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7/17/2019 frsbog_mim_v06_2957.pdf
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E X ~ O F F I C I O
MllMBllRB
G.
McADOO
SECRETARY O THE
TRUSURY
CHAIRMAN
SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARl2>-503
WASHINGTON
Novombar 14, 1917.
W.
P. G.
HARDING GOVERNOR
PAUL
M.
WARBURG,
VICE
GoVEltNOR
FREDERIC
A. DELANO
ADOLPH C. MILLER
C H R ~ E S
S.
HAMLIN
H. PARKER WILLIS, SECRETARY
SHERMAN P. ALLEN, ASST. SECRiTARY
ANP FISCAL AGENT
ADDRESS REPLY
TO
FEDERAL
RESERVE
BOARD
Copy oi le t tor
to
a Federal
Reserve agont
regarding endorseme1-it o
paper sold by one Foderal Reserve bank to another:
Dear Sir:
Receipt
i s acknowledged
of your
l e t t e r of
Novomber 6th
in
which
you
ask
whether
the· Federal
Reserve
Bank
of
Now
York
should
not
have·
ondorsed
the
$5,00l ,W
of bankers' accoptanccs which you
bought
recently from that bank in aecor iance with tho suggestiion of the
Federal Reserve Board,.
Your point i-s
well
takGn and tho
question
was ful ly
discussed
by
tho
aoard
when tho transaction
was arranged. In reviewing tho
co?iditions
which led to
t u
transaction, i t
should
bo rcmcmborcd
that
the Federal
Res crve banks,
w:i th hardly any exception, ha
vc been
accustomed, with the
approval of
the
Board, to invest l ibera l ly in
bankers
1
acc(lpt
anccs which •r pure ha.sod for thitm by the Fed(· ral
Rescrv" Bank of
N;;w
York. ·Thee.; tranes.ctione h11vc
be<>n
rlilgu+arly
cngagod
in
a?'ld on a largo ecal.o, _particularly by thol,\o banks
which,
l ike yo\,lr own. di d not
find
a sufficient
f
iold
of
investment in theil '
own di1Jtricts.
Tho Now York acoeptanco market
has
thus
been
developed
to
a
considerable degree
by
tho
combined operations o the
Federal
Resorve banks.
I t
hae
frequently
happened that tho F· deral R'-svrve
Bank o N W York has givnn othor Federal Roscrw banks largtilr part ic i -
pations
in
thes9 bankers ' -aeceptancos than
i t
would
have
dcsir.0d had
the
mattor beon l o o ~ e d
upon from
the viewpoint
of i t s own interest alone
.
Thel J• l ibera l
participations
havo
been
given othor Fodoral Reserve
banks
wh•n the Now fork bank's oarnings WQre not suff icient to meot i t s own
d i ~ d c n d roquiremonts,
whilC' thr-
otheT
banks I by
rccoi
vi.ng a
l i l :orel
allotment
of
acccptancos
purche.sod
in
New
York, wero
anablod
tho:r-cby
to
mak• a b ~ t t o r showing in t h ~ mattor of e a r n i n g s ~
Thero havo beon
other
occasions
whQ l the Fedaral Rasarvo banks
h ~ v e
discontinued
their purchases in
anticipation of
heavy demands
in
thf'1 i r o\m
dis t r ic te thus
throwing
t h ~
who lo burden
or sustaining
tho
a e ~ 1 1 ) t a n c e
market
upon the
Federal
Reserve Be.nk
of
Now York. In th is
w'-y they conserve
their
own
rasourcos,
while
the rosG1rves of tho Fodl.ral
Reserve Bank
of Now
York wore corroepondingly roducad bocauso o the
la rger part of ·tho burdon which
i t had to
assume.
These acts
are brought
.y'Our attf>nticn for the purpose of emphasizing the point that a par t ic i -
pa'tion in tho ptU chase of acc$ptancae is not only a privilege but
that i t
il l
~ r i f a ; i s
a.
duty also the
measuro
of
which
can
hardly
be gaugad
by
tb:.;
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X. 503
2 -
convenianca of any individual
bank.
Final rosponsibi l i ty in tho matter
res ts undar
the law
upon the federal Reserve Board, and i t may become ·
~ a c e s s a r y for tho Board in the future
to
tmdartake a more
complete
regulation
of thosa
functions.
In suggosting
to a nU111bor o·f faqoral Rasarve Banks which wore
in a strong
posit ion,
to purchase
bankers'
c c e p t n c e s ~ from the Federal
Rasarva
Bank of
New York the Board asked msrely
that
they resume
the i r
purchases
of
ac ceptancos in the nanner
in which
they had engaged in
these transactions
heretofore;
i . e . without the
endorsement of the
Federal
Roserve Bank
of Now
York.
The
]3oard
anticipates that ·
there
will
bit.a
quick
c ~ a n g e
in
banking
conditions
shortly
after
the
f i f t o e n ~ h
instant ,
wnen the
pressure on
New
York should
diminish
and·
bear.
heavier upon
somo
of
the
other d is t r ic t s . from this point of
view,
the
most
natural
operation
perhaps
would have been
the rediseo
unt
by other
Federal
Reserve
banks
of
the
f i f teen
d y member banks' collateral p a p e ~ of which
the
Federal Reserve
Bank
of New York holds
a very
large amount e.t
this
time.
S1 1eh 11 t ransact ion, however, would necessarily have been dealt with as a·
rediseount,
as
i t
would have
involved
single
name
collateral
notes
o
m•ber
banks
taken under
Section
13,
endorsed
by the Federal
Reserve
Bank of New York under
instructions
franthe Federal Reserve Board. lt
would
have been
necessary
to
show a
transaction o this
kind in the
weekJy statement, thereby
creating
more or less comment which
might
bave
been
undesirable
in
the present
circumetances,
nd
the
Board
fe l t
there
fore,
that
i t
would
be better for the adjustment
to
take tne form o a
sale.of acceptances suggested by the
Board
rather
than
by
a
rediecount
transaction
ordered by the Board. The Board understands, of course, tliAt
in any
case
where a rediscount operation
is
ordered, Federal Reserve
banks should
·have the
right to
require
tm t the paper bear the endorse-.
ment
o the
eel;iing
bank; but
where the Board invited the banks to
resume purchaeee of
bankers'
acceptances
upon
tbe
same
conditions
which
have prevailed hitherto, t we.e fe l t
that
there w e no necessity for
requiring
an
endorsement.
Had
any bank to which
the
Board suggested a
purchase, stipulated that the paper should be endcrsed,
the
Federal
Reserve
Bank of
New
York in tm t
event,
would have been called upon to decide
whether
i t
w o u l d ~ p r e f e r
not
to
consider
the
proposed
sale.
While your le t ter
was
in
t ran1i t the
Board effected
a
second
transaction of th i s k i n d ~ When the Federal
Reserve
bank gcvemore were
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X-503
3 -
assembled here l s t Thursday, some cf them whose banke were in a
par-
t icularly
strong
position, v1ere asked i they were willing
to
take from
the Federal
esefve
Bank
of
New
York a specified amount of
bankers
acceptances. Without heSitation they
l l
stated thei r will ingness
to
do so. This transaction also md the cmracter of a voluntary purchase
on
the
pa.rt o t
the federal Reserve
b a n ~ s ··Uf>on the
suggestion
of 1;he
Federal
Reserve Board,
and as there
was no
compulsion in
the matter,
the endorsement of the Federal Reserve Bank
of
New York was not required.
Respectfully
yours,
w P. G HARDJllG;
o Vernor.