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1469 A meeting of the Board of Governors of the Federal Reserve tem was held in Washington on Friday, September 14, 1945, at 10:30 a..m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Evans Mr. Hammond, Assistant Secretary Mr. Connell, General Assistant, Office of the Secretary Mr. Morrill, Special Adviser Mr. Thurston, Assistant to the Chairman Mr. Parry, Director of the Division of Security Loans Mr. Leonard, Director of the Division of Personnel Administration Mr. Thomas, Director of the Division of Research and Statistics Mr. Vest, General Attorney Mr. Brown, Assistant Director of the Division of Security Loans Mr. Wyatt, General Counsel There were presented telegrams to Mr. Flanders, President of the Pederal Reserve Bank of Boston, Mr. Treiber, Secretary of the FedReserve Bank of New York, Mr. Leach, President of the Federal Re41,1re B of Richmond, Mr. McLarin, President of the Federal Reserve 13,44k of Atlanta, Mr. Dillard, Vice President of the Federal Reserve of Chicago, Mr. Stewart, Secretary of the Federal Reserve Bank or St. Louis, Mr. Powell, First Vice President of the Federal Reserve tatik °f Minneapolis, and Mr. Caldwell, Federal Reserve Agent at the el'al Reserve Bank of Kansas City, stating that the Board approves 9/14/45 -2- the establishment without change by the Federal Reserve Bank of Atlanta °11 September 12, by the Federal Reserve Banks of New York, Richmond, St. 411182 Minneapolis, and Kansas City on September 13, 1945, and by the Federal Reserve Banks of Boston and Chicago today of the rates of disccAllit and purchase in their existing schedules. Approved unanimously. Mr. Ransom presented a proposed amendment to Regulation Vt., Cons— 'uaer Credit, to exempt credits for home repairs and improvements kC1 t lengthen from 12 to 18 months the maturity limitation on all 10ah which are not for the purpose of purchasing consumers' durable gooda. After the discussion which followed it was agreed that, in view of the likelihood that the Office of Economic Stabilization and Ilecon version would shortly relax restrictions on construction controls, it wo uld be more appropriate if action by the Board as contemplated ill the Proposed amendment be deferred till thereafter, and accordingly the ecretary was requested to place the matter on the docket for ' 1'14th er consideration at a later meeting of the Board. At this point Messrs. Smead and Horbett joined the meeting, arld e3sre Parry and Brown withdrew. Mr. McKee referred to a memorandum from Mr. Smead dated Septettther, 72 1945, recommending approval of the request of the banks in ..`ilrlall, Georgia, that the reserve city designation of that city be 9/4/45 —3— discontimued. This matter had been previously discussed at a meet— Of the Board on June 28, but at Mr. McKee's request action had been postponed in order to afford the Board an opportunity to review the situation of other comparable cities. Mr. McKee pointed out that ehallgee in reserve city designation had been undertaken only on the initiative of the banks in the cities concerned and that there had 415t been any over—all attempt to equalize differences in reserve and 4°1Theeerve cities. To equalize the many disparities between the two, ther e being many nonreserve cities of much larger size and with much ger deposits, including inter—bank deposits, than were found in 1441Y reserve cities, would take much time and thought. In these cir— el/1118tances, Mr. McKee felt that action on the Savannah petition should 11(1.4 be deferred for consideration of the entire problem. Upon motion of Mr. McKee the petition of the banks in Savannah, requesting that the designation of Savannah as a reserve city be discontinued, was unanimously ap— proved, and, pursuant to the provisions of Section 11 of the Federal Reserve Act, such termination shall be effective October 1, 1945. It was generRI]y agreed that this whole matter of basing re41,1re 8 on classification of banks by cities was of sufficient impor— tkte e to bring to the attention of the Presidents' Conference and that It tt. -40434 be left to Mr. McKee to present it to the Conference. 9/14/45 1 At this point Messrs. amead, Leonard, Thomas, Vest, Horbett, 841dViyatt withdrew from the meeting. The action stated with respect to each of the matters herein— after 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 September 13, 1945, were approved unani— ktisly. Letter to the board of directors of the "Barnes Banking 13 '" Con— _aysville, Utah, stating that, subject to conditions of mem,- tersts.2 numbered 1 to 3 contained in the Board's Regulation H, the toar, approves the bank's application for membership in the Federal Reae rve System and for the appropriate amount of stock in the Federal re Bank of San Francisco. " Approved unanimously, together with a letter to Mr. Day, President of the Fed— eral Reserve Bank of San Francisco, read— ing as follows: "The Board of Governors of the Federal Reserve Sys— te41 approves the application of the 'Barnes Banking Com— Kaysville, Utah, for membership in the Federal 4 serve System, subject to the conditions prescribed in ! enclosed letter which you are requested to forward 4) the Board of Directors of the institution. Two copies ' °f such letter are also enclosed, one of which is for Y,Our files and the other of which you are requested to rward to the Bank Commissioner for the State of Utah or his information. "In view of the unusual circumstances in this case flc1 in accordance with your suggestion, the Board has no ? A !-.4.4 " 9/14/45 -5- objection to admitting the bank to membership as of June 19, 1945, and the certificate of membership when issued wIll bear that date. "It is assumed that, if he has not already done so, Counsel for the Reserve Bank will review au l agreements and contracts entered into between the presently operating Institution and its predecessor covering the purchase of ”sets from, and the assumption of liabilities of, that institution and any and all other agreements and contracts between such institution and the stockholders and/or directors or other individuals or concerns, incident to the organization of the new bank, and will satisfy himself as to their legal aspects. It is requested that a copy of the opinion of your Counsel given in this connection, together with copies of such agreements and contracts, be forwarded to the Board as soon as possible." Letter prepared for the signature of Vice Chairman Ransom to COri essman Brent Spence reading as follows: "In accordance with the request contained in your letter of August 11, 1945, we have drafted the enclosed letter with the thought that a copy of it may properly eompany your answer to Mr. A. B. Renaker, President, ,eoples Deposit Bank, Burlington, Kentucky, relating to ipe question of absorption of exchange charges by member ranks. I am hopeful that you will find the letter satisact°rY and if I can be of further assistance please let ms know. "Mr. Renaker's letter is returned herewith, together with an extra copy, for your files, of the Board's letter ().f June 22, 1945, referred to in our correspondence." r Approved unanimously, together with the letter referred to above reading as follows: "This refers to your letter of August 11, 1945, recillesting information with regard to a 'ruling' by the Board ?f Governors of the Federal Reserve System with respect to the absorption of exchange charges by member banks. "It seems evident that your inquiry has reference to 1474 9/14/45 -6- "a letter which the Board sent to aJ1 member banks of the Federal Reserve System under date of June 22, 1945, and a Copy of that letter is enclosed for your information. "As you know, in 1933 Congress amended the Federal Reserve Act by adding a provision which prohibits any mem— ber bank from paying interest on a demand deposit 'directly or indirectly, by any device whatsoever'. The Board of Governors of the Federal Reserve System is charged with the responsibility of enforcing this provision and is ex— Pressly authorized by the law to determine what shall be deemed to be a payment of interest. Following the ordinary meaning given the term by the courts in decided cases, the Board defined 'interest' in its Regulation Q as 'any pay— ment to or for the account of any depositor as compensation for the use of funds constituting a deposit'. Consequently, the Board has taken the position that where the circumstances of a specific case indicate that exchange charges are being Paid and absorbed by a member bank as a means of compensating its depositor for the use of funds constituting a deposit, the absorption of such charges constitutes a 'payment of interest' in violation of the law. "No doubt you will recall that during 1944 Congress had under consideration a bill which would have expressly eolared that the absorption of exchange charges by member :0anks should not be considered a payment of interest but -chat this bill was defeated in the Senate. "The Board's letter of June 22, 1945, makes no change in the Board's position as to the law on this matter, but 1 :!presents merely an effort to clarify for member banks e question as to what extent the absorption of small ?.mounts of exchange would be regarded as trivial and would .th be disregarded in considering violations of the 'erefore ,!PPlicable provision of the law. A number of member banks viiad requested a statement from the Board as to what amounts 1°1-11d be regarded as trivial and the letter was written t1111Y after full and complete discussion with representa— .° Ives of a large number of the member banks primarily in— , rested and in response to their own suggestion." 5 Letter to the Presidents of all the Federal Reserve Banks read- 14,g 48 follows: "For your information, there is enclosed a photostat ‘1,-;45 9/14/45 -7- "of a memorandum received by the Board from Lieutenant Commander George W. Cook, Jr., Chief of Finance Division of the Navy Department, regarding certain organizational changes which have been made in the Navy Department, the authority of certain officers of the Navy Department to sign guarantee authorizations, and setting forth the specimen signature of Lieutenant Douglas R. Fuller, who has been appointed Deputy Chief of the Finance Division. "There are also enclosed copies of the enclosures with Lieutenant Commander Cook's memorandum. Of those enclosures, we are sending you a photostat of the memorandum from the Assistant Secretary of the Navy to the Chief of the Finance Division, dated September 11, 1945, which conains specimen signatures of Mr. W. John Kenney and Mr. P. McGuire; and we have in the Board's files photostats of the directive of the Acting Secretary of the Navy of August 20, 1945, and of the memorandum from the Acting Secretary of the Navy dated August 23, 1945." Approved unanimously. Letter to the Presidents of all the Federal Reserve Banks readas follows: "At the June 18, 1945, Conference of Presidents, there Was a discussion of the adequacy of banking quarters of the _f ederal Reserve Banks. The general sense of the discussion 'fldicated that the volume of business at the Banks will be larger after the war than it was before and that:, in many cases additional space will have to be provided to take care of these expanded operations. "In these circumstances, most of the Federal Reserve .3anks are actively laying plans for the erection of new or he alteration of existing head office or branch structures. 343me of the Banks have acquired building sites or other Property for the purpose of enlarging quarters. Alterations ?Proved by the Board some time ago are under way at two or three offices, and in one case the Board has approved major alteration and an addition to the present building when labor and material conditions justify beginning con;:truction. The preparation by two of the Banks of prelim1arY plans and specifications was recently approved by , t1, "e Board with the understanding that it did not include ! Aff ,41.41 —to e0 9/4/45 -8- "any commitment as to whether or when approval would be given for the actual construction work. "The action of the Board in the three instances last referred to was taken in the light of the existing shortages of certain building materials and, in some areas, of construction labor. This situation probably will continue Tor some time, and it is the view of the Board that, except ln case of urgent need, no projects not now under way should be undertaken by the Federal Reserve Banks until it is clear that labor and materials are readily available and the timing of the construction will be in harmony with the transition and postwar building program. However, the Board does believe that it is desirable for the Federal Reserve Banks to proceed with preliminary plans for the provision of such additional space as appears to be necessary on the basis °f the probable future volume of Federal Reserve Bank operations, so that construction work can be commenced without delay when conditions permit. "In this connection, it will be recalled that at the February 28, 1945, meeting of the Presidents and the Board .(,) Governors reference was made to the existing statutory -Limitation upon the amount that Federal Reserve Banks may ePend in erecting branch buildings. At that time it was that because of other important legislation before Congress 'ongress no request should be made for a liberalization or removal of the limitation. The Board is of the opinion that the limitation should be removed and is preparing a draft of bill to that end which it will bring to the atten2'c'n of the appropriate Congressional committees at the 11rst favorable opportunity." Approved unanimously. Letter to the Presidents of all the Federal Reserve Banks read- as follows: "The Presidents of the Federal Reserve Banks agreed at their meeting on June 22-23, 1942, that appropriate 8tePs should be taken to seek authority from the Secretary ?! the Treasury to put into circulation the existing stocks ul unissued 1928 series Federal Reserve notes as a war emer,riOY measure to conserve labor and material, and on August vi 1942, the Board advised the Treasury of this action. r 9/4/45 —9— "No formal decision on the matter was made by the Treas— urY Department, but it was understood informally that the Treasury Department did not look with favor on the issu— ance of the 1928 notes without taking the matter up with Congress, or at least with the Chairmen of the Banking aId Currency Committees of the Senate and House. "It will be reca]led that in December 1935 the Board of Governors and the Federal Reserve Banks acquiesced in the proposal of the Treasury Department to discontinue the Issuance of new Federal Reserve notes of the 1928 series as soon as a sufficient stock of the 1934 series was avail— able, and that at the time the Treasury agreed to submit to L'?ngress the question of authorizing an appropriation per— mitting it to replace the unissued stock of 1928 series notes. In advising the Secretary of the Treasury of the decision of the Board and the Banks, the Board stated that ._t_he action would not prejudice the right of the Reserve Banks to resume paying out the 1928 series notes in case the Treasury Department was not authorized by Congress to replace the stock with notes of the 1934 series. In the ,0ard's letter of January 20, 1936, the Board advised the 8 , ederal Reserve agents that 'New Federal Reserve notes of ue 1928 series now held by you should be retained for the resent for possible emergency use.' In 1937 a bill was .ntroduced in Congress providing for the destruction of hs 1928 series notes and for their replacement by the , ;treasury with notes of the 1934 series. Hearings were rld by the House Banking and Currency Committee, but the 411 was never reported out. Since 1937 the Board has authorized issuance by the agents of Some of these notes ,I1c1 the destruction of some to free needed vault space. Itt the present time there are about $4,104,000,000 of cam— Pleted notes on hand, of which $2,812,000,000 are in tash— !ngton and $1,292,000,000 are in the hands of the Federal ,eerve agents. In addition there is a stock of about 27 /14 ,500 sheets of incomplete face printed notes at the ;72 4reau of Engraving and Printing. " "The Board has recently reviewed this matter and has .2.°me to the conclusion that the existing stock of Federal tl,eeerve notes of the 1928 series should be destroyed, since ' .phere appears little likelihood that they will ever be used 4.°r circulation purposes and destruction of the notes would ake available substantial amounts of vault space both at t 9/14/45 —10— "the Banks and at the Bureau of Engraving and Printing. Before reaching a final decision, however, the Board would like to have your views on the proposed action. There is enclosed for your information a copy of a letter which Will be sent to the Secretary of the Treasury if and when the proposed action is taken." Approved unanimously Thereupon the meeting adjourned. Assistant Secretary. Chairman.
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