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267 A meeting of the Board of Governors of the Federal Reserve SYsteni with the Presidents of the Federal Reserve Banks was held in tile c)frices of the Board of Governors in Washington on Friday, Feb- 27, 1948, at 2:45 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman pro tem. Szymczak Draper Evans Vardaman Clayton Mr. McCabe, Chairman designate Mr. Carpenter, Secretary Messrs. Whittemore, Sproul, Williams, Gidney, Leach, McLarin, Young, Davis, Peyton, Leedy, Gilbert, and Earhart, Presidents of the Federal Reserve Banks of Boston, New York Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco, respectively Mr. Clarke, Acting Secretary of the Presidents' Conference Before this meeting a memorandum covering matters to be dis1148e : by the Board and the Presidents had been submitted to the ment11e Board. The statement of the Presidents and the discussion Etttllis meeting with respect to each of the matters considered were 111)staxIt tally as follows: Dieetil. Delayed return of unpaid cash items. At the joint of the Board of Governors and the Presidents on Decell% 'quer 9) 1947, discussion was had as to progress being made Program contemplating that the American Bankers' Assow! 1-8•Lion would recommend that Regulation J and the Reserve Circulars be amended so as to authorize a procedure 268 2/27/48 -2- for the conditional payment of cash items presented by Reserve Banks by mail, with the right of the drawee banks to irpeturn unpaid items and reclaim payment therefor on the ,Ilsiness day after their receipt by the respective drawee °anks. The Conference considered a report of the Committee on erations relative to a joint report to that Committee by c"e Committee on Collections and the Special Committee of s?tnlasel (copies of which have been furnished to the Board's s aff) from which it appears that the American Bankers' Ass,?hciation has now recommended that Regulation J and the Reserve Bank circulars be so amended, and has indicated that . will communicate with all banks suggesting that they review their contracts with depositors so as to assure ade.11ate protection under the conditional payment procedure, rd that it will promote legislation in all States authorthat procedure. The Conference adopted the recom11dation of the Committee on Operations that the joint , re, c,'°rt referred to be approved and that, subject to the 4:altions stated therein, the recommendations as to the ho adment of Regulation J be approved, with the suggestion, rver, that in the usual course and since not all of the pe' r_al Reserve Banks are represented on the Committees wije, b:cil have worked on this matter, the suggested amendments b; forwarded to each of the Reserve Banks for consideration fore final adoption. 9j 2 licie_Chairman Eccles stated that the procedure proposed by the ats met with the approval of the Board. 011,, 2. Clarification of Reserve Bank authority to issue k)gk collection circulars. The Conference approved a re'of the Committee on Operations with respect to a supple nujental joint report dated January 30, 1948, by the Comee on Collections and the Special Committee of Counsel, ' rep °mIllending that Section 6 of Regulation J be revised to ; ta it contained the clear that certain substantive provisions lar current Federal Reserve Bank check collection circuts 8 (such as those relating to Government checks, endorseto be placed on items sent to Federal Reserve Banks, 311a instructions regarding protest and wire advice of " 269 2/27/48 -3- charges for telegraphic costs, and reimburseinent of transportation costs), as well as such other sUb!tantive provisions as it may be desirable to incorporate tri such circulars in the future, are within the authority ,4 :1 Promulgate rules granted to the Federal Reserve Banks IY1 that Section. In this connection, it was pointed out at/ in view of the fact that Regulation J applies in terms to checks, and the check collection circulars deal with t other cash items as well, it would be desirable also t( , ) , clarify the authority of the Federal Reserve Banks to ' eat all cash items on an equal basis in their circulars. Z It was stated that the above proposal was related to the Itetio„ taken in connection with delayed return of unpaid cash items am. Chir Eccles stated that the proposal was acceptable to the 11()Eira 3. Closing hours for acceptance of inter-district telepoaPhic transfers of funds. The Conference approved a reorl . of the Committee on Operations with respect to a report of °le Leased Wire Committee, recommending that paragraph 6 the Board's letter (S-164) dated June 12, 1939, be amended "o read as follows: "Requests for telegraphic transfers of funds for consummation on date of receipt should not be accepted by Federal Reserve banks later than thirty (30) minutes prior to the official closing hour 0f the Federal Reserve bank to which transfer is to be made: provided, however, any Federal Reserve bank may agree with any other Federal Reserve bank to accept up to a later hour requests for transfers for consummation on date of receipt if so authorized . 13Y the Federal Reserve bank receiving credit. "AnY transfers requested after the established hours MaY be consummated on date of receipt at the discretion of the Federal Reserve bank receiving credit." The, r0P06ed change will clarify the authority of each Federal liesj 've Bank to accept requests for transfers later than the 270 2/27/48 -4- ?Fricial closing hour, if satisfactory arrangements between 'Ile interested Federal Reserve Banks can be made. Chairman Eccles stated that the Board would be glad to adopt thiSreCOraMendatiOn. 4. Custody receipts for collateral securing loans to Member banks. In its letter of January 29, 194g7-TEJ-753;7d : f Governors requested that this matter be placed on the arlada for the next Presidents' Conference for discussion 0 the joint meeting of the Presidents and the Board. The ,11f _erelice, at its meeting on December 8, 1947, agreed that, it° iy Federal Reserve Bank which wished to do so should be ree to accept the custody receipts of responsible city correspondent banks, but that the practice of receiving silch receipts from correspondents should not be encouraged". Sincele that meeting the only change in the situation which has occurred to the knowledge of the Conference is the proinstitution of a procedure for the wire transfer of Y bonds commencing March 1, 1948, which will lessen rather e than increase the need for the use of custody repalTts. The Conference, therefore, saw no reason to defrom the consensus of the December 8 meeting. Howthe Conference proposes to explore with the TreasIii4 Department, when sufficient experience with the new lihre transfer facilities has accumulated, the question beether the facilities for telegraphic transfer can not ten:Xtended to include transfers involving use of Govern'securities as collateral for advances at Federal 'serve Banks. Chairman Eccles stated that the Board had considered the 3:Its' statement, but felt that in order to afford a desirable zer.vice tltis t° member banks and to avoid unnecessary shipmpnts of secuthe attendant transit delays, it was important that all 1114:41L Reserve Banks follow a policy of accepting custody receipts stact°rY form from correspondent member banks and loan on the 271 2/27/48 -5- seellritY of such custody receipts in any case in which the Reserve 138111 ouJ.d be willing to make the loan if the securities were depos- tted 134 Ysically at the Federal Reserve Bank. He also stated as the 7l'aI or the Board that the credit facilities of the Federal Reserve 8114k 8 should be made to work as conveniently and as expeditiously 8.13 1an —"le and without unnecessary restrictions, that the additional Vork 4 Jaavolved in the acceptance of custody receipts was believed to bellc'linal and was more than outweighed by the convenience of the 41ira4sIllent, that failure to provide this facility for member banks 414ct Mean in some instances that the banks instead of borrowing on Goirerlaraent 18 la." , 11 'el4 securities would sell the securities in the market when desirable for them to do so from the standpoint of Sys- J, and that the new wire transfer facilities even if 14ed t0 rittea this ext include transfers involving the use of Government secu- "collateral for advances would not satisfactorily meet Peyton stated that such a policy would contemplate tllat tile Federal Reserve Banks would accept custody receipts from Et-le°1.1.esPondent member banks, and that, although his. Bank had S te the practice of accepting such receipts from some banks, 11 11°141 not want to accept them from banks about which the Fedle8erye Bank had information which would indicate that it 272 2/27/48 -6- be unwise for the Bank to do so. Chairman Eccles stated that it was not the intention of the Board 4. 40 saY that the receipts should be accepted from every corres13°11d-ent bank if there were any satisfactory reason for not doing 8°) but that the only case in which the Federal Reserve Bank might surfer a loss would be one in which there was dishonesty on the 138zt of the correspondent bank, and that if the correspondent banks .41'e satierac _ tory as depositories or custodians for other member b1/1134 there should be no objection to the acceptance of their custcxlian receipt5. Mx. Peyton raised the question of a case where a small corl'e8P°11dellt bank might accept for safekeeping securities out of any 4413nable r elationship to its vault facility. ciezton In that connection, commented that in the examination of member banks, re4112te covering securities in the custody of correspondent banks *4re rarely if ever questioned, and that if that were the case there should be no Objection on the part of a Federal Reserve Bank tc'e.ceePting receipts as representing securities pledged as collatit°r an advance by a Federal Reserve Bank. 44k Mr. Leach said that this matter had been of concern to his tor several years and had been brought up repeatedly, that he 40t think there was any great risk involved in the acceptance 273 2/27/48 or such oh receipts from selected banks, but that there were a number T Possible difficulties because if receipts were accepted °t/ 3 4 trot New York correspondent banks there would be a question of they district 41 , were not accepted from correspondent banks within the and/ if that were done, why they should not be accepted -1.°111 the bank across the street". It was his view that it would hbetter to accept receipts from all correspondent banks if no Othell satisfactory solution could be found, but he said that when the ecieral Reserve Bank of New York established a quota system in Itec0 1scia"lace with which it undertook to accept the deposit of secuLtiesbY New York banks for their correspondent banks, the problem -°"-ved so far as the Fifth Federal Reserve District was conAs long as that arrangement continued, he believed few 41illeci. 4c)\'ellliniellt securities would be sold in the district to meet needs t°1' Iseser.lis funds for short periods. 1141eated lioEttci Some of the other Presidents agreement with Mr. Leach's views. M dr. Sproul inquired how the question presented by the rla arisen and Chairman Eccles stated that banks had 11111ttell to the Board about it, that apparently member banks did b7 1. 4k(314 of the possibility of depositing securities with the 4-exti. Reserve Bank of New York, and that if the custody reef a correspondent bank could be pledged as collateral 274 2/27/48 It -lad tees 8encourage member banks to borrow for short term reserve rather than to sell the securities. Mr. Davis asked if the letters received by the Board from teltaler banks were sent to the Federal Reserve Banks in the respec, 'qistricts for consideration and Chairman Eccles stated that tilenled not been and that the Board had felt that the acceptance orcUstody receipts was a service that might well be provided to tetber banks and that the Board had presented the matter to the ?eciel'al Reserve Banks to ascertain whether there was any objection to he adoption of the practice from the standpoint of the System 48 a vhole. Mr. Clayton commented that he had been advised by a member 138.111t in the San Francisco District that a branch of the Reserve had 15 days been willing to accept a trust receipt for a period of but that after that time the actual securities would have to be deposited. Mr. Davis expressed the view that any question raised by itetber Irtsite fit bank on this matter could be disposed of readily by ad- the bank of the arrangement for the deposit of securities the Federal Reserve Bank of New York which was entirely satis- l'''tory so far as member banks of the St. Louis Federal Reserve tlEitrict 'were concerned. 2/27/48 -9Mr. Earhart said that it would be appreciated if any ques- tio/Is presented by member banks of the Sqn Francisco District were Iseferred to his Bank, that the outstanding instructions of the Bank to its b ranches were that member banks may borrow on Government seelirities deposited with the Federal Reserve Bank of New York or, if liecessary, on Illat he would ''''esPoradent 1341k custody receipts from New York correspondent banks, but not be willing to accept trust receipts from any and all member banks. Be believed that each Federal Reserve should have the opportunity of determining whether it should accept a receipt issued by a particular correspondent member bank he saw no advantage in advertising the arrangement as any partioltiar s ituation could be met satisfactorily when it arose. In a response to an inquiry from Chairman Eccles, Mr. Sproul Lted that it had been understood for several years that, in emergeney sit uations, the Federal Reserve Bank of New York would accept clePosit of securities held in New York as collateral for loans 113r a.pederal Reserve Bank in another district to one of its member 1) .1:11ts 'Ina discussion of the arrangement recently adopted under 1011ch securities may be deposited at the Federal Reserve Bank of 4" York in thP aggregate amount of $1.7 billion, it was stated this arrangement was deemed adequate to meet anticipated needs ()traeinber 1144r, banks in the various districts for the foreseeable future. D4ring a discussion, Mr. McLarin referred to the circumstances Which the question of acceptance of custody receipts arose in 276 2/27/48 -10- th At District in 1945 and Mr. Whittemore mentioned a suggestion tilat had been made at his Bank that if the Board's proposal were adopted itIllight result in a greater centralization of securities in New York thellwas the case at the present time. In connection with Mr. McLarin's comment excerpts from the 130ardi a letter to him under date of January 3, 1945, were read and Chair11 Eccles discussed briefly the changes that had taken place sitce 1 945 which suggested the need for a change in policy. 14.1% Sproul stated that the question had been raised because or c -clilplaints of a few member banks and it would appear that the latter raight not be an important one. Chairman Eccles responded that the Board had considered the matter from the standpoint of a ee that might well be provided for member banks located out°I. New York City. Mr. Sproul commented that it was believed that essentially that service was being provided by the arrange9 deposit of securities at the Federal Reserve Bank of Ilk. Chairman Eccles replied that that was the case to the tH --at, the member banks knew of the arrangement and that the3, sh °Illd be advised of it so that when they purchased securities i lel./ York they could leave them there and borrow on them 11' ,411,1aeve eeci 1. necessary in order to obtain reserve funds for short-term atla not be forced to sell securities to get needed funds. Gilbert stated that from a legal standpoint it is liable whether notes secured by trust receipts covering 277 212V48 -11- ac)vernment securities, instead of by the securities themselves, could e. A 'It,sited with the Federal Reserve Agent as collateral for Federal ye totes, and pointed out that unless the procedure being advoelltecl bY the Board of Governors could be followed during extremely borrowing periods, such as might develop later, as well as Citir1 4g. light borrowing periods, such as at present, he doubted the adlis litY of inaugurating the procedure and bringing it to the att,ezt4 " - °11 of member banks generally. Sproul stated that it had been the thought of the Pres144te hat provision of facilities for the wire transfer of Govern- 4°4 securities would tend to increase the holding of securities by 118414 14 their own vaults, that facilities for wire transfer of bills 414certificates had existed for some time with that result, and that the 841°Ition of the same arrangement for bonds should reduce the need tor h the (31dina. securities in New York and, therefore, the importance of qUestion of trust receipts as collateral security. After some further discussion, Mr. Sproul also said that it %eared that the principal question raised by the discussion was 1/blether trust receipts should be accepted form all correspondent lillalerbanks or only from selected banks, and that to ,do the former 1114°4t raise difficulties which could not be easily disposed of once "rarlgement had been put into effect. He suggested that, since .t4 nletter was not an urgent one, it be placed on the agenda for (114 /18eion at a later meeting on the basis of a memorandum which 278 2/27/48 -12- 14°1°4 state the problem and the reasons why a change should or should llotbs made. In this connection he expressed the opinion that the llre of the joint meetings of the Board and the Presidents would be PrcEsied if, whenever an item was placed on the agenda of the Conferet ce of Presidents at the request of the Board, it could be accomPati ed by . a memorandum covering the background of the topic. Chairman Eccles suggested that the Board review the matter 111 the light of the discussion at this meeting and submit a proposed Aqic_ J statement to each of the Federal Reserve Banks and that after the Co unolents of the Banks had been received the statement be revised 4" stib Mitted to the Federal Reserve Banks for consideration. This 1,0n was agreed to. Conference cot 5. Retention in service after age 65. The a sidered the suggestion contained in the Board's letter cs;Ied January 6, 1948, that it would be desirable if, in vi :cases, officers (other than the President and First 'e President) and employees of the Federal Reserve ocinks were placed in a retirement status within a pen not more than 90 days following the attainment of er 65) with the understanding that in the exceptional Where officers and employees are retained in service 1.e !the Payment of retirement benefits would begin upon ar'irement and their salary would not be more than salTheEr'it age 65 less the retirement benefits received. st;.`'onference is of the opinion so long as there, is aftlet adherence to the program of retaining officers 65 only in cases where it is to the benefit Or ti,'"e Bank, that the present policy should be conlie.41ed, since it appears that that policy offers a Iteessal7 flexibility in dealing with individual cases. $0,4/./4s Pointed out that the procedure suggested by the -rcl would, in fact, penalize the officer or employee age 279 2/27/48 -13hose service was being continued (presumably for the benefit of the Reserve Bank concerned). Chairman Eccles stated that because of the small number of Offie ere and employees of Federal Reserve Banks that were retained 1118ervice after age 65 the matter was not now an important one, 411d that the Board felt that the policy of retiring Federal Reserve }34111z Personnel at 65 should be adhered to except in the unusual case Kkere the services of an officer or employee could not readily be l'elaced by a younger man. t0 the He also stated that the Board was in- view that whenever an officer or employee was re- tied after the retirement age he should be retired and his salary sll°11.41be the difference between his salary before retirement and the Portion of his retirement benefit. F ollowing a discussion, unanimous approval was given to a ell€Restion by Mr. Sproul that, since the approval of the Board was red for continuing employment after the retirement age, it be 1144rst that the Board would consider each case on the basis of the °41.di s position as stated above and the facts in the individual ee 'e'llci that no change in existing policy would be made. 6. Loans to employees. The Conference considered the to 140id's request contained in its letter dated February 10, that this topic be placed upon the agenda for this tior, —g of the Presidents' Conference, particular considera:being given to the suggestion that credit unions might telt ver- care of the meritorious cases in which employees' loans e Sought. It appeared that all the Federal Reserve Banks 280 2/27/48 -14have loan funds, 11 of these being established by the Banks and one by employees of the Bank and that employees of four e the Reserve Banks have, in addition, established credit It was the consensus that the present arrangements should be continued, as determined by the Boards of Directors of the Banks, having in view the relative flexiillitY of administration of employees' loan funds as comPared with the relative inflexibility, under the law, Of both Federal- and State-organized credit unions, and also having in view the adequacy of the Board's controls Over Bank loan funds. Chairman Eccles stated that this question had been raised 13Y, "qUests from two Federal Reserve Banks for authority to increase the 4111°1111t of their respective loan funds, that the Board had con814, 'ed the matter on the basis whether the funds should be conti ea or whether the needs of employees should be met by the estkbli eut of credit unions, and that if the funds were continued it ve.8 8 tt matter for which the Board had some responsibility and it shoi.QA ". establish some standard for its approval of the funds and tc* the , - -Limitation, if any, that should be placed upon their size. The matter was discussed and some of the Presidents expressed the ie that since the loan funds were small in amount, the determiti °11 Of their size might well be left to the boards of directors or the l'espective banks. Chairman Eccles made the further comment that the Board had t ke at c onsideration should be given by the Banks to the establish- or credit unions, as the credit union at the Board had been found 281 2/27/48 to be -15- entirely satisfactory, but that, inasmuch as that did not ap- Pear to meet the needs of the Federal Reserve Banks, the Board would 1111(lertake to establish some basis for its approval of loan funds at t14"341aks which would be based upon the number of employees at each Balak or some other reasonable consideration. 7. Capital requirements for admission of State banks to 4 membership. The Conference referred to the Board's let;ers of July 28, and December 5, 1947, on the above subect; and it noted that in the former letter the Board pro' Posed a capital requirement of $25 thousand for admission Of,banks to membership (as the Conference had recommended) :IQ that in the letter to the Comptroller of the Currency with the letter dated December 5, 1947, the Board Pr ro ' posed a minimum capital requirement of $50 thousand,. oposed ,1,1 the absence of information as to the reason for the ;10posed increase, the Conference adheres to its previous ew in favor of the smaller minimum amount. It would Ae to discuss this with the Board as well as the status Of the proposed legislation. l Chairman Eccles said that since this matter was last disNased the Board had come to the conclusion that it would be in°1315c3rtlArie tu present at the present session of Congress any legislEttio.4 wi_ th respect to capital requirements for admission to member- % °r for the operation of branches by member banks, that such ltegisle'tion should be included in an omnibus bill which would con41111 4 1111mber of changes in the law of a non-controveissial character, tilitl/Itt the Board planned to prepare such a bill during the course te elArrent year. He also said that the Board had agreed that It tc3ok up the question of capital requirements again it should r the desirability of proposing, as a means of discouraging 282 212V48 -16- the chartering of banks with capital of less than $50 thousand, that the law be amended to provide that existing banks with capital of $25 th°1-1sand or more, in the discretion of the Board, could be adlitted to membership in the System but that banks subsequently chartered 'would be eligible for membership only if they had a capital "to thousand or more. Following a statement of the reasons for the Board's proChairman Eccles inquired if any of the Presidents had any (Ither views. Mr. Davis suggested that the Board prepare a draft "all amendment to the law and send it to the Federal Reserve Banks N'con.s ideration. This suggestion was agreed to and it was understeloa that following receipt of the draft the Presidents would adthe Board of any suggestions that they might have. 8. Information as to condition of banks furnished to e -e A ositors. The Conference referred to the Board's t, egram, dated February 17, 1948, requesting the Chairman : c Place the above topic on the agenda for the meeting for ensideration and subsequent discussion with the Board. Aft/1"', consideration, the Conference was of the opinion that the : a 1rd might appropriately consult with the other supervisory orrIcies concerned, with a view to determining if a report t, condition could be developed which would furnish informa1;c9a to all depositors in a form more comprehensive than the ! e ellt Published form; and, if such a form could be devel0 , 8;eu., recommending that form to the banks for use in rege°11cling to inquiries from their depositors. It was sugaes'ed that, if this were done, the use of a legend such : additional information will be given on request", as a 00tnote on published reports of condition might be an t?roPriate method of bringing to the notice of depositors e availability of more comprehensive information. 283 -17Chairman Eccles stated that the Board did not believe it 1/0,1d be practicable to provide a form which would furnish the kind Of . lrlform ''uation being requested by large depositors since they were illteree+„ et in knowing the maturities and market value of the invest- Portfolio and the classification of loans, and that if the foot- zl°te Proposed by the Presidents were put on the call report it would hail i nvitation not only to the public generally to ask for informati0 11blat to the large depositors to ask for additional information. It vas the Board's opinion, he said, that such a proposal would be Ilery vigorously opposed by the member banks. It was made clear during the discussion that the Presidents' Statet„ did not contemplate a revision of the call report form bt the 1)1 adoption of a supplementary form which would give information e'ddition to that contained on the published call reports and that "e to °Posed footnote to the published reports would have reference this suPPlementary report and should be so worded as to make it t t ha it is not a general invitation to seek more information C hairman Eccles reviewed the discussion of this topic at the le.st Di 4 ing of the Federal Advisory Council and stated that the ques' ee t104 or 4 revised call report of condition would be discussed at the liett eeting of the Council, and Mr.. Szymczak stated that the matter iso be discussed in the interim with other Federal bank super4gencies. 81,48,4 2/27/48 -18Mr. Sproul stated that when this matter came up in 1944 a repr.e8elitati1'e of the Federal Reserve Bank of New York talked with the (illitable Life Assurance Society which had been making requests of its (lePositary tanks for additional information and that the officers of t4e°111PanY responded that they did not want to do anything that the 84erilis°rY authorities would object to and that they would discontilitie the practice. Chairman Eccles commented that if the requests could be :t1)1" at the source in this manner it would be a desirable thing r. Gidney stated that if the Board expected to give the mat- r14, ther study the Federal Reserve Banks could make inquiries in the —riots and ascertain what the present situation was. As ttty t a basis for the comment that it would be difficult to Illenlber bank that it should not give a depositor any infor).4 -r' Davie referred to an incident in his district where tkati Vas 11 informal discussion between a large depositor and an otricer' Of Eit to the a member bank which not only satisfied the depositors condition of the bank but resulted in the company in- tib€ its deposit at the bank. 8t It 14as agreed that no attempt could or should be made to orrio r8 of banks from giving information (except information 14 examination reports) to depositors as that was a matter t uUdgment of the officers, but that the supervisory au- 286 2/27/48 -19tli°rities should be concerned about written or printed form requests r"nformation,such as those being made by the Prudential Insurance °(113allY of America and possibly other insurance companies, where inroztation was requested in such form as might place an undue burden cl4the banks and defeat the objectives sought in the examination adopted in 1938 with respect to the classification of loejas 814 investments of banks. Chairman Eccles stated that the Board would give further " 4 eration to the matter and see what it could work out in con8111te,ti on with other bank supervisory agencies. Be also said that Illellever a request by a large depositor came to the attention of ti."°ara it would so advise the Federal Reserve Bank of the district 113. which the head office of the company was located so that Reserve Bankcould try to have the request withdrawn. the Mr. Sproul expressed the view that the consideration of 9.11e8tion might result in an improved published statement of cQ114ti °Ia. irrespective of the decision on the problem presented 1)y the requests for special information. 9. Classification of assistant examiners. The Con; 14ce considered the Board's letter dated December 5, 194 Ba,L, to the Presidents of some of the Federal Reserve .zarS, relative to the classification of assistant exre tters under the Fair Labor Standards Act; and the Conila.1 -ce would like to learn from the Board developments .111-s connection since the date of that letter. 286 2/27/48 -20Chairman Eccles stated that the question being considered bY the Board was whether this matter should be presented to the Nes and Hours Division on the basis that if the decision of the kvision was unsatisfactory it would be taken into the courts. Mr. Sproul reported that all of the Presidents would like to be the matter taken up but not pressed to the point of liti- gation.. Mr. McLarin stated that he had been instructed by his director - 40 pursue the matter even if it were necessary to take it tb 'e courts, but that, in the light of the views expressed by thep_ residents, he did not believe his directors would insist on that COlar se Ar, 10- Retirement of premiums on Government securities. de'er discussion, a majority of the Presidents expressed a ,8ire to discuss with the Board of Governors the question ether Provision should be made for amortizing premiums on the purchase of Government securities (before the ication of the interest rate established by the Board U 1)re ncovered Federal Reserve notes) more quickly than at sent. C hairman Eccles stated that the Board would favor adding to l'eBerves to on Government security holdings of the offset Premiums Nleral Reserve Banks but that it was felt that the Banks should 41.17. the securities at cost and amortize them in the usual way. He cltiesti°11ecl, however, whether the total premium account should be elm1114te(1 111 One year and suggested that the elimination be spread over 2S7 2'47/48 -21- 1°)ager period so that there would be no occasion for the Treasury to question the arrangement. Mr. Sproul suggested that there probably could be no objec"404 ''rom the Presidents to the System seeking to pay somewhat less tberi YO Per cent of the net earnings of the Federal Reserve System to 4.t,he Treasyur—, but that in view of the existing policy with respect l'eserves for special purposes, these funds should not be used to set 1110 'a special reserve for the elimination of premiums on security hOlai Ilgs but should be transferred to the surplus accounts of the a1 4- Reserve Banks. There was agreement .with this suggestion. There was a discussion of the procedure that might be fol- ' l4%a t Carry takezi before out the proposal and of whether action should be the payment to the Treasury for the first quarter of 1948 0 aeferred until the end of the year. It was the consensus that, f agreement could be reached with the Treasury, the arrange- to be ati ' °Dted should become effective before the payment was made the Treasury for the first quarter of this year as that would ?„ e satisfactory procedure than to make the entire deduction 11‘())31 the earnings for the last quarter of the year. t Aterati Chairman Eccles stated that when the matter was discussed he Treasury it should be pointed out that the substantial 4 4tisiaccounts of the Federal Reserve Banks were the result of °II, agreed to by the Treasury, to support Government se- 288 2h7/48 -22- es at prices above par, that the surplus funds of the Fedel111 Reserve Banks were small in relation to their responsibilities, 44ithat it would be a good policy to increase these funds more rapt% to offset the premiums on securities held. It was the consensus of the meeting that a procedure should he It rk..4 out along the lines suggested and Chairman Eccles stated that th e Board of Governors would see what could be done. 11. Absorption theT Conference arve topic with the at the joint meeting February 28, 1947. of exchange charges. After discusexpressed the desire to discuss the Board, following up the discussion of the Board and the Presidents on Mr. Sproul stated that this topic had been put on the agenda at the request of Mr. McLarin and that he now wished to withdraw it vi the lateness of the hour. Mr. Sproul then said that, in accordance with the policy of l*otatiola adopted by the Presidents' Conference, Mr. Davis had been .lected Chairman, and Mr. Peyton Vice Chairman,of the Conference the succeeding year. T hereupon the meeting airman pro tem.
@FedFRASER