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A meeting of the Board of Governors of the Federal Reserve sYstet and the Presidents of the Federal Reserve Banks was held in Waahta gt°r1 on Wednesday, September 27, 1950, at 2:30 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Evans Vardaman Norton Powell Mr. Carpenter, Secretary Messrs. Erickson, Sproul, 4Villiams, Gidney, Leach, McLarin, Young, Davis, Peyton, Leedy, Gilbert, and Earhart, Presidents of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicagb, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco, respectively. Mr. Van Nice, Secretary of the Presidents' Conference Bet, °re this meeting there were distributed among the members Or the Boa (4 4. K/Pics rd of Governors and the Presidents copies of a memorandum he Presidents wished to discuss with the Board at keetin,. at eet f The ow. topics and the discussion in connection with each orth bel 11 Illte ro .ration of Retiremen:b System benefits with those 0,0; 1 1.1-fled under the amended Social Securit Act. The draft Of aerenee of Presidents gave consideration Retirement . to the Co rePort dated September 8, 1950, of the for . tee of the Retirement System presenting aprogram beri.n3i:ntegration of Retirement System benefits with the The-:its provided under the amended Social Security Act. tire;ePo was made to the Board of Trustees of the Rrt ekatt;!Ilt SYstem and was presented to the Presidents as -' of information for their discussion and sugges Ions. :r7$1 9127/5o -2.The The Presidents expressed approval of the Retirement co recommendations, as set forth in the report with the suggestion that the wording of the provision that "members who attain age 65 during or subsequent to the month in which the new Social Security law was adopted and prior to July 1, 1952, be given the Privilege (in the discretion of the employing banks) of remaining in active service until July 1, 1952, lh order that they may qualify for Social Security benefits." (Pages 6 - 7) be i,amended by striking the words "was adopted" and substitutg therefor the words "becomes effective for Federal Reserve "-----S.Z.,2,yilloees ni (January 71.931)". In suggesting this amendment the Presidents agreed that the r etention past their regular retirement dates of employees thZeaoh age 65 prior to January 1, 1951, in order to make eni7 eligible for Social Security benefits (through covered siP'°Yment for 18 months thereafter) was difficult of defense w;nce at their regular dates of retirement these persons It Washave made no contributions to the Social Security System. of "as felt, however, that there may be some special cases 1Werit where employees reaching age 65 before January 1, , .') -1 might, if agreeable to all concerned, be continued in em bX°YMent in order to become eligible for Social Security ts. The Conference arranged to have copies of the all ofer,Ided draft of the report sent to the members of the Board IneXvernors for their consideration prior to the joint lng of the Board with the Presidents. Tru 4The Presidents suggest that a special meeting of the es of the Retirement System to consider the Retirement Com ,?e l s recommendations be called at the first convenient datelt meoi.wu-Lch probably would be at the time of the December lik,„111g of the Conference. If possible, the Presidents would mee.-t.60 have the date of such a meeting set at the joint Boa Ing. The Presidents would also like to discuss with the zeard the desirability of preparing a booklet or some other elliZ of communication through which Federal Reserve Bank Seo2 ees might be informed of the implications of Social t ace;i4e.tyt000z.age and of the added benefits which will FolioWing a statement by Mr. Peyton in which he gave the back- AM 9127/5o —317°1111ci for the action of the Presidents' Conference, Chairman McCabe stated that the recommendations of the Retirement Committee as ap1)1.°Ited by the Presidents would be given consideration by the Board of C"erhers and the Presidents advised in ample time for action on the katter by the Board of Trustees of the Retirement System at a meeting tc)be held before the end of the year. In this connection, Chairman Nrton inTlired as to the date for the next meeting of the Presidents' Oont4rellee and the Board at which time it would be expected that the Itieet'illg of the Board of Trustees would be held. It was suggested that the date be determined at the end of the meeting of the Federal Open Ilarket Committee to be held tomorrow. the There was general agreement that, if the recommendations of Retirement Committee were put into effect, the preparation of a booklet fully and be h. effectively explaining the plan of integration would IghlY desirable. 2. 4artim a re e rotection of records. The Conference considered , 3„°rt, dated August best1 of the Subcommittee on Oper tion of Records to the Committee on Miscellaneous whicTi ns which presented two alternative plans under or limited emergency operations might be carried on by, pre ; 11. 1 behalf of, a Federal Reserve Bank or branch whose lilt,h;c3es might become unusable as a result of war damage. pree'ugh not recommending the activation of either plan at be i nt) the Subconmijttee made certain recommendations to of r7ediately adopted including selection by each Bank sele 11Y located storage space for vital Bank records, nd to1c/n of personnel to catalog and control such records aet in behalf of the Bank in emergency, a five-week , riaa, Resel,,veriod during which vital records in each Federal office would be reproduced, and the furnishing of 1343 9127/5o -4such instructions by Banks to their branches as may be needed to enable the latter to perform on an emergency basis essential functions now performed only at the head offices. In the Presidents' discussion of this report it was Pointed out that the problem covered by the Subcommittee's report, i.e. a Security Files Program for the individual 4'serve Banks, is part of a larger problem of setting up an egrated, nationwide plan of operation for the entire tnancial community in the event of war disaster. Such a an would encompass not only the activities of the Federal serve System but also those of the United States Treasury : -Ipartment and)of the commercial banking system. The Presidents agreed that there is need for such a plan, that it ;71d be desirable to have one-man coordination of the ef: shi"„T t° set it up, and that the Federal Reserve System s -Lc1 l ,ead the way in promoting such a program. The Preside7 is further agreed that Mr. Rounds of the New York Bank , 11 qualified to act as such a coordinator, and Mr. Roll,,e ths:t7' 8 Who was present at the Conference meeting, indicated so. he would accept the responsibility if called upon to do Federal Reserve SYst The Presidents recommend that the entire wouid eill work together toward the objective set forth and they the welcome discussion of the subject with the members of Board. p V the Chairman McCabe stated that the Board would be glad to give katter consideration and advise the Presidents of its decision as 14'(111111t4 a8 P°esible, the ill:4\1411a, Chairman Peyton inquired whether there was any objection to Federal Reserve Banks proceeding with the suggested plans t°1' Protection. ws the broader progi rain their own records which could be integrated into recommended by the Presidents if such a program 11°111c1 be It into effect. Chairman McCabe responded that there would 4 lic) (3biection to 34ritial. Part of asuch a procedure. He also suggested that, as an Program to meet wartime emergencies, consideration 1.344 9/27/50 -5" °uld be given to providinr emergency stocks of currency which c'11(11/e used in the event of unavailability of the regular stocks attheFederal Reserve Banks. 3. with correspondent banks. The Conference disIssed the Federal Reserve System's relationships with the large j correspondent banks and agreed that there is room for mPrcvement in this respect. The Presidents believe that nY constructive approach to improve such relations should Lie given consideration. t In this respect, attention was called particularly Ca report made to the April, 1950, meeting of the Assoslation of Reserve City Bankers by its Committee on Correcrdent Bank Relations, concerning "the competitive lvities of the Federal Reserve Banks as related to correspondent bank relations.* Mr. Sproul said that this Port had been analyzed by the Federal Reserve Bank of New tir4 and that the analysis had been brought to the attenco°4 cr the present chairman of the Reserve City Bankers' n me : I tee on Correspondent Bank Relations. As a result a of Federal Reserve Bank representatives and senior ice; of hel :s correspondent banks in the New York area was September 20 to discuss the items noted in the report. e ap , The Presidents ask that this topic be placed on the cf the joint meeting of the Presidents and the since a full discussion of the subject seems parcularly opportune at this time. ChaJJ.Alallilimin : an Peyton stated that the Presidents had no specific for improving relations with correspondent banks but to, --cuss with the Board any ideas that might be helpful 1-11g a better relationship. Mr, Davis, suggestion that Mr. Sproul report on what had b arlmolleAtby rti nis Bank, the latter stated that, inasmuch as the apparent etneen the Federal Reserve System and the large correspondent 1345 9127/50 —6— banks was anding its principal expression in the Reserve City Association Committee on Correspondent Bank Relations, his krIkliad a nalyzed the report submitted by the Chairman of that Corn— 4littee at the last meeting of the Association and found that the criticisms c ontained therein had very little substance but were based 41'04 on distrust of the motives of the System. In this situation, he said, it Was thought that the best way to approach the problem was to e,,4, -'er with Mr. Perkins, the present Chairman of the Committee and 'llee preSident t() d'etermine of the Chemical Bank and Trust Company of New York, What, if anything, could be done to improve existing re— This conference, Ur. Sproul said, resulted in the sug— of a meetino. aith the senior officers of the New York clearing hollae s in charr7e of correspondent bank activities. He added yankth kich a meeting was held last week at which time it was stated to the Zestio n. si/I'ssentatves of the banks that an analysis of the complaints been made kpoe showed that they had little substance and that the e of the m eetinc, was to explore what was really behind the that had 41118 that the with Sproul went on to say that it appeared at the meeting Pal difficulty was distrust of the motives of the Sys— sesPect to the correspondent banking system, that it was t, 44et the Federal Reserve was intent on destroying that system, 41q that ktri tr that question could be cleared up the remainder of the could be easily solved. 1-; 9/27/50 —7141'. Sproul made the further statement that in the discussion at the he had made it plain that, if there were any thought that the System was not going to try to get all of the eligible State leiberbaril-cs that it could to join the System, there could be no ba8ister unde rstandinrr with the correspondent banks since such mem— ber411117°11-1-d improve the effectiveness of the System and the banking eriera4Y, but that if there were questions about the methods Ilael by the Federal Reserve System in seeking increased membership those 9.11estions could be discussed. The second point ahich he es— Phasi.zed, lAr. Sproul said, was that there had been suSpicion of the Pederaa. Reserve SYstem even before it was established xhich had per— aiated , c3ugh the years, that certain central banking functions ex— Nieed " "“e co rrespondent banks before the organization of the 8Yst been given to the System, that it had the responsibility of 14 these functions under the law 411Y Walr and that it could not in .kt thee 0111promise that situation. He said he told the group that e two Points were understood he thought the suspicion that had Over the years could be dispelled, and that whatever other *NlieeS were could be easily eliminated. As a result of that„ eting, he ot 00 . said, he had been authorized to appoint a committee 4.ta.cer, 0„. ot the the Federal Reserve Bank to work with representatives e% elearirighOUSe banks to discuss specific points of complaint to 4lat co be done to dispose of them. 1 347 9/27/50 -8Chairman McCabe expressed the opinion that the action taken 4. Sproul was a step in the right direction and that similar iii"tings might well be held in other districts in which there were rs of the Reserve City Bankers Association Committee on CorreIP°Ildent Bank Rela tions Mr. Sproul commented that Ir. Perkins had • eXi)ressed the hope that the Federal Reserve Banks in all districts • meetings with heads of correspondent banks for a frank il`11•1g of the whole matter to see if in that manner improved relation84138C0111d be achieyed. Chairman McCabe stated that it might be desirable to take the P with the officers of the Reserve City Bankers Association 145 see if something could be accomplished at that level also. This allggestioh was discussed and it was felt that it might be helpful in te renl'Itil'ig some of the existing distrust and suspicion. Mr. Vardaman referred to the meetings which he and other rePre3entative3 of the Board had with the Committee on Correspondent 4lations in January 1948, at which time he stated that the System l'f4 head " 't°ward • ediate credit on cash items, that the Federal 44r/te SYstem had an under the law to provide efficient obligati°n 4citeolletion and that if the correspondent banks did 43t like that s ituation they should present the matter to the Congress. ktte Mr. Ibles Sproul question:d whether there were any irreconcilable between the Sys -em the correspondent banks particu- 134S 9/27/50 -9— 14'4 if there could be an understanding on the two points to which he had referred. He felt that the approach to the problem should be based on how the banking functions of the country could be pert°11ned to give the best possible service and that if there were a Paaaticular job which the System was not required by law to perform alki the function could be performed better by the correspondent banks than 0Y the Reserve Banks the correspondent banks should handle it, bilt that if the Federal Reserve Banks could do a job more effectively the4 they should do it. In response to Mr. Vardamants comment, Mr. Spi'oul stated that not think that there was any understanding or commitment on the Part of the System to move to immediate credit on cash items, thq th e SYstem had decided to adopt a maximum deferment of two days, that no c°mmitment had been made beyond that point. Mr. eral '‘''cl-es commented on the legislative history of the FedRese_ 've Act as .orire indicating the intent of Congress that the Federal he diri toa anks should assume the functions of the correspondent banks .,e1 cer ' v. ,t gNter degree than had been done. He recognized that there he ko t&11-1 services that the correspondent banks, particularly in rley. ?th,,erve tleu, -4 the niarket, could perform more satisfactorily than the Federal aliks, that this would be the case even if all banks were th Federal Reserve System, and that this was demonstrated r4ct that banks which are now members maintain substantial 1 349 9127/93 -10l'elationships with correspondent banks. He felt that if membership &lithe Federal Reserve System was to be increased, the System aould haNe to meet the competition of correspondent banks and that it was at hat point that misunderstanding arose. In these circumstances, 111111e he Was not Opposed to facinr, the issue and trying to resolve the clifficulties and misunderstandings that had developed, he was not 4°Per11-1 of the results. There was a general discussion of the problem from the stand13°1111' Of the importance of membership in the Federal Reserve System arl effective banking system and the relationship of the problem to the elleck collection system. During this discussion, Mr. 4illiams t4tecl that comment had been made by one Reserve City banker that the ‘14411e Problem would be settled if the Federal Reserve Banks would make It elear that they were not interested in holding the excess reserves )4Triber banks. The Presidents indicated that their Banks had never 4(31:"ted deposit of member banks in excess of requirements and 4 era/. atated that the only activity of the Federal Reserve Banks thia Con, 441„ auch —"ion had been to suggest that their member banks witheXcess reserve deposits. Mr. n ot the -avis questioned ahether there was anything in the law the? egislative history of the Federal Reserve Act that required edersi. re eserve System to grant immediate credit on cash items. a gen eral discussion of the original intent of the Federal 9/27/50 -114serve Act on this point during which Mr. Powell referred to the leeting with the Federal Advisory Council next week at which there '4°114113e a discussion of the System's decision to reduce to two days the lila-M.11113m deferment on cash items. He questioned the desirability °f iliclicating in that discussion that the decision was part of a which would eventually result in immediate credit for cash it(t8 ' There the was general agreement that there was no commitment at Present time to go beyond the two-day maximum deferment. been III% Vardaman inquired why the two-day maximum deferment had adopted if it was not the intention of the System eventunlly t° g° t° inZediate al response to this question principal 144 that the actioncredit.n had been taken deferment schedules of the 114e, -rye Ba.nks into greater uniformity. It was pointed out that in the P°rhood 4rite 8 72 per cent of the checks handled by the Federal Rekkil4 Y8tern were beingcollected in two days and the adoption of a cbte: der"lient of two days aould add comparatively little to the 17°111/11e of float. 4.y thati4r° Vardaman asked if it would be an accurate statement to the SYsteln would shorten availability schedules as rapidly 4e°11elat en -with improvements in check collection systems. There ciission of this question but no answer aas agreed upon. kl pring th° discussion Chairman lvicCabe aithdrew from the meeting. a ent of the cost of Blue Cross benefits for families aeryiees. Federal Reserve Banks enterinf: military pe, 111°11 stated that, ivhile this subject was not on the 3S1 9/27/50 -12agelicla) it had been suggested that it would be desirable to discuss 1144 the Board while the Presidents were in dashington the advisahial:t'Y°r an arrangement under which at least part of the cost of continuing the Blue Cross benefits for the family of an employee c)t a Federal Reserve Bank while he was in the military service would be154/4 bY the Bank. It was the consensus of the Presidents, Mr. ?eYt" said, that it would be desirable to amend the existing authorization to include this additional benefit and it was the opinion c)t t m he aj°ritY that the Federal Reserve Banks should be authorized 14)114Y tR)...tillirds of the cost. the za 11re Eccles stated that the Board would be glad to consider ' 11°14 ti48 theand tter it was understood that for that purpose an excerpt --nutes of the Presidents 1 Conference held in Boston on Ilbjeet would be supplied to the Board as promptly as possible. Thereupon the meeting a ourned. Secretary.
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