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4 41 Minutes of actions taken by the Board of Governors of the Pederal Reserve System on Tuesday, August 14, 19)1. the The Board met in Board Room at 10:35 a.m. PRESENT: Mr. Szymczak, Chairman pro tern Mr. Evans Mr. Powell Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Vest, General Counsel Townsend, Solicitor Young, Director, Division of Research and Statistics Marget, Director, Division of International Finance Benner, Assistant Director, Division of Selective Credit Regulation Fauver, Assistant Director, Division of Selective Credit Regulation Nelson, Assistant Director, Division of Examinations Dembitz, Assistant Director, Division of International Finance Youngdahl, Chief, Government Finance Section, Division of Research and Statistics Mr. Youngdahl presented a report on developments in the Oover 441ent securities market, following which Mr. Solomon, Assistant Qezie4al Counsel, joined the meeting and Mr. Youngdahl withdrew. Mr. Marget then presented a report on his recent trip to Europe tlbr lag Vhi -ch he attended the annual general meeting of the Bank for I4to ti°nal Settlements in Basle, Switzerland, and visited certain 111101)ea. central banks. 8/14/51 -2During the course of Mr. Marget's report, Mr. Vardaman joined the meeting and at its conclusion Messrs. Marget, Dembitz, Solomon and Nelson withdrew. Mr. Carpenter presented on behalf of Mr. Riefler, Assistant to the Chairman, who was attending a meeting outside the building, a l'eAcrt furnished by Mr. Riefler concerning the meeting yesterday afterOf the Washington Emergency Committee on Flood Relief. The report "e:ted th3t Mr. Howse, Assistant to Mr. Wilson, Director of the Office t Defense Mobilization, outlined at the meeting a program for assistance illrehabilitating the flood-stricken areas of the mid-west which he into present to the President last night and announced the formation °pa committee consisting of representatives of the Housing and Home ---14ce Agency, the Veterans Administration, the Reconstruction Finance C *Poration, and other Government agencies having lending powers, which 11141141 be under the chairmanship of President Leedy of the Federal Reserve kilat of Kansas City and would formulate a recommendation for the national tee about the organization of the lending authority. Mr. Carpenter 4qa that following the meeting Mr. Riefler telephoned Mr. Leedy, informing 41Of developments. Mr. Carpenter said that the report contained nothing which would Or action by the Board at this time and that it was presented solely a tatter of information. tiles t A copy thereof has been placed in the Board's 8 14/51 -3At this point all of the members of the staff with the excep- tion of Mr. Carpenter withdrew from the meeting. Mr. Evans stated that he had previously mentioned to the individual members of the Board that he was going to Rome to attend a "ing of the World Food and Agriculture Organization of the United ktions which he helped to organize a few years ago. thEa Mr. Evans said this meeting would be held early in November, but that he intended to leave here the latter part of September and visit a number of central bar,t. as well as the branches of American banks, en route to and from kglie, and that he wanted to go to Oxford and Cambridge and see the deans or schools of agriculture at those universities with whom he has been 4 elated in the past in agricultural matters. He also said that he had (118 cUssed the matter with Chairman Martin, who approved, and that all of t4 Itembers of the Board had indicated approval of the trip as official 1)110 4 ' 4.11ess Upon motion by Mr. Szymczak, unanimous approval was given to Mr. Evans' making the trip, it being understood that a recommendation would be submitted to the Board by the Personnel Committee at a later date with respect to reimbursement to Mr. Evans for expenses incurred by him on the trip. Mr. Evans referred to the action taken at the meeting on June 19, 1951) at which time the Board requested Mr. Norton, in the absence of Mr. and after consultation with members of the staff, to submit a 8/14/51 -4- rec ommendation as to the procedure to be followed in connection with violations of Regulation WI Consumer Credit, which may call for referral to the Department of Justice or for the institution of administrative pr oceedings. Mr. Evans stated that he had recommendations which he would like to submit to the Board, and that he would like to have prompt action taken by the Board with respect to the matter as a number of cases of violation of Regulation W were coming up which he would like to have disposed of in accordance with the procedure which he would outline. He said that he had had the minutes checked and found that various matters in connection with the enforcement program had been brought by him to the attention of the Board from time to time, but that he now proposed to submit an over-all 1Dr°gra 1 which he would recommend as a program for the enforcement of both Regulation W and Regulation X, Real Estate Credit. Ile84 In this connection, he aPPlioable paragraphs from the Board's letter of November 21, 19501 3'1207) relating to the enforcement of Regulation W. He stated that the ills°1"am outlined in the recommendations which he would submit contemplated that the Staff committee which met weekly in accordance with a long-established 4,rocedure would be kept informed of all actions taken in connection with the enforcement program. Mr. Evans then read the following statement and moved that the recommendations contained therein be approved as the procedure to be followed in connection with cases arising under Regulation W and that a similar procedure be followed in connection with oases arising under Regulation X. 8/14/>1 -)- On June 19th, during my absence from Washington, the Board requested Governor Norton, my alternate on Regulation W matters, to submit a recommendation as to the procedure to be followed in connection with violations of Regulation W which may call for referral to the Department of Justice or for the institution of administrative proceedings. Governor Norton and I discussed the matter over the telephone once or twice and it was decided that the matter should await my return to Washington, when I would submit such a recommendation to the Board. Before stating in specific terms my recommendations on this subject, there are one or two preliminary statements Which I wish to make for the record. The first is that I believe the Board should remain committed to a uniform and effective enforcement of Regulation w. Last fall, shortly after the enactment of the Defense Production Act of 190, attended the meetings of the Regulation W personnel of the Reserve Banks which were held here at the Board. I told the delegates that the Board wanted each Bank to emPhasize enforcement activities under the Regulation and that the number of Bank personnel devoted to that subject Should be fixed accordingly. I directed the Solicitor, Whose responsibility it is to handle the Board's enforcement cases, to similarly emphasize the importance of a real enforcement program, both in his talks at those meetings and. in subsequent visits which he or his assistant made to the various Reserve Banks. This past May, when the Reserve Bank Presidents were in Washington, I held a lengthy reting with them and again told them that the Board wanted , ,c) _ see all - Bonks acting alike on this important matter, and 'IleY expressed approval of the program. 0_, Following through on this program, I, together with the :t with the Assistant Attorney General at the ; 1c) iiaZe))a Justice, and a procedure for the referral of th2nlinal cases to that Department was agreed upon between ' co Department and ourselves. Next, I met with one of the ,ITlissioners of the Securities and Exchange Commission and -Wlers of his staff regarding the use, on a part-time basis, lIch hearing examiners as might be needed from time to ,in handling administrative hearings under the Regulatio '4. T when we hese steps were taken to minimize our work here could get the cooperation of other Government agencies. The Iruits of these arrangements have already begun to appear. e cases have now been referred to the Department of Justice 1'240 8/14/51 -6- under the procedure which I have just outlined. Three of them have already been approved by the Department for criminal action, including the very large New York case in which an Information has been filed by the United States Attorney there charging one of the nation-wide personal loan companies with over one thousand criminal violations of the Regulation. One administrative proceeding has been instituted by the Board and I am informed that the trial of that case has now been completed before a trial examiner in Philadelphia. The trial examiner was borrowed from the Securities and Exchange Commission. These matters are all being handled smoothly and efficiently under the direction of the Solicitor, whose background and experience in such matters is full and complete. They cannot be effectively handled except under the supervision °f someone here at the Board who is in a position to see to it that all of the enforcement measures which are taken throughout the System are uniform. We don't want to be acc used of asking a criminal prosecution under one set of facts in one Reserve District and taking some other action doing nothing in another case in another Reserve District nich involves the same set of facts. As the Board Member ng Primary responsibility for this matter, I have worked Tid am working very closely with the Office of the Solicitor ';' 1 seeking the uniform and effective handling of these cases. At another time I shall have something to propose to the Ii°ard about taking appropriate supervisory action to '?xitee that the Reserve Banks' investigative activities "". also be put on a uniform basis. Following the meeting of the Board on June 19th, the Solicit°r, at my suggestion by phone, wrote a letter to the De weartment of Justice asking for an informal opinion as to or°ther, if the Board should desire to do so, the referral 10 criminal cases under Regulation W could be made to the oreZ1 United States attorneys by the Reserve Banks. A copy Attnlr S°1icitor's letter and the reply thereto from Assistant 11sY General McInerney are attached to this memorandum, ana' 'j me ' ll want the Board to hear their contents. The Departreply bears out exactly what I have been saying for the merlt—eed of central supervision of this important enforceThe letters read as follows: Z 8/14/J1 -7"June 26, 1951. "Honorable James M. McInerney, Assistant Attorney General, Criminal Division, Department of Justice, Washington, D. C. Dear Mr. McInerney: "As you know, a program of enforcement procedure for Regulation W, now administered by the Board of Governors pursuant to the provisions of the Defense Production Act of 1950, was agreed upon between the Board and the Department of Justice. That procedure and the Department's approval thereof were outlined in the Board's letter to the Attorney General, dated September 18, 1950, and your letter dated October 5, 1950. "On May 9, 1951, Governor Evans and I met with you and Mr. Fred E. Strine of the Criminal Division. At that meeting a procedure for handling criminal reference cases inNolving violations of Regulation W was agreed upon, and the substance of that agreement is embodied in a report of investiiation of Public Loan Corporation, Walter L. Boynton and 'man Bryan Hamric, d/b/n Hamric Motor Sales, which was enclosed in the Board's letter of May 11, 1951, to you. s IlbeeqUent cases which have been referred for criminal action have followed this procedure. "The Board is now considering whether to revise the Present method by which the reference of cases for the l stitution of criminal proceedings is to be handled. e ecifically the Board is considering whether it would j a appropriate and feasible for these matters to be handled ! ' the local level, that is to say, whether the Federal Reserve' Banks, respectively, might not refer such cases directly to the United States Attorneys in the various districts in if ch the Reserve Banks are located. It would be appreciated You would advise us informally whether the Department would be agreeable to such a change in the event the Board should 'cide to put it into effect. Very truly yours, (signed) J. Leonard Townsend, Solicitor." t () 8/14/5i -8"DEPARTMENT OF JUSTICE WASHINGTON, D.C. July 6, 1951 "J. Leonard Townsend, Esquire Solicitor, Board of Governors Federal Reserve System Washington 25, D. C. Dear Mr. Townsend: "Receipt of your letter dated June 26, 1951, concernine the referral of cases recommended for criminal prosecution directly to the various United States Attorneys, is acknowledged "You are advised that the Department of Justice, by circular dated April 20, 1951, instructed all United States Attorneys that no litigation, either civil or criminal, brought under the Defense Production Act of 1950 would be referred to them by the various agencies charged with enforcement under the Act without advance clearance from the Department in Washington. This procedure was believed necsince the Defense Production Act is a new statute violations thereunder will involve regulations and orders which for some time will be in a state of active proIllUlgation and amendment. uniform enforcement throughout the "Accordingly, to secure various judicial districts, which I am sure you are interimportance of this litigaet8ited in, and because of the utmost u4T1 to our defense effort, the Department organized a special c2t in the Criminal Division known as the Defense Production ,vntrol Unit, with the function and responsibility of study'41, analyzing, and processing all criminal cases arising under o Act before referral to the United States Attorneys for 12ution. The Attorney General considered it necessary to est8 lirs7u-Lish this unit in Washington in order that constant 111.,7180n and close working relations could be established and 1,11tained between the Department and the agencies charged isT administering and enforcing the statute. Such liaison ilieved essential to good enforcement, since the Defense : Proc 4ction Act is a statute of vast legal boundaries involviii ' nor 1141-ess questions and problems of law. It was not believed, it believed now, that this Act could be enforced by the fr4 07, Ment of Justice without the maximum assistance and advice "e involved. ear;% g 8114/51 -9- "By way of information, we wish to advise that all criminal cases recommended for prosecution under the statute, without exception, are referred to the Department of Justice In Washington for clearance prior to the institution of any Proceedings. Until such time as enforcement policies and Procedures are standardized and become routine throughout the country, the Department wishes to maintain the procedure referred to above. Respectfully, For the Attorney General (signed) James M. McInerney Assistant Attorney General" Based on what I have just said and with the desire of holding to a minimum the amount of time which the other Board Members must devote to this subject, I submit the following recommendations with respect to the handling of enforcement cases under Regulation W. (1) All preliminary investigations are to be conducted by Reserve Bank personnel in accordance with the outline of enforcement procedure contained in the Board's S-letter 1207, dated November 21, 1950. (2) When the case is referred to the Board for action in accordance with S-1207, the file should be delivered to the Office of the Solicitor, whose responsibility it shall be to recommend to the Board, as promptly as Possible, the nature of the action, if any, the Board hould take in the matter. This will insure the neces4rY uniformity of enforcement action throughout the Sys-cem. : (3) The Office of the Solicitor shall thereupon prePare a memorandum to the Board which shall contain a short atement of the facts of the case and a recommendation of What action, if any, the Board shall take. This memoran, /4 shall be presented to me, or, in my absence, to Govnor Norton, my alternate. Upon my approval of the recom:relation, or that of Governor Norton in my absence, the t!P_r°Ial of the recommendation of the Office of the Solicitor shall be noted in the minutes of the Board as Board action. Any matters of special or policy significance will, Norton to the Board ct3'forT,Irse, be referred by me or Governor 1'LS consideration in particular cases. (4) Whatever enforcement proceeding is approved, every effort will be made to utilize, to the fullest extent possible, 1 -10- 8/14/51 Reserve Bank personnel. The Office of the Solicitor will, Of course, be responsible for all actions instituted in the Board's name, and will render every assistance necessary to insure the satisfactory handling of enforcement matters at the Reserve Banks, both before and after referral of the cases to the Board for action. In addition, the Office of the Solicitor will prepare such memoranda as may be necessary in connection with the referral by the Board to the Department of Justice of any cases in which criminal proceedings are approved, and will render such other assistance to that Department or to the United States Attorneys as may be necessary for the effective handling of criminal cases. Mr. Vardaman stated that he would not be willing to vote to he 've anY member of the Board or staff pass on the institution of ad14111istrat1ve proceedings, that he felt that all such decisions should ine'de at meetings of the Board, but that he would be willing to have t4,4 450ard authorize a member to refer cases to the Department of Justic, 1-or consideration of the question whether criminal proceedings shcqild be instituted. In the latter case, however, he thought it should aerstood that whenever a case was referred to the Department of IsticA - a short memorandum should be addressed to the individual members or th Board e advising them of the referral and the principal circumttezees Of the case. In a discussion of Mr. Vardaman's comments, Mr. Powell suggested that -_ 4.ecommendations for the institution of administrative proceedings 1)e,, u. on the docket with the understanding that they would be acted c)t1 by the Board on the basis of a brief statement of the circumstances irtvolveci. e'• 8114/51 -11Mr. Evans indicated that he would be willing to accept these suggestions and that he was interested in having a definitely understood Drocedure which would be clearly understood by all of the members of the 13°exd so that future questions with respect to the enforcement of Regu4tions W and X could be avoided. At the conclusion of the discussion, Mr. Evans' motion was put by the Chair and carried unanimously with the understanding that recommendation numbered 3 would be changed to read as follows: The Office of the Solicitor shall thereupon prepare a memorandum to the Board which shall contain a short statement of the facts of the case and a recommendation of what action, if any, the Board shall take. This memorandum, shall be presented to me, or in my absence to Mr. Norton, my alternate. If the memorandum recommends the institution of an administrative proceeding involving the appointment of a hearing officer and the holding of hearings, a copy of the memorandum, when approved by me or Mr. Norton, will be furnished to each member Of the Board and the matter will be placed Upon the docket for consideration at the next meeting of the Board. In all other cases, Upon my approval of the recommendation, or that of Mr. Norton in my absence, the approval of the recommendation of the Office of the Solicitor shall be noted in the minutes of the Board as Board action. In each case referred to the Department of Justice a brief memorandum will be addressed to the individual members of the Board advising them of the reference at the time it is referred and the principal circumstances of the case. Any matters of special or policy significance will, of course, be referred by me or Mr. Norton to the Board for its consideration in particular cdses. 8/14/51 -12There had also been placed on the docket for discussion at this meeting a draft of statement of policy submitted by Mr. Powell Vith regard, to the possible inflationary effects of the payment to st°eItholders in cash of the value of stock of a bank when it is lerged into another institution. Mr. Vardaman said that he would be opposed to the proposed stcttement as it would single out for criticism bank mergers and the 158*Ynient of cash to bank stockholders. It was his feeling that this vas the wrong approach and if action were taken it should be Mc'llgh the medium of a memorandum addressed by the Office of Defense Mobil4 -L1zation to all interested supervisory authorities announcing the po ltcY that approval should be withheld of all corporate mergers invol-, ving the payment of cash to shareholders in such manner as to have -.L 4 ationary aspects which would be contrary to the public interest. Ila 1 8.-e° suggested that action on the matter be postponed by the Board %Ail a 14eeting at which Chairman Martin could be present. Mr. Powell explained that he was presenting the matter again it etec °rdance with the action taken at the meeting of the Board on a% 5, 19151. He reviewed the consideration that had been given to th° Mat r te- and stated that he contemplated that if the statement of pOlicy wel ' e approved by the Board it would be sent only to the Fed1'41 Se nrA .ounks for their information. He thought it would be -13141f ortunate if banks were allowed to proceed with their plans for ergers of the kThd in question and to make public announcement of the Plans and then be confronted with the fact that the Board would he unwilling to approve the proposed merger because of its possible lationary effects. He .pointed out that contemplated mergers are 48tiallY discussed informally with the Federal Reserve Ranks during their early stages, and said it was his view that it was desirable for the Federal Reserve Banks to be in position to discuss the pro In their early stages with the banks involved on the basis °fall e stablished policy. At the conclusion of the discussion, during which Mr. Szymczak stated that he concurred in the statement as proposed by Mr. Powell, it was understood that the matter would be deferred for consideration at the next meeting of the Board at which Chairman Martin was present. The action stated with respect to each of the matters herereferred to was taken by the Board: Mlnutes of actions taken by the Board of Governors of the ecleral Reserve System on August 9, 19)1, were approved unanimously. Minutes of actions taken by the Board of Governors of the l'eciel'a*1 Reserve System on August 10 and 13, 1971, were approved 4 sala the actions recorded therein were ratified unanimously. Memorandum dated August 9, 1951, from Mr. Bethea, Director, Division of Administrative Services, recommending that the resignation °f Miss Elaine Mahoney, Stenographer in that Division, be accepted to be effective, in accordance with her request, at the close of business August 17, 1951. Approved unanimously. Memorandum dated August 9, 1951, from Mr. Vest, General Counsel, rec.:0 ii ending an increase in the basic salary of Eugene C. Harrison, Clerk the Legal Division, from $2,650 to $2,875 per annum, effective August 19) 1951. Approved unanimously. Memorandum dated August 9, 1951, from Mr. Bethea, Director, bivis. I0r1 of Administrative Services, recommending an increase in the batic 8ala Y of Mrs. Mildred D. Spano, Stenographer in that Division, rlic):M $2 69n .1. ' A. ip2,875 per annum, effective August 19, 1951. Approved unanimously. Memorandum dated August 7, 1951, from Mr. Carpenter, Secretary c4 the Board) recommending an increase in the basic salary of Miss E. _,, Iletz p oeppei Chief, Files Section, Office of the Secretary, from $6400 to!tri 1--,200 per annum, effective August 19, 1951. Approved unanimously. 1749 MA/51 -15Memorandum dated August 13, 1951, from Mr. Bethea, Director, Dtvision of Administrative Services, recommending the reinstatement of Walter L. Peregory, who had been on military leave, as Offset Press Operator in that Division, with basic salary at the rate of $4,075 annum, effective as of the date upon which he enters upon the IDel ' forillance of his duties after having passed the usual physical elqurdnation. Approved unanimously.
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