The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
604 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Monday, April 19, 1948. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Evans Vardaman Clayton Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Minutes of actions taken by the Board of Governors of the Federal Reserve System on April 16, 1948, were approved unanimously. Memorandum dated April 16, 1948, from Mr. Carpenter recom- illellling., at the request of Mr. McCabe, the appointment of Winfield W. D4 'lefler as Assistant to the Chairman with basic salary at the rate °f $15,000 per annun, effective as of the date following May '1948, upon which he enters upon the performance of his dtie The memorandum also stated that Mr. Riefler was a member . of the Ci vil Service retirement system and would remain in that sYstem. Approved unanimously. Letter to Mr. Volbrg, Vice President of the Federal Reserve B 41.1k of San Francisco, reading as follows: In view of the recommendation contained in your letter of April 9, 1948, the Board of Governors further extends until November 15, 1948, the time within 605 V19/48 -2- "which the American Trust Company, San Francisco, California, may establish the branch in Sunnyvale, California, as approved by the Board under date of June 16, 1947.. Approved unanimously. Letter to Mr. DeMoss, Vice President of the Federal Reserve Batik of Dallas, reading as follows: ". .Reference is made to your letter of April 8, 1948, submitting the application of the Brownfield State Bank & Trust Co. Brownfield, Texas, for permission to exercise f iduciary powers. In view of your recommendation and the information submitted, the Board of Governors of the Federal Reserve System grants the applicant permission, under the provisions of its condition of membership numbered 2, to exercise the fiduciary powers now or hereafter author1zed under its articles of association and the laws of : .he State of Texas. The Board's approval is given subject to acceptance by the bank of the following standard .ctoliditions (numbered 4, 5, and 6 in the Board's Regulai°n H, but numbered as follows for the purposes of the !PPlicant) prescribed in connection with the admission c° membership of State banks exercising fiduciary powers: 3. Such bank shall not invest funds held by it as fiduciary in stock or obligations of, or Property acquired from, the bank or its directors, officers, or employees, or their interests, or in stock or obligations of, or property acquired from, affiliates of the bank. 4. Such bank, except as permitted in the case of national banks exercising fiduciary powers, shall not invest collectively funds held by the bank as fiduciary and shall keep the securities and investments of each trust separate from those of all other trusts and separate also from the properties of the bank itself. 5. If funds held by such bank as fiduciary are deposited in its commercial or savings department or otherwise used in the conduct of its 4/19/48 -3- "business, it shall deposit with its trust department security in the same manner and to the same extent as is required of national banks exercising fiduciary powers. "You are requested to advise the Brownfield State B Rrar & Trust Co. Brownfield, Texas, of the Board's ac10/1/ and to obtain an appropriate resolution of the iard of directors of the bank accepting the conditions Ipp sted above and forward a certified copy thereof to the Board." Approved unanimously. Letter to the Honorable Edith Nourse Rogers, Chairman, Corn- ittee on Veterans' Affairs, House of Representatives, reading as follows: "This refers to your letter of April 12, 1948 which enclosed a committee print of a proposed amendment to R. 4488 and requested comment and recommendations on the proposed amendment. "The amendment would authorize the Administrator of Veterans' Affairs to charter and supervise 'veterans' homestead associations', which would be organized by veterans and would operate on a nonprofit basis to purase and construct housing for veterans. The associations 4 would be authorized to sell properties, to rent hem out, and to operate and maintain them. Except for sale of a cooperative interest in a multiunit structure, 11. c) sale of a dwelling unit by an association would be financed by an association. "The Administrator of Veterans' Affairs would be authorized to make short-term loans and long-term loans (as long as 40 years) to the associations, and the Secretary of the Treasury would make available $5,000,000,000 (1,000,000,000 a year for 5 years) for the purpose. No i_Taimum is set on the rate to be charged associations on .Zue Government funds advanced to them, and in practice fhe rate could be less than the cost of the long-term 4,111ads to the Treasury. Therefore, even if the associa'4ons were able to repay the principal amounts advanced -a result which is by no means certain -- the interest paid n t 807 4/19/48 by the Treasury could substantially exceed that received from the associations. "The twenty-five year limitation on the maturity of home loans guaranteed under the Servicemen's Readjustment Act of 1944 would be changed to thirty-two years in the case of loans to veterans to purchase homes from a 'homestead association'. "The Secretary of the Treasury would make available $3,750,000,000 ($750,000,000 a year for 5 years) to be invested in savings banks, savings and loan associations and similar institutions to enable such institutions to make veterans' home loans that are guaranteed under the ervicemen's Readjustment Act of 1944. Preference would be given to institutions making such loans for 100 per cent of the cost of properties. "The Administrator of Veterans' Affairs would be tate.tuthorized to establish a secondary market for real esa loans which are in original amounts of $10,000 or -Less and are guaranteed under the Servicemen's Readjustment Act of 1944. There would be certain limitations on the portion of each seller's loans which may be purchased,but pro the provision would establish virtually an unlimited Government secondary market for such loans, ./.1d the Secretary of the Treasury would be expressly a cLI-rected without any limitation 'to make available to 'Ajle Administrator such sums as he may request from time to time' for the purpose during a five year period. "Other provisions of the bill would make available $500,000,000 of Government funds to the Federal Land Banks and Farmers Home Administration for loans to veterans under certain conditions and $200,000,000 of vernment funds to enable the Federal Works Administrator to make grants to States, public bodies, and 'homestead associations' to cover part of the cost of Public facilities. "Whatever merit a bill such as the proposed amendint might have in other circumstances, the Board beeves that it should not be enacted in the present ' situation. "The real bottlenecks in the housing situation today are the shortages of building labor and materials. There is no reason to expect that the proposed !mendment providing for 'homestead associations' and for more housing credit would make any appreciable l 608 4/19/48 -5- contribution toward solving those bottlenecks. Instead, it would serve merely to drive up the prices of present inadequate supplies. "One of the most inflationary factors at this time is excessively easy mortgage credit for housing. More than half of the current unprecedented mortgage lending is sponsored by the Federal Government under legislation enacted by the Congress and the proposed amendment would add to the already generous provisions for mortgage credit. Under this type of lending, sellers and builders of homes are enabled to make exorbitant profits and families of moderate and low incomes are encouraged to assume mortgage debt beyond their ability to pay when the present inflationary period is over. In this connection, your attention is invited to Honorable Marriner S. Eccles' stateIlent on home financing before the Joint Committee on the Economic Report on November 25, 1947, of which a copy is attached. "The Board on April 7, 1948 wrote to Senator Charles W. To-ey, chairman of the Senate Committee on Banking and c urrencY, regarding certain housing bills before that Come would like to quote some of the comments in :that letter because they are applicable in an even greater uegree to the present proposed amendment: 'The prospect for inflation is even greater now than it was last November. There is still a shortage of many !rods in relation to the level of income, and because of he imminent reduction in taxes, coupled with our commitMents under the European Recovery Program and the recent tr°gram calling for a large increase in military expendiP tures, the Government must anticipate a deficit rather u-an a surplus. There is thus additional reason for the , L overnment to take all steps possible to reduce inflation! ary :P=7es, particularly those generated by an excess 'For these reasons the Board is opposed to some of provisions of the bills before your committee which uld intensify inflationary pressures by making additional credit available and thus increasing the demand for building labor and materials. In addition, some of their_ provisions would reduce the capacity of the fiscal nd credit agencies of the Government to cope with either further inflation or future deflation. the n 609 4/19/48 -6- "'Creation of a Government-financed secondary market would be directly inflationary at this time, because) it would represent added Government spending and increased demand for new housing which is already excessive, considering the available supply of labor and materials. Furthermore, one of the objectives at the time the Government mortgage insurance and guaranty Programs were instituted was to eliminate the need for direct mortgage lending by the Government, partly by removiug some of the risks to lenders and increasing the negotiability of mortgages. If private lenders are unwilling to hold or buy guaranteed and insured mortgages, perhaps the solution is to improve the .?..11alitY of the mortgages or increase the return to levels which make mortgages attractive compared with Other investments. * * *. 'We believe that both builders and buyers should have larger equities in their properties in an inflationary period like the present. * * *. 'Basically, these * * * proposals * * * are the opPosite of those appropriate in an inflationary situation such as we face today. Measures such as these should be reseedi to cushion deflation should it later develop. Otherwise, the only measures available would be direct °vernment lending or subsidies, on a large enough scale to Protect the real estate and housing market from a serious collapse such as developed in the early thirties." Approved unanimously. Telegram to Mr. Gidney, President of the Federal Reserve BEnir ---' of Cleveland, reading as follows: "Your letter April 13. Members of the Board who are bailable in Washington will be glad to meet with you and Brainard at 10:30 a.m. on Thursday, April 29, 1948. ufficers of Ohio Bankers Association are to have luncheon lilere on that date and members of Board will be glad to ave You and Mr. Brainard join them on that occasion. , puggest that copies of any preliminary sketches that 610 14119/14.8 -7nave been made of the proposed changes in the Pittsburgh Branch Building be forwarded in advance of your visit so that the Board may have an opportunity to study them." Approved unanimously. I A wd... , / 4144tIred: I. Chairman. Sec ary.
@FedFRASER