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1235 A meeting of the Board of Governors of the Federal Reserve Systela was held in Washington on Tuesday, August 27, 1946, at 10:30 a.m. PRESENT: Mr. Draper, Chairman pro tea Mr. Evans Mr. Carpenter, Secretary Mr. Thurston, Assistant to the Chairman Mr. Vardaman was absent on vacation. The action stated with respect to each of the matters hereinreferred to was taken by the Board: Telegram to Mr. Whittemore, President of the Federal Reserve Ilatik of Boston, stating that the Board approves for the Bank, effective St 30, 1946, a minimum buying rate of one per cent for the purchase qbankerst acceptances for all maturities, and the establishment by the nk, Without change, of other rates of discount and purchase in its ex,- istIng schedule. Approved unanimously. Memorandum dated August 26, 1946, from Mr. Carpenter, recommend- for the reasons stated therein, that the Board approve (1) the aptanent of Mr. Merritt Sherman, now serving as an Assistant Cashier t the Federal Reserve Bank of San Francisco, as an Assistant Secretary or the Board of Governors of the Federal Reserve System with salary at the l'ate of $8,478.75 per annum, effective as of the date upon which he te4's upon the performance of his duties, and (2) reimbursement to him the cost of his trip to Washington when he assumes his duties and the cost of moving his household effects from San Francisco to WashThe memorandum also stated that Mr. Sherman was a member of the l'et irement system of the Federal Reserve Banks. 1236 8/27/46 -2Approved unanimously. Messrs. Eccles and Vardaman advised before they left Tashington that they would approve the appointment. Memorandum dated August 20, 1946, from Mr. Young, Assistant ector of the Division of Research and Statistics, recommending that 1488 Ann Beverly Conner be appointed as a Clerk-Typist in that Division °14 a temporary indefinite basis, with basic salary at the rate of 2,168.28 per annum, effective as of the date upon which she enters 11113n the performance of her duties after having passed the usual phys491 examination. The memorandum also stated Miss Conner was a member t the Civil Service retirement system and that she would remain a memb of that system. " Approved unanimously. Memorandum dated August 23, 1946, from Mr. Young, Assistant Di r°`-"'or of the Division of Research and Statistics, submitting the -nation of Mr. Walter R. Gardner, Chief of the International Section 11684 t that Division and recommending that the resignation be accepted, efitive, in accordance with his request, at the expiration of such anleave as may be due him following his last day at the office, which /4111 be August 23, 1946. The resignation was accepted as recommended. Memorandum dated August 9, 1946, from Mr. Thomas, Director of .. the Division of Research and Statistics, recommending that Alfred Sherrard 1237 8127/46 be —3— reaPpointed as an Economist in that Division, on a temporary indef- te basis, with basic salary at the rate of 1:,7,102.20 per annum, effective as of the date upon ihhich he enters upon the performance of hie A duties after having passed the usual physical examination. The Illeill°randum also stated that Mr. Sherrard was a member of the Civil Se "-Lee retirement system and would remain a member of that system. Approved unanimously. Memorandum dated August 21, 1946, from Mr. Bethea, Director of the °I-vision of Administrative Services, recommending that the followIto. • ° Increases in basic annual salaries of employees in that Division be 4P1)roved, effective at the beginning of the next pay roll period follo1Nillg aPProval.by the Board: Title kargaret L. Tolfe ! erlianairl D. Berry 4zlith Bare 444 Mae Boucher Nrence McVearrY Secretary to Mr. Boothe Mail Clerk Page Page Cafeteria Helper Proposed Increase To From $2,544.48 2,318.76 1,954.00 1,954.00 1,888.00 $2,644.80 2,394.00 2,020.00 2,020.00 1,954.00 Approved unanimously effective September 8, 1946. Memorandum dated August 19, 19460 from Mr. Bethea, Director of the p, Division of Administrative Services, recommending that Mrs. Miriam asPer be appointed as a Clerk in the Publications Section of that • vislon, on a temporary indefinite basis, with basic salary at the l'ate of '2,394 per annum, effective as of the date upon valich she enters 1238 8/27/46 -4- 111X111 the performance of her duties after .having passed the usual phys4 teal axemination. The memorandum also stated that Mrs. Jasper was a Member of the Civil Service Retirement and Disability Fund and it was c°11teniplated that she would continue in that retirement system. Approved unanimously. Letter to Mr. Gentry, First Vice President of the Federal Re"'e Bank of Dallas, reading as follows: "The Board of Governors approves the changes in the Personnel classification plan of the Houston and San Antonio Branches consisting of the elimination of the position of Field Representative at each Branch, as submitted in your letter of August 20, 1946. "As requested, a new page 34 for the Houston Branch and a new page 33 for the San Antonio Branch, reflecting the elimination of the position of Field Representative, have been prepared, which will be placed in the Board's eoPy of the plan." Approved unanimously. Letter to Mr. John V. Hastings, Jr., 819 Filbert Street, PhiladelPhia 7, Pennsylvania, reading as follows: "This is in reply to your letter of August 21 to ChairMan Eccles protesting 'against the 75% margin requirements on stock loans'. "Margin requirements have been established at 100 per cent, in effect, since January 21, 1946. A copy of the statement made by Chairman Eccles on the occasion of the amendment to the regulations at that time is enclosed for Your information. "Regulations T and U, which regulate security loans, were established under the Securities Exchange Act of 1934, which made this Board responsible for preventing the excessive use of credit for the purchase or carrying of securities. The Board recognizes that these regulations cannot solve all of our financial problems. But it does feel that the present security loan restrictions are a necessary part of the Govern- 1239 8/27/46 -5- riaentis anti-inflation program at this tilde of strong inflationary pressures. "Since you refer to automobiles as not being restricted, we should like to call your attention to Regulation 1,7, also issued by this Board, which regulates the credit that may be extended for purchase of automobiles among other articles. "Though we cannot agree with the position you take, we aPpreciate the interest indicated by your letter and the spirit in which you write." Approved unanimously. Letter to Mr. Volberg, Vice President of the Federal Reserve tiarat Of San Francisco, reading as follows: "This refers to your letter of August 15, 1946, regardcertain questions presented by the San Francisco Stock Exchange regarding Regulation T1 especially the arbitrage Provisions of section 4(d). For convenience, the questions will be discussed separately. "(a) One question refers to short sales of a stock, the Short sales to be covered later by exercising Rights to subscribe to shares of the stock. The transactions might remain Open and uncompleted for as long as thirty to sixty days, depending on the circumstances. "Such a transaction can qualify as bona fide arbitrage Under section 4(d)(2), only if there are a purchase of the Right and an offsetting sale of the stock. These must occur at or about the same time' and must be 'for the purpose of taking advantage of a disparity in the prices of the two securitiest. "If the customer already owns the Rights, or if for any Other reason the requirements of section 4(d) are not met, such transactions can be effected only in a general account; and they would then be subject to the margin requirements aPPlicable to short sales, which are no 100 per cent in the usual case. You will note, ho,:ever, that under section 3(d)(3) the 100 per cent requirement does not apply to a short sale of a security if sufficient Rights to purchase the security are held in the account. "(b) Another question apparently refers to arbitrage transactions in the security, or in the Rights, between the New York and San Francisco Stock Exchanges. 1240 8/27/46 -6- "Such transactions are subject to section 4(d)(1). It Should be noted that under this provision the offsetting transactions must occur in the different markets 'at as nearly the same time as practicable', and must be 'for the purpose of taking advantage of a difference in prices in the two markets'. "(c) A question is asked about 'short sales in the Rights to Subscribe to be cov:'red by the Jurchase of Eights to Sub, ,te that these short sales scribe'. There is nothing to indicare any different from ordinary ones. Accordingly, they would seen to be subject to the same rules as other short sales. "(d) The inquiry states that it is planned to use a joint account for certain of these transactions, and that the account would be carried by one of the participants. In this connection it should be noted that section 6(h) in effect requires that each participant margin his share of the joint account to the extent of his right to share in the profits. This requirement does not apply to a special arbitrage account that complies with section 4(d), but it does apply to a general account." Approved unanimously. Letter to Mr. Hult, Vice President of the Federal Reserve Bank q Boston, reading as follows: "A reply to your letter of April 16 has been delayed in the hope that a way would be found of avoiding the necessity of requiring the insurance agents mentioned in the letter of General Securities Corporation which you enclosed, to register Under Regulation W. As you pointed out, there seems to be no great advantage to be derived from requiring then to do so. "However, the provisions of the Regulation seem clearly to require them to register, and the inconvenience which that r .equirement might cause does not appear to be great enough to Justify an amendment to the Regulation, since registration is not a matter which would require an appreciable amount of tine or trouble on the part of each insurance agent." Approved unanimously. Letter to Mr. Rounds, First Vice President of the Federal Re44"lre Bank of New York, reading as follows: 1241 8/27/46 -7- "This will ackowledge your letter of August 20, 1946, enclosing a telegram from Charles R. Lewis, President, Connecticut Association of Small Loan Companies, Bridgeport, Connecticut, relative to Amendment No. 21 to Regulation W. "Similar comments have been received from the Bene. ficial Management Corporation, and we enclose a coy of a telegram which was sent to it. "With regard to the hearing requested by the Connecticut Association, we suggest that you might wish to give these people an opportunity to talk with you in New York.n Approved unanimously. Letter to Mr. Wallace, Counsel of the Federal Reserve Bank of Richra ond, reading as follows: "This is in reply to your letter of August 12, 1946, asking whether radio transmitting and receiving sets commonly used by amateurs are 'listed articles' within the meaning of Regulation W. "It is the Board's view that radio transmitting sets and combination radio transmitting and receiving sets are net 'listed articles'. This view is based on the fact that such sets are designed for communication purposes, i.e., for transmission of messages between sender and designated recipients and the fact that those operated by amateurs cannot be distinguished from those having large commercial usage." Approved unanimously. Letter to the Presidents of the Federal Reserve Banks, reading aa follows: "In replies to the Board's letter of July 26, 1946, asking for certain information on Regulation W enforcement activities during March and July, a number of the Federal Reserve Banks gave information on their arrangements with cooperating supervisory agencies. The letters reveal that there is a considerable degree of variance in the reporting arrangements worked out with the respective regional Supervising Examiners of the Federal Deposit Insurance Corporation and the head office of that agency has been in touch with us to ascertain whether or not the arrangements could be made uniform. 1242 8/27/46 -8- "Some Federal Reserve Banks have assured themselves of continuing cooperation and have asked for reports only in case of willful violations; others have requested monthly statistical reports of one sort or another covering investigations conducted; while a third group has worked out arrangements for short-form RegulationVIreports on each examination. "The Board believes that it would be advisable, because Of the operating organization of the F.D.I.C., that a uniform Procedure be worked out with the head office and would appreciate your suggestions and views as to the proposal that Should be presented. Also, it may be possible to discuss this matter at the meeting of examiners in 'Washington on September 11-13 and it is recommended that your representatives be prepared to participate in the discussion. "Some of the considerations that will have to be taken into account are: (1) the arrangement should, if fJossible, contemplate few, if any, changes in the Corporation's Manual of Examination Policies; (2) no change should probably be contemplated in the method of handling cases requiring corrective action; (3) the proposal should require as little inconvenience to the F.D.I.C. as possible; and (4) the suggested basic procedure should be one which is feasible in all districts." Approved unanimously. Letter to the Presidents of the Federal Reserve Banks, reading 48 follaws: "In accordance with the request contained in the Board's letter of January 26, 1943, (S-612) the Federal Reserve Banks have been, forwarding to the Board of Governors quarterly rePorts with respect to activities in connection with the enforcement of Regulation WI Consumer Credit. As your Bank has been advised, it is now proposed that reports be submitted on a monthly basis and under date of May 17, 1946, Mr. Parry, Director of the Division of Security Loans, sent to each of the Reserve Banks a preliminary draft of a report form which has also been discussed at the recent Regulation W regional conferences. "The report form (Form No. F.R. 639) has been revised to incorporate most of the suggestions made by the representatives of the Reserve Banks at these conferences, and copies are enclosed herewith. One hundred copies are being sent to 1243 8/27/46 -9-- H u under separate cover and an additional supply may be had upon request. An explanation of the form headings and instructions with respect to additional information to be furnished with the report are printed on the reverse side of the form. "The quarterly reports which have been submitted in the Past should be discontinued after submission of the report covering the quarter ending July 31, 1946, and it will be aPpreciated if your Bank will forward reports on the new form for each month beginning with the month of August, 1946. . "As soon as the monthly reports are received in the offices of the Board of Governors they will be analyzed and a Copy of the analysis of the enforcement activities in pll Federal Reserve Districts will be forwarded to each of the Federal Reserve Banks for its information. "This letter supersedes the Board's letters of January 26, 1943 (5-612), May 8, 1943 (S-648), and February 21, 1944 (8-735)." Approved unanimously. Letter to the Chairmen of the Federal Reserve Banks, with a COpy. to each President, reading as follows: "As you know, there is some variation in the fees and allowances paid by the different Federal Reserve Banks to directors of the Banks and their branches. It has been a long tiLe since any general revision has been made in the schedule of fees and one of the Banks recently inquired Whether the Board would consider it appropriate, because of increased traveling, subsistence) and other costs, to increase directors' fees and allowances. "The Board feels that it would be desirable in the interest of a simpler procedure for meeting its own responsibility under the statute for the approval of such allowances if there were in effect a uniform schedule for all the Federal Reserve Banks, as there does not seem to be any real necessity for different allowances at the different Federal Reserve Banks. In order to aid the Board in reaching a conclusion in this matter, therefore, it would be appreciated if you would give the Board the benefit of your views in response to each of the questions listed below. In this connection you may wish to obtain the suggestions of the President of your Bank. A copy of this letter is being sent to him: 1244 8/27/46 -10- "1. What should be the maximum daily fee for attendance at directors' meetings or while engaged on other ,iork for the bank, (a) by head office directors, and (b) by branch directors? "2. Should there be any difference in the fee paid for attendance at meetings of the Board of Directors, executive committee, or other committees of directors? "3. If a meeting of the Board of Directors and a meeting of a committee of the board are held on the same day, should more than one fee be paid? "4. Should subsistence ex2enses be on a per diem or actual expense basis? "5. Should any additional allowance be paid to directors residing any distance outside the city in which the meeting is held? "6. Should other changes be made in existing allowances? "When the replies to this letter have been received, the Board All undertake to prepare a single schedule which, in the absence of objections requiring further consideration, it would be willing to approve covering directors' fees and allowances at all Federal Reserve Banks and Branches." Approved unanimously. Letter to Mr. Herbert V. Prochnow, Acting Secretary, Federal Clv-4317 Council, 38 South Dearborn Street, Chicago 90, Illinois, read- Il• a-3 follows: "I have brought to the attention of the members of the Board your letter of August 17, 1946, in which you advise that the next meting of the Federal Advisory Council is to be held in Washington on September 15 and 16, 1946, and ask for a list of the subjects which the Board wishes the Council to discuss. "The Board has no topics to suggest for the meeting agenda but the members who are in Washington on September 16 will be pleased to meet with the Council for the consideration of any matters which the members of the Council may wish to take up. As you know, Mr. Szymczak has left for his assignment in Europe. Chairman Eccles is in the West and Messrs. Evans and Vardaman will be out of the city when the Council meets. Hoever, it is expected that Messrs. Ransom and Draper will be here at that time. '4 1245 8/27/46 -11— "We shall be happy to make arrangements for luncheon for the Council in the Blue Room on Monday, September 16. Please feel free to call on me if there is anything we can do in connection with the arrangements for your meeting." Approved unanimously. Letter to Mr. Robert H. Armstrong, The Appraisal Journal, 12 East 41st Street, New York City, New York, reading as follows: "The Board has no objection to your reprinting in the Appraisal Journal either one or both of the portions of 'Housing Needs and the Housing Market' mentioned in your letter of August 23, 1946, provided that the source is acknowledged, and that it is made clear, as stated in the Preface at the beginning of the pamphlet, that there is no Official endorsement of any of the opinions or proposals expressed by the authors of papers included in the series 21 .9stwar Economic Studies. It is assumed that you will indicate to the reader that only part of the paper is being reprinted." Approved unanimously. Memorandum dated August 23, 1946, from Hr. Bethea, Director of the Division of Administrative Services, recommending that the appro1311-ate budget classification of that Division be increased by approxi1114te1Y $900.00 to cover the cost of the dinner to be held in the Board's eafeteria on September 18, 1946 for officials of the Savings Bond Organization, Treasury Department officials and a small group of special Approved unanimously. Menorandum dated August 26, 1946, from Mr. Hooff, Attorney, reColli nding that there be published in the law department of the Federal 11e serve Bulletin statements in the form attached to the memorandum with l'esPect to the following subjects: 1246 -12- 8/27/46 Farm Tenant Loans Amendment to Section 24 of Federal Reserve Act Silver Legislation Regulation U Capital Contribution Loans Acceptances by Member Banks Revision of Regulation C Consumer Credit Amendment to Regulation 7c Administrative Procedure Rules Foreign Funds Control Treasury Department Releases Approved unanimously. Thereupon the meeting adj:;&1111"" 1110 4401,4110.ji Secretary. ' roved: i.hairman pro tea.
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