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1759
A meeting of the Board of Governors of the Federal Reserve
SYstern, was held
in Washington on Monday, November 29, 1943, at 2:45
P.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Eccles, Chairman
Ransom, Vice Chairman
Szymczak
McKee
Draper
Evans
Mr. Morrill, Secretary
Mr. Dreibelbis, General Attorney
Chairman Eccles stated that he wished to review the situation
'With respect
to proposed bank holding company legislation. He said
that
On a number of occasions the Board had discussed the activities
c)f the T
ransamerica Corporation, including particularly its expansion
P0
11e7. He referred to the fact that on May 28 the Board had trans"ecl by wire through the Federal Reserve Bank of San Francisco to
the rp„
44an8aMeriCa Corporation a communication raising the question
Whether the
corporation had violated the terms of its agreement with
the n
4Joard of Governors dated April 28, 1937, and to the fact that
allbeequently the Board had authorized its legal and examination dePar'tinent8 to make a
thorough examination and review of the books and
reCorA
'48 of Transamerica Corporation and its affiliates in contemplation
°I' the institution of proceedings looking to the determination of the
clill°n= In that connection, Chairman Eccles said that he understood
that
tine members of the Board had agreed that it would be desirable,
t 'Ana 4.
to obtain legislation dealing with the bank holding company
I760
11/29/43
—2—
Problem without waiting for the outcome of the proposed proceedings
ith respect
to Transamerica Corporation.
These proceedings, however,
even if they resulted in the revocation of the voting permit, would
net in the Chairman's opinion accomplish much in the way of solving
the broad
questions of policy which could only be reached through
legislation.
He said that he had understood that it had been agreed
also that
Mr. McKee and he should develop the legislative program
that Mr. Dreibelbis had been drafting a bill which had been dis—
cussed With Chairman Purcell of the Securities and Exchange Commis—
sion, Chairman
Crowley of the Federal Deposit Insurance Corporation,
4nd Under
Secretary Bell of the Treasury.
Mr. Crowley had agreed to
goalOng With the proposed legislation and it had been discussed with
Sellat°r Wagner, Chairman of the Senate Banking and Currency Committee.
Senator 1.,-„
,iugner, Chairman Eccles said, seemed entirely satisfied that
legislative action should be taken but was naturally hesitant to take
Ste
Ps in that direction unless he knew that the legislation would
be fav
°red by the Administration. Even without this assurance, Chair—
Man
Cles doubted that Senator l'agner would oppose the introduction
°f the legislation if someone else were to offer it. Chairman Eccles
also .
said that Under Secretary Bell had turned the proposed bill over
t° thp
Ireasury legal division and also to the office of the Comptroller
c't the
Currency for consideration, and that Mr. Dreibelbis had talked
With the
Treasury technicians and also with Mr. Purcell and technicians
1761
11/29/43
—3—
of the
Securities and Exchange Commission.
In addition, Chairman
Eccles had discussed it with Under Secretary Bell several times but,
because of the fact
that Secretary Morgenthau had been away a great
deal of the
time and when he was here had been engrossed with Treasury
tax
and financing programs, it had not been possible for Ir. Bell
to discuss
the matter with the Secretary.
Chairman Eccles said that
he had not asked the Treasury to endorse the legislation but merely
t° indicate whether it would interpose any objection in case it did
11°t wish to be
placed in the position of approving the bill, in recognition of the fact that primary responsibility rested with the Board
of
Governors.
The Chairman referred to the fact that some years ago the
TreasurY had taken a position in favor of a death sentence for bank
h°1ding companies, while the bill now under consideration was more in
the
nature of a freezing proposal.
He said he had suggested to Mr.
Bell that the
Treasury might appear in the hearings before the ComMittees
-Ln Congress and present its views in favor of a death sentence,
if that
were still desired by the Treasury, without necessarily opthe Federal Reserve bill.
What
The Chairman went on to say that
he wished to accomplish was to be able to get a clearance from
the n.
'lrector of the Budget after having discussed it with the Treasury
in aarl. .
-`41tion to having obtained the agreement of the Federal Deposit
4
11/29/43
-4-
Illf.mrence Corporation and the Securities and Exchange Commission.
He
said he felt sure
from the conversations which had taken place with the
Securities and Exchange Commission that the latter would offer no objecti°n//a8
After obtaining the clearance of the Director of the Budget it
the
Chairman's thought that the Chairman of the House Banking and
CurrencY Committee and the Chairman of the Senate Banking and Currency
Commit+ee
—
might each introduce the bill and in that way there would,
f course, be a better chance of getting the legislation through.
He
l'el3crted that Under Secretary Bell did not know what the Secretary's
13°8iti0n would
be although he thought that the Secretary might say
that he saw no
reason to change the position which the Administration
had taken
some years ago with respect to bank holding company legislaand that the Treasury might feel that it would be undesirable to
"freeze a
monopoly".
The Chairman referred to the fact that by the
g Act of 1933 Congress had recognized the legality of bank hold14
' companies and had
dealt with them through the voting permit proSo that it was apparent that supervision and regulation of
1141* holding
companies was at that time regarded by Congress as the
EIPPl'oAriate method of dealing with such companies instead of a death
3el benc-.
Bank holding companies had been an element of strength in
14411Y co
mmunities by coming to the aid of their subsidiary banks through
additi
°nal capital funds and otherwise when unit banks without such
1763
11/29/43
—5—
support were failing.
He also referred to the fact that during the
3O's Congress had enacted legislation providing for death sentences
for utility
companies and he attached considerable significance to
the ft
that Congress had not included bank holding companies.
Mr. McKee said that he wished to point out that the legislati°14 in 1933 with respect to bank holding companies followed investi°14.0ns that had been made in Congress growing out of the situation
which had
developed in Detroit in connection with a very large bank
holding company
and the disastrous failures of a number of banks in
kehigan.
Chairman Eccles said that it was no doubt thought at the time
that the legislation then adopted would be adequate to deal with the
"'ation but that experience in the administration of the legislation
bY the
Board of Governors over a period of years had developed its
/reaknesses
and demonstrated its inadequacy to meet a condition such
that
a -which had developed out of the expansion policy of the Trans"
111
ca Corporation and the administration of its affairs by the
Giazia• .
11118. He pointed out that there was apparently nothing in existIng
legislation that prevented such a group from acquiring securities .„
°I all 'types of enterprises, that, in effect, the only restrictiOn
was that if they desired to vote the stock of a subsidiary bank
thpo,
"
1 had to
obtain a voting permit from the Board of Governors, and
that
wa.7s had been found of acquiring and controlling the operations
1764
4/29/43
-6-
Of subsidiary banks
without obtaining such voting permits. Consequently,
the
sanctions provided for in the legislation were wholly inadequate.
Re Pointed out
also that the definition of a bank holding company had
proved to
be inadequate. In addition, he referred to the Investment
Act of 1940 Which exempts from its operations bank holding companies
*Itch are determined to be such by the Board of Governors.
The Chair-
man referred to
the fact that this was an exemption which we had rein
order to avoid a condition of overlapping jurisdiction on
the Part of the Board and the Securities and Exchange Commission but
that it had produced the result that a bank holding company such as
Nnsamerica might not only have investments in banks but also in any
Other type of company and thus escape the jurisdiction of the Securities
atld EX"
'"ange
Commission in its operations outside of the banking field.
The Chairman
reasoned from this that a holding company should be either
1
a bank ,
"aikting company only, subject to the jurisdiction of the Board
°f Gov
ernors, or an investment company only, subject to the jurisdiction
Or the
Securities and Exchange Commission, and that it should not be
PelInitted to
operate in both fields simultaneously.
The Chairman felt that the proposed bill was of such a nature
that
generally speaking Transamerica Corporation was the only one that
•
w°111d be likely
to oppose it and that other bank holding companies
k' not be seriously affected because they had refrained for some
1765
11/29/43
—7—
time from any
expansion to which objection had been made by the superIttr authorities while, on the contrary, Transamerica Corporation
had proceeded
in its own way without any regard to objections from any
solame.
The Chairman felt that a death sentence bill such as had been
Proposed by the
Administration would get nowhere and that, while the
Proposed bill might not succeed, it had a much better chance of legislative enactment. In any
event, he felt that it was the most practical
%ay to
bring the subject before Congress and to obtain hearings so that
the
Board would be in the
position of having done its best to discharge
it8 reePonsibility, and that, if no legislation were enacted or if a
Clifferent
have
form of legislation resulted, the responsibility would then
been assumed by
Congress.
He pointed out that, unless some action
Were tak
en by Congress and if the Gianninis continued their present
Practices, there would seem
to be nothing to prevent them from buying
banks
all over the
country and expanding their operations in every
field of
industrial enterprise while other bank holding companies had
refrained from
such activities in deference to the wishes of the superItirauthorities.
He therefore felt that the Board of Governors had
4
Ile8P0nSibility
to advise Congress as to the situation and to suggest
legislation which the Board would be willing to support.
Mr. McKee
said that his view of the situation was influenced
c°n•aiderations such as those growing out of the fact that in the
tlinth Federal
Reserve District there were two bank holding companies-tW("int groups of banks, each, controlled by a single bank
1766
11/29/43
holding
bank
the
-8-
company--that, if a death sentence were enacted, these two
holding companies would have to liquidate their holdings through
process of selling or collecting their assets or of endeavoring
to
obtain
local ownership of each of the subsidiary banks, that he
found it
impossible to see where the necessary local capital could
be
raised to accomplish this purpose, and that the result would be
that many
smaller communities would be deprived of the banking facilities which they
now had. Even if these smaller communities were not
deprived of
banking facilities, the local institutions which would
hay..
-Lo replace
them would be inadequate to meet the demands of large
borrowers
without assistance from elsewhere. Moreover, the forced
liquida--on
ti
might result in a cry for State-owned banks in Minnesota,
the
D„catotas, and Montana, and Mr. McKee did not believe that anybody
here .ty
°u-"I. want to see socialized banking forced on these communities.
That t .
erritory must have some kind of concentration of bank capital to
Meet
us
requirements and the holding company unit is the only means
that is
now available to them for this purpose.
Until there were somethth
--4g satisfactory
to take its place, a death sentence for bank holding
-tues would
be highly undesirable.
That, however, would not be
trti
.,
111 Utah, Idaho, New
York State, or some other States. Chairman
tecie_
observed that it was less true where there was State-wide branch
baxlkin
g. Mr. McKee also referred to the losses which bank holding
e
1 s had taken in order to preserve local banking situations in
C Oinperr,
11/29/43
-9-
'various States, which
were matters of record.
Mr. Draper raised the question what the Board's position would
be if a sentiment
should develop in Congress in favor of a death sentence instead of
freezing.
Chairman Eccles said that, of course, that
would be the
responsibility of Congress and that the Board might be
called upon to present what reasons it had for its recommendation or
for favoring
or opposing a death sentence, but he did not believe
that
there would be any sentiment in Congress in favor of a death
sentence.
He felt that the proposed bill was adequate although he
l'ec0g/lized the objection that it would freeze an existing situation.
He Pointed out
that Congress recognized bank holding companies in
1933 as
legally constituted organizations and that after 10 years of
°Peration there had been
no growth in the bank holding company picture,
except in
Transamerica, that in fact there were in the aggregate fewer
banking offices
controlled by bank holding companies now than in 1933,
44C1 that
growth had been almost entirely confined to Transamerica.
Uoreover, there had been no new bank holding company organized even
though
Such organizations were permissible. He also expressed the
°Pinion that in
general the other bank holding companies had cooperated
with the
Board.
Mr- Ransom referred to the separation of investment holding
coin,
--1-E-nY operations
from bank holding company operations and asked
Whether ;,
would be possible to deal with the Giannini situation by
11/29/43
-10-
aq7 other means.
Chairman Eccles said he did not think there was any
Other way of
doing so.
Mr. McKee referred to the fact that Mr. A. P.
Giannini had said that he would abide by any laws that were applicable
to everybody to the same extent as to him.
Mr. Ransom said that he would like to start from the premise
that the
Giannini situation needed curbing, that it was out of hand,
and that the
Giannini policy of mixing bank holdings with industrial
and other
holdings and his outlook on banking as a business needed to
be re
stricted. Mr. Ransom was not at all satisfied that when we got
through doing
what we could under our existing authority we would have
accomplished
a great deal.
He referred to the Chairman's suggestion
that it was the general feeling of the Board that there should be
banking legislation before we got through with the proceedings in
connection with the voting permit, and said that he felt there was a
gtiestion of timing and that it was a matter for the exercise of judgment which
ought to be based on a study of the whole problem. Chairman
ecles
commented that Mr. Bell agreed with that point of view.
Mr.
448°1a said that he, of course, would defer his own judgmentto that
of
Chairman Eccles and Mr. McKee but that he had a difficulty with
the bill as
a whole.
He thought it was a very well drawn piece of
legislation and,
disregarding any question as to whether such banking
legislation was properly timed for introduction now, he was most anxious
t° see as wide an expansion as quickly as possible of branch banking
1'769
11/29/43
-11-
across State
lines and said that if that were achieved he would feel
verY much better
about the American banking system.
all the
He recognized
difficulties of achieving that result. In the absence of
legislation dealing adequately with the branch banking problem, he
felt most
friendly to bank holding companies as a perfectly proper
a." legallY sanctioned device to get around the difficulties imposed
on banking , y
b the lack of a national branch banking policy, and he
w°111c1 not like to see any curb whatever put on holding company or
Other m
ultiple-office banking that achieved that result. As far as
Mr.
Ransom knew, all except the Giannini interests had'made a creditable
record on
the whole.
Mr. Ransom, however, was greatly disturbed about legislation
Which dealt
with existing situations by freezing because of the imP1icati0r1 of
monopoly rights being granted to a select few. He would
be es
pecially disturbed about this bill as it now stood because it
Pr°Pceed not Only to freeze the existing situation but also made no
slIggset*
1°n of further and continued consideration on which there might
be a
deadline date
when perhaps a better solution could be found. In
discussing that
possibility with Mr. Dreibelbis, the latter had prePared at Mr. Ransom's request a form of statement that might be included
the
preamble or declaration of legislative policy in the early part
Or
the bill.
At Mr. Ransom's request, Mr. Dreibelbis had submitted this
1770
11/29/43
-12-
to Chairman
Eccles and Mr. McKee and Mr. Dreibelbis reported
that there
seemed to be
some
objection.
Mr. Ransom said that a favor-
able vote on
his part on the proposed bill, if it should be submitted
to a Vote,
would have to take into consideration two things: First,
in 1938, due to conditions wholly beyond his own control, he had
Served on
an administrative committee, created at the President's
request, which had made a recommendation to the President on the
basis
of which he in
turn had included a recommendation in a message
to congress.
Mr. Ransom said that he worked on that problem for some
time 4nd had a great deal of difficulty with it, Chairman Eccles and
Mr. McKee
being out of town at that time, but that he finally agreed
1113°14 a proposal
that contemplated a death sentence which, however,
1148 not to
be carried out except under certain conditions and at
aoms
future date, and in that connection he succeeded in getting int° the report to
the President as strong language as he could persuade
body
to vote for,
saying that, if and when the question of a death
"Pence for
bank holding companies was raised, the question of branch
13411king must be
met.
Then, as now, Mr. Ransom thought that if the
cllAeation were
opened up the problem of branch banking would have to
be Met
and disposed of.
With that part of the background as a matter
record,
or
Mr. Ransom felt, however, that his own position could be
cleared
to his
satisfaction if the Budget Bureau cleared this proposed
legislati°n•
In that case he would have only the reservation that the
1771
11/29/43
-13would not expressly leave the door open to further and
continued consideration or, in effect, compel such consideration.
While Mr.
Ransom did not believe the bill had much chance of passage,
he
thought something of the kind that he had proposed was needed.
At this point Mr. Ransom submitted the language of the proPosal which
he had requested Mr. Dreibelbis to draft for inclusion
in the
legislation.
Chairman Eccles said that he thought the proposal would cause
e°neiderable objection on the part of many holding companies, that
it 11°1-11d put upon this Board a very broad obligation immediately to
investigate the whole bank
holding company set-up and all of their
ellbsidiaries, with a staff of people for that purpose, which would
be
undesirable during the war period, for the purpose of endeavoring
to get information and arrive at conclusions when, as a matter of
fact
'the information that we now had and that we obtained through
/'egular examination and other procedure ought to be adequate, and
that
lf it were
not adequate we did not need this legislation to get
additional information we wanted.
Chairman Eccles felt that we
°°111d get pretty
comolete information under the present statutory auth°11tY of the Board, that Mr. Ransom's proposal would inject such a
note
of uncertainty into the situation from the standpoint of bank
1101din.g e°mPanies that they .would feel that they did not know what
they W-ght have
to expect, and that this would be an unnecessarily
1772
11/29/43
-14-
disturbing factor at the present time.
He said he sympathized with
the part of Mr.
Ransom's approach that dealt with the need of branch
banking across State lines
in order to meet what he conceived to be
the future
problem of banking in this country, to stimulate banking
to keep pace with industry
and its development.
t feel
He said that he would
concerned at this time about this legislation or about the
Present bank
holding company set-up as it is if it were not for the
actilTiti's of the Gianninis and Transamerica Corporation, and that
he was not
so much concerned about whether Congress passed the legislation as
he was about the Board's responsibility for bringing the
suNect to the
attention of Congress.
Moreover, he felt that he per-
sonally was in a somewhat more difficult situation than the rest of
the
members of the Board
because, when he had appeared before the House
84riking and
Currency Committee, Congressman Patman had been watching
the ba_,
'm holding
company situation and particularly the activities of
Transamerica Corporation.
Congressman Patman had ideas of his own
about bank holding company legislation and wanted to know what the
Board
had been
doing in meeting its own responsibilities.
Congressman
P4tman had
taken the occasion to interrogate Chairman Eccles at coneiclerable length
and had asked particularly what the Board was doing.
8
The C°11gre sman had asked whether the Board was satisfied with the
1)r'esent situation
and, if it were not, why it had not advised Congress
because
on the surface of
things it seemed as if the Board had done
1773
11/29/43
nothing.
-15
Chairman Eccles said that, if Congress failed to deal with
branch banking
and it were willing to let bank holding companies go
alclig as they are, that, of course, would relieve the Board of any
further r
esponsibility for the developments.
Naturally, Congress has
a right to feel
that the present legislation is adequate unless we advise
Congress to the contrary. In response to a question from Mr.
Ilalle°111, Mr. Eccles said that he was concerned not only with the dual
nature of the
Giannini operations but also with the growth of Transarnerica in the
banking field, and he felt that there was danger that
the Gianninis were
dissipating the money of stockholders in Transamerica's
expansion policy.
In response to a question from Mr. Ransom, Mr. Dreibelbis
answered that any
expansion of bank holding companies under the proP"ed bill would be dealt with in much the same way as branches are
'IOW dealt with
--that is to say, there must be approval of any acquisi4°118 bY the proper
supervisory authorities.
Mr. McKee said that he felt that if there was a real need for
branch
ing across State lines the freezing of the existing bank
holding Company
situation was more likely to make that apparent and
nlight hasten
the day of legislation that would provide for such branch
banking.
Mr. Ransom commented that both the 1933 Act and this bill
Were
in effect a Congressional sanction of branch banking across State
1774
LLIV43
-16-
and that that was exactly what had happened.
Chairman Eccles said that, if the Board did not wish to propose
this
legislation, Congressman Patman had introduced a bill on which he
had been
holding up hearings because he thought that the Board might
Propose a
bill, that we had had numerous letters and telegrams, particularly from
California, as to our position in regard to the expansion of
bank holding companies, and that we had said that we were consider
ins the possibilities of some legislation. Therefore, Chairman
Eccles felt
that either we had to propose something or that Mr. Patman
would
proceed with his proposal. If Mr. Patman should succeed in
having
hearings on his proposal, that would open the way to a complete
discussion of
either the bill now before the Board or any other proPosal that
anyone might wish to offer as a solution of the problem,
'
lsgardless
of whether it was a freezing bill, a death sentence bill,
8°Mething else.
tO the
Mr. McKee suggested that the Board give some consideration
whether, in view of all the delays which had occurred
and the
me Which was
necessarily consumed in discussions, the Board
tight send
a Special message
to Congress stating that circumstances
had
presented problems in relation to bank holding companies with
114ch the
Board felt it did not have sufficient authority to deal,
thethods were being
used to do indirectly what the law prevented
beg
done directly,
and that therefore the Board had reviewed the
t
11
/43
-17-
sitstmtion and was ready
to present its ideas to Congress when desired.
Ur. lie
aee said that he was not prepared to say that he would prefer
tO
f°110w this course but that, if continued delay prevented any other
action, this might
be the only way open.
Chairman Eccles said that he felt that this course was the last
°Ils that we
should consider and that he did not think that we would
Ilant to say in a report to Congress that we were ready to appear and
Present our
views unless we had worked out a program.
In that connection Mr. McKee referred to a report which had
come to his
attention that there was some sentiment in Congress that
legislation should hereafter be originated in Congress and not in the
executive branch of
Government. He thought that the question was
whethes_
our position would not be a little stronger if we followed
that course.
Chairman Eccles said that it seemed to him it would be necesearY to say _
specifically what we wanted and why we wanted it. Moreover,
he thought
that if we sent up a special report to the Congress it would
be s_
u unusual that
it would give rise to questions which would be unnecesearilY disturbing to the situation. He went on to say that Under
Secretary
Bell had reported that he hoped to get the matter before the
Seersta
17 of the Treasury within the next few days. Mr. Dreibelbis
8aid that it
had been reported that the Anti-Trust Division of the
13ePartment of
Justice was investigating the Transamerica situation.
1776
11/29/43
-18-
Chairman Eccles said that Chairman Purcell of the Securities
aid Exc
ge Commission called on the telephone last Friday and re-
ferred to the
fact that the Commission's staff had been studying the
Proposal
Mr. Purcell said that they had some suggestions to make
and that
Mr. Dreibelbis was to meet with them on Monday. Mr. Purcell
said that
after Mr. Dreibelbis had met with the Commission's staff
the latter
would report back to the Commission, which would then be
Prepared to take
action.
lation
he
Mr. Purcell was very anxious to see legis-
dealing with the bank holding company situation adequately as
-,cognized that the Investment Company Act of 1940 left out Trans-
americ
i::d he felt that the investments which they had outside of
the be::
field should be subjected to control.
He said that the
record of
the Commission had been for liquidation or death sentences
4nd that
the Commission might say from the standpoint of its own
record
that this bill was all right as far as it went but that they
/fcald like
to see it go further. Chairman Eccles said that he asked
4r. Puree
11 what he would do if he were in our position, and Mr.
15/1ree1l replied that
he thought he would do exactly what we were doing,
that he
recognized that from a practical standpoint this proposal
Wcald meet
the problem, and that we would have more chance of getting
it than
we would of
getting a death sentence. Chairman Eccles said
that he
would like to write to Congressman Patman about the matter
and
explain the situation to him and that he also expected to see
1_777
11/29/43
the
-19-
President about it.
At this point Mr. McKee said that he would like to know what
the other
members of the Board thought about the proposal, and Chair111.241 Eccles said that he thought that every member of the Board should
have an
the
opportunity to make such record as he would like to make on
subject.
Mr. Ransom said that as to this particular proposal, if it
were cleared by
the Budget, that would get rid of one hurdle for him,
and
that, if something along the line of the proposal that he had
asked Ur.
Dreibelbis to draft, which would make it mandatory for the
board to
make a report and which would by this method have the effect of preventing the present situation from being frozen, were inccrPorated in the preamble to the bill, he felt that he could go along
with the
bill without any reservation.
Chairman Eccles said that he could not personally support
that
Proposal because he felt that it did not accomplish anything
tangible but that it would cloud the issue and cause unnecessary distlIrbar
Mr. McKee said that he thought it would bring in opposition
tram
*L-1-1 bank holding
companies because of the uncertainty as to the
futures
Mr. Ransom said that, if a motion were made to approve the
Pl'clPosed legislation as it stood, he would move that it be amended
accordance with the proposal that he had made.
1778
11/29/43
-20Mr. Szymczak thought that the important thing was to deal
With the
Giannini situation at this time and that, if we could go
further later on,
he would be in favor of going as far as might be
ne
cessary. He would like to see what could be done with Mr. Ransom's
Idea but
was inclined to agree with Chairman Eccles that it would
°Pen Up a condition
of uncertainty.
Chairman Eccles said that he thought that it would be better
if it were
left to Mr. Ransom to make his proposal separately during
the course
of hearings on the proposed legislation, that he would
like to have an
agreement to the procedure which had been stated, to
have •
it cleared
by the Budget Bureau, and then to have it introduced
thro
ugh the
proper Committees in Congress, and that he would also like
to have the
Board authorize Mr. McKee and himself to proceed accord-
Mr. McKee said that he had had many visits from representatives
of the
Independent Bankers Association, that they had written
4.
letter8
-o
to
him and had sent drafts of bills to him, and that he had
4884red them that we
were fully acquainted with their situation.
He
called attention
to the fact that we had sent telegrams to California
1fldica
"lng our opposition to the expansion of Transamerica and that
he felt that
we were somewhat on the spot.
11°1-11d
When the time came, he
like to be
able to say that we had done everything possible to
;79
11/29/43
clear
-21-
legislation through the Administration and that if this should
Prove impossible it was simply due to inability to obtain an agreement.
Ur- Szymczak thought that if the situation were fully exPlained to the
Budget Bureau and to the President they would be willto give the
proposal their clearance.
that the
be
He did not feel, however,
legislation would be enacted, and thought that all that would
accomplished would be to get it introduced and get hearings upon
and that the
legislation would then be delayed unless the Gianninis
Went so
far off the reservation as to cause the Administration to inUpon legislation. Mr. Szymczak said that he would vote in favor
Of the
proposed procedure as outlined by the Chairman and, if that
resulted in failure
to get a clearance through the Bureau of the Budget,
the
matter might be
reconsidered from the standpoint of what the next
'step should
be, which he understood Mr. Eccles thought would be through
C°4greesman Patman.
Mr. Draper said that he would also vote in favor of the proP°sed
procedure. At this point he said he would move that the Board
ezpr
ess its
approval of the steps taken and to be taken in connection
With the
matter that had been Under discussion, including the draft
Of
the
proposed legislation and such stepsas Chairman Eccles and Mr.
illekee might
deem necessary to get the bill introduced and to get hear0n it
before Committees in Congress.
11/29/43
—22—
Mr. Ransom stated that he had two principal objections to
the
proposal, which he had previously stated.
Mr. McKee said that he would like to see included in the mo—
tion the fact
that in voting for the proposed bill it was subject to
such mo
difications as might seem necessary in the light of further
discussions and that any Board member that might desire to testify
alc4Ig any other line at the time of the hearings was free to do so.
Chairman Eccles said that he would like to see the Board give
a general approval
because recommendations would be received from the
Securities and Exchange Commission and elsewhere, and he would like to
be i
n position to
make any modifications which were not substantial.
Mr. Draper restated his motion so as to approve the proposed
legisl.
a4
--ion
as presented to the Board, to authorize the committee com—
Poe
"of Chairman Eccles and Mr. McKee to make such modifications in
the legislation as in their judgment might seem to be necessary so
144 as theY did not materially change the legislation, to authorize
the „ .
"Allallttee to proceed to the completion of the clearance of the
legiAl
'
- 4"ion with the Bureau of the Budget, and to authorize the com—
M
ittee
thereafter to take such steps as might be necessary to bring
about the
introduction of the bill in Congress, all with the under—
ding
that Mr. Ransom's exceptions to this procedure would be noted
in the
minutes.
1781
11/29/43
-23Upon this motion all voted "yes" except Mr. Ransom who voted "no".
MT. McKee referred to the Pine Lawn Bank and Trust Company,
a State
member bank in St. Louis which he said had been conducting
its
affairs in such a manner that it seemed necessary to institute a
Proceeding to expel
it from membership in the Federal Reserve System.
Ile said that
consideration had been given to the possibility of a
8ecti°11 30 proceeding but that it was felt that this would not be
adequate because
both the ownership and management of the bank were
vested in
two individuals and that a removal proceeding would not
be effective.
In connection with the idea of a proceeding to expel
the b
a4K from members
hip, he said that Chairman Nardin at the St.
Loui
- Dank felt
very strongly that the hearing should be conducted
the re
cord made by someone who Was not connected directly with
the
Federal
Reserve Bank of St. Louis, and that President Davis had
uggested the
possibility that Mr. Wyatt might conduct such a hearing
as this.
After a discussion, Mr. 'bildKee suggested that Mr. Wyatt be designated to
conduct this particular hearing and all of
the members except Ir. Ransom agreed.
Mr.
PresiA.
in
his
Ransom stated that he thought Mr. Wyatt or anyone else
over such a hearing
would be in effect a trial examiner and,
()Pinion, anyone occupyi
ng such a position should be wholly
11/29/43
-24in
dependent of the agency for which he was acting, and that for these
reasons he was not in favor of the Board using its own employees as
trial
examiners in such matters.
Mr. McKee referred to proposed letters for the Chairman's signature to Mr.
Bailey, Assistant Director of Legislative Reference of
the Bureau of
the Budget, and Secretary of Agriculture Wickard, which
had been
in circulation to all Board members, in regard to a proposed
farsin-land boom profits tax.
He said that he would favor taking the
P"ition that we approve such a proposal provided it rere not limited
t° farm lands and were
extended to cover all speculative profits from
Whatever source
they might arise.
Chairman Eccles discussed the matter and said that he did not
el
fe that it
was necessary to attach such a condition as all that the
Board
was called upon to do was to express its approval or disapproval
a b'll
1-- which had been prepared by the Secretary of Agriculture, and
that 4A_
"LT' would
not prevent the Board at SOW later date from taking a
P°siti
cm in favor of an extension of the coverage of such a bill to
include
Other speculative profits if the question should arise or the
hard
felt that it was
desirable to do so.
The letters to Messrs. Bailey and Wickard were presented, the
letter to
Mr. Bailey reading as follows:
ted a"tIfItyour letter of November 16, 1943 you transmitof a proposed bill 'To provide revenue, and
178:3
11/29/43
-25"for other purposes', a copy of a letter dated November
11, 1943 from
Secretary of Agriculture Vickard to Director
Smith, submitting for clearance the proposed bill, a memorandum entitled 'Summary of Farm Land Boom Profits Tax'
and a copy of
an attachment tabulating selected comparisons
of total and net additional tax rates and amounts.
"The Board is in general accord with the measure proposed by Secretary M.ckard and his reasons therefor, believing that there should be a heavy tax upon profits derived from the resale of farm property purchased durinE,
the war and
in the immediate oost-war period. The Board
is
also in accord with the proposal that the rate be
graduated so as to be highest during the shorter periods
of holding
the properties which are resold. It is noted,
however, that the period over which the tax is to be graduated ends with holdings of 6 years. This is accomplished
by steps
of 90% if the property has been held by the taxpayer not over 2 years; 85% if not over 2- years; 80% if
not over 3
years; 702L if not over 3i years; 60% if not
?ver 4 years; 45% if not over 5 years; 30% if not over
0 years, and no tax thereafter.
"It is realized that there is presently in effect a
tax on
capital gains which would take 25% of the net gain
after the end of
the sixth year, but during this period
the capital
gains tax might be materially changed, and
the 0
Pportunities for speculative profits might last for
t longer period.
It is believed therefore that it would
preferable not to re1y upon the capital gains tax at
e end of six years, and it is suggested that the special
cover a period of ten years. This would permit placing
-4L, upon a somewhat
more gradually descending basis.
"The form and detail of the provisions of the bill
have
ve not been reviewed from a technical standpoint, as it
is
understood from the statement in Secretary Vvickard's
ftter that it
has been worked out in very close cooperation with the
General Counsel of the Treasury Department
and members
of his staff. There are, however, certain pronsions which I am callin,7 to Secretary Vackard's attention
t.n a separate letter, a copy of which is enclosed for your
inf
ormation."
r
Approved, together with the letter
below-quoted to Secretary nckard. On
this action Mr. McKee voted "no" for the
reason stated above:
1784
11/29/43
-26--
"When you called me on the 'phone last week, as I
told you, I had not seen the communication from the Bureau
of the Budget
in regard to your proposed bill for an emergency farm land boom profits tax. However it had been
received from the Bureau on the 17th and was given immediate attention by two of my associates on the Board.
Other pressing matters prevented our being able to discuss
it sooner
and we found that there were some aspects of
the proposal
which I should like to call to your attention.
One of them
relates to the period of 6 years within which
the tax is
graduated from 90% down to zero. This is somewhat different
from the proposal which I advocated and I
eel that the
period of 6 years is too short. It requires
.t..o0 rapid
an acceleration of the reduction in tax rate.
The
speculative conditions upon which the bill is predicated may not disappear within that period and also the
tax of 25% upon capital gains, on which some reliance
seems to be
placed, may not remain unchanged during that
Period. In fact, it might be changed materially. In
the
circumstances, it would seem better to graduate the
t
, a)
.c rate over a period of 10 years and, as you will see,
.1118 suggestion has been made to the Bureau of the Budget
in the Board's
report, a copy of which is attached.
."The bill would apply to the disposition of property
,cquired subsequent to November 1, 1943 or possibly a
later date corresponding approximately to the time of introduction of the
bill. However, in your letter to Mr.
"
°
,111.
you stated that the volume of voluntary transfers
during the last year was the highest on record with the
exception of
1919-1920. Since the tax is intended to
ake away a
substantial portion of profits from the reale of
property acquired under these conditions, it
Would seem that it might well apply to the resale of
Property acquired at least since the beginning of this
year
s
and it is suggested that you give your further conideration to this question.
"The bill would exempt a sale or other disposition
made., by the executor or administrator of an estate or any
Sale which is
involuntarily or compulsorily made as a result of condemnation or the threat or imminence thereof.
Neverthls;
speculative profits might be made through
sales, and, except for the fact that the sale was
not made by
''ot
the decedent himself or was an involuntary
fle, there is no difference from the standpoint of the
.
,11.,
1100se of the bill between these sales and any other
os_Les which would
be subject to the bill. There seems
:
;
1785
11/29/43
-27-
'
.
'to be no reason why speculative profits should be exempted
.
3-n some cases while subject to tax in other cases and it
18 suggested for your consideration from the standpoint
of the
purposes of the bill that no such exemption be made.
"In your letter to Director Smith you stated that 'I
regard as urgent the necessity for taking action to discourage another disastrous farm land boom' and you also
stated that 'while this tax would undoubtedly encourage
caution in lending, it might very well prove inadequate
from the debt control standpoint'. I agree with you that
the legislative approach should, for the present, be confined to the tax method but I suggest for your consideration that the question may very well be raised when hearings
are held on this bill as to what is being done within the
existing powers of your organization. To this end, I would
think it would be helpful if you had made a record, which
You were in position to present, of having instructed the
lending agencies which are within the jurisdiction of the
Department of Agriculture to keel-) their loan policies in
c?nformity with the objectives of this bill. I have in
mind especially the Land Bank Commissioner loans which
are
.jotymortgage loans in effect. I recognize the fact
hatsT
be objected that the Government's lending
ag?ncies would be at a disadvantage in competition with
private lending agencies but you would be in the position
of being
able to point out that in so far as it lay within
!
clur powers your Department would not give any support to
a_farm land boom through the creation by Government agencies
,7 excessive mortgage indebtedness. I think it would be
ne.lPful also if your Department were to expand its existing
!
cluci!,tional
program so as to emphasize to farmers and po11.enti.0.-14. holders of
farm lands the position of your Departent as to the
undesirability of expansion of land values
nd mortgage indebtedness predicated upon boom conditions
of a
speculative character."
Ur- Szymczak then reminded the members of the Board that
Chj
Eccles and he expected to meet with the directors of the
toston 14.
-ank on Thursday and he proceeded to outline briefly the proWhich had been planned for this meeting. There was considerable
diecup. 4
--8'n of the details of the procedure and it was agreed that it
1786
11/29/43
-28-
should be left to
Chairman Eccles and Mr. Szymczak to work out according to
their own judgment.
At this point Mr. Dreibelbis withdrew 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 27, 1943, were approved unani-
Moue4
.
Memorandum dated November 27, 1943, from Mr. Thomas, Assistant
Director of the
Division of Research and Statistics, submitting the
resignation of
Mrs. Lois A. Williams as a secretary in that Division,
to be
c...me effective as
of the close of business on November 30, 1943,
and recommending that the resignation be accepted as of that date and
that
She be paid
for two days of unused annual leave.
The resignation was accepted as recom.
mendeMemorandum of this date from Mr. Morrill recommending, for
the re
ason stated
in the memorandum, that the employment of the followin
g cafeteria
helpers in the Secretary's Office be terminated at
the
Close of business
on the dates set opposite their names:
Betty Kessel
Alice Wathen
Elizabeth England
November 16, 1943
November 25, 1943
November 22, 1943
Approved unanimously.
1787
11/29/43
-29-
Memorandum dated November 22, 1943, from the Board's Agency
Committee on
Deferment, advising that the deferment of Arthur Lang,
a certified public accountant and one of the Board's examiners engaged
in the
examination of Transamerica Corporation, would expire January
20, 10„
744, that it would be necessary to have his services for several
months after
the expiration of his present deferment, and that the
Matter
should be considered now and a decision reached whether an exten •
--slon of deferment would be requested. The memorandum suggested
that an extension
of deferment be requested toward the end of this
Year and that Mr.
Lang be advised to that effect.
Approved unanimously.
Letter to Mr. Attebery, Vice President of the Federal Reserve
Bank
of S. Louis,
reading as follows:
"This refers to your letter of November 15 with regar to
the penalty of /4.6.32 incurred by the Farmers Na,?.onal Bank of Scottsville, Kentucky, on account of defi
c iencies in reserves during the semi-monthly period
ended September
30, 1943.
"It is understood that the aggregate deficiency reduced to a one-day basis
was approximately t564,000; that
loof this total
],_50,000 represents cash letters received
Your Louisville Branch too late for clearing on the
ueT of receipt; and that $236,1l0 represents charges by
ur Louisville Branch to the reserve account of the memser bank in advance
of the member bank's making the corre41)
_°ndingentries on its books, for securities purchased for
re bank's customers during the Third War loan drive. It
appears that the member bank did not collect the cost of
e
securities from its customers and credit its reserve
ccount until after receipt of the securities by it, while
Your Louisville
Branch, in accordance with established
Practice, made the charge against the member bank's reserve
ccount upon receipt of the bank's advice of the purchase
V
r
1788
11/29/43
-30-
"of the securities and the accompanying instructions to
charge its reserve account.
"As indicated in the correspondence, the difficulty
Would have been avoided if the bank had established a war
loan deposit account and had credited the proceeds of securities sales to that account instead of paying for them
by
authorizing a charge against its reserve account. It
is noted that the usefulness of the war loan deposit ac.count in maintaining a bank's reserve position during war
loan drives will be stressed in future correspondence with
the bank. In
so far as cash letters received too late for
clearing are concerned, it is understood that some of the
Other Reserve Banks give immediate credit or make appropriate
3
ireserve
adjustments if, through no fault of the member bank
ut because of a
delay in the mails, a cash letter is not
received by the Federal Reserve Bank until after the close
of the
current day's clearing. The uncertainties of presentday train
schedules seem to fully warrant such a practice.
"In the circumstances, the Board will interpose no
°DJection if your Bank wishes to waive the part of the
Penalty for deficient reserves which resulted from the fact
that immediate credit was not given for cash letters received too late for the current day's clearing, as well
!s the part that arose out of securities sales during the
Third War loan drive."
Approved unanimously.
Memorandum dated November 26, 1943, from Mr. Thomas, Assistant Director of the Division of Research and Statistics, recommending
tha4.
the
payment of the travel voucher submitted by Arthur C. Bunce
cover;
'
ng his trip to Washington beginning November 5, 1943, which he
Ilacle at the request
of the Director of the Division for the purpose
of art .
interview for a
position on the Board's staff, be approved.
Approved unanimously.
1/29/43
-3
Thereupon the meeting adjourned.
l‘r)
/—/AA449
Secrethry.
APProva:
Chairman.
@FedFRASER