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1257 A meeting of the Board of Governors of the Federal Reserve 8Mmirlas held in Washington on Friday, August 18, 1944, at 10:40 PRESENT: Mr. Eccles, Chairman Mr. Ransom, Vice Chairman Mr. Draper Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Leonard, Director of the Division of Personnel Administration Mr. Vest, Assistant General Attorney Mr. Wyatt, General Counsel There were presented telegrams to Mr. Flanders, President of the Federal Reserve Bank of Boston, Mr. Treiber, Secretary of the Fed— Reserve Bank of New York, Mr. Hill, Vice President of the Federal 48erve Bank of Philadelphia, Ur. McLarin, President of the Federal Rese I've Bank of Atlanta, Mr. Hodge, Assistant General Counsel of the Reserve Bank of Chicago, Mr. Stewart, Secretary of the Federal "e Bank of St. Louis, and Mr. Mangels, Vice President of the Fed— e/ial Reserve Bank of San Francisco, stating that the Board approved the tablishment without change by the Federal Reserve Bank of San Francisco ellAllgust 15, by the Federal Reserve Banks of Atlanta and St. Louis on Alltist 16, by the Federal Reserve Banks of New York, Philadelphia, and Chicago on August 17, 1944, and by the Federal Reserve Bank of Boston tQa J) of the rates of discount and purchase in their existing schedules. Approved unanimously. Before this meeting the attention of the members of the Board 1258 —2— Present 814get had been called to a circular received from the Bureau of the under date of August 14 1944, which was a revision of an earlier eil'elliar requesting that copies of any recommendations or reports con— e"Iilig Proposed or pending legislation be sent to the Bureau of the 4get for clearance. The amended circular provided in addition that, Wheri"er any department or establishment proposed to include in an annual (118PeciAU report a recommendation for an appropriation or for new or 41erithat°17 le gislation, such proposal should first be submitted to the the Budget for ascertainment of its relation to the program qthe President. There was a discussion of the extent to which the amended circu141* Iv°1.11c1 apply to the annual or special reports of the Board to Congress, 1.4 that connection reference was made to a letter received by Mr. 4Ntell tinder date of August 11, 1944, from the Office of tar Informa— ti :71 calling attention to the fact that the annual report of the Board egoitid receive clearance from the Office of War Information regarding the t°11nat and distribution of the report even though the report itself : : 11 44 11tbraenibrs erecleuired by law. The letter, copies of which had been furnished of the Board, stated that in view of the continuing paper ::::: en lct hir rel po yrt fo srshould be held to a minimum or, if possible, dis— the current year and that a legal requirement :: t 4:eciePsort be made was not a requirement that it be printed or 1259 8/18/44 —3— At the conclusion of the discussion, it was agreed that the two letters did not call for action by the Board at this time but that the communications should be borne in mind in connection with the Board's annual report covering operations during the year 1944. Under date of August 7, 1944, Mr. Leonard addressed a memora"cltra to the Board relating to the possible effects on the Board's Persori,, ' - el Procedures of the Veterans Preference Act of 1944 and regulati°r, -- -Lasued by the Civil Service Commission pursuant thereto. The P111130se of the memorandum was to acquaint the Board with the situation testa+, 148 from the enactment of the Veterans Preference Act so that ' .0teration might be given to the steps that should be taken by the 130arci '" all the circumstances. The matter was discussed in the light Co °I ste. tenaents contained in Mr. Leonard's memorandum and the supple444 rai41.04 c°111ments made by him to the effect that the Civil Service Com- ttoria inhad nct issued regulations under the Act applicable to posi- the unclassified Civil Service, and that it appeared from two P41.41 narY drafts of such regulations that the Civil Service Commission 1141 giv e - a very broad interpretation to its powers under the law and e°11tenv bee, ' -e'tect the issuance of a regulation the legality of which had g "ged by various Government agencies and which the Board's °‘."1131,011.4i 181°n felt was based on an unwarranted construction of the toarti °118 °t* the Veterans Preference Act. The question before the 'Ur T s -eonard said, was whether it wished to take any action in 1260 8/18/44 the matter at —4— this time or to await the issuance of the regulations in final form. Mr. Leonard was requested, upon the return of the absent members of the Board, to inform them of the developments in con— nection with this matter, it being under— stood that no action would be taken by the Board pending the issuance by the Civil Service Commission of its regulations re— lating to positions in the unclassified Civil Service and clarification of the legal question referred to above and that In the meantime the Board would proceed in accordance with the spirit of the Veterans Preference Act of 1944 without the promulgation of a formalized procedure. There was then presented a draft of letter to Mr. Lichtenstein, 8ec r , reta -V of the Federal Advisory Council, prepared in the light of dis810 , ' 48 at the meeting of the Board on July 29, 1944, and reading as fol— 194 "This letter is in response to yours of August 8, wi4, asking for a list of the subjects which the Board niee,?8 the Federal Advisory Council to discuss at its ' 1111g at Washington on September 17-19, 1944. pro 'A question has arisen in connection with the plan hY the Postwar Small Business Credit Commission Of ) it,°8ed it_ he evp, iit —erican Bankers Association as a means of provid— ijlicredit for small business under thich a group of banks tier,.York would become associated for the purpose of par— arid ;ting in commercial and industrial loans originating, colati;:e hY outlying correspondent banks, throughout the passp: 4,7* The plan contemplated that such loans would be uPon by a committee representing the participating the t, the members of which would consist of officers of auttioal:Iks, and each member of the committee in addition to lutior'tY to commit his own bank would be given, by a reso— tie. n adopted by the board of directors of another par1Pating bank, authority to commit the second bank as 1261 8/18/44 -5It was expected that the plan would be so drawn d"t it could be adopted by any group of banks in any of 4.he principal cities of the United States, but that it :ould be used first by an association of banks which were embers of the New York Clearing House. , "In the discussion of the plan, its sponsors said v"?.1r attorneys had advised that a legal question was inf?-tved because under the arrangement as proposed the of133 ,', of one bank with authority to commit the second ti" plight be an officer of the second bank under the ap1,14. c ble provisions of the Clayton Act, and his service 13- ',flat capacity would be in violation of the law and the tni:s Regulation L, Interlocking Bank Directorates under ti- w-ayton Act. In these circumstances, the representaG:8 of the banks inquired of members of the Board of re":; 1 n°r8 whether the Board would be willing to amend its thcgt,tion to permit such service, as it would have au' 1T,Y to do under section 8 of the Clayton Act. POs "There is some question here whether, for the purwouls of the Clayton Act, the officer of the one bank asicid be an officer or employee of the second bank, but the from that question the Board would appreciate it if it wo ! , 11ncil would consider and advise the Board whether 44 be advisable to amend Regulation L in the manner 1, „' : :41cliere may be one or more additional items which the co : 1 1:1 would like to have the Council discuss at the fort11to b1 , 1, Illeeting. In that event you will be informed in time 014111 ' . 311g the matters to the attention of the members of the ell before the date of the meeting." Approved unanimously. vearchAt this Point Ur. Thomas, Assistant Director of the Division of tiollot and S tatistics, and Ur. Gardner, Chief of the International Secthat D ivision, joined the meeting. , Ra to4 l),11r. “som called attention to a memorandum addressed to the , it ot III,. 44r* Gardner under date of August 17, 1944, with the concurrence Thomas , and reading as follows: 1262 8/18/44 —6— "Mr. Triffin has written to inquire regarding his Pro 1. gram after leaving Paraguay. The relevant excerpt from ter14 letter of July 28 is attached. Originally it was in— ded that he should work a month in Brazil after leaving 4_ 8uncion and then return to Washington. Brazil is consider— '4g establishment of a genuine central bank and has indi— s cated that it may wish to call upon the Federal Reserve " stem for assistance. It is important that our study of azilian banking be completed as soon as possible. No "ange is recommended in this assignment. "Subsequently, while Ur. Triffin was in Asuncio n, Mr. .Pera 0 , the General Manager of the Central Bank of Costa Who has several times been a visitor at the Board, ote to Chairman Eccles asking that Mr. Triffin stop on waY back to assist in the preparation of new monetary Z2.LIshontra ce l bank legislation. The Chairman replied that io be glad to accede to Mr. Pena's request. Mr. ta :fin has already spent some weeks in Costa Rica and is 0 ar with the situation there, so that his work on this cosZsion might be limited to about a month. Brazil and . a Rica would constitute the major jobs on the return to, j q "In his letter of July 28, however, Mr. Triffin pro— s es that before going to Brazil he should undertake : Gen assignments in Montevideo and Buenos Aires. The dis,:ral Manager of the central bank of Uruguay wishes to )0041:Iss the Paraguayan project with him with a view to Ur, modifications of the Uruguayan law. Er. Grove, the Dr-Lffin's assistant, has already been instructed by orde ' oard to proceed to Uruguay at an appropriate time in tor to gather the basic statistics and information needed gesju r studY of Uruguayan banking; and Mr. Triffin sug— ur. that the two of them go directly to Montevideo where Iknalriffin could hold his discussions with the General thenger2 get Mr. Grove properly started on his work, and _°n to nearby Buenos Aires. (level "x. Triffin's reasons for visiting Buenos Aires are chiefqed in some detail in the attached excerpt. His Pose is to consult Mr. Prebisch, who was manager Of the colon:,central bank of Argentina until the Government of the 0 4-4. 8 forced him to resign. Mr. Prebisch is certainly Re isl"atanding figure in central banking in Latin America. rkinista keen economist as well as an unusually able ad— or. Mr. Triffin wants to go over the Paraguayan po I 2 1263 8/18/44 —7— tt, yr°ject with him from the standpoint of Paraguay and of further work in Latin America. He also wants to get tr,e etaff of the Bank, with whom he is well acquainted, suPPly him with the material necessary to complete vur study of Argentine banking. n„. "I have consulted Er. McGurk, Deputy Director of the : '1_11ce of American Republics in the State Department, on ; . 118. the attitude of that Department would be toward a c13 4.31-t °f Mr. Triffin to Buenos Aires under existing con— The non—political character of the visit was clear to him, and after he had talked with others JI the Department he called me back to state that they no.objection providing Mr. Triffin would keep the Em— tas ms in Buenos Aires informed and be guided in his con— ! i its suggestions. tot Toth the Uruguayan and the Argentine visits appear erale enlinently worthwhile from the standpoint of the Fed— TReserve System. I would, therefore, recommend that Se1 . 3.C1 ffin be authorized when he leaves Asuncion about A 4111/e1" 15 to spend a week or two in both Uruguay and ,qentina 444 w__,, a month in Brazil, and a month in Costa Rica. uu-Lci bring him back to Washington early in December." r This matter was discussed in the light of the original purpose °I*111% Triffints visit to South America and participation by the Board 11:4"ons to Latin 48tkirbed conditions American countries and whether, because of the in South America at the present time, and par— tiell1"4" in Argentina, Mr. Triffin should continue his journey as pro— P4ed Itr• Gardner s memorandum or whether he should be instructed home upon completion of his work in Paraguay. In re that kr. sponse to an inquiry from Mr. Ransom, Mr. Gardner stated t° et Trirrin's visits to Uruguay, Argentina, Brazil, and Costa Rica : 14 ,11rilY (1) to complete the information available to the Board °'411etallicing and monetary situations in those countries and (2) to 1264 8/18/44 —8— It the --ard pkr, in a position to lend assistance in connection with re— of the monetary and banking laws of Uruguay, Brazil, and Costa Rica, Chairman Eccles stated that the participation of the Board in the Latin American missions was based on the "good neighbor" policy of the United. States and that the only way the Board could be helpful in these slttlations was to develop information relating to the Latin an countries and to assist this country in establishing trade arid tt "Lnallcial relationships with the South American nations and assist then" blidgetary and central banking matters. In this connection it was emphasized that Mr. Gardner had dis— • c)t the Triffin's proposed trip to Argentina with representatives State tileNw kr, Tr, Department and that Mr. Gardner had been informed that objection on the part of the State Department provided Itrin would keep the American Embassy in Buenos Aires informed 64:1 be in his contacts by its suggestions. There was unanimous agreement that in these circumstances there should be no ob— jection to Mr. Triffin continuing his trip a! proposed, and unanimous approval was given to the following cable to be sent to him over the signature of Mr. Thomas: traz..,"Board authorizes proposed work in Uruguay, Argentina, I/evil-4. and Costa Rica. Return Washington December. In colaro.°f disturbed conditions be closely guided in each 'irY by ame rican Embassy. Letter follows." 1265 8444 —9— Chairman Eccles reviewed the informal discussions which had been be , , gad with the Director of Contract Settlement and representatives °t the u, 'tar Department, the Navy Department, and the Maritime Commis— sion . With respect to commitments and loans to be made in financing tew --Ilated war contracts pursuant to the Contract Settlement Act of 1944 He said that it was anticipated that upon the cessation of lic'et* es in Europe from 40 to 70 per cent of existing war contracts Nac, be canceled and that at that time there would be an urgent need c)° the Part of subcontractors, particularly those below the first tier, tor b , 44k loans to release their funds for use in converting their les to peacetime production. It was clear, h, said, that all of the n titoaand ecessarY interim financing could not be handled at the same 'in order to encourage banks to enter into commitments in ad— 'he tA char had suggested that the lending bank in each case be permitted . e a commitment fee of 3/8 per cent or a flat fee of not to ex— teeel 400 the ,-Ilichever was larger, to cover the bank's costs in making neces_ ".17 investigations and arrangements to set up the credit. E"lee said that in some cases subcontractors would be able eet 410 ng without, exercising their right to obtain loans under their tterit kizeh work -s although the banks would have been required to do just as to that if as if loans had been taken down in the first place. He felt Ilia proposal were not adopted, the necessary commitments would 1266 -1011"1 be made to small subcontractors and that upon the termination qthe war in Europe it would not be possible expeditiously to meet the credit r equirements of such concerns. Mr. Draper stated that he was not in favor of the flat commitZent fee of not to exceed tl00 as it appeared to him to be a discrimirlation a gainst the small borrower. For instance, he said, it would force a small borrower to pay as high as 7 per cent, figuring yearly ttlterest at 5 per cent plus a commitment fee of P100 if the loan were 41' 110,000 th and paid off at the end of six months. 5-3/8 per braper keht This would compare cent interest and commitment fee for the larger borrower. added that it was true that many of these smaller commitments never m aterialize into loans but, even so, he felt that the diftelseritial between the small and the larger borrower seemed too great. Chairman Eccles' proposal was discssed at some length, and Mr. Ransom indicated that he was in agreement with it. However, no action was taken. At this point Messrs. Leonard, Vest, Wyatt, Thomas, and Gardner frIthdlsevir to, r°m the meeting, and the action stated with respect to the matter was then taken by the Board: 441c 04, Letter to Mr. Meyer, Assistant Cashier of the Federal Reserve Chieapo reading as follov,s: The Board of Governors approves the change in the Aers : Orm-Ililnel classification plan of the Federal Reserve Bank involvi.nr, the establishment of the position 1287 -11— r Credit Analyst, as requested in your letter St 14, 1944.11 Approved unanimously. Thereupon the meeting adjourned. Assistant Secretary. Chairman.
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