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-I R91_ A meeting of the Federal Reserve Board with the Federal reserve agents and the governors of the Federal reserve banks was held 1411%shington on Tuesday, June 26, 1934, at 10:20 a. In. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Black, Governor Hamlin Miller James Thomas Szymczak O'Connor Mr. Morrill, Secretary Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Er. Martin, Assistant to the Governor Mr. Wyatt, General Counsel Er. Snead, Chief of the Division of Bank Operations Mr. Goldenweiser, Director of the Division of Research and Statistics -!"• Vest, Assistant Counsel "A Mr. Parry, Assistant Director of the Division of Research and Statistics ALSO PRESENT: Governor Messrs. Curtiss, Case, Austin, Boxton, Newton, Stevens, Wood, Peyton, McClure, and Walsh, Federal Reserve Agents at the Federal Reserve Banks of Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and Dallas, respectively. Messrs. Young, Norris, Fancher, Seay, Schaller, Martin, Geery, Hamilton, McKinney, and Calkins, Governors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco, respectively. Mr. Johns, Acting Governor of the Federal Reserve Bank of Atlanta. Er. Stewart, Secretary, Federal Reserve Agents' Conference. Norris, as chairman of the Securities Exchange Act Corn- kittee reported that, after considering the action taken at the Federal 8/2V34 -2- Reserve Agents' Conference on May 7-9, 1934; the memorandum dated 44 ' 3 9, 1934, prepared in the legal division regarding the provisions °fthe Securities Exchange Act of 1934 affecting the powers and duties Of the Federal Reserve Board; the memorandum written by Mr. Parry of the Board's Division of Research and Statistics and dated June 22, 434, which reported on the preliminary work done by the Board's 14111' in connection with the Securities Exchange Act of 1934; and Yr. "ftrereiser's memorandum of June 22, 1934, which contains a tentative dratt Of principles for administering the provisions of sections 7 and 8 "he Securities Exchange Act, the committee had expressed the view that, except with certain minor changes in wording, Yr. Goldenmeiser's 441(3realdum constitutes an outline of principles with which the comkittee vas in hearty accord, and which will be helpful to the committee ill its further study of the subject; that, in view of the importance et the 13 ubject and the amount of additional material information which &tie desirable to secure and study, the committee felt that, before &twill be able to make definite recommendations, it will be necessary t()Is it to make a more thorough study of the subject; that to this end *the c3Illittee will undertake to keep in close contact with flr. Golden%ler, and desires that he continue to communicate with the committee; 411(i that , tue members of the committee will make recommendations from till% to time and submit a later report. Governor Norris stated further that the committee was of the tiolaz 11 that the Federal Reserve Board should adopt only such regula4't the present time as are necessary to carry out the purposes M93 6/26/34 °e 3.. the law and that it should carefully avoid in its regulations any 41111ecessary restrictions cr ar activity which if properly conductAd is kl essential part of our economic system. He also stated that the corn- felt that, if it is the pleasure of the Board and the Federal te"v agents and governors, it night be desirable for the committee to c outinue in existence for the purpose of making a further study of the subject assigned to it. It was understood that the committee should continue as long as may be necessary for a completion of consideration of questions presented to it in connection mith the preparation of regulations pursnArt to the Securities Exchange Act of 1934. A discussion followed, during which a question was raised as t° the status under section 7(e) of the Securities Exchange Act of 19a4, tween now and October 1, 1934, of loans or extensions of °teclit Mde prior to the approval of the Act, and to the question of the effect of the Act on loans made by banks secured by stock exchange Itceral, and it was understood that these questions would be given aration by the committee and a further report submitted. Governor McKinney, as chairman of the Industrial Credit Cornkittee 'stated that Governor Black had submitted to the committee a titta.ti lve draft of a proposed agreement between the Treasury Departd the respective Federal reserve banks with regard to the ill which the funds to be paid to the banks by the Treasury setierve terve b Pursuant to the provisions of section 13b of the Federal Act, which agreement contemplated payment to the Federal ro- ItIlks by the Treasury, as loans are made by the banks pursuant 18916/26/34 to the provisions of section 13b, of the amount of the loans made up to the total of the respective banks' subscriptions to the stock of thePederal Deposit Insurance Corporation; and that, while the commit- tee Understands the agreement is subject to further negotiation with the Treasury Department, it is of the opinion that the matter should be left in the hands of the Federal Reserve Board, with the hope that the agreement in its present form will be made effective. Governor Black stated that he had a further conference with the s ecretary of the Treasury this morning regarding this natter, at liktoh the latter had agreed that he mould be willing to execute the 4reertiellt in its present form subject to an informal understanding Treasury Department will pay to the Federal reserve banks an 41°14at equal to the amount of the loans made by them up to $10,000,000, 411"ring 'which the funds for the next ;;10,000,000 of loans will be tillr4Liahed by the banks, and that this procedure will continue until 1111k11°1)4t equal in the aggregate to the amount invested by the Federal reeel'Ire banks in the stock of the Federal Deposit Insurance Corporat44114s been paid by the Treasury Department to the banks. Governor McKinney then read the following letter received ate of June 22, 1934, from Mr. Jesse Jones, Chairman of the err -truction Finance Corporation, by Governor Black, and by him re- t° the Industrial Credit Committee for consideration: (lust 71 beg to enclose herewith copy of our regulations for in-. %al loans. These can be altered if and as required. the .41„It seems to MB that as far as is practical under the law, C and Federal Reserve Banks should consider these loans --Y, i• e. Federal Reserve Industrial representatives and .1895 6/26/34 "RFC Lear Committeemen sitting as a joint Loan Committee in considering industrial loans, inviting the cooperation of banks, and especially the bank having the account of the applicant. In this may, greater speed will be accomplished, with each agency taki2',g such participation in the loan as may be agreed upon at the time of making the loan. By this proced ure a greater spread in the credit risk would also be obtained. "Inasmuch as our offices, with few exceptions, are in Federal Reserve Bank buildings, industrial loan applicants could be directed to a common office for 'Industrial Loans'; the Advisory Loan Committee, composed of representatives of the RFC and the vederal Reserve Berl-, determining whether the loan weuld be recommended, and if so, what agency would make it, or haw it mould be participated in; Federal Reserve Lank management, as well as the RFC Board, necess arily reserving the right to adopt, alter, Change, modify , or reject recommendations of the Loan Committee. "There will undoubtedly be loans which Federal Reserve Bank management will be willing Lc) make, in cooperation with banks, !xld in which the RFC will have no part. On the other hand, here will probably be loans in wiach the Federal Reserve and he RFC will participate in connection with banks. if some such procedure as this is not agreeable to the Feder.fti Reserve board and the several Federal Reserve I-anks, the RFC ! 111, at all events, cooperate with Federal Reserv e and other ;411ks and lending agencies, with a view to facilitating such J-0ans.” z Governor LcKinney stcted that, after careful consideratio n of tqa th ° facts involved, the committee felt that the Mint,: of applic ations with the Federa l reserve barks under section 13b of the Federal ..eerve Act should be free from unnecessary restrictions; that their er'ktion by the Industrial Advisory Committees and the Federal e4rve b vallks should be expedited as much as possible; that the intro4.011 • 111 this procedure of other agencies and requir ements which are - ola 'mPlated by soctin 13b of the Act would tend to create confuilli sunderstandinr and thereby hamper the Federa l reserve banks ' t-ril-Y; that it was the unanimous opinion of the committee that Proc edu -re Proposed by Fr. Jones mould no be desirable or practiettbie. een 'Qclally in view of the material differences in the statut ory the Was/3, tecluirements under which the Federal reserve banks and the Reconstruction D. - 'lnance Corporation, respectively, must operate; and that the Itd°Pti°11 of such a procedure would not be in accordance with the intentio - Of Congress or the express terms of the law. Governor Black referred to the question raised by the legis.743 history of the industrial credit act as to whether the Reconq1.11, e,ion Finance Corporaticn may make advances under the act before 641 844)11oation made by the borrower to the Federal reserve bank has bee, • re jected, and he suggested that this point be considered by the keeting• Opinions mere expressed on the question raised by Governor " eIld on the question presented by Yr. Jones' letter as to whether tho "Icleral reserve banks should act jointly with the Reconstruction /),11 841" Corporation in considering applications for loans, or whether theli „ '40111-d. consider such applications independently. During this 44ion Governor Harrison of the Federal Reserve Bank of 1;ew York -40,1 the meeting. Governor Young moved that it be expressed as the desire of the governors and Federal reserve agents that the law be construed to mean that it is not necessary for an applicant for a loan under the industrial credit act to submit his application to a Federal reserve bank before making application to the Reconstruction Finance Corporation. It vdav, suggested by 1.1r. Thomas that, before acting on Governor NV th m,„ ---4°n, it might be well to invite Lir. Jones to the meeting for : se of makinr a statement as to his nttitude on the two questions 14141, oxIsi deration. This suggestion -was approved, and hr. Jones was I; 6/26/34 invited by telephone to join the meeting for the purpose stated. While awaiting the arrival of Lir. Jones, Li. Harrison, as rman of the Recovery Program Committee, stated that his committee 44111et yesterday afternoon, and inasmuch as it was understood that the committee was to be a continuing one, it had discussed topics of the character which it was thought should come before the committee 44 be under its constant observation, and that the committee was Ittaziz ous in its agreement with the suggestion made by Governor Black It the meeting yesterday with regard to the importance to the Federal 1°1-1.e System of doing everything possible under existing laws to 'Ill'ther recovery. On this basis, Governor Harrison said, the conmit- felt it is very important that a committee or commission be ap11°111ted to consider what further laws are necessary to the protection 444 betterment of the banking system of the country as a whole and the' relations between the System and the Treasury; that this problem 4t114()t be studied to a conclusion by a departmental study which must be or )111Pleted by October 1; that the President might request the Board the rr, ' reasury, or both, to appoint a joint committee to make a tlic*Nh study of the subject; and that, if the appointment of such a 4blittee is not thou7ht to be wise at this time, the Federal Reserve should appoint an independent committee of its own to make such tt4t1ICIrs a lthou,-h the committee feels such a study would not be fully etIted unless it is a joint committee or commission of the kind 41tr. pl" ) . 19'1-'18 6/26/34 Governor Harrison stated further that such a study will take considerable time, and the committee felt that in the meantime the Pederal Reserve System should do everything it can under existing law to elzrther recovery; that the Federal Reserve Board should be as efIcetive and as expeditious as possible in its action under the Securitiee Exchange Act of 1934; and that the Federal reserve banks should 1111 -10. to the attention of their member banks the importance of tho 11441:111E community doing its share toward recovery. The difficulty in °°1111ection with the latter question, Governor Harrison said, is that, 14118 the banks may desire to make loans, if they make the kind of 44414 that are available now, they will be criticized by the banking EtUthcrities; that, in view of this situation, the committee feels it 44/414 study the possibility of bringing about a situation in which may be more liberal in making loans without feeling that t4411allka I 434441s mill be criticized by examiners; and that this natter is one ichrequires immediate study. Governor Harrison reported that another matter considered by the kot oftaitteo as an important one was that there should be taken such 48 is possible under the present law to open up the capital ket and unless that market is opened so as to relieve the burden 111141tr,1 r-Loyment, the budgetary program of the Government during the Ilcolsea. qoverilt 7Year will be an extremely difficult one. It was felt, at ie.tter r ,4rrison said, that it is very important, especially in the cities, that a study be made by Federal reserve banks of the itue.tio4 as regards the capital market. 6/*34. Governor Harrison also said that his connittee had voted to eclIsider further the matters referred to above and submit a later re(:'rt thereon to the Board and the Federal reserve agents and governors. Governor Harrison then stated that at the meeting of the Executi e C ommittee of the Federal Open Market Committee on Llay 23, 1934, ""lon was had with regard to the use of the stabilization fund ror the Purpose of purchasing Government securities, and that the )0rei-wary of the Treasury had stated that the resources of the fund 17°424 not be used for that purpose prior to June 160 1934. 4tatod that, in a recent conference with the Secretary, the latter had "lorized 4d1rir, ' )O He also as chairman of the Federal Open Larket Committee, to the connittee that the Treasury Department has no present inten- tion, of utilizing the stabilization fund for the purpose of purchasing Go, verIlInent securities, and that the Department will not use the fund that purpose without first advising Governor Harrison as chairman "Federal Open Y-arket Committee and giving the committee an opDorttai. ltY to express an opinion with regard to any proposed action. Governor Harrison then reported that he had also discussed th the Secretary of the Treasury another question which had been dAeu e-Ced Ut Co . te the executive committee meeting of the Federal Open Larket ; i.e., the possibility of using the stabilization fund to 1)11rehRse Ilket some of the Government securities held in the System. open account, and he stated that he felt the Secretary had about l'tlehed the Conclusion that it would be wise for the Treasury Depart111°11t3 rather than to purchase securities in the open market, to 1900 6/26/34 -10then from the Federal reserve bpnks on the theory (1) that itlirould reduce the interest payments of the Governnent, (2) that "muld decrease the total amount of securities held in the System " "tuati (3) that it mould utilize some of the stabilization fund XLI:hout increasing excess reserves measurably, and (4) that it mould Pilt the Federal reserve banks in a better position to accept longer tet311 securities in exchange for maturing issues. The Secretary had 88'1(4 Governor Harrison stated, that he mould take this matter up 8tait Upon his return to "Washington after the first of August. At this point, Mr. Jesse Jones, Chairman of the Reconstruction °aloe Corporation, joined the meeting and Governor Black stated, for hia 4 44formation, that the meeting had under consideration the questi°48, (1) whether Section 5d of the Reconstruction Finance Corporati°4 Act, as amended by the industrial credit act, should be interrequiring that applications for loans be made to a Federal terlerve bank before being made to the Reconstruction Finance Corporat)14 83ad (2) mhether, as suggested in Mr. Jones' letter of June 22, 424 'there should be joint action by the Federal reserve banks and t4aeconstruction Finance Corporation in handling applications for 114418 Under the industrial credit act, and, if so, to what extent, and -the meeting mould appreciate having a statement from Mr. Jones 444t° his attitude on the questions. 14r• Jones stated that he felt that, on the basis of his experi- s40 at 414 the Reconstruction Finance Corporation, the number of loans kt be made under the industrial credit act is going to be a 1901 G/2/34 -l1- aPPeintment to the banks, the Reconstruction Finance Corporation, th15 Public, and the people who will expect to get loans. to tt..'1.0_ second question as stated by Governor Black, he said it seems to be hi Cor In anmer hly desirable and practical that the Reconstruction Finance NTation and the Federal reserve banks consider these loans joint- 11, v 2 as generally the offices of the local agencies of the Reconstruc- ti(ph 2-nal-ice Corporation and the banks are in the sane building and tliclre is no reason why there should be two loan departments in any (Ideral reserve bank. An applicant should be able to go to one depart- 14°41: and file his application, and it would be desirable for the ad.v18°I'Y cornittees of the Reconstruction Finance Corpor&tion and the brkaak () advise with each other on applications for loans, following 'nhich the bank management would determine whether it wanted any part "the loan. He did not think the Reconstruction Finance Corporation 17°1°41 be willing to delegate any authority to its agencies to make 1110130 loans, but the board of directors will act on the applications Qt faz3t as it can. If a joint committee mere established to consider the 4ans, it would not be necessary to consider the question whether l'ederal reserve bank should refuse to make a loan before the ap131teellt could apply to the Reconstruction Finance Corporation, and the 4PPlican4. need not know, when filing his application, whether the loan be granted by the Federal reserve bank, the Reconstruction Fl11141 Corporation, or the local bank. Certainly, he said, the Recon- 4t1%14"1-°11. Finarme Corporation desires the Federal reserve banks and the 1"al banks to make the loans if thoy will, as the board of 1902 6/26/34 -12- directors of the Corporation wants the Corporation to get out of the 1141°Ing business as soon as possible and to get that activity back illto private hands. He added that there must be accord as to purpose ill this respect, and the Corporation wants to cooperate in every way It earls As to whether the law should be interpreted as requiring apillicants for loans first to make application to a Federal reserve bank before going to the Reconstruction Finance Corporation, hr. Jones 8kLci the Corporation would like to construe the law, and probably 17111 construe it, as not requiring that application be made to a Fed- reserve bank, as the Corporation mould like to be in a position to Zak° loans without requiring that the applications first be denied by a. Federal reserve bank. Counsel for the Corporation, Mr. Jones skid, had advised that such a position may be taken, but that he felt the Cor poration and the Federal reserve banks can cooperate so that the question will not arise. Mr. Jones then said that he was going to teak over the radio tonight, and would appreciate it if he could be (*rieed today of the decision reached on the tmo questions referred to. Go vertor Black advised Mr. Jones that he would communicate to him 4a possible the decisions reached. 11r. Jones then withdrew from the meeting. 401,e_ The discussion of Governor Younr41s motion was resumed, and 4-nor li arrison raised the question as to whether, in view of the 14,ovi.4 .4.048 of the law as finally enacted, it would serve any useful 1)11rPose take any action at this time with regard to the question 19C3 6/26/34 -13- Presented by the motion, and whether it would not be to the advantage (It the Federal reserve banks not to have any fixed construction of the law on this question at this time. Governor ilarrison moved that Governor Young's motion be laid on the table. Carried unanimously. During a further discussion of the question, it was indicated 4 the feeling of all but three or the Federal reserve agents and ()."rrlers present that, from a practical standpoint, the law should .4*t be interoroted to require that applications of borrowers be sub114tted first to the Federal reserve banks before being made to the 4e0tstruction Finance Corporation. Governor NcKinney then resumed his report on the action taken bYthe Industrial Credit Committee, and stated that, after a careful (31441-deration of the tentative draft of Regulation S prepared by the 13°41.d, the committee had approved the regulation with the following 1°13°80d amendments: (1) Amend Section IV(a) to provide that the Industrial Advisory Committee in each Federal reserve district shall consist of five members. (2) Strike out the proposed paragraph (a) of 8ect1on V which limits the aggregate amount of loans °aid advances by a Federal reserve bank to any one industry or commercial business. (3) Amend paragraph (c) of Section V to provide for a limitation of six months on comaitnents instead of one year. beellat G°Ircrnor licKinney stated that the first two amendments had Pr°17ed by the committee unanimously and that the third had been ' 11904 6/26/34 -14- 843Proved on a majority vote. A discussion of tho last amendment proposed by the committee developed the consensus of the Federal reserve agents and governors that the paragraph in the Regulation with regard to limitations on CON& *4aents should be eliminated altogether from the Regulation. It was then moved that the Regulation, amended in accordance with the first tmn suggestions of the Industrial Credit Committee and so as to eliminate entirely the paragraph on limitations on commitments, be approved by the Federal reserve agents and governors. Carried. Governor iarrison referred to Section VI of the tentative cilvt Of Regulation S, with regard to rates of interest and discount, nald r . eased the question whether a Federal reserve bank may submit to t p ederal Reserve Board, and the Board approve, a spread of rates to be charged on advances made by the banks under the industrial credit (let. Reference was made again to the question whether the Federal Ile"I ' -70 banks should act jointly with the Reconstruction Finance in handling applications for loans under the industrial credit 11C3 ' .19Ild the opinion was expressed by several of the agents and gover11 that it would be desirable to leave the matter for the determina0 various Federal reserve banks. . At the conclusion of the discussion, Governor Harrison moved that it be expressed as the opinion of the conference that the Federal reserve banks cannot waive the duties or obli7ations imposed by law on any form of collateral agreement. that, however, the Federal reserve L905 6/26/34 -15banks will find many ways in which they and the Reconstruction Finance Corporation agencies can be of mutual help by cooperating in exchanging information and expeditiously handling the applications that will come under the new legislation, and that, to a considerable extent, cooperation between the Federal reserve banks and the Reconstruction Finance Corporation already exists in fact and such further working arrangements as may be necessary or desirable will be developed most speedily and satisfactorily as the work progresses in each bank. Carried. Governor Black stated that the Secretary of the Treasury had E4Pressed a desire to be present at one of the meetings while the Pederal reserve wrents and governors are in Washington and that he 413,4- -Lwated him to be present at the meeting tomorrom. morning. He also stated that Senator Glass had advised him on the tele- 1)110110 this morning that, while ho regretted it very much, he would be taaable to attend the meeting today. Governor Black said the Board mould be glad to give prompt 001131deration to any recommendations that the Federal reserve banks In"Ive to make while the agents and governors are in dashington with to appointments to the Industrial Advisory Committees to be Spt uP in the respective Federal reserve districts pursuant to the illdtistrial credit act. 'thereupon, the meeting adjourned, with the understanding that the -;°1/ornors mould attend a meeting of the Federal Open Larket Comand that the Federal reserve agents would hold a meeting of th pede ral Reserve Agents' Conference for the purpose of considering
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