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.14 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, January 6, 1948. The Board met in the Board Room at 10:35 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak Draper Evans Vardaman Clayton Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Chairman Smead, Director of the Division of Bank Operations Thomas, Director of the Division of Research and Statistics Vest, General Counsel Leonard, Director of the Division of Examinations Nelson, Director of the Division of Personnel Administration Chairman Eccles referred to the discussions at recent meetings of the timing of an increase in discount rates at the Federal Reserve Banks and to the wire sent to the Presidents of the Banks on December 17 Which suggested that action be deferred until sometime in January and stated that the Board would communicate with the Banks again. He said that this suggestion had been made because it was felt it would be desirable to postpone action until prices of Government bonds had been adjusted to a level at which the market should be supported, that this had now taken place, and that he would suggest that the Federal Reserve Banks now be advised that an increase in discount rates along the lines previously discussed would be appropriate at the next meeting of their directors on or after Thursday, January 82 1948. .15 1/6/48 -2Following a brief discussion, unanimous approval was given to the following wire to be sent to the Presidents of all Federal Reserve Banks: "With reference to Boardts wire of December 17 with respect to the timing of an increase in discount rates in effect at Federal Reserve Banks, Board now suggests that action along lines previously discussed would be appropriate at your next meeting on or after Thursday, January 8, 1948." Chairman Eccles suggested that consideration also be given to an increase in reserve requirements of member banks located in central reserve cities. There was a general discussion of the desirability of taking action at this time, during which it was suggested that if the action were taken it might provide that an increase of 2 per cent in reserve requirements become effective February 1, 1948, another increase of 2 per cent on March 1, and a third increase of 2 per cent on April 1. Mr. Thomas stated that there was some argument for delaying an increase in reserve requirements until the end of March, since central reserve city banks would be under considerable pressure between now and that time as a result of an excess of current Treasury cash receipts over disbursements, and it was anticipated that this pressure would be lifted after April 1 which would probably make an increase in reserve requirements desirable at that time. Chairman Eccles suggested that be- fore action was taken a study should be made of (1) the Treasury cash Position during the first quarter of 1948, and (2) the reserve position of central reserve city banks between now and the end of March, with particular reference to the effects of gold imports, currency demands, and the amount of reserves likely to be provided through purchases by the Federal Reserve of Treasury securities. . 1_6 1/6/48 -3Chairman Eccles' suggestion was approved unanimously, with the understanding that Mr. Thomas would prepare a memorandum on the suggestions outlined and that, if possible, the matter would be considered at the next meeting of the Board. Mr. Vardaman referred to a draft of letter to Mr. McLarin, Presi- dent of the Federal Reserve Bank of Atlanta, with reference to the proposed new building for the Jacksonville Branch of that Bank, the preliminary plans of which had been presented orally by Chairman Neely, Director McCrary, and the Bank's architect, Mr. Toombs, when they were in Washington on December 1, 1947. The letter was read, and in the discus- sion that followed the view was expressed that the preliminary plans should be modified so that the costs of the building would be reduced. In the course of the discussion specific suggestions were made (1) that the building not be set back 50 feet from the front property line as proposed, but that the setback be reduced to about 20 feet so as to provide a 30 foot strip for parking automobiles across the rear of the lot; (2) that the outside walls be of limestone or other material of a comparable cost instead of Tennessee marble which would reduce costs by approximately $90,000; (3) that, since modern electrical alarm systems and other protective devices made it unnecessary to have vaults with thick reinforced concrete walls supplemented by steel lining, the reinforced concrete walls for the vault be limited to a thickness of approximately two feet and the proposed two-inch steel lining be eliminated at'an estimated saving in cost of $106,000; (4) that the foundations not be built to permit 17 1/6/48 -4- the addition of four more stories to the building, which would save approximately $54,000; (5) that the Bank be informed that in the Board's opinion it was uneconomical to provide cafeteria service, which required the operation of kitchens, at branches as small as Jacksonville because the number of meals that would be served did not justify the overhead and operating expenses that would be necessary, but that it would not object to the provision of a simple snack bar service, with the necessary incidental appliances, at which employees might obtain such readily prepared and quickly served items as sandwiches and hot drinks; and (6) that the Board was reluctant to approve the construction of a building Providing space for approximately twice the present number of employees at the branch, and that, if the Bank still considered it desirable to Provide that amount of floor space, the building should be designed so as to make it readily feasible to rent the excess space tocther agencies such as the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. Chairman Eccles added that the let- ter should make it clear that the Board would not be willing tp approve the preparation of final plans for the building unless the changes outlined were accepted by the Bank. Mr. Smead stated that, in view of the suggestions with respect to vault and cafeteria facilities, it would be desirable to send a letter to the Federal Reserve Bank of San Francisco outlining the Board's feeling in these matters in connection with the preparation of final plans for is 1/6/48 _5. the Los Angeles and Portland Branches, which had been the subject of a letter to the Bank on October 27, 1947. Upon motion by Mr. Vardaman, it unanimously (1) that Mr. agreed was Smead would revise the letter to Mr. McLarin along the lines discussed and submit it to the Board for approval, and (2) that Mr. Smead should prepare a draft of letter to Mr. Earhart, President of the Federal Reserve Bank of San Francisco, setting forth the Board's views with respect to cafeteria facilities and vault construction. Mr. Vardaman referred to a letter from Mr. Murff, Federal Reserve Examiner, dated December 11, 1947, commenting upon the examination Of the Federal Reserve Bank of San Francisco as of October 29, 1947. Mr. Vardaman stated that the letter raised a question concerning the policies the Board should follow with respect to the examination departments at the several Federal Reserve Banks, and he suggested that the letter be considered at a later time after the Board had reached a decision as to What should be done to make certain that the examination departments were Properly carrying out the responsibilities of the Board with respect to the examination of member banks. The reason for his suggestion was that the Board had delegated to the Federal Reserve Banks responsibility for examination of State member banks with the result that there existed twelve different conceptions of examination policy and procedure in so far as State member banks were concerned, and that the question of future Policy was important in connection with the consideratiOn of the budgets of the Reserve Banks. ,19 -6- 1/6/48 Chairman Eccles stated that, as discussed at the meeting on December 19, he had talked with Mr. Clayton concerning the policies followed by the examination departments of the Federal Reserve Banks and the possibility of using examination policy as an instrument of credit policy, that he felt the Board should adopt a policy in this connection and see to it that the policy was carried out uniformly and consistently at all Federal Reserve Banks, and that steps also should be taken to bring about the adoption of similar policies by the other supervisory agencies. He went on to say that it might be necessary to centralize the examining function of the Federal Reserve Banks in Washington along the lines followed by the Comptroller of the Currency unless a uniform and consistent policy could be carried out in the examinations now made by the Federal Reserve Banks. Mr. Clayton stated that, on the basis of a preliminary investigation, he did not feel that a change in organization of the Federal Reserve examination function such as Chairman Eccles mentioned was necessary, at least at this time, and that he felt the variations in examination policy among the several Federal Reserve Banks were not greater than the variations that existed in the different districts set up by the Comptroller of the Currency or the Federal Deposit Insurance Corporation, Where individual opinions of the Chief National Bank Examiners or Supervising Examiners inevitably resulted in a certain amount of variation in both policy and procedure. After some further discussion, it was understood that the matter would be considered again after Mr. Clayton had looked further into the extent to which there may be variations in policies among the examination departments of the Federal Reserve Banks. 20 1/6/48 -.7-. Mr. Evans referred to a memorandum prepared by the Division of Personnel Administration under date of December 2, 1947, with respect to an Employees Loyalty Program provided for under Executive Order No. 9835, which had been circulated among the members of the Board before this meeting. The memorandum stated that the Division of Personnel Administration had studied the Executive Order and conferred with representatives of the agencies involved, such as the Civil Service Commission and the Federal Bureau of Investigation, that it had obtained certain required information for the Federal Bureau of Investigation from incumbent officers and employees of the Board, that pre-employment investigations of all applicants for specific positions on the Board's staff were now being made by the Division of Personnel Administration, and that a further investigation for security purposes was conducted by the Division of Personnel Administration for all applicants appointed to a position on the Board's staff. The memorandum also presented a draft of procedure to be followed in carrying out the requirements and purposes of the Executive Order and recommended its adoption, and, in addition, recommended that 1. The Division of Personnel Administration be designated as the unit to conduct the necessary investigation of new employees. 2. The Division of Personnel Administration be authorized to request the Federal Bureau of Investigation to conduct all full field investigations. 3. The Board appoint a Loyalty Board consisting of three members and three alternates, one member to be designated as Chairman by proper authority. 4. The Personnel Officer, Mr. H. A. Johnson, be designated as 21 1/6/48 —8— the liaison representative whom the Civil Service Commission may contact regarding loyalty boards and investigations. Upon motion by Mr. Evans and by unanimous vote, approval was given to the procedure as follows: "In accordance with the provisions of Executive Order 9835, dated March 212 1947, 'Prescribing Procedures for the Administration of an Employees' Loyalty Program in the Executive Branch of the Government,' the following procedures relating to loyalty of officers and employees of the Board of Governors of the Federal Reserve System are hereby prescribed. "Section 1. Loyalty Board. - (a) A Loyalty Board, consisting of three members, and three alternate members, all of whom shall be officers or employees of the Board of Governors, shall be appointed by the Board of Governors. The Board of Governors shall designate one of such members as Chairman, and one as Vice Chairman who shall act as Chairman in the absence or inability of the Chairman to serve for any reason. Each principal and each alternate member shall serve for one year from the date of appointment, or until their successors are appointed. In the absence of any member of the Loyalty Board or in the event of his inability to serve for any reason, the Personnel Committee of the Board of Governors shall designate one of the alternate members to act in his stead. "(b) The Loyalty Board shall hear cases involving the loyalty of officers and employees of the Board of Governors and make recommendations to the Board of Governors with respect to the removal of any officer or employee of the Board of Governors on grounds relating to loyalty. "Section 2. Legal and Secretar1,4 Assiptance. - The General Counsel and the Secretary of the Board of Governors shall provide such legal and secretarial assistance to the Loyalty Board from among the members of their respective staffs as may be deemed necessary. "Section 3. Genera; Procedures. - (a) Investigations of all applicants for positions in the Board of Governors shall be conducted by the Division of Personnel Administration, and such Division shall be deemed the investigative organization of the Board for the purposes of Executive Order 9835. "(b) Any derogatory information received by the Board from the Federal Bureau of Investigation, the Civil Service Commission) or other reliable source, with respect to the loyalty of an officer or employee of the Board of Governors shall be submitted by the Director of Personnel Administration to the Loyalty Board. The Loyalty 22 1/6/48 _9_ "Board shall consider such information and determine whether (i) a recommendation clearly favorable to the individual is warranted or (ii) whether the case calls for further processing with a view of possible removal action. "(c) If the Loyalty Board reaches a conclusion clearly favorable to the officer or employee it shall recommend to the Board of Governors that no further action be taken. If the Loyalty Board determines that the evidence before it does not warrant a finding clearly favorable to the officer or employee it shall cause to be served upon such officer or employee a notice in writing setting forth the charges against him in sufficient detail, so far as security considerations will permit, in order to enable such officer or employee to submit his answer, defense or explanation. This notice shall be given to the officer or employee at least thirty calendar days in advance of the effective date of the proposed removal action. "(d) The rights of hearing, notice thereof, and appeal therefrom shall be accorded to every officer or employee of the Board of Governors prior to his removal on grounds of disloyalty, but the Board of Governors may suspend any officer or employee at any time pending a determination with respect to his disloyalty to the Government of the United States. "(e) The notice of charges provided for in section 3(c) shall state that the person so charged shall have a right to answer the charges in writing if he does so within fifteen calendar days from the date of the receipt by him of such notice; that he has a right to an administrative hearing before the Loyalty Board if he so requests; that he has a right to appear personally before such Loyalty Board, be represented by counsel or representative of his own choosing, and present evidence in his behalf; the work and pay status in which he will be carried during the period of the notice and until the determination of such Loyalty Board; and the authority or authorities under which the notice is being sent. "Section 4. jigarings. - (a) If the officer or employee does not reply to the notice within the time specified therein, or, answers the charges in writing but does not request a hearing, the Loyalty Board shall consider the case on the complete file and make its recommendation to the Board of Governors. If such officer or employee requests a hearing before the Loyalty Board a time and place for such hearing shall be set by the Loyalty Board. A reasonable time shall be allowed so as to enable the person so charged to assemble his witnesses and prepare his defense. "(b) Every hearing shall be informal and shall be conducted by the Loyalty Board in such manner determined by it best to 23 1/6/48 -10- "protect the respective interests of the Board of Governors, the United States, and the person charged with disloyalty. At each hearing, three members shall be present. "(c) The Loyalty Board shall make written recommendations to the Board of Governors on all cases in whicha notice of charges shall have been given pursuant to section 3(c) above and shall certify the record of proceedings in all such cases to the Board of Governors. Such recommendations shall be made on the basis of the provisions of Part V of Executive Order 9835. In all such cases the Loyalty Board shall also give written notice of the action taken by it to the officer or employee charged and advise him of his right of appeal to the Board of Governors. "Section 5. Appeals. - (a) Every officer or employee with respect to whom the Loyalty Board has recommended removal on the grounds of disloyalty shall have the right of appeal to the Board of Governors within fifteen days from the date hereceives the notice provided for in section 4(c) above. The time for appeal herein provided for may be extended by the Board of Governors for good cause. If such officer or employee appeals to the Board of Governors, the said Board may refer the appeal and any hearing requested by the officer or employee in connection therewith to one or more of its members, who shall have the right to fix the scope and extent of such hearing; but the officer or employee involved shall have the right to be present with his attorney or representative and to be heard at such hearing. "(b) All appeals from a recommendation of the Loyalty Board shall be in writing and shall state in substantial detail all facts and circumstances in support thereof. "(c) The Board of Governors, through one or more of its members designated by it, may review each case with respect to which a recommendation is made to it by the Loyalty Board and will review each case which has been appealed to it by the person charged with disloyalty. In any case reviewed by it the Board of Governors wili determine whether the officer or employee charged should be removed from office or employment because of disloyalty within the purview of Executive Order 9835. Proceedings by the Board of Governors upon such review shall be informal and shall be conducted by the Board of Governors in such manner as determined best to protect the respective interests of the Board of Governors, the United States, and the person charged. "(d) If the Board of Governors, upon a review of the recommendation of the Loyalty Board, decides that the person charged is disloyal within the purview of Executive Order 9835 and should be removed from office, the Secretary of the Board of Governors will 24 1/6/48 -11- "notify the officer or employee concerned of the decision of the Board of Governors and of his further right of appeal to the Civil Service Commission's Loyalty Review Board for an advisory recommendation. If no such appeal is taken by the officer or employee within the time prescribed by the Civil Service Commission's Loyalty Review Board, the Board of Governors will enter an order removing such officer or employee from his service with the Board of Governors. "Section 6. The foregoing procedures shall not apply to the suspension or removal of officers or employees of the Board of Governors under authority of the Federal Reserve Act for any reason other than suspension or removal on grounds of disloyalty to the Government of the United States. The Board's Rules of Procedure prescribed pursuant to the Administrative Procedure Act shall not apply to proceedings herein provided." Mr. Evans then moved (1) that the Division of Personnel Administration be designated as the unit to conduct the necessary investigation of new employees and that it be authorized to request the Federal Bureau of Investigation to conduct all full field investigations, (2) that the personnel officer, Mr. H. A. Johnson, be designated as the liaison representative whom the Civil Service Commission would contact regarding loyalty boards and investigations, and (3) that a Loyalty Board be appointed, the membership of which would consist of Mr. R. F. Leonard, Chairman, Mr. John C. Baumann, Vice Chairman, and Mr. C. Richard Youngdahl, with Messrs. J. E. Horbett, Bonnar Brown, and Merritt Sherman to serve as alternates, and that each appointee would serve for a period of one year or until his successor was appointed. This motion was put by the Chair and carried unanimously. The following letter to Mr. Elmer B. Staats, Assistant Director, Legislative Reference, Bureau of the Budget, prepared in response to a request received under date of January 5, 1948, for a report on H. R. 4488, a bill to amend the Servicemen's Readjustment Act of 1944, as amended, was approved unanimously: 25 1/6/48 -12- "This is in reply to your letter of January 5, 1948, requesting an expression of views with respect to H. R. 4488, a bill to amend the Servicemen's Readjustment Act of 1944, as amended. "As indicated in the enclosed copy of a letter to Chairman Rogers on the subject, it is felt that this bill should not be enacted in the present situation." At this point Messrs. Smead, Thomas, Vest, Leonard, and Nelson Withdrew and the action stated with respect to each of the matters hereinafter set forth was taken by the Board: Minutes of actions taken by the Board of Governors of the Federal Reserve System on January 5, 1948, were approved unanimously. Letter to Mr. Sproul, Chairman, Conference of Presidents, Federal Reserve Bank of New York, reading as follows: "In its letter of February 4, 1946, the Board stated that in view of the return of service men and women to civilian life and their need for employment and as one step toward the return to normal personnel policies, it was felt that the Federal Reserve Banks and the Board should return as promptly as reasonably possible to the general policy of making retirements of officers and employees effective upon attainment of age 65 in the absence of exceptional circumstances which would justify retention in service beyond that age. Accordingly, the letter requested that in the event a bank wished to retain an officer (other than the president or first vice president who serve statutory terms and to whom the letter did not apply) or an employee in service for more than 90 days after attainment of age 65, the Board be furnished a full statement of the exceptional circumstances which, in the judgment of the board of directors of the bank, justified the retention and that the Board's advance approval be obtained for the payment of salary for any service rendered after the expiration of such 90-day period. "When an employee is retained in active service beyond retirement age he may effect retirement immediately or defer his retirement until a later date. If he elects te, retire immediately he may waive receipt of his retirement allowance, .26 1/6/48 -13- "or receive his allowance together with such salary as the employing bank deems appropriate. In Circular No. 731 the Retirement Committee recommends that any member who is to be continued in service be given the choice of these alternatives. The Committee also suggested, where a member elects to retire immediately, that in consideration of continued employment, the member waive his retirement benefits and in the case of those who elect a cash refund allowance, the subsequent benefit payable be reduced by an amount equal to the pension portion of the waived retirement allowance payments. "The suggestion has been made that it would be desirable if in all cases officers (other than the president and first vice president) and employees of the Reserve Banks were placed in a retirement status within a period of not more than 90 days following the attainment of age 65 with the understanding that in the aPeptional cases where officers and employees are retained in service the payment of retirement benefits would begin Upon retirement and their salary would not be more than salary at age 65 less the retirement benefits received. No change would be made in the present policy of retaining officers and employees only in exceptional circumstances in which continued employment would clearly be to the advantage of the Federal Reserve Bank. It would be expected that employees would not be retained for their personal, financial or other advantage. "The Board would like to discuss this suggestion with the Presidents the next time they ars in Washington, and it will be appreciated if you will have it placed on the agenda for the February meeting of the Presidents Conference." Approved unanimously, with the understanding that this letter would take the place of the letter to all Presidents on this subject agreed upon at the meeting on December 5, 1947. Assi Approved: Chairman. an ecretary.
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