Full text of Mimeograph Letters and Statements of the Board : Minutes of Meeting of Chairmen of the Industrial Advisory Committees, December 17, 1934, Number X-9063, Volume 41, Page 442

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442
X-9063
Upon c a l l of t h e Chairman, Mr. A. M. C r e i g h t o n , a supper meeting
of t h e Chairmen of t h e I n d u s t r i a l Advisory Committees was h e l d a t t h e
C a r l t o n Hotel a t seven o ' c l o c k - Monday, December 17, 1934 with t h e
following present:
Mr,
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

A. M. Creighton - Boston,
William H. Pouch - New York,
J . S. Butterworth ~ P h i l a d e l p h i a ,
F. A« Smythe - Cleveland,
John Sanford - A t l a n t a ,
Max E p s t e i n - Chicago,
Wm. E. N o r r i s - S t . Louis,
Sheldon V. Wood - M i n n e a p o l i s ,
Clarence Ousley - D a l l a s ,
Ralph H. Burnside - P o r t l a n d , Oregon,
S. F. Gilmore - S t . L o u i s ,
W. M. Hale - San F r a n c i s c o .

Upon motion duly p r e s e n t e d and seconded t h e f o l l o w i n g o f f i c e r s
were e l e c t e d :
Mr. A. M. Creighton - Chairman
Mr. William H. Pouch - Vice Chairman
Mr. J . E. Butterworth - S e c r e t a r y
Upon motion d u l y p r e s e n t e d and seconded t h e f o l l o w i n g answers given
below are the unanimous consensus of o p i n i o n of t h e m e e t i n g , w i t h except i o n s n o t e d where t h e y o c c u r :
QUESTIONS
1.

ANSWERS

What i s f e e l i n g i n r e g a r d t o
o p e r a t i o n of S e c t i o n 13b by
t h e F e d e r a l r e s e r v e banks,
(a)

Among i n d u s t r i a l i s t s ,
whether p o t e n t i a l borrowers
or n o t ?

(a)

Where t h e y a r e a c q u a i n t e d , or
have a knowledge of t h e law,
they are f a v o r a b l e .

Among o t h e r b u s i n e s s
leaders?

(b)

Same answer as above.




X-9063

-2-

ANSWERS

QUESTIONS
(c)

2.

3«

Among f i n a n c i a l i n s t i t u tions?

(c)

F i n a n c i a l i n s t i t u t i o n s which
are a c q u a i n t e d w i t h t h e law
a r e f a v o r a b l e ; our g r e a t d u t y
i s t o a c q u a i n t more w i t h t h e
r e a l p o s s i b i l i t i e s under t h e
law*

Need f o r working c a p i t a l f o r
i n d u s t r y and commerce•
(a)

Has e x p e r i e n c e i n d i c a t e d
t h a t t h e r e was a s u b s t a n t i a l need n o t being met
t h r o u g h u s u a l sources of
credit?

(a)

Yes. While t h e need a p p a r e n t l y i s n o t as g r e a t as a t f i r s t
t h o u g h t , t h e r e i s need and t h i s
p r e s e n t law t a k e s c a r e of i t ,
a l l of which i s supported by
the number of loans t h a t have
been made i n t h e s h o r t p e r i o d
we have been o p e r a t i n g .

(b)

I f such need now e x i s t s
can i t be a d e q u a t e l y met
under t h e p r e s e n t S e c t i o n
13b?

(b)

Yes. We f e e l t h a t p r a c t i c a l l y
a l l worthy cases so f a r p r e s e n t e d have been t a k e n c a r e of
e i t h e r d i r e c t l y or i n d i r e c t l y
and e x i s t i n g needs can be t a k e n
care of i n t h e f u t u r e •

Assuming t h a t t h e r e w i l l be a
c o n t i n u i n g need f o r 13b advanc e s or c omrni t m e n t s ,
(a)

W i l l a p p l i c a t i o n s f o r the
most p a r t t a k e t h e form o f ;
( l ) Applications for
d i r e c t advances•

( 3 a - l ) At t h e p r e s e n t time most of
the applications are f o r dir e c t advances i n most of t h e
Federal reserve d i s t r i c t s
although t h e p e r c e n t a g e v a r i e s
considerably,

(2) A p p l i c a t i o n s i n v o l v ing s e p a r a t e advances
by the F e d e r a l r e s e r v e
bank and by f i n a n c i n g
i n s t i t u t i on, or'

(3a~2) There i s no g e n e r a l r u l e
throughout t h e e n t i r e System.
A p p l i c a t i o n s d i r e c t t o Fede r a l r e s e r v e banks a r e dec r e a s i n g and t h o s e t o t h e




444
-3«*

1-9063

QUESTIONS

AHSHERS
l o c a l banks a r e i n c r e a s i n g i n
t h e m a j o r i t y of t h e d i s t r i c t s •
Most members of t h e Committee
f e e l t h a t a p p l i c a n t s should
be encouraged t o make a p p l i c a t i o n s t h r o u g h t h e l o c a l banks,
which should be encouraged as
i t i s most advantageous f o r
the l o c a l banks.

(b)

4e

(3) A p p l i c a t i o n s from
financing i n s t i t u t i o n s f o r commitments
c o v e r i n g proposed
advances•

(3a-3) If f i n a n c i n g i n s t i t u t i o n s r e f e r s t o F a c t o r and Finance
Companies, t h e r e has been
v e r y few c a s e s of t h i s k i n d ,

Should t h e r a t e s charged
by t h e F e d e r a l r e s e r v e
banks be so f i x e d as t o
encourage a p p l i c a t i o n s
under 1, 2 or 3 above?

(b)

I t seemed t o be t h e consensus
of o p i n i o n t h a t t h e p r e s e n t
r a t e s were s a t i s f a c t o r y and
should be c o n t i n u e d . Such
r a t e s should encourage t h e
l o c a l banks t o c o o p e r a t e •

Recognizing t h a t s u b s e c t i o n
!,
a" of S e c t i o n 13b i s designed
t o meet emergency s i t u a t i o n s ,
should i t be a permanent p r o v i s i o n of law, and i f so,
should i t be amended as r e g a r d s :
(a)

Requirement t h a t a p p l i c a n t
be unable t o o b t a i n r e q u i s i t e a s s i s t a n c e from u s u a l
sources •

(b)

Requirement t h a t loans be
f o r working c a p i t a l p u r poses.

(c)

Requirement t h a t loans be
made on a r e a s o n a b l e and
sound b a s i s •

(d)

Requirement t h a t loans be
confined to established
businesses.




The Committee f e e l s t h a t s e c t i o n
13b should be c o n t i n u e d i n i t s
p r e s e n t form a s l o n g a s t h e
emergency e x i s t s and t h a t subd i v i s i o n s a , b , c and d be cont i n u e d . Two Members b e l i e v e d
t h a t b^ might be broadened t o
include proprietary c a p i t a l .

445
X-9063
QUESTIONS
5*

AKSWERS

Should s u b s e c t i o n "b" of Sect i o n 13b be a permanent prov i s i o n of law, and i f so,
should i t be amended as
(a)

A u t h o r i z a t i o n of advances
through f i n a n c i n g i n s t i t u t i o n s o t h e r t h a n member
banks.

(b)

Amount of o b l i g a t i o n as t o
loss sustained.

(c)

A u t h o r i z a t i o n of s e p a r a t e
loans by F e d e r a l r e s e r v e
banks and by a f i n a n c i n g
i n s t i t u t i o n on which r e payments are made pro r a t a ,

6.

Would t h e making of l o a n s f o r
working c a p i t a l purposes p r e sumably have been conducted
more e f f e c t i v e l y i f I n t e r m e d i a t e C r e d i t Banks a f f i l i a t e d
w i t h t h e F e d e r a l r e s e r v e banks
had been s e t up f o r t h i s p u r pose as provided i n t h e f i r s t
b i l l proposed by t h e F e d e r a l
Reserve Board? I f so, why?

7.

What has boon e x p e r i e n c e as
regards applications?

I t was t h e consensus of o p i n i o n
t h a t s u b s e c t i o n !f b" of S e c t i o n
13b should be r e t a i n e d and a, b
and c be n o t changed i n t h e law.

The Committee f e l t t h a t t h e
answer to t h i s q u e s t i o n i s NO;
the Chicago Chairman d i s s e n t i n g ,

(a)

Extent t o which f e a r of
r e j e c t i o n and of p o s s i b l e
adverse e f f e c t upon a p p l i c a n t ' s c r e d i t standing
has d i s c o u r a g e d submission
of a p p l i c a t i o n s .

(a)

I t i s n o t f e l t t h a t f e a r of r e j e c t i o n and adverse e f f e c t upon
an a p p l i c a n t ' s c r e d i t has d i s couraged a p p l i c a t i o n s i n more
t h a n a few i n s t a n c e s •

(b)

E x t e n t of and r e a s o n s f o r
withdrawal of a p p l i c a t i o n s •

(b)

Negligible,
the reason
found t h a t
needed, or
from u s u a l




and u s u a l l y f o r
t h a t a p p l i c a n t has
f u n d s would n o t be
has o b t a i n e d f u n d s
banking s o u r c e s .

446
X-9063
ANSWERS

vui^STIGUS
(c)

I s c h a r a c t e r of a p p l i c a t i o n s improving? I s t h e
p r o p o r t i o n of a p p l i c a t i o n s
f o r d i r e c t advances declining?

(c)

Character of a p p l i c a t i o n s i s
improving and v a r y i n g . The
p r o p o r t i o n of a p p l i c a t i o n s f o r
d i r e c t advances i s c o n t i n u i n g
in varying proportions•

(d)

Has t h e r e been any subs t a n t i a l number of comp l a i n t s of a l a c k of
c o u r t e s y on t h e p a r t of
t h e Committee or of o f f i c i a l s or employees of
F e d e r a l r e s e r v e banks?

(d)

We a r e n o t aware of any comp l a i n t of l a c k of c o u r t e s y on
the p a r t of t h e Committee or
o f f i c i a l s or employees of t h e
F e d e r a l r e s e r v e banks•

(e)

I s t h e r e any evidence
t h a t F e d e r a l r e s e r v e banks
a r e r e q u i r i n g an e x c e s s i v e
amount of c o l l a t e r a l t o
s e c u r e loans ?

(e)

There i s no evidence t h a t Fede r a l r e s e r v e banks a r e r e q u i r ing an e x c e s s i v e amount of
c o l l a t e r a l t o secure l o a n s .
On t h e o t h e r hand, every e f f o r t
i s b e i n g made t o make loans
when t h e s e c u r i t y may be regarded
as r e a s o n a b l e .

(f)

I s t h e r e evidence of any
o t h e r ground f o r c r i t i c i s m
of e i t h e r t h e committees
or t h e banks ?

(f)

There i s no e v i d e n c e of any
o t h e r ground f o r c r i t i c i s m of
e i t h e r t h e Committees or t h e
F e d e r a l r e s e r v e banks•

Assuming t h a t more p a r t i c i p a t i o n s by and commitments t o
f i n a n c i a l i n s t i t u t i o n s are
d e s i r a b l e , what i s your r e c ommend a t i on as t o how t o b e s t
o b t a i n t h e c o o p e r a t i o n of
financial institutions to
t h i s end?

8.

I t i s t h e consensus of o p i n i o n
t h a t more p a r t i c i p a t i o n s by and
commitments t o f i n a n c i a l ins t i t u t i o n s a r e d e s i r a b l e , and t h i s
can be b e s t o b t a i n e d by d i r e c t
c o n t a c t w i t h t h e a p p l i c a n t s and
the banks. Further t h a t the
p r e s e n t p u b l i c i t y be c o n t i n u e d
w i t h i n each d i s t r i c t and t h a t
t h i s be supplemented by p u b l i c i t y
of a n a t i o n a l c h a r a c t e r and t h a t
t h e a i d of t h e F e d e r a l Reserve
Board be s o l i c i t e d i n t h i s connection.

Has t h e F e d e r a l r e s e r v e bank
t a k e n adequate measures t o
b r i n g to t h e a t t e n t i o n of
f i n a n c i a l i n s t i t u t i o n s , and

9.

I t i s t h e o p i n i o n t h a t t h e Reserve banks have made d i l i g e n t
e f f o r t s to acquaint a l l financing
i n s t i t u t i o n s , p a r t i c u l a r l y member




447,
*• G™
;:,UE3T10HS
p a r t i c u l a r l y of member "banks,
the advantages t o them of a c t i v e l y seeking out commercial
and i n d u s t r i a l e n t e r p r i s e s i n
t h e i r t e r r i t o r y i n need of add i t i o n a l working c a p i t a l and
f u r n i s h i n g such c a p i t a l under
t h e p r o t e c t i o n of a commitment
from t h e F e d e r a l r e s e r v e bank?

X-9063
AK'SVYERS
banks, wi t h the advantages t o
them of a c t i v e l y seeking out
commercial and i n d u s t r i a l e n t e r prises in their t e r r i t o r y in
need of a d d i t i o n a l working c a p i t a l and f u r n i s h i n g such c a p i t a l
"by commitment from t h e F e d e r a l
r e s e r v e banks• At t h e same time
we submit t h a t such e f f o r t s
might w e l l be i n t e n s i f i e d and
we e s p e c i a l l y recommend t o t h e
s e v e r a l Reserve banks t h e a c t i o n
of t h e Mew York Reserve Bank i n
engaging t h e s e r v i c e s of a p r a c t i c a l and w e l l known banker f o r
a p e r i o d of s e v e r a l months ( t h e
banker t o be w e l l known i n t h e
d i s t r i c t ) t o v i s i t banks and
p e r s o n a l l y d i s c u s s wi t h them
and with borrowers i n a r r e a r s
or i n temporary embarrassment
t h e wisdom of n e g o t i a t i n g loans
under t h e terms of S e c t i o n 13b#

10. "What, i n your e x p e r i e n c e , has
been t h e most i m p o r t a n t s e r v i c e r e n d e r e d i n d u s t r y and
commerce under S e c t i o n 13b?

10# In our o p i n i o n t h e most i m p o r t a n t
s e r v i c e s r e n d e r e d t o i n d u s t r y and
commerce under S e c t i o n 13b are
( a ) Accommodation t o i n d u s t r i a l
and commercial e n t e r p r i s e s t h a t
could n o t be o b t a i n e d o t h e r w i s e .
(b) the s t i m u l a t i o n of c r e d i t
c o n f i d e n c e and accommodation t o
i n d u s t r i a l and commercial e n t e r p r i s e s by o t h e r banks, many of
which have changed t h e i r c r e d i t
p o l i c i e s since the administrat i o n of S e c t i o n 13b began, and
( c ) t h e e n l i g h t e n m e n t of many
a p p l i c a n t s concerning t h e i r own
a f f a i r s and p o s s i b i l i t i e s a f f o r d e d
by t h e e x p e r t a n a l y s i s and advice
of t h e Advisory Committees and
Federal reserve o f f i c e r s •

11.

11. The f a v o r a b l e recommendation of
loans by t h e s e v e r a l F e d e r a l r e s e r v e banks has i n f l u e n c e d many

Has t h e a d m i n i s t r a t i o n of
S e c t i o n 13b t o d a t e had any
e f f e c t n o t shown i n r e g u l a r




^
X-9063

-7ANSWERS

QUESTIONS

12 •

4 4 8

r e p o r t s of F e d e r a l r e s e r v e
banks on t h e e x t e n s i o n of
c r e d i t through r e g u l a r and
u s u a l channels t o i n d u s t r y and
commerce by p r i v a t e f i n a n c i n g
institutions?

l o c a l banks t o t a k e over l o a n s ,
extending c r e d i t where t h e y
would n o t have done so o t h e r wise#

Recommendations 5 n o t covered
e l s e w h e r e , on t h e s u b j e c t of
t h e a d m i n i s t r a t i o n of S e c t i o n
13b.

12. I t i s f e l t wise t o c o n t i n u e
t h i s a c t as an emergency measure#
I t w i l l n o t b r i n g back p r o s p e r i t y ,
b u t i t w i l l be a m a t e r i a l h e l p
t o many who cannot s e c u r e n e c e s s a r y c a p i t a l f o r two t o f i v e
y e a r s . This w i l l b r i d g e t h e gap
where t h e c a p i t a l market should
function.

Messrs. Smythe, Burnside and E p s t e i n were a p p o i n t e d as a committee
t o f o r m u l a t e a r e s o l u t i o n f o r p r e s e n t a t i o n a t t h e a f t e r n o o n meeting r e q u e s t i n g t h a t some p r o v i s i o n be made f o r a l t e r n a t e s to r e g u l a r members of
t h e I n d u s t r i a l Advisory Committees.
Messrs. Pouch, Sanford and Burnside were a p p o i n t e d as a committee
t o c o n f e r w i t h members of t h e s t a f f of t h e F e d e r a l Reserve Board f o r t h e
purpose of working out p l a n s f o r n a t i o n a l p u b l i c i t y i n c o n n e c t i o n w i t h t h e
a c t i v i t i e s of t h e I n d u s t r i a l Advisory Committee.
Mr. H o r r i s and Mr. Wood were r e q u e s t e d t o p r e p a r e a r e s o l u t i o n f o r
t h e meeting tomorrow a f t e r n o o n with r e f e r e n c e t o the r e l e a s e of October
29, 19 34, of t h e Department of Commerce and s u g g e s t i n g t h a t t h e F e d e r a l
Reserve Board c o u n t e r a c t i n an a p p r o p r i a t e manner and a t t h e proper time
t h e e f f e c t s of t h i s r e l e a s e , and t o a c q u a i n t t h e p u b l i c w i t h t h e e f f e c t i v e
work done by t h e F e d e r a l Reserve System under t h e p r o v i s i o n s of S e c t i o n 13b,
l e a v i n g i t t o t h e d i s c r e t i o n of t h e F e d e r a l Reserve Board as t o what a c t i o n t h e y should t a k e •




449
-8-

X—9063

Mr• Pouch t h e n moved, which was duly seconded and c a r r i e d u n a n i mously, t h a t t h e Committee e x p r e s s i t s deep a p p r e c i a t i o n f o r t h e c o u r t e s y
and e n t e r t a i n m e n t shown i t t o n i g h t by t h e Chairman.
The meeting a d j o u r n e d a t 12:20 a . m*

(Signed)

Approved:
(Signed)

A. M. Creighton
Chairman.




J * E. B u t t e r w o r t h
Secretary.