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1161 A meeting of the Board of Governors of the Federal Reserve SYStern was held in Washington on Tuesday, June 9, 1942, at 10:40 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman McKee Draper Evans Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Dreibelbis, Assistant General Counsel Mr. Kindleberger, Associate Economist in the Division of Research and Statistics Mr. Goldenweiser stated that in accordance with the action t4Litellby the Board on May 26, 1942, he had attended meetings at the Trea81lry, which were also attended by representatives of the Treasury 414ciState De partments, the Export-Import Bank, and the Board of Economic Wart are and certain others who were there at the invitation of Mr. Mlite, D irector of Monetary Research of the Treasury, including Alvin .4alleeri r °f ttie Board's staff, Benjamin Cohen of the Department of the Lauchlin Currie, Administrative Assistant to the Presiislth respect to the study of plans for the establishment after War international stabilization fund and an international Re . 8ald that the discussions related largely to the details of N re 13°1-t Prepared by Mr. White and of the question raised by Mr. kee Whether the matter was at a point where an international confer°4 th e subject should be called. He (Mr. Goldenweiser) had taken 6/9/42 -2- the position that before anything could be done with respect to defi*tie ni— x-414.as for a stabilization fund or an international bank it would be -cessary to determine as nearly as possible what economic and fiIlancial problems would have to be met following the war and what would he the o bjectives of such a fund or bank. Although he felt that the °orisideration of details would be premature until that was done, he had stated / and would take the position in future conferences at the Treasury, that he and the members of the Board's staff working on the rilatter W°111d be glad to do what they could to analyze the problems involved and make their findings available to the other agencies repreakted. He made the further statement that he had since learned that the Board of Economic Warfare was establishing a division in that orgatlizati°11 for a study of the problem and that the Department of State h4c1 created a division for the purpose of making confidential studies clithe same subject. It appeared that studies were being made in other °"ices of the Government, and in the circumstances Mr. Goldenweiser telt there Was no need for any enlargement of the Board's staff but th4t141,. Kindleberger, whose *work in connection with the Joint Economic e°1111111-ttee of Canada and the United States was diminishing, would be able la° Practically — all of his time to the studies under the direction Gard.ner and that other members of the staff of the Division of ite4e'4rch and Statistics, including Alvin Hansen, would be available to (ID ortle work on the studies. Cst V, Chairman Eccles stated that on Saturday of last week he was 6/9/42 -3Present at a luncheon which was also attended by Secretary of State 1114-1, Under Secretary of State Velles, and Assistant Secretary of Stete Acheson, and that, following the luncheon, in connection with a j'eferenee to the desirability of bringing in representatives of other cIllrltries to work out an international program it developed that the Stet° Department felt it would be a serious mistake to take such a at this time. In a discussion of this point, the members of the 8°41'd indicated informally for the information of Ir. Goldenweiser thet they would be opposed to bringing in representatives of other e(kritries at this stage of the consideration of the program. In response to an inquiry from Mr. Goldenweiser, the members of the Board stated that they were in agreement with the position which he had indicated he proposed to take in future conferences relating to the proposed stabilization fund and international bank. Dutqw,the discussion of this matter Mr. Thurston, Special Assistant to the Chairman, joined the meeting, and at its conclusion ! l'eP41'17 'Chief of the Division of Security Loans, and Mr. Thomas, 'teSi8tarit Director of the Division of Research and Statistics, entered the z*130M and Mr. Kindleberger withdrew. Chairman Eccles stated that under date of June 1, 1942, he had 1"lied a letter from Frederic A. Delano, Chairman of the National Re4bIll'eea Planning Board, reading as follows: 1 164 6/9/42 -4- "I have just returned from a meeting of our Board held in Indianapolis and we are endeavoring to work out 4 fairly complete and well integrated system of research 1^Thich will give us a better concept of our country's problerls. We have for several years divided the country into regional centers for convenience of administration and ?tudY, and in some cases we have obtained good results; others, not so good. Those regions which are dominated 4 rsrY large industrial cities are more difficult to handle 'Lull those which are spread out more thinly and involve Pkreical development rather than economic problems. "During the discussion it was pointed out that the l'htederal Reserve System, with its twelve districts, has of ::eceseity studied the economic problems of their regions ; 1 (1 how those problems were related to the Nation as a th°1s. When this was suggested, I jumped to the conclusion c at we might work out with your Board a system which would ,?°rdinate our study of physical needs with your study of 4'c30-nencial requirements and the economic welfare of the sa,Untry as a whole. You remember that in 1_938 we made ,1 s headway through an industrial committee which in turn 'i:!sUlted in the trial balloon of a fiscal advisory council. s;7 know as well as I why that effort failed, and I am fj? You will agree with me that because that experiment is no reason why we should not try some other method. Is there any way in which we can review or reconsider th : 3rc , problem? IkAild you be willing, for example, to have 14r Director of Research and Statistics look into the probtor and indicate a basis of cooperation? To start with, ul„example, you might be willing to let us take it up ‘ : -4 the New qq the San York Reserve Bank, the Chicago Reserve Bank Francisco Reserve Bank, leaving out the others; celW°u might prefer to handle it entirely through your Office in Washington; or, if you dislike any of the Of te suggestions, you might be willing to do me the favor oper : lking it over at luncheon and perhaps work out a modus wcZldi which would be better than any I have in mind. con appreciate it if you would at least give it some elderation " VII 1 411 1 1 11 4 Following the receipt of the letter, Chairman Eccles said, he had d it with Mr. Evans, and had suggested that, if agreeable to tioaa„ci ) Mr, Evans be asked to assume immediate direction of the 6/9/42 -5c°11tacte with the National Resources Planning Board for the purpose determining whether a program could be worked out in which the FedReserve Banks and the Board could be helpful. In response to an inquiry from Mr. Draper whether it would be cleeirable for the National Resources Planning Board to undertake to deliel°13 a program directly with the Federal Reserve Banks, as suggested &tithe last paragraph of Mr. Delano's letter, Chairman Eccles stated th4tlirlder date of June 5 he sent the following interim reply to Mr. 1)e4r1° 'the last paragraph of which covered that question: , "I have your letter of June 1 in regard to working 11t with the Board of Governors some system for coordinat' 57 the studies which the National Resources Planning Board Inaking of physical needs with studies of financial requireme and the economic welfare of the country as a i;v-Le- This suggestion certainly strikes a responsive d with me, as I am confident it will with my associates. ashave already discussed the matter with Governor Evans who, la,g011 know, has recently come on the Board and is particuY interested not merely in the agricultural field but the broad range of post-war economics. tio 'Some time ago the President raised a number of questoxins with me bearinE more particularly on the fiscal and as etarY aspects of post-war problems and subsequent thereto, II are aware, the Board engaged the services of Dr. Alvin dertansen to head up various studies that we have since unaira en- It would seem to me to be a most logical and deyoti , 1 'e conjunction to work out a program such as I imagine e in mina. Rese "Fortunately, your long familiarity with the Federal 4104rve System makes you appreciate its potentialities in rst*;-ng some thought and prepaThsln that worthwhile contribution to the must be given to this all-important subject. rectn°ard has made a special effort to bring into the diba a'es of the Federal Reserve Banks men of broad economic trib?uncl and views, and it seems to me that a real concould be made by enlisting their interest and .° r V 6 / 9/42 -6"that of leaders in the business, banking and educational flelds in the various Federal Reserve districts towards the I' -ormulation of practical steps that would be necessary When the emergency is over. In this way, I believe a good deal of educational work could be done and the best brains in the country could be tapped for ideas and help ' Ielp in the formulation of a national program. From the StandPcint of the Federal Reserve System, in which I know nu have an abiding interest, as well as from the viewpoint of the National Resources Planning Board and the national axiterest generally, this should all be to the good. "MY own preference would be to give it direction so Cr as the Reserve System is concerned through the Board ''ere under the immediate direction of Governor Evans. In any case, it would be helpful to have an opportunity to I-ecues it a little more fully with you, and to that end, e_a1,11 wondering if you could find time in your crowded cal, i_laar to 447 next come over to luncheon at your convenience some week. If your secretary can get in touch with Al,;le we can find a day, I hope, when we are both avail- Chai In accordance with the suggestion contained in his letter, ^11 Eccles said, arrangements had been made for Mr. Delano and Ilearcieley Runa., Adviser to the National Resources Planning Board, to eclille to the Boarws offices this afternoon for a further discussion "the matter. There was unanimous agreement that the subject matter should be handled under the immediate direction of Mr. Evans, and that at the meeting this afternoon Yr. Delano should be advised that the Board would be glad to work with the National Resources Planning Board in determining that could be done to develop a program. ThereuPon, Mr. Goldenweiser withdrew from the meeting. Chat, - thEn Eccles stated that last v,eek he attended a meeting in the. of the Secretary of the Treasury, at which there were also 1167 619/42 -7P68ent, in addition to Secretary Morgenthau, Donald Nelson, Chairman Ot the War Production Board, Leon Henderson, Administrator of the Office °f Price Administration, Jesse Jones, Secretary of Commerce, 448(3h Purcell, Chairman of the Securities and Exchange Commission, 4tLiel Bell, Under Secretary of the Treasury, Lauchlin Currie, Administtltive A ssistant to the President, Beardsley Ruml, Treasurer of R. H. 44eY &C°mParly, Inc., and members of the Treasury staff, for the purP°se of considerinf,- what might be done to restrict the use of credit tc)r the Purpose of financing inventories of consumer goods. He said thatc)-n e aspect of the problem that was discussed as the one to 1\hich reference was made at an earlier meeting (which he reported at the meet14140f the Board on May 19, 1942) when consideration was given to the gilestion What, If any, action should be taken in connection viith sec4r1tio,t _issued for the purpose of paying off bank loans and thus P40 -rIg the borrower in a position at some subsequent time to make tth er Ilse of bank credit. It was reported, Chairman Eccles said, that selreral cases of this kind had arisen, that there was no reason the ssuee should be disapproved by the Securities and Exchange th 881°11 e.xcept for the fact that they were for the purpose of placm the uorp, , " 3"er in a better position to increase inventories, and that t ggestion had been made that an executive order be issued ' 11P a c ommittee that would have power to review and disapprove ch 1114tillg, : sues. While it was the feelini, of those present at the hairman Eccles said, that this solution would not meet the 1168 6/9/42 Problem and Was not necessary, the possible inflationary influence of ectialldecl inventories was discussed, and the suggestion was made by leasrs. Nelson and Henderson that the problem might be met through re— atIleti°11 Of the use of credit for the purpose of building up inven— t°11es 'Mr. Henderson stating that, while credit control had certain l'eeqtlized lit ations, the control of consumer credit by the Federal Systea had worked very satisfactorily and more effectively than hadbeen anticipated, and that the next step would be to apply similar l'estraints to purchases by the wholesaler and retailer, particularly 17Ith reaPeot to items of which there was a limited supply. Chairman Eccles made the further statement that, in response to4 request from Secretary Morgenthau for his comments, he expressed the °Pinion that the only effective way to meet the problem was by rationing the distribution of goods by the manufacturer, that credit e°tItr%ol. in this field would not be effective for the reason that con— Which had strong cash positions would not need to use credit 41' irlirentory purposes and that because of the reduction in the out— q411cling volume of consumer credit many concerns, instead of having 44(111rees tied up in accounts receivable, would have cash available 41' that purpose. lting Credit control, therefore, would work in the direc— the smaller concerns without cash resources and would illaee no Ntio restriction on the stronger concerns, whereas a system of 414 could be applied uniformly in all cases. Chairman Eccles 1169 6/9/42 —9— Ofl to say that there was general agreement with this position 411(1 that, following a statement that it would take some time to work a r ationing program, he suggested that the Board of Governors 144tht send a letter to all banks in the United States outlining what the imrettorY problem was and asking that the banks scrutinize all 14,118 made by them and attempt in every way to prevent the unjustified ilee of Credit for inventory purposes. ellailltan The letter would also state, Eccles said, that the examiners would be requested during the e°11148e of their regular examinations to review the banks' portfolios to ascertain that they were responding effectively to the request conthe letter. There was unanimous agreement, he said, that such a letter 811°414 be sent, and Messrs. Nelson and Henderson agreed to address lelAera to the Board in which they would discuss the inventory problekand e ndorse a program of undertaking to restrict the use of credit ae tar 48 Possible for the purpose of increasing inventories. These : le ter8 had not yet been received, but Chairman Eccles stated he had e.,ecked with Messrs. Nelson and Henderson on Friday of last week, at time the toara. they said they would write the letters and forward them to tollici 11,111 In ,_ -viinection with the question when the letter to the banks g° ollt, Chairman Eccles stated that he had suggested to Mr. 4111 that t 1, "e Work with the staff in the preparation of such a lettt), 'and h e e Plained at the meeting at the Treasury that, inasmuch lO 6/9/42 -1048the letter would have to be cleared with Messrs. Jones and Nelson, the Tr easurY, and possibly others, it would be a week or 10 days from that time before the letter could be sent. It was understood that Mr. Ransom would supervise the preparation of a draft of letter to be sent to all banks. 11r. Ransom then stated that it had been ascertained that the t°141 ou tstanding debt on the security of life insurance policies was 8()nething -i4_ n excess of three billion dollars, that in the absence of 411eatendment to the Executive Order under which Regulation W was isit would be difficult to apply the regulation in this field, but that it was felt that cooperation on the part of life insurance cornkies could readily be obtained in undertaking through their agencies to reduce this type of debt, and that he was giving consideration to the best method of approaching the problem from that angle. He exPr"sed the opinion that such action was desirable as it was necessary t0 bring pressure to bear toward a reduction in the volume of insurance Aoliai loans even if it should be found necessary to obtain additional 411th°ritY to effect that result. In response to an inquiry from Mr. 144:ee, Mr. Ransom stated that any efforts to reduce the outstanding l'q11111e of insurance policy loans should not, in his opinion, be dil'etecl in such a. manner as to cause the surrender for the cash surrender \'111.4e of any such policies nor attempt to be restrictive in the case tleW loans made by the insurance companies for the purpose of enabling kicyholders to pay premiumson such policies. 6/9/42 -11At this point, Messrs. Thurston, Wyatt, Goldenweiser, Parry, Dre-11. 4-uelbis, and Thomas left the meeting, and the action stated with respect to each of the matters hereinafter referred to was then taken bYthe Board. The minutes of the meeting of the Board of Governors of the "4-Reserve Systen held on June 8, 1942, were approved unanimously. Telegram to the Presidents of all the Federal Reserve Banks, readin g ae follows: "Referring our wire S-468 of May 2, in future reshowing number of applications for loans and guarante 8 on hand, please exclude those referred to Wash- Approved unanimously. aerve Telegram to Mr. Stroud, First Vice President of the Federal Re°f Dallas, reading as follows: gr, "Your wire June 5. Board does not know of any legal 44nds on which officer of Houston Branch may refuse nat ng deposition for use in private litigation as to sigoffj" on registration statement under Regulation 1,4 if 'eer is served with proper legal citation." Approved unanimously. Letter to Mr. F. B. Hubachek of the Consumer Credit Control Unit ( /f wle Office of Price Administration, reading as follows: efj,!This will acknowledge and thank you for your letter 40nm-tie 3 with further reference to OPA's field organizathe 1,84Id the establishment of liaison in the field between gera1 Reserve Banks and the various units of that orzation, that enclose for your information a copy of a letter We to all the Federal Reserve Banks on this general 172 6/9/42 -12- n subject on May 22, 1942. You will note that this letter has already transmitted to the Reserve Banks the suggestion that they establish close contact with the regional offices of the Office of Price Administration. "It is noted that you would like to write each of the regional administrators concerning cooperation with Reserve; Bank personnel and that in this connection you r°uld be glad to receive suggestions or recommendations !ri us. It might be well for us to send the Reserve 711c3 a list giving the names and addresses of your reuenal officers and for you to send to them a list of _ officers of the Federal Reserve Banks who have imITIediate responsibility for matters relating to Regulation e s is the only suggestion that occurs to us. We a"e'")ee a list of the appropriate Reserve Bank officers ncLI would like to have a list of the OPA regional admini,‘!Lrators and about 40 copies of the organization chart vi which a copy was enclosed in your letter. "We agree with you that when a Reserve Bank man is conc . raa , l'ned with a price ceiling matter the facts that he /c.f. need are likely to be in the office of the Local War betce and Rationing Board; also that it is from contact the OPA regional administrator and a representaw b,,, e of the Reserve Bank that plans for cooperation can expected to develop." j r Approved unanimously. Adiria0 Tel egram to Mr. Walter Lichtenstein, Secretary of the Federal r reading as follows: .4 "Your wire June 8. While all members of Board will Ic:s 6 be in have no obIection toWashington on Wednesday, July 1, they of committee arranging meeting with executive on that date. I Approved unanimously. Thereupon the meeting adjourned. Secr tary. 4PPI•oire
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