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1510
A meeting of the Board of Governors of the Federal Reserve
SYstem with the Chairmen of the 1. ederal Reserve banks was held in
Washington
on Tuesday, December 5, 1939, at 10:00
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
a•Me
Eccles, Chairman
Ransom, Vice Chairman
Szymczak
McKee
Davis
Draper
Messrs. F. H. Curtiss, Owen D. Young,
T. B. McCabe, G. C. Brainard, Robert
Lassiter, W. T. Nardin, and R. B.
Caldwell, Chairmen of the Federal
Reserve Banks of Boston, New York,
Philadelphia, Cleveland, Richmond,
St. Louis, and Kansas City, respectively
Messrs. R. E. Wood, W. C. Coffey, Tay
Taylor, and St. George Holden, Deputy
Chairmen of the Federal Reserve Banks
of Chicago, Minneapolis, Dallas and
San Francisco, respectively
Mr. Morrill, Secretary
Mr. Bethea, Assistant Secretary
Mr. Carpenter, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
Mr. Thurston, Special Assistant to the
Chairman
Mr.. Wyatt, General Counsel
Goldenweiser, Director of the Division
of Research and Statistics
Mr. amead, Chief of the Division of Bank
Operations
Mr. Paulger, Chief of the Division of Examinations
Mr. Parry, Chief of the Division of Security
Loans
Mr. Dreibelbis, Assistant General Counsel
Mr. Thomas, Assistant Director of the
Division of Research and Statistics
Mr. Conklin, Senior Economist in the
Division of Research and Statistics
Mr. Thompson, General Assistant in the
Secretary's Office
1511
12/5/39
-2After welcoming the Chairmen to the meeting, Mr. Eccles
reviewed the actions which had been taken by the System in the
Government securities market because of unsettled conditions which
acc°mPenied the outbreak of hostilities in Europe.
He discussed
brierlY the considerations which prompted the purchase of securities
dullng the period of market decline and the subsequent sales of Sefrom the System account.
In this connection he called at-
tention to the fact that the System open market account is now
analler than when the policy of allowing bills to run off
ut replacement was adopted last June, so that recent operations
ill the account, taken as a whole, have had
no material effect upon
the
reserve
position of member banks. He also discussed the reasons
r(Ir tho
large excess reserve position of member banks and expressed
the
°Pinion that with the present strong indications of continued
€(3341 1:
'°113°rts there was little likelihood of a chanrze in this situatiot
°r in general money market conditions in the near future.
Mr. Goldenweiser was then called upon to make a statement
th r
espect to the discount rates at the Federal Reserve banks with
DEtrti
°Illar reference to uniformity of rates at all Federal Reserve
gke
• A memorandum of the important points covered in Mr. GoldenWet a
-eri s statement has been placed in the Board's files.
IvEi
In response to an inquiry from Mr. McCabe as to whether it
sireble to have more uniformity in the discount rates of the
-1512
12/5/39
Federal Reserve banks than we have at the present time, 'qr. GoldenWei
ser expressed the opinion that these rates should be uniform for
the reason that the money market is a national and not a local one
elld the discount rate should be related to the open market rate.
also
He
expressed the opinion that the rates for advances under section
10(b) of
the Federal Reserve Act should be uniform and should not
eceed the regular discount rate by more than the one-half per cent
l'ecIllired by law and that the requirement of that differential should
be eliminated at the first opportunity. He observed that for a number „
Years the question of discount rates at the Federal Reserve
behks has been largely academic inaamuch as member banks have not
bee
" uorrowing and, while situations may arise where it would be
dezi
rabic to have different discount rates in different districts,
he _Lei+
p
stron.Ely that in the present situation they should be unirorm
14 all districts and that now was a good opportunity to adopt
that policy when the question of rates was not important.
Chairman Eccles added that it would be a desirable situation
to heva the discount rates at a low level at this time so that when
the
time comes
to increase the rates the desired psychological eftect )
c f rate increases can be obtained without increasincz rates to
4 high
level.
DUrin6 a discussion of the possible relation of the discount
e t
sPeculative conditions in a district or generally throughout
tbe
laati°n, Mr. Parker, President of the Federal Reserve Bank of
1513
12/5/39
-4-
Atlanta, joined the meeting.
The Board had been advised of the in-
ebilitY of Mr. Neely to be present because of illness and that the
Other
pl
kd-LaSS
C directors were also not available.
In the circum-
stances, Mr. Neely arranged for Mr. Parker's attendance
with the
ePProIral of the Board.
Mr. Curtiss referred to the second part of the topic of
d'iseount rates of Federal Reserve banks which related to discusbetween the Board of Governors and directors of Federal Re"re banks of reasons
for changes in discount rates, and stated
til
"it had been the custom of his bank
in the past to send a letter to the
Board stating the reasons which prompted the board of
directors of
the bank to make a change in the bank's discount rate.
Morrill stated that this phase of the topic had been suggested
the Purpose of raising the question of the desirability of indiscussion between the Board of Governors and the directors
th
e Federal Reserve banks of the reasons for Particular changes
14 a,
''seount rates before those changes are actually made.
Mr. Goldenweiser then introduced Mr. Conklin of the Division
Or leseerch and Statistics who has charge in the Division of the
IEltietic al information collected through the Federal Reserve banks
"4 Mr- Conklin made a statement with respect to the collection and
414t1sis of current information by the Federal Reserve banks and the
11(3111*
AEU.imnay of Mr. Conklin's statement has also been placed in
t46 riles.
1514
12/5/39
-5During a discussion of the purpose of the Board in collect1118 this information and the efforts being made to perfect available
bilsiness statistics, Mr. -Ransom inquired of Mr. Thomas whether he
hd yzu,
ataggeSt CMS to offer as to how we could obtain better infor-
11111tion than we are getting at the present time.
Mr. Thomas referred
t0 the existing understanding with the Commerce Department that that
,
enn-4-41nent will expand its activities with respect to statistics on
Iliall4fe,cturing and said that the Division of Research and Statistics
did
llot regard it as its responsibility to collect regularly statisties,
-Lor industry but preferred to take the information developed
tile Department of Commerce, various trade associations, and other
°1s8anizations, and to analyze that information as currently as possible ,
'Or indications of trends, to ascertain what questions the data
do
11°t answer, and to try to develop the answers to specific questions
thrco
"gh direct contacts or otherwise.
In response to an inquiry as to whether the Federal Reserve
b 4k
v'ere cooperating in the collection of the information desired
13Y- the Board, Mr. Thomas stated that the banks were giving excellent
>cl)eration.
In this connection, Mr. Goldenweiser stated that the
e411131en were in a position to be of a great deal of help to the
bY takin-g
a special interest in the activities of the Federal
lesellre banks in this field.
Chairman Eccles called on the Chairmen for such comments or
'44;esti.°11s as
they might wish to make with respect to this topic.
1515
12/5/39
-6-
The comments of the Chairmen included the suggestion that a tremendous
enleunt of information is being requested by Government agencies of
'4111011s kinds and it would be a very great help to industry, and there
l'1°111d be less difficulty in getting cooperation from industry if this
information could be collected through a central point; that the objectives of the statistical function might be more clearly defined; that
the in
dustrial activities in the various IJederal Reserve districts are
different and the problem would have to be handled differently in
the different districts; and that there was a question as to the extent to
Which the information collected should be used in making forecast,
The opinion was also expressed that the information was not
"tained and analyzed quickly enouAl to serve the purposes of the
8Y- t
and that it should be gathered and distributed more rapidly.
It 1,,,„
the general opinion of the Chairmen that the policy of the
SYst
i
e- -n expanding its activities in this field was a desirable one,
that
'
t was helpful to the officers and directors of the Federal Ree banks; and that the banks would gladly cooperate in carrying on
the
h°14
" The suggestion was also made that there should be a closer
CEItEirt-
between the research departments of the banks and the Board's
cin of Research and Statistics and that it would be well to have
1110.1„e f
l'eqUent meetings of the personnel at the Federal Reserve banks
4- this work and the Board's Division of Research and Statistics
Wie,s1,4
'
44neton,
In that connection a suggestion was made that temporary
Ces Of economists between benks might be helpful.
It was stated
•
12/5/39
-7-
thElt the question of the more effective collection of statistical int('Itletion by Government agencies was in the process of being studied
b/r the Central Statistical Board and that any forecasts made by the
slon of Research and Statistics were confidential and were not
released to the public.
At 1:00 p.m. the meeting recessed and reconvened at 2:00 p.m,
it
the sane attendance as at the morning session except that Mr.
Davi
Was not
present.
In connection with the topic which was under discussion when
the recess was taken, Mr. McCabe suggested that representatives of
the card visit the various Federal Reserve banks and discuss with
the
di rectors the program of the Board for the collection and analyel e of
uusiness information and the way in which the respective FedReserve banks can cooperate in developing ways in which the
'ed information can be collected.
At the conclusion of the discussion of this topic, Messrs.
Thome.
8
end Conklin left the room.
Mr- Paulger made a statement with respect to the relation
-t,
be 4eerl the auditors of the Federal Reserve banks and the board of
44ctors and of the value of current audit reports and discussions
til"ec/t by the directors.
A summary of this statement has been
114eed in the files.
At the conclusion of Mr. Paulger's statement, Mr. Brainard
1_517
12/5/39
-8-
quired to whet extent employees in the auditing department might
be Used in other departments of the bank, and it was stated that
there was
no reason why permanent transfers to and from the auditing
department should not be made and that there was no objection to
Illetabers
of the auditing staff rendering assistance to the nonoperating
de
Pertments of the bank, such as examination, personnel, or research
clePartments.
Following an inquiry by Mr. Taylor relating to Mr. Paulger's
"etement that there had been few losses as the result of irregularities
14 the l'ederal Reserve banks Mr. Eccles
raised the question whether,
°la the basis of the Federal Reserve banks' loss experience, it would
be
"eeper for the banks to adopt a program of self-insurance. Kr.
TieEpa
't stated that a survey of the insurance practices of the Federal
0e banks was
now in progress which it was hoped would develop
the necessary
information for a decision on this point.
In response to an inquiry frolnlVIr. Ransom whether the Chair144 h
any comments to make with respect to information which they
Eq.e
Ow receiving from the auditors, Mr. Wood suggested that the
- ePorts and the reports of examination made by the Board's exkine„
'
8 be made shorter
or that they be supplemented by brief sume,
Mr. Goldenweiser withdrew at this point.
On the question of the relation of the auditor to the board
or ciir
"tors, Mr. Young stated that the procedure now being followed
1511.
12/5/39
-9_
bY the Federal Reserve Bank of New York had been found to be very
satis
factory to the directors and had resulted in an independent stat118 for the auditor.
He stated that the bank has an auditing commit-
tee e°11sisting of the Chairman and two other directors appointed by
the Chairman to serve for periods of three months; that the auditing
c()Draittee meets with the auditor after the first of each month; and
that he
(Mr. Young) did not know of anything that gives the directors
Ils
(/(:)cl a picture of the operations of the bank as the review of the
E41dit reports at these meetings.
He added that the auditor not only
l'ePc3rts to the auditing committee, but the salaries of all of the
orricers
and employees in the auditing department are fixed by the
41rect°ra quite independently of the executive officers of the bank.
vr this procedure, Mr. Young stated, the Chairman reports to the
Of directors, calling attention to anything that is developed
br 41,
u4e auditinr committee that it is felt should be brought to the
ention of the board, but that otherwise the board of directors
'
- en is not called upon to act upon the audit reports although
they
ars available to any director.
At this point, upon inquiry by Mr.. Nardin, it was stated
that it
was the practice at all of the Federal Reserve banks to have
the
€`11(litor report directly to the board of directors independently
Of
th
e aXecutive officers and that this procedure was the usual thing
it a
"°n1Marcial bankiwr practice.
1519
12/5/39
-10Mr. Nardin asked whether there was any objection to the ex-
eitive officers of the bank sitting with the auditing committee,
the auditors' reports were discussed and it was agreed that there
wee
It
_
uot only no objection to such an arrangament but, on the contrary,
was ordinarily desirable to have the President and possibly some
or the other executive officers present.
Further discussion brought out the fact that at some of the
_
l Reserve banks any directors who are available are invited to
be .pre
sent during the discussion of audit reports and in some cases
the
.
tiuditor discusses a report before the entire board of directors.
At the conclusion of the discussion Mr. Eccles stated that
the i
mportant thing brought out by the discussion was that the auclitor
- Was responsible to the board of directors of the bank and
811°111d be
independent of the operating officers and that it was not
the
PlIrPose of the Board of Governors in discussing this matter to
Ilreseribe the way in which the audit function at the bank should be
13"1'°11med.
Mr. McCabe referred to the audit by outside auditors which
„,
h'u
had made of the Federal Reserve Agent's accounts at the time
he bee
alaa Chairman and Federal Reserve Agent and was requested to
receipts for collateral for outstanding notes and for unissued
Pedeliti
Reserve notes in the Federal Reserve Agent's department, and
t hEit
he was continuing to have checks made by outside auditors
1V5/39
•
-11-
Would continue that procedure unless advised by the Board that
it was not necessary or desirable.
Mr. Young stated that it had been the position of the board
• di rectors of the Federal Reserve Bank of New York that it was the
l'esPonsibility of the examiners for the Board of Governors to check
413 on the Federal Reserve Bank auditors at the time of the annual
e'erainations of the Federal Reserve banks and that if the audits were
11(It being made in a satisfactory manner it was the opinion of the
clil'ectors that the Board's examiners should ascertain that fact and
•
a the directors accordingly.
Mr. McCabe questioned whether the annual examination made
"lia Board's examiners would meet the point he had in mind because
• the
Possibility of something happening between examinations. Mr.
Pala,
t,er stated that the Division of Examinations would be glad to
selvi
an examiner to Philadelphia at any time to make any check that
141'
'McCabe
thought might be desirable.
Mr. Eccles commented that the Board's examiners are specialists i,
auditingr and exPmininE the accounts of the Federal Reserve
'
- 8 and for this reason should be more competent than an outside
accountants in this work, and that if at any time the Chair-
wo
'°111d feel that the Board's examiners were not performing their
k 1,
8 satisfactory manner, the Board should be advised.
Mr. Szymczak referred to the fact that the Board has recently
"oke
d the policy of rotating the examiners in charge of examinations
12/5/39
-12-
°I' the Federal
Reserve banks for the purpose of getting the viewpoint
°t different
examiners with respect to the practices and procedures
"the respective Federal Reserve banks.
Mr. McCabe suggested that it would be extremely helpful whene/e1
'a new Chairman and iCederal Reserve Agent is selected to send him
13' letter
advising of the services that are available to him in matters
of this
kind.
It would also be helpful, he said, if the letter could
°Iitline the Chairman's responsibilities and make such other sugges-
tion
- as would be helpful in acquainting him with his new duties.
Chairman Eccles stated that we would bear this suggestion
Thi
He also said that the office of Chairman and Federal Reshould be separated and that when further banking
lati
II was under consideration this would again be suggested.
14% Parker stated that the survey made a year or so ago by
tile
'
-Jard's examiners of the auditing department of the Federal ReBank of Atlanta had been extremely helpful and he inquired
-1" similar surveys were in contemplation for the future. Mr.
NI
eer replied that they were and pointed out that surveys of the
41141-t'7,,
examination and fiscal agency departments are made from
ti
rtle t0
time in connection with the regular examinations of the
bttrik
Mr. Paulger commented on certain points relating to the inrclItati
-°n contained in the reports of examinations of the Federal
ii
12/5/39
177,c,r)
%....dN11-...)
-13-
Reserve banks made by the examiners for the Board of Governors, and
ellmlnerY of this statement has also been placed in the files.
Fol-
1°wine the statement Mr. Curtiss stated that it would be helpful if
there could be made available to the board of directors the minor matOf criticism which were discussed by the examiners with the
°Perating officers but not made a part of the formal report, and
ether Chairmen agreed with this suggestion.
Mr. Young stated that the report of examination apparently
c°11818t8 of
three parts:
(1) the formal report, (2) matters taken
41) with the officers, and (3) a confidential section which is sent
(3111Y to the
Board of Governors and is not made available to the
He said the formal report was very useful to the direc-
tore, tlitit
the memorandum of criticized matters for the officers
wEts
11 wise way of handling minor matters with the officers although
it
as
of the
'us understanding that it was the practice of the President
New York bank to discuss the memorandum with the board of
ectn
-Iss, that he personally had taken the very firm position that
t ere
should be nothing which the Board of Governors knew about the
4deral
Reserve Bank of New York which he as Chairman of the bank
17" not
entitled to know, and that he desired to emphasize that as-
.11. Of the matter at this
time.
The point raised by Mr. Young was discussed, and he explained
httt he,
uno objection to the procedure now being followed but felt
the ci
rs should have the same information about the bank as is
1523
12/5/39
-14-
alvailable to the Board of Governors.
Inquiry was made as to whether it was the present practice of
the examiners to discuss the confidential section of the report with
the hoard of directors or the Chairman and Mr. Paulger replied in the
negative.
in the
Of the
It was pointed out, however, that any information contained
confidential sectiOn of the report was brought to the attention
board of directors of the bank by letter or otherwise whenever
it involved a matter which the Board felt the directors should know
abowt.
Mr. Ransom said that a procedure that could be followed would
ba for
the examiner to sit down with the Chairman or Deputy Chairman
'd discuss with him the information which the examiner proposed to
Pit
in the
confidential section of the report.
Mir. Eccles stated that the suggestions made during the disSsi
would be considered by the Board.
Toward the end of the discussion of this matter Mr. Young
left
the
meeting.
Mr. Morrill stated that Mr. Davis had gone to Chicago to atterld
e meeting of the American Farm Bureau Federation where he would
recei
ve a special award in recognition of his contribution to agrielatur,
that he would discuss with the Chairmen tomorrow the topic
or taetaber
bank and other public relations activities of the Federal
leser
'4ee banks, and that he had arranged to present to the Chairmen
tociEty
transcriots of two of the broadcasts which were being prepared
1524
12/5/39
-15-
by the
Federal Reserve Bank of Minneapolis as part of a series of
thi,.t._
.,en
4u
programs dealing with the activities of the Federal Reserve
Batik
which are being presented over station ItiCCO in Minneapolis. The
firSt recording,
Mr. Morrill said, related to the facilities of the
.hderal Reserve banks for transferring funds by telegraph and the
seeolid
to the retirement of unfit currency. The two recordings were
1311esented, after which the meeting recessed with the understanding
that it
Would reconvene again tomorrow morning at 10:00 a.m.
1
:
I Secrete .
Chairman.
@FedFRASER