The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
The Federal Reserve Banks have ncr.7 been in operation about one year. During that time, so much discussion has taken place and so much has been * written in regard to the important features of the Act and the oper ations of the hanks, that one runs the risk of tiresome reiteration in any further discussion of thaicsub,1ect^ Uor can very much he said in regard to the "business actually conducted by the hanks in t: is period, for the volume has been inconsiderable and its char acter of slight importance, compared to the volume and character of the 7/0rk of organization. Few difficulties are presented in employing men and organizing the machinery to enable one bank to conduct i large business. A great many difficulties were presented, however, in organizing twelve banks on very short notice, and so developing their machinery that they will work in harmony and unison. I shall not attempt any detailed review of the methods that have been employed to bring nbout the results so far accomplished. The policy of the system as a whole, has been very largely determined by the Federal Reserve Board as expressed in the various regulations v/hich it has issued* The physical an -mochanical organization of tho b«.nks an:1 the plans for their harmonious operation hrw” "been perfected through fre- 1 Thu transit managers and assistant cashiers. /V It nay he asked %vhy so much time has be on devoted to organization in a hank such as ours, v/hich has but *12,000,000 invested at interest, an<' v/h-re the balance of its as nets, consist sirrply of '1:200,000,000 in cash. In other vrords, why hasten oi'ganization work any faster than thr* b-isiness develops? I think a complete answer to this ''■nostion can bo made by calling yotir attrition to th* r ‘sponsibil- itica v/hich will rest upon this country am’ upon the Foderal Reserve Sinks as an important part o'* its banking machinery, in effecting nec?Fs-.ry readjustments which ultimately mast be made as a result of th-? v/ar. It would bi foolhardy to prophesy what thir process of readjustment will be, but some of the effects of the readjustment I thirk enn bo discerned at this time. People who hnv~ been accustomed to doing business with bonks, to a great extent measure the ability of the benks to me t their liabilities by the an "ant of tho bank's cold re sources. The degree or confidence felt in f * bank by its customers, n/ nay also bo felt in a I'src.o way by an entire nation as to its banking system, and this is particularly trao in thoso conntrios whose banking systems are based upon a central izo<* control of gold reserves which are held by central banks that hare the e'-slusive right of note issue. During this present period, we ar? export ing vast quantities of goods to :)urope and notwithstanding the huge loans which we are extending to foreien nations an? banking insti tutions and notwithstanding our purchases of large amounts of Amer ican securities formerly held abroad, our customers in foreim countries find it necessary to ask tfceir banks to ship us large amounts of those gol<? reserves in payment for their purchases. Since tho £ol<’ movement started in our favor, we have received stbout .^400,000,000 in this ?ry. ilich of this sole, if not all or it, imaediatoly finds lodgement in banks, and to some extent in Ite"erve Banks. Kcjier In other words, our jj>uijui'Ijiuu of reserves to bank /caJtQ liabilities is become unduly large, and the pt'opuitiuu M1ujjuitlrw abroad Is boinc corrospondin#ly roducod* In order 'hat those payments m y he ma^e, thn belligerent nations have^inrtuced thoir citizens to give nn their gold to tho banks, thereby e a a f inr* the brnks to enlarge their loans and note issues at the sane time that they are s? ippinf gold to us* ?ho resnlt is plain enough to be seen: Liabilities, both national and banking in belligerent cen tries, are oat of usual proportion to gold reiserves; oar gold reserves, in a sense, are oat of um al proportion to ^ bank liabilities* 7e% also, know that there is nothine quito so flu it? or which roa/Justs '•uite so promptly as crof'it# In normal times, ’.Then credit be- corses extended and money rates arc abnormally high in one part of the globo, money is attracted to that point* Balances o'* trade, financial operations, the expenditure- of tourists and investment q Z n v m b t &C'&*Shs transactions offset each othor, «1wst as in the clearings at the K Clearing House debits offset credits and bat a very sm all balance is eettled in rrold. Just now, however, in an international sense, the clearings are oat of bal ance. ”’e are pre-enting more checks at th- Clearing House than -5- are being presented against us, the balance-’ are constantly in oar favor and gold moves in air direction in « M a a a u M M d Volume. A '.That will "be the reaction from this development and in what way & .thn ?ed<i!ral Reserve Banks involved in thft/operation? It seoms to ms th^t when the war is over, or at any rate, whenever our export balance of trade disappears, readjustment will begin to tak‘' placo. This •?ill be tho world’ s cheap moeny market. If foreign nations and banking institutions emerge from the war with their credit maintained, normal credit operations will be resumed. Borrowings in this market or sales of goods in this market or the re-sale of securities to this co ntry or xjther international trans actions in such volume or sequence as we cannot now forecast will bogin very promptly to Qujl&JL the return of some part of this gold to restore depleted bank reserves. To express it in the simplest language, those nations and bank in- instituti^-ris which have unduly (eutJt/OfK /£expanded their liabilities, will begin to build up r\ gold re- serves* if they have credit, or the goods, or securities to sell ■nfrsich will enable them to acquire the gold. tine It will be the first in our history, with the exception of the develoTsnpo' +" -6- outbreak of the war, when this country will be called upon, to exhibit its strength and resourcefulness in international f i nance. I feel very certain that with the immense resources in gold now being accumulated by the Federal Reserve Banks, we will be able to bear our part in this readjustment with credit to the country and to the system. tion will occur cannot be prophesied. Just how the opera From the standpoint of the member banks, it Beeas to me that we can feel great satisfaction and assurance, as well as a security never before felt, i i having command of the resources of institutions which can convert bank assets of a liquid character, such as oonmercial paper, into credit or currency at notice. It seems to me that we should then be able to demonstrate, as I have no d;ubt we will, that proper banking machinery will enable us to meet the demands upon our banking resources which may then be made without the shock and confusion and without the humiliation which we Buffered in 1893 and 1^07. 7/hile it would, as I have stated, be hazardous to attemot to forecast the various steps or oder of events by which these adjustments will be required - 7- of us, we can, nevertheless, face with equinimity, the necessity of a large loss of gold if we have gold on hand and in our custody. ' ’TJtjjU/ tOkJa ife ikd&aJL fy& djmtn IIo small part of the work of the last year has been directed toward providing both the machinery and the material means of protecting the interests of member batiks against demands which woy-be made A \ upon them a3 a consequence of the war. It may be that some of our members have allowed their attention to be direct ed too intently upon other considerations than those which are of national, as well as individual, importance. I am reminded of this by a letter just received from a banker in thiB state who calls ipy attention to the dissatisfaction of some of the member banks, aris ing from the possible loss of interest and possible loss of exchange profits, as a result of the gradual transfer of reserves and the enlargement of the collection system. will not I hope the *?*e+iJr&J banks permit this consideration to influence them too strongly in their attitude toward the system and I particularly hope that they do not assume that the difficulties, and all of the difficul ties which they have been discussiig^aTiong themselves are not quite as fully well-known to the management of the 'Reserve Banks. -G- The work of the past year has developed a belief in the minds of ;;iany of us that we have not yet established as close relations with the member banks as are necessary to a complete mutual understating, this being due no doubt, to the engrossing charaoter of the work of organization and the lack of time for more frequent meetings than has heretofore been possible. Steps have been taken, how ever, to overcome this difficulty. At the last meeting of the American 3ankers Association, a National Bank Section was organ ized and an ^ecutive Committee representative of the National bank members appointed. ^his is an encouraging development. For the first time, the entire membership of the Federal Reserve System is organized and has appointed a representative body with which v;e can deal. You will be interested to learn that the of ficers of our bank have already held one meeting with the members of the Executive Committee of the "ational Bank Section. have further arranged for a Conference ’.Ve the Governors of the Federal Reserve Banks with this Committee to be nelu in Washington next week. At the conclusion of the meeting, a joint conference will be held with the members of the Federal Reserve Board. Thus, for the first time, orjportunity is presented for an organ- ization ^ all the member banks to disouss nil of those problems imfIC face to face w*tifc»both the body which supervises the system in A Washington and the officers who are running the banks in the dif- A ferent sections of the country. I am hopeful that these meetings will be productive of satisfactory results. . 7/e, furthermore, have under consideration, a plan by which the Federal Legislative Committee of the American Bankers Association may hold a similar conference sometime during the month of January. These meetings will be devoted to making earnest effort to reconcile conflicting views as to the meaning of the statute and how it should be put A. into practical operation and careful consideration will be given by the officers of the reserve banks to such recommendations as are submitted. the members!^* in this district will accept my assurances, which I earnestly make, that every effort will be given to make the operation of the banks in every way satisfactory to them and -11- to their legitimate interests so far as the law permits. You should not lose sight of the fact that all of our stock is owned % by the member banks, that .'11 of our deposits belong to them, ■ — the member banks elect two-thirds of the directors, by whom the officers are seleoted and our direct responsibility is to our ovm membership. theirs. We have no objects or interests to serve save iT$JUD I hope, lihoiufme, that the various steps which we are taking to put the law into operation, as required by the terms of the statute, can be undertaken with the cooperation of our to/flf ( c m stockholders and that we can doveloo relations of mutual confi- A dence and cooperation.
@FedFRASER