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1731 A meeting of the Board of Governors of the Federal Reserve Systera was held in Washington on Wednesday, November 24, 1943, at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Evans Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Dreibelbis, General Attorney Mr. Leonard, Director of the Division of Personnel Administration Mr. Vest, Assistant General Attorney Mr. Thomas, Assistant Director of the Division of Research and Statistics Mr. Hammond, Chief of the Correspondence and Publications Section of the Secretary's Office Messrs. Gardner and Knapp, Senior Economists, Mr. Triffin, Associate Economist, and Miss Wooster, Junior Economist, in the Division of Research and Statistics Messrs. Hammond and Triffin reported on their recent trip to cerof the South American countries and reviewed in particular the work clorie during their two months stay in Paraguay in connection with the new rtic3tietarlor and banking laws of that country. At the conclusion of their altements the members of the Board commended Messrs. Hammond and Triffin r°1 'their interesting and well organized reports, which indicated that hev '"ad rendered a very valuable service, particularly to Paraguay, and to 'fle relationships of the System with the foreign central banks which thel, L ' "ad visited, and had established a basis for correspondence, exchange 1'1:,43.42 11/24/43 -2- (Istatistical and other information, and contacts which in the future Should be extremely valuable to the System. Thereupon the meeting recessed and reconvened at 2:30 p.m. with the same attendance as at the morning session except that Messrs. Vest, ammond, Gardner, Knapp, and Triffin and Miss Wooster were not present "Mr. Smead, Chief of the Division of Bank Operations, was in attend- Reference was made to a memorandum submitted by the Division of Research and Statistics under date of November 15, 1943, recommending the temporary appointment of Mr. Alexander Gerschenkron, a citizen of Germ --anY, to assist in the work being done for the State Department on international financial conditions in preparation for the peace conference. The memorandum stated that the recommendation had been delayed it could be ascertained whether an American citizen could be found to do the work or whether Mr. Gerschenkron was the best noncitizen avail- able, but that no one else had been found with the necessary qualifications. In connection with the consideration of this case, reference was a18° made to the suggestion made by Mr. Thomas in a memorandum dated (3ctob , -' 47, 1943, to Mr. Leonard that Mr. Bruno Foa, a citizen of Italy, be e_ aiPloyed on a temporary basis to assist in the same work. Mr. Szymczak stated that he had asked that these cases be conqllered by the Board for the reason that Messrs. Gerschenkron and Foa Were not citizens of the United States. He also said that Messrs. Rabe— suer and Ellis, who had been engaged to work on the State Department 1Thc'iect, were very much in need of the assistance that Messrs. Gerschenkron 173:3 11/24/43 and Poa were qualified to give, and that, if the work were to be done " if the Federal Bureau of Investigation reports that would be reclAested were satisfactory, it would appear that the Board should give se .... ricus consideration to their employment. In the discussion which ensued it was stated that Mr. Thomas "others on the Board's staff were meeting weekly with representatives of the State Department in connection with the studies being made ill Preparation for the peace conference, that responsible officials in the State Department were in charge of the work of the Department in this connection and were relying definitely on the studies being made bithe Board's staff in the financial field. Mr. McKee inquired as to the status of the work on the Military °1rernment Handbook, and Mr. Thomas stated that, while that work was ilearing completion, only one or two men who had worked on that project Wollid be considered for work on the material being prepared for the State Department. At the conclusion of the discussion, there was unanimous agreement that in engaging the necessary temporary staff for the State Department studies the Board should adhere to a policy of employing citizens of the United States whenever possible but that, if qualified citizens could not be found and noncitizens with the required ability, training, and experience to do the work were available, they might be employed, on condition in each case (1) that the Federal Bureau of Investigation report was satisfactory and (2) that satisfactory evidence of a bona fide intention to become a citizen of the United States was present. In connection with the possible employment of Mr. Foa, Mr. Thomas 1734 11/24/43 -4- etated that Mr. Foats salary in the Office of the Coordinator for Inter"Can Affairs was at the rate of $6,500 per annum and that it was not ilicelY that the Board would be able to obtain his services at a basic salarY of less than $5,600 per annum. It was suggested that if he were employed he should not be Paid more than that amount, having in mind the salaries which would be paid to other temporary and permanent emPl03/'ees in the Division. Following the discussion of the two cases referred to above, there was presented a memorandum addressed to the Board by Mr. Thomas tulder date of November 13, 1943, recommending the employment for a pe11°d of not to exceed three months of Mr. Horst Mendershausen (whose ap plication to become a citizen of the United States is pending), with basic salary at the rate of $4,000 per annum, to assist in work in the D°111estic Business Conditions Section of the Division of Research and 4ati8tic8 on certain technical research projects in the field of index r114aber co nstruction. gllirsd the It aoneared that Mr. Mendershausen had the re- qualifications and that the only question was whether, in view of fact that he was not a citizen, he should be engaged even on a tem- P°rarY bas's 1 in connection with the regular work of the Board. It was agreed that this case should be decided on the basis of the policy decided Upon earlier in this meeting with respect to the employment of noncitizens. In connection with the recommendation with respect to Mr. Mendershab -sen, Mr. Leonard had raised the question in a separate memoran(11141 dated November 22, 1943, whether, in view of the fact that Mr. 1735 11/24/43 _5_ ilenclershausen would not be engaged on confidential work, it would be necessary to require the usual Federal Bureau of Investigation report 011noncitizens, and the members of the Board expressed the opinion that if hi° employment were approved such an investigation should be made. Thereupon the files with respect to Messrs. Gerschenkron, Foa, and Mendershausen were referred to the Personnel Committee for further consideration and recommendation to the Board in the light of the discussions at this meeting. Mr. Ransom referred to the letter approved by the Board on No12, 1943, to Admiral Land, Chairman of the United States Mari- lier Commission, in reply to a letter from Mr. Anderson, Director of -°xlee for the Commission, with respect to salary and dividend payments °It borrowers on Regulation V loans guaranteed by the Commission, and d that his attention had just been called to a draft of a second lette r which he understood was to supersede the first letter and which he.c1 b een written at the request of Kr. Anderson,who felt that the first letter would meet with decidedly unfavorable reaction within the Com14:1"i°n. Mr. Ransom said that, while he had felt that the position take) ,. '4 in the first letter might be the cause of some difficulty, he was not ih fundamental disagreement with the position taken therein and had ' lied it for that reason, and that, although he had no material objec, 'ion to the contents of the second letter, he did not believe the toaa , *could be Placed in the position of sending the letter in response to n ' request of the member of the staff of the Maritime Commission who had no, u submitted the first letter to the Commission. 1736 W24/43 -6- Mr. McKee stated that members of the staff of the Commission had diacussed the matter at some length with Mr. Smead, that the second draft was prepared with the hope that it might be the means of avoiding difficulties with the Commission, that it would be made clear in the Ord that the first letter had not been recalled by the Board, and that the second letter was written to take the place of the first at the r gest of Mr. Anderson. Mr. McKee also said that the second letter did 11(3t change the policy set forth in the first letter, and if the Commisaic't1 should take the position that the second letter was not responsive to the co 'ssion's original request reference could be made to the first letter as stating the Board's position. The draft of second letter to the Commission was as follows: "Since receipt of Mr. Anderson's letter of October 30, 1943, addressed to the Acting Administrator, War Loans Committee) With respect to salary and dividend payments of borrowers 211 Regulation V loans guaranteed by the Maritime Commission, re matter has been considered by the members of our War Loans k;ommittee and by the Board of Governors. "As you are aware, it has always been the practice of the Federal Reserve Banks to analyze carefully each application for a Regulation V guaranteed loan. Careful consideration is given to the condition of the aoplicant, the quality of its Tanagement, its prospects of successfully performing the con..racts financed, and of paying off borrowings under guaranteed J:oans. In this connection, the Federal Reserve Banks have rrom time to time made recommendations with respect to both salary and dividend payments. Where salaries appeared to be ccessive in relation to the character and volume of business ;1°11e, recommendations have been made with respect to their tlmitation or subordination to the loan. Likewise, in cer'ain cases recommendations have been made that a guarantee be authorized on condition that no dividends be paid by the borrower, or that dividends be limited to specified amounts, `411ring the life of the loan. Furthermore, guarantee agreements contain the standard conditions adopted by the Maritime T 1737 11/24/43 -7"Commission on May 14, 1943, and forwarded by us to the Federal Reserve Banks, the first two of which read as follows: '1. The borrower shall pay no dividends unless the same are approved by the financing institution. '2. Present executive officers' salaries, fees, bonipes, commissions, etc. are deemed to be reasonable by the financing institution and shall not be increased.' "After a thorough review of this matter, the Board's War Loans Committee and the Board itself feel that the present procedure followed by financing institutions and the Federal Reserve Banks is adequate from a credit standpoint and in substance accomplishes what the Commission has in mind. Accordingly, we are writing a letter to the Federal Reserve Banks again calling their attention to the necessity of Frefully scrutinizing salaries, particularly those in the higher brackets, and dividend payments in acting upon or Tkaing recommendations with respect to Regulation V loans to be guaranteed on behalf of the Maritime Commission. A copy of the Board's letter to the Federal Reserve Banks is enclosed." After discussion, Mr. McKee moved that Mr. Smead be authorized to advise Ir. Anderson that the Board had considered the matter and was of the opinion that the second letter should not be sent, it being understood, however, that if the Maritime Commission should have any objection or question in connection With the first letter the Board, at the request of the Commission, would be willing to send a letter to the Federal Reserve Banks along the lines of the draft accompanying the second letter set forth above. This motion was put by the chair and carried unanimously. Before this meeting the attention of the members of the Board had been. called to a draft of the title page and introduction of a new book bY Mr. Hansen, Special Economic Adviser in the Division of Research and 8t8.t18tic5, on the subject "State and Local Finance in the National Econor , The title page stated that Mr. Hansen was Littauer Professor Of p . olitical Economy at Harvard University and Special Economic Adviser 1738 11/24/43 -8- to the Board of Governors of the Federal Reserve System, and that the coauthor of the book was Ir. Harvey S. Perloff, formerly an economist with the Board of Governors of the Federal Reserve System. The introduction contained a statement that Mr. Hansen was deeply indebted to the Board for Placing at his disposal the efficient services of its library and its ample research resources and that the authors assumed full responsi14144 for the opinions expressed in the book and for errors which might have i • nadvertently escaped their attention. It appeared that Mr. Hansen had discussed with the individual members of the Board the question Whether his connection with the System should be shown on the title page, 44d that the members of the Board had taken various positions regarding the matter. The matter was discussed on the basis of what the policy of the Ik)ard Should be with respect to nersons in the service of the Federal Reserve System showing their connection with the System in published books and articles written by them. At the conclusion of the discussion Mr. McKee moved that 'Ir. Hansen be advised that it was the view of the Board that his connection with the Board should be deleted from his forthcoming book. This motion was put by the chair and lost, Mr. McKee voting "aye" and the other members voting "no". Thereupon Mr. Ransom moved that Mr. Hansen be advised that the Board had considered the matter of his connection with the System being shown in his book and was favorable to his giving credit to the Board as proposed in the introduction to the book and to his identifying himself as being a Special Economic Adviser on the Board's staff. . This motion was put by the chair and carried, Hr. McKee voting "no." 1739 11/24/43 —9— At this point Messrs. Thurston, Smead, Dreibelbis, Leonard, and Thomaswithdrew from the meeting, and the action stated with respect to each of the matters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the Federal Reserve System held on November 23, 1943, were approved unanimously. Memorandum dated November 20, 1943, from Mr. Thomas, Assistant Director of the Division of Research and Statistics, recommending, with the c oncurrence of the Secretary's Office, that Mrs. Vera N. Sherrill, a Page in the Secretary's Office, be transferred to the Division of Research and Statistics as a library aid, with no change in either the tat "of her appointment on a temporary indefinite basis or her present basic salary at the rate of 81,440 per annum, effective December 1, 1943. Approved unanimously. Letter to the Presidents of all the Federal Reserve Banks readas follows: "SinceMarch 31, 1943 weekly reporting member banks in New York City have been reporting separately loans to brokers salers for the purnose of purchasing or carrying United States Government obligations. In accordance with a request of the Treasury, it has been decided to ask all weekly reporting member banks to report separately the amounts of loans for the purpose of rAirchasing or carrying United States Government tively.)l) c ligations made to brokers and dealers and to others, respecThe weekly report form (F. R. 416) has been revised accordingly, and a copy thereof is enclosed. Reports on the revised form should be obtained beginning Wednesday, January 51 1944. In order that the renorting banks may have time to 112ake the necessary arrangements to compile the additional information, it is suggested that they be given advance notice of the change being made in the form of weekly report. No corresponding change in th., form of call report is being contemPlated. "The definitions of items 5 and 6 of Schedule A of the call report, contained in the general instructions governing 1_740 11/24/43 11 /24/43 -10- ".the preparation of such reiDorts, should be used as a guide in determining what loans should be re.)orted against items 1-b(1), 1-b(2), 1-c(1), and 1-c(2) of the revised weekly rePort. The determination whether or not a given secured or unsecured loan was made for the nurpose of purchasing or carrying United States Government obligations may be made on the basis of such information as the reporting bank has available. If information is not available as to the purpose of a loan secured by such obligations, the loan may be pre!limed to be (1) 'commercial, industrial, and agricultural' lf the borrower is a business enterprise or a farmer, and ) for the purpose of purchasing or carrying the securities, /1. borrower is not a business enterprise, a farmer, or a 102 , c. c Approved unanimously. Thereupon the meeting adjourned. Secretary. APpro Chairman.
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