Source: The Insurance Committee of the Federal Reserve Banks, Federal Reserve Bank of Chicago, Chicago, Ill., Jan. 22, 1960.

Mr. BROOKS. I will ask you, sir, is it a common practice for the Post Office to handle large numbers in the fashion that was exhibited in Massachusetts?

Mr. DAY. Yes, it is. The Postal Manual, in setting out the rates. and fees for the Post Office Department, sets out fees for up to $15 million.

Mr. BROOKS. To what extent, or what percentage of currency or money shipments are made in armored vehicles, sir?

NO ARMORED VEHICLES UTILIZED

Mr. DAY. None are made by the Post Office Department in armored vehicles. The Post Office Department has never used armored vehicles for shipments outside of cities. They had a few such vehicles within cities up until the early 1930's. They were all discontinued

at that time.

Again referring to one detail of the Canadian system, they never use any armored vehicles up there.

Mr. BROOKS. Do we employ any commercial armored vehicles, hire any of them?

Mr. DAY. No, we do not. The only cases, with rare exceptions where we would have any such amount of currency that would cause one to consider an armored vehicle, would be for a currency shipment for a Federal Reserve bank or one of its affiliated banks, and we would in that case be serving merely as a middleman to get an armored truck which the Federal Reserve could get direct. I feel that this all bears on the point I said at the closing of my prepared statement, that I think a very appropriate subject of consideration for the committee should be whether the Federal Reserve Board should use the Post Office, the registry service of which is set up primarily for the benefit of the rank and file public, whether they should use our system or whether they should provide their own system, because it is hardly feasible for us to spend $135 million or more to provide a guard service when it is only for less than half of 1 percent of our registered transactions, that being the substantial currency shipments by the Federal Reserve banks.

Mr. BROOKS. I would like to place a memo in the record at this time prepared by the Federal Reserve Bank of Chicago which denotes the substantial increase in the utilization of armored carriers in the distribution of money. Just to cite from it, it indicates that 76 percent of their currency payments were by armored carrier, and only 22 percent by U.S. mail.

(The document referred to, exhibit 5, follows:)

EXHIBIT 5-INFORMATION RE FEDERAL RESERVE BANK OF CHICAGO

For the 772 member banks located outside of Chicago in the head office area of the seventh Federal Reserve district, 389, or 50 percent, are served by armored carriers on regularly scheduled runs in the transportation of currency and coin. These 389 banks are also permitted to avail themselves of mail and railway express service, should they so find it necessary. (During 1957 such armored carrier service was to 178 member banks, with progressive increases each year since then.)

During calendar year 1961 currency and coin payments to member banks located outside of Chicago in the head office area were as follows:

During calendar year 1961 currency and coin receipts from member banks located outside of Chicago in the head office area were as follows:

The head office area of the seventh Federal Reserve district comprises the State of Iowa and portions of Illinois, Indiana, and Wisconsin. The Detroit branch area of the seventh Federal Reserve district comprises the lower peninsula of the State of Michigan.

As indicated above, the figures are confined to the head office area.

Mr. DAY. That memorandum, Mr. Chairman, also points out that their coin shipments are handled to a large extent, to the extent of many millions of dollars just in that district of the Federal Reserve by the express agency, and I would think that as a study of security measures for carrying currency that it might be entirely suitable for this committee to call representatives of the Railway Express Agency and see how they handle it.

Mr. BROOKS. I think, General, that's a good suggestion. The coin shipments indicated in this document was about 87 percent by armored carrier, 8 percent by U.S. mail service, 5 percent by the Railway Express, and I think that the subcommittee will want to consider the advisability of calling folks from the armored carriers, from Railway Express, and there are several armored carriers, and get their ideas on the problems they are faced with and their method of transporting large sums of money.

I wonder, has the Post Office Department made an effort to obtain the cooperation of banks in limiting the size of money shipments that they ask you all to carry, sir?

Mr. DAY. Yes. This is a very common practice with us. Our inspection service, as a regular procedure, works with banks in order to get them to stagger their shipments.

And we are frequently able to bring that about. That's another aspect, however, of the unique character of our problem here, that so much money was being generated that it involved substantial shipments of currency every day and it was not feasible either from the standpoint of the Post Office or from the standpoint of the facilities which we had available on the cape to hold this money overnight in some of these facilities. It had to be moved out.

Now our system is that we carry what is brought to us, and because of the large weekend business up there on the cape the amounts brought in and which had to be moved on Tuesday were very large. Mr. BROOKS. Has the problem been discussed with the Federal Reserve System?

Mr. DAY. No, I have not discussed it myself with them, but I think that it largely will require legislation if it's going to be matter of us being able to refuse to carry items which they turn over to us. The fact that they have alternative means of transportation available, but still continue to use the Post Office to the extent of billions of dollars a year, indicates that they seem to be satisfied with our service and presumably that they like to take advantage of the economies they get by using our service. But it would be entirely agreeable with us if Congress should decide that they should use other types of transportation entirely.

MEMBER BANKS URGED TO REDUCE SHIPMENTS

Mr. BROOKS. I understand that actually there have been some discussions on money shipments with the Federal Reserve System by the Post Office Department and that as a result of it the Federal Reserve System has, without legislation, issued regulations encouraging their member banks to reduce to a minimum their shipments to and from banks, and, for example, I would submit for the record exhibit 6 on currency and coin shipments from the Federal Reserve Bank of Chicago, Circular 3, revised February 1, 1961. Item 2 in that says:

In view of the heavy cost to this bank of providing currency and coin, the cooperation of member banks in avoiding unnecessary shipments is requested. Accumulations of fit currercy and coin in excess of requirements should be made available to other banks in the same community and needed currency and coin should be obtained from other banks in the commuuity if conveniently available at such banks. Member banks are expected also to anticipate their requirements and to refrain from shipping to this bank currency and coin fit for further circulation, if such currency and coin is likely to be needed in the near future. The interchange of currency and coin by local banks and the exercise of care in anticipating requirements will reduce to a minimum the shipments to and from this bank.

(The document referred to, exhibit 6, follows:)

EXHIBIT 6-OPERATING CIRCULAR No. 3 RE CURRENCY AND COIN SHIPMENTS, FEBRUARY 1, 1961

FEDERAL RESERVE BANK OF CHICAGO

Operating Circular No. 3, Revised February 1, 1961

To the Member Banks in the Seventh Federal Reserve District:

CURRENCY AND COIN SHIPMENTS

1. The Federal Reserve Bank of Chicago is prepared to furnish currency, silver, and minor coin in all denominations to all member banks in the district and will absorb the cost of transportation on shipments to and from member banks located outside Chicago and Detroit. The risks of loss on shipments of currency and coin made by this bank to member banks located outside Chicago and Detroit and on shipments of currency and coin made by such member banks to this bank will be assumed by this bank in accordance with the section of this circular headed "Assumption of Risks of Loss on Shipments of Currency and Coin." Shipments of currency and coin to and from member banks located within Chicago and Detroit are at the risk and expense of such member banks. The provisions of this circular other than the assumption of risks and the absorp tion of cost of transportation will apply to those banks.

2. In view of the heavy cost to this bank of providing currency and coin, the cooperation of member banks in avoiding unnecessary shipments is requested. Accumulations of fit currency and coin in excess of requirements should be made available to other banks in the same community and needed currency and coin should be obtained from other banks in the community if conveniently available at such banks. Member banks are expected also to anticipate their requirements and to refrain from shipping to this bank currency and coin fit for further circulation, if such currency and coin is likely to be needed in the near future. The interchange of currency and coin by local banks and the exercise of care in anticipating requirements will reduce to a minimum the shipments to and from this bank. 3. Unless otherwise stated, all references to the Federal Reserve Bank of Chicago, or "this bank," will include the Head Office and its Detroit Branch.

ASSUMPTION OF RISKS OF LOSS ON SHIPMENTS OF CURRENCY AND COIN

4. Any member bank shipping or causing or ordering shipments of currency or coin to, from or for the account of this bank shall by such action be deemed to have agreed to the following terms and conditions with respect to such shipments:

"Subject to the terms of this circular, the Federal Reserve Bank of Chicago will assume all risks incident to the transportation of such shipments of currency or coin to and from member banks (a) by registered mail and (b) by such other means of transportation as may be selected by this bank, from the time such shipments leave the office of the sending bank until delivered at the office of the addressee bank, except as enumerated in the following paragraph entitled EXCEPTIONS, provided, however, that the Federal Reserve Bank of Chicago will not assume any risk for shipments sent by Railway Express Agency, Inc., while such shipments are in the custody of the Railway Express Agency, Inc., as the rate charged by the express company on such shipments is based on the declared value and the ordinary risks of loss are assumed by the express company under its shipping contract."

Exceptions

5. The Federal Reserve Bank of Chicago will not assume any risk of loss in any of the following circumstances, and any loss thereunder is agreed and understood to be assumed by the bank shipping or causing or ordering such shipment: (1) Any loss in excess of $2,000,000 on all shipments by any one banking office to this bank on any one day.

(2) Any loss resulting from hostile or warlike action by any military, naval, air forces, or agents of domestic, foreign or revolutionary governments, powers, or forces, whether or not war has been formally declared and including defending against an actual or expected attack; or any loss caused by any weapon of war employing atomic fission or radioactive force whether in time of peace or war.

(3) Any loss resulting from any dishonest, fraudulent, or criminal act of an employee of any bank, other than this bank, shipping, causing, ordering or receiving the shipment.