Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, May 8, 1940, Volume 27, Part 2

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644

A meetinp of the Board of Governors of the Federal Reserve
8778tem was held in WashinFrton on Wednesday, May 8, 1940, et 10:30
a.m.

PRESENT:

Mr.
Mr.
Mr.
Mr.

Szymczak, Chairman pro tern
McKee
Davis
Draper

Mr. Morrill, Secretary
Mr. Bethea, Assistant Secretary
Mr. Carpenter, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
Mr. Wyatt, General Counsel
Mr. Stnead, Chief of the Division of
Bank Operations
Mr. Goldenweiser, Director of the
Division of Research and Statistics
Mr. Dreibelbis, Assistant General Counsel
Mr. Gardner, Senior Economist in the
Division of Research and Statistics
Mr. Szymczak was elected Chairman
Pro ten of this meeting.
There was presented for consideration a revised draft of the
Ile131Y, which
was discussed at the meeting of the Board yesterday, to
the
reql-lest received
from the Bureau of the Budget for the views of
the Board on
section 5 of a proposed bill which would amend section
4 c't

the

Federal
Reserve Act to permit national banks to make loans

°lithe security
of real estate for
the te11118 of the
loan require that
elli°1111t Of

a period of fifteen years Provided
sixty percent of the principal

the loan be
amortized within that period.




The draft of reply was discussed
and, upon motion by Mr. Davis, was approved subject to changes in form approved by Mr. Draper.

645

The letter as approved by Mr. Draper
in accordance with the above action read
es follows:
"This is in further response to your letter of April
regarding the draft of a proposed bill 'To authorize
'Le Purchase by Reconstruction Finance Corporation of
tock of Federal
Home Loan Banks; to amend the Reconstrucn Finance Corporation Act, as amended; and for other
'Poses'.
'
1The Board has subsequently been advised that its
views ere desired only with respect to section 5 of the
bill amending section 24 of the Federal Reserve
A PO
et, which deals with the authority of national banks to
wt4ca loans on the security of real estate. Section 5
b°111d liberalize in some respects the power of national
0"ks to make reel estate loans; hut it would represent
15113r a Partial approach to the problem in a bill dealing
;
1:,:anEr1lY with unrelated subjects. It -would not in any
2'Y affect the power of Statemenber banks and other in'ured State
banks to make such loans.
be
The Board is opposed to the enactment of piece-meal
2
king legislation where no great or tnmediate urgency
:fsts and
would prefer that amendments of this type be
stPoned until the problem can be piven adequate consid:
e ti". as part of a comprehensive review by Congress of
rig banking laws, which now reflect the cumulative
re
:tilts
of various attempts to meet competitive conditions
%!cific situations and energencies.
ro
he Board is not advised of any substantial reason
114 an immediate liberalization of the existing power of
of i"al banks to make real estate loans. The introduction
Ai Ea amendment such as that contained in section 5 would
involve the denrer that other legislative proposals
be tt less desirable character richt be attached and might
a%cted without adecuate consideration.
Therefore, if the proposed bill is to be introduced,
the
ev.
ard would prefer that section 5 be omitted. Howit is not omitted and the Board has occasion to
reas its views on the subject, it would report favorably
illeijcInme liberalization of the power of national banks to
theejaal estate loans on an amortization basis provided
j 04."-ew were also amended at the same time so as to sub811 State member and nonmember insured banks to the
'
imitations and restrictions on real estate loans as
aPplicable to national banks."

Z

Z




346
5/B/4o

-3Before this meeting there had been circulated among the

inenlbers of the Board
a memorandum dated April 29, 1940, from Mr.
Gilildenweiser in which he stated that a request had been received
e

National Bureau of Economic Research under dat e of April

1940, that the
Board continue through June 30, 1941, its particiPEtti°11

in

the corporate bond project on the same basis as was authorized at
the meeting of
the Board on October 31, 1938. The memorandum
elso
stated that the cost
to the Board of the participation already
%ltkOriZed W8S
$'6,250, and

11°"cl alithoriza a

that it was recommended (1) that the

similar contribution of

E.,250 to continue its

141rt1cipation through Tune 30, 1941, provided that the project sponsors
eacceed in making
arrangements with other cooperating agencies
Stid

Illth the Works
Progress Administration to continue the project
Elec°rding to
Present Plans, and (2) that the Board authbrize the use
Of
ta

rt °f

or Pe

its contribution for the payment of salary and expenses

n

1* -118, other
than

klect
thet
1)1118

members of the Board's staff, who would be

e- by the
Project director.

The memorandum stated further

thesecond
recommendation, which was in accordance with what
b

:
etlid
le done

by

other Government agencies contributing to the

w°41d make it possible for the Division of Research and Stastice
to
utilize for other purposes the services of Mr. Dirks,
r
Economist in the
Division

s Ae

sirable




arrangement.

assigned to the study, which would

647
5/s/40
-4—
UPon inouiry by Mr. McKee, Mr. Goldenweiser stated that the
Pitiect had
developed information which would be of considerable value
t()
the °Ystem
and also to member banks in connection with their ines fl
Policies, that it was believed that the project could be
Shea

in another year, that the other Government agencies that

had
8P°11sored the project had agreed to participate for another year,

tilat the Works Progress Administration would make a further allotment
"flinds
to the project if the necessary appropriation were made by
e°rLOess, but
that if the appropriation were not made the study
I3robably
it on

would be discontinued as it would not be possible to carry

without the contribution of the Works Progress Administration.
Mr. McKee
suggested that, if the Works Progress Administration

(113151"oPriation should not be made, the Board's Division of Research
Stati sti cs

Should look into the possibility of what steps might

be t41ert by the
Board and other interested agencies of Government to
t"tke the f
indings of the study available. Other members of the Board
e°11eill'red in
this suggestion.
At the conclusion of the discussion,
Upon motion by Mr. Davis, Mr. Goldenweiser's
recommendations were approved unanimously.
slit Reference was made to a memorandum dated April 22, 1940, from
"(I submitting a copy of a plan which would authorize the Board,
4 order
•kil
to „oid

tc) Prevent injurious credit expansion or contraction and also

111120und over-cxpansion by individual banks, to limit by reg14Eltion,
'he volume of deposits which a bank may carry, such limitation




648

5/B/40

-5to be
based on the capital, surplus, and undivided Profits of the bank,
elld to fix
the ratio betweer capital, surplus, and undivided profits

"a

dePoeit liability of banks at not less than six nor more than

twebre times
the total of such capital accounts.

It was stated that

this Plan had been incorporated in a bill which had been introduced
the Senate
under date of April 26, 1940, as bill S.:3967, that the
(5EIrcl had
received a routine request from the Senate Committee on
8allking and
Currency for a report on the bill, and that today the
cl." of the
Committee telephoned and asked that the Board expedite
"1rePort that
it intended to make on the bill.
Upon motion by Mr. Davis, Counsel was
requested to prepare a draft of a report
on the bill which would contain a statement
along the same lines as that with respect
to the position taken by the Board in the
letter to the Bureau of the Budget above
referred to relating to piecemeal banking
legislation at this time, as well as an
expression of the Board's views on S.3867.

Or the

Mr. 1,
Inorrill read a letter received from M. Young, President

Federal Reserve Bank of Boston, under date of May 6, 1940, extending an
invitation to any of the representatives of the Board who
rtla•Y
attend the
ThirtY-eighth Annual Convention of the American Institilte of
tanking to be
held in Boston on 3-line 3-7, 1940, to visit the
44erEll
Reserve Bank and to attend a dinner which will he given in
110110r of
the repre
sentatives of the Federal Reserve System at the
e°11vention on
the evening of Tune 3.




649
5/8/40
-6Mr. Morrill was reauested to advise
Mr. Young that Mr. Szymczak would accept the
invitation and that, if possible, Mr. Davis
would arrange his Plans so that he could be
present also.
In connection with the discussion at the meeting of the Board
3resterclaY with respect to the possible appointment of T. H. McKittrick,
_
tts
n American director and Chairman of the Bank for International
Settia4lit,
m ts
M. Gardner stated that under the existing statutes of the
two Americans may
be invited by the Governors of the Central
4rate of
Beldam, France, Great Britain, Italy, and Japan to became
Of the Bank unless objection is made by the bank of issue
mid operating in the principal financial market of the United
Ntes,

which is the Federal Reserve Bank of New York; that on that

8 MeS8r5• Gates McGarrah and Leon Fraser were elected directors
"the 33
1933

In 1930 for a term of three years and were reelected in

second three-year term; and that these appointments were
llot Objected
to by the Federal Reserve Bank of New York. He also
41c1 that
since the passage of the Banking Act of 1933 which author14d the
,,oard of Governors to exercise special supervision over all
'
l eletti
"shiPs entered into by any Federal Reserve Bank with any foreign
batik, t
° Darther
appointments of American directors have been made,
el1(1 th t i
gllirec
:
'
t appeared that inasmuch as the New York Bank would be rezi(11711. /111der existing law to present the matter to the Board before
to thell the Bank for International Settlements whether it would object
413P°intment of Mr. McKittrick, the matter was being brought




C50
W40
ilit°rolttay to the
attention of the Board at this time to ascertain
whether the
Board would have any objection to the appointment since
the 33ank for International
Settlements probably would not wrnt to pro74th the election if there were any objection on the part of the
toard
of Governors.
After a discussion, it was agreed unanimously that Chairman Eccles should advise
Mr. Cochran, Technical Assistant to the
Secretary of the Treasury, in response to
his inquiry, that, should the question of
the election of Mr. MOKittrick as Chairman
Of the board of directors of the Bank for
International Settlements be presented in
the usual course, the Board mould interpose
no objection thereto.
At

this point Messrs. Bethea, Carpenter, Wyatt, Sneed,

ellweiser,

Dreibelbis, and Gardner left the meeting.

Nference was then made to a memorandum dated May 4, 1940,
Gol
denweiser recommending that Mrs. Gertrude P. Verner be
t1)1111ted as a
clerk in the Division of Research and Statistics on a
t'ill%rary
basis for a period of three months, with salary at the rate
"T3120
per month,
effective as of the date upon which she enters upon
the
Perfolizance of her duties.
Approved unanimously.
Goi

There was

also presented a memorandum dated May 3, 1940, from

idetweiser, recomlnendinp that Miss Melva R. Kaplan who on Feb6
_
$ 1940,
was appointed as a clerk-stenographer in the Division
Qrpeseee
and




Statistics on a temporary 1-,asis for a period of three

651

5/8/40
-8rtielItils) be retained on a permanent basis at the expiration of her
tetlaPorary appointment
at the close of business on May 15, 1940, and
til
"her salary be increased as of that date from
tO

the

rate

of $1,620 per annum.

1,440 per annum

The memorandum stated that since

her
aPpointment Miss Kaplan had married Dr. S. A. Li schinsky,
who is
eillPloyed by the Amalgamated Clothing Workers of America to prePere material
on oases to be brought before the Wage and Hour Administration.

At the conclusion of a discussion,
it Was voted unanimously to extend the
temporary appointment of Miss Kaplan for
a period of three months from May 15,
1940, with no change in her present salary, with the understanding that at the
first meeting of the Board at which all
of the members are Present consideration
will be given to the policy to be adopted
by the Board on the question of the employment of married women as mambers of
its staff.
The action stated with respect to each of the matters hereinreferred

to WBS

then taken by the Board:

The minutes
of the meeting of the Board of Governors of the
?ed
"el Raserve System
held on May 7, 1940, were approved unanimously.
Letter to MI-. Post, Secretary of the Federal Reserve Bank of
edelphia readinF as
follows:
reea "Reference is made to your letter of April 23, 1940,
e question raised by the Philadelphia Stock
4Iggathe
t
i c.hr
to whether certain 3-:V4% bonds issued by the
nneYlvslli
-- a Turnpike Commission are 'exempted securities'




652
5/8/40
-9for the
purposes of Regulation T.
"This question involves the interpretation of secti
"3(a)(12) of the Securities Exchange Act of 1934, a
Provision which is also of interest to the Securities and
&hange Commission. You will recall that the Board's
-Letter of March 17, 1939 to President Sinclair dealt with
s
E,
i eimilar inquiry which was presented by the Philadelphia
w bock Exchange with respect to certain 2-1/2°/ Serial
j
ter Revenue Bonds of the Bethlehem Municipal Water Au4"°ritY. As indicated in that letter, in view of the
4-nterest or
the Securities and Exchange Commission in
section f XI
3ka,k12), the views of the Commission were reaested with respect to the question whether such
ethlehenMunicipal Water Authority Bonds are 'exempted
eecurities' within the meaning of section 3(a)(12). The
°
office of the Commission's General Counsel expressed the
Pinion that they are not such 'exempted securities',
.etlid the Board stated in its letter of March 17, 1939,
that it saw
no reason to differ with that view.
bee,, "An expression of the Commission's views has similarly
, reauested with respect to the bonds of the Pennsyl;ria turnpike Commission.
As indicated in the attached
sePY of its reply, the General Counsel's Office of the
ge,e
,4rities and Exchange Commission has reconsidered the
ha-eral question involved and upon such reconsideration
'
or exPressed the view that both the Water Revenue Bonds
xitthe Bethlehem Municipal
Water Authority and the Turn111,, e l evenue 3-3/4 Bonds issued by the Pennsylvania
lue ning Commission are 'exempted securities' within the
of section 3(a)(12).
Boa "UPon further consideration of the cuestion, the
ev,I'd agrees with the view that both securities are
'bed'exsecurities within the meaning of section 3(a)(12),
„Ild it will
be appreciated if you will advise the Phila"lPhia
Stock Exchange' accordingly."

Z

Approved unanimously, together with
a letter to Mr. Chester T. Lane, General
Counsel, Securities and Exchan7e Cammission, readily?: as follows:
4, 1:We wish to thank you for Mr. Davis' letter of May ,
bota°4°) with respect to the question whether the 3-3/4'1,
t ez 8 issued by the Pennsylvania Turnpike Commission are
3(a7riTtd securities' within the meaning of section
4-2) of the Securities Exchange Act of 1934.




_ 653
5/6/40
-10"We note that your office has reconsidered its preView that the 2-1/e Serial Water Revenue Bonds of
the Bethlehem Municipal Water Authority are not 'exempted
ecurities'
within the meaning of section 3(0(12), and
g hat uPon such reconsideration it is of the opinion that
Such Bethlehem Municipal Water Authority bonds and
t13°th
ennsylvania
Turnpike Commission bonds involved in
teP
..e Present question are 'exempted securities' within
"the meaning
of the provision.
As indicated in the attached copy of our letter to
the
Federal Reserve Bank of Philadelphia, the Board, upon
;!rther consideration, agrees with your view that both
the
securities are such 'exempted securities', and it has
!,quested the Federal Reserve Bank of Philadelphia to advise the
Philedelphia Stock Exchance accordingly."

Z

Memorandum dated May 8, 1940, from Mr. Morrill recommending
t
til the
Board authorize the purchase of a 1940 Chrysler Crown Imperial
ne as described in the memorandum, to take the place of the
1343erdi.
1*937 Chrysler Custom Imperial Limousine, at a net cash price
or 11)400.
The recommendation was approved unanimously, with the understanding that the
aPProoriate item of the 1940 budget for the
facretary's Office would be increased by
.t1,400 to cover the cost of the new car.

Thereupon the meeting adjourned.

.05'PeAL,fr)

Secretar,.

ADDroyed: