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809
A zeetin, of the Board of Governors of the Federal Reserve
Shtelz
with the Presidents of the Federal Reserve Banks was held
the
°Ibrices of the Board of Governors in Washington on Friday,
14aNY 21
'1911.8, at 11:30 a.m.
'PRESENT:
Mr. McCabe, Chairman
Mr. Eccles
Mr. Szymczak
Mr. Draper
Mr. Evans
Mr. Vardaman
Mr. Clayton
Mr. Carpenter, Secretary
Messrs. Whittemore, Sproul, Williams, Gidney,
Leach, McLarin, Young, Davis, Peyton, Leedy,
Gilbert, and Earhart, Presidents of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago,
St. Louis, Minneapolis, Kansas City, Dallas,
and San Francisco, respectively.
Mr. Treiber, Secretary of the Presidents'
Conference.
Mr. Charles G. Young, Secretary designate of
the Presidents' Conference.
aottit
to
Chairman McCabe stated that Senator Taft, Chairman of the
C°111311ittee
on the Economic Report, had called on the telephone
41t th
t "e (Chai
led„
McCabe) testify before the Committee on
61.1 1441Y 26, but
teette
t411 Y because he
tO
that he had replied that he would prefer not
had only recently become Chairman of the Board,
Ni o'"11614 stated its views, and Mr. Sproul had also testified.
11144eCabe said
that he promised to call Senator Taft back the
810
5/4/48
-2itc1NY and
that when he called the Senator was absent and he talked
t("4's 1411-(17, Staff Director of the Committee, who said that the hear1 8
1fere to be closed on June 1 and that he did not want to terminate
t414/11-thout hearing from Chairman McCabe.
Mr. Hardy also referred, Chairman McCabe said, to the recent
814)1'Y' ill the Wall Street Journal with respect to the study being made
11 the Stem
of
a
plan
for uniform reserve requirements for all mem-
4.1.11allks 1114 stated that inasmuch as he had worked on that problem
1114leheWa8 on the staff of the Federal Reserve Bank of Kansas City
lie 11°111d* a
PPreciate it if the Board would give him a memorandum as
t°thepresent status of the
study.
Chairman McCabe said that he
1h::
41 114ecilvir' Hardy that a statement would be sent and that he had
"De.rea a
letter which, with the approval of the Board of Gover-
11°reihewoUld send to Senator Taft.
Chairman McCabe read the letter
atid after some discussion, it was ap:
2roved unanimously by the members of
the Board in
the following form:
1
liaravitill response to the request of Dr. Charles 0.
pieti.Staff Director of your Committee, I W2
Ber -eu to
submit a memorandum on our study of re1
2quirements, which was the subject of a reNate,
ticle in the Wall Street Journal.
til v,t°1
'course the Federal Reserve System is conttotITI181Y
studying the basic concept and the func144B;
,
1,
1g of bank reserves. The enclosed memorandum
orc;ePared by members of the staffs of the Board
ii
ci_
e tejerli°rs
n
and
banks
and
Reserve
the
Federal
sorn
-e Phases of the study. As Dr. Hardy knows
Si
5/21/48
-3"
e1
P8 Particular study was initiated several years ago
WaS later carried forward by the System's technical
sqtrf.
octoze
i:tieshould like to emphasize that the study is not
and that no final conclusions have been reached,
itt r groups in the Federal Reserve System will -be drawn
the COlatinaill,g discussions. The staff committee's
:
/a
:
pr
;
°1 832Idum was recently presented to the Conference of
vil-is-Ldents of the Federal Reserve banks, and in due course
el:LI- be
referred to the Conference of Chairmen of the Federal
l Reserve banks. The advice and assistance of the Feder:'' Advisory Council will be solicited. Commercial bankOther interested parties will be invited to pare in the study. By these means the strengths and
ranti_sses of the views tentatively presented in the memoWill be carefully and thoroughly tested, and thereel
'
, if deemed advisable, legislation may be recommended.
the, will be most helpful to receive the benefit of
pieJl-elis and comments of your Committee and its staff.
Co4! be assured of our complete cooperation with your
"tee in the consideration of this matter."
Before
this meeting a memorandum covering matters to be dis-
etlby t,
pr
Ile Board and the Presidents had been submitted by the
C.,
onference to the Board of Governors.
rresicie
4t8, the
ersta,r„
1,
The statement of
response of the Board of Governors as read by
Of the Board, and the discussion at this meeting, with
13ect to,
-40u of the matters considered were as follows:
Ott.
eceipts for collateral securing loans to member banks.
Pre
Nesed. sidents' statement: The presidents reviewed, and dis;
1 lhjeetvith Governors Clayton and Vardaman and Mr. Smead, the
heretofore considered of general acceptance by Reserve
'
5411ka
lier ba:31:
11 cust°dY receipts for collateral securing loans to mem0
3
- 8. This matter was the subject of the Board's letter
`%100
rols
November 25, 1947, and its letter of April 5, 1948.
Side
nts have already replied individually to the Board
812
v21/48
it of their views on this subject as requested in
°
Lard's
letter of April 5. The presidents are in accord
with
;t•he Board's letter S-1000, in which the Board stated
the
the Reserve Banks might properly accept custody receipts
of
:
sPonsible city correspondent banks, as well as those of
ther
zederal Reserve Bank of New York, for reasonable periods
ise actual delivery of securities is not convenient for the
borr
rig hank. Many of the Reserve Banks have been doing
th
'c)r some time and the presidents concur in the Board's
that this practice may enable the Reserve Banks to be
o
shogreater service to their member banks, a matter which
cl be encouraged. Recognizing that the acceptance of
t
may in some instances involve risks and
Or s,itile Primary responsibility for making loans on the basis
is
receipts lies with the respective Reserve Banks, it
the
rate'''
e consensus of the presidents that it would be iinfortulisheir the practice were advertised and promoted by a pub%laid statement. Therefore they would prefer to forego the
karde,ati°11 of a statement such as that set forth in the
siace ts letter of April 5. It is the feeling of the Conferceipt hat the right of a Reserve Bank to reject custody reanY particular case should not be impaired by any
Ret.er„I
s
the „--1-1ese-zed statement seemingly indicating a willingness of
A
rve Banks to accept such receipts from any corresponde/ltuatit.
the
that Il
b°11rdis res onse: The Board understands from Mr. Clayton
e,
l anci• Mr • Vardaman stated when they met with the Presi411t -t
12skrts(-110.'?:t they thought there would be no objection on the
the Board to changing the proposed procedure to proVitae
cetiort llat the Federal Reserve Banks would accept custody reIles; 8 iSS.Ued by a member bank satisfactory to the Federal
13
,,Eink• The Board has noted that the Presidents are
rIr
ee
„
with the Board's letter of November 25, 1947, in
s stated that the Reserve Banks may properly ac.eeAt
st01.7
.p̀01'
receipts of responsible city correspondent banks
a'scqlable periods where actual delivery of securities is
tliTt 11Iiellient for the borrowing bank. It appears therefore
Ze is substantial agreement on the matter except that
;
11°13tbelieves that the procedure should provide that each
4.
Reserve B
will adopt a method of advising all
`'llat
in its district which will insure the banks knowing
'`e service is available.
81.3
-5*. Davis stated that the Presidents were strongly of the
'3111111°4 tloat, as
be
set forth in their statement quoted above, it would
illilitIrtizaate if the practice of accepting trust receipts were adand promoted by a published statement for the reason that
clitrieult question of bank relations might arise in any case in
:::11
Pederea Reserve Bank found it necessary to decline to acreeeiPt from a particular bank.
He also said that the only
Ile8t1°11 Of difference seemed to be, as stated by the Board, the
Itt4f 0
t which the service should be advertised.
There vas a discussion of Mr. Szymczak's inquiry as to the
J‘,011
tile service if it was not known to member banks, and Mr.
whethcr it would meet the views of the Board if
a.cl)rice
(11) the availability of the service were given by the bank
s raell in their visits to member banks once or twice a year.
41
e41k
or ?ha
stated that it was understood that the Federal Reserve
adelPhia proposed to advise member banks of the service
gettra„
or regional conferences throughout the district. Mr.
fis zit
114
14 that
the adoption of such methods of advice would be in
44e d
iscussions of the Presidents.
lir. -0
fli„10 -uccles stated that it was the consensus of the members
ikkk, e'rd that they wanted to be sure that each Federal Reserve
Fr
tu..
See
to
it that all members in the various districts would
814
5/21148
-6that the
service was available to the extent that the custody
teeell3t vas
issued by a member bank acceptable to the Federal Re-
Mr, Sproul questioned whether the Board had the authority
to
°I. should,
tell the Federal Reserve Banks how the availability
"t4
service should be made known and suggested the manner in
11111e4ths
service is brought to the attention of the member banks
11 lett to
the Federal Reserve Banks for decision. Mr. Eccles re-
zik9Irlecl that
the Board was not trying to tell the Federal Reserve
klaks h
to
advise their member banks but rather that the member
ilzikE3
-4,0Uld be
informed.
14r. McCabe
suggested that the last sentence of the Board's
Ntera_
'
tllt as
set forth above be revised to read as follows:
8.1313sars therefore that there is substantial
leelllent on the matter except that the Board be;
pe.
a-ves the procedure should provide that each
or''eral Reserve Bank will adopt its own method
viinising member banks in its district which
la - Jalsure the banks knowing that the service
av
ailable."
Stated that it was not only a question of a par-
b
being in a satisfactory condition and satisfactorily
r-oz
blat
4-s0 whether the practice of accepting custody receipts
corres
Pc31dent banks no mntter where they are located might relugthe normal pattern of correspondent bank relationS
developed out of need for service.
-7Mr. Clayton suggested that there was still a question whether
1411'er the
Proposed arrangement some Federal Reserve Banks would ac-
eept, Cu
receipts from any of their member banks.
kr. Sproul responded that all of the Presidents had agreed
tzt it
If°111d be desirable to encourage the practice and that it
'
•1 11 be
assumed that all Federal Reserve Banks would follow that
4
After some
further discussion, Mr. McCabe suggested that,
te
evcilt,r4Q4118
r8
of deciding the matter, the Presidents and the Board of
agree with the last sentence of the Board's statement
ill the
manner he had proposed.
This suggestion was agreed
cafeteria expenses.
oltle Pol::sidents' statement: The Conference approved the rec,tk)
hatrit
:
-k 1°11 of its Committee on Personnel that it is desirable
011(7
existing authority of the Reserve Banks to absorb up
-114lf of the costs of cafeteria operations (Board lettel'S-0
tee.*':f5 May 14 l946) should be continued. The presidents
Drict furnishing their employees wholesome meals at low
Perzei-m'as significant value and importance as a part of the
e41)al
1°Z P°11cY of the Federal Reserve Banks. The cost per
1 e for the subsidized food service is so small that it
'LlIcit:e considered a trifling salary increase for any 111,
en1Ployee if paid in money. Yet the service is imkIrtEixi-71
re -1; L° employee morale, particularly since in some ReCities furnishing employees with free or subsite4ls is a well established Practice.
be
4e
a di
4r
-
response: This is only one phase of the problem
in connection with the budgets of the Federal
5/21/48
-8-
R
eShOw-
Banks for the provision of personnel function. Beof the continuing inflationary situation, it would be
:
1,10
'
se to increase the cost of meals at the present time.
The
!
fore, the problem is one of efficiency of operation
vtir
,
il e4 can continue to be studied with other questions aris-16Under the present budget procedure.
catjlve
3.
ellSe s
f attendance at banking schools.
Bo,„Presidents' statement: The presidents reviewed the
letter (S-957)
3, 1947, regarding the
exi;i4a4t (3f expenses incident to attendance by officers and
814Yees of Reserve Banks at banking schools. The letter
%,s, that "as it is felt that each student should have a
ata;ZI financial stake in attending one of these schools
expe;:44t the Federal Reserve Bank should not bear the entire
%t; , it appears reasonable that the student should be exPay his living expenses, and that, therefore, no
clorniii7senlent should be made by the Federal Reserve Bank for.
'
°fY and dining hall charges, and incidental expenses.'
Ilhiae
th=lt '
a tendance at such schools is voluntary the very fact
hi hi
:rtlenther of the staff is selected by his Bank creates
ql4e;:iirid a feeling of pride and responsibility. The
'zee Zlw°rks hard; he has a nonfinancial stake in attend141torc"` creditable performance; and quite apart from dorN4
:
4 '
4 11,0- dining hall charges he must make a substantial
114.1elical. investment because of the incidental expenses
be.% 'e must incur. It is understood that most commercial
"
school
all expenses of their employees attending the
zllottids.
:
, The presidents believe that the Reserve Banks
"t11 4Y dormitory and dining hall charges for members
qibst 'r staff attending these schools. These charges are
SZ!
I lal from the point of view of the individual al'c)t from that of the Bmnk; it would be unfortimste
'
to ,eter
A equirement that the students pay these charges were
B0,,,nY employee from attending.
''Etee -'''s response: The recommendation of the Presidents
eLry3,erable to the Board, find the Board's letter of Febru947, will be revised accordingly.
-eea,
s.DIA "1
maximum of salary ranges under personnel classification
vavit8
-911112.9119.1_statement: At the time of the initial esishment of the new personnel classification plans in the
°f 1947 one of the Reserve Banks incorporated in its
'
or a Provision which would permit the payment to employees
e in excess of the maximums specified for the jobs
to 1
zeri'Ll-ch they are assigned, in a limited number of cases, for
tha
;
t?rious service. In approving the plan the Board stated
acla;
4't felt that such proposal should "be considered as an
ticnal provision of the over-all plan of job classificasalary administration and should be studied on a
St
tlie "-Wide basis", and accordingly it declined to approve
stilaoPosal at that time. The proposal has since been
J(% 1\
1,
'
ec1 by the Subcommittee on Personnel Classification and
ths.1:ivaluation qnd a majority of the Subcommittee believes
saaa,nen exceptional cases arise calling for payment of a
s110113! higher than the maximum of the grade, each such case
or th(l be referred to the Board for approval on the basis
merits of the individual situation. Recognizing
th
PrEZed for exceeding the maximums in special cases, the
llts believe that the Subcommittee's suggestion is a
ther4le Procedure; in the light of experience developed
Nitisfl' it may be possible at a later date to produce a
coriziactory Procedure which will avoid the necessity of
clering all cases on an individual basis.
t
t!i
l'resilc1"
."-'s response: The procedure recommended by the
tike nnt8 is essentially what is being done at the pr
'
—I is acceptable to the Board.
z%kber
bailk capital requirements.
41„, P''esidents! statement: The Conference considered the
°f a proposed bill to modify member bank capital
''°eLtdr
:—Lel
'its, submitted to each of the presidents with the
IlevcirS letter
of April 30, 1948. The presidents favor the
ts n except in two respects. A majority of the presiba
ld Prefer a minimum capital requirement of $25,000
.t141ve o-i: s organized both prior and subsequent to the effec'
e of the legislation, unless, in the judgment of the
4.ch a change would make it more difficult to obtain
cti;:11
:of the legislation. The presidents also suggest
'
'
04ecleiti
-r th tic3a of the provision that would require approval
for the establishment of intra-city branches
n
S
818
-10because they believe that retention of this proth. i°11 would greatly diminish the likelihood of enactment of
u-s
of i.1,13C3ard's
6.
response: The Board appreciates the suggestions
'le Presidents and they will be taken into consideration
DreParing the draft of bill to be submitted to the Congress'
47is.
of conditions of membership.
statement: The Conference reviewed the Board's
re
:" dated AnriA7k_9 8, to the Chairman of the Conference
ber411
„nting that the subject of revision of conditions of memplaced on the agenda, and the memorandum of the
cailsdis Division of Examinations enclosed with the letter. BePre:
z °I) the technical details involved in consideration of the
to ..1 311 set forth in the memorandum, the subject was referred
the (
%'
Ie Conzittee on Bank Supervision with the direction that
the 13`.°111Taittee pursue the matter vigorously and discuss it with
Dose °8-rcl and its staff as soon as practicable in order to disOf the
matter promptly.
Secretax 's Note: On May 19, 1948, following subf
i ission of the Presidents' statement on this topic
to the Board,
the Committee on Bank Supervision
uiscussedthe proposed revision of conditions of
nembershi with the Director of the Board's Divii
si°r1 of Examinations and the program as proposed
ri the
Board's memorandum of April 5, 1948 was
agreed upon.
?resi13
,9°Etrcl's response: The Board has been advised that the
'qsion-elltst Conference concurs in the program for the ret44.etior-ar,°f Conditions of membership as set forth in the
''11 131.---41-1111 of April 5 copies of which have been furnished
11
1,11
1t t-es
,
idents. Accordingly, the Board will take steps to
tehei..v
Lrogram into effect promptly. The program contem1`1,44c1s2Tat present standard conditions of membership numbered
)
;4e
retained and that standard condition numbered 3 and
'th-t.'e s
tandard trust conditions will no longer be prescribed.
tt will be revised accordingly.
1)y Th
b
ia.'— `-'graza also contemplates that a review will be made
-serve Banks and the Board of the conditions of mento the State banks which are now members
9
-11lnio
ith.La View to the cancellation of the conditions which would
ue prescribed were the bank applying for membership now,
cari
:
t11°se conditions which require action to be taken by a
—8
'111 time and have been complied with.
eat Details as to the procedures to be followed in making
sb,cellations effective will be worked out but the Board
reirt., that the Federal Reserve Banks undertake promptly
Of the conditions of membership applicable to each
member bank and submit their recommendations as to
si:,1conditionB of membership should be cancelled and which
ql.d be
retained.
1101,1-1 1
reserve against deaeciation in Government securities
citscn
!
residents' statement: The presidents reviewed (1) the
147.
8
4 sion at the meeting of the Conference and the joint meetthe Board and the presidents in February 194-8 regarding
B1133.13°,s4 sibility of establishing a special reserve against loos4ePreciation in the market value of Government securitiese
;
Pala rchased by the Reserve Banks, or amortizing premiums
Areee-Il
i. the purchase of such securities more rapidly than at
(2) the alternative plan for a premium reserve
tle b--.„' Set forth in the Board's telegram of March 15, 1948.
residents continue to be of the opinion that the surplus
sAoll8
a,
i°f the Reserve Banks are small in relation to their recreas"ilities and that it would be a desirable policy to ine these funds more rapidly to offset premiums on Governres
s,
ec111
;it1es purchased. The presidents reiterate the view
.qtitz—eu• at the last joint meeting that, in view of the ex2licY with respect to reserves for special purposes,
is-,,P
:01)1e-th7-I'Pr0priate and desirable that the Reserve Banks pay
-`11e less than 90 per cent of their net earnings to the
„'rreasu,,
`,.iselIR
1
—Y in order to build up their surpluses, and desire to
lao
-s with the Board the premium reserve plan proposed in
ard's
telegram.
N
1„
111 tB
ile
°elscli s response: The Board would be interested in hear-1:1ews of the Presidents as to how and when they would
.'44r-ta
11
L.
er cer,-Te to Change the existing arrangement under which 90
,7-uter
the net earnings of the Federal Reserve Banks
611eY • 1clends are paid to the Treasury, the reasons which
Al "0144
41/1
advance for such action, and how they would ex▪ action to the public.
820
5/21/48
-12In the ensuing discussion, there was some question on the
part or
some of the Presidents and members of the Board as to wheth-
it the
Presidents' proposal were adopted, it would be necessary
to 1411e a
press statement regarding a change in the basis of payto the
Treasury.
Following a review by Mr. Eccles of the
1.1148t4110es under which the existing arrangement was adopted,
8„
vroul
stated that at the present time the premiums on securitiegL
4eld
thet
in the
System account amounted to more than $73 million,
they
were being amortized at the rate of approximately $1.4
111141t
4
Year, and that he thought the proposal for increasing the
att
or atlor
tization would not be effective in meeting the real
13robie_
41 Under
discussion, namely, exposure of the Federal Reserve
411its
iti
connection with their holdings of approximately $12 bil-
the
Government securities other than Treasury bills.
During
4clzritselission it was stated that profits and losses on sales of
:
the
"tr°m the System account were tpken into account under
"ent ar
rangement.
cl
4r. Eccles stated that, if at some later time the policy
the
Ai414114411:1111g
the rate on long-term securities were abandoned
se
Ett.
securities were permitted to go substantially below
)
there
11
'would be a very large loss on the System's holdings.
s" that the capital of the Federal Reserve Banks had
1111scl greatlY in recent years and, while their surplus had
5/21148
-13s°1sUbstantially, it was not large enough to absorb the
14qelossee
that might result from a change in policy with res et
t suPPort of the Government security market or to meet
the
responsibilities which the System might have to face.
that a more rapid increase in the surplus accounts of the
Ner t
that
41Rsserve Banks could be defended and he would prefer to do
relal.er than
to set up a special reserve for premiums on seNtities held.
Treasi4. 141.• Davis said that the matter might be discussed with the
Yell the basis suggested by Mr. Eccles.
thet
Mr. Leach stated
there were objection by the Treasury to a change by the
,
or G°vernors in the existing arrangement consideration could
Nte te-t
h ° In'iting off the premium entirely or at a more rapid
'
814 at
present.
141%. Eccles stated that the Board of Governors might say to
ash—
rQN t
that the premium on the Systemts holdings amounted to
ttlto err
73
million, that since the arrangement was first put
ect t
he System had purchased some $5 billion of bonds for
tt z11.1.
o
e (4 supporting the market, that for various reasons
Petieral
Nht
1) me.
tunds of the Banks were not large enough to insure
Beserve Banks being able to meet the demands that
(le on them in the future, that during the period in
822
5/21/48
1141ell the
earnings of the banks were large the System would like
up
their surplus at a more rapid rate, and that the Board
to
NPesed to
reduce somewhat the portion of net earnings being paid
t""reasury. Then, Mr. Eccles said, unless there were a vigc)1'0116
protest from the Treasury the change could be made.
There was a further discussion during which several of the
RIVN
-"qAlesti
---oned whether a statement would have to be made in conWith such a change, after which, in response to an inquiry
bi
cs, all of the Presidents indicated that they would fa-
Thereupon
t3t4
Chairman McCabe stated that the Board would con-
the zatter
further to see what could be worked out.
Iletirement s
stem investment policy.
tees
esidents' statement: The policy of the Board of Trusillveer:', the Retirement System of the Federal Reserve Banks in
,
-4g a portion of Retirement System funds in securities
other7
n direct or guaranteed obligations of the United
Nte
Neetb
'
s was questioned in a memorandum from the Board at the
keet;iner joint meeting. The subject was discussed at the
°f the Conference in February without a conclusion
eee 'cached, whereupon the Chairman of the Board of TrustcDorZa8 requested to name a special committee to study and
rtl
, the issues involved. This was done, and Mr. Whittei,c)re el°
eri Xirman of the Special Committee, reported briefly at
l e14 :
0 -w
:
-Llig. of the Board of Trustees of the Retirement Sys'17. The Committee's study has not been completed,
11"67114
t-ti,
subject is carried forward on the agenda of this meet'
Lle request of the Secretary of the Board.
response:
The Board is willing to postpone a
823
5/4/48
-15decision on this matter until not later than the next meetitg or the
Board and the Presidents.
Thereupon the meeting adjourned.
4Proireci:
@FedFRASER