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Secretary*s Notes on Meeting of* the Federal Advisory Council of May 18, 1 9 41 , at 2 p .m ., Room 3 3 6, Mayflower Hotel, Washington, D . C. A ll present# Minutes approved. In answer to the Secretary*s in q uiry the feelin g generally prevailed that it would be very h e lp fu l i f the Secretary could send the members in ad vance of the o f f i c i a l p rinted minutes a tran scrip tio n from his notes, it being understood that these notes have not been revised and that hence their accuracy cannot be guaranteed. Furthermore, it is understood that these notes are to be regarded by each member as s t r i c t l y c o n fid en tial and so lely for his own personal u s e . Installm ent F in a n c in g . W ak efie ld discusses problem, danger that the whole control w i l l get in to the hands of the S .E .C . Chester Davis indicated in h is speech i n S t . Louis that le g is la t io n was very lik e ly and he* h im self, (i .e ., D av is) favored i t . It would a ss is t in present defense financing by making consumption of needed a r tic le s more d i f f i c u l t and when the present emergency is over by th e n relax in g r e g u la tio n s , a flood of orders might be produced and thus the sh o d : fe lt to industry by the cessation of defense production would be redu ced. Kurtz pointed out to Parry that a very careful d is tin c tio n must be made between pleasure v e hicles and thoso neoded by contractors for defense work. There is a d iffe r e n c e between a man who has an automobile and simply - 2 - wants to buy a bettor one, and the workman who has just obtained a job in some defonso industry and requiros a car to got to work* Similar instances might bo m u lt ip lie d . Brown points out that in the past it has often boon true that cer tain l e g is la t io n has been regarded as inev itab le w ith the result that a whole new f i e l d of in te rv e n tio n by Government agencies is opened u p . It would be much better to discuss f i r s t of a l l the fundamental question as to whether such le g is l a t io n is necessary . W a k e fie ld agrees th a t it would be much better to try tax in g those commodities production o f w hich should be lim ited rather than start le g is lation for the purpose of curbing installm ent buying and s e llin g * H a rriso n says that experience on the whole has been good to d a te . Object is to lim it com petitive buying in order to prevent an in f l a t i o n a r y movement. Brown p oints out a g a in the fa ct that by co n tr o llin g installm ent s e llin g and buying at p re s e n t, a flo o d of orders may be induced to flow when such is n ec essa ry . H a rriso n agrees w ith Brown and states that the a u th o r itie s may h e s i tate to lower exemptions and at the same time may be able to ta x c e r ta in classes in other ways th a n by income t a x . Kurtz says that as a matter of fact many of the finance companies, department stores* and the lik e would like to have com petition lim it e d . W a k e fie ld points out that there is a school of thought in W ashington which w ishes to control a ll c red it and d o e s n ’ t want any private control over cre d it. Ragland fe e ls that tho moves suggested are in the right d ir e c t io n and that r e g u la tio n is n eeded. - 3 - Dick states that those questions are of great importance on the P acific Coast, and there attempts have been made to check undue development of installm ent buying by voluntary curbing of the terms by those engaged in the business of fin a n c in g installm ent s e llin g and buying* Brown points out that before the automobile had become important, the farm implement companies had been badly Ylburntn by making terms for installment buying too easy. As a r e s u lt, the abuses in the farm implement industry in connection w it h installm ent sellin g were corrected, and Brown believ es that t h is is the way to a ttain results# time or another has developed i n other f i e l d s . passed a law re g u latin g natural gas* A similar situ atio n at one A few years ago Congress This proved to be very dangerous be cause it introduced the p r in c ip le that the price of commodities of a ll kinds appearing in in te r sta te commerce may be regulated by the national Government. I f it is r e a l l y necessary i n ordor to carry out the defense program to regu late the fin ance companies and others engaged in fin ancing the installment business,, w e ll and good, but i f the measures suggested are intended to estab lis h a permanent control over c r e d it , the case is a very d iffe r e n t one. H a r riso n r a is e s the fo llo w in g question: Suppose we assume that regu latio n is in e v it a b l e , which body should have the power, the Board of Governors of the Federal Reserve System or the S .E .C .? Huntington agrees w ith Brown about the u n d e s ir a b ility of regulation* Ragland b e lie v e s control may be desirable but would be very sorry to see the Government given th is D ic k : increased power* Installm ent s e llin g is very important* much slackness in terms allowed has developed. Due to competition There is much competition between ban ks, finance companies, and others, but the answer is not Govern- - 4 - ment regulation but rather voluntary control. Naturally this would not bring about the social objectives d e s ir e d . Clark wants to see the situ atio n handled without Government control. Clay would like to see regulation and believes that the banks located in his D is t r ic t want i t . Harriso n b eliev es that there are many other measures that might be adopted to brin g about the results required for the' defense program rather than regulating installm ent sellin g and buying# I f there is to be Govern mental c o n tro l, then he prefers that it go to the Board of Governors of the Federal Reserve System rather than to the S .E .C # Spencer wants to know how about the F .H .A . and whether that wouldn’ t have to be regulated and controlled# Hanes says that the defen se program is being used in part in order to bring about c e r t a in s o c ia l changes. As far as banks are concerned the examin ing a u t h o r itie s w ithout any further laws are in a p o sitio n to check abuses. It is not d e s ir a b le to give the Government more power than it has now over c r e d it . A number of the members point out there are many cases where auto mobile paper runs for 3 y e a rs. Kurtz states that much of our thinking is undoubtedly influenced by our attitude toward some of those in charge of the Government bureaus and that i f we had more confidence in the management, we might not object to some of the proposod le g isla tio n # W a k e fie ld states that he does not desire such powers as proposed given to the Government because he thinks it is a bad method of procedure# Brown b e lie v e s we should not start by trying to amend measures - which we regard as fundamentally b a d. 5 - He thinks what should be introduced i f needed are heavy excise ta x e s , p r io r itie s and the like* Kurtz says that to tax automobiles 20 per cent ad valorem is equiva lent to higher in d iv id u a l taxes* 20 months1 paper is accepted. He states that in his particular bank that He goes on to point out that it would be rather d i f f i c u l t to got the smaller companies to agree to a voluntary re stric tio n to length of term simply because the longer the term, the greater the p r o fit . Brown points out th a t gas and e lectric companies sell gas and electric ranges on the installm ent plan and these corporations do not borrow from banks as a r u le . Consequently, merely to regulate the banks would not oover many o f the c as e s . The gas and e le c t r ic companies o ften s e ll appliances below cost and expect to get t h e i r p r o fit from greater use of gas and e le c t r ic it y . Brown, summing u p , states th a t as fa r as he understands i t , ten mem bers of the Council aro opposed to the le g is la t io n to giving more control over installm ent buying and s e l l i n g , unless it be discovered that p r i o r it i e s , excise t a x e s , e t c . , w i l l not do the jo b . Kurtz and Clay state that they are not in disagreement r e ally w ith the m ajo rity of the Council and Brown may as w ell say he is speaking for all the members of the C o u n c il. Brown and Kurtz agree that if the heads of the C . I . T . , the C .C .C . , and the G .M .A .C . were c a lle d in to gether, namely It t le s o n , Duncan, and Schuman, and made to agree to voluntary r e s t r ic t io n , most of the problems would be s o lv e d . Brown brings up the question, should enforce the r e g u la t io n s . i f something is done, which agency It was agreed that it would be preferable - 6to have the Board of Governors of the Federal Reserve System, but the Council recommends rather higher excise taxes on goods entering into the defense program, p r io r it ie s and self- regulation by pressure on the larger finance companies - Sears and sim ilar concerns. H a rriso n says that the control of installment sellin g hits really only the poor man w hile e xc ise taxes at least bear on a ll people. He favors power being given to the lo cal Federal Reserve Banks with power of oversight by the Board of Governors* H arriso n points out that there are r e a lly two diffe r e n t types of c r e d it # (a) that extended by banks, finance companies and what might be termed in a general w ay, fin a n c ia l the actual s e l l e r of the goods* in s t it u t i o n s , and (b) that extended by He believ es that regulatory power might be given to two d if f e r e n t a g e n c ie s, one to handle banks, e t c ., and the other non-banking i n s t i t u t i o n s . Brown wants to know what would be done about dealers that financed th eir own p a p e r . He points out that in c id e n t a lly Sears Roebuck is one of the largest dealers i n r e fr ig e r a to r s s e llin g on the installment plan* What part are member banks to p lay in Government financing? W akefield says bankers ought to get behind the sale of defense bonds to the p ublic* The Class G bonds are the best security in the market at present, not subject to any state or local taxes and in case of the death of the h old er of th e bond the bond matures immediately with fu ll interest rate. Harrison th in ks it is d i f f i c u l t to say what banks w il l have to do. It depends how much of the Government securities w i l l be brought by general - investors. 7 - He is a fr a id th a t the public w i l l not help as much as the Treasury hopes, e s p e c ia lly in view of what the tax b i l l is lik ely to be* The Patman Program. Patman evidently wishes to freeze branch bank ing at its present s ta te , have Federal Reserve Banks owned en tirely by the Government, presiden ts of Federal Reserve Banks to be appointed by the Presi dent and subject to r e c a ll by Congress# Dividends of banks are to be con trolled and the F ederal A dvisory Council is to be abolished-. System is to re c eiv e a h igh e r salary than $ 2 5 ,0 0 0 . No one in the Private bankers are not to be on any of the lo cal Federal Reserve Boards, and commercial bankers are not to be members o f the Open Market Committee. Hanes says there are more chances for th is b i l l than any of the previous Patman b i l l s . Brown states th a t there is l i t t l e we can d o . Morgenthau has the feeling t h a t the Board of Governors in an emergency like the present should be merely a bureau of the T reasu ry. W a k o fie ld b e lie v e s there is real danger in t h is Patman B i l l , and he is adopting the method of speaking to Country bankers and showing them what this control of c r e d it means and that in order to control every dollar in the pocket of every man there are such proposals as the 100 per cent reserves. He bo lie vos th a t it is important that bankers educate men in their own pro fession and a lso members o f Congress as to the ultimate meaning of some of these p ro p o sa ls. Bank Holding Company B i l l . committee having the b i l l W akefield says the membership of the sub in charge in the Senate has been completely changed - 8 so that w ith tho excoption of Senator Glass the members are now practically all adherents of the A dm in istratio n . Morgenthau is behind the b i l l but he cannot make any progress unless the President gets behind it and the Presi dent at th is time does not want to have any more controversial issues intro duced into Congress. important. The "death sentence” claus is not regarded as so very As far as the Bank of America is concerned the proposed law would give a d d it io n a l power only over d iv id e n d s. Giannini transferred enough of his stock outside of Transamerica so that at least in C alifo rn ia he does not need a voting p erm it. Brown says we should fin d out what progress the Board has made with its form ulation of answers to the Wagner Committee’ s questionnaire. H a r riso n th in k s that the whole in v e stig a tio n for the time being is being sh e lv e d , e s p e c ia l l y as Senator Wagner is very i l l and the war has come along# Wagner* h im s e l f , is reported as b e lie v in g there is too much before Congress at the p resen t time and the matter should be held over. I t was de c ided th a t the Council should ask the Board to carry out its agreement of d is c u s s in g w ith the Federal Advisory Council the answers before they are f i l e d w ith the Senate Committee. H a rriso n p o in ts out that many important offices in the System are vacant and ought to be f i l l e d . The present s itu a tio n breaks down the morale of the local F e d eral Reserve Banks. The salary situ atio n is bad. in v estigatio n was made as to the s a l a r ie s , e t c . , An outside and the report turned in is a good one but the Board does not take any a c t io n . Brown, speaking on the ro tatio n of membership in the C ouncil, stated that Mr. McCabe had w r itt e n that some D is t r ic t s were opposed and Brown be lieves the matter should be discussed further w ith the respective local Federal Reserve D irectors* Harrison regards a three-year term better than a four-year term. The mooting adjourned at 5 p .m . to meet in the Board Room tomorrow morning at 10 a*m* - 10 - Secretary*s Notes on Meeting of the Federal Advisory Council of May 19, 1941 at 1 0 :3 0 a .m ., Board Room, Federal Reserve B u ild in g , Washington, D. C* At 1 0 :3 0 a*m* a l l the members of the Council assembled in the Board Room but the Council was n o t ifie d that Mr# Eccles had to go to a meeting at the Treasury and Mr. Ransom was out of town and therefore the meeting with the Board would be postponed u n t il noon* It was thereupon decided to ask D r. Goldenweiser to make h is usual appearance before the Council at this time • G o lden w eiser: have been r e v e r s e d . The business s itu a tio n is one in which a ll pressures In stead of it being necessary to fin d things to do, the problem now is how to be able to do more in order to meet the defense require ments* There is not been reached* with March, s t i l l some unemployment so in a few places fu l l capacity has I n A p r il production index went down 4 points as compared la rg e ly due to the coal strikes and strikes in some auto plants* The index has now gone up to about 138-9 (i t has been as high as 143) and by the end of the year the estimate is that the production index m i l 160. be around R e l a t iv e l y , growth undoubtedly w i l l be slowor and the crucial question at the moment is that of the p rice structure. fla tio n a r y movement and controls are d i f f i c u l t . There is undoubtedly an in The remedies may be put under five h e a d in g s : 1. Require more hours of work by use of shifts and the lik e * 2. Increase e f f i c i e n c y in production and, i f necessary, as in the case of w ool, bring in additional imports. 11 3. The tax program might ments • - be used to check price move 4». As far as possible have Government borrow from nonfin a n c ia l in s titu tio n s and sources, and fin a lly 5* Have some action to give greater power over excess r e s er v e s . The present atmosphere is unfavorable to doing anything in regard to reserve requirements. People who at one time made the supply of money in the country the c h ie f f a c t o r , now f e e l the question of the supply of money is not very important. N ev erth eless, in spite of th is view the supply of money in this country remains an important fa c to r . The Federal Reserve System must necessarily a i d the Government i n being able to carry out its fin a nc ing . There ought to be some power given which would make it possible to impose greater reserve requirem ents unpon new deposits as compared with old deposits. This is better th a n a general increase a ll along the lin e * bably not be taken i f i t is r e s tr ic t e d to orthodox methods. the Board is not i n agreement w ith th is suggestion. Action w i l l pro The Chairman of Keynes told Dr. Golden- weiser that when the Government spends 15 b i l l i o n do llars on armament * it adds that much to the stream of spending and t h is is an in fla tio n a r y tendency# England the gap was f i l l e d by voluntary and compulsory saving, by ta x e s , by using up the a v a ila b le supplies and by having imports that are not paid for by corresponding e x p o r t s . W ith us the s it u a tio n is d iffe r e n t because we send more consumption goods out of the country than we receive so as a mat ter of fact our in t e r n a t io n a l trade is apt to aid in fla t io n . On the other hand, *we hfcve more room than B r it a in for increasing our e ffic ie n c y and we have more a v a ila b le stocks of goods on hand. are l ik e ly to have a serious rise in p r ic e s . In spite of everything, we It is essential to have con trol of wage increases and there must not be strikes or stoppages of pro- In - duction. 12 - In England there are no provisions for preventing strikes but by voluntary actio n they do not take place r definite legal arrangements. very great importance, The problem of strikes and wages, while of is not quite as important as sometimes stated. 1940 we had less loss of hours, e t c ., v iously. Here we shall probably need some In from strikes than for a long time pre Hillm an has some plans which may work out. Brown says that i n Chicago there is great competition for labor which raise s wages even though the Unions themselves do not take any ac tio n . Goldenweiser admits the whole wage question a serious factor but not the sole one# I n answer to a question b y H arriso n , Goldenweiser answered that there is not any d is p o s i t i o n at present on the part of the Board to use up its present powers to increase reserves though he thinks it ought to be done. The fa c t is t h a t 1937 le ft a very bad taste though the action of the Board i n 1937 had probably very l i t t l e , i f anything, to do w ith la ter developments but n everth eless the Board has been blamed fo r these. Installm ent C r e d it . As a general proposition volume of installment buying in times of p ro s p e r ity tends to increase booms and th is means the accentuation of d e p r e s s io n s . I t has been advocated without any reference to the present s it u a t io n to check expansion of installm ent buying and s e ll ing by c o n tr o llin g terms# At t h is time there is a situ atio n where it is necessary to reduce p roduction of autos and sim ilar goods which employ mater ials which are needed for defense purposes. of l i n e . Prices as a result may get out Quantity of auto production has now been reduced 20 per cent by regulation and it may be n ecessary to reduce it s t i l l fu rth er. There may 13 also be an excise ta x imposed# - At tho present time one-quarter to one-fifth of the autos are sold on more lib e r a l terms than the orthodox 18 months and one-third down payment. Terms more lib e r a l than the orthodox ones as w ell as balloon notes should be prohibited# study# The whole subject requires much It has not been determined w hat, i f anything, should be done. Brown thinks e xc ise taxes ard p r io r it ie s might be s u ffic ie n t con trols. The trouble is t h a t i f regu latio n s are issued r e fe rr in g to auto s, these would soon spread to r e fr ig e r a to r s and other a r tic le s sold on the i n stallment plan* and we would end up with the control of p rices of a l l goods. Goldenweiser admits that many of these controls are not needed for carrying out the d e fe n s e program but arc important in order to control the fluctuations i n the bu sin ess c y c le . Undoubtedly it means fu rth er re g u latio n and increase of power of Government over p r i c e s . ingly d i f f i c u l t to draw a lin e between the It is going to be in creas e s s e n t ia ls of tho defense pro gram and those w hich are only i n d ir e c t l y important to the defense program. Both down payments and monthly payments aro im portant. installment s e l l in g is The r e g u la tio n of intended to dim in ish tho demand for goods and thus prevent p rice d i s t o r t i o n . W a k e fie ld do o sn *t see how checks can be developed which w i l l apply to those who s e ll on tho in stallm en t p lan without doing any borrowing for this purpose. Goldenweiser p o in ts out th a t we now have a law which regulates margins on s e c u r it ie s and th is proposal. is , a fte r a l l , very sim ilar to the present Undoubtedly, however, tho a d m in istratio n of these regu lation s may be d i f f i c u l t . Talks are being h eld with a number of important con cerns in the in d u s try and w ith b ig fin a n c in g companies in order to in- - 14 - vostigato tho p o s s i b i l i t y of voluntary action, Harriso n asks why should food priccs havo risen so much. Goldonweiser says that pricos of foods woro low in many instances and furthermore the chart that is being used is one for sensitive pricos and is based on August 1939 equ allin g 1 0 0 . sluggish. The complete index is much more Furtherm ore, Government purchases of food for tho armed forces has been one o f the important factors in th is m atter. D r , Goldonweiser adjourn u n t i l 12 o *c lo o k . le ft tho meeting at 1 1 :3 0 and it was decided to - 15 - S e c re ta ry ’s Notes o f Mooting* At 12 o ’ clock the Council met with the Board of Governors of the Federal Reserve System, tho following being present: Draper, McKee, Parry, Carpenter, Goldenweiser, Bethea, D r e ib e lb is , Wyatt* Szymczak, Eccles, M orrill, and a ll members of tho Council* Brown states greatest interest on part of the Council is in the question of co n tro llin g installm ent c r e d it : has in mind. reasons and methods Board It w i l l bo unfortunate i f other means are available to give anybody in W ashington power over installm ent sellin g* Such practico would start with autos and hard goods but would soon sproad to everything e ls e . As far as the defense program is concerned p r i o r it i e s , excise taxes on autos and gasoline and a Federal vehicle tax ought to be s u ffic ie n t . As far as the large and interm ediate fin a n c e companies are concerned as well as the banks, all of these could be educated w ithout actual laws and regulations# Once control of c r e d it is given to a Governmental bureau an important section of credit would be permanently under Government co ntro l. A ll other means of control should be t r ie d f i r s t * E ccles: Board has not taken f i n a l action on any p lan . feels something w i l l be needed shortly* I f Board does not do i t , Government agency w i l l be giv en the a u th o rity . known as the O ffic e But Board another Henderson’ s organization o f Price Adm inistration and C iv ilia n Supply (OPACS) feels something must be done and that a ll t h is comes w ith in its f i e l d . He believes credit control should not be under the ju r is d ic t io n of OPACS, but by some other agency in con su ltation w ith OPACS. Any number of other things such a 3 t a x e s , p r ic e s , w ages, also a ffec t supply and d is tr ib u tio n of goods and a ll of these matters should be regulated in consultation w ith OPACS but - 16 * not l e f t Reserve s o l e l y to i t * System h as must go o u t s id e p icture# tax w i l l selectiv e of banks An e x c is e creased w a g e s , lo n g e r h o u r s , too a t t r a c t i v e . c on trols as a f t e r a l l t a x a lo n e not r e s t r i c t thing e l s e . A t p r e s e n t t h e Board o f Governors over c r e d it # banks and o vertim e p a y . c o n su m p tio n a d e q u a t e l y i f Consumer c r e d i t I n th e c a s e c o n tr o l of autos, it is Consumer c r e d i t c o n t r o l o n ly r e p r e s e n t can n o t c o n t r o l t h i s o f the F e d e r a l one p a r t o f the s i t u a t i o n in v ie w o f i n E ven a 2 0 per cen t e x c is e in s t a llm e n t terms are made a n e c e s s a r y supplem ent to e v e ry i s not d i f f i c u l t to c o n tr o l the p r ic e asked b y m a n u fa c t u r e r s and t o a l l o c a t e the amount o f p ro du ctio n # i f th e re e s t a b l i s h e d and t h e r e is a demand is a l i m i t a t i o n of 3 m i l l i o n c a r s How ever, for 4 m i l l i o n c a r s t h e n a c o n t r o l o f p r i c e s asked by m an ufacturers w i l l not be s u f f i c i e n t . It i s n e c e s s a r y to d e c re ase demand fo r cars i n order to make the c r e d it c o n t r o l e f f e c t i v e # T ryin g t o c o n tro l the s it u a t io n through the dealer is very d i f f i c u l t and i f c r e d i t c o n tr o l is not i n s t it u t e d th e n OPACS would f i x p r i c e s r i g h t down to the f i n a l consumer# competing w it h the d e fe n s e program# A l l durable goods are I f you have a heavy tax and c r e d it con t r o l , th e n you do not need re g im e n ta tio n and p ric e co n tro l to the consumer# Some of the auto p eo p le them selves want consumer c r e d it co ntro l and at least two of the b ig fin a n c e companies a lso d e s ir e voluntary r e s t r a in t where. somo sort o f c r e d it control is needed e n t ir e l y r e gardless of the defense program . It I f there were m erely a i n s t it u t e d then small competitors would spring up every As a m atter of fa c t business c y c l e s . it. I t is needed to prevent undue swings in the is not the thought of the Board that it should get power to control c re d it w ithout in a l l cases consulting the local Federal Reserve Banks# A point has not been reached in the discussions of tho Board where a program can bo submitted to the C ou n cil. The power to exorcise such con- - 17 - t r o l m ust be o b ta in e d c ith e r by le g is la tio n or by E xecutive Order# D r» Parry: The Chairman has covered a l l the chief arguments in favor of in s t itu tin g a control such as has been under discussion# has studied the mechanism# Parry The general view of most people seem to be that i f any control is e s t a b l is h e d , the Board of Governors of the Federal Reserve System is the best agency to administer it# people in t e r e s te d : The Board would consult with A .B .A # , tho National Association of Finance Companies, Morris Plan Banks, personal loan companies,, etc . Regulation "U " for example was submitted in a rough form f i r s t to the Federal Advisory Council. McKee thinks that there are d iffe r e n t methods of approach and doubts whether the present approach is the correct one. Men in now plants away from transportation need a oar and i t is not f a i r to prevent them from getting them# You are gambling i n the dark and you ought to have direct action* Brown objects to im position of controls which are intended prim arily to a ffe c t the bu sin ess cycle and which do not have anything to do w ith tho defense program# Harriso n asks whether i t is planned to extend controls to sellers like Sears Roebuck and Company* E c c le s : D e t a ils must be le ft aside at the moment# We are just at the beginning of changes due to the war and a ll that is being proposed now w il l in a short time seem very m ild and inadequate# Much can be done to re strict new housing to that which is connected dir e c tly w ith the defense pro gram as for example in tho caso of workers engaged in defense production in a new p lan t* H a r r is o n : W o uldn ft tho adm inistration be so d i f f i c u l t that ultim ately controls might have to be oxtondod to a l l forms of credit? And Eccles admits - this may be so# 18 - Harrison replies that this goes much further than anything involved in the defense program* E c c les: In the last 5 years, 18 m illio n new cars have been produced so there is an ample supply* Old cars can be bought and he doubts whether there w ill be any hardships* Keynes told him that in B ritain no new cars are being produced# McKee asks whether tho Council believes terms are too limited# Harriso n gives examples of abuses* to getting banks into lin e* Much of these might be checked Better concerns would like to have these abuses controlled and checked# Parry: There are plans under foot to do something by voluntary ac tion but he does not believ e the problem can be solved in that matter# Eccles asks whether the Council would prefer some agency other than the Federal Reserve System to handle th is credit control. He believes it ought to go to auto s, farm implements, r e fr ig e r a to r s, e t c ., does not wish controls to cover soft goods* He points out that in tho past the Federal Reserve System has allowed many separate agencies such as R .F .C . and F .D * I .C . to develop instead of try in g to keep such bureaus w ith in the System and the result has been that tho Systom no longer controls the credit situation# Hero now is another subject being proposed which a gain may be put under a bureau other t h a n the Fodoral Reserve System and the fin a l result of a ll this w i l l bo that the Fodoral Reserve Systom w ill bo lit t le more than an agency for t r a n s it items# Szymczak says whon plan is worked out, it w il l be submitted to the Federal Advisory C ouncil and to tho local FOderal Reserve Banks for criticism# Brown asks under what law an Executive Order could be issued to - 19 - authorize such controls but Ecclos declined to go into that question# Eccles asks members of the Council to keep an open mind on the subject* Council should not be merely concerned w ith control of credit but considor a ltern atives in the present emergency* I f tho members of tho Council do not liko somo of the suggestions they ought to offer a l ternatives* The meeting adjourned at 1 :4 5 in order to meet again at 2 :3 0 . - 20 Secretary’ s Notea on Meeting. At 2 :4 0 p .m . a ll members of the Council and tho following from the Board of Governors re-convened: Parry, W yatt, M o rrill, Carpenter, Eccles, Draper, Szymczak, Goldenweisor, Bothca, D ro ibelbis, McKee. Brown: As far as possible Government financing should be done with out the intervention of the banks. Perhaps private investors, insurance companies and the like would be more ready to help i f the coupon rate on bonds were a l i t t l e higher and the bonds be of somewhat longer term. Bonds might be made non-transferable so as to discourage over-subscription# f’G" bonds might create a very serious demand l i a b i l i t y for the Treasury# Coun c il believes the Board should continue to urge the Treasury to have financing done mostly by the help of non-banking investo rs. E ccles: 5 b i l l i o n a year# The present rate of buying of the new bonds is at about This may f a l l off# On the other hand the sale of two other classes of bonds other than ”G,f bonds might in c re ase . He doubts i f the Treasury is d i s s a t i s f i e d w ith the sales to date# McKee says at present there is n *t any pressure to force buying# Brown repeats that the Council feels there is room for a fourth class of bond: n o n- negotiability for a period from 6 to 12 months after purchase, somewhat higher coupon r a te , and longer m aturity. Eccles doubts whether banks would r e fr a in from buying such issues as suggested. He doubts that higher rate and longer term would stop buying by banks for as supply of other bonds disappeared banks would bid up the issu e s. He doubts whether there is any point in ta lk of more than a 2jr per cent rate for Government can s o il any amount of bonds at 2fr per oent. Brown states that ho is not thinking of rato prim arily but that the - 21 - issue should run from about 20-30 years which is such a long maturity that at present banks would net want such bonds while on the other hand private investors, insurance companies, and trust estates would probably buy such bonds h e a v ily . McKee says that what is needed is an open tap issue which can be bought as wanted. Treasury can always close the books whenever it has all the funds it needs and re-open the books when it needs some more funds. Eccles says it would be d i f f i c u l t to price such an issue but it would do away w ith the padding of b id s . U n t il now bonds have been sold somewhat under the market so that dealers and banks have bought bonds for tho purpose of s e llin g them almost immediately and thus make a p r o f it . procedure is not needed at p resent. Such I f a tap issue went under par the trust funds of the Treasury and tho Federal Reserve System would have to h e lp . When books are c lo s e d , the market would rise u n t il such times as the Treasury needed more money. Eocles thinks somothing like th is may be done and that as regards the banks a d e fin it e amount should be allocated to each bank. H arriso n thinks that the jam in the investment market would be bro ken i f some such scheme as the B r it is h scheme were adopted and the whole market would be s t a b i l iz e d w hile at present investors hold o ff because they aren’ t c e r ta in as to what the rate w i l l f i n a l l y b e . Harrison wants a 3 per cent rate as most insurance companies base th eir estimates on some such rate . Eccles wants a 2-|- per cent rate w ith a longer m aturity. want a rate under which the c re d it system can live and fu nctio n . The British The problem is not to see how cheaply Government can get money but to prevent rates from going too low. In the short-term money market the rate is much too low now and i f wo keep on wo run tho danger of k illin g the whole credit sytem which is the ba sis of our present economic systom. In the absence of - 22 - any control over excoss reserves, banks ought to be offered a fa ir return on short-term obligations in order to keep them out of the long-term market# This w i l l be e s p e c ia lly true when the mortgage market slows up# Brown emphasizes the fact that on the questions discussed, the Coun c il and Board are in agreement* Eccles points out th e r e is a formidable opposition on the part of dealers to tap issues and the lik e for such procedure would k i l l the second ary market and dealers and some banks are liv in g more or less on the p ro fit made by t h is Government financing# The cost has been paid by insurance companies # Brown states there are a number of vacancies in the ” C" director ships and one p residency is u n f i l l e d and the Council feels that these posi tions ought to be f i l l e d . The Council would a lso like to know what progress is being made as regards answers to the Wagner Questionnaire*. He points out that the C ouncil was promised it would be shown tho answers before these answers were f i l e d w ith tho Wagner Committee* Eccles says nothing has been done for a long time and work is s t il l going on revamping the replies# At present he does not wish to be a party to this whole business fo r he fe e ls it is ju st a matter o f academic interest and parts of answers would be picked out by the newspapers and misconstrued# In his v ie w , no u se fu l purpose would be served by sending any answers to Congress at present* L e g is la t io n w i l l only result when Administration wants some, and ho does not know whether in that case it would come piece meal or on a larger scale# There is no reason,, however, why answers should not be discussed w ith the Council boforo being sent to the Congress# - 23 - Brown statos that whonover tho Board is ready, it w ill be appreci ated i f a co n fiden tial copy of the Board*s answers be sent to members of the Council and the Council could then i f necessary call a special meeting to meet with the Board# Eccles does not want co n fiden tial copies sent to each member of the Council and to presidents of the Federal Reserve Banks but the Council and the presidents should appoint committees to meet w ith the Board. He believes that considering the present condition of the world by the time the question naire and the answers can r e a lly be considered they w il l a l l appear very archaic# No one can t o l l at present what fin a n c ia l and banking problems w ill look lik e after the war# Brown wants to know about the Patman and Glass b ills .. He states there aro rumors th a t Patman has more strength than formerly. Then mem bers of the Council would lik e to know about the death sentence claus in the Glass b i l l and the p ro visio ns about control of dividends# E ccles doubts that Patman*s power has increased# He believes sup port would come to him i n a period of depression rather than undor present conditions# I f in te r est returns wont up and a deflationary movement set in , Patman might g a in in influence# To the extent that the Federal Reserve System should be p u b lic ly c o n tro lled, in that he may get more support, for the general movement is toward c e n tra liz a tio n of power under Government. Since the Council met la st the Board sent to the Treasury a memorandum op posing the Glass b i l l in it s present form and Eccles attended a meeting in the Treasury where the C o m p tr o lle r ^ O ffic e and the F .D .I .C # were both represented. The Board sent a letter explaining why no action had been taken in an unhealthy and dangerous situation# The Board c r itic ize d the - 24 - "bill and also o ffered an alternative program. All this has been done in the last few weeks and the Com ptroller’ s O ffice is now working On the problem. Ecclcs believes t h a t there i s n ’ t any interest in Congress in the subject and unless the Secretary of the Treasury or the holding companies stir up the question it i s lik e ly to lie dormant. Establishment of additional branches and a c q u is it io n of more banks by holding companies create d i f f i culty and i f fo r the time being there woro not any expansion the situation would probably be le ft a l o n e . McKee says there w i l l be hearings only i f requested. I f the holding companies could agree among themselves on some method of freezing the present situatio n, he fe o ls c e r t a in nothing would be done. Eccles advises leaving tho whole problem alone for i f the matter is stirred up tho Secretary of the Treasury w i l l fight for h is b i l l and may get ■White House support. It is understood that i f and when the Board works out some defin ite plan in respect to control of installm ent sellin g and buying and i f and when the answers to the Wagner Questionnaire are in f in a l form, the Council as a whole or its E xecu tiv e Committee w i l l be consulted. The jo in t meeting of the Council and the Board adjourned at 4 p.m . - 25 - S e c re ta ry * s Notes on M eeting# At 4 :1 0 p .m . the Council met alone. Brown asks whether Council should pass a resolution about control of installment s e l l in g , but doubts i f this is done by Executive Order that a reso lu tio n of the Council would do any good, and i f it is to be done by le g isla tiv e a c tio n there would be hearings and ample time for the Council to take a c tio n . Kurt 2 thinks tho terms set hy small finance companies are bad. business r e a l l y belongs are lik e ly to do i t . The largely to banks and in the next 10 years the banks There is 5 b i l l i o n dollars of business and he thinks lim itation of terms w i l l bo good for tho banking business* H arrison th in ks a l l that is needed can be done now by the Federal Reserve System under present regulations and it is most undesirable to set up a new overlord i n Washington* Brown points out that the National Bank Examiner in Chicago D istrict is now pressing the banks and urging them not to take paper from small fin ance companies where terms are much too la x . D ick wants an exp ression from the Council as to which agency is preferred i n case t h e problem of control of installment sellin g becomes aoute before the Council meets a g ain . Ragland agrees w ith Kurtz* He believes that it is desirable for the banks themselves to have some control in s t it u t e d . H arrison suggests that Comptroller and Federal Reserve Banks issue instructions to examiners to prevent banks from taking paper running more than 18 months and less than one-third down payment but ho objects to giving power to rogulato everything in croation. - 26 - Brown asks agreement that the Council do not resolute on this matter but that i f it should become necessary to state a preference that it be made clear that the Council prefers to give tho power to the Federal Re serve System. H a rriso n a g re e s . Brown states that the Executive Committee be authorized to moot and consider the answers to the Wagner Questionnaire in case the Board should plan to f i l e a r e p o r t . A uth o rization to do th is was moved by W akefield and seconded by H a rriso n and unanimous-ly adopted* Brown states that i f necessary the Executive Committee w ill state that the C ouncil p refe rs that the Federal Reserve Board rather than some other agency be g iv e n the power to control installment sellin g and buying but this only i n case it is c le a r that i t is intended to give that power to somebody or o th e r . The m eeting adjourned at 4-:30 p .m . MINUTES OF MEETING of the FEDERAL ADVISORY COUNCIL May 18-19, 1941 M IN U T E S OF M E E T IN G OF TH E FED ERA L A D V IS O R Y C O U N C IL May 18,1941 The second statutory meeting of the Federal Advisory Council for 1941 was convened in Room 336 of the Mayflower Hotel, Washington, D. C,, on Sunday, May 18, 1941, at 2:00 P. M., the President, Mr. Brown, in the chair. Present: Mr. Charles E. Spencer, Jr. District No. 1 Mr. George L. Harrison District No. 2 District No. 3 Mr. William Fulton Kurtz District No. 4 Mr. B. G. Huntington District No. 5 Mr. Robert M. Hanes District No. 6 Mr. Ryburn G. Clay District No. 7 Mr. Edward E. Brown District No. 8 Mr. S. E. Ragland District No. 9 Mr. Lyman E. Wakefield District No. 10 Mr. W. Dale Clark District No. 11 Mr. R. Ellison Harding District No. 12 Mr. Paul S. Dick Secretary Mr. Walter Lichtenstein On motion, duly made and seconded, the minutes of the Council meeting of February 16-18, 1941, copies of which had been previously sent to the members, were approved. A discussion took place regarding the proposed legislation placing installment financ ing under the control of the Board of Governors of the Federal Reserve System. It was pointed out that one of the purposes of such legislation would be to assist in the defense program by making civilian use of those materials which are needed to produce armament more difficult; also that when the defense program ended, it might be easier to prevent too great a shock to industry by stimulating installment financing and thus creating orders which would keep industry occupied. The general trend of the discussion was that legislation to regulate installment selling and buying was undesirable and that other methods could be used to regulate prices and the supply of commodities. If, however, legislation to regulate installment financing was inevitable, the members of the Council, on the whole, would prefer that the control be given to the Board of Governors of the Federal Reserve System. There was general discussion about participation of member banks in Government financing, and the hope was expressed that, as far as at all possible, it might be done by participation of private investors and non-financial institutions. There was also some discussion about Congressman Patman’s program and about the Glass Bank Holding Company bill. In a consideration of the questionnaire of the Senate Committee on Banking and Currency, it was decided to remind the Board of Governors of the Federal Reserve System that it had promised the Federal Advisory Council that it would discuss its answers to the questionnaire with the Council before the answers were filed with the Senate Committee. The meeting adjourned at 5:00 P.M. 1 WALTER LICHTENSTEIN, Secretary M IN U T E S OF M E E T IN G OF TH E FED ERA L A D V IS O R Y C O U N C IL May 19, 1941 At 10:30 A. M., the Federal Advisory Council reconvened in the Board Room of the Federal Reserve Building, Washington, D. C., the President, Mr. Brown, in the chair. Present: Mr. Edward E. Brown, President; Mr. George L. Harrison, Vice President; Messrs. Charles E. Spencer, Jr., William Fulton Kurtz, B. G. Huntington, Robert M. Hanes, Ryburn G. Clay, S. E. Ragland, Lyman E. Wakefield, W. Dale Clark, R. Ellison Harding, Paul S. Dick, and Walter Lichtenstein, Secretary. The Council was notified that Chairman Eccles had to attend a meeting at the Treasury, and as Mr. Ronald Ransom was out of town, it was decided to postpone the usual joint meeting with the Board of Governors until noon. Dr. E. A. Goldenweiser, Director of the Division of Research and Statistics of the Board of Governors, was asked to make his usual appearance before the Council at this time. Dr. Goldenweiser thereupon appeared before the Council. He discussed the dangers of inflation, and admitted that in spite of everything that can be done, we are likely to have a considerable rise in the price level. He also discussed some phases of the proposed legislation to cover installment selling and buying. Dr. Goldenweiser left the meeting at 11:30 A. M., and the meeting adjourned until noon. WALTER LICHTENSTEIN, Secretary 2 M I N U T E S O F J O I N T C O N F E R E N C 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 BO A R D O F G O V ER N O R S O F T H E FE D E R A L R E SER V E SY STEM May 19, 1941 At 12 noon a joint conference of the Federal Advisory 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; Governors M. S. Szymczak, John K. McKee, and Ernest G. Draper; also Messrs. Chester Morrill, Secretary of the Board of Governors; Liston P. Bethea, and S. R. Carpenter, Assistant Secretaries of the Board of Governors; Walter Wyatt, General Counsel; J. P. Dreibelbis, Assistant General Counsel; E. A. Goldenweiser, Director, Division of Research and Statistics; and Carl E. Parry, Chief, Division of Security Loans. Present: Members of the Federal Advisory Council: Mr. Edward E. Brown, President; Mr. George L. Harrison, Vice President; Messrs. Charles E. Spencer, Jr., William Fulton Kurtz, B. G. Huntington, Robert M. Hanes, Ryburn G. Clay, S. E. Ragland, Lyman E. Wakefield, W. Dale Clark, R. Ellison Harding, Paul S. Dick, and Walter Lichtenstein, Secretary. The President of the Council stated that members of the Council were very much interested in the question of the proposed control of installment selling and buying, and that they were eager to hear from the members of the Board of Governors on this subject. He stated there was a feeling on the part of the members of the Council that, as far as the defense program was concerned, priorities, excise taxes on automobiles and gasoline, and a Federal vehicle tax ought to be sufficient, and the members of the Council ques tioned whether it was necessary to have laws and regulations to cover finance companies. The Chairman of the Board of Governors replied that the Board had not taken any final action on this question, but there was a feeling that something would be needed very shortly and that if the Government were to undertake the regulation of installment credit, the members of the Board believed that the power to regulate should rest with the Board, and not with some other Government agency. A general discussion between the members of the Board and the members of the Council on this subject took place. Governor Szymczak, in conclusion, stated that if and when a plan is worked out by the Board of Governors, it would be submitted to the Federal Advisory Council and to the Federal Reserve banks for their criticism. The meeting adjourned at 1:45 P. M., and the Council had luncheon with the Chair man of the Board of Governors. WALTER LICHTENSTEIN, Secretary 3 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 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 BO A RD O F G O V ERN O RS O F TH E FED ER A L R ESER V E SY STEM May 19, 1941 At 2:40 P. M., the joint conference of the Federal Advisory Council and the Board of Governors of the Federal Reserve System reconvened 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; Governors M. S. Szymczak, John K. McKee, and Ernest G. Draper; also Messrs. Chester Morrill, Secretary of the Board of Governors; Liston P. Bethea and S. R. Carpenter, Assistant Secretaries of the Board of Governors; Walter Wyatt, General Counsel; J. P. Dreibelbis, Assistant General Counsel; E. A. Goldenweiser, Director, Division of Research and Statistics; and Carl E. Parry, Chief, Division of Security Loans. Present: Members of the Federal Advisory Council: Mr. Edward E. Brown, President; Mr. George L. Harrison, Vice President; Messrs. Charles E. Spencer, Jr., William Fulton Kurtz, B. G. Huntington, Robert M. Hanes, Ryburn G. Clay, S. E. Ragland, Lyman E. Wakefield, W. Dale Clark, R. Ellison Harding, Paul S. Dick, and Walter Lichtenstein, Secretary. The President of the Council stated that in the opinion of the Council, as far as possible, Government financing should be done without the intervention of the banks, and that there was a belief on the part of the members of the Council that private investors, insurance companies, and other non-financial institutions would be more ready to help if the coupon rate on the bonds were a little higher and the bonds were of somewhat longer term. If bonds were made non-transferable, it would discourage over-subscription. A general discussion took place regarding Government financing, and the Chairman of the Board of Governors stated that he believed the rate ought to be approximately 2 lA % with a longer maturity than at present. The President of the Council raised the question of the Wagner questionnaire. The Chairman of the Board of Governors stated that the staff was still at work revamping the answers to the questionnaire. He saw no reason why answers should not be discussed with the Council before being sent to the Congress. He stated that he did not want con fidential copies of the reply sent to each member of the Council and to the presidents of the Federal Reserve banks, but that the Council and the presidents should appoint com mittees to meet with the Board. A discussion took place in respect to the Patman and Glass bills. In conclusion it was stated by the President of the Council, and agreed to by the Chairman of the Board, that it is understood that if and when the Board works out some definite plan in respect to control of installment selling and buying, and if and when the answers to the Wagner questionnaire are in final form, the Council as a whole, or its Executive Committee, will be consulted. The joint conference adjourned at 4:00 P. M. WALTER LICHTENSTEIN, Secretary 4 M IN U T E S O F M E E T IN G OF TH E FED ERA L A D V IS O R Y C O U N C IL May 19, 1941 At 4:10 P. M., the Federal Advisory Council reconvened in the Board Room of the Federal Reserve Building, Washington, D. C., the President, Mr. Brown, in the chair. Present: Mr. Edward E. Brown, President; Mr. George L. Harrison, Vice Presi dent; Messrs. Charles E. Spencer, Jr., William Fulton Kurtz, B. G. Huntington, Robert M. Hanes, Ryburn G. Clay, S. E. Ragland, Lyman E. Wakefield, W. Dale Clark, R. Ellison Harding, Paul S. Dick, and Walter Lichtenstein, Secretary. A discussion took place as to whether it would be advisable for the Council to take any formal action in respect to the proposed control of installment selling and buying. It was finally agreed that the Council would not pass any formal motion, but that if it should become necessary for the Council, to take a position as to which Government bureau should be given power to regulate installment credit, the Council would make it clear that it much preferred to have this authority entrusted to the Board of Governors of the Federal Reserve System. On motion made by Mr. Wakefield and seconded by Mr. Harrison, it was unanimously voted that the Executive Committee of the Council be authorized to meet and consider answers to the Wagner questionnaire in case the Board of Governors should plan to file a report. In conclusion, the President of the Council summed up the view of the members of the Council that, if necessary, the Executive Committee of the Council would state that it preferred that the Board of Governors of the Federal Reserve System rather than some other agency be given the power to control installment selling and buying, but such a statement would be made only in case it was clear that it was intended to give such power to some Government agency or other. The meeting adjourned at 4:30 P. M. WALTER LICHTENSTEIN, Secretary 5
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