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FEDER L RESERVE BO RD
WASHINGTON
January 4 , 1921 .
x 3014
Subject: Comments b y t h e Federal Reserve Board on recommendations made
b y Governors of Federal Reserve Banks a t the i r conference
with t h e Federal Reserve Board October 14 and 15» 1 92 0.
Dear S i r : -
The
Federal Reserve Board
h a s
examined
th e
record
of
voids taken
b y t h e Governors o f t h e Federal Reserve Banks o n t h e s eve r a l t op i cs s u b -
mit ted f o r cons i de r a t i on a t t h e conference held i n Washington October 1 4
and 15 , 1 920 .
With
a few
except ions ,
t h e
Board concurs
i n t h e
recommend-
ations made.
The
cases where
t h e
Board
i s n o t
prepared
t o
accept
t h e r e -
commendations, o r which seem t o c a l l f o r special comment, a r e discussed
below:
• Check Cle ari ng an d Col lec t ion
(Steno. report page 1 8 . )
ACTION: Voted t h a t
t h e
conf us i on ex i s t i ng
a t
p r e s e n t
i n
connect -
i o n
wi th t r ansac t ions
of
t h i s cha r ac t e r
i s d u e t o t h e
d i f f e r e n c e
of
opin-
i o n a s t o what cons t i tu tes a pr oper t e l eg r aph i c t r an s f e r of f unds , and
t ha t
i t i s
recommended that
t h e
Federal Reserve Board issue
a
mandatory
r u l i ng t o t h e e f f e c t t h a t no Inderal Reserve Bank should accept telegraphic
t rans fer s f rom any except member and non-member cl e ar in g ba nk s.
COMMENT:
The
Board rule s th at teleg raph ic t ra ns fe rs sh al l
n o t
b e
made
b y a
Federal Reserve Bank except upon request
of a
member
o r n o n -
member clearing bank.
I I .
(St eno . re po rt •page
2 7 . )
The p r o p r i e t y of Federal Reserve Banks sending collection items
t o
member
and
non-member banks
i n
o t he r d i s t r i c t s , w it h i n s t r u c t i o n s
t o
remit
t o t h e
nearest Federal Reserve Banks
f o r th e
c r e d i t
o f t h e
sending
Federal Reserve Bank.
ACTION:
The
Conference voted th at th is p ri vi le ge should
n o t b e
permi t t ed , unless
t h e
time involved
i n t h e
c o l l e c t i o n
i s
such th at
t h e
Fed era l Reserve Bank must ne c es sa ri ly send t h e i t ems d i rec t , i n order f o r
c o l l e c t i o n t o b e made before th e matur i ty of the i tem s. Reference i s i n -
v i t e d
t o t h e
recent ru l ing
of the
F ede ral Reserve Board pe rm it t i ng Fe deral
Reserve Banks
t o
r ece ive co ll e c t i o n i tems d i re c t from member banks
of
o t h e r d i s t r i c t s ,
a n d
allowing them
t o
p erm it t h e i r member banks
t o
route
c o l l e c t i o n s d i r e c t
t o
other Federal Reserve Banks, af ter
t h e
permiss ion
of
such other Federal Reserve Banks
h a s
been obtained
b y t h e
Federal Reserve
Bank
o f t h e
d i s t r i c t
i n
which
t h e
member bank requesting
t h e
p r i v i l e g e
i s
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X-3014
lo c a t e d . I t i s recommended that member banks b e permi t ted t o se n d c o l l e c t -
i o n
i tems d i rec t
t o
Federal Reserve Banks
of
o t h er d i s t r i c t s ,
and
t h a t
a l l
Federal Reserve Banks
b e
requ i red
t o
accept non-cash items
f o r
c o l l e c t i o n
when received from member banks
of
o th er d i s t r i c t s ;
i t i s
also recommended
th a t
t h e
Federal Reserve Board make
a
mandatory ruling
t o
t h a t e f f e c t .
I t
i s
further recommended that
t h e
Board direct each Federal Reserve Bank
t o
i s sue uni fo rm c i rc u l a r s
o n th e
d i r e c t r o u t in g
of
collection items, embody-
i n g c e r t a i n e s s e n t i a l p o i n t s , an d i f th is ac ti on meets with t h e approval
o f t h e Federal Reserve Board, t h e Committee on Forms appointed a t t h e l a s t
Governors' Conference
b e
i n s t r u c t e d
t o
design forms necessary
t o
take care
o f a l l
t ran sac t ions a r i s i ng f rom
t h e
operat ions mentioned therein .
COMMENT: The Board concurs i n t h e above, an d makes t h e mandatory
rul ing requested through
t h e
medium
of
t h i s l e t t e r .
I I I .
Currency
a n d
Circu la t ion
(Steno. report page
6 9 . )
I n
view
o f t h e
p re se n t i n su f f i c i e n t su p p l i e s
of new
cur rency ,
i s
i t des i rab le tha t t h e Federal Reserve Banks and Branches adopt t h e uniform
p o l i c y
o f
pay ing
ou t new and
redeeming unfit currency?
ACTION;
The
Governors presented
a n
u rg e n t p e t i t i o n
t o t h e
Board
t o take u p wi th t h e Secre ta ry o f t h e Treasury t h e ques t ion of providing
t h e
necessary notes through contract with pr ivate concerns .
COMMENT: Reports
of
currency operations (form
1 6 0 )
rece ived
by the
Board since August 27th have shown that currency operations
i n t h e
severa l
Federal Reserve Di st r i c t s vary
t o
such
a n
ex te n t tha t
i t i s n o t
des i rab le
f o r
Federal Reserve Banks
and
branches
t o
adopt
a
un i fo rm ra t io
of
payments
of new currency t o total payments of c u r r e n c y . The Board, however, desires
t o
d i r e c t
t h e
a t t e n t i o n
o f t h e
banks
t o t h e
fac t tha t p resen t supp l ies
of
ne w
cur rency p r in ted
b y t h e
Bureau
of
Engraving
and
P r i n t i n g
a r e n o t
s u f f i c i e n t
t o
meet payments
f o r
normal replacements
a n d
r e q u e s t s
a l l
banks
t o continue t o conserve their supplies of new currency.
I n accordance with t h e vote o f t h e Governors, t h e Board h a s . submi tted
t o t h e
Secre ta ry
o f t h e
Treasury
t h e
r e p o r t
of the new
Currency Committee
together with
t h e
resolut ion adopted
"by t h e
Governors
i n
conference,
po in t ing
o u t t h e
inadequacy
of the
supply
of new
cur rency
a n d
urging that
immediate steps
b e
taken
t o
increase
t h e
Bureau ' s ou tpu t .
As th e
Federal
Reserve Banks have been advised, arrangements have been made f o r t h e
purchase of new equipment b y t h e Bureau of Engraving a n d P r i n t i n g t o b e
paid
f o r b y
Federal Reserve Banks
and to be
used exc lus ive ly
f o r
p r in t in g
Federal Reserve Notes.
The
S e c re t a ry
o f t h e
Treasury advises
t h e
Board that
h e
hopes that
with t h e complet ion of the Lib ert y Bond p r i n t i n g program a t t h e Bureau, t h e
output of new currency may be in c re a se d , a n d t h a t i t w i l l b e s u f f i c i e n t t o
provide
f o r
normal replacements.
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>
X-3014
17. Ope rat io n-( S teno. repo rt pages 129 & 155 )
Ad v i sa b i l i t y
o f
standardizing methods
o f
a u d i t i n g
a n d
accounting,
inc lud ing rea l es ta te account ing ,
and
a l s o a d v i s a b i l i t y
of
prov id ing
a
method,
a
cl ea r i ng house
s o t o
speak,
f o r t h e
exchange
of
d e t a i l s
c o n -
cerning methods
o r
devices which
a n y
Federal Reserve Bank
h a s
fo u n d e f f i -
c i e n t
i n
opera t ion .
ACTION:
I t w a s t h e
sense
o f t h e
Conference that th is topic ,
t o -
ge the r wi th o thers r e la ted
t o
operat ion, should
b e
r e f e r r e d
t o a
c o n fe r -
ence
of
o p e r a t i n g o f f i c i a l s
o f t h e
twelve banks
t o b e
c a l l e d
i n t h e
near
f u t u r e .
COW®NT: The Board does n o t approve, a t th is t ime , t h e c a l l i n g
of a conference of o pe ra ti ng o f f i c i a l s . A reg u la r confe rence of auditors
h a s been authorized a n d , with t h e Group Conferences already provided f o r ,
i t would appear that t h e o b j e c t s t o b e a t t a i n e d in the way of s t a n d a rd iz a -
t i o n of accounting through a n exchange of ideas might b e taken care of
through machinery already provided.
7 .
Circuit ous Routing
of
Checks.
(Steno. report pages
1 5 8 t o 1 6 7 . )
ACTION: I t was moved and c a r r i e d th a t t h e Governors request t h e
Federal Reserve Board t o recons ider t h e B o a r d ' s l e t t e r N o. X-1944, dated
Apri l
7 , 1 9 2 0 ,
r e l a t i n g
t o t h e
c i r c u i to u s ro u t in g
of
checks
a n d , i f c o n -
s i s t e n t ,
t o
i s su e
a
ru l in g
i n
accordance with
t h e
recommendations
of the
last Governors ' Conference.
COMMENT:
The
Board reaff i rms
i t s
opinion
i n
th i s ma t t e r
a s s e t
f o r t h
i n
le t ter X-1944, dated Apri l
7, 1920%
7 1 .
Check Clearings
a n d
Collections*
(Steno. report pages
1 7 9 to 1 9 3 - )
Exchange
of
letters between Federal Reserve Banks covering
i n -
dorsement of i tems sent d irect t o other Federal Reserve Banks b y Member
Banks.
ACTION: The Conference recommended that this matter b e r e f e r r e d
t o t h e
Fed era l Reserve Board, wi th requ est t ha t Counsel
f o r th e
Board
p r e -
pare
a
u ni fo rm l e t t e r
o f
in s t ru c t io n s ;
o r a
regu la t ion cover ing these
i n -
dorsements
t o b e
exchanged
b y t h e
twelve banks.
COMMENT:
The
Board con&urs,
and
w i l l d i r e c t
i t s
General Counsel
t o
prepare
t h e
form re que st ed.
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9 9
- 4 - X-301U
VII• Inter Federal Reserve Bark Transactions.
(Steno. repor t pages
194 to 201)
The
d e v i s i n g
of a
method
t o
avoid pre sen t f r equ ent hold ing
up of
books i n connect ion wi th in te r -ban k redi sc ount opera t i ons . Also
t
a b e t t e r
method of prepayment b y Federal Reserve Banks of paper under rediscount
b y
other Federal Reserve Banks.
ACTION:
The
f o l l o w i n g r e s o l u t i o n c a r r i e d :
( l )
That rediscounts
made by one Federal Reserve Bank f o r another Federal Reserve Bank b e made
as of the day
when
t h e
reques t
i s
made, except
on
Friday when
t h e
reserve
p o s i t i o n of each Bank i s made public. ( 2 ) That each Federal Reserve Bank
r ed i s coun t i ng
f o r
anot her Fe der al Reserve Bank pre pa re
and
forward promptly
t h e schedule of papers i t h a s been redi scount ing . ( 3 ) That Requests f o r
a n t i c i p a t i o n of paper under rediscount be Combined in one wire each d a y ,
and tha t such t r ansac t ion be ef fec ted upon the day o f r e c e i p t o f t h e r e -
ques t , i f rece ived bef ore th e c l o s e o f bus i nes s ; i f n o t , upon t h e f o l l ow-
i n g d a y .
COMMENT:
The
Bo a rd ' s l e t t e r
of
February
1 7 , 1 9 2 0 ,
X-1835>
s u b -
je c t Gold Se ttl em en t Fund Dai ly Clear ing , paragraph 2 of page 2 , s t a t e s
tha t ,
"The
Fe de ra l Reserve Banks w i l l
b e
expected
t o
a n t i c i p a t e
i n
s o f a r a s pos s i b l e t he i r n e t debi t ba lances o r n e t c r ed i t ba l ances
i n t h e
s e t t l e m e n t ,
and
wherever necessary reques t
t h e
Board
t o a r -
range rediscounts with other Federal Reserve Banks i n t h e a f t e r -
noon a s a t p r e s e n t , i n order t o mai n ta i n t h e i r r e s e r ve po s i t i on a t
about 4C% a f t e r f i n a l c l o s in g o f the books f o r t h e d a y . Whenever
a
Federal Reserve Bank receives
a
heavy debit
i n t h e
s e t t l emen t
( a d -
v i ce of which wil l n o t b e received under the new pl a n u n t i l t h e f o l -
lowing morning) which
w a s n o t
a n t i c i p a t e d
and
which w i l l reduce
i t s
reserve below t h e required minimum, notice of this should b e prompt-
l y
communicated
t o t h e
Board with
t h e
reques t tha t r edi sc ount s
b e a r -
ranged i n suf f i c i ent amount t o b r i n g t h e r es e r ve t o t h e required
minimum. Entries,
of
course ,
i n
connect ion wi th th i s t r a nsa c t i on
w i l l b e made o n t h e books of bo t h t h e r ed i s coun t i ng and lending F e d -
eral Reserve Banks before
t h e
f i n a l c l o s i n g
of
books
a s o f t h e p r e -
vious
d a y . "
I n order t o avoid t h e f r e q u e n t n e c e s s i t y of consummating rediscount
t r a n s a c t i o n s t h e fol low ing morning as o f the previous day ' s da te due to
red isco unt i ng banks sending th e i r reque s ts f o r rediscount accommodations t o
t h e Board t o o l a t e i n t h e a f t e r noon f o r d e t a i l s t o b e ar ranged tha t d a y , t h e
Board reques ts that rediscount ing Federal Resewe tanks ar range
to r s thd
Board n o t l a t e r t h a n 2 : 3 0 p . m . , Washington time (11:00 a . m . Washington time
on
Saturdays)
t h e
amount
i t i s
then es t ima ted
i t
w i l l
b e
neces s a r y
t o
r e d i s -
count t o maintain their combined reserve posit ion above 40 ^ a f t e r f i n a l
c l o s i n g
of the
books
f o r t h e d a y .
Under such
a n
arrangement
t h e
bank ' s
excess reserve should b e s u f f i c i e n t t o provide a reasonable margin f o r
con t i ngenc i es .
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A »
I C O
- 5 - x-3014
The Board, requests that advance payments an d r e b a te s of r e d i s -
counts with other Federal Reserve Banks b e handled i n accordance with t h e
B o a rd ' s l e t t e r
of
October
1 8 , 1 9 2 0 ,
X-2030, su bj ec t Unifor mity
i n
method
of
handling inter-Reserve Bank transactions through
t h e
Gold Settlement
Fund , excep t th a t
a s
provided
f o r i n t h e
above resolut ion requests
f o r
a n t i c i p a t i o n of paper under rediscount b e combined, i n s o f a r a s poss ib le ,
in one wire t o t h e Board each d a y .
Very truly yours,
G o v e r n o r .
L e t t e r
t o
Governors
of a l l
Federal Reserve Banks.