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151. Minutes of actions taken by the Board of Governors of the Federal Reserve System on Friday, February it the Board Room at 11:10 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. 6, 1948. The Board met Eccles, Chairman pro tem Szymczak Draper Evans Vardaman Clayton Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Thomas, Director of the Division of Research and Statistics Mr. Vest, General Counsel Mr. Leonard, Director of the Division of Examinations Mr. Mr. Mr. Mr. Mr. There were presented telegrams to the Federal Reserve Banks Ne., York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, ' St. Lr, -Ills/ Minneapolis, Dallas, and San Francisco stating that the Boar, aPProved the establishment without change by the Federal Re8erve -bank of San Francisco on February 3, by the Federal Reserve 844k • Of St. Louis on February 4, and by the Federal Reserve Banks Of Of Nev. York) Philadelphia, Cleveland, Richmond, Atlanta, Chicago, 'cLDolls, and Dallas on February c°114t a A -14 purchase 5, 1948, of the rates of dis- in their existing schedule. Approved unanimously. Reference was made to a memorandum prepared by Messrs. 408.4 / Assistant Director of the Division of Examinations, and 152 2/6/48 -241111184n, Assistant Counsel, under date of January 29, 1948, with repect t° an informal request from the Reconstruction Finance Corpo- ti°n that reports of examination of State member banks which had 1°8 ' lls guaranteed by the Corporation under its loan participation Pregratas be made available to the Corporation in order that it may °13-41412L information as to the status of the loans and take steps to Prc)tect its interests where necessary. tc)r the The memorandum recommended, reasons stated therein, that the Corporation be advised in- r°11111111Y to submit the proposed request and that, upon receipt therethe Corporation be advised that the reports would be furnished. 11r. Vardaman stated that he felt that a report of examinatiola Pr°PerlY could be made available to the Corporation in the case Of banks in which it was a stockholder or held other capital obli g4tions of the banks, but that he saw no reason why the Corporettola Should have access to such reports when it stood only in the , 1 °sition of guarantor of loans made by the banks involved, ' that if -- examination reports were to be made available to the CesrPo at; --°n in the latter case the Board might find it difficult to (le n'Y similar requests from the Federal Housing Administration °r Other Government agencies, and that he felt the request of the °°rPo at; r --on should not be granted. He also felt that if examinatier, reports were used for such a purpose it would destroy the 153 2/6/48 -3- c°11-ficlence of banks in the confidential character of the reports. Chairman Eccles stated that, if there were a condition in the agreement between the member bank and the Corporation that the latter should have access to reports of examination, there would be 11._ u objection to granting the Corporation's request, and if it desired to have such access, it should include such a provision in its a greements. view. Other members of the Board agreed with this During a discussion Mr. Leonard stated that the Division of E, . 4l'aMlnation5 had been informed by telephone earlier this week by *. Sailor of the Federal Deposit Insurance Corporation and by p c4ger of the Office of the Comptroller of the Currency that those agencies had agreed to make available to the Reconstruction Corporation their reports of examination of banks under their respective jurisdictions whenever the Corporation held capital obl igations of the bank or when it had guaranteed a loan made by the bank. Upon motion by Mr. Vardaman, it was agreed unanimously that Mr. Leonard would (1) inform the Reconstruction Finance Corporation informally that the Board would be glad to cooperate and to make reports available in cases in which (a) a request was received from the member bank that the Corporation be given access to the report, and (b) the agreement with the member bank with respect to the Corporation's guarantee authorized reports of examination to be made 1_54 2/6/48 -4available, but that in the absence of such a request or provision in the agreement, the Board did not feel it would be justified, because of the confidential character of the examination reports, in complying with the Corporation's request; and (2) inform the Federal Deposit Insurance Corporation and the Comptroller of the Currency of the Board's view so that they would have an opportunity to reconsider their decision with respect to reports of examination of banks under their respective jurisdictions. Mr. Clayton stated that he understood there recently had a r esumption of the practice by certain large insurance comlies and other depositors of requesting that depository banks turnish them more detailed information regarding their condition thallwas given to depositors generally. ter had, He stated that this mat- been discussed at the meeting of the Board with the Fed- ereLlAavisory Council on May 14, 1945, at which time differing Irielfs were expressed by members of the Council concerning the iraPosition of a prohibition by law or regulation upon banks such information that in his opinion large depositors should, not be given information as to the condition of banks was not generally available to other depositors, and that vonld take up the question with the other Federal supervisory 4gencies with a view to discussing what, if any, action .might be taken jointly by the agencies to prohibit or discourage banks troM requests. responding to such The members of the Board expressed the view that the 155 2/6/48 -5- 13rEtctice was objectionable for reasons previously discussed by the 13°411) and that steps should be taken to discourage the practice it sw far as practicable. Chairman Eccles stated that consideration might be given to "us sending of a letter by the supervisory agencies to banks + - heir, respective jurisdictions discussing the practice and slIgges • tlng that banks not furnish information to large depositors 'Itch was not made available to depositors generally. He also 811ested that prior to reaching a conclusion in the matter, it 'De desirable to obtain the views of the Federal Advisory Upon motion by Mr. Clayton, it was agreed unanimously that the Secretary should request the Acting Secretary of the Federal Advisory Council to place this topic on the agenda for discussion at the forthcoming meeting of the Council with the Board on February 17, 1948. In taking this action, it was understood that Mr. Clayton, in consultation with representatives of the other Federal bank supervisory agencies, should study the matter further and submit to the Board a recommendation as to what, if any, action should be taken. Chairman Eccles stated that there was a Joint Committee 04 tor 34.01asi '.111-g in Congress of which Representative Gamble was the well, that the Committee had been studying the whole problem ' ho using, and that he was thinking of sending to Chairman Gamble 156 V6/48 -6- 4 letter calling attention to the statement which he (Chairman Eccles) Slibtted to the Joint Committee on the Economic Report on November 25, 1947) and enclosing a copy of the letter sent to the Secretary of the reasu-17 on December 9, 1947, when the subject of housing policy was beiag d iscussed by an informal group of government agencies headed 133' thadell Secretary of the Treasury Wiggins. He also said that he did not know whether the other members of the Board would be interested in having such a letter go forward to Chairman Gamble as an eZPression of the Board's views. There was a general discussion of the need for restricting rul'tiler expansion of housing credit and Mr. Szymczak suggested that 13"(31se the letter was sent Chairman Eccles discuss the matter with lhacler Se cretary of the Treasury Wiggins to determine whether he and the Treas urY were still working on the matter with a view to taking Nither 14°1:be action. The purpose of such a discussion, he said, would to get the concurrence of the Treasury to the sending of a lett„ to Chairman Gamble but to ascertain whether anything further 18.8 to be done by the Treasury or the other agencies represented 4t the earlier meetings at the Treasury in the direction of restricth°11eing credit. Chairman Eccles stated that he would be talking with Mr. s Shortly about open market matters and would discuss the 157 2/6/48 -7- hclising Problem with him at that time. Following the discussion, upon motion by Mr. Vardaman and by unanimous vote, the matter was referred to Messrs. Eccles and Szymczak for a recommendation to the Board as to the action to be taken with respect to the letter suggested by Chairman Eccles. Mr. Vest reported that a bill, S. 2126, had been introduced in the Senate on February 4 by Senator Thomas of Utah entitled "Anti- I4flation Act of 1948" in which it was proposed, among other provi81 , that the Federal Reserve Act be amended to provide for the slia1 reserve recommended by the Board and presented by Chairman Eccles to the Joint Committee on the Economic Report on November 27, 1947. Re also stated that a routine request for a report on the bill had been received from Chairman Tobey of the Senate Committee °1413atking and Currency under date of February 5, 1948. There was a brief discussion of the bill during which it was agreed unanimously that until it was determined whether active consideration would be given to the bill no reply to the routine inquiry Should be made. Mr. Vardaman referred to the discussion at the meeting on kola etl*Y 30 and stated that he and Mr. Clayton were interested in a /11113aQ -r discussion of the adequacy of capital funds of banks, that 4 cotx erenes of Vice Presidents in charge of the Examination Deikrtnie lits of the Federal Reserve Banks was to be held in Washington 158 2/6/48 -8- liet week at which this and other questions would be discussed, aild that he would like to call the Board's attention to the alarmj4g increase of loans and discounts in relation to capital funds °I) bariks and to suggest to the Board the formulation of a policy \flitch would require banks to increase their capital funds where that seemed appropriate and to replace Reconstruction Finance ecrPoration capital with private capital. Mr. Clayton then reviewed the tentative agenda for the torthc , -raing conference of Vice Presidents in charge of the Ex'111111114t1on Departments of the Federal Reserve Banks, stating that tje a'ter referred to by Mr. Vardaman was to have an important laace in the discussions, and that there was also to be a disOr" of the possible desirability of the issuance of a new Statem —ent of examination policy by the Federal supervisory gericiese In this connection there was a discussion of the need TOr all arrangement under which instances of excessive borrowings by a b usiness concern or individual by spreading loans among severaab anks might be brought to light, and it was the consensus that It was necessary for the Board to continue to take an active est in the entire question of examination policy to the end that a coordinated and uniform approach be taken by all Federal 1_59 2/6/48 Res -9- lre Banks in their examinations and analyses of reports of e:Icamination of State member banks. At this point Messrs. Thomas, Vest, and Leonard withdrew and the action stated with respect to each of the matters hereinet forth was taken by the Board: Minutes of actions taken by the Board of Governors of the Ilecieral Reserve System on February Memorandum dated February 5, 1948, were approved unanimously. 3, 1948, from Mr. Thomas, Direc- tor Of the Division of Research and Statistics, recommending that Miss 11 uth E. Morris, a clerk-stenographer in the Division of Ex8 l4illati°ns, be transferred to the Division of Research and Statistics clerk-stenographer with no change in her present basic "larY of $2,469.24 per annum, effective as of the date upon which she enters upon the performance of her new duties. The memorandum Etlelp stated that Mr. Leonard had been consulted and was agreeable to the transfer. Approved unanimously. Letter to Mr. Stryker, Assistant Federal Reserve Agent of the -0 'ederal Reserve Bank of New York, reading as follows: "In accordance with the request contained in ?la' letter of February 3, 1948, the Board of Govapproves the appointment of Mr. Gerard R. 4-Alster as Alternate Assistant Federal Reserve gent at his present salary of $4,425 per annum. It is understood that Mr. Lister will be Placed upon the Federal Agent's pay roll and 160 2/6/48 -10- will be solely responsible to him or, during a vacancy in the office of the Federal Reserve Agent, to the Assistant Federal Reserve Agent, and to the Board of Governors, for the proper performance of his duties. When not engaged in the performance Of his duties as Alternate Assistant Federal Reserve Agent he may, with the approval of the Federal Reserve Agent or, during a vacancy in the of!ice of the Federal Reserve Agent, of the Assistant Federal Reserve Agent, and the President, perform such work for the Bank as will not be inconsistent With his duties as Alternate Assistant Federal Reserve Agent. "Please have Mr. Lister execute the usual oath Of office which should be forwarded to the Board With advice as to the effective date of Mr. Lister's PPointment as Alternate Assistant Federal Reserve Agent," Approved unanimously. Letter to the Honorable Maple T. Harl, Chairman, Federal , evc)sit in surance Corporation, reading as follows: IT accordance with the request contained in e Your letter of February 2, 1948, the Board of Gov_111°rs of the Federal Reserve System hereby grants written consent, pursuant to the provisions of subsection (k)(2) of Section 12B of the Federal Reserve Act, for examiners for the Federal Deposit Insurance o°rPoration to make an examination of the Sanborn IntY Bank, Woonsocket, South Dakota, in connection With its application for continuance of insurance afi. 'er withdrawal from membership in the Federal Reserve System. "There have been no corrective programs urged 11D0h the bank or agreed to which have not been conz :11tomated and in connection with which the Board would ggest inorporation of conditions for continuing s status as an insured bank." 4 Approved unanimously. 161 2/6/48 -11Letter to Mr. Volberg, Vice President of the Federal Re- serve Bank of San Francisco, reading as follows: "Reference is made to your letter of January 21 requesting the Board's views as to whether approval rould be given to the application of The Commercial ,!Ilk of Nephi, Nephi, Utah, for permission to retire 1-cs remaining capital debentures of $14,000, held by the line "You advise that the bank proposes to increase its common capital from $25,000 to $50,000 by a stock dividend to be declared concurrently with the retire! exit of the remainder of the capital debentures held L!Y the RFC amounting to $14,000. In the circumstances, ±t wcluld appear that no approval of the transaction is 4 squired as the proposed reduction is to be offset by an increase in capital. See F.R.L.S. #3455. "The major problem in this bank appears to be the lib liberal loan policies manifested for some years rather thaU the reduction of its capital by Mow more than ;le amount which would otherwise have been paid out in dividends. A more cautious lending policy would seem 0 be order as well as the retention by the bank of ll Proportion of its net earnings until a more great-ler ravorable ratio of capital to risk assets is attained." : Approved unanimously. Aipproyed: Chairman pro tem.
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