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895 Ameeting of the Board of Governors of the Federal Reserve SYstem was held in Washington on Wednesday, August 31, 1938, at 10:30 a. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Ransom, Vice Chairman Szymczak McKee Davis Draper Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Paulger, Chief of the Division of Examinations Mr. Cagle, Assistant Chief of the Division of Examinations Mr. Gardner, Senior Economist of the Division of Research and Statistics Mr. Piser, Senior Economist of the Division of Research and Statistics Preliminary to the conference of the members of the executive coMMittee of the Federal Open Market Committee with the Secretary of the Treasury on September 1, 1938, there was a discussion of factors Which might be taken into consideration by the Treasury in determining the extent of the September 15 Treasury financing and the securities that might be offered at that time. After the discussion, Messrs. Goldenweiser, Gardner and Piser left the meeting. Reference was made to a memorandum submitted by Mr. Vest, 48eistant General Counsel, under date of August 17, 1938, pursuant to the request made at the meeting of the Board on August 12, 1938, that there be prepared drafts of amendments to Regulation 0, Loans to 896 8/31/38 Executive Officers of Member Banks, which would exempt from the regu14tion inactive or honorary bank officers. The memorandum had been circulated among the members of the Board for consideration prior to Meeting. After a discussion of the four alternative drafts of amendments suggested in the memorandum, Messrs. Morrill and Dreibelbis were requested to prepare, for the consideration of the Board, a draft of a letter to the Federal reserve banks requesting an expression of their views with respect to certain of the proposed amendments and any suggestions that they might have to make in the light of conditions existing in their respective districts. Mr. Ransom stated that he felt that the proposed amendment W" contrary to the purposes for which Section 22(g) of the Federal Reserve Act was enacted, that it was his opinion that the amendment 84°41d not be made, and that should the matter come up for a vote ir his absence he wished to be recorded as opposed to any modification cr the present provision. Consideration was given to a memorandum dated August 19, 1938, *°''m the Division of Examinations which swnmarized the replies received by the Board to its letter of December 6, 1937, requesting the views as to the desirability of amending Section 3(a) of ReguL, Interlocking Bank Directorates Under the Clayton Act, to discontinue the permission granted by that section to a Private banker or Et Qireetor, officer or employee of a member bank to serve one Morris 897 -3- 8/31/38 Plan Bank. baric The memorandum stated that six of the Federal reserve (Boston, New York, Philadelphia, Cleveland, St. Louis and Min- lleaPoli ei favored discontinuance of the permission, that Kansas City Made no recommendation but apparently favored discontinuance of the Pernission, that Atlanta suggested that the permission be limited so as to apply only to institutions which did not receive demand deposits, and that the four remaining banks (Richmond, Chicago, Dallas and San PlaeLacisco) recommended that the Regulation be not amended. The memo- flduiii also stated that the question involved was one of policy for determination by the Board and submitted a draft of an amendment for consideration in the event the Board should decide to amend the regulati°n. The memorandum stated further that the replies received from the Federal reserve banks indicate that conditions with respect to Pclasible competition between member banks and Morris Plan banks vary ecn aiderably in the different Federal reserve districts, that it was "ident, however, that the changes referred to in the Board's letter Of December 6 1937, had taken place to a considerable extent and ap- Parently were continuing progressively, but that the number of existing l'elationships that would have to be terminated if the permission gl'anted in Section 3(a) were revoked would be relatively small. The eMbers of the Board present agreed that, while the number of interIcIcking directorates which would be affected by the amendment was not large at the present time, the increasingly competitive situation 898 8/31/33 between -4member banks and Morris Plan banks made undesirable the creation of additional interlocking directorates of this type or the continuation of those now in existence. Thereupon, Mr. McKee moved the adoption of the following resolution: RESOLVED, That effective February 1, 1939, Section 3(a) of Regulation L be amended to read as follows: "(a) Any private banker or any director, officer, or employee of a member bank of the Federal Reserve System may be at the same time a director, officer, or employee of not more than one cooperative bank, credit union or other similar institution;" Carried unanimously, with the understanding that a letter to the Federal reserve banks advising them of the Board's action would be sent immediately. Mr. Cagle withdrew from the meeting at this point and Messrs. alleed, Chief of the Division of Bank Operations, and Leonard, Assistant Chief of the Division of Examinations, entered the room. There was presented a telegram dated August 29, 1938, from ?re aident McKinney of the Federal Reserve Bank of Dallas, stating that the bank has been called upon for the first time to state the conditi°ns under which it would accept deposits of securities referred to in chaPter 7 of the amended Bankruptcy Act approved Tune 22, 1938; tblit it was not unlikely that the bank would be called upon to handle 4 lellge volume of this business; that it was felt that, in view of the 899 8/31/38 -5- 7°Iwne and expensive character of the business the bank should establish reasonable charges therefor, and that advice was requested whether the Board would have any objection to the bank establishing a reasonable schedule of rates. The matter was referred to Mr. Szymczak for recommendation to the Board as to the action to be taken. The minutes of the meeting of the Board of Governors of the Psderai Reserve System held on August 30, 1938, were approved unani- Moilay. Thereupon the meeting adjourned.
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