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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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2

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


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


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


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.