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Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, February 13, 1951. The Board met in the Board Room at 10:35 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Szymczak Evans Vardaman Norton Powell Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Vest, General Counsel Young, Director, Division of Research and Statistics Phelan, Acting Director, Division of Selective Credit Regulation Solomon, Assistant General Counsel Backley, Assistant General Counsel Garfield, Adviser on Economic Research Noyes, Assistant Director, Division of Selective Credit Regulation Boothe, Assistant Director, Division of Selective Credit Regulation Ramsay Wood, Economist, Division of Research and Statistics Fauver„ Administrative Assistant to the Chairman Mr. Vardaman referred to the discussion at the meeting on l'ElbIluarY 8 of the question raised by a subcommittee of the Judiciary --uuttee of the House of Representatives regarding interest rates and 468 charged on V-loans and to a report which Mr. Fisher, Consultant to he Board, had given to him that banks were not receiving sufficient et l'eturn on V-loans carrying a large proportion of guarantee to make it 2%critable to make them. 2/13/51 -2At Nr. Vardaman's request, Mr. Phelan reviewed the discussion Which led up to his being asked to appear before the subcommittee on Friday, February 9, and suggested that it would be helpful to obtain the comments of the Federal Reserve Banks with respect to the matter before considering a change in the maximum interest rate and schedule Of guarantee fees. Following a discussion, it was agreed unanimously that such a telegram should be sent to the Federal Reserve Banks and that the matter should be presented to the Board for further consideration in the light of their comments. Mr. Vardaman then referred to previous discussions of proposed changes in the Assignment of Claims Act designed to eliminate features as a result of recent interpretations by the Comptroller General, Ifere causing banks to withhold participation in the financing of GovernContractors under the defense program. At his request, Mr. liackley reviewed developments in connection with the matter presenting the sUbstance of a memorandum prepared in the Legal Division under date r Jalauary 27, 19,1 on evidence of the need for amendment to the 48signment of Claims Act, and of an explanatory memorandum regarding the Proposed amendment to the Act prepared under date of February 7, 1951. In his comments Mr. Hackley stated that the purpose of the 414E4raeat was to facilitate the defense production program, that the Ileecl for finoncing on the part of defense contractors, particularly small 44444eturers and producers, was not now being adequately met because of 2/13/51 the reluctance of banks to lend to contractors on security of assignment of claims under Government contracts, and that as a result the current V-loan program was being seriously retarded. Mr. Hackley vent on to say that the amendment would make clear that a bank taking wa assignment of claims pursuant to the Act would not be subject to later recovery by the Government of amounts previously paid to the bank as assignee, that the assignee would be protected against set-off 011 account of claims of the Government against the contractor arising tram renegotiation, fines, and penalties, and that the authority for inclusion of the "no set-off" clause in Government contracts which is 4(Yw restricted to the Departments of the Army, Navy, and Air Force would be extended to contracts entered into by General Services Administration, Atomic Energy Commission, and such other agencies of the Government as the President might designate. Mr. Hackley also said that in a letter ted February 12, 1951, the Bureau of the Budget had stated it would IllterTose no objection to presentation of the draft of bill to the e011Cress for its consideration, and that he had been informed by Mr. eQrrea, Assistant General Counsel in the Office of Defense Mobilization, /hat that office would support the bill although it felt it would be 14'eferab1e to have it introduced at the request of the Board of 4cl'iclrnors rather than of the Office of Defense Mobilization. During the ensuing discussion, the Secretary read a draft of Drub letter to Senator Maybank, Chairman of the Senate Banking and 2/13/71 _11._ Currency Committee, with respect to the proposed legislation. Thereupon, upon motion by Mr. Szymczak, the letter to Senator Maybank was approved unanimously as follows with the understanding that a similar letter would be sent to Congressman Celler, Chairman of the House Judiciary Committee: "The Board of Governors wishes to recommend for the consideration of your Committee an amendment to existing law which is of vital importance to the defense production program. "Many defense contractors - especially the smaller manufacturers and producers - are presently unable to obtain necessary financing for the performance of their defense contracts because of the widespread reluctance of banks to make loans to them on the security of asH.gnments of proceeds under their Government contracts. The reluctance of banks to provide such financing arises from the fact that certain recent rulings of the Comptroller General of the United States under the Assignment of Claims Act of 1940 have made it hazardous for private financing institutions to accept assigned contracts as collateral for loans. This situation has created a serious impediment to the success of the current V-loan program, authorized by the Defense Production Act of 1950, for the guaranteeing of loans by banks to defense contractors. "In order to meet this problem, the Board believes that the Assignment of Claims Act of 1540 should be amended to the extent necessary to remove the existing deterrent to participation by banks in the financing Of defense contractors. A suggested draft of such an amendment is enclosed, together with a memorandum explaining the amendment and a memorandum evidencing the need for this legislation. While it is believed that the enclosed draft would be generally acceptable to lending financing institutions, it is possible that they may wish to offer some suggestions regarding its Provisions. "We have been advised by the Bureau of the Budget that, after clearance with the interested agencies, it 2/13/51 -5- "has no objection to the submission of this proposal to the Congress. Since the matter is one of great urgency, the Board hopes that this proposal will receive early consideration and favorable action by your Committee." At this point Messrs. Eackley and Boothe withdrew from the meeting. Before this meeting there had been sent to each member of the Board a draft of statement on the proposed Defense Housing and Community Facilities and Services Act of 1951, S. 349, prepared pursuant to the understanding at the meeting on February 8, together 'with a memorandum on Regulation X, Real Estate Credit, and residential l'eal estate markets, and a statement on developments in building and 11/°11gage lending as reported to the Federal Reserve Banks covering the period January 22-26, 1951. At Chairman McCabe's request, Mr. ectqenter read the draft of statement on the proposed legislation. During the ensuing discussion Messrs. Young, Garfield, and itic es presented additional information with respect to housing starts aPplications for mortgage credit as well as prospective conwL rtzetion. Chairman McCabe stated that Mr. Foley, Housing and Home Finance Acir4ire _. ator, called him on the telephone this morning and suggested ktiber of changes in the draft of statement, a copy of which had bee 4 sent to him for comment. The Chairman also said that Mr. Foley 11°1134 like to have the Board endorse the bill and that the suggestions 332 -6- 2/13/51 he had made were intended to change some of the comments in the draft Of statement which raised questions as to the desirability of portions Of the proposed legislation. His own view, the Chairman said, was that the country was faced with far greater inflationary pressures than at the time Regulation X was adopted, that the target then set of aPProximately 800 to 850 thousand housing starts for the year 1951 Should, if possible be reduced, and that in view of data presented showing an extraordinarily high rate of housing starts during January °t this year, and the backlog of commitments on applications filed Prior to October 12, 1950, for insurance of more than 400,000 housing utits, the proposed statement should make it clear that authority granted 11 the legislation should be limited to the minimum necessary to provide the necessary defense housing and at the same time be in harmony with the Purposes of the regulations relating to real estate credit. Mr. Vardaman withdrew from the meeting during the foregoirg 48eussion. Following the discussion, it was agreed unanimously that the draft of statement would be revised along the lines discussed at this meeting, that Mr. Norton would discuss the revised draft with Mr. Foley, Housing and Home Finance Administrator, and that In the event the Board was requested by the Senate Banking and Currency Committee to testify or to make a statement on the bill, the revised statement as approved by Messrs. McCabe and Norton would be presented as the position of the Board. -7- 2/13/51 At this point all of the members of the staff with the exception of Messrs. Carpenter, Sherman, and Kenyon withdrew, and the action stated with 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 Federal Reserve System on February 121 19511 were approved unanimously. Memorandum dated February 81 19511 from Mr. Bethea, Director of the Division of Administrative Services, recommending the appointment of Thomas Russell Turner as a laborer in that Division on a temporary basis for a period of two months, with basic salary at the rate of $21252 per annum, effective as of the date upon which he enters UPON the performance of his duties after having passed the usual PhYeical examination. Approved unanimously. Memorandum dated February 9, 1951, from Mr. Hilkert, Acting Director of the Division of Personnel Administration, recommending the ePPointment of Mrs. Rubye M. Zacharay as a clerk-typist in that 131-vision, on a temporary indefinite basis, with basic salary at the l'ate of $2,650 per annum, effective as of the date upon which she ellters upon the performance of her duties after having passed the Physical examination. Approved unanimously. 2/13b1 -8Letter to Mr. Sproul, President of the Federal Reserve Bank of New York, reading as follows: "This will acknowledge your letter of February 5, 1951, addressed to Chairman McCabe, in which you state that your directors wish to reappoint Mr. L. R. Rounds to the First Vice Presidency. The Board of Governors will be pleased to approve the reappointment when the formal action is taken by your board." Approved unanimously. Letter to Mr. dilliams, President of the Federal Reserve Bank of Philadelphia, reading as follows: "This will acknowledge your letter of January 25, 1951, addressed to Governor Szymczak advising of the proposed increases in officers' salaries which have been approved by the Executive Committee of the Board of Directors. "The recent action of the Government in regulating salaries raises questions which will need to be clarified before the Board considers the adjustments recommended for your officers. You may be assured that when the necessary clarification of the Government order is received the salaries fixed by your Board of Directors will be promptly presented to the Board of Governors for action." Approved unanimously. Letter to Mx. Peyton, President of the Federal Reserve Bank "Minneapolis, reading as follows: "The Board of Governors approves the appointment of Mx. J. N. Peyton as President of the Federal Reserve Bank of Minneapolis and of Mr. A. W. Mills as First Vice President of the Federal Reserve Bank Of Minneapolis for five-year terms beginning March 1/ 1951. The Board of Governors also approves the PaYment of salary to Mr. Peyton as President at the rate of $25,000 per annum for the period March 1, 1951, through May 31, 1951. trT 2/13/51 -9- "The recent action of the Government in regulating salaries specifies that increases can be given whenever they are in line with previously established patterns. Since it has been customary for the Board to consider the salaries of the officers of the Federal Reserve Bank of Minneapolis during the month of May it will be necessary, unless subsequent regulations provide otherwise, that the Board defer its review of the proposed salaries for First Vice President Mills and other senior officers until that time. Meanwhile, the Board approves the payment of salary to Mr. A. W. Mills at the rate of $15,000 per annum for the period March 1, 1951, through May 31, 1951, provided this is the rate approved by the directors. "Because the policy of increasing the salaries of junior officers was established prior to the effective date of salary control, the Board approves the payment of salary to the following officers at the rates indicated for the period effective immediately through May 31, 1952. Annual Salary Title Name $10,000 M. H. Strothman, Jr. Vice President 9,000 A. R. Larson Assistant Vice President 8,000 President C. A. Van Nice Assistant Vice 8l000 W. E. Peterson Assistant Cashier 7,500 H. A. Berglund Assistant Cashier, Helena Branch 7,000 A. w. Johnson Assistant Cashier 7,000 M. o. Sather Assistant Cashier 7,000 Cashier Assistant Chris Ries 7,000 G. m. Rockwell Cashier Assistant M. E. Lysen Operating Research Officer 9,000 9,000 O. W. Ohnstad Auditor 10,000 of Director Associate P. L. Parsons Research "The Board also approves the payment of salary to tir. K. K. Fossum as Assistant Cashier at the rate of T6,000 per annum for the period January 11, 1951, through May 31, 1952. "It is noted from your letter that all of the officers have been re-elected for the calendar year 1951 or until their successors are elected." Approved unanimously. 2/13/51 -10Telegram to the Presidents of all Federal Reserve Banks, reading as follows: "The Board has been asked whether a socalled 'Sedan Delivery', as manufactured by Willys and some other companies, is to be classified as a passenger automobile under Regulation W or as a truck. The vehicle has many of the features of a sedan or station wagon except for the fact that it is not equipped with rear seats, has metal rather than glass side panels, and has vertical doors in the back. "The Board is of the opinion that such a vehicle sold without rear seats or side glass may be regarded as a truck not subject to the credit restrictions of the regulation. Of course, if the sale Includes arrangements for conversion to passenger use through the installation of seats and replacement of metal side panels with glass, the vehicle would be a passenger car and should be treated as a listed article under the regulation." Approved unanimously. Letter for the signature of the Chairman, to Mr. Elmer B. ats: Assistant Director, Bureau of the Budget, Executive Office 8ta ' Or the President, Washington 25, D. C., reading as follows: "We congratulate you on the excellent and thorough survey of Foreign Service Economic Reporting transmitted to me with your letter of January 24, 1951. "The report has been studied by our Division of International Finance and by other staff members interested in foreign reporting. In general, we agree wholeheartedly vith the recommendations. They appear to be in complete accord with the views expressed by representatives of the Board in inter-agency conferences and informally to representatives of the Division of Foreign Reporting in the Department of State. Ne are in favor of the proposed Executive order vhlch, if properly enforced, should alleviate the burden °f miscellaneous reporting which frequently causes 2/13/51 -11- "unfortunate delays in submitting essential required reports and makes it difficult for the reporting officers to contribute 'on the spot' analysis which is so essential to the work ef the end-user in Washington. However, if the Department of State is given sole responsibility for determining the priority of requests for information from various agencies, it appears certain the Department will face many problems of coordination. We feel that these problems can be met with proper inter-agency cooperation. "We want to assure you of our cooperation in adopting the improvements proposed in your report. We also should like to express our appreciation for the effort you are making to strengthen our foreign economic reporting." Approved unanimously. " dr 4111P°' lir Ad Secretary.
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