lleve{) that the existing banking practice Is purely
artificial and where, therefore, a change will increase conveni<)nce
Instead of diminishing It. Wherever such a clmnge becomes
necessary the effort should be to lay ont the bonndaries of the
district in such a manner that both from the transportation
13
standpoint, as well as from the point of view of business and
manufactming growth the new banking center will develop In
hal"luony with the general commercial interests of the district
where It Is situated.
QUESTION OF RESERVE HOLDINGS.
Before effecting the dlstricting as a finality It would be well
to a&'ortain with accuracy the reserve affiliations of each and every
bank In the system by obtaining from them the facts in the
case M already sug'gested in a memorandum filed with the Organization Committee on January 8, 1\114.
If each bank has
been nsked to indicate its cJlOlce of a di'3h1ct or city with which
to be Msociated these data should he considered in conjunction with the fi,;ures for reserves.
It should be understood, however, that the data, whatever
they may he on this subject will not affect in any very genel'al
manner the outlines of the districts. On the contrary, those
general outlines must be determined by broader considerations and
it may be true In many cases that there would be reasons for
as'3igning a bank to a given district notwithstanding that Its
affiliations wonld place it elsewhere if nothing else were cou-'
sideJ'ed. The single fact that, as is w,,11 known, and as tbe reports of the Comptroiler show, a lal'ge number of banks have
their reserve agents in New York. Chkago or 81. LoUis rather
than in a reserve city near home is due to an artifiCial condition
which hns existed heretofore and is not a circumstance to which
any particular Weight should be assigned in making up the districts under the llew system.
In a less degree and with very
much gre.1.ter limitation, the same may be said of the facts as
to reserve holdings In the smaller reserve cities.
Something needs to be said concerning the general Mslg'nment
of banks to districts In dIfferent parts of the country. A survey wlll
indicate that there must be assigned to the northern and eastern
part of the country an apparently dIsproportionately large number
of districts. In the effort to alter tilis Illan of districting in such a
way as to give to the ".south" or to the "west" a larger number
of districts 011 the ground that there should be a certain sectional eqUality of distribution, the difficulty of Irregular distribution of population and capital wlll Inevitably be encountered.
Only two remedies could be applied In connection therewith; (n)
the placing of the headquarters of given districts in that part
of the country which was supposed to have been slighted-In
those districts Where the territory included Is so great as to occupy parts ot two general sections of the country, 01' (b) to readjust the districts themselves so as to divide up great regions in
a different way and make given parts of the country independent
or self controlling.
Some have suggested that the districts on
the Atlantic Coast be elongated while compensating capital Is
obtained by carrying the extreme southern states such as Mississippi, Alabama and Georgia into a district which shOUld be
14
allowed to run high up the Mississippi River along the eastClrn
bank of that stream, extending over the southern part of what we
have <:alled the Great Lal{es district, While this plan might bCl
feasible, it is not believed that it would be desirable. The Clffect of
it would be to establish too great a. north and south extent of
territory.
The same objection would hold good of any district
embracing the far southern states with the southern portion of
the middle west.
Moreover the districts thus created would be
decidedly inferior in transportation as well as in quick clearing
capacity to those which have been tentatively suggeste<l above.
It would seem that there is but one argument seIiously to be
considered In favor of such a plan-namely the view that any
district estalJlished should, If possible, contain a variety of different Interests whieh will make seasonal demands for loans at different times.
This Is the argilment for SO-called "shoe string"
districts tilat has heen put forward from time to time, or as
others have expressed it, it Is a demand for the Inclusion of a
lending and a borrowing area within eac; district.
QUESTION OF LENDING AND BORROWING AREAS.
As regmus this argument, It should be noted that even if
It be allowed full scope the Idea is one which cannot be fully
worked out throughout the whole process of dlstrictlng. The New
York and Chicago districts for example will almost necessarily
be d<}barr<}d from maldng use of it, while the same Is true of
sundry of the other districts In greater or less degree. This
would not be a good argument against employing the plan so far
as practicable If it should be entitled to serious theoretical considerations. The question must be considered, therefore, how far
such &lrlous theoretical consideration may be granted to it. Under
existing ('ondltlons tbe Idea is one which undoubtedly should have
large weight, Inasmnch as to-day the banks of the country are
habitually compelled to shift currency back and fortil, relying
upon one another for seasonal aid througb the redistribution
of their fluid resources. If conditions were to be the same
under the new system as at present It would be ne('essary to
provide for this state of things.
However, the very essence of
the new plan is intended to meet the condition which In the past
has caused ehler trouble by eliminating this necessity of Interdependence between districts. The Federal Reserve Act will presumably afford a means of making eacb dlstrtct self-supporting in
a credit way so that assuming the plan to work as It ls expected
to work the need for mutual seasonal aid and shipments of
currency will be mlnimi2;ed.
CHOICE OF CHIEF CITIES.
In choosing the chief city of each district-that is to say the
city In which the headquarters bank is to be located-two main
considerations are to be borne in mind:
(a) Existing lJanking relationships and associations.
15
(b) Geographical and transportation considerations, governIng the relative ease of access of different parts of the district,
In some cases it will be found that these two sets of considerations cannot be harmoni7.ed; in others that a city can be selected
that will satisfy both,
Wherever possible the preference 8hould be given to a city
which has acquired a distinct ieadershll> In the matter of busiuess
and with which the banks within the district are in the habit of
dealing. \Vhere tbe chOice between two cities would otherwise
be difficult to make ou account of pra.ctical equality iu the extent and Importance of their commercial relationships, the city
to be chosen should be that which has the advantage In ease of
communication.
This Is fundamentally desirable because of the
necessities of the clearing process and the advantage to be gained
from having" all partli of the district within easy reach of headquarters.
LOCATION OF BRANCHES.
The problem ot branches is likely to be decidedly serious from
the very beginning. It will be f(lUnd upon a close examination
of the subject that the establishment of branches will he practically out of the question so far as any useful purpose Is concerned, unless a distinct territory Is assigned to each branch.
This Involves the question whether a district shall be broken lIP
among a number of branches with the headquarters bani, simply
pl·esiulng over the series, or whether tl. district will be assigned
to the headquarters bank just as it Is ass1gned to each branch.
In either case the problem of subdlstricting each district Is
raised. Some of the testimony already aVailable, obtained during
the hearings before the reserve bank Organization Committee has a
valuahle bearIng upon this subject. At SOme points it would requll·e to be eked out with other information. There Is however,
110 purpose to be served in attempting a very careful process of
subdlstricting until the districts themselves have been organized
so that what is said In tbls dlscnsslon has been confined entirely to
the districts themselves without effort at the detailed study of the
subdistrict q uest\on.
One fnrther point should be carefully noted In this connection.
There are two ways In which the branches may be established.
They may be created either (a) as mere local boards of directors
charged with the duty of passing upon paper and perhaps carrying on a clearing process for tbe subdistrict, but without any
stock of cash, without a banking house and w1thout the power to
make loans directly, merely transmitting the approved paper to
the headquarters bank; or (b) as full-fledged branch banking institutions with a hanklng house and fixtures, a stock of coin,
and a full staff of employees. Care and judgment should
be exercised even In establishing branches on the first named
basis and they shonld not be created unless they are actually
needed for immediate purposes.
Even in the latter event, there
16
should be no undue haste in creating them, but the headquarters
banks should be allowed to g'et a satisfadory start before the
eomplicating' elements involved in branch organization are allowe<:1
to enter into the problem. '1'hel'e will, however, be no harm in
nnnoundng at the time of the distrlcting the probable names of
dtles regarded as suitable sites for bra.nell bankS, leaving the
decisloJl to be revised later If neeessary, and permitting' tlIe
question of branch orga.niultlon to remain in the backgTound until
such time as the actual establishment of the branches is resolved upon, when tIle type of such organization to be adopted
may be Indicated. *
SELECTION 011' DIRECTORS.
The choice of directors for the new hanks Is provided for In
Section 4 of the Federal Iteserve Act, This section contains much
matter relating to the qualifications of directors, methods of
removal, and oth&r topks not germane to the present discussion.
These phases of the matter are therefore prope!"ly omitted from
the present treatment. The portion of Section 4 which is considered to he slgnltleant In the pl'esent connection is as follows:
At a regularly called meeting of the board of directors of eneh member bank In the district It shall elect
by ballot a district reserve elector and shail cel'Ufy his
name to the chairman of the board of directors of the
Federal reserve bank of the district. The chairman
shall make lists of the di"trlct reserve electO!'S thus
named by banI,s in each of the aforesai<'l three groups
and shall transmit one Ii st to each electol' in each
group.
Each member bank shall he pel'mltted to nominate
to the chairman one candidate for director of class
A, and one candidate for director of class B.
The candidates so nominated shall be listed by the
chairman, Indicating by whom nominated, and tl. copy
of said list Shall, within fifteen days after its completion, be furnished by the cbalrman to each eleCtOI·.
Every elel.'tor shall. within tlfteen days aftllr the
receipt of the said list, certify to the chairman his first,
second, and other choices of a director of class A and
class B, respectively, upon a preferential ballot, on a
form furnished by the chairman of the board of directors ot the Federal reserve bank of the district. Each
"The foregoing section of this report, accompanied by a detailed
statistical and geographical analysis indicating the sites for Reserve Banks and the limits of the districts pertaining' thereto. upon
a basis of eight, of nine, of ten, of eleven, and of twelve institutions, was submitted to the Organization Committee early in March,
1914. The Committee having since that date established the districts and indicated the headquarters of the banks, the detailed
analyses are here omitted.
17
elector shall make a cross opposite the name of the
first, second, and other choices for a director of class A
and for a director of class B, but shall not vote more
than one choice for anyone candidate,
Any candidate having a majority of all votes cast
In the column of first choice shall be declared elected,
If no candidate have a majority uf all the vutes In the
first column. then there shall b€, 'added together the
votes cast by the electors for such ('-andldates In the
second column and the votes ('-ast for the several candidates In the first column. If any "andidate tben bave a
majority of the electors voting, by adding together the
first and second choices, he shall be declared elected.
If no candidate have a majolity of electors voting when
the first and second choices shall bave been added, then
the votes cast in tbe third column for other choices
shall be added together In like manner, and the candidate then having tbe highest number of votes shall
be declared elected, An immediate report of election
shall be declared.
Tbe prescriptions of this language unmistakably call for the selection of two and only two directors. one a banker and one a
business man, In each of the three banldng groups; balluts to lJ.e
cast upon a basis of preferential voting wblcb shall result in the
designation of different individuals as firat, second, and third choice
for each place and upon eacb ballot. This being considered so
clear as to be open to no debate it has been deemed best therefore
to present merely a form of ballot designed to comply with the
terms of the act in regard to the choice of directors, In order fuily
to carry out the provisions of the law with respect to the election
of directors there have been drafted a series of forms for use III
balloting for such directors under the terms of the legislation. These
forms have been shaped with a view to fulfilling the requirement,;
of the act In general, and particuJal"iy of tile sections already qUoted
with respect to the methods of indicating choices of directors, The
forms suggested wlll be found In the aecompanying colleQtion of
draft forms herewith presented as an accompaniment to Appendix I.
Upon the election of the directors, unless the work has been
undertaken prior to that time In accordance with the authority
bestowed by ·the act upon the Organl~tton Committee to exercise
the fnnctions of the chairman of the board of directors, the payment of the specified subScriptions to stock will be in order. such
payments to be made In accordance with the provisions of the act
contained in section whereby the dates fo)' the transmission of each
Instalment of the stock payments Is provided for, A fonn of stock
subseription ledger tor the recording of such payments has been
prepared. The chief points In connection with It are seen in the
necessity of providing for the specified percentages of payment, the
18
change in the amount due from any bank as a result of changes In
its capital or surplus or both, and the possibility that two classes
of stock, the one Issuable to member banks only, and in that event
non-transferable, the other issuable to Individuals and assignable
and transferable, may be provided for either at the beginning or
at some time in the future, A separate stocl, subscription ledge!'
is provided for nse In the case of indivldnal subscriptions, it any,
while the ledger Intended for the use of individual banks Is ruled
to perro It of additions to or deductions from stock subscriptions resulting from changes in tbe capital of the several banks neccssitating:
corresponding changes in the amount of the subscription to be
exacted of them. The forms presented herewith In the collection
accompanying Apllendlx I for use In th" ('ecording of stock snbscrlptlons are, beyond the few points already noted, self-explanatory.
There have also been prepared forms for use in receipting for
stock subscriptions. Two such forms are presented, the one intended to be a continuous record which would be transmitted by
the bank making the subscrlption to the body receiving the same,
the amount thereof to be recorded upon the form and the latter
returned to the subscribing bank in the case of each instalment,
while the second form Is scrip Intended for use in place of the con·
tlnuous record already referred to, shonld that method of receipting
he preferred. In case the scrip type receipt shOUld he used, a separate and independent receipt would he transmitted for each instal·
ment. It is believed that the scrip receipt will pl"Qbably be preferable to the continuous record, owing to Its greater convenience.
Part II.
In dealing with the gen<lral qUestion of the organization of the
f<lS<lrV<l syst<lm atter the nec<lssary structure has b<l<ln set up hy
the appOintment of the boards of directors of the Federal reserve
hanks and by the appointment of the Federal Reserve Board itself.
it is deem<ld b<lst to recognize several distinct elements as follows:
1. The organization and management of a typical Federal reserve hank whose operations are supposed to he representative or
and practically uniform with those of every other.
2. The organization of Ihe office of the Federal reserve agent
station<ld at <lach reserve bank, and the duties of such agent.
3. The organization of th<l Federal Heserve Board.
4. The conduct of husiness of Federal reserve banks.
:). The relations between Federal reSHve hanks themselves and
betwe<ln each Federal reserve bank and Its member banks.
6. The relations betwe<ln the Fed<lral reserve system and outside banks.
7. The establishment of branches at home and abroad and the
relations between such branches and th" "parent" hanks to which
they are attached.
1t wlll not be feasible, for reasons of convenience which will
later appear, to discuss these topics strictly in the order In which
they are here present<ld, but <lach of the general ~Iscusslons thus
indicated will he dealt with in thOJ course of the Nport.
A heginnlng will be made by outlining the proposed type of
ol·ganization for a Federal r<lserve ban k. The reasons for the
precise fonn of organization sUggested will become apparent as the
tr<latment proce<lds.
ORGANIZATION OF BANKS.
In dealing with the actual organlzat\0n of the proposed banks
two leading questions are presented:
1. The systematic recording ot their doings, including full provision for accounting and Internal regulation.
2. The offlcerlng ot the several institutions, and the general
relationship between their organization and that of the Federal
Reserve Board.
To some extent these two phases of tt.e subject must be treated
together, but the principal features of each branch of the questiOll
of organization can be independently di~pOsed of. Attention will
first be given to the question of the routine conduct of business III
the institutions.
In organizing the Federal reserve bank in each of tne districts
set apart by the Organization Committee, it will be ncc<lssary first
of all to determine upon th<l general type of organization to be
employed and to formulat<l a specific plan of procedure in accordance therewith. The Federal Reserve act makes no effort to prescribe the details of organization, but leaves them to be settled by
20
the boards of directors, subject to the general requirements of the
methods, and restrictions definitely set forth In the national hanking
act are to be adhered to.
ADMINISTRATION.
It is believed, however, that so far as practicable, the adoption
of a uniform system of organization which shall prevail throughout
the whole system of hanks as nearly as conditions will permit, is
much to be preferred to a plan which would allow the hanks to
adopt a variety of different methods of organization, according to
circumstances. The points which have been deemed, on the whole,
practically essential In connection with the organization are broughl
out in the latter portions of this report in connection with the treatment of branches, accounting, and other subjects, but at this point
it is considered desirable to sketch their main outlines for the sake
of clearness by way of introducing the subject. In general, the
following requirements must, it is thought, be complied with;
(a.) Each Federal reserve bank should have a dlstlnet executive
head not Identical with the Federal reserve agent, even In t.hose
cases where the reserve agent has been selected In a manner entirely satisfactory to the banking community, so that stockholders
would be quite willing to have the agent act as the executive h<lad
of the bank. Of course this implies that In no case should the
president or executive head chosen by the stockholders be designated by the Government as reserve agent. The intent of the act
is distinctly opposed to any such fusion of functions, the ag<lnt
being Intended to be a G<:>vernment repr<ls<lntatlv<l and sp.md his
time In furthering the Interests of the public at larg<l--a position
he could hardly preserve W<lre he to become an active operating
offlcer, anxious to Increase profits and advance given private
Interests.
(b.) Each Federal reserve hank should be ,~refully subdivided
into departm<lnts, each such department representing a definite
allotment of business, the {II visions being· thos<l whiCh corresponoi
with the various types of business set forth by tile Federal Reserve act.
(c.) Each Feoi<lral reserve bank should h<l so organlz<ld as to provide for a proper check upon the op<lrations of th<l member banks
and for a suitable oversight on th<l part of th<l reserve agent..
(d.) Each Federal reserve bank should b<l subject to specified
intel"llal regulations evolved as the result of bank experienc<l, which
will conduce to the efflcient and economical condnct of its affairs,
(e.) Suitable prOvision shall be made in eaeh bank for the bondIng of employees and for an accurate control of their op<lrations,
An organization chart is presented In Portfolio I for the graphic
pl'esentation of this plan.
For the purpose of presenting a connected view of the plan
of organizing the banks, it has been d'lemed be~t to formulate a
tentative set of by-laws for a typical I~ederal reserve bank, such
by-laws to be varied or modified in detail according as specIal requirements on the part of the different Institutions might demand.
These by-laws will be first presented and wlll later be supplemented by a detailed sketch of practicable accounting systems.
BY-LAWS
of
THE FEDERAL RESERVE BANK
of
PREAMBLE.
As provided In its Certlftcate of Organization, dated .......... ,
the name of this bank shall be The Federal Reserve Bank of., ...•
. .. . . . . . . . , and It shall do business In the City ot ........... State
of .....•.... , and serve the territory known as Federal Reserve
District .•...•....•..••....• It was duly authorized to commence
busineSll' by the Comptroller ot the Currency, under date of .......•
ARTICLE I.
Directors.
Section 1. Number and Quorum.-The number of directors
shall be nine. A majority of the directors shall constitute a
quorum.
Section 2. Classes.-The hoard of directors, as provided by law
divided Into three classes--A, B. and C~shall, at Its Initial meeting,
designate one member ot each class whose term ot office shan expire one year after the ftrst day of January nearest the date of
such Initial meeting; In like manner, one whose term shall expire
In two years, and one In three years. Thereafter. the term ot office
of each director shall he three years.
Section 3. Vacancles.-Vacancies shall be ftlled and successors
elected in the manner provided by law.
Section 4. Meetings.-There sball b" a stated meeting of tbe
hoard every ........ at. ....... o·dock A. M .• or, If that day be a
holiday, on the first preceding day not a holiday.
Tbe chairman ot the board shall be empowered to call a special
meeting at any time, or upon the written request of any three
directors, or whenever requested so to do by the president.
Section 5. Powers.-The board of dlr(>ctors shall, Bubject to the
approval of the Federal Reserve Board, fix the compensation and
define the duties (other than those herein provided for) of officers,
clcrks, and employees 01 the bank. It shall duly provide for the
expenses of the Department of Federal Reserve Agent and for the
pro rata amount of expenses of the Federal Reserve Board and
the Federal Advisory CounCil.
Section 6. Order of Buslness.-Tbe following shall be the order
ot business at each regular meeting of the board:
22
1.
Ing.
Reading or inspection of minutes of the last regular meet-
2. Report of the president, Including information concerning
banking and business conditions In the district.
3. Report of the secretary-treasurer, Including detailed summary of all business transacted since last regular meeting and
statement of present condition. the latter to Include:
(a.) Statement of all loans, rediscounts, Investments and
purchases:
(h.) All official correspondence received from Federal
Reserve Board;
(c.) Weekly statement of condition made to Federal Reserve Board;
(d.) Summary of condition of member banks;
(e.) Minutes of meetings of boards of directors of
branches.
4. Committee reports.
5. Unfinished business.
6. Discount policy and formulation of repcI't to Federal Reserve Board on reasons for same.
7. New business.
ARTICLE II.
E~ecutive C(ltlultlttee.
Section 1. How Constituted,-There shall be tul executive committee consisting of the president, the Federal reserve agent, and
one director of class A or B. Such director shall be elected hy the
board to serve for a period not to exceed one month, and his successOl'S shall be chosen in rotation until each member of c1as.~es A
and B shall have served 01' shall have been given an opportunity to
serve. The board shall elect each month an alternate for service
on the executive committee, who shall be authorized to act In the
absence or disability of the member first chosen.
Section 3. Powers-Subject to the rules and regulations of the
meetings upon call of the Chairman and Shall cause to be kept
minutes of all such meetings held by It. which shall be r<lad and
approved by memi)ers of the board at the next succeeding meeting·
of the board.
Section 3, Powers.-Subject to the r..tles and regulations of the
board of directors and of the Federal Reserve Board, the executive
c('mmittee shall have the following powers:
1. To pass upon all commercial paper submitted for diseount.
2. To initiate open market transactions.
3. To recommend to the board of dil'ectors. from time to
time, changes in the discount rates.
4. To buy and sell securltles.
5. To apply and provide for the security ot such Federal reBerve notes as may be necessary for the general requirements of
the bank.
6. To employ derks and other SUbordinates. to define their
duties, and to fix their compensation.
23
ARTICLE Ill.
Officers.
Section 1. The officers to be chosen by the board of directors
shall be a president, a firM and a second vlce-president,- a secretary-treasurer, and such other officers as the board may trom
time to time determine. They shall hold office during the pleasure
of the board. Such officers shall, so far as may be practicable, attend board meetings.
Section 2. Cbairman.-The chairman of the board shall preside
at all meetings thereof. He shall, together with the officers of the
bank, have supervision of all credit records and data concerning
member banks and borrowers which may be compiled from reports
and examinations of such banks. All reports and statements made
to the Federal Reserve Board shall be submitted to the chairman
and shall be countersigned by him as F',deral reserve agent. AU
examinations of member banks made on behalf of the Federal
Reserve Board shan be conducted under his g·eneral direction as
such agent.
Section 3, Deputy Federal Reserve Agent.-ln the absence or
disability of the chairman, as such, or ~,s Federal reserve agent.
his powers shall be exercised and his duties performed by the
deputy Federal reserve agent. Subject to the rules and regulations
of the Federal Reserve Board and the direction of the Federal reserve agent, such deputy shall represent the bank In examinations
of member banks and shall perform snch other duties as may be
assigned to him. In case of the absence or disability of bot.h the
Federal reserve agent and his deputy, the third member of Class C
of the board of directors shall act as chairman and Federal reserve
agent pro tern.
Section 4, The Presldent.-The president shall have general
charge of the bank and shall preside at all meetings of the executive committee, subject, however, to sllch rUles and regulations as
may be Incorporated herein or from tlme to time promulgated by
the board of directors. He shall have power to make any and all
transfers of securities of the bank Which may be authorized to be
sold by the executive committee and shall, jOintly with the secretary-treasurer, slgn all certificates of stock of the bank.
In all cases where the duties of sUbor<1lnate officers and agents
of the bank are not specifically prescribe,j by the by-Iawa or the
board of directors, they shall be the duties specified by and Instructiona of the president. The president may, with or without the
advice of the executive committee, suspend or remove any employee of the bank. subject, however, to a hearing before said committee.
The secretary-treasurer shaH have custody of the seal of the
bank. with power to affix the same to (·ertiftcates of stock and
other instruments, as may from time to time be required.
-The number of vice-presidents will depend upon the size of
the bank and the character of its work.
24
Section 5. The Vice-Presldents.-In case ot the absence or dlsabillty of the president, his powers shall be exerclsed and his
duties discharged by the first vice-president, and. in the absence or
disability of the latter, by the second vice-president. In the event
of the absence or disability of all three, the executive committee
shall, by a majority vote of Its members, appoint a director president pro tern,
Section 6. The Secretary-Treasurer.~The secretary-treasurer·
shall carry out the Instructions of the Board of Directors reS'arding
the custody of all moneys received and paid out on account of
the bank. He shall, jointly with the president, have custody of
all Investments of the hank, He shall keep the minutes of all
board meetings and of all committees of the board.
ARTICLE IV.
Counsel.
Section 1. The board of directors shall, subject to the approval
ot the Federal Reserve Board and upon such terms as It may prescribe, appoint a counsel who shall represent the bank in such
matters as may be assigned to him and shall approve all legal instruments.
ARTICLE V.
Auditor,
Section 1. The board shall appoint an auditor, Who shall be
subject to its direction and to that of the Federal reserve agent
and shall make a weekly report direct to the board of directors of
the Federal reserve bank, giving a full statement of condition based
upon his audit. The auditor shall have charge of the internal
auditing of the bank, the reconciliation of accounts: the periodical
examination of branches, and, In general, the audit of all transactions, expenses, receIpts, and disbursements.
ARTICLE VI.
BOnl/s.
Subject to the rules and regulations of the Federal Reserve
Board, the board of directors shall provide all bonds necessary to
cover officers and clerks of the bank.
ARTICLE VII,
Bran.ches.
All branches established
the manner prescribed for
by-laws, rules, regulations,
time be promulgated by the
by the board shall conduct business in
the main office and pursuant to such
and directions as may from time to
directors and officers of the bank .
• Whether one or two officers, will depend upon the size of
the bank and the character of its work.
25
ARTICLE VIII.
Information.
Section 1. All persons employed by the bank sball keep Invio·
late Its business affairs and concerns, and shall not disclose or
divulge tbe same to any unauthorized person whomsoever. Any
employee who shall give information contrary to this by.law shall
be lIa.b1e to immediate dismissal.
Section 2. The action or policy of the board and of the execu·
Uve committee shall not be expressed by any Individual member,
hut by Its duly constituted officers after formal action by the whole
board.
SOOtion 3. For the Infonnation of member banks and the pub·
lie, there shall be maintained in the office of the secretary·treasurer
a bulletin board, upon which shall apIJear the current rate!! of
discount established by the directors and such other Information
as they may deem it necessary to make public.
ARTICLE IX.
Certificates of Stock.
All certificates of stock shall be signed by the President and
Secretary-Treasurer, and bear the corpomte seal.
ARTICLE X.
Transfers.
No transfer shall be permitted, except upon the surrender of the
outstanding certitlcate of stock or scrip, and no new certificate Shall
be issued until the fonner certificate is cancelled; but the Board
of Directors may authorize the Issue of a duplicate in place of a
lost certificate, taking a satisfactory bond of Indemnity. It shall b",
the duty of the Federal Reserve Agent to reg'lster the stock or serif'
of the bank.
ARTICLE Xl.
Amendments.
These by-laws may be amended at any regUlar meeting of the
board by a majority vote of the entire board: provided, however,
that a copy of auch amendment shall have been delivered to each
member a.t least ten days prior to such meeting.
INTERNAL REGULATIONS.
Besides the general by~laws as thus S.lt forth, It Is bdiev<W. that
the proper conduct of the new banks will cali for a code of rules
of internal regulations.
Probably one of the greatest initial difficulties In opening the
Federal Reserve Banks will be the securing of a competent staff.
The continued efficiency of even a thoroughly competent corps of
Bank employees depends lal'gely upon the discipline in vogue In
the institution. Such discipline requirefl the application of rules
designed to promote morale and proper thoroughness.
These rules should be sufficiently wide in their latitude to Insure
26
the primary essentials of co-ordination. Their structure should be
more than a series of prohibitions, and should serve to give the
tendency toward that which is desired, even if not caleg'orlcally
expressed.
They should at least ~ so arrang<ld as:
1, To ad forth th<l tlm<l at which <lmploy<l<ll! of various grad<la
allould report for duty; to stipulat<l wh<ln the windows shall bll
clos<ld for business; to designate a maltlmum lunch p<lrlod; to
prOVide for t<lmporary abaenC<l or Jeav<l of absence; to provid<l for
reports of tardineas, and to provtd<l for overtim<l work.
2. To set forth wh<ln th<l vault shall b<l opened and closed and
upon what authority the vault may b<l k<lpt open aft<lr th<l tlmc
provided; to designat<l what records shall be k<lpt by the Vault
Officer and What his dnties shall be; to stipulate what parti<ls In
conjunction shall hold combinations.
3. To require care to he tak<ln of securities in the various departments, to set forth how shlpm<lnts of securities must be
handled; to provide for r<lCeipting and recording of securities received and delivered; to set forth under what conditlons and under
what authority valuables may b<l deposited and withdrawn from
tho vault.
4. To silt forth c<lrtain necessary regulations and r<lStrlctions
regarding apparel, neatness, and habits; to prescribe mutual cour~
tesy and poiit<lness: to restrict smoking to C<lrtaln hours.
5. To requirll neatness of desks, cabinets, and othe!· wm·klng
furnitur<l; to require care and n<latness In records prescribing how
rllcords allall bll kept and closed.
6. '1'0 provid<l for Initialing and signing of all n<lcessary tickets
and vOUch<lrs, what class of entrills certain author/ti<lS ar<l empowered to sanction; to provide for signing of ch<lcks, rec<lipts, and
other papers.
7. To describ<l the duties and powers of the anditor; to spllcify
to whom the auditor is responsible and to what <lxtent his authority obtains In the matter of accounting and the records; to
plac<l final r<lsponsibllIty for all systems and chang<ls on the
auditor.
S. To Indicate how Sllpplies shall be ordered and how audited;
to state upon whoae anthority <lxpenditures may be Incurred; to
prescribe when bills shall bll paid, who shall receive and distribute
suppltes; to require tbat when re-ord<lrs arll necessary old forms
shall h<l submitted to auditor for possible chang<l and correction.
9. To provld<l who shall code and decodll cabills and t<ll<lgrams;
to designate an officer who shall hold test-words and k<lys; to
prescrlbll how copIes and records shall be kept and t<ll<lgraph bills
chllcked.
10. To prescribe who shall receive, assort, and distribnte mail,
who shall be authorIzed to sign letters; to dir<lct how correspon~
dence files shall be il:ept and how access ther<lto may be granted.
11. To provid<l for thll assembling of all reports In the hands
of a d"slgnated functionary at a cllrtain time.
27
WORK OF TRANS FElt AGENT.
It is further suggested that In case the Federal Reserve agent
shall be authol'lzed to act as agent for the transfer of stock of th.'
bank to which he Is accredited the following considerations he
observed by blm, particularly in relation to stock, if any, that molY
be held by individuals. It Is understood that at' the outset no sue n
stock will be held by Individual stOckholders; but a set of regulations designed to cover not only present eonditions, but those th,lt
might arise under the terms of the law hM been developed.
1. The salient point in transferring certifieatea of stock Is to
ascertain who hM authority to assig'n the certificate and how the
authority WM granted; whether by speelal resol uUon, general
resolution, or by the By-Laws, in respect to a corporation; whether
by Will, indenture, or Court order, in respect to Executors, Trustees,
Administrators, Guardians, Agents, and the like; or whether by
power of attorney.
2. In every carre proof of papers SUbmitted shall be first ascertained to the satisfaction of tbe Transfer Agent. He shall require
that certificates j$.'!ued In the name of a corporation or an association be endorsed by such officials authorized by a special or
general resolution, or the By-Laws, and a certified copy thereof
attested by the Secretary with the seal affixed, filed with the stock
certificate. A copy of the resolution sllall be accompanied by a
notary's certificate certifying that he had inspected the minutes and
that the resolution was a true copy thereof.
3. In issuing certificates to Trustees, the trust shall be fully
described by a referenee to the will or Indenture under which the
trust is created, and the name of benefiClary given, if possible. In
transfers from Trustees, all Trustees shall sign, and transfers must
be accompanied by a copy of Instruments properly certified showing
the authority of the Trustees to sell or transfer. TnlStees appointed
by 0. Court shall exhibit both certified copy of instrument and
certified copy of the Court appointment. Transfers by Administrators shall be accompanied by a copy of appointment certified by
the Probate Court. Transfers by Executors or Administrators, with
tho will annexed, shall be accompanied hy 0. copy of the will and
copy of the Court appointment, both certified by the Probate Court.
4. In issuing certificates to a minor, the Gual'dian's name shall
also be given, as follows: "Jo.mes Brown (minor) under Guardianship of William Jones."
Transfers from a minor shall be made only by a Guo.rdian appointed by the Court, who shall exhibit a properly certified copy of
his appointment.
5, Trustees, Executors, Admlnistro.tol's, Guardians, or Agents
shall not transfer directly to themselves individually.
6. In transfers executed by an Attorney, the original power of
o.ttorney, certified by a Notary, 01' a copy of same shall be left on
file. Authority to transfer stock shall appear In the instrument,
and evidence is required that the slgnatur.\ to the power of attorney
2&
is g-enuine and that the power of attorney is in force at the time
of tr·ansfer.
7. In issuing a certificate to a married woman, her Christian
name and not that of her husband with "Mrs." prefixed sllall be
used. In case a new certlfieate Is desired by reason of change of
name by marrlag'e of an unmarried woman, the old certificate shall
be signed as follows: "Mrs. Mary E. Brown (formerly B. Smith),"
the new certificate being' Issued In the name of "Mrs. Mary E.
Brown."
S. Signatures on assigned certificates shall be guaranteed or
notarially acknowledged.
9. Transfers shall not be made directly from husband to wif!l or
from wife to husband.
10. Certificates issued in the name of an individual shall show
their Christl an name as follows: Joiln Smith, Charles A. Jones.
11. Certificates issued in the name of a bank, corporation, or
association shall show title and addres!'! as follows:
First National Bank, New York City.
First National Bank, Chicago. III,
Farmers National Bank, St. Louis, Mo.
12. Certificates shall not be Issued In the name of an estate of a
deceased person. but in the name of the representative of the said
estate,
13. Certificates in the name of a deceased person shall not be
transferred until the filing of Impers as af()resaid and the filing with
the Transfer Agent of consent from the Comptroller of the State
in which deceased resided.
14. All transfers in the name of a deceased person shall be referred to Counsel of Transfer Agent, as each state has different
Inheritance laws in respect to estates of decedents.
15. The Signature of the assignment on the back of stock certificates shall c()rrespond to the name as written on the face of
the certificate In every particular, without alteration,
16. All notarial ackn()wledgments shall have affixed a certificate
of certification by C()unty Clerk or C()UI·t of n()tarlal authority.
SYSTEM OF ACCOUNTING.
As already noted, the system ()f accounting to be employed by
the reserve banks Is logically to be considered and dealt with under
the head of organization. Inasmuch. however, as the accounting
problems of the banks necessarily involve references to features
of business manag'ement, such as the clearing system of the banks.
the duties of Federal Reserve agents and ()thers. It is deemed preferable to postpone considerati()n of the acc()unting system of the
banks until all matters of organization involving moolfications ()r
adjustments ()f accounting processes have been conclUded.
FEDERAL RESERVE AGENTS.
The Federal reserve act provides for tile appointment of a new
type of ()fficlal, heret()tore unkn()wn to Federal law, t() be designated
29
as "Federal Reserve Agents," Wlfh reference to these agents the
reserve act provides (section f) as follows:
"Class C dlrOlctors shall bOl appointM by thOl FedOlrai rOlSOlrvOl board, They shall havOl b(,en for at least two years
reSidents of thOl districts for whieh they are appointed, oue
of whom shall be designated by said board as chairman of
the board of directors of the F<lderal reserve bank and as
Federal reserve agent, He shall 1,e a person of tested banking experience; and In addition to his duties as chairman
of the board of dirOlctOl'S of the Federal reserve bank, he
shall be required to maintain und"!r regulations to be Olstablished under the FedOlral reset've board a local officOl of said
board on thOl premises of the Fedel'al reserve bank, He shall
make rOlgular rOlports to the FedOlral reserve board and shall
act as its official representative fOlr the performancOl of the
functions conferred upon it by thb act, HOl shall receive an
annual compensation to be fixed by the FedOlrai reserve board
and paid mOlnthly by the Federal reserve bank to which he is
designatOld,"
Elsewhere in thOl act It Is provided that the reservOl board shall:
"Make regulations for the safeguarding of all collateral,
bonds, Federal reserve notes, money, or property of any klml
deposited in the hands of such agents,
By Section 16 It is provided that:
"Any Federal reserve bank may make application to the
local FOldOlrat l'esel'VOl agent for such amount of thOl l<~edel'al
reSOlrve notes hOlrOllnbefore providOld for as it may require,
Such appllcation shall be accompanied with a tOlnder to the
local FedOlral reserve agent of collateral in amount equal to
thOl sum in the F<lderaI rOlSOlrve notOlS thus applied for anrt
IssuM pursuant to such applicatioll. The collatOlral security
thus offOlrM shall be notes and bills acceptert for discount
under the provisions of section 13 of this act, and the Io'ederal
reserve agent shall each day notify the Federal rOlserve board
of all issues and withdrawals of Federal reserve notes to
and by the Federal reserve bank to which he is acc,red!ted,
ThOl functions of FMeral reserve agents as thus set forth are
broad Inasmuch as the agent is made the local fOl:pfesentative of
the Federal reserve 'board for thOl pOlrformance of the funcUons
Olntrusted to such board, ThOl agOlnt Is therOlfore able to Olxercise
undOlr thOl direction of the said 'board snch powers as the board
may desire specifically to OlntrUst to him, At the samOl time the
act Is exceedingly spedfic In Us directions with refOlrOlnce to the
records that are to be maintained by such agent. While experi~
ence will undoubtedly In the long run altOlr and den lop any con~
ceptions of thOl functions of Federal r<lSE,rve agent which may be
employed at the bOlginning, it is manifOlsUy necessary to develop a
set of instructions for FMeral reserve agents to bOl used by them
at the inauguration of the TeservOl banks and to continue In use
30
until such time as experlence may demonstrate the necessity of
some new method of describing such functions or some extension
of them, whUe it Is equally desirable and necessary to describe
with care the records whleh are to be maintained by such agents.
Attention will tlrst he paid to the general duties of the agent
himself and to the scope of the functions to be performed by him.
The intent of the act never was that of placing the Federal
reserve agent in charge of the Federal reserve bank to whleh he
is accredited or of vesting him with practical banking functions in
the direct management of business relationships between the reserve 'bank and its member banks. Its purwse was to make him
a local supervisory factor representing the Federal reserve board
and ultimately the Government, that is to say the public, his
duties being fundamentally those (If oontrollIng the Issue of the
notes applied for by the reserve 'banks and of inspecting and supervising ·banking operations in the district for the purpose of
assuring himself, and of 'being able to assure the reserve board,
that the banks, both member and Federal reserve, were complying
with the letter and spirit of the law.
In pursuance of this conception of the duties of Federal reserve
agents, it will be necessary for the Federal Reserve Bank to be In
possession of detailed information concerning each member bank,
as to financial condition, character of management, competency
of officers and dire<Otors, care exercised In granting and checking
credits, custom in extending IWcommodation to directors and officers, or to corporations which they may own, control, or be
interested In, and relations with large borrowers. Safeguards
must be adopted to control the use of rediscounting power and to
check overexpansion.
In this connection, It will be desirable. to have detailed records.
It will be necessary tor the Federal Reserve Agent to be familiar with the affairs of the 'bank and the general business and
credit conditions in the district which the bank serves. For this
reason, it is both desirable and necessary that a plan be adopted
which will give to the Federal Reserve Agents, fa-NUties for obtaining definite, reliable, accurate, and detailed information.
Appiit-ation for the issue of Federal Reserve notes must be
made to the Reserve Agent and must be accompanied by a tender
of bllls and notes as collateral security (Sec. 16, Par. 2). It Is
therefore suggested:
1. That the Federal Reserve Agent exercise g'eneral supervision (lver credit records and data concerning member banks and
borrowers which may be complied from reports and examinations
of member banks, and elsewhere.
Z. That all statements or reports made to the Federal Reserve
Board, be prepared under the direction, or bear the countersignature of the Federal Reserve Agent.
3. That special examinations of member banks provided for in
the act shouid, when undertaken. be made under general direction
of the Federal Reserve Agent.
31
fOl'
We may now proceed to enumerate the chief features of a plan
the manag'ement of the business of the Federal Reserve Agent.
GENERAL PLAN-STATEMENT AND REPORTS.
1. FEDERAL RESERVE BANKS:
There should be adopted a form of General Statement or Balance Sheet which will show on its facE' the true condition of each
bank and give under appropriate headings the assets and lIabHlti<}s In detail, as well as such sUpplelllE'ntal Information as will be
necessary to give to the Federal Reserve Board an idea of general
lJuslnes.'l and financial conditions in the district which the bank
Sel'VeS.
2. WEEKLY REPORT:
At the close of business Friday of each week a statement,
showing' the general condition of ea{'h Federal Reserve Bank, should
be forwarded by the agent to the FederEll Reserve Board at Washington. Figures should be telegraphed so as to be received at
Wasllington by 9 A. M. Saturday morning.
3. FEDERAL RESERVE BOARD:
A statement showing condition of each Federal Reserve Bank
and a consolidated statement for aU F'lderai Reserve Banks Is to
be pulJllshed once each week. (Section 11, Paragraph A.) It is
sUg'gested that publication be made el1her on Saturday or Monday. This will be more fully discussed In speaking of the board
itself.
4. MEMBER BANKS:
For the purpose of ascertaining the general condition of member banks In each Federal Reserve Dlst.rict, it Is sUggested that a
weekly report, showing the average .~ondltion of each member
bank, be made to the head office of eaell lo'ederal Reserve Banl{, at
the dose of business Friday of each w"ek. The figures shouid be
compiled under the direction of the Federal Reserve Agent and
the summary forwarded by mail or telegraph to the Federal Reserve Board. If deemed advisable, a brief swnmary of condition
of member banks In each Federal Reserve District and a combined
statement of all member banks should I,e published not later than
Wednesday of following week, by th.) Federal Reserve Board.
5. RELATIONS WlTH BOARD:
The Federal Reserve Agent must each day notify the Federul
Reserve Board of all Issues and withdt'awals of Federal Reserve
Notes to and by the Federal Reserve Bank to which he is accredited. (Section 16, Paragraph 2.) It is .~uggested tilat the Federal
Reserve Agent be also required to forward to the Federal Reserve
Board at the close of bUsiness Friday of each week a detailed
statement giving:
(1,) Amount of gold and lawful money deposited with him by
the Federal Reserve Bank to which he is accredited for excbange
for outstanding Federal Reserve notes. (2) Billa of exchange,
notes and drafts held by him as collateral to Federal Reserve
32
notes issued to the Federal Reserve Bank. (3) Record of the total
outstanding notes at the beginning of week, notes Issued or retired during the week, and liability of Federal Reserve Bank upon
outstanding notes on day of report. (4) A summary to be carried forward fl·om previous report, showing amount of Federal
Reserve Notes received from Comptroller, outstanding notes in circulation, notes returned to the Comptroller for cancellation or destruction, and no:>tes in hands of Federal Heserve Agent. (5) List
of collateral lleld by Federal Reserve Agent, showing the as-gregat"
liability of makers, drawers, endo,·sers, and a(?ceptors, on bills of
exchange, notes, and drafts. received from Bank, as security fo'·
Federal Reserve Notes issued.
Forms deslg·ned to serve for the preparation of these reportf'.
and records have been carefully drafted and will be found in the
collections of forms ac(?o:>mpanying this report. Two distinct set'l
of forms for the purpose of carrying out the foregoing t·eCOlllmendations have been drafted-one set accompanying the
counting plan presented in Appendix I, and nUlllbered as portfolio
III, the other included in that presented In Appendix II, and
numhered as portfolio II.
a,,-
IDENTIFICATION OF NOTES.
In this connection It Is also deemed best to make a recommendation that will be of considerable importance in furthering the
convenience of the reserve banks in assorting theil" notes.
Section 16, Paragraph 3, of the Federal Reserve act provides
that:
"Notes . . . shall bear upon their faces a distinctive
letter and serial number which shall be assigned by the
Federal Reserve Board to each Federal reserve bank."
In order that a uniform set of numbers may apply to the Federal reserve system throug·hout, it is recommended that the numbel·
which shall appear on the Federal reserve notes as above pro~
vided, shall be the Official number of the city where the issuing
Federal reserve bank is located, according to the system of numbers now used by the banks of the ("ountry in numbering checks.
The consecutive order of these numbers is based upon population.
Letters should also be assigned to th~ banks to indicate their position in the reserve system, the Arabic numet"als being arbitrary
so fat· as that system itself is concerned.
Some of the Federal reserve districts and banks would, under
this system, be numbered as follows:
1.
2.
3.
4.
£>.
11.
A New York.
B Chicago.
C Philadelphia.
D St. Louis.
E Boston.
F San Francisco.
The use of letters In connection with these numbers makes pos-
33
sible a continuity of designation, so that if additional reserve banks
are organized it will not be neceSJ:lary to change any previous numbers or letters.
The notes should be printed with the letters and numbers In the
upper right-hand corner and the lower left hand corner, and they
should be sufficiently distinct to enable tellers and clerks to assort
the notes readily by number when prellaling them for return to
their originating banks.
EXAMINATIONS:
In connection with the sections of the Federal Reserve Act concerning examinations, suggestion is made as to:
1. Examination of Federal Reserve Banks and Branches.
2. Examination ot Records and Accounts of Federal Reserve
Agents.
3. Examination of affairs of Member banks, so as to Inform tho
Federal Reserve Bank as to the condition of Member banks and
lines of credit that are being extended. fSec. 21, Paragraph 3.)
4. Establishment of a Credit Bureau in each district for collecting and compiling information concerning Member ·banks, and
borrowers who are dealing with Member banks, or who are selling
paper In the open market.
FEDERAL RESERVE BANK:
Sec. 11, (Par. A) authoriz.es and empowers the Federal Reserve Board to examine at its discretion accounts, books, and affairs of each Federal Reserve Bank.
Sec. 21, (Par. 5) provides that the Federal Reserve Board shall
at least once each year order an examinatlon of each J<'ederal
Bank, and upon joint application of ten Member Banks, the Federal
Reserve Board sball order a special examination and report of
condition of any Federal reserve bank.
The law provides for an examination of each Federal Reserve
Bank, at least once a year. Each bank shoUld be examined twice
yearly. It would be well if possible to h~,ve all Reserve Banks examined by a carefully .selected corps of rnUlk specialists, who would
be Instructed to make a thorough and detailed audit of the affall'S ot each bank, making full report 1.0 Federal Reserve Board
and to the Board of Directors of each F~)deral Reserve Bank.
The examination shoUld cover a thorough Investigation of investments, rediscounts, collateral loans, and open market transactions, particular attention to be paid to compliance with the provisions of the Federal Reserve Act and to the rulings of the Federal Reserve Board. Relations with the foreign Agents, agencies,
banks, and branches of Federal Reserve BaJlks, shoUld be investigated, and balances and accounts shOl.\ld be verifted and reconciled. Accounts of Member banks and balances due to or from
other Federal Reserve Banks should be reconCiled, as should also
all monies on deposit to the credit of the United States Government, or of public offlcials. The Foreign Department in each bank
34
should be audited. Profit and Loss accounts should be carefully
analyzed. Thus, the examination should cover a complete audit of
the Bank and branches. The examiner Should consult with the Federal Reserve Agent and the Board of Directors, upon the completion of the examination,
Report should also be roade as to the competency of manage·
ment, condition of records, attention given by directors to the affairs of the Bank under examination, and attention should be
called to any unsafe or unsound condition or tendency that might be
apparent in any department of the bank.
The use of a special corps of examiners for examinations of
Federal Reserve BanI,s would have many advantages. The work
will call for men combining the qualities of credit specialists, appraisers, and bank accountants. The examiners wlll become more
valuahle at each succeeding examination.
EXAMINATION OF RECORDS OF FEDERAL HESERVE AGENT
The records and accounts of the Federal Reserve Agent, in
each Federal Reserve district shonld be examined at least quarter.
Iy, and a detailed report made to Ule Federal Reserve Board by
examiners In Its employ. The examination should cover a verifl.
cation (a) of gold and lawful money held by Federal Reserve
Agent, deposited with him by the Federal Reserve Bank for ex·
change for outstanding Federal Reserve Notes; (b) of all blils
of exc-hange, notes, and drafts held as collateral security for Federal Reserve notes; (c) records of substltution and withdrawals
of collateral; (d) of Fedel'al Reserve notes, received from Comptroller of Currency, delivered to Federal Reserve Banks and In
hands -of Federal Reserve Agent; (e) of all other books and
record.\!.
In each bank there shOUld be an Auditor, who shOUld be under
Instructions and subject to the direction of the Federal Reserve
Agent.
MEMBER BANK EXAMINATIONS.
Sec. 21 provides: "The Comptroller shall appoint examiners who
Shall examine every Member Bank at least twice each year, provided, however, that the Federal Reserve Board may authorize examinations by the State authorities to he accepted In the case of
State Banks or Trust Companies, that are stockholders in any
Federal Reserve Bank. The e;o;;:aminer making the examination of
any National Bank, or of any othel' Member Bank
shall
make a fuli and detaiied report of the condltlon of said bank to
the Comptroller of Currency."
Sec. 21, Par. 3, provides that "In addition to the e;o;;:amination
made and conducted by the Comptroller of Currency, every Federal
Reserve Bank may, with the approval of the Federal Reserve Agent,
or the Federal Reserve Board, provide for special examlnatlon of
member banks within the district. ,
Such examinations shall
be so conducte4 as t-o inform the Federal reserve bank of the
condition of its member banks and of the lines of credit which are
being extemled by them."
35
Und(Jr th(J plan suggested, each rn(Jmber bank will forward to
the head office of the Federal Reserve Bank In the district in
which the member bank is lo"ated, a weekly report, showing its
average "ondition for the week.
This information will be recorded in a manner to show changes
in condition from week to week. For more detailed information,
however, the Federal Reserve Bank will be dependent upon data
obtained in connection with the examination of mem,ber banks.
Sue.:;e:;;s in bank examinations depends to a larg'e degree upon
the ('are exercised by the examiner in investigating the lines of
credit extended to borrowers by th(J bank under examinA.!ion, upon
H.e facilities which the examiner has .)f obtaining reliable information as to th(J character and financial r(Jsponslbility of th(J officers, directors, and principal borrowers, and finally upon the
method used in collecting, compiling, and recording Information
for use in suhsequent examinations.
There should be adopted In each Fed(Jral 'Ft(Jserv(J district a
uniform plan of examtnatlon, which would provide for a thorough
and detailed examination of each member bank by a force of competent, well-equipped examiners, authorized to take the necessary
time. A high standard of efficiency should be established which
would make it attractive and desirable for State banking institutions to join the Federal Reserve Syst,)m. Examinations of city
and country Instltutions should be made eqllally effective.
To prevent a multiplicity of examinations, the special examination by the Federal Reserve Bank might be made in connection
with the regular examinations made by National 01' State Bank
examiners, Cer$ain information should be obtained for use of the
Fedel'al Heserve Bank; (1) A record of all loans over a. stated
amount. (2) The character of collateral accepted as security.
(3) A record of Bank Stock hypothecated at bank under examination, (4) The dassificatlon of loans. Investments, and eoliateral.
Suggested form for use In this connection has been developed and
will be found in the portfolio of forms accompanying Appendix I.
LOCAL CREDIT BUREAU.
It is belleved and recommended that the Federal Reserve Sys-
tem should be equipped wIth very careflilly prepared credit bureau
records. Two plans for developing such records have been considered. Under one the records would be conducted and kept at the
several reserve banks; under the other they would be kept in a
single office under direction of the Reserve Board in Washington.
In either case frequent communication of resulw must occur between the several banks and the Board, A choice between the
two plans wlll depend somewhat upon the system of accounting
determined upon. In Appendix I is giv"n a system of accounting
more ("Idapted to the establishment of a local credit bureau in each
reserve !:>ank, while in Appendix II records are so formulated as to
concentrate credit records in Washlngte,n as a by.product of the
accounting. 'Ihe credit bureau principles in general will be the
same in either case. (See portfolios II and III.)
36
Assuming for the purpose of the discussion that in each F<'ldflfal
Reserve Bank a Credit BUf<'laU in charg<'l of th<'l Ag<'lnt is to he
<'lstablishffi, its duty should be the collection and r<'lcording of data
concel'ning member banks, and th<'l standing' of individuals, firms,
and cOl'porations, discounting at Or borrowing of member lmnks,
or selling' pap<'lr in the open market.
This Bur<'lau should hav<'l card ind<'lxes showing:
1, Loan Record-compilffi from examination reports, showing
borrower's loan liability at each bank, with a minimum limit of
$5,000 In City and $2,500 in Country banks.
2. Bank Stock Hypoth<'lCatlon R<'lconl; showing bank stod,
hypothecated at member 'banks.
3. Inactive Collateral I{<'lcord; showing Securities of small or
close corporations, or securities having a limited or inactive market, whether securltl<'ls be held as investments, or as collateral by
member banks.
4. R<'lCord of the bUsiness, firm, or corporation affiliations of
the directors and officers of every member bani, In the district.
5. Current record of fallures, bankrnptcies, and large judgments affectIng borrowers of any member bank.
6. Record of character, standing', and financial responsibility
of all bankers and note brokers engagecl in seiling notes, drafts,
and bills of exchange In open market.
7. Record of standing and financial responsibllity of individuals, firms, and corporations selling notes, drafts. and bills of exchange in open market.
A plan for the exchange of information should be arranged
with the Credit Bureaus established in other Federal Hflserve Districts. and with the approval of the Comptroller of Currencv. with
the Credit Burflaus establishffi by State Banking authorities where
a proper Syst<'llll for safeguarding information 11ns be.en a<lopkd.
Credit Bureau data should be available to the Federal Reserve
Agent, the executive officers and directors oE Fed<'lral Heserve
Banks. and th<l National Bank and Fed<'lral Reserve Bank ExamIners.
Suggflsied forms tor th<'lse records are presented in the portfolioS accompanying the Appendices, especially ill portfolio III.
'i'he Credit But'eau will also have th<'l benefit of service of mercantile agenci<'ls and will no doubt subscribe to various financial
publications.
OTHER CREDIT RECORDS.
It is provided in the general plans of accounting offered h<'lrewith that each Federal Reserve Bank shall keep detnHed records
showing:
1. The a~gregate liability of member hanks on paper rediscounted by the Federal Reserve Bank, as well as the liability of
member banks on bills, notes, and drafts purchased from or discounted for others.
2. The aggr<'lgate liability of indiViduals. firms, corporations,
37
banks, bankers, municipalities, etc" on bills, notes, and drafts,
rediscounted for member banks, or purchased In the open
market.
A similar record should be kept of the liability of concerns upon
foreign exchange bllls and drafts bought and sold and of foreign
bills of exchange purchased for investment.
It will be seen that there is provided a means of ascertaining
definitely the aggre~ate liability of anyone firm. Individual, or
corporation, on bills, notes, or drafts 11eld by the Reserve Bank.
Through the Credit Bureaus there will be facilities for ascertaining
the extent of paper held by member banks. If the principal office of a concern is located in another district, a comparison may
be made with the Credit Bureau In that district.
To ascertain the credit standing and financial responsibility of
concerns selling their 11ms of exchange, notes, and drafts in the
o~en market, arrangements may be made to obtain from the note
brokers copies of signed financial statements and copies of auditors' reports. Access to records of Cr'ldit Bureaus of other districts, will enable the Federal Reserve bani, to obtain definite information as to the extent of liability at banks where principal
borrowing accounts are maintained. However, as in the case of
the credit departments in banks and m,?rcantlie houses, all information wilt have to be systematically recorded, statements carefully analyzed, and comparative statements made_
It will take some years to develop the CrBdlt Bureau and
Department, but each Federal Reserve Bank wlli have access to
many sources of infonnation which are not at present available.
Through their commanding positions, tlle Federal Reserve Board
and Banks will be able to exercise a close supervision over the
commercial paper market; to ellmlnate many of the abuses wbtcb
are now apparent, and probably suggest a means of standardizing
statemeuts, audits, and reports of borrowing concerns.
The Credit Bureaus will aid examln<'rs in their investigations
and tend to increase the efficiency of all bank examinations if the
proper degree of co-operation Is establishBd. The Bure,au will have
after each examination definite information regarding the credits
and condition of the hank. The Federal Reserve Bank will he
vitally Interested In all data concerning the standing of each memher bank, in order to determine the line of rediscount that may
be safely and wisely extended. To prevent inflation and an abuse
of the accepting power, there must be c.mtlnuous vigilance.
The power to restrict or limit the rediscounting privilege will
be effective In forcing the elimination of lax methods and unsafe
practices; will prevent the gradual accumulation of questionable
assets, and will in effect require memhers to conduct business
along sound. bUSinesslike lines, The F{,dcral Reserve Examinations of member banks and examinations by National Bank
Examiners will be a distinct advantage to menlbers and -v.iI1
eventually prove a guarantee of solvency.
38
If the main work of conducting credit records be carried on
under the charge of the Agent at each of the Reserve Banks, as
thus suggeated, It will still be dealrahle that there he a centrallza~
tlon or combination of reaultll under direction of the Board at
Washington through some one of Its several diviaions whiCh shall
transmit the combined information to the other bureaus; while
If th<l Information Is directly compiled at Washington in the first
place a local receiving mechanism will also be needed in eaCh hank,
STATISTICAL BUREAU.
An Important part of the work of th<l Federal Reserve Board
will be found in the making of thorough and satisfactory analyses
of data relating to bank operations In different parts of the country, These analys<ls will be necessary both from a scientiflc, and
a practical banking, standpoint. They should Include carefUl compilations of figures d<lslgned to show the actual operations under
<lach section of the reserve act, changes in the outstanding currency Circulation, fluctnations In the specie stock of the s<lv<lral
reserve banks and of the system as a whole, variations ill the conditions of domestic and foreign exchange, and It variety of other
It<lms. While it Is undoubtedly true that exp<lrienc<l in the managem<lnt of the system will mat<lrJally modify any plan for the
collection of such statistics and for the making of analys<ls of the
kinds alr<lady indicated, It will b<l deslrabI<l to start with a complete
and thorough baSis for classifying the various data collected and
for pr<lsenting the net r€'sults in an easily comprehensible form.
Indeed It will be only by this means that the subsequent development of the statistical analyses along lines closely adapt<ld to
the peculiarities of the syst<lm Itself will be praeticable. It has
theretore been deemed wise to pres<lnt the outline for a statistical
bureau to be org'ani:l:<ld under the direction of the board at Washington. Such an outline has /Jeen prepared undel' the dir€'ctlon of
the committee by Mr. Ludwig Bendix of New York City. and is
presented In Appendix III of this report.
BONDING OF AGENTS.
The Federal R<lserve act provides In section 11, paragraph 1,
that:
"The Federal Reserve Board shall he authorized and empowered
"(1) To require bonds of Federal reserve agents to make regulations for the safegllardlng of all collateral bonds, Federal reS<lrve
notes, money, or property of any kind depOsited in the hands of such
agents, and said board shall perform the duties, functions, or services specified in this act, and make all rUles and regutatlons necessary to enable said board effectively to perform the same."
With reference to the first provision In this seefion, namely, that
authorl:l:lng the F€'deral Reserve Board to "require bonds of F<lderal
reserve agents" (the Organization Committee being presumed to
<lxerclse the same functions as the Federal Reserve Board under
section 2 of the act), It Is suggested that thr<le questions arise:
39
1. The amount of the bonds to be given by Federal reserve
agents.
2. The nature and form of the bonds to be furnished by them.
3, The question whether such bonds shall be separate and
applicable only to the reserve agents or whether a "blanket bond"
covering all employees and officers of the Federal reserve bank and
Including the reserve agent with others, ghould be permitted.
In view of the fact that the Federal reserve agent is distinctly
a Government officer, although paid by the bank to which he is
accredited, and in view of the fact that his responsibilities are to
the Federal neserve Board prirnarHy, rather than to th .. bank itself,
it is recommended that each and every Federal reserve agent be
called upon to give a separate bond for himself and his own staff,
and that he be not inclnded in the blanliet t>ond, If any, which may
be written for the protection of all other officers and employees of
the bank at large. His bond would thus cover merely his own lia.
billtyand that of the subordinates under nlm in his own office.
The question of form of bond has formed the subject of careful
Inquiry, and it is believed that the form employed by the American
Bankers' Association, and recommended by them for general use, is
the best that can be employed under the circumstances.
With reference to the amount of the bond to be given by Federal
reserve agents, considerable difference of opinion bas been encountered, and as a result, consultations have been had with the officers
of some of tne principal bonding companies. As a result of the
investigation thus had and the advice fUrnished, it Is recommended
that the bonds of Federal reserve agents shall not fall below a mini·
mum of $100,000, and tnat they shall vary according to the activity
and resources of the reserve bank to whkh each such agent is ac·
credited, probably not exceeding $250,000 in any case.
DOMESTIC BRANCHES.
The Federal Reserve Act contains the following provisions
(section 3) with reference to branch offices;
Section 3. Each Federal Resel"ve Bank shall establish
branch banks within tne Federal Reserve district In which it
ts located and may do so in the dlstl"ict of any Federal Re·
serve bank which may have been suspended. Such branches
shall be operated by a board of directors under rules and
regulations approved by the Federal Reserve Board. Direc·
tors of branch bankS shall possess the same quallficaUons as
directors of the Federal reserve hanks. Four of said direc·
tors shall be selected hy the reset·v~ banli and three by the
Federal Reserve Board, and they sh ....n hold office during the
pleasure, respectively, of the parent hank and the Federal
Reserve Board. The reserve bank shal! designate one of the
dlredors as manager.
It will be observed that this section is expressed in such
broad and general terms as to leave in the hands of the Federal
40
Reserve Board and of the Organization Committee at the outset,
very large powers with respect to branches, It will be possible
practically to pl'escribe the conditions under which such branches
will operate. subject only to the general limitations as to directors laid down In the section as above quoted.
Two methods of dealing with these branches suggest themselves:
1. The establishment of a completely organized banking
house acting as a branch of the reserve bank of the district
in each place where a branch may have been determined upon.
2. The establishment of a local office only without hankIng machinery and equipped merely with a limited clerical
organization at the service of the board of directors appointed
as above provided for.
These types of organization may be considered In reverse
order.
If It be determined to organize simply a local office the
board of directors of the branch so-called would necessarily
amount to nothing more than a sub-committee whose functions
would be those of ascertaining the character of the paper
offered for rediscount by the banks of the community, certifying
to its desirability, or disapproving it as the case might be, and
then transmitting the paper for actual rediscount to the reserve
bank of the district. This plan would have the adVantage of
avoiding the outlay necessitated by the organization of a complete branch and would also eliminate all necessity for establishing a system of accounting In the branch which should fit
into the accounting system of the reserve bank of the district.
It would also eliminate all question of necessity for a readjustment of the clearing system. On the otller hand the question
may be raised whether so simple a type of organization w01l1d
satisfy the demands of the community In which the branch
was located and would supply a sufficient arldltlon to the
mechanism of the reserve bank to warrant establishing it. Its
function would obviously be only that of a crerlit eommlttce
pa.~sing upon particular paper.
If this plan sllOuld be re"orte<1
to, it is suggested that the only records required hy the ]Jran('h
would be those relating to offerings of paper.
On the other hand. If a full-fledged bank should be established at each branch point. it is believed that the following
questions would have to be definitely considered in connection
with the matter:
1. Relation of branch accounting to accounting of district
reserve ban k.
2. Relation of method of handling checks and transit item"
to corresponding methods in district bank.
3. Area or territory to be assigned to branch as special or
peculiar to it, i. e .• extent of sub-district within which stich
branch would be located.
4. Internal organization of branch.
5. Capitalization, If any, to be assigned to the branch.
41
Assuming that branches were to be created on this plan at
the outset. It Is suggested that In every particular the regulations
recommended In this report with respect to the management
of a district reserve bank should be applied In the conduct
of the branch, in so far as practicable. At certain pOints, however, It will not be desirable to develop a full~ftedged organization In the branch. The question then arises precisely how
far the organization should go and at what point reductions
or curtailments have to be made.
It Is recommended that in the e\'ent of the establishment
of such branches they be assigned a proportionate capitalization
based upon the capitalization and sun)lus of the member banks
Included within the territory assigned to the branch. This,
however, should be only a tentative m'~tter and such assignment
of resources should be merely to brldl,e over the period during
which It Is found from experience about what amount of paper
will on the average be presented by the banks In each branch
district. When sufftclent experience h:ts been had to determine
this point, the resources to be employed should be distributed
among the branches in proportion to the quantity of paper
presented on the average by tbe member bank In each such
branch district. It Is recommended further that the parent
bank of the district shall In every case retain for itself a
substantial portion of the district as a territory from Which
paper shall be directly presented for rediscount, This would
mean simply that the branch distri<,ts WOllld be established
whenever there was a special need for them in a particular
part of a district which presented a clear-cut Independent trad~
Ing area whose territory was an economic unit and whose
member banks naturally stood In close relationship to one
another. The suggestion also amounts to a rejection of any
plan for subdividing a district completely into branch areas
While the district reserve bank itself exercised no distinct bankIng functions except those of oversight. It is believed that this
latter plan would not he desirahle, hut that In every district
there should be a strong independent reserve bank organization performing actual banking functions and directly rediscounting the paper of a considerable number of the member
banks included within such district,
Whenever a hranch Is estahlished with a banking house
of Its own, actual banking machinel'Y and a board of directors,
as provided by the Federal Reserve Act, it is recommended
that it be required to Install a system of accounting precisely
similar to that prescribed by regulation for the Federal reserve
banks themselves and that it be permitted to vary from the
system laid down for such reserve banks only at those points
where the maintenance of certain records is rendered unnecessary by reason of the fact that the hranch does not perform
tbe functions to whiCh such records relate,
BY.LAWS.
The following suggested outline of by·laws will afford further
detailed data concerning the Internal organization requiring to
be perfected In each branch:
BY~LAWS
or
FEDERAL RESERVE BANK OF ..
BRANCH
of
Federal Reserve Bank of
Established by it ..........• 191 ..
ARTICLE I.
Directors.
Section 1. Number and Quorum.-The number of directors
shall be seven. A majority of the directors shall constitute a
quorum.
Section 2. Meetings.-There shall be a stated meeting of
the board every Wednesday at .... o'clock A. M .• or, if that
day be a holiday. on the first preceding day not a holiday.
The chairman of the board Shall be elllpowel'ed to call a
special meeting at any time, or upon the written request of
any two directors or Whenever requested so to do by the
manager, or by the Federal Reserve Bank of the district.
Section 3. Powers.-The board of directors shall anmmlly
submit for approval to the parent bank a s(".hedule of com·
pensatlon and duties of offic"rs. clerks. and employees of the
branch.
Section 4. Order of Buslness.-Thc following shall be the
order of business at each meeting of th~ boar'd:
(1) Reading or inspection of m Inu tes of tll e last
regular meeUng.
(2) Report of the manager, Including Information
concerning banking and business conditions
in the district, as well as detailed summary
of all business transacted since Jast regular
meeting and statement of present condition,
the latter to include:
(a) Statement of all loans, rediscounts, Investments and purchases;
(b) All official corresponci<'!nce received from
the parent bank.
(3) Committee reports;
( 4) Unfinished business;
(!»
Approval of report and recommendations to
parent bank (duplicate to be sent to I<'ederal
Reserve Board);
(6) New business.
4lt
ARTICLE II.
Discount Committee.
Sectlon 1. How consUtuted.-There shail be a discount cornmittee consisting of the manag'er, the chairman of the board,
and one dtrector of the class appOinted by the parent bank.
Such director shall be elected by the board to serve for a
period not to exceed one month, and his successors shall be
chosen In rotation untll each member of his class shall have
served or shall have been given an opportunity to serve. The
board shall elect each month an alternate for service on the
discount committee, who shall be authorized to act in the absence or disability of the member first chosen.
Section 2. Mlnutes.-The discount eommlUee shall cause to
be kept minutes of all meetings held by it, which shall be read
and approved by members of the boar<\ at tIle next succeeding
meeting. A copy of such minutes shall be promptly sent to
the parent bank.
Section 3. powers.-Subject to the rUles and regulations of
the board of directors of the parent bank, the discount committee shall be Vested with the following powers:
(1) To pass upon all commercial paper submitted
for discount.
( 2) To suggest open market tr::msactions to the
parent bank;
(3) To apply through Ihe Federal Reserve Bank of
the district for such Fed(,ra\ reserve notes
as may be necessary for the general requirements of the branch.
ARTICLE III.
OhWcrs.
Section 1. The officers to be chosen by the board of directors shall be a manager. Who shall b." one of their number.
a vice-manager~ and such other officers as the board may
from time to time deem necessary.
They shall hold office
during the pleasure of the board.
Section 2. Chairman.-The chairma.n of the board shall be
chosen by the Federal Reserve Board from the directors appointed by said Board. He shall preside at all meetings of
the board. He shall, together with Ille officers of the bank,
have supervision of all credit records and data concerning
member banks and borrowers which may be compiled from
reports and examinations of such banks. All reports and statements made to the parent bank shall be prepared under the
general direction of the chairman and copies thereof shall be
sent directly to the Federal Reserve Board.
Section 3. Vice-Chairman.-In the absence or disability of
the chairman, his powers shall be e;;.:ercised and his duties
~The number of vice-managers witt depend upon the size
of the branch and the character of its work.
performed by the vice-chairman, WhO shall be designated by
the chairman or, In default of SUch designation, by the manager,
from the directors appointed by the Federal Reserve Board,
Section 4. Manager.-The manager shall have general
charge of the brancJl and sllall preside at all meetings of the
discount committee, subject, however, to such rules and regulations as may be incorporated herein or from time to time
promulgated by the board of directors of the brancJ} or of
the parent bani"
In all cases where the duties of subordinate officers and
agents of the branch are not specifically prescribed by the
by-laws or by the board of directors of the branch or the
parcnt bank, they shall be the duties specified by and instructions of the manager. The manager may, with 01" without the
advice of the board of the branch, suspend or remove any
employee of the bran<:h, subject, however, to a hearing before
said board.
Section 5. The Vice-Manager,-In case of the absence or
disability of the manager, his powers shall be exercised and his
duties discharged by the vice-manager.
In the absence or
disability of both, the board of directors shall, by a majority
vote of the directors present, appoint a director manager
pro tem.
The vice-manager shall have charge of all moneys received
and paid out on account of the branch and shall examine
and countersign all checJ{s for the payment of money signed
by the manager. He shall, jointly with the manager, have
custody of all investments and collateral held by the branch.
He shall keep the minutes of all board meetings and of aU
committees of the board.
In case of the absence or disablHty of the vice-manager.
or whenevel' occasion may require it. the manager shall appoint such director or employee ot the branch as he may deem
proper. vice-manager pro tem.
ARTICLE IV.
Information.
Section 1. All persons employed by the branch shall keep
inviolate its business affairs and concerns, and shall not disclose
or divulge the same to any unauthorized person whomsoever.
Any t>mp[oyee who shall give Information contrary to this
by-law shall be liable to immediate dismissal.
Section 2. The action or policy of the board shall not be
expressed by any individual member, but by its duly constituted
officers after formal action by the Whole board and under rules
and regulations prescribed by the parent bank.
Section 3. J:o~or the information of member banks and the
publiC, there shall be maintained in the office of the manager
a bulletin board, upon Which shall appear the current rates
of discount established by the parent bank and such other
information as it may deem necessary to publish.
45
FOREIGN BRANCHES.
The power to establish foreign branches is broadly conveyed
In the Federal reserve act. which includes authority covering
not only the creation of such branches, but also the establishment of agencies, the appointment of correspondents, etc. The
question, however, whether or not to create Sllch branches
rests upon a somewhat different basis from that which relates
to the establishment of domestic branches.
With reference to operations in foreign countries it is to
be expected that as the reserve system develops these operations will become extensive and important. They should be
fully provided for by a plan which will assure absolute efficiency
In the llandllng of the functions of resel'Ve banks abroad. That
at the start It may be desirable to await the definite organi~a
Hon of the reserve Institutions is quite probable, but before
many months the management of the business abroad must
be seriously taken In hand. Inasmuch as the approval of the
Federal Reserve Doard Is requisite to the establishment of
foreign branches. It is evident that the board will have full
authority in the matter.
The first point which, it is believed, calls for careful consideration Is the number of branches of reserve banks which
shall be Independent of one another. Plainly the provisions
of the law are sucl} that if the Reserv() Board should approve
of such a course each and everyone of the several resel'Ve
banks might establish Independent branches in foreign centers.
The conceivable result of such action would be the establishment of a number of branches, one to each reserve bank,
equal to the number of reserve banks, in every Important
foreign center. This, It Is believed, w<)uld be unwise. From
the standpoint of the foreigner the re!le}'Ve system should be
organi~ed as a unit, whlle In controlling the ftow of specie
to and from the United States it should act as a unit with
a single and uniform poilcy and without competition within
itself. These requirements could be fUlfilled best. it is believed, by requiring the reserve banks to join In designating
a common agent or to join in creating a joint branch at each
foreign center where it is believed that such representation is
needful or desired. If It should appear that some of the reserve
banks do not care to have such representation abroad, their cooperation could be waived, the whole matter being placed upon
a voluntary basis. But if they find that they want such representation. then they should be required to co-operate in establishing and bearing the expenses of the branch eXisting at the
point Where the representation Is desired.
This naturally
necessitates a plan of dividing the expenses of the b}'anches
or agendes abroad between the Federal reserve banks.
It
is recommended that the following plan sJ"lall be in substance
followed:
1. Whenever a Federal reserve bank desires to establish a
46
branch or agency in a foreign counu'y It shall make application to the Federal Reserve Board for permission to do so
and in case such permission is granted it shall be allowed to
establish the branch or agency under conditions of organization
conforming to the principles laid down In the general provisions that may be adopted with regard to branches,
2. If any other reserve b!\Dk should subsequently desir's to
secure representation in the same place at which such branch
or agency may already exist it shall be required to select the
same agent, or if a branch has actually' bcen established it
shall be permitted to join in the opemtion of tIle bmnch, bearing a share of the expense dependent upon the percentage of
total operations undertaken for its account as compared with
the aggregate operations of the branch.
3. The personnel of the branch organization shall continue
as drst established by the reserve bank which created the
branch. but as places fall vacant they shall be filled upon
the nomination of the reserve bank subsequently joining In
the operation of the branch in a proportion corresponding to
its payment of expenses.
4. Should other reserve banks desire to join in the operations of the branch they may do so upon a basiS of division
of expenses based upon the principles already laid down above.
5. Should the Federal reserve banks subsequently desiring
representation (after the establishment of the branch by one
such bank) prefer to have the branch already existing act
as agent for them they may do so, and in that event the
reserve bank or banks actually co-operating in the conduct
of the branch shall charge for their services tl sum to be determined at the end of each half year and dependent upon the
vroportion borne by the operations of the bank 01· banks designating the branch as agent, to the total operations of such
branch.
6. Whenever a foreign branch is organized a specified Stlm
sllall be assigned to It as a basiS for its operations, such sum
to be determined in each and every case by consultation between the Reserve Board, or the Organization Committee, if
the task Is undertaken while the system is In Its initial stages.
Other reserve banks which subsequently particivate in the
operation of the branch sllall assign to it a sum of working
capital to be determined in the same way.
7. In the event that several reserve banks desire at the
outset to join in the establishment of a branch at a designated
foreign center, the total working capital to be set apart will
be determined as above indicated and shall be divided among
the several reserve banks in proportion to their capitalization.
8. The accounting records of each such foreign branch shall
be the same as those prescribed for domestic branches, except
that the reserve banks participating in the operation of the
branch shall be regarded as joint partners.
47
RELATIONS BETWEE)J BANKS.
In discussing the retations hetween members of the Federal
reserve system, attention must be devoted to three phases of the
question;
1. Relations between the Federal rellerve banks themselves.
2. Relati0ns between member banks in each district and membe,· banks in different districts.
3, Relations between member bank,; and their own Federal
reserve banks.
In surveylng these distinct elements of the problem, It Is
deemed best to consider first of all a matter which Involves portions of the question referred to under the first head above and
of that referred to under the third head. This is the clearing of
checks, It is believed that the most Important problem involving
these relations between the banks In normal times will be that of
clearing the Items drawn upon the reserve banks by their member
banks and those drawn upon the individual member banks by their
deposi to.'s. If this clearing process is sRtisfactorily and effectively
carried out, it will profoundly modify the relationships now existing between banks and will have an important Inftuence In reshaping the operations of present clearing houses, transforming
ultimately the functions of these clearins· houses and changing the
degree of tileir significance frolll the standpoint both of their
members and of outside Institutions.
CLEARING SYSTEM.
The provisions of the Federal Reserve Act with respect to the
introduction of a system of clearings are found in Section 16, where
it is provided that;
"Every Federal reserve bank Shall receive on deposit at
par from member banks or from Federal reserve banks
checks and drafts drawn upon any of its depositors, and
when remitted by a Federal reserve bank, checks and drafts
drawn by any depositor in any other Federal reserve bank
or member bank upon funds to ttLe credit of said depositor
in said reserve bank or member bnnk. Nothing herein con·
taloed shall be COilS trued as prohibiting a member bank from
charging Its actual expense Incurred in collecting and re·
mUting funds, or for exchange sold to its patrons. The Fed.
eral Reserve Bank shall, by rule, ftx the charges to be collected by the member banks from Its patrons whose checks
are cleared through the Federal reserve bank and the charge
which may be imposed for the service of clearing or collec·
don rendered by the Federal reserve bank.
"The Federal Reserve Board shall make and pl·omulgate
from time to time regulations governing the transfer of
funds and charges therefor among Federal reserve banKS
and their branches, and may at its discretion exercise the
functions 01 a clearing house for such Federal reserve banks,
or may designate a Federal reserve bank to exerCise such
48
functions, and may also require o=ach such bank to exercise
the functions of a clearing house for Its member banks,"
It is evident that this provision distinctly contemplates two
classes of work:
(a) A clearing system providing for the clearing of Items
among member banks which are stockholders and depositors In
any Fedo=ral reserve bank,
(b) A clearing system which shall provide for clearing the
transactions of Federal reso=rve banks among themselves,
It is strongly believed and recommended that a complete and
thorough clearing' system shall be inaugurated by every Federal
reserve bank at the earllest possible moment consistent with success. This system should further be continued and extended as
rapidly as Is reasonably possible until it exto=nds to all classes of
operations and provides for the clearing of items drawn on both
member and non-member banks. The facilities of the reserve
banks should be used both locally and for out-of-town cho=cks In
the broadest possible sense and under conditions which will place
the member banks upon a satisfactory basis of competition With
non-members while giving to the customers of member banks
the advantage of a system of par collection wherever possible
and of collection at cost wherever charge must be made. Undoubtedly experience will show some necessary changes both of method
and of rates of charg'e from the plan herewith recommended,
but It Is beJleved that the basis of a satisfactory system Is herewith
afforded and that no material alterations will be SUbsequently
necessary. Having In mind the fact that the banks cannot perform
their full functions in this respect at the very outset, it is, however, recommended that they start only with a partial system of
clearings, subsequently extending this as they become able to do so.
An analysis of the law shows that it is the intent to readjust
the domestic exchange machinery of the present banking system
to conform with practices and regulations that the experIence of
clearing houses have demonstrated to be the most effielent. Therefore. In drawing up forms and regulations to govern the operations
of the Federal reserve banks, the policy should be to adopt so far
as possible clearing house principles as a model. Whero=ver, In the
plan to Joe proposed, it may seem at first glance that a proposed
method of procedure Is not speclficnlly authorized in the bill, the
warrant for such proposItion is contained In the phrase "functions
of a dealing house," and nothing hereIn suggested will be found
to do violence either to clearing house principles or practices.
It Is one of the primary functions of banking and the purpose
of all clearing houses to make full use of the "clearing principle,"
which Is the offsetting of debits with credits, to effect settlements
by book transfers, and to use such credit Instruments as checks
and drafts, thus reducing to a minimum the handling of actual
currency. The primary object of the plan here presented la to use
the machinery of the Federal reserve system to make the enormous domestic exchange business of the country clear Itself, the
49
balances of the entire nation being finally focussed and cleared
by a simple operation on the books of ttle Federal Reserve
Clearing House.
Each Federal reserve bank should be governed by uniform
regulations with respect to domestic exchange functions since
each such bank is a part of the whole system of clearing.
These regulations apply to forms, advlces, accounting systems
and organization of departments and conform to the rules
applied by all well-conducted clearing liouse associations. They
will be grouped for convenience of treatment Into three
diVisions;
(1 )
(2)
(3)
The relations between the Federal reserve
banks and the member banks in the same city,
The relations between the Federal reserve
banks and their members outstde the. city.
The relations between the Federal reserve
banks themselves,
RELA'lIQNS BETWEEN THE FEDERAL RESERVE BANKS
AND THEIR MEMBERS IN THE SAME CITY,
The Federal Reserve Banks may if thought best co,operate with
the other banks of cities where they may be located, first, by
joining the local clearing house, and second, by providing a
means of settlement of clearing house balances through book
transfers.
Several pOints are open to discussion in connection with plans or
regulations governing the relations between the Federal reserve
hanks and their members located in the same city. The logical
development of the Reserve Banks will ultimately result In
their assuming the functions of a clearing house, but in view
of the policy not to interfere unnecessarily with present practices and also on account of the fact that nearly all clearing
houses are composed partly of non-mt.mber banks, It is recommended that the Federal reserve banks shall not accept local
member checks on deposit, provided su..,h checks are payable
throuS'h the clearing house, untH such time as It will be possible
for the bank to assume all the functions of the local clearing
house.
The Federal reserve banks wtll present checks on outside
member bankS and outlying local member banks through the mails,
but it would be more economl('al and eonvenlent to present clty
member checks through the clearing house. A question here arises
as to whether the Federal reserve banks should be members "both
sides," that Is: receiving, as well as presenting, checks at the clearing house. Were the existence of clearing houses where the Federal
reserve banks are located to be considered permallent, 61' were
all the melllbers of the clearing hOUSH certain to be members
of the system, then It would seem wise to recommend that the
50
reserve Banks should "out-clear" only, but, the facts being
otherwise, local memhers should be permitted either to deposit
drafts on the Federal relJerve banks or to present them through
the Clearing Houae. Aa to the depoait of member checks by
local hanka, it is recommended that a time limit be set by each
Federal reSllrve bank, say at 2 P. M., aftllr which no items of less
than $1,000 of any kind would hll accepted on dllPosit. This rule
will he found necessary to prevent the clogging of the internal
machinery of the banks, which would delay the ontgoing mall. Experience In large city banks has demonstrated that it is much
easier to handle large volumes of checka if they comll In early In
Ule day, becanse a given numhllr of checks can be handled with
much less labor and chance of error If received within a fixed
time limit tllan the lJame number of Items can be handled when
spread over a longer period. The bulk of all checks received
by business men come by morning malls and the Indlvldua.l
dllpositors in member banks can be graduaUy educated to make
their deposits early.
The settlement of balances resulting from clearing house
exchanglls must be adjusted to conform with the fact that aU
members of clearing houses will not be members of the Federal
Reserve System. Settlement may be effected by one of tIle following methods:
1. Debtor hanks will give their drafts on the Federal
Reserve Banks to the manager of the clearing house, non-member debtor banks paying to the manager funds acceptable for
deposit with the Reserve Banks. The manager of the clearing
house would then dllposit the drafts with the Rllserve Bank.
The Reserve Bank would credit such deposits to a "clearing
account" whleh would be subject to the manager's check In
favor of creditor banks. The rule shOUld be laid down that
drafts on the Federal Reserve Bank given to member creditor
banks should be depOSited and not cleared through the ne:xt
exchange.
2. Assuming that all clearing house banks are members
ot tIle system, the manager of the clearing house will present
to the Federal Reserve Agent a memorandum showing debtor
and creditor balances which may then be sett1lld by a transfer
on the books of tIle Federal resetve bank.
Il' it should occur in any city that all the banklJ are membera both of the clllaring house and of the Fllderal Reserve
System, and thll clearing house be cont/nued, It would be prac\icahlll
to have the FMllral fllSllrve bank "out cillar" only.
The relationship, therefore, between the Federal reserve
banks and members in the samll city may be said to be a local
problem which may be adjusted along the broad lines here
suggestlld without in any way interterlng with the pollcy of
uniformity in the essential features of regulation affecting the
clearing functions of Reservll Banks.
51
In general matters the regulations (,overing the accounts of
member banks will apply to city members as well a.a country
members.
THE RELATIONS BETWEEN THE FEDERAL RESERVE
BANKS AND THEIR MEMBERS OUTSIDE THE CITY.
The deposit section of the Federal Reserve Act provides that:
"Any Federal Reserve Bank may receive from any
of its member banks, and (rom t.he United States,
deposits of current funds in laWful money, na~
tlonal~bank notes, Federal reserv,l notes. 01' checks
and drafts upon solvent member banks, payable
upon presentation , . ,"
Under this provision the following elements of the deposit
process will be as follows:
1. Lawful money, national bank notes and Federal I'eserve
notes al'e to be deposited as such deposits al'e now made in
banks-----that is, using a regular deposit slip bearing the name and
number of the member bank and the items to be separated as to
kind of money deposited. No checks are to be enclosed with deposits
of money.
2. In receiving checks on deposit, the Federal reserve banks
assume a ",ervlce for their members which unless It Is properly
controlled and regulated will result In a serious burden and
will tax the resources of the reserve banks to the utmost. Cal'e
must be taken that the work be redu,led to a minimum and
that the member banks relieve the reserve banks as fal' a.a Is
practicable.
3. A uniform letter of remittance or deposit should be used
throughout. Member banks will divide the items deposited Into
those payable by the Federal Reserve Banks and those payable
by other banks in the city where the reserve bank Is located. These
items may be placed on one sheet or letter in separate totals. A dif~
ferent sheet or letter must be used for each. state within the region
or district, and as the number of members Increases such states
may be redivided In accordance with the regulations of each
re",erve bank.
4. Items payable in other Federal reserve districts will be
separated into two totals, "Inside" and "(.utside," and the outside
Items will be grouped as to states, although a single total will
be accepted and such "outside" items may be placed on a single
remittance sheet.
ij,
With each deposit of checks from member banks there is to
bEl enclosed a summary sheet giving the total o( each separate
sheet or division with a. grand total or (ooting.
6. Opposite each item in the entire deposit, the member bank
should designate the place payable, preferably by number. Special
instructions such as "no protest," "wire non~payment," etc.,
should be covered by an otllclal tag or sUp which is to be securely
fastened to the item and no confirmation of such instrUctions
52
shall be required to be written on the letter. A distinctive mark
01· symbol should also be stamp"<l upon each such eheck.
7. Each item deposited sball be endorsed by the member bank
with a rubber stamp which shall bear the name of the Federal
reserve bank through which the items are cleared, the date
received by the Federal reserve bank, and the name and num·
bel' of the member bank. This stamp, when used by the mem·
bel' bank, sball be considered to guarantee all previous endorsements and shall read as follows:
Cleared through
The Federal Reserve Bank of N. Y.
August 1, au
First National Bank
50-36 Syracuse, N. Y. 50-36
8. All Items deposited by member banks with Federal reserve
banks should become "reserve" only after they have been collected, that is, placed in the possession of the paying bank, and
thus chargeable to the account of the drawer. '1 hey may be
charged by member banks into the general ledger Item "Due from
Federal Reserve Bank of ........ " the day they are mailed, but
a memorandum account should be carried by the member bank in
Which this Item Is to be divided Into "transit account" and "reserve
account," Each member bank shall be furnished a time schedule and In connection therewith shall operate a book which
may be designated the "Reserve Maturity TiCkler." In accordance with the time schedule, the member banks will post the
detail amounts according to the divisions mentioned under the
dates when such checks may be credited to "transit ale" and
charged to "reserve a/c." These dates In every case will be
based on the receipt of the items at the place of payment.
An alternative plan differing In theory as applied to resel·ves
but mQre practical and slm.ple In operation, may be considered
as follows: The Federal reserve banks will charge member Cheeks
against the balance of such members upon the day forwarded.
This would reduce the amount of bookkeeping neeessary and
would simplify the time schedule by more than one-half. On the
other hand, member banks would be apt to object to having their
reserves thus depleted without their knowledge. This objection
could be met by a concession which would further reduce the
accounting, that is. by allowing member banks to use sU checks
on members of the same district as reserve the day forwarded
to the Federal reserve bank, as is now permitted In making remittances to reserve agents.
It is desirable that drafts 011 Federal Reserve banks should be
acceptable without question In aU districts. It may be suggested.
therefore, that such drafts be deposited In a separate total together
with drafts payable by the Reserve bank where deposited to be
counted as reserve by the member bank at once, 01· if the alternative plan outlined in the preceding paragraph is sdopted,
53
drafts on all Federal reserve banks could be included In the totals
of checks on other members of the same district.
The Federal reserve bank will cr~dit the account ot the
member banks on day of receipt of the items, such account to
be subject to draft. The reserve bank in turn will use a time
schedule corresponding to the one use,! by member banks and
similarly the reserve bank will charge transit account, crediting
such account and charging other res('rve banks as hereafter
r>rovlded, If any member bani, should draw below its collected funds, such draft should be subject to a charge based
upon, but higher than, the current discount rate of interest.
In Section 19 the Act provides that member banks may check
against their reserve muances with Reserve ban]{s "subject to such
penalties as may be prescribed by the Federal Reserve Board,"
but it would be better banking to Indu"e them to restore their
reserves through re-discounts.
The Federal reserve banks will r,"ceive Items on deposit
until 2 P. M. each day. After 2 P. M. an<i untn 3 p, M, Items
ot $1,01)1), and over only, and after 3 P. M. until S:SI) P. M,
Items over $10,1)00 only, after which all items receIVed will be
held over until the following day and the member bank so
notified,
The time of day and amounts here specified need not be uniform
for each Reserve bani" but should be regulated by each such
bank In accordance with local customs and geographical position
with respect to transportation and mall facilities.
At the close of the day's business all cheeks on member
banks will be forwarded to the member banks, the letter bearing opposite each amount the endorsement record of the depositing bank. These remittances will be c11arged by the
reserve banks ill "transit account." On Ihe following day, or the
day of receipt by the member banks, the accounts of the member banks will be charged and "transit account" will be credited.
Attached to each letter from tile res~'rve bank will be a perforated slip bearing the total of the enclosure, to be used as all
acknowledgment of receipt. The slip will read:
"\Ve credit
you $":,,, " checks on this bank received to-day
(Signed) , ...... , , . , , , , , , , , . , . , , , , ,
Cashier,"
If items are unpaid they are to be returned dll'ect by the
member upon whom drawn to the member ma]{ing the deposit
with the Federal reserve hank first receiving them, and upon
receipt of advice the Federal reserve bank will credit the member bank the amounts of such checks returned direct and charge
the accounts of members to whom the W,ms have been returned.
If SUch unpaid items hav;, been received by the reserve banks
from other reserve banks they will be retllrned direct in the same
way and adjustment made between the reserve banks as hereafter provided. Unpaid item!'; whiCh have been deposited by the
54
U. S. Government or any of Its agents wHl, however, be returned
in every case to the reserve banks by the member banks.
Member banks should be encouraged to make use of the
Federal reserve banks to effect settlement with one another
through book transfers. The reserve banks should perform
such service as between its own members at par since It avoids
the use of drafts and also does not reduce the loanable fun"of the reserve bank. Transfer of funds by members for the
credit of members of other districts may also be easily arranged
and the charges therefor will be dlscussed unde)' a separate heading
in this report.
Reserve banks will also send to member banks for collection
notes, acceptances and such paper as Is usually classified as
'"time Items," representing the matured loans and discounts of the
Federal reserve banks, such items, If unpaid, to be returned by
member banks to the Federal reserve bank owner, with proper
advices.
At the close of each day's business the Federal reserve banks
will mall a statement of the day's transactions to each member
bank other than which no acknowledgment of receipt of Items,
etc., will be required. At regular Intervals the balance shown
by such statement as of a certain day will be reconciled by
the member bank and a report made to the reserve bank.
RELATIONS BETWEEN THE FEDERAL RESERVE BANKS.
" . . . . or solely for exchange purposes, (any Fed.
eral reserve bank) may receive from other Federal
reserve banks deposits of current funds In lawful
money, national. bank notes, or checks and draft.
upon solvent member or other Federal reserve
banks, payable upon presentation."
'"Every Federal reserve bank shall receive on do·
posit at par from member banks or from Federal
reserve banks checks and drafts drawn upon any
of i.ts depositors. and when remitted by a Federal
reserve bank, checks and drafts drawn by any de~
positol' In any other Federal reserve bank or mem~
bel' bank upon funds to the credit of said depositor
in said reserve bank or member bank,"
As between the Reserve Banks, there will be five dltreren1:
kinds of transactions. (1), the exchange of checks for col.
lectlon payable in their respective districts, and also the ex·
change of checks and drafts on one another. (2), the transfer
of funds deposited by the member of one Bank to the credit of
a mem bel' of another Bank. ( 3), the deI.oslt of Federal Re.
serve notes for redemption or credit as provided in the Act.
"Whenever Federal reserve notes issued through
one Federal reserve bank shall be received by an·
other Federal reserve bank they shall be promptly
returned for credit or redemption to the Federal
65
reserve bank through which they were originally
issued,"
(4), the deposit of other funds, such as national bank notes,
or lawful money which the Federal reserve banks are permitted
to deposit with one another for excha.ngepurposes. Such shipments
ShOllld be subject to the request of the Federal reserve bank recelv.
log tbe deposit. (5), the collection of noles, drafts and acceptances
for rediscount, as provided In Section 13, which may be payable
in a district other than where rediscounted.
Checks remitted by one Federal reserve bank to another
should be divided as to Inside and outside items, the outside
items being further divided as to states, or such other diVision as
has been provided for the member banks depositing with Federal
reserve banks. They need not be endorsed by the Fedel"al reserve
bank remitting or by the reserve bank receiving them,
Each Federal reserve bank will car:ry a single account with
every other reserve bank, Using the Ume schedule mentioned
previously, charges and credits of check remittances will be
mado simultaneously.
Remittances of Federal reserve notes wlll not be charged
in transit account, but will be carried in the General ledger
Item "Notes of other Federal reserve hanks" until the date of
receipt by the bank to wbom sent. Remittances of lawful
money, national bank notes, etc., to be sent only upon request,
will be charged to the reserve bank to whom sent on the date
of shipment and will be carried as an asset of such bank
among its other cash items.
Time Items wiU be forwarded a sufficient time before rna·
turlty and will be charged and credited on date due.
Transfers for member hanks, If made by mall, should be
charged and credited on day of receipt of notice. If made by
wire the entries should be made on day of such advice. No such
tmnsfers should be made by wire or mail after 3 P. M., and in
the event of differences of time between hanks, the time used by
the bank that Is the farthest east should g·overn.
The original figures of every transaction of Whatever nature
between Federal reserve banks should be considered to be correct,
and the original entries shOUld not be clla.nged by either the bank
charging or the bank crediting. Allowances for errors, returned
items, etc., and all changes In the account between any two banks
should be adjusted by mall.
The accounts between any two
Federal reserve banks wlll thull automatically reconcile, provided
. there has been no delay in tbe mails. T" provide against such a
contingency, it is proposed that if any reserve bank falls to reo
ceive the regular daily letter from any other reserve bank by
2 P. M., a telegraphic advice be sent to the forwarding bank,
which would then defer the usual charge until the following da)",
FEDERAL RESERVE CLEARING HOUSE.
settle the balanees between reserve banks. growing out of
these various transactions, a dearing house is suggested, as provided In the act, in the clause which specifies that: "The Federal H.eserve Board . , . may at its discretion exercise the functions of a
clearing house fOI" such Federal reserve banks, or may designate
a Federal reserve bank to exercise such fUnctIons. .
If one of the Federal reserve banks should be chosen as a
clearing house, for convenience of location it might be the
Chicago bank; but this function of clearing wonld be better
assumed by the Federal Reserve Board. For many reasons it
would be well to establish the clearing house at th(, national capital.
Since each reserve bank will carry a single account with every
other reserve bank, subject to simultaneous dehit and credit, the
hulk of the interchange of husiness will clear itself. Balances
will arise partly on account of the seasonal changes which will
alter the debit and credit relationship between the districts. and
partIy on account of the fact that membership in the system will
not be proportionately equal as between national and State banks
in different regions.
The plan herewith proposed Is based upon the requirement that
each Federal reserve bank deposit with the Feder,~l Reserve Board
clearing house all of its gold beyond that which will be sufficient
to take care of local needs. This gold deposit, carried on the books
of each reserve bank in a separate item as a part of its reserve
funds, can be used in either of two ways or In a combination of
them to effect settlement which will be explained later. Settlement lleed not he made between reserve banks oft<mer than weekly,
since to I"equire daily settlement might prevent tile operation of
the natural dearing effected by the intercllallg'e of ordinary business transaetions. Therefore, at the dose or husiness on each
Thursday, eaeh reserve bank should Wire the dearing 110use the
amount of the balance and should state whethH" debit or credit
I"elations exist he tween it and other reserve ban1<s. Allowing one
day, Friday, for adjustment of any differencef< in the advkes
received, the dearing would be effeeted on Saturday. How this
shall be done depends upon a consideration of" the following posslbillties;
The gold deposited with the clearing house may be credited upon
a simple set of books to each ban), so depositing, Clearing would
then be effected by a charge and credit on the books, and advice
would be made to the reserve banks. This Is th!> simple plan, but
it has one apparent disadvantage in that the banks would have
no tangible evidence of the ownership of the gold other than a
book credit. Consideration might, therefore, he given a plan of
issuing certificates in large denominations against the proposed
gold deposits as clearing house currency eertitic.'l.tes are now issued.
Upon the direction of the Fedel"al Clearing House, the debtor
reserve banks would mail these certificates to the creditor banks
to pay balances. These two plans might he combined so that, al'['0
67
though the clearing of balances would be effected by book transfers of gold at the Federal Clearing hOllse, the debtor banks could
anticipate this settlement by mailing certificates to creditor banks
prior to the day of settlement. Both these plans, however, seem
less effective and more cumbersome than the first plan. Very
little (if any) gold would ever need to be transferred between the
reserve banks. and such operations would be limited to transac·
tions between the banks and the clearing house. The banks, In
turn, would be able to loan or borrow, buy or sell gold in dealing
with each other, and the transactions would be arranged through
book transfers at Washington.
It is recommended that the official who may act for the Federal
Reserve Board as supervisor of the clearing functions of the
system act also as the manager of the Federal Reserve Clearing
House, and bear the same relation to the reserve banks that the
manager of any clearing house does to the members of a city
clearing house. In addition to the supervision and control over
the entire machinery of domestic exchange, he should provide
for Its development along lines hereafter suggested.
CHARGES FOR COL1:'ECTION.
The Federal Reserve Act provides in Section 16 that:
The Federal Reserve Board shall, by rule. :fix the
the charges to be collected by the member banks from
its patrons whose cheeks are cleared through the Fed.
eral reserve bank and the charg" which may be im·
posed for the service of clearing (,I' collection rendered
by the Federal reserve bank.
The Federal Reserve Board shall make and promulgate from time to time regulations governing the transfer of funds and charges therefo)' among Federal reserve banks and their branches.
It must be borne in mind that the banking power of the United
States will divide more sharply than It has ever done before into
two groups-members and non-members. It is the Intent of the
Act itself to bring non-members into the system. But so long as
there is any considerable body of nOll-member banks, the two
grolips will of necessity be in competition with one another, producing two parallei clearIng systems. The organization of the
domestic exchange machinery of the new system thus takes on
a double' aspect. On the one hand, Federal reserve banks and
their members must be prepared to meet a competitIon on the
part of non-members. But on the other hand the domestic exchange business of the Federal reserve system must be so arranged
as to offer constant Inducements to non-members to enter the
System. At the same time, members must find it more profitable to use the Federal reserve system than to make col.
lections as at present. The situation 1$ more complex when It is
taken into consideration that member banks are in a position to
58
deal on favorable terms either with the Federal reserve banks
and their members or with non-memhers.
All charges cQntemplated in the act should he based on !Wtual
costs, and It shQuld not he the policy of the Federal Reserve Board,
nor of the reserve banks, to assess these charges against memher
bankS upon a basis that would yield a profit. All costs should he
placed against members for whom service Is rendered as hereafter provided, The costs would Inclnde overhead charges, clerical
hire, induding that of department management, stationet'y, postage
and equipment depreciation, In addition, all similar expense incidental to the maintenance and operation of the Federal Clearing
House will be assesse<1 a~ainst the I'eserve hanks. which charge
will, In turn, be added by each reserve hank as a part of its
clearing expense,
It should be the duty of the compilation department of each reserve hank to keep an accurate monthly record of the costs herein
mentioned inc-idental to the clearing of all checks, A record of the
amount and numher of checks and drafts charged against the account of each memher should he kept hy each reserve bank,
and an additional record of the amount of the items payable in other districts deposited for credit and clearing by memher banks, The total monthly cost should then be divided
between these two amounts in proper proportion, the number
of items making up the amount payable outside the district
being estimated upon the hasls of the figures of tIle number of
checks divided into the total amount charged against members'
balances, The cost of handling checks charged against members'
halances should then be charged monthly to the accounts of such
members, and SllOUld be based one-half per hundred of items
and one-half per thousand dollars,
The cost of llandllng
checks on other distrlds should he Similarly pro-ratE<d and charged
against members depositing such checks,
Each reserve bank should be required to send a monthly statement to the Ferleral Reserve Clearing House, showing total
amount that has beeu charged against it. hy all other reserve
bani,s during the previous month, The clearing house would then
assess tlle costs of operation upon reserve hanks In proportion to
such amounts, Each reserve bank shOUld calculate the proportion
of this clearing house cost chargeahle to check and transfer-formembers dehits, and this cost should then be apportioned aud
charged to memhers per thousand dollars of checks charged to
their accounts or transfers made for them, Similarly the proportion of the cost of shipping gold to the clearing house chargeable
to check and member transfer debits should be added by each
reserve bank to the clearing house cost which is to he charged to
memhers, Except for the charge for telegraphing when such
transfers are requested, there should he no further charge against
members for the transfer of funds. Accounts of the United States
Government or any of its dishursing agents sl\Ould he suhject to
the same hasis and method of clem'ing chal'g<ls as applied to
member banks,
&9
In addition to the charges above provided, a scale ot fines
should be arranged applicable to members making errors In their
deposits. 'l'he purpose of such fines Is to place the cost of locating
errors ag....inst the member making the error, and the Income, if
any, derivoo from this source should be deducted from the total
operattng cost. The scale should covel" the following:
Error In listing or addition ..................•.
Error in recapitulation sheet ................. .
Items missorted, including Items not receivable,
each ................... " ............•. " .. .
Checks listed but not em'.losed, or enclOSed but
not listed, each ....•.......................
Items not endorSed. each .................... .
$1.00
1.00
.50
2.00
.50
CHARGES BY MEMBJ~R BANKS.
The policy ot limiting charges by member banks against their
patrons to actual expenses Incurred Is clearly indicated in the bill.
'l'herefore the rate which the Federal Reserve Board Is to fix for
the member banks to charge for their patron's checks which are
cleared through the reserve hanks, should be based (.n the costs
as outlined and hereinbefore prOVided. Checks payable outside the
district may be made subject to a chl~rge by the member banka
against the endorsers.
Checks drawn by depositors and charged against the member
hankS' accounts by the reserve hanks may be made subject to It
charge against the makers of the check!!. In each case the Federal
Reserve Board should base the rate on charges made by the reserve
banks, both for district and other items, and an additional amount
to cover a almllar cost entailed by the member hank as to over·
head charges, stationery, etc. This rale, which may be made
dependent on the amount of the checks only, shall be considered
to be the maximum rate which the member bank may be permitted
to charge under the act, but It Is reeommended that the words
ill Section 16, page 19, line 46. "to be ,~ollected," be. by rule, con·
strued to mean "may be collected." Otherwise depositors in memo
ber banks would withdraw their deposltB and p~e them with non·
members not required to make such charg-es.
Charges Should be made by the reserve hanks agalnst member
banks as near as possible to the first of each month covering the
costs of the preceding month. The charges that are to be made
by member hanks against their patrons should be based, as pro.
vlded, 011 the original costs; but they should be at rates fixed
annually to cover such charges with sufficient margill only to
allow for slight monthly variatl011 S. Every member bank should
be permitted to make Its own charges against depositors who draw
agailist uncollected funds, or against 1I0n.depositors for cashing
or collecting checks and drafts. Charges provided in the act
shOUld not be construed to cover notes, sight drafts, coupons, or
other paper commonly known as "collections." but Should cover
checks alld bank drafts only.
60
OTHER RULES AND REGULA'lIONS.
One provision in the Federal Reserve Act specifies that:
The Federal reserve hank •
shall have powerThird: To make contracts.
Sixth. To prescribe by Its board of directors, bylaws not inconsistent with law, regulating the manner
In which Its general husiness may be conducted, and
the privileges granted to it by law may be exercised
and enjoyed.
Seventh. To exercise by its board of directors, or
duly authorized officers or ag'ents, all powers specifically
granted by the provisions ot this act and such Incldental powers as shall be necessary to carryon the
huslness of banking within the limitations prescribed
by this act.
In accordance with these powers, it is recommended that as soon
as the recommendations herein contained, or similar recommendations, have been ofllcially adopted by the Federal Reserve Board, each
!<"ederal reserve hank shall send to each memher bank a printed
agreement which each member shall sign by its president and
cashier. This agreement (subject to change In the details of the
clearing pian finally adopted) shOUld he somewhat as follows:
In order that the provisions of the Federal Reserve
Act affecting the deposit of funds hy memher banks,
the collection and clearing of checks and drafts, and the
fixing of charges therefor may be efficiently and economically administered, the ....... , .. National Bank,
member of the reserve bank of .......... , herewith
agrees to be bound by the following rUles:
1. All items shall be (leposited on such forms and
in such manner as shall he prescribed by the Federal
reserve bank, and failure to do so, or any errors made
in such deposits shall subject the member bank to a
reaS<Jnahle fine.
Z. Members agree not to deposit with the Federal
reserve bank cheeks on other member banks within
twenty-five miles of such member bank, except where
specifically permitted by the reserve bank, or except
that this rUle sball not he construed to apply to memhers which are within twenty-five miles of the reserve
bank. Members situated in the same city with the
reserve bank shall not deposit checks and drafts on
other member banks ill that city, unless such members
are not members of the clearing house. (This rule Is
inserted as a result of the hellef that it wHi he found
expedient to giVe to the reserve bank the power to
refuse to accept such items as would hetter be collected throngh local clearing houses or branch hanks.)
3. It Is agreed that the Federal reserve bank may
61
send all items direct to tlle membl,r bank on which they
are drawn.
4. Items received after the time fixed for the receipt
of such Items shall be held over until the following day,
and notice sent to the member bank.
5. The accounts of members will be charged. upon
notice, with items lost in the malls or otherwise. and
upon request members shall secure duplicates.
6. Items accompanied by special instructions, such
as "no protOlst," "wire non-payment," etc., shall have
firmly affixed a silp bearing such Instructions, and in
addition each item shall be plainly stamped with a
mark indicating such Instructions. other than this,
no confirmation of instructions shall be required on
the letter.
7. The member bank undersigned hereby agrees
that the clearing endorsement swmp used by it on all
checks deposited with the reserve bank guarantees all
prior endorsements.
8. Items unpaid are to be r"turned direct to the
member bank which originally depOsited such items
with any Federal reserve bank, and proper noUce is
to be sent to the reserve bank frum which such items
were received.
9. The member bank undersigned agrees that all
checks and drafts payaLle at such bani, shall be
charged ag'ainst the balance stHnd/ng to its credit
with the reserve bank on the day of receipt of such
items by the member bank.
10. The reserve bank shall cha.rge interest at . . .
% above the cUl"l"ent discount rates for all draft!!' or debIts against member banks' balances when such balances
are below the net amount of collected funds standing
to the credit of such members.
11. A daily statement of charges and credits will
be sufficient advice and acknowledgment of all transactions.
GENERAL SUGGE8-TIONR.
The plans and forms prepared for the clearing functions of
the Federal reserve system have been so shaped that no change in
principle will be necessary after branch reserve banks are established. It has been thought wise not to arrange clearing plans for
branch banks at this time, since such banks will not be in operation
for some time following the organization of the reserve banks, and
a short experience with the system will demonstrate to what extent
branch banks will undertake the clearing and collection of checks.
It is probable that they will receive checks on deposit from membera in the same clty only, and will receive checks on members
from other reserve banks only when such members are farther
distant than one night's mail from the Federal reserve bank of
63
the district. Again, there may be branches established which may
clear a Ilmlted territory not easily accessible to or from the reserve
bank. Such clearing, however, should be strictly local, and these
branch banks should not reeeive items on deposit payable In other
districts, nor should other Federal reserve banks send them items
except (perhaps) those payable In the city where the branch bank
is located
Whatever may be the business transactions to be developed
between a Federal reserve bank and branch banks of another district, the clearing relations between the reserve banks will not be
altered, since all sneh transactions will be credited or debited on
the hooks of the main banks, proper advices forwarded, and adjustment made between the reserve bank and its branch affected.
If that plan be deemed expedient the work of clearing may be
developed gradually. At first the Federal reserve banks might
limit the Items received tor collection to those payable in the
larger cities in the district, extending the service until the entire
distt"\ct \s covered. Drafts on all Federal reserve banks should be
accepted from the first, but no items payable In other districts
should be accepted untH the machinery is working smoothly, and
this service should then be extended In the same manner that Is
suggested for each Individual district. Member banks on which
cheCks might be accepted at the beginning Should be permitted to
deposit items payable in other districts. This would enable them
to meet the Checks drawn against them, and would make it
possible to develop the exchange relations bctween the Federal
reserve banks at the outset.
On account of geographical and railroad limitations situations
will arise in every district where it will not be feMllIle for
member banks to send checks on other member banks to the Federal reserve banks. Each such case wlll need to be adjusted
according to conditions, either through braneh banks or by reo
ciprocal relations established between the member banks, settlement being ananged by a system of transfers. There are sections,
as for example the state of Mississippi, where the non-memb<cr
banks will so far outnumber the member banks that a hardship
will be Imposed upon members unless they find relief tht·ough
the assistance of the Federal reserve bank of the district, which
might establish local offices at many centres and accept and coiled
cheeks on non-member banks.
A list of member State banks and trust companies shOUld be
sent to each member bank, and a monthly snpplement showing
additions furnished. A list of non.member national banks may
also for a time be required. A large map shOUld be furnished all
members at cost, showing tlle district limits, mail time l>etween
Federal reserve banks, variation in time used, expressage and
telegraphic rates, and such other Information as may be found
expedient.
It is recommended that a standard form of draft be required
for use by each member bank in drawing on 11:.'3 reserve bank, and
68
jf e~h
reserve hank should adopt a different ~olor of paper upon
the drafts are to be printed, It would promote ~onvenlen~e
in assorting these Items and would tend to prevent mlsroutlng.
It would also serve as an "sample to the banks and make it ('.asler
later to provide a color system applying to all checks.
Arrangements could be made with the Bureau of Engraving
and Printing to prepare the drafts on the Federal reserve banks
for members at cost. Uniformity would thns be assured.
A large item of expense and a great source of annoyance and
delay to all large banks is the daily weighing and stamping of
letters containing checks and drafts sent out each night. This
work will be greatly increased in the reserve banks, and will
constitute quite an item of expense as to labor. The Post Office
Department should be ~onsult'ld and al'l'ang'lments made whereby
th'l Fed'lral reserve banks would be authorized to send out lett'lrs
containing ~hecks and other remittances at first-class rates, the
payment to be made by bulk weight. This would also be a convenience to the Post Office Department, since It would not be
necessary to test the letters as to the correct amount of postage
used, and some economy would be effected In the preparation and
sale of postage stamps.
whl~h
CHECKS ON NON-MEMBER BANKS.
There Is nothing in the act that prohibits the ac~eptan~e by
Federal reserve banks from members of deposits of checkS payable
by non-member instltutlons. By accepting such items to a limited extent clearings could be equalized at times between the
reserve banks, thus avoiding the transfer of gold to the clearing
house. Also, exorbitant exchange rates on th'l part of nonmembers could be checked wherever there Is a member bank in
the same town, by having such memoer collect checks on the
non-member bank or banks for other members through the Federal
reserve banks.
AN ALTERNATIVE PLAN.
Many sUggestions have been presented with reference to th'l
matter of handling the clearings of the Federal Reserve Banks.
It has been found that probably the greatest differen~e of opinion
concerns the mann'lr of dealing with the Transit prob\'lm. In view
of the fact that the precise scope of the Banks' op'lrations has not
been determined, it is therefore consider4!d worth while to offer for
consideration an alternative plan for the clearance of transit Items,
differing from the one set forth above. The main feature to be
consid'lred in this ~onnectlon will be found to relate to the time
at which the Items are to be credited 1<) Reserves by the several
Banks.
In support of this alternative plan It Is argued that if the pur.
pose Is to shape the operations of the Federal Reserve Banks so
that the growth of the Member Banks will reflect itself In the Federal Reserve Banks, it would appear advisable to afford special advantages to the Member Banks whiCh would encourage their main.
Wning larger balances than required by law with the reserve
banks.
Any plan whleh would assist in placing Member Banks in a
more favorable position than non-Member Banks, in the dearancf!
of transit Items at par, and at the same time extend the privilege
to the Member Banks of an Immediate settlement fot' snch Items,
should reeeive careflll consideration, Inasmuch as it would without
qnestion stimulate more widespread Inter'est in the {<'ederal Heserve
System and mal{e its membership more attractive,
The essential point of the plan is:
Clearanee at par, with immediate credit in the Reserve Accounts
of Member Banks fOl' snch Items as they may forward for collection to the Federal Reserve Bank of their district and which are
drawn upon
(a) Member Banks of their own district;
(b) Federal Heserve Banks of other districts;
(c) Member Banks of other districts.
In order' that this may be effected, an immediate settlement for
such items would be obtained by the Federal Reserve Banks In the
following manner:
MEMBER BANKS OF THEIR OWN DISTRICT.
Items drawn upon Member Banks loeated within the district In
which the Federal Reserve Bani, is situated, will be charged
against their accounts upon the day of forwarding.
FEDERAL RESERVE BANKS AND MEMBER BANKS OF
crrHER DISTRICTS.
1. A certain portion of the gold reserve of the Federal Reserve Banks would be concentrated at Washington, preferably
with the Secretary of the Treasury, as Chainnan of the BoaI'd, who
would maintain a ledger record of the balance of g'old reserve belonging to each Bank.
2, The Federal Reserve Agents would autb<;!ntlcate, ea('h day,
the transit operations of the Federal Rf!serve Banks, and forward
a descrlptlve statement to the Secretary of the Treasury. which
would enable him to record the debits and credits In the g'old reserve of the different Federal Reserve Banks. This would place the
Secretal'y of the Treasury In a posiUon to assemble the entries of
all the Federal Reserve Agents, with the result that the Federal
Reserve Board would maintain the gold reserves ill twelve accounts, so that the transfers of gold would be by book entries and
shipments would be reduced to a minimum.
3. Each Federal Reserve Bank would carry an account upon
its books known as "Transit Account," the account being upon a
daily liquidating baSis. as the balance resulting from the transactions would mean either a credit or a debit to the Reserve Account
of "Gold Reserve with Secretary of the Treasury." The credits to
Transit Account would consist of remittance letters received from
other Federal Reserve Banks, while the debits would be the total of
the cash letters In process of being forwarded for collection to
65
other Federal Reserve Banks. The result of this would be, say in
the event that the Federal Reserve Bank of Chicago received remittance letters for collection greater In amount than the total of
the ca.sh letters forwarded by it, that the credit balance in the account would be liquidated by passing its equivalent to the credit of
"Gold Reserve with Secretary of the Treasury," thereby reducing
the gold reserve to cover the transit transactions of the day.
From this brief outline, it will be noted that an immediate settlement has been obtained for the transit items and that "Outstanding Time" has been eliminated by the expedient of book entries in the gold reserve, such entries having been authenticated by
the Federal Reserve Agent.
Further details of the plan would be:
(a) The ledger record of the Secretary af the Treasury would
be so designed that a carbon copy w(,uld constitute a daily statement to the Federal Reserve Banks of the debits and credits entering their balances of goid reserve. This would also enable the
Federal Reserve Banks to check such entries, and likewise place
them in close touch with the condition ot the account.
(b) The credit and debit entries Which would appear upon the
daily statement of the Federal Reserve Agent to the Secretary of
the Treasury, would be obtained by means of a form prepared in
quadruplicate for use of the Bookkeeping Department of the Federal Reserve Banks.
(e) Federal Reserve Notes would be listed upon a separate
letter and included in the total of tbe outgoing remittances.
(d) Unpaid cash Items would be charged to the Transit Department, wbere they wonld be listed upon a separate letter and
included In the total of the outgoing remittances for the day.
(0)
Cash letters from Federal Heserve Banks or Member
Banks would be credited only When received in time for use the
same day.
(f) Checks received by Member Banks, whlcb are payable
within a certain radius to be determined by the Federal Reserve
Board, would not be forwarded for credit to the Federal Reserve
Bank ot their district(g) The usual Reciprocal accounts, subject to check, would be
maintained by the different Federal Reserve Banks, for the purpose of coJIection of drafts, notes, coupons, and etc.
(h) Telegraphic transfers up to a certain amount may be
made through the Reclprocl1 accounts, while for larger amounts
It would be advisable to use the existing sub-treasuries or the medium of book transfers In the gold reserve at Wa.shington.
(I) Errors in listing, etc., would be adjusted by means of claim
tickets to be drawn and approved by the Auditor and signed by an
officer of the Bank.
(j) To defray the expense of labor, stationery, postage, depredation of eqUipment, etc., It would appear advisable to assess the
Member BankS upon the basis of the volume of business bandied
as compared with the expense involved.
(k) In view of tbe special advantages afforded ~lenlb(!r Banks
under the proposed plan, and to confine such. advantag'es to Banks
in the Federal Reserve System, Member Banks should be prohibited from depositing tranSit items which in turn have been de,
posited with them by non-Member Banks.
The endorsem"nt stamp of the Member Banks wuuld be:
Pay to the Order of
Federal Reserve Bank, Chicago, Illinois,
May 28, 1914,
Endorsements Guaranteed
(Name of Member Bank)
while the endorsement stamps of the Federal R"S<lrv" Banks would
be:
Pay to the Order of
Any Member Bank District No. 2
May 28, 1914,
Endorsements Guaranteed
Federal Reserve Bank
New York, N. Y.
Pay to the Order of
Any Federal Reserve Bank
May 28, 1914,
Endorsements Guaranteed
Federal Reserve Bank
New York, N. Y.
The accounting forms necessary to facilitate the [ll"ompt and efficient handling of this alternative plan wilt b" found in Portfolio of fot'ms No II, accompanying Appendix II, with which this
plan is correlated.
QUESTION OF TIME IN COLLECTION,
The usual method employed at the present time in the collection of transit items, contains as a most important fador the matter of "Outstanding Time," inasmuch as the Bauks are ohliged to
await the receipt of returns covering the settiem"nt of such items
as may have been forwarded to cOITespolldents for collection. Theoretically speali:illg, this burden should be bome by the depositors
of the Banks, as it would not be sound banking to permit the withdrawal of funds In the course of collection, but from a practical
standpoint It would be difficult to educate depositors not to check
ag-alnst outstanding items and must so regulate their hooks that
they may know at ali times what their ch<'!cklng halance really is.
Under the tirst plan discussed ahove, namely, that of withholding outstanding transit items from reserve balances of Memher Banks until such time as the checks are theoretically collected,
the problem of outstanding time Is admitted, but only partially
soived hy the decision that in order to lessen the burden upon the
Member Banks the outstanding time be cut in two; that Is, the
checks wlll be permitted to enter the reserve balances of the Member Banks upon the theoretical day of collection.
67
The first plan proposes as an offset to the deduction of
transit items from the reserve balanc!~s, to defer cbar'glng items
drawn upon Member Banks until such time as they have been received, ther'eby establishing a basis of equality.
For the purpose of carrying out the project, each Member
Bank, In addition to the Federal Reserve Banks, must as already
explained, be equipped with time schedules Indicative of the days
necessary for tbe collection of ch~ks, and upon the days of maturity, when the items are supposed to be paid, entries would be
made upon both the books of the Member Banks and the Federal
Reserve Banks, a plan whiCh would enable the coll~ted Hems to
serve as reserve lor the Member Banks; while In like manner the
checks which are forwarded by the Federal Reserve Banks to the
Member Banks, in ~cordance with the pre-arranged schedule,
would be charged against the balances of the Member Banks upon
the day they are supposed to have been received.
The Committee has been at pains to secure criticisms upon the
transit problem and finds that the idea of withholding credit until
items are collected is thought by many to have the following disadvantages:
1, It places a discount upon such inland exchang'e as may require the Federal Reserve Banks one dlty or more to collect,
2. It similarly p~es a comparaUve premium upon such
exchange as may be drawn upon Member Banks located within
the cities in which the Federal Reserve Banks are situated,
3. It might tend to discourage Member BankS from using the
faellIties of the Federal Reserve Banks, with the result that they
might either withdraW from the System or maintain the exact
amount of reserve required by the Act.
4, It might render the Transit System of the Federal Reserve
Banks more complex and to result in confusion, if not skilfully
conducted.
5, It might entail additional labor.
1), It might mean the maintenance of subsidiary records, both
In the Federal Reserve Banks and in Ule Member Banks,
7, It might be difficult of proof.
S. The most carefully planned Time SchedUle would be only
approximate,
9, The return of unpaid items from one Member Bank direct to another, when the items were originally forwarded by the
Federal Reserve Bank for credit, might result In error,
VIEWS OF A TRANSIT EXPERT.
By way of further elucidating the main points at Issue in this
matter the committee, without expressing final opinion, thinks best
to include In this report the following letter from an eminent clearing and transit expert to whom this subject was referred with a request for an opinion.
"In compliance with your request I have gone over the plan submitted to me regarding the method of handling items through the
Federal reserve banks, and beg to SUbmit the following suggestions:
6S
(1)
REGARDING THE RELATIONS BETWEEN THE
FEDERAL RESERVE BANKS AND THEIR MEMBERS
IN THE SAME CITY.
"As Federal reserve banks will not handle items on non-member
banks, or receive any Items from non-member banks, there does not
appear to be any necessity for a Federal reserve bank joining the
clearing house In the city In which it is located. Items which the
Federal reserve bank w111 have on member banks In Its own city
can be charged to their accounts with the Federal reserve bank and
a time allowance made the member bank for the redemption of unpaid Items.
"Items on member banks which fall into the hands of non-member
banks can be collected through the clearing house as at present.
The only servIce which W011ld be rendered by the Federal reserve
bank through the clearing house would be the facility of member
banks settling their balances with each other by cheeks on the Federal reserve bank.
"Checks on the Federal reser've bank which may fall Into the
hands of non-member banks can be deposited in the member banks
and it is probable that non-member banks In the Federal reserve
cities will carry accounts with member banks. They will either
have to do this to get the items cleared or wJl1 have to become
members of the Federal reserve system themselves_
"If the Federal reserve banks should allow clearings between nonmember banks and themselves, thIs would remove a strong reason
for non-member banks becoming members.
"Checks on member banks which are not members of the clearing house in the Federal reserve cities, shoulci be received on deposit by Federal reserve banks. This would provide a place of
redemption for items on outlying member banks, many of which
are located several miles from the downtown district and whose
Items have to be collected either by mall or messenger, and would
also provide a plaee of payment for the downtown member hanks
which are not members of the clearing house. This would be a
great aecommodatlon to the member banks. as considerable difficulty Is experieneed In handling the items of outlying banks.
""\Vhen Clearing House balances are settled through the Federal reserve bank, payment should be made by checks on the
Federal reserve bank rather than by memorandum showing
debtor and creditor balances, as then no dispute would arise
in making settlement.
(2)
RELATIONS BETWEEN THE FEDERAL RESERVE
BANKS AND THEIR MEMBERS OUTSIDE OF THE FEDERAL
RESERVE CITIES.
"In assorting the items for deposit in the Federal reserve banks
there does not seem to be any necessity to sort the items aecordlng
to the states, as state lines have not beell used In outlining the
districts.
"With reference to 'No protest' and 'Wire non-payment' instruetlons. besides having the items so marked, these Instructions
should also he written on the letter accompanying the items, as
69
otherwise the receiving bank would claim tlle instructions were
not given and the sending bank would not have the Item to prove
they had been given.
"With regard to the clearing system to be used in each Federal
reserve bank, it we are going to have a clearing system, why not
make it complete Instead of going only half way? All items received by a Federal reserve bank drawn on members in Its own
district should be credited when deposited to the reserve account
of the depositing member bank and charged at the same Ume to
the reserve account of the member banks upon which the checks
are drawn, thus doing away with a lot of unnecessary work for
the member banks, as well as the Federal reserve banks, in figuring the time taken for the Items to reach their destination.
"Tile system for clearing' tllese items should be as simple as possible, with a minimum amount of clerical work, otherwise the
member banks will clear their Items th"ough outside banks and
wit! not put them in the Federal reserve bank. The items going
through the Federal reserve bank on poiuts in its own district will
not change the deposits of the Federal I'eserve ballk. They will
only increase the balances of member banks on one side and decrease them on the other.
"The reserve balances of member banks will increase in the Federal reserve ballk just as much as they wlll decrease, and it Is
quite likely In the course of business that the reserve ballks wlll
carry more than the required amount of reserve with the Federal
reserve banks, and, instead of having to co)11t!nually make up their
reserve, there will be just as much nece&llty for reducing the accumUlations in the reserve account.
"Items on member banks outSide of the depOSiting member
Dank's district should not count as reserve, as the reserve hank
will have no ac<oount to reimburse itself {("om when the Items are
:!eposited. A separate ac,count ShOllld be cal"ried for each menlbel'
. hank which deposits items on member b:~nks outside of its own
rUstrict, as these items will be paid by a method described under
the heading, 'Relations Between Federal Reserve Banks '.rhemselves' and the transit account of the member bank wiil be charged and the reserve account credited.
"The transit accounts should be used only fOI' Items which are
depOSited 011 member banks outside of the district and on other
~~ederal Reserve Banks.
"Member banks should not draw check~ on the tranSit account,
but should draw all checks on the reserve account. This would
10 away with any necessity for figuring a discount rate of interest
'f the transit accounts should be drawn bdow the amount of coli~cted funds.
"As the member bank itself is tlte only one whkh knows the
amount Its reserve shOUld he, the Federal reserve banks cannot ascertain whether a bank is drawing below Its reserve or not, except
"'hen reports are received from the national bank examiner. It Is
up to the member banks to control their own reserves and to the
"ani! examiner to see that they live up to the law In this respect.
70
s} H~.LATIONS BETWEEN THE FEDERAL HESERVE BANKS
THEMSELVES.
"Items sent from the one Federal reserve bank to another should
bear th" endorsementa of Federal reserve banks which handle, so
that it may be known from the check how it has been routed. This
Is particularly necessary if items are missent.
"With regard to clearing items between the Federal reserve
banks, a system is suggested under which no Federal reserve bank
will have to open an account with another. Instead each Federal
reserve bank will carry an account with the Fed€<ral reserve balli,
to be selected as the central clearing bank.
"The Fedel'al Reserve Bank of Chicago Is well ffituated to act as
the clearing bank on account of its c€<ntral location and the exceUent transportation facilities betWeen all the Federal reserve
cities.
"The sUggested plan of carrying a portion of the gold reserve of
the Federal reserve banks In Washington would require the shipment of an enormous amount of gold from all the Federal res€<rve
dUes. which, besides being a great expense, as some of the gold
would have to come from as far away as San Francisco. would
also take away the gold from the west where it is needed for clrcUlation. On the Pacific Coast probably less than 10 per cent. of
the circulation is in paper money.
"Under the present United States Sub-Treasury system gold Is
divided among nine eities from New York to San Francisco. and It
would seem advisable to leave it where it is, so that when It has to
be shipped to member banks it will not have to go far and the express rate will be reduced to a minimum.
"It is also desirable to hold the expense of the Federal reserve
bank down as far as possible, in view of the fact that there are
twelve hanks, each with a separate organization Which will create
a large overllead expense.
''1'he Federal reserve bank whiCh will act as the clearing bank
will have little or no expense attached to this part of Its business
and it would only make an unnecessary additional expense 11Y depositing the reserves In Washington.
"Under the attached plan proposed reserve banks could make up
the deficiencies in their balances carried with the clearing reserve
bank by purchasing exchange, and gold shipments would be less
necessary under this plan than they would be if the plan Is adopted
of carrying the reserves In Washington.
"Under the plan of clearing through a Federal reserve bank ea{'.h
Federal reserve bank would know how it stood at the end of each
day's business, as the items would be cleared and settled for every
day. The cost of buying exchange to increase balances with the
clearing Federal reserve bank could be assessed on the member
banks whiCh deposited the Items In each Federal reserve bank and
could be added by the Federal reserve bank to the cost of handling
the (,hecks for the member banks, and In turn charged to the
drawers of the checks by the member banks, provided they saw fit
to cbarge the drawers.
71
"It is, however, likely that a member bank would absorb this
cost itself, except where the drawers do not carry satisfactory accounts,
"With regard to the incidental rules, regulations, etc., it does
not seem desirable to fix a limit of tW'lflty-five miles from each
member bank, thus denying the memb'!r bank the privileges of
the Federal reserve bank for the collect:ion of items on bankS located within twenty-five miles of the member bank. Inasmuch
as the Items can be charg'ed up to the account of the bank upon
which they are drawn When they are deposited, checks wlll reach
the Federal reserve bank for presentatlon in nearly all cases just
as quickly as they would reach the bank upon Which drawn if
sent direct by the member bank.
"Members situated in the Federal res.,rve cities should be permitted to deposit Items on other member banks in the same city
provided the depositing bank or the member bank upon which the
checks are drawn is not a member of thE' local clearing house.
"Referring to items bearing 'No prot"st' and 'Wire non-payment' instructions, the Instrnctions should appear on the letters
accompanying the items,
"Provisions regarding charging intere!;t when balances are below the net amount of collected fnnds, should be omitted, as previonsly explained,
"It wonld be very unsatisfactory to the member banks if the
Federal reserve bankS when they first sw,rt bnslness receive items
on only certain bankS in the larger citle,'S in the districts, These
banks wonld be compelled to ship cnrrency or bny exchange to
settle for the Items charged to their account by the Federal reserve bank, as they would not in tnrn be able to deposit
items which they would have on all the other member banks in
the district. Instead of picking out a numher of the larger cities
to start with, the Federal reserve banks could take a certain llumbel' of counties in each state and gr!ldually Increase the nnmber
until the whole district was covered. In this way there wonld be
very little burden npon member banks, as the Items would be
cleared in certain zones in which the memhers wonld have items
drawn on each other,
",,"Ith regard to (,.hecks on non-membel' banks, I can find nothing in the Act which permits the acceptance by Federal reserve
banks of items for deposit drawn on nOll-member banks, If the
Act can be constrned to permit Federal reserve banks to receive
such items, I do not think it would be good policy, as there would
be a much greater chance for non-member hanks becoming members if the checks were not handled by the Federal reserve bankS
t.han If these facllitles were extended.
"Checks on non-member banks will clrcl1late at a discount and It
is quite probable that non-memher banks will arrange fol' a place
of redemotlon for their cheCks through the clearing houses in the
Federal reserve cities in the effort to make their checks elrculate
on a par with the items on member banks of the Federal reserve
system,"
72
BUSINESS OF FEDERAL RESERVE BANKS.
The business operations of the Federal reserve banks will be
fundamentally of two distinct kinds:
1. Rediscounting for member banks.
Z. Purchasing specified kinds of paper in the open market
under the condltlona provided by the act itself.
From another point of view the business operations may be
divided as follows:
1. Domestic transactions.
2. Foreign exchange transactions.
The aubject may first be considered under the latter division
and then Inquiry may be made as to how the business should be
Viewed from the point of view of the division or classification
first suggested.
DOMESTIC BUSINESS.
The domestic business of the reserve banks will. as stated.
consist primarily In the rediscounting of paper for member
banks and in the purchase of paper In the open market. In
either case the question is raised how the act must be regarded
as applying to the nature of the paper dealt In. As will be seen
from a survey of its prOVisions, the framers of the measure attempted to throw about the rediscount and open market transactions a series of very careful and detailed restrictions intended to assure the liquidity and unquestionable commercial character of the obligations which were thua taken over by the
reserve banks.
COMMERCIAL PAPER.
It is recognized that th(l question what should be accepted
as commercial paper eligible for rediscount unde,· the act is
one of great difficulty, as well as one whl('h must inevitably
affect in a very profound way the operations of tlle reserve bani,s
from the beginning.
"Upon the endorsement of any of Its member banks,
any Io'ederal Reserve Bank may di~ount notes. drafts aud
bills of exchange arising out of actual tmnsactions; that ia,
notes, drafts and billa of exchang'e iasued Of drawn for agricultural, industrial, or commercial purposes, or the prOX'eeds
of which have been uaed or are to be used for such purposes,
the Federal Resefve Board to lk1,ve the right 10 determine or
define the character of the paper thus eligible for discount
within the meaning of this act."
Later, (in aectlon 14) Federal Reserve Banka afe given
power to
"Purt'hase and sell In the open market at home or abroad
either from or to domestic or foreign banks, firms, corporations or Indlviduala, cable transfers and bankers' acceptances
and bllls of exchange of the kinds and maturities l)y this act
made eligible for rediscount, with or without the endorsement of a member bank."
73
There are other provisions in the act which limit or modify
these fundamental clauses but consld;:,ratton of them may be
deferred for the present.
According as the "character of the paper thus eligible for discount" Is defined, the $Cope of the business to be granted to
the banks and to be undertaken by them will be greater or
less and the volume of their operations, and consequently the
extent of their aid to the community will be greater or less,
Various questions of a specific nature, t1lerefore, arise at once
of which the following may be mentioned:
1. ,"Vhat is commercial papcr in the sense in which the
term is used to-day?
2. Is this popular definition corre(,t, and should It be accepted by the Reserve Board?
3. If not correct can an immediate Change in definition
safely be made?
4, Is there any need for different treatment of the paper
made available for rediscount with the endorselnent of a member bank, and that to be purchased in the open market?
5. What Is a commercial, agrlcultul'Ul or industrial transaction?
6. To what classes of paper does it normally give rise, and
how can a banker assure himaelf that a given piece of paper
had arisen from such a transaction?
7, What diatinction if any SllOUld t,e drawn between paper
that growa out of such a tranaaction, and paper whose proceeds
are to be used In such a transaction?
By answering these questions the basia will Imve been provided for a thorough analysis of the provisions of the Fedel'ul
reserve act In regard to the use of commercial paper as a basis
for rediscount.
The language used in the section of the Federal reserve act
with reference to commercial paper is modelled Ilpon language
used in many proposals of legislation which preceded the reserve
act and whose PUrpose WUE that of sufficiently limiting the
types of paper presented for rediscount so as to avoid the use
of bank funds In two general classes of tJ'ansactions. The language was intended to be negative rather than positive and
the two types of transactions Which werf> regarded with disfavor
were the following:
(a) Those growing out of speculatiVe transactions or involving the use of funds tor promotion of speculation,
(b) Those involving the regular, steaily, provision of capital
for investment purposes with the Idea of supplying to different
enterprises an additional element of business support quite
different from the mere use of banking as an aid to the financing of cUrrent transactions.
Of course In addition to these negative limitations it was
Intended by the language employed to Il\'fWent the banks from
74
rediscounting paper that necessitated a too Nmote maturity and
naturally to avoid the rediscounting of paper whose soundness
was not altogether assured.
At the present time commercial paper as employed by credit
Institutions and banks generally includes the following types:
(a) Ordinary notes signed by an individual, firm or corporation and promising to pay a specified amount either on demand or at a stated time.
(b) Drafts secm'ed by documents (bills of ladin g, etc.)
which are discounted by banks and which bear two commercial names.
(c) Ordinary notes signed by individuals, firms or corporations either on demand or on time and protect(',d by stock,
bonds or other' collateral with a collateral ICk'tn agreement.
(d) Ordinary notes of the kind already specified protecf('d
by a chattel mortgage on crops and the like.
Investigation shows that of these types of what is ordinarily
called commercial paper today the ordinary single-name paper
constitutes a substantial proportion. Opinions differ as to tlro
relative amount of this paper as compared with other classes,
but there is general agreement as to its importance. Some large
concerns estimate that fully 90% of their business is transacted
on the basis of such single-name paper. The {',ommercial transactions growing out of or representcd by snch paper are in
general as shown in the following hypoth etlcal case:
A purc]lS8eS goods for his fall trade amounting to, say,
$1,000,000 from the X. Y. Z. Co. of New York City. Thcse are
bought on open account with, say, ninety days' credit.
A gives
no paper in exchange for them, the seller having simply his
general knowledge of A's credit to protect llim. The X. Y. Z. Co.,
however, offers A a discount for cash within a spfldfied time
(say, thirty days), and an additional discount for immediate cash
(say within ten days). In order to get this cash, A applics to his
bank, maldng a full statement of his transactions and Is granted
a loan for which he gives ordinary prOlUlssory not'"s. \Vlth the
funds thus obtained he pays off the X. Y. Z. Co., getting the
advantage of the discount, then settles with tire bank as thc
goods are taken up by consumers and paid for. The transaction
Is distinctly a "commercial" one and the paper growing out of it
Is commercial paper in the ordinary sense. In Europe, however.
the X. Y. Z. corporation would have insisted upon being paid
by a note slg'ned by A and would then have sold this paper or
discounted it. Or A might have Induced his bank to accept
drafts from the X. Y. Z. Co. (properly protecting the Institution) in which case Ure paper would have been an acceptance
beal"lng the name of the bank and the X. Y. Z. Co. It is desirable to stimulate the growth of true commercial paper of the
latter class as rapidly as possible for sevcral reasons. The closing up of the transaction by tile giving of the paper is In Itself
a good thing, leading to conservatism and caution In the husl-
7&
ness. The tendency of this method is also to distribute loans
much more widely, thereby creating a much better and more even
division of business among banks. The paper thus created can be
sold and traded in, and thereby a wider market with much greater
competition and consequently lower rates of interest, can be
secured. Furthermore such paper bea,rs on Its face, ordinarily.
the certification that it grows out of a, real "commercial transaction." The effort should undoubtedly be to work steadily
toward a situation which would encollrage the development of
this kind of paper and would ellminate or reduce as rapidly as
pOS>lible the present method of trading on the basis of one·name
paper.
SINGLE NAME PAPER PROVIDED FOR.
The conclusion that s~ems to be necessarily reached In connection with this subject, however, is that the Federal Reserve
Act distinctly contemplates and provid,)s for the use not only of
two-name but also of single name commercial paper. This is
seen in the fact that the act in the sedions already referred to
provides for the rediscounting not only of paper whose proceeds
have been used in the particular classes of transactions referred
to but also of that whose proceeds are "to be used" in that
connection. At one time during the progress of the bill through
Congress. the prOVision was even broadened by the insertion of
words including for rediscount such paper as might give rise to
tunds which "may be used" for the purposes referred to in the
act. It is believed, therefore, that Congress clearly and unequivocally Intended to recognize und"r the provisions of the
law both classes of paper. This, however, was upon the distinct understanding that such paper, whHher it bore one or more
names, was not to be admitted to rediscount unless it evidently
arose trom the classes of transactions referred to or was so
clearly for the purpose of providing funds fOI· such transaction
as to admit ot no doubt.
In the second place, however. it is believed that paper carrying two names bears on the face of It the evidence of a strictly
commercIal orlKin whleh sIngle-name paper never can, without
collateral evIdence, supply.
There Is, thel'efore, a prima facie
case In favor of two-name paper which does not exist in that of
single-name, and the question Is sugg:ested how single-name
paper. when admitted to redIscount as It evidently must be under
the terms of the law, shall be prevented from being used as a
means to obtain current capital or to furnish the basis for speculative operations. Various methods lmve been currently suggested, among them the plan of requiring each piece of paper
thus presented for rediscount to be accompanied by a certificate
on the part of its maker, or of the endorsing bank, or both,
that it has originated In connection with a transaction of the
permitted kind, Another method that has been put forward Is
to require such a general certificate on the part of each borrower,
Insisting that such certificate be made on('e and for all, or per-
76
haps at periodical intervals. Stili another suggested plan is
that of employing a form of note which shall incorporate into
its own text a statement that It represents funds whose use is
desired for a transaction of the permitted class.
Of these
various suggestions, the latter is perhaps the best and til ere
may be no harm in putting it into effect, but neither it nor
any of its predecessors would be likely to meet the require~
ments of the case completely. It is believed that this end can
be accomplished only by some process that will give absolute
assurance of the use of the funds advanced by the reserve
banks in the way contemplated by the law. Clearly, hoWever, the absolute assurance that the particular sum of money
advanced by the banks on rediscounted paper has been used in
the way prescribed cannot be obtained In practice, nor is there
any use in obtaining it, if there be certainty that an equal sum
drawn from the liquid resources of the concern receiving the
advance is so applied. The purpose of the Federal Reserve
Act Is thus fundamentally satisfied If eVidence be given that
the advances made are made for a commerCial pm·pose as
shown by the fact that the person or concern in Whose favor
they are made is engaged in actual business of tile kind referred to and is in a liquid condition. This fact can be asc€l·tained only by a direct audit of the affairs of the concern,
repeated as frecluently as circumstances may require, In order
to renew the assurance of liquidity which Is regarded as the
fundamental and essential test of the good faith of the con~
cern In making application for funds, not to furniSh callita]
for new enterprises or to take the place of capital that has
been sunk, but to carry through short period transactions.
A suggestion to Which very considerable attention has
been granted in responsible quarters is that of establishing
through action on the part of the Reserve Board a so~called
"differential rate" on commercial paper of tILe classes referred
to, the rate required to be charged by Federal reserve banks
fur the rediscount of single name paper, being fixed at, say,
'4 of 1% or perhaps at lh% higher than that to be charged
for two name paper, the paper of the two classes being supposed to be of equal safety, and the difference In rate being
designed merely to discriminate In favor of two-name pap'll".
This would probably be as effective a means as any for ac~
celeraUng the movement of the business community toward"
the substitution of double-name for slngIe-name paper. Pl·edsely how great the discrimination in rate would have to be,
and precisely how far it would need to be varied between the
several Federal reserve districts Is a question that cannot positively be answered pending the definite organization of the
districts and the creation of the banks as working units In
each of them. The idea is merely suggested here as indicating
a feasible and deSirable mode of bringing about the end in view,
assuming of course that the application of the method Is care~
'17
ttll so that no injustice may be done through the charging of
the higher rate to the paper which Is less favorably regarded.
Still another plan Is that of restricting the total amount
of single name paper admitted to rEdiscount to a given percentage of tlle gross rediscounts of the reserve bank In question. This plan has been carefully considered and is believed
to be desirable. The estimates that have been made by authoritative persons concerning the l)rOper amount of single
name paper In relation to two-name vary considerably, some
taking the ground that not to exceed 25% of the total rediscounts should consist of single-name and others that not less
than 50% might safely be allowed to consist of that kind of
paper. It Is believed that no definite percentage of this kind,
applicable to the whole country could be fairly established.
Inquiry has shown quite conclusively that in some parts of the
country there Is much more two-name paper than elsewhere,
business habits having developed ,;omewhat differently in
different communities. The restriction ot the relative proportions of two-name and single-name paper, through rules to
be issued by the Federal reserve board and to be applied by
the boards of directors of the sever(\1 Federal reserve banks
can be scientifically developed when it Is seen through the
early experience of the banks in about what proportions the
two classes of paper are presented for rediscount. It may
easily appear that the proportions in which the paper is offered
to the Federal l·eserve banks will vary quite materially from
those in which it has heretofore been offered to Individual or
member banks. No definite relationship can be laid down with
certainty In advance. It can only be stated that wherever possible, the proportion of single-name paper allowed to figure
In the rediscounts of a Federal reserve banlt: should be confined
to the lowest basis conSistent with the welfare and convenience
of the business community.
A proposal worthy of mention In this same connection but
requiring care in Its consideration Is that note brokers who
sell single-name paper to banks of the Federal reserve system
shall be required personally to endorse the paper they thus
dispose of. In support of this propoSition it Is urged that the
custom prevailed in Europe and has been found effective there.
This Is only partially true, conditions being quite different
abroad from what they are here, but it is probably the case that
everything possible should be done to stimulate a greater degree
of responsibility on the part of note brokers. At present there
are many individuals and concerns In the note-broklng business
whose financlal responsibility may be a matter of some doubt
!I.nd Whose prlnclpal effort Is to dispose of as much paper as they
can, thereby securing tor thenlseIv.,s the largest possible
amount of commissions, On the otller hand, it seems hardly
desirable to take a step that would tend to produce a condition of monopoly or semi-monopoly in the note business. To
78
require endorsements of the kind referred to would undoubt.
edly tend to drive the smaller concerns out of business and
would likewise tend to promote the formation of very large
corporations organized for the purpO$e of lending their signatures to commercial paper, thus making it available for use
by reserve banks. In this same group of suggestions, 1$ the
recommendation that the note broker whose paper Is purchased by the reserve banks through member banks $hall be
required to be regularly examined and audited by a sati$factory
accountant. There Is no objection to this requirement pro.
vlded that It be properly applied and that the audit or examination be made under conditions that will not be unreasonably onerous or of a nature to entall unnecessary or excessive
expense upon the broker.
GENERAL SUMMARY.
Summarizing these suggestions, therefore, we may fir$t eno.1merate the recommendations which it is believed are at all
events not feasible at the present time.
1. Exclusion of slngle·name paper whose proceeds are "to
be used" for commercial purposes.
2. Narrow definition of the words "agricultural, commer·cla!
or Industrial purposes" or transactions.
The purposes which should undoubtedly be sought and the
recommendations corresponding thereto are as follows:
1. Exclusion of all paper of every kind from rediscount
unless those responsible for It are able to make good tile con·
tention that its proceeds are intended for facilitating or carry·
Ing out a genuine current business transaction of a kind that
$hall be self-liquidating within the period set l;Iy the language
of the act.
2. Requirement of all possible classes of Information on
the part of bankers, notebrokers and others bearing upon the
origin of the paper offered for rediscount and the purposes to
which its proceeds are to be applied.
'I'lle detailed methods that have been suggested for the attainment of these objects and which It Is belleved will prove
more Qr le$s useful are as follows:
1. Regular audit of firms or corporations placlng slnglename paper on the market in order to assure tllelr absolute
llquidity and solvency and the liquidity of Its assets.
2. Regular audit of note brokers in order to Insure abso·
lute knowledge of broker's responslbtllty.
3. Endorsement by note broker of all paper passing through
his hands and ultimately presented for rediscount.
4. Restriction of single-name paper to speclfled percentage, say, 25 to 50%, of total paper rediscounted by a reserve
bank.
5. Establishment of differential rate of rediscount for single-name and two-name paper In order to favor the latter type
of security.
79
6. Use of specified form of note or certificate intended to
indicate type of transaction giving rise to paper.
The following points at least are. however, deemed essential
in determining the practice to be followed by reserve banks:
1. Commercial paper must be broadly defined as including two-name paper given in lieu of cash for goods sold and
bearing the name of maker and end.)rser, if discounted, and
single-name paper which is largely discounted or sold to provide cash in anticipation of future purchases and sales, Where
tlle price of the commodity inVOlved has been fixed, two-name
paper, so far as the seller is concerned, represents a closed
transaction, whereas In the use of single-name paper, representing as it does principally money borrowed for future transactions, the price remains to be fixed by seasonal demand and
trade limitations.
2. From an economic standpoint, two-name paper may
be regarded as having no inherent quality that will develop Inllatlon, while single-name paper involving, as previously stated,
future transactions, may (though not necessarily) promote apeculatlon and thus develop price inflation. Member banks, therefore, shOUld carefully analyze the buslneaa on which singlename paper is to be predicated, dil'ferentlatlng sharply, for purposes of rediscount, between that which is to be used to finance
accounts receivable or strictly seasonal requirements, and that
Which is to finance a floating debt or be used for the extension
of business that cannot be readily liquldated.
3. Single-name paper, secured or unsecured, must bear the
name of a solvent party whose responsibility is secured by the
filing of a satil!factory statement made within one year prior to
tho date of the discount, or by the filing of a certified copy of
such a l!tatement by a responl!ible penson who is In pOS8el!sion
of the original.
4. Such paper must bear the endorsement of a member bank
and be accompanied by a statement attached to its schedule of
application for rediscounts, signed by an officer of !!aId bank,
to the effect that to said officer's best knowledge and belief the
proceeds of the notes discounted have been or are to be used
for commercial, Industrial or agricultural purposes of a current
nature. Such schedule of application must be classlfted (on a
standard form), giving the kinds of bustness supported by
individual items.
5. Such paper must have a matUrity at the time of discount
of not more than ninety days, except In the case of notes, drafts
and bills drawn or issued for agricultural purposes or based on
live stock, which may have a matUrity of not exceeding six
months. The total amount of such six months' paper to be
taken by anyone Federal Reserve Bank, however, shall not
exceed ., .•.• ,..... per cent. of the capital of said bank.
6. Any Federal Reserve Bank may discount acceptances
(bank or other than consignee) based upon the importation or
SO
exportatlon ot goods and which have at the time ot discount
a matul'ity of not mOl'e than three months and are endorsed by
at least one member bank. The amount of acceptancea so
discounted shall at no time exceed one-half the paid up capital
and surplus of the !.>ank for Which the rediscounts are made.
7. Two-name paper must bear the names of two solvent
parties, the maker and the endorser. The responsiblUty of one
being r(lasonably assured by customary credit statements, or
the opinion of an officer .:or dkector of a member bank formally
stated and filed.
8. Such paper must bear the endorsement of the member
bank and be submitted on a schedule separate and apart from that
used for single-name papel", but Similarly classified as to the ldnds
of business involved.
9. Such paper must have a maturity at the time of discount
ot not more than ninety days, except as provided by the act for
six months' paper based upon agricultural products or live stock.
10. It is recommended as a general practise that at least one
party involved in the discount of two-name paper be required to
file a statement with the member bank.
FUNCTION OF OPEN MARKET OPERATIONS.
At this point some attention may be given to the qUestion
of open market operations. Section 14 of the Federal Reserve
Act grants the Federal Reserve Bank power to deal in gold
coin and bullion to buy and sell bonds and notes of a public
character, to purchase and sell bills of exchange with or without its endorsement and to establish such agencies as It may
deem best for the purpose of dealing- in bills of this kind. It calls
tor the formation of certain rules and regulations by the Federal
Reserve Board, Involving(a)
(b)
Open-market purchases of commercial paper and exchange;
Government bonds and ShOI·t-time Government, State,
municipal, and other bonds, notes, and bills.
\Vith reference to these classes of bUSln<)ss tbe following pOints
an, noted:
(a.) The scope of open-market operations, so far as the question oi individual and corporate credit is concerned, must rest largely with the purchasing bank, subject to suggestions based upon
analyses by the credit department of the Federal Reserve Board.
It wl11 be necessary, however, for the Federal Reoorve Board from
time to time to make regulations involving-
1. The amount of any particular paper permitted to be held
by anyone bank and the aggregate amount of such
paper to be held by all tbe Federal Reserve banks;
2. The total amount ot all open-market purchases held by all
Federal Reoorve banks.
81
The necessity for such regulations is apparent. The open-market
section of the bill was primarily provided to give the Federal
Reserve Board the necessary economic control of the domestic
money market and to preserve a proper equilibrium in international relations. Specific rules formulated In advance on tills
general subject are, of course, Impracticable, 'I'he rules when established wiil, moreover, have to be Yarled somewhat from time
to time.
(b) The Federal Reserve Board sh'mld trom time to time tormulate rules and regulations covering l,urchases and sales involved
In SUbdivision (b) of Article H, limiting the volume ot securities
Which it would be appropliate tor anyone Federal Reserve bank
to purchase, and also in contemplation of the aggregate volume
held by all such Federal Reserve banks. The intent of the act is
to have such securities purchased., wiUl the exception of Government bonds, somewhat approximate the fiuid quality of commercial
paper. It will therefore be Inadvisable tor banks to purcbase any
revenue bills or bonds that are Issued in the aggregate in excess
of the amount of revenues received by the respective States, districts. or municipalities beyond the amount Which experience shoWS
was received on the annual average of the last preceding two years.
No bills Of bonds should be purchased which are not issued In
anticipation of specific levies or revenues, Federal Reserve banks
should file with the Federal Reserve Board comprehensive statements Involving the experience of all districts and municipalities In
relation to taxes and revenues received, and amounts borrowed tor
the last preceding two years, When pur(,hases are contemplated.
Banks desirous of purchasing irrigation, drainage, and reclamation district obligations maturing within six months shall, prior to
making such purchases, file with the Federal Reserve Board a
statement of revenues, ex.pendltures, and borrowings of sucb districts for the last preceding three years. In all cases both as to
State, municipal, or Irrigation, dralnag., or reclamation shortAlme
Instruments, where any question is Involved not herein CQvered,
specific action will be taken by the F',derai Reserve Board based
upon the facts presented.
The open market prOVisions of the act are of very large
importance in two ways:
(a) In permitting Federal reserve banks to place their
resources at the disposal of constituent or membef banks even
when such constituent or member banks do not apply for rediscounts, Inasmuch as the law allows the reserve banks to buy
the paper directly in the open marl>et and thereby to Insure
the placing of Its tunds in active use shouid occasion demand.
(b) In permitting a reserve bank in one district which has
surplus funds to relieve the strain upon reserve banks In other
districts by buying such surplus of paper as m!l.Y have (lome
upon the market In those districts, thereby preventing banks
in these places from being compelled to refuse to grant rediscounts in cases Where the supply of paper is In excess of the
82
capacity of tIle banks to take care of at the seasons of the year
when an exceptional degree of strain Ilas made itself felt.
Much has been said of tIle effect of the open market transaction In enabling the reserve bank to get funds out Into active
use at times when they would otherwise be out of use.
There are some limitations upon tbis idea that have probably not been sufficiently considered.
Under ordinary circumstances, the reserve banks will not compete with their own
members and while they may be expected to compete with
certain individual banks even among theil' own stockholders
under special or I)Cculiar circumstances they will naturally do
so only when such action is rather urgently demanded. A quite
different condition of affairs will exist with reference to the open
market transactions, relating to paper put out in other districts. In so far as this represents a field of activity which is not
occupied, or occupied only in a limited degree by individual
banks, the reserve banks may be expected to become active
bUYers of paper originating' in such othel' districts.
FOREIGN EXCHANGE OPERATIONS.
The second principal element in the business of the Federal
reserve banks will be that of dealing in foreign exchange and
of transmitting funds abroad.
Precisely what relation tM>!
business will bear to the general business of the reserve banks
themselves, cannot be predicted, and will undoubtedly vary
considerably from bank to bank, according to the particular
type of business developed In each of the several institutions.
At some of the banks the foreign exchange service may at
times be of preponderating importance while at others It Is
entirely possible that the work may be sporadic or Incidental.
In the case of some of the banks. it may be found deslrahle to
conduct the exchange operations entirely through the medium
of other reserve banks.
Nevertheless the conduct of the e::<challge operations for
the system as a whole will be of primary Importance and will
amount to a general control of the foreign financial and monetary relationships of the United States.
The provision of the Federal Reserve Act relating to foreign
exchange operations Is found in section 14 wllere it is provided
that the banks shall hav~ authority;
''To open and maintain banking accounts in foreign countries appoint correspondents. and establish agencies in such
countries wheresoever It may deem best for the pUt'pose of
purchasing. selling. and collecting bills of exchange, and to
buy and sell, with or without its endorsement. through such
correspondents or agencies, bills of exchange arising out of
actual commercial transactions which have not more than
ninety days to run and which bear the signature of two 01'
more responsible parties."
83
The banks are also authorized;
"To buy and sell at home or abroad bonds and notes of
the United States and bills, notes, revenue bonds and wafrants with a maturity from tho date of purchase of not
exceeding six months, Issued In anticipation of the collection
of taxes or In antlclpation of the receipt of assured revenue."
In section 13, It Is provided that:
''The rediscount by any Federal Reserve Bank or any bills
receivable and of domestic and foreign bills of exchange, and
of acceptances authorized by this act. shall be subject to
such restrictions. limitations. and regulations M may be imposed by the Federal Reserve Board."
It Is thus seen that the Federal Reserve Act makes express
provision not only for dealing In forels·n exchange and securltiea.
but also for the mechanism necessary for such exchange transactions and finally for the regulation and control both of the
foreign agencies and of the transactions themselves by the
Federal Reserve Board through its r<)gulations.
It is therefore necessary to Indicate ftrat of all the conditions under Which the reserve banks l>hould operate abroad and
their relations to the member banks engaged In similar business as well as to one another.
It Is recommended that above all In dealing in foreign exchange the FedeFal Reserve Banks shOUld act together as a
unit. While t.his is not necessary, and While the reserve banks
could undoubtedly do a succeSSful foreign exchange business
independently of one another, each establishing its Own agencies
as it saw fit. it is believed that better results would be obtained
if the reserve banks at least had general knowledge of one
another's transactions and were requl red to act together so far
as conditions would permit. It is, therefore, recommended that
the polley to be prescribed with refel·ence to foreign exchange
by the Federal Reserve Board shall be uniform and that there
shall be as little opportunity as possible for the development of
conflicting or unnecessarily dupllcatlng orders and policies.
Moreover, it is believed that the establishment of agencies by
each and everyone of the banks would be an unnecessary expense. It is, therefore, suggested that In selecting agents or in
establishing offices abroad, the reserv,) banks shall be required
to act jointly. Joint offices for all the reserve banks will ultimately need to be established in each of the prinCipal finanCial
centera in foreign countries and pending the time that such
joint office is establlshed, It Is recommended that consent be
given only to the establishment of agencies which shall jointly
act for all of the Federal Reserve Banks. The details of this
proposal will be fully considered in connection with the question of establishing branches in general,
GENERAL SCOPE Oil' FOREIGN OPERATIONS.
It is possible that the Foreign operations of the Federal
Reserve Bank will not be large at first. The ordinary clearance
operations of commerce are handied eagerly and aAequately by
banks already engaged in foreign excllange. Except in cases of
stress all exchange is easily absorbed at the current price. It wlli
be necessary, however, for the Reserve Bank to stand ready to
negotiate all bills of exchange that may come to It from member banks In outlying communities or from other Reserve Banks.
Rather should the position of the Reserve Bank In this field
be that of an overflow reservoir, recouping Its balances from
the credits created abroad by other Banks engaged in such
business and making such advances from time to time as may
be necessary to facBltate absorption of exchange or protect
gold reserves, that Is to say. not Interfering with member banks
but operating rather from a broad economic standpoint. The
Reserve Bank can act as the medium through which the
necessities of the Post Office for Foreign Exchange to meet the
requirements of the Foreign Money Order Division may be
liquidated and otherwise as foreign Fiscal Agent of the Government. but must give due consideration to the development of
offsetting business. It may be needless for many of the Reserve
Banks to enter the foreign field, much depending upon their cooperation through a common agency, It is a matter of grave doubt
as to whether It will be necessary for more than one to do so at
the start as even nnder present conditions the Foreign Exchange
market for all banks engaged in Foreign Exchange wheresoever
located is in New York City. However this may be, the relations of the Federal Reserve Banks and either member or nonmember banks In the Foreign Exchange field SiIOUld be sympathetic, The Federal Reserve Bank should have perfected 0.11
the machinery to make it a dominant leader to marshal the CQII,"ctlve forces of the exchanges In times of stress,
FOREIGN REPRESENTATIVES.
Arrangements will necessarily be made as soon as feMlble to
secure banking connections in all of the principal banking centres
of the world. It will be unnecessary to establish actual branches
in all those places where there are already good banking faclllties unless the Federal Reserve Board should deem it wise to do
so after a general survey of the whole field, The existing facllities afforded by foreign hanks or even by branches of American
banks will afford all that wouJd he supplied by an Independent
branch. Whether it wlll be deemed best In spite of this fact to
create actual bl·anches with Independent banking houses and
assigned capital in all plac/JS where good hanklng facilities already
exist Is a matter of policy as to which no dellnlte statement can
here he made, The general qUestion of branches and the creation of such branches ahroad will be given special attention at a
later point to which attention Is accordingly directed, It will at all
85
events be found that In not a few places the appointment of representatives will probably be necessary. owing to the fact that adequate banking facilities for the promotion of American commerce
are not available there.
CONDUCT OF BUSINESS.
It Is recommended that the services of a foreign exchange
expert of Imown ability who is at thn same time familiar with
banking in its broadest sense shall be secured. This expert should
probably be given the rank of an officer corresponding to that of
a vke president In an ordinary bank.
Under his direction and
through the me<lium of a deputy acting as his fI&'llstant, the
foreign opHations of the hank should be carried on. This foreign
exchange expert wlU find it desirable at the outset to secure without delay ~'Onnections, whel.her through the creation of branches
or not as may later be decided, with the principal European centres
particularly Including London, Paris, Berlin, Hamburg, Frankfort,
Antwerp, Amsterdam, Rome, Naples, Vienna, St. Petersburg and
Zurich. Exchange should be acquil·ed by him with prudence and
judgment as to money market conditions at all points, the major
portion ot resulting balances being of course held In London. His
funds thus obtained should be employed In the purchase of shortterm paper and bills of exchange as specified unde!· the law according" as business requirements demand.
The rule to be observed, however, should be that of having the holdings of ex.
change In the most liquid fonu.
Dealings in exchange should be
carried on both at home and abroad, but it would probably he inadvisable to enter the field as an aggres.31ve operator. The policy
to be constantly observed Is, unquestlonahly, that of providing a
secondary reserve for the reserve bank.
Precisely bow much
should he regularly Invested In excha.n.ge with this object in view,
.:annot be laid down In any definite manner, and, as will be later
indicated, could at most he limited to a given percentage of the
operations of the reserve bank, although even that is not In this
discnsl<ion dell nil ely fixed.
The funds Invested in exchange will
of course return an income, but the principal object should he
as already stated, that of provIding tlte secondary reserve referred to. It is prohable that ultimately a considerable quantity
of ordinary exchange operations will b,~ undertaken hy the reserve banks engaged In this branch of business, but no steps
should be taken to force SllCh a growth, it being permitted rather
to gain a natural development Incident to the regular progress
of the Institution carrying on the operations.
For the purpose of making clear tho details of policy which
must be observed In carrying on the foreign exchange business
of the reserve banks upon the basis already described a compl"te
.set ot regulations designed to govern the management of the
foreign exchange department of the reserve Imnk has been worked
out as an element in this discussion.
'fhey are as follows:
86
I.
Manauer.
(a) There shall be in charge of the Foreign Exchange Department of each Federal Reserve Bank, if such a department be
developed, an official to be known as the "Manager of the Foreign Excbange Department," seleded by the Board of Directors,
who shall receive an annual remuneration to be decided by the
Board,
( b) This official shall have been actively engaged and be experlenred In Foreign Exchange operations.
(c) Upon appointment, the offlclal mentioned shall furnish
bond of good and sufficlen t surety In amount of $,.",
(d) The duties of the manag'er of the exehange depat'tment
shall be to control the funds of the Reserve Bank carried in
Foreign Exchange. He shall have entire charge of the buying and
selling of all checks, dl'alts, demand or time, cable transfers, Ellis
of Exchange, gold coin, buUlon. and any other Instruments, securities, properties and commodltills that the Reserve Bani, is
authorized to buy or sell under the Law subject to tbe Regulations hereinafter provided.
(e) The managet' shall have the power to employ, through
the chftnnels provided in the Regulations, sueh assistants as he
may deem neeessary to carryon the business of his Depm'tment. He shall make such recommendations as he may deem
advisable for the expansion or Improvement of the Bank's Foreign Exchange operations to the President.
(f) He or his assistants shall through the usual clerical channels suhmit dally to the President a report of his operations,
showing purchases and sales of exchange, prices at which such
purcbases and flales were made and the disposition of the Reserve
Bank's foreign halances. It shall be his duty or that of his desIgnate{l assistants to authorize all transactions, approving all
purcllases, sales and other operations. subjeet to the rules and
regulations of the Board of Directors.
There shall also be
submitted to the Board of Directors and to the Federal Reserve
Board a monthly report and such other reports as the Federal Reserve BQal'd may deem advisahle or necessary.
(g) He shall have g'enerai supervision under the direction of
the President of the exchange operations of all of the bank's
foreign agencies and branches. The Board of Directors shall arrange for systematic reports from all Foreign Agents and Managers of Foreign Branches.
(h) There shall also be selected by the Board of Director's an
ASSistant Manager, who shall act as general assistant. Before
reeelving appointment he shall comply with the requirements of
paragraphs Band C
He shall receive a compensation to he decided by the Board.
II.
Funds to Be Invested in Foreign Exchange.
(a) Unless at the express direction of the Board of Directors
or the Federal Reserve Board, there shall at no time be invested
In Foreign Exchange an amount exceeding . • . . percentum of the
Reserve Bank's demand liabilities after deducting from the total
of such demand liabilities the total of gold and lawful money on
hand or in transit to the Bank, such sum invested, however, not
to Include the working' capital of any branch that may be established in accordance with the law. Any Federal Reserve Bank
not regularly engaged in Foreign Exchallge operations may at the
diacretion of Ita Board of Directors, Invest in Foreign Exchange
or transact any and all Foreign bus\iwss eligible under the law
and clear such transadions with foreign countries through the
medium of the Foreign Department of any other Reserve Bank
that may he actively engaged in Foreign operations, and such
other I<'ederal Reserve Bani, shall separately record any and all
}o'oreign transactions it may perform for any Reserve Bank independent of Its own operations, and sha,1I render a separate and
distinct accounting therefor, and may receive a compensation
from such other Federal Reserve Bank for so acting" such compensation to be fixed by the Federal Reserve Board on the basis
of the periodical turnover.
(b) When gold coin, Qt' bullion is purchased In foreign countries, out of the amount invested by a Reserve Bank in foreign
exchange, for the purpose of importation into the United States,
such amount shall immediately be deducted from the, total co.rrled as F'oretgn Exchange, and shall be regaxded as part of the
gold reserve of the Bank.
(c) When importations of Gold are desired, at the discretion
of the Board of Directors 01' at the direction of the Federal
Heserve Board, Hanks or Bankers may b" employed to import Gold
for the acconnt of a trederal Heserve Bank.
In such cases the
gold coin or l>lllllon must be eon signed to the Federal Reserve Bank
making the advance and shall be regarded as part of the Gold
Heserve of the Fe(leral Reserve Bank, when in transit.
(d) No clean Bill of Exchange drawn on parties other than
Banks or Bankers shall be negotiated by a Federal Reserve Bank
without the endorsement of a member Bank,
(e) Clean Bills of J;:xchange drawn on Banks or Bankers at
longer time than sight, (snch maturities. however, not to exceed
ninety days sight) may be negotiated by a Federal Reserve Bank
upon the guarantee of acceptance of a member Bank.
({) Documentary Bills of Exchange drawn on parties other
than Banks or Bankers at longer time tllan Sight, provided, however, at not longer than ninety days sight, and where the documents are deli vel'aille upon acceptance may be purchased by a
l:>'edernl Reserve Bank only with the endorsement of a member
Bank.
(g) All documentary Bills (f Exchange drawn on BankS or
88
Bankers of :whatsoever tenor in accordance with Sedion 13 of
the Federal Reserve Act may be negotiated by the Federal Re.
serve Bank with the guarantee of acceptance of a member Bank.
(h) Cable transfers, checks, drafts, and bills of exchange
drawn by responsible Banks or Ba.nkers, at the discretion of the
Manager, may be purchased by the Federal Reserve Bank, sub.
ject to regulations of the Board of Directors.
(1) The liability, direct 01' contingent, unless secured, of any
Bank or Banker member or non·member shall at no time exceed
. . . percentum of the capital, surplus and undivided profits of
such Bank or Ranker where the amount of capital, surplus and
undivided profits is pulJllshed by requirement of law.
'Vhere
such capital. surphls and undivided profits Is not so detflrmlnahle,
to not exceed an amount to be fixed as a line by the Board of
Directors subject to review by the Federal Reserve Board.
(j)
The outstanding liability of any foreign Individual, firm.
corporation, Bank or Banker, by reason of acceptance on unma·
tured Bills of Exchang'e held or re.dlscounted by the Reserve
Bank shall at no time exceed . . . pel'centum of the capital, sur·
plus and undivided profits of such Bank or cOl'poration, and where
the capital, surplus or undivided profits are not so determin·
ahle, to not exceed an amount to be fixed hy the Board of Directors. subject to review by the Federal Reserve Board.
(k) The liability of any Individual, firm or corporation as
drawer or endorser of any check. draft, hill of exchange, or other
Instrument negotiated by a Federal Reserve Bank in its foreign
operations shall not exceed a line to be fixed by the Board of Directors, subject to review by the Federal Reserve Board, and a record
shall be kept of the total liabilities of each individual, firm, or
corporation.
(I) A Federal Reserve Bank shall not purchase and have
outstanding at any time In unmatured drafts drawn on Foreign
points, where the docl1ments underlying su{'h dl"tlfts are to be
surrendered against payment only, an amount in excess of
. . . percentnm of the total amount available for use in Foreign Exchange operations by such Federal Reserve Bank.
(m) A Federal Reserve Bank shan purchase Foreign gold
coins of fineness fixed under the laws of the {'ountry where such
coins were minted at the mint price of $20.6718+ per fine ounce
whenever such coins are presented to it, and such coins when·
soever and howsoever acquired shall constitute a part of the
Gold Reserve of the Bank; providing. however, that at no time
does such amount of Foreign Gold coins exceed In amount . . .
percentum of the amount of Gold the Bank Is obliged to main·
taln by law.
(n) Whenever a Federal Reserve Bank purchases {'able transfers from member or nonmember Banks or Bankers, or any other
parties whatsoever. payment for the equivalent shall not. be made
until the Reserve Bank Is advised by telegraph of the re('eipt of
such payment by its Foreign Agent or Branch unless otllerwise
guaranteed.
89
(0) Whenever the Federal Reserve Bank sells cable transfers,
it shall be in receipt of payment before it may direct such
transfer.
(p) On all purchases or sales of Bills of Exchange and other
Instruments except cable transfers by a Reserve Bank, payment
shall be made in the case of purchase to, and In the case of sale
by, a Federal Reser-ve Bank immediately upon delivery of the Rills
of Exchange or other instruments purchased or sold,
(q) Any or all of the restrictions Imposed by these regulations may be temporarily suspended by the F<lderal Reserve Agent
subject to review by the .£<"ederal Reserve Board,
III,
Correspondents.
(a) There may be selected as required in each principal banking centre of the world at least one bani, or banker as correspondent subject to the consent of the Federal Reserve Board. From
time to time or as the requirements of increased business may
direct, and subject to the consent of the Federal Reserve Board,
the number ot cOl'l"espondents In any banking centre may be increased to two, except as provided In the following paragraph.
(b) Wherever possible, ali correspondents of the Federal Reserve Banks shall be branches of American banks established in
such foreign banking centres, and whel'e there may be more
than one branch of an American Bank the business of the Federal Reserve Bank shall be distributed among such Branches In
the approximate ratio that the several b.'tnks' capital and surplus shall bear to each other,
(c) Such correspondent shalt render a dally report of receipts. disbursements, discounts, and any and all operations undertaken at the direction of or for the account of a Federal Reserve
Bank.
(d) S1Ich correspondent shall render a monthly statement of
the account of each Federal Reserve Bank shOwing in detail all
entries to its account and a memorandUm of all interest accrued
and charges, showing such charges in detail, It shall further
send a monthly schedUle of all Bills of Exchange, drafts 01' other
instruments, . or other property that It may hold on behalf of a
Federal Reserve Bank, indicating amount, drawee or acceptor,
maturity, and collo.teral to such instrum~nt, If any.
(e) Such correspondent shall once ,~h week provide each
Reserve Bank with a statement of the contingent liabilities of the
Reserve Bank by virtue of endorsement on Bills of Exchange or
other instruments which have been discounted or sold on behalf of and for the account of the Reserve Bank.
(f) There shall exist between the Reserve Banks and correspondents a secret code suitable to t.he transaction of their operations and messages under sucb code shall be protected by a cipher
in the possession of the senior officers of the Reserve Banks, the
managers and their Immediate assistants.
90
IV.
BrancM3.
(a) The Board of Directors of each Federal Resel've Bank may
from time to time. subject to the ('on sent of the Federal Reserve
Board, establish such foreign branches as may be deemed neces.
sary or expedient, and unless at the express direction of the
Board of Directors or the I"ederal Reserve Board each Branch
shall use (as fixed wOI'klng capital) an amount not in excess of
. , , percentum of such Reserve Dank's demand liabilities after
deducting from suc,h liabilities the amount of gold and law fill
money on hand or in transit to the Bank.
(b) All Foreign branches shall be officered by the following,
seniority in the order given:
1 - Manager.
2 - Assistant Manager.
11 - Accountant.
(c) These Officers shall receive remuneration to be fixed by
the Board of Directors.
(d) The Manager shall have entire charge of the Branch, sub·
ject to the direction of the l<'ederal Reserve Bank or banks creat·
ing such Branch. His duties shall consist of selecting the Branch's
Investments. developing' new business, buying and selling Bills of
Exchange, gold coin, bullion, obligations of the United States, or
any other security eligible by law to be negotiated, subject to
the Uegulatlons of the Home Office.
He and his assistant shall
he respon'5lhle for all monies, securities and any and all assets
of the Branch and shall make such provision for their safe guarding as may be deemed necessary.
(e) The Assistant Manager shall have charge of the staff
and the office, and Shall assume charge In the absence of the
Manager.
(0 The Accountant shall have entire charge of the accounts
and records of the Branch. He and his assistant 01' assistants
shall make such examinations from time to time as they may
deem necessary 01' as they may be directed. He shall render
a dally balance sheet to the Manager and shall submit to the
Resel'Ve Bank such statements of the affairs of the BranCh as
are required by the Regulations. In the absence or disablllty
of both the Manager and ASSistant Manager, the Accountant
shall assume charge of the Branch.
(g) A Branch shall make a dally report by mall of Its opera·
tions to the Reserve Bank, accompanying Which shall appear the
copy of the balance sheet of such Branch as of the close of busi·
ness the preceding day, and shall submit a weekly report of all
contingent liabilities by endorsement of Bills, etc" sold or discounted, and sball further suhmlt a list of all liability or Indivld·
uals, firms or corporations to the Branch wbether as drawer,
endorser, guarantor or acceptor,
91
(h)
On the last day of each calendar month the books of a
branch shall take UP In Its Profit and Loss Accounts and Expense
Accounts, all interest, commissions, expenses and all other determinable Incomes or eXpenditures, and an analysis thereof shall be
suhmitted over the Manag'er's signature to the Reserve Ban]{, in
duplicate--one copy to the President of the Reserve Bank, and
the other to the manager of the foreign exchange department.
(i) A schedule of all Bills of Exchange, drafts, checks, notes,
or other secm"ities and properties held by the Branch shall be submittel! once each month; such schedule shall Indicate amount,
drawee. acceptor or payor, tenor, maturity. and collateral. if any.
(j) As of the close of business the mat days of February. May.
August, and November. the books of eaeh branch shall be closed.
clearing into Proftt and Loss all amounts standing or accrued as
Income, 01· expense, and after charging off all bad debts, the
balance in Profit and Loss shall be transferred to the Reserve
Bank.
(k) All losses shall be reported to the Reserve Bank over
the signatures of at least two officers. Assets of questionable
value shall be reported to the Reserve Bank. and upon confirmation from the Reserve Bank, mfl.Y be written off.
(I) No clean bill of exchange, unless drawn by a bank or
banker, shall be purchased by auy branch except with the consent of at least two Olf the three officers of the Branch or a
line on any name may be fixed by at least two Officers of the
Branch. within which line the clean bills of any Individual, firm or
corporation. may bc bollght. AU matters of credit and responsibility of parties shall be subject to the COil currence of at least two
Officers and further subject to approval by the Home Office.
(m) No draft drawn llnder a Letter of Credit may he purchasM by any Branch unless a specimen of Letter of Credit and
signature of the party who iSSUed It are on file, or unless confirmation has heen received direct that such a credit is open and that
drafts thereunder may be negotiated.
(n) The Manager may at his discreti(>n deal in or make loans
on gold coin or bulllon. and shall caus~, to be rendered to the
Reserve Bank a detailed statement of such operations. The statement to Indicate face value. Weight, fineness, and specie value.
v.
Accounting 0/ Foreign Exchanve Department.
(a.) The regulations covering the accounting system of the
Federal Reserve Bank Shall apply to the Branches.
(b) The books of the Foreign Exchange Department shall h~,
as follows; 1. General Ledger; 2. General Balance Sheet; 3. Journal:
4. Cash Receipts Book; &. Cash Disbul'S€ments Book; 6. Agency
Ledg'er; 7. Branch Ledger; S. liability Ledger; 9. Remittance Records; 10. Draft Records. and any other books that ma.y become
necessary fl·om time to time in the opinion of the Auditor.
92
(c) All books shall be bQund books, except In cases where
expediency requires it, the books may be loose leaf, to which exceptions, however, the Auditor must concur, and such provisions that
he may make in the use of loose leaf recorful Shall be complied
with.
(d) The General I..edger of the department sball carry the
control on all accounts in the department, showing each account
separately, exc€'pt In such cases as the liabilities (see paragraph
N) wherein one amount may be shown to control all accounts.
The General Ledger shall be posted daily In ink and each page
footed in ink and carried forward.
(e) '.rhe General Balance sheet shall be a columnar book showIng the dally balances in each account on the General Ledger.
(f) The Journal shall take up all entries not properly handled
in the Cash Rec€'lpts or Disbursements Bool,s, Remittance or Draft
Records. It Shall be a columnar book and after proof, a recapitulation thereof sball be taken off and handed to the General
Bookkeeper.
(g) The Cash Receipts nook shall record all receipts of cash
or checks from whatsoever sources.
All receipts of cash unless
controlled by preceding entries, shall be acknowledged, a copy of
which receipt shall be taken up by the Officer signing the original.
and handed to the Auditor.
After proof eacb night a recapitulation shal! be taken off and handed to the General Bookkeeper
of the Department.
(h) '],he Cash Disbursements book shall record all cash paid
or checks dl"(l.wn. Unless sucb payment Is controlled by previous
entry no disbursement may be made without an order, Initialed
by the Chief Deputy. his assistant, or, In tbeir absence, some
temporary authority conferred by the President. After proof
each nig'ht, a recapitulation shall be taken off and handed to the
Gene,·al Bookl{eeper of the Department.
(I)
The Agency Ledger shall record the transactions between
the Bank and its Foreign Agents.
It shall be posted each day
from the bookS of original entry. proved to the control on the
General Ledger at least once a week. reconciled and closed quarterly.
As statements are received monthly. they shall be verified to the postlngs made from returns indicated by the Dally
Advlces of the Foreign Agents.
All cbarges incidental to the
agent's operations must be recorded In a book provided for the
purpose and verified and Initialed by the Deputy or bls aaslstant.
and subsequently Checked and approved by th!! Auditor.
(j) The Branch Ledger shall show the accounts of the Branches wltb tbe Head Office, this Ledger shall be posted from books
of original entry, proved once a week to the general control and
reconciled to tbe Bronches' monthly statement.
(k) The I.iability Ledger shall Indicate tbe names of all parties upon whose endorsements or guarantees ot acceptance Exchange bas been bOUght. The total of the line allowed, whether
percentum of the capital and surplus or the line approved by
93
the Board (see Sec. II, Paragraph L). As drafts mature or are
accepted, and as the responsibilities of the parties terminate, the
amount of such draft shall be deducted from the outstanding
line. It shaU also show the liability of all parties by acceptance
on unmatured Bill of Exchange (see Section n, Paragrapil J),
The balances appealing against any and all parties shall be reported to the Board of Directors each week.
(I) The Hemittance Records shall contain the detall of all
drafts, cable transfel's, Bills of Exchange, etc., purchased and
charged to agents or Branches. This record may be loose leaf if
expediency so demands and the Auditor approves. No bill may be
entered without an authorization of purchase signed by the Deputy
or his assistant. A recapitulation shall be given to tbe General
Bookkeeper at the close of each day,
(m) The Draft Book shall record all sales of checks, drafts,
cable transfers and other Instruments drawn on and to be credited
to any agent or Branch, There shaH be kept therein aU the
detail of such transaction and no draft, «heck, cable transfer, etc.,
may be drawn or consummated without an authorization signed
by the Deputy or bis assistant.
Aiter proof, a recapitulation
shall be handed to the General Bookkeep.)r of the Department.
(n) Among the control accOlmts on the General Ledger shall
appear an account Liability by Endorsement-per contra. Customers' LialJiUty on Discounted Paper. This figure shall be altered
from time to time by means of a Journal entry. As reports are
received from the agents and Branches (See Sec, Ill, paragraph F
and Sec, IV, paragraph G) the entries herein ordered shall be
made,
(o) All expenses of the Foreign Exchange Department, except
those Involved in the operation of accounts such as commissions,
charges, Foreign Revenue stamps, etc. (.see Section V, Paragraph
I), shall be charg'ed to Expense Account maintained. on the General books of the Bank and supported by a detail book.
(p) All Interest receivable or payable, commissions and other
determinable Income shall be accrued monthly; all profits on exchange opel'atlons shall be determined and set up In Profit and
Loss account quarterly, and all Branch returns shall be carried
to Profit and LoS.':! and an estimate of the Profit for the overlapping month shall be made and passed, based on the return on
the average capital used the quarter Just received.
(q) _~I Profits and Losses shall be cleared into the General
Profit and Loss accounts of the Bank on the last days of June
and December.*
*This sketch of the accounting for the foreign exchange department is correlated directly with the accounting plan presented
in Appendix I, A different set of records, embodying the same
principles, Is pl'esented In Appendix II and accompanying forms.
ORGANIZATION OF FEDERAL RESERVE BOARD.
It Is now necessary to devote some attention to the central con-
trolling mechanism of tile system. The organization ot the F<)d<)ral
Reserve Boal'd is partly prescribed by the Fed<)rai Reserve act, and
is partly left to be detennined by the &ard itself und<)r th<) g<)neral
authority assigned to it by that act. In so far as its organization
is prescribed, no discussion needs to be offered. In so far as its
organization Is left optional with itself it will p"esumably determine the Ilnes to be followed, when It Is created. There Is no
Intention In this report of anticipating what the Board will do
with r<)f<)rence to Its own Int<)rnal organization. In discussing
the organization of th<) F<)deral r<)SElI'V<) banks which aN und.,r
the direct oversight of the F<)deral ReS<lrve Board, it is, however, necessary to indicate in general terms such elements of
the organization ot the Federal Reserve Board as will undoubtedly be NqulNd for th<) prop<)r control of the type of organization contempiat<)d for the several banks. In this report, th<)r<)fore, effort is made simply to sUgg<)st those f<)atures of F<)deral
Reserve Board organization which nec<)ssarily must be indicated
as cOlllpl<)m<)ntary to the organization of the reserve banks.
Th<) outlines of what is believed to be desirable in organizing
the Federal Reserve &ard may be best set forth in the form of
by-laws, as foUows:
BY-LAWS OF
THE FEDERAL RESERVE BOARD
(Organized in 1914 under the F<)deral Reserve Act).
ARTICLE I.
The Ohairman.
The Secretary of the Treasury shall be chairman of the Board.
In th<) abs<)nc<) or disability of the chairman. th<) Comptroller of the
Currency shall be vtc<)-chairman. In th<) <)vent of the absence or
disability of both th<) chairman and th<) vice-chairman, the Gov<)rnor, and in his absence or disability. the Vice-Governor shall be
chairman pro t<)m.
ARTICLE II.
The GovernQr.
Section 1. Th<) Gov<)rnof of the Federal Reserve &ard shali b<)
th<) active executive OffiC<)f thereof; subject, however to such rul<)s
and regulations as may be incorpOrated herein or may from time
to time, by resolution, b<) established.
Section 2. The Governor shall have custody of such funds as
may be in possession of the Board He shall open and maintain
bank accounts in such institutions as the Board may by resolution designate, and shall sign checks drawn on such accounts.
Section 8. The Governor shall keep Or cause to be kept a continuing f<)cord of all receipts and dlsbursem(!nts of th<) Board.
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Section 4. The Governor shall have general charge of all business of the Board not specifically assigned by resolution to any
Individual member thereof, or to the committee of the whole. He
shali submit a summary of such business at each succeeding meet.
Ing of the Board.
Section 5. The Governor shall have custody of the seal of the
Board and shall have power to affix th,) same to all Instruments
reqUiring it under the authority of the Board. Such Instruments
shall be attested by the Secretary.
ARTICLE III.
The Vice-GoVfffto·r.
Seetion 1. In the absence or disability of the Governor, his
powers Shall be exercised and his dutiell discharged by the ViceGovernor, and ill the absence or disability of both of these officers,
such powers shall be exerCised and such duties discharged by such
member of the Board as it may, by resolution, designate chairman pro tem.
Section 2. It shall be the duty of the Vice-Governor to cooperate with the Governor in the administration of the general business of the Board.
ARTICLE IV.
The Secretary.
Section 1. The Board shall appoint a Secret~u"y, whose duty
it shall be to attend all meetings ot the Board, and keep a record of
Its proceedings.
Section 2. The Secretary shall assist the Governor and the ViceGovernor in the administration of the genl!rai business of the Board.
He shall have general supervision of scientific and expert divisions,
devoting himself particularly to supplying the Board with detailed
Information regarding domestic and International business ano
banking relations, and such other data as the Board may from time
to time require.
Section 3. In the absence or disability of the Secretary, his
duties shall be performed by such member of the Board or the
general staff as said Board may, by reseolution, appoint Secretary
pro tem.
ARTICLE V.
Th-e Seal.
The followIng is an impression of the seal adopted by the Board.
(Seal.)
ARTICLE VI.
Meetings.
Section 1. There shall be a stated m0eting ot the Board each
week day except Saturdays and legal holidays, at such hour of the
day as may from time to time be determined by resolution ot said
Board.
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Section 2. A majority of the lJlembers present shall constitute
a quorum. except that the affirmative vote of at least five members
of the Board shall be necessary to require Federal reserve banks
to rediscount the discounted paper of other Federal reserve banks.
Section 3. At least once during each quarter there shall be a
joint conference in Washington of members of the Federal Reserve
Board and the Federal Advisory Council. at such time as may be
mutually agreed upon by said Board and said CounciL
Section 4. At all meetings of the Board the following shall be
the order of business:
(1) Reading or inspection of the minutes of the last regular
meeting.
(2) Report of the Governor.
(3) Report of the Secretary.
(4) Reports of members on assigned business, or relative to
their particular divisions or bureaus.
(,,) Unfinislled business.
(6) Joint conference with offi.cers or members of Federal Advisory Councll, when scheduled or otherwise arrang<ld.
(7) New business.
ARTICLE VII.
Budget and Altdit.
Prior to June and December first of each year. the chairman
shall appoint a committee consisting of two m<lmbers of the Boai"d,
whose duty it shall be to audit the accounts thereof for the six
months' period for which they shall have been appointed, and report to the Board a tentative budget of expenS<lS for the next succeeding six months.
ARTICLE VIII.
General Business.
Section 1. The!'<l shall be established by the Board the followIng divisions or bureaus:
Bureau of Currency and Coin.
Bur<lau of Foreign Exchange.
Bureau of Clearings and Domestic Exchange.
Bureau of Examination and Audit.
Bur<lau of Reports and Statistics.
Bureau of Cr<ldlt and Discounts.
Section 2. It Shall be the duty of the Federal Reserve Board
to provide for a periodical audit of the accounts of, and the securities and currency held by, the various Federal reserve agents.
Section 3. The Chairman shall once In <lach six months designate one member of the Board Whose duty it shall be to cooperate with Us offi.cers In the general supervision of one of its
bureaus or divisions.
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AHTICLll) IX.
IHjormutioY.'.
Section 1. All persons employed by the Board shall keep lnyiolate Its business, affairs, and concerns, anu shall not disclose or
uivulge the same to any unauthorir.ed person whomsoever', and any
employee who shall give Information contrary to this by-law shali
tie liable to immediate dismissal.
Section 2. The action or pOlicy of the board shall not be expressed through any indlddual membe)', but by its duly constituted
officers, after formal action by the Board,
AH.'.rICLE X,
A melldmen t,~,
'fh('.se by-laws lllay be amended at (my regular meetlng of the
Board by a majority \'ote of the entire Board, provided that a copy
of stich amendment shall have been delivered to each member at
least three days prior to such meeting.
AH'.rICLE XI.
Rules anil Re[Jul,ttio"s.
Such rules and regulat/ons as may from time to time be adopted
by the Board, either in relation to the continuity of Its own btlSiness, or to the Federal reserve system, shall be appended to anfl
form a part of these by-laws.
l<'.1~DEltAI,
ADVISOItY COUNClL.
Section 12 0:1 the Federal Besel've Ad provides for a "'edeml
advisory council to consist of as many members as there are Federal
Tteserve districts. It Is refjuired that each Federal Reserve banll
shan by Its Board of Dil'e('tors annually select one member of the
council, and that the said council shall meet at \Vashlnglon at
least fOUl' times a year, as W()U as oftener if called by the Reserve
Board. The council Is given power to select its own officers and
adopt its own methods of procedure, and it Is further given autho)'ity:
"By Itself or throug'h its oflkel's (1) to confer dh'ccUy
with Ih'" l~ederal Heserve Board on g'enel'al business conditions; (2) to make oral or writt.,n representations ('Ol1ccrning matters within the jurisdiction of said Board.
A review of the provisions of Sedion 12 as thus set forth
SIIOWS that th<l power of the Organlwtion CO,mmittee and of tIle
Federal Reserve Board In regard to the organiZation of th<l Advisory
Council is only of a very broad general kind probably extending no
further than the mere making of su<;gest\ons. It is, however,
recommended that the organization committee shall in org'ani?;ing
Federal Reserve hanks mal,e somc ;..:cen(ll'at recommendations to th"
said banks with referem'c to their pflrtiC'illation in the task of
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ereating this coundl. 'I'he following points are considered to be
desirable In the organization of the coundl:
1. Appointment of members of the council who shall at lenst
at the beginning be aetive operating offieers, preferably the presl.
dents of the sev<"ral Ft'deral reserve banks.
2, Establishment of general headquarters in Washington with
sultable representative in charge as agent, throngh whom reqnests
anti suggestions may he transmitted to the Federal Reserve Board
and who shall transmit Information to the Federal Reserve banks
at his discretion 01' as may be asked hy them.
3. Provision of reasonable allowanees for this resident agent
or officer of the Advisory Coundl. This point is speeifically made
subiect _to the approval of tlle Federal Reserve Board in the early
part of Section 12, and undoubtedly the recommendations made by
the Board at the b<"g:lnning will be largely intluential in determining
the pradke of the several reserve banks. The provision of a suit·
ahle mechanism at the outset will do a good deal toward starting
,<he system upon right lines in the beginning, and it Is believed that
the general suggestions Ot' recommendations already indicated ought
to be applied.
Consideration should be given to thB ineorporation in the By·
Laws of the Couudl of the following' points:
(1) Designation of Offiees and Ele{'tion of OffieBrs;
(2) Powers am! Duties of Officers;
(3) Stated Quarterly Conference at \V(lshin,l!;ton between
Fedcl"[I I Ttescrvc Board and Federal Advisory Council;
(4) Audit of Expenser; and Plan for :':::oemi-atlnual Bml;.::ct_
Hcferring more spedfkally to the Intent of the act in providing
for {,onferences with th<" nlemhers of the Federal Reserve Board
regarding all mrrtters relative to the F<"deral ReservB system. it
would seem thr>t the best results wOllld obtain If the active
exeClltive officers of the banks of the system participated,
Tlte provision tllat the Federal Advisory Councll "shaH have
power, hy itse,l! ot through its offieers:' implies the ne·
cessity of continuity of action at Washington In the
performance of Its duties. The executive officers of the
Fedet'aI Reserve banks manifestly would not he available a"
officers of the Council. It is therefore suggested that it be deemed
appropriate for the Council to clloose a paid offieer Ot· officers, who
shaH reside in \O\'ashington and maintain an office In the genel'al
interests of the Federal Reserve banks. They ShOI1id, of ('ourse, co·
olJ('rat~ with the F~deral Reserve Board in the general interests of
the Federal Reserv<) system.
If tlte paid oflke"l"$ of the Federal Reserve banks are ehosen as
memhers of the Federal Advisory ('oundl. as herein Stlgg<"sted,
there woltld he no ne<"d for their further eompensation, other than
t>'avdllng- expenses aml maintenance charges during the period of
their meetings.
The <)ompensa(lon of the offi('er~ of the Federal Advisory Council,
the offiee rent (ttlll<)ss otherwise provided by the Sect·eta.ry of tho
'1'reasury), the maintenance of the clerieal force, and other expenses,
should be assessed upon the various Federal Reserve Banks In the
same manner as is provided in the act for the payment of expenses of tIle Federal Reserve Boar<l.
CODE BOOK.
The Federal reserve banks should be provided with a private
code for use in the cable and telegraphic transmission of advlces
relative to their bnsiness. Such codes are in use in the more important existing banks, each such bank developing its own code,
adapted to its own uses and employed for the pUrPose of transmission of cipher messages. It is recommended that such a code
be developed for the joint use of the Federal reserve banks and of
the Federal reserve board and that this be done at an early date,
the work being placed in the hands of one of the recognized code
experts who are familiar with existing methods of doing this work
and who are trustworthy. In the system of clearing and transferring credits Which has been worked out In the present report,
there Is a large field for the constant use of telegraphic advkes:
and the Federal reserve board will find that such advices will be
largely relied upon in Its own communications with the reserve
banks. That such communication will in many Instances be of a
necessarily confidential nature is obvious and provision for a suitable means of guarding the messages during transmission, while
reducing their length to a minimum should be promptly made.
ACCOUNTING SYSTEM.
Reference has already been briefly made to the question of
accounting. It Is now necessary to consider that topic In detail.
In dealing with accounting It has Men found that there would
be a necessary difficulty In determining the precise form to be
given to the bOOks and records of the Federal reserve banks in
the absence of positive knowledge as to the polley to be finally
adopted with reference to their cleal'ing, exchang'e, and othflr
functions. If the banks are to be confined to comparatively
limited operations at the outset the form of records then to be
employed would naturally take a certain shape; If the banks are
to be given a broad scope either at the beginning or shortly
thereafter, with large clearing functions, the e:xtent of th<llr OPerations, and the speed with which their dally transactions would
require to be recorded would call for a different m<lthod of treatment. Differences of opinion naturally prevail among accounting
authorities with resp<lct to various d"talls In the recording of
bank transactions, and some of these details are of a nature
wblch unavoidably alters In a material degree the framing of thtl
accounting system. Again there is difference of view with respect to the extent to which the transactions could be recorded
by hand with pen and Ink and the Hxtent to which machines
could and shOUld be employed.
It has therefore been deemed wise to present two distinct
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sets of forms for the use of the Federal reserve banks. Of
these, the first has been prepared under the Immediate direction of the firm of Marwlck, Mitchell, Peat & Co., Chartered an<i
Certified Accountants, of New York City, and Is herewith presented as Appendix I; the second-a system of mechanical accounting-has been prepared under the direction of Messrs.
Harry E. Ward, Cashier of the Irving National Bank of New
York City, and C. C. Robinson, Auditor of the Irving National
Bank, and Is herewith presented as Appendix II. Very sincere
expressions of appreciation are offered with respect to the worl{
of Messrs. Ward and Robinson, who In response to the Invitation
of the committee h,we designed this system of mechanical accountlng, and have been animated solely by a high sense of public service in so doing.
Close study and cooperation In the preparation of the aecountIng systems have, of course, been given throughout by the members of this committee. At the outset a sub-eommittee on acconntIng consisting of Messrs. Benton, Wolfe, and Dawson and anot.her
on mechanical accounting consisting of Messrs. Farnham, F'isher
and Willis were named.
DATE OF INSTALLATION,
It is earnestly recommended;
1. That all Federal Reserve Banks be simultaneously opened
and that they be throughout operated upon a uniform basis.
2. That the Federal Reserve Banks be opened with their func• tions as nearly complete and fully developed as may be, and that
they shall not be opened until the main features of their methods
can be preseribed.
3, That before they begin business there shall be called in
\¥ashlngton a general ~uncn of operating officers, that all may
be consulted In connection with the prescribed technique.
Respectfully submitted,
H. PARE:ER WILLIS, C hairm all.
EDMUNO D.
FISH!;)!',
ANDREW A. BENTON,
JOSEPH A. BROD!;lRICK,
O. HOWARD WOLFE,
RALPH DAWSON,
STEPHEN H. FARNfI"U,
Preliminary
Committee on.
Organization.
APPENDIX I.
(Accom panled by Portfolio of Forms No. I.)
In furtherance of the plan to develop a complete scheme for
the organization of the l<~"deral reset'vE, banks. the comm1ttee d .. ~
termined to present methods whereby every element 1n 1ts system
could be suitably recorded in a proper accounting plan. To this
end the aid of the tlrm of Marwick, Mlt,:hell, Peat & Co., chartered
and certitled accountants, of New York city, was obtained, and
Mr. Andrew A. Benton of that tlrm waE Invited to become a member of the committee. Mr. Benton, with the cooperation of the
staff of the tlrm referred to, and in conjunction with a sub~com
mlttee including Messrs. Wolfe, Broderick, and Dawson, planned an
accounting system designed to afford the basis for the records of
the work of the Federal reserve banks.
The matter prepared as above indicated is presented in the form
of a report from Messrs. Marwlck, Mitchell, Peat & Co., and Is
as follows:
The Prelin/iwfrll Oommittee on Qrganiz.:ttion,
New York City:
GENTLEMEN:
In accordanee with your instructionE, we have designed a system of acconnting suitable for the requirements of the l'egionai
banks to be organized under the Federal Heserve Act of December
23, 1913.
We herewith submit a report descriptiVe of the proposed sys~
tern, accompanied by copies of the forms necessary for Its operation,
INTRODUCTION.
Our constant end"avo)' In devising the system of accounting for
the Regional Banks has been to combine simplicity and directness
of records and procedure wllh that eomprehenslveness of control
so essential In bank accounting. In the development of the system,
therefore, every effort has been made to simplify and abridge the
clerical routine by the use of manifold ::orms where initial entries
could be uti1l7.ed for a number of purposes; to organize the de.
partments and procedure so that needle.,s duplication of work and
records would be avoided; and finally, by the introduction of special
Depal'tmental Settlement forms which would serve both for the
departmental proof and the Auditor's control, to centraliZe In tile
Audit DiviSion complete control over thE' daily operations.
A few typieal examples will serve 10 lllustrate the extent to
whieh l'<=ijntry of transaetions has been aVOided hy the use of manltold forms. In the Loan Department th.'re will be lJrepared at one
writing the Loan Register entl'Y and thE. Liability Ledger Voucher
from which the debit entries in the Liability Ledgers wlll be checked and the credit entries posted upon maturity of the loan. The
form devised for use In connection with transfers to banks in
other districts wUl permit of the prepamtion at one writing of the
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credit or churge to the Heginnal flunk, the office ret'ord, and the
advke to he sent to the Memher Hank affected, The Memher
Hanks' form fnr reh!rning it<Jm~ unpaid provides for the f)repat'ation at one writing of the letter of enclosUl'<J to the Member Bani,
to which the item is returtl()tl, authodzatlo!l to redplent to (Tedit
Its Hegion<ll Bank; advice to the Itegional Hank of the eharge to
its aeeount for the item; authoriz<ltion of the tr<lnsfer of such
cllarge to the Regional Bank in whose dlstl'id the item originated,
<lnd finally, the Memher Bank's record of the return of the item
<l1Id of Its charge to the Regional Bank from whieh reeeived. In
the Bookkeeping' Department there will be prepa"e!1 at one writing
the Ttegion<ll Bank's Ledg'er reeord of its transadions with the
Memher Danks <lnd the statements of aeeount <lnd advlces to be sent
the Memlw,· Banks. VirhHe speelal attention has been given to arranging these and all other forms accompanying this report so
that they ('an be used with any of the standard adding and typewriting ma<:hlnes now on the market, no radlt-at changes in the
accounting' system should he neccssary were special machines
utilized.
In th(' planning of the depal"tments. the aim has heen to restrict
them to the smallest numbel' requil'cd for the eXlleditious and corrert handling of the work, to gTOUp the departments and operations
~o Ihat rontliet of duties and ('on~equent dupli('ation of work woulo1
1.(' a I'oid('tl, and fl nally, l,y ('om )Jelling depa1"tlll en t~ han'lling: fl1nd~
to aceount to another department for su('h funds. to have the ,1epUl'tnwlIts themselves automatlpalty ehepk ea('h oth€>T's w01"k The
extent to whkh dupli('atlon of work and 1'e('ol"(ls has been over('om(' hy planning: the procedure so that the Item~ will g:o direct
f,'om the del"ll'tment in which ihey originate to the nnni 1'e<:ording
detHlrtll1en t, Is Iliustra ted by the foltowing:
tTpon receipt. (,hecks drawn by Melllb"'r Banks on th",ir RegIonal
Danks 'will be sorted and lI~ted on proof sheets, thE' numhN' of the
1I1ember Bank inserted, and both the proof sheets and the (,hecks
forwardE'd to the Bookkeeping Department. The proof ~heets will be
d",\ivered to the Journal clerks, who will post Ille totals shown
thereon to the proper accounts In the Memh€'l' Bnnl,~ Journal. The
('hecks themselves w!l1 be utilized by the ledger cle"ks for preparing the Ledger I"e('ord and the Dally i'ltat",ment to he sent to the
Memher Banks. As the entries in the Journal will he complied
from the proof sheets and those on the Ledger dire('t from the
Items, and a dally comparison made nf the two ~ets of balanees. It
Is obvious that this pro('edurf> affordS every possible protection
a,,;ainst errors---and moreover wllh only two entries Of the item.
The following is a brief description of the proof system by
means of which the Audit DiviSion will be able to maintain complete <'''lItT'ol over the wo,'k of the vmiolls departments whose
transndion~ affect the figlu'es in the Daily Statement of ('ondltl<on.
Pf'partmental Rett!ement Sheets (Fol'm A-2) ha"e heen providerl
on whieh the various departments-or subdivL~ions of dep:\!'(mellts, in the case of thc Clearings and Transit Depm'tments-
103
will be required to balance their work independently but along
uniform Jines. The upper sedion of this form is ruled tor entry of
the debits and credits of the departments to the Member Banks.
Government Deposits. General, and other accounts, and the lower
seetion for entry of the Inter-departmental debits and credits
In respeet of Items delivered to or received from them, and such
other departmental transactions as may arise. Each department
receiving items from anQther department being required to enter
them on Its settlement sheet to the credit of the department chargIng them, It is apparent that for each debit and credit in a certain
department there shOUld be a corresponding credit or debit In
some other department. At the close of business e£Wh day the
totals of the Departmental Settlement Sheets are to be assembled
by the Auditor on the General Proof Sheet. This Genel'al Proof
Sheet will at once reveal any errors in tlle work of the different
departments and will serve to centralize "in the Audit Division complete control over the daily operations "f the bank by furnishing
the means for tracing and verifying all :-mter-departmental entries.
Furthermore, this control will be obtained without unnecessary relisting, for the items will go direct from tne various Tellers' Departments to the Bookkeeping Department.
EXECUTIVE AND CLERICAL ORGANIZATION.
On Exhibit "A" accompanying this rpport, we show In graphic
form the executive and clerical organlzaHon and the proposed distribution of duties. It will be seen by reference to this Exhibit
that the clerical organization consists of a Banking Division, which
will include the Loan and Investment Securities, Tellers, Transit,
Foreign Exchange, and Bookkeeping Departments; an Audit Division which will be responsible for the vertficatlon of the departmental proofs, records and securities; and a Credit Division to
Which will be entrusted all matters rela.tive to the securing and
compiling of data in regard to loans, Investments, etc.
CHIEF CLERK.
The Chief Clerk wlll be the intermediary betWeen the officers
and the clerks engaged In the Banking DiVision. All instructions
of the officers affecting the clerks In this Division are to be Issued
through the Cllief Clerk, who shOUld be held responsihle for the
fulfilment of such Instructions, and also for the prompt and efficient conduct of the routine work of the Division and for the general discipline of the clerks under his jurisdiction.
Subject to the approval of the officer in charge, the Chief Clerk
Should arrange for the filling of temporary vacancies occasioned
by Illness, vacations, etc., and for the purchase of stationery and
supplies.
LOAN AND INVESTMENT SECURITIES DEPARTMENTS.
TIle Loan and Investment Securities Departments will comprise
the Rediscounts Department, the Open Market Purchases Depart-
104
ment, and the Investment Securities Department, Explana,ory ot
the functions of these Departments and the records to be malntained therein, we submit the following:
Rediscolwts and Open
~Iarket
PurchMes l'epartment.
The Rediscounts and Open Market Purchases ~partments will
be responsible for the proper handling and custody of the notes rediscounted for Member Bani,s and the paper purchased In the open
market, and also for the maintenance of the books and forms reQuired for recording the transactions and collecting sucb of tbe
loans as are payable out-of-town. Briefly, the dUt\<ls of th<ls<l departments will in(>iud<l th<l examination, as to their regularity, of
the notes, drafts, <ltc., r<lceived: the calculation of the interest, discount, and matmitles; th<l entering of the paper In th<l Discount
Registers, Maturity Records. and Liabillty Loogers; the filing of
the pap<lr p<lndlng collection, whicb is to be efl'ected through MemMr Banks in tile <lvent of the paper beIng payahle out-of-town,
or through the Note Teller's Depm·tment if payable In the city In
whIch the Regional Bank Is situated; and the postlng of the
credits for payments In the LIability Udgers.
Th<l forms to be used In the Rediscounts and Open Market
Purchaoos Departments being <lither similar or common to both, th<l
two d<lpartments wlll be dealt with as a unit in the <lnsuing d<lscription of the forms required.
Authority to Rediscount (B-1). This form when executed will
b<l a certiflcat<l reciting that the Board of DIrectors of the Member
Bank ha..'> authorized certain of the officers to rediscount with, sell
to, 01' borrow from their Regional Bank. A copy of this form is
to be executed by each Memb<lr Bank.
Application lor Loan (B-f). An {".. plication Is to b<l <lx<lCuted
on this form by the M<lmber Bank and submitted to the Regional
Bank with each schedule of notes, drafts, and bills of exchang<l
oifer<ld for redIscount.
Schedule 01 Notes, Drafts, and Bills 01 Exc1w.nge offered for
Rediscount (B-tl). This form, after completion by the Memb<lr
Bank, Is to be forwarded to the Regional Bank together witi, the
Application tor Loan, Form B-2.
In order that the Regional Bank may hav<l sufflci<lnt detailS
of the paper offered for r<ldlscount, provision has be<ln mad<l for
Inclusion in thIs schedule of th<l number, name, and location of the
offeling bank: the nam<l, addr<lSS, and busin<lsS of the maker or
drawer: the acceptor, endorser, or collateral; where payable; date
of note; due date; discount rate, and fac<l amount of note.
Register of Rediscounts (B-4); Register of Open Market PurchMes (B-5J. As the not<ls, drafts, or bills are ('ecelved from the
Member Banks for rediscount, or purchased in the open market,
th<ly are to be enteroo directly from the notes In the respectiVe Registers. These Registers are arrang<ld so as to show for each item,
th<l consecutlv<l index number: the date 1'ediscoun ted Or purchased:
date of note; dU<l date; time; rate of discount; amount of note;
105
discount. proceeds; for whom rediscounted or fl'om whom purchased; the maker or drawer; the acceptor, endorser, or collateral,
and where payable, The "a" sections of these forms will be classified as to City and Country Items, and tllereafter filed In chronolog'kal order acconlins' to dllE' dates, while the "f>" sections will be
placed in binders and will constitute the Discount Registers proper,
Credit tickets for the proceeds of the notes, etc., rediscounted
or purchased in the open market will be prepared at intervals
during the day and forwarded to the Bookkeeping Department,
At the close of business, tickets covering the day's totaLs of the
rediscounts and open market purchases, and the discount received
on each class of paper, as shown by the ::'especti~'e Hegisters, are
to be prepared and forwarded to the Boold,eeping Department.
City Maturity Record (B-IJ); Country l,JatuTif1/ Record (B-1).
After the notes, drafts, etc., have been reeorded in the Discount
Registers, they are to be classified as to "City" and "Country" Items
and entered in the proper Maturity Record under the respective
due dates. As the tkkets prepared at the time the entries are
.nade In the Discount Registers wlll be m£-d in chronological order
according to due dates and will be available for reference, it will
be necessary to enter In the City MatUrity Hecord only the index
number and the amount of the note, and in the Country Maturity
Record only the index number, the amount of the note, and Where
payable. For such of the Items as are sent to Member Banks for
collection, the datl~ on which the receipt of the item is acknowledged by the collecting hank Is to be subsequently added
from )<'orm B-13.
At the close of business each day, tickets for the totals of the
respective maturities are to be prepared and forwarded to tbe
general oookkeeper for credit to the contr.)lIing accounts.
The Maturity Records are to be footed weekly, and from the
footings so obtained will be complied the totals for the SO-day, 6(1day, and 90-day paper rediscounted or purchased by the Regional
Bank.
Notes or other Items rediscounted for Member Banks and not
paid at maturity are to be charged to the account of the Member
Banl< for which rediscounted, and returned. Paper bought In the
open market not paid at maturity is to be charged to an account
entitled "Past Due Paper," pending payment or other disposition.
Mcmbcr Ballks' Liability Ledyer (B-8J. This form Is designed
to provide a dBtail€"d r€"cord of the contingBnt Iiabllitles of each
Member Bank to th<J Hegional Bank.
A separate sheet will be opened for each Member Bank on which
will be recorded in the "Rediscounts" sectiml, the date on which the
item was rediscounted; its Index number; the maker or drawer; the
acceptor or endorser; the due date; the di'lcount rate, and the rediscount amount. 'Vhen paid, the date and amount of the payment wiJI be entered In the "Credits" columns and the amount in
the "Balance" column reduced accordingly, In the section designated "Otller Llahllity" will be entered the details of the contingent
106
lIahlllty of the Memher Banka as aeceptora or endorsers on paper
purchased in the open market.
The debit entries are to he lwated direct from the notes and
proved by eompaJ·lson with the tkkets prepared at the time the
entlies are made in the Discount Registers.
Liability LedfNr-Rediscounts and Opel! Market Purch(UJcs
In this record wHi be entered under the names of the
(B -9 J.
makers or acceptors, their lIahility to the Regional Bank in respect
of notes rediscounted by member banks and pap'))" purchased In
tlle open market.
In a{ldiUon to the name, address, business, and rating of the
bOlTower, there will be entered in this Ledger the date on whkh
the note, draft, etc., was rediscounted or purchased; the Index number; from whom received; the endorsers; the due date, and the
amount of the liability, subdivided as to rediscounts and open
marl,et purchases. When paid, the date and amount of the payment will be entered in the "Credits" columns and the amount in
the "Balance" column reduced accordingly.
Should the notes, drafts, etc., be later hypothecated with the
Federal Reserve Agent, this Infol·matlon is to be entered In the
"Deposited" column on the line containing the description of the
paper. ·When returned by the Federal Reserve Agent, the date Is
to be entered in the "Withdrawn" column and the amount in the
"Balance·' column reduced accordingly. This balance can be very
rea(lily proved by listing the open items.
IProm the foregoing it will be seen that this Ledger will show
hoth the extent of the borrowers' llahlllty and the location of the
paper-that is, Whether it is in the possession of the Regional Bank
or whether it Is held hy the Federal Heserve Agent as collateral.
In the event of paper being sold by the Regional Bank prior
to maturity, the date and amount would be posted In the "Credits"
column and the name of the purchaser recorded in the "Sold to"
column.
The debit entries are to be posted direct from the notes and
pI·oved by (·omparlson with the tickets prepared at the time the
entries are made in the Discount Reg·lsters.
Contingcnt Liability Record-Rediscounts and Open ltfarh,/
Purch«ses (B-lO). Separate sheets of this form are to be used
fo,· eweh endorser on paper rediscounted or purchased in the open
market. The form will be headed with the name of the endorser.
his address, business, and financial rating, and will ShOW for each
item the date on Which It was rediscounted or purchased; the Index
number; the maker or acceptor; the liability amount; the credits
for payments, and the balance-representing the net contingent
liability.
1.'he debit en tries al·e to 1)<) posted direct from the notes and
pI·oved by comparison with the tickets prepared at the time the
entri('s are maue in the Discount Reglstm·s.
Weekly Report of BorrQwer's LiabilitV (B-lJ). It is through
the m('dlum of this form, which is to be prepared weekly by the
1()7
Regional Banks from the Llabllity Ledgers, that the Federal Reserve Board will obbtln the data It requires as to the extent and
nature of the liabilities of the customers of the Member Banks to
the Regional Banks and the amount of the paper hypothecated
by the Regional Banks with the Federal Reserve Agent. Two
copies are to be made, one of which is to be forwarded to the
Board and the other retained by the Regional Bank. So as to
minimize the amount of work involved in the preparatton of this
report, It is suggested that lines of less than say $10,000.00 be excluded.
Being designed on the unit plan, it will only be necessary for
the Federal Reserve Board to assemble In alphabetical order, according to makers or acceptors, the reports received from the
various Regional Banks in order to Mcel·laln the aggregate liability of each Individual borrower for notes rediscounted or purchased by the Regional Banks.
Weekly Report of Member Bank$' Credit Balances and Re-
dwcounts (B-I~). This form Is somewhat similar to Form B-11,
except that it Is intended to show, for l\3,ch Member Bank, Its
average credit balance with the Regional Bank, the amount of
notes rediscounted by it with the Regional Bank, and the contingent liability of the Member Bank in respect of acceptances
or endorsements on paper purchased by the Regional Bank In the
open market.
The data required for the completion of this form will be
"btalned from the Member Banks' Liabillty Ledger, Form B-8,
and from the Member Banks' Ledger, Form "G-4a."
Collection Form for Notes Owned Payable in Di&counting Bank's
District (B-IS), The several copies of this form will serve respectively as a letter of enclosure, receiving bank·s acknowledgment, charge ticket, and office record, of notes owned which are
sene to a Member Bank for collecUon. 1t Is to be prepared In
quarlruplicate, and the following disposition marle of the various
copies:
Original-To be sent to collecting bank with item, as a letter of
enclosure.
Duplicate-To be sent with Item to colle·~Ung bank, hy which it
will be signed and returnoo to Regional Bank.
Upon reooeipt by Regional Bank, the date of
acknowledgment is to be entered on the Country
MatuMty Record, Form B-7, and duplicate filed
In correspondence file.
Triplicate-To be flied by Regional Bank in Note File until maturity, then turned over to the Note Teller's Department. Thereafter the collecting· bank will
be charged with the amount of the item ann
triplicate sent forward as all advice of such
charge.
Quadrupllcate-To be retained by the Rej,iollal Bank in numerical order as a permanent record.
108
Collection Form jor Notes Owned Payabk in Other Districts
(B-141. This form is to be used in forwarding to other Regional
Banks, notes owned which are payable outside the district of the
forwarding Regional Bank; It <consists of an original to be sent
to the collecting Regional Bank with the Items and a duplicate to
be retained by the forwarding bank.
On the due date of the items, the duplicate, or debit sheet. is
to be turned over to the Note Teller's Department and used as a
charge against the collecting Regional Bank.
Record 0/ Notes Hypothecated with Federrn Rese.-ve Agent
(B-15), This form, which Is to be prepared In duplicate. and Is
to accompany each lot of notes turned over to the Federal Reserve
Agent as wllateral for Federal Reserve Notes Issued, provides for
the rocordlng of the serial numbers given the notes by the Federal
Reserve Agent and by the Regional Bank, and the amounts of the
notes hypothecated.
Upon delivery of the notes, the original of this form is to be
signed by a representative of the Federal Reserve Agent as an
acknowledgment of the reeeipt of the notes, and then returned to
the Regional Bank. The duplicate Is to be retained by the Federal Reserve Agent as his record of the transaction.
When the notes are returned to the Regional Bank by the
Federal Reserve Agent, the date on Which they are so returned
is to be Inserted on both copies; consequently both the Federal
Reserve Agent and the Regional Bank will be In PQssession of a
wmplete record of the notes pledged as collateral with the Agent
and the disposition made of the notes.
Record of CQI/aterrn Withdrawn from Fede.-al Rese.-ve Agent
(B-16). Aside from the fact that it is to be used In withdrawing
notes deposited as collateral, this fonn is somewhat similar to
Form B-15. In the case of Form B-16, however, the original Is
to be retained by the Regional Bank, while the duplicate Is to be
signed by the Regional Bank as an acknowledgment of the receipt
of the notes, and thereafter returned to the Federal Reserve Agellt.
Collateral Card (B-ro. The particulars to be recorded Oil this
form will Include the name and address of the borrower; the serial
number. amount, date, and other details of the loan; and the quantity, description, and market value of the collateral. Upon payment
of the loan and surrender of the collateral, the borrower or his
representative is to sign the wllateral card In acknowledgment of
the receipt of the securities descrihed thereon.
Record of Securities Held as Oollateral (B-18). This form will
he used for classifying according to issues, the securities pledged
as collateral. A sheet will be reserved for each Issue on which will
he entered the name and description of the security, the date
pledged or surrendered, the number and name of the loan upon
Which pledged, the number of bonds or shares pledged or sur.
rendered, and the total par value of the securities pledged,
surrendered and on hand .
•iccrurns. To ensure the accuracy of the published statements
of condition and facilitate the verification of the Interest earned on
109
rediscounts and paper purchased in the open murket, It Is essential
thJ;lt the itegional Banks should nave all acerual systelu which will
permit of the as('ertainmeut of the actual earnings from this sourcll
at dally er weekly intervals. By the adoption of the following procedw'e 1he umollnt or interest earned on iI.ans outstanding could b"
dlltermined dall~' with very little difficulty.
At the close of husiness each day the total of the interest col.
loected as shown by the "Discount" columns in the Register of Re·
dis('Qunts, l<'orm B-4, and the Hegister of Open Market PUl'chases,
1"01'01 H-S. should be credited to the General Ledger account entitled HI 'neal'ned Interest." Simultaneously, a charge should be
made to this all('ount-the proper earnin~':s account being concurrently credited-for one day's interest on the total of the loans
outstanding'. To fadUtate the computation of this charge, a col~
umnal" book containing debit, credit and balance columns for the
loans at each interest rate should be proyided, in whlch should bl)
entered the net increases or decreases in the loans made or paid
each day and the revised totals of the loans outstanding at the
various interest ra.t.es.
Twice a year the balance in the Un,lurned Interest Account
should he proved by listing in a columnar book, under the respective Interest rates, the amount and unexpi!'ed days for each loan
outstanding, and computing therefrom th€ total Interest unearno;>d,
II! "<'lIt "'ell t Securities Depal'tment.
'J'o this department will be assigned the custody of the bonds
and other securities In which the Heglonal Bank lIas Inyested and
all mutters reluting to the recordlug of thc pUr('hases, &lIes, and
matul"iUes of su('h securities. the re{'eiving of securities purchase(l,
and the delivel'y or redemption of securities sold or matured.
III ""s/went Registe,. (B-19,. Separate sheets of this register ar",
to IJe used fot' each Issue of securities acquired. These sheets will
he headed with the name and description of the security, the date
of maturity. the !"ate of interest, and where such Interest is 'payable.
}o'or the recording of the individual transa,~ttons, colnmns are provided In which will be entered the date purchased or sold, the
basis and percentage prices; the mlmber, par value and cost of the
bom\s, notes, etc" purchased; the number, par value, and selling
price or redemption value of the se('uritles sold Or redeemed, the
I alance on hand, and the profit or loss on sales. 1 he reverse of
this form Is to be Iltili7ed fot' recording' the serial numbers of the
seeurlties purchased. sold, and redeemed.
TELLERS' DEPARTME:NT8.
The following is n. list of the Tellers' Departments:
Paying Teller's Department.
Receiving- Teller's Department.
Noto Teller's Department,
Transfer Department.
Clearing's Department.
Colle('tion ~partment.
11
The activities of these departments will lie confined almost entir"ly to the receiving and disbvrsing of cash and Ihe collection or
transmittal of items turned ov"r to them. They will, in consequence, require no permanent records of importance except the
Proof and Settlement Sheets on which wiil be Usled, in amounts
only, the Items passing through the departments,
Pal/illlJ 1'<:Ile1"$ DepartmcNt.
The Pa~ing: Tellel' wilt attend to all payments made over the
<'olmt<'r, Ihe eertifying of (:he('ks, Clearing House settlements, and
oth'~r duties of a silllllar nuture.
He wHl (tlso b", required to pass
on the ulltlwntkity of th", signatures on the drafts, che<:ks, etc.,
recdv.:..l in his department,
It is proposed also thut the Paying' Telle,' shall supervise the
sllipJ',ing of curl'enc'y to Member Banks and the forwarding of
mutilated currency for redemption, Should the shipments of currency to Member Bunh:s prove to \,e Yery numerous, howev", .. a
special department might be cr~ated to take charge of sudl shlp~
ments.
The Paying Teller should he responsible only for the counter
cash, as it Is suggested that the }'cserve cash be placed under the
joint control of two officers.
SIOI} Pflj/}}Wllt No/ice (C-1). This form will be llsed by the Paying Teller in admowle(lging rc{'eiptof a Member Banl,'s request to
~tOJl payment of a. draft dmwn l,y It on til" Hegil"",l l.l<lnk and in
advbing th" Boolil<€<eplilg nt'partmcnt of sll{'h stop payment, Th€<
three copies to IJe prepared wi!! be utili?€<d as follows:
Original-- To he sent to Memi>r.<· Bank at whose reqllcst. payment was stopped as an aelmowlet";ment of th() receipt of its instruction s.
Duplicate-To be delivered to the Booklweping nocpartment and
hela there pending pl'esentation (>f draft. Should the
req uest to stop payment he ~'ancellL'{l later on, the
duplicate is to he so marked and then fll.,d.
Triplleate-Afte}' receipt of dUplicate has he"n aeknowledged,
this copy is to be tiled in the Paying Teller's Department,
CCl"ti/lcatio", Record (C-!/. This form Is deSigned to proyide a
sllitahle record of ehecks ~'crHfied for account of M~mi'er Banl.s.
'I'lle orlg·ln"l, or Certification Debit. is to he sent to Ihe Member
nank, together with the Daily Statement. Thc tluplkate, whkh will
('onsti"lte the Hegional Bank's I'e<:ord of Ihe trallR.'i{'tion, will be
stamped "Paid" as the OJiginals are r"deemed. This record could
be prepuI'"d in "ither pad or book form.
At thE< dose of husiness a cr<:dit tieket for the total of the
day's certifieations is to he pr(>Jlared and forwarded to the Geneml
Bool,ke<eper. The certified cheeks paId ""ch day w!1l l'e list"d on
Bool,ke",ping' Department FOr!1l G-6, whkh is intend<:ld to support
the d(!blts to th<:l contr'o11!ng a(TOunt. TIle total or the e\wdts Issued
111
but not paid should equal the balance in the General Leds'er controlling' account for certified checks.
It may be explained at this point that the certifications would
prob.o.L1y be few in ntllnller, and in most cases would be for the
purpose of establishing' the genuineness Df the signatures on drafts.
Notice of CurrenclI Shipments (0-8). The original of tbis form
will be used both as a charge ticket and as an advice to the Member
Bank that the shipment has gone forward; the duplicate will be
retained by the Regional Bank and filed with the Member Bank's
requisition for the currency.
Receiving Teller's Department.
The chief duties of the Receiving Teller will be to accept the
deposits made by local Member Banks and to receive shipments ot
currency forwarded by out-of-town Member Banks. He will, in
addition, maintain the Cashier's Check Rt,gister, and attend to such
other duties as may be assigned him.
All cash on hand In this department at the close of business
each day is to be surrendered to the Paying Teller.
Deposit Ticket (C-·lJ. A form similar to this is to be used by
the Member Banks when depositing cllrrency or coin in their
Regional Bank.
Cashier's Checks Register (0-5). This form is intended to provide a detailed record of the Cashier's checks Issued in settlement
of balances, notes and bHls I)Urchased, &o.d other necessary transactions.
The checks are to be recorded in the Register in numerical
order. the date. payee. and amount being entered. as well as the
account for which the payment was made.
At the dose of bnslness the total of the day'/j entries in the
"Amount" column is to be extended In the "Dally Total" column
and the General Bookkeeper supplied with a. credit ticket for the
amount of the checks Issued during the day. The Cashier's checks
paid each day will be listed on Bookkeeping Department Form G-7,
which will support the debits to the controlling' account.
When the checks are paid, the date is to be entered in the last
oolumn. The total of the checks Issued but not paid as shown
by the Register should equal the balance in the General Ledger
controlling account for Cashier's checks.
Note Teller's Department.
This department will be the medium through which all payments made on account of loans, Intere!,t. etc., wm be received.
From the Lo&n and Collection Departments will be received the
dally maturities, and from the other departments, returns and
other Items payable within the City. The proceeds of the Items
collected by this Department are to be distributed and charged to
the proper departments, aU cash being turned over to the Paying
Teller's Department. The mes.sengers will be under the jurisdiction of the Note Teller.
112
Memo"". Banks' Form lor Returning Items Unpaid (0-6). Thill
form wlll be used by the Member Banks In returning unpaid items
dir~t to the Member Banks in which they were deposited and in
charging back such Items to the Regional Bank from which they
were r~elved. The four copies to be made of this form are to be
disposed of as follows:
Original-To be enclosed with the item, which is to be returned
direct to the Member Bank in which it was
deposited.
Duplicate--To 00 sent to the Regional Bank from which the
Member Bank received the Item, as advice that
item has been returned dir~t and charged to
the account of the Regional Bank to which
advice is sent. The Regional Bank will utlU:.!:e
this ticket as a credit to the account of the
Memoor Bank returning the item.
Triplicate-To accompany the duplicate. If the item originated
in another district, the triplicate wiU be utill:.!:ed
by the Regional Bank to which it Is sent in
preparing Form C-7, Statement of Returned
Items.
Quadruplicate-To be retained by the Member Bank returning
the item as authority for its cbarge to the
account of the Regional Bank from which the
item was received.
Regional Bank's Statement 01 Returned ItemlJ (0-1). The data
required to complete this form. which is to be used in charging
baek to other Regional Banks Items returned to their Member
Banks, will be obtained from Form C-6. The original is to be
sent to the Regional Bank from which the items were received
as an advice of the charge to Its account. It will 00 used by the
recipient as authority for crediting the account of the Regional
Bank from which received, and charging the aecounts of the
Member Banks to which the items have been returned. The
dupRcate will be retained as an office record.
Debit Ticket I(lr RetUf'ned Items (O-B). The data required to
complete this form will be obtained from the Member Banks' Form
for Returning Items Unpaid (C-6), or from the Regional Bank's
Statement of Returned Items (C-7), depending on whether the
Member Bank to which the item was returned is situated in the
llame or in another district,
After the aecount of the Member Bank has been charged, this
form is to be sent to the Member Bank as an adVice of such
charge.
Transfer Depaf'tment.
It Is Intended that this department shall handle all matters
relating to the transfer of funds from one Member Bank to another Member Bank.
113
Transfer Ticket (0-9). This form will be used only when both
banks are situated in the same district. The three copies to be
prepared are to be utilized as follows:
Original- To be used as a credit t\(~ket and then sent t~ the
Member Bank to which the transfer Is made, as an
advice.
Duplicate-To be used as a debit ticket and then sent to the
Member Bank requesting the transfer, as an advice.
Triplicate-To be retained and filed after confirmation has been
received from the Member Bank requesting the
transfer.
Btatement and Debit Ticket for Telegraphic Transfers to Banks
in Otlwr Districts (0-10). The several sections of this form will
be used respectively as a confirmation of telegraphic transfers to
Member Banks in other districts and as a charge to the Member
Bank requesting the transfer.
The original of the statement section (b) is to be sent to the
Regional Bank to which the transfers are made as a confirmation
of the transfers and advice of credit; the duplicate is to be retained
as an office record. The debit ticket sedion (a) is to be sent to
the Member Bank requesting the transfer, as an advice of the
charge.
Btatement and Oredit Ticket for Telegraphic Transfers from
Banks in Other Districts (0-11). Except that it will be completed
by the Regional Bank to which the transfers were made, this form
will be used in somewhat the same mannE,r as Form C-IO.
The original of the statement section of this form (b) is to be
sent to the Regional Bank at whose request the transfers were
made as a confirmation of the transfers and advice of charge: the
duplicate Is to be retained as an office record. The credit ticket
aectlon (a) Is to be sent to the Member Bank to which the transfer
was made. as an advice of the credit.
Statenfent {tnd Debit Ticket for OQrrespondence Transfers to
BankS ;n Other Districts (O-1ft). As indicated by its title, this
form Is to be used only when the transfera are to be effected by
corresp.ondence.
The original of the statement section (b) is to be sent to the
neglonal Bank to which the transfers are made as n.uthori7..atlon
of transfer and advice of credit for the amount of such transfers;
the duplicate is to be retained as an office record. The debit ticket
section (a) Is to be sent to the Member Bank requesting the
transfer, as an advice of the charge.
Oorr"SPolldence Tr?-nsfer Oredit Ticket (O-IS). Thla fonn will
be used by the Regional Bank when crediting Its Member Banks
for transfers made to them by banks situated In other districts.
It will be preDared from the Statement (.f Correspondence Transfers. Form C-12, and Is Intended to serve both as a credit ticket
and as an advice to the Member Bank to which the transfer Is
made.
114
Ckminus Department.
'rh& In-Ch'aJings and Ont-Clo?arlngs Divisions of this departm&nt
will handle, respectively, the checks received from the Clearing
House and the checks sent to the Clearing Honse.
The records of this department will be limited to Proof and
Settlement Sheets containing a r&cord of the amounts of the
checks received from and sent to the varlons banI,s.
It is Intended that the Clearings Department shall sort the
checks received according to the ledgers to which they apply, and
so far as possible. according to the accounts in these ledgers.
Thereafter the Proof Sheets are to be deliv<)r<)d to the J30okke&plng
Department where they will be utilized in posting the debits to
the acconnts of th& Member Banks and Government Departments.
The items also are to be sent to the Bookkeeping Department for
entry III the Ledg&r and Dally Statement. As totals only will be
posted In the Journals and the items th&ms&lves will be utilized
in preparing the Regional Bank's record of the charge and the
Daily Statem&nts, all rellsting and other duplication of work will
bo avoided,
Collection Deparhnent,
In addition to being' the custodian of all notes received from
other Regional Banks for collection, this department will have
charge of the recording and transmitting of country items collectIble through Member Banks. Items payable locally are to be delivered to the Note Teller's Department at maturity for collection.
Collection Form for Notes sent out by Collection Department
(C-14). The several c(:.ples of this form will serve respectively as
a letter of enclosure, receiving bank's acknowledgment, charge
ticket and office r&cord. Four copies are to be made and disposition made of them, as follows:
Orig'inal-To be sent with item, as a letter of enclosure, to col.
lecting bank.
Duplicate-To be sent with Item and original to collecting bank,
by which it is to be signed and returned to Regional Bank,
Triplicate-To be filed by Regional Bank In note ftle until maturity, and then turned over to the Note Teller's
Department, where it will be utilized as a debit
ticket for the charge to the account of the
collecting bank and then sent forward with the
daily statement as an advice of such charge.
Quadruplicate-To be retained by tne Regional Bank in numerical order as a permanent record.
TRANSIT DEPARTMENT,
The duties ot the Transit Department will be confined to the
receiving and transmitting of ('hecks, drafts, etc., for Member
Banks. It la Intended that the Incoming and outgoing mall shall
be handled by separate sub-departments and that the work of each
shall be proved Independently.
115
Aside from tbe cbarge letter for outgoing Items, the records
originating In tbls department will b" limited to Proof and
Settlement Sheets.
Member Banks Remittance Letter (D-l). While it is highly
desirable tbat the member banks use a standard form for listing
the checks deposited with their Regional Bank. their regular stock
can be utilized if it allows for the entering of the plaee where the
checks are payable. Whatever form is used, however, two copies
are to be prepared-one of which will be forwarded with the Items
to the Regional Bank and the other retained by the Member
Bank.
The Items are to be assorted and thereafter listed on separate
letters according to the following classification:
Items drawn on the Regional Bank In which they are deposited.
Items payable In the city In which tile depositing bank's Regional Bank Is situated.
Items payable in the same reserve district. but outside the city
In which the Regional Bank Is situated-one letter for each
state or other subdivision adopted.
Items payable in other reserve distrlct3---iJne letter for "Inside"
Items and another for "outside" items. The "outside" Items,
however, are to be classified and listed according to the
states In which they are payable, or other subdivisions
adopted.
Member Banks' Recapitulation 0/ Deposits with Regional Bank
(D-2). This form is to be used by the member banks fOl' sum-
marizing and claSSifying the Items depOsited according to the
'transit Time Schedule.
On the books of the Member Banks, the total amount of the
deposits will be charged immediately to a Transit Account, to
which credits will he made daily for the amounts due to be collected on that day. the account with tbe Regional Bank being
correspondingly charged.
Upon receipt of the items by the Regional Bank. the account of
the Member Bank will be credited Immediately with tbe total
amount of the deposit, regardless of the time required for the collection of such of the items as are payable out-of-town. In order,
however, that the Regional Bank may know the actual free bal·
ances. a memorandum column has been provided In the Member
Banks' Journal, Form G-l, In which the credits will be analyzed
under the dates on which they are due to be collected.
For further information relative to the handling of the transit
items reference Is made to the section ot the Committee's detailed
report devoted to Transit Department matters.
Regional Bonk's List of Items drawn Oft Member Banks (D-$).
This form will be used by the Regional Banks when transmitting
checks to their Member Banks. The original Is to accompany the
Items and the duplicate retained as an office record.
116
FOREIGN EXCHANGE DEPARTMENT,
Under the terms of the Federal Resen'e Act, the Foreign Exchange nepal'tment will be empowered to purchase and sell bUls
of e",change, demand and time drafts, cable transfers, and other
classes of commercial paper and securities; alsu gold coin, bullion,
etc, To provide for the proper recording of these transactions,
books and forms wHl be required as follows: Cash Books, Draft
and Remittance Registers, Liability Records, a Journal, a Correspondent's Ledger, and a General Ledger in which wlJl be carried the controlling accounts of the Department and from which
the Daily Statement of Conditlon will be compiled,
Cash Receipts Book (F-1J,
This book will be kept by tbe
Receiving Clerk of tbe Department, and is intended to contain a
complete record of all transactions involving the receipt of cash
or checks,
In the columns reserved for the "date," "particulars" and
"debits" will be entered, respectively, the date and a brief explanation of tbe trrulsaction and the amount ot cash received,
The "credits" columns are to be utilized for classifying the entries
in the "debits" section according to the accounts to which such
receipts shOUld be cI'edlted.
At the close of business each day the coltlmns in both the
"debits" and "credits" sections are to be totalled and proved, tickets
being prepared thereafter for the day's receipts of each currency,
and tor the total credits applicable to each of the accounts entlmerated in the "credits" section. These tickets, after approval by the
proper officer, are to be delivered to the General Bookkeeper of the
Department for entry.
Grwh Disbursements Book (F-2). In this book, whiCh is to be
kept by the DisbUrsing Clerk of the Department, will be entered
the details of the cash disbursed and the checks issued for bills
of exchange and cable transfers purchased, and for other purposes.
All entries are to be stlpported by properly approved memoranda. In every case, stich memol'Unda should IJear the Initials
of the clerks l'(\sponsible for the calculation and verification of the
rates and conversions, as well as the Initials of the approving
officer.
Except as regards the nattlre of the transactions to be 1',,corded therein, the Cash Disbursements Book Is to be used in
precisely the same manner as the Cash Receipts Book.
Draft Advtce and Record (F-S). The record of drafts drawn
conSists of four sections, which are to be prepared at one writing
and utilized as follows:
Section "a"-Original advice-To be sent by first steamer to
the bank on which the draft is drawn.
"b"-Dupllcate advice--To be sent by second steamer
to the bank on which the draft is drawn.
"c"-To b(\ filed with the correspondence relating to
the bank on which the draft is drawn.
117
"d"-'lo be Inserted in a suitable binder and preserved
as the Department's record of drafts drawn,
All four sections, when !compieted, will show the name and
address of the bank on which the draft is drawn; the date ami
number of the draft; to whose order it is drawn; the tenor: the
amount; and the names of the steamers by which the drafts and
advices are being forwarded. On Sections "c" and "d" will be
entered, In addition, the rate, the amonnt in United States currency, and to whom the draft was sold.
At the close of business each day tickets al"e to be prepared
for the dally totals of the drafts drawn, which tickets, after approval, are to be delivered to the General Bookkeeper of the
Department for entry.
Remittance Advicc rwd Re('orrl (F4). This alS<) Is a manifold
form consisting of four sections, which are to be utilized as follows:
Section "a"-Orlglnal advice--To be sent by tirst steamel" to
the correspondent.
"b"-Duplicate advice-To hi, sent by second steamer
to correspondent.
"cO.-To he used as a voucher for the debit postlngs
to the liability record~ and then filed In chronologi('al order.
"d"-To be Inserted In a suitable binder and preservf'd
as the Department's record of remittances to
its correspondents.
Upon completion, all four sections will show the name al1d
address of the correspondent to which the bill Is remitted; the
names of the steamers by whiCh the bills and advlces will he
forwarded; the date: index nnmber; the names of the drawer,
endorser and drawee; the tenor and amount of the bl1l; a description of documents accompanying lt, and the terms under
Wllich such dOCtlnlents are to be surrendered. The office copiesSections "c" and "d"-wlll contain, In addition to the foregoing
data, the rate, amount in United States currency, date of credits,
and remarks if necessary.
At the close of business each day tic\,ets are to be prepared
for the dally totals of the remittances, which tickets, after approval, are to be delivered to the General Bookkeeper of the D"'partment for entry.
Customers' Liability Record (F-5). In this record will be
entered under the names of the customers their contingent liability to the Department as drawers, endorsers, and gUarantors.
The particulars to be entered wlll include the name, address,
business, and rating of the customer, thE· date and l1umber of the
Item, the names of the drawer and drawee, the tenor, the approximate due date, and the liability amount. Provision being
made for entry In separate columns of the liability of the customer as drawer, as endorser, and as guarantor, this re('ord will
of course show the nature of the customer's liablJity, as well as
the aggregate amount.
118
The debit entries will be posted from Section "c" of the Re.
mittance Advice and Record, Form F·4,
As the items mature and are paid or otherwise disposed of,
the customer shOUld be credited In the proper columns, and the
amounts in the "Balance" columns reduced according'ly.
Payers' Liability Ledger (F·lJj. This ledger will contain the
details of the payers' liability to the Department. both as drawees
and as acceptors.
The ledger sheets wHi be headed with the name. a<:ldress, busi·
ness, and rating of the payer, and will show for each Item the date,
the index number, the name of the customer, the tenor, the approximate due date, and the liabllity amount, Separate columns
being provided for the entry of the liability as drawee and as acceptor, the extent of the payers' liability under each of these
claSSifications Is already ascertainable.
The debit entries will be posted from Section "c" of the Remittance Advice and Record, Form F-4.
As the items mature and are paid, the payments should be
posted in the proper credit column and the amount in the "Balance"
columns reduced accordingly.
JournaJ (F-7),
Transfers from one account to auother, adjustments occasioned by Interest charges, and other transactions
not originating in the Cash Books and the Draft and Remittan<'e
Registers, are to be entered In the Journal. Being columnar in
al'l'angement, the posting of Individual items to the ledgers will
be necessary only In connection with the mlscelianeous items appearing In the column head "Sundry Accounts."
All entries are to be supported by properly approved tickets.
COTTesponde1!ts' Ledger (F.8). In this ledger will be carried
the ac.counts of the foreign banks selected as correspondents
or agents,
All entries other than those posted direct from the draft and
remittance records are to be supported by self-explanatory and
properly approved tickets.
The particulars to be recorded Include the date and a brief
description of the transaction, the index number assigned the
Item, the value date, and the amount. Both the foreign am(HlIlt
and Its equ1Valent in dollars are to be entered, '1 he balance Is
to be Cfll'l;ed in the dollar amount only, as the foreign curreney
balance would not be needed except when the account is to he
reconciled. As advlces for charges are received from the foreign
correspondents, the amonnts of IjIu . . .h charges are to be entered
In the "Charges" column opposite the item to Which they apply,
after Which the net amounts are to be extended in the column
so headed,
The Auditor will be required to attend to the reconciliation of
the statements received from correspondents. Form Y-3 has been
provided for use In this connection,
General Ledger (F-9).
The General Ledger of the Foreign
E:xchange Department is to be a bound book and will contain all
119
of the control accounts relating to the resources and liabilities of
the Foreign Exchange Department, and the earnings, expenses,
and Profit and Loss Accounts.
All entries are to be supported by properly approved tickets.
Daily statement Book (F-I0J. At the close of business each
day the General Ledger balances are to be entered in this book,
which will thus constitute a daily record of the resources and
Uablllties of the Department.
BOOKKEEPING DEPAHTMENT.
The Bookkeeping Department will have cbarge of the accounts
of the Member Banks and Government departments. also the general accounts. In addition, it will be responsible for the preparation
of the Dally Statement of Condition and the Monthly Statement of
Earnings and Expenses and for the maintenance of the analytical
records of earnings and expenses.
Member Ban.ks' Journal (0-1). This Journal will be used tor
assembling the daily debits and credits and dHermining the balances
ot the Member Bauks at the close of each day's business.
In the "Debit" columns will be posted the daily charges to each
account as shown by the Proof Sbeets prepared by the Clearings,
Trausit, and other departments. In the column headed "Credits to
Ledger," will bo posted the total of the Credit Letters received from
the Member Banks. At the close of business each day the balances
are to be extended and proved.
In order that the free balance in each account may be readily
ascertained, we have Included uuder the h',ading "Credits" a memorandum column entitled "Credits in Transit," in which the subtotals of the Credit Letters are to be distributed according to tbe
dates on which the Items are due to be collected.
While this style of Journal would not be suitable for a bank
having a large number of accounts, many of which are Inactive,
It Is especially desirabln In the case of the Regional Banks, where
there will be a comparatively small number of accounts, all of
which will pl'obably be very active.
In addition to serving as a medium for assembling the dally
debits and credits, the Member Banks' Journal wlIl furnish a check
on the entries in the Member Banks' Ledger-the entries in the
Journal being compiled from the Proof Sheets and those In the
Ledger direct from the items.
Government DepOSits JournlU (0-2). Except that it does not
contain a column for credits in transit, this form is very similar
In arrangement to the Member Banks' Journal and Is to be used
In the same manner.
General Joy,rna.! (0-3). By the use of this Journal for assembling the daily debits and credits to the General accounts, the dally
statement will be completed simultaneously with the balancing of
the accounts. The daily statement could, of course, be prepared
direct from the General Ledger, but In thnt event it would be far
more difficult to locate any differences whko. might arise.
120
Member Bank's Ledger and Daily Statement (G-!,a), This form
will be prepared in duplicate direct from the Items, After the day's
transactions have been entered, the original-the Ledger Sheetis to be inserted in a suitable binder for use as the Regional
Bank's record, and the duplicate forwarded to the Member Bank
concerned for use as an account current and advice of the
charges and credits made by the Regional Bank.
An explanation of the key letters to be used In the preparation
of the Ledger accounts and statements of the Member Banks will
be found In a subsequent section of this report.
Fedeni/, Reserve Bank's Ledger and Daily Statement (G-.jb).
Except that It will be reserved for recm'dlng transactions with othel'
Regional Banks, this form is vel'y Similar to the Member Bank's
Ledger and Daily Statement, and is to be used In precisely the
same manner.
General Ledger (0-5). This is to be a bound book and will contain an account for each Item appearing in the Statement of Condition. All entries must be supported by properly authorized debit
and credit tickets.
Record of Certified Checks Paid (G-6). Record of Cashier',
Checks Paid (G-'"I), These forms will be used for listing, by numbers and amounts, the Certified Checks and Cashier's Checks paid
each day. The daily totals ot the checks paid, as recorded on thes9
forms, are Intended to support the debits to the General Ledger
controlling accounts for Certified Checks and Cashier's Checks.
Expense Voucher (0-8). This consists of a check and statement
to be forwarded to the creditor and a carbon duplicafe to be attached
to and filed with the relative invoice, Before signing the check section, the Cashier should see that the duplicate bears the approval
of the proper persons.
Expense Distrib·ution Record (G-9), This form will be used
for dlstrlbutlng under appropriate headings the charges to Expense
Account. Separate columns are provided for salaries, directors' fees,
legal services, postag9, printing and stationery, light and water,
rent, freight and express, insurance and bonds, telephone and telegraph, taxes, etc. The details of the expenses incurred will be
Obtained from the debit tickets covering cash disbursed by the
Paying Teller or from the Expense Voucher In tlie event of the
payment being made by check.
A somewhat similar form could b9 used for analyzing the
earnings.
Comparative Statement QI Earnings and Expenses (0-10), Thls
statement, which Is to be prepared monthly, will show in comparative form the details of the earnings and expenses for the current
month and the fiscal period to date as well as the increases or de.:reases over the previous month and period.
Most of th,) data required for the completion of this statement
will be obtainable from the General Ledger and the Expense Distribution Record.
121
marement 0/ ConditlQn (0-11). This Is to be prepared dally
from the General Journal and supporting records.
Suggested Oondensed Gr08S Statem&nt for Report to Federal
Reserve Board (G-l2); Suggested Condensed Net Statement /01' Report to Federal Reserve Board (G-IS). These are alternative forms.
Whichever is adopted will 00 complied from the Daily Statement
of Condition (Form G-11).
KEY LETTERS TO BE USED IN THE PREPARATION OF THE
LEDGER ACCOUNTS AND DAJI.Y STATEMENTS.
In order to minimize the cieMcal work involved in the preparation of the Ledger accounts and the statements for Member Banks
and other Reg·lonal Banks, it is proposed that key letters shall be
used for describing routine transactions. For convenience, these
key letters and their definitions wlll be printed on the back of the
daily statements.
Following Is a list of the key I etten; relating to transactions
with the Member Banka, their definitions, and a full description of
the tranaactlona where necessary. For illustrative purposea, the
transactions are described from the stnndpolnt of the Regional
Bank situated in New York.
DEBITS.
A. Items on lIOU forwarded 1I0U precediJl{J blMi1!ess day.
Itema drawn on Member Banks and forwarded to them by
Regional Banks are to be charged to the Member Banks
the day on which they will be received by the Member
Banks, being carried Until that time in a transit account
on the Regional Bank's hooks. ASSUming that all Member Banks will he within one day's mail of their Regional
Banks, the charges would be for items forwarded the preceding business day.
AT. Deposited with Assistant T,.easurer.
For deposits made by Regional Bank with the Assistant
Treasurer of the United States for credit of Member Banks.
CA. Charged as per separate adt-we to-do,y.
To be used for special charges not covered by other key
letters.
CO. Currency or coin shipped as per addce fo-day.
CL. Clearing e;rpe"ses.
For monthly charges to Member Banks for expense incurred
In the collection of Items.
CN. Note in your hands for oltr account «1/e to-day.
For Regional Bank's notes or bills sent to Member Bank for
collection and charged to it on due date, also for notes and
bills received from other Regional Banks and forwarded to
a Member Bank for collection, for which a charge will be
made on the due date.
llD. Held as per addce to-day.
For Item temporarily unpaid and I·etalned for collection.
122
NT. lIanded to Notary as per advice to-day.
For items received from Member Banks, unpaid at dose of
day, which have been protested and returned to t.he Member Banks from which received.
PF. Protest Fees as per advice to-day.
For fees charged on protested items returned.
RT. Item returned as per ad1>ice to-day.
For items drawn on Member Banks in other districts which
were not paid and have been returned direct to our Member Bank.
TO. Transier by correspondence as per w!.t'icc.
TT. Tru-ns!er by telegraph as per advice.
CREDITS.
A.
Oash letter received.
For Items drawn on Member Banks in our district and in
other districts received from our Member Banks for credit.
0.4. Oredited as per separate a~vice to-day.
To be used for special credits not covered by oth"r key
letters.
CO. Currency or coin recei-ved.
DC. Deposit lor your account
as
per adl>ice to-day.
For deposits made by third party with Regional Bank for
credit of Member Bank.
DI.
Dit>idend payable to-day.
For dividends payable to Members Banks. whkh are to be
credIted direct to their accounts.
IN. Interest reb(tted.
For unearned interest or discount on lo.1.ns or discounts
taken UP prior to due date.
RD. Proceeds oj Loan or Rediscount.
Pr;'. Protest Fees.
For fees on unpaid items returned hy our Member Banks.
RT. Item. reiu,rne(1 as ver your advice.
For unpaid collection items returned.
1'e. Tra"sfer bv correspondence as Iwr a(l1>icc,
1'T. Tra-Rsjer by te/cgrapll a.~ per ar/vicc.
The key letters to be used in describing the transactions arising
among the Regional Banks are similar to those prescribed for
transactions between the Regional Banks and their Member
Banks. except for such changes as are necessary on account of
the altered character of tile transactions. The following Is n
list of the key letters to be used for Regional Bank transactions.
with explanations;
DEBITS.
A.
Items on l\fem"ber Banks in YOtlr di8trkt jorw(trded you.
For items drawn on Member Banks In other districts forwarded their Regional Bank for credit.
OA. Chu.rgcd as per separate addce to-day,
To be used for special charges not covere.-l by other key
letters.
123
CC. Currellcl1 or coin shipped as per advice to-day.
CN. Notes due to-day as per our list,
For notes or bills sent to other Regional Banks for collection, whieh are to be charged on due date.
EC. Entered for eollection as per adVice to-day.
For Hems received from other Regional Banks temporarily
unpaid and retained for collecti'lil.
NT. Hallded to Notary
as
per adl-'ice to-day.
For Items received from other Regional Banks unpaid at
dose of day which have I.>een protested and retumed to
the Member Banks from which received.
PF. Protest fees as per adt'ice to-day.
For fees charged on p"otested Items retumed.
RT. Items returned as pel' our list.
For unpaid collection items.
TC. TraJisfer by correspondence as per advice,
TT. Transfer by telegraph as per advice.
CREDITS,
A,
Items
all
Member Banks in our district received from you.
For items drawn on Membe.' Banks in our district, forwarded us for credit.
CA, Credited as per separate admce to-day,
To be used for special credits not covered by other key
letters.
CC. CUrrel!ey or cain received.
CN. Notes due to-day as per your list.
For notes or bills received from other Regional Banks for
collection, which are to be credite<:l on due date.
EC. Item entered for eollection now paid.
For items received trom other R('gional Banks temporarily
unpaid as described under EC. In "Dfll.>lts," now paid and
credited.
IR. Interest rebated.
For uneal'ned interest or discount on loans or discounts
taken up prior to due date.
PF. ProteM Fees.
For fees charged on protested item returned.
RD. Proceeds of ret1iscount.
NT. Items returned as per vour list.
For items returned unpaid to our Member Banks.
TC, Transfer by correspondence as per advice.
TT, Trallsfer"by telegraph as per advice.
MISCELLANEOUS FORMS,
Stock Su"bscription Ledgers fM-t and M-2J. These forms will
b& used tor recording the subscriptions received from Member
Banks and tram Individuals, and the Instalments paid on account of
such subscriptions.
The record of Member Banks' subscriptions-Form Mol-Is designed to show the number. name and location of the subscribing
124
bank, its paid up Capital Stock and Surplus, the amount of the
wbscription required by law, and the instalmenta paid thereon.
As the amount of the subscription, divided by the par value per
share ($100,00) will give the number of shares represented by the
subscription, It hali! not been constdered necessary to provide a
JiJleclal column for entry of the number of shares.
For recording subscriptions received from individuals, Form 114.2
wUl be utilized. The front of this form is ruled for entry of the
name, address and legal residence of the subscriber, the date and
amount of the subscription, and the date and amount of the pay·
ments on account of such subscription. The reverse will contain
a record of the stock certificates issued to the subscriber and the
stock certificates surrendered for transfer.
Stock Subscription Oertificate rM-S). This form is designed to
eerve both as a subscription certificate and as a receipt for the
instalment payments. It is intended to be used principally In
connection with subscriptions received from Individuals.
Stock Subscriptton Receipt {M -4}. '.t'he stock allotted to the
Member Banks being non-transferable it is recommended that they
be given receipts for the IndividUal payments instead of the Stock
Subscription Certificate described In the preceding paragraph.
Stock Certificate Receipt {.M -5}. This form consists of a stub
and a detachable receipt on which the subscribers will be required
to acknowledge receipt of the stock certificates Issued to them.
Stock Transfer Record {H-6}. This form will be used for recording transfers for account of stockholders other than the Mem~
bel' Banks. It is ruled for "ntry of the date of the transfer; the serial number of the certificate surrendered and the number of shares
represented thereby; the name of the transferrer; the number of
the certificate Issued In exchange: the number of shares represented by the new certificate. and the name and address of the
transferee.
Standfng Order to MaU Dividend {M-7}. Each stOCkholder to
whom diVidend checks will be issued, should be required to com.
plete a copy of this form. It the dividends are to be remitted to
some one other than the owner of the stock, the signature of the
stockholder Should be acknowledged before a notary public.
Dividen4 &gister (H·8). As most of the stockholders of the
Regional Banks will be Member Banks, whose holdings are not
transferable, a Dividend Register of this type should meet all reo
qulrements. It is ruled to show the names and addresses of the
stockholders and the dividends applicable to their holdings, also
the number. rate and total amount of the dividend, the date on
which it was declared, the date pald, and the date credited to the
liabil1ty account for diVidends declared.
Dividends payable to Member Banks are to be credited to their
accounts direct from the Dividend Register. For the dividends
payable to other stOCkholders, dividend checks will be ISSUed.
Authoritu to Open Account with ReOionaJ Bank (H·9). Each
1%6
Member Bank opening an account with Us Regional Bank should
be required to furnish the latter with a certified copy of the resolution of the Board of Directors authori:;:;ing such action. Form M-9
is recommended for use in this connection.
,signature Card (M-l0). Simuitaneoualy with the opening ot an
account, the Member Bank will be required to fite with its Regional
Bank, on this fOl'm, a list of the signatures to be recognized by
the Regional Bank In the payment of funds or the transaction of
ether business for account of the Membel' Bank,
Purchase Order Of-11) , This form is designed to furnish a
Suitable record of the orders Issued for the purchase of stationery
and other supplies, The original of the order is to be forwarded
to the snpplJer and the duplicate retaine,} for office use,
Stock Record for Supplies (M-l$). l~or each article carried In
stock separate cards of this form are to be used, on which will be
entered the description, the index numb'lr and the location of the
stock; the purchases; the Issues; and the balance,
FEDERAL RESERVE AGENT.
The Act stipulates that the Federal Reserve Agent Shall be a
person of tested banking experience and that he shall maintain,
under regulations to be established by the Federal Reserve Board,
a local office of said Board on the premises of the bank with which
he is connected, These stipulations will necessitate the Federal
Reserve Agent keeping suitable records of the notes received, iSSUed
and withdrawn, of the rediscounts and other paper held as collateral to note issues, and such other recQrds as may be prescribed
by the Federal Reserve Board.
Reeorn of Federal Reserve Notes Received from the OomptrolUr
of the CUrreflcy (X-V. In the respective columns of this record
will be entered the date and nature of th,. transaction, the amount
of notes received from the Comptroller, the amount returned to the
Comptroller and the balance to be accounted for by the Federal
Reserve Agent. This balance should equnJ the amount of notes on
hand as shown by Form X-.2 and the notes issued to the Regional
Bank as recorded on Jo'orm X-3,
Recortl of Federal Reserve Note:! on Hand (X.2). This record
will Show the details of the notes received from the Comptroller of
the Currency or J'eturneil by the Regional Bank, the notes issued
to the Regional Bank or returned to the Comptroller. and the balnnee, subdivided as between notes on hand which are fit tor circulation and notes which are not ftt for Circulation and are to
be returned to the Comptroller.
Record of Security furnished by Regional Ballk and Federal
Rcserve No'tes Issued (X-S), From this record the Federal Reserve
Agent will be able to ascertain at any time the amount of rediscounts and other paper hypothecated with him by the Regional
Bank and the amount of Federal Reserve Notes issued against
sucb security,
126
The total amount of each borroWer's paper hypothecated with
the Federal Reserve Agent being ascertainable from the Loan Department records, It will not be necessary for the Agent to maintain
a special record for this purpose.
App/ic<ltion for Federal Reserve Notes (X-4). This form, which
will be used by the Regional Bank when applying for Federal
Reserve Notes, is to be prepared in duplicate, The original is to
be retained by the Regional Bank M authority for the credit to
Circulation Account, while the duplicate is to be signed by the
Paying Teller of the Regional Bank In acknowledgment of the receipt of the notes and returned to the Federal Reserve Agent for
entry on his records.
Retirement of Federal Reserve Notes (X-5). Except that it Is
to be used In connection with the retirement of Federal Reserve
Notes, this form is very similar to X-4.
Reeoril 0/ Notes H1IPothecated with Federal Reserve Agent
(B-15).
~Qent
Record of Oollateral Withdra.wn from FederaJ Re"erve
(B-16), As explained In a preceding section of this report.
the Loan Department will prepare these forms in dupllcate in
order that. the Federal Reserve Agent may be able to retain a COpy
for his own use.
Advice of Currency Returned to Comptroller (X-6), This form
will be used by the Federal Reserve Agent for advising the Comptroller of shipments of mutilated currency.
Each pIWkage of currency returned to Washington should be
accompanied by a detailed achedule of the contents, showing. both
the selial numbers of the notes returned and their denomination.
Daily Report on Note Circulation (X-'l). The Federal Reserve
Agent will report daily to the Federal Reserve Board on this form,
the total Issues and withdrawals of Federal Reserve Notes, the
amount of unfit n<ltes returned to Washington, and the total amount
ot notef' on hand at the close ot the day.
AUDIT DIVISION.
The function of the Audit Division will be to audit the records
and securities of the various departments comprising the Banking
Division, also those of the Federal Reserve Agent.
The Auditor in charge of this division should be thoroughly acquainted with thc banking business in all Its phases and competent
to judge If every part of the work Is being properly performed.
While not under their jurlsdlction, the Auditor should cooperate
with the officers conducting the Banking D\vi>;ion so far as is necessary to safeguard the interests of the bank,
Under no circumstances should either the Auditor or his W>SiSlants be allowed to prepare or approve tickets of original entry, On
the other hand, the Audit Division should be required to prepare
all tickets needed for the correction of errors; all error tickets
should, however, be refet'red to f.:1 Officer In the Banking Division
for approval before delivery to the bookkeepers for entry.
A c1MSification and analysis of the duties of the Audit Division
fOllow:
127
General Proof. At the close of business each day the various
departments wilt deliver their settlement sheets to the Audit Division, where the Inter-departmental transactions will be verlfled and
the departmental totals assembled on the Auditor's General Proof
Sheet. Form Y-l.
Reconcilements.
The reconciliatiolls of the accounts carried
with other Regional Banks, with Member Banks and Government
Departments, and with correspondents abroad, wUl be prepared by
the Audit Division. The domestic accounts are to be reconciled on
Form Y -2 and the foreign. accounls on Form Y.3. Reference to
these forms will show that In each case thB reVBrse can be utilized
for Iisllng the outstandings.
Departmental Audits. Each of the departments comprising the
Bauklng Division should be audited at Irregular intervals during
thB year. ThesB audits should include a veritleation of the cash,
loans, investment securitiBs, and other resources; a comparison of
the sBcurities held as collateral with the collateral records; a proof
of the !lability accounts and a detailed check of the accrual accounts and the accounts relating to earnings and expenses.
The securities and accounts of the Federal ReservB Agent
should also be subject to audit at frequent intervals.
Loose Leaf Records. The Audit DiviSion shOUld have charge of
all sheets for loose leaf records, furnishing them as required and
keeping an accurate record of those in use and In the transfer files.
Cancelled Vouchers. All cancelled vOllchers relating to the general accounts, debit and credit tickets, etc., should bB promptly delivered to the Audit Division for filing.
GENERAL.
We shall be pleased to furnish any further information or
explanations whlcb may be necessary In connection with the
matters dealt with in this report.
Yours truly,
MAJlWlCK, MITCHELL, PEAT &
Co.
Portfolio III, containing forms relating particularly to the
keeping of credit records, the f1resenu~tlon of regular reports
by the banks, etc., is also presented and should be studied In
connection both with Portfolio I and Porttollo II.
..28
APPENDIX Il.
(Aecompanied by Portfolio of Forms No. II.)
From the beg·lnning of its work, the Committee determined
tf) present a complete system of meehanlcal accounting In accord
with methods in use in the largest banks, and with this in view
Mr. Stephen H. Fal"llham, an expert on mechanical accounting,
was invited to lJCcome a member of the COlUmlttee. Later the
Sub-Committee on Mechanleal Accounting secured tJle co-operation of Mr. Harry I~. Ward, Cashier of the Irving National Bank,
New York City, and Mr. Charles C. Rf)binson, Auditor of the
Irving National Bank.
The system of accounting to be chosen, and the extent tf)
which machines are used in it, will depend upf)n the scope and
activity Which the Reserve Banks are to have from the beginning, and, in the event that they are assigned large clearing
functions, it will necessarily be a matter of extreme Importance
in assllring the smooth working of the system, the accurate
and prompt collection of items, and the development of reports
and statistics comparable in character and truly reflecting
the Internal eonditions of each of the several institutions.
The accounting system as subsequently outlined may be made
a fundamental factor In providing the means fOI· a careful estimate of eredit eondltlons througllOut the country, as It provides
{Ol· a daily transmission, if desired, of detailed reports to the
Federal Reserve Board at Washington, in order that that Board
may be constantly.in touch with the operations of each Bank.
and the comparative condition of all the Banks. In this way
tlle Board will be enabled to act with fu!! knowledge as to rates
of discouut and to adVise the several I3anks ("oncel"lling- the
lines of paper that are outstanding- througllOut the country.
In designing- the plan, these points have been observed:
(A.) Part\cu lar care has been taken to introduce
the most modern systems, using· machinery
wherever possible, thereby securing the advantages of mechanical accuracy as compared with the method of maintainiug records by ham!.
(R) The majority of the forms have been constructed to carl·y their respective items
from the time of receipt to final disposition. There is also a system of control
throughout, with the result that their use
will materially reduce labor and increase
efficiency.
(C.) The en tire accounting system liaS pu rposely
been made elastlc, so that It will fulfil the
needs of the largest as weU as the smallest
Federal Reserve Bank, and as the banks
grow It will not be necessary to revise the
MCQUnting plan.
129
( D.) Thero has Leen constant recognition of tlh.
desirability of keoping the Federal Reserve
Board in daily contaot with the Federal
Hesel"Ve Banks_
( E.) The system is adapted for use with any of the
standard typewriting and adding maohines
now on the market.
MAIL TELLER.
As there will in all probability be a large accumulation of mall
from Member Banks, consisting of remittances for credit, colleotions, etc., between the hOllrs of 2:S(j P. M. and 8:S0 A. M., this
department has been designed as the th"st operating unit, looking
to the avoidance of congestion In the morning.
Tho work of the Mail Teller wlll begin, say at midnight, and
wlll consist in handllng incoming mail up to 5 A. M., the result
being:
I-Preparation for morning olearanc~, of such items as will be
payable through the Clearing' House (Federal Reserve or otherwise).
2-Delivery to the Transit Department in one total of such
Items as may have been received, payable out of town.
S-Delivery to the Distributing Desk In one total of such Credits and Debits as relate to the accounts appearing upon the books
of the Federal Reserve Bank.
4-DeJlvery to the Note TellE-r in one total of suoh miscellaneous Items not oovered in the three subdivisions outlined.
The mock System wlll be used III this, as in all other departments. the sectional_ proofs of the work being accomplished Ly
means of blocks, with the result that the ultimate proot of the
department will consist only of interlocking balances.
FOlOJ JI. '1'. 1.
This will he the Block Sheet of the Department, to be used as
previously outlined.
FOR,lI .1I. T. 2-3--)
These varl-colored slips to be used in conectly routing the difter'ent batches of Debits and Credits after they are proved upon
each block.
For'm Nos. 3 and 4, will cover the majority of the work leaving
the department, and consequently are imprinted "Transit Department" and "Note 'relier," while form M. T. 2. is 10 be used for such
miscellaneous items as may necessarily he forwarded to other dE'partments.
FORM M. T. 5
ThLs is a Proof Sheet for the department, the figures for which
wll\ be obtained from a recapitulation of the Block Sheets.
FORM _M. T. 6
This is a sUggested envelope which will enclose items intended
fOI' presentation 10 the differellt Members of the Clearing House.
130
CLEARING HOUSE DEPARTMENT
This department will be the successor of the Mall Teller, Its
work consisting In handling Incoming" mall received aubsequent to
5 A. M., the plan of operaUon of the two departments being iden.
tical, except that the supervision and proof of incoming exchanges
from the Clearing House will also be handled by this department.
The forms wm consist of the following:
FORM all. 1.
This will be the Block Sheet for the department.
FORM OR 2.3·4·5.
These varl-colored stips will be used in correctly routing the
batches of items from each Block Sheet, after its proof.
FORM OR 6.
This Is the Proof Sheet of the department, the figures for which
will be Obtained by a recapitulation of all the Blocks.
FOIHI eH I.
This Is a Block Sheet to be used In effecting the proof of incoming exchanges from the Clearing House.
FORM OH 8.
'.rhis is a Proof Sheet for the assembling of an individual proof
of the morning Exchanges received from the Clearing House, the
figures being subsequently passed through the proof of the Dis·
tJibutlng Desk.
POR}'! OR 9
This is a suggested envelope which will enclose Items Intended
for presentation to the different Members of the Clearing House.
DISTRIBUTING DESK
For the concentration of figures, avoidance of errors, facilita·
tion of work in the Tellers' cages, and simplicity of posting for the
General Ledger this department has been Instituted in order that
the different Tellers after the proof of each block may route to it
such Items as may have been received, both Debits and CredIts,
eff",cUng accounts appearing upon the books of the Federal Reserve Bani!.
The advantages of the Distributing Desk are many, and it will
be found of particular value as to apparent over·drafts, by the
quick concentration in the bookkeepers' hands of such Debits and
Credits as may affect the acconnts, bnt which under ordinary circumstances would not reach the bookkeeper until the close of the
day's business.
TIle Forms of the department are as follows:
FORM D D 1
Thla Is a Block Sheet to be used in establishIng sectional proofs
of Debits,
F'ORM D D 2
This is a Block Sheet to be used in establishing sectional proofs
of Credits.
/<'ORM D D 3
ThIs Is a Proof Sheet for the department, the figures of whIch
will he obtained from a recapitulation of the Block Sheets.
131
PAYING TELLER
Tbe 'principal duties of the Paying Teller will be to make such
cash disbursements over the counter as may be necessary, effect
the settlement of Clearing House baJances, examination of checks
for coned signatures, arrang'e for the shipment of money to
Member Banks, provide for the forwarding of mutilated C\lrrency
for redemption to the Treasurer of the United States at Washington, and likewise provide for the redemption of Federal Reserve
Notes with the Federal Reserve Agent.
The Paying Teller will be responsible only for such cash as may
be allotted to him, the principal cash reserves of the Bank being
under the joint control of other officers or directors.
The Forms of the Department are:
FORM PT-l
This will be used In arranging shipments of money to Member
Banks. Its explanation is as follows:
Slip NO.1-Notification to the Member Bank that its account
has been charged and that the shipment bas gone forward.
Slip No. 2--Carbon copy of original advice, which will be enclosed with the shipment of money.
Slip No, 3-Acknow!edgment from Member Bank of receipt of
the shipment.
Slip No. <I-Tracing slip to be retained as a follow-up, looking
to the receipt of the acknowledgment.
Slip No.5-Debit to Member Bank's Account.
FORM PT-2
This will be used in forwarding mutilated currency to the
Treasurer of the United States at Washington. Its explanation is
as follows:
Slip No.1-Advice to the Treasurer of the United States, descriptive of the forwarding of the currency.
Slip No.2-Carbon copy of original advice, to accompany the
shipment.
Slip No.3-Debit to "Redemption Account."
Slip No, "--Credit to "Redemption A,~count."
All of tbe above slips wlll be made use of upon the day the
money Is sbipped, with the exception of Slip No, 4, which will
be retained, awaiting the return of the equIvalent currency from
Washington. Tbe outstanding slips will, of course, prove to the
contrOlling account upon the GeneraJ Ledger.
FORM PT-S
To be used in forwarding mutilated Federal Reserve Notes to
the Federal Reserve Agent, its explanation being:
Slip No, I-Application to the Fedet'al Reserve Agent for the
Issuance of new currency,
Slip No.2-Acknowledgment from thH Federal Reserve Bank to
the Federal Resel'Ve Agent of receipt of the new currency,
Slip No, 3-Deblt to "Federal Reserve Notes."
Slip No.4-Credit to "Federal Reserve Notes,"
133
Slips Nos. 1, :l, and 3 will be attached and delivered to the Federal Resel'Ve Agent with the mlltilated currency, Slip No. 3 being
provided upon its reverse side with a form of acknowledgment
from the Federal Reserve Agent of the receipt of the mUtliated
currency. When the new currency is delivered to the Federal Reserve Bank it wlll be accompanied by an acknowledgment of Its
receipt by the Federal Reserve Bank. Upon delivery of the new
currency to the Bank. SUp No.4 will be llSed as a Credit to "Fed.
eral Reserve Notes."
FORM PT-4
This will be used by the Federal Reserve Bank in forwarding
Federal Reserve Notes for cancellation to the Federal Reserve
Agent, Its explanation being:
Slip No.1-Instructions to the Federal Reserve Agent, as to
the cancellation of the deseribed Federal Reserve Notes.
Slip No. 2--Deblt to "Federal Reserve Notes."
As the notes are delivered to the Federal Reserve Agent they
will be accompanied by Slips Nos. 1 and 2, Slip No.1 being a record
of the transaction for tlJe Federal Reserve Agent, while Slip No.
2 is for use In reducing the outstanding Federal Reserve Notes,
provlslon bavlng been made upon its reverse side for a form of
acknowledgment of the receipts of the notes by the Federal Reserve
Agent.
FORM PT-5
This Is a form to be used in effecting the "Stop Payment" of
checks.
FORM PT-G
This will be used when the notification for stopping payment
has not been received upon the form provided for the purpose.
FORM PT.1
This Is for use in acknowledging receipt of the regular form of
"Stop Payment" notice.
FORM PT-8
A loose-Icaf record, upon which will be inscribed under the
name of the Memher Bank, a complete deserlption of the cheeks
upon which it is deSired to stop payment.
FORMS PT -9-10-11-12-13
Varl-colored slips to be used in routing the different batches of
Items to the several Departments.
FORM PT-14
Proof Sheet for the Department, upon which will be assemhled
the total figures of the day. Upon the reverse side of the sheet.
provision has been made for the accumulation of the difl'erent
Debits and Credits to the several Departments.
b'OHM l'T-15
This will be used for the occasional necessity of certifying
checks of Member Banks, its explanation being:
Slip No.1-Notification to Member Bank of the faet tllat its
account has been charged, covering the certification of a speCific
cheek.
133
Slip No.2-Debit to the Member Bank's Account.
Slip No. 3-Credlt to Certified Checks.
FORM PT-16
When the certified checks are returned to the Bank for redemption, they will pass tllrough the controlling account upon
the General Ledger and then be fOnl'arded to the Auditing Department In order tbat their control may be in agreement with
the General Ledger. The Auditing Department will then affix
this form to the cheCks and deliver them to the Bookkeeping
Department to be enclosed with the dally statement.
. This is a proposed sheet which will be prepared by the Paying
Teller each morning and will be delivered to the Secretary-Treasurer for examination, Its purpose being to plaee the officials of the
Bank in touch with the condition of the cash of the Bank.
RECEIVING TELLER
This Department will receive deposits from Member Banks located wlthtn the city In Which the Federal Reserve Bank Is sltua.ted, and will also account for shipments of currency received from
other Federa.l Reserve Banks and Member Ba.nks.
'fhe Forms of the Department are as follows:
FORM RT-l
This Is for use In handling shipments of currency received for
credit of Member Banks, Its explanation being:
Slip No. I-Advice to the Member Bank descriptiVe of the receipt of the Currency and the amount placed to their credit.
Slip No. 2-Credlt to the Member :Bank's Account
FORMS RT-!l-3-t-S-6
These are varl-colored sUps to be used in routing the different
classes of items to the several Departments.
FORM RT-7
A Block Sheet for the sectional proof of the day's work.
FORM RT-8
This Is a proof sheet, the figures for which will be obtained
from a recapitulation of the Block ShN'ts.
NOTE TELLER
The duties of this Department will consist of the presentation
and collection of notes, drafts, and cheeks drawn upon non-members of the Clearing House, all of wl).ich are payable within the
radius covered by the messengers of the Federal Reserve Bank.
The runners or messengers will be tmder the control and form
a part of this Department.
The forms are as follows:
FORM NT-l
This Is a proposed Block Sheet for the proof of the messengers' routes, t]pon one side of whiCh are listed the individual Items
compl1slng the I"oute and upon the reverse side the checks, currency, etc., which have been received in payment. The Initial
134
"N" is indicative of a cash Item charged to the Not<l Teller and
which has be<ln returued by tb<l mess<lnger unpaid. 'fh<l Initial
"C'; is indlcativ<l of collection items (not cash), which lJave been
returned unpaid by the messengers.
The total of the items as appearing upon <lach ,~Ide of the block
must b<l in agreemo;nt and constitute, as pr<lvlously outlined, a
proof of the messengers' routes.
FORM NT-2
A Block Sh<let for the distribution to th<l different Departments. of the ch<lcks, currency, etc., which hlW<l be .on received
In selUewent of it<lms charged to the Note T<lller. A recapitulation of thes<l blockS constitutes a proof of the day's work.
FORMS NT-3-4-5-6-1
These are vari-colored slips to be used in routing items to the
different Departments, after they ar<l proved upon the Block
She<lts.
F'OlMl NT-S
This is for use in charging back and returning cash items,
which are unpaid after pr<lsentation. Its <lxplanaUon is as follows:
Slip No. I-Letter accompanying the item.
Slip NO.2-Debit to th<l Member Bank.
SUp No.3-To b<l placed In a chronological m<l, awaiting th<l
return of the acknowl<ldgment postal.
Slip No. 4-A postal card to be attached to the Hem wh<ln It is
charged baek and which wlll b<l dated, sign<ld, and returned by
the Member Bank as an acknowl<ldgm<lllt of receipt.
FORM N1'-9
In the eV<lllt of th<l postal card as outllne.:l III NT-8 not being
regularly r<lturned, FORM NT-9, being a posta! tracer, wi!! b<l used.
FORM NT-IQ
This Is a Proof Sheet for the D<lpartm<lnt. the figur<ls of whiCh
will he obtained from a recapitulation of the Block Sh<lets as outlined In FORM NT-2.
TRANSIT DEPARTMENT.
The Transit D<lpartment should be equipped with stilet racl,~
providing suitable compartm<lllts for each Member' Bank of its
district, together with eleven other compartments, larg<lr in size
for th<l other F<ld<lral Reserve Banks.
These compartments wlli be divided Into tlllits, for th<l purpose
of evenly distrlbuUllg the volume of business.
'lhe handling and proof of th<l Transit Items will he olltained
in the following' manner:
(a) Items recelv<ld by the different Departillents will be ('harged
to tb<l Transit D<lpartm<l]lt in batches, accompanied hy
slips designating the Teller forwarding" th<lm and tile
amount of each hatch.
(h) Accumulated bat{'h<ls will h<l assorted to the aifferent units
listNl, and proved under the sectional proof of the block
system.
(c) A recapitulation of the block sheHs will constitute a proof
of th<l interlocking balances with the Tell<lrs, and produ{'e th<l figures to which <lach unit mllst prove.
135
(d) The proof of each unit wlll be obtained by adding together
the totals appearing upon the carbon copies of thE'
remittance letters in process of being forwarded,
The forms of the Department areFORM 7'-1
A form to be used by Member Bani,s in their relations with
Federal Reserve Banks, when forwarding for credit such items
as they may receive, drawn upon Member Banks located within
the Federal Reserve city. The top sheet will accompany the
checks, while the carbon will be retahH)d by the Member Banks
to be used as a debit to their reserve account with the Federal
Reserve Banks.
It will be noted that this form. as well al< FORMS NOS. T-2-8-45-6-7-8 and 9, has been equipped with a form of acknowledgment
as well as a "follow-up," the acknowledgment to be (iated,
Signed, o.nd returned by the receiving bo.nk, and the "followup" to be placed in chronological file under the date upon which
the acknowledgment should be received-tills will enable the
banks to trace intelligently any overdue cash Ie tte 1'S.
Attention is called to the fact that the reverse side of Sheet
No. 1 of FORMS NOS. T-1-2-8-4-5-6-7-8 and 9, Is to be carbonized, consequently It will not be necessary to place the usual
carbon paper between the original and duplicate parts of the form.
FORM T-2
To be used by Member Banks in forwarding for credit such
items as they may receive whicb are drawn upon
(a) Member Banks located within their own district but without the local radius to be determined by the Federal
Reserve Board.
(b) Federal Reserve Banks of other districts.
(c) Member Banks of other Federal Heserve districts.
FORM T-3
To be used hy Federal Reserve Banks in their relations with
Member Banks located in their own city, but whleh because of
inaccessibility may not clear through the Clearing House
(Federal Reserve or otherwise), neceSSitating tbe items being forwarded to them by mail for collection. '1 he top sheet will accompany the checks, while tbe second sheet, or duplicate, will
be the debit to the Member Bank's account.
FORM T--I-
This is identical with FORM T-5, except that it is Intended
to cover instances where there will not be many checks to forward.
FORM T-5
To be used in forwarding items drawn upon Member Bani,s
located without the city in whleb the Federal Resel've Bank Is
situated, the top sheet accompanying th~ checks and the second
sbeet, or duplicate, being the debit to M"mber Bank's account.
FOR},! T-G
This is identical with FORM T-5, exC'ept that it Is Intended
136
to cover instances where the number of che<:>ks to he forwarded
are fewer in number.
FORM T*7
For use of the Federal Reserve Banks In forwarding items
to eaeh other, the top sheet accompanying the checks while the
seconcl sheet, or duplicate, will be a debit to "Transit Account."
FORM T-8
For use of the Federal Reserve Banks In forwarding- Federal
Reserve Notes to each other. The top sheet will accompany the
notes while the dUplicate will be a debit to "Transit Account."
FORM T*!I
For use of Federal Reserve Banl{s In retul"lling to each other
unpaid cash Items, the original sheet accompanying the items
while the duplicate sheet is a debit to "Transit Aceount."'
FORM T*lQ
A claim tieket to be used In adjusting discrepancies in cash
letters, such as Incorrectness in listing, non-enclosure of items, etc..
FORM T*l1
To be used in confirming the action of correspondlmts, in supplying missing endorsements.
FORM T*12
A form of postal tracer to be used in tracing overdue cash
letters. The pink, or duplicate, sheet will be retained in"a chron*
ological file, as a follow-up, looking to tIle receipt of a reply to
the tracer.
FORM T-13
For use of Member Banks in returning unpald cash items
to the Federal Reserve Banks.
FORMS T-14-l5-1G
Van-color·ed slips to be used in routing batches of items to
the different departments.
FORM T-1'"i
A form of block sheet for use in establishing sectional proofs
of the day's work.
FORM T-18
Proof sheet of the Department, the figures for which will be
obtained from a recapitulation of the block sheets.
It Is quite possible that an electric endorsing maehine <ean
he used to good advantage in the Transit Department, and this
thoug-ht should receive consideration.
COLLECTION DEPARTMENT
The follOWing forms have been designed for Regional Banks, in
handling such items as may he forwarded to them for Collection
only.
FORM COLL 1
This is intended for notes payahle within the radius covered by
messeng·E'rs of the Federal Reserve Banks. Its description follows:
Slip No. I-Advice of disposition to Memher Bank
137
Slip No. 2--Credlt to Member Bank (if paid).
Slip NO.3-Permanent Record (to be filed chronologically. as
to day of receipt. under name of Member Bank).
Slip No.4-Maturity SUp, serving the same purpose as the ordinary "tickler."
FOR.'If COLL 2
This Is designed for notes payable without the district covered by messengers of the Federal Reserve Bank, necessitating the
items being forwarded to corresponding banks for collection. Its
explanation follows:
Slip No. I-Letter enclosing Item to corresponding bank.
Slip No.2-Acknowledgment of receipt from corresponding
bank.
Slip No.3-Maturity Slip. to be used in following up returns.
Slip No.4-Permanent Record, to be filed chronologically, as to
day of receipt. under the name of Member Bank.
Slip No. I)-Advice of disposition to Member Bank.
Slip No. 6--Credit to Member Bank (if paid).
Slip No.7-Debit to corresponding bank (if paid).
FORM COLL 3
This will cover drafts and special Items (exclUsive of Coupons),
requiring specific advice of payment and which are paid upon the
day of presentation. Its explanation follows:
Silp No. I-Advice of credit to Membl,r Bank.
Slip No. 2--Credlt to Member Bank.
FORM COLL.j
This will be for Items. other than notes, which are payable without the district covered by messengers of the Federal Reserve
Bank. Its explanation follows:
Slip No. I-utter accompanying Item to corresponding bank.
Slip No.2-Tracing Slip, to be used in following up retnrns.
Slip No.3-Permanent Record. to be be filed chronologically.
as to day of receipt under the name of Member Bank.
Slip No.4-Advice of dispOSition to Member Bank.
Slip No. 5--Credlt to Member Bank (if paid).
Sllp No.6-Debit to Corresponding Bank (If paid).
FORM COLL 5
This is for use In returning unpaid Items, payable within the
district covered by messengers of the Federal Reserve Bank. Its
explanation follows:
Slip No.1-Letter to Member Bank returning the item unpaid.
Slip No. 2-Carbon copy for files.
FORM COLL 6
Postal acknowledgment of the receipt of Items entered for collection.
FORM COLL 7
This has been constructed for items (documentary or otherwise)
reqUiring special care and which will be held indefinitely awaiting
payment. Its explanation follows:
Slip No.1-Acknowledgment of recehlt to Member Bank.
138
Slip No.2-Advice of credit to Member Bank,
Slip No.3-Credit to Member Bank.
It will be noted that on slip No.3, of the above form, space has
been allotted for notations descriptive of the progress being made
looking to the ultimate disposition of the Items.
FORM COLL 8
This is a postal form of tracer, to be used in tracing the disposition of items forwarded to Corresponding Banks for collection.
The pink slip attached, is a cal'bon of the postal and will be tiled
chronologically under the approximate day upon which a reply
to the Tracer shoUld be received.
FOItM COLL 9
This form is to be used in requesting the return of items, forwarded to Corresponding Banks for Collection. The yellow sheet
attached is a carbon copy and record of the original.
FORM OOLL 10
This is Intended to reduce letter-writing to a minimUm, the
form being designed as a departmental advice to Member Banl{s
concerning their collections.
FORM OOLL 11
This is the Block Sheet for the Department, and will be used in
accordance with the Block System of proof throughout the Bank.
FORMS COLL 1;2 and 13
These are ."!lip."! to be used In routing dl'bits and credits to the
different departml'nts and upon which will be inscribed the total
amount of each batch. Form No. 12, i."! for Credits and form No.
13 is for Debits. The difference in color being' indicative of the
different classes.
FORo'll COLL 14This is a Proof Sheet for the Department and upon which will
be inscribed a recapitulation of the day'S work, obtained from the
Block Sheets.
LOANS AND DISCOUNTS
As re-dlscounting for Member Banks and the proposed purchase of Domestic Bills of Exchange, etc., in the open market, may
be extensive, it Is thought that the application of forms to machinery will materially facilitate the work of the Department, and
with this in view the following plan has been designed:
UNEARNED DISCOUNT
It is sUggested that the Federal Reserve Banks, Instead of fol-
lowIng the usual practice of <crediting to Current Earnings such
discount as may have been collected, adopt the plan of placing
the disconnt in an account to be known as "Unearned DIscount,"
and each day this balance will be charged with the actual dis~
count earned and the amount thus obtained credited to Current
Earnings under the subdivision of "Discount."
This would mean that the statement of the Bank would always appear upon a liquidating basis, and from an analytical point
of view would materially assist in showing the true percentage
of "arnings to Loanable l?unds.
139
LIABILITY
While the usual method of ascertaining the amount of liability
is from detailw statistics compilw in book records, It will be noted
that such entries in the LiabHity LWgel's cause a duplication of
work, entailing unnecessary labor in keeping them in a state of
efficiency, while, under the proposed plan, full details concerning
liabBity are obtained at the same time that the bookkeeping entries, advlces, etc., are typewritten by the stenographer,
For the purpose, however, of ready avaUablllty of figures, concerning the total liability of concerns, under the classifications of
"Payer" and "Endorser," a skeleton Ledger in loose.leaf form will
be maintained, the entries in which will be posted In total only,
and the entire liability of which must b(l In proof with the control\lng balances on the General LWger.
As the F&deral Reserve Banks will be principally interested in
the credit standing of the Payer and the last Endorser, and as
It is very desirable to maintain only such figures of liabillty as
may be subject to proof, It Is suggested that the liability records
of the Federal Reserve Banks consist of Payer and Endorser, instead of Drawer, Acceptor, and Endorser, as the establishment
of lIabmty figures under the latter three classifications would not
be possible of proof and would result In a lack of confidence as to
the accuracy of such figures.
In the event, however, of It being conSidered necessary to main.
taln liabHlty figures other than that of Payer and the last Endorser, this may be done by inserting additional sheets in the
skeleton loose-leaf Liability L&dger, the IlOstings In tne accounts
to be executed in red ink, which would he Indicative of tne fact
tbat sucb figures are not to be Included in the proof of llabillty,
It is the purpose of this plan to provide the Federal Reserve
Board at Washington with a continuous l'ecord, In detail, of all
notes or hills of exchange discounted for Member Banks or purchased in the open market-these continuous records to be executed at the same time tbe forms are written, witbout any additional
labor 11pon the part of the Federal Reserve Banks, such continuous
records being mailed to tbe Federal Reserve Board at the conclusion of each day's business, and wbich will be used by the Credit
Bureau at Washington for tbe accumulation of such credit in.
formation as they may desire, Tbis will enable the Federal Roo.
serve Board at Wasbington to be In clo«e touch witb that portion of the business of the Federal Reserve Banks and plMe it in a
position to Mcumulate, automatically, from twelve different
sourees, most valuable statistics, concerning the credit standing of
the borrowers (rom the Federal Reserve System.
In FORMS BD-2-3-5 and 6 It will be seen that two of the last
varl-colored siips have been allotted for liabllities, tbe thought
being that the slips in question, after being posted in total in the
skeleton Liability Ledger, will be filed in a steel cabinet, under
an alpbabetleaJ arrangement of the names of tbe debtors,
The result of this would be an accumulation into one compartment, properly indexed, of tbe enUre conc(.ntrated !lability (e~ept
140
foreign exchange) of any concern, the controlling figures of which
wonld be ill the skeleton Liability Ledger, Wllich, as previously
outlined, would be posted In totals only,
As fast as the liabilities, represented by the slips, are liquIdated, either at or before maturity, the slips are taken from th!! ste!!1
cabln!!t and filM in usual course by the Filiug' Department, so
that the retention of th!! slips in this way furnlsh!!s a permanent
record which may be consult!!d at any time,
It will b!! observM that this mHhod wlll leave in the Uabllity til!!s, only "live" matter of a curt"mt nature, consocquently they
will not b!! glutted by a mass of records relating to past liabilities,
while the easy malnt!!nance of the subsidiary skeleton Liability
LMger will furnish immediate information, in total, as to the past
and present liability of any concern,
TICKLER
The last slip of the forms bears the designation of "Maturity
Slip" and its use wlll b!! that of providing the Department with
the Information usually contained in a book "tickler." The slips
will be filec\ chronologicaHy under the Maturity of the Notes, with
the result that the Maturities of each day are accumulated in one
compartment, proP!!rly Indexed, and in the right-hand corner of
whieh the total amount maturing is immediately available,
As the day of Maturity Is reached, the City slips are taken from
the Maturity File and checked to the City Notes delivered to the
Note Tellet', likewise the Country slips are checked to the forms
covering Country Notes In possession of the Collection Department.
It will, therefore, be seen that tile slips have served the purpose
of the usual book "tickler" in every possible way, both as to available Infot'matlon and the ch!!cking of mlssorted items.
The Matut'ity slips then will be used to reduce the liability of
the different concerns in the skeleton Liability Ledger, and to re·
tire from the liability files the Matured liabilities, keeping, as outlined before, only "live" records In the liability files.
STATISTICS
MatUrities falling due within thirty, sixty, or ninety days and
after, can easily be obtained from the Discount Clerk, who will
compute the figures from the totals appearing in the upper t'ighthand corners of the Indexes, in the Maturity File.
Attention is called to the fact that it Is not practical to carry
the above statistics upon the General Ledger, inasmuch as daily
adjustments would be obligatory. It Is, however, feasible to have
the Maturities of the items show under the classifications of the
different months of the year, such as the Maturltes falling due In
January, F!!bruary, etc.
All of the forms have been provided with space whleh may
be used to eitller place, automatically, upon the General :Ledger tile
month of Maturity, or the industry, etc., affected.
CONTINUOUS RECORDS
As outlined befor!!, It Is suggested that the record of all Notes
Discounted for or loans made to Member Banks, or paper pur~
141
ochased in thoc open market, be transcribed llpon what is known as
a "Continuous He.:ord." this record furnishing an exact description
of the Not" and being written in the same operation that the manifolding entries are being prepared by the stenographer.
These "Continuous Reeords" will be made use of in advising' the
Federal Resen'e Board at Washington and in the interrelations
between the Federal Reserve Agents and the Federal Reserve
Banks.
ACCOUNTS
For the pnrpose of distingulshlng hetween the classes of Bills
Discounted, the following titles have been assigned:
Bills Discounted-Customers
Bills Discounted-Boug'ht
FORM BD-1
For lise of Member Banks, in empowering proper officials
to re-discount with the Federal Reserve Banks.
FORM BD-~
This is Intended to cover Notes Discounted for Member Banks,
which are payable within a radius covered by the Federal Reserve
Bank's messengers. Its explanation is as followS:
Slip No.1-Debit to Bills Discounted-Customers.
Sllp No.2-Credit to Bills Discounted-Customers.
Slip No. 3--Adviee of Credit to Member Bank.
Slip No. 4---C'redit to Member Bank's Account.
Slip No. S---C'redit to Unearned Discount.
Slip No. 6-Endorser's Liability.
SUp No. 7-Payer's LIability.
Slip No. S-Maturily Sllp.
All of the stlvs comvrlslng the Form are made use of upon the
day of Discount, either in bookkeeping entries, advices, or for the
establlshment of LlabHity, with the exception of Slip No. Z, being
a Credit to Bills Discounted-Customers, which remains attached to
the Nole and is flied away with it awaiting' Maturity.
FOIt.1f BD-3
This Is Identical with FORM BD-Z, with the exception that it Is
designed to cover Notes Discounted for Member Banks, which
would he payable without the radius cov€red by messengers of the
FOO<lral Reserve Banks, consequently it would be necessary to forward them to other Institutions for Collection. The explanation
of the Form follows:
Slip No. I-Debit to Bills Discounted-Customers.
Slip No.2-Letter to Corresponding Bank enclosing the item
for Collection.
SUp No. 3--Acknowlec\gment from Corresponding Bank as to
the receipt of the Note.
Slip No.4-Credit to Bills Discounted-Customers.
Slip No.5-Debit to the Collecting Bunk.
Slip No.6-Advice of Credit for tbe Member Bank.
Slip No. 7--Credit to the Member Bank.
14Z
Sllp No. S·--{.'redit to Unearned Dlstount.
Slip No. 9-Endorser's Liability.
Slip No. lI}-..... Payer·s Liability.
Slip No. ll-Maturlty Slip.
As to Slips Nos. 2-3-4 and 5. Slips Nos. 2 and 3 would be attaehed to the Note when forwarded to the Corresponding' Bank for
Collection. while Slips 4 and 5 would be retained by the Collection
Department of the Fedeml Reserve Bank and filed by It in a
Maturity lo'i1e under the Due Date of the item. at which time they
would be proved to the controlling slips in the Discount Department. then being separated. would form the Credit to Bills Discounted-Customers and a Debit to the Collecting Bank.
It will be noted that Slips 2-3-4 and 5 were typewritten when the
item was first handled by the Discount Department. consequently it was delivered to the Collection Department with the neeessary forms to cany it to its final disposition. with the exeeptlon
of the day of forwarding, together with the name of the Collecting
Institution. both of which will be transcribed on the form by the
Collection Department.
As the Country Notes will be delivered to the Collection Department the day following their discount. provision has been mrule
upon the reverse side of the Maturity Slips for an aeknowledgment of the receipt of the items by the Collection Department.
FOIUI BD-4
This Is a continuous reeord. in loose-leaf form. forwarding to
the Federal Reserve Board at Washington. exad details of the
Bills Discounted for Member Banks.
FORM BD-5
This is similar to FORM BD-2. wlth the exception that It is
int.ended to cover Bills Discounted-Bought. being purehases made
In the open market. instead of items Discounted for Member Banks.
and which are payable within the district covel'ed by Messengers
(If the Federal Reserve Banks.
FORM BD-6
This Is similar to FOHM BD-3, with the .,xceptlon that it has
heen d(>signHi to cover Country Notes pure-hased In the open market. l"ather than Discounted for Member Banks.
FOHJl BD-1
This Is identieal with FOHM BD-4. except that it is de-sie;ned to
advise the Federal Reserve Board at Washington of the e;aet description of Bills Purchased in the op1ln market. rathn than Discounted for Member Banks.
FORM BD-8
This is a draft of an Alphabetical Index. to be used in separating
the Liability of Debtors.
That portion of the Index descriptive of the name of the concern. will be modelled after the usual form of indexes. permitting
the changing of names at leisure.
FORM BD-9
This Is a draft of an Index to be used in apportioning the Brok-
143
ers' Sllps in the Liability Flies, the purpose of placing such Brokers'
Slips in the Liability Files being merely to enable a proof of lla..
bllity to be established, as of course there will be no liabtlity attached to the Brol,ers unless they be compelled to endorse the commerdal paper sold to the Federal Reserve Banks.
FORM BD-I0
A Chronological Index, to be used In apportioning the Matm'fty
Slips under the Maturity of the Notes, Ule upper right-hand corner
being glazed with a coating of celluloid, or something of a similar
nature.
FORlII BD-ll
Designed for Collateral Loans supported by Government Bonds,
Warehouse Receipts for Merchandise, etc. Its explanation follows:
Slip No.1-Debit to Collateral Loans.
Sllp No. 2-Credit to Collateral Loans.
Slip No.3-Advice to Member Bank.
Slip No. 4-Credit to Member Bank.
Slip No. S-Credlt Unearned Discount.
Slip No. 6-Endorser's Ltabllity.
Slip No. 7-Payer's Liability.
Slip No.8-Maturity Slip.
'While It is assumed the Federal Reserve Banks will in addition
to making collateral loans supported by United States Government
ilonds, be obliged to make other loans supported by collateral,
such as wal'ehouse receipts, etc., covering merchandise, it is
thought that loans of this character should be somewhat restricted and, in every case, bear a Maturity.
It may be well to note in addition to the above that there
will be instances in which the Federfll Reserve Banks will rediscount items supported by collateral, so that the ~counts "Collateral Loans secured by United States Government Bonds" and "Collateral Loans-Merchandise" would not be Indicative of all the
collateral loans made.
FORM BD-12
A continuous record, in loose-leaf form, forwarding to the Federal Reserve Board at Washington, exact details of the Collateral
Loans made each day.
FORU BD-13
This is a card record for Collateral Loans supported by Government Bonds, the card being descriptive of the Collateral and allowing space for substitutions, etc.
FORM BD-14
This is a card record of Collateral L)ans supported by Ware.
house Receipts for Merchandise, etc., the card being descriptive of
the Collateral and allowing for payments covering withdrawals.
FORM BD-15
For use in Re-DlscounUng with other Federal Reserve Banks
and supports a controlling balance upon the Ltability side of the
General Ledger known as "Re-Dlscount.~ with other Federal Reserve Banks." Its explanation follows:
144
Slip No. I-Credit to "Re-Discounts with other Federal Reserve
Banks."
Slip No.2-Debit to the Discounting Federal Reserve Bnnk.
Slip No. 3--Letter enclosing Item to Discounting Federal Reserve Bank.
Slip NO.4-Acknowledgment of re('elpt 'from Discounting' Federal Reserve Bank.
Slip No...-Maturity SUp.
Slip No.6-Debit to "Re-Discounts with other Federal Reserve
Banks."
Slip No.7-Credit to Bills DiS('ounted. .
All of the above slips are made use of upon the day the Items
are forwarded for Re-Discount, with the exception of Sllps Nos. 5,
6, and 7, being, respectively, a Maturity Slip, and the subsequent
Iiql1idating entries. Slip No.5, descriptive of the Maturity, will be
filed chronologically in a separate Maturity File ('ovel"ing' items "ReDiscounted with other Federal Reserve Banks." so that the total of
the slips In this file will at all times prove the ('on trolling balance
upon the General Ledger. Slips Nos. 6 and 7 will he substituted in
pla('e of the Note and held awaJtlng Maturity, at which time they
will be separated and the debit to "Re-Dlscounts with other Federal Reserve Banks" will be charged to the Note Teller and the
credit to Bills Discounted forwarded to the General Ledg·er.
The original Maturity Slip in the reg'ular Maturity File need not
be dlshll"bed in this instan('e, as the reduction of Bills Di&<ounted
does not take phwe until the Maturity of the items. ('onsequently
It Is necessary that they be left where originally pla('ed, viz., the
regular Maturity File, In order that It will be In agTeement with
the controlting balances.
An adjustment of Unearned Discount would. of ('Qurse, be necessary upon receipt of the advice of credit.
FORM BD-16
This form Is to be used In handling" Items re-dlscounted jor
other Federal Reserve Banks, and whkh are payable within the
district covered by the MessenS'ers of the F'ederal Reserve Bank
discounting the items.
It provides a Controlling Balance upon the "Resources" side of
the General Ledger, to be known as "Re-Discounts for other Fed.
era] Reserve Banks." An explanation of the Form follows:
Slip No: l-Deblt to "Re.Discounts for other Federal Reserve
Banks."
Slip No. 2-Credit to "Re.Discounts for other Federal Reserve
Banks."
Sllp No. a-Advice of Credit to Federal Reserve Bank Of
Slip No. 4-Credit of Federal Reserve Bank Of .
Slip No.5-Credit to Unearned Discount.
Slip No.6-Liability Slip of Federal Reserve Bank Of •
Slip No.7-Maturity Slip.
FORM BD-17
This Is Identical with FORM BD-16, witb the eX('eption that it
145
is Intended to cover Notes re-discounted for other Federal Reserve
Banks, which are payable without the district covered by Messengers of the Federal Reserve Bank. Its explanation follows:
Slip No. I-Debit to "Re~Discounts for other Federal Reserve
Banks."
Slip No.2-Letter forwarding the Item for Collection.
Slip No.3-Acknowledgment of Its Receipt.
Slip No. 4-Credit to "Re.Discounts for other Federal Peserve
Banks."
Slip No. 5.-Debit to Collecting Bank.
Slip No. G-Advice of Credit to the Federal Reserve Bank
Of.
Slip
Slip
Slip
Slip
No.7-Credit to the Federal Reserve Bank Of .
No.8-Credit to Unearned DlS\;Qunt.
No. 9-LiabiUty of Federal Reserve Bank Of •
No. ll}-Maturlty SUp.
FORM BD-I8
A continuous loose-leaf record to be forwarded to the Federal
Reserve Board at Washington, D. C., by the Federal Reserve Bank
discounting items for another Federal Heserve Bank.
FOR},! BD.I9
A sample loose-leaf sheet, to be uSEd in effecting the dally accrual of Earned Discount, the resulting figures to be used in a
Debit to "Unearned Discount" and a Credit to "Discount."
FEDERAL RESERVE NOTES
It is proposed that when a Federal Reserve Bank wishes to is-
sue Federal Heserve Notes, it will reduce Bills DiSl:Ountedo and
Debit a Controlling Balance in its resources to be known as "With
Federal Reserve Agent to secure Federal Reserve Notes." After
the Federal Reserve Notes have been received from the Federal
Reserve Agent, which It Is assumed will be the same day, the
Federal Reserve Notes will be placed ill the assets of the Bank,
their offset being a Credit to "Federal Reserve Notes."
As the hypothecated Notes mature, It wlll be Incumbent upon
the Federal Reserve Banks to either llOtify the Federal Reserve
Agent of their desire to cancel the equivalent of Federal Reserve
Notes, or, as 1s most likely, exercise the ')Ption of substituting Notes
with more distant maturities than those already hypothecated.
FORJI BD-2Q
This has been designed to cover both the hypothecation and
possible SUbstitution of discounted Notes, held by the Federal Reserve Agent to secure Federal Reserve Notes. Its explanation follows:
Slip No. I-Debit "With Federal Re!lerve Agent to aeCUl"t) F8d.
eral Reserve Notes."
Slip No. 2-Croolt to "Federal Reserve Notes."
Slip No.3-Maturity Slip.
Slip No.4-Credit "With Federal Reserve Agent to secure Fed~
eral Reserve Notes."
Slip No. 5-Credlt to "Bills DiscountEid."
146
In hypothecating the Notes with the Federal Reserve Agent It
does not appeat' advisable to rellre the liability slips typewritten
at the time of the first handling of tlle Note, as the hypothecation
does not in any way affect liabilities and as the Notes will eventually be retumed to the Federal Reserve Banks for collection, hut
It will be obligatory, however, to remove the Maturity Slip f,'om
the regular Maturity File, stamp it "\'lith Federal Heserve Ag'ent
to secure Federal Reserve Notes," and tllell forward It to the Filing Department to be filed in the permanent record,
In substitutioll of the Matut'lty Slip descdbed In the foregoing
paragTapll, slip No, 3 of FORM BD-20 will he used and filed chronologically in a separate Maturity File covering the outstanding
Notes with the Federal Reserve Agent, as in this way the Bank will
be In a position to know at any time the exad Notes held by the
Federal Reserve Agent and also will be placed In position to see
upon what days sUbsitution of Notes wm be required.
FORM BD-U
A continuous record, In triplicate, will be obtalned from FORM
BD-20 and delivered with the discounts to the Federal Reserve
Ag'ent by the Bank. The First sheet of the Continuous Record
will serve as an application of the Federal Heserve Bank to the
Federal Reserve Agent, while the Duplicate will he the receipt of
the Federal Reserve Agent to the Feder'al Reserve Bank, aclmowledging the Collateral as security, and the Triplicate sheet will be
the advice of the FederaJ Reserve Agent to the "~ederal Heserve
Board at Washington, deseriptlve of the Issuance of Federal Reserve
Notes and the supporting collateral.
FORM BD-Z2
This is a Continuous Record, in triplicate, covering tlle substitution of Collateral by the Federal Reserve Dank with the Federttl Hesel've Agent. upon the reverse side of each of which are listed
the Notes which It is desired to retire, while upon the fa<;e of the
sheets will he listed the proffered Collateral in substitution. The
first sheet of the Continuous Record will he the application of the
Federal neserve Bank to the Feder'al Reserve Agent, the Duplicate sheet will be the receIpt of the. Federal Reserve Agent to the
Federal Reserve Bank covering the acknowledgment of the Collateral received In substitution, while the Triplicate will he the Fedeml Reserve Agent's advice to the Federal Reserve Board at \Vashington of the substitution of Collateral.
FORM BD-23
This is a draft for the proposed skeleton loose-leaf Liability
Ledgel', which will be descriptive of the totaJ Indebtedness of concerns under the classification of "Payer" and "Endorser."
FORM BD-24
This Is a Block Sheet to be used in establishing sectional proofs
of the day's work,
roRMS BD-25-26,
Slips to be used in routing th<) different batches of Debits and
Credits to the General Ledgel', Note Teller, and Distributing Department.
147
FORM BD-21
A proof sheet for the Department, the figures for which will be
obtained through a recapitulation of the Block Sheets.
FORJf BD-28
This Is a triplicate record, which will be used in the release
of collateral by the Federal Reserve Ag"ent when Federal Reserve
Notes have been tendered to him for cancellation, 1\:$ explanation
being;
Sheet No. i-Application to tbe Federal Reserve Agent for the
release of the Collateral.
Sheet No.2-Permanent record for ihe Federal Reserve Agent.
Sheet No.3-Advice to the Federal Reserve Board of the release of the Collateral by the Federal R,)serve Agent.
Sheet No. 1 will serve as a permanent record for the Federal
Reserve Bank, While sheet No. 2 will serve the same purpose for
the Federal Reserve Agent and, In addition, place blm In a position to prove the amount of notes being held as collateral; likewise sheet No. 3 will enable the Federal Reserve Board to prove
the correctness of "Re-Discounts to Secure Federal Reserve Notes,"
as it appears upon the dally statement of the Federal Reserve
Agent.
BOOKKEEPING DEPARTMENT
This Department will have charge of the maintenance of the
accounts of the depositors of the Federal Reaerve Banks.
The usual method of handling such accounts is by means of
bound ledgers. supported by monthly statements. descriptive of
tbe different debits and credits entering the accounts. whlle under
the proposed plan the bookkeeper will obtain, by machinery, a
dally statement for the depositor, at the same time that he is preparing his loose-leaf ledger sbeet. Indicative of the day's transactions.
If not too expensive. It Is sUggested that tbe cancelled checks
of t>acb account be returned with the daily statement, inasmucb
as It would place them in the possession of the depositors at the
earliest possible Jll()ment, and would dc. away with the necessity
of filing and, IIkt>wlse, the maintenance of steel cablnetll in Which
they must be assorted.
It will be observed that no provision has been made upon the
daily statement for a "Key," as this will not be necessary under
the general system as outlined in the Bank-that of giving specifiC
advices covering the different debits and credits entering the accounts.
The Forms of the Department Will be:
FORM B-1
This is a combined ledger and statement sheet designed for
machinery, but which with a slight modlncatlon of ruling could
be adapted to hand work.
The nrst duty of the bookkeeper In the morning will be to
transcribe upon the top sheet of the Form, the balance brought
forward from the day prior, after which be will deUver the pre-
148
vlous day's ledger sbeets to the Filing Department to be filed
chronolog'ically In a Transfer Binder under the name and style of
the depositor's account, He will then prove the total of the as~
sembled balances to his controlling account on the General Ledger.
It may be well to note at this point, that the daily statement
to the Member Banks will not contain the balance appearing to
their credit at the close of business each day, but instead will
simply be a statement giving the balance of the day pt'lor, together
with the debits and credits entering' the account, Inasmuch as It
would hanlly be advisable to forward a balance, the accuracy of
which would not be proved until the following morning. This,
however, Is a matter of detail, which will best lJe determined after
the tlr'st few days of operation, as It Is quite posslhle the nature
of the work will enable all the Tellers to forward their figures
to the General Ledger in time to have the controlling balances in
proof for the bookkeepers before the conclusion of each day.
After the previOUS day's balances have been transcribed, the
routine of the bookkeeper's work will depend largely upon the time
of receipt of the morning mail, exchanges, and other departmental
entries.
FORM B-2
To be used in reporting overdrafts to the proper official.
FORM B-3
A form of card index, upon which will be accumulated tb,l overdrafts appearing In any particular account.
FORM B-i
A loose-leaf record, upon which will be inscribed, under the
name of the Member Bank, a complete description of the checks
upon which it is desired to stop payment.
FORM B-5
This is a form, In quadruplicate, which will be used in handling
"Transit Account," its explanation being;
Page No. l-Loose-leaf ledger sheet of "Transit Account" to
be retained as a permanent record by the Federal Reserve Bank.
Page No. 2-Loose-leaf ledger sheet of "Transit Account·' for
the Federal Reserve Agent, to be retained by blm as a permanent
record.
Page No.3-Advice from Federal Reserve Agent to the Secretary of the Treasury, which will be algned by the Agent after verltlcation, and which will be the authority to the Secretary of the
Treasury to execute the debits and credits In tbe g'old reser've
halances of the different Federal Reserve Banks.
Page No.4-Statement of the account to be forwarded by the
Federal Reserve Bank to the Secretary of the Treasury.
Pages 2 and 3 will be delivered to the }<'ederal Reserve Agent,
page 2, as previously outlined, being his permanent record, and
,age 3, ilis advice to the Secretar"),. Page 4 has been designed
to afford the Secretary the opportunity of checking the correctuess of the Federal Reserve Agent's figures and also to remove
tbe possibillty of confusion In the event of the Federal Reserve
Agent's w:lvlce going astray in the mails,
149
GENERAL BOOKS
It Is proposed that the General Ledger, Daily Statement Book.
Profit and Loss Ledger, and other ledgel' records which vitally affect the Bank, be segregated from the regular Bookkeeping Department, in order that the controlling figures of the Bank be under close observation and not open to the casual examination of
derks.
The General Ledger bookkeeper will also prepare any statements of condltion (exclusive of statisticfJ) which may he required
by the Directors or Officials of the Bank, l~ederal Reserve Agent,
or Federal Reserve Board,
Sample pages of the principal books which he will maintain
have been drafted, and are explalned as follows:
OR-1
Proposed sheet of a bound book to be styled a "General Ledger"
and Which will contain the controlling accounts of the Bank.
GB-2
Proposed loose-leaf sheet for the "Daily Statement Book," the
figures for which wlll be obtained from a concentration of Gen<lrai Ledger accounts,
This hook will be proved and d<l\ivered to the Prea1d<lnt or
Secretary-Treasnrer of the Federal Reserve Bank each morning
not later than 9: 30 A. M., in order that they may know the condition of the Bank prior to the opening of business.
It will b<l noted that th<l leav<ls of tlle book are In duplicate,
the plan being that th<l dupllcat<l stat<lmeut of the condition of the
Bank will he delivered to the Fed<lral Reflerve Ag<lnt for <lxaminatlon and that h<l in tnrn will forward .it, the same day, to th<l
F<lderal Reserve Board at Washington for their Information,
On Friday of each weeK, If it 1s d<lsir<ld, the figures may be
transmlttHl by telegraph to the Federal Reserve Board for the
rompllation at their end, of th<l concentl'f,ted figures of the twelve
different banks.
GR-S
Sample sheet of a bound book to be known as "Profit and Loss
Ledger."
This will contain the deSCriptive "!'eCOId of Profit and Loss account and such other accounts as may be de<lmed advisable,
08-4
'10 be used in preparing a Differenee record of the sev<lral
departments, and will be placed upon the d<lsk of th<l Secr<ltaryTreasur<lr on Monday morning of each week.
GR-5
A L<ldg<lr sheet for a subsidiary r<lcord giving the details of
the Short and Over-Differences of the ~'everal departments, and
must be in agr<lement with' the Difference Account upon the
G<lneral Ledger,
OR-6
This form has been designed for use of the Directors of the
Federal R<lS<lrV<l Bank, at their regular weekly meMings, the plan
150
bl!ing that the form will be manifolded so that each Director will
receive a copy.
GB-1
This Is an Expense Ledger which will be posted daily and must
be In agreement with the General Ledger. It wlll be noted that
it has been pr<lpared with the thought of showing every item of
Expense, although, of cour&!, conditions will ari&! which may
nt',cessltat<l modifications.
ACCOUNTING DEPARTMENT
This D<lpartment will handle the transf<lr of funds; redeem
unpaid cash it<lms which have b<l<ln cI<lared through the Clearing
House; Issue Letters of Adv:ic<l; pr<lpar<l for official slgnatur<l <lXpen&! vouchers, and checks drawn upon oth<lr F<lderal Reserve
Banks, and arrang<l for th<l d<lposlUng of funds for the credit of
the Five Per Cent Fund of M<lmMr Banks.
It Hk<lwis<l will be <lntrusted with the custody of contracts and
will prepare such statistics of earnings and expenses as may be
desired.
It will also handl<l the analysis of accounts, under whatever
m<lthod may be dHermined.
Th<l forms of th<l Department are:
FORM AO-l
This will be used in transferring funds of Member Banks through
otb"r Ft'deral Reserve Banks, tts explanation being:
Top Slip, Page I-Advice to Federal R<lsnv<l Bank, requesting
the transfer to h<l made.
Slip 2, Page l-Advic<l to MemMr Bank that their account has
be<lu charg<ld and th<l transfer arranged.
TOP Slip, Page 2-CI't'd\t to Fed<lral Reserve Bank ot
Slip 2, Page 2-Debit to MemMr Bank's Account.
FORM 04.0-2
This is identical with FORM AC-l, with the exc<lption tbat it
Is Int<lnded to cover a telegraphic transfer of funds, Its explanation being:
Top Slip. Page I-Advice to Fedel'al Resel'Ve Bani" requesting
the transfer to he made.
Slip 2. Page I-Advice to Member Bank, descrlpt\v<l of th<l
chaJ'ge and Informing them that the transfer has received att<lntlon.
Top Slip, Page 2-Credit to Federal Reserve Bank of
Slip 2, Page 2-Deblt to Member Bank's Account.
FORM AC-3
Fot' use In making transfers from one account to another, both
of Which k<l<lp balances With the Federal Reserve Bat'k, its explanation being:
Top Slip, Page I-Advice to Memoor Bank. requesting th<l transf<lt"
Slip 2, Page I-Advice to the Member Bank whose account will
he credited.
151
Top Slip, Page 2-Deblt to the Member Bank, requesting the
transfer.
Slip 2, Page 2-Credlt to the Member Bank whose account is
to be credited.
FORA! AO-4
This will cover the depositing of funds over the counter, for
cNdlt of Member Banks' Accounts, its "xplanatlon being:
Slip No.1-Letter of advice to Member Bank.
Slip No. 2-A duplicate of the above, which will be tendered
as a receipt to the Bank or individual depositing the funds.
Slip No.3-Credit to the Member Bank's Account.
Slip No. 4-Audltor's Checking Slip.
FORM AO-5
Intended to cover the receipt of instructions from Member
BankS to deposit funds with other banking Institutions located in
the same city In whiCh the Federal Reserve Bank Is situated, Its
explanation being:
Slip No.1-Advice to the Member BanK that their instructions
have received attention and also giving the amonnt charged to
their account.
Sllp No.2-Accompanied by a cheel( of the Federal Reserve
Bank, this slip will serve the purpose of a letter of instructions to
the Institution receiving the funds.
Slip No.3-Debit to Member Bank's Acconnt.
FORM AO-o
This will be used in arranging deposits with the Treasurer of
the United States for the credit of th€ Five P€r Cent Fund of
M€mber Banks, Its explanation being:
Slip No.1-Advice to Member BanK (,f the amount deposited.
Slip No. 2-Dehit to Member Bank's Acconnt.
FORM AO-'7
A sample cheCK to he nsed in redeeming unpaid items which
have bf!en c!earf!d through the Clearing Honse:
No. I-Form of proposf!d chf!ck.
No.2-Credit to "Rf!turned ltf!ma."
FORM AC-8
A proposed chf!cK to be used in drawing upon other Federal
Reserve Banks, its f!xplanatlon being:
No. I-Form of Check, together with Auditor's stub.
No. 2-Cl'edit to the account of the Ff.deral Reserve Bank upon
whom the check Is drawn.
FORM AC-9
A proposed form of expense voucher, which would be descriptive
of the particular invoicf! Intended to be covered. Its explanation
being:
No. l-Form of chf!ek, to which Is aUaehed a statement of account.
No. Z-Credit to "Expense CheCKS" and Debit to "Provision for
Disbursemf!n ts."
152
In this connection, It may be suggested that a daily charge to
Expense with a corresponding credit to "Provision for Disbursements," sufflC'ient to cover the average expense of the Bank, would
tend to indicate more clearly the actual current earnings.
It it is determined to debit Expense only at the time of actual
disbursement, then, of course, the debit ticket in this instance
would be labelled "Expense" instead of "Provision for Disbursements."
FORM AC-I0
Proposed form of envelope, which Is intended to enclose such
contracts as may be entrusted to the Department.
It will be noted that the face of the envelope provides full particulars concerning the contract. dates of paymllnt, and various
other details.
FORM AO-l1
A tentative form of Analysis, which could only be made
use of when the actual conditions surrounding the accounts can
be determined. and. likewise, after the base of operative expense
has been established. It has been tendereci simply for the purpose of g'uldance when the time arrives for Its completion.
FORM AC-12
Block Sheet for the Department, to be used in establishing sectional proofs.
FOR.MS .-10-13-14-15-16
Vari-colored slips to be used in routing the dll'ferent batches
to the sevel1il departments.
FORM
Ac-n
A Proof Sheet, upon which will be assembled the figures obtained from a recapitulation of the Block Sheets.
FORM AC-18
This Is a form which will be prepared and delivered to the
dll'ferent departments, In order that they may he in toud]
with the expense of their respectlve department.
SECURITIES DEPARTMEN'l.
As this Department will have charge of the purchase, sale,
and custody of such securities as will be classified under the
General Ledger account known as "Investments," it is suggested
that the manager be an officer of the Bank.
The Department wlll also have charge of the purchase and
sale of securities for the account of Memher Banks, and In the
event of the Federal Reserve Banks permitting Mcmber Ranks
to deposit securities with them for safel,eeping, they will have
charge of such Custodies.
The preparation of such statistics as may be required concerning the staftls of the dll'ferent classes of Investments, will
also be entrusted to the Department.
The Forms are-
153
FORM 8-1
This will be used in
eral Reserve Banks, its
Slip No.1-Debit
Slip No.2-Debit
pUrchasing securities for account of Fedexplanation belngto Investments.
t<;) Interest Accrued Rec-Inv.
FORM 8-2
This Is a continuous record for th.o Federal Reserve Board
at Washington, which wl\i be written at the same time the
above form is executed, and which wlll be forwarded to tbe
Board with the thought of placing It in a position to know, with
the least possible delay, what investments have been made by the
Federal Reserve Banks,
FORM 8-3
This is a loose-leaf book which will be used in maintaining a
descriptive balance of tbe different c1aslles of securities on hand.
and will be in agreement with the General Ledger at all times.
Upon the reverse side of the sheet provision has been made for
the listing of bond numbers.
FORM
8-~
This is a sample page of a bound ho.>k which will be used to
record purchase and sale of securities for account of Member
Banks.
FORM 8-5
Furnishes a summary of the conditlon of the investments,
wllIch will be made to the Board of Directors of the Federal
Reserve Bank each week.
FORM 8-6
A sample loose-leaf sheet to be us"d in effecting the daHl'
accrual of interest, the resulting figures to be used as a debit
to "Interest Accrued Receivable-Investments," and a credit to
"Interest-Investments."
FORM 8-7
In the event of the Federal Reserve Banks holding securitles
in safe deposit for account of Member Banks, this form will be
used, and Is designed to fully describe lIuch Custodies, provision
having been made for a nominal balan('e based upon par value
and also for the date and other d~tails, etc" of their delivery.
Before filing the form, all indices, except those coveriug the
months when Interest payments are to be made, should he re¥
moved, so that at a glance It may be seen what interest payments are due in any month,
In order that a proof of the Custodies be possible, it Is SUggested that a controlling balance be placed upon the General
Ledger which will In no way affect the assets or liabilities of
the Banks, such as, on the debit side, "Custoc1ies," and, on the
credit side, "Custodies due Correspondent.s,"
Forms have not been drafted covering the handling of coupons, Inasmuch as it is assumed the Federal Reserve Banks will
not burden themselves with their collection.
154
FOREIGN DEPARTMENT
In general explanation of the following forms, it is sUg"gested
that they have been constructed along two distinct lines, viz,;
No, l-That it will be the purpose of Branch Banks in the
original handling of items to so manifold their entries that the
Regional Banks will be obliged to do the least possible work.
No, 2-That the Regional Banlis only will maintain balance~
abroad and, as a consequence, any foreign exchange transactions
originating with Branch Banks, will be for account of their Regional Banks,
FORM FX-1
Intended for use of Regional Banks, when forwarding Cash
Items for credit, such items being drawn in the currencies of their
respective countries at ten days' sight and under, tog'ether with
sUCh long items as may be forwarded for immediate discount,
It will be noted in this form, as well as subse{juent FORMS NOS.
2, 3, 4, 5, and 6, that provision has been made tor a double-accumulating typewriter adding maehine, whereby at the completion
of th<l listing of the diff<lrent items, a total is r<ladlly obta.inabl<l
both in for<lign CUrrencies and dollars. It may also be add<ld that
this n<lc<lsslto.tes a machine with Sterling equipment.
The first page of Form No, 1 will accompany the original
drafts and documents. The second page will be forwarded with
the duplicate drafts and documellts, The third, or tlrst Liability
Sheet, is for Ilse of the Liability Cieri, in the Regional Bank. The
fourth, or secolld Liability SheH is to be forwarded to tlle Federal
Reset've Board at Wa.shington for the acc,umnlo.tion of their credit
record. The fifth serves as Remittance Hegister as well as a Debit
to the Foreign Bank to whom the Items have heell sent,
It wm be noted that th<l plan of a Remittance Register will
give full particulars as to the entry, tenor, and amount of the
bills, and at the same time assemble them In totals so that tll€
hoo]<keeper attached to the department is matet"ially assisto?d in
the correct DostingS of the different accounts. It might also be
suggested that the clerk detailed for checkinA" the correetness of
discollnts, value dates, etc., has all part!nllat's before him.
Attention is caned to the fact that provision has been made
ill the last sheet for a "follow-up" system looking' to the prompt
acknowledgmellt of the cash letters, the covering receipts of which
have already beell attacho?d to the original alld duplif'ate letters
forwarding the itenlS abroad.
FORltI FX-2
This has been constructed Identically with FORM FX-l, with
the exception that it has heen designed to cover the forwarding
of exchange to a Branch 01' a Correspondent of the institution
abroad, providing, as will be noted, a simultaneous advice to
the Regional Bank's correspondent. An example of this would be
the forwal'ding of exchang<l to the Dresdner Bank in Hamburg for
ac,{'ount of Dresdner Banl{, Berlin, for Credit of the Federal Re-
155
serve Bank in Chicago. The pages of the form will be used as
follows:
Page I-Letter accompanying original drafts and documents
abroad.
Page 2-Letter accompanying dUplicate drafts and documents
abroad.
Page <I-Notification of the forwarding of the items to the foreign bank with whom the checking balance is maintained.
Page 4-Liability Sheet for use of the Regional Bank.
Page 5-Liability Sheet to be forwarded to the Federal Reserve
Board at Washington.
Page 6-8heet for Hemlttance Register.
FORM FX-S
This is also for use of Regional Banks and intended to cover
the handling of Australian Exchange wilen forwarded to the place
of payment for collection, and at the &mle time for a realization
oj t/w proceeds through tlcgotiation at London. Explanation of
Its pages follow, viz.:
Page I-Letter accompanying the original drafts and documents
to Australia.
Page 2-Letter enclosing seconds of Exchange to London, looking to the negotiation of the items.
Page 3-LiablUty Sheet for use of the Regional Bank.
Page 4--Liability Sheet to be forwarded to the Federal Reserve
Board at Washington.
Page 5-8heet for Remittance Register.
FORM FX-4
This is identical with FORM FX-l, being intended to cover
short items drawn at ten days' sight and under, with the exception that It is designed for the forwarding by Branch Banks of
exchange for account of Regional Bank:; and Includes a notification to the Regional Bank of the forwarding of the items.
FORM FX-5
This Is similar to FORM FX-2, coveriIlg the sam~ purpose, with
the exception that It inchldes a notification of the forwarding of
the items abroad to the Regional Bank.
FORM FX-6
This will cover the same ground as FORM FX-8, ex:<:>ept that
it includes a notification to the Regional Bank of the forwarding
of the Australian Exchang·e.
Concerning FORMS FX-4-5-6, It will be necessary for the Regional Banks to exe('ute entries nt their end upon receipt of tbe
notification from the Branch Banks, who wlll mail the following
day the Remittance Register sheets, to he placed in the Regional
Bank's Binder, awaltlng the a('knowledgment of Credit from the
Banks abroad.
FORJ[ FX-1
For the purpose of maintaining a controlling balance upon such
long Items as may be purchased and wilich will be held without
dis('olmt to maturity, it is proposed to establish an account upon
the General Ledger to be known as "Unmatured Foreign Bills."
156
This form is Intended to cover these bills when forwarded by
a Federal Reserve Bank direct to a correspondent abroad with
whom it keeps a checking balance.
Page I-Letter accompanying the original draft and documents
abroad.
Page 2-Letter accompanying the duplicate draft and documents abroad.
pag·e 3-Serves as an acknowledgment of rec{lipt and prOvides
for a "follow-up."'
Page 4-ls an advic{l of Credit to customer.
Page 5-ls a Credit to the customer's account.
Page &-Is a Debit to "Unmatured Foreign BlIIs."
Page 7-ls a Credit to "Unmatured Foreign Bills."
Page S--Is a Debit to "Due from Foreign Banks."
It will be noted that the entire record and bookkeeping entries
have been executed when first handling the bill. Pages 7 and 8,
being attached to one another, are filed In a chronologieal manner,
reflecting· the maturity abroad of the Item, consequently the bills
are charged to the Foreign Banks at the approximate due date,
thereby keeping our books more CloS{lly in tonch with the balances abroad. It Is provided, of course, that non-payment of
the items will be cabled promptly. This resume also applies to
FOR~IS FX-8-10-11.
This is identical with the above form, with the exeeptlon that
It Is designed to cover long bills forwarded to Branches or Correspond{luts of the Federal Reserve Bank's correspondent abroad.
Its explanation follows:
Page I-Letter accompanying the original draft and doeuments
abroad.
Page 2-Letter accompanying the duplicate draft and documents
abroad.
Pag·e 3-A notification to the Regional Bank's eorrespondent
that the Item has been forwarded to one of lts Branches or Corre.
spondents.
Page 4-Serves as an acknowledgment of receipt and provides
for a "follow-up."
Page 5-Advice of Credit to cnstomer.
Page 6-Credit to customer's account.
Page 7-Debit to "Unmatured Foreign Bills."
Page 8-Credlt to "Unmatured Foreign Bills."
Page 9-Deblt to "Due from Foreign Banks."
FORM FX-9
This will cover short items drawn at ten days' sight and under,
in the following classifications, viz.:
No. l-When payable and forwarded to places where no relations have been established.
No.2-When the items are drawn In currencies other than
the cUrrency of the countries In which they are payable.
This class of Items is quite apt to be very troublesome In
handling, usually being drawn upon distant points, and for the pur-
157
pose of control it is sUggested that they be grouped under a General Ledgel' Account, to be known as "f'oreign Collection Banks:'
and it is for this account that lo'ORM J.<~X-9 has been constrncted.
An eXplanation of the form follows:
Page I-Accompanies the original draft and documents abroad.
Page 2-Accompanies duplicate draft and documents abroad.
Page 3-Serves as an acknowledgment of receipt and provides
for a "follow-up."
Page 4-An advice of credit to the Customer.
Page 5-Credit to Customer's account.
Pag'e 6-A Debit to "Foreign Collection BaRks."
Page 1-Credlt to "Foreign Collection Banks."
Page 8-Deblt to "Due from Foreign Banks."
FORM lo'X-lO
For long bills purchased by a Branch Bank and forwarded to
a direct connection for account of the Regional Bank maintaining
the balance abroad
1t will be noted in the following explanation of the form that
the record of the ltegional Bank as well as the Member Bank has
been made at one writing, viz.:
Page I-Letter accompanying the original draft and documents
abroad.
Page 2-Letter accompanying the dUplicate draft and documents
abroad.
Page 3-Provides for an acknowledgment and "follow-up."
Page 4-Advlce of Credit for llrancb Bank's customer.
Page 5-Cr"dit to Branch Bank's customer.
Page 6-Debit to "Unmatured Foreig'n Bills."
Page 7-D"hit to the Reg-ional Bank for whose account the
item is handled abroad.
Pag'e 8-Credit to "Unmatured Foreign BlIIs."
Page 9-Notitlcation to Heg'ional Bank of tbe forwarding of
the Bill,
Page ll}-Advice of Credit from the Reg"lonal to the Brancb
Dank.
Pag'e ll-Credlt to the Branch Bank.
Page 12-Debit to "Due from Foreign Banks."
FORM FX-ll
This is for long bills purchased by Branch Banks and handled
as outJIned above, when the items are forwarded to a Branch
or a correspondent of the banking connection abroad, Its explanation follows:
Page l-Letter accompanying the original draft and documents
abroad.
Page 2-Letter accompanying the dUplicate draft and documents
abroad.
Page 3-Letter of notltlcatlon to the foreign bank for whose
account the item will be handled.
Page 4~Serves as an acknowledgment and a "follow-up."
Page 5-Advlce to the Branch Bank's customer.
158
Pa!;e 6-Credlt to the Branch Bank's customer.
Page 7-Deblt to "Unmatured Foreign Bills."
Page S-Deblt to the Regional Bank in whose account the
item win be credited when paid.
Page \l-Credit to "Unmatured Foreign Bills."
Page HI-Letter of notHication from the Branch to the Regional Bank of the forwarding of the Item.
Page ll-Advlce of credit to the Branch Bank.
Page 12---Credit to the Branch Bank.
Page t3-Debit to "Due from Foreign Banks."
FORM FX1$
This is designed for Items covered by FORM FX-9, except in
this ease they will be purchased by a Braneh Bank and be handled
in aceordanee with the thought outlined In FORMS FX-IO and 11.
Its explanation follows:
Page I-Letter accompanying the original draft and documents
abroad.
Page 2-Letter aecompanylng the dUplicate draft and documents
abroad.
Page 3-Serves as an acknowledgment and "follow-up."
Page 4-Advice of credit to the Branch Ban"'s customer.
Page 5-Credit to Branch Bank's Customer.
Page 6--Debit to "Foreign COllection BankS."
Page 7-Debit to the Regional Bank.
Page S-Credit to "Foreign Collection Banks."
Page 9-Letter of notification to the Regional Ban" of the forwarding of the item.
Page to-Advice of credit to the Branch Bank.
Page ll-Credlt to the Branch Bank.
Page 12-Debit to "Due fl'(lm Foreign Banks."
FORb[ FX-JS
This will be a continuous record for items covered by FORMS
FX-7-S and 9, the original of Which will go to the Liability clerk of
the Regional Bank, while the duplicate will be mailed to the Federal Reserve Board at Washington.
FOR.}}f FX-14
This will be a continuous record covering FORMS FX-IO-11
and 12. the original of the form being used by the Liability Clerk
of the Branch Bank, while the dUl'lIcate will be forwarded to the
Fed<'lral Reserve Board at Washington.
FORM F.Y.-15
This will serve as an advice of credit to the Member Banks
covering such Items as might be bought by the Regional Banks
and which will be forwarded abrOad on FORMS FX-1-2 and 3. The
attached duplicate will be a credit to the Member Bank's account.
FORM FX-16
As only certain Individuals in the Foreign Department will b<'l
authorized to quote rates, this form has been devised for the purpose of supplying the clerks who will receive and deliver exchange,
with authenticated rates, so that there will be no confusion incidental to prompt handling.
159
FORM FX-rt
This is a daily balance sheet of the Department, which will
be prepared by the bookkeeper and delivered to the hend of the
Department, daily, in order that he may be In close touch with
the condition of balances abrood, wiU,out the necessity of examining the Foreign Ledger. It is understood, of course, that in
the left-hand column the names of the correspondents abroad will
be printed.
FORiIf FX-18
This form will serve the purpose (.f recording apeclal cable
words not covered in the codes, and Wllich may be required as
a notification of prompt payment or non-payment,
FORM FX-19
This form consists of a Debit and Credit Ticket to be used in
the transfer of funds from one Foreign account to another, principally because of cable transfers and arbitrage operations.
FORM FX-20
This form serves as a confirmation covering the purchase of
cable tt'ansters from institutions, through their brokers,
FORM FX-2!
The Foreign Department may require for counter use, as well
as for the use of Member Banks, a sup Illy of drafts and the form
tendered herewith is to supply that want,
l,'ORM FX-22
In arranging for postal remittances ordered by Member Banks,
this form has been constructed, the original of which will be forwal'ded abroad with the necesaary instructions. The carbon copy
will be retained in a loose-leaf binder awaiting the return of the
receipts,
FORM FX-23
Upon the above receipts being recelyed, they will be returned
to the Member Banks upon this form, tlte full data being obtained
from the duplicate of FORM FX-22, which, as previously outlined, will be retained in a binder for the purpose.
The receipts covering postal remittawces, returned from abroad,
are usually written in an undecipherable way, and the above forma
and method of handling will materially assist in completing the
record.
FORM FX-fl4
(OUT-Travelers' record not required)
FORM FX-25
This has been modeled to relieve as much as possible formal
letters being written by the Department, as It Is felt that many
routine mattera can easily be covered by this form. The duplicate
will serve as a record for the flies,
FORM FX-26
This is a seriea of poatal cards to be used in tracing overdue
Items. The duplicate Is filed away under a ma.turity "follow-up"
system, so that all Overdue itema will receive Intelligent and care·
ful tracing.
160
FORM FX-27
This form will be executed In triplicate and is iutended to
cover the depositing of funds In Institutions in accordance with
Instl'uctlons received from Foreis'n Banks. The first sheet is to
the bank receiving the funds. The two remaining portions of
the form serve as an original and duplicate receipt. the orig'inal
b(!lng forward(!d to the bank r(!questing tb(! depositing of the funds.
and the duplicate Is for the files.
FORM FX-28
(OUT)
FORM FX-29
This is for use in arranging cable transf"l's an(\ s(!rves as a
confirmation and bill (inclusive of cable charges) to the customer,
as W(!1l as a credit to the Foreis'n Dank and a "follow-up" to see
that th(! amount due is received.
FORM FX-SQ
This covers the offerings of the Foreig'n Department, looking
to the establishment of lines of credit n(!eded for the purchase and
sale of Exchange.
FORM FX-31
For use of the Liability Clerk In the Foreign Departm(!nt, and
is indicative of the total liability of customers. botb as drawer and
drawee.
FORM FX-32
For use of th(! Liability Cl(!l'k in the Foreign Department and
shows th(! total of pay(!I"S liability under Unmatur(!d Long Items.
FORMS FX-33 and 34
This Is a Suggested "Block Sheet" together with a tab for
use in routing items to different departm(!nts,
FORM FX-35
A Ledger Sheet for the Foreign Department Ledger and from
which It will be noted a balance In dollars is obtainabl(! at any
time. A balance In foreign amounts Is deemed unnecessary, as It
would serve no useful purpose except for the reconciliation of the
account at stated Intervals, at Which time the Auditing Department
can easily strike the balance.
FORM FX-86
This Is for use of the Manager of the Foreign Department who
will do the trading, or who will Influence the trading. and arrange
for the establishment of quotations. It has been arranged upon
a Chicago basis, but, of course, it may easily be adjusted to whatever center it is determined to hav(! the rates emanate from,
FORMS FX.37 and 38
These sheets are intended to be compiled weekly by the Liability
Clerk of the Foreign D€partment and in turn to be deliv(!r(!d
to the Manager of the Department for the purpose of keeping him
in close touch with the liabilities of his clients, without the necessity of consulting the Liability Ledger. It Is also .suggested. If
required, that the originals, or perhaps duplicates, of the form
be d(!lIvt>I'ed to the Board of Directors of the Federal Reserve Bank
at stated intervals.
161
FORM 1".\:-$9
This is designed to e:over the receipt of a cable from abroad,
cone:erning which it is ne('essary to cable a reply and may be or
use in relations with Member Banks as well as for those from
whom Bms of Exchange have been purchased In the open market.
FORM FX-4O
This form is somewhat descriptive of its use and is intended
to be a matter of record of the addition of any word in the private
cable code.
FORM FX-41
This is an added Ledger Sheet for the Foreign Department
Ledger, descriptive of the record of purchases and sales of Foreign
currency, over the counter. Its use will enable any Examiner
to know just how much of any particular Foreign currency is
being held in the Department, together with the dollar value at
which it is being carried on the books.
FORMS FX-4Z (l1ld 43
These are Credit and Debit tickets descriptive of the different
classes of Foreig'n currency bought and sold, and from which the
bookkeeper will post to the Foreign Currency Sheet.
FORJ[ FX-H
This is a labor-saving form which covers an advice to tbe
customer, together with a Debit and Credit to different accounts.
FORM FX-45
This is identical with FORM FX-H, with the exception that
the advice to the customer reflects a Debit in his account, the
manifolding entry being a Credit to some other account.
FORM FX-46
A sugg'ested form of Daily Statement for tbe Foreign Department, showing its 'condition in a similar manner to that
of the rest of the Bank. This Daily Statement should be in tbe
hands of the administration of the Bank each morning at the
same time that the Daily Statement Book of the General Bank
is being examined, so tbat the two may be compared, if necessary
FOR:lI PX-47
This form has been an'anged in order that the Regtonal Banks
might be equipped to handle strictly collection Items payable In
fOl'elgn countries, and upon which no advance or credit would be
made, until the actual settlement of tlle Item. Its explanation
follows:
Page I-Accompanies the original draft and documents abroad.
Page 2--Accompanies the duplicate dmft and documents abroad
Page 3-Serves as an aeknowledgment of the receipt of the
item. together with a "follow-up."
Page 4-ls an advice of credit to thl> cllstomer.
Page 5-15 a credit to the Cllstomer's account.
Page 6-ls a debit to "Due from Foreign Banks."
FORM FX-48
This is identical with FORM FX-47, with the exception that
It is intended to cover strictly COllection Items payable in foreign
162
countries, which may be r<'eelved by Branch Banks and which
would be forwarded abroad for account of its Regional Bank. Its
explanation follows:
Page I-Accompanies the original draft and documents abroad.
Page 2-Accompanles the duplicate draft and documents abroad.
Page 3-Serves as an acknowledgment to Regional Bank of
the receipt of the item.
Page 4-Serves as an acknowledgment to Branch Bank of the
reco?lpt of the item, together with a "follow~up."
Page 5-Advice for customer of the Branch Bank.
Page 6-Cr<ldit for customer of the Branch Bank.
Page 7-Debit to the R<lgionai Bank.
Page S--Letter to the Regional Bank d<lscriptiv<l of the for.
warding of the item.
Page 9-Advice for Branch Bank.
Page lO-Credit for Branch Bank.
Page ll-D<lbit to "Due from Foreign Banks."
FORM F-l::'49
A sample check to be used by the Regional Bank in drawing
upon their direct connections abroad, and concerning which it
will be noted that the original and duplicate advices, together
with the Cr<ldH to the For<lign Bank's account, as w<lll as the
Auditor's checking stub, hav<l been written at th<l Ume of th<l
Issuance of th<l cheek.
FORM FX·SO
A sampl<l check to be used by the R<lgional Banks In drawin:{
upon a branch or a correspond<lnt of their foreign connection.
FORJ,I FX·51
A sample check for th<l use of Regional Banks In drawing their
long drafts upon a direct connedion abroad.
FORM
FX~52
This is th<l d<lpartmentai dally proof sheet. upon which is tran·
S<:'rihed the totals as obtainM from the recapitulation of th<l "Block"
sh<lets.
It will he noted that in <lach case the accounts described upon
the proof sheet represent simply intniocklng balances wltll the
General Ledger and other departments. so that the proof of the
accuracy of the figUl'es is C'ontroliM by oth<lr departments.
AUDITING DEPARTMENT.
The dutl~s of the Auditor will be largely gov<lrned by his vested
power and authority, but in no sense should his department form
an operating unit of th<l Bank.
His functions should be thos<l of verification and control. sys~
tematic <)xamlnatlons of the different departm<lnts, criticism of
discipline and system, and he should have a general knowledge
of the eal"llings and expenses of the Bank.
The routine of the Allditing D<lpartment would consist of ex·
amlnations; v<lrification of correction entries; scrutiny of Gen·
ItS
eral Ledger tickets; adjustment of errors; reconciliation of bal~
ancel'!, both domestic and foreign; maintaining direct correspon.
dence with Member Banks, etc" in reply to inquiries affecting the
adjustment of accounts; investigations resulting from the mark~
ing of mail matter to the Auditing Depa,rtment by the officers of
the Bank who desire special investigations to be made; control
with a dally proof and by means of checking' to stubs, all cashier's
checks, expense vouchers, redemption cht,cks, and certified checks;
arrang'ing for the handling and re-forwarding of National Bank
Examiners' requests for information, and establishing a proof upon
the General Ledg'er.
The forms of the Department would be:
FORM A-I
This will be used for the registration of such inquiries as may
be received in connection with examinations by bank examiner&
directors, etc.
1-'ORM A-e
To be used in forwarding the balan{e of any acocount, as at
the close of business on a certain day, In response to an authorized
request.
FORM A..J
Reconcilement blank to accompany the daily statement which
will l>e forwarded to each account upon the last business day of
the month.
FORM
A.~
Sample envelope to be enclosed with Ihe above form of reconcilement, in order that its return may be made directly to the
Auditing Department.
FORM A·5
card record for registering the receipt of reconcilements.
FORM A-6
A tracer to be forwarded no later than the 15th of the succeedIng month, to such accounts as have not reconciled their balance
of the month prior.
FORM A-7
A form to be used in decreasing formal letter writing, looking
to the adjustment of exceptions as sb(>wn upon the reconcile.
ments.
FORM A-S
Form of reconcilement to be retained by the Auditing Depart.
ment and upon which will be inscribed the reconciliation of balances with other Federal Reserve Agents as well as with Foreign
Banks.
FORM A-9
To l>e used after the reconciliation of Forelg'n Accounts, in In-
structing the Foreign Department
mission charges, Postage, etc,
FORM
to make entries covering Com-
A~10
AudltOI·'S proof of General Ledg'er, the figures for which will
be assembled from a recapitlllation of the different Departmental
proof sheets.
164
FORM A-ll
Suggested letterhead for the correspondenee of the Auditor.
FORM A-12
Card record to be filed chronologically In a special Examination
File. and upon which will be inscribed the Teller or subject to be
examined. the salient points to be covered, and the best methods
of procedure. This will enable the Auditor to make systematic
examinations at irregular periods. Owing to the fact that upon
each day of examination the card will be replaced in the llIe in
the compartnlent of a future determined date.
FORM A-13
To be used in requesting special reports from cieri,s who have
made errors, either of commission or omission.
In this conneetion, it is sUggested that the Secretary-Treasurer
and an assistant, or any two officers who might be determined
upon, meet with the Auditor each business morning', for the purpose
of examining the typewritten reports whlC'h will be the result of
using FORM A-13, as In this way the designated officials of the
Bank will be kept In close touch with the clerka} force. Possible
defects of system will be obtained in this way, Which it would
be difficult to develop In any other manner.
FORM A-14
This will be used in reporting the results of departmental and
other examinations.
There wlll be no Cashier-Check Registers maintained In the department. Inasmuch as this work Is a duplication of labor, and
for the purposes of proof and control the same objeet will be
served by retaining the Credit Tickets executed at the same time
the checks are drawn.
MAIL DEPARTMENT
This Department will receive and distJibute all I11ail matter
received between the ho\1rS of 9:00 A. M. and 2:30 P. M., and
likewise it wlll be entrusted with the forwarding to Member Banks,
etc.. of all mall matter emanating from the officers and the diff",rent departments.
It Is suggested that the equipment Include steel racks with
suitably-sized compartments, In whiCh the mall for eaeh Memher
Bank may be aceumulated (in this way a saving of postage wlll
be made); an electriC envelope opener. and an electric envelope
sealer.
FILING DEPARTMENT.
The object of this Department will be the collection and filing
of all mall matter which has accumUlated during the day. There
are no distinctive forms for the Department, but it Is suggested
that the files be operated 11pon a plan of assembling Into separate
compartmenta. under an alphabetical arrangement of Member
Banks, such mail matter and carbon copies of transactions as may
affect each Individual bank.
165
The daily accumulation of ledger she<lts from the Bookkeeping
Department, liability slips from the Discount Department, General Ledger tickets, cancelled checks from the Auditing Department, and the proof sheets and block sheets of all Departments,
will likewise be filed and cared for by this Department.
MISCELLANEOUS
The following described torms are general in character and
cannot be directly assigned to any particular department:
FORM MISC-1
A sample of check to be used in the different departments, the
distinguishing red numbers being indicative of the department
originating the transaction. It is suggested that the Discount, Securities, Accounting, and Foreign Exchang'e Departments be supplied with their own Cashler's cheeks to bear the distinctive numbers 1, 2, 3. and 4, respectively.
It will be noted that at the time the check is drawn a corresponding credit has also been executed by means of a carbon impression.
An auditor's stub has been affixed to the check, which will protect the signing officer, who upon affixing his signature will detach the stub and place It In a box situated upon his desk. The
Auditing Department will collect the stubs the following morning
and check them to their proper entries.
FORMS MISO-2 and S
These are sample credit and debit tickets, which wlll be used
by the departments In executing entries which have not been covered by other forms.
FORM 1I1lSC-4
This Is a form of debit ticket whicb will be used by clerks workIng after hours and to whom a disbursement of a nominal sum
wlll be made.
FORM MISC-S
This will be used In handling expense incidental to the forwarding or receiving of telegrams for account of Member Banks,
etc., its explanation being:
Slip No.1-Advice to Member Bank {If the Charge.
Slip No.2-Debit to Member Bank's Account.
Slip No.3-Credit to "Provision for Disbursements,"
FORM 1I11SC-6
This will be used by all departments In forwarding registered
mall matter to tbeMail Department, the purp{lse being that each
department will obtain a slg'ned receipt from the Mail Department tbat the contents of the letters or parcels have been received
hy them.
FORM MISC-7
A vault record to be used by the different departments and is
designed to show the time their particular compartments were
dosed, as well as the opening and dosing of the main doors of the
vault.
166
FORM MISC'-8
This Is a card to be used by the Chief Clerk, which is descriptive of applications for employment, as well as an employee's
record,
FORM MISO-9
A sheet to be used by all departments in reporting to the Chief
Clerk the time of closing of the pre,'ious day, together with any
debit or credit difference which might have oceurred in their gen~ w work,
Provision has also been made for the reporting of
absentees and the reason for absence.
FORM JfflSC'-W
A form to be used by the Chief Clerk In reporting to the
Secretary-Treasurer the time of closing of all departments on
the day prior, together with any debit or eredit diffe,'e'H;es in
theil' work, names of absentees and the reason for their absene""
The data for this form will be supplied from th", departmental
record as outlined in FORM MISC-9.
FORM MlSO-ll
This will be used by the different departments In requisitioning
supphes from the Chief Clerk. The second sheet of the form
Is a carbon copy of the requisition, whleh will he retained by the
department, In order that they may be in a position to clwek
the departmental bill wblch will be rendered, say, semi-monthly,
by the Chief Clerk or the Purchasing Agent.
FORM MISC-I"!
A card, upon which wlll be Inscribed the sigllahlres of those
authorized In the Membet' Banks to transaet business with th'"
Federal Reserve Banks,
FORM MISe-IS
A card, upon Which will be Inscribed the signatures of Government officers authorized to transact business with the Federal Reserve Danks.
FEDERAL RESERVE AGENT
As the Federal Reserve Agent will have relations with the Federal Reserve Bank and the Comptroller of the Currency, and as
he likewise will be under the necessity of making certain reports
to the Federal Reserve Board at 'Vashington, all of the forms to
he used by the Agent have been designed to cover his necessary
bookkeeping entries as well as to provide for a concentrated advice of his operations to the Federal Reserve Board.
The forms of the Agent are:
FORM FRA-l
This is intended to cover the receipt by the Federal Reserve
Agent of Federal Reserve Notes from the Comptroller of the Currency, Its explanation heing:
Slip No. l-Acknowledgment of receipt to the Comptroller of
the Currency.
Slip No.2-Credit "Federal Reserve Notes from Comptroller of
Currency."
Slip No.3-Debit "Federal Res<lrve Notes on Hand."
167
FORM FRA-!!
This will be used in forwarding mutilated Federal R<lserve
Notes to the Comptroller of the Curren"y for destru"Uon, its explanation being:
Slip No.1-Notification to the Comptl'ol1er of the forwarding of
the Notes.
Slip NO". 2-To accompany the sh\pm"nt.
Slip No.3-Credit "Federal Reserv<l Notes on Hand:'
Slip No. 4-D<lbit "Federal Reserve Notes from Comptroller of
Currency:'
FOR!fi FRA-3
This will be for use of the Fe«<lral Reserve Agent when Issuing
Federal ReserV<l Notes to the Federal H.eserve Bapk. its explana.
tion being:
Slip No.1-Credit to "Federal ReserVE, Notes on Hand:'
Slip NO.2-Debit to "F<lderal Resel've Notes In Circulation."
Slip No.3-Debit "Re-Dlscounts to secure Federal Reserve
Notes."
Slip No.4-Credit "Collateral received from Federal Reserve
Bank, Chicago."
Th<l advice to the Federal ReserV<l Board at Washington of
th<l issuance of the curr<lncy and its supporting collateral, having
already been obtained by means of the Continuous Record. as outlln<ld in the Discount Section. it will not be necessary to provide
this form with a slip cov<lring advice. 1t will, howev<lr. be noted
that all of the necessary bookk<leping entdes have been written at
one operation.
FORM FDA->\.
This will be used. to cover th<l depositing of Gold or other lawful money hy th<l Federal Reserve Bank with th<l Federal Reserve
Agent to reduce the outstanding Federal Reserve Notes, its explanation being:
Slip No. I-Credit to "Provision for Redemption of Federal
Reserve Notes."
Slip No.2-Debit "Gold and Lawful Mon<lY to retire Federal
Reserve Notes:'
FORM FRA.-5
This is a sampl<l loos<l-Ieaf l<ldger sheet to be uS<ld by the F<lderal R<ls<lrv<l Agent in maintaining such controlling accounts as
will be necessary.
It will be noted that a duplicate of the ledger sheet has been
provided, with the thought that this will sel"V<l the purpose of a
concentrat<ld dally statement to the Federal Reserve Board, of the
condition of tile Federal Res<lrv<l Agent's a.ccounts.
For the relations of the Federal Reserve Agent with th<l S<lCretary of the Treasury. covering transactions in ''Transit Account;·
Se<l FORM B-5 of the Bookkeeping Department.
SECRETARY OF THE TREASURY
Under the proposed Transit plan, a c<lrtaln portion of the gold
reS<lrves of the Federal Reserve Banks will be concentrated at
Washington with th<l Secretary of the Tnmsury. Who will main.
16&
taln a record descriptive of the balance of the gold reserve of each
Federal Reserve Bank.
The entries in the different balances will be obtained from dally
atatements received from the Federal Reserve Agenta, who, as
previously outlined, will verify the entrlea and authenticate the
dally statements with their signature,
As it will be advisable tor each Federal Reserve Bank to be
acquainted daily with the condition of their gold reserve at WashIngton, a form, in dupllcate, haa been provided which will enable
the Secretary to retain thO! top page as a ledger sheet, or permanent record, while the duplicate wlil be forwarded to the Federal
Reserve Banks,
APPENDIX IlL
FOR THE FEDERAL RESERVE
BOARD."
One imllortant duty of the Federal Reserve Board will be to
direct and to infiuence the money market for the benefit of the
country. To enable the Federal ReservH Board to fulfil this task,
it must thoroughly and carefully follow the developments of eco~
pomlc life, and must be equipped with detailed data and informaHon bearing on the same.
With this end in view, it is recommended that a statistical
bureau (hereafter called "Bureau") of unquestioned ability be established. The duties of the Bureau should be not only to gather
figures, data, and statistics, and to com(,ile statistical records, but
also to digest information coJlected and to put It in such shape that
it will serve as a basis for the Federal Reserve Board in directing
the Federal Reserve Banks.
The Federal Reserve Act provides :tor weekly statements to
be furnished by the various Federal Reserv@ Banks and in addition empowers the Board to requir@ of each bank such stat@ments
and r@ports as it may deem nec@ssary. It Is mainly information of thi::; nature which should enable the Bureau to supply the
Board with. the material necessary to apply a "prev@ntive" bankIng
polley. A number of explanatory forms for the compilation of such
fltatistics has be@n devised. and their vatious purposes will h@ discU$S@d in the following pag@s. t
Form I. Cash on Hanll:-(See page 187.)
As proF.ably the larg@st part of the country's money reserve
will be cel1tred at the Federal Reserve Banks, it goes without
AAylng that th@ amount of these reserves and their fluctuations
from week to we@k are of great significance. Figures collected
as suggested in Form I and brought Into correlation with oth@r
facts will after a time enabl@ the Board to ascertain the laws underlying and the causes affecting the rise and fall of the reserves.
For instance, once the avel"age for reserve is established, the variations can be compared with this nonu to judge whether the fiuctuatlons are normal or abnormal.
Form I I. "Gold Supply on Hand"; - ( See page 1 g g. }
In view of the great Importance of gold in our monetary system, statistics of the gold reserve shQtlld be reported in detail.
Form II proposes two heads for classiflcation:
(1.) Gold certificates and coins of the U. S.
(2.) Bullion and foreign coin.
This diviSion Is important. for under certain circumstances
A STATISTICAL BUREAU
*Prepared hy Ludwig Bendix. Esq. See page 89 above.
tit is. of cours@, und@rstood that each Federal R@serve Bank
must place at the Bureau's disposal detailed information of the
kind Indicated on the specimen sheets, and that the Bureau will
prepal'e consolidat@d statements of such data.
170
an in('rease or decrease in buillon Indicates financial opez·atlons.
such a.'I the export of gold, which may call for action by the Board.
In addition to the statistics collected by the Bureau, the figures
on gold exports and Imports are of great value and should, therefore, be given to the Bureau as soon as collected In the Department or Commerce.
Fonn III and IV. Federm Reserve Notes. -(See pages 189 and
190. )
As this country has not yet any experience with modern banknotes, statistics on the new Federal Reserve notes should be made
as specific as possible. Form III is arranged in the same way as
Form I, and wlll reveal the various fluctuations in note Issues.
Great stress should be laid ou data on the different denominations of banknotes (Form IV). It has been argued that the
new system wlll secure quick expansion as well as quick contraction of bankuotes. The underlying idea is that when credit
is needed notes will be issued against rediscounts of commercial
paper, and when this demand has been satisfied the notes wili gradually return to the various Federal Reserve Banks for redemption.
This supposition is doubtless correct so far as notes in denominations of $! ')0. OC and $:>0.00 are concerned, but It is very likely that
notes in smaller denominations, 1. Bo, $20.00, $10.00, and $5.00, will
not conform to this law. Once In circulation, it is likely that they
will return to the banks only occasionally, and these notes will loso
their character as a credit Instrument and be used like ali the othef
forms of paper money. Thus It Is evident that a large amount
of small notes in circulation might easily counteract the purpose of the law. The Federal Reserve Banks or the Federal Rcserv~
Agents sh""ld therefore report from week to week on the various
denominations In circulation, and the Btu·eftu should carefully follow the relative proportion of each. In case the cir('ulation of till.'
small notes should become too extensive the Federal Reserve Ag·ents
Should be advised to Issue these denominations only In limited
q u an titi es.
Form V A and T' B. Analysis of Deposits; - ( See pages 191 and
192.)
The de~osfts of thc Federal Reserve Banks are divided into
three cias.'"es:
(1.) Compulsory deposits by member banks as prescribed by
the Act,
(2.) Voluntal'y deposits by member iJ."l.nks a.'I provided In the
Act,
(3.) Government deposits.
The deposits of tile first ('ategory may safely be a.'Isumed to be
relatively permanent, i. e., not liable to great ehange in amount.
Deposits of th., second and third category. however, are subject to
more freqw"llt and more extensive fluctuations. On the one hand,
it may o('cur that the Government and the Federal Reserve Banks
withdraw largo amounts of their deposits simultaneously, and on
the other lland. withdrawal of Government funds may be coincident
171
with incr"ased deposits by member banks, or vice versa. In the
ftl·st·mentloned case, the Federal Reserve Banks would be deprived
of a large amount of their working capital, while in the last-menHoned case there may be no cash movement to speak of. Fnrthermore, these various changes In the am(ounts of the different categories of a"posits may follow each other at specific short intervals
dudng certain periods of the year. On the basis of the statistical
data relatiug to deposits, such as sUgge$ted in Form V A and V B,
the Bureau wlll In due course be able to predict the changes about
to take p!ace in the amount of the deposits, and wHl thus tend to
facilitate the Board's hanking policy considerably.
Form VI and VII.
to cash
On
Relation of deposits and Federal Reserve
hand;-(See pages 193 and 194.)
nt)fe~
With '" view to precluding Inflation (.f the note circulation, the
Act very prudently pr~scrlbes comparatively high limits as to the
1nil1imum {'ash reserve to be maintained against deposits and notes
In circulation. It cou\(} not, however, define any average amount
of cash reserves to be kept by the banks in ordinary times to secure
a permanent sound banking activity. This had to be left to the
management of the Federal Reserve Ballks and to the wisdom of
tbe Federal Reserve Board. Thus, It Is the duty of the Federal
Reserve Board to see to it that the reserve actually maintained
by the banks Is at all times sufficiently in excess of the legal
minimum to insure the proper operation of the entire system in
times of emerg·ency. Careful statistics as outlined in Form VI will
undoubtedly be a material help to the Federal Reserve Board In the
fulfilment of this part of its responsibl" task. The apprOXimate
amount of deposits and notes not secured by cash Oil hand, in the
case of each Reserve Bank Individually, as well as of the entire
chain of banks, will of course vary. When the supply of funds
\s abundant only a very small part of .leposits and notes will be
unse{'ured by cash; under normal monetary conditions there will
be an average rate of caSh. When seasonal demands for credit
make themselves felt, a relatively high proportion of deposits and
notes will be without cash security.
Information along these
lines, after a period of years, will plac" the Board in a position
to reeognlze the approach of abnormal c.)ndttions at an early date
"'1d to apply fln equaliz;lng and preventive discount pollcy. For
the same purpose, Form vn has been devised. A compa\;son of
the pereelJ'age of {'ash on hand with both deposits and Federal
Reserve notes during the various periods mentioned above may
safely be considered ns an Index of impending deviations trom
tho rule.
Bills of ExcMnge:
It may safely be presumed that in the future, transactions in
drafts, notes, and bills of exchange will constitute a very eon slderable portion of the business of the member banks, for the simple
reason that such assets will be reaIi7.able at any tim", by rediscounting with Federal Reserve Banks. It is evident, therefore, that commercial paper will hereafter playa much more Important part in
172
economic life than heretofore, and needs close surveillance and control from the beginning'; for on this will depend whether the impending change in our monetary and credit system will be beneficial
or detrimental to our economic condition. The Federal Reserve Boar<J
will be called upon to pilot the course of this development, and its
task in so doing IS one of grave responsibility. It is for this r€allOn
that great stress has been laid on the preparation of forms which
will enable the Board to carefully follow the discounting operations
in all their details.
Fonn VIII. Analysis of all purclurses of bills of exchanoe: - (See
page 195.)
This form has been prepared in accordance with the various
"ectlons of the Federal Reserve Act pertaining to bills of exchange.
There are three sources from which the Federal Reserve Banks
may acquire bills of exchange. Under certain conditions they may
,·edlscount the commercial paper bo~~ght by other Federal Reserve
Banks (Col. 2-4). Ordinarily, and in fact preferably, they wlll In.
vest their funds in commercial papet· purchased either direct from
member ba~ks (CoL 5~16) or in the open market (Col. 17-37). In
the open Il"".arket again they may acquire the paper from member
hanks (Col. 17-25) or from other than member banks (Col. 26.34).
Furthermo'.·e, as regards the purchases from member banks, the
law discrin!inates as to the nature of the business from which the
paper orlglnat~s: wheilier It arises out of commercial transactions
or Is iSSUed for agricultural purposes or based on the importation or
exportation of goods. The open market operations are divided in
the act ac<:?ording to the fOl"lll of paper: into purchases of cable
transfers, ~ankers' a<:?ceptances, and bills of exchange. If detailed
information is collected along the lines of these classifications it
will be an easy matter for the Federal Reserve Board to exercise
a permanent control and particularly to investigate whether member banks avail themselves of the Federal Reserve Banks regularly
or only in exceptional cases; such statistics will show to what extent, on account of spasmodic and insUfflclent rediscounts on the
part of member banks, the Federal Reserve Banks are obliged to invest their funds In commercial paper purchased in the open market
from other than member banks. Furthermore, It Is Important to
know the I)roportion of the different classes of paper to the grand
total of tmnsactions dUring each month, and, in addition, the
Federal Rcserve Banks should be required to report the average
face amount and average maturity of each class of paper dis.
counted by them. With su<:?h statistical data on hand, the Bureau
should In due course be able to recognb;e whether or not the dls~
('mmts of any of these dasses of paper exceed the limits pre~crlbed by a sound banking policy. With this object In View, Form
VIII has been made as specific as possible; a study of the 4{l columns of this table will make its various purposes clear.
Form IX. Analysis oj /tlnds invested in bills of exc}u1.tlge :~( See
page 196.)
While Form VIII is designed to show and analyze the total of
the discour,tlng transactions of eaeh banI. during a certain period
173
(month, year), Form IX purports 10 indicate the amount of funds
invested in bilts of exchang'(l at a fi:xed datc (end of th(l month, end
of the year) and sp(lcWes it according to th(l diff<:'rent classes of
comm<:'rcial paper. Information of this kind will be import.
ant, Indicating to th(l Fed<:'ral Reserve Board the amount
of <:'aeh }<'ed(lral Reserv(l Bank's liquid assets. For Instance, if
a bank invests its funds largely in bankers' acceptances
and foreign bills of exchange bought in tlle open market, It will
be in a much strong'er position financially than It would be with
Investm<:,nls conslstlng' principally of r,)dlscount<:'d paper of the
kinds and maturities specified In S<:'ction 13 of the l<~ederal R<:'sel've
Act.
Form X, Purchases of fonngn bills of exchange :~( See page 197.)
A numher of Federal Res<:'rve Banks probably will Inv(lst their
funds to :t great (lxtent in foreign bills of (lxchange, in the first
place 011 flecount of Insufficient offerings of domestic paper and
in Ihe second place on account of the fad that for<:'lgn bills of ex·
cilange al'e ju:;.tly considered to be the most liquid of all Inv(lstmenls. Bul, as our gold supply may bl! unfavorably affected by
~uch a polley It will be necessary for Ib<:, Board to waotch these
transactions very closely, Statistics conc,)rning this subj(lct should,
th(lrefore, be prepared with great care and should be made as
spHific as possible, so as to provide the Federal R<:'serve Board
wi1h the :"equired information on this question, The data pro·
I'0l'ed in Ferm X will show the proportion of purchases of foreign
bills of exchange as against total inv<:'stments In bills of exchange
and, furth('rmor<:" indlcat(l the fluctuations as well as the aV<:'rage
amonnt ard the average maturity of f,)reign paper. It Is also
hoped that the Imowledge of th(l situation will facilitate discrimination hetween sound commercial, and speculative, or purely financial
foreign hills of exchanRe.
P",'m XI. Foreign bill~ oj exchange on h'lI1d. ~(See page 198.)
It iE of no less Iml'orlance to know how the portfolio of each
I?"deral n",,*rve Bank Is composed, particularly with reference to
th' count";es whel'<:' fOI"<:'ig'n bills of <:,xchang<:, a.1'<:' payable. It will
be readily ('ompl'(lhend"d that investments In Eng'lish, German, or
French pap(l!" a!"(l of a much more liquid nature tha.n bills drawn
on other counll"ies. From another viewt)olnt, it will b<:' useful to
kn0w the composition and extent, for Instanc<:" of a Federal R<:'serve Bank's South AnH"'kan portfolio, res reflecting the influence
of our new banking organi"7ation on the financing and d<:'veloping
of our foreign trade.
ForJn XII and XIII. Flurtuations of ratcs of foreign bills of ex·
changc as an index to our trade b'lla1lce:-(See pages. 199
and 200.)
The fiui·tuatlons of Ihe rales of fOl'eig'n bills of exchange already
receive carHul attention at the pr(ls<:'n t time; in future they will
even be of still gr'eater significance In conneetlon with our economie
and financial system. The Information to be gather<:>d by the
r~l1reau on this subject, therefore, must he recorded with th(l ml-
174
nutest cal'", Form XU gives the number of days on which exchange rates w"re higher or lower than parity. Great Blitain,
G('rmany, and France are chosen, as witil thllse countrills Wll are
contimlally in Ilxten.'liv£ commercial and financial rlliation. '.rhll
ratlls of exchange for these countries, therllfore, cillarly Indicate
thf. status of our international trade balance. If thllse ratlls are
ahove parity (parity meaning the value of our standard unit exprt'ssed by tilll standanl untt of another country), it signifies that
our balance of trade is unfavorablll, or vice Vllrsa.* It will be ot
great importance to the F'ederal Reserve Board to know the number
of days of thll month (or year), on which the rates of foreign excllange have Men favorable or unfavorablll, A decidlld tendllllcy
towards unfavorable rates would probably Induce the Board to
pursue an appropriate discount policy.
In order to ascertain the frequency of extreme fluctuations of
I'ates of exchange, Form XIII has been pl'epm'ed Indicating the
number of days on which exchange rates wel'e higher or lower than
the gold points. The gold points signify that under normal conditions gold can lw eithllr exported or imported, as the case may M.
The longer the period during which such statistics at'll collecte],
and the more detailed thll data, the easier It will be to nwogni~e the
causes correlated to these phllnomena. Information along these
lines will, therefore, constitute very valuable material for the Federal Resllrve Board's decisions.
Fnm XIV. Credit balances abroad:-(See pagll 201.)
Changes in foreig'n rates of exchange may be wholly or partly
...
..aused or prevented by the Fedllral RIlSllrve Banks themselves,
by Ilnhanclng or withdrawing their forllign credit balances, ThllrllfON, it will bll necessary to COil sider these foreign credit balances if
fluctuations in the rates of foreign exchanges are to be correctly Interpreted.
Form XV. Flwas invested in biUs of exchange, cla.ssi,l'Ied according to where bills are payable; - ( See page 202.)
The classification of the discount portfolio of each Federal Reserve Bank according to vorlous districts of the Uolted States and
foreign countries where the bills are payable is advocated for the
following reaSO]1S;
If a Federal Resuvll Bank's supply of redlscountlld paper Is
Ilxdusivllly composed of bills payablll In the samll district, It may
he safely presumed that the bank's discount bUElness is too narrow,
If, on the other hond, the supply consists of 0 fail' proportion of
bills payable in the bank's OWl} district and of bills payable in other
districts or alwood, the portfolio would not ollly afford more security btlt could also be more readily liquidated in case of necessity.
*Bills A Exchange on Paris are quotM in Dollar units, i, e.,
$1 =5.1826 francs. An Increose in the price of francs. therefore,
would express a higher valuation of the Dollar Unit or a favorable
trend of our trade balance with France.
175
Farm XVI. Analvsis of all sales of bills of exchange; -(See page
203.)
As a rule, the Federal Reserve Banks will buy only bills of exchange to be held in tllelr portfolios until maturity and then present
them, or have them presented, to the drawees for payment. 'When,
however, one Federal Heserve Bank finds Its cash reserves depleted while another bank has a large surplus, the Federal Reserve
Board may permit--or even direct (see section llb of the AcO-the
bank in need of cash to rediscount a portion of its holding's of bills
of exchange with the Federal Reserve Bank having an abundance
of cash reserve. Furthermore, when a Federal Reserve Bank has
lost control of the open market, it will be necessary for the Bank to
regain control by sales of bills of exchange.
Discount operations between Federal Reserve Banks will probably occur only when one of these bani,s is facing an unforeseen
emergency. Sales In the open market, however, may happen quite
frequently, for the following reMan: As soon as the open market
rate declines to such an extent that the difl'erence between a Federal Reserve Bank's official rate and the- open market rate exceeds
a certain ilmit, the Federal Reserve Hank will have to choose
between two alternatives: In order to lessen the difference in the
rates, it will either have to reduce Its own bank rate or, by selling
in the open market, endeavor to cause a rise of the open market
rate. Thus, in all cases where a reduction in the official rate seems
inadvisable, the Federal Reserve Bank will eventually have to sell in
the open market. Discount operations among Federal Reserve Banks
as well as sales by Federal Reserve Danks In the open market must
be considered of such fundamental Importance that atatiatica on
these subjects should be collected in full detail. To Illustrate: If
all the Federal Reserve banks should be obliged regularly to seU In
the open market, it would demonstrate that the official discount
rates are generally too hIgh. It, however, one Federal Reserve
Bank should frequently sell, it would indicate that Itl policy Is
not wen adapted to local condItions. Statistics, as suggested in
Form XVI, would Indicate the reaS(Jns for such policy,
Form XVII. Amo-unt of domestic Mlis of e:rchange on hand (elas8/.fled Gccordinp to lines of Qu.riness of drawees, acceptor8 or
makers) :-(8ee page 204.)
The statistics coitected according to I<'orm XVII will reveal the
eCQnomic conditions underlying the discounting operations of the
Federal Reserve Banks. With this object in mind, bills of exchange
should be grouped in at least five classes, as follows:
(1.) Commerce, transportation and insurance.
(2.) Manufacturing Industry.
(3.) Agriculture, forestry and fisheries.
(4.) Miscellaneous, including the minmg industry.
(5.) Finance and banking (duplicate items).
Each Item should be entered in the proper column, according to
the line of business of the party on whom the bill is drawn. Inasmuch as bills of exchange originating from stock, bond, or Invest-
176
ment transactions are not eligIble for rediscount, the group finance
and banking contains only bankers' acceptances issued in the interE!st of onE! of thE! Industrial classes. TheSE! bills should, therefore, be
placed accordingly. In order to show, however, the amount and percentage of bankers' aeceptances in proportion to the other forms of
paper, finance and banking has Men added as a special group.
(Compare columns 12 and 13 in Form XVII.)
If the bills of exchange are classified as indIcated abOVE!, thE!
Board will at all times be in a position to aseertain the amount
and pE!rcentage up to which the various industries avail themselves
of the credit facilities granted by the Fedet·.. l HeservE! Banks. EfWh
of the groups mentioned above (excepting group 5) could, and
perhaps should, be subdivided in order to make thE! data as specific
as possiblE!, as this would doubtless contrlbut" to early recognize
the existence of ov"rexpanslon in one or the other industry.
Form XVIII. Face amoullls of (Zomestic bills of exchange; - (See
page 205.)
The portfolio of each Federal Reserve Bank will be composed
of b!l1s of exchange in all denominations, I. e., In small, medium and
large amolmts. It Is thE! general understanding' that thE! faCE!
amount of a bill reveals to a certain extE!nt Its character and
origin. To illustrate: A small draft indicates a small bnsiness
transaction, and a b.<tnkers' acceptance for, say, $25,000 manifests
the adjustmE!nt of a debt originating in connection with a more
extensive industry. As It will be tIle ditty of the new Federal
Reserve Banks to serve the tradE! and commerce in all stages-with
due secnrity and safety-their portfolios should show a great variety
in the face amounts of the bills discounted. The IPederal Reserve
Banks should pursue such a discounting- policy In the interest of the general welfare, and for their own benefit as well.
The denominations of the bills discounted should, therefore, be
c1assifiM with grE!at care. In view of this, it is suggested (by Form
XVIII) to divide the bills discounted by each bank into seven catE!gories. The first class should comprise all the bills in denominations
up to $250, the SE!cond from $251 to $500, and so on until the sevE!nth
class, embracing bills OVE!r $10,000. The sample sheE!t submittM
contains an additional classification, I. e., bills payable in the Bank's
district and bills payablE! in other distriC'ts.
Tllese statistical records of thE! discounts of each l<~ederal Reserve
Bank, when compared with one another, will provide the Board
with excellent mE!ans of checking UP thE! discount policies pursued
by the various banks, and will unquestionably be an important
source of Information for the Board In giving its directions to the
Banks.
Ji'onn XIX and XX. Maturitws of /;ills of exehallge:-(See pages
206 and 207.)
Another element for economic control Is thE! maturity of a bill
of exchangE!. Small amollilts and short maturities are considered the Ideal form of investment for centt'al note institutions.
As the fnnctions and purpose of the Fooeral ReserVE! Banks are
177
similar to those of the European central note banks, they should
. apply analogous principles In the pursuance of their discount poli~
cles, 1. e., it should be their aim to obtain commercial paper with
an averag'e maturity of from thirty to forty days. As in connection
with the reserve reqUirements, the Federal Reserve Act stipulates
the maximum maturity limits for the various categories of dhcount~
able bills. It is evident, however, that this provision alone cannot in~
sure a sound banking policy, but that the Board should In addition
detlne limits of wverage maturities. With a view to ascertaining what
would constitute fair average maturities, Forms XIX and XX have
been prepared.
By a statistical arrangement, as suggested in Form XIX, the
various maturities of <fumestic paper 'tre disclosed.
For this
purpose the matUrities are divided into different classes and the rel~
ative proportion of each class to the total compared. Such statistics will also reveal the average maturity of all discounted paper.
The significance of the arrangement may be Illustrated by the following table:
(EXAMPLE)
Dom.tic hi", of e"ch...._ _ boue:ht with the followinlr m.turitl .... ,
In PerCent
of Total
Maturing
Within
15 dnY'l
in additional 15 days
in nn add. month
in an add, month
in "n nd<l. month
in an add. two months
Total
Maturing
Inside of
17
4-7
15 days
One month
two months
threemonths
four month3
six months
18
8
7
3
---100
In Per Cent
or Total
---17
64
82
90
97
100
Ca leu !ation of
Average lIIat_ur~ty_
Days
Inde"
7.5
22.5
127.5
1(157.5
45
310
lOS
735
150
450
75
600
Total Index 378tl
Average Maturity 37.8U D"ys
If, as in the example above, the discounts consist of an average
maturity of 37.8 days, a Fed<'lral Resen'e Bank will at all times
have a comparatively large quantity of bills in Its portfolio with
short maturities. The results of each Federal Reserve Bank's policy
with regard to the maturities will be clearly Illustrated in a statement of the amount of bills on hand at the end of each month, as
proposed In Form XX. The higher the nmount and percentage of
short maturities, tbe stronger will be the bank's condition. It will
be an easy matter for such a bank to meet Its daily obligations
(growing out of withdrawals of depOsits or redemption of banknotes against cash) with the funds paid to the bank for bills
maturing from day to day. The relative liquidity of tbe various
Federal Reserve Banks Is especially revealed by statistics of
this kind.
Form XXI. Ea:tent and limit of credit accommodation granted by
the Federal Reserve Banks (classJfted Mcordtng to lines of
business) :-(See page 208.)
This subject has been dealt with In detail by the Preliminary
Organization Committee under the beading "Examinations." If local
credit departments are created, as sUggested by said committee, the
Bureau would have at its disposal statistical material of the highest
178
value. If,· for Instance, condensed statements are prepared by
each local ;:redit department as expressed In Form XXI, the Board
would become thoroughly familiar with the characteristic features
of each Federal [{eserve &nk on these points:
(1.) The proportion in Which credit facilities are distl"ibuted
am,mg the various lines of business,
(.2.) .\ classification of credit accommodation accordinil" to
amounts in which it is granted.
With such data on hand, the Bureau could compile condensed tables
showing these facts for the entire country and also disclosing
whether the v[<rlous Industrial lines of business, small concerns and
large corpol"ations, are treated alike in the new o,·ganlzation.
Form XXII anrl XXIII. Bills oj exc/ulnge remaining unpaid at time
oj tnatiuity: - ( See pages 209 and 210.)
The degree of precaution shown by a Federal Reserve Bank in
Its dlseount operations Is Illustrated by the numbet· of bills remaining unpal<1 at maturity. The statistieal material regarding the
unpaid bills Is, thet·efore, of paramount Importance for the Board.
The information will have to be gathered along the following lines:
(1.) Form of unpaid drafts (Form XXII), whether single or
tw,)-name papel·; in the latter case bankers· acceptan,·es should be partlculat"iy marked, as it may be
presumed that this form of paper will hardly, if ever,
remain unpaid; should a bankers' acceptance not be
tak~n UP at maturity, however, this would be a very
seritllls occurrence and should be recorded separately.
In the course of a few years, this classification will
en«ble the Board to decide the question, now a matter
of intense diSCUSSion, as to whether or not single name
papcr affo,·ds as much safety as two-name paper, and
is HS well adapted for use as cover against bank notes.
(Z.) Orlgjn of paper (Form XXIII), whether arising out of
commercial, Industrial, agl"icultural, or miscellaneous
transactions. If the number of unpaid drafts in any
one month or stated period Increases proportionately
fOI· all lines of business, It may be concluded that busine~s conditions on
the Whole are impaired. If the
number of unpaid drafts Increases only for some particular line of business, an Investigation should be
made as to the reasons underlying the Increase. In the
same way, a ilecrease In the number of unpaid drafts
will be Indicative of favorable conditions along the line
In question.
RATES OF DISCOUNT.
The Ferleral Reserve Act bas empowered. the Board to review
or to determine the rates (.f discotmt to be cllarged by the various
Federal Reserve Banks. The purpose of this provision Is undoubtwly to Insure a uniform discount polley (not a uniform discount
179
rate!) for the entire counO·y.
The pursuance of a suitable discount
polley ha.<l always been regarded as one of the most difficult prob.
lems to be dealt with in banking. This doctrine certainly applies
particularly to a country with an area and with such varying
economic ...
'<Indltions as in the United States. It will require years
of experience to recognize the currents and undercurrents intlu·
encing the fluctuations in the demand for money and credit in this
country. A number of forms has, therefore, been prepared dealing
primarUy with the discount policy.
ll'orffl
XXIV and XXV.
211 and 212.)
Changes in discvlInt ratcs:-(See pages
Form XXIV shows the discount rates and their fluctuations, the
sole purpose of this form is to enable tbe Board to keep posted at
a glance OIl this important subject. on Form XXV, however, each
change of a discount rate is to be recorded, together with the reason.
It is especially Important to record whether the change was 00·
casioned by events In the International money market (reasons I,
II, III, IV) (f0r which purpose the statistics on rates of exchange
should be compared), or by economic dev"lopments in the United
States. by favorable or unfavorable business conditions as indicated
by a correspon<'ling increase or decrease in the offerings of domestic
bllls of exchange (reasons IV, VII, VIII). It Is, furthermore, l.ossible to determine which discount rates are lowered or raised on
account of developments in the international money market as well
as changes in economic conditions in the United States (reasons
IV and X),
Form XXVI anti XXVII. The demand for cred" facilities:-(See
pages 213 and 214.)
Form XXVI purports to disclose the influence of seasonal demands for credit on the reserves of the various Federal Banks. In
column 2 ~houJd be recorded the kind of seasonal demands, 1. e.,
Croll movements, quarterly dividends, and so forth. The difference
between the amount of deposits and notes not secured by cash
before an\! afV"r the seasonal demand as shown by the Bank's
statements (COl, 3-5) illustrates the increalle in the demand for
credIt from one week, or month, to the following. At the same
time, there Should be a corresponding decrease of cash on hand
as igalnst deposits and notes (Col. 6-8), These figures (COl. 5
and 8) must be brought into correlation with the various discount
rates. Statistics of this nature should, In due time, show the discount rates best suited for any g"iven percentage of cash reserve at
different periods.
FOI'm XXVII Is proposed as an indicator expressing the demand for credit facilities in one figure. The underlying idea is
as follows: on the one hand, the deposits of the member banks
contain a considerable portion of their clients' working capital, and
on the other l:iand, the paper rediscounted by Federal Reserve
Banks represents Indebtedness of the bu~:jness world. It tollows
tlmt when both are brought into correlatIon and the one is subtracted from the other, the resultant dlffel"ence must in some way
130
e}"press a credit balance of the business wvrlct (Col. 3). This
balance, it is <:vident, increases with a diminishing demand for
credit or with slack business, and decreases with a larger demand
for credit or an expansion of business. The proportion of domestic
bills of exchange to deposits (Col. 5) would indicate these identical fluctuations. These figures could he used covering longer
perIods, if due allc'.vances are made for the nurmal gradual extension of the ~ountry's business. With a view to ascertaining whether
the fluctuations shown by this Indicator are caused by increased
0" decreased (\omestlc or foreign trade, the domestic bills of ex·
change are to be recorded separately. Should, for instance, the
tiguro in columH 5 fall and that In column 8 1"11.1&, this would signify
diminishinG' domestic and expanding foreig'n trade, and vice versa.
The indicator above described is similar to a method employed
in Germany. The method proposed Ilereln has, of course, been
adapted to eeonomie and Imnking conditions in tbe United States.
It is not daimect that this indicator will prove to be an absolutely
accurate b:u'ometer of conditions. It should, however, receive a
thorough trial, be it only In order to suggest through practice an·
other method l'etter suited to this purpose.
Form. XXVllI. Fluctuations of the di8count rate8 and 8tati8lics
regarding factors oj the money market affecting the same:
-(See page 215.)
The purpose of this form is to demonstrate the use of the
weeldy statements as a m&ans of showing not only the causes
and reasons for changes In the diseount rates., but also the ef·
fects brought about by such changes. This form will, in a way.
g"lve a history of all changes and an exact analysis of the
factors ill connection therewith. With this purpose in view, a
compalison should be made of various items contained in the
statement iSSIKd before the rate was changed and the statement
preceding the previous change. For instance: cash, gold. Federal
Reserve notes in circulation, amount of depOsits, supply of bills of
exchange, proportion of cash reserves as against both deposits and
Federal Reserv<} notes issued, and so forth. Inasmuch as changes
In discount rates are frequently callsed by conditions prevailing in
the open monl'Y market and in the international money market,
all facts healing" thereon, such as rates of eXChange, rates of the
open money market, and foreign discount rates, haye been COfrelated In this form.
F01"m. XXIX.-(See page 216.)
While it is impossible to predict whether Federal Reserve Banks
will avail themselves of the privilege of dealing In securities, it is,
neYertheless, necessary to collect in advance data on thIs subject.
History proves that financial operations of this character haye
overburdened banknote Institutions with assets tbat could not be
easily liquidated, and embarrassed them so seriously that they could
not meet their obligations. Thus the Bank of England found itseU
in a most serious difficulty, being unahle to redeem its banknotes In
cash for more than twenty years (1797.1819), primarily because of
181
advances made to the English Government. Likewise the complete failure of the Royal Prussian Bank in 1806 resulted from
mort.:age loans granted to some Prusslan Ilrovlnces. On the other
hand, so long as the Federal Reserve Banks, like the European
Central Banks, are to be in a measure public banks to serve the
Government, one of their functions must necessarily be the lending
of credit to the various States and communities of this country in
cases of necessity. This is a principle generally conceded and IB
fully exempl!fied in the history of Europ'~n central banks. The
Bank of England has £18,175,000 invested In loans to the English
Government, or in its securities. The Bank of France has advanced
to the French Government Frs. 200,000,000; it has a permanent Investment in French rentes of Frs. 100.000.000, and Its last annual
report shows among the assets of the bank a temporary investment
of more than Frs. 100,000,000 in French obligations. The German
Government is not permanently indebted to the Reichsbank, but the
latter lends its credit from time to time to the Empire in discounting
short-time obligations in the form of Imperial Treasury Notes, socailed "Relchsschatzschelne." In May, 1909, the Reichsbank held
these to the amount of Marks 509,000,000. While this amount has
been considerably decreased, In 1913 it still averaged about 95,000,000
Marks. Moreover, the Imperial Budget Law of July Srd, 1913, provides an issue of 600,000,000 Marks of these Reichsschatzscheine
which the Relchsbank may at any time be called upon to discount.
Government loans, or investment in government securities,
are, moreover, not always undesirable.
At times when the Federal Reserve Banks are temporarily unable to utilize funds In discounting commercial paper, advances to the government or investment in government securities will be very desirable outlets for
their Idle money.
The fortunate financial situation of the United States makes it
very unlikely that under normal conditions the Federal Government will ever be obliged to have recourse to credit from the Federal Reserve Banks. It is not improbable, however, that smaller
communities may apply to the Federal Reserve Banks. If such
financial relations become customary, such credits, though formally
for a short term, may In the end become permanent investments.
Steps should early be taken to prevent such an outcome, for it
may I'esult in loading up a Federal ReserV{, Bank with assets that
cannot be liquidated. The Board has It III its power to forestall
this, for purchases of securities under Section 14 (b) must be made
In accordance with Its rules and regulations. Danger to a Federal
Reserve Bank through such investments can be averted, If said
banks are compelled to furnish regularly to the Board statements
as outlined In form XXIX. This form provides that the different
classes of purchasahle securities be reported separately; United
States bonds and notes are set apart as a special class and distinguished from short time obligations of Sta.tes, municipalities, etc.
One of the rules that should be prescribed hy the Board is that
investments in securities may he made only with funds permanently
at the disposal of the Federal Reserve Bank'l, as, for example, com-
182
pulSQry deposits. The fonn proposed provides columns indicating
for each Federal Reserve Bank the relation between the val"ious
classes of investment securities and the amount ol compulsory deposits on hand (Cols. " and 22). The form furthermore contains columns lot· reporting holdings of short-time obligations
(Col. 6, 9, 12, 1[> and 18). Finally, classified according to their
maturity, the relation of the amount invested In each class of
investments to the total amount tied up in securities (Cols. 8,
7, 10, 16 and 19) is revealed. If the Federal Reserve Banks are
required to furnish rt'gularly, statements giving the data classified
to show these details, the Board will find It easy to ascertain whether Its rules and regulations are strictly complied with.
The forms herewith submitted for consideration rept'esellt, of
course, but a t'maH part of the statistical work to be performed
by the Bureau; they have been separately discussed In order to
explain the sp"'clal purpose for whiCh they are devised. Aside
from all material covering finances, money and credit, great stress
should be laid on the gathering of statistics concerning all the
vat'lous ph~es of economic life. The Bureau should, for instance,
possess the most detailed Information on commerce, manufactming
Industries, agriculture, mining, transportation, the situation of the
labor market. and foreign trade. Valuable material on these subjects may be cbtained from official SQUl"Ces. This WOUld, however,
chiefly sen'e fvt· purposes of comparlSQn. The current Information
should be partly furnished by the various Federal Reserve Banks
and partly by material gathered and collected by the Bureau itself.
If the Federal Reserve Banks are organized as sUggested by the
Prellmlnary Organization Committee, the Bureau shonld receive
from them reports on all these subjects. Moreover, the Federal
Reserve Ag'ent should regularly prepare for, and furniSh to, the
Board spedal reports concerning the economic conditions In tllelr
districts. Tn addition to the data procured through these channels,
the Board Should establish connections with experts In the varjous
lines of bu:>lne.~'l In order to get direct reports by Which there may
also he obtained matelial of fundamental Importance. Finally, the
Bureau itself should collect all statistics available on these sUbjects
from newspap(']'s, magazines, jout"1lals, financial and trade papers.
If all these records are properly filed and prepared. the Bureau will
be able to appreciate the significance of all events and occurrences
In business life and to give at any time a correct interpretation of
a given situ:"lion. As everything depends on the quality and
thoroughness of this work, it is evident that it would constitute
the principal activity of the Bureau. Upon this assumption the
Board would be equipped with information of a thoroughness never
obtained by any European Central Bank, EXpansion or contrac~
tion of busines'l in each part of the country would be quickly noted,
and the Board could, if necessary, advise the Federal Reserve Bank
In question to apply such a discount policy as may in time turn
the tide or pro;,vent an overexpansion in one part of the country
or one line of "'tsiness from spreaillng to other parts of the country
188
or other lines of business. The recordiug of ev~nts occurring in
the United States would, however, not sumce to protect the country
from possible injUlies ari\;jng out of the new banking system.
While the new tariff t,"nds to open the United States more than
heretofore to f,"-,relgn competition, one of the results of the Federal
Reserve Act will dOUbtless be to make the American money market
more internati,)pal in its scope. In other words; the gold reserve
of this country will be considered as belong-ing to the international
money market, and will he disposed of whenever tIlere is an advantageous opportnnity to do so, just as ·we shall rely to a g·reat
extent on the foreign g-old reserves. Under these circumstances
It will he necessary to lollow a polley of precaution in order
that this close linancial connection with .forelg·n countries may not
turn out to be 0 disadvantage to this country. It will, therefore,
be indispensable that the Bureau collect similar I5tatistics al5 those
sUggested for the United StateS-in more condensed form, of course
---on conditions prevailing· abroad. Such records and statistics
should embrac(':
A. In l·eg-ai"'.1 to finance and hanklng0.) General monetary and financial conditions In all conntrlf's!
(2.) Weeldy statements of the great European central banks,
regularly prepared in retrospective form in order to
sht'w the situation prevailing in former periods.
(3.) Fluctuations in hank and mon()y rates abroad,
(4.) Fluctuations In foreign exchange rates abroad.
(5.) Gold movements In the International money market.
(6.) Status of the great European Private banks.·
B. In reg-ard to economic conditions:
(1.) Trend of business In European conn tries.
(2.) General market conditions.
(3.) Development of foreign trarle ahroad.
Moreover, the political situation in these importallt cOlmtries
should likewise receive close attention, for It may also exert an
inlluence on the American money mark€-!. A dIsturbing tnrn In
the relatIons hetween the great European powers, the hoarding of
gold by one or the other of the Central Banks (as was recently
the case with the Bank of France and the German Relchsbank)
would have to be hrought immediately to the knowledge of the
Board, for it conld possibly cause a considerahle decrease of the
gold snpply of the United States. A finaucial crisis, overexpansion
in busineWl, or even a temporary money :;tring·ency in only one of
these countries would affect our money market and might lead to
~ As in Europe an Increased demand lor credit Is, while yet In
Its Ilrst stag·e, &'ttisfied hy the private banks without the assistance
of the Central Banks, the monthly reports of the former frequently
rellect a corresponding change in economic conditions earlLer than
the weekly stntements of the latter.
184
a more or less extended eXPorting of gold from this country to
Europe. To secure such complete Information on foreign conditions, It does not suffice that the Bureau collect its figures from
foreign publications. It would be Indispensable to establish connections through which exhaustive reports could be secured. The
cOfI"espondents and agencies of the various Federal Reserve Banks,
as well as the foreign branchBs of the member banks, should be
required to perform this service. But It would be of no less importance to have also reports from American consuls who should be
able to furnish In time valuablB material ou such economic conditions in foreign countries which might affect thB Amerh'..an money
n arket. It may also be advisable to Indud<l Am<lrican Ambassadors
and Envoys in this servicB, Finally, it is suggestcd to establish
with the great European Central Banks (Bank of England, Bank
of France, German R<llchsbank) a r<lgular individual exchange of
opinions In regard to financial and economic conditions in their
respBctive countries. It is bellBved that such a Sugg'<lstion coming
from the FBderal Reserve Board as representative of the new
Am<lrican sister banking system would be very favorably accepted
by those banks.
CONCLUSION.
The foregoing pages have outlined the varioHs functions of th€
Bureau. Some remarks on its organization may well be added. In
view of the comprehensive and far-reaching task of such Bureall,
It should be <lqulpped from the outset with an adequate staff of
w€lI-tralned men. The chief of th<l Bureau shOUld be a man whO
is not only a first-class statistician, but also an economist of ability
and thoroughly familiar, in theory and practice, with prohlems of
money and credit, who Is able to give opinions on matt<lrs of
finance In th€ broadest sense of the word. It should be the duty of
the chief of the Bm'eau to furnish the Board with detailed and
up-to-date Information, based on data collected hy the Tllm"a 11 , on
all important subjects relating to banking here anti abroad. Under
is supervision daily repol'ts shOUld he prepared giving such data
may be usefUl or necessary to th<l Board in ul"l"iving at Its
cisions. Furthermore, it should he his duty to make monthly,
, if necessary, weekly reports on economic and financial conditions
the United Stat<ls and foreign countries, and he should prepare
~ch week a summary, giving the result of an analysis of the weekly
,tatem<lnts and other reports of the F<lderal Reserve Banks.
The Bur<lau should perform its various duties with the greatest
secrecy. All material collected and all information prepared should
he for the <'lxclusive US<l of the Board. Neither the chief of th<'l
Bureau nor any of the employees should be allowed to write
tor publication on questions relating to banldng without the approval of the Board. Finally, there should be estahlished In connection with the BUf<lau, for reference purposes, a well-equipped
working library of bOOks on mod<lrn hc'tnking, keeping on file all
documents published by European central hanks.
185
In CQnclusion, the fact must not be lost sight of that the great
European central banks came Into existence when modern commerce and finance were in their first stage of development. This
is true even of the German Relchsbank, established as late as 1876,
for the latter rested on the well-founded traditions of its parent
institution, the Bank of Prussia, created in 1845. On the othelj
hand, the Federal Reserve Board commences Its activities when
commerce and finance are dealing in billions, when the money and
credit system of the United States, as well as of the great European
countries, has attained a complexity and breadth undreamed of.
Moreover, the scope of the Federal Reserve Board's adivity is
from the beginning infinitely larger than that of any of the great
European central banks.
It is obvious that a well-organized ana capalJly managed statistical department would be of greatest service and facilitate the
difficult task before the Federal Reserve Board.
186
FEDE'ltAL RESERVE BANK OF •••••••
FORM I
Cash on Hand.
Month
Average
Amount
'I
I:
I'
Ii
Jan ......•.•..
2
ii
II
Year 191._ ._.,
Amount
Ii
I'
1/
I!
Date
Amount
Amount
in per cent. of average (Col. 2.)
,
/I
7
8
il
" II
i
I
I
Ii
II
II
I
:
I
Ii
i
I
'I
I.
Dec .... _.....
Ii
DUference between high and low
(Col. 4 and 6.)
Low
"
Date
,I
•
Ii
:1
High
i
!
\'
i
I
1
I
3
i'
I
,I
I
I
ji
I
i
I
.-~
FEDEll.\L RESERVE BANK OF •••••••
FORM II
Gold Supply on Hand.
GOLD CERTIFICATES AND GOLD COINS OF THE U. S.
I
HIgh
Month
co
co
Amount
Date
11
:!
-
Ye3.l"
lill ....
avernge
(Col. 2.)
Date
Amount
I
1
I· Difference between ,
II
11
1 '1
Date
Amouot
,
High aDd Low
(Co]. 11 & 13)
Total
Gold
In per cene.
AmoUlit oraverage
(001.9.)
8
1
t
1
11--- -1-1!-1
II
I
II
Dec .•.•
Low
:
1
IS
4
I
1-----=--1
(~erce"t.
AmQunt
Amount
--- - - - -- - - - - - - - •
- --- -- --- -- --Jan .....
High
Av..,..age
Amount 1
Date
,...
I
I
(!5~f.h4~l-g)
I
·'i
11
Dilference bet w"en
Low
Average
AmQunt
1
GOLD-BULLION AND FOREIGN COINS
I
I
Ii
Ii
I·
:1
I
I
I.
II
II
I,
II
I
'I
I,
!t
II
i
..
o
FORM III
FEDE'RAL RESERVE BANK OF . ..... .
Federal Reserve Notes In Circulation.
I
High
Month
Average
Amount
I
Low
I
Date
1
Dat-e
"
S
6
J ..n ............. , ..
.....
00
'"
I
I
Dec ........ , ......
I
II
-
Year 191 .........
Amount
Amount
3
•
AmOUllt
DiIl'erenc.. between bl~h and low
(Col." and 6.
II
II
In per cent. or average
(Col. 2.)
1
8
,
I'
II
I
Ii
I
I
\
I
,
i
I
,
II
,
,
I
I
I
II
II
,I
I
FEDERAL RESERVE BANK OF •••••••
FORM IV
Denominations of Federal Reserve Notes in Circulation
AT THE END OF EAOH MONTH.
$50
'100
$10
$20
"
!.j
$5
-jO
Q
MOI.th
Amount
In pereent.
In fel'cent.
o Tot ..1 Amount of ToW Amount
(Col. 12)
(001.12)
--t
- ...
...
co
3
I
---
,
"
l~r't~~.
(001. 12)
G
7
Ja.n •
Ifflc.
.~I
--
I
,1-
I
In~eo!nt.
o Total
(001. 12)
Amount
8
\I
-----
---
I
I
I
I
II
I
to
..
lnof'lf~:r
....
-"
11
--n
(Col. 12)
"'3
~O
- - - ---- ---
I
II
Amount
I
FEDERAL RESERVE BANK OF •••
FORM V.A.
AnaiY8i8 of Dep08it8.
A
DEPOSITS OF MEMBER BANKS
LEGAL RESERVES
Montb
Ave.-agel
I
I
HIOB
Amount I
\
I
Avetage
LOW
------ ~\~ --- --- - - :e
Date
I
3
"
--- - - ...
... - - ---'
...
Jan •
Dec.
-Year
191 ••••
--- - - - - -
HIGH
Amount
;'I
\I
1
LOW
Date
Amount
1_-•I
8
Date
Average
Amount
I
High
t S8
1.o:>w
I
(10-,,_
I' \
I
--------11
1t
__I--- ---- ----
I
~3$l"
8 -«
"" :a II
!Amount 1_ _ _ ... .. te I Date . Amount I~ate IAmouQt
------
Amount
-
TOTAL
OTHER DEPOSITS
._-----
I
13
14
1$
-~-r--;-
- - - --- - - -
--- ----
--- --
I
I
FOIUI V.B
FEDERAL RESERVE BANK OF •••••.•
Analysis of Deposits.
B
I
I
GOVERNMENT DEPOSITS
,
Average
Low
High
" .... 1
Date
21
- - ---I
Amount
n
I
Dee.
Year
1111 ..•.
I
Low
Average
Amoun~
Date
I Amoullt
I
Date 1 Amonnt
--i---
U
»1 U'I
U
n
~
28
-I~----I-I-----
.Tan.
--
ALL DEPOSITS
High
i
~IAmount
lID l"'I'CeM.
I 3!~~~
-- ~II (CoI.2!i)
IS
%t
Amount
TOTAL
I
I
I
I
I
II
i
II
I
--I II-i-'I-i---I-II--I---II-I--II
! .
FEDERAL RESERVE flANK OF ••••••
FORM VI
4
Amount of Depo.ita and Federal Reserve Notes not Secured by Cash on Hand.
ALL 1IOR118
Mon~h
High
or :MONEY
I
LJw
Average
Amount
Date
Date
Difference between
H~h and Low
t 01. 4 a.nd 6)
I
AIlIDun t lin per cen t,
of average
AmeaD~
--- - - - --- - - - - - .,
:it
1
~
OOLD
S
--
.
Ii
•
8
I
,
High
AVerngJ
Amount'
I Da.te
I
Low
I
Amount
Da.te
II
I
A .... ount
---- - 1 - - - -
_I-
-"
Year
I--
I
I
i
i
:
I
I
I
I'
!
Ii
I
i
II
I
I
191 .•.•....
I
,
U
irn percent.
10f average
I
1
Dee.
(~!f.hl~n:n~~';)
Amount
--,-- ---;-1--1-1- --;- --1-3- '
Jan.
DllTerence between
I
I
u
FEDERAL RESERVE BANK OF. . • . . . •
FORM VII
Perc:entage of c:ash on hand against both Federal Reserve Notes and Deposits.
Gold
All Corms oC mOlle),
MOlitb. Avera.ge
,:
I
:II
Date
J
I
----
~--
JaD .....
...
I
Low
Low
Average
Hl,h
_______________ 1---------1------------1
Hiq
II
_D_at_e_ _ __ _ _,:__
J
•
6
1
.-~-
----
Date
8
7
__
':_I~
10
___ ______
~
11
--- ---- - - - I
I
:: Doc •.•.
- - - - - 1 - - - - - - - - - - - - - ---11-----1--Year
191 ....
I
II
Ii
II
!I
II
---1------·
FEDERAL RESER,'E BANK OF ..•...•
FORM VIII
ANALYSIS OF ALL PURCHASES OF EULLS OF EXCHANGE DURING EACH MONTH.
PURCHASED FROM MEMBER BANKS
Purcllascd from
other Fw.eral
Reserve BI'\nl<s
I
Arising out of ComIS$ued for
Acceptances bl'lSed on
mercil'\l Transactions· Agricultural Purpo.es
Importl'\tiqns or
I---''---t~-;---I---:---:-.~--;---! I,
~
3
~~i
11
0
~ ~~
~
Ilz
PURCHASED IN THE OPEN MARKET
i
0
I;~
50
~;,
n
.~
~
~
~s ~ ~~ ~a I ~
*J=~='.i=2=1==·= =="=,='=
- 6-
~~
I ,
I
FR 1M MEMBER BANKS .~_ _ _ _ __
_
(V~
ig f~
~~ ~~
~
~~
_~_-;--___ 1__
c_ab;-l_e.~_T_ra_n.,...$_fers__ _B_an_k-:c_rs-:~~:-A_eoop t_l'\_n_ces_II __B_l_U,S_O_~_E_"-:cb_a_n_g"_11 ca~I" tTransrers
.....
~~ ~ ~
~~
~
~
_
e.~
~~
-12-
--u-I -·-·_
-1$-- -
I
'I
••-
'--11-
~
~~
n !g
~
g
~ <~
~
~
~S
:.~
I
I
I
.
~ I~ .
~~
t~
g
:~
g
~~~,,:
;"
!i!
~!i~
_M_ _H_ _31_
~;
tS
Orand Tota.l
II
Bilt. of Exchange I _
~
;l!
;5
~~ ~~'_I ~ _~~
-.-S-I=="=I -1lO-111==2t=i-n-II-U-I~U-I-U-i_as_I_:n___
2S_
I~ "
I ~~
' g
33
1_ ~- __1_ _"'_
;otal
;3
~~ I_~ ~~
___
~~
~
_ _~i II_~
ill;
3
·11-_3~___ _U_jll _"___ ~1 ,_J~
36_ _ _ __
....:;~
i= I e~
t
g
~~
_
I
I
Ii'
I
I
1
1
1
l
~~
<;;;
_311_ -_41_
j
--~------~--~----~---
I ~~
:
I ~ I .fg
g
g ~g e§
~ <!ll U ,I ~
.oil
I
Banl<erS·tcc~P!anees
FROM OTHER THAN MEMBER BANKS
-
g ~g ij I g ;g ;3 g :g ii
~ ~~ ~a, ~ ~~ ~s ~ ~~ ~e
11
-
II
ota
11 _ _
E,x_p_
..
;r_ta._t--.'O_llil II _ _;--...
__
-_7=1~ === ·-I-·-'lli-S=
-_
T
1
--~----
FEDERAL RESERVE DANK OF. . • . . . .
FORM IX
Analysis of Funds Invested in Bills of Exchange at the End of each Month.
~J
M OI1th
=--·
""Jan.· ..
D ec
:icc
.1:1":3-::
21
S
From
~j1!
i;!!;!l
"""""
"'as
~=~
'"
..
Purchased In thB open market
Ft'Om other than member ""nko
II
ia:g
Id1 III Ib
_~
---
Purehaaed trom member b&nkll
':;;c
6
"
....
Total
rnemw
banks
Bills
Cable Bankers' of extransfers accept- change
anee.;
--- --- --- --- --- ---
•
•
---- - - - - - - - - - - - 1
8
--- ---
,
Orand
Total
Total
I
I
I
I
10
11
I
---I
_I- -I
,
I
I
t
FEDERAL RESERlrE BANK OF •••••••
FORM X
Purchases of Foreign Bills of Exchange.
o n hand------- amount of purchases
at the end Total
---~~-----------------------
Amount Invested
of themonlh
. ...
I ~~§~i
Month
\
'~
High
Low
Monthly!;§EZ ... - - - - - - - - - - - - - - Average "'\:::l" 1:: Date I Amt.
Date Amt.
- - - ______ 1'"' '
__
1
I
I.':I¢~_IP
3
j
-'5
1-- •
I 8
1
~~~I--I!--
~9;~'
. -j---II-,-
1'-
....
~~11~~6
.. I ""]"= a
1:i3 .2 ~'~ii
'
'0
..
El<P
"
."
::0-;-
::§~~n
--
S
8
--
--~-
•
l.
~§j~t J
-... i§
'0
Zi3
Amoupt ~
:z;
"'"
____
s
0:£
--
I'
---
~
11
.<:to)
~'S~~~
'<
i
i
i
.
----
_$-
-'<-
U
13
U
----- - - - - - ---
----- --- ---- ---- ----
--
FORM XI
FEDERAL RESERVE BANK OF . .•••.•
Foreign Bills of Exchange on Hand.
(AT THE END OF EACH MONTH)
England
.
Other EUl"Qpean
countries
Fran~e
Gel'nl&ny
Canada
I
Mexico
South America. MIsMUaneous
, Frs. ,
,
,
,
,
-- - - - - - - --- --_. --- - - -n- - - -u- - - 1--;;- - ,
a
-- --" - - - - - - - - - - - - -- - - - - - - -_. - - --I
. I- - - - I - - - - - - - - - --1-- -1-- ---- - - -I
I I
II
I
I
I I
I
,I
I
I
,I
I
I
II
II
II
1
I
I
I
I
Month
$
£
--
- - -:!
I
I
Mark
6
I.
--
Mel[. ,
Can. ,
8
7
10
13
11
11
15
Jan.
D~.
--
I
I
,
I
I
I
II
i
II
I
i
I
I
I
II
I,
I
I
FORM Xli
Fluctuations in Rates of Foreign Bills of Exchange.
AS AN INDEX TO OUR FOREIGN TRADE BALANCE.
A. NUMBER OF DAYS ON WHICH EXCHANGE RATES WERE
HIGHER OR LOWER THAN PARITY
IN THE NEW YORK MARKET THE RATES OF EXCHANGE WERE QUOTED
Month
Berlin
London
I
I
Higher
than
tban
~he p..rlty or 4.86656 S r.... I £.
Low~r
DayS
...
...
I
tb
D"Y$
I
I
Days
Val's
5
Days
!l
,
, -,
i
I
Dec._ •.........
191 .... , ...
I
I
Jan •.•.•.......
Y<mr
Parts
HIgher
than
the pari~y of 95.2852 $ I .... 400M.
---
3
=
Lower
than
-----
I
DayS
Days
I
I
,
,
I
!
-_.
DayS
DayS
----
,
8
,
II
.
I
I
HIgher
Lower
th ..n
!.han
th... parity of IS for 5.1826 res.
I
II
•
to
----
FORM XIII
Fluctuations in Rates of Foreign Bills of Exchange.
AS AN INDEX TO OUR FOREIGN TRADE BALANCE.
B. NUMBER OF DAYS ON WHICH EXCHANGE RATES WE RE RIG HER OR LOWER THAN THE GOLD POINTS.
In the New York market the rates of IlXcbange w_ quot<ld
I
London
At or lower than
the theoretical
Month
At or high.,.. tban
tbe theoretic ..1
gold r,;:lnt favorable or gold exr.i:rt (4.SS36 S
orl.t.)
d ..ys
~g\~ foo~~tf~i~
f.0Te
(4.8495 $
or l.t.)
d .. ys
,
1
At or lower tban
the theoretlea.1
~I: ~~~ltt'i%:
Port (94.92 $ lor
400M.)
d ..ys
4-
3
Paris
BerUn
At or higher than
the tbeoretlc ..1
gold ro',!nt r..vor.. ble or ~ld aPOI"t (95.
$ lor
J:.0rt (IS for &.221
At or lower thau
tbe tbeoretlc .. l
gold F,oInt favo,...
able or ,old ex~ (I S Ql"tI.IM
dayS
days
da.yS
6
(I
7
4OOM.)
At or higher tban
the theoretical
~g\~ fo~intf~v~:
es.)
J ..n ....
Dec ....
------
Year
191 ......
I
I
I
!
I
cs.)
r"EDE'R,\L RESERVE BANK OF •••••••
FORM
Credit Balances Abroad.
At the beginning
of the onth
r
Month
t
2
I
I
I
Jan ......•.•.•.•.•....•.
Dee ........• , ....... ,
II
..
I
...
...
Year
un, .. , ........ _
•
~
I
- • - + ••
o
I
Increa.re
Decrease
During the month
S
S
a
.,
I
At the end of the
month
j
$
<'i
-I
j
I
I
xrv
FEDERAL RESERVE BANK OF •••••••
FORM XV
Funds Invested in Bills of Exchange.
CLASSIFIED ACCORDING TO WHERE PAYABLE.
Payable hI the Bank'sown
Federal Reserve District
Payable In Olher Districts
Mo.
b
~
High
~,
~ .::
Da~
Amt.
1\
'Date
i,
~:l!
Low
:~
I Amt.
I
=:;; \
";..
Payable Abroad
Dlgh
I
I
"]
5~
Low
I
0"
~8
b;
~ {!
I
High
Low
i5
.,8
<'0 ~ Date I~ Da~ ~I 58
<'0
__
8_1_~:_1_O_' ._ll_~ ~ ~ ~~ _n_____ 1~
18
-: .:
~,
- - - ---- --- ---- !---- - ~
s
1
I
--,:---------:---....,.,--- -----:---....,.--------,--
----~------~--------~----
nate
~
Da~ ~~
0;"
!
Jan.....
~
I
I
!
~ ::·····-I,--,-j-il-I-i-I-i-I-.-- --- -- - - - - I - , I Ull ..... .
I
]'
I
I
i
I]
I
I
I!
I
I
Ii
I]
I!
II
II
il
I
i
I
FORM XVI
FEDERAL RESERVE BANK OF . .....•
Analysis of all Sales of Bills of Exchange.
(DURING EACH MONTH.)
Sold to otber
Federal Reserve BaQks
Month
To Member Banks
I Tootber tba.n Member Banks'
Total
Average Average
Average Avera,e
AmouM
Ca.ee
Cace
Avernge Average
Average Average ADlOUM
amouot maturity AmOUQt Average I Average I Amount I Ca.ee
amouQt maturity
face
1
Cace
Amount
maturity
amount maturity
amount maturitY
I
I
--- - - - - - j
%
i
3
------
- 1 - - -I~
-'1_'1_1I
Dec.
I
8
•
---1---
--- --- --- --- ------
it
II
1%
U
Ii
U
11
I
I
--- ---- - - - - - - ---- - - 191.
I
I
I
Jan.
Year
Grand wtal
Sold In the open market
.
I
-1'I
I
I
I.
- - - ---- - - - - - - - - - - - - - - - - - I
I
II
II
,I
II
I
I
1
FORM XVII
FEDERAL RESERVE BANK OF •••••••
Amount of Domestic Bills of Exchange on Hand.
(Class:Ided acoordlng to lines of business or drawoo. /l.CCIlPwr. or maker at tbe end of eacb montb.)
Commerce tran ...
ponatlon Insur·
anee
Month
•
~
t
1
---
:t
~~
Jan ...............
Manufacturing
industry
A~ltur"
try
Fisheries
•
• ,:
,
--- -- ----$
f
1
G
.
II
. MlseeIlaneous
(lncludlllg mining:
industry)
I • ,:
,:
I
--- ---I---- --8
Total
10
•
I
•
12
11
Year
un
•• +
,:
13
I
I
- - -- - - - - - - - - - -- --- - - ----- --- - -
I
Dec··············1
Finance and
banking
••••••••
I
1
I
I
I
I
I
I
I
I
I
'I
I
I
I
I
FEDERAL RESItRVJil BANK OF •••••••
FORU XVIIl
Face Amount of Domestic Bills of Exchange.
""".......m
Mouth
Items
t
21
Payable In other
PaYabl"ln banks' OWn
Federal Reserv" DIstr1c~
3
Amount
--j
distrlcts
I
I'
I
I
I
I~
--IItems Amount
%
%
Up
fA)
I
Amount
%
it
,
678
11
I~~~--
~----~-
•
Total
,
I
PGO
351 -a 500
401 1,000
1.001 2,l'iOO
6.000
2,IlO1 -
:t=e -10.000
10.000
--- -- -- --TOTAL
~I
y-
191. ....
I
-1-
=11= -~I
I
i
I
I
I
I
!
I
I
I
FORM XIX
FEDERAL RESERVE BANK OF •••••••
Maturities of Domestic Bills of Exchange
AT DATE OF PURCHASE
Month
..
I"
~
S
oo
:::
:a~
I
l~
S::'"
...:-
I
DOMESTIC BILLS OF EXCHANGE MATURED WITHIN
J::!
... ",
~:
"'..:
=0
00
1
I
I . '"
g5
§~
"c
~
.. I
....
¢
~
",,,
05~
~~
I
:aJ::!
-s~
so:
"
<E
¢
.. 0
~ ...
=0
I~
I
'll:
:OJ::!
1~
Coo
I
•
~8
I ~a
11""
... ~
s~
so:
... 0
OJ
~
..
-
~5
]~
"'0
< ..
",8
1s
=S
c~....;
.... -•~
2
8
--- --- ---
$
•
1
8
!
as
'0
.,.,
"'!
~j;,
...:
(In PI'l'Cent.a!!e of t-otal amQunt purchased)
,
~
t-",
~r.
.. '0
9
II
11
It
13
------ ------ --- --- --- -- ---
San.
~.
-- - - - --- - - - - - - - - - - - - - - - - - - - - - - - - - - - - Year
191 ...
FORK XX
FEDERAL RESERVE BANK OF •••••••
Maturities of Bills of Exchange on Hand
AT THE END OF EACH MONTH.
BILLS OF EXCHANGE ON HAND MATURED WITHIN
Month
15 days
16 -
% of
Amount
I
tota.!
I
3
30 days
Amount
31 -
60 days
~ of
total
Amoullt
,
6
I
61 -
00
% of
total
AmOUllt
'1
8
d~ys
91 -
% of
total
120 days
Amount
121 -180 day"
% Of
total
Amount
II
u
~or
total
- - - - - - - - - --- - - - _.- - - - --- ---- --
,
- - - --- - - - - - - - - - Jan.........
Ie
_9
13
- - - --- - - - -1
Dec •..•.•.•
I
I
FEDEIU.L RESEilVE BA.JJK. OF •••••••
FORM XXI
Extent and Limit of Credit Accomodation
Granted by the Federal Reserve Bank.
(C lassilled according to lines of business.)
DISTRIBUTION OF CREDIT. CLASSIFIED ACCORDING TO LIMITS
FirIDII and IDdI·l
eUgible for
,....'...~·§I
~",bo_
LIDes of business
1
-
i
:z;
•
i-
!
k)1
S
-
S
51.000
-
510.000
'O"gj
!iI:",
510.001
-
525.000
,
I
$50.001
525.001
-
550.000
.. '01';'"
....
!l~ .8"':s! !~ II i'!~
~ §~~
~8
II
i
;;
8""
-
I .."'j
5100.001
j
51(00
il:
8"
~:""
.o.s-
..... $
Z:~
5500.000
11
.. Ii...
sj.~
1~
11
0=
Mort! than
-
5500.000
13
o,,~
-
"'~
0"
.f~:s!
f
e~.~
,
- - ----
aurance
•
1-1-1- -I
I
I
ManuCa<:Wrlng
S
'1
I
Ftnan08 and Bauk·
lug
I
10
\I
§s,:
If
~o
I
I
-
,
;
I
I
I
- - 1-1- - - - - - 1 - - - - I
I
I
I
I
i
i
I
Industry)
111
- - -- - - -- - - -
I
Industries
Apiculture. Forest.I'Y and Fbheries
MtsoeIlaneous (Includlng MiDiDg
8..
",,'0
~ S ... .:: 0::
"'0
,,="" ~ . .!! p,Q '" '" " 0
~",,] ... ...
" 0 Z=:g ~'Q Z""'" ~(: Z .!! ... ... Z""'" ~¢ Z .e ... ...
S
0
-- - - -- -- - - - - - - - - - - - - - - -.
'S~E
Comme!'<le. TraDspor$atlon and fa-
TOTAL
I!
II
I -;
I
i
I
:
I
i
Ii
I
-i-I-II
60;
---:
I
~!
tI
g
I
!
I
-
- -
.~~,
..
-
-~
!
INurnber of JUlnI8I
~
l I:I
<>
:;:
jAmoDllt
•• t!I
<>
.. lIbillsp~ted tor payment
•
<!!
l'!I
.... teI
I
II
I•
-
"'l
t'l
~
"
m
...
.
I
i'"
. 1··_ ......1 "'~
!
a =llI:I
.
o
I
f
I
I
_
..
-
I
..
I
)
I
....
0>
!"
I
'"'
..
) '"
~
In per """t. of
ed for payment
!NUlttberofltems
.
IJ:l
0>
lin bills ,cent.
per
present-
p;'
of
a.Il
~
lIn per cent. of
INurnber of Items
"
m
all bills presented for payment
in
) =l
-----
per
o
cent. of
~
a.Il bills present-
-'l
o
:;:
0>
~
I :: IAmount
>tI
::
:
I
0>
Pffl' cent. of
l
all bills present-
.... for payment
all bills present-
I ;; IAmount
:
In
Pffl' cent. of
all bills present-
ed for payment
til •
(II
CICI
If
r+
-J
S'
ID
a.
3:
C
.,
per cent. of
I l
---~~~~~~:
I)
til •
III
r+
INurnber oflt<mls
= in
,,:
;. I'"
'" . III
0..,
ed for payment
In
:s
00'
:.-
(Amount
Is
III 0
'OJ
CICI:
3.
" S·
"
"" :r
..
.'"
ed for payment
.
I
...
G-~
all bills preset! t-
I
~
-
?
"l
o
l I:I
it.
)01
io'I
•
...
FORM XXIII
FEDERAL RESERVE BANK OF •••••••
Bills of Exchange Remaining Unpaid
at Time of Maturity.
ISSUED OR DRAWN FOR THE PURPOSE OF
CommU<l<!, TraUportatlOD
Insuranc<l
Month
j
'i1 ...
'0
.==
"'!"
=9
~li.::
:;'"
.... «>
".....
.,,=
.or
~~~
M .. lUlfactllrllll!: Industry
8
!
'i",
'0,$..l!~
*,,9
.....
..
..'"
" ="
.
. . Ill
u!
~
Agriculture, Forestry,
FIsheries
8 ~1~
.==
'0
:;a"
~s~
~
... ==
~!!
...
fil
fil
8 ....
~
J:>.
J:>.
J ~ ... ~
fil$!
~.
a ~""
...
~
""i:i"
-" ~ ~,Q2
~ "J:>.~
~ g.Qa
~ l:::S~
z '"'
~ -S,o"s z '"'
-<
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I! - - - ' - 1 - - - - - - - - - - - - - - - - - - '0
o
..
'0
~
_1
_ __ _ __ _ ___ ____1_1~_t_
2
3
'~ '
'
~
-
..
"
e
-<
_t_t_l~
*H
...... ,1
8S ...
=J:>. s
...
13
J ..II·
Dec.
Year
un
'I I
---I-II
I
Miscellaneous (Including
Mining IDdustry)
~l.
~."
il
!
'0,$ ...
t
8 ... ::
~
" ,sd
-<
'0
J:>.
s
.="
.or9
=
g
e
~""
Z
u
,,=
..
15
-I-
I
,
1
..ll~
!~&
,SZ.e
FEDE'RAL RESERVE BANK OF •••••••
FORM XXIV
Rates of Discount.
(Classitlad acoording to tbe Dumber- of ch .. ng ...... nd tiwe of existence of eacb r~I<e.)
Montb
Nnmber
of
changes
NUMBER OF DAYS ON WHICH THE FOLLOWING RATES WERE IN FORCE
------~-+-~
n
•
=- - - - - - - - - - ------------ - - --- - --- - - - - - 1
3%
3
3~
4%
4)1%
5%
5H%
I.
5
6
1
6H%
S
7%
It
6%
11
13
J.. n .....
...
...
to
--- ---.--- ------ --- I------ - - - - - - - - - - - - - - Dec •.•.
Year
191. ...
I
,
I
I
I
I
I
I
I
i
I
i
I
I
I
I
I
I
FEDERAL RESERVE BANK OF •••••••
FORM XXV
Reasons for Changes in Discount Rates.
Date
-t
I
I ..
REASONS FOR INCREASE
1
I
I
III
II
I
I
~
'"
0
U
.,"
I
00
"'''' I·
EoO
,
t'i
.::~
0
,
t
...
...
...
REASONS FOR DECREASE
,
Ii&.
et I
,
"' ...
:Hi
-Q,
"a
Ei="C
"00
IV
1~<>~
ji'o~
b[;S~
VI
V
..
EoO
.::~.g~-5
s
•
~
. '"
"'.... '"
§::~.5
Ul
0", 8.
t:1;;E
'::0 tc 'i..!!
~-,.Q
....
,.
g:::~6
" .~o
"
8
,
I
J,,,,
~-
i~,",$~
I
I
VII
~
~
1"'·S!~
~~i'o~
S
I
VIII
..
.s~.=~
t8~:a
..
",=II<S
IX
'"
;;
.
i!J";S
i>8",
" Il .!!i ..
Q~8ai~
.::U~
.:::'"
......
,,»:s
•
t.
11
~-
~
~
FEDERAL RESERVE BANK OF •••••••
FORM XXVI
The Seasonal Demand for Credit
MEASURED BY THE DECREASE OF CASH ON HAND AGAINST DEPOSITS AND
FEDERAL RESERVE NOTES ISSUED.
Amount of Deposits and Notes
iIlsued not seoured by CMh on band
Season (crop,
Date
~~-:rde:~
taxes, etc.)
---
-II
011 d"!eof
Col. I
2
,
I
I
I
Prooedlllg
Percen~e
against
$
I
I
I
I
l'
8
!
I
!
6
011 da.te of
Col. I
Increase
,
Preceding
week
(or month)
%
Decrease
%
week
(ormollth)
-
I
of cash On hand
ePOSlts and Notes
;
I
I
,
,
Rate 01 Discount
Reol
Feder ..1
Open
serve Bank I market
At date CoJ.1
%
%
1-- --9
11
FEDERAL RESERVE DANK OF
FORM XXVII
The Demand for Credit upon the Bank.
MEASURED BY NET DEPOSITS (AMOUNT OF DEPOSITS MINUS BILLS OF EXCHANGE ON BAND).
Weekending
,
1
JII;';"
"
.....
Domestic bills Surplus of de- Percen~of
De=tsof
pOOts over
ruem
banks ofeJ[chaoge
domestic ills
dom ...tie bills ofexcha~
On hand
of ell;change
to deposits
Amount
Amount
Amount
~
3
All bills or eXchange on
hand
Amount
Amount
~
•
,
"
Pereent~eor
S:r,IUSOf de-I
p tsover aU aU bills 0 exbills of ell;change to
change
deposits
7
8
7_
14.
21.
~
Dec. 30_
I
Average
y","" UIl ..••
i
I
I
I
I
!
!
,
I
I
I
I
I
I
1
I
I
I
I
I
!
I
I
!
FORM: XXVIII
·'EDERAL RESERVE BANK OF ••• , •••
Fluctuations of The Discount Rates and Statistics Regarding Factors of The Money Market Affecting The Same.
,
II
MAIN FEATURES OF THE STATEMENTS OF THE BANK
Tbe rate or disrount
wascbanged
Statements
oompared
Oasbon band
II
Fed. Res. Notes
illcll'Clll3tlon
I,
I
I
Deposits
..
0
Date
from
!
~
to
:;;
...
.,.
...
D3""
- - - - - - - - - - ----1----111--1
2
•
3
---
I
d, ...
~I~
I!~
.....
7
..
;;1
0
j ~ii
I:
! I
:;;
U
:;;
,st:
:; ~"'
,:;u
~M I :
:; ~~ i 8
8
<
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lie
--..
=t:
II
1
I
;
~
AJ
~3_~
!i8 ! lie
0
v
J
...
..5
:;;
'1 __
1$_
.... 17
__
18_
,:;t:
11 ___ _ _ _ _ _
1,
1,
Oil d3Ylo~uorent ~tenge of
dj~~,~
1
RATES OF DISCOUNT
II
On d3v before ~".ft_ of discount rate
Ij-----~-............Q
I-----,--d,--I---.,----Ij----:I-----:r----jl----=----,- - - - : - - - - ..
I
II
I
I!
I <
~~
:; -!~
FR. No",," 3nd depollits
Total
('..old
1---------,..------
'I
II
~~ ,
:;-e,., I
ij8 I
':;"
g
I
London
1
'>A-lln
Paris
1-;-1 ..
.....
.. I ~
~ .g II;~
f.
,I '"
II ~:!!'
I':':
~~
-"-Ii" .
I
'S
I
I
I
I
I
.
I
I
I
I
I
I
~~
II:
,,;1
I~
£:
'"
$~!§
~s:~~"
~liji
8
A!e
-I .. _ - - % $ - - - 1 7 - -
II
I
!j8~!
8
II
_ __ _
1'
-----
,
I
Q»
!
~;~
8
-----8
i
:
- - - - -band against ,1
Percen!o!'E:e or cash on - - 1
I'
Bills of E1cb ..... ge
oob.....d
I
Total
Gold
: - - - - : - - - - 1 - - - - - : - - - - 1 1 1 - - - - , - - - - 11
;;1
,'
RATES OF EXOHANGE
I
FORM XXIX
FEDERAL RESERVE BANK OF •.••..•
Classification of Investments in Securities (Sec. 14b.)
:BILLS, NOTES, REVENUES. BONDS .... ND WARRANTS OF
Week
endiDg
U. S. Bonds
Or Notes
---
-•
...3
0 0
Grand Total
County
State
,2
11
S'"
... 3
00
<to
...
'"
'" ... 8
"
'" "'"
.s 8;
t ..
.."'
~
District
'Os
.."
~~
81l
Pol1elcal
Subdivision
~ 1'...8
01
~
"
.s ~'" ~ '"
g .s
::0
~E
~ Q" r:.0
~t!
'
'.. t~ 0: ..
"
~ A r:.o -< A
A r:.o
-<
-< r:.o !~
"
- - - - -- --- - -- -- - -- - - . - - - - - t
4
oJ
S
• 1 8 \I 10 11 U 13 U 15
- - -- -§
0
a
... (00
h
8'"
."
" .s"
'
!
.;
::I
<ll
,-
...S
°0
h
11
a
-<
I
17
S
Total
... 8
.!.!l
i
.. 8
to
--
--- - -- - - - -- - - -
U
'" =",
.s 8;
h ~A " 8Q
. ~ .. -< r:.r!l 'et- -< ... :..
tt!
IS
A r:.o
"''''
"'"
-- --- -- - --- -<ll
-
IS
III
0
-- --- -
0"
0
0
"
tt
:t3
i
-- --- -- --
AVerag<)
Year
..1.$
gl .. 13"
gl
"
liS
0
"'S
0 0
I
14
--- --- -- -- --- -
0
",,,
r:.o
21
Dee.S1
..3:
... 8
Jan 1
..
..
MunlclPailty
-1i
I
I
I
1II
I
I
I
I
1
I
I
I
I
Index
Accounting,
place of , ........ , ................................. 29
in branches
.. , . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 41
for Foreign Exchange department .................. 92ff.
two systems presented ................. _ ............ 100
scope and pl'oblems of .............................. 10(1
general plan of ................................... 1 (l2ff.
alternative general plan of ........................ 12 9ff.
Accounting Department,
of reserve banks .................................... 151
Advisory Council,
work of ........................................... 98
Application (membership)
blank ............................................• 4
Auditor,
of reserve bank .................................... 2"
Ballots,
regulations for .................................... 4
Bendix, Ludwig,
on statistics ........................................ 17 (I
Benton, A. A.,
member of sub-Committee on Accountinl; ............ 101
signs report ....................................... 101
co-operates in accounting system ..................... 1 (I 2
Bills of Exchange,
how bought ....................................... 88
statistics of ...................................... 17 2ff.
Bookkeeping Department,
of reserve banks .............................. 12 (I, 14 8
Bonds,
of reserve agents................................... 5
of officers of reserve bank .......................... 25
of agents, how controlled......... . . . . . . . . . . . . . . . . . .. 40
BOITowing,
habits of, in relation to dlstrlcting. . . . . . . . . . . . . . . . . . .. 9
Branches,
rules for........................................... 4
foreign ............................................ 5
of reserve banks, how established.................. 25
modes of establishing............................... 41
capital of ......................................... 42
by-laws of ........................................ 43ff.
directors of ....................................... 43
discount committee of .............................. 44
officers of ......................................... 44
foreign, establishment of. ........................... 45
%11
Page
foreign, how managed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 47
clearing methods of .....................•.•..•.•... 8, 62
Broderick, J. A.,
signs report ............................•.•......... 101
member subcommittee on accounting ................ 102
By-Laws,
general .....•.............•........................ 4
for reserve banks ................................... 43
for reserve board .................................. 95ff.
of federal advisory councH.......................... 99
Cable Transfers,
how bought ....................................... 89
Capital,
reduction of
Capi tallzation,
of reserve ban ks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7
average of ... , ........ ,., ....... ,.,.,., ........... 11
Cash,
statlstics of .,., ................................... 170
Certificates of Stock,
how signed ....................................... 26
Chairman of Reserve Board,
his duties ......................................... 95
Checks, see items.
Chief Clerk,
duties of .......................................... 104
Cities.
for reserve banks ............................. ,..... 15
designation of, omitted .......................... ,... 17
Clearing,
plan ........... ,.,., .. " .. ,.,.,.,.,.,., .... , ... ,., 5
relation to districting............................... 7
first system explained .............................. 48ff.
stamp for ...................... , .................. 58
alternative system ............... ,.,.,., .......... , 64
between reserve banks .............................. 55
views of expert on .................................. 68
accounting for ................................ 115, 131
Code BOOk,
requirements of .................................... 100
Collection,
detail of charges for ................................ 58
mode of conducting .. , ... ,., ........................ 66
items originating with non-member banks ............ 67
time used in ....................................... 67
accounting for ..................................... 137
Collection Department,
accounting for ............................. ,.,., ... 115
Commercial Paper,
discussion of ., .................................... 73ft..
single name ......... , ...... , ...................... 76
recommendations regarding ... , ........... ,., .... ,., 79
218
Compensation,
schedule of
Conversion,
rules for .......................................... 4,
Correspondence,
how managed .•................................... 27
Correspondents,
of reserve banks, how chosen........................ 90
Credit,
statistics of ........................................ 110
Credit Bureau.
organization of .................................... 36
records of ......................................... 31
use of ............................................ 38
Counsel,
of reserve bank.................................... 25
Dawson, Ralph,
member of sub.Commlttee on Accounting ............ 101
signs report ....................................... 101
Deposits,
statistics of ........................................ 1 n
Designation of Cities,
mentioned ........................................ .
Differential rate on paper suggested ...................... 77
Directors,
lists of
4
choice of ......................................... 11
of reserve banks, powers and meetings of ............ 22
of branches........................................ 42
discount committee of branch ..s ...................... 44
Discount Committee,
at branches ....................................... 44
Distributing Desk,
accounting of ...................................... 131
District,
certificate of limits................................. 4
Districting,
method ........................................... Ii
principles of ....................................... 12
problems of ....................................... 13
District Map,
enumerated ........................................ 4
Dividends,
record of .•........................................ 4
Domestic Business,
of reserve banks ................................... 13
Domestic Exchange, see Clearing.
Electors,
Certificate of election............................... .,
lists of
.,
.,
••••
r
••
r
••
~
•
~
•
+
•
+ +
•
~
...
+
•
+
•
+ +
•
+
•
+ +
•
+ +
+ +
••
+
•
+
.,
219
Examination,
reserve banks ... , ...... , ................. ,.,.,.",4, 34
of member banks, plan of ........................ 32, 3 &
of other banks ................ , .. , ... , . , " ' , . " . , . , 3 ..
of agent , ........ ,.,." .. , ..... " " " . , . , . , . , . , . , . 3&
Executive Committee.
of reserve banks.,.,
23
Expenses,
levy for ...... , .... , .................. .
Farnham, S. H.,
member sub-Committee on Accounting., ...... , ... ,., ,101
signs report ........... , .. ,.,.,.,., ..... , ... , ...... 101
co.operates on accounting system .................. , .129
Federal Clearing House,
explained ...... , ........ ,....
., &7
Fisher. E. D.,
member sub-CommUtee on Accounting" ..... ,., .. ,., 101
signs report .,.,., .. , ........ , ... , .... , ........ , ... 101
Foreign Branches.
how far to be established .............. , ....... ,.... 8&
how organized and managed." ............... ,..... 91
Foreign Exchange,
provisions of reserve act ........ , ... , ... , .... ,...... 83
control of by reserve board .... , ......... , . , . , ....... 84
scope of operations In, ... , ........ ,., .. " ........... 85
methods of dealing in ... ,., .. ,.,., ... ,., .... ,.,.,.. 86
manager of ,., ...... ,., .... ,.,.,.,.,.,., ..... , ... , 87
funds for use In .. ,., ...... , ........... ,',., ..... ,., 88
accounting for .. , ............. ,., ... ,.,.92. 117ft.., 155ft..
Forms,
for statistical bureau ............ , ........... ,.,.,. 18 7tf..
for accounting, see Portfolios I, II. and Ill. referred
to on pp ...... , ................. , ... , ...... 102, 129
General Books.
of reserve banks...
' .. 150
Gold.
how Imported .. , ....... ,., .. ,.,.,.,.,.,.,., ...... " 89
statistics of ,., .. ,.,.,.,.; .. ,., ... ,.,., ... ,.,', ..... 170
Governor,
of Reserve Board, his duties ...
.. 95
Installation,
. .. 101
of reserve system, date for.,.
Investment Securities,
.,., ,110
accounting for
Items,
how cleared ..
. .. 54. 65
Key Letters,
how used , ........ , .•. ,., ....•. ,.,.,.,.,., .•.•. , .• 122
Letter of Transmittal .. " .............. ,................ 3
Loans,
,.,104, 139
Accounting for ....
.
220
Mall Teller,
accounting for ............. .
.. .130
Management.
internal, of reserve ban],s...
26
Manager.
of for(!lgn exchange business, functions of...
87
Marwlck. Mitchell, Peat & Co..
relation to accounting work ......................... 1 01
report of
.................................... 102ft.
Matm;ty,
of paper
81
May, Max.
aids committee
3
Member Banks,
examination of .................................... 32
clearing functions .................................. 49
outside city ....................................... 52
must endorse paper ................................. 80
Municipal securities,
discussed ....•.....
81
Nominees (Directors),
lists of ............... .
Non-member Banks,
how related to clearing ..... .
64
prohibition on items of ..... .
67
Note Brokers,
to endorse paper...
78
Notes,
rUles for issue....................................
5
form of ........................................... 5
application for .................................... 31
Identification of .................................... 33
accounting for ..................................... 146
Note Teller,
accounting for ...
. .. 112, 134
Oath of Office.
of reserve board ...... .
4
Open Market Operations,
discussed ............ .
. • 81ft.
Organization,
Certificate ......................................... 4
chief features of.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 20
departments of..................................... 21
of reserve banks ................................... 22ft.
of reserve board ................................... 9 riff.
Organization Committee,
. 18
functions of ........ .
Paying Teller.
. .111, 132
accounting for ...
Protest,
C"
in relation to cl(!arlng ....... .
221
Purchases,
of paper " " " " " ' , ........... ,.,.,., ....... , .. ,. !)
Railway Time,
in relation to dlstrlctlng", .... , ..... , ...... ,.,."., 7
Rates of Discount,
statistics of ,.,., .............. , , .. , , , , ... , . , . , .. , , .179ff.
Receiving Teller,
accounting for ........... , .. , ... ,',.,., ... , ... 111, 134
Redlscoun ts,
accounting for .. ,., .... , .. ,., ..................... 105
Remittance,
method of ... , .................... " .. " , ... ,., .... 52
Report,
Genesis of
3
Rcports.
annual , .. ,."" ... , ...... ,.".,., ... , ... , .. ,...... 4
by reserve agent ..... ' ........ , ............. , ....... 22
Reserve Act,
principles of, in relation to disfricting................ 12
on choice of directors ................ , ........ , .... 11
on agents ....... , .............. , ..... , ... " . , ... ,. 30
on clearings ..... , ..... " .. ,., ...... , .... , .. ' .. , ... 48
on commercial paper.".,." ... ".,.,., ..... , .. ,.,., 73
on open market operations., ... , .. , ... ,.,.,." ... ,., 81
on foreign exchange ............ , .. , ... ,............ S3
on advisory council., .... " ... ,., ... " , ... ,., ... ,., .. 98
Reserve Agent,
books for .. ,.' ..... ".,., .... , ... ' ... , ... , ....... , 4
duties of ......... , ..... , ........................ 24, 30
records of , ...... , ................. ,............... 31
plan of work ...................................... 32
examinations by .......... ,.,.,'., ... , . , . , " " . , . , . 34
accounts of .. , .. , ... ,.,.,., ........ , ..... ,., .. 12{1, 167
Reserve Banks.
elements of organization .................... "...... 20
depar"tments of ., .................................. 21
by-laws of ...... , .. , ...... ,., ................... , .. 22
officers .......... ,., ............ , ... ,.,.",.,...... 2 ~
clearing functions ., ..... , .. ,., ..... , ..... ,.,.,.,.4 Sff.
relation to member banks ... ,.,., .. ,., .............. 52
to one another ... ,.,., ... ".,.,.,.,.,.,., .. " .. , .. 55
to federal clearing house ................. ,.,.,.,.,.. 57
relation to ban ka In other districts ........... , . . . . . . .. 65
Reserve Board,
relations with agents .. " .. ,.,., ...... ,., ..... , .. ,.,. <12
on open market transactions ..... , ... ,., ........ , ... 81
organization of ... , ................... , ...•........ 95
by-laws for .,.,., ......... , ...................... , 95ft'.
meetings . , ... , ... , , . , , , , , . , . , , ..... ' , , .... , . , . ' , " 96
budget of ....... , ..... , ...... , ..... ,.' .... ,.,.,.,. 97
business ., ........ , .. " ......... ,., ..... ,.,........ 97
222
Reserves,
In relation to dlstrl~tlng............................ 14
Robinson, C. C.,
aids committee .................................... 3
co-o perates In accounting system .................... 1 01
Seal,
of resel"Ve boal"d.................................... 96
Secretary,
of reserve boal"d, his duties .......................... 96
Secretary of the Treasury,
accounts of ....................................... 169
Secretary-Treasurer,
of reserve bank, his duUes ........................... 24
Securities Department,
of reserve ban k .................................... 153
Shareholders,
records ........................................... 4
Single Name Paper,
how far used ....................................... 75
pl"ovided for ....................................... 76
restriction of ...................................... 78
Speculation,
how viewed by reserve act •••.••.••••••..•.••••.•••• 74
Statistical Bureau,
use of ............................................ 39
plan for ......................................... 170ft.
Stock,
4
transfer
subscription ledger ................................ 19
Su bscriptions,
rules for .......................................... 4
Tellers' Departments,
accoun ting for .............................. 110ft., 132ft.
Time Schedules,
use in clearing ..................................... 68
Transfer,
of funds .......................................... 5
of stock in reserve banks........................... 26
agent for ......................................... 28
accounting tor .................................... 113
Transfer Agent,
work of .......................................... 28
Transfer of Sto~k, see Stock.
Transit,
a~counting for
.................................... 13 i)
Transit EXpert,
views of, on clearing problem. . . . . . .. . .. .. . . . . . . . . . .. 68
Tl"anslt Problem,
difficulty of ....................................... 64
Two Name Paper,
how used .......................................... ,5
77
preferred
2211
Unpaid Items,
accounting for , . , . , " " " , . , " " ' , . , . , " " ' , ... , ... 113
Vault,
ntanagement ...... , ....................... , .. ,., .. 27
Vice-Governor,
of reserve board, his duties ....... , ......... , . . . . . . .. 96
Vice-President,
of reserve bank, duties., .......... , ... , ..... ,., ..... 25
Ward, Harry E.,
aids committee ........................ ,.,.,.,.,.,. 3
co-operates in accounting system ........ , •.....•.•.. 101
Williams, Hon. John Skelton.
instructions of , .... , .•.... ,., ... ,.,., ......... ,.... 3
Wolfe, O. H.,
member of sub-Committee on Accounting ..•.... , ..... 101
signs report ... , ................................... 101
Willis, H. P.,
member sub-Committee on Accounting., ........ ,., .101
signs report ...•...... , ................... : ..... ,., .101
Van Vechten, Ralph,
aids committee.,.,.,.,., ............ ,.............. 3
224
@FedFRASER