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849 A meeting of the Board of Governors of the Federal Reserve SYstem was held in Washington on Tuesday, June 11, 1946, at 10:10 a..ra. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak Draper Evans Vardaman Mr. Carpenter, Secretary Mr. Morrill, Special Adviser Mr. Smead, Director of the Division of Bank Operations Mr. Paulger, Director of the Division of Examinations Mr. Vest, General Counsel Mr. Thomas, Director of the Division of Research and Statistics Mr. Leonard, Director of the Division of Personnel Administration Mr. Townsend, Assistant General Counsel This meeting was called to consider a list of topics submittea 1. uy the Presidents' Conference for discussion at a joint meeting c4 the Board and the Presidents to be held this morning. The topics and the actions of the Board with respect to them are set forth below: 1. Reimbursable Expenses. The Conference of Presidents was informed of the work of the subcommittee of the Committee on Fiscal Agency Operations and Reimbursable ExPenes regarding simplification of the procedure and inreased uniformity in the practice followed by the Federal l eserve Banks in preparing claims for reimbursement of exPenses incurred in carrying on fiscal agency operations fO' the Treasury. It was agreed that if these negotiations !:re not successful and if, alternatively, the Treasury seeks ,ci_o examine any Federal Reserve Bank with respect to rein',sable expenses, such Federal Reserve Bank should confer with the Committee on Fiscal Agency Operations and Reimburs,"le Expenses and the Board of Governors before acceding to he request. g 850 Ma/46 -2Mr. Smead suggested that it be proposed to the Presidents that the last sentence of the above statement be changed to read as follows: "It was agreed that if these negotiations are not successful and if, lternatively, the General Accounting Office, the Treasury, or any *ter wvernment office seeks to examine any Federal Reserve Bank With respect to reimbursable expenses, such Federal Reserve Bank hotad confer with the Committee on Fiscal Agency Operations and Reimbilream --Le Expenses and the Board of Governors before acceding to the Nusst.ft This suggestion was unanimously agreed to. 2. Job evaluation and classification. The report dated May 22, 1946, by the subcommittee of the Committee on Personnel was presented to the Conference with the favorable recommendation of the Committee on Personnel. The Conference approved the recommendation of the Committee that each Bank should make its job evaluation study as complete and as detailed as is administratively feasible, both because of the inherent advantages of such procedure and because it s basic to any classification system which may be adopted. JA, was understood that for later classification purposes at the Washington level it will be desirable to consolidate many of the details of the individual studies; and to further this °biective it was decided that the subcommittee on job evaluation and personnel classification be enlarged to include rePresentatives of all the Federal Reserve Banks. l Chairman Eccles stated that, in accordance with discussions at teem. , v411, meetings of the Board, the Presidents were to be informed of the vlews of the Board with respect to a uniform personnel classifieatlo 11 Plan which would apply to all of the Federal Reserve Banks and lvith respect to the need for completing the plan as promptly as possi- 851 Mr. Leonard presented a preliminary draft of suggestions with respect to the personnel classification plan for the Federal Reserve 411k8 Which contemplated: 1. That a uniform personnel classification plan be established for all Banks with identical specifications in broad terms covering a series of grades, say, perhaps, approximately 15. a. Uniform maximum salaries for all Banks could be established for these grades, or for the time being at least, each Bank might be offered the opportunity of filing with the Board a schedule of maximum salaries which would fall within the ranges established by the Board. b. Minimum salaries could be established for each grade, but probably it would be better if at first, at least, a minimum salary for any full time Position throughout the banks be established. 2. That each Bank then allocate its jobs to the various rades. In this allocation the job evaluation program conemplated by the Sub-Committee would be most helpful. 3. That positions or individual cases which do not fall thin the general pattern outlined above be handled as appraised positions" and individual cases with the specific approval of the Board. These should be very few indeed. , 4. That the Board's control over salaries of Bank emP-Loyees be exercised through: (1) reports of expenses, (2) exaainations, (3) submission of annual list of employees ehOwing classification and actual salary, (4) other periodic 1:eP0rt3 regarding salary matters. The Board would, of course, etain the right to disapprove any salary schedule or individgal salary. t Chairman Eccles asked why the plan should not provide for maxir44111 --Laries for each classification as was at present the case with the lovi service classifications, and Mr. Leonard expressed the opinion that better job could be done in the time available if only a minimum Salary were established for any position in the Banks. that The reasons „ —gilt be advanced for and against minimum salaries were discussed krlq Leonard stated that it was felt that a plan such as he proposed ' be established within four months after the job of evaluation 852 -4at the Banks had been completed and that minimums for each classification, if decided upon, could be established within a year. At the conclusion of a discussion, it was agreed unanimously that the Presidents would be advised that the Board was dissatisfied with the present lack of uniformity in the personnel classification plans of the Banks, that it felt that provisions should be made for a plan with minimum and maximum salaries which would be uniform for all the Banks, that the Banks should expedite their job of evaluation work as much as possible, and that a committee of the Presidents working with Mr. Leonard should prepare a uniform classification for all of the Banks which would be completed within a reasonable time and if possible within six months. In connection with the above matter reference was made to the s tatement with respect to the classification of the position of the chief examiner at the Federal Reserve Banks as an official position which was approved at the meeting of the Board on May 23, 1946, t()Ii discussion with the Presidents' Conference at the joint meeting. ' It was decided that this matter should not be brought up at the joint meeting but that, if necessary, an appropriate letter should be addressed to the Federal Reserve Banks with respect to it. 3. Additional authority to exceed maximum salaries. The Conference considered the Board's letter of May 24, 46, regarding a proposal that the current authorization V the Board to the Reserve Banks to exceed maximum annual salaries under the personnel classification plan by as much 15 per cent on the first $3,000 provided this does not Increase a salary beyond $7,500 be increased to 30 per cent subject to the over-all limitation of $7,500. The Conference felt that the Board should not be requested at this time to grant such a general authorization. The Conference, P 853 6/11/46 _5 however, would like to be assured that if in the immediate future, and pending the development of a new job evaluatIon and personnel classification plan, any Federal Reserve Bank finds that it needs such authority because of local conditions, it may expect that the Board would give Prompt and sympathetic consideration to the Bank's request for such authority. It was agreed unanimously that during the interim period referred to, the Board would be willing to grant such authority, upon request of a Federal Reserve Bank, up to 30 per cent above the maximum salary provided under the existing personnel classification plan of the Bank. 4. Reports by weekly reporting member banks. The Conference considered a proposal that the weekly reporting member banks be requested to report their Government security l!oldings classified by maturities as well as by types. The Qesirability of having such additional information was apPreciated, but it was also thought that such suggestion should be carefully weighed in the light of the additional work at the reporting member banks and the relations of these banks with the Federal Reserve Banks. The Conference decided to refer this matter to the System Research Advisory Committee, and for similar reasons expressed the hope that the proposed survey of industrial, commercial, and agricultlzral loans would also be referred to such Committee. The ?Qnference suggested, in addition, that the System Research tidvisory Committee review the list of reporting member banks 'it_0 determine whether changes are not now necessary, despite the difficulty of preserving comparability when changes are made Mr. Thomas stated that information with respect to maturities ' 41 as types of securities held by banks was desirable because the Pl‘"erit reports did not give a true picture of the liquidity of banks that the information might not be of sufficient importance at this tin* t° justify the additional work involved. 854 6/11/46 —6m Chairman Eccles suggested that the reports of weekly report- ing member banks be reviewed to see if the information being received was UP to date or whether the reports should be changed in any way to Meet Changing conditions. Unanimous approval was given to the decision to advise the Presidents that the Board was favorable to their suggestion and that it would be desirable to review the information obtained from weekly reporting member banks to see whether any changes should be made therein. 5. Change in reporting period for reserves. The Conference noted that under local legislation many banks in the First and Second Federal Reserve Districts will remain Closed on Saturday during the summer months, and that since deficiencies in reserve balances of banks in central reserve elties and reserve cities are now computed on the basis of average daily net deposit balances covering weekly periods !riding Friday, any abnormal adjustment made by such a IIIRM°er bank at the end of the weekly period to offset accumulated deficits or excesses in reserves would necessarily be reflected in reserve balances for three days. The Conference recommended that the Board prescribe Thursday instead of Friday as the last day of the weekly period for t:he computation of reserve balances by member banks located In central reserve cities and reserve cities. Mr. Smead stated that some of the Presidents had discussed thi8 matter with him and that he felt that the proposed change should be zade. It was agreed unanimously that the Presidents would be advised that the Board would approve the change. 6. Legislation. The Conference received a report from its Committee on Legislatim, and discussed: 855 -7(1) The modified bank holding company bill (H.R. 6225). (2) The Board's letter of May 17, 1946, regarding a proposal to repeal altogether Section 13b of the Federal Reserve Act and to enlarge the lending authority of the Reserve Banks under the last paragraph of section 13. (3) H.R. 5630 introduced by Representative Hays on February 28, 1946, to amend section 5155 of the revised statutes with respect to the establishment of branches by national banks. (4) The Administrative Procedure Act of 1946. (5) The extension of the Second War Powers Act in so far as it relates to purchases of Government securities by the Reserve Banks directly from the Treasury. (6) The recent case in a lower State Court in Nebraska which held the Nebraska par-clearance law unconstitutional. The Conference desires to discuss with the Board Items (1), (2), and (3) with a view to a further consideration of these items by the Committee on Legislation in the light of such discussion, it being assumed that immediate action by the Congress is unlikely. At the same time the Conference expressed a sense of urgency with respect to .,terns (2) and (3), the industrial loan amendment (sections 13 and 13b), and the amendment regarding minimum capital required for branches. The Conference feels strongly that whatever need for business credit cannot be met through private credit channels should be promoted by the permanent agency having ' l esponsibility for general credit administration, that is, bY the Federal Reserve System, and that the present active c8-1flPaign of the Reconstruction Finance Corporation to promote its blanket loan agreement plan is endangering this Principle as well as the borrowing morals of business and the lending morals of banks. The Conference was informed of the losses of membershiP which are occurring now as a result of the present law with respect to capital requirements for membership and for the establishment of branches by member banks. The Conference was of the opinion that more active steps than have been taken should be taken to secure remedial legislation. In connection with the campaign of the Reconstruction Finance Co -PQration to promote its blanket loan agreement plan, it was stated 856 6111/46 that the plan was unsound in its effects on the credit policies of the batiks and was resulting in the extension of inflationary credit Ifith the Government guarantee, and that, therefore, the program should be discontinued. The members of the Board unanimously concurred in the suggestion that the Presidents be asked to submit a statement to the Board of the evidence that had COMB to their attention of the unsound and inflationary aspects of the campaign with the understanding that when the statement was received Chairman Eccles would take the statement, with such endorsement or supplementary statement of the Board as it might make, to the Treasury and caJ1 attention to the unsound and inflatimary aspects of the Corporation campaign. With respect to the Hays bill and the withdrawal of banks from 14e1aber8111-13 which was resulting from the present capital requirements ria;tional banks, Mr. Vardaman favored a request by the Board for 14Me.diate remedial legislation. All of the members present were of the opinion that membership in the System should not be denied to any bank that could qualify for deposit insurance and it was agreed that, while there was little likelihood of legislation at the present session of Congress, the matter should be discussed with the Presidents with a view to exploring what could be done. 7. Motion picture project. The Conference approved the recommendation of the special Committee on Bank and 3'1, 1blic Relations (contained in its preliminary report of ! 4aY 28, 1946) that (1) the Conference and the Board give neral approval to the project as indicated in the preminary outline presented by the Committee, subject to r 857 6/11/46 -9such modifications as the development of the project may require, and (2) the Committee be authorized to engage, at its discretion, competent consultants at appropriate compensation to be prorated among the Federal Reserve Banks, to advise the Committee in the development of the project, with the understanding that the Committee periodically report the progress of the project to the Confercnce and the Board. Mr. Evans stated that the special committee which had been aPPointed by the Presidents' Conference to study this matter, and With which he had conferred in response to the request of the Board, had Come to the conclusion that there was no one in the Federal Reserv e System qualified to decide whether a worthwhile and useful ing picture could be made of the System's operations or policies, 44d that it would be desirable to engage the services of an exPert to advise on that point and on the technical phases of the Job, with the understanding that the committee would report to the esidents' Conference and the Board the progress made. ' Pl The recommendation of the special committee was approved unanimously. 8. Fortnightly establishment of rates. The Conference considered the requirement of section 14(d) of the Federal Reserve Act that each Federal Reserve Bank establish rates every 14 days. Several Presidents rePorted that from time to time it was possible to satisfy this requirement only at considerable inconvenience to directors. The Conference recommends that at the first oPportunity there be sought an amendment to the law to provide for the establishment of such rates once during 811Y calendar month rather than every 14 days, and that there should be an alertness to seek such opportunity. All of the members of the Board were of the opinion that 40t1iixig could be done to meet this problem at the present time. 858 6/11/46 -10- 9. Reserve city designations. Pursuant to the Board's request, the Conference discussed the proposal to terminate the reserve city designation of the 24 reserve cities in which there are no Federal Reserve Banks or Branches. It was the view of the Conference that this matter is only a minor aspect of the whole subject of reserve requirements and that there should be no general change in reserve cities pending a study of the whole matter of reserve requirements. Mr. Vardaman suggested that a definite statement be made to the Presidents that no action was to be taken on the proposal for 111/111ber of months during which the Board would make a thorough stildY of the whole matter, and that the Presidents should be asked to designate a committee of the Presidents' Conference with hich Mr. Szymczak and he could confer with respect to it. This suggestion was approved unanimously. 10. Conditions of membership. The Conference re"wed past and present practices regarding the imposition of special and standard conditions upon the admis!i°n of State banks into membership in the Federal Reserve System. It was pointed out that in the past some banks have been subjected to numerous conditions Of membership many of which have little or no meaning at present. It was the view of the Conference that ePecial conditions of membership of State member banks should be reviewed for the purpose of eliminating as nlanY of them as possible, and that an endeavor should be made in this connection to obtain the agreement of the member bank to standard conditions of membership (where they have not been imposed) as an incident to the renicilial of these special conditions. It was recognized that ePecial conditions are necessary and desirable in some cases but in general they are of a temporary character. Mr. Vardaman stated that he had asked Messrs. Paulger and //est to study the standard conditions of membership now being preby the Board and the letter used in informing a bank of 859 Ma/46 -11- approval by the Board of its application for membership, with a view to seein8 what changes should be made therein. There was unanimous agreement with the suggestion that after the question of uniform standard conditions had been considered by the Board, it could then proceed, as suggested by the Presidents, to consider the elimination of the special conditions which had been prescribed in the past. Leonard said that over the week end Mr. Gilbert, President O r the Federal Reserve Bank of Dallas, received a letter from the 41-14e office of the National Labor Relations Board advising that that °race had received a request from an American Federation of labor union for certification as the bargaining agent for the emOf the Federal Reserve Bank of Dallas, and that, in view of theB°ard t s letter of May 17, 1946, Mr. Gilbert had asked what should be dc'ne in the matter. Mr. Leonard also said that yesterday he 41c1Mr. Cherry, Assistant Counsel, called on one of the members of t e . "atlonal Labor Relations Board, who called into the conference the Other two members of the Board. During the discussion, Mr. Leori a4d Said, the three members said that their legal division was " -RE the question whether the National Labor Relations Act was 411144-cable to the Federal Reserve Banks, that if they came to the Usion that it was not applicable the Board of Governors would be 4o adv.; 4-sed, but that if it appeared that an opposite decision was to be r eached they would afford the Board an opportunity to submit a 860 -12statement on the matter if it should so desire. With reference to the Dallas situation, Mr. Leonard added that the three members l'econmended that Mr. Gilbert write to the Dallas office to the effect that it was understood that the matter was being handled in 114811ington as a matter of national policy, and that the National Labor 10 ,,elations Board would write to its Dallas office to that effect. In a discussion of the matter there was unanimous agreenleat that the matter was one for consideration by the Board at this 8tags and that it should not be taken up at the joint meeting with thePresidents. All of the members of the Board present were of the (1311110n that in the event the National Labor Relations Board were inelilled to the position that the law applied to the Federal Reserve Ilallks the Board should file a statement in which it would take the 15"Ition that the Federal Reserve Banks were a part of the United SiLtes Gove ent. At this point Messrs. Smead, Paulger, Vest, Thomas, Leonard, ellciTownsend withdrew from the meeting, and the action stated with l'esPect to each of the matters hereinafter referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the Peae Reserve System held on June 10, 1946, were approved unaniIlbatt84. 861 (0-1/46 • Memorandum dated June 10, 1946, from Mr. Paulger, Director 01' the Division of Examinations, recomnending, for the reasons stated therein, that the headquarters of Louis W. Zidek, Assistant Federal Reserve Examiner, be changed from Washington, D. C., to Denver, Colorado effective June 23, 1946. Approved unanimously. Letter to Mr. Volberg, Vice President of the Federal Reserve 84j* of San Francisco, reading as follows: "Reference is made to the report of examination of The Bank of Spanish Fork, Spanish Fork, Utah, as of February 25, 1 L946. It is noted that in the examiner's comments on page 2 ue directs attention to exceptions to Regulation W in connection with the 34 loans listed on page 11(c)-6. On Page C, he states that the numerous exceptions in compliance with requirements of Regulation W were discussed with the management and future compliance was promised. "The October 1942 report of examination of this bank referred to the incomplete data with respect to regulated ,,-cens and stated that compliance was promised; the September -1-943 report cited 'numerous cases' of violations; the June -944 report indicated that the bank then held 17 nonconforming ans and that closer attention was promised; and the Febru"" ) ary 1945 report listed 6 loans not complying in all respects With the requirements of Regulation W. "In previous reports the examiners indicated that the exceptions were discussed with the management and compliance was promised. The exceptions noted appear to have been easily susceptible of avoidance or correction. However, the current report reveals what appears to be a relatively large number of violations or exceptions, which the examiner states are not purported to be all, and the examiner again indicates that future compliance was promised. "In view of the statement by the examiner that the list of exceptions referred to on page 11(c)-6 of his report as 01' February 25, 1946, does not purport to be all, it is asslimed that the list was predicated upon test checks and that Other exceptions might be expected upon complete review of all regulated loans handled by the bank. 862 6/11/46 -14- "In the circumstances, the Board desires that at his early convenience the examiner return to The Bank of Spanish Fork to make such a review of all regulated loans Of the bank as will enable him to make a reasonably comPlete (1) list of all loans involving exceptions to Regulation W as of February 25, 1946, showing the name of the maker, the balance due, and the nature of the exception; (2) list of exceptions with respect to any loans put on the books subsequent to that date; and (3) schedule of corrections of the exceptions noted. "If the examiner should find that satisfactory corrections of the exceptions listed in his report as of February 25, 1946, have not been attempted by the management, or if similar or other important exceptions are found in the notes handled by the bank subsequent to that date, it is suggested that the management of the Tember bank be called into a conference with the examiner and the appropriate officers of your bank for the Purpose of more forcefully impressing upon the managem?nt of the bank the nature and purposes of the Regulalon and the extent to which compliance is expected. It le hoped that the examiner's reinvestigation of the bank's loans subject to Regulation W will reveal satisfactory corrections of the reported exceptions and that no new violations have occurred, and that it will also sufficiently ?-mpress the management of the member bank as to compliance in the future. "In addition to the foregoing it is requested that the examiner's next regular examination of The Bank of SPanish Fork include a sufficiently thorough review of the bank's loans subject to Regulation W as to satisfy the examiner that he has ascertained the extent of compliance with the Regulation. If he should then find a number of exceptions indicating a possible intent on the part of the Illanagement not to comply fully with the Regulation, he should develop all of the pertinent facts with respect to each exception on the basis of which appropriate steps could be taken." Approved unanimously. Thereupon the meeting ad" Secretary.
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