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675 A meeting of the Board of Governors of the Federal Reserve SysWas held in Washington on Tuesday, May 11, 1937, at 10:45 a. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Broderick Szymczak McKee 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. Goldenweiser, Director of the Division of Research and Statistics Mr. Smead, Chief of the Division of Bank Operations Mr. Dreibelbis, Assistant General Counsel Mr. Chase, Assistant Counsel Mr. Chamberlin, Federal Reserve Examiner There was presented a memorandum dated May 11, 1937, from Mr. -ulek reading as follows: "Mr. Harrison, President of the Federal Reserve Bank , New York, recently discussed informally with some of the .t.ellIbers of the Board the action taken by his board of direc, I on April 29 with respect to the salaries of the lower 4c1 employees of the bank. Mr. Harrison states that his al ci'rectors have been concerned for some time about the llacY of salaries paid by the bank, particularly to the 1 salaried employees, and that they have come to the i°11cIllsi0n that there should be an increase at this time 4 the general level of salaries paid to the lower salaried ejlaoYees. Among the considerations that have led to this i °11clusion are the belief that salaries paid by finencial ; ITIst itutions are substantially below salaries paid by inCorporations in the Metropolitan area and the curtendency to award a relatively larger proportion of tile or :earnings of business to the lower paid employees in wo'er that the whole standard of living of this group of may be raised. The specific proposals of the directors ' 8 are set forth on pages 3 and 4 of the attached letter Of V 676 -2"from President Harrison, dated May 7, 1937. In general it is Proposed to grant a flat increase of 0.20 per annum in t Ishe salaries of all clerical employees receiving salaries : tween;,1,200 and 42,580 per annum; to grant employees in "ue so-called group of 'automatics' a flat increase of 060 Per annum and to increase the maximum salary of that aroup , : 1 11 4,200 to 01,320 per annum; to grant an increase of a00 Per annum to a number of clerical employees receiving kD ' ' 6°O, and to all mechanics of the building department, Protection men and porters, and to the 4 higher paid emP1°Yees of the food supply unit, and an increase of 4,',60 per nnIrm to the charwomen and to 40 lower paid employees in he food supply unit. "These changes will necessitate a change in the maximum : ' elarY Provided in the bank's personnel classification plan i;!1' large number of positions, which changes will have to r- aPproved by the Board of Governors before they become efa!jtive. These changes are set forth in summary form in the ' eched letter from Mr. Pounds, dated May 10. "I concur in the opinion expressed in the attached memo t randum from Mr. Emead, dated May 10, that when the direcrs of a Federal Reserve bank reach the conclusion that an i liwerd adjustment should be made in the salaries of employees would seem to be the function of such directors to deterin the light of existing conditions, -whether they should ;. ellt flat increases in salaries to certain groups of employees ri Tneke such adjustments as are deemed desirable in the saleindividual employees, provided, of course, that any ',_'Justments made came within the maximums provided in the onnel classification plan for the positions occupied. "After reviewing the statements contained in President }larr , of letter of May 7 and hearing the views of certain ; t c1 uis directors, I am convinced that the proposed salary ilstmants are reasonable and that they should be approved. yrilerefore, recommend that the Federal Reserve Bank of New p4K be advised that the Board approves the chances in the po s°11nel classification plan of the bank set forth in Mr. 44114se letter of May 10 with the understanding that the pleesserY revised pages of the personnel classification n Mal be forwarded to the Board at an early date." Z The letters received from Mr. Harrison under date of May 7 and Mr. ID -°1111ds under date of ilay 10, 1937, were reed and the proposed trIel,etie es in salaries were discussed. 677 5/11/37 -3At the conclusion of the discussion Mr. Broderick's recommendation was approved unanimously. Mr. Ransom referred to the pending question of revision of 4g111"i°11 A, Advances to and Rediscounts for Member Banks by Federal " ve Banks, and stated that the memorandum prepared by Mr. Daiger R" c°nnecti-on with the revision of the regulation had been circulated ak°11E the members of the Board and that he would appreciate it if the nienlbers of the Board and senior staff could have a meeting for an inr°rImal d iscussion of the regulation. It was understood that an informal meeting of members of the Board and the senior staff 1%ould be held on Tune 10, 1937, for the Purpose referred to by Mr. Ransom. There was presented a draft of a letter prepared in the office or C°11113e1, to Vice President Gidney of the Federal Reserve Dank of New k) readinE as follows: of m "Careful consideration has been given to your letter 29, 1937 regarding the question whether Mr. Thatcher m. ITta,..-r"n) who is a partner in the firm of Brown Brothers, & Company, New York, New York, may also serve as a : T1 —Jer of the board of trustees of United States Trust Cam; , - 11Y) New York, New York, in view of the provisions of the '--LeYton Act. ,, "Although the information which you have submitted shows 4e,t the firm does no trust business and that the trust cornIS engaged almost exclusively in trust business and re'sin related activities, it shows that both organizations poceive deposits of banks, receive demand deposits of corcol ti°118 and individuals, and make loans on stock and bond Iteral. In the circumstances, it would seem to be very ! ti 4-lcult to reach the conclusion that the exception in sec3(d)(4) of the Board's Regulation L is applicable, in the footnote to that section, even though, as ex;;;:ined in your letter, the deposits of the trust company la galY inactive, consisting principa113, in reserve 678 5/11/37 -4- "accounts and accounts carried for persons with wham it has fi ;duci erY relations, as contrasted with the deposits of the ' 11M Which which are active, and in spite of certain other such dlffe discussed in your letter. "The above exception and the corresponding exception in section 2(d)(6) appear to be of limited applicability, and the Board could not decide that the exception is applicable in the present case without reaching a conclusion in conflict with that which it has previously reached in several other similar cases arising in other cities." The letter had been circulated among the members of the Board 414 Mr. Broderick had attached a note stating that he did not agree "I the conclusion reached in the letter. In connection with a discussion of the matter it was stated by ° "o1 that the specific question involved was whether the case ceite ' thin the exception contained in subsection 3(d)(4) of Regulation ' -- eh Provides that any private banker may be at the same time a director, „„.. vl-ticer or employee of one member bank not engaged in a class or eleiese 8 Of business in which such private banker or a firm of private bank., 're of which he is a member is engaged; that the two organizations Were ellgsged in some of the same classes of business; and that the Board 00,ad .4°t rale that the exception was applicable in the present case WithoIxt taking a position inconsistent with that taken in certain other efases. 1111. Broderick stated that, on the basis of his personal knowl(1(4% or 4., "ma character of the business of the two institutions, he was (It the °Pinion that there was no competition between them, that they 411. d elltirely different classes of customers, and that he did not "k4 t he ()Pinion that this case did not came within the exception in 679 5/11/37 8 llbsecti°/1 3(d)(4) of Regulation L. He quoted a portion of Mr. Gidney's letter of , '.arch 29, 1937, which stated that, as a practical matter, the lines of demarcation of the business of the two organizations were as le" 48 could reasonably be expected between any two institutions in the 8"e citY. In this connection counsel stated that under the Clayton Act 8s amended by the Banking Act of 1935, competition was no longer the test. At the conclusion of the discussion, Mr. Szymczak moved that the proposed letter to Mr. Gidney be approved. Mr. Broderick moved as a substitute for Mr. Szymczak's motion that the Federal Reserve Bank of New York be advised that this case comes within the class of exceptions set forth in subsection 3(d)(4) of Regulation L. Mr. Broderick's motion was put by the chair and lost, Messrs. Broderick and McKee voting "aye" and Messrs. Eccles, Ransom and Szymczak voting "no". Mr. Szymczak's motion was then put by the chair and carried, Mr. Broderick voting "no".. Consideration was given to a reply dated April 20, 1937, from Th Chairman of the Federal Reserve Bank of Kansas City, to the 4C)t-irci t the b J letter of April 5, 1937, with respect to recent amendments to Y-lsws of the bank. During the discussion which followed, Mr. Ransom moved that the Board take the Position that, in the interest of sound Procedure, the chairman of the board of directors of a Federal reserve bank, and 680 vii/37 -6in his absence or disability the deputy chairman, and in the absence or disability of both the third Class C director, should serve as chairman of the executive committee of the bank, and that, as it was expected that President Hamilton would be in Washington during the early part of June to attend a Presidents' Conference, action on Mr. Thomas' letter be deferred, with the understanding that the by-laws of the bank would be discussed with President Hamilton in the light of the Board's position with respect to the chairman of the executive committee. Carried unanimously. Mr. Ransom stated that in accordance with Chairman Eccles' recent Elteita,„ -,Lent to representative Patmen that the Board, through its staff, be Pleased to give such information or such drafting service as it eolJad it c onnection with the redrafting of the bill which was recently ittrod , -eed by Representative Patnan for the purpose, among others, of e°4titi,44 --"lng the Board of Governors of the Federal Reserve System as a R(N ltmental agency to be designated as the Monetary Authority, Messrs. rand D reibelbis had conferred with Mr. Herbert Brougham, expert adto the co ttee organized by Representative patman in connection trieer With the legislation, and with Representative Binderup on the drafting of reV18ed bill, that the questions now remaining in connection with the bill hEcite t0 cl° almost exclusively with questions of policy which do not in1,01.ve the • Cal considerations, and that a question was presented as to what 13"iti "of the Board would be if a further conference were requested. vheirmEl 4 ' I2eele5 stated that, when he discussed the matter with Repre411t(Ai patman, Representative Binderup was also present, and that he 681 V11/37 -7- (Chairman Eccles) had made it very clear that the staff of the Board woUld be available to give whatever assistance it could by way of fur11411111R infornation or drafting service but would not be expected to arPress °Pinions on any matters of policy that might arise, and he suggested that the same understanding be had in connection with any further co nferences on the matter. Reference was made to memoranda dated April 28 and May 6, 1937, tr°3z the r) -ivision of Examinations with respect to the application of the j81 Bank of St. Louis, Mo., a State member bank, for Peltliesion to exercise trust powers; the reason for the application bel4 that, without realizing that the permission of the Board to exercise trust powers should have been obtained, the bank had undertaken to act as e xecutor or agent in four accounts. The memoranda stated that the bellk, which had carried out a rehabilitation program in 1934 result1414 the sale of ;;300,000 of capital notes to the Reconstruction lillEtnee Co rporation and 40.00,000 of such notes locally, had at the present tirne an imPairment of its common capital amounting to approximately utv00, but that the net sound capital was equal to 12p of its deksits; that, while the bank's asset condition was not satisfactory, ltwa showin definite tmprovement with favorable prospects for succe4r111 o peration in the future and should be able over a period of Yesl.s to eliminate the existing capital impairment without further adj%ent or its capital; and that in view of all the circumstances it Wss felt that the Board would be warranted in approving the application. 682 5/11/3? -8Me881‘8. Ransom and McKee had considered the matter and had cuestioned the advisability of approving the application in these circumstances. At the conclusion of a discussion, Mr. Ransom moved that the member bank be advised, through the Federal Reserve Bank of St. Louis, that the Board had deferred action on the application Pending the removal of the capital inpairment, but that during the interim the Board would interpose no objection to the member bank continuing to administer the four trusts now on its books. Carried unanimously. At this point Mr. Vest, Assistant General Counsel, entered the There was then presented a memorandum dated May 10, 1937, from Mr. Vest in which he referred to the negotiations which had been had with the TreasurY Department with respect to the replacement by the l'reesUry of the existing stocks of unissued Federal reserve notes of the 1928 series With notes of the 1934 series. The memormidum submitted copies of drafts of letters prepared by the Treasury to be sent to the president of the Senate and the Speaker of the house of Representatransrnittinr :-: a resolution which would authorize the destruction the stocks Of 1928 series notes and their replacement with an equal Alzalb er Of Federal reserve notes of the 1934 or a later series; the cost or °Ill'ePleteeme nt to be paid from the miscellaneous receipts covered into the Treasury by reason of the reduction of the weight of the gold dollar. drsfts had been sent to the hoard informally by Mr. C. V. Opper, Assistant General Counsel for the Treasury Department, for suggestions 683 _9°r c°1zient before their transmission. After discussion, upon motion by Mr. Ransom, Messrs. Smead and Vest were requested to confer with Mr. Opper regarding the contents of the proposed drafts of letters; to advise him that the Board had no suggestions to make regarding the proposed resolution; and to suggest that someone from the Treasury Department, possibly the Acting Director of the Budget, take the letters and resolution Personally to the proper members of the Senate and the House of Representatives and explain the underlying situation to them in order that there might be no misunderstanding of the matter. Consideration was also given to a draft of a letter to Mr. Earrie0„, 4 Chairman of the Presidents' Conference, enclosing copies of the 8c)ardi_ -Latter of March 31, 1937, to President Peyton of the Federal 'vs Bank of Minneapolis and of MT. Peyton's reply of April 7, 1937, 116.1' to the ouestion whether a national bank may pledge Federal re've bani, cashier's checks with its trust department as security for tN.Ert r4nas deposited by it in its commercial department. The draft Of letter to Mr. Harrison requested that Mr. Peyton's suggestion, that °°4816 rA+4 e ----Lon be given to the amendment of Regulation F, Trust Powers or 1\lat' nml nanks, to approve the use of Federal reserve bank cashier's es collate rol, Si , 44140ra 441,11a security for such funds, be placed on the program at the next meeting of the Presidents' Conference. Mr. suggested that instead of sending the proposed letter to Mr. Qn the Board determine whether it would be willing to amend the 1)44k t°- as suggested and, if so, that it then ask the Federal reserve their views as to whether the amendment should be made. 684 -10-Upon motion by Mr. Ransom, it was decided to proceed in accordance with his suggestion. At this point Messrs. Thurston, 'yatt, Paulger, Goldenweiser, 'kead ) Dreibelbis, Vest, Chase and Chamberlin left the meeting and conra side4. bi°r1 Was then given to each of the matters hereinafter referred to and the action stated with respect thereto was taken by the Board: The minutes of the meeting of the Board of Governors of the Federal eserye System held on May 10, 1937, were approved unanimously. Telegram. to Mr. Sargent, Secretary of the Federal Reserve Bank Or SE% Frl'neisco, stating that the Board approves the establishment without c hanc. by the bank today of the rates of discount and purchase in their existing schedules. Approved unanimously. Letter to Mr. Nardin, Chairman of the Federal Reserve Bank of Lo prepared for the signature of Chairman Eccles, and reading in "Reference is made to our recent conversations regard- the Board's present policy with respect to the approval ba salaries of officers and employees of Federal reserve allTcs who have attained the age 65 and particularly to the djroval of a salary for Mr. ,Tames G. McConkey, Vice Presii," end General Counsel of your bank, for a further period lj t; eccordance with your letter of March 9, 1937. As you tl,°w) the Board has given this question a great deal of IZIght, not only in the light of the general questions of ti,icY involved, but also particularly in view of the situate-11 which you have described in connection with the managent Problems of the Federal Reserve Bank of St. Louis. o01181"In Your letter of March 9 you raised a question of 8tenoy between the position taken by the Board and the 685 5/4/37 -11Provisions of the rules and regulations of the retirement sYstem of the Federal reserve banks. This system was adopted voluntarily by the Federal reserve banks with the approval of the Board and under the rules of the system all officers and employees are subject to automatic retirement at the ge of 65, except that extensions may be obtained at the re! 'illest of Federal reserve banks and with the approval of the retirezent coirunittee for periods of a year at a time, not exceeding five years. It seams clear from the way the rules were drawn that it was contemplated that only exceptional Ilses requiring special circumstances would justify such exinsions and therefore the Board's letter of January 21, X-0798, which took the position that, except in par' -cular cases involving exceptional circumstances, the Board , 1c)tlid not approve a salary beyond the end of the calendar . ' ear in which the officer or employee attains the age of 65 ars, is wholly consistent with the spirit of the policy li c1118 evidenced by the rules of the retirement system. In ?.,°1.3ting the position taken in that letter, the Board felt ;'ilat it could not properly discharge its responsibility for Praving the payment of salaries without satisfying itself t'at.the circumstances of the particular case justified re, ntlon beyond the end of the year. The Board also had in ?lnd the desirability of having a general policy for the s-tell under which the number of cases requiring special consideration would be reduced to a reasonable minimum, cjeclally since the system as a whole is somewhat overand the existence of such a policy on the Dart of the fre B°ard might tend to relieve the directors of the banks of°1 , 1 s°Ine of the pressure to retain older officers because rc,t°ng service and personal friendships. A policy of prompt yo4irement should also have an encouragingeffect upon the •, 1,nger 1 men who are ambitious and worthy of advancement, he such men are not already available the injection • hew blood into the system is likely to be beneficial. Bo "Before reaching its conclusions in the matter the elZd had the benefit of continued observations of the opth :1°11 of the Federal Reserve System as a whole and of • Personnel engaged therein. The Board considered the pq, r lence of other large organizations which have adopted per elee of retirement at stated ages, as well as the exnee of insurance companies that underwrite retirement or inc-olilar policies of insurance. In addition, it took lav° count legislative Policies as reflected in recent fog;elating to retirement. In the of all this ineo :ti°n, it concluded that ordinarily retirement at the of 65, as provided in the rules which had been adopted r J Z 686 b/11/3? -12"by the Federal reserve banks for their retirement system, Would best serve the interests of all the Federal reserve banks. It was apparent, however, that the Board could not define in advance the circumstances which would justify excePtions but, on the other hand, it was not contemplated that the facts that physical and mental abilities seem unimpaired or that there would be a substantial reduction of income should be deemed sufficient in and of themselves to constitute such exceptional circumstances. If they were sufficient, retirement at 65 might become the exception rather than the rule. Coupled with the fact that the retire' l ent s• ystem had been in effect since March, 1934, the Board Ielt that by making an announcement in January of this year 48 to a policy which would permit, if desired by the Federal reserve banks, the retention of employees past the age of r i Until the end of the year, a reasonable opportunity would !given for all necessary adjustments. It may be added in this c• onnection that the other Federal reserve banks are adill, 11Sting themselves to this policy. As it has not appeared at t• he Federal Reserve Bank of St. Louis could not meet ;70 situation as to its legal work by the end of this year 'without the necessity of retaining Mr. McConkey in his present : ! 13 8, 1 tion for a further period, and in view of the fact that uas already had two extensions of a year each, the Board r: t; els that the circumstances are not such that it should at i8 time approve his salary for an additional period. "You have brought to the attention of the members of i se Board certain circumstances with respect to the problem Inlic/lved in replacing Mr. Wood at the Federal Reserve Bank. view of these circumstances, together with the fact that Will not reach the age 65 until just two days prior to it axPiration of the year, the Board would be willing, the a, should become advisable in the opinion of your board if of rectors to retain him for a further period not to exceed rota Year beyond the end of this year, to approve a salary nim in accordance with a recommendation to that effect." 1 Approved unanimously. Telegram to Mr. Sargent, Vice President of the Federal Reserve 4Ilic or , k)an Francisco, reading as follows: to "Re letter April 30. Board interposes no objection wet ,roposed retirement by 'Citizens State Bank', Puyallup, s"lngton, of :i31,300 capital debentures." Approved unanimously. 687 5/11/37 -13Letter to Mr. Young, Vice President of the Federal Reserve Bank Of Chicago, reading as follows: 1937 "This refers to your letters of April 20 and May 3, requesting the of the Board upon the question whe'thre: assessments by member bank deposi(v)ife:: tories of public funds under the Iowa Code of 1935, as it would be amended by a bill designate d as House File 544 !lid Senate File 524, would constitute the payment of interest on demand deposits in violation of the provisions of i(egulation Q and section 19 of the Federal Reserve Act. "After considering this question, the Board of GoverncTs has reached the conclusion that the payment of assessats under the Iowa Code of 1935, as it would be amended the above-mentioned bill, would not constitute a payment Of interest in violation of the law and the Board's regula,4°11. This opinion is based upon the provisions of the bill 'nelosed with your letter of May 3, 1937 and it should be :T1)114sized that changes in this bill might have the effect cellsing the assessments to became interest payments." r Approved unanimously. Thereupon the meeting adjourned. Approved:
@FedFRASER