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A meeting of the Board of Governors of the Federal Reserve System with the Presidents of the Federal Reserve Banks was held in the offices of the Board of Governors in Washington on Monday, Febr4137 28, 1949, at 3:00 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Vardaman Clayton Mr. Carpenter, Secretary Messrs. Erickson, 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. Yonng, Secretary of the Presidents' Conference The Presidents met in separate session on Friday and Saturday D 'ebIllarY 25 ard 26, 1949, and before this joint meeting a memorkti 1141 l'elating to topics which the Presidents wished to discuss 46 Board was furnished to the members of the Board. The state- 144t te Of the Presidents and the discussion with respect to each of 14°MC8 at this joint meeting were as follows: 1. lime records and "Units handled per production hour." The Conference gave consideration to the letter rePort, dated February 1, 1949, from the Chairman of the Committee on Accounting to the Chairman of the Committee on Operations, supplementing the report of 2/28/49 -2the Committee on Accounting to the Committee on Operations, dated November 17, 1948. These reports contain a detailed recommendation with respect to a method of keeping time records for calculating production hours to supplement the previous recommendation of the Committee on Accounting and the Accounting Conference of September 13-15, 19481 that provision be made for reporting items handled per production hour. The views and recommendation of the Committee on Operations with respect to this entire matter were also received and considered. The Committee on Operations emphasized its appreciation of the excellent work which has been performed by the Committee on Accounting, working with the members of the Board's staff; however, the Committee was of the view that it would be better to have one instrument of measurement rather than two (one based on "unit costs" and the other on "units handled per Production hour"). It appeared to the Committee that the primary purpose of computing "units handled per production hour" would be the elimination of salary differentials in comparing the operating results achieved by the various Reserve Banks, and the Committee believes that this can be accomplished in a simpler manner than that recommended by the Committee on Accounting. Accordingly, it was the recommendation of the Committee on Operations, which the Conference unanimously approved, that the recommendation of the Committee on Accounting should not be adopted. It was agreed that this action should be reported to the Board, since the Board might wish to discuss the subject at the joint meeting on Monday. Chairman McCabe asked what the Presidents had in mind by the ent -n the above statement that the purpose of computing "units 4/14leci Per production hour" could be accomplished in a simpler manthatrecommended by the Committee on Accounting. Mr. Leach responded that the Presidents' Conference and the 'le°1111t -cei4cia Committee were in agreement as to objectives but that the lite felt it would be preferable to continue to work on per- 384 2/28/49 tecting the existing procedure for determining unit costs rather thwa to start the computation of a new unit of measure. Comparisons htlfeen bRnks now have limited usefulness, he said, because of sal84'7 differentials, but this difficulty could be overcome quite asilY by computing an "adjusted unit cost" which would be the unit c's.t if all 12 banks paid the same average salary. He pointed out that the various banks now have established methods for determining N-ative efficiency within their own organizations and paying sale‘ries on the basis of merit. He felt that there were certain weak- Ilesses in the proposed "units handled per production hour" figures becw, they would greatly increase the records that would have to be Maintained by the Federal Reserve Banks, and because they would be aff ected by practices of the respective Banks with respect to rest --riods and other periods throughout the day when employees 11°1°4 not be working, and by differing policies of the Banks with NPe f to the employment of higher salaried people with greater elleY. 1'1g14.e. He also recognized that the present per unit cost had weaknesses but felt that if these cost figures could 4 1, 'errected and put on a more comparable basis at all of the FedReserve Banks, the results would be more satisfactory than th Pro cedure proposed by the Committee on Accounting. Chairman McCabe referred to the performance and efficiency Nord 8 Net maintained by industrial concerns and to a discussion at a fl1t --4.1ng of the Board of Directors of the Federal Reserve Bank s which he attended and at which the Directors had shown a 2/28/49 great interest in the low per unit cost record made by the Bank and to have some comparative standard on which the efficiency (lesire employees could be determined. °t the thet He also suggested that, with attitude of the Directors in mind, it would be desirable to 444taiIi records which show the comparative efficiency of the in-. cit'qclual employees. Mr. Earhart referred to some of the difficulties that would encountered in undertaking to carry out the recommendation of the cot it tee on Accounting, and a discussion of the results that might be obtained. from the proposed procedure there ensued. Leach pointed out that there were local conditions in e eh of ri the Federal Reserve Banks which affected the production Of the Banks so that, in appraising the work of the Banks, it Iltt 8 not possible to look at the figures alone without taking thEite local conditions into account. procedures Chairman McCabe stated that he was interested in keep the Federal Reserve Banks at the highest possible eh %lould tticienes„. MI'. Davis expressed the view that it was not possible to all of the various operations in the Federal Reserve Banks A ot r he- qirrer operations because of different conditions applying in e4t cases and that while some of the functions could be corn04 t) the basis of unit cost, such was not the case with all 2/2W49 Mr. Leach commented that the Presidents had felt that the Pederal Reserve Banks should avoid becoming involved in a complited record keeping procedure and that it was questionable whether the Procedures proposed by the Committee on Accounting would procluee 41Y better results than the present records. There was a general discussion of the objectives sought in the maintenance of cost production records and the extent to which 1". „ '.ords of the performance of departments, units, and individual en114103ree8 are maintained in business concerns. Mr. Davis stated that there was no difference as to the obes sought, and it would be his suggestion that it be underStood -"that the Federal Reserve Banks would continue to work toward the rerinement of their present unit cost figures and would defer ti action on the maintenance of records of"units handled per pro- 11t10 /1 houru until the unit cost procedure had been more nearly cted Chairman McCabe stated that the Board would like to give the katter further consideration and discuss it with the Presidents Ett the 4. 'tale of their next conference. 2 -1‘ederaeserveBan_i_cbudgetrocedure. Several asPects of existing budgetary procedure were considered bY the Committee on Operations at its meeting on Friday c)rning. As a result, the Committee has made the fol°11ing recommendations, with which the Presidents have ' !Dressed agreement and which they desire to submit to 'the Board for its consideration at the joint meeting on Monday: T 2/28/49 -6(a) That the date of filing the budget be changed from October 1 to December 15, as recommended by the Committee on Accounting and unanimously approved at the Accounting Conference of September 13-15, 1948. (b) That the comparative figures submitted with the new budget on Form 634a should constitute the actual expenses either (1) for the preceding year even though it would be necessary to include estimates for the last two months, or (2) for the latest twelve months for which figures are available. Last year the Board requested actual expenses for the year ending the preceding June 30. (c) That the following recommendations of the Committee on Accounting (then the Committee on Expense Accounting) contained in its report dated May 28, 1947, be adopted: "The Committee recommends that the following expense items be considered noncontrollable and that they be exempted from the requirement that notices of excess expenditures in function totals resulting from increases over the amounts set up in the budget for these items need be given. Further, that they be excluded from the requirement that an explenRtion be given for any substantial differences between budget figures and actual expenses for a prior period: Taxes on Bank Premises; Retirement System Contributions for Current Service; Postage and Expressage; Postage and Shipping Charges in each Federal Agency unit; Shipping Charges on Currency and Coin Shipments; Federal Reserve Currency, Original Cost and Cost of Redemption. It is further recommended that the above exemptions apply to expenditures specifically approved and assessments levied by the Board of Governors." (d) That the Board of Governors be asked to aMend its request for advance advice when it apPears that expense for a certain function will 388 2/28/49 -7exceed the budget so as to except from such request small excesses, such as those which are less than 10 per cent of the function total in the budget. Chairman McCabe stated that it was the thought of the Board °fGo vern.ors that the proposals contained in the Presidents' state(with the possible exception of paragraph (b) which the Board consider separately) could be referred to the Budget Committee 'aPPointed in accordance with the action taken at the last meetthe Conference of Chairmen of the Federal Reserve Banks and e°48isting of three Chairmen of the Federal Reserve Banks and two kembe,. 48 of the Board of Governors. The various factors to be taken into consideration in detellitli4g. the date for filing the budgets of the Federal Reserve -43 'with the Board were discussed and some of the Presidents the question whether the proposals in the Presidents' stateit was felt were more in the nature of operating rather thez Policy Problems, were of a character that should be referred to the Budget Committee of the Chairmen's Conference. Chairman McCabe stated that the suggested date for filing the "4t the the Ile , $, Board raised the question whether it was to be expected -oard would pass on the budgets before the beginning of 11 budget year or some weeks later and that it would not be uo consider and act on the budgets by January 1 unless submitted several weeks in advance of that date. 389 2/28/49 -8The Presidents agreed that if the Board were to pass on the budgets by the first of the new year, they would have to be submitted "IlY in October or November, and that the only reason for suggesting the later date was that it would make it possible for the Federal Re"Banks "II to base their budget estimAtes on more current expense rigilres for the current year. Some of the Presidents questioned the IleceseitY for the Board passing on the budget before the first of the re'Etis and suggested a tentative approval by that date with final ap111'"ea sometime after the beginning of the year. At the conclusion of the discussion it was understood that theB0 al'd would consider the proposals contained in the above state- 44t elld advise the Presidents of its conclusions. 3. Member bank capital requirements. At its meeting on Friday, the Conference received an informal report on the current status of pending And contemplated legislation in which the Federal Reserve System is interested. The Presidents understand from this report that the Board has submitted to the Comptroller of the Currency and the Federal Deposit Insurance Corporation the draft Of a proposed bill to modify member bank capital reqUirements which was enclosed with the Board's letter of 11 30, 1948, to each of the Presidents and was con' 41 sidered at the meeting of the Conference on May 12, 1948 (mins., pp. 12-14). In the view of the Presidents, it would seem desirable to press forward with the legislation, since there appears to be general agreement within he System as to objectives of legislation on this subject, and they expressed a desire to re-emphasize their Position at the joint meeting on Monday. had adopted the above Ntenie 141'. Davis stated that the Presidents qo4 u4 merely as a restatement of their position on the legislato suggest that the legislation not be overlooked. 2/2V49 _9_ Chairman McCabe responded that the Board was in complete e4leeMent with the Presidents on the matter and that the introducti0 11 of the legislation was a matter of timing. 4. Le islation for conversion of national banks to State banks. From the informal report on the current status of pending and contemplated legislation which they received, the Presidents were informed that the bill for legislation to provide a procedure for conversion of national banks to State banks and for their consolidation has been introduced in the Congress, and that the Board has been giving consideration to the position which it Should take in respect of the legislation. After some discussion, it was the view of most of the Presidents that, while enactment of the legislation might result in some loss of System membership, the legislation should be considered on its own merits, independent of any other legislation, and that in equity and fairness to all banks the legislation should not be opposed by the System. There was general agreement by the Presidents with the suggestion that this subject be listed for discussion at the joint meeting in order that the Presidents might be informed of the Board's view and in order that they might Present their views to the Board. Chairman McCabe stated that the Board had received a request let% e h - Chairman of the Senate Banking and Currency Committee for a 'eDort 04 the n bill referred to in the above statement and that it had kk'aft of the report to the Budget Bureau for comment. He also 41(1 ti.'t the draft expressed the hope that action on the bill could qeras. ' - ted until consideration could be given to the problem of re- l'e report of the President ot 1. 1e - qUirements, that the recent economic , qoici 114ited States recommended that authority to require banks to IpPlemeutal reserves be made applicable to all insured banks, 2/28/49 -10- that in the event such legislation was enacted the Board would have — uo objection to the enactment of the bill relating to conversioa oz national banks. The draft of report referred to by Chairman McCabe was read e3341 /4 Davis stated that, while the Presidents were not anxious to ellecsurage withdrawals from membership in the System, they were of tileoPinion that the proposed position of the Board would not prethe passage of the bill but would adversely affect the relation4111158 of the System with the State bank supervisory agencies, and 114tt if Possible that should be avoided. Ar. Sproul suggested that the fact that one discrimination 44.1 ,^ been removed by the Congress was not a good argument for °I)Doe ihg the removal of another discrimination. Messrs. McCabe and Eccles emphasized the discrimination member banks in the existing supplemental reserve require8.14 the latter stated that if that discrimination were not 48 'ted and the legislation with respect to conversion of nati„ al uanks was approved, there would be a substantial number of coriver 81.°ns that otherwise might not take place. X. Leedy stated that he was in the minority in the Presi(Ikts I 4 `dscussion of this matter and that he felt that it was proper the ,„ toard to oppose the bill on the grounds that by doing so tt ytte. 4c, Plseserving the dual banking system. He also said that the 2/28/4, -11legislation under existing circumstances would encourage 1)11version and absorption into State banks which he thought was undesirable at this time. Further comments by the Presidents were to the effect that the , QYstem should not depend on discriminatory statutes to maintain illeilibershiP in the System and that opposition to the proposed bill 1°11341, needlessly injure the good working relationship that had been estetblished with the State supervisory authorities. Mr. McLarin stated that the trend in the Sixth Federal Re.ve l'istrict had been in the direction of conversion from State to Ilstti011a1 banks and he did not think the adoption of the bill 114/re any material effect in that district. Other Presidents cseed the view that if there were further increases in member bENt teserve requirements and the bill under discussion was approved, the,re vould be a substantial number of withdrawals from the national 1)/ktati ng system. Mr. Davis concluded the discussion with the statement that he 1 had taken the right position in its earlier letter to the i7 Pil%r etIZI Bankers Association with respect to the bill and while the ttea Ilts did not like to see any further withdrawals from the Fedserve System they did not believe the letter now proposed was Dro One for the Board to send or that it would stop the adoption the eclaversion legislation. Also, he said, it would give the 2/28/49 -12State banking authorities a further ground for their charge that the hall was opposed to the dual banking system. Chairman McCabe stated that the Board would be glad to take the views of the Presidents fully into account in determining whether the Proposed report on the bill should be sent. 5. Possible inclusion of Reserve Bank employees ender the Social Security program. The Conference gave some consideration to the possibility that employees of the Reserve Banks may be included under the Social Security program. Although the bill to broaden Social Security coverage, recently introduced in the Congress by the Administration, apparently does not apply to the Reserve Banks, it was the feeling of the Committee on Personnel, as reported to the Conference, that the System might be requested on short notice to make a recommendation with respect to whether or not the Reserve Banks should be covered. Accordingly, the Committee recommended that a Special committee, consisting of Mr. Leedy, Chairman Of the Committee on Legislation, Mr. Sproul, Chairman Of the Committee on Personnel, and Mr. Williams, be appointed to keep in close touch with legislative developments in this field and to keep the members of the Conference advised. The Committee further recommended that the Conference express itself generally as in favor or a policy of moving toward integration with Social Security and that the special committee, recommended ! or appointment, proceed accordingly and request the tletirement Committee to undertake a study of the problems involved in integration. The recommendations of he Committee were adopted by the Conference, and Mr. ?roul was appointed chairman of the special committee. ,74ile the Presidents did not feel any discussion would oe required, they desired to inform the Board of the action which had been taken. 01411t 141'. Davis outlined briefly the reasons for the Presidents' "it would be desirable for the Federal Reserve Banks to l t °11th clIrtecl by the Social Security program. V2e1/49 -13Chairman McCabe stated that there was a question of how far d'ecluctions from employees' salaries might go to cover retirement and 8°c1 al Security benefits without becoming burdensome. Mr. Davis responded that the Presidents' statement contem134ted the integration of the Federal Reserve Retirement System with the Social Security program and not that Social Security benefits 11°Uld be added on top of the benefits now provided by the retire418 sYstem. There was agreement that no action was called for on this raaler by the Board at the present time. 6. Salaries of examiners for Federal Reserve Banks. Reference was made to the Board's letter of January 12, 1949, to the Chairman of the Conference, advising that a question had been raised as to whether salaries paid examiners for the Reserve Banks were on a comparable basis to those Paid examiners for other supervisory agencies, and requesting discussion of the subject by the Conference at the meeting just concluded. The Committee on Bank Supervision, to which the subject was referred in advance of the meeting, has obtained from each of the Reserve Banks comparative information with respect to salaries paid by the Federal and State supervisory agencies, as well as the Reserve Banks. This information was assembled by the Committee and disseminated to the Presidents at their meeting, with the recommendation that each of the Presidents take the information back with them and work out the situation at their respective Reserve Banks. The recommendation was approved, and it was agreed that any problem which might exist could be worked out within the framework Of the job classification and salary administration plans at each of the Banks. C hairman McCabe stated that as a director of the Federal ReOf Philadelphia he had 'understood the examination depart- tot,.)at 1 "8 than any other department, that the examiners were on the 2/28/49 most of the time and were not known to the Directors, but that 14 had felt that the department should have the best men available to c arrY on the examination work of the Bank and that the salaries t examiners should be fixed with that in mind. Several of the Presidents expressed the opinion that while the 'IltY of the work of Federal Reserve examiners was entirely c°raParable to or better than that of national bank examiners or exam, Jalers for the Federal Deposit Insurance Corporation, there was stil room for improvement. Reference was made to the circumstances le Up to the Board's letter of January 12, 1949, asking that the 'uoiect of examiners' salaries be placed on the agenda for the '4"1-18 sion. at this meeting. There was a discussion of the extent toul, th the examining departments might be used as a training for greater responsibility in other departments of the FedereaR departments might bells eserve Banks and the extent to which other tote ed as a training ground for examiners. During this discussion of the Presidents stated that existing salaries of Federal Reexaminers were too low. Mr. Eccles referred to the responsibility of the Board for examination of member banks and to the relationship of exPolicy to the overall credit policy of the System. 414° stat N4 e A He that, with the changing conditions and the large in- the loan portfolios of member banks, it was important qe.t there be uniformity in examination policy and that the Federal 2/28/49 -15- Reserve Banks have an intelligent examining force so that examination policy could be closely related to the monetary and credit 15°1i-cies of the System. He also added that if the salaries now being paid were not sufficient to attract examiners of outstanding 15111-tY these salaries should be raised. Mr. Peyton questioned whether the law intended that the Systet llould use the function of bank examination as a means of carrying °IltsYstem credit policies and Mr. Eccles expressed the opinion that it dia. Following a brief discussion of the level at which examiners \fere classified in the Banks' personnel classification plans, Chair49.1114co aue stated that a period of depression would be the "war pe1'10(1tl tor the Federal Reserve System, that the System should be pre"44.. for that period now, that the examining departmentsof the Fe their cEtiae Reserve Banks should be reappraised from the standpoint of °mPetency and a revaluation of the work that they might be nPon to do. to Mr- Sproul stated that that was what the Presidents proposed do. ge Chairman McCabe stated that the Board felt that the men in 11'4%--kr Of the branches of the Federal Reserve Banks occupied a very N'tk4t stet Position both from the standpoint of the Federal Reserve alid in the community in which the branches were located, and 2/28/49 that he was convinced that these officers could be of tremendous helP .131 bringing about an understanding of the System and creating will. He also said that at the proper time he would like to 441Wa reappraisal made of these positions and of the functions that the Illanaging officers performed so that a System concept could be rieve loped as to the place these officers would be expected to fill. This concluded the consideration of the matters referred to in the Presidents' memorandum of topics to be discussed with the tOEtra . 7. Regulation W Consumer Instalment Credit. Chairman McCabe stated that while the Presidents were in 41.811, /1 , 4 \fish the Board would like to have any comments that they might to make with respect to the liberalization of Regulation WI ConCredit. tliel He informed the Presidents of the recom- 0 -lciat 1 11 made by the Federal Advisory Council in this connection ' 41(1 r to efel'red to various proposals that had been submitted to the Etria b Y outside parties. Mr. Davis stated that the Presidents had anticipated that the, : t44 1 1110- have an opportunity to discuss this matter with the Board Ilresz their separate conference had not reached a consensus or exthtpe Elle° other than had been submitted to the Board by claral Reserve Banks in response to the Board's inquiries. He ElEtid that the Federal Reserve Banks appreciated very much the 398 2/28/49 -17- Present practice of the Board of asking for the views of the Banks °Ilvarious questions coming before the Board. The suggestion was made that following the meeting of the l'eders.1 Open Market Committee tomorrow the Presidents give their viel're on the amendment of Regulation W. Mr. Davis stated that he and Presidents Erickson, Williams, 414"enen 'would not be present at the meeting tomorrow and it was 41"ed that they should state their views before the adjournment of the Illeeting this afternoon. Thereupon, statements were made by Messr,.. ° Davis, Erickson, Williams, and Peyton. Secretary's note: Following the meeting of the Federal Open Market Committee on March 1, 1949, the reports of the Presidents were resumed and statements were made by the remaining eight Presidents of the Federal Reserve Banks. The following is a summary of the Presidents' views. Seven of the eight Presidents reporting on March 1 also stated that they were in favor of action by the Board at the proper time to reduce margin requirements prescribed in Regulations T, Extension and Maintenance Of Credit by Brokers, Dealers, and Members of National Securities Exchanges, and U, Loans by Banks for the Purpose of Purchasing or Carrying Stocks Registered on a National Securities Exchange, from 75 per cent to 50 per cent: One President would abolish Regulation W for the reason that he did not believe it was needed at the present time. One would not pay too much attention to the economic effects of a relaxation of the Regulation and felt that if, all things considered, it was felt desirable to relax the Regulation he would do so. One favored relaxation of the Regulation immediately by keeping the present minimum down payment and fixing maximum maturities at 21 months on all listed 47,0fV*-A 2/28/49 -18items and unclassified loans. One would act immediately to raise the $50 exemption to $100 and to provide for group B items a down payment of 10 or 15 per cent (perhaps 15 per cent on credits up to $500 and 10 per cent on credits on $500 and over) and a maximum maturity of 18 months. One felt that relaxation on Class B items would be justified now but he did not specify the form of relaxation. One favored action certainly by April 1 to fix the minimum down payment at 10 per cent on appliances and maximum maturities at 24 months on all listed items and unclassified loans. One did not know whether conditions were such that action should be taken immediately but felt that the Board should be alert to act as soon as conditions warranted. One was of the opinion that whether action should be taken now or 30 or 6o days from now would depend on developments and that, while the Board should be prepared to take flexible action, it should not stop the current readjustment from taking place. Two would not act before around April 1 unless conditions changed, but they believed that action should be taken by that time as a part of the over-all credit policy of the System of exercising a neutral influence in the monetary and credit field. Two would not take action at this time, one for the reason that further price adjustments would be healthy and the other because conditions did not justify action at this time. Thereupon the meeting adjourned. 113Aroveci: Chairman.
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