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575 A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Friday, April 14, 1944, at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak McKee Draper Evans Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Smead, Director of the Division of Bank Operations Mr. Paulger, Director of the Division of Examinations Mr. Leonard, Director of the Division of Personnel Administration Mr. Vest, Assistant General Attorney Mr. Wyatt, General Counsel There were presented telegrams to Messrs. Paddock, Leach, and MeLarin, and the Presidents of the Federal Reserve Banks of Boston, Richmond, Atlanta, respectively, Messrs. Dillard and Stewart, Secretaries of Federal Reserve Banks of Chicago and St. Louis, respectively, Mr. Powell, First Vice President of the Federal Reserve Bank of Minneapolis, • Mehornay, Deputy Chairman of the Federal Reserve Bank of Kansas City, Mr. Gilbert, President of the Federal Reserve Bank of Dallas, 41c1 Mr. Hale, Secretary of the Federal Reserve Bank of San Francisco, tating that the Board approves the establishment without change by the ecleral Reserve Bank of San Francisco on April 11, by the Federal Reserve 576 4/14/44 -2- of Atlanta on April 12, by the Federal Reserve Banks of Richmond, Chicago, St. Louis, Minneapolis, Kansas City, and Dallas on April 13, 1944, and by the Federal Reserve Bank of Boston today, of the rates of discount and purchase in their existing schedules. Approved unanimously. Reference was made to the letter received under date of March 20, 1944, from Mr. Hospelhorn, Chairman of the Executive Committee of the National Association of Supervisors of State Banks, in which were listed the more important topics which it was expected would be discussed at the meeting of the Executive Committee on April 15. It was stated that Mr. McKee planned to attend the meeting of the Executive Committee for the purpose of discussing the growing tendency on the part of large corporations to request banks to furnish them detailed information regarding the financial condition of the banks in addition to that contained in published reports of condition. There was unanimous agreement that the letter from Mr. Hospelhorn required no further action by the Board and that, when the members of the Executive Committee were in the Board's building for luncheon tomorrow, no matters of official business should be taken up with them. Before this meeting the attention of the members of the Board had been called to a memorandum dated April 7, 1944, from Mr. Cherry, Attorney, submitting a routine request from the Senate Committee on the judiciary for a report on H. R. 2985, which would provide for the 577 4/14/44 —3— garnishment, of wages and salaries of civil officers and employees of the United States. The bill had already passed the House and, if ap- Proved and signed by the President, would apply to the Board of Governor. It was stated that the Treasury was opposed to the bill and that sollte of the other Government agencies had expressed opposition to it. Chairman Eccles expressed the opinion that the matter was not Of importance so far as the Board was concerned and suggested that no report should be made. This suggestion was approved unanimously. At this point Mr. Nelson, Assistant Secretary, joined the meet- Reference was made to a memorandum addressed to Mr. Draper by 14r. Nelson under date of April 5, 1944, with respect to the deficit in the operation of the Board's cafeterias and private dining rooms which had occurred since October 1943 when the cafeterias were closed to outside Government employees. After stating that, on the basis of the deficit for the month of March 1944, the annual deficit would amount to approximately $20,000 or 20.7 per cent of the cost of operating the cafeterias and private dining rooms, the memorandum discussed various steps that might be taken to reduce the deficit, including increases in 1311-Ces, simplification of menus, a material reduction or elimination f the management fee, reduction in retirement contributions for cafetella employees, reduction of force in the cafeterias, and partial ' I esumption of outside patronage. 578 4/14/44 —4— Mx. Draper referred to the reasons for closing the cafeterias to outside Government employees and stated that the problem confronting the Board was whether it should (1) adopt a policy of effecting such economies as might be possible and absorbing a loss of approximately 815,000 per annum, (2) reopen the cafeterias to outside Government emPloyeee, which would present the difficult problem of rebuilding the staff of employees, or (3) reopen the cafeterias to a limited number of nearby outside Government employees, such as employees of the Selective Service System which does not have cafeteria facilities of its own. /lessrs. McKee and Draper favored the latter alternative but stated that, if the other members preferred, they would be agreeable to continuing the existing arrangement and absorbing the anticipated loss. Chairman Eccles expressed the opinion that the Board would be justified in absorbing a loss that would be reasonable in relation to the losses absorbed at the Federal Reserve Banks under authority granted by the Board, that five of the Federal Reserve Banks absorbed 20 per cent or more of their costs in 1943, and that that was about as high as the Board would be justified in going. Mx. Nelson stated that he had discussed with Mr. Hoover, General llanager of the Welfare and Recreational Association, the reduction of the management fee provided under the existing contract with the Association and that, while Mr. Hoover had indicated that he might conSome adjustment because of the fact that the Association was no longer supervising personnel, the adjustment that he might make would not be a large one. Mr. Nelson also said that he had told Mr. Hoover 579 4/14/44 -5- that the Board would like to reduce the fee substantially, that it might wish to eliminate the fee entirely and make Some arrangement under which the Board could purchase its food through the Associatio n, and that it would like him to submit a proposition as to what he would be willing to do. In response to an inquiry from Chairman Eccles as to whether the Board would be justified in cancelling the contract with the Welfare and Recreational Association and doing its own buying, Mr. Morrill stated that he would like to try that plan, which might be done with the possible addition of some clerical cost to handle the necessary bookkeeping. There was a discussion of this suggestion and also of the desirability of the admission of a limited number of outside Gov- ernment employees. At the conclusion of the discussion, Mr. Draper suggested that an effort be made to work out an arrangement with the Welfare and Recreational Association under which the management fee would be discontinued and food would be purchased through the Association, and, if a satisfactory arrangement could not be worked out, that the existing contract be cancelled, that such other economies as might reasonably be adopted be put into effect, and that the Board review the matter again after a period of operation on this basis. Mr. Draper's suggestion was approved unanimously, with the understanding that the appropriate item in the budget for the Secretary's Office would be increased in an amount sufficient to cover the deficit in the operations of the cafeterias and dining rooms in 1944. this point Mr. Nelson withdrew from the meeting. There was then presented a memorandum dated April 10, 1944, 580 4/14/44 —6— ZOr Mr. Cherry, Attorney, in which it was stated that an Assistant General Counsel of the Treasury- had called on the telephone to inquire Whether the Board had initiated any action looking toward the extension beyond December 31, 1944, of the time within which the Federal Reserve Banks might purchase obligations of the United States directly from the Treasury, Under Secretary Bell having expressed the view that the authority should be extended but that it should be done at the request of the Board rather than of the Treasury. Chairman Eccles stated that it was his opinion that nothing should be done by the Board on the matter at this time and that there would be ample time in November and December of this year to seek renewal of the authority if it should be felt at that time that it should be renewed. The other members of the Board were in agreement with Chairman Eccles' position in the matter. The Chairman also said that it appeared to him that in the '-tSting circumstances it was immaterial whether the authority was re- newed or not, particularly since the Treasury was unwilling to permit the direct replacement of Treasury bills and the need for the issuance of special certificates of indebtedness over tax-payment and other Periods could now be avoided. At the conclusion of the discussion, it was decided that no action should be taken on the matter at this time but that it should be held on the docket for consideration early in November of this year. 4/14/44 -7Pursuant to the action taken at the meeting of the Board on April 11, 1944, consideration was given to revised drafts of statements for inclusi on in the Board's annual report for the year 1943 with respect to (a) monetary policy and inflation, (b) prospects on interest rates) and (c) the bank holding-company situation. The statements were approved for inclusion in the annual report as revised during the meeting. Thereupon the meeting recessed and reconvened at 2:40 p.m. with the same attendance as at the close of the morning session except that Messrs. Goldenweiser and Leonard were not present. There was presented a revised draft of statement, prepared in accordance with the action taken at the meeting of the Board on April 11/ 1944, with respect to banks furnishing informa tion to large dePcsitors regarding the condition of the banks. Further changes were suggested in the statement, and Mr. McKee questioned whether it should be included in the annual report at this time or whether it would be better if the Board, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the State Bank Supervisors agreed Upon a joint public statement on the matter. It was suggested that such a procedure might be followed in addition to putting the revised Statement in the annual report. Mr. McKee stated that he planned to discuss this matter with the executive committee of the National Association of Supervisors of State Banks at their meeting tomorrow, and, in accordance with his recommendation, it was agreed that he should 582 4114144 present the revised statement as a suggested statement for inclusion in the Board's annual report for the year 1943 and that the matter would be considered further by the Board in the light of Mr. McKee's discussion with the State Bank Supervisors. Reference was then made to a letter dated April 10, 1944, from Under Secretary of the Treasury Bell enclosing a copy of a letter addressed by him to Mr. Brown, General Counsel of the Federal DeP°sit Insurance Corporation, regarding a suggestion made by Mr. Brown that consideration be given to amending the regulations of the Board and the Federal Deposit Insurance Corporation to allow banks, at their °Ption, to permit the withdrawal of time and savings deposit before s maturity and to pay interes t up to the date of withdrawal when the Proceeds were to be used for the purchase of United States Government securities. Mr. Bell's letter to the Board stated that he would ap- preciate it if the Board would give this matter early consideration. Mr. McKee reviewed the discussions which he had had with Mr. Bell regarding this matter in the past and stated that, while in such discussions he had told Mr. Bell that he would favor such an amendment, he questioned whether such action should be taken at this particular time • He also said that according to such information as he had been able to obtain the present restrictions on the withdrawal of savings and time deposits were not impedin the sale of Governm g ent securities to the public in any material way. The further comment was made that depositors had ample advance rtO tice of the time the war loan drives would take place and could give 583 4/14/44 the -9- necessary notice for the withdrawal of time and savings deposits for the purchase of war bonds; that depositors could also borrow money at the banks against their savings passbooks or certificates of deposit for the purpose of purchasing securities; that in any event time and savings deposits held by banks were already largely invested in Govern'nent securities and if they were withdrawn in large amounts it would Probably require the sale of Government securities by the banks; and that in these circumstances there appeared to be no justification for Making an exception to the present limitation on the withdrawal of such deposits. At the conclusion of the discussion, Chairman Eccles suggested that he call Mr. Bell upon his return to his office next week and inhiin that the Board would not favor amending the regulations at this time, and that a memorandum be prepared setting forth the reasons for the Board's position for his (Chairman Eccles') use in his conversation with Mr. Bell. This suggestion was approved unanimously. There was then read a draft of letter to Mr. McNutt, Chairman ct the War Manpower Commission, transmitting the letter received from the executive committee of the Federal Advisory Council under date of April 0 1944, urging that the Board of Governors impress upon the War IlanPower Commission, the Selective Service System, and any other body whiCh might have to do with directing the flow of labor, the need for 584 4/14/44 -10- r ecognizing the essentiality and necessity of the banking service to the economic life of the country and to the war effort, to the end that in the hiring and retention of employees not eligible for combatant military service the banks would be treated on a parity with industries regarded as essential, even though not directly engaged in the production of war material, so that the banks might retain and acquire personnel in order to be able to continue to function in the public interest. The draft of letter to Mr. McNutt had been prepared on the assumption that concurrence in the Council's position would be expressed bY the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Executive Commit tee of the National Association of Superviso rs of State Banks. It was pointed out that at the meeting of the Board with the executive committee of the Federal Advisory Council on April 5, 1944, it was understood that upon receipt of the letter setting forth the C°uncil's position in this matter the Board would endeavor to obtain letters from the Treasury and the Federal Deposit Insurance Corporati°11 suPporting the request of the Counci and the Board that banks l be classified as essential industry, and that representatives of the Council would also discuss the matter with the Treasury and the Federal Deposit Insurance Corporation. Unanimous approval was given to the suggestion that the concurrence of the State Bank Supervisors not be sought at this time, that Mr. Leonard be requested 585 4/14/44 -11to discuss the matter with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to ascertain whether they would be willing to support the request, and that the draft of letter to Mr. McNutt, revised in accordance with the decision reached by the Board at this meeting and the outcome of Mr. Leonard's discussions with the Comptroller and the Federal Deposit Insurance Corporation, be approved. Mr. McKee then made substantiall y the following statement: I would like to report a conversation I had recent ly with Judge Bolger of the Orphans' Court of Eastern Pennsylvania who came to my office to discuss the possibility of reports of examination of member banks with trust departments being made available to the Orphan s' Court in connection with trust matters coming before the Court. Judge Bolger had taken the matter up with Mr. Crowley, Chairman of the Federal Deposit Insurance Corporation, who said that he would discuss the matter with the Board and communicate with Judge Bolger again. The members of the Board will recall that sometime ago a statement was put on the cover of each examina tion report made by the Federa Reserv Banks, Comptr e l the oller of the Currency, and the Federal Deposit Insurance Corporation to the effect that the report was strictly confidential and could not be made available to any outside parties. One of the reasons for this action was that it was found that invest igators for the Orphans' Court, who were practicing lawyers, were taking information found in the reports of examina tion reviewed by them and instituting suits against the banks for alleged improp er administration of trust accounts, and it felt that was this was an improper use of the examination reports. Certain members of the Board's staff and I spent about _' ". 1 10 and one-half hours with Judge Bolger and, while we listened sympathetically to his statement of position, I Pointed out the reasons for the Board's position in the mater and why it was felt it should not be changed. I said that I would present to the Board Judge Bolger's request that the examination reports be made available to 586 4/14/44 -12- the Orphans' ent views in very careful but I see no Court and that if the Board had any differthe matter he would be informed. te gave consideration to what the Judge had to say, reason for any change in the existing policy. The matter was discussed and there appeared to be no disagreement with Mr. McKee's position. Mr. McKee then presented a letter dated April 12, 1944, from Mr. Young, President of the Federal Reserve Bank of Chicago, enclosing a letter received by him from the Allegan State Bank, Allegan, Michigan, inquiring whether the practice of the American National Bank and Trust Company of Chicago in furnishing correspondent banks with money order f°rms as outlined in a letter from the national bank under date of APril 5, 1944, would be construed to be a payment of interest in violation of the provisions of the Federal Reserve Act and the Board's Regulation Q prohibiting the payment of interest on demand deposits. The letter was referred to the Legal Division for the preparation of a suitable reply. At this point Messrs. Bethea, Clayton, Thurston, Smead, Paulger, Vest, and tyatt withdrew from the meeting, and Mr. Gardner, Senior Economist in the Division of Research and Statistics, joined the meet- Mr. Szymczak and Mr. Gardner reported recent developmen ts with respect to the plans for an international monetary fund and a bank for reconstruction and development, from which it appeared that 587 4/14/44 —13— the joint statement of recommendations with respect to the monetary fund which had been under discussion recently with the Russian delegation might be published in the near future and that it was contemplated that the Board would be represented on the delegation and staff of experts at a confere nce of ministers of finance of the United and Associated Nations to be called shortly. Mr. Gardner stated that it had been made clear by the Treasury that discussions of the monetary fund and the proposed joint statement were at the technical level and that the participating governments were not committed. There was a general informal discussion of the position in which the Board was placed by these developments, and it was understood that the matter would be discussed by Chairman Eccles and Mr. Szymczak and that they would make a recommendation to the Board as to what, if any, action should be taken in the matter. At this point Mr. Gardner withdre w from the meeting, and the action stated with respect to the following matters was then taken by the Board: The minutes of the meeting of the Board of Governo rs of the ?ederal Reserve System held on April 13, 1944, were approved unani- M01181y. Bond in the amount of $10,000, executed under date of April 10, 1944, by John Johnson as Alternate Assistant Federal Reserve Agent 588 4/14/44 -14at the Federal Reserve Bank of Minneapolis. Approved unanimously. Thereupon the meeting adjourned. Secretary. Chairman.
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