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703 A meeting of the Board of Governors of the Federal Reserve SYstem was held in Washington on Friday, May 5, 1944, at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak McKee Draper Evans Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Dreibelbis, General Attorney Mr. Leonard, Director of the Division of Personnel Administration Mr. Vest, Assistant General Attorney Mr. Wyatt, General Counsel There were presented telegrams to Messrs. Treiber, McCreedy, C1c410e, Dillard, Stewart, and Hale, Secretaries of the Federal Reserve 811114 of New York, Philadelphia, Cleveland, Chicago, St. Louis, and ski 44eisco, respectively, stating that the Board approves the es— talent without change by the Federal Reserve Bank of St. Louis °11 M4Y 2, by the Federal Reserve Bank of Chicago on May 3, and by the 441 ' 31 Reserve Banks of New York, Philadelphia, Cleveland, and San their se° On MAY 4, 1944, of the rates of discount and purchase in existing schedules. Approved unanimously. when lir. Szymczak referred to the informal discussions of the Board J. R. Parten was being considered for appointment as a Class c ector and Deputy Chairman of the Federal Reserve Bank of Dallas 41d stated that in accordance with the request of the Board at that tike he (Mr. Szymczak) and Mr. Leonard discussed the matter with Mr. 704 5/V44 —2— TaYlor, Chairman of the Bank, to ascertain his opinion as to the qual— ifications of Mr. Parten as a director of the Bank and whether he would be a suitable Chairman in the event it were determined that Mr. Taylor, b ecause of his continued absence from the District, should not continue in that position. Mr. Leonard referred to the fact that in the letter addressed to the Board by Mr. Taylor under date of December 20, 1943, accepting 413Pointment as Chairman and Federal Reserve Agent for the current year, he made the statement that he was finding it more and more difficult to attend many of the meetings in Dallas, that, therefore, the letter 1101114 serve as his resignation as Class C director and Chairman and ecieraa. Reserve Agent if the Board desired to accept it, that the }3c)4rd had been more than considerate in reappointing him as Chairman, kd that he wanted to be just as considerate of the Board by leaving the matter entirely in its hands. Mr. Szymczak stated that he was bringing the matter up at this time for the reason that in the discussions with Mr. Taylor it had be "suggested that he might continue to serve for a period of tliree or four months so as to afford Mr. Parten an opportunity to be— °°11te acquainted with his new duties, at the end of which time the 13°"1 might decide to designate him Chairman and Federal Reserve iteent in place of Mr. Taylor. 705 5/5/44 -3All of the members of the Board present were in agreement that, because of his continued absence from the Dallas District, consideration should be given to the selection of a successor to Mr. Taylor as Chairman and Federal Reserve Agent, and it was decided that Chairman Eccles should confer with Mr. Parten and ascertain if his outside business connections were such that he could attend regularly the meetings of the board of directors of the Dallas Bank and its executive committee in the event he were designated as Chairman and Federal Reserve Agent. Reference was then made to a memorandum addressed to the Board tInCler ,48.-Le of April 15, 1944, by Mr. Goldenweiser, Director of the Divi- e411 of Research and Statistics, recommending that Miss Ruth Logue be aPkInted as an economic assistant in that Division on a temporary basis t 4 period of " not to exceed one year, with basic salary at the rate el. $2,000 Per annum, effective as of the date upon which she entered tiPon the perfo nce of her duties. The memorandum had been placed °4 the docket for consideration at this meeting at the request of the Perso ilnel Committee because of the fact that, while Miss Logue appeared to be well qualified for the work which it was proposed to have her do, ehe had been ill for three months during the past two years and the 11:41'cl'a examining physician had reported that the condition causing he -'ness might return, that in addition she was subject to a minor heart• aliment and her blood count was below normal, and that considerable absence on account of illness might be expected. Mr. Leonard stated that it was anticipated that Miss Logue 706 5/5/44 —4— would work on certain statistical series in the maintenance of which the D sion of Research and Statistics was about one year behind, that her work would be largely supervisory so that it would not be unduly iliterferred with if she were absent from time to time on account of tUn -°8, and that the question before the Board was whether it should Make such use of Miss Logue's time as might be available to it in the absence of other qualified personnel which the Division had been trying to rind for the good part of a year but had been unable to do so. Chairman Eccles stated that the matter was before the Board tcll 'decision as to the general policy to be followed by the Board in tters of this kind during the war period. The memorandum had been Ulated among the members of the Board, and Messrs. Szymczak and IkKee . had indicated that they would not be favorable to the appointnterit* McKee had indicated that he would be willing to consider the a Ppointment on a per diem basis. At the conclusion of a discussion, it was voted to approve the employment of MISS Logue as recommended, with the understanding that this action was in accordance with the policy that might be followed by the Board in meritorious cases during the war period. On this action Messrs. Szymczak and McKee voted "no". Before this meeting the attention of the members of the Board 44c1 be en called to a memorandum addressed by Mr. Wyatt to the Chairman , Qate of April 27, 1944, in connection with the proposed revision n 1°5219 of the United States Revised Statutes relating to State 707 5/5/44 -5- taxation of national banks which had been presented to the Chairman by rePresentatives of the American Bankers Association with the statement that it had been approved by that Association, the National Tax Conference) and the National Tax Association. The representatives of the Ameri Bankers Association had asked Chairman Eccles to advise them het:: Board t in the event the bill were introduced in Congress and the views thereon were requested, it would interpose any objection to the amendment. The memorandum stated that similar inquiries had beep, " made of the Comptroller of the Currency and the Federal Deposit illallrance Corporation, and it was understood that they would interpose no objection. The memorandum also contained the recommendation that, inaemiloh as the proposed revision did not change the fundamental policy Of exi Sting law and had been agreed upon by representatives of the bank. ' and the State taxing authorities after lengthy negotiations, -"g *Lich concessions were made on both sides, the interested parbe advised informally that the Board would interpose no objection. There was a discussion of the statements contained in Mr. tion tre, '''j . memorandum (1) that under the amended section mutual institufor the deposit or accumulation of savings could be given favored Llaento the or be exempted from taxation altogether without validating State tax on national banks, and (2) that the amendment made no tempt whatever to solve the difficult problem of taxation of shares ' 0ak of national banks. In connection with the first item, 708 5/5/44 —6- Chairman Eccles stated that when the Board reported on bills now pending Congress which would amend the law relating to Federal savings "1°an associations it could call attention to the provision in existing legislation which gave a discriminatory tax preference to such "sociations as compared to national banks. Upon motion by Mr. McKee, it was voted unanimously that Mr. Wyatt be requested to advise the representatives of the American Bankers Association informally that the Board saw no reason why it should interpose any objection at this time to the proposed revision of section 5219 of the United States Revised Statutes. At Chairman Eccles' request, there were presented drafts of letters reading as follows to Senator Wagner and Congressman Spence, Chairmen of the Senate and House Banking and Currency Committees, reapec tive1y: "On page 26 of the report on War and Post-war Adastment Policies dated February 15, 1944 (the Baruchncook report) it is recommended under the heading .Permanent Risk Capital' that: '(2) As a permanent source of credit for small and medium-sized enterprises on a basis of broader risks than banks can be expected to assume, that the Federal Reserve System's authority to make industrial loans or commitments be expanded and liberalized.' "The report states that 'A detailed explanation of this plan is available for the consideration of the Congress.' line with the foregoin recommendation, the Boa,Lt has prepared and encloses herewith a draft of a bill t accomplish the objective stated in the report. or "For your further information and as a background the proposed bill I am enclosing a memorandum en t Plan for Industrial Loans by Commercial Banks p F 709 5/5/44 —7— "Guaranteed by Federal Reserve Banks'. This plan would be implemented by the proposed bill. The Board wishes particularly to point out that the proposed bill does not involve any new appropriation by Congress and also that it does not authorize the Federal Reserve Banks to make direct 1°ans to business enterprises. The bill contemplates merely that the Reserve Banks guarantee loans made by private financing institution s which such institutions would be unwilling to make without such a guarantee. "In view of the importance of small business enterprises to the welfare of our country, it is important that ,8_tel)s be taken now to see that in the post-war period such puslnesses will be able to obtain the credit needed to ento function in the interests of our economy as a ;tet.hem It is believed that the attached bill is adequate, ,:or the time being at least, to meet this need and the Board ft,1?pes that you will see your way clear to introduce the Lail in the Senate. "1 am addressing a similar letter with identical enclosures to Chairman Spence of the House Banking and Currency Committee." in Con rt11111 Chairman Eccles stated that there was considerable agitation 55 and elsewhere at the present time for legislation to aid business concerns and that, while he did not think the solution °f the Problem was to be found in credit legislation, he felt that some legislation of this sort probably would be enacted and that the solution Proposed .11 1 the letters referred to above would be more satisfactory than any of the other bills that had been introduced. He also said that it did i not appear that it would be necessary to clear the proposed 'lleticinlent through the Budget Bureau for the reason that the original 4'1.1.1ch-Hancock report had been cleared with the Office of War Mobilizati rl and the Budget Bureau and the amendment as now proposed was merely r°1 'the Purpose of implementin the recommendation contained in the g '710 5/5/44 epOrt the -8He made the further statement that while the Presidents of Reserve Banks were in Chicago this week they had an informal die- cusaion of the amendment and felt that if any legislation were to be enacted along this line it should take the form proposed by the Board, Etliugh they indicated some preference for having the funds that would be made available by the amendment, and out of which losses would be Paid, turned over to the Federal Reserve Banks rather than held by the Board. Upon ters were that they Eccles in week. On motion by Mr. Shymczak, the letapproved, with the understanding would be delivered by Chairman person at a convenient time next this action Mr. McKee voted "no". Before this meeting there had been circulated among the members 01 the B card a draft of letter to Mr. F. J. Bailey, Assistant Director ill Chat..r.. e of Legislative Reference of the Bureau of the Budget, reading "follows: a "With your letter of April 17, 1944, you transmitted coPY of a proposed report from the Department of Agricul' 1.1re to the Chairman of the Senate Committee on Agriculture rd Forestry, concerning bill S. 1688, 'To authorize the t:vernor of the Farm Credit Administration and the Seereof Agriculture to tai compromise, adjust, or cancel cera n indebtedness, and for other purposes', together with f4 .°1:7 of the proposed revision of the bill. You asked a„ expression of views with respect to this proposal 1414 ro itr the return of the enclosure. The Board of Governors has authorized me to advise pfkathat it has no objection to the proposed report of the rtment of Agriculture and the suggestions referred to 6nerein tu ZMII ITice with your request the enclosure is rernedIhe 711 5/5/44 -9Mr. McKee had indicated that he would wish to vote "no" on the letter for the reason that, while he was in sympathy with the objectives °t the particular bill, he felt that, if it were enacted, demands would be maA ' e DY other groups for similar privileges and it was not possible tc say „ 40 what extent such legislation might be carried. The reasons for the legislation, as set forth in a memorandum prepared by Mr. Clayton under date of April 24, 1944, were discussed, "14.* McKee stated that his primary objection was not to the comPrc4ilise or adjustment of obligations where the circumstances of the case were found to justify such action, but that he did not believe, Particulsr4 in a time of high national income like the present,provi8411 should be made in legislation for the cancellation of indebtedness. At the conclusion of the discussion, the letter was approved, Mr. McKee voting nno' , . In connection with his vote, Mr. Draper stated that he voted to approve the letter but desired to have it recorded that he questioned the propriety of authorizing the Farm Credit Administration and the Department of Agriculture to cancel indebtedness in view of the fact that these agencies, in accordance with the bill's prowould have the power both to compromise and to adjust indebtedness. Mr. McKee Ot n stated that he had been holding in his desk a copy IlleltOrandUrn dated January 31, 1938, which Mr. Crowley, Chairman of the t,_ 'cterea. D _ eposit Insurance Corporation, had addressed to Secretary kor— Genthau with respect to the bank holding company question and with '712 5/5/44 -10- special reference to Transamerica Corporation. He said the memorandum had been received by him under confidential cover and he would like to raise the question what, if anything, should be done with it. The memorandum was read, and there was a review of the discus5 of the holding company situation which had taken place before the date of the memorandum and subsequent thereto. During the discus- Mr. Morrill called for Mr. Ransom's files on the matter from which it appeared that a copy of the memorandum might also have been sent to Ndrman Eccles. It was subsequently learned that this was the case, and it was agreed that a copy of the memorandum submitted by Mr. McKee Should be placed in the Board's files. Mr. McKee then referred to the informal discussion at the meet- of kklatio the Federal Open Market Committee yesterday with respect to Reg- serve B Q and to the comment made by President Davis of the Federal Reof St. Louis concerning the difficulty facing the St. Louis 13tizik because examinations of two State member banks in Louisville had indicated that the banks were absorbing exchange and collection charges in vi olation of the law and the Board's regulation and the Board of G°1rernors had taken no action with respect to these findings. It was also stated that the Comptroller of the Currency was not enforcing legulation Q. Mr. McKee stated that the two cases referred to by Mr. Davis and other cases referred to the Board by the Reserve Banks had not 713 Wk4 -11- been submitted to the Board for action pending a discussion by the Senate Bankin g and Currency Committee on the Brown-Maybank bill, and that it would be his suggestion that if hearings on the bill were not held 4 -Ln the Senate Committee by the time Congress recessed for the sifter the Board should then proceed promptly to rule on all the cases of 13"eible violation that had been reported to it. The suggestion 11118 aleo made that in the meantime conferences should be held with the Comptroller of the Currency to insure his continued cooperation enforc ing the law and the Board's Regulation Q, as it would be difficUlt for the Board to require compliance by State member banks if the sane Policy were not to be followed in the case of national banks. in All of the members of the Board present expressed agreement with this suggested procedure. Chairman Eccles then stated that it had been learned on Tuesday of thi 8 Ot the week that under date of April 27, 1944, Mr. Sproul, President Federal Reserve Bank of New York, addressed the following teleg'Irli to the Presidents of the other Federal Reserve Banks: 0. "Chairman this Bank received today revised statement n4 res ponsibilities of directors which I have not yet read. ;aye read and do object to procedure set forth in covering tetter. Seems to me board of directors of each Bank should eisc.le what statement is to be sent to its new members and ch .lt is to be sent, not the executive committee of the G41rmen's Conference with the approval of the Board of , and, ana, o second , that whatever statement is sent bo new directors should be sent by the Chairmen of the G: ds of individual Reserve Banks, not by the Board of R ernors. Have discus sed my objections with Chairman and sugges ted that Board's letter of April 25 be Z 714 5/5/44 -12- "held in suspense until matter is further discussed at forthconing Chairmen's Conference, with which he agrees. Meanwhile, in so far as this Bank is concerned, form of statement wilj. be studied to see if it meets our needs or should be modlfied so to do." Copies of the telegram had been sent to the members of the Board before this meeting, and Chairman Eccles stated that he was bringing the matter up at this time to ascertain what, if any, action the Board 17-18hed to take with respect to it. There was a discussion of the alternative actions that were available to the Board, and it was concluded that nothing Should be done until after the meeting of the Chairmen's Conference next week and that, if a reference were made to the wire by Mr. Ruml, Chairman of the New York Bank, or Mr. Sproul during the Chairmen's Conference, the statement would be made that the matter was one that would be discussed with the Chairmen by the Board of Governors in executive session. or Ur. SgTmczak stated that he would call Mr. Brainard, Chairman the When Chairmen's Conference, and inform him of the telegram so that une Chairmen's Conference was held he would be familiar with what h4ct " ° 11.rred. At +1,1 point Messrs. Dreibelbis, Leonard, Vest, and Wyatt Vii*tire w from the meeting, and the action stated with respect to each ths matters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the -L Reserve System held on May 3, 1944, were approved unanimously. 715 515/44 —13— Letter to the board of directors of the "Pierceton State Bank", pieroeton, Indiana, stating that, subject to conditions of membership ntunbered 1 to 3 contained in the Board's Regulation H, the Board ap Proves the bank's application for membership in the Federal Reserve SYstem and for the appropriate amount of stock in the Federal Reserve Batik of Chicago. . Approved unanimously, for transmis— elan through the Federal Reserve Bank of Chicago. Letter to the board of directors of "The Farmers State Bank", Ran OM2 Kansas, stating that, subject to conditions of membership bered to 3 contained in the Board's Regulation H, the Board approves the b„.„_ '"K's application for membership in the Federal Reserve System 44c1 for the appropriate amount of stock in the Federal Reserve Bank of 44848 City, Approved unanimously, together with a letter to Mr. Leedy, President of the Federal Reserve Bank of Kansas City, read— ing as follows: "The Board of Governors of the Federal Reserve Sys— approves the application of 'The Farmers State Bank', Rens t my Kansas, for membership in the Federal Reserve Sys— em, subject to the conditions prescribed in the enclosed ±-,tter which you are requested to forward to the Board of 1)411:rectors of the institution. Two copies of such letter ot !also enclosed, one of which is for your files and the c_ uer of which you are requested to forward to the Bank ummissioner for the State of Kansas, for his information. "It is apparently agreed that the town of Ransom has LT.need for two banks and that consolidation of the ap— PI-loant and the competitor State bank on a sound basis 5N44 -14— II would be desirable. The matter was discussed during the Lexamination and it is said that there is a strong possiDilitY that such a consolidation may occur during the current year. It is assumed, of course, that in accordance with the views expresse d in the Board's letter S-6 (LooseLear Service #3360) with respect to a program for strengthening banking situati ons where such need is indicated, the influence of the Federal Reserve Bank will be joined with Fiat of the State Department and the F.D.I.C. in endeavoring to bring about a consolidation at an opportune time." Letter dated May 4, 1944, to the "Webb City Bank", Webb City, 14i"ouri, reading as follows: "The Board is glad to learn that you have completed ...11 a rrangements for the admission of your bank to the f'ederal Reserve System and takes pleasure in transmitting nerewIth a formal certificate of your membership. It will be appreciated if you will acknowledge re'elPt of this certifi cate." Approved unanimously. tank Letter to Mr. Hitt, First Vice President of the Federal Reserve or St. Louis, reading as follows: "This refers to your letter of April 14, 1944, renrding the acquisition by the First National Bank Trustees 1Z.tt .controllhews,ing interest in the St. Matthews Bank, St. Was „ Kentucky, a nonmember bank, control of which e-Lu by the First Kentucky Company, a subsidiary of the " trust. i, "Since your bank has kept the Board fully advised as developments in this matter, no further information requested, and the Board agrees with your conclusion e_e't it will be unnecessary for the St. Matthews Bank to ,4.ecute form P-3 (Exhibit L), since the First National ial Trustees is not requesting a voting permit at this "to enable it to vote the stock of . Sitrr LI:nc Matthews Z Approved unanimously. 717 5/5/44 -15Letter to Mr. J. A. Kaufman of Warwick Stores Inc., New York, IlewYork, reading as follows: "This will acknowledge and thank you for your letter of April 28, 1944, proposing three changes in Regulation W. The first is that articles up to $35 in price be exempted from the down payment requirement; the second ls that the maturity for clothing and similar articles be l'educed to seven months; and the third is that the minimum instalment be raised to $6.00 per month or $1.50 per week, "As to the down payment proposal we do not believe that we can go further in this direction at the present ,'Lme. Amendment No. 11, effective April 3, 1944, enlarged the exempt category to include all items up to $10.00. view of the continuing need for restraining purchases ?n credit, a further relaxation does not appear possible 111 the near future. "As to the maturity for clothing, we have always recognized that 12 months was longer than was considered by many retailers for soft goods. Yet we were faced aced with the difficulties which would result if there were a number of maturities applying to different kinds vat articles. Not only would there be a sacrifice in the of the regulation, since the retailer would have to keep in mind a number of figures, but also there would be complications when retailers sold several articles cihaving different maturities at the same time or consolit"rd new purchases with old obligations. It seemed better to a single maturity with exceptions only in hose use cases where the credit is customarily handled on a "S eparate basis. of "The fact that 12 months was too long for some kinds weeRocis was one of the reasons for the minimum monthly or to Zti Payment provision, since the obligation would paid out in less than 12 months if it was less than an t607 An increase of the figures to $6.00 and 1.50 would have _ ar_ some advantages in this connection, but it has been on the other side that it would not be worth the trouble o which would be caused to retailers who would have adjust to the new figures. 718 5/5/44 -16- 'Ile have been glad to receive your suggestions. One ?f the principal factors in the success of the regulation !las been the cooperative spirit of the merchants who have had to live under it. We want to hear their ideas and we consider them carefully. Many that cannot be put into effect immediately become possible later. At the same time we are conscious of the desirability of making as few amendments as possible. A number of people have recently exased the view that the regulation is in satisfactory °rm and ought to be maintained substantially as it is until there is change in the underlying situation. "Vie are sending a copy of this letter to the Federal ReServe Bank of New York. Please feel free to talk to the PsoPle at the Reserve Bank about the regulation at any time." Approved unanimously. Letter to Mr. McCabe, Chairman of the Federal Reserve Bank of "qelphia, reading as follows: "At the completion of the examination of the Federal Reserve Bank of Philadelphia, made as of March 4, 19442 bY the Board's examiners, a copy of the report of exami'ti°n was left for your information and that of the directors A copy was also furnished President Williams. ,_ "The Board will appreciate advice that the report s been r:nts youconsidered by the Board of Directors. Any coramay care to offer regarding discussions with t,.. spect to the examination or as to action taken or to be ea as a result of the examination will also be appre,7"'Latedn %-. r Approved unanimously. ot Letter to Mr. Clark, Vice President of the Federal Reserve Bank Atiant a, reading as follows: "This refers to your letter of April 27 regarding LsIroltative arrangements made with the State Bank Commisor ner of Louisiana for the joint publication of reports condition by State bank members of the Federal Reserve 5/5/44 -17- "System in Louisiana when the date of the call by the State Bank Commissioner corresponds with the date of call bY the Federal Reserve Bank. "It is observed from the form F. R. 105e enclosed !ith your letter, showing certain alterations in the form T'') meet the requirements of the State Bank Commissioner, that all of the alterati ons are consistent with the general nstructions governing publication appearing on page 3 of or F. R. 105a. The Board will, therefore, interpose no ?bjection to joint publication of reports of condition by State bank members in Louisiana in the form indicated. "At the end of 1943 there were only eight State bank nbers in Louisiana—six in your District and two in the Dallas District. In the circumstances it is assumed that, rather than having printed special for these banks, a form the necessar y alterations will be made by the Federal Reserve Banks or by the member banks under instructions from the F ederal Reserve Banks. There would, of course, be no ?bjection to the banks' using a publication form supplied by the State Bank Commissioner, provided it accomplishes the desired purpose." I Approved unanimously, together with a letter to Mr. Evans, Vice President of the Federal Reserve Bank of Dallas, enclosing for his information copies of the above letter and of Form F. R. 105e as submitted to the Board by Mr. Clark. Memorandum dated May 3, 1944, from Mr. Paulger, Director of ' the Divisi° of Examinations, submitting the travel expense voucher of R. Millard, a Federal Reserve Examiner, covering the period April 1 tc) APril 30, 1944, and recommending that, because no other accommodations Were pr ocurable at the time and it was necessary for him to accept whatPace was available in order to proceed to his next assignment, the 13°arci approve the payment of an additional expenditure of $2.80 '1'esellting the differen ce in price of a standard lower berth and a 720 5/5/44 — roomette from Cleveland, Ohio, to Washington, D. C., and return. Approved unanimously. Thereupon the meeting adjourned. Chairman.
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