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1_936 A meeting of the Federal Reserve Board was held in Washington W eanesday, June 27, 1934, at 3:00 p. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Black, Governor Hamlin Miller James Thomas Szymczak Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Martin, Assistant to the Governor Goldenweiser, Director of the Division of Research and Statistics Mr. Wyatt, General Counsel Mr. Vest, Assistant Counsel Mr. Mr. Mr. Mr. Mr. There was presented a draft of a statement for the press prepared bY the Governor and Mr. Goldenweiser in accordance with the action taken tlie meeting of the Board yesterday. The statement was amended and. approved in the following form: "The Federal Reserve Board has prepared, approved and issues -r"-th Regulation S, Series of 1934, which deals with loans by p "4 reserve banks for industrial purposes. The regulation ,01̀ Yzed the provisions of the law and prescribes the procedure 41 beeoe followed in applying for such loans. The regulation has alv n consiaered at a conference of the Board with the Chairmen Governors of the twelve Federal Reserve Banks and has been 'PlprTd by that conference. The need for this character of loans has become increasing1, ) ;:21 Parent in recent months. Many small industrial establishits have suffered severe capital losses during the depression 1.4 are now short of working camital. A survey made by the crp era' Reserve Board. through the Reserve Banks and the chambers beioommerce showed that this condition is widespread and is not it met bY existing facilities. Small industries find working of ea 'Ioult at present to obtain their requirements ot pital through the capital market, while commercial banks and her financial institutions, in many cases, are hesitant about involved in -"gorteld.116 on their single responsibility the risks 1,937 6/27/34 -2"making relatively long-time loans for working capital purposes. "Recognizing the need of these industrial and commercial businesses for additional working capital to enable them to continue or resume normal operations and to maintain employment or provide additional employment, Congress has granted the Federal reserve banks broad powers to enable them to provide such working capital, either through the medium of other °anks, trust companies and other financing institutions or, in exceptional circumstances, directly to such commercial and industrial businesses. It is believed that the facilities thus afforded will aid in the recovery of business, the increase of employment and the general betterment of conditions throughout the country. "The Federal Reserve Banks are authorized to have outstanding such loans in an aggregate amount not exceeding apProximately $280,000,000, but additional loans may be made out of funds received through repayment of outstanding loans, so that the aggregate amount of credit to be extended under this authority may be several times as large as the initial amount. These loans are to be made by the Federal Reserve Banks in their ?wn districts and applications for such loans Should be directed to these banks. The Federal Reserve Board in its regulation gives authority to all Federal reserve banks to make such loans Without referring them to Washington for approval. "In making these loans the Federal Reserve Banks will have the aid of advisory committees consisting of five active inLlIstrialists resident in the district. Progress has been made the selection of such committees, and the banks are now ready to consider such loans. "The reserve banks are authorized to make loans or advances l commitments for such loans or advances to financing instituot: 1°fls, which in turn advance the funds for working capital rPoses to established industrial or commercial enterprises. the financinlritY of the loans must not exceed five years ar0 the risk of institutions must assume at least 20 per cent elly loss that may occur. "IL exceptional circumstances the Federal Reserve Banks '/ Y also make direct advances to industrial or commercial r: . i:dertakings that are not able to obtain the required funds usul banking sources on reasonable terms. It is expected, however1, that the Federal Reserve Banks will not compete with i!eal banks, but rather will assist and cooperate with them 11" meeting local requirements for working camital. The Federal Reserve that Board and the Federal Reserve Banks are confident in this !b anks of the country will join with the system ell eavor to hasten economic recovery. ' V 1928 6/27/34 -3"At the recent conference the Governors and Chairmen of the twelve reserve banks all reported that there was need for this class of loans in their districts and undertook to set up Promptly the necessary machinery for considering applications for sucli loans and to carry out vigorously the purposes of tais additional power of the system to serve commerce and industry. The reserve banks will undertake through the advisory committees of industrialists to canvass the situations in their districts with a view to determining where loans for working canital purposes can be made in the public interest to industrial and commercial enterprises. "It was agreed that these loans would be made chiefly to and medium-size enterprises, which have the greatest need for such assistance, to whose needs Primary consideration waS given by the Congress, and in the improvement of whose conthe Reserve system under this law is primarily concerned." There was also presented a draft of a statement prepared by Mr. ?rat t with the thollglit that it could be used as an introductory statement 14 the printed copies of Regulation "S". The statement was discussed and approved in the following form, with the understanding that it also would be sent by telegram to the Federal reserve bamks with the request that they include the statement in their printed copies of the Regulation: "There is printed herewith the Federal Reserve Board's egulation pertaining to loans, discounts, Purchases and comments by Federal reserve banks to provide working capital ror established industrial or commercial businesses under the 13r ) °visions of section 13b of the Federal Reserve Act as amended Y the Act of June 19, 1934. After consultation with the Chairen and- Governors of the twelve Federal reserve banks, this f?,lation was aclooted by the Federal Reserve Board on June 26, ''34 and became effective immediately. "Recognizing the need of many small and medium sized industrlal • and commercial businesses for additional working capi'' to enable them to continue or resume normal operations and raaintain employment or provide additional employment, Contoess has granted the Federal reserve banks very broad powers va enable them to provide such working capital, either through 4 _ e Tledium of other banks, trust companies and other financing ‘ - 1Is titutions or, in exceptional circumstances, directly to 2 J 1_939 6127/34 -4- SuCh commercial and industrial businesses. It is believed that the facilities thus afforded will aid in the recovery of business, the increase of employment and the general betterment of conditions throughout the country. "In accordance with the policy of Congress and in order to facilitate as much as possible the performance of the new functions thus granted to the Federal reserve banks, the Federal Reserve Board's regulation leaves the broad powers granted by ' 44Cress to the Federal reserve banks wholly unimpaired and prescribes no restrictions beyond those prescribed in the law itself. Any attempt to prescribe technical definitions of such ,t_erms as 'working capital', 'established commercial or industrial °Ilsinessi and 'financing institutions' has been avoided, lest it I„a_.ve the effect of restricting and hampering the operations of Pederal reserve banks under this statute. The regulations, ./lerefore, contain practically nothing except an analysis of the -Law and an outline of the necessary procedure. to "The law permits Federal reserve banks to make direct loans established industrial and commercial businesses only when authcrized by the Federal Reserve Board; but, in order to avoid the necessity of having applications for such accommodations Passed on in Washington, the Board has granted blanket authority to all Federal reserve banks to grant such accommodations directly Oil their own responsibility without reference to Washington. "In accordance with one of the principles of the Federal Reerv. Act, which contemplates that the operations of each Federal .:"serve bank will be adapted to the peculiar needs of its own `fustrict and will be aliministered by persons residing in and 13riliar with the problems of such district, the Federal Reserve , a a!'d has not prescribed any uniform forms to be used in making ication to Federal reserve banks for working capital but has s,tt to each Federal reserve bank the task of preparing forms ' slIJ-table to the needs of its district. Each applicant, therefore, communicate directly with the Federal reserve bank of its 1lli7j4c atioV:ich will supply the necessary forms and all necessary Z O stm,_ -Lue Industrial Advisory Committees, which are to be organized each1 raerab Federal Reserve District and which will consist of five di ers actively engaged in some industrial pursuit within the will 'b strict, are being selected and the names of their members eznonnced promptly by the Federal Reserve Banks." At +-his point Mr. Goldenweiser left the meeting. Governor Black called attention to the semi-annual assessment to Y the Board on the Federal reserve banks to defray the expenses ' ard for the last half of 1934, and to the considerations wich 1940 6/27/34 hadbeen given to including in the assessment an amount to provide for the cost of a site on which a building for the Board would be erected and any e)qpenses that might be incurred by the Board during the six months period c onnection with the building. After a discussion, it was decided to levy an assessment based on the estimated expenses of the Board for the six months period, plus $100,000 for contingencies and $1,000,000 to be applied to the purchase of a site and the erection of the Board's building. Accordingly, the following resolution was adopted: "WHEREAS, Section 10 of the Federal Reserve Act, as amended, contains the following Provisions: "'The Federal Reserve Board shall have power to levy semiannually upon the Federal reserve banks, in Proportion to their capital stock and surplus, an assessment sufficient to pay its estimated expenses and the salaries of its members and employees for the half year succeeding the levying of such assessment, together with any deficit carried forward from the preceding half year, and such assessments may include amounts sufficient to provide for the acquisition by the Board in its own name of such site or building in the District of Columbia as in its judgment alone shall be necessary for the purT)ose of providing suitable and adequate quarters for the performance of its functions. After approving such plans, estimates, and specifications as it shall have caused to be prepared, the Board may, notwithstanding any other provision of law, cause to be constructed on the site so acquired by it a building suitable and adequate in its judgment for its pur22°ses and proceed to take all such steps as it may deem necessary or appropriate in connection with the construe81°/19 equipment, and furnishing of such building. The °ard may maintain, enlarge, or remodel any building so acquared or constructed and shall have sole control of such building and space therein. III * * "'The Board shall determine and prescribe the manner in which its obligations shall be incurred and lts disbursements and expenses allowed and paid, and A 6/27/34 -6leave on deposit in the Federal reserve banks the proceeds of assessments levied upon them to defray its estimated expenses and the salaries of its members and employees, * * * and funds derived from such assessments shall not be construed to be Government funds or appropriated moneys. 1 AS, it appears from a consideration of the estimated te_xpenses of the Federal Reserve Board for the six months' period p eginning July 1, 1934 and of the amounts which in the judgment °f the Board may be needed during such period to provide for the c°sts, or part thereof, of the acquisition of a site and erection of a building thereon suitable and adequate for the Board's qarters, that it is necessary that a fund eqiinl to six-tenths °f one per cent (006) of the total paid-in capital stock and surplus of the Federal reserve baril,cs be created for such purposes, exclusive of the cost of engraving and printing of Federal reserve notes; it at: T0W Th TMEREFORE, BE IT RESOLVED BY THE FEDERAL RESERVE BOARD, 11(1) There is hereby levied banks an assessment in an amount cent (.006) of the total paid-in bank at the close of business on upon the several Federal reserve equal to six-tenths of one per capital and surplus of each such June 30, 1934. ell., "(2) Twenty and three-fourths per cent of such assessment ' — 1 be paid in on July 2, 1934, twenty and three-fourths per cent thereof Shall be paid in on September 1, 1934, and the ;e""lainder shall be paid at such times and in such amounts as the ,,a d may call for the payment thereof during such six months , )(11 ' 1‘10d- beginning July 1, 1934. "(3) Every Federal reserve bank except the Federal Reserve of Richmond shall pay such assessment by transferring the ;r01,kint thereof on the dates as above provided through the crld.Settlement Fund to Bank of Richmond for the Federal Reserve Ba „eclit to the account of the Federal Reserve Board on the books 7 ; athat "an1=, with telegraphic advice to Richmond of the purpose : 0 lamount of the credit, and the Federal Reserve Bank of Rich01.111 shall Pay its assessment by crediting the amount thereof 4ts books to the Federal Reserve Board on the dates as above Droviclea." 11r. !liner stated that as chairman of the committee appointed by the Oa to make a survey as to possible sites in Washington upon which 6/27/34 the _7- 11 'card's building might be erected, he had conferred with representatives "'the National Capital Park and. Planning Commission with the idea of determ. nlag upon a satisfactory site for the building, and that Mr. Frederic A. e10 ,Chairman of the Commission, had written him suggesting a number Of , 4 near the Treasm7 building, none of which seemed to be satisfadtoz7. Mr. Miller then discussed sites which might be found to be desirable, X1d it was decided that members of the Board would make a personal visit tr3rrrow morning to a number of the sites. There was presented a letter dated June 26, 1934, from Mr. Jacob Ner, A ssistant to the Secretary of the Treasury, addressed to Mr. GoldenDirector of the Board's Division of Research and Statistics, stat111“h4t it would be appreciated if there could be made available for the 118° Of the group Who are making a banking study for the Treasury under 4r. Vinerls direction this summer a copy of the study of branch banking illthe 'United States prepared by the Board's Committee on Branch, Group, 41 011airl Banking. After discussion, Ur. Goldenweiser was authorized to make available to Mr. Viner a copy of the report, calling his attention to the fact that the report is nct up to date and has not been passed upon in any way °r approved by the Federal Reserve Board. 11r.Morrill stated that Mr. Peyton, Chairman of the Federal Reserve IlinneaDolis, had asked him to bring to the attention of the Board tIle following names as suggested members of the industrial advisory com%ttee '.0r the ninth Federal reserve district, with the advice that they 1141 be "seleotAd in consultation with the members of the board of direcalld would be approved at the next meeting of the board of directors 11-9°1k(CO 6/27/34 -8-Of the bank if the list is agreeable to the Federal Reserve Board, but that the persons selected heil not been consulted as it was desired to a.vold any. unnecessary discussion or embarrassment which might occur if they were not approved. 14% O. O. Follett rz • ti4.14ram Elliott 111% S. L. Sewall ‘ rAl * ert Miller 4 ..(trvey Jewett Vice President, Fargo Mercantile Company, Fargo, N. D. President of Elliott & Company, Meat Packers, Duluth, Minn. Vice President, Minneapolis Iron Store Co., Minneapolis, Minn. President and General Manager, Miller Broom Co., LaCrosse, Wisconsin. Jewett Grocery Company and Jewett Drug Co., Aberdeen, S. D. It was pointed out that the proposed members of the committee IsewidelY scattered over the ninth Federal reserve district, and the G°Irsr IlOr expressed the opinion that it would be desirable for three of them embers of the committee for each bank to be located in the Federal re n Qerv e bank city in order that the committee might act expeditiously 04 al)Plications for loans submitted to it. The question was discussed briefly and action deferred until the next meeting of the Board in order to afford the members of the Board an opportunity to consider the matter further. the 11r- Morrill stated that Mr. Edward Burling, Jr., attorney for 'econstruction Finance Corporation, had called on the telephone re- Ile the possibility of a Federal reserve bank considering an applicatio4, a loan under the industrial credit act from a company in the 171.1. T andS which is being sponsored by the Reconstruction Finance 1944 6/27/31 -9- C°1"Doration but is not yet a going concern. Mr. Morrill stated that d pointed out that the industrial credit act provides that Federal l'"erve banks may make advances only to borrowers or financing institu,tic'lls operating in the district in which the Federal reserve bank is 4cated, and that the Virgin islands are not located in any Federal Nerve district. In this connection, Mr. Wyatt stated that, in view "the provisions of law referred to by Mr. Morrill, it appears that a Pel'eral reserve b ank would be without authority to make advances to a rower located outside of a Federal reserve district. It was understood that Mt. Morrill would advise Mr. Burling that a Federal reserve bank would be Without authority to consider the application referred to. Mr. Morrill reported that he had received a telephone call from ackintosh, Manager of Rentals of the Washington Building, who advised t4at °le entire fifth floor of the building could be made available to tile Pederal Reserve Board at an annun] rental of $41,250, with additional space 0 11 another floor at the same cost per square foot, or approximately 6 Qi 6,1 I3er square foot of net office apace, which is 61 cents per square -e than is paid at the present time by the office of the Comptroller The skta ClarreneY for space which it occupies in the building. Mr. Morrill he had expressed the opinion that the Board would probably consider the 131, °D°sed rate as being too high, in reply to which Mr. Mackintosh had 1)4c1i4ted that he was willing to negotiate further. Mr. Morrill was authorized to continue negotiations with Mr. Mackintosh for the space desired. 6P:37/- -10Mr. Morrill then stated that Mr. Dillard, Deputy Governor of the re-j. Reserve Bank of Chicago, hmi called him on the telephone and aiivised that the Federal Deposit Insurance Corporation contemplates ' zilk; a new national bn1-11,-, to be known as the Deposit Insurance Ilationro zaall:, in East Peoria, Illinois, for the purpose of making available tIle 4 4nsured deposits of a closed bank pursuant to the provisions of section 12*B Of the Federal Reserve Act; and that the Federal Deposit Insurance 0)1,„ Aration desires to open an account with the Federal Reserve Bank of Chic aO on behalf of the Deposit Insurance National Bank, which account 'e handled in the same manner as the account of any national bank et the Federal reserve bank. Mr. Morrill said that Mr. Dillard had stated that , tile Federal reserve bank has no particular objection to opening the 4ec()1111t) but, inasmuch as this is the first case of this kind that has been Dresented to the bane, he would like to know whether the Federal R 1/e)30ard would have any objection to the account. After discussion, Mr. James moved that Mr. Dillard be advised that the Federal Reserve Board interposes no objection to the bank opening an account in the name of the Deposit Insurance National Bank, with the understanding that such action is to be considered only as an experimental step and not as a precedent to be followed ln any future cases. Carried. Attention was called to the resolutions miopted by the Stock Ex- -'t:e Act Committee on June 26, 1934 and presented at the meeting with the reserve agents and governors this morning. It was understood that the members of the Board would give the resolutions consideration, and Mr. -11_94G 6/27/34. -11Goldenweiser was requested to submit promptly a recommendation with regard thereto, in order that the Board may take action on the matter as soon as oossible. It was also understood that the members of the Board would give consideration to the general question of interest and discount rates to be charged on advances made by Federal reserve banks under the provisions of the industrial credit act, in order that the statement to be prepared by the Board as suggested by Governor Black at the meeting with the agents and governors this morning may not be unduly delayed in reaching the Federal reserve banks. The Board then considered and acted upon the following matters: Telegram dated June 27, 1934, from Mr. Paddock, Deputy Governor Pederal Reserve Bank of Boston, advising that, because of the abeenc e °f a quorum, the regular meeting of the board of directors Of the 'sank was not held today, and that, accordingly, no change was ' 14 the bank's existing schedule of rates of discount and purchase. Noted. Memoranda dated June 23, 1934, from Mr. Paulger, Chief of the Dill 10 on of Examinations, recommending the temporary appointment, for a Derio, Of thirty days, of Miss Claire C. Atkins and Miss Frederica G. stenographers in the division, each with salary at the rate of kISO A , u-aZr for each working day, effective as of the dates upon which , the ellter upon the performance of their duties. Approved. There were then presented the following apolications for changes 001= of Federal reserve banks: 6/27/34 -12- -ita.Plizons for ORIGIYAL stock: Ilsrryville National Bank, Cherryville, North Carolina 0 1) .1114 gLiIILLIat. "Pirst National Bank in Trinidad, Trinidad, Colorado cations for ADDITIONAL stock: District No. 2. 74ePirst National Bank of Lacona, Lacona, New York Shares 36 36 78 Total 78 114 63 63 4 4 12 12 i i,z1-17" 5. 'Llge Pirst National Bank of Westminster, Westminster, Maryland lz)Ilistrict No. 7. e Albion National Bank, Albion, Indiana ;!.hstriet No. 9 e Pirst National Bank of Staples, 74 Staples, Minnesota e Pirst National Bank 8: Trust Company ill Sioux Falls, Sioux Falls, South Dakota strict No. 12. West Side National Bank of Yakima, Th:ma, Washington f3raraercial .011Y, National Bank of Saint Ant], T1, St. Anthony, Idaho 'e Pirst National Bank of Portland, l'ortlano, Oregon 6 120 126 12 3 600 Total 615 820 tki„ st 21_15....fpr SURRENDER of st2.91 ell,ational Safety Bank and Trust Company 4 ?Ter: York, New York, Pirst National Bank of Oxford, Cbc1s°rd, New York trict "To. 3 g4e Parmers National Bank of Oxford, d, Pennsylvania 4,11 120 561 105 105 1948 6/27/34 -13- 2.1s for SURRENDER of stock: (Continued) 0.ist t Pirst National Bank of Gastonia, Gastonia, North Carolina Dist N lie*V'ict Of Shares 300 300 16 16 10 Roorefield, Nebraska 4ke First National Bank of Elma, 21ina, Washington wAqozt Bank & Trust Company of Los Angeles, Ls Angeles, California 18 1,500 Total 1,518 2,500 Approved. Thereupon the meeting adjourned. Secretary.
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