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1272 A meeting of the Board of Governors of the Federal Reserve SYstem Was held in Washington on Tuesday, September 23, 1941, at 12:50 p.m.. PRESENT: Mr. Mr. Mr. Mr. Ransom, Vice Chairman Szymczak McKee Draper Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Smead, Chief of the Division of Bank Operations *. Ransom referred to the fact that, because of a bad storm the Rocky Mountain area, Chairman Eccles had not been able to leave S41t Lake City by plane last night and would not be here today, and that 4. he members of the Board and members of the staff had been presetlt .11 the conference room during a conversation over the loud speaker telePhOne with Chairman Eccles this morning when the draft of a statePrepared in accordance with the action taken at the meeting yester% a fternoon was thoroughly discussed and certain further changes 171*e 81187'e3ted by the Chairman. It was understood during the telephone %rnrersation that the statement would be rewritten and that after it 44bee n cleared with Under Secretary of the Treasury Bell, the revised Ntement would be read to Chairman Eccles over the telephone to asWhether he approved. 91123/41 -2There was discussion of the question to what extent the is- nee of the proposed statement might limit testimony that might be :toren LYY the Secretary of the Treasury and Chairman Eccles when they 41)Pear later in the week at hearing before s the House Banking and ClirrencY Committee on price control legislation. Mr. Ransom stated that 1, 'le had hoped that if the statement were issued it would not be IllsearY for either the Secretary or the Chairman to go beyond the state ment in their testimony. As to the timing of action by the Board, there was unanimous agreement that action should be taken, if possible, befo , ' e Secretary Morgenthau appeared before the House Committee. In a further discussion of the draft of statement it was SUP- that two statements be issued, one by the Board with respect tc) th e action increasing reserve requirements and one by the Secretary (3r 91„ the 'leasury and Chairman Eccles, with the concurrence of the Board, reth spect to further steps to be taken. It was agreed that Mr. Thurston would revise the statment in accordance with this suggestion. There was also a discussion of the question whether in taking to increase reserve requirements the Board should waive penaltiez t er-z'°Parily for deficiencies in reserves occasioned by the increase " th was general agreement that this should be done. At 1:15 p.m. the meeting recessed and reconvened at 2:25 p.m. th th e same attendance as at the morning session except that Mr. 9/W41 -3- Ikrat-t) General Counsel, was present, and Mr. Thomas, Assistant Director "he Division of Research and Statistics, was present for a period When the details of the statement to be issued by the Board were being A draft of the statement to be released by the Board was read 4111:1 changed in certain particulars including a change to state that the Board had determined that penalties for deficient reserves prior to be oember 1, 1941, would be based upon reserve requirements in ef— teot on October 31, 1941. In connection with this point it was stated that although the Board could waive penalties for deficiencies in re— it was without authority to relieve member banks of the neces- 814Y. of complying with the requirement of section 19 of the Federal ileserve Act that they shall not make new loans or pay dividends while their l'eserves are deficient. There was agreement that when action Was ta-ken by the Board to amend the Supplement to Regulation D the e4krlded S upplement should contain a footnote to the effect that the lelislties prescribed by section 3(b) of Regulation D on deficiencies tir 114 prjor to December 1, 1941, should be assessed on the basis of. re eerve requirements in effect immediately prior to the adoption the ended Supplement. The draft of statement to be issued by the Secretary of the Cti.14 ritt.3r and the Chairman of the Board was then read and, after a i°4 during which certain changes were made in the statement, 1275 9/23/41 it was —4— agreed unanimously that Mr. Goldenweiser should present the two 8tateraents to Mr. Bell at the Treasury with the comment that the genel'al questions of policy as proposed in the statements had been cleared with Chairman Eccles, that, if the statements were satisfactory to Mr. Bela, they would be cleared as to form with Chairman Eccles, and that 1:t was the feeling of the Board that they should be released for publi4°11 on the morning of the first day upon which the Secretary testil'ied before the House Banking and Currency Committee on the price con11'°1- legislation. Mr. Goldenweiser left the meeting for that purpose. Mr. Gardner, Senior Economist in the Division of Research and SteLtiR+. --1C3, was called into the meeting and said that the State DePal:t1ue:n-1. , uesired to inform the Cuban Government as promptly as possible Who w °Illd comprise the membership of the mission to be sent to Cuba to, ''S81-St in developing legislation to establish a central bank in ellb4/ and that the question before the Board was whether, in addition t°" " 2'ing someone from the Division of Research and Statistics it would also authorize a member of the Legal Division (pre111114131Y Mr. Vest Assistant General Counsel) to make the trip. He 4(ideci that it had been decided by the State Department that the mission11 17°1114 be under the leadership of Mr. Ulite, Director of the Divi-tat °f14°IletarY Research of the Treasury, while he was in Cuba and he( Gardner) would be the operating head of the mission after ,76 9/23/41 rhite left. Mr. McKee inquired as to the necessity for having a lawyer trlft the Board's staff as a member of the mission and Mr. Gardner re• that he did not know at this time that the services of a lawyer vloulea be necessary, but that if assistance were desired in the actual cil'6.Lfting of legislation it would be very helpful to have someone avail41)1• v;110 had experience in drafting banking legislation in this country, that • might be possible that the need could be met by having the ✓ g° to Cuba after any necessary investigative work had been done, 'at it was believed to be desirable to have him participate in all of. the general discussions that might be held. Mr. Gardner made the '11rther comment that he had written to Mr. Bryan, First Vice Presof the Federal Reserve Bank of Atlanta, as to the availability ot r* Frazer, former Manager of the Havana Agency of the Federal ReselNite ank of Atlanta, as it had been suggested that, because of his thoroil gh familiarity with Cuba and the Spanish language, he might be Of glleat a-S13tanCe . to the mission. Mr. Wyatt stated that, while the volume of work in the Legal 81°n made it desirable that Mr. Vest remain here, he could be the trip to Cuba if the Board so desired. be and the alltho Ransom inquired what Mr. Gardner's recommendation would latter stated that he would suggest that he and Mr. Vest be t0 go to Cuba for the purpose stated and that, if it were I 77 9/23/41 —6— ascertained that Mr. Frazer would be available and his assistance /7°110-d be valuable, authorization be given to have him make the trip, 44 of Which would be at the expense of the Board. Mr. McKee inquired whether a lawyer from the Treasury would be 14cluded in the membership of the mission and Mr. Gardner replied that he did not know but that he understood that the Treasury repretatives on the mission would be confined to three persons and that the SYstemt s representatives would be confined to two including a 1417Yer Should the Board decide to send one. Mr. McKee moved that Mr. Gardner and Mr. Vest be authorized to serve as members of the mission and that, if it were found that Mr. Frazer's services would be valuable and that he would be available for the purpose, the Board request the Atlanta Bank to authorize him to make the trip, it being understood that the salaries, retirement contributions, and authorized travel and subsistence expenses involved would be paid by the Board. Mr. McKee's motion was put by the chair and carried unanimously. aicie MI% McKee stated that he would like to have Mr. Gardner con- ke further whether it would be necessary for Mr. Vest to serve as el* of the mission. At this that L e 4 point Mr. Gardner left the meeting. Mr* Ransom was called from the room and upon his return stated had ju6D talked over the telephone with Mr. Goldenweiser who that the statements previously referred to during this meeting 1278 Cft41 been cleared with Mr. Bell and by Mr. Bell with the Secretary of the Treasury who suggested only one change in the third line of the statement to be issued by the Board to substitute "Secretary of the ' 417" for "Treasury", that the Secretary had inquired whether the etateMents had been cleared with the President and upon being advised &tithe negative stated that he would like to advise the President re— gard• lng the matter which could be done by telephone, that Mr. Morgenthau ape ed that if he was to appear before the House Banking and Currency er/nInlittee tomorrow in connection with the price control legislation the st atements should be released for publication in tomorrow morning Ota PePers, and that he would know by 5:00 P.m. today whether he would be ea, 4-led to testify tomorrow. With the amendment suggested by Secretary Morgenthau, the two P bn ry"d statements were in the following form: Board Statement "As a further step in the Government's program for combating inflation, the Board of Governors of the Fed-. Reserve System, after consultation with the Secre— n2Y of the Treasury, has today increased reserve re— rrsments for member banks to the present statutory 11t, 44 effective November 1. This action, unanimously 0 ,eed upon, increases reserve requirements by about ue— seventh. for "The requirements beginning on that date will be: , bderaand deposits, 26 per cent at central reserve city ai748,1 20 per cent at reserve city banks, and 14 per cent citte°11atrY banks; for time deposits, 6 per cent at all red : see of member banks. This action will result in a b ction of excess reserves from about $5.2 billion to a' 014 $ te 4 whole. At ntral billion for member banks taken aa a chle reserve city banks excess reserves will be re— Proximately from $2,400,000,000 to $1,700,000,p00, 1279 ( ft41 "at reserve city banks, from $1,850,000,000 to $1,5002000,000, and at country banks from nearly $1,000,000,000 to $8000000,000. "The action will leave the banks as a whole with ample funds to meet all bank credit needs of the defense program and all legitimate requirements of their customers. A survey made recently by the Board showed that a large majority 0f the member banks will be able to meet the increased requirements out of existing excess reserves and all but a few of the remainder by drawing upon a portion of their deposits with city correspondents. "The Board determined that penalties for deficient reserves prior to December 1, 1941 shall be based upon reserve requirements in effect October 31, 1941. "The following table compares the new requirements with p!sesent requirements which have been in effect since April 1°) 1938, Member Bank Reserve Requirements (Per cent of Deposits) .......---Classes of deposits and banks : Present . New : requirements : requirements On net demand deposits: Central reserve city banks ... 1Reserve city banks ,Countryt banks On time deposits: 411 member banks 22 3/4 17 1/2 12 5 26 20 14 6" ...•••••••••••••••••ar Joint Statement connection with the action taken today by the Board s: Governors of the Federal Reserve System to increase rechl j e requirements, the Secretary of the Treasury and the tb-11111an of the Board issued the following statement in which "Board of Governors concurs: to 'The Treasury and the Board of Governors will continue age"atch the economic situation and to cooperate with other all,2,ciee of the Government in their efforts, through priorities, eati°ns, price regulation, and otherwise, to fight inflapow;. Recommendations on the question of what additional j x , if any, over bank reserves the Board should have durtake "e Present emer:.,ency and what form these powers should will be made whenever the Treasury and the Board, after 1280 9/23/0. —9- "further consultation, determine that such action is necessary to help in combating inflationary developments." At this point Mr. Goldenweiser returned to the meeting. At 4:30 p.m. the meeting moved into the conference room for the Purpose of talking again with Chairman Eccles over the loud speaker telephon e. Mr. Thurston read the proposed statements to the Chairman and 1-41'c/rifled him of the approval of the statements by Under Secretary Bell 141c1 Secretary Morgenthau and of the latter's suggestion as to their release. At 4:55 p.m.) while Chairman Eccles was still on the telephone, ''''etari'Morgenthau called Mr. Ransom, and, before leaving to take the c all, the latter inquired whether Chairman Eccles was in agreement lth he statements. Chairman Eccles replied that he was. Upon his return to the room a few minutes after 5:00 p.m. Mr. 4111sc'm took the telephone again and stated to Chairman Eccles that eta yMorgenthau Irith the had advised that he had cleared the statements President, that the Secretary was to appear before the House 44Iking and Currency Committee tomorrow, that in his testimony before the ''mmittee he proposed to say that the joint statement expressed 4avi ews at the present time and that beyond that he was not prepared to ltak e a statement, and that he hoped that when Chairman Eccles apPettreci before the Committee he would follow the same course. Mr. Eccles 441id that he would endeavor to do so, but that as he had a personal d in the matter, he could not evade any direct questions as to )1 9/11.1V41 -10- 11443 own beliefs and opinions as reflected in his previous public utt'(?rnces, r. Mr. Ransom also stated that in accordance with a suggestion Szymczak, after action had been taken by the Board today, he WOrt1 --4LI call Mr. Henderson, Adninistrator of the Office of Price Adminis- rat1°11, and advise him of what had been done. During the course of the telephone conversation Chairman Fccles 8ta'ted that the weather was still bad in Ogden and that he did not kriow thether he would be able to leave by plane tonight and that if he r44.1 "-LLI not do so he would try to catch the Streamliner tomorrow and arr.ve in V;ashington on the morning of Friday, September 26. The meeting then moved back into the Board room and upon notion by Mr. McKee the following resolution was adopted by unanimous votet Resolved, that the Supplement to Regulation D be amended to read as follows: "SUPPLEMENT TO REGULATION "Effective as to each member bank at the opening of business on November 1, 1941* "Reserves required to be maintained by member banks with Federal Reserve banks pec, "Pursuant to the provisions of section 19 of the theel'al Reserve Act and section 2(a) of its Regulation D, by 13°ard of Governors of the Federal Reserve System here4lemrescribes the following reserve balances which each mai,!r bank of the Federal Reserve System is required to di "ain on deposit with the Federal Reserve bank of its atrict: 6 per cent of its time deposits plus-14 per cent of its net demand deposits -L-L not in a reserve or central reserve city; I282 9/23/41 "20 per cent of its net demand deposits if in a reserve city, except that if 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 such bank may, upon the affirmative vote of five members of the Board of Governors of the Federal Reserve System, be permitted to maintain 14 per cent reserves against its net demand deposits; 26 per cent of its net demand deposits if located in a central reserve city, except that if 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, such bank may, upon the affirmative vote of five members of the Board of Governors of the Federal Reserve System, be 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. "The penalties prescribed by section 3(h) of Regulation D on deficiencies occurring prior to December 1, 1941, ?nall be assessed on the basis of the reserve requirements ln effect immediately prior to the adoption of this supPlement.“ Mr. Szymczak moved that the statement to be issued by the Board be approved and that the Board concur in the Joint statement to be issued by the Secretary of the Treasury and the Chairman, both as set forth above. This motion was put by the chair and carried unanimously. M. 11(1111 z Ransom raised the question whether, in view of the Chair- zs to1711tinued absence he should plan to go to St. Paul on September ti °rt the Purpose of addressing the State Bank Supervisors in conven- 1283 9/23/41 -12It was agreed unanimously that, in view of all the circumstances, Mr. Ransom should not go and that Mr. Morrill should call Mr. Peyton by telephone and ask him to explain why it was not possible for Mr. Ransom to fill the appointment. At this point Messrs. Thurston, Goldenweiser, Smead, and V;yatt left the meeting and the action stated with respect to each of the 41tters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the l'e(leral Reserve System held on September 22, 1941, were approved unani111011sly. Letter to the Presidents of all Federal Reserve Banks reading 4 follows: Board's letter of Peh "This rescinds the part of the -ruarY 28, 1936 (X-9506, Item #3440, F.R.L.S.), which ' equested each Federal Reserve Bank to review annually 48 cf the close of the year the condition of each State ! ember bank in its District which is subject to the pres:lilt standard condition of membership numbered 2, or former ndard condition of membership numbered 15, respecting e maintenance of an adequate capital structure, and, in a case where it appears that the capital structure is adequate under the provisions of the condition of mem, orfshiP, to advise the Board of the situation with a rect:mendation as to what action, if any, should be taken by ue Board in the circumstances. vie The discontinuance of the request for an annual rewhj and a report thereon does not reflect in any degree &a 'scever a modification of the Board's position that it so,nsential that banks maintain an adequate cushion of capital and that, as part of their regular super7 work, the Reserve Banks use their best judgment 811,eXert their best efforts to bring about and maintain " a condition with respect to all State member banks. Zr 9/23/41 —13— "The request for an annual review has been rescinded since it seems preferable to emphasize the importance of giving constant and continued attention to the adequacy of the capital structures of all State member banks as part of the regular supervisory work rather than to emphasize the annual review of only the banks subject to a condition of membership regarding maintenance of capital. "It is assumed that in all cases where an examination hY the Reserve Bank discloses inadequacy of capital the analysis on Form 212 submitted to the Board will contain appropriate reference to the situation with a statement as to what action the Reserve Bank has taken or contemplates taking and a recommendation as to the action, if any, the Board should take in the circumstances. It is not intended, c) course, that the information and recommendations be llmited to those contained in Form 212. It is expected, !tither, that in all cases the Reserve Banks will forward rom time to time such data as may be necessary in order zhat both the Reserve Banks and the Board may properly discharge their supervisory responsibilities." Approved unanimously. Letter to Mr. Chase, President of the Maine Securities Company, l'ead4 'Jug as follows: "This refers to your letter of September 15, 1941, ith further reference to the question whether a member wrIk of the Federal Reserve System may lend securities. regret that our reply did not fully answer your inqUir7. Iv, "You state that it was your purpose to ascertain t!l_sther a bank which is a member of the Federal Reserve stem can legally make a loan of securities under any i' lslrcumstances. The question of the legality of the lend, 1 rg of securities by member banks is a matter of intertihstation of the statute and depends in SO= measure upon e ha facts of the particular case. The Board of Governors : wc ,,not made any ruling or interpretation of the law which lan' c'i"1 forbid the lending of securities by a member bank re all circumstances, nor are we advised of any such ng made by the Comptroller of the Currency. As you krio ' the lending of securities under certain conditions is not infrequent practice of some banks. Z j -11 473 1,4 9/23/0. -14- "It is the custom of the Board to refer inquiries such as that made by you under date of August 21, 19)41, to the Federal Reserve Bank for reply. However, in view of the request made in your letter that your inquiry be not referred in this way, 1.,e departed from the usual policy and replied to your letter directly. Since you had referred to the fact that the matter had been taken up with the Federal Reserve Bank, however, we felt it desirable to have such information regarding the particular case as we could obtain from the bank before undertaking to advise you." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks prepared accordance with the action taken at the meeting of the Board on ept 8ember 17, 1941, and reading as follows: "As stated in the Board's letter of July 17, 1941, Board has been requested both by the office of the troller of the Currency and by one of the Federal Rea serve Banks to render an opinion on the question whether °facer of a member bank, who is also serving as a dib-c L'or and as a member of the discount committee of the tnk, is to be regarded as an executive officer within "e meaning of the Board's Regulation 0, as amended ef:Lective tally T 1, 1939, notwithstanding the adoption of a rnesolution by the board of directors providing that he is °t authorized to participate in its operating management. in th:Th? Board of Governors has considered this question fi, ; light of the definition of the term 'executive of' Re er in its Regulation 0, the views expressed by Federal arisderve Banks and others who have considered this matter, t4_ the authority of the Board to define the term 'execuor officer'. The Board has concluded that an officer a8 a member bank, who is also serving as a director and : 1711 , member of the discount committee and with respect to thela resolution as described above has been adopted by offi °ard of directors, is to be considered an executive ca„cer within the meaning of Regulation 0 except in a where a provision of the by-laws of the bank or a ,solut4 -Lon in of the board of directors requires the service rotation of every director as a member of the discount 4. 9/23/41 -15-- committee and the directors do in fact serve as members of the committee in accordance with such by-law or resolution." Approved unanimously, together with a letter to Mr. Upham, Deputy Comptroller of the Currency, reading as follows: "This refers to your letter of May 14, 1941, and our acknowledgment of May 23, 1941, with reference to the queslon whether a vice president and director of a national 'Dank who is also a member of the discount committee is to be considered an executive officer within the meaning of the Board's Regulation 0. "The Board has concluded that an officer of a member uank, who is also serving as a director and as a member of he discount committee and with respect to whom a resolut?on as described above has been adopted by the board of _cillrectors, is to be considered an executive officer within ' Ille.meaning of Regulation 0 except in a case where a proslon of the by-laws of the bank or a resolution of the oard of directors requires the service in rotation of jerY director as a member of the discount committee and re directors do in fact serve as members of the committee accordance with such by-law or resolution. el :Tor your information in this connection, we are en)Sing herewith a copy of a letter which the Board is toa Banksddressing to the Presidents of the Federal Reserve with regard to this question." n: Telegram to the Presidents of all of the Federal Reserve Banks Ing as follows: unci "Reg. W-78. The inclusion or exclusion of articles pa, "the classification 'ice refrigerators', which is a of Group D-7 'New household furniture' in the Supplehall .t, is determined by the same general principles that torv:,been applied in connection with 'mechanical refrigeraca - • Refrigerators of less than 12 cubic feet rated theacitY p are included, no matter what the use to which are to be put, unless their design and construction iR Y „ -uch that they are clearly usable only for commercial mpose$ Approved unanimously. 1287 91W41 -16Telegram to the Presidents of all of the Federal Reserve Banks NWIng as follows: "Reg. W-79. The phrase 'bona fide cash purchase price' in section 6(h) means the bona fide cash purchase Price of the article and accessories purchased, including any sales taxes thereon and any bona fide delivery and installation charges." Approved unanimously. Telegram to Mr. Stroud, First Vice President of the Federal Re" .e Bank of Dallas, reading as follows: "Your wire (re Regulation t). Seller may receive arlYthing of value and count it as part or all of down Payment on automobile." Approved unanimously. Telegram to Mr. Stroud, First Vice President of the Federal Reaerir of Dallas, reading as follows: "Your wire September 16 regarding trade of Chevrolet and Ford. We agree with you except that cash purchase ice of Ford, on which credit value should be based if is made within 45 days after purchase, is value of :evrolet plus $522. It is to be noted, however, that 'lnance company could rely on B's statement of purchase Price under section 5(a)(1)." rc2an Approved unanimously. Thereupon the meeting adjourned. .641 ice Chairman. -' 1147)4ttL141. Secretary.
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