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813 A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Tuesday, July 8, 1941, at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Smead, Chief of the Division of Bank Operations Mr. Dreibelbis, Assistant General Counsel Mr. Wingfield, Assistant General Counsel Mr. McKee referred to a letter dated July 3, 1941, addressed to the Board by Mr. Sproul, President of the Federal Reserve Bank of New York, in which he enclosed for the Board's information a copy of a letter dated July 2, 1941, which he had forwarded to all of the other Federal Reserve Banks giving a resume of developments of interest with respect to gold and capital movements and the foreign exchanges, and reviewing the New York Bank's foreign operations. Mr. McKee called particular attention to the following sentence appearing on page 8 of the enclosure: "Up to the present time the question of how broadly the State Department will be willing to apply the statute, and to what extent we should request certification of authorities with respect to the various foreign government and foreign central bank accounts on our books, has not been decided but we expect to discuss this question with the State and Treasury Departments in relation to specific cases, and perhaps generally with a view to developing some mutually satisfactory policy." 814 7/8/41 -2- He said that it was his view that the New York Bank should not discuss questions of policy with the State and Treasury Departments without first consulting the Board and that consideration should be given to the desirability of advising the New York Bank as to the Board's position. Mr. Dreibelbis stated that Mr. Logan, Vice President and General Counsel of the New York Bank, had been keeping in touch with him informally and that he had received from Mr. Logan a draft of a memorandum dated June 2, 1941, which had been prepared as a basis for discussion with officials of the Treasury and State Departments to obtain certifications with respect to a number of foreign bank and foreign government accounts. Mr. Dreibelbis said that on June 5 he had circulated Mr. Logan's memorandum to the members of the Board for their information. He also said that Mr. Logan had suggested that he attend the conference to be held by representatives of the New York Bank with officials of the Treasury and State Departments for the purPose of discussing problems arising in connection with such certifications. In this connection he said that the State Department had gotten in the habit of calling the Treasury Department regardin g such matters, because the Treasury has to issue a license in each case, and the TreasurY in turn calls the New York Bank. Mr. Dreibelbis added that Mr. Bernstein, Assistant General Counsel of the Treasury Department, frequently calls him on the telephone regarding these matters and he 815 7/8/41 -3- would be loath to see anything done that would disturb the present setup whereby he has continuing informal contacts with Messrs. Logan and Bernstein. Chairman Eccles stated that, while he recognized that the initiative must be taken in such matters by the Federal Reserve Bank of New York, he felt that the Board should represent the System as a whole in its relations with the Government whether it be the Congress, an executive department, or some independent agency. He said that the Board is required to exercise special supervision over foreign relationships and transactions entered into by the Federal Re- serve Banks and that the Board should participate in discussions of any questions of policy affecting the operations of the Federal Reserve Banks in this field. He suggested that it might be advisable for the Board to revise its existing regulations relating to foreign transactions or to adopt a new one which would set forth the procedure to be followed by the Federal Reserve Banks and which would make it clear that a Federal Reserve Bank should not take up questions of policy directly with the State, Treasury or other departments. Mr. McKee pointed out that the recent legislation which had been enacted with regard to accounts with foreign governments was designed to afford protection to the Federal Reserve Banks and that the adoption of a regulation by the Board setting forth the procedure to be followed under these provisions of law would afford additional protection. He said, however, that such a regulation should 816 7/8/41 —4— be drawn so as to make it possible for a Federal Reserve Bank to handle routine matters without submitting them to the Board and at the same time place the Board in the position where it could pass first on all questions of policy. Chairman Eccles stated that he and Mr. Szymczak had an appointment to meet with Messrs. Ruml and Sproul of the New York Bank this morning for the purpose of discussing the salary arrangement Which the Bank has with John H. Williams and that it might be advisable to discuss with them informally the question raised by the lan- guage contained in Hr. Sproul's letter of July 2. The other members of the Board concurred in the Chairman's suggestion and it was understood that the matter mould receive further consideration at a meeting to be held later in the day. Chairman Eccles said that he had received a letter under date of July 2, 1941, from Mr. Sproul to the effect that Government departments and bureaus in Washington had been raiding the research and statistical staff of the New York Bank by offering them positions with salaries substantially in excess of what the Bank has been able to pay in the past and by stressing the importance of the Government work to the point of making it appear to be a public duty to accept such positions. He said Mr. Sproul recognized that the Bank could of course meet the keen competition for men with training in economic research and statistics provided the Bank was allowed somewhat more leeway in 817 7/8/41 -5-- its budget for such work but that it was not quite as easy to meet the Claims with respect to the relative importance of the Bank's work as compared with that done at Washington. Chairman Eccles said that Mr. Sproul had referred to what he understood was a code in Washington that no department is to raid another department's personnel and had raised a question whether the Federal Reserve Banks might not be given similar protection through intervention by the Board. Chairman Eccles also said that the New York Bank had already lost some able men to the State Department and that it was his view that the Bank should take whatever steps were reasonably necessary to keep trained and experienced men, particularly at a time like the present when it is being subjected to unusual demands in connection with foreign property control and other work growing out of the issuance of the recent freezing orders. There was general agreement with the view expressed by Chairman Eccles, and it was understood that he would advise Messrs. Ruml and Sproul accordingly. The meeting recessed at 11:25 a.m. and reconvened at 3:15 P.m. with the same attendance as at the morning session. Chairman Eccles and Mr. Szymczak reported the gist of the informal discussion which they had this morning with Messrs. Ruin]. and Sproul concerning the salary arrangement with John H. Williams. Chairman Eccles said they had talked of the possibility of obtaining 818 7/8/41 -6- a man on a full-time basis to direct the research work at the New York Bank but Mr. Rural had stressed the value to the Bank of having a man such as Mr. Williams who was outstanding and has valuable contacts in the academic field. Mr. Ruml thought, Chairman Eccles said, that perhaps an arrangement could be worked out for Mr. Williams to conduct a seminar at Columbia University so that he could terminate his connection with Harvard and live in New York without losing entirely his direct connection with the academic field and it would be unnecessary for him to travel so much. For this reason Mr. Ruml wanted the existing arrangement continued for another year during which he would see what could be worked out. Mr. Szymczak stated that Mr. Ruml referred to his letter of May 16, 1941, in which it was proposed that the New York Bank continue Mr. Williams' salary at the rate of t22,000 Per annum and in addition reimburse him for out-of-pocket expenses in connection with his trips from Cambridge, Massachusetts, to New York City on the business of the Bank, which it was anticipated would be approximately t2,000, and readily agreed, in the light of the Board's views regarding this added expense, to drop the request for approval of such an additional allowance. Chairman Eccles said that he and Mr. Szymczak both expressed the view that Mr. Williams had too much to do and was under too much pressure by reason of his academic work to devote as much time to his duties at the New York Bank as might be desirable. Chairman Eccles said they also raised the question whether 812 7/8/41 -7- the authorities at Harvard were fully informed as to the arrangement under which Mr. Williams was devoting part of his time during the academic year to work of the Federal Reserve Bank and that Mr. Ruml had stated that Mr. Williams, at the outset, had fully informed Mr. Conant, President of Harvard University, as to the arrangement he had with the Reserve Bank and that it met with Mr. Conant's unqualified approval. Mr. Szymczak then read the following letter that had been drafted following the conference with Messrs. Ruml and Sproul and stated that it represented the views of Chairman Eccles and himself as to the position which should be taken by the Board: "The Board of Governors has been advised of the informal discussion today in which you and Mr. Sproul, together with Chairman Eccles and Mr. Szymczak, participated in regard to the salary arrangement with John H. Williams. It is understood that you and Mr. Sproul will review this arrangement in ample time to present a plan for the direction of the work of the Research Department of the New York Bank upon which the Board can take action before the question of approval of official salaries comes up again for consideration by the Board of Governors, and that in the meantime in order to permit careful study of this problem you desire to continue the arrangement which was in effect during the past year. "In the light of this discussion the Board approves for the period from July 1, 1941 to March 31, 1942 the payment of salary to Mr. Williams at the rate of 22,000 per annum, if fixed by your board of directors on that basis, with the understanding that the amount actually paid him will be determined in accordance with the arrangement which was in effect with the Board's approval prior to June 1941." The above letter was approved unanimously. Chairman Eccles stated that he had also discussed with Messrs. 7/8/41 Ruin], and Sproul the question confronting the New York Bank of retaining the services of employees who were being offered positions by Government agencies, particularly the State and Treasury Departments. He said that he and Mr. Szymczak had indicated, in accordance with the understanding reached at the morning session of the Board, that the Bank should take whatever steps are reasonably necessary to keep the employees in the Bank and that they had agreed that the Chairman would write to the departments and agencies concerned asking them not to negotiate for the services of Reserve Bank employees without taking the matter up in the first instance with the President of the Federal Reserve Bank concerned. The Board concurred in this disposition of the matter and requested the Secretary to prepare appropriate letters for the Chairman's signature. It was understood in this connection that a specimen copy of the letters written to the Government departments would be sent to all Federal Reserve Banks and that it would not be necessary to send a formal reply to Mr. Sproul's letter of July 2, 1941, since it would be merely a confirmation of the assurances already given to Messrs. Ruall and Sproul informally. Following the discussion of the two foregoing matters with Messrs. Ruml and Sproul, Chairman Eccles said that Mr. Ruml had to leave in order to return to New York but that he and Mr. Szymczak had had an opportunity to take up with Mr. Sproul the questions raised by the language contained in his letter of July 2 to the other 821 7/8/41 -9- Federal Reserve Banks which was discussed at the morning session. He said that Mr. Sproul indicated a willingness to proceed in any manner the Board might suggest. Chairman Eccles stated that he re- ferred to the fact that the procedure with respect to the foreign relationships of the Federal Reserve Banks which had been approved by the Board on October 30, 1936, was in need of revision and that it was the Board's intention to study the existing procedure and consider whether a revised regulation should be issued or whether the matter could be handled appropriately by a letter. He also stated that he raised the question whether the State Department should be requested to take matters up with the Board prior to contacting the New York Bank but that he was disposed to let the Reserve Bank proceed as it had heretofore so long as it was clearly understood that it should make no commitments either to the State Department or the Treasury regarding matters of policy without consulting the Board in advance. There was considerable discussion on the subject, at the conclusion of which Mr. Dreibelbis was requested to study the existing regulations and instructions of the Board, particularly the statement of "Procedure with respect to foreign relationships of Federal Reserve Banks" which was approved by the Board on October 30, 1936, with the view to recommending such revision as may be necessary to bring it up to date, and also to prepare for the Board's consideration a draft of letter to the Federal Reserve Bank of New York covering any aspects of 822 7/8/41 -10the procedure relating to certifications under section 25(b) not otherwise covered and making it clear that the Reserve Bank should take up with the Board all questions of policy before entering into any conferences or commitments with the Treasury, State or other departments of the Government. Mr. Szymczak presented a letter dated July 1, 1941, from Mr. Young, President of the Federal Reserve Bank of Chicago, recommend- ing that the salaries of the following officers of the Bank be approved for the period from July 1, 1941, to March 31, 1942, at the rates indicated: Name Annual Salary Title P. A. Lindsten J. G. Roberts Federal Reserve Bank of Chicago Assistant Cashier Assistant Cashier A6,800 7,250 Detroit Branch W. T. Cameron A. J. biegandt Assistant Cashier Assistant Cashier 3,500 4,200 Upon motion by Mr. Szymczak, the foregoing salaries were approved unanimously. Mr. Szymczak raised the question whether the Board wished to give consideration at this time to relaxing or modifying in any way the so-called six-year eligibility rule with regard to the service of class C and branch directors of the Federal Reserve Banks which was adopted by the Board on January 9, 1935. There was some discussion re- garding individual directors whose terms expire at the close of the 823 7/8/41 -11- current year and with respect to the advantages and disadvantages of a continuance of the existing policy, at the conclusion of which it was agreed that no change should be made at this time in the socalled six-year eligibility rule. Mr. Ransom read a memorandum dated July 8, 1941, which had been addressed to the Board by Mr. Wingfield in connection with the bill (S.1671) introduced by Senator Glass on June 27, 1941, which would amend section 5153 of the Revised Statutes, as amended, to authorize national banks to pledge assets to secure deposits of funds in official custody of public officers of a State or political subdivision thereof. Mr. Ransom stated that Mr. Wingfield's memorandum (which has been placed in the files) constitutes a clear and concise statement of the situation with regard to this legislation and that he saw no reason at this time why the Board should make a report on the bill. The other members of the Board concurred in the view expressed by Mr. Ransom. At this point Messrs. Smead and Wingfield withdrew from the meeting and Messrs. Vest and Spurney entered the room. Mr. McKee referred to the construction contract which had been prepared for the proposed addition to the Board's building and stated that there was one question in connection with the contract which he wished to take up with the Board. He said that the question 824 7/8/41 -12- was whether the contract should include an escalator clause under which the price payable to the contractor would be adjusted proportionately to changes in costs of materials or labor. He suggested that possibly the Board might wish to have the contractor bid in the alternative on a contract with such a clause and on a contract without such a clause. After discussion of the matter it was agreed that the form of contract on the basis of which bids would be invited, if the Board should decide to ask for bids, should not include such an escalator clause either as an alternative or otherwise, but that the question could be considered again if and when bids are obtained on a lump sum basis before a contract is let. At this point Messrs. Dreibelbis, Vest, and Spurney left the meeting and the action stated with respect to each of the matters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the Federal Reserve System held on July 7, 1941, were approved unanimously. Memorandum dated July 3, 1941, from Mr. Van Fossen, Assistant Chief of the Division of Bank Operations, recommending that, for the reason stated in the memorandum, Mrs. Ellen C. Thomas, a clerk in that Division, be granted not to exceed sixty days' leave without pay beginning July 8, 1941. The memorandum also recommended that during Mrs. Thomas' absence the Board continue to make its contributions to the Retirement System on her behalf with the understanding that she will continue her own contributions during the period. Approved unanimously. 825 7/8/41 -13Letter to Mr. Leedy, First Vice President of the Federal Re- serve Bank of Kansas City, reading as follows: "Receipt is acknowledged of your letter of July 2, 1941, enclosing photographs of W. B. Aker and H. A. Brockhouse. "In accordance with the recommendations contained in your letters of June 24, 1941, which were held in abeyance pending receipt of the above mentioned photographs, the Board approves the appointment of W. B. Aker and H. A. Brockhouse as assistant examiners for the Federal Reserve Bank of Kansas City. Please advise us of the date when their appointments become effective." Approved unanimously. Letter for the signature of Chairman Eccles to Honorable Henry Morgenthau, Jr., Secretary of the Treasury, reading as follows: "I brought your letter of May 23 in regard to the bank holding company matter to the attention of the other members of the Board. They have requested me to tell you that they, as well as II feel greatly disappointed that our proposal was apparently misinterpreted, as we believe it is a sound and practical approach to the solution of the problem and not merely, as your letter states, 'some slight change in the governmental machinery'. "In this connection, we felt that when your letter of May 23 was written you may have overlooked the fact that when, on January 3, 1941, you advised the President that a bill had been drafted to meet the holding company situation and suggested that he incorporate in his message to Congress a recommendation along lines quoted in your letter, the President, instead of doing so, sent a note to you, Mr. Crowley, Mr. Delano, and myself, requesting us to 'work together in relation to this legislation' and to 'make out a program'. "In the last paragraph of my letter of April 24 to you, I stated that the Board was most willing to confer With the other agencies in an endeavor to work out a 826 7/8/41 -14- " program. However, no conference for that purpose has been called since then and we sincerely trust that you will reconsider the position implied by your brief letter, which seems to close the door to any discussion on the part of the four agencies, and to leave only the alternative of separate and conflicting proposals at some later date." Approved unanimously. Secretary's Note: Chairman Eccles withheld the dispatch of the foregoing letter until July 18, 1941, when it was released in slightly modified form as indicated by the minutes of that date. Letter to Mr. Roy C. Sharp, Solicitor, Ontario Securities Corn- mission, Toronto, Canada, reading as follows: "Reference is made to your correspondence with Mr. Solomon, Assistant Counsel to the Board, regarding certain testimony which you desire in connection with a Proceeding against Harold G. Kates. Your letter refers to the fact that it will be necessary for the testimony to be presented vive voce, which we infer is based upon a rule of evidence which makes depositions or testimony similarly preserved inadmissible in the particular proceeding. The Board desires to cooperate with your Commission to the fullest extent but, since the number of the Board's employees is limited, we would like to be sure that the testimony you desire cannot be given in Washington. In this connection, unless proceedings at both cities are contemplated, we are somewhat puzzled by your reference to the fact that the testimony must be given in Toronto or Cincinnati. However, if the legal requirements are such that the witness must appear either in Toronto or Cincinnati, the Board will be glad to make a witness available to testify along the lines indicated in Mr. Solomon's letter, with the understanding, of course, that you will make provision for the cost of transportation and other travelling expenses of the witness. In this connection it will be desirable for you to give us as much advance notice as possible and also an indication of the scope of the testimony which you would like the witness to give." Approved unanimously. 7/8/a Thereupon the meeting adjourned.
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