The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
6/1 A meeting of the Board of Governors of the Federal Reserve `'stem was held in Washington on Friday, April 28, 1944, at 11:00 a•ra. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Sumczak McKee Draper Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman The action stated with respect to each of the matters herein- after referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the l'ederal Reserve System held on April 27, 1944, were approved unani1401 . 1.81y. Telegrams to Mr. Paddock, President of the Federal Reserve Bank of Boston, Mr. Treiber, Secretary of the Federal Reserve Bank of u "ew York, Messrs. Leach and McLarin, Presidents of the Federal ReBel*ve Banks of Richmond and Atlanta, respectively, Messrs. Dillard ka Stewart, Secretaries of the Federal Reserve Banks of Chicago and St. Louis, respectively, Mr. Powell, First Vice President of the Federal Reserve Bank of Minneapolis, Mr. Caldwell, Chairman of the Federal Ileserve Bank of Kansas City, Mr. Gilbert, President of the Federal Re8erlie Bank of Dallas, and Mr. Hale, Secretary of the Federal Reserve iknk or San Francisco, stating that the Board approved the establish- illerit thout change by the Federal Reserve Banks of St. Louis and .10 672 4128/44 -2- 414 Francisco on April 25, by the Federal Reserve Banks of New York, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, and Dallas on Alpril 27, 1944, and by the Federal Reserve Bank of Boston today, of the rates of discount and purchase in their existing schedules. Approved unanimously. Memorandum dated April 24, 1944, from Mr. Goldenweiser, Director of the Division of Research and Statistics, recommending that G. L. Bach, an economist in that Division, be granted leave of bse"e without Day beginning April 25, 1944, so that he might enter 4ctl:v.e duty with the United States Naval Reserve, and that he be °anted one month's unearned salary and the other benefits provided in the _ Policy adopted by the Board on November 14, 1940, and amended 20, 1941, for all employees entering military service. Approved unanimously, with the understanding that the payment of one month's unearned salary would be at the rate of basic salary plus overtime. Memorandum dated April 27, 1944, from Mr. Morrill, submitting the res ignation of Mrs. Agnes S. Eichelberger as a file clerk in the Secretary? s Office, to become effective as of the close of business ItaY 2, 1944, and recommending (1) that the resignation be accepted as of that date and (2) that, for reasons stated in the memorandum, the l'eimbursement for 11 days, 5 hours, and 50 minutes of sick leave 673 4/28/44 —3— overtlrawn by Mrs. Eichelberger be waived. The resignation was accepted and the reimbursement for overdrawn sick leave waived. Letters to the "Citizens Bank of Monroe", Monroe, New York, and the "North Shore Bank Trust Company", Oyster Bay, New read— as follows: "The Board is glad to learn that you have completed _all arrangements for the admission of your bank to the Federal Reserve System and takes pleasure in transmitting herewith a formal certificate of your membership. "It will be appreciated if you will acknowledge re— ceipt of this certificate." Approved unanimously. Letter to Mr. William R. McQuaid, President of The Barnett Nati °nal Bank, Jacksonville, Florida, reading as follows: "This refers to your letter of April 14, 1944, to Governor Ransom, in which you state that you are looking into the advisability of establishing a common trust fund and ask for information as to the difference between the V.200 limitation which appears in subsection (b) of section 17 of the Board's Regulation F and the 25,000 limitation Which appears in subsection (c). 4.. "On December 31, 1937, the Board amended its regula— ' 10n relating to trust powers of national banks so as to Provide a method of setting up common trust funds for gen— era], investm ent from the assets of trust estates, but pro— yl-ded that the amount which can be invested from any one trust in such a common fund may not exceed $25,000 or 10 1) !r .. cent of the amount of the fund, whichever is less. !nen there is a common trust fund of this kind, it is neces— cY to have a written plan adopted by the board of di— ;astors of the bank, an annual audit of the fund must be 421(e, and the value of the assets in the fund must be de— 'irmined at least every three months by the trust investment committee, and other miscellaneous requirements must be T 674 4/28/44 -4"followed. These requirements are in subsection (c). "For a number of years prior to 1937, however, the regulations of the Board had permitted the investment in a common trust fund of cash balances of a trust which the bank considered to be individually too small to be invested separately to advantage. When the regulation was amended at the end of 1937, this provision permitting investment of small cash balances was continued in the regulation, with the limitation that the total investment of the cash balances of any one trust in such a common trust fund should not exceed $1200. In making such investments of small cash balances in common trust funds, the provisions relating to common trust funds for general investment (with the $25,000 limit) are not applicable, and the adoption of a written plan, the annual audit, and the periodic valuation of assets are not necessary. The investment of small cash balances in common trust funds is covered by subsection (b) and the only limitation is the C1200 one. "These two different types of common trust funds, one relating to general investment and the other to investment of small cash balances are rather confusing, and, if the 7xplanation which we have attempted to make above does not serve to clear the matter up in your mind, we suggest that ',01.1 communicate with the Federal Reserve Bank of Atlanta. For your convenience, an up-to-date copy of Regulation F ls enclosed herewith." Approved unanimously, together with a letter to Mr. McLarin, President of the Federal Reserve Bank of Atlanta, enclosing copies of Mr. McQuaid's letter of April 14 and the above reply. Joh4 Letter prepared for the signature of Chairman Eccles to Mr. Hancock of the Office of War Mobilization, reading as follows: "I have yours of April 13 relating to H.R. 3022 rereporte d out Military Affairs CommitHouse by the Lee This bill would make the Comptroller General the w:T1 judge of the amounts due contractors under terminated contracts although the determination of the contracting °facer in the procurement agency may become final within 675 4/28/44 -5- • six months if no adverse finding is made. In your letter you ask for the opinion of the Board of Governors as to how widely member banks would grant loans under this bill as compared with the plan recommended in the BaruchHancock Report and which is embodied in the George-Murray Bill (S. 1718) as amended following the hearings by the Subcommittee on Postwar Economic Policy and Planning. "There can be no doubt that commercial banks would not grant credit as readily under H.R. 3022 as under 5. 1718. In estimating the amount realizable by contractors and sub-contractors from their claims, banks have become accustomed to check closely with the procurement agencies. They have found that these agencies are well Tialified to judge the quality of the borrower's perlormance and to estimate the value of the borrower's Claims, whether assigned or not. Should the banks find that the judgment of the procurement or contracting officer is to be supplanted by, or at least made subordinate it:03 the opinion of the Comptroller General, they would be on less familiar ground and would consequently be more ?autious in advancing funds against such claims. Assuming competency in the staff of the Comptroller General tn spite of their unfamiliarity with the borrower's per-Lormance, if the ultimate realization upon these claims, except for fraud, is to depend upon two different Government agencies and their staffs, it seems quite obvious that conks would be less willing to make credit available. . "Moreover, there are certain requirements in H.R. 3022 which are unnecessarily restrictive. One is the provision that no guarantee may be made unless the contracting agency etermines that the war contractor has shown the loan to be necessary in order to enable him to continue operations. ;In practical operation, such a restriction would tend to !_laMper and delay the making of guaranteed loans and in many cases to discourage or prevent banks from making such t?!Ins in cases where they should be made. Such undesirable restrictions are not to be found in S. 1718. "While the pending legislation, if enacted, would Place the emphasis upon T loans, other types of credit 17 also involved. The unsettled claims arising out of '..a.l?celled war production contracts have great potential t :ralue as the basis for unguaranteed bank credit of other JPee. In many cases, the claims will constitute the , . 111-er liquid asset of the borrower. If banks have conIldence in the promptness and finality of negotiated n 676 4/28/44 -6- "settlements, they will loan against such claims for a variety of purposes, including the purchase of surplus government property, plant modernization, and many others incident to the reconversion to or resumption of civilian production. But the potential value as a basis for credit of the billions of dollars of such claims would shrink measurably, in our opinion, if H.R. 3022 were enacted. "It is agreed on all sides that it is of the utmost importance to prevent any stalemate in the resumption of production of goods for civilian use. In spite of all efforts to speed up the settlement of contracts, it is apparent that the sheer volume of cancellations will require a good many months for the settlement of the bulk of the r?sulting claims. It is during this period that chief rellance must be placed upon bank credit. Under these cirCumstances, the country cannot afford to risk any slowing down or curtailment of bank lendings." Approved unanimously. Telegram to the Presidents of all the Federal Reserve Banks, read8 follows: 'We have studied carefully the problem presented in recent discussion s relating to interpretation of section (?) of Regulation W. Poll of operating men at Reserve r . .flx8 has shown that seven would favor adherence to interpre ation growing t out of S-743, three would favor amendMerit to obtain opposite result and two would oppose amendent but favor obtaining that result by reversal of S-743. he Board is impressed by the fact that the situation now Presented is a natural outgrowth of the policy of decentralati°n of administration that has been developed under ie .„' gulationW and the fact that an interpretation opposite that contained in 5-743 has received wide circulation r certain districts. Persuasive reasons have beenpret?nted against amending the regulation at this particular 114e- In view of all the circumstances it has been proPosed that without modifying 6-743 or adopting an amend13nt the Board advise the Feder Reserve Banks that the arc .1 is not disposed to require strict adherence to the Yrovisions of section 12(b) of the regulation in any case 2 T j 677 4/28/44 -7- "in which the part of the credit which is subject to the regulation complies in all respects with the applicable Provons of the regulation. We should appreciate having an expression of your preference as between this proposed solution and an amendment along lines suggested in Mr. Parry's wire of April 17." Approved unanimously. Letter to Mr. Davis, President of the Federal Reserve Bank of St. Louis, reading as follows: "Reference is made to your letter of April 19, 1944, in which it is stated that the board of directors of your sank at its meeting on April 13, resolved, subject to approval of the Board of Governors, that the officers be authorized to acquire the remainder of the property in City "'lock 98 not occupied by the building of the Reserve Bank. "The Board has considered this proposal in the light of Your letter and will interpose no objection to the purthe property at the cost, approved by your dit'Zoreosf of not to exceed $240,000, provided a clear title e61-11 be obtained thereto. It will be appreciated if you ! ill keep the Board advised of developments in this matter.fl Approved unanimously. Letter to Honorable Brent Spence, Chairman of the Committee on 81411i:111g and Currency, House of Representatives, reading as follows: "This is in response to Mr. Dingus' letters of Jan11417 17 and February 15, 1944, to Vice Chairman Ransom l jquestin g a report on H. R. 1818. This bill provides tat an insured bank which is examined under the supervision of the Comntroller of the Currency at least twice during any calendar year may deduct from its assessments Payable to the Federal Deposit Insurance Corporation dur.the following calendar year the amount of the examination charge paid by it the Comptroller of the Curto rency. for the last examination in the preceding year, ' 4cludilry aepartm amount paid for examination of its trust 678 4/28/44 -8- "The Board feels that there should be a different and more fundamental approach to the problem which is touched upon by this bill. As pointed out in the Annual Report of the Board of Governors for 1938, there is within the Federal Government a diversification and overlapping of administrative authori ty with respect to banking which results in different treatment of banks according to the nature of the subject matter, the group within which particular banks fall, and which of three or more Federal agencies has primary jurisdiction. The Board continues its belief that the defects in the machinery of Federal banking supervision should receive the consideration of Congress, and that the need for improvement is intensi fied by war conditions, including among other things the war manpower situation. "In relation to the provisions of this bill, it may be. Pointed out that the Comptroller of the Currency is required by law to examine each national bank at least twice in each calendar year and to assess the costs there°f against the banks examined. On the other hand, the :Law does not require any specific number of examinations by Federal Reserve authorities although they are authorized to examine all member banks, national and State, and they are not required to assess the costs against the banks !xamined. In practice the Federal Reserve authorities accept the examinations of the Comptroller of the Currency with respect to national banks and exaMine only State Ti!iber banks, jointly or alternately with State authorF,:ies, and no charge is made for such examinations. The 47deral Deposit Insurance Corporation, which has author,-:1. TT to examine national banks with the consent of the k; jmptroller of the Currency and State member banks with m.1: consent of the Board of Governors, is not required to „Ice any specific number of examinations nor to make any charge therefor. The Corporation ordinarily examines ;?-1:y insured State banks which are not members of the _reral Reserve System; such examinations are made jointly °8 a lternately with the State authorities and no charge 1 made for them. "In the light of this situation, if the Committee .t shouldu decide to give consideration to the proposal con8,tned in H. R. 1818, the Board believes that the matter be approac hed from a different point of view. InStead of act transferring a part of the costs of examinations j 679 4/28/44 -9- "of national banks to the Federal Deposit Insurance Corporation, the Board would recommend that section 5240 of the United States Revised Statutes be amended either by reducing from two to one the minimum number of examinations of each nationa l bank in each calendar year which national bank examiners are required to make or by eliminating the minimum requirement entirely and permitting the Comptroller of the Currency to exercise his discretion as to the number and frequency of the examina tions. This would enable the Comptroller of the Currency to adopt a policy in this respect similar to that of other examination authorities, thereby greatly reducing the cost to national banks, without calling upon the Federal deposit insurance fund. "The general condition of the great majority of national banks is such that semi-annual examinations are 1.1nnecessary. It may be pointed out in this connection that according to recent figures 78 per cent of the assets of national banks in the aggregate consisted of cash, mounts due from banks, and United States Government securiti es. Moreover, relief from a mandatory repirement of this character would be especially helpful, both to the banks and to the Government, because of the Practical difficulties resulting from war conditions of Ta intaining an adequate force of trained and experienced 1,ITIlk examinat ion personnel and the desirability of reeving banks as far as possible of unnecessary inter1..erence with their other work. The resulting reduction cost of examinations should be substantial and this °lad be in accord with the apparent purposes of the bill. The Board does not agree with the proposal to deduct a Part of the cost of examinations of national banks from the made by the Federal Deposit Insurance CorPaoration against such banks because all insured banks are b:sessed for the benefit of their depositors on a uniform „:is, without regard to whether they are national or L 08.te banks or how often they are examined or by whom, 1.,"apparently the sole reason for such a proposal would .74e existenc e of a statutory mandate upon the Compll.ler of the Currency to make at least two examinations each year, which in the opinion of the Board is unnecessnry while the other Federal authorities and most of the ''ate? are not under such a mandate. he Board therefore believes that hearings would be desia r ble before this bill is acted upon by your Committee r Z 680 4/28/44 -10o. in order to afford the interested State banks and State ervisory authorities, as well as national banks and the Federal superv isory agencies, an opportunity to be heard." Approved unanimously, together with letters to Honorable Leo T. Crowley, Chairman of the Federal Deposit Insurance Corporation, and Honorable Daniel W. Bell, Under Secretary of the Treasury, enclosing copies of the above letter for their information. Thereupon the meeting adjourned. 2(&a4LczA, 42) Secreta /. Chairman.
@FedFRASER