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863 A meeting of the Board of Governors of the Federal Reserve SYstealwas held in Washington on Tuesday, June 11, 1940, at 9:40 a,14. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Dreibelbis, Assistant General Counsel *. Ransom referred to the revised draft of the Federal Home 1.0a 8alik Bill (S. 4095) introduced in the Senate by Senator Wagner 011 j line 4, 1940, and to the request received from the Senator, as fl of the Banking and Currency Committee of the Senate, under date (IP June 5, 1940, for a report on the revised bill. Mr. Ransom 4Lid thn --t a draft of report on the bill had been prepared by Mr. rireib e ---s, that advice had been received that the Banking and Cur— thle Committee of the Senate would commence hearings on the bill 43rning at 10:30, and that the matter for consideration at this ttleetirl, 41k04 was whether the report should be sent and what, if any, further Should be taken by the Board in the matter. The draft of report was read by the members of the Board and 864 6/4/40 thel'e was a discussion of the legislative history of the bill up to the, Present time and the likelihood of its adoption at this session "°/Igress. Chairman Eccles stated that he would like to talk with Sehat0 1* Wagner and ascertain whether it was expected that the bill Nad be reported out by the Banking and Currency Committee of the S tate at this session, and to determine on the basis of that infor- 4114°/1 the course of action to pursue. The suggestion was also made that Senator Wagner should be advised that the Board might like to be " 11 or to submit a report and that it would request that the hearbe held open to afford the Board an opportunity to present its Poeition on the new bill. At the conclusion of the discussion, Mr. McKee moved that the draft of report and accompanying memorandum be approved subject to such changes therein as Messrs. Eccles and Ransom may wish to make and that the report be placed in their hands for such disposition as they decide should be made thereof in the circumstances as they develop. Carried unanimously. Secretary's Note: On June 13, 1940 Mr. Ransom reported that in accordance with the above action, the draft of report was changed to read as follows, and the revised report was handed on that day to Senator Wagner, as Chairman of the Banking and Currency Committee of the Senate: "This is in reply to your letter of June 5, 1940 865 6/4/40 -3- requesting an opinion as to the merits of S. 4095, a bill 'To amend the Federal Home Loan Bank Act, Home Owners' Loan Act of 1933, title IV of the National Housing Act, and for other purposes.' The Board believes that the enactment of this bill would not be desirable in the public interest. "You will recall that recently the Board expressed its concern over the broad implications of S. 2098, a bill for the same stated purposes as S. 4095. thile some of the sections of S. 2098, to which the Board made specific reference have been changed or eliminated from S. 4095, the 12?ard, considering the bill as a whole, is of the opinion rant it also would permit the operations of the Home Loan k System to be expanded far beyond the scope of its iginal purposes. The Board is conscious of the valuable services performed by building and loan associations and einalar institutions in the field of local mutual thrift and home financing and is in complete sympathy with the aantenance of the Federal Home Loan Bank System along .he lines upon which it was originally conceived. But, the opinion of the Board the enactment of S. 4095 would represent a material departure from the original idea bed.their creation and would so enlarge the field of their 12!rlassible operations and the sources from which they could ;ttract funds that it may be considered as having the efpect of establishing a separate and complete banking system. burthermore, as between Home Loan Bank members and savings fl , t ks, savings departments of commercial banks and other 4flancial institutions, the bill would strengthen and incompetitive advantages of the Home Loan Bank group ch are not enjoyed by the others. "The Board believes that the questions involved in the Present bill must be considered in the light of existbef :law in relation to the competitive problems which are sall:le created between these institutions and savings banks, .42 1n .ge departments of commercial banks and other financial ,ust itutions. ta ,"For the convenience of your Committee there is atcoeued an analysis of provisions of the bill which, in c_nnection with existing law, have caused the Board to 'include that S. 4095 in its present form should not be enacted.t, T Chairman Eccles stated that yesterday his Secretary received tele„ titione call from Senator Mead's Secretary in which the latter . 866 6/11/4o -4- stated that the Senator would like to have Chairman Eccles appear ber°re the Banking and Currency Committee of the Senate in executive 848icin on Wednesday, June 12, that, while he (Chairman Eccles) did 11°t ' lalmv, he assumed that the hearings would be on the bill introby Senator Mead to expand the authority of the Federal Reserve 411ks to make industrial loans, and that he had instructed his Secret47 to advise Senator Mead's office that he could not appear before J14111e 13 and that he would await further advice from Senator Mead on the matter. During a discussion of the nature of the statement that e441'man Eccles might make if he should appear before the Banking ' 411c1 elll rencY Committee of the Senate on the Mead Bill, Mr. Draper atated that he had just received word from his office that Senator Itead w - as trying to get in touch with either him or Chairman Eccles. At the suggestion of Mr. Ransom, it was agreed unanimously that should Mr. Eccles or Mr. Draper be called upon to make any comments on the bill they should call attention to the report submitted by the Board to the Senate Banking and Currency Committee under date of June 1, 1940, after which they would be at liberty to make such additional comments as they may wish to offer; it being understood that if a proposal were presented in hearings on the bill or elsewhere on which the opinion of the Board was desired the matter would be presented again to the Board for consideration. 867 6/u,40 -5At this point Messrs. Thurston, Wyatt, Goldenweiser, and °I'elb ell,• ---ls left the meeting and the action stated with respect to each of the matters hereinafter referred to was then taken by the BOarci : The minutes of the meeting of the Board of Governors of the Peci. ' 1‘kl Reserve System held on June 10, 1940, were approved unanitackl8iy. Letter to Mr. Gidney, Vice President of the Federal Reserve of Ilew York, reading as follows: , "It is disturbing to note the apparent retrogression trl the condition of the Bank of Great Neck, Great Neck, 114.e .lv York, which is reflected in the reports of examina,Ion made since the bank was admitted to membership in ' Iveoember 1937. When the bank's application for membership ,a8 Under consideration its asset condition was described ' ; ,8 generally satisfactory and the character of its manement as satisfactory. Later reports of examination, however have become increasingly critical of the bank's °11-tion 2 and its management and the current report of eAok mlnation as of February 3, 1940, describes the general a e°tion of the bank as unsatisfactory, the management the capital as inadequate, and the bank's future ' °ePects as poor. bee), "In connection with the capital position, it has " noted that, while the State Banking Department and he Reserve Bank have been endeavoring for some time to suade the bank to increase its capital account, the lonagement has contended that no capital can be raised -13r and was opposed until recently to the idea of ade0;4-onal Reconstruction Finance Corporation capital. Acciing to later advice, however, the directors recently cle . c_olded to make application to the Reconstruction Finance 4t1130rat1on to purchase $60,000 to 75,000 additional Pital in the bank. had _"It has been observed that one of the directors who 6ubstantial financial responsibility and was considered Z 2V 868 6/11/40 -6- szong the more valuable men on the board resigned recently and was succeeded by a son of the President. It will be appreciated if you will advise as to the reasons for and slgnificance of this change. "The examiner stated in the current report that no material progress has been shown in improving the unsatistory features of the bank's condition. In view of the ...1.8turbing trend in the situation of the bank which has Laken place since its comparatively recent admission to nie1 ,1thership it is hoped that your efforts in cooperation !ith the New York State Banking Department to bring about definite and substantial improvements will be productive early and fruitful results. It is assumed, of course, .4 .1at the management of the bank fully appreciates its oblgations under the conditions of membership to maintain il adequate capital position and to conduct the affairs of pl e bank with due regard to the safety of its depositors. ' ease keep the Board advised as to developments." r 25' T Approved unanimously. and Letter to Honorable Jerome N. Frank, Chairman of the Securities , e"ange Commission, reading as follows: "The Board appreciates very much the consideration rven by the Commission, as shown by your letters of June im and 7, to the recent request for advice from the CoinWith respect to the proposal of the New York Stock Change that Regulation T be amended with a view to reti °1/111g or relaxing certain restrictions which the reguladi°1., 1 now imposes upon the obtaining by specialists of adcapital which they are said to need at the 'esent time for the proper performance of their function. to "It is our understanding that the Exchange is in selleh with the Commission and is in the process of asti bling for presentation to the Commission the informaill-12 referred to in your letter of June 6, particularly ha the last paragraph of that letter. After the Commission 1.,8 considered the Exchange's proposal further in the ; •, 111 !ht of this information, the Board will be glad to hear co ther from the Commission with respect to its views ticerning the proposal." Approved unanimously. 869 vw40 -7Letter to Honorable Henry B. Steagall, Chairman, Committee 011 'Itang and Currency, House of Representatives, reading as fol- 101V8: "Your letter of June 3 addressed to the Chairman in r?gard to Bill H.R. 8230 has been brought to the attentl°n of the members of the Board. Although this Bill is entitled 'A Bill To further amend section 14 of an Act entitled "An Act relating to direct loans for industrial Purposes by Federal Reserve banks, and for other purI?osee, approved June 19, 1934 (48 Stat. 1105), as amended', appears, upon an examination of its contents, that in ;act it does not Propose any change in the powers of the ederal Reserve Banks and that the amendment relates ?lelY to powers of the Reconstruction Finance CorporaIn the circumstances, the Board assumes that the 'eqUest was addressed through inadvertence to the Chairan of the Board of Governors of the Federal Reserve Sysand that you would prefer to have the views of the 'econstruction Finance Corporation." Z T Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, readae follows: of "In view of the large volume and wide distribution ea excess reserves of member banks, it will not be necest_17 for you until further notice to prepare or submit f) the Board the semi-annual reports on form F.R. 409 °1111erlY B-5) of deficiencies in reserves of member ba,„1,. t;-"s. These reports were requested in the Board's let11 B-875 of February 1, 1933." c Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, transOr °t1clition and instructions in connection with the next call for reports of State member banks and their affiliates. Approved unanimously. 870 6/4/40 -8Memorandum dated June 4, 1940, from Mr. Cagle, Assistant Chief Ofthen uivision of Examinations, to Mr. Ransom, stating that Ir. Luhnow qthe Trusts and Estates Magazine had called on the Division of Exand requested information with respect to the number of active trust departments of State member banks in each State, based 4c111 reports of examination, as of December 31, 1938 and December 31, 1939; that mr. Luhnow had stated that similar information regarding rlational banks and nonmember insured banks had been obtained from the Office of the Comptroller of the Currency and the Federal Deposit Illeilrance Corporation, respectively; that this statement would be con4114"; and that, if it was felt proper by the Board, data would be sl'elariecl as of December 31, 1939, showing the number of active trust cicPa rtMents of State member banks for transmission to Mr. Luhnow. Subject to confirmation of the statement that similar information relating to national and nonmember insured banks had been furnished by the office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, respectively, the preparation of the data referred to in Mr. Cagle's memorandum with respect to State member banks was approved for transmission to Mr. Luhnow in the usual way. beactirl g Letter to Honorable D. W. Bell, Under Secretary of the Treasury, follows: "Since we received your letter of April 24, 1940 871 vivo —9— "Considerable thought has been given to the suggestions contained in the paper left with you by Mr. Fairbanks, relating to the replacement of actual United States securities by a system of accounts with security owners, susceptible of being charged and credited as ownership Of securities changes hands. "The prime purpose of Mr. Fairbanks' suggestion, 8 we understand it, is to save sellers and buyers of rverament securities the cost of shipping them to or tl'om securities markets. It is recognized that these costs are relatively heavy, in large part because seause of the surcharges made by the Post Office Dertment on shipments of valuables through the mails. ! the plan outlined by Mr. Fairbanks or a similar one adopted, it is assumed that the offices maintaining the 4,"e securities accounts would assess charges against those ' ,Jr whom accounts were maintained sufficient to cover least the total cost of maintaining and operating the ccounts. These costs would presumably be substantially es than the present transportation costs, and, in addi,t )u, the risks involved to owners in holding and ship7 -g 1 securities would wod be greatly reduced. The fact should 0°' be overlooked, however, that the successful operation .664 : such a plan would reduce the revenues of the Post Of'0-ce Department. "If the necessity of transporting and delivering Se • cUrlties on change of ownership were eliminated and terts were reduced, one might expect to see more active etus5ng in the Government securities markets. Whether an2u a development would be desirable is open to question, 01,:t the Board would not be prepared to express a definite siTli°n in regard thereto without giving the matter con'srable further study. th "No attempt has been made by the Board to determine pee Practicability, from the standpoint of the Treasury ) 13 : tment, of adopting a plan along the lines suggested it Tr. Fairbanks, but, if such a plan were found desirable, in "48 believed that, with the present volume of outstandi„g securities, such a plan could readily be worked out ?ooperation with the Federal Reserve banks. However, to lt is thought desirable to adopt a procedure designed arldreduce the transportation costs involved in the purchase sale of United States Government securities, it might r l j 872 6/11/40 -10- "be desirable as a first step to extend the so-called CPD transactions, which now apply to notes and bills only, to United States bonds, and to make a charge for such transactions which would be at least adequate to cover costs involved." Approved unanimously. Thereupon the meeting adjourned. Se retary.
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