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Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on April 12, 1956. It is proposed to place in the record of policy actions required to be kept under the provisions of section 10 of the Federal Reserve Act an entry covering the item in this set of minutes commencing on the page and dealing with the subject referred to below. Page 6 Approval of discount rate of 2-3/4 per cent for the Federal Reserve Banks of Boston, Philadelphia, and Atlanta, and 3 per cent for the Federal Reserve Bank of San Francisco; Agreement that if any other Federal Reserve Banks should advise during the day of the establishment of rates of 2-3/4 per cent or 3 per cent on discounts and advances under sections 13 and 13a and appropriate rates on other discounts and advances, they should be advised that the Board approved such rates. l below Unless you have some question, please initia ion in inclus to indicate that you approve the minutes and the the policy record of the above item. the Should you have any question, please advise Secretary's Office of your wishes. Pi& Chm. Martin l & e Gov. Szymczak Ire Gov. Vardaman Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson __04 411112,_ 734 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Thursday, April 12, 1956. The Board met in the Board Room at 9:30 a.m. PRESENT: Mr. Mt. Mr. Mt. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Szymczak Mills Robertson Shepardson Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Mr. Thurston, Assistant to the Board Mr. Riefler, Assistant to the Chairman Mr. Thomas, Economic Adviser to the Board Messrs. Young, Noyes, Garfield, and Williams, Miss Burr, and Messrs. Koch, Brill, Eckert, Gehman, Miller, Jones, Weiner, Trueblood, Wernick, and Wood, of the Division of Research and Statistics review of busiThe members of the Research Division presented a in the economy ness and financial developments which indicated strength and a prospective heavy and continuing demand for credit. Governor Vardaman During the presentation by the research staff joined the meeting. At its conclusion all of the members of the staff Young withdrew. of the Division of Research and Statistics except Mr. circulated to the members The following matters, which had been Of the Board, were presented for consideration and the action taken in each instance was as stated: ve Vice President, Bank of Letter to Mr. Russell G. Smith, Executi follows: America, New York, New York, reading as in your letter In accordance with the request contained Reserve Federal the of March 26, 1956, transmitted through I (4)5 4/12/56 -2- Bank of New York, the Board of Governors grants its consent to your bank for permission to purchase an additional Pesos 1,000,000 par value shares of the capital stock of Descuento Agricola, S. A., Sociedad Financiera Fiduciaria y de Ahorro, Mexico, D. F., Mexico, for Pesos 1,000,000, representing the equivalent of approximately US*80,000. As indicated in the Board's letter of June 2, 1953 granting consent to your purchase of shares of the proposed Financiera, the Board's approval of the proposed purchase of the additional stock is given with the understanding that Bank of America will be expected to dispose of the stock of Descuento Agricola, S. A., as promptly as practicable in the event that operations of Descuento Agricola, S. A., should at any time be inconsistent with the provisions of Section 25(a) of the Federal Reserve Act or regulations thereunder. Approved unanimously, for transmittal through the Federal Reserve Bank of New York, with a copy to the Federal Reserve Bank of San Francisco. Letter to Mr. Peterson, Vice President, Federal Reserve Bank of St. Louis, reading as follows: Reference is made to your letter of March 14, 1956, transmitting the report of examination of the Mercantile Trust Company, St. Louis, Missouri, made as of December 9, 1955, in which you indicate that the practice of the trust company in amortizing nonexempt securities to the nearest call date" rather than to maturity appears to constitute a violation of the regulation of the Comptroller of the Currency issued under authority of Section 5136 U.S.R.S. You request advice as to whether the Comptroller has made any exception to his regulation which would be applicable to this situation, as well as an expression from the Board regarding the matter. It appears from the information contained in the report of examination and your letter that your conclusion is based on the provisions of Section II, Paragraph (4) (a) of the Investment Securities Regulation of the Comptroller of the Currency, and that you have not given consideration to 4/12/56 -3- Paragraph 610 of the Digest of Rulings issued by the Comptroller which specifically relates to the "Amortization of premiums on securities bought at above face value", or to the Division of Examinations' letter of December 15, 1937 (F.R.L.S. #7042), which supports the ruling of the Comptroller, to the i.e., that the amortization of premium on securities the term during time given nearest call date applicable at any of such security is permissible. y, we shall, If the Board has misinterpreted your inquir ation or r inform furthe of course, be glad to consider any matter. this to regard comments you may care to submit in Approved unanimously. cy, Treasury Department, Letter to the Comptroller of the Curren Washington, D. C., reading as follows: office dated Reference is made to a letter from your of an appliJanuary 11, 1956, enclosing photostatic copies Lavaca, Texas, cation to organize a national bank at Port not the apand requesting a recommendation as to whether or plication should be approved. igation of Information contained in a report of invest Federal Reserve the application made by an examiner for the findings with Bank of Dallas discloses fairly satisfactory connection with respect to the factors usually considered in sed as to the such proposals, although some doubt is expres indicated that another need for the bank at this time. It is near future on the the in bank in the area would be needed expansion expected basis of projected industrial and economic Board of Govin the community. In the circumstances, the ation. ernors recommends approval of the applic will be glad to The Board's Division of Examinations entatives of repres discuss any aspects of this case with your office if you so desire. Approved unanimously, with a copy to the Federal Reserve Bank of Dallas. )airi 13 t -4- 4/12/56 ve Banks reading as Letter to the Presidents of all Federal Reser follows: ers' BioEnclosed is a supply of Form F.R. 243, Offic for rede provi to ed revis graphical Sketch, which has been more and ded expan cording biographical information on an 243 Form the ces uniform basis. The revised form repla of January 29, issued in connection with the Board's letter should be form that 1936, X-9470, and the further use of form will ed revis the discontinued. Additional copies of be furnished upon request. er 14, 1947, As requested in the Board's letter of Octob the Board keep to nue conti please (S-994, F.R.L.S. al data aphic biogr currently advised of any changes in the tors. direc submitted relating to officers and 11303.01), have in its files, The Board of Governors would like to all officers of of for identification purposes, photographs will be appreIt the Federal Reserve Banks and Branches. you would furnish ciated, therefore, if, at your convenience, ers of your offic the Board with recent photographs of the e submit a pleas Bank and Branches, if any. In the future, with his biographiphotograph of each newly appointed officer cal sketch. Approved unanimously. of the Board a memorandum There had been circulated to the members dated April 6, Division of Bank Opera1956, from Mr. Leonard, Director, fications for a new Houston commenting on detailed plans and speci Federal Reserve Bank of Branch building which had been submitted by the Dallas. r dated March 16, 1956, Attached to the memorandum was a lette plans and specifications had from President Irons which advised that the of the Bank and the been approved unanimously by the boards of directors Branch. that the plans had been reviewed Mr. Leonard's memorandum stated -chory due CI V12/56 -5- by Mr. Persina, Consulting Architect to the Board, who subsequently met in Dallas with officers of the Reserve Bank and the architects for the building, at which time agreement was reached on certain technical changes in the plans and specifications, including the calling for a number of alternates in the bids in the hope of effecting a reduction in costs. Sub- ject to this agreement, Mr. Persina recommended acceptance of the final Plans and specifications. In the circumstances, Mr. Leonard's memorandum recommended that a telegram reading as follows be sent to President Irons: Board interposes no objection to your Bank's calling for bids for construction of a new building for the Houston Branch on the basis of the plans and specifications referred to in your letter of March 16 and Austin's letter of February 8, as modified in accordance with the understandings reached at the meeting of the architects at your Bank on March 15. Approved unanimously. As the result of discussion by the Board on March 1, 1956, of a question which had arisen under the recent amendment to the Rules and Regulations of the Retirement System of the Federal Reserve Banks providing increased retirement allowances for employees involuntarily separated from service under certain circumstances, it was understood that the interthe Reserve Bank PresiPretation of the amendment would be discussed with dents following the meeting of the Federal Open Market Committee on March 6. However, since time did not permit, it was suggested that the matter be put on the agenda for the forthcoming meeting of the Presidents' Conference. Accordingly, a letter to Mr. Leedy, Chairman of the Conference, 739 -6- 4/12/56 was drafted and placed in circulation to the members of the Board. In view of subsequent informal discussions, an alternative draft of letter also was prepared and copies thereof were distributed to the members of the Board prior to this meeting. Following a statement by Governor Vardaman that he favored the alternative draft, which read as follows, it was approved unanimously: and On December 14, 1955, section 3 of the Rules Federal ReRegulations of the Retirement System of the sed reserve Banks was amended to provide for an increa y separated tirement allowance for employees involuntaril tion of comple and 55 age of from service after attainment misesty, dishon than other 25 years' service, for reasons conduct, or insubordination. constitute Questions have arisen as to what would the meanwithin ion rdinat insubo dishonesty, misconduct, or discuss to like would ing of this amendment and the Board ents' Presid the of the matter at the forthcoming meeting Conference in Washington in May. is being sent In the meantime, a copy of this letter e Banks with Reserv l Federa to the President of each of the Bank which his at occur the suggestion that should any case ee inor employ al offici would raise a question whether the a decince, allowa sed increa volved would be entitled to the at sion the discus g pendin sion on that question be deferred ence. Confer the time of the next Presidents' the Federal Reserve Bank A telegram was received yesterday from ors had established rates of San Francisco stating that the Board of Direct 3 per cent on discounts and advances under sections 13 and 13a of the Federal Reserve Act, 3-1/2 per cent on advances under section 10(b), and 740 4/12/56 -7- per cent on advances under the last paragraph of section 13, effective the first business day following approval by the Board of Governors. Ad- vice had been received previously that the directors of the Atlanta, Philadelphia, and Boston Reserve Banks had established a discount rate of 2-3/4 per cent and appropriate other rates. Chairman Martin said that his disposition would be to approve the rates which had been established by the four Reserve Banks and also to apProve a rate of either 2-3/4 or 3 per cent for any of the other Reserve Banks which today advised the Board that their directors had acted to establish such a rate. This would indicate, he said, that the Board had ac- cepted the recommendations of the directors of the respective Banks and, at the same time, that the Board was prepared to approve a rate of 3 per that rate. for any Bank whose directors might act to establish of the Reserve Following a statement by the Secretary that all Banks had been notified of the rates established by the four Banks whose directors had acted thus far, the members of the Board expressed themselves as being in agreement with the procedure which Chairman Martin had stIggested. inquired whether Chairman In a further discussion, Governor Mills Federal Reserve Bank of Martin intended to call President Sproul of the New York on the telephone this morning. He said that there necessarily would be a churning and period of adjustment in the market and that if 741 4/12/56 -3- the System Open Market Account were to sell Treasury bills, there could arise a feeling that the System was acting aggressively on two fronts; that is, through a change in the discount rate and by withdrawing reserves from the market. He pointed out that the natural course of events would near future appear to bring about an easing of reserve positions in the and that there would be a question as to what extent that easing should be countered by sales of Treasury bills from the Open Market Account. Chairman Martin responded that he intended to call Mr. Sproul and that he had talked to Mr. Sproul each day this week to keep him informed of developments. be possible to He did not know, however, how it would guide the Manager of the System Open Market Account differently from the instructions given to him at the last meeting of the Federal Open Market Committee was called. Committee unless another meeting of the Open Market Governor Mills said that in view of the discount rate action, and Pending adjustment to rate increases in the Government securities market, the Manager of it would seem logical to him that at least as of tomorrow the Account should suspend sales of Treasury bills. He commented that the weekly condition statement to be released today apparently would show a negative free reserve position for member banks of around compared with some ago. VI-50 million last week and about *65o Li.00 million, million two weeks The market might read from these figures that the System had not acted to oppose the reduction to the current level. If simultaneously 742 -9- 4/12/56 there were aggressive sales of Treasury bills by the Open Market Account, he felt there might be confusion in the market as to the System's intentions and an indication of increasing severity. The situation shortly would ease would be solved by the fact that the reserve position of banks appropriate move would be to automatically, and it seemed to him that the defer the sale of bills. of member banks Mr. Thomas reported that net borrowed reserves were larger on Tuesday of this week than the New York Bank had predicted. , Also, the Treasury balance increased substantially yesterday and it now reserves might be close appeared that the weekly average of net borrowed estimated earlier. to *450 million or at least not as low as had been The in bill holdings of weekly statement, he said, would also show a decline the Open Market Account. pressure should be exerted Chairman Martin questioned whether any attempt made in on the Manager of the System Open Market Account or an any Way to influence his judgment. He thought that within the framework of the instructions given to him the Manager should be prepared to do what he considered the proper thing. when an announcement of Consideration then was given to the time the various Reserve Banks the Board's approval of the increased rates at a press release should should be made, and it was agreed unanimously that be issued at 4:00 P.m. covering the approval of rates at Banks which had advised of action in time to be included in that release. It was also 743 -10- 4/12/56 ed of the Board's action understood that the Reserve Banks would be advis by telegrams sent to reach them shortly before the time the press release was issued. Thereupon, upon motion by Governor Szymczak, it was voted unanimously (1) to approve, effective April 13, 1956, the rates established by the Federal Reserve Banks of Boston, Philadelphia, Atlanta, and San Francisco, and (2) to approve, effective April 13, 1956, for any other Federal Reserve Bank that informed the Board of the establishment of 2-3/4 such rates today, a rate of either adand for unts disco or 3 per cent on 13 vances to member banks under Sections and Act ve Reser al and 13a of the Feder other changes in the Bank's schedule of rates of discount and purchase which would be appropriately related to the new 2-3/4 or 3 per cent rate. To carry out the above action unani eadramsr teleg mous approval was given to ing ing as follows, with the understand to sent be would that similar telegrams acted which Banks other Federal Reserve to make similar changes in their rates ment today, that the Board's press state the that and form, would be in the usual al Feder the to sent usual notice would be Register: '22 Mr. Erickson President Federal Reserve Bank of Boston effective April 13, 1956, Reurtel April 9. Board approves and advances to member for rates of 2-3/4 per cent on discounts cent on advances to per banks under Sections 13 and 13a, 3-1/4 per cent on advances 3-3/4 member banks under Section 10(b), and ns other than member ratio to individuals, partnerships, or corpo 13. Otherwise, Board apbanks under last paragraph of Section without change, of rates of proves establishment by your Bank, ing schedule. Board's andiscount and purchase in Bank's exist is being given to press nouncement on change in discount rate at 4:00 p.m. EST today for immediate release. -11- V12/56 To Mr. McCreedy, Vice President and Secretary, Federal Reserve Bank of Philadelphia Reurtel April 5. Board approves effective April 13, 1956, rates of 2-3/4 per cent on discounts for and advances to member banks under Sections 13 and 13a, 3-1/4 per cent on advances to member banks under Section 10(b), and 3-1/2 per cent on advances to individuals, partnerships, or corporations other than member banks under last paragraph of by Section 13. Otherwise, Board approves establishment e and purchas t discoun of rates your Bank, without change, of on change ement announc Board's in Bank's existing schedule. in discount rate is being given to press at 4:00 p.m. EST today for immediate release. To Mr. Bryan President Federal Reserve Bank of Atlanta Reurtel April 2. Board approves effective April 13, 1956, s to memrates of 2-3/4 per cent on discounts for and advance on cent per advances 3-1/4 13a, ber banks under Sections 13 and on adcent per 3-3/4 and 10(b), to member banks under Section other than tions corpora or ships, vances to individuals, partner also 13. Board Section member banks under last paragraph of adapproves establishment of rates from 3 to 5-1/2 per cent on ial commerc or ial industr vances under Section 13b direct to businesses, including advances made in participation with financing institutions. Otherwise, Board approves establishment by your Bank, without change, of rates of discount and purchase in change in disBank's existing schedule. Board's announcement on today for imp.m. EST 4:00 at count rate is being given to press mediate release. T° Mr. O'Kane General Counsel Federal Reserve Bank of San Francisco Retel April 11. Board approves effective April 13, 1956, advances to member rates of 3 per cent on discounts for and cent on advances to per banks under Sections 13 and 13a, 3-1/2 cent on advances to per member banks under Section 10(b), and 4 than member other tions individuals, partnerships, or corpora se, Board apOtherwi 13. banks under last paragraph of Section of rates of change, proves establishment by your Bank, without e. schedul Board's discount and purchase in Bank's existing being given is to press rate t discoun in change announcement on . release e immediat for today at 4:00 p.m. EST 4/12/56 -12Secretary's Note: Pursuant to the Board's action, the following additional telegrams were sent today: To Mr. Sproul President Federal Reserve Bank of New York Reurtel today. Board approves effective April 13, 1956, rates of 2-3/4 per cent on discounts for and advances to member banks under Sections 13 and 13a, 3-1/4 per cent on advances to member banks under Section 10(b), and 3-1/2 per cent on advances to individuals, partnerships, or corporations other than member banks under last paragraph of Section 13. Otherwise, Board approves establishment by your Bank, without change, of rates of discount and purchase in Bank's existing schedule. To Mr. Fulton President Federal Reserve Bank of Cleveland Reurtel April 12. Board approves effective April 13, 1956, rates of 2-3/4 per cent on discounts for and advances to member banks under Sections 13 and 13a, and 3-1/4 per cent on advances to member banks under Section 10(b). Otherwise, Board approves establishment by your Bank, without change, of rates of discount and purchase in Bank's existing schedule. Board's announcement on change in discount rate is being given to press at 4:00 p.m. EST today for immediate release. To Mr. Leach President Federal Reserve Bank of Richmond Reurtel today. Board approves effective April 13, 1956, rates of 2-3/4 per cent on discounts for and advances to member banks under Sections 13 and 13a, 3-1/4 per cent on advances to member banks under Section 10(b), and 3-1/2 per cent on advances to individuals, partnerships, or corporations other than member banks under last paragraph of Section 13. Otherwise, Board approves establishment by your Bank, without change, Of rates of discount and purchase in Bank's existing schedule. Board's announcement on change in discount rate is being given to press at 4:00 p.m. EST today for immediate release. To ItA,* Johns President Federal Reserve Bank of St. Louis Reurtel today. Board approves effective April 13, 1956, rates of 2-3/4 per cent on discounts for and advances to member 74 4/12/56 -13- banks under Sections 13 and 13a, 3-1/4 per cent on advances to member banks under Section 10(b), and 3-1/2 per cent on advances to individuals, partnerships, or corporations other than member banks under last paragraph of Section 13. Board also approves establishment of rates from 2-3/4 to 3-1/4 per cent on advances under Section 13b on portion for which financing institution is obligated. Otherwise, Board approves establishment by your Bank, without change, of rates of discount and purchase in Bank's existing schedule. Board's announcement on change in discount rate is being given to press at 4:00 p.m. EST today for immediate release. To Mr. Strothman Vice President Federpl Reserve Bank of Minnea olis Reurtel today. Board approves effective April 13, 1956, rates of 3 per cent on discounts for and advances to member banks under Sections 13 and 13a, 3-1/2 per cent on advances to member banks under Section 10(b), and 4-1/4 per cent on advances to individuals, partnerships, or corporations other than member banks under last paragraph of Section 13. Otherwise, Board approves establishment by your Bank, without change, of rates of discount and purchase in Bank's existing schedule. Board's announcement on change in discount rate is being given to press at 4:00 p.m. EST today for immediate release. To Mr. Hall Chairman Federal Reserve Bank of Kansas City Reurtel today. Board approves effective April 13, 1956, rates of 2-3/4 per cent on discounts for and advances to member banks under Sections 13 and 13a, 3-1/4 per cent on advances to member banks under Section 10(b), and 3-3/4 per cent on advances to individuals, partnerships, or corporations other than member banks under last paragraph of Section 13. Otherwise, Board approves establishment by your Bank, without change, of rates of discount and purchase in Bank's existing schedule. Board's announcement on change in discount rate is being given to press at 4:o0 p.m. EST today for immediate release. T° Mr. Irons President Federal Reserve Bank of Dallas Reurtel today. Board approves effective April 13, 1956, rates of 2-3/4 per cent on discounts for and advances to 4/12/56 member banks under Sections 13 and 13a, 3-1/4 per cent on advances to member banks under Section 10(b), and 3-3/4 per cent on advances to individuals, partnerships, or corporations other than member banks under last paragraph of Section 13. Otherwise, Board approves establishment by your Bank, without change, of rates of discount and purchase in Bank's existing schedule. Board's announcement on change in discount rate is being given to press at 4:00 p.m. EST today for immediate release. The Secretary reported that a letter had been received under date of April 11, 1956, from Mr. Jennings, Deputy Comptroller of the Currency, advising that a call for reports of condition would be made upon national banks as of the close of business on April 10, 1956. He said that, in accordance with the usual practice, a telegram then had been sent to the Presidents of all Federal Reserve Banks requesting that a similar call be made for condition reports from State member banks. The sending of the telegram was ratified by unanimous vote. The meeting then adjourned.
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