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1343 A meeting of the Board of Governors of the Federal Reserve 87sten1 was held in Washington on Monday, August 20, 1945, at 11:00 PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak Draper Mr. Carpenter, Secretary Mr. Connell, General Assistant, Office of the Secretary Mr. Morrill, Special Adviser Mr. Thurston, Assistant to the Chairman The action stated with respect to each of the matters herein— referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the Pederal Reserve System held on July 17, 1945, were approved unani— 1%1184.. The minutes of the meetings of the Board of Governors of the Pederal Reserve System held on July 18, 19, 20, 23, 24, 26, 27, 30, 44(1 31) and August 1, 3, 4, 7, 8, 9, 13, 14, 17, and 18, 1945, were 41311r°ved and the actions recorded therein were ratified unanimously. Memorandum dated August 10, 1945, from Mr. Thomas, Director °I 'the 114 _. -'vlsion of Research and Statistics, recommending that the ba.aic 411411a1 salaries of the following employees be increased, as 14cIleat d e-, effective as of the beginning of the first pay roll pe— ri ocl 41°11Ing approval by the Board: 1344 8/20/45 -2- NAme Title ',Lvern H. "elen R. Sutherland Dyer 41'Q-14e M. Burgess Cora. Jean Shupe Librarian Library Assistant Library Assistant Library Assistant Salary Increase To From $4,520 2,760 2,650 2,298 $4,740 3,200 2,980 2,430 Approved unanimously, effective August 26, 1945. M emorandum dated August 20, 1945, from Mr. Paulger, Director qthen. -lvision of Examinations, submitting the resignation of John W. Nrlor '1 Assistant Federal Reserve Examiner, and recommending that r . the esIgnation be accepted effective as of the close of business Au€113t 33., 1945. The resignation was accepted as recommended. Letter to the board of directors of "The Farmers Savings Bank ecti Ashley, Ohio, stating that, subject to conditions of memberehil) n ered 1 to 3 contained in the Board's Regulation H, the Board 41)1)roir "the bank's application for membership in the Federal Reserve .Y3tera 4nd for the appropriate amount of stock in the Federal Reserve 1344k of Cleveland. . Approved unanimously, for transmission through the Federal Reserve Bank of Cleveland. Letter to the board of directors of "The Farmers Bank of 141, ,,c0111 ft ' Lincoln, Missouri, stating that, subject to conditions of 1345 8/20/45 -341e*ersiliP numbered 1 to 3 contained in the Board's Regulation H, the Board aPProves the bank's application for membership in the Federal Ileserlr System and for the appropriate amount of stock in the Federal ilese•mr "e Bank of St. Louis. Approved unanimously, for transmission through the Federal Reserve Bank of St. Louis. Letter to Mr. Wayne, Vice President of the Federal Reserve Bank °f Rict— '44°r1d, reading as follows: ia "In accordance with the recommendation contained Y°ur letter of August 9, 1945, the Board interposes "?4° .bj ection, under the provisions of an applicable conOf membership, to the action of the Calvert Bank, h-;61more, Maryland, in purchasing, for $26,750, the leaseOld Property at 1044 Light Street, which adjoins the vremlses of its South Branch office." Approved unanimously. Letter to Mr. Wayne, Vice President of the Federal Reserve Bank c31' Richmond, reading as follows: vo "In accordance with the recommendation contained in ; lour letter of August 9, 1945, the Board will interpose ti °Nection, under the provisions of an applicable conditrr of membership, to the purchase, for $150,000, of the or *Yn-Curtis Bay Branch blrilding, and adjoining property, Annapolis Banking and Trust Company, Annapolis, 141171 t/ampl and, by the Union Trust Company of Maryland, Baltimore, It is understood that the property is to be purthe-V in connection with the absorption of the branch by union Trust Company of Maryland." Approved unanimously. 1346 8/20/45 —4— Letter to Mr. Davis, President of the Federal Reserve Bank of Elt. Louis, reading as follows: s is with reference to your letter of August 9, 1945, relative to the distribution of the recent amend— ments to Regulations T and U. "We have particular difficulty in handling amend— of this character where the Board is anxious that 0 intimation of its action will get out to the market. 4.r ! i this case, there were added problems arising out of 'Ile general war situation. ad "An attempt was made to go as far as possible in adapting our procedure to the circumstances: The amend— ' fell'e were adopted just before a holiday and a later ef— ctive date was employed for parts of each amendment. The • , Important change was the increase in margin require— to 75 per cent of which the brokers would be ad— _leed through the press. We expected that the texts ruld be made available to the stock exchanges promptly i7ld that brokers would be able to get further details cc consulting them. So far as we have been able to dis— ,irer word got around promptly to the people who were 'uost concerned. "It is realized that the Federal Reserve Banks had to Operate under severe handicaps. Part of these will erlri ar to disappear as the acute disruptions of the war sie relieved. Furthermore, we hope that on future occa— th!” we will have an opportunity to arrange things so the machinery will run more smoothly. In any event, not be very often that we have a change in a reg— dia'ion that is as severely restrictive as those under leectission. Under other circumstances, considerably more ewaY should be available." 7 2 Approved unanimously. Letter qssi• to Mr. Louis Loss, Counsel, Securities and Exchange Com— Philadelphia, Pennsylvania, reading as follows: clo . Tills refers to your letter of August 11, 1945, en— sInn. ' .4 1 a copy of a complaint to be filed in the District 1347 8/20/45 —5— "Court of the United States in connection with certain violations of section 7(c)(1) of the Securities Exchange Act of 1 934 and Regulation T. You asked for our comments. "'We have only a few comments and suggestions. They are as follows: In connection with section 4(b) of the 20mplaint, should it not be aJleged that the defendants Butler, Nick, Masters, etc., knew that the checks were drawn against insufficien funds, since otherwise the de1 t mlverY of the securities against these particular checks ruld not constitute lack of good faith or an attempted evasion of the Regulation. "At the end of the Third Count, the point contained in the last paragraph of the Second Count could be added. "On Page 5, line 7, and on page 8, line 8, the word-1 gmight be better if it read: '*** without either hold4-,,ng funds *** cash account or relying upon *** re "On Page 8, paragraph ID', change the last line to 424 'cash payment within the period applicable to the 44nsaction under section of the Regulation.' The sc'n for this suggestion is that the period is not al." 7 days. th, "170 appreciate your keeping us advised regarding C _, -8 matter and we trust that the above comments will of assistance to you." 4 Approved unanimously. Telegram reading as follows to Mr. W. G. Violette, President (4 the k'Landard Oil Company of Kentucky, Louisville, Kentucky, in reto„ • telegram dated August 17, 1945, asking whether Regulation reltoc ::- of Consumer Credit is still in effect and if revision or 1°11 is contemplated: secn,:egUlation W is still in effect. Answer to your question can not be determined at this time.” Approved unanimously. 1348 8/20/45 Letter prepared for the signature of Vice Chairman Ransom to 111'• Robert Nathan, Chairman, Reconversion Working Committee, Office Mobilization and Reconversion, Washington, D. C., reading as fcalovie: „ "In accordance with the request which you made at Ine meeting at the Lafayette Building on Monday, August m3 'I am submitting below a number of subjects and coments thereon pertaining to the reconversion or transition Peri° d following V-J Day, from the standpoint of the Board °f Governors of the Federal Reserve System. "Speculation in Capital Assets irWhile the Board has not formally taken positions With '" respect to inflation dangers in the unprotected field E capital assets, Chairman Eccles, as a member of the 3..°1,°11ic Stabilization Board under the Office of Economic lization, has recommended that speculative activities I-T these fields be curbed through the medium of a drastic 8Palra•rd revision in the capital gains tax and that, if necesth 1 this step be supplemented by an Executive Order au-1 ' 4"zing the regulation of mortgage credit. elat e took the position that the latter step would be fil ivelY ineffective unless the former step were taken or-,' P and since it now appears unlikely, with the ending ga.e n War, that Congress would impose the kind of capital th/ eris tax necessary to deal with this inflationary danger, whe4.Pestion arises, as part of the reconversion picture, th,''rrr the Executive Order which was proposed prior to cieayotsdam Conference should be discarded. At best, it or , s °'1Y with the credit side of the picture, which is proOmParativ4y minor importance, and would not reach the or .-2-em Presented by the enormous accumulations of cash or; a t8 equivalent in the hands of the public as a result 8ti.;:ar financing. These unprecedented accumulations conthesee by far the major source of inflationary dangers in ..as in other fields. "It is the opinion of Mr. Eccles that the time has or when such an Executive Order would be appropriate de sirable. "Regulation of Consumer Credit era]. :Regulation W of the Board of Governors of the Fed'Leserve System was issued under Executive Order No. 1349 8/20/45 —7— "8843 of August 9, 1941 for the purpose of regulating con— sumer credit. This Order does not fix any specific date °11 which the authority shall terminate. It does provide, .btowever, that the exercise of the authority is to be limited c the period of 'the national emergency declared by me on 27, 1941'. Accordingly, it continues until terminated gh affirmative action by the President or by the '°r1gress. _ "There is a substantial shortage of consumer goods in reiation to consumer demand, particularly consumer durable goods• wany months will elapse before supplies of all ' s- 3 of consumer durable goods will become reasonably ade— quate. The Board, therefore, has not undertaken to express ()Pinion as to when action should be taken by the Presi— Lor by Congress, but it seems proper to call attention 0, , c) e ()Pinion expressed by the House Special Committee roet—war Economic Policy and Planning (William M. Colmer, airman) as follows: 'Some control of consumer credit, partic— ularly installment credit, may be needed after the war. Inasmuch as the authority of the Reserve System is based upon Executive order of limited duration, the Committee feels that the Congress should consider the question of the need for legislation enabling the Reserve ..Ystem to continue existing controls.' 'Subject to authorization by the Board of Governors, 4 814 Prepared to discuss with the stabilization officials aeP:?gram for such liberalizing changes in Regulation II Y be deemed desirable under the Government's recon— 'sion program. "V and T Loans to Industry were "Guaranteed loans to industry for war production 9112 inaugurated under the President's Executive Order (31 'March 26, 1942, supplemented by the passage of the, 4 Itract ton -k No 1 . Settlement Act of 1944 and General RegulaSetti issued thereunder by the Director of Contract ement. tlari;The War and Navy Departments and the United States make'me Commission were authorized to guarantee and to colitirans for the purpose of financing contractors, sub— 'ctors and others engaged in any business or operation -d , eemeu by those agencies to be necessary, appropriate 4,44ent 1350 81V45 -8- or convenient for the prosecution of the War. The Federal Reserve Banks were authorized to act as agents in carrYing out the provisions of the Order, subject to the !Pecifio instructions of the guaranteeing agencies and be general supervision of the Board of Governors. Underthis plan the Board of Governors issued its Regula°n V. While the procedure has been modified and the Scope of operations enlarged, the general policy has rethe same. , "Presumably these operations will be brought to a Close at an early date. "These loans to industry have proved themselves to be theof great value in time of War. The procedure whereby m„ Government assumes contingent liabilities which do not .terjalize if private efforts are successful holds promise 4r 1. the reconversion period and afterwards. In the light experience, as well as that under Section 13b of ."e Federal Reserve Act, the Board of Governors favors the ura,ediate enactment of the Wagner-Spence bill, discussed ' L ucle_r the next succeeding topic. Milustpan—Waer-Sence Bill "Glilaranteedfor 'The Wagner-Spence Bill (S. 511 and H. R. 591) would renea a f, l the present Section 13b of the Federal Reserve Act 111111 substitute therefor a section bearing the same number, De ch Would authorize the Federal Reserve Banks (until Gc.ciTember 31, 1949) under the supervision of the Board of e17n°rs, to guarantee financing institutions against 10, mili !on loans made to business enterprises or to make com, Tb:wents to purchase such loans from financing institutions. wiZeereentage of the loan to be guaranteed would vary In eoific cases, but in no case could it exceed 90%. ' ssOthera words, the commercial bank would be required to 11. e at least 10% of the risk involved in any loan. rieecl "The Wagner-Spence Bill would serve an all important terrm in the reconversion period by bridging the gap between buj'nation (VT) loans and those needed especially by smaller ,ness _ etc enterprise to acquire plant, machinery, inventory, by 11.1 that otherwise would be taken over and disposed of pro,: aPpropriate surplus disposal agencies. The V loan alall'1-119,111 enabled the Reserve Banks to act for the Army, Navy a.c,.rillaritime Commission in guaranteeing war production e°rIts made by private banks to war contractors and subveloracuors. Similarly, the so-called VT program was detrd to finance contract cancellation pending settlement e Government. When settlement is made, the money has t 1351 8/20/45 -9be applied to the VT loan, and the Army, Navy and 7r1time Commission have no further authority whereby '°ans that will then be needed to finance purchase of surplus property could be guaranteed. The Wagner-Spence -11 1Nould supply this deficiency, and would greatly faellItate and simplify disposal of surplus property. War contractors and sub-contractors desiring to acquire gov! rn ment-owned plant, machinery, inventory, etc., would be enabled to finance such purchases through the same .ctIliannels using the same guarantee mechanism with which : 7 are familiar, and the Government's interest would p- safe-guarded as it has been in the V and VT loans. :°ntractors in possession of surplus property would be to negotiate for purchase at the time of contract settlement , thus avoiding delay, expense and other com1,1 tlement, rlr-t leations that would arise if the property had to be re°ved and disposed of elsewhere. "It is generprly taken for granted that some form Of b, 90vernment participation in the extension of credit to a;!Illess is essential and inevitable in the reconversion post-war period. The need may be met either by enXaging the private banking and credit system of the N° pr.10nto perform the task, thus preserving private enterdilse in the field of banking, or by further expansion in f. : a1pect lending by the Government. The Board emphatically v°rs the former course. Han "This legislative proposal is in line with the Baruchpe ' ; l jec)ek Report on war and post-war adjustment policies of ruarY 19, 1944, and is recommended in a report to the co , on January 1, 1945 by James F. Byrnes, Director or 0 ,"ar Mobilization and Reconversion, in which it was stated " Page 14: 'Small business has been the backbone of American prosperity. Its future requires the establishment of a readily available source of credit. The Wagner-Spence bill has this purPose in view. In revoking the present authority of the Federal Reserve banks to make loans direct to industry, it substitutes authority for . 11em to guarantee the principal and interest of l'i.-?ans by commercial banks to business enterprise. "' or other forms of legislation to this end, deserves the immediate consideration of the e°11gress.1 1 8/20/45 -10- "The Board of Governors on February 26, 1945, in reto a request from the Chairman of the Senate Committee on Banking and Currency, submitted a favorable rePort on this bill. It has also had the support of the Sec. e.,tarY of bar, the Advisory Board of the Office of War Mot44.zation and Reconversion, and the tar Production Board. „nal-Man Krug has stated that he thought it would be very uesirable to help in financing reconversion and post-war production. "No new appropriation would be required, as the fund ;:u? available by Congress for the purpose of Section 13b ' the Federal Reserve Act, amounting to $139,000,000, .)uld be made available for carrying out the Wagner-Spence more. 13111 This would be adequate to support guarantees of tha 500,000,000 of loans outstanding at any one time L B "Because of the experience of the Federal Reserve : 111,s and the Board of Governors in this field, the proons of this bill could be put into effect without deairl and credits could be consummated expeditiously. for Stock Exchanz9,.. Transactions ch 'Under its statutory responsibility (Securities Exor rige Act of 1934) for regulating loans for the purpose. e(1,31.1rchasing or carrying listed securities, the Board will ti-," 11111e to give close attention to margin requirements and "ell' relationship to the capital markets. "Treasury Financing Program When the United States entered the Wax in December 1, 0 ' ti14J-, the Board of Governors issued a statement pledging a,!t the Federal Reserve System would use its powers to asair that an ample supply of funds would be available at 170 , 1!;imes for financing the Var effort and that the System the exert its influence toward maintaining conditions in States Government security market that are satisfrom the standpoint of Government requirements. voi 'Prosecution of the War has required an unprecedented thetulle of Government financing which, with the assistance of lati,:j ederal Reserve System through open market operations, anrY.-lng reserves, and otherwise, has been provided smoothly wthot disturbance. trairo.'The Federal Reserve System will continue its policy of ' n alninc stability in the Government security market and the;,r°viding the banks with sufficient reserves to enable Res;,'° Supply needed financing to business. The Federal -lie Banks stand ready to make all necessary advances on 1 'TY 1:353 8/20/45 "United States Government securities at par and to purchase s ecurities that banks may need to sell. "The banks of the country are in position to meet all easonable demands of industry, commerce, and agriculture. general decline in deposits is likely to occur; and i3-11, , c shifting of deposits between regions or individual ,-(Ln.s as may occur can be met without difficulty through Federal Reserve operations. "The Reserve System will continue to support to the 161111.1est extent the Government's efforts to finance as much Tisl Possible of the public debt outside the banking system. Reserve System within its powers will do its share in v.etPlng to avoid either inflationary or deflationary deduring the period of reconversion." Approved unanimously. Thereupon the meeting adjourned.
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