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198 A meeting of the Board of Governors of the Federal Reserve SysWith the Federal Advisory Council was held in the offices of the Of Governors in Washington on Tuesday, February 18, 1941, at 10:30 Et$1114 PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, 'nee Chairman Szymczak McKee Davis Draper 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 Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Paulger, Chief of the Division of Examinations Mr. Smead, Chief of the Division of Bank Operations Mr. Parry, Chief of the Division of Security Loans Mr. Dreibelbis, Assistant General Counsel Mr. Wingfield, Assistant General 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 Ur. Brown stated that following the discussion with the Board '‘eeteliclelr morning the Council met in a separate session and approved a 199 2/18141 -2- 8tatement with respect to the special report to Congress which he would Ell4clir. Lichtenstein to read. '3114 for The statement was prepared, Mr. Brown said, submission to the Board and not for publication. The statement 11"I blr Mr. Lichtenstein was as follows: "The Federal Advisory Council is of the opinion that the Sri 1, al Report submitted to the Congress on December 31, 1940, -c'ea1 the Board of Governors of the Federal Reserve System, the ' residents of the Federal Reserve Banks, and the Federal Advi8°rY Council, was an important statement dealing with the risks .c/tr a possible inflationary development which might arise out of he Present situation. While the Council does not fear that ch an inflation is imminent and is likewise aware of the fact 'inflation can not be controlled by monetary measures t°11e't nevertheless, the Council does believe that monetary acay be an important factor if it should become necessary i same future time to control an inflationary movement. "The Council believes that the System as a whole should be Or to support fully the recommendations and statements ! ade in the Report, since it does not consider there is any rea_n at this time for a change in the Position taken in the Report. System, or the Board of Governors, should be requested by e ethe Congress to implement the Report, or more specifically, if ✓ither should be asked to draft a bill designed to translate the 0"°mmendations made in the Report into law, the bill, as the , °114cil believes at this time, should seek only to out into legal those recommendations in the Report which relate specificalt° the problem of excess reserves. The Council is furthermore the opinion that if later on it appears that those reconnenda"s should be modified or supplemented it would be helpful bet e a bill is proposed if there were a prior conference with t2_se groups subscribing to the original report. The Council tres it for granted that the other protective steps discussed in e Report 'equally or more important' than the monetary aspects • c°11tr0l will be dealt with by those authorities or departments • the Government within whose jurisdiction they belong." T Z r Lir. Brown said in explanation of the statement that it was the 11 af the Council that while the System should be prepared to recom- legislation in accordance with the statement it should not take the 200 2/18/41 _3_ ative in proposing legislation at this time. There was a discussion of the Council's statement and of the 1/15es1bility of an agreement by the Board, the Council, and the Presitielit8 of the Federal Reserve Banks on a legislative program. The sug- gestion was made that, in view of the apparent agreement among the iliellib " 8 of the Board and the Council (in which it was believed the Presidents - of the Federal Reserve Banks would join) that no action should be at the present time with respect to the submission of suggested 8-Lation, the Board, the Council, and the Presidents' Conference might each 11) Point a small committee to make a more or less continuous study "the Problem and to make suggestions as to a legislative program that cob,. --4q be considered and, if possible, agreed upon by the three groups. Chairman Eccles raised a question as to the instructions that be issued to the three committees. In the discussion which ensued it was agreed that the Board, the Council and the Presidents' Conference should each appoint a committee of three and that the three committees would be instructed to cooperate in an effort to prepare a legislative program which would be acceptable to the three groups as a basis for action when it seems desirable. It was also understood that the work of the committees would relate only to the recommendations contained In the special report to Congress and that other legislative questions would not be referred to them. At this point Yr. Draper left the meeting. 201 2118/41 _4_ . Brown stated that the Council had given consideration to bill S.31°) Which war; introduced by Senator Glass on Tanuary 14, 1941, to regIllate the control of insured banks by holding companies and that, while coltmc. 11 had adopted no formal statement with respect to the bill, it 01:goosed particularly to (1) the death sentence provisions, (2) the c1171dend restrictions, and (3) the provisions which would authorize the ' al Deposit Insurance Corporation to seek anticipatory injunctions l'eciel ' 1:41 vito-Len- would authorize fines or imprisonment for violations of the provista 118 of the act or any rules and reulations issued thereunder. With respect to the first objection, :Jr. Brown said he did not believe the Council would be opposed to legislation freezing the existing holdi 4C conlpany situation but that there was little or no private capital e°4tilable for the purchase of the stock of banks held by holding companies 411 ir the death sentence provision of the bill were enacted it would 48'4 that the banks affected would have to be liquidated which would not be i -4 the Public interest. In response to an inquiry from iLr. Ransom, 11°171Q. said that it was felt that the most satisfactory means of solvik th e Problem would be on the basis of freezing the existin6 situation or ri 4cl1ng a :problem. solution for the branch bankint Mliae tlOS In connection with the second objection, Y.r. Brown stated that, lt might be desirable to provide for corrections of specific viola- Of the Banking Act and the Comotroller's regulations and to give the 00„,„ '''Ptroller the right to prohibit or regulate dividends in certain 202 2/18/41 -5- ells", the Council felt that to give the Comptroller and the Federal A3Poleit Insurance Corporation virtually unrestricted control of dividends would be entirely undesirable. €43t bank He added that it is difficult to capital at the present time and if dividends were made subject to the arbitrary power of the Comptroller of the Currency and the Fed1 ePosit Insurance Corporation it would add greatly to the diffiel4t7 of obtaining capital. In response to an inquiry from Chairman Eccles as to how the C151111cil felt about the virtual transfer of jurisdiction over holding e°1111*Illies to the Federal Deposit Insurance Corporation, Mr. Brown stated t4t it was felt that the whole approach of the bill to the problem inWas wrong, that it was understood that the bill had been proposed t(Ir A thPurpose of obtaining the necessary authority to require correc.4048 in a few institutions which were unwilling to comply with the reOf allow) the Comptroller of the Currency, and that any needed legislation be so drafted as to apply only to such cases. Ur. Brown made the further comment that it was hoped that the 11110f44.1 would oppose the bill and that it would be appreciated, in the event it 4Aeared that hearings were to be held, if the Board would advise the C151414il so that it could also appear in opposition and present an alter4"417*e. draft of the section relating to the payment of dividends. Lir. Wakefield stated that his company, the First Bank Stock Corettl°11) could not interpret the passage of the holding company bill in 203 2/1V41 -6- eav- other wv than that it was intended to encourage the corporation in the liquidation of a number of its subsidiary banks. Chairman Eccles stated that the Board had been charged with the clInialistration of bank holding companies since 1933, that it was believed the, -410ard had done as good a job as could be done under the existing law, that th flew bill was somewhat of an indictment of the Board in that the Proposed the virtual transfer of the supervision of holding companies to the Federal Deposit Insurance Corporation, and that the facts do not 8111Tort the statement that the present holding company situation is danelbc)Ue and unsound, as it could be shown that the control of banks by Il°14ing coMpanies had not increased during the seven-year period and that c°4dition of holding companies and their subsidiary banks had been iraproved and strengthened during the period. Chairman Eccles illecie the further statement that the bill was introduced without consulttion with or knowledge of the Board, that the Treasury and the Comptroller r the Currency were aware of the Board's attitude on the bill, that the 11 -°ara had agreed to advise the Secretary of the Treasury formally of its obje ctions to the bill, and that a renuest had been received from the Sehclte -' 41LIng and Currency Committee for a report on the bill. After a discussion of a number of changes which it was felt should 13 1"cle in the existing law, Chairman Eccles su-zested that it would be ile1131'111 if the Council would be prepared to have someone represent it at he that might be held on the bill. dembers of the Council 204 2/18/41 _7_ 44icated that they would be glad to be of any assistance they could in tills connection. Thereupon the meetino adjourned. Secretary. Chairman. •
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