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893 A meeting of the Board of Governors of the Federal Reserve 8Y8tem.was held in Washington on Monday, June 17, 1940, at 11:40 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary 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 Mr. Gardner, Senior Economist in the Division of Research and Statistics Mr. Thompson, General Assistant in the Secretary's Office Ur. Ransom stated that he desired to relate to the members of the 4ard the further developments in connection with the question had arisen with respect to the request of the Banco Central de 1101 4 that the Federal Reserve Bank of New York ship to it gold held b the New York Bank in the name of the Banco Central de Bolivia r egard to which the Banco Mercantil, La Paz, Bolivia, had made adVet,. Qe claim to 150,000 gold sovereigns. He said that on Saturday, e 15, together with Messrs. Harrison, President, and Logan, Vice l'reaident and General Counsel, of the Federal Reserve Bank of New l'.41%k1 he and Messrs. Wyatt and Dreibelbis had gone to the State De15411411ent to discuss the matter with Under Secretary of State Welles, tit that in view of Mr. Welles' being called to the White House, they 894 6/17/40 -2- had called on Mr. Feis, Adviser on International Economic Affairs, that Mr. Feis had asked that the Treasury be represented at the coni'l?I nce, and that the conference had convened with Messrs. Ransom, • IT180a, Logan, Wyatt and Dreibelbis, representing the Federal Re" 13 System, Messrs. Cochran, Technical Assistant to the Secretary or the Treasury, and Bernstein, Assistant General Counsel for the 1):'elasury Department, representing the Treasury, and Messrs. Feis, Collado, Donovan and one other representing the State Department. The representatives of the State Department, Mr. Ransom seemed to be thoroughly familiar with the matter and inquired Of If,. Harrison whether there was any solution of the problem which had Occurred to him other than those mentioned in his telegram of hrle 12, 1940, to the Board, none of which were felt by the State bepa. 1%ment to be a satisfactory solution of the problem. Mr. Harrison offered the suggestion, Mr. Ransom said, of the 151588ibility of a credit being extended to Bolivia by the United States "Iment and being "blocked". Mr. Ransom stated that, after considering all of the circum, atatice 8/ it appeared that the only procedure which seemed to meet all th be e difficulties involved in the problem that had been advanced would the Bolivian Government, through its Minister in Washington, to icate with the State Department requesting that, for the reasons 895 6/17/40 —3— to be outlined in the letter, the gold be returned to the Banco Central de Bolivia and stating that he was authorized by the Bolivian GovernIllent to advise the Government of the United States and the Federal Re13"" Bank of New York that the Government of Bolivia and the Banco Central de Bolivia agree with the Government of the United States and Federal Reserve Bank of New York to hold the Federal Reserve Bank or Uevt York free and harmless from, and to indemnify it against, any lose liability or expense resulting from or in connection with the 814Pment of such gold to the Banco Central de Bolivia, and for the State D epartment to transmit such communication to the Federal Reserve aank of New York with the advice that the Government of the United 8tate8) having duly recognized the Honorable Luis Fernando Guachalla as -44"Ster of the Republic of Bolivia in Washington, accepted his ttlItho,-,LT to make the statements contained in the letter addressed bY Wan to the State Department and recognized that the effect of the 1aw8 and decrees and the rights of the various parties with respect to th e gold referred to in the letter were as stated by the Bolivian kitis ter in Washington in his letter. He said that it had been deticiect that something should be worked out along these lines which, 4e that, the Pnnk as going to take the risk of proceeding along tkoh 1 inee, would be acceptable to Counsel for the Board and the New lork ank, and to the State and Treasury Departments, and that drafts th e Proposed communications had been completed which he would like to pr esent to the Board at this time. 896 6/17/4o -4In considering this matter, Mr. Ransom said, the question of 4gislation to take care of this particular case and more important a8" " 1 which will arise in the future was discussed at great length, that Ur. Wyatt had prepared a draft of proposed legislation in this %rulection which was handed to the representatives of the State and Treasitry Departments at the meeting on Saturday, and that they were irarY favorable to such legislation and had said in effect that they 17°1114 recommend such action to their respective departments. Mr. Ifatt stated in this connection that Mr. Collado had advised him that he had discussed the question of proposed legislation with Mr. Earley Assistant Secretary of State, and that Mr. Berle would strongly 'Jr the enactment of legislation of this kind. Mr. Ransom then stated that he felt the Board should not take formal action on the matter at this meeting but should author"her Chairman Eccles or him to advise the Federal Reserve Bank °t k "elY York that the Board not only interposed no objection to their relea8ing the gold to the Banco Central de Bolivia but believed it be in order for them to do so. At this point Mr. Clayton, Assistant to the Chairman, joined keeting. Mr. Dreibelbis stated that Mr. Logan had called him on the 44Phorie today and that they had discussed three points which he Weltld 1ike to bring before the Board. The first he said was the 897 6/17/4o -5- ' l INAest of Mr. Logan that a copy of the letter addressed to Chairman 4°1es under date of June 13, 1940, by Under Secretary of State Welles be sent to the New York B. Mr. Dreibelbis said that he had ment1.°11ed the request to Mr. Collado who had advised that he would like to clear it with Mr. Welles but that he felt confident the Board could °Perate on the assumption that Mr. Welles would approve such action and that the Board could send a copy of the letter if it desired to. Mr. McKee suggested at this point that it might be well to ap121 ' °ve the proposed communications upon the condition that legislation 17111 be Presented to take care of similar problems in the future. It lirae the general consensus of the other members of the Board, however, that while legislation on the subject matter was extremely desirable, It Wolad be better not to include such a condition in the approval of the com munications and Mr. Ransom requested that he be authorized to cil8cUss the matter further with the State and Treasury Departments and t° 4,Y that the Board of Governors is desirous of helping in the solution of his t problem as speedily as possible, but that this particular inetance was only a small part of a larger problem and that the Board *°11141 like to have their assurance that they would seek the immediate etl4qtaent of legislation dealing with the problem. Mr. Dreibelbis left the meeting at this point to talk over the tilrt 'sue to Mr. Logan who was calling from New York and upon his retated that his second point in connection with the transmission 898 6/17/4o -6- °f the Board's letter was that Mr. Logan thought it would be helpful, and he agreed, if the letter gave the New York Bank some support from the angle of public policy, for the reason that there is SOMB question 'whether or not the courts of the United States, with respect to property 1()cated in this country, would consider themselves bound by a confis 41°17 law of another country if that law is against the public policy or country, and for that reason Mr. Logan would like to have somethin„, in his record to show that the action that is being taken in this lIalticular case is in line with, and represents, the public policy of thennited States. Mr. Dreibelbis stated that he thought it was very 1111Portant that the letter contain such support. His third point, Mr. 1111/elbi8 said, was that he had suggested to Mr. Logan the possibility °°nsidering whether or not it would be well for the proposed letters °t the Bolivian Minister and the State Department to be transmitted to he Pederal Reserve Bank of New York through the Treasury Department 841d for the Treasury Department in its letter of transmittal to include 4 sentence substantially as follows: "that in view of the foregoing lettel`e of the Bolivian Minister and the Secretary of State, it is 4:Ire/lent that the gold should be shipped to Bolivia to the Banco elltrbal de Bolivia, and you are accordingly licensed to make such 8111401M en", the implication being that a license to take any other accrn Would be refused. He said that he had advised Mr. Logan that he t it Would be much better for Mr. Ransom or Mr. Harrison to discuss the Ina. tter with the Secretary of the Treasury, with which position Mr. 899 6/1V40 -7- 43gan agreed, and that Mr. Logan's telephone call during this meeting /148 to say that Mr. Harrison would much prefer that Mr. Ransom discuss tIllematter with the Secretary of the Treasury. 81°11 Mr. Dreibelbis Following this discus- stated that advice had just been received from Collado that it was all right to send to the Federal Reserve Bank New York a copy of Mr. Welles' letter of June 13, 1940. Mr. McKee then suggested that it might be desirable to ask the Chairmen of the Banking and Currency Committees of the Senate and 'foto , -' of Representatives to attend a meeting with the Board for a dis11881°11 of the present problem and to ascertain the chances of the ediate enactment of legislation dealing with future similar problems. Chairman Eccles stated that, in his opinion, the Board should 14'cleeed with the program suggested by Mr. Ransom without the condit4Irl euggested by Mr. McKee regarding legislation, and then undertake to obtain a clearance from the Treasury and State Departments on proII4ed legislation, following which representatives of the Board and the State and Treasury Departments could call on Messrs. Wagner and egali as Chairmen of the Banking and Currency Committees of the Sellate and House of Representatives, respectively, and say to them t114t it was the unanimous feeling that legislation should be enacted 144e lately to meet the situation. At the conclusion of the discussion, the Secretary was authorized to send to President Harrison, of the New York Bank, a letter to be approved by Chairman Eccles 900 6/17/40 -8and Vice Chairman Ransom advising the New York Bank, in effect, that the Board understands from the discussions which have taken place that the State Department considers the return of the gold to the Banco Central de Bolivia to be of extreme importance to it in carrying out the policy of our Government and that its return will be in aid of and conformity with such policy; that further representations of the Bolivian Government concerning the effect of Bolivian law and of our State Department concerning its acceptance of such representations will be forthcoming; and that, accordingly, a copy of the communication from Under Secretary Welles is being transmitted to Mr. Harrison with the hope that the New York Bank, in the light of all the circumstances, will find it possible to proceed in accordance with the wishes of the Government. In connection with this matter it was agreed unanimously that Mr. Ransom should discuss with the State and Treasury Departments the question of their cooperation in obtaining appropriate legislation at an early date. At this point Mr. Dreibelbis left the meeting. Chairman Eccles stated that a definite date for the continua- Q of hearings on bill S. 3839, which would amend section 13b of the Federal Reserve Act in regard to loans and discounts for industrial Nrposes, had not been set, that Senator Wagner, Chairman of the Senate 411111.41g and Currency Committee, had advised that he would endeavor to 04*arige for a continuation of such hearings and advise Chairman Eccles 4 to the date on which he could appear before the Committee to pre°exit his views on the bill and in regard to the letter addressed to CoMmittee by Jesse H. Jones, Federal Loan Administrator, under 901 6/17/4o -9- date of June 14, 1940, with respect to the bill. Chairman Eccles Said that a reply to Mr. Jones' letter was being prepared and that -°1-11d like to have it approved by the Board so that he could pre.t to the Senate Banking and Currency Committee as a reply of the Board of Governors. Mr. Davis suggested that it might be well for the Board to give consideration to the proposed letter as soon as possible inas11111ch as no definite date had been set for a continuation of the hear- end, if approved, to send the letter to the Banking and Currency e°Malittee and copies to the individuals to whom Mr. Jones' letter was 8"It• *. Draper urged that the whole matter be given prompt consideration. There was unanimous agreement that the procedure suggested should be followed. In this connection it was understood that copies of Mr. Jones' letter, together with copies of the Board's reply thereto addressed to the Chairman of the Senate Banking and Currency Committee would be sent to all Federal Reserve Banks, and that when copies of the testimony presented on the bill were available they would also be sent to all Federal Reserve Banks. At this point Messrs. Davis, Thurston, Goldenweiser, and Gardner lett the meeting. There was then presented a letter dated June 15, 1940, from 14% p arker, President of the Federal Reserve Bank of Atlanta, requesttrip ,a, vProval by the Board, for the reasons stated in the letter, of eeltairl of the changes in the rates on industrial advances under section 13b Federal Reserve Act. 902 6/17/4o -10Following a discussion of the matter it was agreed unanimously that action on the proposed changes should be deferred pending further consideration. In this connection it was understood that the Secretary would advise Mr. Parker by telephone of the Board's action. At this point all those present except Messrs. Eccles, l'ansom, Szynicza,_, McKee, Draper and Morrill withdrew from the meeting. Chairman Eccles then read a letter dated June 12, 1940 which he ha received from Mr. Owen D. Young, Chairman of the board of di- l'ectOrs of the Federal Reserve Bank of New York, in regard to Mr. Ge°1"ge L. Harrison, from which it appeared that Mr. Young had indicated tt. to he officers of the Nem-York Life Insurance Company his feeling that the New York Bank might wish to ask for an extension of time for the , uteceptance of the resignation of Mr. Harrison as President of the 4vYork Bank, due to the prevailing uncertain conditions, and that 4r*Y'ung had been advised that the directors of the Insurance Company ilblad adjourn until after the 20th of June the meeting that was to have 1, ueen held on the 12th, so as to enable the board of directors of them “ew York Bank to make a formal request to be permitted to retain ty ga • rrlson in the Bank until January 1 next, if circumstances, in the JUdgment of the directors, warranted such a request. After discussion, it was agreed unanimously to authorize Chairman Eccles to advise Mr. Young that, in the light of those developments and Mr. Young's desire for a communication front the Board of Governors indicating its position, the Board of Governors would be glad to have Mr. Harrison defer his departure from the Bank if the 903 6/17/4o directors of the Bank decide to make the request for the extension of time, in accordance with Mr. Young's suggestion, and the New Life Insurance Company acts favorably. 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 Psderal Reserve System held on June 15, 1940, were approved unanimously. Memorandum dated June 12, 1940, from Mr. Goldenweiser, Director , °I the Division of Research and Statistics, recommending that Shervin --n J. Maisel be appointed on a permanent basis as an economic assistant in the Division, with salary at the rate of 2,000 per an- 1111M, e ffective as of July 1, 1940. Approved unanimously. Memorandum dated June 15, 1940, from Mr. Davis to Mr. Morrill l'ecillesting that Lewis G. Davidson, who was appointed as a chauffeur fel" the -L4v-Lsory Commission to the Council of National Defense, with 7 at the rate of P1,080 per annum, effective as of June 17, 1940, be Pia eed on the Board's payroll with the understanding that as soon 413 funds were made available to the Commission by Congress he would be texIsferred to the payroll of the Commission and the Board would be 1461-Irsed for any salary paid. The employment of Mr. Davidson on the above basis was approved unanimously. Letter to the board of directors of "The Peoples Bank", Canton, Ohio 'stating that, subject to conditions of membership numbered 1 to j in the Board's Regulation H and the following special 904 6117/40 -12- Condition, the Board approves the bank's application for membership in the Federal Reserve System and for the appropriate amount of stock in the Federal Reserve Bank of Cleveland: "4. Prior to admission to membership, such bank, if it has not already done so, shall charge off or otherwise eliminate estimated losses of P3,127.571 as shown in the report of examination of such bank as of May 15, 1940, made by an examiner for the Federal Reserve Bank of Cleveland." Approved unanimously, together with a letter to Mr. Fleming, President of the Federal Reserve Bank of Cleveland, reading as follows: "The Board of Governors of the Federal Reserve System approves the application of 'The Peoples Bank', Canton, °h10, for membership in the Federal Reserve System, subject to the conditions prescribed in the enclosed letter which You are requested to forward to the Board of Directors of the institution. Two copies of such letter are also enclosed, one of which is for your files and the other of Which you are requested to forward to the Superintendent cdb Banks for the State of Ohio for his information. "It is assumed thnt your office will follow the matter of the bank's bringing the savings accounts listed on Page 16-1 of the report of examination for membership into ecnformity with the provisions of law and the Board's regulations Letter to the board of directors of "The Farmers and Merchants 8tate Bank of Merrill", Merrill, Michigan, stating that, subject to e°114iticn8 of membership numbered 1 to 3 contained in the Board's Regu14ti°n h, the Board approves the bank's application for membership in the Federal Reserve System and for the appropriate amount of stock in the ecicral Reserve Bank of Chicago. Approved unanimously, for transmission through the Federal Reserve Bank of Chicago. Letter to the board of directors of "The Farmers State Bank", 905 6/17/4o -13-- aweetser, Indiana, stating that, subject to conditions of membership Illambered 1 to 3 contained in the Board's Regulation H, the Board apPlr ' °'res the bank's application for membership in the Federal Reserve 8YStem and for the appropriate amount of stock in the Federal Reserve Barilt of Chicago. Approved unanimously, for transmission through the Federal Reserve Bank of Chicago. Letter to Mr. Knoke, Vice President of the Federal Reserve tatac of New York, reading as follows: "Receipt is acknowledged of your letter of June 12, 1940 enclosing copies of documents concerning the opening and maintaining of accounts for the British and Netherlands Governments. As was indicated informally to President Harrison in previous discussions of the matt rto which you refer, the Board interposes no objection to the action of the New York Bank." Approved unanimously. Thereupon the meeting adjourned. j2gr4gc— csd_bf4tg:X. L_ Secretary.
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