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M IN U T E S O F M E E T IN G OF TH E FED ER A L E X E C U T IV E A D V IS O R Y C O M M IT T E E OF TH E C O U N C IL March 12, 1942 At 9:45 A. M ., Mr. Brown called the meeting to order in the Committee Room of the Federal Reserve Building, Washington, D. C. Present: Mr. Edward E. Brown, President; Messrs. William Fulton Kurtz, Robert V. Fleming, S. E. Ragland, and Walter Lichtenstein, Secretary. The Secretary reported that M essrs. Harrison and Huntington were unable to be present on account of illness. The Secretary of the Council informed the meeting that, owing to the fact that the Treasury had asked for a conference with the Board of Governors, the only member of the Board who would be able to attend this session of the Executive Committee would be the Vice Chairman, Governor Ronald Ransom. As some of the members of the Council would find it inconvenient to attend meetings of the E xecutive Com m ittee on the second Thursday of the month, after some discussion, it was decided tentatively to hold the meetings of the Executive Committee on the third W ednesday of each m onth. The President of the Council stated that he had been informed that the Board of Governors was considering three major amendments in connection with Regulation W. 1. It is proposed to require a purpose test in connection with small loans, but while the Council wanted a negative test, i. e., a simple statement that the loan is not for the purpose of buying a listed article, the proposal envisages a statement by the borrower giving in detail the purposes for which the loan is intended. 2. It is proposed to regulate ordinary charge accounts. 3. Regulation to cover loans made by banks, for 30, 60, or 90 days, for the purpose of purchasing listed articles (term loans). M r. Flem ing brought up the subject of the methods to be used in financing the war. It was agreed that this was a much more important problem than any of the proposed am endm ents to R egulation W . The meeting adjourned at 10:25 A. M . W ALTER L IC H T E N ST E IN , Secretary. N O T E: Subsequent to the m eeting of the Executive Committee, it was decided to hold the m onthly m eeting of the Com m ittee on the first W ednesday, instead of on the third W ednesday, of each m onth. 17 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 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 FED ER A L R ESER V E SY STEM March 12, 1942 At 10:30 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 Committee 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 John K. McKee and Ernest G. Draper; also, Lawrence Clayton, Assistant to the Chairman of the Board of Governors, and Liston P. Bethea, Assistant Secretary of the Board of Governors. Governors McKee and Draper stated that they would have to leave shortly to attend a conference at the Treasury. Governor McKee stated that he thought there was a fair prospect that a tax program, embodying some of the ideas of the Board of Governors, would be adopted. The problem was to help the New York banks assist in war financing. The members of the Executive Committee of the Council expressed the point of view that the present system of floating securities could not be continued successfully, and the question was raised whether New York at the present time was really the sole money market of the country. Governor Ransom and members of the Executive Committee of the Council agreed that the Treasury should make some definite pattern as to rates on securities. A discussion took place in regard to certain features of the proposed tax bill as this would affect banks. It was pointed out that banks ought to be encouraged to build up reserves for possible losses in the future. At 11:10 A. M., Governors McKee and Draper left the meeting. Governor Ransom discussed the proposed changes in Regulation W. He stated that the Board of Governors and its staff were working out details of enforcement. He asked, on the assumption that there is to be a regulation covering open book accounts, what would be the best methods? Members of the Executive Committee of the Council expressed the feeling that such a regulation was not necessary at this time and feared that it would merely create irritation and not accomplish much. Governor Ransom said there were three purposes. 1. Regulation would be anti-inflationary. 2. Pressure was being brought to include open book accounts in Regulation W simply because it was being discovered that great difficulties were likely to be created by the attempt to restrict consumer purchasing by means of direct action. 3. As regards other matters connected with Regulation W, Governor Ransom stated that the day might come when it would be necessary for the government to reg ulate all consumer purchasing, but, at present, it would be desirable to try to make up a workable list of articles. 18 The reason for the suggestion to include loans made by banks for the specific purposes of buying listed articles was that the regulation at present discriminated in favor of banks. Governor Ransom stated at present there are 160,000 registrants. If charge accounts were included under Regulation W, this number would be doubled, and if restrictions were extended to all articles, except necessities, there might be 600,000 registrants. This would raise very serious administrative problems, and it might lead to a control of all credit. O bviously, if all credit were controlled, the Federal Reserve System could not function properly. The advice of the members of the Executive Committee was that the Board of Gov ernors ought to consider the psychological reaction of a large part of the population before seeking to regulate all charge accounts. The meeting adjourned at 1:15 P. M. WALTER LICHTENSTEIN, Secretary. 19 ■MUTES OF MEETING OF THE 5XECUTIVF COf&SXTTTE OF THE FEDERAL ADVISORY COUNCIL 11* rch 12 , 194.2 At 9i45 A . Sf.f Mr. Brown called the meeting to order In the Committee Room of the Federal Reserve B u ildin g, Washington, D. C . Presentx Mr. Edward R . B r o n , President; Messrs. M iliars Fulton Kurtz, Robert V . Fleming, S . E . Ragland, and Waiter Lichtenstein, Secretary. The Secretary reported that Messrs. Harrison and Huntington were unable to be present on account of illn»ssi. Hie secretary of the Council informed the meeting that owing to the fact that the Treasury had asked for a conference with the Board of Governors, the o n l / member o f the Board who ould be able tc attend this session of the Executive Committee would be the Vice Chairman, Governor Ranald Hansom. As some of tha members of the Council ?ould fin d i t inconvenient to attend meetings o f the Executive Co*rdLttee on the second Thursday of the month, after some d is c u s s io n , i t was decided tentatively to hold the meetings of the Executive Committee on the third ITednesday of each month. The President of the Council stated that he had been informed that the Board of Governors was considering three major amendments in connection with Regulation W. 1. I t is proposed to require a purpose test in connection with small lo ans, but w hile the Council wanted a negative test, i . e . , a simple st. lament that the lo&n i s not for the purpose of buying a lis t e d a r t i c l e , the proposal envisages a statement by the borrower giving in d e t a il the purposes fo r ^hich the loan in intended. 2. I t is proposed to regulate ordinary charge accounts. 3. R e f l a t i o n to cover loans made by bamcs for 30, 6 0 , or 90 days for the purpose o f purchasing lis t e d articles (term lo a n s ). Mr. Fleming brought up the subject of the methods to be used in financing the w ^r. I t ras agreed that this was a much mo>'e important prob lem than -:ny of the proposed amend^ent^ tc R e f l a t i o n V . The meeting adjourned at 1 0 :2 5 A . M. Walter Lichtenstein Secretary MINUTES C; JOINT OQ8FFHEKCE OF TW 5XRCUTIVS CCMTTKE OF THE FIDSRAL ADVISORY COUNCIL AND THE BCA.'D OF G 'RSOP.S CF FEDERAL R2SBRVE SYSTEM* March 1 2 , 1942 At 10*30 A . EJ., a jo in t conference of the Executive Committee of the Federal Advisory Council and the Bo^.rd of Governors of the Federal Reserve System wap held in the Committee Room of the Federal Reserve Building, Washington, D . C . Presents Systemi Members of the Board of Governors of the Federal Reserve Vice-Chairman Ronald Ransom* Governors John X . McKee and Fraest G. Draper; a l s o , Laurence Clayton, A ssistant to the Ch«?irm&n of the Bo^rd of Governors and Listo n P . Bethea, Assistant Secretary of the Bo*rd of Governors* Governors McKee and Draper stated that they rould have to leive shortly to attend a conference at the Treasu ry. Governor McXee stated that he thought there was a fa ir prospect that a tax program embodying some of the ideas of the Board of Governors would be adopted* The problem was to help the New York Banks a ssist in war rinancing. The members o f the E xecutive CosBiittee of the Council expressed the point of view that the present system o f flo a t in g securities could not be continued s u c c e s s fu lly , and the question wag raised whether New York at the present tiro© was r e a lly the sole money market of the country. Governor Hanson and s o b e r s o f the Executive Committee of the Council agreed that the Treasury should make sows d e fin it e pattern as to rates on securities. A discussion took place in rcgrrd to certain fmatures of proposed tax b ill as this would a ffe c t b a n ks . I t w*xs pointed out that banks ou*;ht to be encouraged to b u ild up reserves for possible looses in the future. At 1 1 :1 0 A . I ! ., Governors KcKee and Draper l e f t the meeting* Governor Ransom discussed the proposed changes in Regulation W. He stated that tlie Bonrd of Governors aod it s s t a f f was working out details of enforcement. He stated that on the assumption that there is to be A regulation covering open book accounts, v*hat tould be the best methods? Members of the F.xecutive Comriittee of the Council expressed the feeling that such regulation was not necessary at this time and feared that it rould r e a lly create ir r it a t i o n and not accomplish much. -3- Gov^rnor Ran sc® said there were th r e e purposes. 1. Regulation would be anti-inflationary* 2. Pressure was being brought to include open book accounts in Regulation T simply bec>*u«a it was b^ing discovered that great d if f ic u l t ie s were lik e ly to be created by the attempt to re strict consuraer purchasing by ?ae«ng of direct action. 3. As regards other natters connected with Regulation W, Governor Ransoa gt*ted that the* day might coae when it ould be necess-ry for the sovemiaant to regulate a ll consumer purchasing, but at present it -vould be desirable to try to miu.e up a workable l is t of a r t i c l e s . The reason fo r the suggestion tc Include loans xaade by bank.® is the specific jorposes o f buying lis t e d articles was that the re/nuation at present discriminated in favor of ban&s. Governor Ransom pit ted at present there are 1 6 3 ,3 0 0 registrants. If charge accounts were included under Regulation this nuisber would be doubled and i f res tr ic tio n s rere extended to a l l articles except necessities there sight be 6 0 0 ,0 0 0 reg is tr an ts . This would raise very serious adminis tration problems and i t s&ght lead to a control of a ll credit. Obviously, if a ll credit were controlled the Federal Reserve System could not 'unction properly. The advice of the members of the Executive Goasittee was that the Board of Governors ought to consider the psychological reaction of the large part of the popol tion before seeking to regulate a ll charge accounts. The meeting adjourned a t 1 :1 5 ?* Walter Lichtenstein, Secretary
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