frsbog_mim_v15_1080.pdf
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FEDERAL RESERVE BOARD
WASHINGTON
October
1 , 1 9 2 1 .
X-3217
SUBJECT: Fu rt he r Corre sponde nce wi t h Governor of
Nebraska.
Dear
S i r :
On September 1 7 t h I sen t y ou copy of c o r r e s -
pondence with t h e Governor of Nebraska. I now enclose
f o r your information copy of reply which h a s been r e -
ceived from Governor McKelvie
and
copy
of my
answer
t h e r e t o .
Very truly yours,
E nc lo su re . G o v e r n 0 r .
Governors o f a l l F.R.Banks.
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?a
September
2 9 . 1 9 2 1 .
Dear Governor McKelvie:
Last Saturday I acknowledged receipt o f y o u r l e t t e r o f t ' e 22nd
i n s t a n t
a n d i n
r e p l y i n g
to i t now a t
grea ter l ength
I
wish
t o
i nv i t e
your a t t en t i on t o some o f th e u n d e r l y i n g p r i n c i p l e s o f t h e Federal
Reserve
A ct
which govern
t h e o
pera t ions
o f t h e
Federal "reserve "banks,
Fol lowing that I wi l l submit some f a c t s rel a t i ng t o t h e ope r a t i ons o f
t h e Branch o f th e Federal Reserve Bank: o f Kansas City a t Omaha, i n which
you and
your people
a r e
p a r t i c u l a r l y i n t e r e s t e d .
( 1 ) - The law
does
n o t
permit Federal reserve banks
t o
compete
f o r business with each other o r wi th th e na t i on al banks, s ta te banks and
t rust companies
o f t h e
cou ntr y. They
a r e n o t
al lowed
t o
receive deposi ts
from t h e p u b l i c n o r a r e they permit ted t o make loans o r advances di rect
t o i nd i v i dua l s , f i r ms o r co r por a t i ons . I n th@r re dis co un t ope rat ion s they
a r e l i m i t e d t o no t e s and b i l l s d e f i n e d a s "e l i g i b l e" which bear t h e endorse-
ment of a member bank.',,: I t fol lows, therefore, that Federal reserve banks
cannot extend
any
discount accommodations
t o t h e
public except through
the
medium o f a member bank, with which inst i tut ions t h e loans mas t f i r s t b e
ne go t i at ed . Federal reserve banks have n o funds t o l end t h e public through
t h e
i n s t r u m e n t a l i t y
of
member banks acting
a s
b r oke r s .
A
Fed era l rese rve
bank does n o t take t h e i n i t i a t i v e i n making loans t o a member bank f o r t h e
purpose
o f
enabl ing
t h e
member bank
t o
d i s t r i b u t e
t h e
funds
s o
advanced
t o
i t s customers. The Federal reserve bank lends t o t h e member "bank against
t ransact ions al ready made
f o r t he
puroose
of
enabl ing
t h e
member bank
t o
r e s t o r e i t s r e s e r ve t o t h e l ega l r equ i r emen t , a f t e r t h e r e s e r ve h a s been
impaired o r i s about to be impaired because of increased loans a n d depos i t s .
(2 ) - I have al ready cal led your at tent ion t o t h e f a c t t ha t t h e
Federal reserve bank i s given no control over t h e po l i cy o f i t s member banks
wi th r espect t o l oans b u t t h a t i t cannot compel a member bank t o make a loan
which
i t
does
n o t
d e s i r e
t o
nake
n o r
prevent
i t
fro m making
on e
which
i t
wishes t o make. Neither can a Federal reserve bank control t h e r a t e o f
i n t e r e s t cha r ged b y member banks. I n case o f i s tate banks t h e i n t e r e s t r a t e
i s r egu l a t ed b y t h e laws o f the r e s p e c t i v e s t a t e s a n d i n t h e case of na t ional
banks
t h e
Federa l
la w
pe r mi ts t hos e i n s t i t u t i o ns
t o
charge
up to t he
maximum
r a t es pe r mi t t ed i n t h e s t a t e s i n which they a r e l oca t ed .
( 3 )
- No Feder al res erv e hank can r edi scount paper f o r member
banks outs ide o f i t s own Federa l Reserve Di s t r i c t . I t s r ed i s coun t t r ans ac t -
ions
a r e
l i m i t e d
t o
deal ings wi th
i t s own
member banks.
The
Federal Reserve
A ct does n o t r equi re r a t es o f d i scount to be uni form i n a l l d i s t r i c t s . Each
Federal reserve bank
i s
au t hor i zed
b y
paragraph
( d ) o f
Sect ion
lU of the
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Federal Reserve Ac t t o es tabl ish f rom t ime t o t ime , sub jec t t o review
an d de te rmina t ion of t he Federal Reserve Board, rates o f d i s coun t to be
charged b y t h e Federal reserve bank f o r each class o f paper, which shall
b e f i xe d wi th a view o f accommodating commerce an d bus iness a n d which,
s u b j e c t
t o t h e
approval , review
an d
de te rmina t ion
of t he
Federal Reserve
Board,
may be
graduated
o r
progressed
o n t h e
b a s i s
o f t h e
amount
of t he
advance# and discount accommodations extended b y t h e Federal reserve bank
t o t h e borrowing bank". The l a s t sen tence o f t h e paragraph ouoted above
r e l a t e s t o what i s knom a s t h e "progressive ra te" , which h a s now been
abol i shed i n the . four Federa l Reserve Dis t r ic t s i n which i t w as formerly
e f f e c t i v e .
One of the
e a r l y d r a f t s
of t he
Federal Reserve Bill which
w a s c o n -
s ide red b y Congress in 1913 provided that t h e Federal Reserve Board should
each week f i x t h e r a t e s of d i scount to be charged b y t h e r e s p e c t i v e F e d -
er al re ser ve banks a n d t h a t i t should n o t i f y each Fed era l re se rv e bank what
i t s discount rates would b e f o r t h e ensuing week. This pr ov is io n was
s t r i c k e n o u t i n a l a t e r d r a f t of t he b i l l and the Act as . f inal ly passed
con ta in s
t h e
language above moted.
I t
seems, therefore ,
to be th e
i n t en t
of
Congress that
t h e
d i scount ra tes sha l l
n o t
o r d i n a r i l y
be
i n i t i a t e d
by
t h e Federal Reserve Board b u t b y t h e d i r e c t o r s o f t h e respec t ive Federa l
re se rv e banks. This i s cons i s ten t wi th th e theory of t he Ac t which does
n o t c r e a t e a centra l bank b u t a re gi on al ..banking system, comprised of
twelve independent u n i t s . This theory i s based upon t h e presumption that
t h e d i r e c t o r s o f a Fed era l res er ve bank a r e more conversant with credit
cond i t i ons an d cu r r en t r a t e s f o r money i n t he i r r e spec t i ve d i s t r i c t s t han
t h e Federal Reserve Board in "ashington c a n b e expected t o b e .
,?
hile the
Federal Reserve Board undoubtedly
h a s
power
t o
d i r e c t
a n y
Fede ral r eser ve
bank which pers is ts
i n
main ta in ing
a
discount ra te which
i s
c l e a r l y
n o t
warran ted
b y
general condi t ions
to
change that rate,
t h e
Board
s o f a r h a s
h a d n o occasion t o i n i t i a t e a r a t e f o r a n y Fede ral r es er ve bank.
I n cons ide r ing th e proper l eve l of d i s coun t r a t e s , t h e d i r e c t o r s of
t h e Federal reserve banks have taken into considerat ion n o t only the
r e se rve pos i t i on o f t h e bank b u t a l so cur ren t loca l ra tes f o r money. I t irs
t h e purpose o f t h e Federal reserve b=nks to a f f o r d a ready means of r e d i s -
count ing paper f o r member banks b u t i f a r t i f i c i a l l y lo w ra te s should b e
e s t a b l i s h e d t h e resul t would probably be an unhea l thy s t i mula t ion of loans
b y
member banks, which,
I
unders t and from your l e t t e r
o f
September
1 2 t h , i s
something that
y o u d o n o t
d e s i r e ,
f o r y o u s a y i n
t h at l e t t e r
N or
-ould
I
have y o u be l i eve f o r a moment that I would have t h e Federal Reserve Bank
System encourage an ex tens ion o f credi t that would resul t i n unwise in f la -
t ion o r specu l a t i on" . The Board i s e n t i r e l y i n accord i t h your desire t o
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s e e t h e Federal Reserve System operate as an agency f o r f i n a n c i a l r e l i e f
a t a time when i t i s most urgently needed, a n d i n order t o keep t h e Federal
reserve banks i n p o s i t i o n t o extend such r e l i e f i t i s necessary tha t a
p o l i c y
h e
adopted which wil l
n o t
encourage
an
undue expansion
of
loans made
f o r t h e
sake
o f t h e
p r o f i t
t o b e
der ived
by
r ed i s cou n t i ng wi t h
t h e
Federal
reserve bank.
I n
y o u r l e t t e r
o f the
22nd ins tant
y o u s a y
t h a t
y o u a r e
a l t oge t he r
convinced that t h e Federal Reserve System i s n o t f u n c t i o n i n g a s i t should
i n y o u r d i s t r i c t . You say t h a t y o u a r e informed that t h e banks i n your
d i s t r i c t a r e n o t gene r a l l y pa t r o n i z i n g t h e Federal Reserve System. I t
i s t r ue t ha t a l a r ge ma j o r i t y o f s t a t e banks , f o r r eas ons s a t i s f ac t o r y
t o themselves, have n o t deemed i t advi sable t o apply f o r membership i n
t h e Federal Reserve System a n d t he r e a r e a l s o a considerable number o f
taember banks which have h a d n o occas ion u p t o this t ime t o r edi scount
wi th t h e Fe de ra l re se rv e ban k. Many o f th e non-member state banks,
however, have borrowed money from th e ir co rre spo nde nts i n Omaha, Kansas
x
City and o t h e r c i t i e s and these banks i n tu rn have red isco unt ed wi th the
Federal reserve banks . N o r i s i t t o b e doubted that t h e member banks
which have n o t r edi scounted wi th t h e Federal res erv e bank would he s i ta te
to do so should occasion arise.
On August 3 1 , 1 9 2 1 there were 203 member banks i n Nebraska. A t that
time 7*4- o f the se banks were n o t borrowing from t h e Federal Reserve Bank.
129 Nebraska member banks were a t tha t t ime redi scount ing t o t h e extent
of
$11,263,3^5.
On
June
3 , 1920 , 135
Nebraska banks were borrowing from
t h e
Federal Reserve Bank $30,068,992
and on
October
30 , 1920 , 168
Nebraska
members were bo rr ow in g $3 8,294,175. When
i t i s
remembered that
t h e
t o t a l
r ed i s coun t s
a nd
b i l l s payab l e
of a l l
na t ional banks
i n t h e
Uni ted States ,
a s
shown
by th e
o f f i c i a l r e p o r t
o f the
Comptrol ler
o f th e
Currency, OB
August
22 , 1907
amounted
t o
$59,177,000, itwwould seem that
t h e
advances
las t October
o f
over $38,000,000
by the
Kansas City bank
t o
member banks
i n
Nebraska alone would indicate very ef fect ive funct ioning
o n t h e
pa r t
of that bank. You w i l l r r e c a l l t h e severe "oanic which occurred i n t h e
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f a l l o f 1 9 0 7 , a nd f o r sev era l weeks# be fo re t h e panic develcoed
cred i t condi t ions were a s s t r i n g e n t a s they have ever been i n th i s
country.
I t i s
t rue tha t
t h e
loans
o f t h e
Federal Reserve Bank
o f
Kansas
City
t o
member banks
i n
Nebraska
are now
only about eleven
and a
mia r t e r mi l l i on do l l a r s
a s
a g a i n s t t h i r t y - e i g h t
and a
quar te r mi l l ions
las t October , b u t i t does n o t fo l l ow nece s sa r i l y t ha t t h i s h a s been
t h e r e s u l t o f harsh demands f o r l i q u i d a t i o n o n t h e p a r t of t he Federal
Reserve Bank o f Kansas City. I{s i t n o t poss ib le tha t there h a s been
a grea t dea l o f vo lun ta r y l i qu id a t io n , made pos s ib le b y s a l e s of f&rm
produc ts o r b y incre ased depos i t s? Cer t a in l y c r ed i t condi t ions genera l ly
a-re by no
means
a s
st ri ng en t now-as they were l a s t October. While
i t
may be
t r ue t ha t
t h e
Federal Reserve Bank
o f
Kansas City, mindful
of
i t s r e s p o n s i b i l i t y u nd er the l aw and a c t i n g i n accordance wit h t h e d i c -
t a t e s of ordinary banking prudence, may have h a d occas ion a t t imes t o
c a l l t h e a t t e n t i o n of some o f t h e la rg er borrowing banks t o t h e neces -
s i t y of working themselves into a s t r o n g e r p o s i t i o n , t h e Federal Reserve
Board h a s y e t t o b e shown that t h e Federal Reserve Bank h a s ever under-
taken to say to a member bank what particular loans i t should require
t o b e
p a i d
o r a s k t o
have reduced.
At zqy
r eques t
t h e
Board ' s Div is ion
o f
Reports
an d
S t a t i s t i c s
h a s
prepa red
W o
tab les which re la te
t o t h e
d i s coun t t r ansac t i ons
by the
Omaha Branch of t h e Federal Reserve Bank of Kansas City during October,
1920 and
Augtist,
19 21 . One
table shows
t h e
total amount
o f
b i l l s
d i scounted f o r member banks during these months, t h e r a t e of i n t e r e s t
charged t h e borrowing customers b y t h e rediscounting member banks,
t h e amount a t each rate and the percen tage o f paper taken a t each rate
t o t h e total amount. You wi l l unders tand , o f cou r se , t ha t t h i s r e l a t e s
only t o t h e r a t e s of i n t e r e s t cha rged b y member banks on the p a r t i c -
ular notes which they i n turn rediscounted with t h e Federal Reserve
Bank Branch a t Omaha. I haves n o in format ion as t o t he ra tes charged
b y t h e n? ember banks on t he ir e n ti re volume o f l oans t o customers . The
other table shows
t h e
number
of
separa te no tes
o r
p i e c e s
of
t>aper
d i s -
counted
b y t h e
Omaha Branch during
t h e
same months
and the
rate charged
customersaby
t h e
borrowing bank
i n
each case.
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TABLE
A
X-3217a
BILLS DISCOUNTED
FOR
MEMBER BANKS
BY THE
OMAH4 BRANCH
OF THE
KANSAS CITY FEDERAL RESERVE BANK
DURING OCTOBER i g20
AND
AUGUST
1921
Amount
of
paper discounted:
Member bank s' c o l l a t e r a l no te s:
Cus tomers ' b i l l s
and
no t e s :
-
TOTAL
-
Number of p i e c e s of paper discounted:
Member banks ' co l l a t er al n ot es : -
Customers ' b i l ls and n o t e s : -
TOTAL -
Number of member banks accommodated:
Average rate
of
discount charged member
banks
by
Omaha Branch
-
October
1 4 2 0
August
1421
$16,058,636 $6,562,655
16.800.179 7.108.201
$32,858,865 $13,870,868
442
1 , 6 4 7
4,089
179
7-lOfr
255
J 3 3 -
1 , 9 8 8
Amount
of
paper discounted
by
Omaha Branch
on
which discounting member banks
charged their customers
a
r a t e
o f : -
October IQ20
145
6 . 0
August
1421
P e r
cent
P e r
cent
Amount
of
total Amount
of
to ta l
5 i -
$
19,700
. 1 2 $
— —
- —
6
150,200
. 8 9
— - -
6 f -
6 f -
85,000
• 51
546,100
7 . 4 7
f -
6 f -
6 , 1 0 0
. 0 4
- » —
— -
7 -
1,825, 800
1 0 . 8 7
1,650,100
22.58
7 i -
2,576,600
1 5 . 3 4
1,977,400
27 . C6
8 -
9,154,100 54.49
1,870,400
25.59
85 -
30,000
. 1 3
— —
- -
8 f -
528,200 3 . 1 4
400
.01
9 -
1,077,500
6 . 4 1
460,900
6 . 3 1
Si
130,300
.77
— —
- -
1 0 -
1,192,900
7 , 1 0
796, 300
1 0 . 9 0
1 2 -
21. 800
,14.
6 . 1 0 0
. 0 3
$16,800,200
1
00 .0 0# $7,308,200 lOO.OCfib
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TABLE B
NUMBER
OF
PIECSS
OF
p/PER DISCOUNT
EC BY OM/H/
BRANCH
ON
WHICH DISCOUNTING MEMBER BJINKS CEflRGEDTHElR
CUSTOMERS
A
RATE
OF: -
October 1Q2Q
SATE
5 i
6
u
7
7 i
g
8 4
84
9
9 t
1 0
12
Total
Number
P a r
cent
-Si .
August
1921
Number
P e r
cent
3
. 0 8
2 0
. 5 5
—
mm -
9
. 25
26
1 . 5 0
l , . C 3
—
237
b . 5 0
67
3 . 6 7
229
6 . 2 8
95
5- 48
2,022
55.44
46 s
27.00
2
. 05
mm mm
mm
111
3 . 0 4 1
. Ob
199
5 . 46
152
6 . 77
11
. 3 0
- » —
800
2 1 . 9 4
913
52.6b
3
. 0 8
11
. 64
3,64? 100.00
1 , 7 3 3
100.00
I t should b e borne i n mind that due t o t he opera t ion of the
pro gre ssi ve ra te l a s t October t h e average rate of discount which t h e
borrowing member banks paid t h e Omaha Branch du ri ng t h a t month was
7-10%, while
i n
August
1921 , t he
progressive rate having been
abol ished,
t h e
discount rate paid
i n a l l
cases
was 6$ .
I t i s
i n t e r e s t i n g
t o
note
t h e
changes
i n t h e
percentages
of
rediscounted paper which
had
been taken
a t
vary ing ra tes
of
i n t e r e s t
by t he
borrowing member banks.
In
October
1920 t he
percentage
of
V> paper discou nted b y t h e member banks w a s 1 0 . 8 7 against 22.38 i n
August 19 21 . The percentage of paper w a s 1 5 . 3 4 against 27.c6
and the
percentage
of 8%
paper
w as
54.49 against 25.59.
T he p e r -
centage
of 9%
paper
w as
6
. 4 1
aga ins t
6 . 3 1 . T he
percentage
of
10/6
pap er , which
w as
~1 1Q
i n
October l/>20
#
increased, however,
t o
1 0 , 9 0
percent
i n
August
1 9 2 1 .
Looking
a t
Table
B ,
which relates
t o t h e
number
of
p ieces
of
paper discounted,
you
w i l l
s e e
t ha t
i n
October 1 9 2 0 t h e percentage of rediscounted paper taken by th e '
member banks a t 8$ was 55*44 against 27.00 i n August 1 9 2 1 , 9 . 5 . 4 5
aga ins t 8 . 77 a nd 10$ paper 2 1 . 9 4 against $2.68.
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X-32l7a
Carrying
t h e
a n a l y s i s f u r t h e r
wa
w i l l
s e e
t h a t
of the
t o t a l
of
$7/306 ,200 which
w a s
red iscounted
by t h e
Omaha Branch
f o r
Nebraska member banks during August
1 $ 2 1 ,
only $79^*800
was
t aken
b y t h e
borro wing banks from t h e i r c ustome rs
a t a 1 0 $
ra te ,
b u t
this amount
w as
made
up of 9^3
separa te p ieces
of
paper, more
than one-half
o f the
total number
of
notes taken during
t h e
month. The average amount o f the red iscounted no tes on which
customers
h a d
been charged
1 0 $ w a s i n
October
1 $ 2 0
about $1,490
a n d i n
August
1 9 2 1
about $870.
The
average amount
of t h e r e -
discounted notes
on
which Customers
h ad
been charged
8% wa s i n
October
1 9 2 0
about $4,520
and i n
August
l g 2 1
about $4,000,
and
t h e average of 7% no t e s w a s i n October 1 9 2 0 about $7#700 and in
August
1 9 2 1
about $24,62$.
A l l
this would indicate ,
a t
l e a s t
s o f a r a s t h e
rediscounted
no te s a r e concerned, that t h e larger borrowers a r e g e t t i n g a
s l i gh t r educ t ion i n r a t e b u t t h e r e i s no th ing t o show that t h e
smaller borrowers
a r e , f o r
no twi ths tanding
t h e
reduced volume
of
l oans
t h e
number
of
t ransact ions a t3 .0^
w as
g r e a t e r
i n
August
1 9 2 1
than
i n
October
1 9 2 0 ,
There i s no th ing i n t h i s l e t t e r or i n my l e t t e r of September
15th
which
i s
intended
a s a
r e f l e c t i on upon
o r a
c r i t i c i s m
of the
banks
of
Nebraska.
I n
common with
t h e
r e s t
o f t h e
banks
of the
country, they have
h ad
very serious problems
t o
contend with
and
they
a r e
E n t i t l e d
t o
grea t c red i t
f o r t h e
manner
i n
which they have
met
t h e s t ra in which h a s been imposed upon them, b u t I wish t o cal l
you r a t t en t i on
t o t h e
fac t tha t
t h e
Federal Reserve Bank,
of
Kansas
Ci ty , l ike
a l l
ot he r banks
h a s h ad i t s
problems
t o o a n d i t s
r e d i s -
count fac i l i t i e s have cer ta in ly been
of
g r ea t a s s i s t ance
t o t h e
banking community and through t h e banks t o t h e p u b l i c . The Federal
Reserve Board i s watching t h e r a t e s i t ua t i on c lo se ly a n d i s anxious
t o
have
t h e
r a t e s
of
each Federal reserve bank bear
t h e
proper
r e l a t i o n s h i p
t o
cur ren t ra tes
i n t h e
r e s p e c t i v e d i s t r i c t s .
I inqui red in my prev ious le t t e r whether y o u thought a r e -
duc t ion
i n t h e
d i scount ra te
o f the
Federal Reserve Bank
of
Kansas
City would result
i n a
lower level
of
i n t e r e s t r a t e s
t o t h e
publ ic ,
I s e e
nothing, however,
i n
yo ur l e t t e r
of
September 22nd which bears
on
t h i s i nqu i ry
and I
w i l l
now
withdraw t ha t q ue sti on
and ask
instead
whether
y o u
th ink condi t ions
i n
your State wil l
b e
improved
by a
r educ t ion i n t h e Federal Reserve Bank rate and I would appreciate
a
f rank expression
of
your views.
I am informed b y t h e Governor o f t h e Federal Reserve Bank o f
Kansas City that
t n e
r eco rds
o f t h e
Omaha Branch w i l l show t h a t
no
member bank
h a s
been urged
t o
l i q u i d a t e r a p i d l y
i t s
discount l ine
and
t h a t n e i t h e r
t h e
head of f ice
n o r t h e
Branch
h a s
ever suggested
t o a member bank what policy i t should adopt towards requiring i t s
customers t o l i q u i d a t e . Between October 3 0 , 1 9 2 0 a n d June 30 , 1921
t h e
member banks
i n
Nebraska have reduced their loans from
t h e
Federal Reserve Bank
by
about $25,000,000
bu t o f
this amount
A A '
S
>*V»
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10 38
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X-3217a
approximately $1g,000,000 was l i qu i da t ed by banks i n Omaha and
Lincoln, while t h e loans o f a l l ot he r member ban ks i n Nebraska were
reduced only by about $b,jOO,OOG.
Whatever impressions may e x i s t t o t h e cont rary , i t i s a
f ac t t ha t t h e Federal Reserve Board h a s always been keenly desirous
t o have Federal reserve banks d o a l l they could legi t imately t o a i d
t h e member banks i n meeting t h e credi t requirements of tnose engaged
i n a g r i c u l t u r e and th e r a i s i n g of l ive s tock . The trouble, however,
l i e s l a r g e l y i n t h e f ac t t ha t t h e l a rger opera t ions i n farming and
c a t t l e r a i s i n g a r e car r i ed on in sections where t h e depos i t s a r e
seasonal and where t h e l end i ng ab i l i t y of the banks out of the i r
own r esources i s l i m i t e d . Tnen agai n, many banks do no t l i k e t o
lend their money f o r a s l o n g a term a s i t i s needed i n c a t t l e
r a i s i n g and in certain farming operat ions
The Joint Commission of Congress of Agr icul tural Inquiry
h a s been f o r some months past investigating thoroughly t h e credi t
s i t u a t i o n a s r e l a t e d t o t h e farming and l i ve s t ock i nd us t r i e s and
I am informed that i t s repor t wi l l be made public before very long.
I am sure i t w i l l be mos t in teres t ing and i l l umi na t i ng and w i l l no
doubt conta in some co ns tr uc ti ve sugg est ion s.
I am sending you w i th t h i s l e t t e r a copy of B u l l e t i n No.
999,
en t i t l ed "Pr i ces
of
Fara Products
i n t h e
United States",
r ecent ly i s sued
by the
Department
of
Agr icul ture, which contains
a
&reat deal
of
informat ion
of
v i t a l i n t e r e s t
t o
farmers
a n d t o a l l
who
l i v e
i n
ag r i cu l t u r a l s t a t e s .
I wish i n conclusion t o thank y o u f o r t h e l e t t e r s you have
w r i t t e n me and t o say t ha t I have replied t o them i n n o cont rovers ia l
spi r i t whatever . I am sure th at we have a common purpose and I hope
t h a t you wi l l have a n opportunity sometime of t a lk i ng wi th t n e o f f i c e r s
and d i r e c t o r s of the Federal Reserve Bank of Kansas City, who a re
more di re ct ly respon sible f o r t h e p o l i c i e s and opera t ions of the
Federal Reserve Bank than
t h e
Federal Reserve Board
i s . I t i s
d i f f i c u l t
f o r t h e Board t o admonish t h e o f f i c e r s and d i r e c t o r s of a Federal reserve
bank
a s t o
t he i r pr ope r po l i c i e s
and
conduct
a s
long
a s
complaints
a r e
merely general i n t he i r na t u r e . I t i s t h e earnes t des i r e o f the Federal
Reserve Board that a l l Federal reserve banks should function a s they
a r e intended by law and if you w i l l l e t m e know just i n what respects
t h e Omaha Branch o r t h e Federal Reserve Bank of Kansas City i s n o t
funct ioning proper ly , t h e informat ion wi l l be apprec ia ted .
I have sent a copy of t h i s l e t t e r t o t h e Chairman o f th e Board
of d i r e c t o r s o f the Federal Reserve Bank of Kansas City, with t h e request
t ha t
i t b e
read
t o t h e
d i r e c t o r s
a t
their next meeting.
Very truly yours,
Governor.
Hon.
Samuel
R .
McKelvie,
Governor of Nebraska,
Lincoln, Nebraska.
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1009
STATE
OF
KEBRASKA
EXECUTIVE OFFICE
LINCOLN
Sept .
2 2 ,
1921;.
X-J217b
Hon. W, P .
G.Hardin g,
Governor, Federal Reserve Board,
Washington, D.C.
My
de ar Governor Harding :-
I am grea t ly obl iged t o y o u f o r t h e in format ion
contained
i n
you r l e t t e r
of
September f i f teen.
The facts which yo u s e t o u t a r e o f such v i t a l
importance
and
suggest other leads
of
even equal
o r
grea te r
importance, that
I
have called
a
conference
o f t h e
Council
of the Nebraska Bankers' Association a n d t h e o f f i c i a l s of
cer ta in Federa l
and
pr iv a t e f inanc i ng agenc ies
t o b e
held
i n
Omaha
a t 7
:
3 0 P . M . ,
September twenty-six.
The
purpose
of t h i s conference wi l l b e t o d i scuss these ques t ions i n
d e t a i l
a n d t o
determine what
may be
done
t o
e f f e c t
a
source
of
reasonable c red i t
t o t h e
farmer
a t a
r a t e
of
i n t e r e s t
t ha t b e c a n a f f o r d t o p a y , I have invited Governor Miller
of the Kansas City Federal Reserve Bank and Mr.Ramsay,
Chairman
o f t h e
Board
of
D i r ec to r s
of
that bank.
I
wish
t h a t
you
might also
b e
p r e sen t .
The
f ac t s t ha t
y o u
give regarding
t h e
r a t e
of
i n t e r e s t t h a t
i s
being charged
by
correspondent banks
o n
loans tha t
a r e
rediscounted through
t h e
Federal Reserve Bank
a r e
i n t e n s e l y i n t e r e s t i n g ,
I am n o t
prepared
t o s a y
tha t
these margins have given
any
unusua l p rof i t
t o t h e
banks
that have been patronizing
t h e
Federal Reserve System,
bu t
I do
fe e l tha t there
i s
something ra di ca l ly wrong wi th
a
system which re qu ir es such wide marg ins. Alsc,
I am
convinced that this and other hampering influences must be
remedied before
t h e
system w i l l
b e
very usefu l
t o
a g r i c u l -
tural borrowers here.
I am
fur ther informed that
t h e
banks
i n
t h i s
d i s t r i c t
a r e n o t
genera l ly pa t ron iz ing
t h e
Federal Reserve
System. I t would seem that i f t h e margins indicated i n
y o u r l e t t e r a r e p r o f i t a b l e t o t h e correspondent banks,
there would
b e a
more general patronage
o f t h e
Federal
P/3 se rve Bank. Tne answer t o t h i s seems to be ind ica ted
i n a te legram tha t I have ju st r ece ive d from a member bank a t
Genoa, Nebraska,
a s
fo l lows:
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T he Farmers State Bank j oined t h e
Federal Reserve Bank
tw o
y e a r s eg o
a n d f o r
t h e p a s t s i x months h a s red iscoun ted 1 0 $
i n t e r e s t - b e a r i n g n o t e s .
Cur
re c o rd s j u s t i f y
me in saying that we have made no p r o f i t s
owing t o their changes of r u l e s and red iscoun t
r a t e s .
1 1
I am a l so informed th at ce r t a i n banks i n t h i s
te r r i to ry have , wi th in t h e last sixty days, withdrawn
from membership i n t h e Federal Reserve system.
From information that I have, I am•al together
convinced that t h e Federal Reserve system i s n o t f u n c t i o n -
i n g a s i t should i n t h i s d i s t r i c t . The demands f o r
l iqu ida t ion were ha rsh i n t h e extreme, i n view of the
f a c t t h a t t h i s
i s a n
a g r i c u l t u r a l r e g io n
a n d t h e
borrowers
here could n o t easily conform t o t h e same requirements
that were imposed upon semi-agricultural o r n o n - a g r i c u l -
tu ra l reg ions .
I n conclusion I d e s i r e t o suggest t h e d e s i r a b i l i t y
of a
close cooperation among
a l l of t h e
agencies that have
a con t ro l ing in f luence over t h e hand l ing of Federal Reserve
funds i n t h i s d i s t r i c t . Thi s i s n o t t h e cond i t ion tha t
o b ta in s now, and I am s in cer ely hopeful th at something wi l l
be done t o b r in g i t about. May I an t ic ipa te your hear ty
i n t e r e s t
i n
tha t d i rec t ion?
Very truly yours,
Samuel B . McKelvie
Governor.