mss24661_361_004.pdf

The Papers of Charles Hamlin (mss24661)

361_04_001- Hamlin, Charles S., Scrap Book — Volume 180, FRBoard Members

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

205.001 - Hamlin Charles SScrap Book - Volume 180

FRBoard Members


111 BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence Dee July 24, 1941

To The Files Subject:

From Mr. Coe

After correspondence with Mrs. Hamlin (see letters of May25 and June 4, 1941) the items attached hereto and listed below, be-cause of their possible confidential character, were taken from Vol-ume 180 of Mr. Hamlin's scrap book and placed in the Board's files:

VOLUME 180

Page 7Earnings & Expenses of F. R. Banks.

Page 13(X-6006) Re New Clayton Act Regulation and Forms.

Page 17 Memo to Board from Mr. Smead re Report on member bank reserve

requirements.

Page 25 Report of the Open Market Investment Committee.

Page 71 Earnings & Expenses of F.R. Banks.

Page 97 Preliminary memorandum for the Open Market Inv. Committee.

Page 113 Memo to Mr. Hamlin from Mr. Van Fossen re Fiscal Agency Operations

of the Federal Reserve Banks.

Page Total Bills and Securities, by Classes, Member Reserve Deposits,

Monetary Gold Stock, and Amount of Money in Circulation,October 31, 1922.


•. • •

r

EARYINGS MD EXPT=S OF =PAL R7ST.11117 PA717S

March 1928. Total earnings of the Federal re-serve banks in March were $385,000 more than inFebruary, princinalli- because they were accruedfor 2 days more than in the Previous month. AscI mpared with March 1927, there was an increaseof $537,C00.

'Current ex-nenses (exclusive of cost ofcurrency) anregated $2,168,000, as comrared rith$2,137,000 in tha month preceding and $2,145,000in March of laSt year.

First Quarter 192g. ruring the first 3 months ofthe year earnings totaled $11,601,000 as comparedwith

000$10,349,000 for the corresponding period

last :var, end $11,460, for the first quarterof 1926.

Currant exnenses (3xclueive of the cost ofFederal reserve curreno7) emountld to $6,479,000durinE the 3-month period, an increase of about$66,oco over the corresponding p-:riod last y)ar..

After providing for all current expensesend dividend raquirem-nts, the Federal reservebanks on Warch 31 had a balance of $2,740,000available for depreciation allowances, surplus,nnd franchise taxes as comnar,d i-ith a balance of$1,570,000 at the end of Varch 1927.

VOLUME 180 (St. 5752a)PAGE 7

LTJ


0 0 N'FIDENTIAL Not for publication

Federal

Reserve

Bank

Boston

or YorkPhiladelphia

Cleveland

Richmond

Atlanta

Chicago

St. Louis

Minneapolts

Kansas City

Dallas

411L FranciscoTOTALMar. 1928Feb. 1928Mar. 1927

!'onth

Earnings from

Dis- Par-counted chasedbills bills

,1.68,292

434,060

167,360

188,613

93,277

34,u6,

12,630

214,468

1,715,8621,412,4601,453,135

$130,921

281,553

84,759

84,243

41,6'44

369

25,990

34,594

34,7'52 92,159

40,896 71,853

77,8148 91,839

(1;;?• Ki

EARNINGS AND EXPENSES OF FEDESNOPTESERVE BANKS, MARCH 1928.

U. S.securi-ties

$59,788

273,387

97,007

1)40,234

21,711

26,317

192,481

90,024

'54,762

982,810 1,211,562942,402 1,110,802796,634 1,022,947

FEDERAL RESERVE BOARDDIVISION OF BANK OPERATIONS

4.PRIL 13, 1928.C.

•

Othersources

*$476

44,190

*1,809

16,085

1,160

8,160

39,129

3,927

6,024

19,144

1,551

*2,311

86,394145,019186,593

• *Debit.

of

Total

$358,525

984,810

347,317

429,175

157,792

146,453

570,556

207,002

106,084

180,140

126,930

381,8)44

3,996,6283,610,6833,459,309

HALLIN

March

Current expenses

Exclusiveof cost of Total

currency

$149,975

507,269

151,607

207,330

116,369

101,869

310,151

111,322

81,856

137,437

101,080

191,290

2,167,5532,137,3792,144,905

$151,418

545,118

156,874

216,138

120,538

109,035

320,595

116,683

89,211

142,390

101,397

204,653

2,274,0502,255,9672,310,700

$207,107

439,692

190,443

213,037

37,254

37,418

249,961

90,319

16,873

37,750

25,533

177,191

1,722,5781,354,7161,148,609

1928Current nutearnings

Ratio toAmount paid-in

capitalPer cent

25.6

1 2.2

16.4

17.6

7.0

8.5

15.6

19.9

r0.0

10.5

7.0

22.4

14.912.6lo.6

Year

Currentnet

earnings

$481,660

1,254,323

518,364

565,273

196,126

130,562

694,701

238,130

70,754

124,725

107,674

384,2i6

sealti

St. 5752

1928

Dividends

accrued

$141,807

627,313

201,612

212,437

93,698

77,676

277,678

80,136

45,337

63,718

64,246

'40,722

Balance forreserves,surplus,

franchise,tax, etc.

$339,853

627,010

316,752

352,836

102,428

52,886

417,023

157,094

25,417

61,007

43,428

243,494

4,766,508 2,026,380 2,140,128

3,464,386 1,894,127 1,5:!0,259


ADDRESS OFFICIAL CORRESPONDENCE TO

THE FEDERAL RESERVE BOARD

VOLUME 180PAGE 13

• • .C4.4.114i

FEDERAL RESERVE BOARD

WASHINGTON

X-6006

March 29, 1928.

SUBJECT: New Clayton Act Regulation and Forms.

Dear Sir:

There is enclosed for your information a copy of theAct of March 9, 1928, amending Section 8 of the Clayton Anti-trust Act so as to broaden the powers of the Federal ReserveBoard in the matter of granting permits for interlocking bankdirectorates. You will observe that the Board is now author-izea to grant such permits whenever in its judgment it is notincompatible with the public interest, and also that it is nolonger necessary for a member bank to be involved in orderfor the Board to be authorized to grant such permits.

The Board has recently revised its Regulation Lpertaining to interlocking bank directorates so as to conformto the law as amended. This regulation has not yet been print-ed but a mimeographed copy is enclosed herewith for your ad-vance information.

The various forms used in connection with the ad-ministration of the Clayton Act are also being revised an asupply of such forms will be forwarded to you as soon as theycan be printed. Hereafter, all applications should be submit-ted to the Board on the new forms.

Please advise the Board as soon as possible howmany copies of the new regulation and forms you will require.

Enclosures.

Very truly yours,

J. C. Noell,Assistant Secretary.

TO ALL FEDERAL RESERVE AGENTS.


X-6006 -a

FEDERAL RESERVE BOARD

REGULATION L, SECOYD SERIES OF 1928.

(Superseding Regulation L of 1928)

IN=LOCKING BANK DIRECTORATES UNDER THE

CLAYTON ACT

Section I. Definitions

Within the meaning of this regulation--The term "bank" shall include any bank, banl,:inir association or trust

company organized or operating under the laws of the United States or ofany State thereof.

The term "national bank" shall be construed to apply not only to

national banking associations but also to banks, tanking associaticns, andtrust companies organized Dr operating under the laws of the United States,including all banks and trust companies doing business in the District ofColumbia, regardless of the sources of their charters.

The term "resources" shall be construed to mean an amount equal to thesum of the deposits, ca-Dital, sur151us, and undivided profits.

The term "State bank" shall include any bank, banking association, ortrust company incorporated under State law.

The term "private banker" shall apply to any unincorporated indivi-dual engaging in one or more phases of the banking business as that termis generally understood and to any member of an unincorporated firm en-gaging in such business.

The term "Edge corporation" shall mean any corporation organizedunder the provisions of Section 25(a) of the Federal Reserve Act, as amend-ed.

The term "city of over 200,000 inhabitants" includes any city, incor-Tporated town, or village of mere than 200,000 inhabitants, as shown by thelast preceding decennial census of the United States. Any bank locatedanywhere within the corporate limits of such city is located in a city ofover 200,000 inhabitants within the meaning of the Clayton Act, even thoughit is located in a suburb or an outlying district at some distance from theprincioal part of the city.

Section II.Prohibitions ofClayton Act

Under section 8 of the ',1ayton Antitrust Act-- ,(1) No person who is a director or other officer or emoloyee of a

national bank having resources aggregating more than $5,000,000 can legallyserve at the same time as director, officer, or employee of any other

national bank, regardless of its location.


I •- X-6006-a

(2) No person who is a director in a State bank or trust company havingresources aggregating more than $5,000,000 or who is a private banker hav-ing resources aggregating more than $5,000,00L can legally serve at thesame time as director of any national bank, regardless of its location.

(3) No person can leLally be a director, officer, or employee of anational bank located in a city of more than 200,000 inhabitants who is atthe same time a private banker in the same city or a director, officer, oremployee of any other bank (State or national) located in the same city,regardless of the size of such bank.

The eligibility of a director i officeri or employee under the foregoing pro-visions is determined by tae average amount of de-posits, capital, surplus, andundivided profits as shown in the official statements of such bank, bankingassociation, or trust company filed as provided by law during the fiscal yearnext preceding the date set for the annual election of directors, and when adirector, officer, or employee has been elected or selected in accordance withthe provisions of the Clayton Act it is lawful for him to continue as such forone year thereafter under said election or employment.

When any person elected or Chosen as a director, officer, or employee ofany bank is eligible at the time of his election or selection to act for suchbank in such capacity his eligibility to act in such capacity is not affectedby reason of any change in the affairs of such bank from whatsoever cause un-til the expiration of one year from the date of his election or employment.

Section III. Exceptions

The provisions of section 8 of the Clayton Act--(1) Do not a/yoly to mutual savings banks not having a capital stock

represented by shares.(2) Do not prohibit a person from being at the same time a director,

officer, or employee of a national bank and not more than one other nation-al bank, State bank, or trust company, where the entire capital stock ofone is owned by the stockholders of the other.

(3) Do not prohibit a person from being at the same time a class Adirector of a Federal reserve bank and also an officer or director, orboth an officer and a director, in one member bank.

(4) Do not prohibit a person who is serving as director, officer,or employee of a national bank, even though it has resources aggregatingover $5,000,000, from serving at the same time as director, officer, oremployee of any number of State banks and trust companies, provided suchState institutions are not located in the same city of over 200,000 in-habitants as the national bank and do not have resources aggregating inthe case of any one bank more than $5,000,000.

(5) Do not prohibit a person from serving at the same time as dir-ector, officer, or emnloyee of any number of national banks, providedno two of them are located in the same city of over 200,000 inhabitantsand no one of them has resources aggregating over $5,000,000.

(8) Do not prohibit a person who is not a director, officer oremployee of any national bank from serving at the same time as officer,director, or employee of any number of State banks or trust companies,regardless of their locations and resources.


X-6006-a

(7) Do not prohibit a -person who is an officer or em'ployee but not a

director of a State bank from serving as director, officer, or employee

of a national bank, even thouEs;h either or both of such banks have re-

sources ag(;regatin over S5,000,000, provided both banks are not located

in the same city of over 200,000 inhabitants.(3) Do not prohibit a person who is an officer or employee but not a

director of a national bank from servinG at the same time as director,

officer, or employee of a State bank, even though either or both of such

banks have resources acgregating over $5,000,000, provided both banks are

not located in the same city of over 200,000 inhabitants.

(9) Do not prohibit a :private banker or an officer, director or em-

ployee of any bank or a Class A director of a Federal reserve bank from

being at the same time an officer, director or euployee of not more than

two other banks within the prohibitions of the Clayton Act, if there is

in force a permit therefor issued by the Federal Reserve Board.

a-xeptions cumulative.--The above exceptions are cumulative.

Section IV.Permission of the Federal Reserve Board.

(a) In General.- Section 8 of the Clayton Antitrust Act, as amended

by the Acts of May 15, 1916, May 26, 1920, and March 9, 1928, authorizes

the Federal Reserve Board to permit any private banker or any officer,

director, or employee of any bank, banking association, or trust company,

or any class A director of a Federal reserve bank to serve as director,

officer, or employee of not more than two other banks, banking associa-

tions, or trust companies coming within the prohibitions of the Clayton

Act, if in the judGment of the Federal Reserve Board it is not incompat-

ible with the public interest.(b) When obtained.--Inasmuch as this exception to the prohibitions

of the Clayton Act applies only when "there is in force a permit there-

for issued by the Federal Reserve Board it is a violation of the law

to serve two or more banks in the prohibited classes before such a per-

mit has been obtainpd. A permit should be obtainPd, therefore, before

beco:Ilinc„ an officer, director, or employee of more than one baak in the

II hibited classes. It may be procured before the Person op:plying there-

for has been elected as director or appointed an officer or employee of

any bank in the prohibited classes.(c) Applicatiomfor permission.-- •A person wishinc, to obtain a per-

mit from the Federal Reserve Board to serve banks coming within the pro-

hibitions of the Clayton Act should--

(1) Eake formal application on F. R. B. Form 94, or, if

a private banker, on F. R. B. Form 94d. Each cf these forms

is made a part of this regulation.(2) Obtain from each of the banks involved a statement

on F. R. B. Form 94a, which is made a part of this regulation,

showing the character of its business, together with a copy

of its last -)ublished statement of condition, and, if a private

banker, make a statement on F. R. B, Form 94e showing the


X-6006 -a-4-

character of his or his firm's business.(3) Forward all these papers to the Federal reserve agent

of his district, who will attach his recommendation on F. R. B.Form 94b, which is made a part of this regulation, and forwardthem in due course to the Federal Reserve Board.(d) Compatibility with the Public Interest. - In determining whether

the issuance of such a permit would be compatible with the public interest,the Federal Reserve Board will consider:

(1) Whether the banks involved are natural competitors;(2) Whether their having the same directors, officers or

employees would tend to lessen competition or torestrict credit; and

(3) Any other facts having a bearing upon the interest ofthe public in such banks as affected by their hav-ing the same directors, officers or employees.

(e) Approval or disapproval.--As soon as an application is acted uponby the board, the applicant will be advised of the action taken. If theboard approves the application, a formal -oermit to serve on the banks in-volved will be issued to the applicant.

(0 Hearing. - If it appears to the Board that it would be incom-patible with the public interest to grant such permit the Board will sonotify the ap-21icant and will afford him every opportunity to present anyadditional facts or arguments bearing on the subject before making anyfinal decision in the case.

(g) 2ffect of permits. -A permit once granted continues in forceuntil revoked, and need not be renewed.

(h) Revocation.--All permits, however, are subject to revocationwhenever the Federal Reserve Board, after giving reasonable notice to thePersons to whom they were issued and affording them an opportunity to beheard, finds that the public interest requires their revocation.

Section V. Permits Under Section 25 Of The Federal Reserve Act.

V:ith the approval of the Federal Reserve Board, any director, officer, oremmloyee of a member bank which has invested in the stock of any crnyrationprincipally engaged in international or foreign banking or financial operationsor banking in a dependency or insular possession of the United States, underthe provisions of section 25 of the Federal reserve act, may serve as director,cfficer, or employee of any such foreign bank or financial corporation.

A-Dplications for approval.--The approval of the Federal Reserve Board forsuch interlocking directorates may be obtained through an informal ap4icationin the form of a letter addressed to the Federal Reserve Board either by theofficer, director, or em-eloyee involved, or in his behalf by one of the bankswhich he is serving. Such application should be sent directly to the FederalReserve Board.


•X- 6006-a

-5-

Section VI. Permits To Serve Edge Cornorations

With the a-rproval of the Federal Reserve Board--(1) Any officer, director, or employee of any member bank

may serve at the same time as director, officer, or employeeof any Edge cornoration in whose capital stock the memberbank shall have invested.

(2) Any officer, director, or employee of any Edge corpora-tion may serve at the same time as officer, director, or emloyeeof any other corporation in whose capital stock such Edge cor-poration shall have invested under the provisions of the EdgeAct.

Ap-Dlications for approval.-- Such approval may be obtained through aninformal a,y)lication in the form of a letter addressed to the Federal ReserveBoard either by the director, officer, or employee involved, or in his behalfby one of the banks or corDorations involved. Such aoplications should besent directly to the Federal Reserve Board.


•June 27, 1927.

St. 5420,

L44.

TO: Federal Reserve Boexd SUBJECT: Re-ort on member bank reserverequirements.

FROM: Mr. Smead

tut

Under date of 12, 1925, a committee of Federal reserve agents corn-:posed of Frederic H. Curtiss, Chairman, Pierre Jay, Wm, IricC. Martin, and D. C.Wills, submitted a re-oort to the Federal Reserve Board recommending certainchanges in the legal reserve requirements for meelber banks. This committee, afteran extensive study of the subject, came to the conclusion thet the credit systemof the country had become adjuste. to the present level of reserves, that anymaterial change therein would involve readjustments, the effect of which would bedifficult to forecast, and that it was desirable to avoid changes in reserve re-quirements which would. bring about violent changes in the reserves of individualbanks. While the committee preferre-, therefore, not to make any radical changein existing requirements, it recognized that in certain particulars changes weredesirable and recommended:

(1) That the requirements of the Federal Reserve Act relative to memberbank reserves be changed so as to permit the deduction of changes for clearinghouse, checks on other banks in the same place, and of checks in nrocess of col-lection (Whether with Federal reserve banks or corres-eondent banks), from demanddeposits Instead of from bank denosits as at present;

(2) That all member banks outside of New York and Chicago be required tocarry a reserve of 10 per cent on net balances due to other banks; and

(3) That all banks be required to carry a reserve against Government de-.7)osits at the same rate as against demand de-.)osits.

It is generally agreed thet the present total volume of reserves isreasonably satisfactory from a credit standpoint, and consequently it would beboth unnecessary and inadvisable to undertake any revision of reserve requirementswhich would involve a m-,terial raising or lowering of the aggregate reservescarried ”Tith the Federal reserve banks. There are, however, three questions ofconsiderable importance which it is believe' should receive consideration, namely:Are the ?resent differentials in reserve requirements for the various classes ofbanks reasonably satisfactory, or do they result in some banks carrying a largeror smaller Proportion of the aggreate than the character of their denositsjustifies; Should the definition of time deposits be revised so as to check theconversion of demand into time deposits; and Should not the method of computingthe deposit liability on which reserves are required be materially simplified.

It should be borne in mind that one of the fundamental -,rinciples whichwas incorporated in the original national bank act, and which has been followedwithout question ever since, is that banks which make it a practice to solicitdenoSits from other banks and act as their corresT)ondents and, in many cases, astheir reserve agents, are in a sense bankers' banks end are likely to have tomeet unusual withdrawals of deposits whenever there is a tightening in the creditsituation. In recognition of this fact, Congress nrevided that banks located inthe larger financial centers Should be required to carry a higher reserve againsttheir deposit liabilities than lertnks locate elsewhere, which presumbly wouldcarry no material amount of bank deposits.VOLUME 180, PAGE 17


S •- 2

St. 5420.

The reasons prompting Congress to recluire member banks in reservecities to carry higher reserves are believed to be universally recognized assound, and, as a matter of fact, the agents' committee above referred torecognized this by recommending that all banks outside Now York City andChicago, wherever located, be require to carry a 10 per cent reserve againstnet bank deposits.

If it is conceded that banks locate:. in reserve cities should c-rryhigher reserves than so-called country banks, because the former generallycarry subst:ntial deposits of, and act as correspondents or reserve agents for,other banks, it would seem to follow that a more equitable arrangement wouldbe to require a uniformly high reserve to be carried on bank deposits by all banks, wherever located. It is even more imnortant for banks in rural commu-nities, which choose to sat themselves UD as depositaries of other banks, tocarry a high reserve on bank deposits, than it is for banks in the largefinancial centers, since the former usually receive bank deposits from banksin the surrounding territory only, and credit disturbances, vich are frequentlyof a local character, affoct thoi . more seriously thLn they do banks in thelarger cities Which receive deposits from banks located in various sections ofthe country.

To require a. higher reserve to be carried against bank depositsthan on other demand. denosits would, of course, necessitate an amendment tothe Federal Reserve Act. The desirability of making such s change, however,together with the advisability of simplifying as much as possible the presentinvolved method of computing reserves end of checking the marked tendency onthe part of the banks to convert demand dePosits into time deposits would seemto warrant the Board in asking Congress to amend the irovisions of section 19of the Act.

Proceeding on the assumption that the -)resent aggregate volume ofreserves is satisfactory from both the member bank and the Federal reserve bankstandpoint, it is believed that the purposes outlined in the preceding para-graph can be achieved by requiring member banks to maintain reserves with theFederal reserve banks as follows:

1. On total bank del)osits - 13 per cent by all member banks2. On total time deposits - 3 per cent by all member banks3. On net demand deposits - 13 per cent 1)7 member banks in New

York City and Chicago, (except banksin outlyin territory)9 per cent by member banks in all otherF. R. bank and branch cities7 per cent by member banks located out-side F. R. bank and branch cities.

4, U. S.Government deposits - Require all member banks to carryreserves on U. S. Government deposits, the percentage ofreserves. required to be the same as that required on netdemand daoosits.


St. 5420,- 3

It is also recommended that the Act be amended so as to ,provide th- t -

a1."-A eavings account in order to be classified as/time da.posit . must besubject to the following restrictions: (,) It must be the (*posit of an in-dividual or of a religious, charitable or similar corporation and not Lhe clo-)ositof one bank in another or the deposit of a business corporation or firm; (b) apass book, certificate, or other similar form of receipt issued to aniretainedby the depositor must be presented to the bank whenever a withdrrewal is made;(c) the depositor may at any time be required by the bank to give notice of anintended withdrawal not less than 30 days before the withdrawal is mnde; and(d) no withdrawp1 in excess of $500 on any one dry shall be made unless the de-positor has given notice of such intended withdr,,wri not less than 30 deysbefore the withdrawal is made.

2. Certificates of deposit payable on a specified date and not within30 days of maturity shall be classified as time deposits, and all other certifi-cates of deposit Payable on a specified date shall be classified as demanddeposits.

3. All postal savings del-psits Shall be classified as time deposits.

4. Other deposits may be classified as time deposits when, in accord-ance with a written contract entered into with the depositor at the time thedeposit is made, they cannot be withdrawn except on a given date more thFn 30days after the date of the deposit or on written notice which must be given bythe depositor at least 30 days in advance of withdrawal, provided that suchdeposits shall be classified as demand deposits during the 30 days precedingthe withdr,awal date.

5. All other de,)osits shall be classified either as demand depositsor as bank deposits.

6. In determining the amount of net demand e.e72osits on which re-serves are to be computed all member b:nks, wherever located, shall deductbalances due from:, other banks (except Federal reserve banks and foreign banks),items with Federal reserve benks and other banks in process of collection, ex-changes for the clearing house, and checks on other benks in same place, fromtheir gross demand deposits including certified and cashiers' or treasurers'checks outstanding.

The present reserve requirements and the changes suggested are sum-marized as follows:

PRESENT REqUIREYENTS

lInnk Totalde-nosits demand Time _

net deposits* de-eosits Central Reserve Cities(New York City and Chico) 13 13 3

Other Ressrve Cities 10 10 3Country banks 7 7 3

*Fxcept U. S. Government deeeosits on Which no reserve is nowrequired.


• • •_LL -

PROPOSED REqUIREKENTS

St. 5#2O.

Tot7,1 Netbnk dewnd Time

deposits deposits deposits

New York City nnd Chicago 13Other F.R. bnnk & branch cities 13Outside P.R. bnnk & branch cities 13

13 39 37 7

Should the proposed changes be adopte, the amount of deposits sub-ject to reserv3 will be comuted in accordance 7ith the following formula:

BANK DEPOSITS

1. Bal-ncesdue to banks, bankers, and trustcomnanies in the U. S. & foreign countries

YET DEMAYD DEPOSITS

2. Demand deposits3. Cashiers' and certified chocks4. u. S. Government deposits5. Cash letters of credit and trnvelorsf chocks6. TOTAL DEYAYD DEPOSITS (exclusive of bank deposits)

DEDUCT:7. Iilnnces due from other banks (except F. R.

and foreign banks)g. Checks in process of collection with Federal

reserve or correspondent banks9. Exchanges for clearing house10. Checks on other banks in same place11. TOTAL DEDUCTIONS12. NET DEMAND DEPOSITS(cxclusive of brInk de2osits)

TIY,E DEPOSITS

13. Savings accounts14. Time certificates of deposit nayable after

30 days15. Postal savings denosits16. Other denosits Tlayiable after 30 days

17. TOTAL TI E DEPOSITS


I • ••

-5--St. 5420.

Thc effect of the :),bovo chnngcs colrired with present requiremmtshas been calculpted for each call date since Septem'oer 28, 1925, and thechanges are sumarized as follows:

(In

All banks:March 23, 1927Dec. 31, 1926June 30April 12Dec. 31, 1925Sept. 28

New York City and Chicago:March 23, 1927Dec. 31, 1926June 30April 12Dec. 31, 1925Sept. 28

Presentrequiredreserves

Changeresulting

fromproposed

requirements

thousands of dollars)

Reserve cities in which a F. R.bank or branch is located:

March 23, 1927Dec. 31, 1926June 30April 12Dec. 31, 1925Sept. 28

2,219,9842,250,3672,226,7372,167,4952,256,4202,140,351

863,905898,692875,880823,290897,438822,939

653,595647,984654,077647,405655,133637,014

+ 69- 34,334- 31,797- 17,439- 34,647- 11,249

+ 9,736- 5,055- 3,391+ 141- 11,336+ 2,685

+ 11,594- 2,335- 3,363+ 5,477+ 401+ 6,667

Reserve cities in Which no F.bank or branch is located:

R.

March 23, 1927 107,936 - 10,156Dec. 31, 1926 102,116 - 9,677June 30 103,304 - 10,529April 12 103,578 - 10,197Dec. 31, 1925 100,576 - 7,867Sept. 28 98,701 - 7,423

Country banks:March 23, 1927Dec. 31, 1926June 30April 12Dec. 31, 1925Sept. 28

594,548601,575593,476593,222603,273585,697

- 11,105- 17,267- 14,514- 12,860- 15,845- 13,178

Change resultingfrom -proposedrequirements

omitting reserveon U. S. Govern-

ment deposits

- 39,626- 56,714- 52,884- 52,776- 63,609- 37,168

- 5,383- 12,781- 8,546- 8,611- 20,910- 4,697

- 7,474- 13,250- 15,841- 15,837- 14,240- 7,002

- 11,202- 10,449- 11,387- 11,393- 8,904- 8,360

- 15,557- 20,234- 17,110- 16,935- 19,555- 17,109


• •- 6 -

St.5420.

CHANGE IN JA.GGR7GATE RESERVE 1172QUIRE:=TTS. It will be note•f from thetabular statement above that the re'uction in aggregate reserves Which wouldresult from the suggested changes in reserve requirements averages about”3,000,000 on the June and December call dates and about $15,000,000 on theother call dates. Inasmuch as member banks, on the June and December Landates, hold substantial amounts of exchanges for clearing house and other checksin process of collection, for which they have given their de7;ositors credit,a substantial pro-oortion of Which cannot be deducted under present la7a incalculating net deposits on which reserves are computed, it is evident th'tthe figures for June and December arc not representative. It is thought, infact, that the average reduction in reserve requirements in case the abovechanges were adopted would not exceed $15,000,000.

GOVERNMENT DEPOSITS. In ease the Board should feel it inadvisableto ask Congress to modify the law so as to require member banks to carry areserve on Government deposits, as they did prior to June 21, 1917, the re-duction in reserve requirements which would result from the suested changesthus modified would probably average in the neighborhood of $4o,000,000. Aloss of even this much in reserves required could, it would seem, well beafforded if necessary to obtain a more logical method of calculating reservesand more equitable differentials in reserve requirements, especially if, as itis assumed, the new requirements would be more satisfactory to member bp,n1:sas a whole.

CASH LETTERS OF CREDIT AND TRAVELERS' CHECKS OUTSTANDING. TheBoard's present rules covering required reserves of member banks do not requirethe banks to cerry a reserve on let:-.ers of cre(A.t and travelers' checks soldfor cash and outstanding. These letters of credit and travelers' checks are,however, to all intents and purposes, deposits subject to Withdrawal on demand,and for this reason they have been included among demand deposits as shownabove. The Board ap-arently has ample authority under the present law to rulethat member banks should carry reserveson these items, and it is my understand-ing that the banks in Now York City which issue a substantial volume of cashletters of credit and. travelers' checks do carry a reserve against them at thepresent time.

HIGHER RESERVES FOR BAYS IN NEW yoax CITY AND CHICAGO. The rersonfor requiring higher reserves to be carried on net demand deposits by memberbanks in New York City and Chicago than by banks located elsewhere is that thesecities are the two largest financial centers in the United States, the banks dopractically a world-wide business, they carry 12Tge balances both for corres-pondent banks and for large corporations throughout the United States and inforeign countries as well, with the result that a tremendous volume of ..lorkingand surplus funds finds its way into the banks of these two cities. Moreover,a large volume of funds are loaned on call in these cities, especially in NewYork City, and any withdrawal of such funds has to be met by the local banks.

DIFFERENTIAL IN REQUIRED RESERVES 017 NET DT.I.AND DEPOSITS BETWEEN MEMBER 3ANYS LOCATED IN F. R. _BAIT AND BRANCH CITIES AND THOSE LOCATED OUTSIDE SUCH CITIES. Banks in Federal reserve bank and branch cities have immedirteaccess to the cash facilities of the Federal reserve banks and branches intheir respective cities and consequently can safely operate with a much smalleramount of cash in their vaults tlian can banks located in other cities end toms,


•g. 51420.

The ratio of cash in vault to net demand del?osits is normally less than 2 per

cent for member banks in New York City and Chic2go, around 2.4 per cent in other

Federal reserve bank and branch cities, and somewhat under 5 per cent for banks

located outside such cities. Accordingly, the differential of 2 per cent in

reserve requirements on net demand and Government deposits, as between leanks in

Federal reserve bank and branch cities and elsewhere, is necessary to put the

banks, both in and outside of Federal reserve bank and branch cities, on an

approximately equal footing with regard to the total of their legal reserves

with the Federal reserve bank and vault cash requirements.

and REASON FOR MAKING ALL DEDUCTIONS PROF DEMAND DEPOSITS. Under present

laws/the rulings of the Federal Reserve Board, member banks are allowed to de-

duct items in process of collection ahd balances due from other banks from

amounts due to banks in computing their deposits on Which reserves are carried.

All country banks have substantial amounts due from correspondent banks and

of items in process of collection, but they do not as a general rule have any

balances due to other banks. Consequently, the country banks cannot deduct

their very substantial balances with other benks from their deposit liabilities

in determining deposits on which reserves are carried and are, therefore, at

a disadvantage in comparison with banks having substantial balances due to

other banks. As it is impracticable for a member bank to segregate items in

process of collection, which were deposited by customers for credit in their

checkinE accounts, from these received for credit to other banks or to time

deposit accounts, some arbitrary rule has to be followed, and as deductions

clearly should not be made from tieae deposits and could not from bank depositsin the case of country banks (which have no such deposits) it follows that thededuction, if it is to be availed of by all member banks, can as a practicalmatter be made only from demand deposits. In so far as balances due from

banks are made up of collected funds, the deduction of such balances from de-

mand deposits is perhaps not entirely logical, but as a real country bank hasno bank deposits from which a deduction can be made, the deduction, if made,must be from its demand deposits.

ALLOWANCE FOR CURRENCY IN TRANSIT IN CMPUTING REQUIRED RESERVES.The differential of 2 per cent in the porcettage of reserve required on net

demand deposits for banks located in Federal reserve bank or branch cities andthose located elsewhere, in recognition of the fact that banks in Federal re-

serve bank and branch cities can carry a smaller vault cash reserve, would seem

to be sufficient justification for discontinuing the present practice of someof the Federal reserve banks of allowing for currency in transit in computing

required reserves.

EFFECT OF ABOVE CHANGES UPON - REQUIRED RESERVES OF INDIVIDUAL BANKS.While the above-suggested changes would result in a slight decrease in the

aggregate reserves with the Federal reserve banks, the effect would not beuniform on all member banks. Banks in central reserve cities would not bematerially affected. They would have to carry a reserve on Government de-posits, but in many of such banks this would be offset by the additional de-

ductions allowed in computing deposit liabilities. In the case of reserve citybanks, apart from the increase in reserve arising from the requirement of re-

serves on Government deposits, the effect will be determined by the proportion

of bank deposits to total demand (including bank) deposits. If a bank is


s.:

located in a Federal reserve bank or branch city, its requited reserve willbe reduced if the amount of its bank de..00sits is less then 1/3 of its net de-mand deposits exclusive of bank deposits, and will be increased if the pro-portion of bank deposits is larger. In the extreme case, which, of course,would not occur, of a benk all of whose demand deposits were bank depeeits,the required reserve would be increased by 30 per cent. Inasmuch, however,as all of the banks carry a substantial amount of demand deposits other thari,bank deposits, it is apParent that the proposed change would not greatly in-crease the required reserve of any bank in a reserve city. If a bank islocated in a city now designated as a reserve city but in which there is noFederal reserve bank or branch, its required reserve on demand (including bank)deposits would be reduced unless its bank deposits were at least equal to theamount of its net demand deposits exclusive of bank deposits. In the fore-going it is assumed that banks in reserve cities at the present time have anet "due to" banks. In any instance where this does not hold true, therewould be a further reduction in the reserve requirement by reason of the factthat the bank would. be permitted to deduct all of its "due froms," exchanges,and other items in process of collection from its deposit liability.

When it comes to country banks, the situation is somewhat different.The great majority of country banks would benefit materially by the proposedchange as it would permit them to deduct all of their "due froms," exchanges,and other items in process of collection from their deposit liabilities with-out any offsetting increase in their required reserves as most of them carrypractically no bank deposits. In the case of those country banks which carrya substantial amount of bank deposits, however, the effect would be to in-crease their required reserves. A bank which had all of its demand depositsin the form of bank deposits could theoretically have an increase of g5.7 percent in the required reserve on such deposits. A bank, however, whose bandenosits did not exceed approximately 55 per cent of its deductible itemswould have a reduction in its required reserve. There crc a number of so-called country bPnks which do carry very substantial amounts of bank depositsand it is from these banks particularly that opposition to the above-suggestedchanges would come. If the principle upon which the sugestec', chenges arebased is correct, however, it would not seem thyt the omosition of a num10041,of banks scattered throughout the country which have substantial amounts ofbank deposits, but which are not carrying an adequate reserve thereon, ihouldbe allowed to prevent a necessary revision of reserve requirements.


April 29, 1926.

Re.-Dert of the Open 2arket Investment Committee.

The Committee has considered the memorandum submitted by the

Cheirm:41, tlnd has carefully revieed the Open Us,rket cperaticns bf the

!.73retell since the last meeting of the Committee, in the light .of the

general credit situation referred to in the memcrandum.

In view of the fact that it now appears that the ex::ansion

in the tctal volume of bank credit, referred tc in its last repert,

has continued at what Gees to be an unduly rapid rate since that

time, notwithstanding the sales of securities made by the Com:aittee

and the recent increase in the discount rates of some of the Reserve

Banks, the Committee now recormends that the general policy adoptec

. at its last meeting be continued until its next meeting, which it

-sould expect to had Shortly after the middle of June, unless con-

diticne make an earlier meetinr advisable.

The Committee would expect to make such changes in the Open

'arket account as might be necessary to carry out the policy recommended.

VOLUME 180PAGE 25


U.

• • •

Cf.":51 ntrT AI April 27, 1928.

Frelizinary !emorandiam for the Open Iertet invcstent Cen=itteu.

Since the last meeting ef the Ccmmittee on 'arch 2t, 19E, there

has been a renewed expansion of bank credit, lamely in the ferncf loans

en stccks and bends. Changes in the louns and investments of re!lortille

member basks are stomarized below:

Cc:mercial loans 'leans on stocks and bondsInvestrents

Total

1110 •11.

411.

IMP

010

(in =Miens of dollars)''arch ka-11 18 OILLve,

8,5366,334_6.655

6,6936 618

+134A-359-

21,925 22,3C1 +456

This increase cocurrec lcrEely at the end of jarch and in the

early part of April, but it is not clear that the tendency toward ex-

-,aLsion has been checked ze yet, notvithstendinc a considerable rise in

money rates during the month.

Since !arch 26, further sales of ap:Toximately f1.19,,,030 of

securities from the System account have Leen made, reducinc the &mount in

the open mar:cat pertfclio from i273,000,OCO to t1t4,L. Ti ;Adition

there has been a lcse to the marltet of about Uhrcuch gcle

experts and earmarking since the last meeting, and reserve retjaireueote

member banks have ben Increased approxivately tt0,0,C,Ca_ as the re-

sat of credit expansion. The combine( effect hap been to 'ma'am*membcr bank indebtedness at the Reserve Pcnks by over #10C,CCO,000

durinr the rast five weeks, and money rate2 in gennral have advanced.


•

2

Changes in rates since Varch 26 are as follows:

Call money

March 264 1928 April 27, 1M

4 1/2

Tir3e money, 90-day - 4 5/8 3/1.:

Coratrcia paper 4- 4 1/4 4 1/2

Biller 90-day -------- 3 1/2 7/8

Call Mopey,!:!strket

Call rozney advanced to 6 per cent early in At)ril pertly as the

result of Caster currency requirements and the usual first of the month

flow of funds to the interior, but subsequently declined to 4 1/2 per

cent on several days around the middle of the month, due to a heavy flow

of funds to New Yor from other districts, which apeers to have been

accompanied by renewed borrowing by member banks outside of l'ew York.

Following the advance in the ref:Account mte of several Reserve

Banks from 4 to 4 1/2 per cent in the latter part of Aixils there wmo some

withdrawal of tunas from New York, indebtedness Of New York City bunks was

increased, and cull money advanced to S per cent.

Cammercial_tcyrowinir„andIhe Cpnditign .9f Pusinsga

The increase in cereserci.4 loans of reporting bens from the end

of Janutiry to the middle of April was unusually large this year, and it

new apkears that rocuimnente ore tendine to eiminieh. Productive nctivity

appeEirs to be fairly stable followinga rapid recovery in a number of

In

irLnortanL industries earlier in the year, and trade has beenmoderate

volurNt.


• •

Ccn;ausione

1. An excessively rapid increase cf bank credit has occurred durinf

the past Llonth, end it is nct clear that the tendency teward

ex2snsion has Leen halted.

"oney rates have advanced further as the result of security sales,

gold losres, and increased reserve requirements.

The advance in discount rates of five Reserve Banks appears to

htive resulted in acme withdrawal or funds from New Ycrk, and

thus tc have assisted in preventing noftness in the rew Yerk

money martet.

4. The highest point of seasonal business credit requirements has

probably psssed and thcal) is no indication that the tighteninE cf

the money mcrket has interfereC with the extension of all

necessary credit to business.

Ieter the ray first interest and dividend reolirements have been

met, the normal tendency would Ls toward easier rates.


REPORT OF THE SECRETARY OF THE OPEN MARKET INVESTMENT COMIIIT'IE.E.TO THE GOVERNORS' CONF=NCE. APRIL 30. 1928

The holdings of Government securities in the Special Investment Accountat the time of thelast Governors' Conference, held in. Washington in November 1927,amounted to approximately - 3375,000,000Since that time there have been several changes in the amount oftotal holdings in the account as follows:

1 927

C.; Dec. i.ccount increased by purchase of345,000,000 Government securities to offset in partthe loss of funds to the market due to earmarking andshipping of gold for foreign correspondents, whichfrom the latter part of October 1927 to the first ofJanuary 1928 amounted to 3194,000,000. (Further ear-marking and shipping of gold since the first of theyear has amounted to 3121,000,000 net, making the totalamount of this gold movement since last October about3315,000,000.)

These purchases of Government securities, amounting to 348,000,000 weremade under authority given the Committee at the meeting held in Washing-ton on November 1, 1927, and increased the total holdings in the accountto about 3423,000,000

1928

Account decreased by Sale of3150,000,000 Government securities under authoritygiven to the Committee at the meeting held inWashington on January 12, 1928, at which time theCommittee was charged with the policy of workingtowards somewhat firmer money conditions, and asfar as necessary to check unduly rapid further in-creases in the volume of credit.

These sales of Government securities amountin,T, to 3150,000,000 de-creased the total holdings in the account from 3423,000,000 to - - - $273,000,000

:rch &Account further decreased by sale of about

3103,000,000 Government securities under authoritygiven to the Committee at the meeting held inWashington on March 26, 1928, at which time theCommittee was charged with the program of makingmore effective, prevailing rediscount rates ofthe Federal reserve banks.

These additional sales amounting to about 3103,000,000 decreased thetotal holdings in the account, as of close of businessApril 25, 1928, to ''2170, 000, 000


• •2

Other principal transactions effected in the account since last November(which either did not change the total holdings or changed them only temporarily)consisted of

November 1927 - Exchange in the New York and Chicago markets of

$54,098,800 U. S. 3 1/2% Treasury Notes due 1930-32 and25,000,000 " " 4 1/4% Fourth Liberty Loan bonds for

$79,098,800 a like amount of short-term Governments; .the greater portion of which consisted of3 1/8/. certificates maturing June 15, 1928.

December 1927 - Sale of 092,575,000 4 1/2% Treasury notes maturing December 15,1927 to the fiscal agent of the BritishGovernment to be used by them in making pay-ment to the United States Government accountBritish Government Debt. About '058,000,000of these certificates were acquired fromforeign correspondents on December 15 for re-sale to the Agent of the British Government'and we purchased from the latter, in exchange,a like amount of 3 1/27. Treasury notes dueMarch 15, 1932,

December 1927 - Sale of 037,560,C00 short-term Governments to foreign corres-pondents to partly replace their holdings of4 1/2% notes which matured December 15, 1927against which sales offsetting purchasus ofother issues of short-term Governments hadbeen made.

December 1927 - Exchange inthe marketof about 060,000,000 of the 3 1/2c/40 Treasury notes due March 15,

1932 acquired from the fiscal agent of theBritish Government for a like amount of theshorter-term Governments.

January 1928 - Sale onJan. 4 of $22,000,000 3 1/4% certificates of indebtedness due

March 15, 1928 to the fiscal agent of theBritish Government. This sale was re -placed by purchase of other issues of short-term Governments in the market.

January 1928 - Exchange inthe marketof $45,000,000 4 1/4;1. Third Liberty Loan bonds for a like

amount of short-term Government paper.These Third Liberty Loan bonds were sold tosatisfy the demand in tho market for thisissue of bonds to be used in connection withthe exchange for new 3 1/2% Treasury notesdue December 15, 1930-32 under the Treasury'sexchange offering.


•3

January 1928 - Exchange of 0100,000,000 4 1/4% Third Liberty Loan bonds for alike amount of the 3 1/2/. Treasury noteSdue December 15, 1932 under the Treasury'soffering. This exchange was in accord-ance with the action taken at the Commit-tee meeting held in Washington on January12.

Fe'pruary 1923 - Exchange inthe marketof 6e 41,000,000 3% certificates maturing March 15, 1926

for a like amount of the 3 1/8% certifj.-cotes maturing June 15, 1928 and 3 1/4%certificates maturing December 15, 1928)in order to meet the requirements of uurforeign correspondents.

March 1923 - Exchange withfiscal agentof BritishGovernment of $30,000,000 3 1/4% certificates of indebtedness dug

December 15, 1928 for a like amount of37. certificates maturing March 15, 1928.The latter issue of certificates togetherwith 34,125,000 of the 3 1/4% certificatesmaturing March 15 were sold to the Treas.ury for redemption during the periodMarch 8 to March 14 inclusive, and worereplaced in the account by purchase ofother issues of short-term Governments.

March 15, 1928 - Sales toTreasury of 3 23,768,500 Juno 3 1/4 certificates for account of

Alien Property Custodian and Mixed Claimsin exchange for a like amount of the new3 1/45 certificates due December 15, 1928which they had acquired by subscriptionin exchange for their holdings of March15 maturities. This exchange was effect-ed in order to accommodate the Treasurywith the shortest term Government paperfor these Treasury accounts.

March 15, 1928 - Sales toforeigncorrespon-dents of 0105,000,000 short-term Governments, principally

3 1/85 certificates maturing June 15,1928 in partial replacement of theirholdings of March 15 maturities.

These transactions constitute a total turnover of more than 0600,000,000.

On November 25 the Federal Reserve Bank of Minneapolis, due to its reserveposition, sold 05,000,000 of Government securities from its participation in theSystem Account. These securities were apportioned to the other participating


banks and a like amount of bills was sold them by the New York bank from itsportfolio.

On December 2 the Federal Reserve Dank of Dallas, due to its reserveposition, sold $5,000,000 of Government securities from their participation inthe System Account. These securities wore apportioned to the other participat-inc banks, and the Federal Reserve Dank of New York sold to Dallas from itsportfolio 35,000,000 bankers acceptances.

On January 5, 1928 the Federal Reserve Dank of Atlanta, due to an antici-pated loss in their gold settlement fund, requested that they be temporarily re-lieved of $3,000,000 Government securities from their participation in the SystemAccount. Due to the fact that this request was received too late in the day to:aake apportionment, these securities were purchased by the Federal Reserve Dank OfNow York on January 5 and apportioned to the other participating banks on January6. The Reserve Dank of Atlanta repurchased these securities on Saturday, January7.

Attached are statements showing:

Exhibit A - Participation of Federal reserve banks inSystem Special Investment Account Governmentsecurities and classification of issues heldin the account by maturities as of close ofbusiness April 25, 1923.

Exhibit B - Statement showin; earning asset holdings of allFederal reserve banks April 25, 1928, as com-pared with previous weck and April 27, 1927;also weekly average of earning assets fromDecember 28, 1927 to April 25, 1928, as comparedwith corresponding period 1927 and entire year1927.

Exhibit C - Statement showing actual earnings of all Federalreserve banks for the first three months in 1928.


• I •

Exhibit "A"

STATELIENT SHOWING PARTICIPATION r Y FEDERAL RESERVE TANKS IN SYSTEMSPECIAL INVESTMENT ACCOUNT AND CLASSIFICATION OF ISSUES HELD

APRIL 25, 1928 IN 'IHE ACCOUNT DY MATUILITIES

Boston '3 13,130, 500 Dec. 15, 1928 - 3 1/0. C/I ( old) 361, 239, 000

New York 45,155, 800 Dee. 15, 1928 - 3 1/45 " (new) 32, 818, 500

Philadelphia 12, 251, 500 June 15, 1928 4- 3 1/8% " 13,140, 000

Cleveland 14,177, 500 March 15, 1929 - 3 3/8% it 1.9, 450, 000

Richmond 4,541,000 March 15, 1932 • 3 1/2%, TiN 13, 990, 000

Atlanta 3, 991, 500 Sept. 15, 1932 - 3 1/4 n 5, 000, 000

Chicago 26, 212, 500 Dec. 15, 1932 - 3 1/2% " 24, 440, 800

St. Louis a, 660, 000

Minneapolis 6, 570, 000

Kansas City 11, 540,000

Dallas 9, 227, 000

San Francisco 14, 621,000

Totals 3170, 070, 300 470, 078, 300


• 0 Exhibit .B.STATEMOT SHOWING EARNING ASSET HOLDINGS OF ALL FEDERAL RESERVE BANKS APRIL 25, 1928 COMPARED WITH PREVIOUS WEEK AND APRIL 27, 1927; ALSO WEEKLY AVERAGE

OF YARNING ASSETS FROM DECEMBER 281_1927 TO APRIL 25, 1928 AS COMPARED WITH CORRSPONDING PERIOD 1927 AND ENTIRE YEAR 1927 (000 Omitted)

Bills Discounted - April 18• • • 25

Net Change

Bills Purchased ss April 18" 25

Net Change

Government Securities - April 18m 25

Net Change

Total Yarning Assets - April 18N

" 25

Net Change

Comparison of Weekly Averageof Earning Assets

Boston New York Phila. Cleveland Richmond Atlanta Chicago St.Louis Minn. Kan. City Dallas San Fran. TOTALS

$56,39641,317

15,079-

67,38450,926

16,458-

16,14613,838

2,308-

139,926106,081

33,845-

109,24373,43879,546

35,805+29,697+

106,08149,529

56,552+

$153,029242,617

89,588+

82,32895,264

12,936+

67,52654,635

302,883392,516

89,633+

321,348248,643282,822

72,705+38,526+

392,516226,869

165,647+

$48,19144,211

3,980-

30,11032,385

2,775+

29,59227,439

2,153-

107,893104,535

3,358-

114,88878,72888,085

36,160+26,803+

104,53580,884

23,651+

$57,25156,249

1,002-

29,67833,115

3,437+

42,97840,486

2,492-

129,907129,850

57-

132,798110,071

111,895

22,727+20,903+

129,850106,796

23,054+

$33,35936,408

3,049+

li,33715,836

2,499+

6,4935,694

799-

53,18957,938

4,749+

58,83839,76055,679

19,078+3,159+

57,93838,921

19,017+

$42,71747,730

5,013+

15,59218,880

3,288+

7,8497,107

742-

66,15873,717

7,559+

50,26046,78449115

3,476+1,145+

73,71750,294

23,423+

$74,298

97,544

23,246+

39,93741,345

1,408+

52,74647,170

5,576-

166,981186,059

19,078+

177,720159,101155,812

18,619+21,908+

186,059144,173

41,886+

$41,43734,656

6,781-

4,4973,667

830-

26,80725,285

72,74163,608

9,133-

64,79952,99659,695

11,803+5,104+

63,60863,857

249-

$14,09013,867

223-

15,19118,490

3,299+

15,30914,155

1,154-

45,58047,502

1,922+

3311:249035,537

6,799+2,752+

47,50235,255

12,247+

$23,36919,448

3,921-

13,37514,797

1,422+

26,60124,273

2,328-

63,34558,518

4,827-

57,31052,32355,562

4,987+1,748+

58,51854,557

3,961+

$ 8,7059,471

766+

14,57814,427

151-

21,76820,372

45,05144,270

781-

46,31039,97646,416

6t1::

44,27040,134

4,136+

$66,775

65,555

1,220-

24,74926,209

1,460+

26,87124,301

2,570-

118,395116,065

2,330-

111,458108,705100,415

2,753+11,043+

116,065114,308

1,757+

$ 619,617709,073

89,456+

350,756365,841

15,085+

340,686304,755

35,931.

1,312,0491,380,659

68,610+

1,283,2611,042,0151,120,579

241,246+162,682+

1,380,6591,005,577

375,082+

Dec. 28, 1927 to Apr. 25, 1928Same period 1927Zntire year 1927

Net Change from same period 1927a a " entire year 1927

Comparison of Earning AssetsApril 25, 1928April 27, 1927

Net Change

SUMMARY FOR SYSTEM Bills Di3counted for week $89,456+Bills Purchased for week 15,085+

Government Securities for week 35,931-Total Earning ASSetS for meek 68,610+

Comparison of Weekly Average of Earning Assets Dec. 28, 1927 toApril 25, 1928 with same period 1927 241,246+

Comparison of Weekly' Average of Earning Assets Dec. 28, 1927 to. April 25, 1928 with entire year 1927 162,682+

Comparison of Earning Assets April 25, 1928 with April 27, 1927 375,082+


••

( 06040) ee

Exh lb it "C"

STATEMENT SHO'IING Acifrupi EARNINGS OF ALL FEDERALRESERVE BANKS OR THE FIRST THREE MONTHS IN 1928

,iv.-1ilD1e f rdepreciat icnallowan ces,

Federal Net deduct ion reserves,Reserve Gross current from current surplus and

Bank Earn in g s Expenses net earn ings franchise tax

Boston 941,712 460,053 148, 6 59 ,;‘,, 333,000

lew York 2, 86 7, 040 1,612, 716 523, 415 530, 909

?1^_ il ad e, 1 ph ia 1, 037, 989 519,625 220,595 297,769

Cleveland 1, 235, 741 670, 469 223, 874 341, 398

R icIlmon 0 547,427 351,302 105,208 90,917

Atlanta 438, 46.0 307, 898 74, 323 55, 739

Chicago 1, 5 70, 46 7 975, 767 295, 387 399, 313

St. Lou is 577, 304 339,174 76,000 152,130

Minneapolis 330,070 259,316 55,878 14, 85 7

Kansas City 547,587 422,862 57,775 66,950

Drillas 415,168 307, 493 74, 820 32, 855

San Fran c is ec 992 044 607 828 1 51, 005 233,21l

Total fil1,601,009 '6,834, 503 IV: 107, 439 .e2,659, 067

Total for same period 1927 31,570,259 ••

•


• 6-) 1/EARNINGS AND EXPENSES OF FEDERAL RESERVE BOKS

APRIL 192S. Total earnings of tho Fedora' re-serve bam:s in Arril were - 7.0,000loss than in March but

$53I II

0,000 m .y$_ .April 1927. An incre-%se during tho month of,,;4149,000 in earnings from discounted bills andof $54000 in purchased bills wn.s more than off-set by yawlcrease of $.2(Dg,000 in earnings fromU. S. securities and of $366,000 in miscellaneousearnings. The reduction in miscellaneous earn-ings was due principally to losses on TroasuryI. tes and certificates sold.

aurrent expenses (exclusive of cost ofFederal reserve curroncy) ar;gregated S2,136,000,as compared with $2,16S,000 in the month preced-ing and $2,159,000 in April of last year.

FIRST FOUR MONTHS OF 1098. During the first fourmonths of the year eanlings totaled $15,526,000n.s compared with $13,S43,000 for the correspondingperiod last year, and $15,334,000 for the firstfour months of 1926.

Current expenses (exclusive of cost ofFedel-al ruserve currency) amuunted to $8,615,000durin,-; the four-month TADriod, an increase of about$43,01',0 over the corresponding period last year.

After proviaing for all current expenses anddividend requiroments, tho Federal rserve bankson Aa!il 30 had a balance of $3,751,000 availablefor dolJreciation allowances, surplus nnd frnnchisetaxes as comrarad with a balanee of t1,901,000 atthe end of April 1927.

VOLUMF 180PAGE 71

(St. 5784)


Mr. Hanlin

CONFI DENTIAL

Not for public-tion

•

EARNINGS AND EXPLNSES OF FEDERAL RESERVE BANKS, APRIL 1928.

/34

St. 5784

1

Federal

Reserve

Bank

:

Month

Earnings from

. Dis-

I Fur-

I U. S.

counted

chased

seauri-

bills

bills

ties

of

April

1928

Year

-

1928

Other

1 Total

sources

Current

Exclusive

of cost of

FR cuxrenc

Boston

411/New York

Philadelphia

Cleveland

iiichmond

Atlanta

Chicago

St. Louis

Minneapolis

Ilkansas City

Dallas

San Francisco

$149,983

$156,235

677,538

175,204

201,800

113,777

123,8C7

292,289

109,217

32,159

61,297

25,616

202,493

291,166

83,931

4

91,863

4c,159

48,092

118,923

12,096

45,636

38,893

41,178

67,712

$48,086 *$27,732 J26,522

187,726 t95,595

1,060,835

85,623 *27,293

317,525

125,235 *22,026

396,872

4 148,435

508,62

148,165

202,224

18,136

*7,340

165,334 114,306

22,576

164,123

76,710

47,567

82,675

65,047

79,621

*932 193,543

*18,516

*19,028

*7,721

*4,584

*20,032

98,801

556,819 294,315

178,995

117,641 80,490

178,286

111,809

107,018

138,270

100,386

expenses

1ITotal

Y I_

i ()torrent

net

$150,465,

538,590

151,664

209,918

116.640

105,400

306,486

111,591

83,235i

141,4521

100,661

*29,094

320,732

194,602

TOIAL

Apr.

Apr.

1928

2,165,240

1928

1,715,862

1927

1,474,262

FEDERAL =RV:3 BOARD

DIVISION OF BANK OPERATIONS

MAY 14, 1928.

203,595

1,036,469 1,003,127 *279,943 3,94,913

962,610 1,211,562 66,394

3,996,628748,735

977,361 93,602

3,293,960

r,.

*Deb i'A+

2,135,874 2,219,697

2,167,555 2,274,050

3.59X7 2,320,965

i6 '057

4522,245

165,861.

186,954

48,694

86,143

250,333

67,404

34,406

36,834

eftrnings

!Ratio to

.mount paid-in

capital

Per cent

22.0

14.9

14.7

15.9

9.5

20.7

16.8

15.4

13.8

10.6

11,148

3.1

117,137

1,76,"21G1,722,578

e,995

13.6

Current

net •

earnings

Dividends

accrued

Balance fcr

reserves,

surplus,

franchise,

tax, etc.

15.1

14.99.2

i;657,717

1,776,568

684,225

752,227

244,820

218,705

945,034

305,534

105,160

161,559

14,0,290

501,354

6,463,13

4,437,379

$190,431

839,898

270,226

283,755

124,953

103,443

368,358

106,704

6o,474

84,915

85,821

.193,109

2,712,087

2,536,021

$467,286

936,670

413,999

468,472

119,867

115,262

576,676

198,830

44,6E:6

76,644

24;469

308,245

3,731,106

1,901,358


•

.,C4t/4.it

Pq7Confidential May 24, 1928.

Preliminary Eemorandum for the Open Earket Investment Committee.

Operations conducted since the meeting at the and of April have

.been successful in increasing materially the indebtedness ofmomber banks,

especially New York City members, and in tightening further the New York

money market. Changes in member bank borrowings are summarized below:

(In millions of dollars)

New York City All Other

Member Banks Yember Banks Total

April 28 172 572 744

1,:ay 21 272 608 880

The increase in the indebtedness of all member banks at the

reserve banks incrcased about 140 million during the three weeks, due chief-,

ly to the following factors:

Reduction in the System Account from :154,000,000

on April 27 to ,,100,000,000 on 1.:ay 23.

Gold loss through additional earmarkings of 68 1/2

million and net exports of 16 million.

Reduced buying of bills and consequent reduction

of about 25 million in Reserve Bank bill holdings.

As the tabulation above indicates, most of the increase in member

bank borrowing has been by New York City banks. Advances in discount .

rates of five Resei.ve Banks from 4 to 4 1/2 per cent in the latter part of

April appear to have greatly assisted in keeping funds from flowing to

New York, and consequently helped to make effective the further sales of

securities in the New York market. The result is apparent in the course

of money rates previous to the advance in the discount rate of the

New York Reserve Bank on Yay 18. The advance at New York after New York

VOLUME 180PAGE 97


•2

City members had been placed heavily in debt at the Reserve Bank has been

effective in tightening the money market further. Present money rates

and changes since the latter part of April and since the latter part of

last October are indicated in the following table:

Ch.v anze Since

May 23 April 27 Octoper 28

1928 1928 1927

Call money 6 + 1 + 2 1/2

Time money, 90-day 5 1/2 + 1/2 + 1 1/4

Commercial paper 4 0 - 4 3/4 + 1/8 + 1/2 - 3/4

Bills, 90-day 4 - 4 lib + 1/8 - 1/4 + 3/4 - 7/8

These rates are the highest for the time of year since 1923. It

is evident that rates on security loans have been advanced much more than

rates on commercial borrowing, which is in keeping with the nature of creCit

expansion in recent months.

Loans on Stocks and Bonds

Notwithstanding the substantial increase in interest charges on

security loans, such loans have continued to increase rapidly. A further

increase of over 350 million during the past three weeks has carried the

total of loans to brokers placed by New York City banks to 4 0 billion

dollars, an amount 800 million higher than in the first week of March, and

nearly 1,600 million or 55 per cent larger than a year ago. Changes in

these loans during the past three weeks are summarized below:

(In millions of dollars)

Loans placed:April 25 Eay 16 Change

For own account- 1,200 1,312 + 112

For out-of-town banks 1,614 1,655 + 41

For others 1,331 1 535 + 204

Total 4,145 4,502 + 357

Most of the increase during this period has been in loans of


3

New York banks for their own account, and in loans for others than banks.

The heavy indebtedness of New York banks, together with the recent advance

in the discount rate of the New York bank, should give these banks an in-

centive to restrict their lendings.

It is too early to determine the effect of this latest move in

checking credit expansion. The movement of stock prices, which rather than

the volume of trading has caused the expansion of security loans, has been

highly irregular during the past week, - evidence of fairly heavy liquidation

on several days has been followed by a recovery.

Interdistrict Eovement of Funds

The flow of funds to and from the New York money market is also an

important factor in the extension of credit for stock trading purposes. It

has been apparent in more than one instance since the beginning of this year

that an inflow of funds to New York ha e largely offset the effect of open

market operations; it has been apparent also that banks in other parts of

the country as a whole have had no surplus funds since the end of January,

but that these transfers were accompanied by increased borrowing by member

banks outside of New York.

The accompanying chart shows the atcumlative movement of funds

to and from New York City banks since April 18, the date that marked the

culmination of a heavy inflow of funds to New York, and that just preceded

the beginning of Reserve Bank advances in discount rates. Call loan renewal

rates also are shown.

The decline in call money renewals to 4 3/4 at the beginning of the

period, together with Reserve Bank discount rate advances in several dis-

tricts, appear to have caused some withdrawal of funds from New York until

the end of April. The usual month-end inflow and subsequent outflow fol-

lowed, and recently some movement of funds to New York has accompanied 5 1/2


Sp 1659

PER CENT7 -

C6ii Loan kentaI

NZ8MILLIONS 9/DOLLAR3+50+25

L

191924921 23 24 2526 272830 1 2 3 4 5 7

April

I I 1.4\n-1

It _t I I 1_1_

9 10 11 12 1* 15 16 17. 18 19 .21 22 23

May

7 _.;-! A!nt ,f ?..mds to and fr3n

sinc^ 18th


•

•

to 6 per cent call money. This lat,:st inflow thus far has been moderate,

but the further rise of money rates since the discount rate of the N ew York

Reserve Bank was advanced may tend to draw funds more heavily toward New York.

Conclusions

1 - Further Reserve Bank security saies, restriction of bill pur-chases, and gold loss have substantially increased member bankinT4ebtedness, and have caused a further advance in money rates.

2 - Advances in discount rates of several Reserve Banks other thanN6W York, most of which occurred in the latter part of April,appear to have been effective in preventing a further flow offunds to the New York money market, and in confining the in-crease in member bank indebtedness largely to New York.

3 - The increase in indebtedness of New York members and the rise inmoney rates previous to the advance in the discountrate of theNew York Reserve Bank did not check the expansion of credit usedfor security trading purposes.

advance in thediscount rate of the New York bank, afterNew York member banks had been placed heavily in debt, hasresulted in a further tightenins of the New York money market.

5 - This further advance in money rates may tend to attract fundsfrom other sections of the country, which would neutralize theeffect of further security operations.


4

Form No. 131. •

Office CorrespondenceTo __Mr. Hamlin

From_mr, Van Fossen 04)A

FEDERAL RESERVEBOARD

Cre(10 .5-tA• t

Date May 29, 1928,

Subject_ Fiscal Agency Qperations of

the Federal Reserve Banks.

We were advised by Mr. Goldenweiser that you desireda statement showing the volume of work in the fiscal agencydepartment of the New York bank and of all Federal reserve banks,together with some comparison of the fiscal agency and otheroperations of the Federal reserve banks with a view to showingthe relative importance of the fiscal agency operations. •Accordingly, we have prepared the attached statement showingthe volume of purely fiscal agency work performed at theNew York bank and at all Federal reserve banks combined andthe volume as well of other work performed for the UnitedStates Government for which figures are available. In addition,the Federal reserve banks transfer funds by telegraph forGovernment account, withdraw Government deposits from memberbanks, collect checks and non-cash items for Government account,

and effect the issuance and exchange of United States currencywhich was formerly performed by the sub-Treasuries.

It will be noted that about 611- per cent of the totalnumber of employees at all Federal reserve banks combined wereassigned to the fiscal agency department and to the Governmentchecks, Government coupon and coin units; also that about 7 percent of the total expenses of the Federal reserve banks weredue to the operation of these departments. Of the total expensesof $246,255 at the Federal Reserve Bank of New York and $897,930at all Federal reserve banks in strictly fiscal agency operations,$111,777 at the Federal reserve bank of New York and $355,800 at

all Federal reserve banks were reimbursable by the United States

Treasury.

VOLUME 130PAGE 113


_

FISCZ AGErCY ArD OTHEPPERATIONS PERFORYED BY THE FED1PL RESERVE BANKS FOR6:31/4-6THE UNITED STATES GOVERNMENT =INC:7'1927 FOR 7HICH A IfEASUREM-INT OF THE

VOLUME OF WORK IS AVAILABLE

Number of items 1 Amount of items All F. R.I F.R.Bank All F. R. 1 F. R. Bank ofbanks of New York! banks New York

ISSUES, REDELTTIONS AND EXCHANGESOF SECURITIES (FISCAL AGENCY OPERATIONS)

1. Yew issues -nieces delivered

2. Redemptions --nieces receiveda. U. S. securitiesb. Farm loan bondsc. Trepsury savins:_s certif.'s

,1 war savin,4s stamns

Total redemntions

3. Exchanges -7pieces receiveda. Counon formb. Registered form

qr

597,000 141,000 $3,716,128,000 $1,64o,897,000

3,217,00099,000

407,000

74,00044,000

79,0003,723,000

4,438,3.25,000 2,428,571,000175,833,000 95,515,000

14,g43,000 3,296,000

871,000 4,679,401,000 2,727,383,000

2,508,000 1,028,000V73,000 156,000

Total exchanes 2,881,000 1,184,000

1,748,320,000 631,074,0006;9 1_94,000 420,273,000

2,407,514,000 1,051,347,000

TOTAL, ISSUES, REDETTIONS ReEXCHAITGES 7,201,000

OTHM OPMATIONS

1. Government checks naid

2. Government counons paid

3. Coin received and counted. (largely due to discontinu,ance of the U.S.subtreasur-les) 2,,:91,184,000 1,189,801,000

2,1 6,000 10,803,043,000 5,219,627,000

30,775,00037,045,000

5,058,000

9,932,000

4,776,486,000 1,2E5,084,000

553,703,000 2-,0,622,000

791,049,000 558,323,000

MEER OF E1LPLOYEIS ZID EXPENSES IN FISCAL AGENCY FUNCTI2X AND IN GOVERN1,1'7NTCHECKS, GOVERNENT COUPON, AND COIN UNITS COMPARED WITH TOTAL NUMBER OFEMPLOYEES ArD TOTAL EXP7USES wirm EXCEPTION OF GENERAL OVERHEAD

Avera,e era.-loyee,:; ExnenseAll F. R. F. R. Bank of A21 F. R. F. R. Bank ofbanks New York banks New' York

Fiscal agency functionGovernment checks unitGovernment counons unitCoin unit

TotalAll functions (excl. Gen. Over-i-i.,1]) 9,971aptio (54-6) •

3359268143 638

$S97,930130,056106,307305,470

1,439,75921,00q,F47

S.4 g.1


1111TOTAL BILLS AND SECU1ITIS, BY CLASSES,XWBERS REMY DEPOSITS, MONETARY

GOLD STOCK, AND AMOUNT OF MONEY IN CIRCULATION, OCTOBER 31, 1922*0 APRIL 30, 1928.

(In millions of dollars) Oct. 3110ct. 3110ot. 3110ct. 3110ct.31 Oct.1 31Apr11 30 1922 1 1923 1924 k 1925 1 1926 1927 1928

Bills discountedBills bought in open marketU. S. Government Securities

Total bills and securities

Member bank-reserve accountMonetary gold stockMoney, in circulation

Bills discountedBills bought in open marketU. S. Government securities

Total bills and securities

Member bank-reserve accountMonetary gold stockMoney in circulation

576 ss4 264 616 690 412 834258 205 200 347 323 342 357363 92 584 327 301 522 296

1,197 1,181 1,052 1,296 1,316 1,276 1,488

1,8133,8884,646

1,895 2,1384.167 4.5094,925 4,942

2,2144,4074.969

2,2234,4735,021

2,3244,5414,946

INCREASE OR DECREASE

4.308 -62o +352 +74 -278

- 53 - 5 +147 -24 + 19-271 4.492 -257 -26 +221

•- 16 -129 +244 +20 - )40

.1•111111, AR,

+82 +243 +6 +9 +101+279 +342 -102 4.66 4. 6s+279 +17 +27 +52 - 75

2,4424,2664,750

+422+ 15-226

+212

+11s-275-196

41110.

BROKERS' LOANS, INTEREST RATES, AND SECURITY AND COMMODITY PRICES.

Brokers' loansNew York F.R.bank discount rateMonthly average call loanrenewal rate, New York

Rate on customers' primecommercial loans, New Yorkmember banks

Index of security pricesWholesale commodity prices(Bureau of Labor Statistics,1926 = 100)

1,164 1,654 2.629 *$2.640 3,372 4,2824i 3 3i 4 3i 4

4.73 4.75 2.32 4.87 4.75 3.90 5.08

51. 4i-4i -4 41-4i107.0 92.7 105.4 137.2 147.9 186.2 215.3

*101.6 '99.6 98.6 103.6 99.4 97.0 97.4

*Approximated.**Not entirely comparable with figures reported prior

former basis, brokers' loans at the end of October

NOTE; Brokers' loans figures are as of the Wednesdays nearestbank discount rate3 are for dates shown; and interestaverages or those prevailing during the month.

VOLUME 180PAGE 114

to 1926. On the1926.were $2,294,000,000.

the dates shown; F. R.rates and prices are


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