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711 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Friday, April 22, 1949. The Board !net in the Board Room at 11:00 a.m. PRESENT: Mr. Mr. Mr. Mr. McCabe, Chairman Szymczak Draper Clayton Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Riefler, Assistant to the Chairman Thomas, Director of the Division of Research and Statistics Vest, General Counsel Young, Associate Director of the Division of Research and Statistics Solomon, Assistant General Counsel Lewis, Chief of the Consumer Instalment Credit Section of the Division of Bank Operations There were presented telegrams to the Federal Reserve 114114 of Boston, New York, Philadelphia, Atlanta, Chicago, and Francisco stating that the Board approves the establishment Vithout Change by the Federal Reserve Bank of San Francisco on 411'1 19, by the Federal Reserve Banks of New York, Philadelphia, Atit/Ilta, and Chicago on April 21, 1949, and by the Federal Reserve 44k °I. Boston today, of the rates of discount and purchase in heir existing schedules. Approved unanimously. Chairman McCabe referred to the discussion at the meeting 712 4/22/49 -2- Yesterday of a possible further relaxation in Regulation W, Consumer Instalment Credit. In this connection, Mr. Carpenter reported a telephone co tversation which he had last night with Mr. Eccles in which the latter stated that he would not be prepared to act without kli°14ing more about changes in the total volume of consumer instalment credit, that if such credit was unchanged or moving up1/111 the'Regulation should not be relaxed at this time, that it should not be relaxed as a means of helping to move goods at high prices, nra that when the situation justified a further ellEMge he would rescind the Regulation with respect to articles Included in the "B" classification, and similarly, when a further relezation in terms for automobiles seemed appropriate, he would reacind the Regulation entirely. Mr. Eccles commented, Mt. Cal"Penter said, that he felt that the Regulation was for the pur11°8e of controlling the inflationary effects of consumer credit a4d when it was no longer needed for that purpose, it should be l'escinded and should not be used to regulate competitive business 1)ractices. Mr. Eccles also suggested, Mt. Carpenter said, that t1111°11 moves in the credit field might dissipate the System's 15°14ers so that at a time when there should be a major effort on the Part of the Government to counteract a deflation, any steps "the System might take would be ineffective. th 4/22/49 -3There was a general discussion of the terms that might be 4PPlied in connection with Group B items, during which all of the terabers of the Board who were present indicated that they felt sUch terms should be liberalized immediately to provide for a 141xlimum down payment of 10 per cent and maximum maturity of 24 111°11th5, and to exempt from the Regulation all articles having a cash price of less than $100. Mr. Clayton stated that he felt that further relaxation ill uiaturities for automobiles would be premature at this time tillriew of the high level of sales of automobiles currently reported. Mr. Szymczak concurred in Mr. Clayton's view. Messrs. McCabe and Draper stated that they favored changes hich vould provide the terms suggested for Group B items and a Iiiiit°rm maturity of 24 months for all listed articles, with exfrom the Regulation of all items selling for less than ) and Chairman McCabe said that in a telephone conversation ' lIth Mr. Evans, the latter stated that he would favor such action. Attila meeting yesterday, Mr. Vardaman stated he would favor the nic4111 liberal terms. During a further discussion of the matter, it became ap14trelit that a majority of the Board favored extending the maxi111"4tur1tY for both Group A and Group B items to 24 months. MA,.4131,8 • Clayton and Szymczak then stated that rather than vote 914 4/22/49 -4- against any action in the direction of relaxation at this time, they would be willing to join in action to increase maturities on all listed articles, including automobiles, to 24. months, to reduce the down payment on Group B articles to a minimum of 10 Per cent, and to exempt from the Regulation all articles having a cash price of less than $100. Thereupon, Mr. Draper moved that RegulationW be amended to provide for a minimum down payment of 10 per cent on Group B articles and a maximum maturity of 24 months for all listed articles and unclassified loans, and to exempt from the Regulation all articles having a cash price of less than $100. Mr. Draper's motion was put by the Chair and carried unanimously. To carry out the foregoing action, unanimous approval was given to the following amendment to Regulation WI Consumer Instalment Credit: "AMENDMENT NO. 4 TO REGULATION W trr_ =421.221.1y the Board of Governors of the Federal Reserve Salm "Regulation W is hereby amended in the following respects, effective April 27, 1949: "1. By changing 1$50.001 in Part 1 of the Supplement to read t$100.001. "2. By changing 115 per cent' and '85 per cent' in Part 1, Group B of the Supplement to read, respectively, 110 per cent' and '90 per cent'. "3. By changing Part 2 of the Supplement to read as follows: !Part 2. Maturities. - The maximum maturity for all listed articles and for unclassified instalment loans is 24 months.' "4. By changing the figure '24' to '27' in Part 3 of the Supplement." Approval was also given to the following statement for the press for release in the morning newspapers of Saturday, April 23, 1949, it being understood that the amendment and press release -5- V22/49 would be sent by wire to the Federal Reserve Banks with the request that they print and make appropriate distribution of the amendment. In taking this action, it was also understood that Chairman McCabe could add to the statement such comments as he felt might be desirable: "The Board of Governors has modified Regulation W effective Wednesday, April 27, 1949, making the maximum Maturity 24 months instead of 21 months on all extensions of consumer instalment credit and reducing down Payments on all articles of furniture, appliances, etc., from 15 per cent to 10 per cent. The one-third down PaYment required on automobiles is retained. Furniture, aPPliances and other articles costing less than $100 are exempted from the scope of the regulation. Previously articles costing less than $50 were exempted. "In commenting on the Board's action, Chairman McCabe said: 'This further step in liberalization of the regulation of consumer instalment credit Is in conformity with the Board's policy of using flexibly credit and monetary authority entrusted to the Reserve System. It is in accordance with the System's broad purpose of contributing to the national objective of stable economic progress." Unanimous approval was also given to the following statement for Inclusion in the Federal Register: "The notice, public participation, and deferred :t▪ ractive date described in section 4 of the Administra, Iya Procedure Act are not followed in connection with amendment for the reasons and good cause found, as 4i f- ilted.in section 2(e) of the Board's Rules of Procedure le CFR 262.2(e)_=7, and especially because in connec,::" withthis permissive amendment such procedures are :neceasarY as they would not aid the persons affected -4g would serve no other useful purpose." Z titiq thfl At this point Messrs. Riefler, Thomas, Vest, Young, Solomon, Levi a withdrew and the action stated with respect to each of atters h -areinafter referred to was taken by the Board: 716 4/22/49 -6Minutes of actions taken by the Board of Governors of the hderai Reserve System on April 21, 1949, were approved unanimously. Letter to Mr. Thomas, Director of the Division of Research Statistics, in accordance with action taken by the Board on 41411 20, 1949, reading as follows: "The Board hereby authorizes you, in your capacity as Director, Division of Research and Statistics, to proceed to Europe on a tour of European central banks, which accordto your tentative itinerary would take you to New York, Le Havre, Paris, Geneva, Rome, Zurich, Basle, Frankfort (and Possibly other places in Germany), Brussels, Amsterdam, Copenhagen, London, Southampton, and possibly Stockholm and Oslo. It is recognized that your whole schedule is subject to change to suit the convenience of the banks you will be Irisiting. It is understood that you are going to and returning from Europe by boat, but that some of your travel abroad may be by airline, and that the entire trip (including some vacation time) will cover the approximate period rrom April 25 to July 19, 1949. Upon completion of the above described business, unless otherwise directed, you are to return to Washington, D. C. "While absent from Washington in connection with the above described trip, in addition to customary traveling ! IrPenses, a per diem of $20.00, except when on shipboard and Oh1 vacation, will be paid from funds under the control of the Board. It is understood that while absent on the trip You will take at least 21 days vacation during which time, as stated, the above per diem will not be allowed. Also, : 5 °11 will be allowed, in an amount not exceeding $500.00, 'lleh extraordinary expenses as may be needed for you to ProPerly represent the Board in connection with your travels. r "You shall keep the Board informed of your movements r°131 place to place and of the progress of your work insofar as it is feasible. "It is requested that you retain the original of this letter, and that the file copy, after being initialed by r°11, be returned to the Board's files." Approved unanimously. Memorandum dated April 15, 1949, from Mr. Thomas, Director tivision of Research and Statistics, recommending the appointOr Miss Katherine Mary Radicevic as a clerk-typist in that V22/19 -7- bivision, on a temporary indefinite basis, with basic salary at the IeEtte of $2,2814. per Annum, effective as of the date upon which she atUrs upon the performance of her duties after having passed the Itkal Physical examination. Approved unanimously. Memorandum dated April 22, 1949, from Mr. Bethea, Director the Division of Administrative Services, recommending the appointOf Edward Lee Hampton as tabulation planner in that Division, Vith or basic salaryat the rate of $3,476.40 per annum, effective as date upon which he enters upon the performance of his duties having passed the usual physical examination. Approved unanimously. Letter to Mr. Gidney, President of the Federal Reserve Bank or Cleveland, reading as follows: "The Board of Governors approves the payment of aalaries to the following officers of the Federal Re:!rve Bank of Cleveland, including its Branches, for he Period May 1, 1949, through April 30, 1950, at the sates indicated, which are the rates fixed by the direc! Icsre as reported in your letter of March 15 and telegram (qh April 14, 194 9: Annual Title Name Salary Office Head }! $25,000 sidney President 4. Fletcher 18,000 President Vice First 41e ,,,t R. 10,500 President Vice Clouse 41• 12,500 Lazing Vice President and Cashier sltl'tirt 11,000 Morrison Vice President 13 0 C. 10,000 Stetzebl erger Vice President S 4 13,500 Thorapson Vice President ''I t 'a. Smith 9,500 Assistant Vice President 0 4% 45. 6,900 Assistant Cashier /11 • Azderson 8,400 Bolthouse Assistant Cashier Didhaz 6,500 Assistant Cashier • 41cie 8,000 Assistant Cashier 4/22/1+9 --8- Name a.. R. Lowe a. M. Miller R. Ross M. Boyd wilbur T. Blair el' l P. Ehninger i.. 44 B Flinkers M. Hostetler D• Fulton N. Ott *; t., ti• Geera 'D'',YCle Harrell -`4•°18;rd G. "Johnson T. Xossin °. Foster q,1114ter Nolte Schmidt Steinbrink Title Head Office Assistant Cashier Assistant Cashier Assistant Cashier Chief Examiner Counsel and Secretary Auditor Assistant Secretary Manager, Research Department Cincinnati Branch Vice President Cashier Assistant Cashier Assistant Cashier Assistant Cashier Pittsburgh Branch Vice President Cashier Assistant Cashier Assistant Cashier Assistant Cashier Annual Salary $7,500 7,500 7,500 8,000 9,000 9,500 6,500 8,500 13,000 10,000 8,200 8,200 8,300 15,250 11,200 7,500 8,200 7,800" Approved ImAnimously. Letter to Mr. Earhart, President of the Federal Reserve Qf San Francisco, reading as follows: "The Board of Governors approves the payment of salaries to the following officers of the Federal Reserve Bank of San Francisco, including the Branches, or the period May 1, 1949, through April 30, 1950, at the rates indicated, which are the rates fixed by the airectors as reported in your letters of March 15 and APril 12, 1949: Annual Title Salary Office Head $25,000 President Earhart 4, ms Mangels 18,000 President First Vice 11,000 Cashier President and Vice Leisner W. ?* Slade 13,000 Vice President 12,000 0. pl liolberg Vice President 11,000 Igheeler Vice President t, c* Rardy 8,5co Assistant Vice President 8,000 Assistant Vice President m• M.i11jard 11, ()Bruer 8,5oo Assistant Vice President 11, syrams 8,5oo Assistant Vice President trong 8,000 Assistant Cashier 4/22/49 -9- "Name T. R. R. '.!* W. C. H. A. H. A. C. Barrett Milliken Morrill Randall Holman Agnew A. O'Kane Title Head Office Assistant Cashier Assistant Cashier Assistant Cashier Assistant Cashier General Auditor Vice President and General Counsel Assistant General Counsel Annual Salary $ 6,500 6,500 7,500 8,000 11,000 16,000 8,500 /4' N. Ambrose Fred C. sold R. Barglebaugh M. McRitchie L. C. Meyer C• R. Watkins Los Angeles Branch Vice President Assistant Manager Assistant Manager Assistant Manager Assistant Manager Assistant Manager 14,000 11,000 7,000 8,000 7,500 7,500 /3. L. Davis S. A. MacEachron 1D 4 t. Bent J. P. Blanchard Portland Branch Vice President Assistant Manager Assistant Manager Assistant Manager 13;000 9,000 7,200 6,000 Salt Lake City Branch Vice President Assistant Manager Assistant Manager Assistant Manager 12,000 8,500 6,500 6,500 W. 14 • Partner o '• E. Everson „sizi. Barnard ' -za• Hemmings 0 b '"• B. w A• 1• E. Shaw Russell Sandstrom Simms Seattle Branch Vice President Assistant Manager Assistant Manager Assistant Manager 13,000 8,000 6,000 7 :200" Approved unanimously. Letter to Mr. Gidney, President of the Federal Reserve 64k of Cleveland, reading as follows: "For the reasons outlined in your letter of April 19, 1949, the Board of Governors approves the payment 720 4/22/49 -10- of salary to Mr. James M. Hiner through July 31, 1949, and in addition a payment to him equal to the three weeks' vacation to which he is entitled." Approved unanimously. Letter to Mr. Diercks, Vice President of the Federal Reserve 138.1 of Chicago, reading as follows: "In accordance with the request contained in your letter of April 19, 1949, the Board approves the designation of Raymond W. Baxter as a special assistant examjmer for the Federal Reserve Bank of Chicago." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks except 441 Y°Isk, Atlanta, and Kansas City, reading as follows: "Recently the Board has given consideration to the classifications now in effect for the election of Class A and Class B directors of the Federal Reserve Banks. The capital and surplus of most banks has increased substantially in recent years, and as a result it appears ?iat in a few cases the number of banks in Group 2 now greater than the number in Group 3. "It will be appreciated if you will have the present classification of member banks in your district for electoral purposes reviewed in the light of the formula 11.ggested in the Board's letter of September 19, 1934 a-8012), and advise the Board what changes, if any, You would recommend in the present classification. "In replying, please submit an array showing the illember banks in the district listed according to their Combined capital and surplus beginning with the smallest caPital and surplus. This tabulation should include figures in the form exhibited in the Board's letter 4s-etter of October 12, 1928 (X-6159). The capital and llaus of a member bank for this purpose should be the same as that used in determining its required holdof Federal Reserve Bank stock." Approved unanimously. I. 721 -11- V22/149 Letter to Mr. Diercks, Vice President of the Federal Reserve Bank of Chicago, reading as follows: "Reference is made to your letter of April 140 1949, submitting the request of the Peoples Commercial and Savings Bank, Bay City, Michigan, for permission to establish a branch in Essexville, Michigan. "It is understood an investigation has been made by the appropriate State authorities and that they have expressed a willingness to grant a permit to establish the branch. In view of your favorable recommendation and the information submitted, the Board of Governors apprOves the establishment and operation of a branch in Essexville, Michigan, by the Peoples Commercial and Savings Bank, Bay City, Michigan, provided formal approval of the State banking authorities is obtained, such branch is established within six months of the date of this letter and with the understanding that Counsel for the Reserve Bank will review and satisfy himself as to the legality of all steps taken to establish the branch." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, l'eading as follows: "In reply to a recent inquiry concerning Regulation W, the Board has issued the following interpretation: "A question has been raised as to the application of Regulation W to a proposed instalment loan to purchase (and to be secured by) an automobile where the Registrant already holds the unpaid balance of an earlier, unclassified instalment loan to the same borrower. The Registrant wishes to release his lien covering an Older automobile given as security for the unclassified loan. This would be done in order to enable the borrower to use the older car as a trade-in equal to the required down payment on the newer automobile, the remaining part of the cost being financed by the proposed loan. "It is understood that the parties are acting in 4/22/49 -12- "good faith and also that the unclassified loan is not consolidated with the proposed loan and is not otherwise changed or modified, except for the release of the lien on the old automobile. In such circumstances, it is the Board's view that the unclassified loan would stand unaffected by the proposed new and separate loan, and that the latter could be made in accordance with the usual requirements of the regulation to the extent of the maximum loan value. "If, however, the earlier, unpaid loan had been for the purpose of purchasing the older automobile, then under section 6(j) of the regulation neither the Same nor another Registrant rroperly could maf.e the proposed loan since, to do so, would constitute an extension of credit in connection with the purchase of a listed article in excess of that permitted by the regulation and, in effect, there would be a loan to make a down payment on the new car. "Questions were also raised as to whether it would made a difference if the earlier and later loans, though both to purchase listed articles, had been to Purchase different kinds of listed articles. For-example, suppose the earlier, unpaid loan had been for the purpose of purchasing a radio and the Registrant's lien thereon was released to enable the borrower to use it as a trade-in on a television. The rule apPlicable under the regulation would be the same as in the previous paragraph where two loans to purchase two different automobiles were involved. The radio, Of course, could not be used in making the down payment on the television since down payments on Group B articles must be made in cash. The arrangement, however, would result in more credit being extended in connection with the purchase of the television than Would be permitted by the regulation." Approved unanimously. Letter to the Honorable Lyndon B. Johnson, United States 445.4 reading as follows: "The enclosed letter dated March 31 from Mr. B. R. Alexander, owner of the Midway Motor Company, Grand Prairie, Texas, was received April 7 with your recent memorandum addressed to Chairman McCabe. 723 4/22/49 -13- "Mr. Alexander states that he is of the opinion that Regulation W has served its purpose and that it is now causing 'many people to lose tbeir cars.' He mentions that it would be better for the laboring class if there was no Regulation W since then monthly payments could be reduced to fit their budgets, that 'with the average working man . . . it is not how long . . . but how much every thirty days.' In this conntion the following statement which appears in the report of the Senate Committee on Banking and Currency concerning this legislation is of interest: 'Only harm could result from inducing millions of American families to go heavily into debt on too easy terms for goods at the present high level of prices. The excessive credit built up in that way would not only increase present inflationary pressures; it would have to be liquidated later out of current income should a downswing occur, thus necessarily diverting that income from the channels of consumer expenditures in the ensuing period . . . . . . excesses in the field . . . (of consumer credit) can be harmful not only to the people directly involved, but also to millions of others who are penalized by the inflationary effects of such excesses. The person of small income is the one hit hardest when inflation pushes prices beyond his reach and the one who suffers most when the resulting deflation throws him out of a job. The legislation should tend to result in directing competition along the line of decreasing prices rather than extendin excessive credit terms. By making some contribution toward preventing further inflation at this time and thus toward moderating any ensuing deflation, consumer instalment credit controls can especially serve the interests of the person of low income in addition to serving the interests of all other consumers affected by our national economy.' "While Mr. Alexander does not state the circumstances under which the people he refers to have lost their cars, it is possible that Section 7 of Regulation V22/49 -14- "W contains provisions which, when used in good faith, might avoid the necessity for some of the repossessions. Section 5 relates to renewals and revisions and, among other things, there is provision for refinancing to avoid undue hardship upon an obligor arising from circumstances unforeseen by him or beyond his control. There is also a provision which allows the registrant considerable leeway in making a renewal or a revision after a bona fide collection effort. If Mr. Alexander would like to have additional information in regard to particular parts of this section, the Federal Reserve Bank of Dallas will be glad to assist him. "The Board is constantly studying conditions in the ecbnomy generally and trends in the production and marketing of automobiles and other durable goods, and the points raised by Mr. Alexander will be carefully considered." Approved unanimously. Letter prepared for Chairman McCabe's signature to Mr. H. D. Ertt, Jr., Msnager, Marketing Research Department, Ford Motor e( allY, Dearborn, Michigan, reading as follows: "Both in connection with the administration Of Regulation W and its more general responsibilities in the field of credit supervision the Board of Governors Of the Federal Reserve System is very much interested in current developments in the automobile industry and IS anxious to have accurate up-to-date information on dealers' sales and stocks of new and used automobiles. 1 understand that your Company and other leading automobile manufacturers obtain and compile this information on a 10-day basis, and I am seeking your cooperation in providing the Board with this information for Ford, Mercury, and Lincoln dealers. "We would appreciate it very much if you could 'flake this information available to us broken down to show separately new passenger car and truck sales and stocks by makes and used car sales and stocks in totals. If the information is compiled for your purposes on a regional basis, the regional breakdown would also be useful to us, although it is not essential. V22/l9 -15- "It is completely understood that any information of this sort which you might be able to furnish us would be on a strictly confidential basis and that the data with respect to your company would not be seen by anyone except the members of the Board's staff responsible for compiling totals for the industry for the use of the Board. Furthermore, it is not our intention to prepare for publication or other release any over-all statistical information for the industry. "The information would be used rather to assist the Board in evaluating the current economic situation and in arriving at the decisions which are required in the discharge of the Board's responsibilities. In this connection, I am sure that it is unnecessary for me to emphasize to you the tremendous strategic importance of the automobile industry in the business situation at this Particular juncture, and I am sure that you will understand why we are anxious to have these data made available to us in this period. "If there is any other information regarding the nature of the data we desire or the use to which it would be put, please do not hesitate to call on me or on Mr. Ralph A. Young, Associate Director of the Board's Division of Research and Statistics. Mr. E. C. Harris, Vice President of the Chicago Federal Reserve Bank who is in Charge of the Detroit Branch, will also be glad to furnish you further information or obtain it for you." Approved unanimously. Memorandum dated April 21, 1949, from Mr. Hooff, Assistant Cob. 8e1, recommending that there be published in the law department ' or he May issue of the Federal Reserve Bulletin statements in the "L attached to the memorandum with respect to the following sub- Margin Requirements for Purchasing Securities Amendments to Regulations T and U Approved unanimously. Memorandum dated March 17, 1949, from Messrs. Thomas and V22/149 -16- roung, Director and Associate Director of the Division of Research and Statistics, respectively, reading as follows: "Attached for your information is a preliminary copy of the Survey of Issues in, War Finance, undertaken in response to a request addressed to the Board by the National Security Resources Board. The report was prepared by Mr. Richard Musgrave, Consultant to the Division of Research and Statistics, and Mr. Merton Miller, of the Division's staff. Initiation of the survey as a special project of the Division was authorized by the Board at its meeting on October 1, 1948. "Authorization is now requested to circulate this preliminary document on a confidential basis to the members of the System Committee on:Banking and Credit Policy, and also to the technical staff of the National Security Resources Board, and such consultants of the Security Resources Board as its staff may select. This circulation would be for the purpose of discussion Of the issues involved in war finance and also for obtaining comments and suggestions that may be helpful in revision of the manuscript." Approved unanimously. 441'oved: Chairman.
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