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1524 Minutes of actions taken by the Board of Governors of the Fede1 Reserve System on Monday, September 19, 1949. The Board met in t4 Board Room at 2:45 p.m. PRESENT: Mr. Mr. Mr. Mr. McCabe, Chairman Szymczak Draper Vardaman Carpenter, Secretary Sherman, Assistant Secretary Thurston, Assistant to the Board Leonard, Director, Division of Bank Operations Mr. Thomas, Director, Division of Research and Statistics Mr. Vest, General Counsel Mr. Millard, Director, Division of Examinations Mx. Mr. Mr. Mr. Before this meeting Chairman McCabe discussed with the avail81*.e MeMbers of the Board the information that he had received from 8Proul, President of the Federal Reserve Bank of New York, fol144rilag the meeting of the Board on Friday, September 16, 1949, when c°481aeration was given to the action of the directors of the New York taNit ---' In reducing the discount rate of the Bank from 1-1/2 to 1-1/4 Dere:el:It' Mr. Sproul had informed the Chairman that when he recommended to tileb°ard of directors of the Bank on Thursday that the reduction be 8.151)r01!recl, he knew of the proposed announcement over the weekend of the cleallation of the British pound, that he had not disclosed that fact to the board of directors because of its confidential nature but had ttlEtde "1-8 recommendation on other grounds including the economic situa- 4 and the view that the reduction was a logical step to be taken as 1525 9/19/49 -2- 1314"t of the System's easier money policy initiated during the summer Ithea reserve requirements were reduced. At this meeting Chairman McCabe stated that Mr. Sproul felt 131*(3ng1Y that the devaluation of foreign currencies was an additional Btrtnig reason for reducing the discount rate and that it would be better to announce the change immediately as a part of the System's Nram rather than to have the announcement come at a later time when Zight appear that the reduction was being made to offset the effects °t devaluation. It was Chairman McCabe's opinion that immediate action was deItetble as a part of the System's program as contemplated at the Au'114t, Meeting of the Federal Open Market Committee and as a part of the 84teM's credit policy as agreed upon at that time for which devaluaticv, of foreign currencies afforded an additional reason. ' In the ensuing discussion, question was raised whether action be taken before the Board had had an opportunity to discuss the 4141 'er with the Federal Advisory Council, and Chairman McCabe stated h" 141111e, as indicated at the meeting of the Board on Friday, there reasons for not taking the action at this time he felt that on 1)1144Lee it would be better to take immediate action on the grounds that, If there should be any adverse reactions to the devaluation of tore4 -Lgn currencies, action to reduce the rate a week or ten days from 4°14 vould appear to be for the purpose of counteracting those reactions. 9119/49 _3In a further discussion, the other members of the Board pre- 133:1.t indicated agreement that action should be taken to reduce the (118coluit rate. Thereupon, in order to enable Chairman McCabe to keep another 4Poittment, the meeting recessed with the understanding that it would ree °Avene later during the afternoon when Messrs. Eccles and Clayton ecslad be present. The meeting reconvened at 4:05 p.m. with the same attendance 48 et the earlier session except that Messrs. Eccles and Clayton were 440 present. There was a further discussion of tho action of the board of directors of the Federal Reserve Bark of New York in reducing the Elcolant rate of the Bank, and in that connection reference was made to the statement submitted by the Federal Advisory Council on the Ject of discount rates which was to be discussed by the Council llith the Board at a joint meeting tomorrow morning. Mr. Eccles stated that he did not see any relationship beeeA the discount rate and the devaluation program, that the effects or t he devaluation program would be long-term in nature, and that in ttle inimediate future it might have no effect upon the domestic economy. `41t on to say that if discount rates were now reduced, it would 1XO 4 '44.cate that the Federal Reserve System wanted to cheapen money furthet, that the System was expecting further deflation, and that the t4°I'le lias being taken as a means of counteracting such deflation. He 9/19/49 -4- 44° said that for several weeks economic activity and bank loans 1144been expanding, that it was not clear whether this expansion litIttl.d continue or be reversed, and that he did not feel a reduction 114(l1scount rates should be made in anticipation of a possible downtu ' tellvhich might not take place. Continuing, Mr. Eccles said that 1171 ' esPeotive of the economic effects of devaluation, there were some 448°11s which might now justify a reduction of 1/8 percent in dise°114t rates in order to bring them more into line with short-term 68 established in the market since action was taken by the System 141to i• n June to make credit more readily available. t4tt He suggested t• he matter be taken up with the other Federal Reserve Banks, the't i• t be discussed with the Federal Advisory Council at the meetOf the Council with the Board tomorrow, and that after the dis- 448icals, consideration be given by the Board to whether some reducti°11 in the discount rate, perhaps 1/8 percent instead of 1/4 per) should be made in line with the prevailing rate on certificates 14 the short-term Government securities market. Chairman McCabe stated again that if a reduction in discount l'Iltea were to be made as part of the System's easier credit program, it BeeMed to him that it would be better to take such action tamedlate) -Y rather than to wait a week or two when any repercussions of the A U'eVa currencies might have become evident and lliatiOn of foreign V441. it would appear as though the Federal Reserve System was taking 1528 9/19/49 -5- tb"tep as a means of counteracting the effects of devaluation. He e44ed that it would have been preferable to reduce the rate before the Ifeekend, that the longer the reduction was delayed the less desirable itVolald be, and that he would favor approval today of the action of tileNew York Bank directors. Mt. Thomas stated that last week he thought on balance that the argument was against a reduction in discount rates although a Pre% good argument could be made either for or against the action. He 844d it seemed to him that in the long run foreign currency devaluat1A5118h0uld have beneficial effects on the whole world situation, but theo. la the short run it might cause hesitance, particularly in the ' cl°11/estic situstion, by causing declines in prices of those things the Aed. States buys and sells in world markets. He added that if a redu e4an in discount rates was going to be made it would be better to take action now, that such action would do no harm and would not lead 8. meumption of inflationary pressures because the deflationary in- flue Ilee of currency devaluation would prevent that, and that if in114.ti °nary conditions should develop over the next fewweks in the clokes41 '. 0 situation, a reduction in the discount rate now would pave the waY for an increase a few weeks hence for the purpose of counter11 undesirable expansion. There was a general discussion of the relationship of foreign curre 'ley devaluation to the action proposed by the board of directors or Pederal Reserve Bank of New York and in the light of the views 1529 9/19/49 -6- expr essed by Chairman McCabe and Mr. Eccles earlier in this meeting. Mr. Clayton suggested that having failed to take action on Friday of lest week a reduction in the discount rate now after devaluation bad been announced might be interpreted as an indication that the Board dAY was taking action to counteract the effects of deflation. Mr. Szymczak stated that he had discussed the possible effects c't (I-evaluation with members of the staff this morning, that at the taken bethiliing of that discussion he had felt that no action should be to reduce discount rates, but that he had come to the conclusion that, eellarate and apart from the problem of devaluation, it had been expected 1) the Public that the discount rate would be reduced as part of the 1)°11cY the System had followed in recent months and that a reduction 1115/4 VoUld be consistent with that policy. Mr. Eccles stated that inasmuch as the matter was to be discussed Ilith the Federal Advisory Council tomorrow the members of the Council 11°1111. be given an opportunity to be heard and that he would like to 41 0, "ss the proposed reduction with the Presidents of the other Federal "e Banks and to act on the problem as a System decision. It was thought that the matter could be discussed again on Wednesday, Sep- tetb el '21, 1949, that the situation was not urgent enough to require Ilbefore that tine, and that consideration should be given to /41eithe the reduction, if made, should be 1/4 percent or 1/8 percent or ,, wztether the action should be taken in the form of a preferential dis- 4111t te on short-term Government securities. 30 9/19/49 —7— Chairman McCabe stated again the reasons for his view that ftetion should be taken as promptly as possible and that if action Illate to be taken, the sooner it was taken the better particularly for reason that the longer it was delayed the weaker the position for e'etiOt. would. be. During the discussion, Chairman McCabe called Mr. Sproul on t45telephone and the latter reiterated the view that he had previously fitPressed that action should be taken immediately. He also said that his ,4k drectors had considered whether the reduction should be 1/4 or p ercent and had concluded that the larger reduction should be made been, it put the discount rate more nearly in line with the current 1lLte on certificates and a reduction of 1/8 percent was too small to hoe EtnY real significance. The Chairman also called Messrs. Gidney and Williams, Presidents "the Federal Reserve Banks of Cleveland and Philadelphia, respectively, 'While they indicated that their directors would act to reduce the 8 .8 part of a System program, Mr. Gidney questioned whether action 8lickl4 be taken at this time and Mr. Williams, having in mind the telationship of the Board with the Federal Advisory Council, advised 441.11st action until the matter had been discussed with the Council at its Meeting tomorrow. In a further conversation between Chairman McCabe and Mr. -4-, the latter, upon being informed of the suggestion that the NttA -r be discussed with the Federal Advisory Council before action 144 tat, --en, expressed the view that action should be taken today, that tt 1531 9/19/49 -8- the British markets were closed today, that the devaluation was one c't the most dramatic things that had happened in 25 years, that it v1(4ad be most logical if the announcement of a reduction in the disco 1111:t rate could be made coincidental with currency devaluation, and that if action were taken later it would be interpreted as a move to eolaiteract the adverse effects of deflation. It appeared from the discussion that it was the view of three r4e4lbers of the Board that action should be deferred, that the matter "Lud be discussed with the Federal Advisory Council tomorrow morn14. to and that the Board should consider the matter again at a meeting be held tomorrow afternoon. The suggestion was also made that the Presidents of the Fed- Reserve Banks be advised by telephone of what had occurred and that their views be obtained for the information of the Board in con- 1On with its further consideration of the matter tomorrow after- It was the unanimous view of the Board that this suggestion should be carried out. At this point Messrs. Leonard, Thomas, Vest, and Millard with- and the action stated with respect to each of the matters hereinreferred to was taken by the Board: Minutes of actions taken by the Board of Governors of the Fed-. erea Reserve System on September 16, 1949, were approved unanimously. 1532 9A9/49 -9Mr. carpenter reported that the Comptroller of the Currency t°4alr advised that the next call on all national banks for reports °I) condition would not be made prior to October 1, 1949, and that illaccordance with the usual practice, a call would be made simultarleou— y ul on behalf of the Board of Governors of the Federal Re8erlie System on all State member banks for reports of condition. Approved unanimously. Letter to Mr. Leach, President of the Federal Reserve Bank or k chmond, reading as follows: "The Board of Governors approves the payment of 8a1ary to Mt. Roger W. Mercer as Vice President and Cashier of the Federal Reserve Bank of Richmond at the rate of $11,000 per annum from September 8, 1949, threUgh September 30, 1949, and at the rate of $12,000 Per annum effective October 1, 1949, through May 311 95O. These rates, according to your letter of September 13, 1949, are the rates which were fixed by the Directors at their meeting on September 8; 1949." Approved unanimously. Letter prepared in accordance with a discussion at the meet14g `j4- the Board on September 16, 1949, to the Henorable Preston -"°, Comptroller of the Currency, reading as follows: "There is enclosed herewith a copy of a Notice and Dem. nd for Production of Papers in the Board's Files, , , 1.ece1ved by the Board September 12, 1949, from the attorneys " 3/1 Transamerica Corporation, in connection with the now Clayton Act proceeding involving the Corporation. °11 will observe that Item 7 of this Notice and Demand reads as follous: '(7) A record, to the extent available in the files of the Board of Governors of the Federal 9/19/49 -10- "Reserve System, and to the extent that the same can be acquired if not available in those files, of the number of applications for permission to establish new national banks or to obtain federal deposit Insurance for new state nonmember banks or to establish new branches of both of such classes of banks, filed With the office of the Comptroller of the Currency or the Federal Deposit Insurance Corporation each year during the period from December 31, 1938 to date, together with the action taken reupon such applications. Such quired for the United States as a whole and for each state in the Twelfth Federal Reserve District individually.' "The Board's files contain references to some of the applications referred to in Item 7 but are not believed to be complete in this respect. In order that the Board ZaY decide upon a statement with reference to Item 7 to be included in an order to be issued by it pursuant to this notice and demand, we will appreciate being advised as to Whether you are willing to supply us with the information indicated in Item 7 for transmission to Transamerica's attorneys or, if not, whether you would object to the Board's furnishing to them the information requested in Item -71 to the extent that it is available in the files of the Board. "We wish to advise Transamerica in this matter as soon as possible and, accordingly, we will greatly appreciate hearing from you at your earliest convenience." Approved unanimously, together with a similar letter to the Honorable Maple T. Han, Chairman of the Federal Deposit Insurance Corporation. / /4111"P ADDroved: ' -41/ AwfdA-k-efAL_ Secretary. /6!,e, Chairman.
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