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https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CONFIDENTIAL SECRETARY’S G O V E R N O R S MINUTES C O N F E R E N C E DECEMBER 1 AND WASHINGTON, 2 , 1931. D . C. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis FEDERAL RESERVE BANK OF C L E V E L A N D fr s u G f e = y De) 951. CONFIDENTIAL Mr. Wm. McC. Martin, Governor, Federal Reserve Bank of St. Louis, St. Louis, Mo. Dear Governor Martin: There i s enclosed for your confidential use, a copy of the Secretary's minutes o f the Conference o f Governors held i n Washington o n December 1 and 2, 1931. I shall appreciate i t if you will call m y attention t o any errors o r omissions which should b e corrected, a n d trust that y o u will feel free t o suggest a n y changes which you think necessary. With kind personal regards, I am Very truly yours, Af— y , v Secretary, Governors’ conference. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INDEX T O SECRETARY'S MINUTES GOVERNORS! C O N F E R E N C E December 1 a n d 2 , 1931. Paragraph i n Secretary's Minutes Adjustment o f system investments Arrangement t o notify F. R. banks ond branches o f closing, reopening o r succession o f banks Bailey, Retirement o f Governor Banking situation a n d bank failures Budget, H o w c a n w e balance o u r Chairman, Election o f Closed banks, Arrangement t o notify F. R. banks and branches o f reopening o r succession o f Committee reports: Bank reserves a O 4 27 Bankers occeptances, Subcommittee o f general committee o n 1 Collections, Standing committee o n £ Group, Branch, a n d Chain banking Insurance 8 0 2 1 Leased w i r e ~ , 21, 2 2 3 8 1 8 Pension 19 Cooperation o f F. R. banks with Intermediate Credit 10 Cost of safekeeping function at F. R« banks Credit transactions and policies 1 & 4 y 35 4, 5, 6; 7,-8e°9 5 Discount rates a n d open market cperctitng =«.— «= = © = 2 Election of Chairman and Secretary - - ~ - ~ + « = - - = 1 Examiners; Policies o f bank 8 Federal Advisory Council, Suggestion re Intermediate Credit B a n k debentures ~ = = - # = oe t e Foreign exchanges a n d the gold standard e e n w a 10 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Paragraph i n Secretary's Minutes Gold: Review o f recent g@ovements Future policy here a n d abroad Government checks a n d warrants ~ Governor Bailey, Retirement o f = Inquiries involving matters o f system policy o r interest Insurance Committee, R e p o r t o f - - = Insurance policy carried b y F. R. banks t o cover se~ curities h e l d i n safekeeping f o r member banks ~ - - = - - - 1 3 Intermediate C r e d i t B a n k d e b e n t u r e s Investments, Adjustment o f system Leased Wire Committee, Report o f - - - - - = - - - 2 - + - - - - 1 8 Legislation t o limit investment i n building a n d fixtures b y member banks - ~ - = = Municipal finance - «= ~ = - Municipal warrants < National Credit Corporation Open market operations, Report o f Pension Committee, R e p o r t o f Policies o f benk examiners Real Estate hortgage Discount Corporation, P r o p o s e d Relations with foreign banks Reports o f committees on: Bank reserves Bankers acceptances, Subcommittee o f general Collections, Standing committec a n Group, Branch, a n d Chain banking Insurance Leased w i r e Pension = - - P g 21, 2 2 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Paragraph i n Secretary's Minutes Report o f open market operations Reserves, C o m m i t t e e o n Bank - - - Seasonal program covering December a n d year-end operations Secretary, Election o f Securities, Safekeeping of, f o r member banks Standing Committee o n Collections, Report o f - - - ~ = Sub-committee o f General Committee o n Bankers Acceptances, R e p o r t o f 2 0 , 21,5 2 2 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CONFIDENTIAL P R O G R A H SOY. A N ORS Decenber 1 C G R P S e e r C r and 2 , 1931 Washington, D . C. I. E L E C T I O N O F CHAIRIU.N A N D SECRETARY F O R YEAR 1932 ils C R E D I T TRANSACTIONS A N D POLICIES hie D i s c o u n t r a t e s a n d open market operations. New Y o r k l. R e p o r t o f Open hiarket Policy ConferNew Y o r k ence Re S e a s o n a l p r o g r a m covering December and year-end operations. New Y o r k 3. A d j u s t m e n t o f system investments i n Government securities i n times o f emergency. Richmond - Gold. 1. R e v i e w o f recent movenents. 2. F u t u r e policy here and abroad. York York Relations with foreign banksy le R e p o r t o f foreign operations o f system. Re F o r e i g n exchanges a n d the gold standard. The banking situation and bank failures. 1. N a t i o n a l Credit Corporation. Re P r o p o s e d Real Estate Mortgage D i s count C o r p o r a t i o n . 3s P o l i c i e s o f bank examiners. 4. R e c o m m e n d a t i o n t o t h e Federal Reserve Board that a t a n appropriate t i m e legislation b e sought limiting the proportion o f capital a n d surplus which a National b a n k m a y invest in building and fixtures, either by statutory designation o r b y re~ quiring the approval o f the Comptroller o f such investment. Intermediate Credit Banks. le C o o p e r a t i o n o f Federal Reserve Banks.» Philadelphia New Y o r k https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Fe M u n i c i p a l finance. 1. I n c r e a s e d burden o n municipal budgets d u e t o unemployment. ae P u r c h a s e o f municipal warrants by Federal reserve banks. N N e w York e w York OPERATION A N D ADMINISTRATION Ae H o w c a n w e balance o u r budget. K a n s a s City Be S a f e k e e p i n g o f securities f o r member banks. 1. T h e advisability o f securing from all member banks depositing s e curities w i t h Federal Reserve banks f o r safekeeping a n agree~ ment whereby t h e depositing b a n k would agree t o approve a n d accept the insurance policy carried b y the Federal reserve bank, a n d all liability other than that covered in the Federal reserve bank's policy w o u l d b e assumed b y the depositing bank, which, i f i t desired, c o u l d itself c a r r y insurance against s u c h additional liability. F e R e Board ra C o s t o f t h e safekeeping function a t Federal reserve banks. F . R. Board (See Federal Reserve Board's letters X-6940 a n d X ~ 6 9 4 0 - a d a t e d August 11, 1931.) Ce I n q u i r i e s involving matters o f system pol- icy or interest. ( S e e Federal Reserve Board's letter X~7030 d a t e d November 23, 1931.) F IV. 0 O L L E C T I O N S A N D CLEARINGS A, R e p o r t of Standing Committee o n Collections, . R. Board https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis REPORTS O F COMMITTEES Committee o n Bank Reserves. Insurance C o m m i t t e e . Leased W i r e C o m m i t t e e . Pension C o m m i t t e e . Sub-committee o f General Committee on Bankers Acceptances. SUPPLEMENT..RY TOPIC. R e p o r t o f Committee o n group, branch, a n d chain banking. G OY BRN O e Ss £:O h r December 1 S k e N - 6 Ss a n d 2 , 1931. Washington, D . C. First Day's Session. Tuesday. December 1 . Morning ~ The meeting w a s called t o order a t 10:30 a . m. Present? G o v e r n o r Calkins, Chairman, a n d Governors Young, Harrison, Norris, Fancher, Seay, Black, McDougal, Martin, Geery, Bailey, and hicKinney. Mr, Strater, Secretary» TOPIC I. _ELECTION OF CHAIRMAN AND SECRETARY FOR THE YEAR 1932. VOTED t h a t Governor Calkins b e re-appointed Chairman, and lir. Strater re-appointed Secretary f o r t h e calendar year 1932, TOPIC II. C R E D I T TRANSACTIONS A N D POLICIES A. D i z s o u n t rates a n d open market Sperations. le R e p o r t o f o p e n m a r k e t opera-— tions. Le S e a s o n a l p r o g r a m c o v e r i n g December a n d year-end oper- ations. Governor Harrison, C h a i r m a n o f t h e Open Market Policy Con- ference, furnished t o each of the Governors a report o f open market operations f o r System Account, s h o w i n g changes i n t h e holdings o f Gov~ ernment securities a n d bills, a n d t h e changes i n the participations o f the individual Reserve banks. There was @ general discussion of discount rates i n relation to, a n d as they might b e affected by, open market operations, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis TOPIC II. C R E D I T TRANSACTIONS A N D POLICIES. ( 3 3. A d j u s t m e n t o f system investments in Government securities i n times ) of e m e r g e n c y . Governor S e a y outlined h i s views regarding t h e necessity for some provision b e i n g made f o r a n y Reserve b a n k which finds i t necessary t o dispose o f its participations i n Government securities held f o r System Account, particularly i n t h e event that i t s proportion c o u l d not b e absorbed b y the other participating banks. It was t h e sense o f the conference, a s previously recom- mended b y t h e Executive Committee o f t h e Open Miarket Policy Conference, that i n a n y case where a tion o n a c c o u n t Federal Reserve b a n k needs t o adjust i t s posi- o f i t s reserve ratio, i t should offer f o r participation among other Federal Reserve banks some o f its holdings o f Bankers’ acceptances, a n d that i n a n y case where a Federal Reserve b a n k needs t o adjust i t s free gold position, w h i c h w o u l d n o t b e aided b y a sale o f Bankers' acceptances, i t should offer f o r participation t o the other Federal Reserve banks s o m e o f its holdings o f Government securities. If i n t h e latter c a s e s u c h necessary offerings o f Government securities a r e not accepted b y other Federal Reserve banks, t h e n i t i s clearly within t h e authority o f t h e Reserve b a n k needing accommodation t o sell s u c h Government securities i n the open market. I t was generally understood, however, t h a t n o Federal Reserve bank, s o long as i t i s a member o f t h e Open Market Policy Conference, s h o u l d sell its holdings o f Government securities i n the market a s a matter o f credit policy contrary t o the approved policy o f t h e O p e n Market Policy Conference, T h e right t o buy o r sell securities i n the mar- ket a s a n emergency w a s generally agreed t o b y all t h e Governors present, TOPIC II. C R E D I T TRANSACTIONS A N D POLICIES Review o f recent movements. Future policy h e d r abroad. nea Governor Harrison discussed t h e recent unprecedented withdrawal o f gold f r o m t h e United States b y foreign countries, a n d t h e factors which entered i n t o t h e apparent halting o f these withdrawals which had continued for a period o f five o r six weeks, ending a t the close o f October. TOPIC II. C R E D I T TRANSACTIONS A N D POLICIES C. R e l a t i o n s w i t h foreign banks. ye R e p o r t o f foreign operations o f the system. os F o r e i g n exchanges a n d the g o l d standard. Governor Harrison discussed t h e various matters relating to the operations o f the system with foreign central banks, also the status o f principal foreign countries w i t h respect t o the g o l d standard, and furnished each o f the Governors with a memorandum entitled "The Credit Crisis o f 1931," giving i n detail a history o f the crises i n various foreign countries a n d the events leading u p t o t h e abandonment o r suspension o f t h e gold standard i n m a n y o f them. TOPIC Il. ‘CREDIT TRANSACTIONS AND POLICIES ( 6 ) D. T h e b a n k i n g s i t u a t i o n a n d b a n k f a i l u r e s . Ls N a t i o n a l Credit Corporation. There w a s a general discussion o f t h e activities o f t h e corporation, a n d t h e present status o f i t s operations. TOPIC II. C R E D I T TRANSACTIONS A N D POLICIES ( 7 D. T h e banking situation a n d bank failures. Re P r o p o s e d Real Estate Mortgage Dis? count Corporation. There was a general discussion o f the effect o f such ae corporation o n the commercial banking situation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I t was generally t h e ) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ge ae opinion that t h e proposed limitations w o u l d m a k e t h e corporation o f relatively little direct benefit t o commercial banks o f t h e country. TOPIC II. C R E D I T TRANSACTIONS A N D POLICIES ( 8 De T h e banking situation a n d bank failures. Se P o l i c i e s o f bank examiners. ) There was a general discussion o f this topic, a n d i t was the consensus o f opinion t h a t i t i s very important t h a t t h e supervisory a u thorities exercise t h e greatest c a r e a n d their best judgment t o the e n d that n o possibility o f keeping solvent banks i n operation i s overlooked. TOPIC II. C R E D I T TRANSACTIONS A N D POLICIES ( 9 De T h e banking situation a n d bank failures. 4. R e c o m m e n d a t i o n t o the Federal R e serve Board that a t a n appropriate time legislation b e sought Limiting t h e proportion o f capital_and surplus w h i c h a National bank m a y invest i n building a n d fixtures, e i t h e r b y statutory designation o r b y requiring t h e approval o f the Comptroller ) of such investment. After a general discussion, i t was VOTED t h a t i n connection w i t h recent b a n k troubles, t h e Governors h a v e been impressed b y the excessive proportion o f t h e capital structures invested, i n many cases, i n banking quarters. T h e conference therefore suggests t o t h e Federal Reserve B o a r d t h e advisability o f considering legislation w h i c h will secure s o m e effective check u p o n investments o f this k i n d . b y member banks. TOPIC II. C R E D I T TRANSACTIONS A N D POLICIES Ee Intermediate Credit Banks. is C o o p e r a t i o n o f Federal Reserve Banks. The suggestion w i t h respect t o Intermediate Credit B a n k https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis debentures m a d e b y the Federal Advisory Council t o t h e Federal Reserve Board a t its meeting o n November 1 6 was read, a n d it was VOTED t h a t i t i s the sense o f the conference t h a t i t concurs i n the recommendation o f the Advisory council w i t h respect t o Intermediate C r e d i t B a n k d e b e n t u r e s , a n d approves t h e council's sugges- tion that t h e Federal Reserve Board consider t h e possibility o f rec-- ommending t o Congress that debentures issued b y Intermediate Credit Banks b e made eligible a s s e c u r. promissory ir to y f notes discounted b y member banks with Federal Reserve banks. T h e conference believes, however, t h a t s u c h debentures should have a maturity o f n o t exceeding six months. TOPIC II. C R E D I T TRANSACTIONS AND POLICIES Fs M u n i c i p a l finance. le I n c r e a s e d burden o n municipal pudgets d u e t o unemployment. a P u r c h a s e o f municipal warrants by Federal Reserve banks. It was t h e consensus o f opinion t h a t member banks should be aided b y the Federal Reserve banks, w h e n necessary, of eligible municipal warrants. b y the purchase M u n i c i p a l warrants o f t h e character defined i n the Regulations o f the Federal Reserve Board might appro- priately be purchased on a fifteen (15) day resale agreement a t a rate to b e determined b y the purchasing Federal Reserve bank. At 12:50 p.m. t h e conference adjourned t o reconvene a t 2330 p s m e First Day's Session. Tuesday. December 1 . Afternoon | The méeting w a s called t o order a t 2:35 p . m s https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Same attendance a s a t the morning session. TOPIC III. O P E R A T I O N A N D ADMINISTRATION ( 1 2 ) A. H o w c a n w e b a l a n c e o u r b u d g e t ? There was a general discussion a s t o the attitude o f the several Governors regarding s&lary reductions, omission o f dividends, and t h e suspension o f free services t o member banks. tion, I n this connec- i t was pointed o u t that i n all districts s a l a r y scales a r e al- ready a t best o n l y equal to, a n d i n many cases lower than, salartes paid b y commercial institutions f o r comparable work. I n view o f that fact, a n d the further f a c t that t h e reserve banks d o not provide bonuses, o r give other advantages s u c h a s obtain a t commercial institutions, especially during more prosperous periods, i t would b e unjust and disorganizing t o reduce salaries i n periods o f depression. It was t h e sense o f t h e conference that, although i t n o w appears t h a t t h e gross earnings o f the Federal Reserve banks w i l l n o t be sufficient t o provide f o r expenses, reserves, a n d dividends f o r t h e current year, i t would b e unwise a t this time t o omit t h e dividend o n capital stock, t o make a n y flat reductions i n salaries, o r t o curtail free services t o member banks, a n d that t h e resulting deficit should be charged t o accumulated surplus. I t was understood, however, t h a t the reserve banks will continue t o closely check expenses i n order t o keep them as low as possible without impairing operating efficiency, or the morale o f t h e personnel. TOPIC III. OPERATION AND ADMINISTRATION ( 1 3 Be S a f e k e e p i n g o f securities f o r member banks « is T h e advisability o f securing from all member banks depositing securities w i t h Federal Reserve banks f o r safekeeping. ) an agreement whereby t h e d e positine bank would agree t o approve a n d accept t h e insurance policy carried b y the Federal Reserve bank, a n d all liability other t h a n that cov-— ered i n the Federal Reserve bank's policy would b e assumed by the depositing bank, which, if i t desired, c o u l d itself carry insurance against s u c h additional liability. The report o f the Insurance Committee dealing w i t h t h e sub- ject was read and after a general discussion, i t was VOTED t h a t i t is the sense o f the conference that there b e no change i n the method o f handling safekeeping securities for the reasons given b y the Insurance Committee i n its report. I t was thought, however, t h a t insurance coverage s h o u l d apply first t o lesses sustained b y t h e Federal Reserve bank, a n d second t o losses sustained b y the depositing member bank. It was also informally understood that the Insurance Committee should consider the advisability o f trying t o arrange t o have @ rider attached t o insurance policies t o that effecte TOPIC Ili, OPERATION AND ADMINISTRATION ( 1 4 ) Be S a f e k e e p i n g o f securities f o r member banks. ae C o s t o f t h e s a f e k e e p i n g f u n c t i o n at F e d e r a l R e s e r v e b a n k s . No action w a s taken o n this topic. TOPIC ItI. OPERATION AND ADMINISTRATION ( 1 5 ) Ce I n g u i r i e s involving matters o f system policy o r interesti After d i s c u s s i o n , i t was VOTED - t h a t i t i s the sense o f t h e conference t h a t t h e Federal Reserve banks s h o u l d continue, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis a s i n the past, t o refer matters o f https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis system policy o r interest t o the Federal Reserve B o a r d before replying t o circular inquiries o n such questions. TOPIC V ; R E P O R T S O F COMMITTEES ( 1 Ae C o m m i t t e e o n Bank Reserves. 6 ) At the invitation o f t h e Conference, Governor Meyer a n d Messrs» H a m l i n , J a m e s , M c G h e e , a n d Miller o f t h e Federal R e s e r v e Board, together w i t h Messrs. Harrison, M o r r i l l a n d Wyatt, a n d Messrs. Smead, Goldenweiser a n d Riefler h e r e entered t h e meeting a n d joined i n t h e discussion w h i c h f o l l o w e d . At 6:00 p . m . t h e conference adjourned t o reconvene a t 10:00 as» m. o n Wednesday, December 2. Second Day's Session ~ Wednesday. December 2, 1931. Morning Meeting w a s called t o order a t 10:20 a . m e Same attendance a s at the preceding session. JUPIC ¥ s R E P O R T S O F COMMITTEES Ae C o m m i t t e e ( 1 7 ) o n Bank Reserves. The discussion o f t h e report o f the Committee o n Bank Reserves begun a t the previous session w a s concluded, a n d i t was VOTED t h a t t h e conference expresses i t s appreciation o f the work done b y the Committee o n Bank Reserves i n preparing a very comprehensive report, b u t feels that further study o f the report should be made b y each bank pending t h e next conferences, be fully considered a n d a Boarde a t which t i m e i t will recommendation m a d e t o t h e Federal Reserve ZUELL V e R E P O R T S O F COMMITTEES ( 1 8 Be I n s u r a n c e Committee. Ce L e a s e d W i r e Committee. Ee S u b - c o m m i t t e e o f General Committee o n Bankers' Acceptances. ) The committee reports w e r e read, a n d i t was VOTED t h a t they b e a c c e p t e d d n a placed o n file. TOPIC« V u R E P O R T S O F COMMITTEES ( 1 9 ) De P e n s i o n C o m m i t t e e . The Pension Committee's report was read and, after a general discussion, i t was VOTED t h a t t h e report b e accepted a n d action postponed pending a further effort t o obtain a Federal charter through t h e in~ troduction o f a Bill i n Congress. TOPIC IV. C O L L E C T I O N S A N D CLEARINGS ( 20) Ae R e p o r t o f Standing Committee o n “Collections. The Secretary outlined briefly the committee's recommenda~ tions o n the topics submitted t o i t f o r consideration b y the Conference of Governors o f April 2 7 - 29, 1931. 4 Ved) is D e s i r a b i l i t y o f definition b y the Treasury Department o f the rights, duties, a n d responsipilities o f Federal Reserve banks i n cashing Government checks a n d warrants. It was VOTED t o refer this matter t o the Conference o f Counsel for. Federal Reserve banks f o r consideration a n d consultation w i t h t h e Standing Committee o n Collections a n d officials o f t h e Treasury Department, with a view t o obtaining a clarification o f the applicable provisions of Treasury Department Circular N o s 176, w i t h respect t o the duties a n d responsibilities o f the Federal Reserve banks i n cashing Government https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis checks a n d warrants. oe et https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis U a e (22) n i a f o l r m arrangement to notify l Federal Reserve banks and branches o f reopening o r succession o f banks previously closed. After discussion, i t was VOTED t h a t e a c h Federal Reserve b a n k report t o all other Federal Reserve banks b y wire daily t h e closing, reopening o r succession o f all banks i n their district s o far a s t h e y have s u c h informa~ With respect t o the other topics covered b y the committee's report, i t was VOTED t h a t t h e report b e accepted a n d filed. SUPPLEMENTARY TOPIC. R E P O R T O F THE COMMITTEE O N GROUP, (23) BRANCH, A N D CHAIN BANKING At t h e invitation o f t h e conference, D o c t o r Goldenweiser submitted a brief o r a l report o f progress, a n d provided e a c h o f t h e Governors with a copy o f the material accumulated b y the committee. The following resolution was unanimously adopted: "The conference has heard with great regret the announcement from Governor Bailey that i t is his purpose t o retire f r o m the Governorship o f t h e Federal Reserve B a n k o f Kansas C i t y a t the e n d o f t h e year, a n d w e all tender h i m eur most sincere good wishes for many more years o f health, usefulness, prosperity, and happiness." At 1:00 p. m. the conference adjourned. H. F. STRATER Secretary. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
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