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S e c r e t a r y ^ Notes on Meeting of the
Federal Advisory Council of September 14, 1941
at 2 :1 0 P .M ., Room 3 5 6 , Mayflower Hotel,
W ashington, D . C.
A ll the regular members of the Federal Advisory Council were
present except Mr. H a r r i s on whose place was teJcen by Mr. Leon F ra ser.
M r . Brown reviewed the proceedings of the meeting of the
Executive Committee of the Council which took place in Washington on
August 15 and 1 6 ,
The salie n t
facts were covcrod in a letter of the
Secretary of the C ou n cil, dated August 20,
1941,
of which a copy was
sent to each member of the C ouncil.
Brown believ es that i f the Council could get into the regu
lations covering installm ent s e llin g a p ro visio n to the e ffe c t that a ll
loans whether $ 1 ,0 0 0 or under should be permitted provided the loan is
not s p e c if i c a l l y fo r the purpose o f purchasing lis t e d a r t ic l e s ,
regulations would be much improved.
the
It must be remembered in th is
connection that the fin ance companies object to a purpose clause be
cause they are a f r a id that the personal loan companies might obtain
too much of the in stallm en t b u s in e s s .
Brown suggests that the fo llo w in g three points be presented
to the B o ard:
1.
The Board o f Governors should proceed w ith caution;
otherw ise, there might be a popular reactio n which would
injure the whole F ederal Reserve
System.
2.
The whole Council reiterates the recommendation
made by it s Executive Committee to exempt small personal
loans from the p rovisions of the regulations except where
such are s p e c ific a lly to be used to finance purchases of
liste d a r t i c l e s .
3.
Banks should not be expected to do too much of
the p o lic in g to carry out the regulations for this imposes
too heavy a burden upon tho banks.
W a k e fie ld points out that in the past there has been great
pressure on the banks, u rgin g them to take care of small people.
the Adm inistration is attempting to r e s tr ic t this
Now
beneficial move and
this may r e s u lt i n a bad r e a c tio n .
Brown asked whether he may make a general statement to the
Board in accordance w ith the three points lis te d above.
D ic k m oved, and Hanes seconded the motion, that the pro
cedure o utlined be adopted.
The motion was adopted unanimously.
The t h i r d and fourth items on the agenda were then discussed
'’3 .
Fin an cin g of the defense program and its various
aspects, such as t a x a t io n , p r i o r it i e s , freezing of the price
le v e l, lim it a t io n of instalm ent s e l l in g , etc*
(Suggested by M r. Huntington)
”4 .
D e s i r a b i l i t y of r e ite r a tin g danger of continued
low in t e r e s t r a t e s .
(See statement of Federal Reserve System
dated December 3 1 , 1940)
(Suggested by Mr. Huntington)”
Brown r e fe rs to the statement of the System submitted to
Congress and dated December 3 1 , 1 9 4 0 .
Ho went on to say that at that
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time Secretary Morgenthau did not wish any action to be taken until he
had time to consider what the effect of the suggestions made might be
on the future program o f fin ancing Government needs#
The question now
is whether the present Council approves this statement of December 31,
1940.
Since the statement was made, nine months have elapsod, and there
isn *t much p oint now in arguing about the whole program#
It is obvious
that a doubling of present legal reserve requirements is only desirable
i f the other recommendations embodied i n the statement are carried out#
It might be w e l l ,
however,
i f the present reserve requirements were
raised at once to the present legal lim its.
Governor Szymczak made the
statement in confidence that he believed the Board would agree to t h is ,
provided the Treasury approved of such action .
Eccles, perhaps, doesnTt
wish it done because u n t i l the Board gets further powers the raising of
the reserve requirements to the present legal lim its would mean that the
Board would have expended it s
last cartridge and that, therefore, this
action should be reserved for some very special emergency.
W a k e fie ld does not b e lie v e i n increased power over reserves
and doubts any way whether Congress would approve.
Fraser suggests the Board should be asked whether it was in
formed as to what the Secretary of the Treasury meant by "selective
credit c o n tr o l” .
-4
Brown states that Governor Ranscm told him that banks ought
not to lend to customers fo r the purpose of enabling them to hoard
commodities*
Fraser suggests that after giving 30 or possibly 45 days*
notice, the Board should raise reserve requirements to the present
legal lim it as a contribution toward repression of in fla t io n .
This
might also have some slig h t e ffe c t on the present interest structure
for it is most d e s ir a b le that interest rates rise not because banks
would be b e n e fite d thereby, but because th is is desirable for our
general economy.
Fraser believes that the p ublic is quite prepared
to accept an in c r e a s e .
A fter co nsiderable d is c u s s io n ,
a request
i t was decided to put such
in the form o f a recommendation and that the Council ask the
Board*s consent th a t it be given p u b lic ity at once.
The motion,
after being made by M r. Dick and seconded by EiT. Spencer, was unani
mously adopted,
and it was decided to ask M r. Fraser to prepare the
recommendation.
Brown asked whether the Council favors further increases in
reserve requirem ents.
Last December the Council fe lt that this should
be done only as a part o f a general program and the Council obviously
does not favor further rigorous increases of reserve requirements ex
cept as a part o f a general program.
Brown, h im self, however, would
favor such an increase even though it were not part of a general pro
gram.
Wakefield would consent to an increase only as a part of a
general program and is very reluctant to give such great powers to
any governmental body.
Fraser states that his view is the Council
favors an increase only provided other things are done*
Discussion
of the fifth item on the agenda was dropped,
("5* What actions can be taken and policies pursued
to protect banking against the debacle which must follow
this era of excessive Government spending? (Suggested by
Mr* Hanes)")
There was some discussion as regards the sixth item,
("6* Consideration of the subject of member banks
reporting net balances only in their published reports.
(Suggested by Mr. Clay)” )
and it was decided to address an inquiry to the Board about it .
Item number 7 would deal with the possibility of Federal land
banks borrowing from the Federal Reserve Banks*
It was decided to ask
the Board what chances there are of the bills in question (H.R* 5346
and related bills) being adopted by Congress.
It is obvious that the
Federal Advisory Council would not wish the Federal Reserve System
to make such loans vfhich would merely mean that the portfolio of the
Federal Reserve System would be encumbered by illiquid long-term loans.
( u7. Discussion of H*R* 5346 - Farm Credit Act of 1941,
(which is identical with H*R* 5336 and S. 1797) especially that
part which refers to tho Federal Reserve System. (Suggested by
Mr. Harding)'1)
-6-
"8 .
Procedure that should be adopted to curb and, if
p o s s ib le , d efeat the in flatio nary trend now apparent.
(Sug
gested by M r. D i c k )"
Item 8 on the agenda is practically identical w ith items 4
and 5 on the agenda.
The meeting adjourned at 5 :5 0 P .M ., and it was decided to
have the Council reconvene on Monday at 1 0 :0 0 A .M . in the Board Room
of the Federal Reserve B u ildin g and to meet w ith the Board of Governors
at 1 0 :3 0 A.M.
7Secretary*s Notes on Meeting of the
Federal Advisory Council of September 15, 1941
at 1 0 :0 0 A .M *, Board Room, Foderal Reserve B u ild in g ,
W ashington, D* C.
A ll of the members o f the Council were p resent, except as be
fore Mr* Fraser was in place of Mr. H a r r is o n , and Mr. Ryburn Clay was
absent but had le ft word w ith the Secretary of the Council that he would
return in the a ftern oo n .
Brown made a statement in reference to a conversation which he
had had w ith Governor Ransom.
Ransom says that the Board desires to
increase reserves to the present legal maximum but fe e ls it important
to wait w ith such actio n u n t il an announcement can be made about other
steps to be taken so that the public as w ell as the security markets
might not be le ft i n a state of u n c e r ta in ty .
Treasury is anxious to
have reserves kept w it h in the present lim it fix e d by the Banking Act
of 1935.
Brown also to ld about a conversation w ith Leo Crowley.
group of econom ists,
of Governors,
A
in c lu d in g W o o d lief Thomas representing the Board
advised a gain st any se lec tiv e credit co n tro l,
but the
group was told that what was wanted was not its opinion about selective
credit c o n tro l, but the best methods to be used in case such a p o lic y
is adopted.
D r e ib e lb is b e liev es that the present legal
limits of re
serves could be changed by Executive Order under the emergency ju st as
was done in connection w ith the order issued to regulate installm ent
se llin g .
It has been rumored that Senator Glass may write the President
advising
against
such a step .
Crowley believ es that it would be a
-8-
mistake for the Council "to urge an increase of reserves to present
maximum for then subsequently the Board could point to the fact that its
powers had been exhausted and the Board might therefore obtain greatly
increased powers by Executive Order.
Crowley doubts whether Congress
would be w illin g to give the Board of Governors greater powers than it
has at p resent.
A recommendation, dealing w ith the subject of reserves,
was presented by Mr. Fraser in accordance with the suggestions made in
y e sterd ay rs m eeting, and with some unimportant changes, the recommenda
tio n was unanimously adopted upon motion by Mr. Hanes, seconded by Mr.
K urtz. This recommendation w il l be attached to the printed minutes and
has been furnish ed to the members of the Council in mimeograph form.
The meeting of the Council adjourned at 1 0 :3 0 A.M .
Secretary’ s Notes on Meeting of the
Federal Advisory Council of September 15, 1941
at 1 0 :4 0 A .M ., Board Room, Federal Reserve Building,
Washington, D. C.
The Council met w ith the Board of Governors, the following be
ing presen t:
M essrs. Ransom, Szymczak, Draper, M o r r ill, Carpenter,
Thurston, D r e ib e lb is ,
Parry.
Bethea,
Thomas, Clayton, Smead, Wyatt, Paulger,
A ll members o f the Council as before were present, except Mr.
Clay.
Ransom.
Reviewed the s itu a tio n :
In connection with regula
tions about margins and in connection with consumer credit the method
of selective c r e d it control has already been employed so that the idea
is not an e n t ir e ly new one.
The statement of December 31,
1940 had
fa lle n on rather u n fe r t ile s o il but the Treasury now is much easier to
approach, and there is a much greater s p irit o f cooperation between the
Treasury and the Board of Governors.
The Treasury feels that before
going again to the market for a large scale operation, there should be
a clear u nderstanding as to future steps,
fe e lin g that i t
and the Board has had the
should not use any of its present powers u n til some of
the other problems have been settled and i t has been decided how much
additio n al power should be asked from Congress.
Two plans have been suggested— the present ratio plan and a
so-called c e il in g p la n .
In other words, the problem is whether the
authority to be asked should be of an over-all nature or of a rather
selective t y p e .
As a kin d of a sid e , Ransom mentioned that the present
d iv is io n of banks into Central Reserve, Reserve, and Country Banks is
-
rather u n s c ie n t if i c .
There has been consultation between s taffs of the
Board and the Treasury,
meetings#
10-
and Ransom him self has sat in on most of these
Ransom, h im s e lf, feels that the present regulations about
installment s e llin g are incomplete u n t il they are extended to cover hous
ing.
At the present tim e, there is not any need of a cap ital issues
committee.
The Treasury, above a l l ,
to become exp en sive.
does not w ish Government financing
The Treasury and Board have given very intensive
study to the s it u a t io n .
Ransom b eliev es there is l i t t l e value i n coming
out with the suggestion to r a is e reserve requirements to the present
legal lim its u n t i l the whole problem has been examined.
Brown states that the r a is in g of reserve requirements to
present legal lim its can be done now w ithout any reference to other
steps to be tak e n .
He a g re es, however, that before the Treasury does
major fin a n c in g , there ought to be a clear understanding as to what
the future p o l i c ie s are l i k e l y to b e .
Ransom,
in answer to a question,
is no need of pro-rating c r e d it .
much c re d it a v a il a b l e .
states that at present there
As a matter of f a c t ,
there is too
A number of agencies have considered the problem
of cap ital i s s u e s , but i t has not gone beyond the study stage.
There
isn*t any question th a t there w i l l be e ith e r more ovor-all control or
more selective c r e d it co n tro l,
former.
and he* h im s e lf,
Ho does not belie v e that the
(Ransom) favors the
Board can at prosent in s is t on
its program w ithout an understanding w ith other governmental agencies
as to future steps contem plated.
-
11-
Wake f ield states he does not believe in selective credit
control because it means in the fin a l analysis that seme Government
agency or other in Washington w i l l control a ll instruments of credit,
Kurtz asks whether prices should be allowed to spiral upward
and the Federal Reserve Board not take at least that step which is
w ithin its powers to exercise even though i t be admitted that that step
may have a pretty slig h t in flu e n c e .
He believes that the Board should
not w ait u n t i l a l l future steps are decided upon.
Ransom says that the statement of December 31,
1940 got off
to a bad start because its premature p ublicatio n was forced upon the
Board.
There was no one r e a lly to blame for t h i s , but the fact is that
the other agencies had not understood the fu ll implications of this
statement.
The r e s p o n s ib ilit y o f the Board of Governors is to do the
best i t can .
He be liev es that in it s talk w ith the Treasury, the Board
has made progress and there is more Administration understanding as to
why the Board wishes to raise reserve requirements and also an under
standing as to why such a c tio n alone cannot do the job*
Fraser supports K urtz.
From what Ransom says it appears to
him that nothing w i l l be done unless you can get a complete program,
and that means that nothing w ill be done.
He believes in doing what
you can do, and r a is in g reserve requirements to the present legal limits
is one of the things that can be done and should be done.
Then, after
th is is done or w h ile it is being done, e ffo r t should be made to obtain
a more complete program.
12-
Ransom.
The question is ( l )
shall we use our present powers
without clearing with the Administration;
(2)
shall we wait to raise
reserves u n t il we know what the next steps are to be.
He says there
w ill be a d e fin it e dec isio n reached w ith in a week, and he hopes, there
fo re, that the Council w i l l not publish its statement, but that he w ill
be permitted to convey to the Secretary o f the Treasury the Council's
views.
I f the Council* s statement were published, it would raise many
other questions which wculd be asked by the newspapers, and i f these
questions were not answered by the Government, the newspapers would
undertake to answer the questions themselves.
Brown, speaking in respect to Regulation W, makes the state
ments agreed upon yesterday— ( l ) that the regulation should be as simple
and as l ib e r a l as possible and that the reactions already are bad*
He
refers to the proviso that there must be a minimum payment of $5 per
month.
This
simply leads to cases where, for example,
in the purchase
of a radio where the monthly payment is not $ 5 , people are induced to
buy other a r t ic le s in order that the monthly payment can be brought up
to $5 a month.
(2 )
The C ou n cil, as a whole, urges that the recommenda
tio n made by it s Executive Committee be adopted, that provided a
borrower make an a f f id a v it that a loan under $ 1 ,0 0 0 is not intended for
the purchase of l is t e d a r tic le s that such a loan be exempted from the
provisions of R egulation W.
(3 )
The burden of policing thrown on
banks should be held down to a minimum because otherwise a very heavy
-13-
expense is imposed upon the banks*
Ransom states that the original
purpose was to include a ll open book accounts and a ll cash loans.
But
fin a lly it was decided to omit open book accounts and to include cash
loans only up to $ 1 ,0 0 0 .
It was fe lt that the finance companies would
not cooperate in carrying out the regulation i f small cash loans had
been allowed, as these would furnish a wide open door to evade the
regulation.
O r ig in a lly , the plan was to lim it the regulation purely to
the purchase of lis t e d a r t ic l e s , but it was found too d iffic u lt to draw
up a purpose c la u s e .
in Regulation W .
Ransom admits that there is p o litic a l dynamite
For one t h in g ,
it creates discriminatory tendencies.
The great problem i s to make people understand the reasonableness of
the p rovisions o f the r e g u latio n .
Farm C r e d it . H .R . 5 3 4 6 .
serious the b i l l
The Council, interested in how
is to be taken and feels that the credit of Federal
Reserve Banks should not be made available to such in stitu tio n s.
Wyatt
stated that there i s n ft any a c t iv it y and that the b ills in question are
merely sleeping in committee,
and there i s n 't any reason to anticipate
new le g is la t iv e actio n at th is tim e.
Tho meeting adjournod at 1 :1 0 P .M .
-14-
Seoretary’ s Notes on Meeting of the
Federal Advisory Council of September 15, 1941
at 1 :1 5 P .M ., Board Room, Federal Reserve Building,
Washington, D. C*
The Council met alone-
All members present, excepting Mr.
Clay and Mr. Fraser in place of Mr. Harrison.
Brown.
In view o f Ransom’ s statements, what does the Council
with to do?
1.
Does i t w ish to withdraw its recommendation entirely?
2.
Does it wish to in s is t on publication?
It was decided to present the recommendation but not to
in sist on its p u b lica tio n at this tim e, though it might be published
after the Treasury and the Board had made public a statement of their
agreement i f one is reached.
The meeting adjourned at 1 :2 0 P .M .
-15-
Secretary1s Notes on Meeting of the
Federal Advisory Council of September 15, 1941
at 2 :2 0 P .M ., Board Room, Federal Reserve Building,
Washington, D. C.
The recommendation on reserves as prepared by Mr. Fraser was
formally adopted upon motion of Mr. Hanes, seconded by Mr. Kurtz.
At 2 :3 0 P .M . Mr. W oodlief Thomas joined the Council to present
a survey of business c o n dition s.
Production index is lik e ly to be 167 by the end of the year.
Automobiles,
tailed .
s ilk and a number of other articles are or w ill be cur
Not much future rise in te x t ile s expected.
In many lin e s ,
production has probably reached the limit of capacity.
People are be
ginning to co llect inventories and in many instances needs are covered
far in advance of immediate requirements.
At times this has been done
at the request of the Army or Navy Departments.
highest record for th is
season of the year.
R etail trade is at
Usually Thanksgiving week
marks the maximum of r e t a il sale s, but in this year the last week in
August was above "tho Thanksgiving week of last year.
Building is s t ill
very h igh, but the FHA figures give some in dicatio n that building is
beginning to slow up,
h esitan t.
and unquestionably contractors are becoming
W hile there are declines in some lin o s, these declines arc
probably not as great as increases in other lin e s .
Prices in 1940
showed l i t t l e change, but since February 1941, there has been a sharp
rise in the price of basic commodities.
Cost o f living is also steadily
going up and is now 10 per cent higher than the pre-war index.
prices have boon steady, w hile farm pricos continue to r is e .
Metal
The whole
-16-
sale price index is approaching the level of 1929.
Wage rates are up
about 10 per c ent, but as most of th is increaso in wages is in industries
which have had a sharp growth, not profits so far have not been very
much affected by the increase in wages.
Average total of weekly earn
ings are up much more than the mere increaso in rates.
At present
there are perhaps four and one h a l f m illion unemployed, not counting
one and one h a l f m illio n on WPA.
h a lf m illio n from before the w ar.
year.
This is a drop of about three and one
Corporate profits are up over last
Perhaps for the f ir s t h a lf year, up 20 per cent, but the second
h a lf year w i l l not show the same increase over the second h alf of 1940,
as the second h a l f o f 1940 was already showing very large earnings.
Bank credit is at an all-time high, and there is more velocity than
before in the turnover of bank d e p o sits.
r e la t iv e ly l i t t l e
a c t i v it y .
The stock market shows
Authorized appropriations for immediate
expenditures amount to about $ 6 0 ,0 0 0 ,0 0 0 ,0 0 0 .
(M r.
Clay returned to the meeting at 2 :5 5 P .M .)
Defense expenditures next year may actu ally go to $ 2 0 ,0 0 0 ,0 0 0 ,0 0 0 .
The
amount a v a ila b le for c i v i l i a n expenditures w il l be 10 per cent higher
than in 1 9 4 0 .
30 per c en t,
National income is l ik e l y to bring an increase of about
but the amount of goods to be bought w i l l not show as
much of an increase as t h a t .
T axes:
The d e fic it for the current fiscal
year w i l l probably be about $ 8 ,0 0 0 ,0 0 0 ,0 0 0 as against $ 6 ,0 0 0 ,0 0 0 ,0 0 0 last
year.
D e f ic it is not l ik e l y to increase very much.
$ 1 2 ,0 0 0 ,0 0 0 ,0 0 0 to be taken care o f,
There w il l be about
of which about $ 5 ,0 0 0 ,0 0 0 ,0 0 0 w ill
-17-
be raised by the sale of anticipation tax warrants, defense bonds, e t c .,
leaving about $ 7 ,0 0 0 ,0 0 0 ,0 0 0 of securities to be sold in the open
market.
Last year the Government sold about $ 4 ,0 0 0 ,0 0 0 ,0 0 0 in the open
market, bought almost en tirely by commercial banks, savings banks and
insurance companies.
So far this year, banks have bought very lit t l e ,
and the Treasury has replenished its funds mainly by sales outside of
the banks.
At 3 :2 0 P .M . W o od lief Thomas was through, and the meeting
adjourned.
-18-
Secretary* s Notes on Mooting of tho
Federal Advisory Council of September 15, 1941
at 3 :2 0 P .M ., Board Room, Federal Reserve Building,
Washington, D . C.
At 3 :2 0 P.M.,, a jo in t meeting with the Board of Governors of
the Federal Reserve
System was h eld.
All members of the Council,
cluding M essrs. Fraser and Clay, were present.
following were p rese n t:
M o rrill,
Bethea,
Clayton,
in
Of the Board the
M essrs. Ransom, Draper, Szymczak, Carpenter,
Smoad, Thomas, and Paulger.
The Secretary of the Council read the recommendation dealing
with the d e s i r a b i l i t y of increasing reserve requirements immediately
to the maximum lim its authorized by the Banking Act of 1935.
Brown stated that in view of what had been said in the morn
ing, the Council withdrew it s request for immediate publication.
Brown took up w ith the Board the d e s ir a b ilit y of having
member banks report only not balances in th eir published reports which
would mean taking out reciprocal balances.
He stated the Council was
not making a recommendation, but it might be desirable i f the Comptrol
ler of the Currency and the state banking authorities were to sec to
it that the only figu res published we re those of the net balances.
The meeting adjourned at 3 :3 0 P.M .
MINUTES OF MEETING
of the
FEDERAL ADVISORY COUNCIL
September 14-15, 1941
M INUTES OF M EETIN G OF THE FEDERAL ADVISORY COUNCIL
September 14, 1941
The third statutory meeting of the Federal Advisory Council for 1941 was convened
in Room 336 of the Mayflower Hotel, Washington, D. C., on Sunday, September 14,1941,
at 2:10 P. M ., the President, Mr. Brown, in the chair.
Present:
Mr. Charles E. Spencer, Jr.
Mr. Leon Fraser (Alternate for Mr. George L. Harrison)
Mr. William Fulton Kurtz
Mr. B. G. Huntington
Mr. Robert M. Hanes
Mr. Ryburn G. Clay
Mr. Edward E. Brown
Mr. S. E. Ragland
Mr. Lyman E. Wakefield
Mr. W. Dale Clark
Mr. R. Ellison Harding
Mr. Paul S. Dick
Mr. Walter Lichtenstein
District No. 1
District No. 2
District No. 3
District No. 4
District No. 5
District No. 6
District No. 7
District No. 8
District No. 9
District No. 10
District No. 11
District No. 12
Secretary
On motion, duly made and seconded, the minutes of the Council meeting of May
18-19, 1941, copies of which had been previously sent to the members, were approved.
The President reviewed the proceedings of the meeting of the Executive Committee
of the Council which took place in Washington, on August 15 and 16, at which the proposed
regulation (W) dealing with consumers’ credit was considered. The salient facts of the
meeting were presented in a letter of the Secretary of the Council dated August 20,1941,
a copy of which was sent to each member of the Council.
The President suggested that the following three points in respect to Regulation W
be presented to the Board at the joint meeting:
1. The Board of Governors should proceed v/ith caution; otherwise, there might
be a popular reaction which would injure the whole Federal Reserve System.
2. The whole Council reiterates the recommendation made by its Executive
Committee to exempt small personal loans from the provisions of the regulations,
except where such are specifically to be used to finance purchases of listed articles.
3. Banks should not be expected to do too much of the policing to carry out the
regulation for this imposes too heavy a burden upon the banks.
On motion of Mr. Dick, seconded by Mr. Hanes, it was unanimously voted that the
procedure outlined by the President be followed. A discussion took place regarding the
statement dated December 31, 1940, submitted to the Congress by the Federal Reserve
System, and what might be done to carry out some of its provisions.
It was recognized that under existing conditions it presumably would not be possible
to carry out all the provisions embodied in that program; but it was felt that the Board
at least might raise reserve requirements to the present legal limits.
On motion made by Mr. Dick, and seconded by Mr. Spencer, it was voted that the
Council present to the Board of Governors a recommendation urging that after giving
1
30 or possibly 45 days’ notice, reserve requirements should be increased to the maximum
allowed under the Banking Act of 1935. It was, furthermore, decided that the Council
ask the Board’s agreement to the end that such a recommendation be given immediate
publicity.
Mr. Clay asked that consideration be given to a recommendation that, in their
published reports, member banks report only net balances, i.e., offset against each other
reciprocal balances carried by banks. It was decided to discuss this matter with the Board
of Governors at the joint meeting.
A discussion took place in respect to H. R. 5346 and related bills, now pending in
Congress, which would make it possible for Federal Land banks to borrow from Federal
Reserve banks. It was decided to address an inquiry to the Board whether there was any
likelihood, in the immediate future, that these bills would be enacted into law.
The meeting adjourned at 5:50 P.M.
WALTER LICHTENSTEIN,
Secretary
2
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
September 15, 1941
At 10:00 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; Messrs. Charles E. Spencer, Jr., Leon
Fraser, William Fulton Kurtz, B. G. Huntington, Robert M. Hanes, S. E. Ragland,
Lyman E. Wakefield, W. Dale Clark, R. Ellison Harding, Paul S. Dick, and Walter
Lichtenstein, Secretary.
The Secretary stated that Mr. Ryburn G. Clay had left word that he would return
in the afternoon.
The President of the Council reported conversations he had had with Messrs. Ramsom
and Crowley, dealing with the problem of reserve requirements and “selective credit
control.”
Mr. Fraser presented a recommendation on the subject of reserve requirements,
which, on motion made by Mr. Hanes and seconded by Mr. Kurtz, was unanimously
adopted. This is Recommendation No. 1 and is attached to and made a part of these
Minutes.
The meeting adjourned at 10:30 A. M.
WALTER LICHTENSTEIN,
Secretary
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
AND
TH E
BOARD
OF GOVERNORS OF TH E
FED ERA L
R E SER V E SY STEM
September 15, 1941
At 10:40 A. M., 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:
Vice Chairman, Ronald Ransom; Governors M. S. Szymczak and Ernest G. Draper;
also Messrs. Lawrence Clayton, Assistant to the Chairman; Elliott Thurston, Special
Assistant to the Chairman; 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; Woodlief Thomas,
Assistant Director, Division of Research and Statistics; Leo H. Paulger, Chief, Division
of Examinations; Edward L. Smead, Chief, Division of Bank Operations; and Carl E.
Parry, Chief, Division of Security Loans.
Present: Members of the Federal Advisory Council:
Mr. Edward E. Brown, President; Messrs. Charles E. Spencer, Jr., Leon Fraser,
William Fulton Kurtz, B. G. Huntington, Robert M. Hanes, S. E. Ragland, Lyman E.
Wakefield, W. Dale Clark, R. Ellison Harding, Paul S. Dick, and Walter Lichtenstein,
Secretary.
Vice Chairman Ransom reviewed the situation in connection with consumers’ credit,
and he also spoke of developments in reference to the statement of December 31, 1940,
made to the Congress, and he told the Council of negotiations with the Treasury regarding
“selective credit control.” A lengthy discussion took place in respect to the various matters
raised by Vice Chairman Ransom's statement.
The President of the Council presented the views of the Council as outlined in yester
day’s meeting.
In answer to an inquiry, Mr. Wyatt, General Counsel of the Board of Governors,
stated that there did not appear to be any likelihood that the Farm Credit bills (H. R. 5346
and related bills) would be enacted into law at this session of Congress.
The meeting adjourned at 1:10 P. M.
WALTER LICHTENSTEIN,
Secretary
4
M IN U T E S
OF
M E E T IN G
OF
TH E
FED ER A L
A D V IS O R Y
C O U N C IL
September 15, 1941
At 1:15 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; Messrs. Charles E. Spencer, Jr., Leon
Fraser, William Fulton Kurtz, B. G. Huntington, Robert M. Hanes, S. E. Ragland,
Lyman E. Wakefield, W. Dale Clark, R. Ellison Harding, Paul S. Dick, and Walter
Lichtenstein, Secretary.
The President of the Council asked:
1. Does the Council wish to withdraw the recommendation respecting reserve
requirements?
2. Does the Council wish to insist on the publication of the recommendation?
It was decided to present the recommendation but not to insist on its publication
at this time.
The meeting adjourned at 1:20 P. M.
WALTER LICHTENSTEIN,
Secretary
5
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
September 15, 1941
At 2:20 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; Messrs. Charles E. Spencer, Jr., Leon
Fraser, William Fulton Kurtz, B. G. Huntington, Robert M. Hanes, S. E. Ragland,
Lyman E. Wakefield, W. Dale Clark, R. Ellison Harding, Paul S. Dick, and Walter
Lichtenstein, Secretary.
The recommendation as to reserves, prepared by Mr. Fraser, was reread and adopted
formally upon motion of Mr. Hanes, seconded by Mr. Kurtz. The recommendation is
attached to and made a part of these Minutes.
At 2:30 P. M., Mr. Woodlief Thomas, Assistant Director, Division of Research and
Statistics, joined the Council and presented a survey of business conditions.
Mr. Ryburn G. Clay joined the meeting at 2:55 P. M.
Mr. Woodlief Thomas finished his discussion at 3:20 P. M. and the meeting adjourned.
WALTER LICHTENSTEIN,
Secretary
6
M IN U T E S
OF
AND
BO ARD
TH E
JO IN T
C O N FEREN CE
OF
FED ERA L
OF GO VERNO RS OF TH E
A D V IS O R Y
FED ERA L
C O U N C IL
R E SER V E SY STEM
September 15, 1941
At 3:20 P. M., 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:
Vice Chairman, Ronald Ransom; Governors M. S. Szymczak and Ernest G. Draper;
also Messrs. Lawrence Clayton, Assistant to the Chairman; Chester Morrill, Secretary of
the Board of Governors; Liston P. Bethea and S. R. Carpenter, Assistant Secretaries of
the Board of Governors; Woodlief Thomas, Assistant Director, Division of Research and
Statistics; Leo H. Paulger, Chief, Division of Examinations; Edward L. Smead, Chief,
Division of Bank Operations.
Present: Members of the Federal Advisory Council:
Mr. Edward E. Brown, President; Messrs. Charles E. Spencer, Jr., Leon Fraser,
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 Secretary of the Council read the recommendation dealing with the desirability
of increasing reserve requirements immediately to the maximum limits authorized by the
Banking Act of 1935. This recommendation is attached to and made a part of these
Minutes.
The President of the Council stated that in view of the discussion in the morning,
the Council withdraws its request for immediate publication of the recommendation.
The President of the Council presented to the Board of Governors informally the
suggestion to have member banks report only net balances in their published reports,
thus offsetting against each other so called reciprocal balances.
The meeting adjourned at 3:30 P. M.
WALTER LICHTENSTEIN,
Secretary
7
R E C O M M E N D A T IO N
BO ARD
OF
OF
TH E
GO VERNO RS
FED ER A L
OF
TH E
A D V IS O R Y
FED ERA L
C O U N C IL
R ESER V E
TO
THE
SY STEM
TOPIC No. 1. Reserve Requirements.
RECOMMENDATION: The Federal Advisory Council has frequently drawn the
attention of the Board of Governors to the many elements in our monetary and credit
system that are of an inflationary character and has recommended action to eliminate
or to control them. Most of these defects require legislation for correction; and a com
posite program looking to that end was contained in the special report by the System to
the Congress dated December 31, 1940. In the meanwhile inflationary tendencies have
manifested themselves with steadily growing and disturbing rapidity.
Concerned by this development the Federal Advisory Council, therefore, unanimously
recommends to the Board of Governors that it immediately raise the reserve requirements
for the three classifications of banks to the maximum limits authorized by the Banking
Act of 1935, such increases to become effective upon 30 days’ notice to the banks affected.
September 15, 1941
1
OFFICERS
members
jDVVARD E. B R O W N . P r e s i d e n t
19 4 1
*EOR®E L H A R R I S O N . V I C E - P R E S I D E N T
Wa l t e r
l ic h te n s t e in
. se cre tary
EXECUTIVE C O M M I T T E E
|0WARD E. B R O W N
0EORGE L. H A R R I S O N
WILLIAM F U L T O N K U R T Z
F E D E R A L A D V IS O R Y C O U N C I L
O F FIC E O F THE SECRETARY
3 8 S. D
earborn
S tr eet
|.(S. H U N T I N G T O N
ROBERT M. H A N E S
| E. R A G L A N D
C H A R L E S E. S P E N C E R , J R . , D I S T R I C T N o 1
G E O R G E L. H A R R I S O N , D I S T R I C T NO. 2
W I L L I A M F U L T O N K U R T Z . D I S T R I C T No. 3
B . G . H U N T I N G T O N . D I S T R I C T NO. 4
R O B E R T M. H A N E S , D i s t r i c t N o . 5
R Y B U R N G. C L A Y , D i s t r i c t n o . 6
E D W A R D E. B R O W N . D i s t r i c t N o . 7
S E. R A G L A N D . D i s t r i c t N o . 8
L Y M A N E. W A K E F I E L D , D I S T R I C T N o . 9
W . D A L E C L A R K , D I S T R I C T NO. 10
R. E L L I S O N H A R D I N G . D i s t r i c t N o . 11
P A U L S . D I C K . D i s t r i c t N o . 12
C H IC A G O , ILLINOIS
August 20, 1941
Dear Mr.
Last week the Board of Governors of the Federal Reserve
System notified Mr* Brorai that it would be glad to have representatives
of tho Federal Advisory Council attend a meeting to be held in the Board
Hoorn of the Federal Reserve Building on August 15, called for the purpose
of considering a draft of proposed regulation of installment credit, ishich
the Board had been authorized to formulate and promulgate under an Execu
tive Order, dated August 9> 1941*
Mir* Brown, thereupon, requested the members of the Executive
Committee of the Council, as well as the secretary of the Council, to be
present at the aforesaid meeting in Washington at 9:00 o*clock on the
morning of August 15# 1941*
All six members of the Executive Committee, as '.veil as the
secretary of the Council, were present at this meeting, which was attended
fcy Chairman Eccles, Vice Chairman Ransom and Governors Ssymczak and Draper;
also various members of the staff of the Board of Governors and about
seventy-five representatives of finance companies, trade organisations,
Sfcrris Plan banks, research institutions, etc* The meeting was opened by
Chairman Eccles, who made a brief introductory statement and thereupon
■withdrew* Throughout, the neeting was presided over bp Vice h&xrsjan ransom*
The meeting in the morning lasted from 9:10 &*?,!• to 12:50 P.?!* The meeting
reconvened in the afternoon at 2:10 and lasted until : . I tool: detailed
aoies of the proceedings, but I have been informed by Hr, Chester Morrill,
secretary of the Board of Governors, that a complete stenographic transcript
of the proceedings would be furnished in due course of time to the members
of the Federal Advisory Council, and it is , therefore, not my indention to
undertake at this time to transcribe my notes, which are very volumi^r?? •
It suffices to say that on the whole there was very little objection raised
to most of the provisions embodied in the draft of the regulation* There
was considerable discussion as to the effective date of the regulation, the
Board of Governors rather favoring September 1, while apparently most of those
in attendance preferred September 15# Mr. Morrill informs me that he is sup
plying each member of the Council who was not present at the neeting on
4 30
August 20, 19 ^ 1
August 15 witn ci copy o f tiic ten tative db?s '+ r»f*
and is also fu r n is h in g each aember o f the
jjxecutive Order o f August 9 .
re« “l*t io n ,
wit!l & copy of the
A fte r tiie general meeting
„+ ,
August 1 5 , the E xecutive Committee o f the Co’m c il
< *v ‘ ?!* 00
of the Federal Reserve B u ild in g from 4,40 to 6«flo
UbrM 7
to propose to the Board o f Governors an addition
+k
7818 70163
lation to pro v ide f o r c e r t a in exceptions to be aa-*e ^ t h T ^ 08®5 r,egu“
small personal l o a n s . V ic e Chairman Hansom had <•t. t S
*
° 01
that any suggestions to he aado Should be submitted £
accordance m t h th is request tho Executive Comaitteo d r S t e T f ^ J L
aendation w h i c h ^ i l l be found embodied in the lo tted
S C
I t w s also a ec iued to draxt a co vering le tter to be c a S S d t h T *
follos&ng day*
. The ^sobers 01 tho Executive Co:snittee and the secretary
met on August 16 in room S54.of the Mayflower Hotel froa 9.30 to 10:45
A*M*, and it was unanimously voted to address the following letter to
Governor Hansom:
BThe Board h as requested suggestions in writing
as to changes i n th e te n tativ e d r a ft of regulation on"
installm ent c r e d it w hich mis disc u sse d at the meeting
yesterday*
The E xe c u tiv e Committee o f the Federal Ad
v is o ry C ou n c il w hich attended that meeting with great
in t e r e s t , r e a l i z e s , as you stated at the meeting, i t
would be in a p p ro p riate to d is c u ss now eith er the Execu
tiv e O rder i t s e l f or to debate the n ecessity at this
time o f i s s u i n g a r e g u la t io n thereunder.
*We do b e l i e v e , however, that in the interest of
good a d m in is tr a tio n and o f favorable understanding and
reception o f the r e g u la t io n , i t should, i n i t i a l l y at
l e a s t , bo made a s simple as p o s s ib le , enlarging i t
l a t e r , ??iien n e c e ss a ry , r a th e r than to have i t too broad
at f i r s t to be amended or circum scribed later#
B?7ith that in mind, the tanmittee feels that the
regulation should not be drafted to include unsecured
personal loans where no part of the proceeds are
for the lurpose of purchasing or carrying any o
so-called »listed articles1'. Such unsecured loans
for such other purposes as the payment of nyd^al ®penses, funeral, grocery, or other sim-lar leg
2nd necessitous bills have no dii’ect irpac on ie ^
supply or price of raw materials needet- j
ment for defense, and only the remotest, wos
August 20, 1941
insignificant, and indirect effect on inflation through
credit expansion generally*
“Most of these loans, made ty institutions to
needy borrowers of small means, serve a very useful
social purpose* They not only provide necessary funds
for the purpose of paying legitimate bills, but they
serve to keep the lower salaried borrower away from the
loan shark or other unscrupulous lender, and thus enable
him better to preserve his self respect*
*To include such personal loans in the regulation
is , we believe, wholly unnecessary, to what we were in
formed to be the general purpose of the regulation and
is fraught with the great risfc of misunderstanding and
resentment by the great mass of small personal loan
borrowers all over the country. Also, it may only serve
to emphasize in the public mind that the whole regulation
will primarily affect only tho lower income groups*
**We, therefore, urgently rocosnend that Section 6,
paragraph (c ), on page 9 of the Tentative Draft of
Proposed Regulation of Installment Credit, dated August
14, 1941# be amended as follows:
*{c) Any attention of installment loan
credit which is made (1) to or for a student for
bona fide educational purposes, or, (2) to any
other person who makes an affidavit that no part
of such installment loan credit is to be used
towards the purchase of any listed article or to
refinance any prior indebtedness incurred in the
purchase of a listed article, and further pro
vided that the person extending such credit or
his agent handling tho transaction certifies
that he has accepted such affidavit believing it
to be made in good fa ith .1
*We propose this not because we object to a reasonable
maximum^ .me'. nths, on this kind of loan. Good
benki’v
mi
sIMdto such a limit in any event. But
our fW
w %
^iyject personal loans, made not for the
purpose of purchasing listed articles, to all the other re
strictions of the regulation relating to installment sale
credit is unnecessary, unwise, and a potential source of grave
criticism of the wholo regulation.”
tsx&ist 20, 1941
TS» eecrotaiy of tho Council tran^ssittod tbo above Isttor
to Sr* Chester 3&w £3X, ^cr^ter^ of tho Board of ®mnsors of tho FedoreX
aosorvo S^rsto^ -m3 h&s r©CJO$f©t! &tafcmrt£k&38ma& of its recdLpt. Tb©
letter w s slgoag fcgr tho paae&daBt of the Ceisneil, as chsts&s&i of its
Saocutivo Gcssalttos*
Vory taealy joscm*
Soerotor?'
ISiis lottos* w i ^Pittisi to tbs following mm m& m e W t via air r*ail>
except
to, M r. Brown:
Blr*
£* ®sxsm
!!r* Qee&go L * If&aeriaeei
is** S t o O o s m % e m r
H r * t t U t a B a t e Surto
rsr# B. a* Bsatfcsgtos*
^r* Bafeert
?;ir*
a* ca^r
m *
Hr* I p m g* "JokaBaM
to* m* Bel* Claris;
» * a* m i s c a m m m
Wt* ? S S & 6 * D ick
OFFICERS
W*R0 E.
MEMBERS
b r o w n . P re s id e n t
1 9
4
3
* p RGE L. H A R R I S O N , V i c e - P r e s i d e n t
tER L I C H T E N S T E I N . S e c r e t a r y
F E D E R A L A D V IS O R Y C O U N C IL
executive c o m m i t t e e
(fe d e ra l
reserve
system
)
{0Wab d E. b r o w n
, ecRGE L. H A R R I S O N
OFFICE OF THE SECRETARY
’harles e . s p e n c e r , j r .
William f u u t o n k u r t z
3 8
S outh D earborn S treet
| C HUNTINGTON
C H IC A G O . ILLINOIS
(OBERT V. FLEMING
C H A R L E S E. S P E N C E R , JR.. D IS T R IC T N o 1
G E O R G E L. H A R R I S O N . D I S T R I C T NO. 2
W I L L I A M F U L T O N K U R T Z . D I S T R I C T No. 3
B. G . H U N T I N G T O N , D I S T R I C T N o . 4
R O B E R T V . F L E M I N G . D I S T R I C T NO. 5
H. L A N E Y O U N G . D I S T R I C T No. 6
E D W A R D E. B R O W N . D I S T R I C T N o . 7
R A L P H C. G IF F O R D , D IS T R IC T No. B
L Y M A N E. W A K E F I E L D . D I S T R I C T N o . 9
W . D A L E C L A R K , D I S T R I C T NO. 1 0
N A T H A N A D A M S , D I S T R I C T N O . 11
G E O R G E M. W A L L A C E , D I S T R I C T NO. 12
September 29, 1941
De r Mr.
On Monday, September 22, Mr. Brown had a telegram from
Mr. Chester Morrill, Secretary of the Board of Governors, stating that
there was being called, a meeting for 1:30 P. M. on Friday, September
26, in the Board Room of the Federal Reserve Building, to discuss
the substance of possible amendments to Regulation W.
The telegram
went on to say ’’amendments to be discussed at this time do not in
clude changes in list of articles or other parts of supplement.
They do include prupose test for cash loans subject to this regula
tion; also renewals, add-ons, and provisions governing intervals
of payments and minimum monthly payments." Mr. Morrill asked that
Mr. Brown let him know, as soon as possible, who would represent
the Federal Advisory Council at this meeting.
Mr. Brown requested the members of the Executive
Committee of the Council, as well as the secretary of the Council, to
be present at the aforesaid meeting in Washington, at 1:30 on the
afternoon of September 26, 1941.
Four members of the Executive Committee, Messrs.
Brown, Kurtz, Huntington and Ragland, as well as the secretary of the
Council, were present at the meeting. Mr, George L. Harrison was
in San Francisco and therefore was unable to be present; Mr. Robert
M. Hanes had a conflicting engagement. Similar to the meeting held
on August 15, this meeting was attended by Vice Chairman Ransom, and
Governors Szymczak, McKee, and Draper; also various members of the
staff of the Board of Governors and other interested governmental
agencies, besides about fifty representatives from installment sales
finance companies, personal loan companies, retail furniture associations,
and similar organizations.
The meeting was asked to discuss tentative proposals
submitted for amending Regulation Wj 1. The possibility of having a
purpose test from borrowers win connection with all extensions of
installment loan credit under $1,000.00 and any extension of installment
-2September 79 , 194.1
loan credit over &1,000.00 when secured by any listed article.”
2. Providing for certain options in connection with "add-ons."
There were also submitted th ree d iffe re n t d ra fts of a statement
to be f ille d out by borrowers in connection with a purpose t e s t .
A very animated discussion took place, showing,
not unnaturally, a sharp divergence of views on the part of those rep
resenting the personal loan companies and those representing installment
sales finance companies.
The President of the Council, in the discussion
of a proposal to "retain the present section 5(b) of the regula
tion, leaving it applicable to all other installment loans of
$1,000.00 or less" stated, on behalf of the Council, that he entered
an objection to the retention of the present section 5(h) once a
purpose test had been established. As probably most of the loans
under $1,000.00 did not have any bearing on the regulation of installment
selling, it would simply mean that many small businesses and others
would not be in a position to borrow from commercial banks and thus
would be compelled to pay higher interest rates. The purpose of
promoting the defense of the country would not be furthered thereby
in any way.
The meeting lasted until shortly after 5 o’ clock.
It is ray understanding that a copy of the proposals
submitted at the meeting are to be sent to each member of the
Federal Advisory Council, as well as a mimeographed copy of the steno
graphic transcript of the meeting. Consequently, it is not necessary
for me, at this time, to report at further length on this meeting.
Very truly yours,
Secretary
This letter was written to the following men and was sent via air mail,
except to Mr. Brown:
Mr.
Hr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Edward E. Brown
George L. Harrison
Charles S . Spencer, Jr.
William Pulton Kurtz
3 . G. Huntington
Robert M. Hanes
Ryburn G. Clay
S. E. Ragland
Lyman E. Wakefield
W. Dale Clark
R. Fllison Harding
Paul S. Dick
@FedFRASER