Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, April 11, 1951, Volume 38, Part 2

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Minutes of actions taken by the Board of Governors of the
Federal Reserve System on Wednesday, April 11, 1951.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.

Martin, Chairman
Szymczak
Evans
Vardaman
Powell
Mr. Carpenter, Secretary
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary

Minutes of actions taken by the. Board of Governors of the
Federal Reserve System on April 10, 1951, were approved unanimously.
Memorandum dated April 3, 1951, from Mr. Young, Director of
the Division of Research and Statistics, recommending an extension of
leave of absence without pay for Alfred H. Conrad, an economist in
that Division, for a period not to exceed six months after the current
month period of leave without pay for which the Board has authorized
aPProval expires April 281 1951.
Approved pnanimously.
Memorandum dated April 4, 1951, from Mr. Yom, Director of
the Division of Research and Statistics, recommending an increase in
th° basic salary of Mary i. Miller, a clerk in that Division, from
to $3,130 per annum, effective April 15, 1951.
Approved unanimously.
Memorandum dated April

6,

1951, from Mr. Young, Director of the

tivi8ion of Research FInd Statistics, recommending the appointment of
441d C. Miller as an economist in that Division, on a temporary




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indefinite basis, with basic salary at the rate of $7,000 per annum,
effective as of the date upon which he enters upon the performance of
his duties after having passed the usual physical examination and
subject to the completion of a satisfactory employment investigation.
Approved, Mr. Vardaman voting
"no".
Letter to Mr. Wilts°, Vice President of the Federal Reserve
Bank of New York, reading as follows:
"Reference is made to your letter of April 5, 1951,
submitting the request of The Marine Trust Company of
Buffalo, Buffalo, New York, for permission to establish
12 out-of-town branches in connection with its proposal
to absorb six other banks through merger and change its
name to 'The Marine Trust Company of Western New York'.
"It is noted that the proposed mergers are to be
effected through three separate transactions but the
continuing institution will have, after the completion
of each transaction, capital and surplus, respectively,
equal to or greater than the aggregate capital and the
aggregate surplus, respectively, of the institutions
involved in each transaction.
"In view of your recommendation, the Board of
Governors approves the establishment and operation of
four branches in Niagara Falls, New York, and one branch
each in Lockport, Barker, Wilson, Middleport, Tonawanda,
North Tonawanda, Albion and Medina, all in New York) by
The Marine Trust Company of Buffalo, Buffalo, New York,
under its present or future corporate title, provided
the prior approval of the appropriate State authorities
Is obtained and the mergers with Power City Trust Company,
Niagara Falls; Niagara County National Bank and Trust
Company, Lockport; First Trust Company of Tonawanda;
State Trust Company of North Tonawanda; Marine Midland
Trust Company of Albion, and Medina Trust Company,
Medina, all in New York, are effected substantially in
accordance with the plans submitted.
"It is understood that Counsel for the Reserve Bank
"Ill review and satisfy himself as to the legality of
all steps taken to effect the proposed mergers and
establish the branches."




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-3Approved unmnimously.
Letter to the Honorable Emanuel Celler, Chairman, Committee

on the Judiciary, House of Representatives, Washington 25, D. C.,
reading as follows:
"In the Board's letter of March 22, 1951, in
response to your letter of March 13, regarding guarantee
fees charged on V-loan guarantees, it was stated that
the Board planned in the near future to discuss with
representatives of the various guaranteeing agencies
the suggestion made at the hearing before a Subcommittee
of your Committee on February 9, 1951, that the existing
schedule of guarantee fees be reviewed in the light of
interest charged on guaranteed loans to finance expansion of facilities or plant construction.
"This matter was discussed at a meeting on April
4, 1951, between representatives of all of the
guaranteeing agencies, the Defense Production Administration, and the Board of Governors. All aspects of the
question were thoroughly considered; and it was concluded that present circumstances do not appear to
justify any modification of the present schedule of
guarantee fees and maximum interest rate.
"As stated in the Board's letter of March 22, the
experience of the Federal Reserve Banks as fiscal agents
under the current V-loan program demonstrates that
only in one or two cases has there been any indication
that the net rate of return afforded financing institutions under the present schedule has tended to
retard or prevent the financing of defense contractors
under the program. In the discussion of the matter
at the meeting on April 4 this was confirmed by the
experience of the guaranteeing agencies.
"As you know, the existing schedule of fees and
rates was adopted at the outset of the present V-loan
Program in September 1950, after consultations between
the Board and the several guaranteeing agencies. Under
that schedule, each guaranteed financing institution
is required to pay to the Government a certain percentage
Of the interest received by the financing institution
Oil the guaranteed portion of the loan; and the amount
Of the fee as fixed by the schedule is progressively
higher for progressively higher percentages of guarantee.




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"One of the major purposes of the schedule, of course,
is to encourage financing institutions to assume as
much of the risk as possible in each case and so
reduce the Government's contingent liability on such
guarantees.
"Under the President's Executive Order 10161,
any variations in the schedule may be made only after
further consultations between the Board and the
guaranteeing agencies. While, on the basis of the
discussion at the recent meeting, the Board feels
that no change in the schedule is justified at this
time, the Board will of course stand ready promptly
to review the schedule in consultation with the
guaranteeing agencies if at any time it should appear
that such a review is necessary in the interest of
accomplishing the objectives of the defense production
program."
Approved unanimously.
Letter to the Honorable William F. Knowland, United States
Senate, Washington, D. C., reading as follows:
"This is to acknowledge your letter of March 28,
1951, which forwarded five telegrams for the consideration of the Board's staff. Four of the telegrams; those
from O. F. Jani of Vermont Plumbers and V. W. Reynolds
of A. Reynolds Television Company, both of Los Angeles;
Meyer Glicksberg of Bagley Electric Company, Eagle
Rock, California, and Sims Furniture Company, Bell
Gardens, California; related to the effect of Regulation W on television and appliance sales. The telegram
from Ken Noble, who operates as Noble Mortgage Company,
Of Los Angeles, protested the investigation of his
records by Regulation W and X investigators of the
Federal Reserve Bank of San Francisco.
"The Board has been in close contact with
tePresentatives of television manufacturer and dealer
groups and has been giving serious consideration to
the current problems in the television market. While
We are studying the effect of the regulation on the
market situation, there are many factors other than
credit restrictions which are affecting the market
at this time. The possibility of color television and
the imminence of ultra-high frequency transmission
are significant market factors.




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"While the Board is very much interested that the
provisions of Regulation W may not be unduly restrictive
in the case of individual products, it must also consider
that the regulation must strongly curb instalment credit
as a whole if it is to accomplish its purpose of helping
to restrain the serious inflationary forces in the
present emergency period. We are certain you understand
the necessity for avoiding the widespread hardship which
would prevail if current inflationary tendencies in the
economy as a whole were allowed to continue unabated.
"With reference to Mr. Noble's wire pertaining to
an investigation of his records, you are no doubt aware
that such authority is contained in the Defense Production Act of 1950. The administration of the enforcement
program has been delegated by the Board to the twelve
Federal Reserve Banks, and these Banks make routine
investigations of Registrants engaged in the business
of extending credit subject to either or both regulations.
While investigations pertaining to Regulation X have
just recently begun, a similar procedure in connection
with consumer credit controls under Regulation W was
Initiated during the war years. The policy of the
Federal Reserve Banks in visiting Registrants has been
to assure that credit extended has been in compliance
With the regulation, to furnish information which might
assist the Registrant, and to promote an acceptance of
the credit controls as an important factor in the antiinflationary program.
"We are pleased to have had this opportunity to
discuss these matters with you and stand ready to give
such assistance as we are able in answering any further
questions you may have."
Approved unanimously.
Letter to Mr. W. H. Nichols, Columbus, Texas, reading as

"This is in response to your letter dated March 20,
1951, addressed to Eric Johnston, Director of Economic
Stabilization. Your letter has been referred to us
for reply, as the consumer credit controls under Regulation W are administered by this Board.




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"The circumstances presented in your letter are
appreciated, but there is no specific provision in the
regulation permitting more lenient terms in cases such
as yours. We should like to point out, however, that
credit extended to a church is exempt from the regulation,
and it is possible that your church would purchase a
car for you, inasmuch as it is needed in your work.
"While the Board is very much interested that the
provisions of Regulation W may not be unduly restrictive
in individual cases, it must also consider that the
regulation must strongly curb instalment credit as
a whole if it is to accomplish its purpose of helping
to restrain the serious inflationary forces in the
present emergency period. We are certain that you
will understand the necessity for avoiding the widespread hardship which would prevail if current
inflationary tendencies were allowed to continue
unabated.
"If you have further questions regarding Regulation W, we suggest that you inquire at the Federal
Reserve Bank of Dallas, either at Dallas or at its
branch in Houston, as the administration of the
regulation has been decentralized among the Federal
Reserve Banks and branches."
Approved unanimously.
Letter to the Presidents of all Federal Reserve Banks,
'
l e4ding as follows:
"Enclosed is a copy of a letter dated March 15,
1951, which Assistant Attorney General H. G. Morison
addressed to Chairman McCabe with regard to certain
complaints the Department of Justice has received
concerning the manner in which Government departments
aM agencies have utilized and conducted business
advisory committees since the enactment of the Defense
Production Act of 1950. There is also enclosed a copy
Of the Board's reply to such letter.
"It is understood that some of the Federal Reserve
Banks in carrying out their functions under Regulation
X have utilized committees consisting of representatives
of financing institutions and of the real estate industry.
IA our letter to Mr. Morison we stated that these




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"committees do not appear to be industry committees
within the purview of Deputy Attorney General Ford's
letter of October 19, 1950, but nevertheless, in
order to eliminate any possible criticism as to the
msnner in which Federal Reserve Banks utilize committees
In connection with Regulation X, it is requested that
in the future all such committees be conducted in
accordance with Deputy Attorney General Ford's letter
of October 19, 1950, a copy of which is enclosed for
your convenience. In this connection, a full-time
representative of your Bank should serve as chairman
of any meetings of such committees."
Approved unanimously, together
with the following letter to the
Honorable H. G. Morison, Assistant
Attorney General, Department of Justice,
Washington 25, D. C.,:
"This will acknowledge receipt of your letter of
March 15, 1951, addressed to Chairman McCabe, with
reference to the utilization and conduct of business
advisory committees since the enactment of the Defense
Production Act of 1950.
"Except for the committees appointed and proposed
to be appointed pursuant to the provisions of the Program
for Voluntary Credit Restraint under section 708 of
the Defense Production Act of 195o, with which your
Office is, of course, fully familiar, the Board of
Governors has utilized only one business advisory
committee of the kind referred to in your letter of
March 15. This is a statistical advisory committee
With respect to which the Board is acting as co-sponsor
With the Housing and Home Finance Agency. This Committee
represents home builders, mortgage and finance companies,
ahd others, and was created to assist in preparation
Of statistical information that would be helpful in
evaluating the effect of the Board's Regulation X
relating to real estate credit and the counterpart
regulations of the Veterans Administration and the
Federal Housing Administration. The Director of Housing
Research of the Housing and Home Finance Agency is the
Chairman of this group. It is our understanding that this
comm3ttee is complying with the letter and spirit of
Deputy Attorney General Ford's letter of October 19, 1970.




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"However, we assume that you have addressed to the
Housing and Home Finance Agency a letter similar to
that addressed to us under date of March 15, and
that any further details you require can be supplied
by that Agency.
"We may also mention in this connection that at
several of the Federal Reserve Banks committees consisting of representatives of financing institutions
and of the real estate industry have been set up to
advise the respective Reserve BAnks regarding matters
arising in connection with the regulation of real
estate constructicn credit. Following the enactment
of the Defense Production Act of 1950, the President
delegated to the Board of Governors certain functions
in connection with the regulation of real estate construction credit as provided in such Act. Some of the
Reserve Banks, in carrying out their functions under
the Board's regulation, felt that it would be advisable
to have the benefit of informal consultation with
representatives of financing institutions and the real
estate industry with regard to existing financing
Practices and other matters and, accordingly, these
banks invited certain individuals to serve on committees
Which would be advisory to the officers of the Reserve
Banks. These committees were not appointed by the
Board of Governors and are not advisory to the Board.
Accordingly these committees do not appear to be
industry committees within the purview of Deputy
Attorney General Ford's letter of October 19, 1950,
but nevertheless we are transmitting to each Federal
Reserve Bank a copy of your letter of March 15, 1951
With the request that these committees be conducted
in accordance with Deputy Attorney General Ford's
letter of October 19, 1950, except, of course, that
a representative of the Reserve Bank would have to
act in the capacities indicated in such letter in lieu
Of a representative of the Government.
"Your letter of March 15 stated that your attention
had been directed to certain improper practices of
committees. If the reports coming to your attention
involve any of the committees referred to above, the
Board will be glad to be advised in more detail concerning them."
Letter to Mr. Attetery, First Vice President of the Federal
've Bank of St. Louis, reading as follows:




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"This refers to your letter of March 20, 1951,
concerning the application of Regulation X to structures used by bakeries and other industries about
which there may be questions as to their classification as manufacturing.
"The Board's letter 3-1292 X-41, concerning
food processing, referred to the classifications set
forth in the Standard Industrial Classification Manual.
It is suggested that the Manual may provide the general
principles for answering questions concerning other
industries as well. Pages 3 and 4 of Volume I,
Part 1, for example, give a general description of
manufacturing industries, and deal with a number of
borderline cases between manufacturing and other classifications. Among other things, the Manual states on
page 4 that 'retail stores producing some or all of
the products sold on the premises are not included in
the manufacturing division'.
"We hope this provides a general basis for answering questions of this sort as they arise. Please let
us know if this does not prove an adequate solution
to the problem."
Approved unanimously.
Letter, prepared pursuant to the action taken by the Board on
14°-lich 29, 1951, to the Honorable Raymond M. Foley, Administrator,
kus4
.Liag and Home Finance Agency, Washington, D. C., reading as follows:
"There are returned herewith the original and
three copies of your CR-1, Regulation on credit
control relaxation amended to include Idaho Falls,
on which the approval of the Board has been indicated."
Approved unanimously.
Letter to The Regents of the University of Michigan, University
"Michigan, Ann Arbor, Michigan, reading as follows:
"Reference is made to your letter of August 9,
1950, setting forth the terms and conditions of the
agreement between the University of Michigan and the




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"Board of Governors of the Federal Reserve System
relating to the Sixth National Survey of Consumer
Finances.
"Your letter of February 9, 1951, indicates
that mandatory salary increases at the University
will cause the cost of the Survey to exceed the
estimates in the letter of August 9, 1950, by
$9,240. Your letter of February 28, 1951, indicates
that additional work to get data on new construction
will cause the cost of the Survey to exceed the
estimated cost in your letter of August 9, 1950, by
an additional $650.
Both of these figures include
the 10 per cent overhead charge. Because of these
additional costs of $9,890, the Board is prepared
to make reimbursement on vouchers submitted by
the University in a total amount not exceeding one
hundred fifty thousand, one hundred forty dollars
($150,140), or nine thousand, eight hundred ninety
dollars ($9,890) in excess of the amount provided
In the agreement of August 9, 1950."
Approved unanimously.
Letter to Mr. Vincent A. Holmes, District Director, Office
°I' Price Stabilization, Washington, D. C., reading as follows:
"The Board of Governors of the Federal Reserve
System operates for the convenience of its staff and
guests a restaurant located in its building at 21st
Street and Constitution Avenue, N. W., and in compliance with Sec. 4 of Ceiling Price Regulation No. 11
of March 13, 1951, the following information is supplied:
Base period elected - July 1, 1949 to June 30, 1950.
Food cost per dollar of sales - to be determined
for each four month period beginning April
1, 1951.
Gross sales during base period - $62,496.
Total food cost during base period - $31,213.
Only food items are included in food cost.
A 150 service charge, in effect for a number
of years, is made for service in the
private dining rooms."




Approved unanimously.

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-11Memorandum dated April 11, 1951, from Mr. Dembitz, Assistant

Director of the Division of International Finance, recommending that,
in connection with the request received from the Minister of Finance
Of Paraguay that a mission be sent to that country to advise in
connection with a proposed reorganization of its central banking
structure, and the action taken by the Board on March 20, 1951, Mr.
David L. Grove, Chief of the Latin American Section in the Division
Of International Finance, leave about April 19 to join Mr. Ernest C.
Olson, economist in the same Division who is now in Paraguay, for a
period of two or three weeks.

The memorandum stated that the same

terms and conditions applicable to financial arrangements incident
to mr.
Olson's assignment would apply in the case of Mr. Grove.

Approved unanimously, together
with the following telegram to Sr. R.
Mendez Paiva, Minister of Finance,
Asuncion, Paraguay:
"Regarding your cable April 7 Grove
arrive Asuncion April 22."




lug to

Secretary.