The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
59 A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Monday, January 15, 1945, at 10:30 a.m, PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Hammond, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Smead, Director of the Division of Bank Operations Mr. Leonard, Director of the Division of Personnel Administration Mr. Vest, Assistant General Attorney Mr. Wyatt, General Counsel In connection with a question raised by Mr. McKee as to whether, in view of the request made by Mr. Byrnes Director of War Mobilization 6141d Reconversion, that travel by Government officials be restricted, Mr. Pollard should go to Dallas on February 1 and 2, 1945, for a meeting of the examiners of the Federal Reserve Bank of Dallas, Chairman Eccles suggested that Mr. Byrnes' request be sent to the Federal Reserve Banks. In the discussion it was pointed out that no official communication had been received from Mr. Byrnes by the Board, but that a copy of the state— ment released to the press by his office had been obtained. At the conclusion of the discussion, upon motion by Mr. Ransom, Mr. Morrill was requested to prepare for consideration by the Board a draft of letter to the Presi— dents of all the Federal Reserve Banks en— closing a copy of the press statement and 60 1/15/45 -2asking that the Banks keep a record of the extent to which they are able to curtail travel over the next two months, and that they send a copy of the record to the Board for its information. At this point Mr. Goldenweiser, Director of the Division of Re- search and Statistics, Mr. Gardner, Chief of the International Section, and Mr. Trif fin, Economist, in the Division of Research and Statistics, joined the meeting. Reference was made to the agreement reached at the meeting of the Board on October 20, 1944, that it would be desirable, if it were found that the State Department saw no reason for objection, to cooperate with the central bank of Mexico in carrying out the suggestion of the latter that closer relations be developed among the technical staffs, Particularly the economists, of neighboring central banks. Following this decision by the Board, Mr. Hammond addressed a letter to Mr. Villasenor, Director General of the central bank of Mexico, stating that the Board would be happy to cooperate in seeking to bring about a better acquaintance at the technical level among the American central banks, that it seemed to the Board that the details should be worked out in a conference, and that if desired he would be happy to go to Mexico City for this purpose. Subsequently, under date of December 21, 1944, a letter was received from Mr. Villasenor suggesting that Mr. liamIll°nd go to Mexico City any time after January 15, 1945, for the 61 1/15/45 -3- Purpose of assisting in the preparation of an agenda for a conference of staff representatives of central banks in the Western Hemisphere. The matter had been discussed informally by members of the Board, and the question raised whether it would be desirable for Mr. Hammond to go to Mexico City while the question of the ownership by the central bank of Mexico of the controlling stock interest of the Pan American Trust Company of New York, New was under discussion, and because of the question Mr. Ransom asked that the matter be placed On the docket for consideration by the Board at a meeting. It was stated that, inasmuch as this matter was in the research field and, therefore, one of the matters assigned by the Board to Mr. Evans for primary consideration, he had followed it closely and felt that it was highly desirable that members of the Board's staff participate in an unofficial capacity in assisting to further closer relations 4111°Tig the central banks in the Western Hemisphere, and that representatives of the Board should not undertake to direct the conference but should be helpful in every way they could. He did not feel that Mr. Hammond's going to Mexico City while the ownership of the stock of the Pan American Trust Company was being discussed should be the cause of any em barrassment for the reason that, if that matter came up during the discussions in Mexico City, Mr. Hammond could say that it was a separate matter on which he was not prepared to speak. It was also stated aS Mr. Evans' view that any action taken should be with the 62 1/15/45 -4approval of the State Department and that, if the Board wished to delay for a short time its decision on the matter because of the situation with respect to the stock of the Pan American Trust Company, he would not object, but that he did feel that Mr. Hammond should go to Mexico City for the purpose of assisting in the arrangements for the c onference. In a discussion of the matter at this meeting, Mr. Eccles expressed some doubt that much could be accomplished at this time by such a conference, and it was his opinion that the Board should not Participate in any way in such a proposal without first discussing the matter with the State and Treasury Departments. The comment was made that the State Department was fully informed of what had been done and was in agreement with it. Mr. Goldenweiser stated that he thought the Treasury would be agreeable and suggested that the best procedure would be to propose to the central bank of Mexico that it first send out invitations to the conference and that after acceptances were received a program committee be set up to work out the agenda. Such a proposal, he said, would have the advantage of allowing representatives of other central banks to participate in the drafting of the program. There was some discussion of this suggestion and of whether it was desirable for Mr. Hammond to go to Mexico City while the Pan American Trust Company matter was being 63 1/15/45 —5— handled, and it was agreed that action should be deferred until a meeting of the Board following Mr. Evans' return. This decision was reached with the understanding that no interim reply would be made to the letter of December 21, 1944, from Mr. Villasenor. At this point Messrs. Goldenweiser, Gardner, and Triffin with- drew from the meeting. Before this meeting there had been circulated among the members of the Board a copy of a letter to the Presidents of all of the Federal Reserve Banks reading as follows: "The Board's letter of January 16, 1945, (S-826) a of which is attached, contains a brief statement of the background for the consideration by the Board of the expenditures of the Federal Reserve Banks. Your comments and suggestions are requested on the two questions raised further on in this letter. "The Board is conscious of the existence of a feeling on the part of directors and officers of Federal Reserve Banks that they are sometimes subjected to unnecessary regulations and restraints regarding certain expenditures and types of expenditures and that the Board should be willing to accept their judgment in such matters without Copy question. "On the other hand, it is apparent that the opinions Of the directors and officers of some Banks differ at times from those of other Banks as well as from those of the Board and that, in the interest of the System as a whole, there Should be some general consistency of policy. Moreover, for the reasons set forth in the enclosure, the Board has a responsibility to Congress which it is believed can not be discharged by mere acquiescence. "From time to time there are indications in Congress ed elsewhere of a feeling that the expenditures of the deral Reserve Banks as well as the Board should be placed under the Government's budgetary and accounting controls. Suggestions of that kind are not improbable if and when a proposal is made to restore the franchise tax. p 64 1/4/45 -6- "In order not only to give full consideration to the *views of the directors and officers of the Federal Reserve Banks with respect to the type of control now exercised by the Board over their expenditures but also to have a well-supported position when confronted with legislative Proposals of the kind above mentioned, it would be appreciated if the Presidents would give the Board the benefit of their reasons for their positions upon the following questions: 1. In view of the fact that the Federal Reserve Banks are chartered by Congress and Operate under the general supervision of a Goverrunental body, the fact that Government departments are not authorized to make expenditures of some, at least, of the kinds authorized in the attached letter, and the possibility of criticism of such expenditures from the standpoint of the Government's residual interest, what reasons can the Board and the Banks give in justification of such expenditures? 2. In order to meet such criticism and to counter proposals for the transfer, what reasons can be advanced for opposing transfer of jurisdiction of expenditures of the Reserve Banks from the Board to the budgetary and accounting authorities of the Government? "As above indicated, the reasons for the answers to hese questions are important to the System as a whole and it ls hoped that they will be most fully and carefully stated in a manner which would be convincing if they were presented to Congress. "If it should be the feeling of the Presidents that they would prefer, instead of answering individually, to set up a special committee to consider these questions and to present a consolidated statement with the approval of the P residents' Conference, that course would be entirely satisfactory to the Board." The letter to the Chairmen and Presidents to which reference was in the above letter read as follows: 1!e l cently a Federal Reserve Bank inquired informally wheth: in the case of a director who was retiring after 65 1/15/45 -7- lta substantial length of service, there was any objection to an expenditure of Bank funds for a suitable memento of his service. Another Reserve Bank recently proposed that recognition in sow tangible form involving the expenditure of Bank funds be made to employees who had completed 25 years of service with the Bank. "The Board has felt that in its consideration of such questions and similar questions affecting officers and employees of the Federal Reserve Banks it must take into account the peculiar relationship of the Reserve Banks to the Government. They do not have the same status as privately owned corporations which are voluntarily created bY and operated for the benefit of their stockholders. They Were were set up by Congress to perform functions prescribed bY for public purposes. Stock holdings and dividends thereon are strictly limited, the owners of the stock being somewhat like holders of preferred stock in other corporations, while the residual interest in the assets of the Banks is in the Federal Government, which, therefore, may be regarded in effect as the owner of all of the common stock. "In view of this situation, the provisions of the l/ aw and the fact that the Reserve Banks are not accountable to the Federal budget and accounting authorities, the Board feels that Congress has placed upon it a substantial measure of responsibility for the expenditures of the Federa] Reserve Banks. The Board therefore feels that it must ?e prepared to justify the Reserve Banks as well as itself in the event of criticism frond Congress or other Governmental sources on the ground of claims that expenditures had been made in disregard of the Government's residual interest. "On the other hand, the regional and decentralized 1:laracter of the System under a corporate form of organization with a board of directors and executive officers in each ()* he twelve districts, together with the absence of provlelon for any direct Governmental appropriations for the su?port of the Federal Reserve Banks, should be regarded as !Iriencing an intention that there should be some room for +atitude on the part of the local organization in determinlng.what is reasonable and proper in particular circumstances, subJect to the general supervision of the Board of Governors. "In the light of these considerations, the Board has re the question of the expenditures which may be considered as more or less directly related to the conduct of 66 1/15/45 —8— "the affairs of a Reserve Bank and this letter supersedes and cancels the following letters on the subject: Loose Leaf Service X-4211 dated 12/13/24 X-4290 dated 3/16/25 #3180 X-7276 dated 10/20/32 #3182 #3183 X-9069 dated 12/28/34 X-9823 dated 2/19/37 #3184 #3185 S-148 dated 3/6/39 -- dated 7/22/44 #3187 "In the attached memorandum specific reference is made to certain types of expenditures. "The Board is confident that the Reserve Banks will exercise their discretion with respect to the expenditures authorized in this letter and the attached memorandum in full recognition of their responsibilities as stewards of Public funds. As stated, none of the expenditures need be submitted to the Board in advance for approval. The Board Will rely upon its examiners to note such expenditures dur— ing the course of their regular examinations and report as to any cases which they feel should be brought to the atten— tion of the Board. If in the review of any such report it aPPears that a particular expenditure is of a questionable type, the Board will then take the matter up with the par— ticular bank concerned." The attachment referred to in the above letter was in the fol1°Iling form: "Memorandum Regarding Certain Types of Expenditures - He. • _ •3. "Mementos to retirin directors "The practice of making some appropriate parting pre— sentation is not unusual among corporations and other or— ganizations and the fees received by Federal Reserve direc— tors for attendance at meetings are not large in view of the service which they are called upon to render without Other remuneration. Accordingly, the Board considers that the question of what memento or token, if any, should be Faxen to retiring directors in commemoration of their serv— lee in the public interest may properly be left to the good 67 1/15/45 -9Judgment of the remaining directors. Reasonable expenditures for this purpose, therefore, will be regarded as meeting with the approval of the Board. nE4g4atUres .4. WO , "As stated in the Board's letter of December 131 1924 (X-4211), the Board is of the opinion that Federal Reserve Banks have the right to make appropriations from their funds for the purpose of welfare and educational work among the employees of the respective Banks. They may also pay for official luncheons, dinners and meeting and for , s en-?ertainment of local and out-of-town visitors and groups incidental thereto when such entertainment is on an official, rather than a personal, basis. "Such expenditures should be kept within a reasonably low limit. In case of doubt as to whether a particular expenditure is a proper one, the matter should be referred to the Board. "Minor expenditures for testimonials etc. . "Some questions have been raised in the past as to Iranor expenditures of Reserve Banks for testimonials, floral and similar purposes. The Board believes that the board of directo rs of each Reserve Bank should be free to exercise its discret ion in authorizing such expenditures in reasonable amounts , lq..9.2EDLA.0 of long service "Reasonable expenditures for service certificates, pins, emblems, or other tangible marks of recognition of long service may be considered as directly related to the conduct of the Bank's affairs if authorized as part of the employee relations program approved by the directors. Gifts to retiring employees "Expenditures for gifts to employees at time of retirement are not believed to be proper charges to Bank funds. The institution as such has made provision for the retirement of employees through its payments to the Retirement System and accordingly, the Board does not approve of the expenditure of Bank funds for gifts to employees at the time of retirement. .4psnditures for pill:poses not directly related to the conduct of the Bank's affairs "In a number of instances the Board has had occasion to state that it can not authorize expenditures of Federal Reserve Bank funds by way of donations to further purposes 68 1/15/45 —10— "no matter how worthy which are not directly related to the conduct of the affairs of the Banks. The Board con— tinues in this belief. This position relates to such cases as contributions in response to appeals for national and community welfare and charitable funds." At the conclusion of the discussion, upon motion by Mr. Szymczak, the two let— ters and the attachment to the second let— ter were approved unanimously. Following receipt of the Board's letter of July 3, 1944, with respect to a proposed amendment to the plan for pledging undivided in— terests in Government securities held in the System open market account ae collateral for Federal Reserve notes, Mr. Sproul, President of the Federal Reserve Bank of New York, addressed a letter to the Board under date of August 9, 1944, setting forth reasons why it was believed the amendment was desirable and stating that he proposed to bring the matter uP for discussion at the next meeting of the Presidents' Conference. Subsequently, under date of December 8, 1944, Mr. Sproul wrote to the Board again advising that the Presidents' Conference had agreed that it would be desirable to consider the adoption of the amendment to pro— vide -or P the allocation of specific securities to a particular Federal Reserve Bank whenever that seemed necessary, and that, therefore, he 1748 v:riting to suggest that the Board review the amendment and take such action as it deemed appropriate in the light of his letter of August 9 and the action of the Presidents' Conference in September. Following receipt of Mr. Sproul's letter the matter had been 69 1/15/45 -11- considered by members of the staff and a draft of letter to the Federal Reserve Agents and President s of all the Federal Reserve Banks had been prepared, stating that the Board was submitting the proposed amendment for their consideration and that, if the Board received advice of the approval of the amendment by all Federal Reserve Banks and Federal Reserve Agents, it would notify them of the effective date of the amendment, and that in the meantime the plan would remain in effect in accordance with the existing agreement. This draft of letter had been circulated among the members of the Board for their information prior to consideration at a meeting. There was a discussion of whether the reasons given for the elliendlilent would justify its adoption and whether it would be effective in disposing of the legal question which caused Mr. Logan, General e°11flee1 of the Federal Reserve Bank of New York, to suggest the amend- Mr. Vest expressed the opinion that the amendment would not change the situation from a legal standpoint, as it was felt that the individual Banks had the right under the present agreement to withdraw the4,1 rom upon reasonable notice. Mr. Smead stated that he did not think it would make any difference whether the amendment was adopted or not, that it would have 110 bearing on the operations of the System, and that if it were approved 70 1/15/45 -12- it would be to satisfy the legal question raised by Mr. Logan. Some of the members of the Board expressed the feeling that no adequate reason had been advanced for adopting the amendment and that the Board should advise the New York Bank accordingly. Mr. Szymczak suggested that since it seemed that Messrs. Sproul and Logan felt rather strongly about the matter it should be discussed with Mr. Sproul when he was in Washingt on tomorrow in connection with the meeting of the executive committee of the Federal Open Market Committe e. This suggestion was agreed to unanimously, with the understanding that if Mr. Sproul wished to have the matter considered further he could arrange to have Mr. Logan come to Washington for that purpose. There was then presented a letter just received from Mr. 111cLarin, President of the Federal Reserve Bank of Atlanta, under date Of January 13, 1945, enclosing an excerpt from the minutes of the meeting of the board of director s of the Bank on January 12, 1945, in which stated that, following a recommendation of the senior officers Bank, the board of directors took action, subject to the apPr°val of the Board of Governors, directing that the Savannah Agency the Bank be closed permanently not later than February 1, 1945, and that the supervision of the closing be in the hands of President McLarin. The excerpt also stated that in passing the motion it was the feeling c)f the board of directors that the action closing the Savannah Agency 1/15/45 -13- should be kept strictly confidential until arrangements concerning the closing had been completed by President McLarin. Mr. The letter from McLarin stated that he had tentatively arranged to be in Savannah °n the 23rd or 24th of January and to notify the banks there at that time that the Agency mould not be maintained after the close of business on January 27, 1945. By unanimous vote Mr. Morrill was requested to advise Mr. McLarin by wire that the Board approved the permanent closing of the Savannah Agency not later than February 1, 1945, as provided by the action taken by the board of directors of the Bank. Further reference was made to the discussion at the joint meet- ing of the Board and Presidents of the Federal Reserve Banks on December 11) 1944, relating to the suggestion by Chairman Eccles that an educational program be developed among individual purchasers and holders of G°vermment securities with respect to the importance of holding their G°vernment bonds as investments and not cashing them unnecessarily. Chairman Eccles stated that what he had in mind was a program in which the Federal Reserve Banks, working with the various organizati°ns in the respective Federal Reserve districts representing banking, blasiness, labor, agriculture, consumers, and others, would sponsor a Pr°gram which would emphasize to the public the desirability of Government securities as a medium of savings, of adding to their savings in this form, and of taking steps to prevent holders of Government securities from falling victims of "get rich quick" schemes and other dishonest 72 1/15/45 -14methods that might be used to obtain from investors funds which they had investe d in Government obligations. This matter was discussed but no action was taken, although Mr. Thurston stated that certain phases of the problem had been discussed at a recent meeting at the Office of War Information and that it was his feeling that that office would be an ideal organization thr()ugh which such a program could be carried out. At this point Messrs. Thurston, Smead, Leonard, Vest, and Wyatt Withdrew from the meeting. The action stated with respect to each of the matters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the Federal Reserve System held on Januar y 13, 1945, were approved unanimou54. Memorandum dated January 10, 1945, from Mr. Goldenweiser, Director of the Division of Research and Statistics, recommending , for the reasons stated in the memorandum, that Miss Cecil Melanson, a draftsman in that Division, be granted leave without pay for the period jalluarY 1 through January 6, 1945. The memorandum stated that Miss anson was a participant in the Board of Governors retirement plan vlithout death benefits and, theref ore, would not make any contributi°ns to the retirement system for the period of leave without pay. Approved unanimously. 73 1/15/45 -15Letter to Mr. Earhart, Secretary of the Board, Federal Re- serve Bank of San Francisco, reading as follows: "The Board of Governors approves for the year 1945 and until further notice, payment of fees and allowances for the Directors of the Federal Reserve Bank of San Francisco and its Branches at the rates fixed by the Board of Directors for the year 1945, as reported in Your letter of January 4, 1945. "Heretofore, the directors' fees and allowances have been submitted to and approved by the Board annually. In order to eliminate the necessity of submitting the fees to the Board each year, the approval given herein is effective until further notice." Approved unanimously Letter to Mr. Lewis, Manager of Consumer Credit Department, Federal Reserve Bank of St. Louis, reading as follows: "This refers to your letter of January 5, 1945, regarding a question concerning the applicability of hegulation 11T to credit extended by Rural Electrification Administration cooperatives to finance the wiring of farm homes, barns and outbuildings. Section 12(b) of the Regulation is involved since a portion of the credit would be exempt under section 8(i)(3). . "Your view is that credit extended to cover the wiring and fixtures installed within the farm house would be subject to the Regulation, but that credit extended to cover all other fixtures for general farm use, including leads to the power line from the farm, and fixtures used in barns and outbuildings (which are usuallY of waterproof construction and not of a kind commonly used in a home) would be exempt under section 8(i). "The Board concurs with your view." Approved unanimously. 1/15/45 -16- Thereupon the meeting adjourned Chairman.
@FedFRASER