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1716 A meeting of the Board of Governors of the Federal Reserve 41`st.ein with the Federal Advisory Council was held in the offices of the B °arc' of Governors in Washington, on Tuesday, December 3, 1946, at 35 a.m. PRESENT: Mr. Eccles, Chairman Mr. Hansom Draper Mr. Evans Mr. Vardaman Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Morrill, Special Adviser Paulger, Special Adviser Mr. Smead, Director of the Division of Bank Operations Mr. Parry, Director of the Division of security Loans Mr. Vest, General Counsel M:. Townsend, Assistant General Counsel Messrs. Spencer, Traphagen, Williams, McCoy, Viggins, Brown, Penick, Baird, Bradshaw, .inton, and Odlin, members of the Federal Advisory Council from the First, Second, Third, Fourth, Fifth, Seventh, Eighth, Ninth, Tenth, Eleventh, and Twelfth Federal Reserve Districts, respectively. Mr. Prochnow, Acting Secretary of the Federal Advisory Council. Mr. Brown stated that at the separate meeting of the Council Yeztercia_ a draft of a memorandum had been prepared in res3Jonse to Y tatelaollt presented by the Board at the meeting with the Executive . 'tte ' of the Council on November 61 1946. Mr. Brown read the u Lement and, after some preliminary discuss on, the me,Abers ::theB°ard and its staff withdrew from the meeting for an informal 11 • Ion of the draft. 1711 W3/46 -2The joint meeting reconvened at 12:05 p.m. with the same attendance as at the earlier session except that Mr. Carpenter was the OnlY member of the Board's staff present. Chairman Eccles said that the Board's statement Was submit- ted not because of any lack of confidence in the Council or any ele " rege or serious difference with the Council, but for the pur134e °f improving the relationship between the Council and the toarfa m and making it possible more effectively to get the advice and 488istenee of the Council whenever it was practicable to do so, that the procedure that had been followed during the recent period 1/alanot tending in the right direction, and that a change in pro- had been suggested by the Board to formalize the relation8413 l'rith the Council to a greater extent in order to prevent, if /)°138ible, any occasion for fundamental differences. He emphasized tIlat th_ u Board's suggestion did not mean that there should not be 1\111 ezd 4tekar friendly discussion among the members of the Council and d Rete but rather that the discussion should follow more com- con sideration by the Council, and an opportunity for discus- by the members of the Board, of the matters to be considered Itttile Joint meetings. He also said that there could be differ- the interpretation of the law relating to the powers and 11\14 ,, eticlis of the Council, but that the Board was interested prima1^4 d eveloping a practicable procedure that would make more 1718 -3ffeetive the relationship between the Council and the Board so that the Board could have the full benefit of the Council's advice and NoMme ndations. There was a general discussion of the various steps that kgh t be follovved in such a procedure and it was understood that the C°1321eill would meet again following the luncheon period to complete e°414sration of the memorandum to be submitted by it to the Board. In this connection, President Brown stated that the members or the Council felt that, since they were appointed by the boards of .11*eetc 'r. of the respective Federal Reserve Banks, they ‘;ere under (1bligation , LA) give to the directors copies of the statement submitt0ct to e Council by the Board and any memorandum that the Council IrL,I)Prove as E response thereto. Chairman Eccles stated that if that were done, the Board 11°11341 want to consider whether it should make a formal reply to any r4Ic111111 submitted by the Council and that if copies of the memo41(i 'lere to be given such wide distribution, there was a possi1111'it Of un desirable publicity in the newspapers or otherwise. P(4l thiz reason, he suggested that the members of the Council might l'ee to .c.Port to the boards of directors that the two statements 4.(1 beer' 811bmitted and that a procedure had been agreed upon. Pl'esident BroAn stated that in its separate meeting the '°111d give consideration to this suggestion. 111.9 -4Chairman Eccles then referred briefly to the matters of interest to the Federal Reserve System on which legislation should beconsidered in the next session of Congress. He stated that the cille8tion of 1. :hether permanent legislation should be enacted granting the Boi3rd authority to regulate consumer credit should be decided by theconeress, and that if it did not see fit to grant continuing 414°rity the executive order under which the present authority of the 8(pard was exercised should be terminated. He also said that the 13(lard at the proper time would recommend that the authority of the ledera-1. Reserve Banks to purchase up to 5 billion of Govern- kerlt eecurities directly from the Treasury be made permanent; that certain challges be made in the bank holding company bill (H.R. 6225) 441ed°4 discussions with representatives of independent bankers' 44()eiations, bank holding groups, and others; and that Section 13b (4 the Feder al Reserve Act be repealed and Section 13 amended to g441t Federal Reserve Banks authority of a standby character to 4qq ill the financing of business, particularly small business, a kor. - Practicable basis under which the Federal Reserve Banks e41141 gtia' rantee up to ninety per cent of a loan made by a commercial bklit ctet4 President Bro-vm stated that the Council had adopted, and the o. 17 would forward to the Board, a statement expressing the DItitori °t* the Council that the existing authority of the Federal 1720 12/3/46 —5— Re6erve Banks to purchase securities directly from the Treasury 8/1()11-14 be continued at least for a number of years. In response to an inquiry from President Brown as to whether the B (3ard would recommend legislation granting permanent authority t°r the - regulation of consumer credit, Chairman Eccles stated that the Be, ctrd in its annual report for 1945 suggested that Congress give consideration to the question whether permanent legislation should , °C enacted but that the Board had not recommended legislation. On the question of the amendment of Section 13 of the Federal as4rve Act, Mr. Brown stated while he did not know what the a ttitude of the Council would be, he felt that their vies l; be the largely influenced by the question whether as a part of action by congress the lending poers of the Reconstruction P.1174;nce Co rporation v:ere to be modified or terminated, and that the aisstkikent of Section 13 as proposed by the Board would be a small 134ticet° 'c'aY for the termination of the lending powers of the me°11struction Finance Corporation and the Council would favor that collation s Chat 4 Eccles made it clear that the Board's proposal .k111(1 be independent of any action by Congress with respect to the 4seollstruction Finance Corporation, but that the Board felt that the Corporation was an emergency organization, it would be : 15 ttel"-f the standby lending authority proposed by the Board were .41t.1.411ed in the Federal Reserve Banks which would use their own • 1721 —6— A1448 for the purpose and not be under necessity of calling on the °°/ternment for funds. with respect to bank holding company legislation, President 401 , stated that it was assumed that the amended bill would be subrIlitted to the Congress by the Board early in January, and Chairman tee1es replied that it should be presented as promptly as possible atter the new Congress convened. President Bron said that ordinarily the next meeting of the council would be held on February 16 and 17, 1947, but that the Coljalcil wished to suggest thnt the meeting be postponed until 'larch 344444 the Upon being advised that these dates would conflict with meeting of the Federal Open Market Committee and a meet- ing (3r the Presidents Conference, it was agreed by the members of the C°1121eil and the Board that the meeting of the Council should be held. on ma rch io and 11. Thereuponthe meeting adjourned. Secretary's Note: After luncheon the members of the Federal Advisory Council met again, and while the meeting was in session President Brom advised Chairman Eccles that the Council had approved the following memorandum and would like to know if the Procedure suggested therein for further meetings of the Board of Governors and the Council was satisfactory to the Board. A meeting of the Board was called to consider the matter after which Chairman Eccles advised president Brown that the Suggested procedure was satisfactory to the Board. 41en President Brown submitted the memorandum to Chairman Eccles, he advised that the Council had 122 -7agreed that the statements submitted by the Board and the Council should not be given to the directors of the Federal Reserve Banks but that each member of the Council would report to the board of directors that the Council and the Board had agreed on a fourpoint procedure in connection with further meetings. It was understood that the members of the Council would make it clear in their reports to the boards of directors that the reason for the memorandum submitted by the Board was to arrive at a somewhat more formal procedure for the purpose of improving the relationship of the Council and the Board, Preventing any occasion for conflict from arising in the future, and alloing more time for consideration of the various matters coming before the Council and the Board for discussion: "The Federal Ldvisory Council has carefully considered the s tatement made by Chairman Eccles on behalf of the ' c rd of Governors before the Executive Co_imittee of the °linen. on November 6. e „ "The Council believes that in connection with its IZtertent, Section 12 of the Federal serve Act should cileonsidered, since this section provides for the Coun611 defines its powers. This section reads as follows: "CRJIATION, Li4ABLii6 11.1Y,L MEETINGS 18e0. 12. There is hereby created a Federal Ldvi°17 Council, which shall consist of as many mempers as there are Federal reserve districts. Each ' ederal reserve bank by its board of directors shall annually select from its own Federal reserve district °ne member of said council, who shall receive such lep°mPensation and allowances as may be fixed by his B°ard of directors subject to the approval of the rp!ard of Governors of the Federz.1 CL'eserve System. ' le ,meetings of said advisory council shall be held 1, ashington, District of Columbia, at least four 0141e5 each year, and oftener if called by the Board of Governors of the Federal Reserve System. The 111ei1 may in addition to the meetings above pro' t 1723 -8"Vided for hold such other meetings in Washington, District of Columbia, or elsewhere, as it may deem necessary, may select its own officers and adopt its own methods of procedure, and a majority of its members shall constitute a quorum for the transaction of business. Vacancies in the council shall be filled by the respective reserve banks, and members selected to fill vacancies shall serve for the unexpired term. (12 U. S. Code 261). 'The Federal Advisory Council shall have power, by itself or through its officers, (1) to confer directly with the Board of Governors of the Federal Reserve System on general business conditions; (2) to make oral or written representations concerning matters within the jurisdiction of said board; (3) to call for information and to make recommendations in regard to discount rates, rediscount business, note issues, reserve conditions in the various districts, the purchase and sale of gold, or securities by reserve banks, open-market operations by said banks, and the general affairs of the reserve banking system. (12 U. S. Code 262).' of a_ine statement by the Chairman on behalf of the Board Adw'vernors with respect to the meetings of the Federal Council and the i3oard raises more fundamental qest? 118 than the procedure at meetings. The real tEluesticyn co 8 are the statutory powers and duties of the Advisory 13011 41, 1 and the relationship bet-;,een the Council and the of n m Governors. tthatI he Federal Advisory Council was set up under the Act att, created the Federal Reserve System and is part of the areucture of the system. Its duties, powers and authority by j ixed by law. It is not subject to control or direction the -? Board of Governors. Its members are elected under Re, by the Boards of Directors of the twelve Federal "rye Banks. 1124 -9. "The powers of the Council are primarily advisory as its name implies. It is empowered to confer as a uncil or through its officers 'directly with the Board °f Governors of the Federal Reserve System' and 'to miCke °ral or written representations concerning matters within 'he jurisdiction of said Board.' In order that the Council May keep fully informed on the affairs of the Federal Re”rve System, it is authorized and empo.ered 'to call for Information and to make recommendations in regard to . . *'• • the general affairs of the reserve banking system.' A . "It was the clear intent of Congress that the Federal , dirlsory Council should be currently advised of develop'-s affecting the Federal Reserve System and should place eat the disposal of the Board of Governors representations tisl to actions, policies and prograus on any 'matters -qiththe jurisdiction of said Board.' . "The Federal Advisory Council in performing its 2!'les recognizes that the Board of Governors is not reT:Ilred to approve, accent or act upon any of the advice t , "The matter of procedure in meetings between the and the Council is incidental to the larger(luesiiIi°11.0f the cooperation between the Board and the Council eVlnding answers to the many and difficult questions ' anilecting the operations of the reserve banking system ch;.the effectiveness of the system in performing its 'les to the Government and the people of the United 'tates. all ."The Board and the Council could and should discuss 14 , 4 Important problems of the Federal deserve System in ti."11a1 good faith and good will. It is the belief of C°11ncil that an informality and flexibility of pro' 41 41re enhences the benefits that come from their joint eleietings. To straight-jacket' the contacts of the two de:Ps in formal written communications would largely r°Y the effectiveness of the Council as well as 8 value to the Board. n the unless and until the Congress changes the law, Council will continue to exercise the prn:ers given liat o the best of its ability in the interest of the welfare as it sees it. Vhile the Council ita : 412es its function is advisory, it insist on ert; statutory right to confer with the Board of Govpawt°re, to make Oral or written renresentretions, to thee14 recomraendat:ons, and to ask for information which Iv entitles it to have. It reserves the right 124/106 -10,I1 0 make its recommendations public if it so desires. 41-thin these limitations it desires to cooperate with the e B ard of Governors to the end that whenever possible the b cil can suenort the Board's position publicly and in .4anking circles. Obviously, if the Council is not to be ' 4 -lren information as to matters of proposed legislation °r regulatory action until after the Board has formally ! m com ended the legislation or adopted the regulation, Possibility that the advice of the Council might 'feet the Board's decision is greatly lessened, if not absolutely destroyed. If the Council should disagree 7iith an - actions or proposals of the Board taken without discussion with the Council, and if the Council is r: . arr.5r out the purpose given it by Congress, it may a's1 obliged to take issue nublicly with the Board's : w ti°ns or proposals. This would be unfortunate, and b;:4sincerely believe that free and frank discussion r' e ween the Council and the Board would in many cases re8 t in an agreement on proposed legislation or a Bog'llation. Cases undoubtedly All arise where the bi!„."rd and Council would have to disagree publicly, the number of such cases would be minimized. to AS to the nrocedur,., wh*ch the Board declares :a departure from the puroses and functions of theb nieT:ecieral Advisoey Council, the minutes of the joint otei gs of the Council and the Board reveal that most 00,Zus matters discussed between the Board and the ixikuicil have been submitted in writing to the Board an„.s.dvance of the meetings. Many of the Council's 017gestions have been adopted by the Board in whole it in Part. In recent years the Board has submitted ilet,, a4li noe to the Council, for its opinion or advice, two" fevi matters, and during the past two years only qrstIons which it was considering. C°rninz to Lluestions of future procedure the -loll believes: zi-10,0I- That the meetings of the Board and the Council e ' ll414,c1 be confined to the members of the Board and the The eil, vdith only a secretary present for each body. of ,Present practice valich has grown up in recent years keet -.d°7-en or more of the Board's staff being present at 011 ,31 ,14t7s constrains free discussion and frank expression 4(11rt„,Z" sides. V.hile the presence of the Staff has the tirei-1:'ge of making technical information immediately We sfable and was undoubtedly adopted for this reason, ANs-r°nely feel that any advantage of the staff's 14toence is outweighed by the constraint its presence "8 on discussion. Z 1.726 12/3/46 -11- "II. That the Board submit to the Council in advence °f its meetings, or at least by noon of the day the Council meets by itself in V,ashington, questions of importance upon which the Board desires the advice of, or discussion with, :e Council so that the Council can advise as a body upon "em after an opportunity of discussion among its members. III. That the Secretary of the Council All, as heretor , °re, send the Secretary of the Board questions which any eber of the Council thinks should be discussed or on which cl desires information. The Council fully understands the ire of the Bo; rd to have the Council's euestLons submitte] 4?" in advance of the meetings, and a memorandum incorpora' 1hg the results of the separate discussion of the Council, recoanendations that it might wish to make, and a statee tof any additional information that it might wish to ha or,v4e. from the Board, will be submitted to the Board early meeting may be held the'he following morning. The joint same afternoon or the following morning. To maintain the a;s effective position of the Council it reserves the right, contemplated in the Act, to discuss with the Board other watters which may arise. /710„ IV. That the practice be discontinued of holding c,'"11.15r meetings of the Executive Committee of the Advisory fu tuncil and the Board between Council meetings at dates tiXed in advance. That instead, the Boerd and the Execuaolle Committee meet when either the Board or the Committee wiarequests. It is not contemplated that such meetings 41;1 be requested unless one or the other feels some co eloPment between the regular meetings of the thole renders such a meeting deeirable. The monthly the6d-ngs of the Board with the Executive Committee between cles.quarterly meetings of the Council were agreed upon as aerirable during the war period and the Council believes co v?d a useful purpose with the rapidly changing war r ndltions. 4 „sa nsince the establishment of the Federal Reserve System co," been the custom of the Executive Committee of the po7eil to meet with the Bo_rd in times of energency. The be ers given the Council specifically provide that they may ber : xercised 'by itself or through its officers.' The memof its Executive Committee are its 'officers.' The ' - cil has amended its by-laws to that effect. ************* * ttan "B°th the Council and the Board have serious obligapov, s to the nation under the lays of their creation and 'ers- They have obligations to one another in dealing 1727 46 —12— the problems of the Federal Reserve System in a ' 813.1rit of mutual confidence, respect and good will. "The Federal kclvisory Council pled,ges that coop— tration to the fullest extent that the Board of G— ill make possible." / ...e4 A ,.116, -LA Aikr Aiill IIP .AI'l Secretnr- . Chairman.
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