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1785 Minutes of actions taken by the Board of Governors of the FedReserve System on Tuesday, December 17, 1946. the The Bcard met in Board Room at 10:35 a.m. PRESENT: Mr. Er. Mr. Mr. Eccles, Chairman Draper Evans Vardaman Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Paulger, Special Adviser Thurston, Assistant to the Chairman Smead, Director of the Division of Bank Operations Vest, General Counsel Nelson, Director of the Division of Personnel Administration Tomsend, Assistant General Counsel Millard, Assistant Director of the Division of Examinations M. Evans stated that at the meeting on December 13 the designaf Chairman and Federal Reserve Agents at some of the Federal ReBatiks for the year 1947 had been left undecided, and that the AN (4111el Committee wished to recommend that Mr. Tysor be designated ae chairman and Federal Reserve Agent and Mr. McCormick as Deputy at the Federal Reserve Bank of Richmond. Mr. Evans moved (1) that Mr. Wysor be designated as Chairman and Federal Reserve Agent at the Federal Reserve Bank of Richmond for the year 1947 and that his compensation as Chairman and Federal Reserve Agent be fixed on the uniform basis for the same position at all of the Federal Reserve Banks, i.e., the same amount as the aggregate of the fees payable during the same period to any other director for attendance corresponding to his at meetings of the board of directors, executive committee, and other committees of the board of directors, and (2) that Mr. McCormick 1786 12/17/4 6-2be appointed as Deputy Chairman at the Richmond Bank for the year 1947. This motion was put by the Chair and carried unanimously. Zr. Evans then referred to the matter of reappointing Mr. 1)eaMent as a Class C director and redesignating him as Chairman IlviPederaa. Reserve Agent at the Federal Reserve Bank of St. Louis. Mr. Vardaman said that in considering this matter he did not 1144 t0 be in the position of opposing Mr. Deannont if it was the .1 of the Board to designate a man of his capabilities as Chairbut that he did want to point out that Mr. Dearmont has been extrem elY active in Democratic Party politics in Missouri, that he had "en a State Senator and candidate for Governor, and that he t4)k aal active part in the recent political campaign. He stated 44° that Mr. Dearmont was not engaged in the practice of law in : 4'411 firm but was an employed attorney for the Trustee, Missouri '4eiric Lines, St. Louis, that he had been brought to St. Louis by the liril6tee as a hired employee for that purpose, that this did not 44114 the same class with the ten 1eadin7, attorneys in St. Louis, 41cl that litttotr. in his capacity as General Counsel to the Trustee of the Pacific Lines, he had led the fight against the admission T. of the Santa Fe Railroad, a move which the St. Louis kaztber -cuis Of Commerce had favored strongly. Mr. Vardaman said further thq, it 4 4.t Was not the policy of the Board to continue a men cf that ()t't the Position, he woad like to recommend that the Board give thNht t -0 designating a leading industrialist or businessman, and t4 t.he could name three or four who would be much more representative 1787 12/17/46 -3thaxl Mr. Dearmont. Mr. Vardaman added that he had no objection to 111 Dearmont personally, that he liked him, and he considered him to be a reasonably capable man, but that in his opinion Mr. Dearmont Was not the type of individual the Board should desioate as Chairman. Chairman Eccles reviewed the background of Mr. Dearmont's apent as a Class C director, stating that Mr. Nardin, former Chat 'kuarl at St. Louis, and other St. Louis bankers had spoken very highl Y of him, that he had recently discussed his appointment with Johri 8l5rder, now Secretary of the Treasury, who said that the Board Ol1.C3 get a better man in all of Missouri and that Mr. Dearmont Waa ala. extremely capable man and the Board was fortunate to get him. tith respect to Mr. Dearmont's political activities, Chairman Eccles 441 t ha- a resolution adopted by the Board in 1915 and still in eftt took the position that an officer or director of a Federal Reserve 13 should not hold political or public office or be a member t 'Political party committee, but that the Board had not extended ru-le to speeches and could not do so as long as the director's attbrii_ , ty. was not equivalent to his being a part of a party orgaliza11. He said that Mr. Dermont's activity in the recent political 414Pcilen was limited to making a single speech for a personal friend, 44c1 that it did not represent campaigning on behalf of any political ka that He also stated that this had been discussed with Mr. Dearmont, as with President Davis of the Federal Reserve Bank of St. Louis, 4r. Dearmont understands the position of the Board, and that he 1788 12/4/46 —4— (Chairman Eccles) did not feel the Board would be justified in not l'eclesignating Mr. Dearmont under the circumstances. With respect to N., 'itarmont's employment, Chairman Eccles noted that Mr. Dearmont's P"itiorl as General Counsel for the Trustee, Missouri Pacific Lines, illight be bec Preferable to that of an attorney in business for himself, use an attorney in business for himself would be more likely to the interests of his clients in conflict with his resoonsibili- ti.es "8 Chairaan of a Federal Reserve Bank. Ur. Vardaman agreed that Mr. Dearmont was more like an ex- elltiire officer of a large company than a practicing attorney and 6t4te'l he doubted the advisability of designating practicing attor11 as Chairmen of Federal Reserve Banks because of possible con- tlits of interest. Mr. Evans moved (1) that Mr. Dearmont be reappointed as a Class C director for the three-year term commencing January 1, 1947, and that he be designated as Chairman and Federal Reserve Agent for the year 1947 and that his compensatIon as Chairman and Federal Reserve Agent be fixed on the uniform basis for the same position at all of the Federal Reserve Banks, i.e., the same amount as the aggregate of the fees payable during the same period to any other director for attendance corresponding to his at meetings of the board of directors, executive committee, and other committees of the board of directors, and (2) that Mr. Brooks be appointed as Deputy Chairman at the St. Louis Bank for the year 1947. This motion was put by the Chair and carried unanimously. 1789 12/17/46 _.5.. Mr. Thomas joined the meeting at this point. Chairman Eccles referred to the agreement at the meeting on ' as De 13 that he would talk with Mr. Ruml concerning whether he c-r"uer 114 accept redesignation as Chairman and Federal Reserve Agent at ' " Fedrth l Reserve Bank of New York with the understanding that the 'would find a successor during the next 60 or 90 days. Chairman said that Mr. Ruml did not wish to accept redesignation under 11108 e conditions, but that he would consent to being redesignated as 043— ' 41B-1a for the entire year provided the Board would give him a letter a ekniawledging his request that he be relieved of the Chairmanship eki sa . -Yang that the Board was not prepared to find a successor and "ed that he continue to serve for the remainder of his term as elas 8 C director. Mr. Ruml had also stated that he was giving too 'rn4ch t. -1me to outside activities, that he had to give up some of them, 440 t het it would be necessary to give less time to the Federal Re41.11. e sank than in the past because of the added pressure of his 14441 esi'3. Chairman Eccles added that Mr. Ruml also suggested as an qt. -vrri . aLlve that he would be glad to resign as of the end of this a8 a Class C director, which voould enable the Board to select rte,. 4 Chairman. It was unanimously agreed that Chairman Eccles should telephone Mr. RuM1, informing him that in the circumstances it seemed best to accept his resignation as a Class C director and as Chairman and Federal Reserve Agent, and leave the position vacant until the Board could find a successor. 1790 12/1V46 -6- Chairman Eccles referred to the decision of the Board that w°111d not redesignate Mr. Leland as Chairman and Federal Reserve Agerit at Chicago, and in the discussion that followed, it was sugted that the vacancy now existing among Class C directors of the Pecte re-I- Reserve Bank of Chicago resulting from the resignation of „ "aYmack be filled during the next 30 to 60 days, that the man °elected to fill that vacancy be one who would be suitable to serve aa Ch a-rman, and that Mr. Hoffman, presently a Class C director, be clesi Mated Deputy Chairman if it were ascertained that he would ac- 'ept, It was unanimously agreed that Chairman Eccles should inform Mr. Leland by telephone that the Board's decision not to redesignate him as Chairman remains unchanged, that Mr. Hoffman should be asked whether he would accept appointment as Deputy Chairman with the understanding that he would be called upon to act as Chairman until a successor to Mr. Leland had been designated, and that the appointment be tendered if he would accept. It was further understood that within 30 to 60 days the Personnel Committee would recommend a person for appointment as Class C director who would also be suitable for designation as Chairman and Federal Reserve Agent. Mr. Evans stated that Mr. Parten, Chairman of the Federal Re1/allk of Dallas, had replied to the Board's wire of December 13, 4ttille that Mr. Harold W. Steinfeld, Tucson, Arizona, would not be 44114ble for appointment as a director of the El Paso Branch, and 11E't the Personnel Committee recommended that Mr. Hiram S. Corbett, 1791 12/17/46 -71)r.esident of the J. Knox Corbett Lumber & Hardware Co., Tucson, 4112°nay be appointed as a director of the Fl Paso Branch for a Ille-year term beginning January 1, 1947, if, in accordance with 1'411811e-1 procedure, it is ascertained that he will accept the apP°14tnient if it is tendered by the Board. Approved unanimously. There were then presented memoranda dated December 13, 1946, December 12, 1946, submitted by Messrs. amead and Millard and 1)arlie1s in connection with luncheon, entertainment, and travel e/tPerises at the Federal Reserve Banks, in accordance with the disN8sions at the meetings of the Board on October 11 and 29, 1946. Rererenee was also made to the question of fees and allowances for ql‘ectors and members of the Federal Advisory Council, and to the (ttleqion el'41 of reinstituting submission of annual budgets by the Fed- Reserve Banks, and it was suggested that consideration of these 414tters be deferred until a meeting in February. This suggestion was approved and it was agreed that Mr. Smead should head a committee of the staff, to be selected by him, to prepare and submit to the Board, for consideration at the February meeting, a budget procedure to be reinstituted at the Federal Reserve Banks. At this point Messrs. Parry, Brown, and Young joined the Reference was made to memoranda from Messrs. Thomas and ' tied November 6 and December 3) 1946, relating to a study of 1792 12446 -8- It)ney flows and to the appointment of Dr. Morris A. Copeland to assist Proposed study. Mr. Young stated that for more than a year the ,s1 -110.1. Bureau of Economic aesearch had been carrying on a study with Provided by the Committee for Economic Development to determine *lat. scat of procedure was needed for the development of annual measures rthe money flow throughout the country. The exploratory phase of the w with funds from a 450,000 appropriation by the Committee for ' 41c Development was nearing completion and the results indicated that slgnificant measures of money flows could be provided. Because the Ilature of the information was particularly useful in studying 1()Iletn -17 problems and was of the type that the Board had sought (Iirec+1 Y or indirectly in the past, and because the National Bureau °11°mic Research is not in a position to continue the study of kohey flows following completion of the present experimental work, wa Proposed that the Board carry on the work of preparing current 414e4 re8 of money flows. The i.ork that the Board would do would be Y compilation and interpretation of existing data and would not 4 'le the collection of original statistics. The measures, when ./31-e on a current basis, should make it possible to say (1) what l'°11138 Were purchasing the gross national product; (2) how far such kqia, Nklz -es were being financed by disposable income; and (3) , :hat each major sector of the economy was dral.ing from or contrib- INMp ' co the capital markets. 41c1 contractions The data also should relate expansions in total national product to changes in holdings of 1793 12/17/46 -9- 44 Iltd assets and other securities by various sectors of the economy elicl to changes in their outstanding debts. It would require api_roxi- 14e4 18 months before the first current study showing monetary transti°ris would be prepared and it would be contemplated that quarterly Cl4t4 would be available after that period on a current basis. The cost of the project during the next 18 months might run as high as t50.nnn and the annual cost subsequently should be less than 25,000. 11144D, ''C" as Dr. Copeland, an economist of recognized standing with -lenee both in Govermment and private organizations, had been ' eart7ing on the work for the National Bureau, it seemed highly de81rable to employ him to assist in this 1%ork. After a discussion of the part the Board would play in the project and the probable costs, during which there was agreement that the results of the study should be very helpful in the Ikork of the Board, Mr. Evans moved that the Board approve (1) the project as outlined in the memorandum from Messrs. Thomas and Young dated November 6, 1946, and (2) the appointment of Dr. Morris A. Copeland as a Special Consultant in that Division, on a part-time temporary indefinite basis without compensation until the close of business June 30, 1947, and on a full-time temporary indefinite basis with basic salary at the rate of 0.0,000 per annum, effective July 1, 1947, providing he passes the usual physical examination, and with the understanding that he would continue to hold his current fulltime appointment with the National Bureau of Economic Research until the close of business June 30, 1947, that the appointment probably would not exceed one year after July 1, 1947, and that Dr. Coneland, who was a member of the Civil Service Retirement System, would remain in that System. 1794 12/17/46 —10The motion was put by the Chair and approved unanimously. Mr. Vardaman presented a memorandum addressed to him by Paulger and Vest dated June 20, 1946, relating to proposed ellaliges in the standard conditions of membership for State banks and to a draft of a letter to the Presidents of all Federal Reserve Banks eqUesi-• -Ing certain information to be used as a basis for revising the eteoric "Q conditions and letter sent by the Board to State banks advis41g or aPproval of their application for membership. Mr. Vardaman atated that he had no changes to propose in the letter and that if thereat of the Board concurred he would like to have it sent. The liaricluril and letter had been circulated among the members of the / 4 11rci before this meeting) and they stated that the letter was satistt 1 to them. Upon motion by Mr. Vardaman, the letter to the Presidents of all Federal Reserve Banks was approved unanimously as follows, with the understanding that when the replies to the letters were received, the Division of Examinations and the Legal Division would submit a recommendation to the Board as to the action to be taken: "At the conference of Presidents of the Federal Relie Banks on June 7-8, 1946, it was suggested that con'i'deration be given to the elimination of special condiI t1.8 of membership heretofore prescribed in connection 1-th the admission of State banks to membership in the 1,1,em and the substitution of standard conditions of tership for other conditions to which banks are now ellbject. Z eh "A study is being made to determine what, if any, ge5 should be made in the standard conditions of -wpershil). The study also will include consideration 1795 12/17/46 -11- Of any changes in other provisions of the Board's Regu-Lation H which may be desirable at this time. In connecIridon with this study, it would be very helpful to the 2oard if it could have the benefit of the views of the rederal Reserve Banks, after consultAion with their e°unsel, concerning the following questions: (1) that has been the reaction of prospective and e4isting member banks to the present standard conditions Of membership? (2) Do you consider it necessary or advisable to p!'escribe any conditions governing a bank after its admisslon to membership? (3) Do you recommend a modification, restatement, c°11solidat'_on, or elimination of any of the present stand'd conditIons? Do you recommend any other conditions, if so, what? In this connection, please consider the ' ollowing more specific questions: (a) Bearing in mind that standard condition numb ered 3 relates only to dealings in a particular class ?4 asset and dealings in other assets are not specifically rile tioned in the standard conditions, should this condition eliminated, modified, or retained in its present form, arid Why? t (b) ';,hat arguments can be made for the eliminati on or ret(tntion of any or all of the three standard trust e d?nditions (numbered 4, 5, and 6)? Should there be any conrelaLing to specific practices in connection with the e exercise of trust powers? Should there be a general (Indition of broader scope relating to trust activities? (c) Are the first clauses of standard conditions /iurab ered 1 and 2 necessary or desirable, and why? (4) Apart from the standard conditions of membership, 'ha 4.'t Changes, if any, should be made in the text of Regulavlori if? any "In recommending the elimination or modification of nh of the standard conditions of membership, due regard -111d be given to the factors which the Board is required to consider in admitting State banks to membership et, . cluding the corporate powers of the banks), the specific th'utory authority to prescribe conditions of membership, e responsibilities of the Board and the Federal Reserve for the supervision of State banks after their admis1); -°11 to membership, and the nature and extent of their or4ers to discharge these responsibilities in the absence conditions of membership. 1796 12/17/46 -12"Consideration also is being given to questions with respect to the standardized letter which the Board uses to inform a bank of approval of its application for raeanbership. A copy of the form of the letter is enclosed for convenient reference. V,e would like to have your vieWS concerning the following questions relating to this matter: (1) Has there been any indication that applicant banks consider the letter too long, formal, complicated, technical, or otherwise objectionable? if(2) Do you consider the letter satisfactory? nat, .fly, changes do you recommend? In this connection, P'ease consider the following more specific LueLtions: (a) ;ould you consider it advisable to delete t/le recitation of the standard conditions from the letter c1 to incorporate them only by a reference to Regulation " or some other enclosure with the letter? (b) Do you believe that it would be advisable to delete any of the other contents of the Board's letter, h the view that, insofar as necessary, the Federal Re:I've Banks will advise the applicant banks concerning e deleted items? "You will understand, of course, that at this stage are seeking comprehensive information and recommendations leerning the foregoing matters as a basis for further a:udY, without having reached conclusions as to what, if ,3 action should be taken. In answering these questions, ' ease be as specific as possible, and set out the exact .guage which you recommend in any instance ;there you beian eve a change should be made in the standard conditions ; 03 ,' membership, other provisions of Regulation HI or the •Letter. or 41, "The Board is in full accord with the recommendations '"e Presidents of the Federal Reserve Banks that steps 1,111d be taken to achieve uniformity, insofar as practi° ' btj e, in the conditions of membership to which State member t04148 are subject. Following consideration of the replies ah this letter and determination as to what, if any, changes ie°41d be made in the standard conditions of membership, it be contemplated that conditions heretofore prescribed will ha reviewed for this purpose. The Board would be glad to Ire any suggestions which you may have concerning the p, oeccedure which should be followed in accomplishing the ' sired uniformity in conditions of membership. or "It is suggested that you do not contact member banks others outside of your organization concerning this --Luter at this time." r 1797 12/17/46 —13— Uessrs. Paulger, Millard, and Young left the meeting at thi8 Point. Chairman Eccles presented a letter addressed to Mr. Thomas "rs SProul, President of the Federal Reserve Bank of New York, licler date of December 12, 1946, in which he stated that he was ki11141:tting with the letter for publication in the Federal Reserve kilettha copy of the speech which he made recently before the Jet,3 y Bankers Association. Ur. Sproul's reuest was discussed and it was felt that the eec 111 should not be published in the Bulletin at this time for the tazt% that it would create misunderstanding as to the current poli— lee c't the Treasury and the Federal Open Market Committee or might bellIteroreted as a forerunner of a change in policy because it ap— e'DI in the Board's official publication. There was also agree- 14114't"dth the suggestion that inasmuch as section 10 of the Federal 411ra Act provides for publication in the annual report of the 11N,a of a record of actions taken by the Federal Open Market Com— kttee 41 tilat " quest'ons of policy and it had been the practice to include l'ecord a statement of the reasons for minority vies v,henever th4 Nill. "/° ,1-cling such views so desired, it would be more logical, if Mr. Qesired an official publication of his views, to include a tt4t °14enit of his position in the policy record rather than to publish akh 1 4 atatement in the form of a speech in the Federal Reserve Bul— 1798 -14— It was agreed unanimously that Chairman Eccles should advise Er. Sproul by telephone that for the reasons referred to above the Board felt that the speech should not be published in the Federal Reserve Bulletin at this time. Mr. Evans stated that a conference of representatives from the r esearch departments of the Federal Reserve Banks would be held atthe Board offices in January, that it was contemplated that a would be held at some hotel at which there would be a guest aPeQc er and a small number of interested representatives from other clePartments and agencies v.ould be invited, and that he ;ould recomkehd„ tQat the Board pay the entire cost of the dinner and that the 41)151‘°Priate classification in the budget of the Division of Research kid 8 tatistics be increased to cover the outlay. Approved unanimously. Chairmen Eccles stated that he had received a letter dated -etlbo -r 13, 1946, from Mr. Gilbert, President of the Federal Reserve v.L Dallas, submitting alternative proposals for increasing salrtes employees at the Bank. The letter, which was read by the 4ore tarY, proposed in the alternative (1) that a lump sum equal to a, 1/2 Per cent of annual base salary as of December 31 be paid to all ekplo eee with one or more years of service, and 8-1/2 per cent of talar. ' 4 received in 1946 be paid to employees with less than one year ot ee l'/Tice, and (2) in the event reimbursement could not be obtained tor z tIch a lump sum payment to fiscal agency and other employees 1.799 12/17/46 1111°Se —15— salaries were reimbursable, that six monthly payments be made in January equal in the aggregate to 8 per cent of annual base salary in the case of employees with more than one year of serv— ' Ind 8 per cent of base salary received during 1946 in the case or 14,„ ' 43-Loyees with less than one year of service. The letter also aaid that consideration had been given to an adjustment in base 1s8) but that such salaries were approximately in line with the tqqc salary structure in the market not including special payments 44(11)04118es being granted in the area. The letter noted, however, that some employers were making adjustments in the form of increases be salary. Following a discussion of the proposcls of the Dallas Bank the 4-ight of the authority given to other Federal Reserve Banks to e)teesd maximum salaries provided for in their personnel classifi— ettion - Plane, the meeting recessed and reconvened at 3:25 p.m. with -thee attendance as at the end of the morning session. Chairman Eccles stated that he had just had a visit from Era. ot the ebb and Jones, Director and Assistant Director, respectively, 84reau of the Budget, who had called to discuss the suggestion 'that t here be included in the President's budget message to Congress p op "al for reenactment of the franchise tax upon the earnings of Ile pea q eral Reserve Banks, which they estimated would provide approxi— tkte4' 475 million a year in additional revenue. Chairman Eccles 1.800 12/4/46 -16- etatedthat he explained to Messrs. Webb and Jones why the Board would lic3t like to have the question of the franchise tax come up at this time, 4144V the Board would favor (1) the repeal of section 13(b) of the Pede-4'41 Reserve Act and the release to the Treasury of the $139 million Or '441CIS earmarked under that section, including the Z27 million al— read Paid to the Federal Reserve Banks, and (2) the cancellation of the 4. s'°°1c of the Federal Deposit Insurance Corporation held by the Pecie Ile " Reserve Banks and the payment of the $139 million for the stock the Federal Deposit Insurance Corporation to the Treasury rather "64 t° the Federal Reserve Banks, with the understanding that the m -eesage would include a statement that the Board would propose 41 am ' enciment to section 13 of the Federal Reserve Act giving the Re— 4erv. e8anke stand—by authority to guarantee loans made by financing tjt He added that he also outlined the consideration that had bee given by the Federal Open Market Committee to steps that killtibe taken to reduce the earnings on the securities held by the Noe 1'41 Reserve Banks, and stated that he would dislike to have a hop "al for the renewal of the franchise tax included in the budget 1448 a.ge Without an opportunity to discuss the matter with the Presi- 41t the Federal Reserve Banks, and that if a satisfactory arrange— 1441t wN ha-ci not been worked out when the midyear revised budget estimates N314itted, he would have no objection to the President then pro— Doetii g reenactment of the franchise tax. Chairman Eccles went on to t he." '"ssrs. 1 ebb and Jones indicated that they probably would 1801 12/17/46 —17- aeeePt these suggestions, and that it would be necessary for the System to -c-ch an understanding whether it would sponsor reenactment of a t. 'Lase tax with the knowledge that this might open in Congress the cilleation of placing the Federal Reserve System under the General Ac— Office, the Budget Bureau, and the Civil Service Commission, Or It ether the System should adopt a procedure for a reduction in the itttellest cost to the Treasury on public debt securities held by the "41 Reserve Banks. There was a further discussion of the proposals of the Federal ileserv. e Bank of Dallas for the adjustment of salaries of employees of the Bank, and, in response to a request from Chairman Eccles, Mr. -°4 reviewed the authorizations given by the Board to other Federal Ite41‘ ‘ re Banks to exceed the maximum salaries provided in their personnel el4a8itiction plans. Mr. Evans moved that the Secretary call President Gilbert by telephone and inform him that the Board would not be willing to approve either of the plans outlined in his letter of December 14, 1946, but that, in ac— cordance with the action taken with respect to other Federal Reserve Banks, it would approve action by the directors authorizing the officers to exceed by as much as 30 per cent the maximum salaries provided in the personnel classification plan of the Bank. This motion was put by the Chair and carried unanimously. Vardaman asked that had been done about the appointment of Vice President at the Federal Reserve Bank of San Francisco, Was infcrmed of the discussion with Mr. Grady at the meeting of 1802 12/17/46 the —18— Board on December 13, 1946, at which it was agreed that Mr. Grady, 11P°11 his return to the Pacific Coast, should review the matter further azti l'ePort back to the Board some time after the first of the year. ardaman stated that this procedure was satisfactory to him, and that he had no objection to Mr. Mangels if the Board of Directors of the Reserve Bank of San Francisco unanimously approved his appoi litment as First Vice President, in which event he felt the Board thoia, consider including in its approval of the appointment a state— et to the effect that it must be clearly understood by the Board of Federal tors of the Federal Reserve Bank of San Francisco and by Mr. 8 that the action on the part of the Board of Governors in ap— Ig —r. Mangels as First Vice President did not necessarily imply chvaitment to approve at a future date the selection of Mr. Mangels re8ident of the Bank. Mr. Vardaman said he had read the minutes of the Board on ethber r)c t4et 1946, and the conclusions reached at that time with re— t° changes in the proposed bank holding company bill and that he tqt the 4,01v4i Board would be in a stronger position if the bill included a °I1 for a geographical limitation on the expansion of bank hold— N °1111)allies rdlIch would prohibit expansion beyond the Federal Reserve the Federal Reserve Bank or Branch territory, or the State the head office of the bank holding company was located. Chairman Eccles stated that both the Treasury and the Federal it -nsurance Corporation were likely to make such a proposal, and 1803 /2117/46 -19-- t had been his opinion that the Board would be in a better position it it left such a proposal out of the revised draft. He also stated 1111Y he was strongly opposed to certain limitations that had been proPosed by the office of the Comptroller of the Currency and others, and 8414 that if the Board proposed such a limitation it would raise objecticll from groups whose support was necessary for the passage of the bills Mr. Vardaman stated that, in view of the comments made during the clussion, he would withdraw his suggestion. Messrs. Thurston, Smead, and Nelson withdrew from the meeting 4t this point. Mr. Vardaman stated that he would like to know whether the toarid quj was willing to consider reducing the 100 per cent margin re- ezents provided under Regulation T, Extension and Maintenance of Cl*edit by Brokers, Dealers, and Members of National Securities Exchall ges, and Regulation U, Loans by Banks for the Purpose of Purchas01" Carrying Stocks Registered on a National Securities Exchange. 4„ ',ated that he favored an immediate authorization of a loan value Per cent, or as an alternative, the immediate announcement of value of 10 per cent accompanied by a statement that additional letions in margins would be made at 30-day intervals until the loan 1411le was equal to 50 per cent. Chairman Eccles stated that margin requirements were raised Per cent and then 100 per cent because of general inflationary slires, that a reduction in the margins would not seem in order 1804 12/17/46 -20- 11141J-the inflationary pressures had been reduced, that there had been a. large growth of commercial bank credit for use in financing business eXpah-.. accumulation of inventories, and the like, and that the --ulal contraction in collateral loan credit since the 100 per rgins were made ef2ective had helped to offset the expansion illthe other type of credit. In response to a question whether Regulation T was being vacierl by the use of bank loans for the purpose of purchasing and 11'51fle securities, Mr. Parry stated that the amount of stock market et h -ad gone down to the lowest point on record, and that the deereaa e In credit extended through brokers had not been compensated t()r b anY offsetting increase in credit at banks. During a general discussion of the conditions under which the toarci kkt Illight take action to reduce margin requirements, Mr. Draper et he following statement: 1,„ "The reason why I doubt if this is the time to l, - er margin requirements is because the conditions that usually signal an immediate oncoming depression re not clear enough, at least to me. ken+. "If, therefore, we should lower margin require. 8 at this time, the danger might be two-fold. if at some time soon after taking action prices we could be blamed for being an important " g".'14uence in bringing on the deflation in that we had e ven a signal that we believed a downturn was coming ti'l°11. You remember that in 1920 at or near the top of rae inflationary boom in farm prices the Federal Reserve thIsed the discount rate and farmers generally blamed 1)1..? Federal Reserve for the subsequent collapse in farm th ees. A number of impartial observers did not support pX view but the general public did and as a result the 0:ral Reserve suffered severely in its support from -Cress and the general public for years thereafter. 1805 12/17/46 —21— "Second, if we lower margin requirements now end prices and general credit continue upward, that action of ours 1- ould have the effect of accelerating the upturn, 1:t;h the consequent danger of adding to the severity of the subsequent downturn or possible collapse. "So, I repeat what I said at the beginning--the e3,gnals, to me at least, are not yet clear enough to warrant any change in our present policy although I recognize fully that this situation can change rapidly arid we should be ready to change with it as soon as the elgns of this change become reasonably cle,?r." Mr. Evans stated that he would like to see margin require— reduced, but that he did not think this was the time for taking an+4 --Lon, and that he would like to consider the question again, terhar, .ve at the time of the next Conference of Presidents of the Fed— •Ni 0 - "eeerve Banks. Mr. Vardaman stated that since it was understood r. Ransom would be in the office on Thursday, December 19, 1946, 4 (14 /T r, v ardaman) would like to have a further discussion of the mat— ter it en Mr. Ransom could be present. It was unanimously agreed that a meeting of the Board should be held on December 19, 1946, at 10:30 a.m. for that purpose. The Secretary referred to Executive Order 9810 issued by the t're eideat on December 12, 1946, excusing Federal employees from duty cl„ le December 24, 1946. Upon motion by Mr. Vardaman, it was agreed unanimously that in accordance with the executive order the Board's offices would close at 12:45 p.m. on December 24, 1946, and all employees who could be spared would be excused at that time, that the policy followed by the Government generally with respect 1806 -22to leave granted on that day would be followed by the Board, and that the cafeteria and dining rooms 7,ould be closed on December 24, but that the snack bar would be open. At this point Messrs. Parry, Vest, Thomas Brown, and Townsend from the meeting and the action stated with respect to each of them atters hereinafter set forth was then taken by the Board: The minutes of actions taken by the Board of Governors of the era]. Reserve System on December 16, 1946, were approved unanimously. Letter to the board of directors of the "taverly Savings Bank", Waves., 'LY, Iowa, stating that, subject to conditions of membership nun- 1 to 6 contained in the Board's Regulation H, the Board approves the b application for membership in the Federal Reserve System and te'r the aPPropriate amount of stock in the Federal Reserve Bank of Chicago. The letter also contained the following special comment: "The Board is prescribing the conditions of membership cTdinarily prescribed for banks exercising fiduciary powers 1/s;"en they are admitted to membership, and it will not be essary under condition of membership numbered 1 to ob'-ul the permission of the Board before exercising such ) 3 wers. It will be expected, of course, that when such Csiness is undertaken, your bank All be equipped to endle it in a proper manner." j 1 Approved unanimously, for transmission through the Federal Reserve Bank of Chicago. Letter to the board of directors of the "Bank of TuscumbisA, la) Missouri, stating that, subject to conditions of membership d 1 to 3 contained in the Board's Regulation H, the Board 12/4/46 -23alD131x)Ires the bank's application for membership in the Federal Reserve rstei and for the anpropriate amount of stock in the Federal Reserve 4111( of St. Louis. Approved unanimously, for transmission through the Federal Reserve Bank of St. Louis. Letter to the board of directors of the "Columbia State Bane, South Dakota, stating that, subject to conditions of membernumbered 1 to 3 contained in the Board's Regulation H, the Board lies the bank's application for membership in the Federal Reserve S'hte, - aad for the appropriate amount of stock in the Federal Reserve Of Minneapolis. Approved unanimously, together with a letter to Mr. Peyton, President of the Federal Reserve Bank of Minneapolis, reading as follows: "The Board of Governors of the Federal Reserve SySapproves the application of the Columbia State Bank, : as(4umbia, South Dakota, for membership in the Federal !serve System, subject to the conditions prescribed in ;"e 4 enclosed letter which you are requested to forward ' 042 the board of directors of the institution. Two copies such letter are also enclosed, one of which is for files and the other of which you are requested to ,?I'vrard to the Superintendent of Banks for the State of c11th Dakota for his information. to "It is assumed that the Reserve Bank will follow conclusion the matter of bringing into conformity iith the provisions of law and the Board's regulaticns with respect to withdrawal of savings e rnosits to which reference is made on page 16 of the 'port of examination for membership." (N , ei ; Letter to "r. Winthrop W. Aldrich, Chairman of the Board of Di%torn - 0f The Chase Bank, Pine Street Corner Nassau, New York 13, N. Y., as follows: 1808 12/17/46 -24"There is enclosed a copy of the report of examinatIon of the Head Office of The Chase Bank, New York, New York, made as of November 15, 1946, by examiners for the B?ard of Governors of the Federal Reserve System. The figures for the foreign branches shown in the combined statement of condition were supplied by the Head Office. "The verifications requested of the Chinese national currency dollar balances due from the Shanghai and Tientsin 1Tanches, and the verification as to the amount of the fIxed currency deposit of Chase National Executors and rustees Corporation Limited, London, with the Bank at ”w York have not been received. Upon receipt of the adyices requested, any significant variation will be brought 60 Your attention. "Your courtesy in acknowledging receipt of the report w1-11 be appreciated." T Approved unanLiously. Letter to Mr. Bowman, Manager of the Credit Department of the Reserve Bank of New York, reading as follows: "This refers to your letter of December 5, 1946, encl. • w ?sing copies of investigation reports under Regulation , In connection with Royal House Furnishers, Newark, New u "The management has attempted to absolve itself by tting the blame on its salesmen, to which your office it! made the proper answer. However, this appears to be r.aterial now, in view of the revision of Regulation 14, i nce the articles which the firm is selling are no longer ' 4.8ted articles. ed "In view of these circumstances, it is not contemplatthat any action will be taken with respect to this matter, and we understand that this accords with your views." r Approved unanimously. Letter to Mr. G. J. Oppegard, Counsel of the Federal Deposit e Corporation, reading as follows: Z9 "This refers to the Corporation's letter of November eh '1946, to the Federal Reserve Banks regarding the exand reissue of the stock held by them in the Corpoton and to the telephone discussion between you and Mr. ' ead of this organization. 1809 12/17/46 -25"In the third paragraph of the Corporation's letter it is stated that if the Federal Reserve Banks desire to handle the matter as a simultaneous exchange, with the Board of Governors of the Federal Reserve System acting as agent for the Federal Reserve Banks, your Corporation, upon advice to that effect, would -proceed upon that basis. Several of the Federal Reserve Banks have called your letter to our attention and asked for advice as to what steps should be taken with respect to your request. "As you know, in accordance with the provisions of paragraph (e) of Section 13b of the Federal Reserve Act, the stock !hich the Federal Reserve Banks hold in the Federal Deposit Insurance Corporation has been endorsed with an agreement to to the United States all proceeds of such stock for which ithe United States shall be secured by such stock itself up 20 the total amount paid to each Federal Reserve bank by the e?retary of the Treasury under this section.' In view of Ills, and of the hope of the Board that it will be possible ! ") obtain a modification of Section 13b during the first half °f 1947 which will make unnecessary the endorsement of such ,ert"k as security for advances from the Secretary of the breasury, it will be appreciated if your Corporation will agreeable to a delay in the submission for reissue of ire stock of your Corporation held by the Federcl Reserve iallks until next June 30 or until such earlier time as it s8 definitely determined whether or not Congress will amend ection 13b. Your advice in this respect will be appreciated." Approved unanimously. Memorandum dated December 9, 1946, from Messrs. Thomas and Knapp, as follows: "Subject to Board approval, the New York Federal Reserve would like to inaugurate as soon as possible after the lrst of next year a monthly report covering export credit information on Latin American countries. Under this plan, it g8 expected that the principal New York City banks which enin export finauc;ng will submit monthly reports to the iv-?ral Reserve Bank on a voluntary basis. These reports r?u-4d show the total amounts of their collections and conletters of credit outstanding in Latin American counthles and the degree of promptness of credit collections in 03e countries. 8 i 1810 "At the same time, Dun and Bradstreet is expecting to collect data from the larger exporters on the volume of their unfilled orders from Latin America. The combined information is expected to give some indication as to whether the Latin American countries are overbuying in this market, whether excessively liberal credit facilities are being made available, and how the balances of payments of the various countries are developing. "Details of the plan are contained in the enclosed descriptive memorandum, to v,hich are attached samples of the proposed schedules and instructions to be used by banks and exporters in reporting the re,iuested data. "The New York Bank expects to present the aggregates of the reported data regularly in a press release, and Perhaps also in their Monthly Review. They will also endeavor to have the information published by the Departtent of Commerce in its Foreign Commerce Vveekly. Dun and Bradstreet will publish in its monthly publication, Dun's 112XiE, a table summarizing the data supplied by exporters. "This pLn has been discussed by the Staff Group on ! '°reign Interests, which favored its early inauguration -Lf it met with the Board's approval. The attitude of the banks to whom the proposal has been outlined has been l'eceptive and they have agreed to cooperate since the Published results will be of great interest and useful, I ess to them. The cost to the banks will be very moderate, put the initiation of the reports will be delayed until !Ile tight employment situation has eased up sufficiently avoid an overburdening of their operating personnel. 4t?'e project will be cleared with the Division of Statis'a-cal Standards, Bureau of the Budget. "It is reconuended that this proposal be approved bY the Board." Approved unanimously. Thereupon the meeting adjo 1,4 ne 4 Add Chairman. / AA A_A Secretary.
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