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At a joint session of the Federal Reserve Board and the Federal advisory Council, held in the Assembly Room of the Board, Metropolitan Bank Building, Seventh Floor, on Monday, Lay 23, at 11 A. Vs. Harding, presiding, Mr. Delano, Mr.aarburg, Mr. Willis, Secretary. Mr. Miller, Present also: )1.01/1,274 ; Mr. Forgun, Mr. Lyerly, Yr. Rue, Mr. Wing, Mr. Rowe, Mr. 21e1shha ker, Mr. Swinney, Mr. Morgan, Mr. 4atts, Mr. Mitchell, and Mr. Wilmot. Governor Harding Aetched the general reserve situation of the country and called attention to the principal topics which he thought should receive the attention of the Council, as follows: 1. The curtailment of unnecessary credit. Cn this point the Board's position had been fully stated in the April issue of the "Federal Reserve Bulletin", and was, in brief, that every reasonable effort should be made to curtail the loss essential credits of the country. Methods to be pursued in carrying out this plan might well be outlined. 2. The development of banking in foreign countries. The Board's gold licensint; policy was sketched, it being called to the attention of the members present that in every case where gold vas exported the Board desired to obtain more than a mere "quid pro quo". Mr. Hardini; gave special at- tention to the gold exportation situation as affecting Mexico. Re then called attention to the fact that the House had not yet adopted the bill providing for the Federal incorporation of foreign indicatinL: that the adoption of this bill was considered vary desirable. 3. AI government foreign exchange bank. Mr. Harding spoke of a Bill now pending before Congress designed to create a bank to be owned and controlled by the government, but stated that the Board does not think the present an opportune time for the proposal. 4. Guaranty of bank deposits. A bill, 3. 4426, was now pending and was the outcome of recommendations made in the Annual Report of the Comptroller of the Currency. The Board felt that this bill tended to standardize the interJst rate on deposits at 4:L. This was in conflict with the Board effort to keep interest rates on deposits down so far as possible. 'He sketched the efforts of tha Board in the latter direction. Finacgb. the cotton crop. This mat- ter had been before the America 1 Cotton Llanuracturers ;tssoci-tion of late. Er. Harding thousht that the present plan of financing cotton was inadequate. The export cotton was sold on the basis of prime bankers -bills and he thought that a similar plan might be introduced in domestic shipments of cotton. The Trade acceptance, which had been suggested, Was not well adopted to the purpose and could be introduced only very slowly. Mr. Harding described the method of marketing and financing cotton and noted that the present acceptance facilities of bankers were probably inadequate. He thought a start could be made during this season. 6. Trade acceptances. The Board's posi- tion on the trade acceptance had been clearly brought out and was that the trade acceptance was a desirable instrument with proper use, but also subject to abuse. There was some ground for objectin to it if it was intended to do away with cash payment. The Board vi.s not in -favor of the trade acceptance as a general sub- 1 stitute for the cash settlement plan. It favored only the use of the acceptance in those cases where the purchaser 'expected to defer payment beyond a thirty-day period. a letter from W. H. 'Netherill on the subject was presented for the study of the Council. 7. Capital Issues problems. The old Capi- tal Issues Committee had been dissolved and its place had been taken by the new body, while the .tar Finance Corporation had also been organized. The to bodies must work closely together with the Federal Iteserve Board, and the dui- Finance Corporation was likely to be especia_ly closely affiliated with the member banks of the Federal Reserve System. The directors of the Finance Corporation would therefor appreciate an unofficial conference with the Federal advisory Council. In reply, Mr. ?organ said that he would proceed to take up the topics suggested and would arrange for a meeting bet;ieen the Council and the directors of the aar Finance Corporation, probably on Tuesday afternoon. Er. Lyorly said that he would like to hear from Comptroller 'J;illiams with reference to the guaranty of bank deposits. Mr. Williams said that the bill now pending in Congress differed from his own original plan. He had at first suggested that the guaranty apply to deposits bearing not over 3, but tnere was much misunderstanding as to the purpose of the bill. If enacted, it would impose only a very small tax Of Alethirtieth to one-tenth of one per cent. It would protect some 16,000,000 depositors, would call rorth large aoards, and would work no injustice. At this point Mr. Warburg took the chair, Mr. Harding withdrawing from the room. Mr. Pleishhacker asked Iqly the government should not pay the guaranty, and Mr. Williz..ms replied that it was more appropriate that stockholders should pay the cost than thLt the government should. Forgan inquired wnether it was equitable that old and well managed institutions should pay insurance on deposits in rotten banks. He thought the Comp- troller's plan for shifting officers from one des to another in the banks was impracticable. Mr. dillials replied that no did not propose the shifting or officers but only employees, and in quired wnat Mr. 2organ would think it any bank were allowed to aubscripo to the guaranty or not, as it saN fit. 1,:r. iorgan replied that this would be a little less bad than the original scheme. Mr. :organ stated that the real question at issue was whet.ler Dank de'dosits were or were not fit snojcets for mutual insurance. After some more disossior the subject was dropped. 4arbur2: said that the Board would like to nave the views of 4he Council on rediscount rates. The present situation was anomalous because Federal Leserve rates were below market rates and it as nec- essary just nov, to keep them so in order to help the government get funds to carry or the war. At the same time it waa necessary to look after the questiot, of ecomomy, while the government would soon again have to place certificl-,tes. It must try to contract unessential credits through voluntary action. The Board would like to have the views of the Council on this subject. Mr. hue in.juired whether the Board had seen signs of inflation. Lr. Williams replied that it was difficult to trace inflation in rediscounts because ne thought in- nation did not Clow itself in that way. re- duction in reserve percentages, hwoever, wan obvious and apparently could not be avoided. Mr. Lyorly said that he waid like to recur to the question of tine guaranty of bank deposits. such bank guaranty plans mid been successful in Texas and in sane other states, and he thought tnat still other states would'follaN-suit. The state banks were not joining the Federal Reserve System but he thougnt they would do so if they could take advantage of a guaranty plan. LI*. Williams said that evidence in his possession showed tnat trio small banko gor.erally wanted the guaranty plan introduced. On motion; at 12:20 P. L., the conference adjourned. APPEMD:
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