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A meeting of the Federal Reserve Board was held in the office of the Federal Reserve Board on Tuesday, April 30, 1929 at 2;45 p.m. PRESENT: PRESENT ALSO: Vice Governor Platt Ir. Hamlin Mr. Miller Mr. James Mr. Cunningham Ir. Noell, Asst. Secretary Mr. McClellana, Asst. Secretary Mr. Smead, Chief,Division of Bank Operations. Mr. Hamlin referred to the action of the Board at the meeting yesterday in authorizing the Law Committee to arrange with Mr. Newton D. Baker to confer With the Board's General Counsel on the questions covered in his memorandum Of March 7th on the subject of the power of the Board to enforce the principles re8arding the proper use of the credit facilities of the Federal Reserve Syst"19 laid down in the Board's letter of February 2nd to all Federal Reserve batiks* He stated that arrangements have been made for Mr. Wyatt to Fo to Cleveland to confer with Mr. Bar on Friday morning, but that if the Board Prefers, Mr. Baker could come here for the Conference. He also inquired whether the Board desires Messrs. Baker and Wyatt to prepare draft of a letter to the Attorney General, for future use, requesting his opinion on the questions covered in the memorandum of March 7th. After discussion, it was the consensus of opinion that it would perhaps be better for Mr. Baker to come to Washington and, after conference with Mr. Nyatt, meet with the Board. Consideration was then given to draft of a letter to the Acting Chairman Of the Feaeral Reserve Bank of Philadelphia, along the lines of the letter considered at recent meetings of the Board for transmittal to all Federal Reserve B44ke, requesting further and fuller cooperation in the Board's policy of pre- 4/30/29 -2- venting the misuse of the discount facilities of the Federal Reserve System. During the discussion which ensued, the letter was amended to read as follows: "The Federal Reserve Board has considered the letter of your directors °I April 24th, and I am instructed to advise you as follows: In a letter under date of February 2nd to the Directors of Federal res„, l'rve banks on the use of Federal reserve credit by member banks, the ederal Reserve Board, for the better and more definite guidance of Federal deserve banks in their dealings with member banks and of member banks in their ! s alings with Federal reserve banks, undertook to state the principle v,hich ,"111d govern with regard to certain uses of Federal reserve credit bY member uanks: 'A member bank is not within its reasonable claims for rediscount facilities at its Federal reserve bank when it borrows either for the purpose of making speculative loans or for the purpose of maintaining speculative loans.' ,In a statement published February 7th the Federal Reserve Board, in r that uoth the banks and the business and general public might be more informed of the attitude and the purpose of the Board in this matter, ated it to be the business of the Federal Reserve Board orae 'To see to it that the Federal reserve banks function as effectivelj as conditions will permit. When it finds that conditions are arising which obstruct Federal reserve banks in the effective discharge of their function or so managing the credit facilities of the Federal Reserve System as to accommodate commerce and business, it is its duty to inquire into them and to take such measures as may be deemed suitable and effective in the circumstances to correct them; which, in the immediate situation, means to restrain the use of Federal reserve credit facilities, either directly or indirectly, in aid of the growth of speculative credit.' In reviewing banking developments (as disclosed in the statement of 01,1tion of the 592 weekly reporting banks) since February 6th, the date ,Eitlssue of the Federal Reserve Board's statement, imorovement in the aggree situation is noted:- Increase or ecrease (Amounts in millions of dollars) : February 6: Anril 24 : f otto Loans and Investments 22,294 : 22,259 : - 35 A 4/30/29 30 -3- Security Loans To Brokers To Others All Other Loans In vestments : : : : 2,587 4,969 8,698 : 6,041 : 2,177 : 5,158 : 9,052 5,871 r r - 410 189 354 170 Detailed analysis does not appear to show that the improvement in the !ggregate situation noted above has been realized in your district, as shown q the following table for your district: Increase or :February 6: April 24 : Decrease . • : : (Amounts in millions of dollars) !"al Loans and Investments osourity Loans To Brokers To Others 411 Other Loans Investments .........._ : : : : 1,237 : 1,258 : 174 336 385 342 : : : : 160 : 358 : 418 : 321 r 21 - 14 r 22 r 33 - 21 There appear to be banks in your district, still carrying considerable 17°111Mes Of security loans, which have been continuous or frequent borrowers considerable amounts from your Federal reserve bank. The following named banks which have been borrowing more or less conusly from your Federal reserve bank and have not effected any substantial .kdation in their security loans since February 6th, will serve to illustrate ;Et class of banks the Board has in mind. Other banks in your district which 11 in the same general class can readily be determined from your records. tirr„ liZ Bank of North America and Trust Company Fidelity-Philadelphia Trust Co. First National Bank Pennsylvania Company for Insurance on lives, etc. Corn Exchange National Bank and Trust Co., Philadelphia National Bank Provident Trust Company Tradesmen's National Bank and Trust Co. The problem presented by these facts is that of bringing all member 14011— ite-s-ku into effective cooperation with the reasonable purposes of the Federal "ve System by putting themselves into line with the principle of conduct —Jove stated. ) 4/30/29 "To this end the Board requests the cooperation of your Board in communidcating with each of your member banks concerned in such wise as your Board may eft most suitable, and in the name both of your bank and of the Federal Re!arve Board, inquiring whether there is anything in its condition which makes impracticable for it to readjust its position in accordance with the prin°iPle stated above; or anything in the situation surrounding it which makes aUch readjustment undesirable from the point of view of the public interest. The Board desires that it be ascertained from each of the member banks cerned, which has not yet readjusted its position, why it should not bring qbout the readjustment expected by the Board. It is the desire of the Board that this matter be presented to each of the member banks concerned in such wise as to impress it with its importance 4 a11; 1 urgency; and the earnest desire of the Board that there be no unnecessary belaY in bringing needed correction in the position of the Federal reserve 4111 " through the medium of fuller cooperation of member banks with Federal , qeserve policy and methods. I, The Federal Reserve System owes it to the country and to itself to put r11. 3 house in order to meet the credit needs arising from crop harvesting and " b ing which will begin in about three months, and which will be accompanied Y the usual autumnal increase in trade. The Board is firm in the conviction that the restoration of the Federal 48.A. , -rve System to a more normal basis of operation should be by the orderly -14 reasonable process of cooperation between Federal Reserve and member banks." Among the amendments to the letter was a change in a paragraph which had read as follows; "There still appear to ue banks in your district, particularly amongst those which have been borrowers in considerable amount from Ycsilr Federal Reserve bank, which are still carrying considerable volumes of 8"liritY loans or investments." In the amendment of this paragraph, among °ther changes, the words "or investments" were eliminated, and while Mr. Cunillgham raised no objection, he stated he was not in full accord with the acti°n as he felt that the volume of investments was really collateral to the q4estion involved in the proposed letter. Mr. James then moved approval and transmittal of the amended letter, as quoted above. Er. James' motion, being gut by the Chair, was carried, Er. Platt voting "no". 4/30/29 -5- After further discussion, upon motion, LIr. Smead was requested to cornPile data similar to that incorporated in the above letter for other Federal :leserve districts and to prepare drafts of letters to other Federal eserve banks along the general lines of that being addressed to the Feueral Aeserve Bank of PhiladelY:thia. Lir. Platt then read and submitted for the record the following state- 'In connection with the sending of a further letter to several of the Federal reserve banks in pursuance of the Board's policy of attempting to exercise control over the use of their funds by member banks borrowing from the Federal aeserve System, I desire to place in the Board's records an emphatic protest against the continuance of this method of seeking control without supplementing it, and giving it force, by approving the rate increases, which in the judgment of the directors and officers of the Federal reserve banks of all the financial districts, supported by the unanimous judgment of the Federal Advisory Council, should De made. In some way the volume of credit used in support of the present s peculative mania must De restricted, and the demand for speculative credit must be reduced. Unless this can be done what the Board has called 'the extraordinary absorption of funds in speculative security f°4118' will continue 'a decisive factor working towards a still further irming of money rates to the prejudice of the country's commercial interIt will be useful to bring member banks 'into more effective coPeration with the reasonable purpose' of the s-,stem provided the Board some means of assuring itself that other member banks or individuals L111 not immediately furnish to the speculators an equal amount of funds. fle problem facing the Federal Aeserve System at the present time might c'e stated briefly as follows: Given call money rates fluctuating from 7 per cent to 20 per cent time money rates of 8 to 9 per cent, as the decisive factors working , t?wards a still further firming of commercial rates to the preudice of It!'e country's commercial interests, find some means of reducing these 1 ,1g11 rates without setting in motion forces that will tend to increase em kin in the near future. There is at present no evidence that would tend to show that these niO4, speculative rates can be reduced by calling loans here and there on he Part of a limited number of banks which are reported as most deeply involved in brokers loans and borrowings from the deserve banks. This "°Y Of concentration on a limited number of banks has resulted in al.olent fluctuations in the call rates, without indication of any subreduction in the amount of federal reserve credit involved. The , 4/30/29 -6- "Federal Reserve System remains 'a sustaining factor in the current volume Of speculative security credit' and will remain a sustaining factor even if satisfactory cooperation is obtained from the offending banks unless In the process of cooperation the speculative demand for funds is lessened materially or unless gold imports reduce the amount of Federal reserve credit involved." Letter dated April 27th addressed to Governor Young by Ir. Frank C. Balis President of Ball Brothers Company, Muncie, Indiana and Class "C" DiZ' of the Federal Reserve Bank of Chicago, advising that he is heartily ill favor of the position which the Board has taken regarding an advance in (tiacount rates and setting forth his opinion that it would be a.mistake to te rrupt the present prosperous business conditions of the country by at- tern 13ting to regulate speculation through an advance in rate. Upon motion, it was voted to refer the above letter to Mr. Cunningham, Chairman of the Committee on District i;i1, for reply, setting forth the Board's appreciation of Mr. Ball's expressions. Letter dated April 29th from the Federal Reserve Agent at Chicago, advizi ng of the illness of Mr. White, Assistant Federal Reserve Agent, and reapproval of the temporary designation of Ir. Clifford S. Young, Ex', as Acting Assistant Federal Reserve Agent during Yr. White's disabili%'. Upon recommendation of the Committees on District #7 and Salaries and Expenditures, Er. Young's temporary designation as Acting Assistant Federal Reserve Agent was approved. Letter dated April 29th from the ,Federal Reserve Agent at Chicago, tiqvi Sing that Mr. Frank id. Huston, Manager of his Division of Research and 4eiti 4'stics, who has been on leave of absence with half pay on account of illQs r eturned to the office on April 1st but has found that he is not in 4/30/29 -7- condition to assume his full duties; the Agent recommending that Mr. Huston again be placed on half pay for a reasonable time, thus giving him an opportunity to find less exacting employment, with the understanding that in the interim he will report to the office and perform such light work as may be assigned to him. Upon recommendation of the Committee on District #7 and Committee on Salaries and Expenditures, it was voted to approve payment of half salary to Mr. Huston from April 15th to July 1st. Memorandum dated April 30th from the Fiscal Agent, advising that the 134raau of Engraving and Printing is rendering an additional voucher for 4750,000 covering a part of the cost of the preparation of Federal Reserve llotes of the small size (Series of 1928) which are now in process of print- and. will be delivered during the months of May and June. The Assistant Secretary pointed out that the submission of this voucher is in accordance with the understanding had between the Treasury Department and the recent Conference of Governors, which was formally approved at the meting of the Board on April 9th. Upon motion, it was voted to direct the Board's Fiscal Agent to levy the appropriate assessment upon each Federal Reserve bank and to remit the aggregate amount of s 750,000 to the Bureau of Engraving and Printing. Memorandum from Counsel dated April 27th, submitting draft of letter to the Chairman of the Committee on Banking and Currency of the Senate, with re111'd to S. 485, introduced by him, to amend Section 9 of the Federal Reserve and Section 5240 of the Revised Statutes so as to give the Board disIL " 4/30/29 -8- oration in the matter of assessing the costs of examination of member banks; the letter pointing out that a bill introduced last session in the House of Ilspresentatives, H. it. 16823, to accomplish the same purpose, would re-enact the whole of each of the pertinent paragraphs of Section 9 and Section 5240, including therein the proposed amendments which would be made by S. 485, whereas S. 485 merely sets out the particular sentences amended. It was stated that either form of bill is satisfactory to the Board and that, under the circumstances, it may be considered advisable to introduce in the Senate a new bill in the form of that introduced in the House at the last session, to be con* sidered in lieu of S. 485. Upon recommendation of the Law Committee, the letter submitted by Counsel was approved. The minutes of the meeting of the Board held on April 29th were then read and approved. liEPORTS OF STANDING COLIIITTEES: Recommending changes in stock at Federal Aeserve Banks as set forth in the Auxiliary Minute Book of this date. Recommendations approved. "tea, April 29th, Recommending action on application for fiduciary powers 30th, as set forth in the Auxiliary Minute Book of this date. Recommendations approved. Dated, April 29th, The meeting adjourned at 4:15 p.m. (Pee() Assistant Secretary. Vice Governor.
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