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304 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Friday, February 18, 1949. The Board tat in the Board Room at 10:40 a.m. PRESENT: Mr. Mr. Mr. Mr. McCabe, Chairman Szymczak Draper Evans Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Vest, General Counsel Leonard, Director of the Division of Bank Operations Mr. Horbett, Assistant Director of the Division of Bank Operations Mr. Smith, Special Counsel Mr. Hodge, Technical and Legal Adviser to Mr. Evans Mr. Mr. Mr. Mr. Mr. Mr. Evans stated that the following demand for production Or int, crmation was filed by attorneys for Transamerica Corporation at the close of the hearing in the proceeding against that Corpor ation under the Clayton Act on Tuesday, February 15, 1949: "UNITED STATES OF AMERICA BEFORE TILE BOARD OF GOVERNORS OF THR FtDERAL RESERVE SYSTEM ,211 MATTER OF QqaTSAMERICA CORPORATION 1,SIR8: "DEMAND FOR PRODUCTION OF INFORMATION dem "The respondent, Transamerica Corporation, hereby allds that the following Exhibits, or at least the : 4_13nblished source material therefor, as may be reby respondent's counsel, be assembled and pre' by the staff of the Board of Governors of the el'al Reserve System and be made available to 2/18/49 -2- "Transamerica Corporation a reasonable time prior to the reconvening of hearings in this proceeding in San Francisco, California: "Exhibits comparable to Board's Exhibits 13, 14, 15, 16, 17, 18, 19, and 20 for each of the following banks and their predecessors, for each location in which they Operate, together with county and state totals: "1. Security First National Bank of Los Angeles, and its predecessors. "2. American Trust Company of San Francisco, and its predecessors. "3. Anglo-California National Bank, San Francisco, and its predecessors. 4. Citizens National Trust and Savings Bank of Riverside, and its predecessors. Valley National Bank of Arizona, and its predecesso"r5s: "6. United States National Bank of Portland, and its predecessors. "7. National Bank of Commerce, Seattle, and its Pr edecessors. "8. Seattle First National Bank, and its predecessors, It "The basis for this demand is the testimony of the 11°8It'8 witness, John E. Horbett, and Board's Exhibits t°8* 13, 14, 15, 16, 17, 18, 19, and 20. From said ) ,!!timony and Exhibits it appears that the Board has Ported, to present county and state tabulations showhg 'the the relative growth' of Bank of America and banks 81 ! 1 'which Transamerica has an investment, but it has not orra the growth of competitor banks to which the growth the banks shown in the Board's Exhibits must be rem!) , :ted if an honest, fair and accurate picture is to be :lesented. While counsel for Transamerica Corporation tijenuously objected and still objects to the publicade°4 of the facts and figures in question from confii tial sources, the hearing officer has allowed the ' c" 0 roduction of these Exhibits into evidence, which tilletitutes their publication. The comparable informatcompeting banks is not available to the reexcept to the extent that it may be made availfrom similar sources by the Board. It is respectY' submitted that if the information in the Board's ;:trItbits referred to is to be left in the record, cornable exhfbits as to the competitor banks must also 2/18/49 -3- "be put there, unless the record is to be left in an inFomplete, inaccurate and misleading condition. "Dated: February 15, 1949. (silined1_21911(211. Stewart, Samuel B. Stewart, Jr. (signed) Hugo A. Steinmeyer Hugo A. Steinmeyer Attorneys for Respondent, Transamerica Corporation. THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM." At Mr. Evans' request, Mr. Hodge discussed the demand, stat- ing thni, ta his opinion the preferable course would be to refuse the A "emantl without prejudice to the right to renew it later. ale° Suggested He that, since the information would probably become tlelquat later in the hearings, it would be desirable for the lloardis staff to start assembling it. There followed a discussion of the demand during which (114elati— 'As were raised as to whether the data requested were con4c1eaat al whether they were relevant to the cross-examination of erbett, whether they were likely to be introduced into the (k.te as 1949 evidence in the proceeding, and whether if made available 'Pori.se to the request the data could be prepared by March 28, j when the hearings were scheduled to be resumed in San Fran- Messrs. Vest and Smith expressed the view that the data 2/18/49 -4- requested were relevant to the cross-examination of Mr. Horbett and that the information should be prepared. Following the discussion, by unanimous vote, the following statement and order was approved: "UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM HI , TIlE MATTER OF ' 14‘ANIERICA CORPORATION "STATEMENT AND ORDER ON D DI 4 0 FOR PRODUCTION OF INFORMATION "On February 15, 1949, respondent filed with the Board '11 'Demand for Production of Information', in which it reqUested that the Board's staff assemble and prepare certe-tm information and data in exhibit form and make the !Erie available to respondent 'a reasonable time prior to ;he reconvening of hearings in this proceeding in San ncisco, California.' On the same date the Hearing `Jlticer announced that he would refer respondent's DeOfto the Board, and, with the consent and agreement .,, counsel, he recessed the hearing to reconvene in °an Francisco, California, on March 28, 1949. x The information requested by respondent in its Deis extremely comprehensive. Counsel for respondent te-e recognized on the record that it will require con, 1:dera:ble time to prepare such information, and members the Board's staff estimate that its preparation may 4:tnuire most of the time of three men for as much as ee months. In the opinion of the Board, the Board e;under no legal obligation to produce the information .p_Ught be respondent, and it is impossible for such inrmation to be prepared and made available prior to interest of affoXi 28, 1949. Nevertheless, in the DA-c'-ing respondent every reasonable opportunity to pretc:talld Present its defense to the Board's complaint, rol-„:?ard is granting respondent's request for the inprW4Uion desired. Such information will therefore be 6tred as expeditiously as circumstances permit and, ! lille PrePared, will be forwarded to counsel for resPoAdent and the Solicitor for the Board. W 308 2/18/49 _5- "In granting respondent's request for the information referred to, the Board expresses no opinion upon the relevance of such information) at whatever time it IllaY be offered in evidence. Further, the Board notes the statement of counsel for respondent at the hearing held February 151 1949, that 'I have no desire to hold uP these proceedingl to have these things/I.e. the information requested/ prepared.' The Board therefore assumes that pending the preparation and production of such information, the hearings will proceed In due course ana as may be ordered from time to time by the Hearing Officer. ORDER "It is hereby ordered that there be prepared and served upon counsel for respondent and the Solicitor for the Board as expeditiously as possible, the exbits requested by respondent in its 'Demand for Proauction of Information' dated and filed February 15, 1949. "This 18th day of February, 1949. "BY the Board S. R. Carpenter Secretary. "Governors Eccles and Clayton took no part in the CO or decision of the Demand referred to 14 the foregoing Statement and Order." (signed) There were presented telegrams to the Federal Reserve Banks ()1r Re Philadelphia) Atlanta) Chicago, St. Louis, Kansas City, kNI s 1,1111,10 FranCiSCO stating that the Board approves the establishment ut change by the Federal Reserve Bank of San Francisco on FebriAltry 41)111 5/ by the Federal Reserve Banks of Atlanta and St. Louis on atY 16, and by the Federal Reserve Banks of New York) la.-,' Chicago, and Kansas City on February 171 1949, of Phithe 'Ettes Of discount and purchase in their existing schedules. Approved unanimously. 2/18/49 -6Mr. Clayton and Mr. Townsend, Solicitor for the Board, en tered the meeting at this time and Messrs. Horbett, Smith, and Rodge withdrew. Mr. Evans referred to a letter received under date of Feb Y 4/ 1949 from John Oden Bennett, Maxim Radio, Bartow, Florida, to the Board's letter of February 21 1949, in which he rerilsed to permit inspections of records of his business in contieti()u with the administration of Regulation W) Consumer Instal41en't Credit, as reported in a memorandum from Mr. Solomon, dated 41/1111Etr7 11, 1949. The memorandum also stated that the matter 18.8 bei -ug referred to Mr. Townsend for further consideration. Mr. Evans stated that if it were decided to take the nec"' 'Y stePs to enforce compliance by the concern, consideration 14ight be given to whether Mr. Cherry) attorney in the Legal DiVIS1 04 'might be spared for that assignment. In response to a question from Chairman McCabe) Mr. Vest St at d "flat/ while the handling of litigation was under Mr. Town- 444,8 su pervision, he felt that if it were decided to go ahead at t1118timeit would be preferable, because of Mr. Cherry's other 114131euts, to handle the matter with the assistance of counsel th Pederal Reserve Bank of Atlanta, who would work under ToloaRi4 At s direction. C hairman McCabe said the question for consideration was 310 -7- 21/18/49 vhether the Board should take action against the Maxim Radio at this time. Speaking to that point, Mr. Townsend expressed the view that l esPect for Regulation W was to be maintained, the Board should it ' be„ -Prepared to take vigorous steps when necessary to enforce it, that, he would prefer to take the first formal action against a lellger concern so that there could be no charge of attacking small 111/814esses, but that the Board should handle the cases as they arise elferi though the violator happens to be a small concern. Another 'he said, is that any proceeding of this kind might raise the 1)(1114 elkstitUtionality of the statute on which Regulation W was based, that there had never been a test of that question, and that, while e felt the Supreme Court would hold the law constitutional, it var3 n °t certain that it would do so. Mr. Townsend added that while se_ the before the Board probably would raise the constitutional (14 ti —1°4 it Was as good a case as could be found to test the Board's MIthority. During the discussion of the question, it was suggested thavt, Sinee the administration of the regulation was decentralized 11112c41g th-e Federal Reserve Banks and since Mr. Bennett was a registralat 11 the territory of the Federal Reserve Bank of Atlanta, it Vottiti .1) e desirable to discuss the case with Mr. McLarin, President or that, 4 Ink, when he was in Washington next week. " It was also 2/18/49 134gested that, if necessary, Mr. Patterson, General Counsel of the l'etleral Reserve B11,0 of Atlanta, be asked to come to Washington when Maorin was here to participae in the discussion. The foregoing suggestion was approved unanimously with the understanding that, following the discussion with Mr. McLarin, the matter would be considered by the Board again. Chairman McCabe stated that Mr. Thorp, Assistant Secretary Of S4. 4ate) called him on the telephone yesterday to inquire about the e.cti.011 of the Board with respect to the application of the Bank of 11.T. & S.A., for a branch in Bangkok, Siam, saying that, beCe.ti se of the pressure upon the State Department for having an Amer- 1c4libmik established in Siam, the delay was becoming somewhat emb & Etse-t iig to the Department. Mr. Millard, Director of the Division of Examinations, en44 ' ed th -e meeting at this time. troll Mr. Clayton stated that Mr. Szymczak and he met with CompOf the Currency Delano on Tuesday, February 15, 1949, 00k, Director of the Federal Deposit Insurance Corporation, 11°1' be present because of illness) at which meeting Messrs. killara and Townsend were also present. Be said that Mr. Delano 441e it very clear that he would not deviate from his previously te,41. Position that he would interpose no objection to the Board's 4 Permission to the Bank of America for the establishment of 2/18/149 -9- the foreign branches under consideration, and that he was not willto say that the capital position of the Bank of America or any "her factor in the situation was such as to cause him to take the 1438itien that he would deny any application for a de novo domestic brellch. Also, he would object to the Board stating to the applic4t that the Comptroller's office felt that the capital position or the Bank of America was not satisfactory and that for that rea8°11 additional foreign branches should not be granted. The reason to l' the Comptroller's position, Mr. Clayton said, was that there Other national bneks in substantially the same capital posias Bank of America and while he felt the office of the Comptroll el' of the Currency should continue to press for additional 4°14 elqqtAl he did not feel he should take the position that no fur- t4ei, bliallchss should be granted where the needs of the community taaa r °r approval of a branch. Mr. Clayton went on to say that he still believed that, in he 11ght of all the circumstances and for reasons substantially th the sae as those he advanced at the meeting on January 27, 1949, 4t Wlication of Berk of America N.T. & S.A., for permission to 0i:411114h branches at Bremen, Frankfurt-am-Main, and Homburg, 'end at Bangkok, Siam, should be granted and that at the t 1114111Y e f °- giving its approval, the Board should inform the Bank that 41t to ekrcl ves disturbed by certain factors in the condition and 2/3-8/ -10- oPerati -ng policies of the Bank and felt they should be corrected, that because of such factors very careful consideration would IlEtve to be given to them before taking favorable action on any tIrttlre applications that might be filed for foreign branches. He 84cled that he did not feel It was inconsistent for the Board to Permission for the four branches requested and at the same tulle , uo make clear that it felt there should be improvement in the cellital position and certain operating practices before any addi-" applications would be considered favorably. In response to a question from Mt. Clayton, Mt. Vest stated his 0 Pinion that the Board had broad legal authority for denying to Permission to establish foreign branches if it concluded such ~i vas desirable. the Mr. Szymczak stated there was a great deal to be said for u P"ition Mr. Clayton presented, but that he was afraid that it -0111,1 not be effective in correcting the unsatisfactory capital 14)"'tl°11 and lending and dividend policies of the Bank of America Et4lthat he felt the best course would be to deny the pending ap13114:tit:nu. If that were done and the reasons given, he said, the 414 tight come in and want to know what it should do to correct f4 situation. He added that if the necessary corrections were 1*°11rsht about, he would not now say the Bank should not be given 15trillE3 ion to establish additional foreign branches. :i4 2/18/49 -11There was a further discussion during which Chairman McCabe Buggested that the applications for three branches in Germany be dellied and the application for a branch in Siam be granted on the t'(1144.8 that other American banking facilities were already availeble in Germany and the Board should ascertain how they are workOut before authorizing additional branches, whereas no American betio 'ng facilities were available in Siam and the State Department extremely anxious that a branch of an American bank be estabin that country as soon as possible. Mr. Szymczak felt that such a procedure would beg the questi() ;since it was not a matter of Siam or Germany, but rather how thelinsatisfactory extended position of the Bank of America could be correcte. He said the Board must take that position sooner or let;er because otherwise additional de novo domestic branches will be €N1ted by the Comptroller and applications for additional foreign 1)Itches will be submitted by the Bank of America to the Board. He Doirted out that no bank supervisory authority is satisfied with the bknit -is Present extended position and the Board has frequently stated It 14)es not look with approval on further expansion by the Bank of Ake i l'-ce in the domestic branch field -- and the Comptroller had 41e4 that the Board's action in granting foreign branches to the 11A— np . -.4. America is 86 expansionary, if not more so, as action in (titing domestic de novo branches. Therefore, he said, the sooner 2/18/49 the -12- Board acts to correct that condition the better in the public interest. Mr. Clayton stated that his preference would be to grant all the pending applications and place the Bank on notice that the lloard felt the unsatisfactory conditions should be corrected, but that as a compromise he would go along with the suggestion made by Chttillnan McCabe. He made the additional statement that the deposits to 13„, held at the proposed foreign branches and the operating costs "such branches would be negligible in relation to the Bank of Alnerica as a whole, that the unsatisfactory conditions of the Bank tealata e- almost entirely from its domestic operations, and that in hig (11/141on Congress did not give the Board authority over foreign bttize,. "e8 with the intention that such authority should be used as a to bring about corrections in the domestic condition of a Bank vhich " 14 primarily the responsibility of another supervisory au- 110am Mr. Szymczak said the condition of the Bank is likewise a resPonsibility. th thect kr. The meeting then recessed and reconvened at 2:45 p.m. with "L4e attendance as at the close of the morning session, except Mes srs. Morrill and Leonard were not present. Mr. Szymczak stated that in a telephone conversation with cele„ on Wednesday morning he (Mr. Eccles) said that he did 31C 2/18/49 -13- 4°t favor approving the applications of Bank of America for branches ill Germany and Siam, that he did not agree that the question involved i4 the branches Was entirely separate from the question of monopoly, 814 that it did involve the establishment of a string of foreign 131'84°11as which indirectly added to the monopolistic position of the beak on the Pacific Coast in handling the business of its customers. Mr. Carpenter stated that at Mr. Szymczak's request he talked lth Mr. Vardaman on February 16 who said that, while he was opposed 111111%4 "-knoiple to granting the branches, he felt that since the Board iledgranted permission to establish branches in Manila, Shanghai, 4141thrae cities in Japan without raising the question of the bank's Slid loan and dividend policy, the only thing the Board could Qv"' to grant the pending applications and advise the bank that it vould " 4 approve any additional branches until the capital situation bed, b een remedied. He also felt, Mr. Carpenter said, that regardless or waether additional branch applications were filed, the Board should N ist th. --,t the bank correct the matters which were subject to crit- After a further discussion, it was suggested that the matter teate„ up for action at a meeting on Monday, February 21, 1949, 141b,, .all members of the Board would be present. be The foregoing suggestion was approved viumimously. 2/18/49 -14Reference was made to a letter from the Senate Banking and IselleY Committee dated January 28, 1949, requesting a report on elll ' S 'js Res. 9 to provide for the establishment of a national monetary c°34raissioll) which was referred to at the meeting on. February 4, 1949. It was agreed unanimously that the Legal Division should prepare a reply to the request, stating that the Board would prefer to defer comments on the proposal until the Commission on Organization of the Executive Branch of the Government had submitted its recommendations with respect to bank supervisory agencies and there had been an opportunity to study it. At this point Messrs. Vest, Townsend, and Millard withdrew action stated with respect to each of the matters hereinferred to was taken by the Board: Minutes of actions taken by the Board of Governors of the Beserve System on February 17, 1949, were approved unani- Memorandum dated February 15, 1949, from Mr. Thomas, DiNtor of the Division of Research and Statistics, recommending ktilllel'ease in the basic salary of Miss Rita I. Ryhal, a clerk in 1)iv1si0n, from $2,799.4 to $2,949.72 per annum, effective brilal7 20, 1949, Approved unanimously. Memorandum dated February 15, 1949, from Mr. Thomas, DiOf the Division of Research and Statistics, recommending iro4 2/18/49 -15- Creases in the basic annual salaries of the following employees in that Division, effective February 20, 1949: Name Ilelen E. Dyer Caroline M. Burgess II,erna L. Hodge '10sa Ernst Gretchen Hill Fowler , 148.17 G. Offutt 41-orence R. Cox Title Library Assistant Library Assistant Library Assistant Research Assistant Research Assistant Clerk Clerk-Stenographer Salary Increase From To $4.75-4.20 $4,479.6o 41228.80 4,103.40 3,024.96 3,225.60 4,354.20 4,479.60 3,100.20 2,949.72 2,874.48 2,799.24 3,100.20 3,024.96 Approved unanimously. Memorandum dated February 17, 1949, from Mr. Leonard, DiIleetar or the Division of Bank Operations, recommending an increase th basic annual salaries of the following employees in that Dieffective February 20, 1949: m Name Kf. --"Durkan -kelMa C. Millican Title Analyst Clerk Salary Increase To From $3,727.20 $3,'552.60 3,601.80 3,476.40 Approved unanimously. Memorandum dated February 17, 1949, from Mr. Hammond, As- t,„„t Chter Secretary, recommending that Frank M. Tamagna, Assistant "the International Section in the Division of Research and Ztfiti "ice) undertake the six-week trip to Korea approved by the ts%rti Or January 28, 1949, on the Board's orders and that he re- Per diem of 1,%111 $8 with the understanding that, should this Prove inadequate, adjustment would be made. stated that Mr. Tama The memo- 's travel expenses would be reimbursed 2/18/49 -16- tO the Board by the Economic Cooperation Administration. The memo- randum further recommended that the purchase of flight insurance be aUthorized, which would amount to approximately $25. Approved unanimously. Memorandum dated February 17, 1949, from Mr. Carpenter recclitilliencling increases in the basic annual salaries of the following el41)10Yees in the Secretary's Office, effective February 20, 1949: Name ' aatrice E. Hunter Marion R. Derr Salary Increase To From $379-7.00 $4,153.40 Title Asst. Chief, Files Section File Clerk 2,724.00 2,799.24 Approved unanimously. Memorandum dated February 14, 1949, from Mr. Nelson, Directo, of, 'the Division of Personnel Administration, recommending, for thereasons stated in the memorandum, that Dwight L. Allen, Personnel lesistant in that Division, be authorized to attend the Management Co,ir erellca on Job Evaluation to be held March 14 to 18, inclusive, ell°111a A. and M. College, Stillwater, Oklahoma, and that the to__ ttot,) EtY the expenses, including trosiend Per diem at the rate of tl. 'Let mrregulations. $60 $8, Conference fee, transporta- in accordance with the Board's The memorandum also stated that it was expected . Allen would stop at the Federal Reserve Bank of Kansas City the c_ urse of the trip for the purpose of making the annual reviev ' t4 "the operation of the job evaluation plan of that Bank. Approved unanimously. 2/18/49 -17Memorandum dated February 17, 1949, from Mr. Nelson, Direc- of the Division of Personnel Administration, recommending an increase in the basic salary of Mrs. Ruth L. Jarvis, a maid in that elon., from $2,350 to $2,423.04 per annum, effective February 20, 1949. Approved unanimously. Memorandum dated February 17, 1949, from Mr. Bethea, DirectC "f the Division of Administrative Services, recommending an inere4186 in the basic salary of Thomas V. Kopfman, a clerk in that from $2,284 to $2,498.28 per annum, effective February 20, 1949. Approved unanimously. Letter to Mr. Leach, President of the Federal Reserve Bank or Th., '4440td, reading as follows: 194 "This will acknowledge your letter of January 13, enclosing information regarding the personnel i vz the Federal Reserve Bank of Richmond, as requested 4 the Board's letter of November 9, 1948. rol An examination of Schedule A indicates that the °Ifing employees are receiving basic salaries which not within the ranges of their respective grades 11( 7 which have not been specifically approved by the eltrl of Governors or on which the authorization has Ilea. Accordingly, the Board approves the payment Of' &reBaleries to the following employees at rates which 41,e,below the minimum for a period of one year begin11U817 1, 1949: Department Title Ali B. Lamkin Transit Return Checks Clerk g-Llie M. Transit Puller Return Checks Clerk Ilt11 2/18/49 -18- "The Board also approves the payment of salaries to the following employees at the rates indicated which are above the m$)Timums for the grades in which their jobs are classified: Salary Name Title & Dept. Mrs. Robert Burruss $2,180* Hostess Cafeteria Cafeteria Estelle Cauthorne 2,130 Currency Counter C Money "The Board has heretofore approved the payment of salaries to Joseph C. Knapp, Credit Analysis Clerk, and John J. Beall, Old Records Clerk, Baltimore Branch, at their present rates. *When converted to a full-time basis." Approved unanimously. Letter to Mr. Diercks, Vice President of the Federal Reserve tam, -*" of Chicago, reading as follows: "In accordance with the request contained in your letter of February 10, 1949, the Board approves the !PPointment of Ray A. Barrett as an assistant examiner ror the Federal Reserve Bank of Chicago. "Please advise us as to the salary rate and the tiate Upon which the appointment becomes effective." Approved unanimously. Letter to Mr. Woolley, Vice President of the Federal Reserve 41* Of lansas City, reading as follows: "In accordance with the request contained in your lette desi -r of February 12, 1949, the Board approves the gnation of the following as special assistant exlasrs for the Federal Reserve Bank of Kansas city. Charles Patterson Dorothy Burns R. L. Compton Edna Polfer Virgil curp Lucile Porter Alice Dulle Ethel Savidge Hazel F. Goebel Robert M. Shanklin Catherine Strada Marjorie Hansen Eunice Swinney Barbara Jean Held Aileen Johnson Harry R. Trimble Mary Lynn Arthur Wangler" Approved unanimously. 322 2/18/49 -19Letter to Mr. Gilbert, President of the Federal Reserve Bank "'Dallas, reading as follows: "The Board of Governors approves the reappointments of Messrs. Charles R. Moore, E. P. Simmons, Lawrence S. Pollock, Ira T. Moore and Jake L. Hamon as members of the Industrial Advisory Committee for the Eleventh Federal Reserve District to serve for terms of one year each, beginning March 1, 1949, in accordance with the action taken by the Board of Directors of the Federal Reserve Bank of Dallas, as rePorted in your letter of February 14, 1949." Approved unanimously. Letter to the Honorable Maple T. Earl, Chairman, Federal De1)(18it Insurance Corporation, reading as follows: "In connection with the request contained in your etter of February 9, 1949, the Board of Governors of the Federal Reserve System hereby grants written consent/ pursuant to the provisions of sub-section (k) (2) ( ;1* Section 12B of the Federal Reserve Act, for examiners 2 ' 1 the Federal Deposit Insurance Corporation to make an ; .Zamination of the Kansas State Bank, Kansas, Illinois, i4 connection with its application for continuance of ! e surance after withdrawal from membership in the Fed.Reserve System. "There Note been no corrective programs urged upon tbs bank or agreed to, which have not been fully conmated and in connection with which the Board would Test incorporation of conditions for continuing its status as an insured bank." Approved unanimously. Ettleh Telegram to Mr. Watkins, Assistant Manager, Los Angeles %la the Federal Reserve Bank of San Francisco, reading as ova.: :323 2/18/49 -20- "It is noted from your letter of February 14 that Kelley Kar Company has stated that it will correct its Practices with respect to so-called service contract. Referring to your wire of February 17, when insurance in connection with listed article is sold or financed in connection with the listed article by person who sells or finances the listed article, insurance cannot be treated as separate exempted sale of unlisted article. It must be included in 'time balance' as specified in section 6(c), and must be repaid within applicable a• .zimum maturity as specified in sections 3(a) and 3(b). !ame treatment is required in case of instalment loans. rlease advise Kelley accordingly." Approved unanimously. Letter to Mr. Elmer B. Staats, Assistant Director, Legislativ • Reference, Bureau of the Budget, reading as follows: "This is in response to your letter of January 31, 49, requesting the Board's views with respect to ' 1-9 281/ a bill 'To insure the maintenance of full emv.LoYment in the United States.' "Briefly, this bill would provide for the establishmetf 1,4 - of a Capital Development Fund of not to exceed $15 :'llion which would be administered by the Board of Di441ctors of the Reconstruction Finance Corporation. For mee Purpose of maintaining levels of production, employ„lit, and investment called for in the annual economic 17Pert of the President, the Corporation would be auized to use the Fund to make loans to new or existthe co€ business enterprises, to State Governments for the to and , Te4struction of needed industrial facilities authorregional 11e88ee Valley Authority and similar ; it1 An advisory board composed of twelve members r;• 44 be created for the purpose of advising the di' phn0r8 of the Corporation in the management of the • ,', and certain other amendments would be made to the Act• ject:The Board is, of course, sympathetic with the ob''vels of maintaining maximum employment; and the EmloYme reuw, nt Act of 1946, which provided for annual economic Aci;Trts by the President and for the Council of Economic -sers, declared the policy and responsibility of the -47sr).4 2/18/49 1- "Federal Government to use all practicable means in promoting maximum employment, production and purchasing Power. "The Board believes, however, that there is no evidence at this time of such a general lack of sources of Private financing as to justify the establishment and Use of the $15 billion fund which would be provided by this bill, without a more specific indication of the Purposes for which the fund is to be used and of the time and circumstances which warrant such use. At the Present time, provisions making such a large volume of Government capital available without limitation would have the effect either of displacing private capital or of injecting a further inflationary factor in our economy. "In the Economic Report of the President transmitted to the Congress on January 7, 1949, the President recommended, as measures for restraining excessive !redit expansion, that Congress should promptly provide che Board of Governors of the Federal Reserve System ntIi continuing authority to require all insured banks Lc) hold supplemental reserves against their deposits that the Board's present temporary authority for e regulation of consumer instalment credit should be intinued in order to exert a stabilizing influence on tie e°°nomY. As you know, the Board hopes that legislath°n to effectuate these recommendations with respect to b e regulation of bank reserves and consumer credit will . enacted at this session of Congress. However, active 8e of the fund which would be set up by the bill S. 281 0 ; ofilld, at the present time, tend to defeat the purposes such legislation. vitt, The Federal Reserve System is vested by Congress is " important responsibilities in the credit field and threuthorized by existing law to take certain steps ms °Ilgh the conduct of open nArket operations and other 4s to increase or reduce the volume of credit. Present : us re of the authority provided in the proposed bill would Boilder more difficult the effective discharge of the responsibilities in this field and would be inp48istent with the policies now being followed by the i.8-1 Reserve System in the exercise of its credit fIxtiell Ions. If it should become necessary in a period or eflationary pressures to provide authority along ' the lines of the legislation here proposed, it is !fa r j 325 2/18/49 -22- "important that some provision should be made for the coordination of such authority with the credit and fiscal functions and policies of other agencies of the Government. "In the circumstances, it is the view of the Board that legislation which would provide for the exPenditure of such large amounts of funds, thus increasing the inflationary potential in the economy, mould be undesirable at this time." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks readas follows: "In view of inquiries received from some Reserve Banks, it is felt that the attached excerpts from a December 14, 1948 letter to a Vice President of one or the Reserve Banks might be helpful in answering !ertain queries from member banks concerning reserves ror bad debt losses on loans." Approved unanimously. ADDroveti: Chairman.
@FedFRASER