The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes of actions taken by the Board of Governors of the Pederal Reserve System on Friday, April 29, 1949. The Board met it the Board Room at 10:35 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Varderum Clayton 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 Vest, General Counsel Nelson, Director of the Division of Personnel Administration Messrs. Davis, Earhart, Leedy, Peyton, and Young, Presidents, respectively, of the Federal Reserve Banks of St. Louis, San Francisco, Kansas City, Minneapolis, and Chicago, and Mr. Rounds, First Vice President of the Federal Reserve Bank of New York. Pursuant to the understanding at the meeting on April 21, 1949 'this meeting was arranged with the officers of the Federal R"erve Banks listed above, who are also officers of the Retirement of the Federal Reserve Bfinks, for the purpose of discussing r8teilli illIrestMent policy of the Retirement System. At the relo Chairman McCabe's request, Mr. Earhart discussed briefly c'rt Prepared under date of February 24, 1949, by the special e°kaitt, Of the Presidents' Conference on investment policy of '.1111}1 hewas Chairman. Mr. Earhart pointed out that the report had PNC'e, 0 I04, V29/19 -2- hc)t Yet been considered by the Presidents, but that it was tc be dis. cllssed at the forthcoming Presidents' Conference. Following Mr. Earhart's statement of the contents of the comkttee,s report, Chairman McCabe stated that the Board had discussed the question of Retirement System investment policy at some length end had agreed that a program might be presented for the consideration or this group and the Presidents' Conference. At his request, the "etement approved at the meeting of the Board yesterday was then re") and copies were distributed to those present. Mr Davis asked whether the alternatives set forth in the thi Paragraph of the statement meant that if the 3 per cent rate of ee.r.4 ngs on Retirement System funds was not attained by the end of 1950 Or Imaintained thereafter, it would then be necessary to choose betv eell a reduction in the interest base for calculation of retirement r44,4 operations or the adoption of an investment policy which would e Only Government and Government guaranteed obligations as a huts tor a guarantee of all of the benefits of the Retirement System by the Federal Reserve Banks. There followed a lengthy discussion, during which Messrs. 7111"deman. and Clayton stated that they would prefer to 4term ins at this time the basis upon which a full guarantee of Rettreltie nt System benefits would be justified. However, they joined th the other members of the Board present in the understanding that .3_ 4/29/49 the second alternative in the third paragraph of the statement did " 11 necessarily imply a policy which would limit investments to Govern14ellt and Government guaranteed securities but that if at the end of 1950 the 3 per cent rate was not earned, there would be a determination "the policy which would justify a guarantee of Retirement System benefits. Changes in the language of the statement were suggested duri4g the discussion but none of the changes was agreed upon. At the c°4clus1on of the discussion, it was agreed that the suggestions cont411.1 at th in the Board's statement would be presented for consideration meeting of the Board of Trustees of the Retirement System to be helcl on May 4, 1949. Chairman McCabe then referred to a draft of letter which had beell di8 cUssed at the meeting of the Board on April 22, 1949, in Ithi the Federal Reserve Banks would be authorized to supplement 411.01,1 ellees of retired members of the Retirement System, and he raised tie gllestion whether authorization should permit the supplementing e'llowances of persons who retired before age 65. In the ensuing discussion, Mr. Rounds stated that a considert Uniber of persons had retired between the ages of 60 and 65 at -8 in effect the request of the employing Banks, and that it lAre,a be, 1-leved to be desirable to supplement the allowances of those Atirsolis mellY of whom were receiving comparatively small allowances. /418 ' -tso stated that while there was no obligation to supplement 4/29/49 -4- a llowances of individuals or 50 and 6o, who voluntarily retired between the ages where persons within that age group were retired at the request of the Reserve Banks and where the Banks considered th "especially meritorious circumstances warranted, they might be gi7ela authority to increase allowances along the lines suggested fc'r those who retired after attaining age 6o. At this time Messrs. Davis, Earhart, Leedy, Peyton, Young, 844 Rounds withdrew from the meeting. There was a further discussion at the conclusion of which it was agreed unanimously that the draft of letter referred to above should be revised along the lines of the discussion and resubmitted to the Board. There were presented telegrams to the Federal Reserve Banks Or ' ' 11 York, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, 41188. 8 City, Dallas, and San Francisco, stating that the Board NPDrov .es the establishment without change by the Federal Reserve Bank Or s 811 Pl'anCiSCO on April 26, by the Federal Reserve Bank of St. Louis 1:1111 27, and by the Federal Reserve Banks of New York, Cleveland, 111 11J4 °lid, Chicago, Minneapolis, Kansas City, and Pallas on April 28, 1949, or the rates of discount and purchase in their existing sehetialles. Approved unanimously. The meeting recessed and reconvened at 2:30 p.m. with the 41111. ero t --anoe as at the close of the morning session. 765 4/2 9/49 -5Mr. Clayton referred to the discussion at the meeting on APril 21, 1949, with respect to proposed legislation regardin g caPttal requirements of member banks and stated that the Budget Bilreau had furnished the Board with a copy of a letter dated April 28) 1949, from Chairman Hanl of the Federal Deposit Insurance e°rPoration opposing such legislation and suggesting an alternative to :04 that the legislation might take. He also said that the proposed Iternative was entirely unacceptable, for the reasons which he oute, and that he would recommend that the Board authorize sending the legislation to the Senate and House Banking and Currency Comkittees with a letter in the form sent to the Bureau of the Budget c)114arch 17, 1949. Mr. Clayton's recommendation was approved unanimously. At this point Messrs. Riefler, Vest, and Nelson withdrew and thaetion stated with respect to each of the matters hereinafter rererred to was taken by the Board: Minutes of actions taken by the Board of Governors of the 4CIer 1 -0 a -eserve System on April 28, 1949, were approved unanimously. 12411 Memorandum dated April 29, 1949, from Mr. Young, Associate tOr of the Division of Research and Statistics, recommending 48e5. in the basic annual salaries of the following employees in th4A t ivision, effective May 1, 1949: 76(-; V29/49 -6- Name ,„.... Title tarY P. McCormick incilica F. Jones Draftsman Clerk Salary Increase From To $2,947.-72 $3,024.96 2,799.24 2,724.00 Approved unanimously. Memorandum dated April 27, 1949, from Mr. Millard, Director °f the Division of Examinations, recommending that the resignation °f 411rence H. Bugg, an Assistant Federal Reserve Examiner in that rIbrillion, be accepted to be effective, in accordance with his request, 4t the close of business May 5, 1949. Approved unanimously. Memorandum dated April 28, 1949, from Mr. Millard, Director Ot the JAvision of Examinations, recommending that the resignation of kr ' Allna Mae S. Cowger, a stenographer in that Division, be accepted 8 to b.. effective, in accordance with her request, at the close of busi' 448 May 13, 1949. Approved unanimously. Memorandum dated April 27, 1949, from Mr. Bethea, Director of thet1 of Administrative Services, recommending the appointment Or 'Mary E. Senders as a stenographer in that Division, with 14/13 beett sellarY at the rate of $2,874.48 per annum, effective as of the (late 119°4 which she enters upon the performance of her duties after 11011b0. 138.eeed the usual physical examination. Approved unanimously. Letter to Mr. Peyton, President of the Federal Reserve Bank of 767 4/29/49 -7- 14inteapolis, reading as follows: "In accordance with your letter of April 25, 1949, the Board of Governors approves the payment of salary to Herbert Hallehberg for a period not to exceed December 31, 1949 with the understanding that if Regulation W should be terminated before that time Mr. Hallenberg vill be separated from service as soon thereafter as feasible." Approved unanimously. Letter to the board of directors of "The Thompsonville Trust Co14184Y", Thompsonville, Connecticut, stating that, subject to conditions Of membership numbered 1 and 2 contained in the Board's 4t1on H, the Board approves the bank's application for member'al the Federal Reserve System and for the appropriate amount of Stock 14 the Federal Reserve Bank of Boston. Approved unanimously, together with a letter to Mr. Erickson, President of the Federal Reserve Bank of Boston, reading as follows: "The Board of Governors of the Federal Reserve System ?Proves the application of 'The Thompsonville Trust 4.°1111)6LAV, Thompsonville, Connecticut, for membership in ' 41e Federal Reserve System, subject to the conditions Irascribed in the enclosed letter which you are requested ; : lc forward to the board of directors of the institution. c) copies of such letter are also enclosed, one of which t8 fc'r your files and the other of which you are requested c° forward to the Bank Commissioner for the State of `attecticut, for his information. ac With respect to the eight nonconforming savings .!unts and the excess balance carried with a nonmember 1) as cited in the report of examination for membership, su is assumed that you will follow the matter of bringing rech accounts into conformity with the law and the Board's tiegu lations; also, that the matter of effecting improve8,s t the bank's credit files will be followed to a sfactory conclusion, "It is noted that the bank's management has agreed to 'ase the amount of its fidelity coverage to $150,000." 4/29/49 -8Letter to Mr. Erickson, President of the Federal Reserve Bank °IrBoston, reading as follows: "The Board will interpose no objection to your Bank's Proceeding with the repairs and alterations to the Bank building, as outlined in your letter of April 27, 1949, to Governor Vardaman, with the understanding that the cost vill not exceed approximately $190,000, plus any required architect's fees. "The Board realizes how eager your Bank is to proceed 'with these repairs and hopes that the work progresses smoothly." Approved unanimously. Letter to Mr. Harvey T. Hill, Executive Director, Diesel 4€ine Manufacturing Association, 1 North La Salle Street, Chicago 2, reading as follows: "Your letter of April 7, addressed to Chairman McCabe, 8uggesting that the Board lift all restrictions on stock market credit, has been read with interest. We note your /7 -ev that the 'exercise of such authority should be applied 14.°Ien we have a runaway market such as we had early in 1929' and that present margin requirements are restricting equity financing. 1, "The security loan regulations were first issued in ; 1- 34 at the direction of Congress. The Securities Exchange Act of 1934 authorized and directed the Board to prevent e excessive use of credit for the purchase or carrying of "curities. At that time, of course, there was no runaway market but nevertheless the statute suggested margin reI rnizirt:zents within a range of from 25 to 45 per cent of the price of each issue and specifically directed that uegulations be issued on the subject by October 1, 1934. illder the circumstances, it would not seem to have been the ;:tent of Congress for the regulations to be used only when have a runaway merket. sit "It is a source of strength in the present business nation that, in spite of the serious inflation elsewhere, the sZre has not been a dangerous expansion of credit in the k market. That fact has helped to prevent the general oceT from being even worse, and it will inevitably lessen theti readjustment, not only so far as the stock 769 4/29/49 -9- market is concerned but also in other parts of the economy. "As you know, there are many factors which contribute to the state of the market, at any given time, for equity securities. At a time like the present, however, when the total money supply of the country has been so greatly expanded as to be altogether redundant, it would seem most unlikely that a shortage of money or credit is a factor of much importance in restraining equity financing. In further support of this view it should be noted that in the spring of 1946, when margin requirements were 100 per cent, the stock market was at a considerably higher level, more active, and more receptive to new issues, than it is at present when margin requirements are 50 per cent. "The Board feels that present margin requirements of 50 Per cent following the reduction from the 75 per cent level effective March 30, 1949, are appropriate to present stock market and credit conditions. We are, however, continually studying the effect of the margin requirements on the economy and will be prepared to make any further changes that are required in the pane interest. The points you raise will be carefully considered in this connection. "We appreciate your point of view on this subject and Your interest in writing to us." Approved unanimously. Telegram to Mr. Knoke, Vice President of the Federal Reserve ank or New York, reading as follows: "Your wire April 28. Board approves the making of ftzrther loan or loans on gold by your Bank to Banco entral del Ecuador on the terms and conditions specified ' 11 Your wire as follows: (A) The amount to be advanced under this arrangement not to exceed $3,400,000 in the aggregate at any one time outstanding; such loan or loans to be made up to 98 per cent of the value of gold bars held in your vaults as collateral; (B) Each such loan or renewal thereof to run for 90 days, but no loan or renewal thereof to mature later than 180 days after the date of the first such loan and in no event later than November 30, 1949: (C) Each such loan and any renewal thereof to bear interest from the date such loan is made or rSf 4/29/49 renewed until paid, at the discount rate of your Bank in effect on the date on which such loan or renewal is made. "It is understood that the usual participation will be offered to the other Federal Reserve Banks." Approved unanimously. Letter to Mr. John R. Steelman, Acting Chairman of the National Sec uritY Resources Board, reading as follows: "In response to a request made in September 1948, by Mr. Arthur M. Hill, the staff of the Board of Governors has made a survey of the issues that would be encountered ta the monetary field in the event that war mobilization became necessary. The results, in preliminary and strictly confidential draft form, are enclosed for comment and discussion. "This survey is intended to bring out key issues th at may need to be considered In developing an over-all 11°110Y. It does not represent recommendations or views of either the Board of Governors of the Federal Reserve System or the National Security Resources Board." Approved unanimously. Memorandum dated April 271 1949, from Mr. Young, Associate or of the Division of Research and Statistics, recommending tha eclosure of a list of 25 banks holding the largest volume of Cobaum er instalment paper, the information to be based on call report ti4ta) t°the committee on consumer Credit of the American Bankers 4460ciation. Approved unanimous Secretary.
@FedFRASER