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759 A meeting of the Board of Governors of the Federal Reserve SYsteril was held in Washington on Tuesday, May 21, 1946, at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak Draper Evans Mr. Carpenter, Secretary Mr. Hammond, Assistant Secretary Mr. Thurston, Assistant to the Chairman Mr. Parry, Director of the Division of Security Loans Mr. Thomas, Director of the Division of Research and Statistics Mr. Vest, General Counsel As stated in the minutes of the meeting on May 8, 1946, Mr. Vardaman wasabsent on official business. Under date of May 16, 1946, the Board received a letter signed Iv ohm—man Ruml, of the Federal Reserve Bank of New York, in reply to the, coardts letter of March 22 relating to the part time service of Joh4 Williams as Vice President of the Bank. The statements contained la the letter with respect to the relationships between the toard of G overnors and the Federal Reserve Bank were discussed, and at chai rnlan Eccles' suggestion, action was deferred pending a discusatoll or the reply with Messrs. Ransom and Vardaman following their et to Washington. III% Evans then referred to a letter received from Mr. Sproul, PNid ellt of the Federal Reserve Bank of New York, dated May 15, 1946, ill Which he disagreed with the judgment contained in the Board's letter tlaY 13 that there should be only one representative from the Federal Ite erire Bank of New York at the conference of representatives of 514/46 —2— banks at Mexico City next August. The letter also stated that It seemed to Mr. Sproul that a delegation consisting of three represent— "." from the Board, two from the New York Bank, and one from the Naa 8 Dank would be more appropriate than the number proposed by the Board that it would be most helpful if Mr. Roelse, who was in charge c)t the esearch work at the Bank, could attend the conference as well aa a 1444 specializing in Latin American affairs, and that it was hoped that the Board would reconsider its judgment and that the invi— tataohextended to the Bank through the Board might be deemed broad ehou gn to include both Mr. Roelse and Mr. Wailich. Mr* Evans discussed briefly the reasons for the proposal that OrIlly on 6 re presentative of the Federal Reserve Bank of New York attend the c_ 'Inference and stated that it was not an important matter and if t4 to 4rd should see fit to authorize both Mr. Roelse and Mr. Wallich t° at,' end it would be agreeable to him. *. Thomas stated that the proposed delegation which would inohe 41111W-Lf as Chairman, Mr. Hammond as Secretary, and three experts, ' 1 1314 the Board, and one each from the Federal Reserve Banks of New 44a 1t to 4141ber Dallas, was a logical arrangement and that it would be diffi— Justify the inclusion also of Mr. Roelse. were He felt that if the to be increased, it would be more logical for 'AT. Knapp or 41'ciller of the Board's staff to attend rather than Mr. Roelse. 7Ci 5121/46 —3— There was unanimous agreement that a reply to Mr. Sproul's letter should be prepared along the lines suggested during the discussion, to be sent on approval by Mr. Evans. Secretary's Note: The letter sent in accord— ance with this action read as follows: "Receipt is acknowledged of your letter of May 15 in which Y t°4 express the wish that both Mr. Roelse and Mr. Wallich at— end the central bank conference in Mexico next August. t. "Considerable thought has already been given to the ques— of who should go, and if the Board were now to decide u.a*, the delegation should be enlarged at all, it would wish a° Mr. Knapp or Mr. Gardner. However, with Mr. Thom, as chairman, Mr. Hammond as secretary, and with three tech— from the Board, one from New York, and one from 4 the Board believes the delegation will be as large as .!.6 should be. The Board hopes therefore that it will be ac— able to your Bank to have either Mr. Roelse or Mr. Ikallich etatend the conference and will appreciate it if you will indi— te which of them you decide upon." Z 4 Mr. Vest stated that Mr. Emerson, General Counsel of the Office lic'bilization and Reconversion, had called on the telephone to say NA. a subco 'ttee of the Judiciary Committee of the House of Repre— 8eritatives would meet on Monday of next week to consider what should be d °facially to declare an end to hostilities for the purpose of 4 of after t,414ber war statutes which by their terms were to expire at a stated hi such declaration, and that it would be helpful if the Board 11°111d have the toardtssomeone present at the meeting of the subcommittee to state position on any of the statutes in which it was interested. Vest also said that there appeared to be only two statutes on which the 8°41‘°1 'night wish to offer a suggestion (1) the law which provided 762 5/z/46 -4that, aar loan deposits held by member banks were not subject to reserve x‘cillirements, and (2) the provisions in the Trading with the Enemy Act illiclerlftch the executive order was issued by the President authorizi4the Board to prescribe Regulation , Consumer Credit. The first statute 17Y its terms was to continue until six months after the cessaticll °f hostilities as determined by proclamation of the President (11'00ncurrent resolution of Congress and the second was stattite. a continuing In a discussion of the position that the Board might take the matter it was stated that the reasons for the exemption of war 14/1 de from reserve requirements no longer existed, that by the t141e the statute expired the total war loan accounts would be reduced to a ther small amount, and that it would be desirable as a furstep to reduce inflationary pressures to have the exemption removed. elso felt that the continuation of Regulation Wwas desirable as Pazit or the program of the Government to combat inflation. At the conclusion of the discussion, it was agreed unanimously that drafts of letters, which would state the position of the Board as set forth above, should be prepared for the signature of Chairman Eccles, with the understanding that . 14r. Vest would present the letters at the meeting of the subcommittee of the House Judiciary Committee. Secretary's Note: The letters prepared in accordance with this action were in the following form: 763 5/21/46 —5Letter relating to war loan deposits: "I understand that your Subcommittee has under consideration a proposal to fix the date of cessation of hostilities in World War II for the purposes of various statutory proIn this connection, I wish to call attention to he d esirability of early action to terminate certain wartime exemptions authorized by the Act of April 13, 1943 (57 Stat. 65). t "This Act amended section 19 of the Federal Reserve Act 1,0 provide that, until six months after the cessation of ""tilities as determined by the President or Congress, deits in member banks payable to the United States and ag solely as the result of subscriptions for United ,'ates Government securities (commonly known as war-loan ;.'ePosits) shall not be included in deposits against which ,eserve balances must be maintained by member banks with the ;ederal Reserve Banks. It also amended section 12B of the , ederal Reserve Act to provide that, during the same period, ;ar-loan deposits shall not be subject to the usual Federal sit Insurance Corporation assessments against deposits -4, insured banks. me The legislation in question was strictly a wartime inaeurel enacted to facilitate the Government's huge financth!4Program necessitated by the war effort. As a part of lie:- program, it was desirable to encourage banks to accept of" war-loan deposit accounts and to increase the amounts 1.1isting accounts. The temporary exemptions from reserve irrements and deposit insurance assessments made by this Ira5slation were designed to accomplish this purpose. The Iva;loan deposits have fluctuated greatly in amount with each be 1°aa drive but, as some indication of their size, it may fr °I interest that, since April 13, 1943, they have ranged on°! ;1 a low of $5,276,000,000 to a high of $24,584,000,000 and, 18, 1946, totalled $17,713,000,000. The exemption of war-loan deposits from reserve requireconstituted a departure from sound peacetirae policies. The ;.nreasons for requiring the maintenance of reserve balances dr-ast other deposits are equally applicable to Government 14c:sits, The fact that there is no significant difference rZ,esa G overnment and other deposits in this respect was m- °grlized by provisions of the Banking Act of 1935 which -LcLd e Go .verament deposits subject to reserve requirements. The °Provided provided by the Act of April 13, 1943, was justified the basis of wartime necessity. Since the Government's w. r' 401 311ancing now has been completed, the need for the exemption .,onger exists. 764 5/21/46 -6- "Moreover, under present economic conditions, the continuTice of the exemption, beyond a short adjustment period, is decidedly unwise. One of the basic purposes of reserve requirements is to provide an instrument to control the volume of bank l:731rey. The exemption of war-loan deposits relieves i epr sc et;:dicit banks from this control with respect to a very lzeable class of their denosits and encourages them to expand rIlk credit in a manner which increases the inflationary potenharmful to the Nation's economy. This gap in the 5 1r:Ts1 1: indefensible at a time when every available means Of combating inflationary pressures is required. "It is realized that, with the existing volume of war10811 deposits, it is impractical to eliminate the exemption i i:lecliately because of the possible resultant shock on the ip,rliting system. However, there will be a very marked reduction "; 1 ?uch deposits within the next few months and the six months erlod following any date which may be fixed for the cessation hostilities should provide adequate time for necessary adVaents. In the event the declaration of cessation of hosbejt!'ies is delayed, it is believed that prompt action should 'uken to fix a definite date, at or near the end of 1946, ,r4 which the Act of April 13, 1943, will cease to be effecwores n Letter relating to Trading with the Enemy Act: wartime"It has been brought to my attention that one of the i„ statutes which may be considered by your Subcommittee ;1: connection with its study of proposals to fix a date for te rmination of the war is section 5(b) of the Act of Ocer 6, 1917, as amended, commonly referred to as the Tradtpith the Enemy Act. The Board of Governors feels strongly atl it would be inadvisable for Congress to take any action th„his time which would repeal or terminate the effect of statute which is the source, not only of important powers ?4itie Alien Property Custodian and of the Treasury Department s program of foreign funds control, but of the power of the Board of Governors of the Federal Reserve System to combat lation through regulation of consumer credit. The Board's Regulation Itr, relating to the control of Z1 1 811Mer credit, was issued several months prior to the beginthe war pursuant to authority conferred by the Presiseet.8 Executive Order No. 8843 of August 9, 1941, issued under a 1°n 5(b) of the Trading with the Enemy Act. That Regulation, part11 the Government's general anti-inflation program, apkres Primarily to installment credit for purchasing consumer's plat ble goods, requiring minimum down payments and limiting the uritY of such installment purchases. 765 5/21/46 7— "The need for continued control of consumer credit has been -- recognized by President Truman. In his message to Conof January 14, 1946, he made the following statement with reference to this matter: 'Continued control of consumer credit will help to reduce the pressure on prices of durable goods and will also prolong the period during which the backlog demand milarlyl will be effective.' Si the Special Committee on Postwar Economic Policy and Planning of the House of Representatives, in its report oated March 4, 1946, declared that 'continuance of control Zer consumer credit' is among the important fiscal and none'4/7 measures which seem to that Committee to be desirable. nat "During the war, the volume of consumer credit was _ urally reduced as the result of curtailed production of C crsumers' durable goods of the kind commonly purchased on annt. However, goods of this kind, such as automobiles a,.11cusehold appliances, are beginning to become available 5?.. .n; and, with current demand for such goods enhanced by :_nelper level of income, further expansion of consumer ouf r dit seems certain to ensue. Since expanding production fo_consumers' goods is likely to fall short of the demand c44, considerable time to come, any expansion of consumer It ; 6-t, will tend to aggravate a general inflationary situation ls during the period while this danger remains acute that re gulation of consumer tea credit, like other anti-inflationary fo sures, is most essential. More than ever before, therere, it is important that the power derived from the Trading sufi the EnemY Act to regulate the volume of consumer credit "uull not be now withdrawn. that For the reasons above stated, the Board earnestly hopes terrain° action may be taken by your Subcommittee which would Tra nate or impair the effectiveness of section 5(b) of the ling with the Enemy Act." 4eetin,b, At this point Messrs. Parry, Thomas, and Vest withdrew from the and the action stated with respect to the following matters was tilEt t ' a ken by the Board: ilesThe minutes of the meeting of the Board of Governors of the Fed" ve System held on May 20, 1946, were approved unanimously. 766 5/21/46 -8The minutes of the meeting of the Board of Governors of the Fed- e Reserve System with the Federal Advisory Council held on May 20, 1946, were approved unanimously. Memorandum dated May 17, 1946, from Mr. Smead, Director of the Dim r,4 11 °f Bank Operations, recommending with the concurrence of Carpe nters for the reasons stated therein that Raymond J. Collier transt el ' resd from his present Position as General Assistant in the rice Of the Secretary to a position as Technical Assistant in the 404 4. °J- Bank Operations, and that his salary be increased from 443n ' to 4,7O$ per aimn, all effective as of June 2, 1946. Mr. be OfDi- Approved unanimously. M the tivi emorandum dated May 17, 1946, from Mr. Paulger, Director of atoll of Examinations, recommending that the salary of John C. Assistant Federal Reserve Examiner, assigned to the road to res, be increased from $2,650 to $2,870 per annum, effective June 20 1946, Approved unanimously. Memoranda dated May 20, 1946, from Mr. Thomas, Director of the v3 '1011 of Research and Statistics, submitting the resignations ur s. omet G. Chamsn, Economist, and Mrs. Shirley M. Socall, a Clerk, ill that Division and recommending that the resignations be Etc effective at the close of business on May 20, and May 21, ) 'Pective1y, and that lump sum payments be made to each for any 767 5/z/46 —9— armatal leave remaining to her credit at that time. The resignations were accepted as recommended. Letter to Mr. Willisms, President of the Federal Reserve Bank Philadelphia, reading as follows: "The Board of Governors approves the payment of salaries to dt, he following officers of the Federal Reserve Bank of Phila— .J.J-Phla for the period May 1, 1946, through April 30, 1947, tlie rates indicated, which are the rates fixed by the Board Dlrectors as reported in your letter of May 16, 1946: Name E. C. Hill Wm. G. McCreedy C. A. P. M. McIlhenny X. R. Poorman L. t. Bopp R. N. Donaldson R. R. Bilkert Williams J. V. Vergari W. M. N. G. Catanach Dash Title Vice President Vice President and Secretary Vice President Cashier Director of Research Assistant Vice President Assistant Vice President Assistant Vice President and Assistant Secretary Assistant Vice President and Assistant Secretary Assistant Cashier General Auditor Annual Salary $141000 14,000 10,000 12,000 11,000 10,000 10,000 7,500 7,000 7,000 7,000 191, '6 "Ae indicated in the Board's letters of March 1 and March 18, Vi 'Your salary as President, the salary of Mr. Davis as First dece P dent resident, and the salary of Mr. Sienkiewicz as Vice Pres], 1N-ere approved for the period ending April 30, 1947. ret 12he Board of Governors also approves the payment of a at Z1,-er tee to the firm of MacCoy, Brittain, Evans, and Lewis the 'ate of thr $2,500 per annum, for the period May 10 1946, ()ugh April 30, 1947." Approved unanimously. 768 5121/46 -10Telegram to the Presidents of all of the Federal Reserve Banks —"g as follows: "Board has advised Chairman of Committee on Operations T'hat it concurs in action of the recent Presidents' Confer!nee in approving (1) recommendation that each Reserve Bank agr?e to accept (a) all immediate credit items without de?rlption, and (b) all deferred credit items without descrip.1 Prov the forwarding bank agrees to retain a record Iva4 lteas ided in any form it desires and to furnish descriptions ipon request, and (2) the revision of check collection circu11of all Reserve Banks to amend uniform section pertaining of 1,14nd1ing of Government checks as set forth in the report `441mittee on Collections dated March 30, 1946. • "Board also concurs in action of Presidents' Conference fo aPProving recommendation that Reserve Banks cancel and rward to Washington for redemption fit Federal Reserve $5, not:s of other Federal Reserve Banks in denominations of is'' and over instead of returning such notes to bank of ins.IP' Board has also noted recommendation regarding changes ss,'-°88-sharing agreement between Federal Reserve Banks as stl, forth in minutes of the Conference and understands that of !tantially same procedure will be followed in execution -'-Y a re agreement as was followed in execution of existing greement. Z 4 Approved unanimously. Pkied Tel egram to the Presidents of all the Federal Reserve Banks, pre4441 accordance with the suggestion made at the meeting with the FedOrr Council on May 20, 1946, and reading as follows: zat. telegrams May 17, 1946, from Bartelt re authoriinirlon to banks to hold restricted issues for sale to nonbank wollT;t°rs* Question has arisen whether Federal Reserve Banks chas- accept from member banks for safekeeping securities purto bed under this authorization. Since such securities are tome;held only temporarily to facilitate transactions for cusace_ 8 Board understands that Federal Reserve Banks will not 'lot them for safekeeping." Approved unanimously. 5/21/46 —11— Letter to Mr. Ullett, First Vice President of the Federal Re— serve zank of Boston, reading as follows: "Reference is made to your letter of May 10, 1946, , Submitting the request of the 'Industrial Trust Company', rrovidence, Rhode Island, for approval of the establishment of branches in the Village of Phenix in the Town of Vest ca .r . lick, Rhode Island, and the Village of Apponaug in the l'Y of Warwick, Rhode Island, in connection with the pro— Posed purchase of assets, including bank premises at ph51°CO3 and assumption of deposit liabilities of the enix Trust Company, West Warwick, Rhode Island. The Board of Governors concurs in your opinion that the the Proposed transaction will not result in a change in e general character of the assets of the Industrial Trust Company or broadening of the functions exercised by "within the meaning of the condition of membership to Which it is subject. "It is understood that the State authorities have ap— Prov v, ed the establishment of the proposed branches and, in evl of your recommendation, the Board of Governors approves 2,.;e establishment and operation of branches in the Village ' 1) 1, Phenix in the Town of West Warwick, Rhode Island, and the biI ,llage of Apponaug in the City of Warwick, Rhode Island, 1341, the Trust Company, Providence, Rhode Island, ii°v1-ded the purchase of assets and assumption of deposit stabllities of the Phenix Trust Company is accomplished sub— Deantially as proposed and the prior approval of the Federal 130P?sit Insurance Corporation for the assumption of the de— liabilities of the non—insured bank is obtained and the understanding that counsel for the Reserve Bank is tZeview and satisfy himself as to the legality of all steps b'en to effect the proposed absorption and establish the re.nches mat "The Board also approves the proposed investment of approxi— e1.-Y $15,000 by the Industrial Trust Company in the banking ia71111ses now occupied by the Phenix Trust Company in the Vii— of Phenix, Rhode Island." i Approved unanimously. Letter to Mr. Young, President of the Federal Reserve Bank of '' (3 reading as follows: 770 5/21/46 —12— "Reference is made to Mr. Diercks' letter of May 9, 1946, submitting certified copies of resolutions adopted by the board of directors of the 'Alpena Savings Bank', Alpena, li bigan, signifying its intention to withdraw from memberZIP in the Federal Reserve System and requesting waiver of the six months' notice usually required. "In view of your recommendation, the Board of Governors waives the usual requirement of six months' notice, as re!:Pested. Accordingly, upon surrender of the Federal Reserve rnk stock issued to the Alpena Savings Bank, the Federal L:eserve Bank is authorized to cancel such stock and make Propriate refund thereon. It is noted that Counsel for ,1%? Reserve Bank is of the opinion that the documents subLtted Pursuant to Section 10 of the Board's Regulation H °111511Y with the requirements of that section. "Please advise the Board of Governors when cancellation ;17.,effected and refund is made. The Certificate of Member4 ' issued to the bank should also be obtained, if possible, forwarded to the Board. State banking authorities should st,advised promptly when the bank's withdrawal from memberhas been effected and given the reasons therefor, if de34,red. T 1 7 Z sa "Enclosed is a letter to President Hudson of the Alpena vings Bank acknowledging his letter of May 5, 1946, which Jou will fil 44. 4-Le8.11 please forward to him, retaining the copy for your Approved unanimously. Usmorandum dated May 20, 1946, from Mr. Parry, Director of the °r1 of Security Loans, recommending, for the reasons stated therein, that th e furniture and equipment item in the budget for non-personal serIticee or that Division be increased in the amount of $355 to enable the41 t ° Purchase a new calculating machine. Approved unanimously. Thereupon the meeting adjourned.
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