811.51637/2: Telegram

The Ambassador in Cuba ( Crowder ) to the Secretary of State

24. Referring to my number 17, April 17, 11 p.m. Press despatches report prospective meeting of Federal Reserve Board May [Page 863] 7 to consider application Federal Reserve Bank Boston to establish agency in Cuba. Suggest advantage be taken of presence Governor Harding in Washington on that date and of opportunity to discuss with full board the banking situation in Cuba and latest draft of Torriente de Celis project for bank of issue et cetera in Cuba, forwarded with my despatch number 90 of April 28.34

On April 30, 1923, Royal Bank of Canada whose deposits in Havana alone were already reported to be $15,000,000 and for whole island of Cuba $40,000,000 took over entire banking business of private banker Pedro Gomez Mena whose total deposits are approximately $13,000,000 in addition to seven branches of Mercantile Bank of Cuba in Santa Clara province formerly under Gomez Mena control.

It is definitely known that negotiations in progress between private banker Jacinto Pedroso and Canadian Bank of Commerce for acquisition of former by latter actual terms of sale now being under examination by head office in Canada.

Most arresting [interesting?] information in connection with the expansion of Canadian banking interests secured this morning from trustworthy source, namely, that private banker Gelats has been approached by Royal Bank of Canada and is actually considering offer of purchase by latter.

The absorption of such important private banking interests so closely identified with commercial life of Cuba by Canadian banking interests, following upon the collapse and disappearance from activity of banks which went into suspension of payments, should be regarded with consternation by reason of growing disparity between Canadian banking interests here and their relatively unimportant economic interest in Cuba when compared with our preponderate commercial interests.

No doubt appears to be entertained in financial circles here that private bankers are being driven from business partly on account of the near monopoly exercised over commercial bank credits and foreign exchanges by the large Canadian and American banks. I am inclined to think that the establishment here of an active agency of the United States Federal Reserve Bank at this time would materially encourage the two private bankers mentioned above and possibly others to resist absorption by Canadian banks.

One of the principal burdens upon American and Cuban-American business interests here is the high rate of interest charged by banks. I am informed that discount rates below 8 percent are practically unknown while 12 percent is common; that the National City now charges 10 percent discount on short-time commercial paper of type [Page 864] for which all United States Reserve Banks now charge four and one-half percent. It is universal opinion among business men here that these interest rates are exorbitant. The extent to which an active agency of Federal Reserve Bank could remedy this situation seems a matter of technical banking judgment but it seems to be unquestioned in commercial circles that such an agency would induce competition and thus benefit business. I discredit the assumption that local bankers would not avail themselves of re-discount privileges afforded by such agency.

Whether such an agency would succeed in materially weakening the near monopoly of foreign exchanges would probably depend in some degree upon extent to which agency is able to acquire good will of important sugar shippers and others. …

[Paraphrase.] In my opinion the establishment here of active agency of Federal Reserve Bank would meet with favor among business men and would add to the potential influence of the United States here where at present our banking influence is apparently on the wane.

I recommend that the situation as I have described it be discussed fully with the Federal Reserve Board immediately. The Department may well be apprehensive of material and permanent loss to American banking prestige in Cuba unless action of some character be promptly taken. [End paraphrase.]

Crowder
  1. Not printed.