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04Z21313 Minutes of actions taken by the Board of Governors of the Fed— era]. Reserve System on Monday, December 19, 1955. The Board met in the 8Daald Room at 9:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Szymczak Vardaman Mills Robertson Shepardson Carpenter, Secretary Sherman, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Cherry, Legislative Counsel Vest, General Counsel Johnson, Controller, and Director, Division of Personnel Administration Mr. Kelleher, Assistant Director, Division of Administrative Services Mr. Chase, Assistant General Counsel Mr. Mr. Mr. Mr. Mr. Mr. Mr. Reference was made to a memorandum from Mr. Kelleher dated Decem— b 2$ 1955, which " had been circulated to the members of the Board before this meeting recommending that the Board authorize the Division of Adminis— ative Services to award a contract to The Hampshire Corporation for the ' tl 143tallation of fissured mineral acoustic tile in the center portion and "the outer flat band of the Board Room ceiling at a cost of $1,000. At Chairman Martint3 request, Mr. Kelleher reviewed the informa— ti011 that had been obtained from the firm of Bolt, Beranek and Newman, Inc., the National Bureau of Standards, and Mr. William H. Livingston, Architect, 12/19/55 Pursuant to the authorization of the Board at its meetings on September 21 and October 26 , 1955, that the Division of Administrative Services be requested to contact the aforementioned consultants to obtain advice on the means of improving the acoustical conditions in the Board Room. After reviewing the suggestions made by the acoustical engineers and the architect Mr. Kelleher said that on the basis of discussion with Governors Balderston and Robertson, his recommendation was made as the first step that seemed appropriate in the attempt to correct acoustinal shortcomings of the Board Room without materially altering the appearance of the room. Ile noted, however, that Mr. Livingston would prefer not to have acoustic tile placed on the outer flat band of the Board Room ceiling until after it was determined that the placement of tile on the inner panel of the ceiling was inadequate. Governor Balderston stated that he had come to the conclusion that the treatment of the ceiling as recommended in Mr. Kellehert3 memorandum Ilas the best may to proceed since it would be relatively moderate in cost, w°111d not, in his opinion, noticeably affect the appearance of the Board 114 ",and might sufficiently correct the acoustical problem. Miring the ensuing discussion, Governor Vardaman stated that he )1010 A -4-u dislike any change in the Board ROOM if it could be avoided. He rai3eAL questions as to possible changes in the seating arrangement and 418O ellggested that the Board table might be covered with felt or some Other material. 12/19/55 —3— Governor Robertson stated that the various suggestions made by Governor Vardaman had all been considered and that the suggested treatment Of the ceiling seemed to be the first step to be taken although it repre— sented only a part of the recommendations which had been submitted by the consultants * Chairman Martin suggested that, inasmuch as some of the members of the Board were reluctant to do anything that would change the appearance (3f the Board ROOM and since there was doubt as to how effective the sug— gested treatment would be in correcting the acoustical deficiencies of the rc ",it might be desirable to defer taking any action at this time. Later cillring the meetings Governor Robertson suggested that the Board give fur— ther thought to the other recommendations that had been submitted by the acoustical engineers, and it was understood that the matter would be con— sidered again at a later meeting of the Board. Mr. Kelleher then withdrew from the meeting. There was presented a letter to C. O. Moore, Esq., Shearman & Ste & Wright, New York, New York, which had been circulated to the Itlembers of the Board prior to this meeting and reading as follows: This is in further reference to your letter of April 14, , "„Ls?55, concerning whether arrangements for the purchase by The Fix:st National City Bank of New York, New York City, from Allied '149-1ding Credits, Inc., of instalment notes arising from the re— 1_;'clar or modernization of real property, involve the creation of uePosit liabilities against which reserves must be maintained by k 12/19/55 -4 the bank under section 19 of the Federal Reserve Act and the Board's Regulation D. These arrangements are provided for in the Letter-Agreement between the bank and Allied of April 22, 1954, a copy of which has been received from the Federal Reserve Bank of New York. Under the agreement, Allied sells and conveys to the bank on each "Settlement Date" (a business day in each calendar month not later than the 20th day thereof) notes acquired by Allied from its customers during the immediately preceding "Accounting Period" (calendar month). On the same date the bank pays to Allied, except as noted below, 90 per cent of the aggregate amount owed on the notes by the makers (if the notes are FHA insured notes), and credits a so-called "Reserve Account" with a sum equal to the remaining 10 per cent. (These percentages are 80 and 20, respectively, in the case of uninsured notes.) The agreement defines "Reserve Account" to mean a memorandum account maintained by the bank for the Purpose of computing the amount remaining unpaid to Allied at anytime on account of the purchase price of notes sold to the bank. Allied agrees to collect, as agent for the bank and at Allied's own expense, all payments on notes sold to the bank and to hold such collections in trust for the bank. On each Settlement Date, Allied pays to the bank an amount equivalent to the total collections received by it during the immediately Preceding Accounting Period on all outstanding notes previously sold to the bank; and, in the event of a default by the maker Of any such note, a sum equal to the amount owing on the note may be charged by the bank to the Reserve Account. If on the 1?articular Settlement Date the credit to the Reserve Account ls less than the greater of (1) $4002000 or (2) 10 per cent of the aggregate amount remaining to be paid to the bank on Insured notes previously acquired by it (20 per cent for uninsred notes), the bank will (a) deduct the amount of the deficit from any payment it would otherwise make for new notes purchased from Allied on that date, (b) credit to the Reserve Account a sum equal to such deduction, and (c) pay to Allied anY remainder. On the other hand, if the amount to the credit of the Reserve Account exceeds the greater of (1) and (2) above, the bank will pay to Allied an amount equal to such excess and debit the Reserve Account accordingly. 12/19/55 On the basis of the formula described above, it is understood that the bank does not receive any funds from Allied which it retains as a liability to Allied or credit to the Reserve Account on any Settlement Date any amount which represents funds received by the bank from Allied. On the contrary it is understood that a credit to the Reserve Account will be made only when there is a deduction on a Settlement Date from Payments -which would otherwise be made for new notes then Purchased, and the credit is in the amount of such deduction. On the basis of this understanding of the provisions of the Letter-Agreement summarized above, the Board is of the view that the transactions in question do not give rise to a dePosit liability against which reserves must be maintained under the law and regulation. It should be recognized, of course, that if at any time payments should be received by the bank either from Allied or from the borrowers themselves Prior to the Settlement dates, the situation would be different. Another aspect of this matter must be noted° The LetterAgreement also provides that, as to defaulted notes, Allied may deposit with the bank for credit to a "Defaulted Account", the unpaid amount of such defaulted notes. Such a defaulted account, therefore, represents funds paid to the bank by Allied as to which the bank has the ultimate obligation to repay or Use for the account of Allied. Accordingly, such Defaulted Accounts must be considered deposits requiring reserves Approved unanimously, with a copy to the Federal Reserve Bank of New York. There were presented telegrams to the Federal Reserve Banks listed bel°17 aPproving the establishment without change, on the dates indicated, c/f the rates of discount and purchase in their existing schedules: St. Louis New York Philadelphia Chicago December December December December Approved unanimously. 12 15 15 15 12/19/55 —6— Chairman Martin referred to a letter which Ir. Riefler had re— ceived from Mr. Milton Friedman of the Department of Economics at the University of Chicago dated December 10, 1955, copies of which had been sent to the members of the Board before this meeting, inviting Mr. Riefler to participate in a workshop discussion at the University of Chicago around the middle of February, preferably February 9 or 16, 1956. Chairman Martin stated that Mr. Riefler had said that he would be willing to participate in the workshop, that it would be understood that he would not accept the honorarium offered, and that he (Chairman Martin) would suggest that Mr. Riefler be authorized to take part in the workshop. Chairman Martin's suggestion was approved unanimously, with the understanding that the Board would pay Mr. Riefler's travel expenses. Consideration was then given to a memorandum from Mr. Chase dated 1)ecember 14, 1955, reporting receipt of a telephone call from the United States Marshal's Office advising that, as anticipated by Mr. Vest at the eting of the Board on November 30, 1955, Mr. William Leighton had filed 8111t naming as defendants the American Express Company, its treasurers alld the Board of Governors. The memorandum stated that, in accordance with Pazt Procedure, it /Was expected that this case would be handled in conjunc— ti0n Ifith the United States Attorney's Office which has a division assigned to c "es against Government officers or agencies. Mr. Oliver Gasch„ who 22' 12/19/55 13 _7_ in charge of this division, had been contacted and he suggested that when the papers were received, they be forwarded to him so that he could handle the matter. The memorandum also stated that it was likely that the ease would be disposed of by a motion, which would mean that there would be no trial but merely a brief oral argument on the motion. It rec— "Imended that the Secretary's Office be authorized to forward the papers Concerning the suit to Mr. Gasch and that the Legal Division be authorized to assist him in any legal research which his office may need to do in PNParing the defense. The recommendations contained in the memorandum were approved unanimously. Mr. Chase then withdrew from the meeting and Mr. Hackley, Assistant General Counsel, entered the room. Before this meeting a memorandum from Messrs. Carpenter and Fauver dated December 14, 1955, had been circulated to the members of the Board tl ' ansmitting a letter from the Federal Reserve Bank of New York regarding the eligibility of Robert C. Tait for continued service as a director of the zurfalo Branch until the end VieW of 1956 when his present term expires, of the fact that he became a director of Lincoln Rochester Trust e°111PahY9 Rochester, New York, in June 1955. The memorandum indicated that the question before the Board might be considered in terms of whether it /Ibnld h. -- consistent to permit Mr. Tait to continue as a director of the 2240 12/19/55 —8— Branch until the end of his current term, in view of the actions taken by the Board in 1953, suggesting that, in two other cases, Reserve Bank Branch directors be informed that if they accepted commercial bank direc— torships, they should resign as directors of the Reserve Bank Branches. In response to a question from Chairman Martin, Mr. Vest stated that there was no legal question involved in the inquiry before the Board and that the matter was one of Board policy. Governor Szymczak stated that while he would prefer that directors °f Reserve Bank Branches not be directors of commercial banks, primarily "the grounds that it was desirable to obtain representation from nonbank activities, in this case he would inform the New York Bank that the Board would not object to Mr. Tait continuing to serve as a director of the Buffalo Branch until the end of 1956. This was partly because Mr. Tait was tentatively scheduled to become Chairman of the Buffalo Branch board °f directors during his last year as a director and partly because, if the Board requested Mr. Tait to make a choice before the end of 1955 and if he should decide to resign as a director of the Reserve Bank Branch, the Board would be confronted with the problem of appointing an additional director of the Buffalo Branch in the immediate future. Governor Robertson stated that he also would concur in a decision t° Permit Mr. Tait to complete his present terms although as a general Practice he was reluctant to have a commercial bank director as a director °f a Reserve Bank Branch. 12/19/55 —9— It was agreed unanimously that the Federal Reserve Bank of New York should be informed by wire that while the Board preferred that Reserve Bank Branch directors not serve as commercial bank directors, it mould not object to Mr. Tait continuing to serve as a director of the Buffalo Branch to the end of his current term. There was presented a memorandum from the Division of Personnel Administration dated December 9, 3.9550 recommending that merit increases in the basic salaries of the following employees be approved effective January 1, 1996: Division Basic annual salary To From SMINIMIONNIM. OMEON.• Board Members, Offices Virginia Jo Ogilvie, $4,930 $5,2o0 325oo 3,585 4,075 41210 6,390 6,6(35 9,205 9,1420 41o75 4,210 3,585 3,670 Secretary Office of the Secretary Xathr7n H. Fortunato, tanutes Clerk Margaret J. Moister, Review Classifier Research and Statistics MtIrraY Altmann, E conomist Arthur L. Broida, E conomist Rose C. Cassedy, Statistical Assistant a.Yti, C. First, Clerk-Stenographer 2c 42 12/19/55 ZLP....7 increases —10effective January 11 1956 (continued) Name and title Division Basic annual salaa To From Research and Statistics Clayton Gehman, Chief, Business Con— ditions Section William F. Hellmuth, J Economist Milton Moss, Economist JoAnn L. Murray, Clerk—Typist Orville Thompson, Economist Philip M. Webster, Economist Loills Weiner, Chief, National Income, Moneyflows„ and Labor Section Helmut F. Wendel, Economist Ramsay wood, $12,20 $12,690 8,990 9,205 8,990 9,205 3,175 3,260 8,430 8,645 6,390 , 6,605 11,880 12,150 6,390 6,605 10,965 11,180 6,390 6,605 5,980 6,115 3,L30 3,515 8,000 8,215 10,965 11,180 Economist International Finance Stephen H. Axilrod, Economist 11°sa Ernst, Economist (Editorial) Jacquelyn Haas, Clerk Maroni, Economist ?a-0yd I. Whittington, Chief, Far Eastern Section 12/19/55 -11vasesnio effectiye Januar" 12 1956 (continued) 114r14.411Ailla Division Basic annual salary To From Examinations John P. Donovan, Assistant Federal Reserve Examiner Loretta S. Hallman, Stenographer ,*41795 $4/930 3,175 3,0260 3,175 3,260 8,215 8,430 3,175 3,260 3,840 3,925 3,67o 3,755 4,210 4,345 3,840 3,925 Bank Operations Stella M. Cornell, Clerk-Stenographer Ralph E. Massey, Technical Assistant Barbara J. Pessagno, Statistical Clerk Ruth B. Willard, Clerk-Stenographer Personnel Administration Jane Donohoe, Clerk-Stenographer Billie Jo Hickman, Pe rsonnel Clerk Administrative Services Margaret C. Caldaw, St enographer Helen M. Capozio, Utility Clerk Sala Clanton, Gardener Helen L. Hulen, Publications Clerk Ames R. Jordan, Me ssenger 4,345 3,210 3,295 5,200 2,860 5 29:33 45 12/19/55 -12- Zliajllacaulut_stlarspAre Janlag 14 1956 (continued) Division 114.22.-atIALLP Basic annual salary From To Administrative Services Esmond C. Langley, Messenger W. Dale Trimmer, Assistant Manager, Cafeteria $3,115 $3,200 3,670 3,805 8,990 91205 4,620 4,755 Office of the Controller Sampson H. Bass, Chief Fiscal Section Joseph H. Hoyle, Payroll Clerk Approved unanimously. Mr. Johnson then withdrew from the meeting. Chairman liartin referred to a memorandum from Mr. Hackley dated Ilecember 14, 1955, which had transmitted a letter from Under Secretary of th8 Treasury Burgess dated December 10, 1955, asking for Chairman Martin's COht..-.4unt on a memorandum proposing that legislation be drafted to authorize Payment by the Federal Reserve Banks to the Treasury of the more than $27 the ,000 heretofore advanced by the Treasury to the Reserve Banks for Purpose of making industrial loans under section 13b of the Federal Res 'I've Act. The proposed legislation would also provide that Treasury would continue to remain available to the Federal Reserve Banks at their call for use in making industrial loans. It was indicated that if 2245 12/19/55 -13- this proposal were approved, it would be of assistance to the Treasury in balancing the budget. The memorandum presented three possible alter,natives that would be open to the Board in replying to Mr. Burgess' request: (1) that no legislation on this subject would be desirable at this time;(2) that the Board might endorse the proposed legislation; and (3) that the Board might wish to suggest that the whole matter of Federal Reserve authority for making industrial loans be reconsidered at this time. In response to Chairman Martin's request, Mr. Hackley commented on the memorandum. He stated that of the three alternative procedures out- lined, the second one might be elaborated to provide that in addition to f47°ring the return by the Reserve Banks of the $270000,000 to the Treasury, the m. Iteserve Banks would be entirely willing to have repealed the authority for making such payments to the Reserve Banks in the future in connection Irith any 13b loans that the Banks might make. Mr. Leonard, Director of the Division of Bank Operations, entered the room at this point. During the ensuing discussion, Chairman Martin outlined factors Which he felt would make the situation difficult at this time, both from the standpoint of the Board and from the standpoint of the Treasury, in conWith legislation on this matter. He questioned whether any legislati -°n should be introduced although he said that the Treasury might be intomed that the Board would not object to legislation which the Treasury Might have , introduced favoring the return of $27,000,000 to the Treasury. 2246 12/19/55 There was some discussion of the positions the Board had taken in the past in connection with section 13b authority, it being noted that Prior to 1951 certain proposals which would have enlarged the Board's author". in this field were approved, whereas since 1951 the Board had taken the position that the authority for making industrial loans under section 13b might well be repealed. Chairman Martin suggested that in the circumstances the Board inform the Treasury that it would not object to legislation along the lines of the Treasury's letter. This suggestion Was approved unanimously. Secretary's Note: Pursuant to the foregoing action, a letter prepared for Chairman Martin's signature un— der date of December 192 19552 was sent to Mr. Burgess, Under Secretary of the Treasury, in the following form: This refers to your letter of December 10, enclosing a ./11emorandum from Mr. Heffelfinger suggesting legislation to au— thorize repayment by the Federal Reserve Banks to the Treasury the amounts, totaling somewhat more than $272500,000, which have nave been paid by the Treasury to the Reserve Banks under the Pr°visions of section 13b of the Federal Reserve Act. It is Understood that the proposed legislation would also include a Provision under which the funds appropriated for this purpose /could continue to remain available in the Treasury to the Fed— eral Reserve Banks for use, if needed, in making industrial -1-0ans. .„ The matter has been discussed with the Board and the fo.oard would not object to the introduction of a bill along -Qie lines of that suggested. The Board's staff will2 of 12/19/55 -15- course, be glad to work with Mr. Heffelfinger and his associates, as suggested by him, in connection with the drafting of any legislation which the Treasury might desire to accomplish this purpose. The meeting then adjourned.
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