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Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, June 212 1955. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Vardaman Mills Shepardson Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Board Thurston, Assistant to the of ion Divis tor, Leonard, Direc Bank Operations Vest, General Counsel Sloan, Director, Division of Examinations tor, Johnson, Controller, and Direc tion istra Admin nnel Perso Division of el Couns e lativ Cherry, Legis consideration was At the meeting of the Board on June 16, 19550 of the Federal Regl:ven to drafts of letters to Mr. Alexander, Chairman of the Conference of serve Bank of St. Louis, and to Mr. Young, Chairman related to Presidents of the Federal Reserve Banks, the first of which which expressed the certain entertainment expenses and the second of with the Presidents at 41rdt3 desire to discuss this general subject Presidents f Conference. Revised the time of the current meeting of the at the June 16 drafts had been prepared in the light of comments made the members of the Board along Meeting and copies thereof had been sent to with a draft of letter to the Chairmen of all Federal Reserve Banks 6/21/55 -2- which would transmit a copy of the letter to President Young and state that the Board expected to review with the Presidents the matters referred to therein. At the conclusion of a discussion, unanimous approval was given to letters as follows, each for the signature of Chairman Martin: Louis Mr. Alexander )Chairman, Federal Reserve Bank of St. to expendiThe Board's examiners have called attention baseball tickets tures incurred by your Bank for theatre and of in connection with the joint meetings in 1953 and 1954 the directors of youriUnk and its branches. which the Board This has raised again the problem with 6). "While dealt in its letter of January 161 19)45 (S-82 strongly the amount involved was not large, the Board feels should be that it falls into a class of expenditure that avoided in the future. uar. To , Young, Chairman Banks Federal Reserve Conference of Presidents of the to lay down The Board recognizes that it is difficult appropriate and hard and fast rules to distinguish between continues to feel Inappropriate expenditures. The Board expenditures that decisions on certain Federal Reserve Bank forth in its Should be guided by the general principles set principles recogletter of January 16, 1945 (S-826). These relationship nize that Federal Reserve Banks have a special rations, corpo d to the Government. Unlike privately-owne the Congress to Federal"Reserve Banks were established by Bank expendive Reser Perform essential public functions. viewed in the same tures, as of course you know, cannot be prises. light as those undertaken by private enter as stated at oint, viewp The Board is strongly of the ' Conference, that meetings of the Chairmen's and Presidents ry responsithe Federal Reserve Banks themselves have prima eness of expenditures bility for determining the appropriat expenditures. and that they should be prepared to justify ess As the Board stated in the 1945 letter, however, Congr for lity nsibi respo of has placed upon the Board a measure ror-‘47 JLAJOIL) 6/21/55 — reviewing expenditures of the Federal Reserve Banks. Attached to the 1.945 letter was a memorandum specifi— cally referring to certain types of expenditures which could be incurred without the approval of the Board. The letter confident concluded with the statement that the Board was full recog— in tion discre that the Banks would exercise their funds public of ds stewar nition of their responsibility as t commen to ers examin and that the Board would rely on its they which itures in reports of examination on any expend such felt should be questioned. The memorandum mentioned itures expend matters as mementos for retiring directors, for for welfare and educational work, minor expenditures retir— to gifts testimonials, recognition of long service, directly ing employees, and expenditures for purposes not related to the conduct of the Banks' affairs. satisfactorily The procedures outlined above have worked has thought Board and there have been few occasions when the the While . itures expend it necessary to question specific lunch— of costs able Board sees no objection to paying reason gs of direc— eons and dinners given in connection with meetin Federal the by ed arrang tors and other appropriate meetings i— expend of ess riaten approp Reserve Banks, it questions the the for s ticket tures for professional entertainment, theatre and similar outlays. ents the At the forthcoming meeting with the Presid a view With again Board would like to review this subject t to respec with to reaching a more definite understanding expenditures of this type. Chairmen of A copy of this letter is being sent to the the respective Federal Reserve Banks. To the Chairmen of all Federal Reserve Banks the Presidents The Board expects to review again with of the itures expend While they are in Washington certain letter tory xplana self—e Federal Reserve Banks. A copy of a in ence Confer ents being sent to the Chairman of the Presid this connection is attached. consideration was given to three At the meeting on June l51 1_955, alternative drafts of a letter to the Comptroller General of the United Reserve System which the States relating to the audit of the Federal 6/21/55 -4- General Accounting Office had been requested to make by the Chairman of the House Committee on Government Operations. The first two drafts had been amended on the basis of discussion at that meeting and copies of all three drafts had been sent to the members of the Board. The first two drafts, marked A and B, respectively, took the same general position, i.e., that the Board could not lawfully acquiesce in such an audit in the ab— draft A the rea— senoe of an express directive from the Congress, but in sons for that conclusion were spelled out in more detail. The third draft, which was marked draft Cp Szymczak, ex— and stated the views of Governor the absence of Pressed doubt whether the proposed audit should be made in an express directive from the Congress but stated that, notwithstanding fullest extent possible those doubts, the Board wished to cooperate to the and would make available to the General Accounting Office the reports of and 1954 and examination of the Federal Reserve Banks for the years 1953 same years in the the reports of audit of the Board's accounts for the ler General hoPe that a review of those reports would enable the Comptrol to comply satisfactorily with the request which had been made of him. Ir. Vest, who was In response to a question by Chairman Martin, the fact that iholined to favor draft C, stated that he was influenced by the other two drafts put the arguments almost exclusively on the basis of that even in the legal considerations, whereas it was his understanding that there were fundamental absence of such considerations, the Board felt l'easons why such an audit should not be made. He pointed out that if a 1065 6/21/55 -5- Position were taken along the lines stated in drafts A and B, the Committee on Government Operations might subpoena the Board and the Federal Reserve Banks. In the circumstances, he felt there was something to be said for a more conciliatory approach. Chairman Martin, who favored a position such as that taken in draft A) stated that he did so because he felt that the point had been reached Where it was not possible to temporize any further with principle. He re- ferred to the cooperation extended by the Board last year in making reports cf examination and audit of the System available to the House Banking and Currency Committee and indicated that in his opinion it would now be to the Boardts advantage to seek a hearing before the Committee on Government °Aerations in order to present the reasons why it was felt that an audit Of the System such as proposed should not be conducted. To bring the matter to the stage of a hearing, he pointed out, it was necessary to cite the legal arguments as to why the conclusion had been reached that the Board could not lawfully acquiesce in the proposed audit. He felt, however, that the Points made by Mr. Vest deserved consideration and that they might be Inet by some expansion of draft A. During further discussion which ensued, it developed that all of the members of the Board who were present favored the position taken in dr'afts A and B and that all except Governor Balderston preferred the 1°nger exposition contained in draft A. A number of changes were then suggested which would modify draft A in various respects, including changes 1766 6/21/55 -6- designed to take into account the views expressed by Governor Balderston and Mr. Vest. There was agreement that the letter should indicate specif— ically that the Board would welcome an opportunity for a hearing. Chairman Martin then stated that a letter should be sent to the Comptroller General tomorrow, but that before the letter was transmitted it would be necessary to clear it with the Federal Open Market Committee at the Committee's meeting tomorrow morning. He suggested, therefore, that Mr. Thurston and Mr. Vest be requested to revise draft A in the light of the various comments made at this meeting and that copies of the revised draft be sent to each member of the Board so that there would be an oppor— tunity for any further suggestions before the meeting of the Federal Open Market Committee. There was unanimous agreement with the procedure suggested by Chairman Martin. group with which Chairman Martin stated that the investment banker the Treasury meets on Government financing had requested another meeting with the Board, the suggestion having been made that the visit be at ll:45 a'In. on June 28, 3_9551 following a meeting of the group with representatives Of the Treasury. There was some discussion of the g advantages and disadvantages in accedin con— the to requests of this kind, at clusion of which it was agreed unani— the mously to extend an invitation to the at group to meet with the Board time suggested. 106 6/21/55 -7Governor Mills referred to the agreement at the meeting of the Board on May 18, 1955, to have a meeting late this month with the chair— men of the respective consultant groups engaged in the studies being made for the Congressional Subcommittee on Economic Statistics (WIT headed by Representative Bolling) and stated that such a meeting had been arranged te ntatively for 10:00 a.m. on June 27, 1955. There was unanimous agreement that the meeting should be held at the time suggested. Governor Balderston stated that he had extended an invitation to Exter, Vice President of the New York Reserve Bank, to meet with the Board on the morning of Thursday, June 30, 1955, to comment on his recent tll-P to Europe. Minutes of actions taken by the Board of Governors of the Federal Reserve System on June 20, 19552 were approved unanimously. The meeting then adjourned.
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