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58
COPY X-7034
October
27, 1931
Federal lie serve Board Topics f o r joint conference of
Mr.
Smead Governors
and P. H.
Agents
The Board's letter X-S940 of August 11 reques ted each Federa l re se rve bank
to advise th e Federal Reserve Board, i n advance of the next joint conference of
Governors
and
Agents,
o f i t s
total expense
i n
handling securit ies
of
member
banks f o r safekeeping during the year 1930, or as close an estimate of such
expense a s could be made. The figures furnished by the Federal reserve banks
a re a s
follows:
Boston $12,486 Chicago $30,000
Hew York 138,000 S t . Louis 13,350
Ph il ad elph ia 50,000 Minneapolis 39,380
Cleveland * Kansas City 25,000
Richmond 4,000 Dallas 4,400
Atlanta #2,400
San
Francisco
500
Total (1 1 banks)319,516
•Bank states that
i t
seems impossible f a i r l y
to
estimate
th e
expense
b u t
that
i f t h e
entire cost
of the
Custodies Function were taken,
plus considerable portions of the cost of Protection, Registered
Mail,
and
Non-Cash Collection Functions,
a
substantial amount
would be arrived a t eas i ly i n excess of $100,000. However, i f
safekeeping f o r member banks were discontinued th e pos i t ive s a v -
ings would
n o t
exceed $1,000
p e r
year.
#Estimated savings i f the safekeeping fun cti on were dis con tin ued .
An examination of the repl ies to the Board's letter which a r e attached
hereto indicates that
th e
figures furnished
by the
several banks
do not
represent i n many instances costs of the same oper at ions. Some banks c o n -
fined their estimates
to a
portion
of the
cost
of
operating
th e
Securit ies
function, while others, in addition, included some of the expenses of the
Don-cash Collection, Registered Mail, Filing, Accounting, Auditing, and
General Overhead functions, under
th e
theory that such expenses
a r e a n c u t -
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— 2 -•
X-7034
growth
of the
banks' safekeep ing oparationls*
f o r
example,
th e
reserve banks
cl ip
a l l t h e
coupons
on
bonds held
i n
Safekeeping
and
then, acting
on
ins t ruct ions from member banks, send most
of
them
o u t f o r
col lec tio n. This
adds materially
to the
expense
of the
Hon—cash Collection function.
For the
Board's information, therefore, there
i s
shown below
th e
cost
of
operating
th e
Vault Custody unit
of the
Securi t ies function
a t
each Federal
re se rve bank. These f igures , which were compiled from the semi-annual
functional expense reports furnished the Board, represent th e cost of receiv-
i n g , vaulting, coupon cutting and delivery of secur i t i es and the maintenance of
th e
immediate va ul t recor ds th er eo f. While these f ig ur es
a r e
thought
t o be a
reasonably satisfactory measure
of the
cost
of the
safekeeping service,
two
points should
he
borne
i n
mind,
( l )
They include
the
cost
of
handling
securities owned
by th e
bank
o r
held
a s
co l la te ra l
f o r
rediscounts, also
s e -
curi t ies held
i n
safekeeping
f o r
Government
and
other o f f i c i a l s . These
securi t ies
a r e
largely Government obligations
and
consequently
th e
cost
of
handling them
i s
relat ively smal l .
(2 ) The
f igures
do not
include
any
expenses
connected with this service incurred elsewhere in the hank, f o r example, i n
th e Registered Mail, Filing, Auditing and Non-cash units. In case th e Federal
reserve hanks discontinued th e safekeeping service f o r member hanks there would
he
some reduction
i n
these costs although
th e
reduction would
no
doubt
be
small
i f
member banks continued
to use the
Federal reserve banks
f o r
collect ing
maturing securities
an d
coupons.
Expense during
1930 at
each
F . R .
Bank (including branches)
of the
Vault
Custody unit of the Securities function
Boston $15,598 Chicago $23,385
New
York 124,218
S t .
Louis 13,341
Ph il ad el ph ia 42,692 Minneapolis 11,583
Cleveland 21,672 Kansas City 10,651
Richmond 8,589 Da ll as 8,794
Atlanta
6,1 12 San
Francisco
2 .931
Total 289,566
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- 3 £ X-7034
The amount of secur i t ies held in custody f o r t h e account of member banks
by each Federal r eserve bank may be helpful to the Board i n this connection and
accordingly such amounts
a r e
given below.
In a few
instances
th e
figures, which
ere taken from th e most recent examination reports available, include certain
securit ies held i n safekeeping f o r Government, State and municipal officials,
nonmember par-remitting banks, e t c .
.Amount of secur i t ies held i n safekeeping f o r member banks, e t c . . by each F.R.
Bank (including branches)
oston (11-15-30) $169,685,000 Chicago (7-18-31) $224,141,000
ew
York
(
4-11-31) 520,863,000
S t .
Louis (1-24-31) 44,936,000
(12- 6 -30) 271,798,000 Minneapolis (2-17-31) 113,305,000
Cleveland ( 3 - 7 -31 ) 164,477,000 Kansas City (6-30-31) 141,488,000
( 3-24-31) 47,258,000 Dal las ( 1 - 6 - 3 1 ) 29,765,000
Atlanta
( 1 0 - 4 - 3 0 )
44,906,000
San
Francisco(6-
6 - 3 1 )
5.223.000
total 1,777,845,000
Deputy Governor Attebery of the S t . Louis bank s t at e s tha t th e following
appears upon each acknowledgement issued to member banks covering securities
l e f t
f o r
safekeeping;
Theft, burglary
and
holdup insurance carried
by the
Federal
Reserve Bank
o f S t .
Louis
i s i n a
limited amount
and
covers
money and negotiable securities owned by the bank i n addi-
t ion to secur i t ies held f o r safekeeping. In the event of
l o s s , th e amount recovered through insurance wi l l f i r s t b e
applied against loss of Federal Reserve Bank property and
only th e excess will b e available f o r p r o ra ta dis t r ibut ion
against losses of member banks. I f a member bank desires i n -
surance protection
i n
addition
to
that outlined above,
i t
must arrange
t h e
same direct with
i t s own
insurance companies.
I n h i s l e t t e r to the Board, Governor Calkins stated that he thought i t
be he lpfu l to the Federal reserve banks i f the Board would inform them
concerning th e circumstances under which th e loss referred to in Board's
etter X-6940-a
was
sustained
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