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Minutes for To: June 14, 1960 Members of the Board From: Office of the Secretary Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. 1/ It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, please initial below. If you were present at the meeting, your initials will Indicate approval of the minutes. If you were not present, your initials will indicate only that you have seen the minutes. Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King 1/ Meeting with Presidents of the Federal Reserve Banks A joint meeting of the Board of Governors of the Federal Reserve System and the Presidents of the Federal Reserve Banks was held at the Federal Reserve Building in Washington, D. C., on Tuesday, June 14, 1960, at 12:15 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Szymczak Mills Robertson King Mr. Sherman, Secretary Mr. Kenyon, Assistant Secretary Messrs. Erickson, Hayes, Bopp, Fulton, Leach, Bryan, Allen, Johns, Deming, Leedy, Irons, and Mangels, Presidents of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco, respectively Mr. Dunne, Secretary of the Conference of Presidents of the Federal Reserve Banks Before this meeting the Presidents had submitted a memorandum listing topics for discussion with the Board. The topics, the statement of the Presidents with respect to each, and the discussion at this meeting were as follows: 1. Reimbursement Rate--Postal Money Orders. On the endorsement of the Committee on Collections and Accounting, the Conference approved the recommendation of the Subcommittee on Collections, set out in its letter report dated April 29, 1960, that the Reserve Banks agree to a reimbursement rate of $2.24 per 1,000 money orders to be handled during fiscal 1961, and that when such rate is presented to the Post Office Department the Reserve Banks reserve the right to review and redetermine it at any time during the fiscal year in the event of any substantial change in operations or in the factors on which the rate is based. 6/14/60 -2President Mangels commented briefly on the procedure for estab- lishing the rate of reimbursement for handling postal money orders, and there was no further discussion of this topic. 2. Joint Report, dated May 25, 1960, of the Subcommittees on Collections and of Counsel on Collections. Upon the endorsement of its Committee on Collections and Accounting, the Conference accepted and approved the captioned report which, among other matters covered therein (centralized bookkeeping arrangements, transit number assignments, and travelers checks), recommended: (1) Revision of certain uniform paragraphs and adoption of new uniform paragraphs in the operating circulars of the Federal Reserve Banks relating to the collection of noncash items, stemming from the review of a 1959 survey of the noncash operating practices and procedures of the Federal Reserve Banks and branches. (2) Revision of the uniform check routing symbol paragraph in the operating circulars relating to the collection of cash items to include appropriate reference to magnetic ink encoding. (3) That the Federal Reserve Banks continue to handle headache checks as cash items, but that Regulation J and the check collection operating circulars be revised to indicate that the Federal Reserve Banks have the authority to handle headache checks as cash items subject to prescribed conditions; also that a public announcement of the changes and their purpose be made. President Mangels pointed out that the joint report of May 25, 1960, in effect covered three topics: (1) encouragement by the Reserve Banks of the use of common machine language by commercial banks; (2) "headache" Checks; and (3) noncash operating practices and procedures. As to the first item, it was recommended that the Reserve Banks insert in their check collection operating circulars a new paragraph to indicate the desired size of checks, as prescribed by the American Bankers 6/14/60 -3- Association, and the size and style of the magnetic ink characters for machine reading. As to the second item, it was recommended that Regulation J, Check Clearing and Collection, be amended by inserting after the first sentence of section 6 language that would permit the Reserve Banks to define the types of checks and other items which can be handled as cash items. It was also recommended that there be included in the Reserve Bank operating circulars a paragraph reserving the right to set different closing hours and to require separate sorts and cash letters for items which cannot be handled on electronic machines. With respect to the third item, President Mangels noted that a meeting had been held, with all Reserve Banks represented, to discuss variations in noncash operating practices. This meeting, the first of its kind for several years, resulted in clearing up some of the differences that existed, and it was now recommended that several changes be made in the wording of the uniform language of the noncash operating circulars.1/ These various recommendations, President Mangels said, were approved by the Committee on Collections and Accounting and by the Conference of Presidents. He assumed that the Board would review the pro- Posals in due course and that the Federal. Reserve Banks would be informed concerning the recommended changes in their operating circulars. 3. Verification and Destruction of Currency. Following a review by Mr. Leach of the work of the ad hoc System Committee on currency destruction arrangements and upon the recommendation of the Committee on Fiscal Agency Operations, the Conference Subsequently, President Mangels suggested adding the words in operating procedures after the word existed. 6/14/60 -4- approved for submission to the Treasury and Board of Governors, respectively (a) the draft, dated May 24, 1960, of proposed destruction and verification of currency (providing for operational uniformity and use of "destructors") and (b) the proposed letter from the Board of Governors to the Reserve Banks (providing for observation of cancellation and other matters). Both documents were attached to Mr. Farrell's letter, dated June 2, 1960, to the Presidents of the Reserve Banks. President Leach reviewed briefly the work of the ad hoc Committee Which had resulted in the drafting of a proposed revised Treasury regulation relating to the verification and destruction of unfit United States currency. The ad hoc Committee, he noted, had also drafted a letter proposed to be sent by the Board to the Presidents of all Federal Reserve Banks if the Treasury agreed to issue the revised regulation. The revised procedures, aPproved unanimously at the meeting of the Conference of Presidents yesterday, would provide, in the opinion of the Committee, a reasonable degree of safety. The Committee had reason to believe that the proposal was satis- factory to the Treasury staff, but the matter had not yet been presented formally to the Treasury. If the Board should approve, however, the Committee would determine whether the Treasury was willing to adopt the revised regulation. Chairman Martin said that the Board, as such, had not yet discussed the current proposal, but that the matter would be taken under consideration. 4. Reimbursement Rates--Verification and Destruction of Currency and Tax Depositary Receipts. The Conference approved the recommendation of the Committee on Fiscal Agency Operations that the procedure set forth below be followed for the fiscal year 1961: The rates to be used by each Reserve Bank will be fixed by agreement between the Committee on Fiscal Agency Operations and the Treasury and will approximate 6/14/60 —5— average System costs for the preceding fiscal year. If at the end of the year System rates result in gain or loss to the System, an adjustment will be made by each Bank on the basis of actual System costs for the year. The Committee reported that the aforesaid procedure is agreeable to the Treasury, although it will be necessary for the Committee to keep in touch with operating results as the fiscal year progresses, because it is understood with the Treasury that the rates will be subject to adjustment in the light of experience as in the past. The Committee also reported that agreement has been reached with the Treasury that our billings for these services covering the month of June 1960 will be adjusted as necessary to the end that the System be reimbursed for its costs, without gain or loss, for the fiscal year ending June 30, 1960. President Allen pointed out that the procedure approved by the Conference represented a slight change from the method heretofore followed in fixing the rates of reimbursement. It had been customary for the Treas- ury to provide estimated figures on volume and for the Reserve Banks to estimate costs, but it developed that neither of the estimates was too reliable. Accordingly, the Presidents' Conference authorized the Committee on Fiscal Agency Operations simply to agree with the Treasury on a rate of reimbursement that would approximate System costs for the preceding fiscal year, with the understanding that adjustments might be made later in the year on the basis of operating results. Arrangements also were to be made with the Treasury for adjustments in billings for the month of June 1960 so that the System would be reimbursed for its costs, without gain or 1°ss, for the fiscal year 1960. If the modified arrangements should work Well, they probably would be followed each year. 6/14/60 -6- 5. Improvement of Coin Supply. In response to the Boardls telegram of June 7, the Presidents reviewed the widespread coin shortage and requested the Chairman of the Committee on Miscellaneous Operations to present the views of the Conference at the joint meeting. In commenting on this topic, President Fulton said that the shortage Of coin was a recurring problem which in essence seemed to reflect a budget Problem of the Bureau of the Mint. In 1956, a subcommittee of the Presidents 1 Conference made a study of the subject and learned that budget examiners, in reviewing the operations of the Mint, had raised questions about the stock of coin on hand at the mints and the Federal Reserve Banks. Subsequently, additional coin shortages developed, and the problem had persisted, being complicated further by the increased use of vending machines, sales.taxes, and the activities of coin collectors. The practice of the Mint, apparently reflecting the position of the budget examiners, seemed to be to have inventory reduced to minimum levels at the end of each budget year. In the circumstances, the Presidents were rather at a loss to know what aid could be given to the Mint other than to indicate what amounts Of coin the Reserve Banks would be willing to hold. In view of expanded vault facilities, the Reserve Banks could hold a substantial amount of coin if it was minted. It was also noted that the Denver Mint had been modern- ized but the Philadelphia Mint had not, and possibly the Treasury might be iMportuned to modernize the Philadelphia plant. After further comments by President Fulton, Governor Robertson referred to topic 6(i) on the memorandum of the Presidentsi Conference Which noted that the Conference had requested the Committee on Emergency 6/14/60 -7- Operations to study and report on the implications for the emergency cash Program of the Treasury view, reported by President Fulton, that one-dollar bills not be used in pre-positioned inventories of cash agent banks. A letter had been drafted which, if approved by the Board, would be sent to the Treasury requesting its views, and Governor Robertson suggested that the problem of the coin supply might also be the subject of a letter from the Board to the Treasury. Chairman Johns noted that several years ago an official of the Mint had discussed with the Presidents the fluctuations in the demands for coin and the possibility of a revised inventory policy. At that time the Reserve Banks were short of vault space, and it seemed futile to ask the commercial banks to increase their holdings of coin. Now the situation was different because the Reserve Banks had improved their vault facilities and were in a Position to carry larger inventories. Accordingly, the Reserve Banks would be willing to take additional inventories if the Mint could obtain appropriations and produce more coin. The discussion concluded with comments on the rationing of coin by the Reserve Banks and on the amount of coin moving out of the United States° 6. Additional Items of Information Arising Out of Current!. Conference Meeting. In addition to the foregoing matters, the following items of possible interest to the Board were considered by the Conference. They are reported herein as a matter of information. a. Appointments. The Conference ratified the mail votes of the Presidents (1) reactivating the special Commercial Code Committee (inactive since 1953) as the Subcommittee of Counsel on the Commercial Code under the Conference Committee on 6/14/60 Collections and Accounting; and (2) approving Mr. Morgan Rice of the Federal Reserve Bank of Dallas as the Reserve Bank representative on the high-staff level committee on the retail trade statistics program. b. Fixed Assets Accounting. To enable the Committee on Collections and Accounting to study in more detail the proposals submitted by the Subcommittee on Accounting and by Mr. Farrell and other suggestions, the Conference took no action on the April 29, 1960, report of the Subcommittee on Accounting other than to accept it as a progress report. The Conference agreed this topic would be considered at a special meeting to be held upon receipt of a further report from the Committee on Collections and Accounting. c. Loss Sharing Agreement and Regulation D. The Conference received a report, dated May 11, 1960, from the Subcommittee of Counsel of the Insurance Committee concluding that (1) the provision in amended Regulation D whereby money in transit between member banks and Federal Reserve Banks may be included in money counted in partial satisfaction of reserve requirements did not change title to such money or any Loss Sharing Agreement concept as to title to such money, (2) the contract between a Federal Reserve Bank and its member banks is not a contract of insurance, but an agreement under which the Federal Reserve Bank assumes the risks of loss in connection with money shipments between the Federal Reserve Bank and its member banks, and (3) there is no conflict between the Loss Sharing Agreement and amended Regulation D. d. Check Mechanization Program. Mr. Fulton reported that the program for pilot installations was proceeding on schedule, and noted that pursuant to the administrative authority given the Subcommittee on Electronics at the March 1960 meeting of the Conference (a) orders for encoders enumerated in the March 2, 1960, Subcommittee report have been allocated among the manufacturers supplying encoders for the basic installations, (b) no reallocation of encoders among Reserve Bank offices has yet been made, with only one minor reallocation in prospect, and (c) the Subcommittee has received no new request for encoders for use in encoding programs with commercial banks. e. Retention of Cash Letters. On the endorsement of the Committee on Miscellaneous Operations, the Conference accepted and approved the report, dated May 26, 1960, of the Subcommittee on Retention and Disposal of Records reporting on 91 Aged. it 6/14/60 -9- current and suggested Subcommittee activities and recommending (1) reduction of cash letter and related record retention to one year and (2) distribution to the Reserve Banks of a summary of their responses to the Subcommittee questionnaire of February 5, 1960. f. Systems and Procedures Developments. Mr. Fulton, as Chairman of the Committee on Miscellaneous Operations, presented, and the Conference received, a report, dated May 31, 1960, of the Subcommittee on Systems and Procedures summarizing developments in the Reserve Banks, which in addition to general material, covered (1) status of plans and installations involving electronic data processing equipment and (2) listing of procedures being considered for computer Processing. g. Legislation. Upon the recommendation of the Committee on Legislation, the Conference accepted and approved a report, dated June 2, 1960, of the Subcommittee on Legislation on the Douglas finance charge disclosure bill (S. 2755). Messrs. Leedy, Mangels, and Deming preferred merely to accept the Subcommittee report, indicating that without implying disapproval they were not prepared at this time to endorse all of its views and conclusions. Mr. Hayes also reviewed the summary of pending legislation, dated June 1960, of the Legal Department, Federal Reserve Bank of New York. h. Retail Trade Statistics. Governor Balderston and Mr. Merritt Sherman reviewed the present status of, and prospective developments concerning, the retail trade statistics program. i. Emergency Cash Operations. The Conference requested the Committee on Emergency Operations to study and report on the implications for the emergency cash program of the Treasury position (reported by Mr. Fulton) that one-dollar bills not be used in pre-positioned inventories of cash agent banks. President Johns stated that complete information on these item' would be found in the minutes of the Presidents' Conference and that the various reports referred to in the memorandum of topics also would be available. — 21 4 6/14/60 -10With respect to item (b), Fixed Assets Accounting, President Mangels commented briefly on the study that had been made by the Subcommittee on Accounting, as reflected in the report of the Subcommittee dated April 29, 1960. He noted that the subject was complex and that the counterproposal contained in a memorandum from Mr. Farrell of the Board's staff dated May 24, 1960, had not been received soon enough to permit Comprehensive study. The Committee on Collections and Accounting felt, however, that it could take the matter in hand, review the proposals that had been made, ascertain the views of the Reserve Banks, and at a relatively early date submit to the Presidents, with endorsement, one of the proposals or some other plan that might find agreement. It was not Planned to wait until the next regular meeting of the Presidents' Conference to submit a report, instead it was envisaged that the matter would be taken up at a special meeting of the Presidents incident to one °f the meetings of the Federal Open Market Committee. Some sense of urgency was imparted by the time schedule involved in the preparation of the Reserve Bank budgets for 1961, but it was hoped that a procedure could be mutually agreed upon before the budgets had to be submitted. President Hayes said that, although he did not want to overemPhasize the matter, it struck him as rather odd that when the Subcomillittee on Accounting, of which a member of the Board's staff is an "s°ciate, had made a study and submitted a report to the Conference, the Conference then received a counterproposal which in effect disagreed with the report of the Subcommittee. It was his impression that ordinarily 4) (4 , 2 f 6/14/60 -11- such a counterproposal would be referred to the Subcommittee concerned rather than direct to the Presidents' Conference. His comment, he added, waS confined solely to the question of procedure. There was no discussion of the remaining items under topic 6, it being noted that reference to item (i) had been made previously in connection with the discussion of topic 5° Chairman Martin commented briefly on developments in connection with the current hearings of a Subcommittee of the House Banking and Currency Committee concerning H.R. 8516, a bill providing for the retirement of Federal Reserve Bank stock, at which Presidents Allen and Hayes had already testified and President Mangels was to testify later this week. Chairman Martin then stated that he had discussed with the Secretary and the Under Secretary of the Treasury the proposal for extension of the tax depositary receipt system to provide for the handling by the Reserve Banks of payments by individuals against estimated taxes. He indicated that, although the matter had not been finally resolved, it might be assumed in the absence of further advice from the Treasury that the Proposal would be held in abeyance, at least for the time being. The meeting then adjourned.
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