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A. meeting of the Board of Governors of the Federal Reserve System was held in Washington on Friday, April 9, 1937, at 10:45 a. in. PRESENT: Mr. Mr. Mr. Mr. Mr. Ransom, Vice Chairman Broderick Szymczak McKee Davis 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. Wyatt, General Counsel Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Paulger, Chief of the Division of Examinations Mr. Leonard, Assistant Chief of the Division of Examinations Reference was made to the following questions which had been Placed upon the docket at the request of Chairman Eccles for considera- tion by the Board: "1. Question whether the Board should make a prompt effort to bring about a uniform examining policy in the Federal Deposit Insurance Corporation, the Comptroller's office and throughout the System with reference to the valuation by examiners of government bonds held by all insured banks. If such bonds were listed at par or at the bank's book figure, whichever was lower, It might strengthen and supplement the action of the Federal Open Market Committee with reference to the government bond market. "2. In connection with the same problem, should the reserve banks notify all member banks that should they prefer to borrow against their governments instead of disposing of them on the present market, they could borrow UP to par at the Federal reserve bank at the prevailing rate for fifteen day advances." In connection with the first question, Mr. Paulger outlined the 522 4/9/37 -2- present procedure with respect to the classification of investment seaarities in reports of examination of State member banks made by examiners for the Federal reserve banks. After a discussion, Mr. Paulger was requested, in consultation with Mr. McKee and after ascertaining whether the procedure of the Comptroller of the Currency in connection with the examination of national banks and of the Federal Deposit Insurance Corporation in connection with the examination of nonmember insured banks is the same as that being followed by the examiners for the Federal reserve banks, to submit a recommendation to the Board as to (1) whether the present procedure should be continued and if not what changes should be made and (2) whether the matter should be taken up with the Comptroller of the Currency and the Federal Deposit Insurance Corporation. It was the unanimous opinion of the members present that it would be inadvisable at this time to make an announcement of the kind suggested in the second question, chiefly because of the possibilities of misinterpretation in relation to present conditions in the bond market. In connection with the above matters there was a discussion of the rates in effect at the various Federal reserve banks on loans and advances secured by United States Government obligations and Mr. Morrill ' l aad a letter just received from the Federal Reserve Bank of New York submitting the following schedule of rates established by the board of di rectors of the bank on April 8, 1937: "Discounts for member banks: (e) (b) Under Sections 13 and 13(a) - 1 1/2% Under Section 10(b) - 2% 523 4/9/37 -3- "Loans to Individuals Partnershi s and Cor orations (Section 13): Secured by Government obligations - 3 1/2% Industrial Loans Under Section 13b: (s) (b) (o) Direct loans to industry - 0-6% Discounts for financing institutions: On that part of obligation on which financing institutions retain responsibility - 3% On that part of obligation which financing institutions do not retain responsibility - 4%-5% Commitments for future discount of loans and Repurchase Agreements: Bankers Acceptances: Minimum established by the board of directors - 1/2% Trade Bills: Minimum established by the board of directors - 1 1/2% Governments: Repurchase - 1 1/2%" At this point Mr. Smead entered the meeting. Mr. Ransom referred to the understanding of the Board at the Ineetings on November 25, 1936, and January 6, 1937, that he should continue to confer with Mr. Douglas, Member of the Securities and Exchange Ccimmission, with regard to problems of interest to the Board which might be presented in connection with the drafting of legislation being 8P°nsored by the Commission giving it authority to exercis supervision e over the trust activities of banks and trust companies in connection With issues of securities under trust indentures. Mr. Ransom stated that he and members of the Board's staff had met at various times with 524 4/9/37 _4- Mr. Douglas and members of the staff of the Securities and Exchange Commission and had discussed problems presented by the proposed legislation which would affect member banks and trust companies; that the question had arisen as to the procedure that would be followed in presenting the legislation to Congress for consideration; and that he would Prefer to advise Mr. Douglas that he or members of the Board's staff would be pleased to continue to discuss any questions that might arise from time to time, and that after the introduction of any legislation of this kind, the Board would feel free to submit its views on such matters to the Commission and also, if requested to report thereon, to the appropriate committees of Congress. Messrs. Morrill and Wingfield were requested to draft a letter to Mr. Douglas, for consideration by the Board, along the lines suggested by Mr. Ransom. There was presented a draft of a letter, which had been circu- lated among the members of the Board, to Mr. Sargent, Secretary of the Federal Reserve Bank of San Francisco, reading as follows: "This refers to your letter of March 10, 1937, in reply to the Board's letter of February 23 with respect to the reappointment by your board of directors of Mr. E. 0. Howard to serve as a director of the Salt Lake City Branch for the two years beginning January 1, 1937. . "It is noted from your letter that in reappointing Mr. Howard a director of the Salt Lake City Branch the board of directors of your bank was not unmindful of the provisions contained in the regulation inclosed with the Board's letter of January 9, 1935, (X-9083), with respect to the appointment of directors of branches of Federal Reserve banks, nor of the statement made to the press on December 4, 1935, (X-9384), in which the Board of Governors stated that in acting upon appointments of directors it is authorized to 525 4/9/37 -5- "appoint at branches of the Federal Reserve banks the Board has been guided by the views expressed in its letter of January 9, 1935, to directors of Federal Reserve banks and of their branches. "The statement given to the press under date of December 4, 1935, related to appointmen ts of directors by the Board of Governors and not to appoi ntments of branch directors by the directors of the Federal Reser ve banks, and it is, therefore, surprising to the Board that your directors should have interpreted the statement given to the press under date of December 4, 1935, as modifying in any way the regul ation inclosed with its letter of January 9, 1935. "Since your directors did, however, misconstrue the statement given to the press by the Board on December 4, 1935, and in View of other statements made in your letter with respect to the period of service of other directors of the branch, the Board Will interpose no further objection to Mr. Howard's serving as a director of the Salt Lake City Branch for the remainder of the two year term for which he was appointed." Mr. McKee stated that, in his opinion, the circumstances set forth in the letter of March 10, 1937, from the Federal Reserve Bank of San.Franalso° did not justify the Board in removing its objection to the service of Mr• Howard as a director of the Salt Lake City branch for the two-year ter% ending December 31, 1938. Thereupon Mr. McKee moved that the letter be revised so as to state that Mr. Howard's appointmen t WraS contrary to the Board's regulation and that the Board is not willing to except this appointmen t from the operation of the regulation . Carried unanimously. Consideration was given to a memorandum dated January 19, 1937, flbc)111 /11". Baumann, Assistant Counsel, referring to the action taken by the .8°I'd on Decem ber 4, 1936, in voting to authorize the Federal reserve banks to "-vise all holding company affiliates in their respective districts 4hich had executed the standard form of agreement required as a condition Precedent to the issuance of voting permits that provisions 4 and 5 in h agreements would be canceled when the holding company affiliate had 526 4/9/37 -6- furnished satisfactory evidence that it had complied with the requirements of provisi on numbered 2 of the aareement as amended on December 4. Mr. Baumann's memorandum recommended, for the reasons stated, that the holding company affiliates which had executed agreements in the old form be advised that the Board will not require any action under the paragraphs of such agreeme nts which appeared as paragraphs 4 and 5 in the old form, and that the holding company affiliates be not required to take any action es a condition to obtainin.:, such a modification of their agreements. There were attached to Mr. Baumann's memorandum drafts of letters to the Presidents of the Federal reserve banks and to the holding company affiliates which had executed agreements in the old form advising them in acwith this recommendation. There was also submitted a statement from the Division of Examinations that an analysis of the latest available rePorts of examination of the ninety-nine subsidiary national banks and Of the four nationa l banks listed as holding company affiliates disclosed that the the unconditional elimination of the paragraphs numbered 4 and 5 of Old.l.4+ orm of agreement from the standard farm of agreement executed by holding company affiliates prior to the revision of the standard form, would not excuse any national bank from making any substantial or tmportant el iminations of losses or depreciation. The file had been circulated .41-'11°11g the members of the Board and Mr. McKee had attached a memorandum reqUesting that counsel's recommendation be placed on the docket for consideration at a meeting of the Board. Mr. McKee stated that he felt that in view of the action taken by the board in this matter the letters submitted by Mr. Baumann should 527 4/9/37 -7- be amended so as to offer all holding company affiliates which had executed agreements in the old form an opportunity to execute new agreements in conformity with the revised form. After a discussion, Mr. McKee moved that counsel be requested to revise the draft of letters to the Presidents of the Federal reserve banks and the holding company affiliates in accordance with this suggestion. Carried unanimously. Reference was then made to a memorandum dated March 27, 1937, from Mr. Goldenweiser, Director of the Division of Research and Statistics) submitting for the approval of the Board, the budgets for the s tatistical and analytical function at the respective Federal reserve banks for the year 1937, and recommending, for the reasons stated in the memorandum, that the Board (1) authorize the Division of Research 8-ad Statistics to negotiate for the transfer of the wholesale trade rePolling service and, if possible, the retail trade reporting service to the Department of Commerce where it properly belongs, (2) that, as the Federal Reserve Banks of Minneapolis and San Francisco had reduced the size of their monthly reviews and the Federal Reserve Bank of Chicago had instituted a charge of $1.00 per year to all subscribers ex"Pt member banks, the press, and a few cooperating firms, the Division Of Research and Statistics be authorized to discuss with the other Federal reserve banks the desirability of similar moves by them and to Pert any bank to discontinue its review if the management is convinced 528 4/9/37 -8- that the public relations value does not justify the cost, end (3) that the banks be advised that while the Board takes no specific exceptions to the proposed expenditures for 1937, the situation with respect to trade reporting and the monthly reviews will be given consideration along the lines suggested in the two preceding recommendations. memorandum had been circulated among the members of the Board. The The amounts of the proposed budgets for the year 1937 as submitted by the respective Federal reserve banks for the statistical and analytical functions were as follows: Federal Reserve Bank Proposed budget for 1937 Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco if, 40,073 184,602 48,439 36,995 18,069 8,637 43,533 22,922 16,147 20,500 13,911 45,969 Total $499,797 Approved unanimously. Consideration was also given to a memorandum dated March 29, 1937, from Mr. Paulger, Chief of the Division of Examinations, submitting the budgets for the year 1937 for the bank examination departmente of the respective Federal reserve banks, as follows: 529 4/9/37 -9Federal Reserve Bank 1937 BudfEpt Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco 69,610 355,840 147,074 91,560 73,796 45,251 127,511 61,759 43,303 47,715 32,775 79,886 Total $1,176,080 The memorandum contained a comparison of the 1937 budget figures with the expense of the respective departments for the year 1936 and recommended that the budgets for the current year be approved as submitted (which would include the approval of the budgets of the Federal Reserve Banks of Philadelphia and St. Louis, which are exclusive of any re tmbursement obtained by the two banks for examinations conducted by the respective departments). Approved unanimously. At this point Messrs. Thurston, Wyatt, Smead, Goldenweiser, PaUlger and Leonard left the meeting and consideration was then given to s--11 of the matters hereinafter referred to and the action stated With respec t thereto was taken by the Board: The minutes of the meeting of the Board of Governors of the Federal Reserve System held on April 8, 1937, were approved unani- MOUsly. 530 4/9/37 -10Telegrams to Messrs. Kimball, Clark and Young, Secretaries of the Federal Reserve Banks of New York, Atlanta and Chicago, respectively, stating that the Board approves the establishment without change by the New York bank on April 8, 1937, and by the Atlanta and Chicago banks today of the rates of discoun t and purchase in their existing schedules. Approved unanimously. Letter to Mr. Sargent, Secretary of the Federal Reserve Bank of San Francisc o, reading as follows: "Referring to your letter of April 1, 1937, the Board approves the appointment of Mr. Walter A. Starr as a member of the Industr ial Advisory Committee for your district for the unexpired term ending Februar y 28, 1938, to succeed Mr. William G. Vblkmann." Approved unanimously. Letter to Mr. Hamilton, President of the Federal Reserve Bank of I caaas City, reading as follows: "Reference is made to your letter of March 27, 1937 relative to the inquiries made by the Brighton State Bank, Brighton, Colorado, and the Fort Lupton State Bank, Fort Upton, Colorado, regarding membership in the System. You state that there is some question as to the eligibility of the Brighton State Bank for membership inasmuch as the bank has a capital of only $25,000 and the population of Brighton, according to published reports, is 3,394, which is the figure shown in the 1930 Census, but that there is reason to believe that the present populati on of Brighton is less than 3,000. =Emitted with your letter were statements from the presiof the Chamber of Commerce of Brighton, the postmaster of the town, and the cashier of the Brighton State Bank, all Of which are to the effect that the population of Brighton at this time is less than 3,000. In support of such estimates, it is stated that the community has a floating population of a few hundred at certain times of the year on account of work in the beet fields, and you report that, in your opinion, there is consider able merit to the claim that the actual 531 4/9/37 -11- "population of the town is less than 3,000. "In connection with the question, reference is made to the Board's letter X-7578 , transmitting to all Federal reserve agents for their guidance a copy of a telegram regard ing the type of information to be submitted in cases where estimates of population which are less than the 1930 Census are to be accepted by the Board in determining the amount of capital required for a bank to be eligible for membership. While the information submitted with your letter of March 27 indicates that the town of Brighton might be considered as having a population of less than 3,000, it is requested that, in accordance with the letter X-7578 , more specific information be furnished. Such data might include information as to the extent to which the 1930 Census included or did not include the transient workers referred to in the correspondence, information as to whether the 1930 Census included areas not within the limits of the town, and information concerning the basis for the present estimates, such as the number of houses in the town, number of students living in the town attending its school s, and any changes since 1930 in regard to such matter s. Such data should also include a definite expression of your opinion as to whether, in the light of all of the information available, the population of the town does not exceed 3,000. "The above discussion has been concerned solely with the question of the minimum amount of capital required for eligibility to membership. The questi on of adequacy of capital in any particular case is an entire ly different matter and ons which requires carefu consid l eration in passing upon an aPPlication for membership. This would appear to be especially true in the case of the two banks referred to in Your letter. . "Inasmuch as the two banks are noninsured banks, and admission to membership in the Federal Reserve System would automatically carry insurance by the Federal Deposit Insurance Corpora tion, it is suggested that the supervising examiner for the Federal Deposit Insura nce Corporation be advised of the inquiries regarding membership and the possibilities of membership be discussed with him in order that the Federal Reserve Bank may obtain any information available to his Office which may have a bearing on the applications ." Approved unanimously. Letter to Mr. Sohn W. Norwood, Trial Examiner, Federal Trade CoMmission, reading as follows: 532 4/9/37 -12- "Receipt is acknowledged of your letter of April 3, 1937, in which you inquire as to the policy of the Board of Governors in the matter of permitting members of its staff to teach or lecture on law and procedure applicable to its activities and to publish articles or books thereon provided they are clearly stated to be the expressions of the writer and not those of the Board. "The Board has not had occasion to consider the question as to what position it might take in the event a member of its staff desired to write a series of articles or books for publication or conduct a course of lectures at a school or university. However, the Board feels confident that any member of its staff who desired to engage in such an activity would take the matter up with it before doing so in order that the Board might give consideration to the question in the light of all the facts and circumstances involved. While there appears to be no provision of law which would prohibi t an officer or employee of the Board from forming an outside connection with an educational institution or publishing concern, the Board inclines to the view generally that members of its staff should give their entire time and attention to the Board' s affairs and not be identified with any outside business interests. This view should not, of course , be interpr eted narrowly so as to preclude occasional lectures or speeches when the subject of discussion is not controversial and the talk is in the nature of an exposition. "The Board has on occasion permitted an officer or employee to publish a book or article relati ng to banking and finance where it was clearly stated in the introduction or preface that the conclusions and opinions expressed by the author are in no way official and represent entire ly a Personal point of view, or where no mention is made of the author's official connection with the Board's organization. In these cases, however, the officer or employee has cleared the matter with the Board through the submission of a 1e ipt or otherwise, and has been advised that the Board manuscr approved or interposed no objection to publication. "While the Board has not adopted any hard end fast rule governing the conduct of members of its staff in matters of this kind, it is believed that the foregoing comments will indicate the Board' attitu de sufficiently for s Your purposes." Approved unanimously. Letter to Mr. Harrison, President of the Federal Reserve Baink of New York, reading as follows: 533 4/9/37 -13- "This refers to your letter of April 2 in reply to the Board's letter of March 26 with respect to your bank's contribution to the United Hospital Fund of New York City. "It was not the intention to imply in our letter of March 26 that your bank had not given the Board ample time to consider your letter of December 14, 1936, before the actual contribution to the United Hospital Fund was made. "After the receipt of your letter of January 14 the Board reviewed this question in the light of its previo us Policies and came to the conclusion that there was some question as to whether the Federal Reserve banks should adopt the Practice of making contributions toward the general support of local hospit als. In the circumstances, however, it decided to defer reaching any definite conclusions with respect to the desirability of a Federa Reserve bank's l making such contributions until your bank or some other Federal Reserve bank should decide that it wishes to make future contributions for such purposes." Approved unanimously. Thereupon the meeting adjourned. APProved---- Vice Chairman.
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