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Minutes for

To:

Members of the Board

From:

Office of the Secretary

February 18, 1965

Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date. 1/
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present) your initials will indicate
only that you have seen the minutes.

Chm. Martin
Gov, Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov, Mitchell
Gov. Daane

/ MeetingPresidents of the Federal Reserve Banks.

Minutes of a meeting of the Board of Governors of the Federal
Reserve System with the Presidents of the Federal Reserve Banks on
Thursday, February 18, 1965.

The meeting was held in the Board Room

at 10:30 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Mr. Sherman, Secretary
Mr. Kenyon, Assistant Secretary
Mr. Young, Adviser to the Board and Director,
Division of International Finance
Mr. Noyes, Adviser to the Board
Mr. Molony, Assistant to the Board
Mr. Cardon, Legislative Counsel
Mr. Fauver, Assistant to the Board
Mr. Hackley, General Counsel
Mr. Brill, Director, Division of Research
and Statistics
Mr. Solomon, Director, Division of Examinations
Mr. Shay, Assistant General Counsel
Mr. Koch, Associate Director, Division of Research
and Statistics
Mr. Hersey, Adviser, Division of International
Finance
Mr. Sammons, Adviser, Division of International
Finance
Mr. Reynolds, Associate Adviser, Division of
International Finance
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Leavitt,Assistant Director, Division of
Examinations
Mr. Dahl, Chief, Special Studies and Operations
Section, Division of International Finance
Mr. Gemmill, Economist, Division of International
Finance
Mr. Furth, Consultant

Messrs. Ellis, Hayes, Bopp, Hickman, Wayne, Bryan,
Scanlon, Shuford, Clay, Irons, and Swan, Presidents
of the Federal Reserve Banks of Boston, New York,
Philadelphia, Cleveland, Richmond, Atlanta, Chicago,
St. Louis, Kansas City, Dallas, and San Francisco,
respectively

2/18/65

-2Mr. Strothman, First Vice President, Federal
Reserve Bank of Minneapolis
Messrs. Coombs and Holmes, Vice Presidents,
Federal Reserve Bank of New York
Voluntary credit restraint effort.

This meeting was called

for the purpose of discussing further the role of the Federal Reserve
System in the voluntary effort to restrain foreign lending and investment, a part of the President's program to improve the balance of
Payments position of the United States as spelled out in his message to
the Congress on February 10, 1965.

A telephone conference had been

held between the Board and the Reserve Bank Presidents on February 10,
and this meeting supplemented the discussion held at that time.
In advance of the meeting the following documents had been
distributed to the members of the Board and the Reserve Bank Presidents
with a memorandum from Governor Robertson dated February 17, 1965:
drafts of statements to be made by Chairman Martin and Governor Robertson
at the meeting to be held this afternoon at the Federal Reserve Building
with representatives of the financial community; a background paper on
the U.S. balance of payments that was to serve as the basis of a chart
Show to be presented this afternoon by the Board's staff; and a series
of papers setting forth current staff thinking on what might be approPriate guidelines for the Federal Reserve to follow in carrying out its
responsibility for the voluntary credit restraint effort by financial
institutions.
Chairman Martin began the meeting by reviewing the events that
were scheduled for today, including the meeting at the White House at

2/ 18/65

-3-

1:30 p.m. at which President Johnson was to talk with some 350 business
and financial leaders concerning the objectives of the voluntary program.
Chairman Martin noted that he, Governor Robertson, and Presidents Hayes
and Scanlon would represent the Federal Reserve at the White House meeting.
He noted also that following the White House meeting the industrialists
would go to the Department of Commerce for a conference with Secretary
Connor.

The financial leaders would come to the Federal Reserve Building

for a meeting in which the members of the Board and the Reserve Bank
Presidents would participate.
Chairman Martin repeated at this time his statement during the
February 10 telephone conference that Governor Robertson had been designated
as the member of the Board in whom responsibility would be centered for
administration of the voluntary restraint effort as it applied to banks
and also to nonbank financial institutions, it now having been requested
that the program for such institutions fall within the purview of the
Federal Reserve.
At the request of Chairman Martin, Mr. Young commented on the
meeting he had attended in Paris earlier this week of Working Party 3
of the Economic Policy Committee of the Organization for Economic Cooperation and Development.

He noted that Governor Daane had remained in Paris

for the meeting of the Economic Policy Committee currently in progress.
Mr. Young's remarks were followed by comments by Mr. Coombs based on his
attendance at the most recent monthly meeting of the Bank for International
Se ttlements in Basle.

.)
2/18/65

-4Chairman Martin then turned to Governor Robertson, who

commented on the need for a uniform System approach in dealing
with financial institutions participating in the voluntary
restraint effort.

Since the program was voluntary, guidance to

such institutions should not be in terms of orders; on the other
hand, it was necessary to have guidelines, if only for internal
purposes.

Perhaps all of the institutions involved in the program

Should have the guidelines so as to know what was expected
of
them, but consideration of this step could be deferred for the
time being.

In the meantime, however, there should be a general

understanding of the line that the Federal Reserve Bank Presidents
would take in their discussions with i.ividual banks and other
financial institutions.

It was not necessary to discuss the draft

guidelines in detail at this meeting, but all concerned should be
giving thought to them and provide the benefit of their views.
Governor Robertson observed that representatives of the
Other Federal bank supervisory agencies had been invited to
attend the meeting at the Federal Reserve Building this afterno
on.
However, it had not yet been determined how bank examiners might
be used appropriately in connection with
the voluntary restraint
effort.

Certainly there would be no objection to using bank

examiners to pass along information with regard
to the program,
but the task of discussing the program with
the financial institutions engaged significantly in foreign lending would be one for
the Resarve 3ank Presidents to undertake.

Gat
2/18/65

-5Governor Robertson then turned more specifically to the

draft guidelines and reviewed them in sequence.

He suggested that

the Reserve Bank Presidents discuss the guidelines with their staff
members and provide comments and suggestions, with the thought that
a revised draft of guidelines might be gotten into the hands of the
Reserve Banks within about a week.

He also commented that it would

not be advisable to take the position definitely at this time that
a technical advisory committee or committees would be appointed in
connection with the voluntary program.
Question was raised whether the Reserve Bank Presidents
Should defer meeting with representatives of individual banks
until the guidelines were available, and President Hayes commented
that conversations with the individual banks could turn up ideas
regarding appropriate guidelines.

He suggested that the meetings

therefore
be scheduled without undue delay.

Governor Robertson

indicated that he saw no objection provided the
Reserve Banks
re frained from taking firm positions at this time and avoided
making statements that had the appearance of orders.

He added

that no matter what guidelines were established, there would have
to be some room for administrative flexibility; excep:ions no
doubt would have to be made to take care of unusual situations.
He also observed that follow-up meetings could be held by the
Reserve Bank Presidents with representatives of banks and other
financial institutions as necessary after the guidelines were
available.

6iJ2
2/18/65

-6Governor Mitchell indicated that he would feel more

comfortable about promulgating guidelines if advice were available from commercial bank experts in foreign operations who could
describe the kinds of problems that the voluntary effort ww.:Ild be
likely to create.

He wondered, therefore, whether the advice of

technicians should not be obtained promptly.
Governor Robertson responded that his thinking had been to
develop a tentative set of guidelines that the technicians could
have before them as a basis for discussion and expression of
views.

If the meetings of the Reserve Bank Presidents proceeded

Promptly, any ideas that were developed from such meetings could
be incorporated in the tentative guidelines on which the advice
Of the technicians would be sought.

He also suggested that the

Reserve Bank Presidents supply the names of persons who would
Seem

particularly well qualified to provide technical advice.
President Hickman inquired how it was proposed to deal

With lines of credit that had not actually been drawn upon,
Pointing out that this would have a bearing on the ability of
banks to extend export credit and still not expand their loans
more than 5 per cent beyond the credits outstanding at the end
°f 1964.

Governor Robertson replied that under no circumstances

should banks be discouraged from extending export credit, but
they would be expected to cut back other credits.

Whilc, banks

would have to honor binding commitments, in some cases there

2/18/65

-7-

were simply understandings.

Refusals to extend nonexport credits

would have to be related to the national interest.
President Ellis suggested that if export credits were held
out as sacred, banks no doubt would be presented with many applications for financing under the guise of export credit.

He suggested

that the Reserve Bank Presidents, in discussing the voluntary
Program with bankers, be cautious to avoid the possibility of
"export credits" being carried to the point of abuse.
A Reserve Bank President noted that there was nothing in
the draft guidelines with respect to insurance companies, and
Governor Robertson replied that guidelines for such companies
and other nonbank financial institutions would be formulated as
soon as possible.

In the meantime, there was nothing to prevent

the Reserve Bank Presidents from discussing the program with
individual nonbank financial institutions and asking them for a

good

faith effort.
Another President inquired about loans to underdeveloped

countries, noting that under the draft guidelines such loans
apparently would be included within the 105 per cent limit, and
Governor Robertson replied that this was an area where the Reserve
sank Presidents must use discretion in conversations with lending
institutions.
President Wayne expressed the view that the hope for
success lay in the extent to which banks could be persuaded to

2/18/65

-8-

roll back the vast amount of credit extended in the fourth quarter
of 1964 for nonexport purposes.

This would provide funds that

could be used to finance exports, and he felt that the Reserve
Bank Presidents should express this view.
President Hayes said that the banks were looking for
guidance on loans to particular geographical areas and on types
of credits that were not particularly in the national interest.
He suggested focusing attention on the possibility of curtailing
credits to Western Europe.

He felt that the banks would welcome

suggestions by the Federal Reserve that they turn down nonexport
credits to developed countries, or fail to renew such credits, without
at the same time inviting competitors to take the business away
from them.
Governor Robertson suggested the alternative approach of
emphasizing priority on loans to less developed countries.

He

went on to say also that if there should be a cut-off of credit
to Japan, for example, this would provoke substantial political
Problems.

Instead, the emphasis should be on not expanding the

current volume of credit.

The Latin American countries might

fall in somewhat the same category.
President Ellis inquired as to the thinking about the
Probable length of the voluntary program, and Governor Robertson
Observed that there would have to be a careful watch to appraise

the effectiveness of the program.

Chairman Martin commented that

if any definite time period was indicated, people would be looking

2/18/65

-9-

for results within that particular period.

There was a general

assumption that if the steps now being taken were not successful,
Other steps would have to be taken.

This line of reasoning should

not be held out as a threat, but the balance of payments message
had contained a commitment to hold the price of gold at $35 an
ounce.

Chairman Martin also noted that the legislation being

sought to provide antitrust immunity for certain actions under the
voluntary program contained a terminal date at the end of 1967,
unless terminated sooner by the President.
Chairman Martin also made the comment that some skepticism
was bound to be heard about an effort of this kind, but that an
oPportunity was provided for the Federal Reserve System to exert
strong leadership.

In this connection, he noted that all of the

members of the Federal Advisory Council would be attending the
meetings at the White House and the Federal Reserve Building today.
This was a statutory body, and the members should be brought into
the program in terms of seeking their advice and support.

As

many people as possible should be encouraged to lend their
efforts to the success of the voluntary program.
President Wayne asked for clarification on whether
insurance companies were now included in the part of the program
for which the Federal Reserve had responsibility, and
C hairman Martin replied that the F leral Reserve had been asked
to assume responsibility for the program for nonbank financial

-10-

2/18/65

institutions, including insurance companies, pension funds, investment companies, and others.

He indicated that it would be appropriate

for a Reserve Bank President to have discussions with representatives
of individual nonbank financial institutions.
Members of the Board's staff indicated that information was
available at the Treasury that would be useful in compiling a 1_-t
of the principal nonbank financial institutions that might be
engaged significantly in foreign lending or investment.

The work

of formulating appropriate guidelines would proceed as rapidly as
Possible, and the Federal Reserve Banks would be informed as
further steps were taken.

Governor Robertson noted in this

connection that a check had been made regarding savings and loan
associations, that apparently there were few if any such institutions with foreign investments, and that accordingly there appeared
to be no need to bring them within the voluntary program.
Governor Balderston expressed the hope that Coe '-cderal
Reserve System would refrain from conveying an impression that the
international payments problem was not likely to be of long
d uration.

Capital funds might be flowing abroad for a long time.

The question was not how long the problem would be before the
country, but how fast the balance of payments could be brought
under control.

It seemed essential to show definite results

Within the course of the next year.

As to the question of credits

to various geographical areas, Governor Balderston pointed out

2/18/65

-11-

that if there was restraint on dollars flawing to Europe, it
might still be found that credits to underdeveloped countries
resulted in dollars eventually piling up in European central
banks.
Chairman Martin concluded the meeting by reiterating that
the Federal Reserve must try to minimize in this initial period
the type of skepticism that comes simply from ignorance.

The

Federal Reserve should exhibit an attitude of wanting to have
the right answers and should exert all the leadership it possibly
could.
The meeting then adjourned.

Secretary