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M IN U T E S O F M E E T IN G OF TH E E X E C U T IV E F E D E R A L A D V IS O R Y COMMITTEE OF THE C O U N C IL January 6, 1943 At 11:00 A. M., the Executive Committee of the Federal Advisory Council convened in the Conference Room of the Federal Reserve Building, Washington, D. C., on Wed nesday, January 6, 1943, the Vice President, Mr. Harrison, in the chair. Present: Mr. George L. Harrison, Vice President; Messrs. Charles E. Spencer, Jr., William Fulton Kurtz, B. G. Huntington, Robert V. Fleming, and Walter Lichtenstein, Secretary. The Secretary joined the meeting at 11:20, his train having been delayed. He re ported that Mr. Brown was unable to be present on account of illness and that Mr. Rag land had also notified him he would not be present. Mr. Spencer had been appointed as an alternate for this meeting of the Executive Committee as provided by Article IV of the by-laws. It was stated that a bill was to be introduced at this session of the Congress to exempt War Loan Deposit accounts from the assessment of the F.D.I.C. and also from the re quirement of keeping reserves against such accounts. It is understood that the Federal supervising authorities have all agreed to support such a bill. A discussion took place regarding the deferment from military service of key men employed by banks. Discussion took place regarding the program for future financing by the Treasury. The meeting adjourned at 12:10 P. M. WALTER LICHTENSTEIN, Secretary. 10 M IN U T E S O F JO IN T C O N F E R E N C E O F T H E E X E C U T IV E C O M M IT T E E O F T H E F E D E R A L A D V IS O R Y C O U N C IL A N D T H E B O A R D O F G O V E R N O R S O F T H E FE D E R A L R E SER V E SY STEM January 6, 1943 At 12:30 P. M., a joint conference of the Executive Committee of the Federal Advi sory 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 M. Evans; also, Lawrence Clayton, Assistant to the Chairman; 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; George B. Vest, Assistant General Counsel; E. A. Goldenweiser, Director, Division of Research and Statistics; Leo H. Paulger, Chief, Division of Examination; R. F. Leonard, Director, Division of Per sonnel Administration; Edward L. Smead, Chief, Division of Bank Operations; Carl E. Parry, Chief, Division of Security Loans. Present: Members of the Executive Committee of the Federal Advisory Council: Mr. George L. Harrison, Vice President; Messrs. Charles E. Spencer, Jr., William Fulton Kurtz, B. G. Huntington, Robert V. Fleming, and Walter Lichtenstein, Secretary. Chairman Eccles confirmed the report that a non-controversial bill was to be intro duced in Congress exempting War Loan Deposit accounts from the assessment of the F.D.I.C. and also from the requirement of keeping reserves against such accounts. The Vice President of the Council stated that the members of the Executive Com mittee of the Council were unanimously in favor of such a bill. He also stated that banks were worried as regards the manpower situation; the thirty year age limit would take care of the key men in most cases but there was some fear that employees might be shifted to essential war industries and that it would be impossible to replace them. Chairman Eccles answered that he expected this whole topic to be discussed at a conference of the presidents of Federal Reserve banks which is to be held on January 25. Some further details of the manpower situation were then discussed. The Vice President of the Council stated that it was the feeling of the members of the Executive Committee of the Council that in respect to Treasury financing it would be desirable to have periodical drives but that such drives should be limited to non-bank subscribers and that banks should be appealed to only in the intervals between such drives. There was also some discussion of possible Treasury plans to have bonds paid for by installments. There was a short discussion regarding the credit situation. Governor McKee expressed the hope that banks in their published statements would separate War Loan Deposit accounts from other deposits, as otherwise the statements would tend to give a false picture of the fluctuations of bank deposits. The meeting adjourned at 1:40 P. M. WALTER LICHTENSTEIN, Secretary. 11 MINUTES OF MEETING OF THE EXECUTIVE COMMITTEE OF THE FEDERAL ADVISORY COUNCIL January 6, 1943 At 11:00 A, M ., the Executive Committee of the Federal Advisory Council convened in the Conference Room of the Federal Reserve Building, W shington, D. C ., on Wednesday, January 6, 1 9 43 , the Vice President, Mr. Harrison, in the chair. Present: Mr. George L . Harrison, Vice President} Messrs. Charles E . Spencer, J r ., William Fulton Kurtz, B. G. Huntington, Robert V. Fleming, and Walter Lichtenstein, Secretary. The Secretary joined the meeting at 1 1 :2 0 , his train having been delayed. He reported that Mr. Brora was unable to be present on account of illness and that Mr. Ragland had also notified him he would not be present. Mr. Fleming reported that he understood a b i l l was to be introduced at this session of Congress to exempt War Loan Deposit accounts from the assess ment of the F. D. I . C. and also from the requirement of keeping reserves against such accounts. This is tc hold good for the "duration” and six months there after. He understood that the Treasury, the Comptroller, the F . D . I . C . , and the Board of Governors of the Federal Reserve System had a ll agreed to sup port such a b i l l . Some doubt was exoressed as to the advisability of exempting War Loan Deposit accounts from the necessity of keeoing reserves, but it was recognized that it would not be advisable to quibble about d e ta ils , and it was agreed to a?k the Board to support the b i l l in question so that it might be passed promptly. It was pointed out that the average amount of reserves carried against War Loan Deposit accounts is about $400 million with a maximum of around $800 million. Mr. Fleming reported on the matter of deferment for key men employed by baiuca. He stated that the thirty—eight year age lim it took care of most of the key men. The problem, hor'ever, of the banks losing so large a number of employees as to impair their proper functioning remained. I f the government decided to control a l l employment, it might be d iffic u lt for a bank to find a sufficient number o:" competent nev? employees. It was recognized by a l l that, in order to obtain results, it ??ould be necessary to approach Mr. McNutt him self and, possibly even, the President. Treasury F inancing. Mr. Harrison stated that, in his opinion, a superb job had been done in the recent dr iv e . The next drive would probably take place scBe time in A p r il, and he fo lt some consideration should be given to the possibility o ’, dividing the drives for bank support of Treasury financing from those intended tc obtain support from non-banking sources. For example, if the Tre.sury should need money in February, it might go only to the banics and then in April confine the drive to non-banking groups* this way, there would be periodical non-banking drives, while bank drives would be '.edged in between. In ' F The other question is how are the quotas to be fixed. I f there is tc be a definite amount to which each bank is expected to subscribe, then salesmen will not be required for that purpose. Probably, the Federal Reserve bank in each district could determine the amount to be expected from the banks within the district. Mr. Harrison went on to say that it did not seem necessary to him to discuss the type of securities as that seemed to have been satisfactorily settled in connection with the recent drive. He said that insurance companies were still anx ious to have a 3/S bond. Some of the smaller insurance companies are in danger of not finding a sufficient amount of safe investments with a high enough yield to enable them to keep above the legally required reserves. Mr. Harrison then discussed the possibility of a partial payment plan. He pointed out that at present some insurance c mpanies have dealers buy and hold for them a larger amount than the company could pay for immediately, the dealer, in turn, borrowing from his bank to enable him to carry the bonds. The in surance companies do this in order to have bonds available as they receive funds. Mr. E^rrison pointed out that it might be oossible for the Treasury to make some arrangement for insurance companies so that they would not have to go to the dealers. Mr. Harrison discussed trie matter of the series E bonds. Very likely this problem would settle it s e lf as a consequence of a withholding tax. Finally, Mr. Harrisoh discussed the credit policy, i . e . , how can the anks get enough funds to buy the bonds? I t seemed to him the answer was a combination of the various methods: namely, open market operations, lowering of reserves, and borrowing by banks. I f only one method is used, there is likely to be dis location. In the case of lowering reserves, it is undesirable to have these at a vanishing joint at the end of the warj likewise, it would be undesirable to have the Federal Reserve System loaded up with too large an amount of bonds, and, fin a lly , T7hile i t may be desirable to have banks borrow, it should not be to such an extent that the debt of the banks is other than temporary. The meeting adjourned at 1 2 :1 0 P . M. Walter Lichtenstein, S ecretary MINUTES OF JOINT CONFERENCE OF THE EXECUTIVE COMMITTEE OF THE FEDERAL ADVISORY COUNCIL AND THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM January 6, 1943 At 1 2:30 P . 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 Bo rd Room of the Federal Reserve Building, Washington, D. C. System: Present: Members of the Board of Governors of the Federal Reserve Chairman Marriner S. Eccles; Vice-Chairman Ronald Ransom; Governors a. S. Szymcz&k, John K . McKee, Ernest G. Draper, and Rudolph M. Evans; also, Lawrence Clayton, Assistant to the Chairman; E llio tt Thurston, Special Assistant to the Chairman; Chester M orrill, Secret try of the Board of Governors, Hid Liston P . Bethea and S . R. Carpenter, Assistant Secretaries of the Board of Governors; George 3* Vest, Assistant General Counsel, E. A . Goldenweiser, Director, Division of Research and Statistic s; Leo H . Paulger, C h ief, Division of Examination; R . F . Leonard, Director, Division of Personnel Administration; Edward L. Snead, C h ie f, Division o Bank Operations; Carl E . Parry, Chief, Division of Security Loans. Present: Council: Members of the Executive Committee of the Federal Advisory Mr. George L . Harrison, Vice President; Messrs. Charles E . Spencer, J r . , william Fulton Kurtz, B. G. Huntington, Robert V . Fleming, and Walter Lichtenstein, Secretary. Ear Loan Deposit Accounts. Chairman Eccles stated that the matter had been discussed with the Treasury, the Comptroller*s o ffic e , and the F . D . I . C, All had agreed on the b i l l to be introduced, as had Senator Prentiss M. Bro?m of Michigan and Henry B. S te a g a ll. Consequently, the b il l was not controver sial, and it was hoped it Yvould be passed promptly. Mr. Harrison reported that the members of the Executive Committee of the Council were unanimously in favor of the b il l but fe lt that, in p rincip le, t^e waiving of reserves on War Loan Deposit accounts was perhaps not d esirab le. Chairman Eccles in answer stated that the P . D. I . C* had agreed to waive the assessment on War Loan Deposit accounts onlv on condition that the Federal Reserve System would also ?aive the reserve requirements. -4Manpower Acts, Mr, Harrison stated that it 7?as generally felt that the thirty-eight year age limit ^ould take care of the key men in most cases, but that banks believed there was some danger of other employees being shifted to essential war industries and being unable to replace them, the proper functioning of ban*cs might be impeded. Chairman Eccles ansvered that he expected this whole topic to be dis cuss- d at a conference of the presidents of the Federal Reserve banks to be held on January 2 5 . He thought banks ought to be willing to go on a fortyeight hour b a sis, paying time and one-half for eight hours of overtime. Otherwise, it was felt that banks were not making full use of the people they had, **e stated that the government had recently gone on a forty-eight hour a week basis, but his attention was called to the fact that in the case of the government the extra hours are not paid for at the rate of time and one-half. It was generally agreed that some survey ought to be made to classify skilled and unskilled help in the banks. The question was raised as to bank tellers but the Chairman doubted whether these would be exempted and said that more women would have to be used. Mr, Harrison pointed out that the U. S. Employment Agency would not give any help to banks with the result that they *vould be in danger of losing experienced people and not able to obtain any new ones. It ought tc be de termined in the fir s t place how essential banks are to the 0 . P. A. and the Treasury, and, secondly, the Board should use its influence to help banks have their skilled pecple cl~ ri led. Chairman Eccles pointed out that Mr. Wright Patman of Texas had in troduced a b i l l , H. R. 1 , ’^hich would obviate the necessity of banks needing extra help as the b ill provided that the power of the Treasury to issue securities bearing interest should be revoked and in the place of such secur ities, the Treasury should issue non-negotial|J.e, non-interest bearing bonds to be bought by the Federal Reserve banks. Treasury Financing. Mr. Harrison pointed out that at the time of the full meeting of the Council the method of Treasury financing was just under going changes. I t was now agreed that periodical drives would be desirable, and the Executive Committee of the Council fe lt that these drives should be limited to non-bank subscribers and banks should be appealed to only in the intervals between such driv es. Thus, the Treasury could put out types of securities for each c lass. There was much to be said in having quotas for tanks by districts and then having the Federal Reserve bank fix the quota for each bame in its d is t r ic t . There might also be a renewal of the partial payment plan for non-bank subscribers. I f there was such a plan, for example, an insurance company could estimate its requirements for a three to four months1 period. This is especially important for some insurance companies which cannot live on a 2\% basis; some of this pressure could be removed i f the companies were In a position to invest funds immediately as they came in, instead of being compelled to have the funds idle for some period of time. Chairman Eccles wanted to know why insurance companies couldn*t borrow now in anticipation of their needs. Mr. Harrison replied there was some question s to whether insurance companies could legally borrow for the rnrpose of buying onds. Chairman Eccles said he did not see any objection to having the Treasury arrange a partial payment plan, and he understood that the Undersecretary of the Treasury was in favor of th is, i f the borrowing were for a short period, say for a period of six months. Mr. Harrison pointed out that at present dealers buy these bonds and borrow money from banks, paying only one per cent. On the other hand, if the Treasury arranged a p artial payment plan it would pay 2^% only on that portion oT the bond for which the insurance company had actually paid. £ Bonds. Mr. Harrison stated that he did not believe it feasible to do anything at present. Chairman Eccles stated that there had been some discussion as to whether it ~*ould not be desirable to issue a bond to replace the series E bonds; this new bond might be redeemable only after it had been held three years or some such period. Credit P o lic y . Mr. Harrison stated it was felt that no one method should be used to the exclusion of a l l other methods. It would be undesirable to end the war with a 4% reserve requirement, and, likewise, it would be undesirable to overload either the banks or the Federal Reserve System with bonds. There was some discussion about the use of Treasury bills as reserves. Chairman Eccles a 3ked why not let the Federal Reserve banks buy the bills. Mr. Harrison answered, there is danger of having the government debt pile up in one place since after the war people would object to being taxed in order to b a il out one group. Chairman Eccles agreed that there should be a division between offer ings to banks and non-banks. —6— Governor McKee stated that when the pending legislate on was passed, exempting ?'ar Loan Deposit accounts from assessment to F. D. I . C. and re quired reserve regulations, that then War Loan Deposit accounts should be divorced from other deposits in bank statements, so that these statements would not show too violent fluctuations in deposit accounts. The meeting adjourned at 1:4-0 P . M. Walter Lichtenstein Secretary
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