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109 A meeting of the Federal Reserve Board was held in the Office of the Federal Reserve Board on Saturdyy February 2, 1929, at 11:35 a. in. PRESENT: Governor Young Mr. Platt Mr. Hamlin Mr. Miller Mr. James Mr. Cunningham Mr. Noell, Assistant Secretary Mr. McClelland, Assistant Secretary The minutes of the meetings of the Federal Reserve Board held °4 jahuarY 29th and 30th were read and approved. The Governor stated that special order of business for this meeting would be that fixed for consideration yesterday, namely, the proposed letter t° the chairmen of the Boards of Directors of all Federal reserve banks on the subject of the proper use of the credit facilities of the Federal Reserve System. Before consideration of this special order, however, he stated that he wished to acquaint the Board with certain facts learned by him during late visit to New York. He stated that he had several conversations with Governor Norman of the Bank of England, but inasauch as Governor Norman Will be in Washington next Wednesday, he would prefer to let him advise the Board personally of the situation at the Bank of England.,. He rePorted a conversation with Governor Harding of the Federal Reserve Bank of Boston, during which he was advised that member banks in the first district are owing the Federal Reserve Bank of Boston in the neighborhood of $60,000,000, end the liquidation usual at this time of the year is not taking place. Governor Harding stated that an investigation develops that the member banks in the first district, while not borrowing in any Particular case in a great amount, are amultaneously making speculative loans for their customers. In view of these facts, Governor Harding stated that he would recommend to his directors that the discount rate of the Boston Bald,: be increased to 6 per cent. 2/2/29 -2- The Governor stated that at the meeting of the directors of the Federal Reserve Bank of New York on Thursday, there was not much discussion with respect to the discount rate. He stated, however, that in conversation with Mr. Harrison *and Mr. McGarrah, although Governor Harrison encouraged the idea of another Federal Reserve Bank increasing its rate, both he and Mr. McGarrah stated that the directors of the New York Bank do not want to raise their rate except as a last resort. The Governor tnen reported that, although the Open Market Investment Committee has been unable to sell any government securities for some time, tne market is somewhat improved, and the Committee may propose some sales from the System portfolio in the near future, although the sales would, of necessity, be in small amounts. He also stated that at tne meeting of the New York directors a statement relative to the volume of brokers' loans was presented and unanimously approved by the directors for inclusion in the bank's monthly review. Mr. Miller tnen submitted. a further and final revision of the proletter to the chairmen of all Federal reserve banks, reading as follows: "The firming tendencies of the money market wnich have been in svtdence since the beginning of the year - contrary to tne usual trend taie season - make it incumbent upon the Federal reserve banks to glve constant and close attention to tne situation in order that no influence adverse to the trade and industry of the country shall be sZerci sed by the trend of money conditions, beyond wnat may develop as Inevitable. The extraordinary absorption of funds in speculative security 1(lans which hes characterized the credit movement during the past year °r more, in the judgment of the Federal Reserve Board, deserves particur attention lest it become a decisive factor working toward a still _urther firming of money rates to tne prejudice of the country's ommercial interests. The resources of tne Federal Reserve System are ample for meeting tne grown of the country's commercial needs for credit, provided they IT'? competently administered and protected against seepage into uses (3 contemplated by the Federal Reserve Act. t The Federal Reserve Act does not, in tae opinion of the Federal seerve Board, contemplate the use of the resources of the Federal seerve Banks for the creation or extension of speculative credit. A mber bank is not within its reasonable claims for rediscount facilities te Federal reserve bank when it borrows either for the purpose of i' king Aoatia. speculative loans or for tne purpose of maintaining speculative Z 111 2/2/29 -3- "The Board nes no disposition to assume authority to interfere With the loan practices of member banks so long as they do not involve the Federal reserve banks. It has, however, a grave responalbility whenever there is evidence that member banks are maintaining speculative security loans with the aid of Federal reserve credit. Inlen such is the case the Federal reserve bank becomes either a contributing or a sustaining factor in the current volume of speculative security credit. This is not in harmony witn the intent of the Federal Reserve Act nor is it conducive to tne wnolesome operation of the banking and credit system of tne country. You are desired to bring this letter to tne attention of t.ha directors of your bank in order that they may be advised of the attitude of tne Federal Reserve Board with respect to tnis situation and tne problem confronting the administration of Federal Reserve 11ahks. The Board would like to nave from tnem an expression as to (a) , 40w they keep themselves fully informed of tne use made of borrowings 1?;/ tneir member banks, (b) what methods they employ to protect their lhatitution against the improper use of its credit facilities by member banks, and (c) how effective these methods have been. . The Board realizes that tne problem of protecting the credit situation from strain because of excessive absorption of credit in speculative security loans is attended with difficulties. It also realizes that there are elements in the situation wnicn are not readily amenable to recognized methods of banking control. The Board nevertheless believes that, however difficult, tne problem can be more completely met and that the existing situation admits of improvement. The Federal Reserve Board awaits the reply of your directors to letter and bespeaks tneir prompt attention in order tnat it may nave their reply at an early date." Y'S Mr. Cunningham moved that tne above letter be accepted substitute for all drafts heretofore considered by a as the Board and approved for transmittal. Mr. Hamlin moved that the above letter be amended by adding at the end of the next to last paragraph thereof the words, "without resort to drastic methods." Mr. Hamlin's motion was put by the chair and lost, the members voting as follows: Mr. Hamlin "aye" Mr. Cunningham "aye" Governor Young "no" Mr. Platt "no" Mr. Miller "no" Mr. James "no" Mr. Platt stated tnat he voted "no" as he feels that the proposed addition is unnecessary, the matter being sufficiently covered in the letter as quoted above. 2/2/29 Mr. Cunningnamis motion was then put by the chair and carried, Governor Young voting °no". Mr. Hamlin stated that he voted "aye" because of the fact that tne letter is not a ruling of law but merely a declaration of good banking policy and does not advocate or suggest drastic liquidation. A discussion then ensued with respect to tne possible publication letter, either in the Federal Reserve Bdlletin or as a press statement. the discussion it was voted to rescind the resolution adopted at the 14eeting on January 24th, tnat the letter be treated as a confidential document, 814 the Secretary was authorized to handle and transmit the letter in the 1184ea manner. The Governor then referred to the possibility of the Open Market 417estment Committee proposing sales of government securities in tne near 11 tlItIll'e and stated tnat, if there is no objection, he would advise the 04 . Mallttee that the Board sees no reason why such sales should not be made 14 small amounts. No objection was expressed. The Secretary then presented the matter approved on initials on J.041„ "417 31st, namely, application for surrender of 720 snares of stock in Federal Reserve Bank of San Francisco, standing in the name of the Exchange 4ti°1101 Bank, Spokane, Viasnington, which has been placed in the hands of teceiver. Formally approved. Letter dated January 30th, from the Chairman of the Federal Reserve 811k of Dallas, advising of the establishment on January 26th, of the followSchedule of rates for purchases of bankers' acceptances: 4? ti 2/2/29 -51 to 30 days 31 to 45 days 46 to (50 days 61 to90 days 91 to 120 days 121 to 180 days Repurcnase Noted _ - 41/2% 45/8% 43/4% 47/8% 5% 51/8% 5% 4--PORTS OF STANDING COMMITTEES: Dated, January 30th, 31st, February 1st, 2nd Dated, January 31st, 4tecl, January 29th, ted, January 29th, Datea, January 29th, Dated., January 31st, tad, January 31st, Recommending changes in stock at Federal Reserve banks as set forth in the Auxiliary Minute Book of this date. Recommendations approved. Recommending action on applications for fiduciary powers as set forth in the Auxiliary Minute Book of this date. Recommendations approved. Recommending approval of the application of Mr. James T. Sweeney, for permission to serve at the same time as director of the Abington National Bank, Clarks Summit, Pa., and as director of the Dime Bank-Lincoln Trust Company, Scranton, Pa. Approved. Recommending approval of the application of Mr. Chauncey H. McKellips, for permission to serve at the same time as director of the First National Bank of Arizona, Phoenix, Arizona and as director of the South Pasadena National Bank, South Pasadena, California. Approved. Recommending approval of tne application of Mr. F. W. Shelton, for permission to serve at tne same time as director and officer of the Pacific National Bank of Los Angeles, California, as director of the Florence National Bank, Florence, California, and as director of the National Bank of Hermosa Beach, Hermosa Beach, California. Approved. Recommending approval of tne application of Mr. August E. C. Becker, for permission to serve at the same time as director of The Tri State Loan and Trust Co., Fort Wayne, Indiana, as director of the Peoples Trust and Savings Company, Fort Wayne, Indiana and as director of The Old National Bank of Fort Wayne, Ind. Approved. Recommending approval of the application of Mr. Paul C. Cabot, for permission to serve at the same time as director and officer of Lee, Higginson Trust Company, Boston, Mass., as director of the National Shawmut Bank of Boston, Mass., and as director of the Needham National Bank, Needham, Mass. Approved. 114 2/2/29 -6- I/ 101128 OF STANDING CVZITTEES: (Continued) . Dated, February 1st, Recommending approval of the application of Mr. Percy H. Johnson, for permission to serve at the same time as officer and director of the Chemical National Bank of New York, N. Y., as director of the Montclair Trust Company, Montclair, N. J., and as director of the Fidelity Union Trust Co., Newark, N. J. Approved. The meeting adjourned at 12:45 p. m. Assistant Secretary A Pproved: Goxfernor
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