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71 A, meetine of the Board of Governors of the Federal Reserve syst wee held in Tashington on Tuesday, January 16, 1940, at 10:45 PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairmen Szymczak McKee Davis Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Dreibelbis, Assistant General Counsel Mr. Gardner, Senior Economist in the Division of Research and Statistics Mr. Coldenweiser stated that in accordance with the request 414de at th --e meeting of the Board yesterday he and Mr. C-ardner had pre- Plkred A memorandum, which was being typed and which would be available 4ter ' - r.Lng the meeting, containing their recomendations with respect to the Inter-American Bank. He said the recommendations were to the effect that, in the light of all the considerations involved, it is dee* aule that the bank be organized, as there is an economic service that it can Perform, although it is recognized that it is not a solution Ot the 1\Indamental problem of developing South American purchasing 11°/ver abroad, as that can be accomplished only by the purchase of goods by oth er countries in South America. There are, he said, a number of 72 -2waYs in which the bank could be helpful in the Short- and long-term fielcl and it would also serve in furnishing a financial forum and bringing about closer relations between South American countries. Kr. GoldenStated further that the second recommendation contained in the illettlorandum was that, as the bank would exercise a central banking functi°11 and since it is part of the duty of the System to handle foreign bank r elations for this Government, it Should be planned so that the Federal Reserve System will participate in its mnsgement. He added that the placing of the direction of the bank in the central banks would be -n the interest of continuity of management. In the discussion which follow ed Messrs. Goldenweiser and 4rdller stated that when the discussions of the proposed bank were rirst ---ertaken by the representatives of the Board and the Treasury It vas lInderstood that a joint olan would be developed but that last Week th e TreesurY representatives sent directly to Mr. Berle, Assistezt s ecretarY of State, a plan which would place the ownership and nt e-- of the bank in the hands of the Government, that the Secre- tary or the Treasury had not taken a position on the plan submitted by the T reaellrY representatives, and that Mr. Berle submitted the plan at Et tie ating of the Inter-American Financial and Economic Advisory C°11mlittee Yesterday with the statement that it was a tentative plan °la vhi oh there was same difference of opinion among representatives or tat S Go vernment, that the Board of Governors had not reached any 73 1/l6/40 -3e"-ausions on it and might have something to say regarding it, and that the State Department might itself want to make changes in the Pr,o.posal, so that the plan as submitted was purely tentative. Mr. Gardner said the question of the ownership and management or the bank was discussed at the meeting and the Treasury representa- tives made a statement of reasons in support of Government ownership 011(ililanagement of the proposed bank. He also said he did not feel he cottld express any opinion on the matter at that meeting as he was attending es an Observer only end he did not think it desirable to disC48S at the meeting of the committee a disagreement between the Treasury eAld Board representatives. He made the further statement that the Nmdttee was going to meet again this afternoon for a further discussion ot the matt Mr. G oldenweiser said that the State Department felt strongly that the bank should be organized and desired to get action as promptly "P°88ibla, that if the Board did not take a position on the matter iillediatelY there was a strong probability that the Treasury plan would bs adopted, that the situation was rapidly crystallizing and it would soon be too late for the Board to take a position, and that it should decide whether it wanted to express an opinion in the matter and, if 0) it would take the position that the bank should be organized and whether it should have Government or central bank representation 14 the Management. He made the further suggestion that some action 74 -4stould be taken through conferences with the Secretary of the Treasury and the Secretary of State to determine the policy that is to be adopted So that this Government will not be in the position of having the questi°11 of the direction of the bank decided by subordinates, and for the PlIrpose of getting, if possible, en egreement of the representatives °f this G overnment on whet that policy should be. Consideration was given to the different positions that the lard ?Ili --ght take on the matter during which the memorandum containing Me883, the Goldenweiser and Gardner's recommendations was brought into 'vont and copies distributed to members of the Board. Chairman Eccles stated that the question of ownership and laballeesitent of the bank had been discussed by him and Messrs. Goldenviel8 "and Gardner with Mr. Berle then the latter was at the Board's "ricas last week and that it was understood at that time that Mr. 13"le w°111d undertake to get an agreement on the matter before a plan 1%8 84 bMitted to the representatives of the other countries. He also th at Mr. Berle had taken the position that the State Department tOt So much concerned as to where the direction of the bank was 151"ed as "was in getting the bank organized as promptly as possible. lithe '44ar statement was made that even though the Board might prefer that th sa management of the proposed bank be placed in the hands of the "Mt al —11"ing organizations, that would not mean that, if another 13411 w "a adopted, the Board would be opposed to the whole idea of the °I"ga,b1 zation of the bank. 75 At the conclusion of the discussion, Mr. Davis moved that Messrs. Goldenweiser and Gardner be requested to prepare a memorandum to be signed by them and addressed to Mr. Berle of the State Department and Mr. White of the Treasury Department making the recammendation that the bank be under the direction of the central banks, that the Board be given the authority to select this country's representation on the governing board of the bank which in turn would select the management and be responsible for the Operation of the bank, the Board's selection to be subject to the approval of the Secretary of the Treasury, and that this Government's share of the capital of the bank be contributed by the Federal Reserve banks, appropriated by Congress, or taken from the unexpended profit resulting from the devaluation of the dollar. Mr. Davis' motion was put by the chair and carried unanimously. In taking this action it was understood that the memorandum would be approved by the members of the Board before transmission. It was also understood that when Mr. Gardner went to the meeting of the Inter,American Financial and Economic Advisory Committee this afternoon he would advise Mr. Berle privately that he and Mr. Goldenweiser were preparing a memorandum containing recommendations with respect to the direction of the bank which would be submitted to him and the Treasury representatives tomorrow. or the toEtrd. Shirt Chsiman Eccles stated that he called Mr. Delano, Comptroller CirrencY, on the telephone last night to inform him that the 411(1 received a letter from the Bark of America National Trust & "Association, San Francisco, California, ratifying the request 76 1/16/40 made h -Ylur. Collins as counsel for the bank, that the Board make an examination of the national bank, and to inquire whether it was still exPected that the Board would answer the tuo questions asked at the flleeting mu the Treasury on January 8, 1940. He said that Mr. Delano's l'ePlY was that he did not know, and an inquiry as to what the Board was g°146 to do, that he (Chairman Eccles) stated to Mr. Delano that to the first question it was our understanding at the meeting at the Tl ' elleurY that the notice to the Bank of America to show cause w°/11(31 be deferred until the Board had had an opportunity to go over the information furnished by the Comptroller of the Currency, and that lneanach as the order had already been sent there seemed to be no occasion for the Board to give advice on that point. In this contection the Chairman said he reminded Mr. Delano that some of the inrormation c ontained in the files of the Comptroller was not sent to us Until last Friday night. In response to a statement from the Camptroller that he would like to have the Board's opinion on it, Chairman ecles said, he stated that the only reason for expressing an opinion woald have been to influence the Comptroller's action and help him reach a decision, and that as he had issued the order it appeared that he did not want the Board's advice. The Comptroller's reply was that he Enessed that was right. On the second question, Chairman Eccles said, he expressed thLss opt., " .Lon to Mr. Delano that this was related to the first question 77 -7SC the reason the Comptroller was anxious to know what the Bcrard's position would be was to enable him to determine whether to ieslle the order to show cause so that there seemed to be no reason t°11 e Prompt decision by the Board on that point in view of the fact that the order has already gone out. Chairman Eccles added that the eftltroller did not disagree with that position but did ask that the Board inform him of any further communications received by it from the bank and of any action that the Board decided to take, and that he (Chairman Eccles) replied that the Board would keep the Comptroller advised of any decisions reached or letters received. Chairman Eccles then said that he received a telephone call lest la16ht fO L. M. Giannini, President of the Bank of America Na- ti011e1 Trust & Savings Association, in which the latter inquired how the benk should proceed in order to convert into a State institution 84(1 said that the 1w:ink had asked the Comptroller of the Currency to 4civise if there were any requirements in connection with conversion Other than those contained in the law and that the Comptroller had replied that there were none. At this point Mr. Wyatt said that there 1161"e to provisions in Federal law relating to the conversion of a natl°11a1 bank into a State institution and that the national bank would he/e to go into voluntary liquidation so far as Federal law was conCernad. Chat to man Eccles also said that Mr. Giannini stated he was ascertain whether the conversion of the bank could be _ 78 -8accomplished before the expiration of the ninety day period which rall8t elapse before the report of examination of the bank could be 114bl1shed by the Comptroller of the Currency, that he wanted to know 11°/1 soon the Federal Reserve System could make an examination for the PUrpose of admission of the bank to membership, if an examination Wel% r equired, and that the bay* would want to know in advance whether its menthership in the System would be effective as soon as the conWas made. Chairman Eccles' reply was that what 16r. Giannini wazted was an informal commitment in advance that after certain conditions were complied with the bank would be acceptable for membership. ta-so said to Mr. Giannini that he would discuss that matter with _, Boar°' but that as an offhand opinion it would seem to him that the 11' the blInk vas contemplating conversion it should address a communication to the Federal Reserve Bank of San Francisco outlining the national 1)4111os Proposal and requesting an advance commitment as to whether the C°11Vert ed. brinc ban-, -- would be acceptable for membership, that this would something definite before the Board, that the Board could then detertai whether it would make an examination before giving an answer or vhath -cr the examination made by the office of the Comptroller of the °Oren cY would be used for that purpose, and that this procedure brine be With before the Board the whole issue of what its position would reference to the national bank. chairman Eccles made the further statement that he called Mr. 79 -galetnilinit a attention to the fact that the converted bank would have to get a license from the Treasury before it could open as a State bank and that, speaking personally and not as a member of the Board, it Was his (Mr. Eccles) suggestion that the bank should try to get to 11 "Int where a program could be worked out that would settle the existing co ntroversies. Mr. Giannini's reply was that that was what the bnak wanted to do and he would like to know how that could be brought about and what the bank could do, that he had talked about conversion into a State bank and had discussed it with the State banking depart- nlezt anticipated no difficulty from that source, but that the bank did not want to convert into a State institution as that step involved a complete transfer of all of the bank's assets to another bank which woUld be difficult and expensive. In response to an inquiry from Chairman Eccles as to how the woUld get a license as a State institution, Mr. Giannini replied that he diA not about that. Chairman Eccles then said that a Se W "--ku be necessary unless an existing bank with a license th and he inquired if there were a member bank it C alifornia that could do that and Mr. Giannini replied in the negati ve. In response to an inquiry from Mr. Giannini why the Board W°11-1d tot man examination of the bank and his statement that the 1/41k vqould have confidence in such an exgmination as one not accam1411:14ed VY the prejudice and trouble which accompanied the Comptroller's 80 -10Chairman Eccles replied that a complete examination of the bank wauld very likely take from four to six months for the reason that the Board would have to bring in men who would not be "ferailier with the situation as the Comptroller's examiners. The e(lavellestion ended, Chairman Eccles said, with a statement by Mr. ' l /11111. 17ai that he was going to think some more about conversion. There followed a discussion by the members of the Board of the action that the Board should take with respect to the request that it make an examina tion of the Bank of America. The staff had not been able 4_ complete its analysis of the available data and no decision was reached by the Board. At this point Messrs. Thurston, Wyatt, Goldenweiser, Dreibelbis "11G-ardner left the meeting and the action stated with respect to each of the matters hereinafter referr ed to was then taken by the tOard: The minutes of the meeting of the Board of Governors of the l'ederal Reserve System held on January 15, 1940, were approved unanittr4sl y. Letter to Mr. Hitt, First Vice President of the Federal Reserve B enk of St. Louis, reading as follows: "n letter' accordance with the request contained in your p„ of January 10, 1940, the Board of Governors api cras the payment of a salary to Mr. E. Francis DeVos, *141" a period of six months beginning February 28, 1940, tha rate of 42,400 per annum, which is 600 in excess 81 1/16/40 -11-"of the maximum annual salary provided in the personnel cla ssification plan of your Bank for the position to which Mr. DeVos is temporarily assigned." Approved unanimously. Memorandum dated Sanuary 15, 1940, from Mr. $inead, Chief of the Division of Bank Operations, submitting a letter dated January 10 from Mr. Hitt, First Vice President of the Federal Reserve Bank of St. Louis, Mitch requested approval by the Board of a change in the personnel classification plan of the Memphis branch or the bank to provide for the elie"i°11 of the new position of "Accounting Clerk" in the Money DepartZent with a maximum salary of 0,500 per annum. The memorandum stated that the Proposed change had been reviewed and recommended that it be 4151)1'oved, Approved unanimously. Letter to Mr. Young, Vice President of the Federal Reserve Bank Pt 'cago, reading as follows: t "The Board of Governors of the Federal Reserve Syshas considered the recommendation of the Executive `Zamittee of your bRnk, contained in your letter of 5, 1940, and, pursuant to the provisions of Sec-t0--9,or of the Federal Reserve Act, grants permission to4u" Side Trust & Savings Bank', Chicago, 11114 8, to ' maintain the same reserves against net demand tat , ) T8 and time deposits as are required to be mains —(41 bY Reserve city banks, effective with the first the: weeklY reserve computation period beginning after uate of this letter. tion :Please advise the member bank of the Board's acthat 11 this matter, calling its attention to the fact ttme stIch Permission is subject to revocation at any s uY the Board of Governors of the Federal Reserve Y8tem.n Approved unanimously. 82 -12Memorandum dated January 11, 1940, from Mr. Piser, Senior c°11c)nlist -n the Division of Research and Statistics, which was coned in by Mr. Goldenweiser, Director of the Division of Research and S tatistics, and which read as follows: "On my recent visit to New York, Mr. Rouse suggested that it would be of considerable help to him in his work as Manager of the Account to receive some of the memoranda that I prepare for the Board. He recognizes, Of course, that a number of memoranda are for special considerati on of the Board but feels that there might be some Which would give him additional information on the Government securit y market. "An example of such memoranda would be the one which Prepared sane time ago indicating on the basis of current conditi ons what would appear to be a reasonable level rOr the Yield on corporate bonds. In addition, any meMO-nranda Summarizing past System Account operations might Present that would be of use to him. Also, the memTre3Ida that are prepared prior to the meetings with the areaellrY on Treasury financing might be helpful. Finally, 4.8 an aid in interpreting sentiment throughout the counIY, he would be intere sted in receiving the reports of trips which Mr. Edmiston and I make from time to time. As e general rule I do not see any objection to sending reports to him, although under special circumstances theremight be instances when it would not be desirable to J fo "If it meets with the approval of the Board, there,re) I should like to be permitted generally to send such Ts!moranda to Mr. Rouse and to take up with Mr. Goldenweiser ll'tances where there might be some question." Approved unanimously. Thereupon the meeting adjourned. Chairman.
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