Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, April 25, 1956, Volume 43, Part 2

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Minutes for

To:

Members of the Board

From:

Office of the Secretary

April 25, 1956

Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
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.

Glom. Martin
Gov. Szymczak
Gov. Vardaman
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson




Minutes of actions taken by the Board of Governors of the
Federal Reserve System on Wednesday, April 25, 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
Mt. Marget, Director, Division of
International Finance
Mr. Tamagna, Chief, Financial Operations and Policy Section, Division of International Finance

The following matters, which had been circulated to the members
Of the Board, were presented for consideration and the action taken in
each instance was as stated:
Memorandum dated April 16, 1956, from Mr. Carpenter, Secretary
Of the Board, recommending that permission be granted for John C. Brennan,
General Assistant in the Office of the Secretary, to undertake as an outside business activity certain rental duties in connection with apartments owned by a relative.
Approved unanimously.
Letter to Mr. Wiltse, Vice President, Federal Reserve Bank of New
York, reading as follows:
Reference is made to your letter of April 13, 1956,
New York,
regarding the request of Camillus Bank, Camillus,
for an extension of time within which it may establish a
on of New
branch at the southeast corner of the intersecti
ated
area
unincorpor
the
York Route 5 and Onondaga Road in
is
noted
It
that
York.
New
Of Fairmount, Town of Camillus,
bank's
the
capital
in
increase
the condition requiring an
stock has been fulfilled but that the construction of the




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shopping center wherein the branch is to be situated has
been delayed because of adverse weather conditions.
After consideration of the information submitted, the
Board concurs in your recommendation and extends to January
11, 1957, the time within which Camillus Bank may establish the branch, as originally approved on July 11, 1955.
Approved unanimously.
Telegram to Mr. Exter, Vice President, Federal Reserve Bank of
New York, reading as follows:
Your wire April 19. Board approves the opening and
maintenance of an account on your books in the name of the
State Bank of Pakistan, subject to the usual terms and conditions upon which yourBank maintains accounts for foreign
central banks and governments.
It is understood that you will in due course offer
participation in this account to the other Federal Reserve
Banks.
Following comments by Mr.
Marget, the telegram was approved
unanimously.
Messrs. Marget and Tamagna then withdrew from the meeting.
Governor Vardaman referred to the meeting to be held on May 1,
1956, with the Economic Policy Commission of the American Bankers Association for discussion of the Commission's current study of member bank reserve requirements, and to the relevant papers that had been received
rrom the Association and distributed to the members of the Board.

He

suggested that it might be desirable for the Board to have a preliminary
discussion prior
to the meeting on May 1 in order to consider questions




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that might be raised and the comments that it might be appropriate for
the Board to make.

He agreed with a remark by Governor Mills that the

Commission's report had been excellently developed but expressed doubt
that the conclusions were entirely supportable by the study.
It was agreed to have a preparatory discussion of the kind
suggested by Governor Vardaman.
At this point Messrs. Vest, General Counsel, Boothe, Administrator, Office of Defense Loans, and Hackley, Assistant General Counsel,
entered the room.
Consideration was given to a memorandum from Mr. Boothe dated
April 23 1956, of which copies had been sent to the members of the
Board, reporting that at a meeting last week of the Defense Department's
Contract Financing Committee some feeling was expressed that in view of
the higher interest rate structure now prevailing it might be in order
to increase from 5 Per cent to 6 per cent the maximum permissible rate
°f interest on loans guaranteed under Regulation V, Loan Guarantees for
Defense Production.
Discussion of the matter brought out that the Department of Defense desired to keep to a minimum the financing of defense contractors
through advance, Progress, or partial payments, the Department preferring that a contractor, whenever possible, arrange financing by means
of nonguaranteed loans or, failing that, through the guaranteed loan




S32

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4/25/56
mechanism.

Some apprehension appeared to exist on the part of the Con-

tract Financing Committee that commercial banks might become less willing
to make guaranteed loans, particularly to smaller contractors or to
those with lower financial ratings, because of the relatively small net
return on such loans.

In the circumstances, it was felt that increasing

pressure for financing through progress and partial payments might develop.
As of the present time, however, it was not clear that contractors were
experiencing difficulty in obtaining financing through V-loans because
Of the existing maximum permissible interest rate of 5 per cent.
The discussion included reference to the factors that should be
taken into account by the Board in prescribing the maximum permissible
rate of interest on guaranteed loans, current trends in the V-loan program, and the responsibilities of the Small Business Administration for
facilitating participation. by small business concerns in the defense
Procurement program.

Reference also was made to the requirement con-

tained in Regulation V which states that rates and fees relating to the
guaranteed loan

program are to be prescribed by the Board after consul-

tation with the guaranteeing agencies.
Governor Vardaman stated that at the moment he was neither for
for agaihst an increase in the maximum pelmissible rate of interest.
Ire Pointed out that in the Past it had been the practice of the Board to
call a meeting of the guaranteeing agencies on such matters to ascertain




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their recommendations, although the Board of course was not obliged to
act accordingly.

He foresaw the possibility of a charge being made at

some point that the guaranteed loan program

with a maximum interest

rate limitation of 5 per cent, was not competitive.

An increase in the

maximum rate, he said, might be regarded as tending to encourage V-loans
since it was more a question of the willingness of banks to participate
in the program than of the rate that the marginal borrower was willing
to pay.

He went on to say that the immediate question was whether the

guaranteeing agencies should be consulted.

Then, if a meeting were held

and the recommendations were favorable to an increase in the rate, the
question might well arise whether such action should be taken, even
though an urgent need could not be demonstrated, in order to avoid the
Possibility of pressure being exerted at a later date on the grounds
that 17-loan financing, perhaps in a particular case, could not be obtained.

He thought it would be advisable to try to get some opinions on

'whether the V-loan program would continue to be useful with the current
plaximum rate in effect, and also to have information on the experience
of commercial banks with respect to servicing charges on guaranteed loans.
After further discussion, during which Mr. Vest withdrew from

the meeting, it was suggested that Mr. Boothe endeavor to obtain a further
indication of the views of the Defense Department, in memorandum form if
13°Essible, and that he also request the comments of General Services AdIllinistration and the Atomic Energy Commission, the other guaranteeing




(S34

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-6-

agencies likely to be most interested in the matter.

This would be

with the understanding that the Board would then consider whether to
request the views of the Federal Reserve Banks, call a meeting of all
Of the guaranteeing agencies for the purpose of consultation, and confer with the Small Business Administration.
There was unanimous agreement with the suggested procedure.
Messrs. Boothe and Hackley then withdrew from the meeting.
Governor Robertson reported having received a copy of a letter
addressed to Deputy Comptroller of the Currency Jennings by the Chairman of the Executive Committee of the National Association of Supervisors of State Banks which expressed opposition to both the Celler
bank merger bill (H.R. 59)4-8) and the compromise bill developed by the
three Federal bank supervisory agencies, on the grounds that no legislation was needed and that the State authorities were in a better position to pass on proposed bank mergers than any Federal agency.

The let-

ter, he said, indicated that the State supervisors were prepared to
Present that point of view in testimony before Congressional committees.
They appeared to feel that the Federal banking agencies, in drafting the
c°mPromise bill, should have obtained the supervisors' views through
their representative on the Interagency Committee on Bank Supervisory
M
atters.

Actually, Governor Robertson said, the subject was discussed

at an earlier stage when a former State bank supervisor was serving on




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4/25/56

the committee, and it was also discussed at the most recent meeting of
the committee, held on April 3, 1956.

While his purpose at this time

was only to inform the Board concerning the letter, he felt that some
response might be advisable in the light of developments.
The meeting then adjourned.
Secretary's Note: During the day
Governor Balderston approved the
following items on behalf of the
Board:
Memoranda from appropriate individuals concerned recommending
actions with respect to the Board's staff as follows:
Appointment, effective upon the
date of assuming duties
Division

Name and title

Bank Operations

Thomas 0. McConnell,
Analyst
Salary increases

Basic annual salary
*5,440

effective May 6 1956

Division

Name and title

Basic annual salary
From
To
_

Research and Statistics
Philip T. Allen, Economist
Gladys D. Bosben, Draftsman
Rose C. Cassedy, Statistical Assistant
Ruth H. Reehling, Clerk
Alice M. Taylor, Clerk

*8,430
3,515
1+,210
4,750

4,885

4,750

4,885

4,525

5,44o

3,600
4,345

Bank Operations
Robert L. Hill, Analyst




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)effective May 61 1956 (continued)
Salary increases

Division

Name and title

Basic annual salary
From
To

Examinations
Charles H. Bartz, Federal Reserve Examiner
R. R. Russell, Assistant Federal Reserve
Examiner
William S. Wait, Review Examiner

6,86o
4,930

*7,035
5,065

6,82o

7,570

2,690
3,555

2,775
3,64o

Administrative Services
Robert I. Stewart, Messenger
Herman L. Tobler, Guard
Acceptance of resignations
Marjorie B. McCutchan, Records Clerk, Office of the Secretary, effective May 4, 1956.
Ruth H. Rideout, Cafeteria Helper, Division of Administrative Services, effective April 16, 1956.
Memorandum dated April 18, 1956, from Mr. Young, Director, Division of Research and Statistics, recommending the appointment, effective
April 25, 1956, of Guy H. Orcutt, Associate Professor of Economics at
Harvard University, as a Consultant for the remainder of 1956, for work
on the consumer credit, consumer finances, and related surveys, on a
temporary contractual basis and with compensation at the rate of *50 per
day for each day worked for the Board, either in Washington or outside
the city, plus a per diem in lieu of subsistence for the amount of time
spent in a travel status in connection with his assignments and transPortation in accordance with the Board's travel regulations. The memorandum recommended that, for purposes of travel, Professor Orcutt's
headquarters be considered to be either his home or place of business.
Letter to Mr. Wiltse, Vice President, Federal Reserve Bank of
New York, reading as follows:
In accordance with the requests contained in your
letter of April 19, 1956, the Board approves the appointment,




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effective today, of the following employees of your bank
as assistant examiners for the Federal Reserve Bank of
New York:
Donald F. Gaffney
Walter LaForge
Palmer K. Mahaffey

John E. Palm
Emil J. Paul

It is noted that Mr. LaForge owns 16 shares of stock
of Bankers Trust Company, New York, New York, a State member bank, and that he will not be permitted to participate
in any examination of that bank until he has disposed of
such stock. It is understood that the sale of the stock
should take place in about one month. Please advise the
Board when the stock has been sold.
The Board also approves the designation of A. John
Maher as a special assistant examiner for the Federal Reserve Bank of New York.
Letter to Mr. Peterson, Vice President, Federal Reserve Bank of
St. Louis, reading as follows:
In accordance with the request contained in your
letter of April 18, 1956, the Board approves the designation of Clifton B. Luttrell as a special assistant
examiner for the Federal Reserve Bank of St. Louis.




Assistant Secretary