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1303 A meeting of the Board of Governors of the Federal Reserve 8Ystein was held in Washington on Thursday, September 9, 1943, at 11:00 4.131. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Evans Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman The action stated with respect to each of the matters hereinatter referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the Piker 41 Reserve System held on September 8, 1943, were approved unaniilelY. Memorandum dated September 1, 1943, from Mr. Goldenweiser, Di— Ntor Of the Division of Research and Statistics, recommending, for the r SOns stated in the memorandum, that the temporary appointment or Be 4 S. Chlepner as an Economic Specialist in that Division be ex, terided for an additional period of not to exceed three months from the (14 te of the expiration of his present appointment at the close Illess on September 17, 1943, with no change in his present basic 44 t7 at the rate of A4,200 per annum, which would amount to $1,050 'the 41 three months' period plus overtime at the usual rate amounting to !hs ' 7 The memorandum stated that the extension of Mr. Chlepner's 1304 9/9/43 —2— leee trom the Brookings Institute would be cleared with them form— ally if a when the Board approved the extension of his appointment, and that it was not expected that further renewals would be requested. Approved, Mr. McKee voting "no". In connection with his vote, Mr. Ransom stated that he approved the extension on the condition that the three months pro— posed would mark the termination of this employment and that if the F. B. I. report Which was expected within 30 days should prove unsatisfactory for any reason Mr. Chlepner's employment would terminate im— mediately. Messrs. Draper and Evans in— dicated that they were willing to approve the extension for three months only. Memorandum dated September 8, 1943, from Mr. Nelson, Assist— allt Secretary, recommending (1) that the temporary appointment of 1/T4I'd L. Colvin as a cafeteria helper in the Secretary's Office be eXteed for an additional period of not to exceed 60 days from the date the expiration of his present appointment at the close of busi— Ileas On September 10, 1943, with an increase in his basic salary from 1,080 to „ 1,200 per annum, effective September 16, 1943, and (2) that he temporayr appointment of Raymond J. Tapscott as a cafeteria helper e ete bncled for the period from the date of the expiration of his 13 "etit appointment at the close of business on September 10, 1943, : -o the close of business on September 21, 1943, with no change in his ill'"erit basic salary at the rate of It1,080 per annum. Approved unanimously. 1305 9/9/43 —3-Memorandum dated September 7, 1943, from Mr. Paulger, Chief q the Division of Examinations, submitting the resignation of Miss Helen ' e Le Kearney as secretary to Mr. Pollard, Assistant Chief of the °. lvIsion, to become effective as of the close of business on C)coba,. n, 4 or 1943, and recommending that the resignation be accepted that date. The resignation was accepted. Memorandum dated September 8, 1943, from Mr. Carpenter, subthe resignation of Miss Thelma E. Ward as a file clerk in the 8 ecretaryts Office, to become effective as of the close of Septtacer 19, 1943, and recommending that the resignation be accepted 4C Or that date. The resignation was accepted. Telegram to Mr. Leedy, President of the Federal Reserve Bank Of 4 , 118 "City, stating that, subject to conditions of membership num- oerea 1 to 3 contained in the Board's Regulation H and the following 41)ecial condition, the Board approves the application of the "Westport e 13ank", Kansas City, Missouri, for membership in the Federal ReS‘Ystem and for the appropriate amount of stock in the Federal erve Bank of New York: "4 At the time of admission to membership such bank shall have a paid-up and unimpaired capital of not less than $200,000." 1306 9/9/43 -4- The t 1 e-egnm requested that the Federal Reserve Bank advise the apPlican t bank of the Board's approval of the application and conditions of membership prescribed, together with necessary instructions as to the Procedure for accomplishing membership, and stated that a letter containing detailed advice regarding such approval would be NNia rded to the applicant bank through the Reserve Bank. The teleel'4111alec contained the following additional comment: has been noted that of the losses estimated in the report :le report of examination for membership, all but $132.05 !Fe reported to have been charged off and it is said that re remainder will be charged off upon receipt of the re°rt- Therefore, the usual condition of membership re; ardi!Ig the elimination of losses has not been prescribed. ' "It is assumed that you will follow the matter of the bank, „s bringing into conformity with the provisions of law s'uu, the Board's regulations, the savings accounts referred t On page 16 of the report of examination for membership.” Approved unanimously. Letter to Mr. Dillard, Vice President of the Federal Reserve 4111t 0 Chicago, reading as follows: of "This will acknowledge and thank you for your letter ,August 28, 1943, informing us of developments in the he'inoit area in connection with the use of the 'defense treIngi exemption, provided in section 8(e) of Regula°n try for siding and roofing projects. in As you know, the Board wrote to the National Housunder date of July 1, 1943, suggesting tit -t1„ Consideration be given to the amendment of Adminis1337'°r's Order No. 60-4A so that the exemption would not R;available to siding and roofing projects. The National 11,!ing Administration has made a careful survey of this p, 4-em and has consulted with its regional directors. -c°rding to our information, the Administration has had 1.;,, - question about the elimination of siding but has been 1.307 9/9/43 -5- concerned that the elimination of roofing might result ln some cases of undue hardship. At one point in the st.Irvey- a plan was under contemplation which would pro71de that siding would be eliminated but that roofing, "well as the other activities now covered, would be !ubJect to prior approval by the local offices of the vederal Housing Administration. . "We have just been advised, however, that the Ad14113-stration has concluded that this rather cumbersome I!lechanism would not be worth its cost. Consequently it 18.Planning to go forward in accordance with the Board's , iglnal suggestion which would mean the complete eliminaof siding and roofing. The National Housing Admin,stration believes that the cases of undue hardship in roofing field would be few and that the establishOf a costly and time-consuming process just to take e of these few cases would not be justified. the National Housing AdMA . "It is the expectation of the Administrator's Order in change the that ca be 11841 made within a short time. You will understand, °never, that we cannot predict just how soon the new an'er will be effective. The work of drawing up changes I"u Processing them through the agency sometimes takes 4-clIger than is anticipated." j Approved unanimously. Letter to Honorable Leo T. Crowley, Chairman of the Federal it Insurance Corporation, reading as follows: your "Mr. Ransom brought to the attention of the Board letter of August 23 addressed to him and the acanYing copy of your letter of August 20 addressed 8. Senator Vlagner, in which you stated that you sent n nilar letters to Chairman Steagall and Representative bli question of absags1,1.t°nY in regard to the ruling on the CPLion of exchange charges contained in the Board's h:tter of August 23 to Comptroller Delano. Not having d,anY response from Chairman Wagner, Chairman Steagall , 0 A;aepresentative Doughton to the Board's letters of tbgliSt 6, its letter of August 23 was transmitted on "at date to the Comptroller of the Currency. this In view of all that had preceded the issuance of Puling, including the various discussions with you Zn 1308 9/9/43 -6- Hand with members of your staff, the Board was surprised at some of the contents of your letter. The Board's lette 014. _r August 6 to Senator Wagner, Chairman Steagall and Representative Doughton set forth in some detail the background as well as the immediate origin of the ruling in ql:Tetion. However, the Board feels concerned at the posluilitY that your letter would lead its recipients to : 14113P03e that the Board had ruled gratuitously on this aL:roublesome question, not merely on a specific case, but es a general pronouncement, respecting the absorption of . change charges. Moreover, your letter would give the pression that the Board's real motive in issuing this ruling was r to force nationwide par clearance. For these l saeons it has seemed to the Board necessary that this -ket?er be written to set the record straight as to its Pc'eltion in this matter. "The real import of the Congressional mandate under 71ch the Board issued this ruling might be overlooked if rle only the brief reference to it in the second Par letter. For this reason it seems desiryour of a agraPh e -Le to repeat that paragraph 12 of Section 19 of the Fed1 41.1 Reserve Act provides that 'No member bank shall, di' , pay any - 10_ or_indirectl erest on any deposit which is payable on demand.' (Un' de ai rse°ring supplied by us.) Furthermore, the same section t-e° authorizes the Board of Governors 'to define the berr48 "demand deposits", * * * to determine what shall be deemed to be a payment of interest, and to prescribe el41,ah and regulations as it may deem necessary to r‘tIectuate the purposes of this section and prevent evaQlon sthereof.' Bo "You will recall that in 1937 the Corporation and the 11.141 agreed upon the incorporation in their respective reg1 1°ns of identical language as follows: 'Within this r" . . ation, any payment to or for the account of any de'gta po lt°r as compensation for the use of funds constituting a! Posit shall be considered interest.' A joint statement issued announcing that the purpose of this action was ojelY to restate principles of law as decided by the fallfts and to provide for dealing with each case upon the c,,;e of that specific case. This announcement was inte, u 4Led to make clear the position that had been agreed 3 that questions arising under the regulation would rilt:1T1 be dealt with by generalization. The Board has ad' he red to the position thus agreed upon and made no rulings, 1309 9/9/43 -7- lther general or specific, upon the question under cliseueeion until it was requested by the Office of the , '"Dmptroller of the Currency, as stated in our letters If August 6, to rule upon the practice of the particular ic) ‘ ational bank mentioned. It has refrained from any genralization on this subject and therefore is not prepared ! 0 agree with the generalization in your letter that, if Tale absorption of exchange charges constitutes a prohibited tiaYinent of interest, it is equafly clear that the absorpP ,0n of internal service charges, telephone and telegraph 0 1,4114rges and postage for depositors is likewise a proted interest payment. The Board feels that it should flot attempt to rule upon any one of these practices un11 the necessity arises therefor in a particular case. ' came from the Office of the Comptroll "Until the request + 4-Ler of the Currency for a ruling, and even for some e afterwards, it was hoped, and there was some reason ;tTlieve, that the practice on the part of some banks 0 a aDeorbing exchange charges as a consideration for 2130eits would diminish, particularly since many bankers tegarded it as unsound, and that the problem would even' erllY solve itself without more specific action. Re,however, it has appeared that the practice, inSte of diminishing, has increased and the Board had ad b. tclen informed that some banks had taken advantage of pne,situation to engage in a competition for bank det-8;'-te through this practice which other banks had believed De unlawful. 1 this connection and in view of your comments upon What the legislative intent might have been in enacting the e Provisions of the Banking Acts of 1933 and 1935, it 8 i ellis quite pertinent to call attention to the fact that ! 74,discussing the pending provisions, Senator Glass said r ue Payment of interest on demand deposits has resulted : and years in stripping the country banks of all the ,!lr spare funds.' Again he said I* * * this payment of i s erest, particularly on bank demand deposits, has rein drawing funds from the country banks to the 1;117centers for speculative purposes'. He also said * the payment of interest on demand deposits, a syster iti a viciously and partially administered, particularly the great money centers of the country, have resulted u" withdrawing from the interior country banks of the Ited States millions upon millions of dollars to the : 'fleY centers, to be cast into the maelstrom of stock 1310 919/43 -8- gambling and we wanted to stop that'. "From the reference in your letter to a discussion in January between representatives of the Corporation and the Board it might be inferred that this was the °n1Y occasion upon which there was a joint consideration °Is the Board's proposed ruling. You will recall, how: ver, that this discussion was preceded by a meeting on 'resvember 11, 1942, attended by you and members of the ' 4rporation'5 staff, by the Comptroller of the Currency and members of his staff and by members of the Board 4rld its staff. At this meeting there were discussed the Practices of certain banks in absorbing exchange charges, P ttrticularly the bank involved in the Board's ruling, in _ ue light of letters from the Office of the Comptroller ur the Currency urging upon the Board the desirability , a ruling in the matter. At this meeting it was agreed that a Proposed ruling would be prepared as a basis for '4ecussion between staff members of the three agencies. he subsequent staff meetings the proposed ruling, ch in substance was the same as finally issued, was c %zl scussed and the Corporation's staff stated that they °uld not agree with such a ruling although there apP tearsd to be no disagreement on the part of the Comp1*°11erts staff. , "In these discussions, it was clear that the ruling 2' 1 8 not directed against any bank charging exchange, as 314-ght be inferred from your reference to the 2100 insured aanke charging exchange. Rather, the ruling applied to ernber bank which was absorbing the cost of exchange oj a "erwise collectible from banks whose deposits it had j licited by offering this inducement, in lieu of the 4111',e_et PaYment of interest, to make deposits which normally never come to this particular bank. The Board had bee til n under the impression from the various discussions practice even You did not regard this as a sound banking b:.?n though in your letter you say that the Corporation ll-eves the Board of Governors' position to be untenable. &Ile Board finds it difficult, in the light of all you say at Y°ur letter, to determine whether there could be any of facts which in your opinion would constitute a Pay t of interest other than a direct payment of cash or' a a Fredit designated as interest. 'The Board is even more surprised at the statement letter that as you view the proposed ruling it 1 i 1311 9/9/43 -9- simply another attempt to force par clearance upon ricranember banks. The Board does favor nationwide par Clearance, but it agrees with you that the final deternation of the question is one for appropriate legislalve bodies. Consequently it must most emphatically dis;grae that forcing par clearance was the motive of the ?ard i s ruling. To the contrary, the Board was confronted 1:11th the unhappy possibility that, by making such a rulIng, member banks resorting to the practice in question ;ould feel that they should withdraw from the Federal ,? .rva System. It must reiterate that its purpose in r 3-11g the ruling was solely to carry out what it believes _0 be its responsibility under the law in response to a ;equest from the Office of the Comptroller of the Cur_encY for a ruling in the particular case disclosed by reports Ls- of examination made by National bank examiners. w "We are sending copies of this letter to Chairman Iagner, Chairman Steagell, and Representative Doughton. ,addition, we are sending to Senator Glass copies of " letter, of your letter to Senator Wagner, and our letter to the Comptroller of the Currency.” 7 j Approved unanimously. Memorandum of this date addressed by Mr. Bethea to all diviiollhea de to which was attached a copy of ,a letter dated September 6) lo -743) from Mr. Bartelt, Chairman of the Interdepartmental War Sav1%3 Bo„ Committee, enclosing 165 tickets to be used by the Board's or€44iz ation for admission to a special performance put on by the ArrnY at the Washington Monument Grounds at 8:00 p.m. on September 22 in elX1riection with the Treasury War Bond Show. The memorandum sughated leans of distributing the tickets but stated that the question t° h °iv each division's Pllotment would be distributed would be left C"'lle A. t1lere mivision head's discretion, and that, in view of the fact that 1143111d not be enough tickets for all employees, the Board was 1312 9/9/43 —10— le to allowing employees not receiving tickets to take two 110111,8 °If on the Board's time to visit the show, with the understand- 1418' that this should be done to suit the convenience of the division 4nd thaf -not more than a few employees would be permitted to be ab— sent at am im the s e t e. Approved unanimously Thereupon the meeting adjourned. Assistant Secretary. Chairman.
@FedFRASER