FEDERAL RESERVE BULLETIN VOL. 2 WORK OF THE BOARD. JANUARY 1, 1916 The work of the Federal Reserve Board during the month of December has been largely concerned with the closing up of the operations of the past fiscal year, with preparations for the annual report to Congress, and with discussion of possible and desired changes in the Federal Reserve Act. It has also been necessary to designate 12 class "C" directors whose terms, in accordance with the provisions of the law expired on the 31st of December. In the endeavor to give to the public a complete and thorough account of the operations of the Federal Reserve Banks, during the past year, each Federal Reserve Agent has been requested to submit to the Board a full and detailed review of the problems and policies of the bank to which he has been accredited. In order to secure a moderate degree of uniformity and standardization of method of treatment in these reports it has been necessary to cooperate as closely as possible with these authors while not endeavoring in any way to limit the individuality of the method or treatment that might reasonably be possible in each case. The result has been to provide the basis for absolute and thorough knowledge of the conditions prevailing at each Federal Reserve Bank. The Board has further developed its policy as to commercial paper by publishing a circular and the accompanying regulation relating to open-market operations (Circular No. 20). In this are covered the conditions under which purchases may be made of foreign and domestic bills of exchange and the purchase and sale of cable transfers. The circular constitutes the further embodiment and development of the policy expressed in the Board's letter to Federal Reserve Agents on October 8, wherein it was held that the several Federal Reserve Banks possessed the right to undertake open-market No. 1 operations, and the Board expressed a willingness to provide such regulations as were necessary. Subsequent developments pointed to the wisdom of embodying the proposed regulations in as definite a form as existing circumstances would permit, although as pointed out in the circular it still remains true that foreign exchange transactions must depend upon the creation of agencies and other relationships abroad-a field upon which the reserve banks have thus far hesitated entering on account of the unsettled conditions produced by the European war. Since the issuance of the circular in question, two of the reserve banks have definitely undertaken open-market purchases on a modest scale. Two members of the Board on December 7 and 8 visited the Federal Reserve Bank of Atlanta and its branch at New Orleans for the purpose of acquiring information regarding business conditions in the South and of examining into the working of the first branch bank thus far established under the new system. The New Orleans branch was found to have already justified its establishment, having more than earned its operating expenses. Meetings have been held during December with representatives of the Governors of Federal Reserve Banks and with a committee representing the newly formed national bank section of the American Bankers' Association, this session being held at the request of the bankers for the purpose of considering amendments to be recommended to the Federal Reserve Act. A more complete account of the session with the committee of the national bank section is elsewhere given in this issue. Preparations for the transfer of Government deposits to Federal Reserve Banks on and after January 1, 1916, and for the undertaking by the banks of duty as fiscal agents of the Government have been continued during the month. Representatives of the Governors of the banks have conferred with a committee of the Board and the representatives of the Treasury Department and forms have been prepared for use in connection with the handling of the business to be transferred to the banks. Two applications for admission to membership in the system have been favorably acted upon as follows: Merchants and Farmers Bank, Cheraw, S. C.; Guardian Trust & Savings Bank, Toledo, Ohio. Several other applications are still awaiting action. In this connection it may be noted that the total number of conversions of State banks into National banks during the year 1915 amounts to fifty-three. Indications point to the belief that the entry of State institutions into the Federal Reserve System will proceed more rapidly, for the present at least, through nationalization than through the acceptance of membership under State charters. policy outlined in this resolution should become While the Board is of the opinion that the effective at once, directors of Federal Reserve Banks elected prior to the date of its adoption will not be required to resign their positions as such directors until the end of the term for which they were elected. The foregoing resolution was immediately given to the press and was subsequently sent out to member banks as circular No. 21, the text thereof appearing in this issue of the Federal Reserve Bulletin on page 14. On December 28 the Board adopted the following resolutions: Resolved, That as the future policy of this Board, national-bank examiners shall not hereafter be elected or appointed to directorships in Federal Reserve Banks. Resolved, That national-bank examiners shall not hereafter be appointed or act as Federal Reserve or Deputy Federal Reserve Agents of Fed Eligibility of Officers and Directors of Federal eral Reserve Banks, and that the designation as Reserve Banks. The Federal Reserve Board has taken certain actions affecting the eligibility of directors of Federal Reserve Banks and the tenure of office of officers and employees of the same, which are embodied in a series of resolutions passed on December 23, 28, and 29. On December 23 the following resolution was adopted: Whereas it is the opinion of the Federal Reserve Board that persons holding political or public office in the service of the United States, or of any State, Territory, county, district, political subdivision, or municipality thereof, or acting as members of political party committees, can not consistently with the spirit and underlying principles of the Federal Reserve Act, serve as directors or officers of Federal Reserve Banks: Resolved, That the Federal Reserve Board hereby expresses to the member banks its opinion that no such persons should henceforward be elected or act as directors or officers of Federal Reserve Banks; and prescribes as a condition of eligibility that candidates for election shall comply with the terms of this resolution. Deputy Federal Reserve Agents of nationalbank examiners now serving as directors of Federal Reserve Banks be, on and after January 1, 1916, or as soon thereafter as possible, revoked. On December 29 the Board adopted the following resolution relating to the tenure of office of employees: Whereas, it is in the interest of good administration that the officers of the various Federal Reserve Banks shall have a definite tenure of office, subject to renewal at a specified date; and Whereas, it is the evident intent of the Federal Reserve Act that the Federal Reserve Board shall exercise direct and continuous supervision of the affairs of the Federal Reserve Banks with a view to maintaining an efficient and economical administration thereof: Be it resolved, That the Federal Reserve Board formally expresses its opinion that the officers and employees of each Federal Reserve Bank should be subject to annual election or appointment (unless a shorter term is specified), and that the list thereof, with salaries, should be submitted to the Federal Reserve Board at the beginning of each year for its approval. On the same date the board adopted the following resolution with reference to membership in the Advisory Council. Whereas, Section 12 of the Federal Reserve Act provides for the establishment of a Federal Advisory Council with power to confer with the Federal Reserve Board on general business conditions, to make representations concerning matters within the jurisdiction of said Board, and to make recommendations regarding discount rates, rediscount business, note issues, reserve conditions in the various districts, the purchase and sale of gold or securities by reserve banks, open market operations by said banks, and the general affairs of the reserve banking system; and Whereas, The Federal Reserve Board has determined, after careful consideration, that the purposes for which said Council has been established and the interests of the Federal Reserve System require that the members of said Council should not be officially connected with the Federal Reserve Banks, and, therefore, in a position to give to the Federal Reserve Board the benefit of their disinterested and unbiased advice: Be it resolved, That it is the sense of the Federal Reserve Board that Governors, or other officers of Federal Reserve Banks should not serve as members of the Advisory Council, but as the election of directors has already taken place this rule shall not apply as to directors until January 1, 1917. Resolved further, That a copy of this resolution be sent to each Federal Reserve Bank. Class C Directors Appointed. The following Class "C" directors have been named by the Federal Reserve Board to hold office from and after January 1, 1916: Federal Reserve Bank of Boston, Mr. Allen Hollis. Federal Reserve Bank of New York, Mr. George Foster Peabody. Federal Reserve Bank of Cleveland, Mr. H. P. Wolfe. Federal Reserve Bank of Richmond, Mr. M. F. H. Gouverneur. Federal Reserve Bank of Atlanta, Mr. Edward T. Brown. Federal Reserve Bank of Chicago, Mr. E. P. Meredith. Federal Reserve Bank of St. Louis, Mr. William McC. Martin. Federal Reserve Bank of Kansas City, Mr. R. H. Malone. Class A and B Directors Elected. The following Class A and B directors have been elected by the Federal Reserve Banks: District No. 1-Boston: Class A-Arthur M. Heard, Manchester, Class B-Charles G. Washburn, Worces- District No. 2-New York: Class A-Franklin D. Locke, Buffalo, Class B-Leslie R. Palmer, Croton-on- District No. 3-Philadelphia: Class A-William H. Peck, Scranton, Pa. Class B-George W. F. Gaunt, Mullica Hill, N. J. District No. 4-Cleveland: Class A-Stacy B. Rankin, South Charles- Class B-John Stambaugh, Youngstown, District No. 5-Richmond: Class A-Henry B. Wilcox, Baltimore, Class B-Edmond Strudwick, Richmond, District No. 6-Atlanta: Class A-L. P. Hillyer, Macon, Ga. Class A-George M. Reynolds, Chicago, Class B-A. H. Vogel, Milwaukee, Wis. District No. 8 St. Louis: Class A-F. O. Watts, St. Louis, Mo. Class B-David C. Biggs, St. Louis, Mo. District No. 9-Minneapolis: Class A―J. C. Bassett, Aberdeen, S. Dak. Class B-F. P. Hixon, La Crosse, Wis. District No. 10-Kansas City: Class A John C. Mitchell, Denver, Colo. Class B-Thomas C. Byrne, Omaha, Nebr. District No. 11-Dallas: Class A-John T. Scott, Houston, Tex. Class B-Frank Kell, Wichita Falls, Tex. District No. 12-San Francisco: Class A-Alden Anderson, Sacramento, Class B-J. A. McGregor, San Francisco, Accommodations to Tennessee Banks. The attention of the Federal Reserve Board has been called to a circular recently sent out by Messrs. T. D. Webb, J. L. Hutton, and J. P. Hoskins, a committee appointed at a meeting of the national banks in Tennessee, held in Nashville on November 23 (copies of which report have been sent to all Members of Conreport have been sent to all Members of Congress), and investigation of certain of the statements contained in the circular referred to has been made. One of the main features of the circular was the statement that "only about 33 per cent of the member banks of each Federal reserve district rediscount with the Federal Reserve Bank of Atlanta. They have found that in normal times banks can redsicount with their New York and other city correspondents on terms quite as favorable, if not more so, than with the Federal Reserve Bank. Besides the process of rediscounting with these correspondents is much simpler than with the Federal Reserve Bank." The Board has obtained a comment upon the contents of the circular from the Federal Reserve Banks of St. Louis and Atlanta, the two banks between whose districts the State of Tennessee is divided. Mr. M. B. Wellborn, Federal Reserve Agent at Atlanta, says: There are in that part of Tennessee, within the Sixth Federal Reserve District, 95 member banks, as follows: In group 1, 26; in group 2, 28; in group 3, 41. Eighteen out of the 26 banks in group 1 have rediscounted with us; 15 out of the 28 banks in group 2 have rediscounted with us; 27 out of the 41 banks in group 3 have rediscounted with us; 60 banks out of the 95 rediscounting-in amount $7,156,842.38. During the period of operation of the Federal Reserve Bank, only 75 of the 95 banks have been at any time a "borrowing bank;" leaving only 15 banks that have not wholly or partially rediscounted with the Federal Reserve Bank of Atlanta; there being 20 banks within our Tennessee district that have not been 'borrowing banks' at any time since the inauguration of the system. Mr. William McC. Martin, Federal Reserve Agent at St. Louis, says: Fifty per cent of our member banks in Tennessee have rediscounted paper with this bank, and 11 out of 20 member banks are using our clearing system. In this district, from November 16, 1914, to December 28, 1915, 131 of our different member banks have rediscounted paper with us, and a great many more would have done it, had they taken the trouble to find out how easy it is to do business with the Federal Reserve Bank, instead of coming to conclusions without evidence. Furthermore, with the exception of 20 per cent of our member banks, all of them are in our clearing system. Mr. Martin also says of the signers of the report in question: Mr. Hutton's bank was borrowing money in New York and never came to us, nor inquired or showed any interest in this bank, until my deputy, Mr. T. C. Tupper, had a conversation with him in Memphis. He acknowledged borrowing money outside of the district, did not seem to be interested in the Federal Reserve that he could get his funds easier from his System, and knew very little about it, saying correspondents. This was his idea, because he had never tried any dealings with this bank. After Mr. Tupper talked to him he agreed to send us some paper to take up bills payable in New York, and on October 27, 1915, we received from him an offering of $109,974.88. On the same morning of the receipt of this paper the proceeds were put to his credit, with the exception of four notes aggregating $22,500, which had maturities a day or two longer than 90 days. These we wrote him we could not hold until their maturities came within the law, and would then place the proceeds to his credit. Mr. T. D. Webb, the first of the signers of the circular, received in 1914-15 about $400,000 of rediscounts. Mr. M. B. Wellborn, under date of January 25, 1915, also said: To-day we had a visit from Mr. T. D. Webb, vice president of the First and Fourth National Bank, and we agreed to take $1,000,000 of his paper to retire his emergency currency. |