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91 Minutes of actions taken by the Board of Governors of the Pederal Reserve System on Tuesday, April 3, 1951. The Board met in the Board Room at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, ,Chairman Szymczak Evans Vardsman Norton Powell Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Vest, General Counsel Townsend, Solicitor Young, Director, Division of Research and Statistics Mr. Solomon, Assistant Gneral Counsel Mr. Youngdahl, Chief, Government Finance Section, Division of Research and Statistics Mr. Leach, Economist, Division of Research and Statistics Mr. Szymczak welcomed Mr. Martin and stated that the members or he Board were pleased to have him as Chairman and that they would 1(31'k with him to the best of their ability to further the work of the 1108.m. of Governors and the Federal Reserve System. He also said that 1eW Be io 118 of the current international and economic situation and the Problems with which the Board was confronted it was important theA the Chairman have the full cooperation of the other members of the lloard. Upon motion by Mr. Evans, the Secretary was requested to record Mr. Szymczak's statement in the minutes of this meeting. 4/3/51 -2Mr. Thomas presented a report on developments in the Govern- ment securities market, which was followed by a general discussion at the conclusion of which Mr. Vardaman suggested that in order to keep the members of the Board informed of developments in the credit field, it might be advisable to have the staff present at Board meetings at l'egular intervals a review, similar to the report by Mr. Thomas on °Pen market operations, covering developments in consumer credit, real estate credit, and stock market credit. This suggestion was discussed briefly but no conclusions were reached. Mr. Evans and Mr. Vardaman stated that they felt that further '311sideration should be given to the question of raising reserve retlirements of member banks in central reserve cities to the maximum Dermitted by statute. After discussion, itwas understood that the matter would be placed on the docket for consideration at the meeting of the Board on Tuesday, April 10. At this point Mr. Koch, Chief, Banking Section, Division of Ilesearch and Statistics, joined the meeting. There were distributed copies of the second report, dated April 1951, of the task force headed by Mr. Young, which had been requested 11 the committee appointed by the President on February 26, 1951, of Mr. Wilson, Director of the Office of Defense Mobilization, was leting Chairman, to study methods of providing supplemental authority "el' bank reserves. V3/51 Mr. Young said that at the last meeting of the task force, held on Thursday, March 29, the members reached agreement that any suPplemental reserve plan should apply to all insured banks but there continued to be divergent opinions as to the most desirable plan, Mr. aas, the Treasury Department representative on the task force, favorthe primary (securities feature) reserve plan, with the option cIT holding the additional requirements in cash or Government securities, 141% Young favoring the loan expansion reserve plan, and Mr. Colm, the ' lsPresentative of the Council of Economic Advisers, favoring a combination of the two plans. In the circumstances, Mr. Young said, it was clecided to submit a report outlining the features of the two plans 411C1 a combination plan, presenting drafts of legislation for all three and stating that it was recognized that various factors would 114:76 to be considered in selecting the most appropriate plan, that the task force had not attempted to evaluate these factors, and that Ihere was no general agreement among the members of the task force with Npect to all of the elements of the three plans or as to the 11Periority of one plan or combination of plans. Mr. Young added the't the plans had not been discussed by the task force with the 13Et4king community. Mr. Young stated that the task force also discussed the ceiling tete trva plan, which would place a ceiling on credit that could be granted )3y 44Y individual bank, and it was agreed by the members that such 4/3b1 authority was not required at this time, although it was felt that if hostilities should begin on a broad scale it might be necessary to seek legislation of this kind. Mr. Young also commented on a meeting of economists representmost of the Federal Reserve Banks, which was held at the Board on 41daY, March 30, to obtain their views with respect to the alternative 811PPlemental reserve plans. He said that attention was given to a letter received tinder date of March 27) 1951 from President Sproul Or the Federal Reserve Bank of New York, setting forth the thoughts of himself and his staff concerning further credit control devices 845* supplemental reserve plans. In this letter the opinion was ex- 13ressed that the principal reliance for credit control over the foreseeable future should be placed upon open market operations under the recent Treasury-Federal Reserve agreement) but that in this context small iller'e4SeS in primary reserve requirements, preferably for both member 8.41 nonmember banks, could be a useful adjunct to open market operations, esPecially to maintain pressure on bank reserves in times when large 144 *eqUent Treasury refunding operations might inhibit a fully erre ctive use of open market operations. After thorough discussion at that meeting, Mr. Young said, there was little sentiment among the ' - ve Bank economists in favor of the idea of additional authority over Primary reserve requirements, since it was felt that the adjustment Ob re serve requirements would be too clumsy and too inflexible a device 719 4/3/51 -5- to be used effectively in the manner suggested in Mr. Sproul's letter, that there would be serious objections from various sources to applying the authority to nonmember banks, and that, if it were not so aPPlied, the differential in requirements as between member and nonember banks, in addition to being inequitable, might cause a substantial 111-raber of withdrawals from membership in the System. Mr. Young went 0/1 to say that the economists were not favorably disposed toward any Plan which would include the option of holding Government securities a8 Part of reserves on the grounds that any such plan would not be well l'eeeived by the financial community and that it would not be very effective If used as a substitute for a straight increase in primary l'eserve requirements unless substantial additional authority was provided. Mr. Young stated that the loan expansion reserve plan appealed e°11eiderably to the Reserve Bank economists, particularly because it *kid be selective between banks and would not apply to conservative iltitutions, and also because of its flexibility. He added, however, that some reservations were expressed concerning the plan on the grounds that it would be too strong a measure over a period of time and would tcl'ee lending activities into the hands of insurance companies and 11(Wp8.nk lenders. There followed a general discussion, at the conclusion of which it was understood that Chairman Martin, after having had an opportunity to study the report of the task force, would take the matter up F4" 4/3/51 20 -6with the Wilson Committee and thereafter would report back to the Board with a view to expediting the suhmission of the necessary recommendations concerning legislation to provide increased authority over bank reserves. At this point all of the members of the staff with the exception °f Messrs. Carpenter, Sherman, and Kenyon withdrew, and the action stated with respect to each of the matters hereinafter referred to Ika taken by the Board: Minutes of actions taken by the Board of Governors of the Pederal Reserve System on April 2, 1951, were approved unanimously. Memorandum dated February 5, 1971, from Mr. Marget, Director Qf the Division of International Finance, recommending the appointment °I% Mies Martha Jane Farley as a clerk in that Division, on a temporary 11141efinite basis, with basic salary at the rate of 0,227 per annum, el fective as of the date upon which she enters upon the performance of hel 'duties after having passed the usual physical examination and " )Ject to the completion of a satisfactory employment investigation. Approved, Mr. Vardaman voting Letter to Mr. Clarke, Secretary of the Federal Reserve Bank Or II York, reading as follows: "This will acknowledge your letter of March 23, 1951, advising that arrangements have been made for Horst Mendershausen, an economist in the Research DePartment of the Federal Reserve Bank of New York, tO give part-time assistance during the next four to ' 1Z months to the Division of Economic Stability and 41relopment of the UN Secretariat in New York City. 72i 4/3/51 -7- "The Board of Governors will interpose no objection to the arrangements indicated in your letter." Approved unanimously. Letter to Mr. Lunding, Federal Reserve Agent of the Federal Reserve Bank of Chicago, reading as follows: "In accordance with the request contained in Mr. Dawes's letter of March 29, 1951, the Board of Governors approves the appointment of Mr. George H. Schussler as Acting Assistant Federal Reserve Agent at his present salary of $3,900 per annum. "This approval is given with the understanding that Mr. Schussler will be placed upon the Federal .Reserve Agent's pay roll and will be solely responsible to him or, during a vacancy in the office of the Agent, to the Board of Governors for the proper performance of his duties. When not engaged in the performance Of his duties as Acting Assistant Federal Reserve Agent he may, with the approvel of the Federal Reserve Agent, .and the President, perform such work for the B3nk as will not be inconsistent with his duties as Acting Assistant Federal Reserve Agent. "Mr. Schussler should execute the usual oath of office which should be forwarded to the Board together with advice of the effective date of his appointment." Approved unanimously. Letter to Mr. Armistead, Vice President of the Federal Reserve of Richmond, reading as follows: , "Reference is made to your letter of March 231 ' j951, advising that, due to unavoidable delays in the construction of a branch bank building, the 14,echovia Benk and Trust Company, Winston-Salem, l'orth Carolina, requests a further extension of the ime within which it may establish its West Asheville °ranch. "In accordance with your recommendation the Board of Governors extends to May 8, 1951, the time V3/5i -8- "within which the bank may establish the branch at West Asheville, North Carolina, under its approvul granted August 8, 1950." Approved unanimously. Telegram to Mr. Symms, Vice President and Cashier of the Federal Reserve Bank of Sun Francisco, reading as follows: "Re your wire March 30. We understand that while suggestion for new section 16 of guarantee agreement concerning right to obtain benefit of changes in guarantee agreement was made in case of Northrup Aircraft, this suggestion was not approved by Department of Air Force. As indicated in Board's letter of December 4, 1950 (V-8), guaranteeing agencies will not approve amendments to guarantee agreement in individual cases unless amendment is adopted for general use in all cases." Approved unanimously. #111/11111" lOW-4/11trileAe Secreta
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