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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