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1149 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Friday, July 23, 1948. The Board met it the Board Room at 10:30 a.mPRESENT: Mr. McCabe, Chairman Mr. Szymczak Mr. Evans Mr. Carpenter, Secretary Sherman, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Smead, Director of the Division of Bank Operations Mr. Thomas, Director of the Division of Research and Statistics Mr. Vest, General Counsel Mt. Horbett, Assistant Director of the Division of Bank Operations Mt. Mr. Mr. Mr. There were presented telegrams to the Federal Reserve Banks (4) New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, 1411111eaPolis, Kansas City, Dallas, and San Francisco stating that the Board approves the establishment without change by the Federal Reserve Bank of Kansas City on July 17, by the Federal Reserve Bank °r Sari Francisco on July 20, and by the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, MinIlee.13°11e, and Dallas on July 22, 1948, of the rates of discount and 13141ellase in their existing schedules. Approved unanimously. Mr. Evans stated that he had asked that the question of a her increase in reserve requirements of member banks in central 1.150 7/23/48 -2- reserve cities be considered at this meeting, with the understanding that the matter would be discussed but that action would not be taken lzatil more members of the Board could be present and a response had beeil received from the Treasury to the anti-inflation program outlined in a draft of proposed letter from the Chairman of the FedOpen Market Committee to the Secretary of the Treasury, a copy °r which was handed by Chairman McCabe to Secretary Snyder on July 16, 194.8. Chairman McCabe said he had an appointment on July 29, 1948, to discuss the draft of letter with Secretary Snyder, that the latter w°uld meet with the American Bankers Association Committee on Government Borrowing at noon on that day, and that he (Chairman }4eCabe) anticipated a response from Mr. Snyder shortly thereafter. In connection with the question of a further increase in l'eserve requirements of member banks in central reserve cities, re ere-nee was made to memoranda prepared by Mr. Thomas under date (3/1 jIllY 21, 1948, on the reserve position of central reserve city barop and their holdings of Government securities, and July 22, 1948 on the relationship of an increase in reserve requirements to e4rnings of central reserve city banks. Copies of these memo1'411(14 had been sent to each member of the Board before this meet- 1151 7/23/48 -3At Chairman McCabe's request, Mr. Thomas reviewed the situ- Eltion along the lines presented in the memoranda, stating that central reserve city banks had adequate short-term assets to meet a riullier increase of two percentage points in required reserves e•gain.st net demand deposits, but that since Treasury operations vould not be increasing reserves at any time in the next few months eleePt for a short time early in September, it was not possible to select a period that would be most propitious for an increase in reserve requirements. He also said that the increase in reserve requirements on June 11, 1948, a loss of deposits, and a growth lrj 1°ans had resulted in a decrease in the liquidity of New York eitY banks because they had substantially reduced their holdings Of short-term bonds to meet these changes, and that the effectiveof a further increase in reserve requirements depended entirelY upon how far banks were willing to go in reducing their liqUid assets. Following a discussion, it was agreed unanimously that the question of a further increase in reserve requirements of central reserve city banks should be deferred until a response had been received from the Treasury to the program outlined in the draft of letter referred to above. Chairman McCabe stated that he received a telephone call this zorni ng from W. William J. Meinel, President of Heintz 1152 7/23/48 -4- Manufacturing Company, Philadelphia, during which the latter had ad.vised that he would not be able to accept appointment as a Class C director and designation as Chairman and Federal Reserve Agent t the Philadelphia Bank. There was a brief discussion of others who might be considered for the appointment, but no conclusions *were reached. Mr. Thomas then reviewed the replies which he had received to a wire sent to the directors of research at all Federal Reserve Banks following the meeting on July 20, 1948, asking their views with respect to Federal Reserve policy and recommendations for leg- islation which might be desirable to restrain inflationary forces. Mr •Thomas stated that nearly all of the Reserve Bank economists reit there would be further inflationary pressures during the next 12 Months, with accompanying large demand for bank credit, and that turther System action to restrain inflationary credit expansion would be needed. Ten of the economists, Mr. Thomas said, recom- Illended that request be made for additional powers to raise primary l'eserve requirements in some way, but opinion was rather general that another request for authority to impose a special reserve re- cillil'ement should not be made. Thom .S It was also widely recommended, Mr. reported, that the System renew its request for authority to r_ gulate consumer instalment credit. A summary of the replies is 1153 7/23/48 _5_ co ntained in a memorandum prepared by Mr. Thomas under date of July 23, 1948. During Mr. Thomas' report, Chairman McCabe was called from fleeting and upon his return stated that Mx. Clark Clifford, Adthe' Illinistrative Assistant to the President, had informed him that a leeting of various departments and agencies of the Government would be held at the White House at 2:00 p.m. today for the purpose of reviewing the recommendations to be included in the President's illessage to the special session of Congress to convene on July 26, 1.948/ and that he would like to have the Board designate someone to attend the meeting who could speak for the Board. Mr. Clifford elaraented, Chairman McCabe said, that the White House was interested in control of inflationary bank credit and instalment credit e°11t1"(31, and that it was contemplated that the message would ask Or a renewal of consumer credit control and would state that the Bon qa-d undoubtedly would ask for increased authority over bank re- serves and would be in a position to present specific recommendati°11s to Congress. During the ensuing discussion, Mr. Thomas stated that, 1)111 ' suant to the understanding at the meeting on July 20, 1948, he h ad talked further with Mr. Clark, member of the Council of EP On 'wlo Advisers, and had called his attention to bills introduced 1154 7/23/48 -6- the 80th Session of Congress with respect to consumer credit 41°41 the special reserve plan, that on April 13, 1948, the Board slibmitted to the Joint Committee on the Economic Report a recomiliellthltion with respect to primary bank reserves, and that altlicIligh no legislation had been submitted on the latter recommen- dation, it could be prepared readily. Mr. Clark made it clear, 141% Thomas said, that he was not asking for the recommendations °t the Board but information as to drafts of legislation that had been prepared. Following a discussion, it was agreed unanimously that M±. Thomas should attend the meeting and that he would be authorized to say that the Board favored (1) consumer credit legislation in the form in which it Passed the Senate on December 17, 1947, except that the authority should continue for three years from date of enactment of the legislation, and (2) inclusion in the President's message of a general recommendation that additional authority be granted to the Board to increase bank reserves, the recommendation to be in such form that the Board would be free to propose an increase in authority over bank reserves in such form as it might wish. In taking this action, it was understood that, if called upon to be specific with respect to the additional authority for increasing bank reserves, without raising the question whether the authority should apply to all banks or member banks only, Mr. Thomas might say that the Board favored legislation granting authority to increase reserve requirements against demand deposits by 10 percentage points and against time deposits by 4 percentage points above the maximum rates now permissible. 1155 7/23/48 -7It was also understood would telephone each member was not at this meeting and Mr, Clifford's request and thereon. that the Secretary of the Board who inform him of the action taken Chairman McCabe stated that Mr. Creighton, Chairman of the Boston Ba— OM telephoned him yesterday afternoon to say that Mr. 11°Iaas D. Cabot had declined to accept appointment as a Class C director and that, in accordance with the action at the meeting on '111413, Mr. Ames Stevens, of Ames Worsted Company, Lowell, Massachusetts, had been approached and had indicated he would accept the aPpointment if tendered. At Chairman McCabe's suggestion, the following telegram to Mr. Stevens was approved unanimously: "Board of Governors of Federal Reserve System has appointed you Class C Director of Federal Reserve Bank Of Boston for unexpired portion of term ending December 31, 1948, and will be pleased to have your acceptance by collect telegram. It is understood that in ?rder to qualify you will resign as a Director of the New England Trust Company and dispose of any Bank stocks you may own." There was presented a telegram to the Presidents of the l'ederea Reserve Banks reading as follows: Board of Governors of the Federal Reserve Sysauthority of the fourth paragraph of Section Federal Reserve Act hereby establishes for months' period ending June 30, 1948, the rate Of -.la__ per cent interest per annum on that amount °I the Federal Reserve notes of your Bank which equals "The tem e under Of the the three 1156 7/23/48 -8- "the average daily amount of its outstanding Federal Reserve notes during such period less the average daily amount of gold certificates held during such period by the Federal Reserve Agent as collateral security for such notes. Interest in an amount calculated in the Manner and at the rate specified above shall be paid to the United States on July 28, 1948. "According to daily balance sheets, the average daily amount of outstanding notes of your Bank during the second quarter of 1948 not covered by gold certificates with the Federal Reserve Agent was $ (2) . At rate specified above, payment to Treasury for second quarter will be $ (3) . Payment should be credited to Treasurer's General Account as Miscellaneous Receipts, Symbol 1841-Interest Collected, Section 16 Federal Reserve Act as Emended. Your Bank's pro rata share Of $10,000,000 deduction referred to in Board's July 1 wire is $ (4) No statement being given to press With respect to this action. (4) (2) "(1) (3) Boston 656,240 $ .90 $1,014,591,627 $2,276,576.83 New York 1,167,680,355 8,151,368.61 2,443,605 2.80 Phi 724,723 1,117,495,971 2,535,338.12 .91 Cl ladelphia eveland 1,410,152,726 3,375,094.30 .96 975,707 R ichmond 638,606 1,049,919,108 2,277,317.69 .87 Atlanta 489,798 686,424,058 1,711,358.61 1.00 C hicago 1,417,507 1,923,651,080 4,891,871.05 1.02 St. Louis 531,615 808,011,269 1,913,769.16 .95 Mi nneapolis 302,357 432,669,874 1,035,562.74 .96 Xansas Dallas city San Francisco .96 1.36 2.35 663,974,804 451,223,662 531,775,868 1,589,173.67 1,529,957.27 3,115,623.82 456,324 448,973 914,545" In this connection, Mr. Smead reported that, following the Illeetiiig on June 25, 1948, he had talked with Mt. Bartelt, Fiscal .Assistant Secretary of the Treasury, and informed him of the deci51011 to set aside from second quarter earnings of the Federal Resel ' //e Banks an additional reserve of $10,000,000. l'esP°11ded, Mr. Mr. Bartelt Smead said, that he was particularly pleased that 1157 7/23/48 -9- the Board had decided to handle the matter in that way, which avoided raising the question of changing the existing arrange- ment under which 90% of the net earnings of the Federal Reserve 338ti*s are Paid to the Treasury. Upon motion by Mr. Evans, the telegram was approved unanimously. Mr. Thurston stated that at Chairman McCabe's request he attended a meeting yesterday afternoon in the office of Mr. Pace, Assistant Director of the Bureau of the Budget, at which meeting there were also present representatives of the Housing and Home Iinance Agency, the Treasury Department, and the General Accounting °ffice, for the purpose of discussing possible changes in 2799 along the lines referred to by Mr. Thomas at the meet148 °r the Board on July 20. Mr. Thurston also said that he had °/silled the group that he knew of no change in the Board's positi011 as outlined in its letter to Mr. Staats, Assistant Director, Lecri elative Reference, Bureau of the Budget, under date of July 20, i nLn ' - 4'00, but that he would report the discussion at the meeting to the ick -oard of Governors and communicate with Mr. Pace again. It was agreed unanimously that Mr. Thurston should inform Mr. Pace that the Board's position was unchanged from that presented in its letter of July 20, 1948. At this point Messrs. Riefler, Smead, Thomas, Vest, and 1158 7/23/48 -10- Ilorbett withdrew and the action stated with respect to each of the itatterS hereinafter set forth was taken by the Board: Letter to Mr. Carstarphen, Secretary of the Federal Reserve Barik Of St. Louis, reading as follows: "This is in reply to your letter of July 16, 1948, regarding the adoption of a procedure for the establishment of discount rates under which it is understood that the executive committee of your Bank, which meets on Wednesday of each week, would reestablish discount rates effective the day following its meeting, and that the full board of directors at its regular meeting on the it , sa eco ersid Thursday of each month would reestablish the on that day thus avoiding a meeting of the executive committee on the preceding day. It is believed that the provision of section 14(d) Of the Federal Reserve Act requiring the establishment of discount rates every 14 days is intended to refer to the time between actual consideration of the rates by a Federal Reserve Bank rather than the interval which May exist between the dates upon which the rates are Made effective. It is the view of the Board, thereore, that the procedure suggested in your letter, 1Since it would involve the lapse of more than 14 days etween the dates of consideration, would not technically Comply with the requirement of the law. While for all practical purposes there would probably be substantial compliance with the law even though, in hfew isolated instances where it cannot be avoided, may be a lapse of 15 days between the dates of action on discount rates, the Board feels that, in making arrangements for the future for the purpose of considering discount rates, all practicable steps should be taken to insure compliance with the requirement of the law." Approved unanimously. Letter to Mr. Stevens, Chairman of the Federal Reserve Bank Of N ew Yor1, reading as follows: 7/23/48 -11- "The Board of Governors approves the payment of salaries to the following officers of the Federal Reserve Bank of New York and the Buffalo Branch for the Period April 1, 1948 to March 31, 1949, inclusive, at the rates indicated, which are the rates fixed by the Board of Directors, as reported in your letter of July 15, 1948: Annual Salary Name Title Sproul, Allan $50,000 President Rounds, Leslie R. 35,000 First Vice President Douglas, Edward O. 16,500 Vice President 16,500 Kimball, Herbert H. Vice President Xnoke, L. Werner 22,500 Vice President Logan, 25,000 Walter S. Vice President and General Counsel Phelan, Arthur 19,500 Vice President Boelse, Harold V. 18,000 Vice President Rouse, Robert G. 25,000 President Vice Willis, Valentine 18,500 President Vice Wiltse, Reginald B. 16,000 Vice President Tiebout, Todd G. 16,500 Assistant General Counsel 15,000 Trimble, Rufus J. Assistant General Counsel 1113Y, Harold A. 13,500 President Vice Assistant uavis, Felix T. 12,000 President Vice Assistant De'vis, Norman P. 12,500 President Vice Assistant Miller, Silas A. 15,000 President Vice Assistant 13,500 Sanford, Horace L. Assistant Vice President TerlEyck, Otto W. 12,000 President Assistant Vice Treiber, William F. President 15,500 Assistant Vice and Secretary krts, John H. 13,500 Assistant Vice President 15,000 Sheehan, William F. Chief Examiner 9,000 Abrahams, William F. Manager, Security Custody Department 130vMan, Curtis R. Manager, Credit and Discount 10,000 Depts. 9,500 33°Yd, Harry M. DeSafekeeping Manager, partment 10,500 )31-Irt, Wesley W. Manager, Savings Bond Department 10,500 Carroll, James J. Manager, Planning Department 1.160 7/23/48 -12- Name Crosse, Howard D. Pitchen, Paul R. Rarris, Marcus A. Heinl, William A. Lang, Peter P. Marsh, Spencer S., Jr. McLaughlin, Michael J. Moore, 0. Ernest Peterson, Franklin E. Rozell, Walter H., Jr. Scheffer, Ralph W. VanRouten, Charles N. Wendell, Roy E. Wessel, Harold M. Clarke, John J. Dillistin, William H. Cameron, Donald J. Annual Salary Title 9,000 DeCollection $ Manager, partment 8,500 Manager, Cash Custody Department 11,000 Manager, Government Bond Department, R.F.C. Custody Department 9,500 Manager, Personnel Department 10,500 Manager, Foreign Department Manager, Securities Depart- 9,250 ment 8,500 Manager, Government Check Department 10,500 Manager, Research Departmerit Manager, Bank Relations De- 9,500 partment Manager, Foreign Department 9,750 9,500 Manager, Check Department 10,000 Department Cash Manager, Manager, Check Department 9,750 9,500 Manager, Accounting Department 10,500 Assistant Counsel and AsSecretary sistant 16,000 General Auditor 12,000 Auditor Assistant General Buffalo Branch 13,000 Insley B. General Manager 'IT, Halsey W. 9,500 Cashier 211, George J. 8,700 Cashier Assistant l''Y'ers, M. 7,000 Cashier Assistant Monroe "The Board of Governors also approves the payment Of Salary to Mr. John H. Williams as Economic Adviser the period April 1, 1948 through March 31, 1949, n the rate of $22,000 per annum when he is engaged in work of the Bank on a full-time basis; and when he 18 not engaged in the work of the Bank on a full-time Smi41.. 0 , 1161 7/23148 -13- "basis) at the rate of $84.62 per day for each day on which he spends any time, on behalf of the Bank, at the Bank or at a Federal Reserve or related meeting elsewhere, plus his reasonable travel, lodging and s ubsistence expenses." Approved unanimously. Letter to Mr. Phelan, Vice President of the Federal Reserve or New York, reading as follows: "This refers to your letter of July 9 regarding a Proposed arrangement with respect to certain securities owned by The Chase National Bank of the City of New York and held in custody by you to secure certain deposits of the Philippine Republic in the Chase National Bank. "It is understood that prior to July 4, 1946 your barop as fiscal agent for the United States and at the request of the Secretary of the Treasury, received from the Chase National Bank and held in custody, subject to the order of the Secretary of the Interior or such per°11 as he might designate, securities deposited as col! lateral for deposits of Philippine public funds in the Chase National Bank. As of July 4, 1946, when the Commonwealth of the Philippines assumed its independence, the Department of the Interior terminated the authority for officers of the Department to issue instructions to Your bank with respect to the securities. At that time You held approximately $40,000,000 in principal amount or securities in that connection. "Since then you have had conferences with the officers and counsel of the Chase National Bank with reference to establishing the authority of someone to conrol the collateral and with reference to continuing, at least temporarily, an arrangement whereby deposits !! Philippine public funds in the Chase National Bank might be secured by the deposit of collateral with your bank. "Upon consideration of the proposed arrangement as IcIpescribed in your letter and in the documents furnished Your Counsel to the Board's General Counsel, the Board .'eels that the arrangement is one with respect to which /162 7/23/48 -14- "the Board's permission is necessary and herewith gives its consent to the arrangement. We note, however, that you anticipate that eventually most Phil1PPine public funds in this country will be deposited With you on an unsecured basis pursuant to Philippine monetary and central bank legislation. In this connection we understand that the Philippine Republic has recently enacted legislation for the creation of a Central bank. Accordingly, you will doubtless find it desirable to review the proposed arrangement after the central bank has been actually established and we will appreciate your keeping us advised of further developments in the matter." Approved unanimously. Letter to Mr. John E. Peurifoy, Assistant Secretary, DeID4rtInent of State, reading as follows: "We have read with interest your letter of July 2 With its enclosures pertaining to international conferences that may be held during the fiscal year 1950. On the first five points in your questionnaire we have 4° information to offer but suggest with reference to NO. 3 that you communicate with Mr. Bray Hammond, Assistant Secretary of the Board, for coordination and exchange of information. "With respect to No. 6 there are two things that seem to call for mention. One is that the statutory responsibilities of the Board as a central banking ?r .ganization involve an active interest in international monetary affairs. In addition, the membership Of the chairman of the Board on the Advisory Board of the Export Import Bank and on the National Advisory L'°uncil, besides participation of members of the Board's in the work of the Council, give occasion for the - "oard to participate in international conferences deal!Board ing with monetary subjects within the terms of your letter. In the second place, however, the Board does not Operate with appropriated funds and consequently its P4rticipati0n in international conferences does not involve the budgetary procedure you mention. 1.163 7/23/48 -15- "The Board has in mind at the present time no conferences not already included in your list. We might mention, however, the possibility that another conference of representatives of central banks of the Western Hemisphere, such as met in Mexico City in August 1946, may possibly be held in the period of your inquiry. This is purely an inter-bank conference dealing with central banking technique and involves no outside representation, though it is arranged with the State Department's knowledge and approval. "We note that the third annual meeting of the Board Of Governors of the International Monetary Fund and of the International Bank to be held in Washington in September of this year is included in your list. As in the Past, the Board will wish to have representatives Participate in these meetings at the technical level. Will probably wish also to participate in the Special Conference on Economic Cooperation to be held, as Your list shows, in Buenos Aires this coming winter. "The Federal Reserve Bank of New York, partly as fiscal agent of the United States and partly as the correspondent of foreign central banks and governments, ha8, as you know, a large and continuous volume of financial transactions of an international nature. These transactions entail frequent visits from the officials 5 foreign countries and central banks to the United States and corresponding calls on foreign central banks and finance ministries by our own people. The Board under the terms of the Federal Reserve Act has a speFial responsibility with respect tc such matters. The .Ettter, however, do not entail conferences such as your letter is concerned with." Approved unanimously. Telegram to M. Knoke, Vice President of the Federal Reserve 1414k ur New York, reading as follows: "Your wire July 22. Board approves the making of !loan or loans on gold by your Bank to Banco Central .'±el on the terms and conditions specified in YoUr wire, as follows: "(a) The amount to be advanced not to exceed $1'700,000 in the aggregate at any one time outstandv. ! in 56, such loan or loans to be made up to 98 per cent 1164 7 23/48 qof the value of refined gold bars held in your vaults as collateral; " (b) Each such loan or renewal thereof to run for 90 days, but no loan or renewal thereof to mature later than 180 days after the date of the first such loan; i(c) Each such loan and any renewal thereof to bear interest from the date such loan is made or renewed until paid, at the discount rate of your bank iU effect on the date on which such loan or renewal IS made. "It is understood that the usual participation will , oe offered to the other Federal Reserve Banks." Approved unanimously. Secretary. A 13.1.07 Chairman.
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