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MINUTES OF MEETING OF THE EXECUTIVE COMMITTEE OF THE FEDERAL ADVISORY COUNCIL August 5, 1942 At 10:00 A. M., the Executive Committee of the Federal Advisory Council convened in the Conference Room of the Federal Reserve Building, Washington, D. C., on Wednes day, August 5, 1942, the President, Mr. Brown, in the chair. Present: Mr. Edward E. Brown, President; Messrs. B. G. Huntington, Robert V. Fleming, and Walter Lichtenstein, Secretary. The Secretary reported that Messrs. Harrison, Kurtz, and Ragland had reported to him that they would not be able to attend this meeting of the Executive Committee. Mr. Fleming reported a telephone conversation with Chairman Eccles to the effect that Mr. Eccles believed the meetings of the Executive Committee, as at present con ducted, were not constructive and not helpful. In his opinion, the meetings consisted merely of a cross examination of the members of the Board. Mr. Eccles stated that he did not see any value in these meetings unless some definite program were prepared in advance and submitted to the Board before the meetings; there should not be any meetings unless there were matters of importance to be presented. Mr. Brown stated that in his opinion the question of reserve requirements should be discussed with the Board, and Mr. Fleming suggested that the question of permitting deductions from the income tax for the repayments of debts be discussed. The meeting adjourned at 10:30 A. M. WALTER LICHTENSTEIN, Secretary. 12 MINUTES OF JOINT CONFERENCE OF THE EXECUTIVE COMMITTEE OF THE FEDERAL ADVISORY COUNCIL AND THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM August 5, 1942 At 10:35 A. M., a joint conference of the Executive Committee of the Federal Advisory Council and the Board of Governors of the Federal Reserve System was held in the Board Room of the Federal Reserve Building, Washington, D. C. Present: Members of the Board of Governors of the Federal Reserve System: Chairman Marriner S. Eccles; Vice-Chairman Ronald Ransom; Governors M. S. Szymczak, John K. McKee, Ernest G. Draper, and Rudolph C. Evans; also Messrs. Elliott Thurston, Special Assistant to the Chairman; Chester Morrill, Secretary of the Board of Governors, and Liston P. Bethea and S. R. Carpenter, Assistant Secretaries of the Board of Governors. Present: Members of the Executive Committee of the Federal Advisory Council: Mr. Edward E. Brown, President; Messrs. B. G. Huntington, Robert V. Fleming, and Walter Lichtenstein, Secretary. Governor Szymczak read a letter from Assistant Vice-President Sihler of the Federal Reserve Bank of Chicago, dealing with the problem of the cost to banks if the proposal is enacted into law to have the banks collect the withholding tax on all bond coupons and dividend checks presented for payment. This matter was also fully dealt with in a letter from Mr. B. G. Huntington, addressed to Vice-Chairman Ronald Ransom, and dated August 1, 1942, copies of which had also been sent to the members of the Executive Committee of the Federal Advisory Council. Mr. Huntington in his letter made reference to a memorandum prepared by Mr. Charles Mylander, Chairman of the Committee on Taxation of the American Bankers Association. Mr. Sihler in his letter made some sug gestions as to how the procedure might be simplified for the banks. He pointed out that there would have to be three different types of certificates: 1 —For non-taxable securities. 2—For taxable securities in the case of holders liable to income tax 3—For taxable securities in the case of holders not liable to income tax There was general agreement that the provision in the proposed tax bill was imprac ticable and would place an unduly heavy burden upon banks. Chairman Eccles, winding up the discussion, stated that he believed the Board of Governors would agree to have a memorandum on the subject prepared to be filed with the proper committees of the Congress and with the Treasury. Mr. Brown brought up the matter of reserve requirements, stating that the members of the Executive Committee felt that reserve requirements should not be reduced at this time. Governor McKee disagreed with this point of view. Chairman Eccles made a statement, in accordance with the telephone conversation which he had had with Mr. Fleming, respecting the monthly meetings of the Executive 13 C o m m itte e o f th e F e d e r a l A d v is o r y C o u n c il. A f t e r a fu ll d i s c u s s i o n , i t w a s a g r e e d t h a t th is m a tte r sh o u ld b e re fe rre d t o th e n e x t m e e t in g o f t h e F e d e r a l A d v i s o r y C o u n c il fo r fu rth er co n sid e ra tio n w ith th e B o a r d . Governor McKee brought up two subjects: 1—Regulation Q. 2—Desirability of regarding bills as equivalent to cash in considering the liquidity of banks. In respect to Regulation Q, he pointed out that at present banks carried unduly large balances with city correspondents in order to save out-of-pocket expenses. The result was that there were funds in some of the banks which could easily be used to buy more government securities. Mr. Fleming stated that he believed a bill rate of one-half of one per cent would result in far better distribution of bills than at present, and he questioned whether the long term interest rate on securities would thereby be affected. If reserve requirements were lowered there would be a tendency for the interest rate on bills to weaken, which would mean still greater difficulties in bringing about a wider distribution of them. Chairman Eccles agreed with Mr. Fleming, but he pointed out that if the Treasury refused to do anything about the bill rate, then either the Federal Reserve System would be compelled to buy more bills than perhaps it ought to or reserve requirements would have to be reduced. He stated there were some influences in New York which preferred not to have a higher bill rate because this would merely mean lower deposits in New York from out-of-town correspondents. Governor Ransom asked that members of the Council, at the meeting in September, report whether the following classes of loans, at present not subject to Regulation W, are increasing or decreasing. 1 —Loans on insurance policies. 2—Governmental loans (F. H. A., etc.) 3—Real estate loans. Also he would like information as to whether single payment loans, not now under Regulation W, are increasing or decreasing. He said the belief was prevalent in some quarters, that one and a half dollars were being repaid for every new dollar borrowed. The meeting adjourned at 1:10 P. M. WALTER LICHTENSTEIN Secretary. 14 MINUTES OF MEETING OF THE EXECUTIVE OF THE FEDERAL ADVISORY COUNCIL COMOTTEB August 5 , 194-2 At 10*00 A* M * , th© Kxecutive Committee of the Federal Advisory Council convened in th© Conference Room of the Federal Reserve Building, Washington, D. C . , on Wednesday, August 5 , 19£2, the President, Mr. Bro*n, in the chair* Present* Mr. Edward E . Bro~n, President? Messrs. B . G . Huntington, Kobert V. Fleming, and Walter Lichtenstein, Secretary* The Secretary reported that Messrs* Harrison, Kurtz, and Ragland had reported to him that they would not be able to attend this meeting of the Executive Committee. Hr. Fleming r e o r t e d a telephone conversation >^ith Chairman SccIes to the effect that H r . Eccles believed the meetings of the Executive Coasittee, as at present conducted, were not constructive and not h e lp fu l. In his opinion, the meetings consisted serely o*' s cross examination of the Beaters of the Bo r d . Mr* Kccles stated thiit he did not see any value in these meetings unless some definite program were prepared in advance, and submitted to the Bo 'rd be*fore the meetings?! there should not be any ■eatings unless there were matters of importance to be presented. Mr. Brown stated that in h is opinion the question of reserve require ments should be discussed with the 3os^d, and Mr. Fleming suggested that the question of permitting deductions from the income tax for the repayment of debts be d iscu ssed. The meeting adjourned at 10*30 A . K . Walter Lichtenstein Secretary -3 - Hr. Brown brought up the matter of reserve requirements, stating that the members of the Fxecutive Committee fe lt that reserve requirements should not be reduced at this time. Governor McKee disagreed with this point of view* Chairman Eccles made a statement, in accordance w ith the telephone conversation which he had had with Mr* Fleming, resspeeting the monthly meetings of the Executive Committee of th e Federal Advisory Council* After a fu ll discussion, it w as agreed t h a t t h i s matter should b e referred to the next meeting of the Federal Advisory Council for further considera tion with the Board* Governor McKee brought up t*ro subjects i 1 - Regulation Q 2 - Desirability of regarding b ills as equivalent to cash in con sidering the liquidity of banks* In respect to Regulation Q , he pointed out that at present banss carried unduly large balances with city correspondents in order to s&ve out-of-pocket expenses* The result was that there were funds in some of the banks which could easily be used to buy more government securities* Mr. Fleming stated that he believed a bill rate of one-half of one per cent would result in far better distribution of bills than et present, and he questioned whether the long term interest rate on securities would thereby be affected* I f reserve requirements were lowered there would be a tendency for the interest rate cm b ills to wesken, which woold mean still greater d iffic u lt ie s in bringing about a wider distribution of them* Chairman Eccles agreed with Mr* Fleming, but he pointed out that if the Treasury refused to do anything about the b ill rate, then either the Federal Reserve System would be compelled to buy more bills than perhaps it ou,Tht to or reserve requirements would have to be reduced. He stated there were some influences in Sew York ^hich preferred not to have a higher bill rate because this would merely menn lower deposits in Ke* York from out-of-town correspondents* Governor Ransom asked that members of the Council, at the reset ing in September, report whether the followin£ classes of loans, at present not suoject to Regulation If, are increasing or decreasing* 1 - Loans on insurance policies 2 - Governmental loans (F . H. A *, etc*) 3 - Real estate loan® MINUTES OF JOINT COHFBRTKCS OF THE EXECUTI VS. COKHITTSg OF THE FEDERAL ADVISORY COUNCIL AND THE BOARD OF GOVEFSORS OF THE FEDERAL RJSFRVF SYSTFM August 5 , 1942 At 1 0 1 35 A* M*, a joint conference of the Executive Committee of the Federal Advisory Council end the Board of Governors of the Federal R eserv e System was held in the Bo rd Room of the Federal Reserve Building, Washington, D . C . Present: X -abers of the Board of Governors of the Federal Reserve Systems Chairman M&rriner S . Eccles; Vice-Chairman Ronald Ransom ; M* S . Ssymcsak, John K . McKee, Im e s t G. Draper, end Rudolph C. Evans; a lso , Messrs. Elliott Thurston, Special Assistant to the Chairman; Chester M o r r ill, Secretary of the Bo'ird of Governors, and Liston P . Bethea and S . R. Csri>enter, Assist nt Secretaries of the Bo&rd of Governors. G o v e rn o rs Governor Szyaezak read a letter from Assistant Vice-President Sihler of the Federal Reserve Bank of Chicago, dealing with the problem of the cost to banks i f the proposal is enacted into law to have the banks collect the withholding tax on a ll bond coupons and dividend checks presented for payment. This matter was also fully dealt with in a letter from Mr* B* G* Huntington, addressed to Vice-Chairman Ronald Ransom, and dated August 1 , 1 9 4 2 , copies of which had also been sent to the members of the Executive Committee of the Federal Advisory Council .Mr. Huntington in his letter made reference to a memorandum pre 'red by Mr.Charle? Inlander, Chairman of the Committee on Taxation of the American Bankers Association* Mr. Sihler in his letter sade some suggsstioae as to how the proceedings might be simplified for the banks* He pointed out that there would have to be three different types of certificates5 1 - For non-taxable securities 2 - For taxable sedirities in the case of holders liable to income tax 3 - For taxable securities in the case of holders not liable to Income tax There w^s general agreement that the provision in the proposed tax b ill was impracticable and sould place an unduly heavy burden upon banks. Chairman Eccles, winding up the discussion, sttted that he believed the Bo’ird of Governors would agree to h&ve a memorandum on the subject prepared to be file d ith the proper committees of the Congress and with the Treasury* Also he would like information as to whether single pnyment loans, not now onder Regulation W, are increasing or decree ring. He s id the belief was prevalent in so®© quarter?, that one and a half dollar® was toeing repaid for every new dollar being borrowed. The meeting adjourned at 1*10 P . M, Walter Lichtenstein Secretary
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