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1656 A meeting of the Board of Governors of the Federal Reserve SYstem was held in Washington on Thursday, October 18, 19450 at 10:00 ada. PRESENT: Mr. Eccles, Chairman Mr. Ransom, Vice Chairman Mr. Szymczak Mr. 'McKee Mr. Draper Mr. Evans (latter part of meeting) Mr. Carpenter, Secretary Mr. Connell, General Assistant, Office of the Secretary Mr. Morrill, Special Adviser Mr. Smead, Director of the Division of Bank Operations Mr. Parry, Director of the Division of Security Loans Mr. Leonard, Director of the Division of Personnel Administration Mr. Vest, General Attorney Mr. Thomas, Director of the Division of Research and Statistics This meeting was cslled for the purpose of considering the tom which had been submitted by the Presidents of the Federal Re— "Banks following their meeting on October 15 and 16, 1945, for con"4 ration at a joint meeting of the Board and the Presidents to be held at 11:00 a.m. today. On the first item, relating to the renewal of the authority he D -ederal Reserve Banks to purchase Government securities directly °In the Treasury which would expire on December 31, 1945, it was stated at the meeting of the Federal Open Market Committee yesterday the aidents were advised that Mr. Snyder, Director of War Mobilization arid Re conversion, would go before the Judiciary Committee of the House 1_657 10/18/45 -2- Of Representatives in the very near future and request a renewal of certain :of the provisions of the Second War Powers Act, including the Provis ion above referred to, and that, while it might not be possible to get the authority extended for an entire year, it was likely that something less than that would be acceptable. Chairman Eccles had als° made the statement at the meeting of the Federal Open Market Committee that he would discuss the matter with Secretary of the TreasnrY* Vinson. At this meeting of the Board Chairman Eccles said that if the aPPI'oval of the bill were delayed he would discuss with the Treasury the advisabty of the introduction of a separate bill for the pur11°8s of extending the authority. It was agreed that the Presidents should be so advised. The Presidents' Conference also considered the desirability 44 restoring the franchise tax, preferably in the old or perhaps in so,me Modified form, and on that point Chairman Eccles stated that he 1104ld be opposed to any such suggestion at this time. He felt that the surplus of the Federal Reserve Banks was not large in the circum- stances, and that the uses to which the earnings of the Federal ReSOe Banks could be put, such as paying off the stock of the Federal Reserve Banks, providing funds for the guarantee of loans under the 114811er-SPence bill if enacted, and providing for the operating expenses the P ' eueral Reserve Banks if they should find it necessary to sell 1658 ' 0/18/45 -3- securities from the System account to offset the effects of gold uui Ports, probably would be broad enough to take care of any surplus that might be accumulated. In any event, he said, the earnings of the Federal Reserve Banks would not be dissipated and would be available at altr time should Congress decide that they should be taken for some 8Pecifie purpose and that, therefore, he would not raise the question f a franchise tax for the reason that such action might involve a numb "of other questions affecting the position of the Federal Reserve System. He added that if at any time it were felt that the earnings of the System were too great arrangements might be made with the Tr easury to have maturing Government securities held in the System account refunded into issues carrying a lower rate of interest. It view of all of the circumstances and possible future developments felt that a difference of $100 million or $200 million in the surPlus of the Federal Reserve Banks did not amount to a great deal and a useful thing not only for the System but for the Government 11r. McKee indicated that he would favor an amendment to the which Would not refer to a franchise tax but would provide that the Boa '', in its discretion, could direct the payment of excess amounts °f earnings of the Federal Reserve Banks to the Treasury. At this point Mr. Evans joined the meeting. 1659 ' 0/18/45 -4- The Presidents' Conference also adopted the following recom, mendations with the understanding that they would be reviewed with the Board of Governors today: 1. Discontinue the payment of supplemental compensation. 2. Increase percentagewise the maximum annual salary of each position in the Form A Classification Plan in ac— cordance with the present supplemental compensation formula authorized by the boards of directors of the respective Federal Reserve Banks. 3. Increase the basic annual salary of each employee by an amount equal to that presently received in the form of supplemental compensation. 4. Recognizing that the proposed changes will still leave unsolved certain problems of salary adjustment, the solution of which under present conditions should not be postponed until study and revision of the job clas— sification is completed, the Conference agreed that authority be sought from the Board of Governors to exceed nmximum annual salaries based on the revised Form A in individual cases as follows: 15% on the first $3,000 of Form Armaximum an— nual salary, provided that this amount added to the adjusted maximum annual salary shall not exceed a total of $7,500. During a discussion of the recommendations, it was pointed '314 that they were intended to apply only to employees' salaries and 11°t to the salaries of officers of the Banks and that the proposed au— th°l'itY to increase salaries to 15 per cent on the first $3,000 of rae ' ld-rMara annual salary, provided that this amount added to the adjusted niaxirminl annual salary would not exceed $7,500, was designed only as a teniP°rarY measure to permit necessary adjustments pending the general 1660 10/18/45 -5- Ilevision of the personnel classification plans at the Banks. At the conclusion of the discussion, it was understood that Chairman Eccles would say during the joint meeting with the Presidents that the Board would have no objection at this time to increasing the maximum annual salary of each position in the classification plans of the Banks in accordance with the present supplemental compensation formula authorized by the boards of directors of the respective Banks, but that it would like to consider further the proposed further increase of 15 per cent on the first $3,000 of maximum annual salary. Reference was then made to the following recommendation of the Presidents' Conference: " 11°81 --P---z, t111-ization plan including surgical benefits mendatioThe Conference reviewed and considered the report and recomReserve ns prepared by the Committee of Personnel Directors of the Ilender Banks, dated September 14, 1945, in relation to services now Iracv.4sd by the Reserve Banks, such as retirement, group insurance, Li-Lon, sick leave. of After prolonged discussion the Conference adopted by a majority to 2, the following recommendation of the Committee on Pereonnei. ) based on the conclusion of its subcommittee consisting of Perunel Directors: As a result of its further study of the benefit, the subcommittee believes that present benefits available to employees of Federal Reserve Banks should be complemented theted by the provision of broader facilities for meeting hazards of illness. It is obvious that this cannot be brought about unless Reserve Banks assume an appreclable share in the cost of some suitable hospitalization id he surgical program. In the opinion of the subcommittee mc)et suitable framework for such a plan already exti 8 in the program sponsored by the Blue Cross Associa1. °11 In these ciremstances the subcommittee recommends t 1661 10/18/45 that each Federal Reserve Bank assume two-thirds of the cost of providing individual, husband and wife, or family membership, as the case may be, in the Blue Cross Associaton of its district for each of its employees who may wish to avail himself of the privilege. If this recommendation is approved, the subcommittee in cooperation with representatives of the National Enrollment Office of the Blue Cross, will be prepared to work out whatever details of operation may be necessary. Chairman Eccles stated that a benefit such as that proposed in the above recommendation was not provided for Government employees 44der C. ivil Service and expressed the opinion that the Board should 171°t go farther in that direction than was provided for Government emP4Yees generally. He said that this was a matter that was closely 1.e1ated to the whole question of annual and sick leave, retirement, 44d other benefits, and that the Board should generally follow the P°IleY adopted by the Government. There was a discussion of the extent to which hospitalization 'lts were made available by corporations to their employees and of the cilleetion whether, if the benefit were provided, it should be paid "tirely or only in Dart by the Federal Reserve Banks. Mr. Leonard 't'ated that on the basis of preliminary estimates that had been made the l'eemmendation of the Presidents' Conference would result in an 4111111E11 cost to the Federal Reserve Banks of approximately $450,000 wtth a cost to the employees of approximately $225,000. All of the members of the Board indicated that, while they Were aYmPathetic to the procedure, it was one that required careful 1662 10/18/45 -7- ectsideration and that the System should reach a decision only after careful.study. It was understood that Chairman Eccles would say to the Presidents that the Board would take the matter under advisement. With respect to the suggestion of the Presidents that there be a Study of (1) the problem of bank reserves in view of present and filture developments, (2) the type and frequency of statistical reports aleoted by the Federal Reserve Banks from commercial banks and busitie" interests with a view to reducing the burden of such reports wher"et* Possible, and (3) the possibility of improving statistical data 0r1 the velocity of circulation of demand deposits as well as of the total money supply, there was unanimous agreement on the part of the Illealbers of the Board that these studies should be made. In connection with th .e item of bank reserves it was understood that Mr. McKee would Make to the Presidents the statement agreed upon at the meeting of the on Friday, October12, 1945. In response to the comment of the Presidents that it would be helpful tO them in meeting various local inquiries with respect to the l'ecent a mendments to Regulations T and U to discuss the subject with the Board and obtain a broader background for the information and gtd4ance of the Presidents, it was agreed that Chairman Eccles should a' 'St to the Presidents in the meeting with them that the Board had 1663 ' 0/18/45 —8— gi-14ML careful and thorough consideration to the amendments before theyWere made, that the Board had listened to all of the complaints and ar'guments that had been advanced against the so-called "incidental squeeze" and still felt that the amendment was fully justified, and that the Board would prepare and send to the Presidents a memorandum e(Ivel'ing the reasons underlying the Board's position. It was also understood that Mr. Ransom should review for the infc`rmation of the Presidents, in response to their inquiry, (a) the 1)°ssibilitY of continuing Regulation W through an act of Congress, and (13)the d esirability of simplifying the Regulation by limiting its pro'tido n to durable consumer goods. In response to the Board's wire of October 41 19451 the Presiderrt,81 Conference had expressed a desire to review the subject of fUtur e P°1ioy with respect to building facilities and operations of the Federal Reserve Banks. It was understood that Chairman Eccles W°111d inform the Presidents of the letter sent by the Board to the Chat, ' en of the Banking and Currency Committees of the Senate and Hous - of Representatives recommending the repeal of paragraph 9 of Secti°n 10 of the Federal Reserve Act which limits the amount that InaY. be 8Pent for Federal Reserve Bank branch buil 40,• 1 ad'0 Thereupon the meeting 0 r gn .4114°APArdi '# Secretary. Chairman.
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