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Minutes of actions taken by the Board of Governors of the l'etieral Reserve System on Thursday, April 28, 1949. The Board Zet in the Board Room at 10:05 a.m. PRESENT: • Mr. Mr. Mr. Mr. McCabe, Chairman Szymczak Draper Vardaman Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Vest, General Counsel Leonard, Director, Division of Bank Operations Nelson, Director, Division of Personnel Administration Millard, Director, Division of Examinations Young, Associate Director, Division of Research and Statistics Hostrup, Assistant Director, Division of Examinations Smith, Special Counsel Mr- Smith reported his observations of the Clayton Act prociLing. against Transamerica Corporation on the West Coast. In the ..°11t8e of his comments, Mr. Smith stated that, thus far, the Board's 1.11 or subpoena power did not appear to have prevented Mr. Townsend, thetoatats solicitor, from offering any evidence of facts which he 111411". t0 Prove, but it had tended to make the presentation of the 11°13.11's case more time-consuming than it otherwise would be and had r(Iteeci MI% Townsend to rely to a considerable degree on secondary elrideace of a character which would not ordinarily be admitted even 14 44 Mr. Smith stated that he was une.bie adaunistrative proceeding. to s 4Y whether the lack of subpoena power would prejudice 74-9 4/23/49 -2- the respondent's case but that the respondent was carefully laying the ground for taking an appeal on the basis that it had. In reto a question from Mr. Vardaman, Mr. Smith stated that accordto statements made by Mr. Townsend at the hearings, none of the " ence introduced by Mr. Townsend had been taken from national bank °1"lination reports, that because of the lack of subpoena power it IlasIleoessary for the Board's Solicitor to present secondary evidence, that such evidence was taken from the records of the respondent and it8 affiliates by examiners of Federal Reserve Banks, that in his °PirLion such evidence was admissible for the purpose intended, and that it had been made clear in the records that the respondent could 'Perify the evidence and, if it fonni it wrong, bring in its records ta .Ault such error. Mr. Vardaman stated that he understood that pursuant to action ttlits Board on January 31, 1945, at least some of the examination reOf Tr ansamerica Corporation had not been made available to the C°1'rPo ati that he felt that such reports should be made available tc the Corporation on the same basis on which reports of examination or e'ltks. are made available to the banks, and that he would raise for ici er4tion at a future meeting of the Board the question of returning tc the 1. ' °rraer practice of furnishing reports to holding companies. letters ChairmanMcCabe suggested that, for reasons which he stated, and telephone calls made to Messrs. Evans and Townsend in con- Vith the proceeding against Transamerica be channeled through • Mo,_ Arilit s ta office, and it was understood this procedure would be kr the future. 750 4/28/49 -3At this time Chairman McCabe withdrew from the meeting to keep another appointment. Mr. Vardaman stated that he was opposed to the introduction illto the record of the Clayton Act proceeding of any testimony exfrom national bank exAmination reports or from any privileged "Ctin --n of any Federal Reserve reports which the respondent had not been allowed to examine in due course. He also stated that he would like to have the Board clarify the position taken by its action of 4411ar7 31, 1945, with respect to mak1)16 r.ttlerial from examination re.cirt8 of holding companies available to these companies and the ruling clt tile Hearing Officer in the Clayton Act proceeding under which certel.% ' Information contained in reports of examination of Transamerica e°1"Porati ---on were made available to the Corporation. He reiterated th4t h e felt if such information was going to be used in a public hear14) thA -- examination reports should be made available to the subject (114Pemar -In. the same manner and to the same degree that examination re15°118,, "ere made available to member banks. 141'. Vardaman also referred to a letter from the Comptroller of t4elltrency dated February 24, 1949, stating that that office would 45t1)ermit national bank examiners to appear as witnesses in the Clay- c)114et pr oceeding. He said that the letter did not reach his office 1141;11 the morning of April 25 and that he would like to discuss the 114111114 of the letter at a meeting at which Chairman McCabe was present. At this time Messrs. Hostrup end Smith withdrew and Mr. Eccles ezlt erea the meeting. • 4/28/48 -4Mr. Vardaman then referred to a memorandum from Mr. 111°Mas, dated March 31, 1949, recommending increases in the salaries "Messrs. Dembitz, Williams, Hersey, and Tamagna, economists in e thi, Afivision of Research and Statistics. He stated that he was not ug the justification of the increases on the basis of the " -JAY of the individuals but that he felt the method used in reclassifYing their positions was not in accordance with the procedure 41"eed upon by the Board at the time it approved changes in the or igallization of the International Section of the Division of Research el4St atistics on December 17, 1948. During a discussion of the proposed salary increases, Mr. ce.1 es suggested that the matter be referred to the Personnel Cornee '4 th a request that it submit a recommendation to the Board 48 to (1) the maximum salaries that the Board would be justified in 141.Yi/N. -16 to heads of the various units of the International Section of the R esearch Division, (2) the maximum salaries that would be justified. heads of other sections and units in the Research Division, elkl (3 ) the relationship of such maximums in the Research Division to tlie ' rna imum salaries for section and unit heads in other Divisions "the t oard's organization. Mr. Eccles also stated that since Mr. na,114ma 'Chief of the National Income, Moneyflows, and Labor Section the ti ' visl°n of Research and Statistics, had taken on substantial e4clitioh1 . --"4. duties in recent months in connection with the moneyflows 4/28/49 -5- mad income studies, the reclassification of his position to a hieher level, (Group Y - salary $10,305 - $10,330) seemed approPiate He suggested, therefore, that the Board approve an in- crease in Mr. Williams' salary from $9,407.25 to $10,305, the 141-111.1fluit of his present group, effective as of the beginning of the next payroll period. Chairman McCabe entered the meeting at this time. Following a discussion, upon motion by Mr. Eccles, his suggestions were approved Unanimously. In taking this action, it was understood that until the report requested was submitted, no action would be taken with respect to the recommendations for increases in the salaries of Messrs. Dembitz, Hersey, and Tamagna. Mr. Draper referred to a memorandum prepared in the Legal 1"mion under date of April 18, 1949, with respect to the possible 8111eldtent of Section 13b of the Federal Reserve Act. Copies of the triell(3randual had been sent to all members of the Board before this leeting in accordance with the action taken at the meeting on April 5/ 1949. During the ensuing discussion, it was stated that the t was listed on the agenda of the forthcoming President's OQI:Lre r'ence, and Chairman McCabe suggested that the matter be coneider ed at a meeting of the Board after it had been discussed with the, rre sidents. This suggestion was approved unanimously. 4/28/49 -6A draft of memorandum with respect to investment policy Or the Retirement System, prepared in accordance with the discusBicla at the meeting of April 261 1949, was then read. The memorandum was discussed and, upon motion by Mr. Draper, approved unanimously in the following amended form for use in the discussion at the meeting to be held on April 291 1949, with certain of the Presidents of the Federal Reserve Banks who were officers of the Retirement System of the Federal Reserve Banks: "The Board of Governors has given further consideration to the problem of the investment policy of the Retirement SYstem of the Federal Reserve Banks in the light of discussions with the Presidents of the Federal Reserve Banks and the report of the special committee of the Presidents' Conference, of which Mr. Earhart is Chairman. While it is Understood that the Presidents' Conference has not considerthe committee's report, the Board wishes to state its views on investment policy for consideration at the forthcoming conference. "It is understood to be the consensus of the Presidents .btat they would prefer to continue the present policy with henges in investments designed to increase the average : . 15trrtings to a 3 per cent level. This is the approach of .ehe special committee report which states that 'if earnings 3all be ultimately brought up to an average of approximately Per cent, that would be the best solution to the problem.' The Board of Governors would be willing to agree to such 4 Poll_ rol , cY until say, December 31, 1950, with the hope that by a ;Tling a somewhat more diversified, but at the same time v,'1"isfactory and sound policy from the Board's point of ew, the earnings on investments could be brought up to 3 a r cent. In the event that objective was not attained by the art 'f 1950, or the 3 per cent rate was not maintained therer, the Board would expect that action would be taken to: (1) (2\ Reduce the interest base to some appropriate figure, or _i Adopt an investment policy which would justify a rantee by the Federal Reserve Banks of the benefits parnded by the Retirement System. This position on the vie%of the Board represents a compromise of the varying aie,! or its members and was arrived at after a number of ocussions of the entire problem. Z M 9,)11 4/28/49 —7— "It would be the suggestion of the Board as a part of the above procedure that the present arrangement with the Northern Trust Company be discontinued and that, as suggested by the special committee report, the Retirement System employ a qualified individual as an investment counselor who would work under the direction and supervision of the investment committee. It is also suggested that it would promote better understanding and would be helpful in keeping the Board in touch with the problems arising in connection with the investment of Retirement System funds if two members of the Board, or one member of the Board and one member of its staff, served as associates of the investment committee." 9 There followed a further discussion of the question whether reserve requirements of member banks should be reduced along the nes proposed at the meeting on April 26. There was a discussin -n of the contraction in bank credit in recent months during which it was stated that the decline had been one of the most severe °n record, and of the possible effect of a reduction in reserve re(1111r ements on the Government security market. Chairman McCabe stated that he had discussed the proposed reduction with Mr. Sproul, Vice Chairman of the Federal Open Market Comprli++ "dee, that he would also discuss it with Mr. Leach, the remaining nieillber of the Executive Committee of the Federal Open Market Committee, alld that Mr. Sproul felt that a reduction such as that proposed would be wise. At the close of the discussion, Mr. Vardaman moved that member bank reserve requirements against net demand deposits be reduced by 2 percentage points for banks in central reserve cities and 1 percentage 755 4/28/49 -8point for other member banks, and that reserve requirements against time deposits be reduced by 1/2 percentage point for all member banks, effective May 1, 1949 as to banks in nonreserve cities and May 5, 1949 at other banks. Mr. Vardaman'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 the supplement of Regulation D, Reserves of Member Banks: "SUPPLEMENT TO REGULATION D "Pursuant to the provisions of section 19 of the FedReserve Act and section 2(a) of its Regulation D, the Board of Governors of the Federal Reserve System hereby prethe following reserve balances which each member °rank of the Federal Reserve System is required to maintain °4 deposit with the Federal Reserve Bank of its district: "7 per cent of its time deposits plus -15 per cent of its net demand deposits if not in a reserve or central reserve city; 21 per cent of its net demand deposits if in a reserve city, except as to any bank located in an outlYing district of a reserve city or in territory added to such city by the extension of the city's corporate limits, which, by the affirmative vote of five members Of the Board of Governors of the Federal Reserve System, is permitted to maintain 15 per cent reserves against its net demand deposits; 24 per cent of its net demand deposits if located in a central reserve city, except as to any bank located in an outlying district of a central reserve city or in a territory added to such city by the extension of the city's corporate limits, which, by the affirmative vote of five members of the Board of Governors of the Federal Reserve System, is permitted to maintain 15 per cent or 21 per cent reserves against its net demand deposits." The following statement for the Press for release in the morning newspapers of April 29, 1949 was approved unanimously, with the underthat it would be sent by telegram to the rresidents of all Federal Reserve Banks at once: 7513 4/28/49 -9- "The Board of Governors has reduced the amount of reserves required to be maintained with Federal Reserve Banks by banks which are members of the Federal Reserve 0,, System as follows: 4c4et demand deposits Effective entral reserve city banks From 26 to 24 per cent May 7,1949 Reserve city 0N May 5, 1949 " 22 to 21 " " banks _ ?nreserve city banks 1, 1949 May " 16 to 15 --;ip_Le deposits ntral reserve and reserve RCity banks From 7-1/2 to 7 per cent May 5, 1949 °r`reeerve city banks May 1, 1949 7-1/2 to 7 " " " "The effect of these decreases will be to lower the required reserves of banks in central reserve cities by aDProximately 500 million dollars, of banks in reserve cities by approximately 350 million dollars, and of banks in nonreserve cities by 350 million dollars. "On September 8, 1948, the Board increased reserve reIllirements of member banks to the higher figures given 6 ctu°70, under the temporary additional authority granted by gress in the preceding August. This supplemental authority permitted a maximum of 4 per cent to be added to atutory reserve requirements on demand deposits and of 1442 Der cent on time deposits. take "'The present action: ' Chairman McCabe stated, 'vas „ n in furtherance of the Board's policy of adjusting all it8 credit regulations in accordance with changing econo' b c conditions and the credit requirements of the current brineas situation. Since the first of the year there has dja a decline of approximately one and one-half billion de:!'are in loans at member banks. About one billion of this has occurred at member banks in New York and Chicago w;the central reserve cities. The remainder of the decline trlargely at banks in reserve cities. In view of this of loans and the fact that requirements at the New York ,Chicago aur banks had been increased from 20 to 26 per cent to 44 1948 the Board felt that it was appropriate at this time sortireduce the requirements for the central reserve city banks more than for other member banks. We have frequently staetlihat that showr credit regulations are not a one-way street. They rebe tightened or relaxed as general economic conditions quire.,fl Unanimous approval was also given to the following statement for publication in the Federal Register: 75' 4/28/49 -10- "This amendment is issued pursuant to the authority granted to the Board of Governors by section 19 of the Federal Reserve Procedure Act, and the prior Publication described in section 4(c) of such Act, are impracticable, unnecessary and contrary to the public interest in connection with this amendment for the reasons and good cause found as stated in section 262.2(e) of the Board's Rules of Procedure (Part 262), and especially because such notice, procedure and prior publication would prevent the action from becoming effective as Promptly as necessary, and would serve no useful purpose." At this point Messrs. Vest, Leonard, Nelson, Millard and YO11vi -416 withdrew and the action stated with respect to each of the " .ers hereinafter referred to was taken by the Board: Minutes of actions taken by the Board of Governors of the Pecte 18.1 Reserve System on April 27, 1949, were approved unanimously. Letter to Mr. Wayne, Vice President of the Federal Reserve ta4k Richmond, reading as follows: "Reference is made to your letter of April 18, 1949, bmitting the request of The Washington Loan and Trust v°11113anY, Washington, D. C., for approval under the proof Section 24A of the Federal Reserve Act, of an ad ditional investment of $50,000 in bank premises, for the Pose of modernizing its main office quarters. In view of your recommendation, the Board of Goverriors approves the investment of not more than $50,000 as Proposed." r Approved unanimously. Letter to the Office of the Chief of Finance, Department of the reading as follows: This refers to your letter of March 21, 1949, with to a shortage of two notes in a package of $10 " tomination Federal Reserve notes of the Federal Reserve (4 _ Peet 4/28/49 -11- Bank of Kansas City. Upon receipt of your letter we asked the Federal Reserve Bank to investigate the matter. A report has been received, from which the following is quoted: "According to the people in our Money Department, the Package of $10 bills in question was paid out by us about two months ago to an officer in the United States Army by the name of Ginette, who at the time was acting as Finance Officer at the Quartermaster Depot here in Kansas City. About ten days after the money was paid out to Officer Ginette, a Captain Senmends brought to the bank a package Of new ten's and claimed there was a shortage of two bills in it. We were informed that during the interval from the time we paid the package of money to Officer Ginette and the daY Captain Seamands brought the package in to claim the Shortage Officer Ginette had been transferred to another Post (St. Louis, we believe) and was succeeded here at the quartermaster Depot by Captain Seamands. The latter seemed Uacertain as to whether or not the money was counted when he took over from Officer Ginette. "'While our people are unable to say definitely that Officer Ginette actually piece-counted before leaving the bank the money in which the shortage is reported to have 2ccurred, they do recall that it was usually his practice ‘ 0 do so, using a cage off our lobby for this purpose. "'When Captain Seamands came in to report the shortage, • exPlained to him that new money was paid out by us withCount as received from the Treasury Department, and that would be glad to report the claimed shortage to the However, the Captain said he thought he could • the matter adjusted without reporting it to the Treasury, that, up until now, was the last we had heard of It. 0 , For your further information there is enclosed a copy the Board's letter dated December 18, 1943, to the Bureau • 1,1446uPpl1e6 and Accounts of the Department of the Navy, ch sets forth the uniform policy of the Federal Reserve 4Stem with respect to honoring claims for shortages in re.IllsencY paid to Navy disbursing officers. This policy d ates as well to shortages in currency paid to Army dir 'sing officers, and your attention is particularly c _ected to the items numbered 3 and 4 in the letter, which suever deliveries made over the counter at the Federal Reth, e Bank, as the case in question was a transaction of : , .L8 type Approved unanimously. 'S9 V28/1.9 -12Letter to Mr. N. L. Armistead, Chief Examiner at the Feder- al Reserve Bank of Richmond, reading as follows: "This refers to your letter of April 20, 1949, transmitting papers in connection with an amendment to the Charter of The Peoples Bank, Beaufort, South Carolina, and a copy of an opinion of your Counsel with respect to the validity of the amendment. The Board's Legal Division agrees with the opinion and recommendation of Mr. Wallace that steps taken to carry out this amendment are substantially effective for their purpose and that no objection on behalf of the Federal Reserve System be interposed to the issuance of the stock in accordance with the certificate Of the Secretary of State of South Carolina." Approved unanimously. Letter prepared in accordance with the action at the meeting il 19, 1949, to Mr. Peyton, President of the Federal Reserve tam, ct Minneapolis, reading as follows: ,, "In our letter of February 24, 1949 it was stated Laat the question of the motion picture project for which an i+ —dem of ' +20,000 a was included in your 1949 budget would be discussed further with you by Chairman McCabe and be .1;aviewed with you briefly at the time of the recent Presi'ent's Conference. "The Board has recently given further consideration, .in 1. the light of Chairman McCabe's discussion with you, ° the question of remaking your motion picture, "Back of i; 1 n8 and with the Business", and approves your proceeding 7;ect, with the understanding that the total expenditure : 110.4-1 not exceed $20,000, of which one-half is to be paid u/' Bank and an equal amount by the Board. In taking .action it was understood that, in accordance with the pilTIssion with Mr. Powell of your BFink when he showed the c'llre to members of the Board on April 12, 1949, the 0.e ture would be made adaptable for use by all Federal Reeer-, tail e ABanks in so far as that was practicable. Mr. Thursslat Itesistant to the Board, has been designated to con. ! 11 th You and Mr. Powell in revising the film along then -- -Lines and he has been given full authority to make train 760 4/2849 -13- decisions so far as the Board is concerned as to the content of the film. "As soon as you are ready to proceed with work on the film, it will be appreciated if you will get in touch vith Mr. Thurston so that he may make such arrangements for collaboration as seem to be mutually desirable." Approved unanimously.
@FedFRASER