The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
r4CI Minutes of actions taken by the Board of Governors of the Federal Reserve System on Monday, May 1, 1950. The Board met in the Board Room at 11:05 a.m. PRESENT: Mr. McCabe, Chairman Mr. Eccles Mr. Szymczak Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Millard, Director, Division of Examinations Mr. Solomon, Assistant General Counsel Mr. Hostrup, Assistant Director, Division of Examinations Mr. Baumann, Assistant General Counsel Mr. Mr. Mr. Mr. Mr. Mr. Vardaman asked that these minutes show that he received word of this meeting at 10:55 a.m., that he had an appointment at 10:30 a.m. with Mr. Gidney, President of the Federal Reserve Bank of Cleveland, Mr. Kossin, Vice President in charge of the Pittsburgh Branch of that Bank,and the Bank's architect, to discuss plans for the Pittsburgh Branch building, and that he did not feel he could leave the conference with Messrs. Gidney and Kossin which he had arranged some time before. Chairman McCabe stated that last Friday he received a letter from Senator Robertson dated April 27, 1950, referring to the substitute bank holding company bill ordered printed by the Committee on April 25 and requesting that some member of the Board or its staff be sent to attend a meeting of the subcommittee on Tuesday, May 2, 1950, at which the provisions of the substitute bill and amendments which might be 547 5/1/50 -2- offered to it would be discussed. Mr. Szymczak stated that he and Mr. Baumann talked with Senator Douglas on Wednesday, April 26, 1950, at which time Senator Douglas asked that the Board furnish Mr. L'Heureux of the staff of the Senate Banking and Currency Committee with suggested amendments to the substitute bank holding company bill today so that he and Senator Tobey would be able to study them before the subcommittee met to consider the substitute bill on May 2. Question was then raised as to who should attend the meeting of Senator Robertson's subcommittee tomorrow and it was the consensus that Chairman McCabe would go if he could arrange to do so but that if he could not Mr. Szymczak would attend with Messrs. Baumann and Hostrup. During the discussion that ensued Chairman McCabe called Mr. Parsons, member of the staff of the Senate Banking and Currency Committee,on the telephone to inquire who would be present at the meeting of the subcommittee tomorrow and was informed that the meeting was to be an executive session and that, in addition to the Board, the Comptroller of the Currency and the Federal Deposit Insurance Corporation had been invited to have representatives present. Mr. Baumann then presented a draft of amendments to Senator Robertson's substitute bill together with comments thereon which he felt would put the bill in a form which would accomplish most of the major objectives the Board had in mind when it submitted the draft of S. 2318. 548 5/1/50 There followed a discussion of the proposed amendments during which the meeting recessed and reconvened at 2:15 p.m. with the same attendance as at the close of the morning session except that Messrs. Thurston and Baumann were not present and Mr. Riefler, Assistant to the Chairman, was in attendance. During this discussion there was another recess to enable Chairman McCabe to keep another appointment and Mr. Szymczak and Mr. Millard to meet with Messrs. Harris and MacHaffie, directors of the Helena Branch of the Federal Reserve Bank of Minneapolis. Upon their return, the discussion of the proposed amendments to the holding company bill continued, at the conclusion of which it was understood that the Legal Division would prepare amendments to the bill along the lines discussed at this meeting with the understanding that the draft of amendments as revised would be used as a basis for discussion by representatives of the Board at the meeting of Senator Robertson's subcormittee tomorrow morning. It was also understood that Mr. Baumenn would discuss the substance of the proposed amendments with Mr. L'Keureux in accordance with Senator Douglas' request, and with Mr. Telman of the staff of the Senate Banking and Currency Committee, and that he would furnish them copies of the suggested changes if they so desired. A copy of the bill as thus amended has been placed in the Board's files. Messrs. Solomon and Hostrup withdrew at this point. Mr. Szymczak stated that Messrs. Harris and MacHeffie had come to Washington for the purpose of presenting their views regarding the Towle matter, and that they had expressed a desire to meet with the 5/1/50 -4- other members of the Board. Messrs. Harrls and MacHaffie then joined the meeting. Mr. MacHaffie stated that there had been a discussion of the Towle matter at the joint meeting of the Directors of the Federal Reserve Bank of Minneapolis and its Helena Branch on April 28 at which it was stated that Mr. Towle should retire at once. Messrs. Harris and MacHaffie presented the views held by the directors of the Helena Branch stressing the long and effective service which Mr. Towle had rendered and his high standing with bankers and others in Montana. They stated that they felt that they were expressing the sentiments of the vast majority of bankers in Montana in stating their unqualified support for Mr. Towle and the belief that his splendid record in the System should receive consideration and result in favorable action in his case. They also emphasized that none of those who may have suffered losses because of Mr. Towle's failure to inform the proper parties of Mr. Larson's dishonesty held any resentment against Mr. Towle or the Federal Reserve System or blamed him in any way. They presented the view that because of the strong feeling of loyalty to friends in Montana, Mr. Towle was justified or at least should be pardoned for his action, that the penalty of dismissal now or failure to reappoint him at the beginning of the next calendar year would be much greater than was justified by the situation, and that, therefore, he should be given another chance and permitted to serve as Vice President at the branch until he reached the retire- ,SSf) 5/1/50 —5— ment age of 65. In connection with their presentation they handed to Chairman McCabe a copy of a statement of Mr. Towle's record as an officer of the Federal Reserve Bank of Minneapolis. Chairman McCabe responded that the Board appreciated the interest that the Directors of the Helena Branch and of the Minneapolis Bank had taken in this matter and the recognition that they had given to the record that Mr. Towle had made as an officer of the Bank. He said that the Board was equally appreciative of that service but that it could not avoid the responsibility that the System had for the maintenance of high standards of conduct on the part of its officers, and that no new facts had been presented by Messrs. Harris and MacHaffie which changed the fundamental situation outlined in the Board's letter to Mr. Powell on March 8, 1950, in which it was stated that it appeared from the available information that Mr. Towle was aware as early as November 1948 that Mr. Larson had misappropriated funds belonging to the Prescott Company, that Mr. Towle did not feel it necessary to bring this fact to the attention of President Peyton of the Minneapolis Bank or of the directors of the Conrad National Bank, and that knowing of the previous defalcation of Mr. Larson, Mr. Towle apparently made no effort to determine whether the $6,600 received by the Prescott Company from Mr. Larson in November 1948 in restitution of misappropriated funds were moneys rightfully coming into his hands. In the ensuing discussion the members of the Board who were 501 -6- 5/1/50 present made it clear that the entire matter had been considered at a number of meetings of the Board and that the Board's letter of March 8, 1950 represented the unanimous views of the members of the Board. It was also made clear that in the view of the Board, the directors of the Minneapolis Bank and the Board of Governors were forced to consider the matter not on the basis of friendship or Mr. Towle's record of service, but rather on the basis of his fitness as an officer of the Federal Reserve Bank and the standards that such officers should maintain. It was stated that in the circumstances the Board was forced to the conclusion that Mr. Towle failed in a very major respect to recognize his responsibility, that that failure had seriously impaired his effectiveness as an officer of the Bank, and that the Board did not have any satisfactory basis upon which it could approve his salary for a period beyond December 31 of this year when his current appointment would expire. It was also brought out that Mr. Towle's appointment for another term and the approval of his salary by the Board for that term would be equivalent to a "vote of confi— dence" and that the Board did not believe the circumstances justified that action. It was also stated that while the decision in the matter was primarily one for the board of directors of the Federal Reserve Bank of Minneapolis, should it be the conclusion that Mr. Towle's services should not be terminated now he should be informed that the salary Board of Governors could not see its way clear to approve his beyond the end of the term of his current appointment. 5/1/50 -7— After expressing appreciation for the opportunity for full presentation of their views Messrs. Harris and MacHaffie withdrew from the meeting. Mr. Solomon, Assistant General Counsel, rejoined the meeting at this point. Chairman McCabe referred to the letter sent to Mr. Spingarn of the White House staff under date of April 28, 1950, with respect to legislation providing for financial aid to small business, stating that he had been asked to attend a meeting, presumably arranged by the Budget Bureau, tomorrow afternoon at 3:30 o'clock at which Secretary of the Treasury Snyder, Secretary of Commerce Sawyer, and Chairman of the Reconstruction Finance Corporation Hise were also to be present, for the purpose of discussing the proposed legislation. Chairman McCabe then outlined the views he felt would be de— sirable in connection with small business legislation and asked for the views of the other members of the Board who were present. In the ensuing discussion Chairman McCabe stated that he felt the Board should not take a formal position prior to the conference tomorrow afternoon because it should have the benefit of further consideration of the matter in the light of that discussion, and that at the conference he would like to propose that the legislation authorize the creation of one or two of the new investment companies, contemplated by the legislation, on an experimental basis for the insurance of loans and the provision 553 5/1/50 of long tern loans and equity capital somewhat along lines outlined in the proposed O'Mahoney bill, discussed at the meetings of the Board on February 10, 1950 and March 7, 1950. No action was taken on the matter and it was understood that it would be considered further prior to the conference which Chairman McCabe was to have at 3:30 p.m. tomorrow. Mr. Carpenter then presented a letter to Honorable Brent Spence, Chairman, House Banking and Currency Committee, reading as follows: "This is in response to your letter of April 29, 1950, requesting the Board's opinion with respect to the merits of the bill H. R. 7894, which would amend section 14(b) of the Federal Reserve Act in order to make permanent the present temporary authority of the Federal Reserve Banks to purchase Government obligations directly from the United States. "Except between the years 1935 and 1942, the Federal Reserve Banks have always had authority to purchase Government obligations directly from the Treasury. Since 1942 this authority has been limited by section 14(b) of the Federal Reserve Act to an aggregate maximum amount of five billion dollars at any one time, and the provision has been temporary in nature. While the time limit has been extended from time to time, the authority under present law will terminate on June 30, 1950. "The Board of Governors believes that the direct purchase authority of the Federal Reserve Banks is desirable. It is understood that the Treasury Department has informally submitted to your Committee a memorandum pointing out that this authority provides a useful mechanism whereby the Treasury Department and the Federal Reserve System can coordinate the financing requirements of the Treasury with the requirements of the Federal Reserve System in regulating bank reserves and the money market and that the mechanism is particularly important at periods when the Treasury is called upon to meet large payments, such as the redemption of maturing debt, at a time when withdrawals from the banking system are unusually heavy, as in the case of withdrawals to meet quarterly 554 5/1/50 -9- "tax payments. As indicated in that memorandum, the authority makes it possible for the Treasury to operate with a smaller cash balance than might otherwise be necessary. Under both the existing law and that prior to 1935, the direct purchase authority has been used only infrequently and for short periods as a convenient means of meeting temporary situations. "The Board is in agreement with the views expressed by the Treasury Department as to the reasons for which this authority is desirable. Accordingly, the Board favors the enactment of the permanent authority provided in H. R. 7894. If it should be decided, for reasons of legislative expedition, merely to extend the authority for a period of three years or more, the Board also would not object to enactment of the legislation in that form." Approved unanimously, with the understanding that it would be presented to Mr. Vardaman for an indication of his views before it was sent to Mr. Spence and that when it was sent a copy would be sent to tne Bureau of the Budget. At this point all of the members of the staff with the exception of Messrs. Carpenter and Sherman withdrew, and the action stated with respect to the matter hereinafter referred to was taken by the Board: Letter to Mr. Gidney, President of the Federal Reserve Bank of Cleveland, reading as follows: "The Board of Governors approves, for the reasons outlined in your letter of April 17, 1950, the payment of compensation to Mr. Charles Koenig as a consultant in the amount of $3,500 for the period from July 1, 1950, through June 30, 1951." Approved unanimously Secretary. Chairman.
@FedFRASER