USA > Massachusetts > Suffolk County > Boston > Metropolitan Boston; a modern history; Volume II > Part 6
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The major functions of a Federal Reserve bank have been mentioned and there is no reason to explain them here in detail. For those who have no knowledge of the Federal Reserve System, however, it should be mentioned that it was not established for purposes of profit-making. When a large volume of accommodation is extended to the member banks, however, it is inevitable that there will be substantial profits, and,
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METROPOLITAN BOSTON
as Mr. Carrick points out, "that the reverse will be true when loans de- crease, but the essential thing is reasonable accommodation to all mem- ber banks and if large profits result, they are incidental." Continuing, he states :
"The earnings of a Federal Reserve bank are used first for the pay- ment of expenses. Then there is paid to member banks a six percent dividend on their paid-up bank stock, which is the only return member banks get from their contributions to the resources of the reserve banks. Under the law, member banks receive no interest on their reserve de- posits. In passing it may be noted here that the member banks of the First Federal Reserve District have recognized that the payment of in- terest on reserves would be foreign to the character of a reserve bank. When expenses and dividends have been met, the remaining net earnings are credited to surplus until that equals the subscribed capital stock or when such a 100 percent surplus has been built up, then ten percent of the remaining net earnings are credited to surplus and the other ninety per cent are paid to the United States Government as a franchise tax. The franchise tax payments thus made to the government by the twelve banks, which under the law must be used either as additional reserve against U. S. notes ('greenbacks') or to reduce outstanding bonded in- debtedness of the United States, have amounted, up to December 31, 1925, to over $139,000,000."
The first directors of the Federal Reserve Bank of Boston were Fred- eric H. Curtiss, chairman and Federal reserve agent ; Walter S. Hackney, vice-chairman and deputy Federal reserve agent; Thomas P. Beal, Bos- ton ; Charles G. Sanford, Bridgeport, Connecticut ; Arthur M. Heard, Man- chester, New Hampshire ; Charles A. Morss, Boston ; Edmund R. Morse, Proctor, Vermont; Charles G. Washburn, Worcester, and Allen Hollis, Concord, New Hampshire.
Upon organizing on May 18, 1914, the directors elected Alfred L. Aiken, president of the Worcester National Bank, as the first governor. Thomas P. Beal, president of the Second National Bank of Boston, con- sented to serve as deputy governor without compensation pending the need of an active officer. Florrinon M. Howe, assistant cashier of the Old Colony Trust Company of Boston was elected as cashier, and Ernest M. Leavitt as assistant cashier. Daniel G. Wing, president of the First National Bank of Boston, was elected as a member of the Federal Ad- visory Council.
The first trust company to be admitted to membership in the Federal Reserve Bank of Boston was the Old Colony Trust Company, on August 14, 1915. This institution subscribed for 7,200 shares of stock, making a payment of $360,000, one-half of its subscription, and transferred to the bank a reserve of $2,600,000. On January 1, 1916, the bank became fiscal
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A HISTORY OF BANKING IN BOSTON
agent of the United States government. During the first six months of 1915 bankers' acceptances and municipal notes were the principal invest- ments of the bank, while the rediscounting of commercial paper of the member banks forged ahead in the latter part of the year. At the end of 1915 there had been no surplus of earnings over expenses, but by the end of 1916 the surplus was sufficient to charge off all expenses of organiza- tion, furniture and fixtures and to pay a six percent dividend from No- vember 2, 1914, to December 31, 1915.
On July 15, 1916, the bank inaugurated a system for the general col- lection of checks, similar to the system which had been in effect since 1900 in the so-called "foreign department" of the Boston Clearing House Association.
The end of the year 1917 found the Federal Reserve Bank of Boston with total resources of $253,000,000 as compared with $65,000,000 at the end of 1916. A dividend of six percent was paid up to December 31, 1917. As a result of an appeal by the President of the United States, on October 13, 1917, several of the State banks and trust companies joined the sys- tem, stating that they were doing so largely for patriotic reasons.
The year 1917 marked the floating of the first and second Liberty Loans. A minimum allotment of $240,000,000 and a maximum of $300,- 000,000 were fixed for the First Federal Reserve District, for the first loan. A total of $332,447,000 was subscribed, but the final allotment was fixed at slightly over $265,000,000. For the second loan the minimum was placed at $300,000,000 and the maximum at $500,000,000. While $476,950,000 was subscribed, the final allotment was fixed at $407,713,700. The total amount which the district actually loaned in these two first appeals was $672,731,600, of which Boston supplied, as was to be ex- pected, the major portion of the $450,478,000 which came from Massachu- setts.
Much of the work of the Federal Reserve Bank of Boston in 1917 con- sisted of financing the great war loans and in supplying the needs of local industries which were faced with unprecedented activities with the ad- vent of the war. Twelve State banks were admitted during the year, among them being the American, Commonwealth, International and Metropolitan Trust Companies of Boston. The year also marked the resignation of Alfred L. Aiken as governor of the bank, to become presi- dent of the National Shawmut Bank. Charles A. Morss, of Boston, was elected to succeed him, and took office on December 20, 1917.
During 1918 the Federal Reserve Bank of Boston placed more than $1,000,000,000 of government securities, treasury certificates, Liberty loans and war savings certificates in New England, and collected more than $300,000,000 in Federal taxes. Where necessary this financing was done through rediscounts with the Federal Reserve Bank. For the Third
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METROPOLITAN BOSTON
Liberty Loan, the New England quota was fixed at $250,000,000 and $354,537,250 or 141 percent, was the total actually received. For the Fourth loan, the quota was increased to $500,000,000 and the amount actually received was $632,221,850 or 126 percent.
The tremendous increase in the bank's business required far greater office accommodations than were to be had at the bank's headquarters at 53 State Street. Quarters were taken at 84 State Street, 131 State Street and 20 Kilby Street. Additional space was also acquired later at 53 and 84 State Street. The need of a large building became imperative and a building committee was created by the board of directors, which acquired for about $1,000,000 a large parcel of property at 95 Milk Street, with a frontage of 63.51 feet on Post Office Square and 129 feet on Pearl Street. The committee then gave its attention to plans for the construction of a new building on this site.
During 1918 eighteen trust companies were admitted to the system, among them being the Beacon, Liberty, New England, State Street and United States Trust Companies of Boston. The earnings of the bank at the close of the year, after depreciation allowances were made, amounted to $3,305,000.
The year 1919 marked the beginning of the readjustment period after the war, which was a sore trial financially. Government contracts were cancelled immediately after the armistice and many industries found themselves in a serious plight. Meanwhile the Fifth Liberty Loan was financed, the New England quota being $375,000,000. A total of $427,- 223,750 was actually received, being 113 percent, from 817,822 individual subscribers. The Liberty Loan figures which have been here quoted, show clearly the generous response of New England to the call of the government for help in the conduct of the war. The total amount re- ceived in the First Federal Reserve District in the five loans reached the staggering total of $2,086,714,450, or considerably more than 25 percent in excess of the combined quota of the loans for the district.
The property purchased in 1918 for a new bank building was found to be inadequate and was sold at a net profit. The bank then purchased, for $1,400,000, a piece of property with a frontage of 181 feet on Pearl Street, 267 on Franklin Street and 128 feet on Oliver Street, and rushed ahead with the plans for the new building. The beautiful structure which now houses the bank was not completed, however, until 1922, be- ing opened on March 20 of that year.
The year 1920 marked a continuance of the readjustment period. Philip Stockton, president of the Old Colony Trust Company, was elected to represent the district as a member of the Federal Advisory Council, succeeding Daniel G. Wing. The Exchange and Massachusetts
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A HISTORY OF BANKING IN BOSTON
Trust Companies were admitted to the system during this year. The Hub Trust Company was admitted in 1921 and the Federal Trust Com- pany in 1922.
Charles A. Morss resigned as governor of the bank on October 22, 1922, the resignation being accepted, regretfully, on December 31. W. P. G. Harding, who had been the first governor of the Federal Reserve Board in Washington, was elected by the directors to succeed Mr. Morss as governor of the Federal Reserve Bank of Boston, and assumed his duties on January 16, 1923. Thomas P. Beal, of Boston, president of the Second National Bank, who had been a director of the bank since it was organized, died in 1923, and Alfred L. Ripley, president of the Mer- chants National Bank, was elected to fill the vacancy. The first meeting of the stockholders of the bank, now an annual event, was called on De- cember 5, 1923, and of the 423 banks in the district holding membership in the system, 326 sent delegates to the meeting.
The officers and directors of the bank at the beginning of the year 1927 were as follows :
W. P. G. Harding, governor; William W. Paddock, deputy governor ; William Willett, cashier; Krickel K. Carrick, secretary; Frederic H. Curtiss, Federal reserve agent; Charles F. Gettemy, assistant Federal reserve agent; Harry F. Currier, auditor ; and the following directors, Alfred L. Ripley, Boston ; F. S. Chamberlain, New Britain, Connecticut ; Edward S. Kennard, Rumford, Maine; Philip R. Allen, East Walpole ; Albert C. Bowman, Springfield, Vermont ; Charles G. Washburn, Worces- ter; Frederic H. Curtiss, chairman, Boston; Allen Hollis, deputy chair- man, Concord, New Hampshire ; and Charles H. Manchester, Providence, Rhode Island. Arthur H. Weed, of Boston, was general counsel for the bank and Charles A. Morss of Boston was the district's member of the Federal Advisory Council.
At the close of 1926 the Federal Reserve Bank of Boston had total resources amounting of $394,153,000, of which $123,467,000 consisted of earning assets, $193,238,000 was cash reserves, and $69,546,000 was in miscellaneous assets, mostly checks and other items in process of col- lection. Of the earning assets, loans to member banks amounted to $66,102,000, acceptances bought in the open market were $47,201,000 and United States Government securities bought in the open market amounted to $10,164,000.
Under liabilities, the capital actually paid in amounted to $8,800,000, and the surplus had reached $17,606,000. The total deposits, largely the legal reserves of member banks, amounted to $151,235,000. Currency in circulation was $154,363,000. Miscellaneous liabilities, largely deferred items, amounted to $62,149,000.
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METROPOLITAN BOSTON
These figures, as compared with the end of the year 1925, showed the following principal changes :
I. An increase of loans to member banks of $13,000,000.
2. A decrease in the holdings of acceptances bought in the open market of $37,500,000.
3. A decrease of $2,500,000 in holdings of government securities.
4. An increase of $19,900,000 in the gold reserve.
5. An increase of $775,000 in capital and surplus.
6. An increase of $5,200,000 in reserve deposits of member banks.
7. A decrease of $20,000,000 in Federal Reserve Notes in actual cir- culation.
The total earnings applicable to expenses and other deductions for 1926 amounted to $3,327,607 as compared with $3,291,753 for 1925, the increase being due largely to the increase of discount rates from 31/2 to 4 percent and to increased borrowings by member banks. After paying the 6 percent dividend provided for by the Federal Reserve Act to mem- ber banks, and setting aside $138,322 for depreciation of building and other reserves, $585,888 was added to the surplus and $45,962 was paid to the United States Government as franchise tax.
The daily average volume of operations in the principal departments of the bank in 1926 shows some interesting figures. In numbers of pieces handled, under bills discounted, there were 28 applications, 139 notes dis- counted, 128 bills purchased in open market for own account, 782,000 pieces of currency received and counted, 629,000 pieces of coin received and counted and 253,000 checks handled. There were 11,000 United States Government coupons paid daily and 1,375 of all other coupons, 1,19I issues, redemptions and exchanges by Fiscal Agency Department, and 181 transfers of funds.
The daily amounts handled averaged as follows: Bills discounted, $9,104,000 ; bills purchased in open market for own account, $1,773,000; currency received and counted, $4,759,000; coin received and counted, $70,000 ; checks handled, $67,064,000 ; United States Government coupons paid, $179,000; all other coupons paid, $2,093,000; issues, redemptions and exchanges by Fiscal Agency Department, $1,075,000; transfer of funds, $24.406,000.
The Boston Clearing House-The Boston Clearing House, organized early in 1856, is an institution which has played an important part not only in the financial history of Boston, but of all New England. It ranks fourth in the volume of its annual exchanges, among the institutions of its kind in the country, being exceeded only by New York, Chicago and Philadelphia. Its total of $25,130,344,097 for the year 1926 was more than $15,000,000,000 greater than the exchanges of the city next below it.
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A HISTORY OF BANKING IN BOSTON
The history of the institution dates back to September 26, 1855, when a meeting of the Boston banks was held at the Merchants Bank for the purpose of considering the advisability of establishing an organization for the settlement of daily balances. Twenty banks, representing over two-thirds of the capital of the Boston banks, agreed to the proposal for a clearing house, at this meeting, and a committee was appointed to make plans for the project.
A second meeting was held on November 22 of the same year, at which H. B. Groves was unanimously selected to become manager of the "Boston Clearing House." A preliminary report on articles of associa- tion was made at a third meeting, which was held on January 1, 1856, and at the same time it was announced that rooms over the Bank of North America, corner of State and Kilby streets, had been obtained at a rent of $1,000, the Merchants Bank being selected as a depository.
The organization was completed at a meeting on January 15, 1856, when the articles of association were accepted, and the following officers were unanimously elected: Chairman, Franklin Haven, president Mer- chants Bank ; clerk, William Thomas, president Webster Bank; Clearing House Committee, Andrew T. Hall, president Tremont Bank; Waldo Flint, president Eagle Bank; Thomas Lamb, president New England Bank; Benjamin E. Bates, president Bank of Commerce; and A. D. Hodges, president Washington Bank.
The clearing house had a narrow escape from failure at its inception, for shortly after complete operations were under way, the panic of 1857 created havoc with the entire country. On October 14, 1857, the associa- tion voted to suspend specie payments "as a measure of irresistible neces- sity ; a necessity imposed on the banks, not merely or principally on their own account, but most especially for the protection of their numerous creditors."
On October 15, the following day, it was voted "that the bills of any of the associated banks may be received in liquidation of their daily bal- ances instead of specie, to an extent not exceeding 21/2 to 5 per cent of the capital of each bank." The storm was weathered, after a trying period of two months, when specie payments were resumed.
The election of Abraham Lincoln as President of the United States upset financial circles in 1860, and the banks once again were permitted to meet their obligations at the clearing house with ten percent of their own notes. Beginning on August 27, 1861, banks were allowed to deposit "Treasury Notes" with the Clearing House committee and receive ninety percent of their face value in "Loan Certificates" to be used in settle- ments. This was the origin of the "Clearing House Loan Certificates," which were afterwards used by the Boston banks in times of unusual stress, with beneficial results to business interests. In the panic of 1873,
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METROPOLITAN BOSTON
$10,000,000 of these certificates were issued; in 1890, $6,065,000; 1893, $II,445,000 ; and 1895, $165,000.
Specie payments were stopped by the banks in New York on Decem- ber 30, 1861, to be followed immediately by the Boston banks, not to be resumed for a period of seventeen years. It has been recorded that one Boston bank sold its gold early in 1862 at five percent premium, believ- ing that price to be the top figure to be reached. The highest price for gold, however, was not reached until July 1, 1864, and again on July 15 of that year, when it was 285.
The Boston Clearing House Association gained country-wide atten- tion when in June of 1899 it established a Foreign Department and de- vised a plan to collect for its members, at a very low cost, the checks of banks scattered throughout New England. The plan, which later came to be known as the "Boston system," was put into operation over the ob- jections of several ultra conservatives, and was a great success. It was adopted by other clearing houses throughout the country, and by the Federal Reserve Bank of Boston in 1916, and made the collection of checks a much more simple and less expensive branch of the banking business.
Some idea of the tremendous growth of the Boston Clearing House can be gained from the following statistics :
Year.
1856 (9 months)
Exchanges. $1,051,678,512 1,395,344,684
$76,990,283 121,160,094
1915
. 8,256,935,555
514,342,015
1916
10,757,335,866
1,169,112,367
1917
12,663,248,399
2,287,716,848
1918
15,637,209,010
3,394,305,438
1919
17,902,682,762
4,852,629,904
1920
18,816,978,696
5,484,862,403
1921
14,327,564,663
4,146,152,118
1922
16,452,605,137
5,547,130,479
1923
19,309,628,480
7,672,772,160
1924
21,323,411,670
8,227,304,004
1925
22,481,915,310
8,888,800,295
1926
25,130,344,097
II,052,201,983
Total since organization
$455,070,495,III
$87,182,493,532
.
Balances.
1857
The officers of the Boston Clearing House Association for 1927 were as follows: President, Alfred L. Ripley, president Merchants National Bank ; secretary, Frank H. Wright, cashier Second National Bank ; Clear- ing House Committee, Thomas P. Beal, president Second National Bank, chairman ; Walter S. Bucklin, president National Shawmut Bank; Philip Stockton, president Old Colony Trust Company; Clifton H. Dwinnell, president First National Bank; Allan Forbes, president State Street Trust Company ; Alfred L. Ripley (president), and Herbert K. Hallett,
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A HISTORY OF BANKING IN BOSTON
chairman of the board, Atlantic National Bank; manager, Herbert W. Scott ; assistant manager, Edmund S. Brigham.
The members of the association at the beginning of 1927 were as fol- lows: Federal Reserve Bank of Boston, Atlantic National Bank, Mer- chants National Bank, Second National Bank, National Shawmut Bank, Webster and Atlas National Bank, First National Bank, Commercial Security National Bank, Bank of Nova Scotia, National Rockland Bank, New England Trust Co., Boston Safe Deposit and Trust Co., American Trust Co., Old Colony Trust Co., State Street Trust Co., Beacon Trust Co., United States Trust Co., Federal National Bank, Liberty Trust Co., Exchange Trust Co., Bank of Commerce and Trust Co., and the Boston National Bank.
Express company members are the Alaska Pacific Express Co., American Express Co., American Bankers Association, Canadian Ex- press Co., Canadian Northern Express Co., Continental Express Co., Dominion Express Co., Globe Express Co., Great Northern Express Co., National Express Co., Newfoundland Express Co., Northern Ex- press Co., Pacific Express Co., Southern Express Co., United States Express Co., Western Express Co., and Wells, Fargo & Co.
Boston's Trust Companies-While trust companies had been estab- lished in other parts of the country as early as 1822, it was not until nearly half a century later that the first such commercial bank was organized in Boston. As it was, the first trust company to receive a charter from the State found great difficulty in completing its organization.
The Legislature granted a charter to the Boston Safe Deposit and Trust Company in 1865, but the bank did not commence business under this charter. A second charter was granted in 1867, which contained a provision repealing the original charter, and it was not until June 1, 1875, that the institution was finally opened. In the meantime the Worcester Bank and Trust Company had been opened under the name of the Worcester Safe Deposit Company on May 1, 1869, and thus Boston lost the honor of having the oldest trust company in the State. The New England Trust Company, incorporated on April 22, 1869, was opened on February 20, 1871, and therefore has the distinction of being the oldest Boston trust company.
An example of the attitude of the investing public toward trust and safe deposit companies at that time is best shown by the fact that it was eight years from the time the Boston Safe Deposit and Trust Company obtained its charter until it was able to begin business. It is recorded that Edward P. Bond, who obtained the charter, actually carried the document about in his pocket for eight years trying to interest investors in the possibilities which he foresaw in a safe deposit business.
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METROPOLITAN BOSTON
Special trust company charters, varying slightly in their provisions, were granted to eleven such institutions in Massachusetts by the Legis- lature until the year 1888, when the first general law was passed relating to safe deposit, loan and trust companies. After that date a standard form of charter was adopted, under which the majority of the trust com- panies have been organized. Of the first eleven specially chartered insti- tutions, six were located in Boston, but only three are now in existence, the others having been absorbed by other banks.
During its first year the Boston Safe Deposit and Trust Company confined itself to safe deposit transactions, but on July 2, 1876, established a banking department, as in fact, did other companies which followed. In 1877 the company was given authority by the Legislature to act as trustees under wills, marking the first instance of such powers being granted to trust companies.
This same authority was granted to trust companies generally by the act of 1888, and in 1899 the Legislature increased the powers of the trust companies by authorizing them to act as executors under wills, as admin- istrators of estates, and as guardians of minors and incompetents. The exercise of these powers has become an important part of the business of the large Boston trust companies. In 1908, after a prolonged dispute, the Legislature enacted a law authorizing savings departments in trust companies in face of strong opposition from the savings banks.
On June 30, 1926, there were fourteen trust companies in Boston hav- ing a combined capital of $24,050,000 and surplus and undivided earnings amounting to $33,327,179.99. The total deposits in the commercial depart- ments were $344,551,III.70 and the total assets were $432,731,227.28. The combined deposits in the savings departments were $43,074,541.97, and the total assets, $44,140,733.79. The total amount held in trust by these institutions was $369,176,468.91.
These figures show the tremendous growth of the Boston trust com- panies in the period of fifty-five years since the first institution was opened.
The bank consolidation movement in Boston, which was started by the National banks in 1898, did not reach the trust company field until 1906, but since that time there have been many and frequent changes. A study of these changes reveals that there have been certain well-defined periods during which National banks gave up their charters to enter the State field, and in which the trust companies became converted into Na- tional banks, as the regulations pertaining to these institutions were changed.
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