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811 A. meetino of the Board of Governors of the Federal Reserve SYstem was held in Washington on Thursday, Tune 22, 1939, at 11:00 PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak Davis Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Clayton, Assistant to the Chairman The action stated with respect to each of the matters hereinreferred to was taken by the Board: The minutes of the meeting of the Board of Governors of the ?edsral Reserve System held on June 21, 1939, were approved unami111011sly. Letter to Honorable Robert F. Wagner, Chairman of the Senate C°1.nmittee on Banking and Currency, reading as follows: "This refers to your letter of June 16, 1939, addressed to Chairman Eccles, in which you request an opinion as to the merits of the bill S. 2618, which would amend section 16 of the Federal Reserve Act so as to extend until June 30, 1941, the period during which direct obligations of the United States may be used as collateral security for Federal Reserve notes. "Section 16 of the Federal Reserve Act was amended by the Act of February 27, 1932, so as to provide that until March 3, 1933, the Board of Governors of the Federal Reserve System, if it deems it in the public interest, shall have authority, by an affirmative vote of not less than a majority of its members, to authorize the Federal Reserve banks to offer, and the Federal Reserve Agents to accept, direct obligations of the United States as collateral security for Federal Reserve notes. This authority was continued from time to time by the Acts of February 3, 1933, March 6, 1934, and March 1, 1937, and 812 6/22/39 "it will now expire on June 30, 1939, unless it is renewed by the Congress. "Pursuant to the authority granted by the law, the Board, on May 5, 1932, authorized the Federal Reserve banks to pledge direct obligations of the United States as collateral for Federal Reserve notes. United States Government Obligations were pledged continuously as collateral for Federal Reserve notes from May 5, 1932, to May 28, 1938, except for a short period in April and May 1938, the maximum amount pledged at any one time being a,098,000,000 on March 20, 1933. "As a consequence of large gold imports in recent years there are now enough gold certificates held by the Federal Reserve banks to enable them to provide a 100 per cent cover for all outstanding Federal Reserve notes, without the use of direct obligations of the United States for this purpose, and no direct obligations of the United States have been so pledged since May 28, 1938. In the event that gold should leave the country in large amounts, however, as it has on previous occasions, notably in 1931 and 1932, the Federal Reserve System, in the absence of authority to pledge United States Government obligations for Federal Reserve notes, might find itself compelled to adopt a restrictive credit policy at a time when such policy might start a disastrous deflationary development, Or aggravate one that was under way. In 1931 the System had the experience of being unable, owing to lack of authority to pledge Government obligations against Federal Reserve notes, to adopt an active policy of combatting a deflation. If the System should again lack this authority, a large outward movement of gold would reduce the gold certificate holdings of the Federal Reserve banks below the amount necessary to provide cover for outstanding Federal Reserve notes, end in order to get the necessary eligible Paper to take the place of the gold certificates, the Iederal Reserve banks would have to sell United States Government obli&:ations to the point where member banks would be forced to borrow from the Federal Reserve banks. Indebtedness by member banks, in turn, would cause them to tighten their lending policies and to contract credit, with a consequent rise in money rates and possible serious restraint on business activity. It is clearly not in the Public interest to run the risk of such a development by Permitting the authority to pledge Government securities 813 6/22/39 "against Federal Reserve notes to lapse. "Accordingly, the Board of Governors of the Federal Reserve System favors the passage of the bill S. 2618 and hopes that it may be possible for Congress to enact it before the date of the expiration of the existing authority, rune 30, 1939." Approved unanimously. Memorandum dated June 20, 1939, from Mr. amead, Chief of the 1)i vision of Bank Operations, submitting the resolutions adopted by the " 13 (11(16 of directors of all Federal Reserve banks declaring the regular serrth-annual dividend payable on June 30, 1939, to stockholding member 1341c8 of record on that date, at the rate of 6% per annum. The memorandum set forth a comparison of the estimated dividend requirements with estin'ated aarrent net earnings and the estimated amount available for 4ividends which indicated that each Federal Reserve bank would have net e"nings sufficient to cover dividends, and recommended that the payment "the regular semi-animal dividend by each Federal Reserve bank be ap" 1°1 ed by the Board. Approved unanimously. Telegram to the Presidents of all Federal Reserve banks, readas follows: "Referring letter R-488 of June 16, please furnish aS of next and future call dates summery statement showing amount of each item one to five, inclusive, on face Of member bank call reports, separately for (1) central reserve city member banks, (2) reserve city member banks, 814 6/22/39 "and (3) country member ',Finks. If practicable, statement Should be mailed to reach Board within three weeks from date of announcement of call." Approved unanimously. There was then presented, with the recommendation of the Office °t General Counsel that it be published in the Tuly issue of the Federal Reserve Bulletin in the form submitted, a statement entitled "Amendments t° the Law Relating to Loans to Executive Officers and Membership in 44srel Reserve System of Insured Banks". Approved unanimously. Thereupon the meeting adjourned. Secre ary. 7 d: Chairman.
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