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1925 A meeting of the Board of Governors of the Federal Reserve 4ste was hela. in Washin„ton on Friday, October 2, 1942, at 2:30 p.rPRESENT: Mr. Mr. Mr. Er. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczpir 1,11Cee Draper Evans Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Thurston, Special Assistant to the Chairman Dreibelbis, General Attorney Mr. Goldenueiser, Director of the Division of Research and Statistics Mr. Leonard, Director of the Division of Personnel Administration Mr. Wyatt, General Counsel Mr. Thomas, Assistant Director of the Division of Research and Statistics Mr. Stark, Assistant Director of the Division of Research and Statistics There were presented telegrams to Mr. Paddock, President of tile del'El Reserve Bank of Boston, Messrs. Treiber and McCreedy, Sectqt4rie the Federal Reserve Banks of New York and Philadelphia, te3Deet At4rit - e-q, Mr. McLarin, President of the Federal Reserve Bank of 1.4-a Messrs. Dillard and Hale, Secretaries of the Federal Roeel.— Ye Bahl, Francisco, respectively, stating that t4i3o --- of Chicago and San aPproves the establishment without change by the Federal Re'-e/3e11124 of San Francisco on September 29, by the Federal Reserve Bank AtlEtnta on September 30, by the Federal Reserve Banks of New York, 1.11114c1e113111a, Chicago, and San Francisco on October 1, 1942, and by the 1'41 Reserve Bank of Boston today, of the rates of discount and purQ114 14 their existinG schedules. Approved unanimously. 1926 10/2/42 In connection Lith the above action, reference was made to the discussion of the subject of discount rates at the meeting of the Federal Open Market Committee on September 28, and it was agreed that consideration should be given at a meeting of the Board on Tuesday, October 6, at 3:00 p.m. to What the attitude of the Board should be with respect to a reduction in the discount rates on loans and advances under sections 13, 13a, and 10(b) of the Federal Reserve Act, and the establishment of a preferential discount rate on advances secured by direct obligations of the United States. Mr. Ransom stated that a letter had been received under date or 8ePte lither 30, 1942, from the Civil Service Commission, which was Mc*essed to heads of departments and independent establishments of G°Irel*nment and which requested, in accordance with Section I of the laal. manpower Commission Directive No. XI, that the Board prepare 44c1Ubi1tto the Civil Service Commission on or before October 6, 1942, 4 14t C)r the positions in the Board's organization which are directly e°11eerlled With the war effort or with essential supporting activities, nie "equate performance of the duties of which positions requires (a) lS or abilities and (b) a considerable period of training °I)eciel eli)erience. Ranbom stated that, because of the pressure under which t4111 etiber of the Board were working an the fact that a reply had been "ecl by October 6, it would be his recommendation that the Board , the matter to the Personnel Committee with authority to approve a olar to be drafted by Mr. Leonard in collaboration with Mr. Thurston. to eLM In a discussion of the matter, the statement was made that the had taken the position in the past that it would not ask for I927 10/ / 3 42 At of Of any of its employees, and Mr. Leonard pointed out that if tile Ird submitted the list requested by the Civil Service Commission it would not be askins for defelwent of any of its employees but would be 3stti -1°1-g up general classes of positions in the Board's organization 80tbat, if in the future the question of deferment should nrise in indi a. cases, these cases could be considered. The members of the 13°1 c°11cUrred in the observation that if the suggested plans for a Were to be carried out it might be necessary for the Board t° deferment of SOMB of the key members of the staff in order to 111133.tlai ' ll a sufficient organization to carry on the work of the Board. 11r. McKee inquired whether similar requests were received by the Pe4ral Reserve Banks, and Mr. Leonard was inclined to believe that Ws not the case. It was understood that, while no reference would to the Federal Reserve Banks in the list to be prepared in re%Ise tc) the civil Service Commission's request, appropriate reference t)14 Reserve Banks as the operating agencies in the System and as fis- l'eln8 of the United States would be made in the letter transmitting tile list. Following a review by Mr. Leonard of certain of the provisions or the Wer 1, -1npower Commission Di-ective No. XI, relating to requests th -e 0 ecupational deferment of officers and employees of departments kZt '" t tea thElt be of the executive branch of the Federal Government, he c, conference of the division heads of the Board's staff had held this morning at which an outline was prepared of the basis 1928 10N42 lipon uich the list requested by the Civil Service Commission might be Prepared. Following the reading of the draft of outline, and an indication by the members of the Board that they were in general agreement thereivith, Mr. McKee moved that, in accordance with the recommendation made by Mr. Ransom, the matter be referred to the Personnel Committee with power to act. During the discussion of the above matter, Mr. Goldenweiser Chairman :140t 6110 shortage of personnel, the Board should authorize the contin- 1141°Iacer thtt t, Eccles raised for discussion the question whether, in elaPloyment, beyond the age of retirement, of officers and em- of the Federal Reserve Banks and the Board. Mr. McKee stated 11 Order to preserve the rights under the retirement system of an erriPloye wto had reached the age of 65, any action in this direction howl -ka be- 111 - the form of a retirement and reemployment. It was stated 3'111Y 17, 1941, the Federal Reserve Banks were advised that the well3- not object to the payment of salary to former employees of Who had been retired and reemployed, it being assumed that the d. not take such action except during periods of emergency and oloilv th -Lor short periods. Chairman Eccles suggested that, in view of Biti On Previously taken by the Board with respect to retirement at 65, t he matter should be reviewed and, if necessary, a letter setting 114 the m. loardts position sent to the Federal Reserve Banks. 1929 10/2/42 -5The matter was referred to Mr. Szymczak for consideration (in consultation with the Personnel Committee so far as the Board's employees were concerned) and recommendation to the Board as to the action to be taken. At this point, Y:e. Smead, Chief of the Division of Bank Opera- tions, joined the meeting. Chairman Eccles expressed the opinion that, as a means of aid- the B°ard in meeting the loss of employees for military service and °tiler War work, the elevator operators in the Board's building should be l'eM"ecl bY women, the number of guards should be reduced, and the amount clt11°11 done on the grounds should be curtailed. Mr. Morrill stated that 4haa been working on an analysis of the operation of the Board's building rtc) the standpoint of both personnel and expense, and had discussed the %el" with TZessrs. Draper and Leonard. The matter was discussed and referred to Mr. Draper for a recommendation to the Board as to the action to be taken. Mess. Leonard and Stark withdrew from the meeting at this Chairman Eccles recommended that the Board act to reduce requirements of member banks in central reserve cities from 22 to Zo e t cent of demand deposits, effective immediately. The reasons for tIle he said, were that it had been necessary to purchase a large E41114t 0f securities for the System account during the current week, 44t thia situation very likely would continue in the face of forthcom- INT " e lirY financing in which the Treasury would issue between 1930 10/2/42 -6%,000,000,000 and ,15,000,000,000 4. of securities in October, and that in this si tuation it was his opinion that the System should not rely, at tb Particular time, solely on open market operations to put the neceseary rUnds into the market. He added that if the Board should decide to 4-4 action would be faced with the question whether it Should confine itbe l'cduction to requirements of central reserve city banks or make a "tio4Wide Nt the reduction, and that it would be his suggestion that the Board first alternative and then take the position that further funds 17°1114 be s upplied as needed in the form of open market operations until ,t ttMe tor' 11 as new developments rilrther chancre in reserve the situation indicated the justification requirements. Szymczak referred to the discussion Of changes in reserve requirements at the meeting of the Federal Open Market Committee on September 28, 1942, and moved that reserve requirements of member banks in New York and Chicao be reduced from 22 to 20 per cent of net demand deposits, effective as of the opening of business on October 3. As a substitute for Mr. Szymczakts motion, Mr. McKee moved that, effective as of the openirk; of business on October 3, reserve requirements of member banks on net demand deposits be reduced to the following percentages of such deposits: Centrl reserve city banks . . 20 Reserve city banks 18 Country banks 13 Mr. .11Kbets motion was put by the chair and lost, Messrs. McKee and Draper voting "yes" and Messrs. Eccles, Ransom, Szymczak, and Evans voting "no". 1931 10/2/42 -7Mr. Szymczak's motion was put by the chair and carried, Messrs. Eccles, Ransom, Szymczak, McKee, and Evans voting "yes" and Mr. Draper voting "no". In accordance with this action, the Supplement to Regulation D was amended to read as follows, with the understanding that announcement of the Board's action would be made for release In the morning papers of October 3. On this action Mr. Draper voted "no". "SInplement to Remilation D "Effective as to each member bank at the opening of business on October 3, 1942 "Reserves Required to be_IialalaLnal_ly Member Banks with _Federal Reserve Banks "Pursuant to the provisions of section 19 of the Federal Reserve Act and section 2(a) of its Regulation D, the 143ard of Governors of the Federal Reserve System hereby prescribes the following reserve balances which each member bank of the Federal Reserve System is reouired to maintain on deposit with the Federal Reserve Bank of its district: 6 per cent of its time deposits plus-14 per cent of its net demand deposits if not in a reserve or central reserve city; 20 per cent of its net demand deposits if in a reserve city, except as to any bank located in an outlying district of a reserve City or in territory added to such city by the extension of the city's corporate limits, which, by the affiriaative vote of five members of the Board of Governors of the Federal Reserve System, Is permitted to maintain 14 per cent reserves against its net demand deposits; 20 per cent of its net demand deposits if located in a central reserve city, except as to any bank located in an outlying district of a central reserve city or in territory added to such city by the extension of the city's corporate limits, which, by the affirmative vote of five members of the Board of Governors of the 1_932 1012/42 -8"Federal Reserve System, is permitted to maintain 14 per cent or 20 per cent reserves against its net demand deposits. "The supplements to Regulation D which have previously been issued are hereby revoked and superseded." Mr. McKee stated that it had come to his attention that the Se, s -11(t Exchange Commission was giving considetation to a re,vision Qt its 10,, ---xY rules covering registered companies so as to require that Wilenev er requests were made of stockholders for voting proxies the rebe accompanied, among other things, by a list of the salaOf the officers and employees of the company and a statement of the 14,7a8 of tile officers or directors from the company or any of its substeliElries, which in would include loans the case of bank holding companies tr0111 tile subsidiary banks or other corporations. He also said that from tile orriation available it would appear that the revised rules would 1144 to three or four bank holding companies, and that inquiry had been bY °tits to official of one of the companies whether the Board, in view responsibility for supervision of bank holding companies, proposed t4lve 411Y action with respect to the matter. Yr. McKee added that he Ilt;et 10 °ked into the situation and that it did not appear that any action 1hr, . led for by the Board at the present time, but that he was bringt 0 the attention of the Board so that, in the event other members ot to consideration could be giver to what, if any, action the 01lei take. All of the members indicated agreement with the opin- by Mr. McKee that no action by the Board was re:vired at 1933 14/2/42 _9McKee stated that the suggestion had been made by the 41111led 8ervices that a meeting of the representatives of the Federal Reaer7e B anks immlling Regulation V loans be heldin Washington at an el'17 date, and that the War Loans Cormittee was in agreement with this There was unanimous agreement that the meeting should be held on a date to be fixed by the War Loans Committee. At this point, Messrs. Thurston, Snead, Dreibelbis, Wyatt, end Thom— left the meeting, and the action stated with respect to each of ttel's hereinafter referred to was then taken by the Board: haezta The minutes of the meeting of the Board of Governors of the leserve System held on October 1, 1942, were approved unanimously. Ldemorandum dated September 25, 1942, from Mr. Stark, Assistant ti )414 - of the Division of Research and Statistics, recommending that Alic e Elizabeth Bourneuf be appointed as an Associate Economist in 51°11) With salary at the rate of '3,800 per annum, effective as t e date upon which she enters upon the performance of her duties aftvi ile; Passed satisfactorily the usual physical examination. Approved unanimously'. Letter to Mr. Fleming, President of the Federal Reserve Bank of elelld) reading as follows: 130 "Referring to your letter of September 24, 1942, the p af:d of Governors approves the appointment of Mr. Herbert Com.:4,adds, president of the National Screw and Manufacturing Cleveland, Ohio, as a member of the Industrial 1_934 10/2/42 -10Committee for the Fourth Federal Reserve District 1, serve for the remainder of the term ending February 28, 4.A3, to succeed Mr. Carl C. Gibbs, deceased." Approved unanimously. Letter to Er. Clerk, First Vice President of the Federal Re8erve g ank of San Francisco, reading as follows: 1 , "Reference is made to your letter of September 221 17:742, transmitting the report of examination of the Spring111 e Banking Company, Springville, Utah, as of September witl-`,942) and advising us that the expenditure in connection -" ..the remodeling of the bank quarters will reach apxlmately '42,000 instead of approximately .f32,500 as exelii011s1Y approved by the Board. You state that the amount ab ended in excess of the estimate does not appear unreasonthat by the Under present conditions, and it is understood bee end of the year the carrying value of the property will educed to 00,000 and in addition approximately $5,500 wil44- be charged off on the new equipmedit purchased. "In view of the circumstances the Board will interpose jection to the additional expenditure of approximately 000 for the purpose of remodeling the banking quarters." Approved unanimously. Letter to Mr. R. E. Anderson, Director of Finance of the 1:flitted St tes Maritime Commission, reading as follows: 24 "Receipt is acknowledged of your letter of September NI 1942, advising that a guaranteed loan to the Barneslith Shipbuilding Company, in the amount of $200,000, we, aPproved by the United States Maritime Commission on 118t 25) 1942. In this connection, there is enclosed a copy of a I.v'er received by the Board from Mr. H. G. McConnell, Asd4tElnt Vice President, Federal Reserve Bank of Minneapolis, ! cl September 22, 1942, with further reference to this 1,0" ;1 er. You will note from Mr. McConnell's letter that the ti,:e11€11 Reserve Bank deems it desirable, in view of the Mari140'1,e, Commission's General Order NO. 54 Revised of August 25, that certain authorizations in connection with the blr°Ye mentioned loan be specifically ratified and confirmed 'he Maritime Commission. 1_935 10/2/42 "It will be appreciated if you will advise us in this Ina ttar in order that we may reply to Mr. McConnell's letter." Approved unanimously. Letter to the Presidents of all the Federal Reserve Banks, as follows: "The Board has received several inquiries regarding he status under Regulation V: of a charge account in which s6:e balance remaining unpaid beyond the tenth day of the wil?°nd calendar month represents the sale of an article thleh the buyer has refused to pay for on the ground that e article is defective. In answering this question, three classes of cases need to be distinguished. "In the first place, if the Registrant takes the positi 4r11 that the article is not defective, he should consider account to be in default. "In the second place, if the article is defective so that the Registrant must correct the defect or replace the fr;lele in order to fulfill his obligations under the conei:;et of sale, the regulation does not require him to conthe account to be in default, pending such correction replacement. etti "In the third place, if on the 10th day of the second ellaar month after the date of sale the question as to ten" or not the article is defective has not yet been de1117,'1141eds the Registrant should consider the account to be vlthat efault. Of course, if it is subsequently determined the article is defective, the rule stated in the preParagraph is applicable. or "Whether a particular case falls within one or another t4 tIlese classes is a question of fact to be determined in Ree light of all of the surrounding circumstances. If the rant has taken the article back, this would ordinarily be 1,e an indication that he expects to correct the defect or e?lace the article. If the article is still in the posses41°4 of the customer, however, this vvould be an indication, the absence of other evidence, that the article is not detective or that the matter has not yet been determined. any case where the account is considered by the E% rant to be not in default, there would be a question 110' 0 whether the parties are acting in good faith and with rorintent to evade or circumvent the regulation, and there11,!,ila any such case the Registrant for his own protection or' 44 see that his records contain an adequate statement the relevant facts." Approved unanimously. 1936 -12Letter to Mr. Hart McCoriLick, District Clerk of Bexar County, 44 Ant ni °--0, Texas, reading as follows: "This is in reply to your letter of September 22, re' erding the Board's Regulation W. ri "You request that you be permitted to arrange the reof your outstanding instalment indebtedness on more liberal than would be permitted by the regulation. n-gulationIV is a regulation of general application and does cc) at Provide for the granting of exceptions in individual whses unless they fall under some general rule. It is only fo : 41,a ease falls within a class of cases, such as is provided L'Y section 10(d) in necessitous circumstances, that exaptions are available. 'In making provision for relief in the event of undue IVBhip I resulting froiu unforeseen contingencies, the Board viL concluded that it could go no further than to permit re01' refinancing for a period of twelve months. The peucl has been asked on several occasions to lengthen this lirlod but has considered that this would not be in the pub13ec.interest. You will readily understand that if a longer ' se; 1°c1 Were permissible the regulation could easily fail to debt !its purpose of stimulating early repayment of consumer bei 'Regulation W, as you are aware, is one of the measures /Ile; 14 tEtken as a part of the program to restrain the developor inflationary tendencies in the war emergency. You of . ‘ 14' recall that the President said in his message to Congress 111)1,'Pril 27, 1942, 'To keep the cost of living from spiraling er141*cis we must discourage credit and installment buying, and e4°11rege the paying off of debts, mortgages and other oblialial()Ils; for this promotes savings, retards excessive buying Du ,"ds to the amount available to the creditors for the ' chase of Wel- Bonds'. exp„"The only suggestion that we can make to you is that you fully the possibility of consolidating your incleC: iT Care lo te-Ress into one loan of more than $1,500, or several such 10 : 4e. The regulation is not specifically applicable to lls above .(1,500 and such a procedure would presumably en,1)1 4, 3 9 You to work out a schedule of payments that -mpuld be we.4e satisfactory than if the loans were not consolidated. 1 4°17 that you will keep in mind the program of which Regu1(111°4 W is a part and endeavor to liquidate the debt as rapto Y es possible in accordance with the same rules that apply other debtors. Approved unanimously. 1937 10/2/42 -13Letter to Mr. P. B. Moss, President of the Billings Utility Corai)ezY Bj lii5Montana, reading as follows: "This is to acknowledge your letter of September 15, .V42 maki ng a further request for a report which an exam: r made in connection with your application to the Fed1,, . a1 Reserve Bank of Minneapolis for a loan under section -" of the Federal Reserve Act. "It is understood that your complaint against the Pecle t, rel. Reserve Bank of Minneapolis has been considered by Pederal courts and in each instance the court held that ,srolir complaint had no merit. The Board is convinced that , h 111'aPplict-Aion for a loan was given careful consideration the Federal Reserve Bank and it also may be noted that report you requested is of a confidential nature. In the circumstances, we do not feel that it is appropriate for a copy of such rert to be furnished to you." 1 Approved unanimously, together with the following letter to Honorable James E. "Murray, United States Senate: en "This refers to your letter of September 23, 1942, p.T8iEC a copy of a letter addressed to the Board by Mr. MO, President of the Billings Utility Company, ' ' 4 lle,e) Montana, making a further request for a copy of at ti e aminer's reuort made in connection with his applica11 11 to the Federal Reserve Bank of Minneapolis for a loan ter the provisions of section 13b of the Federal Reserve to: Mx'. Moss had also sent a copy of his letter directed vi,. 1;he Board, and you will recall that we have previously tl'en to you regarding this matter under dates of May 20 3-114 9, 1942. 'Pursuant to your request, we are enclosing for your Ijo °Illation a copy of a letter we have just written to Mr. &ts.. and also a copy of a recent decision of the United ee District Court for the District of Minnesota holdina ' 13,:t.tat Mr. 'Moss' complaint against the Federal Reserve °f Minneapolis is without merit." a Thereupon the meeting adjourned. e,,P.05)b Secretary. Chairman.
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