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2202 A meeting of the Board of Governors of the Federal Reserve SYstem Was held in Washington on Friday, November 20, 1942, at 10:30 PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Dreibelbis, General Attorney Mr. Thomas, Assistant Director of the Division of Research and Statistics Mr. Piser, Chief of the Government Securities Section, Division of Research and Statistics There were presented telegrams to Mr. Treiber, Secretary of the pedera 1 Reserve Bank of New York, Mr. Davis, Vice President of the Pecleral Reserve Bank of Philadelphia, Mr. Hays, Secretary of the Fed- Reserve Bank of Cleveland, Mr. Olson, Assistant Secretary of the Pecieral Reserve Bank of Chicago, Mr. Caldwell, Chairman of the Feder41 Reserve Bank of Kansas City, Mr. Gilbert, President of the Federal 11e8erve 138.nk of Dallas, and Mr. Hale, Secretary of the Federal Reserve 1/'1111t nf 0 oan Francisco, stating that the Board approves the establishttlent without change by the Federal Reserve Bank of San Francisco on Noveraber 17, and by the Federal Reserve Banks of New York, Philadel- 1:)4s) Cleveland, Chicago, Kansas City, Dallas, and San Francisco on 2203 11/20/42 -2- November 19, 1942, of the rates of discount and purchase in their existing schedules. Approved unanimously. Ur. Draper stated that, while he realized there were many Other matters pressing for attention at this time and that the present ntight not be regarded as the most appropriate time for suggesting that 4 study be made of means that might be adopted to bring about further 314PrtIlements in the banking system, he felt the Board should be preto take definite action when the proper time came, and that in order 60 give the matter definite direction he would like to move that mmittee, consisting of the Chairman, the Vice Chairman, and Mr. 82371ftlezak, be appointed to formulate a plan whereby nonmember banks litiNght be brought into or affiliated with the Federal Reserve System 641 to report their findings to the Board at the earliest possible dat together with a recommended outline of procedure. In the disel l°11 which ensued, it was pointed out that action along the lines e°11temPlated in the motion would require legislation by Congress or an leoutive Order by the President. Chairman Eccles said that plans had been drafted from time to tule 14 the past, and he referred to the discussions which he had had the President, the Director of the Budget, and others in that con- °11. Mr. Szymczak referred to the Board's Annual Report for 1938, and 0 the System's special report to the Congress dated December 31, Chairman Eccles observed that none of these efforts seemed to 11/20/42 11110:Z11.1 Produce any results. The consensus of the discussion was general agree- nient with Mr. Draper's objective but that there appeared to be no way °Pen at this time to obtain the desired result. At the conclusion of the discussion, Mr. Draper said that in 111 " 10f the statements that had been made during the discussion he would 11(11t Press for action on his motion at this time, but that he would like to l'eserve the right to bring up the matter again in the not too distant f141111 ' e because he believed the importance of the subject warranted the Iliecl°111 of this request. Since the meeting of the Board on November 11, 1942, at which refer -"ce Was made to the proposed joint statement to be issued by the 80ard 2 the Comptroller of the Currency, and the Federal Deposit Insurance vorporation of their examination and supervisory policies with 8Pet4-% ' ' 14- reference to investments in, and loans on, Government securities, there had been further discussions of the statement by members of the Board and its staff. During an informal discussion yesterday afternoon, Parti • 4-c1Pated in by all the members of the board except Mr. Evans who 174 ausent from Washington, Mr. Clayton stated that at the executive %et °r1 of the National Association of Supervisors of State Banks held t4 Phil. ddelphia on November 17, 1942, a resolution was adopted (1) pledg- 4the cooperation of the Association to the Treasury in its program Of rp -reasurY financing and (2) directing the executive committee to conVey , '40 the Secretary of the Treasury the Association's offer of assistand thereafter to confer at the earliest opportunity with repre4ent L. t4 4-lves of the Board, the Federal Deposit Insurance Corporation, and Comptroller of the Currency with the object of formulating principles 2205 11/20/42 tO -4- be applied by supervisory authorities to investment by banking irwtitutions in Government obligations during the war and post-war rec(xistruction period. Mr. Clayton also reported that, in accordance Nith the resolution, the executive committee of the Association had a'clls arrangements to Come to Washington on Sunday, November 22, for the Purpose of conferring with the Federal bank supervisory agencies. ill these circumstances, it was felt that some decision should be made hYthe Treasury with respect to the joint statement, and it was understood that Chairman Eccles would call Under Secretary of the Treasury Bell and impress upon him the desirability of the Federal agencies and the 4.reasury reaching an agreement on a statement to be submitted to the e xecutive committee of the National Association of Supervisors of State Banks. At this meeting, Chairman Eccles stated that, in accordance With the informal understanding reached by members of the Board yesterhe called Mr. Bell this morning and, after reading to him the reso- lilticm adopted by the National Association of Supervisors of State Banks, 44ted that unless the Federal agencies and the Treasury could agree 111:1°11 a statement to be submitted to the executive committee of the Assoel4ti°n there was no point in meeting with the committee. Chairman Eccles also said that he discussed with Mr. Bell the question whether there was any need for a statement at this time, and that Mr. Bell coneill'Ited in the opinion that such a statement should be made and inquired 1711"41er the Board had something specific to submit. 4cked Chairman Eccles that his response to Mr. Bell was that something would be prepared 2206 11/20/42 —5— and sent to him today, and that the latter stated that he would try to ' l°41rn it to the Board late this afternoon or this evening. Chairman Eccles made the further statement that during his conversation with Mr. Bell he (Chairman Eccles) related the substance of telePhOrie conversation which he had had yesterday with Mr. Fleming, Qluent of the Federal Reserve Bank of Cleveland, in which the latter stated that bankers in Cleveland and Pittsburgh, who were meeting at the time of the telephone call, felt that they could not sell to the Public in the district the amount of securities that it should take without making available loans by banks for the purpose of pur- ellaeing the securities. Mr. Bell stated, Chairman Eccles said, that question of loans to enable subscribers to purchase Governments had ' 430 been raised by the Federal Reserve Bank of Boston. There was a further discussion of the proposed joint statement, the 1-aght of changes which had been suggested since the meeting of the 130— ' 3rd on November 11, and it was changed to read as follows: "The Comptroller of the Currency, the Federal Deposit Ins urance Corporation, the Board of Governors of the Federal Reserve System, and the Executive Committee of the National t_s8ociation of Supervisors of State Banks make the follow'ng statement of their examination and supervisory policy With special reference to investments in and loans upon GovSecurities. 1. There will be no deterrents in examination or UPervisory policy to investments by banks in Government ecurities of all types, except those securities made specif" 4 .11Y ineligible for bank investment by the terms of their 'esue. l 11/20/42 —6— "2. In connection with Government financing, individual subscribers relying upon anticipated income may Nish to augment their subscriptions by temporary borrowings from banks. Such loans will not be subject to criticism but should 1?e on a short term or amortization basis fully repayable withIn periods not exceeding six months. "3. Banks will not be criticized for utilizing their idle funds as far as possible in making such investments and loans ?lid availing themselves of the privilege of temporarily borrowfrom or selling Treasury bills to the Federal Reserve Banks When necessary to restore their required reserve positions." Thereupon, the statement was approved with the understanding that, if approved by the Comptroller of the Currency and Federal Deposit Insurance Corporation, it would be presented at the meeting with the executive committee of the National Association of Supervisors of State Banks on Sunday, November 22, 1942. On this action Mr. Ransom voted "no". Mr. Morrill raised the question whether the Board's offices Would be closed on Thanksgiving Day, Thursday, November 26, and in that e°1111eoti0n Stated that it had been ascertained that some Federal agencies Wc)11-1-cl be open on that day, that others proposed to close, and that others 71ere arran ging to maintain skeleton forces or to release employees for a llelf day. It was agreed that arrangements should be made for a skeleton force, with the understanding, however, that a decision would later be made on the question Whether it would be necessary to have such a force. At this point, Messrs. Goldenweiser, Dreibelbis, Thomas, and Piae- . ' Wlthdrew from the meeting, and the action stated with respect to each of the matters hereinafter referred to was then taken by the 80ara. The minutes of the meeting of the Board of Governors of the Peder al Reserve System held on November 19, 1942, were approved unani111°144. 2208 11/20/42 -7- Letter to all the Federal Reserve Bank representatives in at tendance at the conference on Regulation V loans held in Washington on October 19-21, 1942, reading as follows: "There is transmitted herewith a copy of the proceed.ngs of the Conference on Regulation V Loans held in Washington, October 19-21, 1942, inclusive. . 'You will note that the record consists of two transcripts, one covering sessions attended only by representatives of the Federal Reserve Banks and the Board of Governors, and the other covering sessions which were also attended by representatives of the War and Navy Departments, U• S. Maritime Commission, and War Production Board. "In view of the relatively large attendance at the Conference, it has not seemed feasible to send preliminary drafts to those who were present for the purpose of giving them an opportunity to revise the comments attributed to them. Therefore, if you should detect any material maccuracy in the record, please call it to our attention so th't an appropriate notation may be made on the copy retained in the Board's files. "A copy of the proceedings (both transcripts) is being sent to each Reserve Bank representative who attended the Conference. However, since some of the Reserve Banks, particularly those with branches, may desire a few additional Copies, a limited supply of extra copies has been prepared and will be made available upon request." 1 Approved unanimousTy, together with the following letter to Colonel John C. Mechem and Lieutenant Colonel Paul Cleveland of the War Department, Mr. Sidney Mitchell of the Navy Department, and Lieutenant B. B. Griffith of the Maritime Commission: "There is transmitted herewith a copy of the proceedings of the Conference on Regulation V Loans of the repre!?ntatives of the Armed Services, the United States Maritime Commission, and the War Production Board with reprentatives of the Federal Reserve Banks and the Board of .irc)vernors and its staff, held in Washington, October 20-21, 4 942, inclusive. ' 2209 11/20/42 -8- "In view of the relatively large attendance at the Conference, it has not seemed feasible to send preliminary drafts to those who were present for the purpose of giving them an opportunity to revise the comments attributed to them. Therefore, if you should detect any material inaccuraOY in the record, please call it to our attention so that lan appropriate notation may be made on the copy retained In the Board's files." Letter to the Presidents of all the Federal Reserve Banks, rsaA 4...L-ug as follows: "The discussions that have been had with the presidents of most of the Federal Reserve Banks with branches relative to the desirability of increasing the powers and functions of the more important branches indicate that in some cases the Banks may wish to have a vice president or other officer of the Federal Reserve Bank in charge of a branch instead of a managing director. In order to make possible such an rrangement the Board has revised its regulations relating o branches of Federal Reserve Banks and a copy of the amendment is enclosed herewith. "The above-mentioned amendment will be incorporated in the regulations relating to branches which will be reprinted for inclusion in the Federal Reserve Loose-Leaf Service." Z Approved unanimously. Letter to the Secretary of the Treasury, reading as follows: ."During the past year the amount of money in circulation has Increased approximately $4 billion, and during recent weeks it has been increasing, at the rate of $500 million a month. This rapid increase in money in circulation has created a serious problem in printing sufficient Federal Reserve notes to supply the demand. It has also reduced sharply the 2111011nt of excess reserves of member banks at a time when these reserves are needed to help finance the war. "There is one way in which this situation can be alleviated which would be highly desirable at this time in view of I e coming large scale financing. At the time of the Bank,2 Holiday in 1933, the Board after consultation with the iSecretary of the Treasury had a substantial volume of Federal tessrve Bank notes printed to meet emergency conditions ex: lating at that time. Approximately $650 million of the 2210 11/20/42 -9, "Federal Reserve Bank notes printed at that time were not Used and are now on hand at the Bureau of Engraving and Printing in Washington and at the Federal Reserve Banks. The use of these notes would greatly ease the currency Printing program; under the procedure proposed it would provide member banks with an additional $650 million of reserves; and would give the Treasury the use without cost to it of that amount of money for the period that the Bank notes would remain outstanding (approximately a year and a half). "In the circumstances the Board favors the immediate Use of these Bank notes. After issuing the Federal Reserve Bank notes to the Federal Reserve Banks in accordance with Treasury regulations, the Treasurer of the United States would be given credit in his General Account on the books Of the Federal Reserve Banks for the full amount of notes issued. The notes would then become a liability of the Treasury instead of the Federal Reserve Banks. There is attached a draft of a wire to the Federal Reserve Banks authorizing them to take immediate steps to place these notes in circulation, which the Board plans to dispatch to the Federal Reserve Banks promptly, if your Department sees 20 objection thereto. There are now about $18 million of rederal Reserve Bank notes in circulation." Approved unanimously, together with the following telegram to the Presidents of all the Federal Reserve Banks, which it was understood would be sent as soon as advice was received that the Treasury had no objection thereto: "Decision has been reached with approval of Treasury to pay °ut present stock of Federal Reserve Bank notes. Board suggests that your Bank obtain from Agent its entire stock of such notes including those held in Washington and that prompt arrangements be made for their use in meeting demands for currency. The notes should be issued to the Bank in accordZ."ce with Treasury regulation dated March 11, 1933, and toard's telegram of March 13, 1933, TRANS 1647, against se, , eurit,,y of United States Government obligations held by your tank in System Open Market account. Immediately thereafter 711kt 8 liability should be extinguished (and collateral with' 4rawn) by crediting United States Treasurer's General Account 2211 _10"with amount of notes issued so that Bank's daily balance Sheet will at no time show liability for Federal Reserve Bank notes. As no Bank notes will be placed in circulation on which Bank has liability, it will not be necessary to establish a redemption fund for Federal Reserve Bank notes or to pay a tax on the amount of such notes in c irculation." Thereupon the meeting adjourned. ecretary.
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