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590 A meeting of the Board of Governors of the Federal Reserve System 111 41 the Presidents of the Federal reserve banks was held in Washington On Monday, March 16, 1936, at 10:30 a. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Broderick Szymczak McKee Ransom Morrison 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. Paulger, Chief of the Division of Examinations Messrs. Young, Harrison, Sinclair, Fleming, Leach, Newton, Schaller, Martin, Peyton, Hamilton, and McKinney, Presidents of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and Dallas, respectively. Mr. Day, First Vice President of the Federal Reserve Bank of San Francisco. After welcoming the presidents of the Federal reserve banks, Cialo Eccles discussed the changed position of the Federal Reserve 8Ystem and the increased responsibility of the Board of Governors and the ?ed.. reserve banks resulting from recent legislation, and stressed the 1 , lleeescity in the discharge of this responsibility for close cooperation 4Mmutual understanding between the Board and the presidents as the ellier executive officers of the Federal reserve banks. 591 3/1(08 He then outlined briefly the proposed transfer to the operating side of the Federal reserve banks of the non-statutory functions now Performed by the Chairmen and Federal reserve agents and steted that, in complying with the request which would be made by the Board that a 81411eY of the organizations of the Federal reserve banks be instituted, it was the responsibility of the presidents to approach the problem 48 far as practicable from the standpoint of the organization of a new bank to handle the activities now being conducted by the Federal reserve banks and to meet the problems rising in the actual reorganizati04 of the functions of the banks with that thought in mind. He also stated that, while the functions of the Federal reserve banks should be conducted primarily on the basis of efficient Pliblie service and not from the standpoint of profit, it was the feelof the Board that careful consideration should be given to the (1:KPenees of the banks, particularly because of the present earning P°8ition of the banks, the fact that the major part of the earnings of the banks is derived at present from the System's holdings of Governsecurities, and the possibility that in the course of the next thre e or four years there may be a substantial reduction in such h°34ings without replacement by other earning assets. He also expressed "the feeling of the Board that economies at the banks should not be effected through reductions in the salaries or dismissal of minor ein131°Yees only but that necessary adjustments should be made all along 592 -3the line _ that one means of effecting economies was the retirement of employees who have already reached the age of 65 years; and that there might be cases where people who are near the retirement age might be retired and a sufficient contribution made to the Retirement System to Permit their retirement with the allowance to which they would be entitled if they were 65 years of age. He then discussed briefly some of the problems confronted by the Board in passing upon salaries fixed by the directors of the Federal reserve banks for officers and stated that the suggestion had been made that this situation be met in the future by the adoption of a leseification plan covering officers of Federal reserve banks similar to the classification plan now applied to employees of the banks. He 4180 referred to certain other questions at the Federal reserve banks to which consideration should be given with a view to securing a greater uniformity, such as traveling expenses of officers and employe") sick and annual leave of officers and employees and arrangements with counsel for the respective banks. In connection with the matter last r eferred to, he suggested that it would be desirable for each Fedreserve bank to engage counsel who would give his full time to the batik and be free from other connections; that in most of the banks such e°11msel could be at the same time an executive officer of the bank and e°1111 be assigned other important administrative work, as has already been done at one or two of the banks; and that he saw no reason for 593 3/16/36 -4- Such counsel being particularly eminent or high salaried, as a considerable portion of the work of such counsel consists- of interpreting the etatiltes and the regulations of the Board of Governors and in such work the legal department of the Board of Governors is available for aaeistance. The employment of full time counsel, Mr. Eccles said, Iliculd do away with some complaints made heretofore that outside counsel tcr the reserve banks have had conflicting interests. He added that Ileh an arrangement, however, would not prevent the reserve banks from em131°Ying special outside counsel to assist in important matters. Chairman Eccles read, for the information of the presidents, the at of policy adopted by the Board at its meeting on February 29 '1966) with regard to the approval of presidents and first vice Preeidents of the Federal reserve banks, the transfer of functions from the chairmen and Federal reserve agents' departments and the approval or salaries of officers for the remainder of the current year. He P°inted out that it was not the purpose of the Board to centralize in hehington any of the functions of the Federal Reserve System which are l'egi°nal in character, but that the Board felt that it was primarily l'eaPonsible for the proper functioning of the System in connection with "ere having a national rather than a regional application. He also stated that, while it was the feeling of the Board that the conduct, under supervision of the presidents of the banks, of the 4°n-statutory functions now performed by the Chairman and Federal re- 594 3/16/36 serve agent would prove entirely satisfactory, the alternative open to the Board, in the event such was not the case, would be to reestablish the office of Chairman and Federal reserve agent on a full time basis and conduct these functions through that office. In this connection, he said that, if the examining function were transferred to the °Perating side of the bank the Board would still be charged vidth the resPonsibility under the law of passing upon the appointments of e141.1ainers and would issue instructions which would provide that the information developed by examinations of member banks should be made available only to the officers of the Federal reserve banks. Mr. Eccles also referred to the cost of conducting the research and statistical activities of the Federal reserve banks and " Pressed the view that the survey to be made by the banks should in°lade a careful survey of this function with a view to eliminating all 411Plication in activities conducted by the banks and the Board's 8-Lon of Research and Statistics. He added that in vim of the new te813(3nsibilities placed on the Board by the Banking Act of 1955, it 11°111(1 be necessary to enlarge the activities of the Board's Division of Research and Statistics. Chairman Eccles then said that the principal matters handled by the alld Board had been assianed to individual members for primary consideration he invited the other members of the Board to make such statements as 595 5/16N -6-- they might wish in the light of such assignments. Mr. Broderick called attention to the fact that the Banking Act Of 1935 recognizes for the first time the chief executive officers of the? ederal reserve banks, and that provision was made in thc,t Act for the aPPointment of such officers for terms of five years, thereby giving them a position of independence and responsibility in carrying on the work Of the banks. He expressed the opinion that desirable changes looking t°ward the improvement of the banking system of the United States would e°111e largely through the efforts of the Federal Reserve System, and that, tIler fore, the officers in charge of Federal reserve banks should be out8t anding leaders of constructive banking thought. He stated that the Bc3ard and the presidents of the Federal reserve banks have a definite l'eeP011sibility for close cooperation and team work and a sympathetic 41)131'°ach by each to the problems of the System, and emphasized the riecessitY at all times for the frank exchange of views betTeen the presidents and the Board. Mr. Broderick stated that the subjects of the Pere°nnel classification plans and salaries of officers and employees of the?ederal reserve banks had been assigned to him for primary consideratioa and that it was his plan, upon receipt of the reorganization surveys Of the Federal reserve banks to visit the banks and review the surveys with the executive officers of the respective banks. Mr. Ransom stated that he was particularly interested in deterMining what steps might be taken to decrease the activity of the Federal 596 8/16/36 -7- Government in the lending field and restore that activity to the commercial banks. He said that he was of the opinion that the various G°vernment lending agencies at the present time were holding a large r1141101er of loans which are proper bank loans and should be taken over by the banks, and that a large number of applications were being made to alleh agencies which should be acceptable to banking institutions. He tated further that he was interested in improving the earning position of Inelaber banks; and that he had reached the conclusion that such improvement not at this time be brought about by increases in interest rates, but that earnings could be supplemented through the proper use of service larges and other means of revenue open to member banks. He added that he would like to have the presidents study these subjects and give him the benefit of their suggestions with regard thereto. Mr. Szymezak stressed the necessity for cooperation between the B0P -"A of Governors and the Federal reserve banks and also for improving the relations between the Federal reserve banks and the public with Plkilacular reference to the removal of the prejudices against the System b°111 °f ignorance of its fundamental purposes and functions. He then made brief reference to the following matters which he asked the presidents to consider preparatory to discussing them with him at the time °t hie next visit to the respective banks: 1, Uniform policy with regard to absorption of costs of examinations of State member banks. 2. Press releases by the Federal reserve banks. 597 3/16/36 -8- 3. Preparation by the banks of articles for periodicals. 4. Radio addresses. 5. Relations ith schools, colleges, libraries, etc. 6. Education of the approximately 12,000 Federal reserve bank employees on the purposes and functions of the Federal Reserve System. 7. Visits to member banks by officers of the Federal reserve banks. 8. Attendance of officers of Federal reserve banks at bankers' conventions and group meetings. 9. Arrangement for courses on the Federal Reserve System by the American Institute of Banking. 10. 11. 12. 13. Relationships with State banking authorities. Review of monthly summaries of business conditions and Other publications of the Federal reserve banks. Proposed State banking legislation. Visits to nonmember banks by officers of the Federal reserve banks. Mr. McKee pointed out the fact that there were relatively few State banks which were members of the Federal Reserve System, and expressed the °Pinion that because of the rehabilitation of the capital structure (4 State banks they are in a better position to accept membership in the Peder.,, Reserve System at the present time than they have been at any time clilring the past ten years. He stated that, in view of this situation, he ' elt that efforts should be made to bring all eligible State member ' 8 into the System, and that he would appreciate it if the presidents we'Llici give consideration to how this might be done. He also requested that While the presidents are in Washington they call on him for the pur- 598 VIA/as —9- Pose of going over with him and Mr. Paulger the examining functions of t4 Federal reserve banks. In this connection, Mr. McKee referred briefly to unfavorable comments with regard to the Federal Reserve System which had come to him "Chief of the Examining Division of the Reconstruction Finance Corporaand stated that he felt that it was important that the Board and the ballks give active consideration to the steps that might be taken to overe°14e the unfavorable attitude toward the System on the part of certain Mr. Morrison suggested that the most effective means of in4"'Ing nonmember banks to appreciate membership in the Federal Reserve 8Ystem would be for the Board and the Federal reserve banks to first de/rel°P in the member banks a cooperative attitude toward, and an appreci4ti°n of, the Federal Reserve System, and he expressed the opinion that the SYstem would not be taking full advantage of its opportunities until it achieved that result. Mr. Morrison then referred to the consideration which was being given by the Board to the issuance of Regulation 'TulLoans by Banks for the Purpose of Purchasing or Carrying Equity Securities Registered on a tj --11J- Securities Exchange, and stated that it had been his feeling that ren-, Gq-Lations on any subject should not be issued by the Board unless there 1148 an absolute necessity therefor, and thpt he questioned the advisabilitY of issuing Regulation mU" at this time. Chairman Eccles suggested that the presidents might wish to hold Ac, -q/arate meeting for the purpose of organizing a Presidents' Conference 599 3/16/36 -10- IUD-art° the old Governors' Conference and he expressed the hope that the presidents would feel free to discuss with the Board with utmost trankness while they were in Washington any matters that they felt should be ll'ought up for consideration. It was understood that the presidents 'mad '" 11 convene in separate session t 2:30 p. . and that they would meet with the Board tomorrow morning at 10 otclock. Thereupon the meeting adjourned. Secretary.
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