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A meeting of the Board of Governors of the Federal Reserve SYstem was held in Washington on Friday, March 3, 1939, at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Draper 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. Paulger, Chief of the Division of Examinations Mr. Smead, Chief of the Division of Bank Operations Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Parry, Chief of the Division of Security Loans Mr. Wingfield, Assistant General Counsel Mr. Brown, Special Assistant, Division of Security Loans Pecier There were presented telegrams to Mr. Young, President of the al Reserve Bank of Boston, Messrs. Kimball, Post, Hays, Dillard ttici St wA e -1 '41 Secretaries of the Federal Reserve Banks of New York, elPhie, Cleveland, Chicago and St. Louis, respectively, Mr. Ceadwei ls Chairman of the Federal Reserve Bank of Kansas City, and Mr. ---""arY of the Federal Reserve Bank of San Francisco, stating ht th Board approves the establishment without change by the Federal P,eaerv. e e 411k of San Francisco on February 28, by the Federal Reserve C`04.1 3/3/39 ••• C" ) ONO 11"ke of New York, Cleveland, Chicago, Kansas City and San Francisco 2, and by the Federal Reserve Banks of Boston, Philadelphia alld St. 1,011i8 today, of the rates of discount and purchase in their existSchedules Approved unanimously. Prior to this meeting there had been distributed amon5 the memhero 'or the Board drafts of the report prepared by Mr. bingfield, in l'"1)(31lee to the request made at the meeting of the Board on February 28, l'elatitg to the trust indenture bill. Copies of an alternative draft Or r.e 13°rt Prepared by Mr. Wyatt following the meeting on February 28 also 4" hell sent to the members of the Board. Both of these drafts were br()light uP for consideration and Mr. Ransom referred to other drafts thich b eeja Prepared by him and Mr. Morrill for the purpose of attempt- 1. 43 state in a brief report the essential points covered by earlier (11'latt Mr. Ransom also referred to various statements contained in the 1511tited report of recent hearings held by the Senate Banking and Currency c)44-Ittee on the bill. At the conclusion of a discussion, Mr. Morrill \7" recillested to retire from the meeting and consolidate the important 1/°111te contained in the drafts of reports into a draft which would be as 1101,t Do4 a8 Possible. Mr. Morrill withdrew from the meeting for this pur- ellcI IIPon his return presented a new draft of report which was read di "Ilesed and various suggestions for changes therein were made. r' s(71t 7" ) 01-0 , 3/3/39 -3At 1:20 p.m. the meeting recessed and reconvened at 2:30 p.m. "I the same attendance as at the beginning of the morning session except that Messrs. Smead, Paulger and Brown were not present. The consideration of the draft of report of the trust indenture bill was resumed and after reviewing a number of suggested changes in the draft, the report was approved in the following form with the understanding that it would be sent by mail tomorrow to the Chairman of the Banking and Currency Committee and that tomorrow Mr. Morrill would advise the Comptroller of the Currency, the Chairman of the Federal Deposit Insurance Corporation, Mr. Burke, Assistant Director of the Reorganization Division of the Securities and Exchange Commission, and Mr. Sherbondy of the legal division of the Treasury that the report had been mailed and that he would be glad to send them copies of the report if they so desired: "This is in response to your request for an expresof Rese,- opinion of the Board of Governors of the Federal or 've System as to the merits of S. 477, on the basis the Confidential Committee Print of February 21, 1939. The Board recognizes that there have existed in the Past 1,1,. abuses in connection with corporate trust indentures ";' elch this bill is designed to remedy, and that the inof investors would be better served if the responsi.kties of corporate trustees were more clearly defined, 8e theY were required to exercise a greater degree of dilithnce than has been exercised at times in the past, and if ,0! .Y. were not permitted to occupy positions conflicting ' 01 their fiduciary responsibility. In attempting to provide a remedy, however, the bill aet ) certain administrative requirements and imposes 11,s 111 the corporate trustee certain additional obligations tai. .11ep might increase the difficulties and expense of °bneeded capital for business enterprises. It might s° cause coroorate trustees in times of stress to take Sion 4 29P, 3/3/39 -4- action resulting: in liquidations that would be unnecessary or undesirable from the standpoint of the public interest. "The question may well be considered whether there is pressing need at this time for additional legislation ?f this character. Congress has vested in the Government brad powers designed to protect investors. It is important that the protective results hoped for from this additional legislation be weighed against its restrictive effects , 11Pon the capital markets. The decision should be heavily Influenced by consideration of the course that will be most helpful at this stage of economic recovery. The Hoard has weighed the problem, and is of the opinion that ! , t ction should be postponed until further study can be made uY Congress of the financial field of which this bill touches only a part. "If, however, the Committee is satisfied that there does exist at this time a need for some additional legisative action in order to prevent a recurrence of the abuses tn this field which occurred under indentures drawn prior I0 the enactment of the Security Act of 1933, the Board raise the question whether the bill could not be made less :ue of a deterrent to capital financing, and at the ire time be improved materially from the standpoint of d 8 effect upon the issuance and servicing of trust indentures y b writing into the law itself, in simpler terms, a standards of conduct which ought to be observed by erY corporate trustee and by eliminating any administra: e Procedure which is not already necessary in connection with applications for registration under the Securities Act • "In this connection, it is the Board's view that the ttil endment proposed by Senators Herring and Townsend, rewhich you have requested a report, would not acb° Plish the objectives of legislation of this character, sre:Llee it does not contain an adequate statement of the 110,ndards to be observed by corporate trustees and would co 'apply to indentures under which State banks and trust t illPanies act as trustees. With the exception of the mat1;',12s referred to in the Board's letter of February 16, ' th 91 the Board wishes to make it clear that it believes 2j. t $ if any additional administrative authority is con' ti el'ad necessary by Congress to carry out such legislaon, it should be conferred on the Securities and Exchange (ara°1ission.” j 300 3/3/39 -5Mr. McKee referred to the informal statement made to members cit the Board by President Harrison of the Federal Reserve Bank of New York while he was in Washington on March 1, 1939, regarding the disc11881°fle which he had had with representatives of the Treasury and ° Aranha, Minister of Foreign Relations of Brazil and other r4Iribe "of the Brazilian Mission now in the United States, with re8Pect to the desirability of establishing a central bank in Brazil. Mr. "wilkee recommended that the Board ask Mr. Harrison for a written 1'613°11 of his participation, as well as the participation of any other illEtabel ' s of the official staff of the Federal Reserve Bank of New York illdis cussions. Chairman Eccles stated that the Secretary of the Treasury had .A he sed him of the pending discussions of this matter, and that (Secrete Morgenthau) had asked Mr. Harrison to send Mr. Knoke, 111*e president of the Federal Reserve Bank of New York, to Washington to IrtieiPate in consideration of the matter with Mr. Lochhead, r4clillicel Assistant to the Secretary of the Treasury, and that the )e`rcl aPPoint same one from its staff to get in touch with Mr. 1,004h ead c oncerning it. Chairman Eccles added that later Secretary 431'ge lithell called Mr. Harrison and asked him to came to Washington to 1341Ii eiPate in the discussions with representatives of the lite zillah Mission, which Mr. Harrison did on two occasions recently, 11:1(1t4t the later discussion developed into a consideration of the 301 3/3/39 -6- gliestion of the extension of credit to Brazil. Mr. Szymczak stated that, in a subsequent conversation with hit, Mr -i Harrison had stated that he proposed to prepare a written stetulent of the matter for the records of the Federal Reserve Bank °t New york. It was agreed that Chairman Eccles would call Mr. Harrison on the telephone and ask him to send to the Board a full report of the participations of officers of the Federal Reserve Bank of New York in the discussions. Chairman Eccles stated that under date of March 1, 1939, a letter was received from the Chairman of the Senate Banking and CurNacy Co mmittee requesting an expression of the Board's opinion on 41:late Resolution 82, a joint resolution providing for the appointlerlt of a special joint committee to investigate the United States cad policy. After a discussion, Mr. Goldenweiser was requested to draft a report on the resolution for consideration by the Board. Mr. Ransom stated that, in accordance with the informal unciel‘st andi Which he had had with mambers of the Board, he had pre4/1ted to the Research Council of the American Bankers Association t(31‘ stusly the problem confronting the Board with respect to the abecIrption by member banks of exchange charges as an indirect payment of' itterest, that the Council had given careful consideration to the 3/3/39 -7- rilIttter tind Was fully aware of the probler involved, and that counsel of the ociatior had suggested to Mr. Ransom that he attend the meeting of the p -ouncil at Hot Springs, Virginia, in April, for the purpose of &w1r€ with it in executive session the history of the problem as all to the Council in determining whether it can render any assistaile , 'in its solution. The other members of the Board concurred in the oPitio n that Mr. Ransom should accept if the Association extends an --on to attend the Council meeting. Mr. Pansom also stated that under date of February 2, 3.939, editorial_ had appeared in the New York Journal of Commerce on the stlbJect of examination of banks by Federal authorities, that he had Elddressed a letter to the editor of the paper pointing out the fact thet the editorial was based on a misunderstanding of the facts and thEit the editor had requested permission to publish the letter. The ecilt°1141. and Mr. Ransom's letter, together with the request for perilliseion to publish the letter, had been circulated among the members or the Board. All of the members of the Board indicated that they relt that Mr. Ransom should give permission for the publication of l etter. At the suggestion of Mr. Ransom, Mr. Wyatt stated that two '31' three days ago he learned for the first time that members of the etEttr Of the Securities end Exchange Commission have under prepara- tiot 1,01, the Monopoly Investigating Committee of the Senate a memoN1(111Th ----, Part of which relates to the reconnendations contained in 3/3/39 -8- the rePort of the Pujo Committee which were subsequently enacted into ' and that it would appear from this that the Monopoly Committee le 0.4-: ng some consideration to including the banking field in its 1151 tigation. In connection with this matter, Mr. Eccles referred to a teleph ' 011e Conversation which he had had with Mr. Douglas of the Seellriti "and Exchange Commission recently concerning work that members th6 staff of the Commission were doing for the Monopoly Committee whi cia ndicated the intention of the Committee to make investigations th e -anking field. At this point Messrs. Thurston, Wyatt, Goldenweiser, Parry Illillgrield left the meeting and the action stated with respect to egeh or the matters hereinafter referred to was then taken by the 130tIzaci : The minutes of the meeting of the Board of Governors of the Reserve System held on March 2, 1939, were approved unanimously. Memorandum. dated February 27, 1939, from Mr. Goldenweiser, 141.ector Of the Division of Research and Statistics, recommending thEvt, t (:)r the reason stated in the memorandum, a leave of absence INithoixt PaY for a period not exceeding sixty days be granted to Mrs. 11`qth , —ell-Ling, a clerk in the Division, beginning March 1, 1939. Approved unanimously. 3/3/39 -9Letter to Mr. Schaller, President of the Federal Reserve Bank Chicago, reading as follows: "Reference is made to your letter of February 23, enclosing a proof copy of a pamphlet showing some of .11e major operations and expenses of the Federal Reserve Dank of Chicago. It is stated in your letter that you ?xPect to distribute the pamphlet principally by /dying lt to visitors who are shown through the Bank from time to time and that unless there is some objection on the Pelt of the Board you will proceed with the Printing of it• "It is noted that figures are contained in the mPhlet by which the unit cost of handling certain may be readily computed by dividing the expense iL lr the number of items handled. The annual stock01ders' reports issued by two other Reserve banks now c°11tain similar information, thus enabling one to make a comparison of the unit costs at three Reserve banks. "The Board has some doubt as to the advisability a number of Federal Reserve banks publishing such information unless we are prepared to publish similar inorlmation in a uniform manner for all Federal Reserve nIcs, Accordingly, it has requested the Chairman of t" Presidents' Conference to place this topic on the 12!°gram of the next Presidents' Conference, and a copy O the Board's letter to President Harrison is enclosed ' 4 01 'Your information. 'Tending the action taken by the Presidents' Contar p, —ce on this matter, it is suggested that the print- Of the Proposed pamphlet in final form with this ' Iltormation be deferred." r Approved unanimously, together with the following letter to Mr. Harrison, Chairman of the Presidents' Conference: "-As you know, it is the present practice of each a' t-Leral Reserve bank to publish annually a report to fo°eIcholders. While the reports are not entirely unior1111, most of them include a statement of condition as a the end of the year, a =unary statement of earnings exPenses during the year, and a list of the officers 3/3/39 -10and directors of the bank. The reports issued by two er the Reserve banks, however, contain statements which Show the cost of conducting the operations of the bank ,. 111ring the year, by functions, and the number of items uandled in each function. Another Federal Reserve Bank s in mind publishinf-, a pamphlet containing similar inrormation which it proposes to distribute principally by 'ving it to visitors that are shown through the bank I rom time to time. "The publication of figures of this nature enables le readily to compute certain unit costs and, since the guree are published by more than one Reserve bank, to ! ake a comparison of unit costs between banks. The Board ' It s some doubt as to whether it is advisable to publish , he information in a way permitting such comparisons to made unless we are prepared to publish similar inforA"i°n in a uniform manner for all Federal Reserve banks. eordingly, it will be appreciated if you will place e topic on the program of the forthcoming Presidents' C III erence. Re"A copy of this letter is beingsent to each Federal serve bank for its information." V r Thereupon the meeting adjourned. Chairman.
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