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140 A meeting of the Board of Governors of the Federal Reserve System 114s held in Washington on Friday, January 22, 1937, at 10:45 a. m. PRESENT: Mr. Mr. Mr. Mr. Mr, Mr. Eccles, Chairman Ransom, Vice Chairman Broderick Szymczak McKee Davis Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Smead, Chief of the Division of Bank Operations Mr. Dreibelbis, Assistant General Counsel Mr. Gardner, Senior Economist, Division of Research and Statistics Reference was made again to the letter dated January 20, 1957, rl'a Vice President Knoke of the Federal Reserve Bank of New York, which 1748 Presented at the meeting of the Board yesterday with respect to in— es received by the bank from the Bank for International Settlements atid the National Bank of Bulgaria referring to the possibility of purchases °r bank. --eTz t acceptances by the Federal Reserve Bank of New York in the New lort. c- Market for the account of the Bank for International Settlements and they "atlonal Bank of Bulgaria in accordance with the terms and conditions or th e respective agreements governing the accounts maintained by these balik 8 at the New York bank. In this connection Chairman Eccles referred to the understanding ree.che, by the Board with President Harrison of the Federal Reserve Bank or N._ aw York, at the time the statement of procedure with respect to foreign -4ships with Federal reserve banks was under consideration, that the 141 1/22/57 -2- outstanding agreements covering the establishment and maintenance by the 4cleral reserve bank of accounts for foreign central banks would be revised and to the discussion at that time with respect to the modification Ot the condition contained in such agreements that the Federal reserve 1414k would purchase for such foreign banks bankers' acceptances with the guarantee of the bank of payment of such bills at maturity and an agreeraent on the part of the Federal reserve bank that it would repurchase such acceptances before maturity upon request or sell them in the market. Mr. Broderick said that it had been the custom for the Federal Reserve Bank of New York in the past to make such purchases for foreign "II:Jabal banks for which it carried accounts; that such purchases had also been made by commercial banks; that such commercial banks might be called UP°4 to do so exclusively if the Federal Reserve Bank of New York did not Isko the purchases; and that it would be desirable to permit the New York bank , I continue to make such purchases so that they would not be scatter" ecl ng the commercial banks and the Federal Reserve Bank of New York wiznIld be in position to be informed currently and fully as to all such : t ".sactions and their effect upon the market. He felt, however, that the bicIard should likewise be in position to watch the effect of such operations 1.4 vi aw of the liability which might be incurred by the Federal Reserve SYSt m 4„ e- '" connection therewith and that while he felt that the Federal lisserv e Bank of New York should be permitted to act for foreign central bank„ a in such matters currently without the necessity of having each transPassed upon by the Board before it could be executed, he felt that 142 1/22/37 -5— Some reasonable limit should be fixed upon the aggregate amount for which he Federal reserve bank would be permitted to be liable at any one time without further authorization from the Board, so that the Board would be 121P°8ition to review the transactions from the standpoint of their possible effect upon. the domestic credit situation before additional purchases Were made. In this connection, Mr. Smead advised the Board that the re- 13°t3 which the Federal reserve banks are required to make currently to the Board would reflect all such transactions on which the Federal reserve batik would have a contingent liability and that at the present time there i8 110 outstanding liability on the part of Federal Reserve Bank of New York °I1 account of such purchases. The Board was also advised that any partici- Pe14011 of other Federal reserve banks in such transactions is solely on a 'r°11111t8.rY basis and that they are not handled through the system open market account. After discussion, Mr. Broderick moved that the Federal Reserve Bank of New York be advised that, pending approval by the Board of the revisions of the outstanding agreements covering the accounts maintained by the Federal Reserve Bank of New York for foreign central banks, the Board authorize the Federal Reserve Bank of New York to purchase for such foreign central banks, including the Bank for International Settlements, bankers' acceptances which are eligible for purchase under the regulations of the Board of Governors of the Federal Reserve System, with the guarantee of the Federal Reserve Bank of payment at maturity and its agreement either to repurchase them or, at its option, to sell them in the market, in accordance with the terms and conditions of the agreements covering the accounts in connection with which such purchases are made; provided that the aggregate amount of the liability assumed by the Federal reserve banks in connection 1122/37 -4with all such acceptances purchased for all foreign central banks, including the Bank for International Settlements, shall not exceed at any one time the sum of :,25,000,000, without further specific authorization which shall be obtained in advance from the Board of Governors of the Federal Reserve System. Carried unanimously, with the understanding that the Secretary would advise j1r. Knoke by telephone that the Federal Reserve Bank might proceed to comply with the request of the National Bank of Bulgaria, of which a copy was transmitted with hnoke's letter of January 20, 19371 and that a letter setting forth the Board's action with respect to the general r_uestion of procedure would follow. At this point Mr. Gardner left the meeting. Pursuant to the action taken at the meeting on January 19, 1937, there , nad been sent to the members prior to this meeting a summary of the clls taken by the Board in recent years with respect to the salary of 1dr. L. F. Sailer, retired Vice President of the Federal Reserve Bank of 4w York, and the question what action, if any, the Board should take with vect to the payment by the New York bank on his behalf of a retirement llOwa not exceeding $6,000 in accordance with the general authorization in the Board's letter of December 27, 1935 (X-9405), was given further e°118ideration. In view of all the circumstances and the unanimous feeling of the Board that its previous action should have been regarded as a final disposition of the matter the Board's secretary was requested to prepare and submit to the Board a draft of a letter advising the New York bank of the Board's position. Chairman Eccles suggested that the Board give consideration at this 144 1/22/37 Illeeting -5to the decision to be reached by it in connection with the pro- 13°8411 of the New York Stock Exchange that it be permitted to attempt the limination, through amendment to its own rules, of the practice of in44d-out trading on the Exchange. Mr. Szymczak stated that Mr. Parry had beaa studying the proposal further and had encountered certain difficultie8 in connection with the question of the information to be made availble by the Exchange to the Securities and Exchange Commission. Mr. Parry was called into the meeting and stated that, in accordwith the request made at the meeting on January 18, 1957, of Mr. David 8aPerstein, Director of the Trading and Exchange Division of the Securities and 4,4Change Commission, the latter had discussed the Stock Exchange proPc/sal with the two members of the Securities and Exchange Commission who tfel'e available and that they felt there would be no objection to its accept- Provided the Board stood ready to adopt the amendment to Regulation T whellev er it appeared necessary to do so and the Exchange would be willing to '"Ice available to representatives of the Securities and Exchange Commis81°11 the reports which the proposal contemplates will be received by the Chp 11.ge from its members. Upon taking the latter point up with the Exchange, P4r17 said, it was found it was not proposed to make such reports availto the Commission, that the summary reports proposed to be made to the which would not include names would be furnished to the Commission, and that inasmuch as there was some question as to the legal authority of the Commission to inspect the records of the members of the Exchange and the e°m41i ssion had not seen fit, because of certain difficulties involved, to issue 145 1/22/37 4 -6- regulation specifying the records which must be kept and made available to the Commission, the Exchange felt that it should not make the records in question available to the Commission except when required to do so in c°rIllection with some legal proceeding. Mr. Parry expressed the hope that 4 solution to this difficulty could be found upon further discussion of the matter by representatives of the Exchange and the Commission and that the Board should afford them a reasonable opportunity to remove the diffiet % before a decision is reached on the amendment of Regulation T. Chairman Eccles pointed out that if action is deferred by the Board fox 'the purpose of allowing time for further discussion between the Exchange a the Commission it would be assumed that the Board was willing to afford the E xe"ange an opportunity to attempt to eliminate the practice of in-andUt tr ding, and that, therefore, the Board should determine whether it was 131'°Pal'ed to have the matter take that course. Each of the members present iiklicated that, if the Exchange and the Securities and Exchange Commission call a gree upon a solution of the problem referred to above, they would be '414114g to defer the amendment of Regulation T with the understanding stated to the re presentatives of the Exchange on January 18, 1937, that the Board WOUld be at liberty to amend Regulation T at any time that such action apPear„ vu necessary in the sole judgment of the Board. In this connection it was pointed out that the proposal of the Stock 4chart ge had not yet been formally submitted to the Board and that the only 1.4forni the Board had relating to the matter and to the objectives of the Pl'clAosal was that contained in the letter addressed to Chairman Eccles -146 1/22/37 by Mr. Charles R. Gay, President of the New York Stock Exchange, under date of December 28, 1936, requesting an opportunity to confer with the Board regarding the proposal, and the statements made orally by the representatives of the Stock Exchange at the meeting with the Board on January . le, 1957. Chairman Eccles suggested that Mr. Parry be authorized to call 41 Dean K. Worcester, Executive Vice President of the New York Stock Ex411 e, on the telephone and advise him that the Board had placed the questit)/3 of the amendment to Regulation T on the docket for consideration at the meeting on Friday, January 29, 1937; that the Exchange and the Securities and Exchange Commission should reach an agreement as to what informati04 will be made available to the Commission in the event the proposal of the Exehange is accepted; and that thereafter the Exchange should address to reach the Board prior to January 29, 1937, formally transmit4g 4,_ t1 ''Lle proposal of the Exchange and stating fully the procedure which ivotu.,4 be followed and the objectives thereof. Chairman Eccles ' also sug- 4 letter eated that Messrs. Parry, Morrill, Thurston and Dreibelbis be requested to Pl*sPare a draft of reply to the letter to be sent by the New York Stock 4challge and a proposed press release which would be based upon the assumptiori that an agreement will be reached by the Exchange and the Securities 44d challge 8 ' 4° that the Commission as to the information to be furnished to the latter Board will defer the amendment of Regulation T. Chairman Eccles' suggestion was approved unanimously. Thereupon Mr. Parry withdrew from the meeting. 1/22/37 -8Mr. McKee then presented a draft of letter to the Presidents of all Federal reserve banks reading as follows: "In letters dated October 17, 1934 (X-8082), December 15, 1934 (X-9048), and April 2, 1935 (X-9169), the Board has heretofore authorized the Federal Reserve Agents to act in its behalf in connection with transactions requiring action by the Board Under certain conditions of membership which it has prescribed. "In response to inquiries received from the Presidents of two of the Federal Reserve banks at which the transfer of the non-statutory functions of the Federal Reserve Agents had been consummated, the Board authorized such Presidents to act in its behalf in the cases in which authority to so act had previously been conferred upon the Federal Reserve Agents by the Board's letters of December 15, 1934 (X-9048) and April 2, 1935 (X-9169). The non-statutory functions of the Federal Reserve Agents have 11°w been transferred at all of the Federal Reserve banks, and after a review of the matter as applicable in all of the disII-cts the Board authorizes each Federal Reserve bank, through lts President, in lieu of the Federal Reserve Agent, to act in the Board's behalf in the cases described in its letters of October 17, 1934 (X-8082), December 15, 1934 (X-9048), and April !! 1935 (X-9169), within the limitations and subject to the condi' 10n5 outlined in such letters. However, the President, if he .c.20 desires, may delegate such authority in writing to the First vlce President or to the Vice President in charge of examinations.” After a brief discussion, Mr. McKee moved that the letter be approved. Carried unanimously. There was a continuation of a previous informal discusion of the to be followed in connection with the meetings next week of the 14:res.1 , ' eats' Conference and the Federal Open Market Committee. Chairman Eccae ' suggested that following the meeting of the Presidents' Conference i„ --J-crmal meeting of the Board with the Presidents of all Federal reserve L " I laks be held for the purpose of hearing statements by Messrs. GoldenDirector of the Board's Division of Research and Statistics, and 1/22/37 _9- j* H. Williams, Vice President of the Federal Reserve Bank of New York, with respect to the present credit and business situation as well as statefrom the Presidents with respect thereto. This conference would be toll owed on January 26, 1957, Chairman Eccles said, by the meeting of the Pederal Open Market Committee. Chairman Eccles' suggestion was discussed 44d it was understood that the arrangement of the program would be left in his hands. At this point Messrs. Thurston, Smead and Dreibelbis left the meetIlig and consideration was then given to each of the matters hereinafter referred to and the action stated with respect thereto was taken by the Board: The minutes of the meeting of the Board of Governors of the Federal 4%17 e SYstem held on January 21, 1937, were approved unanimously. Telegrams to Messrs. Kimball, Strater and Young, Secretaries of the p eueral Reserve Banks of New York, Cleveland and Chicago, respectively, ta ' ting that the Board approves the establishment without change by the 4" Y°Iit bank on January 21) 1937, and by the Cleveland and Chicago banks t°c14Y 'of the rates of discount and purchase in their existing schedules. Approved unanimously. Telegram to Mr. Schaller, President of the Federal Reserve Bank of Cago reading as follows: w. w."Relet January 13. Board approves temporary appointment of chica Turner as assista nt examiner for Federal Reserve Bank of his present salary of $5,500 per annum. It is understood?,!t ti,, vilat the appointment is only for short period, that you anap-L-Pate requesting within near future approval of Mr. Turner's irriatment as examiner; that he has had long experience in auditCredit departments of your bank and that with the addition:11 1/22/37 -.10- ft experience of working with your regular examiners for few months you feel he will be qualified for position as examiner. If such request is submitted, please furnish the balance of the information called for in Board's letter X-7595." Approved unanimously. Letter to the board of directors of the "Canaseraga State Bank", Can/a8eragal New York, stating that, subject to the conditions of member81413 numbered 1 to 3 contained in the Board's Regulation H and the followLig • ePeclal conditions, the Board approves the bank's application for 111111)erehiP 01 stock in the Federal Reserve System and for the appropriate amount of the Federal Reserve Bank of New York: "4. Such bank shall make adequate provision for depreciation in its banking house and furniture and fixtures. `'• As soon as practicable, such bank shall reduce all loans Which are in excess of the limits prescribed by the laws of the State of New York to amounts within such limits. u• Prior to admission to membership, such bank, if it has not already done so, shall charge off or otherwise eliminate estimated losses of $15,683 as shown in the report of examination of such bank as of December 12, 1956, made by an examiner for the Federal Reserve Bank of New York." Approved unanimously, together with a letter to Mr. Harrison, President of the Federal Reserve Bank of New York, reading as follows: th "The Board of Governors of the Federal Reserve System approves y e application of the 'Canaseraga State Bank, Canaseraga, New t2rk, for membership in the Federal Reserve System, subject to r'le conditions prescribed in the inclosed letter which you are t7quested to forward to the board of directors of the institui'"Ih. Two copies of such letter are also inclosed, one of which ; 8 for your files and the other of which you are requested to f°rward to the Superintendent of Banks for the State of New York Or his information. "It is understood that the State banking authorities have apProved IA' the bank's application to retire the remaining $10,000 in debentures sold to the Reconstruction Finance Corporation and e aPplication for membership has been approved with the underat4nding that the proposed retirement of $101000 in debentures 1_50 1/22/37 "flay be accomplished within a short time Letter to Mr. Swanson, Vice President of the Federal Reserve Bank "Unneapolis, reading as follows: "This refers to your letter of January 12 with respect to the published condition statement as of December 31, 1956 of the Montana Bank and Trust Company, Great Falls, Montana. "It is noted that the statement inclosed with your letter was published in the form prescribed by the State banking department, rather than in accordance with the Board's Form 105e, and that it bears no indication that the bank is a member of the Federal Reserve System or that the statement was published in accordance with the requirements of the Federal Reserve bank. The form used by the bank is apparently one supplied by the Federal Deposit Insurance Corporation for the use of State banking departments. It differs in a number of respects from the Board's Form 105e but shows essentially the same information as called for by the Board's form. The figures in the bank's published statement agree with its condition report on Form 105, which has just been received by the Board, except that $1,588.93 set aside for tax payments is shown in the published statement against the amended caption 'Reserves for contingencies and taxes'. This difference is a result of the fact that the form supplied by the State banking department contains no item coresponding to Item 28 of Form 105, 'Interest, taxes, and other expenses accrued and unpaid'. "In this connection, we find that the subject bank, in common with a number of other State bank members in Montana, published its statement for June 50, 1936 in accordance with the t°_ard's Form 105e and bearing an inscription to the effect that : ,LIge statement was published in response to calls made by the Federal Reserve bank and the State banking department. It is quite P°ssible, therefore, that it was merely an inadvertence on the part of the bank in using the form supplied by the State banking department for the December 31, 1936 call. "In the circumstances, the Board will not require the Montana Bank Trust Company to republish its condition report as of Decmbt 1, 1936 in accordance with the Board's Form 105e. Please, however, inform the bank that future condition reports submitted response to a call by your bank must be published in the form escribed by the Board of Governors, but that the published state4 _11t5 may bear an inscription to the effect that they are published -"I response to calls made by the Federal Reserve bank and the State banking department." Z Approved unsnimously. 151 1/22/57 -12Letter to Mr. W. D. Radford, c/o Munson Builders Supply Co., West Hempstead, New York, reading as follows: "This refers to your letter of December 31, 1936, relative to loans by Federal Reserve banks under Section 13b of the Federal Reserve Act to members of the small house industry, with Which letter you inclosed a copy of a letter addressed to the Federal Reserve Bank of New York. "It is noted you feel that many banks are not in sympathy With, and some unacquainted with, the industrial loan activities of the Federal Reserve banks and also that the small house industry is not receiving the relief due it either through the Reconstruction Finance Corporation or through the banks in conjunction with Section 13b of the Federal Reserve Act. The Board of Governors has endeavored to bring to the attention of banks and business enterprises the credit facilities which Congress has authorized the Federal Reserve banks to make available to industry under Section 13b of the Act. In furthering this program the Board has on several occasions requested the Federal Reserve banks to familiarize financing institutions in their districts with the terms of Section 13b, at the same time urging such institutions to advise the Reserve bank of any inStances coming to their attention in which worthy enterprises iU1 need of working capital have been unable to obtain it. "The Board of Governors feels that whenever practicable , ocommodation under Section 13b should be extended through local oanks under commitments from or in participation with the FedReserve bank, since it was obviously not the intention of 'iongress to bring the Federal Reserve banks into competition th the usual sources of credit. Nevertheless, it is possible or an established commercial or industrial enterprise to apply ...irectly to the Federal Reserve bank under Section 13b, and the ;edoral Reserve bank may make loans to or purchase obligations t i rom such business when it appears to the satisfaction of the 1,!-?serve bank that the enterprise is unable to obtain requisite rinancial assistance on a reasonable basis from the usual sources 4nd when such extensions of credit may be made on a reasonable !Ild sound basis, for the purpose of providing working capital, 4nd with maturities of not exceeding five years. It may be !,10ted that builders and other concerns connected with the buildindustry are among the many types of business which have reved accommodation through the Federal Reserve banks under "as section of the Federal Reserve Act. "Your letter to the Federal Reserve Bank of New York refers to the possibility of obtaining credit on the security of the /52 1/22/37 -13.- "note of a construction company with which your concern deals. You may be assured that the Federal Reserve bank, Which has been vested with full authority to pass upon applications for loans submitted to it under Section 15b, will give careful consideration to your request and will be glad to assist you in any way that it can. In this connection the Board of Governors would appreciate your informing the Federal Reserve Bank of New York of any cases such as those referred to in your letter in which you feel that members of your industry could meet the requirements for credit accommodation under the terms of Section 13b of the Federal Reserve Act. A copy of the Board's regulation SI relating to discounts, purchases, loans and commitments by Federal reserve banks to provide working capital for established industrial or commercial businesses, is inclosed for your convenient information." Approved unanimously. Thereupon the meeting adjourned. Qii_UsJ9-42 Secretary. APProve Chairman.
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