Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, May 16, 1939, Volume 26, Part 2

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A meeting of the Board of Governors of the Federal Reserve
SYstem was held in Washington on Tuesday, May 16, 1939, at 10:30 a.m.
PRESENT:

Mr. Eccles, Chairman
Mr. Ransom, Vice Chairman
Mr. Draper
Mr. Bethea, Assistant Secretary
Mr. Carpenter, Assistant Secretary
Mr. Clayton, Assistant to the Chairman

The action stated with respect to each of the matters hereinafter referred
to was taken by the Board:
Lotter to Mr. W. P. Jones, Vice President of the First National
Bank, Hattiesburg, Mississippi, reading as follows:
"This refers to your letter of May 5, 1939, addressed to Governor Ransom, with respect to the payment
before maturity of a certificate of deposit issued by
your bank to Mrs. Hannah Smith of Mt. Olive, Mississippi,
in the amount of $5,150 to mature January 1, 1940.
"It is understood that Mrs. Smith has requested the
Payment of her certificate by the transfer of the amount
thereof to a bank located in the town in which She resides, which is some forty miles distant from the town
in which your bank is located; and that such transfer is
desired in order to relieve Mrs. Smith, who is a woman of
advanced age, from the physical hardships incident to
traveling from her home to your bank in order to look
after her affairs. It is noted that Mrs. Smith has executed an application for the transfer of the certificate
of deposit in the manner described, stating the reasons
for which the transfer is requested, and that this application has been approved by the President and by the Vice
President and Cashier of your bank.
"While it is not entirely clear from the facts stated
that the case is one in which there exists an emergency of
the kind contemplated by section 4 of the Board's Regulation Q, in all the circumstances the Board of Governors
will not object to the payment of the certificate of dePosit prior to its maturity in the manner described. In




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"accordance with your request, the certificate enclosed
With your letter is returned herewith.
"If you should have any further inquiries regarding
this matter or any similar matter, it is suggested that
YOU communicate with the Federal Reserve Bank of Atlanta,
Which will be glad to consider your inquiries."
Approved unanimously.
Letter to Mr. Schaller, President of the Federal Reserve Bank
°f Chicago, prepared in accordance with the action taken at the meeting
Of the
Board on May 9, 1939, and reading as follows:
"Reference is made to your letter of April 28, 1939,
enclosing an excerpt from the minutes of the meeting of
tie board of directors of your bank held on April 27,
1939, with respect to advances by your bank to member
and nonmember banks and others on the security of Government obligations in the event of political developments
abroad resulting in disturbances in our markets.
"The Board notes that your directors voted to establish, if and when the Board of Governors may request
a review of rates due to the disturbances referred to above,
a rate of 4 per cent on advances to individuals, partnerships and corporations, including nonmember banks, on
direct obligations of the United States, with a margin
of not to exceed 10 per cent of the par value of such obligations offered as collateral.
"As you know, when this matter was discussed by the
Presidents of the Federal Reserve banks with the Board in
Washington on April 18, 1939, it was agreed, as stated
in the Board's letter of April 27, 1939, that it would be
desirable, in the event of the outbreak of hostilities
abroad, for the Federal Reserve banks to be prepared to
make advances at the discount rate on United States Government obligations at par to all member and nonmember
banks. The Board has been informed by all of the other
Federal Reserve banks, with the exception of one from
Which advice has not yet been received, that they would
be willing to carry out such a policy. The Board feels
that the adoption of a uniform policy by all of the Federal Reserve banks in this connection would be highly




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"desirable for the reasons outlined at the meeting of the
Board with the Presidents on April 18, and it will appreciate it, therefore, if your directors will discuss the
matter further at their next meeting and advise the Board
of the results of such consideration."
Approved unanimously.
Letter to Mr. Harrison, President of the Federal Reserve Bank
Of

New York, reading as follows:
"Further reference is made to your letter of April
1939, with respect to advances by your bank to nonmember banks on the security of direct obligations of
the United States in the event of political developments
abroad resulting in disturbances to the markets in this
country.
"The Board of Governors has noted the action of your
directors in this connection and assumes from your letter
that in the event such advances were made either to member
or nonmember banks, they would be on the basis of the par
value of the Government securities offered as collateral."

al,

Approved unanimously.
Letter to Mr. Powell, First Vice President of the Federal ReSee Bank
of Minneapolis, reading as follows:
"Further reference is made to your letter of April
22, 1939, with respect to advances by your bank to nonmember
banks and others on the security of direct oblir:ations of
the United States. The Board of Governors has noted the
action of your directors in this connection and assumes
from your letter that in the event such advances were
made either to member or nonmember banks, they would be
on the basis of the par value of the Government securities
offered as collateral.
"It is also noted that the rate of 3 per cent fixed
on advances to individuals, partnerships and corporations
Other than nonmember banks and the rate of 1 1/2 per cent
on advances to nonmember banks are to became effective,




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"after approval by the Board of Governors, if, as, and
When the President or Vice President of the Federal Reserve Bank of Minneapolis deems it advisable to put these
rates into effect. It is understood that this action of
Your directors was taken in order that the Federal Reserve
Bank of Minneapolis might be in a position to Proceed in
accordance with the policy discussed at the meeting of the
Presidents with the members of the Board of Governors on
April 18, 1939, when it was agreed that in the event of
Political developments abroad resulting in disturbances
in our markets the Federal Reserve banks should stand ready
to make advances at the discount rate on United States
Government obligations at par to all member and nonmember
banks, and that the rates would be made effective in the
event of such disturbances. While your letter states
tnat the rates would became effective when the President
or Vice President of the bank deems it advisable it is
asswmed that it was intended that the necessary action
in this connection would be taken by the President or
First Vice President.
"The Board of Governors is taking no action at this
time on the rates fixed by your directors but should disturbances of the kind referred to actually develop, immediate action will be token by the Board end you will
be advised accordingly."
Approved unanimously.
Letter to Honorable M. M. Logan, United States Senate, reading
as follows:
"Reference is made to your letter of May 9, 1939,
enclosing a letter dated May 4, 1939, (with three attachments), from Mr. Barry Bingham, Louisville, Kentucky, saggestinr, that that portion of Kentucky now included in the
Fourth Federal Reserve District be transferred to the
Eighth Federal Reserve District. In transmitting Mr.
Bingham's letter to the Board, you request advice as to
what steps would be necessary to carry his suggestions
into effect.
"Section 2 of the Federal Reserve Act, as amended,
contains the following provision with respect to the establishment of Federal Reserve districts:




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"1.

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ESTABLISHMENT OF RESERVE CITIES AND DISTRICTS
Sec. 2. As soon as practicable, the Secretary of
the Treasury, the Secretary of Agriculture and
the Comptroller of the Currency, acting as 'The
Reserve Bank Organization Committee,' shall designate not less than eight nor more than twelve
cities to be known as Federal reserve cities, and
Shall divide the continental United States, excluding Alaska, into districts, each district to
contain only one of such Federal reserve cities.
The determination of said organization committee
shall not be subject to review except by the Board
of Governors of the Federal Reserve System when
organized: Provided, That the districts shall be
apportioned with due regard to the convenience
and customary course of business and shall not
necessarily be coterminous with any State or
States. The districts thus created may be readjusted and new districts may from time to time
be created by the Board of Governors of the Federal Reserve System, not to exceed twelve in all.
Such districts shell be known as Federal reserve
districts and may be designated by number. A
majority of the organization committee shall constitute a quorum with authority to act.
"As indicated by the above quotation from the Federal
Reserve Act, the boundaries of the twelve Federal Reserve
districts were originally fixed by the Organization Committee
prior to the establishment of the Federal Reserve bnnks.
The Board of Governors of the Federal Reserve System is,
of course, authorized by the Federal Reserve Act to change
the boundaries of the Federal Reserve districts and a number
of such changes have been made.
"With regard to the method of determining the boundaries
Of the Federal Reserve districts, it is thought that the following excerpt from the report of the Organization Committee
may be of interest to you:
"Among the many factors which governed the
Committee in determining the respective districts
and the selection of the cities which have been
chosen were:
"First: The ability of the member banks
Within the district to provide the minimum capital




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"of :,4,000,000 required for the Federal Reserve
bank, on the basis of six per cent of the capital
stook and surplus of member banks within the district.
"Second: The mercantile, industrial and
financial connections existing in each district
and the relations between the various portions
of the district and the city selected for the
location of the Federal Reserve Bank.
"Third: The probable ability of the Federal
Reserve Bank in each district, after organization
and after the Provisions of the Federal Reserve
Act shall have cone into effect, to meet the
legitimate demands of business, whether normal,
or abnormal, in accordance with the spirit and
provisions of the Federal Reserve Act.
"Fourth: The fair and equitable division
of the available capital for the Federal Reserve banks among the districts created.
"Fifth: The general geographical situation
of the district; transportation lines, and the
facilities for speedy communication between the
.Federal Reserve bank and all portions of the
district.
"Sixth: The population, area and prevalent
business activities of the district, whether
agricultural, manufacturing, mining or commercial, its record of growth and development in
the past and its prospects for the future.
"In determining the several districts, the
Committee has endeavored to follow state lines
as closely as practicable, and wherever it has
been found necessary to deviate, the division
has been along lines which are believed to be
most convenient and advantageous for the district
affected.
"While no set procedure has been established in connection with requests for changes in the boundary lines of
Federal Reserve districts, it is suggested that if there is
a strong sentiment among the member banks in Eastern Kentucky
to be transferred from the jurisdiction of the Fourth to
the Eighth Federal Reserve District, they submit a petition
to this effect to the Board of Governors of the Federal




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"Reserve System, Washington, D. C. The petition should,
Of course, set forth in detail the reasons why the suggested change is thought desirable.
"The Board of Governors will be glad to give consideration to any such petition which may be filed with it
in the light of the facts presented by the petition."
Approved unanimously.
Letter to Mr. V'alter Lichtenstein, Secretary of the Federal
Advisory Council, reading as follows:
"Your letter of April 28, 1939, in which you request
a list of the topics which the Board of Governors desires
the Federal Advisory Council to discuss at its next meeting on Tune 5 and 6, 1939, has been brought to the attention of the Board.
"Aside from such consideration as the Council may
wish to give to the suggestion contained in the letter
addressed to you under date of March 31, 1939, with respect to the answers submitted by the Council at its
last meeting with the Board to the questions relating to
the services of the Federal Reserve System to its member
banks, the Board has nothing to suggest at this time for
discussion by the Council."
Approved unanimously.

Thereupon the meeting adjourned.

Assistant Secretary.

%roved:




Chairman.