The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
M IN U T E S O F M E E T IN G OF TH E FED ERAL E X E C U T IV E A D V IS O R Y C O M M IT T E E OF THE C O U N C IL July 1, 1942 At 9:30 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, July 1, 1942, the President, Mr. Brown, in the chair. Present: Mr. Edward E. Brown, President; Mr. George L. Harrison, Vice President; Messrs. William Fulton Kurtz, B. G. Huntington, S. E. Ragland, and Walter Lichtenstein, Secretary. The Secretary reported that Mr. Robert V. Fleming was unavoidably detained and would not be able to attend this meeting of the Executive Committee. The President stated that he understood the three-prong amendment to the Banking Act of 1935, proposed by the Board of Governors, which had been discussed at the last meeting of the Council, had been recommended by the respective committees of the Houses of the Congress, and it was expected that the bill would pass very shortly. It was decided to discuss reserve requirements, especially as affecting New York and Chicago. Mr. Harrison obtained from Mr. Woodlief Thomas the following figures: According to the last report, excess reserves in the whole System amounted to $2,250 million for all member banks, $388 million for New York banks, $55 million for the Chicago banks, which would leave $1,807 million for the banks in the rest of the country. The President stated that at the moment Chicago banks held more bills than New York banks, the latter having $350 million, while Chicago banks held $400 million. He thought deposits had not been increasing as much as expected, because corporations were using some of their idle funds to buy bills. There had been some discussion about reducing the rediscount rates in New York and Chicago, but the Federal Reserve banks in both cities were opposed. Mr. Kurtz stated that smaller banks in Pennsylvania were not buying bills because the smaller banks were not familiar with bills and how to bid for them. He felt someone should be sent out by the Federal Reserve Bank and acquaint bankers with the advantage of purchasing bills. The President said that in Chicago the large banks bought more bills than they required for their own use in order to be able to sell them to correspondent banks. Mr. Harrison stated that, in his opinion, small banks would prefer to buy short term securities having a fixed rate of interest, as they were not accustomed to bid. The President stated that he believed there should not be made any hasty change in the reserve requirements for New York and Chicago banks. There was general agree ment with this point of view. Mr. Harrison stated that while Chicago had met its quota for the sale of war bonds, New York had not. He believed the reason was that the amount assigned to New York 8 S t a t e w a s t w e n ty - fiv e p e r c e n t fo r th e t o t a l o f th e c o u n try , w h ile a s a m a t t e r o f f a c t, N e w Y o r k S t a t e w a s in a re g io n in w h ich th e re h a d n o t b e e n a n y th in g lik e th e in c re a se in p a y r o l ls t h a t t h e r e h a d b e e n in o th e r p a r t s o f th e c o u n try . The President discussed the situation in Illinois and other states and the relations existing between Victory Fund committees and those in charge of the sale of E bonds. Mr. Harrison suggested that insurance agents might well be used as had been done in Canada. The President stated that he understood advances made by the Treasury for the manufacture of war material could not be considered by corporations as part of their capital structure, in estimating their taxes, but loans made under Regulation V would broaden the capital base in relation to earnings. The meeting adjourned at 10:15 A. M. WALTER LICHTENSTEIN, Secretary. 9 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 I V E C O M M IT T E E O F T H E F E D E R A L A D V ISO 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 TH E FED ER A L R ESER V E SY STEM July 1, 1942 At 10:25 A. 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: Vice-Chairman Ronald Ransom; Governors M. S. Szymczak, John K. McKee, and Rudolph C. Evans; also, Messrs. Lawrence Clayton, Assistant to the Chairman; Chester Morrill, Secretary of the Board of Governors; 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; Mr. George L. Harrison, Vice President; Messrs. William Fulton Kurtz, B. G. Huntington, S. E. Ragland, and Walter Lichtenstein, Secretary. The President of the Council stated, assuming the Steagall bill is passed within the next few weeks, the Executive Committee of the Council believes that reserve require ments should not be altered at this time. Vice-Chairman Ransom stated that there had not been any discussion by the Board, but it was his personal belief that there should not be any change at this time in reserve requirements. Governor McKee, however, stated he was ready to recommend a decrease in reserve requirements, in view of the slowness of sales of war bonds. He believed the Treasury might be embarrassed, and the Government in order to obtain sufficient funds would need more reserves in the banks. The President of the Council expressed the view that much could be done by a campaign of educating banks and corporations to buy bills. Large banks should buy for correspondent banks, selling the bonds to the correspondent banks at a lower yield of approximately 2/100 of 1%, which actually would not reimburse the selling bank for its out-of-pocket expenses. In Chicago and New York this was being done, but appar ently in most other cities this was not so. Excess reserves in Chicago were low but the banks were still able to function, and it might be pointed out that, if reserve require ments were lowered, there would be less incentive for the banks to sell bills to corpora tions and smaller banks. There was some discussion regarding the increase in the portfolio of the System of government securities and the correlation between that increase and the increase of currency in circulation. There was some discussion about methods of sale of E, F, and G bonds. The Vice-Chairman of the Board stated that in his opinion, when reserve require ments are lowered, it will probably be done for all the banks. He also discussed the five 10 y e a r t a p is s u e p r o p o s e d b y th e C h a ir m a n o f th e B o a r d o f G o v e rn o r s, a n d h e fe lt th e b a n k e r s o u g h t t o h a v e b e e n w illin g t o s u p p o r t a p r o p o sa l t o t r y o u t t h is p la n , fo r ev e n if it h a d n o t s u c c e e d e d , n o h a r m w o u ld h a v e b e e n d o n e . Mr. Harrison stated that he believed the Federal Reserve System should not make a permanent commitment that government bonds should not go below par at any time; and he argued that the statement if bills went to a yield of y2 of 1% that then the 2y2% rate on long term issues would be affected did not make any sense. The President of the Council stated it was his impression that the interest of the Treasury in having reserve requirements reduced probably was only in respect to the banks in New York and Chicago. The President of the Council discussed the effect of Regulation V on the tax situation. Mr. Harrison discussed the sale of bonds in Canada and pointed out that insurance agents in that country had been very successful. He said, as insurance business in this country was decreasing, it would be very easy to obtain from 1,000 to 2,000 of the best insurance agents to sell bonds here. After all, insurance agents usually had a very wide acquaintanceship with all classes of people. The meeting adjourned at 12:20 P. M. WALTER LICHTENSTEIN, Secretary. 11 MINUTES OF JUTTING OF TKS EXECUTIVE GOBSfTrfEE OF THT' FSD8RAI* ADVISORY OOtmCIL July 1 , 19/,2 At 9t3Q A. S!., the Executive Coraisittoe of tho Federal Advisory Council convened in the Conference Roota of the Federal Reserve Building, Washington, D. C . , on Wednesday, July 1 , 1942, the President, Mr. Bro^n, in the chair. Present: Mr. Edward S . Brown, President; Mr. George L . Harrison, Vice President; Mesara. i l l i a * Fulton Kurtz, B. G . Huntington, S. I . Ragland, and Falter Lichtenstein, Secretary. The Secretary reported that Mr. Robert V . Fleming -a? u n a v o id a b ly detained and t?ould not be able to attend this meeting of the Bxecutlva Coacittee* The President stated that he understood the three-prong amendment to the S^nkinfi' Act of 1 9 35 , proposed b7 the Boa ~d c'~ Governors, which had b<?en discussed at the last meeting of the Council, h d beers recommended by the respective cossnittee of each of the Houses of the Congress, and it was expected that the b il l •-ould pass very shortly. It *as decided to discuss reserve requirements, especially as a ffec t ing Hew York and Chicago. Mr. fi irrison obtained from Hr. Woodlief Thomas the following figuraa* According to the lar^t report, excess reserves in the whole Sytrfce* amounted to $2,500 million for a l l member b*.n«cs, >3S8 million for York backs, $55 aillio n for the Chicago bancs, which ould leave ,*1,807 million for the banics in the rent of the country. The President stated that at the moa-mt Chicago banks held more b ills than Sew York banics, the latter having *350 a il l io n , shllo Chicago banks held 14-00 m illion. He thought d e c e i t s had not been increasing as much as expected, because corporations vere using some of their idle fluids to buy b ills . There had bean souse discussion about reducing the rediscount rates in B»ew York anJ Chicago, but the Feder-il Reserve bar^s in both c ities were opposed* H r. Kurtz stated that smaller banks in Pennsylvania ^ere not buying b il l s because the smaller banks were not fam iliar with b ills and ho^r tc bid for thea* He fe lt sooiecne should be sent out by the federal Peserve Brink and acquaint bankers with the advantage of purchasing b i l l s . —2 - The President a i d that in Chicago the l.«rge banKx bought nore bills than they required for their orn use in order to be able to sell then to correspondent ban&s. Mr. H&rrison etated that, in his opinion, eeiaii bani* T^ould prefer to buy 3hort ters securities having a fixed rate of interest, a& they were not accustosed to bid* The President stated that he believed there should not be made any ba&ty change in the reserve requirements for He?? York and Chicago b&rJte• There general agreement with this point of view. its Mr. K&rriiion stated that Y*hile Chicago had met 4note for the sale of war bonds, Hew York had not* He believsd the reason wae that the iv&ount assigned to New York S'Uito was treaty-five par cent for the total of the country, t-hile as a matter of fact, Met? York State wag in a region in v;hiefc there had not been anything like the increase in payrolls that there had b*<ao in other parts of the country* 'Hie President diacuseed the situation in Illin o is and other states and the relations existing between Victory Fund ccsiaittees and those in charge of the sale of E bonds. Mr. Harrison suggested that insurance agents might well be used as had been done in Canada* The President stated that he understood advances za&de by the treasury for the manufacture of >mr material could not be considered by corporations as part of their capital structure, in estimating their taxes* but loans aade under Ra;Tiia t ia » V would broaden the capital base in relation to earn ings* The sooting adjourned at 1 0 215 M« Kalter Lichtenstein Secretary -3 - S5IMUTES OF JOINT COMFBflEHCE OF THE EXECUTIVE COMMITTEE OF THE FEDERAL ADVISOR! COTOCIL AKD THE BO RD OF GCV’HSORS OF THE FEDERAL RESERVE SISTER July 1 , 1942 At 10*25 A. M ., a joint conference of the Executive Committee of Board of Governors of the Federal Roc® of the Federal Reserve Building Washington, D . C. th e Federal A d v is o ry Council and t h e R eserv e System *ras held in the 3o rd Present: System* Members of the Bo»rd of Governors of the Federal Reserve Vice-Chairman Ronald Ransomj Governors M. S . Ssyacsak, John X . McKee, and Rudolph C. £v&nsj also, Messrs* L&vTrence Clayton, Assistant to the Chairman; (3i@ster M o r r ill, Secretary of the Bo*rd of Governors; Liston ? . Bethea and S . R. Carpenter, Assistant Secretaries of the Bo rd of Governors* Presentx Members of trie Executive Committee of the Federal Advisory Council: Kr. Edward E . Bro<n, President} Mr. George L . Harrison, Vice President Messrs. William Fulton Kurta, B. G . Huntington, S . K . Ragland, and Walter Lichtenstein, Secretary. The President of the Council stated, assuming the Steagall b ill is passed within the next few weeks, the Executive Co e sittee of the Council believes that reserve requirements should not be altered at this time. Vice-Chairman Ransom stated that thex-e had not been any discussion the Board, but it warn h is peraoaal belief that there should not be any change at this time in reserve requirements. by Governor McKee, ho* ever, stated he was ready to recomend a decrease in reserve requirement« , in view of the slowness of sales of war bonds. He believed the Treasury might be embarrassed, and the Government in order to obtain sufficient funds would noed more reserves in the banks. The President of the Council expressed the view that much could be done by a campaign of educating banks and cor orations tc buy b i l l s . Large banks should buy for correspondent banks, selling the bonds tc the correspondent banks at a lover y ield of approximately 2/100 of 1 ?:, which actually ould not reimburse the selling b«nk for its out-of-pocket ex penses. In Chicago and Hew York this ^as being done, tut apparently in most other cities this was not so. Excess reserves in Chicago were lov but the banks were s t i l l able to fu nctio n , and it might be pointed out that, i f reserve requirements *-ere lowered, there ^ouid be less incentive for the banks to sell b il ls to corporations and s m lle r banks. There was some discussion regarding the increase in the portfolio of the System of government securities and the correlation bet een that increase and the incrota© in currency in circulation. There teas some discussion about methods of sale of E, F , and G bonds. The Vice-Chairman of the Bo rd stated that in his opinion, when reserve requirements are lowered, it **111 probably be done for a ll the hanks . He alno discussed the five year tap issue proposed by the Chair man of the Bo rd of Governors, and he felt the bankers oui-ht to hav bsen willing tc support a proposal to try out this plan, for even if it had not succeeded, no harm * ould have been done. Mr. Harrison stated that he believed the Federal Reserve System should not sake a permanent cofisitment that government bonds should not go below par at any timej -and he argued that the statement if bills went to a yield of 1 /2 of 1% that then the 2 l/2f rate on long term issues would be affected did not sake any sense. The President of the Council stated it vas his impression that the interest of the Treasury in having reserve requirements reduced probably vas only in respect to the banks in Hew York and Chicago* The President of the Council discussed the effect of Regulation V on the tax situ atio n . Mr. Harrison discussed the sale of bonds in Canada and pointed out that insurance agents in that country had been very successful. He said, as insurance business in this country v&s decreasing, it -ould be very easy to obtain from 1 ,0 0 0 to 2 ,0 0 0 of the best insurance agents to sell bonds here. After a l l , insurance agent? usually had a very wide acquaintanceship rith a ll classes of people. The meeting adjourned at 1 2 *20 P . S . Waiter Lichtenstein Secretary
@FedFRASER