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A meeting of the Federal Reserve Board was held in tne office of the Pederal Reserve Board on Monday, January 21, 1929 at 11:30 a. m. PRESENT: Governor Young Mr. Platt Mr. Hamlin Mr. Miller Mr. James Mr. Cunningham Mr. Eddy, Secretary Mr. McClelland, Asst. Secretary The minutes of the meetings of the Federal Reserve Board held on January 18th and 19th were read and approved. Mr. Miller reported that immediately after the meeting on Saturday he took steps to ascertain wnetner Directors Young and Woolley of the Federal Reserve Bank of New York would be available for a conference with the Board oa Tuesday and reported to the Governor that wnile Mr. Woolley will be in Washington, Mr. Young will not. The Governor then stated that Governor Harrison of the Federal Reserve 41* of New York, who was in his office this morning, communicated over the telephone with Deputy Governor Kenzel of tne New York bank and reported that bill dealers have established the following rates on acceptances: 1 to 30 days, bid 5% - offer 4 3/4% 31 to 90 days, bid 5 1/8% - offer 5% 91 to 120 days, bid 5 1/4% - offer 5% 121 to 180 days, bid 5 3/8% - offer 5 1/8% He also reported that beginning tais morning the Federal Reserve Bank clf New York is establisning the following rates for purchases of acceptances, along with a general policy of refusing to take new bills of long maturity: 1 to 15 days 16 to 45 days 46 to 180 days 43/4% 4 7/8% 5% 1/21/29 -2- 71 A brief discussion ensued wita respect to tae probable effects of tne increase in rates. Mr. Miller tilen stated that ne nad requested tile Governor to call tne meeting in order tnat he migat submit to the Board draft of a letter to all Federal Reserve banks prepared by him in accordance witn tae resolution adopted by the Board on December 31st, with respect to tne proper use of Federal Reserve credit facilities, wnicn letter he read to tae Board as follows: 1 "The firming tendencies of tne money market which have been in evidence since tae opening of the year - contrary to tne usual trend of money rates at tnis season - make it incumuent upon the Federal Reserve System to give constant and vigilant attention to tne situation in order tnat no influence adverse to tne trade and industry of tae country snail be exercised by tne trend of money conditions, if it is avoidable, beyond what may develop as inevitable. During tne year 1928, tarout„a tae combined, influence of member banks and tne Federal reserve barfe..s, commercial rates were successfully maintained at levels appreciably lower taan tne trend of money market cnanges about midYear indicated as probable. The prouiem of exerting tne influence of the Pederal Reserve System as a moderating influence in tne movement of commercial Illoney rates is still wita us at tae opening of tae new year. Tae extraordinary absorption of funds in speculative security loans waion has cnaracterized tae credit movement in tne past year or more in the Jlagment of tne Federal Reserve Board deserves particular attention lest it become a decisive factor working toward a still further firming ox money rates to tae prejudice of tae country's commercial interests. The resources of tne Federal Reserve System are ample for meeting any Probable commercial needs of credit without difficulty or strain provided the credit facilities of tne Federal Reserve System are vigilantly and efficiently administered and restricted to such uses as are proper. The Federal Reserve Board nas on different occasions and in different Places, notably in its annual reports, stated its position witn regard to uses Of the rediscount privilege by member banks for purposes tnat are proper. Broadly speaking, tne purposes are proper wnen tae credit accommodation obtainfrom tae Federal reserve bank is for productive and distributive operations, in brief, agriculture, industry and trade. They are not proper waen occasioned by extensions of speculative loans by member banks. Waile sucn loans are not Pronioited eitner by the National Bank Act or uy tne Federal Reserve Act, the Whole tenor of the Federal Reserve Act makes it clear that a member bank is not Wltain its reasonable claims for rediscount facilities at a Federal reserve hank wnen the occasion of its borrowing is (a) Speculative loans that it contemplates making; or 1/21/29 -3- "(b) Speculative loans tnat it nns made and wnicn it desires not to liquidate. There would oe no ditference of opinion as regards the impropriety of seeking Federal reserve credit for tne purpose of making security loans. It is tae opinion of tae Federal Reserve Board tnat the objections that lie against tne use of Federal reserve credit for the making of speculative loans also lie against the use of Federal reserve credit for the maintaining °f speculative loans. 2he Federal Reserve Board nas no disposition to assume autnority to .12Lterfere with tne loan operations of member banks so long as they do not involve the Federal reserve bnks. It has, however, a grave responsibility wnenever tnere is evidence that member banks are maintaining a given volume cf speculative security loans witil tne aid of Federal reserve credit. Wnen such is the case the Federal reserve bank becomes either a contributing or a sustaining factor in the existing volume of security loans. And such is contrary to tne intent of tne Federal Reserve Act and the wnolesome operation °I tne Federal reserve banking system. It is tne opinion of tne Federal Reserve Board that when member banks , 111licn have substantial investments of their resources in speculative security 'cans are called upon by taeir commercial customers to provide commercial acc ommodation, the proper course for them to pursue is to reduce their call 1°ans and thus put themselves into a position to take care of the requirements Of tneir commercial borrowers. The Federal Reserve Board has no disposition question the propriety of investments by banks of surplus funds in the call 40an market. The call loan market is capable of performing a useful service if investments by banks in it are treated as a secondary reserve to be availed (3f as occasion arises. It may become a source of mischief, if the banks are Permitted to regard such investments as sometning not to be disturbed except Under the pressure of exigent circumstances. You are desired to bring this letter to the attention of the directors your bank in order that they may be advised of the attitude of the Federal Reserve Board with respect to a situation and a problem confronting the adIllinistration of the Federal reserve banks which for more than a year has been exciting widespread interest and concern. After your directors have fully considered it the Board desires to be 1,4ivised of tneir attitude and their views on (a) how they keep themselves Ully informed as to the occasion of borrowing by their member banks; (b) wnat methods they employ to protect their institution against improper use °f its credit facilities by member banks; and (c) what other steps they prorose to take in working out a further procedure where existing methods are not proving fully effective. The Board realizes that the problem of adequte control against misuse °f the credit facilities of the Federal reserve banks of the kind that have i-ven rise to this letter is not free of difficulties. It also appreciates hat no one method of procedure would be equally effective in all districts 1 in all circumstances. It is, therefore, not disposed to be dogmatic in lts own attitude. It is, however, firm in tne opinion that a more effective control is needed if the Federal Reserve System is to function satisfactorily 1 1/21/29 -4- "and that methods of control suitable to the situation and not invasive of the Privacy of member bank operation can be worked out by each Federal reserve bank that will have the approval and support of the mnjority ox tne member banks of the Federal Reserve System and the general body of public opinion. The Federal Reserve Board will await with deep interest the reply of Your directors to this letter and bespeaks their prompt attention in order that it may have their reply at an early date." After a brief discussion of the letter, it was voted tnat a copy be farnisned to each member of the Board and that any member desiring to make criticisms or suggestions for changes do so in writing within the next' day or so. Mr. James then reported that he is leaving tnis afternoon for St. Louis and will advise the Board by telegraph of the result of his negotiations with Mr. Rolla Wells as to appointment as Class C Director, Chairman and Federal Reserve Agent at the Federal Reserve Bank of St. Louis. The Governor then referred to the large increase which takes place at the end of each year in the amount of Federal Reserve credit outstanding, which this year amounted to approximately $550,000,000, due to the practice of banks and corporations of "window dressing" as of December 31st. At his suggestion, the Governor was authorized to refer the question of the practice mentioned to the Federal Advisory Council for discussion at its forthcoming meeting. The Secretary then presented a memorandum from Counsel dated January 19th, with respect to the articles of association and organization certificate of the proposed International American Banking Corporation, which were filed with the Board on September 24, 1928, following which the Board requested that an itvestigation of the character and financial responsibility of the organizers be made by the Federal Reserve Agent at New York, and addressed a letter to 41% Julius Spiegel, correspondent for the organizers, requesting information ae to the character of business which the proposed corporation intended to tl'ansact, and also a statement of the qualifications of the organizers; the 1/21/29 -5- MeMOrandum stating that the Board has not received tne report requested of tne federal Reserve Agent at New York, nor has it received any reply to its letter tO Mr. Spiegel. With his memorandum, Counsel submitted and recommended that the Board transmit a letter to Mr. Spiegel calling attention to the necessity cr a reply to its inquiry and a letter to the Federal Reserve Agent at New York, advising that tne report requested of him should be made to the Board as soon as possible. Upon motion, the letters submitted by Counsel were approved and ordered transmitted. Mr. Platt then advised the Board briefly of his visit to the Havana Agency of the Federal Reserve Bank of Atlanta, with particular reference to the adequacy of the new quarters of the Agency and the proposal that the Agency act as clearing house for banks in Havana. OblIELLUE STANDING COMMITTEES: Dated, January 21st, Recommending changes in stock at Federal Reserve Banks Minute Book of this date. as set forth in the Auxilia Recommendation approv The meeting adjourned a 45 p. m. / cLP e retary.
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