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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 3, 1942 At 1:45 P. 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, June 3, 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, Robert V. Fleming, and Walter Lichtenstein, Secretary. The Secretary reported that Mr. Ragland had informed him that he would be unable to attend this meeting of the Executive Committee. The President discussed the situation in connection with the Murray Bill, which in its present form provided, in language drawn by the Comptroller’s Office, that banks in making guaranteed loans might exceed their legal limit provided the guaranty was unconditional and that the loan was payable in cash or its equivalent within sixty (60) days after demand. The Bill H. R. 7158 was discussed. This Bill covers four items: 1. It rearranges the groupings for representation of Federal Reserve banks on the Open Market Committee. In order that Boston might be represented at times, it was provided that New York should be in a class by itself, while Boston would be grouped with Philadelphia and Richmond, and Chicago with Cleveland. In consequence of these rearrangements there were other rearrangements provided in the Bill. 2. The Board would be given authority on the affirmative vote of four members of the Board to change the reserve requirements of banks in central reserve cities without reference to the reserve requirements of banks in reserve cities or of banks located else where. 3. In order to overcome the effects of the Penny decision, banks would be permitted to make loans and pay dividends even in the event of deficiency of their required re serves, provided an adjustment was made on a weekly basis. This would mean that even though there were a deficiency on some particular day or days, the directors and officers of the bank would not be liable for damages in the event a dividend was declared or a loan was made on which a loss was subsequently incurred. 4. Banks would not be required to pay an assessment to the Federal Deposit Insur ance Association on war loan deposit accounts created as a result of purchases of Govern ment securities. The President stated that he thought in connection with the reserve requirements there ought to be some relationship between the reserve requirements in central reserve cities and those in reserve cities. As an example, he suggested that possibly reserve re quirements in central reserve cities should not be more at any time than 150% of reserve requirements in reserve cities in the event of the raising of reserve requirements; and, in the event of the lowering of reserve requirements, the reserve requirements in central reserve cities should not be less than those in reserve cities. Mr. Kurtz suggested that the Board’s attention be called to the difficulties created by the bringing of small loans made by banks under Regulation W. He cited a number of instances where great difficulties were being encountered. The meeting adjourned at 2:30 P. M. WALTER LICHTENSTEIN, Secretary. 13 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 TH E FED ER A L R ESER V E SY STEM June 3, 1942 At 2:35 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., on Wednesday, June 3, 1942, the President, Mr. Brown, in the chair. Present: Members of the Board of Governors of the Federal Reserve System: Vice-Chairman Ronald Ransom; Governors M. S. Szymczak, John K. McKee, Ernest C. Draper, and Rudolph C. Evans; also Messrs. Lawrence Clayton, Assistant to the Chairman and Elliott Thurston, Special Assistant to the Chairman; Liston P. Bethea and S. R. Carpenter, Assistant Secretaries to the Board of Governors; Woodlief Thomas, Assistant Director, Division of Research and Statistics. 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, Robert V. Fleming, and Walter Lichtenstein, Secretary. The President of the Council stated that he thought the rearrangement of the representation on the Open Market Committee was an improvement over the present situation in that Boston could now at times be represented. He did not regard the coup ling of Chicago with Cleveland as an improvement over the present situation. Discussion as to whether there should be some limitation on the power of the Board with respect to changing reserve requirements of central reserve cities. In a discussion between Vice-Chairman Ransom and the President of the Council, the latter stated that he would regard it as undesirable to have the status of Chicago as a central reserve city changed. He pointed out that at the moment Chicago held more Treasury bills than New York and that while the deposits from correspondent banks in Chicago banks were considerably less than those in New York, nevertheless, they were far larger than in any other city, except New York. The President of the Council stated that the section meant to overcome the Penny decision met with general approval. He referred to the suggestion made by the American Bankers Association that in the case of national banks, the cost of one of the semi annual examinations should be absorbed by the Federal Deposit Insurance Corporation. The President of the Council raised the question of reserve requirements and stated that the Council did not believe that reserve requirements should be reduced at this time. Vice Chairman Ransom stated that he thought every effort should be made to sell government securities outside of the banks so as to obviate the need of reducing reserve requirements. The Board at present did not see any need for action. Mr. Kurtz discussed the difficulties in connection with Regulation W, particularly those of small insurance policy holders who wished to borrow from banks on their policies. He did not see how regulating this type of loan had anything to do with credit control, or how this helped our whole economy. The same held true of small collateral loans. 14 Vice Chairman Ransom stated that in order to carry out the President’s seven point program it was necessary to cover personal loans. He did not see how it would be pos sible to bring practically all types of loans under Regulation W and leave out one whole area of personal loans. At present, personal debt is running off rapidly entirely aside of official action. The Board’s intention is to accelerate this downward trend, and it is ex pected that the regulation of open book accounts will aid in this effort. At 4:15 P. M ., Chairman Eccles joined the meeting. Mr. Fleming asked that a memorandum be prepared to show possible financing by means of short term tap issues, such as were suggested at the joint meeting of the Council and the Board of M ay 18 by Chairman Eccles. Mr. Thomas made a statement. He said that the assumption had been that the banks would have to supply about $25 billion to finance the government during the next fiscal year. This would mean an additional $7 billion required reserves, approximately. As a matter of fact in May the Treasury sold something like $7 billion of securities of which the banks took only $800 million. He stated that in 1941 liquid savings amounted to about $12 billion, while in the fiscal year 1943 they were likely to be about 105 billion. There would be about $70 billion of consumer goods available, so that there would be approximately $35 billion left in the hands of people for investment. If reserve require ments were lowered the rates would go lower and so it would be more difficult to sell government securities to the public. Mr. Harrison stated that the New York banks on the whole approved of the Murray Bill, but would like to have some restriction on the power of the Board along the lines suggested by Mr. Brown. The meeting adjourned at 5:00 P. M. WALTER LICHTENSTEIN, Secretary. 15 MIHUTIS or MEKTIKG OF THE EXECUTIVE COWHITTEI OF THK FEDERAL ADVISORY COGffCIL At 1*4.5 ? • the President, Mr. Brown, called the meeting to order in the Conference Room o f the Federal Reserve Building, Washington, D . C * , on Wednesday, June 3 , 19 12, the President, Mr. Bro%u, in the chair. Presents Mr. Edward £ . B m n , President; Mr. George L . Harrison, Vice president; Met e r r . William Fulton Kurt 2, B . G . Huntington, R o b e rt V . Fleming, and W a l te r Lichtenstein, S e c r e t a r y . The Secretary reported that Mr. Ragland had inforraed hiw that he would be unable tc attend this meeting of toe Executive Committee. The President discussed the situation in connection with the Murray B i l l , which in it s present fora provided, in language drawn by the Comptroller*s O f f i c e , that banks in m k ln g fiuarenteed loans night exceed their legal U n i t provided the guaranty «as unconditional and that the loan -.as payable in cash or it s equivalent within sixty (60) days after demand. The B ill H . H . 7 1 58 wan discussed, This B il l has four iteaai 1. i t rearranges the groupings for re resent&ticn of Federal Reserve banks on the Open Market Cosffiiittee* In order that Boston aight be represented at t is e s , i t itas provided that Sew York should be in a class by I t s e l f , h ile Bo .-'ten would be grouped vitfc Philadelphia and Rich Bond, and Chicago with Cleveland* In consequence of these rearra?igf* ents there *e re ot-her rearrangements provided in tho B i l l . 2 . The Bo rd ^ould be given authority on the a f f ir m liv e vote of four members of the 3o rd tc change the reservo requirements of banks in central reserve c it ie s without reference tG the reserve requirements of banks in reserve c itie s or o f banks located elsewhere. 3 . In order to overcose the effect? of the P rmy dec isio n , be permitted to aake loans and pay dividends even in the ^vent of deficiency o f their required reserves, provided an adjustment was on a weekly b a s is . This vould mean that ev*?~i thourh there *?ere a on some particular day or days, the directors and o fficers of the not be lia ble for damages in the event a dividend was declared or aade on which subsequently loss ?/as incurred. beaks would made deficiency bank ^ould a loan was 4. Banks would not be required tc pay an assessment to tho Federal Deposit Insurance Association on war loan deposit accounts created as a result of pur chases of Government s e c u r itie s . The President stated that he thought in connection with the reserve requirements there ought to be some relationship between the reserve requiresents in central reserve c itie s and those in reserve c it ie s . As an ex ample, he suggested that possibly reserve requirements in central reserve ______________ Juie 3 , 1942 cities should not be more at any time than 150* of reserve requirements in reserve c it ie s in the event of the raising of reserve re uirenents; and, in the evont of the lowering of reserve requirements, the reserve requirements in central reserve cities should not be less than those in reserve c it ie s * Hr, Kurta suggested that the Board*e attention be called to the difficulties created by the bringing of small loans iaade by b«n>:s under Regulation W* H© cited a nuaber of instances where gre t difficulties were being encountered* The oeetinft adjourned at 2t30 P„ S« Walter Lichtenstein Secretary -3 EIHBTgS OF JOINT CDSFEHBiCK OF THE 8XECUTIVE COMMITTEE OF THE FEDERAL ADVI :o:tY COUNCIL AND THE BCAPI) OF G0V2PH0KS OF TBS FEDERAL RESERVE SYSTEM June 39 194-2 At 2 :3 5 P . M ., a joint conference of the Executive C02m It tee of the Federal Advisory Council and the Bo rd of Governors of the Federal Reserve System was held in the Bo rd Hoorn of the Federal Reserve Building, Washington, B . C . Present* Members of the Board of Governors of the Federal Reserve Systemt Vice-Chairman Ronald Eansom; Governors El. S . fzymczak, John K . McKee, Ernest C . Draper, and Rudolph C . Evans; also , Messrs* L wrence Clayton, Assistant to the Chairman and E llio tt Thurston, Special Assistant to the Chairman; Liston P . Bethea and S . E . Car .enter, Assistant Secretaries to the Board of Governors; Woodlief Thomas, Assistant Director, Division of Research and St t is t ic s * Present: Council: Meabero of the Executive Committee of the Federal Advisory S r . Edward E . Bro^n, President; Mr. George L . Harrison, Vice President; Messrs. Trilliam Fulton Kurtz, B . G . Huntington, Robert V . Fleming, and falter L ichtenstein, Secretary* The President o f the Council stated that he thought the rearrangement of the representation on the Open Market Committee was an improvement over the present situation in that Boston could no? at times be represented. He did not regard the coupling of Chicago with Cleveland as an improvement over the present situation* Discussion as to whether there should be some limitation on the Power of the Board with respect to changing reserve requirements of central reserve c i t i e s . In a discussion between Vice-Chairman Hansom and the President of the Council, the la tter stated that he ^ould regard i t as undesirable to have the status of Chicago as a central r e s e r v e city changed. * e pointed out that at the moment Chicago held more Treasury B ills than Kew York and that while the deposits from correspondent twmks in Chicago banks were consider ably less than those in Hew York, nevertheless they were far larger than in any other c it y , except Hew York. Vice Chairman McKee added that Chicago in tho pact had been called uxxi to aid i*,s correspondent banks more than He* York had. There »«* some further discussion on this subject. The President of the Council stated that the section meant to over come the Penny decision set ^Ith general approval. Ke referred to the suggestion made by the American Banker? Association that In the case of national banks, the coat of one of the ; esi-annual examinations should be absorbed by the Federal Deposit Insurance Corporation. Vice Chairman Ransom stated that the Chairman ox the Bor rd feared to open up the b i l l to amendments because otherwise the general support which the b i l l no?r enjoyed in Congress might he lost* He sug gested that a se a rate b i l l be introduced in Congress, but thought it would be better i f in the future there should be juwt one annual required examination of national banks and the coft of this be absorbed by the Federal Deposit Insurance Corporation* I f a particular situation required i t , the Comptroller could sake addition?-! examinations at the expense of the bank or banks concerned. The President of the Council raised the question of reserve requireaentf and st ted that the Council did not believe that reserves should be reduced at this tise* Vice-Ch&ira&n Random stated that he thought every effort should be sade to se ll government securities outside of the banks so as to obviate the neod of reducing reserve requirementn* The Board at present did not see any need for action j he at**ted that the Treasury *as not bringing any pressure on tho Board tc reduce reserves and the relationship between the t*o bodies wap e n tirely satisfactory* Hr, Harrison stated that he understood the Treasury ^as afraid the bill rate mirht go above 3/ 8£, ano in that ev nt it aif’ht be diffic u lt to aaintain for any length of time a long term rate of 2 1/2%. Harr ip on disagreed irith this view and pointed to the experience of Great B r it a in , where the prevailing b i l l rate i?as 1 1 / 8 $ , t?hile the long term rate if? s t i l l only 3$* K r. Kurtz discussed the d iffic u lt ie s in connection with Regulation W, particularly those of small insurance policy holders who wished to borrow from banxs on their p o l i c ie s . He did not see hor regulating this type of loan had anything to do with credit control, or ho* this helped our vhole economy. The sane held true of s m i l collateral loans* Vice-Chairman Ran.*?ora stated that in order to carry out the President’ s s*ven point progrer. it tsus necesa ry to cover person?* 1 loans# Ke did not see how it would be possible to bring practically all types of loans under Regulation W and leave out one ^holo area of personal loans* At present, personal debt is running o ff rapidly entirely aside of o fficial action* The Board*;? intention is to accelerate this downward trend and it Is expected that the regulation of open book accounts will in this effort* At 4-sl5 P* M ., Ch?~iraan Bccles Joined the meeting* Mr, Fleming asked that a m^-raorandum be prepared to shcr? possible financing b7 neans of bhort tors tap issues, such ^s ^ere suggested at the Joint meet ing of tho Council and the Board on Mny 18 by Chairman Socles. Sir. Thomas made & statement* He ssaid that the assumption hs-d been that the ban^s would have to supply about *25 billion to finance th* government during the next f is c a l y e a r. This ■ould isean an additional 17 billion required reserves, appr Yximately* As a matter of fact in May the Treasury sold somethin:* lik e -7 b illio n of securities of which the banks took only 1200 B illio n * Ke st ted that in 1941 l i m i d savings amounted tc about $12 b il l io n , while in the fis c a l year 1943 they sere lively to be about §105 b il l io n . There* would be shout *?70 billion of £oods available, so that there would bf* approximately $35 billio n left In the hands of people for investment* I f reserve requirements were lowered the rates would go lower and 30 i t mould be more d if f i c u l t to r«eil ^ov^miaent securities to the public* Chairman Eccles stated tfcare is pressure because the Treasury wishes to do its financing easily * I f there were short term tap issuer;, such as he had suggested, the question of underwriting Issues rould be much less serious* The President of the Council st ted in reference to Regulation V that prise contractors are more opposed than ever tc doing a*?ay with advances* Both Governors McKee and Draper stated that there w asn H any attempt to do away ith advances* They believed matter!? shrruld be allowed to take their course* Mr. Harrison stated that the H^w York banks on the thole approved of the Murray B i l l , but ^ould lik e to have some restriction on the pc^er of the Bo.rd along the lin e s auggef’ted by Mr. Brcrn* The m*>etin£ adjourned at 5*00 P . I!* Walter Lichtenstein Secretary
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