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Minutes of actions taken by the Board of Governors of the !ecleral Reserve System on Tuesday, June 1, 1948. The Board met in te z oard Room at 9:30 a.m. Mr. Mr. Mr. Mr. Mr. Mr. PRESENT: Eccles, Chairman pro tem. Szymczak Draper Evans Vardaman Clayton Mr. Carpenter, Secretary 14r. Vardaman stated that Mr. Nelson, Director of the DiviBlori °r Personnel Administration had received this morning from Davis of the Federal Reserve Bank of St. Louis, (who was r. Illshitigton), a letter submitting informally the changes in ofricers, s alaries, effective June 1, 1948, which he proposed to t1031111A for action at the next meeting of the board of directors th 13821k. Mr. Vardaman also stated that, since the Personnel U. the Board could not consider and. approve the proe Irlitttee : .ozecl changes in salaries by June 1, he had asked Mr. Nelson to I1114-1.• Davis that the Board would not be able to consider the tc)claY, that Chairman McCabe was ill, and that action would e t° be deferred until the members of the Personnel Committee to Washington the latter part of the month. Mr. Varda- % s° stated that he had suggested to Mr. Nelson that whenikro 1113-al advice of annual salary changes proposed for of- Qel% or Pederal Reserve Banks was not received 30 days in 6/1/48 -24clvatlee of the date upon which the information was due, he should tEe the matter up with the Bank informally to ascertain when it be forthcoming. Upon inquiry from Mr. Vardaman, all the Present indicated that they concurred in the statements 11111"tr. Vardaman had made to Mr. Nelson. Inasmuch as it appeared that the Board would not be able to act on the salary increases, to be proposed by the Federal Reserve Bank of St. Louis, before the first Pay day at the Bank after June 1, 1948, it was voted unanimously to advise Mr. Davis that, since the Board was not in a position to consider the proposed adjustments in salaries immediately, it authorized the Bank to continue the payment of officers' salaries at the respective rates existing on May 31, 1948 until such time as the matter could be given the necessary consideration. *. Clayton made a further report on developments in conileett °21 with the bill pending before Congress (S-2417) which would the rate of assessment for insurance of savings and loan es. There was a discussion of the practice followed in the Wltb respect to attendiance of members of the Board's staff the teeti-ngs of the Board, and it was suggested that, in order or, or citt, attendance to those who were necessary for the considera- matters on the agenda, staff attendance hereafter be ret° the Secretary and Assistant Secretary, the Assistant 883 6/1/48 -3t"he Board, the Special Adviser to the Board, the Assistant to the cha.j and the General Counsel, it being understood (1) t°ther members of the staff would be called into the meeting the ' %the matter or matters with which they were concerned were Itelled on the agenda, (2) that any member of the Board would be tl'ee at any time to request that any member of the staff be asked .8:tt0lla. the meeting, and (3) that when a division head was called 14to meeting in connection with a matter on the agenda, he would he r17ee to bring any other member or members of his division who, 4the °Pinion of the division head, should be present in connec1/1th the discussion. This suggestion was approved unanimously. At this point, Mr. Riefler, Assistant to the Chairman, was illto the meeting. accordance with the decision reached at the meeting of e*I'd at White Sulphur Springs on May 30, 1948, this meeting for t the purpose of giving further consideration to action -se reserve requirements of member banks in central reserve The reasons that had been advanced for and against the ac- Rz e4rlier meetings of the Board were again reviewed and Mr. tiola Z4k4694e the following statement of reasons for opposing ac4t this time: 884 , "MY opposition relates solely to the timing of the i0n; I believe that if inflationary prospects continue 'due increase should definitely be made at some early date. this time member banks in New York and Chicago do not 1,41/e any excess reserves. The result of an increase in -!serve requirements, therefore, will simply be the sale Government securities by New York and Chicago banks 0 the Federal Reserve Banks. Moreover, there has been 1( eXpansion in loans by member banks in these cities. ,141) :though bank lonns at country banks have continued to olasease, in central reserve cities the trend of loans ver the past few months has been downward. "Action now, moreover, would be interpreted by the D iuulic and the market as being contrary to the Treasury filtention to maintain the 1-1/8 per cent interest rate the present and might endanger the success of the 'Y refunding. or It is my judgment that the Board's power to in1.1ease reserve requirements in central reserve cities bi°111d be reserved for later use when it might be cornWith measures to raise short-term interest rates. ollter the June and July Treasury refunding program is the way, the Federal Reserve should consult with 012 Treasury preliminary to entering upon open market to rations which will permit short-term security prices artg° down and yields to go up. It seems to me now that later such operations have begun, it would be advisable creel', and perhaps in August, to make a two percent inse in the reserve requirements of member banks in tior ' l'al reserve cities. This, in my opinion, would be 40te,,effective and more timely than action now. It would ti ue wasting our ammunition and it would have the dis,:t advantage of cooperation with the Treasury, at a tize ope- when the size of the public debt demands close cot ilaration of the Treasury and the Federal Reserve Sysat a time when joint action is much more ef'Ire and therefore in the public interest. r148.1"We could look forward to making the other and racila : - two per cent increase in central reserve city Sa„4 ' rement8 perhaps a few months later; after the ''ealber and October refunding. it v. "I think that it is a mistake to act now and that : 1a1 111d be much more advisable and effective to act Is for the reasons I have indicated." r 6h/48 -5The following letter from Chairman McCabe, who was still kkr4-4-uled. to his home by illness, was read by the Secretary: ra "It will be impossible for ma to be with you toarrow, Tuesday, June 1, because due to my illness the ctors insist that I remain in bed for another day or "Under the circumstances I do not feel justified -'".111g you to defer action further on the problem or p reserve requirements, although I would wish that might do so. I do, however, want to reiterate my ect10n to an increase effective at this time and 44e the record clear as to my position. , 1. I am opposed to any action by the Board of rvernors of the Federal Reserve System which would "ave the effect of raising the reserve requirements member banks in New York City or Chicago during 'he present month (June 1948). To take such action 1 1°14 would be inconsistent with the decision taken the Open Market Committee to support the refitleing of Treasury certificates maturing in June 1;c1,JulY at a 1-1/8 per cent rate. The effect would -Largely to make the System a market at the existrates for additional securities, equivalent in ount to the increase in reserve requirements. Unorr e these conditions the anti-inflationary effects the action would be minimized. G,2.I am in favor of action now by the Board of 2"vernors to increase the reserve requirements of 'entral reserve city member banks in New York City 1.414 Chicago by 2 per cent on a date after July 15th, inen the July certificate refinancing will have been t7rge1Y absorbed, and before August 15th, after which decisions will have to be made with respect to ember Treasury refinancing. To raise the reserve re IfiTl irements during this period will be consistent 011 h) and further, will support the decision of the 11 Market Committee to take up the question of a hlet_ Cr certificate rate with the Treasury during eatY) as well as the support price of the certifi1,es judgment, action raising e5 outstanding. In my erve requirements during this period will exert thlizitTch greater anti-inflationary effect than action 'becomes effective in June. Y r f386 -6"3. In order to get the maximum benefit from timing, I would welcome it if the Board in taking such action now would leave the establishment of the exact date on which the increase in reserve requirements is to go into effect, between July 15th and August 15th, as well as the exact date on which the action is to be announced, to the discretion of the chairman, the decision to be taken in the light of conditions then prevailing the market after consultation with the executlye committee of the Open Market Committee." There was a discussion particularly of Chairman McCabe's BIllgestion that if action were taken today the effective date and kti°114cement of the action be left to the discretion of the Chairdetermination. There was agreement that it would be un(let 81)1-e to take action and withhold announcement at this time rot selreral reasons including (1) if information regarding the 4.etic)11 should leak out it might enable those who learn of it to tke 1111-1'e•ir advantage, 1144.1 (2) there would be a possible element of -4ess in the action in that holders of July certificates be Permitted to exchange their holdings for the new issue 4t 4/8 Per cent, the market for certificates in July would deIt):1 4• 8 result of the Board's action, and banks might be forced to 0 411 securities to the Federal Reserve Banks at a loss in order o -et the increased reserve requirements, and (3) if action was be tI• lkell now it should be announced so that when the July fi1 /• las done the market would have adjusted to the action. 887 6/1/48 -7At the conclusion of the discussion, Mr. Evans moved that reserve requirements of member banks in central reserve cities be increased from 22 per cent of net demand deposits to 24 per cent of net demand deposits, effective as of the opening of business on Friday, June 11, 1948. letbers Before putting the motion, Mr. Eccles inquired whether the of the Board would consider taking action today to increase 411trai reserve city member bank reserve requirements, the action t"5"1140unced today to be effective on a date in July, perhaps °r 9. In his opinion that action was not as desirable as 4ett0 tetfective June 11 for the reasons that (1) if the effective 4411118 Illade an June 11 the market would have adjusted to the ac4°11 bY the time the July refunding ;was undertaken, and (2) any 414tit1cates that were going to be sold to the Federal Reserve 4k1448 result of the action would have been purchased by the 4441 Reserve Banks by July 1, whereas, if the effective date 1?tro tatter July the Banks holding certificates might let their 11(aclilags rut off instead of refunding them with the result that 1 financing 14:11.1(1 be the might appear less successful than otherwise case. Mr. Szymczak stated that his position was that he would pret4t the l .boar defer any action until Chairman McCabe could be 1 411t 411d there : could be a discussion of the matter when all mem°t the Board were present. He agreed that if action were 888 6/1/48 -8ter todaY it should be announced to become effective June 11, but hetalt that as a compromise and to obtain unanimous Board action, the oe. could announce that it had decided to increase reserve rekNon -exits some time between July 15 and August 15 so that the market °---(iknow the increase was coming but would still be uncertain te the exact date; however, his own position was still not to i4erea "se reserve requirements for central reserve city banks at thiatime. The views expresses by Messrs. Eccles and Szymczak were discussed after which Mr. Evans' motion was put by the Chair and carried, Messrs. Eccles, Draper, Evans, Vardaman, and Clayton voting "aye", and Mr. Szymczak voting "no", for the reasons previously stated. To carry this action into effect, the following actions were taken, Mr. Szymczak voting "no": Approval was given to the following amended supplement to Regulation D, Reserves of Member Banks: "Supplement to Regulation D By THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM li ffective as to each member bank at the opening of business on June 11, 1948 "RESERVES REQUIRED TO BE MAINTAINED BY MEMBER BANKS WITH FEDERAL RESERVE BANKS erea nPUrsuant to the provisions of section 19 of the FedlioardRe!erve Act and section 2(a) of its Regulation D, the Ptes,°I Governors of the Federal Reserve System hereby her bbes the following reserve balances which each mem-‹11Ltet,_ of the Federal Reserve System is required to -&11 on deposit with the Federal Reserve Bank of its di eti rct: giA8 -9"6 per cent of its time deposits plus-14 per cent of its net demand deposits if not in a reserve or central reserve city; 20 per cent of its net demand deposits if in a reserve city, except as to any bank located in an outlYing district of a reserve city or in territory added to such city by the extension of the city's corporate limits, which, by the affirmative vote °f five members of the Board of Governors of the Federal Reserve System, is permitted to maintain 14 per cent reserves against its net demand deposits; . 24 per cent of its net demand deposits if located in a central reserve city, except as to any bank located in an outlying district of a central reserve City or in territory added to such city by the extension of the city's corporate limits, which, by the affirmative vote of five members of the Board of Governors of the Federal Reserve System, is permitted tO maintain 14 per cent or 20 per cent reserves against itS net demand deposits." Approval was also given to a statement for publication in the Federal Register which, after quoting the amended supplement, read as follows: This amendment is issued pursuant to the authorto the Board of Governors by section 19 of ' co Pederal Reserve Act in the light of existing economic 1:'itions and the present inflationary credit situation. aia:i notice and public procedure described in sections 4(a) D1113,403) of the Administrative Procedure Act, and the prior ipra'-ication described in section 4(c) of such Act, are imtercticable, unnecessary and contrary to the public ine t in connection with this amendment for the reasons cause found as stated in section 262.2(e) of the Rules of Procedure gart 267, and especially bese such notice, procedure and prior publication would tleeverlt the action from becoming effective as promptly as ertZ!arY, would unreasonably interfere with necessary s to prevent injurious credit expansion, and would se e no useful purpose." itY th., g'anted 890 6/1/48 -10The following announcement of the Board's action was also approved with the understanding that it would be given to the papers this afternoon after the market closed and that the Federal Reserve Banks would be informed by wire of the Board's action prior to release of the announcement. It was also understood that Mr. Eccles would advise Chairman McCabe and Under Secretary of the Treasury Wiggins of the Board's action: "As a further step towards restraining inflationary eITansion of bank credit, the Board of Governors today ineased from 22 to 24 per cent of net demand deposits the esunt of reserves required to be maintained with Federal i erve Banks by central reserve city banks. This action 8 to become effective Friday, June 11, 1948. The effect of this increase, like the one which beMe effective on February 27, 1948, will raise the reoc red reserves of central reserve city banks in New York 011 3r by approximately 400 million dollars and those in ' cago by nearly 100 million dollars. Ile "Under the provisions of section 19 of the Federal Zrve Act, the Board of Governors has authority to esreserve requirements for the various classes of Illber banks within the following limits: Maximum Minimum 6.4,11.st net demand deposits 26 13 Central reserve city banks 20 10 Reserve city banks 14 Country banks 7 Against time deposits All classes of banks 6 3 "Reserve requirements are now at the maximum limits resell cases except for net demand deposits at central comerve city banks which, after the present increase bethan theeeffective, will be 2 percentage points less a1mum under existing authority." r Upon motion by Mr. Vardaman, Mr. Eccles was requested to prepare for consideration by the Board a statement for the policy record of the reasons for the Board's action increaslng reserve requirements of member banks in central reserve cities to 24 per cent of net demand deposits. 891 6/1A8 -11Reference was then made to the contemplated absences of 4t1ber s of the Board during June and July and it was agreed that /111e), 4 ail Of the members of the Board were present there would be cliSci, t'ssion at a meeting of the Board of the following matters: (1) The responsibility of the Board for the maintenance or in Washington. (2) The procedure to be followed by members of the Board a visi ng other members of contemplated absences. (3) 411Be/lt 13r The procedure to be followed in order to afford an Illember an opportunity to return to Washington, or to ex- 10 . ' 4 s views before action was taken by the Board, on a matter 111 Ithich he was interested. (4) Board members assignments (5) The procedure to be followed whenever changes are temp1at ed in the Board's official staff. 14 connection with the last item Mr. Eccles stated it had 411 .Ys eor the position of the Board that no division or portion 411d no members of the staff of a division were to be re- 4s be. lng attached to a particular Board member, that all kezo, u rs Of the staff were to serve all members of the Board, and t11., -ttt Vhile °ne member of the Board might have occasion to call on 4 division or certain members of the staff more than others EiL12 6/1/11.8 -12they were not attached to, or subject to the control of, that men- bet.. Mr. Eccles referred to the suggestion that had been made that Mr Young, Associate Director of the Division of Research and Btati sics, take over the duties of Mr. Knapp as head of the interliati-onal section of the Division, and requested that advice of 41k1r 4 ction proposed in that connection be given to all the members °r the Board in ample time so that, if they should desire, jellibers could arrange to be present when the matter was taken l . Ile also referred to the recommendations with respect to ofriele'l salaries of the Federal Reserve Bank of New York which were lettlfith the Board by the Committee on Welfare of Staff of the 1j. May 14, 1948, and requested that when the recommendations clr the B4nk with respect to salaries of $20,000 and above were 114seli 11P0n by the Board it be done, if possible, when all the th4 t (31 'the Board could be present or, if members were absent, they be given adequate notice so that if they desired they 'Illci8.1 ange to be present or express their views for considerati°41*Ihell action on the recommendations was taken. 14inutes of actions taken by the Board of Governors of ' ea Reserve System on May 28, 29, and 30, 1948, were l'el NJI)r()Verl Uaanimously. 893 -13Memorandum dated May 26, 1948, from Mr. Thomas, Director T, - -uivision of Research and Statistics, recommending, for the Ns, vIls stated in the memorandum, that payment to Messrs. Grove :ter, economists in that Division, of their claims for flight Ellice and a $12 per diem while in Shanghai be authorized, and t}l4t t heir vouchers be approved as submitted. Approved unanimously. Telegram to Mt. Woolley, Vice President of the Federal 42s1, v e Bank of Kansas City, reading as follows: 4 . T Relet May 27 Board extends waiver of six months' -D tice for withdrawal of The Kinsley Bank, Kinsley, ikatsas, to August 2, 1948." Approved unanimously. ) 3415litt et Letter to Mt. Dearmont, Chairman of the Federal Reserve St. Louis, reading as follows: 194 "Reference is made to your request of May 18, or for authority to complete the rehabilitation ch 'he so-called Nugent Building, which was pur4se by YOUT Bank in 1944. to During the presentation of this request to the as4rcl by You and Mt. Smith on Tuesday, the 18th, and eti, et forth in your letter of the same date and its 4 ;1--OSUTeS, you pointed out that there is at present 4--°11tage of desirable rentable space in downtown ' 4311is; that four and one-half floors of the build14; flow unoccupied; and that to make them suitable re,„°cenPancy it will be necessary to make extensive and improvements. 001.4„ 'In view of these considerations, the Board of tlir,:rilors will interpose no objection to the expendi' approximately $650,000 for such work, as - (31 894 6h/48 summarized in Mr. Hanssen's memorandum of March 16, ..948. It is understood that the cost estimates given Illerein include architect's and contractor's fees and 1) Per cent for contingencies. It is also understood 4hat upon completion of the rehabilitation program the !Pace will be rented, insofar as possible, to Federal ritancial agencies." Approved unanimously. Ilemorandum dated May 21, 1948, from Mr. Sherman transmitthtn. 4 list of records in the Board's files which had been apDtov.e. , '& for destruction by the interested divisions, and recommend- 1Z€th those records be destroyed by incineration. Approved linsn IMOUSly. Secretary. 'Ai. Chairman p o tem. MO , 111. ,
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