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A meeting of the Board of Governors of the Federal Reserve SYstem with the Presidents of the Federal Reserve Banks was held in the offices of the Board of Governors in Washington on Tuesday, May 31 1949, at 3:30 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Vardaman Clayton Mr. Carpenter, Secretary Messrs. Erickson, Sproul, Williams, Gidney, Leach, McLarin, C. S. Young, Davis, Peyton, Leecly, 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. C. G. Young, Secretary of the Presidents! Conference The Presidents met in separate session on Monday, May 21 and tthi ---s joint meeting a memorandum relating to the topics which the, rres -dents wished to discuss with the Board was furnished to the taeinber 8 of the Board. The stateAent of the Presidents and the disellasi,, ' 11 with respect to each of theippics at this joint meeting were 0.E1 1, 2Jjgtion. At the meeting on Monday, reference Ilas Made by the Conference to the Board's letter of ItPril 22, 1949, to each of the Presidents, advising of recent developments regarding labor legislation affecting the Federal Reserve Banks. It was indicated in the Board's letter that both of the committees of Congress having Jurisdiction of the subject have reported bills to repeal 5/3/49 the so-called Taft-Hartley Act and that neither of the bills so reported contains an exemption for Federal Reserve Banks. The Presidents believe that the subject is of considerable importance to the Reserve Banks, and they expressed the desire to discuss the matter fully with the Board at the joint meeting today. Mr. Clayton reviewed recent developments in connection with the legislation now pending before the Congress to amend or repeal the TaftAct and the possible effects of the pending alternative bills °4 the present exemption of the Federal Reserve Banks from the provisions 01 the Wagner Labor Relations Act. There was also a discussion of the of an amendment in the Senate to the bill repealing the 14ft-Hartley Act if that bill should be approved by the House of Represelit tives. Mr. Davis stated that the Presidents were interested in being 121‘Qtight up to date on the matter and that while the Federal Reserve Banks 14'°118131Y could operate under the law if the present exemption were rethey would much prefer to have the exemption continued. He also °°airclelated that employee relationships were good at all of the Federal lellve Banks at the present time. 2. Procedure followed in advisiAg Branches of Important InSPrmation from the Board. In a wire to the Chairman of the Presidents' Conference, dated April 26, 1949, the Board advised that it would like to discuss with the Presidents, at the joint meeting today, the procedure foliowed by the Reserve Banks in informing branches Promptly of advice received from the Board of Governors, regarding amendments to regulations and other important matters. The subject was discussed by the Conference °n Monday, and it was agreed that the subject should be listed for discussion at the joint meeting today, in accordance with the Board's wishes. 5/3/49 —3— Chairman McCabe stated that this topic had been included on the agenda at his suggestion since he felt it was important that the branches of the Federal Reserve Banks be advised promptly whenever regulations were adopted or amended or other important action of that ki4lwas taken by the Board of Governors, and that the officer in eillIrga of a Branch should not be in the position of learning of the "tion from the newspapers. In that connection, he inquired whether th"residents would have any objection to the Board sending to the 8ranches for their information copies of wires to the Federal Reserve ikrike advising them of important actions. He made it clear that thiS Procedure would not apply when the matter involved a question of )11.05r or procedure on which the views of the Presidents of the Fed— Reserve Banks were desired but only when the Banks were being lichrised of actions taken by the Board. In the ensuing discussion the Presidents indicated that such Pro cedure would be satisfactory to them and it was suggested that both the wire to the head office and to the Branches should state that )t)i.ee of thewire were being sent to the Branches for their informa— Mr. Davis referred to the fact that advice of the Board's reeezit a 4. -e. icns with respect to margin requirements and reduction in reserve requirements was received by his Bank after he had left for the 4 '117 and that he did not learn of the actions until the next ko He stated that it would be helpful if these advices could be Seat to reach the Banks before the Presidents left or, if that were 1111.11g. 787 512V49 -4- "possible, if a wire could. be sent as early as possible in the day 8ta:t1ng that advice of important action by the Board would be sent leter in the day. It was stated that when the recent actions were taken by the Board . with respect to Regulation W, margin requirements, and reserve u-rements, the Board was fully aware of the desire of the Presidents, asPreviously expressed to the Board, to be informed early in the day, arid t hat Idres were dispatched as soon as the Board was in a position to gilre the Banks definite information. It was also stated that this taatter would be kept in mind in connection with ary future actions and tiae -Luzs informed just as promptly as it would be possible to do so. 3. 1.."9.11Z' re section 13b loans and commitments. The Conference gave consideration to the contents of the Board's wire of April 21, 1949, to the Chairman of the Presidents' Conference. In its wire, the Board advised that, in view of uncertainties as to the prospective business situa!ion, a Question had arisen as to what program the Federal ' 4;!?erve System might follow to prepare for maximum help:ILL/less in business financing through section 13b, assumng no change in statutory authority, and suggested that the Presidents be prepared to discuss the subject at the a2int meeting with the Board. The subject was discussed some length, during which each of the Presidents was asked to present his views and the recent practices and cperiences of the President, it at his Bank. From the canvass have genBanks appeared that, while the Reserve with respect to et3 ;47. been following a restrictive policy mo : 4 ,-ng 13b loans and commitments, they anticipate some ,,"-fication may soon become appropriate and necessary, and -e theyalprepared to act accordingly. j Ett. the Ther e was a general discussion of the policies being followed ?ederal Reserve Banks at the present time with respect to 13b It aPpeared that there was an increase in the number of 543/49 -5- 41314.J-cations being received by some of the Federal Reserve Banks and that all of the Banks were giving a great deal of attention and s'S'IlPathetic consideration to the applications. It was also stated that some of the Banks were following a policy of trying to particiPate 0114 others in the form of commitments to financing institutions while participate in the form of both commitments and direct loans. Mr. Williams read recent statistics on the volume of loans trade W the Reconstruction Finance Corporation and stated that the 148°116 for the greater number of loans by the Corporation included ita broader authority, an extremely liberal credit policy, and the Tlialintena nee of a force of men in the field to actively solicit loans. Mr. Davis stated that as long as the Corporation continued to be as active as it has been in the field and the authority of the Fed- lleserve Banks was not liberalized, there would not be much opportill% for the Reserve Banks to do any substantial amount of business. The opinion was expressed by one of the Presidents that loans 811°1134 not be made to business concerns that were in fact insolvent e°111d not be expected to survive, while another felt that there instan„s where existing management and equipment could be kept i 4.11°Pel'ati0n on a sound basis and that the Federal Reserve Banks should to distinguish between the two types of concerns. lqth he4cle Chairzan McCabe asked what the policy of the System should be -8Pect to 13b loans in the period of readjustment immediately Mr. SProul suggested that each case should be looked at on the 5/3/49 —6— of the facts involved, but that some attention must also be given tO the general economic situation, and that this would involve the diftask of trying to distinguish between concerns which could not be expected to survive because of their own shortcomings of management 441 Performance and those concerns which were in difficulty because of Nor economic changes over which they had no control and to whom credit Unavailable in the ordinary way for that reason. The latter case, e 8m4, was one in which the Federal Reserve Banks could do a helpful Job under the provisions of section 13b. He also expressed the opinion, i*elric)uslY voiced by some of the Presidents, that there should be only 011e Federal agency with authority to make industrial loans and that if the 411th°ritY of try- Reconstruction Finance Corporation was to be contlrilled the authority of the Federal Reserve Banks should be terminated Particular , J1Y since the procedure and practices of the Corporation were "fferent from those of the Federal Reserve Banks that the latter e°1114 not be expected to compete. illtalts view. Some disagreed while others concurred Chairman McCabe stated that as long as the law continued in its 1)1*eerit fOrm the Federal Reserve Banks had a responsibility, and the cilaestion was what the System should do to discharge that responsibility 14 the months lYing immediately ahead. In a discussion of this question and the circumstances under eh the I Federal Reserve Banks should assist a concern through a 13b ,kottr, or c ommitment, Chairman McCabe expressed the opinion that the icy °f tha Federal Reserve Banks should be that, whenever an 5/3/49 —7- 790 aP,Plication or incuiry is received, every reasonable effort should be 11/ade to determine whether assistance should be given and whether a soulid loan could be made. Some of the Presidents stated that prior to the postwar period that had been the policy of the Federal Reserve Banks and that if there to be any criticism of the System it would be that the policy folred was too liberal in the light of the restrictions in the law. Mr. stated that the credit department of the Federal Reserve Bank of St. Louis was very interested in actively getting back into the industrial loaii guarantee field, that if there were return to conditions like those before the war the Federal Reserve Banks could be depended 111:11 to function effectively, but that it would be a mistake in the Plexit s ituation of high production and employment to adopt an aggresSive P°11.V. There was agreement that the 13b authority should not be A d4ri f°r the purpose of "bailing out" banks on loans that turned bad lig 4 Period of adjustment or recession, and Mr. Erickson suggested that the main point in determining whether a concern could survive a "ieUlt period was the character of its management. Chad- McCabe stated that he had had the impression that some the Federal Reserve Banks were more active in this field than others it W suggested that this probably was because of different condi111 the various districts and because in some districts commercial Preferred to do business with the Federal Reserve Banks rather elsewhere, 5/3/49 —8— In a discussion of the limitations in the law on the industrial 1°Ein authority of the Federal Reserve Banks, Chairman McCabe raised the question whether legislation to liberalize the existing authority hould be proposed to the Congress. The comment in response to this Tlestion was generally to the effect that that should be done at the 13roPer time but that there would be little opportunity for considera— ti°11 of legislation at the present session of Congress. It was the °°Ileensus of the Presidents that the System should have continuing "L°1 '4Y in this field in some form and that the System was the logical - agency to have such authority. Mr. Sgymczak suggested that the Federal Reserve Banks might re— th he situation with respect to their industrial advisory committees to ass ure that they are functioning effectively. He also inquired Mleth it Would be desirable to have a conference of the officers of " the, Reserve Banks having supervision of industrial loan activi— tteaRederal p - Or the purpose of reviewing the whole problem. In the consideration of these suggestions, Chairman McCabe N.ted that the important point was that the System should be prepared 44111114. _ U0 meet apy situation that might arise in the future and that e h-' 4cld asked for this discussion with that thought in mind. H 4145 a4id that it was important in connection with arz,r future request t° the Congress for broader authority that the system be able to demon811'416 that it had done a good job with the authority it had. This concluded the discussion of the items contained in the 5/3/49 _ Memorandum submitted by the Presidents' Conference. 4. Retirement system investment policy. Chairman McCabe inas to the consideration given by the Presidents' Conference to the Policy for investment of retirement system funds which was discliseed Preliminarily with Messrs. Davis, Leedy, Peyton, Young, Earhart, and Rounds on Friday, April 29, 1949. Mr. Davis stated that the other Presidents had been informed -.It of the discussion with the Board and that the memorandum presented 111 the Board would be discussed at the meeting of the board of trustees °r the retirement system to be held tomorrow. He also said that it was tiliciellstood that the suggestion that two representatives of the Board e e as associates of the investment committee could be put into "tect without an amendment to the rules and regulations of the retire- 41.4 sYstem. 5. Attendance of officers in charge of branches at meetinzs th r' Conference. Chairman McCabe suggested that the Presi- clellta D4 " ve consideration to the desirability of inviting one or two of the . 4floers in charge of branches of the Federal Reserve Banks to 4Itterid t he meetings of the Presidents' Conference in order that over a le/Ic'd of - +4_ ..Lme all such officers might attend the Presidents' Conrerete es and become better acquainted with the Presidents and more 11411.11._ 41* with the major questions with which the system is concerned. Mr. Davis stated that the Presidents would put this suggestion '1504C/nw I ...Pk, 5 3/49 the agenda for consideration in connection with the Federal Reserve liank program of executive development. Thereupon the meeting adjourned. red, 1,E4 Chairman.
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