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Minutes for
To:
February 12, 198
Members of the Board
From: Office of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard
it will be appreciated if you will
minutes,
to the
s Office. Otherwise, if you
Secretary'
the
advise
please initial in colmeeting,
the
at
present
were
umn A, below to indicate that you approve the minutes.
If you were not present, please initial in column B
below to indicate that you have seen the minutes.
Chm. Martin
Gov. Szymczak
Gov. Vardaman 1/
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
e;1-0
1/ In accordance with Governor Shepardson's memorandum of March 8, 1957, these minutes are not being
sent to Governor Vardaman for initial.
,
Minutes of the Board of Governors of the Federal Reserve System
ch
Rednesday„ February 12, 1958*
PRESENT:
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00
Martin, Chairman
Balderston, Vice Chairman
Robertson
Shepardson
Mr, Carpenter, Secretary
Mr, Kenyon, Assistant Secretary
Mr. Riefler, Assistant to the Chairman
Mr. Thomas, Economic Adviser to the Board
Mr. Leonard, Director, Division of Bank Operations
Mr, Young, Director, Division of Research and
Statistics
Mr. Hackley, General Counsel
Mr. Molony, Special Assistant to the Board
Mr. Shay, Legislative Counsel
Mr, Noyes, Adviser, Division of Research and
Statistics
Mr. Solomon, Assistant General Counsel
Mr, Hexter, Assistant General Counsel
Mr. Benner, Assistant Director, Division of
Examinations
Mr. Wood, Economist, Division of Research and
Statistics
Mr. Young, Assistant Counsel
Discount rates.
the
Unanimous approval was given to a telegram to
reaeral Reserve Bank of Boston approving the establishment vithout
ange by that Bank on February 100 1958, of the rates on discounts and
dvanc
8
in its existing schedule.
Request from Congressman Moss.
In a letter dated January 28, 1958
ctirman Moss of the House Government Information Subcommittee raised
certa4441 questions '4th respect to the availability of loan applications
rov,
'Public inspection. A proposed reply had been distributed prior to
148 meeting.
524
2/12/58
-2Following a discussion of the type of reply which might be most
4ProPriate, particularly insofar as it involved the lending operations
°f the Federal Reserve Banks, Governor Robertson suggested the possibility
Of responding in order to each of the several questions raised by
congressman
Moss.
It being agreed that a letter composed along such
would seem desirable, the staff was requested to prepare a draft
f°r consideration at the meeting of the Board tomorrow.
Mr. Leonard then withdrew from the meeting.
1:12228ed Housing Act of 1958 (Item No. 1).
In a communication
ds:ted January 29, 1958, the Bureau of the Budget requested the Board to
81thinit bY today its views on a draft bill entitled "Housing Act of 1958."
11"e had been sent to the members of the Board copies of a memorandum
Mr. Walter Young dated February 7, 19580 summarizing principal
risions of the draft bill, along with copies of a second memorandum
‘
11 .°
'
discussing the substantive provisions of the proposed legislation in
8°Mevhat more detail.
Also submitted was a draft of letter to the Budget
Bur
eau which would consist for the most part of excerpts taken from the
111°s''cits letter to the Bureau dated February 26, 1957, concerning the
then Proposed "Housing Amendments of 1957" and the Board's letter to
/he Bureau dated December 10, 1957, transmitting a proposed report on
8. Pin-,
a bill which would create a Home Loan Guarantee Corporation.
At this meeting it was suggested that an additional paragraph
be included in the letter which would state that the Board favored, as
52,)
Vi2/58
-3-
'Pl'ovided by section 114 of the draft bill, repeal of section 605 of the
""ing Act of 1957, which directs the Federal Housing Commissioner to
ftc reasonable limits on the charges, fees, and discounts imposed upon
the builder, seller, or purchaser in connection with the financing of
Ihe 'cOnStruction or sale of any housing covered by a mortgage insured
llnder the National Housing Act.
The reason given for favoring repeal
,of 4,L.
'`4118 provision would be that experience had shown it to have the
effect
of interfering unduly with the functioning of the mortgage market.
In a discussion of the proposed letter to the Budget Bureau,
"
41n changes were suggested, principally for the purpose of eliminating
4411age not pertinent from the standpoint of the current draft bill.
hrUcUlar attention was given to the additional paragraph proposed for
1401
uaion in the letter in the light of questions raised by Governor
,mrtson as to whether this was a matter concerning which the Board
ahoi,1„
'
44-01. comment. After the history and effects of section 605 of the
Ro
-ng Act of 1957 had been reviewed by members of the staff, Governor
Robert
son indicated that he would not object to inclusion of the paragraph,
"PeC-Lally
4
since the Board's letter was being sent to the Budget Bureau
a" related to legislation in the formative stage, although he continued
h
ave some doubt about the desirability of commenting on section 114.
It seemed to him that this was primarily something which should be
e.chr
ocated by the Federal Housing Commissioner in his discretion.
Thereupon, unanimous approval was given to a letter to the Bureau
e Budget in the form attached as Item No. 1.
526
2/12/58
Messrs. Wood
Wood. and Walter Young then withdrew from the meeting.
Leave of absence for Reserve Bank employee (Item No. 2).
.-'
a1
Unanimous
1 was given to a letter to the Federal Reserve Bank of Chicago
illterPosing no objection to an arrangement under which Miss Lillian M.
115/Darold cz of the Bank's Research Department
would be given a leave of
absence
without pay for approximately six months in order to accept a
temporary
assignment with the Bureau of the Census. The file on this
matter had been circulated to the members of the Board and a
copy of
the
approved letter is attached hereto as Item No. 2.
Li2purchase agreements (Item No* 3).
Governor Robertson referred
t° the information which he had presented to the Board at the meeting on
?ebrtiarY
5 and 7, 1958, concerning certain steps contemplated by the
eceVtroller of the Currency in view of current discussion about the
"4:418 of repurchase agreement transactions of member banks. With regard
to 0
,
of those steps, namely a proposed change in the Report of the
tkIllee Banking and Currency Committee on the Financial Institutions Act,
the
Vvard had authorized
him to advise the Comptroller of its opinion
that th;
--46 was a matter for his (the Comptroller's) decision, although
the D
'
4)ard felt that care should be exercised in order to avoid a misleading
legi
8-a-tve
history.
Now, however, a letter had been received from the
C°41Ptroller
under date of February 7, 1958, presenting, with a request
tor
the Boardta views, language proposed for inclusion in the Committee
ItelPo t
cuich went somewhat further than the language previously suggested.
r- ,
2712/58
-5There had been distributed to the members of the Board, with a
'*Inorandum from Mr. Hexter dated February 11, 1958, the letter from the
Comptroller and a suggested reply.
Governor Robertson read the proposed reply and said that he
e
O11s1dered it appropriate.
to the
the
He noted that such a letter would give support
Comptroller of the Currency if he chose to resist the inclusion of
'suggested language in the House Committee Report,
Pursuant to Governor Robertsonta recommendation, unanimous approval
then las given to a letter to the Comptroller of the Currency in the form
Ilttaohed as Item No,
3.
At this point Mr. Thurston, Assistant
e Board, was called
trite the
meeting.
Statement made by Congressman Patman.
Further reference was made
to,4-1,
‘411e statement of Congressman Patman before the House Banking and Currency
'et)
ramittee on February 7, 1958, in connection with hearings on the Financial
Institutions
Act, in vhich Mr. Patman referred critically to certain
expehe
es of the Federal Reserve System. The content of articles now
earing in
the press indicated that there had been released to the press
triaterial vhich Mr. Patman had requested permission to insert in the hearing
17e
Governor Balderston stated that he was particularly concerned about
n
—e Portions of Mr. Patmanta remarks having reference to fees paid to
coti
tants in connection with the recent study of consumer instalment
2112/58
-6Since those comments indicated a misunderstanding concerning
the nature of the expenses incurred, he had asked Mr. Noyes to prepare
a.
-letter vhich might be sent to Committee Chairman Spence, if the Board
80 desired)
clarifying the circumstances surrounding these particular
"
Peilditures.
He then read the draft of letter which had been prepared.
In a discussion which followed) Chairman Martin expressed the
iftelf that in due course, after the material inserted in the record by
141's Pathan had become available, a report should be sent to the Banking
slid Currency
Committee covering all of the items to which reference was
lbade by Mr. Pathan, even though such a report could not be prepared in
tin'
e for inclusion in the record of the hearings on the Financial
Institutions Act.
He said that he had expressed such a view to Chairman
SPence in
telephone conversations, at 'which time he also told Mr. Spence
that the Chairmen and Presidents of the Federal Reserve Banks would be
elrailable to testify if that seemed desirable.
The view then was expressed that the sending of a letter along
the 1.lin
-Liss suggested by Governor Balderston might be appropriate at this
ttme
.Lor several reasons, including the fact that Mr. Patman's testimony
'
,dth
respect to the consultants brought into the picture persons outside
the Q._
,
vstem. Such a letter, it was pointed out, would serve the purpose
Inaking known the Board's intention to respond, when the necessary
1"cquation was available to it, to all of the items which Mr. Pathan
had
Mentioned.
529
2/12/58
Se eral suggestions for rephrasing of the proposed letter then
Imre made, following which Mr. Molony was requested to prepare a revised
draft of letter for consideration at the meeting of the Board tomorrow.
All of the members of the staff except Messrs. Carpenter and
RackleY then withdrew from the meeting.
Possible retention of Mr. Davis for special assignment.
Governor
Robertson referred to his comment at the meeting of the Federal Open
Market Committee yesterday concerning the possibility of employing Mt.
j°h11 Davis, First Vice President of the Federal Reserve Bank of Philadelphia
is retiring at the end of this month, to work on certain phases of
the atucV of float. He suggested that since he would be away and therefore
11" in a position to follow up on the matter, Mr. Leonard be authorized
t° negotiate with Mr. Davis regarding part-time employment and then present
to
the Board for approval a statement of a recommended basis upon Which
Ikvis would be employed.
Before this was done, Governor Robertson
84id, he would clear the matter with President Leedy, outgoing Chairman
"the Presidents' Conference, and with President Erickson, the new
Chairman
of the Conference.
After some discussion, agreement was expressed with the procedure
Posed by Governor Robertson.
Mr. Hackley then withdrew from the meeting.
1.1 8erve requirements.
There was some discussion on the problem
°r z'eaerve requirements and it was understood that this matter would be
°11111.dered further at the meeting of the Board tomorrow.
53
The meeting then adjourned.
Secretary's Notes: Governor Shepardson approved
on behalf of the Board on February 11, 195, the
following items:
ot Memorandum dated February 7, 1958, from Mr. Leonard, Director, Division
ka,
0
13ank Operations, recommending the appointment of Seymour Golodner as
eZ413t in that Division, vith basic annual salary at the rate of $510651
4lective the date he assumes his duties.
orb Letter to the Federal Reserve Bank of Chicago approving the designation
410bert L. Porter as special assistant examiner. A copy of the letter
-0 a
ttached hereto as Item No, 4.
Telegram to the Federal Reserve Bank of Kansas City approving the
t?lintment of Clyde E. Hinman as assistant examiner. A copy of the
egram is attached as Item No. 5.
Governor Shepardson approved today on behalf of
the Board a letter to the Federal Reserve Bank
of Dallas approving the appointment of Wallace
C. Kimbrough as assistant exsminer. A copy of
the letter is attached hereto as Item No. 6.
Governor Shepardson also approved today on
behalf of the Board a change in the procedure
relating to advances of funds for official
travel, as recommended in a memorandum from the
Office of the Controller dated February 11, 1958.
A copy of the memorandum is attached as Item No. 7.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 1
2/12/58
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 12, 1958.
!
l r$ Roger W. Jones,
4asistant Director for
,Legislative Reference,
ic:Ilreau of the Budget
,
"Ilehington 25, D. C.
Dear Mr.
Jones:
This is in response to your request of January 29, 1958,
-ue
of the Bo;wd of Governors on the proposed bill cited
"Housing Amendments ct 1958".
for
'5
The draft bill includes a number of provisions similar to
.0 which were incorporated in the draft bill submit
ted to the
ha
r(1 for its view in 1957, although the present draft is even more
vIceiled and comprehensive than was the 1957 draft. The
Board's
"
pr
on the proposed draft are in general the same as those ex?etaeed by the Board in its report to the Bureau
of the Budget dated
At rUarY 26, 1957, on the then proposed "Housing Amendments of 1957".
that time the Board stated in part as follow
s:
"On a great majority of the provisions of this bill,
which are technical amendments to existing law, the Board
has no specific comment to make, except perhaps to question
whether such matters are properly the subject of specific
legislation. The frequency with which these laws must be
amended gives rise to the question whether more general
legislation, flexibly administered, might not be much more
effective. As it is, every accretion of experience or change
in economic conditions appears to require changes in basic
statutes.
"The proposed amendments to the National Housing Act
s
f.,.rs a case in point
It would seem reasonable that the
'
k ommissioner should exercise the judgment required to make
a less detailed statute effective.
In the case of the price
t° be paid by the Federal National Mortgage Association for
mortgages under the Special Assistance Program, the proposal
n°w is to restore to the Association discretion that was removed only last year.
5: 2
Mr. Roger W. Jones
"* * * On other matters, the Board would favor giving
the FHA Commissioner general authority to accept for
insurance mortgages, within these broad limits, with
terms that he deemed satisfactory, and to exercise
such administrative discretion as is necessary to meet
changing market conditions."
Section 114 of the draft bill would repeal section 605
°f the Housing Act of 1957, which directs the Federal Housing Commissioner to fix reasonable limits on the charges, fees and disc?unts imposed upon the builder, seller or purchaser, in connection
with the financing of the construction or sale of any housing covered by a mortgage insured under the National Housing Act. Similar
direction is given by section 605 to the Administrator of Veterans'
'ffairs with respect to housing loans insured or guaranteed under
`he Servicemen's Readjustment Act of 1944. The Board would favor
!
Ielpeal of this provision, since experience shows that the provision
fas had the effect of interfering unduly with the functioning of
the mortgage
market.
It is noted that consideration is tentatively being given
to
4 Special mortgage co-insurance program. This program is similar
.:•0 that proposed in S. 2791 with respect to which the Board, by
•tter dated December 10, 1957, submitted to the Bureau of the Budget
1:ts proposed report to the Senate Banking and Currency Committee.
fle Board's
views on the mortgage co-insurance program are expressed
in two paragraphs of that report as
follows:
"The fact that, under the proposed program, only the
top 20 per cent 05 per cent in the current draft b1117
of a mortgage is insured rather than the full mortgage,
as in the case of the present FHA programs, should not
necessarily be interpreted to mean that the risk exposure
of the insurer would be appreciably lens. The extent of
exposure undoubtedly depends strongly on cyclical experience, and in a major reversal such as we went through in
the 1930's both the number of loans in default and the
amount of loss on each defaulted loan might be large.
Short of a disaster of this sort, however, the bulk of
defaulted loans is likely to show losses of less than
20 per cent. In other words, unless we contemplate a
very bad situation, there should be little difference in
risk between the two programs, hence little difference
between the premiums required to make them self-sustaining.
"Another aspect of this comparison should be noted.
The co-insurance element of the proposed program would
Increasingly limit the Government's liability as the
533
Mr. Roger W. Jones
Severity of trouble increased. Sound public policy
requires the reverse. A day to day reminder to lenders,
by way of a co-insurance feature, that unsound lending
IS costly is likely to have a good effect on lending
Practices, and thus minimize the chances that we shall
experience serious trouble. At the same time, if serious
trouble does come despite the use of sound lending practices, complete insurance would be much more helpful
than partial insurance in limiting the extent of the
trouble and aiding recovery."
#1. dot
BOARD OF GOVERNORS
:
0410,4.
14400,6-i„0
-
OF ME
FEDERAL RESERVE SYSTEM
I.
WASHINGTON 25, O. C.
1
Item No. 2
2/12/58
AoogfEss OF- FlosAL coRREsPONoENCE
To THE 130ARO
tte,oti
..41;
February 12, 1958
Er. H. J. Newman, Vice President,
Federal Reserve Bank of Chicago,
Chicago 90, Illinois.
Dear Mr. Newman:
Thank you for your letter of January 24, 1958
advising that a leave of absence without pay has been
granted to Miss Lillian M. Rymarowicz of your Research
Department, for approximately six months starting
February 3, 1958, to enable her to accept employment on
a temporary basis with the United States Department of
Commerce, Bureau of the Census, Government Division.
The Board of Governors interposes no objection
to the arrangement with Miss Rymarovicz as described in
Your letter.
Very truly yours,
(Signed) S. R. Carpenter
S. R. Carpenter,
::)ecretary.
r
r•
BOARD OF GOVERNORS
•.
r',1)
OF THE
FEDERAL RESERVE SYSTEM
Item No. 3
2/12/58
WASHINGTON
----- A
LAO.
°
001-Aze*
OFFICE OF THE CHAIRMAN
February 12, 1958
Honorable
Ray M. Gidney,
Comptroller of the Currency,
Washington
25, D. C.
MY
dear Mr. Gidney:
This is in reply to your letter of February 7 with respect
t.,c) a sentence suggested for inclusion in the House Banking Committee
4eport on the proposed Financial Institutions Act of 1957 (S. 1451
,
,
a114
R. 7026). You request the Beard's views on the following proClause regarding paragraph (8) of section 34(b) of Title I:
.. nor is it intended that the change in this section
deletion of the words 'in the form of notes') shall
in any way alter the applicability to security transactions of section 32 of this title."
The Report of the Senate Banking Committee on S. 1451
(S. pt
dAl
P. No. 121, 85th Cong.) referred specifically to the proposed
'etion of "in the form of notes". It pointed out (p. 1)4) that
4c1118 on the collateral of United States securities "often take the
olp of repurchase or similar agreements. The legal obligation of the
-L3-gor under such agreements is considered to be of equal
stature
of t-41 that
evidenced by a promissory note. It is therefore the intent
gr t,
:
116 Congress that any obligation secured as required by this para-P" may qualify for the exception to the usual limitation."
i
Your Office and the Board of Governors have taken the
yV-tion that repurchase arTeements and similar agreements involving
th ernment securities are loans and not securities transactions, and
the Senate Committee Report is in accord
with that view. Although
0,
6 sentence quoted in your letter is ambiguou
s, nevertheless, in view
the history
of the subject, its inclusion in the House Committee
e°f;t might plausibly be advanced thereafter as an indication that
te
arr,
se Banking Committee regarded repurchase agreements and similar
a;e?ments as "security transactions" and therefore subject to the
vlsions of section 32 of Title
("Dealing in securities") rather
-4n to those of section
34 ("Maximum loan limitations"). Any Committee
4
536
Honorable Ray M. Gidney
-2-
statement that might be used to support the erroneous contention that
extensions of credit via repurchase agreements and the like are
securities transactions rather than loans might impede the efforts
of your Office and the Board of Governors to enforce the provisions
of law that actually are applicable to those transactions. Accordingly,
the Board concludes that the inclusion in the House Committee Report
of the sentence quoted in your letter would be undesirable.
Sincerely yours,
ia
c ;)
Wm. McC. Martin, Jr.
BOARD OF GOVERNORS
ot****
-4044
:
10
OF THE
o
o„
074,
,
*
*
Item No. 4
2/12/58
FEDERAL RESERVE SYSTEM
*
WASHINGTON 25. D. C.
iZ?
4,1
ADDRESS orricsAL CORRESPONDENCE
TO THE BOARD
'**7
41
.Mat
February 12, 1958
It. W. R. Diercks, vice President,
Federal Reserve Bank of Chicago,
Chicago 90, Illinois.
Boar Mr. Diercks:
In accordance with the request contained in
your letter of February 6, 1958, the Board approves
the designation of Robert L. Porter as a special assistant examiner for the Federal Reserve Bank of
Chicago. Please advise as to the date upon which the
designation is made effective.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Assistant Secretary.
(
538
Item No. 5
2/12/58
TELEGR AM
LEASED WIRE SERVICE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
February 12, 1958
WOOLLEY - KANSAS CITY
Re1-11"1et February 7, 1958, Board approves appointment of Clyde E. Hinman
8 assistant examiner for Federal Reserve Bank
of Kansas City.
Please
date upon which appointment is made effective and salary rate.
It is noted Hinman is indebted to Union
National Bank of Kansas City in
alli°1111t of $1,900. Approval is given with understanding he will not
Part
loiPate in any examinations of such bank, or any other bank to which
4441114Y be transferred, until indebtedness is liquidated.
(Signed) Merritt Sherman
SHERMAN
539
BOARD OF GOVERNORS
OF TtiE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 6
2/12/58
ADDRESS OFFICIAL CORRESPONOENCE
TO THE BOARD
February 12, 1958
4r. L. G.
Pondrom, Vice President,
Pederal Reserve Bank of Dallas,
balas 2,
Texas. '
Dear
X. Pondrom:
In accordance with the request contained in your letter
p
?bruary 5, 1958, the Board approves the appointment of Wallace
Xxmbrough as an assistant examiner for the Federal Reserve Bank
Th.„ 'Pallas. Please advise us as to the date upon which the
appointis made effective.
It is understood that Mr. Kimbrough's father is a direc,
it(11
'and officer of The Denton County National Bank of Denton,
11::)n, Texas, a member bank. Accordingly, the Board's approval
;;;:t=1.i
1:
. ment of Mr. Wallace C. Kimbrough is given with the
that he will not participate in any examination of
l'he Denton
County
National Bank of Denton, Denton, Texas, as long
as h4
"
4-8 father is an officer or director of that
bank.
4
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 7
2/12/58
FEDERAL RESERVE SYSTEM
(), °ice Correspondence
Of Governors
Orti
e of the
Controller
Dee February 11, 1958
Subject: Advance of funds for official
travel.
Iti12211121TILI
acti For the
reasons stated below, it is recommended that the Board revise its
offic of October 18, 1948 (copy attached) relating to advance of funds for
tor
the travel, to eliminate the requirement that the traveler pledge security
leawhe advance by giving consent to deduction from amounts due him for annual
- and to his credit in the retirement system.
It isj
ateord
therefore, recommended that future travel advances be made in
ance with the following procedure:
ad
The Office of the Controller may, upon written application,
vance to a member of the staff who has been authorized to
avel such reasonable amounts as may be needed for official
not to exceed *500 at any one time; and, upon approval
`)-1 the
Board Member in charge of internal operations, amounts
"ceeding $5oo.
j
NAllicit
is believed that the assignment now required serves no real purpose.
)cicasion
,
.
e/cl'oect (
arise necessitating such action, the Controller's Office would
484,14° withhold any payment of salary due, including annual leave payment,
"any balance in the employee's Savings Bond account.
n't3abll
ill!
Icil r Present rules contributions to the Civil Service Retirement and
Y Fund may not be assigned. On telephone inquiry to the Retirement
'eder-1 regarding assignments of contributions to the Retirement System of the
1,411sa;21!eferve Banks we were advised that they do not pay out of an individ'
4tioll—nGributions any sum except upon application for a refund of contri1.
4,13
,
-ed on the prescribed form and that it is their general practice to
'
lithe - 1111 amount of the refund to the contributor only, unless he requests
act.
843Plioation that a specified amount be paid to some one other than
441psl
i ncidentally
in the Standardized Government
41(1 --Regui tions under rules prescribed
ekritt„. a
advances for official travel no longer need be secured by
bond or assignment of salary, etc.
A
ttehrnerit
S. H. Bass,
Chief, Fiscal Section.
@FedFRASER