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A meeting of the Federal Reserve Board was held in the office of the Federal Reserve Board on Wednesday, Au4;ust 29, 1928 at 11:00 a.m. PRESENT: The Chairman Governor Young Mr. Platt Mr. James Mr. McIntosh Mr. McClelland, Asst. Secretary The Governor referred to the visit to New York which he and Mr. James made yesterday for the purpose of discussing with the directors of the Federal Reserve Bank of New York the matter of assistance which could be given the Illtsrmediate Credit banks in connection with the marketing of their short tiMe debentures, either through purchase of the debentures by the Federal Reserve banks or by the rediscount of eligible paper for the Intermediate banks. 4 He pointed out the inconsistency in the present rate structure which permits one Federal Reserve bank to charge a quasi-governmental corporation 4-1-,0 on rediscounts and simultaneously another reserve bank to charge 50 °4 the same class of paper for the same purpose. He reported that the Federal ie Serve Banks of Minneapolis and Kansas City have already given assistance to the Intermediate Credit banks on rediscounts at and referred to the embaras- position in which the Federal Reserve Bank of New York would be placed 'with its own member banks if it also made a* rate to the Intermediate Credit hallks While simultaneously charging its member banks 5% on the same class of 1D4Per. He suggested that the Federal Reserve Bangs of Minneapolis, Kansas 1-tY and Dallas, and possibly San Francisco, which now have discount rates of might give additional assistance to the Intermediate Credit banks, with 44 assurance from the Board that if by reason of such rediscounts they themselves 411°111d find it necessary to rediscount with other Federal Reserve banks, their 8/29/28 -2- Own borrowings could be made at 4-/2=. The Governor reported that in the event of 311°1 inter-Vederal Reserve Bank rediscounting the directors of the Federal Reser7e, Bank of New York would be entirely willing to grant the rediscounts required ill case other rederal Reserve banks should be unwilling to do so. He further allEgested that if it should subsequently develop that the rediscount procedure of the _Intermediate Credit banks is not found practicable that the System could give consideration to temporary purchases of the debentures of the Intermediate Cl*eclit banks at a rate which would appear reasonable at this time for tax exempt obl igations. At his suggestion, the jovernor was requested to take up with the iederal eserve Banks of Minneapolis, Kansas City and Dallas, the question of their extending further assistance to the Federal Intermediate Credit banks. The Governor also suggested, and upon motion it was voted that the Board fix the rate of rediscount between Federal Reserve banks at the discount rate charged by the borrowing Federal Reserve bank to its member banks. The Governor then presented a telegram dated August 27th from the New Board 41eane Clearing House Association, suggesting that the Federal Reserve (live preferimmediate consideration to the question of the establishment of rediscount rates on member bank collateral notes secured by United rate 44tes government obligations, the rate of rediscount not to exceed the b°1110 by the securities; the telegram referring to the forthcoming financing t'ne Treasury Department and stating that present rates penalize member ballits which assist in such financing. The Governor also submitted draft of a proposed reply to the telegram of the New Orleans Clearing House Association, which, after discussion was approved in the following form, for signature uy the Chairman of the Board: 113 8/29/28 41 -3-- to "This will acknowledge receipt of your wire of .mugust 27th ederal r by rates t Governor Young recommending preferential discoun ions, reserve banks on collateral notes secured by Government obligat the by borne that as the discount rate in each case to be the same Reserve security. Your proposal has been laid before the Federal you that ng remindi in Board, and, first, the Board feels justified the reserve of rs Directo the usual procedure under the law is tor the are laid they ed initiat banks to initiate rates. .,hen such rates are unBoard the „hile before the Board for review and determination. banks reserve for t doubtedly has the power to fix rates of discoun we see nothing in the present situation to require such arbitrary p action. At the same time the Board is not attempting to sideste and rates, t discoun bank reserve any responsibility it may have for e we advise your Association that if any reserve bank should initiat to opposed be would Board the such preferential rates as you suggest such procedure for the following reasons: and in(1) It would not care to discriminate against commerce one and three as low as of rate unt redisco dustry by approving a ions obligat ent Governm by secured notes ral quarter percent on collate to ed permitt be would banks reserve while simultaneously certain and induscharge five percent on eligible commercial, agricultural trial paper. justi(2) There is nothing in the present situation which would . another over ies securit ent Governm of class one fy a lower rate on wara was to refer you that banks reserve the The previous action of time measure only. (3) If your proposal was put into effect at the present time it would permit a member bank to buy United States bonds in the the member present market on a yield higher than the bonds bear and solely e purchas such make to unt redisco to d bank would oe prompte for profit. States Gov(4) Member banks own over four billions of United g House Clearin your ernment bonds, and, upon reflection, we believe great too be will agree with us that the invitation for profit would that on inflati in for many of the banks to resist and only result financial eventually would work widespread disaster to our entire the country. of ts interes structure and, indirectly, to the business apprecito y tendenc strong (5) The proposed plan would nave a ions obligat States ate the market value of the outstanding United nigher bearing those ate bearing low rates and simultaneously depreci various the for prices nted rates, developim: artificial and unwarra Government issues. y Department (6) Under normal peacetime conditions the Treasur the same money for rates should and does pay the ordinary market States United tne of credit as any other borrowers. Moreover, the atof ver whatsoe n occasio Government is so good that there is no seent Governm States United tempting oy artificial means to place y e, industr commerc with d curities in a favored position as compare and agriculture." 114 8/29/28 -4- After further discussion, upon motion, it was voted that the telegram from the Clearing House Association and the Board's reply thereto, with names deleted, ue i_ven to the Press this afternoon at 3:00 o'clock. The Governor then submitted a telegram aated August 18th, not received by him until late August 27th, from the Governor and the Commissioner of Finance of the State of Tennessee, referring to a forthcoming .42,000,000 issue of six months highway and bridge construction notes of that State, and sugesting that 48,000,000 of these notes, which are issued in anticipation of revenues conle within the eligibility requirements of the Board's Regulations and could be purchased by the Open LIarket Investment Committee of the Federal Reserve SYstem on a 4-, 117 basis; the telegram stating that such action would be of mater- ial assistance to the business of the South, which has been noticeably chilled by the prevailing high interest rates. After discussion, upon motion, it was voted that the Chairman of the Board should transmit the following telegraphic reply to the Governor of the State of Tennessee: "Your wire August 18 to Governor of Federal Reserve Board was not delivered until late August 27. Understand Postal Telegraph Company has furnished explanation of delay in delivery. Your suggestion has been laid before Federal Reserve Board and while our reply has no reflection upon credit standing of State of Tennessee, we think, upon reflection, you will agree with Federal Reserve Board that your obligations should be floated in the general market at the going rates, the same as United States government is accustomed to doing. You can realize that if the Federal Reserve System, through its Open Larket Investment Committee or any Federal Reserve Bank, should depart from its policy of confining its open market operations entirely to bills and United States government securities it would be an invitation to the other 47 states and all their political subdivisions to make similar requests." The minutes of the meeting of the Federal Reserve Board held on August 16th were read and approved. 11.5 8/29/28 The minutes of the meeting of the Executive Committee of the Federal Reserve Board held on August 23rd were read, and upon motion, the actions recorded therein were ratified. Letter dated August 23rd from the Secretary of the Federal Reserve 8411k of New York, telegram dated August 24th from the Chairman of the Federal Reserve Bank of Chicago, and telegram dated August 24th from the Secretary of the Federal Reserve Bank of Kansas City, all advising that their boards of directors at meetings on the dates stated made no changes in the banks' exiSting schedules of rates of discount and purchase. Uithout objection, noted with approval. Matters approved on initials on August 28th, namely, applications of the Dunbar National Bank, New York, N. Y., and the First National Bank, Bellerose, N..Y°' if for stock in the Federal Reserve Bank of New York, effective end when authorized by the Comptroller of the Currency to commence business. Formally approved. of Matter approved on initials on August 24th, namely, application The First National Bank of Yankton, Se De for permission to act as trustee, executor, administrator and registrar of stocks and bonds. Formally approved. n of Matter approved on initials on August 28th, namely, applicatio the Hyde Park National Bank, Chicago, Ill, for permission to exercise general fiduciary powers, effective if and when authorized by the Comptroller of the - to commence business. Currency Formally approved. 116 8/29/28 Memorandum dated August 28th from the Director of the Division of Research and Statistics, recommending that the temporary appointment of Miss Elsie Hanold, Which expired at the close of business August 19th, be extended for three months from that date, at her present salary of 91440 per annum. Approved. Memorandum dated August 28th from the Director of the Division of Research and Statistics, recommending that the Board make permanent the temporary appoint*ant of Mrs. Julia Haigh, as clerk-stenographer in the Division, at her present salary of y1440 per annum. Approved. Memorandum dated August 29th from the Assistant Secretary, advising that the Director of the Division of Research and Statistics requests that Miss DeHart, whose temporary appointment in the office of the Governor exat the close of business, September 15th, be transferred to his Division tinder a temporary appointment until November 15, 1928 with salary at the rate Of 41680 per annum; the Assistant Secretary stating that this recommendation is made due to the proposed transfer on September 16th of Miss Vivian Dee Bane trom the Division of Research and Statistics to the office of the Board's C1502nsel at her present salary of 41680 per annum. Approved. Matter approved on initials on August 25th, namely, letter dated 411gast 24th from the Acting Comptroller of the Currency, recommending apProval of an increase from 44,000 to -'5,500 per annum in the salary of national Bank Examiner Herbert Hallenberg. Formally approved. -7- 8/29/28 August Aeport of Committee on Salaries and Expenditures on letter dated 22nd from the Deputy Governor of the Federal Reserve Bank of New York, submites ttag for approval recommendations for promotion in grade of certain employe to positions where the grade is in excess of ii;2,500 per annum, such changes to be effective August 1, 1928; the Committee reporting that the proposed Board and Wlanges are all in accordance with the salary plan approved by the recommending approval. Approved. dated Aeport of Committee on Salaries and Expenditures on letter co, August 21st from the Chairman of the Federal Aeserve Bank of San Francis transmitting report of employees for whnm the directors of that bank approved leaves of absence with pay, on account of illness, during the month of July, where the total of such absences since January 1, 1928 has exceeded thirty salary payments incl4Ya; the Board's Committee recommending approval of the Approved. letter dated August Aeport of Committee on Salaries and Expenditures on , transmitting 24th from the Chairman of the Federal deserve Bank of Chicago leaves of abreport of employees for whom the directors of that bank approved 27th to August sence with pay, on account of illness, during the period July thirty 23rd, where the total of such absences since January 1, 1928 has exceeded salary payments involved. the Board's Committee recommending approval of the Approved. Division of Bank Memorandum dated August 22nd from the Chief of the 18 8/29/28 O perations, transmitting statements of expenditures by the Federal Reserve banks for educational and welfare work, etc. during the month of July and attention 2or the seven months period ending ,July 31st; the memorandum calling to Contributions by the Federal Reserve Bank of Dallas to the American Institute of Banking, totaling 42,712 for the year, and submitting draft of a letter to the Governor of the bank requesting information regarding this apparently excessive expenditure. Upon motion, the proposed letter to the Dallas bank was approved and the statements submitted with the memorandum were ordered circulated. nding that Memorandum from Assistant Counsel dated August 24th, recomme there be published in the forthcoming issue of the Federal Reserve Bulletin a statement attached regarding the new edition of the Board's Digest of Rulings. Approved. t in the amount Memorandum from Counsel dated August 27th submitting statemen for handling in the Of 42500 rendered by Hon. Newton D. Baker, covering his fee 811prame Court of the District of Columbia the suit brought against the Board ou behalf of the organizers of the proposed United States Foreign Financing Corporation; Counsel stating that the amount of the fee has previously been fixed by the board and recommending that the statement be paid. Upon motion, it was voted to approve a payment of by v2500 to Mr. Baker covering the statement rendered him. e to a recomMemorandum from Counsel dated August 22nd, with referenc the Federal Reserve toudation by the Federal Reserve Agent at Chicago that Iowa, be cancelled bank stook issued to the Guaranty State Bank of Knoxville, Regulation "I"; Counsel accordance with the provisions of the Board's 8/29/28 -9- stating that although the assets of the Guaranty State Bank have been sold to another institution, the Federal Reserve Agent has been unable to obtain information as to whether the bank has been placed in liquidation. ,ath his raernerandum, Counsel submitted draft of a proposed letter to the Superintendent Of Ba.1 status aking of iowa requesting him to advise the Board as to the present ef the Guaranty State Bank of Knoxville. Upon motion, the letter submitted by Counsel was approved. Letter dated August 21st from the Fedecal Reserve Agent at St. Louis, with reference to a hearing held by him on that date at which representatives cause of the Lawrence County Bank, Walnut Ridge, Arkansas, appeared to show Why that membership in bank should not forfeit all rights and privileges of the Federal Reserve System; the hearing being a continuation, approved by the on 13°411 on April 24, 1928, of the hearing held by the Federal Reserve Agent 19, 1928. In his letter, the Federal Reserve Agent stated that Some it is 1111Prevement has been made in the condition of the member bank and that after the 4eirous of obtaining a further continuation of the hearing until to put the bank in 'u of the year which would give them an opportunity th°roughly good condition. The Federal Reserve Agent recommended that the at 10:00 o'clock a.m. Ilering in his office be continued to January 29, 1929 aha that if the date of the Board's hearing should also be continued, it be fiXed for about one weak after January 29, 1929. After discussion, upon motion, it was voted to postpone 10:u0 the Board's hearing in the above mentioned case until advise to o'clock on the morning of February 5, 1929, and the Fedthe Lawrence County Bank that it may appear before the on eral Reserve Agent in his office at 10:00 o'clock morning of January 29, 1929. 120 8/29/28 -10- Letter dated August 22nd from the Secretary of the Federal Advisory C ouncil, advising that the next meeting of the Council will be held in dashof on September 28th, and requesting that he be furnished with a list the topics which the Board would like to have the Council discuss. The Assistant Secretary reported that on July 50, 1928 the Board voted to refer t the Federal Advisory Jouncil: (1) The suggestion of ir. Fred I. Kent that the Board revoke the ruling made by it in 1919 to the effect that balances due from foreign banks may not be deducted from balances duo to other banks by a.member bank in calculating its reserves; and that the Board's iiegu(2) The suggestion made by Mr. as the minimum limidays seven fix lations be amended so as to to member banks on banks iieserve tation on advances by Federal or government paper eligible by their promissory notes secured securities. Advisory The Governor stated that it was understood that the ce Council would review the brief recently submitted, in accordan desirathe of question the on , meeting last with the action at its Bank bility of the Board requiring member banks in Federal wserve time, to time from ted designa cities other in and and Branch cities average an to calculate their lawful reserves daily instead of on . at as present semi-weekly basis After discussion, it was voted to refer the following topics to the Council: ve (1) Discussion of business conditions in the respecti Federal Aeserve Districts. fates (2) Discussion of effects of prevailing rediscount upon business. (3) Discussion of open market policy of the Federal System sihce the last meeting of the Council. 4AmiTs eserve OF STANDING .OLIMITTEES: Dated, „ujust 29th, _“)commending changes in stock at Federal deserve banks as set forth in the Auxiliary Llinute Book of this date. .ecommendations approved. 121 8/29/28 -.11- 4444a.a_gANDING COMITTEES: (Cont'd) Aecommending action on applications for fiduciary powers as set forth in the Auxiliary Minute Book of this date. Recommendations approved. Dated, August 24th, Recommending approval of the application of Mr. Henry W. Stecher for permission to serve at the same time as director of the National City Bank, Cleveland, Ohio and as officer and director of the Pearl Street Savings and Trust Company, Cleveland, Ohio. Recommendation approved. approval of the application of Mr. Robert Recommending Dated, August 24th, B. Rugg for permission to serve at the same time as officer of the National aockland Bank, Boston, Massachusetts and as director of the Buzzards Bay National Bank, Buzzards Bay, Massachusetts. Aecommendation approved. Dated, August 27th, 28th, The meeting adjourned at 12:20 p.m. e;/".,(Ateeeee.,,e." Assistant Secretary. APproved: Chairman. (\I
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