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A special meeting of the Board of Governors of the Federal Ilezery -'e System and the Presidents of the Federal Reserve Banks was 141 in the offices of the Board of Governors in Washington on Tuesday, December 123 19443 at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak McKee Draper Evans Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Smead, Director of the Division of Bank Operations Mr. Parry, Director of the Division of Security Loans Mr. Leonard, Director of the Division of Personnel Administration Mr. Bethea, Director of the Division of Administrative Services Mr. Thomas, Assistant Director of the Division of Research and Statistics Mr. Vest, Assistant General Attorney Mr. Cagle, Assistant Director of the Division of Examinations Mr. Wyatt, General Counsel Messrs. Piser, Kennedy, Robinson, and Bergelin, members of the Board's staff of the Division of Research and Statistics Messrs. Flanders, Sproul, Williams, Gidney, Leach, McLarin, Young, Davis, Peyton, Gilbert, and Day, Presidents of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco, respectively 1852 12/12/44 -2Mr. Henry 0, Koppang, First Vice President of the Federal Reserve Bank of Kansas City Messrs. Rouse and John H. Williams, Vice Presidents of the Federal Reserve Bank of Nem- York, and Messrs. Sienkiewicz, Langum, and Hardy, Vice Presidents of the Federal Reserve Banks of Philadelphia, Chicago, and Kansas City, respectively Mr. Poelse, Assistant Vice President of the Federal Reserve Bank of New York Mr. Bopp, Director of Research at the Federal Reserve Bank of Philadelphia Mr. Kincaid, Consulting Economist at the Federal Reserve Bank of Richmond Messrs. Norris Johnson, Frederick N. Worley, George Kleiner, and William W. Tongue, Economists for the Federal Reserve Banks of Me York, Philadelphia, Richmond, and Chicago, respectively 1 44 ) The purpose of this meeting was to discuss papers which had PrePared by members of the staffs of the Board and the Federal -eseylre Banks on the subject of banking and credit policy. These t4)11c)g alphs were offered as a part of a larger study of postwar prob414, (114i-eh was being made and which had been discussed previously by : 1412 Presidents of the Fed (31clenweiser with the Board of Governors and the eNa Reserve the Banks. Copies were distributed of the attached agenda Illeeting which listed the important questions presented by the c°11c)Illists' Papers, and Mr. Goldenweiser outlined the procedure which 12/12/44 —3— it wao exPected would be followed in the discussion. He also stated that the studies had been of great assistance in bringing the research t4tte of the Board and the Banks into a closer working relationship anti in. c oordinating their thinking, and that it would be desirable to ha ye a continuing arrangement for joint efforts of this kind in the tuture. After a statement by Mr. Sienkiewicz describing the approach thatwas taken in the preparation of the papers and the purposes which they. we expected to serve, statements were made by Messrs. Johnson, ilobirlson, Thomas, Langum, Kleiner, Tongue, Hardy, Roelse, Piser, BopP, '31clertweiser and Parry on the first four topics on the attached agenda 1111krthe heading "Federal Reserve Policy". These statements were fol1°Ived by comments and questions from the members of the Board and the Preeiderits and by a discussion of the questions raised. 1During this discussion the meeting recessed for luncheon and l'eecliverled at 2:30 p.m. with the same attendance as during the morning 44411 except that Mr. Paulger, Director of the Division of Examina— t4h e °t the Board of Governors, was in attendance and Messrs. Vest 444 °fleue were not present. Mr. Szymozak inquired as to the procedure to be followed in the e ttle °111-deration of other papers now being prepared by economists of k'al'd and the Banks and what further action was to be taken in eett : ectl.cin With the papers being discussed at this meeting. 12/12/44 —4— Mr. Goldenweiser stated that the papers which were in course ot Pl ' eParation would deal with subjects not so immediately related to bankin g and credit matters, and that, if it were thought that the 411d of meeting that was being held today was profitable, an additional er°1113Ot papers could be ready for the next meeting of the Board and the Presidents. Mr. Szymczak asked whether provision should be made for dis— ctlesio 4 of the next group of papers at the time of the next Presidents' Confer "and the meeting of the Open Market Committee or whether a ell eeParate meeting should be held which would be for the sole purpose . or vueldering the studies. The majority view was that because of difficulty of travel at the lowit Present time such a discussion should be had immediately fol— g the meeting of the Federal Open Market Committee which would be he, -4(1 on march 1, 1945. Chairman Eccles suggested that a committee of two or three (4the etetf members who had worked on the banking and credit studies be4 4 PPointed to digest the questions raised by the papers and the ()/1 at this meeting and Mr. Goldenweiser stated that the sug— h8t1 ell Ila3 a good one and that such a committee would be appointed. 0.1,ze_ 11. After a discussion of the effectiveness of the instruments ple to the Federal Reserve System for affecting the flow and or credit and the position in which the System should stand in 12/12/44 —5— to other agencies of the Government in the formulation of tiati°11a1 policies, there was a discussion of the topics listed on the 4ttached agenda under the heading "Commercial Banking Prospects". klterilents made on these subjects by Messrs. Johnson, Kennedy, Kincaid, and Sienkiewicz were followed by further comments and ques— ti°118bY members of the Board and the Presidents. At the conclusion of the discussion, Chairman Eccles, on be— of the Board and the Presidents, expressed appreciation for the 17(*It that had been done by the members of the staffs of the Board and the 1,e deral Reserve Banks in the preparation of the papers which had 'Presented and in contributing in the discussion at this meeting. Re aa. Id the Papers and the discussions had been very helpful in pre— 61elltin g questions in connection with many matters on which the System the future would be required to take action. Thereupon the meeting adjourned. ecretary. 4pPro Chairman. I CZ 12/12/44 Agenda BANKING AND CREDIT POLICY Joint Meeting of Members of the Board of Governors and Presidents' Conference 1, PBDIZAL RESERVE POLICY 1. What policies should the System follow after the war if an inflationary or speculative credit expansion threatens? Mould use of customary instruments of general credit control be effective in curbing credit expansion? Would the use of such instruments for that purpose be inexpedient because of their impact upon prices of Government securities and interest charges? Could private credit be controlled without affecting Government securities market? What problems would be created by failure to exercise powers of general credit control under such conditions? 2. What policies should the System follow during a period of low activity and unemployment? (a) Should there be further expansion in bank reserves and money supply? (b) Would it be desirable to lower interest rates? (c) Are the powers of the System adequate - reserve ratios? 3. To what extent and under what conditions should particular instruments of credit control be employed? (a) Open market operations? (b) Should the Treasury bill buying rate be continued? (o) Discount policy? Are preferential rates desirable as a permanent policy? (d) Member bank reserve requirements? (e) Should bank examination policy be harmonized with general credit policy? CO Selective credit controls? 12/12/ 44 4. —2Desirability of securing authority for more extensive selective credit controls: (a) Under what conditions can selective controls be effective? (b) What would be the political implications of a broad extension of selective credit controls? (c) Administrative problems? Enforcement? 5 What should be the relation of Federal Reserve policy to national economic policy? (a) Coordination with fiscal and credit policy of: (1) the Treasury; (2) other agencies in the field of credit. (b) Coordination with other economic policies, such as wage, price, social security, etc. 6, Questions calling for policy formulation in the near future: (a) The decline in the Federal Reserve ratio. (b) The collateral requirements for Federal Reserve notes. (c) Continuation of exemption of War Loan accounts from reserve requirements. (d) Legislative action on selective credit controls. tz, C°12ZRCIAL BANKING PROSPECTS 1, What are the prospects for bank deposits? (a) Further expansion or contraction? Currency? (b) Regional shifts of deposits. 2, Credit? What are the prospects for changes in bank holdings of Gov— ernment securities: (a) Through further increase or reduction in public debt? (b) Through shifts in holdings between banks and other investors? 3, What opportunities will there be for bank loans after the war? (a) What will be the sources of the demand for loans, particularly in view of the large volume of lickuid assets held by both individuals and businesses? I85 12112/44 —3— (b) Competition of banks with other lenders. (c) Desirability of developing some form of insurance or guarantee for loans. Should banks, in the light of prospective earnings and expenses, encourage a wider use of banking services and facilities: (a) (b) (c) (d) By reducing service charges? By raising interest 11 owed on time deposits? By rendering additional services? By adjusting salary schedules? Would policies under the first three help to induce a return flow of currency to banks? Is more bank capital needed: (a) To extend private risk credits? (b) To meet possible decline in Government security prices? ?Qs WAR PROSPECTS - What is likely to happen? Free-for-all.
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