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MINUTES OF MEETING OF THE EXECUTIVE COMMITTEE OF THE FEDERAL ADVISORY COUNCIL March 8, 1944 At 11:30 A. M.f the Executive Committee of the Federal Advisory Council convened in the Conference Room of the Federal Reserve Building, Washington, D. C., on Wednes day. March 8, 1944, the President, Mr. Brown, in the Chair. Present: Mr. E. 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 the status of the Brown and Maybank Bills. A discussion took place regarding loans to small business. A discussion took place as to the situation with reference to ration banking. The meeting adjourned at 12:30 P. M. WALTER LICHTENSTEIN, Secretary. MINUTES OF JOINT CONFERENCE OF THE EXECUTIVE COM M ITTEE OF THE FEDERAL ADVISORY COUNCIL AND THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM March 8 , 1944 At 2:00 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, and R. M. Evans; also, Messrs. Lawrence Clayton, Assistant to the Chairman; Chester Morrill, Secretary of the Board of Governors; Liston P. Bethea and S. R. Car penter, Assistant Secretaries of the Board of Governors; Walter Wyatt, General Counsel; J. P. Dreibelbis, General Attorney; Leo H. Paulger, Director, Division of Examinations; Edward L. Smead, Director, Division of Bank Operations, and Carl E. Parry, Director, Division of Security Loans. Present: Members of the Executive Committee of the Federal Advisory Council: Mr. Edward E. Brown, President; Charles E. Spencer, Jr., Vice President; Messrs. John C. Traphagen, Wm. Fulton Kurtz, and Walter Lichtenstein, Secretary. Governor Ransom gave an account of the situation with respect to the Brown and Maybank Bills. A lengthy discussion took place on the Baruch Report, the Smaller War Plants Corpo ration loans, and the proposed Mead bill. Governor Eccles discussed a proposal to have a subsidiary corporation of the Federal Reserve System which might make loans in place of the loans now authorized under 13B. He pointed out that this proposal would create a subsidiary similar to those created in Great Britain and Canada as subsidiaries of their respective central banks. A discussion took place regarding the Patman Holding Company Bill. The meeting adjourned at 4:15 P. M. WALTER LICHTENSTEIN, Secretary. 15 NOTE: This transcript of the Secretary’ s notes is not to be regarded as complete or necessarily accurate. The transcript should be considered as being strictly for the sole use of the members of the Federal Advisory C ou n cil. W. L. Secretary’ s notes on meeting of the Executive Committee of the Federal Advisory Council on March 8 , 1 9 4 4 , at 1 1 :3 0 A. M ., in the Conference Room of the Federal Reserve Buildin g. The Secretary stated that he had had a letter from Mr. Huntington informing him that Mr. Huntington would not be able to be present at this meeting of the Executive Committee. M essrs. Brown, Spencer, Traphagen, Kurtz, and the Secretary were presen t. Mr. Fleming joined the meeting at 1 2 :0 0 o fclock REGULATION Q KURTZ said Governor McKee had told him he hoped the bankers could be stirred up in opposition to the Brown and Maybank B i l l s . BRQ- ~N said the A. B . A . could not be expected to take any action. TRAPHAGEN told o f an interview with Harold Stonier who had said it simply would e im possible for the A . 3 . A . to take any position on a controversial matter such as this one. BRO' N 3aid the L e g is la t iv e Committee of the Association of Reserve City Bankers had had the problem under consideration but had decided any formal action on the part o f an association representing more or less merely the larger banks of the country would probably do more harm than good. Senator Glass is very much opposed to both the Brovm .and Maybank Bills but on account o f h i s health w il l probably not be a^le to take any active part. TRA?HAG~N b eliev es Senator Wagner w ill do whatever seems p o litic ally the most a d v isa b le . BRQ ~N fe e ls that Senator Barkley is the key man in the situation, ^nd he understands that up to the present has not committed him self. He went on to say he doubted whether the Comptroller could issue any statement for the simple reason i t would be interevening in a matter on which two govern ment bureaus wer«; in disagreem ent. Consequently, the Bureau of the Budget would object to any government bureau issuing a statement. -2- mead b i l l 3RCKN read a le t t e r from Mr. Berry in which he makes the statement that it might be just as ?.ell not to s tir up any agitation since various government agencies are in disagreement and so nothing may be done. TRAPHAG-fl agrees i t would be fo o lish to have anything done by the Council. He questioned very much whether the suggested widening of powers of the Federal Reserve Board under 13 B would be adopted. KURTZ said he v;ished the powers of the Board under 13B might be widened because he was sure the Board would remain conservative which might not be true of ^orae new body esp ec ia lly created. The chances were that re tail business o rganizations would s t ir up opposition. It was at this p o in t that Mr. Fleming joined, the meeting. KURTZ discussed the natter of ration banking and the dangers of scandal. He is going to h elp fo r a time in the administration of ration banking and would very much lik e to have a report from each Federal Reserve d is t r ic t as to how the whole scheme is functioning. FLEMING says what is needed is an advisory committee for it would be hopeless to get a top executive to take on the job of supervising ration banking fo r a period of s ix months. He feels the A. B. A. Committee is a good committee. He went on to discuss the Brown and laybank Bills and thinks that Mr. A . L . M. 'iggins may take a position . In a sense the vote in the Hour;e was an anti- adm inistration vote. The F . D. I . C. regards the Senate Committee, in c lu d in g Senator Barkley, as siding entirely with i t . There may be a compromise. The meeting adjourned at 1 2 :3 0 P . M. -3- P. On March 8 , 19AA, at 2 :0 0 M . , a joint meeting of the Executive Committee o^ the Federal Advisory Council and the Board of Governors of the Federal Reserve System vras held in the Board Room of the Federal Reserve B u ild in g , Washington, D. C. The follow ing members of the Executive Committee were present: M essrs, Brorn, Spencer, Traphagen, K urts, and the Secretary. The follow ing were present from the Board of Governors: Chairman Eccles; Vice-Chairman Ransom; Governors Szymczak, McKee, and Evans; also, M essrs. Clayton, M o r r ill, Bethea, Carpenter, Eyatt, D r e ib e lb is , P a u lg e r , Smead, and Parry. REGULATION Q SRO'i N . The senators seem noncommital. :-.AN" . M. The vote in the Hou^e reflected quite **ell the overwhelming sentinent as expressed in the h earin gs. Those favoring the Bro*m B ill had a very large attendance at tlie hearings and thus gave the impression that the bill 'frouli help the small banks. I t is ~oinq: to be just as d iffic u lt in the Senate. It is known that Bankhead, Barkley, and Maybank are in favor of the b i l l . I f there were enough bankers objecting, it might make an iapression. Probably the number of banks opposed to the fcrc b ills are in a majority ^nd numbers have a great influence on votes in Congress so banker , business a s s o c ia t io n s , and chambers of commerce can do much. At their recent meeting the presidents of the twelve Federal Reserve Banks agreed to look into the m atter. At the hearing in the House, Paul Bro^n called attention to tlie fa-'t that every seat in the room ^as occupied and that p ractically everyone in the room was in favor of the b ill* 'CCLKS believes i f N~w York bankers were to sake th^ir stand known Senator Vagner might be influenced though he is much less politically minded than nany others and has the courage of h is convictions. He w ill support the Bonrd i f he becomes convinced i t is in the 'ublic interest. Quick action is needed so that '*Tagner w i l l take some interest in th^ matter and not leave it to a sub—committee. The only three members of the Banking and Currency Committee of the Senate r e a lly in terested in the question are Barkley, Bank head, and Maybank. These three are aggressively in favor of the b i l l . It is necess-ir'r to have o rgan izatio n s lik e clearing houses and bank associa tions, rather than in d iv id u a ls here and there, take some position. RANSOM 3aid he had had an inquiry from George Wallace wanting to know if the Council feels this is a fight to destroy par clearance. BRQ N says he feels the greatest danger in the situation is that banks will collect unnatural deposits and that this might create a serious situation in times of stress. He recognizes, hot ever, there may be a con siderable effect on par clearance. SPENCER MCKEE believes it to be a fight against par clearance. agrees with Bro1^ that the deposit situation may create a very unsound condition under certain circumstances. ECCLES. If the 3hort term rate goes up, banks do not wish to lose deposits as these can then be used profitably. Consequently, if rates should go up, banks will do unsound things in order to meet competition. The greater the competition for de osits, the greater will he the desire to gain any ad vantage possible even if this should involve withdrawal from the Federal Reserve System and even rom the National Bank System. RANSOM says some of the support of the bills is undoubtedly from people who wish to destrov the whole Federal Reserve System. IFAD BILL - BARUCH BRQ.T? REPORT - SMALLER ^AR PLANTS CORPORATION wants to know what are the developments* ECCLES says as this is an election year, naturally, all senators and representatives want to be on record that they are for small business. There fore, if and when legislation, such as proposed by the Smaller War Plants Corporation or by Senator Mead, should be called up for action, it is certain the proposals will receive general supoort. Probably, the more conservative representatives and senators would prefer the M~ad Bill and might even prefer the mild proposals contained in the Baruch Report. So far Mead has not actual ly introduced his Bill but there is a so-called official print, dated January 7, and a revision of this, dated January 13, 194--4* A sub-committee consisting of Senators Mead, Scrugham of Nevada, and Buck of Delaware has the matter in hand. He stated he had nothing to say about hie proposal in’the Baruch report regarding 13B. He does not believe that 3?>ruch intends to prepare a bill himself as he believes the agenci-es concerned should do so or Congress itself should take the initiative. Legislation is badly needed to cover cancellations, disposal of surplus property, etc. Legislation will alro be needed for financing termina tion, which is quite apart from that noeded for financing conversion of both large and small concerns. Finally, financing will be needed to stimulate pro duction generally. -5- BRCTN Bays he understands the Services have prepared a draft of legislation for termination. I t is possible some committee of Congress will try to prepare a more overall measure. 3 ECCLES says there will be a mall but vocal minority which will do everything it can to push the financing of small business and he has little doubt that the Smaller War Plants Corporation will obtain ample money and ample power. A few years ago he prepared a program for an industrial credit corporation which was to be decentralized in its activity. This was to take the place of 13B which was to be repealed as too inflexible. The corporation was to be a subsidiary of the Federal Reserve System and was modelled somewhat on the subsidiary of the Bank of England and the one being organised by the Bank of Canada. Most of the loans that were made under 13B would now be made by the banks themselves but in 1933 and the years immediately following banks were loathe to do so. If, however, Congress and Baruch want the banks to be in the picture then some such scheme as suggested in the Baruch Report would have to be adopted. He thought loans should be made only if some bank would assume 10^ of the risk. The Federal Reserve System should not make one hundred per cent loans and, of course, none of these schemes ^ould meet the need for equity capital. MCK?,E says that under the present tax laws no one ^ould care to put up equity capital. ECCLES. In Canada the Bank o f Englan d proposed to have a s u b sid ia ry with *25 m illion c a p it a l -’h o l l y ovmed by the Bank o f Canada with the rig h t to lend somewhere betw een $ 2 5 0 , 0 0 0 , 0 0 0 and $ 5 0 0 , 0 0 0 , 0 0 0 . This s u b s id ia r y of the Bank of Canada w ou ld a lso g iv e e q u it y c a p it a l as w ell as funds to aid in conversion. The id e a is to keep a l l the c r e d it arrangements in the hands of the banking system and not as we have i t h ere where there are in numerable non-banking b o d ie s h a n d lin g c r e d it arrangem ents. In the 2 0 rs th* Bank of *!ngland had formed a s im ila r c o r p o r a t io n . There would be considerable danger in having the S m aller War P la n t s Corporation expand to tb* point where it would be in c o n tr o l o f much b u s in e s s . PATMAN HOLDING COMPANY BILL ECCLES says he h a s n ft h ^a r d o f any developments but he supposes Patman * i l l c a ll up h i s b i l l in the n ear fu t u r e . TKAPKAGI'N stabilization. wants to know what progress is b e in g made on currency SZYMCZAK in r e p ly states that at present conversations are going on with the Russians but everything is s t i l l in the hands of the technicians in the Treasury. An agreement has been reached with the B ritish and ^hen there has been agreement among a l l p a r t i e s , a conference of experts w i l l be held. It is not, intended to have an agreement simply for the -purpose o'* etabilizing the pound s te rlin g and th* d o lla r . The meeting adjourned at 4 :1 5 P« W.
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