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852 A meeting of the Board of Governors of the Federal Reserve SYstern was held in Washington on Monday, June 7, 1943, at 11:30 a.mPRESENT: Mr. Ransom, Vice Chairman Mr. Szymczak Mr. Draper Mr. Evans Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman The action stated with resnect to each of the matters hereinre ferred to was taken by the Board: The minutes of the meeting of the Board of Governors of the ?ecleral Reserve System held on Tune 5, 1943, were approved unanimously. Tel sgram to Er. Mulroney, Vice President of the Federal Reserve : 11 4k"Chicago, referring to the application of the "Jackson State withdraw immediately BElak", 611.11g8 zenabershipMaquoketa, Iowa, for permission to ScIFIra waives in the Federal Reserve ,System, and stating that the to vatharetw, the usual requirement of six months' notice of intention and that, accordingly, upon surrender of the Federal Reillik stock issued to the "Jackson State Savings Bank", the Fed"Bank of Chicago is authorized to cancel such stock and °1L ileser. 4*e .131)/'°131"'iate refund thereon. Approved unanimously. e Ette DI ' llft of letter to Honorable Robert F. Wagner, Chairman of the ft4laittee on Banking! and Currency, reading as follows: 'This is in reply to your letters of February 23rd request' °Pinion as to the merits of the bills, S. 756 and S. 757, 853 6/7/43 -2- "which would amend the Federal Holoe Loan Bank Act and the name Owners' Loan Act of 1933. "You will recall that on three previous occasions the BOa 1\k, in response to similar requests, has expressed oppo''tion to like or related proposals contained in legislation l'hich was then pending. During the first session of the 76th oTagrass it reported on S. 2098, and during the third session t,tha same Congress it reported on S. 4095. Again, during sr first session of the 77th Congress, it reported on S. 2146, it 2147, and S. 2148, which together constituted one program. oPPosition to S. 2098 was directed generally at provisions s ich would have expanded the field of operations of Federal IC8 and Loan Associations and other member institutions of tI eL;11 rederal Home Loan BAnks beyond their original objectives at provisions which would have lent further liquidity to the 131 shares of such institutions. In the bills or series of po 18 which followed, some of the provisions specifically opbas?°1 by the Board were changed and some were omitted; but the 0 , 818 of the objections remained and the Board has consistently (grad tlieir enactment both in its reports and in the testimony °Yel'hor Ransom and myself at hearings on S. 4095. 'It has Mae to the Board's attention that, in addition to is ;;I :e bills, S. 756 and S. 757, now under consideration, there also so a bill pending, S. 1034, in which there is a proposal 1430 similar to one which the Board heretofore has been called kt.:1,t° consider. Accordingly, the Board's views on S. 1034 cot,tncluded with its views on S. 756 and S. 757. The Board pos' s ';fluas to believe that the enactment of any of these pro-L: Would not be desirable in the public interest. wl,.The to objectionable provisions of the above-mentioned bills .visi"lch the Board wishes to call attention are (1) the pro. 756 which would authorize the Secretary of the „za .4? 1 to purchase obligations of Federal Home Loan Banks the Savings and Loan Insurance Corporation, (2) )4t.,114% f - 13i0n in S. 1034 which would reduce the insurance precellt 'aue from 1/8 of 1 per centum per annum to 1/12 of 1 per Ped:11 Per annum, (3) the provision in S. 757 which would allow em ',,V; Savings and Loan Associations to invest their funds in tiO4-Z-Ligation which is insured under any provision of the Na(1I"1Eousing Act 'as heretofore, now, or hereafter in force', s4d ' 4001.1c the provision in S. 756 allowing Federal Home Loan t° make advances to their member associations on the seamy such obligations. the p"The first of these provisions would make it possible for the Tederal Home Loan Banks to obtain additional funds from reesurY It with which to meet the demands of their members. A 0111" also make it possible for the Federal Savings and Loan T7L 854 617/43 -3- :Insurance Corporation likewise to obtain additional funds. 4aither operation would add liquidity to the obligations of insured Savings and loan associations, the bulk of which are represented by shares. The Board knows of no reason why the Fed!Fal Rome Loan BAnks should not be able to meet the needs of fleir members so long as they operate within the scope of the rinciples on which they were created. The need to resort i2 the Treasury of the United States would seem to follow only he0Perat10n5 are broadened to the point that the market for obligations would weaken or disappear. This would appear t 11(/ be sufficient reason neither to broaden their operations r°1 'to authorize the purchase of their obligations by the SecstarY of the Treasury. S. 1034 would reduce the premiums or assessments due by n "red members to the Federal Savings and Loan Insurance Cor:fation from the existing rate of 1/8 of 1 per centum per ulza to 1/12 of 1 per centum per annum. The purpose of such ti aPparently would be to place the premiums charged by Federal Savings and Loan Insurance Corporation and those o : ed by the Federal Deposit Insurance Corporation upon a 7"-ar basis. In this connection, however, it should be re140 ered that the Federal Deposit Insurance Corporation insures • Tr deposits and not the shareholders of its insured banks. i, s capital, surplus, undivided profits, and reserves of its 1:gured banks stand between it and loss, and there is no commorable counterpart in the case of savings and loan associations. r, the liabilities which it insures are offset by diversir? le assets, the greatest portion of which is short-term in cl,,d ez,r_acter and a substantial portion of which is represented by til?1 and Government obligations. The institutions insured by rir4 Federal Savings and Loan Insurance Corporation are largely to ilt1 in character. The great bulk of their liabilities is otrsuareholders. These liabilities, as they should be, are set:t almost wholly by long-term investments secured by real e, An investment in such institutions should partake of the and 'ame character and should be for the purpose of acquiring da11122:oldinC the investment. Insured banks pay no interest on cielZd deposits and only limited interest on time or savings S. Insured savings and loan associations pay dividends at ; 1',7atlY higher rates and upon all of their liability to shs enolders. It follows that holders of their obligations c114 not expect such obligations to be as freely convertible ili• ti; Ittillr cash as bank deposits. By all of these standards the prersti ebarged by the Federal savings and Loan Insurance Corpo1,_'°11 should be higher than that charged by the Federal Deposit '16nralice Corporation. Z sing 855 6/7/43 -4"Federal Savings and Loan Associations are now permitted to lend their funds only on the security cf their shares or O the security of first liens upon homes within 50 miles of " lair office, with certain excetions. The effect of the two 1;r°visions of the pending bills (S. 756 and S. 757) would, therebe to enlarge the field of their permissible operations 7J-cl the sources from which they could attract funds by permitlne'them to invest (a) in modernization loans, (b) in home mort'geS regardless of location and (c) in large scale mortgages, , uell as those upon large apartment houses, if FHA insured, and ' e41) 1 obtain advances from their Federal Home Loan Banks on the se.4 sor investments. In addition, this expansion in the field of operation would extend to any mortgage or °iFttion insured under any provision of the National housing -c as heretofore, now, or hereafter in force.' b "The Board is in sympathy with what it understands to have teen the original objectives of the Federal Home Loan Bank SysWhereby Federal Savings and Loan Associations and similiar hortitutions would supply the need for local mutual thrift and ac.r financing institutions, and Federal Home Loan Banks would or s:oirs of funds for the accommodation of their member tIr lipril.77Zul The Board believes that the enactment of these would represent a material departure from these objectives. 04 in8141fle one hand, high dividend rates to shareholders plus the ranee of their investment in such shares would tend to att et uome junds far beyond those incident to local mutual thrift and woul, luancing programs. On the other hand, broadened powers see " offer investment outlets for such funds equally beyond the coj se of the original objectives. Thus, their enactment would itute a step in the direction of establishing a separate bald! orcli'oMplete banking system with an opportunity to compete for nary banking deposits on favored terms. For the foregoing reasons, the Board of Governors is of : the that the enactment of the bills would not be in the r Z Approved unanimously, with the understanding that the letter would be sent only in the event it appeared that the pending bills referred to in the letter were to be given active consideration at this session Of Congress, in which event the letter would be sent over the signature of Chairman Eccles or in his absence over the signature of Mr. Ransom. 856 6/7/43 -5Letter to Mr. F. J. Bailey, Assistant Director of Legislative Reference, Bureau of the Budget, reading as follows: "This refers to your letter of May 31, 1943, addressed lieirman Eccles, enclosing a copy of the Treasury Departnt's teeeOfl proposed re'Port to the Chairman of the Senate Commite Bankine and Currency relative to S. 986, which apparently is intended to exempt any deposit made by the United eXes in an insured bank from insurance assessments; and an expression of the Board's views with respect thereto. "In the proposed report of the Treasury Department, reference is made to the bill b. 700, approved on April 13, 19431 zelch exemoted from insurance assessments and reserve requireesnt8 balances payable to the United States that arise solely i, la result of subscriutions for Government securities, and it r:cstated that the reasons which prompted the Treasury to 8. nailend S. 700 afford no justification for the enactment of Accordingly, the Treasury recommends against enactto r 116 °f S . 986. "The Board of Governors is in agreement with the state: me contained in the proposed report of the Treasury DepartOn this bill and sees no objection to the transmission of report in the form enclosed with your letter." Zen+ Approved unanimously. Letter to :0.1r. Young, President of the Federal Reserve Bank of ellieego, reading as follows: i This refers to your letter of May 29, 1943, /.eT int?: est. Board's ap,)roval of the purchase of the building 4known as 150 West fort Street, Detroit, Michigan. by ! .1t noted that the proposed purchase has been approved Executive Committee of your Bank end by the Board 'if'ectors of the Detroit Branch. the 1:The Board of Governors has considered the matter in will-;Leht of the material enclosed with your letter and erty TnterPose no objection to the purchase of the prop" 'n qUestion at a cost of not to exceed 76,666." e4 Approved unanimously. Thereu-lon the meeting adjourned.
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