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MINUTES OP 1GWTING OF TKK P15IXSRAL ADVISORY COUNCIL. September 16, 1918* A regular statutory meeting of the Federal Advisory Council waa held in the Federal Reserve Board room, Metropolitan Bank Building, Washington B.C., on Monday, September 13th, 1918, at 11 A*M. Presentt All members of the Federal Advisory Council! Meaars* .Tames B. Forgan, President, L. L* Rue, Vice-President, D. G. Wing, *T. P. Morgan, W. S. Rowe, J. W. Norwood, Chas. A. tyeriy, F. 0- Watts, X. R. Mitchell, 35. F. Swinney, S. P. Wil:,ot, Herbert Fleishhacker, and Merritt H. Grim, secretary; and the following members of the Federal Reserve Board: Governor W.P.O.Harding, Messrs* J. S. Williams, C. S. Hamlin, A.C.Miller and J. A. Broderick, acting secretary* Ttfr. .T. B. Forgan called the meeting to order and asked Governor Harding to address the meeting with reference to the buaineaa to cone before the Council* Governor Harding reviewed the topics whioh the Federal Heaerve Board had submitted to the Council inwriting and in P. A. C. September 1*, 1916, Cont. addition suggested that the Council consider whether there should "be any change in the Discount rates at the Federal Reserve Banks. In connection with the subject of removing the embargo on gold Governor Harding asked the Council to consider whether it would be wise to release some gold to Mexico in return for silver bullion which could be used to advantage in place of gold in settling trade balances with certain other countries. He also requested the Council to arrange for a conference with the Capital Issues Committee* A general discussion followed, after which Governor Harding introduced Mr. T. A. Broderick who had been appointed Acting Secretary of the federal Reserve Board, in place of H. Parker Willis, resigned* The members of the Federal Reserve Board th^r withdrew. The President then stated that the Secretary had •ent to each member of the Council the minutes of its ®eetings and of the Kxeoutive Committee meeting on May 20th, 1918, and of the Council meeting on May 21st, 1916. On motion these were approved. Mr. Forgan then laid before the Council the topics •ubmitted by the Federal Reserve Board for the Council^ http://fraser.stlouisfed.org/ °o^«ideration Federal Reserve Bank of St. Louis in the following letters from Governor Hardinp: FED ERA L RESERVE BOARD W A S H IN G T O N OFFICE OF THE GOVERNOR August 27, 1918. Dear Mr. Forgan:I acknowledge the receipt of your letter of the 22nd inst. advis ing that the next statutory meeting of the Federal Advisory Council will be h^ld in the assembly room on Monday and Tuesday, September 16th and 17th, convening at 11 A. M. on Monday the 16th. At a meeting of the Board this morning consideration was given to the topics which should be discussed at the approaching meeting of the Council, and I am directed to say that the Board would be obliged if you would bring to the attention of the members of the Council the fol lowing: 1: Development of the acceptance market. (With reference to the call lean rate of recently established in New York on notes secured by acceptances.) 2: The use of bankers' and trade acceptances in financing the movement of crops. 3: Progress of the movement to curtail non-essential credits. Have results thus far been obtained without undue hardships? Is it practicable to lay down any general rule governing a differentiation between essential and non-essential credits, and if so, what is the best method of its ap plication? 4: Investments of banks in public utility securities and loans on such collateral. What can be done to assist public utilities in the emergency which now confronts them? 5: Distribution of Liberty Bonds and discussion of preferential rates at Federal reserve banks on paper secured by Government obligations. No doubt some other topics will suggest themselves to the Council, and perhaps the Board may have a few additional suggestions to make after it convenes, but the foregoing embraces the subjects which appear to be of greatest consequence at the present time. Very truly yours, W. P. G. HARDING, Mr. James B. F o r g a n , Federal A dvisory President, Council, C h i c a g o , 111. Governor. FEDERAL RESERVE BOARD WASHINGTON OFFICE of t h e g o v e r n o r August 29, 1918. pear Mr. Forgan I enclose herewith several copies of a letter which the Board has received from a private banking house in Boston, which may be of interest to you and the other mem bers of the Advisory Council. The matter referred to in this letter has already been discussed by members of the Board and Treasury offi cials, but it is felt that we are unable to estimate the amount of gold that might have to be shipped should the door be opened, and some of us feel that while it might be well to keep this policy in mind with the view of putting it into effect at the proper time, the present is not an opportune time and we should wait until the end of the war is more clearly in sight. It might be interesting however, to discuss this question at the next meeting of the Council. Very truly yours, W. P. G. HARDING Governor. Jame8 B. Forgan, President Federal Advisory Council, Chicago, 111. VJ X -l162 E x c e rp t fro m a le t t e r th e F e d e r a l R e s e r v e r e c e iv e d by B o a rd . "T h e e n o rm o u s d e m a n d f o r ra w m a t e r i a l s o w in g t o t h e w a r a n d t h e r e s u lt i n g h ig h p r i c e o f th e m h a s m a d e t h e N e u t r a l s c r e d i t o r s o f t h e A l l i e s 3 nd a s " t h e e x p o r t o f g o l d , t h e u s u a l m e d iu m o f s e t t l i n g a d v e rs e b a la n c e s ; has b een l a r g e l y p r o h i b i t e d r a t e s o f e x c h a n g e o n t h e U n i t e d S t a t e s a n d o n o u r A llie s a re r u l i n g a t a c o n s i d e r a b le d is c o u n t i n t h e n e u t r a l c o u n t r ie s * T h is d is c o u n t h a s i n c r e a s e d t o u s t h e c o s t o f t h e v e r y n e c e s s a r y r a w m a t e r i a l s at le a s t th e a m o u n t o f t h e d i s c o u n t A l l th e A l l i e s in c lu d in g o u r s e lv e s have e n d e a v o r e d b y a r r a n g i n g s p e c i a l c r e d i t s # t h a t i s b y b o r r o w in g m oney i n th o s e c o u n t r i e s # t o k e e p t h e e x c h a n g e f r o m b e i n g t o o m u c h a & a i n s t u s , j u s t as E n g la n d b e f o r e o u r e n t r y i n t o t h e w a r , a f t e r h a v i n g s o l d u s a l l t h e s e c u r it ie s t h a t sh e c o u ld , b o rro w e d h e a v i ly i n t h i s c o u n t ry to b u y o u r n e c e s s a ry p r o d u c t s . My s u g g e s t i o n i s t h a t w e c h a n g e o u r r e c e n t p o l i c y a n d s e t t l e b a l a n c e s in g o l d . I w e l l u n d e r s t a n d t h e f e a r t h a t i f t h e w a r l a s t s a l o n g t i m e we s h a ll f in d o u r g o ld b e in g d e p le t e d a n d o u r r e s e r v e s e n d a n g e r e d . T h is f e a r is , I t h in k , b a s e d o n t h e f a l l a c y w h ic h I h a d h o p e d h a d p a s s e d w it h t h e e n actm ent o f t h e F e d e r a l R e s e r v e A c t t h a t a f i x e d p r o p o r t i o n o f g o l d o r l e g a l te n d e r m u s t b e h e l d a b s o l u t e l y i n t a c t a g a i n s t o u t s t a n d i n g b a n k n o t e s o r d e p o s it s . The s t r e n g t h o f a b a n k i s n o t i n i t s p r o p o r t io n o f c a s h r e s e r v e but i n t h e c h a r a c t e r o f i t s l o a n s a n d d i s c o u n t s a n d i n i t s r e p u t a t i o n . It makes no d i f f e r e n c e i f i t s c a s h i s 6 0 $ o r 1 0 $ o f i t s l i a b i l i t i e s p r o v i d e d t h is p r o p o r t io n i s l a r g e e n o u g h f o r t h e p u b l i c t o f e e l c o n f i d e n t t h a t t h e y can o b t a in t h e k i n d o f m o n e y t h a t t h e y w i s h w h e n d r a w i n g t h e i r d e p o s i t s o r when p r e s e n t i n g n o t e s f o r p a y m e n t * F o r t u n a t e ly i n t h i s c o u n t r y o u r p e o p le are n e t a c c u s t o m e d t o t h e u s e o f g o l d , s o t h a t a r e m o v a l o f w h a t a r e p r a c t i cally r e s t r i c t i o n s o n g o l d p a y m e n t s w o u l d n o t r e s u l t i n a n y w i t h d r a w a l s o f gold except f o r e x p o r t . How much would be withdrawn for export to settle our exchanges? Our Allies would not withdraw gold as the exchanges with the Allies are still very m-joh in our favor* With Holland, Switzerland, and the Scandinavian countries our imports have nearly ceased and if necessary we can prevent gold going to these countries as contraband. With Spain now that with drawals of German deposits to that country are being prevented and the army purchases have been covered by a special loan no large withdrawal of gold need to be expected* The European neutrals want our products not gold vrhich is at a discount with them owing ot its superabundance. The South American countries alone will take our gold, and this is especially true of Argentina. Suppose fifty, or even one hundred million dollars in gold were shipped during the next year to Argentina, this amount would not materially affect cur enormous stock of gold or reduce materially the sixty per oent of gold v*hich is held against the Federal notes. Only forty per cent was contem plated by the Federal Reserve Act so that the amount is now one and one-half as much as was planned. A reserve is of no use except as it gives credit and as it is used. Forty per cent gold, or even less will amply protect our credit. X-1162 Besides t h e o b v i o u s s a v i n g s i n t h e p u r c h a s i n g power, b y h a y i n g our dollar worth i t s g o l d e q u i v a l e n t i n f o r e i g n c o u n t r i e s , w h i c h w o u l d res u l t from free e x p o r t o f gold, t h e g e n e r a l c r e d i t o f t h i s c o u n t r y w o u l d be wonderfully s t r e n g t h e n e d i n f o r e i g n c o u n t r i e s b o t h d u r i n g the w a r t i m e and afterwards* T h e r e i s n o t h i n g t h a t h u r t s t h e c r e d i t o f a c o u n t r y and its merchants so m u c h a s a d e p r e c i a t e d c u r r e n c y a n d a r e f u s a l to p a y in the international s t a n d a r d o f v a l u e , n a m e l y gold. W e h a v e b e e n e n d e a v o r i n g to build up our o o m m e r o e w i t h S o u t h A m e r i c a , b u t u n s a t i s f a c t o r y d e l i v e r y of merchandise and t h e r e f u s a l to s h i p g o l d h a s g i v e n i t s p e o p l e a b a d o pinion of our country a n d i t s m e r c h a n t s . Moreover, i f t h e n e u t r a l c o u n t r i e s w e r e c e r t a i n tha t t h e y c o u l d obtain gold from t h i s c o u n t r y , t h e y w o u l d n o t w a n t it. T h e y all h a v e m o r e gold th a n ever before a n d t h e y h a v e n o u s e f o r m o r e . I f o u r c r e d i t w a s good, they would have l a r g e d e p o s i t s w i t h o u r b a n k s or i n s t e a d o f r e d i s c o u n t i n g at once in this c o u n t r y all t i m e b i l l s o f e x c h a n g e o n th e U n i t e d States, their bankers w o u l d h a v e s u c h b i l l s h e l d f o r t h e i r a c c o u n t so as to e a r n the interest, j u s t a s o u r b a n k e r s b e f o r e o u r e n t r y i n t o the w a r h e l d lar g e amounts of l o n g S t e r l i n g b i l l s . E n g l a n d , b e s i d e s p a y i n g f o r a p o r t i o n of the necessary s u p p l i e s f r o m t h e U n i t e d S t a t e s i n gold, a l s o t h e r e b y r e d u c e d rates of i n t e r e s t i n t h i s c o u n t r y so t h a t w e h e l d h e r b i l l s a n d l o a n e d the government m o n e y . I t s e e m s to m e t h a t t h i s w o u l d w o r k i n e x a c t l y the same way in the n e u t r a l c o u n t r i e s . N o t only w o u l d we p a y for products which we n e e d w i t h gold, w h i c h w e do n o t n e e d , b u t r e - e s t a b l i s h ou r o r e d i t and by l o w e r i n g i n t e r e s t r a t e s i n t h e n e u t r a l c o u n t r i e s , i n d u c e the i r p e o p l e to place t h e i r f u n d s i n t h i s c o u n t r y a n d t h e r e b y stop t h e i r d e m a n d for our gold. In fact, I d o u b l t v e r y m u c h i f i t w o u l d t a k e n e a r l y f i f t y m i l l i o n s of gold to r e c t i f y t h e e x c h a n g e s w i t h A r g e n t i n a o r e v e n w i t h t h e w h o l e world. If thi s i s so, i t s e e m s e x t r e m e l y f o o l i s h for t h e U n i t e d S t a t e s to pay i n t e r e s t o n l o a n s f r o m S p a i n o r A r g e n t i n a a n d still h a v e to p a y a premium o f f r o m 10 to 2 5 $ o n i t s p u r c h a s e s * o w i n g to o u r d e p r e c i a t e d exchange, a n d a l s o to r u i n o u r c r e d i t a s a n a t i o n , n o t o n l y f o r now, b u t for all time* (August 29 r 1918) FEDERAL RESERVE BOARD WASHINGTON Office o f the G overn or. September 7, 1918. M y dear Mr. As Council, for Forgan:- an a d d i t i o n a l I w i s h to t o p i c for d i s c u s s i o n at the m e e t i n g o f the suggest "Supervision of loans made by banks capital p u r p o s e s * n The Capital Issues c ounsel that opinion will they have Committee have been advised by their j u r i s d i c t i o n o v e r l o a n s o f t h i s kind. be r e v i e w e d n e x t w e e k b y t h e coun s e l o f t h e Board. The m e m b e r s o f the C a p i t a l I s s u e s C o m m i t t e e w o u l d l i k e , stay o f t h e m e m b e r s of ference w i t h them on action until I hope subject, and have to h a v e a g r e e d to therefore that you will convenient of the Capital to t h e C o u n c i l to t a k e no c o n f e r w i t h the I s sues Committee. W. P. G. H a r d i n g , G o v e rn o r. J a m e s B. F o r g a n , P r e s i d e n t Federal A dvisory Council, Chicago, Illinois. a con a d d t h i s t o p i c to y o u r list Ve ry truly yours, Mr. d u r i n g the they h a v e h a d this conference with the Council. and t h a t i t w i l l . b e members the Council in Washington, this Th e F.A.C* It i m Septapber 1*, IVl b Cont* dsoided that the Council members should ii*cuaa all the topics end leave It to the iaeoutive Coiaffittee to formulate tentative recommendations on them embodyin§ tho consensus of the views expressed and report to a subsequent meeting* The topics were then taken up seriatim, the members freely expressing their opinions on them* At 1:15 P*W* the Council on motion or Mr. iiorgan aajoumed until 2:30 o'clock* At 2:30 P.M. the Council resumed consideration of the topics* Mr* Fox^an stated that an arrantement had been made for the Council to meet with the Capital Issues Co^ 'ittee at 3:30 o'clock* Consideration of th* topic on "Supervision by the Capital Issues Committee of loans made by banks for capital purposes * was on motion postponed urtil ter this meeting* Mr. Swinney suggested that the Counoil make a reoomTflendation to the Federal Heserve Board in regard to the proposed additional tax on undistributed earnings of banks, which was discussed and on notion referred to the Sxeoutits Committee* At 3:30 o'clock Mr* Prumm, a member of the Capital Issues Committee, came in and explained that he had been requested by his Co^-lttee tor explain the procedure by which F. A. C. September l*t 1918 Cont. Committee proposed to makes it work effective and to ftgfitt the banks of the country in discriminating against non essential industries particularly with regard to loans involving capital issues* He asked the members of the Council to cooperate with his Committee by passing a resolution to be used by itf urging all banks to assist it in obtaining from prospective borrowers as would enable it to decide before any commitments for material, labor or capital are ;nade, whether or not a certificate of necessity should be issued. The Council members then discussed with U i. Drumm certain features of the Committee*s proposed plan, after which he withdrew and the Council resumed its session* Mr. Fleishhacker moved that the Council recommend thorough cooperation on the part of banks with the Capital Issues Committee and that the JSxecutive Comrrdttee be requested to prepare a formal resolution; motion seconded and carried. The subject of Discount rates was considered and re ferred to the Executive Com ittee* Mr. Forgan stated that Governor Harding had asked that ths Council make a recommendation on the subject of affording •tate banks joining the Federal Reserve system the same privileges with reapect to government deposits that national banks enjoy, and tu£g sated an amendment to the law covering the case. Oti motion the question was also referred to the Executive Committee, At 5 P.M. the Council adjourned until ten o ’clock September 17th* When they will receive the report of the Executive Committee. f Seoretary. n ' •• • * '■S - KimJTKS OP MEETING - &<s**>*&% OF THS EXECUTIVE OOWITTBR. September 1*# 1918* The ISxecutive Committee met at 5J15 P.M. and con tinued in session until 7 545 o*clock. f^pes 3. For-.a h , fci Present2 Messrs. G * v;ir^» J• Morgan, W. S. Rowe, ana Merritt H. Grins, Secretary. Tentative recommendations and answers were prepared on the topics referred to it by the Council and the Chairman was requested to present the report at the meeting of the Council in the morning. In connection with the subject of member state banks receiving government deposits, the same as national banks are permitted by law to do, the Committee prepared a formal recommendation thereon but decided to ask the Council to consider the matter more fully before adopting it. Secretary Minutes of Meeting of the I( Federal Advisory Counoil September 17th, 19 lb* The Federal Advisory Council met at 10:50 A.M.Tuesday, September 17th, 1916, in the Federal Reserve Board room. Present: Messrs* .T.B.Forgan, President, L.L.Rue, Vice- president, D.G.Wing, 7. P.Morgan, W.S.Rowe, Ghas.A.Lyerly, F.0*Vatts, 7.R*Mitchell, £*F*8winney, JS.P.Wilrnot, Herbert Fleishhacker, and Merritt H.Gxim, Secretary* Absent .T.W.Norwood* The President laid before the meeting the report of the Jfcecutive Committee making tentative recommendations on all of the topics including that on the subject of member state banks receiving government deposits in connection with which the com mittee suggested further consideration by the Council* The Council after carefully considering and attending the Committee *s report adopted recommendations and answers to the Fed eral Reserve Board*s topics* See printed recommendations hereto attaohed on Topics 1, Si, 3, 4, 5, *, 7, 8, 9 and 10. In con nection with No* 10 Mr. Rowe asked to be recorded as declining to vote* Mr. Watt8 suggested that the Council make a recommendation to the Federal Reserve Board to the effect that Congress should take into account the present high prices in connection with tax levies as proposed in the pending revenue bill* On motion the resolution presented by Mr. Watts was unan imously adopted. Topic No.11* See printed copy hereto attaohed marked The President was authorised to present these recommendations to the Federal Reserve Board at the joint Meeion arranged for. The Council then adjourned. Secretary. RECOMMENDATIONS OF THE FEDERAL ADVISORY COUNCIL TO THE FEDERAL RESERVE BOARD September 17, 1918 T O P I C N O . 1— Development of the acceptance market. (W ith reference to the call loan rate of 4 / 2 % recently established in New York on notes secured by acceptances.) Recom m endation: The making of a preferential rate by banks m the financial centers on demand loans secured by acceptances will aid in the development of the market for acceptances by facilitating and encouraging their use. It seems to us that the acceptance market is developing wonderfully well under existing circumstances which while favorable for the making of such forms of credit are not so favorable for the marketing of them. T O P I C N O . 2 — T h e use of bankers’ and trade acceptances in financ ing the movement of crops. Recommendation: The Council is of the opinion that the bankers and commercial interests are both alive to the use of trade and bankers’ acceptances and that the use of these forms of credit is being developed as rapidly as can be expected under present conditions. W h ile conservative bankers are disposed to en~ courage the legitimate use of bankers’ acceptances they are equally disposed to discourage their misuse where the transaction does not naturally arise in the usual course of their customers’ business. They are inclined to hold their acceptance privilege in reserve for the benefit of their customers engaged in essential lines of business, whose credit requirements are enhanced by war orders. T O P IC credits. (a ) NO. 3 — Progress of the movement to curtail non-essential Have results thus far been obtained without undue hardships? Answer: The efforts of the Federal Reserve Board, followed up by various Clearing House associations and other bodies, have, we believe, resulted in bankers generally discriminating between essential and non-essential credits and in a reduction of the latter. They cannot, however, enforce payment of — 11— current loans nor can they indiscriminately decline new credits to the point of causing hardships and embarrassments to their customers without such action retaliating against themselves. W e are of the opinion that no undue hardships have resulted and we believe that as a rule borrowers are cooperat ing with the banks by curtailing their demands for credit for non-essential purposes. (b ) Is it practicable to lay down any general rule governing a differ entiation between essential and non-essential credits, and, if so, what is the best method of its application? Answer: A s applications for bank credit are of such unlimited variety that each must be dealt with on its individual merits, we doubt the feasibility of laying down any general rule governing a differentiation between essential and nonessential credits. W e believe bankers generally appreciate the necessity for such differentiation and fully understand the difference between essential, less essential and non-essential credits. Moreover, the demand for essential credits is so strong as to make it as unnecessary as it would be unwise and unpatriotic to fail to discriminate in their favor. W e believe the persistent prosecution of the Federal Reserve Board’s efforts, already well developed, will be all that is necessary. T O P I C N O . 4— (a ) Investments of banks in public utility corpora tions and loans on such collateral. Recommendation: It is most essential that the assets of the banks of the country be kept in as liquid form as possible and with this in view they should not invest to any large extent in public utility securities nor to any large extent make loans on such collateral. (b ) W hat can be done to assist public utilities in the emergency which now confronts them) Answer: In our opinion a mistake was made in the law under which the W ar Finance Corporation was organized by involving the banks in the financing of public utilities. The law should be so amended or such legislation enacted as would give the W a r Finance Corporation general instead of emergency power to deal directly with the borrowers without the intervention of the banks or through some other corporation or agency organized for the purpose. It is highly desirable that loans should be made to public utilities only where rates are granted which are adequate to meet the present cost of operation. In the interest of the Government’s war program power should be given a —12— hoard appointed by the President to regulate public power cannot constitutionally be granted them, then urge local state authorities to grant such increases in public service as may be found necessary during the f6r a reasonable tune thereafter. service rates or if that to negotiate with and rates for all classes of period of the war and T O P I C N O . 5— Distribution of Liberty bonds and discussion of preferential rates at Federal Reserve Banks on paper secured by Government obligations. Recommendation: W e would recommend that the member banks should make loans on the Fourth Liberty Loan bonds on the same terms as those very generally made on the Third Liberty Loan bonds, viz., the coupon rate for ninety days' loans, with a moderate advance over that rate for renewals, and that the Federal Reserve banks, to encourage subscriptions to the new loan, should make a preferential rate on ninety days’ loans of from Ya io / i cf one per cent below the coupon rate. T O P I C N O . 6 — Gold Embargo. Recommendation: The Council is of the opinion that it would be unwise to permit the free export of gold at this time in view of the fact that it is impossible to accurately estimate the amount that would be required not only to adjust our own trade balances but those of our Allies to neutral countries, particu larly South America. In regard to the release of gold to Mexico in return for silver bullion, we believe that if a substantial increase in silver imported from that country can be obtained by increasing somewhat the percentage of gold exported against silver bullion shipped us, such an arrangement would under present conditions be to our advantage. T O P I C N O . 7— Supervision by the Capital Issues Committee of loans made by banks for capital purposes. Recommendation: W e would recommend that the member banks be urged to cooperate with the Capital Issues Committee in its effort to obtain full information of projected capital issues, so that the consent of the Committee may be obtained before any financial commitments are made by prospective borrowers. — 13 — T O P IC N O . 8— Discount rates. Recommendation: It is the opinion of the Council that the discount rates of the Federal Reserve banks have been properly and carefully regulated by the directors of the respective banks with the approval of the Federal Reserve Board and we see no occasion at present for any change either in the existing rates or in the policy heretofore pursued, other than as we have previously recommended for the encouragement of subscriptions to the Fourth Liberty Loan. A D D IT IO N A L R E C O M M E N D A T IO N S T O P I C N O . 9 — T a x on undistributed earnings of banks, proposed in pending legislation. Recommendation: In view of the fact that the undistributed earnings of banks immediately become additional banking capital, which should be conserved during this war period, the Council recommends that an exception be made of the banks so that as was provided in the previous tax law the normal rate only shall apply to their undistributed profits and that the Federal Reserve Board take steps to bring this matter before the proper committees of congress. T O P I C N O . 10— Member state banks to receive government deposits. Recommendation: For the purpose of affording state banks coming into the Federal Re serve system all the privileges afforded to national banks with respect to government deposits, this Council would recommend that the words, “All national banking associations” occurring in Section 5 1 5 3 of the Revised Statutes of the United States should be changed to read “ A ll banks members of the Federal Reserve system.” (M r. Rowe not voting.) T O P IC N O . II. Recommendation: The constant rise in prices has resulted in a condition increasing m danger to the merchant and manufacturer directly and thence to the member — 14 banks and the Federal Reserve system, which should be given serious con sideration by those in charge of the taxing program of the Government. W e therefore recommend the approval of the amendment to the present draft of the law’ offered by the National Dry Goods Association, as follows: “ Section 2 0 2 of the proposed bill provides: I N V E N T O R IE S “ Sec. 2 02 . That whenever in the opinion of the Commissioner the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer upon such basis as the Commissioner, with the approval of the Secretary, may approve or prescribe as most clearly reflecting the income of the taxpayer. W e suggest that that section be amended by adding thereto the following: “ ‘A reasonable allowance being made for the increased cost of mer chandise so inventoried over the average cost of like merchandise during the prewar period.’ ’ R E S O L U T IO N R E S O L V E D , That it is the sense of the Federal Advisory Council that the suggestion made by Governor Harding regarding the absorption by the Federal Reserve banks of the expenses incident to transfers of currency and securities to and from member banks should be given favorable consid eration by the Federal Reserve Board. , T he following members of the Federal Advisory Council were present at this meeting: President, James B. Forgan, in the chair; Vice-President, L . L. R u e; D . G . W in g , J. P. Morgan, W . S. Rowe, J. W . Norwood, C. A . Lyerly, F. O . W atts, J. R . Mitchell, E . F. Swinney, E. P. Wilmot, Herbert Fleishhacker, and Merritt H . Grim, Secretary. _________ \s* MINUTES 0F JOINT MEETING OF THE FEDERAL RESERVE BOARD AND FEDERAL ADVISORY COUNCIL September 17, 1916. As arranged a joint meeting of the federal Reserve Board and the Federal Advisory Counoil was held in the Federal Reserve Bo»rd room, Washington, September 17,1918, at 115 30 A.M. Present? Hwnlin, Mesars. W. P. G.Harding, Governor, A.C.Miller, C.S. t .S.Williams, members' of the Federal Reserve Board, and F.A.Broderick, Acting Secretary; and Messrs. J.B.Forgan,Presidert, L.L.Rue, Vice-President, D.G.Wlng, J.P.Morgan, W.S.Rowe, J.W. Norwood, Chas.A.Lyerly, F.O.Watts, J.R.Mitchell, B.F.Swinney, J.P.Wilmot, Herbert Fleishhacker, members of the Federal Advisory Council, and Merritt H. Grim, Secretary* Mr. Forgan called tho meeting to order and asked Governor Harding to take the chair. Governor Harding then asked for the report of the Federal Advisory Council. Mr. Forgan read the recommendations of the Federal Advisory Council (See printed copy hereto at ,ached. 1 Mr. Forgan requested Governor Harding to send the Capital Issues Com ittee a copy of the Council's recommendation on "Supervision by the Capital Issues Committee of loans made by banks for capital purposes, * Marked Topic No.7* Members of both Boards then informally discussed the topics and the Council's recommendations thereon. At the request of Governor Harding the members of the Council reviewed commercial and financial conditions in their Minutes of .Toint Session Sept* 17, 1918. Cont. various districts. Governor Harding stated that th® Board Was constantly having requests for the establishment of branches of Federal Reserve banks in cities of moderate siae and that it occured to him if the Federal Reserve banks should absorb the expense of transfers of currency and securities to and from Federal Reserve banks it might lessen the necessity for such branches. The n»tter was discussed after which Mr. Mitchell moved that the Council adopt the following resolution on this subject: “Resolved that it is the Bense of the Federal Advisory Council that the suggestion made by Governor Harding regarding the absorption by the Federal Reserve banks of the expenses incident to the transfers of currency and securities to and from member banks should be given favorable consideration by the Federal Reserve Board.* Motion was seconded by Mr. Fleishhacker and the President put the motion which was unanimously carried. On motion the joint session adjourned* Secretary.
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