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Minutes of actions taken by the Board of Governors of the Iteclel'al Reserve System on Friday, September 16, 1949. The Board tet in the Board Room at 10:00 a.m. PRESENT: Mr. McCabe, Chairman Mr. Draper Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Riefler, Assistant to the Chairman Vest, General Counsel Nelson, Director of the Division of Personnel Administration Mr. Millard, Director of the Division of Examinations Mr. Solomon, Assistant General Counsel Mr. Smith, Special Counsel Mr. Mr. Mr. Mr. Mr. Mr. Reference was made to the discussion at the meeting on Septembel. 13, 1949, of a memorandum from Mr. Townsend, Solicitor, dated Sep- tetber 8, 1949, with respect to making available to attorneys for Tray, 4samerica Corporation in connection with the Clayton Act proceedike glgainst the Corporation, confidential sections of reports of ex414etion of the Corporation and of the banks in the holding company group. In response to a question from Chairman McCabe, Mr. Vest stated th,at vhile there were strong considerations on either side, he felt the tioaa„,, `t should not make the confidential sections of examination reports -4-lable to Transamerica Corporation, that this course involved the risk (1st a possible reversal when the case reached the courts, and that the qUestion was one of policy whether the Board should eliminate this 1_510 9/16/49 -2- risk by producing the sections or maintaining the long established 131311cY of not making the sections available to any outside persons. Ellett if the court held. against the Board on this point, he said, it 1148 tot likely that that issue alone would result in a reversal of N'order for divestment which might be issued by the Board. t°re, he felt the Board might take the risk involved. There- Mr. Vest also 13ailithat he would not favor taking up with the Comptroller of the allrrencY or the Federal Deposit Insurance Corporation the question /lhether those agencies would make available the confidential sections otexamination reports of national and nonmember insured banks as di8classed at the meeting on September 13. Mr. Smith stated that strictly from the standpoint of the elEtYtoll Act proceeding and without regard to the policy question, on he was not in a position to advise the Board, he felt the consections of the reports should be made available to Trans61111ca because the Board had placed in evidence numerous opinions Nz,z."Bed by the examiners in their non-confidential reports, and that 11 his opinion Transamerica was entitled to see the confiden1 sections to determine whether there might be anything in those Dtxrt8 which would be inconsistent with the examiners' opinions offered bY tha - Board or otherwise favorable to Transamerica's side of the case. 484aed that his opinion was based upon the legal question involved 1114 that he could appreciate M±. Vest's position, that it was a questi°11 °I" policy to be decided by the Board in terms of the probable 1511 9/16/49 -3- "rects of withholding or making available the information, as com131111ed with the desirability of continuing the long-established policy or tot making available material from confidential sections of examillation reports except to the supervisine, agency. 04 tO--smY Mr. Smith went that if the confidential sections were not made available, 441the question were raised in court, it was probable that the decia lvould be adverse to the Board but that this would not necessarily reversal of an order that might be issued by the Board at the close of the hearing: since the Board could request the court to selid the case back to the Board for admission of this evidence, at vilieh time the Board could finally decide whether the confidential 8ecti°104 should be put in or the case should be dropped. Mr. Millard stated that the confidential sections of the re°t on Transamerica Corporation contained numerous references to the cotfidential sections of the reports of individual banks which 11°11° Members of the holding company group and that it would not be 131'4 " 4cable to delete such references and make the remainder availHe emphasized that in his opinion it would be a most serious 418telte to make available material from the confidential sections of s'ullation reports because such a procedure would have an extremely Eti.v.er'Se effect upon the willingness of examiners to comment or exDres, ' °Pinions in the confidential sections in the future. Mr. Vest stated that no formal request for the information was 401,1 uefore the Board and that the only action needed was to inform 15-12 9116/49 -4- III% Townsend of the decision of the Board in response to his memorejaduz. There followed a discussion of the matter and of the quest1011 'whether inquiries should be made of the Comptroller of the CurrelleY and the Federal Deposit Insurance Corporation to determine I'llether those agencies would be willing to make available confidentia1 s ections of reports of banks under their jurisdiction. tile It was that the Board should not make available the material at this time and, having so decided, it was not necessary to take /1Pliith the Comptroller of the Currency or with the Federal Deposit 1144Jrance Corporation the question what they would do with their rePorts. It was understood that Mr. Morrill would inform Mr. Town- 4 telephone of the Board's decision. Before this meeting there had been sent to each member of the 33 oard a draft of a statement and order to be issued in response to the - request received from Transamerica Corporation under date of aet e--er 10, 1949, with respect to the authority of the Board to isetle stibpoenas. The draft stated that the Board did not have such Dover and that it was therefore denying the request of Transamerica °°rPo ration for subpoenas of Transamerica witnesses. The matter was discussed and it was agreed that it should be 4eted uPon at the first meeting at which a quorum of qualified mem- belie Ifts present. 91/W49 Mr. Vest then referred to a -Notice and Demand for Producti°11 cf Papers in the Board's Files" received from Counsel for TransCorporation under date of September 10, 1949, and stated that the search for the information demanded was about completed and some, bIlt tot all, of the material had been analyzed. He said that in con- Sidering whether material should be made available both he and Mr. Sillith felt it would be desirable from the standpoint of the Board to ktovi whether Mr. Townsend would object to making the requested ma- tellea available, and that it would also be desirable to ascertain the views of the Comptroller of the Currency and the Federal Deposit 'ance Corporation with respect to furnishing information on appli°ns to establish new national banks or to obtain Federal deposit "gzance for new nonmember state banks or to establish new branches or both such classes of banks. It was understood that the Secretary would communicate with Mr. Townsend and with the Comptroller and the Federal Deposit Insurance Corporation for the purpose of ascertaining their views as suggested by Mr. Vest. Mr. Szymczak, who had been delayed because of a meeting of the A,z1 Roc Committee of the Board of Governors of the International Bank rOr Reconstruction and Development of which he is a member, entered the rileeting at this time, and upon being informed of the above actions, ,d +, state- - at he wished to be recorded as voting for them. Mr. Vest described briefly the material demanded by Trans111Lerice. Corporation and stated that inasmuch as the request for its 1514 9/16/49 -6- c'cluction asked that it be made available before the hearing re()Illed on Monday, September 19, 1949, he felt it would be desirable the Hearing Officer to be informed that the Board was consider- the request but had not been able to complete action on it so that „ the Hearing Officer could make a statement for the record at tIletime the hearing reopened. It was agreed unanimously that the Secretary should send Mr. Hodge, Technical Adviser to the Hearing Officer, a wire reading as follows: "It is suggested that on Monday, September 19, the Hearing Officer make and include in the record a stateMent somewhat as follows if he considers it appropriate: 'The Board advises me that it received on September 12th a "Notice and Demand for Production of Papers in the Board's Files" filed by Counsel for the respondent. The Board is now considering this matter but it has been impossible to complete its consideration and render a decision up to this time, especially since it involves the necessity for examining the files of the Board in some detail. I am informed, however, that the Board is proceeding with its investigation and consideration of the matter expeditiously and will render its decision as soon as possible. The Board will also render its decision as soon as possible on the "Request for Formal Determination of Power to Issue Subpoenas and Application for Subpoenas" which was also filed by Counsel for the respondent and received by the Board on September 12.'" Messrs. Millard and Smith withdrew from the meeting at this t e z111(1- Mr. Eccles and Messrs. Leonard, Director of the Division of tajolt Operations, Thomas, Director of the Division of Research and St4Itistics, and Young, Associate Director of the Division of Research 1.1°4 Sta tistics, joined the meeting. 1515 9/16/49 Mr. carpenter stated that a telegram had been received from the Federal Reserve Bank of New York late yesterday afternoon read( 41 as follows: "Our Board of Directors today voted, subject to review and determination of the Board of Governors of the Federal Reserve System, to eliminate the rate of 1-1/2 Percent on discounts for and advances to member banks under section 13 and 13A, and to establish a rate of 1-1/4 Percent thereon; to eliminate the rate of 2 percent on advances to member banks under section 10(B), and to establish a rate of 1-3/4 percent thereon; to eliminate the Mtaimum buying rates of 1-1/2 percent on bankers acceptances and 1-1/2 percent on trade acceptances, and to establish minimum buying rates of 1-1/4 percent thereon; aad to eliminate the rate of not less than 1-3/8 percent in connection with purchases of Government securities under resale agreement as authorized by the Federal Open Market Committee on August 5, 1949, and to establish a rate of 1-1/4 percent in connection with purchases of such securities under resale agreement as authorized by the executive committee of the Federal Open Market Committee at its meeting held January 20, 1948. Otherwise the Federal Reserve Bank of New York has today established without change the rates of discount and purchase in existing schedule. "Action taken in light of need and appropriateness /4.th respect to existing structure of interest rates in the market resulting from prior reductions of reserve reqUirements and open market operations and with view to helPing retain initiative with respect to domestic business situation and international developments. Believe ,111Portant that chpinge, if favorably reviewed and determined 03, Board of Governors, be announced not later than close 0f business tomorrow, Friday, September 16th, effective 14°11daY morning, September 19th." Mr. Szymczak questioned whether the New York Bank should have tejte 4 this action in the absence of discussion and determination of 4R -Ystem program and said that pending such discussion and determination he would not favor approval of the new rates. 4. I_ _ • 1_ 9116/49 -8Chairman McCabe stated that Mr. Sproul mentioned to him (111September 14, that the directors of the New York Bank might take this action, that he (Chairman McCabe) expressed surprise that the aitectors were contemplating such a move, that he informed Mr. Sproul °t the substance of discussions of discount rates at the meetingsof the Board on September 6 and 13, 1949, at which it was the consensus Orthe Board that in view of the improved economic situation in recelit weeks no reduction in discount rates should be made at present, that he also said that the subject was on the agenda for consideration "the meeting of the Federal Advisory Council to be held September 18'2°) 1949, and that after the Board had received the views of the ?easl'al Advisory Council on the question it would give further consideration to what action, if any, should be taken. lied Mr. Sproul re- he said, that he thought the directors would act at their rilestitig on Thursday to reduce the rate. Mr. Morrill said that Mr. Gidney, President of the Federal Bee Bank of Cleveland, called him on the telephone yesterday and 14 tha course of his remarks stated that at least some of his directors lksuld be opposed to a change in discount rates at this time, 444 that 4 -- 41 a conversation with Mr. Young, President of the Federal Ress Ilia Bank of Chicago, the latter stated that the directors of the Chic ago Bank were strongly opposed to a change. Mr. Morrill also said that 111" Evans called him yesterday and said that he would prefer that 1 1519 9/16/49 _9.. cliscoUnt rates not be changed at present. There was a discussion of the action taken by the New York 1364* in the light of procedures followed in the last several years illconnection with approval of discount rates at the Federal Reserve 44 during which Chairman McCabe suggested that Mr. Sproul be in' 4 t°111lied that action by the Board on the new rates proposed by the lie"°rk Bank would be deferred until next week when there would be oPPortunity to receive the views of the Federal Advisory Coun- 11 and the Presidents of other Federal Reserve Banks. The foregoing suggestion was approved unanimously, and in a subsequent discussion it was understood that a meeting of the executive committee of the Federal Open Market Committee would be called for Wednesday, September 211 1949, at which the relation of a reduction in discount rates to open market policy would be considered. There were presented telegrams to the Federal Reserve Banks Or DI.. " 418.de1phia, Cleveland, Atlanta, Chicago, St. Louis, and San Prez_ . ulsco stating that the Board approves the establishment without chatale_ v by the Federal Reserve Bank of San Francisco on September 131 13 the Federal Reserve Bnnk of St. Louis on September 14, and by the ecleziaa Reserve Banks of Philadelphia, Cleveland, Atlanta, and Chic43 on September 151 19491 of the rates of discount and purchase 14 their existing schedules. Approved unanimously. 1518 9116/49 Mr. Thomas withdrew from the meeting at this time. Before this meeting there had been circulated among the membets of the Board a draft of letter to Mr. Dearmont, Chairman of the Elt , n %-nairmen's Conference, prepared in accordance with the discussion the meeting on September 6: 1949, stating that after consideration Of tha legal problems involved and the changes in benefits in the iletiteMent System adopted in May of this year, the Board had con°-11101.ed that it would be inadvisable to establish any regular plan totltdded benefits for Presidents of Federal Reserve Banks after ret4einellt• The draft also stated that if at the time of retirement "et President of a Federal Reserve Bank the board of directors of the b 'exik felt that the retirement allowance as provided under the and regulations of the Retirement System was ndt appropriate 14the light of all the circumstances surrounding the particular case, the 13c)ard would be glad to discuss with the directors the propriety Of 8143Plementing such allowance. In a discussion of the proposed letter, Mr. Eccles stated that he °lad have no objection to considering requests for supplementing 8.11 cl'''/ance in any individual case where all the circumstances seemed to justifY such action but that, for reasons discussed, he felt it VOUi 4t not be desirable to establish a regular plan which assured men +4_ the -Julie they were employed supplemental allowances in addition to .1„,_ "te benefits provided under the retirement system which was one of theta °13t liberal in existence. He also stated that experience showed 1519 9/16/49 -11- that there was no need for such an inducement in order to secure lie Services of outstanding men in cases where it became necessary tc)1% a Federal Reserve Bank to go outside in order to hire a presi44t. Chairman McCabe suggested that before the proposed letter toMr Dearmont was mailed, he would like to discuss with the Com- 41881-oner of Internal Revenue the question how private corporations htt4died the problem of retirement allowances for men who were brought i140 tl-uu companies relatively late in life and report to the Board. Chairman McCabe's suggestion was approved unanimously. Mr. Szymczak referred to the action of the Board on July 26, 1911n, uhich extended from June 28, 1949, to September 28, 1949, the leav of John Exter, an economist in the Division of Research and ' Statistics, presently acting as adviser to the Government of Ceylon "latters relating to the proposed establishment of a Reserve Bank. S., --Ld that the Ceylonese Government had again requested through the 8Utt „ - -uepartment an extension of Mr. Exter's services and that the lieclIt et e- -, which was presented through the American Ambassador to Ceylon, Iltr°41Y urged that Mr. Exter be granted additional leave for a period Of 0 Ile Year from September 28, 1949. Mr. Szymczak also referred to the offer made by the Board in a letter to the State Department on 4 26, 1949, to undertake, if requested, to make available to the 'rtMent of Ceylon the services of Mr. Norman P. Davis, an Assistant 1520 9/16/49 -12- Vice President of the Federal Reserve Bank of New York, for a period "aPProximately six months from the latter part of September, and 8tated that no request had been submitted by the Ceylonese Govern1441.4 fc)r Mr. Davis' services for the reason that they wanted to Exter remain another year to be there during the discussion the Proposed legislation and to avoid the necessity of selecting all'ther adviser either from the United States or England. In the eirclunstances, the State Department in discussion with members of the Board's staff had prepared the following draft wire to the Ameri44bassador in Ceylon proposing a compromise arrangement which °lac' permit I. Davis to serve as Mr. Exter's associate and con- t1tm -e as adviser of the central bank after Mr. Exter left: "REURTEL 199 Sep 1 owing personnel requirements here PRB will not be able to comply proposed request Exter reone year from this Sep 28. If you concur make following proposal GOC: 1. FRB will agree extend Exter's stay until Jan 1,1950. 2. Ceylonese Govt request Davis proceed from Tokyo to C°10mbo as soon as present assignment in Japan completed to act as Exter's associate for balance of Exter's stay in %ion mainly concentrating operational aspects problem. According present prospects Davis should be able arrive Colombo about Nov 1. 3. Dept and FEB would hope GOC would desire request ,avis continue as bank adviser after Exter's departure but ‘his regarded as matter later decision GOC. In view Davis "signment Japan not expected to extend beyond mid-Oct and necessity FEB adapting plans to time Exter's expected reto Washington would desire definite reaction from GOC cY Sep 26 including request to FEB for Davis as Extorts "eociate if above program approved. 4, For urinfo complete rejection of offer of Davis services would make most unfortunate impression upon FEB which genuinely anxious assist in every way feasible. 4 9/16/49 -13- "Seems to us that political obstacles to GOC acceptance of 'new American' would be greatly reduced if Davis were presented at least initially as Exter's associate." There followed a discussion of the work being done by Mr. 4ter and of the reasons for an extension of his leave in order to e°q11ete his task to a point where the results already accomplished 11°u1d not be lost. At the close of the discussion, upon motion by Mr. Draper, the above draft of cable was approved with the understanding that it would be revised to extend Mr. Exter's leave to December 15, 1949, and with the further understanding that there was no commitment of any kind to extend the leave beyond that date. At this point Messrs. Riefler, Leonard, Vest, Nelson, Young, 4418°10mon withdrew, and the action stated with respect to each of the Laatters hereinafter referred to was taken by the Board: Minutes of actions taken by the Board of Governors of the FedReserve System on September 14, 1949, were approved unanimously. Memorandum dated September 121 19491 from Mr. Thomas, Director Of the Division of Research and Statistics, recommending an in- el'a'se in the basic salary of Samuel I. Katz, an economist in that 1)41s1(311) from $5,232 to $6,235.20 per annum, effective September 18, 1949. Approved unanimously. Memorandum dated September 121 1949, from Mr. Vardaman recomding an increase in the basic salary of Mrs. Laura K. Thomas, a stet, °eraPher in his office, from $31024.96 to $3,100.20 per annum, 1522 9/16/49 -14September 18, 1949. Approved unanimously. Letter to Mr. Sproul, President of the Federal Reserve Bank cit Nell York, reading as follows: "The Board of Governors approves the payment of salaries to the following officers at the rates indicated for the period October 1, 1949 through March 31, 1950; the rates being those which were approved by the Executive Committee of the Board of Directors of the Bank and rePorted in your letter of September 8, 1949: Salary Title Name $15,500 Asst. Vice President W. F. Treiber 11,000 Asst. General Auditor G. R. Bowman 11,000 M. A. Harris Manager Secretary and AssisJ. J. Clarke 12,500 tant Counsel J. J. Carroll Manager and Assistant 12,000" Secretary Approved unanimously. Telegrams to Mr. Rouse, Vice President of the Federal Reserve 1184k °f New York, reading as follows: "Your wire September 15. Subject to a request from lanco Central del Ecuador, Board approves the granting °f further loan or loans on gold by your Bank to Banco Central del Ecuador on the terms and conditions outlined ill Your wire as follows: (A) The amount to be advanced under this arrangement not to exceed $3,400,000 in the aggregate at any one time ontstanding; such loan or loans to be made up to 98 percent of the value of gold bars held in your vaults as collateral; (B) Each such loan or renewal thereof to run for 90 days but no loan or renewal thereof to mature later than 180 days after the date of the first such loan and 14 no event later than April 15, 1950; (C) Each such loan and any renewal thereof to bear interest from the date such loan is made or renewed until paid, at the discount rate of your Bank in effect tF 523 9/16/49 -15ti the date on which such loan or renewal is made. "It is understood that the usual participation in ax 7 loan or loans will be offered to the other Federal Reserve Banks." Approved unanimously. Letter to Mr. Erickson, President of the Federal Reserve Bank orBoston, reading as follows: "This refers to Mr. Latham's letter of August 23, 1949, with regard to the applicability of section 32 of the Banking Act of 1933 to Mr. E. V. Otis as an officer Of Gearhart, Kinnard & Otis, New York, New York, and as a director of the First National Bank of Yarmouth, YarmouthPort, Massachusetts. "On the basis of the information which your bank has furnished, it appears that the firm of Gearhart, Kinnard & Otis did not engage in any underwriting activities during the calendar year 1947; that it participated in three underwritings in 1948, in which it sold approximately $250,000 Of securities; and that thus far in 1949 its only underwriting activity was the sale of $150,000 of securities. It also appears that the dollar volume of brokerage transactions handled by the firm was approximately $4,300,000 in 947 and in excess of $2,500,000 in 1948. In this connec' tion, it was understood in a telephone conversation between 14r. Berge of your bank and Mr. Cherry of the Board's staff that the reference in Mr. Latham's letter to the purchase and sale of securities by the firm on behalf of others in the over-the-counter market refers to brokerage transactions or transactions in which the firm acted as agent for others. "The above information indicates that the firm at this time is not primarily engaged in the business described in section 32 and therefore the service of Mr. Otis is not Prohibited by such section. However, it should be understood that any expansion of the underwriting activities of the firm may bring about a different conclusion." Secretary.
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