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Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, December 9, 1952. The Board met in the Board R°0nlat 2:00 p.m. PRESENT: Mr. Mr. Mr. Mr. Martin, Chairman Evans Vardaman Robertson Mr. Mr. Mr. Mr. Carpenter, Secretary Kenyon, Assistant Secretary Vest, General Counsel Sloan, Director, Division of Examinations Governor Robertson referred to a telegram of December 5, 1952, Leach, President of the Federal Reserve Bank of Richmond, read"f011OWS: "Reference is made to our letter of November 14, and Board's letter of November 26, 1952, regarding 7P-Lication of the Vienna Trust Company, Vienna, Virginia, v71. Permission to establish and operate a branch in McLean, a. A contest has developed between the Vienna Trust C4PanY and the Bank of Annandale, Annandale, Virginia, a bl,ember insured bank, for State authority to establish a 61S I Z1 in McLean. The Bank of Annandale has signified its ion to appeal from the order of the State Corporation th!Mleeion of Virginia denying its application and granting Nj_ a PPlication of the Vienna Trust Company to establish a thrn Branch. State Corporation Commission has ordered ernb the Proceeding be docketed and set for hearing on Dec:12, 1952, for the purpose of making up appeal record elidel 1, -8 Permitting both banks to submit evidence and be heard. 14e ! ve been requested by the Vienna Trust Company to have a ta4 ,:tnper of our examining staff available to testify in this tYar e aiocse --ng. Conference with president and counsel of the bank indicates that our testimony might include conof Board's approval to establish branch, statement as irlf -° nature and scope of investigation by Reserve Bank and °rMation developed therefrom, and conclusions and recomcZations of the Reserve Bank. Management of the Vienna Trust veanY has indicated that a member of our examining staff may 14052 k ft 12/9/52 -2- "be sUbpoenaed if not willing to testify on a voluntary basis. The request of the member bank appears reasonable, and we are Willing to appear and testify at the hearing if Board approves." Governor Robertson said that the matter had been discussed with **Vest and Mr. Heflin, Counsel of the Federal Reserve Bank of Richmond, he would recommend advising the Reserve Bank that the Board 41141t4at ' lave no objection to a member of the Bank's staff, other than t4 e lanai:ter who conducted the investigation in connection with the 44,401 aPPlication of the Vienna Trust Company, appearing before the &trite c orporation Commission for the purpose of presenting a copy of 414*'13 letter of November 4, 1952, which sets forth the matters to be covered by a Reserve Bank in presenting a branch application by 4 State raetber bank for the Board's consideration, and a copy of the lioartite letter of November 261 1952, to the board of directors of the Trust Company approving the establishment of a branch at McLean, ' a 8libieet to certain stated conditions. Governor Robertson a:430re e°11traended advising the Reserve Bank that its representative should 48010E05 11° further information and should decline to answer any questions 11" the re 5P°11se 440 would contravene section 8 of the Board's Rules of Organi- /11lich provides that the Board will not disclose information relating 14) 1417e8 RIVE -*`"S t1 of a particular bank or proceedings in connection with 8t11.11tillg Of Permission for a State member bank to establish a branch. 2058 12/9/52 _3_ Mr. Vest stated that he concurred in the recommendations of Gov- exit or Robertson. Governor Vardaman said that in his opinion it would be unwise 11°1a Reserve Bank to have a member of its staff appear voluntarily at a ileallag of this kind at the request of a member bank, that he thought volild be preferable to await the issuance of a subpoena, but that in Ie Of Governor Robertson's recommendation, he would be willing to have a "elter to the Richmond Reserve Bank go forward on a basis satisfactory to Go vernor Robertson and Mr. Vest. Thereupon, it was agreed unanimously that a letter to Mr. Leach should be prepared along the lines suggested and that it should be transmitted to Mr. Leach in a form approved by Governor Robertson. Secretary's Note: Pursuant to the above action, the following letter, having been approved by Governor Robertson, was sent to Mr. Leach on December 10, 1952: re. . "This refers to your telegram of December 5, 1952, with vi4erence to the request of the Vienna Trust Company, Vienna, 1111a, that a member of your staff testify in the proceed0 ' 1Do'g set for December 12, 1952, before the Virginia State Corb4letton Commission regarding the Commission's orders with Pect to the establishment of proposed branches at McLean, rginia. th "There is no objection to a member of your staff (other liTizn the examiner who made the investigation in connection se,11 the branch application of the Vienna Trust Company) prea to the Commission at the hearing on December 12 (1) tIZY of the Board's letter of November 4, 1952, in which -- are set forth the matters to be covered by a Federal 12/9/52 -4- t1 Reserve Bank in presenting for the Board's consideration aPplication of a State member bank for a branch, and (2) a copy of the Board's letter of November 26, 1952, addressed to the board of directors of the Vienna Trust ComPa4Y and approving the establishment of a branch at McLean subject to certain conditions therein stated. However, the regulations of the Board as contained in its 'Rules of Organization' (Part 261 of Title 12 of the Code of Federal RegUlations) provide in section 8 thereof (section 261.3 °f the Code) that for the reasons and good cause there in!licated the Board will not disclose information relating to i nvestigations of a particular bank or proceedings in e°n1lection with the granting of permission for a bank to establish a branch. No information should be disclosed in sc)Ile forthcoming hearing in contravention of the principles .! Provisions of the Board's Rules, and the Board does not Q.onsent to or authorize the disclosure of any information 114 this matter except that specifically listed above. If, euring the hearing, questions should be asked of the Fedt1 Reserve Bank witness the response to which might conA evens the Board's Rules, the witness should respectfully i;Et acline to disclose the information in question on the " 6 of the Rules of the Board which were issued pursuant to the provisions of the Administrative Procedure Act." Reference was made to receipt by the Board of an application for 1)°8t13°1:tenlent of the hearing, pursuant to section 30 of the Banking Act of 933 ' hich had been set eral orri by the Board for December 22, 1952, at the Fed- eserve Bank of St. Louis, to permit certain named directors and /1311,q - of the City National Bank of Fort Smith, Fort Smith, Arkansas, tc) 4Pie ar and show cause why they should not be removed from office. The ti°11, which was signed by all of the six named directors and officers Ct director 30 claYs Hudson Cooper, requested a postponement of the hearing for nd 4- Presented several reasons for such request, including the state- *Iv 12/9/52 nient that Mr. Eugene R. Warren, of the firm of Bailey & Warren, Little 'lock 'Arkansas, whom the directors and officers desired to retain to l'epresent them as counsel at the hearing, would not be able to serve in tlut 'sPacity until after January 20, 1953, for reasons set forth in an attache u. letter of November 28, 1952, from Mr. Warren to Mr. H. S. Nakdimen, ?I'esident of the City National Bank. The application also stated that a 414 of the bank to outside parties was being negotiated, that the sale ght be consummated by late January, and that every effort was being made to Pose of the bank's stock. Governor Robertson stated that in view of the fact that negotia' m4 for the sale of the stock of the bank were in process, he would ' end that the Board postpone the hearing until January 26, 1953. lie ' 80 rer. -ommended that the Board appoint Mr. James A. Purcell, a hearN ex arainer for the Federal Trade Corporation, to conduct the hearing, the zle gc4iati0n8 for Mr. Purcell's services which were authorized by the toera November 17, 1952, having been completed with the Federal Trade Cobulissi On and the Civil Service Commission. Thereupon, the following orders were approved by unanimous vote: "UNITED STATES OF AMERICA BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C. IN Iran 11143::44, MATTER OF Cooper, G. L. Grant, Arthur F. Hoge, 4. s:118 Krone, Directors, and N akdimen, President and Director, and 01;1 12/9/52 -6- B. Fitch, Vice President, Cashier and Director .2f CITY NATIONAL BANK OF FORT SMITH, rert Smith, Arkansas. ORDER POSTPONING DATE OF HEARING After consideration of the application filed on Dec 9, 1952 with the Board of Governors by the re11Pondents in the above entitled matter requesting a postPllient of the date of the hearing in this matter as retofore fixed by the Board's Notice of November 17, 1952, IT IS HEREBY ORDERED, That the date of the hearitlg n the above entitled matter heretofore fixed as Dec:per 22, 1952, be postponed and that said hearing be held se ritzary 26, 1953, at 10 o'clock A. M. at the Federal Reall—le Bank of St. Louis, St. Louis, Missouri, before a qUalified trial examiner appointed by the Board of -vvernors for the purpose. By the Board. (signed) S. R. Carpenter, Secretary. (Stiq December 9, 1952" "UNITED STATES OF AMERICA BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. IN aM MATTER OF 111480 8.1Ann Cooper, G. L. Grant, Arthur F. Hoge, Xrone, Directors, and W. 1,11 Nakdimen, President and Director, and ' 0. * Pitch, Vice President, Cashier and Director Of' portITY NATIONAL BANK OF FORT SMITH, Smith, Arkansas ORDER APPOINTING TRIAL EXAMINER IT IS HEREBY ORDERED that the hearing heretofore ordered 4 t 411pee h in the above entitled proceeding shall be held before A Purcell, a duly qualified trial examiner, who is hereby 0 411t48 rized and directed to act as trial examiner in such proceedBy the Board. (signed) S. R. Carpenter, Secretary. (sziL) 1), ft ..etbe r 9, 1952" 12/9/52 -7At this point Messrs. Williams, President, and Hill, Vice Presi- dent ) of the Federal Reserve Bank of Philadelphia, entered the room. Chairman Martin stated to Mr. Williams that, as indicated in an el/r1ler telephone conversation, the Board had decided, after preliminary c°11sideration of the inquiry by Land Title Bank and Trust Company, of concerning membership in the System, that it would like t""re the benefit of his views and those of Mr. Hill regarding the 1119tter before reaching a decision. Mr. Williams then made a statement in which he referred to the ea —e Qf Land Title Bank and Trust Company to become a member bank and cc)ntirlUe to conduct its title insurance business and stated that in his 411110/1 the trust company would not accept a condition of membership under tt would be required to divest itself of the title business. He Ated oUt that the trust company was one of a group of 11 nonmember bankillstitutions in the Third Federal Reserve District conducting title °IerItti(3118, either directly or Indirectly through a controlled subsidiary, 47 8aici that Mr. Hill had prepared a table giving certain information lt)lit these institutions in the thought that it would assist the Board in 1)11118111€ the total situation and in considering what its position might -4 it should act favorably on an application for membership by Land Title kta, — 4)34 Trust Company. Copies of the tabulation were distributed to the Qf the Board. 12/9/52 Mr. Williams then called upon Mr. Hill, who made a statement included the following comments: Prior to 1933 the Board followed a policy of admitting to membership which conducted title operations provided heY were otherwise satisfactory and acceptable. Since that atme some of the institutions have lost their title powers unoer Pennsylvania law because of failure to exercise them for tr Year, and the number of institutions continuing to conduct 3-e operations has been further reduced through mergers and 13er 0411 circumstances. At present there are only three member trke admitted prior to 1933 which continue to do a title busibur. Three other member banks are interested in the title iness throug' , subsidiaries in which they continue to hold Q ''ock • A check with State banking authorities has not disClose ri any instances where losses of consequence have resulted f„ B-41 title operations. As President Madeira, of Land Title ark and Trust Company, has pointed out, the trust companies ca :in a good position to control their risks. We have watched bVullY the mortgage loan policies of banks doing a title flees because such banks might be induced to lower their mo: aer,sgage standards but there does not seem to have been any 1-18 trouble from that source. to thi In discussing this matter, I would not want the Board that I was inclined to relax the standards of System be found rshiP in order to admit any bank. If it should be se;7 exPerience and review of title operations that there were voui°118 dangers involved in the exercise of title powers, I be the last person to recommend or suggest favorable treat 0 4 7:tient. However, I feel that we want as many good banks tlx67esible to be members of the System, and where an instiblasi°11's Primary activity is commercial banking and the title ,88 is subsidiary, it appears to me that we should give that1116 illmi vank sympathetic consideration. It should also be borne tyll-e7°1(1 that the bank doing a title business is a vanishing -- of institution. We have reviewed carefully the latest report of exbelt_ on of Land Title Bank and Trust Company by the Federal it 'it Insurance Corporation. It shows the trust company is fier4 condition, with adequate capital and few assets classiti criticized. Its loan volume is rather high propor°11ate1 4 and if the matter of membership should go further, lwro, Z 2064 12/9/52 'would propose to talk to the bank's management about its .; 1 ending policy to see whether it called for retrenchment. ' 111 1935, when the trust company previously inquired about me mbership, its future was so uncertain that T do not know nether we could have recommended to the Board that the bank e admitted had it formally applied for membership. However, 7. Madeira, who joined the institution about that time, has .ren credited with doing a remarkable job in building up cePital accounts, which now total $12.5 million, giving 1-edit for valuation reserves for bad debts, and in bringing :Ut other improvements. The bank building has been sold ond the bank now operates in leased quarters. The title ions account for about 25 per cent of total net earnIn conversations with officers of the trust company, builave been reluctant to suggest a divorcement of the title ese which would involve a reduction of the bank's capi4 'al because of the large loan volume. The trust company is contemplating a merger with a scmewhat larger, well-osnaged, sound national bank. If it ' me s not become a member and the merger is consummated, this ,arts that the resulting institution would be outside the °Ystem. (loin,. With regard to the other 10 nonmember institutions the2 a title business, we have talked to some of them and shi ' e it3 no present indication of interest in System memberThiP regardless of the Board's attitude toward title powers. pe 8 lack of interest may be due, at least in part, to the thatsYlvania State reserve requirements, which are so lenient res,ncmmember banks enjoy a substantial advantage in that Titlect. For that reason the "cost of membership" to Land Bank and Trust Company might be estimated at as much a t )000 annually. Incidentally, there are indications of eolwerld on the part of national banks in Pennsylvania to : i ettlaX State nonmember banks because of the abovementioned Al]. this influences my thinking to some extent althe -V1 not to the extent of encouraging banks to come into condition. While I would like stem regardless of their t° see all banks in good condition within the System, : 614 laellthat widens the System's influence, I have never recomdti, ,' snY bank which was not sound at the time or which I titae t think could be made sound within a reasonably short 12/9/52 -10Governor Robertson then inquired of Mr. Hill how far he would go Per/flitting banks to engage in nonbanking functions, and Mr. Hill re- d that he would consider each case on the merits of the particular activitY, that In the case of the title business there was a long and tavorole record of experience, and that he felt that any bank which had been dol..-lig this business over a long period and was otherwise acceptable 811°111c1 be admitted to membership. In reply to a question by Governor Robertson whether this could be distingklished from a bank's operating a business such as a grocery bilsineas assuming it had the authority, Mr. Hill said that while the l'ocery business was in no sense a type of business having any relation tocomtercial banking/ the title business, although not a banking functic, bore some reasonable relationship, especially if viewed historically, 11e4•143e in P ennsylvania prior to 1933 trust companies were incorporated an act of 1874 which gave them title powers. that 1)aals, ticia If approached on there seemed to him to be a logical reason for differentia- between the title business and other nonbanking businesses. GOv ernor Robertson then inquired whether favorable action by the in the case of Land Title Bank and Trust Company would not be ineQlleistent with its position in connection with proposed bank holding 4111Da legislation, that is, that such companies should divest themselves or 4°11bealking interests. Mr. Hill first commented that the Third District W9/52 -11- disinot have to deal with the holding company problem. He went on to say, however, that in view of the way the title business had developed historically in Pennsylvania and the favorable experience with this activity, he believed that a broad and constructive approach to the problem, thinking ParticUlarly in terms of building up the System's area of influence, '4°111d be to admit institutions otherwise desirable despite their title (313.ere.tions. Governor Robertson also asked whether there were people in the Re'K with enough knowledge of the title business so that the Bank C0111/1 -4 exercise °Pere:tiro.% supervisory influence over member banks conducting title and Mr. Hill replied to the effect that although the Reserve rd 454 no experts in that field, it had had contacts with institutions that business for many years and that with reasonably careful chec14the po ssibility of losses in a well-managed institution was quite small, e61)eciallY since the institution's liability is extinguished when a title 18 at tIltsferma unless the Purchaser insures or unless a question is raised the time of transfer. Additional comments by Mr. Williams were along the lines that La.:04 Ti tle 141 uank and Trust Company was a clean institution, that its ad_0861°t to membership might help the situation in the Philadelphia area gt% 4) especially if the contemplated merger with the national bank rt thr °ugh: that the Reserve Bank had had close and cordial contacts 12/9/52 -12- with the trust company, and that the trust company was expressing an interest ta membership despite the stricter reserve requirements to which it 14°111d be sUbject. At this point Messrs. Williams, Hill, and Sloan withdrew from the ineetin€ and Messrs. Gidney, President of the Federal Reserve Bank of Cleveland, and Allen, Director of the Division of Personnel Administration, entered the room. C hairman Martin referred to the proposed appointment of Mr. t°11,now Vice President in charge of the Cincinnati Branch, as First Vice Pr esident of the Cleveland Reserve Bank, effective January 1, 1953) 11°.r the unexPired portion of the term ending February 29, 1956, to succeed Piet her, who is retiring at the end of this calendar year. He tatea that in accordance with the decision of the Board at the meeting N.,_ uvember 6, 1952, to defer action pending discussion of the appointGidney and with Mr. Virden, Deputy Chairman of the Cleveland 11144t, " 0 will succeed Mr. Brainard as Chairman and Federal Reserve Agent 04 u•14/ 1, 1953, he talked to Mr. Virden and also to Mr. Brainard. He thela asked Mr. Gidney for his views regarding Mr. Fulton and particularly cts to mr Pulton's ability to assume the presidency of the Cleveland Bank trthat Position should be vacated. Mr. G4.3_ -kuziey stated that Mr. Fulton had made an outstanding record the Cincinnati Branch, especially in the field of bank and public relations, 20f 12/9/52 _13- that hi 8 aPPointment as First Vice President was endorsed by a number of Pr°1111-r1ent bankers and businessmen, including directors of the Cincinnati 4aric1) that apparently he would do a better job in bank and public relations 'work than Mr. Fletcher, that he appeared to be the strongest available candtiate for the position, that he would get along well with other raer4bere of the Bank's staff, and that the experience which Mr. Fulton ac- Illired in his previous position as officer in charge of the bank examination flInction should prove valuable. With regard to Mr. Fulton's qualifi" *°118 for the presidency of the Reserve Bank, Mr. Gidney expressed some d'°111Dt t4eLtlqr. Fulton would be ready in three years, as one of the Cincin14 ilrexich directors had suggested, but at the same time he felt that it vas a P°B aibility in view of his progress at Cincinnati. Governor Vardaman commented that if Mr. Fulton's appointment were 4Prove It should be clearly understood that there was no obligation on the Ilart mo the Reserve Bank's board of directors to raise him to the eresiao lleY of the Bank at any time. Mr. Gidney said that his discussions Vith .eulton were on that basis and that there would be no misunderstand- At the request of Governor Robertson, Mr. Gidney discussed certain other "ricers of the Cleveland Bank whom he considered outstanding and cflpabi e °f further development. Ar414 Those mentioned were Mr. Blair, Vice ellt, General Counsel, and Secretary, who had been selected to 12/9/52 succeed Mr. Fulton at Cincinnati if the latter were appointed First Vice 1)18ilt; Mr, Thompson, Vice President; and Mr. Stetzelberger„ also Vice President. Mr. Gidney then referred to several Junior officers of the Reserve Bel* Who might be promoted at an early date and the reasons for making thos Promotions. He pointed out that the prospective transfer of Mr. '° Cincinnati raised the question of who might be available to perthe Bank's legal work, and said that after discussions with Mr. Vest ailliothera he felt that a young man who had been assistant to Mr. Blair 811) Who showed promise of development might be able to carry on, with e oraeles_ t 414 the more assistance from outside counsel than Mr. Blair has needed, atpi 141----LY become General Counsel. He noted in this connection that v °ill" of legal work had declined since the suspension of the consumer ered 'it and real estate credit regulations. Governor Robertson suggested that it might be helpful to the Bank 44(i to the man in question if he could spend two or three months in the 8 th" Legal Division, and Mr. Gidney indicated that he thought well of suggestion. Mr. Gidney then inquired whether it would be agreeable to the toard. ir 811110UriCeMentS of the designation of Mr. Virden as Chairman and ,e(1 t4e (*41 Reserve Agent at the Cleveland Bank for 1953 and of the appoint'or mr. swensrud as a Class C director for the three-year term begin- ' 17 1/ 1953, were made at a dinner to be given tomorrow evening 4 44118 2O7() 12/9/52 =IP honor of Mr. Brainard. It was understood that there would be no objection to such announcements. Mr. Gidney said there was a possibility that the directors of the elftel 411-4a Reserve Bank would want to vote in favor of an increase in the disco unt rate at their next meeting but that he would attempt to dissuade tIlfrom taking such action. Messrs. Gidney and Allen then withdraw from the meeting. Reference was made to a memorandum from Mr. Allen dated December 2, 1952) copies of which had been sent to the members of the Board before thiu recommending that John Calhoun Baker, President of Ohio University, theta ) Ohio, be appointed a director of the Cincinnati Branch for the unexpirea Portion of the term ending December 31, 1954, to fill the vacancy ng from the death of Ernest H. Hahne. Following discussion, it was agreed unanimously that a telegram should be sent to Mr. Brainard, Chairman of the Federal Reserve Bank of Cleveland, requesting that he ascertain and advise the Board whether Mr. Baker would accept the appointment if tendered. or At this the Federal Reserve Bank point Mr. Johns, President of St. in --Ilia entered the room. Mr* Johns referred to the appointment of Mr. Attebery as First pren 131dent of the St. Louis Reserve Bank for the five-year term r/1 12/9/52 -16- beg/1)4111g March 1, 1951, which appointment was made with the understanding the"Ir. Attebery, who would reach age 65 in the fall of 1952, would resign 11°t later than December 31, 1952. He said that until recently Mr. Attebery 144 given every indication of complying with that understanding but that I.bout two months ago he raised the question of continuing in service and, ertellexPloring the matter with the Bank's executive committee, he (Mr. a°4w) advised Mr. Attebery that it would be inadvisable for him to press the rnTh —utter and Mr. Attebery stated that he had just thought it might be 1)4811Die• Thereafter, on November 19, according to Mr. Johns, Mr. Attebery addl,es Bed a letter to Chairman Dearmont, with a copy to Mr. Johns, recalling that in - 4 Previous letter to Mr. Dearmont in 1951 regarding his appointment, hells4 Pointed out that he would reach age 65 in 1952 and that he still had " g retiring at that time although he would not object to staying longer it he to his were in good health. doctor His current letter stated that, after a visit who found him in good health, he did not plan to tender his resignation. kr. Johns said that Mr. Attebery talked to him about the letter to Itt.. be_ Ithich u''llacnt and denied the purport of two previous conversations with him indicated his awareness of the understanding regarding his appointment, t, Wt mr. Dearmont, before replying, talked to Mr. Attebery on the basis that it u -°111d be unfortunate in the light of his record with the System for 4'4 to Per sist, that Mr. Attebery refused to withdraw the letter, and that 12/9/52 -17Mr'Dearmont then wrote to Mr. Attebery citing the clear and unequivocal Illider standing in 1951, together with the fact that his appointment was 'with that understanding, and stating his belief that Mr. Attebery 1184 already resigned and that he expected to recommend to Mr. Johns that *.At tebery's current vacation be extended to the end of the calendar ear1952. Mr. Johns added that he had heard from Mr. Dearmont and Mr. former President of the St. Louis Bank, that the earlier letter t15111% DearMOnt to which Mr. Attebery referred was written before, not arta,. appointment. Mr. Johns stated that the Bank's executive committee last week tc)(3kf°rmel action placing Mr. Attebery on leave through December 31, 1952, arid instructing him (Mr. Johns) to relieve Mr. Attebery of his duties and 11441118ibilities, that he did so, that Mr. Attebery would have been due 1DEtek trcla vacation yesterday, but that Mr. Dearmont had informed him by t1 ePh°11e that Mr. Attebery came to the Bank only for the purpose of clrillgout his desk. tliats Mr. Johns said he learned from the office of the Retirement System averal months ago Mr. Attebery had filed papers requesting that he be r it active service through December 31 of this year, and that abolat December 1, Mr. Attebery filed a request for retirement from Etttive Bervice on December 31 and for his retirement allowance to become arf, ,ect ive -Q4luary 1, 1953, which request was accompanied by a letter in 2073 12/9/52 -18- Iihtch he said that notwithstanding the language of the enclosed form, lie 1d-shed to notify the Retirement System that he would not resign on Decetiber 31, 1952. After discussing the matter with Mr. Vest, Mr. Johns said, he had (1"ided to suggest to Mr. Dearmont that the Reserve Bank directors adopt 8. rO8OlUt10/1 dismissing Mr. Attebery from office as of December 31, 1952, 411cler the authority of paragraph 4 of section It of the Federal Reserve Act. Mr. Vest commented on the language of the statute authorizing the (11tectors to dismiss officers and employees at pleasure, stating that it Beeraea clear that the Provision applied to first vice presidents as well °IbIler officers and employees and that the power of the directors to distise at Pleasure, which existed since the beginning of the Federal ResYstem, was not changed by the language of the Banking Act of 1935 '4ithl 'e6Pect to the appointment of presidents and first vice presidents rol% YeiBx terms. There was discussion whether the Board should take any action to tel*qem.r. Attebery or any other action and Mr. Vest stated reasons why he believed that would be unnecessary. In response to a question by ri11811 Martin, Mr. Vest said that he felt the course of action suggested byloir 'Johns Was appropriate and that the matter was one which should be h444ed, at least initially, at the Reserve Bank level. Following. reference to the Board's files and minutes relating to 2074 12/9/52 aPPointment of Mr. Attebery, it was understood that Mr. Johns would Belul the Board a copy of any resolution adopted by the Reserve Bank directOre, that the Reserve Bank would recommend to the Board the appointD41. °f a successor to Mr. Attebery and the payment of a salary to that Persc)n begiming January 1, 1953, and that Mr. Johns would inform the lk)ard ithere were further developments or if it appeared there was anythe Board might do to strengthen the position of the Reserve Bank. At this point Mr. Johns withdrew from the meeting and Messrs. et D irector, and Dembitz, Assistant Director, Division of International entered the room. Before this meeting there had been circulated to the available kerribe 8 of the Board for their information prior to consideration at this taeettlIga draft of telegram to Mr. Knoke, Vice President of the Federal Re rite Bank of New York, prepared in response to Mr. Knoke's telegram eirbeeember 4, 1952, requesting the Board's approval of a loan or loans to 0 Central de Bolivia not to exceed $9,500,000 in the aggregate at 411Y 04 e time outstanding, such loan or loans to be made up to 98 per cent or t, alue of gold bars set aside in the vaults of the New York Reserve tfit latider pledge to the Reserve Bank and to be made on certain stated tf*ratii euad conditions. The draft of telegram was accompanied by a memorandum from Mr. Marget ktfta 1)ecemuer 5, 1952, recommending approval of the credit on the terms 4.4 12/9/52 Bte:ted been -20- in Mr. Knoke's telegram, stating that the Department of State had consulted and expressed no objection to the operation, and discussing ful' Problems related to the loan, which the memorandum stated did not %ear to be such as to preclude the extension of the credit. These 14'°131118 concerned the authority of Banco Central de Bolivia to pledge 1°1'e than $1.3 million of gold as security unless certain changes were Iripr'paie A ' 4 in the Bolivian statutes, Banco Central already having pledged ' lion of gold as collateral against loans from commercial banks in 1?e/1 a request by Bolivia for a drawing on the International Monetary YOrk• 3 in the amount of $2.5 million, equivalent to its gold contribution, 4 inquiry regarding an additional drawing from the Fund of $9.5 the nationalization by Bolivia of foreign-owned tin nines in °et131Del" 1952; and the effect of the nationalization upon the Bolivian 1)141841" of payments position and, therefore, its ability to repay the 411 "ithout selling the gold collateral. At Chairman Martin's request) Mr. Marget commented on the problems 141%1 y ) stating that advances under the loan in excess of $1.25 million 14)441 be subject to new legislation being passed by the Bolivian Parliament, Ehoiad that be found necessary, which would remove the present restriction or $5 rtlillion on the total amount of gold that Banco Central de Bolivia may e t0 banking institutions and give authority to pledge additional 12/9/52 -21- 8111°1-lilt.° Of gold as needed; that he felt the International Monetary Fund qukld tot be engaged in making loans on gold; and that the contemplated Etriany, -4gement, under which Bolivia would draw from the Fund only to the te Of its gold contribution and the remainder of the $12 million which 116511gin8.1lY inquired about at the Fund would be obtained through a Federal Reserve gold loan, seemed preferable. With regard to the nationali- zaticMof the tin mines, Mr. Marget said that while there might be an reaction against lending to a country taking such a course of e'eti°11) especially where the action was taken by a government which came 13°14er through revolution, the United States Government had recognized the 11E41 r. (:)11-vian Government and the State Department, upon inquiry by the 1c)erd i s staff, indicated that it did not regard nationalization of the irje as barring the extension of credit to Bolivia and that any credit 1, 8-ould be examined on their own merits. etIrrelit balance of payments position was satisfactory, that it was likely 8 He said that Bolivia's tO re vere SO for at least three to six months, that longer-run prospects 8°Ilewhat cloudy because it was hard to predict what effect the natio,,, '44-ization of the mines would have on tin ore shipments, but that it fleeted aste to say that for up to six months, at least, the Bolivians Vetal. e ina position to handle repayment of the loan. Mr. Marget also NteA thattea what the matter had been checked carefully with Mr. Southard, States Executive Director of the International Monetary Fund. 12/9/52 -22Governor Robertson inquired whether the loan would be renewed Iltotlat4 ' cal],Y at the end of three months. M. Marget responded that as Practice loans were made for three months with the understanding that there 'would be no serious objection to three-month renewals up to jear but in this case the New York Reserve Bank stated that it did ot rtend, to indicate to Banco Central de Bolivia any possibility of a al. He said this raised the question whether the Federal Reserve sholac, be Prepared to tell the Bolivians on the due date that they must t1 loan, if necessary by selling the gold collateral. In response to a further question by Governor Robertson, Mr. Marget Bttl that - the Federal Reserve would not be precluded from requiring repayit ' t 80 desired despite whatever views the State Department might ZIDreti thell 8) eathough it should be borne in mind that the Bolivians might take request of the International Monetary Fund for a drawing. Chairman Martin asked if it was correct to say that the New York 441,17e I/8.4k wanted to make the loan but at the same time wanted to emphasize three.. Zonth maturity because of the tin situation, and Mr. Marget stated the., vaS correct. Governor Vardamnn then stated that he had not yet had an opportunity to 4 the matter and therefore could not vote on it at this time. Chairman Martin suggested that, in the circumstances, a decision r d. Pending further discussion at the meeting of the Board tomorrow. 2078 12/9/52 -23At this point Governor Vardaman withdrew from the meeting. Mr. Marget discussed briefly the procedure followed in the con- Bider 4 -at.ion of requests for Federal Reserve loans on gold, stating that he Vas 11°t altogether satisfied with the current procedure from the standpoint of the poard's responsibilities and that it might be desirable to discuss them. -.4tter with the Federal Reserve Bank of New York in order to clarify the relations between the Board and the Bank. Chairman Martin said that the Board would give consideration to the tatter • At this point Messrs. Vest, Marget, and Dembitz withdrew and the ihg additional action was taken by the Board: Letter to Mr. Brainard, Chairman, Federal Reserve Dank of Cleveland, 41g as follows: 1, "The Board of Governors has received your letter of nveMber 20, 1952, stating that the report of eYamination the Federal Reserve Bank of Cleveland, made as of September 2 4 ) 1952, by the Board's examiners, has been reviewed by your bUdit Review Committee and has been circulated to every memof the Board of Directors. e "The expenditures listed on page 18 of the report of !aminat4 on have been noted, and it is understood that the tter was discussed with you by Chief Federal Reserve Exlier Lang. It is the Board's view that expenditures of e'is kind should be very carefully watched by the directors 1111 officers of the Federal Reserve Banks and that they P 12/9/52 "should be kept to a reasonable minimum in accordance with the position set forth in the Board's letter of January 16, 1945 (S-826). It will be appreciated if you will bring the contents of that letter to the attention of the directors and arrange to have future proposals for such expenditures considered on the basis therein set forth." Approved unanimously.
@FedFRASER