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58

COPY X-7034

October

  27, 1931

Federal  lie serve Board Topics  f o r  joint conference  of

Mr.

  Smead Governors

  and P. H.

  Agents

The  Board's letter X-S940  of  August  11  reques ted each Federa l re se rve bank

to  advise  th e  Federal Reserve Board,  i n  advance  of the  next joint conference  of

Governors

  and

  Agents,

  o f i t s

  total expense

  i n

  handling securit ies

  of

  member

banks  f o r  safekeeping during  the  year  1930, or as  close  an  estimate  of  such

expense  a s  could  be  made.  The  figures furnished  by the  Federal reserve banks

a re a s

  follows:

Boston $12,486 Chicago $30,000

Hew  York 138,000  S t .  Louis 13,350

Ph il ad elph ia 50,000 Minneapolis 39,380

Cleveland  *  Kansas City 25,000

Richmond 4,000 Dallas 4,400

Atlanta #2,400

  San

  Francisco

  500

Total  (1 1  banks)319,516

•Bank states that

  i t

  seems impossible f a i r l y

  to

  estimate

  th e

  expense

b u t

  that

  i f t h e

  entire cost

  of the

  Custodies Function were taken,

plus considerable portions  of the  cost  of  Protection, Registered

Mail,

  and

  Non-Cash Collection Functions,

  a

  substantial amount

would  be  arrived  a t  eas i ly  i n  excess  of  $100,000. However,  i f

safekeeping  f o r  member banks were discontinued  th e  pos i t ive  s a v -

ings would

  n o t

  exceed $1,000

  p e r

  year.

#Estimated savings  i f the  safekeeping fun cti on were dis con tin ued .

An examination  of the  repl ies  to the  Board's letter which  a r e  attached

hereto indicates that

  th e

  figures furnished

  by the

  several banks

  do not

represent  i n  many instances costs  of the  same oper at ions. Some banks  c o n -

fined their estimates

  to a

  portion

  of the

  cost

  of

  operating

  th e

  Securit ies

function, while others,  in  addition, included some  of the  expenses  of the

Don-cash Collection, Registered Mail, Filing, Accounting, Auditing,  and

General Overhead functions, under

  th e

  theory that such expenses

  a r e a n c u t -

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X-7034

growth

  of the

  banks' safekeep ing oparationls*

  f o r

  example,

  th e

  reserve banks

cl ip

  a l l t h e

  coupons

  on

  bonds held

  i n

  Safekeeping

  and

  then, acting

  on

ins t ruct ions from member banks, send most

  of

  them

  o u t f o r

  col lec tio n. This

adds materially

  to the

  expense

  of the

  Hon—cash Collection function.

For the

  Board's information, therefore, there

  i s

  shown below

  th e

  cost

  of

operating

  th e

  Vault Custody unit

  of the

  Securi t ies function

  a t

  each Federal

re se rve bank. These f igures , which were compiled from  the  semi-annual

functional expense reports furnished  the  Board, represent  th e  cost  of  receiv-

i n g ,  vaulting, coupon cutting  and  delivery  of  secur i t i es  and the  maintenance  of

th e

  immediate va ul t recor ds th er eo f. While these f ig ur es

  a r e

  thought

  t o be a

reasonably satisfactory measure

  of the

  cost

  of the

  safekeeping service,

  two

points should

  he

  borne

  i n

  mind,

  ( l )

  They include

  the

  cost

  of

  handling

securities owned

  by th e

  bank

  o r

  held

  a s

  co l la te ra l

  f o r

  rediscounts, also

  s e -

curi t ies held

  i n

  safekeeping

  f o r

  Government

  and

  other o f f i c i a l s . These

securi t ies

  a r e

  largely Government obligations

  and

  consequently

  th e

  cost

  of

handling them

  i s

  relat ively smal l .

  (2 ) The

  f igures

  do not

  include

  any

  expenses

connected with this service incurred elsewhere  in the  hank,  f o r  example,  i n

th e  Registered Mail, Filing, Auditing  and  Non-cash units.  In  case  th e  Federal

reserve hanks discontinued  th e  safekeeping service  f o r  member hanks there would

he

  some reduction

  i n

  these costs although

  th e

  reduction would

  no

  doubt

  be

  small

i f

  member banks continued

  to use the

  Federal reserve banks

  f o r

  collect ing

maturing securities

  an d

  coupons.

Expense during

  1930 at

  each

  F . R .

  Bank (including branches)

  of the

  Vault

Custody unit  of the  Securities function

Boston $15,598 Chicago $23,385

New

  York 124,218

  S t .

  Louis 13,341

Ph il ad el ph ia 42,692 Minneapolis 11,583

Cleveland 21,672 Kansas City 10,651

Richmond 8,589 Da ll as 8,794

Atlanta

  6,1 12 San

  Francisco

  2 .931

Total 289,566

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The  amount  of  secur i t ies held  in  custody  f o r t h e  account  of  member banks

by  each Federal r eserve bank  may be  helpful  to the  Board  i n  this connection  and

accordingly such amounts

  a r e

  given below.

  In a few

  instances

  th e

  figures, which

ere taken from  th e  most recent examination reports available, include certain

securit ies held  i n  safekeeping  f o r  Government, State  and  municipal officials,

nonmember par-remitting banks,  e t c .

.Amount  of  secur i t ies held  i n  safekeeping  f o r  member banks,  e t c . . by  each  F.R.

Bank (including branches)

oston (11-15-30) $169,685,000 Chicago (7-18-31) $224,141,000

ew

  York

  (

  4-11-31) 520,863,000

  S t .

  Louis (1-24-31) 44,936,000

  (12- 6 -30)  271,798,000 Minneapolis (2-17-31) 113,305,000

Cleveland  ( 3 - 7 -31 )  164,477,000 Kansas City (6-30-31) 141,488,000

  (  3-24-31) 47,258,000 Dal las  ( 1 - 6 - 3 1 )  29,765,000

Atlanta

  ( 1 0 - 4 - 3 0 )

  44,906,000

  San

  Francisco(6-

  6 - 3 1 )

  5.223.000

total 1,777,845,000

Deputy Governor Attebery  of the S t .  Louis bank s t at e s tha t  th e  following

appears upon each acknowledgement issued  to  member banks covering securities

l e f t

  f o r

  safekeeping;

Theft, burglary

  and

  holdup insurance carried

  by the

  Federal

Reserve Bank

  o f S t .

  Louis

  i s i n a

  limited amount

  and

  covers

money  and  negotiable securities owned  by the  bank  i n  addi-

t ion  to  secur i t ies held  f o r  safekeeping.  In the  event  of

l o s s ,  th e  amount recovered through insurance wi l l f i r s t  b e

applied against loss  of  Federal Reserve Bank property  and

only  th e  excess will  b e  available  f o r p r o  ra ta dis t r ibut ion

against losses  of  member banks.  I f a  member bank desires  i n -

surance protection

  i n

  addition

  to

  that outlined above,

  i t

must arrange

  t h e

  same direct with

  i t s own

  insurance companies.

I n h i s  l e t t e r  to the  Board, Governor Calkins stated that  he  thought  i t

  be  he lpfu l  to the  Federal reserve banks  i f the  Board would inform them

concerning  th e  circumstances under which  th e  loss referred  to in  Board's

etter X-6940-a

  was

  sustained