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333 JA a joint session between the Federal Reserve Board and the Governors of Federal aeserve Banks held in the office of the Board on dednesday, April 4, at 10.30 :r. 7amlin, L:c.adoo, presiding, Mr. Harding, Mr. Delano, Mr. :iarburg, Mr. dillis, Secretary. Present also, Mr. iken, Mx. Treman, Mr. J. F. Jurtis, Mr.ahoads, Mr. 2ancher, Mr. McCord, Mr. eay, tr. 11cDougal, Mr. Calkins, 1.:r. Van 24andt, and Mx. .,told. :,:e,.doo addressed the meeting stating that it was a time which called for frank conference and interchange of ideas. There was a probability that large amounts of lovern- merit financing, including bond issues, would have to occur in the near future. The rate and other details of tri.e issae would have to be settled by Congress. At the last session he had himself gone before the ,:ays and Mens Committee and asked that the bond holders be permitted to convert such bonds as they might take into higher rate securities, should such secArities be offered la.ter on. same provision at this session. He expected to urge the He did not know how many bonds could be floated at 3,% although he believed it would be a 334 large volume, bue he felt that in any event the rate should Inasmuch as be high enough to attract actual investors. the law provided that a public offering of bonds should be made, it would be necessry to comply with that provision, yet he desired to give all banks a chance to cooperate in it, and particularly desired to have the 7ederal deserve Banks aid in making such offering a success. With reference to the recent 2c1.) ,;;50,000,000 loan, Mr. licidoo said that he had been gratified with the response of the Tederal Reserve Banks. quested to subscribe anything. ter They had not been re- He had thought that the mat- as one of interest .And advantage to reserve bunks, „,,nd had, therefore, merely offered it to them. Re uents had come from other sources for an opportunity to subscribe to the notes.- 4s to the rate, he called attention to the fact that when the Government deposits its funds in bank it charges 2;', and never more, 1:r4t reserve banks have had Government depotAts free of interest charges. This was a kind of subsidy, and represnted n policy whose wisdom he had doubted. 4 2d Had he offered the reserve lx,..nks more than interest on the bonds it would have been difficult to explain. 1.! . I.:c-doo referred to resolutions which had been c_3t_1,3 presented to him by the Federal eserve Bank of rew York, which he thought were out of harmony Ath the situation. This fact furnished the occasion for the present remarks. The aeserve Ban, however, was not obliged to take any of the notes, and the secretary was disappointed at the tone and attitude it had assumed. a position of that kind. It was unreasonable to assume The duty of the bank was to co- operate in the interest of the whole country .nd in that 10 alone from now on. Before leaving the bond question r.r. La_doo desired to obtain an idea of the conditions prevailing in the different districts regarding the possible absorption of securities, and also what rate would be necessary to float them. Governor idken replied that it would be difficult to know how far the Boston District would absorb bonds. There was a very large power of absorption there. country as whole were assumed to be ready to absorb -„;500,000,000 of share. If the bonds, Boston could be expected to do its If the rate was go off enthusiastically. an almost unlimited amount would He thought the bonds should be re- deemable at the end of 5 years, and should' pay 3L;, with a provision for a serial retirement at the end of 5 years, the total maturity to be 20 or 30 years. ratriotic im pulse would be very strong in such a case, but would be somewhat overloaded if the rate were made 0 The savings . banks paid /0, and the investor naturally wunts to get as near that as he can. In !,:assachusetts the privilege of exemption from taxation was worth to the investor from onehalf of one per cent to one percent. He thought the issue o*f;ht to be handled in such a way as to push the bonds as fast as possible into safety deposit boxes. ?Jr. Treman of New York stated that he did not know that he could correctly represent New York city. The bank- ing interests in New York would be very glad to have a chance for consultation and the expression of their views through 4 delegation. He thought, however, the prevailing opinion would be that a 3L1, rate on the bonds would be desirable if the arr unt was from one to two billion dolUrs. If the am- ount was not over ..,500,000,000, he thought 3Y; would be satisfactory, provided th bonds had the conversion privilege. It was, however, important to 'know what proportion of the funds for the conduct of the war would be provided by taxation .2rd wh!,t proportion would be furnished by loans. Pub_ t ,) licity with reference to the conditions and terms of the issue would be very desirable. :,1r. Treman thcn spoke of varying suaxstions that ILA come to .him from different quarters, some sound, others absurd. He thought exemption from taxation in rew York was worth about one-Alf of one percent. secretary Mcl.doo said that the 7 arm Loan Board in its recent investigations had had evidence which seemed to show the exemption was worth from one to two percent. farther asked whether the 'ederal reserve baif:s ue ould like to be called upon to clear the subscriptions to bonds, that is to say, to handle the relations with member and other banks as to subscriptions. ,arbarg said it ought to be decided whether the , eder.J.1 reserve banks would act -s the recipients of subscriptions or wht would be their precise function, as the LAW would not permit funds to be kept on deposit 7,ith member banks. 7.:0,-Aloo said he thought it would be necessary to give large credits to foreign governments. an immense issue of bonds, This might mean 1though he imagined it would stop the sale of foreign bonds in this market. tremendous amount money was seeking investment he e. Jhat he wanted was the best judgment Of the 7;overnors as to the way geed cults. He was,however, obliged to les.A e the - room ve y shortly, and would s that it be discus., tweet the Board and the Governors. be- In closing he called attention to the fact that the Trea might have to get another $50 000,000 before July 1st for 30 or 40 dayS in order to anticipate taxes. 'this at 21. It would be neoesary to offer He rould like to have u distinct statement from the reserve banks 'Ilether they wanted these lons or not, and would be glad if the governors would reort ti ir feelings direct to the Board. Ur. 4:11k n stated that if the Secretary desired it, the governors would ke a complete memorandum as to gov- nt bonds before 1 avi g, and Mr. L4op having assented withdrew from the room, Governor Harding ing the chair. 7.r. Harding said he had not been able to make fly preliminary suggestion to the Governors becausehe was uncertain what direction the discussion i'ould have to take. :,:bildoo had, however, advised the, credit situation up to date, and there wa lctely of the little to add on that. Ile would, therefore, discontinue i7urther discussion of the bond luestion and voLdd await the memorandum which was . to be furnished by the aovernors as agreed. Mr. Harding then turned to the .iuestion of amendments, distributing to each lovernor a copy of the bill ,:hich the Board 11-(1 transmitted to Jongress and calling attention to the action already taken by Messrs. ,lass and Owen. He noted that the most important adaitional provision likely to be incorporated c)...1ld be one re airing state banks to enter the System and applying the power of taxation with that end in view. He called attention to the fact that the Board had recommended th_t the substance of existirg r galations with reference to state bank membership should be put into the form of law, und he then reviewed the text of the amendments in detail. ;is to state banks, .r; Harding said the Board had held informal confer(nces ..ith the Secretary of the P'reacury on sipril id with a view to having its amendments made tn administration measure. The essentitl plan was to provide that t no discirminating tx(s should be applied in any state a:ains national banks and also to see to it that the provision for branches in cities should be made valid regardless of state laws to the contrar:r, similar action to be taken with regard 34.0 o the granting of fiduciary powers. Finally, however, it was proposed to tax banks on their inter-state checks so as to drive them into the Cystem. They could then choose between becoming member banks in the fall sense of the term or keeping a balance with the reserve bank and olearing through it, as provided for in the proposed amendments, or doing ncither but paying a tax to which they would be subject. la.. Harding laid before the ;overnors u letter which had been handed to him by the .(-1. ry of the Treasury from the 7qrst National Grunipe Bank, of lagusta, raine, with reference to danger from oppressive state legislation. spoke of this as ill He trative of the handicaps to which national banks were subject here and there. He further called attention to the question whether the Reserve .act should be changed so %s to make more satisfactory provision for the election of Directors. 1:r. 'larding then turned to the questi n of collections, and read a letter from Director .Toodward of New ?ederal reserve bank York, suggesting that the proposed , inter-district draft should be made payable upon advice. Discussion ensued between nr. 7arding and Governor 7, 341 Bouga as to the draft vestion. Mr. dken said he would now call for discussion of lovernment laAns district by district, and would himself first state the position of the Boston District. The feelin there vas strong that the assets of reserve banks should be kept intact. Bankers would have preferred to see the recent -:50,000,000 loan offerea at a higher rate. As to any future issues, the Boston ban;:, while desirous of cooperating in any way, would not desire to take any more bonds at 2 for its own portfolio. Trenan said he regretted that the Secretcry of the Treasury had interpreted the resolutions of the Board of Directors of the New York bank as criticism. gram from the Board as The tele- to the bond issue had come just be- fore. the gathering of their Board for a meeting, and two things seemed to be prominent in it - the low rate named and the necessity of keeping the bonds in portfolio on the one hand, And, on the other, the cedent involved in it. The offer had been m,de by telegraph, and was apparently argent, and there was a feeling tIv...t there ought to have been faller and more complete consulUtion. The Yederul Reserve Bank of New York would not want to take any more bonds of that kind except as a matter of sheer patriotism. However, he could not say anything absolutely final at the present time. : 1 a .71hods stated that it of rate with the Reserve Bank of Phil_d. 1, In fir banks would not take the i!sue ,t 2 the Treasury miht m(Lt • es ion The member o thought n,tt. hd isked the members of his Mr. ?anchor vaid h Board of Directors for their vie... Mere was general agreement th.lt they must keep the bonds because the large banks did not want them. hold them until maturity. ..;onsevently he had arranged to A feeling prevailed that a rate would have resalted in enabling them to pass the :s for any future issues, he Issue along to other banks. thoJ;ht they should be offtred tArol3h the Federal reserve banks at a r,tc which w)Ald render it possible for them to transfer the seirities to others if ne3essar:*. b nTh tLOtht the lo.n sail trt h temporary one tirely. ni siad ta,t the Po-rd had prob- ably considered the mLttcr c_..r, fz11:7. ence whethe iS the r-tc vas 2' or to any future loan, he It madc little differ- in district number 5. olld like to have it offered. 343 through the reserve bnk, with the understanding that it would -dispose of the securities to investors if.the conditions favored. Mr.:.:cord said his view was the sarre as that of Governor Seay, and his policy for the future you'd be the same. He thoughtthat 2 mould be enouL;th to place the loan in the hands of member banks. Mr. :cDougal said that he had not been able to get hold of all of his directors before acting, but all that he had seen thought the rite was out of line with the market. He thought Mr. .Seay's statement that the .Treasury carried considerable bal&nces with reserve banks was not well founded, as the balance in the ?ederal Reserve link of [jhicago fluctuated widely and was sometimes overdrawn. Chicago had voted to subscribe for rate of interest was too low. The Directors at 6,000,000, but that the If other bonds should be offered they ought to go to the public., He was disturbed In his own mind. at finding that the Treasury considered that the duties of a fiscal agent included that of taking part of a public loan. rr.ld thought that the loan was satisfactory for Federal reserve bunks but the rate was too low. Lir. Van f.andt said that the loan was en emergency and temporary matter, and he, therefore, would have taken it without any interest. The new bonds if offered should be placed on the market through Federal reserve banks for disposal to others. rr. Calkins thought that the resources of the reserve banks ought not to be tied up in Government loans. The rate really had little influence in the matter. Iny future loan ought to be offered through Federal reserve banks and at a rate that would enable its being taken by member banks. Harding said the Board would like to have the Governors discuss during their stayin'the city theA4estion of branches or agencies of Federal reserve banks. Mr. dken said he -Would be glad to have the members of the Federal Reserve Board attend the sessions of the Governors at their pleasure whenever they were disposed. The Governors would, however, like to meet formally with the Board tomorrow, (Thursday) morning, at 10.30 a.m. In sammarizing the sense otthe meeting On bonds he said he understood it to be that the reserve banks wanted to be helpful but that 2!) was too low a.rate. They wo1d, however, like to have any fatare Issues offered through them and would recommend that the rate Should meet the market rate. On motion, at 12.40 p.m. the joint session adjourned, to meet at 10.30,a.r. on Tharsd,y, April 5. 40Seoretary. p.P1WW.0: irman.
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