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1557 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Monday, November 17, 1947. in the Special Library at 2:30 p.m. PRESENT: Mr. Eccles, Chairman Szymczak Mr. Draper Mr. Evans Mr. Vardaman Mr. Clayton Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Before The Board met Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Chairman Smead, Director of the Division of Bank Operations Thomas, Director of the Division of Research and Statistics Vest, General Counsel Leonard, Director of the Division of Examinations Horbett, Assistant Director of the Division of Bank Operations Young, Assistant Director of the Division of Research and Statistics Solomon, Assistant Counsel Hackley, Assistant Counsel this meeting the Federal Advisory Council submitted a Itexaor alidUra cil covering topics discussed at a separate meeting of the Coun- °n Novembr 16 which were to be reviewed with the Board at a joint keeting to be held at 10:30 tomorrow morning. The Board considered the t°Piep. - and it was agreed that Chairman Eccles would state the views of the b zoard su bstantially along the lines recorded in tke minutes of the JcAnt meeting. the At Mr. Szymczak's request there was a further discussion of 131‘°P°sed special reserve plan which had been considered at the 1558 11/17/47 -2--. 'fleet a on November 5, and the matter was discussed on the basis of zemorandum from Chairman Eccles dated November 13, 1947, which con- tairied certain changes from the plan outlined on November 5. Mr. 8154ezak raised the following questions with respect to the plan: L. Why should the plan cover time deposits, and if it should cover time deposits, why not include mutual savings banks and building and loan associations? 2. Would it in fact be possible substantially to increase the discount rate without affecting the rates on Government securities? 3. Should we not determine upon the timing for increases in the reserve requirements of central reserve city banks and exhaust the authority which the Board has in this field before requesting more authority from Congress? 4. If the plan worked to increase interest rates on commercial loans and investments, would it not increase costs of production and prices of goods, and thus fail to accomplish the anti-inflation objectives the Board has in mind in proposing the plan? 5. Would the plan be interpreted as a credit control plan which was justified or as a disguised attempt to support the Government security market? 6. The Reserve System has urged the public to buy savings bonds and to get the public debt out of the banking system in so far as that is feasible. Throughout the war we emphasized with the Treasury the importance of placing as much of the debt outside the banks as possible and the final policy followed in this connection was a compromise of the position of the System and the Treasury. Since the proposed plan would encourage banks to hold Government securities, would it not seem inconsistent with the policies advocated by the System? 7. The Federal Reserve System was set up with a view to having the reserves of the banking system carried with the Federal Reserve rather than with commercial banks, Whereas the proposed plan permits banks to count interbank deposits as part of their reserve. Therefore, is not the plan inconsistent with the general concept of the Federal Reserve Act? 1559 11/17/47 —3— 8. The proposed plan would make penalties for deficient reserve ,,ayable to the U. S. Government. Would it not be preferable to make these penalties payable to the Reserve Banks as is now done with penalties incurred by member banks? The questions raised by Mr. Szymczak were discussed, and Cheillellan Eccles commented on them along the lines of the memorandum ' l hieh he had submitted under date of November 13. With respect to al1(1wing interbank deposits to be counted as part of the special reserve, C1119111Lan Eccles expressed the view that it was necessary to include iliter.bank deposits as part of the special reserve in order to equalize the res e'v Position of all banks as much as possible. As to the payluent of penalties, Chairman Eccles stated that this provision was made beceuse Penalties would be collected from nonmember as well as member banks and there was no basis on which the receipt of payments from 11°11rneraber hanks by the Reserve System could be justified. -' , During the meeting Chairman Eccles was called from the room to 4114rer the telephone and upon his return stated that the call was from 86nat0r T aft, Chairman of the Joint Committee on the Economic Report, %111(3 had stated that there was not much time to consider various phases the pr oposals presented by the President in his message to Congress, that It was expected that the Joint Committee on the Economic Report : 141 the Banking and Currency Committees of both the Senate and the e '4°111d commence joint hearings on Thursday of this week in con4seti°4 with the President's recommendation to Congress that additional rIedeit controls be adopted, and that he (Senator Taft) would like to 1560 11/17/47 -4-- have Chairman Eccles appear before the committees on Thursday, November 20, 1947. Chairman Eccles added that he told the Senator that while he had given considerable thought to the problem, he would appreciate it if he could be given until Monday of next week to prepare for the hearing. He also said that when he appeared he would make it entirely clear that credit control measures, such as the special reserve plan alld the regulation of consumer credit, would be effective only as part °fa program which included a fiscal policy which contemplated a very sUbstantial reduction in the public debt. Mr. Clayton referred to a draft of the statement which was being PrePared to be issued jointly by the Federal and State bank supervisory 4°Ileies with respect to bank credit policies during the inflation. C°Pies of the draft had been sent to members of the Board before this Ineeting. Mr. Clayton stated that Comptroller of the Currency Delano had goiie Over 4 Clireetor Of the statement in his capacity as Comptroller, and also as of the Federal Deposit Insurance Corporation in the absence Chairman Hari and Director Cook, that he and Mr. Delano had reached agreement on the wording of the statement, and that he expected to dis°Iles it with the executive committee of the National Association of SUPervisors of State Banks at a meeting to be held in the Board's buildOn Friday, November 21, 1947. Mr. dqntt, flies Clayton raised the question whether, in view of the Presisage to Congress today recommending an overall anti-inflation PtOgra,:ta 'it would be undesirable to issue a joint statement of the type 1561 11/17/47 -5- Proposed. In the discussion that followed it was pointed out that the statement had been prepared as a part of the program discussed by the Federa-1 Open Market Committee at its meeting on October 6 and 7, that its i -ssuance at this time might well be interpreted as reinforcing and 141P1ement4 _ -Lug the President's message, and that therefore steps should be "cliten to reach agreement on it. Chairman Eccles said that the statement must be approved by the Treasury Department as well as the qbar agencies mentioned before it could be released. Following the discussion, it was understood that Mr. Clayton would revise the statement in the light of changes suggested during the meeting and that he would discuss it with a representative of the Treasury Department before reviewing it with the executive committee of the National Association of Supervisors of State Banks on November 21. Chairman Eccles stated that in accordance with the action taken bY tile -°ard on October 31, 1947, he sent letters to Mr. Clark, Attorney Gsrler all Mr. Delano, Comptroller of the Currency, and Mr. Harl, Chair4'n of „ he Federal Deposit Insurance Corporation) advising that the tioa.rd had directed that an investigation be made to determine whether it Eh Ilia 'esue a complaint against the Transamerica group under the Provls. 1(1ns of the Clayton Antitrust Act. He also said that Mr. Delano 4/44Ed .4.e'ting that there were pending in his office applications for PProval ' of the conversion of banks which had been acquired by the Tta4s4 merioa interests into branches of Bank of America National Trust 1562 11/17/47 and the —6— Savings Association and the First National Bank of Portland, that aPPlications had already received considerable study and it was hoped to give a reasonably prompt reply to the applicants, but that the action of the Board in directing the investigation above referred t° /4°111d be a factor which would require serious consideration in conIlecticsn with the applications, and that it would be appreciated if the " 13 could give some idea as to when it would make its decision whether to _ '''‘,art the proceeding against Transamerica. Chairman Eccles added that, "e proposed to adviseMr. Delano that the Board could not state at thi s time when a decision could be made but that it was expected that the information necessary to a decision would be developed within the tlext two or three months and that it was hoped that in the meantilt* the Comptroller of the Currency would defer any action approving elaications for the establishment of branches by the Transamerica grollp. The other members of the Board indicated that such a reply Ircilld be acceptable to them. Mr. Clayton stated that Mr. Leonard received a telephone call *°/la the Federal Deposit Insurance Corporation this afternoon stating that r ePresentatives of the General Accounting Office had requested aceess t reports of examination of five State member banks in connection lqth it 8 current review of Federal Deposit Insurance Qorporation operaHe referred to the fact that in a letter to the Federal Deposit 1414— c'nee Corporation on February 4, 1947, the Board authorized the C°rPor ti —°11. to make available to a representative of the General Accounting 1563 4/17/47 -7- Cffice, under the same terms and conditions as it did with respect to the reports of examination of insured nonmember banks, reports of ex"4.ti°n of the State member banks included in the list forwarded with it8 letter of January 10, 1947. Mr. Clayton added that Comptroller of the Currency Delano recently discussed with him the question of making such reports available to the General Accounting Office, that Mr. belAy. -40 felt that the ' examination of banks was a professional function 441 the General Accounting Office could not determine by looking at report s of examination whether the Federal Deposit Insurance Corporat °1/ Igas operating efficiently, that it was undesirable to permit acto the reports, and that in response to a similar request the CITice of the Comptroller had refused to make available to the General 4ecc)uriting Office reports of examination of other than closed national batik B. In a discussion of the matter Mr. Leonard said that the Federal tsPosi t Insurance Corporation was willing to make reports of examination of On 'rel ' ating insured nonmember banks available. tives Chairman Eccles suggested that Mr. Leonard advise the representaof the General Accounting Office that if the five reports were de- all a supplement to the other reports in connection with the same renew of operations, there would be no objection to giving access to theta 04 the same basis as other reports were made available earlier in the rear, but that if they were desired in connection with a new review Of ()per ati°ns of the Federal Deposit Insurance Corporation by the Gen- Office, and if the procedure was to be a continuing one, 1.564 11/17/47 -8- the Board would want to consider the matter further, as it did not want to establish a precedent of making the reports available as a matter of course. Upon motion by Mr. Vardaman, Chairman Eccles' suggestion was approved unanimously. At this point Messrs. Smead, Thomas, Vest, Leonard, Horbett, Isullg) Solomon, and Hackley withdrew and the action stated with resPect to each of the matters hereinafter set forth was taken by the Board: Minutes of actions taken by the Board of Governors of the Nero 4- Reserve System on November 14, 1947, were approved unanimously. Memorandum dated November 17, 1947, from Mr. Thomas, Director °I the Division of Research and Statistics, recommending the reemploy- niet Of Miss Vilellyn Morelle (Mrs. L. Jay Atkinson), an economist 14 that Division, effective as of November 17) 1947, with no change her Previous basic salary of $3,522.60 per annum. The memorandum stated t 1947, and t Miss Morelle had been on maternity leave since May 19, that she was a member of the Federal Reserve retirement Nrstex. Approved unanimously. Memorandum dated November 4, 1947, from Messrs. Thomas and 4°1111 'Director and Assistant Director, respectively, of the Division (It Research and Statistics, recommending, for the reasons stated in the taill°randuza, that the Board conduct a one-time national survey, 1.565 11/17/47 cooperation with the Federal Reserve Ba titan --ce company credit operations. /4 of the volume of sales
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