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797 A meeting of the Board of Governors of the Federal Reserve SYstena with the Presidents of the Federal Reserve Banks was held in 148h1ngton on Tuesday, June 8, 1937, at 10:15 a. ria. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Broderick Szymczak Mee Davis Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Smead, Chief of the Division of Bank Operations Mr. Parry, Chief of the Division of Security Loans Mr. Dreibelbis, Assistant General Counsel Mr. Vest, Assistant General Counsel Mr. Wingfield, Assistant General Counsel Messrs. Harrison, Sinclair, Fleming, Leach, Schaller, Martin, Peyton, Hamilton, McKinney and Day, Presidents of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco, respectively. Mr. Strater, Secretary of the Presidents' Conference Mr. Burgess, Vice President of the Federal Reserve Bank of New York Mr. Williams, Associate Economist of the Federal Open Market Committee President Harrison stated that the Presidents' Conference had c°11I1Pleted the consideration of the matters on its program yesterday 798 6/8/37 -2-- afternoon and that the minutes of the conference would be sent to the 8"rd in due course. He referred to the report submitted by Messrs. Smead and BurUnder date of June 4, 1937, pursuant to the action taken at the Meeting of the Federal Open Market Committee on May 4, 1937, with reto the formula used for the quarterly readjustment of the particiPations of the Federal reserve banks in the Government securities held in the System open market account and stated that the conference bed recommended that, provided there is no substantial amount of deprecietion in the account as of July 1, 1937, the participations of the Pecleral reserve banks in the account be readjusted as of that date on the same basis as that used in the readjustment on April 1, 1937. The cotp_ 'rence also recommended, President Harrison said, that Messrs. 4neFtd and Burgess continue their studies of the question whether a more ectory formula for such adjustments could be devised. President Harrison also said that the conference had discussed "length means by which greater interest might be created in the market f or Treasury bills and that it was understood that the Presidents wc)klaa etudY the problem in their respective districts. Chairman Eccles called upon Mr. Goldenweiser, Economist for the 1, "eral Open Market Committee, to make a statement on the present bi4illess and credit situation. Mr. Goldenweiser distributed a memorandum on business and conditions which had been prepared in the Division of Research tatistics under date of June 4, 1937, a copy of which has been 799 6/8/37 Placed in the Board's files, and discussed briefly the most important Points covered by the memorandum. In connection with the distribution c)r. maturities of Government securities in the System open market accol t he suggested that with approximately ;700,000,000 of long-term b°11ds) 40_400,000,000 of maturities within one year, and the balance °D the maturities between one and five years, the portfolio was in a fairly satisfactory condition. He felt that, in view of prospective developments in the reserve position of member banks during the re1114inder of the year, the short-term securities now in the account would be adequate to make effective a policy of reducing reserves by allow'N maturities to in off if such a policy should become desirable. On the subject of the continued inflow of gold into the United 8tEtt,„ -s) he expressed the opinion that, because of the large volume of €1(1 imports, the Treasury would eventually abandon its present policy Of sterilizing such imports and the Federal Reserve System would be lAnder the necessity of taking action to counteract their effects upon them 4°11eY market. He said that for that reason it was important that ' the, ederal Reserve System be in a position to absorb gold imports in 'manner and assist in discouraging further additions to the gold eity1101Y and that additional powers were necessary for that purpose. Be Ilegested that study should be given to a plan for putting an upper limit °11 the, - azount of reserve balances that could be counted as reserves. E1A, that it was becoming more Rd more apparent that unless the 1411110, ng system in the United States is unified and the Federal Reserve 8no 6/8/3? -4- SYstem is granted additional authority it will not be able to discharge Pr°Perly the responsibilities now resting upon it. Mr. Williams was then asked for his views. He stated that he Wa8 imPressed by the rapidity with which things had changed. Two or three months ago, he said, the System was disturbed by the speed with which the recovery movement was progressing and prices were advancing, Whereas the indications of undue expansion, including the accumulation °r inventories in anticipation of higher prices, had now largely dis4Peared. He felt that the large increase in the price of building Illaterials which had taken place might have an adverse effect upon the '4311ante of construction, end that the continuation of serious labor troubles would undoubtedly have a similar effect upon the progress of '-lless recovery. He expressed the opinion that the much talked of recession in hese had not materialized to any substantial extent and that, while aorae ' Iless economists had concluded that there would be a recession of busi4- 4-11 the third quarter of the year, there was little evidence at the 1)res%it time of such a recession, and that it was the general expecte1°11 that in any event recovery would be resumed by fall. He added that the slowing down of the rate of business activity was salutary 14 of . , 1.ect and had decreased substantially the possibility of any major ' , r,-kers in the progress of business recovery, and that, in his opinlot— ' une continued inflow of gold and the possible effects of that k eht upon credit conditions constituted the most important problem so' 6/8/37 -5- betore the Federal Reserve System at the present time. Chairman Eccles stated that, because of the prohibition against Payment of interest on demand deposits including bank deposits, there was little incentive at the present time for interior banks to keeP their excess funds on deposit in the money centers; that, as a reeult, excess reserves of such banks were being held in their own Iteults or with correspondents, and that, therefore, the effect of these 1416 rands was not fully reflected in the money market. As a means of rilakillg these excess reserves effective in furthering the easy money P°11eY of the Federal Reserve System, Chairman Eccles said, the manOf the Board had discussed informally a suggestion that the Fed"41 °Pen Market Committee direct the Federal reserve banks to purchase 14e/24411'Y bills, when offered to them, at rates slightly higher than the €.°14 market quotations on such bills. Such a policy, he said, would 1.1re liquidity to Treasury bills which are one of the principal mediums tor 8hort-term investment at the present time and would enable banks 1111t4 eleess reserves to invest their idle funds in bills with the as110e that they could be disposed of whenever the banks were in need 8111'4 ' or t, 6 funds for other purposes, thereby broadening the market for " Trati 81117 bills and at the same time enabling excess reserves of member btartu --"'8 to exert their influence upon the money market. He suggested that the matter be discussed at this meeting for the purpose of getting the, "nefit of the views of the Presidents prior to its consideration 't th e meeting of the Federal Open Market Committee. Various phases 802 6/8/37 -6- Of the suggested arrangement were discussed as well as possible effects Upon the money market and the reserve position of member banks. The meeting recessed at 12:55 p. in. and reconvened at 2:30 Ps rp. with the same attendance as at the morning session and, in additic:41, Mr. Leonard, Assistant Chief of the Division of Examinations. Mr. McKee suggested that consideration be given by the FedCL reserve banks to the desirability of reviewing the situation with l eaPect to any State member banks in their respective districts which, ' bee rlusa of inferior management or for other reasons, will Probably be to survive, and, with a view of preventing loss to the deposi- 'e and the Federal Deposit Insurance Corporation and salvaging as t°1 as possible for the shareholders of such banks, obtaining correctio,, 1 of criticized conditions or assisting in effecting mergers or ' " c°11solidations of the banks or in bringing about voluntary liquidation. MI*. Leonard discussed briefly the desirability of the Federal reserve 4111, --s taking affirmative action in carrying out Mr. McKee's suggestion • l*aferred to certain typical cases which illustrated the need for lich action. It was understood that the Board would address a letter to the Federal reserve banks requesting that surveys be made in their respective districts with a view to ascertaining the possibilities as to banks of the kinds referred to by Mr. McKee, and that after the results of the survey had been ascertained it would be determined whether a meeting should be held in Washington of the officers of the Federal reserve banks having charge of the examination functions 803 6/8/z7 -7of the banks for a discussion of the procedure to be followed. Mr. Broderick urged that the Presidents give consideration as Pr°raPtlY as possible to the situation as to employees at their respective banks with salaries of less than $2,100 per annum, and particularly thooe receiving less than $1,5001 for the purpose of determining the adviTm1,4 in view of living costs, of granting reasonable increases insalaries. The reason for this suggestion, he said, was that he felt that, xederal Reserve System could not afford to be in a position of not What could be regarded as a fair and living wage and that regardles8 Qf the wage scale in effect in other banking institutions in Fecier , al reserve bank or branch cities the Federal reserve banks should ticliust salaries wherever it appeared that such action would be justified. lie al 8° suggested that whenever it is necessary to reduce the personnel et a zederal reserve bank the bank effect such reduction whenever 1)0zal:ba . e uy the release of younger employees in point of service, retaining oi 4der employees such as those who have been with the bank for ten Year8 or more with records of satisfactory service. that f 1- He felt, he said, an employee had been with the bank for longer than ten years he ehoua, not be dismissed unless it was necessary from the standpoint of econo alieel operation of the bank and that if an employee with a long - record could be retained by placing him in another position even reduced salary such action should be taken. President Harrison stated that during the luncheon interval .804 6/8/37 -8- several of the Presidents had discussed the suggestion presented by Cheirman Eccles at the morning session regarding the adoption of a 131 "for purchases by the Federal reserve banks of Treasury bills and that it was the consensus that if there were no pressing need for an Iftladiate decision on the proposal the Presidents would prefer to have ‘ 1 11Iller time in which to study it before expressing an opinion, particillarlY in view of the possible effects of the proposal on the money Illeitct and the position of the Federal reserve banks in that market. It had also.been felt, President Harrison said, that greater liquidity ill the bill market might be largely achieved by the Treasury issuing °41Y ninety day bills. Further discussion of the proposal ensued during which the 111'e5idents indicated that they would like to have additional time to lisider the matter before expressing an opinion. The discussion re- to whether the proposal would be effective in developing the til"iret for Treasury bills, its effect on short-term money rates and 1411It1cu1arly the rates for Treasury bills, the objective of the proalternative plans which might be adopted with the same object4e, and the various forms which might be given to the plan. During the (1,, 4scussion Chairman Eccles stated that, while it was not necessary that a- conclusion be reached immediately, he felt it would be helpful to „ 'ue Treasury in formulating its program with regard to Treasury bill 8, which will be determined upon in the course of the next two 'Weeks, if a decision on the matter could be reached before that time. 805 At the conclusion of the discussIon the meeting adjourned.
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