19370607_Minutes.pdf

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A meeting of the Board of Governors of the Federal Reserve Sys-

was held in Washington on Monday, June 7, 1937, at 11:30 a. m.

PRESENT: Mr. Eccles, ChairmanMr. Ransom, Vice ChairmanMr. BroderickMr. SzymczakMr. McKeeMr. Davis

Mr. Morrill, SecretaryMr. Bethea, Assistant SecretaryMr. Carpenter, Assistant SecretaryMr. Clayton, Assistant to the Chairman

Consideration was given to each of the matters hereinafter re-

d to and the action stated with respect thereto was taken by the

kerd:

The minutes of the meeting of the Board of Governors of the Fed-

(area Reserve System held on June 4, 1937, were approved unanimously.

The minutes of the meeting of the Board of Governors of the

tiered.Reserve System held on Tune 5, 1937, were approved and the

lletionsrecorded therein were ratified unanimously.

Memorandum dated June 2, 1937, from Mr. Parry, Chief of the

bivision of Security Loans, transmitting a letter dated June 2, 1937,

trora"Ir. Earle W. English tendering his resignation as Special Assis-

tlit in the Division of Security Loans to be effective at the close of

on July 22, 1937. The memorandum recomended that the resig-

11 40n 'Lue accepted as of that date.

Approved unanimously.

Memorandum dated Tune 7, 1937, from Mr. Morrill, referring to

theetriPl'oval by the Board on June 1, 1937, of the appointment of Mr.

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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F. E' SPurney as Manager of the Board's new building subject to his

Passing satisfactorily the Usual physical examination based on examine-

for ordinary life insurance at the normal rate, and stating that

the Board's examining physician had advised that Mr. Spurney's blood

Pressure was somewhat higher than normal and that if it were necessary

to Pass on his case at the present time he would probably be rated up

as-11 as 5%, but that if, as appeared likely, a subsequent examine-

tio,“ Showed a normal blood pressure, the higher rating would be removed.

Thememorandum recommended that the appointment of Mr. Spurney be ap-

P1'°ved with the understanding that he would became a member of the Re=

tilseMent System of the Federal Reserve Banks.


Memorandum dated April 24, 1937, from Mr. Noell, Assistant Secre-

t-J, recommending the appointment of Mr. Allison M. Crump as supply and

cl4Plicating clerk in the Office of the Secretary, with salary at the

l'ste4 p1,440 per annum, effective as of the date upon which he enters

413°11 the Performance of his duties after having passed satisfactorily

the Usual physical examination.


Memorandum dated June 2, 1937, from the Personnel Committee,

niI!l'elemAing that Mr. Davis be authorized to tender to Mr. Henry G.

ley,J- of Lake Charles, Louisiana, appointment as a director

the()fNev Orleans Branch of the Federal Reserve Bank of Atlanta for

ItteullexPired portion of the term ending December 31, 1939.



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6/7/37

Bank

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Letter to Mr. Strater, Vice President of the Federal Reserve

of Cleveland, reading as follows:

. "Reference is made to your letter of May 29, 1937, ad-

vising that the board of directors of your bank have author-ized the officers of the bank to arrange for the retirement

Of Mr. Charles E. Bradley after the expiration of six months,

ends subject to the approval of the Board of Governors, togrant him six months' leave of absence with pay during the

interval."In view of the circumstances as set forth in your let-

ter, the Board will interpose no objection to the grantingOf six months' leave of absence with pay to Mr. Bradley, withthe understanding that he is to be retired at the expirationOf such period and that no additional contribution will bemade to him or to the Retirement System for his benefit attne time of his retirement."


Letter to Mr. Attebery, First Vice President of the Federal Re-

sl've Bank of St. Louis, stating that the Board approves the changes

14 the Personnel classification plan of the Louisville branch of the

bankrecommended in his letter of June 1, 1937, to provide for the

elialination of the position of "Supervisor of Clearings and Country

Check ft8 in the Transit Department, and for the creation of the posi-

tions Of "Supervisor of Country Checks and Remittances", "Supervisor

or Clearings and U. S. Treasury Checks", and "Supervisor of !Lail", in

the Transit Department.


Letter to Mr. Sargent, Vice President of the Federal Reservetatat s

r an Francisco, reading as follows:

19 "Reference is made to Mr. Wheeler's letter of May 5,

3,7is regarding the time as of which certain securities


6/7/37 -4-

"recently issued by Richfield Oil Corporation should be con-sidered to have acquired loan value under Regulation T.

"It is understood that on March 17, 1937 the San Fran-

cisco Stock Exchange certified to the Securities and Ex-change Commission its approval of the listing and registra-tion of these securities but that, at the request of the com-

pany, the San Francisco Stock Exchange temporarily deferred

calling the securities for trading on the exchange. Under

the applicable provisions of section 12(d) of the Securities

Exchange Act, the registration of these securities would

ordinarily became effective on April 17, 1937 at which time

they would acquire loan value as registered securities, and

it appears that the only question in this connection is

Whether this is altered by the failure of these securitiesto be called for trading.

"A copy of Mr. Itiheeler's letter and inclo sure were re-ferred to the Securities and Exchange Commission for an ex-pression of its views on the matter. There is inclosed acopy of a self-explanatory letter, dated May 25, from Mr.Chester T. Lane, Assistant General Counsel of the Commis-sion, from which it will be noted that Mr. Lane is of the()Pinion that it is not necessary that a security be admit-ted to trading on a national securities exchange in orderthat it may be considered to be registered thereon withinthe meaning of Section 12 of the Securities Exchange Act,and that, in the instant case, the securities of the Rich-tield Oil Company described in the correspondence becameregistered on a national securities exchange as of April 17,1937.

"The Board sees no reason to differ with the views ex-Pressed by Counsel for the Securities and Exchange Commis-sion and is of the opinion that the securities in questionsould be considered to have acquired on April 17, 1937, fortrle Purposes of Regulation T, the status of registered se-curities and to have acquired accordingly the loan value pre-scribed by the regulation."


Letter to Mr. Daniel W. Bell, Acting Director of the Budget, read-

as follows:

"In reply to your letter of April 29 addressed to theChairman of the Board of Governors and requesting comments

°11 a proposed bill 'To amend the Federal Home Loan Act, theE'°me Owners' Loan Act of 1933, the Federal Reserve Act, Title


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"'IV of the National Housing Act, and for other purposes' pre-pared by the Federal Home Loan Bank Board, the Board of Gover-nors is submitting views on two sections of the proposed bill.These are the proposed amendment to paragraph (b) of section14 of the Federal Reserve Act which would permit the Federal

Reserve banks to buy and sell in the open market obligationsOf the Federal Home Loan Banks without regard to maturities

and the proposed amendment to subsection (n) of section 4 ofthe Home Owners' Loan Act which would make available to theHome Owners' Loan Corporation its unused bond authorization,

aPproximately ia,500,000,000, for the purpose of acquiring

obligations of the Federal Home Loan Banks.

"It is the opinion of the Board of Governors that the

addition of obligations of the Federal Home Loan Banks tothose which the System is authorized to buy and sell is un-

desirable."The primary purpose of the open-market operations of

the Federal Reserve System is to increase or decrease the

reserves of member banks and thereby to expand or contractthe available base for member bank deposits, which are the

Principal element in the nation's supply of money. Sinceopen-market operations of necessity take the form of pur-

chases and sales of some specific type or types of securi-

ties, there are inevitably secondary effects on the market

Position of the securities involved. Provisions of the law,therefore_, should limit open-market purchases and sales toa class of securities whose prices and yields are relatedas closely as possible to a pure interest rate and as littleas possible to factors of risk and investment quality. If

the System is authorized to use in its open-market operations

Various types of securities which may at times be in need of

auPPort, this will inevitably result in pressure on emergencyoccasions to conduct operations for the sake of the marketstanding of these securities, which may conflict with theMein objective of open-market operations.

"In recent years open-market operations of the System insecurities have been conducted entirely by the purchase and

sale of direct obligations of the United States. In additionto fulfilling the specifications stated above these oblige-ions have the additional advantage of being available at all

times in adequate quantities and with varying maturities.

"While the law now authorizes the System to purchasecertain securities other than direct obligations of the United

States, these include fully guaranteed obligations and ob-ligations with maturities not exceeding 6 months from dateOf purchase issued by States, municipalities, etc. in antici-Pation of revenues, by Federal Land Banks and by Federal


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"Intermediate Credit Banks. In practice the System has hadlittle occasion to use its authority to purchase such securi-

ties. It would be clearly not in the public interest to addto the classes of securities now made eligible other classesOf securities, such as obligations of the Home Loan BanksWhich are issued for the purpose of providing long-time capi-tal funds.

"It might be added that it is the understanding of theBoard of Governors that no banking legislation was contem-Plated by the Administration during this session of Congress.This proposed :amendment is, therefore, untimely because it

constitutes banking legislation."The proposed amendment to make the unused bond author-

ization of the Home Owners' Loan Corporation available forthe purpose of acquiring obligations of the Federal Home LoanBanks, in effect, would create a revolving fund of approxi-mately 0.,500,000,000. The Board of Governors regards this

Proposal as undesirable from the viewpoint of general financialand credit policy.

"We consider it important that no further authorizationto issue bonds fully guaranteed by the United States be madeat the present time. The bulk of the outstanding guaranteedbonds were issued for emergency lending purposes with the expec-

tation that they would automatically be retired from repay-ment of the loans thus financed. The emergency period hasnow passed, so far as operations of the Home Owners' Loan

?orporation are concerned. The proposed new authorizationis for the purpose, indirectly, of financing a further ex-Pansion of loans to member institutions by the Federal HomeLoan Banks. Since the Congress has not wished to appropriate:funds for this purpose directly, it would not be wise to

Pledge the Government's credit for the purpose."In so far as the Home Owners' Loan Corporation is called

11130/1 to absorb debentures of the Federal Home Loan Banks andtherefore to market additional guaranteed bonds, the process°I reducing the outstanding volume of Government debt directud guaranteed, which is in the interest of stable recovery,Will be retarded. The proposal would appear to look to per-4anent participation of the Government in the financing ofthe Federal Home Loan Banks. This seems to us undesirableand contrary to the Administration's policy of retiring astest as possible from credit operations that should in normaltimes be carried on by private agencies.

"We regard the aim underlying the proposed amendment,Which is to provide for a rapid expansion of loans of the

ederal Home Loan Banks, as unlikely to contribute to healthy


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and economic conditions. Two views may be takenOf the functions of the Federal Home Loan Banks: (1) Theymay serve as reservoirs of funds for the temporary accommoda-tion of their member institutions; (2) they may pursue a per-manent and 'normal' policy of supplying their member insti-tutions with funds to be used to increase their earning assetsand thus to pyramid their earnings and their debts. Recentutterances of officials and published statements of the Fed-eral Home Loan Bank Board indicate that the latter course isthe one contemplated.

"Such a policy, while likely to succeed in fair times,will have the consequence of leaving the member institutionsWith greatly reduced or exhausted borrowing power at just theiUncture when it will be most needed, namely, during periodsOf disturbance when investors in these institutions may findit necessary to withdraw their funds. Any developments tend-

to encourage savings institutions to assume as a normalthing large short-term liabilities of the nature contemplatedought to be resisted in the interests of sound financial andeconomic conditions in the future. Added force attaches tothis

contention in the case of the Federal Home Loan Bank Sys-tem since the member institutions which are encouraged to ex-Pand their borrowings are neither Government-owned nor sub-ject to Government direction in their investment policies.

"Should the function of the Federal Home Loan Banks beititerpreted in the narrower way first mentioned, that is, as! reservoir of funds for temporary and emergency accommoda-

ion, there is possibly some question as to whether that°Ystem possesses the requisite powers for carrying out thisfunction in a long-continued period of disturbance. This,Ive believe, is a problem to be faced on its own merits inuhe future. At such a time there Should be thorough recon-;11tfltion of the operations of this and other Government

agencies. We think it would be especially unfortunate!,0 prepare now for future emergency conditions through useuf an agency created to meet entirely different needs in aPrevious emergency period.

"There is no apparent necessity for additional powers atthe

present time. Judging by the experience of the past yeara considerable portion of the special 000,000,000 borrowing141thorization of the Home Owners' Loan Corporation will remain1_1!lused during the coming year. This remaining portion, avail-"la for purchases of shares in savings and loan associations1.11c1 of Federal Home Loan Bank obligations will be sufficient

Z° Provide the latter institutions with whatever needed fundsheY may be unable to obtain in the investment market. The


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"outstanding loans of the Banks are 40_43,000,000 as comparedwith 0_03,000,000 a year ago. Some additional funds will be-came available through growth of the deposits of member insti-tutions. On May 5 the Banks made their first public offering

Ofsecurities and obtained U5,000,000 from the sale of 1 yearPercent consolidated debentures. It seems unlikely that

they will need to borrow large amounts, and most of this canbe obtained from the investment market."


Thereupon the meeting adjourned.

t-A-NeN4

trpiAA-4-1Secretary.


19370607_Minutes.pdf

Documents

federal reserve banks

federal reserve sys

board of governors

assistant secretarymr

fedarea reserve system

board of directors

federal reserveof cleveland

appointment of mr