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264)
A meeting of the Board of Governors of the Federal Reserve Systen.,
Itvzs held in Washington on Tuesday, February 17, 1942, at 10:40 a.m.
PRESENT:
Er.
Mr.
Mr.
Mr.
Mr.
Eccles, Chairman
Ransom, Vice Chairman
Szymczak
McKee
Draper
Mr. Merrill, Secretary
Mr. Pethea, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
Mr. Thurston, Special Assistant to the
Chairman
2
7 T. Smead, Chief of the Division of Bank
Operations
Mr. Paulger, Chief of the Division of
Examinations
Mr. Vest, Assistant General Counsel
Consideratio.a was given to a memorandum submitted to the board
Goldenweiser under date or February 2, 1942, recommendin - that
ltenze be appointed as an economic assistant in the Division
Of 48earch and Statistics on a temporary basis for a period of six
41°4ths
3 With a
salary A the rate of :2,400 per annum, effective as or
tile date he
reports for duty after having passed the necessary physical
The memorandum stated that a salary of :„2,000 per annum
1141 'iLinaily been suggested to Mr. -ienze but that it das no longer
to obtain his service, on that basis in view of offers which
receivc-0 from other governmenT,E1 agencies.
The file attached
Ckadenweiser's memorandum indicated thet Mr. Menze had not
flied the usui
form of application required of applicants for positi,()
Ilsw.141 1
the Boar(' and contained a copy of a telegram which Mr.
Qolci
ellei
'
3E.r had set to Mr. Yenze on January 30, 1942, stating that
281
2/1:7/42
he
-2-
"as prepared to recommend for Board approval his appointment for
months at P,2,400 per annum and asking that he wire whether he would
accept the position if his appointment were approved by the Board.
Chairman Eccles stated that Mr. Clayton had advised him that
1"eXee was not willing to approve the recommendation, although
Szymczak and Draper had indicated a willingness to do so partly
beca,
"se it was their feeling that Mr. Goldenweiser had so conducted
the,
"egotiations with Mr. Menze that a commitment had been made.
Chat
n Eccles said that he thought that a division head should not
e an applicant that he .would recommend a salary at a stated figure
becail
8e of the misunderstanding and embarrassment that would result if
the +JO
TO_
ard did not approve the recommendation.
A discussion ensued from which it appeared that the record was
11(it sat
isfactory in this case.
caes
Mr. Ransom suggested, however, that the
be inquired into further and considered on its merits from the
atatclpoint of whether the person recommended would make a desirable ad-
4ti°"to
80
3
the staff of the Division of Research and Statistics and, if
at
What salary, and that the Board's Personnel Committee be asked
consider
all the facts and to make a recommendation to the Board as
to
the action
which it should take in the matter.
to
It was unanimously agreed that the case
should be referred to the Board's Personnel
Committee for further consideration and the
submission of a recommendation to the Board
as to the action to be taken.
282
2/17/42
There was a discussion of a proposal to regroup the Federal
ilasellre Banks for the purpose of selection of their representatives
illenthers of the Federal Open Market Committee.
This would require
alliendment to section 12A of the Federal Reserve Act which contains
the
statutory requirements for the selection of such representatives.
the e
ssence of the proposal was that one representative of the Fed—
eral Reserve Banks be the president of the New York Bank or that pro—
IL81-°r1 be made whereby one representative of the Federal Reserve Banks
be
selected annually as a "member at large" who, as a practical matter,
11°1114 be the
president of the Federal Reserve Bank located in the prin—
eiPal money market, which is New York.
The remaining four representa—
°f the Federal Reserve Banks, who would also be Reserve Bank
Pr if4
e--"ente, would be elected annually by designated groups of the
1)4rcis of directors of the eleven Reserve Banks outside of the money
441tet,
lir. McKee stated that, while he was not opposing the proposal,
he"
1
8ortie reservations as to the wisdom of endeavoring to obtain
lert8lation
on this subject at present.
He said that the sponsorship
c't ttkir 811ch Proposal might place the Board as a whole on record as be—
sat.sfiea
to have presidents of the Federal Reserve Banks serve on
the .0
‘ederal Open Market Committee as representatives of the twelve Fed1,b4.111eserve Banks and also in the position of asking for special rep-e4titation for the Federal Reserve Bank of New York.
141% Ransom reviewed the history of the legislation on this
2;.10
2/4/42
-4-
811biect contained in the Banking Act of 1935 and said that as he saw
the
Problem there were three parties which had a vital interest in all
°Pell market operations, namely, the Treasury, the Board, and the FedReserve Bank located in the money market.
He said that while the
111°IleY market was now in New York it was not inconceivable that at some
44%
1n the future it might be in Chicago or some other Reserve Bank
city.
Ifl other words, he said, it was important to the proper function-
itIg of the Federal Open Market Committee that the president of the Re8bIre Bank located in the money market serve at all times as a member
Ot the c
ommittee.
Mr. Draper suggested that the proposal be cleared with the
Pl'esident.
He said that on principle he thought the Federal Reserve
41Ik of New York should be treated on the same basis as any other FedNI
Reserve Bank but that, of course, he realized that it was import4rt to have a representative of the Federal Reserve Bank located in
the
nlelleY market on the Open Market Committee. He went on to say that,
1.4
eW of the
influence which the New York Bank had brought to bear on
atfai
r8 of the Federal Reserve System in the past and the shift in reak1/18. .
lbllity from New York to Washington with the passage of the Banking
Act of
1935, he would prefer to see the law remain as it stands.
Chairman Eccles said that he did not think the matter was of sufficient •
Importance to take up with the President under present conditions.
Mr. Draper was called out of the meeting at this point.
Mr. Ransom said he recognized that the practical application
284
2/17/42
—5—
otthe existing statutory requirements had created a situation which
14cle it difficult for the Federal Reserve Bank of Boston to have its
Pl'esident serve on the Federal Open Market Committee. He also said
that
while it was essential in his opinion to have the president of
the m
"ew York Bank serve continuously as a member of the Committee,
thee
liactment of legislation along the lines proposed would be a re—
alistic
solution of Boston's problem.
Chairman Eccles stated that he thought the failure to have
the President of the New York Bank serve as a member of the Federal
°PaIlliarket Committee in effect would give the Federal Reserve Banks
St'l'ePre
sentatives
on the Committee.
He explained that the Treasury
1Y°11341 insist
upon consulting the New York Bank in connection with any
141)°I1tant
operations as its fiscal agent and that any decisions
l'eaehea Would be influenced by the president of the New York Bank
elterl though
he were not serving as a member of the Federal Open Mar—
iteteornmittee.
the
He suggested that it might be well for him to discuss
t)r0
1)0881 with the Treasury and, if he found the Treasury favorably
`1$13
°eecl toward I:p, to
obtain the reaction of Congressional leaders
°tilers
who would be concerned. He also said that, if it appeared
tiler
to::
(111-1c1 be no objection from these quarters, it might be desirable
a4e the
matter up with the Federal Reserve Banks for the purpose
of' oh
t ci te.inillg their reaction before having the proposed legislation in—
in Congress.
Chairman Eccles' suggestions were ap—
proved unanimously.
285
2/17/42
—6-fr. McKee pointed out that member banks in central reserve
ities
and in reserve cities in which Reserve Banks or branches were
11)cated
computed deficiencies in reserve balances on the basis of
average daily net deposit balances covering semiweekly periods, but
that member
banks in reserve cities other than those in which a Fed—
era R
'
eeerve Bank or branch was located, with few exceptions, were
l'e(illired to compute such deficiencies on a weekly basis, while coun—
anks were permitted to average their reserves over a semimonthly
"
t
Period.
He said that he would favor an amendment to Regulation D
which would
permit member banks in central reserve cities or in other
tiee in which a
Federal Reserve Bank or branch was located to aver—
their reserves on a weekly basis instead of on a semiweekly basis
44 at
Present. Further discussion disclosed that members of the Board
Were u
ilanimously in favor of such a change, and Mr. McKee suggested
that t
he Board send a telegram to all Federal Reserve Banks stating
that t
he Board was favorable to such a proposal and inviting an ex—
Preesi
°n of their opinion with respect thereto.
Llessrs. Draper and Wyatt entered the meeting at this point.
The Board unanimously approved Mr.
McKee's suggestion and authorized the
Secretary to send the following telegram
to the presidents of all Federal Reserve
Banks:
teh "Board is favorably considering amending first two sen—
lief?s of paragraph (1) of subsection (a) of section 3 of
u
cLation
D to read substantially as follows:
286
2/17/42
—7—
“Deficiencies in reserve balances of member
banks in central reserve cities and in reserve
cities shall be computed on the basis of average
.
daily net deposit balances covering weekly periods.'
Ulnor changes in wording of certain other provisions of regin order to conform to this amendment would, of course,
be necessary. The Board will appreciate your comments on this
Proposal by wire.”
The Board also agreed that, in the
event the reaction of the Federal Reserve
Banks was favorable, the staff should prepare an appropriate amendment to Regulation
D, together with a press release covering
the substance thereof, and circulate them
to the Board for approval.
Mr. McKee referred to the Act of Congress approved by the Presi(lent
On January 30, 1942 (Public Law 424--77th Congress) to amend section
3 or
the Subsistence Expense Act of 1926, as amended, to read as follows:
"Sec. 3. Civilian officers and employees of the depart'
netts and establishments, while traveling on official business
'!'n
cl. away from their designated posts of duty, shall be allowed,
lieu of their actual expenses for subsistence and all fees
,
r tips to porters and stewards, a per diem allowance to be
tjesoribed by the heads of the departments and establishments
2ncerned at a rate not to exceed ''6 within the limits of the
‘
1-30nti1enta1
United States, and not to exceed an average of 47
eYond the limits of the continental United States."
r
He
ae-id that) since the field force of the Division of Examinations was
klkotsi-
u co
ntinuously in a travel status, he had discussed the matter with
Paillger and had concluded that it would be desirable for the Board
gelige its own travel regulations so that the Board's employees now
l
owed
tr5 per diem when traveling on official business of the Board,
be allowed C6 per diem.
Upon motion by Mr. McKee, and by
unanimous vote, the Board amended, effective March 1, 1942, paragraph 3 of
e
280.40
2/17/42
—8—
its travel regulations dated December
15, 1937, to read as follows:
3. All other
loard pursuant
I..14Lacessarv
°f subsistence
persons traveling on official business of the
to proper authorizations shall be allowed actransportation expenses and a per diem in lieu
not to exceed e6."
Mr. McKee presented a letter addressed to the board of directors
"he University State Bank, Houston, Texas, stating that, subject to
cclidit
ions of membership numbered 1 to 3 in the Board's Regulation HI
the B
°ard approved the bank's application for membership in the Federal
'
ye System and for the appropriate amount of stock in the Federal
/teee
rve Bank of Dallas. He explained that the applicant bank would
have
a capital of only $100,000 whereas a bank in Houston, Texas, would
ordii
IlarllY be required to have a capital of not less than '',200,000 in
%%ler
to be eligible for membership inasmuch as the city had a populatic% .
In excess of 50,000. However he said that the location of the apIlliee
bank was to be approximately six miles from the heart of dolm°Ilston, apparently at the corporate limits of the city, and that
4rtk„
- -Located in outlying districts of a city were eligible for member"ilth a
capital of 0.00,000.
Mr. McKee said that it was his recom-
tellclat•
lon that the bank be granted permission to maintain the same resei„ves
against deposits as were required of banks not in reserve or
'ettral
reserve cities, but that, since the statute required the affirm,
tive
approval of five members of the Board in taking such action, he
krteci
t° bring the matter specifically to the attention of the other
Illettiber
8 of the Board.
288
2/17/42
-9Upon motion by Mr. McKee the Board
unanimously approved the letter referred
to above, together with a letter to Mr.
Gilbert, President of the Federal Reserve
Bank of Dallas, reading as follows:
"The Board of Governors of the Federal Reserve System
aPProves the application of the 'University State Bank',
Houston, Texas, for membership in the Federal Reserve System, subject to the conditions prescribed in the enclosed
letter which you are requested to forward to the Board of
DI-rectors of the institution. Two copies of such letter
are also enclosed, one of which is for your files and the
Other of which you are requested to forward to the Commissloner of Banking for the State of Texas for his information.
"Pursuant to the provisions of Section 19 of the Federal Reserve Act, the Board of Governors grants permission
to the subject bank to maintain the same reserves against
dePosits as are required to be maintained by banks not in
reserve or central reserve cities. This permission is subject to revocation at any time by the Board of Governors.
, "It is understood that present plans are to open the
'ank about April 1, the exact date being contingent upon
.201np1etion of the banking house now under construction.
.!-11 view of the circumstances, instead of the usual 30 days
the bank is being given 90 days within which membership
t6lAY be accomplished."
Mr. Szymczak withdrew from the meeting at this point.
Reference was made to Hr. Wyatt's memorandum addressed to the
" Under date of February 11, 1942, submitting a letter addressed to
b
Y !Ir. Oscar Cox on behalf of the War Legislation Committee, copies
tt
-„z
150"J ch Were furnished to members of the Board prior to this meeting,
ecillestinej information as to any additional legislation which the Board
tlqht
necessary for the war effort.
It was pointed out that there
44(lbeen some
unfavorable reaction in Congress to the procedure whereby
1111°11Y unrelated proposals were included in the so-called War Powers
‘ta
A;411034 /
2/17/42
—10—
Acts and that it might be preferable in the event additional legislation
desired to have it cleared with the Bureau or the Budget and intro—
kced •
- in Congress in the usual way.
Following a discussion of the legis—
'
tive situation, Chairman Eccles suggested that the Board authorize Mr.
L
-, to advise :r. Cox that A this time it had no additional legis—
o
lat1
'-n related to the war effort which it desired included in another
rov;ers Act.
The Board unanimously approved
Chairman Eccles' suggestion, and Mr.
Wyatt was requested to proceed ac—
cordingly.
Chai
man Eccles reported for the information of the other members
Qf the B
() rd that he had written a letter to Mr. Donald Nelson, Chairman
'the
d
ar Production Board, with a brief covering letter to Sidne,
illber in
Mr. Nelson's office, regarding the proposed legislation with
g
Peet to the establishment of a Federal Industrial Credit Corporation.
1111-an Eccles read the letters which he had sent and explained that he
Lç
avo
ided committing the Board inasmuch as time did not permit a full
of the
se which he felt it was desirable to pursue.
c°ur
He
414 thE,A,
both the War and Navy Departments were very much in favor of
the 131'0p05a1
but that, since Mr. Nelson had been given full charge with
l'esPeet to ,11[Dy
and Navy procurement, it seemed unnecessary to ask for
expression of the views of those departments until he had re—
\red
solacthin
statements
in writing from Mr. Nelson which would confirm
1711i4 had
been made informally last month. However, Chairman Eccles said
that
he ,
nad sent copies of the letter which he had written to Mx. Nelson
2:-)(
2/17/42
-11-
'
t Under Secretary of War Patterson and Under Secretary of the Navy
Porrestal
for their information.
In this connection, Mr. Ransom stated that a routine request
1111clbeen received from Senator Wagner for a report on Senate Bill 2250,
11*(xluced on February 5, 1942, by Senator Murray on behalf of the Senate
elftattee on Small Business, "To mobilize the productive facilities of
41111 business in the interests of successful prosecution of the war,
kid for
other purposes." He said that he thought consideration should
be O4
6-'veri to whether a report should not be made on this bill. He added
that if
alr. Vest was preparing a draft of such a report and that he assumed,
trIthe event it was decided to submit it to the Senate Banking and Currency
eo nht
it would have to be cleared with the Bureau of the Budget be%e it was contemplated that the report would propose the substitution
the
Chairman's proposal for that contained in the Murray bill.
At this point, Messrs. Thurston, Wyatt, Smead, Paulger, and
Ile
"
, left the
meeting, and the action stated with respect to each of
theMatters hereinafter referred to was then taken by the Board:
The minutes of the meeting of the Board of Governors of the FedReserve System held on February 16, 1942, were approved unanimously.
The minutes of the meeting of the Board of Governors of the Fed"erve System with the Federal Advisory Council held on February
6,19
42, were approved unanimously.
Memorandum dated February 10, 1942, from Mr. Goldenweiser, DiNctor. of
the Division of Research and Statistics, recommending that
eha.ri
e8 R. Harley be appointed on a permanent basis as an economic
2O1_
2/17/42
-12assistant in that Division, with no change in his present salary at
the rate ofy600 per annum, effective as of the expiration of his
temr„
"ParY appointment at the close of business on March 17, 1942, and
that he
become a member of the retirement system on March 16, 1942.
Approved unanimously.
Memorandum dated February 16, 1942, from Mr. Goldenweiser, Di'of the Division of Research and Statistics, submitting the resighat*lon of
Mrs. Melva Lischinsky as a clerk-stenographer in that
tilrisi°n, to become effective as of the close of business on January
31, 1942) and recommending th,t the resignation be accepted as of that
date.
The resignation was accepted.
Letter to Yr. Mulroney, Vice President of the Federal Reserve
tarik or
Chicago, reading as follows:
"In accordance with the request contained in your letts
-r of February 10, 1942, the Board approves the designations
°f John L. Hart and Elihu B. nashburne as special assistant
eXaminers."
Approved unanimously.
Letter to Mr. Peyton, President of the Federal Reserve Bank of
kth/le.
-E111"01is, reading as follows:
"Referring to your letters of January 26 and February
6
t/ 1942, the Board of Governors approves payment of salaries
;
0 the following officers of the Bank for the period FebearY 1, 1942, to May 31, 1943, inclusive, as fixed by your
°ard of Directors, at the rates indicated:
7/
—13-Name
A. W. Mills
C. Core
O. R. Preston
H. G. McConnell
. B. Larson
W. H. Turner
11. E. Lysen
°- W. Ohnstad
.
Title
Annual
Salary
$7,000
Cashier and Secretary
Officer
6,750
Personnel
7,000
President
Assistant Vice
6,000
Assistant Vice President
4,500
Assistant Cashier
4,700
Assistant Cashier
5,000
Operating Research Officer
4,000
Auditor
"The salaries fixed by your Directors for the remain—
Officers of the Bank for the period June 1) 1942, to
sT_, 1943 inclusive, are approved by the Board as fol-
a
Zfillie
-----J. N. Peyton
°. S. Powell
Swanson
H. I. Ziemer
A, R.
Larson
, ..tE.
, Peterson
I. H. Hodgson
Title
President
First Vice President
and Secretary
Vice President
Vice President
Assistant Cashier
Assistant Cashier
Assistant Counsel
Annual
Salary
$25,000
15,000
10,000
9,000
5,500
5,500
5,500
41.-.1-1c11
Name
R.
Towle
.4. Johnson
J. Larson
Title
Managing Director
Assistant Manager
Assistant Manager
Annual
Sala
$81000
4,120
4,250
i "The Board of Governors approves payment of a retainfee at the rate of $9,000 per annum to Sigurd Ueland„
nsel, for the period January 1, 1942, to May 31, 1943."
Approved unanimously.
s rve
tiett r. to Mr. Powell, First Vice President of the Federal Reank of Minneapolis, reading as follows:
293
2/4/42
—14-
"In view of the circumstances set forth in your
letter of February 10, 1942, the Board of Governors
approves the payment of a salary at the rate of $3,600
per annum, effective November 1, 1941, to Mr. John
Johnson, Alternate Assistant Federal Reserve Agent.
"Vith reference to Mr. Earl B. Larson, the Board
Of Governors approves the payment of a salary to him
as Alternate Assistant Federal Reserve Agent at the
a'te of U1,120 per annum for the period November 1,
-L941 to January 31, 1942. You will be advised in a
separate communication regarding the payment of salary
to Mr. Larson as Assistant Cashier."
i
Approved unanimously.
Thereupon the meeting adjourned.
OlitjL19
Secretary.
@FedFRASER