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706 A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Tuesday, May 1, 1945, at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Evans Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Hammond, Assistant Secretary Mr. Thurston, Assistant to the Chairman Mr. Vest, General Attorney Mr. Thomas, Director of the Division of Research and Statistics Mr. Wyatt, General Counsel Under date of April 11, 1945, the Board received a letter from III% Li chtenstein, Secretary of the Federal Advisory Council, requesting 1i8t of the subjects which the Board wished the Council to discuss at it8 meeting in Washington on May 13-14, 1945. The letter had been cir- ciliated among the members of the Board, and Mr. Evans had suggested that the Council be asked to consider (1) any suggestions it might have t° aid in the enforcement of Regulation Q, Payment of Interest on De- 13°848, and (2) what should be done now to fortify the economic stabilization program. Evans stated that he did not agree with the procedure freIlletitlY followed by the Board of suggesting no topics for consideration the Federal Advisory Council at its meetings, and that he thought the r elati°ns with the Council could be improved if the Board would allee est for discussion by the Council at each of its meetings two or 707 5/1/45 -2- three topics which were currently of interest to the Board. He also said that there probably were several questions that might be discussed Ilith the Council and that the two which he had proposed were offered Inere1.7 as illustrations of what he had in mind as to the kind of topics °n which the advice of the Council should be asked when they meet with the Board. While a discussion of the above matter was in progress a reIllest was received from Mr. Williams, Chairman of the Presidents' Conference Committee on Research, for an opportunity for him and Mr. I'landers, President of the Federal Reserve Bank of Boston who is also nienther of the Presidents' Conference committee, to discuss with the -1-Q Informally the procedure being followed in connection with the 111%°P°8ed Publication of certain of the papers prepared by System econoInd.8ta on economic problems and policies in the postwar period. There- 1113(31r1) Messrs. Williams and Flanders were invited into the meeting. Mr. Williams stated that he had thought it would be well to , take aQ vantage of Mr. Flanders' presence in Washington to discuss Wtthmr. Evans and the other members of the Board questions that had ari8e . 4 ln connection with the proposed publication of papers prepared bY „," the -conomists and that, while he had talked by telephone with Mr. bald . 8/ Other President of the Federal Reserve Bank of St. Louis, who is the member of the Presidents' Conference committee, the latter could not ar„ ' ange to be here for the discussion. Mr. Williams went on to say that his committee was concerned 708 5/1/45 -3- about the possible adverse reaction in the field to the publication 114der the joint sponsorship of the Board and the Federal Reserve Banks of the economists' papers in anything like their present form either 48 a series of pamphlets on related subjects or in one or more volumes, 41d that it was believed that such publication would make the problem of Public relations of the Federal Reserve Banks with bankers and busi4e8a men in their districts much more difficult. He suggested that c)rie way of meeting the situation would be for the papers to be pubby the Board rather than by the Board and the Federal Reserve 13arlics and he thought that that might well be done. Following a discussion of the procedure being followed in Pl'eParing the papers for publication, Mr. Williams explained that Viet his committee was concerned about was not merely possible dis4Teement with the bankers on the subjects discussed, as that was to be expected from time to time, but that the Federal Reserve Banks had to live with the banks in their districts and the proposed papers as 4 gli°1113 Seepled if to be based upon a particular economic philosophy which attributed to the Federal Reserve Banks would make their bank relati°r18 more difficult. In response to an inquiry from Mr. Draper as to how the matter 11.ow.(1 be handled, Mr. suggested that there should be an opPortunity Williams for a full discussion by the Board and the Presidents as to the conterlt, aPproach, and fo form of the papers before they were puband that if it were decided to publish them in anything like 709 5/1/45 —4— their present form they could very properly be published by the Board, rather than by the System as a whole. Mr. Flanders stated that the substance of the statements and their sponsorship were tied together and that if the publication were Poilsored by the System his committee would be more concerned about the s uostance of the statements than if they were published by the Board. Chairman Eccles stated that the subjects covered by the papers were unavoidably controversial, that the papers were merely expressions (3f the views of the author economists, and that it should be made very Clear in the publication of the papers that they were the results of 8t1141-es made by the authors and that they in no way expressed the views the Board or the Federal Reserve System. Mr. McKee inquired of Mr. Flanders whether he thought the Papers should be published in their present form, and Mr. Flanders l'esloonded that, while there undoubtedly were differences of opinion o that Point, there was some material in the statements that he would take great exception to, and that he thought there was a comparatively 14441 amount of material which most of the Presidents and most of their l'"earch staffs would take exception to. In reply to an inquiry from ehail‘m, Eccles as to whether the applicable portions of the state174141t8 coald be modified, Mr. Flanders said that the statements should 710 5/1/45 —5— not be "watered down", for the reason that if that were done nothing Worth While would be left. Mr. Evans stated that Mr. Goldenweiser, Director of the Divi— sion of Research and Statistics, would welcome any suggestions that anY of the Presidents or anyone else might have to offer with respect t° allY of the papers. On this point Mr. Thomas commented that it was eXtlected that dissenting opinions and different points of view on im— Portant points would be adequately represented in the papers as pub— lished and that John H. Williams, Vice President of the Federal Re— Bernre Bank of New York, had been asked to contribute a paper to the es 0f studies but had declined because of the pressure of other work, Mr. Williams stated that he had understood from the letter Which had been sent to the heads of research at all of the Federal ResentBanks by Mr. Goldenweise on April 23, 1945, that the decision r °t the authors and the editors of the respective papers would be final. 141% Th °Inas then read the entire contents of the letter referred to. Mr. McKee inquired of Mr. Flanders, who had to leave the meet— at 11:30 a.m. to catch a train, whether he would prefer to have Cleei8i°n on the publication of the papers deferred until the Board had familiarized itself with the content of the papers. Mr- Flanders replied that the primary question was one of aPcnso,, 8" ' 1P, that the question of publication was in the hands of 711 5/)A5 the Board, provided it sponsored the publication, but that if there were to be System sponsorship he would want to follow a different procedure than if the publication were sponsored by the Board. Mr. McKee then asked whether it was the idea of the Presidents that there would be System sponsorship, and Mr. Williams said that his e°111Inittee had not conferred with the Presidents on the matter. Chairman Eccles said that it was recognized that the Federal Reser "Banks had to get along with bankers and others in their resPective districts, that no purpose would be served in making the relationships of the Federal Reserve Banks more difficult, and that, thereto_ re he saw no reason why the Board of Governors should not ac- cept the suggestion of the Presidents' Conference Committee on Research and Publish the papers under the sponsorship of the Board. Mr. Thomas asked Mr. Williams whether his suggestion would inearl that the economists at the Federal Reserve Banks could not par. "ue ln the preparation and discussion of the papers, and Mr. 111134.--s °mu responded in the negative. At this point Mr. Flanders withdrew from the meeting. Mr. McKee incuired what the situation would be if an econo4118t " one the of the Federal Reserve Banks contributed a paper and gesldent of the Reserve Bank or the Presidents of all of the Reaerve t ecoll atlks did not want the paper published under the name of the Qr4118t* Mr. Williams stated that if that position were taken by 712 5/1/45 -7- anY of the President s it would not be possible to keep qualified economists on the pay roll of the Banks. Mr. McKee then asked whether, if the Board wanted to publish such a paper, there would be any objection °11 the part of the Presidents. Mr. Milldams said that for the purpose or good administration the matter should be cleared through the President as the chief executive officer of the Bank, but he did not think that if an economist wanted to contribute a paper there would be any obje _ Ction to that on the part of a President. Mr. Evans inquired what procedure Mr. Williams thought should be followed in connection with the matter from this point on, and Mr. IYaLtams replied that in Mr. Goldenweiser's letter of April 23, 1945, was stated that the decision had been made to publish the papers. In that connectio n Mr. Morrill called attention to the action °t the Board on March 23, 1945, when Mr. Goldenweiser was directed, When necessary steps to make ready for publication such of the studie 8 ttor as in his judgment were appropriate for publication had been submit the final plan for publication to the Board for ac- Ur. Williams responded that he 1116that the final decision to publish that let ters had been written directly Reserve Banks who had prepared papers, to the re had had the mistaken understandhad been made. He also stated to the economists in the Federal and they had taken the letters sPective officers in charge of research or the Presidents of '713 5/1/45 —8— the Banks to ascertain what should be done. Mr. Evans stated that a letter was sent to the heads of re— search at all of the Federal Reserve Banks with respect to procedure to he followed prior to publication, and Mr. Williams commented that he thought it would have been better if in the beginning the procedure had been worked out with the Presidents' Conference committee at the Policy level. Ur. Thomas stated that it was his understanding that that was What had been done, and that Ur. Evans talked with Mr. Williams and wrote him a letter before anything was done. Mr. Williams said that he did not have that understanding and inquired whether it would not he " P sible for Mr. Evans to meet with the Research Committee of the ?residents' Conference to discuss the matter before a decision was reached by the Board. Chairman Eccles questioned whether, if the members of the 13()elid and the Presidents reviewed the papers and they were revised to meet their suggestions, the authors would be willing to attach their names to them. Mr. Williams recognized that point but said that it would be well worth while to have a joint meeting of the Board and the P residents so that, if the decision were made to publish the PePere, the Board and the Banks would know what was being done and What effect the publication would have on the public relations of tlPederal Reserve Banks. 714 5/1/45 —9— Following a question by Mr. Ransom, there was a discussion of the character of the responsibility assumed by the System or the Board in the publication of papers which discussed controversial points such a way as to indicate an economic philosop lly. There was also dascussion of the necessity for maintaining freedom of expression on the part of the System economists in order to retain personnel who were capable of producing work of high quality and accuracy. At the conclusion of the discussion of these points, Mr. Ransom expressed the view that if the Presidents of the Federal Re— sellts Banks were to be joint sponsors of the papers it would be necesS417 for them to take a more active part in the matter than they had up to this time. After some further discussion, Mr. Minims left the meeting. It was agreed by all the members of the Board that no action Ileed be taken by the Board with respect to the publication of the econo411sts1 'Japers until the submission of the plan for publication by Mr. etcl.clenw . elser in accordance with the action taken at the meeting of the Board on March 23, 1945. Col.i.nc4, Or Re In connection with the suggestion that the Federal Advisory be asked to conside r the question of enforcement by the Board (level.gula ° 'ti°n Q, Payment of Interest on Deposits, Mr. McKee reviewed Pilleilts since the action of the Board on February 19, 1945, when 715 5/1/45 -10- a procedure was agreed upon under which the Federal Reserve Banks 4nd the Comptroller of the Currency sent letters to banks which were believed to be violating the law and the Board's regulation through the ' ,sorption of exchange and collection charges. Mr. McKee's stateraent was followed by a discussion of the legal steps that were avail- able to the Board to enforce compliance with Regulation Q and of legislation that might be recommended to Congress to give the Board authority to take more appropriate legal steps to bring about enforcement. At the conclusion of the discussion it was agreed that, until the results of the Board's efforts to bring about compliance with the law and the Regulation could be more fully appraised, the matter should not be suggested for consideration by the Federal Advisory Council Following a further discussion of matters to be considered by the Federal Advisory Council at its forthcoming meeting, Mr. Morrill was requested to prepare a letter to Mr. Lichtenstein suggesting that the Council consider (1) To what extent is the practice being followed by large depositors of asking their depositary banks for more detailed information regarding the condition of the banks than is shown in their regularly published reports of condition, and what further action should be taken by the bank supervisory agencies in connection with it? (2) What is the opinion of the Council as to the progress being made by the "credit pools" organized by banks in various sections of the country upon the recommendation of the American Bankers Association? (3) How should the inflationary developments in farm and urban a nd other capital assets be tl at:1; deett 716 5/1/45 Mr. McKee referred to a memorandum addressed to Mr. Smead by Ikr. Connell of the Division of Bank Operations under date of April 26, 1945, with respect to borrowings from the Federal Reserve Banks by member banks during the year 1944, and stated that the memorandum indicated the P°esibility that an increasing number of member banks were borrowing from the Federal Reserve Banks as a means of increasing borrowed capital in order to reduce or avoid excess profits taxes and that, in hi8 °Pinion, the Bureau of Internal Revenue should issue a ruling which w°11-1d close that loophole. Mr. Vest stated that when this matter came up several months ago he discussed it informally with a representative of the Bureau of Internal Revenue who stated that the Bureau would be willing to rule °11 the matter only in specific cases and not as a general proposition because it did not want to discourage the sale of Government bonds and (41 the Other hand did not want to close its eyes to efforts to evade eZe eSs profits taxes. Chairman Eccles expressed the opinion that the way to meet the situation was for the Federal Reserve Banks to decline to extend credit to member banks for this purpose, rather than for the Internal Revenue to issue ruling. In this connection attention was called to the fact that ita appeared from the minutes of the last meeting of the 131'eeidental Conference that the Presidents had discussed the matter 44d were in a greement that the practice should be discouraged and that re etit4 the Board had written them a letter on the subject. 717 5/1/45 -12The matter was discussed but no further action was taken. At this point Messrs. Vest, Thomas, and Nyatt withdrew from the meeting. The action stated with respect to each of the matters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the Pecleml Reserve System held on April 30, 1945, were approved unanir1101181y. Letter to Mr. Willett, First Vice President of the Federal Re're Bank of Boston, reading as follows: "In accordance with the request contained in your letter of April 28, 1945, the Board approves the appointTent of Francis J. Suckfull as an assistant examiner for the. Federal Reserve Bank of Boston. Please advise us of I.he date upon which the appointment becomes effective." Approved unanimously. Letter to Mr. Peterson, Vice President of the Federal Reserve 8 of St. Louis, reading as follows: In request contained in your letter ofaccordance with the April 25, 1945, the Board approves the desig1.-''°n of the following as special assistant examiners or the Federal Reserve Bank of St. Louis: Head Office W. 0. Behle R. C. Fein P. W. Boll H. Johnson C. G. Crause R. Tentschert C. Eccles F. Weisel Louisville Memphis Branch Branch J. E. 'Bald B. F. Jones Paul P. Heichelbech John W. Menges '718 5/1/45 -13- "In connection with the matter of continuing approval of the foregoing list of employees, reference is made to the Board's letter X-9858 dated April 3, 1937 (Loose-Leaf Service #9183). You will note that approval, once given, vall be continuing approval, good until revoked." Approved unanimously. Letter to Mr. Koppang, First Vice President of the Federal Re8erVID Bank of Kansas City, reading as follows: "The Board of Governors approves, effective April 1, 1945, the changes in the personnel classification plan of the Federal Reserve Bank of Kansas City and its Denver and Omaha Branches as submitted with your two letters of March 29, 1945, and supported by the certificate submitted 'math your letter of April 20." Approved unanimously, together with a letter to the Wage Stabilization Division, National War Labor Board, transmitting a certificate of the Federal Reserve Bank of Kansas City with respect to salary increases at the Bank. Telegram to Mr. Evans, Vice President of the Federal Reserve of Dallas, reading as follows: "Relet 27. Board extends to June 2, 1945, time vii th-n which Harlingen State Bank, Harlingen, Texas, IllaY accomplish membership." Approved unanimously. Oki Letter to Mr. Young, President of the Federal Reserve Bank of eago, reading as follows: "This refers to Mr. Diercks' letter of April 20, ii4 1,,7.5 ; with regard to the application of the 'Citizens ; Hebron, Indiana, for permission to act as guardian. In view of the information at hand, and in accordan With Mr. Diercks' recommendation, the Board of 119 5/1/45 —14— "Governors of the Federal Reserve System grants the ap— plicant bank permission, under the provisions of its con— dition of membership numbered 1, to act as guardian. This permission is given subject to the standard trust condi— tions heretofore accepted by the applicant when it was granted permission to act as executor and administrator of estates. "In this connection, the Board raises no objection to the bank continuing to act as trustee of the one ac— count designated as 'Trustee for Building Ownership', which it understands the bank inadvertently acquired without first Obtaining the Board's permission. "Please advise the Citizens Bank, Hebron, Indiana, of the Board's action in the foregoing matters." Approved unanimously. Thereupon the meeting adjourned. Q50'vgLITAT, Chairman. Secretary.
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