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M IN U T E S O F M E E T IN G O F T H E E X E C U T IV E C O M M IT T E E F E D E R A L A D V IS O R Y C O U N C IL OF TH E June 13, 1945 At 11:10 A. M., the Executive Committee of the Federal Advisory Council con vened in the Conference Room of the Federal Reserve Building, Washington, D. C., on Wednesday, June 13, 1945, the President, Mr. Brown, in the Chair. Present: Mr. Edward E. Brown, President; Mr. Charles E. Spencer, Jr., Vice Presi dent; Messrs. John C. Traphagen, William Fulton Kurtz, Robert V. Fleming, and Walter Lichtenstein, Secretary. The Secretary of the Federal Advisory Council stated that he had a letter from Mr. Gifford stating that he would be unable to be present at this meeting of the Executive Committee. A discussion took place in respect to Regulation Q and the President of the Council read a statement which had been adopted at a meeting held in Memphis. An agreement had been reached on a regulation to go into effect on August 1, 1945 to enforce the law but to regard absorption of exchange charges of less than two dollars in any one month for any one depositor as trivial. There was some objection that the provisions were some what too rigid. There was a discussion as regards margin requirements and capital gains tax. It was generally felt that there wasn’t any need of taking action at this time. In respect to the extension of Regulation W to cover real estate, the President of the Council stated that Regulation W already applied to improvements on real estate. There was agreement on the part of all present that Regulation W should not be extended to cover sales of real estate. The meeting adjourned at 12:00 noon. WALTER LICHTENSTEIN, Secretary. 17 1 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 OF 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 TH E FED ERA L R E SER V E SY STEM June 13, 1945. At 12:10 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 R. M. Evans; also, Chester Morrill, Secretary of the Board of Governors; S. R. Carpenter and Bray Hammond, Assistant Secretaries of the Board of Governors; George B. Vest, Assistant General Attorney; E. A. Goldenweiser, Economic Adviser; Leo H. Paulger, Director, Division of Examina tions; Edward L. Smead, Director, Division of Bank Operations; Carl E. Parry, Director, Division of Security Loans, and Robert F. Leonard, Director, Division of Personnel Administration. Present: Members of the Executive Committee of the Federal Advisory Council: Mr. Edward E. Brown, President; Mr. Charles E. Spencer, Jr., Vice President; Messrs. John C. Traphagen, William Fulton Kurtz, Robert V. Fleming, and Walter Lichtenstein, Secretary. A discussion took place regarding Regulation Q and the Memphis agreement. There was general agreement in respect to the provisions of the Memphis statement but it was hoped that this be not interpreted too rigidly. In respect to margin requirements, the President of the Council stated that the members of the Council believe it would be a mistake to impose a 100 per cent margin requirement at this time and that it would be better if it were necessary to do anything to raise the margin gradually. The Chairman of the Board stated that he thought if anything were done it would be a part of a comprehensive program. The Chairman of the Board stated that in respect to Regulation W any changes therein would also have to be a part of a more comprehensive program. The President of the Council stated that it was the feeling of the Council that it would be inadvisable for it to issue a statement at this time covering the program of reduction of supplies to the Armed Services and increase of production to meet civilian requirements. The meeting adjourned at 1:20 P. M. WALTER LICHTENSTEIN, Secretary. 18 NOTE: T h is tra n sc rip t of the S ecretary*s n o t e s i s n o t to b e r e g a r d e d a s c o m p le t e o r n e c essa rily accurate. The t r a n s c r i p t sh o uld be co n sid ere d as b e in g u s e o f t h e m em bers C o u n c il. of str ic tly fo r W. Jj sole . S ecretary *s notes on the m e e tin g o f ecu tiv e C o m m it te e of the F e d e r a l C o u n c il on J u n e the the the F e d e r a l A d v is o r y th e E x A d v is o ry 1945, a t 1 1 : 1 0 A . M . , i n 13, C o n f e r e n c e Room o f t h e F e d e r a l Reserve B u ild in g . The Secretary from M r . to b e tiv e The stated G iffo rd present at that he had a le tte r th at he ^o u ld not th is m e etin g o f be a b le the Execu C o m m itte e . fo llo w in g w ere Spencer, present: Traphagen, Kurtz, M essrs. F lem in g , Brom , and the Secretary. REGULATION Q BRO^N reads R e g u latio n Q . a The statem ent statem ent agreed on a r e g u l a t i o n law , but that am ounts p o s ito r w ere to b e FLEMING o b j e c t s THA?K a GI3J B;-0".fN . d e p o sito r i s to p o in ts to the p r i n t i n g of It out sho uld as the b e m ad e clear as the tra n sa c tio n and s t i l l b e r e g a r d e d as says the e x e m p t io n January 1 , 194-5. In " 1 0 , 0 0 0 m ig h t b e BRQ "N says excess order raised the d isc u ss 1, 194-5, to o n e m onth f o r enfo rce any one the de b e in g too r i g i d . that £ 2 .0 0 the does n o t ap p ly ite m s. a m on th f o r am o u n t o f that a b so rp tio n any if one it were ju st be larger m ig h t triv ia l. Congress on in to and C o m p tr o lle r ’ s O f f i c e on A u g u s t no rm al am ount b u t MARGIN PZCgJIRESgSNTS AiJD C A P I T A L G A I N S FLEM ING Board M e m p h is proposed r e g u la t io n sim ila r a s in g l e n o n r e c u r r i n g raise the in triv ia l. that regarded that ab so rp tio n draft and m e etin g h e l d effect of as the checks to b e in to * 2 .0 0 regarded the stated to go of o^ is not to in te r e ste d p ro fits to h e l p TAX in the t a x a n d m ak e sm all b u s i n e s s , $ 2 5 ,0 0 0 it su b je c t. It retro a ctiv e the p r e s e n t m ay fro m exem p tio n or $ 3 5 ,0 0 0 . F arm F o u n d a t i o n h a d d i s c u s s e d E c cleo 1 s u g g e s t io n s . -2- TRAPHAGT34 says i t w o u l d b© much b e t t e r to in c r e a s e t h e m a r g i n re- g r a d u a l l y , a n d th e Board sh o u ld no t e xh aust a l l it s powers a t one time# H e h a s f o u n d t h a t m any p e o p l e b e l i e v e th e r a i s i n g o f t h e e x c e s s profits t a x w o u l d h a v e a n e f f e c t on t h e m a rk e t o p p o s i t e to th e on e d e s i r e d . a u ire m e n ts KURTZ th in k s T R A ?H A G T<IN excess p r o fit s t a x sh o uld be r a i s e d . b e l i e v e s m arket w i l l not get out o f h a n d . «any o r d e r s p l a c e d to s e l l 15 per c e n t on t h e a v e r a g e T here are s e c u r i t i e s o n a r i s i n g market. Stocks are s t i l l b e l o w w h a t t h e y w e r e i n 1 9 3 6 - 7 and o n l y 1 0 - 1 2 per ce n t h i g h e r t h a n t h e a v e r a g e o f t h e p e r i o d from 1 9 3 5 - 9 . I t is not a d is o r d e r ly m a r k e t b u t h e b e l i e v e s i f t h e m a rk e t i s to be c o n t r o l l e d , m a rg in requirements w i l l do i t tax he does n o t b e l i e v e to a is c e rta in extent. A change in th e c a p i t a l g a i n s an a n t i - i n f l a t i o n m easure but p u re ly a tax m easure. BROWN says he w il l ask t h e B o a rd w h e t h e r i t p l a n s t o do a n y t h i n g . SPENCER b e l i e v e s a r a i s i n g o f t h e m a r g i n r e q u ir e m e n t s w o u ld h a v e some e f f e c t on t h e m a r k e t b u t h e b e l i e v e s n o t h i n g s h o u l d be don e a t p r e s e n t . TRAPHAGEN Board e x h a u s t e d a l l not to h a v e be h e ld to the m arket come u n d e r simply n o t sell BROWN action a t th is EXTENSION O F He get fo r a w h ile tax w o u ld be a m i s t a k e the p e r io d is len g th en ed , but. h o l d feels if the ju s t as a n x io u s a s the B o ard If i n w h ic h s t o c k s m u st then peop le w i l l on to them f o r in v e s tm e n ts w o uld C o u n cil it fear i f they sold be f r o z e n . th a t there is no need o f ta k in g any tim e . TO if the SPENCER befo re to of v/ere m ade to c o v e r the E x e c u t iv e The o n ly w ay to sales of real C om m ittee a g r e e w i t h prevent a very it estate. th is statem ent. sh a r p i n c r e a s e in rents b u ild in g . p o in ts the w a r , out so i t that is b u ild in g is The m e e tin g adjo urn ed now c o s t i n g n a t u r a l th at the &re g o in g u p . to im p ro v em e n ts on r e a l see R e g u l a t i o n W e x t e n d e d an d w ould r e g a r d reg u latio n TRAPHAGEN. is to h a v e much n e w C O VER R E A L E S T A T E R e g u la t io n W a lread y a p p lie s does n o t w ish The m em bers would h a v e p ro fits the R E G U LATIO N K as u n f o r t u n a t e S ch ram i s out of hand. th e ir says BROWN. estate. Schram f e e l s pow ers n o w . excess stocks and then b o u g h t a g a i n Emil says its at 1 2 |0 0 Noon. p ric es tw ic e r h a t of real it estate On Ju n e 1 3 , 1 9 A 5 , a t 1 2 :1 0 P .M ., a jo in t m e e t i n g o f t h e E x e c u t i v e Com m ittee o f th e F e d e r a l A d v is o r y C o u n c i l and the Bo ard o f Governors o f t h e F e d e r a l R e s e r v e Sy ste m w a s h e l d i n t h e B o a r d Room o f t h e F e d e r a l R e se rv e B u il d in g , W ashington , D . C . The f o l l o w i n g m em bers o f th e E x e c u t i v e C o m m it t e e w e r e p r e s e n t : S p e n ce r, Traphagen, the S e c r e t a r y . The M essrs. Kurtz, Brown, F le m in g , and f o l l o w i n g w e r e p r e s e n t from t h e of Governors: C h a ir m a n E c c l e s ; B o a rd V ic e C h a ir m an R a n s o m ; G o v e r n o r s S z y m c z a k , M c K e e , D ra p e r, and Evans; a l s o , M essrs. M o r r ill, Carpenter, Pau lger, H am m o nd, Sm ead, Vest, Parry, G o ld e n w e ise r, and L e o n a r d . REGULATION q BROWN th in k s M e m p h is a g r e e m e n t s the s t a t e m e n t i s too of a b s o r p t i o n som ewhat h ig h e r judgment o f is the triv ia l am ount. th in k s M O R R IL L says so t h a t RANSOM says M CKEE says if an says tionary a u t h o r i t y m u s t the co uld that text f e e l i n g w as be l e f t t h e a m o u nt to th e t h is w o uld still to o r i g i d . that th e statem ent ought n o t f in d loopholes. is e x a m in e r m ig h t is up to the done a b o u t to b e f l e x i b l e there r e p o r t an am o u nt h i g h e r is danger to the - 2 .0 0 ought to b e ite m . left to t h e e x a m in er r e p o r t s w hatever he f in d s left than s u p e r v is o r y a u t h o r it y to d e c id e a no n- recurring som e d i s c r e t i o n be tra n sa c tio n sh o uld evaded. it the th is understands the la n g u a g e be says .'2 * 0 0 s t a t e m e n t o f th e M e m p h is be but sho uld RANSOM in w ill absorbed, F L E M IN G the t h o u g h F l e m in g f e e l s on a n o n r e c u r r in g than h im s e lf, c o m p e tito rs that th e r e g u l a t i o n whether a n y t h i n g if He, F L Y IN G having b e e n and e x a m in er. be r e g a r d e d a s a to be r i g i d rig id sound, exam in ers. and d is c r e su p e rv iso ry a u t h o r it ie s . MARGIN R E Q U IR E M E N T S BliOrVN The 100 p e r c e n t m a r g i n C o u n c il th in k s re q u ir e m e n t at it th is w o u l d be a m i s t a k e tim e a n d even if to th is im p o s e a sh o uld becom e -4- neceSgary i t w o u l d b e EC C LE S is tie d up w i t h m uch b e t t e r says a m uch it w i l l be d o n e a s raise n o t h in g new h a s m ore the to th^ m argin d e v e l o p e d a n d th e w h o le c o m p reh e n siv e program . resu lt of a gradu ally. If su b je c t a n y th in g i s done, l a r g e r p l a n p u t f o r t h b y th e Tfhite House. REGULATION w BROWN asks be p art o f a l a r g e r ECCLES w hether p lan says the o f w h ic h the exten sio n o f R e g u la tio n W w ould a ls o E c c le s had spoken. larg er program w o uld a l s o c o v e r th e e x ten sio n of R e g u l a t i o n W . H e , h i m s e l f , i s o p p o s e d to c r e d i t c o n t r o l u n l e s s i t i s coupled w i t h a r e v i s i o n o f t h e c a p i t a l p a i n s t a x . BR OW N. The C o u n c il f e e l s it had power to r e g u l a t e m ortgage between th e b u y i n g o f consum er c a p i t a l w o uld be u n f o r t u n a t e cred its. There is goods and if a d istin c t the the Board d iffe re n c e purchase of real e state . ECCLES however, that i t says w o uld the ones to r e g u l a t e ment a g e n c i e s m any o f be does n o t a g r e e the that out o f th e f i e l d valu e it by in s u r a n c e ECCLES. private c r e d i t that w ill be a d d e d , by w h ile sp ecu latio n of the c a p i t a l tax m e th o d s , g ain s so last g e ttin g out o f han d, as to to h a v e the credit be e n te rp ris e, i s no w 2 - 1 / 2 so a t t h e cred it t im e s t h e A g e n c ie s so m e th in g b illio n would h a v e a p s y c h o l o g i c a l effect re g u la tio n o f be in is not to at is is de a g a in . credit He w o u l d l i k e th is by the to route C o n g r e s s w i l l n o t do a n y t h i n g b y be done by r e g u l a t i n g any ra te . fo rc e but It o f p riv a te o n ly w ay to re a c h fear am ount o f fro m g o i n g u p *;60 b i l l i o n w a s a d d e d . tax. some o f to d e c l i n e . o u tsta n d in g year, the He d riv e n end o f th is y e a r , h ad a tendency th is lan d banks b asis. extant or w il l year, both be Govern d e sira b le checked and w ould a f e e l i n g among t h e te rm s o f t h e l o a n s . they w ish credit is is co m p a n ie s and p r iv a t e end o f He b e l i e v e s , and the am ount o f the co ntrols. estate th e w hole h a s to p r e v e n t t h e It is l i v e l y see cash P u b lic on There on an u n s o u n d o u tstan d in g , credit o u t s t a n d i n g sir ab le le n d in g of real want to h ave G overnm ent c r e d i t a g e n c i e s credit. w o uld be which a r e d o i n g b u s i n e s s a u th o ritie s a m ista k e p riv ate th at m ortgage the a p p r a i s a l o f the He o n ly u n t i l p o in ts credit out th a t 6 m on th s a f t e r as th is a n y su c h the w a r. CURRENCY T R A N S A C T IO N S ECCLES UrY to d i s c o n t i n u e fact, he is in says the favo r KURTZ a g r e e s actions i s g o o d . it regulatio n of the of fu n ctio n currency of the B o a rd to a s k tran sac tio n s an d , as -the T r e a s a m atter it. w ith Eccles that the r e g u l a t i o n o f currency tran s -5- ECCLES tire ly f a v o r a b l e . QTATram says BY C O U N C IL ON BRQ-.H says that t h e m a j o r i t y o f comment h e h a s h e a r d i a en IN F L A T IO N the C o u n c il f e e l s that It cannot i s s u e a statem ent at t h is tim e a n d e s p e c i a l l y a s much i s b e i n g d o n e . C utbacks are i n c r e a s ing f a s t e r t h a n i s g e n e r a l l y know n a n d th e Armed S e r v ic e s a re m eeting r e s i s t a n c e to t h e i r d em ands. I t may b e t h a t the Armed S e r v ic e s are en gaging i n p s y c h o l o g i c a l w a r f a r e a g a i n s t J a p a n and r e a l l y do n o t expect to o b t a in o r u s e a l l t h a t i s b e i n g de m a n d e d . B u t , be t h a t as i t may, there i s n o q u e s t i o n t h a t t h e w i n g s o f th e Armed S e r v ic e s h a v e been c lip p e d . TCCLES s a i d h e h a d t a l k e d to the P r e s i d e n t and V in so n a bo u t th is m a t t e r a n d t h e r e i s n * t a n y q u e s t i o n i n h i s m ind t h a t they are p u t t in g p re ssu re on t h e Arm y a n d N a v y . C u t b a c k s commencing i n J u l y , f o r the t h i r d q u a r te r a s c o m p a r e d w i t h M a r c h , am ount t o 2 0 p e r c e n t and by the end o f the y e a r w i l l b e 3 0 p e r c e n t . I t i s e x p e c t e d i n the f i r s t q u a r te r o f next y e a r , c u t b a c k s w i l l b e 3 8 p e r c e n t . T h i s may c r e a t e te m p o r a r ily 3-4 m i l l i o n u n e m p l o y e d w h i c h j u s t a t t h i s tim e may h a v e an a n t i - i n f l a t i o n a r y e f f e c t b y k e e p i n g p e o p l e fr o m s p e n d i n g too much a n d a l s o from s p e c u l a t in g in r e a l e s t a t e . F u r t h e r m o r e , t h i s un em p loy m ent w i l l t e n d to move p e o p le from r e g i o n s o v ^ r s u p p l i e d w i t h m an po w er to such r e g i o n s where th e r e i s s t i l l demand f o r m a n p o w e r . E c c l e s w e n t on to s a y the P r e s i d e n t had a g r e e d w it h him a n d E c c l e s h a s l i t t l e d o u b t t h a t w h i l e th e P r e s i d e n t w i l l have to keep p o l i t i c a l s ib l e to c o n sid e ra tio n s ifcKEE a g r e e s iss u e a statem ent ECCLES and t h a t in m in d , h e w i l l do e v e r y t h in g t h a t i s p o s c u r t a i l u n n e c e s s a r y e x p e n d i t u r e s by the Armed S e r v i c e s . ju s t th in k s co ntro ls w i l l The m e e t in g Note: that at i t w o u l d n o t be d e s i r a b l e th is on the w h o le have f o r the C o u n c il to tim e . t h e OPA h a s done an e x c e l l e n t jo b t o b e m a i n t a i n e d f o r some t im e . a d jo u rn ed a t 1 :2 0 N e x t m e etin g o f P . M. t h e C o u n c i l sh o u ld be Septem ber 1 6 - 1 7 .
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