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997 A meeting of the Federal Reserve Board was held in Washington on Saturday, April 27, 1955, at 11:30 a. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Governor Thomas, Vice Governor Hamlin Miller James Szymczak Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Governor Mr. Faulk, Fiscal Agent of the Federal Reserve Board and Notary Public Governor Eccles took his oath of office as a member of the Federal Reserve Board for the unexpired portion of the term of ten years ending August 9, 1938. At this point Messrs. Bethea, Carpenter and Foulk left the meeting. Mr. Thomas stated that the committee, to which the Board's budget for the year 1935 had been referred for further consideration, was ready t° report but that it would be necessary to make the report orally as there had not been sufficient time to reduce it to writing. Governor Eccles suggested that the report be prepared in writing and furnished to the other members of the Board so that they would have oPPortunity to study it. This suggestion was agreed to with the understanding that another meeting of the Board would be held on Monday afternoon, April 29, 1935, upon call of the Governor, for consideration of the report and the Governor indicated that he hoped to be able to call the meeting at 3 p. m. Governor Eccles called attention to the fact that while the dis- e'unt rate established for the Federal Reserve Bank of New York is 1 1/2%, 998 41 4/27/55 the Federal Reserve Banks of Richmond, Minneapolis, Kansas City and Dallas have rates of 2 1/2% and the other Federal reserve banks 2% per annum. He said that he had discussed the question of discount rates over the telephone with Governor Harrison of the Federal Reserve Bank of New York and had previously discussed it with representatives of the Treasury Department; that he felt that consideration should be given by the Federal reserve banks to the question of the advisability of reducing the rates which seem to be out of line; that he recognized the fact that, in the Present circumstances, there would be no borrowing from the Federal reserve banks by member banks, and that possibly such a reduction would make no difference except psychologically, but that it seemed there should be some consistency in the determination of discount rates. He said that if the bill rates were being increased, the Federal reserve banks would Noect to increase their discount rates, so that they would be at a level slightly higher than the bill rate, and that, therefore, it would seem that the discount rate should follow the bill rate down to some extent at least. He raised the question as to what reason there might be at the Present time for the present differential between the discount rates in the various districts, which seemed to him to be entirely unjustified in Iris17 of the tremendous excess of funds in the various Federal reserve c4stricts and the fact that the bill market is a national market rather than the a Federal reserve district market. He stated that in the light of Present low rates in the bill market it seemed that a 2 1/2% rate was tar out of line and that the record would be much more consistent if the 999 4/27/35 -3- discount rates were reduced in accordance with the market situation. Mr. Miller stated that he doubted that a reduction in the discount rate would have any effect or that it would alter conditions to any extent. In response to a question from Mr. Hamlin, Governor Eccles said that the Federal Reserve Bank of New York feels that the discount rates at the other Federal reserve banks are out of line. He said that he felt the easy money situation is gradually beginning to take hold; that there have been some small new capital issues and a considerable amount of refunding; that there is a tendency not only to refund but also to expand MOrtgage lending at comparatively low rates over a long time, which would he very constructive; that insurance companies are now beginning to lend 14) to twenty years, and that they are lending at rates as low as 4%. He added that, in the circumstances, he believed that it would have a favorable psychological effect if the Federal reserve banks announced a reduction in their discount rates and that it would be a recognition of the actual condition that exists in the money market. Mr. Taller raised the question why it would have a favorable PsYchological effect if money already redundant were to be made cheaper, 8-11d said the idea still persists that through money rates or through money nianiPulation an improvement in business conditions can be brought about. Re expressed the view, in which Mr. James indicated that he concurred, that it would be demonstrated in later years that the extremely low rates at which money is available at the present time, particularly for Treasury financing, will prove to be very "dear" money. 1000 4/27/.35 —4— After some further discussion as to what might be the effect of a reduction in discount rates and as to the justification for differentials between Federal reserve districts it was agreed that a letter should be prepared for transmission to all Federal reserve banks calling attention to the discount rates now in effect and requesting that consideration be given by the officers and directors of the Federal reserve banks to the question of the advisability of lowering the rates. In this connection the question was raised as to when there might be another Governors' Conference and Governor Eccles suggested npt in viely of the pendency of the proposed Banking Act of 1955 it might be well to defer having a meeting of the Governors' Conference until the disposition of that bill had been determined. Governor Eccles then referred to the pending application of the First National Bank of Ketchikan, Alaska, for admission to the Federal Reserve System. Following a discussion of the matter it was agreed that the entire question of policy with respect to admission of banks in Alaska, Puerto Rico and Hawaii should be referred to a committee coffoosed of Messrs. Thomas, Hamlin and James for consideration and report with a definite recommendation to the Board. In this connection Mr. Miller pointed out that there was a possibility in connection with such applications for membership that they would be followed by a demand for the establishment of branches or agencies in the respective Territories and expressed the vier that the considerati°11 of the question of policy should be based upon a determination whether the Federal Reserve System can be of material service to banks ill these Territories, without establishing branches or agencies, to which he would be opposed. 1001 r 4/27/35 Governor Eccles brought up the question, which had been discussed at a previous meeting of the Board, as to the procedure which should be established for handling applications for employment on the Board's staff and the submission of recommendations by the various division heads to the Board with respect to new employees. Governor Eccles read a memorandum which he stated contained his recommendation as to the procedure which should be established. The memorandum which he read was as follows: "Hereafter the procedure set forth in this memorandum shall be followed in connection with all applications for employment by the Board end recommendations submitted to the Board as to appointments. "Every applicant for employment by the Federal Reserve Board should fill out an application in the usual printed form. All applications shall be delivered to the office of the Secretary of the Federal Reserve Board, where they will be filed in the section under the charge of Assistant Secretary Noell. If an applicant appears to have qualifications of a technical or specialized character which relate to the work of a particular division, his application should be called to the attention of the head of that division. If an application be received directly by a particular division, the original should be sent to the Secretary's office. The division concerned may retain a copy or extract of the information contained in the application if it so desire. "The Secretary's office shall arrange the files of applications so that the applications of all persons who have qualifications which may be considered for any particular class of position may be available for inspection by any Board member or division head. "Except as stated in the next following sentence, inquiries of former employers or of persons given as references in the apPlicetions should be made over the signature of Assistant Secretary Noell, or in his absence the Assistant Secretary designated by the Secretary as the alternate for Mr. Noell, and when made for the information of a particular division they should be prepared or initialed In that division. Any division head, however, may make such additional inquiries as he may deem desirable or necessary and may also, if he prefers, conduct over his own signature the correspondence regarding any applicant for a position requiring qualifications of a specialized or technical character above those of the stenographic or clerical grades. 1002 4/27/35 —6— "All correspondence in regard to each applicant shall be filed in the Secretary's office with the application. The tests of stenographers and typists shall be given by the Assistant Secretary's office and the results shall be recorded in the application files. "Then a recommendation is ready for submission to the Board it should be prepared in writing, addressed to the Fed— eral Reserve Board, and initialed by the head of the division, or in his absence by his chief assistant. It should be accompanied by the entire file on the person covered by the recommendation. In each case the memorandum should show the following: (a) The action desired, stating the designation of the position to be filled and whether on a temporary or permanent basis; proposed salary rate; and name of applicant recommended. (b) Whether the proposed appointment is for the purpose of filling an existing vacancy or will result in any increase in the payroll and e clear statement of the necessity for the appointment; (c) Brief description of applicant and statement of his qualifications, including education and experience which should be shown in chronological order. (d) Resume of results of inquiries made of former employers and pertinent information gained from other sources regarding the ap-olicent, and a showing that after careful inquiry he appears to be the most suitable of all available applicants. (e) Statement that the applicant has been informed as to the retirement plan and the physical examination in connection therewith, or that he will be so informed before he accepts the annointment unless he is in e class excepted from the plan. "In this connection, the Board has placed on the head of each division the responsibility of making his selections solely on the basis of merit and only of the persons shown to be best qualified to fill the positions after a thorough can— vass of all persons known to be available. Therefore, when it appears that there is likely to be a need in his division for filling a particular position he will be expected to re— view all applications for appointment to such a position which have been filed at least within the preceding twelve months. Attention is also called to the instructions contained in my memorandum of December 27, 1934, of which a copy is attached, in regard to applicants who are already in the government service, or members of those families are in the government service. 1003 4/27/35 -7- "The written recommendation addressed to the Federal Reserve Board shall be delivered to the office of the Secretary of the Board. The Secretary shall return, for such corrective action as may be necessary, any recommendation which does not conform to the foregoing instructions. When the recommendation is ready for submission to the Board the Secretary's office shall place upon it the Board's approval stamp, making the usual record, and circulate it among the members of the Board. "Mien recommendations relate to positions requiring qualifications of a specialized or technical character above the stenographic or clerical grades, the Secretary's office shall circulate such recommendations first to the Board members to whom have been assi;ned the principal subjects on which it appears that the proposed appointees may work. Any Board member, instead of approving a recommendation, may check the recommendation and note upon it that it should be brounht up for consideration at the next Board meeting, after it has been circulated, in which case it will be placed on the docket and the head of the division concerned will be requested to be present when action is to be taken Upon such application." In reading the memorandum Governor Eccles said that he would Change the portion which related to appointments of employees above the stenographic and clerical grades so that in every instance the recommendation, after having been circulated among the members of the Board, must be brought 111D at a Board meeting for Board action, even though in Such circulation it might have been unanimously approved. There followed a discussion of the portion of the recommendation which related to the procedure in considering such appointments, and it was agreed that a copy of the memorandum should be furnished to each Board member for further study and consideration at a later Board meeting. At this point, Mr. Hamlin withdrev, from the meeting, stating that, by reason of prior engagements, he could not remain longer. After further discussion Governor Eccles suggested that each Member of the Board individually make a study of the organization of the 1004 4/27,/35 -8- Board's staff and its relations with the Board and the members thereof, Pointing out that each member is equally responsible for seeing that the organization functions efficiently and that each member individually on his own initiative should put himself in the position of determining what should be done if he were solely responsible for setting up or revamping the organization, including determining how functions should be distributed among the Board members. The Governor stated that he would like to have the Board endeavor to agree upon some definite plan. Mr. Miller presented a copy of a letter which he had written to Senator Couzens on April 251 19351 reading as follows: "During the course of the hearing of Mr. Warburg yesterday morning before the Sub-committee of the Banking Committee of the Senate, when the subject of control of the Federal Reserve System was under discussion you remarked, if I understood you rightly, that you knew of an instance where the management of a Federal reserve bank had taken advantage of its position to further its interests. "That is a very serious charge and I am wondering if you ever brou=lit it to the attention of either the Federal reserve bank which was involved or the Federal Reserve Board. If not, I think in the interest of fairness and in the interest of efficient supervision the Board should be advised of it, in order that it can properly discharge its supervisory responsibilities under the Federal Reserve Act. I think I can claim for the Board as a whole and certainly I assert for myself that anything in the nature of selfish discrimination, Partiality or prejudice in the management of Federal reserve banks should not for one moment be tolerated, and it is only as cases where there is reason to believe or even suspect that such situations might exist are brought to the attention of the Board here in Washington that the Board can take the necessary corrective measures which the public has a right to expect and demand of it. "I beg to remain, my dear Senator, with highest esteem," Mr. Pallor stated that he had received the following reply from Senator C°112ens under date of April 261 1935: 1005 4/27/35 -9- "I have yours of the 25th with reference to some comments I made when Mr. James Warburg was testifying before a subcommittee of the Banking and Currency Committee recently. Your understanding of 7,hat I said is correct. "I was informed on such high authority that I am convinced that the matter was in the possession of the Secretary of the Treasury, who is an ex-officio member of your board. The case that I have had particularly in mind is specific and definite, but I have intimations, which I an not quoting because they are only intimations, of other cases. I am not even advised whether the Federal Reserve Board has any power in the matter, and whether it has or not, I have been in public life long enough to learn that you cannot always determine men's motives. My lourassociation with men indicates that 'anything in the nature of selfish discrimination, partiality or prejudice in management' is not always determinable, no matter what your food intentions may be. My conviction is that high officials in Washington know of these cases. "With kind regards, I am" At the request of Mr. Miller the two letters were read by the Secretary and a detailed discussion followed. At the conclusion of the discussion, it was agreed that Mr. Miller should prepare a letter to Senator Couzens in reply to his letter of April 26. Thereupon. the meeting adjourned. OVO-Ja12 Secretary. Governor.
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