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The a tached set of minutes of the meeting of the Board of Gc)verliors of the Federal Reserve System with the Presidents of the Pede ral Reserve Banks on January 29, 1957, which you have previously mittaled has been amended at the suggestion of the Secretary of the Pliesidents, Conference, to revise the remarks of Messrs Hayes and teach on page 4. If you approve the minutes as amended, please initial below. Chin 'Martin 0 1r* SZYmozak • Vardaman R obertson Gov. Ba.lderston 00v. epardson To: Members of the Board Fr'arn: Office of the Secretary Attached is a copy of the minutes of the meeting of the Board of Governors of the Federal Reserve System with the Pres. ldents of the Federal Reserve Banks held on January 29, to It is not proposed to include a statement with respect of the entries in this set of minutes in the record of actions required to be maintained pursuant to section 10 wle Federal Reserve Act. Should you have any question with regard to the minutes, ill be appreciated if you will advise the Secretary's Office. Othe,,, col,L7ise, if you were present at the meeting, please initial in ver;"1.0, A below to indicate that you approve the minutes. If you that not present, please initial in column B below to indicate You, have seen the minutes. A Chzi. Martin GCIv. SzYmczak Gov, Gov. Vardaman Mills Gov. Robertson Gov, Ba lderston Shepardson X w „ae,13 2 A joint meeting of the Board of Governors of the Federal Reserve SYstem and the Presidents of the Federal Reserve Banks was held at the . Pede 1. Reserve Building in Washington, D. C., on Tuesday, -anuRry 19571 at 2:00 p.m. 29, PRESENT: Mt. Mr. Mt. Mt. Mt. Martin, Chairman Vardaman Mills Robertson Shepardson Mt. Carpenter, Secretary Mr. Kenyon, Assistant Secretary Messrs. Erickson, Hayes, Williams, Fulton, Leach, Bryan, Allen, Johns, Powell, Leedy„ and Mangels, Presidents of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and San Francisco, respectively. Mr. Shuford, Vice President and General Counsel of the Federal Reserve Bank of Dallas Mr. Boysen, Secretary of the Conference of Presidents of the Federal Reserve Banks Messrs. Riefler, Thomas, Leonard, Vest, Young, Solomon, Robinson, Allison, and Grimwood of the Board's staff, Messrs. Clarke and Roosa of the Federal Reserve Bank of New York, Messrs. Abbott and Freutel of the Federal Reserve Bank of St. Louis, and Messrs. Hostetler, Daane, Mitchell, and Tow of the Federal Reserve Banks of Cleveland, Richmond, Chicago, and Kansas City, respectively, also attended the meeting during the discussion of the first item on the agenda. The Presidents had submitted to the Board earlier a statement and a 4111°131 rbIA —14a1 statement listing and commenting on the topics which they vished 1/29/57 -2- to discuss with the Board at this meeting. The topics, the statement ' cr the Presidents with respect to each, and the discussion at this Meeting were as follows: 1. Plans for Emergency Operations. As a result of negotiations through its Subcommittee on Emergency Check Operations with the Commercial Banking Committee on Emergency Operations, the Special Committee on Emergency Operations presented a report dated January 28, 1957, recommending that-(a) Schedule G of the Special Committee's Report of June 8, 1955, having to do with collection of checks in an emergency, be amended to provide among other things that checks drawn on banks suspended on account of damage be retained by correspondent member banks and that Federal Reserve Banks credit such correspondent banks for the amount of all such checks; (b) The Reserve Banks proceed to select agent or key banks for distribution of cash, as proposed in Schedule F submitted with the Special Committee's report of June 8, 1955; (c) System representatives be prepared to discuss the problems of relocation centers with representatives of the Commercial Banking Committee working on this matter; (d) That a broad System-wide policy be established in the matter of setting up complete facilities at Reserve Bank relocation centers; (e) Steps be taken to augment communication facilities now installed at the Reserve Bank relocation sites. Action on the report was deferred by the Presidents Pending a further discussion of emergency planning at the Joint Session with the Board of Governors. In order to afford background to the Presidents in connection . ith w thls topic and keep them abreast of developments, a review was 220 1/29/57 -3- 14'esented of several elements of the defense planning program being carried on throughout the System. Governor Robertson enumerated the elements of the total program follOWS: % f 3 (1) the emergency plmlning operations of the Federal Reserve k2) defense exercises within the Government such as the mobili- ZatiOn exercise currently in process; (3) representation of the Board on the interagency committee working on plans for Operation Alert 1957; (4)the comprehensive program of preparedness measures currently being r°11attlated at the Board with the cooperation of representatives of FedeN-Reserve Banks; (5) the planning progrmn of the commercial banks; 641'(6) the continuing assignment of the Chairman of the Board as a ltembe of the Defense Mobilization Board. At the request of Governor Robertson, reports were made by memere cr . the Board's staff on Board and Federal Reserve Bank participation 14 the - current mobilization exercise and on the defense planning work Y. being carried on by the Board and the Reserve Banks. Following this presentation, President Williams made a statement Naro= ' .L4g the report of the Special Committee on Emergency Operations, 48 set forth above, and recommended that, in the light of the report on the a efen8e Planning program given at this meeting, the recommendations (14tain.,1 in the report of the Special Committee be approved by the Conter ce. President Hayes stated that the New York Reserve Bank had certain reeerw." -"-Lone concerning the report of the Special Committee, but was 22 , 1/29/57 to go along with it. These reservations related to the recom- rIlerldation having to do with the granting of credit against uncollectible ell,eeke, the principal question being whether the adoption of such a policy reCOMMeilded by the Special Committee report should be deferred until the underlying assumption that some form of indemnification program to assure that no bank would become insolvent as a result of enemy action has received official sanction. lie•Yes It might well be the better procedure, Mr. to go ahead and work out arrangements with the commercial banks, vith „ e understanding that if necessary such arrangements could be changed. Chl this point Governor Robertson said that while the arrangements kule 0Uld develop to be wrong, it seemed essential to make some arrangekilts 're cognizing that changes might be necessary. President Leach commented that he assumed the commercial bank Drepar "nese manual would contain appropriate provisions to make it clear that ,, 'fte arrangement contemplated would go into effect only if certain b4sic as sumptions should be adopted by the authorities. T hereupon, upon motion by President Leach, the report of the Special C°rIntitt ee oh Emergency Operations dated January 28, 1957, was approved unani4311134 by -L5 Presidents' Conference. Review of the retirement plan of the Reserve Banks. Mr. Johns discussed with the Conference the report and recommendations, dated January 18, 1957, of the Special Joint Committee which was assigned the task Of considering the report of December 1955 by Industrial Relations Counselors Service, Inc., following 1/29/57 -5its study of the Retirement System of the Federal Reserve Banks and other employee benefits. In brief, the report of the Special Joint Committee advised, for reasons of broad policy, against two major recommendations made in the IRCS report) namely: (1) discontinue the contributory feature of the Bank Plan, refunding accumulated contributions of active members if requested, and make a liberalized pension, to be Provided wholly at bank expense, the exclusive retirement vehicle; (2) establish a voluntary contributory thrift plan. The report pointed out, however, that findings by IRCS during its study demonstrated to the satisfaction of the Special Joint Committee that IRCS was wholly justified in recommending "that Bank-provided pensions be somewhat liberalized", and the report contained recommended amendments to the retirement plan to bring this liberalization about. Mr. Jams will discuss the views of the Presidents With respect to the report at the Joint Session with the Board of Governors. After commenting on the report and recommendations of the Spe- eithl r UOint Committee, referred to in the above topic, President Johns eairl " hat the report was discussed by the Presidents' Conference this Plorning and that agreement was expressed with the recommendations contal ' llecl therein. c)f the He suggested that, if the Board was agreeable, copies report would be sent to the Board promptly, with the thought that the Board could then indicate to the Presidents' Conference what 41"ther procedure should be followed. In this connection, Mr. Johns l's'll'erred to the several procedural steps that would have to be taken beror e21Y changes affecting the Retirement System of the Federal Re- %.1re Benks became effective. He went on to say that perhaps the presc)f the Reserve Bank Presidents in Washington on the occasion of a Of the Federal Open Market Committee would afford an opportunity r°r th e -oard and the Presidents to meet on the matter. 1/29/57 -6Chairman Martin stated that the Board would be glad to receive the report of the Special Joint Committee and, after having had an °PPortunity to review the report, would communicate further with the Presidents' Conference on the matter. 3. Study of proposed changes in Federal Reserve Act and related statutes. The Conference received a report dated January 18, 1957, from the Subcommittee on Legislation covering a review undertaken at the request of the Conference of (a) legislative recommendations submitted to the Senate Banking and Currency Committee by the Board of Governors and other financial agencies ln connection with the current study of banking laws, and (b) the recommendations which were submitted by the Federal Reserve Banks to the Board of Governors In connection with the study. The purpose of the review was to determine those recommendations which might be in any way controversial and which might deserve further study by special or standing committees of the Conference. Inasmuch as a Committee bill was available before the review was prepared, the Subcommittee deemed it desirable to concentrate on the bill itself, with consideration also of the above mentioned recommendations. The views and recommendations of the Subcommittee were set forth in the report under the following headings: Specific proposals questioned, and legislation suggested, by Subcommittee on Legislation Specific proposals calling for System study by other Conference committees Monetary Commission and areas for broad System study Comments on specific recommendations and on provisions of Committee bill Inasmuch as there had been insufficient time for full consideration of the report, neither the Committee on Legislation nor the Conference approved any of its recommendations, but concurred in the view of the Subcommittee that the following portions of the report should receive priority of consideration: 1/29/57 -7Page 11-2. Last paragraph - relating to "Federal Reserve Bank Directors residents of District" Page 11-3. Payment of interest on deposits Page 11-3. Authority to prescribe by regulation employment that may involve conflict of interest Page 11-4. Criminal code provisions regarding relations of Federal Reserve personnel and member banks The report is submitted to the Board for whatever use or value it may have in connection with the forthcoming hearings before the Robertson Committee. The report will be further considered by the Committee on Legislation with the expectation that the Committee will cause such further studies to be made in line with recommendations in the report as it may determine are desirable and cannot await the next meeting of the Conference; and as to other recommended studies the Committee will report its views at a subsequent meeting of the Conference. Following comments by Chairman Leedy and President Hayes on the *work of the Subcommittee on Legislation, the latter said that although a c(*tain amount of duplication in relation to work already done by the Boar, L, and others might be involved, it was felt that the Subcommittee's rePort --ght mi be useful in connection with the forthcoming hearings of the Senate Banking and Currency Committee on the Robertson bill, partic1Qa.rly the comments on the four items specifically mentioned in the staternellt s ubmitted by the Presidents Conference on this topic. Chairman Martin stated that the Board would be glad to have the 1113Q°111rtlitteeis report. He went on to say that that the Board had desig- 11(1. Governor Robertson, who represented the Board at the hearings on thie. laatter last November, to represent the Board again at any further hectri ngs that might be held on the bill. 1/29/57 -8Governor Robertson said that a copy of the report, sent to the Board in advance of the meeting of the Conference, had proved helPful to him and that he felt the four specifically mentioned items e°41d, be covered in testimony before the Banking and Currency Committee. gimployment of specialist in electronics equipment. The Presidents considered a letter report dated November 28, 1956, addressed to Mr. Fulton, Chairman, Committee on Miscellaneous Operations, from the Subcommittee on Electronics, proposing employment of e. qualified person on a full-time basis to keep in touch with developments in mechanization of check handling operations, as well as with the work of the A.B.A. technical Subcommittee on Mechanization Of Check Handling. The Conference approved the Proposal and authorized the Committee on Miscellaneous Operations to undertake to employ a person qualified for the assignment. It was understood that when employed the person would be located as a System employee at the Federal Reserve Bank of New York, that he would work under the supervision Of the Chairman of the Subcommittee on Electronics, and that his salary and other related expenses would be prorated among the Reserve Banks. After President Fulton had reviewed the nature of this proposal axxi the objectives of the proposed arrangement, Chairman Martin stated that 'although the subject had not been discussed by the Board previously, the II c'ard would be glad to take the matter under consideration and, advise the, rresidents of its views as promptly as possible. At the instance of Governor Vardaman, there followed a discussion c)t e'el-41.in phases of the proposal, including the availability of a quelindividual, salary arrangements, and the appropriate headquarters l'(*11,Y such person who might be located. 226 1/29/57 -9In. view of the points raised in this discussion, Chairman Martin suggested that it might help to expedite consideration of the stlbject if the Presidents' Conference were to pursue the matter further and present a more specific proposal to the Board. Agreement having been expressed by the Presidents, it was Understood that the procedure suggested by Chairman Martin would be followed. 5. Inumi:CollectionSystera. ReortaftrointC011Mr. Erickson reported on progress being made in the Boston District in implementing the report of the Joint Committee on Check Collection System. He said that a committee of Boston Clearing House banks has prepared a report covering participation by the Boston banks in the program, and that the next step is to submit the report for approval by the Clearing House banks. In accordance with previous approvals by the Board of Governors and the Conference, other Reserve Banks have deferred taking any similar action toward Implementing the report in their Districts pending the outcome of the trial run at Boston. At the current Conference the Presidents indicated their agreement to a suggestion that other Federal Reserve Banks he permitted to undertake similar programs in their Districts if their local banks evidence an interest ln pursuing the matter. President Erickson reviewed the steps taken thus far in the tOstoa Reserve District with a view to instituting the pilot operation. 14 his comments, he said that although additional consideration of the 131...k4 h ' ed appeared to sto4 to diminish somewhat the initial enthusiasm of the 'JAY banks, principally because of the increased volume of checks that 1.7°111d be routed to them for collection without the prospect of any able increase in the balances held with them by banks elsewhere 227;1 1/29/57 -10- in the District, the Boston banks were prepared to go through with the Plan. With regard to the suggestion, as referred to in the above statement, that other Federal Reserve Banks be permitted to undertake einalar programs in their Districts if their local banks evidenced an interest in pursuing the matter, reference was made to the Board's letter to the Chairman of the Presidents' Conference dated May 14, 1956, Irith regard to the pilot operation in the Boston District. In this letter the Board stated that, according to its understanding, the in.actions to put the pilot operation into effect would be initiated and carried forward by bankers in the District in consultation %lith the American Bankers Association and the Federal Reserve Bank of 13(letcla, and that in the circumstances the Board would have no objection to the ProPosal. It was understood, following a statement by Chairman Martin on the Position taken by the Board in 19560 that if other Federal Reserve tampt desired to participate in a program to implement the report of 81/e joint Committee on Check Collection System under the same circumv es as set forth in the Board's letter of May 14, 1956, the Board °14111 have no Objection. 6, a1,11!_eney verification and destruction at Reserve ---s. In response to the Board's letters of November 19 and December 31, 1956, the Presidents considered the present arrangement for the verification and destruction of unfit United States 1/29/57 -11- Paper currency, in the light of problems experiencea in the San Francisco and Dallas Reserve Banks, and also with the Board's suggestion in mind that the Presidents "be prepared to discuss a position which might be presented by the Board and the Federal Reserve Banks to the Treasury on the question whether the practice of shipping unfit United States currency to the Treasury for destruction should be reinstituted and, if not, what additional steps should be taken to eliminate to the fullest extent practicable the possibilities of defalcation and collusion inherent in the existing arrangement." It was the consensus of the Conference that, despite the ineradicable and inherent dangers in the currency verification and destruction operation, it would not be desirable to approach the Treasury with the request that the Federal Reserve Banks be relieved Of the responsibility of performing the operation. It was the view, however, that operating procedures in the 1?anks should be carefufly reviewed for the purpose of Incorporating any additional safeguards which appear to be practical and necessary. Chairman Leedy said that in general there was no enthusiasm °II the Part of the Presidents for the existing arrangement. However, the majority view that inasmuch as the operation had been 141clert--en as a fiscal agency operation, the Treasury presumably c onsidered carefully the risks involved, and methods of procedure /1:k1 been worked out by the Treasury jointly with the Federal Reserve te,zik the System would find it difficult to request the Treasury to l'elleve the Reserve Banks of this work. There was full agreement, he ) that everything possible should be done to provide additional reguards, if any could be provided, and the suggestion was made that the neral Auditors of the Federal Reserve Banks might be asked to 229 1/29/57 -12- explore the possibility of additional safeguards at their forthcoming Conference. In a discussion of the subject, Governor Vardaman said he felt "may that a request should be made of the Treasury that the Federal Reserve Banks be relieved of this operation in view of the inherent risks. He also suggested that, although the current procedure might l'es1-13:t in a saving to the Treasury, the saving actually was offset for the most part by a shifting of costs. Chairman Martin then stated that the Board would give further ecasideration to the matter in the light of the views expressed by the ?residents' Conference. 7* 2,Eendment of Regulation D and Regulation Q to prohibit deposit as a for classification Where the de osit would not uali savinp deposit but would qualify for classification as a time certificate of deposit. The Conference gave its attention to the above question, which was raised in the Board's telegram of January 18, 1957, to Chairm Leedy. The discussion revealed that the term Savings Certificate" is not used at all extensively throughout the country, and that where it is used the term was probably adopted for competitive purposes with Other savings institutions. It was the view of the Conference, therefore, that it would not be desirable to amend the Regulations in the manner indicated. Chairman Leedy said it was the feeling of the Presidents that c°tI"tial banks in many sections of the country might be placed at a :41614ventage competitively with savings and loan institutions and other tlietittztions competing for savings if they were prohibited from labeling elle certificates in question, if they so desired, as savings certifi44 It was felt, he said, that the term "savings" in the popular 1/29/57 -13- c°11caption embraces a large area, and that an adverse ruling on the matter would not be justified. Governor Robertson asked whether, if the Board upon further e°11aideration came to a different conclusion, the practice could be st°PPed merely by having the Federal Reserve Banks talk with the member banks concerned, since it appeared from the statement submitted 13r the Presidents' Conference on this topic that the practice was not " desPread. Chairman Leedy replied that the statement of the Presidents /748 intended to mean that the practice was believed to be confined Pritleillally to certain areas. President Allen commented that the practice perhaps was fol'Wed more lsevliere. extensively in the Seventh Federal Reserve District than Recently, he said, it was suggested to a member bank that the Practice, one of long standing on its part, was contrary to the 814rit of the Board's regulations, to which the member bank replied that it would not like to have to discontinue the practice. If any 11443e as required, Mr. Allen added, he hoped the action would not beabrupt because of the long-standing custom involved. Chairman Martin then stated that the Board would take the views cl the P residents under consideration in its further study of the mat.. ter . 8, Additional items of information arising out of cur.:21.Lt Conference meetin In addition to the foreC°ing items, the following matters of possible interest were considered by the Conference. They are reported herein as a matter of information. 1/29/57 a. -14Mr. Fulton reported that in light of a recent letter from IBM announcing marketing plans for its equipment, the Subcommittee on Machine and Tabulating Equipment had undertaken a study of the pros and cons of purchase versus rental of IBM equipment now installed at the Reserve Banks. Information gathered thus far indicates that the Committee's conclusions will support continuing use of the equipment on a rental basis, but in view of the fact that the study has not been completed, the Conference carried the matter over to the next Conference meeting. b. Mr. Leach, Chairman of the Committee on Fiscal Agency Operations, reviewed with the Conference a report of the Subcommittee on Fiscal Agency Operations relating to a meeting held on November 28, 1956. The report was largely informational in character and discussed the progress being made by the Subcommittee in its efforts toward simplification of procedures for obtaining reimbursement of expenses. In an accompanying transmittal letter dated January 14, 1957, to Mr. Leach, the Subcommittee sought approval for carrying forward certain phases of its work. The Conference received the report and authorized Mr. Leach to extend to the Subcommittee the additional authority his Committee deemed necessary and appropriate to permit continuance of its work. C. A discussion was held as to the desirability Of reviewing the present rental rate charged government agencies for use of bank awned space, primarily for the purpose of determining whether the present reimbursement rate is adequate in light of increased operating costs since the present rate was established in 1947. At the suggestion of Mr. Leach) it was agreed that the task of reviewing the question should be assigned to the Subcommittee on Fiscal Agency Operations. -15There was no discussion with re The meeting then adjourned.
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