The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
X-9065 At t h e meeting h e l d i n Washington on December 18, 1934, a t 10 a.m. of members of t h e F e d e r a l Reserve Board and members of i t s s t a f f w i t h r e p r e s e n t a t i v e s of t h e I n d u s t r i a l Advisory committees of t h e twelve F e d e r a l r e s e r v e d i s t r i c t s , t h e f o l l o w i n g i n d i v i d u a l s were present: Mr. M a r r i n e r S. E c c l e s , Governor, F e d e r a l Reserve Board Mr. J . J . Thomas, Vice Governor, F e d e r a l Reserve Board Mr. C h a r l e s S. Hamlin, Member, F e d e r a l Reserve Board Mr. A. C. M i l l e r , Member, F e d e r a l Reserve Board Mr. George R. James, Member, F e d e r a l Reserve Board Mr. M. S. Ssymczak, Member, F e d e r a l Reserve Board Mr, J . F. T. O'Connor, Comptroller of t h e Currency and ex o f f i c i o member of t h e F e d e r a l Reserve Board Messrs. A l b e r t M. Croightoji, H. Pouch, J . Ebert B u t t e r w o r t h , F . A. Smythe, John S a n f o r d , Max E p s t e i n , Wm. K. N o r r i s , Sheldon V. Wood and Clarence Ousley, Chairmen of the I n d u s t r i a l Advisory Committees of the F i r s t , Second, T h i r d , F o u r t h , S i x t h , Seventh, E i g h t h , Ninth and Eleventh F e d e r a l Reserve D i s t r i c t s , respectively, Messrs. Walter J , Berkowitz and Ralph B u r n s i d e , members of the I n d u s t r i a l Advisory Committees of t h e Tenth and T w e l f t h F e d e r a l Reserve Districts, respectively. Mr. Chaster M o r r i l l , S e c r e t a r y , F e d e r a l Reserve Board Mr. L. P. Bethea, A s s i s t a n t S e c r e t a r y , F e d e r a l Reserve Board Mr. 3 . R. C a r p e n t e r , A s s i s t a n t S e c r e t a r y , F e d e r a l Reserve Board Mr. E. L. Smead, Chief of t h e D i v i s i o n of Bank O p e r a t i o n s , F e d e r a l Reserve Board x-9065 : 455 — Mr. '.'/alter Wyatt, General Counsel, F e d e r a l Reserve Board Mr. George B. V e s t , A s s i s t a n t Counsel, F e d e r a l Reserve Board Mr*. C. R. McKay, Deputy Governor, F e d e r a l Reserve Bank of Chicago Mr. J . S . Walden, J r . , C o n t r o l l e r , F e d e r a l Reserve Bank of Richmond Mr. S. F . Gilmore, C o n t r o l l e r , F e d e r a l Reserve Bank of S t . Louis Mr. w. M. H a l e , C a s h i e r , F e d e r a l Reserve Bank of San F r a n c i s c o Mr. C r e i g h t o n s t a t e d t h a t a meeting of the Chairmen and r e p r e s e n t a t i v e s of t h e I n d u s t r i a l Advisory Committees was h e l d y e s t e r d a y evening and t h a t t h e a c t i o n t a k e n a t t h a t time would be r e p o r t e d t o t h e Board a t t h i s m e e t i n g . He t h e n c a l l e d upon t h e i n d i v i d u a l members of t h e F e d e r a l Reserve Board t o a d d r e s s t h e m e e t i n g . The s u b s t a n c e of Governor E c c l e s f s t a t e m e n t was a s f o l l o w s ; There a r e many who f e e l t h a t t h e making of d i r e c t l o a n s t o i n d u s t r y does not b e l o n g i n the F e d e r a l r e s e r v e banks. There a r e o t h e r s who f e e l t h a t t h e F e d e r a l Reserve System can p e r f o r m a u s e f u l f u n c t i o n i n t h i s u n d e r t a k i n g , but whatever t h e o p i n i o n s may be w i t h r e f e r e n c e t o t h e problem, Congress decided t h a t i s s u e l a s t s e s s i o n and d e l e g a t e d t h e r e s p o n s i b i l i t y t o t h e F e d e r a l Reserve System of making such l o a n s . The I n d u s t r i a l Advisory Committees have been chosen t o u n d e r t a k e t h i s important r e s p o n s i b i l i t y , and a r e i n a p o s i t i o n which r e q u i r e s t h e p a t r i o t i c g i v i n g of t h e i r t i m e , e f f o r t and t h o u g h t without compensation i n t h i s emergency. T h e i r e f f o r t s i n t h i s c o n n e c t i o n a r e g r e a t l y a p p r e c i a t e d by t h e Board. The r e s u l t s up t o t h e p r e s e n t time a r e i n d i c a t i v e of t h e f i n e work t h e committees have done i n t h e i r r e s p e c t i v e communities, and while t h e r e s u l t s a r e d i s a p p o i n t i n g t o some i t i s not t h e f a u l t of t h e I n d u s t r i a l Advisory Committees or of the Federal reserve banks. I t i s a d i f f i c u l t t h i n g t o c r e a t e c r e d i t where t h e r e i s no b a s i s f o r c r e d i t . I t i s p e r f e c t l y n a t u r a l a f t e r f o u r or f i v e y e a r s of t h e most d e v a s t a t i n g d e p r e s s i o n t h i s country has e v e r seen t h a t t h e r e would be many b u s i n e s s e s i n a s t a t e of f i n a n c i a l c o l l a p s e , which would immediately g r a s p a t every e f f o r t of t h e Government toward p r o v i d i n g c r e d i t , which e x p l a i n s t h e deluge of a p p l i c a t i o n s t h a t has come t o t h e I n d u s t r i a l Advisory Committees. I t i s f e l t t h a t while t h e f i e l d f o r c r e d i t of t h i s kind i s much more l i m i t e d X-9065 -3t h a n many people thought p r i o r t o t h e passage of t h e l e g i s l a t i o n , t h e r e has been much more good accomplished t h a n i s i n d i c a t e d by t h e a c t u a l volume of l o a n s approved. The program of d i r e c t l e n d ing has caused t h e banks t o give more c o n s i d e r a t i o n t o c r e d i t s t h a n t h e y would have been i n c l i n e d t o g i v e i n t h e p a s t . I t has a l s o tended t o r e l i e v e t h e p r e s s u r e b e i n g e x e r t e d f o r t h e l i q u i d a t i o n of o u t s t a n d i n g c r e d i t s , so t h a t i t i s d i f f i c u l t t o measure t h e amount of t o t a l c r e d i t t h a t has been c a r r i e d t h a t otherwise would have been r e t i r e d , or t h e amount of new c r e d i t t h a t the banks have extended which p o s s i b l y would not have been extended had i t not been f o r t h i s l e g i s l a t i o n . There have been a number of c a s e s where t h e committees have done very v a l u a b l e work i n a d v i s i n g companies w i t h r e f e r e n c e t o changes t h e y could make i n management and p o l i c y . A l l t h a t t h e committees can do i s t o do t h e b e s t t h e y can and attempt t o develop a s many l o a n s i n t h e r e s p e c t i v e communities a s i t i s p o s s i b l e t o d e v e l o p , being a s l i b e r a l i n t h e i r i n t e r p r e t a t i o n of e l i g i b l e c r e d i t a s i t i s p o s s i b l e t o b e . Inasmuch as t h e c o u n t r y i s i n a c o n d i t i o n of g e n e r a l b u s i n e s s d e p r e s s i o n , an improvement i n b u s i n e s s volume, p r i c e s and p r o f i t s over a p e r i o d of t i m e can be exp e c t e d , t h e banks c a n be more l i b e r a l i n t h e e x t e n s i o n of c r e d i t t h a n t h e y could be i f t h e c o u n t r y was a t t h e peak of p r o s p e r i t y f a c i n g t h e c r e d i t dangers i n h e r e n t i n a p e r i o d of d e f l a t i o n . I t would be b e t t e r t o e r r on t h e s i d e of l i b e r a l i t y i n t h e p r e s e n t s i t u a t i o n t h a n on t h e s i d e of c o n s e r v a t i s m . While t h e banks do n o t want t o i n c u r l o s s e s knowingly, i t i s n o t expected t h a t no l o s s e s w i l l r e s u l t . The F e d e r a l Reserve System should be p r e p a r e d t o show t h a t t h e i r p o l i c y has been l i b e r a l , t h a t t h e borrower has been given t h e b e n e f i t of t h e d o u b t , and t h a t t h e F e d e r a l r e s e r v e banks have been w i l l i n g t o assume every r e a s o n a b l e r i s k . Most i n d i v i d u a l banks cannot t a k e any s u b s t a n t i a l l o s s e s without becoming i n s o l v e n t and t h e e a r n i n g s of t h e banks a r e so low a t t h e p r e s e n t time t h a t t h e y a r e not i n a p o s i t i o n t o t a k e l o s s e s , whereas t h e F e d e r a l r e s e r v e banks can, without d i s a s t e r , assume a g r e a t e r r i s k t h a n t h e . p r i v a t e bank. If l o s s e s do develop t h e y a r e s o c i a l i z e d , and do not t e n d t o d e s t r o y t h e banking system a s do t h e l o s s e s i n i n d i v i d u a l banks which cause t h e banks t o c l o s e . Bankers have a t h r e e - f o l d d u t y . They must s a f e g u a r d t h e f u n d s of t h e i r d e p o s i t o r s , and t h e y must s a f e g u a r d t h e p r i n c i p a l and e a r n d i v i d e n d s f o r t h e i r s t o c k h o l d e r s . They a r e charged i n a v e r y l a r g e measure with a more important r e s p o n s i b i l i t y t h a n e i t h e r of t h e above, t h a t of c r e a t i n g and e x t i n g u i s h i n g t h a t p a r t of t h e c o u n t r y ' s money supply r e p r e s e n t e d by checking a c c o u n t s . T h i s l a s t duty t o t h e com- X-9065 -4munity a t l a r g e i s o f t e n overlooked. A c o n t r a c t i o n of l o a n s and i n v e s t m e n t s which may be d e s i r a b l e on i n d i v i d u a l grounds, may be u n d e s i r a b l e from the viewpoint of t h e country a s a whole f o r t h e r e a s o n t h a t a c o n t r a c t i o n of l o a n s i n v o l v e s a l s o a c o n t r a c t i o n of d e p o s i t money or d e p o s i t c u r r e n c y . In t h e p r o c e s s of l i q u i d a t i o n from 1929 t o 1933 approximately o n e - t h i r d of t h e t o t a l d e p o s i t s of t h e c o u n t r y was so e x t i n g u i s h e d . The p r o c e s s of r e covery r e q u i r e s t h a t a s u b s t a n t i a l p a r t of t h i s l o s t d e p o s i t c u r r e n c y be r e p l a c e d . T h i s can be done i f t h e banking system as a whole w i l l expand i t s l o a n s and i n v e s t m e n t s . In t h e event t h a t t h e banking system f a i l s t o do t h i s t h e Government i s t h e n f o r c e d t o supply t h e d e f i c i e n c y . That can be s u p p l i e d t h r o u g h Government f i n a n c i n g and b u d g e t a r y d e f i c i t s , t h e banks c o n s t a n t l y i n c r e a s i n g t h e i r i n v e s t m e n t s i n Government bonds. I f t h e banks f a i l t o t a k e Government bonds, and f a i l t o i n c r e a s e l o a n s and i n v e s t m e n t s , t h e d e f i c i e n c y must be s u p p l i e d e i t h e r t h r o u g h t h e F e d e r a l Reserve System buying such bonds a s a r e r e q u i r e d , t h e c r e a t i o n of a c e n t r a l bank upon t h e f a i l u r e of t h e F e d e r a l r e s e r v e banks t o t a k e t h e bonds, or t h e i s s u a n c e of c u r r e n c y by t h e Government. The d e s i r a b l e way i s t o do i t through t h e p r i v a t e banking system t o t h e g r e a t e s t e x t e n t p o s s i b l e , but i t cannot be done and i t w i l l not be done i f t h e bankers f e e l t h a t t h e banks are unsound u n l e s s t h e y a r e l i q u i d . We found i n t h e d e p r e s s i o n t h a t t h e r e i s no such t h i n g as l i q u i d i t y except i n t h e case of paper which can be c o n v e r t e d i n t o c u r r e n c y through r e d i s c o u n t i n g w i t h t h e Federal, r e s e r v e banks, and what appeared t o be a sound bond w i t h an §85,000,000,000 n a t i o n a l income appeared t o be p e r f e c t l y unsound w i t h a $50,000,000,000 income. Bankers have i n s i s t e d , and t h e r e can be no q u e s t i o n of t h e i r s i n c e r i t y , t h a t t h e y a r e w i l l i n g and anxious t o make good commercial l o a n s . But t h a t i s n o t enough. We must f r a n k l y f a c e t h e f a c t t h a t t h e supply of such l o a n s i s not s u f f i c i e n t both t o o f f s e t t h e l i q u i d a t i o n of old l o a n s and t o b r i n g about t h e r e q u i s i t e e x p a n s i o n of t o t a l a s s e t s and d e p o s i t s . Even i n 1929 commercial l o a n s e l i g i b l e f o r r e d i s c o u n t i n g a t t h e F e d e r a l r e s e r v e banks comprised only 12.7% of t h e member b a n k s ' t o t a l e a r n i n g a s s e t s . At t h e p r e s e n t t h e y a r e l e s s t h a n 8%. Bankers cannot c o n f i n e t h e m s e l v e s t o such l o a n s and s t i l l s u p p l y an adequate amount of d e p o s i t c u r r e n c y . In o t h e r words i f t h e bankers of t h i s c o u n t r y a r e t o p e r f o r m t h e i r money s u p p l y i n g f u n c t i o n s s a t i s f a c t o r i l y t h e y must be p r e p a r e d t o i n c r e a s e t h e i r e a r n i n g a s s e t s o t h e r t h a n commercial l o a n s . I t i s t r u e t h a t t h e banks have i n c r e a s e d t h e i r h o l d i n g s of Government s e c u r i t i e s by approximately f i v e b i l l i o n d o l l a r s , however, even «srith t h i s i n c r e a s e t h e c o n t r a c t i o n of a l l l o a n s and i n v e s t m e n t s has been about J>18,000,000,000 s i n c e 1929. I s h o u l d , however, l i k e t o see banks i n c r e a s e t h e i r h o l d i n g s of o t h e r i n v e s t m e n t s , sound r e a l e s t a t e mortgage l o a n s and l o c a l l o a n s of good s e c u r i t y but w i t h a m a t u r i t y much l o n g e r t h a n s i x months. Z-9005 -5I would not make t h e s u g g e s t i o n i f I thought t h a t i t would prove d e t r i m e n t a l t o t h e i n t e r e s t s of t h e d e p o s i t o r s or s t o c k h o l d e r s of b a n k s . I a p p r e c i a t e thoroughly t h e harrowing n a t u r e of t h e b a n k e r s ' e x p e r i e n c e s w i t h f r o z e n a s s e t s i n t h e p a s t . I t i s p o s s i b l e , however, t h a t wrong l e s s o n s a r e b e i n g drawn from our 1929 t o 1933 banking e x p e r i e n c e s . S u p e r f i c i a l l y , t h e t r o u b l e may have appeared t o have been l a c k of s u f f i c i e n t l i q u i d i t y . But no banking system can be both l i q u i d enough t o pay o f f any subs t a n t i a l amount of i t s d e p o s i t s a t a moment's n o t i c e and a t t h e same time s e r v e t h e c o u n t r y by p r o v i d i n g t h e amount of money n e c e s s a r y f o r b u s i n e s s s t a b i l i t y . Fundamentally, t h e r e a l t r o u b l e l a y i n t h e c i r c u m s t a n c e s t h a t gave r i s e t o t h e need of g r e a t l i q u i d i t y . These c i r c u m s t a n c e s a r e now h a p p i l y p a s t and hence the need of g r e a t l i q u i d i t y i s o b v i a t e d . The i n s u r a n c e of bank d e p o s i t s i s d e s i g n e d t o p r o t e c t t h e banks from r u n s . Banks may l o s e d e p o s i t s t o o t h e r banks, but as a system t h e y a r e going t o g a i n r a t h e r t h a n l o s e d e p o s i t s . We have t h e w i l l and, we b e l i e v e , p o s s e s s t h e power t o prevent t h e r e c u r r e n c e of widespread l i q u i d a t i o n and t h e c o l l a p s e of v a l u e s t h a t have c h a r a c t e r i z e d r e c e n t years. I f we can g e t t h e p r i v a t e c r e d i t system t o f u n c t i o n i n t h e f i e l d of mortgage l o a n s , we w i l l go a long way toward c a u s i n g t h e p r i v a t e banking s t r u c t u r e t o occupy t h e p l a c e t h a t i t was designed t o occupy. I f t h e banks f a i l t o do t h a t , t h e n i t becomes i n e v i t a b l e t h a t t h e Government must continue i n t h e f i e l d of p r o v i d i n g p r i v a t e c r e d i t a s t h e y have been doing i n t h e p a s t . If t h i s tendency i s not stopped, i t w i l l only be a s h o r t time b e f o r e we have s o c i a l i z e d and n a t i o n a l i z e d t h e c r e d i t s t r u c t u r e of America. And t h i s i s a s i g n i f i cant and dangerous t r e n d t h a t many bankers a r e e n t i r e l y unaware o f . The a d m i n i s t r a t i o n cannot be blamed f o r t h a t development because the p o l i t i c a l p r e s s u r e and c i r c u m s t a n c e s t h a t have developed have f o r c e d t h e a d m i n i s t r a t i o n i n t o t h e c r e d i t f i e l d on an u n p r e c e d e n t e d s c a l e and i t becomes t h e duty of a l l of us t o t r y t o d i v e r t so f a r as we p o s s i b l y can i n t o p r i v a t e c h a n n e l s t h e c r e d i t f u n c t i o n s . With b e tween $13,000,000,000 and $15,000,000,000 of time d e p o s i t s i n t h e banks, t h e r e should be no h e s i t a n c y on t h e p a r t of t h e banks t o e n t e r t h e mortgage f i e l d . E i t h e r t h a t should occur or time d e p o s i t s should be divorced f r o m commercial d e p o s i t s so t h a t time d e p o s i t s can be used i n t h e f i e l d i n which t h e y were designed t o be u s e d . The Board a p p r e c i a t e s t h e time t h a t you have given t o come t o Washington t o d i s c u s s t h e problems p e r t a i n i n g t o u n d u s t r i a l l o a n s and t h e i n t e r e s t t h a t you have shown and t h e c o o p e r a t i o n t h a t you have g i v e n . The Board p l e d g e s i t s support t o t h e I n d u s t r i a l Adv i s o r y Committees i n t h e i r work. Upon r e q u e s t from Mr. Ousley f o r a s t a t e m e n t of Governor c c l e s ' remarks, t h e Governor s a i d t h a t he had no o b j e c t i o n t o such -6- a s t a t e m e n t b e i n g i n c l u d e d i n t h e s t a t e m e n t of t h i s meeting provided i t i s t r e a t e d a s c o n f i d e n t i a l by t h o s e p r e s e n t . At t h e c o n c l u s i o n of h i s s t a t e m e n t t h e Governor l e f t t h e room to attend another meeting. Mr. O'Connor reviewed t h e s i t u a t i o n concerning n a t i o n a l banks, g i v i n g s t a t i s t i c s w i t h r e g a r d t o t h e p r o g r e s s made i n c o n n e c t i o n w i t h t h e reopening of u n l i c e n s e d banks f o l l o w i n g t h e banking h o l i d a y , t h e i s s u a n c e of p r e f e r r e d s t o c k by n a t i o n a l banks, and t h e l i q u i d a t i o n of d e p o s i t s i n n a t i o n a l banks i n r e c e i v e r s h i p . He r e f e r r e d t o t h e s t a t e - ment which has been made t h a t banks i n t h e United S t a t e s a r e s u b j e c t t o examination by as many as t h r e e s u p e r v i s i n g a g e n c i e s and s t a t e d t h a t n a t i o n a l banks a r e examined only by n a t i o n a l bank examiners, and t h a t t h e r e i s no d u p l i c a t i o n i n examination by F e d e r a l a g e n c i e s of S t a t e banks. In connection w i t h t h e s t a t e m e n t t h a t banks a r e not making l o a n s because of t h e c r i t i c a l a t t i t u d e of n a t i o n a l bank examiners, Mr. O'Connor s t a t e d t h a t i n October, 1933, a l l n a t i o n a l bank examiners were i n s t r u c t e d t o a p p r a i s e a s s e t s of banks on an i n t r i n s i c v a l u e b a s i s r a t h e r t h a n on t h e b a s i s of a d i s t r e s s e d market v a l u e , and t h a t an a n a l y s i s of t h e examinat i o n r e p o r t s r e c e i v e d i n h i s o f f i c e showed t h a t of t h e t o t a l l o a n s and i n v e s t m e n t s of n a t i o n a l banks only 3% had been c l a s s i f i e d a s l o s s , 4% a s d o u b t f u l , and 27% a s slow. He a l s o r e f e r r e d t o t h e i n s t r u c t i o n s i s s u e d by h i s o f f i c e t o examiners t o make a s e p a r a t e . c l a s s i f i c a t i o n of i n d u s t r i a l l o a n s i n t h e examination r e p o r t s and t o c l a s s i f y such l o a n s a s l o s s e s only when l o s s e s have a c t u a l l y been d e t e r m i n e d . X-9065 -7Following h i s s t a t e m e n t , Mr. O'Connor l e f t t h e m e e t i n g . Mr. M i l l e r ' s s t a t e m e n t was s u b s t a n t i a l l y a s f o l l o w s : The Board had p l e n t y of evidence t h a t t h e p r e s s u r e of t h e d e p r e s s i o n had made v e r y deep i n r o a d s i n t o t h e working c a p i t a l of i n d u s t r i a l c o n c e r n s , even i n t h o s e c a s e s t h a t had enjoyed f o r y e a r s b e f o r e t h e d e p r e s s i o n a h i g h r a t i n g . That b e i n g s o , i t appeared t h a t t h e r e might be an o p p o r t u n i t y t o r e l i e v e t h e p r e s s u r e of a s l e n d e r supply of working c a p i t a l upon t h e morale and psychology of b u s i n e s s t h r o u g h opening a source of supply f o r t h i s purpose through t h e F e d e r a l r e s e r v e banks, and might i n time be e x p e c t e d t o show r e s u l t s i n a c c e l e r a t i n g b u s i n e s s r e c o v e r y and i n d u s t r i a l production. <• I n o r d e r t h a t t h e problem should be p r o p e r l y c o n c e i v e d , i n d u s t r i a l Advisory Committees were s e t up t o f u n c t i o n i n c o n n e c t i o n with t h e F e d e r a l r e s e r v e banks because t h e problem was viewed as a b r o a d e r , more d i f f i c u l t and more novel one t h a n merely a banking problem, and one t h a t might r e q u i r e a judgment d i f f e r e n t i n many p a r t i c u l a r s from t h e judgment of even t h e s k i l l e d b a n k e r s . I t i s p r i m a r i l y a b u s i n e s s problem; a problem of re-awakening b u s i n e s s through t h e e f f e c t i v e use of t h i s new i n s t r u m e n t a l i t y of c r e d i t and t h e judgment of a c t i v e b u s i n e s s men i s d e s i r a b l e t o broaden t h e approach t o t h e problem. The F e d e r a l r e s e r v e banks have s e l e c t e d t h e members of t h e I n d u s t r i a l Advisory Committees t o p e r form t h i s r a t h e r vague but n e v e r t h e l e s s tremendously i m p o r t a n t t a s k . Underlying t h e whole m a t t e r of i n d u s t r i a l c r e d i t through t h e F e d e r a l r e s e r v e banks was t h e f e e l i n g t h a t i t i n v o l v e d a r i s k t o o l a r g e t o be u n d e r t a k e n by i n d i v i d u a l banks no m a t t e r what t h e i r a t t i t u d e might b e . I t was a r i s k g e n e r a l and s o c i a l i n c h a r a c t e r , a r i s k t h a t had t o be u n d e r t a k e n by some agency t h a t could a f f o r d t o t a k e t h e l o s s and could a f f o r d t o t a k e a generous a t t i t u d e i n t h e a c t i v i t y because i f t h e v e n t u r e succeeded t h e r e s u l t s would f a r outweigh t h e l o s s e s i n c u r r e d . The r e s u l t s have been d i s a p p o i n t i n g t o t h e c o u n t r y , and even t o t h o s e who have been t h o r o u g h l y sympathetic with t h e F e d e r a l Reserve System. They have been s u r p r i s e d t h a t t h e r e has not been more a l a c r i t y shown on t h e p a r t of b u s i n e s s i n a v a i l i n g i t s e l f of t h i s new r e s o u r c e . One of t h e f u n d a m e n t a l r e a s o n s f o r t h e small amount of l o a n s approved i s t h a t commercial and i n d u s t r i a l conc e r n s have not been i n c l i n e d t o seek c r e d i t . The concerns t h a t a r e good c r e d i t r i s k s have not wanted t o borrow, but have been as anxious t o keep out of debt as t h e banker i s t o keep h i s i n s t i t u t i o n l i q u i d . But t h e problem of p r o v i d i n g c r e d i t i s s t i l l 460 X*906# -8- p r e s e n t and one of t h e primary f u n c t i o n s of t h e I n d u s t r i a l Adv i s o r y Committees i s t o t r y t o induce a b e t t e r a t t i t u d e of mind on t h e p a r t of banker and b u s i n e s s man and p a r t i c u l a r l y t o s e e what can be done t o b r i n g t h e banker and t h e b u s i n e s s man t o g e t h e r and t o c r e a t e an atmosphere conducive t o growth of a s p i r i t of e n t e r p r i s e . The committees w i l l f u n c t i o n b e s t when t h e y make t h e c o n t r i b u t i o n of optimism t o t h e b u s i n e s s psychology of t h e c o u n t r y . That i s not e a s i l y done, but i f t h e committees can accomplish i t t h e y w i l l j u s t i f y t h e i r e x i s t e n c e many t i m e s over and t h e time t h e y have given t o t h e work w i l l be a v e r y g r e a t s e r vice to the country. The r e s u l t s may have been d i s a p p o i n t i n g a l s o f o r t h e r e a s o n perhaps t h a t i t was not p o s s i b l e i n t h e c i r c u m s t a n c e s t o accomp l i s h v e r y much t h r o u g h t h e i n d u s t r i a l l o a n f a c i l i t y . But p o s s i b l y more could be accomplished i f t h e r e were a more a c u t e p e r c e p t i o n of t h e l a r g e r purpose behind t h e a c t i v i t y and what t h e p a r t i c u l a r r e s p o n s i b i l i t y at' t h e committees i s . These committees, perhaps more t h a n any o t h e r group i n t h i s c o u n t r y , should h e l p t o c r e a t e an atmosphere of optimism, because t h e y have an o f f i c i a l s t a t u s , t h e y have a r i g h t t o speak f o r b u s i n e s s America i n t h e p r e s e n t emergency. As t h e y themselves develop i n d i v i d u a l l y and c o l l e c t i v e l y an a t t i t u d e of c o n f i d e n c e i n t h e f u t u r e of t h e c o u n t r y , i t w i l l be an i n d i c a t i o n of what t h e a t t i t u d e of b u s i n e s s should be i n h a n d l i n g t h e emergency. The problem i s a l a r g e r one t h a n t h a t of merely p a s s i n g on l o a n s . The problem i s much l a r g e r . I t i s a problem of l e a d e r s h i p . What we need most i n t h e p r e s e n t emergency i s an a t t i t u d e of f a i t h i n t h e America of t h e f u t u r e . A f t e r h i s s t a t e m e n t Mr. M i l l e r l e f t t h e m e e t i n g . Mr. Hamlin s t a t e d t h a t he a p p r e c i a t e d t h e d i f f i c u l t i e s conf r o n t i n g t h e I n d u s t r i a l Advisory Committees. He s a i d w h i l e t h e com- m i t t e e s could not recommend l o a n s when worthy b o r r o w e r s a r e not making a p p l i c a t i o n s , t h e y should go over t h e ground and be s u r e t h a t a l l such borrowers a r e a c q u a i n t e d w i t h t h e i n d u s t r i a l l o a n a c t i v i t y . He added t h a t he c o n s i d e r e d t h e Advisory Committees as a kind of s p e c i a l j u r y r e p r e s e n t i n g t h e p u b l i c i n t e r e s t , and i n t h e i r d e l i b e r a t i o n s t h e y should not be w o r r i e d about t h e banking problems as t h e banks would apply t h e r e g u l a r banking t e s t s . The good t h a t t h e committees have X-9065 -9— done cannot be measured because much t h a t t h e y have accomplished i s not a m a t t e r of r e c o r d . Mr. Hamlin withdrew f r o m t h e meeting a t t h i s p o i n t . Mr. James e x p r e s s e d t h e thought t h a t perhaps some of t h e d e l a y i n making i n d u s t r i a l l o a n s r e s u l t s from a t o o t e c h n i c a l c o n s i d e r a t i o n of what t h e law i n t e n d e d , and t h a t i n h i s o p i n i o n t h e I n d u s t r i a l Adv i s o r y Committees and t h e F e d e r a l r e s e r v e banks a r e j u s t i f i e d i n cons i d e r i n g l a r g e l y t h e r e a s o n a b l e soundness of t h e l o a n r a t h e r t h a n t e c h n i c a l i n t e r p r e t a t i o n s of t h e law. Mr. Thomas s a i d t h a t s t a t i s t i c s a s t o t h e amount of i n d u s t r i a l l o a n s made a r e no f a i r measure of what has been accomplished by t h e I n d u s t r i a l Advisory Committees, and t h a t t h e i r g r e a t e s t c o n t r i b u t i o n i s the immeasurable i n f l u e n c e t h e y have e x e r t e d i n t h e b u s i n e s s w o r l d . He s t a t e d t h a t one g r e a t h i n d r a n c e t o r e c o v e r y i s t h e f e e l i n g of u n c e r t a i n t y and f e a r a s t o t h e f u t u r e , which a p p l i e s as much t o t h e prudent borrower as t o t h e banker; t h a t when economic t r o u b l e s come s e l f - i n t e r e s t prompts t h e i n d i v i d u a l t o s a f e g u a r d himself by l i q u i d a t i o n which means d e f l a t i o n , and d e f l a t i o n means more l i q u i d a t i o n , and t h u s we go on t h e downward s p i r a l ; and t h a t i n o r d e r t o b r e a k t h i s d e s c e n t and r e v e r s e i t s d i r e c t i o n , government c r e d i t has come t o t h e rescue. He a l s o added t h a t by making l o a n s t o i n d u s t r y t h e I n d u s t r i a l Advisory Committees and F e d e r a l r e s e r v e banks not only a i d p r o d u c t i o n but g i v e courage t o o t h e r s , t h e borrower as w e l l as t h e l e n d e r , and t h a t , t h e r e f o r e , t h e committees should not be d i s c o u r a g e d by what may X*9065 f 463 -10- seem d i s a p p o i n t i n g amounts, a s t h e y a r e p e r f o r m i n g a v a l u a b l e s e r v i c e and a r e t o be comnended f o r t h e i r d e v o t i o n and s e l f - s a c r i f i c e . Mr. Szymczak s t a t e d t h a t m a t e r i a l had been p rep ared which he would hand t o Mr. Creighton f o r use i n p r e p a r i n g a s t a t e m e n t f o r t h e p r e s s should i t be decided t o i s s u e such a s t a t e m e n t , He a l s o s a i d t h a t m a t e r i a l i s b e i n g prepared so t h a t a complete r e p o r t of i n d u s t r i a l l o a n s may be ready i n J a n u a r y of next y e a r and, i n t h i s c o n n e c t i o n , he r e f e r r e d t o t h e pamphlet on i n d u s t r i a l l o a n s p r e p a r e d by Mr. C r e i g h t o n and d i s t r i b u t e d i n t h e F i r s t F e d e r a l Reserve D i s t r i c t and s a i d t h a t t h e o t h e r committees might use i t , or t h e m a t e r i a l f o r a pamphlet now being p r e p a r e d by t h e Board, i n t h e p r e p a r a t i o n of a pamphlet f o r use i n t h e i r r e s p e c t i v e d i s t r i c t s . Mr. Szymczak's s t a t e m e n t then continued along t h e f o l l o w i n g lines: The r e l e a s e t o t h e p r e s s and t h e appearance i n t h e morning p a p e r s of t h e s o - c a l l e d Viner r e p o r t , which c o n t a i n e d t h e s u g g e s t i o n t h a t t h e I n d u s t r i a l Advisory Committees might be e l i m i n a t e d and t h a t i t would be b e t t e r not t o have t h e F e d e r a l r e s e r v e banks make i n d u s t r i a l l o a n s , was of course w i t h o u t the a p p r o v a l of t h e Board which was not c o n s u l t e d a s t o t h e d a t e of t h e r e l e a s e , nor was t h e Board asked t o approve or d i s a p p r o v e t h e cont e n t of t h e r e p o r t . One might t h i n k from a p r e l i m i n a r y survey of t h e s i t u a t i o n t h a t a much l a r g e r t o t a l amount of i n d u s t r i a l l o a n s would have been made by t h e F e d e r a l r e s e r v e banks, but when t h e r e i s p e r sonal c o n t a c t w i t h t h e type of a p p l i c a t i o n t h a t i s r e c e i v e d a t t h e F e d e r a l r e s e r v e bank t h e i n d i v i d u a l g e t s an e n t i r e l y d i f f e r e n t p o i n t of view. T h i s i s an e n t i r e l y new f i e l d of endeavor, new t o t h e I n d u s t r i a l Advisory Committees, t o t h e F e d e r a l r e s e r v e banks, and t o t h e c o u n t r y as a whole. C e r t a i n l y no one thought twenty y e a r s ago t h a t t h e F e d e r a l r e s e r v e banks would be making t h i s k i n d of l o a n . X-9065 ' 464 -11- The number of complaints r e c e i v e d d i r e c t l y and i n d i r e c t l y by t h e Board f r o m a p p l i c a n t s f o r l o a n s because of t h e r e f u s a l of t h e a p p l i c a t i o n or d i s s a t i s f a c t i o n with t h e terms imposed, has been r e l a t i v e l y s m a l l , two such complaints b e i n g r e c e i v e d i n J u l y , f o u r t e e n i n August, t w e n t y - t h r e e i n September, twelve i n O c t o b e r , t w e n t y - s i x i n November, and t h r e e i n December, or a t o t a l of eighty. The number of a p p l i c a t i o n s approved i n each d i s t r i c t i s not an i n d i c a t i o n of t h e work done by t h e a d v i s o r y committees but of t h e c h a r a c t e r of t h e a p p l i c a t i o n s r e c e i v e d . A l l of t h e committees a r e doing s p l e n d i d work and t h e Board a p p r e c i a t e s t h e i r e f f o r t s . At t h e September meeting i t was p o i n t e d out t h a t t h e a d v i s o r y committee i s a s t a t u t o r y body. The purpose of c r e a t i n g t h i s committee was t o t u r n over t o i t a l l a p p l i c a t i o n s r e c e i v e d by t h e banks f o r c o n s i d e r a t i o n and recommendation t o t h e bank a f t e r o b t a i n i n g such f a c t s a s a r e n e c e s s a r y . The c o m m i t t e e ' s work has been of such importance t h a t F e d e r a l r e s e r v e bank o f f i c e r s i n many c a s e s have seen f i t t o a t t e n d meetings of t h e comrm i t t e e . The committees may want t h e advice of t h e bank, b u t f r o m t h e s t a n d p o i n t of t h e law which i s very c l e a r , t h e a d v i s o r y comm i t t e e s have t h e r e s p o n s i b i l i t y of making independent recommendat i o n s and t h e y , t h e r e f o r e , have t h e power t o d i r e c t t h e employees engaged i n work f o r t h e committee n o t w i t h s t a n d i n g the f a c t t h a t t h e r e i s no power under t h e law t o p r o v i d e a budget t o cover t h e expenses of p e r s o n s working f o r t h e committee, and t h e s a l a r i e s of such p e r s o n s a r e paid by t h e F e d e r a l r e s e r v e b a n k s . I t should be made c l e a r a t a l l t i m e s , p a r t i c u l a r l y t o t h e a p p l i c a n t f o r a l o a n , t h a t t h e committee has not t u r n e d over t o t h e bank any of i t s f u n c t i o n s , but as a s t a t u t o r y body has c o n s i d e r e d t h e a p p l i c a t i o n and made i t s recommendation i n d e p e n d e n t l y . The f u n c t i o n of t h e bank i s t o a c t a f t e r i t r e c e i v e s t h e c o m m i t t e e ' s recommendation. There i s a l s o t h e thought t h a t perhaps each member of t h e comm i t t e e should r e c e i v e compensation f o r h i s work. The Board has c o n s i d e r e d t h a t m a t t e r v e r y c a r e f u l l y and i t has been s t u d i e d by t h e F e d e r a l r e s e r v e banks, but t h e law i s p l a i n t h a t t h e members s h a l l r e c e i v e no compensation, although i t p r o v i d e s f o r t h e payment of t h e expenses i n c u r r e d by t h e members i n p e r f o r m i n g t h e i r work or a per diem allowance i n l i e u t h e r e o f . The s u g g e s t i o n h a s been made t h a t t h e Board should have i n t e r p r e t e d t h e law d i f f e r e n t l y , but a f t e r a v e r y c a r e f u l s t u d y of t h e m a t t e r i t r e l u c t a n t l y f e l t compelled t o r e a c h t h e d e c i s i o n t h a t has been r e a c h e d and of which t h e committees have been a d v i s e d . The work t h a t t h e members of t h e committees a r e doing and t h e time t h e y a r e t a k i n g from t h e i r own b u s i n e s s e s cannot be measured i n f e e s of $5.00 or -12- ,'•.10.00 or even :)25.00, and t h e Board f e e l s t h a t if any r e a s o n able f e e were t o be allowed i t could not s t a r t at a p o i n t below )50.00. The work t h a t t h e committees are performing i s a s e r v i c e which only t h e y can perform i n a time of emergency, and i f t h e Board f e e l s any disappointment i t i s not i n connection with the work of t h e committees, but i n t h e t o t a l amount of l o a n s made. During Mr. Szymczak's statement Governor Martin of t h e F e d e r a l Reserve Bank of S t . Louis and Mr. Goldenweiser, D i r e c t o r of t h e Div i s i o n of Research and S t a t i s t i c s of t h e F e d e r a l Reserve Board, e n t e r ed t h e room, and Mr. James l e f t t h e meeting, Mr. 7/alden s t a t e d t h a t Mr. J . G. Holtzclaw, because of t h e n e c e s s i t y of h i s being i n New York today, had r e q u e s t e d Mr. George E. P r o b e s t , J r . , one of t h e o t h e r members of t h e I n d u s t r i a l Advisory Committee f o r t h e F i f t h F e d e r a l Reserve D i s t r i c t , to a t t e n d t h i s meeting; t h a t Mr. Probest had found i t necessary t o go t o P i t t s b u r g h , and t h a t he (Mr. Walden) was a t t e n d i n g t h e meeting at t h e r e q u e s t of the o t h e r two members of t h e I n d u s t r i a l Advisory Committee r e s i d i n g i n Richmond f o r t h e purpose of l i s t e n i n g t o t h e d i s c u s s i o n . Mr. Creighton expressed t h e a p p r e c i a t i o n of t h e r e p r e s e n t a t i v e s of the I n d u s t r i a l Advisory Committees of t h e s t a t e m e n t s made by the Bombers of t h e F e d e r a l Reserve Board. He t h e n p r e s e n t e d a statement of t h e a c t i o n s t a k e n by t h e c h a i r men and r e p r e s e n t a t i v e s of t h e I n d u s t r i a l Advisory Committees a t t h e meeting y e s t e r d a y e v e n i n g . The t o p i c s discussed a t t h a t meeting and the d e c i s i o n s reached are s e t f o r t h below. Topics 1 and 2 were p r e - sented by Mr. Morris, t o p i c s 3 and 4 by Mr. Pouch, t o p i c s 5 and 6 by Mr. E p s t e i n , t o p i c s 7 and 8 by Mr. Sanford, t o p i c s 9 and 10 by Mr. Ousley, 3CR«Q<5« -13and t o p i c s 11 and 12 by Mr. B u t t e r w o r t h ; ANSWERS QUESTIONS 1. 2. 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 15b by t h e F e d e r a l Reserve 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 borrowe r s 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, t h e y a r e f a v o r a b l e . (b) Among o t h e r b u s i n e s s leaders? (b) Same answer a s above. (c) 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 a r e 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 duty 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) (b) 3. 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 not b e i n g met t h r o u g h u s u a l s o u r c e s of credit? 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? (a) (b) 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 a s at f i r s t thought, there 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 s u p p o r t e d by t h e number of l o a n s 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 . 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 c a s e s 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 c a r e of i n t h e future, Assuming t h a t t h e r e w i l l be a cont i n u i n g need f o r 13b advances or commitments, (a) Will applications for the most p a r t t a k e t h e form o f ; (l)Applications for direct advances. ( 3 a - l ) At t h e p r e s e n t time 4 6 7 -14ANSWERS QUE8TI0NS ( 3 a - l continued) most of t h e a p p l i c a t i o n s a r e f o r d i r e c t advances i n most of t h e F e d e r a l Reserve D i s t r i c t s although the percentage v a r i e s considerably. (b) (2) Applications involving s e p a r a t e advances by t h e F e d e r a l Reserve bank and by f i n a n c i n g i n s t i t u t i o n , 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 s y s tem. A p p l i c a t i o n s d i r e c t t o F e d e r a l Reserve banks a r e d e c r e a s i n g and t h o s e t o t h e l o c a l banks a r e i n creasing in the majority of t h e d i s t r i c t s . Most memb e r s 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 through t h e l o c a l banks, which should be encouraged as i t i s most advantageous f o r t h e l o c a l banks. (3) A p p l i c a t i o n s from f i nancing i n s t i t u t i o n s f o r commitments coveri n g proposed advances. (3a-3) i f 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 F i nance Companies, t h e r e have been very few c a s e s of t h i s kind. Should t h e r a t e s charged by t h e F e d e r a l Reserve 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? 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 : (b) I t seemed t o be t h e consensus of opinion 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 the l o c a l banks t o c o o p e r a t e . 2£w9©65 -15- ANSWERS OJLJESTIONS 5. (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 assistance from usual sources. (b) Requirement t h a t l o a n s be f o r work!ng c a p i t a l p u r p o s e s . (c) Requirement t h a t l o a n s be made on a reasonable and sound basis. (d) Requirement t h a t l o a n s 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 cont i n u e d i n i t s p r e s e n t form as long as t h e emergency e x i s t s and t h a t s u b d i v i s i o n s a , b , c and d be c o n t 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 i n clude p r o p r i e t a r y c a p i t a l . Should s u b s e c t i o n "b" of S e c t i o n 13b 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) 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 cf s e p a r a t e l o a n s by F e d e r a l Reserve 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 p a y ments a r e made ,>ro r a t a . 6, Would t h e making of l o a n s f o r worki n g c a p i t a l purposes presumably 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 with t h e F e d e r a l Reserve 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 s o , why? 7. What has been experience a s r e g a r d s applications? (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 a d v e r s e e f f e c t upon a p p l i c a n t ' s I t was t h e consensus of opinion t h a t s u b s e c t i o n "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 not changed i n t h e law. 6. The Committee f e l t t h a t t h e answer t o 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 ing. (a) I t i s not 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 X-9065 ; 469 -16- ANSWERS QUESTIOHS discouraged 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 . c r e d i t s t a n d i n g has d i s couraged submission of a p p l i cations. 8. Extent 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 . (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 im- (c) proving? 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 d e c l i n i n g ? C h a r a c t e r 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 continuing in varying proportions. (d) Has t h e r e been any s u b s t a n t i a l number of complaints 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 Reserve banks? (d) We a r e not aware of any comp l a i n t of 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 o f f i c i a l s or employees of t h e F e d e r a l Reserve b a n k s . (e) i s t h e r e any evidence t h a t F e d e r a l Reserve banks are 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 to secure loans? (e) There i s no evidence t h a t F e d e r a l Reserve 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 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 l o a n s when t h e s e c u r i t y may be r e g a r d e d as reasonable. (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 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 F e d e r a l Reserve b a n k s . 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 a r e d e s i r a b l e , what i s your recommendation a s 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 f i n a n c i a l i n s t i t u t i o n s t o t h i s end? (b) N e g l i g i b l e , and u s u a l l y f o r the reason t h a t applicant has found t h a t f u n d s would not be needed, or has o b t a i n e d f u n d s from u s u a l banking s o u r c e s . (b) 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 i n s 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 continued w i t h i n each d i s t r i c t and t h a t X-9065 -17QUESTIONS 470 ANSWERS 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 Reserve bank taken adequate measures t o b r i n g t o 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 p a r t i c u l a r l y of member banks, t h e 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 enterprises in their t e r r i t o r y i n 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 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 Reserve bank? T/hat, i n your e x p e r i e n c e , has been t h e most important s e r v i c e rendered i n d u s t r y and commerce under S e c t i o n 13b? I t i s t h e opinion 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 t o acquaint a l l f i n a n c i n g 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 banks, with t h e 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 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 Reserve banks. At t h e same time we submit t h a t such e f f o r t s might well be i n t e n s i f i e d and we e s p e c i a l l y recommcnd 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 New 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 period of s e v e r a l months (the 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 cuss with 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 l o a n s under t h e terms of S e c t i o n 13b. 10. i n our opinion t h e most important 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 a r e (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 not be o b t a i n e d o t h e r w i s e , (b) t h e s t i m u l a t i o n of c r e d i t confidence 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 Section. 13b began, and (c) t h e enlightenment of many X-9065 471 -18- ANSWERS QUESTIONS 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 ed by t h e e x p e r t a n a l y s i s and a d v i c e of the Advisory committees and F e d e r a l Reserve o f f i c e r s . 11. Has t h e a d m i n i s t r a t i o n of Sect i o n 13b t o d a t e had any e f f e c t not shown i n r e g u l a r r e p o r t s of Federal Reserve 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 vate financing i n s t i t u t i o n s ? 11. The f a v o r a b l e recommendation of l o a n s by t h e s e v e r a l F e d e r a l Reserve banks has i n f l u e n c e d many l o c a l banks t o t a k e over l o a n s , ext e n d i n g c r e d i t where t h e y would not have done so o t h e r w i s e . 12. Recommendations, not covered e l s e where, on t h e s u b j e c t of the adm 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 act as an emergency measure. i t w i l l not b r i n g back p r o s p e r i t y , but 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 secure 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 f u n c t i o n . During t h e d i s c u s s i o n of t h e t o p i c s , Mr. John N. Peyton, Chairman and F e d e r a l Reserve Agent a t the F e d e r a l Reserve Bank of Minneapolis, and Mr. Daiger of t h e B o a r d ' s s t a f f , j o i n e d t h e m e e t i n g . At t h e conclusion of t h e d i s c u s s i o n t h e meeting a d j o u r n e d with t h e understanding t h a t t h e r e p r e s e n t a t i v e s of t h e I n d u s t r i a l Advisory Comm i t t e e s would meet again i n s e p a r a t e s e s s i o n t h i s a f t e r n o o n .
@FedFRASER