Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, May 15, 1941, Volume 28, Part 2

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590

A meeting of the Board of Governors of the Federal Reserve
SYStem

Was

held in Washington on Thursday, May 15, 1941, at 2:30 p.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.

Eccles, Chairman
Szymozak
McKee
Draper

Mr. Morrill, Secretary
Mr. Carpenter, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
Mr. Thurston, Special Assistant to the
Chairman
There was presented a telegram dated May 9, 1941, from Mr.
Neel-J, Chairman of
the Federal Reserve Bank of Atlanta, in which it
1448 stated
that at the meeting of the board of directors of the Bank
°11 April 23, and subject to approval by the Board of Governors, W. S.
VeLarm
•
Jr., was appointed President of the Bank and Malcolm H. Bryan
was
.
'PPolnted First Vice President, each for the unexpired portion of
the t
erm of five years ending February 28, 1946, and at the meeting
Of the
board of directors on May 9 the salaries of Messrs. McLarin
131,'Jen in their new positions were fixed at A17,500 and 410,500
-ve-LY, for the period from May 9 to May 31, 1941, inclusive.
Mr. Szymezak moved that the Board
approve the appointments of Messrs. McLarin
and Bryan as President and First Vice President, respectively, of the Federal Reserve
Bank of Atlanta for the term stated and
that the Board also approve the salaries
fixed for them for the period from May 9 to
MaY 31, 1941, inclusive.
Mr. Szymczak's motion was put by the
chair and carried, Mr. McKee voting "no".
Mr. McKee stated that his negative vote
on the recommendations of the board of directors of the Federal Reserve Bank of Atlanta in connection with the election of a




591
5/15/41

-2President and First Vice President was based
solely on the stand taken by the Board of
Governors when presented recently with similar personnel circumstances surrounding the
replacement of Presidents and First Vice
Presidents at the Federal Reserve Banks of
St. Louis and Kansas City. In these two instances, Mr. McKee stated, the Board of Governors in meeting with the committees representing the boards of both the St. Louis and
Kansas City Banks argued for the career system
as well as for the chief executive officer
being one qualified to assume capably his
responsibilities on the Open Market Committee.

There was then presented a draft of letter to Mr. Nardin,
Ohm.
'man of
the Federal Reserve Bank of St. Louis, reading as follows:
Me have deferred replying to your letter of April
" 1941, until we could ascertain whether it would be
Possible for any of the members of the Board to be present at the
meeting of the directors of your bank and its
branches to be
held in St. Louis on May 22nd.
"The members of the Board have asked me to inform you
that they
have gone over their plans very carefully in an
effort to arrange their programs so as to enable them to attend
n
the conference but, because of commitments previously
f de which
cannot now be changed, it will not be possible
riany of them to be present. They all regret the necessity
this reply to your letter and have expressed the hope
thatd,
on the occasion of the next meeting of all of your
rectors they will be able to be present."
21,

4

Approved unanimously.
Neel_,
stated

Reference was also made to a letter dated May 10, 1941, from Mr.
Chairman of
the Federal Reserve Bank of Atlanta, in which it was

that the regular June meeting of the board of directors of the
talak w
°lad be held in Atlanta on June 13 and 14 jointly with the boards
Of dir
ect°r8 of the branches of the Bank, that at its May meeting the




592
5/16/41

—3

board of directors voted unanimously to extend to each member of the
Board of Governors
an invitation to attend the two—day meeting, and
that it Was
the hope that the Board and its staff would be represented.
Mr. Morrill was requested to advise
Mr. Neely that the Board members were not
able to say this far in advance whether
they would be able to go to Atlanta for the
meeting but that he would be advised if it
were possible for any of them to make the
trip.
Mr. Szymczak called attention to the renewal by the Chairmen
at the
recent Conference at White Sulphur Springs of the suggestion
that „
he Board
submit to the boards of directors of the Federal Reserve
Ior discussion important questions confronting the Federal Re—
m e ,..
oYstem from time to time. Mr. Szymczak asked that consideration
be
given at this
meeting to the desirability of asking the directors to
ec"der topics, such as the question of installment credit control,
hich had been the
subject of discussion by the Board.
In connection with Mr. Szymczak's comment, Chairman Eccles
stated

that recently he had a further conversation with Mr. Henderson,

Adrninistrator of the Office of Price Administration and Civilian Supply,
illth respect to whether the Federal Reserve System should be given re13'311sibilitY in the field of installment credit control, at which time

he

A

(Chairllan Eccles) stated that he felt the Board had done all it could
the
matter without the support and cooperation of the Office of Price
lstration
and Civilian Supply, and that it was his suggestion that




593

5/15/41

-4-

Henderson assign an attorney and an expert in consumer credit to
work with members of the Board and its staff in the preparation of an
s:""ive order or legislation, if• it were felt that the latter were
n
eeded, together with a suggested program for carrying out the provisions
of the executive order or legislation. Mr. Henderson agreed
With that
arrangement, Chairman Eccles said, and assigned Mr. Rolf
11/1gent, Director of the Department of Consumer Credit Studies of the
Illassell Sage
Foundation and temporarily on the staff of Mr. Henderson's
offic..)
'and an attorney who had met with members of the Board's staff
tc)r the

purpose of preparing a program along the lines suggested.
Chairman Eccles made the further statement that, if the re-

el3clisibility for administering installment credit controls were placed
&tithe Board,
it very likely would be necessary that there be added

to

the

Board's staff someone thoroughly trained in the field of concredit, that Mr. Nugent appeared to be such a person having

81)ellt some
fifteen years in that field, that he seemed to be thoroughly
4111iliar with the problem from the standpoint of the Board's responsibi1
it3r•under the proposed executive order, and that, if the Board were
IiIren the r
esponsibility, it might want to consider adding fr. Nugent
:
t its s• taff, which Mr. Henderson had indicated would be agreeable to
4114a1+1_
G
he did not know whether Mr. Nugent would be willing to
4ecePt
•a Position with the Board. Chairman Eccles added that he stated
tottr.
Ifenderson that, in the event the Board were given authority
°It" installment credit, it would expect to work in close cooperation




594
5/15/41
-5Ilith l4r. Henderson's office, somewhat as it now cooperates with the
See
ul'ities and Exchange Commission in connection with loans for the
of purchasing or carrying securities, and with the Treasury
in c
onnection with open market operations.
The further comment was made by Chairman Eccles that at the
Present

time the representatives of the Board and Mr. Henderson's

"-ce were
Working on a memorandum and regulations which would outline the Program of installment credit controls which the System
17(3111c1 be expected to carry out under an executive order to be issued
br the President,
that it was expected that this would be sent to the
Pederal
Reserve Banks for their comments and suggestions, and that the
memorandum could also
be discussed by the boards of directors of the
Reeerve Ba
nk
in accordance
sI
t
of the Chairman.
with the suggestion
114(1418o been
proposed, Chairman Eccles said, that copies of the memol'4114uM now in
preparation should be submitted to representatives of
the American Bankers Association and other interested parties for the
151111°(38e of getting their comments and suggestions before the program
1748

Put into
effect.
During Chairman Eccles' statement Mr. Goldenweiser, Director

c't the Division of Research and Statistics, and Mr. Dreibelbis, Assist/1t.
eneral Counsel, joined the meeting and Mr. Dreibelbis reported
Ori
the Progress being
made in the preparation of the memorandum reto by
Chairman Eccles.




595

5/15/41

-6After some discussion, Mr. McKee
moved that the question whether the topic
of installment credit controls should be
submitted to the boards of directors of
the Federal Reserve Banks for discussion
be left for determination by Messrs. Eccles
and Szymczak after the memorandum above referred to had been prepared.
Mr. McKee's motion was put by the chair
and carried unanimously.
There was then presented a memorandum dated May 2, 1941, from

Go
ldenweiser which contained the following recommendations with re8Peet to the
printing of the base book of banking and financial statistic.,
-E.hat had been
under preparation by the Board's staff for some
td,me:
That 10,000 copies be printed now with arrangements for additional copies later if they are
needed;
"2 That
the National Capital Press be given the work,
since it was the lowest bidder and has done satisfactory tabular work for us in the past;
That all the copies be bound in cloth in vim of
the size of the book*;
"4. That distribution be largely free, in view of the
fact that the volume presents material formerly
Presented in the Annual Report. It is expected
that the Correspondence and Publications Section
of the Secretary's Office be authorized to furnish
copies without charge to the following upon request:
Federal Reserve Banks, for their own use
Members of Congress and of Government Departments
State Banking Departments
Libraries and educational institutions
(teachers of economics)
Foreign central banks and governments
4ccording to present plans, about half as thick as a
bound volume of the Federal Reserve Bulletin, with
the same size page, but thinner paper.




96

5/15/41

-7-

"The press
Subscribers to the Bulletin (paid and free)
The foregoing contemplates free distribution to the
same groups as now receive the chart books free,
and also to Bulletin subscribers in general. It
is suggested that in restricted cases, copies be
furnished upon our initiative, but that in the main
they be sent only to those who ask for them.
That to others than those mentioned in the preceding
Paragraph, the book be sold at 41 for single copies
and 75 cents in quantities of ten or more. This
is less than the printing cost, but it is believed
that a price based on printing cost, which is '2..67
per copy on a basis of 10,000, will discourage sales
and produce possibly less return than a lower price.
• That the title of the book be 'Banking and Monetary
Statistics.'
"For budget purposes, it is recommended that the Board
a
uthorize the addition of funds to the Printing and Binding
...,°..count Classification of the Service Functions Budget of
'.1e Secretary's Office to cover the actual cost of publica1°11, which will be approximately 16,725.00.
At one time there was under discussion a plan for cooperation of the Federal Deposit Insurance Corporation and the
iorilptroller's Office in the publication of this base book.
re recently it has developed that their interest is priin the long-range historical material which is being
:urked up under the supervision of Mr. Blattner. The Corrration and the Comptroller are furnishing clerical assistt0 this project. It is proposed to publish a separate
ume when this work has been completed."

Z

Z

the

There ensued a discussion of the question whether the demand for
new

book would be large enough to justify the printing of 10,000

°Pies

and what the policy of the Board should be with respect to the
qi8tri
bution of free copies of the book.
At the
conclusion of the discussion Chairman Eccles suggested
that mr.
Go
ldenweiser be requested to look further into the number of
c°Pies
.1"lch may be required and that the Board authorize the printing
or Upt
5,000 cloth bound copies of the book under the title "Banking




597
5/15/41

-8-

slid Monetary
Statistics", that the printing contract be awarded to
the National
Capital Press, that the book be distributed free only
to Public officials who request it in addition to the necessary copies
to be furnished free to the Federal Reserve Banks, that in all other
eases a charge
be made in an amount to be determined by Messrs. Morrill,
G°1clenweiser, and Thurston, and that an addition to the Printing and
tinri4
--"Ig Account classification of the Service Functions Budget of the
4'

Secretaryt
cost of

s Office be authorized in the amount necessary to cover the

printing and binding of the book.
Chairman Eccles' suggestion was approved unanimously, with the understanding
that a notice with respect to the availability of the new volume would be included in the annual report of the Board
for the year 1940.

In connection with the above matter there was read the followInge
Xcerpt taken by the Board's examiner,
at the time of the last
eXamt
natlon of the Federal Reserve Bank of Philadelphia, from the
111411te5
of the meeting of the board of directors of the Bank on Jan-

3 1941:
144'Y '
"There
Was reported the receipt of a letter (dated Des
"
27, 1940, R-755) from the Board of Governors of
ZI,
114
tiv Federal Reserve System, enclosing a copy of a resolu,
11 levying an assessment upon the various reserve banks
to°1
e!'raY the estimated expenses of the Board from Janil
iJune 30, 1941. The payment of the assessment
on-j
Lillis Bank amounting to *4,886.65 was duly authorized.
poZiew of the increases in these assessments, as ret0 this Board, the question was raised as to
'tether or
not these annual expenses are reviewed by




598
5116/41

-9-

"any impartial body or official. It is understood that
the books of the Board's Fiscal Agent are audited periodica11Y by an Auditor of a Federal Reserve bank, but the
thought was expressed that as a matter of public policy,
it might be well if the Board of Governors would have a
review made of the annual expenses of the Board by some
independent body; i. e. by one of the Federal Reserve
banks, or by some specially designated committee of reserve bank directors or officers."
It was stated that the suggestion contained in the above excerpt had not been submitted to the Board of Governors by the PhilacielPhia directors and that unless the Board desired to take some action
1.4 connection
with it no action on the suggestion appeared to be called
f(Ir

at

this time.
The suggestion was made by Mr. McKee that one way in which the

13°4r'd might reduce expenditures would be by the elimination of the use
Of the long distance telephone whenever a telegram or other means of
e'41111111nication would serve the purpose.

There was a discussion of the

illereaees in the expenditures of the Board during the last several years
4110 of
tile reasons therefor, including the additional responsibilities
114ced upon, and the additional activities undertaken by, the Board
-kug that
period.
Chairman Eccles suggested that at the next meting of the Presidellt

p

8

that

the Federal Reserve Banks he might state to the Presidents

"e increased expenditures of the Board had been the subject of

discus
81°n,
callsed

that the Board was conscious of the increase which was

by the
expanded responsibilities and activities of the Board
"
4
it
8

Staff, and that the matter was having close attention.




599
—10—
This suggestion was agreed to with
the understanding that data would be prepared relating to the Board's expenditures
which would show, if possible, some comparison with the growth of expenses at the
Federal Reserve Banks, and that after this
information was prepared consideration would
be given to a suggestion made during the
discussion of the advisability of sending
a memorandum to the members of the Board
and its staff calling attention to the necessity of keeping expenditures as low as
Possible consistent with the proper discharge of the Board's responsibilities.
During the discussion of the above matter Mr. Szymczak called
4taten+

vlon to the offers of higher salaries being received by employees
of the B
oard from other agencies of the Government and stated that if

thezoard was to maintain an efficient organization it undoubtedly
17(3111d be
(117der to

necessary for it to pay higher salaries in some instances in
retain its employees and that this would increase further the
of the Board.
In this connection, reference was
made to recent newspaper comment with respect to the possibility of the President
Issuing an executive order prohibiting Government agencies from taking employees of
Other agencies and it was agreed that
Chairman Eccles would discuss the matter
With Mr. McReynolds, Liaison Officer for
Personnel Management.

the

lie8srs. Thurston, Goldenweiser, and Dreibelbis withdrew from
etlng at
this point.
Mr- McKee stated that the Board's building committee had been
c°11sideration to the question whether the contract for the




GOO

-11ccristruction of the addition to the Boardts building should be on a
-r

sum or management fee basis, that the committee was not ready to

414 a recommendation to the Board, and that one of the important
q4estions

Involved was that if the contract were let on a management

tee basis

orders for such things as the excavation, steel, and marble

c°11-1d

be let very shortly which would result in a saving of two or

till's* months
time.
Chairman Eccles expressed the opinion that under more ordinary
I.
e°11clit1ons the Board probably would not be justified in letting the
e°11tract on other than a lump sum basis but that, in view of the present Ilnoertain situation which would require that any reputable contrac,_
u protect himself against all possible contingencies and which
'r
11°111
c1 result in the cost of the building under a lump sum contract
being co
nsiderably higher than on a management fee basis, consideration
1"1°111-141 be given to letting the contract on the latter basis. It was
also
stated that representatives of the Public Buildings Administration
had 1,
-ecommended the management fee basis under present conditions and
that several Government contracts had been let on that basis.
It was unanimously agreed that, although the members of the Board were inclined to favor the management fee basis
of contract, the building committee should
consider the matter further and make a
recomendation to the Board.
Ur. McKee referred to copies of reports sent to the Board by
the War D
epartment on April 29 and 30, 1941, relating to (1) transfers




?;
•

5/15/41

-12-

r large

sums of money largely from New York via Panama to South

and (2) the Bank of America National Trust and Savings Associsti
cn and its president. In the discussion which followed, during
Which Mention was made of the increased withdrawals of currency in
this
country apparently for the purpose of hoarding, Chairman Eccles
allggested that the Board should make a study and be prepared to disCI1Z e,

•

with the Treasury the adoption of some program to counteract
the
hoarding of currency and prevent the use of currency and bank deposits in
this country for the benefit of individuals or Governments
"
11
endly to the United States.
It was agreed unanimously that Mr.
Szymczak, with the assistance of the
staff, should prepare data with respect
to the hoarding of currency in the United
States with the understanding that the
information would be available for use
in a discussion with the Presidents, at
the time of their next conference, of the
matter referred to by Chairman Eccles.
The action stated with respect to each of the matters hereinter r
eferred to was then taken by the Board:
Fe

The minutes of the meeting of the Board of Governors of the
er
41 Reserve System
held on May 14, 1941, were approved unanimously.
Bond in the amount of $10,000 executed under date of May 6,
bY Kenneth
Brockman Self as Alternate Assistant Federal Reserve

Agentat

the Federal Reserve Bank of Kansas City.




Approved unanimously.

602
5/15/41

-13Letter to Mr. John G. Nichols, Chief of the Division of Exam-

ination of the Federal Deposit Insurance Corporation, reading as follows:
• "In accordance with the request contained in your
letter of May 121 1941, the Board of Governors of the
12ederal Reserve System hereby grants written consent,
in accordance with the provisions of subsection (k)(2)
of section 12B of the Federal Reserve Act, for examiners
for the Federal Deposit Insurance Corporation to make an
examination of the Floral Park Bank and Trust Company,
Floral Park, New York, for the purpose of ascertaining
tl.le extent to which the corrections requested in your
citation of April 5, 1941, have been effected."
Approved unanimously.
Letter to "The First National Bank of McCook", McCook, Nebraska,
t

i-ng as follows:
"The Board of Governors of the Federal Reserve Syshas given consideration to your application for fidu1°,4-arY powers under the provisions of Section 11(k) of the
,
ederal Reserve Act, and grants you authority to act as
ZrUstee, when not in contravention of State or local law,
6he exercise of such right to be subject to the provisions
the Federal Reserve Act and the regulations of the
f°ard of Governors of the Federal Reserve System. A
°Mal certificate of such authority is enclosed herewith.
"Your bank applied also for the right to act 'in any
other
fiduciary capacity in which State banks, trust com111?-nies or other corporations which Come into competition
th national banks are permitted to act under the laws
°z the State in which the national bank is located.' The
IT'ant of this so-called 'general power' would permit the
4 ank to exercise all of the specific powers which the Board
authorized to grant under the provisions of Section
(k
) of the Federal Reserve Act, provided competing State
4
?stitutions are authorized by law to exercise such powers.
,111_ view of the scope of the 'general power', and inasmuch
the information submitted indicates that your bank has
L',
,. i need for authority to act in any fiduciary capacity
s wler than as trustee, and does not have prospects for a
mlifficient volume of trust business to justify the employent of personnel qualified by training and experience to

n

11

7.:




603
5/15/41

-14-

engage generally in fiduciary activities, the Board is
unwilling at this time to grant your bank trust powers
except as stated in the first paragraph of this letter.
If a real need for additional powers should develop in
the future, appropriate consideration can be given to
these factors.
"Kindly acknowledge receipt of the enclosed certificate.”
Approved unanimously for transmission through the Federal Reserve Bank of
Kansas City.
Letter to Mr. Gidney, Vice President of the Federal Reserve
Bank

oI New York, reading as follows:

"This refers to your letter of April 9, 1941, relating to the holding company affiliate status of Union County
Trust Company, Elizabeth, New Jersey.
"On November 7, 1935, Union County Trust Company was
determlned
•
by the Board not to be engaged, directly or inca.rectly, as a business in holding the stock of, or managng or controlling, banks, banking associations, savings
,
11 s, or trust companies, within the meaning of section
2
J?) of the Banking Act of 1933. It is the Board's view
that such a determination with respect to an organization
ntinues in effect indefinitely in the absence of a conrarY determination and that it governs the status of the
17ganization as a holding company affiliate not only of the
trks which were subsidiaries at the time of the determinar,T,1 but also of banks which become subsidiaries thereafter.
P14-i-e the Board retains the right to make a new determination at
any time upon the basis of the then existing facts,
..
1 1,?re is no occasion for action by the Board where, as in
sz7Itu5 case, there is no change in the facts such as would ineate that the organization in question might be deemed
._v
engaged,
agaged, directly or indirectly, as a business in hold.
3:ug the stock of, or managing or controlling, banks, banking
"
sociations, savings banks, or trust companies."

t

r

j

Approved unanimously.
Letter to Honorable Robert F. Wagner, Chairman of the Committee
441ng and Currency of the United States Senate, reading as follows:




604

—15—
"This refers to your letter of May 8, 1941, addressed
to Chairman Eccles, in which you request an opinion as to
the merits of the bill S. 1471, copy of which you enclose,
Which would amend section 16 of the Federal Reserve Act
so as to extend until June 30, 1943 the period during which
direct obligations of the United States may be used as col—
lateral security for Federal Reserve notes.
"For the reasons hereinafter stated, the Board of Gov—
ernors of the Federal Reserve System favors the passage of
he bill S. 1471 and hopes that it may be possible for
iongress to enact it before the date of the expiration of
the existing authority, June 30, 1941.
"Section 16 of the Federal Reserve Act was amended
bY the Act of February 27, 1932, so as to provide that
until March 3, 1933, the Board, if it deems it in the
Public interest, shall have authority, by an affirmative
vote of not less than a majority of its members, to au—
thorize the
Federal Reserve Banks to offer, and the Fed—
eral Reserve agents to accept, direct obligations of the
United States as collateral security for Federal Reserve
notes, The Act was again amended by the Acts of February
3) 1933, March 6, 1934, March 1, 1937, and June 30,
1939/
1
?xtending
this authority, which will now expire on June 30,
9412 unless it is extended by the Congress.
"Gold certificates held by the Federal Reserve Banks
and due from
the United States Treasury now amount to over
29 billion dollars, of which about ,'4 6.7 billion are pledged
1"1.-th the Federal Reserve
agents as collateral for .1.6.6
2:11ion of Federal Reserve notes issued by the agents to
Zue
Reserve Banks. This leaves a little over
q3.billion to cover the required reserve of $5.7 billion
gainst the q6.2 billion of deposits of the Federal Re—
serve Banks and to supply the necessary collateral and
reserves for additional note issues and deposits.
"No United States Government securities have been
P
aledged with the Federal Reserve agents since May 28, 1938,
end so long as conditions remain substantially as at prestnt it will not be necessary for the Federal Reserve Banks
use United States Government securities as collateral
Federal Reserve notes issued to them by the Federal
ti:-eserve agents. There is no assurance, however, particularly
:
14 11. times like the present, that conditions will not change
11,
,
84c?:d1Y. In 1931 the System had the experience of being
Caule, owing to lack of authority to pledge United States
°vernment obligations against Federal Reserve notes, to




_ 605
5/15/41

—16—

"adopt an active policy of combating a deflation. It is
clearly not in the public interest to run the risk of such
!. development happening again by permitting the authority
to pledge Government securities against Federal Reserve
notes to lapse."




Approved unanimously.
Thereupon the meeting adjourned.

itad

Chairman.

Secretary.