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712 Minutes of actions taken by the Board of Governors of the Pecieral Reserve System on Tuesday, June illthe 6, 1950. The Board met Board Room at 10:40 a.m. PasENT: Mr. McCabe, Chairman Mr. Szymczak Mr. Draper Mr. Vardaman Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Morrill, Special Adviser Thurston, ,ssistant to the Board Riefler, Assistant to the Chairman Leonard, Director, Division of Bank Operations Vest, General Counsel Nelson, Director, Division of Personnel Administration Millard, Director, Division of Examinations Young, Director, Division of Research and Statistics Youngdahl, Chief, Government Finance Section, Division of Research and Statistics Mr. Youngdahl reported on recent developments in the Governijaellt securities market, following which he withdrew from the meeting. Chairman McCabe referred to the letter mailed to Assistant 13tlet°r of the Budget Staats under date of June 1, 19)0 with respect t°4143Iicab11ity of the Federal Property and Administrative Services Aet Or 1949 and Reorganization Plan No. 18 to the Board, stating thaA Yestel,A --aY afternoon Mr. Larson, ,dministrator of the General Selliices Adm inistration, called him on the telephone and stated that 8-teats had sent him the letter and memorandum prepared by the .1 0.) 61/6/50 -2- and that there was no thought on his part that the Board's buladin-g would come under the General Services Administration as a result of the reorganization plan. Chairman McCabe also said that , at his suggestion, Mr. Larson readily agreed to furnish a letteror memorandum for the Board's records confirming his oral st"ement. He added that there was no discussion of the applicability of the Federal Property and Administrative Services Act of 1949 to the 13°8.1'118 '11d suggested that if the letter or memorandum which Mr. Larson stated he would furnish did not cover that question it be taken un vith Mr. Staats or Mr. Larson for further discussion. Mr. Connell, Technical Assistant, Division of Bank Operations, j°111ed the meeting at this point. C hairman McCabe then called upon Mr. Leonard for a stateet with respect to the check collection service of the Federal leserve System. the check Mr. Leonard reviewed the legislative background for collection system, the history of its development since the inc eption of the Federal Reserve System, the problems faced in the earlY Years of the System in its efforts to collect non-par as 48 Par items, the reduction in 1939 in the maximum deferment ellecillies to three days, progress in recent years in reducing the aetllea time for collection of checks, and the report recently subtilitted .bY a special collection committee of the Presidental Conunder the Chairmanship of Mr. Powell, First Vice President ‘- e 6/6/50 -3- Qf the Federal Reserve Bank of Minneapolis, which made the r°11°14ing Principal recommendations: "(1) That deferment schedules be further shortened gradually, even if greater amounts of float would have to be absorbed or offset. "(2) That in any further shortening of such schedules a differential be considered which would ! ake into account the fact that banks outside Federal l'eserve cities are at a disadvantage from the standPoint of availability of funds; that is to say, if 2ne-daY maximum deferment is granted to banks in Fe Reserve cities and banks in the same TetroPolitan area, consideration should be given '0 granting Immediate credit to banks outside Federal Reserve cities. "(3) There appears to be a need for a simpler reserve balance accounting method for the smaller ember banks. Since accounting for deferments seems be a major consideration for not using the Federal 1. „.° be Re facilities, the Committee recommends a study of this subject." T During a discussion of Mr. Leonard's statement, the meetrecessed and reconvened at 3:1_ p.m. with the same attendance 8.t the close of the morning session except that Mr. Young was llot present. Discussion of the check collection system was continued (1111111. 6 the course of which Mr. Leonard referred to the topic on the agetd a for the forthcoming President8' conference with respect to (1°I)ti°11 of a schedule which would reduce to two days the maximum dere rlient of credit for cash items, concerning which Mr. Leach, C114111118-4, Committee on Operations, Conference of Presidents, addressed €t letter to the Board under date of May 4, 1950. It was the consensus r;i1 5 6/6/50 -4(1 the members of the Board who were present that early adoption ()fa tvo day maximum deferment schedule should take place and at 'wan McCabe's suggestion it was understood that he would sligeest to the Presidents at the joint meeting with the Board next lieek that prior to announcement of the change the members of the eecut-ye committee of the Federal Advisory Council be invited to rile" with the Board for the purpose of discussing the proposed and that following that meeting the matter be taken up also With, -ePresentatives of the American Bankeis Association and the Ass°elation of Reserve City Bankers. Chairman McCabe's suggestion was approved unanimously. Mr. Connell withdrew from the meeting at this point. Before this meeting there had been circulated among the r4tkbers Of the Board a draft of letter to Mr. Wilbur, Chairman of the, l'ederal Reserve Bank of San Francisco, with respect to a recent q)ettch elven by Vice President and General Counsel Agnew of that The draft was discussed, changed, and approved unanimously in the following form: "The Board's attention has been called to the rPort in the Wall Street Journal of May 24, 1901 of 7. Agnew's talk before a convention of the American .1.4st1tute of Banking at Salt Lake City. th"The purpose of this letter is not to question t e legal right of an officer of a Federal Reserve Bank express an opinion which might be in disagreement t 6/6/50 ) With policies of the Federal Government. However, the Federal Reserve System as the central banking °rganization of the United States is closely identified With the Government in the public mind and of necessity must work closely with various departments and agencies of the Government . In these circumstances, the Board questions whether any public statement by an officer Of a Federal Reserve Bank should go beyond the presentation, in a dispassionate way, of his opinion and the factual material on which the opinion is based. "We have not read the entire speech which might thr 4. ow a different light on the matter. According to he report, however, Mr. Agnew's talk went far beyond the limits indicated in the foregoing paragraph Find s in the nature of an attack on the administration Power. By many it will be regarded as a political speech by an officer of an instrumentality of the Federal Government. Such a statement can be the Source of serious misunderstandings including the charge that the Federal Reserve Banks and their personnel are actively engaged in party politics. "The Board does not believe the Federal Reserve or the officers and directors of the Federal Reserve, Banks should be placed in that position. For hat reason the Board would appreciate it very much You would bring this matter to the attention of Your directors with the request that they consider the !'”ien that might be taken to prevent such a situation -rlsing at your Bank in the future." r Mr. Vest stated that in accordance with the decision at the Of the Board on June 2, 1950 he had informed representatives Of the °ffice of the Comptroller of the Currency and the Federal tc it Insurance Corporation that the Board would like to have a s 4111atafleous the examination of all the banks under common ownership Continental National Bank and Trust Company of Salt Lake Utah. He also said that Mr. Jennings, Assistant Chief iletioT1,1 -a.-L Bank Examiner of the Office of the Comptroller, had 6/6/50 -6telephoned to say that the Comptroller was inviting Mr. Cosgriff, 13re5ident of the National Bank, to come to Washington for a conl'(l'ence, that while the Comptroller's Office favored the simultaneous exanli nation proposed by the Board the Office would like to defer 8 decision on such an examination until a reply was received from the letter to Mr. Cosgriff, and that if he were not willing to Come t° Washington or if the conference with him did not produce 8'tisfactory results the Comptroller of the Currency would like to pro ceed with a simultaneous examination as early in July as Unanimous approval was given to the following letter to the Presidents of all the Federal Reserve Banks: ."You have recently received from the Board copies ' 1" bills pending in Congress to aid small business and ' t all of possible bills. It is, of course, impossible such to say at this time what legislation on this subject, if may be enacted. However, in order that the Board ay be prepared to act promptly in the event of enactment of any such legislation, the Board's staff has been 'Iring consideration to the nature of the regulations ;uich might appropriately be issued by the Board if such -Lec,islation should be passed; and there is enclosed a Pr liminary draft of such regulations. "The enclosed draft is based generally upon the Il3D T-sions of the Lucas-Spence Bill (S. 362)) which would 4 - 'flown as the 'Small Business Act of 1950'. However, ;Ifl.order to cover the different types of regulations vhIch might have to be issued by the Board under the pal.1°us proposals before Congress, the enclosed draft p_ows that part of the amended O'Mahoney Bill (S. 297)) lIch would place the proposed program for the insurance business loans (the Bimson Plan) in the investment companies which would be organized under the Federal L j 7118 6/6/50 -7"Reserve System rather than in the Department of Commerce as contemplated by the Lucas-Spence Bill. "You will note that the proposed regulations would include in section 8 the promulgation by the Board of standards relating to the eligibility of business enterprises for aid under the regulations. In the drafting of these standards, we have not as Yet discussed the matter with the Department of Commerce or consulted with the Secretary of Commerce "would be required if the Lucas-Spence Bill were e nacted. "It should be recognized that the enclosed draft Of regulations is purely tentative. It has not been 17nsidered by the Board and will, of course, have to Changed to conform to such legislation as may be enacted, but it seems desirable at this time to consider the general outline of such regulations. Acc°rdingly, it will be appreciated if you will let Us have not later than Monday, June 26, any comments illch you may care to offer with respect to the enclosed draft of regulations, and particularly with respect to the proposed standards of eligibility." At this point all of the members of the staff with the - n of Mr. Carpenter withdrew from the meeting. Chairman McCabe reported for the information of the other tleraber 8 °f the Board a recent informal conversation which he had had lith se Ilator Robertson regarding the likelihood of further action this session of the Congress on the bank holding company bill. 14-r. Szymczak stated that in accordance with the informal %rivers 8"tions with members of the Board he, as the senior member c) the, rersonnel Committee, had informed Mr. Morrill that his desire to be released from active service at the end of June had been cussed in executive session on Friday, June 1, 19)0, and that the plembers of the Board, including the absent members, unanimously 71_9 6/6/50 -8for various reasons, that he continue in active service the end of this calendar year. Mr. Szymczak also said that e.ftel" considering the matter, Mr. Morrill had stated that in response to "' Board's request he would be willing to continue during the realainder of 1950 with the understanding that at the end of that time 'Is active service would automatically terminpte and he would retire as of the first of the month in which his accumulated annual would be exhausted. Upon motion by Mr. Szymczak, it was voted unanimously to continue Mr. Morrill in active service as Special Adviser to the Board until the end of the current Year with the understanding set forth above. Minutes of actions taken by the Board of Governors of the 4cleral Reserve System on June 5, 1950, were approved unanimously. Letter for the signature of the Chairman to Mr. Brainard, Cha4 m44 of the Federal Reserve Bank of Cleveland, reading as follovs: "The Board appreciates very much the interest shown in Your letter of May 19, 1950, in which you refer to the 1.,°esible withdrawal from membership by the Lodi State '' c 'nk, Lodi, Ohio, and the Charleroi Savings & Trust Company, "arleroi, Pennsylvania. You also inquire as to the leDOesibility of the Board pressing for action by the .0ngress on pending legislation to liberalize the capital requirements for membership in the Federal Reserve System 4nd for the establishment of out-of-town branches. ha" you know, the Board and the Federal Reserve Banks ve 'been keenly aware for a considerable period of time of the unsatisfactory situation created by the existing 'aPital requirements for membership in the Federal Reserve IpM=L 720 6/6/50 -9"System and the establishment of branches by member , , tanks. The problem has presented itself in other rederal Reserve Districts in much the same form as that outlined in your letter. Shortly after the Present session of the Congress convened, I discussed the desirability of legislation with Senator Robertson 14,110/ as you know, is Chairman of the subcommittee on Iederal Reserve matters. It was his view that there should be hearings on the bill which was then pending alid he stated that he would try to schedule hearings soon as possible. I have raised the matter with i1111 from time to time since our first discussion but ne has not been able to find a time when the matter ,c_?uld be taken up actively by the Committee. The 1° )111 was referred to at the last meeting of the residents Conference when there was a discussion °f what the Federal Reserve Banks might do to get scluPPort for the legislation in their respective ti8triCtS and also what might be done by the Board ,° see whether agreement could be reached on a bill interested parties in Washington. The matter is on he agenda for further discussion with the Presidents ;).; the Federal Reserve Banks during the week of June As you know, the legislation is opposed by the ice of the Comptroller of the Currency, the Federal Posit Insurance Corporati on, and others and as long a ciT that situation exists it is going to be extremely 0._;,i] -faler_t to get action. Furtheo Furthermore, re, the pressure important legislation and for an early riournment has been making itself felt on the Hill ,J) 11" some weeks and I regret to have to say that ere is little likelihood that a bill of this kind 1°113-cl be pushed through the House and Senate at this 4-ate date. "The Board regrets that it has not been possible et more effective consideration of this important at this session of Congress but there have fell so many very controversial matters that have occupied the time of Senator Robertson's Committee st(lt it now appears that this bill was doomed from the art so far 0 , as effective consideration at this session 'the Congress was concerned." to le Approved unanimously, with the understanding that the Presidents of all Federal Reserve Banks would be 6/6/50 -10advised of the Board's views at the forthcoming conference. Memorandum dated June 5, 1950, from Mr. Chase, Assistant 81)licit°r, requesting that the 1950 budget for furniture and 4114mLent for the Solicitor' Office be increased by $11000. s Approved unanimously. Secretary.
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