Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, May 12, 1943, Volume 30, Part 2

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700

A raeeting of the Board of Governors of the Federal Reserve
8ntem Was
held in Washington on Wednesday, May 12, 1943, at 10:30 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Eccles, Chairman
Ransom, Vice Chairman
Szymczak
McKee
Draper
Evans

Mr. Morrill, Secretary
Bethea, Assistant Secretary
Mr. Carpenter, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
Mr. Thurston, Special Assistant to the
Chairman
Mr. Dreibelbis, General Attorney
Mr. Leonard, Director of the Division of
Personnel Administration
Mr. Vest, Assistant General Attorney
Yr. Wyatt, General Counsel
Leonard stated that he had had a further talk with Mr.
Sti3eking, Associate
Director of the Bureau of Program Requirements, War
e°.ssion, with respect to the request that had been made by
-1"°aI'd that the
Federal Reserve Banks be declared essential activ—
tties, ?aloft
that Mr. Stocking had stated that the Review Committee of the
Q0/11m
had taken the position that the Federal Reserve Banks were
llent agencies and that the question whether they should be

:
ta .fleci as
A
atat
1144k
the

essential activities was to be discussed tomorrow by the

ctivities Committee of the Commission.

Mr. Stocking also

Leonard said, that the suggestion had been made that the
Might be classified as needed local activities but that one of
dl-tficulties of this procedure viould be that the Banks could be so




701
5/12/43
classified in only three out of four group areas which would exclude
Boston
and New York and four or five branches of Federal Reserve Banks.
)41'
'Leonard added
that it was clear from the discussions that the Com,
raission Was
reluctant to classify the Banks as essential activities,
flci that he
had informed Mr. Stocking that the status of the matter was
to be reported
to the Board at a meeting this morning, that the Board
Was nleetinG
With the Presidents of the Federal Reserve Banks later in the
week
) and that the
Board would like to have some indication before that
tLnle e.8 to whether the Banks co,ld be so classified.
Chairman Eccles stated that if the Commission were inclined not
to o
-assifY the Banks as essential it would be his suggestion that a
l'ectilest be made
that a decision on the matter be deferred, with the
tr,11° ht that the whole subject would be reviewed by the Board with the
rresidents of the
Federal Reserve Banks while they were here during the
141t'ter Part of
the week and, if the situatipn with respect to manpo;.er
ilithe Banks
were as critical as previously stated by the Presidents,
theBoard would
inform the Treasury, War, and Navy Departments and the
44r'itirrie co .ss _ on
flhi i
that the fiscal agency operations for the Treasury,
the
operations for the services and the Maritime Commission under
4egulationv,
t4Ilecessary Were threatened with a breakdown because of the lack of
er, and Mr. Byrnes, Director of Economic Stabilizat'l°4) w°uld beman9c)w
informed that, because of the unwillingness of the War
:
14 14°71e1' e°mmission to classify the Banks as essential activities, the
-Yqeili was not in a
pion to undertake the additional responsibility
Itiliolved in
the oropo:s
edtexecutive order which would confer upon the




702
5/12/43
—313" authortty to
regulate the use of credit for purchasing, carrying,
"Icling in commodities, real estate, or securities.
In the discussion which ensued of the position of the Federal
Reserve

Banks if they were not classified

ES

essential activities, Mr.

teellard stated
that he and Mr. Clayton had been given the assurance in
their
con
versations with Mr. Stocking that they would be informed bet°rehand in the event it appeared that an adverse decision was to be
1114d on
the Board's request.
At the conclusion of the discussion, it
was agreed unanimously that Mr. Leonard should
advise Mr. Stocking that, if it should appear
that the reauest for the classification of the
Federal Reserve Banks as essential activities
would not be granted, the Board would like to
have the War Manpower Commission postpone a
decision pending further discussion with representatives of the Board, which would give
the Board an opportunity to discuss the matter with the Reserve Bank Presidents and with
other agencies of Government whose interests
might be adversely affected by a negative decision. If such postponement occurred, it
would be on the grounds of the public interest involved and the responsibility that
rested with the Board to endeavor to see
that a wrong decision was not made.

At this
point Mr. Leonard withdrew from the meeting.
the

Mr* Ransom referred to the earlier discussions by the Board of

Nom
'-e8t of the Department of Justice that the Board (1) permit repNerrt
kllitter

ves of the Department to examine all registration statements

Regu .
z4Q11 trit, latlon W at the Reserve Banks and to take from these statements
lliation as they deemed desirable regarding small-loan registrants,
(Z) pe
rmit in
special cases, to be determined by representatives of the
bep
411
'
11101A

Of Justice, the making of photostats of registration statements,




703
5/12/43
-4aricl (3) permit
in some instances, to be determined by Department of
hatie
e representatives, follow-up investigations by Federal Reserve
Batik
vestigato
rs

for the purpose of developing further information

l'°11 the T)
epartment. Mr. Ransom stated that in accordance with the re(111eat of
the Board he had discussed the matter further with Attorney
Gene/sal

Biddle, and that subseouentlyMr. breibelbis had conferred with

l'ePresentatives of the Antitrust Division of the Department and had suggested) for the reasons set forth in a memorandum prepared by him under
date of
May 11, 1
943, that an arrangement be made under which the request
Of
the
Department would be acceded to only to the extent of making the
registration statements available to representatives of the Antitrust
riivision, with
the understanding that any information obtained would be
regerdeci as Confidential, would be obtained by means of the Department's
°1111 tiE‘f-f, and would be used only as a lead to obtain evidence from other
aotIrces, and
that, if for any reason the situation in this respect
'
4) the
Derx2rtment would subpoena the records or the problem would
be
worked out
on some other mutually satisfactory basis. Mr. Ransom
t
WerOn to
8`tY that, because of the possible adverse effect upon coophe was

by the
public in the observance and enforcement of Regulation IV,

ii
the An .e17
reluctant to make the registration statements available to
kara:
t
ivi rust Division but that he had come to the conclusion that the
8 not

in a position to decline the request of the Department of

that the
arrangement proposed by Mr. Dreibelbis represented the
'tat that
:ranting the request, and
Could be done in the direction of :
that •
lf the Board were not willing to take that step the only alternative




704
5/12/43

5 /74 to

decline the request.

He added that he h

given the matter care-

1111 c°11sideration and would recommend that the Board approve a letter to
the DePartment of Justice which had been prepared by Mr. Dreibelbis, and
which lir. Ransom
The matter was reviewed from the standpoint of (1) the commendable

objective

clevel°Ping

Of the I,ntltrust Division of the Department of Justice of

,roup of
sufficient information to permit action against a 7.

zratQl_ionti
companies which were in the "loan shark" class and under more

iesss

comroon ownership and which were preying on small wage earners,

(2) the
adverse effects on public support and enforcement of Regulation
zlight result
statements were made available, and (3)
if
registration
the leg
1
relationships of the Board and the Department of Justice and,
fr°111 LnY legal questions involved, the desirability of the mainte_

ZI,riec or

°
operative relationships between the Board and the Deoartment
C'c'verriment

agencleEs

•

At the
conclusion of the discussion, Chairman Eccles suzested
thq
the
position should be taken with the Department of Justice that the
erante(i to the Board under Regulation 6 were special powers in the
eme
rgency, that to use information obtained pursuant to the provisions
ile
ult-tion
in the manner proposed by the Department of Justice would
be
Purpose

was, never intended when the powers to obtain the

illl'°17/ktion were
conferred upon the Board, that such use might cause irl'r'able
injury to the public supoort of the reulation and the ability
°I' the t
c)rd to
z.,ordnister it in the future as well as the ability to prop(lischr,e the further responsibilities that would be conferred upon




735
5/12/43
-6—
the Bc
'ard in another executive order Lhich had been proQosed, ,-nd that
if the Board declined the request it would be for that reason and not beCSe

Of any lack of sympathy with what the Department was tryin,,, to acc()rrlish in this
particular case.
Illre Ransom said that he told Attorney General Bid_ie the last
time t

he matter Was siscussed with ' im tht if uiscussions with the ,ntitrUst

Division

id not result in a solution of the oroblem that Was satiL-

I`'l etory to
the Board he would like the opportunity of taking it up again,
so that
the v.ay was ooen for a further discussion Aith Mr. Biddle if the
shoulu feel that that was desirable.
It was agreed unanimously that Messrs.
Eccles and Ransom should have a further conference with the Attorney General regarding
the matter.
There was thenpresented a memorandum dated April lt, 1943, from

Cherry,
Attorney,
,) submitting a routine recuest from the Chairman of
the Banking
and Currency Committee of the Senate requesting

44ctte
ticql

bill 986

report on

which would eliwinate Federal D(Iposit Insurance Corpora-

e.sses:.,A-0,Q1t,s payable by insureu banks on deposits secured by obliga-

()f the Unite
there was
%I.d.cy. of

States.

The memorandum raised the question whether

any reason in this case to depart
from the Board's general
hot subiaittin

reoorts in response to routine reuests of this

kirl(1 in the
Lbsence of circumstances which would make the submission of a

There was unanimous agreement that, a report should not be submitted at this time but
that the ororess of the legislation should




706
-7be watched by the Legal Division so that, if
it should E)per that a re-port should be submitted or that P representative of the Board
should appear at hearings on the bill, the
necessary action could be taken.
In connection Idth the above matter, Mr. Ransom suggested that
the

fUture when a routine or other realest was received from Congress

report on Proposed legislation, it be circulated among the members
"he B°ard so that any member of the Board woulC have an opportunity
to
84ggest that
the mAter be discussed or that a report be prepared.
ellaillila/1 Eccles suggested that in order to save time the requests be
laced on
the docket with a recommendation from Mr. Ransom in each case
741ether a
report should be made.
Chairman Eccles' recommendation was
approved unanimously.
Re
ference was made to an undated letter addressed to the Board
1Ir
L"
lchtenstein,
Secretary of the Federal Advisory Council, asking
that h
giec,

be advised of any subjects which the Board desired the Council to
its

_,
next meeting, the date of which had been set for May 23-

4' 1943.
The Secretary was requested to advise
Mr. Lichtenstein that the Board had no topics
to suggest at this time.
'
t

—L-Ls point Mr. Evans left the room.

Before„
6 uis meeting there had been circulated among the members
°t the t
"
c ci a memorandum dated April 23, 1943, from Mr. McKee, submitting
ketaorand
dated April 21, 1943, from Chairman Eccles in which the
/1 Iva,
'
expressed that the letter to the Presidents of all the Federal




7 )7
5/12/43
- 3es ,,
erv' banks with
respect to the scope, procedure, and fre ,uency of ex41irlati0ne of
member banics, which ws approved at the meeting of the Board
(3411ch 17) 1943, overemphasized the im)ortance of maintaining bank ex`1"--tritions on a

pez:ce-time schedule.

ChLiruan Eccles stated that since i:%-riting his memorandum he had
cl4ellssed the
matter further with :sr. McKee, that in the circumstances,
the fact
that under the law the Office of the Comptroller of
tClarrency vias
reuired to

two examinations of national banks each

therecid not appear
to be any other position for the Board to take
the
litter at
this time than that stated in the letter, but that if
rtte
way
coulc:, be found
to do so, in the interest of the manpower situatte'rl, he
would like to
see examinations practically discontinued during
the
except in the
case of problem honks which should be urged to take
tteps
as mi,ht be
necessary to out themselves in sound condition.
The

Zake

meetinj, then recessed and reconvened at 3:15 o.m. with the
as at the close of the morning session except that Mr.

In A
tendance and Hr. Parry, Chief of the Division of Security

-arls

Thanlas,

St`kistiCs,

Assistant Director of the Division of Research and

and Mr.
Drown, Administrative Assistant in the Division of

Luist..„
0

Were

Coasi-eration
rec41Aost

to

also present.
V.T,S

given to

E

draft of reply prepared at Chairman

c letter received by him under date of April l, 1943,

r-c)414r4-Ator
r-luesting that Chairman Eccles -ive an enclosed outc3r

ested legislation to provide intermediate and long-term ore it




708
5/12/43
-9fc*hieTican small business enterprises careful consideration and place
it
before the
Board of Governors "for such action and suggestions as
11
collectively or individually may wish to make to our Small Business
Oomill
ittee". The
reply had been prepared as an expression of Chairman
eca-esi
personal Opinion, and Mr. Draper had suggested that it be considered by
the Board with a view to seeing whether the members of the
13°41'cl would
be agreeable
to having it made a Board reply.
The draft was discussed, and Mr. Morrill
was requested to make certain changes in the
letter in accordance with the discussion, to
convert it to a reply which would speak for
the Board as such, and then to resubmit it to
the Board for approval.
There was
also °resented a memorandum dated March 29, 19433 from
Oreibelbis, stating
that the Board had received a number of letters
ra4ing the
question of a bank's right to charge the holder a fee for
collecting an
out-of-town check, that heretofore the Board had held
th4t
sUch
charges were
affected by the so-called Hardwick amendment to
44
-graph 1
of
seation 13 of the Federal Reserve Act, that he could not
N)scribe to
this
conclusion, and that it was his opinion that the better °118truction
of the amendment was that it did not apply in such
oast4
-8. The
memorandum had been circulated before this meeting, and at
111% R
-zyniezakla
request Ir. Dreibelbis discussed the reasons for his poIti0/1,
The
whole matter was
discussed in the light of the previous
111448 of the
Board on this point and what the effect would be of a ruli'llg b4sed
on Mr.
DreibelbisI opinion.
, At the conclusion of the discussion, the
mc.itter was referred to a special committee constirig of Liessrs. Szymczak, Ransom, and Clayton
with power
to act.



709
5/12/4
3
-10Mr* Moitee referred to informal discussionswhich had been had
/11thlir.
Crowley, Chairman of the Federal Deposit Insurance Corporation,
Kth
respect to a
reduction in the maximum interest rate prescribed by
t4tIcard's

Regulation Q, Payment
Interest on Deposits, and the Fedof
Deposit I
nsurance Corporation's Regulation IV, that might be paid
1)T Illenibei. and
nonmember banks, respectively, on time and savings deeral

P4its) and he
inquired as to the attitude of the Board with respect to
4recketion in
the nuodimun rate. All of the members present indicated
that, if
the
Federal Deposit Insurance Corporation were agreeable to a
reduction to
1....v2 per cent in the maximum rate prescribed in
its regula1'1°113 they
would favor a
similar reduction in the maximum rate prescribed
Regulation Q.
At Mr.

Draper's request, Mr. Carpenter read a memorandum addressed

t0 the

by Mr. Draper under
date of May 10, 1943, as follows:
ariee "Att
of,
a relatively quiet period which followed the issuthe p
haabe;: 'he
residentl 'hold-the-line' order, the stock market
aeco
°rne strong and
active again. Public trading in margin
Week
which on balEnce continues to be on the buying sideat
aboilta
'
ct
rIrr week, has
increased further so that now it stands
kez% t---4 Of the total. The amount of credit extended by bro4610 ° their
customers has also increased--to a level of
bo )°()° 000.00
at the end of March which is about $120,000,000
ve th
e
1
'
Prices
ow level of
last August. The increase in stock
to aboliffr°111 the low
level of about a year ago has now amounted
el for-71, °. These prices are now (May 8) at a new high levWhich ,-"e
movement and are -within a few points of the level
irevailed before the
fall of France in May, 1940.
!;Irire(1°Teible Board action at this time to increase the mar°°4 -2
'
"
Ierts would be designed to moderate speculation in
rices -". Perhaps restrain further violent advances in
stock
Npri -if it is to
be at all effective in restraining mountes,e,!' experience
has shown that such action must be taken
'1111 market
gets too strong.




710
5/12/43
-11"APPropriate action at this particular time would be to
crease the present margin reouirements
from the 4C% level
4.06hs 55% level. This would bring margin requirements b;lci:
!
0 the
highest level t which they h'ave ever been. If neehs
e
asarYt Could be followed lter by a further increase (pereven to lo)
, and as a last resort by imposition of a
eT
maintenance requirement against margin accounts and loans
4 _ Ject to
Regulation U. In this connection it is interestin
that under the former statutory formula the average
level
°f margin reet_uirements would have risen during the past
man- 'rom less than 3ak to about 40%, with requirements on
tocks at the absolutely.statutory maximum of 45k.
the If the Board were to take such action, it should
at
:
Tie time make certain technical changes in Regulations
T:
al jar
Z -- to stiffen the rule against withdrawals of cash or
aeoliW"ies and to simplify the requirements relating to brokers
°InilibUsl borrowings. For 'Specialists', however, for techniCal reas
the
°Ils, the withdrawal rule shoula not be tightened and
-;7rgin requirements should be left Lt their present level.
ereci. There
are some incidental policy questions to be considvallee 1
:k Should the
Boaraciscuss the proposed action in ad0441.1, --Gh the
President of the Stock Exchange; 2. with the
sent-er4 °f the S.E.C.; 3. with Mr. Byrnes or some represion .111e of his office? As a matter of procedure some decicelled for with reference to these policy questions.
action vsfinal question is one of timing. Should the proposed
Board, ...oe taken
while certain possible steps to broaden the
terreas Powers are
still pending:, or should this action be deswerin until those steps have been taken or ciscar.,ed? In aneratiog
question, I hope the Board will take into consiucolact
n this
the fact
that action under the Board's present powers
tIrgente°ver the field in
which the need for action is most
with ,! i.e., the organized markets in listed securities. Ictio:
powel:JsPect to
unlisted securities, possible only under new
'cOuld be taken later in case these new powers rere'rrnt a.11
The questions raised in the memorandum
were aiscussed and it was agreed (1) that
Chairman
chairman Eccles would call Mr. Purcell,
of the Securities and Exchange
Commission, and
inform him confidentially
that the
Board was considering the matter
increasing margin reNirements prescribed
LY R
egulations T and U and would like to
f!ave the
views of the Commission as to the
desirability
of that action and the extent
to
which it should go, m% (2) that the




711
5/12/4
3

-12matter should be pat on the docket for
consideration at the meeting of the Board
on May 18, 1943.

At this point, Messrs. Thurston, Parry, Dreibelbis, Vest, Wyatt,

Tho,

'and Brown
withdrew from the meeting, and the action stated with
resPeet 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

Nera.1
Reserve System held
on May 11, 1943, ',.iere approved unanimously.
Memorandum dated May 10, 1943, from Mr. Paulger, Chief of the
ot

E)
carainations, recommending that the official headquarters

11.1‘1 vs Adams
Chicaa,0

Assistant Federal Reserve Examiner, be changed from

Illinois, to
Omaha, Nebrasaka, effective May 16, 1943.
Approved unanimously.
Letter to'-“tmi-,e Hill
County State Bank of Havre", Havre, Montana,

ge as follows:
ell The Board is
glad to learn that you have completed erqe.prrangements for the admission of your bank to the Fed
herew
;
,
eserve
Systcln and takes )1easure in transmitting
a formal certificate of your membership.
It yd.,
thi
be appreciated if you will acknowledge receipt
s certificate.
"
Approved unanimously.
kaerldeci Telegram to the Presidents of all the Federal Reserve Banks, as
0110wing

submission to the War Department, Navy Department,

•Qt
1.111e C°Iltaisslon for their suggestions, in accordance with the
t°4 take
,
the meetinc,, of the Board on May 4,
1943:




712

v12/43

—13—

Reerri

our wire May 1, tfter consulting with War Denart}3nhh.
111erit/ NavY Department,, Maritime Commission and Federal Reserve
a ,.`82 Board has decided that hereafter in any case in which
iv,'Lltlancing institution charges a borrower a commitment fee
e"
e connection with a loan that is guaranteed iursuant to Ex1,
11tive Order 9112, amount of such fee may not exceed 1/4 of
1104"
, cent per annum on unciisbursed portion of loan; also that
ermination fee,
service fee, or other fee of a similar
aTacter)
exceot charges covering out—of-pocket expenses of
tion
lnE'ncing institution, may be charged a borrower in connec-,
with such a guaranteed loan. As experience shows that
cillent fees are called for only in a relatively few cases,
trc:,:rcl is not issuing, E press release in this matter and is
ti;
:
1 mittingit to you for your guidance in handling applica—
'
Or Regulation V loans."

J




Approved unanimously.

Thereupon the meeting adjourned.

Secret ary.