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182 A meeting of the Board of Governors of the Federal Reserve with the Federal Advisory Council was held in the offices C the Board of Governors in Washington on Monday, February 17, 1941, at 10:15 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Draper Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Ur. Wyatt, General Counsel Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Dreibelbis, Assistant General Counsel Mr. Williams, Assistant Counsel Messrs. Harrison, Kurtz, Huntington, Clay, Brown, Ragland, Wakefield, Clark, Harding, and Dick, Members of the Federal Advisory Council representing the Second, Third, Fourth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, and Twelfth Federal Reserve Districts, respectively Mr. Walter Lichtenstein, Secretary, Federal Advisory Council Brown stated that a member of the Federal Advisory Council been the First Federal Reserve District for the year 1941 had not yet selected and that Mr. Hanes, the representative of the Fifth FedReserve District, was absent because of illness in his family. 183 2/4/41 -2Mr. Brown then said that the matter in which the Council Was most interested was to know What, if any, action had been taken bYthe Board to bring about the enactment of the recommendations contattled in the special report submitted to the Congress on December 31, 1940, Chairman Eccles responded with the statement that no action 41clbeen taken on the matter, that he doubted that there would be any actiw - consideration of the recommendations until they were placed Irith P -Lorm of a bill and the bill was introduced in Congress, that in 40 ' ()Pinion such a bill would have no chance of being enacted Allae the attention of Congress was fully occupied with other pressing 40Aiers, and that, in any event, it could not be enacted without the 3141Port - of the Administration and the Chairmen of the Banking and CurNacy c ommittees. It was his feeling that the program as recommended th 6 sPecial report to Congress would have no chance of enactment With '44 sUbstantial modification and he outlined some of the reasons tor • Ills opinion. He also stated for the information of the members q the Federal by tain Advisory Council that the bill (S-25) which was intro- Senator Taft on January 6, 1941, and which would repeal cer- 14°netary powers of the President and the Secretary of the Treas 14114: 7 had not been introduced at the suggestion of the Board or arrY memb er thereof or anyone else connected with the Federal Reserve tem eo far as the Board was aware. 184 2/4/41 —3— Chairman Eccles made the further statement that it was his °Pillionthat, in the circumstances, no action should be taken by the SYstem at this time with respect to the special report, as an attemPt to obtain legislation at this time would be futile, but that, view of the fact that the report had been placed on the agenda for the m eeting of the Federal Advisory Council, he had given consideration "1 alternative possible programs for legislation which might eive sufficient support to be enacted when the matter is taken up b"011gress, that he had discussed these alternatives informally with the members of the Board, that the Board had taken no action with le8Peet ' to the suggestions, and that he would present them to the ketabers of the Advisory Council as his personal views as to possible 1.terflatiVe forms any proposed legislation would have to take if it 1%8 to to the have any chance of enactment. In this connection he referred tact that in the absence of further legislation the powers of the President and the Secretary of the Treasury with respect to de'14111ation and the stabilization fund would lapse on June 30, 1941, 41due expressed the opinion that consideration by Congress of the Illeetion whether these powers should be renewed would inevitably bring 111) tor reconsideration the authority to issue greenbacks and the furthermonetization of silver so that there would be no need for the 4telli to make reference to these matters in any legislation that it kieht sUgge3t. 185 2/17/41 -4Chairman Eccles then read the following alternative program t legislation and made explanatory comments of the various suggestj0ns contained therein: "Reserve Re uirements "1. Increase the statutory reserve requirements for demand deposits in banks in central reserve cities to 26%; t:or demand deposits in banks in reserve cities to 20%; for clenaand deposits in country banks to 14%; and for time deP°eits in all banks to 6%. "2. Permit vault cash to be counted as reserves for the purpose of meeting reserve requirements. "3. Empower the Federal Open Market Committee to make further increases of reserve requirements sufficient to absorb excess reserves, subject to the limitation that reserve not be increased to more than double the respective vespective percentages specified in paragraph 1. 4. Authorize the Federal Open Market Committee to change reserve requirements for central reserve city banks, Or_ for reserve city banks, or for country banks, or for any combination of these three classes. "5. Require that all member banks and all other banks ;!ose average deposits for the year 1940 exceeded $1,000,000, orleeforth maintain reserves with the Federal Reserve Bank their district and, in succeeding years, require that each AI whose average deposits for the preceding year exceeded 0,000 do likewise. Provide that each nonmember bank as becomes subject to this requirement shall elect whether stit°111atically it will immediately become a member of the _Ystem entitled to all of the rights and privileges of a 'mber bank and subject to the System requirements, or conas a nonmember bank subject only to the over-all reowx : ve requirements and entitled to membership in the future -"i-Y in the discretion of the Board. pc) "6. Reduce the assessment base of banks for the puraj e of assessments by the Federal Deposit Insurance CorporIon by the amount of reserves maintained as the result of "quirements under paragraphs 1 and 2. Ito en Market COn,.• °1St Provide for the Federal Open Market Committee to of members of the Board of Governors and five 1.86 2/17/41 -5- "Presidents of the Federal Reserve Banks as follows: The President of either the Federal Reserve Banks of Boston, Philadelphia or Richmond to be elected by the boards of rectors of such Banks; the President of either the ,1:ederal Reserve Banks of Atlanta, Dallas or St. Louis to : 11,e elected by the boards of directors of such Banks; the esident of either the Federal Reserve Banks of Kansas bltY, Minneapolis or San Francisco to be elected by the °ards of directors of such Banks; the President of either the Federal Reserve Banks of Cleveland or Chicago to be elected by the boards of directors of such banks; and, the President of the Federal Reserve Bank of New York. "2. Authorize Federal Reserve Banks to negotiate the Purchase of Government securities with maturities not in excess of ninety days directly with the Treasury. "3. Prohibit the use of the Stabilization Fund as an °Pen market instrument, permitting it to be spent in the : r, etirement of public debt or to be used as a revolving fund ln the purchase of securities only from the Treasury but Permitting the sale in the open market of securities so pUrchased. g "Federal Reserve Banks "1. Retire stock in Federal Reserve Banks by paying 8to ckholders face value with accrued dividends. "2. Provide for continued membership in System of all national banks and for automatic membership without Ile right to withdraw of all State banks which, at or be; 80e the date of the retirement of Federal Reserve Bank al ek, elect to become members of the System entitled to of the rights and privileges of a member bank and sub' et - dci System requirements. 3. Reconstitute the boards of directors of the Peder 1 serve Banks by providing for a board of seven tee-Li!: three with qualifications as now provided for a ass B directors (engaged in this district in commerce, 4riculture or some other industrial pursuit) to be ected by member banks and three with qualifications as tv provided for Class C directors to be appointed by the ec .„)ard of Governors. Make the President of the Bank an ti-°fficio member of the board and provide for his elecwj, 111 for a term of three years by the other directors, 80un the approval of the Board of Governors and with the ard of Governors authorized to cast a vote in the event r °I 'a tie. 187 2/17/4 —6— "4. Require all Federal Reserve Banks, when their capital funds remaining after the retirement of their 'ock have been doubled, to pay all net earnings to the Treasury r During his statement Chairman Eccles said that an alterNkve Proposal for the reconstitution of the board of directors rederal Reserve Bank as suggested above would be for the membp u'llics to elect four directors representing commerce, agriculture, ' lee, and industry under which arrangement the President of the Fed ere. Reserve Bank would not be a director. He also stated that he had considered two alternatives to the above program, one of which would place the authority over °Pellmarket operations in the Board of Governors and retain the PINsent structure of the boards of directors of the Federal Reserve laarac -- and the present ownership of the capital stock of the Federal ilesertre Bank by member banks but would reduce the dividend on Federal Ite8erve Bank stock to 4% per annum. The other alternative, he said, 1113111(i Make no change in the existing Federal Open Market Committee, the boa.rds of directors, or capital structure of the Federal Reserve 41*8 (other than to reduce the dividend on Federal Reserve Bank 1:c'elt to 4% per annum), but would give the President of the United 4a:tea power to veto action to increase or decrease member bank rereqUirements. 188 2/17/41 -7In the discussion of the three alterriative plans reference Was made also to the further possibility of again making the SecreterYor the Treasury and the Comptroller of the Currency ex-officio illerter8 of the Board. Mr. Ransom stated that it appeared to him that there were tW0eolarses that might be taken by the Board, the Presidents, and the Federal Advisory Council, one of which was to do nothing, on thethe°rY that it was the responsibility of Congress to take action, and. the other was to decide what should be done in the way of a leiaslative program which might be suggested by the group prior to the submission of the replies to the Wagner questionnaire. He said that he 0 _ w uld like to feel that the members of the Federal Advisory *ftuld explore which of these would be in the greatest public interest. It was his feeling, he said, that in preserving the Fedelk" Reserve System and strengthening it and making it more an elerleY of the Government, strength would be added to the entire 11411ting system of the country and increase the chances of its preservaqon. In connection with a statement by Mr. Szymczak that the 41terna,. '''Ives presented by Chairman Eccles were only part of the _ger Problem presented by the Wagner questionnaire, Mr. Brown 'A whether the Board has prepared its answers to the Wagner -nnaire. 189 2/17/41 -8Mr. Ransom reviewed briefly the procedure which had been f°11rnied in the preparation of the drafts of the Board's answers 441 $tated that he did not know when the answers would be completed °I'llthen they would be submitted, that there was a feeling that no one ul the agencies to which the questionnaire was sent would file its answers before the others, and that it might be necessary to 17°Ilk out an arrangement whereby all of the answers would be submitted 4't the same time. He added that the Federal Reserve Banks were work- 14°n their answers to the questionnaire, that he felt it would be "Ilnate if the Federal Reserve Banks and the Board submitted their answers independently of each other, and that it was his hope that t , "e Banks and the Board could work out a plan under which there W°111d be at least a preliminary discussion of the answers to be made. Mr. Harrison stated that the principal power which would be giVen to the System under the three alternative proposals discussed Chair%Ian Eccles would be the power to increase reserve requiretaents) that, while this was a valuable power, there was now much ls likelihoo d of its being used than there was when the special rePort was submitted to Congress, and that in these circumstances he questioned whether the System should propose legislation which 1714114 Make such substantial and fundamental changes in the System illcTder to get a power that it might not use. 190 2/17/41 -9The question presented by Ir. Harrison was discussed and 11r* Brown stated that if the price of getting control of the stabilizati°n fund and an increase in the System's authority to change l'eserve requirements was to be the suggested fundamental changes in the, reanization of the Federal Reserve System, he felt he could ' 13Ealc for all of the members of the Federal Advisory Council in say- ingthat they would be opposed to such a program. Chairman Eccles pointed out that under the third alternative ther e would be no change in the structure of the Federal Reserve SYste m, the only change being to give the President veto power over eles in reserve requirements. Mr. Brown commented that such a Pl'ePosal would open up the whole question of the structure of the eder'al Reserve System to which Chairman hccles replied any proposal for legislation would have a similar effect. Mr. Kurtz expressed the ()Pinion that the banks throughout the country would be unan&mous , Y opposed to giving the President a veto power. Mr. Viakefield said that in his opinion continued thought s1101114 be given to the question of the future place of the System in the banking structure of the country and to desirable changes in the aY;tem so that when an opportunity is presented there will be a pro- that Will be acceptable. ratIch He also felt that there would be as public feeling against the elimination of bankers from the 191 2/17/41 -10- of directors of the Federal Reserve Banks as there could be clevels3Ped in favor of such a change. Some of the members of the Boa 4q questioned whether this would be the case. Chairman Eccles concluded with the statement that in submittin zhe three alternative proposals he was not speaking for anyone Other than himself and that his purpose in discussing the matter was to no. 4" 'Int out that in considering the practical question of obtaining babw_ g legislation and additional powers for the Federal Reserve 8Y,Ttem lt • was necessary to be prepared to meet the opposition that Woo '4444 be offered to the granting of additional monetary powers to the system. lir- Harrison commented, in response to Chairman Eccles' atat eent, that if it appeared that authority to increase reserve recri,t s'I'Ealsnts would not be given to the Federal Open Market Committee, it 411 g"L be suggested that such powers be placed in the hands of the 13 411 of Governors as in the case of the existing authority, which W01114 be better than to propose that the enlarged powers be placed tbe -ands of the Federal Open Market Committee at the expense of be e, g fundamental changes in the Federal Reserve System which would -PP"ed by banks throughout the country. Ransom referred to the item on the Council's agenda for tneeting of bills pending in Congress of interest to banks and 192 2/17/41 —11— inqu1red whether the Council desired any infcrmation from the Board o its Staff with respect to such bills. Mr. Brown replied that the Counc,., -L.-4 would appreciate being advised of the opinion of the Board on 8111 8.310, introduced by Senator Glass on J nuary 14, 1941, to l'egtilate the control of insured banks by holding companies. Thereupon the meeting recessed with the understanding that the p ard would meet with the Council again at 10:15 on the morning Or FebrIlary 18, 1941.
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