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273 A meeting of the Board of Governors of the Federal Reserve SYstem with the Presidents of the Federal Reserve Banks WS held in the offices of the Board of Governors in Washington on Friday, FebrUary 28, 1947) at 2:15 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Draper Evans Vardaman Clayton 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. Treiber, Secretary of the Presidents' Conference The Presidents' Conference met in Washington on Tuesday and Wednesday, February 25 and 26, 1947, and yesterday presented to the Board a memorandum of matters which the Conference wished to discuss With the Board. The discussion at this meeting with respect to each °f the topics referred to in the memorandum was substantially as follows : 1. Functional expense accounting. The Conference received through the Committee on Operations the report dated February 14, 1947, of the subcommittee on expense accounting. The Conference approved the report. The Conference recommends that Form F.R. 634 and the manual 274 2/28/47 -2- be revised in accordance with the recommendations in the report, by April 1, 1947, if possible, it being understood that one or two inconsistencies between such recommendations and the recommendations in the report dated October 22-25, 1946, of the subcomituittee on Fiscal Agency Operations and Reimbursable Expenses will have to be reconciled in the course of the revision. The Conference recommends that, for the present, functional expense reports be submitted monthly. Chairman Eccles informed the Presidents that their proposal °I1 this subject was satisfactory to the Board. 2. Maximum deferment of credit for cash items. After the last meeting of the Conference the Committee on Operations requested the Committee on Collections to endeavor to develop a soundly conceived plan of reducing the maximum period of deferment of credit for cash items and the number of "sorts" required of banks. The Committee on Collections reported to the Conference through the Committee on Operations, setting forth, without recommendation, a plan for accomplishin the objectives, but pointtrig out, at the same time, that the plan would substantially increase float, delay presentation of items, and create difficult mechanical and personnel problems for the Reserve Banks. The Conference continues to be of the view, as expressed at its lest meeting, that the System should be alert and aggressive to improve methods of collection so as to shorten the period required for the actual collection of items and so as to reduce, when Practicable, the number of "sorts" required of banks. The Presidents were unwilling to accept the report, however, in view of the increase in the already large amount of Federal Reserve float which would result from the suggested reduction of the maximum deferment time to two days, the delay in presentation and the complex problems of operatons involved. Some of the Presidents suggested that the Reserve Banks consider the matter of "average float" and the practice of commercial banks in determining the "average float" carried for correspondent banks With a view to endeavoring to develop a program which would avoid any increase in Federal Reserve credit incident to the reduction of the maximum period of deferment to two days. Others suggested the exploration of 275 2/28/47 -3- methods of handling incoming cash items which would eliminate some of the existing difficulties attendant upon handling a large volume of unsorted items. The Committee on Collections was instructed to study the subject further in the light of such suggestions, bearing in mind the desirability of maintaining sound credit policy and sound Practices in the presentation of checks and other cash items. Chairman Eccles stated that the Board felt that the System should go on a two-day maximum deferment period for credit for cash items at the earliest convenient date and hoped that the consideration proposed by the Presidents' Conference would be given immediately With a view to action as promptly as possible. He also said that the 13°8.rd was giving consideration to the amendments that might be made to its regulations in connection with this change. He made the lurther statement that it was the opinion of the Board that memberShip in the System was not too attractive to the smaller banks, that further reduction in maximum deferment was one of the ways tli't this situation might be met, and that as a further step to that end) and as a means of speeding up the collection of checks, the SYstem should move in the direction of eliminating deferred availelpility altogether. The only argument against such a policy, he 8aid, Would be the charge that the System was competing with the lare city banks, but the Board felt that as it WFS the responsi- bilitY of the System to hold the bank reserves of the country there 1.1as no objection to encouraging membership in the System in order /11°Ile effectively to perform that function. 2/28/47 -4Mr. P yton suggested that, instead of following the course Proposed by the Board, consideration be given to eliminating deferred availability altogether and requiring each member bank to maintain an average balance with the Federal Reserve Bank, in addition to its required reserve, which would be equal to the average amount Of uncollected funds in the member bank's account. Chairman Eccles expressed the belief that that arrangement would not make membership attractive to the smaller banks. The discussion developed that the Federal Reserve Bank of Cleveland in 1939, when the maximum deferment was fixed at three dEtys an under an interpretation of the Board's regulati.on, issued oPerating letter authorizing its member banks to send in two cash letters, one containing items for immediate credit and another containing all other items for which credit wns given in two days regardless of the time required to collect them. Mr. Gidney stated that, while the interpretation under which this practice was adopted had seemed to him at first thought to involye a Very liberal interpretation of the 1939 understanding, the Cleveland bank has found that it gained by this arrangement in the "ter of float absorbed because 1-day items mmn than offset 3-day it%Is when received together in a single letter for two day deferred ereclit. For this reason, he now believes that the action of the Cleveland bank is in accordance with the understanding of 1939 that 2/28/47 -5- credit could be given on cash letters for average availability, and that it is not different from what other Reserve Banks permit Rithout formal announcement in a number of cases. He stated that of 198 member banks which send checks to the head office of the Federal Reserve Bank, 115 do so in accordance with the above, mentioned option. This method is practically the same, he sFild, the proposals at pages 17-18 of the report of the Committee on Co llections, dated January 31, 1947, and, in view of the favorable exPerience of Cleveland, he would advocate System-wide adoption of such proposals unless a better plan can be devised. He expressed interest in Mr. Peyton's suggestion as offering a new approach ilhich may result in a practical solution of the old problem. Mr. Gilbert expressed the opinion that a reduction in the rilaximum deferment to two days would not encourage banks to send items to the Federal Reserve Banks as the member banks were more interested in reducing the number of "sorts" required by the Federal Reserve Banks. Other Presidents questioned whether such a change lgould be effective in influencing banks to join the System. Pr. Leedy pointed out that the proposals set forth in the l'eP°11t of the Committee on Collections did not provide for a maxi'deferred period of two days, but for a flat deferment of two a4Ys. This meant, he said, that items now being deferred one day %43uld be deferred an additional day, and that only items now being 278 2/28/47 -6- deferred three days would be credited any earlier. He questioned 'whether there should be any lengthenin; whatever of the time that credit for cash items becomes available. Further, it was his view that many banks would not avail themselves of the proposed plan. He thought that this would be the case in his district, where he said a recent survey had disclosed that the total of items deferred °Ile day averages more than three times the total of items deferred three days. In such a situation he thought it doubtful that member banks would elect to take deferment of an additional day for the largeI volume of items in exchange for one day's earlier credit tor the smaller volume, along with being relieved o the require- raellt as to sorts. It was these considerations, he said, which fillerloed him in favoring e further study of the entire subject. Following a discussion of the proposals contained in the report of the Committee on Collections, Mr. Sproul stated that the 1'residents had felt that the Federal Reserve Banks should not cam- Pete vith correspondent banks in laxity in order to encourage banks to become members; that, however, the question of competition was e Subordinate one; that the System should take steps wherever and hellever possible to shorten the actual time for the collection of checks, but that an arbitrary two-day maximum deferment might delay the actual presentation of checks and thus be a backward step from the standpoint of the banking system as a whole; that the idea of 279 2/28/47 -7- member bank reserves was that they should consist of actually collected funds, and that to increase the amount of uncollected funds iti member bank reserve balances would in no way improve the System. He also said that even if the two-day maximum deferment would reduce the numl)er of "sorts" of checks prior to receipt by the Federal Reserve ranks, it would increase their work materially, Pnd through greater centralization might result in less efficiency and more expense than under the present arrangement. He questioned vhether the System should proceed in the direction of reducing Ilia3cimu1 deferment faster than it could reduce the time required fOr the collection of checks. With this thought in mind, he said, the Presidents had referred the matter back to the Committee on Collections with instructions to study it further in the light of suggestions made during the Presidents' Conference and it was believed that it would be unwise to take the steps proposed by the Board without further study. Chairman Eccles inquired whether the Presidents felt that 48 a matter of principle float should be kept at a minimum, and the discussion of this point it was stated that a number of the Presidents would favor complete elimination of deferred 15. ilability if a satisfactory basis for such action could be developed which some of the Presidents believed could be done. Mr. Leach stated that two-day maximum deferment would ' tlsnsfer a considerable amount of work to the Federal Reserve Banks, 280 2/28/47 -8- that the Federal Reserve Bank of Richmond was already receiving cash letters from smt,11 banks in its district subject to two days deferred credit but without requiring that the items be sorted, and that he hoped that action could be deferred on the Board's proposal until an answer could be presented which would provide a satisfactory solution for the whole problem. Mr. Eerhart stated that his Bank was giving credit on smell e°44trY item cash letters on the basis of the average time required for collection. Chairman Eccles stated that it appeared that the Federal Reserve Banks were not following a uniform policy at the present time and that the Board should ascert,iin what the practices at the respective Reserve Banks were. At the conclusion of the discussion, there was unanimous a greement among the Presidents and the members of the Board that the matter should be reerred back to the Presidents' Conference C°Mmittee on Operations and its subcommittee on Collections with the understanding (1) that at the next meeting of the Presidents alld the Board a report and recommendation would be made by the Presidents, and (2) that the Board would ask its own staff to make a Study of the matter and the Board would send to the Presidents 4111. suggestions or proposals that it might wish to have considered 1311°r to the submission of the Presidents' report. It was also 281 2/28/47 -9- understood that complete information should be obtained by the Board from the Federal Reserve Banks as to what their present Practices were in order that a proper informational basis might be laid for the later discussions. 3. Job evaluation and classification. The report dated February 11, 1947, by the Subcommittee of the Committee on Personnel was presented to the Conference by the Committee on Personnel. Copies of the report have been made available to the Board. The Conference recommends the acceptance of a plan of salary administration for the Reserve Banks as outlined in the report. Chairman Eccles stated that the general frEmework of the report of the subcommittee of the Committee on Personnel dated letruarY 11, 1947, was acceptable to the Board with the understandthat the minimum and maximum salaries for the salary grades Provided in the plan, as referred to in paragraphs numbered 4 and 5 °11. page 3 of the report, would be subject to approval by the Board after reviewing the data submitted by the Federal Reserve 11"ks with respect to local salary and wage situations. He also 8;id that every effort should be made to complete the work on the classification plan by the time of the next meeting of the Presidellts t Conference and that it should be understood that the Board 1c)Ilid not be expected to approve more than a maximum number of three or four over-all salary scales which would cover all of the ederal Reserve Banks and their branches. 282 2/28/47 Mr. Williams stated that it was the understanding of the Presidents Conference Committee on Personnel and the other Presi- dents that the plan and salary scales as finally submitted would be subject to approval by the Board. On the question of the number of over-all salary scales, 14r. Williams expressed the opinion for the Presidents that it would be better to approach that problem by undertaking to fit the Salary scales to the salary data that would be submitted rather than trying to fit the data to a certain preconceived number of scales. Chairman Eccles stated that the Board wanted to discuss the matter with the Presidents at this time so that the Presidents /.4)u1d understand that the Board was looking toward only three or f°ur salary scales for all of the Federal Reserve Banks and branches. There was agreement on the part of the Presidents and the IneMbers of the Board that the new classification plan should be put Into effect by July 1 of this year. 4. Freouency of pay days. The Conference discussed the increasing practice of many business concerns of paying employees on a bi-weekly or a weekly basis rather than on a semi-monthly basis, as is the practice with respect to most Reserve Bank employees. There was substantial sentiment in the Conference in favor of paying salaries on a bi-weekly or weekly basis, but it was pointed out that if this were done there may be some administrative problem incident to raking various monthly reports to the Board. 283 2/28/47 -11Chairman Eccles stated that the Board favored the payment Of salaries on a bi-weekly or weekly basis if it could be worked out satisfactorily from an administrative standpoint. 5. Credit control proposals. The Conference received and discussed the report dated January 21, 1947, entitled "Analysis of Credit Control Proposals" prepared by the Committee on Banking and Credit Policy and submitted to the System Research Ldvisory Committee and to the Presidents' Conference Committee on Research and Statistics. The Conference considered it desirable that, as suggested by the Committee on Banking and Credit Policy, there be further immediate study of the interrelated problems of credit control and debt management, and that with respect to longer range problems emphasis be placed on a study of the primary and secondary reserve plans, with the object of determining more definitely their limitations and the adaptations Which might be made to eliminate their defects. It was also suggested that a study of commercial bank earnings, both present and prospective, would be desirable. The Presidents would like to be informed of the Board's present views with respect to the credit control proposals suggested in its 1945 Annual Report, and of its intentions with respect to furthering their consideration by the Congress. Chairman Eccles stated that the Board accepted the report, dated January 21, 1947, entitled "Analysis of Credit Control Pr°Posals" prepared by the Committee on Banking and Credit Policy, 84d that the Board agreed that further study was desirable as P 0Posed by the Presidents' Conference. He also said that the 13(3ard t a views with respect to the credit control proposals sugaested in its Annual Report for 1945 were the same as when the 131*°Posals were made and that the Board had no intention of urging 284 2/28/47 -12- their consideration by Congress. He added that since the report Ilas sent to Congress it had not been necessary to take action With respect to the short-term rate on Government securities, to sell additional securities in the market to relieve the pressure on the long-term rate, or to seek further legislation by the Conand that this situation was largely due to the Treasury Program for the retirement of public debt which had absorbed a substantial amount of member bank reserves. However, he said, 1°°king to the future, the pressure an the long-term rate might be resumed as a result or member banks "playing the pattern of retest' in which event the System and the Treasury would be confronted with three alternatives. First, the System could let the Short-term rate go up in order to stop further monetization of the debt and to relieve pressure on the long-term rate. The suggested PrcZram with respect to Treasury bills was to place the System in 4 position to permit an increase in the short-term rate. That action would deal with the cause. Secondly, the Treasury could Put out additional long-term securities but that would be dealing With effects rather than causes and would not ultimately be effective- It would also result in increased cost of c9rrying the Gcvernment debt. Was The third alternative, Chairman Eccles said, that the System could go to Congress and urge legislation in With that proposed in the Board's Annual Report. He went on 285 2/28/47 -13- to saY that the System had submitted a report and it was up to the Congress to determine whether it wished to pass legislation which would give the Board authority to prevent banks from "playing the Pattern of rates" with the resulting pressure on long-term rates, and that if legislation were not passed the System would be in a position, having served notice on Congress, to raise the short-term rate. , 6. Fortnightly establishment of rates. The Conference reviewed the recommendation made at its meeting on June 8, 1946, that at the first opportunity there be sought an amendment to section 14(d) Of the Federal Reserve Act to provide for the establishment of rates by the Reserve Banks once during any calendar month rather than every fourteen days, and that there should be an alertness to seek such oPportunity. It recalled the statement by Chairman Eccles at the joint meeting of the Presidents and the Board of June 11, 1946, that the Board would be favorable to such a step. The Conference wishes to reiterate its earlier recommendation that an opportunity be sought to obtain such an amendment to the law. Chairman Eccles stated that the Board continued to be in favor of a change in the law on this subject but that the matter not sufficiently important to request an amendment at this seeeion of Congress, that such a request would raise a number of questions which should not be raised at this time, and that furthermore the System would be fortunate if active consideration Ilas given to the legislation that had already been proposed. He eleo said that there were several other amendments that were 111°Ibe urgent and desirable than this one. 286 2/28/47 Mr. Sproul suggested that because the amendment would be unimportant and noncontroversial it probably could he passed without difficulty. Chairman Eccles responded that it might be made the occasion for raising numerous questions with respect to discount rates and other related matters which would be controversial. There was a brief discussion of some of the difficulties being experienced by some of the Federal Reserve Banks in complying with the requirement of the law that discount rates be fixed every fourteen days, and ways were suggested in which these difficulties plight be met. 7. Consumer Credit--Regulation W. The Conference considered the control of consumer credit. The Conference reiterates the view expressed at its last meeting that the Board should follow up the recommendation contined in its 1945 Annual Report and press for a legislative decision one way or another at the earliest practicable time on continuation of consumer credit control. It was pointed out that the problem of enforcement has been increasing and will continue to increase so long as the regulation of consumer credit is based on an Executive Order and is administered in the light of wartime needs. It was suggested that the Board and the Banks review together the matter of qualitative credit controls in peace time. Chairmen Eccles stated that recently he had a conference ' lrith Congressman Wolcott, Chairman of the House Banking and CurCommittee, during which the latter indicated that at the *1).1)r°Priate time he would be willing to introduce a bill for the 1311rPose of getting the problem of consumer credit before Congress, 287 2/28/47 -15- and requested that the Board prepare a bill. Chairman Eccles stated that he told Chairman IYolcott that the Board would prepare a dreft of bill which would be a streamlined version of what would be required in the law if it was to be effective. He added that he also told the Congressman that if Congress felled to act the Board would request the President to revoke the Executive Order on which Regulation W was based and that it would not be n ecessary for Congress to pass legislation for that purpose. - the 11.0t Board might do, Chairman Eccles said, would be to send the bill which was being prepared to Congressman Wolcott with an accompanying statement, which would be released to the press, an which would set forth the reasons for the proposed legislation and would state that if action were not taken by Congress at this aession the Board would request the President to revoke the Executive Order. Chairman Eccles went on to say that if Chairmen Wolcott prefe:Ted some other procedure, the Board would follow his wishes but it would like to bring about a situation in which the public would know that, if Congress failed to act and if an inflationary situation should develop, the responsibility would 'lot rest with the Board. Following a further amplification by Chairman Eccles of hio Conversation with Chairmen Wolcott, Mr. Williams raised a gllestion as to the likelihood of active consideration being given 288 2/28/47 -16- by the committees of Congress to all aspects of the credit situation at this session and Chairman Eccles stated that, if the Chairmen of the committees should indicate that the Congress had not had time to act at this session and would like the Executive Order to continue until the matter could be considered, the Board would proceed accordingly. Mr. Sproul suggested that the System should see to it that soms Congressional consideration was given to the problem of consumer credit so that the Board and the Reserve Banks would not be 14 a position of having the legislation fail because of a Congses81°411 "pocket veto". He also said that the Presidents had in mind that in the future Regulationli should apply to the areas of consumer credit where a large volume of credit could have a material effect on the economic situation and should abandon the controls 14lich were in effect during the war which vere in the nature of nUla'•noe items and which made the regulation impos3ible of enforcement, Chairman Eccles responded that the present regulation had about reached that point and that the Board could not go much the in that direction. Reference was made to the statement that was being made t4 the Federal Reserve Banks an the Board that individuals with sall incomes were being prevented from purchasing automobiles 289 2/28/47 17 by the down payment and maximum maturity prescribed by Regulation W. Chairman Eccles stabed that regardless of the terms of the regulation, 411 of the automobiles that liere being produced were being sold as rapidly as they came off the production line, that if the regulation were liberalized it would serve only to increase the demand for automobiles and delay a reduction in prices, and that such action 14?uld result in a greater number of individuals of low income committing their future incomes for the payment of automobiles at maximum prices. Mr. Whittemore stated that there were a number of complaints 14111s district because people whose old cars were worn out and who needed transportation in connection with their work were prevented frOZ acquiring new cars by the regulation. Chairman Eccles responded that if the Board relaxed the Present requirements there would still he people who could not meet them and that if the argument were followed to its conclusion the res trictions of the regulation would be removed altogether. He also su Egested that the administration of the regulation was an unplees— "t job and that unless Congress would take responsibility on the question of policy the Bcr,rd should not be asked to continue the regulation. 290 2/28/47 -18- 8. Collateral to secure uninvested trust funds. The Conference considered a suggestion that Section 9(b) of Regulation F be amended so as not to require the Pledge of collateral to secure that portion of uninvested trust funds which are insured by the FDIC. It also considered a suggestion that condition of membership No. 6 for State member banks, set forth in Section 6(b) of Regulation H, be amended so as not to require such banks to follow the same practice as national banks in securing uninvested trust funds where the laws of the particular State contain other, but nonetheless adequate, safeguards. The Conference felt that this matter should receive the consideration of the Board. Chairman Eccles stated that the first of the above suggestions would not be possible under existing law. As to the second suggestion, he stated that, the Board had asked the Federal Reserve 13s-nks for suggestions as to changes in the standard conditions of illembership, that the replies of the Banks were now being received, arld that the suggestion that condition numbered 6 be changed would be carefully considered in the revision of the membership conditi cms which it was hoped could be completed shortly. 9. Interlockin,; relationships with security conThe Conference had called to its attention several examples of inequitable operation of Section 32 of the Bankin,b, Act of 1933 as emended and the Board's regulation thereunder. It was suggested that there be an amendment which would authorize the Board to permit Specific relationships. It was generally felt, however, that the cuestion presented was a broader one, that is, Whether the administration of the law in substantially its present form is desirable or whether it would be Preferable as a matter of public policy for the law to be repealed. Pccordingly, the subject was referred to the Committee on Legislation for study. 291 2/28/47 -19Chairman Eccles stated that the Board had no objection to the Committee on Legislation studying this matter further but believed that such a study at this time would not be productive anY affirmative results, that Section 32 was recently tested in the Supreme Court and the Board felt it would be a mistake to suggest a change in it at this time, and that the section was one of the important pieces of legislation that came out of the experience of the late twenties and the Board felt that the restrictions Provided by the law should continue to be strictly applied. He also said that the Board would have difficulty in stating reasons for liberalization of the section at this time. There was a brief discussion of the reasons or the adop- tion of Section 320 and Mr. Whittemore stated that he had suggested that there be such a change in the law as would permit the Board to allow interlocking directorships in a case where it was clear that It would not be detrimental to the bank involved. Chairman Eccles stated that the Board had discretion to grant permits in individual clIses prior to the amendment to this section made by the Banking Act of 1935, that the Board had found that the law in this form had been extremely difficult if not impossible to administer, and that for that reason the Board had suggested that the statute be amended t° give the Board authority only to issue general regulations which 1°111-cl not require consideration of individual cases. 292 2/28/47 -20- 10. Examination policy with respect to member bank loans. Reference was made at the meeting of the Conference to the experience after World War I when there was great pressure for the liquidation of bank lonns secured by commodities and livestock because of the precipitous decline in the market value of such collateral; nnd there was a discussion regardine, the appropriate attitude of supervisory authorities to help avoid c. repetition of this situation. It was Pointed out that the best way to help prevent a repetition would be to exercise restraint while prices are still high, and that banks should be cautious in extending credit on commodities and livestock at present high prices. The Conference wishes to discuss with the Board the appropriate attitude of the supervisory authorities as regards the handlin6 by commercial banks of commo3ity loans currently and in the event of a substantial decline In the market price of commodities. Chairman Eccles stated that there were now outstanding two 01' three statements issued by the bank supervisory agencies based war conditions, that the Board believed that it would be desirable for the three agencies to cancel these statements and issue 4 new statement or statements of policy in the light of existing conditions. He also said that the Board would undertake to prepare e. statement of its views so that when the matter was taken up with the other two agencies it would be in a position to staie what it felt the current policies should be. Mr. Sproul stated that such action would be in accordance with the views of the Presidents. 293 2/28/47 -21- 11. Administration and enforcement of Regulations T and U. At its last meeting the Conference proposed a liberalization of the provisions of Regulat;.ons T and U regarding the substitution of securities in under-margined accounts. At the joint meeting of the Presidents and the Board on October 10, 1946, Mr. Draper stated that the Board was favorably disposed to this proposal but that the question of its adoption was largely one of proper timing. There has been no liberalization of the provision regarding substitutions, although the recent amendments giving securities a loan value of 25 per cent of their current market value does to some extent facilitate substitutions in those accounts which are fully margined under the new requirements. The Conference feels that further consideration should be given to a relaxation of the restrictions regarding the substitution of securities in under-mergined accounts. Chairman Eccles stated that the question of action to liberalize the provisions of the regulations relating to the substitution of securities in under-margined accounts (the incidental squeeze) was one of proper timing and that the Board felt that the Pl'esent was not the proper time for such action. Mr. Draper pointed out that when margin requirements were educed from 100 per cent to 75 per cent the "incidental squeeze" had been greatly liberalized in its application and that with the Plieeent unstable movements of commodity prices the Board should 11°t tel any action which would have the appearance of further ' l elaxation of the regulation. Chairman Eccles stated that the purpose of the rule was to tiOlten the regulation in order to prevent further inflationary and sPeculative trading in under-margined accounts, that the psycholog- 294 2/28/47 —22— ical effect of eliminating the rule would not be good, but that if margin requirements were lrter further reduced such action 143uld, in its practical effect, eliminate the rule. Mr. Sproul stated that the restriction on substitutions iS an irritant which interferes with the administration of the major control and that it would be preferable to modify the re— striction at this time without waiting to reduce margin require— Ilents. Chairman Eccles stated that the Board would continue to consider the matter but that it was not felt that the discontin— uance of the rule would satisfy brokers and security dealers who vanted to get as low a margin requirement as possible. 12. Relations with the Board. The Conference believes that the Board should give reasonable advance notice to the Reserve Banks regarding amendments to the Board's regulatIons and other material to be re— leased to the press. Since the last meeting of the Presidents' Conference there have been three lmend— ments to the Board's regulations. In all three cases, the Reserve D-nks were advised of the amendments late In the day and this is particularly true in the case of the last amendment which pertained to Regulations T and U. Late advice involves a weakening of the position of the Reserve Banks in their communities and administrative difficulties and inconveniences. Reasonable advance notice will help the Banks do a better job to the greater credit of the Board, the Banks, and the whole System. If it is felt that Particular material is highly confidential, it should be possible to inform the Presidents person— ally of the proposals a reasonable time in advance of their release, so that preliminary plans may be made for prompt and effective functioning on the part of the Reserve Banks. 295 2/28/47 -23Chairman Eccles stated that when the matter on which action Ilas taken by the Board was not confidential, the Board would give the Federal Reserve Banks as much notice of the proposed action as Pc9sible, but that when the action was highly condifential, es was the case with the recent amendments to Regulations T and U, the B°6-rd could not give the Banks advance notice. He also said that there was an alleged leak when these amendments were adopted and the Board was severely criticized for it, and that it felt that in the future there should be no decisions or action taken on matters Of this kind until after the markets were closed so that no one in the Board's organization or at the Federal Reserve B,..nks could be accused of a leek before the official announcement was made. Chairman Eccles reviewed in detail the circumstances under lhich the Board's action with respect to the amendments to Regulations T and U was taken and announced. Mr. Sproul stated that the Presidents were aware of the position of the Board in situations Of this kind, but felt that it would have made a great deal of difference to the Banks if they could have had advice in some form imraediately rfter the close of the market even though they had to 814ait detailed advices. He said that in this case they did not get the wire advice until after five o'clock, which made it unnecessarily difficult to have the proper staff on duty to handle the matter and to mske arrangements for printing circulars. In such circumstances, 296 2/28/47 -24- a120, some officers of the Banks did not know about the change 'until they were questioned about it the next morning by outsiders. Mr. Williams stated that there had been nonconfidential matters on which wire advice was sent to the Federal Reserve flanks Qt the same time it was given to the press, end that it would be helpful if the Banks could be advised in advance on such matters. Mr. Carpenter stated that it was the intention to see that or letter advice reached the Federal Reserve Banks as early 6s Possible, at least by the time the matter was given to the Press) and that it would be appreciated if any case in which that did not occur were brought to the Board's attention. 13. Expenditures of the FederEl Reserve Banks. The Conference discussed the Board's letter, S-958, of February 4, 1947, requesting the Reserve Banks to Put a budget system into effect promptly. The Presidents concur in the desirability of submitting estimates of expenses to the Board. Many of the Reserve Banks have continued to prepare such estimates for Internal use even though they were not submitted to the Board during the war period. The Presidents are apprehensive, however, lest the program indicated in the Board's letter 3-958 interfere with the administration of the Ranks. They feel that the Board and the Banks should endeavor to work out together a program for the preparation and submission of estimates of expenses which will involve a minimum of interference with the operations of the Banks. Chairman Eccles stated (1) that the Board would like to kriC)14. What the Presidents had in mind in connection with the above statement, and (2) that the Board believed that, if anything, it 297 2/28/47 -25- had been derelict in not requiring budgets from the Federal Reserve Banks, that it was its intention in the future to follow a tight budget procedure in connection with all expenditures of the Federal Reserve Banks, and that the likely alternative to such a Procedure would be that the Reserve BrInks would be placed under the Budget Bureau and perhaps under the General Accounting Office. Re also said that he had recently received a letter from Mr. La Guardia, former Congressman, in which he stated that expenditures of Federal Reserve Banks should be approved by Congress and that he was going to advocate in a radio address that that be done. Mr. Sproul stated that 70 per cent of the expenditures Of the Federal Reserve Banks consisted of salaries, that 20 per cent additional was made up of noncontrollable expenditures, and that the budget procedure would be applicable largely in connection liith the remaining 10 per cent. that the He also said that the requirement Board be advised in advance when it appeared that expendi- tul'es would exceed the budget estimates would mean an unnecessary i4terference with the operations of the Federal Reserve B2nks, that the Federal Reserve B.,nks were not in the position of GovernIlleht departments and agencies which would have no funds available beYond the authorized appropriations, and that the Presidents felt that the estimates of expenditures should be handled in such a way 298 2/28/47 -26- that it would not be necessary to clear c possible excess over the estimates with the Board in advance. Chairman Eccles stated that such a procedure would not ille "anything from a budget standpoint, that while the Board apPl'oved salary scnles it did not approve the number of employees that a Bank might have, and that an effective budget procedure 14c)uld mean that it would have an opportunity to look into the totEl cost of a function. Mr. Sproul then said that the Presidents did not see how the Board could determine from Washington how many people should be employed by a Bank for a given function, to which Oh-irm-n celes responded that it could be done as effectively as was being done by the General Accounting Office at the present time. Mr. 8Pr°u1 questioned the effectiveness of the Government procedure " a Chairman Eccles said that the Board could not abdicate its l'esPonsibility for the approval of salaries and general superof the Federal Reserve Banks, and that it was necessary that the Board be in a position to say to Congress that, as its 82ent, the Bonrd was doing as effective a job of supervision as ecIlad be done by the Budget Bureau and the General Accounting "ice. Unless the Board followed a reasonably tight budget Pl'ocedure, he said, it could not avoid criticism for failing to ecel"cise the supervision which it was felt would be the only 2/28/47 -27- defense the System would have against the other alternatives that might be adopted by Congress. Mr. Sproul suggested that the Committee on Operations of the Presidents' Conference work with the Board's staff for the Purpose of developing as effective a budget procedure as possible, End that if the Board was to avoid getting involved in a lot of detail without firsthand knowledge of the Banks' operating problems it should have competent men on its examination staff who could Check into the budgetary side of operations. Chairman Eccles said that the proposed procedure contemPitted that that would be done. Mr. Enrhart stated th,t his Bank would like to have a very tight budgetary procedure in so far as department managers were e°11cerned in order to get the most from them, but that, if there 211°111d be any difficulty in prompt adjustment of budget estimates to meet changed conditions, there would be a tendency to put the budget figures high enough to meet that situation. Chairman Eccles recognized that that was one of the dangers ill a budget which should be watched and avoided, and stated that the 13°ard would want to be lenient until it had gained more experience 4nd could develop a sound procedure and the necessary data on which to base comparisons between the different Federal Reserve Banks. 300 2/28/47 -28Mr. Gilbert stated that the Presidents felt the Board was better qualified to pass on Federal Reserve Bank expenditures than anY other aLency and would rather have the Board perform that function) but that there should be sufficient flexibility to enable the Banks to take care of any contingencies that might arise. Mr. Whittemore expressed the opinion that it was desirable for the Banks to have a tight budgetary procedure in order to prevent undesirable situations from developing, but that the success of any procedure would depend on (1) an efficient budget man .t the Federal Reserve Bank, and (2) the willingness of the Board to give almost immediate answers on any request for chanfes in the budget. Chairman Eccles assured the Presidents that the Board ' l eco6nized the necessity of setting up a procedure in its own ciffioes which would handle the Banks' requests promptly. Mr. Sproul suggested that before the procedure was finally deteMined upon, the Presidents' Committee on Operations work with the Board's staff for the purpose of developing the best possible Procedures. Chairman Eccles stated that the Board at all times would welcome any advice or suggestions that the Presidents or the Cornon Operations might wish to offer on any of the questions th t-, might be raised. 301 2/28/47 -29- 14. Directors fees. The Conference discussed the Board's letter, S-9591 dated February 7, 1949, approving a schedule of maximum fees and allowances for the Reserve Banks and branches within which payments may be made to the directors without further action from the Board of Governors. Some of the Reserve amks which have customarily paid branch directors the same fee as the directors at the head office feel that a fee of tO for head office directors is appropriate, and they consider it unfortunate that they may not pay, branch directors as much as head office directors under such circumstances. Chairman Eccles stated that the Board's action was taken after consideration of the suggestions of the Chairmen of the Federal Reserve Banks, and that the point raised by the Presidents was thoroughly considered, particularly in the light of the difference in the responsibility of the directors of the head office and of the branches. He also said that the Board saw no reason for making any Change in the schedule of fees which had been approved. He added that, if the directors felt that the head office and branch directors should have the same fee, that could be accomplished by auth°rizing a t30 fee for both classes of directors. Mr. Leedy stated that the matter had been discussed by the b°ard of directors of his Bank and he had been requested to take it 4 with the Board, but that as it appeared to be a matter of System interest he thought it might be properly placed on the agenda for the Presidents' Conference. He said that the attitude of his directors was that heretofore the fees paid to head office and branch directors had been uniform, that in any event the fee paid was only 302 2/28/47 —30— a token Payment and not compensation for the services rendered Particularly in the case of directors who had to travel long dis— tances, end that if there were a differential between head office and branch director fees it would only serve to further minimize the importance of their job in the minds of the branch directors. Re recognized that on the basis of responsibility there was no Justification for paying the branch directors the same fee as the head office directors, but stated that his directors felt that, inasmuch as the fee was only a token payment and the same fee had been Paid to both in the past, the maximum fee permitted by the 13°ard l s letter should be paid to the branch directors as well. Some of the Presidents expressed the opinion that there Should be some differential between the head office and branch directors and Chairman Eccles stated that the Board had taken illto consideration all of the points advanced by the Presidents aId felt that the schedule of fees set forth in its letter was 11 reasonable compromise. 15. Precautions against robbery. The Conference considered the Board's letter of February 19, 1947, with respect to informrtion received by the Federal Bureau of Investigation regarding plans for robberies of messengers delivering money to and from a Federal Reserve B-Ink branch and requesting that the Presidents discuss the matter of precautions against robbery. The Conference feels that it would be desirable (a) for the Reserve Banks (other than those which have already done so) to have a survey mode by the Federal Bureau of Investigation of the practices of the Reserve 303 2/28/47 -31- Banks in handling money and securities, and (b) for the Reserve Banks, working through their bank relations departments or otherwise, to conduct an educational campain among member banks to encourage the use of adequate safeguards in handling money and securities. Chairman Eccles stated that the above proposal was satisfactory to the Board and that, in addition, it was giving consideration to requesting the Federal Bureau of Investigation to discuss 'with the American Bankers Pssociation what further steps might be taken such as including information in the protective bulletins Issued by that Association. Referring to the letter from the Director of the Federal 14ureau of Investigation which gave rise to this matter, Mr. Earhart stated that the letter contained some inaccuracies, that the practi ee of local banks in Seattle was to use armored cars whenever the values involved were large, and that messengers were used in "ses where collection letters and securities were insured and the banks could rely on the protection of insurance. Chairman Eccles stated that if there were losses it would tesult in increases in the insurance rates to all banks and in danger of loss of life, and that, therefore, the System was very 13111ch interested in adequate protection. President Young stated that the action of the Presidents' Conference contemplated that the whole problem would be studied 147 the Insurance Committee of the Presidents' Conference. 304 2/28/47 -32- 16. Periodic reports on banking conditions. The Conference considered the Board's letter, S-953, dated January 27, 1947, requesting the Reserve Brnks to furnish the Board quarterly with material about banking conditions in their respective districts. In view of some degree of skepticism among the Presidents as to Utility of such reports, the Presidents would like to discuss with the Board the material it desires and what use it proposes to make of the material. Chairman Eccles said that, as stated in the Board's letter of January 27, 1947, this arrangement was an experiment which the Board would like to try, that it was hoped that the information on banking end other matters which the Reserve Banks found useful in connection with their activities would be helpful to the Board as background in appraising information coming to it from other sources, and that if the arrangement did not prove helpful it would be discontinued. He al:o said that it was not the intention that a large v°1ume of written materiel would be furnished but only those items Which in the judgment of the Reserve Banks would be of immediate 1. terest. He went on to say that one or the Federal Reserve Banks had already reported informally that it had a substantial amount Of material which had not been organized and made use of by the Bank 8 d that the request of the Board would put the information in a f°1111 which would be helpful to the officers. He emphasized that the Ill ' I'angement was not a mandatory one and that if a Federal Reserve did not have anything to send in it would not make a report. 305 2/28/47 -33Mr. Sproul stated that some information was received by the Banks orally and informally and might be passed on to the '3a-rd in the same way, but that if it were sent to the Board in a formal way, in writing drY up. the sources of the information might This, he said, is one of the things the Presidents wished to guard against. 17. psorption of exchange charges. The Conference suggests that the Board of Governors discuss with the board of directors of the Federal Deposit Insurance Corporation the matter of absorption of exchmge charges, With a view to endeavoring to persuade the FDIC to reverse the position previcoisly taken by it that under its regulations the absorption of normal and customary exchange charges does not constitute the payment of interest on demand deposits. In the event the FDIC does not change its position, it may be desirable to ask the Congress for clarifying legislation so as clearly to prohibit or permit the absorption of exchange charges. Presidents Leach and MCLarin stated that they would have to 4-eave shortly and would appreciate it if the above subject could be next discussed. Chairman Eccles stated that he had discussed with Mr. Fig1.11s, the new Under Secretary of the Treasury, how this problem might best be met. Mr. Da-ris stated that the problem in his district could be Met satisfactorily if the FDIC would adhere to the position, taken when its regulation was originally dopted, that the absorption of e)cehanze as a consideration for the maintenance of a btlance would be reprdel ss a payment of interest. He s-id that the Federal Re- 306 2/28/47 34 Serve Bank of St. Louis had presented to the local office of the FDIC a great deal of evidence over the past two years that one nonmember bank in the Eighth Federal Reserve District was indulging in this practice but that no action had been taken by the Corporation. Mr. Leach stated that there were two such cases in his district and Mr. McLarin said that there were three nonmember banks in his district which were following the same practice. Chairman Eccles stated that, if the Federal Reserve Banks had4, not. already done so, they should send this information to the Board and that it was believed that Mr. Via;ins, with his background °f wide national service, would be interested in trying to find a solution. It was understood that Messrs. Leach, McLarin, and Davis .4ould send to the Board complete information with respect to the eases to which they had referred and that the Board would take the Matter up with the Treasury and the Pederal Deposit Insurance CorP°retio At this point Messrs. Leach and McLarin left the meeting. 18. Industrial loans. The Conference noted that the bill S. 408, 80th Congress, introduced by Senator Tobey, although responsive to some of the suggestions of the Presidents, does not give effect to certain recormencletions made by the Conference at its last meeting, regarding legislation on this subject, which a number of the Presidents still b -lieve are important. 307 2/28/47 —35— Fpecifically, they feel that there should be reference to the inability of borrowers to obtain requisite financial assistance from the usual sources, that the Reserve Banks should he authorized to make direct advances, and that it would be preferable for financial institutions seekin_ a Reserve Elen ,zunrentee, to assume at least 20 per cent of the risk. The Conference is interested In hearing from the Board regarding the omission of these proposals end regal-ding the legislative situation of the bill 9. 408. Chairman Eccles stated that the Board felt that it would nct be possible at this Congress to get authority for direct loans by the Federal Reserve Banks, and that the System shoulZ, meke- up 1t8 mind whether it wanted legislation in the form proposed in S. 408 or no legislation at all. Mr. Sproul inquired whether the Board would be willing to include in the bill the requirements (1) that financial instituti°ns seeking a Federal Reserve B-nk guarantee should assume at least 20 per cent of the risk, and (2) that guarantees could be 1-ven only when borrowers were unable to obtain the requisite financial assistance from the usual sources. Chairman Eccles expressed the opinion that it would not be Possible to get the ler;islotion if the first requirement were included and he stated that if the present bill were adopted the Pederal Reserve Banks would have discretion as to the amount of risk that should be assumed by the financing institution. Mr. Sproul stated that if the two requirements were not irieluded it would subject the Federal Reserve Banks to considerable 308 2/28/47 —36— pressure and Chairman Eccles stated that it might be possible to include the provision with respect to inability of the borrower to obtain necessary credit from the usual sources on reasonable terms. Messrs. Eccles and Drnper referred to the experience under Regulation V in connection with V2 VT, and T loans and stated that if the legislation were adopted with the 90 per cent provision the 13°ard in its regulation would fix a graduated scale of commitment fees which would discourage financing institutions from asking for the higher tLuarnntees. Mr. Gilbert stated that there should be an understanding that the requirement with respect to the availability of credit fl'om the usual sources should not be interpreted to mean that it could be used by banks to exceed their legal loan limit and that in peace time it should not be the purpose of the law to guarantee 14311e in excess of a bank's legal loan limit. Chairman Eccles stated that he would be agreeable to in— terpreting the requirement as not permitting a guarantee when a -tinallcing institution could arrange for a participation in the credit with a correspondent bank. Mr. Leedy stated that it was extremely important that the 80 rd indicate that it would be agreeable to such an understanding "Id that the understanding might mean that objections that other— 309 2/28/47 -37- wise would be made to the bill would not be raised. On the other hand, he said that some small banks felt they should not be forced to go to their correspondent banks in order to arrange a credit, for the reason that frequently it had been the experience of such banks, when they participated in n loan with a correspondent bank, that the next loan to the same concern was made by the correspondent ba-n-k End the small, bank was left out entirely. Mr. Williams expressed the opinion that it would be desirable if smell banks were encouraged to coils borate in making loans of this kind. Mr. Gidney concurred in this position. There was bers F further discussion of this point and the mem- of the Board indicated that they would like to leave the matter °Pen for further consideration. 19. Capital requirements of member banks without branches. The Conference believes that the Federal Reserve System should be able to make its own determinatIons concerning the eligibility of State banks for membership, without, being tied either to the FDIC or to the national banking, sytem. It does not, however, see any need to eliminate entirely a statutory minimum capital requirement for membership in the System, and it favors fixing this minimum at :!,25,000. The Conference suggests that the tenth paragraph of Section 9 of the Federal Reserve Act be amended so as to read substantially es follows: "No applying bank shral be admitted to membership in a Federal Reserve Bank unless it possesses a paid-up unimpaired. capital of at least 1,25,000 end such additional capital funds as the Board of Governors of the Federal Reserve !y-stem may deem adequate in view of all the facts 310 2/28/47 "and circumstances affecting the applying bank, including the volume and character of its assets and deposit liabilities." Mr. Gidney stated that this leLjslation was very badly needed and that he hoped the Board would give careful considera— tion to it. 20. Payment of portion of Reserve Bank earnings The Conference considered various methods proposed for channeling Reserve Bank earnings to the Treasury, including: I2_112tatIELL (a) The restoration of the franchise tax; (b) The imposition by the Board of an inter— est charge on Federal Reserve notes not secured by gold certificates; and (c) The performance of all fiscal agency operations without reimbursement. On the basis of their present knowledge a majority of the Presidents favor restoration of the franchise tax with appropriate provisions to assure the maintenance of adequate surplus by the Reserve Banks rale to safeguard against encroachment by the General Accounting Office. Chairman Eccles stated that the Treasury would not consider a eh --ange in the 3/8 per cent rate on Treasury bills unless it was assured that the resulting incrase in the cost of the Government debt would be returned to the Treasury. He also said that if the til ‘ nelliee tax could be reinstated without legislation that would be a desirable thing to do, but that the suggestion of such legis— lation woulrl raise a lot of questions such as Federal Reserve Bank $41*flings, the dividend on Federal Reserve B-nk stock, who owns the Federal Reserve B-nl: stock, expenses of the Federal Reserve B-nks, 311 2/28/47 39 and other matters; that the absorption by the Federal Reserve Banks of the fiscal agency expenses incurred for the Treasury (but not including those incurred for Government corporations) would not be a complete solution of the problem, and that the most readily available solution would be to impose an interest charge on Federal Reserve notes under the provisions of Section 16 of the Federal Reserve Act. In addition, he said, the System could absorb the fiscal agencY expenses of the Treasury which would result in a laver interest charge on Federal Reserve notes. In response to an inquiry as to how the Presidents felt on this subject, Mr. Sproul stated that a majority of the Presidents favored a franchise tax. They thought the use of interest on un- covered Federal Reserve notes for this purpose was not intended by the law and that it would raise public questions affecting public c°nfidence in our currency. They also felt that the absorption of rIscal agency expenses would enable the Treasury to spend money illthout going through the customary appropriation procedure and that the procedure, therefore, would probably not be acceptable to the Treasury; that it would divorce the party incurring expenditul'es from responsibility for meeting the costs of such expenditures, elld that it would establish an undesirable relationship between the Tre--° ... 11ry and the Federal Reserve System. 312 2/28/47 There was a discussion of whether the law contemplated that the Federal Reserve Banks would make charges azainst the Treasury for fiscal agency expenses and whether, if the costs Jere absorbed by the Federal Reserve Banks, the Treasury would itcrease the volume of such expenses. On the letter point, Chairman Eccles stated that it would have to be understood that the volume of expenses would not be increased and that no new functions would be undertaken by the Federal Reserve B-nks without Prior approval. The matter was also considered from the standpoint °f 1;ood accounting and budgetary procedure. Mr. Gidney stated that some of the Presidents favored acti°11 to provide a procedure which would include the imposition °f an interest charge on Federal Reserve notes and the absorption Treasury fiscal agency expenses. This comment was followed by a discussion, in the light of the authority given to the Comptroller General by legislation enacted in 1946, of the extent to which such action would affect the question of the Federal Reserve Brnks being aubjected to the Budget Bureau and the General Accounting- Office. Mr. 2proul suggested that an effectivl argument could be ' IPade for not subjecting the Federal Reserve B-nks to the Budget 1311reau and the General Accounting Office without adopting the pro— cedure menti:ned by Mr. Gidney and stated that in discussions with 11r* Bartelt, Fiscal Assistant Secretary of the Treasury, the letter 313 2/28/47 —41— was hopeful that chan8es in procedure now being considered would be effective in satisfying the Comptroller General with respect to fiscal agency expenditures of the Federal Reserve Banks. Chairman Eccles stated that apparently the Presidents did not feel much concern about the questions that would be raised in connection with legislation to reimpose the franchise tax and that 2° far as he was concerned if that WES what the Presidents wanted he would not oppose it. Mr. Sproul stated that he felt that the System could ef— fectively answer any such questions that were raised. Messrs. Draper and Evans stated that they would be opposed to legislation at this time. The Presidents inquired what Chairman Eccles would prefer arid he stabed that he would not have any difficulty in undertaking to defend an arrangement under which the Federal Reserve Banks /g°111d absorb the fiscal a,;ency expenses incurred for the Treasury and the Board would impose an interest charge on Federal Reserve 11°tes under Section 16 of the Federal Reserve Act. However, he would not undertake that program unless the Treasury felt it was 4 desirable thing to do. Mr. Sproul stated that the authority to impose an interest charge on Federal Reserve notes was put in the law for an entirely different purpose and should not be used to transfer earnings of 314 2/28/47 -42- the Federal Reserve Banks to the Treasury, that to use the authorItY in the manner proposed might mean the imposition of different interest charges for the different Federal Reserve Banks, and that that raised a number of undesirable questions. Chairman Eccles stated that it was the feelin,, of the Board's Staff that by the allocation of securities in the System account in a ccordance with the procedure approved by the Federal Open Market Cczmittee it probably would be possible to impose the same interest charge on all Federal Reserve Banks. He also said that if it were decided to follow this course he could go to the Banking and Currency Committees and ascertain their views and whether they would Prefer this course to the reimposition of the franchise tax. After some further discussion, Chairman Eccles suggested it be understood that the impooition of an interest charge on Federal Reserve notes would be adopted if after further study no further objections were found and if it were favored by the Chairmen of the Banking and Currency Committees of Congress, and that if there were objections to the procedure from that source a franchise tax Would be proposed. With respect to the absorption of Treasury fiscal agency expenses, he s%,_;ested that that be discussed with the Treasury for the purpose of ascertaining what its preference 14c)uld be, it being understood, however, that there would be no Increase in the volume of such expenses or the undertaking of any 315 2/28/47 —43— new functions without prior approval of the System, end that if at any time the earning position of the Federal Reserve Banks Should so reruire, the payment of fiscal agency charges by the Treasury would be resumed. These suggestions were discussed and there were differences of opinion among the Presidents as to the course that should be followed. The point was brought out that if there should be t subst ntial importation of gold or return flow of currency, the amount of Federal Reserve notes not secured by gold could be reduced very greatlY so that the interest charge necessary to accomplish the Pose under discussion would be very high. It was suggested, however, that it probably would be some time before that occurred and that the arrangement would be an effective method of meeting the problem for the time being. There was some further discussion but no conclusions were reached. 21. The problem of excess reserves. Although at the time of the Wagner Questionnaire the problem of excess reserves was a difficult one, the situation with respect to excess reserves has changed so substantially 31nce that time that they are no loner a problem. It was agreed that no action was required in connection wLth this topic. 316 2/28/47 —44- 22. The r<old problem. It is the view of the Conference that, in the interest of allaying fears Of action by the United States that might set in rotion competitive devaluation of currencies, and of maintaining or increasing the monetary use of _,old and promoting the stabilization of currencies, it would be desirable for our Government to consider tnki2ng action along the following lines: (a) Revise paragraphs 8 and 9 of the Gold Reserve fict to eliminate what is now frequently construed as authority to the Secretary of the Treasury to change the price of gold at will; (b) Revise Treasury regulations to give foreign governments end central banks a general license to buy or sell gold in the United States, or to exempt them from the licensing procedure (except where an Axis intereet in the gold has been, or may be involved); (c) Reduce materially the handling charge on purchases and sales of gold. It was agreed that as these matters were being studied by the Board, the Federal Reserve Banks, and the Treasury no action by the P - residents and the Board at this time was necessary. Secretary's note: Because of the late hour no consideration was given to the remaining topics contained in the Presidents' memorandum relating to (1) composition of the boards of directors of end the Federal Reserve Banks and (2) the di rate on Federal Reserve Benk stock. Thereupon the meeting adj Secrete APPro Chairman.
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