United States. Congress. Joint Commission of Agric.

Agricultural inquiry: Hearing[s] before the Joint commission of agricultural ... online

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ance of the Almighty Power our preeminence in the world will become secure and
acknowledged without war or wrong to any people, will be accepted gratefully and
gladly by all people, because it will be used always to make the world and its nations
better and happier and to lead humanity forward to fulfillment of its vast, myste-
rious — I believe, magnificent — destiny."

The Chairman. Mr. Williams, you may proceed.

Representative Mills. May we have copies of those speeches
to-day, Mr. Williams ?

Mr. Williams. Yes, sir.

In the autumn of 1919 we were in the mid^t of a whirl of specu-
lation, not only in public securities of all sorts but in conunooities.
As Comptroller of the Currency I was sincerely concerned over the
situation, and urged upon my associates in the Federal Reserve
Board the importance of a conservative course. I did not agree
with them that the wisest method of restraining speculation was
simply to advance money rates.

The Chairman. What period are you talking about now ?

Mr. Williams. In the autumn of 1919. I felt that there should
be a greater discrimination exercised on the part both of the mem-
ber banks and of the Federal reserve banks in the extension of
credit. More than 18 months a^o, on January 28, 1920, I filed a
remonstrance and protest with ttie Federal Reserve Board against
the manner in which the funds of the Federal reserve system were
being concentrated in the East and loaned with what seemed to
me to be an unjustifiable prodigality for speculative purposes.

Senator Robinson. Under what date was that?

Mr. Williams. January 28, 1920. In my letter I directed the
board^s attention to a concrete instance where the Federal reserve
system was lending, directlj and indirectly, to a certain banking
institution in New York City about $130,000,000. I said in my
letter



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ACiRICULTUJtiU^ IXQUIICK 49

Representative Mills. Mr. Chairman, I move to strike out the
testimony with reference to the loan granted to a specific institu-
tion, on the ground that it is irrelevant and immatenal to the pur-
poses of this mquiry.

Senator Harrison. Mr. Chairman, he has not named any par-
ticular institution. He says in the East, and in New York City.
That may be very relevant if he is going to show in other agri-
cultm^l sections tnat it was not loaned proportionately at all. It
seems to me it is very relevant, if that is what he is leading up to.

Mr. Williams. Mr. Chairman, right there, departing for a moment
from the line I was pursuing, and in connection with Senator Har-
rison's statement, I would like to read this memorandum:

On pa^e 222, volume 1, of the comptroller's annual report for
1920 will be found a statement showing the principal items in the
assets and liabilities of the national banfe at the time of the autumn
call each year from 1913 to 1920, classified according to central
reserve cities, other reserve cities, and country banks.

The following comparison gives the figures as to the banks in the
three central reserve cities of New YorK, Chicago, and St. Louis as
compared with the country banks; that is to say, with all national
banks outside of the reserve and central reserve cities.

The comparison is made for September 8, 1920, and shows in
one column the rediscounts and bills payable, and in another the
loans and discoimts, and in another the total assets exclusive of
rediscounts.

This statement shows that the central reserve cities at that time
had in rediscounts and bills payable $896,000,000, and the coimtry
banks had $596,000,000.

Representative Molls. What date is this ?

Mr. Williams. September 8, 1920. The rediscounts and bills
payable for the ctjntral reserve cities was $896,000,000, and for the
comitry banks, $596,000,000.

Representative Funk. Mr. Williams, are you sure of that date,
1919; wasn't it 1920?

Mr. Williams. Yes; 1920.

The Chairman. What is the page and the report you are referring
to?

Mr. Williams. Page 222 of volume I of the report of the comp-
troller for 1920.

Senator Habrison. And what cities?

Mr. Williams. New York, Chicago, and St. Louis. Would you
like to see the report, Mr. Chairman, showing those figures ?

The Chairman. You mav proceed. I will have it m a minute.

Mr. Williams. The total loans and discounts as of that date in
the central reserve cities amounted to $3,695,000,000, rediscounts
and bills payable being about 24 per cent of loans.

Representative Mills. What were those figures, the $896,000,000
and the $596,000,000?

Mr. Williams. Rediscounts and bills payable. Shall I procee<l,
Mr. Chairman?

The Chairman. Yes; go ahead.

Representative Sumners. It seems to me, before the witness
l>efi;ins, Mr. Chairman, that in giving these figures, if he desires to
follow some system, that it would be well to have the statement of

S1341— 22— VOL 2 4

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50



AGRICULTURAL INQUIRY.



tho witness come uninterrupted by interrogation, and that tho
figures be incorporated in his statement in that manner.

The Chairman. Go ahead.

Mr. Williams. The total loans and discounts for the three central
reserve cities of Chicago, New York, and St. Louis, as of the date
mentioned, amounted to $3,695,000,000, showing that an amount
equal to 24 per cent of them was rediscounted or borrowed. The
total assets, exclusive of rediscounts, were $5,471,000,000, tne ratio
of borrowed money being 16 per cent of their assets, excluding
rediscounts.

In the *' country*' banks tho rediscounts and bills paAmble were
$596,000,000, out of a total of loans and discounts of $5,853,000,000,
or JO per cent; the total assets exclusive of rediscounts were $9,-
958,000,000 in the country banks, the ratio of borrowed money to
total assets being 6 per cent.

On September 12, 1919, the national banks in the three central
reserve cities of New York, Chicago, and St. liouis held $497,000,000
of rediscounts and bills payable and the country banks $437,000,000;
the loans and discounts in the three central reserve cities of New
York, Chicago, and St. Louis were $3,144,000,000, rediscounts and
bills payable being 16 per cent of total loans, excluding rediscounts.
The country banks had in loans and discounts $4,759,000,000, the
amount of rediscounts and bills payable being only 9 per cent of
total loans and discounts.

Of these rediscounts and bills payable, I should estimate about
90 per cent were gotten from the Federal reserve banks. This state-
ment shows that in the autumn of 1920, although the *' country'"
national banks were carrying $2,158,000,000 more of loans and
discounts than the national banks of New York, Chicago, and St.
Louis, yet the banks in the three big cities were being accommodated
principally by the Federal reserve banks, with $300,000,000 more
than the country banks, which had become so heavily loaded in
their efforts to care for their communities.

Mr. Chairman, niay I insert the tabulation in the record?

The jChairman. Without objection, it may go in.

(The tabulation referred to is as follows:)

Statement showing the borrowings, by rediscounts and bills payable^ of the national banks
in New Yorky Chicago^ and St. Louis, as compared with the borrowings of the ^^ country "
national banks for Sept. 8, 1920, and Sept. 12, 1919.

[Report of Comptroller of the Currency for 1920, p. 222, Vol. I.J
[In millions.]



I



Sept. 8, 1920:

Central reserve cities (New i
York, Chicago, St. Louis). ;

Country banks '

Sept. 12, 1919: t

Central reserve cities (New
York, Chicago, St. Louis).
Country banks |



Redis-
counts
and biUs
payable.


Total loans and discounts.^


Total
assets,
exclusive
of redis-
counts.


Ratio of
redis-
counts
and bins
payable
to total
assets.


$896
596
497
«7


$3,695, — 24 per cent, rediscounted ....

$5,853, — 10 per cent, rediscounted

$3,144, — 16 per cent, rediscounted

$4,759, - 9 per cent, rediscounted


$5,471
9,958
5,695
9,167


Percent.

8.7
4.7



^ Nearly all with Federal reserve banks.



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AGRICULTUKAIi INQUIBY. 51

Mr. Chairman, shall I proceed now with my narrative ?

The Chaibman. Yes; unless there are some questions at this
point.

Representative Mills. You are just giving the figures for one
montli?

Mr. Williams. I gave them for September 8, 1920; and I also
gave them for September 12, 1919. I think I gave all of them.

Shall I proceed now with my narrative, Mr. Chairman?

The Chairman. Yes.

Representative Mills. Will you give those same figures for June,
1921?

Mr. Williams. I can get them for you.

Representative Mills. Well, will you, and give the same per-
centages?

Mr. Williams. I can get them for you, if you desire them.

Representative Mills. Will you get them, and give the same
percentages ?

Mr. Williams. Yes; if the commission desires them. Shall I
proceed?

The Chairman. Yes.

Mr. Williams. I was about to read from a letter which I addressed
to the Federal Reserve Board on January 28, 1920. I said in that
letter:

Is it not a little disconcerting, not to say alarming, to find that the Federal reserve

bank of New York had loaned or rediscounted for the < on December 31, 1919,

tn amount equal to nearly six timefl the capital of the Federal reserve bank of New
York— about 250 per cent of the capital and surplus of the Federal reserve bank of
New York — and that more than one- seventh of all the bills discounted for all members
and all those purchased in the open market at the end of December, 1919, were for the
b^efit of the ?

These figures also show that the Federal reserve bank of New York was lending to

the at the close of December, 1919, an amount in excess of the total loans

•nd discounts made as of December 26, 1919, to all of their member banks by either
the Federal reserve banks of St. Louis or Minneapolis or Kansas City or Richmond or
Atlanta and about twice as much as the aggr^ate of all loans and discounts and
purchased paT>er held at that time by the Federal reserve bank of Dallas.

The CHAiRBfAN. Right there, Mr. Williams, would it not be fairer
to compare loans and discounts with resources than to compare
absolute figures with New York and absolute figures for other
districts ?

Mr. Williams. May I suggest, Mr. Chairman, that it might be
easier for you to comment on the statement after it is concluded;
perhaps some of your inquiries may be answered as I proceed. I
shall be very glad, however, to answer any question that comea up.

The Chairman. I am asking you if it would not be fairer for you
to make that comparison instead of the one that jon are making.

Mr. WiLUAMS. I am making some other comparisons as I go along.

The Chairman. If that is your answer to the question, I am
satisfied.

Mr. Williams (reading) :

The not only borrowed back the entire amount of its reserve balance, but

ia also borrowing from the New York reserve bank a further sum equal to about
four times tfie total capital of the Federal reserve bank of New York. Frankly,
Me you not surprised that the officers of the reserve bank of New York should
approve these transactions?

Governor, this is a concentration of the funds of the reserve system with one debtor
bank, conspicuous for its speculative operations and promotions, which, in my judg-

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52 AGRICULTURAL INQUIRY.

ment, is not only not justified but distinctly dangerous, and I feel it my du^ to
register my strong dissent from a continuance of such conditions as these by writing
you, as I am doing, as an ex officio member of the board.

Representative Mills. Now, Mr. Chairman, I renew my motion to
strike out that portion of the testimony which Mr. Williams has just
read, as irrelevant and immaterial under the terms of the resolution
appointing this commission.

Kepresentative Funk. Mr. Chairman, a number of times we have
had complaints made here by people representing the agriculturid
interests that they have been discriminated against in the matter of
accommodation by the Federal reserve banks. I think this state-
ment is very pertinent in view of the complaints or charges which
have been made.

The Chairman. I think if objection is made to this testimony it
must be in the form of objection that the chairman can pass upon
and decide and which can be appealed from, rather than in the form
of a motion to strike out testimony.

Representative Mills. Mr. Chairman, I did not object — although
I knew perfectly well what Mr. Williams's testimony was going to be,
because it appears elsewhere — at the time he started to give it,
because I thought the commission should have an opportunity to
know the nature of the testimony. In presenting my objection it
seems to me there is no recourse left to me except a motion to strike
out.

The Chairman. In order to bring the matter before the commis-
sion, I will put the matter to a vote, and in voting those who favor
striking out the testimony will vote aye, and those who favor not
striking out the testimony will vote no.

(The question was thereupon put by the chairman on viva voce
vote.)

The Chairman. The motion is lost.

Representative Mills. Then let me ask j^ou, Mr. Williams, whether
you are not giving absolute figures there, without any reference what-
soever to the assets of the ^^deral reserve banks in question, with-
out any reference to the assets of the borrowing bank, and without
anjr reference to the deposits carried by the New York banks with
their Federal reserve bank, as compared with the deposits carried by
the banks in other cities ?

Mr. WiLiJAMS. I will give some other figures later on, Mr. Mills.

Representative Mills. But you have not to date, have you ?

Mr. Williams. They are in this statement.

Representative Mills. But you have not to date, have you; those
are absolute figures that you have given ?

Mr. WiLUAMS. Yes; in the paragraph which I have just given, I
made a comparison between the capital of the Federal reserve bank
in New York and the percentage of its capital and surplus which was
borrowed by one institution.

Representative Mills. Now, will you please explain to this com-
mission what the basic line is ?

Mr. Williams. I see several members of the Federal Reserve Board
present here, including the governor. I should prefer that they
answer that Question; that that question be answered by members
of the Federal Reserve Board.



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AGRICULTURAL INQUIRY. 53

Representative Mills. I think I should have an answer to the
question. The witness is appearing here as an expert, and he should
be able to tell what the basic line is.

Mr. Williams. I do not know on what principle the basic line is
now being figured at New York; the basic line has varied in different
districts.

Representative Mills. In what way has it varied ?

Mr. Williams. I should prefer to have that come from the board
members themselves. I am appearing here, not as a member of the
board now.

Representative Mills. You are appearing as an expert.

Mr. Williams. No; I do not understand that I am appearing herc^
as an expert. I understand that I am appearing here as the former
Comptroller of the Currency. I would prefer tnat the members of
the Federal Reserve Board answer that question, rather than have
me go into such details of their administration.

Ifepresentative Mills. I am not asking you to pass on the admin-
istration; I am asking you to define what is meant by the basic line.

Mr. Williams. I do not know what the basic line is at the present
time in each of the 12 reserve districts.

Representative Mills. I am asking you what the term" '^ basic
line" means.

Mr. Williams. You ask me what the term ^^ basic line" means?

Representative Mills. Yes; what does the term *' basic lino"
mean?

Mr. Williams. The term ''basic line" as here applied means the
"line" or amount of loans which the several Federal reserve banks
regard as the ''line of rediscount," which could be properly appor-
tioned from their total resources to each member in each district.

Representative Mills. In other words, the Federal Reserve Board
attempts to define, generally speaking, what each member bank in
a particular district is entitlea to borrow from its Federal reserve
bank?

Mr. Williams. In conjunction with the Federal reserve banks of
the various districts.

Representative Mills. Exactly.

Mr. Williams. Yes, sir.

Representative Mills. Now, do vou know whether in attempting
to determine that variation, or the allocation to each particular
bank — ^whether any formula was adopted ?

Mr. Williams. 1 think there were several formulae adopted.
That is a matter of detail which I would prefer should be answered
by the members of the Federal Reserve Board.

R'fepresentative Mills. Do you, or do you not, know whether
formulse were adopted ?

Mr. Williams. Yes; th ey w ere established on certain bases.

Representative Mills. What was the basis for the establishment
of those formulae ?

Mr. Williams. I would have to look up the record for that. The
basis has been changed from time to time.

Representative Mills. Generally speaking, what were the ele-
ments that entered into that basis ?

Mr. Williams. I decline to answer that. The secretary of the
board is present, and you can get that information from him, if you
desire it.

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54 AGRICULTURAL INQUIRY.

Representative Mills. I am trying to get it from you; I am not
trying to tie you down to any particular percentage; but I am asking
you what particular elements went inta the formulas that made the
basic line ?

Mr. Williams. I imderstand several elements entered into it. But
I would desire not to discuss that, when the members of the board are
present and can answer. It was not my duty to prepare those f ormulsB.

Senator Robinson. Were those formulae in writing?

Mr. Williams. My recollection is they were prepared by the re-
spective Federal banks with or without the approval of the board.
jJoWj I assume that the board approved the formulas in the several
distncts.

Senator Robinson. Were they reduced to writing, Mr. Williams!

Mr. Williams. Presumably they were, and they can be furnished
to your commission.

Senator Robinson. Did the board keep minutes of their pro-
ceedings when they made these formulae, or do you know about that!

Mr. Williams. The basic line was established in different Federal
reserve districts and thev varied.

Senator Robinson, i ou have not possession of the records of the
minutes of those meetings where action was taken establishing the
basic lines ?

Mr. Williams. No; I have not.

Representative Mills. Did they take into consideration different
elements in different districts ?

Mr. Williams. You can ask them that; I assume they did.

Representative Mills. Do you mean to say you have no knowledge
of itf

Mr. Williams. I assume they did.

Representative Mills. Have you any knowledge of it?

Mr. Williams. I assume they did, but whether they did or not,
those bases varied.

Representative Mills. I am asking you whether you have any
knowledge of it; that, it seems to me, you can answer by yes or no.

Mr. Williams. I do not know what they are at this time.

Representative Mills. I am asking you whether you have any
knowledge^

Mr. Williams (interposing). I had knowledge at the time it was
desirable for me to have knowledge, in a general way. I did not
follow the details of the basic lines in detail. I knew of it in a
general way.

Representative Mills. I will now ask you whether, in fixing the
basic line for the various districts, the elements taken into considera-
tion were the same ?

Mr. Williams. I do not imderstand that they were the same.
I think there were variations in the different districts. That is my
impression.

Representative Mills. What elements would normally be taken
into consideration in fixing those basic lines?

Mr. Williams. I would prefer not to answer that question. The
gentlemen famiUar with the details are in the room, and can answer.

Representative Mills. Let me ask you — I think it is important
to know what the basic line is

Mr. Williams (interposing). The governor and secretary of the
Federal Reserve Board are present.

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AGMCTILTURAL INQUIRE. 55

Representative Mells. I would like to have Mr. Williams explain
what the basic line is. He has. told us, in a general way, just the
method used in determining what proportioji of the fimds of the
Federal reserve bank the member banK of a particular district is
entitled to. Now, I would like to know what elements would be
considered in determining

Representative Sumnees (interposing). Mr. Chairman, I submit
tiiat the question has been asked a half dozen times by Mr. Mills,
and the witness has given the answer he desires to go into the record;
and I submit that further time should not be taken up in this manner.

Senator Robinson. I make the further point that there is a record
of this matter easilv obtainable.

Representative Mills. I withdraw the question, in view of the fact
that the witness declines to answer it.

Senator Harrison. He defined it.

Representative Ten Eyok. I desire to bring out this point: The wit-
ness is trving to define his position. If, later on, the board desires to
justify what they have been doing, and bring to us the basis on which
the basic line is determined, we would be glad to hear from them
what the basic line is. But I believe what the witness is giving us to-
day is his general idea of the basic line of the credit of me country.

Kepresentative Mells. Mr. WiUiams, is it not a fact that on
November 15, 1920^ the date to which you have referred, the banks
to which you refer m New York

Mr. Williams (interposing). May I interrupt you? I did not refer
to that date.

Representative Mills. Well, on the date to which you did refer.

Mr. Williams. All right.

Representative Mills. The banks in New York had borrowed only
142 per cent of their basic line, whereas the member banks, not in-
cluding the merely five largest borrowers in the case of the New York
district, and of the Richmond district, had borrowed 120 per cent of
their basic line ?

Mr. Williams. You are wrong; you are discussing one date, and I
am discussing another, as I understand it.

Representative Mills. What is your date?

Mr. WiLLtAMS. 1 am discussing December, 1919; you are dis-
cussing November, 1920.

Representative Mills. You are right. Your letter to the board is
dated what?

Mr. Williams. January 28, 1920.

Representative Mills. And the letter that I am referring to is the
letter dated January, 1921.

Mr. Williams. I do not know what you are referring to. Congress-
man.

Representative Mills. You have had considerable correspondence
with the board ?

Mr. Williams. I have had a good many letters; yes, sir.

Representative Mills. And you have made this same charge a year
later?

Ur. Williams. Can I end the narrative I was making first of the
autumn of 1919, before we get into 1920?

Representative Mills. Yes. surely.

The Chairman. 1 would like to ask a question with reference to
the basic line: At the time that you assumed that these basic Jines



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56 AGRICULTURAL INQUIRY.

were approved by the Federal Reserve Board, do you know whether
they were or not ?

Mr. Williams. I do not recall tlie details, Congressman.

The Chairman. You were a member of the Federal Reserve Board
at the time these basic lines were established ?

Mr. Williams. I was.

The Chairman. But you do not know whether tJie basic lines were
approved

Mr. Williams (interposing). I recall that the basic lines as es-
tablished were a subject of discussion ; whether they were passed upon
in the case of each district I do not know.

Representative Mills. Will you refresh your recollection before you
appear before the commission to-morrow and let us know ?

Mr. Williams. I have not been asked to appear before the com-
mission to-morrow. You can get that from tne board.

Senator Harrison. Probably the board could get it easier than
you could.

Mr. Williams. They could. They have declined to give me in-
formation I have asked for, and remmded me that I am no longer a
member of the board.

The Chairman. You were a member of the board at the time these
basic lines were established ?

Mr. WiixiAMs. Were established and discussed.

The Chairman. Very well. You may proceed.

Mr. Williams. To continue my letter to the Governor of the
Federal Reserve Board of January 28, 1920 [reading]:

I trust you wiU find time to make a careful analysis of this situation. With such
facts before us * * * as I have here undertaken to bring to your attention, our



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