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Minutes for To: Members of the Board From: Office of the Secretary April 231 1956. Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. 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 Amendment to Regulation T, Extension and Maintenance of Credit by Brokers, Dealers, and Members of National Securities Exchanges. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, if you were present at the meeting, Please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. Chin, Martin Gov, Szymczak Gov, Vardaman Gov. Mills Gov, Robertson Gov. Balderston Gov. Shepardson x SOS Minutes of actions taken by the Board of Governors of the Federal Reserve System on Monday, April 23, 1956. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Szymczak Vardaman Mills Robertson Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Mr. Thomas, Economic Adviser to the Board Mr. Vest, General Counsel Mr. Young, Director, Division of Research and Statistics Mr. Solomon, Assistant General Counsel The following matters, which had been circulated to the members °f the Board, were presented for consideration and the action taken in each instance was as stated: l e Letter to Mr. Diercks, Vice President, Federa Reserv Bank of hicago, reading as follows: ned in your letIn accordance with the request contai s ter of April 12, 1956, the Board approve the designation of er for the FedG. Ward Stearns as a special assistant examin to the date as advise eral Reserve Bank of Chicago. Please ive. Upon which the designation is made effect Approved unanimously. ors, Lincoln Rochester Trust CornLetter to the Board of Direct follows: PanY, Rochester, New York, reading as through the Federal Pursuant to your request submitted ors approves of Govern Board the York, Reserve Bank of New 9O9 4/23/56 -2- the establishment of a branch by Lincoln Rochester Trust Company, Rochester, New York, on the west side of East Henrietta Road, approximately 700 feet north of Jefferson Road in the Town of Henrietta, New York, provided the branch is established within one year from the date of this letter. Approved unanimously, for transmittal through the Federal Reserve Bank of New York. Letter to the Board of Directors, The Marine Trust Company of as follows: Western New York, Buffalo, New York, reading h the FedPursuant to your request submitted throug ors apof Govern eral Reserve Bank of New York, the Board Marine The Trust by proves the establishment of a branch of corner est southw Company of Western New York on the the ed York, provid Broadway and Conway Street, Depew, New is New siYork, existing branch at 94 Main Street, Depew, acon is of locati multaneously discontinued and the change this . of letter complished within a year from the date Approved unanimously, for Federal transmittal through the Reserve Bank of New York. First National Bank in CalliLetter to the Board of Directors, s: follow Coon, Callicoon, New York, reading as Federal Reserve System The Board of Governors of the ation for fiduciary applic has given consideration to your when not in contraact, powers and grants you authority to e, executor, adtruste vention of State or local law, as bonds, guardian of esand ministrator, registrar of stocks s of lunatics, estate of tee tates, assignee, receiver, commit State which in banks, ty or in any other fiduciary capaci into come which comtrust companies or other corporations to act ted under the are permit petition with national banks of se all such exerci rights laws of the State of New York, the l Reserve Act Federa the of ions provis to be subject to the of Governors of the Federal and the regulations of the Board Reserve System. 910 4/23/56 _3- A formal certificate indicating the fiduciary powers which the First National Bank in Callicoon is now authorized to exercise will be forwarded to you in due course. Approved unanimously, for transmittal through the Federal Reserve Bank of New York. Bank, Grand Rapids, Letter to the Board of Directors, Central Michigan, reading as follows: ed On January 25, 1956, the Board of Governors approv of corner est northw the the establishment of a branch at Rapids, Michigan, Cherry Street and College Avenue, Grand established within is bank by the Central Bank, provided the al of the State approv and nine months from January 25, 1956/ is esbranch the date authorities is effective as of the tablished. ted through the In accordance with the proposal submit of Governors Board Federal Reserve Bank of Chicago, the the southat branch now approves the establishment of the , Grand Avenue tte Lafaye east corner of State Street and ally origin on locati Rapids, Michigan, instead of at the t to the subjec is proposed and approved. This approval of al approv letter same terms and conditions set forth in to. dated January 25, 1956, above referred for Approved unanimously, l Federa transmittal through the Reserve Bank of Chicago. -Collins Trust Company, Letter to the Board of Directors, Tracy SQA, Lake City, Utah, reading as follows: through the Federal Pursuant to your request submitted of Governors apReserve Bank of San Francisco, the Board -Collins Trust Tracy proves the establishment of a branch by the intersecof ty Company in Holladay, Utah, in the vicini provided ard, Boulev tion of 48th South Street and Holladay date the from months the branch is established within six of this letter. 4/23/56 -.4- The Board of Governors also approves the broadening of the functions of the trust company to include the transaction of commercial banking business. It is understood that the trust company will not engage in commercial banking business or establish the branch in Holladay unless the real estate brokerage business is discontinued. Approved unanimously, for transmittal through the Federal Reserve Bank of San Francisco. ry Department, Letter to the Comptroller of the Currency, Treasu s: follow Washington, D. C., reading as dated Reference is made to a letter from your office an of copies applicaatic photost February 2, 1956, enclosing nd, Clevela sippi, Missis at bank tion to organize a national or not the apwhether to as and requesting a recommendation plication should be approved. n of the Information contained in a report of investigatio l Federa the Reserve of ntative represe application made by a ble findings with Bank of St. Louis discloses generally favora in connection with red conside respect to the factors usually the organizers are that tes such proposals. The report indica re of the bank structu l capita planning to increase the initial ors Govern recommends of from $250,000 to $300,000. The Board approval of the application. be glad to The Board's Division of Examinations will s of your ntative represe with discuss any aspects of this case office if you so desire. Approved unanimously, with a copy to the Federal Reserve Bank of St. Louis. to the Honorable Letter for the signature of Chairman Martin s: follow as reading Karl E. Mundt, United States Senate, ding correThank you for your letter of April 10 forwar the of ent First Presid spondence from Mr. John M. Ryan, 4/23/56 -5- National Bank in Rapid City, South Dakota, who is concerned about the availability of funds for the home mortgage market. His letter raises two points: one regarding the limitations on the amount of money which a national bank may invest in real estate loans; the second relating to the broader question of fixed interest rates on mortgages underwritten or guaranteed by the Federal Government. As you know, the Office of the Comptroller of the Currency is the government agency with responsibility for the supervision of national banks. It is this office rather than the Federal Reserve Board, then, which would have the responsibility for considering changes in such limitations. It should be pointed out, however, that these limitations are a matter of law passed by the Congress and that the Comptroller has no authority to "waive" such limitations. The exemption to which Mr. Ryan refers regarding VA loans was adopted by the Congress in the Servicemen's Readjustment Act of 19)1)1 as one means of assuring a supply of funds to finance loans to veterans who would require homes after the War. The second point which Mr. Ryan raises goes to the question of more flexible interest rates for mortgages insured or guaranteed by the Federal Government, and with this objective the Board has considerable sympathy. The attractiveness of Federally underwritten mortgages does change considerably such mortgages from time to time because interest rates on market rates. money are not free to conform with general y low maxrelativel having Federally underwritten mortgages in a marinvestors to e attractiv imum interest rates are less under saleable such ket of generally rising yields and are conditions only at discounts from par. In the judgment of the Board of Governors further relaxation at this time of laws relating to mortgage financing would be unwise. Mortgage developments in the past year such as the appearance of discounts may reflect overbuilding. This possiin construction bility has been evident in a fairly sharp rise in real esbreak future costs and raises the possibility of a of convolume The tate values arising out of over-supply. rose ion costs construct struction was so great in 1955 that of users construcall between 5 and 10 per cent. Demands from ed to this tion labor and construction materials contribut SI 3 -6- 4/23/56 result, but the very large demand generated by residential building, particularly those financed through government programs, was the outstanding contributor. Should these construction costs be maintained or increased further the American people face a corresponding rise in their outlay for shelter. If, on the other hand, they are not maintained but fall subsequently because of a sharp diminution in a demand for housing, an unstabilizing economic influence will result. This would follow should overbuilding result in saturation of the market leading at first to a fall in real estate prices below construction costs and subsequently to unemployment in the construction industry. The total mortgage debt on small homes in the United and about States rose by a full $13,000,000,000 during 1955 es. In itten mortgag underwr half of this was in government and y ce guarant insuran the context of the existing liberal e mortgag aided finanly federal arrangements in the field of cing it is the Board's general view that further relaxation of the laws relating to such financing should not be undertaken. Approved unanimously in the form set forth above, which incorporated certain suggestions made by Governor Balderston when the file was in circulation to the members of the Board. to the members of the Prior to this meeting there had been sent April 12, 1956, subBoard copies of a memorandum from Mr. Solomon dated mitting three separate memoranda concerning subjects on which the New York stock Exchange had requested amendments to Regulation T, Extension and Maintenance of Credit by Brokers, Dealers, and Members of National Securities Exchanges, and Regulation If, Loans by Banks for the Purpose °f Purchasing or Carrying Stocks Registered on a National Securities S14 -7- 4/23/56 Exchange. The nature of the requests was as follows: Time allowed for obtaining margin under Regulation T -Section 3(h) of Regulation T provides that when transactions requiring margin under the regulation are executed, the broker must obtain the margin "as promptly as possible and in any event before the expiration of three full business days following the date of such transactions." If the required margin is not obtained within the specified maximum time, the broker is required to liquidate positions in the account sufficient to provide the margin, except that in exceptional circumstances an appropriate committee of a securities exchange can grant an extension of time The Stock Exchange had renewed an earlier request that the maximum period of three full business days for obtaining margin be changed to four full business days. Status of bonds under Regulation T---The Stock Exchange had renewed a request that the Board reduce the margin requirements on listed bonds under Regulation T; that is, increase their loan value under the regulation. It suggested a 25 per cent margin (75 per cent loan value) for bonds. Credit to "floor traders" under Regulations T and U -The Stock Exchange had renewed a request that credit extended to "floor traders" be exempted from the margin requirements of Regulations T and U. In commenting upon the first of the three proposals, Governor SzYmczak expressed the opinion that the Board might be justified in acadministrative convenience to ceding to the request on the grounds of brokers. question was one of timing; He suggested that the principal that is, whether it would be advisable to defer action until stock market conditions had changed, or until there was some other occasion to amend Regulation T, since the amendment might be mistakenly interpreted 815 4/23/56 in some quarters as a move in the direction of relaxing the margin regulations. Other members of the Board indicated that they saw no objection in principle to the proposed amendment, which, if approved, would be of little importance from the standpoint of the basic purposes of the margin regulations and would constitute merely a technical change designed to simplify mechanical operating problems of brokers. As to the matter of be preferable if adoptiming, some feeling was expressed that it might tion of the amendment could be announced under other circumstances than those prevailing at the present time. It was the consensus, however, there was no strong reason why action should be deferred, since the purPose of the amendment would be clear to informed parties, the action would not be likely to attract general attention, and some time might elapse before a more suitable occasion for making the amendment presented itself. Thereupon, upon motion by Governor Szymczak, it was voted unanifolmously to amend Regulation T as earliest the lows, effective as of date that would be convenient from an administrative standpoint: full business days" (1) by striking out the words "three substituting therefor the in subsection (b) of section 3 and out the striking by (2) words "four full business days"; in appear subsections they words "three-day Period" wherever the words therefor substituting (e) and (f) of section 3 and the words "or out "four-day period"; and (3) by striking of (e) subsection ? three-day riding?" in the footnote to section 3. -9- 4/23/56 This action was taken with the understanding that a notice would be sent to the Federal Register, a press release emphasizing the technical nature of the amendment would be issued by the Board, and appropriate letters of advice would be sent to the Federal Reserve Banks and the New York Stock Exchange. Secretary's Note: The amendment was made effective May 1, 1956. The press release, issued under date of April 25, read as follows: The Board of Governors of the Federal Reserve System has adopted a technical amendment to its Regulation T, the margin regulation applicable to brokers and dealers. The amendment, which becomes effective May 1, 1956, is attached. The amendment changes the maximum period allowed for a broker to obtain margin in a margin account from three full business days to four. It is designed to simplify mechanical operating problems of brokers in the light of current mail schedules and brokers' machine bookkeeping methods. However, the regulation continues to require that the broker in all cases obtain the necessary deposit of margin "as promptly as the previous possible"; and the new four-day period, like which is to limit outside three-day period, merely states an is not possible it that extent be used by the broker only to the time. less for him to obtain the margin in With reference to the request that the margin requirements on listed bonds under Regulation T be reduced, it was stated that the matter did not appear to be of great importance. In response to a question 'Whether any statistics were available which would indicate the magnitude "the problem, Messrs. Young and Solomon expressed considerable doubt that any statistical estimates had been made or could be readily obtained. C4 -10- 4/23/56 They stated, however, that inquiry might be made of the Securities and Exchange Commission and that possibly some estimate might be developed from the report on a recent margin study conducted by the New York Stock Exchange which was expected to be received later this week. Governor Mills expressed doubt as to the necessity for taking these further steps. As he understood the effect of the proposed amend- ment, it would be to expand the amount of stock market credit that could be extended by brokers. The justification for a move in that direction not being apparent to him, he was inclined to feel that the proposed amendment to Regulation T should not be adopted. Following further discussion, unanimous agreement was expressed with the point of view stated by Governor Mills and it was understood that the New York Stock Exchange dewould be advised of the Board's cision. extended to "floor traders" be Regarding the proposal that credit Regulations T and U, Chairman exempted from the margin requirements of Martin said that, despite the criticism which had been directed at their activities, he felt that floor traders had at times served a useful purPcse in the conduct of stock market operations. He indicated, however, that many who had acted as floor traders in the past had now become as80ciated with specialist firms and were functioning in that capacity. He thought it likely that most remaining floor traders now had adequate t -11- 4/23/56 capital and that a decision not to adopt the proposed amendment probably would not result in any substantial difficulties. Thereupon, it was agreed unanimously that the requested amendment should not be adopted at this time and that the New York Stock Exchange should be advised of the Boards decision. Copies of the following draft of letter to Mr. Roger W. Jones, Assistant Director, Legislative Reference, Bureau of the Budget, had been sent to the members of the Board prior to this meeting: This is in response to your communication of April 19, 1956 enclosing a facsimile of the enrolled enactment of S. 1736, a bill "To amend section 51116 of the Revised Statutes, as amended, relating to the qualifications of directors of ng the comments national banking associations" and requesti of the Board of Governors thereon for presentation with the reports of your Bureau to the President. In its present form section 5146 requires that at least three-fourths of the directors of a national bank must reside in the State in which the bank is located "or within a fiftymile territory of the location". S. 1736 would amend the law to provide that at least two-thirds of the directors must reterritory of side in the State "or within a one the location". The Board of Governors favors approval of the enrolled bill S. 1736. Following a brief discussion, the letter was approved unanimously. Governor Vardaman reported receipt of a letter from Senator Humphrey of Minnesota, who advised that Mr. Ira 0. Scott, Assistant 819 -12- 4/23/56 Professor of Economics at the University of Minnesota and the recipient Of an award that would enable him to undertake money market studies in New York, would appreciate an opportunity to visit the Board's offices for two or three days en route to New York to discuss the Government securities market with appropriate members of the staff. It was understood that there would be no objection to Governor Vardaman's replying that the Board's staff would be pleased to discuss with Mr. Scott the matters in which he was interested. All of the members of the staff then withdrew and the Board went into executive session. The Secretary's Office later was informed by the Chairman that during the executive session the Board authorized Mr. Thomas, Economic Adviser to the Board, to go to White Sulphur Springs, West Virginia, during the period May 16-20, 1956/ to attend the spring meeting of the Investment Bankers Asg sociation of America, with the understandin the for rsed reimbu that Mr. Thomas would be cost of the trip on an actual expense basis. The meeting then adjourned. recomSecretary's Note: Pursuant to the dated ndum memora mendation contained in a or, Direct n, April 20, 1956, from Mr. Johnso Govon, strati Admini Division of Personnel ernor Balderston today approved on behalf of ia Arlene the Board the appointment of Patric that Division, Geisel as Clerk-Stenographer in with basic salary at the rate of $3,1415 per s annum, effective as of the date she assume her duties. ( CA 't Assistant Secret,ary
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