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-1,
Minutes of actiorstaken by the Board of Governors of the
Federal Reserve System on Wednesday, February 21, 1951. The Board
met in the Board Room at 10:50 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Eccles, Chairman pro tem.
Szymczak
Evans
Norton
Powell
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
Hilkert, Acting Director, Division of
Personnel Administration
Phelan, Acting Director, Division of
Selective Credit Regulation
Bonner, Assistant Director, Division
of Selective Credit Regulation
Youngdahl, Chief, Government Finance
Section, Division of Research and
Statistics
Chairman McCabe was unable to attend this meeting because
of unexpected interruptions which necessitated his attending another
meeting this morning.
Mr. Vardaman requested that the minutes contain a statement
that prior to receiving notice of this special meeting, he had made
Other appointments at the Capitol which made it impossible for him
to attend a Board meeting this morning.
Mr. Norton stated that an amendment to Regulation X, Real
Estate Credit, had been prepared which would provide for exemption
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2/21/51
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under certain conditions of defense construction from the terms of
the Regulation. He then called upon Mr. Vest, who stated that the
wording of an amendment to the Regulation which would provide necessary exemptions but which mould not open the door to wide-spread
evasion had progressed to the point where the Housing and Home Finance
Administrator agreed with the proposal, and, although the Office of
Defense Mobilization did not wish to assume any responsibility in
connection with designating defense areas or projects, it was understood that it would not object to an exemption such as was proposed.
Mr. Vest went on to say that defense projects for the Atomic Energy
Commission were under way near Paducah, Kentucky and in the Savannah
River area of South Carolina which made it desirable to have a procedure for relaxing the terms of the Regulation for the specific
Projects in those areas as well as in others which might be expected
to develop in the future, and that it was believed that the proposed
amendment to the Regulation would meet the need satisfactorily. Mr.
Vest then read a draft of the proposed amendment which would add subsection
6(p) to Regulation X to provide that terms different from
those prescribed by the regulation and the supplement thereto, to be
applicable to specLfic new construction necessary to the national deerlso, may be authorized in areas designated by the Housing and Home
Pinance Administrator after consultation with the Board and after sur14aYs had been made by the Administrator with respect to the needs for
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2/21/51
73-
such necessary construction within such areas, with the understanding
that such different terms when so authorized would be applicable only to
such new construction as might be specified by the Administrator
within such designated areas and would be subject to such conditions
as might be prescribed by him after consultation with the Board.
During the ensuing discussion, question was raised as to why
the Housing and Home Finance Administrator should make the designation
after consultation with the Board, and it was suggested that in the
light of the responsibility placed on the Board by Executive Order
10161 the amendment should provide for the Board's concurrence in
the exemptions.
Mr. Norton said that in discussing the matter, Mr. Foley,
Housing and Home Finance Administrator, had agreed that the number
of housing units to be started under the proposed exemption during
this year should be included within the target of 850,000 units
agreed upon at the time Regulation X was adopted.
After a discussion, upon motion by
Mr. Norton, unanimous approval was given
to the following amendment to Section 6
of Regulation X, Real Estate Credit, to
become effective February 26, 1951. This
action was taken with the understanding
that if the Housing and Home Finance
Administrator did not concur in both
the amendment and the effective date
the matter would be given further consideration by the Board, but that if he
did concur, the amendment would be sent
to all Federal Reserve Banks by telegram,
a press statement would be issued in a form
satisfactory to Mr. Norton, and a notice of
the action would be published in the Federal
Register.
2/21/51
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"(p) Defense Construction. - Terms different from
those prescribed by this regulation and the Supplement
thereto, to be applicable to specific new construction
necessary to the national defense, may be authorized in
areas designated by the Housing and Home Finance Administrator after concurrence by the Board and after surveys have been made by the Housing and Home Finance
Administrator with respect to the needs for such necessary construction within such areas. Such different
terms when so authorized will be applicable only to
such new construction as may be specified by the Housing
and Home Finance Administrator within such designated
areas and will be subject to such conditions as may be
prescribed by the Administrator after concurrence by
the Board."
It was understood that if the
amendment became effective letters
would be addressed to the Housing
and Home Finance Administrator concurring in the designations of the
Paducah and Savannah River areas as
defense areas.
Secretary's Note: Later in the
meeting, Mr. Benner reported that Mr.
Foley, Housing and Home Finance Administrator, felt that the requirement for
concurrence by the Board as contemplated
by the amendment would not be a workable
arrangement. It was agreed unanimously
that the matter should be considered
further at a later meeting of the Board
after Mr. Norton had had further discussions with Mr. Foley.
Mr. Evans stated that yesterday morning he had been asked to
COrrie
to Senator Robertson's office for the purpose of meeting with a
li(3111) of automobile dealers from the State of Virginia who requested
'
lelaxation of the terms of Regulation W, Consumer Credit.
He stated
that he informed the group that the pressure of the economic situation
g/21/51
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appeared to be for further tightening of the Regulation rather than
for relaxation, but that the Board was continuing to study the matter.
Mr. Solomon, Assistant General Counsel, joined the meeting
at this point.
Mr. Evans referred to the discussion at the meeting on February
15 of Mr. Phelan's memorandum dated February 14 with respect to leasing
arrangements under Regulation W and to the recommendations contained
in that memorandum, i.e., that the Board reaffirm the principle stated
in the Board's letter of December 11, 1950, and later published in the
Federal Register, to the effect that leasing arrangements other than
those limited to a single payment in general were subject to the Regulation, and that the Regulation be amended to exempt short-term rentals or leases that usually serve a seasonal or other temporary purpose
such as automobiles rented in resort communities or sewing machines
rented for special occasions. Following the February 15 meeting, Mr.
Phelan had prepared a further memorandum dated February 19 and Mr.
Solomon had prepared a momorandum setting forth the reasons for his
°Pinion that all instalment payment leases of listed articles were
subject to regulation by the Board under the consumer credit regulation.
Copies of these memoranda were sent to the members of the Board
before this meeting.
Mr. Evans stated that although the Board had agreed at the
it"ting on February 15 that both the Legal Division and the Solicitor's
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office should prepare briefs for circulation to the members of the
Board concerning the legal questions involved, Mr. Townsend, Solicitor,
had discussed the matter with him subsequently and stated that because
of his work on the Transamerica case, he did not know when he would
be able to complete a brief supporting the views he had expressed at
the meeting on February 15 to the effect that leases were not within the scope of RegulationlY under the terms of the law and Executive
Order No. 8843. Mr. Evans added that, on the basis of further discussions of the matter, he had assumed that no briefs would be prepared
Pursuant to the action at the meeting on February 15 and that he had •
instructed Mr. Townsend not to prepare one because he did not wish
him to take time from work connected with the Clayton Act proceeding
against Transamerica, particularly since Mr. Townsend was leaving this
week to go to the Wrest Coast in connection with an enforcement matter
on Regulation W where it was anticipated that an injunction proceeding
would be instituted against the Duke Randall Motors Co., San Pedro,
California, along lines similar to other recent proceedings in the
case of willful violations of the Regulation.
Mr. Eccles stated that he agreed that Mr. Townsend should not
be taken from his work on the Transamerica case to prepare a brief on
the leasing question and that he felt he should not spend time in conwith RegulatimlY enforcement matters unless they were of extl'enle importance, and Mr. Evans stated that some other arrangement
2/21/51
-7-
would be worked out so that Mr. Townsend would not need to make trips
such as the one mentioned.
Mr. Phelan then commented on the proposal with respect to
leasing arrangements contained in his memorandum of February 14,
stating that in view of publication of the Board's notice in the
Federal Register in December which said that the Board was studying
the matter, there was some uncertainty in the trade and among the
Reserve Banks as to whether all types of instalment payment leases
were subject to the Regulation, and that the matter should be clarified so that concerns which now felt they might not be subject to the
Regulation could determine their status.
Mr. Eccles suggested that, in the light of all available information, including the opinion of the Legal Division that the
Board had authority for regulating leasing arrangements, as well as
Mr. Townsend's opinion that it lacked authority to regulate certain
types of instalment leases, and, in view of the position previously
taken by the Board after careful consideration that leases were subject
to the Regulation, the best procedure would be to proceed on that
assumption and to issue the amendment to the Regulation along the
lines suggested by Mr. Phelan.
Mr. Evans stated that, inasmuch as the Solicitor of the Board
/1°11.1d have responsibility for enforcing the Regulation, he would preto determine at this time the question of the Board's authority as
419
V21/51
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raised by Mr. Townsend, and that perhaps the question should be
Presented to the Congress.
Following a further discussion,
during which the other members present
expressed the view that the Board should
reaffirm its present position and should
not take the matter up with the Congress
at this time, upon motion by Mr. Szymezak,
the recommendation contained in Mr.
Phelan's memorandum of February 14 was
approved, Mr. Evans voting "no".
To carry this action into effect,
the following amendment to Regulation 116
Consumer Credit, was approved effective
February 26, 1951, Mr. Evans voting "no".
"Effective February 261 1951, section 7 of Regulation
W is hereby amended by adding, at the end thereof after
the present subsection (k), a new subsection (1) reading
as follows:
"(1) Certain temporary rentals. - Any contract or
similar arrangement for the rental, leasing or bailment
of a listed article for a specified period of not more
than 3 months if (1) the transaction is to be terminated,
and the article returned to the Registrant, on or before
the expiration of the specified period, and (2) the transaction is not renewable and does not directly or indirectly relate to or involve any subsequent lease, use of, or
other interest in, the article or any similar article."
Approval was also given to the
following telegram to all Federal Reserve Bank presidents:
"(This telegram to all Reserve Bank Presidents also
being sent to Managing Officers of all Federal Reserve
Branches for their information.)
"The Board has today adopted Amendment No. 2 to
Regulation IV, effective February 26, 1951, and it will
be appreciated if you will print and distribute copies
to interested persons in your district.
(1)
2/21/51
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"The press statement which the Board has issued
for immediate release and the text of the amendment
are as follows:
"The Board of Governors of the Federal Reserve System has today adopted Amendment No. 2
to Regulation W--Consumer Credit, effective Monday, February 26, 1951. The amendment exempts
from the down payment and monthly payment requirements of Regulation W certain short-term,
non-renewable leases which neither extend beyond
three months nor involve a delivery in connection
with subsequent leasing or sale arrangements.
"Regulation Ws as reissued by the Board of
Governors effective September 18, 1950, prescribes
down payment and monthly payment requirements for
leasing arrangements, instalment sales, and other
instalment financing of automobiles, household
electrical appliances, furniture, major consumer
durable goods, and consumer instalment loans in
general. The amendment serves to relax the regulation with respect to certain seasonal and other
specialized short-term leases."
The following statement for
publication in the Federal Register
was also approved:
"(b) In 15 Federal Register 8856, December 14,
1950, sec. 222.126, relating to '"Rental" transactions',
the Board stated that it was examining further into the
characteristics of leasing arrangements and that it
would consider whether or not any such arrangements
were of such a special character as to make it desirable or feasible to relax any of the provisions of
Regulation W to any extent for their benefit; and to
aid in such examination and consideration, the Board
invited the submission to it of any relevant explanations, data or other information.
"This amendment was adopted by the Board after
consideration of all relevant matter,including that
presented to it pursuant to the abovementioned notice
in the Federal Register. Special circumstances rendered impracticable further consultation with industry
representatives, including trade association representatives, in the formulation of the above amendment,
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2/21/51
"especially in view of the relaxing nature thereof;
and, therefore, as authorized by section 709 of the
Defense Production Act of 19501 the amendment has
been issued without such further consultation. Section 709 of the Defense Production Act of 1950 provides that the functions exercised under such Act
shall be excluded from the operation of the Administrative Procedure Act (60 Stat. 237) except as to
the requirements of section 3 thereof."
Letter to Mr. Hodgkinson, Chairman, Federal Reserve Bank of
Boston, reading as follows:
"In accordance with your letter of February 5,
1951, the Board of Governors approves the appointment
of Mr. Joseph A. Erickson as President of the Federal
Reserve Bank of Boston and of Mr. Alfred C. Neal as
First Vice President of the Federal Reserve Bank of
Boston for terms of five years beginning March 1, 1951.
"The Board has taken no action on your proposal
that the present salary limits for the President and
First Vice President be increased to $35,000 and
$20,000 per annum, respectively. Consideration of
these proposed adjustments must await clarification
of the regulations which have been issued by the Wage
Stabilization Board; and, in addition, will have to
take into account other aspects of the general problem,
including those which have been considered by the
Board in the past and with which you are familiar*
"The Board does approve the payment of salary to
Mr. Erickson at the rate of $25,000 per annum for the
period March 11 19511 through April 30, 19521 provided
this rate is fixed by the board of directors. With
respect to Mr. Nealfs compensation, the Board feels,
as it has in the past, that the initial salary of a
new appointee to the First Vice Presidency should not
be set at the maximum salary for the position, which
currently is $18,000. The Board wishes to adhere to
the policy in this case. The Board does approve,
however, the payment of salary to Mr. Neal at the
rate of $161000 per annum for the period March 11 19511
through April 301 1952, provided this rate is fixed
by your board of directors."
Approved unanimously.
711-2710
2/21/51
-11Mr. Szymczak referred to a memorandum which Mr. Vardaman
sent to the members of the Board under date of February 21 1951,
stating that he understood that assignments of the members of the
Board would be reviewed early next month and requesting that the
Personnel Committee have the question placed on the agenda for
consideration by the Board at some convenient date before March 1.
Mr. Szymczak went on to say that when present assignments of Board
members were approved on September 12, 1950, it was agreed that
they would be reviewed in February of every other year or whenever
there was a change in the membership of the Board, and therefore
there would be no purpose in discussing Mr. Vardaman's memorandum
at this time.
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 the meeting of the Board of Governors of the Federal
Reserve System with the Federal Advisory Council held on February 20,
1951, were approved unanimously.
Minutes of actions taken by the Board of Governors of thfJ
Federal Reoerve System on February 20) 1951, were approved unanimously.
Memorandum dated February 19, 1951, from Mr. Botheal Director
Of the Division of Administrative Services, recommending increases
41-.
)
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2/21/51
in the basic annual salaries of the following employees in that
Division, effective March
4, 1951:
Salary Increase
From
To
Title
03,275
$3,775
Clerk
3,380
Assistant Foreman of 3,300
Laborers (N.)
Name
Mrs. Ileen C. Shephard
Percy C. Riston
Approved unanimously.
Memorandum dated February 19, 1951, from Mr. Powell,
recommending an increase in the basic salary of Michael L. Jamison,
messenger in Mr. Powell's office, from $2,770 to $2,850 per annum,
effective March
4, 1951.
Approved unanimously.
Letter to Mr. Gilbert, President of the Federal Reserve
Bank of Dallas, reading as follows:
'The Board of Governors approves the reappointments of Messrs. Charles R. Moore, 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, 1951, 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
lh, 1951.
line members of the Board of Governors sincerely
regret to learn from your telegram of February 19 of
the death of Mr. E. P. Simmons, who had been appointed
a member of the Industrial Advisory Committee, and it
will be appreciated if you will extend the Board's
deepest sympathy to Mr. Simmons' family.
It is noted from the telegram that you will request your Board of Directors to appoint a successor
to Mr. Simmons at its meeting next month."
Approved unanimously. ,
2/21/51
-13Letter to Mr. Wilbur, Chairman of the Federal Reserve Bank
of San Francisco, reading as follows:
"Reference is made to your letter of January 233
1951, requesting the Board's approval of certain salary
increases for members of the official staff at the Head
Office and Branches.
wAhile it has been the intention of the Board to
review all officers' salaries, except those of the President and First Vice President, in advance of the usual
time, General Regulation No. 5 issued by the Wage Stabilization Board specifies that merit and/or length-ofservice increases may be made only at the time salaries
would 'normally be reviewed'. Since it has been customary for the Board to consider the salaries of your officers
in April of each year to be effective May 1, it appears
that it will be necessary for the Board to defer consideration of adjustments for senior officers and for
Mr. Bold until April.
"Since the policy of reviewing the salaries of
junior officers whose current rates of compensation are
within the range of the employees' salary structure was
actually established prior to the effective date of the
Government order regulating salaries such officers may
receive salary increases immediately. Accordingly, the
Board approves the payment of salary to the following
officers at the rates indicated for the period beginning
January 1, 1951, through April 30, 1952:
Annual Salary
Title
Name
President
-0
Vice
4-91 0
Assistant
R. E. Everson
President
9,000
Vice
Assistant
R. H. Morrill
9,500
Assistant Vice President
E. J. Swan
7,000
Cashier
J. L. Barbonchielli Assistant
Cashier
7,500
Assistant
T. N. Barrett
7,500
Assistant Cashier
H. E. Hemmings
7,500
Assistant Cashier
R. C. Milliken
7,000
Assistant Cashier
G. D. Parker
Los Angeles Branch
6,800
Assistant Manager
J. R. Robinson
9,500
Assistant Manager
C. H. Watkins
Portland Branch
10,000
Assistant Manager
J. A. Randall
6,500
Manager
Assistant
J. P. Blanchard
2/21/51
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E. R. Barglebaugh
0. H. Barnard
A. L. Price
B. A. Russell
W. R. Sandstrom
D. E. Simms
Salt Lake City Branch
Assistant Manager
Assistant Manager
Assistant Manager
Seattle Branch
Assistant Manager
Assistant Manager
Assistant Manager
$815oo
7,500
6,500
9,500
7,000
8,000"
Approved unanimously.
Letter to Honorable E. C. Gathings, House of Representatives,
Washington, D. C., reading as follows:
"A copy of the letter from Mr. J. M. Scoggins,
Manager, Phillips County Chamber of Commerce, Helena,
Arkansas, dated February 9, and a copy of the enclosure
have been forwarded to the Federal Reserve Bank of St.
Louis (together with a copy of your letter of February
13 to the Board) with a request that the Bank conduct
an investigation of the operations under RegulationW
of the Arkansas Home Building and Repairing Company,
Little Rock, Arkansas.
"We shall be glad to write you further upon receipt of a report from the Federal Reserve Bank of St.
Louis. As requested in your letter, we are returning
Mr. Scogginst letter and enclosure to you."
Approved unanimously.
Letter to Mr. Irving S. Michelman, Vice President, Security
inance
Company, Inc., 475 Fifth Avenue, New York 17, New York,
l'eading as follows:
"This refers to your letter of February 19 and
telephone conversation with our Mr. Heath regarding
a possible policy of the Board of Governors with
respect to increases in the number of consumer credit
facilities.
"As stated by Mr. Heath in the telephone conversation, the Board of Governors approaches the problem of
2/21/51
"restricting the expansion of consumer credit from
the standpoint of volume outstanding rather than the
number of consumer financing agencies or facilities.
"You understand, of course, that through its
Regulation W the Board expects to restrict the amount
of consumer credit. This restriction may have the
effect of discouraging certain consumer credit agencies
from expanding their facilities at this time but this
is a matter for each financing agency to decide for
itself."
Approved unanimously.
Letter to Mr. Schlaikjer, Vice President and General Counsel
of the Federal Reserve Bank of Boston, reading as follows:
"Thank you for your letter of February 91 19511
concerning the question of major additions and major
improvements under Regulation X. We are glad to have
the views of your Real Estate Advisory Committee in
this matter because it is one which we also have been
considering for some time.
"The experience of World War II suggests that as
new construction is curtailed, activity and inflation
in the market for existing structures will increase.
To be completely effective, therefore, credit regulations should apply to existing as well as new structures. This, of course, would require an amendment to
the Defense Production Act, but in the absence of such
an amendment there is something to be said for covering
as large a segment of the existing market as is possible
pursuant to our statutory authority which, as you know,
defines 'real estate construction credit' as including
certain credit with respect to 'real property on which
there is new constructiont.
"On the other hand, we share your Committee's
concern about the problems which such a definition
raises. As the effective date of the regulation becomes more remote, it may well prove necessary to make
an amendment or interpretation along the lines you
suggested. Of course, it is possible that the statute
may be amended so that it will be possible to include
all existing structures within the scope of the regulation. The President recommended such an amendment in
his recent report to the Congress.
("7
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2/21/51
"Please convey to your Committee the Board's
appreciation for this expression of their views."'
Approved unanimously.
Telegram for the signature of Mr. Phelan, Acting Director
of the Division of Selective Credit Regulation) to the Officers in
charge of Regulation X at each Federal Reserve Bank, reading as
follows:
"Several inquiries have been received requesting
interpretations of the phrase 'actual date such credit
is extended' in section 6(i) of Regulation X, as amended. It has been called to our attention that some
lenders are interpreting this phrase to mean, among
other things, (1) the date of the note or other credit
instrument evidencing the credit extended, (2) the
date of the first disbursement of funds to the borrower,
(3) the closing date in the case of a sale, (4) the date
from which interest is payable, and (5) the date the
mortgage or other lien is recorded. We do not feel
that it is administratively possible to prescribe a
specific rule which would be fairly applicable to all
of the great variety of financing arrangements affected
by the regulation. Furthermore, it would be most difficult to prescribe a rule which could not be easily
evaded by changing the financing arrangements. However,
it is necessary to have some general rule which may be
folloxed, and the Board would like if possible to issue
a general interpretation. We wish to emphasize that
this proposal is merely one which is under consideration
here at this time. We would like very much to have
your comments as to whether the proposed ruling is in
your view a generally desirable one and also whether
it would be in general conformity with the practices
in the trade. We would appreciate receiving your
comments by wire by the afternoon of Tuesday, February 27. The text of the proposed interpretation is
as follows:
"Many types of credit extensions are subject to
Regulation Xy and it is administratively impossible
to prescribe a specific rule which would be fairly
2/21/51
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"
applicable to all types of financing arrangements
affected by the regulation. However, the general
rule to be followed in most extensions of credit
affected by the regulation is that the 'actual date
such credit is extended' is that date which is (1)
the date on which the lender first disburses funds
to, or makes funds available to the account of,
the borrower, or (2) the date of the note or other
credit :instrument evidencing the credit extended,
whichever shall last occur."
Approved unanimously.
Letter to Honorable Charles E. Wilson, Director, Office
of Defense Mobilization, Washington 25, D. C., reading as follows:
"As requested in your memorandum of February 61
addressed to Chairman McCabe, there is enclosed herewith a copy of the report covering the first half of
February which has been submitted to the Joint Committee on Defense Production relative to the Board's
activities under the Defense Production Act of 1950.11
Approved unanimously.
Memorandum dated February 14, 1951, from Mr. Townsend,
Solicitor, recommending that the Board approve the payment of $7.14
for expenses incurred by the United States Marshal in serving the
judgment in the Regulation iff case in Beloit, Nisconsin and recommending that the Board authorize the Solicitor's Office to approve
for payment future bills of this kind as well as court costs, witness
fees) reporting costs, and such other ordinary expenses in reasonable
amounts in connection with Regulation N investigations and court
Proceedings.
Approved unanimously.
@FedFRASER