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Pederai Miniltes of actions taken by the Board of Governors of the Reserve s.yetem on Tuesday, November 23 1948. The Board wae Board Room PRESEUT : Mr. Mr. Mr. Mr, Mr. Mr, at 10:30 "inMcCabe, Chairman Eccles Szymczak Draper Evans Vardaman Mr. Mr. Mr. Mr. Mr. Mr. Mr, Mr, Mr. Mr* Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Riefler, Assistant to the Chairman Smead„ Director of the Division of Bank Operations Thomas, Director of the Division of Research and Statistics Vest, General Counsel Young, Associate Director of the Di— vision of Research and Statistics Leonard, Associate Director of the Division of Bank Operations Horbett, Assistant Director of the Division of Bank Operations Reference was made to a memorandum from Mr. Smead prepared 14141' date of 101)1} November 222 1948, pursuant to the discussion at the ''' keetg of the Board and the Presidents of the Federal Reserve ri October 5, 1948/ concerning the proposal contained in the letter or Ilit ootober 22, 1947, to the Presidents of all Federal 300t , '44its that member banks having a daily average of more than 4 tteks payable in the territory of another Federal Reserve 11/2348 ...,)... klIk Or branch be reauired either to route such items direct or sort kd list them separately• The memorandum stated that the number of deposit 4414 ing with Federal Reserve Banks a daily average of more the41300 cash items payable in the territory of another Federal Re— eBankor branch declined from 60 in August 1947 to 38 in June 1k3)that assurances had been received from several of the 38 banks tIle wleYliould b egin sending direct in the near future, and that most of the 81111.t.. r7aining cases involved items payable in States which were 21 pet14"11. Federal Reserve districts, particularly in the Chi— Pecieral Reserve kart, Reserve Dist The memorandum recommended that the tleetizie:ncur in the action of the Conference of Presidents at its °' °n October 1, ?Nid 1948, in approving a recommendation from the exIts' Ns t Conference's Committee on Operations that the Bonrd's pro— 4not ,,z.zii ite effectuated, with the understanding (1) that the Fed— would continue their efforts to get member banks dire lite ct in all cases where the volume that the e'srktheectFederal Reserve Banks at least once ay )ear for warrants;(2 i:h respect to the failure of manber banks to route direct 'i they had a. t t,.. daily average of more than 300 items payable in the Of another Federal Reserve Bank or branch; and (3) that %Ilt:4 IleXt reports were received, the Board would again review the n Qt11311 Igith aDit respect to in member I ttt t el:te". There lao::::: to i::::cdh:adw:oo:h: titi - the Federal Reserve Banks outlining the procedure proposed Ilbcrve recommendati°n. 11/23/48 —3_ There was 'Eccles 81101alti a discussion of the memorandum, in the course of suggested that the question whether member banks getle direct-send should not be left optional with them, but that itshe : al rule requiring such procedure eventually should be estab- 'and that individual exceptions be made in any instance in ered that it would be undesirable to require a bank to coy. " LuPly. a e 8180 suggested that the Federal Reserve Banks be reCIlle te to report at progress being intervals of approximately three months as to cash made in getting the remaining banks to direct— ite„, and that they be informed that the Board would ex- th ' It Idthi„ '11*t41 'there t‘4 Year the Reserve Banks should be able to determine __ wel-e any cases in which exceptions should be made to Pr°Pcsal. UPon motion by Mr. Draper, Mr. 14cles t suggestions were approved 1Tan .mously, 1 with the understanding ' ,flat Mr. Smend would revise the raft letter to the Presidents of the Federal Reserve Banks along the 1Illes indicated in the discussion. 17, 1941:hell presented a memorandum from Mr. Vest dated November Stating tha t the l ed the Economic Cooperation Administration had Tr.easury that it desired to establish a procedure where4e tact" :, ltles of 441It the Federal Reserve Bank of New York, as Fiscal °f* th 'tta dr Iqt1 tirlited States, would be utilized in the payment of °fl the Economic Cooperation Administration by partici- 01111Ltrtes, and that in response to a letter from the Treasury 4 0: 11/2348 -4- the Federal Reserve Bank of New York had suggested that, in view or the k'ssibility that the arrangement might deprive commercial banks °tbusiness which they currently performing for the Economic Coweropti Administration in making payments under letters of credit, the services the Reserve Bank would perform be limited to paying 4aftsdrawn in the United States to the order of domestic suppliers. Mr. Vardaman stated that he had requested that the memorandum h circulated 1Ong the members of the Board prior to consideration 4t 4 teeting because it appeared to him that this was another in- qkee Which a Government agency was proposing to encroach on 1)1‘111qe bUsiness, that he was opposed to such encroachment, and that qr°/1glY favorPd the suggestion made by the New York Bank that its 4riiice8 be limited in such a way as to avoid as much as possible 4titiori with commercial banks. I/1 a sto discussion of the matter, Mr. Vardaman said that he under- 11 40 h that e Was called for by the Board at this time, but l'ranted the record to show his objection to any arrangement //c11-1d en croach on the proper activities of commercial banks. Rel'erence was then made to a memorandum from Mr. Leonard dated 41141„ 5, a.r1,44e l94, With respect to a suggestion by Mr. Vardaman that aillts be made whereby representatives of Reserve Banks, on a "ive basts ) representatives of the DiviParticipate with (1 84111t Operations in the field surveys which the Division makes 1 11/2348 -5(Itvari°u3 °Perations of Reserve Banks. The memorandum stated that t1113r°Posal should be adopted if satisfactory arrangements could be (1.cle with the Reserve Banks and it suggested that the matter be taken iliformally with the Chairman of the Presidents' Conference's Corn, tte 011 Operations to determine whether such arrangements could be : Mr Vardaman stated that he felt such arrangements would be berlefieta Ittlid 47I to the Reserve Banks in that representatives from one Bank eNt:, oPPortunity to get the benefit of observations of op— in other Reserve Banks. Sinead stated that he concurred in the suggestion. Following a discussion, upon motion by Mr. Vardaman,, h pro— cedure proposed in the memorandum was approved unanimously. iler°re this me, .ti11p. there had been sent to each member of the vttl reac°Pli of a Memorandum dated November 9/ 1948, from Mr. Smead IlesPeeet to larger additions to the contingent reserves of Fed— 194, 1*'4'sr BarIke which was discussed at the meeting on October 27, The rtiA,, ti,4 -aorandtun a stated that, in view of present market condi— ailci ti) t4 the Policy of the Federal Reserve System with respect 9Port of the Government bond market, it would not seem un— NItt f°1* the Federal Reserve Banks to build up promptly their Nilaxa re8erve5 to a Point equal to the premium account, that °4 Cl°"I'llmrant securities held by the Federal Reserve 11/23/4 8 —0— kits on November 3/ 1948, amounted to $83,863,0001 that ,9t the end (If 1948 reserves for contingencies (assuming $15 million would be added to such reserves from the last Quarter earnings of this year) 'c'tlicitotaa $58 million, and that if additions to contingent reserves l'tere continued at the rate of $15 million a quarter the total of 811ch reserves at the end of June 1949 would exceed the present pre1111111 On securities. ditions Stead. With respect to the question whether such ad- should be placed in the surplus accounts of the Reserve Banks °f being 44ted that 4 carried as reserves for contingencies, the memorandum further increase in surplus would necessitate reducing Ill'419° Per cent t4t if that ratiothe portion of net earnings payable to the Treasury, b1e were reduced it would no doubt occasion considere°111naeht in the financial press, and that for the present it would 4" best t„ t110 continue the practice of adding such amounts as are tight desirable to reserves. contingent 1114' Eccles stated that at the meeting with the Presldents on °t(lber 5, 1948, there waS a strong feeling in favor of increasing t,h11/1tthheld by the Federal Reserve Banks before making the v%ellt to the that he felt the reserve should be brought TreasurY1 exIount of the premium on Government securities as quickly le, that the premium on securities purchased by the System 14r.gelY from the fact that the Treasury was unwilling to cihe the short-term rate to advance as it should do in a period of emLrld for credit which caused the intermediate issues to sell 1N4 —74t a higher premium, and that as long as the System was under obli— ga'ti011 to Purchase such issues it should be in a position to offset tile Preziums paid. He suggested, therefore, that there be withheld tr°tReserve Bank earnings during the last quarter of 1948 an amount silf"cient to bring contingent reserves to the amount of premiums 41 Reserve SYs tem holdIngs of Government bonds and that the reserve be tl‘1148terred to 10trin. _ 0 58. There Was eNrs surplus unless there was a valid reason for not a discussion of Mr. Eccles' proposals, in the e °fWhich it was suggested that the matter be discussed with Prew,e 4-Q nts at their 1941, joint meeting with the Board on December 1, the (1141ag which the Board would again consider the matter. This suggestion was approved unanimoui i. Mr. Vardaman referredto a memorandum dated October 19, 1948, various 44a1 aspects Reserve Bank of st. the 9) 1948. of action the official personnel problem at the Louis prepared by Mr. Morrill in accord— taken at the meeting of the Board on September Copies of the memorandum were sent to each member of the at of October 25, 1948. Mr, vardaman. the stated that there had been numerous discussions officer personnel of the St. Louis Bank at meetings of the e'v r' the past two that Mr. Morrill's memorandum had b'.4Npareci. years' as a result of a suggestion which he (Mr. Vardaman) , 4 A 11/2348 -8-de) and the that he felt that action taken by the Board in calling to attention of the Chairman of the St. Louis Bank the need for s°1714g the problems With respect to the officer personnel would strengthen the hands of the Chairman and President of the Bank in bt'illgitig about changes which they had recognized were needed. 14 this connection Chairman McCabe stated that although he had talked with Mr. to Davis, President of the St. Louis Bank, pursuant the on June 25, 1948, he had not been able touncierstanding at the meeting talk with Chairnan DearmcInt but had written him asking that e was in Washingt on at of the forthcoming Chairmen's the time eclireretce he take such he time as might be necessary for discussion of etitire officer personnel at the Bank. Following a discussion, it was agreed unanimously that Chairman McCabe should discuss the matter with Mr. Dearmont when he was in '1,1!.shingt0n at the time of the next '14irmen's Conference. In taking this action, it was understood that Cha-irman McCabe would use his judgment as to whether a copy of Mr. 14°111111's memorandum should be fur, 11811ed to Mr. Dearmont before or at he time of the discussion. 8efort s meeting a copy of a memorandum from Mr. Thomas NOV elzbet. t1Q1, 2 te.zea '1948) entLtled "Considerations Regarding Further La P. A, --8ervp ,Lequirements" was sent to each member of the LL Eccles, Nviel,red suggestion the Secretary read the memorandum, the . utisic economic situation and outlined prospective 4/23/48 -94'"°Pments -4ring the remainder of this year, during the first two or three weeks of January 1949, and during the period from then unthe end of the fiscal year. The memorandum also discussed the 4:"°ra.11 increase in reserve requirements and suggested alterna-ivi procedures with respect to the timing of an increase in require411" Buell action Should be taken. tliatth Ine°11n ction with a statement contained in the memorandum tore : TreasurY would continue during the remainder of this year 4"ilis at the rate of $100 million a week while maintaining t4,381 : 4Ce8 at the Nt4 Federal Reserve Banks, Mr. Vardaman asked whether g'estiolck had been discussed with the Treasury. Mr. Thomas °ftl.4e , tlit Tr he talked with Mr. Bartelt, Fiscal Assistant Secretary 4tt)lis 78u17) 14110 stated that while no commitment would be made to, trle 'the Probabilities were that the Treasury would continue 44 its balances for retiring bills during the remainder of this There was a general discussion of the memorandum, and it was the consensus that 110 action with respect to a change in reye requirements should be taken at this r'lle, but that the matter should be given Burtner consideration at a meeting of the °ard on Friday, December 3, 1948. Nrin 14 1,e_ g the d iscussion of the question of a possible increase 44 2eN re . t1141, g' llrements, reference was made to a memorandum dated 19, 19 sent to Chairman McCabe by Mr. Burgess, member of 1969 11/23/48 the —10— Federal Advisory Council from the Second Federal Reserve District, °11t4tling a Ike read an proposal for a capital goods committee. The memorandum d it was agreed that a copy should be sent to each mem— the Board for consideration. ClUdrtan McCabe reported that he had received a call from Mr. 11-8e' Chairman of the Council of Economic Advisers, in which he had 2tqed that the President had asked him to serve as coordinator of ProPosale am suggestions in connection with the economic problems t4ethg the GovernmentthEtt he Mr• Nourse stated, Chairman McCabe said, %/as C411ing a Zo of a small group tomorrow afternoon to over meeting the Ina tter and would like to have him (Chairman McCabe) atttid* Re added that parentl:x:::dmeoevteirn: 44*1' orleettngs that wcooun 1N-range taa tters. At t%44rcl, 11‘t11 this polic:ou pI rd Isdbe: : : : roee in fp cie urr rsi rto e:: : ::y— oblems as distinguished Point Messrs. Riefler, Smead, Thomas, Vest, Young, ahd Horbett withdrew from the meeting and the action stated l'eaPeet to each Of the matters hereinafter referred to was the Boc,rd: 14h, Ute erve of actions taken by the Board of Governors of the Fed- 48tem on November 22, 1948, were approved unanimously. Telegrni to Mr. Ileae Purrington, Assistant Vice President of the rile Bank of Chicago, reading as follows: 1970 11/23/ -11HR1 lath. Board authorizes your Bank not to.asIlii 8 Penalty incurred by Merchants National Bank, Chicago, Now,11, °18, for ' 111°er 4 anddeficient reserves during periods ending 11." Approved unanimously. couli Memorandum dated November 22, 1948, from Mr. Vest, General recommending, for the reasons stated in the memorandum, be authorized to serve as an advisory member of the Legal S4e°rIlraittee of tile presidet : e Po si t nted by the Chairman of the Insurance Committee 'Qat A. Conference to study the revision of the Loss ent of the Federal Reserve Banks. Approved unanimously.
@FedFRASER