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1150
Minutes of actions taken by the Board of Governors of the
Federal Reserve
System on Wednesday,
AUgUSt 30, 1950.
The Board
met in
the Board Room at 2:35
p.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
McCabe, Chairman
Eccles
Szymczak
Evans
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Carpenter, Secretary
Sherman, Assistant Secretary
Kenyon, Assistant Secretary
Morrill, Special Adviser
Thurston, Assistant to the Board
Riefler, issistant to the Chairman
Leonard, Director, Division of
Bank Operations
Vest, General Counsel
Millard, Director, Division of
Examinations
Young, Director, Division of Research
and Statistics
Solomon, Assistant General Counsel
Fauver, Administrative Assistant to
the Chairman
Shay, Assistant Counsel
Jones, Chief, Consumer Credit and
Finances Section, Division of Research
and Statistics
Pawley, Economist, Division of Research
and Statistics
Messrs. Norton and Powell, members-designate
of the Board of Governors.
Mr. Lewis, Assistant Vice President, Federal Reserve Bank of
St. Louis,
and
Mr. Heath, Assistant Cashier and Assistant Secretary,
Pecie
ral
Reserve Bank of Chicago, who were assisting the Board's staff
tellill°rarilY in connection with consumer credit activities, were also
8/30/50
-2Chairman McCabe stated that pursuant to the understanding at
the
meeting yesterday there had been prepared a draft of reply to the
Budget Bureau's letter
of August 28, 1950, requesting the Board's
conzents on a
proposed executive order delegating certain functions
Of the President
under the Defense Production Act of 1950.
At the
Clie.ilzan's request the Secretary read the draft which stated that the
Board
sav no objection to delegating the functions with respect to
real estate
construction credit to the Housing and Home Finance Adthat it felt it most important that the agency to which
the
authority was delegated should have full authority both to prescribe
--N-L administer regulations regarding real estate construction
credit and
to make the policies and set the terms relating to such
credit
controls, that the Board preferred not to be involved in the
administration of the real estate construction credit program, that
It
felt it
could be most helpful by making available its technical
skills and
giving advice and counsel on policy problems, and that it
1(3111(1 be glad to make available to the agency to have the function
the
tentative results of
work done on the subject up to this time.
Mr. Riefler reported the substance of a discussion at a meeting
he had been requested to attend this morning
more
at the White House at
repr
esentatives of the housing agencies were present, to consider
flally the
manner of administering the regulation of real estate
eredit.
Mr. Riefler said that it was noted at that meeting that
Mr.
7 r
.
8/30/50
-3-
P°1eY) Housing and Home Finance Administrator, to whom responsibility
r°1" the
order
regulation would be delegated under the proposed executive
referred to above, had indicated that he would not wish to
"sUme that
responsibility, that his agency was not familar with the
g.,e
Inort,
- es market outside the housing field, and that he felt the
Ettlthori+
--Y should be delegated to some other agency with the understallding that regulations relating to housing credit should have his
c°11eurrence before they became effective.
Mr. Riefler went on to say
that he indicated
to the group that the Board discussed the proposed
ezecutive order
yesterday and requested the staff to prepare a reply
to the Budget
Bureau along the lines of the draft referred to above.
Ipurilag further
discussion, Mr. Riefler said it developed that the
l'ePresentatives of the other agencies at the meeting felt the authority
81101.111d be
delegated to the Federal Reserve, in response to which he
commented that
while he could not speak for the Board, he felt the
4"cl vcnald
not
wish to have such responsibility.
Nevertheless, he
said,
there was
presented for the informal crmasideration of those
Present at
the meeting a revision of the proposed executive order which
voltld
provide that the
authority over construction credit provided in
Section 602
of the Defense Production Act of 1950 would be delegated
to the Board
with the understanding that before any regulations pertcittlin€ to credit
for housiik; or residential construction were issued,
the
concurrence of the
Housing and Home Finance Administrator should
r-
8/30/50
be obtained
ob
,
tained,
and that the authority contained in Section 605 of the
Act Pertaining to
the reduction or suspension of the Government housing
Programs
would be delegated to the Housing Administrator with the
Werstanding that in the exercise of this authority he would take
acticns with respect to the Government programs which in his judgment
11°111c1 be in conformity with the regulations issued by the Board of
Governors with his
concurrence.
At this point
Mr. Charles T. Fisher, Jr., who was assisting
the
oard t
emporarily as a special consultant in connection with
financial and credit matters, and Mr. Wood, Economist, Division of
Research and
Statistics, joined the meeting.
During the discussion that followed, the view was expressed
that .1
-.4-though a regulation of real estate credit would be very difficult
to acbilillister, the revised informal proposal presented by Mr. Riefler
41)ealled to offer
as workable a method for administration of the regulatiolaas
could be worked
out.
141% Szymczak
stated that regardless of the difficulties in-
In the
administration of the regulation of real estate credit,
he fel,
Such regulation was
credit control
that
be
essentially an instrument of
the
central bank should exercise, and that, therefore, it should
clled by the
Board.
the
141% Eccles agreed that the regulation properly belonged with
Reserve as an additional instrument of selective credit
1:154
8/30/50
-5-
control which
could be used, along with over-all credit control, to
helP maintain
economic stability as far as possible in the realm of
In°4etarY and credit policy, and that, if the proposal were worked out
aloag the lines
now proposed, it would not be desirable to continue
t° urge that
another agency be given the responsibility.
Chairman McCabe suggested that the draft of reply to the Budget
1311reell's letter above
referred to be revised along the lines of the
toregoi
'-rig discussion to take account of the
additional information
Presented by Mr.
Riefler.
Chairman McCabe's suggestion was
approved unanimously, with the understanding that a revised draft of letter
would be submitted for consideration by
the Board.
Mr. Evans stated that
since the meeting on August 3, at which
1)°8sib1e terms
staff
had
under a consumer credit regulation were discussed, the
Proceeded with its consideration of the scope of a possible
Eiti°11 and the
terms which should be prescribed thereunder, that
4 te +
11,ative
draft of regulation had been prepared under date of
ttatrts
aad that he wished to present for the Board's consideration the
recom
mendations, in which he concurred, for minimum down paymaturities with respect to various items to be covered
the
regulation as presented in a
memorandum from Mr. Leonard dated
44(illist 30, 1950.
Mr* Evans went on
to say that he and the staff had drawn on
-
8/30/50
the
cc
-6-
exPerience gained in the past in administering a consumer credit
regulation and that conferences
held with representatives of many
trade organi
zations and other interested groups had been most helpful
in
arriving at conclusions as to existing trade practices and the
Probable effect
of various sets of terms that might be prescribed.
The general scope
of the regulation proposed would be about the same
aS that
in effect prior to June 30, 1949, Mr. Evans said, except that
hone tin
provement credits would be covered. The regulation should,
he fo„,,
set definitely restrictive but not harsh terms at the outset
with the
e
xpectation of tightening them as the situation developed.
eas° emphasized
the view that the restrictive effect of terms
sholad be
compared with existing practices rather than with terms
111 effect
during some previous phase of consumer credit regulation.
After stating
in some detail the prevailing terms in the trade
6" s
rizing the recommendation
s of the Federal Reserve Banks, Mr.
4alls said that
he would recommend adoption of a regulation as soon as
the terense
Production Act of 1970 was signed by the President subste'lltially in
the form of the draft dated August 29, 1950, and with
which
would permit for group A articles (automobiles) a down
Payment of
not less
than 1/3 and a maximum maturity of 21 months; for
r.c)LLP 13
articles (applia
nces) a down payment of not less than 1) per
cett wad
a
imum maturity of 18 months; for group C articles
(1\1111iture) a down
payment of not less than 10 per cent and a maximum
5(;
8/30/50
IllatIlritY of 18 months; for group D articles (home improvement credits)
dowa Payment
of not less than 10 per cent and a maximum maturity of
3° 111°4ths on the assumption the Federal Housing Administration also
lqoula
adoPt such terms in connection with credits insured under Title
of the
Federal Housing Act; and a maximum maturity of 18 months for
Unclassified loans.
Mr. Evans added
that in the case of new automobiles the
suggested terms
would be restrictive upon 80 per cent of the instalment
f
-or purchase
of automobiles on the basis of the pattern established
for
ellch credit
during the first half of 1950. He also said that he
1184ccme to the
conclusion that a uniform maximum maturity should be
13rescribed for
all automobiles rather than to set a shorter maturity
11°I'Durchase of used
automobiles as recommended by most of the trade.
14 Et further
comment, Mr. Evans said that, while he felt the
Ngestea
terms would be definitely restrictive, if credit expansion
c°111,117111ed and
the situation called for it he would be prepared to
l'ee°211aend a
tightening of the regulation, that he felt this probably
11°1134 be necessary within
6o days, but that from the standpoint of
"41-4istration of the regulation, and in view of the definite restrictjj)14 that would
result under the proposed terms, it would be much
bette
to
adopt the terms recommended in the initial reimposition
°r the,
'egulation than to impose more restrictive terms and find it
tleces.,
'arY
shortly to relax them.
r-
8/30/50
e
-8Mr. Eccles raised a question as to the growth of consumer
credv.
u during recent months and in response Mr. Young presented figures
11564eating that the expansion in such credit since May had been at
reccIrd rate and that it was continuing at a high level during the
racIttil of August.
Mr. Young stated that although seasonally such credit
xtellsion might be expected to rise during the summer months, the
itere
ase this year has been unusually large and apparently was showing
40 si
glIS
of slackening as would be customary in the early fall months.
Mr. Eccles referred to the figures presented by Mr. Young for
r"snt
months which showed a rate of expansion in consumer credit of
Etrov,—,
$7 0r $8 billion a year and to the growth in total bank credit of
41Proxi
mately $11 billion during the past two months, and stated that in
the
°It of these conditions and in view of the inflationary pressures
illherent
44 a period of increased defense expenditures and deficits, it
vollid.
be
contrary to his best judgment to vote for a maximum maturity for
thel:411.
Chase of new automobiles longer than 18 months. The purpose of the
l'eglaatio
-4) he felt, should be to stop the growth in consumer instalment
credit
„
A
--- perhaps to reduce the outstanding volume of such credit, and
41111re to attain
this objective might result in alternative measures such
481311
"controls and
rationing.
He also said that in view of the actions
:
4411 11' the System to restrict the overall expansion of bank credit, any
-41tic:1111hich permitted
terms for the purchase of automobiles in excess of
18111°11t111 maturity
would appear to be only a gesture, that he would be
8/30/50
-9illelined to favor a 40 per cent down payment requirement with a
ilieLltimum maturity of 15 months on new cars, but that as a compromise
he
approve 1/3 down and 18 months maximum maturity. Mr. Eccles
added that
should the Board go to Congress as indicated in its press
statement
of August 18, 1950, with a request for additional powers
to reSt
credit expansion, it would have to be prepared to show
thstt ,„
"had
used the powers already available to it effectively and
he
did not feel
that the proposed terms would be considered sufficiently
r'estrictive to
demonstrate this.
Mr. Szymczak agreed with the views expressed by Mr. Eccles
he said he
understood were shared by some members of the research
staff. Re
stated that the key to the regulation was to be found in
terms
set for
automobile credit, that a slow adjustment of terms that
If°Uld stilt
the trade was one way of handling the situation, but that
14 his °Pinion the increasing volume of credit even before the Korean
el'isis made it
necessary to restrict instalment credit, and that
clevel°Pmelits since
June convinced him that if the action of the Board
tr
tk)°sing a
consumer credit regulation was to be sufficiently effective
the maturity for
11104the.
In this
new automobile credits should not be more than 18
connection he referred to statistics prepared by the
biviion of
of
Research and Statistics relating to the very rapid growth
cox/sumer i
nstalment credit in recent months and to the need for a
which would
effectively limit that growth.
Mr. Szymczak
8/30/50
-10-
acicled that he
was not concerned about the maturities proposed for other
tieles since they would be related to whatever terms were established
kr
automobiles.
Ia connection with an inquiry as to the views of Messrs. Draper
el°11Tardaman, it was stated that Mr. Vardaman had said that while he
l°1114 Prefer
tighter terms than proposed by Mt. Evans, he would be
to vote for the terms recommended by Mr. Evans and the staff.
'
11" also stated that Mr. Draper had indicated that he would accept
valast recommendation.
During the foregoing discussion Mr. Norton withdrew from the
leetj
Chairman McCabe then called upon Mt. Powell who raised the
cliti°11 whether an objective of the regulation should be to create
11.11era131°Yment.
Mr. Powell went on to say that expenditures for defense
Production would
mount rather slowly and that too sharp a cutback in
ProdUction of
automobiles might bring on unemployment before defense
orders vere
sufficient
to take up the slack. For this and other
reasons which he
stated, Mr. Powell felt that the initial terms of the
ation
should be set so as to be moderately restrictive and that
ill the
light of the
information presented he would be inclined to
111.17e the 21 months
maturity for automobiles with a minimum down171tIelit Or 1/3 as
recommended by Mr. Evans.
There followed a discussion of the relative severity of the
1160
8/30/50
-.11terms in comparison with restrictions recently placed on real
estate
credits by the Federal Housing Administration and the Veterans
aistration. During this discussion, Mr. Riefler expressed the view
that the
real estate credit restrictions were relatively more severe
tharl
those proposed
by Mr. Evans for consumer credit indicating that
he
felt a
shorter maturity might be desirable.
Mr. Young stated that the situation called for a restriction
thatIllight give a jolt to sales of automobiles, but that he appreciated
the adzi
nistrative problems in the initial imposition of the regulation.
It 14" his (
)Pinion that if anything like the present rate of consumer
c144-114 continued
a tighter regulation would be needed very promptly.
Chairman McCabe stated that he had given a great deal of thought
to the
terms that
should be imposed in the regulation, and that he
felt a
regulation which would be restrictive on 80 per cent of the
"les of automobiles could not be looked upon as a mild measure.
lie also
said that
he did not wish to impose terms that were so restrictive
118 to
necessitate
relaxing them shortly, that the full effect of the
terms
Pr°1)0sed by Mr.
Evans could not be judged with certainty at this
alacl that he
would prefer to approve the terms recommended by
tvans
for the
initial imposition of the regulation with the thought
that tighter
terms might be adopted within 30 to 90 days.
Mr
t1011
SzYnaczak suggested that since no formal vote on the regula-
cola(' be
ten at this
meeting there be a further discussion of
1161
8/30/50
terms
-12-
that might be adopted at a meeting tomorrow and it was under-
stood this
procedure would be followed.
At this point all of the membe
rs of the staff with the exception
"messrs, Carpenter, Sherman, and
vith
Kenyon withdrew, and the action stated
respect to each of the matters hereinafter referred to was taken
bY the
Board.
Minutes of actions taken by the Board of Governors of the
Peaeral
Reserve System on August 29, 1950, were approved unanimousl
y.
Letter to Mr. Latham, Vice President of the Federal Reserve
Bejak
of Bosto
n, reading as follows:
A
"In the circumstan
ces described in your letter of
vgust 21,
and
in view of your recommendation,
1950,
Ile Board of
Governors hereby gives written consent
l'
plitssilant to the
provisions of Section 12B(v)(4) of the
ti!,c/eral Reserve
Act, as amended, to the assumption of
deposit liabilities of The Thomaston National Bank
,
waZ11
,
s
1a,
,t°A, Connecticut, by The Colonial Trust Company,
capirtoury,
Connecticut, without an increase in the
CompaZiy..and surPlus accounts of The Colonial Trust
The "The
establishment of a branch in Thomaston by
ot
ial Trust Company was approved by the Board
thEtt .
..,Y_
1
-950, with the provision, among others,
vo`41e absor
ption of The Thomaston National Bank
1,17be
effected substantially in accordance with the
thea libmitted
which did not contemplate an
sae the
J.-rust
Comin
capital or surplus of The Colonial
Pany."
iaZ
Approved unanimously.
'rve
Letter to
Mr. Stetzelberger, Vice President of the Federal
'
14 of Cleveland,
reading as follows:
1162
8/30/50
-13"Referring to your letter of August 22, 1950, the
Board of Governors concurs in the opinion of counsel for
ur bank that the undertaking of 'The Chardon Savings
ank
Company', Chardon, Ohio, as described, cannot be
construed
to include the assumption of liability to pay
FlY deposits made in the Central National Bank of
C
leveland, and consequently the transaction does not
!equire the Board's consent under the provisions of
'iection co (v)
(4) of the Federal Reserve Act, as
am
ended."
r
Approved unanimously.
Letter to Mr. Stetzelberger, Vice President of the Federal
liesel've Bank of
Cleveland, reading as follows:
"In the circumstances described in your letter of
A
13:.,Igust 23, 1950,
and in view of your recommendation, the
of Governors hereby gives written consent, pursuant
'
/1 the provisions of Section 12B (v) (4) of the Federal
Act, as amended, to the assumption of the deposit
le
Biserve
ab
ilities of The Citizens National Bank of Bentleyville,
mecITIptleYville, Pennsylvania, by the 'Peoples City Bank',
'?esPort, Pennsylvania, without an increase in the
'
aplt?;1 and
surplus accounts of the Peoples City Bank.
the "The
The establishment of a branch in Bentleyville by
9
City Bank was approved by the Board on June
abs' with the provision, among others, that the
, rPtion of The Citizens National Bank of Bentleyville
'
131 4 be
effected substantially in accordance with the
inartlInthen submitted which did not contemplate an increase
he
capital or surplus of the Peoples City Bank."
Approved unanimously.
@FedFRASER