The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
542 A meeting of the Federal Reserve Board was held in Washington on Wednesday, February 27, 1935, at 2:40 p. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Governor Hamlin Miller James Szymczak O'Connor Mr. Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton Assistant to the Governor Wyatt, General Counsel Governor Eccles reported briefly on his recent visit to Boston and New York, and his discussions while there with officers and directors of the Federal Reserve Banks of Boston and New York and other bankers with regard particularly to the proposed Banking Act of 1935. He stated that on the morning of February 20, upon his return to Washington, he received a telephone call from Mr. Walter W. Smith, President of the Federal Advisory Council, requesting that he meet with the Council at 9 o'clock; that in response to the request he discussed with the Council the proposed Banking Act of 1935; and that f°11°wing the discussion the Council decided not to submit any recomIlleadations to the Board, but to appoint a committee to make a further study and report on the bill. Mr. Morrill stated that he had been ad- tSed by Mr. Walter Lichtenstein, Secretary, that the committee referred to bY Governor Eccles consists of Messrs. James H. Perkins, Howard A. Loeb, and Thomas M. Steele, members of the Federal Advisory Council frc3r11 the Second, Third and First Federal reserve districts, with Pre s..dent Smith and Mr. Lichtenstein as ex-officio members, and that 543 a 2/27/35 -2- the committee plans to meet in New York on the morning of March 4. Governor Eccles also said that a meeting of the Executive Council of the American Bankers Association is to be held at Pass Christian, Mississippi, on March 1 and 2 for the purpose of considering the proposed Banking Act of 1935, and that he had been strongly urged by Mr. Rudolph Hecht, President of the American Bankers Association, to be present. He said that in view of the importance of the meeting he felt it would be desirable for him to be in attendance and that he planned to leave on Friday morning by airplane and return on Monday morning so as to be in Washington on that day in the event he 18 Called to appear at hearingsbefore the House Banking and Currency Committee on the banking bill. Governor Eccles reported that he had worked with members of theataff on the preparation of a memorandum presenting, in as much detail as possible in the circumstances, the arguments for and against the proposed Banking Act of 1935 and that copies would be sent to the Members of the Board. There followed a discussion of the banking bill, Pelticular consideration being given to section 205 which provides for the creation of a new Federal Open Market Committee. Governor Eccles 8tated that in the memorandum above referred to he is suggesting that complete authority over open market operations be vested in the Federal Res erve Board and that an advisory committee be created consisting of rive governors of Federal reserve banks, to be selected by the governors Of all Federal reserve banks, which would have authority to submit to the 544 2/27/35 -3- Board from time to time its views and recommendations regarding open market policy, reserve requirements, and discount rates. He said that under this suggestion the Board would be under no obligation to approve the recommendations of the committee but would be required to consider them and also to get the recommendation of the committee before taking final action with regard to open market matters or changes in reserve requirements or discount rates in any case in which the Board might desire to initiate action. He said that at the time the proposed Banking Act of 1935 was drafted he had proposed such a change but that his suggestion was not adopted. Mr. Szymczak stated that Deputy Governor Rounds of the Federal Reserve Bank of New York had called him on the telephone yesterday and he'd stated that there is under consideration by the New York bank an aPPlication for an industrial loan to the Hudson Motor Car Company, 1)etroit, Michigan, and that consideration is being given by the Federal Reserve Bank of New York to an advance of $3,000,000 with the understanding that the Federal Reserve Bank of Chicago will advance t1,200,000 and Kuhn, Loeb & Company, New York, New York, $1,800,000. Re said that Mr. Pounds had stated that it is contemplated that under the Proposed arrangement between the Hudson Motor Car Company and lihn, Loeb & Company, the former will turn over to Kuhn, Loeb & Company 20 ' 000 shares of Hudson Motor Car Company no-par stock as compensation (11' hcnus for the company's services in connection with the loan. Mr. Szv,„ ' czak stated that he had talked with Governor Schaller of the Fed- 545 2A7/35 -4- eral Reserve Bank of Chicago about the matter and that he confirmed Mr. Rounds' statement as to the arrangement between the borrower and Kuhn, Loeb & Company. He said that he was bringing the matter to the attention of the Board for consideration of what, if any, action should be taken by it in the circumstances. Mr. James stated that if the advances are to be made to the Hudson Motor Car Company under an arrangement providing for the delivery of stock to Kuhn, Loeb & Company as a bonus or special compensation for their services in connection with the advances, he would object to the Pederal reserve banks making or participating in such advances. Mr. Miller expressed agreement with Mr. James' statement and said he felt that advances by the Federal reserve banks in the circumstances stated '0111d amount to a perversion of the law providing for industrial loans by Pederal reserve banks and an extension of the industrial loan "tivity o fields which are not contemplated by the law. During the discussion which followed it was pointed out that 14Ider the provisions of the first paragraph of section 13b of the FedReserve Act any direct advance by a Federal reserve bank to the H/Idson Motor Car Company could only be made pursuant to the general P"Iission granted by the Federal Reserve Board to the Federal reserve bAhl. to make such loans and that such permission could be withdrawn. At the conclusion of the discussion, the Secretary was recuested to call Deputy Governor Rounds on the telephone and advise him that the Board desires that full information be transmitted to it with regard to the proposed advances and that action on the matter by the Federal 546 2/27/35 -5Reserve Banks of New York and Chicago be deferred pending further consideration by the Federal Reserve Board. Mr. Szymczak stated that he understood the Hudson Motor Car Company is in need of the proceeds of the contemplated advances and that the Federal reserve banks may desire to take action quickly. It was pointed out that it would be possible for the Board to hold a meeting tomorrow or Friday for further consideration of the matter Upon receipt of advice from the Federal Reserve Banks of New York and Chicago. Mr. Morrill left the meeting and upon his return stated that Mr. Pounds had advised him that at a meeting of the directors of the Pederal Reserve Bank of Nev.' York on Monday consideration had been given to the proposed advances to the Hudson Motor Car Company; that the question as to the allowance or bonus of shares of stock to Kuhn, Loeb e°mPany had been discussed; and that action had been deferred on the Matter pending the receipt of further information. Mr. Morrill out- lined the circumstances related to him by Mr. Rounds with regard to the Ilegotiations which had given rise to the applications at the Federal Res erve Banks of New York and Chicago and stated that Mr. Rounds had said that at the discussion of the matter on Monday some of the directors raised 4 question as to the advisability of the Federal reserve bank partici- P4ting with a private banking concern in a loan where the private concern is to receive stock in the borrowing corporation and that the view was e Pressed by the directors that the whole matter should be reconsidered, 547 2A7/35 -6- it being suggested that if Kuhn, Loeb & Company is to participate in the advance, the company's compensation should be on some definite basis other than shares of stock in the Hudson Motor Car Company. Mr. Rounds had given the assurance, Mr. Morrill said, that the Federal Reserve Board would be informed fully as to the terms and conditions of anY proposal submitted to the board of directors of the Federal Reserve sank of New York before a decision is reached by the directors and that the Federal Reserve Bank of Chicago was fully advised of the situation and was cooperating with the Federal Reserve Bank of New York in every Way. Mr. Morrill added that Mr. Rounds had raised the question as to whether, under the provisions of section 13b, two Federal reserve banks could participate in a direct loan to an established industrial concern; that procedure being a possible one in the event Kuhn, Loeb Company does not participate in the proposed advance. He had also stated, Mr. Morrill said, that another possible procedure was one under which the Federal Reserve Bank of Chicago would make the entire loan and rediscount a portion of it with the Federal Reserve Bank of New York, and that, in view of the fact that the banks may be called on to ille ' ke a decision very quickly, it would be appreciated if consideration e°111d be given to the legal aspects of these suggested procedures so that there will be no delay in the matter. It was understood that counsel would give consideration to the questions raised by Mr. Rounds. 548 1' 2/2'05 -7Governor Eccles read the following letter dated February 18, 1935, received by him from Mr. James Simpson, Class C Director and Deputy Chairman of the Federal Reserve Bank of Chicago, in response to the letter written to him by Governor Eccles in accordance with the action taken at the meeting on February 13, 1935: "'Your letter stating that the Federal Reserve Board wishes to have me continue as a director of the Federal Reserve Bank of Chicago for the remainder of my present term has been received, and I have given it most serious consideration. "In my long service with the Federal Reserve System and my very happy contacts with the members of the Federal Reserve Board, it has always been my unqualified ambition to render ouch service to the best of my ability. "It will therefore give me pleasure to continue to serve to the end of my term, always assuming that I can conscientiously and whole-heartedly support the policies of the System. "With kindest personal regards to you and all the members of the Board." Noted. Governor Eccles stated that his speech before the mid-winter meeting of the Ohio Bankers Association at Columbus, Ohio, on !ebruarY 12, 1935, had been inserted in the Congressional Record by Senator Fletcher, Chairman of the Banking and Currency Committee of the -, enate, on his own initiative, and that Senator Fletcher had sent 4 thousand copies to persons throughout the country. Governor Eccles said that in view of all the circumstances he felt it would be desirable for him to send copies of the address to all member banks with 4 letter of transmittal reading as follows: "There has been so much discussion in the press and among bankers about the purposes and effect of the proposed 'Banking Act of 1935' as embodied in House Bill 5357 and Senate Bill 1715, particularly the portion c0n 549 2/27/35 -8- "tained in Title II, that it is felt thzt bankers who are vitally concerned in this legislation would he interet,ted in my conception of the objectives of this measure, which I stated in a general way in an address at the annual midwinter meeting of the Ohio Bankers Association at Columbus, Ohio, on February 12, 1935. Therefore, I am inclosing herewith a copy of this address reprinted from the Congressional Record of February 14, 1935, with the hope that you will give it careful consideration before passing judgment upon the bill." Mr. O'Connor stated that, in vier of his experience with the Banking Act of 1933, he would suggest that a sentence be added to the Proposed letter stating that Governor Eccles would be glad to have anY comments or suggestions which the member banks may have to offer. Upon motion by Mr. Hamlin, Governor Eccles was authorized to have his speech printed and transmitted to all member banks with a letter of transmittal, either in the form referred to above or incorporating Mr. O'Connor's suggestion as the Governor might decide. Governor Eccles stated that, prior to the date of his address before the mid-winter meeting of the Ohio Bankers Association, he had sent to Mr. McIntyre, Assistant Secretary to the President, a copy of the addre2s with the request that Mr. McIntyre bring it to the President's attention if he felt the President would be in a position t° read it, and to advise him (Governor Eccles) as to whether or not the President was in agreement with the statements in the address with regard to the general objectives of the bill. He said that after his l'eturn from Ohio Mr. McIntyre had called him on the telephone and had etated that the President had advised that he had read the address and /148 in complete accord with it. 550 2/27/35 - Reference was then made to the Clayton Act applications filed by Mr. Paul M. Davis for permission to serve as officer and director of the American National Bank of Nashville, Tennessee, and es director of the Nashville Branch of the Federal Reserve Bank of Atlanta, and by Messrs. A. W. Willey, Parkes Armistead, L. G. Sadler, J. T. Wakefield, J. U. Glaboff and C. H. Tetterau for permission to serve the national bank and one or more banks affiliated with the national bank, on which action was deferred at the meeting of the Federal Reserve Board on February 13, 1935. Mr. James stated that the present involved condition of the national bank is the result of the management being persuaded to take Over, as a public duty, the Fourth and First National Bank of Nashville to prevent the closing of that institution which held the reserves of a number of corresponde nt banks in the territory. He said that, as the common capital had been wiped out by losses and depreciation) the Reconstruction Finance Corporation, which has purchased Preferred stock, in effect owned the bank, and that the Chairman of the R econstruction Finance Corporation had advised that the corporation i8 Perfectly satisfied with the present management and contemplates no changes, so that, if the Board should decline to approve Ir. Davis' aPPlication, the only result would be that he would resign as a director of the Nashville branch which action would become known in N42hville and might prove to be very detrimental to the national bank. Mr. j limes also stated that while it was true Mr. Davis had been indicted 551 2A7/35 along with several other individuals, he was acquitted on all charges and that, in the circumstances, he felt it would be very undesirable for the Federal Reserve Board to take any action other than to issue a permit to Mr. Davis and the six other applicants above referred to. Mr. O'Connor stated that he was familiar with the circumstances surrounding the indictment of Mr. Davis, that the indictments were instigated larFely by political enemies, end that they were not Justified. He said that the trial had resulted in Mr. Davis' acquittal, and that the main prosecuting witnesses were later indicted and sentenced to the penitentiar y for perjury. He added that as a result °f Mr. Davis' indictment the American National Bank of Nashville had been compelled to borrow heavily from the Reconstruction Finance Corporation to meet withdrawals and that within a year the entire amount had been repaid. Mr. James pointed out that Mr. Davis' present term as a director °f the Nashville branch will expire on December 31, 1935, and that Under the Board's policy of not reappointing directors who have served consecutive years, Mr. Davis would not be reappointed. Mr. Hamlin moved that a permit be issued to Mr. Davis to expire on December 31, 1935, and that permits be issued to the other applicants referred to above to expire on January 14, 1936, in accordance with the procedure set forth in the Board's letter of January 9, 1935. Carried. 552 2/2 35 —11Governor Eccles called attention to a memorandum addressed to him under date of February 131 1935, by Mr. Wyatt stating that, in vier of all the circumstances and especially in view of the amendment to section 13 of the Federal Reserve Act contained in the proposed 8anking Act of 1935, it is felt that it is not necessary to ask for an extension of the provisions of section 10(b) of the Federal Reserve Act. Governor Eccles had attached a memorandum to the file expressing agreement with Mr. Wyatt's suggestion and this memorandum had been circulated among the members of the Board, who, with the exception of M. Miller, had expressed agreement with Mr. Tyatt's suggestion. Mr. Miller had indicated on the memorandum that he was of the opinion that the provisions of section 10(b) should be extended until there is some kind of legislation to cover the situation contemplated by section 10(b). Dilring the ensuing discussion it was pointed out that any extension of the provisions of section 10(b) beyond March 3, 1935, would require legislation by Congress as the section did not provide for further etension by Presidential proclamation. Mr. Miller stated that, in '41e17 of this situation, he would withdraw his objection to Mr. Tyatt's au ggestion. Accordingly, it was understood that the Board would take no action asking for an extension of the provisions of section 10(b). Governor Eccles then referred to the fact that during each BeSsion of Congress a large number of bills are referred to the Board 4ccordance with a routine procedure of the Acting Clerk of the hi 553 2/2V35 -12- Banking and Currency Committee of the Senate for reports to the committee on the proposed legislation and that a considerable number of such requests had been received since the beginning of the present session of Congress. He said that he felt that to attempt to answer all of these requests carefu lly would require a considerable increase in the Board's staff; that many of the bills were of a character which made it doubtful that serious consideration would be given to them by the committee; that in many instances identical requests were being made of other Governmental agencies, auch as the Federal Deposit Insurance Corporation, the Reconstructi on Finance Corporation, the office of the Comptroller, and the Treasury Department; that some of the bills relate to subjects covere d by the proposed Banking Act of 1935; that no doubt in some instan ces it would be difficult if not impossible to formulate a re-Port which would reflect the views of the Board to the satisfaction of its various members; and that after considering all the circumstances and pendin g a discussion of the matter by the Board, 11° had instructed Mr. Wyatt to hold such requests for reports without "tion unless it appeared that there was something in the situation 811-1'rounding a particular bill which made it advisable to submit a Pr°mPt report and it appeared that the Board had a definite position whiCh it desire d to state. Upon inquiry from Governor Eccles Mr. Wyatt stated that his office is keepin g in touch with all banking legislation eLlia will undertake to submit to the Board for consideration a report 04 — ' 1"Y bill when it appears that, because of its nature or any special 554 2/2V55 -15- consideration ti-et is being given to it by either House of Congress, such a report should be made upon request by a committee of Congress. No objection was interposed by any member of the Board to this procedure. There was also considered a memorandum dated February 26, 1935, from the Committee on District No. 6 recommending that Mr. Fitzgerald Hall, President of the Nashvil le, Chattanooga & St. Louis Railway, Nashville, Tennessee, recently elected a Class B director of the Federal Reserve Bank of Atlanta, be appointed a director of the Nashville Branch of the Federal Reserve Bank of Atlanta for the term ending December 31, 1937. In accordance with the recommendation, Mr. Hall was appointed a director of the Nashville branch for the unexpired portion of the term ending December 31, 1937. There was then presented a letter dated February 26, 1935, from Mr. Sparkman, Acting Clerk of the Senate Banking and Currency e°111mittee, transmitting a bill in the amount of $24.39 coverin g the cost of 1,500 copies of a reprint from the Congressional Record of Governor Eccles? speech before the mid-winter meeting of the Ohio Bankers Association, which had been ordered printed by Mr. Sparkman ill accordance with Governor Eccles? request transmitted to Mr. 8Parkmsn by Mr. Daiger, Special Assistant to the Board. Upon motion by Mr. Hamlin, the payment of the bill was approved. 555 2/27/35 -14- Thereupon the meeting adjourned. 471Q,676zti Governor. Secretary.
@FedFRASER